ARK FUNDS/MA, 485APOS, 1996-02-23

ARK FUNDS/MA
485APOS, 1996-02-23

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<PAGE> 1

As filed with the Securities and Exchange Commission on February__, 1996

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ x ]
File No. 33-53690

Pre-Effective Amendment No. [ ]

Post-Effective Amendment No. 7 [ x ]

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ x ]
File No. 811-7310

Amendment No. 5 [ x ]

ARK Funds
(Exact Name of Registrant as Specified in Charter)

CT Corporation, 2 Oliver Street, Boston, MA 02109
(Address of Principal Executive Office)

Registrant's Telephone Number
610-254-1000

Mr. Richard J. Shoch
Vice President and Secretary
ARK Funds
680 East Swedesford Road
Wayne, PA 19087
(Name and Address of Agent for Service)

Copies to:
Alan C. Porter, Esq.
Piper & Marbury, L.L.P.
1200 Nineteenth St., N.W.
Washington, D.C. 20036

It is proposed that this filing will become effective:

( ) Immediately upon filing pursuant to paragraph (b) of Rule 485
( ) On ( ) pursuant to paragraph (b) of Rule 485
( ) 60 days after filing pursuant to paragraph (a)(i)
( ) On (April _, 1995) pursuant to paragraph (a)(ii)
(x) 75 days after filing pursuant to paragraph (a)(ii)
( ) On (_________, 1996) pursuant to paragraph (a)(iii) of Rule 485.

The Registrant hereby elects to register an indefinite number of shares of
beneficial interest of its U.S. Treasury Money Market Portfolio, U.S. Government
Money Market Portfolio, Money Market Portfolio, Tax-Free Money Market Portfolio,
Short-Term Treasury Portfolio, Income Portfolio, Growth and Income Portfolio,
Blue Chip Equity Portfolio, Capital Growth Portfolio, International Equity
Portfolio, Special Equity Portfolio, and Maryland Tax-Free Portfolio pursuant to
Rule 24f-2 under the Investment Company Act of 1940. The Registrant has
previously elected to register an indefinite number of shares. The Rule 24f-2
Notice for the Registrant's most recent fiscal year was filed on June 30, 1995.

Page 1 of

ARK FUNDS

CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 7

Page

Facing Sheet
<PAGE> 2

Table of Contents

Part A Cross Reference Sheet for Institutional Class

Prospectus for Institutional Class

Part A Cross Reference Sheet for Institutional II Class

Prospectus for Institutional II Class

Part A Cross Reference Sheet for Retail Class

Prospectus for Retail Class

Part B Cross Reference Sheet for Institutional Class and Institutional II Class

Statement of Additional Information for Institutional Class and Institutional II
Class

Part B Cross Reference Sheet for Retail Class

Statement of Additional Information for Retail Class

Part C

Signature Page

Exhibit Index

ARK FUNDS: INSTITUTIONAL CLASS

U.S. TREASURY MONEY MARKET PORTFOLIO
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
MONEY MARKET PORTFOLIO
TAX-FREE MONEY MARKET PORTFOLIO
SHORT-TERM TREASURY PORTFOLIO
INCOME PORTFOLIO
GROWTH AND INCOME PORTFOLIO
BLUE CHIP EQUITY PORTFOLIO
CAPITAL GROWTH PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIO
SPECIAL EQUITY PORTFOLIO
MARYLAND TAX-FREE PORTFOLIO

CROSS REFERENCE SHEET

Form N-1A Item Number

Part A Prospectus Caption

1 ......................... Cover Page
2 ......................... Summary of Portfolio Expenses
3 a,b...................... Financial Highlights
c........................ Performance
4 a(i)..................... General Information
a(ii),b,c................ Investment Objectives, Policies
and Risk Considerations

5 a,b,c,d,e,f.............. Management of the Fund
g........................ Portfolio Transactions and Valuation
5A *
6 a........................ General Information
b,c,d.................... *
e........................ General Information
f,g...................... Portfolio Transactions and Valuations,
Tax Matters
h........................ General Information
7 a........................ Purchases, Exchanges and Redemptions
b(i),(ii)................ Portfolio Transactions and Valuations
b(iii,iv,v),c............ *
d........................ Purchases, Exchanges and Redemptions
e, f(i),(ii)............. Management of the Fund
f(iii)................... *
8 ......................... Purchases, Exchanges and Redemptions
9 ......................... *

* Not Applicable
<PAGE> 3
[LOGO]

THE ARK
FUNDS

[LOGO]

INSTITUTIONAL CLASS
PROSPECTUS
<PAGE> 4

ARK FUNDS -- INSTITUTIONAL CLASS
- --------------------------------------------------------------------------------
PROSPECTUS
, 1996
- --------------------------------------------------------------------------------

ARK Funds (the "Fund") is a registered open-end management investment company
that offers eleven diversified investment portfolios and one non-diversified
investment portfolio. These twelve investment portfolios encompass a selection
of money market, fixed-income, equity and international portfolios (the
"Portfolios"). The First National Bank of Maryland ("First Maryland") serves as
investment advisor to the Portfolios, with the exception of International Equity
Portfolio, which is advised by AIB Investment Managers Limited ("AIB I.M."), an
affiliate of First Maryland.

Shares of the Institutional Class of each of the Portfolios (the "Shares") are
offered through this Prospectus. The Shares are offered only to individuals,
institutions and other entities that have established trust, custodial or money
management relationships with First Maryland or its affiliated banks (including
Allied Irish Banks, p.l.c. and its affiliates) or correspondent banks of First
Maryland or their affiliated banks. Investments in the Shares are made at net
asset value without a sales charge. A brief description of each Portfolio
follows.

U.S. TREASURY MONEY MARKET PORTFOLIO, U.S. GOVERNMENT MONEY MARKET PORTFOLIO,
AND MONEY MARKET PORTFOLIO each seek to maximize current income and provide
liquidity and security of principal. Each Portfolio seeks to maintain a constant
net asset value per share of $1.00.

TAX-FREE MONEY MARKET PORTFOLIO seeks to provide a high level of interest
income, exempt from federal income taxes, as is consistent with a portfolio of
high quality, short-term municipal obligations selected on the basis of
liquidity and stability of principal. This Portfolio seeks to maintain a
constant net asset value per share of $1.00.

An investment in a money market Portfolio is neither insured nor guaranteed by
the U.S. government. There can be no assurance that any money market Portfolio
will maintain a stable net asset value per share of $1.00.

SHORT-TERM TREASURY PORTFOLIO seeks to provide current income, with a secondary
objective of stability of principal, by investing in instruments which are
issued or guaranteed as to principal and interest by the U.S. government, with a
secondary objective of stability of principal.

INCOME PORTFOLIO seeks to provide a high level of current income with a
secondary objective of capital growth, consistent with reasonable risk, by
investing primarily in a broad range of fixed-income securities within the
standards of quality and maturity prescribed.

GROWTH AND INCOME PORTFOLIO seeks to achieve long-term total returns from both
capital appreciation and current income by investing in a broad range of stocks,
bonds, and cash equivalents.

BLUE CHIP EQUITY PORTFOLIO seeks to achieve long-term capital appreciation by
investing primarily in equity securities of established, large capitalization
companies.

CAPITAL GROWTH PORTFOLIO seeks to achieve long-term capital appreciation by
investing primarily in common stock and securities convertible into common
stock.

INTERNATIONAL EQUITY PORTFOLIO seeks to achieve long-term capital growth and to
maximize total returns by investing primarily in foreign equity securities.

SPECIAL EQUITY PORTFOLIO seeks to achieve capital appreciation by investing
primarily in securities of companies believed by First Maryland to be "special
equities." "Special equities" include equity securities of: (1) a company with a
market capitalization of $1.2 billion or less at the time of the Portfolio's
investment and deemed by the Portfolio manager to have above average growth
potential; or (2) a company experiencing a "special situation"; that is, an
unusual and possibly non-repetitive development taking place in that company.

MARYLAND TAX-FREE PORTFOLIO seeks to achieve high current income that is free
from federal income tax and the Maryland state and county income taxes by
investing primarily in municipal securities.

This Prospectus is designed to provide investors with information that they
should know before investing. Please read and retain this document for future
reference. A Statement of Additional Information (SAI) (dated , 1996)
and the Financial Statements (including portfolio listing) for the fiscal period
ended April 30, 1995 and the semi-annual period ended October 31, 1995 have been
filed with the Securities and Exchange Commission ("SEC") and are incorporated
herein by reference. This Statement and the Annual Report and Semi-Annual Report
are available upon request without charge by calling 1-800-624-4116.

SHARES OF ARK FUNDS ARE NOT DEPOSITS, OTHER OBLIGATIONS OF OR GUARANTEED BY THE
BANK OR ANY DEPOSITARY INSTITUTION; THEY ARE NOT INSURED BY THE FDIC, THE
FEDERAL RESERVE BOARD OR ANY OTHER AGENCY; AND THEY ARE SUBJECT TO INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.

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

<TABLE>
<S> <C>
Summary of Portfolio Expenses.......................... 2
Financial Highlights................................... 4
Investment Objectives, Policies and Risk
Considerations........................................ 8
Performance............................................ 21
Portfolio Transactions and Valuation................... 22
Purchases, Exchanges and Redemptions................... 24
Management of the Fund................................. 28
Banking Law Matters.................................... 31
Tax Matters............................................ 32
General Information.................................... 35
Appendix............................................... 35
</TABLE>

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE> 5

SUMMARY OF PORTFOLIO EXPENSES
- --------------------------------------------------------------------------------

The expense summary format below was developed for use by all mutual funds
to help investors make their investment decisions. Investors should consider
this expense information along with other important information, including each
Portfolio's investment objectives, performance (if any) and financial
highlights.

A. ANNUAL INSTITUTIONAL CLASS OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET
ASSETS):
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
TOTAL
ADVISORY OTHER OPERATING
FEE EXPENSES EXPENSES
-------- -------- ---------
<S> <C> <C> <C>
U.S. Treasury Money Market Portfolio....................... .19%* .18% .37%*
U.S. Government Money Market Portfolio..................... .14%* .18% .32%*
Money Market Portfolio..................................... .10%* .15%* .25%*
Tax-Free Money Market Portfolio............................ .08%* .14%* .22%*
Short-Term Treasury Portfolio.............................. .30%* .25% .55%*
Income Portfolio........................................... .50% .24% .74%
Growth and Income Portfolio................................ .55% .22% .77%
Blue Chip Equity Portfolio................................. .00* .65%* .65%*
Capital Growth Portfolio................................... .00*** .25% .25%*
International Equity Portfolio............................. .56%* .99% 1.55%**
Special Equity Portfolio................................... .60% .34% .94%
Maryland Tax-Free Portfolio (1)............................ .50% .24% .74%
</TABLE>

* After applicable waivers.

** This figure reflects the 1.55% cap for International Equity Portfolio. See
Note A below.

*** The .60% advisory fee for Capital Growth Portfolio has been waived through
the end of 1996.

(1) This Portfolio's Institutional Class has not commenced operations as of the
date of this Prospectus.

2
<PAGE> 6

B. EXAMPLE: An investor would pay the following expenses on a $1,000 investment
in the Shares, assuming (1) 5% annual return, (2) redemption at the end of
each time period and (3) fee waivers continue at the same levels for each
time period.
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
U.S. Treasury Money Market Portfolio.................. $ 4 $12 $21 $ 47
U.S. Government Money Market Portfolio................ 3 10 18 41
Money Market Portfolio................................ 3 8 14 32
Tax-Free Money Market Portfolio....................... 2 7 12 28
Short-Term Treasury Portfolio......................... 6 18 31 69
Income Portfolio...................................... 8 24 41 92
Growth and Income Portfolio........................... 8 25 43 95
Blue Chip Equity Portfolio............................ 7 21 36 81
Capital Growth Portfolio.............................. 3 8 14 32
International Equity Portfolio........................ 16 49 84 185
Special Equity Portfolio.............................. 10 30 52 115
Maryland Tax-Free Portfolio........................... 8 24 41 92
</TABLE>

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

EXPLANATION OF TABLE: The purpose of the table is to assist investors in
understanding the various costs and expenses that an investor in the Shares
would bear directly or indirectly as a result of an investment in the Shares.
(For a more complete discussion of the various costs and expenses, see
"Management of the Fund.") As more fully described under the heading "Purchases,
Exchanges and Redemptions," the Shares are currently available only to clients
of First Maryland or its affiliated banks who have established trust, custodial
or money management relationships with First Maryland, its affiliated banks
(including Allied Irish Banks, p.l.c. and its affiliates) or correspondent banks
of First Maryland or their affiliated banks. Such relationships may involve the
payment of account or service fees not reflected in the table above.

A. ANNUAL OPERATING EXPENSES are based on the Institutional Class'
estimated expenses for the year. Advisory Fees are paid by each Portfolio to
First Maryland or AIB I.M. (in the case of International Equity Portfolio) for
managing its investments. The Institutional Class incurs other expenses for
certain administrative services such as maintaining shareholder records,
furnishing shareholder statements and reports, and for other services.

AIB I.M. has voluntarily agreed to waive its advisory fee or reimburse
other expenses of International Equity Portfolio in order to limit its total
expense ratio to 1.55% of the Portfolio's average daily net assets, subject to
annual review and termination by AIB I.M. Had AIB I.M. not agreed to limit the
Portfolio's expenses, the Advisory Fee, Other Expenses, and Total Operating
Expenses for International Equity Portfolio would have been .80%, .99%, and
1.79%, respectively. See "Investment Advisors" for further information.

First Maryland has voluntarily agreed to waive 0.6% of its advisory fees
for U.S. Treasury Money Market Portfolio, .11% of its advisory fee for U.S.
Government Money market Portfolio, .15% of its advisory fee for Money Market
Portfolio, .17% of its advisory fee for Tax-Free Money Market Portfolio, .05% of
its advisory fee for Short-Term Treasury Portfolio, .60% of its advisory fee for
Blue Chip Equity Portfolio and .60% of its advisory fee for Capital Growth
Portfolio. SEI Financial

3
<PAGE> 7

Management Corporation has voluntarily agreed to waive .018% of its
administration fee for Money Market Portfolio and .033% of its administration
fee for Tax-Free Money Market Portfolio and .13% of its administration fee for
Blue Chip Equity Portfolio. There can be no assurance that fee and expense
waivers will continue at the stated levels or otherwise during the current
fiscal year. Expenses eligible for waiver do not include interest, taxes,
brokerage commissions (if any), or extraordinary expenses. Absent such waivers,
Advisory Fees, Other Expenses and Total Operating Expenses would have been:
.25%, .18% and .43% (U.S. Treasury Money Market Portfolio); .25%, .18% and .43%
(U.S. Government Money Market Portfolio); .25%, .17% and .42% (Money Market
Portfolio); .25%, .17% and .42% (Tax-Free Money Market Portfolio); .35%, .25%
and .60% (Short-Term Portfolio); .60%, .78% and 1.38% (Blue Chip Equity
Portfolio); and .60%, .25% and .85% (Capital Growth Portfolio).

Advisory Fees and Other Expenses are reflected in share prices of or
dividends on the Institutional Class of each Portfolio and are not charged
directly to individual shareholder accounts.

B. EXAMPLE. The Example assumes that all dividends and distributions are
reinvested and that the amounts listed under "Annual Institutional Class
Operating Expenses" remain the same in the years shown. The Example should not
be considered a representation of past or future expenses and actual expenses
may be greater or less than those shown.

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

The following tables provide information about the financial history of the
Institutional Class of each Portfolio, except for Short-Term Treasury Portfolio
and Blue Chip Equity Portfolio, the Institutional Classes of which are expected
to commence operations on or about the date of this Prospectus, and Special
Equity Portfolio and Maryland Tax-Free Portfolio, the Institutional Classes of
which have not yet commenced operations as of the date of this Prospectus. These
tables express the information in terms of a single share outstanding throughout
the period. The data for the fiscal period ended April 30, 1995 has been audited
by KPMG Peat Marwick L.L.P., independent accountants for the Fund. Their report
on the financial statement and financial highlights is included in the Annual
Report, which is incorporated by reference into the Statement of Additional
Information. The data for the fiscal period ended October 31, 1995 is unaudited.

4
<PAGE> 8

<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO TAX-FREE MONEY MARKET PORTFOLIO
----------------------------------------------------- -----------------------------------------------------
Institutional Class Institutional Class
----------------------------------------------------- -----------------------------------------------------
Six months ended Period from Six months ended Period from
October 31, 1995 Year ended June 14, 1994** October 31, 1995 Year ended June 14, 1993**
(Unaudited) April 30, 1995 to April 30, 1994 (Unaudited) April 30, 1995 to April 30, 1994
---------------- -------------- ----------------- ---------------- -------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE
DATA
Net asset value,
beginning of
period............. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------------- -------- ------- ------- -------
Income from
investment
operations:
Net interest
income............. 0.029 0.050 0.028 0.019 0.032 0.019
Distributions:
Net interest
income............. (0.029) (0.050) (0.028) (0.019) (0.032) (0.019)
-------- -------------- -------- ------- ------- -------
Net asset value, end
of period.......... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 1.000
======== ============== ========= ======== ======== =======
TOTAL RETURN........ 2.98%+# 5.13%+ 2.80%+# 1.87%+# 3.24%+ 1.87%+#
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
period
(thousands)........ $309,552 $277,859 $ 197,162 $ 89,107 $ 64,112 $66,692
Ratio of expenses to
average daily net
assets(1).......... 0.25%* 0.20% 0.26%* 0.23%* 0.22% 0.35%*
Ratio of net
interest income to
average daily net
assets............. 5.82%* 5.13% 3.16%* 3.64%* 3.21% 2.10%*
- ---------------
(1) During the
period, certain
fees were
voluntarily
waived. The
ratio of
expenses to
average daily
net assets had
such waivers not
occurred is as
follows:........ 0.46%* 0.46% 0.52%* 0.48%* 0.47% 0.53%*
</TABLE>

<TABLE>
<CAPTION>
INCOME PORTFOLIO GROWTH AND INCOME PORTFOLIO
----------------------------------------------------- -----------------------------------------------------
Institutional Class Institutional Class
----------------------------------------------------- -----------------------------------------------------
Six months ended Period from Six months ended Period from
October 31, 1995 Year ended July 19, 1993** October 31, 1995 Year ended June 14, 1993**
(Unaudited) April 30, 1995 to April 30, 1994 (Unaudited) April 30, 1995 to April 30, 1994
---------------- -------------- ----------------- ---------------- -------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE
DATA
Net asset value,
beginning of
period............. $ 9.60 $ 9.61 $ 10.00 $ 10.04 $ 10.16 $ 10.00
------- ------- ------- ------- ------- -------
Income from
investment
operations:
Net interest
income............. 0.36 0.58 0.38 0.21 0.33 0.19
Net realized and
unrealized gain
(loss) on
investments........ 0.44 0.02 (0.38) 0.91 0.03 0.17
------- ------- ------- ------- ------- -------
Total from
investment
operations......... 0.80 0.60 0.00 1.12 0.36 0.36
------- ------- ------- ------- ------- -------
Distributions:
Net interest
income............. (0.35) (0.58) (0.38) (0.22) (0.29) (0.19)
Net realized gain... 0.00 (0.03) (0.01) 0.00 (0.19) (0.01)
------- ------- ------- ------- ------- -------
Total
distributions...... (0.35) (0.61) (0.39) (0.22) (0.48) (0.20)
------- ------- ------- ------- ------- -------
Net asset value, end
of period.......... $ 10.05 $ 9.60 $ 9.61 $ 10.94 $ 10.04 $ 10.16
======= ======= ======= ======= ======= =======
TOTAL RETURN........ 8.53%# 6.53% (0.08)%# 11.09%# 3.75% 3.56%#
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
period
(thousands)........ $ 88,070 $ 66,441 $ 54,289 $100,308 $ 91,039 $88,208
Ratio of expenses to
average daily net
assets............. 0.73%* 0.74% 0.77%* 0.77%* 0.77% 0.81%*
Ratio of net
interest income to
average daily net
assets............. 7.12%* 6.15% 4.90%* 3.86%* 3.32% 2.41%*
Portfolio turnover
rate............... 76%* 73% 20%* 116%* 81% 37%*
</TABLE>

5
<PAGE> 9

<TABLE>
<CAPTION>
U.S. TREASURY MONEY MARKET PORTFOLIO U.S. GOVERNMENT MONEY MARKET PORTFOLIO
----------------------------------------------------- -----------------------------------------------------
Institutional Class Institutional Class
----------------------------------------------------- -----------------------------------------------------
Six months ended Period from Six months ended Period from
October 31, 1995 Year ended June 14, 1993** October 31, 1995 Year ended June 14, 1993**
(Unaudited) April 30, 1995 to April 30, 1994 (Unaudited) April 30, 1995 to April 30, 1994
---------------- -------------- ----------------- ---------------- -------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE
DATA
Net asset value,
beginning of
period............. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------------- -------- -------- -------------- --------
Income from
investment
operations:
Net interest
income............. 0.027 0.045 0.025 0.029 0.049 0.027
Distributions:
Net interest
income............. (0.027) (0.045) (0.025) (0.029) (0.049) (0.027)
-------- -------------- -------- -------- -------------- --------
Net asset value, end
of period.......... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 1.000
========= =============== ======== ======== ============== ========
TOTAL RETURN........ 2.73%+# 4.60%+ 2.48%+# 2.90%+# 5.00%+ 2.70%+#
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
period
(thousands)........ $258,329 $221,069 $ 138,826 $796,940 $651,113 $ 271,437
Ratio of expenses to
average daily net
assets(1).......... 0.35%* 0.38% 0.43%* 0.29%* 0.25% 0.35%*
Ratio of net
interest income to
average daily net
assets............. 5.37%* 4.59% 2.80%* 5.68%* 5.09% 3.03%*
- ---------------
(1) During the
period, certain
fees were
voluntarily
waived. The
ratio of
expenses to
average daily
net assets had
such waivers not
occurred is as
follows:........ 0.45%* 0.47% 0.51%* 0.45%* 0.47% 0.62%*
</TABLE>

<TABLE>
<CAPTION>
CAPITAL GROWTH PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO
------------------------------------------------------- --------------------------------------
Institutional Class Institutional Class
------------------------------------------------------- --------------------------------------
Six months ended Period from Six months ended Period from
October 31, 1995 Year ended July 19, 1993** October 31, 1995 December 30, 1994**
(Unaudited) April 30, 1995 to April 30, 1994 (Unaudited) to April 30, 1995
---------------- -------------- ------------------- ---------------- -------------------
<S> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of
period.......................... $ 10.20 $ 10.19 $ 10.00 $10.13 $ 10.00
------- ------- ------- ------ ------
Income from investment
operations:
Net investment income............ 0.07 0.14 0.06 0.03 0.03
Net realized and unrealized gain
on investments.................. 0.68 0.16 0.21 0.18 0.10
------- ------- ------- ------ ------
Total from investment
operations...................... 0.75 0.30 0.27 0.21 0.13
------- ------- ------- ------ ------
Distributions:
Net investment income............ (0.06) (0.11) (0.03) (0.03) --
Net realized gain................ (0.01) (0.18) (0.05) -- --
------- ------- ------- ------ ------
Total Distributions.............. (0.07) (0.29) (0.08) -- --
Net asset value, end of period... $ 10.88 $ 10.20 $ 10.19 $10.31 $ 10.13
======== ======= ======= ====== =======
TOTAL RETURN..................... 7.13%+# 3.15%+ 2.66%+# 1.78%+# 1.30%+#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(thousands)..................... $ 44,355 $ 41,170 $52,233 $3,152 $ 2,940
Ratio of expenses to average
daily net assets(1)............. 0.26%* 0.74% 0.87%* 1.55%* 1.55%*
Ratio of net interest income to
average daily net assets........ 1.31%* 1.35% 0.78%* 0.55%* 0.97%*
Portfolio turnover rate.......... 733%* 182% 41%* 42%* 2%*
- ---------------
(1) During the period, certain
fees were voluntarily waived.
The ratio of expenses to
average daily net assets had
such waivers not occurred is
as follows:.................. 0.86%* 0.85% 0.87%* 3.23%* 5.35%*
</TABLE>

6
<PAGE> 10

<TABLE>
<CAPTION>
SPECIAL EQUITY PORTFOLIO
-------------------------
Institutional Class
-------------------------
Period from
July 13, 1995**
to October 31, 1995
(Unaudited)
-------------------------
<S> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period.................................................................. $ 10.00
-------
Income from investment operations:
Net investment income................................................................................. 0.01
Net realized and unrealized gain on investments....................................................... 1.12
-------
Total from investment operations...................................................................... 1.13
-------
Net asset value, end of period........................................................................ $ 11.13
=======
TOTAL RETURN.......................................................................................... 11.30%#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands)................................................................. $ 8,029
Ratio of expenses to average daily net assets......................................................... 1.25%*
Ratio of net investment income to average daily net assets............................................ 0.60%*
Portfolio turnover rate............................................................................... 737%*
- ---------------
* Annualized
** Commencement of operations
+ Total return does not include the one time sales charge for the
Retail Class.
Total return would have been lower had certain expenses not
been reimbursed during the period.
# Total return for periods of less than one year are not
annualized.
</TABLE>

7
<PAGE> 11

INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS
- --------------------------------------------------------------------------------

The Fund currently consists of twelve investment Portfolios with a variety
of investment objectives and policies. First Maryland or AIB I.M. (in the case
of International Equity Portfolio) provides a continuous investment program in
accordance with each Portfolio's investment objective and policies. Except for
each Portfolio's investment objective and those policies identified as
fundamental, each Portfolio's policies are not fundamental. Non-fundamental
policies may be changed without shareholder approval. Further information
relating to the types of securities in which each Portfolio may invest and the
investment policies of each Portfolio in general is set forth in the Appendix to
this Prospectus. As is the case with any investment in securities, an investment
in a Portfolio involves certain risks and there can be no assurance a Portfolio
will achieve its investment objective. Each Portfolio can use various techniques
to manage its investment exposure. These techniques may involve derivative
transactions. By itself, no one Portfolio constitutes a balanced investment
plan. From time to time, a Portfolio, to the extent consistent with its
investment objective, policies, restrictions and applicable law, may invest in
securities of companies with which First Maryland and/or its affiliates has a
lending relationship. The lending relationship will not be a factor in the
selection of securities.

U.S. TREASURY MONEY MARKET PORTFOLIO, U.S. GOVERNMENT MONEY MARKET
PORTFOLIO, MONEY MARKET PORTFOLIO AND TAX-FREE MONEY MARKET PORTFOLIO (THE "ARK
MONEY MARKET PORTFOLIOS") each seek to maximize current income and provide
liquidity and security of principal by investing in high-quality, short-term,
U.S. dollar-denominated instruments determined by First Maryland to present
minimal credit risks in accordance with guidelines adopted by the Fund's Board
of Trustees (the "Board"). The ARK Money Market Portfolios each will seek to
maintain a net asset value per share ("NAV") of $1.00, will limit its
investments to securities with remaining maturities of 397 days or less, and
will maintain a dollar-weighted average maturity of 90 days or less. In
determining a security's maturity for purposes of calculating the Portfolios'
average maturity, estimates of the expected time for principal to be paid may be
used. An estimated maturity can be substantially shorter than its stated final
maturity.

Although the ARK Money Market Portfolios' policies are designed to help
maintain a stable $1.00 share price, all money market instruments can change in
value when interest rates or issuers' creditworthiness change, or if an issuer
or guarantor of a security fails to pay interest or principal when due. If these
changes in value were large enough, a Portfolio's share price could fall below
$1.00. In general, securities with longer maturities are more vulnerable to
price changes, although they may provide higher yields.

U.S. TREASURY MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------

The investment objective of U.S. TREASURY MONEY MARKET PORTFOLIO is to
maximize current income and provide liquidity and security of principal by
investing in instruments which are issued or guaranteed as to principal and
interest by the U.S. government and thus constitute direct obligations of the
United States. As a non-fundamental policy, the Portfolio will invest 100% of
its total assets in U.S. Treasury bills, notes, and bonds and will limit its
investments to U.S. Treasury obligations that pay interest that is specifically
exempt from state and local taxes under federal law.

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<PAGE> 12

U.S. GOVERNMENT MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------

The investment objective of U.S. GOVERNMENT MONEY MARKET PORTFOLIO is to
maximize current income and provide security of principal by investing in
instruments which are issued or guaranteed as to principal and interest by the
U.S. government or any of its agencies or instrumentalities ("U.S. Government
Securities"), or in repurchase agreements backed by such instruments. As a
non-fundamental policy, 100% of the Portfolio's total assets will be invested in
U.S. Government Securities, and in repurchase agreements collateralized by such
securities. U.S. Government Securities include U.S. Treasury bills, notes, and
bonds, and obligations issued by federal agencies such as the Export-Import Bank
of the United States, the General Services Administration, the Government
National Mortgage Association and the Small Business Administration. Obligations
issued or guaranteed as to principal and interest by U.S. government agencies or
instrumentalities include instruments issued by the Federal Home Loan Bank,
Federal Farm Credit Bank and Federal National Mortgage Association. The
Portfolio may enter into when-issued or delayed-delivery transactions. The
Portfolio normally may not invest more than 5% of its total assets in the
securities (other than U.S. Government Securities) of any single issuer. Under
certain conditions, however, the Portfolio may invest up to 25% of its total
assets in first tier securities of a single issuer for up to three days.

MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------

The investment objective of MONEY MARKET PORTFOLIO is to maximize current
income and provide liquidity and security of principal by investing in a broad
range of short-term, high-quality U.S. dollar-denominated debt securities
("Money Market Instruments"). Such Money Market Instruments include, but are not
limited to: U.S. Government Securities; custodial receipts evidencing future
interest or principal payments on U.S. Government Securities; obligations of
domestic or foreign banks including bankers' acceptances, time deposits and
certificates of deposit ("CDs"); commercial paper (including variable and
floating rate instruments); corporate obligations; and asset-backed securities
and indexed securities each with 397 days or less remaining to maturity. Money
Market Portfolio may invest more than 25% of its total assets in certain
obligations of domestic banks. Money Market Portfolio may engage in repurchase
and reverse repurchase agreements and may enter into when-issued or
delayed-delivery transactions. The Portfolio normally may not invest more than
5% of its total assets in the securities (other than U.S. Government Securities)
of any single issuer. Under certain conditions, however, the Portfolio may
invest up to 25% of its total assets in first tier securities of a single issuer
for up to three days.

The Portfolio may invest in U.S. dollar-denominated obligations of U.S.
banks and foreign branches of U.S. banks ("Eurodollars"), U.S. branches and
agencies of foreign banks ("Yankee dollars"), and foreign branches of foreign
banks. See the Appendix for more information.

At least 95% of the assets of Money Market Portfolio will be invested in
securities that have received the highest rating assigned by any two nationally
recognized statistical rating organizations ("NRSROs") or, if only one such
rating organization has assigned a rating, such single organization. Up to 5% of
the Portfolio's assets may be invested in securities that have received ratings
in the second highest category by any two NRSROs or, if only one such rating
organization has assigned a rating, such single organization. The Portfolio may
also acquire unrated securities

9
<PAGE> 13

determined by First Maryland to be comparable in quality to rated securities in
accordance with guidelines adopted by the Fund's Board.

TAX-FREE MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------

The investment objective of TAX-FREE MONEY MARKET PORTFOLIO is to provide a
high level of interest income by investing primarily in high-quality municipal
obligations that are exempt from federal income taxes. The Portfolio attempts to
invest 100% of its assets in securities exempt from federal income tax (not
including the alternative minimum tax), and maintains a fundamental policy that
at least 80% of its income will, under normal market conditions, be exempt from
federal income tax, including the federal alternative minimum tax.

The Portfolio invests in high quality, short-term municipal securities but
also may invest in high quality, long-term fixed, variable, or floating rate
instruments (including tender option bonds) that have demand features or
interest rate adjustment features that result in interest rates, maturities, and
prices similar to short-term instruments. The Portfolio's investments in
municipal securities may include tax, revenue, or bond anticipation notes;
tax-exempt commercial paper; general obligation or revenue bonds (including
municipal lease obligations and resource recovery bonds); and zero coupon bonds.
The Portfolio may enter into when-issued and delayed-delivery transactions and
may purchase securities that are subject to restrictions on resale.

Municipal securities are issued to raise money for various public purposes,
including general purpose financing for state and local governments as well as
financing for specific projects or public facilities. Municipal securities may
be backed by the full taxing power of a municipality or by the revenues from a
specific project or the credit of a private organization. Some municipal
securities are insured by private insurance companies, while others may be
supported by letters of credit furnished by domestic or foreign banks. First
Maryland monitors the financial condition of parties (including insurance
companies, banks, and corporations) whose creditworthiness is relied upon in
determining the credit quality of securities the Portfolio may purchase.

A demand feature is a put that entitles the security holder to repayment of
the principal amount of the underlying security on no more than 30 days' notice
at any time or at specified intervals. A standby commitment is a put that
entitles the security holder to same-day settlement at amortized cost plus
accrued interest.

Issuers or financial intermediaries who provide demand features or standby
commitments often support their ability to buy securities on demand by obtaining
letters of credit ("LOCs") or other guarantees from banks. LOCs also may be used
as credit supports for other types of municipal instruments. First Maryland may
rely upon its evaluation of a bank's credit in determining whether to purchase
an instrument supported by an LOC. In evaluating a foreign bank's credit, First
Maryland will consider whether adequate public information about the bank is
available and whether the bank may be subject to unfavorable political or
economic developments, currency controls, or other governmental restrictions
that might affect the bank's ability to honor its credit commitment.

10
<PAGE> 14

result of maturities of portfolio securities or sales of Portfolio shares, or in
order to meet anticipated redemption requests, the Portfolio may hold cash which
is not earning income.

At least 95% of the assets of Tax-Free Money Market Portfolio will be
invested in securities that have received the highest rating assigned by any two
NRSROs or, if only one such rating organization has assigned a rating, such
single organization. The Portfolio may also acquire unrated securities
determined by First Maryland to be comparable in quality to rated securities in
accordance with guidelines adopted by the Board.

The Portfolio may invest up to 25% of its net assets in a single issuer's
securities. The Portfolio may invest any portion of its assets in industrial
revenue bonds ("IRBs") backed by private companies, and may invest up to 25% of
its total assets in IRBs related to a single industry. The Portfolio also may
invest 25% or more of its total assets in tax-exempt securities whose revenue
sources are from similar types of projects, e.g., education, electric utilities,
health care, housing, transportation, water, sewer, and gas utilities. There may
be economic, business or political developments or changes that affect all
securities of a similar type. Therefore, developments affecting a single issuer
or industry, or securities financing similar types of projects, could have a
significant effect on the Portfolio's performance.

Yields on municipal obligations depend on a variety of factors, including
the general conditions of the money markets and of the municipal bond and
municipal note markets, the size of a particular offering, the maturity of the
obligation, and the rating of the issue. Municipal obligations with longer
maturities tend to produce higher yields and generally are subject to
potentially greater price fluctuations than obligations with shorter maturities.

INVESTMENT LIMITATIONS FOR THE ARK MONEY MARKET PORTFOLIOS
- --------------------------------------------------------------------------------

The following summarizes the principal investment limitations of each of
the ARK Money Market Portfolios. A complete listing is contained in the
Statement of Additional Information. With the exception of limitations 3(b) and
4(b), these limitations are fundamental and may only be changed with shareholder
approval.

1. Each ARK Money Market Portfolio may not, with respect to 75% of its
assets, invest more than 5% of the total market value of its assets in the
securities of any one issuer, other than U.S. Government Securities.

2. Each ARK Money Market Portfolio may not purchase the securities of one
issuer (other than U.S. Government Securities) if more than 25% of its total
assets would be invested in the same industry. Money Market Portfolio may,
however, invest 25% or more of its assets in obligations of domestic banks.

3. Each ARK Money Market Portfolio (a) may borrow money from a bank for
temporary or emergency purposes or by engaging in reverse repurchase agreements,
but not in an amount exceeding 33 1/3% of its total assets; and (b) will not
purchase securities when borrowings (including reverse repurchase agreements)
exceed 5% of its total assets.

4. Each ARK Money Market Portfolio (a) may not make a loan if more than
33 1/3% of its total assets would be lent to other parties; and (b) each of U.S.
Treasury Money Market Portfolio,

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<PAGE> 15

U.S. Government Money Market Portfolio and Tax-Free Money Market Portfolio do
not currently intend to lend portfolio securities.

SHORT-TERM TREASURY PORTFOLIO
- --------------------------------------------------------------------------------

The investment objective of SHORT-TERM TREASURY PORTFOLIO is to provide
current income, with a secondary objective of stability of principal, by
investing in instruments which are issued or guaranteed as to principal and
interest by the U.S. government. The Portfolio will invest 100% of its total
assets in instruments which are issued or guaranteed by the U.S. government and
thus constitute direct obligations of the United States and repurchase
agreements fully collateralized by the United States government. As a
non-fundamental policy, the Portfolio will invest 100% of its total assets in
U.S. Treasury bills, notes, and bonds and will limit its investments to U.S.
Treasury obligations that pay interest that is specifically exempt from state
and local taxes under federal law. The Portfolio has no restrictions on maturity
but generally will maintain a dollar-weighted average maturity of approximately
two years.

In making investment decisions for the Short-Term Treasury Portfolio, First
Maryland will consider factors in addition to current yield, including
preservation of capital, the potential for realizing capital appreciation,
maturity and yield to maturity. First Maryland will monitor the Portfolio's
investments in particular securities in response to its appraisal of changing
economic conditions and trends, and may sell securities in anticipation of a
market decline or purchase securities in anticipation of a market rise.

Fixed-income securities (except for securities with floating or variable
interest rates) are generally considered to be interest rate sensitive, which
means that their value (and the Portfolio's share price) will tend to decrease
when interest rates rise and increase when interest rates fall. Securities with
shorter maturities, while offering lower yields, generally provide greater price
stability than longer-term securities and are less affected by changes in
interest rates. The average maturity of the Portfolio's debt obligations will
vary depending on market conditions.

INCOME PORTFOLIO
- --------------------------------------------------------------------------------

The investment objective of INCOME PORTFOLIO is to seek a high level of
current income, with a secondary objective of capital growth, consistent with
reasonable risk, by investing primarily in a broad range of fixed-income
securities. As a non-fundamental policy, the Portfolio will invest 65% of its
total assets in fixed-income securities. Fixed-income securities acquired by the
Portfolio may include income-producing securities of all types, including bonds,
notes, mortgage securities, government and government agency obligations, zero
coupon securities, convertible securities, foreign securities, indexed
securities, and asset-backed securities. The Portfolio may engage in short sales
"against the box" and may buy and sell futures contracts and options contracts.
(The Portfolio may also invest in the shares of other investment companies, as
permitted by the Investment Company Act of 1940 (the "1940 Act").

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<PAGE> 16

equivalent ratings by other NRSROs. Bonds rated Baa or BBB may have speculative
characteristics, 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 bonds. The Portfolio also may
purchase unrated securities that are deemed by First Maryland to be of
comparable quality to rated issues. The Portfolio may, however, invest up to 5%
of its total assets in lower quality debt securities. First Maryland believes
that holdings in such securities, sometimes referred to as junk bonds, may offer
worthwhile investment opportunities. See the Statement of Additional Information
for a more complete discussion of such investments.

Common stocks acquired through exercise of conversion rights or warrants or
acceptance of exchange or similar offers ordinarily will not be retained by the
Portfolio. Orderly disposition of such common stocks will be made consistent
with the judgment of First Maryland as to the best price available.

In making investment decisions for Income Portfolio, First Maryland will
consider factors in addition to current yield, including preservation of
capital, the potential for realizing capital appreciation, maturity and yield to
maturity. First Maryland will monitor the Portfolio's investments in particular
securities or in types of debt securities in response to its appraisal of
changing economic conditions and trends, and may sell securities in anticipation
of a market decline or purchase securities in anticipation of a market rise.

Changes in the values of the Portfolio's investments will generally not
affect the income derived from such investments, but will affect the Portfolio's
share price. Income Portfolio's share price, yield and total return will
fluctuate, and you may have a gain or loss when redeeming Shares.

GROWTH AND INCOME PORTFOLIO
- --------------------------------------------------------------------------------

The investment objective of GROWTH AND INCOME PORTFOLIO is to seek
long-term total returns from both capital appreciation and current income by
investing in a diversified portfolio of stocks, debt securities, and cash
equivalents.

The Portfolio's common stock investments may include foreign and domestic
issues of larger, well-established companies, as well as medium-sized and
smaller companies. The prices of small company stocks may fluctuate more than
those of large company stocks due to risks related to more limited product
lines, markets or financial resources. These conditions may make smaller
companies more susceptible to setbacks and reversals and, therefore, their
securities may have limited marketability and may be subject to more abrupt or
erratic market movements than securities of larger companies. The Portfolio may
also invest in preferred stock, convertible securities, may engage in short
sales "against the box," and may buy and sell futures contracts

13
<PAGE> 17

and options. The Portfolio may also invest in the shares of other investment
companies, as permitted by the 1940 Act.

Debt securities acquired by the Portfolio may include mortgage or
asset-backed securities, corporate issues, indexed securities, and U.S.
Government Securities. The Portfolio normally will invest in investment grade
debt securities (including convertible securities) rated Baa or higher by
Moody's, those securities rated BBB or higher by S&P, or those securities with
equivalent ratings by other NRSROs. Bonds rated Baa or BBB may have speculative
characteristics, 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 bonds. The Portfolio also may
purchase unrated securities that are deemed by First Maryland to be of
comparable quality to rated issues. The Portfolio may, however, invest up to 5%
of its total assets in lower quality debt securities. First Maryland believes
that holdings in such securities, sometimes referred to as junk bonds, may offer
worthwhile investment opportunities. See the Statement of Additional Information
for a more complete discussion of such investments. The average maturity of the
Portfolio's debt obligations will vary depending on market conditions.

Growth and Income Portfolio emphasizes long-term total return from capital
appreciation and current income. Although it is not a policy of the Portfolio to
engage in short-term trading, First Maryland may dispose of securities without
regard to the length of time held if First Maryland believes such action will
benefit the Portfolio. Although First Maryland will consider the potential for
income in selecting investments for the Portfolio, the Portfolio is generally
not intended to achieve a high level of income at a rate comparable to
fixed-income portfolios. The Portfolio may adjust its investments based on First
Maryland's interpretation of underlying economic, financial, and security
trends; however, the Portfolio's ability to make such adjustments successfully
will depend on First Maryland's ability to predict such market trends. Growth
and Income Portfolio's share price, yield and total return will fluctuate, and
you may have a gain or loss when redeeming Shares.

BLUE CHIP EQUITY PORTFOLIO
- --------------------------------------------------------------------------------

The investment objective of BLUE CHIP EQUITY PORTFOLIO is to achieve
long-term appreciation by investing primarily in equity securities of
established, large capitalization companies.

Blue Chip Equity Portfolio seeks capital appreciation from a broadly
diversified portfolio of common stocks of established, large capitalization
companies. First Maryland may also seek capital appreciation on behalf of the
Portfolio by investing up to 35% of its assets in other types of securities,
including preferred stock and debt securities, securities convertible into
common stock, asset-backed securities, and may, on behalf of the Portfolio,
engage in short sales "against the box" and buy and sell futures contracts and
options. Debt securities (including convertible securities) in which the
Portfolio invests will normally be rated Baa or higher by Moody's or BBB or
higher by S&P, or will receive equivalent ratings by other NRSROs. Bonds rated
Baa or BBB may have speculative characteristics 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
bonds. The Portfolio may also purchase unrated securities that are deemed by
First Maryland to be of comparable quality to rated issues. The Portfolio may,
however, invest up to 5% of its total assets in lower quality debt securities.
First Maryland believes that holdings in such

14
<PAGE> 18

securities, sometimes referred to as junk bonds, may offer worthwhile investment
opportunities. See the Statement of Additional Information for a more complete
discussion of such investments. The Portfolio is expected to produce current
investment income, consistent with the primary objective.

It is the Portfolio's policy, under normal circumstances, to invest at
least 65% of the value of its total assets in equity securities of established,
large capitalization companies. An established, large capitalization company
means a company with an operating history of 3 years or more and capitalization
in excess of $1.0 billion. It is expected that these companies will be based
primarily in the United States, and will be recognized market leaders with
strong financial positions. The Portfolio will invest in securities that First
Maryland believes offer above-average growth potential based on their
fundamental strength. First Maryland considers many factors when evaluating the
overall quality of a security for investment by the Portfolio, including a
company's current financial strength and relative value. The Portfolio may also
invest in the shares of other investment companies, as permitted by the 1940
Act.

Blue Chip Equity Portfolio's share price and return will tend to fluctuate
in response to changes in the stock market and investors may have a gain or loss
when redeeming Shares. While First Maryland purchases securities for the
Portfolio that it believes present the greatest opportunity for growth, some
securities held by the Portfolio may not perform well during certain market
cycles and may not respond to general market movements to the same extent as
other securities.

CAPITAL GROWTH PORTFOLIO
- --------------------------------------------------------------------------------

The investment objective of CAPITAL GROWTH PORTFOLIO is to seek long-term
capital appreciation by investing primarily in common stock and securities
convertible into common stock.

Capital Growth Portfolio seeks capital appreciation from a broadly
diversified portfolio of common stocks, and securities convertible into common
stock. First Maryland may also seek capital appreciation on behalf of the
Portfolio by investing up to 35% of its assets in other types of securities,
including preferred stock, debt securities, asset-backed securities, indexed
securities, and may, on behalf of the Portfolio, engage in short sales "against
the box" and buy and sell futures contracts and options. Debt securities
(including convertible securities) in which the Portfolio invests will normally
be rated Baa or higher by Moody's or BBB or higher by S&P, or will receive
equivalent ratings by other NRSROs. Bonds rated Baa or BBB may have speculative
characteristics 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 bonds. The Portfolio may also
purchase unrated securities that are deemed by First Maryland to be of
comparable quality to rated issues. The Portfolio may, however, invest up to 5%
of its total assets in lower quality debt securities. First Maryland believes
that holdings in such securities, sometimes referred to as junk bonds, may offer
worthwhile investment opportunities. See the Statement of Additional Information
for a more complete discussion of such investments. The Portfolio is expected to
produce modest dividend or interest income. This income will be incidental to
the Portfolio's primary objective.

It is the Portfolio's policy to invest in the securities of both
well-known, established companies and smaller, less well-known companies. The
prices of small company stocks may fluctuate more

15
<PAGE> 19

than those of larger companies due to risks related to more limited product
lines, markets or financial resources. These conditions may make smaller
companies more susceptible to setbacks and reversals and, therefore, their
securities may have limited marketability and may be subject to more abrupt or
erratic market movements than securities of larger companies. The Portfolio will
invest in securities that First Maryland believes offer above-average growth
potential based on their fundamental strength. First Maryland considers many
factors when evaluating the overall quality of a security for investment by the
Portfolio, including a company's current financial strength, earnings momentum,
and relative value. The Portfolio may also invest in the shares of other
investment companies, as permitted by the 1940 Act.

Capital Growth Portfolio's share price and return will tend to fluctuate in
response to changes in the stock market and investors may have a gain or loss
when redeeming Shares. While First Maryland purchases securities for the
Portfolio that it believes present the greatest opportunity for growth, some
securities held by the Portfolio may not perform well during certain market
cycles and may not respond to general market movements to the same extent as
other securities.

INTERNATIONAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------

The investment objective of INTERNATIONAL EQUITY PORTFOLIO is to achieve
long-term capital growth by investing at least 65% of its total assets in
foreign equity securities. The Portfolio invests in companies in at least three
countries other than the United States. The Portfolio's investments will be
primarily focused on those equity securities of well-established companies with
large market capitalizations. Dividend income is incidental to the Portfolio's
primary objective.

When allocating the Portfolio's investments among geographic regions and
individual countries, AIB I.M. considers various factors such as prospects for
relative economic growth, expected levels of inflation, anticipated interest
rate movements, government policies influencing business conditions and the
outlook for currency relationships. AIB I.M. expects that the Portfolio's
investments will focus mainly on countries which are included in the Morgan
Stanley Capital International Europe, Australia, Far East Index (the "EAFE
Index"), although other geographical regions, such as Latin America and emerging
Far East markets, are permitted. The countries that make up the EAFE Index
include, but are not limited to: United Kingdom, Ireland, France, Germany,
Switzerland, the Netherlands, Italy, Spain, Belgium, Sweden, Norway, Finland,
Denmark, Austria, Japan, Australia, New Zealand, Hong Kong, and Singapore. It is
not the objective of the Portfolio to replicate the EAFE Index.

The Portfolio may purchase illiquid investments, restricted securities and
warrants, and may enter into options on foreign currencies. The Portfolio may
also invest in the shares of other investment companies, as permitted by the
1940 Act, as well as in initial public offerings. The Portfolio may also invest
in investment grade convertible debt securities, rated at least Baa or higher by
Moody's or BBB or higher by S&P, and may purchase U.S. government securities and
indexed securities. Bonds rated Baa or BBB may have speculative characteristics
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 bonds.

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<PAGE> 20

RISK FACTORS CONCERNING INTERNATIONAL INVESTING AND INTERNATIONAL EQUITY
PORTFOLIO
- --------------------------------------------------------------------------------

International investments in general may involve greater risks than U.S.
investments. There is generally less publicly available information about
foreign issuers, and there may be less government regulation and supervision of
foreign stock exchanges, brokers, and listed companies. There may be difficulty
in enforcing legal rights outside the United States. Foreign companies generally
are not subject to uniform accounting, auditing, and financial reporting
standards, practices, and requirements comparable to those that apply to U.S.
companies. Security trading practices abroad may offer less protection to
investors such as the Portfolio. Settlement of transactions in some foreign
markets may be delayed or may be less frequent than in the United States, which
could affect the liquidity of the Portfolio's securities. Additionally, in some
foreign countries, there is the possibility of expropriation or confiscatory
taxation; limitations on the removal of securities, property, or other assets of
the Portfolio; political or social instability; and diplomatic developments that
could affect U.S. investments in foreign countries. AIB I.M. will take these
factors into consideration in managing the Portfolio's investments.

Many markets around the globe offer the potential for significant growth
over time; however, investing in foreign markets means assuming greater risks
than those assumed when investing in the United States. Factors like changes in
a country's financial markets, its local political and economic climate, and the
value of its currency create these risks. Because International Equity Portfolio
invests primarily in equity securities, its performance is related to foreign
stock markets. In addition, the Portfolio's performance will be affected by the
value of foreign currencies relative to the U.S. dollar. For these reasons,
International Equity Portfolio's performance may be more volatile than that of a
fund that invests primarily in the United States.

FOREIGN CURRENCIES. The value of the Portfolio's investments, and the value
of dividends and interest earned by the Portfolio, may be significantly affected
by changes in currency exchange rates. AIB I.M. will endeavor, through
appropriate hedging and currency management strategies, to mitigate the possible
impact of weaknesses in foreign currencies. Some foreign currency values may be
volatile, and there is the possibility of governmental controls on currency
exchange or governmental intervention in currency markets, which could adversely
affect the Portfolio. For example, if AIB I.M. increases the Portfolio's
exposure to a foreign currency, and that currency's value subsequently falls,
AIB I.M.'s currency management may result in increased losses to the Portfolio.
Similarly, if AIB I.M. hedges the Portfolio's exposure to a foreign currency,
and that currency's value rises, the Portfolio will lose the opportunity to
participate in the currency's appreciation.

SPECIAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------

The investment objective of SPECIAL EQUITY PORTFOLIO is to achieve capital
appreciation by investing primarily in securities of companies believed by First
Maryland to be "special equities." As used in this Prospectus, "special
equities" include equity securities of: (1) a company with a market
capitalization of $1.2 billion or less at the time of the Portfolio's investment
and deemed by the Portfolio manager to have above average growth potential; or
(2) a company experiencing a "special situation"; that is, an unusual and
possibly non-repetitive development taking place in that

17
<PAGE> 21

company. The Portfolio will invest in securities that First Maryland believes
offer above-average growth potential based on their fundamental strength.

A "special situation" may involve one or more of the following
characteristics:

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

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

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

- significant economic or political occurrences abroad, including changes
in foreign or domestic import and tax laws or other regulations.

- other events, including natural disasters, favorable litigation
settlements, or a major change in demographic patterns.

In seeking capital appreciation, the Portfolio also may invest in
securities of companies that are not special equities, but which are companies
with valuable fixed assets and whose securities are believed by First Maryland
to be undervalued in relation to the companies' assets, earnings, or growth
potentials. As a non-fundamental policy, the Portfolio normally will invest at
least 65% of its total assets in special equities, as defined above.

First Maryland intends to invest primarily in common stocks and securities
that are convertible into common stocks; however, under normal market
conditions, the Portfolio also may invest up to 35% of its total assets in debt
securities of all types and quality if First Maryland believes that investing in
these securities will result in capital appreciation. As a non-fundamental
investment policy, the Portfolio may invest in lower rated, high-yielding debt
securities (sometimes referred to as "junk bonds"), although it intends to limit
its investments in these securities to 35% of its total assets. The Portfolio
also may invest in unrated securities. Unrated securities are not necessarily of
lower quality than rated securities, but they may not be attractive to as many
buyers. The Portfolio may invest up to 35% of its total assets in foreign
securities of all types and may enter into forward currency contracts for the
purpose of managing exchange rate risks and to facilitate transactions in
foreign securities. The Portfolio may purchase or engage in indexed securities,
illiquid instruments, loans and other direct debt instruments, options and
futures contracts, repurchase agreements, securities loans, restricted
securities, swap agreements, warrants, real estate-related instruments and zero
coupon bonds. Further information about the Portfolio's investment policies can
be found in the Statement of Additional Information.

Investing in domestic and foreign companies with market capitalization of
$1.2 billion or less carries more risk than investing in larger companies. Their
reliance on limited product lines, markets, financial resources, or other
factors may make small capitalization companies more susceptible to setbacks or
downturns. As a result, their stock prices may be particularly volatile.

Foreign securities, foreign currencies and securities issued by U.S.
entities with substantial foreign operations may involve additional risks and
considerations. These include risks relating to

18
<PAGE> 22

political or economic conditions in foreign countries, fluctuations in foreign
currencies, withholding or other taxes, operational risks, increased regulatory
burdens and the potentially less stringent investor protection and disclosure
standards of foreign markets. Additionally, governmental issuers of foreign
securities may be unwilling to repay principal and interest when due, and may
require that the conditions for payment be renegotiated. All these factors can
make foreign investments, especially those in developing countries, more
volatile.

The Portfolio spreads investment risk by limiting its holdings in any one
company or industry. First Maryland may use various investment techniques to
hedge the Portfolio's risks, but there is no guarantee that these strategies
will work as First Maryland intends. When you sell your shares, they may be
worth more or less than what you paid for them.

First Maryland normally invests the Portfolio's assets according to its
investment strategy. The Portfolio expects to be fully invested under most
market conditions. The Portfolio also reserves the right to invest without
limitation in preferred stocks and investment-grade debt instruments for
temporary, defensive purposes when, in First Maryland's judgment, a more
conservative approach to investment is desirable.

MARYLAND TAX-FREE PORTFOLIO
- --------------------------------------------------------------------------------

The investment objective of MARYLAND TAX-FREE PORTFOLIO is to achieve high
current income that is free from federal income tax and the Maryland state and
county income taxes by investing primarily in municipal securities judged by
First Maryland to be of investment-grade quality, although it can also invest in
lower-quality securities. The Portfolio has no restrictions on maturity, but it
generally invests in medium- and long-term bonds and maintains a dollar-weighted
average maturity of 7-10 years. In determining a security's maturity for
purposes of calculating the fund's average maturity, estimates of the expected
time for its principal to be paid may be used. This can be substantially shorter
than its stated final maturity. First Maryland normally invests at least 65% of
the Portfolio's total assets in Maryland municipal securities, and normally
invests, as a matter of fundamental policy, so that at least 80% of the
Portfolio's income is free from federal income tax, including the federal
alternative minimum tax.

The Portfolio's performance is affected by the economic and political
conditions within the state of Maryland. The ability of issuers to repay their
debt can be affected by many factors that impact the economic vitality of either
the state or a region within the state. Maryland's rate of economic growth has
been slower in the early 1990s than it had been during the 1980s. State revenues
in recent years have been less than expected and, because Maryland's
constitution requires a balanced budget, expenditures were cut.

The Portfolio's yield and share price change daily and are based on changes
in interest rates, market conditions, and other economic and political news and
on the quality and maturity of its investments. In general, bond prices rise
when interest rates fall, and vice versa. This effect is usually more pronounced
for longer-term securities. Lower-quality securities offer higher yields, but
also carry more risk. The Portfolio may invest up to 5% of its total assets in
lower-quality debt securities. First Maryland may use various investment
techniques to hedge the Portfolio's risks, but there is no guarantee that these
strategies will work as intended. When you sell your Shares of the Portfolio,
they may be worth more or less than what you paid for them.

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<PAGE> 23

If you are subject to the federal alternative minimum tax, you should note
that the Portfolio may invest some of its assets in municipal securities issued
to finance private activities. The interest from these investments is a
tax-preference item for purposes of the tax.

First Maryland normally invests the Portfolio's assets according to its
investment strategy and does not expect to invest in federally or state taxable
obligations. The Portfolio also reserves the right to invest without limitation
in short-term instruments, to hold a substantial amount of uninvested cash, or
to invest more than normally permitted in taxable obligations for temporary,
defensive purposes.

ADDITIONAL INVESTMENT POLICIES OF SHORT-TERM TREASURY PORTFOLIO, INCOME
PORTFOLIO, GROWTH AND INCOME PORTFOLIO, BLUE CHIP EQUITY PORTFOLIO, CAPITAL
GROWTH PORTFOLIO, INTERNATIONAL EQUITY PORTFOLIO, SPECIAL EQUITY PORTFOLIO AND
MARYLAND TAX-FREE PORTFOLIO
- --------------------------------------------------------------------------------

For temporary defensive purposes, Short-Term Treasury Portfolio, Income
Portfolio, Growth and Income Portfolio, Blue Chip Equity Portfolio, Capital
Growth Portfolio, International Equity Portfolio, Special Equity Portfolio and
Maryland Tax-Free Portfolio (the "ARK Non-Money Market Portfolios") may invest
all or a portion of their respective assets in Money Market Instruments. In
addition, for temporary defensive purposes, Maryland Tax-Free Portfolio may
invest more than normally permitted in taxable obligations.

The ARK Non-Money Market Portfolios, except International Equity Portfolio,
Special Equity Portfolio, Short-Term Treasury Portfolio, and Maryland Tax-Free
Portfolio, may invest up to 25% of their respective assets in American
Depository Receipts ("ADRs"), European Depository Receipts ("EDRs"), and
securities issued by foreign companies and foreign governments. Special Equity
Portfolio may invest up to 35% of its assets and International Equity Portfolio
may invest up to 100% of its assets in these securities. Short-Term Treasury
Portfolio and Maryland Tax-Free Portfolio may not invest its assets in these
securities. Foreign investments may be less liquid or more volatile than
domestic investments, and may be denominated in foreign currencies. The value of
these investments will fluctuate with changes in exchange rates between those
currencies and the U.S. dollar. See the Appendix for further information on
investing in foreign securities.

The value of each Portfolio's securities will fluctuate in response to
market conditions and the value of a Share in each ARK Non-Money Market
Portfolio may vary. Investors should review the investment objective and
policies of each Portfolio and carefully consider their ability to assume any
risk involved in purchasing Shares of each Portfolio.

INVESTMENT LIMITATIONS FOR THE ARK NON-MONEY MARKET PORTFOLIOS
- --------------------------------------------------------------------------------

The following summarizes each of the ARK Non-Money Market Portfolios'
principal investment limitations. A complete listing is contained in the
Statement of Additional Information. With the exception of limitation 3(b),
these limitations are fundamental and may only be changed with shareholder
approval.

1. Except Maryland Tax-Free Portfolio, the ARK Non-Money Market Portfolios
may not, with respect to 75% of each Portfolio's total assets, purchase the
securities of any issuer (other than

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<PAGE> 24

U.S. Government Securities) if as a result, (a) more than 5% of a Portfolio's
total assets would be invested in the securities of that issuer, or (b) a
Portfolio would hold more than 10% of the outstanding voting securities of that
issuer.

2. The ARK Non-Money Market Portfolios may not purchase a security if, as a
result, more than 25% of a Portfolio's total assets would be invested in
securities of a particular industry (other than securities issued or guaranteed
by the U.S. government or any of its agencies or instrumentalities).

3. Each ARK Non-Money Market Portfolio (a) may borrow money from a bank for
temporary or emergency purposes or by engaging in reverse repurchase agreements,
but not in an amount exceeding 33 1/3% of its total assets; and (b) will not
purchase securities when borrowings (including reverse repurchase agreements)
exceed 5% of its total assets.

4. Each ARK Non-Money Market Portfolio may not make a loan if more than
33 1/3% of its assets would be lent to other parties.

PERFORMANCE
- --------------------------------------------------------------------------------

The performance of each class of shares of each Portfolio may be quoted in
advertising in terms of yield, effective yield or total return. In addition, the
tax-equivalent yield may be quoted for shares of Tax-Free Money Market Portfolio
and for shares of Maryland Tax-Free Portfolio. All types of performance are
based on historical results and are not intended to indicate future performance.

The YIELD of shares of the ARK Money Market Portfolios, Short-Term Treasury
Portfolio, Income Portfolio and Maryland Tax- Free Portfolio is calculated by
dividing the net investment income earned by the shares over a 7-day period (for
the ARK Money Market Portfolios) and a 30-day period (for Short-Term Treasury
Portfolio, Income Portfolio and Maryland Tax-Free Portfolio), by the average
number of shares entitled to receive dividends and expressing the result as an
annualized percentage rate based on each share price at the end of the 7- and
30-day periods, respectively. The EFFECTIVE YIELD is calculated similarly, but
assumes that the income earned from the investment is reinvested. The effective
yield will be slightly higher than the yield because of the compounding effect
of this assumed reinvestment. Because yield accounting methods differ from the
methods used for other accounting purposes, the yields of shares of the ARK
Money Market Portfolios, Short-Term Treasury Portfolio, Income Portfolio and
Maryland Tax-Free Portfolio may not equal their respective distribution rates,
the income paid to your account or the income reported in the financial
statements of the Institutional Class of the relevant Portfolio.

A TAX-EQUIVALENT yield shows the approximate taxable yield that would have
to be earned before taxes to equal a tax-free yield. A tax-equivalent yield is
calculated by dividing the shares' tax-exempt yield by the result of one minus a
stated federal and/or state tax rate. If only a portion of a Portfolio's income
was tax-exempt, only that portion is adjusted in the calculation.

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<PAGE> 25

return if a class' performance had been constant over the entire period. Because
average annual total returns tend to smooth out variations in a class' return,
it should be recognized that they are not the same as actual year-by-year
results. When a class of a Portfolio quotes an average annual return covering a
period of less than one year, the calculation assumes that the performance will
remain constant for the rest of the year. Since this may or may not occur,
average annual returns should be viewed as hypothetical rather than actual
performance figures.

For additional performance information, please contact your Investment
Professional or the Distributor for a free Annual Report, Semi-Annual Report and
Statement of Additional Information.

PORTFOLIO TRANSACTIONS AND VALUATION
- --------------------------------------------------------------------------------

Subject to the general supervision of the Board, First Maryland or, in the
case of International Equity Portfolio, AIB I.M., is responsible for placing
orders for securities transactions for each Portfolio. Transactions for the ARK
Money Market Portfolios, Short-Term Treasury Portfolio, Income Portfolio and
Maryland Tax-Free Portfolio, as well as purchases of debt securities for Growth
and Income Portfolio, Capital Growth Portfolio and International Equity
Portfolio, are expected to occur primarily with issuers, underwriters or major
dealers acting as principals. Such transactions are normally effected on a net
basis and do not involve payment of brokerage commissions. Securities
transactions for Blue Chip Equity Portfolio, Capital Growth Portfolio and
Special Equity Portfolio, and transactions involving equity securities for
Growth and Income Portfolio and International Equity Portfolio, will normally be
conducted through brokerage firms entitled to receive commissions for effecting
such transactions. The Portfolios have no obligation to enter into securities
transactions with any particular dealer, issuer, underwriter or other entity. In
placing orders for the Portfolios, it is the policy of First Maryland and AIB
I.M. to obtain the most favorable execution.

Where such execution may be obtained from more than one broker or dealer,
securities transactions may be directed at higher commission rates to those who
provide research, statistical and other information to First Maryland or AIB
I.M., as applicable. If more than one Portfolio or another account managed by
First Maryland, or if International Equity Portfolio and another account managed
by AIB I.M., are purchasing or selling the same security, such orders may be
aggregated in the interest of achieving the most favorable execution.

The Portfolios have authorized First Maryland or AIB I.M., as applicable,
to allocate transactions to some broker-dealers who help distribute the
Portfolios' shares, and on an agency basis to Goodbody Stockbrokers, an
affiliate of First Maryland and AIB I.M. First Maryland or AIB I.M., as
applicable, may make such allocations if commissions are comparable to those
charged by non-affiliated, qualified broker-dealers for similar services.

The frequency of portfolio transactions, the portfolio turnover rate, will
vary from year to year depending on market conditions. The annual portfolio
turnover rate is estimated to be 200% for Special Equity Portfolio, 45% for
Short-Term Treasury Portfolio, 75% for Blue Chip Equity Portfolio, and 20% for
Maryland Tax-Free Portfolio. Because a higher turnover rate increases
transaction costs and may increase taxable capital gains, First Maryland and AIB
I.M. carefully weigh the anticipated benefits of short-term investing against
these consequences.

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<PAGE> 26

Money market obligations are generally traded in the over-the-counter
market through dealers. A dealer is a securities firm or bank which makes a
market for such securities by offering to buy at one price and sell at a
slightly higher price. The difference between the prices is known as a spread.
The selection of such dealers is generally made based upon the price, quality of
execution services and research provided. Money market securities purchased and
sold by each ARK Money Market Portfolio will be traded on a net basis (i.e.,
without commission) through dealers acting for their own account and not as
agents or will involve transactions directly with the issuer of the instrument.

VALUATION. The NAV of the Shares of each Portfolio is calculated by adding
the Institutional Class's pro rata share (which, in the case of International
Equity Portfolio, is the whole) of the value of all securities and other assets
attributable to a Portfolio, deducting the Institutional Class' pro rata share
of Portfolio-level liabilities, deducting Institutional Class-specific
liabilities, if applicable, and dividing the result by the number of Shares
outstanding. Those assets that are traded on an exchange or in the
over-the-counter market are valued based upon market quotations. Short-term
obligations with maturities of 60 days or less are valued at amortized cost.
Other assets for which market quotations are not readily available are valued at
their fair value as determined in good faith by or under the supervision of the
Board. Assets in the ARK Money Market Portfolios are valued based upon the
amortized cost method. Although each ARK Money Market Portfolio seeks to
maintain an NAV of $1.00 for the Shares, there can be no assurance that this NAV
will not vary.

Non-money market securities are valued on the basis of market quotations
or, if quotations are not readily available, by a method that the Board believes
accurately reflects fair value. Fair value of these portfolio securities is
determined by an independent pricing service approved by the Board based
primarily upon information concerning market transactions and dealer quotations
for similar securities. Foreign securities held by a Portfolio are valued on the
basis of quotations from the primary U.S. market in which they are traded or, if
not traded on a U.S. market, then their primary foreign market and are
translated from foreign market quotations into U.S. dollars using current
exchange rates.

PRICING OF SHARES. The Portfolios are open for business and their NAVs are
calculated each day the New York Stock Exchange ("NYSE") and the Federal Reserve
Bank of New York are open ("Business Day"). An investor's purchase will be
processed at the NAV next calculated after the order is received and accepted by
the transfer agent. The NAVs of the ARK Non-Money Market Portfolios are
determined at the close of business of the NYSE, normally 4:00 p.m. Eastern Time
("4:00 p.m."). The NAVs of U.S. Treasury Money Market Portfolio and Tax-Free
Money Market Portfolio are determined at 12:00 noon Eastern Time ("12:00 noon")
and the close of business of the NYSE, normally 4:00 p.m. The NAVs of U.S.
Government Money Market Portfolio and Money Market Portfolio are determined at
1:30 p.m. Eastern Time ("1:30 p.m.") and the close of business of the NYSE,
normally 4:00 p.m. Shares purchased at 12:00 noon and 1:30 p.m. begin to earn
dividends that Business Day. Shares purchased at 4:00 p.m. are eligible to earn
dividends on the following Business Day.

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<PAGE> 27

PURCHASES, EXCHANGES AND REDEMPTIONS
- --------------------------------------------------------------------------------

OPENING AN ACCOUNT. Shares are sold without a sales charge and are
currently available only to clients of First Maryland or its affiliated banks
(including Allied Irish Banks, p.l.c. and its affiliates) who have established
trust, custodial or money management relationships with First Maryland or its
affiliated banks or correspondent banks of First Maryland or their affiliated
banks ("qualified accounts"). An initial investment in the Shares must be
preceded or accompanied by the establishment of a qualified account. This may
require that certain documents and applications be signed before an investment
can be made. Fees may be charged in addition to those described herein based
upon agreements for those qualified accounts. Fee schedules and agreements for
opening qualified accounts are available upon request from First Maryland at
(800) 624-4116 outside Maryland and (800) 638-7751 inside Maryland.

The minimum initial investment to establish a new account is $100,000.
After meeting the initial investment requirement, a registered shareholder must,
within six months, reach and maintain an aggregate balance of $250,000. Accounts
of individual investors or trusts maintained in a master account of a bank or
other institution may be aggregated for this minimum investment purpose.
Subsequent investments may be made in any amount.

PURCHASING SHARES
- --------------------------------------------------------------------------------

ARK MONEY MARKET PORTFOLIOS. Payments for Shares of each ARK Money Market
Portfolio must be made in federal funds or other funds immediately available to
each Portfolio. An order for the purchase of Shares paid for in such available
funds will become effective on the day of receipt of the order by the transfer
agent and are entitled to that day's dividend if received prior to 12:00 noon
for U.S. Treasury Money Market Portfolio and Tax-Free Money Market Portfolio, or
1:30 p.m. for Money Market Portfolio and U.S. Government Money Market Portfolio.
If a purchase order, together with such available funds, is received after 12:00
noon for U.S. Treasury Money Market Portfolio and Tax-Free Money Market
Portfolio, or 1:30 p.m. for Money Market Portfolio and U.S. Government Money
Market Portfolio, but before 4:00 p.m., such purchases will receive the NAV
determined at 4:00 p.m. and will begin earning dividends the following Business
Day. If an order or payment is received after 4:00 p.m., an investor will
receive the next determined NAV the following Business Day. Each Portfolio
reserves the right to reject any purchase order. Each ARK Money Market Portfolio
declares dividends daily and pays them monthly.

ARK NON-MONEY MARKET PORTFOLIOS. Purchase orders for Shares of the ARK
Non-Money Market Portfolios must be received before 4:00 p.m. any Business Day
in order to receive the NAV determined on that day and be eligible for dividends
the next Business Day. Any orders received after 4:00 p.m. will receive the next
determined NAV the following Business Day. Payment for the purchase is expected
at the time of the purchase order but must be received within five Business Days
of the date of the purchase order. If funds are not received within five
Business Days, the order may be canceled and notice thereof will be provided to
the party placing the order. Any fees and/or losses incurred due to cancellation
of a purchase order may be the responsibility of the party placing the purchase
order. Short-Term Treasury Portfolio, Income Portfolio and Maryland Tax-Free
Portfolio each declares and pays dividends monthly, Growth and Income Portfolio
and

24
<PAGE> 28

Blue Chip Equity Portfolio each declares and pays dividends quarterly, and
Capital Growth Portfolio, International Equity Portfolio and Special Equity
Portfolio each declares and pays dividends annually. Net realized capital gains,
if any, for any Portfolio, are declared and paid annually.

OTHER INFORMATION
- --------------------------------------------------------------------------------

It is anticipated that First Maryland will be the holder of record for all
Shares held through qualified accounts. First Maryland, at least as often as
quarterly, will provide each client who is a beneficial owner of the Shares, a
statement showing details of all transactions effected on behalf of such client
in Shares, including the then-current balance of full and fractional Shares. No
certificates representing Shares will be issued.

Shareholders may instruct First Maryland to purchase Shares automatically
at intervals established by the client. Additional fees may be charged by First
Maryland for this and other services, including cash sweeps. For more complete
information concerning these services and associated fees, please call First
Maryland toll free at (800) 624-4116 outside Maryland and (800) 638-7751 inside
Maryland.

The services rendered by First Maryland in the management of its accounts
are not duplicative of any of the services for which First Maryland (or AIB
I.M., with respect to International Equity Portfolio) is compensated for
managing and advising any Portfolio. The charges paid by clients of First
Maryland or its affiliates should be considered in calculating the net yield or
total return on investments in the Shares. Clients of First Maryland and its
affiliates should read this Prospectus in connection with those documents that
govern the qualified account program in which each client participates.

It is the responsibility of each financial institution to transmit orders
to purchase, redeem or exchange Shares to the transfer agent before the
next-determined NAV calculation in order to receive the next-determined Share
price. The transfer agent must receive payment within two Business Days after an
order is placed. Otherwise, the purchase order may be canceled and the financial
institution could be held liable for resulting fees and/ or losses.

DISTRIBUTION OPTIONS
- --------------------------------------------------------------------------------

The following distribution options are available to shareholders:

A. The SHARE OPTION reinvests income dividends and capital gain
distributions, if any, in additional Shares. This option will be assigned
automatically if no choice is specified on the account application. Income
dividends and capital gain distributions will be reinvested at the NAV as of the
payment date for the distribution.

B. The INCOME-EARNED OPTION reinvests your capital gain distributions and
pays income dividends in cash.

C. The CASH OPTION pays you income dividends and capital gain distributions
in cash. Distribution checks will be mailed no later than seven days after the
last day of the month, quarter or year.

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<PAGE> 29

If you select Option B or C and the U.S. Postal Service cannot deliver the
checks, or if the checks remain uncashed for six months, distributions will be
reinvested in the account at the then-current NAV and your election will be
converted to the Share Option.

EXCHANGING SHARES
- --------------------------------------------------------------------------------

An exchange is a convenient way to buy and sell Shares of another Portfolio
registered in your state. Institutional Class Shares may be exchanged for
Institutional Class Shares of another Portfolio. The redemption will be made at
the next determined NAV of the Shares to be redeemed after the exchange request
is received by the transfer agent.

Each exchange between Portfolios actually represents the sale of Shares of
one Portfolio and the purchase of Shares in another, which may produce a gain or
loss for tax purposes. In order to protect each Portfolio's performance and its
shareholders, First Maryland and AIB I.M. each discourage frequent exchange
activity in response to short-term market fluctuations. Each Portfolio reserves
the right to modify or withdraw the exchange privilege or to suspend the
offering of Shares without notice to shareholders if, in First Maryland's (or,
in the case of International Equity Portfolio, AIB I.M.'s) judgment, a Portfolio
would be unable to invest effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely affected.
Each Portfolio also reserves the right to reject any specific purchase order,
including certain purchases by exchange. Shareholders of record whose aggregate
account balances fall below $250,000 due to redemption may be automatically
redeemed upon thirty days' notice.

An exchange between the Institutional Class and either the Retail Class or
Institutional II Class of any Portfolio is generally not permitted, except that
such an exchange to the Retail Class of the Portfolio will occur automatically
should an investor in the Institutional Class become ineligible to purchase
additional Institutional Class shares (except in the case of a Portfolio which
has no Retail Class); for example, if an Institutional Class investor receives a
distribution from a trust, and such investor would be investing individually
(and becomes a shareholder of record) rather than through a qualified account.
An exchange from the Institutional Class to the Retail Class of a Portfolio will
occur automatically when an Institutional Class shareholder's account falls
below the $250,000 minimum balance. The Fund will provide thirty days' notice of
any such exchange. The exchange will take place at NAV, without the imposition
of a sales load (if any), fee, or other charge. After the exchange, the
exchanged Shares will be subject to all fees applicable to the Retail Class. If
a shareholder declines to accept an automatic exchange, and if the shareholder
does not meet the requirements for investing in Institutional Class shares, the
Fund reserves the right to redeem the Shares upon expiration of the thirty-day
period. Each Portfolio reserves the right to require shareholders to complete an
application or other documentation in connection with the exchange.

Retail Class shares of a Portfolio may be exchanged for Institutional Class
shares of the same Portfolio should the shareholder establish a trust, custodial
or money management relationship with First Maryland or its affiliates and
satisfy the minimum initial investment to establish a new account. The Fund has
received a tax private letter ruling from the Internal Revenue Service which
provides that exchanges of shares of one class of a portfolio for shares of
another class of the same portfolio will not constitute taxable events. See your
trust officer for additional information.

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<PAGE> 30

REDEEMING SHARES
- --------------------------------------------------------------------------------

Shareholders may redeem all or a portion of their Shares by mail, telephone
or telecommunication privilege. A shareholder may redeem Shares on each Business
Day. Shares will be redeemed at the NAV next determined after the transfer agent
has received and accepted a redemption request. Shares of each ARK Money Market
Portfolio redeemed at 12:00 noon for U.S. Treasury Money Market Portfolio or
Tax-Free Money Market Portfolio, or 1:30 p.m. for U.S. Government Money Market
Portfolio or Money Market Portfolio, do not earn the dividend declared on the
day of the redemption. Shares redeemed at 4:00 p.m. continue to earn dividends
on the date of redemption. With respect to the ARK Non-Money Market Portfolios,
Shares will be eligible to earn dividends through the date of redemption;
however, Shares redeemed on a Friday or prior to a holiday will continue to earn
dividends until the next Business Day. Shareholders may initiate redemptions:

BY MAIL. To redeem by mail send a written request to The First National
Bank of Maryland, Trust Division [Banc #101-621], P.O. Box 1596, Baltimore,
Maryland, 21203.

The signatures on the written request must be properly guaranteed.
Signature guarantees will be accepted from banks, brokers, dealers, municipal
securities dealers and brokers, government securities dealers and brokers,
credit unions (if authorized under state law), national securities exchanges,
registered securities associations, clearing agencies and savings associations.

BY TELEPHONE. To redeem by telephone or telecommunication, call First
Maryland toll free at (800) 624-4116 outside Maryland and (800) 638-7751 inside
Maryland.

With respect to the ARK Money Market Portfolios, under normal
circumstances, if the request for redemption is received by 12:00 noon for U.S.
Treasury Money Market Portfolio and Tax-Free Money Market Portfolio or 1:30 p.m.
for U.S. Government Money Market Portfolio and Money Market Portfolio on any
Business Day, the proceeds of such redemption will be wired via federal funds on
the same day. If, under normal circumstances, the request is received after
12:00 noon or 1:30 p.m., respectively, and before 4:00 p.m., and on a Business
Day, that day's dividend will be received and the redemption proceeds will be
wired the next Business Day.

With respect to the ARK Non-Money Market Portfolios, under normal
circumstances, if a redemption request is received before 4:00 p.m., the
redemption proceeds will be wired via federal funds on the next Business Day.

Although at present First Maryland pays the wire costs involved, the Fund
reserves the right at any time to require the investor to pay such costs.

If making immediate payment could adversely affect a Portfolio, a Portfolio
may take up to seven (7) days after redemption to pay the proceeds. When the
NYSE is closed (or when trading is restricted) for any reason other than its
customary weekend or holiday closings, or under any emergency circumstances as
determined by the SEC to merit such action, a Portfolio may suspend redemption
or payment dates. When the NYSE or the Federal Reserve Bank of New York closes
early, the Portfolios reserve the right to advance the time on any such day by
which purchase and redemption orders must be received. To the extent portfolio
securities are traded in other markets on days which are not Business Days of
the Fund, the NAV of the Shares of a Portfolio may be

27
<PAGE> 31

affected at a time when investors do not have access to such Portfolio to
purchase or redeem Shares.

If a shareholder redeems all the Shares of a Portfolio in an account, the
Shareholder will receive, in addition to the value thereof, any declared but
unpaid distributions thereon at the beginning of the following month.

MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------

INVESTMENT ADVISORS
- --------------------------------------------------------------------------------

First Maryland, 25 South Charles Street, Baltimore, MD 21201 provides
investment advisory services to each Portfolio, with the exception of
International Equity Portfolio, subject to the general supervision of the Board.
First Maryland is entitled to receive for its advisory services payment at an
annual rate based on the following fee schedule: ARK Money Market Portfolios:
.25% of each such Portfolio's average daily net assets; Short-Term Treasury
Portfolio: .35% of average daily net assets; Income Portfolio: .50% of average
daily net assets; Growth and Income Portfolio: .55% of average daily net assets;
Blue Chip Equity Portfolio .60% of average daily net assets; Capital Growth
Portfolio: .60% of average daily net assets; Special Equity Portfolio: .60% of
average daily net assets; and Maryland Tax-Free Portfolio: .50% of average daily
assets. First Maryland, in its sole discretion, may waive all or any portion of
its advisory fee for any Portfolio. Any such voluntary waiver will increase such
Portfolio's yield for the period during which the waiver is in effect.

First Maryland, established in 1806, had total assets of approximately $10
billion as of September 30, 1995, and is a wholly-owned subsidiary of First
Maryland Bancorp, which is a subsidiary of Allied Irish Banks, p.l.c. First
Maryland Bancorp was organized in 1974 as a bank holding company registered
under the Federal Bank Holding Company Act of 1956 and files annual and periodic
reports with the SEC under the Securities Exchange Act of 1934. See "Banking Law
Matters". First Maryland has experience as an investment advisor to individual,
corporate, and institutional advisory clients, pension plans and collective
investment funds, with approximately $32.7 million in assets under
administration, $5.3 million of which were assets under investment management as
of September 30, 1995. First Maryland has managed mutual funds since June 1993.

AIB I.M., AIB Investment House, Percy Place, Dublin 4, Ireland, provides
investment advisory services to International Equity Portfolio, subject to the
general supervision of the Board. AIB I.M. is the discretionary investment
management arm of the AIB Group, Ireland's largest banking and financial
services group. As of September 30, 1995, AIB I.M. had assets under management
of $7.1 billion. AIB I.M. has experience managing the investments of
corporations, public and private pension funds, high-net-worth individuals, and
has an extensive range of international foreign mutual fund accounts. Prior to
the commencement of operations of International Equity Portfolio on December 30,
1994, AIB I.M. had no experience advising U.S. registered investment companies.
AIB I.M. is an affiliate of First Maryland and is registered as an investment
adviser under the Investment Advisers Act of 1940. Pursuant to an Advisory
Agreement dated June 7, 1994 between AIB I.M. and the Fund, AIB I.M. is entitled
to receive a fee for its advisory services to International Equity Portfolio at
an annual rate of .80% of the Portfolio's average daily net assets. The

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<PAGE> 32

management fee is higher than those paid by most mutual funds, due to greater
complexity, expense and commitment of resources involved in international
investing, but not necessarily higher than those of a typical international
fund. AIB I.M., in its sole discretion, may waive all or any portion of its
advisory fee for the Portfolio. Any such voluntary waiver will increase the
Portfolio's yield for the period during which the waiver is in effect. AIB I.M.
has voluntarily agreed to waive a portion of its advisory fee or reimburse other
expenses in order to limit International Equity Portfolio's total operating
expenses from exceeding 1.55% of average daily net assets. This expense cap is
subject to annual review by AIB I.M.

PORTFOLIO MANAGEMENT
- --------------------------------------------------------------------------------

James M. Hannan is a vice president of First Maryland and has been the
portfolio manager for the ARK Money Market Portfolios since June 1993. He is
also responsible for the management of several separately managed institutional
portfolios which he has managed since 1992. Prior to 1987 he served as the
Treasurer for the City of Hyattsville, Maryland.

Susan S. Schnaars, Vice President of First Maryland, has been the portfolio
manager for Income Portfolio since May 1994 and co-portfolio manager since
January 1996 and is the portfolio manager for Maryland Tax-Free Portfolio and
Short-Term Treasury Portfolio. Ms. Schnaars is also responsible for managing
several commingled funds (taxable and tax-free) and several large institutional
accounts. Prior to 1992, Ms. Schnaars managed institutional and commingled
fixed-income portfolios, including the RAF Fixed Income Fund for PNC Investment
Management and Research (formerly known as Provident National Bank). Ms.
Schnaars is a Chartered Financial Analyst and a Certified Public Accountant.

Steven M. Gradow is a Senior Vice President of First Maryland and serves as
the co-portfolio manager for Income Portfolio with Susan S. Schnaars. Prior to
joining First Maryland in January 1996, Mr. Gradow was responsible for the
management of $15 billion of fixed income pension assets for Washington State
Investment Board in Seattle for 4 years. Mr. Gradow's recent experience also
includes 5 years fixed income management for the Public Employees Retirement
System of California (CALPERS).

Charles E. Knudsen is a Vice President of First Maryland and has been the
portfolio manager for Growth and Income Portfolio since July 1993. He follows
several equity industry groups. In addition, he is a senior portfolio manager
for key, tax-free institutional accounts, including pension and profit sharing
plans, foundations, and endowments. Mr. Knudsen is a Chartered Financial
Analyst.

Clyde L. Randall is a Vice President of First Maryland and serves as the
co-portfolio manager for Blue Chip Equity Portfolio with Allen J. Ashcroft, Jr.
Prior to March 1995, Mr. Randall was an equity analyst and portfolio manager for
more than five years at Mercantile Safe Deposit and Trust, Baltimore, Maryland.
Mr. Randall is a Chartered Financial Analyst.

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<PAGE> 33

Wyomissing, Pennsylvania. Mr. Ashcroft has over 17 years experience in
investment research and equity analysis.

H. Giles Knight, Senior Vice President of First Maryland, has been the
portfolio manager of Capital Growth Portfolio since January 1995 and is the
co-portfolio manager of Special Equity Portfolio with Christopher E. Baggini. He
also serves as Director of Equity Research of First Maryland. Prior to joining
First Maryland, Mr. Knight was with ASB Capital Management, a subsidiary of
NationsBank from 1990 to 1994. He was the Director of Special Equity
Investments, Capital Markets Division where he was responsible for one mutual
fund and six employee benefit and personal trust common stock funds.

Christopher E. Baggini is a Vice President of First Maryland and serves as
the co-portfolio manager of Special Equity Portfolio with H. Giles Knight. Prior
to joining First Maryland, Mr. Baggini served as portfolio manager and research
analyst for First Metropolitan Development Corporation. Mr. Baggini has over
nine years experience in investment management, including over four years at
Salomon Brothers with responsibilities in equity research, sales and trading.

Joseph H. Costello is Executive Vice President and Investment Director of
AIB I.M., with overall responsibility for international equities. Prior to
joining AIB I.M. in 1992, he was Deputy Investment Manager with the New Ireland
Assurance Company Limited where he managed equity and fixed income portfolios
from 1978. Mr. Costello is assisted in managing International Equity Portfolio
by several regional managers, each focusing on a market or geographical area.

Investment personnel may invest in securities for their own account
pursuant to a code of ethics that establishes procedures for personal investing
and restricts certain transactions.

TRANSFER AGENT
- --------------------------------------------------------------------------------

SEI Financial Management Corporation, 680 East Swedesford Road, Wayne,
Pennsylvania 19087, provides transfer agent and related services for the
Portfolios. SEI Financial Management Corporation is a wholly-owned subsidiary of
SEI Corporation ("SEI"). SEI Financial Management Corporation has subcontracted
the transfer agency services to State Street Bank and Trust Company ("State
Street Bank"). State Street Bank maintains shareholder accounts and records for
the Portfolios.

ADMINISTRATOR AND DISTRIBUTOR
- --------------------------------------------------------------------------------

SEI Financial Management Corporation serves as the Portfolios'
administrator (the "Administrator") under the Administration Agreement dated
November 1, 1995 between the Administrator and the Fund. SEI Financial Services
Company, a wholly-owned subsidiary of SEI, serves as the distributor (the
"Distributor") for the Fund pursuant to a Distribution Agreement dated November
1, 1995 between the Distributor and the Fund. The Distributor, a Pennsylvania
corporation incorporated on July 20, 1981, is a broker-dealer registered under
the Securities Exchange Act of 1934 and a member of the National Association of
Securities Dealers. Inc. The Administrator and the Distributor are located at
680 East Swedesford Road, Wayne, Pennsylvania 19087.

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<PAGE> 34

The Administrator of the Fund assists in each Portfolio's administration
and operation, including providing facilities for maintaining each Portfolio's
organization, supervising relations with the custodian, transfer and pricing
agents, accountants, underwriters, and other persons dealing with each
Portfolio, preparing all general shareholder communications and conducting
shareholder relations, maintaining (or providing for the maintenance of) the
Fund's records and the registration of each Portfolio's shares under federal and
state law, developing management services for the Portfolios and furnishing
reports, evaluation and analyses on a variety of subjects to the Board. The
Administrator is entitled to receive an annual fee of .13% of the aggregate
average daily net assets of the Fund, paid monthly, for services performed under
the Administration Agreement. The Administrator has voluntarily agreed to waive
a portion of its administration fee on certain Portfolios of the Fund in order
to limit total operating expenses of such Portfolios. Any such voluntary waiver,
which can be discontinued at any time, will increase such Portfolio's yield for
the period during which the waiver is in effect.

The Distributor sells Shares of each Portfolio as agent on behalf of the
Fund at no additional cost to the Fund. The Distributor is the principal
underwriter of the Fund. First Maryland and its affiliates neither participate
in nor are responsible for the underwriting of Portfolio Shares.

CUSTODIAN
- --------------------------------------------------------------------------------

The First National Bank of Maryland, 25 South Charles Street, Baltimore,
Maryland 21201, is custodian (the "Custodian") for the securities and cash of
the Fund. Under the Custody Agreement between the Fund and the Custodian, the
Custodian holds the Fund's portfolio securities in safekeeping and keeps all
necessary records and documents relating to its duties. For the services
provided to the Fund pursuant to the Custody Agreement, the Fund pays the
Custodian a monthly fee at the annual rate of .015% of the average daily net
assets of the Fund. The Custodian also charges the Fund transaction handling
fees ranging from $5 to $75 per transaction and receives reimbursement for
out-of-pocket expenses. Foreign securities purchased by the International Equity
Portfolio are held by foreign banks participating in a network coordinated by
Bankers Trust Company, which serves as sub-custodian for the Fund. All expenses
incurred through this network are paid by the Portfolio.

BANKING LAW MATTERS
- --------------------------------------------------------------------------------

Banking laws and regulations generally permit a bank or bank affiliate to
act as an investment adviser and to purchase shares of an investment company as
agent for and upon the order of a customer. However, banking laws and
regulations, including the Glass-Steagall Act as currently interpreted by the
Board of Governors of the Federal Reserve System, prohibit a bank holding
company registered under the Federal Bank Holding Company Act of 1956 or any
affiliate thereof from sponsoring, organizing, controlling, or distributing the
shares of a registered, open-end investment company continuously engaged in the
issuance of its shares, and prohibit banks generally from issuing, underwriting,
selling or distributing securities. Upon advice of counsel, the Board believes
that First Maryland and AIB I.M. may perform the advisory services described in
this Prospectus for each Portfolio and its shareholders without violating
applicable federal banking laws or regulations.

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<PAGE> 35

However, judicial or administrative decisions or interpretations of, as
well as changes in, either federal or state statutes or regulations relating to
the activities of banks and their affiliates could prevent a bank or bank
affiliate from continuing to perform all or a part of the activities
contemplated by this Prospectus. If banks or bank affiliates were prohibited
from so acting, changes in the operation of the Fund might occur. It is not
anticipated, however, that any such change would affect the Shares' NAVs or
result in any financial loss to any shareholder.

TAX MATTERS
- --------------------------------------------------------------------------------

The following discussion is only a brief summary of some of the important
tax considerations generally affecting the Portfolios and their shareholders and
is not intended as a substitute for careful tax planning. Accordingly, investors
in the Portfolios should consult their tax advisers with specific reference to
their own tax situation.

Each Portfolio has elected to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. So long as
a Portfolio qualifies for this tax treatment, it will be relieved of federal
income tax on amounts distributed to shareholders, but shareholders, unless
otherwise exempt, will pay income or capital gains taxes on amounts so
distributed (except distributions that constitute "exempt interest dividends" or
that are treated as a return of capital) regardless of whether such
distributions are paid in cash or reinvested in additional Shares.

Distributions out of the "net capital gain" (the excess of net long-term
capital gain over net short-term capital loss), if any, of any Portfolio will be
taxed to shareholders as long-term capital gains at a maximum marginal rate of
28%, regardless of the length of time a shareholder has held Shares, whether
such gain was reflected in the price paid for the Shares, or whether such gain
was attributable to bonds bearing tax-exempt interest. All other distributions,
to the extent they are taxable, are taxed as ordinary income at a maximum
marginal rate of 39.6%. Corporate taxpayers are currently taxed at the same
maximum marginal rates on both ordinary income and capital gains.

Tax-Free Money Market Portfolio and Maryland Tax-Free Portfolio intend to
pay substantially all of their respective dividends as "exempt interest
dividends." Investors in these Portfolios should note, however, that taxpayers
are required to report the receipt of tax-exempt interest and "exempt interest
dividends" in their federal income tax returns and that in two circumstances
such amounts, while exempt from regular federal income tax, are taxable to
persons subject to alternative minimum tax. Alternative minimum tax is currently
imposed at a maximum marginal rate of 28% in the case of non-corporate taxpayers
and at the rate of 20% in the case of corporate taxpayers. First, tax-exempt
interest and "exempt interest dividends" derived from certain private activity
bonds issued after August 7, 1986, will generally constitute an item of tax
preference for corporate and non-corporate taxpayers in determining alternative
minimum tax liability. Tax-Free Money Market Portfolio and Maryland Tax-Free
Portfolio intend to avoid investing their assets in such private activity bonds
but may do so if required by market conditions. Second, tax-exempt interest and
"exempt interest dividends" derived from all municipal securities must be taken
into account by corporate taxpayers in determining their adjusted current
earnings adjustments for alternative minimum tax purposes. Realized market
discount on tax-exempt obligations purchased after April 30, 1993 is treated as
ordinary income and not as capital gain. Shareholders who are

32
<PAGE> 36

recipients of Social Security Act or Railroad Retirement Act benefits should
further note that tax-exempt interest and "exempt interest dividends" will be
taken into account in determining the taxability of their benefit payments.

Tax-Free Money Market Portfolio and Maryland Tax-Free Portfolio will
determine annually the percentage of their respective net investment incomes
that is fully tax-exempt, the percentage which constitutes an item of tax
preference for alternative minimum tax purposes and the percentage that is fully
taxable, and will apply such percentages uniformly to all distributions declared
from net investment income during that year. These percentages may differ
significantly from the actual percentages for any particular day.

To the extent that Tax-Free Money Market Portfolio and Maryland Tax-Free
Portfolio income dividends and capital gain distributions are derived from
Maryland state tax-free investments, they will be free from Maryland state and
county taxes (including City of Baltimore local taxes).

The Fund anticipates that a substantial portion of dividends paid by Blue
Chip Equity Portfolio, Capital Growth Portfolio, Growth and Income Portfolio,
International Equity Portfolio and Special Equity Portfolio will be eligible for
the 70% dividends received deduction allowed to certain corporations to the
extent of the gross amount of qualified dividends received, respectively, by
each Portfolio for the year. However, corporate shareholders will have to take
into account the entire amount of any dividend received in determining their
adjusted current earnings adjustment for alternative minimum tax purposes. The
dividends received deduction is not available for capital gain dividends.

Many state income tax laws exempt from taxation dividends paid by a
regulated investment company to the extent such dividends are derived from
interest paid on U.S. Treasury obligations. The Fund will advise shareholders
annually of the percentage of the ordinary income dividends paid by each
Portfolio that is attributable to interest earned on U.S. Treasury obligations.

The Fund will send written notices to shareholders annually regarding the
tax status of distributions made by each Portfolio. Dividends declared in
October, November or December of any year payable to shareholders of record on a
specified date in such a month will be deemed to have been received by the
shareholders on December 31, provided such dividends are paid during January of
the following year. Each Portfolio intends to make sufficient actual or deemed
distributions prior to the end of each calendar year to avoid liability for
federal excise tax.

Investors should be careful to consider the tax implications of buying
Shares just prior to a distribution. The price of Shares purchased at that time
will reflect the amount of the forthcoming distribution. Those investors
purchasing just prior to a distribution will nevertheless be taxed on the entire
amount of the distribution received. The foregoing considerations do not apply
to the purchase of Shares of the ARK Money Market Portfolios, which are offered
at the constant NAV of $1.00.

Shareholders who exchange Shares representing interests in one Portfolio
for Shares representing interests in another Portfolio will generally recognize
capital gain or loss for federal income tax purposes.

To avoid being subject to federal income tax withholding at the rate of 31%
on taxable dividends, distributions and redemption payments, shareholders must
furnish the Fund with their

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<PAGE> 37

taxpayer identification numbers and certify under penalties of perjury that the
number provided is correct and that they are not subject to backup withholding
for any reason. Redemptions of Shares are reported annually on information
returns that are filed with the IRS with respect to each shareholder that is not
otherwise exempt.

Shareholders who are nonresident alien individuals, foreign trusts or
estates, foreign corporations or foreign partnerships may be subject to
different U.S. federal income tax treatment.

EFFECTS OF FOREIGN TAXES. International Equity Portfolio sometimes pays
withholding or other taxes to foreign governments during the year. These taxes
reduce the Portfolio's distributions but, under an election that International
Equity Portfolio intends to make, are included in the taxable dividend income
reported on an investor's tax statement. As a result of election, an investor
may be able to claim an offsetting tax credit or itemized deduction for foreign
taxes paid by the Portfolio. The tax statement will generally show the amount of
foreign tax for which a credit or deduction will be available.

CURRENCY CONSIDERATIONS. If International Equity Portfolio's dividends
exceed its taxable income in any year, which is sometimes the result of
currency-related losses, all or a portion of the Portfolio's distributions may
be treated as a return of capital to shareholders for tax purposes. To minimize
the risk of a return of capital, the Portfolio may adjust its distributions to
take currency fluctuations into account, which may cause the distributions to
vary. Any return of capital will reduce the cost basis of an investor's Shares,
which will result in a higher reported capital gain or a lower reported capital
loss when those Shares are sold. The statement received in January will specify
if any distribution included a return of capital.

* * *

An investment in any one Portfolio is not intended to constitute a balanced
investment program. Shares of Tax-Free Money Market Portfolio and Maryland
Tax-Free Portfolio would not be suitable for tax-exempt institutions and may not
be suitable for retirement plans qualified under Section 401 of the Internal
Revenue Code, H.R. 10 plans and individual retirement accounts because such
plans and accounts are generally tax-exempt. Therefore, such plans and accounts
would not gain any additional benefit from the Portfolios dividends' tax-exempt
status and, moreover, such dividends would be taxable when distributed to the
beneficiary.

Future legislative or administrative changes or court decisions may
materially affect the tax consequences of investing in one or more Portfolios of
the Fund. From time to time, proposals have been introduced before Congress that
would have the effect of reducing or eliminating the federal tax exemption on
municipal obligations. If such a proposal were enacted, the ability of Tax-Free
Money Market Portfolio and Maryland Tax-Free Portfolio to pay exempt-interest
dividends might be adversely affected. Shareholders are also urged to consult
their tax advisers concerning the application of state and local income taxes to
investments in the Fund, which may differ from the Federal income tax
consequences described above.

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<PAGE> 38

GENERAL INFORMATION
- --------------------------------------------------------------------------------

ARK Funds is an open-end diversified management investment company
organized as a Massachusetts business trust pursuant to a Declaration of Trust
dated October 22, 1992, and amended and restated on March 19, 1993. The Board
supervises Fund activities and reviews contractual arrangements with companies
that provide the Portfolios with services. The Fund may issue an unlimited
number of shares of each of its Portfolios. The Shares of a Portfolio have equal
voting, liquidation and other rights. When issued and paid for, Shares will be
fully paid and non-assessable by the Fund and will have no preference,
conversion, exchange or preemptive rights. The Board may authorize the Fund to
offer other portfolios which may differ in the types of securities in which
their assets may be invested.

As a Massachusetts business trust, the Fund is not required to hold annual
shareholder meetings, although special meetings may be called for a specific
Portfolio or class of shares with respect to issues affecting that Portfolio or
class, or for the Fund as a whole for purposes such as electing or removing
Trustees. Shareholders are entitled to one vote for each full share owned and
fractional votes for fractional shares owned. Separate votes are taken by each
class of shares, Portfolio, or the Fund if a matter affects just that class,
portfolio or the Fund, respectively.

The Fund offers three classes of shares of each ARK Money Market Portfolio;
two classes of shares of Short-Term Treasury Portfolio, Income Portfolio, Growth
and Income Portfolio, Blue Chip Equity Portfolio, Capital Growth Portfolio,
Special Equity Portfolio and Maryland Tax-Free Portfolio; and one class of
shares of International Equity Portfolio. The classes of shares of a Portfolio
have a common investment objective and investment limitations and policies. The
classes of shares of a Portfolio have different sales charges and other expenses
that may affect performance. The Institutional Classes of Short-Term Treasury
Portfolio, and Blue Chip Equity Portfolio, are expected to commence operations
on or about the date of this Prospectus. The Institutional Class of Maryland
Tax-Free Portfolio has not yet commenced operations. The Retail Class of U.S.
Government Money Market Portfolio, Short-Term Treasury Portfolio, Blue Chip
Equity Portfolio, Special Equity Portfolio and Maryland Tax-Free Portfolio have
not yet commenced operations. You may obtain more information on the classes of
shares not offered through this Prospectus by calling 1-800-624-4116 or from
your Investment Professional.

APPENDIX
- --------------------------------------------------------------------------------

The following paragraphs provide a brief description of the securities in
which Portfolios may invest and the transactions they may make. A Portfolio's
investments are not limited by this discussion, however, and a Portfolio may
include other types of securities and other types of transactions consistent
with its investment objective.

A complete listing of the Portfolios' policies and limitations and more
detailed information about the Portfolios' investments are contained in the
Portfolios' SAI. Current holdings and recent investment strategies are described
in the Portfolios' financial reports, which are sent to shareholders twice a
year.

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<PAGE> 39

The ARK Non-Money Market Portfolios, except Maryland Tax-Free Portfolio and
Short-Term Treasury Portfolio, may invest in AMERICAN DEPOSITORY RECEIPTS AND
EUROPEAN DEPOSITORY RECEIPTS ("ADRs" and "EDRs"). ADRs and EDRs are certificates
evidencing ownership of shares of a foreign-based issuer held in trust by a bank
or similar financial institution. Designed for use in U.S. and European
securities markets, respectively, ADRs and EDRs are alternatives to the purchase
of the underlying securities in their national markets and currencies.

Each Portfolio, except U.S. Treasury Money Market Portfolio, U.S.
Government Money Market Portfolio, Short-Term Treasury Portfolio and
International Equity Portfolio, may purchase ASSET-BACKED SECURITIES which
consist of undivided fractional interests in pools of consumer loans (unrelated
to mortgage loans) held in a trust. Payments of principal and interest are
passed through to certificate holders and are typically supported by some form
of credit enhancement, such as a letter of credit, surety bond, limited
guaranty, or senior subordination. The degree of credit enhancement varies, but
generally amounts to only a fraction of the asset-backed security's par value
until exhausted. If the credit enhancement is exhausted, certificate holders may
experience losses or delays in payment if the required payments of principal and
interest are not made to the trust with respect to the underlying loans. The
value of these securities also may change because of changes in the market's
perception of the creditworthiness of the servicing agent for the loan pool, the
originator of the loans, or the financial institution providing the credit
enhancement. Asset-backed securities are ultimately dependent upon payment of
consumer loans by individuals, and the certificate holder generally has no
recourse to the entity that originated the loans. The underlying loans are
subject to prepayments which shorten the securities' weighted average life and
may lower their return. (As prepayments flow through at par, total returns would
be affected by the prepayments: if a security were trading at a premium, its
total return would be lowered by prepayments, and if a security were trading at
a discount, its total return would be increased by prepayments.)

Each Portfolio, except U.S. Treasury Money Market Portfolio, U.S.
Government Money Market Portfolio and Short-Term Treasury Portfolio, may
purchase BANK OBLIGATIONS. These include: bankers' acceptances which are
negotiable obligations of a bank to pay a draft which has been drawn on it by a
customer; certificates of deposit which are negotiable certificates representing
a commercial bank's obligation to repay funds deposited with it, earning
specified rates of interest over given periods or issued at a discount; and time
deposits which are non-negotiable deposits in a banking institution earning a
specified interest rate over a given period of time.

Each Portfolio, except U.S. Treasury Money Market Portfolio, U.S.
Government Money Market Portfolio and Short-Term Treasury Portfolio, may
purchase COMMERCIAL PAPER. Commercial paper is an obligation issued by a bank,
broker-dealer, corporation and other entities for purposes such as financing its
current operations.

The ARK Non-Money Market Portfolios, except Short-Term Treasury Portfolio,
may purchase CONVERTIBLE SECURITIES. Convertible securities are usually
preferred stock or bond issues that may be converted or exchanged by the holder
into shares of the underlying common stock at a stated exchange ratio. A
convertible security may also be subject to redemption by the issuer but only
after a particular date and under certain circumstances (including a specified
price) established upon issue. If a convertible security held by a Portfolio is
called for redemption, that Portfolio could

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<PAGE> 40

be required to tender it for redemption, convert it to the underlying common
stock, or sell it to a third party.

Each Portfolio, except U.S. Treasury Money Market Portfolio, U.S.
Government Money Market Portfolio, Short-Term Treasury Portfolio, and Maryland
Tax-Free Portfolio, may invest in EURODOLLARS, YANKEE DOLLARS and FOREIGN BANK
obligations which involve risks that are different from investments in
securities of U.S. banks. These risks may include future unfavorable political
and economic developments, withholding taxes, seizures of foreign deposits,
currency controls, interest limitations, or other governmental restrictions that
might affect payment of principal or interest. Additionally, there may be less
public information available about foreign banks and their branches and
agencies. Foreign branches of domestic banks are not regulated by U.S. banking
authorities and generally are not subject to accounting, auditing, and financial
reporting standards comparable to those applicable to U.S. banks. For this
purpose, domestic banks include foreign branches of domestic banks for which the
domestic parent is unconditionally liable in the event the foreign branch failed
to pay on its instruments for any reason.

Each Portfolio, except U.S Treasury Money Market Portfolio, U.S. Government
Money Market Portfolio, Short-Term Treasury Portfolio and Maryland Tax-Free
Portfolio, may invest in U.S. dollar-denominated securities of foreign issuers.
Each ARK Non-Money Market Portfolio, except Short-Term Treasury Portfolio and
Maryland Tax-Free Portfolio, may invest in FOREIGN SECURITIES denominated in
foreign currencies. Foreign investments involve risks in addition to the risks
inherent in domestic investments. A Portfolio's foreign securities and
securities denominated in or indexed to foreign currencies may be affected by
the strength of foreign currencies relative to the U.S. dollar, or by political
or economic developments in foreign countries. Foreign companies may not be
subject to accounting standards or governmental supervision comparable to U.S.
companies, and there may be less public information about their operations.
Foreign markets may be less liquid or more volatile than U.S. markets, and may
offer less protection to investors. In addition to the political and economic
factors that can affect foreign securities, a governmental issuer may be
unwilling to repay principal and interest when due, and may require that the
conditions for payment be renegotiated. These factors could make foreign
investments, especially those in developing countries, more volatile. First
Maryland or AIB I.M., as applicable, considers these factors in making
investments in foreign securities for a Portfolio. There is no direct limitation
specifically intended to limit the amount of each Portfolio's assets that may be
invested in foreign securities or in any one country or currency.

Foreign securities, foreign currencies and securities issued by U.S.
entities with substantial foreign operations may involve additional risks and
considerations. These include risks relating to political or economic conditions
in foreign currencies, withholding or other taxes, operational risks, increased
regulatory burdens and the potentially less stringent investor protection and
disclosure standards of foreign markets. Additionally, governmental issuers of
foreign securities may be unwilling to re-pay principal and interest when due,
and may require that the conditions for payment be re-negotiated. All these
factors can make foreign investments, especially those in developing countries,
more volatile.

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<PAGE> 41

foreign securities. Although forward currency contracts can be used to protect a
Portfolio from adverse exchange rate changes, they involve a risk of loss if
First Maryland or AIB I.M., as applicable, fails to predict foreign currency
values correctly.

HEDGING STRATEGIES. The ARK Non-Money Market Portfolios, except for the
Short-Term Treasury Portfolio, may buy and sell options on securities,
currencies, futures contracts and options on such contracts ("Hedging
Instruments") to manage their exposure to changing interest rates, security
prices, and currency exchange rates. Some strategies using these instruments,
including selling futures, buying puts and writing calls, tend to hedge a
Portfolio's investments against price fluctuations. Other strategies, including
buying futures, writing puts and buying calls, tend to increase market exposure.
Hedging Instruments may be used in combination with each other or with forward
currency contracts in order to adjust the risk and return characteristics of the
overall strategy. A Portfolio may invest in Hedging Instruments based on any
type of security, index, or currency, including options and futures traded on
foreign exchanges and options not traded on exchanges. These strategies may
increase the volatility of the Portfolios and may involve a small investment of
cash relative to the magnitude of the risk assumed. In addition, these
strategies could result in a loss to a Portfolio if the counterparty to the
transaction does not perform as promised.

Hedging Instruments can be volatile investments, and involve certain risks.
If First Maryland or AIB I.M., as applicable, applies a hedge at an
inappropriate time or judges market conditions incorrectly, use of Hedging
Instruments may lower a Portfolio's return. A Portfolio could also experience a
loss if the prices of its options and futures positions were poorly correlated
with its other investments, or if it could not close out its positions because
of an illiquid secondary market.

No Portfolio will hedge more than 25% of its total assets by selling
futures, writing calls, and buying puts under normal conditions. In addition, a
Portfolio will not buy futures or write puts where the value of the underlying
investment exceeds 25% of its total assets, and will not buy calls with a value
exceeding 5% of its total assets.

Under currently applicable regulations, each ARK Money Market Portfolio,
except U.S. Treasury Money Market Portfolio, may invest up to 10% of its net
assets in ILLIQUID SECURITIES; the ARK Non-Money Market Portfolios may invest up
to 15% of their respective net assets in illiquid securities. Illiquid
securities are securities that cannot be disposed of in the usual course of
business within seven days without taking a reduced price. Generally, securities
subject to restriction on resale, variable rate demand notes, repurchase
agreements with more than seven days to maturity, and time deposits are
considered to be illiquid unless First Maryland or AIB I.M., as applicable,
determines, in accordance with guidelines established by the Board, that such
securities are readily marketable. The absence of a trading market can make it
difficult to ascertain a market value for illiquid securities, and it may be
difficult or impossible for a Portfolio to sell them promptly at an acceptable
price. In addition, unless securities are registered for sale, securities can
only be sold in privately negotiated transactions or pursuant to an exemption
from registration.

The ARK Non-Money Market Portfolios, except for the Short-Term Treasury
Portfolio and Blue Chip Equity Portfolio, may invest in INDEXED SECURITIES whose
value depends on the price of securities indices, or other financial indicators.
These include commercial paper and certificates of deposit. These securities may
be positively or negatively indexed; that is, their value may increase or
decrease if the underlying instrument appreciates. Some indexed securities may
be based on

38
<PAGE> 42

underlying instruments whose total value is greater than the value of the
indexed security itself. Some indexed securities may have return characteristics
similar to direct investments in the underlying instrument. Indexed securities
may be more volatile than the underlying instrument itself.

Special Equity Portfolio may purchase LOWER-RATED DEBT SECURITIES which are
high-yielding debt securities, or junk bonds, (those rated Ba or lower by
Moody's or BB or lower by S&P) that have poor protection against default in the
payment of principal and interest. These securities are often considered to be
speculative and involve greater risk of loss or price changes due to changes in
the issuer's capacity to pay. The market prices of lower-rated debt securities
may fluctuate more than those of higher-rated debt securities, and may decline
significantly in periods of general economic difficulty which may follow periods
of rising interest rates. The table below provides a summary of ratings assigned
to debt securities (not including money market instruments) that may be included
in a Portfolio.

<TABLE>
<CAPTION>
MOODY'S S&P
RATING RATING DESCRIPTION
--------- --------- --------------------------------------------------------------
<S> <C> <C>
Investment Grade
Aaa/Aa/A AAA/AA/A Highest quality/high quality/upper medium grade
Baa BBB Medium grade
Non-Investment Grade
Ba BB Moderately speculative
B B Speculative
Caa CCC Highly speculative
Ca/C CC/C Poor quality/lowest quality no interest
-- D In default, in arrears
</TABLE>

Income Portfolio, Growth and Income Portfolio and Special Equity Portfolio
may purchase MORTGAGE-BACKED SECURITIES issued by government and non-government
entities such as banks, mortgage lenders, or other financial institutions.
Mortgage-backed securities include mortgage pass-through securities,
mortgage-backed securities, and mortgage pay-through securities. A mortgage
pass-through security is a pro-rata interest in a pool of mortgages where the
cash flow generated from the mortgage collateral is passed through to the
security holder. Mortgage-backed bonds are general obligations of their issuers,
payable out of the issuers' general funds and additionally secured by a first
lien on a pool of mortgages. Mortgage pay-through securities exhibit
characteristics of both pass-throughs and mortgage-backed bonds. Mortgage-backed
securities also include other debt obligations secured by mortgages on
commercial real estate or residential properties. The value of mortgage-backed
securities may change due to shifts in the market's perception of issuers. In
addition, regulatory or tax changes may adversely affect the mortgage securities
market as a whole. Non-government mortgage-backed securities may offer higher
yields than those issued by government entities, but also may be subject to
greater price changes than government issues. Because mortgage securities pay
both principal and interest as their underlying mortgages are paid off, they are
subject to pre-payment risk. Pre-payment, which occurs when unscheduled or early
payments are made on the underlying mortgages, may shorten the effective

39
<PAGE> 43

maturities of these securities and may lower their total returns. Finally, the
value of a mortgage security may be affected by changes in market interest
rates.

Each Portfolio, except U.S. Treasury Money Market Portfolio, U.S.
Government Money Market Portfolio, Short-Term Treasury Portfolio and
International Equity Portfolio, may purchase MUNICIPAL OBLIGATIONS which are
issued to raise money for a variety of public or private purposes, including
general financing for state and local governments, or financing for specific
projects or public facilities. They may be issued in anticipation of future
revenues, and may be backed by the full taxing power of a municipality, the
revenues from a specific project or the credit of a private organization. The
value of some or all municipal securities may be affected by uncertainties in
the municipal market related to legislation or litigation involving the taxation
of municipal securities or the rights on municipal securities holders. A
Portfolio may own a municipal security directly or through a participation
interest.

Each Portfolio, except U.S. Treasury Money Market Portfolio and Tax-Free
Money Market Portfolio, may enter into REPURCHASE AGREEMENTS. In a repurchase
agreement, the Portfolio buys a security at one price and simultaneously commits
to resell that security back at a higher price. Each Portfolio, except U.S.
Treasury Money Market Portfolio, Tax-Free Money Market Portfolio and
International Equity Portfolio may make SECURITIES LOANS to parties such as
broker-dealers and institutional investors. In the event of bankruptcy of the
other party to either a repurchase agreement or a securities loan, a Portfolio
could experience delays in recovering its cash or the securities it lent. To the
extent, in the meantime, the value of the securities purchased had decreased, or
the value of the securities lent had increased, the Portfolio could experience a
loss. In all cases, First Maryland must find the creditworthiness of the other
party to the transaction satisfactory.

International Equity Portfolio may enter into foreign repurchase
agreements, which may be less well secured than U.S. repurchase agreements, and
may be denominated in foreign currencies. They may involve greater risk of loss
if the counterparty defaults. Some counterparties in these transactions may be
less creditworthy than those in U.S. markets.

BORROWING MONEY AND REVERSE REPURCHASE AGREEMENTS. Each Portfolio may
borrow money by engaging in reverse repurchase agreements. In a reverse
repurchase agreement a Portfolio sells a portfolio instrument to another party,
such as a bank, in return for cash and agrees to repurchase the instrument at a
particular price and time. While a reverse repurchase agreement is outstanding,
a Portfolio will maintain appropriate liquid assets in a segregated custodial
account to cover its obligation under the agreement. A Portfolio will enter into
reverse repurchase agreements only with parties whose creditworthiness is deemed
satisfactory by First Maryland or AIB I.M., as applicable.

The ARK Non-Money Market Funds, except Short-Term Treasury Portfolio, may
enter into SHORT SALES with respect to securities owned ("short sales against
the box"). These transactions may help to hedge against the effect of price
declines, but may result in losses if the price of the underlying securities
increases.

40
<PAGE> 44

issued by the Federal Home Loan Banks and the Federal Home Loan Mortgage
Corporation are supported only by the credit of the issuing agency, and not by
the U.S. government. Securities issued by the Federal Farm Credit System, the
Federal Land Banks and the Federal National Mortgage Association are supported
by the agency's right to borrow money from the U.S. Treasury under certain
circumstances. U.S. Treasury securities and some agency securities, such as
those issued by the Federal Housing Administration and the Government National
Mortgage Association, are backed by the full faith and credit of the U.S.
government and are the highest quality government securities.

Each Portfolio, except U.S. Treasury Money Market Portfolio and Short-Term
Treasury Portfolio, may purchase VARIABLE or FLOATING RATE INSTRUMENTS. Variable
or floating rate instruments (including notes purchased directly from issuers)
bear variable or floating interest rates and may carry rights that permit
holders to demand full payment from issuers or certain financial intermediaries.
Floating rate securities have interest rates that change whenever there is a
change in a designated base rate, while variable rate instruments provide for a
specified periodic adjustment in the interest rate. These formulas are designed
to result in a market value for the instrument that approximates its par value.
Many variable and floating rate instruments also carry demand features that
permit a Portfolio to sell them at par value plus accrued interest on short
notice.

International Equity Portfolio and Special Equity Portfolio may invest in
WARRANTS which entitle the holder to buy equity securities at a specific price
for a specific period of time. Warrants may be considered more speculative than
certain other types of investments because they do not entitle a holder to
dividends or voting rights with respect to the securities which may be
purchased, nor do they represent any rights in the assets of the issuing
company. The value of a warrant may be more volatile than the value of the
securities underlying the warrants. Also, the value of the warrant does not
necessarily change with the value of the underlying securities and a warrant
ceases to have value if it is not exercised prior to the expiration date.

Each Portfolio may engage in transactions on a WHEN-ISSUED or
DELAYED-DELIVERY basis. The market value of securities purchased in this way may
change before the delivery date, which could affect the market value of the
assets and could increase fluctuations in a Portfolio's share price, yield and
return. Ordinarily, the Portfolios will not earn interest on the securities
purchased until they are delivered.

Each Portfolio, except International Equity Portfolio, may purchase ZERO
COUPON DEBT SECURITIES which do not make regular interest payments. Instead,
they are sold at a deep discount from their face value. In calculating its daily
dividend, each Portfolio takes into account as income a portion of the
difference between these securities' purchase prices and their face values.
Because they do not pay current income, the prices of zero coupon debt
securities can be volatile when interest rates change.

ADDITIONAL INVESTMENTS FOR TAX-FREE MONEY MARKET PORTFOLIO AND MARYLAND TAX-FREE
PORTFOLIO
- --------------------------------------------------------------------------------

MUNICIPAL LEASE OBLIGATIONS are issued by a state or local government or
authority to acquire land and a wide variety of equipment and facilities. These
obligations typically are not fully backed

41
<PAGE> 45

by the municipality's credit, and their interest may become taxable if the
interest is assigned. If funds are not appropriated for the following year's
lease payments, the lease may terminate, with the possibility of default on the
lease obligation and significant loss to the Portfolio. Certificates of
participation in municipal lease obligations or installment sales contracts
entitle the holder to a proportionate interest in the lease-purchase payments
made. Each Portfolio will only purchase rated municipal lease obligations.

MUNICIPAL SECURITIES include general obligation securities, which are
backed by the full taxing power of a municipality, and revenue securities, which
are backed by the revenues of a specific tax, project, or facility. Industrial
development bonds are a type of revenue bond backed by the credit and security
of a private issuer and may involve greater risk.

REFUNDING CONTRACTS. The Portfolios may purchase securities on a
when-issued basis in connection with the refinancing of an issuer's outstanding
indebtedness. Refunding contracts require the issuer to sell and a Portfolio to
buy refunded municipal obligations at a stated price and yield on a settlement
date that may be several months or several years in the future. Although a
Portfolio may sell its rights under a refunding contract, these contracts are
relatively new and the secondary market for them may be less liquid than the
secondary market for other types of municipal securities.

RESOURCE RECOVERY BONDS are a type of revenue bond issued to build
facilities such as solid waste incinerators or waste-to-energy plants.
Typically, a private corporation will be involved, at least during the
construction phase, and the revenue stream will be secured by fees or rents paid
by municipalities for use of the facilities. The viability of a resource
recovery project, environmental protection regulations, and project operator tax
incentives may affect the value and credit quality of resource recovery bonds.

TAX AND REVENUE ANTICIPATION NOTES are issued by municipalities in
expectation of future tax or other revenues, and are payable from those specific
taxes or revenues. Bond anticipation notes normally provide interim financing in
advance of an issue of bonds or notes, the proceeds of which are used to repay
the anticipation notes. Tax-exempt commercial paper is issued by municipalities
to help finance short-term capital or operating needs.

42
<PAGE> 46

ARKPROI-2/96
BS-3014A-9506
<PAGE> 47
ARK FUNDS: INSTITUTIONAL II CLASS

U.S. TREASURY MONEY MARKET PORTFOLIO
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
MONEY MARKET PORTFOLIO
TAX-FREE MONEY MARKET PORTFOLIO

CROSS REFERENCE SHEET

Form N-1A Item Number

Part A Prospectus Caption

* Not Applicable
<PAGE> 48
[LOGO]

THE ARK
FUNDS

[LOGO]

INSTITUTIONAL II CLASS
PROSPECTUS
<PAGE> 49

ARK FUNDS -- INSTITUTIONAL II CLASS
- --------------------------------------------------------------------------------
PROSPECTUS
, 1996
- --------------------------------------------------------------------------------

ARK Funds (the "Fund") is a registered open-end management investment company
that offers four money market portfolios: U.S. Treasury Money Market Portfolio,
U.S. Government Money Market Portfolio, Money Market Portfolio and Tax-Free
Money Market Portfolio (the "ARK Money Market Portfolios"). The First National
Bank of Maryland ("First Maryland") serves as investment advisor to the ARK
Money Market Portfolios.

The ARK Money Market Portfolios that offer Institutional II Class shares (the
"Portfolios") are offered through this Prospectus (the "Shares"). The Portfolios
consist of four money market portfolios. The Shares are offered only to
individuals, institutions and other entities that direct their own investments
and that have established trust relationships with The First Maryland National
Bank of Maryland ("First Maryland") or its affiliated banks (including Allied
Irish Banks, p.l.c. and its affiliates) or correspondent banks of First Maryland
or their affiliated banks. Investments in the Shares are made at net asset value
without a sales charge. A brief description of each Portfolio whose shares are
offered through this Prospectus follows.

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

TABLE OF CONTENTS

<TABLE>
<S> <C>
Summary Of Portfolio Expenses........... 2
Financial Highlights.................... 3
Investment Objectives, Policies and Risk
Considerations........................ 5
Performance............................. 9
Portfolio Transactions and Valuation.... 9
Purchases, Exchanges and Redemptions.... 11
Management of the Fund.................. 13
Banking Law Matters..................... 16
Tax Matters............................. 16
General Information..................... 18
Appendix................................ 19
</TABLE>

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

SUMMARY OF PORTFOLIO EXPENSES
- --------------------------------------------------------------------------------

A. ANNUAL INSTITUTIONAL II CLASS OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE
NET ASSETS):

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

<TABLE>
<CAPTION>
TOTAL
ADVISORY OTHER OPERATING
FEE 12B-1 FEE EXPENSES EXPENSES
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury Money Market Portfolio............. .19%* .10% .18% .47%*
U.S. Government Money Market Portfolio........... .14%* .10% .18% .42%*
Money Market Portfolio........................... .10%* .10% .15%* .35%*
Tax-Free Money Market Portfolio.................. .08%* .10% .14%* .32%*
</TABLE>

* After applicable waivers

B. EXAMPLE: An investor would pay the following expenses on a $1,000 investment
in the Shares, assuming (1) 5% annual return, (2) redemption at the end of
each time period, and (3) fee waivers continue at the same levels for each
time period.
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
U.S. Treasury Money Market Portfolio.................. $5 $15 $26 $59
U.S. Government Money Market Portfolio................ 4 13 24 53
Money Market Portfolio................................ 4 11 20 44
Tax-Free Money Market Portfolio....................... 3 10 18 41
</TABLE>

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

EXPLANATION OF TABLE: The purpose of the table is to assist investors in
understanding the various costs and expenses that an investor in the Shares
would bear directly or indirectly as a result of an investment in the Shares.
(For a more complete discussion of the various costs and expenses, see
"Management of the Fund"). As more fully described under the heading "Purchases,
Exchanges and Redemptions," the Shares are currently available only to
individuals, institutions and other entities that direct their own investments
and that have established trust, custodial or money management relationships
with First Maryland, its affiliated banks (including Allied Irish Banks, p.l.c.
and its affiliates) or correspondent banks of First Maryland or their affiliated
banks. Such relationships may involve the payment of account or service fees not
reflected in the table above.

A. ANNUAL OPERATING EXPENSES are based on the Institutional II Class'
estimated expenses for its first year of operations. Advisory Fees are paid by
each Portfolio to First Maryland for managing its investments. 12b-1 fees
represent fees for services and expenses, paid by each Portfolio to SEI
Financial Services Company, in connection with the distribution of the
Institutional II Class shares. Long-term shareholders may pay more than the
economic equivalent of the maximum front-end sales charge permitted by the
National Association of Securities Dealers, Inc. (NASD) due to

2
<PAGE> 51

12b-1 fees. Institutional II Class incurs other expenses for certain
administrative services such as maintaining shareholder records, furnishing
shareholder statements and reports, and for other services. First Maryland has
agreed to waive .06% of its advisory fee for U.S. Treasury Money Market
Portfolio, .11% of its advisory fee for U.S. Government Money Market Portfolio,
.15% of its advisory fee for Money Market Portfolio and .17% of its advisory fee
for Tax-Free Money Market Portfolio. SEI Financial Management Corporation has
voluntarily agreed to waive .018% of its administration fee for Money Market
Portfolio and .033% of its administration fee for Tax-Free Money Market
Portfolio. There can be no assurance that waivers will continue at the stated
levels or otherwise during the current fiscal year. Expenses eligible for waiver
do not include interest, taxes, brokerage commissions (if any), or extraordinary
expenses.

Absent such waivers, estimated Advisory Fees, 12b-1 Fees, Other Expenses
and Total Operating Expenses would be: .25%, .10%, .18% and .53% (U.S. Treasury
Money Market Portfolio); .25%, .10%, .18% and .53% (U.S. Government Money Market
Portfolio); 25%, .10%, .18% and .53% (Money Market Portfolio); .25%, .10%, .22%
and .57% (Tax-Free Money Market Portfolio).

Advisory Fees, 12b-1 Fees and Other Expenses are reflected in share prices
or dividends of the Institutional II Class of each Portfolio and are not charged
directly to individual shareholder accounts.

B. EXAMPLE. The Example assumes that all dividends and distributions are
reinvested and that the amounts listed under "Annual Institutional II Class
Operating Expenses" remain the same in the years shown. The Example should not
be considered a representation of past or future expenses and actual expenses
may be greater or less than those shown.

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

The following tables provide information about the financial history of the
Institutional II Class of each Portfolio. These tables express the information
in terms of a single share outstanding throughout the period. The data is for
the fiscal period ended October 31, 1995 and is unaudited.

3
<PAGE> 52

<TABLE>
<CAPTION>
U.S. GOVERNMENT
U.S. TREASURY MONEY MONEY MARKET MONEY MARKET TAX-FREE MONEY
MARKET PORTFOLIO PORTFOLIO PORTFOLIO MARKET PORTFOLIO
------------------- ------------------- ------------------- -------------------
Institutional II Institutional II Institutional II Institutional II
Class Class Class Class
------------------- ------------------- ------------------- -------------------
Period from Period from Period from Period from
July 28, 1995** July 28, 1995** July 21, 1995** July 28, 1995
to October 31, 1995 to October 31, 1995 to October 31, 1995 to October 31, 1995
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period...... $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- ------- -------
Income from investment operations:
Net interest income....................... 0.014 0.014 0.016 0.009
Distributions:
Net interest income....................... (0.014) (0.014) (0.016) (0.009)
------- ------- ------- -------
Net asset value, end of period............ $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= =======
TOTAL RETURN.............................. 1.36%+# 1.45%+# 1.61%+# 0.94%+#
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands)..... $47,673 $11,693 $20,359 $ 8,916
Ratio of expenses to average daily net
assets(1)............................... 0.45%* 0.40%* 0.35%* 0.31%*
Ratio of net interest income to average
daily net assets........................ 5.13%* 5.50%* 5.62%* 3.51%*
</TABLE>

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

<TABLE>
<C> <S> <C> <C> <C> <C>
* Annualized
** Commencement of operations
+ Total return would have been lower
had certain fees not been waived
during the period.
# Total return for period of less than
one year is not annualized.
(1) During the period, certain fees were
voluntarily waived. The ratio of
expenses to average daily net assets
had such waivers not occurred is as
follows:............................ 0.55%* 0.56%* 0.57%* 0.57%*
</TABLE>

4
<PAGE> 53

INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS
- --------------------------------------------------------------------------------

The Fund currently consists of twelve investment Portfolios with a variety
of investment objectives and policies. First Maryland provides a continuous
investment program in accordance with each Portfolio's investment objective and
policies. Except for each Portfolio's investment objective and those policies
identified as fundamental, each Portfolio's policies are not fundamental.
Non-fundamental policies may be changed without shareholder approval. Further
information relating to the types of securities in which each Portfolio may
invest and the investment policies of each Portfolio in general is set forth in
the Appendix to this Prospectus. As is the case with any investment in
securities, an investment in a Portfolio involves certain risks and there can be
no assurance a Portfolio will achieve its investment objective. Each Portfolio
can use various techniques to manage its investment exposure. These techniques
may involve derivative transactions. By itself, no one Portfolio constitutes a
balanced investment plan. From time to time, a Portfolio, to the extent
consistent with its investment objective, policies, restrictions and applicable
law, may invest in securities of companies with which First Maryland and/or its
affiliates has a lending relationship. The lending relationship will not be a
factor in the selection of securities.

U.S. TREASURY MONEY MARKET PORTFOLIO, U.S. GOVERNMENT MONEY MARKET
PORTFOLIO, MONEY MARKET PORTFOLIO AND TAX-FREE MONEY MARKET PORTFOLIO each seek
to maximize current income and provide liquidity and security of principal by
investing in high-quality, short-term, U.S. dollar-denominated instruments
determined by First Maryland to present minimal credit risks in accordance with
guidelines adopted by the Fund's Board of Trustees (the "Board"). The ARK Money
Market Portfolios each will seek to maintain a net asset value per share ("NAV")
of $1.00, will limit its investments to securities with remaining maturities of
397 days or less, and will maintain a dollar-weighted average maturity of 90
days or less. In determining a security's maturity for purposes of calculating
the Portfolios' average maturity, estimates of the expected time for principal
to be paid may be used. An estimated maturity can be substantially shorter than
its stated final maturity.

U.S. TREASURY MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------

The investment objective of U.S. Treasury Money Market Portfolio is to
maximize current income and provide liquidity and security of principal by
investing in instruments which are issued or guaranteed as to principal and
interest by the U.S. government and thus constitute direct obligations of the
United States. As a non-fundamental operating policy, the Portfolio intends to
invest 100% of its total assets in U.S. Treasury bills, notes, and bonds and
will limit its investments to U.S. Treasury obligations that pay interest that
is specifically exempt from state and local taxes under federal law.

5
<PAGE> 54

U.S. GOVERNMENT MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------

The investment objective of U.S. GOVERNMENT MONEY MARKET PORTFOLIO is to
maximize current income and provide security of principal by investing in
instruments which are issued or guaranteed as to principal and interest by the
U.S. government or any of its agencies or instrumentalities ("U.S. Government
Securities"), or in repurchase agreements backed by such instruments. As a
non-fundamental policy, 100% of the Portfolio's total assets will be invested in
U.S. Government Securities, and in repurchase agreements collateralized by such
securities. U.S. Government Securities include U.S. Treasury bills, notes and
bonds, and obligations issued by federal agencies such as the Export-Import Bank
of the United States, the General Services Administration, the Government
National Mortgage Association, the Small Business Administration and the
Washington Metropolitan Area Transit Authority. Obligations issued or guaranteed
as to principal and interest by U.S. government agencies or instrumentalities
include instruments issued by the Federal Home Loan Bank, Federal Farm Credit
Bank and Federal National Mortgage Association. The Portfolio may enter into
when-issued or delayed-delivery transactions. The Portfolio normally may not
invest more than 5% of its total assets in the securities (other than U.S.
Government Securities) of any single issuer. Under certain conditions, however,
the Portfolio may invest up to 25% of its total assets in first tier securities
of a single issuer for up to three days.

MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------

The investment objective of MONEY MARKET PORTFOLIO is to maximize current
income and provide liquidity and security of principal by investing in a broad
range of short-term, high-quality U.S. dollar-denominated debt securities
("Money Market Instruments"). Such Money Market Instruments include, but are not
limited to: U.S. Government Securities; custodial receipts evidencing future
interest or principal payments on U.S. Government Securities; obligations of
domestic or foreign banks including bankers' acceptances, time deposits and
certificates of deposit ("CDs"); commercial paper (including variable and
floating rate instruments); corporate obligations; and asset-backed securities
and indexed securities -- each with 397 days or less remaining to maturity.
Money Market Portfolio may invest more than 25% of its total assets in certain
obligations of domestic banks. Money Market Portfolio may engage in repurchase
and reverse repurchase agreements and may enter into when-issued or
delayed-delivery transactions. The Portfolio normally may not invest more than
5% of its total assets in securities (other than U.S. Government Securities) of
any single issuer. Under certain conditions, however, the Portfolio may invest
up to 25% of its total assets in first tier securities of a single issuer for up
to three days.

6
<PAGE> 55

determined by First Maryland to be comparable in quality to rated securities in
accordance with guidelines adopted by the Fund's Board.

TAX-FREE MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------

7
<PAGE> 56

result of maturities of portfolio securities or sales of Portfolio shares, or in
order to meet anticipated redemption requests, the Portfolio may hold cash which
is not earning income.

INVESTMENT LIMITATIONS FOR THE ARK MONEY MARKET PORTFOLIOS
- --------------------------------------------------------------------------------

4. Each ARK Money Market Portfolio (a) may not make a loan if more than
33 1/3% of its total assets would be lent to other parties; and (b) each of U.S.
Treasury Money Market Portfolio,

8
<PAGE> 57

U.S. Government Money Market Portfolio and Tax-Free Money Market Portfolio do
not currently intend to lend portfolio securities.

PERFORMANCE
- --------------------------------------------------------------------------------

The performance of each class of shares of each Portfolio may be quoted in
advertising in terms of yield, effective yield or total return. In addition, the
tax-equivalent yield may be quoted for shares of Tax-Free Money Market
Portfolio. All types of performance are based on historical results and are not
intended to indicate future performance.

The YIELD of shares of the ARK Money Market Portfolios is calculated by
dividing the net investment income earned by the shares over a 7-day period by
the average number of shares entitled to receive dividends and expressing the
result as an annualized percentage rate based on each share price at the end of
the 7-day periods. The EFFECTIVE YIELD is calculated similarly, but assumes that
the income earned from the investment is reinvested. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment. Because yield accounting methods differ from the methods used for
other accounting purposes, the yields of shares of the ARK Money Market
Portfolios may not equal their respective distribution rates, the income paid to
your account or the income reported in the financial statements of the
Institutional II Class of the relevant Portfolio.

A TAX-EQUIVALENT YIELD shows the approximate taxable yield that would have
to be earned before taxes to equal a tax-free yield. A tax-equivalent yield is
calculated by dividing the shares' tax-exempt yield by the result of one minus a
stated federal and/or state tax rate. If only a portion of a Portfolio's income
was tax-exempt, only that portion is adjusted in the calculation.

TOTAL RETURNS are based on the overall dollar or percentage change in value
of a hypothetical investment in a class and assumes that all distributions are
reinvested. A CUMULATIVE TOTAL RETURN reflects a class' performance over a
stated period of time. An AVERAGE ANNUAL TOTAL RETURN reflects the hypothetical
annually compounded return that would have produced the same cumulative total
return if a class' performance had been constant over the entire period. Because
average annual total returns tend to smooth out variations in a class' return,
it should be recognized that they are not the same as actual year-by-year
results. When a class of a Portfolio quotes an average annual return covering a
period of less than one year, the calculation assumes that the performance will
remain constant for the rest of the year. Since this may or may not occur,
average annual returns should be viewed as hypothetical rather than actual
performance figures.

For additional performance information, please contact your Investment
Professional or the Distributor for a free Annual Report, Semi-Annual Report and
Statement of Additional Information.

PORTFOLIO TRANSACTIONS AND VALUATION
- --------------------------------------------------------------------------------

Subject to the general supervision of the Board, First Maryland is
responsible for placing orders for securities transactions for each Portfolio.
Transactions for the ARK Money Market Portfolios are expected to occur primarily
with issuers, underwriters or major dealers acting as principals. Such
transactions are normally effected on a net basis and do not involve payment of
brokerage

9
<PAGE> 58

commissions. The Portfolios have no obligation to enter into securities
transactions with any particular dealer, issuer, underwriter or other entity. In
placing orders for the Portfolios, it is the policy of First Maryland to obtain
the most favorable execution. Where such execution may be obtained from more
than one broker or dealer, securities transactions may be directed at higher
commission rates to those who provide research, statistical and other
information to First Maryland. If more than one Portfolio or another account
managed by First Maryland are purchasing or selling the same security, such
orders may be aggregated in the interest of achieving the most favorable
execution.

The Portfolios have authorized First Maryland to allocate transactions to
some broker-dealers who help distribute the Portfolios' shares. First Maryland
will make such allocations if commissions are comparable to those charged by
non-affiliated, qualified broker-dealers for similar services.

VALUATION. The NAV of the Shares of each Portfolio is calculated by adding
the Institutional II Class' pro rata share of the value of all securities and
other assets attributable to a Portfolio, deducting the Institutional II Class'
pro rata share of Portfolio-level liabilities, deducting Institutional II
Class-specific liabilities, if applicable, and dividing the result by the number
of Shares outstanding. Assets in the ARK Money Market Portfolios are valued
based upon the amortized cost method. This method involves valuing an instrument
at its cost and thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the instrument. While this method provides certainty in
valuation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price the Portfolio would receive if
it sold the instrument. Although each ARK Money Market Portfolio seeks to
maintain an NAV of $1.00 for the Shares, there can be no assurance that this NAV
will not vary.

PRICING OF SHARES. The Portfolios are open for business and their NAVs are
calculated each day the New York Stock Exchange ("NYSE") and the Federal Reserve
Bank of New York are open ("Business Day"). An investor's purchase will be
processed at the NAV next calculated after the order is received and accepted by
the Transfer Agent. The NAVs of U.S. Treasury Money Market Portfolio and
Tax-Free Money Market Portfolio are determined at 12:00 noon Eastern Time
("12:00 noon") and the close of business of the NYSE, normally 4:00 p.m. The
NAVs of U.S. Government Money Market Portfolio and Money Market Portfolio are
determined at 1:30 p.m. Eastern Time ("1:30 p.m.") and the close of business of
the NYSE, normally 4:00 p.m. Shares purchased at 12:00 noon and 1:30 p.m. begin
to earn dividends that Business Day. Shares purchased at 4:00 p.m. are eligible
to earn dividends on the following Business Day.

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<PAGE> 59

PURCHASES, EXCHANGES AND REDEMPTIONS
- --------------------------------------------------------------------------------

OPENING AN ACCOUNT. Shares are sold without a sales charge and are
currently available only to clients of First Maryland or its affiliated banks
(including Allied Irish Banks, p.l.c. and its affiliates) who direct their own
investments and have established trust relationships with First Maryland or its
affiliated banks or correspondent banks of First Maryland or their affiliated
banks ("qualified accounts"). An initial investment in the Shares must be
preceded or accompanied by the establishment of a qualified account. This may
require that certain documents and applications be signed before an investment
can be made. Agreements for opening qualified accounts are available upon
request from First Maryland at (800) 624-4116 outside Maryland and (800)
638-7751 inside Maryland.

The minimum initial investment to establish a new account is $500. After
meeting this minimum initial investment requirement, there is no
minimum-required account balance. Subsequent investments may be made in any
amount.

PURCHASING SHARES
- --------------------------------------------------------------------------------

Payments for Shares of each ARK Money Market Portfolio must be made in
federal funds or other funds immediately available to each Portfolio. An order
for the purchase of Shares paid for in such available funds will become
effective on the day of receipt of the order by the transfer agent and are
entitled to that day's dividend if received prior to 12:00 noon for U.S.
Treasury Money Market Portfolio and Tax-Free Money Market Portfolio, or 1:30
p.m. for Money Market Portfolio and U.S. Government Money Market Portfolio. If a
purchase order, together with such available funds, is received after 12:00 noon
for U.S. Treasury Money Market Portfolio and Tax-Free Money Market Portfolio, or
1:30 p.m. for Money Market Portfolio and U.S. Government Money Market Portfolio,
but before 4:00 p.m., such purchases will receive the NAV determined at 4:00
p.m. and will begin earning dividends the following Business Day. If an order or
payment is received after 4:00 p.m., an investor will receive the next
determined NAV the following Business Day. Each Portfolio reserves the right to
reject any purchase order. Each ARK Money Market Portfolio declares dividends
daily and pays them monthly.

OTHER INFORMATION
- --------------------------------------------------------------------------------

11
<PAGE> 60

DISTRIBUTION OPTIONS
- --------------------------------------------------------------------------------

The following distribution options are available to shareholders:

B. The INCOME-EARNED OPTION reinvests your capital gain distributions and
pays income dividends in cash.

C. The CASH OPTION pays you income dividends and capital gain distributions
in cash. Distribution checks will be mailed no later than seven days after the
last day of the month.

EXCHANGING SHARES
- --------------------------------------------------------------------------------

An exchange is a convenient way to buy and sell Shares of another Portfolio
registered in your state. Institutional II Class Shares may be exchanged for
Shares of another Portfolio. The redemption will be made at the next determined
NAV of the Shares to be redeemed after the exchange request is received by the
transfer agent.

Each exchange between Portfolios actually represents the sale of Shares of
one Portfolio and the purchase of Shares in another, which may produce a gain or
loss for tax purposes. In order to protect each Portfolio's performance and its
shareholders, First Maryland discourages frequent exchange activity in response
to short-term market fluctuations. Each Portfolio reserves the right to modify
or withdraw the exchange privilege or to suspend the offering of Shares without
notice to shareholders if, in First Maryland's judgment, a Portfolio would be
unable to invest effectively in accordance with its investment objective and
policies, or would otherwise potentially be adversely affected. Each Portfolio
also reserves the right to reject any specific purchase order, including
purchases by exchange. An exchange between the Institutional II Class and
another class of any Portfolio generally is not permitted.

REDEEMING SHARES
- --------------------------------------------------------------------------------

12
<PAGE> 61

on the day of the redemption. Shares redeemed at 4:00 p.m. continue to earn
dividends on the date of redemption. Shareholders may initiate redemptions:

BY MAIL. To redeem by mail send a written request to The First National
Bank of Maryland, Trust Division [Banc #101-621], P.O. Box 1596, Baltimore,
Maryland 21203.

BY TELEPHONE. To redeem by telephone or telecommunication, call First
Maryland toll free at (800) 624-4116 outside Maryland and (800) 638-7751 inside
Maryland.

Although at present First Maryland pays the wire costs involved, the Fund
reserves the right at any time to require the investor to pay such costs.

MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------

INVESTMENT ADVISOR
- --------------------------------------------------------------------------------

First Maryland, 25 South Charles Street, Baltimore, MD 21201, provides
investment advisory services to each Portfolio, subject to the general
supervision of the Board. First Maryland is entitled to receive for its advisory
services payment at an annual rate of .25% of each Money Market Portfolio's
average daily net assets. First Maryland, in its sole discretion, may waive all
or any

13
<PAGE> 62

portion of its advisory fee for any Portfolio. Any such voluntary waiver, will
increase such Portfolio's yield for the period during which the waiver is in
effect.

First Maryland, established in 1806, had total assets of approximately $10
billion as of September 30, 1995 and is a wholly-owned subsidiary of First
Maryland Bancorp, which is a subsidiary of Allied Irish Banks, p.l.c. First
Maryland Bancorp was organized in 1974 as a bank holding company registered
under the Federal Bank Holding Company Act of 1956 and files annual and periodic
reports with the SEC under the Securities Exchange Act of 1934. See "Banking Law
Matters." First Maryland has experience as an investment advisor to individual,
corporate, and institutional advisory clients, pension plans and collective
investment funds, with approximately $32.7 million in assets under
administration, $5.3 million of which were assets under investment management as
of September 30, 1995. First Maryland has managed mutual funds since June 1993.

PORTFOLIO MANAGEMENT
- --------------------------------------------------------------------------------

Investment personnel may invest in securities for their own account
pursuant to a code of ethics that establishes procedures for personal investing
and restricts certain transactions.

TRANSFER AGENT
- --------------------------------------------------------------------------------

ADMINISTRATOR
- --------------------------------------------------------------------------------

SEI Financial Management Corporation (the "Administrator"), 680 East
Swedesford Road, Wayne, Pennsylvania 19087, serves as the Portfolios'
administrator under the Administration Agreement dated November 1, 1995 between
the Administrator and the Fund.

14
<PAGE> 63

the Fund, paid monthly, for services performed under the Administration
Agreement. The Administrator has voluntarily agreed to waive a portion of its
administration fee on certain Portfolios of the Fund in order to limit total
operating expenses of such Portfolios. Any such voluntary waiver, which can be
discontinued at any time, will increase such Portfolio's yield for the period
during which the waiver is in effect.

DISTRIBUTION AND SERVICING OF THE SHARES
- --------------------------------------------------------------------------------

SEI Financial Services Company, 680 East Swedesford Road, Wayne,
Pennsylvania 19087, acts as distributor (the "Distributor") of the Shares
pursuant to a Distribution Agreement dated November 1, 1995 between the
Distributor and the Fund. The Distributor is the principal underwriter of the
Fund. First Maryland neither participates in nor is responsible for the
underwriting of the Shares.

The Board has adopted a Distribution Plan on behalf of the Institutional II
Class of each Portfolio pursuant to Rule 12b-1 under the 1940 Act ("Distribution
Plan"). The Distribution Plan provides for payment of a fee to the Distributor
of up to .75% of average daily net assets of the Institutional II Class of each
Portfolio. The Board has approved the distribution fee rate of .10% of the
average net assets of the Institutional II Class of each of the ARK Money Market
Funds. All or any portion of the 12b-1 fee for any Portfolio may be waived at
any time. Any such voluntary waiver can be discontinued at any time.

The Distributor and/or Investment Professionals that receive portions of
the distribution fees from the Distributor pay for the cost of printing (but not
typesetting) and mailing to prospective investors prospectuses and other
materials relating to the Institutional II Class, as well as for related direct
mail, advertising and promotional expenses.

The Distribution Plan does not obligate the Portfolios to reimburse the
Distributor for the actual expenses that it may incur in fulfilling its
obligations under the Distribution Plan on behalf of the Institutional II Class.
Thus, under the Distribution Plan, even if the Distributor's actual expenses
exceed the fee payable to the Distributor thereunder at any given time, the
Portfolios will not be obligated to pay more than that fee. If the Distributor's
expenses are less than the distribution fee it receives, it will retain the full
amount of the fee.

CUSTODIAN
- --------------------------------------------------------------------------------

The First National Bank of Maryland, 25 South Charles Street, Baltimore,
Maryland 21201 is custodian (the "Custodian") for the securities and cash of the
Fund. Under the Custody Agreement between the Fund and the Custodian, the
Custodian holds the Fund's portfolio securities in safekeeping and keeps all
necessary records and documents relating to its duties. For the services
provided to the Fund pursuant to the Custody Agreement, the Fund pays the
Custodian a monthly fee at the annual rate of .015% of the average daily net
assets of the Fund. The Custodian also charges the Fund transaction fees ranging
from $5 to $75 per transaction and receives reimbursement for out-of-pocket
expenses.

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<PAGE> 64

BANKING LAW MATTERS
- --------------------------------------------------------------------------------

Banking laws and regulations generally permit a bank or bank affiliate to
act as an investment adviser and to purchase shares of an investment company as
agent for and upon the order of a customer. However, banking laws and
regulations, including the Glass-Steagall Act as currently interpreted by the
Board of Governors of the Federal Reserve System, prohibit a bank holding
company registered under the Federal Bank Holding Company Act of 1956 or any
affiliate thereof from sponsoring, organizing, controlling, or distributing the
shares of a registered, open-end investment company continuously engaged in the
issuance of its shares, and prohibit banks generally from issuing, underwriting,
selling or distributing securities. Upon advice of counsel, the Board believes
that First Maryland may perform the advisory services described in this
Prospectus for each Portfolio and its shareholders without violating applicable
federal banking laws or regulations.

TAX MATTERS
- --------------------------------------------------------------------------------

Tax-Free Money Market Portfolio intends to pay substantially all of its
dividends as "exempt interest dividends." Investors in this Portfolio should
note, however, that taxpayers are required to

16
<PAGE> 65

report the receipt of tax-exempt interest and "exempt interest dividends" in
their federal income tax returns and that in two circumstances such amounts,
while exempt from regular federal income tax, are taxable to persons subject to
alternative minimum tax. Alternative minimum tax is currently imposed at a
maximum marginal rate of 28% in the case of non-corporate taxpayers and at the
rate of 20% in the case of corporate taxpayers. First, tax-exempt interest and
"exempt interest dividends" derived from certain private activity bonds issued
after August 7, 1986, will generally constitute an item of tax preference for
corporate and non-corporate taxpayers in determining alternative minimum tax
liability. Tax-Free Money Market Portfolio intends to avoid investing its assets
in such private activity bonds but may do so if required by market conditions.
Second, tax-exempt interest and "exempt interest dividends" derived from all
municipal securities must be taken into account by corporate taxpayers in
determining their adjusted current earnings adjustments for alternative minimum
tax purposes. Realized market discount on tax-exempt obligations purchased after
April 30, 1993 is treated as ordinary income and not as capital gain.
Shareholders who are recipients of Social Security Act or Railroad Retirement
Act benefits should further note that tax-exempt interest and "exempt interest
dividends" will be taken into account in determining the taxability of their
benefit payments.

Tax-Free Money Market Portfolio will determine annually the percentage of
its net investment income that is fully tax-exempt, the percentage which
constitutes an item of tax preference for alternative minimum tax purposes and
percentage that is fully taxable, and will apply such percentages uniformly to
all distributions declared from net investment income during that year. These
percentages may differ significantly from the actual percentages for any
particular day.

To the extent that Tax-Free Money Market Portfolio income dividends and
capital gain distributions are derived from Maryland state tax-free investments,
they will be free from Maryland state and county taxes (including city of
Baltimore local taxes).

To avoid being subject to federal income tax withholding at the rate of 31%
on taxable dividends, distributions and redemption payments, shareholders must
furnish the Fund with their taxpayer identification numbers and certify under
penalties of perjury that the number provided is correct and that they are not
subject to backup withholding for any reason. Redemptions of Shares

17
<PAGE> 66

are reported annually on information returns that are filed with the IRS with
respect to each shareholder that is not otherwise exempt.

Shareholders who are nonresident alien individuals, foreign trusts or
estates, foreign corporations or foreign partnerships may be subject to
different U.S. federal income tax treatment.

An investment in any one Portfolio is not intended to constitute a balanced
investment program. Shares of Tax-Free Money Market Portfolio would not be
suitable for tax-exempt institutions, and may not be suitable for retirement
plans qualified under Section 401 of the Internal Revenue Code, H.R. 10 plans
and individual retirement accounts because such plans and accounts are generally
tax-exempt. Therefore, such plans and accounts would not gain any additional
benefit from the Portfolio dividends' tax-exempt status and, moreover, such
dividends would be taxable when distributed to the beneficiary.

Future legislative or administrative changes or court decisions may
materially affect the tax consequences of investing in one or more Portfolios of
the Fund. From time to time, proposals have been introduced before Congress that
would have the effect of reducing or eliminating the federal tax exemption on
municipal obligations. If such a proposal were enacted, the ability of Tax-Free
Money Market Portfolio to pay exempt-interest dividends might be adversely
affected. Shareholders are also urged to consult their tax advisers concerning
the application of state and local income taxes to investments in the Fund,
which may differ from the federal income tax consequences described above.

GENERAL INFORMATION
- --------------------------------------------------------------------------------

ARK Funds is an open-end diversified management investment company
organized as a Massachusetts business trust pursuant to a Declaration of Trust
dated October 22, 1992 and amended and restated on March 19, 1993. The Board
supervises Fund activities and reviews contractual arrangements with companies
that provide the Portfolios with services. The Fund may issue an unlimited
number of shares of each of its Portfolios. The shares of a Portfolio have equal
voting, liquidation and other rights. When issued and paid for, Shares will be
fully paid and non-assessable by the Fund and will have no preference,
conversion, exchange or preemptive rights. The Board may authorize the Fund to
offer other portfolios which may differ in the types of securities in which
their assets may be invested.

18
<PAGE> 67

Portfolio have different sales charges and other expenses that may affect
performance. The Institutional Class of Short-Term Treasury Portfolio and Blue
Chip Equity Portfolio are expected to commence operations on or about the date
of this Prospectus. The Institutional Class of the Maryland Tax-Free Portfolio
have not yet commenced operations. The Retail Class of the U.S. Government Money
Market Portfolio, Short-Term Treasury Portfolio, Blue Chip Equity Portfolio,
Special Equity Portfolio and Maryland Tax-Free Portfolio have not yet commenced
operations. You may obtain more information on the classes of shares not offered
through this Prospectus by calling 1-800-624-4116 or from your Investment
Professional.

APPENDIX
- --------------------------------------------------------------------------------

Each Portfolio, except U.S. Treasury Money Market Portfolio and U.S.
Government Money Market Portfolio, may purchase asset-backed securities which
consist of undivided fractional interests in pools of consumer loans (unrelated
to mortgage loans) held in a trust. Payments of principal and interest are
passed through to certificate holders and are typically supported by some form
of credit enhancement, such as a letter of credit, surety bond, limited
guaranty, or senior subordination. The degree of credit enhancement varies, but
generally amounts to only a fraction of the asset-backed security's par value
until exhausted. If the credit enhancement is exhausted, certificate holders may
experience losses or delays in payment if the required payments of principal and
interest are not made to the trust with respect to the underlying loans. The
value of these securities also may change because of changes in the market's
perception of the creditworthiness of the servicing agent for the loan pool, the
originator of the loans, or the financial institution providing the credit
enhancement. Asset-backed securities are ultimately dependent upon payment of
consumer loans by individuals, and the certificate holder generally has no
recourse to the entity that originated the loans. The underlying loans are
subject to prepayments which shorten the securities' weighted average life and
may lower their return. (As prepayments flow through at par, total returns would
be affected by the prepayments: if a security were trading at a premium, its
total return would be lowered by prepayments, and if a security were trading at
a discount, its total return would be increased by prepayments.)

Each Portfolio, except U.S. Treasury Money Market Portfolio and U.S.
Government Money Market Portfolio, may purchase BANK OBLIGATIONS. These include:
bankers' acceptances which are negotiable obligations of a bank to pay a draft
which has been drawn on it by a customer; certificates of deposit which are
negotiable certificates representing a commercial bank's obligation to repay
funds deposited with it, earning specified rates of interest over given periods
or issued at a

19
<PAGE> 68

discount; and time deposits which are non-negotiable deposits in a banking
institution earning a specified interest rate over a given period of time.

Each Portfolio, except U.S. Treasury Money Market Portfolio and U.S.
Government Money Market Portfolio, may purchase COMMERCIAL PAPER. Commercial
paper is an obligation issued by a bank, broker-dealer, corporation and other
entities for purposes such as financing its current operations.

Each Portfolio, except U.S. Treasury Money Market Portfolio and U.S.
Government Money Market Portfolio, may invest in EURODOLLARS, YANKEE DOLLARS and
FOREIGN BANK OBLIGATIONS which involve risks that are different from investments
in securities of U.S. banks. These risks may include future unfavorable
political and economic developments, withholding taxes, seizures of foreign
deposits, currency controls, interest limitations, or other governmental
restrictions that might affect payment of principal or interest. Additionally,
there may be less public information available about foreign banks and their
branches and agencies. Foreign branches of domestic banks are not regulated by
U.S. banking authorities and generally are not subject to accounting, auditing,
and financial reporting standards comparable to those applicable to U.S. banks.
For this purpose, domestic banks include foreign branches of domestic banks for
which the domestic parent is unconditionally liable in the event the foreign
branch failed to pay on its instruments for any reason.

Each Portfolio, except U.S Treasury Money Market Portfolio and U.S.
Government Money Market Portfolio, may invest in U.S. DOLLAR-DENOMINATED
SECURITIES OF FOREIGN ISSUERS.

Under currently applicable regulations, each ARK Money Market Portfolio,
except U.S. Treasury Money Market Portfolio, may invest up to 10% of its net
assets in illiquid securities. Illiquid securities are securities that cannot be
disposed of in the usual course of business within seven days without taking a
reduced price. Generally, securities subject to restriction on resale, variable
rate demand notes, repurchase agreements with more than seven days to maturity,
and time deposits are considered to be illiquid unless First Maryland
determines, in accordance with guidelines established by the Board, that certain
such securities are readily marketable. The absence of a trading market can make
it difficult to ascertain a market value for illiquid securities, and it may be
difficult or impossible for a Portfolio to sell them promptly at an acceptable
price. In addition, unless securities are registered for sale, securities can
only be sold in privately negotiated transactions or pursuant to an exemption
from registration.

Each Portfolio, except U.S. Treasury Money Market Portfolio and U.S.
Government Money Market Portfolio, may purchase MUNICIPAL OBLIGATIONS which are
issued to raise money for a variety of public or private purposes, including
general financing for state and local governments, or financing for specific
projects or public facilities. They may be issued in anticipation of future
revenues, and may be backed by the full taxing power of a municipality, the
revenues from a specific project, or the credit of a private organization. The
value of some or all municipal securities may be affected by uncertainties in
the municipal market related to legislation or litigation involving the taxation
of municipal securities or the rights on municipal securities holders. A fund
may own a municipal security directly or through a participation interest.

Each Portfolio, except U.S. Treasury Money Market Portfolio and Tax-Free
Money Market Portfolio, may enter into REPURCHASE AGREEMENTS and securities
loans. In a repurchase agreement, the Portfolio buys a security at one price and
simultaneously commits to resell that security back at

20
<PAGE> 69

a higher price. The Portfolios may also make securities loans to broker-dealers
and institutional investors. In the event of bankruptcy of the other party to
either a repurchase agreement or a securities loan, a Portfolio could experience
delays in recovering its cash or the securities it lent. To the extent, in the
meantime, the value of the securities purchased had decreased, or the value of
the securities lent had increased, the Portfolio could experience a loss. In all
cases, First Maryland must find the creditworthiness of the other party to the
transaction satisfactory.

Borrowing Money and Reverse Repurchase Agreements. Each Portfolio may
borrow money by engaging in reverse repurchase agreements. In a reverse
repurchase agreement a Portfolio sells a portfolio instrument to another party,
such as a bank, in return for cash and agrees to repurchase the instrument at a
particular price and time. While a reverse repurchase agreement is outstanding,
a Portfolio will maintain appropriate liquid assets in a segregated custodial
account to cover its obligation under the agreement. A Portfolio will enter into
reverse repurchase agreements only with parties whose creditworthiness is deemed
satisfactory by First Maryland.

Each Portfolio, except U.S. Treasury Money Market Portfolio, may purchase
U.S. GOVERNMENT SECURITIES which are securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities. They may be backed by the full
faith and credit of the U.S. government as a whole or only by the issuing
agency. For example, securities issued by the Federal Home Loan Banks and the
Federal Home Loan Mortgage Corporation are supported only by the credit of the
issuing agency, and not by the U.S. government. Securities issued by the Federal
Farm Credit System, the Federal Land Banks and the Federal National Mortgage
Association are supported by the agency's right to borrow money from the U.S.
Treasury under certain circumstances. U.S. Treasury securities and some agency
securities, such as those issued by the Federal Housing Administration and the
Government National Mortgage Association, are backed by the full faith and
credit of the U.S. government and are the highest quality government securities.

Each Portfolio, except U.S. Treasury Money Market Portfolio, may purchase
VARIABLE OR FLOATING RATE INSTRUMENTS. Variable or floating rate instruments
(including notes purchased directly from issuers) bear variable or floating
interest rates and may carry rights that permit holders to demand full payment
from issuers or certain financial intermediaries. Floating rate securities have
interest rates that change whenever there is a change in a designated base rate,
while variable rate instruments provide for a specified periodic adjustment in
the interest rate. These formulas are designed to result in a market value for
the instrument that approximates its par value. Many variable and floating rate
instruments also carry demand features that permit a Portfolio to sell them at
par value plus accrued interest on short notice.

Each Portfolio may purchase zero coupon debt securities which do not make
regular interest payments. Instead, they are sold at a deep discount from their
face value. In calculating its daily dividend, each Portfolio takes into account
as income a portion of the difference between these

21
<PAGE> 70

securities' purchase prices and their face values. Because they do not pay
current income, the prices of zero coupon debt securities can be volatile when
interest rates change.

ADDITIONAL INVESTMENTS FOR TAX-FREE MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------

MUNICIPAL LEASE OBLIGATIONS are issued by a state or local government or
authority to acquire land and a wide variety of equipment and facilities. These
obligations typically are not fully backed by the municipality's credit, and
their interest may become taxable if the interest is assigned. If funds are not
appropriated for the following year's lease payments, the lease may terminate,
with the possibility of default on the lease obligation and significant loss to
the Portfolio. Certificates of participation in municipal lease obligations or
installment sales contracts entitle the holder to a proportionate interest in
the lease-purchase payments made. The Portfolio will only purchase rated
municipal lease obligations.

REFUNDING CONTRACTS. The Portfolio may purchase securities on a when-issued
basis in connection with the refinancing of an issuer's outstanding
indebtedness. Refunding contracts require the issuer to sell and the Portfolio
to buy refunded municipal obligations at a stated price and yield on a
settlement date that may be several months or several years in the future.
Although the Portfolio may sell its rights under a refunding contract, these
contracts are relatively new and the secondary market for them may be less
liquid than the secondary market for other types of municipal securities.

ARKPROIC-2/96

BS-3015A-9506

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<PAGE> 71

ARK FUNDS: RETAIL CLASS

U.S. TREASURY MONEY MARKET PORTFOLIO
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
MONEY MARKET PORTFOLIO
TAX-FREE MONEY MARKET PORTFOLIO
SHORT-TERM TREASURY PORTFOLIO
INCOME PORTFOLIO
GROWTH AND INCOME PORTFOLIO
BLUE CHIP EQUITY PORTFOLIO
CAPITAL GROWTH PORTFOLIO
SPECIAL EQUITY PORTFOLIO
MARYLAND TAX-FREE PORTFOLIO

CROSS REFERENCE SHEET

Form N-1A Item Number

Part A Prospectus Caption

1 ................................... Cover Page
2 ................................... Summary of Portfolio Expenses
3 a,b................................ Financial Highlights
c.................................. Performance
4 a(i)............................... General Information
a(ii),b,c.......................... Investment Objectives, Policies and Risk
Considerations

5 a,b,c,d,e,f........................ Management of the Fund
g.................................. Portfolio Transactions and Valuation
5A *
6 a.................................. General Information
b,c,d.............................. *
e.................................. General Information
f,g................................ Portfolio Transactions and Valuations,
Tax Matters
h.................................. General Information
7 a.................................. Purchases, Exchanges and Redemptions
b(i),(ii).......................... Portfolio Transactions and Valuations
b(iii,iv,v),c...................... *
d.................................. Purchases, Exchanges and Redemptions
e, f(i),(ii)....................... Management of the Fund
f(iii)............................. *
8 ................................... Purchases, Exchanges and Redemptions
9 ................................... *
<PAGE> 72
* Not Applicable
<PAGE> 73
[LOGO]

THE ARK
FUNDS

[LOGO]

RETAIL CLASS
PROSPECTUS
<PAGE> 74

ARK FUNDS -- RETAIL CLASS

- --------------------------------------------------------------------------------
PROSPECTUS
, 1996
- --------------------------------------------------------------------------------

Each of the investment portfolios listed below (the "Portfolios") offers a
Retail Class of shares. The First National Bank of Maryland ("First Maryland")
serves as investment advisor to the Portfolios. Shares of the Retail Class of
each of the Portfolios (the "Shares") are offered through this Prospectus. The
Shares are offered to all investors seeking professionally managed mutual funds
investing through an investment professional. A brief description of each
Portfolio whose shares are offered through this Prospectus follows.

U.S. TREASURY MONEY MARKET PORTFOLIO, U.S. GOVERNMENT MONEY MARKET PORTFOLIO,
and MONEY MARKET PORTFOLIO each seek to maximize current income and provide
liquidity and security of principal. Each of these money market Portfolios seeks
to maintain a constant net asset value per share of $1.00.

GROWTH AND INCOME PORTFOLIO seeks to achieve long-term total returns from both
capital appreciation and current income by investing in a broad range of stocks,
bonds, and cash equivalents.

BLUE CHIP EQUITY PORTFOLIO seeks to achieve long-term capital appreciation by
investing primarily in equity securities of established, large capitalization
companies.

CAPITAL GROWTH PORTFOLIO seeks to achieve long-term capital appreciation by
investing primarily in common stock and securities convertible into common
stock.

MARYLAND TAX-FREE PORTFOLIO seeks to achieve high current income that is free
from federal income tax and the Maryland state and county income taxes by
investing primarily in municipal securities.

This Prospectus is designed to provide you with information that you should know
before investing. Please read and retain this document for future reference. A
Statement of Additional Information (SAI) (dated , 1996) and the
Financial Statements (including portfolio listing) for the fiscal period ended
April 30, 1995 and the semi-annual period ended October 31, 1995 have been filed
with the Securities and Exchange Commission ("SEC") and are incorporated herein
by reference. This Statement and the Annual Report and Semi-Annual Report are
available upon request without charge by calling 1-800-ARK-FUND.

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

<TABLE>
<S> <C>
Summary of Portfolio Expenses................. 2
Financial Highlights.......................... 4
Investment Objectives, Policies and Risk
Considerations.............................. 8
Performance................................... 17
Portfolio Transactions and Valuation.......... 18
Purchases, Exchanges and Redemptions.......... 19
Management of the Fund........................ 23
Tax Matters................................... 26
General Information........................... 28
Appendix...................................... 29
</TABLE>

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

SUMMARY OF PORTFOLIO EXPENSES
- --------------------------------------------------------------------------------

The expense summary format below was developed for use by all mutual funds
to help you make your investment decisions. You should consider this expense
information along with other important information, including each Portfolio's
investment objectives, performance (if any) and financial highlights.

A. SHAREHOLDER TRANSACTION EXPENSES -- RETAIL CLASS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
MAXIMUM SALES LOAD IMPOSED ON PURCHASES
(AS A PERCENTAGE OF THE OFFERING PRICE)
- -------------------------------------------------------------------------------------
<S> <C>
Money Market Portfolios.............................................................. None
Short-Term Treasury Portfolio, Income Portfolio, Maryland Tax-Free Portfolio, Blue
Chip Equity Portfolio, Growth and Income Portfolio, Capital Growth Portfolio and
Special Equity Portfolio........................................................... 0.00%
Sales Load Imposed on Reinvested Dividends -- all Portfolios......................... None
Deferred Sales Load Imposed on Redemption -- all Portfolios.......................... None
Redemption Fee -- all Portfolios..................................................... None
Exchange Fee -- all Portfolios....................................................... None
</TABLE>

* Sales loads are being waived for all purchases of Retail Class shares of
Short-Term Treasury Portfolio (at 4.50%), Income Portfolio (at 4.50%),
Maryland Tax-Free Portfolio (at 4.50%), Growth and Income Portfolio (at
4.75%), Blue Chip Equity Portfolio (at 4.75%), Capital Growth Portfolio (at
4.75%) and Special Equity Portfolio (at 4.75%). These sales load waivers will
be in effect at least through June 1996.

B. ANNUAL RETAIL CLASS OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET
ASSETS):
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
TOTAL
ADVISORY 12B-1 OTHER OPERATING
FEE FEE** EXPENSES EXPENSES
-------- ---------- -------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury Money Market Portfolio(1)........... .19%* .26%* .18%* 0.63%*
U.S. Government Money Market Portfolio(2)......... .14%* .06%* .18% 0.38%*
Money Market Portfolio............................ .10%* .31%* .15%* 0.56%*
Tax-Free Money Market Portfolio(1)................ .08%* .26%* .14%* 0.48%*
Short-Term Treasury Portfolio(2).................. .30%* .00%* .25% 0.55%*
Income Portfolio.................................. .50% .20%* .27% 0.97%
Growth and Income Portfolio....................... .55% .20%* .32% 1.07%*
Blue Chip Equity Portfolio(2)..................... .00%* .00%* .65%* 0.65%*
Capital Growth Portfolio.......................... .00%*** .00%* .44%* 0.44%*
Special Equity Portfolio(2)....................... .60% .55% .34% 1.49%
Maryland Tax-Free Portfolio(2).................... .50% .45% .24% 1.19%
</TABLE>

* After applicable waivers.
* Includes Distribution Fee and Shareholder Service Fee.

*** The .60% advisory fee for Capital Growth Portfolio has been waived through
the end of 1996.

(1) The Tax-Free Money Market Portfolio and U.S. Treasury Money Market Portfolio
each began accruing .05% in 12b-1 fees on February 1, 1996 with subsequent
incremental increases of 0.05% on March 1, 1996, April 1, 1996 and May 1,
1996.

(2) This Portfolio's Retail Class has not commenced operations as of the date of
this Prospectus.

2
<PAGE> 76

C. EXAMPLE: You would pay the following expenses on a $1,000 investment in the
Shares assuming (1) 5% annual return, (2) redemption at the end of each time
period, and (3) fee waivers continue at the same levels for each time period.
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
U.S. Treasury Money Market Portfolio.................... $ 6 $20 $35 $ 79
U.S. Government Money Market Portfolio.................. 4 12 21 48
Money Market Portfolio.................................. 6 18 31 70
Tax-Free Money Market Portfolio......................... 5 15 27 60
Short-Term Treasury Portfolio........................... 6 18 31 69
Income Portfolio........................................ 10 31 54 119
Growth and Income Portfolio............................. 11 34 59 131
Blue Chip Equity Portfolio.............................. 7 21 36 81
Capital Growth Portfolio................................ 5 14 25 55
Special Equity Portfolio................................ 15 47 81 178
Maryland Tax-Free Portfolio............................. 12 38 65 144
</TABLE>

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

EXPLANATION OF TABLE: The purpose of the table is to assist you in
understanding the various costs and expenses that you would bear directly or
indirectly as a result of an investment in the Shares. (For a more complete
discussion of the various costs and expenses, see "Management of the Fund"). As
more fully described under the heading "Purchases, Exchanges and Redemptions,"
the Shares are currently available exclusively through qualified securities
brokers or financial institutions ("Investment Professionals"). You should also
consider the effects of any charges imposed by Investment Professionals.

A. SHAREHOLDER TRANSACTION EXPENSES represent charges paid when you
purchase, redeem or exchange Shares. If you exchange Shares of one Portfolio for
Shares of another Portfolio that charges a higher sales charge, a differential
sales charge may apply.

B. ANNUAL OPERATING EXPENSES are based on the Retail Class' estimated
expenses for the year. Advisory Fees are paid by each Portfolio to First
Maryland for managing its investments. Rule 12b-1 fees are comprised of
distribution fees and shareholder servicing fees. Distribution fees are paid to
SEI Financial Services Company (the "Distributor") for services and expenses in
connection with the distribution of the Shares. Shareholder servicing fees are
paid to Investment Professionals for services and expenses in connection with
providing individual assistance to Retail Class shareholders. Long-term
shareholders may pay more than the economic equivalent of the maximum front-end
sales charge permitted by the National Association of Securities Dealers, Inc.
("NASD") due to 12b-1 fees. The Retail Class of each Portfolio incurs other
expenses for certain administrative services such as maintaining shareholder
records, furnishing shareholder statements and reports, and for other services.

First Maryland has voluntarily agreed to waive .06% of its advisory fee for
U.S. Treasury Money Market Portfolio, .11% of its advisory fee for U.S.
Government Money Market Portfolio, .15% of its advisory fee for Money Market
Portfolio and .17% of its advisory fee for Tax-Free Money Market Portfolio, .05%
of its advisory fee for Short-Term Treasury Portfolio and all of its advisory
fee for Blue Chip Equity Portfolio and Capital Growth Portfolio. SEI Financial
Management Corporation has voluntarily agreed to waive .018% of its
administration fee for Money Market Portfolio, .033% of its administration fee
for Tax-Free Money Market Portfolio and .13% of its administration fee for Blue
Chip Equity Portfolio. For the Retail Class of each of the ARK Money Market
Funds, 0.9% of the .15% shareholder servicing fee is being waived. For the
Retail Class of U.S. Government Money Market Portfolio, all .25% of its
distribution fee is being waived. A portion of the distribution fee is being
waived for the Retail Class of U.S. Treasury Money Market Portfolio and Tax-Free
Money Market Portfolio. A portion of the distribution fees and all shareholder
servicing fees is being waived for Income Portfolio and Growth and Income
Portfolio. All distribution fees and shareholder servicing fees are being waived
for Capital Growth Portfolio, Short-Term Treasury Portfolio and Blue Chip Equity
Portfolio. There can be no assurance that waivers will continue at the stated
levels or otherwise

3
<PAGE> 77

throughout the entire current fiscal year. Expenses eligible for waiver do not
include interest, taxes, brokerage commissions (if any), or extraordinary
expenses.

The Fund's Board of Trustees (the "Board") has adopted a Distribution Plan
(the "Plan") on behalf of the Retail Class of each Portfolio pursuant to Rule
12b-1 under the Investment Company Act of 1940 (the "1940 Act"). The Plan allows
the Retail Class of each Portfolio to pay the Distributor up to .75% of the
average net assets of such class or such lesser amount as approved from time to
time by the Board. The Board has approved a monthly distribution fee based on
the following percentages of the average net assets of the Retail Class of the
Portfolios as follows: .25% for each of the ARK Money Market Portfolios, .30%
for Income Portfolio and Maryland Tax-Free Portfolio, .40% for each of Growth
and Income Portfolio, Short-Term Treasury Portfolio, Special Equity Portfolio,
and Capital Growth Portfolio and .55% for Blue Chip Equity Portfolio. In
addition, the Board has adopted a Shareholder Services Plan on behalf of the
Retail Class of the Portfolios to compensate qualified recipients for individual
shareholder services and account maintenance. The recipients are paid a service
fee at the annual rate of up to .25% of average net assets of the Retail Class
of each Portfolio or such lesser amount as may be approved by the Board.
Currently, the Board has approved a fee for shareholder services of .15% of
average net assets of the Retail Class of each Portfolio, except for Short-Term
Treasury Portfolio and Blue Chip Equity Portfolio for which the Board has
approved a fee of .06%.

Absent such waivers, Advisory Fees, 12b-1 Fees, Other Expenses and Total
Operating Expenses would be: .25%, .40%, .18% and .83% (U.S. Treasury Money
Market Portfolio); .25%, .40%, .18% and .83% (U.S. Government Money Market
Portfolio); .25%, .40%, .17% and .82% (Money Market Portfolio); .25%, .40%, .21%
and .86% (Tax-Free Money Market Portfolio); .35%, .46%, .25% and 1.06%
(Short-Term Treasury Portfolio); .50%, .45%, .45% and 1.40% (Income Portfolio);
.55%, .55%, .53% and 1.63% (Growth and Income Portfolio); .60%, .61%, .78%, and
1.99% (Blue Chip Equity Portfolio); .60%, .55%, .44% and 1.59% (Capital Growth
Portfolio); .60%, .55%, .34% and 1.49% (Special Equity Portfolio); and .50%,
.45%, .24% and 1.19% (Maryland Tax-Free Portfolio). Advisory Fees, 12b-1 Fees,
and Other Expenses are reflected in the Retail Class share price or dividends
and are not charged directly to individual shareholder accounts. Please refer to
the section entitled "Management of the Fund" for further information.

C. EXAMPLE. The Example assumes that all dividends and distributions are
reinvested and that the amounts listed under "Annual Retail Class Operating
Expenses" remain the same in the years shown. The example should not be
considered a representation of past or future expenses and actual expenses may
be greater or less than shown.

FINANCIAL HIGHLIGHTS

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

The following tables provide information about the financial history of the
Retail Class of each Portfolio, except for U.S. Government Money Market
Portfolio, Short-Term Treasury Portfolio, Blue Chip Equity Portfolio, Special
Equity Portfolio and Maryland Tax-Free Portfolio, the Retail Classes of which
have not commenced operations as of the date of this Prospectus and U.S.
Treasury Money Market Portfolio, which Retail Class commenced operations after
October 31, 1995. These tables express the information in terms of a single
share outstanding throughout the period. The data for the fiscal period ended
April 30, 1995 has been audited by KPMG Peat Marwick L.L.P., independent
accountants for the Fund. Their report on the financial statements and financial
highlights is included in the Annual Report, which is incorporated by reference
into the Statement of Additional Information. The data for the fiscal period
ended October 31, 1995 is unaudited.

4
<PAGE> 78

<TABLE>
<CAPTION>
TAX-FREE
MONEY MARKET PORTFOLIO MONEY MARKET PORTFOLIO
--------------------------------------------------- ----------------------------------------------------
Retail Class Retail Class
--------------------------------------------------- ----------------------------------------------------
Period from Period from
Six months ended March 2, 1994** Six months ended March 15, 1994**
October 31, 1995 Year ended to April 30, October 31, 1995 Year ended to April 30,
(Unaudited) April 30, 1995 1994 (Unaudited) April 30, 1995 1994
---------------- -------------- --------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value,
beginning of period... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- ------- ------- ------- -------
Income from investment
operations:
Net interest income.... 0.028 0.046 0.004 0.018 0.027 0.002
Distributions:
Net interest income.... (0.028) (0.046) (0.004) (0.018) (0.027) (0.002)
------- ------- ------- ------- ------- -------
Net asset value, end of
period................ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======= ======= =======
TOTAL RETURN#.......... 2.80%+# 4.69%+ 0.42%+# 1.84%+ 2.74%+ 0.20%+#
======= ======= ======= ======= ======= =======
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of
period (thousands).... $ 77,736 $ 51,081 $ 12 $ 8,135 $ 2,491 $ 50
Ratio of expenses to
average daily net
assets(1)............. 0.60%* 0.45% 1.16%* 0.27%* 0.75% 1.25%*
Ratio of net interest
income to average
daily net assets...... 5.45%* 4.88% 2.26%* 3.59%* 2.68% 1.20%*
</TABLE>

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

<TABLE>
<CAPTION>
* Annualized
** Commencement of operations
+ Total return would have been lower had certain fees not been waived during the period.
# Total returns for periods of less than one year are not annualized.
<C> <S> <C> <C> <C> <C> <C> <C>
(1) During the 0.89%* 0.97% 592.55%* 1.01%* 2.94% 32.17%**
period, certain
fees were
voluntarily
waived. The
ratio of
expenses to
average daily
net assets had
such waiver not
occurred is as
follows........
</TABLE>

5
<PAGE> 79

<TABLE>
<CAPTION>
GROWTH AND INCOME PORTFOLIO
INCOME PORTFOLIO ---------------------------------------------------
------------------------------------------------------ Retail Class
Retail Class ---------------------------------------------------
------------------------------------------------------ Period from
Six months ended Year ended Period from Six months ended March 9, 1994**
October 31, 1995 April 30, April 13, 1994** October 31, 1995 Year ended to April 30,
(Unaudited) 1995++ to April 30, 1994 (Unaudited) April 30, 1995 1994
---------------- --------------- ----------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
SELECTED PER-SHARE
DATA
Net asset value,
beginning of
period.............. $ 9.72 $ 9.62 $ 9.69 $10.04 $10.15 $ 10.62
------ ------ ------ ------ ------ ------
Income from
investment
operations:
Net investment
income.............. 0.34 0.55 0.02 0.21 0.27 0.01
Net realized and
unrealized gain
(loss) on
investments......... 0.45 0.05 (0.06) 0.89 0.05 (0.43)
------ ------ ------ ------ ------ ------
Total from investment
operations.......... 0.79 0.60 (0.04) 1.10 0.32 (0.42)
------ ------ ------ ------ ------ ------
Distributions:
Net investment
income.............. (0.35) (0.47) (0.03) (0.20) (0.24) (0.05)
Net realized gain.... 0.00 (0.03) 0.00 0.00 (0.19) 0.00
------ ------ ------ ------ ------ ------
Total
distributions....... (0.35) (0.50) (0.03) (0.20) (0.43) (0.05)
------ ------ ------ ------ ------ ------
Net asset value, end
of period........... $10.16 $ 9.72 $ 9.62 $10.94 $10.04 $ 10.15
====== ====== ====== ====== ====== ======
TOTAL RETURN#........ 8.21%+# 6.45%+ (0.41)%+# 10.89%+# 3.33%+ (3.95)%+#
====== ====== ====== ====== ====== ======
RATIOS AND
SUPPLEMENTAL DATA
Net assets, end of
period
(thousands)......... $1,491 $ 296 $ 30 $1,094 $ 549 $ 166
Ratio of expenses to
average daily net
assets(1)........... 1.22%* 1.23% 1.72%* 1.26%* 1.26% 1.86%*
Ratio of net interest
income to average
daily net assets.... 6.63%* 5.66% 3.95%* 3.37%* 2.83% 1.36%*
Portfolio turnover
rate................ 76%* 73% 20%* 116%* 81% 37%*
</TABLE>

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

<TABLE>
<CAPTION>
* Annualized
** Commencement of operations
+ Total return does not include the one time sales charge. Total return would have been lower had certain
fees not been waived during the period.
++ Calculation is based on average shares outstanding.
# Total returns for periods of less than one year are not annualized.
<C> <S> <C> <C> <C> <C> <C> <C>
(1) During the 3.75%* 27.63% 55.35%* 3.97%* 5.80% 15.08%*
period, certain
fees were
voluntarily
waived. The
ratio of
expenses to
average daily
net assets had
such waivers
not occurred is
as follows.....
</TABLE>

6
<PAGE> 80
'

<TABLE>
<CAPTION>
CAPITAL GROWTH PORTFOLIO
---------------------------------------------------
Retail Class
---------------------------------------------------
Period from
Six months ended March 9, 1994**
October 31, 1995 Year ended to April 30,
(Unaudited) April 30, 1995 1994
---------------- -------------- ---------------
<S> <C> <C> <C>
SELECTED PER-SHARE DATA
Net asset value, beginning of period.......................................... $10.18 $10.18 $ 10.89
------- ------ ------
Income from investment operations:
Net investment income......................................................... 0.06 0.08 0.00
Net realized and unrealized gain (loss) on investments........................ 0.66 0.18 (0.71)
------- ------ ------
Total from investment operations.............................................. 0.72 0.26 (0.71)
------- ------ ------
Distributions:
Net investment income......................................................... (0.04) (0.08) 0.00
Net realized gain............................................................. (0.01) (0.18) 0.00
------- ------ ------
Total distributions........................................................... (0.05) (0.26) 0.00
------- ------ ------
Net asset value, end of period................................................ $10.85 $10.18 $ 10.18
======= ====== ======
TOTAL RETURN#................................................................. 6.85%+# 2.74%+ (6.52)%+#
======= ====== ======
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (thousands)......................................... $1,496 $ 404 $ 87
Ratio of expenses to average daily net assets(1).............................. 0.75%* 1.23% 1.92%*
Ratio of net interest income to average daily net assets...................... 0.82%* 0.86% (0.27)%
Portfolio turnover rate....................................................... 733%* 182% 41%*
</TABLE>

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

<TABLE>
<CAPTION>
* Annualized
** Commencement of operations
+ Total return does not include the one time sales charge. Total return would have been lower had certain fees not been
waived during the period.
++ Calculation is based on average shares outstanding.
# Total returns for periods of less than one year are not annualized.
<C> <S> <C> <C> <C>
(1) During the period, certain fees were voluntarily waived. The ratio of 3.77%* 9.73% 30.78%*
expenses to average daily net assets had such waivers not occurred is as
follows.................................................................
</TABLE>

7
<PAGE> 81

INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS
- --------------------------------------------------------------------------------

The Fund currently consists of twelve investment Portfolios with a variety
of investment objectives and policies. One of the twelve portfolios,
International Equity Portfolio is not offered to Retail Class investors. As the
investment advisor to each of the Portfolios whose Shares are offered through
this Prospectus, First Maryland is responsible for providing a continuous
investment program in accordance with each Portfolio's investment objective and
policies. Except for each Portfolio's investment objective and those policies
identified as fundamental, each Portfolio's policies are not fundamental.
Non-fundamental policies may be changed without shareholder approval. Further
information relating to the types of securities in which each Portfolio may
invest and the investment policies of each Portfolio in general is set forth in
the Appendix to this Prospectus. As is the case with any investment in
securities, an investment in a Portfolio involves certain risks and there can be
no assurance a Portfolio will achieve its investment objective. Each Portfolio
can use various techniques to manage its investment expense. These techniques
may involve derivative transactions. By itself, no one Portfolio constitutes a
balanced investment plan. From time to time, a Portfolio, to the extent
consistent with its investment objective, policies, restrictions and applicable
law, may invest in securities of companies with which First Maryland and/or its
affiliates has a lending relationship. The lending relationship will not be a
factor in the selection of securities.

U.S. TREASURY MONEY MARKET PORTFOLIO, U.S. GOVERNMENT MONEY MARKET
PORTFOLIO, MONEY MARKET PORTFOLIO AND TAX-FREE MONEY MARKET PORTFOLIO (the "ARK
Money Market Portfolios") each seek to maximize current income and provide
liquidity and security of principal by investing in high-quality, short-term,
U.S. dollar-denominated instruments determined by First Maryland to present
minimal credit risks in accordance with guidelines adopted by the Fund's Board.
The ARK Money Market Portfolios each will seek to maintain a net asset value per
share ("NAV") of $1.00, will limit their investments to securities with
remaining maturities of 397 days or less, and will maintain a dollar-weighted
average maturity of 90 days or less. In determining a security's maturity for
purposes of calculating the Portfolios' average maturity, estimates of the
expected time for principal to be paid may be used. An estimated maturity can be
substantially shorter than its stated final maturity.

U.S. TREASURY MONEY MARKET PORTFOLIO

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

The investment objective of U.S. TREASURY MONEY MARKET PORTFOLIO is to
maximize current income and provide liquidity and security of principal by
investing in instruments which are issued or guaranteed as to principal and
interest by the U.S. government and thus constitute direct obligations of the
United States. As a non-fundamental operating policy, the Portfolio intends to
invest 100% of its total assets in U.S. Treasury bills, notes, and bonds and
will limit its investments to U.S. Treasury obligations that pay interest that
is specifically exempt from state and local taxes under federal law.

U.S. GOVERNMENT MONEY MARKET PORTFOLIO

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

8
<PAGE> 82

U.S. Treasury bills, notes and bonds, and obligations issued by federal agencies
such as the Export-Import Bank of the United States, the General Services
Administration, the Government National Mortgage Association, and the Small
Business Administration. Obligations issued or guaranteed as to principal and
interest by U.S. government agencies or instrumentalities include instruments
issued by the Federal Home Loan Bank, Federal Farm Credit Bank and Federal
National Mortgage Association. The Portfolio may enter into when-issued or
delayed-delivery transactions. The Portfolio normally may not invest more than
5% of its total assets in the securities (other than U.S. Government Securities)
of any single issuer. Under certain conditions, however, the Portfolio may
invest up to 25% of its total assets in first tier securities of a single issuer
for up to three days.

MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------

The investment objective of MONEY MARKET PORTFOLIO is to maximize current
income and provide liquidity and security of principal by investing in a broad
range of short-term, high-quality U.S. dollar-denominated debt securities
("Money Market Instruments"). Such Money Market Instruments include, but are not
limited to: U.S. Government Securities; custodial receipts evidencing future
interest or principal payments on U.S. Government Securities; obligations of
domestic or foreign banks including bankers' acceptances, time deposits and
certificates of deposit ("CDs"); commercial paper (including variable and
floating rate instruments); corporate obligations; and asset-backed securities
and indexed securities -- each with 397 days or less remaining to maturity.
Money Market Portfolio may invest more than 25% of its total assets in certain
obligations of domestic banks. Money Market Portfolio may engage in repurchase
and reverse repurchase agreements and may enter into when-issued or
delayed-delivery transactions. The Portfolio normally may not invest more than
5% of its total assets in the securities (other than U.S. Government Securities)
of any single issuer. Under certain conditions, however, the Portfolio may
invest up to 25% of its total assets in first tier securities of a single issuer
for up to three days.

TAX-FREE MONEY MARKET PORTFOLIO
- --------------------------------------------------------------------------------

9
<PAGE> 83

bonds. The Portfolio may enter into when-issued and delayed-delivery
transactions and may purchase securities that are subject to restrictions on
resale.

First Maryland anticipates that the Portfolio will be as fully invested as
is practicable in municipal obligations. However, the Portfolio reserves the
right for temporary defensive purposes to invest without limitation in taxable
Money Market Instruments. There may be occasions when, as a result of maturities
of portfolio securities or sales of Portfolio shares, or in order to meet
anticipated redemption requests, the Portfolio may hold cash which is not
earning income.

10
<PAGE> 84

INVESTMENT LIMITATIONS FOR THE ARK MONEY MARKET PORTFOLIOS
- --------------------------------------------------------------------------------

4. Each ARK Money Market Portfolio (a) may not make a loan if more than
33 1/3% of its total assets would be lent to other parties; and (b) each of U.S.
Treasury Money Market Portfolio, U.S. Government Money Market Portfolio and
Tax-Free Money Market Portfolio do not currently intend to lend portfolio
securities.

SHORT-TERM TREASURY PORTFOLIO
- --------------------------------------------------------------------------------

The investment objective of SHORT-TERM TREASURY PORTFOLIO is to provide
current income, with a secondary objective of stability of principal, by
investing in instruments which are issued or guaranteed as to principal and
interest by the U.S. government. The Portfolio will invest 100% of its total
assets in instruments which are issued or guaranteed by the U.S. government and
thus constitute direct obligations of the United States and repurchase
agreements fully collateralized by the U.S. government. As a non-fundamental
policy, the Portfolio will invest 100% of its total assets in U.S. Treasury
bills, notes and bonds and will limit its investments to U.S. Treasury
obligations that pay interest that is specifically exempt from state and local
taxes under federal law. The Portfolio has no restrictions on maturity but
generally will maintain a dollar-weighted average maturity of approximately two
years.

INCOME PORTFOLIO
- --------------------------------------------------------------------------------

11
<PAGE> 85

assets in fixed-income securities. Fixed-income securities acquired by the
Portfolio may include income-producing securities of all types, including bonds,
notes, mortgage securities, government and government agency obligations, zero
coupon securities, convertible securities, foreign securities, indexed
securities, and asset-backed securities. The Portfolio may engage in short sales
"against the box" and may buy and sell futures contracts and options. The
Portfolio may also invest in the shares of other investment companies, as
permitted by the Investment Company Act of 1940 (the "1940 Act").

Income Portfolio normally will invest in investment grade debt securities
(including convertible securities) rated Baa or higher by Moody's Investors
Service, Inc. ("Moody's"), those securities rated BBB or higher by Standard &
Poor's Ratings Group ("S&P"), or those securities with equivalent ratings by
other NRSROs. Bonds rated Baa or BBB may have speculative characteristics, 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 bonds. The Portfolio also may purchase unrated securities that
are deemed by First Maryland to be of comparable quality to rated issues. The
Portfolio may, however, invest up to 5% of its total assets in lower quality
debt securities. First Maryland believes that holdings in such securities,
sometimes referred to as junk bonds, may offer worthwhile investment
opportunities. See the Statement of Additional Information for a more complete
discussion of such investments.

GROWTH AND INCOME PORTFOLIO
- --------------------------------------------------------------------------------

12
<PAGE> 86

short sales "against the box," and may buy and sell futures contracts and
options. The Portfolio may also invest in the shares of other investment
companies, as permitted by the 1940 Act.

Growth and Income Portfolio emphasizes long-term total return from capital
appreciation and current income. Although it is not a policy of the Portfolio to
engage in short-term trading, First Maryland may dispose of securities without
regard to the length of time held if First Maryland believes such action will
benefit the Portfolio. Although First Maryland will consider the potential for
income in selecting investments for the Portfolio, the Portfolio is generally
not intended to achieve a high level of income at a rate comparable to fixed
income portfolios. The Portfolio may adjust its investments based on First
Maryland's interpretation of underlying economic, financial, and security
trends; however, the Portfolio's ability to make such adjustments successfully
will depend on First Maryland's ability to predict such market trends. Growth
and Income Portfolio's share price, yield and total return will fluctuate, and
you may have a gain or loss when redeeming Shares.

BLUE CHIP EQUITY PORTFOLIO
- --------------------------------------------------------------------------------

The investment objective of BLUE CHIP EQUITY PORTFOLIO is to achieve
long-term appreciation by investing primarily in equity securities of
established, large capitalization companies.

13
<PAGE> 87

their fundamental strength. First Maryland considers many factors when
evaluating the overall quality of a security for investment by the Portfolio,
including a company's current financial strength and relative value. The
Portfolio may also invest in the shares of other investment companies, as
permitted by the 1940 Act.

CAPITAL GROWTH PORTFOLIO
- --------------------------------------------------------------------------------

The investment objective of CAPITAL GROWTH PORTFOLIO is to seek long-term
capital appreciation by investing primarily in common stock and securities
convertible into common stock.

It is the Portfolio's policy to invest in the securities of both
well-known, established companies and smaller, less well-known companies. The
prices of small company stocks may fluctuate more than those of larger companies
due to risks related to more limited product lines, markets or financial
resources. These conditions may make smaller companies more susceptible to
setbacks and reversals and, therefore, their securities may have limited
marketability and may be subject to more abrupt or erratic market movements than
securities of larger companies. The Portfolio will invest in securities that
First Maryland believes offer above-average growth potential based on their
fundamental strength. First Maryland considers many factors when evaluating the
overall quality of a security for investment by the Portfolio, including a
company's current financial strength, earnings momentum, and relative value. The
Portfolio may also invest in the shares of other investment companies, as
permitted by the 1940 Act.

SPECIAL EQUITY PORTFOLIO
- --------------------------------------------------------------------------------

14
<PAGE> 88

of $1.2 billion or less at the time of the Portfolio's investment and deemed by
the Portfolio manager to have above average growth potential; or (2) a company
experiencing a "special situation"; that is, an unusual and possibly
non-repetitive development taking place in that company. The Portfolio will
invest in securities that First Maryland believes offer above-average growth
potential based on their fundamental strength.

A "special situation" may involve one or more of the following
characteristics:

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

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

- significant economic or political occurrences abroad, including changes
in foreign or domestic import and tax laws or other regulations.

- other events, including natural disasters, favorable litigation
settlements, or a major change in demographic patterns.

Foreign securities, foreign currencies and securities issued by U.S.
entities with substantial foreign operations may involve additional risks and
considerations. These include risks relating to political or economic conditions
in foreign countries, fluctuations in foreign currencies, withholding or other
taxes, operational risks, increased regulatory burdens and the potentially less
stringent investor protection and disclosure standards of foreign markets.
Additionally, governmental issuers of foreign securities may be unwilling to
repay principal and interest when due, and may require that the conditions for
repayment be renegotiated. All these factors can make foreign investments,
especially those in developing countries, more volatile.

15
<PAGE> 89

MARYLAND TAX-FREE PORTFOLIO
- --------------------------------------------------------------------------------

The investment objective of MARYLAND TAX-FREE PORTFOLIO is to achieve high
current income that is free from federal income tax and the Maryland state and
county income taxes by investing primarily in municipal securities judged by
First Maryland to be of investment-grade quality, although it can also invest in
lower-quality securities. The Portfolio has no restrictions on maturity, but it
generally invests in medium- and long-term bonds and maintains a dollar-weighted
average maturity of 7-10 years. In determining a security's maturity for
purposes of calculating the Portfolio's average maturity, estimates of the
expected time for its principal to be paid may be used. This can be
substantially shorter than its stated final maturity. First Maryland normally
invests at least 65% of the Portfolio's total assets in Maryland municipal
securities, and normally invests, as a matter of fundamental policy, so that at
least 80% of the Portfolio's income is free from federal income tax, including
the federal alternative minimum tax.

The Portfolio's performance is affected by the economic and political
conditions within the state of Maryland. The ability of issuers to repay their
debt can be affected by many factors that impact the economic vitality of either
the state or a region within the state. Maryland's rate of economic growth has
been slower in the early 1990's than it had been during the 1980's. State
revenues in recent years have been less than expected and, because Maryland's
constitution requires a balanced budget, expenditures were cut.

ADDITIONAL INVESTMENT POLICIES OF SHORT-TERM TREASURY PORTFOLIO, INCOME
PORTFOLIO, GROWTH AND INCOME PORTFOLIO, BLUE CHIP EQUITY PORTFOLIO, CAPITAL
GROWTH PORTFOLIO, SPECIAL EQUITY PORTFOLIO AND MARYLAND TAX-FREE PORTFOLIO

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

For temporary defensive purposes, Short-Term Treasury Portfolio, Income
Portfolio, Growth and Income Portfolio, Blue Chip Equity Portfolio, Capital
Growth Portfolio, Special Equity Portfolio and

16
<PAGE> 90

Maryland Tax-Free Portfolio (the "ARK Non-Money Market Portfolios") may invest
all or a portion of their respective assets in Money Market Instruments. In
addition, for temporary defensive purposes, Maryland Tax-Free Portfolio may
invest more than normally permitted in taxable obligations.

The ARK Non-Money Market Portfolios, except Maryland Tax-Free Portfolio and
Short-Term Treasury Portfolio, may invest up to 25% of their respective assets
in American Depository Receipts ("ADRs"), European Depository Receipts ("EDRs"),
and securities issued by foreign companies and foreign governments. Special
Equity Portfolio may invest up to 35% of its assets in these securities.
Short-Term Treasury Portfolio and Maryland Tax-Free Portfolio may not invest its
assets in these securities. Foreign investments may be less liquid or more
volatile than domestic investments, and may be denominated in foreign
currencies. The value of these investments will fluctuate with changes in
exchange rates between those currencies and the U.S. dollar. See the Appendix
for further information on investing in foreign securities.

INVESTMENT LIMITATIONS FOR THE ARK NON-MONEY MARKET PORTFOLIOS
- --------------------------------------------------------------------------------

1. Except Maryland Tax-Free Portfolio, the ARK Non-Money Market Portfolios
may not, with respect to 75% of a Portfolio's total assets, purchase the
securities of any issuer (other than U.S. Government Securities) if as a result,
(a) more than 5% of a Portfolio's total assets would be invested in the
securities of that issuer, or (b) a Portfolio would hold more than 10% of the
outstanding voting securities of that issuer.

4. Each ARK Non-Money Market Portfolio may not make a loan if more than
33 1/3% of its assets would be lent to other parties.

PERFORMANCE
- --------------------------------------------------------------------------------

17
<PAGE> 91

YIELD is calculated similarly, but assumes that the income earned from the
investment is reinvested. The effective yield will be slightly higher than the
yield because of the compounding effect of this assumed reinvestment. Because
yield accounting methods differ from the methods used for other accounting
purposes, the yields of shares of the ARK Money Market Portfolios, Short-Term
Treasury Portfolio, Income Portfolio and Maryland Tax-Free Portfolio may not
equal their respective distribution rates, the income paid to your account or
the income reported in the financial statements of the Retail Class of the
relevant Portfolio.

For additional performance information, please contact your Investment
Professional or the Distributor for a free Annual Report, Semi-Annual Report and
Statement of Additional Information.

PORTFOLIO TRANSACTIONS AND VALUATION
- --------------------------------------------------------------------------------

Subject to the general supervision of the Board, First Maryland is
responsible for placing orders for securities transactions for each Portfolio.
Transactions for the ARK Money Market Portfolios, Short-Term Treasury Portfolio,
Income Portfolio and Maryland Tax-Free Portfolio, as well as purchases of debt
securities for Growth and Income Portfolio and Capital Growth Portfolio, are
expected to occur primarily with issuers, underwriters or major dealers acting
as principals. Such transactions are normally effected on a net basis and do not
involve payment of brokerage commissions. Securities transactions for Blue Chip
Equity Portfolio, Capital Growth Portfolio and Special Equity Portfolio, and
transactions involving equity securities for Growth and Income Portfolio will
normally be conducted through brokerage firms entitled to receive commissions
for effecting such transactions. The Portfolios have no obligation to enter into
securities transactions with any particular dealer, issuer, underwriter or other
entity. In placing orders for the Portfolios, it is the policy of First Maryland
to obtain the most favorable execution. Where such execution may be obtained
from more than one broker or dealer, securities transactions may be directed at
higher commission rates to those who provide research, statistical and other
information to First Maryland. If more than one Portfolio or another account
managed by First Maryland are purchasing or selling the same security, such
orders may be aggregated in the interest of achieving the most favorable
execution.

The Portfolios have authorized First Maryland to allocate transactions to
some broker-dealers who help distribute the Portfolios' shares. First Maryland
may make such allocations if commissions are comparable to those charged by
non-affiliated, qualified broker-dealers for similar services.

The frequency of portfolio transactions, the portfolio turnover rate, will
vary from year to year depending on market conditions. The annual portfolio
turnover rate is estimated to be 200% for Special Equity Portfolio, 45% for
Short-Term Treasury Portfolio, 75% for Blue Chip Equity Portfolio, and 20% for
Maryland Tax-Free Portfolio. Because a higher turnover rate increases
transaction costs and may increase taxable capital gains, First Maryland
carefully weighs the anticipated benefits of short-term investing against these
consequences.

18
<PAGE> 92

VALUATION. The NAV of the Shares of each Portfolio is calculated by adding
the Retail Class's pro rata share of the value of all securities and other
assets attributable to a Portfolio, deducting the Retail Class's pro rata share
of Portfolio-level liabilities, deducting Retail Class-specific liabilities, and
dividing the result by the number of Shares outstanding. Those assets that are
traded on an exchange or in the over-the-counter market are valued based upon
market quotations. Short-term obligations with maturities of 60 days or less are
valued at amortized cost. Other assets for which market quotations are not
readily available are valued at their fair value as determined in good faith by
or under the supervision of the Board. Assets in the ARK Money Market Portfolios
are valued based upon the amortized cost method. Although each ARK Money Market
Portfolio seeks to maintain an NAV of $1.00 for the Shares, there can be no
assurance that this NAV will not vary.

PRICING OF SHARES. The Portfolios are open for business and their NAVs are
calculated each day that the New York Stock Exchange ("NYSE") and the Federal
Reserve Bank of New York are open ("Business Day"). Your purchase of shares of
an ARK Money Market Portfolio must be made in federal funds or other readily
available funds and will be processed at the NAV next calculated after your
order is received and accepted by the transfer agent. Your purchase of an ARK
Non-Money Market Portfolio will be processed at the public offering price next
calculated after your order is received and accepted by the transfer agent. The
NAVs of the ARK Non-Money Market Portfolios are determined at the close of
business of the NYSE, normally 4:00 p.m. Eastern Time ("4:00 p.m."). The NAVs of
U.S. Treasury Money Market Portfolio and Tax-Free Money Market Portfolio are
determined at 12:00 noon Eastern Time ("12:00 noon") and the close of business
of the NYSE, normally 4:00 p.m. The NAVs of U.S. Government Money Market
Portfolio and Money Market Portfolio are determined at 1:30 p.m. Eastern Time
("1:30 p.m.") and the close of business of the NYSE, normally 4:00 p.m. Shares
purchased at 12:00 noon and 1:30 p.m. begin to earn dividends that Business Day.
Shares purchased at 4:00 p.m. are eligible to earn dividends on the following
Business Day.

PURCHASES, EXCHANGES AND REDEMPTIONS
- --------------------------------------------------------------------------------

WHO MAY INVEST?
- --------------------------------------------------------------------------------

Retail Class Shares are designed for all investors seeking professionally
managed mutual funds. All investors in the Shares will be required to establish
a brokerage account with an Investment Professional, such as First Maryland
Brokerage Corporation, that has a clearing brokerage arrangement with National
Financial Services Corporation.

19
<PAGE> 93

HOW DO I SET UP AN ACCOUNT?

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

You may set up an account through your Investment Professional. Please
visit your nearby First Maryland Brokerage Corporation office or call 1-800-ARK
FUND for information on opening a brokerage account to invest in Shares of a
Portfolio. The program materials/brokerage account application from your
Investment Professional should be read in conjunction with this Prospectus. An
Investment Professional may impose additional charges for its services and
limitations may apply.

HOW DO I INVEST?

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

To invest in any Portfolio of the Fund, please visit with a First Maryland
brokerage representative located in most First National Bank and York Bank Trust
offices, or call your investment professional. Payments for Shares of each ARK
Money Market Portfolio must be made in federal funds or other funds immediately
available to each Portfolio. An order for the purchase of Shares paid for in
such available funds will become effective on the day of receipt of the order by
the transfer agent and are entitled to that day's dividend if received prior to
12:00 noon for U.S. Treasury Money Market Portfolio and Tax-Free Money Market
Portfolio, or 1:30 p.m. for Money Market Portfolio and U.S. Government Money
Market Portfolio. If a purchase order, together with such available funds, is
received after 12:00 noon for U.S. Treasury Money Market Portfolio and Tax-Free
Money Market Portfolio, or 1:30 p.m. for Money Market Portfolio and U.S.
Government Money Market Portfolio, but before 4:00 p.m., such purchases will
receive the NAV determined at 4:00 p.m. and will begin earning dividends the
following Business Day. If an order or payment is received after 4:00 p.m., an
investor will receive the next determined NAV the following Business Day. Each
Portfolio reserves the right to reject any purchase order.

Purchase orders for Short-Term Treasury Portfolio, Income Portfolio, Growth
and Income Portfolio, Blue Chip Equity Portfolio, Capital Growth Portfolio,
Special Equity Portfolio and Maryland Tax-Free Portfolio received by the
transfer agent prior to 4:00 p.m. will receive that day's public offering price
(NAV plus a sales charge). Shares of Income Portfolio will begin to earn
dividends on the Business Day following the date the purchase is accepted. It is
the responsibility of your Investment Professional to transmit your order to
purchase and redeem Shares to the transfer agent before the next-determined NAV
calculation on a Business Day in order for you to receive the next-determined
share price. Each Portfolio reserves the right to reject any purchase order.

ADDITIONAL INVESTMENT REQUIREMENTS

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

The minimum initial investment is $1,000 per Portfolio. Subsequent
investments may be in any amount of $100 or more. If your total investment in a
Portfolio falls below $500 due to redemption and you do not increase your total
investment, your account may be closed and the proceeds mailed to you at the
address on record. You will be given 30 days' notice to reestablish the minimum
investment. Shares will be redeemed at the last calculated NAV on the day the
account is closed.

You may initiate any transaction by telephoning your Investment
Professional. No Portfolio or its agents will be responsible for any losses
resulting from unauthorized transactions if such Portfolio or agents follow
reasonable procedures designed to verify the identity of the caller. Your
Investment Professional may request personalized security codes or other
information, and may also record calls. You should verify the accuracy of your
confirmation statements immediately after you receive them. No certificates
representing shares will be issued.

20
<PAGE> 94

SALES CHARGES

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

There are no sales charges imposed on the ARK Money Market Portfolios. For
the ARK Non-Money Market Portfolios, the following table shows total sales
charges:
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
GROWTH & INCOME, BLUE CHIP
SHORT-TERM TREASURY, INCOME, EQUITY, CAPITAL GROWTH, AND
AND MARYLAND TAX-FREE PORTFOLIOS SPECIAL EQUITY PORTFOLIOS
--------------------------------- ---------------------------------
PROFESSIONAL PROFESSIONAL
SALES CHARGE CONCESSION SALES CHARGE CONCESSION
AS A % OF AS A % OF AS A % OF AS A % OF
OFFERING PRICE OFFERING PRICE OFFERING PRICE OFFERING PRICE
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Less than $50,000........................ 4.50% 4.05% 4.75% 4.28%
$50,000 to less than $100,000............ 4.00 3.60 4.50 4.05
$100,000 to less than $250,000........... 3.00 2.70 3.50 3.15
$250,000 to less than $500,000........... 2.50 2.25 2.50 2.25
$500,000 to less than $1,000,000......... 2.00 1.80 2.00 1.80
$1,000,000 to less than $3,000,000....... 1.00 0.90 1.00 0.90
$3,000,000 to less than $5,000,000....... 0.50 0.45 0.50 0.45
$5,000,000 and above..................... 0.00 None 0.00 None
</TABLE>

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

Reduced sales charges are applicable to purchases of Shares in amounts of
$50,000 or more. To obtain the applicable reduction of the sales charge, please
consult your Investment Professional at the time of purchase. Sales charges do
not apply to Shares purchased by directors, officers, employees or retirees of
First Maryland or of any of its bank-holding-company affiliates.

Sales loads are being waived for all purchases of Retail Class shares of
Short-Term Treasury Portfolio, Income Portfolio, Growth and Income Portfolio,
Blue Chip Equity Portfolio, Capital Growth Portfolio, Special Equity Portfolio,
and Maryland Tax-Free Portfolio. This sales load waiver will be in effect at
least through June 1996.

HOW DO I EXCHANGE SHARES?

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

An exchange is a convenient way to buy and sell Shares of another Portfolio
registered in your state. Retail Class Shares may be exchanged for Retail Class
Shares of another Portfolio. The redemption will be made at the next determined
NAV of the Shares to be redeemed after the exchange request is received by the
transfer agent. In order to exchange into another Portfolio, the $1,000 minimum
initial investment must be met.

Each exchange between Portfolios actually represents the sale of Shares of
one Portfolio and the purchase of Shares in another, which may produce a gain or
loss for tax purposes. In order to protect each Portfolio's performance and its
shareholders, First Maryland discourages frequent exchange activity in response
to short-term market fluctuations. Each Portfolio reserves the right to modify
or withdraw the exchange privilege or to suspend the offering of shares in any
class without notice to shareholders if, in First Maryland's judgment, a
Portfolio would be unable to invest effectively in accordance with its
investment objective and policies, or would otherwise potentially be adversely
affected. Each Portfolio also reserves the right to reject any specific purchase
order, including certain purchases by exchange.

If Shares are exchanged for Shares of another Portfolio with a higher sales
charge than that paid for the Shares being exchanged, you will pay a sales
charge equal to the difference between those sales charges.

An exchange between the Retail Class and the Institutional and
Institutional II Classes of any Portfolio is generally not permitted, except
that exchanges between the classes will be permitted should a Retail Class
shareholder become eligible to purchase Institutional Class shares. For example,
a Retail Class shareholder may establish a trust account that is eligible to
purchase shares of the

21
<PAGE> 95

Institutional Class. In this case, an exchange will be permitted between the
Retail Class of a Portfolio and the Institutional Class of that same Portfolio
at NAV, without the imposition of a sales load (if any), fee or other charge. An
exchange from the Institutional Class of a Portfolio to the Retail Class of that
same Portfolio will occur automatically when an Institutional Class shareholder
becomes ineligible to invest in the Institutional Class. The Fund will provide
at least thirty days' notice of any such exchange at NAV, without the imposition
of a sales load (if any), fee, or other charge. After the exchange, the
exchanged shares will be subject to all fees applicable to the Retail Class. In
the event that a shareholder declines to accept an automatic exchange, and if
the shareholder does not meet the requirements for investing in Institutional
Class shares, each Portfolio and the Fund reserves the right to redeem the
shares upon expiration of the thirty-day period. Each Portfolio reserves the
right to require shareholders to complete an application or other documentation
in connection with the exchange. The Fund has received a tax private letter
ruling from the Internal Revenue Service which provides that exchanges of shares
of one class of a portfolio for shares of another class of the same portfolio
will not constitute taxable events. See your Investment Professional for
additional information.

HOW DO I REDEEM SHARES?
- --------------------------------------------------------------------------------

You may redeem all or a portion of your Shares on any Business Day. Call
your Investment Professional with redemption requests. Shares will be redeemed
at the NAV next calculated after the transfer agent has received the redemption
request from your Investment Professional. It is the responsibility of your
Investment Professional to transmit promptly your order to redeem Shares to the
transfer agent. Shares redeemed on any Business Day for each Portfolio will
receive the dividends declared, if any, through the time of redemption. If a
Portfolio account is closed, any declared but unpaid dividends will be paid at
the beginning of the following month.

ADDITIONAL REQUIREMENTS: When the NYSE is closed (or when trading is
restricted) for any reason other than its customary weekend or holiday closings,
or when any emergency circumstances exist that the SEC determines merit such
action, the right of redemption may be suspended or the date of payment
postponed for a period of time that may exceed seven days. When the NYSE or the
Federal Reserve Bank of New York closes early, the Portfolios reserve the right
to advance the time on any such day by which purchase and redemption orders must
be received. To the extent portfolio securities are traded in other markets on
days which are not Business Days of the Fund, the NAV of the Shares of a
Portfolio may be affected on days when investors do not have access to such
Portfolio to purchase or redeem Shares. If a shareholder redeems all the Shares
of a Portfolio in an account, the shareholder will receive, in addition to the
value thereof, any declared but unpaid distributions thereon at the beginning of
the following month.

ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------

TAX-SHELTERED RETIREMENT PLANS: Retirement plans may offer some of the best
tax breaks available to individuals. Call your Investment Professional for more
information on the plans and their benefits, provisions and fees. Your
Investment Professional can set up your new account in any of the Portfolios
(with the exception of Tax-Free Money Market Portfolio and Maryland Tax-Free
Portfolio) under one of several tax-sheltered plans. These plans let you invest
for retirement and shelter your investment income from current taxes. Minimums
may differ from those listed on page 18. Plans include Individual Retirement
Accounts ("IRAs"), Rollover IRAs, Keogh Plans, and Simplified Employee Pension
Plans.

DISTRIBUTION OPTIONS: Each ARK Money Market Portfolio earns interest from
its investments. This interest, after payment of expenses, is passed along to
shareholders as income dividends. Income dividends for each such Portfolio are
declared daily and paid monthly. Each ARK Non-Money Market Portfolio earns
dividends from stocks and interest from bond, money market, and other
investments. These dividends and interest, after payment of expenses, are passed
along as income dividends. Income dividends for Short-Term Treasury Portfolio,
Income Portfolio and Maryland Tax-Free Portfolio are declared and paid monthly;
for Growth and Income Portfolio and Blue Chip Equity Portfolio are

22
<PAGE> 96

declared and paid quarterly; and for Capital Growth Portfolio and Special Equity
Portfolio are declared and paid annually. Net realized capital gains, if any,
for any Portfolio, are declared and paid annually.

When you fill out your brokerage account application, you can specify how
you want to receive your distributions. Currently, there are three available
options:

1. The Share Option reinvests income dividends and capital gain
distributions, if any, in additional Shares of the same Portfolio. Reinvestment
of income and capital gain distributions will be made at the NAV after the next
payment. If you do not indicate a choice on your application, you will be
assigned this option.

2. The Cash Option. Each dividend and capital gain distribution, if any,
will be credited to your account in the manner specified for settlement on your
account application.

3. The Income-Earned Option. For the ARK Non-Money Market Portfolios, your
capital gain distributions will be automatically reinvested in Shares of the
same Portfolio, and your dividend, if any, will be credited to your account in
the manner specified for settlement on your account application.

AUTOMATIC ASSET BUILDER: This program offers a simple way to maintain a
regular investment program. You may arrange automatic transfers (minimum $100
per transaction) from your bank account to your brokerage account on a periodic
basis. When you participate in the Automatic Asset Builder, the minimum initial
investment in each Portfolio is $1,000. This program is unavailable for the ARK
Money Market Portfolios. You will receive written confirmation when you set up
your program participation, or any time you make a change to your participation.
You may change the amount of your automatic investment, skip an investment, or
stop your Automatic Asset Builder investment by calling your Investment
Professional at least three business days prior to your next scheduled
investment date.

STATEMENTS AND REPORTS: You will receive a quarterly (or, if there has been
account activity, monthly) statement. You will also receive a statement after
each trading transaction in your account. A consolidated IRS Form 1099-DIV with
federal tax information will be mailed to you by January 31 of each tax year and
also will be filed with the IRS. At least twice a year, you will receive
financial reports of any Portfolio in which you are invested.

MANAGEMENT OF THE FUND

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

INVESTMENT ADVISOR

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

First Maryland, 25 South Charles Street, Baltimore, MD 21201, provides
investment advisory services to each Portfolio subject to the general
supervision of the Board. First Maryland is entitled to receive for its advisory
services payment at an annual rate based on the following fee schedule: ARK
Money Market Portfolios: .25% of each such Portfolio's average daily net assets;
Short-Term Treasury Portfolio: .35% of average daily net assets; Income
Portfolio: .50% of average daily net assets; Growth and Income Portfolio: .55%
of average daily net assets; Blue Chip Equity Portfolio: .60% of average daily
net assets; Capital Growth Portfolio: .60% of average daily net assets; Special
Equity Portfolio: .60% of average daily net assets; and Maryland Tax-Free
Portfolio: .50% of average daily assets. First Maryland, in its sole discretion,
may waive all or any portion of its advisory fee for any Portfolio. Any such
voluntary waiver will increase such Portfolio's yield for the period during
which the waiver is in effect.

First Maryland, established in 1806, had total assets of approximately $10
billion as of September 30, 1995, and is a wholly-owned subsidiary of First
Maryland Bancorp, which is a subsidiary of Allied Irish Banks, p.l.c. First
Maryland Bancorp was organized in 1974 as a bank holding company registered
under the Federal Bank Holding Company Act of 1956 and files annual and periodic
reports with the SEC under the Securities Exchange Act of 1934. (See "Banking
Law Matters".) First Maryland has experience as an investment advisor to
individual, corporate, and institutional advisory clients, pension plans and
collective investment funds, with approximately

23
<PAGE> 97

$32.7 million in assets under administration, $5.3 million of which were assets
under investment management as of September 30, 1995. First Maryland has managed
mutual funds since June 1993.

PORTFOLIO MANAGEMENT
- --------------------------------------------------------------------------------

Susan S. Schnaars, Vice President of First Maryland, has been the portfolio
manager for Income Portfolio since September 1994 and co-portfolio manager since
January 1996 and is the portfolio manager for Maryland Tax-Free Portfolio and
Short-Term Treasury Portfolio. Ms. Schnaars is also responsible for managing
several commingled funds (taxable and tax-free) and several large institutional
accounts. Prior to 1992, Ms. Schnaars managed institutional and commingled
fixed-income portfolios, including the RAF Fixed Income Fund for PNC Investment
Management and Research (formerly known as Provident National Bank). Ms.
Schnaars is a Chartered Financial Analyst and a Certified Public Accountant.

Clyde L. Randall is a Vice President of First Maryland and serves as the
co-portfolio manager for Blue Chip Equity Portfolio with Allen J. Ashcroft, Jr.
Prior to March 1995, Mr. Randall was an equity analyst and portfolio manager for
more than five years at Mercantile Safe Deposit and Trust Company, Baltimore,
Maryland. Mr. Randall is a Chartered Financial Analyst.

Allen J. Ashcroft, Jr. is a Vice President of First Maryland and serves as
the co-portfolio manager for Blue Chip Equity Portfolio with Clyde L. Randall.
Prior to joining First Maryland, Mr. Ashcroft was an equity analyst and
portfolio manager for McGlinn Capital Management, Wyomissing, Pennsylvania, for
12 years. Mr. Ashcroft has over 17 years experience in investment research and
equity analysis.

H. Giles Knight, Senior Vice President of First Maryland, is the
co-portfolio manager of Capital Growth Portfolio and Special Equity Portfolio
with Christopher E. Baggini. He also serves as Director of Equity Research of
First Maryland. Prior to joining First Maryland, Mr. Knight was with ASB Capital
Management, a subsidiary of NationsBank from 1990 to 1994. He was the Director
of Special Equity Investments, Capital Markets Division where he was responsible
for one mutual fund and six employee benefit and personal trust common stock
funds.

Christopher E. Baggini is a Vice President of First Maryland and serves as
the co-portfolio manager of Capital Growth Portfolio and Special Equity
Portfolio with H. Giles Knight. Prior to joining First Maryland, Mr. Baggini
served as portfolio manager and research analyst for First Metropolitan
Development Corporation. Mr. Baggini has over nine years experience in
investment management, including over four years at Salomon Brothers with
responsibilities in equity research, sales and trading.

Investment personnel may invest in securities for their own account
pursuant to a code of ethics that establishes procedures for personal investing
and restricts certain transactions.

24
<PAGE> 98

TRANSFER AGENT
- --------------------------------------------------------------------------------

ADMINISTRATOR
- --------------------------------------------------------------------------------

SEI Financial Management Corporation, 680 East Swedesford Road, Wayne,
Pennsylvania 19087, serves as the Portfolios' administrator (the
"Administrator") under the Administration Agreement dated November 1, 1995
between the Administrator and the Fund.

The Administrator assists in each Portfolio's administration and operation,
including providing facilities for maintaining each Portfolio's organization,
supervising relations with the custodian, transfer and pricing agents,
accountants, underwriters, and other persons dealing with each Portfolio,
preparing all general shareholder communications and conducting shareholder
relations, maintaining (or providing for the maintenance of) the Fund's records
and the registration of each Portfolio's shares under federal and state law,
developing management services for the Portfolios and furnishing reports,
evaluation and analyses on a variety of subjects to the Board. The Administrator
is entitled to receive an annual fee of .13% of the aggregate average daily net
assets of the Fund, paid monthly, for services performed under the
Administration Agreement. The Administrator has voluntarily agreed to waive a
portion of its administration fee on certain Portfolios of the Fund in order to
limit total operating expenses of such Portfolios. Any such voluntary waiver,
which can be discontinued at any time, will increase such Portfolio's yield for
the period during which the waiver is in effect.

DISTRIBUTION AND SERVICING OF THE SHARES
- --------------------------------------------------------------------------------

SEI Financial Services Company, 680 East Swedesford Road, Wayne,
Pennsylvania 19087, a wholly-owned subsidiary of SEI, serves as the distributor
(the "Distributor") for the Fund pursuant to a Distribution Agreement dated
November 1, 1995 between the Distributor and the Fund. The Distributor, a
Pennsylvania corporation incorporated on July 20, 1981, is a broker-dealer
registered under the Securities Exchange Act of 1934 and a member of the
National Association of Securities Dealers. Inc. The Distributor is the
principal underwriter of the Fund. First Maryland neither participates in nor is
responsible for the underwriting of the Shares.

The Board has adopted a Distribution Plan on behalf of the Retail Class of
each Portfolio pursuant to Rule 12b-1 under the 1940 Act ("Distribution Plan").
The Distribution Plan provides for payment of a fee to the Distributor of up to
.75% of average daily net assets of the Retail Class of each Portfolio. The
Board has approved the following distribution fee rates: .25% of the average net
assets of the Retail Class of each of the ARK Money Market Portfolios, .30% of
the average net assets of the Retail Class of Income Portfolio and the Maryland
Tax-Free Portfolio, .40% of the average net assets of the Retail Class of each
of Growth and Income Portfolio, Short-Term Treasury Portfolio, Special Equity
Portfolio and Capital Growth Portfolio and .55% of the average net assets of the
Retail Class of Blue Chip Equity Portfolio.

Under a Shareholder Services Plan in effect with respect to the Retail
Class of each Portfolio, the Retail Class of each Portfolio may pay shareholder
servicing fees to Investment Professionals at an annual rate of up to .25% of
the average daily net assets of the Shares attributable to their customers for
providing ongoing shareholder support services to their customers with accounts
in such class, including responding to shareholder communications, account
balance maintenance and dividend posting. The Board has approved an annual
shareholder servicing fee rate of .15% of the average net assets of the Retail
Class of each Portfolio, except for Short-Term Treasury Portfolio and Blue Chip
Equity Portfolio for which the Board has approved an annual rate of .06% of the
average net assets of

25
<PAGE> 99

each Portfolio. All or any portion of the 12b-1 fee and/or the shareholder
service fee for any Portfolio may be waived at any time. Any such voluntary
waiver, which can be discontinued at any time, will increase such Portfolio's
yield for the period during which the waiver is in effect.

The Distributor and/or investment professionals that receive portions of
the distribution fees from the Distributor, pay for the cost of printing (but
not typesetting) and mailing to prospective investors prospectuses and other
materials relating to the Retail Class, as well as for related direct mail,
advertising and promotional expenses.

The Distribution Plan does not obligate the Portfolios to reimburse the
Distributor for the actual expenses the Distributor may incur in fulfilling its
obligations under the Distribution Plan on behalf of the Retail Class. Thus,
under the Distribution Plan, even if the Distributor's actual expenses exceed
the fee payable to the Distributor thereunder at any given time, the Portfolios
will not be obligated to pay more than that fee. If the Distributor's expenses
are less than the distribution fee it receives, the Distributor will retain the
full amount of the fee.

CUSTODIAN
- --------------------------------------------------------------------------------

BANKING LAW MATTERS
- --------------------------------------------------------------------------------

Banking laws and regulations generally permit a bank or bank affiliate to
act as an investment adviser and to purchase shares of an investment company as
agent for and upon the order of a customer. However, banking laws and
regulations, including the Glass-Steagall Act as currently interpreted by the
Board of Governors of the Federal Reserve System, prohibit a bank holding
company registered under the Federal Bank Holding Company Act of 1956 or any
affiliate thereof from sponsoring, organizing, controlling, or distributing the
shares of a registered, open-end investment company continuously engaged in the
issuance of its shares, and prohibit banks generally from issuing, underwriting,
selling or distributing securities. Upon advice of counsel, the Board believes
that First Maryland may perform the advisory services described in this
Prospectus for each Portfolio and its shareholders without violating applicable
federal banking laws or regulations.

TAX MATTERS
- --------------------------------------------------------------------------------

Each Portfolio has elected to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. So long as
a Portfolio qualifies for this tax

26
<PAGE> 100

treatment, it will be relieved of federal income tax on amounts distributed to
shareholders, but shareholders, unless otherwise exempt, will pay income or
capital gains taxes on amounts so distributed (except distributions that
constitute "exempt interest dividends" or that are treated as a return of
capital) regardless of whether such distributions are paid in cash or reinvested
in additional shares.

Distributions out of the "net capital gain" (the excess of net long-term
capital gain over net short-term capital loss), if any, of any Portfolio will be
taxed to shareholders as long-term capital gains at a maximum marginal rate of
28%, regardless of the length of time a shareholder has held shares, whether
such gain was reflected in the price paid for the shares, or whether such gain
was attributable to bonds bearing tax-exempt interest. All other distributions,
to the extent they are taxable, are taxed as ordinary income at a maximum
marginal rate of 39.6%. Corporate taxpayers are currently taxed at the same
maximum marginal rates on both ordinary income and capital gains.

Tax-Free Money Market Portfolio and Maryland Tax-Free Portfolio intend to
pay substantially all of their respective dividends as "exempt interest
dividends." Investors in these Portfolios should note, however, that taxpayers
are required to report the receipt of tax-exempt interest and "exempt interest
dividends" in their federal income tax returns and that in two circumstances
such amounts, while exempt from regular federal income tax, are taxable to
persons subject to alternative minimum tax. Alternative minimum tax is currently
imposed at a maximum marginal rate of 28% in the case of non-corporate taxpayers
and at the rate of 20% in the case of corporate taxpayers. First, tax-exempt
interest and "exempt interest dividends" derived from certain private activity
bonds issued after August 7, 1986, will generally constitute an item of tax
preference for corporate and non-corporate taxpayers in determining alternative
minimum tax liability. Tax-Free Money Market Portfolio and Maryland Tax-Free
Portfolio intend to avoid investing their assets in such private activity bonds
but may do so if required by market conditions. Second, tax-exempt interest and
"exempt interest dividends" derived from all municipal securities must be taken
into account by corporate taxpayers in determining their adjusted current
earnings adjustments for alternative minimum tax purposes. Realized market
discount on tax-exempt obligations purchased after April 30, 1993, is treated as
ordinary income and not as capital gain. Shareholders who are recipients of
Social Security Act or Railroad Retirement Act benefits should further note that
tax-exempt interest and "exempt interest dividends" will be taken into account
in determining the taxability of their benefit payments.

Tax-Free Money Market Portfolio and Maryland Tax-Free Portfolio will
determine annually the percentage of their respective net investment incomes
that is fully tax-exempt, the percentage which constitutes an item of tax
preference for alternative minimum tax purposes and the percentage which is
fully taxable, and will apply such percentages uniformly to all distributions
declared from net investment income during that year. These percentages may
differ significantly from the actual percentages for any particular day.

The Fund anticipates that a substantial portion of dividends paid by Blue
Chip Equity Portfolio, Capital Growth Portfolio, Growth and Income Portfolio and
Special Equity Portfolio will be eligible for the 70% dividends received
deduction allowed to certain corporations to the extent of the gross amount of
qualified dividends received, respectively, by each Portfolio for the year.
However, corporate shareholders will have to take into account the entire amount
of any dividend received in determining their adjusted current earnings
adjustment for alternative minimum tax purposes. The dividends received
deduction is not available for capital gain dividends.

27
<PAGE> 101

Shareholders who exchange shares representing interests in one Portfolio
for Shares representing interests in another Portfolio will generally recognize
capital gain or loss for federal income tax purposes.

Shareholders who are nonresident alien individuals, foreign trusts or
estates, foreign corporations or foreign partnerships may be subject to
different U.S. federal income tax treatment.

* * *

GENERAL INFORMATION
- --------------------------------------------------------------------------------

ARK Funds is an open-end diversified management investment company
organized as a Massachusetts business trust pursuant to a Declaration of Trust
dated October 22, 1992 and amended and restated on March 19, 1993. The Board
supervises Fund activities and reviews contractual arrangements with companies
that provide the Portfolios with services. The Fund may issue an unlimited
number of shares of each of its portfolios. The Shares of a Portfolio have equal
voting, liquidation and other rights. When issued and paid for, Shares will be
fully paid and non-assessable by the Fund and will have no preference,
conversion, exchange or preemptive rights. The

28
<PAGE> 102

Board may authorize the Fund to offer other portfolios which may differ in the
types of securities in which their assets may be invested.

Each share of a Portfolio gives a shareholder one vote in Trustee elections
and other matters submitted to a vote of shareholders. All shares of each
Portfolio of the Fund have equal voting rights, except that the matters
affecting only a particular Portfolio or class of shares, only shares of that
Portfolio or class are entitled to vote.

As a Massachusetts business trust, the Fund is not required to hold annual
shareholder meetings, although special meetings may be called for the purpose of
voting on certain changes in the operations of a Portfolio or the Fund, or for
the election or removal of Trustees under certain circumstances.

The Fund offers three classes of shares of each ARK Money Market Portfolio;
two classes of shares of Short-Term Treasury Portfolio, Income Portfolio, Growth
and Income Portfolio, Blue Chip Equity Portfolio, Capital Growth Portfolio,
Special Equity Portfolio and Maryland Tax-Free Portfolio; and one class of
shares of International Equity Portfolio. The classes of shares of a Portfolio
have a common investment objective and investment limitations and policies. The
classes of shares of a Portfolio have different sales charges and other expenses
that may affect performance. The Institutional Class of Short-Term Treasury
Portfolio and Blue Chip Equity Portfolio are expected to commence operations on
or about the date of this Prospectus. The Institutional Class of Maryland
Tax-Free Portfolio has not yet commenced operations. The Retail Classes of the
U.S. Government Money Market Portfolio, Short-Term Treasury Portfolio, Blue Chip
Equity Portfolio, Special Equity Portfolio and Maryland Tax-Free Portfolio have
not yet commenced operations. You may obtain more information on the classes of
shares not offered through this Prospectus by calling 1-800-624-4116 or from
your Investment Professional.

APPENDIX
- --------------------------------------------------------------------------------

The ARK Non-Money Market Portfolios, except Short-Term Treasury Portfolio
and Maryland Tax-Free Portfolio, may invest in AMERICAN DEPOSITORY RECEIPTS AND
EUROPEAN DEPOSITORY RECEIPTS ("ADRs" and "EDRs"). ADRs and EDRs are certificates
evidencing ownership of shares of a foreign-based issuer held in trust by a bank
or similar financial institution. Designed for use in U.S. and European
securities markets, respectively, ADRs and EDRs are alternatives to the purchase
of the underlying securities in their national markets and currencies.

Each Portfolio, except U.S. Treasury Money Market Portfolio, U.S.
Government Money Market Portfolio and Short-Term Treasury Portfolio may purchase
ASSET-BACKED SECURITIES which consist of undivided fractional interests in pools
of consumer loans (unrelated to mortgage loans) held in a trust. Payments of
principal and interest are passed through to certificate holders and are
typically supported by some form of credit enhancement, such as a letter of
credit, surety bond, limited guaranty, or senior subordination. The degree of
credit enhancement varies, but generally amounts to only a fraction of the
asset-backed security's par value until exhausted. If the credit enhancement is
exhausted, certificate holders may experience losses or delays in payment if the
required payments of principal and interest are not made to the trust with
respect to the underlying loans. The value of these securities also may change
because of changes in the market's perception of the

29
<PAGE> 103

creditworthiness of the servicing agent for the loan pool, the originator of the
loans, or the financial institution providing the credit enhancement.
Asset-backed securities are ultimately dependent upon payment of consumer loans
by individuals, and the certificate holder generally has no recourse to the
entity that originated the loans. The underlying loans are subject to
prepayments which shorten the securities' weighted average life and may lower
their return. (As prepayments flow through at par, total returns would be
affected by the prepayments: if a security were trading at a premium, its total
return would be lowered by prepayments, and if a security were trading at a
discount, its total return would be increased by prepayments.)

Each Portfolio, except U.S. Treasury Money Market Portfolio, U.S.
Government Money Market Portfolio and Short-Term Treasury Portfolio may purchase
BANK OBLIGATIONS. These include: bankers' acceptances which are negotiable
obligations of a bank to pay a draft which has been drawn on it by a customer;
certificates of deposit which are negotiable certificates representing a
commercial bank's obligation to repay funds deposited with it, earning specified
rates of interest over given periods or issued at a discount: and time deposits
which are non-negotiable deposits in a banking institution earning a specified
interest rate over a given period of time.

Each Portfolio, except U.S. Treasury Money Market Portfolio, U.S.
Government Money Market Portfolio, Short-Term Treasury Portfolio and Maryland
Tax-Free Portfolio, may invest in EURODOLLARS, YANKEE DOLLARS AND FOREIGN BANK
OBLIGATIONS which involve risks that are different from investments in
securities of U.S. banks. These risks may include future unfavorable political
and economic developments, withholding taxes, seizures of foreign deposits,
currency controls, interest limitations, or other governmental restrictions that
might affect payment of principal or interest. Additionally, there may be less
public information available about foreign banks and their branches and
agencies. Foreign branches of domestic banks are not regulated by U.S. banking
authorities and generally are not subject to accounting, auditing, and financial
reporting standards comparable to those applicable to U.S. banks. For this
purpose, domestic banks include foreign branches of domestic banks for which the
domestic parent is unconditionally liable in the event the foreign branch failed
to pay on its instruments for any reason.

30
<PAGE> 104

factors could make foreign investments, especially those in developing
countries, more volatile. First Maryland considers these factors in making
investments in foreign securities for a Portfolio. There is no direct limitation
specifically intended to limit the amount of each Portfolio's assets that may be
invested in foreign securities or in any one country or currency.

Foreign securities, foreign currencies and securities issued by U.S.
entities with substantial foreign operations may involve additional risks and
considerations. These include risks relating to political or economic conditions
in foreign countries, fluctuations in foreign currencies, withholding or other
taxes, operational risks, increased regulatory burdens and the potentially less
stringent investor protection and disclosure standards of foreign markets.
Additionally, governmental issuers of foreign securities may be unwilling to
re-pay principal and interest when due, and may require that the conditions for
re-payment be renegotiated. All these factors can make foreign investments,
especially those in developing countries, more volatile.

The ARK Non-Money Market Portfolios, except Short-Term Treasury Portfolio
and Maryland Tax-Free Portfolio, may enter into FORWARD CURRENCY CONTRACTS
(agreements to exchange one currency for another at a future date) to manage
currency risks and to facilitate transactions in foreign securities. Although
forward currency contracts can be used to protect a Portfolio from adverse
exchange rate changes, they involve a risk of loss if First Maryland fails to
predict foreign currency values correctly.

HEDGING STRATEGIES. The ARK Non-Money Market Portfolios, except Short-Term
Treasury Portfolio, may buy and sell options on securities, currencies, futures
contracts and options on such contracts ("Hedging Instruments") to manage their
exposure to changing interest rates, security prices, and currency exchange
rates. Some strategies using these instruments, including selling futures,
buying puts and writing calls, tend to hedge the Portfolio's investments against
price fluctuations. Other strategies, including buying futures, writing puts and
buying calls, tend to increase market exposure. Hedging Instruments may be used
in combination with each other or with forward currency contracts in order to
adjust the risk and return characteristics of the overall strategy. A Portfolio
may invest in Hedging Instruments based on any type of security, index, or
currency, including options and futures traded on foreign exchanges and options
not traded on exchanges. These strategies may increase the volatility of the
Portfolios and may involve a small investment of cash relative to the magnitude
of the risk assumed. In addition, these strategies could result in a loss to a
Portfolio if the counterparty to the transaction does not perform as promised.

Hedging Instruments can be volatile investments, and involve certain risks.
If First Maryland applies a hedge at an inappropriate time or judges market
conditions incorrectly, use of Hedging Instruments may lower a Portfolio's
return. A Portfolio could also experience a loss if the prices of its options
and futures positions were poorly correlated with its other investments, or if
it could not close out its positions because of an illiquid secondary market.

Under currently applicable regulations, each ARK Money Market Portfolio,
except U.S. Treasury Money Market Portfolio, may invest up to 10% of its net
assets in ILLIQUID SECURITIES; the ARK Non-Money Market Portfolios may invest up
to 15% of their respective net assets in illiquid securities. Illiquid
securities are securities that cannot be disposed of in the usual course of
business within seven days of the usual course of business without taking a
reduced price. Generally, securities subject to restriction on resale, variable
rate demand notes, repurchase agreements with more than seven days to maturity,
and time deposits are considered to be illiquid unless First Maryland
determines, in accordance with guidelines established by the Board, that such
securities are readily marketable. The absence of a trading market can make it
difficult to ascertain a market value for illiquid securities, and it may be
difficult or impossible for a Portfolio to sell them promptly at an acceptable
price. In addition, unless securities are registered for sale, securities can
only be sold in privately negotiated transactions or pursuant to an exemption
from registration.

31
<PAGE> 105

The ARK Non-Money Market Portfolios, except Short-Term Treasury Portfolio
and Blue Chip Equity Portfolio, may invest in INDEXED SECURITIES whose value
depends on the price of securities indices, or other financial indicators. These
include commercial paper and certificates of deposit. These securities may be
positively or negatively indexed; that is, their value may increase or decrease
if the underlying instrument appreciates. Some indexed securities may be based
on underlying instruments whose total value is greater than the value of the
indexed security itself. Some indexed securities may be based on underlying
instruments whose total value is greater than the value of the indexed
instrument itself.

Special Equity Portfolio may purchase lower-rated debt securities which are
high-yielding debt securities, or junk bonds, (those rated Ba or lower by
Moody's or BB or lower by S&P) that have poor protection against default in the
payment of principal and interest. These securities are often considered to be
speculative and involve greater risk of loss or price changes due to changes in
the issuer's capacity to pay. The market prices of lower-rated debt securities
may fluctuate more than those of higher-rated debt securities, and may decline
significantly in periods of general economic difficulty which may follow periods
of rising interest rates. The table below provides a summary of ratings assigned
to debt securities (not including money market instruments) that may be included
in a Portfolio.

<TABLE>
<CAPTION>
MOODY'S S&P
RATING RATING DESCRIPTION
--------- --------- --------------------------------------------------------
<S> <C> <C>
Investment Grade
Aaa/Aa/A AAA/AA/A Highest quality/high quality/upper medium grade
Baa BBB Medium grade
Non-Investment Grade
Ba BB Moderately speculative
B B Speculative
Caa CCC Highly speculative
Ca/C CC/C Poor quality/lowest quality no interest
-- D In default, in arrears
</TABLE>

Each Portfolio, except U.S. Treasury Money Market Portfolio, U.S.
Government Money Market Portfolio and Short-Term Treasury Portfolio, may
purchase MUNICIPAL OBLIGATIONS which are issued to raise money for a variety of
public or private purposes, including general financing for state and local

32
<PAGE> 106

governments, or financing for specific projects or public facilities. They may
be issued in anticipation of future revenues, and may be backed by the full
taxing power of a municipality, the revenues from a specific project, or the
credit of a private organization. The value of some or all municipal securities
may be affected by uncertainties in the municipal market related to legislation
or litigation involving the taxation of municipal securities or the rights on
municipal securities holders. A Portfolio may own a municipal security directly
or through a participation interest.

Each Portfolio, except U.S. Treasury Money Market Portfolio and Tax-Free
Money Market Portfolio, may enter into REPURCHASE AGREEMENTS. In a repurchase
agreement, the Portfolio buys a security at one price and simultaneously commits
to resell that security back at a higher price. Each Portfolio, except U.S.
Treasury Money Market Portfolio and Tax-Free Money Market Portfolio, may also
make SECURITIES LOANS to parties such as broker-dealers and institutional
investors. In the event of bankruptcy of the other party to either a repurchase
agreement or a securities loan, a Portfolio could experience delays in
recovering its cash or the securities it lent. To the extent, in the meantime,
the value of the securities purchased had decreased, or the value of the
securities lent had increased, the Portfolio could experience a loss. In all
cases, First Maryland must find the creditworthiness of the other party to the
transaction satisfactory.

The ARK Non-Money Market Portfolios, except Short-Term Treasury Portfolio,
may enter into SHORT SALES with respect to securities owned ("short sales
against the box"). These transactions may help to hedge against the effect of
price declines, but may result in losses if the price of the underlying
securities increases.

Each Portfolio, except U.S. Treasury Money Market Portfolio and Short-Term
Treasury Portfolio, may purchase U.S. GOVERNMENT SECURITIES which are securities
issued or guaranteed by the U.S. government or its agencies or
instrumentalities. They may be backed by the full faith and credit of the U.S
government as a whole or only by the issuing agency. For example, securities
issued by the Federal Home Loan Banks and the Federal Home Loan Mortgage
Corporation are supported only by the credit of the issuing agency, and not by
the U.S. government. Securities issued by the Federal Farm Credit System, the
Federal Land Banks and the Federal National Mortgage Association are supported
by the agency's right to borrow money from the U.S. Treasury under certain
circumstances. U.S. Treasury securities and some agency securities, such as
those issued by the Federal Housing Administration and the Government National
Mortgage Association, are backed by the full faith and credit of the U.S.
government and are the highest quality government securities.

Each Portfolio, except U.S. Treasury Money Market Portfolio and Short-Term
Treasury Portfolio, may purchase VARIABLE OR FLOATING RATE INSTRUMENTS. Variable
or floating rate instruments (including notes purchased directly from issuers)
bear variable or floating interest rates and may carry rights that permit
holders to demand full payment from issuers or certain financial intermediaries.
Floating rate securities have interest rates that change whenever there is a
change in a designated base rate, while variable rate instruments provide for a
specified periodic adjustment in the interest rate. These formulas are designed
to result in a market value for the instrument that approximates its par value.
Many variable and floating rate instruments also carry demand features that
permit a Portfolio to sell them at par value plus accrued interest on short
notice.

Special Equity Portfolio may invest in warrants which entitle the holder to
buy equity securities at a specific price for a specific period of time.
Warrants may be considered more speculative than certain other types of
investments because they do not entitle a holder to dividends or voting rights
with respect to the securities which may be purchased, nor do they represent any
rights in the assets

33
<PAGE> 107

of the issuing company. The value of a warrant may be more volatile than the
value of the securities underlying the warrants. Also, the value of the warrant
does not necessarily change with the value of the underlying securities and a
warrant ceases to have value if it is not exercised prior to the expiration
date.

Each Portfolio may purchase ZERO COUPON DEBT SECURITIES which do not make
regular interest payments. Instead, they are sold at a deep discount from their
face value. In calculating its daily dividend, each Portfolio takes into account
as income a portion of the difference between these securities' purchase prices
and their face values. Because they do not pay current income, the prices of
zero coupon debt securities can be volatile when interest rates change.

ADDITIONAL INVESTMENTS FOR TAX-FREE MONEY MARKET PORTFOLIO AND MARYLAND TAX-FREE
PORTFOLIO
- --------------------------------------------------------------------------------

MUNICIPAL LEASE OBLIGATIONS are issued by a state or local government or
authority to acquire land and a wide variety of equipment and facilities. These
obligations typically are not fully backed by the municipality's credit, and
their interest may become taxable if the interest is assigned. If funds are not
appropriated for the following year's lease payments, the lease may terminate,
with the possibility of default on the lease obligation and significant loss to
the Portfolio. Certificates of participation in municipal lease obligations or
installment sales contracts entitle the holder to a proportionate interest in
the lease-purchase payments made. Each Portfolio will only purchase rated
municipal lease obligations.

REFUNDING CONTRACTS. The Portfolios may purchase securities on a
when-issued basis in connection with the refinancing of an issuer's outstanding
indebtedness. Refunding contracts require the issuer to sell and the Portfolio
to buy refunded municipal obligations at a stated price and yield on a
settlement date that may be several months or several years in the future.
Although a Portfolio may sell its rights under a refunding contract, these
contracts are relatively new and the secondary market for them may be less
liquid than the secondary market for other types of municipal securities.

34
<PAGE> 108

ARKPROR-2/96

BS-2870A-9506

<PAGE> 109
ARK FUNDS: INSTITUTIONAL CLASS AND INSTITUTIONAL II CLASS

CROSS REFERENCE SHEET

Form N-1A Item Number
Part B Statement of Additional Information

10,11................... Cover Page
12 ..................... Description of the Fund
13 a,b,c................ Investment Policies and Limitations
d.................... *
14 a,b.................. Trustees and Officers
c.................... *
15 a,b,c................ *
16 a(i,ii).............. The Advisors
a(iii),b,c,d......... Portfolio Transactions
e.................... *
f.................... Administrator and Distributor
g.................... *
h.................... Description of the Fund
i.................... Administrator and Distributor
<PAGE> 110
17 a.................... Portfolio Transactions
b.................... *
c.................... Portfolio Transactions
d,e.................. *
18 a.................... Description of the Fund
b.................... *
19 a.................... Additional Purchase and Redemption Information
b.................... Valuation of Portfolio Securities
20 ..................... Taxes
21 a(i),(ii)............ Administrator and Distributor
a(iii),b,c........... *
22 ..................... Performance
23 ..................... Financial statements for the fiscal year ended April
30, 1995, for each Portfolio (with the exception of
Special Equity Portfolio and Maryland Tax-Free
Portfolio) were filed pursuant to Rule 30b2-1.
Financial statements for the period ended October 31,
1995 will be filed by subsequent amendment.

* Not Applicable

ARK FUNDS: INSTITUTIONAL CLASS and INSTITUTIONAL II CLASS
STATEMENT OF ADDITIONAL INFORMATION
________________, 1996

This Statement of Additional Information is not a prospectus but should be read
in conjunction with the current Prospectus (dated _____________, 1996) for the
Institutional Class or Institutional II Class of the ARK Funds (the "Fund").
Each money market Portfolio of the Fund (ARK Money Market Portfolios) offers
three classes of shares: Institutional Class, Institutional II Class and Retail
Class. Short-Term Treasury Portfolio, Income Portfolio, Growth and Income
Portfolio, Blue Chip Equity Portfolio, Capital Growth Portfolio, Special Equity
Portfolio and Maryland Tax Free Portfolio each offers two classes of shares:
Institutional Class and Retail Class. Finally, International Equity Portfolio
offers Institutional Class shares, only (hereinafter, all ARK Funds Portfolios,
except the ARK Money Market Portfolios, are sometimes called, collectively, ARK
Non-Money Market Portfolios). Please retain this document for future reference.
The Fund's financial statements and financial highlights, included in the
Annual Report for the fiscal period ended April 30, 1995, and the Semi-Annual
Report for the six month period ended October 31, 1995, are incorporated herein
by reference. To obtain additional copies of the Institutional Class Prospectus
or Institutional II Class Prospectus, the Annual Report dated April 30, 1995,
the Semi-Annual Report dated October 31, 1995, and this Statement of Additional
Information or the Retail Class Prospectus or Retail Class Statement of
Additional Information, please call 1-800-624-4116.

TABLE OF CONTENTS PAGE

Investment Policies and Limitations
Investment Practices
Special Considerations for International Equity Portfolio
Special Considerations for Maryland Tax-Free Portfolio
Portfolio Transactions
Valuation of Portfolio Securities
Portfolio Performance
Additional Purchase and Redemption Information
Taxes
Trustees and Officers
The Advisors
Administrator and Distributor
Transfer Agent
Description of the Fund
Auditor
Financial Statements
Appendix

Advisors:
The First National Bank of Maryland (First Maryland) AIB Investment
Managers Limited (AIB I.M.)

Custodian:
The First National Bank of Maryland (the "Custodian")

Transfer Agent:
SEI Financial Management Corporation (the "Transfer Agent")

Administrator:
SEI Financial Management Corporation (the "Administrator")
<PAGE> 111
Distributor:
SEI Financial Services Company (the "Distributor")

INVESTMENT POLICIES AND LIMITATIONS

The following policies and limitations supplement those set forth in the
Institutional Class Prospectus and the Institutional II Class Prospectus. Unless
otherwise expressly noted, whenever an investment policy or limitation states a
maximum percentage of a Portfolio's assets that may be invested in any security
or other asset, or sets forth a policy regarding quality standards, such
percentage or standard will be determined immediately after and as a result of
the Portfolio's acquisition of such security or other asset. Accordingly, any
subsequent change in values, net assets, or other circumstances will not be
considered when determining whether the investment complies with the Portfolio's
investment policies and limitations.

Unless otherwise expressly noted, a Portfolio's policies and limitations
are non-fundamental. Fundamental investment policies and limitations cannot be
changed without approval by a "majority of the outstanding voting securities"
(as defined in the Investment Company Act of 1940 (the 1940 Act)) of a
Portfolio. The Portfolios' investment limitations are as follows.

U.S. TREASURY MONEY MARKET PORTFOLIO

The Portfolio, as a matter of fundamental policy, may not:

(1) with respect to 75% of the Portfolio's total assets, purchase the securities
of any issuer (other than securities issued or guaranteed by the U.S. government
or any of its agencies or instrumentalities) if, as a result, (a) more than 5%
of the Portfolio's total assets would be invested in the securities of that
issuer, or (b) the Portfolio would hold more than 10% of the outstanding voting
securities of that issuer;

(2) issue senior securities, except as permitted under the Investment Company
Act of 1940;

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

(5) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities)
if, as a result, more than 25% of the Portfolio's total assets would be invested
in the securities of companies whose principal business activities are in the
same industry;

(6) purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the Portfolio from
investing in securities or other instruments backed by real estate or securities
of companies engaged in the real estate business);

(7) purchase or sell commodities unless acquired as a result of ownership of
securities or other instruments; or

(8) lend any security or make any other loan if, as a result, more than 33 1/3%
of its total assets would be lent to other parties, but this limitation does not
apply to purchases of debt securities or to repurchase agreements.

The following investment limitations are not fundamental and may be changed
without shareholder approval.

(i) The Portfolio does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to the
securities sold short.

(ii) The Portfolio will not purchase any security while borrowings (including
reverse repurchase agreements) representing more than 5% of its total assets are
outstanding.
<PAGE> 112
(iii) The Portfolio does not currently intend to purchase securities on margin,
except that the Portfolio may obtain such short-term credits as are necessary
for the clearance of transactions.

(iv) The Portfolio does not currently intend to engage in repurchase agreements
or make loans, but this limitation does not apply to purchases of debt
securities.

(v) The Portfolio does not currently intend to purchase securities of other
investment companies, except to the extent permitted by the Investment Company
Act of 1940.

U.S. GOVERNMENT MONEY MARKET PORTFOLIO

The Portfolio, as a matter of fundamental policy, may not:

(2) issue senior securities, except as permitted under the Investment Company
Act of 1940;

(7) purchase or sell commodities unless acquired as a result of ownership of
securities or other instruments; or

The following investment limitations are not fundamental and may be changed
without shareholder approval.

(i) The Portfolio does not currently intend to purchase a security (other than a
security issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, more than 5% of its total assets would be
invested in the securities of a single issuer; provided that the Portfolio may
invest up to 25% of its total assets in the first tier securities of a single
issuer for up to three business days.

(ii) The Portfolio does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to the
securities sold short.

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

(iv) The Portfolio does not currently intend to purchase securities on margin,
except that the Portfolio may obtain such short-term credits as are necessary
for the clearance of transactions.

(v) The Portfolio does not currently intend to lend assets other than securities
to other parties. (This limitation does not apply to purchases of debt
securities or to repurchase agreements.)
<PAGE> 113
(vi) The Portfolio does not currently intend to purchase securities of other
investment companies, except to the extent permitted by the Investment Company
Act of 1940.

MONEY MARKET PORTFOLIO

The Portfolio, as a matter of fundamental policy, may not:

(2) issue senior securities, except as permitted under the Investment Company
Act of 1940;

(7) purchase or sell commodities unless acquired as a result of ownership of
securities or other instruments; or

The following investment limitations are not fundamental and may be changed
without shareholder approval.

(ii) The Portfolio does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to the
securities sold short.

(iii) The Portfolio does not currently intend to purchase securities on margin,
except that the Portfolio may obtain such short-term credits as are necessary
for the clearance of transactions

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

(v) The Portfolio does not currently intend to lend assets other than securities
to other parties. (This limitation does not apply to purchases of debt
securities or to repurchase agreements.)

(vi) The Portfolio does not currently intend to purchase securities of other
investment companies, except to the extent permitted by the Investment Company
Act of 1940.
<PAGE> 114
TAX-FREE MONEY MARKET PORTFOLIO

The Portfolio, as a matter of fundamental policy, may not:

(2) issue senior securities, except as permitted under the Investment Company
Act of 1940;

(5) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities,
or tax-exempt obligations issued or guaranteed by a U.S. territory or possession
or a state or local government, or a political subdivision of any of the
foregoing) if, as a result, more than 25% of the Portfolio's total assets would
be invested in securities of companies whose principal business activities are
in the same industry;

(7) purchase or sell commodities unless acquired as a result of ownership of
securities or other instruments; or

The following investment limitations are not fundamental and may be changed
without shareholder approval.

(i) The Portfolio does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to the
securities sold short, and provided that transactions in futures contracts and
options are not deemed to constitute selling securities short.

(ii) The Portfolio does not currently intend to purchase securities on margin,
except that the Portfolio may obtain such short-term credits as are necessary
for the clearance of transactions.

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

(iv) The Portfolio does not currently intend to engage in repurchase agreements
or make loans, but this limitation does not apply to purchases of debt
securities.

(v) The Portfolio does not currently intend to purchase securities of other
investment companies, except to the extent permitted by the Investment Company
Act of 1940.

SHORT-TERM TREASURY PORTFOLIO

The Portfolio, as a matter of fundamental policy, may not:

(1) with respect to 75% of the Portfolio's total assets, purchase the securities
of any issuer (other than securities issued or guaranteed by the U.S. government
or any of its agencies or instrumentalities) if, as a result, (a) more than 5%
of the Portfolio's total assets would be invested in the securities of that
<PAGE> 115
issuer, or (b) the Portfolio would hold more than 10% of the outstanding voting
securities of that issuer;

(2) issue senior securities, except as permitted under the Investment Company
Act of 1940;

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

The following investment limitations are not fundamental and may be changed
without shareholder approval.

(ii) The Portfolio does not currently intend to purchase securities on margin,
except that the Portfolio may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options shall not constitute purchasing
securities on margin.

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

(iv) The Portfolio does not currently intend to lend assets other than
securities to other parties. (This limitation does not apply to purchases of
debt securities or to repurchase agreements.)

(v) The Portfolio does not currently intend to purchase securities of other
investment companies.

INCOME PORTFOLIO

The Portfolio, as a matter of fundamental policy, may not:

(2) issue senior securities, except as permitted under the Investment Company
Act of 1940;

(3) borrow money, except that the Portfolio may (i) borrow money from a bank for
temporary or emergency purposes (not for leveraging or investment) and (ii)
engage in reverse repurchase agreements for any purpose; provided that (i) and
<PAGE> 116
(ii) in combination do not exceed 33 1/3% of the value of the Portfolio's total
assets (including the amount borrowed) less liabilities (other than borrowings).
Any borrowings that come to exceed this amount will be reduced within three
business days to the extent necessary to comply with the 33 1/3% limitation;

The following investment limitations are not fundamental and may be changed
without shareholder approval.

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

(iv) The Portfolio does not currently intend to lend assets other than
securities to other parties, except by acquiring loans, loan participations, or
other forms of direct debt instruments and, in connection therewith, assuming
any associated unfunded commitments of the sellers. (This limitation does not
apply to purchases of debt securities or to repurchase agreements.)

(v) The Portfolio does not currently intend to purchase securities of other
investment companies, except to the extent permitted by the Investment Company
Act of 1940.

GROWTH AND INCOME PORTFOLIO

The Portfolio, as a matter of fundamental policy, may not:

(2) issue senior securities, except as permitted under the Investment Company
Act of 1940;

The following investment limitations are not fundamental and may be changed
without shareholder approval.

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

(v) The Portfolio does not currently intend to purchase securities of other
investment companies, except to the extent permitted by the Investment Company
Act of 1940.

(vi) The Portfolio does not currently intend to invest in securities of real
estate investment trusts that are not readily marketable, or to invest in
securities of real estate limited partnerships that are not listed on the New
York Stock Exchange or the American Stock Exchange or traded on the NASDAQ
National Market System.

(vii) The Portfolio does not currently intend to invest in oil, gas or other
mineral exploration or development programs or leases.

(viii) The Portfolio does not currently intend to purchase warrants, valued at
the lower of cost or market, in excess of 5% of the Portfolio's net assets.
Included in that amount, but not to exceed 2% of the Portfolio's net assets, may
be warrants that are not listed on the New York Stock Exchange or the American
Stock Exchange. Warrants acquired by the Portfolio in units or attached to
securities are not subject to these restrictions.

(ix) The Portfolio does not currently intend to purchase the securities of any
issuer (other than securities issued or guaranteed by domestic or foreign
governments or political subdivisions thereof) if, as a result, more than 5% of
its total assets would be invested in the securities of business enterprises
that, including predecessors, have a record of less than three years of
continuous operation.

BLUE CHIP EQUITY PORTFOLIO
<PAGE> 118
The Portfolio, as a matter of fundamental policy, may not:

(2) issue senior securities, except as permitted under the Investment Company
Act of 1940;

The following investment limitations are not fundamental and may be changed
without shareholder approval.

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

(v) The Portfolio does not currently intend to purchase securities of other
investment companies, except to the extent permitted by the Investment Company
Act of 1940.

(vii) The Portfolio does not currently intend to invest in oil, gas or other
<PAGE> 119
mineral exploration or development programs or leases.

(ix) The Portfolio does not currently intend to purchase the securities of any
issuer (other than securities issued or guaranteed by domestic or foreign
governments or political subdivisions thereof) if, as a result, more than 5% of
its total assets would be invested in the securities of business enterprises,
that, including predecessors, have a record of less than three years of
continuous operation.

CAPITAL GROWTH PORTFOLIO

The Portfolio, as a matter of fundamental policy, may not:

(2) issue senior securities, except as permitted under the Investment Company
Act of 1940;

The following investment limitations are not fundamental and may be changed
without shareholder approval.

(iii) The Portfolio will not purchase any security while borrowings (including
reverse repurchase agreements) representing more than 5% of its total assets are
outstanding.
<PAGE> 120
(iv) The Portfolio does not currently intend to lend assets other than
securities to other parties, except by acquiring loans, loan participations, or
other forms of direct debt instruments and, in connection therewith, assuming
any associated unfunded commitments of the sellers. (This limitation does not
apply to purchases of debt securities or to repurchase agreements.)

(v) The Portfolio does not currently intend to purchase securities of other
investment companies, except to the extent permitted by the Investment Company
Act of 1940.

(vii) The Portfolio does not currently intend to invest in oil, gas or other
mineral exploration or development programs or leases.

(ix) The Portfolio does not currently intend to purchase the securities of any
issuer (other than securities issued or guaranteed by domestic or foreign
governments or political subdivisions thereof) if, as a result, more than 5% of
its total assets would be invested in the securities of business enterprises,
that, including predecessors, have a record of less than three years of
continuous operation.

INTERNATIONAL EQUITY PORTFOLIO

The Portfolio, as a matter of fundamental policy, may not:

(2) issue senior securities, except as permitted under the Investment Company
Act of 1940;

(8) lend any security or make any other loan if, as a result, more than 100% of
its total assets would be lent to other parties, but this limitation does not
apply to purchases of debt securities or to repurchase agreements.
<PAGE> 121
The following investment limitations are not fundamental and may be changed
without shareholder approval.

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

(iv) The Portfolio does not currently intend to lend any security or make any
other loan, but this limitation does not apply to purchases of debt securities
or to repurchase agreements.

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

(vi) The Portfolio does not currently intend to purchase securities of other
investment companies, except to the extent permitted by the Investment Company
Act of 1940.

(vii) The Portfolio does not currently intend to invest in securities of real
estate investment trusts that are not readily marketable, or to invest in
securities of real estate limited partnerships that are not listed on the New
York Stock Exchange or the American Stock Exchange or traded on the NASDAQ
National Market System.

(viii) The Portfolio does not currently intend to invest in oil, gas or other
mineral exploration or development programs or leases.

(ix) The Portfolio does not currently intend to purchase warrants, valued at the
lower of cost or market, in excess of 10% of the Portfolio's net assets.
Included in that amount, but not to exceed 2% of the Portfolio's net assets, are
warrants whose underlying securities are not traded on principal domestic or
foreign exchanges. Warrants acquired by the Portfolio in units or attached to
securities are not subject to these restrictions.

(x) The Portfolio does not currently intend to purchase the securities of any
issuer (other than securities issued or guaranteed by domestic or foreign
governments or political subdivisions thereof) if, as a result, more than 5% of
its total assets would be invested in the securities of business enterprises,
that, including predecessors, have a record of less than three years of
continuous operation.

SPECIAL EQUITY PORTFOLIO

The Portfolio, as a matter of fundamental policy, may not:

(2) issue senior securities, except as permitted under the Investment Company
Act of 1940;

(4) underwrite securities issued by others, except to the extent that the
Portfolio may be considered an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities;
<PAGE> 122
(5) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities)
if, as a result, more than 25% of the Portfolio's total assets would be invested
in the securities of companies whose principal business activities are in the
same industry;

The following investment limitations are not fundamental and may be changed
without shareholder approval.

(i) The Portfolio does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to the
securities sold short; and provided that transactions in futures contracts and
options are not deemed to constitute selling securities short.

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

(v) The Portfolio does not currently intend to invest in securities of real
estate investment trusts that are not readily marketable, or to invest in
securities of real estate limited partnerships that are not listed on the New
York Stock Exchange or the American Stock Exchange or traded on the NASDAQ
National Market System.

(vi) The Portfolio does not currently intend to purchase securities of other
investment companies, except to the extent permitted by the Investment Company
Act of 1940.

(vii) The Portfolio does not currently intend to purchase warrants, valued at
the lower of cost or market, in excess of 10% of the Portfolio's net assets.
Included in that amount, but not to exceed 2% of the Portfolio's net assets, are
warrants whose underlying securities are not traded on principal domestic or
foreign exchanges. Warrants acquired by the Portfolio in units or attached to
securities are not subject to these restrictions.

(viii) The Portfolio does not currently intend to invest in oil, gas or other
mineral exploration or development programs or leases.

(ix) The Portfolio does not currently intend to purchase the securities of any
issuer (other than securities issued or guaranteed by domestic or foreign
governments or political subdivisions thereof) if, as a result, more than 5% of
its total assets would be invested in the securities of business enterprises,
that, including predecessors, have a record of less than three years of
continuous operation.

MARYLAND TAX-FREE PORTFOLIO

The Portfolio, as a matter of fundamental policy, may not:

(1) issue senior securities, except as permitted under the Investment Company
Act of 1940;

(2) borrow money, except that the Portfolio may (i) borrow money from a bank for
<PAGE> 123
temporary or emergency purposes (not for leveraging or investment) and (ii)
engage in reverse repurchase agreements for any purpose; provided that (i) and
(ii) in combination do not exceed 33 1/3% of the value of the Portfolio's total
assets (including the amount borrowed) less liabilities (other than borrowings).
Any borrowings that come to exceed this amount will be reduced within three
business days to the extent necessary to comply with the 33 1/3% limitation;

(3) underwrite securities issued by others, except to the extent that the
Portfolio may be considered an underwriter within the meaning of the Securities
Act of 1933 in the disposition of restricted securities;

(4) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities)
if, as a result, more than 25% of the Portfolio's total assets would be invested
in the securities of companies whose principal business activities are in the
same industry;

(5) purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the Portfolio from
investing in securities or other instruments backed by real estate or securities
of companies engaged in the real estate business);

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

(7) lend any security or make any other loan if, as a result, more than 33 1/3%
of its total assets would be lent to other parties, but this limitation does not
apply to purchases of debt securities or to repurchase agreements.

The following investment limitations are not fundamental and may be changed
without shareholder approval.

(i) To meet federal tax requirements for qualification as a "regulated
investment company," the Portfolio limits its investments so that at the close
of each quarter of its taxable year: (a) with regard to at least 50% of total
assets, no more than 5% of total assets are invested in the securities of a
single issuer, and (b) no more than 25% of total assets are invested in the
securities of a single issuer. Limitations (a) and (b) do not apply to
"Government securities" as defined for federal tax purposes.

(ii) The Portfolio does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to the
securities sold short, and provided that transactions in futures contracts and
options are not deemed to constitute selling securities short.

(iii) The Portfolio does not currently intend to purchase securities on margin,
except that the Portfolio may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options shall not constitute purchasing
securities on margin.

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

(v) The Portfolio does not currently intend to lend assets other than securities
to other parties. (This limitation does not apply to purchases of debt
securities or to repurchase agreements.)

(vi) The Portfolio currently does not intend to invest more than 25% of its
total assets in industrial revenue bonds issued by entities whose principal
business activities are in the same industry.

(vii) The Portfolio currently does not intend to purchase securities of other
investment companies, except to the extent permitted by the Investment Company
Act of 1940.

For purposes of limitations (4) and (i) of the Maryland Tax- Free Portfolio,
First Maryland identifies the issuer of a security depending on its terms and
conditions. In identifying the issuer, First Maryland will consider the entity
or entities responsible for payment and repayment of principal and the source of
such payments; the way in which assets and revenues of an issuing political
subdivision are separated from those of other political entities; and whether a
governmental body is guaranteeing the security.
<PAGE> 124
Each Portfolio's investments must be consistent with its investment objective
and policies. Accordingly, not all of the security types and investment
techniques discussed below are eligible investments for each of the Portfolios.

INVESTMENT PRACTICES

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

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

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

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

Federally Taxable Obligations. Tax-Free Money Market Portfolio and Maryland
Tax-Free Portfolio do not generally intend to invest in securities whose
interest is taxable; however, from time to time the Portfolios may invest on a
temporary basis in fixed-income obligations whose interest is subject to federal
income tax. For example, the Portfolios may invest in obligations whose interest
is taxable pending the investment or reinvestment in municipal securities of
proceeds from the sale of its shares or sales of portfolio securities.

Should the Portfolios invest in taxable obligations, it would purchase
securities that, in First Maryland's judgment, are of high quality. This would
include obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities, obligations of domestic banks, and repurchase agreements. The
Portfolios' standards for high quality taxable obligations are essentially the
same as those described by Moody's in rating corporate obligations within its
two highest ratings of Prime-1 and Prime-2, and those described by S&P in rating
corporate obligations within its two highest ratings of A-1 and A-2. The
Portfolios may also acquire unrated securities determined by First Maryland to
be comparable in quality to rated securities in accordance with guidelines
adopted by the Fund's Board.

The Supreme Court of the United States has held that Congress may subject the
interest on municipal obligations to federal income tax. Proposals to restrict
or eliminate the federal income tax exemption for interest on municipal
obligations are introduced before Congress from time to time. Proposals may also
be introduced before state legislatures that would affect the state tax
treatment of the Portfolios' distributions. If such proposals were enacted, the
availability of municipal obligations and the value of the Portfolios' holdings
would be affected and the Board would reevaluate the Portfolios' investment
objectives and policies.

Tax-Free Money Market Portfolio and Maryland Tax-Free Portfolio anticipate being
as fully invested in municipal securities as is practicable; however, there may
be occasions when as a result of maturities of portfolio securities, or sales of
portfolio shares, or in order to meet redemption requests, the Portfolios may
hold cash that is not earning income. In addition, there may be occasions when,
in order to raise cash to meet redemptions or to preserve credit quality, the
<PAGE> 125
Portfolios may be required to sell securities at a loss.

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

International Equity Portfolio may use currency forward contracts for any
purpose consistent with its investment objective. The following discussion
summarizes some, but not all, of the possible currency management strategies
involving forward contracts that could be used by the Portfolio. The Portfolio
may also use options and futures contracts relating to foreign currencies for
the same purposes.

When International Equity Portfolio agrees to buy or sell a security denominated
in a foreign currency, it may desire to "lock in" the U.S. dollar price of the
security. By entering into a forward contract for the purchase or sale, for a
fixed amount of U.S. dollars, of the amount of foreign currency involved in the
underlying security transaction, the Portfolio will be able to protect itself
against an adverse change in foreign currency values between the date the
security is purchased or sold and the date on which payment on the underlying
security is made or received. The Portfolio may also enter into forward
contracts to purchase or sell a foreign currency in anticipation of future
purchases or sales of securities denominated in foreign currency, even if the
specific investments have not yet been selected by AIB I.M.

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

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

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

Successful use of forward contracts will depend on AIB I.M.'s skill in analyzing
and predicting currency values. Forward contracts may substantially change
International Equity Portfolio's investment exposure to changes in currency
exchange rates, and could result in losses to the Portfolio if currencies do not
perform as AIB I.M. anticipates. For example, if a currency's value rose at a
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time when AIB I.M. had hedged the Portfolio by selling that currency in exchange
for dollars, the Portfolio would be unable to participate in the currency's
appreciation. If AIB I.M. hedges currency exposure through proxy hedges, the
Portfolio could realize currency losses from the hedge and the security position
at the same time if the two currencies do not move in tandem. Similarly, if AIB
I.M. increases International Equity Portfolio's exposure to a foreign currency,
and that currency's value declines, the Portfolio will realize a loss. There is
no assurance that AIB I.M.'s use of forward contracts will be advantageous to
the Portfolio or that they will hedge at an appropriate time.

Foreign Investments. Each Portfolio, except U.S. Treasury Money Market
Portfolio, U.S. Government Money Market Portfolio, Short-Term Treasury Portfolio
and Maryland Tax-Free Portfolio, may invest in U.S. dollar-denominated
securities of foreign issuers. Income Portfolio, Growth and Income Portfolio,
Blue Chip Equity Portfolio, Capital Growth Portfolio, International Equity
Portfolio and Special Equity Portfolio each may invest in foreign securities
denominated in foreign currencies. Foreign investments can involve significant
risks in addition to the risks inherent in U.S. investments. The value of
securities denominated in or indexed to foreign currencies, and of dividends and
interest from such securities, can change significantly when foreign currencies
strengthen or weaken relative to the U.S. dollar. Foreign securities markets
generally have less trading volume and less liquidity than U.S. markets, and
prices on some foreign markets can be highly volatile. Many foreign countries
lack uniform accounting and disclosure standards comparable to those applicable
to U.S. companies, and it may be more difficult to obtain reliable information
regarding an issuer's financial condition and operations. In addition, the costs
of foreign investing, including withholding taxes, brokerage commissions, and
custodial costs, are generally higher than for U.S. investments.

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

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

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

Income Portfolio, Growth and Income Portfolio, Blue Chip Equity Portfolio,
Capital Growth Portfolio, International Equity Portfolio and Special Equity
Portfolio each may invest in foreign securities that impose restrictions on
transfer within the United States or to U.S. persons. Although securities
subject to transfer restrictions may be marketable abroad, they may be less
liquid than foreign securities of the same class that are not subject to such
restrictions.

Illiquid Investments. Each Portfolio, except U.S. Treasury Money Market
Portfolio, may invest in illiquid investments. Illiquid investments cannot be
sold or disposed of in the ordinary course of business at approximately the
prices at which they are valued. Under the supervision of the Board, First
Maryland or AIB I.M., as applicable, determines the liquidity of each
Portfolio's investments, and, through reports from First Maryland or AIB I.M.,
the Board monitors investment in illiquid instruments. In determining the
liquidity of a Portfolio's investments, First Maryland or AIB I.M., as
applicable, may consider various factors including (1) the frequency of trades
and quotations, (2) the number of dealers and prospective purchasers in the
marketplace, (3) dealer undertakings to make a market, (4) the nature of the
security (including any demand or tender features), (5) the nature of the
marketplace for trades (including the ability to assign or offset a Portfolio's
rights and obligations relating to the investment) and (6) general credit
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quality. Investments currently considered by a Portfolio to be illiquid include
repurchase agreements not entitling the holder to payment of principal and
interest within seven days, non-government stripped fixed-rate mortgage-backed
securities and government stripped fixed-rate mortgage-backed securities, loans
and other direct debt instruments, over-the-counter options and swap agreements.
Although restricted securities and municipal lease obligations are sometimes
considered illiquid, First Maryland or AIB I.M., as applicable, may determine
certain restricted securities and municipal lease obligations to be liquid. In
the absence of market quotations, illiquid investments are valued for purposes
of monitoring amortized cost valuation (ARK Money Market Portfolios) and priced
(for ARK Non-Money Market Portfolios) at fair value as determined in good faith
by a committee appointed by the Board. If, as a result of a change in values,
net assets or other circumstances, a Portfolio were in a position where more
than 10% (ARK Money Market Portfolios) or 15% (ARK Non-Money Market Portfolios)
of its net assets were invested in illiquid securities, it would seek to take
appropriate steps to protect liquidity.

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

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

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

Loans and Other Direct Debt Instruments. The ARK Non-Money Market Portfolios,
except International Equity Portfolio and Short-Term Treasury Portfolio, may
invest in loans and other direct debt instruments. Direct debt instruments are
interests in amounts owed by a corporate, governmental or other borrower to
lenders or lending syndicates (loans and loan participations), to suppliers of
goods or services (trade claims or other receivables), or to other parties.
Direct debt instruments are subject to a Portfolio's policies regarding the
quality of debt securities.

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

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

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

A Portfolio limits the amount of total assets that it will invest in any one
issuer or in issuers within the same industry (see fundamental limitations 1 and
5 for each of the ARK Non-Money Market Portfolios). For purposes of these
limitations, a Portfolio generally will treat the borrower as the "issuer" of
indebtedness held by a Portfolio. In the case of loan participations where a
bank or other lending institution serves as financial intermediary between a
Portfolio and the borrower, if the participation does not shift the direct
debtor-creditor relationship with the borrower to the Portfolio, SEC
interpretations require the Portfolio, in appropriate circumstances, to treat
both the lending bank or other lending institution and the borrower as "issuers"
for the purposes of determining whether the Portfolio has invested more than 5%
of its total assets in a single issuer. Treating a financial intermediary as an
issuer of indebtedness may restrict a Portfolio's ability to invest in
indebtedness related to a single financial intermediary, or a group of
intermediaries engaged in the same industry, even if the underlying borrowers
represent many different companies and industries.

Lower-Quality Municipal Securities. The Maryland Tax-Free Portfolio may invest a
portion of its assets in lower-quality municipal securities as described in the
Prospectus.

While the market for Maryland municipal securities is considered to be adequate,
adverse publicity and changing investor perceptions may affect the ability of
outside pricing services used by the Portfolio to value its portfolio
securities, and the Portfolio's ability to dispose of lower-quality bonds. The
outside pricing services are monitored by First Maryland and reported to the
Board to determine whether the services are furnishing prices that accurately
reflect fair value. The impact of changing investor perceptions may be
especially pronounced in markets where municipal securities are thinly traded.

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

Lower-Rated Debt Securities. The ARK Non-Money Market Portfolios, except Special
Equity Portfolio, Short-Term Treasury Portfolio, and International Equity
Portfolio, each may invest up to 5% of their respective assets in lower-rated
debt securities i.e., securities rated Ba or lower by Moody's Investors Service
Inc. (Moody's) or BB or lower by Standard & Poor's Ratings Group (S&P), or other
comparable ratings by other nationally recognized statistical rating
organizations (NRSROs). Special Equity Portfolio may invest up to 35% in such
securities. International Equity Portfolio and Short-Term Treasury Portfolio do
not invest in lower-rated debt securities. Such securities may have poor
protection with respect to the payment of interest and repayment of principal.
These securities are often considered to be speculative and involve greater risk
of loss or price changes due to changes in the issuer's capacity to pay. The
market prices of lower-rated debt securities may fluctuate more than those of
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higher-rated debt securities and may decline significantly in periods of general
economic difficulty, which may follow periods of rising interest rates.

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

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

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

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

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

Market Disruption Risk. The value of municipal securities may be affected by
uncertainties in the municipal market related to legislation or litigation
involving the taxation of municipal securities or the rights of municipal
securities holders in the event of a bankruptcy. Municipal bankruptcies are
relatively rare, and certain provisions of the U.S. Bankruptcy Code governing
such bankruptcies are unclear and remain untested. Further, the application of
state law to municipal issuers could produce varying results among the states or
among municipal securities issuers within a state. These legal uncertainties
could affect the municipal securities market generally, certain specific
segments of the market, or the relative credit quality of particular securities.
Any of these effects could have a significant impact on the prices of some or
all of the municipal securities held by a Portfolio. For the Money Market
Portfolios, it is more difficult to maintain a stable net asset value per share.

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

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

Portfolios' Rights As Shareholders. The Portfolios do not intend to direct or
administer the day-to-day operations of any company whose shares they hold. A
Portfolio, however, may exercise its rights as a shareholder and may communicate
its views on important matters of policy to management, the board of trustees or
directors and the shareholders of a company when First Maryland or AIB I.M., as
applicable, determines that such matters could have a significant effect on the
value of a Portfolio's investment in the company. The activities that a
Portfolio may engage in, either individually or in conjunction with other
shareholders, may include, among others, supporting or opposing proposed changes
in a company's corporate structure or business activities; seeking changes in a
company's board of trustees or directors or management; seeking changes in a
company's direction or policies; seeking the sale or reorganization of the
company or a portion of its assets; or supporting or opposing third party
takeover efforts. This area of corporate activity is increasingly prone to
litigation and it is possible that a Portfolio could be involved in lawsuits
related to such activities. First Maryland or AIB I.M., as applicable, will
monitor such activities with a view to mitigating, to the extent possible, the
risk of litigation against the Portfolio and the risk of actual liability if a
Portfolio is involved in litigation. There is no guarantee, however, that
litigation against a Portfolio will not be undertaken or liabilities incurred.

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

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

Repurchase Agreements. Each Portfolio, except U.S. Treasury Money Market
Portfolio and Tax-Free Money Market Portfolio, may invest in repurchase
agreements. In a repurchase agreement, a Portfolio purchases a security and
simultaneously commits to resell that security to the seller at an agreed upon
price on an agreed upon date. The resale price reflects the purchase price plus
an agreed upon incremental amount which is unrelated to the coupon rate or
maturity of the purchased security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is in
effect secured by the value (at least equal to the amount of the agreed upon
resale price and marked to market daily) of the underlying security. (Money
Market Portfolio and U.S. Government Money Market Portfolio each may engage in
repurchase agreements with respect to any security in which it is authorized to
invest, even if the underlying security matures in more than 397 days.) The risk
associated with repurchase agreements is that a Portfolio may be unable to sell
the collateral at its full value in the event of the seller's default. While it
does not presently appear possible to eliminate all risks from these
transactions (particularly the possibility of a decline in the market value of
the underlying securities, as well as delays and costs to a Portfolio in
connection with bankruptcy proceedings), it is the Portfolios' current policy to
limit repurchase agreements to those parties whose creditworthiness has been
reviewed and found satisfactory by First Maryland or AIB I.M., as applicable,
pursuant to procedures established by the Board.

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

Securities Lending. Each Portfolio, except U.S. Treasury Money Market Portfolio,
Tax-Free Money Market Portfolio and International Equity Portfolio, may lend
securities to parties such as broker-dealers or institutional investors.
Securities lending allows a Portfolio to retain ownership of the securities
loaned and, at the same time, to earn additional income. Since there may be
delays in the recovery of loaned securities, or even a loss of rights in
collateral supplied should the borrower fail financially, loans will be made
only to parties whose creditworthiness has been reviewed and found satisfactory
by First Maryland. Furthermore, they will only be made if, in First Maryland's
judgment, the consideration to be earned from such loans would justify the risk.

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

Sovereign Debt Obligations. Growth and Income Portfolio, Blue Chip Equity
Portfolio and Capital Growth Portfolio each may purchase sovereign debt
instruments issued or guaranteed by foreign governments or their agencies,
including debt of Latin American nations or other developing countries.
Sovereign debt may be in the form of conventional securities or other types of
debt instruments, such as loans or loan participations. Sovereign debt of
developing countries may involve a high degree of risk, and may be in default or
present the risk of default. Governmental entities responsible for repayment of
the debt may be unable or unwilling to repay principal and interest when due,
and repayment may require negotiations or rescheduling of debt payments. In
addition, prospects for repayment of principal and interest may depend on
political as well as economic factors. Although some sovereign debt, such as
Brady Bonds, is collateralized by U.S. government securities, repayment of
principal and interest is not guaranteed by the U.S. government.

Standby Commitments. Tax-Free Money Market Portfolio and Maryland Tax-Free
Portfolio may invest in standby commitments. These obligations are puts that
entitle holders to same day settlement at an exercise price equal to the
amortized cost of the underlying security plus accrued interest, if any, at the
time of exercise. The Portfolios may acquire standby commitments to enhance the
liquidity of portfolio securities only when the issuers of the commitments
present minimal risk of default.

Ordinarily the Portfolios will not transfer a standby commitment to a third
party, although each could sell the underlying municipal security to a third
party at any time. The Portfolios may purchase standby commitments separate from
or in conjunction with the purchase of securities subject to such commitments.
In the latter case, the Portfolios would pay a higher price for the securities
acquired, thus reducing their yield to maturity. Standby commitments will not
affect the dollar-weighted average maturity of the Portfolios, or the valuation
of the securities underlying the commitments.

Standby commitments are subject to certain risks, including the ability of
issuers of standby commitments to pay for securities at the time the commitments
are exercised; the fact that standby commitments are not marketable by the
Portfolios; and the possibility that the maturities of the underlying securities
may be different from those of the commitments.

Swap Agreements. Each ARK Non-Money Market Portfolio, except Short-Term Treasury
Portfolio, may invest in swap agreements. Swap agreements can be individually
negotiated and structured to include exposure to a variety of different types of
investments or market factors. Depending on their structure, swap agreements may
increase or decrease a Portfolio's exposure to long- or short-term interest
rates (in the U.S. or abroad), foreign currency values, mortgage securities,
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corporate borrowing rates, or other factors such as security prices or inflation
rates. Swap agreements can take many different forms and are known by a variety
of names. A Portfolio is not limited to any particular form of swap agreement if
First Maryland or (AIB I.M. in the case of International Equity Portfolio)
determines it is consistent with a Portfolio's investment objective and
policies.

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

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

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

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

Tender Option Bonds. Tax-Free Money Market Portfolio and Maryland Tax-Free
Portfolio may invest in tender option bonds. These bonds are created by coupling
an intermediate or long-term fixed-rate tax-exempt bond (generally held pursuant
to a custodial agreement) with a tender agreement that gives the holder the
option to tender the bond at its face value. As consideration for providing the
tender option, the sponsor (usually a bank, broker-dealer, or other financial
institution) receives periodic fees equal to the difference between the bond's
fixed coupon rate and the rate (determined by a remarketing or similar agent)
that would cause the bond, coupled with the tender option to trade at par on the
date of such determination. After payment of the tender option fee, the
Portfolios effectively hold a demand obligation that bears interest at the
prevailing short-term tax-exempt rate. Subject to applicable regulatory
requirements, Tax-Free Money Market Portfolio may buy tender option bonds if the
agreement gives the Portfolio the right to tender the bond to its sponsor no
less frequently than once every 397 days. In selecting tender option bonds for
the Portfolios, First Maryland will, pursuant to procedures established by the
Board, consider the creditworthiness of the issuer of the underlying bond, the
custodian, and the third-party provider of the tender option. In certain
instances, a sponsor may terminate a tender option if, for example, the issuer
of the underlying bond defaults on interest payments.

Variable or Floating Rate Instruments. Each Money Market Portfolio, except U.S.
Treasury Money Market Portfolio, may invest in variable or floating rate
instruments that ultimately mature in more than 397 days, if a Portfolio
acquires a right to sell the securities that meet certain requirements set forth
in Rule 2a-7 under the 1940 Act. Variable rate instruments (including
instruments subject to a demand feature) that mature in 397 days or less may be
deemed to have maturities equal to the period remaining until the next
readjustment of the interest rate. Other variable rate instruments with demand
features may be deemed to have a maturity equal to the longer of the period
remaining until the next readjustment of the interest rate or the period
remaining until the principal amount can be recovered through demand. A floating
rate instrument subject to a demand feature may be deemed to have a maturity
equal to the period remaining until the principal amount can be recovered
through demand. The Non-Money Market Portfolios, except Short-Term Treasury
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Portfolio, may invest in variable or floating rate instruments.

Variable or Floating Rate Demand Obligations (VRDOs/FRDOs). Each Money Market
Portfolio, except U.S. Treasury Money Market Portfolio may invest in variable or
floating rate\demand obligations (VRDOs/FRDOs). These obligations are
tax-exempt obligations that bear variable or floating interest rates and carry
rights that permit holders to demand payment of the unpaid principal balance
plus accrued interest from the issuers or certain financial intermediaries.
Floating rate obligations have interest rates that change whenever there is a
change in a designated base rate, while variable rate obligations provide for a
specified periodic adjustment in the interest rate. These formulas are designed
to result in a market value for the VRDO or FRDO that approximates its par
value.

A demand obligation with a conditional demand feature must have received both a
short-term and a long-term high quality rating from a NRSRO or, if unrated, have
been determined to be of comparable quality pursuant to procedures adopted by
the Board. A demand obligation with an unconditional demand feature may be
acquired solely in reliance upon a short-term high quality rating or, if
unrated, upon finding of comparable short-term quality pursuant to procedures
adopted by the Board.

A Portfolio may invest in fixed-rate bonds that are subject to third party puts
and in participation interests in such bonds held by a bank in trust or
otherwise. These bonds and participation interests have tender options or demand
features that permit a Portfolio to tender (or put) their bonds to an
institution at periodic intervals of up to one year and to receive the principal
amount thereof. A Portfolio considers variable rate obligations structured in
this way (participating VRDOs) to be essentially equivalent to other VRDOs that
it may purchase. The Internal Revenue Service (IRS) has not ruled whether or not
the interest on participating VRDOs is tax-exempt, and accordingly, the
Portfolios intend to purchase these obligations based on opinions of bond
counsel.

A variable rate obligation that matures in 397 days or fewer may be deemed to
have a maturity equal to the period remaining until the next readjustment of the
interest rate. A variable rate obligation that matures in more than 397 days but
that is subject to a demand feature that is 397 days or fewer may be deemed to
have a maturity equal to the longer of the period remaining until the next
readjustment of the interest rate or the period remaining until the principal
amount can be recovered through demand. A floating rate obligation that is
subject to a demand feature may be deemed to have a maturity equal to the period
remaining until the principal amount may be recovered through demand. The ARK
Money Market Portfolios may purchase a demand obligation with a remaining final
maturity in excess of 397 days only if the demand feature can be exercised on no
more than 30 days' notice (a) at any time or (b) at specific intervals not
exceeding 397 days.

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

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

Hedging Strategies: Futures Transactions. The ARK Non-Money Market Portfolios,
except Short-Term Treasury Portfolio, may each use futures contracts and options
on such contracts for bona fide hedging purposes within the meaning of
regulations promulgated by the Commodities Futures Trading Commission (CFTC).
Each Portfolio may also establish positions for other purposes provided that the
aggregate initial margin and premiums required to establish such positions will
not exceed 5% of the liquidation value of the Portfolio after taking into
account unrealized profits and unrealized losses on any such instruments.

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

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

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

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

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

The features of call options are essentially the same as those of put options,
except that the purchaser of a call option obtains the right to purchase, rather
than sell, the underlying instrument at the option's strike price. A call buyer
typically attempts to participate in potential price increases of the underlying
instrument with risk limited to the cost of the option if security prices fall.
At the same time, the buyer can expect to suffer a loss if the price of the
underlying instrument does not rise sufficiently to offset the cost of the
option.

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

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

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

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

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

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

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

OTC Options. Unlike exchange-traded options, which are standardized with respect
to the underlying instrument, expiration date, contract size, and strike price,
the terms of over-the-counter (OTC) options (options not traded on exchanges)
generally are established through negotiation with the other party to the
option. While this type of arrangement allows a Portfolio greater flexibility to
tailor an option to its needs, OTC options generally involve greater credit risk
than exchange-traded options, which are guaranteed by the clearing organization
of the exchanges upon which they are traded.
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Options and Futures Contracts Relating to Foreign Currencies. Currency futures
contracts are similar to forward contracts, except that they are traded on
exchanges (and have margin requirements) and are standardized as to contract
size and delivery date. Most currency futures contracts call for payment or
delivery in U.S. dollars. The underlying instrument of a currency option may be
a foreign currency, which generally is purchased or delivered in exchange for
U.S. dollars, or may be a futures contract. The purchaser of a currency call
option obtains the right to purchase the underlying currency, and the purchaser
of a currency put option obtains the right to sell the underlying currency.

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

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

Short Sales. Each Portfolio, except U.S. Treasury Money Market Portfolio, U.S.
Government Money Market Portfolio and Short-Term Treasury Portfolio, may enter
into short sales with respect to securities it owns, or with respect to stocks
underlying its convertible bond holdings (short sales "against the box"). For
example, if First Maryland (or AIB I.M., if applicable) anticipates a decline in
the price of the stock underlying a convertible security the Portfolio holds,
the Portfolio may sell the stock short. If the stock price substantially
declines, the proceeds of the short sale or an increase in the value of the put
option could be expected to offset all or a portion of the effect of the stock's
decline on the value of the convertible security.

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

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

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

SPECIAL CONSIDERATIONS FOR INTERNATIONAL EQUITY PORTFOLIO

Special Considerations Affecting Latin America

Latin America is a region rich in natural resources such as oil, copper,
tin, silver, iron ore, forestry, fishing, livestock, and agriculture. The region
has a large population (roughly 300 million) representing a large number of
markets. Economic growth was strong in the 1960s and 1970s, but slowed
dramatically in the 1980s as a result of poor economic policies, higher
international interest rates and the denial of access to new foreign capital.
Capital flight has proven a persistent problem and external debt has been
forcibly rescheduled. High inflation and low economic growth have begun to give
way to stable, manageable inflation rates and higher economic growth, although
political turmoil (including assassinations) continues in some countries.
Changes in political leadership and the implementation of market oriented
economic policies, such as privatization, trade reform, and fiscal and monetary
reform are among the recent steps taken to renew economic growth. External debt
is being restructured and flight capital (domestic capital that has left the
home country) has begun to return.

Various trade agreements have also been formed within the region, including
the Andean Pact, Mercosur, and NAFTA. NAFTA, which was implemented on January 1,
1994, is the largest of these agreements.

Latin American equity markets can be extremely volatile and in the past
have shown little correlation with the United States market. Currencies have
typically been weak, given high inflation rates, but have stabilized more
recently. Most currencies are not free floating, but wide fluctuations in value
over relatively short periods of time can still occur due to changes in the
market.

Mexico's economy is a mixture of state-owned industrial plants (notably
oil), private manufacturing and services, and both large-scale and traditional
agriculture. Mexico's economy has been transformed significantly over the last
six to seven years. Large budget deficits and a high level of state ownership in
many productive and service areas have given way to balanced budgets and
privatization. In the last few years, the government has sold the telephone
company, the major steel companies, the banks, and many others. The major state
ownership remaining is in the oil sector and the electricity sector. Economic
policy transformation has led to much reduced inflation and more stable economic
growth in the last few years. The recently implemented NAFTA will further cement
the economic ties between Mexico, Canada, and the United States.

Continued political unrest, particularly in southern Mexico, and
uncertainty as to the effectiveness of reforms have recently had an adverse
impact on economic development. In December 1994, Mexico reversed a long-held
currency policy by devaluing the Mexican peso and allowing it to float freely.
The value of the peso against the U.S. dollar and other currencies declined
sharply. As a result, Mexican stocks plunged while interest rates soared, and
other Latin America securities markets were also adversely affected. Extension
and continuance of financial aid to Mexico from the U.S., including loan
guarantees, is uncertain at this time.

Brazil is the sixth largest country in the world in population, with about
155 million people, and represents a huge domestic market. Brazil entered the
1990s with declining real growth, runaway inflation, an unserviceable foreign
debt of $122 billion, and a lack of policy direction. Brazil's rate of consumer
price inflation continues to accelerate while gross domestic product (GDP)
remains depressed. A major long run strength is Brazil's natural resources. Iron
ore, bauxite, tin, gold, and forestry products make up some of Brazil's natural
resource base, which includes some of the largest mineral reserves in the world.
The private sector has remained efficient, mainly through export promotion. The
government has recently embarked on an ambitious reform program that seeks to
modernize and reinvigorate the economy by stabilizing prices, deregulating the
economy, and opening the economy to increased foreign competition. Privatization
of certain industries is proceeding slowly.

Chile, like Brazil, is endowed with considerable mineral resources,
particularly copper, which accounts for 40% of total exports. Export production
(especially in the forestry and mining sectors) continues to be the main
long-term engine of economic growth and modernization. Economic reform has been
ongoing in Chile for over 15 years, but political democracy has only recently
returned to Chile. Privatization of the public sector beginning in the early
1980s has bolstered the equity market. A well-organized pension system has
created a long-term domestic investor base.

Argentina is strong in wheat production and other foodstuffs and in
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livestock ranching. A well-educated and skilled population boasts one of the
highest literacy rates in the region. The country has been ravaged by decades of
extremely high inflation and political instability. Like Mexico, however,
Argentina has had a dramatic transformation in its economy in the last several
years. Extremely high inflation rates and stagnant economic growth have been
replaced by low inflation and strong economic growth. Massive privatization has
occurred and continues, which should reduce the amount of external debt
outstanding.

Venezuela has substantial oil reserves. External debt is being
renegotiated, and the government is implementing economic reform in order to
reduce the size of the public sector, although these reform attempts have
recently met with political opposition. Internal gasoline prices, which are
one-third those of international prices, are being increased in order to reduce
subsidies. Price controls did not prevent annual inflation from reaching at
least 75% in 1994, compared to 45.9% in 1993. The official target of 25-30%
inflation for 1995 is improbable, with a continuation of higher levels more
likely. The failure of major banks adversely affected the Venezuelan economy in
1994 and could continue to have a negative impact. Plans for privatization and
exchange and interest rate liberalization are examples of recently introduced
reforms. It is not clear when the economic situation in Venezuela will improve
and the country remains extremely dependent on oil.

Special Considerations Affecting Japan, The Pacific Basin, and Southeast Asia

Many Asian countries may be subject to a greater degree of social,
political and economic instability than is the case in the United States and
Western European countries. Such instability may result from (i) authoritarian
governments or military involvement in political and economic decision-making;
(ii) popular unrest associated with demands for improved political, economic and
social conditions; (iii) internal insurgencies; (iv) hostile relations with
neighboring countries; and (v) ethnic, religious and racial disaffection.

The economies of most of the Asian countries are heavily dependent upon
international trade and are accordingly affected by protective trade barriers
and the economic conditions of their trading partners, principally, the United
States, Japan, China and the European Community. The enactment by the United
States or other principal trading partners of protectionist trade legislation,
reduction of foreign investment in the local economies and general declines in
the international securities markets could have a significant adverse effect
upon the securities markets of the Asian countries.

Thailand has one of the fastest growing stock markets in the world. The
manufacturing sector is becoming increasingly sophisticated and is benefiting
from export-oriented investing. The manufacturing and service sectors continue
to account for the bulk of Thailand's economic growth. The agricultural sector
continues to become less important. The government has followed fairly sound
fiscal and monetary policies, aided by increased tax receipts from a fast moving
economy. The government also continues to move ahead with new projects -
especially telecommunications, roads and port facilities - needed to refurbish
the country's overtaxed infrastructure. Nonetheless, political unrest has caused
many international businesses to question Thailand's political stability.

Hong Kong's economic growth which was vigorous in the 1980s has not been
positively affected by its impending return to Chinese dominion in 1997.
Although China has committed by treaty to preserve the economic and social
freedoms enjoyed in Hong Kong for 50 years after regaining control of Hong Kong,
the continuation of the current form of the economic system in Hong Kong after
the reversion will depend on the actions of the government of China. Business
confidence in Hong Kong, therefore, can be significantly affected by
developments, which in turn can affect markets and business performance. In
preparation for 1997, Hong Kong has continued to develop trade with China, while
also maintaining its long-standing export relationship with the United States.
Spending on infrastructure improvements is a significant priority of the
colonial government while the private sector continues to diversify abroad based
on its position as an established international trade center in the Far East.

In terms of GDP, industrial standards and level of education, South Korea
is second only to Japan in Asia. It enjoys the benefits of a diversified economy
with well developed sectors in electronics, automobiles, textiles and shoe
manufacture, steel and shipbuilding among others. The driving force behind the
economy's dynamic growth has been the planned development of an export-oriented
economy in a vigorously entrepreneurial society. Inflation rates, however, began
to challenge South Korea's strong economic performance in the early 1990s.
Moreover, the international situation between South Korea and North Korea
continues to be uncertain.

Indonesia is a mixed economy with many socialist institutions and central
planning but with a recent emphasis on deregulation and private enterprise. Like
Thailand, Indonesia has extensive natural wealth, yet with a large and rapidly
increasingly population, it remains a poor country. Indonesia's dependence on
<PAGE> 139
commodity exports makes it vulnerable to a fall in world commodity prices.
Malaysia has one of the fastest growing economies in the Asian-Pacific region.

Malaysia has become the world's third-largest producer of semiconductor
devices (after the United States and Japan) and the world's largest exporter of
semiconductor devices. More remarkable is the country's ability to achieve rapid
economic growth with relative price stability as the government followed prudent
fiscal and monetary policies. Malaysia's high export dependence level leaves it
vulnerable to recession in the countries with which it trades or to a fall in
world commodity prices.

India is one of the world's top fifteen industrial nations and has
considerable natural resources. The government exercises significant influence
over many aspects of the economy. Accordingly, future government actions could
have a significant effect on private sector companies, market conditions, and
prices and yields of securities of Indian issuers held by a fund. Policymakers
in India actively encourage foreign direct investment, particularly in labor
intensive industries. In addition, Indian stock exchanges rely entirely on
delivery of physical share certificates and have experienced operational
difficulties. These problems have included the existence of fraudulent shares in
the market, failed trades, and delays in the settlement and registration of
securities transactions. Indian stock exchanges have in the past been forced to
close for political reasons; for example, a brokers' strike closed the exchange
for ten days in December 1993, and there is no assurance that the exchanges will
not be forced to close again.

Singapore has an open entrepreneurial economy with strong service and
manufacturing sectors and excellent international trading links derived from its
history. During the 1970s and the early 1980s, the economy expanded rapidly,
achieving an average annual growth rate of 9%. Per capita GDP is among the
highest in Asia. Singapore holds a position as a major oil refining and services
center.

Japan currently has the second largest GDP in the world. The Japanese
economy has grown substantially over the last three decades. Its growth rate
averaged over 5% in the 1970s and 1980s. However, in the 1990s, the growth rate
in Japan has slowed. Despite small rallies and market gains, Japan has been
plagued with economic sluggishness. Economic conditions have weakened
considerably in Japan since October 1992. The boom in Japan's equity and
property markets during the expansion of the late 1980's supported high rates of
investment and consumer spending on durable goods, but both of these components
of demand have now retreated sharply following the decline in asset prices.
Profits have fallen sharply, the previously tight labor market conditions have
eased considerably, and consumer confidence has waned. The banking sector has
experienced a sharp rise in non-performing loans, and strains in the financial
system may continue. Continued political uncertainty has resulted from numerous
changes in government, shifting government coalitions and the political and
economic problems associated with a large trade imbalance.

Although Japan's economic growth has declined significantly since 1990,
many Japanese companies seem capable of rebounding due to increased investments,
smaller borrowings, increased product development and continued government
support. Growth recovered slightly in 1994. Japan's economic growth in the early
1980s was due in part to government borrowings. Japan is heavily dependent upon
international trade and, accordingly, has been and may continue to be adversely
affected by trade barriers, and other protectionist or retaliatory measures of,
as well as economic conditions in, the United States and other countries with
which it trades. Industry, the most important sector of the economy, is heavily
dependent on imported raw materials and fuels. Japan's major industries are in
the engineering, electrical, textile, chemical, automobile, fishing, and
telecommunication fields. Japan imports iron ore, copper, and many forest
products. Only 19% of its land is suitable for cultivation. Japan's agricultural
economy is subsidized and protected. It is about 50% self-sufficient in food
production. Even though Japan produces a minute rice surplus, it is dependent
upon large imports of wheat, sorghum, and soybeans from other countries. Japan's
high volume of exports such as automobiles, machine tools, and semiconductors
have caused trade tensions with other countries, particularly the United States.
Attempts to approve trading agreements between the countries may reduce the
friction caused by the current trade imbalance. In recent months, the Japanese
markets have also been adversely affected by the earthquake in Kobe, Japan, and
the bankruptcy of Barings Bank, Ltd., although the long-term effects of these
events are difficult to predict.

Australia has a prosperous Western-style capitalist economy, with a per
capita GDP comparable to levels in industrialized West European countries. It is
rich in natural resources and is the world's largest exporter of beef and wool,
second-largest exporter of mutton, and among the top wheat exporters. Australia
is also a major exporter of minerals, metals and fossil fuels. Due to the nature
of its exports, a downturn in world commodity prices could have a significant
negative impact on its economy.
<PAGE> 140
Special Considerations Affecting Europe

New developments surrounding the creation of a unified common market in
Europe have helped to reduce physical and economic barriers promoting the free
flow of goods and services throughout Western Europe. These new developments
could make this new unified market one of the largest in the world.

The European Community (EC) consists of Belgium, Denmark, France, Germany,
Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, and the United
Kingdom (the member states). In 1986, the member states of the EC signed the
"Single European Act," an agreement committing these countries to the
establishment of a market among themselves, unimpeded by internal barriers or
hindrances to the free movement of goods, persons, services, or capital. To meet
this goal, a series of directives have been issued to the member states.
Compliance with these directives is designed to eliminate three principal
categories of barriers: 1) physical frontiers, such as customs posts and border
controls; 2) technical barriers (which include restrictions operating within
national territories) such as regulations and norms for goods and services
(product standards); discrimination against foreign bids (bids by other EC
members) on public purchases; or restrictions on foreign requests to establish
subsidiaries; and 3) fiscal frontiers, notably the need to levy value-added
taxes, tariffs, or excise taxes on goods or services imported from other EC
states.

The ultimate goal of this project is to achieve a large unified domestic
European market in which available resources would be more efficiently allocated
through the elimination of the above-mentioned barriers and the added costs
associated with those barriers. Elimination of these barriers would simplify
product distribution networks, allow economies of scale to be more readily
achieved, and free the flow of capital and other resources. The Maastricht
Treaty on economic and monetary union (EMU) attempts to provide its members with
a stable monetary framework consistent with the EC's broad economic goals. But
until the EMU takes effect, which is intended to occur between 1997 and 1999,
the community will face the need to reinforce monetary cooperation in order to
reduce the risk of a recurrence of tensions between domestic and external policy
objectives.

The total European market, as represented by both EC and non-EC countries,
consists of over 328 million consumers, making it larger currently than either
the United States or Japanese markets. European businesses compete nationally
and internationally in a wide range of industries including: telecommunications
and information services, roads and transportation, building materials, food and
beverages, broadcast and media, financial services, electronics, and textiles.
Actual and anticipated actions on the part of member states to conform to the
unified Europe directives has prompted interest and activity not only by
European firms, but also by foreign entities anxious to establish a presence in
Europe that will result from these changes. Indications of the effect of this
response to a unified Europe can be seen in the areas of mergers and
acquisitions, corporate expansion and development, GDP growth, and national
stock market activity.

The early experience of the former centrally planned economies has already
demonstrated the crucially important link between structural reforms,
macroeconomic stabilization, and successful economic transformation. Among the
central European countries, the Czech Republic, Hungary, and Poland have made
the greatest progress in structural reform; inflationary pressures in those
countries have abated following price liberalization, and output has begun to
recover. These achievements will be difficult to sustain, however, in the
absence of strong efforts to contain the large fiscal deficits that have
accompanied the considerable losses of output and tax revenue since the start of
the reform process.

In the Baltic countries there are encouraging signs that reforms are taking
hold and are being supported by strong stabilization efforts. In most other
countries of the former Soviet Union, in contrast, inadequate stabilization
efforts now threaten to lead to hyper-inflation, which could derail the reform
process. Inflation, which had abated following the immediate impact of price
liberalization in early 1992, surged to extremely high levels. The main reason
for this development has been excessive credit expansion to the government and
to state enterprises. The transformation process is being seriously hampered by
the widespread subsidization of inefficient enterprises and the resulting
misallocation of resources. The lack of effective economic and monetary
cooperation among the countries of the former Soviet Union exacerbates other
problems by severely constraining trade flows and impeding inflation control.
Partly as a result of these difficulties, some countries have decided that the
introduction of separate currencies offers the best scope for avoiding
hyper-inflation and for improving economic conditions. This development can
facilitate the implementation of stronger stabilization programs.

Economic conditions appear to have improved for some of the transition
economies of central Europe. Following three successive years of output
<PAGE> 141
declines, there are preliminary indications of a turnaround in the Czech
Republic and the Slovak Republic, Hungary and Poland; growth in private sector
activity and strong exports, especially to Western Europe, now appear to have
contained the fall in output. Most central European countries in transition,
however, are expected to achieve positive real growth in 1995 as market reforms
deepen. The strength of the projected output gains will depend crucially on the
ability of the reforming countries to contain fiscal deficits and inflation and
on their continued access to, and success in, export markets. Economic
conditions in the former Soviet Union have continued to deteriorate. Real GDP in
Russia is estimated to have fallen 19 percent in 1992, after a 9 percent decline
in 1991. In many other countries of the region, output losses have been even
larger. These declines reflect the adjustment difficulties during the early
stages of the transition, high rates of inflation, the compression of imports,
disruption in trade among the countries of the former Soviet Union, and
uncertainties about the reform process itself. Large-scale subsidies are
delaying industrial restructuring and are exacerbating the fiscal situation. A
reversal of these adverse factors is not anticipated in the near term, and
output is expected to decline further in most of these countries. A number of
their governments, including those of Hungary and Poland, are currently
implementing or considering reforms directed at political and economic
liberalization, including efforts to foster multi-party political systems,
decentralize economic planning, and move toward free market economies. At
present, no Eastern European country has a developed stock market, but Poland,
Hungary and the Czech Republic have small securities markets in operation.
Ethnic and civil conflicts currently rage throughout the former Yugoslavia. The
outcome is uncertain.

Both the EC and Japan, among others, have made overtures to establish
trading arrangements and assist in the economic development of the Eastern
European nations. There is also an urgent need for positive steps to resist
protectionist pressures, especially by bringing the multilateral trade
negotiations under the Uruguay Round of the General Agreement on Trade and
Tariffs to a successful conclusion. Determined action to alleviate short-term
difficulties and to achieve key medium-term objectives would unquestionably
strengthen consumer and business confidence. Interest rates generally have
declined somewhat with the easing of tensions in the Exchange Rate Mechanism,
but for most countries tight monetary conditions remain an obstacle to stronger
growth and a threat to exchange market stability. However, in the long-term,
reunification could prove to be an engine for domestic and international growth.

The conditions that have given rise to these developments are changeable,
and there is no assurance that reforms will continue or that their goals will be
achieved.

Portugal is a genuinely emerging market which has experienced rapid growth
since the mid-1980s, except for a brief period of stagnation over 1990-91.
Portugal's government remains committed to privatization of the financial system
away from one dependent upon the banking system to a more balanced structure
appropriate for the requirements of a modern economy.

Economic reforms launched in the 1980s continue to benefit Turkey in the
1990s. Turkey's economy has grown since the 1980s. Agriculture remains the most
important economic sector, employing over half of the labor force, and
accounting for significant portions of GDP and exports. Inflation and interest
rates remain high, and a large budget deficit will continue to cause
difficulties in Turkey's continuing transformation from a centrally controlled
to a free market economy.

Like many other Western economies, Greece suffered severely from the global
oil price hikes of the 1970s, with annual GDP growth plunging from 8% to 2% in
the 1980s, and inflation, unemployment, and budget deficits rising sharply. The
fall of the socialist government in 1989 and the inability of the conservative
opposition to obtain a clear majority led to business uncertainty and the
prospect for continued flat economic performance. Once Greece has sorted out its
political situation, it will have to face the challenges posed by the steadily
increasing integration of the EU, including the progressive lowering of trade
and investment barriers. Tourism continues as a major industry, providing a
vital offset to a sizable commodity trade deficit.

REAL GDP ANNUAL RATE OF GROWTH
1993

<TABLE>
<S> <C>
Denmark 1.2 %
France (1.0)%
Germany (1.1)%
Italy (0.7)%
Netherlands (1.0)%
Spain (0.6)%
Switzerland 2.0 %
United Kingdom
</TABLE>
<PAGE> 142
Source: World Economic Outlook October 1994 (Figures are quoted based on each
country's domestic currency.)

NATIONAL INDICES (WITHOUT DIVIDENDS) OCTOBER 1994
GROWTH IN U.S. DOLLARS
EUROPE

<TABLE>
<CAPTION>
6 Months 12 Months 5 Years
<S> <C> <C> <C>
Greece (10.22) 5.56 2.71
Portugal .65 7.68 (5.53)
Turkey 48.77 (45.261) (7.386)
</TABLE>

SPECIAL CONSIDERATIONS FOR MARYLAND TAX - FREE PORTFOLIO

According to 1990 Census reports, Maryland's population in that year was
4,797,893, reflecting an increase of 13.8% from the 1980 Census. Maryland's
population is concentrated in urban areas: the eight counties and Baltimore City
located in the Baltimore - Washington Corridor contain 37.4% of the State's land
area and 83.3% of its population. The estimated 1990 population for the
Baltimore Standard Metropolitan Statistical Area was 2,355,197 and for the
Maryland portion of the Washington Standard Metropolitan Statistical Area,
1,642,348. Overall, Maryland's population per square mile in 1990 was 487.7.

Personal income in Maryland grew at annual rates between 8.1% and 9.2% in each
of the years 1986 through 1988, but fell from a rate of 9.3% in 1989 to 3.1% in
1991. Commencing in 1992, however, personal income growth rebounded, increasing
by 4.3% in 1992, 4.0% in 1993 and 4.7% in 1994. Similarly, per capita personal
income, which had grown at rates no lower than 6.2% for the period from 1972 to
1989, grew at a rate of 4.7% in 1990 and only 1.8% in 1991. The annual rate
increased by 3.2% in 1992, 3.0% in 1993 and additional 3.9% in 1994.
Unemployment in Maryland peaked in 1982 at 8.5%, then decreased steadily to a
low of 3.7% in 1989. In 1990, unemployment increased to 4.7%, and increased
further to 5.9% in 1991, 6.6% in 1992 and 6.2% in 1993, before dropping to 5.4%
in 1994.

Retail sales in Maryland dropped by 2.1% in 1991, but rebounded and grew by 0.3%
in 1992, 6.2% in 1993 and 9.6% in 1994, versus nationwide growth of 0.6%, 5.2%,
6.3% and 7.8% in such years, respectively.

Services (including mining), wholesale and retail trade, government and
manufacturing (primarily printing and publishing, food and kindred products,
instruments and related products, industrial machinery, electronic equipment and
chemical and allied products) are the leading areas of employment in the State
of Maryland. In contrast to the nation as a whole, more people in Maryland are
employed in government than in manufacturing (19.6% versus 8.3% in 1994).
Between 1974 and 1994, manufacturing wages decreased by 29.7%, while
non-manufacturing wages increased by 58.6%

The State's total expenditures for the fiscal years ending June 30, 1992, June
30, 1993, June 30, 1994 and June 30, 1995 were $11.6 billion, $11.8 billion,
$12.4 billion and $13.5 billion, respectively. The State's General Fund,
representing approximately 55%-60% of each year's total budget, had a surplus on
a budgetary basis of $55,000 in fiscal year 1991 and a deficit of $56.4 million
in fiscal year 1992. These results were due primarily to revenue collections
which fell short of anticipations, and increases in expenditures for public
assistance. The Governor of Maryland reduced fiscal year 1993 appropriations by
approximately $56 million to offset the fiscal year 1992 deficit. On a budgetary
basis, the State's General Fund surplus rose to $10.5 million in fiscal year
1993, $60 million in 1994 and $26.5 million in 1995 (after budgeting $106
million for 1996 expenses). The State Constitution mandates a balanced budget.
Balances in the Revenue Stabilization Account of the State Reserve Fund have
also risen from $300,000 in 1992 to $50.9 million in 1993, $161.8 million in
1994 and $286.1 million in 1995.

In April, 1995, the General Assembly approved a $14.4 billion 1996 fiscal year
budget. The budget as enacted includes a $270 million appropriation to the State
Reserve Fund, including $200 million appropriated to the Revenue Stabilization
Account. When this budget was enacted, the State estimated that the General Fund
surplus on a budgetary basis at June 30, 1996 would be approximately $7.8
million; the State now projects a General Fund Surplus on a budgetary basis of
$34.3 million, in addition to which there will be $518 million in the Revenue
Stabilization Account balance in the Revenue Stabilization Account of the State
Reserve Fund.
<PAGE> 143
The State of Maryland and its various political subdivisions issue a number of
different kinds of municipal obligations, including general obligation bonds
supported by tax collections, revenue bonds payable from certain identified tax
levies or revenue streams, conduit revenue bonds payable from the repayment of
certain loans to authorized entities such as hospitals and universities, and
certificates of participation in tax-exempt municipal leases.

The State of Maryland issues general obligation bonds, which are payable from ad
valorem property taxes. The State Constitution prohibits the contracting of
State debt unless the debt is authorized by law levying an annual tax or taxes
sufficient to pay the debt service within 15 years and prohibiting the repeal of
the tax or taxes or their use for another purpose until the debt has been paid.
The State also enters into lease-purchase agreements, in which participation
interests are often sold publicly as individual securities.

As of October 1995, the State's general obligation bonds were rated "Aaa" by
Moody's Investors Service, Inc. (Moody's), "AAA" by Standard & Poor's Ratings
Group (S&P), and "AAA" by Fitch Investors Service, Inc. (Fitch).

The Maryland Department of Transportation issues Consolidated Transportation
Bonds, which are payable out of specific excise taxes, motor vehicle taxes, and
corporate income taxes, and from the general revenues of the Department. Issued
to finance highway, port, transit, rail or aviation facilities, as of September
1994, these bonds were rated "Aa" by Moody's, "AA" by S&P, and "AA" by Fitch.
The Maryland Transportation Authority, a unit of the Department, issues its own
revenue bonds for transportation facilities, which are payable from certain
highway, bridge and tunnel tolls. These bonds were rated "Aa" by Moody's as of
October 1994.

Other State agencies which issue municipal obligations include the Maryland
Stadium Authority, which has issued bonds payable from sports facility lease
revenues and certain lottery revenues and convention center lease revenue bonds,
the Maryland Water Quality Financing Administration, which issues bonds to
provide loans to local governments for wastewater control projects, the
Community Development Administration of the Department of Housing and Community
Development, which issues mortgage revenue bonds for housing, the Maryland
Environmental Service, which issues bonds secured by the revenues from its
various water supply, wastewater treatment and waste management projects, and
the various public institutions of higher education in Maryland (which include
the University of Maryland System, Morgan State University, and State
University, and St. Mary's College of Maryland) which issue their own revenue
bonds. None of these bonds constitute debts or pledges of the full faith and
credit of the State of Maryland. The issuers of these obligations are subject to
various economic risks and uncertainties, and the credit quality of the
securities issued by them may vary considerably from the quality of obligations
backed by the full faith and credit of the State.

In addition, the Maryland Health and Higher Educational Facilities Authority and
the Maryland Industrial Development Financing Authority issue conduit revenue
bonds, the proceeds of which are lent to borrowers eligible under relevant state
and federal law. These bonds are payable solely from the loan payments made by
borrowers, and their credit quality varies with the financial strengths of the
respective borrowers.

Maryland has 24 geographical subdivisions, composed of 23 counties plus the
independent City of Baltimore, which functions much like a county. Some of the
counties and the City of Baltimore operate pursuant to the provisions of codes
of their own adoption, while others operate pursuant to State-approved charters
and State statutes.

Maryland counties and municipalities and the City of Baltimore receive most of
their revenues from ad valorem taxes on real and personal property, individual
income taxes, transfer taxes, miscellaneous taxes and aid from the State. Their
expenditures include public safety, public works, health, public welfare, court
and correctional services, education and general governmental costs.

The economic factors affecting the State, as discussed above, also have affected
the counties, municipalities and the City of Baltimore. In addition, reductions
in State aid caused by State budget deficits have caused the local governments
to trim expenditures and, in some cases, raise taxes.

According to recent available ratings, general obligation bonds of Montgomery
County (abutting Washington, D.C.) are rated "Aaa" by Moody's and "AAA" by S&P.
Prince George's County, also in the Washington, D.C. suburbs, issues general
obligation bonds rated "A1" by Moody's and "AA-" by S&P, while Baltimore County,
a separate political subdivision surrounding the City of Baltimore, issues
general obligation bonds rated "Aaa" by Moody's and "AA+" by S&P. The City of
Baltimore's general obligation bonds are rated "A1" by Moody's and "A" by S&P.
<PAGE> 144
The other counties in Maryland all have general obligation bond ratings of "A":
or better, except for Allegany County, the bonds of which are rated "Baa" by
Moody's. The Washington Suburban Sanitary District, a bi-county agency providing
water and sewerage services in Montgomery and Prince George's counties, issues
general obligation bonds rated "Aa1" by Moody's and "AA" by S&P as of June 1995.
Additionally, some of the large municipal corporations in Maryland (such as the
cities of Rockville, Annapolis and Frederick) have issued general obligation
bonds. There can be no assurance that these ratings will continue.

Many of Maryland's counties and the City of Baltimore have established
subsidiary agencies with bond issuing powers, such as housing authorities,
parking revenue authorities, and industrial development authorities. In
addition, all Maryland municipalities have the authority under State law to
issue conduit revenue bonds. These entities are subject to various economic
risks and uncertainties and the credit quality of the securities issued by them
may vary considerably from the credit quality of obligations backed by the full
faith and credit of the State.

PORTFOLIO TRANSACTIONS

First Maryland and AIB I.M. always seek the most favorable portfolio execution
result with respect to transactions. In seeking the most favorable execution,
First Maryland or AIB I.M., as applicable, having in mind a Portfolio's best
interest, considers all factors it deems relevant, including, by way of
illustration: price; the size of the transaction; the nature of the market for
the security; the amount of the commission; the timing of the transaction,
taking into account market process and trends; the reputation, experience and
financial stability of the broker- dealer involved; and the quality of service
rendered by the broker-dealer in other transactions. Certain investments may be
appropriate for a Portfolio and for other clients advised by First Maryland or
AIB I.M., in the case of International Equity Portfolio. Investment decisions
for the Portfolios and other clients are made with a view to achieving their
respective investment objectives and after consideration of such factors as
their current holdings, availability of cash for investment, and the size of
their investments generally. A particular security may be bought or sold for
only one client or in different amounts and at different times for more than one
but fewer than all clients. Likewise, a particular security may be bought for
one or more clients when one or more other clients are selling the security. In
addition, purchases or sales of the same security may be made for two or more
clients of First Maryland or AIB I.M. on the same day. In each of these
situations, the transactions will be allocated among the clients in a manner
believed by First Maryland or AIB I.M., as applicable, to be equitable to each.
In some cases, this procedure could have an adverse effect on the price or
amount of the securities purchased or sold by a Portfolio. Purchase and sale
orders for a Portfolio may be combined with those of other clients of First
Maryland or AIB I.M., in the case of International Equity Portfolio, in the
interest of achieving the most favorable execution for the Portfolio.

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

For each Portfolio, First Maryland or AIB I.M., as applicable, places all orders
for the purchase and sale of portfolio securities and buys and sells securities
for a Portfolio through a substantial number of brokers and dealers.

It has for many years been a common practice in the investment advisory business
for advisers of investment companies and other institutional investors to
receive research, statistical, and quotation services from broker- dealers that
execute portfolio transactions for the clients of such advisers. Consistent with
this practice, First Maryland or AIB I.M., in the case of International Equity
Portfolio, may receive research, statistical, and quotation services from many
broker-dealers with which it places a Portfolio's portfolio transactions. These
services, which in some cases may also be purchased for cash, include such
matters as general economic and security market reviews, industry and company
reviews, evaluations of securities, and recommendations as to the purchase and
sale of securities. Some of these services are of value to First Maryland or AIB
I.M. and its affiliates in advising various of their clients (including the
Portfolios), although not all of these services are necessarily useful and of
value in managing the Portfolios. The fee paid by a Portfolio to First Maryland
or AIB I.M., as applicable, is not reduced because First Maryland or AIB I.M.
<PAGE> 145
and its affiliates receive such services.

As permitted by Section 28(e) of the Securities Exchange Act of 1934, as
amended, First Maryland or AIB I.M. may cause a Portfolio to pay a broker-dealer
that provides brokerage and research services to First Maryland or AIB I.M. a
commission in excess of the commission charged by another broker-dealer for
effecting a particular transaction. To cause a Portfolio to pay any such greater
commissions, First Maryland or AIB I.M., as applicable, must determine in good
faith that such commissions are reasonable in relation to the value of the
brokerage or research service provided by such executing broker-dealers viewed
in terms of a particular transaction or First Maryland or AIB I.M.'s overall
responsibilities to the Portfolio or its other clients. In reaching this
determination, First Maryland or AIB I.M. will not attempt to place a specific
dollar value on the brokerage or research services provided or to determine what
portion of the compensation should be related to those services. No fees were
paid to broker-dealers for their services for the fiscal year ended April 30,
1995.

VALUATION OF PORTFOLIO SECURITIES

ARK Money Market Portfolios. Each Portfolio values its investments on the basis
of amortized cost. This technique involves valuing an instrument at its cost as
adjusted for amortization of premium or accretion of discount rather than its
value based on current market quotations or appropriate substitutes which
reflect current market conditions. The amortized cost value of an instrument may
be higher or lower than the price the Portfolio would receive if it sold the
instrument.

Valuing a Portfolio's instruments on the basis of amortized cost and use of the
term "money market portfolio" are permitted by Rule 2a-7 under the 1940 Act.
Each Portfolio must adhere to certain conditions under Rule 2a-7.

The Board oversees First Maryland's adherence to SEC rules concerning money
market portfolios, and has established procedures designed to stabilize each
Portfolio's net asset value per share (NAV) at $1.00. At such intervals as they
deem appropriate, the Board considers the extent to which NAV calculated by
using market valuations would deviate from $1.00 per share. If the Board
believes that a deviation from the Portfolio's amortized cost per share may
result in material dilution or other unfair result to shareholders, the Board
has agreed to take such corrective action, if any, as they deem appropriate to
eliminate or reduce, to the extent reasonably practicable, such dilution or
other unfair result. Such corrective action could include selling portfolio
instruments prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity; withholding dividends; redeeming shares in kind;
establishing NAV by using available market quotations; and such other measures
as the Board may deem appropriate.

During periods of declining interest rates, a Portfolio's yield based on
amortized cost may be higher than the yield based on market valuations. Under
these circumstances, a shareholder in the Portfolio would be able to obtain a
somewhat higher yield than would result if the Portfolio utilized market
valuations to determine its NAV. The converse would apply in a period of rising
interest rates.

Short-Term Treasury Portfolio, Income Portfolio and Maryland Tax-Free Portfolio.
Valuation of portfolio securities furnished by the pricing service employed by
the Portfolios are based upon a computerized matrix system and/or appraisals by
the pricing service, in each case in reliance upon information concerning market
transactions and quotations from recognized securities dealers. The methods used
by the pricing service and the quality of valuations so established are reviewed
by officers of the Fund and each Portfolio's respective pricing agent under
general supervision of the Board. There are a number of pricing services
available, and the Trustees, on the basis of evaluation of these services, may
use other pricing services or discontinue the use of any pricing service in
whole or in part.
<PAGE> 146
Growth and Income Portfolio, Blue Chip Equity Portfolio, Capital Growth
Portfolio, International Equity Portfolio and Special Equity Portfolio.
Securities owned by each of these Portfolios are appraised by various methods
depending on the market or exchange on which they trade. Securities traded on
the New York Stock Exchange (NYSE) or the American Stock Exchange are appraised
at the last sale price, or if no sale has occurred, at the closing bid price.
Securities traded on other exchanges are appraised as nearly as possible in the
same manner. Securities and other assets for which exchange quotations are not
readily available are valued on the basis of closing OTC bid prices, if
available, or at their fair value as determined in good faith under consistently
applied procedures under the general supervision of the Board.

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

PORTFOLIO PERFORMANCE

Yield Calculations. In computing the yield of shares of an ARK Money Market
Portfolio for a period, the net change in value of a hypothetical account
containing one share reflects the value of additional shares purchased with
dividends from the one original share and dividends declared on both the
original share and any additional shares. The net change is then divided by the
value of the account at the beginning of the period to obtain a base period
return. This base period return is annualized to obtain a current annualized
yield. The Portfolio may also calculate a compounded effective yield for shares
of the ARK Money Market Portfolios by compounding the base period return over a
one year period. In addition to the current yield, the ARK Money Market
Portfolios may quote yields in advertising based on any historical seven day
period. Yields for the shares of ARK Money Market Portfolios are calculated on
the same basis as other money market portfolios, as required by regulation.

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

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

For Tax-Free Money Market Portfolio and Maryland Tax-Free Portfolio, a
tax-equivalent yield is the rate an investor would have to earn from a fully
taxable investment before taxes to equal each Portfolio's Tax-Free yield. Tax-
equivalent yields are calculated by dividing a Portfolio's yield by the result
of one minus a stated federal or combined federal, state, and city tax rate. (If
only a portion of a Portfolio's yield was tax-exempt, only that portion is
adjusted in the calculation.) If any portion of a Portfolio's income is derived
from obligations subject to state or federal income taxes, its tax-equivalent
yield will generally be lower.
<PAGE> 147
The following tables show the effect of a shareholder's tax status on effective
yield under the federal income tax laws for 1995. The second table shows the
approximate yield a taxable security must provide at various income brackets to
produce after-tax yields equivalent to those of hypothetical tax-exempt
obligations yielding from 3% to 7%. Of course, no assurance can be given that a
Portfolio will achieve any specific tax-exempt yield. While the Portfolios
invest principally in obligations whose interest is exempt from federal income
tax (and, in the case of Maryland Tax-Free Portfolio, from Maryland state income
tax, as well) other income received by a Portfolio may be taxable. The tables do
not take into account local taxes, if any, payable on a Portfolio's
distributions.

Use the first table to find your approximate effective tax bracket taking into
account federal and state taxes for 1995.

1995 TAX RATES

<TABLE>
<CAPTION>
Combined
Maryland and
Single Return Joint Return Federal Income Maryland Federal Effective
Taxable Income* Taxable Income Tax Bracket Marginal Rate Tax Bracket**
<S> <C> <C> <C> <C> <C> <C>
23,351 56,550 39,001 94,250 28.00% 5.00% 33.76% ***
56,551 117,950 94,251 143,600 31.00% 5.00% 36.52% ***
117,951 256,500 143,601 256,500 36.00% 5.00% 41.12% ***
256,501 + 256,501 + 39.60% 5.00% 44.43% ***
</TABLE>

* Net amount subject to federal income tax after deductions and exemptions.
Assumes ordinary income only.

** Excludes the impact of the phaseout of personal exemptions, limitations on
itemized deductions, and other credits, exclusions, and adjustments which
may increase a taxpayer's marginal tax rate. An increase in a shareholder's
marginal tax rate would increase that shareholder's tax-equivalent yield.

*** Combined Maryland and federal effective tax brackets take into account the
highest combined Maryland state and county income tax rate of 8.00%
(applicable to residents of Allegany, Montgomery, Talbot, Somerset, St.
Mary's and Wicomico counties). For Allegany, Montgomery, Talbot, Somerset,
St. Mary's and Wicomico, the county income tax rate is equal to 60% of
Maryland state taxes. For Prince George's, the county income tax rate is
58% of the state tax. For Baltimore county, the county income tax rate is
55% of the state tax. For Worcester county, the county income tax rate is
30% of the state tax. The county income tax rate for the remaining counties
of the State of Maryland, as well as the City of Baltimore, is 50% of the
state tax. Figures are tax-effected to reflect the federal tax benefit for
persons who itemized deductions.

Having determined your effective tax bracket above, use the following table to
determine the tax equivalent yield for a given tax-free yield.

If your combined effective federal, state and county personal income tax rate in
1995 is:

<TABLE>
<S> <C> <C> <C>
33.76% 36.52% 41.12% 44.43%
</TABLE>
To match
these tax
free rates: Your taxable investment would have to earn the following yield:
<TABLE>
<S> <C> <C> <C> <C>
3% 4.53% 4.73% 5.10% 5.40%
4% 6.04% 6.30% 6.79% 7.20%
5% 7.55% 7.88% 8.49% 9.00%
6% 9.06% 9.45% 10.19% 10.80%
7% 10.57% 11.03% 11.89% 12.60%
</TABLE>

A Portfolio may invest a portion of its assets in obligations that are subject
to federal, state, or county (or City of Baltimore) income taxes. When the
Portfolio invests in these obligations, its tax-equivalent yield will be lower.
In the table above, tax-equivalent yields are calculated assuming investments
are 100% federal- and state- tax-free.

Yield information may be useful in reviewing a Portfolio's performance and in
providing a basis for comparison with other investment alternatives. However,
each Portfolio's yield fluctuates, unlike investments that pay a fixed interest
rate over a stated period of time. When comparing investment alternatives,
<PAGE> 148
investors should also note the quality and maturity of the portfolio securities
of the respective investment companies that they have chosen to consider.

Investors should recognize that in periods of declining interest rates a
Portfolio's yield will tend to be somewhat higher than prevailing market rates,
and in periods of rising interest rates a Portfolio's yield will tend to be
somewhat lower. Also, when interest rates are falling, the inflow of net new
money to a Portfolio from the continuous sale of its shares will likely be
invested in instruments producing lower yields than the balance of the
Portfolio's holdings, thereby reducing the Portfolio's current yield. In periods
of rising interest rates, the opposite can be expected to occur. The yields of
the Institutional Class and Institutional II Class of the same Portfolio are
each calculated separately. The yields of the Institutional II Class of a
Portfolio will be lower than those of the Institutional Class of the same
Portfolio, due to higher expenses in general.

Total Return Calculations. Total returns quoted in advertising reflect all
aspects of a Portfolio's return, including the effect of reinvesting dividends
and capital gain distributions (if any), and any change in the Portfolio's NAV
over the period. Average annual total returns are calculated by determining the
growth or decline in value of a hypothetical historical investment in a
Portfolio over a stated period, and then calculating the annually compounded
percentage rate that would have produced the same result if the rate of growth
or decline in value had been constant over the period. For example, a cumulative
total return of 100% over ten years would produce an average annual total return
of 7.18%, which is the steady annual rate of return that would equal 100% growth
on a compounded basis in ten years. Average annual returns covering periods of
less than one year are calculated by determining a Portfolio's total return for
the period, extending that return for a full year (assuming that performance
remains constant over the year), and quoting the result as an annual return.
While average annual total returns are a convenient means of comparing
investment alternatives, investors should realize that performance is not
constant over time, but changes from year to year, and that average annual total
returns represent averaged figures as opposed to the actual year-to-year
performance of the Portfolio.

In addition to average annual total returns, a Portfolio may quote un-averaged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total returns may
be quoted as a percentage or as a dollar amount, and may be calculated for a
single investment, a series of investments, or a series of redemptions, over any
time period. Total returns may be broken down into their components of income
and capital (including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to total
return. The total returns of the Institutional Class and Institutional II Class
of a Portfolio are each calculated separately. The total returns of the
Institutional II Class of a Portfolio will be lower than those of the
Institutional Class of the same Portfolio, due to higher expenses in general.
Total returns, yields, and other performance information may be quoted
numerically or in a table, graph, or similar illustration.

A Portfolio's performance may be compared in advertising to the performance of
other mutual funds in general or to the performance of particular types of
mutual funds, especially those with similar objectives. This performance may be
expressed as a ranking prepared by Lipper Analytical Services, Inc. (Lipper or
Lipper Analytical Services), an independent service located in Summit, New
Jersey, that monitors the performance of mutual funds. The Lipper performance
analysis ranks funds on the basis of total return, assuming reinvestment of all
distributions, but does not take sales charges or redemption fees into
consideration and is prepared without regard to tax consequences. In addition,
Tax-Free Money Market Portfolio's performance and Maryland Tax-Free Portfolio's
performance each may be compared in advertising to the performance of
representative individual municipal securities and unit investment trusts
comprised of municipal securities.

The Lipper General Equity Portfolios Average can be used to show how a
Portfolio's performance compares to a broad-based set of equity mutual funds.
The Lipper General Equity Portfolios Average is an average of the total returns
of all equity mutual funds (excluding international funds and funds that
specialize in particular industries or types of investments) tracked by Lipper.

Ibbotson Associates of Chicago, Illinois (Ibbotson) provides historical returns
of the capital markets in the United States. Each Portfolio may compare its
performance to the long-term performance of the U.S. capital markets in order to
demonstrate general long-term risk versus reward investment scenarios.
Performance comparisons could also include the value of a hypothetical
investment in common stocks, long-term bonds, or U.S. Treasury securities.

Each of the ARK Money Market Portfolios and Income Portfolio also may compare
its performance or the performance of securities in which it may invest to
averages published by IBC USA (Publications), Inc. of Ashland, Massachusetts.
<PAGE> 149
These are average yields of various types of money market funds that include the
effect of compounding distributions, and assume reinvestment of distributions.
The IBC/Donoghue's Money Fund Averages, which is reported in the MONEY FUND
REPORT, covers over 200 taxable and tax-free money market funds. The BOND FUND
REPORT AVERAGES, which is reported in the BOND FUND REPORT, covers over 400
taxable bond funds.

A Portfolio may compare its performance to the Lehman Brothers Aggregate Bond
Index, an unmanaged index, and is a broad measure of bond performance and
includes reinvestment of dividends. It is comprised of securities from the
Lehman Brothers Government/Corporate Bond Index, Mortgage-Backed Securities
Index, and Yankee Bond Index.

International Equity Portfolio may compare its performance to the Morgan Stanley
Capital International Europe, Australia, Far East Index (EAFE Index) and the
Morgan Stanley Capital International World Index (World Index). The EAFE Index
is an unmanaged index of over 1,000 foreign securities in Europe, Australia and
the Far East, and the World Index is an unmanaged index of over 1,500 foreign
securities.

The Portfolios also may quote in advertising the performance of various
unmanaged indices as may be selected from time to time, and may compare the
price volatility of these indices to the price volatility of the S&P 500. These
indices may include, but are not limited to, the examples shown in the Appendix
to this Statement of Additional Information.

Market Capitalization. Companies outside the United States now make up nearly
two-thirds of the world's stock market capitalization. According to Morgan
Stanley Capital International World Index, the size of the markets, as measured
in U.S. dollars, grew from $2,011 billion in 1982 to $7.659 billion in 1994.

The following table measures the total market capitalization of certain
countries according to the Morgan Stanley Capital International Indices
database. The value of the markets are measured in billions of U.S. dollars as
of December 31, 1994.

Total Market Capitalization

<TABLE>
<S> <C> <C> <C>
Australia $125.10 Japan $2,145.70
Austria 18.00 Netherlands 167.90
Belgium 49.30 Norway 19.90
Canada 171.10 Singapore/Malaysia 175.00
Denmark 35.30 Spain 74.30
France 265.60 Sweden 76.10
Germany 300.10 Switzerland 215.00
Hong Kong 196.50 United Kingdom 731.00
Italy 102.90 United States 2,784.70
</TABLE>

National Stock Market Performance. Certain national stock markets have
outperformed the U.S. stock market. The first table below represents the
performance of national stock markets, as measured in U.S. dollars, by the
Morgan Stanley Capital International stock market indices for the twelve month
period ended October 31, 1994. The second table shows the same performance as
measured in local currency. Each table measures total return based on the
period's change in price, assuming any dividends are reinvested monthly and net
of any applicable foreign taxes. These are unmanaged indices composed of a
sampling of selected companies representing an approximation of the market
structure of the designated country.

Stock Market Performance (Cumulative Total Returns)
Measured in U.S. Dollars

<TABLE>
<S> <C> <C> <C>
Australia 2.932% Japan 8.122%
Austria (5.91) Netherlands 14.089
Belgium 13.47 Norway 15.120
Canada 1.173 Singapore/Malaysia 33.750/7.946
Denmark 7.285 Spain (1.426)
France 2.592 Sweden 19.165
Germany 8.752 Switzerland 11.086
Hong Kong 2.047 United Kingdom 7.843
Italy 17.332 United States 1.679
</TABLE>

Stock Market Performance (Cumulative Total Returns)
Measured in Local Currency

<TABLE>
<S> <C> <C> <C>
Australia (2.232)% Japan (3.213)%
Austria (15.340) Netherlands 2.517
Belgium (3.057) Norway 3.208
Canada 3.599 Singapore/Malaysia 23.794/7.963
Denmark (6.058) Spain (7.860)
</TABLE>
<PAGE> 150
<TABLE>
<S> <C> <C> <C>
France (9.690) Sweden 5.680
Germany (2.090) Switzerland 5.573
Hong Kong 2.034 United Kingdom (1.884)
Italy 11.405 United States 1.679
</TABLE>

Of course, these results do not indicate future stock market performance or
future International Equity Portfolio's performance. Market conditions during
the period measured fluctuated widely. Brokerage commissions and other fees were
not factored into the values of the indices.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

Each Portfolio is open for business and its NAV is calculated each day that the
Federal Reserve Bank of New York (FRB) and the New York Stock Exchange (NYSE)
are open for trading (a Business Day). The NAV of Short-Term Treasury Portfolio,
Income Portfolio, Growth and Income Portfolio, Blue Chip Equity Portfolio,
Capital Growth Portfolio, International Equity Portfolio, Special Equity
Portfolio and Maryland Tax-Free Portfolio is determined at the close of business
of the NYSE, normally 4:00 p.m. Eastern Time (4:00 p.m.). Shares purchased at
4:00 p.m. begin to earn dividends on the following Business Day.

The NAV of U.S. Treasury Money Market Portfolio and Tax-Free Money Market
Portfolio is determined at 12:00 noon Eastern Time (12:00 noon) and the close of
business of the NYSE, normally 4:00 p.m. The NAV of U.S. Government Money Market
Portfolio and Money Market Portfolio is determined at 1:30 p.m. Eastern Time
(1:30 p.m.) and the close of business of the NYSE, normally 4:00 p.m.. Shares
purchased at 12:00 noon and 1:30 p.m. begin to earn dividends that Business Day.
Shares purchased at 4:00 p.m. begin to earn dividends on the following Business
Day.

The following holiday closings have been scheduled for 1996 and the Fund expects
the schedule to be the same in the future: Dr. Martin Luther King, Jr. Day
(observed), Presidents' Day, Good Friday, Memorial Day (observed), Independence
Day, Labor Day, Columbus Day (observed), Veterans Day (observed), Thanksgiving
Day and Christmas Day. Although the schedule is expected to remain the same in
the future, with the addition of New Year's Day, the NYSE may change the
schedule. When the NYSE or the FRB is closed, or when trading is restricted for
any reason other than its customary weekend or holiday closings, or under
emergency circumstances as determined by the SEC to merit such action, each
Portfolio will determine its NAV at the close of business, the time of which
will coincide with the closing of the NYSE. To the extent that securities held
by a Portfolio are traded in other markets on days the NYSE or FRB is closed
(when investors do not have access to the Portfolio to purchase or redeem
shares), the Portfolio's NAV may be significantly affected.

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

Pursuant to Rule 11a-3 under the 1940 Act, a Portfolio is required to give
shareholders at least 60 days' notice prior to terminating or modifying a
Portfolio's exchange privilege. Under the Rule, the 60-day notification
requirement may be waived if (i) the only effect of a modification would be to
reduce or eliminate an administrative fee, redemption fee or deferred sales
charge ordinarily payable at the time of exchange or (ii) a Portfolio
temporarily suspends the offering of shares as permitted under the 1940 Act or
by the SEC or because it is unable to invest amounts effectively in accordance
with its investment objective and policies.

As is set forth in the Prospectus, the Portfolios reserve the right at any time
without prior notice to shareholders to refuse exchanges by any person or group
if, in First Maryland's judgment (or AIB I.M's judgment if applicable) a
Portfolio would be unable to invest effectively in accordance with its
investment objective and policies, or would otherwise potentially be adversely
affected.

TAXES

Each of the ARK Money Market Portfolios declares dividends equal to its
entire net investment income (including, in the case of each taxable ARK Money
<PAGE> 151
Market Portfolio, net realized short-term capital gains and losses, if any) on
each Business Day, and pays dividends after the close of business on the first
Business Day of the following month. Short-Term Treasury Portfolio, Income
Portfolio and Maryland Tax-Free Portfolio each declares and pays dividends
monthly, Growth and Income Portfolio and Blue Chip Equity Portfolio each
declares and pays dividends quarterly, and Capital Growth Portfolio,
International Equity Portfolio and Special Equity Portfolio each declares and
pays dividends annually. Net long-term capital gains (and, in the case of
Tax-Free Money Market Portfolio and Maryland Tax-Free Portfolio, net short-term
capital gains), if any, are declared and distributed annually by all Portfolios.
The ARK Money Market Portfolios, Income Portfolio and Maryland Tax-Free
Portfolio declare dividends for Saturdays, Sundays and holidays on the previous
Business Day. If a shareholder elects to redeem all the shares of a Portfolio,
all dividends credited to the shareholder up to the date of redemption are paid
to the shareholder at the end of the month. Unless the transfer agent is
otherwise instructed, all dividends and distributions of capital gains are
automatically re-invested into additional shares of that Portfolio immediately
upon payment thereof.

Each Portfolio intends to qualify for tax treatment as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
Code). By distributing all of its net investment income and any net realized
short-term and long-term capital gains for a taxable year in accordance with the
timing requirements imposed by the Code, and by meeting certain other
requirements relating to the sources of its income and diversification of its
assets, a Portfolio should not be liable for federal income or excise taxes.

Tax-Free Money Market Portfolio and Maryland Tax-Free Portfolio. Dividends
paid by these Portfolios to shareholders out of tax-exempt interest income
earned by the Portfolios (exempt-interest dividends) generally will not be
subject to federal income tax paid by the Portfolios' shareholders. However,
persons who are "substantial users" or "related persons" of facilities financed
by private activity bonds held by the Portfolios may be subject to tax on their
pro-rata share of the interest income from such bonds and should consult their
tax advisers before purchasing shares of the Portfolios. Realized market
discount on tax-exempt obligations purchased after April 30, 1993, is treated as
ordinary income and not as a capital gain. Dividends paid by the Portfolios out
of its taxable net investment income (including realized net short-term capital
gains, if any) are taxable to shareholders as ordinary income notwithstanding
that such dividends are reinvested in additional shares of the Portfolios. The
"exempt interest dividend" portion of a distribution is determined by the ratio
of the tax-exempt income to total income realized by a Portfolio for the entire
year and, thus, is an annual average, rather than a day-to-day determination for
each shareholder. Distributions of long- term capital gains, if any, are taxable
as long-term capital gains to the shareholder receiving them regardless of the
length of time he or she may have held his or her shares. Under current tax law
(1) interest on certain private activity bonds is treated as an item of tax
preference for purposes of the federal alternative minimum tax imposed on
individuals and corporations, although for regular federal income tax purposes
such interest remains fully tax-exempt, and (2) interest on all tax-exempt
obligations is included in "adjusted current earnings" of corporations for
federal alternative minimum tax purposes. Because the Portfolios expect to
purchase private activity bonds, a portion (not expected to exceed 20%) of each
Portfolio's exempt-interest dividends may constitute an item of tax preference
for those shareholders subject to the federal alternative minimum tax.

Interest on indebtedness incurred by shareholders to purchase or carry
shares of the Portfolios generally is not deductible for federal income tax
purposes. Under IRS rules for determining when borrowed funds are used for
purchasing or carrying particular assets, shares of the Portfolios may be
considered to have been purchased or carried with borrowed funds even though
those funds are not directly linked to the shares.

The exemption for federal income tax purposes of dividends derived from
interest on municipal securities does not necessarily result in an exemption
under the income or other tax laws of any state or local taxing authority.
Shareholders of the Portfolio may be exempt from state and local taxes on
distributions of tax-exempt interest income derived from obligations of the
state and/or municipalities of the state in which they reside but may be subject
to tax on income derived from the municipal securities of other jurisdictions.
Shareholders are advised to consult with their tax advisers concerning the
application of state and local taxes to investments in the Portfolio which may
differ from the federal income tax consequences described above.

Shareholders are required to report tax-exempt income on their federal tax
returns. Shareholders who earn other income, such as Social Security benefits,
may be subject to federal income tax on up to 85% of such benefits to the extent
that their income, including tax-exempt income, exceeds certain base amounts.

The Portfolios purchase municipal obligations based on opinions of bond
<PAGE> 152
counsel regarding the federal income tax status of the obligations. These
opinions generally will be based upon covenants by the issuers regarding
continuing compliance with federal tax requirements. If the issuer of an
obligation fails to comply with its covenant at any time, interest on the
obligation could become federally taxable retroactive to the date the obligation
was issued.

Corporate investors should note that a tax preference item for purposes of
the corporate Alternative Minimum Tax is 75% of the amount by which adjusted
current earnings (which includes tax-exempt interest) exceeds the alternative
minimum taxable income of the corporation. If a shareholder receives an
exempt-interest dividend and sells shares at a loss after holding them for a
period of six months or less, the loss will be disallowed to the extent of the
amount of exempt-interest dividend.

Maryland Tax Matters. To the extent that dividends paid by the Portfolios
qualify as exempt-interest dividends of a regulated investment company, the
portion of exempt-interest dividends that represents interest received by the
Portfolios on obligations (a) of Maryland or its political subdivisions and
authorities, or (b) of the United States or an authority, commission,
instrumentality, possession or territory of the United States, will be exempt
from Maryland state and local income taxes when allocated or distributed to a
shareholder of the Portfolios.

In addition, gains realized by the Portfolios from the sale or exchange of
a bond issued by Maryland or a political subdivision of Maryland, or by the
United States or an authority, commission or instrumentality of the United
States, will not be subject to Maryland state and local income taxes. To the
extent that distributions of the Portfolios are attributable to sources other
than those described in the preceding sentences, such as interest received by
the Portfolios on obligations issued by states other than Maryland or capital
gains realized on obligations issued by U.S. territories and possessions and
from states other than Maryland, and income earned on repurchase agreements,
such distributions will be subject to Maryland state and local income taxes.
Income earned on certain private activity bonds which the Portfolios might hold
will constitute a Maryland tax preference for individual shareholders. In
addition, capital gains realized by a shareholder upon a redemption or exchange
of Portfolio shares will be subject to Maryland state and local income taxes.

Federal Taxes. Distributions from each Portfolio's taxable net investment
income and short-term capital gain are taxed as dividends, and long-term capital
gain distributions are taxed as long-term capital gain. A portion of the
dividends may qualify for the dividends received deduction for corporations. The
Portfolios' distributions are taxable when they are paid, whether taken in cash
or reinvested in additional shares, except that distributions declared in
October, November or December and payable to shareholders of record in such
month, if paid in January of the following year, will be taxed as though paid on
December 31. The Portfolios will send non-corporate shareholders a tax statement
by January 31 showing the tax status of the distributions received in the prior
year. Shareholders also will be notified as to the portion of distributions from
the Tax-Free Money Market Portfolio and Maryland Tax-Free Portfolio that are
exempt from federal income taxes. It is suggested that shareholders keep all
statements received to assist in personal record keeping.

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

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

Other Tax Information. In addition to federal taxes, shareholders may be
subject to state or local taxes on their investment, depending on state law.

When an investor signs his account application, he or she will be asked to
certify that his or her social security or taxpayer identification number is
<PAGE> 153
correct and that he or she is not subject to 31% backup withholding for failing
to report income to the IRS. If an investor violates IRS regulations, the IRS
can require a Portfolio to withhold 31% of that investor's taxable distributions
and redemptions.

Each Portfolio calculates dividend and capital gain distributions
separately, and is treated as a separate entity in all respects for tax
purposes. There is a risk that any of the ARK Non-Money Market Portfolios may be
unable to meet the Code requirement that requires a Portfolio to derive less
than 30% of its gross income from gains realized upon the sale or other
disposition of securities held less than three months. If this were to occur,
the affected Portfolio would be required to pay federal as well as Maryland
state income taxes from its assets.

If a Portfolio purchases shares in certain foreign investment entities,
defined as passive foreign investment companies (PFICs under the Code), it may
be subject to U.S. federal income taxes on a portion of any excess distribution
or gain from the disposition of such shares. Interest charges may also be
imposed on a Portfolio with respect to deferred taxes arising from such
distributions or gains.

TRUSTEES AND OFFICERS

The Trustees and officers of the Fund and their principal occupations
during the past five years are set forth below. Each Trustee who is an
"interested person" (as defined in the 1940 Act) is indicated by an asterisk
(*).

William H. Cowie, Jr., 1408 Ruxton Road, Baltimore, MD, Trustee (1993).
Prior to retiring, Mr. Cowie was Chief Financial Officer (1991-1995) of Pencor,
Inc. (developers of environmental projects). Prior to 1991, Mr. Cowie was Vice
Chairman of Signet Banking Corporation and President and Chief Executive Officer
of Signet Bank of Maryland.

Charlotte R. Kerr, 10227 Wincopin Circle, Suite 108, Columbia, MD, Trustee
(1993). Ms. Kerr is Practitioner of Centre for Traditional Acupuncture and
Faculty for Traditional Acupuncture Institute.

*David D. Downes, 5 Bird Hill Court, Timonium, MD, President and Trustee
(1995). Mr. Downes is Of Counsel to Venable, Baetjer & Howard (law). Prior to
1995, Mr. Downes was a Partner (1989) of Venable, Baetjer & Howard (law). Prior
to 1989, he served as a Principal of Cook, Howard, Downes & Tracy (law).

George K. Reynolds, III, 233 East Redwood Street, Baltimore, MD, Trustee
(1993). Mr. Reynolds is Chairman of the Trusts & Estates Department at, and a
Partner of, Gordon, Feinblatt, Rothman, Hoffberger & Hollander (law). Prior to
1991, Mr. Reynolds was a Partner of Venable, Baetjer & Howard (law). From 1989
to 1991, he served as a Principal of Cook, Howard, Downes & Tracy (law).

Thomas Schweizer, 6 Betty Bush Lane, Baltimore, MD, Trustee (1993). Prior
to his retirement in 1987, Mr. Schweizer was self-employed. He currently is a
board member of various charity organizations and hospitals.

Stephen G. Meyer, 680 East Swedesford Road, Wayne, PA 19087, Controller,
Treasurer and Chief Financial Officer (November 1995). Mr. Meyer is Vice
President and Controller - Fund Resources, a division of SEI Corporation from
1992 to March 1995, Mr. Meyer was Director - Internal Audit and Risk Management
- - SEI Corporation. Prior to 1992, Mr. Meyer was a Senior Associate with
Coopers & Lybrand LLP.

Richard J. Shoch, 680 East Swedesford Road, Wayne, PA 19087, Vice President
and Secretary (November 1995). Mr. Shoch is Vice President and Assistant
Secretary of SEI Corporation (1995). From 1990 to June 1995, Mr. Shoch was
Regulatory Manager of SEI Corporation.

Kathryn L. Stanton, 680 East Swedesford Road, Wayne, PA 19087, Vice
President and Assistant Secretary (November 1995). Ms. Stanton is Vice President
and Assistant Secretary of SEI Corporation, since 1994. Prior to 1994, Ms.
Stanton was an Associate with Morgan, Lewis & Bockius (1989).

Sandra K. Orlow, 680 East Swedesford Road, Wayne, PA 19087, Vice President
and Assistant Secretary (November 1995). Ms. Orlow is Vice President and
Assistant Secretary of SEI Corporation (1983).
<PAGE> 154
Robert B. Carroll, 680 East Swedesford Road, Wayne, PA 19087, Vice
President and Assistant Secretary (November 1995). Mr. Carroll is Vice President
and Assistant Secretary of SEI Corporation (1994). From 1990 to 1994, Mr.
Carroll was an attorney with the Securities and Exchange Commission, Division of
Investment Management.

Kevin P. Robins, 680 East Swedesford Road, Wayne, PA 19087, Vice President
and Assistant Secretary (November 1995). Mr. Robins is Senior Vice President,
General Counsel and Secretary of SEI Corporation since 1994. Prior to 1994, Mr.
Robins was Vice President and Assistant Secretary of SEI Corporation. Prior to
1992, Mr. Robins was an Associate with Morgan, Lewis & Bockius (1988).

Todd Cipperman, 680 East Swedesford Road, Wayne, PA 19087, Vice President
and Assistant Secretary (November 1995). Mr. Cipperman is Vice President and
Assistant Secretary of SEI Corporation (1995). From 1994 to May 1995, Mr.
Cipperman was an Associate with Dewey Ballantine. Prior to 1994, Mr. Cipperman
was an Associate with Winston & Strawn (1991).

The following table sets forth information describing the compensation of
each current Trustee of ARK Funds for his or her services as trustee for the
fiscal year ended April 30, 1995.

Trustee Compensation Table

<TABLE>
<CAPTION>
Pension or Estimated
Aggregate Retirement Annual Benefits Total
Compensation Benefits Upon Retirement Compensation
from Accrued from the from the Fund from the Fund
Name of Trustee the Fund* Complex* Complex Complex*
<S> <C> <C> <C> <C>
William H. Cowie, (64) $8,500 $0 $0 $8,500
David D. Downes (59) 1,750 0 0 1,750
Charlotte Kerr (48) 8,000 0 0 8,000
George K. Reynolds, III (49) 8,000 0 0 8,000
Thomas Schweizer (72) 8,000 0 0 8,000
James K. McManus (73)
(resigned September 20, 1994) 3,500 0 0 3,500
</TABLE>

* The Fund's Trustees do not receive any pension or retirement benefits from
the Fund as compensation for their services as Trustees of the Fund. ARK
Funds, a Massachusetts business trust, is the sole investment company in
the fund complex.

THE ADVISORS

Pursuant to an Investment Advisory Agreement with the Fund dated April 12, 1993
and an Investment Advisory Agreement dated July 13, 1995 with the Fund
(collectively the "Advisory Contract"), First Maryland furnishes at its own
expense, all services, facilities and personnel necessary to manage the
investments of each Portfolio (with the exception of International Equity
Portfolio) and effect portfolio transactions on behalf of each Portfolio. The
Advisory Contract has been approved by the Board and will continue in effect
with respect to a Portfolio only if such continuance is specifically approved
at least annually by the Board or by vote of the shareholders of such
Portfolio, and in either case by a majority of the Trustees who are not parties
to the Advisory Contract or interested persons of any such party, at a meeting
called for the purpose of voting on the Advisory Contract. Pursuant to an
Advisory Contract with the Fund dated June 7, 1994 on behalf of International
Equity Portfolio, AIB I.M. furnishes at its own expense, all services,
facilities and personnel necessary to manage the Portfolio's investments and
effect portfolio transactions on behalf of the Portfolio. The Advisory Contract
with AIB I.M. has been approved by the Board and will continue in effect only
if specifically approved at least annually by the Board or by vote of the
shareholders of International Equity Portfolio of the Fund, and in either case
by a majority of the Trustees who are not parties to the Advisory Contract or
interested persons of any such party, at a meeting called for the purpose of
voting on the Advisory Contract.

Each Advisory Contract is terminable with respect to a Portfolio without penalty
on 60 days' written notice when authorized either by vote of the Fund's
shareholders of such Portfolio, or by a vote of a majority of the Trustees, or
by First Maryland or AIB I.M., as applicable, on 60 days' written notice, and
<PAGE> 155
will automatically terminate in the event of its assignment. The Advisory
Contracts also provide that, with respect to each Portfolio, neither First
Maryland or AIB I.M., as applicable, nor its personnel shall be liable for any
error of judgment or mistake of law or for any act or omission in the
performance of its duties to a Portfolio, except for willful misfeasance, bad
faith or gross negligence in the performance by First Maryland or AIB I.M. of
its duties or by reason of reckless disregard of its obligations and duties
under the applicable Advisory Contract. The Advisory Contracts provide that
First Maryland and AIB I.M. may render services to others.

The fees paid pursuant to each Advisory Contract are accrued daily and paid
monthly. For its services, First Maryland is entitled to receive fees with
respect to the following Portfolios at the annual rates set forth below:

<TABLE>
<S> <C>
ARK Money Market Portfolios: .25% of each Portfolio's average net assets.
Short-Term Treasury Portfolio: .35% of the Portfolio's average net assets.
Income Portfolio: .50% of the Portfolio's average net assets.
Growth and Income Portfolio: .55% of the Portfolio's average net assets.
Blue Chip Equity Portfolio: .60% of the Portfolio's average net assets.
Capital Growth Portfolio: .60% of the Portfolio's average net assets.
Special Equity Portfolio: .60% of the Portfolio's average net assets.
Maryland Tax-Free Portfolio: .50% of the Portfolio's average net assets.
</TABLE>

For its services, AIB I.M. is entitled to receive fees with respect to
International Equity Portfolio at the annual rate of .80% of the Portfolio's
average net assets.

For the fiscal year ended April 30, 1995, the advisory fee payable to the
Advisor under the Advisory Contract with respect to U.S. Treasury Money Market
Portfolio was $433,206 of which $155, 954 was waived. For the fiscal year ended
April 30, 1995, the advisory fee payable to the Advisor under the Advisory
Contract with respect to U.S. Government Money Market Portfolio was $1,211,814
of which $745,803 was waived. For the fiscal year ended April 30, 1995, the
advisory fee payable to the Advisor under the Advisory Contract with respect to
Money Market Portfolio was $675,922 of which $497,923 was waived. For the fiscal
year ended April 30, 1995, the advisory fee payable to the Advisor under the
Advisory Contract with respect to Tax-Free Money Market Portfolio was $168,405
of which $114,525 was waived. For the fiscal year ended April 30, 1995, the
advisory fee payable to the Advisor under the Advisory Contract with respect to
Income Portfolio was $273,599. For the fiscal year ended April 30, 1995, the
advisory fee payable to the Advisor under the Advisory Contract with respect to
Growth and Income Portfolio was $488,695. For the fiscal year ended April 30,
1995, the advisory fee payable to the Advisor under the Advisory Contract with
respect to Capital Growth Portfolio was $269,990 of which $50,934 was waived
from February 13, 1995 to April 30, 1995. For the fiscal year ended April 30,
1995, the advisory fee payable to the Advisor under the Advisory Contract with
respect to International Equity Portfolio was $6, 904 of which $6,904 was
waived.

In addition to receiving its advisory fee from each Portfolio, First Maryland or
AIB I.M., in the case of International Equity Portfolio, may also act and be
compensated as investment manager for its clients with respect to assets which
are invested in a Portfolio. In some instances First Maryland or AIB I.M. may
elect to credit against any investment management fee received from a client who
is also a shareholder in a Portfolio an amount equal to all or a portion of the
fee received by First Maryland or AIB I.M., as applicable, or its affiliate,
from a Portfolio with respect to the client's assets invested in the Portfolio.
AIB I.M. has reserved the right to reimburse a portion of its fee in order to
keep International Equity Portfolio's total operating expenses from exceeding
1.55% of average net assets, subject to annual review by AIB I.M.

Subject to the obligations of First Maryland or AIB I.M. to reimburse each
Portfolio for its excess expenses as described below, each Portfolio, has under
its Advisory Contract, confirmed its obligation to pay all other expenses,
including interest charges, taxes, brokerage fees and commissions; certain
insurance premiums; fees, interest charges and expenses of the custodian,
transfer agent and dividend disbursing agent; telecommunications expenses;
auditing, legal and compliance expenses; costs of forming the corporation and
maintaining corporate existence; costs of preparing and printing the Portfolios'
prospectuses, statements of additional information, subscription order forms and
shareholder reports and delivering them to existing and prospective
shareholders; costs of maintaining books of original entry for portfolio
accounting and other required books and accounts of calculating the NAV of
shares of the Portfolio(s); costs of reproduction, stationery and supplies;
compensation of directors and officers and employees of the Portfolio(s) and
costs of other personnel performing services for the Portfolio(s) who are not
officers of First Maryland or AIB I.M., in the case of International Equity
Portfolio, Distributors, or their respective affiliates; costs of shareholder
<PAGE> 156
meetings; SEC registration fees and related expenses; state securities laws
registration fees and related expenses; fees payable under the Advisory Contract
and under the Administration Agreement and all other fees and expenses paid by
the Portfolio(s).

To comply with the California Code of Regulations, First Maryland or AIB I.M.,
as applicable, will reimburse a Portfolio if and to the extent such Portfolio's
aggregate annual operating expenses exceed specified percentages of its average
net assets. The applicable percentages are 2 1/2% of the first $30 million, 2%
of the next 70 million, and 1 1/2% of average net assets in excess of $100
million. When calculating the Portfolios' expenses for purposes of this
regulation, the Portfolios may exclude interest, taxes, brokerage commissions,
and extraordinary expenses, as well as a portion of their distribution plan
expenses and custodian fees attributable to investments in foreign securities.

ADMINISTRATOR AND DISTRIBUTOR

SEI Financial Management Corporation, a wholly-owned subsidiary of SEI
Corporation ("SEI") serves as administrator (the "Administrator") to the Fund.
The Administrator assists in supervising all operations of each Portfolio,
except those performed by the Advisor under the Advisory Agreement, by the
Distributor under the Distribution Agreement and by First National Bank of
Maryland or Bankers Trust Company under their respective Custodian Agreements.

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

The Administrator was organized as a Delaware corporation in 1969 and has its
principal business offices at 680 East Swedesford Road, Wayne, PA 19087-1658.
Alfred P. West, Jr., Henry H. Greer, Carmen V. Romeo, and Richard B. Lieb
constitute the Board of Directors of the Administrator and the Distributor. Mr.
West is the Chairman of the Board and Chief Executive Officer of SEI, the
Administrator and the Distributor. Mr. Greer serves as the President and Chief
Operating Officer of SEI, the Administrator and the Distributor. SEI and its
subsidiaries are leading providers of funds evaluation services, trust
accounting systems, and brokerage and information services to financial
institutions, institutional investors and money managers. The Administrator
also serves as administrator to the following other mutual funds: SEI Liquid
Asset Trust; SEI Tax Exempt Trust; SEI Index Funds; SEI Institutional Managed
Trust; SEI Daily Income Trust; SEI International Trust; The Advisers' Inner
Circle Fund; the PBHG Funds, Inc.; Pillar Funds; CUFUND; STI Classic Funds;
CoreFunds, Inc.; First American Funds, Inc.; First American Investment Funds
Inc.; Rembrandt Funds'; The Arbor Fund; The Stepstone Funds; 1784 Funds;
Marquis Funds; Morgan Grenfell Investment Trust; Insurance Investment Products
Trust; Bishop Street Funds; Conestoga Family of Funds; The Achievement Funds
Trust; Monitor Funds; and CrestFunds, Inc.

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

Distribution Plan. The Board has adopted a Distribution Plan (the Plan) on
behalf of the Institutional II Class of each ARK Money Market Portfolio pursuant
to Rule 12b-1 under the 1940 Act (the Rule). The Plan allows the Institutional
II Class of each Portfolio to pay the Distributor up to .75% of the average net
assets of such class or such lesser amount as approved from time to time by the
Board. The Distributor may use fees and other resources to pay expenses
associated with the promotion and administration of activities primarily
intended to result in the sale of Institutional II Class shares. These
distribution-related services include, but are not limited to: advertising the
availability of services and products; designing material to send to customers
and developing methods of making such materials accessible to customers;
providing information about the product needs of customers; providing facilities
to solicit sales and to answer questions from prospective and existing investors
about the Institutional II Class of the ARK Money Market Portfolios; receiving
and answering correspondence from prospective investors, including requests for
sales literature, prospectuses and statements of additional information;
displaying and making sales literature and prospectuses available on the service
organization's premises; and acting as liaison between Institutional II Class
shareholders and the ARK Money Market Portfolios, including obtaining
<PAGE> 157
information from the ARK Money Market Portfolios regarding the Institutional II
Class and providing Institutional II Class performance and other information
about the ARK Money Market Portfolios; and providing additional distribution-
related services.

The Plan has been approved by the Board, including the majority of disinterested
Trustees and the sole shareholder of the Institutional II Class of each ARK
Money Market Portfolio. As required by the Rule, the Board carefully considered
all pertinent factors relating to the implementation of the Plan prior to its
approval, and have determined that there is a reasonable likelihood that the
Plan will benefit the Institutional II Class of each ARK Money Market Portfolio
and its shareholders. To the extent that the Plan gives the Distributor greater
flexibility in connection with the distribution of Institutional II Class
shares, additional sales of Institutional II Class shares may result.

The Board has approved a monthly distribution fee based on the following
percentages of the average net assets of the Institutional II Class of the
Portfolios as follows: .10% for each of the ARK Money Market Portfolios.

The Plan is a compensation plan because the Distributor is paid a fixed fee and
is given discretion concerning what expenses are payable under the Plan. The
Distributor may spend more for marketing and distribution than it receives in
fees from the Institutional II Class of each ARK Money Market Portfolio.
However, to the extent fees received exceed expenses, including indirect
expenses such as overhead, the Distributor could be said to have received a
profit. For example, if the Distributor pays $1 for distribution-related
expenses and receives $2 under the Plan, the $1 difference could be said to be a
profit for the Distributor. If after payments by the Distributor for marketing
and distribution there are any remaining fees which have been paid under the
Plan, they may be used as the Distributor may elect. Since the amounts payable
under the Plan will be commingled with the Distributor's general funds,
including the revenues it receives in the conduct of its business, it is
possible that certain of the Distributor's overhead expenses will be paid out of
distribution fees and that these expenses may include the costs of leases,
depreciation, communications, salaries, training and supplies.

Banking laws and regulations, including the Glass-Steagall Act as currently
interpreted by the Board of Governors of the Federal Reserve System, prohibit a
bank holding company registered under the Bank Holding Company Act of 1956 or
any affiliate thereof from sponsoring, organizing, controlling, or distributing
the shares of a registered, open-end investment company continuously engaged in
the issuance of its shares and prohibit banks generally from issuing,
underwriting, selling or distributing securities. The same laws and regulations
generally permit a bank or bank affiliate to act as an investment adviser and to
purchase shares of the investment company as agent for and upon the order of a
customer. In the Fund's and First Maryland's opinion, banks or their affiliates
may be paid for investment advisory, shareholder, servicing and record keeping
functions. Changes in federal or state statutes and regulations pertaining to
the permissible activities of banks and their affiliates or subsidiaries, as
well as further judicial or administrative decisions or interpretations, could
prevent a bank from continuing to perform all or a part of the contemplated
services. If a bank or its affiliates were prohibited from so acting, the Board
would consider what actions, if any, would be necessary to continue to provide
efficient and effective shareholder services. In such event, changes in the
operation of the Portfolios might occur, including possible termination of any
automatic investment or redemption or other services then being provided by any
bank. It is not expected that shareholders would suffer any adverse financial
consequences as a result of any of these occurrences. State securities laws on
this issue may differ from the interpretations of federal law expressed herein,
and banks and other financial institutions may be required to register as
dealers pursuant to state law.

TRANSFER AGENT

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

DESCRIPTION OF THE FUND

Trust Organization. Money Market Portfolio, U.S. Government Money Market
Portfolio, U.S. Treasury Money Market Portfolio, Tax-Free Money Market
<PAGE> 158
Portfolio, Short-Term Treasury Portfolio, Income Portfolio, Growth and Income
Portfolio, Blue Chip Equity Portfolio, Capital Growth Portfolio, International
Equity Portfolio, Special Equity Portfolio and Maryland Tax-Free Portfolio are
series of the ARK Funds, an open-end management investment company organized as
a Massachusetts business trust by Declaration of Trust dated October 22, 1992
and Amended and Restated on March 19, 1993. A supplement to the Declaration of
Trust was executed and filed on March 23, 1993. The Declaration of Trust permits
the Board to create additional series.

In the event that First Maryland or AIB I.M. ceases to be the investment
advisor to the Fund or a Portfolio, the right of the Fund or Portfolio to use
the identifying name "ARK" may be withdrawn.

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

Shareholder and Trustee Liability. The Fund is an entity of the type
commonly known as a "Massachusetts business trust." Under Massachusetts law,
shareholders of such a trust may, under certain circumstances, be held
personally liable for the obligations of the trust. The Declaration of Trust
provides that the Fund shall not have any claim against shareholders except for
the payment of the purchase price of shares and requires that each agreement,
obligation, or instrument entered into or executed by the Fund or the Board
shall include a provision limiting the obligations created thereby to the Fund
and its assets. The Declaration of Trust provides for indemnification out of
each Portfolio's property of any shareholders held personally liable for the
obligations of the Portfolio. The Declaration of Trust also provides that each
Portfolio shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Portfolio and satisfy any judgment
thereon. Thus, the risk of a shareholder incurring financial loss because of
shareholder liability is limited to circumstances in which the Portfolio itself
would be unable to meet its obligations. First Maryland and AIB I.M. believe
that, in view of the above, the risk of personal liability to shareholders is
remote.

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

Voting Rights. Each ARK Money Market Portfolio offers three classes of
shares: Institutional Class, Institutional II Class and Retail Class. Short-Term
Treasury Portfolio, Income Portfolio, Growth and Income Portfolio, Blue Chip
Equity Portfolio, Capital Growth Portfolio, Special Equity Portfolio and
Maryland Tax-Free Portfolio each offers two classes of shares: Institutional
Class and Retail Class. Finally, International Equity Portfolio offers
Institutional Class shares only. The shares have no preemptive or conversion
rights; the voting and dividend rights, the right of redemption, and the
privilege of exchange are described in the Prospectus. Shares are fully paid and
non- assessable, except as set forth under the heading "Shareholder and Trustee
Liability" above. Shareholders of the Fund, a Portfolio or a class may, as set
forth in the Declaration of Trust, call meetings for any purpose related to the
Fund, Portfolio or class, respectively, including, in the case of a meeting of
the entire Fund, the purpose of voting on removal of one or more Trustees. The
Fund or any Portfolio may be terminated upon the sale of its assets to another
open-end management investment company, or upon liquidation and distribution of
its assets, if approved by vote of the holders of a majority of the outstanding
shares of the Fund or the Portfolio. If not so terminated, the Fund and the
Portfolios will continue indefinitely.

As of May 31, 1995, the officers and directors of the Fund owned less than
1% of the outstanding shares of any Portfolio.

The following owned beneficially more than 5% of the outstanding shares of
<PAGE> 159
the of U.S. Government Money Market Portfolio: First National Bank of Maryland
F.I.L.M. Investment Account, Baltimore, Maryland (22.9%); Maryland State
Retirement & Pension System, Baltimore, Maryland (24.0%);

The following owned beneficially more than 5% of the outstanding shares of
U.S. Treasury Money Market Portfolio: First National Bank of Maryland F.I.L.M.
Investment Account, Baltimore, Maryland (32.0%); York Bank F.I.L.M. Investment
Account (8.3%) .

The following owned beneficially more than 5% of the outstanding shares of
of Growth and Income Portfolio: University of First Maryland Bancorp Thrift
Plan, Baltimore, Maryland (19.9%); University of Maryland Medical System,
Baltimore, Maryland (10.1%); and Maryland General Hospital, Baltimore, Maryland
(5.7%).

The following owned beneficially more than 5% of the outstanding shares of
Capital Growth Portfolio: First Maryland Bancorp Thrift Plan, Baltimore,
Maryland (23.9%).

The following owned beneficially more than 5% of the outstanding shares of
Income Portfolio: First Maryland Bancorp Thrift Plan, Baltimore, Maryland
(21.4%); First Maryland Bancorp Pension Plan, Baltimore, Maryland (6.2%);

The following owned beneficially more than 5% of the outstanding shares of
International Equity Portfolio: AIB- IM FBO Sisters of St. Joseph of Orange,
Dublin, Ireland (50.1%); AIB-IM FBO Sisters of St. Joseph of Peace, Dublin,
Ireland (49.0%);

A shareholder owning beneficially more than 25% of a particular Portfolio's
shares may be considered to be a "controlling person" of that Portfolio.
Accordingly, its vote could have a more significant effect on matters presented
at shareholder meetings than the votes of the Portfolio's other shareholders.
First Maryland or its affiliates, however, may receive voting instructions from
certain underlying customers or fiduciary accounts and will vote the shares in
accordance with those instructions. In the absence of such instructions, First
Maryland or its affiliates will vote those shares in the same proportion as it
votes the shares for which it has received instructions from its customers and
fiduciary accounts.

AUDITOR

KPMG Peat Marwick LLP, 99 High Street, Boston, MA, independent auditors,
has been selected as the auditor for the Fund. KPMG Peat Marwick LLP will
examine financial statements for the Portfolios and will provide other audit,
tax and related services.

FINANCIAL STATEMENTS

The Fund's financial statements and financial highlights for the fiscal
year ended April 30, 1995 and for the six month period ended October 31, 1995
are included in the Annual Report and Semi-Annual Report respectively, which are
separate reports with this Statement of Additional Information. The Fund's
financial statements and financial highlights are incorporated herein by
reference.

APPENDIX

Description of selected indices:

Dow Jones Industrial Average is an unmanaged index of common stock prices
representing stocks of major industrial companies and includes reinvestment of
dividends.

Standard & Poor's 500 Composite Stock Price Index is an unmanaged index of
common stock prices and includes reinvestment of dividends.

NASDAQ Composite Index is an unmanaged index of over-the- counter stock
prices and does not assume reinvestment of dividends.

Russell 2000 Index is an unmanaged index of small capitalization stocks
that includes reinvestment of dividends.

Morgan Stanley Capital International Europe, Australia, Far East (EAFE)
<PAGE> 160
Index is an unmanaged index of over 1,000 foreign securities in Europe,
Australia and the Far East, and includes reinvestment of dividends.

Morgan Stanley Capital World Index is an unmanaged index of over 1,500
foreign securities, and includes reinvestment of dividends.

Lehman Brothers Aggregate Bond Index, an unmanaged index, is a broad
measure of bond performance and includes reinvestment of dividends. It is
comprised of securities from the Lehman Brothers Government/Corporate Bond
Index, Mortgage-Backed Securities Index, and Yankee Bond Index.

Lehman Brothers Government Bond Index is an index comprised of all public
obligations of the U.S. Treasury, U.S. government agencies, quasi-federal
corporations, and of corporate debt guaranteed by the U.S. government. The index
excludes flower bonds, foreign targeted issues, and mortgage- backed securities.

Lehman Brothers Corporate Bond Index is an index comprised of all public,
fixed-rate, non-convertible investment-grade domestic corporate debt. Issues
included in this index are rated at least Baa by Moody's or BBB by S&P or, in
the case of unrated bonds, BBB by Fitch Investors Service. Collateralized
mortgage obligations are not included in the Corporate Bond Index.

The Government Bond Index and the Corporate Bond Index combine to form the
Government/Corporate Bond Index.

Lehman Brothers Intermediate Corporate Bond Index is an index comprised of
all public, fixed-rate, non-convertible investment-grade domestic corporate
debt. Issues included in this index have remaining maturities of one to ten
years and are rated at least Baa by Moody's or BBB by S&P or, in the case of
unrated bonds, BBB by Fitch Investors Service.

Lehman Brothers Long-Term Corporate Bond Index is an index comprised of all
public, fixed-rate, non-convertible investment-grade domestic corporate debt.
Issues included in this index have remaining maturities greater than ten years
and are rated at least Baa by Moody's or BBB by S&P or, in the case of unrated
bonds, BBB by Fitch Investors Service.

Salomon Brothers High Grade Corporate Bond Index is an index of high
quality corporate bonds with a minimum maturity of at least ten years and with
total debt outstanding of at least $50 million. Issues included in the index are
rated AA or better by Moody's or AA or better by S&P.

Merrill Lynch High and Medium Quality Intermediate-Term Corporate Index is
an index comprised of all public, fixed- rate, non-convertible corporate debt.
Issues included in this index have remaining maturities of between one year and
9.99 years. Issues included in the index are rated at least BBB by S&P.

Description of Moody's Investors Service, Inc.'s ratings of state and
municipal notes:

Moody's ratings for state and municipal and other short- term obligations
are designated Moody's Investment Grade ("MIG," or "VMIG" for variable rate
obligations). This distinction is in recognition of the difference between
short-term credit risk and long-term credit risk. Factors affecting the
liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in bond risk,
long-term secular trends for example, may be less important over the short run.
Symbols used will be as follows:

MIG-1/VMIG-1 - This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.

MIG-2/VMIG-2 - This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.

Description of Standard & Poor's Ratings Group's ratings of state and
municipal notes:

SP-1 - Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus (+) designation.

SP-2 - Satisfactory capacity to pay principal and interest.

Description of Moody's Investors Service, Inc.'s municipal bond ratings:

Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
<PAGE> 161
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than Aaa securities.

A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest may be present which suggest a susceptibility
to impairment sometime in the future.

Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.

Description of Standard & Poor's Ratings Group's municipal bond ratings:

AAA - Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.

AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated debt issues only in small degree.

A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher categories.

The ratings from AA to BBB may be modified by the addition of a plus or
minus to show relative standing within the major rating categories.

Description of Moody's Investors Service, Inc.'s commercial paper ratings:

Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics:

Leading market positions in well-established industries.
High rates of return on funds employed.
Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
Broad margins in earnings coverage of fixed financial charges and with high
internal cash generation.
Well established access to a range of financial markets and assured sources
of alternate liquidity.

Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

Description of Standard & Poor's Ratings Group's commercial paper ratings:

A - Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2, and 3 to indicate the relative degree of safety.

A-1 - This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics will be denoted with a plus (+) sign
<PAGE> 162
designation.

A-2 - Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.

Description of Moody's Investors Service, Inc.'s corporate bond ratings:

Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.

Aa - Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.

A - Bonds rated A possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

Baa - Bonds rated Baa are considered as medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.

Ba - Bonds rated Ba are judged to have speculative elements. Their future cannot
be considered as well assured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.

B - Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or maintenance of other terms of
the contract over any long period of time may be small.

Caa - Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.

Ca - Bonds rated Ca represent obligations which are speculative to a high
degree. Such issues are often in default or have other marked short-comings.

C - Bonds rated C are the lowest rated class of bonds, and issues so rated can
be regarded as having extremely poor prospects of ever attaining any real
investment standing. Moody's applies numerical modifiers, 1, 2, and 3, in each
generic rating classification from Aa through B in its corporate bond rating
system. The modifier 1 indicates that the security ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.

Description of Standard & Poor's Ratings Group's corporate bond ratings:

AAA - Debt rated AAA has the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.

AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest- rated issues only to a small degree.

A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher- rated categories.

BB - Debt rate BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.
<PAGE> 163
B - Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB- rating.

CCC - Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal.

CC - Debt rated CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.

C - The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed but debt service
payments are continued.

CI - The rating CI is reserved for income bonds on which no interest is being
paid.

D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating will also be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.

The ratings from AA to CCC may be modified by the addition of a plus or minus to
show relative standing within the major rating categories.

<PAGE> 164
ARK FUNDS: RETAIL CLASS

SPECIAL EQUITY PORTFOLIO

MARYLAND TAX-FREE PORTFOLIO

CROSS REFERENCE SHEET

Form N-1A Item Number

Part B Statement of Additional Information

<S> <C>
10,11.............. Cover Page

12 ................ Description of the Fund

13 a,b,c........... Investment Policies and Limitations
d............... *

14 a,b............. Trustees and Officers
c............... *

15 a,b,c........... *

16 a(i,ii)......... The Advisor
a(iii),b,c,d.... Portfolio Transactions
e............... *
f............... Administrator and Distributor
g............... *
h............... Description of the Fund
i............... Administrator and Distributor

17 a............... Portfolio Transactions
b............... *
c............... Portfolio Transactions
d,e............. *

18 a............... Description of the Fund
b............... *

19 a............... Additional Purchase and Redemption Information
b............... Valuation of Portfolio Securities

20 ................ Taxes

21 a(i),(ii)....... Administrator and Distributor
a(iii),b,c...... *

22 ................ Performance

23 ................ Financial statements for the fiscal year ended April 30,
1995, for each Portfolio (with the exception of U.S.
Treasury Money Market Portfolio, U.S. Government Money
Market Portfolio, Short- Term Treasury Portfolio, Blue Chip
Equity Portfolio, Special Equity Portfolio and Maryland
Tax-Free Portfolio) were filed pursuant to Rule 30b2-1.
Financial statements for the period ended October 31, 1995
will be filed by subsequent amendment.

</TABLE>

* Not Applicable

ARK FUNDS: RETAIL CLASS
STATEMENT OF ADDITIONAL INFORMATION
______________, 1996

This Statement of Additional Information is not a prospectus but should be read
in conjunction with the current Prospectus (dated _____________, 1996) for the
Retail Class of the ARK Funds (the "Fund"). Each money market Portfolio of the
Fund (ARK Money Market Portfolios) offers three classes of shares: Institutional
Class, Institutional II Class and Retail Class. Short-Term Treasury Portfolio,
Income Portfolio, Growth and Income Portfolio, Blue Chip Equity Portfolio,
Capital Growth Portfolio, Special Equity Portfolio and Maryland Tax Free
Portfolio each offers two classes of shares: Institutional Class and Retail
Class. Finally, International Equity Portfolio offers Institutional Class
shares, only (hereinafter, all ARK Funds Portfolios, except the ARK Money Market
Portfolios, are sometimes called, collectively, ARK Non-Money Market
Portfolios). Please retain this document for future reference. The Fund's
financial statements and financial highlights, included in the Annual Report for
the fiscal period ended April 30, 1995, and the Semi-Annual Report for the six
month period ended October 31, 1995, are incorporated herein by reference. To
obtain additional copies of the Retail Class Prospectus, the Annual Report dated
April 30, 1995, the Semi-Annual Report dated October 31, 1995, and this
Statement of Additional Information or the Institutional Class Prospectus, the
Institutional II Class Prospectus or the Institutional Class and Institutional
II Class Statement of Additional Information, please call 1-800-ARK FUND.

<PAGE> 166

TABLE OF CONTENTS PAGE

<S> <C>
Investment Policies and Limitations
Investment Practices
Special Considerations for Maryland Tax - Free Portfolio
Portfolio Transactions
Valuation of Portfolio Securities
Additional Purchase and Redemption Information
Taxes
The Advisor
Administrator and Distributor
Transfer Agent
Description of the Fund
Auditor
Financial Statements
Appendix

Advisor:
The First National Bank of Maryland ("First Maryland" or the "Advisor")

Custodian:
The First National Bank of Maryland (the "Custodian")

Transfer Agent:
SEI Financial Management Corporation (the "Transfer Agent")

Administrator;
SEI Financial Management Corporation (the "Administrator")

Distributor:
SEI Financial Services Company (the "Distributor")

</TABLE>

INVESTMENT POLICIES AND LIMITATIONS

The following policies and limitations supplement those set forth in the
Retail Class Prospectus. Unless otherwise expressly noted, whenever an
investment policy or limitation states a maximum percentage of a Portfolio's
assets that may be invested in any security or other asset, or sets forth a
policy regarding quality standards, such percentage or standard will be
determined immediately after and as a result of the Portfolio's acquisition of
such security or other asset. Accordingly, any subsequent change in values, net
assets, or other circumstances will not be considered when determining whether
the investment complies with the Portfolio's investment policies and
limitations.

U.S. TREASURY MONEY MARKET PORTFOLIO

The Portfolio, as a matter of fundamental policy, may not:

(2) issue senior securities, except as permitted under the Investment Company
Act of 1940;

<PAGE> 167

(7) purchase or sell commodities unless acquired as a result of ownership of
securities or other instruments; or

The following investment limitations are not fundamental and may be changed
without shareholder approval.

(i) The Portfolio does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to the
securities sold short.

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

(iii) The Portfolio does not currently intend to purchase securities on margin,
except that the Portfolio may obtain such short-term credits as are necessary
for the clearance of transactions.

(iv) The Portfolio does not currently intend to engage in repurchase agreements
or make loans, but this limitation does not apply to purchases of debt
securities.

(v) The Portfolio does not currently intend to purchase securities of other
investment companies, except to the extent permitted by the Investment Company
Act of 1940.

U.S. GOVERNMENT MONEY MARKET PORTFOLIO

The Portfolio, as a matter of fundamental policy, may not:

(2) issue senior securities, except as permitted under the Investment Company
Act of 1940;

(7) purchase or sell commodities unless acquired as a result of ownership of
securities or other instruments; or

<PAGE> 168

The following investment limitations are not fundamental and may be changed
without shareholder approval.

(ii) The Portfolio does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to the
securities sold short.

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

(iv) The Portfolio does not currently intend to purchase securities on margin,
except that the Portfolio may obtain such short-term credits as are necessary
for the clearance of transactions.

(v) The Portfolio does not currently intend to lend assets other than securities
to other parties. (This limitation does not apply to purchases of debt
securities or to repurchase agreements.)

(vi) The Portfolio does not currently intend to purchase securities of other
investment companies, except to the extent permitted by the Investment Company
Act of 1940.

MONEY MARKET PORTFOLIO

The Portfolio, as a matter of fundamental policy, may not:

(2) issue senior securities, except as permitted under the Investment Company
Act of 1940;

(7) purchase or sell commodities unless acquired as a result of ownership of
securities or other instruments; or

<PAGE> 169

The following investment limitations are not fundamental and may be changed
without shareholder approval.

(ii) The Portfolio does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to the
securities sold short.

(iii) The Portfolio does not currently intend to purchase securities on margin,
except that the Portfolio may obtain such short-term credits as are necessary
for the clearance of transactions

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

(v) The Portfolio does not currently intend to lend assets other than securities
to other parties. (This limitation does not apply to purchases of debt
securities or to repurchase agreements.)

(vi) The Portfolio does not currently intend to purchase securities of other
investment companies, except to the extent permitted by the Investment Company
Act of 1940.

TAX-FREE MONEY MARKET PORTFOLIO

The Portfolio, as a matter of fundamental policy, may not:

(2) issue senior securities, except as permitted under the Investment Company
Act of 1940;

(7) purchase or sell commodities unless acquired as a result of ownership of
securities or other instruments; or

The following investment limitations are not fundamental and may be changed
without shareholder approval.

(i) The Portfolio does not currently intend to sell securities short, unless it
owns or has the right to obtain securities equivalent in kind and amount to the

<PAGE> 170

securities sold short, and provided that transactions in futures contracts and
options are not deemed to constitute selling securities short.

(ii) The Portfolio does not currently intend to purchase securities on margin,
except that the Portfolio may obtain such short-term credits as are necessary
for the clearance of transactions.

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

(iv) The Portfolio does not currently intend to engage in repurchase agreements
or make loans, but this limitation does not apply to purchases of debt
securities.

(v) The Portfolio does not currently intend to purchase securities of other
investment companies, except to the extent permitted by the Investment Company
Act of 1940.

SHORT-TERM TREASURY PORTFOLIO

The Portfolio, as a matter of fundamental policy, may not:

(2) issue senior securities, except as permitted under the Investment Company
Act of 1940;

The following investment limitations are not fundamental and may be changed
without shareholder approval.

<PAGE> 171

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

(iv) The Portfolio does not currently intend to lend assets other than
securities to other parties. (This limitation does not apply to purchases of
debt securities or to repurchase agreements.)

(v) The Portfolio does not currently intend to purchase securities of other
investment companies.

INCOME PORTFOLIO

The Portfolio, as a matter of fundamental policy, may not:

(2) issue senior securities, except as permitted under the Investment Company
Act of 1940;

The following investment limitations are not fundamental and may be changed
without shareholder approval.

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

(iv) The Portfolio does not currently intend to lend assets other than
securities to other parties, except by acquiring loans, loan participations, or

<PAGE> 172

other forms of direct debt instruments and, in connection therewith, assuming
any associated unfunded commitments of the sellers. (This limitation does not
apply to purchases of debt securities or to repurchase agreements.)

(v) The Portfolio does not currently intend to purchase securities of other
investment companies, except to the extent permitted by the Investment Company
Act of 1940.

GROWTH AND INCOME PORTFOLIO

The Portfolio, as a matter of fundamental policy, may not:

(2) issue senior securities, except as permitted under the Investment Company
Act of 1940;

The following investment limitations are not fundamental and may be changed
without shareholder approval.

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

<PAGE> 173

(v) The Portfolio does not currently intend to purchase securities of other
investment companies, except to the extent permitted by the Investment Company
Act of 1940.

(vii) The Portfolio does not currently intend to invest in oil, gas or other
mineral exploration or development programs or leases.

BLUE CHIP EQUITY PORTFOLIO

The Portfolio, as a matter of fundamental policy, may not:

(2) issue senior securities, except as permitted under the Investment Company
Act of 1940;

The following investment limitations are not fundamental and may be changed
without shareholder approval.

<PAGE> 174

options are not deemed to constitute selling securities short.

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

(v) The Portfolio does not currently intend to purchase securities of other
investment companies, except to the extent permitted by the Investment Company
Act of 1940.

(vii) The Portfolio does not currently intend to invest in oil, gas or other
mineral exploration or development programs or leases.

(ix) The Portfolio does not currently intend to purchase the securities of any
issuer (other than securities issued or guaranteed by domestic or foreign
governments or political subdivisions thereof) if, as a result, more than 5% of
its total assets would be invested in the securities of business enterprises,
that, including predecessors, have a record of less than three years of
continuous operation.

CAPITAL GROWTH PORTFOLIO

The Portfolio, as a matter of fundamental policy, may not:

(2) issue senior securities, except as permitted under the Investment Company
Act of 1940;

<PAGE> 175

of companies engaged in the real estate business);

The following investment limitations are not fundamental and may be changed
without shareholder approval.

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

(v) The Portfolio does not currently intend to purchase securities of other
investment companies, except to the extent permitted by the Investment Company
Act of 1940.

(vii) The Portfolio does not currently intend to invest in oil, gas or other
mineral exploration or development programs or leases.

SPECIAL EQUITY PORTFOLIO

The Portfolio, as a matter of fundamental policy, may not:

(2) issue senior securities, except as permitted under the Investment Company
Act of 1940;

<PAGE> 176

(ii) in combination do not exceed 33 1/3% of the value of the Portfolio's total
assets (including the amount borrowed) less liabilities (other than borrowings).
Any borrowings that come to exceed this amount will be reduced within three
business days to the extent necessary to comply with the 33 1/3% limitation;

The following investment limitations are not fundamental and may be changed
without shareholder approval.

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

(vi) The Portfolio does not currently intend to purchase securities of other
investment companies, except to the extent permitted by the Investment Company
Act of 1940.

(viii) The Portfolio does not currently intend to invest in oil, gas or other
mineral exploration or development programs or leases.

(ix) The Portfolio does not currently intend to purchase the securities of any
issuer (other than securities issued or guaranteed by domestic or foreign
governments or political subdivisions thereof) if, as a result, more than 5% of
its total assets would be invested in the securities of business enterprises,
that, including predecessors, have a record of less than three years of
continuous operation.

<PAGE> 177

MARYLAND TAX-FREE PORTFOLIO

The Portfolio, as a matter of fundamental policy, may not:

(1) issue senior securities, except as permitted under the Investment Company
Act of 1940;

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

The following investment limitations are not fundamental and may be changed
without shareholder approval.

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

(v) The Portfolio does not currently intend to lend assets other than securities
to other parties. (This limitation does not apply to purchases of debt
securities or to repurchase agreements.)

(vi) The Portfolio currently does not intend to invest more than 25% of its
total assets in industrial revenue bonds issued by entities whose principal
business activities are in the same industry.

(vii) The Portfolio currently does not intend to purchase securities of other
investment companies, except to the extent permitted by the Investment Company
Act of 1940.

<PAGE> 178

For purposes of limitations (4) and (i), of the Maryland Tax-Free Portfolio,
First Maryland identifies the issuer of a security depending on its terms and
conditions. In identifying the issuer, First Maryland will consider the entity
or entities responsible for payment and repayment of principal and the source of
such payments; the way in which assets and revenues of an issuing political
subdivision are separated from those of other political entities; and whether a
governmental body is guaranteeing the security.

Each Portfolio's investments must be consistent with its investment objective
and policies. Accordingly, not all of the security types and investment
techniques discussed below are eligible investments for each of the Portfolios.

INVESTMENT PRACTICES

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

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

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

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

<PAGE> 179

would be affected and the Board would reevaluate the Portfolios' investment
objectives and policies.

Tax-Free Money Market Portfolio and Maryland Tax-Free Portfolio anticipate being
as fully invested in municipal securities as is practicable; however, there may
be occasions when as a result of maturities of portfolio securities, or sales of
portfolio shares, or in order to meet redemption requests, the Portfolios may
hold cash that is not earning income. In addition, there may be occasions when,
in order to raise cash to meet redemptions or to preserve credit quality, the
Portfolios may be required to sell securities at a loss.

Foreign Investments. Each Portfolio, except U.S. Treasury Money Market
Portfolio, U.S. Government Money Market Portfolio, Short-Term Treasury Portfolio
and Maryland Tax-Free Portfolio, may invest in U.S. dollar-denominated
securities of foreign issuers. Income Portfolio, Growth and Income Portfolio,
Blue Chip Equity Portfolio, Capital Growth Portfolio and Special Equity
Portfolio each may invest in foreign securities denominated in foreign
currencies. Foreign investments can involve significant risks in addition to the
risks inherent in U.S. investments. The value of securities denominated in or
indexed to foreign currencies, and of dividends and interest from such
securities, can change significantly when foreign currencies strengthen or
weaken relative to the U.S. dollar. Foreign securities markets generally have
less trading volume and less liquidity than U.S. markets, and prices on some
foreign markets can be highly volatile. Many foreign countries lack uniform
accounting and disclosure standards comparable to those applicable to U.S.
companies, and it may be more difficult to obtain reliable information regarding
an issuer's financial condition and operations. In addition, the costs of
foreign investing, including withholding taxes, brokerage commissions, and
custodial costs, are generally higher than for U.S. investments.

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

Income Portfolio, Growth and Income Portfolio, Blue Chip Equity Portfolio,
Capital Growth Portfolio and Special Equity Portfolio may invest in foreign
securities that impose restrictions on transfer within the United States or to
U.S. persons. Although securities subject to transfer restrictions may be
marketable abroad, they may be less liquid than foreign securities of the same
class that are not subject to such restrictions.

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interest within seven days, non-government stripped fixed-rate mortgage-backed
securities and government stripped fixed-rate mortgage-backed securities, loans
and other direct debt instruments, over-the-counter options and swap agreements.
Although restricted securities and municipal lease obligations are sometimes
considered illiquid, First Maryland may determine certain restricted securities
and municipal lease obligations to be liquid. In the absence of market
quotations, illiquid investments are valued for purposes of monitoring amortized
cost valuation (ARK Money Market Portfolios) and priced (for ARK Non- Money
Market Portfolios) at fair value as determined in good faith by a committee
appointed by the Board. If, as a result of a change in values, net assets or
other circumstances, a Portfolio were in a position where more than 10% (ARK
Money Market Portfolios) or 15% (ARK Non-Money Market Portfolios) of its assets
were invested in illiquid securities, it would seek to take appropriate steps to
protect liquidity.

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

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

Loans and Other Direct Debt Instruments. The ARK Non-Money Market Portfolios,
except Short-Term Treasury Portfolio, may invest in loans and other direct debt
instruments. Direct debt instruments are interests in amounts owed by a
corporate, governmental or other borrower to lenders or lending syndicates
(loans and loan participations), to suppliers of goods or services (trade claims
or other receivables), or to other parties. Direct debt instruments are subject
to a Portfolio's policies regarding the quality of debt securities.

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

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their indebtedness, or may pay only a small fraction of the amount owed. Direct
indebtedness of developing countries also will involve a risk that the
governmental entities responsible for the repayment of the debt may be unable,
or unwilling, to pay interest and repay principal when due.

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

A Portfolio limits the amount of total assets that it will invest in any one
issuer or in issuers within the same industry (see fundamental limitations 1 and
5 for each of the ARK Non-Money Market Portfolios). For purposes of these
limitations, a Portfolio generally will treat the borrower as the "issuer" of
indebtedness held by a Portfolio. In the case of loan participations where a
bank or other lending institution serves as financial intermediary between a
Portfolio and the borrower, if the participation does not shift to the Portfolio
the direct debtor-creditor relationship with the borrower, SEC interpretations
require the Portfolio, in appropriate circumstances, to treat both the lending
bank or other lending institution and the borrower as "issuers" for the purposes
of determining whether the Portfolio has invested more than 5% of its total
assets in a single issuer. Treating a financial intermediary as an issuer of
indebtedness may restrict a Portfolio's ability to invest in indebtedness
related to a single financial intermediary, or a group of intermediaries engaged
in the same industry, even if the underlying borrowers represent many different
companies and industries.

Lower-Quality Municipal Securities. The Maryland Tax-Free Portfolio may invest a
portion of its assets in lower-quality municipal securities as described in the
Prospectus.

Lower-Rated Debt Securities. The ARK Non-Money Market Portfolios except Special
Equity Portfolio and Short-Term Treasury Portfolio, may each invest up to 5% of
their respective assets in lower-rated debt securities, i.e., securities rated
Ba or lower by Moody's Investors Service Inc. (Moody's) or BB or lower by
Standard & Poor's Ratings Group (S&P), or other comparable ratings by other
nationally recognized statistical rating organizations (NRSROs). Special Equity
Portfolio may invest up to 35% of its assets in such securities. Short-Term
Treasury Portfolio does not invest in lower-rated debt securities. Such
securities may have poor protection with respect to the payment of interest and
repayment of principal. These securities are often considered to be speculative
and involve greater risk of loss or price changes due to changes in the issuer's
capacity to pay. The market prices of lower-rated debt securities may fluctuate
more than those of higher-rated debt securities and may decline significantly in
periods of general economic difficulty, which may follow periods of rising
interest rates.

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

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

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

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

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

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

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

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

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Any of these effects could have a significant impact on the prices of some or
all of the municipal securities held by a Portfolio. For the Money Market
Portfolios, it is more difficult to maintain a stable net asset value per share.

Portfolios' Rights as Shareholders. The Portfolios do not intend to direct or
administer the day-to-day operations of any company whose shares they hold. A
Portfolio, however, may exercise its rights as a shareholder and may communicate
its views on important matters of policy to management, the board of trustees or
directors, and the shareholders of a company when First Maryland determines that
such matters could have a significant effect on the value of a Portfolio's
investment in the company. The activities that a Portfolio may engage in, either
individually or in conjunction with other shareholders, may include, among
others, supporting or opposing proposed changes in a company's corporate
structure or business activities; seeking changes in a company's board of
trustees or directors or management; seeking changes in a company's direction or
policies; seeking the sale or reorganization of the company or a portion of its
assets; or supporting or opposing third party takeover efforts. This area of
corporate activity is increasingly prone to litigation and it is possible that a
Portfolio could be involved in lawsuits related to such activities. First
Maryland will monitor such activities with a view to mitigating, to the extent
possible, the risk of litigation against the Portfolio and the risk of actual
liability if a Portfolio is involved in litigation. There is no guarantee,
however, that litigation against a Portfolio will not be undertaken or
liabilities incurred.

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

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obligation under the agreement. The Portfolio will enter into reverse repurchase
agreements only with parties whose creditworthiness has been found satisfactory
by First Maryland. Such transactions may increase fluctuations in the market
value of the Portfolio's assets and may be viewed as a form of leverage.

Securities Lending. Each Portfolio, except U.S. Treasury Money Market Portfolio
and Tax-Free Money Market Portfolio, may lend securities to parties such as
broker-dealers or institutional investors. Securities lending allows a Portfolio
to retain ownership of the securities loaned and, at the same time, to earn
additional income. Since there may be delays in the recovery of loaned
securities, or even a loss of rights in collateral supplied should the borrower
fail financially, loans will be made only to parties whose creditworthiness has
been reviewed and found satisfactory by First Maryland. Furthermore, they will
only be made if, in First Maryland's judgment, the consideration to be earned
from such loans would justify the risk.

Sovereign Debt Obligations. Growth and Income Portfolio, Blue Chip Equity
Portfolio and Capital Growth Portfolio each may purchase sovereign debt
instruments issued or guaranteed by foreign governments or their agencies,
including debt of Latin American nations or other developing countries.
Sovereign debt may be may be in the form of conventional securities or other
types of debt instruments, such as loans or loan participations. Sovereign debt
of developing countries may involve a high degree of risk, and may be in default
or present the risk of default. Governmental entities responsible for repayment
of the debt may be unable or unwilling to repay principal and interest when due,
and may require negotiations or rescheduling of debt payments. In addition,
prospects for repayment of principal and interest may depend on political as
well as economic factors. Although some sovereign debt, such as Brady Bonds, is
collateralized by U.S. government securities, repayment of principal and
interest is not guaranteed by the U.S. government.

Standby Commitments. Tax-Free Money Market Portfolio and Maryland Tax-Free
Portfolio each may invest in standby commitments. These obligations are puts
that entitle holders to same day settlement at an exercise price equal to the
amortized cost of the underlying security plus accrued interest, if any, at the
time of exercise. The Portfolios may acquire standby commitments to enhance the
liquidity of portfolio securities when the issuers of the commitments present
minimal risk of default.

Ordinarily the Portfolios will not transfer a standby commitment to a third
party, although it could sell the underlying municipal security to a third party
at any time. The Portfolios may purchase standby commitments separate from or in
conjunction with the purchase of securities subject to such commitments. In the
latter case, the Portfolios would pay a higher price for the securities
acquired, thus reducing their yield to maturity. Standby commitments will not
affect the dollar-weighted average maturity of the Portfolios, or the valuation
of the securities underlying the commitments.

Standby commitments are subject to certain risks, including the ability of
issuers of standby commitments to pay for securities at the time the commitments
are exercised; the fact that standby commitments are not marketable by the
Portfolios and the possibility that the maturities of the underlying securities
may be different from those of the commitments.

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corporate borrowing rates, or other factors such as security prices or inflation
rates. Swap agreements can take many different forms and are known by a variety
of names. A Portfolio is not limited to any particular form of swap agreement if
First Maryland determines it is consistent with a Portfolio's investment
objective and policies.

Tender Option Bonds. Tax-Free Money Market Portfolio and Maryland Tax-Free
Portfolio each may invest in tender option bonds. These bonds are created by
coupling an intermediate or long-term fixed-rate tax- exempt bond (generally
held pursuant to a custodial agreement) with a tender agreement that gives the
holder the option to tender the bond at its face value. As consideration for
providing the tender option, the sponsor (usually a bank, broker-dealer, or
other financial institution) receives periodic fees equal to the difference
between the bond's fixed coupon rate and the rate (determined by a remarketing
or similar agent) that would cause the bond, coupled with the tender option to
trade at par on the date of such determination. After payment of the tender
option fee, the Portfolios effectively hold a demand obligation that bears
interest at the prevailing short-term tax- exempt rate. Subject to applicable
regulatory requirements, Tax-Free Money Market Portfolio may buy tender option
bonds if the agreement gives the Portfolio the right to tender the bond to its
sponsor no less frequently than once every 397 days. In selecting tender option
bonds for the Portfolios, First Maryland will, pursuant to procedures
established by the Board, consider the creditworthiness of the issuer of the
underlying bond, the custodian, and the third-party provider of the tender
option. In certain instances, a sponsor may terminate a tender option if, for
example, the issuer of the underlying bond defaults on interest payments.

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equal to the period remaining until the principal amount can be recovered
through demand. The Non- Money Market Portfolios, except Short-Term Treasury
Portfolio, may invest in variable or floating rate instruments.

Variable or Floating Rate Demand Obligations (VRDOs/FRDOs). Each Money Market
Portfolio, except U.S. Treasury Money Market Portfolio, may invest in variable
or floating rate demand obligations (VRDOs/FRDOs). These obligations are
tax-exempt obligations that bear variable or floating interest rates and carry
rights that permit holders to demand payment of the unpaid principal balance
plus accrued interest from the issuers or certain financial intermediaries.
Floating rate obligations have interest rates that change whenever there is a
change in a designated base rate while variable rate obligations provide for a
specified periodic adjustment in the interest rate. These formulas are designed
to result in a market value for the VRDO or FRDO that approximates its par
value.

A demand obligation with a conditional demand feature must have received both a
short-term and a long-term high quality rating from a NRSRO or, if unrated, have
been determined to be of comparable quality pursuant to procedures adopted by
the Trustees. A demand obligation with an unconditional demand feature may be
acquired solely in reliance upon a short-term high quality rating or, if
unrated, upon finding of comparable short-term quality pursuant to procedures
adopted by the Board.

A variable rate instrument that matures in 397 days or fewer may be deemed to
have a maturity equal to the period remaining until the next readjustment of the
interest rate. A variable rate obligation that matures in more than 397 days but
that is subject to a demand feature that is 397 days or fewer may be deemed to
have a maturity equal to the longer of the period remaining until the next
readjustment of the interest rate or the period remaining until the principal
amount can be recovered through demand. A floating rate obligation that is
subject to a demand feature may be deemed to have a maturity equal to the period
remaining until the principal amount may be recovered through demand. The ARK
Money Market Portfolios may purchase a demand obligation with a remaining final
maturity in excess of 397 days only if the demand feature can be exercised on no
more than 30 days' notice (a) at any time or (b) at specific intervals not
exceeding 397 days.

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

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

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

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

Writing a call option obligates a Portfolio to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those of

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

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

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

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exchange for U.S. dollars, or may be a futures contract. The purchaser of a
currency call option obtains the right to purchase the underlying currency, and
the purchaser of a currency put option obtains the right to sell the underlying
currency.

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

Short Sales. Each Portfolio, except U.S. Treasury Money Market Portfolio, U.S.
Government Money Market Portfolio and Short-Term Treasury Portfolio, may enter
into short sales with respect to securities it owns, or with respect to stocks
underlying its convertible bond holdings (short sales "against the box"). For
example, if First Maryland anticipates a decline in the price of the stock
underlying a convertible security a Portfolio holds, the Portfolio may sell the
stock short. If the stock price substantially declines, the proceeds of the
short sale or an increase in the value of the put option could be expected to
offset all or a portion of the effect of the stock's decline on the value of the
convertible security.

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

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

SPECIAL CONSIDERATIONS FOR MARYLAND TAX - FREE PORTFOLIO

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The State of Maryland and its various political subdivisions issue a number of
different kinds of municipal obligations, including general obligation bonds
supported by tax collections, revenue bonds payable from certain identified tax
levies or revenue streams, conduit revenue bonds payable from the repayment of
certain loans to authorized entities such as hospitals and universities, and
certificates of participation in tax-exempt municipal leases.

As of October 1995, the State's general obligation bonds were rated "Aaa" by
Moody's Investors Service, Inc. (Moody's), "AAA" by Standard & Poor's Ratings

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Group (S&P), and "AAA" by Fitch Investors Service, Inc. (Fitch).

According to recent available ratings, general obligation bonds of Montgomery
County (abutting Washington, D.C.) are rated "Aaa" by Moody's and "AAA" by S&P.
Prince George's County, also in the Washington, D.C. suburbs, issues general
obligation bonds rated "A1" by Moody's and "AA-" by S&P, while Baltimore County,
a separate political subdivision surrounding the City of Baltimore, issues
general obligation bonds rated "Aaa" by Moody's and "AA+" by S&P. The City of
Baltimore's general obligation bonds are rated "A1" by Moody's and "A" by S&P.
The other counties in Maryland all have general obligation bond ratings of "A":
or better, except for Allegany County, the bonds of which are rated "Baa" by
Moody's. The Washington Suburban Sanitary District, a bi-county agency providing
water and sewerage services in Montgomery and Prince George's counties, issues
general obligation bonds rated "Aa1" by Moody's and "AA" by S&P as of June 1995.
Additionally, some of the large municipal corporations in Maryland (such as the
cities of Rockville, Annapolis and Frederick) have issued general obligation
bonds. There can be no assurance that these ratings will continue.

<PAGE> 192

PORTFOLIO TRANSACTIONS

First Maryland always seeks the most favorable execution result with respect to
transactions. In seeking the most favorable execution, First Maryland, having in
mind a Portfolio's best interest, considers all factors it deems relevant,
including, by way of illustration: price; the size of the transaction; the
nature of the market for the security; the amount of the commission; the timing
of the transaction, taking into account market process and trends; the
reputation, experience and financial stability of the broker-dealer involved;
and the quality of service rendered by the broker-dealer in other transactions.
Certain investments may be appropriate for a Portfolio and for other clients
advised by First Maryland. Investment decisions for the Portfolios and other
clients are made with a view to achieving their respective investment objectives
and after consideration of such factors as their current holdings, availability
of cash for investment, and the size of their investments generally. A
particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but fewer than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients of First Maryland on
the same day. In each of these situations, the transactions will be allocated
among the clients in a manner believed by First Maryland to be equitable to
each. In some cases, this procedure could have an adverse effect on the price or
amount of the securities purchased or sold by a Portfolio. Purchase and sale
orders for a Portfolio may be combined with those of other clients of First
Maryland in the interest of achieving the most favorable execution for the
Portfolio.

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

For each Portfolio, First Maryland places all orders for the purchase and sale
of portfolio securities and buys and sells securities for a Portfolio through a
substantial number of brokers and dealers.

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

As permitted by Section 28(e) of the Securities Exchange Act of 1934, as
amended, First Maryland may cause a Portfolio to pay a broker-dealer that
provides brokerage and research services to First Maryland a commission in
excess of the commission charged by another broker-dealer for effecting a
particular transaction. To cause a Portfolio to pay any such greater
commissions, First Maryland must determine in good faith that such commissions
are reasonable in relation to the value of the brokerage or research service
provided by such executing broker-dealers viewed in terms of a particular
transaction or First Maryland's overall responsibilities to the Portfolio or its
other clients. In reaching this determination, First Maryland will not attempt
to place a specific dollar value on the brokerage or research services provided
or to determine what portion of the compensation should be related to those
services. No fees were paid to broker-dealers for their services for the
fiscal year ended April 30, 1995.

<PAGE> 193

VALUATION OF PORTFOLIO SECURITIES

The Board oversees First Maryland's adherence to SEC rules concerning money
market portfolios, and has established procedures designed to stabilize each
Portfolio's net asset value per share (NAV) at $1.00. At such intervals as they
deem appropriate, the Board considers the extent to which NAV calculated by
using market valuations would deviate from $1.00 per share. If the Board
believes that a deviation from the Portfolio's amortized cost per share may
result in material dilution or other unfair results to shareholders, the Board
has agreed to take such corrective action, if any, as they deem appropriate to
eliminate or reduce, to the extent reasonably practicable, such dilution or
other unfair result. Such corrective action could include selling portfolio
instruments prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity; withholding dividends; redeeming shares in kind;
establishing NAV by using available market quotations; and such other measures
as the Board may deem appropriate.

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

Growth and Income Portfolio, Blue Chip Equity Portfolio, Capital Growth
Portfolio and Special Equity Portfolio. Securities owned by each of these
Portfolios are appraised by various methods depending on the market or exchange
on which they trade. Securities traded on the New York Stock Exchange (NYSE) or
the American Stock Exchange are appraised at the last sale price, or if no sale
has occurred, at the closing bid price. Securities traded on other exchanges are
appraised as nearly as possible in the same manner. Securities and other assets
for which exchange quotations are not readily available are valued on the basis
of closing OTC bid prices, if available, or at their fair value as determined in
good faith under consistently applied procedures under the general supervision
of the Board.

<PAGE> 194

an exchange on which that security is traded, then the security will be valued
as determined in good faith by the Board.

PORTFOLIO PERFORMANCE

The following table shows the effect of a shareholder's tax status on effective
yield under the federal income tax laws for 1995. It shows the approximate yield
a taxable security must provide at various income brackets to produce after-tax
yields equivalent to those of hypothetical tax-exempt obligations yielding from
2% to 4%. Of course, no assurance can be given that the Portfolio will achieve
any specific tax-exempt yield. While the Portfolio invests principally in
obligations whose interest is exempt from federal income tax, other income
received by the Portfolio may be taxable.

The following tables show the effect of a shareholder's tax status on effective
yield under the federal income tax laws for 1995. The second table shows the
approximate yield a taxable security must provide at various income brackets to
produce after-tax yields equivalent to those of hypothetical tax-exempt
obligations yielding from 3% to 7%. Of course, no assurance can be given that a
Portfolio will achieve any specific tax-exempt yield. While the Portfolios
invest principally in obligations whose interest is exempt from federal income
tax (and, in the case of Maryland Tax-Free Portfolio, from Maryland state income
tax, as well) other income received by a Portfolio may be taxable. The tables do
not take into account local taxes, if any, payable on a Portfolio's
distributions.

Use the first table to find your approximate effective tax bracket taking into
account federal and state taxes for 1995.

1995 TAX RATES
Combined
Maryland and

Single Return Joint Return Federal Income Maryland Federal Effective
Taxabe Income Taxable Income Tax Bracket Marginal Rate Tax Bracket**

* Net amount subject to federal income tax after deductions and exemptions.
Assumes ordinary income only.

Having determined your effective tax bracket above, use the following table to
determine the tax equivalent yield for a given tax-free yield.

If your combined effective federal, state and county personal income tax rate in
1995 is:

<TABLE>

<TABLE>
<CAPTION>
To match
these tax
free rates: Your taxable investment would have to earn the following yield:
<S> <C> <C> <C> <C>

3% 4.53% 4.73% 5.10% 5.40%
4% 6.04% 6.30% 6.79% 7.20%
5% 7.55% 7.88% 8.49% 9.00%
6% 9.06% 9.45% 10.19% 10.80%
7% 10.57% 11.03% 11.89% 12.60%
</TABLE>

A Portfolio may invest a portion of its assets in obligations that are subject
to federal, state, or county (or City of Baltimore) income taxes. When the
Portfolio invests in these obligations, its tax- equivalent yield will be lower.
In the table above, tax-equivalent yields are calculated assuming investments
are 100% federal- and state- tax-free.

Yield information may be useful in reviewing a Portfolio's performance and in
providing a basis for comparison with other investment alternatives. However,
each Portfolio's yield fluctuates, unlike investments that pay a fixed interest
rate over a stated period of time. When comparing investment alternatives,
investors should also note the quality and maturity of the portfolio securities
of the respective investment companies that they have chosen to consider.

<PAGE> 196

total return of 100% over ten years would produce an average annual total return
of 7.18%, which is the steady annual rate of return that would equal 100% growth
on a compounded basis in ten years. Average annual returns covering periods of
less than one year are calculated by determining the Portfolio's total return
for the period, extending that return for a full year (assuming that performance
remains constant over the year), and quoting the result as an annual return.
While average annual total returns are a convenient means of comparing
investment alternatives, investors should realize that performance is not
constant over time, but changes from year to year, and that average annual total
returns represent averaged figures as opposed to the actual year-to-year
performance of the Portfolio.

In addition to average annual total returns, a Portfolio may quote un- averaged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative total returns may
be quoted as a percentage or as a dollar amount, and may be calculated for a
single investment, a series of investments, or a series of redemptions, over any
time period. Total returns may be broken down into their components of income
and capital (including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to total
return. Total returns, yields, and other performance information may be quoted
numerically or in a table, graph, or similar illustration.

Each of the ARK Money Market Portfolios and Income Portfolio also may compare
its performance or the performance of securities in which it may invest to
averages published by IBC USA (Publications), Inc. of Ashland, Massachusetts.
These are average yields of various types of money market funds that include the
effect of compounding distributions, and assume reinvestment of distributions.
The IBC/Donoghue's Money Fund Averages, which is reported in the MONEY FUND
REPORT, covers over 200 taxable and tax-free money market funds. The BOND FUND
REPORT AVERAGES, which is reported in the BOND FUND REPORT, covers over 400
taxable bond funds.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

Each Portfolio is open for business and its NAV is calculated each day that the
Federal Reserve Bank of New York (FRB), and the New York Stock Exchange (NYSE)
are open for trading (a Business Day). The NAV of Income Portfolio, Short-Term
Treasury Portfolio, Growth and Income Portfolio, Blue Chip Equity Portfolio,
<PAGE> 197
Capital Growth Portfolio, Special Equity Portfolio and Maryland Tax-Free
Portfolio is determined at the close of business of the NYSE, normally 4:00 p.m.
Eastern Time (4:00 p.m.). Shares purchased at 4:00 p.m. begin to earn dividends
on the following Business Day.

The NAV of U.S. Treasury Money Market Portfolio and Tax-Free Money Market
Portfolio is determined at 12:00 noon Eastern Time (12:00 noon) and the close of
business of the NYSE, normally 4:00 p.m. The NAV of U.S. Government Money Market
Portfolio and Money Market Portfolio is determined at 1:30 p.m. Eastern Time
(1:30 p.m.) and the close of business of the NYSE, normally 4:00 p.m. Shares
purchased at 12:00 noon and 1:30 p.m. begin to earn dividends that Business Day.
Shares purchased at 4:00 p.m. begin to earn dividends on the following Business
Day.

Pursuant to Rule 11a-3 under the 1940 Act, a Portfolio is required to give
shareholders at least 60 days' notice prior to terminating or modifying a
Portfolio's exchange privilege. Under the Rule, the 60- day notification
requirement may be waived if (i) the only effect of a modification would be to
reduce or eliminate an administrative fee, redemption fee or deferred sales
charge ordinarily payable at the time of exchange or (ii) a Portfolio
temporarily suspends the offering of shares as permitted under the 1940 Act or
by the SEC or because it is unable to invest amounts effectively in accordance
with its investment objective and policies.

As is set forth in the Prospectus, the Portfolios reserve the right at any time
without prior notice to shareholders to refuse exchanges by any person or group
if, in First Maryland's judgment, a Portfolio would be unable to invest
effectively in accordance with its investment objective and policies, or would
otherwise potentially be adversely affected.

TAXES

Each of the ARK Money Market Portfolios declares dividends equal to its entire
net investment income (including, in the case of each taxable ARK Money Market
Portfolio, net realized short-term capital gains and losses, if any) on each
Business Day, and pays dividends after the close of business on the first
Business Day of the following month. Short-Term Treasury Portfolio, Income
Portfolio and Maryland Tax-Free Portfolio each declares and pays dividends
monthly, Growth and Income Portfolio and Blue Chip Equity Portfolio each
declares and pays dividends quarterly, and Capital Growth Portfolio and Special
Equity Portfolio each declares and pays dividends annually. Net long- term
capital gains (and, in the case of Tax-Free Money Market Portfolio and Maryland
Tax-Free Portfolio, net short-term capital gains), if any, are declared and
distributed annually by all Portfolios. The ARK Money Market Portfolios, Income
Portfolio and Maryland Tax-Free Portfolio declare dividends for Saturdays,
Sundays and holidays on the previous Business Day. If a shareholder elects to
redeem all the shares of a Portfolio, all dividends credited to the shareholder
up to the date of redemption are paid to the shareholder at the end of the
month. Unless the transfer agent is otherwise instructed, all dividends and
distributions of capital gains are automatically re-invested into additional
shares of that Portfolio immediately upon payment thereof.

Each Portfolio intends to qualify for tax treatment as a "regulated investment
<PAGE> 198
company" under the Internal Revenue Code of 1986, as amended (the Code). By
distributing all of its net investment income and any net realized short-term
and long-term capital gains for a taxable year in accordance with the timing
requirements imposed by the Code, and by meeting certain other requirements
relating to the sources of its income and diversification of its assets, a
Portfolio should not be liable for federal income or excise taxes.

Tax-Free Money Market Portfolio and Maryland Tax-Free Portfolio. Dividends paid
by these Portfolios to shareholders out of tax-exempt interest income earned by
the Portfolios (exempt-interest dividends) generally will not be subject to
federal income tax paid by the Portfolios' shareholders. However, persons who
are "substantial users" or "related persons" of facilities financed by private
activity bonds held by the Portfolios may be subject to tax on their pro-rata
share of the interest income from such bonds and should consult their tax
advisers before purchasing shares of the Portfolios. Realized market discount on
tax-exempt obligations purchased after April 30, 1993, is treated as ordinary
income and not as a capital gain. Dividends paid by the Portfolios out of its
taxable net investment income (including realized net short-term capital gains,
if any) are taxable to shareholders as ordinary income notwithstanding that such
dividends are reinvested in additional shares of the Portfolios. The "exempt
interest dividend" portion of a distribution is determined by the ratio of the
tax-exempt income to total income realized by a Portfolio for the entire year
and, thus, is an annual average, rather than a day-to-day determination for each
shareholder. Distributions of long-term capital gains, if any, are taxable as
long-term capital gains to the shareholder receiving them regardless of the
length of time he or she may have held his or her shares. Under current tax law
(1) interest on certain private activity bonds is treated as an item of tax
preference for purposes of the federal alternative minimum tax imposed on
individuals and corporations, although for regular federal income tax purposes
such interest remains fully tax-exempt, and (2) interest on all tax-exempt
obligations is included in "adjusted current earnings" of corporations for
federal alternative minimum tax purposes. Because the Portfolios expect to
purchase private activity bonds, a portion (not expected to exceed 20%) of each
Portfolio's exempt-interest dividends may constitute an item of tax preference
for those shareholders subject to the federal alternative minimum tax.

Interest on indebtedness incurred by shareholders to purchase or carry shares of
the Portfolios generally is not deductible for federal income tax purposes.
Under IRS rules for determining when borrowed funds are used for purchasing or
carrying particular assets, shares of the Portfolios may be considered to have
been purchased or carried with borrowed funds even though those funds are not
directly linked to the shares.

The exemption for federal income tax purposes of dividends derived from interest
on municipal securities does not necessarily result in an exemption under the
income or other tax laws of any state or local taxing authority. Shareholders of
the Portfolio may be exempt from state and local taxes on distributions of
tax-exempt interest income derived from obligations of the state and/or
municipalities of the state in which they reside but may be subject to tax on
income derived from the municipal securities of other jurisdictions.
Shareholders are advised to consult with their tax advisers concerning the
application of state and local taxes to investments in the Portfolio which may
differ from the federal income tax consequences described above.

The Portfolios purchase municipal obligations based on opinions of bond counsel
regarding the federal income tax status of the obligations. These opinions
generally will be based upon covenants by the issuers regarding continuing
compliance with federal tax requirements. If the issuer of an obligation fails
to comply with its covenant at any time, interest on the obligation could become
federally taxable retroactive to the date the obligation was issued.

Corporate investors should note that a tax preference item for purposes of the
corporate Alternative Minimum Tax is 75% of the amount by which adjusted current
earnings (which includes tax-exempt interest) exceeds the alternative minimum
taxable income of the corporation. If a shareholder receives an exempt-interest
dividend and sells shares at a loss after holding them for a period of six
months or less, the loss will be disallowed to the extent of the amount of
exempt-interest dividend.

In addition, gains realized by the Portfolios from the sale or exchange of a
bond issued by Maryland or a political subdivision of Maryland, or by the United
States or an authority, commission or instrumentality of the United States, will
not be subject to Maryland state and local income taxes. To the extent that
distributions of the Portfolios are attributable to sources other than those
described in the preceding sentences, such as interest received by the
Portfolios on obligations issued by states other than Maryland or capital gains
realized on obligations issued by U.S. territories and possessions and from
states other than Maryland, and income earned on repurchase agreements, such
distributions will be subject to Maryland state and local income taxes. Income
earned on certain private activity bonds which the Portfolios might hold will
constitute a Maryland tax preference for individual shareholders. In addition,
capital gains realized by a shareholder upon a redemption or exchange of
Portfolio shares will be subject to Maryland state and local income taxes.

Federal Taxes. Distributions from each Portfolio's taxable net investment income
and short-term capital gain are taxed as dividends, and long-term capital gain
distributions are taxed as long-term capital gain. A portion of the dividends
may qualify for the dividends received deduction for corporations. The
Portfolios' distributions are taxable when they are paid, whether taken in cash
or reinvested in additional shares, except that distributions declared in
October, November or December and payable to shareholders of record in such
month, if paid in January of the following year, will be taxed as though paid on
December 31. The Portfolios will send non-corporate shareholders a tax statement
by January 31 showing the tax status of the distributions received in the prior
year. Shareholders also will be notified as to the portion of distributions from
the Tax-Free Money Market Portfolio and Maryland Tax-Free Portfolio that are
exempt from federal income taxes. It is suggested that shareholders keep all
statements received to assist in personal record keeping.

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

Other Tax Information. In addition to federal taxes, shareholders may be subject
to state or local taxes on their investment, depending on state law.

When an investor signs his account application, he or she will be asked to
certify that his or her social security or taxpayer identification number is
correct and that he or she is not subject to 31% backup withholding for failing
to report income to the IRS. If an investor violates IRS regulations, the IRS
can require a Portfolio to withhold 31% of that investor's taxable distributions
and redemptions.

Each Portfolio calculates dividend and capital gain distributions separately,
and is treated as a separate entity in all respects for tax purposes. There is a
risk that any of the ARK Non-Money Market Portfolios may be unable to meet the
Code requirement that requires a Portfolio to derive less than 30% of its gross
income from gains realized upon the sale or other disposition of securities held
less than three months. If this were to occur, the affected Portfolio would be
required to pay federal as well as Maryland state income taxes from its assets.

If a Portfolio purchases shares in certain foreign investment entities, defined
as passive foreign investment companies (PFICs under the Code), it may be
subject to U.S. federal income taxes on a portion of any excess distribution or
gain from the disposition of such shares. Interest charges may also be imposed
on a Portfolio with respect to deferred taxes arising from such distributions or
gains.

TRUSTEES AND OFFICERS
<PAGE> 200
The Trustees and officers of the Fund and their principal occupations during the
past five years are set forth below. Each Trustee who is an "interested person"
(as defined in the 1940 Act) is indicated by an asterisk (*).

William H. Cowie, Jr., 1408 Ruxton Road, Baltimore, MD, Trustee (1993). Prior to
retirement, Mr. Cowie was Chief Financial Officer (1991-1995) of Pencor, Inc.
(developers of environmental projects). Prior to 1991, Mr. Cowie was Vice
Chairman of Signet Banking Corporation and President and Chief Executive Officer
of Signet Bank of Maryland.

Charlotte R. Kerr, 10227 Wincopin Circle, Suite 108, Columbia, MD, Trustee
(1993). Ms. Kerr is Practitioner of Centre for Traditional Acupuncture and
Faculty for Traditional Acupuncture Institute.

*David D. Downes, 5 Bird Hill Court, Timonium, MD, President and Trustee (1995).
Mr. Downes is Of Counsel to Venable, Baetjer & Howard (law). Prior to 1995, Mr.
Downes was a Partner (1989) of Venable, Baetjer & Howard (law). Prior to 1989,
he served as a Principal of Cook, Howard, Downes & Tracy (law).

George K. Reynolds, III, 233 East Redwood Street, Baltimore, MD, Trustee (1993).
Mr. Reynolds is Chairman of the Trusts & Estates Department at, and a Partner
of, Gordon, Feinblatt, Rothman, Hoffberger & Hollander (law). Prior to 1991, Mr.
Reynolds was a Partner of Venable, Baetjer & Howard (law). From 1989 to 1991, he
served as a Principal of Cook, Howard, Downes & Tracy (law).

Thomas Schweizer, 6 Betty Bush Lane, Baltimore, MD, Trustee (1993). Prior to his
retirement in 1987, Mr. Schweizer was self-employed. He currently is a board
member of various charity organizations and hospitals.

Stephen G. Meyer, 680 East Swedesford Road, Wayne, PA 19087, Controller,
Treasurer and Chief Financial Officer (November 1995). Mr. Meyer is Vice
President and Controller - Fund Resources, a division of SEI Corporation. From
1992 to March 1995, Mr. Meyer was Director - Internal Audit and Risk Management
- - SEI Corporation. Prior to 1992, Mr. Meyer was a Senior Associate with
Coopers & Lybrand L.L.P.

Richard J. Shoch, 680 East Swedesford Road, Wayne, PA 19087, Vice President and
Secretary (November 1995). Mr. Shoch is Vice President and Assistant Secretary
of SEI Corporation (1995). From 1990 to June 1995, Mr. Shoch was Regulatory
Manager of SEI Corporation.

Kathryn L. Stanton, 680 East Swedesford Road, Wayne, PA 19087, Vice President
and Assistant Secretary (November 1995). Ms. Stanton is Vice President and
Assistant Secretary of SEI Corporation, since 1994. Prior to 1994, Ms. Stanton
was an Associate with Morgan, Lewis & Brockius (1989).

Sandra K. Orlow, 680 East Swedesford Road, Wayne, PA 19087, Vice President and
Assistant Secretary (November 1995). Ms. Orlow is Vice President and Assistant
Secretary of SEI Corporation (1983).

Robert B. Carroll, 680 East Swedesford Road, Wayne, PA 19087, Vice President and
Assistant Secretary (November 1995). Mr. Carroll is Vice President and Assistant
Secretary of SEI Corporation (1994). From 1990 to 1994, Mr. Carroll was an
attorney with the Securities and Exchange Commission, Division of Investment
Management.

Kevin P. Robins, 680 East Swedesford Road, Wayne, PA 19087, Vice President and
Assistant Secretary (November 1995). Mr. Robins is Senior Vice President,
General Counsel and Secretary of SEI Corporation since 1994. Prior to 1994, Mr.
Robins was Vice President and Assistant Secretary of SEI Corporation. Prior to
1992, Mr. Robins was an Associate with Morgan Lewis & Bockius (1988).

Todd Cipperman, 680 East Swedesford Road, Wayne, PA 19087, Vice President and
Assistant Secretary (November 1995). Mr. Cipperman is Vice President and
Assistant Secretary of SEI Corporation (1995). From 1994 to May 1995, Mr.
Cipperman was an Associate with Dewey Ballentine. Prior to 1994, Mr. Cipperman
was an Associate with Winston & Strawn (1991).

Joseph M. Lydon, 680 East Swedesford Road, Wayne, PA 19087, Vice President and
Assistant Secretary (November 1995). Mr. Lydon is Director of Business
Administration - Fund Resources, a division of SEI Corporation (1995). From 1989
to April 1995, Mr. Lydon was Vice President of Fund Group, Vice President of the
Advisor - Dreman Value Management, LP and President of Dreman Financial
Services, Inc.
<PAGE> 201
The following table sets forth information describing the compensation of each
current Trustee of ARK Funds for his or her services as trustee for the fiscal
year ended April 30, 1995.

<TABLE>
<CAPTION>
Trustee Compensation Table

Pension or Estimated
Aggregate Retirement Annual Benefits Total
Compensation Benefits Upon Retirement Compensation
from Accrued from the from the Fund from the Fund
Name of Trustee the Fund* Fund Complex* Complex* Complex*
<S> <C> <C> <C> <C>
William H. Cowie, Jr. (64) $8,500 $0 $0 $8,500
David D. Downes (59) 1,750 0 0 1,750
Charlotte Kerr (48) 8,000 0 0 8,000
George K. Reynolds, III (49) 8,000 0 0 8,000
Thomas Schweizer (72) 8,000 0 0 8,000
James K. McManus (73)
(resigned September 20, 1994) 3,500 0 0 3,500
</TABLE>

THE ADVISOR

The Advisory Contract is terminable with respect to a Portfolio without penalty
on 60 days' written notice when authorized either by vote of the shareholders of
such Portfolio or by a vote of a majority of the Trustees, or by First Maryland
on 60 days' written notice, and will automatically terminate in the event of its
assignment. The Advisory Contract also provides that, with respect to each
Portfolio, neither First Maryland nor its personnel shall be liable for any
error of judgment or mistake of law or for any act or omission in the
performance of its duties to a Portfolio, except for willful misfeasance, bad
faith or gross negligence in the performance by First Maryland of its duties or
by reason of reckless disregard of its obligations and duties under the Advisory
Contract. The Advisory Contract provides that First Maryland may render services
to others.

The fees paid pursuant to the Advisory Contract are accrued daily and paid
monthly. For its services, First Maryland is entitled to receive fees with
respect to each Portfolio at the annual rates set forth below:

ARK Money Market Portfolios: .25% of each Portfolio's average net assets.
Short-Term Treasury Portfolio: .35% of the Portfolio's average net assets.
Income Portfolio: .50% of the Portfolio's average net assets.
Growth and Income Portfolio: .55% of the Portfolio's average net assets.
Blue Chip Equity Portfolio: .60% of the Portfolio's average net assets.
Capital Growth Portfolio: .60% of the Portfolio's average net assets.
Special Equity Portfolio: .60% of the Portfolio's average net assets.
Maryland Tax-Free Portfolio: .50% of the Portfolio's average net assets.

For the fiscal year ended April 30, 1995, the advisory fee payable to the
Advisor under the Advisory Contract with respect to U.S. Treasury Money Market
Portfolio was $433,206 of which $155, 954 was waived. For the fiscal year ended
April 30, 1995, the advisory fee payable to the Advisor under the Advisory
Contract with respect to U.S. Government Money Market Portfolio was $1,211,814
of which $745,803 was waived. For the fiscal year ended April 30, 1995, the
advisory fee payable to the Advisor under the Advisory Contract with respect to
Money Market Portfolio was $675,922 of which $497,923 was waived. For the fiscal
year ended April 30, 1995, the advisory fee payable to the Advisor under the
<PAGE> 202
Advisory Contract with respect to Tax-Free Money Market Portfolio was $168,405
of which $114,525 was waived. For the fiscal year ended April 30, 1995, the
advisory fee payable to the Advisor under the Advisory Contract with respect to
Income Portfolio was $273,599. For the fiscal year ended April 30, 1995, the
advisory fee payable to the Advisor under the Advisory Contract with respect to
Growth and Income Portfolio was $488,695. For the fiscal year ended April 30,
1995, the advisory fee payable to the Advisor under the Advisory Contract with
respect to Capital Growth Portfolio was $269,990 of which $50,934 was waived
from February 13, 1995 to April 30, 1995.

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

Subject to the obligations of First Maryland to reimburse each Portfolio for its
excess expenses as described below, each Portfolio has, under the Advisory
Contract, confirmed its obligation to pay all other expenses, including interest
charges, taxes, brokerage fees and commissions; certain insurance premiums;
fees, interest charges and expenses of the custodian, transfer agent and
dividend disbursing agent; telecommunications expenses; auditing, legal and
compliance expenses; costs of forming the corporation and maintaining corporate
existence; costs of preparing and printing the Portfolios' prospectuses,
statements of additional information, subscription order forms and shareholder
reports and delivering them to existing and prospective shareholders; costs of
maintaining books of original entry for portfolio accounting and other required
books and accounts of calculating the NAV of shares of the Portfolios; costs of
reproduction, stationery and supplies; compensation of directors and officers
and employees of the Portfolios and costs of other personnel performing services
for the Portfolios who are not officers of First Maryland, Distributors, or
their respective affiliates; costs of shareholder meetings; SEC registration
fees and related expenses; state securities laws registration fees and related
expenses; fees payable under the Advisory Contract and under the Administration
Agreement and all other fees and expenses paid by the Portfolios.

To comply with the California Code of Regulations, First Maryland will reimburse
a Portfolio if and to the extent such Portfolio's aggregate annual operating
expenses exceed specified percentages of its average net assets. The applicable
percentages are 2 1/2% of the first $30 million, 2% of the next 70 million, and
1 1/2% of average net assets in excess of $100 million. When calculating the
Portfolios' expenses for purposes of this regulation, the Portfolios may exclude
interest, taxes, brokerage commissions, and extraordinary expenses, as well as a
portion of its distribution plan expenses and custodian fees attributable to
investments in foreign securities.

ADMINISTRATOR AND DISTRIBUTOR

SEI Financial Management Corporation, a wholly-owned subsidiary of SEI
Corporation ("SEI"), serves as administrator (the "Administrator") to the Fund.
The Administrator assists in supervising all operations of each Portfolio,
except those performed by the Advisor under the Advisory Agreement, by the
Distributor under the Distribution Agreement and by the Custodian under the
Custodian Agreement.

Under the Administration Agreement, the Administrator has agreed to maintain
office facilities for the Fund. The Administrator prepares annual and
semi-annual reports to the Securities and Exchange Commission, prepares Federal
and state tax returns, prepares filing with state securities commissions, and
generally assists in all aspects of the Fund's operations other than t0hose
discussed above. Under the Administration Agreement, the Administrator also
provides fund accounting and related accounting services. The Administrator may
delegate its responsibilities under the Administration Agreement with the Fund's
written approval.

SEI Daily Income Trust; SEI International Trust; The Advisers' Inner Circle
Fund; the PBHG Funds, Inc.; Pillar Funds; CUFUND; STI Classic Funds;
CoreFunds, Inc.; First American Funds, Inc.; First American Investment Funds
Inc.; Rembrandt Funds'; The Arbor Fund; The Stepstone Funds; 1784 Funds;
Marquis Funds; Morgan Grenfell Investment Trust; Insurance Investment Products
Trust; Bishop Street Funds; Conestoga Family of Funds; The Achievement Funds
Trust Monitor Funds; and CrestFunds, Inc.

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

Distribution Plan. The Board has adopted a Distribution Plan (the Plan) on
behalf of the Retail Class of each Portfolio pursuant to Rule 12b-1 under the
1940 Act (the Rule). The Plan allows the Retail Class of each Portfolio to pay
the Distributor up to .75% of the average net assets of such class or such
lesser amount as approved from time to time by the Board. The Distributor may
use fees and other resources to pay expenses associated with the promotion and
administration of activities primarily intended to result in the sale of Retail
Class shares. These distribution-related services include, but are not limited
to: advertising the availability of services and products; designing material to
send to customers and developing methods of making such materials accessible to
customers; providing information about the product needs of customers; providing
facilities to solicit sales and to answer questions from prospective and
existing investors about the Retail Class of the Portfolios; receiving and
answering correspondence from prospective investors, including requests for
sales literature, prospectuses and statements of additional information;
displaying and making sales literature and prospectuses available on the service
organization's premises; and acting as liaison between Retail Class shareholders
and the Portfolios, including obtaining information from the Portfolios
regarding the Retail Class and providing Retail Class performance and other
information about the Portfolios; and providing additional distribution-related
services.

The Plan has been approved by the Board, including the majority of disinterested
Trustees and the sole shareholder of the Retail Class of each Portfolio. As
required by the Rule, the Board carefully considered all pertinent factors
relating to the implementation of the Plan prior to its approval, and have
determined that there is a reasonable likelihood that the Plan will benefit the
Retail Class of each Portfolio and its shareholders. To the extent that the Plan
gives the Distributor greater flexibility in connection with the distribution of
Retail Class shares, additional sales of Retail Class shares may result.

The Board has approved a monthly distribution fee based on the following
percentages of the average net assets of the Retail Class of the Portfolios as
follows: .25% for each of the ARK Money Market Portfolios, .30% for Income
Portfolio and Maryland Tax-Free Portfolio, .40% for each of Growth and Income
Portfolio, Short-Term Treasury Portfolio, Special Equity Portfolio and Capital
Growth Portfolio and .55% for Blue Chip Equity Portfolio. Through the fiscal
year ended April 30, 1995, all 12b-1 Fees were waived for all portfolios except
for the Money Market Portfolio.

The Plan is a compensation plan because the Distributor is paid a fixed fee and
is given discretion concerning what expenses are payable under the Plan. The
Distributor may spend more for marketing and distribution than it receives in
fees from the Retail Class of each Portfolio. However, to the extent fees
received exceed expenses, including indirect expenses such as overhead, the
Distributor could be said to have received a profit. For example, if the
<PAGE> 204
Distributor pays $1 for distribution-related expenses and receives $2 under the
Plan, the $1 difference could be said to be a profit for the Distributor. If
after payments by the Distributor for marketing and distribution there are any
remaining fees which have been paid under the Plan, they may be used as the
Distributor may elect. Since the amounts payable under the Plan will be
commingled with the Distributor's general funds, including the revenues it
receives in the conduct of its business, it is possible that certain of the
Distributor's overhead expenses will be paid out of distribution fees and that
these expenses may include the costs of leases, depreciation, communications,
salaries, training and supplies.

Shareholder Services Plan. The Board has adopted a Shareholder Services Plan on
behalf of the Retail Class of the Portfolios to compensate qualified recipients
for individual shareholder services and account maintenance. These functions
include but are not limited to answering shareholder questions and handling
correspondence; assisting customers; and account record keeping and maintenance.
For these services the participating qualified recipients are paid a service fee
at the annual rate of up to .25% of average net assets of the Retail Class of
each Portfolio or such lesser amount as may be approved by the Board. Currently,
the Board has approved a fee for shareholder services of .15% of average net
assets of the Retail Class of each Portfolio, except for Short-Term Treasury
Portfolio and Blue Chip Equity Portfolio for which the Board has approved a fee
of .06%.

Banking laws and regulations, including the Glass-Steagall Act as currently
interpreted by the Board of Governors of the Federal Reserve System, prohibit a
bank holding company registered under the Bank Holding Company Act of 1956 or
any affiliate thereof from sponsoring, organizing, controlling, or distributing
the shares of a registered, open-end investment company continuously engaged in
the issuance of its shares and prohibit banks generally from issuing,
underwriting, selling or distributing securities. The same laws and regulations
generally permit a bank or bank affiliate to act as an investment adviser and to
purchase shares of the investment company as agent for and upon the order of a
customer. In the Fund's and First Maryland's opinion, banks or their affiliates
may be paid for investment advisory, shareholder, servicing and record keeping
functions. Changes in federal or state statutes and regulations pertaining to
the permissible activities of banks and their affiliates or subsidiaries, as
well as further judicial or administrative decisions or interpretations, could
prevent a bank from continuing to perform all or a part of the contemplated
services. If a bank or its affiliates were prohibited from so acting, the Board
would consider what actions, if any, would be necessary to continue to provide
efficient and effective shareholder services. In such event, changes in the
operation of the Portfolios might occur, including possible termination of any
automatic investment or redemption or other services then being provided by any
bank. It is not expected that shareholders would suffer any adverse financial
consequences as a result of any of these occurrences. The Portfolios may execute
portfolio transactions with and purchase securities issued by depository
institutions that receive payments under the Shareholder Services Plan. No
preference will be shown in the selection of investments for the instruments of
such depository institutions. In addition, state securities laws on this issue
may differ from the interpretations of federal law expressed herein, and banks
and other financial institutions may be required to register as dealers pursuant
to state law.

TRANSFER AGENT

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

DESCRIPTION OF THE FUND

Trust Organization. Money Market Portfolio, U.S. Government Money Market
Portfolio, U.S. Treasury Money Market Portfolio, Tax-Free Money Market
Portfolio, Short-Term Treasury Portfolio, Income Portfolio, Growth and Income
Portfolio, Blue Chip Equity Portfolio, Capital Growth Portfolio, International
Equity Portfolio, Special Equity Portfolio and Maryland Tax-Free Portfolio are
series of the ARK Funds, an open-end management investment company organized as
a Massachusetts business trust by Declaration of Trust dated October 22, 1992
and Amended and Restated on March 19, 1993. A supplement to the Declaration of
Trust was executed and filed on March 23, 1993. The Declaration of Trust permits
the Board to create additional series.
<PAGE> 205
In the event that First Maryland ceases to be the investment advisor to the Fund
or a Portfolio, the right of the Fund or Portfolio to use the identifying name
"ARK" may be withdrawn.

Shareholder and Trustee Liability. The Fund is an entity of the type commonly
known as a "Massachusetts business trust." Under Massachusetts law, shareholders
of such a trust may, under certain circumstances, be held personally liable for
the obligations of the trust. The Declaration of Trust provides that the Fund
shall not have any claim against shareholders except for the payment of the
purchase price of shares and requires that each agreement, obligation, or
instrument entered into or executed by the Fund or the Board shall include a
provision limiting the obligations created thereby to the Fund and its assets.
The Declaration of Trust provides for indemnification out of each Portfolio's
property of any shareholders held personally liable for the obligations of the
Portfolio. The Declaration of Trust also provides that each Portfolio shall,
upon request, assume the defense of any claim made against any shareholder for
any act or obligation of the Portfolio and satisfy any judgment thereon. Thus,
the risk of a shareholder incurring financial loss because of shareholder
liability is limited to circumstances in which the Portfolio itself would be
unable to meet its obligations. First Maryland believes that, in view of the
above, the risk of personal liability to shareholders is remote.

Voting Rights. Each ARK Money Market Portfolio offers three classes of shares:
Institutional Class, Institutional II Class and Retail Class. Short-Term
Treasury Portfolio, Income Portfolio, Growth and Income Portfolio, Blue Chip
Equity Portfolio, Capital Growth Portfolio, Special Equity Portfolio, and
Maryland Tax-Free Portfolio each offers two classes of shares: Institutional
Class and Retail Class. Finally, International Equity Portfolio offers
Institutional Class shares, only. The shares have no preemptive or conversion
rights; the voting and dividend rights, the right of redemption, and the
privilege of exchange are described in the Prospectus. Shares are fully paid and
non-assessable, except as set forth under the heading "Shareholder and Trustee
Liability" above. Shareholders of the Fund, Portfolio or a class may, as set
forth in the Declaration of Trust, call meetings for any purpose related to the
Fund, Portfolio or a class, respectively, including in the case of a meeting of
the entire Fund, the purpose of voting on removal of one or more Trustees. The
Fund or any Portfolio may be terminated upon the sale of its assets to another
open-end management investment company, or upon liquidation and distribution of
its assets, if approved by vote of the holders of a majority of the outstanding
shares of the Fund or the Portfolio. If not so terminated, the Fund and the
Portfolios will continue indefinitely.

As of May 31, 1995, the officers and directors of the Fund owned less than 1% of
the outstanding shares of any Portfolio.

The following owned beneficially more than 5% of the outstanding shares of the
of U.S. Government Money Market Portfolio: First National Bank of Maryland
F.I.L.M. Investment Account, Baltimore, Maryland (22.9%); Maryland State
Retirement & Pension System, Baltimore, Maryland (24.0%);

The following owned beneficially more than 5% of the outstanding shares of U.S.
Treasury Money Market Portfolio: First National Bank of Maryland F.I.L.M.
Investment Account, Baltimore, Maryland (32.0%); York Bank F.I.L.M. Investment
Account (8.3%) .

The following owned beneficially more than 5% of the outstanding shares of
<PAGE> 206
Growth and Income Portfolio: University of First Maryland Bancorp Thrift Plan,
Baltimore, Maryland (19.9%); University of Maryland Medical System, Baltimore,
Maryland (10.1%); and Maryland General Hospital, Baltimore, Maryland (5.7%).

The following owned beneficially more than 5% of the outstanding shares of
Capital Growth Portfolio: First Maryland Bancorp Thrift Plan, Baltimore,
Maryland (23.9%).

The following owned beneficially more than 5% of the outstanding shares of Money
Market Portfolio: Gillis Memorial Building Fund, Baltimore, Maryland (85%); and
Mary E. Sharp, Marwood, Maryland (12%);

A shareholder owning beneficially more than 25% of a particular Portfolio's
shares may be considered to be a "controlling person" of that Portfolio.
Accordingly, its vote could have a more significant effect on matters presented
at shareholder meetings than the votes of the Portfolio's other shareholders.
First Maryland or its affiliates, however, may receive voting instructions from
certain underlying customer accounts and will vote the shares in accordance with
those instructions. In the absence of such instructions, First Maryland or its
affiliates will vote those shares in the same proportion as it votes the shares
for which it has received instructions from its customers and fiduciary
accounts.

AUDITOR

KPMG Peat Marwick LLP, 99 High Street, Boston, MA, independent auditors, has
been selected as the auditor for the Fund. KPMG Peat Marwick LLP will examine
financial statements for the Portfolios and will provide other audit, tax and
related services.

FINANCIAL STATEMENTS

The Fund's financial statements and financial highlights for the fiscal year
ended April 30, 1995 and for the six month period ended October 31, 1995 are
included in the Annual Report and Semi-Annual Report respectively, which are
separate reports supplied with this Statement of Additional Information. The
Fund's financial statements and financial highlights are incorporated herein by
reference.

APPENDIX

Description of selected indices:

Dow Jones Industrial Average is an unmanaged index of common stock prices
representing stocks of major industrial companies and includes reinvestment of
dividends.

Standard & Poor's 500 Composite Stock Price Index is an unmanaged index of
common stock prices and includes reinvestment of dividends.

NASDAQ Composite Index is an unmanaged index of over-the-counter stock prices
and does not assume reinvestment of dividends.

Russell 2000 Index is an unmanaged index of small capitalization stocks that
includes reinvestment of dividends.

Lehman Brothers Aggregate Bond Index, an unmanaged index, is a broad measure of
bond performance and includes reinvestment of dividends. It is comprised of
securities from the Lehman Brothers Government/Corporate Bond Index,
Mortgage-Backed Securities Index, and Yankee Bond Index.

Lehman Brothers Government Bond Index is an index comprised of all public
<PAGE> 207
obligations of the U.S. Treasury, U.S. government agencies, quasi-federal
corporations, and of corporate debt guaranteed by the U.S. government. The index
excludes flower bonds, foreign targeted issues, and mortgage-backed securities.

The Government Bond Index and the Corporate Bond Index combine to form the
Government/Corporate Bond Index.

Lehman Brothers Intermediate Corporate Bond Index is an index comprised of all
public, fixed-rate, non-convertible investment-grade domestic corporate debt.
Issues included in this index have remaining maturities of one to ten years and
are rated at least Baa by Moody's or BBB by S&P, or, in the case of unrated
bonds, BBB by Fitch Investors Service.

Lehman Brothers Long-Term Corporate Bond Index is an index comprised of all
public, fixed-rate, non-convertible investment-grade domestic corporate debt.
Issues included in this index have remaining maturities greater than ten years
and are rated at least Baa by Moody's or BBB by S&P, or, in the case of unrated
bonds, BBB by Fitch Investors Service.

Salomon Brothers High Grade Corporate Bond Index is an index of high quality
corporate bonds with a minimum maturity of at least ten years and with total
debt outstanding of at least $50 million. Issues included in the index are rated
AA or better by Moody's or AA or better by S&P.

Merrill Lynch High and Medium Quality Intermediate-Term Corporate Index is an
index comprised of all public, fixed-rate, non-convertible corporate debt.
Issues included in this index have remaining maturities of between one year and
9.99 years. Issues included in the index are rated at least BBB by S&P.

Description of Moody's Investors Service, Inc.'s ratings of state and municipal
notes:

Moody's ratings for state and municipal and other short-term obligations are
designated Moody's Investment Grade ("MIG," or "VMIG" for variable rate
obligations). This distinction is in recognition of the difference between
short-term credit risk and long-term credit risk. Factors affecting the
liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in bond risk,
long-term secular trends for example, may be less important over the short run.
Symbols used will be as follows:

MIG-1/VMIG-1 - This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.

MIG-2/VMIG-2 - This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.

Description of Standard & Poor's Ratings Group's ratings of state and municipal
notes:

SP-1 - Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus (+) designation.

SP-2 - Satisfactory capacity to pay principal and interest.

Description of Moody's Investors Service, Inc.'s municipal bond ratings:

Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long- term risks appear somewhat larger than Aaa securities.

A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
<PAGE> 208
principal and interest may be present which suggest a susceptibility to
impairment sometime in the future.

Description of Standard & Poor's Ratings Group's municipal bond ratings:

AAA - Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated debt issues only in small degree.

A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher categories.

The ratings from AA to BBB may be modified by the addition of a plus or minus to
show relative standing within the major rating categories.

Description of Moody's Investors Service, Inc.'s commercial paper ratings:

- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance on
debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and with
high internal cash generation.
- Well established access to a range of financial markets and assured
sources of alternate liquidity.

Description of Standard & Poor's Ratings Group's commercial paper ratings:

A-2 - Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.

Description of Moody's Investors Service, Inc.'s corporate bond ratings:

Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or exceptionally stable margin and
<PAGE> 209
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.

Caa - Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.

Ca - Bonds rated Ca represent obligations which are speculative to a high
degree. Such issues are often in default or have other marked short-comings.

C - Bonds rated C are the lowest rated class of bonds, and issues so rated can
be regarded as having extremely poor prospects of ever attaining any real
investment standing.

Description of Standard & Poor's Ratings Group's corporate bond ratings:

AAA - Debt rated AAA has the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.

AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only to a small degree.

A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher- rated categories.

B - Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB- rating.

CCC - Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
<PAGE> 210
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal.

CC - Debt rated CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.

CI - The rating CI is reserved for income bonds on which no interest is being
paid.

The ratings from AA to CCC may be modified by the addition of a plus or minus to
show relative standing within the major rating categories.

Part C - Other Information

Item 24 Financial Statements and Exhibits

(a) Financial Statements
Part A - Prospectus: Financial Highlights

Part B - Statement of Additional Information The Registrant's
audited financial statements for the fiscal year ended April 30,
1995 as filed with the Commission is incorporated herein by
reference. Semi-annual unaudited financial statements for the
period ended October 31, 1995 as filed with the Commission on
December 29, 1995 is incorporated herein by reference.

(b) Exhibits:

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

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

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

(d) Investment Advisory Agreement between ARK Funds and
the First National Bank of Maryland dated July 13,
1995.

(e) Schedule to Investment Advisory Agreement dated April
12, 1993 between ARK Funds and the First National Bank
of Maryland.

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

(3) Not Applicable.

(4) Not Applicable.

(5) (a) Investment Advisory Agreement between ARK Funds and The
First National Bank of Maryland dated April 12, 1993 is
incorporated herein by reference to Exhibit 5(a) to
Pre-Effective Amendment No. 2.

(b) Investment Advisory Agreement between ARK Funds, and
AIB Investment Managers Limited, on behalf of
International Equity Portfolio dated June 7, 1994 is
incorporated herein by reference to Exhibit 5(b) to
Post-Effective Amendment No. 3.

(6) (a) Distribution Agreement between ARK Funds and SEI
Financial Services Company dated November 1, 1995 is
incorporated herein by reference to Exhibit 6(a) to
Post-Effective Amendment No. 6.

(b) Administration Agreement between ARK Funds and SEI
Financial Management Corporation dated November 1,
1995 is incorporated herein by reference to Exhibit
6(b) to Post-Effective Amendment No. 6.

(7) Not Applicable.
<PAGE> 211

(8) (a) Custody Agreement between ARK Funds and The First
National Bank of Maryland dated September 28, 1995 is
incorporated herein by reference to Exhibit 8(a) to
Post-Effective Amendment No. 6.

(b) Custodian Agreement between The First National Bank of
Maryland and Bankers Trust Company dated November 9,
1995 is incorporated herein by reference to Exhibit
8(b) to Post-Effective Amendment No. 6.

(9) Transfer Agency and Service Agreement between ARK Funds and
SEI Financial Management Corporation dated November 1,
1995 is incorporated herein by reference to Exhibit 9 to
Post-Effective Amendment No. 6.

(10) Opinion and consent of Legal Counsel is incorporated by
reference to Exhibit 10 to Pre-Effective Amendment No. 3.

(11) Consent of Independent Auditors.

(12) Not Applicable.

(13) Written assurance (dated May 27, 1993) that purchase
representing initial capital was made for investment
purposes without any present intention of redeeming or
reselling is incorporated by reference to Exhibit 13 to
Pre-Effective Amendment No. 3.

(14) Not Applicable.

(15) (a) Distribution Plan is incorporated herein by reference to
Exhibit 15(a) to Post-Effective Amendment No. 2.

(b) Shareholder Servicing Plan is incorporated herein by
reference to Exhibit 15(b) to Post-Effective Amendment
No. 1.

(16) Schedule for Computation of Performance Calculations is
incorporated by reference to Exhibit 16 to Pre-Effective
Amendment No. 3.

(17) Not Applicable.

(18) Rule 18f-3 Plan is incorporated by reference to Exhibit 18
of Post-Effective Amendment No. 5.

Item 25. Persons Controlled by or Under Common Control with Registrant

None.

Item 26. Number of Holders of Securities

As of September 30, 1995

<TABLE>
<CAPTION>
PORTFOLIO TITLE OF CLASS NUMBER OF RECORD
HOLDERS
<S> <C> <C>
Tax Free Money Market Portfolio Institutional Class 2
Institutional Class II 1
Retail Class 1

U.S. Government Money Market Portfolio Institutional 2
Institutional Class II 1

U.S. Treasury Money Market Portfolio Institutional Class 2
Institutional II Class 1
Retail Class 1

Money Market Portfolio Institutional Class 2
Institutional II Class 1
Retail Class 1

Income Portfolio Institutional Class 2
Retail Class 1

Capital Growth Portfolio Institutional Class 2
Retail Class 1

Growth and Income Portfolio Institutional Class 2
Retail Class 1

International Equity Portfolio Institutional Class 1
</TABLE>
<PAGE> 212
<TABLE>
<CAPTION>
PORTFOLIO TITLE OF CLASS NUMBER OF RECORD
HOLDERS
<S> <C> <C>
Special Equity Portfolio Institutional Class 1
</TABLE>

Item 27. Indemnification

Article XI, Section 2 of the Declaration of Trust sets forth the reasonable and
fair means for determining whether indemnification shall be provided to any past
or present Trustee or officer. It states that the Registrant shall indemnify any
present or past Trustee or officer to the fullest extent permitted by law
against liability and all expenses reasonable incurred by him in connection with
any claim, action, suit or proceeding in which he is involved by virtue of his
service as a Trustee, an officer, or both. Additionally, amounts paid or
incurred in settlement of such matters are covered by this indemnification.
Indemnification will not be provided in certain circumstances, however. These
include instances of willful misfeasance, bad faith, gross negligence, and
reckless disregard of the duties involved in the conduct of the particular
office involved.

Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to Trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a Trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

Item 28. Business and Other Connections of Investment Adviser

The First National Bank of Maryland serves as investment adviser to all
Portfolios of the Registrant, except for International Equity Portfolio. The
directors and officers of the First National Bank of Maryland have held, during
the past two fiscal years, the following positions of a substantial nature:

Frank P. Bramble President, Chief Executive Officer of First Maryland
Bancorp and of First National Bank of Maryland
(effective April 1, 1994). Board of Directors of
University of Maryland Medical System.

Charles W. Cole, Jr. President, Chief Executive Officer and Chief
Administrative Officer of First Maryland Bancorp.
Retired effective April 15, 1994. Board of Regents:
University of Maryland (19)

Benjamin L. Brown Director of First Maryland Bancorp and First National
Bank of Maryland; General Counsel and Executive
Director of National Institute of Municipal Law
Officers (1), Board of Regents: University of Maryland
and Director of Ideal Federal Savings Bank (20)

Jeremiah E. Casey Chairman of the Board of First Maryland Bancorp;
Director of the Rouse Company (2)

J. Owen Cole Director of First Maryland Bancorp; Director of
Baltimore Gas and Electric Company (3); Director of
USF&G Corporation (4), Blue Cross/Blue Shield of
Maryland, Inc. (5), Farm Credit Bank of Baltimore (6)
and Maryland Transit Authority(21).

David M. Cronin Executive Vice President and Treasurer of First
Maryland Bancorp.

Edward A. Crooke Director of First Maryland Bancorp and First National
Bank of Maryland. President and Chief Operating Officer
of Baltimore Gas and Electric Company (3); Director of
Baltimore Equitable Insurance Company (7).

John F. Dealy Director of First Maryland Bancorp and First National
Bank of Maryland; Senior counsel for Shaw, Pittman,
Potts and Trowbridge (8); Distinguished Professor,
Georgetown University School of Business Administration
(9); Director and Executive Vice President of
Transworld Communications (10) and Sokol America (11)
and Advisory Board: Greenhorne & O'Mara (22).
<PAGE> 213
Mathias J. DeVito Director of First Maryland Bancorp and First National
Bank of Maryland; Chairman of the Board, President and
Chief Executive Officer of the Rouse Company (2);
Director of USAir Group, Inc. (12); Advisory Board:
Equity-Linked Investors (23).

Rhoda M. Dorsey Director of First Maryland Bancorp and First
National Bank of Maryland; President of Goucher College
(13); Director of Chesapeake and Potomac Telephone
Company of Maryland (14) and USF&G Corporation (4).

Jerome W. Geckle Director of First Maryland Bancorp and First National
Bank of Maryland; Director of Baltimore Gas and
Electric Company (3).

Frank A. Gunther, Jr. Director of First Maryland Bancorp and First National
Bank of Maryland; Director of Blue Cross / Blue Shield
of Maryland Inc. (5).

James M. Hannan Vice President of First National Bank of Maryland.

Curran W. Harvey, Jr. Director of First Maryland Bancorp and First National
Bank of Maryland; Special Partner of New Enterprise
Associates (15); General Partner of Spectra Enterprises
(15), Communications Technology, Inc., Computer Science
Innovations, Inc. (25), Photonic Systems, Inc. (31),
Carey Machinery Company (26) and Advisory Board:
Capital Management, Inc.(23).

Margaret M. Heckler Director of First Maryland Bancorp and First
National Bank of Maryland, Director of Supra Medical
Corporation (33); Attorney in private practice.

Paul A. Hutter Vice President of First National Bank of Maryland.

Henry J. Knott Director of First Maryland Bancorp and First National
Bank of Maryland; Chairman and Chief Executive Officer
Henry J. Knott, Jr., Group Inc. and related entities;
(16); Director of E.I. Kane, Inc. (27).

Charles E. Knudsen, III Vice President of First National Bank of Maryland.

Jennifer W. Lambdin Senior Vice President of First National Bank
of Maryland; Director and/or officer of five closely
held businesses involved in real-estate management and
development.

Leslie C. Lee Senior Vice President of First National Bank of
Maryland.

Fredrick W. Meier, Jr. Executive Vice President of First Maryland Bancorp.

William T. Murray, III Executive Vice President of First Maryland Bancorp.

William M. Passano, Jr. Director of First Maryland Bancorp and First National
Bank of Maryland; Chairman of the Board and Chief
Executive Officer of Waverly, Inc. and Director of
Kernan Hospital (28).

Joseph E. Peters Executive Vice President of First Maryland Bancorp
(17).

Kenneth L. Pittman Vice President of First National Bank of Maryland.

Robert W. Schaefer Executive Vice President and Chief Financial Officer of
First Maryland Bancorp.

Robert I. Schattner Director of First Maryland Bancorp and First National
Bank of Maryland; President and Chief Operating Officer
of the R. Schattner Foundation for Medical Research;
President and Chief Financial Officer of Sporicidin
International (18) and Director of the Robert I.
Shattner Foundation for Medical Research (29).

*All directors of The First National Bank of Maryland ("FNB") are also directors
of First Maryland Bancorp, the bank holding company which controls FNB. Messrs.
Casey, Cronin, Meier, Murray, Peters and Schaefer are considered executive
officers of FNB and First Maryland Bancorp ("Bancorp"), and serve as directors
of various Bancorp subsidiaries. Messrs. C. Cole and J. Cole are not related.
<PAGE> 214
Notes:

(1) 1000 Connecticut Avenue, NW, Washington, D.C. 20036
(2) 10275 Little Patuxent Parkway, Columbia, Maryland 21044
(3) P.O. Box 1475, Baltimore, Maryland 21201
(4) 100 Light Street, Baltimore, Maryland 21201
(5) 10455 Mill Run Circle, Owings Mills, Maryland 21117
(6) 14114 York Road, Sparks, Maryland 21152
(7) 21 N. Eutaw Street, Baltimore, Maryland 21201
(8) 2300 N Street, NW, Washington, D.C. 20037
(9) 37 & O Street, NW, Washington, D.C. 20057
(10) 1234 31st Street, NW, Washington, D.C. 20007
(11) 1511 K Street, N.W., Washington, D.C. 20005
(12) Crystal Park Four, 2345 Crystal Drive, Arlington, Virginia 22227
(13) 1021 Dulaney Valley Road, Towson, Maryland 21204
(14) 1 East Pratt Street, Baltimore, Maryland 21202
(15) 1119 St. Paul Street, Baltimore, Maryland 21202
(16) 2850 Charles Street, Baltimore, Maryland 21218
(17) 428 East Preston Street, Baltimore, Maryland 21201
(18) 5901 Montrose Road, Rockville, Maryland 20852
(19) Building 311 Adelphi Road and University Boulevard, College Park Maryland
20742
(20) 1629 Druid Hill Avenue, Baltimore Maryland 21217
(21) World Trade Center, Baltimore Maryland 21204-3041
(22) 266 Riva Road, Annapolis Maryland 21204
(23) 540 Madison Avenue, New York, New York 10022
(24) 8975 Guilford Road, Columbia, Maryland 21046
(25) 141 National Business Parkway, Suite 100 Annapolis Junction,
Maryland, 21213
(26) 3501 Brehmn Lane Baltimore, Maryland, 21213
(27) 6810 Deer Path Road, Baltimore, Maryland 21227
(28) 2200 North Forest Park Avenue, Baltimore, Maryland 21207
(29) 5901 Montrose Road, Rockville, Maryland 20852
(30) 1235 Evans Road, Melborne, Florida 32904
(31) 1800 Penn Street, Melbourne, Florida 32904
(32) 3801 Kennett Pike, Wilmington, Delaware 19807
(33) 106 Brandywine Two Building, Chaddsford, PA 19317

AIB Investment Managers Limited ("AIB I.M.") serves as investment advisor to
International Equity Portfolio of the Registrant. A description of the directors
and office of AIM I.M. and other required information is included in the Form
ADV and schedules thereto of AIB I.M., as amended, on file with the Securities
and Exchange Commission (File No. 801-41173) and is incorporated herein by
reference.

Item 29. Principal Underwriters

(a) SEI Financial Services Company acts as distributor for the
Registrant. SEI Financial Services Company also acts as
distributor for: SEI Daily Income Trust, SEI Liquid Asset Trust,
SEI Tax Exempt Trust, SEI Index Funds, SEI Institutional Managed
Trust, SEI International Trust, Stepstone Funds, The Compass
Capital Group, FFB Lexicon Funds, The Advisors' Inner Circle
Fund, The Pillar Funds, CUFund, STI Classic Funds, CoreFunds,
Inc., First American Funds, Inc., First American Investment
Funds, Inc., The Arbor Fund, 1784 Funds, Marquis Funds, Morgan
Grenfell Investment Trust, The PBHG Funds, Inc., Inventor Funds,
Inc., The Achievement Funds Trust, Insurance Investment Products
Trust, Bishop Street Funds, Conestoga Family of Funds and
CrestFunds, Inc.

SEI Financial Services Company provides numerous financial
services to investment managers, pension plan sponsors, and bank
trust departments. These services include portfolio evaluation,
performance measurement and consulting services, and automated
execution, clearing and settlement of securities transactions.

(b) Directors, officers and partners of SEI Financial Services
Company are as follows:
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* With Underwriter With Registrant
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman and Chief
Executive Officer

Henry H. Greer Director, President and
Chief Operating Officer
</TABLE>
<PAGE> 215

<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Addresses* with Underwriter With Registrant

<S> <C> <C>
Carmen V. Romeo Director, Executive Vice
Vice President and Treasurer

Gilbert L. Beebower Executive Vice President

Richard B. Lieb Executive Vice President

Charles A. Marsh Executive Vice President
Capital Resources Division

Leo J. Dolan, Jr. Senior Vice President

Carl A. Guarino Senior Vice President

Jerome Hickey Senior Vice President

David G. Lee Senior Vice President

William Madden Senior Vice President

A. Keith McDowell Senior Vice President

Dennis J. McGonigle Senior Vice President

Hartland J. McKeown Senior Vice President

James V. Morris Senior Vice President

Steven Onofrio Senior Vice President

Kevin P. Robins Senior Vice President, Vice President and
General Counsel and Assistant Secretary
Secretary

Robert Wagner Senior Vice President

Patrick K. Walsh Senior Vice President

Kenneth Zimmer Senior Vice President

Robert Crudup Managing Director

Vic Galef Managing Director

Kim Kirk Managing Director

John Krzeminski Managing Director

Carolyn McLaurin Managing Director

Barbara Moore Managing Director

Donald Pepin Managing Director

Mark Samuels Managing Director

Wayne M. Withrow Managing Director

Mick Duncan Team Leader

Robert Ludwig Team Leader

Vicki Malloy Team Leader

Robert Aller Vice President

Steve Bendinelli Vice President

Chris Brookmyer Vice President and Controller

Gordon W. Carpenter Vice President

Robert B. Carroll Vice President and Vice President and
Assistant Secretary Assistant Secretary

Todd Cipperman Vice President and Vice President and
Assistant Secretary Assistant Secretary

Ed Daly Vice President

Jeff Drennen Vice President
</TABLE>
<PAGE> 216

<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address* With Underwriter With Registrant

<S> <C> <C>
Lucinda Duncalfe Vice President

Kathy Heilig Vice President

Lawrence D. Hutchison Vice President

Michael Kantor Vice President

Samuel King Vice President

Donald H. Korytowski Vice President

Robert S. Ludwig Vice President

Jack May Vice President

Sandra K. Orlow Vice President and Vice President and
Assistant Secretary Assistant Secretary

Larry Pokora Vice President

Kim Rainey Vice President

Paul Sachs Vice President

Steve Smith Vice President

Kathryn L. Stanton Vice President and Vice President and
Assistant Secretary Assistant Secretary

Daniel Spaventa Vice President

William Zawaski Vice President

James Dougherly Director of Brokerage
Services
</TABLE>

* 680 East Swedesford Road, Wayne, Pennsylvania 19087

Item 30. Location of Accounts and Records

The Registrant maintains the records required by Section 31(a) of the Investment
Company Act of 1940 and Rules 31a-1 to 31a-3 inclusive thereunder at its
principal office located at 680 East Swedesford Road, Wayne, Pennsylvania 19087.
Certain records, including records relating to the Registrant's shareholders,
may be maintained pursuant to Rule 31a-3 at the offices of the Registrant's
investment advisers, The First National Bank of Maryland and AIB Investment
Managers Limited, AIB Investment House, Percy Place, Dublin 4, Ireland,
respectively, and its transfer agent, SEI Financial Management Corporation,
located at 680 East Swedesford Road, Wayne, Pennsylvania 19087. Certain records
relating to the physical possession of the Registrant's securities may be
maintained at the offices of the Registrant's custodian, The First National Bank
of Maryland, located at 25 South Charles Street, Baltimore, Maryland 21201, or
at the offices of its subcustodian, Bankers Trust Company, located at 16 Wall
Street, New York, New York 10005.

Item 31. Management Services

Not Applicable.

Item 32. Undertakings

(a) Not applicable.

(b) Registrant hereby undertakes to file a post-effective amendment,
including financial statement which need not be audited, within four
to six months from the effective date of this post-effective amendment
to the Registration Statement.

(c) The Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of its latest annual report (which will
contain a section with management's discussion and analysis of the
fiscal year results) without charge.

(d) The Registrant undertakes: 1) to call a meeting of shareholders for
the purpose of voting upon the question of removal of a trustee or
<PAGE> 217
trustees, when requested to do so by record holders of not less than
10% of its outstanding shares; and 2) to assist in communications with
other shareholders pursuant to Section 16(c)(1) and (2) of the
Investment Company Act of 1940, whenever shareholders meeting the
qualifications set forth in Section 16(c) seek the opportunity to
communicate with other shareholders with a view toward requesting a
meeting.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 7 to the Registration Statement to be signed on its
behalf by the undersigned, hereunto duly authorized, in the City of Baltimore,
and State of Maryland, on the 23rd day of February, 1996.

ARK FUNDS

By:/s/ DAVID D. DOWNES
---------------------
David D. Downes
President

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 7 to the Registration Statement has been signed
below by the following persons in the capacities and on the date indicated.

/s/ DAVID D. DOWNES President (principal executive officer) and Trustee
- -----------------------
David D. Downes

/s/ STEPHEN G. MEYER Treasurer, Controller and Chief Financial Officer
- ----------------------- (principal financial and accounting officer)
Stephen G. Meyer

_________*_____________ Trustee
William H. Cowie, Jr.

_________*_____________ Trustee
Charlotte Kerr

_________*_____________ Trustee
George K. Reynolds, III

_________*_____________ Trustee
Thomas Schweizer

* By: /s/ ALAN C. PORTER February 23, 1996
--------------------
Alan C. Porter
Attorney-in-Fact

<PAGE> 1

INVESTMENT ADVISORY CONTRACT

AGREEMENT made this 13th day of July by and between ARK Funds
(the "Fund"), a Massachusetts business trust and First National Bank of
Maryland ("First Maryland)".

WHEREAS, the Fund is registered as an open-end, diversified,
management series investment company under the Investment Company Act of 1940,
as amended (the "Investment Company Act"); and

WHEREAS, the Fund currently offers seven series of units of
beneficial interest ("Shares"), each series representing interests in a
separate investment portfolio, and may offer additional series of Shares from
time to time (all such series of Shares hereinafter collectively referred to as
the "Portfolios"); and

WHEREAS, the Fund desires to retain First Maryland to render
investment advisory and administrative services to the Fund and to each of the
Portfolios, subject to the approval of the shareholders in accordance with the
requirements of the Investment Company Act; and

WHEREAS, First Maryland is willing to render such services
under the terms of this Agreement.

NOW, THEREFORE, in consideration of the promises and mutual
covenants herein contained, and intending to be legally bound hereby, it is
agreed between the parties hereto as follows:

1. Appointment of First Maryland. The Fund hereby
appoints First Maryland to act as investment adviser to the Fund and its
Portfolios for the period and on such terms as are set forth in this Agreement.
First Maryland hereby accepts such appointment and agrees to render the
services herein set forth for the compensation herein provided.

2. Duties as Investment Adviser. Subject to the
supervision of the Fund's Board of Trustees ("Board"), First Maryland will be
responsible for providing a continuous investment program for each of the
Fund's Portfolios, including the provision of investment research and
management with respect
<PAGE> 2
to all securities and investments and cash equivalents purchased, sold or held
in the Portfolios and the selection of brokers and dealers through which
securities transactions for the respective Portfolios will be executed. In
carrying out its responsibilities under this Agreement, First Maryland will at
all times act in accordance with the investment objective, policies and
restrictions of each Portfolio as stated in the Fund's registration statement
as it may be amended from time to time ("Registration Statement") as well as
all applicable rules and regulations of the Securities and Exchange Commission.

First Maryland further agrees that it will:

(a) promptly advise the Fund's custodian and accounting
services agent ("U.S. Trust") of each purchase and sale, as the case may be,
made on behalf of each of the Portfolios of any security or other investment
specifying in each case; the name and quantity of the investment purchased or
sold, the unit and aggregate purchase or sale price, commission paid, the
market on which the transaction was effected, the trade date, the settlement
date, the identity of the effecting broker or dealer and/or such other
information as may be reasonably requested by U.S. Trust, all in such manner as
may from time to time be reasonably requested by U.S. Trust;

(b) provide, in a timely manner, such information as may
be reasonably requested by the Fund or its authorized agent in connection with
the computation of the net asset value and the net income of each Portfolio in
accordance with the procedures prescribed in the Registration Statement or as
more frequently requested by the Board, provided, however, that First Maryland
shall not be responsible for any such computation or for the calculation of the
net asset value per share of any of the Fund's Portfolios; and

(c) render regular reports to the Board concerning First
Maryland's performance of its responsibilities under this Agreement and such
other periodic and special reports as the Board may request; in particular,
First Maryland agrees that it will attend meetings of the Board or validly
constituted committees thereof.

-2-
<PAGE> 3
3. Brokerage Transactions. In placing order with
brokers and dealers, First Maryland shall obtain the most favorable execution
of such orders. However, First Maryland may, in its discretion, purchase and
sell portfolio securities to and from brokers and dealers who provide First
Maryland with research, analysis, advice and similar services, and First
Maryland may cause the Fund to pay to those brokers or dealers, in return for
research and analysis, a higher commission or spread than may be charged by
other brokers or dealers, provided that First Maryland determines in good faith
that such commission or spread is reasonable in terms either of the particular
transaction or of the overall responsibility of First Maryland to the Fund and
any other accounts with respect to which First Maryland exercises investment
discretion. In no instance will securities be purchased from or sold to First
Maryland or any affiliated person of First Maryland except in accordance with
the Investment Company Act.

4. Delegation. First Maryland may delegate any of its
duties as described in, or derived from, the duties set forth in paragraph 3 of
this Agreement, provided that any such delegation may be made only pursuant to
written agreements which satisfy the requirements of the Investment Company Act
and shall have been approved by the Fund's Board, and by the shareholders of
each Portfolio to which sum agreement applies, in accordance with the
provisions of the Investment Company Act.

5. Services Not Exclusive. The services furnished by
First Maryland hereunder are not to be deemed exclusive and First Maryland
shall be free to furnish similar services to others so long as its services
under this Agreement are not impaired thereby.

6. Books and Records. In compliance with the
requirements of Rule 31a-3 under the Investment Company Act, First Maryland
hereby agrees that all records which it maintains for the Fund and/or the
Portfolios are the property of the Fund and further agrees to surrender
promptly to the Fund any of such records upon request by the Fund. First
Maryland further agrees to preserve for the periods prescribed by Rule 31a-2
under the Investment Company Act the records required to be maintained by Rule
31a-1 under the Investment Company Act.

-3-
<PAGE> 4
7. Expenses of the Fund. All expenses shall be
allocated among the Portfolios in accordance with the Fund's Declaration of
Trust and the provisions of the Investment Company Act. During the term of
this Agreement, the Fund will bear all expenses, not specifically assumed by
First Maryland, incurred in the conduct of its operations, including, without
limitation, responsibility for the following: (a) the cost (including brokerage
commissions) of securities purchased or sold by the fees payable to, and
expenses incurred on behalf of the Fund by, fees and expenses relating to the
registration and qualification of the Fund's shares and the Fund under Federal
and/or state securities laws and maintaining such registrations and
qualifications; (e) fees and salaries payable to the Fund's directors and
officers; (f) taxes (including any income or franchise taxes) and governmental
fees; (g) costs of any liability, uncollectible items of deposit and other
insurance or fidelity bonds; (h) any costs, expenses or losses arising out of a
liability of or claim for damages or other relief asserted against the Fund for
violation of any law; (i) legal, accounting and auditing expenses, including
legal fees of special counsel at any time retained for those members of the
Board who are not interested persons of the Fund and expenses relating to the
use of consulting services by the Fund provided that the use of such services
is approved by the Fund's trustees; (j) charges of custodians, transfer agent
and other agents; (k) costs of preparing share certificates; (l) expenses of
setting in type and printing prospectuses and supplements thereto for existing
shareholders, reports, shareholder reports, and proxy materials; (m) costs of
mailing prospectuses, statements of additional information, and supplements
thereto to existing shareholders as well as shareholder reports and proxy
materials; (n) any extraordinary expenses (including fees and disbursements of
counsel) incurred by the Fund; (o) fees, voluntary assessments and other
expenses incurred in connection with membership in investment company
organizations; (p) costs of mailing and tabulating proxies and costs of
shareholders and directors meetings; and (q) the cost of investment company
literature and other publications provided by the Fund to its trustees and
officers.

The Fund may pay directly any expense incurred by it in its
normal operations and, if any such payment is consented to by First Maryland
and acknowledged as otherwise payable by First Maryland pursuant to this
Agreement, the Fund may reduce the fee

-4-
<PAGE> 5
payable to First Maryland pursuant to his Agreement by such amount. To the
extent that such deductions exceed the fee payable to First Maryland for any
monthly payment period, such excess shall be carried forward and deducted in
the same manner from the fee payable on succeeding monthly payment dates.

8. Expenses of First Maryland. First Maryland will bear
all expenses incurred by it in performing its duties as investment adviser
under this Agreement. First Maryland may, but is not required to, voluntarily
assume any portion or all of the expenses that the Fund is required to pay
under paragraph 7 hereof. In addition, if expenses borne by the Fund in any
fiscal year exceed the applicable expense limitations imposed by the securities
regulations of any state in which shares are registered or qualified for sale
to the public, First Maryland will reimburse the Fund for any excess up to the
amount of the fee payable to it during that fiscal year pursuant to this
Agreement.

9. Compensation. For the services provided and the
expenses assumed pursuant to this Agreement, the Fund will pay to First
Maryland a fee in accordance with the compensation schedule appended to this
Agreement.

10. Limitation of Liability of First Maryland. First
Maryland shall not be liable for any error of judgment or mistake of law or for
any loss suffered by the Fund or any of its Portfolios in connection with the
matters to which this Agreement relating including, without limitation, losses
that may be sustained in connection with the purchase, holding, redemption, or
sale of any security on behalf of any Portfolio of the Fund except a loss
resulting from the willful misfeasance, bad faith or gross negligence of First
Maryland in the performance of its duties or from reckless disregard by its of
its obligations and duties under this Agreement.

11. Duration and Termination. This Agreement shall
become effective upon the date first above written and, unless sooner
terminated as provided herein, shall continue in effect until the earlier of
the second anniversary of its effectiveness or the date on which the Fund's
first annual or special meeting of shareholders is held subsequent to the
effectiveness of the Registration Statement. If at such annual or special
meeting,

-5-
<PAGE> 6
this Agreement is approved by a majority of the outstanding voting securities
of the Fund, this Agreement shall continue automatically for successive periods
of twelve months each, so long as such continuance is specifically approved
with respect to each Portfolio at least annually by (a) the vote of a majority
of those members of the Board who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting called for
the purpose of voting on such approval; and (b) all of the members of the Board
or by vote of the holders of a majority of the outstanding voting securities of
the Fund.

Notwithstanding the foregoing, this Agreement may be
terminated with respect to any Portfolio or the Fund at any time, without the
payment of any penalty by the Fund, upon the vote of the Board or the vote of a
majority of the outstanding voting securities of the Fund and on 60 days'
written notice to First Maryland or by First Maryland at any time, without the
payment of any penalty, on 60 days' written notice to the Fund. This Agreement
will automatically and immediately terminate in the event of its assignment.
As used in this Agreement, the terms "majority of the outstanding voting
securities," "interested person" and "assignment" shall have the same meaning
as such terms have in the Investment Company Act.

In the event that this Agreement shall not be approved in the
manner provided herein or shall have been terminated with respect to any
Portfolio, First Maryland and the Fund shall continue to be bound by the terms
of this Agreement with respect to any other Portfolio provided that this
Agreement shall have been approved in the manner contemplated herein with
respect to such Portfolio.

12. Amendment of this Agreement. No material provision
of this Agreement may be changed, waived, discharged or terminated except by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought, and no amendment of any
material term of this Agreement shall be effective until approved by the
Board's vote of the holder of a majority of the Fund's outstanding voting
securities.

13. Name of the Fund. The Fund may use the name "ARK
Fund" or any name derived from or using the word "ARK" only for so long

-6-
<PAGE> 7
as this Agreement or any extension, renewal or amendment hereof remains in
effect. At such time as such an agreement shall no longer be in effect, the
Fund will (to the extent that it lawfully can) cease to use such a name or any
other name similar thereto.

14. Miscellaneous. First Maryland acknowledges that the
Fund is a Massachusetts business trust, and that the Fund is required by its
Declaration of Trust to limit its liability in all agreements to the assets of
the Fund. Consequently, First Maryland agrees that any claims by it against
the Fund may be satisfied only from the assets of the Fund, and no
shareholders, trustees or officers of the Fund may be held personally liable or
responsible for any obligations arising out of this agreement.

The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. In any
provisions of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by Massachusetts law.

IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated as of the day and year
first above written.

Attest: ARK FUNDS

By:
- -------------------------- --------------------------

Attest: FIRST NATIONAL BANK OF
MARYLAND

By:
- -------------------------- --------------------------

-7-
<PAGE> 8
FEE SCHEDULE

For the services provided, and the expenses assumed, by First
Maryland to the Fund under the terms of the Agreement, the Fund shall pay to
First Maryland a monthly fee at the following annual rates:

Special Equity Portfolio .60% of average daily net assets

Maryland Tax-Free Portfolio .50% of average daily net assets

Attest: ARK FUNDS

By:
- -------------------------- --------------------------

Attest: FIRST NATIONAL BANK OF
MARYLAND

By:
- -------------------------- --------------------------

Dated:

-8-
<PAGE> 9

FEE SCHEDULE
Dated , 1996

For the services provided, and the expenses assumed, by First National
Bank of Maryland ("First Maryland") to the Fund under the terms of the
Agreement, the Fund shall pay to First Maryland a monthly fee at the following
annual rates:

Short-Term Treasury Portfolio .35% of average daily net assets

Blue Chip Equity Portfolio .60% of average daily net assets

Attest: ARK FUNDS

By:
- ---------------------------------- ---------------------------------

Attest: FIRST NATIONAL BANK OF
MARYLAND

By:
- ---------------------------------- ---------------------------------

Dated: [ ], 1996

<PAGE> 1

Exhibit (11)

CONSENT OF INDEPENDENT AUDITORS

The Trustees and Shareholders
ARK Funds

We consent to the use of our report dated June 2, 1995, incorporated by
reference herein, and to the reference to our Firm under the captions
"FINANCIAL HIGHLIGHTS" in the Retail Class and Institutional Class prospectuses
and "AUDITOR" in the Retail Class and Institutional Class and Institutional II
Class statements of additional information.

KPMG PEAT MARWICK LLP

Boston, Massachusetts
February 22, 1996