ARK FUNDS/MA, 485APOS, 1996-06-18

ARK FUNDS/MA
485APOS, 1996-06-18

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<PAGE> 1

As filed with the Securities and Exchange Commission on June 18, 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. 8 [ x ]

and

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

Amendment No. 6 [ 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 Intermediate Fixed Income Portfolio, Equity Income
Portfolio, Mid-Cap Equity Portfolio and Pennsylvania Municipal Bond 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 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, Maryland Tax-Free Portfolio, Growth and Income
Portfolio, Blue Chip Equity Portfolio, Capital Growth Portfolio, Special Equity
Portfolio, and International Equity Portfolio. The Rule 24f-2 Notice for the
Registrant's fiscal year ended April 30, 1995 was filed on June 30, 1995.

Page 1 of

ARK FUNDS

CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 8

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

Statement of Additional Information

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
INTERMEDIATE FIXED INCOME PORTFOLIO
INCOME PORTFOLIO
MARYLAND TAX-FREE PORTFOLIO
PENNSYLVANIA MUNICIPAL BOND PORTFOLIO
BALANCED PORTFOLIO
EQUITY INCOME PORTFOLIO
BLUE CHIP EQUITY PORTFOLIO
MID-CAP EQUITY PORTFOLIO
STOCK PORTFOLIO
CAPITAL GROWTH PORTFOLIO
SPECIAL EQUITY PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIO

CROSS REFERENCE SHEET

Form N-1A Item Number

Part A Prospectus Caption

1 ......................... Cover Page
2 ......................... Fees and Expenses
3 a,b...................... Financial Highlights
c........................ Performance
4 a(i)..................... General Information
a(ii),b,c................ Investment Objectives and Policies;
Risks to Consider

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

ARK
FUNDS

INSTITUTIONAL CLASS
PROSPECTUS

<PAGE> 4

ARK FUNDS -- INSTITUTIONAL CLASS
- --------------------------------------------------------------------------------
PROSPECTUS

, 1996

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

<TABLE>
<S> <C>
* U.S. Treasury Money Market Portfolio * Balanced Portfolio
* U.S. Government Money Market Portfolio * Equity Income Portfolio
* Money Market Portfolio * Blue Chip Equity Portfolio
* Tax-Free Money Market Portfolio * Mid-Cap Equity Portfolio
* Short-Term Treasury Portfolio * Stock Portfolio
* Intermediate Fixed Income Portfolio * Capital Growth Portfolio
* Income Portfolio * Special Equity Portfolio
* Maryland Tax-Free Portfolio * International Equity Portfolio
* Pennsylvania Municipal Bond Portfolio
</TABLE>

ARK Funds (the "Fund") is an open-end management investment company composed of
separately managed diversified and non-diversified portfolios. The portfolios of
the Fund listed above have an Institutional Class of shares. Institutional Class
shares are offered through this Prospectus only to individuals, institutions and
other entities that have established trust, custodial or money management
relationships with The First National Bank of Maryland ("First Maryland"), its
affiliated banks (including Allied Irish Banks, p.l.c. and its affiliates), or
its correspondent banks or their affiliated banks.

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.

THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
ENDORSED OR GUARANTEED BY, FIRST MARYLAND OR ANY DEPOSITARY INSTITUTION, AND ARE
NOT INSURED BY THE FDIC, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY. INVESTING IN THE SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.

This Prospectus is designed to provide investors with information that they
should know before investing. Please read and retain it for future reference. A
Statement of Additional Information dated , 1996 and Annual Report,
including financial statements for the fiscal year ended April 30, 1996, have
been filed with the Securities and Exchange Commission and are incorporated
herein by reference. The Statement of Additional Information and Annual Report
are available upon request without charge by calling 1-800-624-4116 (inside
Maryland 1-800-638-7751).

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

<TABLE>
<S> <C>
Summary...................................... 2
Fees and Expenses............................ 4
Financial Highlights......................... 8
Investment Objectives and Policies........... 9
Risks to Consider............................ 20
Performance.................................. 22
Portfolio Transactions and Valuation......... 23
Purchases, Exchanges and Redemptions......... 24
Management of the Fund....................... 29
Tax Matters.................................. 33
General Information.......................... 36
Appendix..................................... 37
</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

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

The Fund is an open-end management investment company composed of
separately managed diversified and non-diversified portfolios. This Prospectus
provides information with respect to Institutional Class shares of the following
portfolios (the "Portfolios" and individually, a "Portfolio"):

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

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.

INTERMEDIATE FIXED INCOME PORTFOLIO -- seeks to provide current income
consistent with the preservation of capital by investing primarily in
intermediate-term fixed-income securities.

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.

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

PENNSYLVANIA MUNICIPAL BOND PORTFOLIO -- seeks to provide high current
income that is free from federal and Pennsylvania state income taxes by
investing primarily in investment-grade municipal securities.

BALANCED PORTFOLIO -- seeks to provide long-term total returns from both
capital appreciation and current income by investing in a diversified portfolio
of stocks, debt securities, and cash equivalents.

EQUITY INCOME PORTFOLIO -- seeks to provide a moderate level of current
income and growth of capital by investing primarily in high-quality,
income-producing common stocks.

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

MID-CAP EQUITY PORTFOLIO -- seeks to provide long-term capital appreciation
by investing primarily in equity securities of medium-sized companies.

STOCK PORTFOLIO -- seeks to provide long-term capital appreciation by
investing primarily in common stocks.

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

2
<PAGE> 6

SPECIAL EQUITY PORTFOLIO -- seeks to provide capital appreciation by
investing in securities of companies believed by the adviser to be "special
equities".

INTERNATIONAL EQUITY PORTFOLIO -- seeks to provide long-term capital growth
by investing primarily in foreign equity securities.

INVESTMENT ADVISERS, DISTRIBUTOR AND ADMINISTRATOR. Allied Investment
Advisors, Inc. serves as investment adviser to each Portfolio other than the
International Equity Portfolio which is advised by AIB Investment Managers
Limited. SEI Financial Services Company (the "Distributor") serves as the
distributor of the Portfolios' shares and SEI Fund Resources (the
"Administrator") serves as the Fund's administrator. See "Management of the
Fund".

PURCHASE, EXCHANGE AND REDEMPTION OF SHARES. Institutional Class shares of
the Portfolios are sold at their net asset value without a sales charge and are
currently available only to certain qualified accounts. Shares of a Portfolio
may be exchanged for shares of another Portfolio. Shareholders may redeem all or
any portion of their shares at the net asset value next determined after the
transfer agent has received the redemption request. See "Purchases, Exchanges
and Redemptions".

RISKS TO CONSIDER. As with any investment, investing in any of the
Portfolios involves certain risks and there is no assurance that a Portfolio
will achieve its investment objective. By itself, no Portfolio constitutes a
balanced investment plan. See "Risks to Consider".

SHAREHOLDERS INQUIRIES. Any questions or communications regarding the
Portfolios can be directed to the Fund at 1-800-624-4116 (inside Maryland
1-800-638-7751).

3
<PAGE> 7

FEES AND 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.

ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)

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

<TABLE>
<CAPTION>
INSTITUTIONAL CLASS
------------------------------------------------------------
U.S.
TREASURY U.S. GOVERNMENT MONEY TAX-FREE
MONEY MARKET MONEY MARKET MARKET MONEY MARKET
PORTFOLIO PORTFOLIO* PORTFOLIO PORTFOLIO
------------ --------------- --------- ------------
<S> <C> <C> <C> <C>
Advisory Fees (after waivers)(1)............. .19% .14% .10% .09%
Other Expenses (after waivers)(2)............ .18% .18% .17% .20%
---- ---- ---- ----
Total Operating Expenses (after
waivers)(3)................................ .37% .32% .27% .29%
==== ==== ==== ====
</TABLE>

* Institutional Class shares of this Portfolio are not being offered as of the
date of this Prospectus.

(1) The adviser has agreed to waive, on a voluntary basis, a portion of its fees
for each Portfolio and the advisory fees shown reflect those voluntary
waivers. The adviser reserves the right to terminate its fee waivers at any
time in its sole discretion. Absent such waivers, the advisory fee for each
Portfolio would be .25%.

(2) Other expenses include all expenses except nonrecurring account fees,
brokerage commissions and other capital items, and advisory fees. The
Administrator has agreed to waive, on a voluntary basis, a portion of its
fee for the Money Market Portfolio and the other expenses shown for that
Portfolio reflect the voluntary waiver. The Administrator reserves the right
to terminate its fee waiver at any time in its sole discretion. Absent such
waiver, the administration fee for the Money Market Portfolio would be .13%.

(3) Absent the voluntary fee waivers described above, total operating expenses
for Institutional Class shares of the U.S. Treasury Money Market Portfolio,
U.S. Government Money Market Portfolio, Money Market Portfolio and Tax-Free
Money Market Portfolio would be .43%, .43% .43% and .45%, respectively.

EXAMPLE

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

An investor in Institutional Class shares would pay the following expenses
on a $1,000 investment assuming (1) 5% annual return and (2) redemption at the
end of each time period:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
U.S. Treasury Money Market Portfolio................................ 4 12
U.S. Government Money Market Portfolio.............................. 3 10
Money Market Portfolio.............................................. 3 9
Tax-Free Money Market Portfolio..................................... 3 9
</TABLE>

The example assumes that all dividends and distributions are reinvested and that
the amounts listed under "Total 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.

4
<PAGE> 8

ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)

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

<TABLE>
<CAPTION>
INSTITUTIONAL CLASS
---------------------------------------------------------------
PENNSYLVANIA
SHORT-TERM INTERMEDIATE MARYLAND MUNICIPAL
TREASURY FIXED INCOME INCOME TAX-FREE BOND
PORTFOLIO PORTFOLIO* PORTFOLIO PORTFOLIO PORTFOLIO*
---------- ------------ --------- -------- ------------
<S> <C> <C> <C> <C> <C>
Advisory Fees (after waivers)(1).............. .30% .45% .50% .45% .37%
Other Expenses (after waivers)(2)............. .25% .23% .20% .23% .26%
---- --- --- --- ---
Total Operating Expenses (after waivers)(3)... .55% .68% .70% .68% .63%
==== === === === ===
</TABLE>

* Institutional Class shares of this Portfolio are not being offered as of the
date of this Prospectus.

(1) The adviser has agreed to waive, on a voluntary basis, a portion of its fees
for the Short-Term Treasury Portfolio, Intermediate Fixed Income Portfolio,
Maryland Tax-Free Portfolio and Pennsylvania Municipal Bond Portfolio and
the advisory fees shown reflect those voluntary waivers. The adviser
reserves the right to terminate its fee waivers at any time in its sole
discretion. Absent such waivers, the advisory fees for the Short-Term
Treasury Portfolio, Intermediate Fixed Income Portfolio, Maryland Tax-Free
Portfolio and Pennsylvania Municipal Bond Portfolio would be .35%, .60%,
.50% and .50%, respectively.

(2) Other expenses include all expenses except nonrecurring account fees,
brokerage commissions and other capital items, and advisory fees.

(3) Absent the voluntary fee waivers described above, total operating expenses
for Institutional Class shares of the Short-Term Treasury Portfolio,
Intermediate Fixed Income Portfolio, Maryland Tax-Free Portfolio and
Pennsylvania Municipal Bond Portfolio would be .60%, .83%, .73% and .76%,
respectively.

EXAMPLE

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

An investor in Institutional Class shares would pay the following expenses
on a $1,000 investment assuming (1) 5% annual return and (2) redemption at the
end of each time period:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Short-Term Treasury Portfolio....................................... 6 18
Intermediate Fixed Income Portfolio................................. 7 22
Income Portfolio.................................................... 7 22
Maryland Tax-Free Portfolio......................................... 7 22
Pennsylvania Municipal Bond Portfolio............................... 6 20
</TABLE>

5
<PAGE> 9

ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)

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

<TABLE>
<CAPTION>
INSTITUTIONAL CLASS
---------------------------------------------------------------
EQUITY BLUE CHIP MID-CAP
BALANCED INCOME EQUITY EQUITY STOCK
PORTFOLIO PORTFOLIO* PORTFOLIO PORTFOLIO* PORTFOLIO*
-------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Advisory Fees (after waivers)(1)................ .55% .60% .40% .65% .65%
Other Expenses (after waivers)(2)............... .20% .23% .25% .25% .25%
---- - ---- - -
Total Operating Expenses (after waivers)(3)..... .75% .83% .65% .90% .90%
==== = ==== = =
</TABLE>

* Institutional Class shares of this Portfolio are not being offered as of the
date of this Prospectus.

(1) The adviser has agreed to waive, on a voluntary basis, a portion of its fees
for the Equity Income Portfolio, Blue Chip Equity Portfolio, Mid-Cap Equity
Portfolio and Stock Portfolio and the advisory fees shown reflect those
voluntary waivers. The adviser reserves the right to terminate its fee
waivers at any time in its sole discretion. Absent such waivers, the
advisory fees for the Equity Income Portfolio, Blue Chip Equity Portfolio,
Mid-Cap Equity Portfolio and Stock Portfolio would be .70%, .60%, .70% and
.70%, respectively.

(2) Other expenses include all expenses except nonrecurring account fees,
brokerage commissions and other capital items, and advisory fees.

(3) Absent the voluntary fee waivers described above, total operating expenses
for Institutional Class shares of the Equity Income Portfolio, Blue Chip
Equity Portfolio, Mid-Cap Equity Portfolio and Stock Portfolio would be
.93%, .85%, .95% and .95%, respectively.

EXAMPLE

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

An investor in Institutional Class shares would pay the following expenses
on a $1,000 investment assuming (1) 5% annual return and (2) redemption at the
end of each time period:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Balanced Portfolio.................................................. 8 24
Equity Income Portfolio............................................. 26 46
Blue Chip Equity Portfolio.......................................... 7 21
Mid-Cap Equity Portfolio............................................ 9 29
Stock Portfolio..................................................... 9 29
</TABLE>

6
<PAGE> 10

ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)

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

<TABLE>
<CAPTION>
INSTITUTIONAL CLASS
---------------------------------------
CAPITAL SPECIAL INTERNATIONAL
GROWTH EQUITY EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- -------------
<S> <C> <C> <C>
Advisory Fees (after waivers)(1).................................. .00% .60% .56%
Other Expenses (after waivers)(2)................................. .23% .27% .99%
---- -
-----
Total Operating Expenses (after waivers)(3)....................... .23% .87% 1.55%
==== = =====
</TABLE>

(1) The adviser has agreed to waive, on a voluntary basis, a portion of its fee
for the Capital Growth Portfolio; the adviser to the International Equity
Portfolio has agreed, on a voluntary basis, to waive its fee (and, if
necessary, to reimburse other expenses) in order to limit the Portfolio's
expense ratio to 1.55%. The advisory fees shown reflect these voluntary
waivers. The advisers reserve the right to terminate their fee waivers at
any time in their sole discretion. Absent such waivers, the advisory fees
for the Capital Growth Portfolio and International Equity Portfolio would be
.60% and .80%, respectively.

(2) Other expenses include all expenses except nonrecurring account fees,
brokerage commissions and other capital items, and advisory fees.

(3) Absent the voluntary fee waivers described above, total operating expenses
for Institutional Class shares of the Capital Growth Portfolio and
International Equity Portfolio would be .83% and 1.79%, respectively.

EXAMPLE

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

An investor in Institutional Class shares would pay the following expenses
on a $1,000 investment assuming (1) 5% annual return and (2) redemption at the
end of each time period:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Capital Growth Portfolio............................................ 2 7
Special Equity Portfolio............................................ 9 28
International Equity Portfolio...................................... 16 49
</TABLE>

7
<PAGE> 11

FINANCIAL HIGHLIGHTS

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

The following tables provide information about the financial history of the
Institutional Class of each Portfolio (excluding Portfolios which, as of the
date of this Prospectus, do not offer Institutional Class shares or whose
Institutional Class commenced operations after April 30, 1996). These tables
express the information in terms of a single share outstanding throughout the
period. The data for the fiscal year ended April 30, 1996 has been audited by
, 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.

[To Be Completed By Amendment]

8
<PAGE> 12

INVESTMENT OBJECTIVES AND POLICIES

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

The Fund consists of separate investment portfolios with a variety of
investment objectives and policies. A Portfolio's investment adviser is
responsible for providing a continuous investment program in accordance with its
investment objective and policies. Except for its investment objective and those
policies identified as fundamental, the investment policies of a Portfolio are
not fundamental and may be changed by the Board of Trustees of the Fund without
shareholder approval.

The investment objectives and policies of the Portfolios are set forth
below. Additional information regarding the types of securities in which the
Portfolios may invest and certain investment transactions is provided in the
"Appendix" to this Prospectus. Additional information regarding the investment
policies of the Portfolios and a complete listing of each Portfolio's investment
limitations is contained in the Statement of Additional Information.

MONEY MARKET PORTFOLIOS

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

The U.S. TREASURY MONEY MARKET PORTFOLIO, U.S. GOVERNMENT MONEY MARKET
PORTFOLIO, MONEY MARKET PORTFOLIO and TAX-FREE MONEY MARKET PORTFOLIO 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 the adviser to present minimal credit risks in accordance with
guidelines adopted by the Board of Trustees. The money market Portfolios seek to
maintain a net asset value per share of $1.00, limit their investments to
securities with remaining maturities of 397 days or less, and maintain a
dollar-weighted average maturity of 90 days or less. Estimates may be used in
determining a security's maturity for purposes of calculating average maturity.
An estimated maturity can be substantially shorter than a stated final maturity.

Although the money market 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.

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

9
<PAGE> 13

instruments. As a non-fundamental policy, the Portfolio invests 100% of its
total assets in U.S. Government Securities and in repurchase agreements backed
by such instruments. The Portfolio normally may not invest more than 5% of its
total assets in the securities of any single issuer (other than the U.S.
government). Under certain conditions, however, the Portfolio may invest up to
25% of its total assets in first-tier securities of a single issuer for up to
three days.

The investment objective of the MONEY MARKET PORTFOLIO is to maximize
current income and provide liquidity and security of principal by investing in a
broad range of short-term, high-quality U.S. dollar-denominated debt securities
("Money Market Instruments"). The Money Market Portfolio may invest more than
25% of its total assets in certain obligations of domestic banks and normally
may not invest more than 5% of its total assets in the securities of any single
issuer (other than the U.S. government). Under certain conditions, however, the
Portfolio may invest up to 25% of its total assets in first-tier securities of a
single issuer for up to three days.

The Money Market 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 the 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 determined by the adviser to be
comparable in quality to rated securities in accordance with guidelines adopted
by the Board of Trustees.

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

The Tax-Free Money Market Portfolio invests in high-quality, short-term
municipal securities but may also invest in high-quality, long-term fixed,
variable, or floating rate instruments (including tender option bonds) which
have demand features or interest rate adjustment features that result in
interest rates, maturities, and prices similar to short-term instruments. The
Portfolio's investments in municipal securities may include tax, revenue, or
bond anticipation notes; tax-exempt commercial paper; general obligation or
revenue bonds (including municipal lease obligations and resource recovery
bonds); and zero coupon bonds.

The adviser anticipates that the Tax-Free Money Market 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

10
<PAGE> 14

order to meet anticipated redemption requests, the Portfolio may hold cash which
is not earning income.

At least 95% of the assets of the 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 the adviser to be comparable in quality to rated securities in
accordance with guidelines adopted by the Board of Trustees.

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

SHORT-TERM TREASURY PORTFOLIO

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The investment objective of the 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 invests 100% of its total assets in instruments which are
issued or guaranteed by the U.S. government and thus constitute direct
obligations of the United States, and in repurchase agreements backed by such
instruments. As a non-fundamental policy, the Portfolio will invest 100% of its
total assets in U.S. Treasury bills, notes and bonds, and will limit its
investments to U.S. Treasury obligations that pay interest that is specifically
exempt from state and local taxes under federal law.

The Portfolio has no restrictions on maturity but generally will maintain a
dollar-weighted average maturity of approximately two years. The average
maturity of the Portfolio's debt obligations will vary depending on market
conditions. In making investment decisions for the Portfolio, the adviser will
consider factors in addition to current yield, including preservation of
capital, the potential for realizing capital appreciation, maturity and yield to
maturity. The adviser 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.

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INTERMEDIATE FIXED INCOME PORTFOLIO

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The investment objective of the INTERMEDIATE FIXED INCOME PORTFOLIO is to
provide current income consistent with the preservation of capital by investing
primarily in intermediate-term fixed-income securities.

The Portfolio may invest in income-producing securities of all types,
including bonds, notes, mortgage securities, government and government agency
obligations, zero coupon securities, convertible securities, foreign securities,
indexed securities, and asset-backed securities. The Portfolio normally will
invest in investment-grade debt securities (including convertible securities)
and unrated securities determined by the adviser to be of comparable quality.
The Portfolio may also invest up to 5% of its total assets in lower-quality debt
securities, sometimes referred to as "junk bonds". Common stocks acquired
through the exercise of conversion rights or warrants, or the acceptance of
exchange or similar offers, ordinarily will not be retained by the Portfolio. An
orderly disposition of these stocks will be effected consistent with the
judgment of the adviser as to the best price available.

Under normal circumstances, at least 65% of the Portfolio will be invested
in fixed-income securities with maturities of 3 to 10 years. The average
maturity of the Portfolio's debt obligations will vary depending on market
conditions. In making investment decisions for the Portfolio, the adviser will
consider factors in addition to current yield, including preservation of
capital, the potential for realizing capital appreciation, maturity and yield to
maturity. The adviser 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.

INCOME PORTFOLIO
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The investment objective of the INCOME PORTFOLIO is 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.

Under normal circumstances, at least 65% of the Portfolio will be invested
in fixed-income securities. The Portfolio may invest in income-producing
securities of all types, including bonds, notes, mortgage securities, government
and government agency obligations, zero coupon securities, convertible
securities, foreign securities, indexed securities, and asset-backed securities.
The Portfolio normally will invest in investment-grade debt securities
(including convertible securities) and unrated securities determined by the
adviser to be of comparable quality. The Portfolio may also invest up to 5% of
its total assets in lower-quality debt securities, sometimes referred to as
"junk bonds". Common stocks acquired through exercise of conversion rights or
warrants or acceptance of exchange or similar offers ordinarily will not be
retained by the Portfolio. An orderly disposition of such stocks will be
effected consistent with the judgment of the adviser as to the best price
available.

The average maturity of the Portfolio's debt obligations will vary
depending on market conditions. In making investment decisions for the
Portfolio, the adviser will consider factors in

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<PAGE> 16

addition to current yield, including preservation of capital, the potential for
realizing capital appreciation, maturity and yield to maturity. The adviser 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.

MARYLAND TAX-FREE PORTFOLIO

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The investment objective of the MARYLAND TAX-FREE PORTFOLIO is to provide
high current income that is free from federal income tax and the Maryland state
and county income taxes.

Under normal circumstances, at least 65% of the Portfolio's total assets is
invested in Maryland municipal securities. In addition, as a matter of
fundamental policy, the Portfolio's assets will be invested during periods of
normal market conditions so that at least 80% of its income will not be subject
to federal income tax, including the federal alternative minimum tax.

The Portfolio normally invests primarily in investment-grade debt
securities (and unrated securities determined by the adviser to be of comparable
quality), but may also invest up to 5% of its total assets in lower-quality debt
securities, sometimes referred to as "junk bonds". 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 to 10 years. The
average maturity of the Portfolio's debt obligations will vary depending on
market conditions.

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

The adviser 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.

PENNSYLVANIA MUNICIPAL BOND PORTFOLIO

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The investment objective of the PENNSYLVANIA MUNICIPAL BOND PORTFOLIO is to
provide high current income that is free from federal and Pennsylvania state
income taxes.

Under normal circumstances, at least 65% of the Portfolio will be invested
in Pennsylvania municipal securities. In addition, as a matter of fundamental
policy, the Portfolio's assets will be invested during periods of normal market
conditions so that at least 80% of its income will not be subject to federal
income tax, including the federal alternative minimum tax.

The Portfolio invests primarily in investment-grade debt securities (and
unrated securities determined by the adviser to be of comparable quality), but
also may invest up to 5% of its total assets in lower-quality debt securities,
sometimes referred to as "junk bonds". The Portfolio has no restrictions on
maturity; however, it will generally invest in medium- and long-term bonds and

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<PAGE> 17

maintain a dollar-weighted average maturity of 7 to 10 years. The average
maturity of the Portfolio's debt obligations will vary depending on market
conditions.

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

BALANCED PORTFOLIO

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The investment objective of the BALANCED PORTFOLIO(formerly the 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 Portfolio may invest in preferred stock and convertible
securities. Debt securities acquired by the Portfolio may include mortgage or
asset-backed securities, corporate issues, indexed securities, and U.S.
Government Securities. The Portfolio normally will invest in investment-grade
debt securities (including convertible securities) and unrated securities
determined by the adviser to be of comparable quality, but may also invest up to
5% of its total assets in lower-quality debt securities, sometimes referred to
as "junk bonds". The average maturity of the Portfolio's debt obligations will
vary depending on market conditions. The adviser may adjust the Portfolio's
investments based on its interpretation of underlying economic, financial, and
security trends; however, the adviser's ability to make such adjustments
successfully will depend on its ability to predict market trends. The Portfolio
maintains at least 25% of its total assets in fixed-income securities.

The Portfolio emphasizes long-term total return from capital appreciation
and current income. Although it is not a policy of the Portfolio to engage in
short-term trading, the adviser may dispose of securities without regard to the
length of time they are held if it believes such action will benefit the
Portfolio. Although the adviser will consider the potential for income in
selecting investments for the Portfolio, the Portfolio is generally not intended
to achieve a level of income comparable to fixed-income portfolios.

EQUITY INCOME PORTFOLIO

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The investment objective of the EQUITY INCOME PORTFOLIO is to provide a
moderate level of current income and growth of capital by investing primarily in
high-quality, income-producing common stocks.

The Portfolio seeks capital appreciation from a broadly diversified
portfolio of common stocks which, in general, have above-average dividend yields
relative to the stock market as measured by

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<PAGE> 18

the Standard & Poor's 500 Index. Under normal circumstances, at least 65% of the
Portfolio will be invested in common stocks. The Portfolio may invest up to 35%
of its assets in other types of securities, including investment-grade debt
securities (and unrated securities determined by the adviser to be of comparable
quality) and preferred stock convertible into common stock.

The adviser considers many factors when evaluating a security for
investment by the Portfolio, including the company's current financial strength
and relative value. Although the adviser will consider the potential for income
in selecting investments for the Portfolio, the Portfolio is generally not
intended to achieve a level of income comparable to fixed-income portfolios. The
adviser may adjust the Portfolio's investments based on its interpretation of
underlying economic, financial, and security trends; however, the adviser's
ability to make such adjustments successfully will depend on its ability to
predict market trends.

BLUE CHIP EQUITY PORTFOLIO
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The investment objective of the BLUE CHIP EQUITY PORTFOLIO is to achieve
long-term appreciation by investing primarily in equity securities of
established, large capitalization companies. The Portfolio is expected to
produce current investment income consistent with its primary objective.

The Portfolio seeks capital appreciation from a broadly diversified
portfolio of common stocks of established, large capitalization companies. The
adviser 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,
and asset-backed securities. The Portfolio normally invests in investment-grade
debt securities (including convertible securities) and unrated securities
determined by the adviser to be of comparable quality, but may invest up to 5%
of its total assets in lower-quality debt securities, sometimes referred to as
"junk bonds".

Under normal circumstances, at least 65% of the Portfolio will be invested
in equity securities of companies with an operating histories of three years or
more and capitalizations 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 the adviser believes offer above-average growth potential based
on their fundamental strength. The adviser 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.

MID-CAP EQUITY PORTFOLIO

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The investment objective of the MID-CAP EQUITY PORTFOLIO is to provide
long-term capital appreciation by investing primarily in equity securities of
medium-sized companies.

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growth potential. The adviser will seek to identify companies which have
above-average trends in sales and earnings and whose valuation by the market is
relatively low or unrecognized.

Assets not invested in equity securities of medium-sized companies as
described above may be invested in equity securities of larger, more established
companies or in investment-grade fixed-income securities (and unrated securities
determined by the adviser to be of comparable quality).

STOCK PORTFOLIO

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The investment objective of the STOCK PORTFOLIO is to provide long-term
capital appreciation by investing primarily in common stocks.

The Portfolio seeks capital appreciation from a broadly diversified
portfolio of common stocks. The adviser will seek to identify growth-oriented
companies for investment by the Portfolio, including market leaders in various
industries. Under normal circumstances, at least 65% of the Portfolio will be
invested in common stocks.

Assets not invested in common stocks as described above may be invested in
other equity securities (including preferred stock), convertible securities, or
investment-grade debt securities (and unrated securities determined by the
adviser to be of comparable quality).

CAPITAL GROWTH PORTFOLIO
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The investment objective of the CAPITAL GROWTH PORTFOLIO is to provide
long-term capital appreciation. The Portfolio is expected to produce modest
dividend or interest income. This income will be incidental to the Portfolio's
primary objective.

The Portfolio seeks capital appreciation from a broadly diversified
portfolio of primarily common stocks and securities convertible into common
stock. The adviser 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 and indexed
securities. Debt securities (including convertible securities) in which the
Portfolio invests will normally be investment grade or unrated securities
determined by the adviser to be of comparable quality. The Portfolio may,
however, invest up to 5% of its total assets in lower-quality debt securities,
sometimes referred to as "junk bonds".

It is the Portfolio's policy to invest in the securities of both
well-known, established companies and smaller, less-well-known companies. The
Portfolio will invest in securities that the adviser believes offer
above-average growth potential based on their fundamental strength. The adviser
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.

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SPECIAL EQUITY PORTFOLIO

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The investment objective of the SPECIAL EQUITY PORTFOLIO is to provide
capital appreciation by investing primarily in securities of companies believed
by the adviser to be "special equities".

Under normal circumstances, at least 65% of the Portfolio will be invested
in "special equities" which include equity securities of: (1) a company with a
market capitalization of $1.2 billion or less at the time of investment and
deemed by the adviser 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 the company. The Portfolio will
invest in securities that the adviser 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 may also invest in
securities of companies that are not special equities, but which have valuable
fixed assets and whose securities are believed by the adviser to be undervalued
in relation to their assets, earnings, or growth potentials.

The adviser intends to invest primarily in common stocks and securities
that are convertible into common stocks; however, the Portfolio may also invest
up to 35% of its total assets in debt securities of all types and quality if the
adviser believes that investing in these securities will result in capital
appreciation. The Portfolio may invest in lower-quality debt securities,
sometimes referred to as "junk bonds". The Portfolio may invest up to 35% of its
total assets in foreign securities of all types and may enter into forward
currency contracts for the purpose of managing exchange rate risks and to
facilitate transactions in foreign securities. The Portfolio may purchase or
engage in indexed securities, illiquid instruments, loans and other direct debt
instruments, options and futures contracts, repurchase agreements, securities
loans, restricted securities, swap agreements, warrants, real estate-related
instruments and zero coupon bonds. See "Risks to Consider", the "Appendix" to
this Prospectus and the Statement of Additional Information for more
information.

The Portfolio spreads investment risk by limiting its holdings in any one
company or industry. The adviser may use various investment techniques to hedge
the Portfolio's risks, but there is no guarantee that these strategies will work
as the adviser intended. The adviser normally invests the Portfolio's assets
according to its investment strategy. The Portfolio expects to be fully invested

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<PAGE> 21

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 the adviser's judgment, a more
conservative approach to investment is desirable.

INTERNATIONAL EQUITY PORTFOLIO
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The investment objective of the INTERNATIONAL EQUITY PORTFOLIO is to
provide long-term capital growth. Dividend income is incidental to the
Portfolio's primary objective.

Under normal circumstances, at least 65% of the Portfolio will be invested
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.

When allocating the Portfolio's investments among geographic regions and
individual countries, the adviser 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. The adviser 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 also invest in investment-grade convertible debt securities (and unrated
securities determined by the adviser to be of comparable quality), and may
purchase U.S. government securities and indexed securities.

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. The Portfolio's adviser 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. If the adviser increases the Portfolio's exposure to a
foreign currency and its value falls, the adviser's strategy may result in
increased losses to the Portfolio. Similarly, if the adviser hedges the
Portfolio's exposure to a foreign currency and its value subsequent rises, the
Portfolio will lose the opportunity to participate in the currency's
appreciation.

ADDITIONAL INVESTMENT POLICIES AND LIMITATIONS

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U.S. government agencies or instrumentalities include instruments issued by the
Federal Home Loan Bank, Federal Farm Credit Bank and Federal National Mortgage
Association.

MONEY MARKET INSTRUMENTS. 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.

For temporary defensive purposes, the non-money-market Portfolios may
invest all or a portion of their assets in Money Market Instruments.

INVESTMENT GRADE SECURITIES. Investment grade securities are securities
which have been rated Baa or higher by Moody's Investors Service, Inc.
("Moody's") or BBB or higher by Standard & Poor's Ratings Group ("S&P"), or
which have equivalent ratings by other NRSROs. Securities rated Baa or BBB may
be regarded as having speculative characteristics. See the Statement of
Additional Information for a description of the various rating categories.

INVESTMENT LIMITATIONS. Each of the Portfolios has adopted certain
investment limitations. The principal investment limitations of the Portfolios
are summarized below. A complete listing is contained in the Statement of
Additional Information. With the exception of 3(b), these limitations are
fundamental policies and may only be changed with shareholder approval.

1. Each Portfolio (other than the Maryland Tax-Free Portfolio and
Pennsylvania Municipal Bond 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 the U.S. government) if as a result,
(a) more than 5% of its total assets would be invested in the securities of that
issuer, or (b) it would hold more than 10% of the issuer's outstanding voting
securities.

2. Each Portfolio (other than the Money Market Portfolio) may not purchase
a security (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 its
total assets would be invested in securities of a particular industry. The Money
Market Portfolio may invest 25% or more of its assets in obligations of domestic
banks.

3. A 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. A Portfolio may not make a loan if more than 33 1/3% of its assets would
be lent to other parties. The 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.

OTHER POLICIES. The "Appendix" to this Prospectus contains additional
information concerning certain securities in which the Portfolios may invest and
transactions in which they may engage. See the Statement of Additional
Information for a complete listing of the Portfolios' investment policies and
limitations and more detailed information about the Portfolios' investments.

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RISKS TO CONSIDER

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An investment in any of the Portfolios involves certain risks. These risks
include the following:

FIXED-INCOME SECURITIES. The market value of fixed-income securities will
change in response to interest rate changes and other factors. During periods of
falling interest rates, the value of outstanding fixed-income securities
generally rises. Conversely, during periods of rising interest rates, the value
of such securities generally declines. Moreover, while securities with longer
maturities tend to produce higher yields, the prices of longer maturity
securities are also subject to greater market fluctuations as a result of
changes in interest rates. Changes by recognized agencies in the credit rating
of any fixed-income security and in the ability of an issuer to make payments of
interest and principal also affect the value of these investments. Changes in
the value of portfolio securities will not necessarily affect cash income
derived from those securities but will affect the net asset value of the
Portfolio's shares.

Bonds rated Baa by Moody's or BBB by S&P, or with equivalent ratings by
other NRSROs, 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. Debt securities rated Baa or lower by Moody's or BB or lower by S&P, or
with equivalent ratings by other NRSROs, (sometimes referred to as "junk bonds")
have poor protection against default in 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. Market
prices of lower-rated debt securities may fluctuate more than those of
higher-rated securities, and may decline significantly in periods of general
economic difficulty which may follow rising interest rates. Unrated securities
are not necessarily of lower quality than rated securities, but they may not be
attractive to as many buyers.

MUNICIPAL OBLIGATIONS. The Tax-Free Money Market Portfolio, Maryland
Tax-Free Portfolio and Pennsylvania Municipal Bond Portfolio invest primarily in
municipal obligations and other Portfolios may invest in such obligations to the
extent permitted by their investment policies. 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. The adviser monitors the financial condition of
parties (including insurance companies, banks, and corporations) whose
creditworthiness is relied upon in determining the credit quality of securities
a Portfolio may purchase.

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determining whether to purchase an instrument supported by an LOC. In evaluating
a foreign bank's credit, the adviser 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.

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.

EQUITY SECURITIES GENERALLY. Investments in equity securities are subject
to market risks which may cause their prices to fluctuate. Accordingly, the
Portfolios investing in equity securities may be more suitable for long-term
investors who can bear the risk of short-term fluctuations. Changes in the value
of portfolio securities will not necessarily affect income derived from those
securities but will affect the net asset value of the Portfolio's shares. Equity
securities held by a Portfolio may not perform well during certain market cycles
and may not respond to general market movements to the same extent as other
securities.

SMALLER-CAPITALIZATION COMPANIES. The Special Equity Portfolio emphasizes
investments in companies with relatively-small market capitalizations and other
Portfolios may invest in such companies to the extent permitted by their
investment policies. The equity securities of smaller-capitalization companies
frequently have experienced greater price volatility than those of larger-
capitalization companies, and they may be expected to do so in the future. Their
reliance on limited product lines, markets, financial resources, or other
factors may make smaller companies more susceptible to setbacks and downturns.
As a result, their stock prices may be particularly volatile.

FOREIGN SECURITIES. Investing in the securities of foreign issuers involves
special risks not typically associated with investing in U.S. companies. These
risks include differences in accounting, auditing and financial reporting
standards, generally higher commission rates on foreign portfolio transactions,
the possibility of expropriation or confiscatory taxation, adverse changes in
investment or exchange control regulations, political instability which could
affect U.S. investment in foreign countries, and potential restrictions on the
flow of international capital and currencies. Foreign issuers may also be
subject to less government regulation than U.S. companies. Moreover, the
dividends and interest payable on foreign securities may be subject to foreign
withholding taxes, thus reducing the net amount of income available for
distribution to a Portfolio's shareholders. Further, foreign securities often
trade with less frequency and volume than domestic securities and, therefore,
may exhibit greater price volatility. Changes in foreign exchange rates will
affect, favorably or unfavorably, the value of those securities which are
denominated or quoted in currencies other than the U.S. dollar.

NON-DIVERSIFICATION. Investing in the Maryland Tax-Free Portfolio or
Pennsylvania Municipal Bond Portfolio, which are non-diversified Portfolios, may
entail greater risk than investing in a diversified Portfolio because the
concentration in securities of relatively-fewer issuers could result in greater
fluctuation in the total market value of the Portfolio's holdings. Any economic,
political or regulatory developments affecting the value of the securities the
Portfolio holds could have a

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greater impact on the total value of its holdings than would be the case if the
securities were diversified among more issuers.

OTHER. Certain other investments and investment techniques permitted for
the Portfolios pose special risks in addition to those described above. See the
"Appendix" to this Prospectus and the Statement of Additional Information for
more information.

By itself no Portfolio constitutes a balanced investment plan. There is no
assurance that a Portfolio will achieve its investment objective. Changes in the
values of a Portfolio's investments will generally not affect the income derived
from them; however, they may affect the Portfolio's share price. The yield and
total return of the Portfolios will fluctuate. The money market Portfolios seek
to maintain a stable net asset value per share of $1.00 but there is no
assurance that they will be able to do so. The share price of the
non-money-market Portfolios will fluctuate and investors may have a gain or loss
when redeeming shares.

Investors should review the investment objective and policies of a
Portfolio and carefully consider their ability to assume the risks involved in
purchasing its shares.

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

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

The YIELD of shares of a Portfolio is calculated by dividing the net
investment income earned by the shares over a 7-day period (for the money market
Portfolios) and a 30-day period (for other Portfolios), 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 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 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.

22
<PAGE> 26

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.

Each Portfolio may periodically compare its performance to the performance
of other mutual funds tracked by mutual-fund rating services, broad groups of
comparable mutual funds, or unmanaged indices which may assume investment of
dividends but generally do not reflect deductions for administrative and
management costs. Certain Portfolios may advertise performance that includes
results from periods in which the Portfolio's assets were managed in a
non-registered predecessor vehicle.

For additional performance information, please call 1-800-624-4116 (inside
Maryland 1-800-638-7751 to request a Statement of Additional Information and
Annual Report.

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

Subject to the general supervision of the Board of Trustees, a Portfolio's
adviser is responsible for placing orders for securities transactions.
Transactions in debt securities 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. Transactions involving equity securities 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 the advisers 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 the adviser. If more than one account managed by an adviser is
purchasing or selling the same security, such orders may be aggregated in the
interest of achieving the most favorable execution.

The Portfolios have authorized the advisers to allocate transactions to
some broker-dealers who help distribute the Portfolios' shares, and on an agency
basis to Goodbody Stockbrokers, an affiliate of the advisers. The advisers 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 % for the Intermediate Fixed Income
Portfolio, % for the Pennsylvania Municipal Bond Portfolio, 50% for the
Equity Income Portfolio, 150% for the Mid-Cap Equity Portfolio and 60% for the
Stock Portfolio. Because a higher turnover rate increases transaction costs and
may increase taxable capital gains, the advisers carefully weigh the anticipated
benefits of short-term investing against these consequences.

VALUATION. The net asset value of the Institutional Class shares of each
Portfolio is calculated by adding the Institutional Class' pro rata share of the
value of all securities and other assets

23
<PAGE> 27

attributable to a Portfolio, deducting the Institutional Class' pro rata share
of Portfolio-level liabilities, deducting Institutional Class-specific
liabilities, and dividing the result by the number of Institutional Class shares
outstanding. 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 of
Trustees. Fair value of portfolio securities is determined by an independent
pricing service approved by the Board of Trustees 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.
Assets of the money market Portfolios are valued based upon the amortized cost
method.

PRICING OF SHARES. The Portfolios are open for business and the net asset
values of their shares 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 net asset value next calculated
after the order is received and accepted by the transfer agent. The net asset
values of the Portfolios (other than the 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 net asset values of the 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 net
asset values of the 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 or
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
- --------------------------------------------------------------------------------

OPENING AN ACCOUNT. Institutional Class shares are sold without a sales
charge and are currently available only to individuals, institutions and other
entities 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 its correspondent banks or their
affiliated banks ("qualified accounts"). An initial investment in Institutional
Class 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 by calling 1-800-624-4116 (inside Maryland 1-800-638-7751).

The minimum initial investment required to establish a new account is $100,000.
After meeting this 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

24
<PAGE> 28

account of a bank or other institution may be aggregated for this purpose.
Subsequent investments may be made in any amount.

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

MONEY MARKET PORTFOLIOS. Payments for Institutional Class shares of a money
market Portfolio must be made in federal funds or other funds immediately
available to the 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 the U.S. Treasury Money Market Portfolio and Tax-Free Money
Market Portfolio) or 1:30 p.m. (for the Money Market Portfolio and U.S.
Government Money Market Portfolio). If a purchase order, together with available
funds, is received after 12:00 noon or 1:30 p.m., but before 4:00 p.m., it will
be processed at the net asset value determined at 4:00 p.m. and the shares
purchased 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 net asset
value next determined on the following Business Day.

OTHER PORTFOLIOS. Purchase orders for Institutional Class shares of
Portfolios (other than the money market Portfolios) must be received before 4:00
p.m. any Business Day in order to receive the net asset value determined on that
day and to be eligible for dividends the next Business Day. Any orders received
after 4:00 p.m. will receive the net asset value next determined on 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 order.

When the NYSE or the Federal Reserve Bank of New York closes early, the
Fund reserves the right to advance the time on any such day by which purchase
orders must be received.

The Fund reserves the right to reject any purchase order.

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

It is anticipated that First Maryland will be the holder of record for all
Institutional Class 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 Institutional Class shares will
be issued.

Shareholders may instruct First Maryland to purchase Institutional Class
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 1-800-624-4116 (inside Maryland 1-800-638-7751).

The services rendered by First Maryland in the management of its accounts
are not duplicative of any of the services for which the advisers are
compensated for managing and advising the

25
<PAGE> 29

Portfolios. 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 Institutional Class 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 net asset value 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

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

Each money market Portfolio declares dividends daily and pays them monthly.
Income dividends for the Short-Term Treasury Portfolio, Intermediate Fixed
Income Portfolio, Income Portfolio, Maryland Tax-Free Portfolio and Pennsylvania
Municipal Bond Portfolio are declared and paid monthly; for the Balanced
Portfolio, Equity Income Portfolio and Blue Chip Equity Portfolio they are
declared and paid quarterly; and for the Mid-Cap Equity Portfolio, Stock
Portfolio, Capital Growth Portfolio, Special Equity Portfolio and International
Equity Portfolio they are declared and paid annually. Net realized capital
gains, if any, for any Portfolio are declared and paid at least annually.

The following distribution options are available to shareholders:

A. The SHARE OPTION reinvests 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. Dividends and distributions will
be reinvested at the net asset value 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 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.

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 net asset value 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 of a Portfolio may be
exchanged for Institutional Class shares of another Portfolio. The redemption
will be made at the net asset value of the shares to be redeemed next determined
after the exchange request is received by the transfer agent. Shareholders of
record whose aggregate account balance falls below $250,000 due to redemption
may be automatically redeemed upon 30 days' notice.

26
<PAGE> 30

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

An exchange between the Institutional Class and the Retail Class or
Institutional II Class of any Portfolio is generally not permitted, except that
an exchange to the Retail Class of a Portfolio will occur automatically should
an investor in the Institutional Class become ineligible to purchase
Institutional Class shares (except in the case of a Portfolio which is not
currently offering Retail Class shares). For example, an Institutional Class
investor would become ineligible by receiving a distribution from a trust and
investing individually (and becoming 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 30 days' notice of any such exchange. The exchange will take place at
net asset value, without the imposition of any sales load, 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 30-day period. The Fund 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 private letter tax 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.

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

Shareholders may redeem all or a portion of their Institutional Class
shares by mail or telephone. A shareholder may redeem shares on each Business
Day. Shares will be redeemed at the net asset value next determined after the
transfer agent has received and accepted a redemption request. Shares of a money
market Portfolio redeemed at 12:00 noon (for the U.S. Treasury Money Market
Portfolio and Tax-Free Money Market Portfolio) or 1:30 p.m. (for the U.S.
Government Money Market Portfolio and 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 other
Portfolios, shares will be eligible to earn dividends

27
<PAGE> 31

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, call 1-800-624-4116 (inside Maryland
1-800-638-7751).

With respect to the money market Portfolios, under normal circumstances, if
the request for redemption is received by 12:00 noon (for the U.S. Treasury
Money Market Portfolio and Tax-Free Money Market Portfolio) or 1:30 p.m. (for
the 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., 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 other Portfolios, under normal
circumstances, if a redemption request is received before 4:00 p.m. on a
Business Day, the redemption proceeds will be wired via federal funds on the
next Business Day. When the NYSE or the Federal Reserve Bank of New York closes
early, the Fund reserves the right to advance the time on any such day by which
redemption orders must be received.

To the extent portfolio securities are traded in other markets on days
which are not Business Days, the net asset value of the shares of a Portfolio
may be affected on days when investors are not able to purchase or redeem its
shares.

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, the
Portfolio may take up to seven 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 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.

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

Neither the Fund nor its transfer agent will be responsible for any loss,
liability, cost or expense for acting upon wire instructions or upon telephone
instructions that it reasonably believes to be genuine. The Fund and its
transfer agent will each employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. Such procedures may include
taping of telephone conversations.

28
<PAGE> 32

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

INVESTMENT ADVISERS

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

Allied Investment Advisors, Inc., 100 E. Pratt Street, Baltimore, Maryland
21202, provides investment advisory services to each Portfolio other than the
International Equity Portfolio. AIB Investment Managers Limited, AIB Investment
House, Percy Place, Dublin 4, Ireland, provides investment advisory services to
the International Equity Portfolio. Investment advisory services are provided
subject to the general supervision of the Board of Trustees. The adviser to a
Portfolio is entitled to receive for its advisory services payment at an annual
rate based on the following fee schedule: money market Portfolios: .25% of each
Portfolio's average daily net assets; Short-Term Treasury Portfolio: .35% of
average daily net assets; Intermediate Fixed Income Portfolio: .60% of average
daily net assets; Income Portfolio: .50% of average daily net assets; Maryland
Tax-Free Portfolios: .50% of average daily net assets; Pennsylvania Municipal
Bond Portfolio: .50% of average daily net assets; Balanced Portfolio: .55% of
average daily net assets; Equity Income Portfolio: .70% of average daily net
assets; Blue Chip Equity Portfolio .60% of average daily net assets; Mid-Cap
Equity Portfolio: .70% of average daily net assets; Stock Portfolio: .70% of
average daily net assets; Capital Growth Portfolio: .60% of average daily net
assets; Special Equity Portfolio: .60% of average daily net assets; and
International Equity Portfolio: .80% of average daily net assets. An adviser, in
its sole discretion, may waive all or any portion of its advisory fee for a
Portfolio. Any such voluntary waiver will increase the Portfolio's yield for the
period during which the waiver is in effect.

Allied Investment Advisors, Inc. is a wholly-owned subsidiary of First
Maryland. First Maryland, established in 1806, is a wholly-owned subsidiary of
First Maryland Bancorp, a bank holding company registered under the Federal Bank
Holding Company Act of 1956. First Maryland Bancorp is a subsidiary of Allied
Irish Banks, p.l.c. which, together with its subsidiaries, is Ireland's leading
banking and financial services organization. See "Banking Law Matters".

Allied Investment Advisors, Inc. was organized in 1995 to manage assets and
provide research services for the Trust Division of First Maryland, which
previously served as investment adviser to the Portfolios. It provides
investment management and advisory services to individual, corporate and
institutional clients, pension plans, common and collective trust funds, and
mutual funds. First Maryland transferred responsibility for advising the
Portfolios (other than the International Equity Portfolio) to Allied Investment
Advisors, Inc. effective as of , 1996. The transfer did not involve
a change of actual control or management of the investment adviser to the
Portfolios and, although Allied Investment Advisors, Inc. is a newly-organized
entity with no prior experience in managing mutual funds, its officers,
portfolio managers and investment analysts previously served in comparable
capacities for the Trust Division of First Maryland. As of , 1996,
Allied Investment Advisors, Inc. had assets under management of approximately
$ billion.

AIB Investment Managers Limited is the discretionary investment management
arm of the AIB Group. It has extensive experience managing the investments of
corporations, public and private pension funds, high-net-worth individuals, and
has a broad range of international, foreign mutual fund accounts. As of March
31, 1996, AIB Investment Managers Limited had assets under management of
approximately $8.1 billion.

29
<PAGE> 33

The investment advisory fee payable to AIB Investment Managers Limited by
the International Equity Portfolio is higher than the fees payable by most
mutual funds (although not necessarily higher than the fees payable by a typical
international fund), due to the greater complexity, expense and commitment of
resources involved in international investing. AIB Investment Managers Limited
has voluntarily agreed to waive all or a portion of its advisory fee (and, if
necessary, to reimburse other expenses) in order to limit the International
Equity Portfolio's total operating expenses to 1.55% of its average daily net
assets. This expense cap is subject to annual review by AIB Investment Managers
Limited.

The Portfolios may from time to time, consistent with their investment
policies and applicable law, invest in securities of companies with which First
Maryland or its affiliates has a lending relationship. The lending relationship
will not be a factor in the selection by the advisers of the securities in which
the Portfolios invest.

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

James M. Hannan is a Principal of Allied Investment Advisers, Inc. and has
been the portfolio manager for the 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. He served as a Vice
President of First Maryland from 1987 to 1996. 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

30
<PAGE> 34

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.

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

H. Giles Knight, Senior Vice President of First Maryland, is the portfolio
manager of the Special Equity Portfolio. 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 portfolio manager of the Capital Growth 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 Investment Managers Limited, with overall responsibility for international
equities. Prior to 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 the 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 Fund Resources (the "Administrator") serves as the Portfolios'
administrator under an administration agreement with the Fund. SEI Fund
Resources is a wholly-owned subsidiary of SEI Financial Management Corporation,
which served as administrator for the Fund prior to June 1, 1996. The
Administrator assists in each Portfolio's administration and operation,
including providing facilities for maintaining each Portfolio's organization,
supervising relations with the custodian,

31
<PAGE> 35

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 Fund's Board of Trustees. 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 in order to limit their total operating
expenses. Any such voluntary waiver, which can be discontinued at any time, will
increase the Portfolio's yield for the period during which it is in effect.

SEI Financial Services Company (the "Distributor"), a wholly-owned
subsidiary of SEI, serves as the distributor for the Fund pursuant to a
distribution agreement with 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 sells shares of each Portfolio as agent
on behalf of 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 the shares of the Fund.

The Administrator and the Distributor are each located at 680 East
Swedesford Road, Wayne, Pennsylvania 19087.

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 with the Fund, 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
- --------------------------------------------------------------------------------

32
<PAGE> 36

generally from issuing, underwriting, selling or distributing securities. Upon
advice of legal counsel, the advisers believe that they may perform the advisory
services described in this Prospectus for the Portfolios and their shareholders
without violating applicable federal banking laws or regulations.

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 net asset value of the Portfolios' shares 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 a 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.

The Tax-Free Money Market Portfolio, Maryland Tax-Free Portfolio and
Pennsylvania Municipal Bond 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. The
Tax-Free Money Market Portfolio, Maryland Tax-Free Portfolio

33
<PAGE> 37

and Pennsylvania Municipal Bond 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.

The Tax-Free Money Market Portfolio, Maryland Tax-Free Portfolio and
Pennsylvania Municipal Bond 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 the Tax-Free Money Market Portfolio's and Maryland
Tax-Free Portfolio's 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).

Shares of the Tax-Free Money Market Portfolio, Maryland Tax-Free Portfolio
and Pennsylvania Municipal Bond 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 tax-exempt status of the Portfolios' dividends and, moreover, such dividends
would be taxable when distributed to the beneficiary.

The Fund anticipates that a substantial portion of dividends paid by the
Equity Income Portfolio, Balanced Portfolio, Blue Chip Equity Portfolio, Mid-Cap
Equity Portfolio, Stock Portfolio, Capital Growth 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 the 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.

34
<PAGE> 38

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 money market Portfolios, which are offered at
the constant net asset value of $1.00.

Shareholders who exchange shares of one Portfolio for shares of 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 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.

The 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 the 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. If the 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.

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 the
Tax-Free Money Market Portfolio, Maryland Tax-Free Portfolio and Pennsylvania
Municipal Bond Portfolio to pay exempt-interest dividends might be adversely
affected.

Shareholders are 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.

35
<PAGE> 39

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 of
Trustees supervises Fund activities and reviews contractual arrangements with
companies that provide the Fund and its Portfolios with services.

The Fund may issue an unlimited number of shares of each of its Portfolios.
Except as described below, the shares of a Portfolio of any class 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 of Trustees 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 the Fund
have equal voting rights, except that in 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 Board of Trustees of the Fund has established three classes of shares
of each money market Portfolio; two classes of shares of the Short-Term Treasury
Portfolio, Intermediate Fixed Income Portfolio, Income Portfolio, Maryland
Tax-Free Portfolio, Pennsylvania Municipal Bond Portfolio, Balanced Portfolio,
Equity Income Portfolio, Blue Chip Equity Portfolio, Mid-Cap Equity Portfolio,
Stock Portfolio, Capital Growth Portfolio and Special Equity Portfolio; and one
class of shares of the International Equity Portfolio. The classes of shares of
a Portfolio have different sales charges and other expenses that may affect
performance. You may obtain more information on the classes of shares not
offered through this Prospectus by calling 1-800-624-4116 (inside Maryland
1-800-638-7751).

36
<PAGE> 40

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

ADRS AND EDRS. American Depositary Receipts and European Depositary
Receipts ("ADRs" and "EDRs") are certificates evidencing ownership of shares of
a foreign-based issuer held in trust by a bank or similar financial institution.
Designed for use in 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.

ASSET-BACKED SECURITIES. 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 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.)

BANK OBLIGATIONS. Bank obligations 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.

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.

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

HEDGING STRATEGIES. The advisers, to the extent permitted by the investment
policies and limitations of a Portfolio, may buy and sell options on securities,
currencies, futures contracts and options on such contracts ("Hedging
Instruments") to manage exposure to changing interest rates,

37
<PAGE> 41

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 a Portfolio 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 an adviser 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 normal conditions no Portfolio will hedge more than 25% of its total
assets by selling futures, writing calls, and buying puts. 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 a Portfolio will not buy calls
with a value exceeding 5% of its total assets.

ILLIQUID SECURITIES. Under currently applicable regulations, each money
market Portfolio (other than the U.S. Treasury Money Market Portfolio) may
invest up to 10%, and the other 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 the
adviser determines, in accordance with guidelines established by the Board of
Trustees, 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.

INDEXED SECURITIES. Indexed securities are 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 have return characteristics
similar to direct investments in the underlying instrument. Indexed securities
may be more volatile than the underlying instrument itself.

38
<PAGE> 42

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
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.

MUNICIPAL OBLIGATIONS. Municipal obligations 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.

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. In the event of bankruptcy of the other party to either a
repurchase agreement, a Portfolio could experience delays in recovering its
cash. To the extent, in the meantime, the value of the securities purchased had
decreased, the Portfolio could experience a loss. In all cases, the adviser must
find the creditworthiness of the other party to the transaction satisfactory.
The 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.

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 its adviser.

39
<PAGE> 43

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.

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.

WARRANTS. Warrants 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 that 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.

WHEN-ISSUED TRANSACTIONS. The market value of securities purchased on a
when-issued or delayed-delivery basis 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, a Portfolio will not earn
interest on the securities purchased until they are delivered.

ZERO COUPON DEBT. Zero coupon debt securities do not make regular interest
payments. Instead, they are sold at a deep discount from their face value. In
calculating its daily dividend, a 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 THE TAX-FREE MONEY MARKET, MARYLAND TAX-FREE AND
PENNSYLVANIA MUNICIPAL BOND PORTFOLIOS

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

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.

40
<PAGE> 44

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.

ARKPROI-2/96
BS-3014A-9506

41
<PAGE> 45
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

LOGO
<PAGE> 47

ARK FUNDS -- INSTITUTIONAL II CLASS
- --------------------------------------------------------------------------------
PROSPECTUS

, 1996

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

<TABLE>
<S> <C>
* U.S. Treasury Money Market Portfolio * Money Market Portfolio
* U.S. Government Money Market Portfolio * Tax-Free Money Market Portfolio
</TABLE>

ARK Funds (the "Fund") is an open-end management investment company composed of
separately managed diversified and non-diversified portfolios. The portfolios of
the Fund listed above have an Institutional II Class of shares. Institutional II
Class shares are offered through this Prospectus only to individuals,
institutions and other entities that direct their own investments and have
established trust relationships with The First National Bank of Maryland ("First
Maryland"), its affiliated banks (including Allied Irish Banks, p.l.c. and its
affiliates), or its correspondent banks or their affiliated banks.

AN INVESTMENT IN A PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT ANY PORTFOLIO WILL MAINTAIN A STABLE
NET ASSET VALUE PER SHARE OF $1.00.

THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
ENDORSED OR GUARANTEED BY, FIRST MARYLAND OR ANY DEPOSITARY INSTITUTION, AND ARE
NOT INSURED BY THE FDIC, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT
AGENCY. INVESTING IN THE SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.

This Prospectus is designed to provide investors with information that they
should know before investing. Please read and retain it for future reference. A
Statement of Additional Information dated , 1996 and Annual
Report, including financial statements for the fiscal year ended April 30, 1996,
have been filed with the Securities and Exchange Commission and are incorporated
herein by reference. The Statement of Additional Information and Annual Report
are available upon request without charge by calling 1-800-624-4116 (inside
Maryland 1-800-638-7751).

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

TABLE OF CONTENTS

<TABLE>
<S> <C>
Summary................................. 2
Fees and Expenses....................... 3
Financial Highlights.................... 4
Investment Objectives and Policies...... 5
Risks to Consider....................... 8
Performance............................. 9
Portfolio Transactions and Valuation.... 10
Purchases, Exchanges and Redemptions.... 11
Management of the Fund.................. 14
Tax Matters............................. 17
General Information..................... 19
Appendix................................ 19
</TABLE>

SUMMARY

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

The Fund is an open-end management investment company composed of
separately managed diversified and non-diversified portfolios. This Prospectus
provides information with respect to Institutional II Class shares of the
following portfolios (the "Portfolios" and individually, a "Portfolio"):

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

INVESTMENT ADVISER, DISTRIBUTOR AND ADMINISTRATOR. Allied Investment
Advisors, Inc. (the "Adviser") serves as investment adviser to each of the
Portfolios. SEI Financial Services Company (the "Distributor") serves as the
distributor of the Portfolios' shares and SEI Fund Resources (the
"Administrator") serves as the Fund's administrator. See "Management of the
Fund".

PURCHASE, EXCHANGE AND REDEMPTION OF SHARES. Institutional II Class shares
of the Portfolios are sold at their net asset value without a sales charge and
are currently available only to certain qualified accounts. Shares of a
Portfolio may be exchanged for shares of another Portfolio. Shareholders may
redeem all or any portion of their shares at the net asset value next determined
after the transfer agent has received the redemption request. See "Purchases,
Exchanges and Redemptions".

RISKS TO CONSIDER. As with any investment, investing in any of the
Portfolios involves certain risks and there is no assurance that a Portfolio
will achieve its investment objective. By itself no Portfolio constitutes a
balanced investment plan. See "Risks to Consider".

SHAREHOLDERS INQUIRIES. Any questions or communications regarding the
Portfolios can be directed to the Fund at 1-800-624-4116 (inside Maryland
1-800-638-7751).

2
<PAGE> 49

FEES AND EXPENSES

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

ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)

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

<TABLE>
<CAPTION>
INSTITUTIONAL II CLASS
-------------------------------------------------------------
U.S.
TREASURY U.S. GOVERNMENT MONEY TAX-FREE
MONEY MARKET MONEY MARKET MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ --------------- --------- -------------
<S> <C> <C> <C> <C>
Advisory Fees (after waivers)(1)............. .19% .14% .10% .09%
12b-1 Fees................................... .10% .10% .10% .10%
Other Expenses (after waivers)(2)............ 18% .18% .17% .20%
------ ------ --------- ------
Total Operating Expenses (after
waivers)(3)................................ .47% .42% .37% .39%
=========== ============= ======= ===========
</TABLE>

(1) The Adviser has agreed to waive, on a voluntary basis, a portion of its fees
for each Portfolio and the advisory fees shown reflect those voluntary
waivers. The Adviser reserves the right to terminate its fee waivers at any
time in its sole discretion. Absent such waivers, the advisory fee for each
Portfolio would be .25%.

(2) Other expenses include all expenses except nonrecurring account fees,
brokerage commissions and other capital items, and advisory and 12b-1 fees.
The Administrator has agreed to waive, on a voluntary basis, a portion of
its fee for the Money Market Portfolio and the other expenses shown for that
Portfolio reflect the voluntary waiver. The Administrator reserves the right
to terminate its fee waiver at any time in its sole discretion. Absent such
waiver, the administration fee for the Money Market Portfolio would be .13%.

(3) Absent the voluntary fee waivers described above, total operating expenses
for Institutional II Class shares of the U.S. Treasury Money Market
Portfolio, U.S. Government Money Market Portfolio, Money Market Portfolio
and Tax-Free Money Market Portfolio would be .53%, .53%, .53% and .55%,
respectively.

EXAMPLE

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

An investor in Institutional II Class shares would pay the following
expenses on a $1,000 investment assuming (1) 5% annual return and (2) redemption
at the end of each time period:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
U.S. Treasury Money Market Portfolio................................ 5 15
U.S. Government Money Market Portfolio.............................. 4 13
Money Market Portfolio.............................................. 4 12
Tax-Free Money Market Portfolio..................................... 4 13
</TABLE>

3
<PAGE> 50

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 for the
fiscal year ended April 30, 1996 has been audited by ,
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.

[To Be Completed By Amendment]

4
<PAGE> 51

INVESTMENT OBJECTIVES AND POLICIES

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

The Portfolios 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 the Adviser to present minimal
credit risks in accordance with guidelines adopted by the Board of Trustees of
the Fund. The Portfolios seek to maintain a net asset value per share of $1.00,
limit their investments to securities with remaining maturities of 397 days or
less, and maintain a dollar-weighted average maturity of 90 days or less.
Estimates may be used in determining a security's maturity for purposes of
calculating average maturity. An estimated maturity can be substantially shorter
than a stated final maturity.

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

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

The investment objective of the U.S. GOVERNMENT MONEY MARKET PORTFOLIO is
to maximize current income and provide liquidity and security of principal by
investing in instruments which are issued or guaranteed as to principal and
interest by the U.S. government or any of its agencies or instrumentalities
("U.S. Government Securities"), or in repurchase agreements backed by such
instruments. As a non-fundamental policy, the Portfolio invests 100% of its
total assets in U.S. Government Securities and in repurchase agreements backed
by such instruments. The Portfolio normally may not invest more than 5% of its
total assets in the securities of any single issuer (other than the U.S.
government). Under certain conditions, however, the Portfolio may invest up to
25% of its total assets in first-tier securities of a single issuer for up to
three days.

5
<PAGE> 52

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

The investment objective of the MONEY MARKET PORTFOLIO is to maximize
current income and provide liquidity and security of principal by investing in a
broad range of short-term, high-quality U.S. dollar-denominated debt securities
("Money Market Instruments"). The Portfolio may invest more than 25% of its
total assets in certain obligations of domestic banks and normally may not
invest more than 5% of its total assets in the securities of any single issuer
(other than the U.S. government). Under certain conditions, however, the
Portfolio may invest up to 25% of its total assets in first-tier securities of a
single issuer for up to three days.

The 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 the Portfolio will be invested in securities
that have received the highest rating assigned by any two nationally recognized
statistical rating organizations ("NRSROs") or, if only one such rating
organization has assigned a rating, such single organization. Up to 5% of the
Portfolio's assets may be invested in securities that have received ratings in
the second highest category by any two NRSROs or, if only one such rating
organization has assigned a rating, such single organization. The Portfolio may
also acquire unrated securities determined by the Adviser to be comparable in
quality to rated securities in accordance with guidelines adopted by the Board
of Trustees.

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

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

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. The
Adviser monitors the financial condition of

6
<PAGE> 53

parties (including insurance companies, banks, and corporations) whose
creditworthiness is relied upon in determining the credit quality of securities
a 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. The Adviser 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, the Adviser 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. 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.

The Adviser 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.

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

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.

ADDITIONAL INVESTMENT POLICIES AND LIMITATIONS

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

GOVERNMENT SECURITIES. 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,

7
<PAGE> 54

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.

1. Each 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) if as a result, (a) more than 5%
of its total assets would be invested in the securities of that issuer, or (b)
it would hold more than 10% of the issuer's outstanding voting securities.

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

3. A 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.

RISKS TO CONSIDER

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

By itself no Portfolio constitutes a balanced investment plan. There is no
assurance that a Portfolio will achieve its investment objective.

8
<PAGE> 55

The Portfolios seek to maintain a stable net asset value per share of $1.00
but there is no assurance that they will be able to do so. Although the
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.

Investors should review the investment objective and policies of a
Portfolio and carefully consider their ability to assume the risks involved in
purchasing its shares. Certain investments and investment techniques permitted
for the Portfolios pose special risks. See the "Appendix" to this Prospectus and
the Statement of Additional Information for more information.

PERFORMANCE

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

The performance of each class of shares of a Portfolio may be quoted in
advertising in terms of yield, effective yield or total return. In addition, a
tax-equivalent yield may be quoted for shares of the 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 a Portfolio 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
period. 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 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 RETURN is 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.

9
<PAGE> 56

For additional performance information, please call 1-800-624-4116 (inside
Maryland 1-800-638-7751) to request a Statement of Additional Information and
Annual Report.

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

Subject to the general supervision of the Board of Trustees, the Adviser is
responsible for placing orders for securities transactions for each Portfolio.
Transactions for the Portfolios are expected to occur primarily with issuers,
underwriters or major dealers acting as principal. Such transactions are
normally effected on a net basis and do not involve payment of brokerage
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 Adviser's policy to obtain the most
favorable execution. If more than one account managed by the Adviser is
purchasing or selling the same security, such orders may be aggregated in the
interest of achieving the most favorable execution.

VALUATION. The net asset value of the Institutional II Class 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 and dividing
the result by the number of Institutional II Class shares outstanding. Assets of
the 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 Portfolio seeks
to maintain net asset value of $1.00 for the Institutional II Class shares,
there can be no assurance that this net asset value per share will not vary.

PRICING OF SHARES. The Portfolios are open for business and the net asset
values of their shares 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 net asset value next calculated
after the order is received and accepted by the transfer agent. The net asset
values of the 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 net asset values of the 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.
Shares purchased at 12:00 noon or 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.

10
<PAGE> 57

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

OPENING AN ACCOUNT. Institutional II Class shares are sold without a sales
charge and are currently available only to individuals, institutions and other
entities that direct their own investments and have established trust
relationships with First Maryland, its affiliated banks (including Allied Irish
Banks, p.l.c. and its affiliates), or its correspondent banks or their
affiliated banks ("qualified accounts"). An initial investment in Institutional
II Class 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 by calling 1-800-624-4116 (inside Maryland 1-800-638-7751).

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

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

Payments for Institutional II Class shares of a Portfolio must be made in
federal funds or other funds immediately available to the 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 the U.S.
Treasury Money Market Portfolio and Tax-Free Money Market Portfolio) or 1:30
p.m. (for the Money Market Portfolio and U.S. Government Money Market
Portfolio). If a purchase order, together with available funds, is received
after 12:00 noon or 1:30 p.m., but before 4:00 p.m., it will be processed at the
net asset value determined at 4:00 p.m. and the shares purchased 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 net asset value next determined
the following Business Day. When the NYSE or the Federal Reserve Bank of New
York closes early, the Fund reserves the right to advance the time on any such
day by which purchase orders must be received.

The Fund reserves the right to reject any purchase order.

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

It is anticipated that First Maryland will be the holder of record for all
Institutional II Class 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 Institutional II Class shares
will be issued.

Shareholders may instruct First Maryland to purchase Institutional II Class
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 1-800-624-4116 (inside Maryland 1-800-638-7751).

11
<PAGE> 58

DISTRIBUTION OPTIONS

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

Each Portfolio declares dividends daily and pays them monthly. The
following distribution options are available to shareholders:

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

C. The CASH OPTION pays you 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 of a Portfolio may be
exchanged for Institutional II Class shares of another Portfolio. The redemption
will be made at the net asset value of the shares to be redeemed next determined
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 of another, which may produce a gain or
loss for tax purposes. In order to protect each Portfolio's performance and its
shareholders, frequent exchange activity in response to short-term market
fluctuations is discouraged. The Fund reserves the right to modify or withdraw
the exchange privilege or to suspend the offering of shares of a Portfolio of
any class without notice to shareholders if, in the Adviser's judgment, the
Portfolio would be unable to invest effectively in accordance with its
investment objective and policies, or would otherwise potentially be adversely
affected. The Fund 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 is generally not permitted.

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

Shareholders may redeem all or a portion of their Institutional II Class
shares by mail or telephone. A shareholder may redeem shares on each Business
Day. Shares will be redeemed at the net asset value next determined after the
transfer agent has received and accepted a redemption request. Shares of a
Portfolio redeemed at 12:00 noon (for the U.S. Treasury Money Market Portfolio
and Tax-Free Money Market Portfolio) or 1:30 p.m. (for the U.S. Government Money
Market Portfolio and Money Market Portfolio) do not earn the dividend declared
on the day

12
<PAGE> 59

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, call 1-800-624-4116 (inside Maryland
1-800-638-7751).

Under normal circumstances, if the request for redemption is received by
12:00 noon (for the U.S. Treasury Money Market Portfolio and Tax-Free Money
Market Portfolio) or 1:30 p.m. (for the 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., on a Business Day, that day's dividend will be received and the
redemption proceeds will be wired the next Business Day. When the NYSE or the
Federal Reserve Bank of New York closes early, the Fund reserves the right to
advance the time on any such day by which redemption orders must be received.

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.

13
<PAGE> 60

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

INVESTMENT ADVISER

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

Allied Investment Advisors, Inc., 100 E. Pratt Street, Baltimore, Maryland
21202, provides investment advisory services to each Portfolio subject to the
general supervision of the Board of Trustees of the Fund. The Adviser is
entitled to receive for its advisory services payment at an annual rate of .25%
of each Portfolio's average daily net assets. The Adviser, in its sole
discretion, may waive all or a portion of its advisory fee for a Portfolio. Any
such voluntary waiver, will increase the Portfolio's yield for the period during
which the waiver is in effect.

The Adviser is a wholly-owned subsidiary of First Maryland. First Maryland,
established in 1806, is a wholly-owned subsidiary of First Maryland Bancorp, a
bank holding company registered under the Federal Bank Holding Company Act of
1956. First Maryland Bancorp is a subsidiary of Allied Irish Banks, p.l.c.
which, together with its subsidiaries, is Ireland's leading banking and
financial services organization. See "Banking Law Matters".

The Adviser was organized in 1995 to manage assets and provide research
services for the Trust Division of First Maryland, which previously served as
investment adviser to the Portfolios. The Adviser provides investment management
and advisory services to individual, corporate and institutional clients,
pension plans, common and collective trust funds, and mutual funds. First
Maryland transferred responsibility for advising the Portfolios to the Adviser
effective as of , 1996. The transfer did not involve a change of
actual control or management of the investment adviser to the Portfolios and,
although the Adviser is a newly-organized entity with no prior experience in
managing mutual funds, its officers, portfolio managers and investment analysts
previously served in comparable capacities for the Trust Division of First
Maryland. As of , 1996, the Adviser had assets under management of
approximately $ billion.

The Portfolios may from time to time, consistent with their investment
policies and applicable law, invest in securities of companies with which First
Maryland or its affiliates has a lending relationship. The lending relationship
will not be a factor in the selection by the Adviser of the securities in which
the Portfolios invest.

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

James M. Hannan is a Principal of the Adviser and has been the portfolio
manager for the Portfolios since June 1993. He is also responsible for the
management of several separately managed institutional portfolios which he has
managed since 1992. He served as a Vice President of First Maryland from 1987 to
1996. Prior to 1987 he served as the Treasurer for the City
of Hyattsville, Maryland.

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.

14
<PAGE> 61

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

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

SEI Fund Resources (the "Administrator"), 680 East Swedesford Road, Wayne,
Pennsylvania 19087, serves as the Portfolios' administrator under an
administration agreement with the Fund. SEI Fund Resources is a wholly-owned
subsidiary of SEI Financial Management Corporation, which served as
administrator for the Fund prior to June 1, 1996.

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 Fund's Board of
Trustees. The Administrator is entitled to receive an annual fee of .13% of
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 in
order to limit their total operating expenses. Any such voluntary waiver, which
can be discontinued at any time, will increase the Portfolio's yield for the
period during which it is in effect.

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

SEI Financial Services Company (the "Distributor"), 680 East Swedesford
Road, Wayne, Pennsylvania 19087, a wholly-owned subsidiary of SEI, serves as
distributor for the Fund pursuant to a distribution agreement with 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 of the Fund.

The Board of Trustees has adopted a distribution plan on behalf of the
Institutional II Class of each Portfolio pursuant to Rule 12b-1 under the 1940
Act ("Plan"). The 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 fee rate of .10% of the average net assets
of the Institutional II Class of each of the Portfolios. All or any portion of
the fee for a Portfolio may be waived at any time. Any such voluntary waiver,
which can be discontinued at any time, will increase the Portfolio's yield for
the period during which it is in effect.

15
<PAGE> 62

The Distributor and investment professionals that receive portions of the
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 Plan does not obligate a Portfolio to reimburse the Distributor for the
actual expenses that it may incur in fulfilling its obligations under the Plan
on behalf of the Institutional II Class. Thus, under the 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 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 with the Fund, 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.

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 legal counsel, the Adviser
believes that it may perform the advisory services described in this Prospectus
for the Portfolios and their shareholders without violating applicable federal
banking laws or regulations.

16
<PAGE> 63

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

The 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 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. The 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.

The 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

17
<PAGE> 64

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 the Tax-Free Money Market Portfolio's 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).

Shares of the 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 tax-exempt status of the Portfolio's dividends and, moreover, such dividends
would be taxable when distributed to the beneficiary.

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.

Shareholders who exchange shares of one Portfolio for shares of another
Portfolio may 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.

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 the
Tax-Free Money Market Portfolio to pay exempt-interest dividends might be
adversely affected.

18
<PAGE> 65

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

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 the Fund
have equal voting rights, except that in 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.

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

ASSET-BACKED SECURITIES. The Money Market Portfolio and Tax-Free 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 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-

19
<PAGE> 66

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.)

BANK OBLIGATIONS. The Money Market Portfolio and Tax-Free 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 discount;
and time deposits which are non-negotiable deposits in a banking institution
earning a specified interest rate over a given period of time.

COMMERCIAL PAPER. The Money Market Portfolio and Tax-Free 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.

FOREIGN INVESTMENTS. The Money Market Portfolio and Tax-Free 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.

The Money Market Portfolio and Tax-Free Money Market Portfolio may invest
in U.S. DOLLAR-DENOMINATED SECURITIES OF FOREIGN ISSUERS.

ILLIQUID SECURITIES. Under currently applicable regulations, each 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 the Adviser determines, in accordance with
guidelines established by the Board of Trustees, 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.

MUNICIPAL OBLIGATIONS. The Money Market Portfolio and Tax-Free Money Market
Portfolio may purchase MUNICIPAL OBLIGATIONS which are issued to raise money for
a variety of public or private

20
<PAGE> 67

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.

REPURCHASE AGREEMENTS. The U.S. Government Money Market Portfolio and 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. In the event of bankruptcy of
the other party to either a repurchase agreement, a Portfolio could experience
delays in recovering its cash. To the extent, in the meantime, the value of the
securities purchased had decreased, the Portfolio could experience a loss. In
all cases, the Adviser 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.

U.S. GOVERNMENT SECURITIES. U.S. Government Securities 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.

WHEN-ISSUED TRANSACTIONS. The market value of securities purchased on a
when-issued or delayed-delivery basis may change before the delivery date, which
could affect the market value of

21
<PAGE> 68

the assets and could increase fluctuations in a Portfolio's share price, yield
and return. Ordinarily, a Portfolio will not earn interest on the securities
purchased until they are delivered.

ADDITIONAL INVESTMENTS FOR THE 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

22
<PAGE> 69

ARK FUNDS: RETAIL CLASS

CROSS REFERENCE SHEET

Form N-1A Item Number

Part A Prospectus Caption

1 ................................... Cover Page
2 ................................... Fees and Expenses
3 a,b................................ Financial Highlights
c.................................. Performance
4 a(i)............................... General Information
a(ii),b,c.......................... Investment Objectives and Policies;
Risks to Consider

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> 70

LOGO
<PAGE> 71

ARK FUNDS -- RETAIL CLASS

- --------------------------------------------------------------------------------
PROSPECTUS

, 1996

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

<TABLE>
<S> <C>
* U.S. Treasury Money Market Portfolio * Pennsylvania Municipal Bond Portfolio
* U.S. Government Money Market Portfolio * Balanced Portfolio
* Money Market Portfolio * Equity Income Portfolio
* Tax-Free Money Market Portfolio * Blue Chip Equity Portfolio
* Short-Term Treasury Portfolio * Mid-Cap Equity Portfolio
* Intermediate Fixed Income Portfolio * Stock Portfolio
* Income Portfolio * Capital Growth Portfolio
* Maryland Tax-Free Portfolio * Special Equity Portfolio
</TABLE>

ARK Funds (the "Fund") is an open-end management investment company composed of
separately managed diversified and non-diversified portfolios. The portfolios of
the Fund listed above have a Retail Class of shares. Retail Class shares are
offered through this Prospectus to all investors investing through qualified
securities brokers or financial institutions.

THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
ENDORSED OR GUARANTEED BY, THE FIRST NATIONAL BANK OF MARYLAND OR ANY DEPOSITARY
INSTITUTION, AND ARE NOT INSURED BY THE FDIC, THE FEDERAL RESERVE BOARD OR ANY
OTHER GOVERNMENT AGENCY. INVESTING IN THE SHARES INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL AMOUNT INVESTED.

This Prospectus is designed to provide you with information that you should know
before investing. Please read and retain it for future reference. A Statement of
Additional Information dated , 1996 and Annual Report, including
financial statements for the fiscal year ended April 30, 1996, have been filed
with the Securities and Exchange Commission and are incorporated herein by
reference. The Statement of Additional Information and Annual Report are
available upon request without charge by calling 1-800-ARK-FUND.

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

TABLE OF CONTENTS

<TABLE>
<S> <C>
Summary....................................... 2
Fees and Expenses............................. 4
Financial Highlights.......................... 8
Investment Objectives and Policies............ 9
Risks to Consider............................. 17
Performance................................... 19
Portfolio Transactions and Valuation.......... 19
Purchases, Exchanges and Redemptions.......... 21
Management of the Fund........................ 24
Tax Matters................................... 28
General Information........................... 30
Appendix...................................... 31
</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> 72

SUMMARY

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

The Fund is an open-end management investment company composed of
separately managed diversified and non-diversified portfolios. This Prospectus
provides information with respect to Retail Class shares of the following
portfolios (the "Portfolios" and individually, a "Portfolio"):

INTERMEDIATE FIXED INCOME PORTFOLIO -- seeks to provide current income
consistent with the preservation of capital by investing primarily in
intermediate-term fixed-income securities.

EQUITY INCOME PORTFOLIO -- seeks to provide a moderate level of current
income and growth of capital by investing primarily in high-quality,
income-producing common stocks.

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

MID-CAP EQUITY PORTFOLIO -- seeks to provide long-term capital appreciation
by investing primarily in equity securities of medium-sized companies.

STOCK PORTFOLIO -- seeks to provide long-term capital appreciation by
investing primarily in common stocks.

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

SPECIAL EQUITY PORTFOLIO -- seeks to provide capital appreciation by
investing in securities of companies believed by the adviser to be "special
equities".

PURCHASE, EXCHANGE AND REDEMPTION OF SHARES. Investors may purchase Retail
Class shares of the Portfolios at their net asset value plus the applicable
sales charge through qualified securities brokers or financial institutions
("Investment Professionals"). No sales charges are imposed on shares of the
money market Portfolios. Shares of a Portfolio may be exchanged for shares of
another Portfolio. Shareholders may redeem all or any portion of their shares at
the net asset value next

2
<PAGE> 73

determined after the transfer agent has received the redemption request. See
"Purchases, Exchanges and Redemptions".

RISKS TO CONSIDER. As with any investment, investing in any of the
Portfolios involves certain risks and there is no assurance that a Portfolio
will achieve its investment objective. By itself no Portfolio constitutes a
balanced investment plan. See "Risks to Consider".

SHAREHOLDERS INQUIRIES. Any questions or communications regarding the
Portfolios can be directed to the Fund at 1-800-ARK-FUND.

3
<PAGE> 74

FEES AND 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.

<TABLE>
<CAPTION>
RETAIL CLASS
---------------------------------------------------------
U.S.
TREASURY U.S. GOVERNMENT MONEY TAX-FREE
MONEY MARKET MONEY MARKET MARKET MONEY MARKET
SHAREHOLDER TRANSACTION EXPENSES PORTFOLIO PORTFOLIO* PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)........... None None None None
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering
price)........................................ None None None None
Maximum Contingent Deferred Sales Charge........ None None None None
Exchange Fee.................................... None None None None
Redemption Fee.................................. None None None None
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
Advisory Fees (after waivers)(1)................ .19% .14% .10% .09%
12b-1 Fees (after waivers)(2)................... .26% .00% .31% .26%
Other Expenses (after waivers)(3)............... .18% .18% .17% .20%
- -----------------------------------------------------------------------------------------------------------
Total Operating Expenses (after waivers)(4)..... .63% .32% .58% .55%
- -----------------------------------------------------------------------------------------------------------
</TABLE>

* Retail Class shares of this Portfolio are not being offered as of the date
of this Prospectus.

(2) 12b-1 fees include a distribution fee and a shareholder servicing fee. The
Distributor has agreed to waive, on a voluntary basis, a portion of its
distribution fees for the U.S. Treasury Money Market Portfolio, U.S.
Government Money Market Portfolio and Tax-Free Money Market Portfolio.
Absent such waivers, the distribution fees for each Portfolio would be .25%.
Additionally, a portion of the shareholder servicing fees are being waived
for each Portfolio. Absent such waivers, the shareholder servicing fees
would be .15%.

(3) Other expenses include all expenses except nonrecurring account fees,
brokerage commissions and other capital items, and advisory and 12b-1 fees.
The Administrator has agreed to waive, on a voluntary basis, a portion of
its fee for the Money Market Portfolio and the other expenses shown for that
Portfolio reflect the voluntary waiver. The Administrator reserves the right
to terminate its fee waiver at any time in its sole discretion. Absent such
waiver, the administration fee for the Money Market Portfolio would be .13%.

(4) Absent the voluntary fee waivers described above, total operating expenses
for Retail Class shares of the U.S. Treasury Money Market Portfolio, U.S.
Government Money Market Portfolio, Money Market Portfolio and Tax-Free Money
Market Portfolio would be .83%, .83%, .83% and .85%, respectively.

EXAMPLE

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

An investor in Retail Class shares would pay the following expenses on a
$1,000 investment assuming (1) 5% annual return and (2) redemption at the end of
each time period:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
U.S. Treasury Money Market Portfolio................................ 6 20
U.S. Government Money Market Portfolio.............................. 3 10
Money Market Portfolio.............................................. 6 19
Tax-Free Money Market Portfolio..................................... 6 18
</TABLE>

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

4
<PAGE> 75

<TABLE>
<CAPTION>
RETAIL CLASS
---------------------------------------------------------------
PENNSYLVANIA
SHORT-TERM INTERMEDIATE MARYLAND MUNICIPAL
TREASURY FIXED INCOME INCOME TAX-FREE BOND
SHAREHOLDER TRANSACTION EXPENSES PORTFOLIO* PORTFOLIO* PORTFOLIO PORTFOLIO PORTFOLIO*
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Maximum Sales Load Imposed on Purchases (as
a percentage of offering price)(1)........ None None None None None
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering
price).................................... None None None None None
Maximum Contingent Deferred Sales Charge.... None None None None None
Exchange Fee................................ None None None None None
Redemption Fee.............................. None None None None None
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
Advisory Fees (after waivers)(2)............ .30% .45% .50% .45% .37%
12b-1 Fees (after waivers)(3)............... .00% .00% .20% .00% .00%
Other Expenses (after waivers)(4)........... .25% .23% .20% .23% .26%
- -------------------------------------------------------------------------------------------------------------
Total Operating Expenses (after
waivers)(5)............................... .55% .68% .90% .68% .63%
- -------------------------------------------------------------------------------------------------------------
</TABLE>

* Retail Class shares of this Portfolio are not being offered as of the date
of this Prospectus.

(1) Sales loads of 4.50% are being waived on all purchases of Retail Class
shares of the Short-Term Treasury Portfolio, Income Portfolio and Maryland
Tax-Free Portfolio. These waivers will be in effect at least through
.

(2) The Adviser has agreed to waive, on a voluntary basis, a portion of its fee
for the Short-Term Treasury Portfolio, Intermediate Fixed Income Portfolio,
Maryland Tax-Free Portfolio and Pennsylvania Municipal Bond Portfolio and
the advisory fees shown reflect those voluntary waivers. The Adviser
reserves the right to terminate its fee waivers at any time in its sole
discretion. Absent such waivers, the advisory fees for the Short-Term
Treasury Portfolio, Intermediate Fixed Income Portfolio, Maryland Tax-Free
Portfolio and Pennsylvania Municipal Bond Portfolio would be .35%, .60%,
.50% and .50%, respectively.

(3) 12b-1 fees include a distribution fee and a shareholder servicing fee. The
Distributor has agreed to waive, on a voluntary basis, a portion of its
distribution fees for the Short-Term Treasury Portfolio, Intermediate Fixed
Income Portfolio, Income Portfolio, Maryland Tax-Free Portfolio and
Pennsylvania Municipal Bond Portfolio. Absent such waivers, the distribution
fees would be .40% for the Short-Term Treasury Portfolio and .30% for the
Intermediate Fixed Income Portfolio, Income Portfolio, Maryland Tax-Free
Portfolio and Pennsylvania Municipal Bond Portfolio. Additionally, a portion
of the shareholder servicing fee is being waived for the Short-Term Treasury
Portfolio and Income Portfolio. Absent such waivers, the shareholder
servicing fees would be .06% for the Short-Term Treasury Portfolio and .15%
for the Income Portfolio.

(4) Other expenses include all expenses except nonrecurring account fees,
brokerage commissions and other capital items, and advisory and 12b-1 fees.

(5) Absent the voluntary fee waivers described above, total operating expenses
for Retail Class shares of the Short-Term Treasury Portfolio, Intermediate
Fixed Income Portfolio, Income Portfolio, Maryland Tax-Free Portfolio and
Pennsylvania Municipal Bond Portfolio would be 1.06%, 1.19%, 1.15%, 1.09%
and 1.12%, respectively.

EXAMPLE

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

An investor in Retail Class shares would pay the following expenses on a
$1,000 investment assuming (1) 5% annual return and (2) redemption at the end of
each time period:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Short-Term Treasury Portfolio....................................... 6 18
Intermediate Fixed Income Portfolio................................. 7 22
Income Portfolio.................................................... 9 29
Maryland Tax-Free Portfolio......................................... 7 22
Pennsylvania Municipal Bond Portfolio............................... 6 20
</TABLE>

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

5
<PAGE> 76

<TABLE>
<CAPTION>
RETAIL CLASS
-------------------------------------------------------------
EQUITY BLUE CHIP MID-CAP
BALANCED INCOME EQUITY EQUITY STOCK
SHAREHOLDER TRANSACTION EXPENSES PORTFOLIO PORTFOLIO* PORTFOLIO PORTFOLIO* PORTFOLIO*
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price)(1)............ None None None None None
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering
price)...................................... None None None None None
Maximum Contingent Deferred Sales Charge...... None None None None None
Exchange Fee.................................. None None None None None
Redemption Fee................................ None None None None None
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
Advisory Fees (after waivers)(2).............. .55% .60% .40% .65% .65%
12b-1 Fees (after waivers)(3)................. .20% .00% .00% .00% .00%
Other Expenses (after waivers)(4)............. .20% .23% .25% .25% .25%
- -------------------------------------------------------------------------------------------------------------
Total Operating Expenses (after waivers)(5)... 1.07% .83% .65% .90% .90%
- -------------------------------------------------------------------------------------------------------------
</TABLE>

* Retail Class shares of this Portfolio are not being offered as of the date
of this Prospectus.

(1) Sales loads of 4.75% are being waived on all purchases of Retail Class
shares of the Balanced Portfolio, Blue Chip Equity Portfolio and Stock
Portfolio. These waivers will be in effect at least through
.

(2) The Adviser has agreed to waive, on a voluntary basis, a portion of its fees
for the Equity Income Portfolio, Blue Chip Equity Portfolio, Mid-Cap Equity
Portfolio and Stock Portfolio and the advisory fees shown reflect those
voluntary waivers. The Adviser reserves the right to terminate its fee
waivers at any time in its sole discretion. Absent such waivers, the
advisory fees for the Equity Income Portfolio Portfolio, Blue Chip Equity
Portfolio, Mid-Cap Equity Portfolio and Stock Portfolio would be .70%, .60%,
.70% and .70%, respectively.

(3) 12b-1 fees include a distribution fee and a shareholder servicing fee. The
Distributor has agreed to waive, on a voluntary basis, a portion of its
distribution fees for the Balanced Portfolio and Blue Chip Equity Portfolio.
Absent such waivers, the distribution fees would be .40% for the Balanced
Portfolio, Equity Income Portfolio and Mid-Cap Equity Portfolio and .55% for
the Blue Chip Equity Portfolio and Stock Portfolio. Additionally, a portion
of the shareholder servicing fees are being waived for the Balanced
Portfolio, Equity Income Portfolio and Mid-Cap Equity Portfolio and Blue
Chip Equity Portfolio. Absent such waivers, the shareholder servicing fees
would be .15% for the Balanced Portfolio and .06% for the Blue Chip Equity
Portfolio, Mid-Cap Equity Portfolio and Stock Portfolio.

(4) Other expenses include all expenses except nonrecurring account fees,
brokerage commissions and other capital items, and advisory and 12b-1 fees.

(5) Absent the voluntary fee waivers described above, total operating expenses
for Retail Class shares of the Balanced Portfolio, Equity Income Portfolio,
Blue Chip Equity Portfolio, Mid-Cap Equity Portfolio and Stock Portfolio
would be 1.30%, 1.29%, 1.26%, 1.36% and 1.36%, respectively.

EXAMPLE

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

An investor in Retail Class shares would pay the following expenses on a
$1,000 investment assuming (1) 5% annual return and (2) redemption at the end of
each time period:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Balanced Portfolio.................................................... 10 30
Equity Income Portfolio............................................... 8 26
Blue Chip Equity Portfolio............................................ 7 21
Mid-Cap Equity Portfolio.............................................. 9 29
Stock Portfolio....................................................... 9 29
</TABLE>

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

6
<PAGE> 77

<TABLE>
<CAPTION>
RETAIL CLASS
-----------------------
CAPITAL SPECIAL
GROWTH EQUITY
SHAREHOLDER TRANSACTION EXPENSES PORTFOLIO PORTFOLIO
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)(1)...................................... None None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)......................................... None None
Maximum Contingent Deferred Sales Charge...................................... None None
Exchange Fee.................................................................. None None
Redemption Fee................................................................ None None
ANNUAL OPERATING EXPENSES
(as a percentage of average net assets)
Advisory Fees (after waivers)(2).............................................. .00% .60%
Rule 12b-1 Fees (after waivers)(3)............................................ .00% .00%
Other Expenses (after waivers)(4)............................................. .23% .27%
- -------------------------------------------------------------------------------------------------------
Total Operating Expenses (after waivers)(5)................................... .23% .87%
- -------------------------------------------------------------------------------------------------------
</TABLE>

(1) Sales loads of 4.75% are being waived on all purchases of Retail Class
shares of the Portfolios. These waivers will be in effect through at least
.

(2) The Adviser has agreed to waive, on a voluntary basis, a portion of its fee
for the Capital Growth Portfolio and the advisory fee shown reflects that
voluntary waiver. The Adviser reserves the right to terminate its fee waiver
at any time in its sole discretion. Absent such waiver, the advisory fee for
the Capital Growth Portfolio would be .60%.

(3) 12b-1 fees include a distribution fees and a shareholder servicing fee. The
Distributor has agreed to waive, on a voluntary basis, a portion of its
distribution fee for the Portfolios. Absent such waivers, the distribution
fees for the Capital Growth Portfolio and Special Equity Portfolio would be
.40% and .55%, respectively. Additionally, a portion of the shareholder
servicing fees are being waived for the Capital Growth Portfolio and Special
Equity Portfolio. Absent such waivers, the shareholder servicing fees for
the Capital Growth Portfolio and Special Equity Portfolio would be .15%.

(4) Other expenses include all expenses except nonrecurring account fees,
brokerage commissions and other capital items, and advisory and 12b-1 fees.

(5) Absent the voluntary fee waivers described above, total operating expenses
for Retail Class shares of the Capital Growth Portfolio and Special Equity
Portfolio would be 1.38% and 1.42%, respectively.

EXAMPLE

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

An investor in Retail Class shares would pay the following expenses on a
$1,000 investment assuming (1) 5% annual return and (2) redemption at the end of
each time period:

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

7
<PAGE> 78

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

The following tables provide information about the financial history of the
Retail Class of each Portfolio (excluding Portfolios which, as of the date of
this Prospectus, do not offer Retail Class shares or whose Retail Class
commenced operations after April 30, 1996). These tables express the information
in terms of a single share outstanding throughout the period. The data for the
fiscal year ended April 30, 1996 has been audited by ,
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.

[To Be Completed By Amendment]

8
<PAGE> 79

INVESTMENT OBJECTIVES AND POLICIES

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

MONEY MARKET PORTFOLIOS

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

The U.S. TREASURY MONEY MARKET PORTFOLIO, U.S. GOVERNMENT MONEY MARKET
PORTFOLIO, MONEY MARKET PORTFOLIO and TAX-FREE MONEY MARKET PORTFOLIO 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 the Adviser to present minimal credit risks in accordance with
guidelines adopted by the Board of Trustees. The money market Portfolios seek to
maintain a net asset value per share of $1.00, limit their investments to
securities with remaining maturities of 397 days or less, and maintain a
dollar-weighted average maturity of 90 days or less. Estimates may be used in
determining a security's maturity for purposes of calculating average maturity.
An estimated maturity can be substantially shorter than a stated final maturity.

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

The investment objective of the U.S. GOVERNMENT MONEY MARKET PORTFOLIO is
to maximize current income and provide liquidity and security of principal by
investing in instruments which are issued or guaranteed as to principal and
interest by the U.S. government or any of its agencies or instrumentalities
("U.S. Government Securities"), or in repurchase agreements backed by such
instruments. As a non-fundamental policy, the Portfolio invests 100% of its
assets in U.S. Government Securities and in repurchase agreements backed by such
instruments. The Portfolio normally may not invest more than 5% of its total
assets in the securities of any single issuer (other than the U.S. government).
Under certain conditions, however, the Portfolio may invest up to 25% of its
total assets in first-tier securities of a single issuer for up to three days.

9
<PAGE> 80

government). Under certain conditions, however, the Portfolio may invest up to
25% of its total assets in first-tier securities of a single issuer for up to
three days.

At least 95% of the assets of the 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 determined by the Adviser to be
comparable in quality to rated securities in accordance with guidelines adopted
by the Board of Trustees.

The Adviser anticipates that the Tax-Free Money Market 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.

At least 95% of the assets of the 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 the Adviser to be comparable in quality to rated securities in
accordance with guidelines adopted by the Board of Trustees.

10
<PAGE> 81

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

The Portfolio has no restrictions on maturity but generally will maintain a
dollar-weighted average maturity of approximately two years. The average
maturity of the Portfolio's debt obligations will vary depending on market
conditions. In making investment decisions for the Portfolio, the Adviser will
consider factors in addition to current yield, including preservation of
capital, the potential for realizing capital appreciation, maturity and yield to
maturity. The Adviser 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.

INTERMEDIATE FIXED INCOME PORTFOLIO

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

Under normal circumstances, at least 65% of the Portfolio will be invested
in fixed-income securities with maturities of 3 to 10 years. The average
maturity of the Portfolio's debt obligations will vary depending on market
conditions. In making investment decisions for the Portfolio, the Adviser will
consider factors in addition to current yield, including preservation of
capital, the potential for realizing capital appreciation, maturity and yield to
maturity. The Adviser 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.

INCOME PORTFOLIO

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

11
<PAGE> 82

convertible securities, foreign securities, indexed securities, and asset-backed
securities. The Portfolio normally will invest in investment-grade debt
securities (including convertible securities) and unrated securities determined
by the adviser to be of comparable quality. The Portfolio may also invest up to
5% of its total assets in lower-quality debt securities, sometimes referred to
as "junk bonds". Common stocks acquired through exercise of conversion rights or
warrants or acceptance of exchange or similar offers ordinarily will not be
retained by the Portfolio. An orderly disposition of these stocks will be
effected consistent with the judgment of the Adviser as to the best price
available.

The average maturity of the Portfolio's debt obligations will vary
depending on market conditions. In making investment decisions for the
Portfolio, the Adviser will consider factors in addition to current yield,
including preservation of capital, the potential for realizing capital
appreciation, maturity and yield to maturity. The Adviser 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.

MARYLAND TAX-FREE PORTFOLIO

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

The investment objective of the MARYLAND TAX-FREE PORTFOLIO is to provide
high current income that is free from federal income tax and the Maryland state
and county income taxes.

Under normal circumstances, at least 65% of the Portfolio is invested in
Maryland municipal securities. In addition, as a matter of fundamental policy,
the Portfolio's assets will be invested during periods of normal market
conditions so that at least 80% of its income will not be subject to federal
income tax, including the federal alternative minimum tax.

The Portfolio normally invests primarily in investment-grade debt
securities (and unrated securities determined by the Adviser to be of comparable
quality), but may also invest up to 5% of its total assets in lower-quality debt
securities, sometimes referred to as "junk bonds". 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 to 10 years. The
average maturity of the Portfolio's debt obligations will vary depending on
market conditions.

The Adviser 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.

PENNSYLVANIA MUNICIPAL BOND PORTFOLIO

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

The investment objective of the PENNSYLVANIA MUNICIPAL BOND PORTFOLIO is to
provide high current income that is free from federal and Pennsylvania state
income taxes.

The Portfolio invests primarily in investment-grade debt securities (and
unrated securities determined by the Adviser to be of comparable quality), but
also may invest up to 5% of its total assets in lower-quality debt securities,
sometimes referred to as "junk bonds". The Portfolio has no restrictions on
maturity; however, it will generally invest in medium- and long-term bonds and
maintain a dollar-weighted average maturity of 7 to 10 years. The average
maturity of the Portfolio's debt obligations will vary depending on market
conditions.

12
<PAGE> 83

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

BALANCED PORTFOLIO

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

The investment objective of the BALANCED PORTFOLIO (formerly the 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 Portfolio may invest in preferred stock convertible
securities. Debt securities acquired by the Portfolio may include mortgage or
asset-backed securities, corporate issues, indexed securities, and U.S.
Government Securities. The Portfolio normally will invest in investment-grade
debt securities (including convertible securities) and unrated securities
determined by the Adviser to be of comparable quality, but may also invest up to
5% of its total assets in lower-quality debt securities, referred to as "junk
bonds". The average maturity of the Portfolio's debt obligations will vary
depending on market conditions. The Adviser may adjust the Portfolio's
investments based on its interpretation of underlying economic, financial, and
security trends; however, the Adviser's ability to make such adjustments
successfully will depend on its ability to predict market trends. The Portfolio
maintains at least 25% of its total assets in fixed-income securities.

The Portfolio emphasizes long-term total return from capital appreciation
and current income. Although it is not a policy of the Portfolio to engage in
short-term trading, the Adviser may dispose of securities without regard to the
length of time they are held if it believes such action will benefit the
Portfolio. Although the Adviser will consider the potential for income in
selecting investments for the Portfolio, the Portfolio is generally not intended
to achieve a level of income comparable to fixed-income portfolios.

EQUITY INCOME PORTFOLIO

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

The investment objective of the EQUITY INCOME PORTFOLIO is to provide a
moderate level of current income and growth of capital by investing primarily in
high-quality, income-producing common stocks.

The Portfolio seeks capital appreciation from a broadly diversified
portfolio of common stocks which, in general, have above-average dividend yields
relative to the stock market as measured by the Standard & Poor's 500 Index.
Under normal circumstances, at least 65% of the Portfolio will be invested in
common stocks. The Portfolio may invest up to 35% of its assets in other types
of securities, including investment-grade debt securities (and unrated
securities determined by the Adviser to be of comparable quality) and preferred
stock convertible into common stock.

The Adviser considers many factors when evaluating a security for
investment by the Portfolio, including the company's current financial strength
and relative value. Although the Adviser will consider the potential for income
in selecting investments for the Portfolio, the Portfolio is generally not
intended to achieve a level of income comparable to fixed-income portfolios. The
Adviser may adjust the Portfolio's investments based on its interpretation of
underlying economic, financial, and security trends; however, the Adviser's
ability to make such adjustments successfully will depend on its ability to
predict market trends.

13
<PAGE> 84

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

The Portfolio seeks capital appreciation from a broadly diversified
portfolio of common stocks of established, large capitalization companies. The
Adviser 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
and asset-backed securities. The Portfolio normally invests in investment-grade
debt securities (including convertible securities) and unrated securities
determined by the Adviser to be of comparable quality, but may also invest up to
5% of its total assets in lower-quality debt securities, sometimes referred to
as "junk bonds".

Under normal circumstances, at least 65% of the Portfolio will be invested
in equity securities of companies with operating histories of three years or
more and capitalizations 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 the Adviser believes offer above-average growth potential based
on their fundamental strength. The Adviser 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.

MID-CAP EQUITY PORTFOLIO

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

The investment objective of the MID-CAP EQUITY PORTFOLIO is to provide
long-term capital appreciation by investing primarily in equity securities of
medium-sized companies.

The Portfolio seeks capital appreciation from a broadly diversified
portfolio of common stocks of medium-sized companies. Under normal
circumstances, at least 65% of the Portfolio will be invested in companies
having stock market capitalizations of $500 million to $8 billion. These
companies are typically well established but have not reached full maturity and
may offer significant growth potential. The Adviser will seek to identify
companies which have above-average trends in sales and earnings and whose
valuation by the market is relatively low or unrecognized.

STOCK PORTFOLIO

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

The investment objective of the STOCK PORTFOLIO is to provide long-term
capital appreciation by investing primarily in common stocks.

The Portfolio seeks capital appreciation from a broadly diversified
portfolio of common stocks. The Adviser will seek to identify growth-oriented
companies for investment by the Portfolio, including market leaders in various
industries. Under normal circumstances, at least 65% of the Portfolio will be
invested in common stocks.

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

The investment objective of CAPITAL GROWTH PORTFOLIO is to provide
long-term capital appreciation. The Portfolio is expected to produce modest
dividend or interest income. This income will be incidental to the Portfolio's
primary objective.

14
<PAGE> 85

The Portfolio seeks capital appreciation from a broadly diversified
portfolio of primarily common stocks and securities convertible into common
stock. The Adviser 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 and indexed
securities. Debt securities (including convertible securities) in which the
Portfolio invests will normally be investment grade or unrated securities
determined by the Adviser to be of comparable quality. The Portfolio may,
however, invest up to 5% of its total assets in lower-quality debt securities,
sometimes referred to as "junk bonds".

It is the Portfolio's policy to invest in the securities of both
well-known, established companies and smaller, less-well-known companies. The
Portfolio will invest in securities that the Adviser believes offer
above-average growth potential based on their fundamental strength. The Adviser
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.

SPECIAL EQUITY PORTFOLIO

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

The investment objective of the SPECIAL EQUITY PORTFOLIO is to provide
capital appreciation by investing primarily in securities of companies believed
by the Adviser to be "special equities".

Under normal circumstances, at least 65% of the Portfolio will be invested
in "special equities" which include equity securities of: (1) a company with a
market capitalization of $1.2 billion or less at the time of investment and
deemed by the Adviser 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 the company. The Portfolio will
invest in securities that the Adviser 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.

In seeking capital appreciation, the Portfolio may also invest in
securities of companies that are not special equities, but which have valuable
fixed assets and whose securities are believed by the Adviser to be undervalued
in relation to their assets, earnings, or growth potentials.

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

15
<PAGE> 86

Consider", the "Appendix" to this Prospectus and the Statement of Additional
Information for more information.

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

ADDITIONAL INVESTMENT POLICIES AND LIMITATIONS

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

GOVERNMENT SECURITIES. 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.

For temporary defensive purposes, the non-money-market Portfolios may
invest all or a portion of their assets in Money Market Instruments.

16
<PAGE> 87

RISKS TO CONSIDER

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

An investment in any of the Portfolios involves certain risks. These risks
include the following:

MUNICIPAL OBLIGATIONS. The Tax-Free Money Market Portfolio, Maryland
Tax-Free Portfolio and Pennsylvania Municipal Bond Portfolio invest primarily in
municipal obligations and other Portfolios may invest in such obligations to the
extent permitted by their investment policies. 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. The Adviser monitors the financial condition of
parties (including insurance companies, banks, and corporations) whose
creditworthiness is relied upon in determining the credit quality of securities
a Portfolio may purchase.

17
<PAGE> 88

Adviser 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.

FOREIGN SECURITIES. Investing in the securities of foreign issuers
involves special risks not typically associated with investing in U.S.
companies. These risks include differences in accounting, auditing and financial
reporting standards, generally higher commission rates on foreign portfolio
transactions, the possibility of expropriation or confiscatory taxation, adverse
changes in investment or exchange control regulations, political instability
which could affect U.S. investment in foreign countries, and potential
restrictions on the flow of international capital and currencies. Foreign
issuers may also be subject to less government regulation than U.S. companies.
Moreover, the dividends and interest payable on foreign securities may be
subject to foreign withholding taxes, thus reducing the net amount of income
available for distribution to a Portfolio's shareholders. Further, foreign
securities often trade with less frequency and volume than domestic securities
and, therefore, may exhibit greater price volatility. Changes in foreign
exchange rates will affect, favorably or unfavorably, the value of those
securities which are denominated or quoted in currencies other than the U.S.
dollar.

18
<PAGE> 89

do so. The share price of the non-money-market Portfolios will fluctuate and
investors may have a gain or loss when redeeming shares.

Investors should review the investment objective and policies of a
Portfolio and carefully consider their ability to assume the risks involved in
purchasing its shares.

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

The YIELD of shares of a Portfolio is calculated by dividing the net
investment income earned by the shares over a 7-day period (for the money market
Portfolios) or a 30-day period (for other Portfolios), 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 Portfolios 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 call 1-800-ARK-FUND to request a Statement of Additional
Information and Annual Report.

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

Subject to the general supervision of the Board of Trustees, the Adviser is
responsible for placing orders for securities transactions for the Portfolios.
Transactions in debt securities are expected to occur primarily with issuers,
underwriters or major dealers acting as principals. Such transactions are

19
<PAGE> 90

normally effected on a net basis and do not involve payment of brokerage
commissions. Transactions involving equity securities 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 Adviser's policy 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 the
Adviser. If more than one account managed by the Adviser is purchasing or
selling the same security, orders may be aggregated in the interest of achieving
the most favorable execution.

The Portfolios have authorized the Adviser to allocate transactions to some
broker-dealers who help distribute the Portfolios' shares. The Adviser 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 % for the Intermediate Fixed Income
Portfolio, % for the Pennsylvania Municipal Bond Portfolio, 50% for the
Equity Income Portfolio, 150% for the Mid-Cap Equity Portfolio and 60% for the
Stock Portfolio. Because a higher turnover rate increases transaction costs and
may increase taxable capital gains, the Adviser carefully weighs the anticipated
benefits of short-term investing against these consequences.

VALUATION. The net asset value of the Retail Class shares of each Portfolio
is calculated by adding the Retail Class' pro rata share of the value of all
securities and other assets attributable to a Portfolio, deducting the Retail
Class' pro rata share of Portfolio-level liabilities, deducting Retail Class-
specific liabilities, and dividing the result by the number of Retail Class
shares outstanding. 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 of Trustees. Fair value of portfolio securities is determined by an
independent pricing service approved by the Board of Trustees, 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. Assets of the money market Portfolios are valued based upon the
amortized cost method.

PRICING OF SHARES. The Portfolios are open for business and the net asset
values of their shares 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 a money market Portfolio must be made in federal
funds or other readily available funds and will be processed at the net asset
value next calculated after your order is received and accepted by the transfer
agent. Your purchase of other Portfolios will be processed at the public
offering price next calculated after your order is received and accepted by the
transfer agent. The net asset values of the Portfolios (other than the 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 net asset values of the 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 net asset values of the 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 or 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> 91

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

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

Retail Class shares are designed for all investors seeking professionally
managed mutual funds. All investors in Retail Class shares will be required to
establish a brokerage account with a qualified securities broker or financial
institution (an "Investment Professional"), such as First Maryland Brokerage
Corporation, that has a clearing brokerage arrangement with National Financial
Services Corporation.

HOW DO I SET UP AN ACCOUNT?
- --------------------------------------------------------------------------------

You may set up an account through your Investment Professional. Please
contact your Investment Professional or call 1-800-ARK FUND for information on
opening a brokerage account to invest in Retail Class 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 contact your Investment
Professional. Payments for Retail Class shares of a money market Portfolio must
be made in federal funds or other funds immediately available to the 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 the
shares purchased will be entitled to that day's dividend if it is received prior
to 12:00 noon (for the U.S. Treasury Money Market Portfolio and Tax-Free Money
Market Portfolio) or 1:30 p.m. (for the Money Market Portfolio and U.S.
Government Money Market Portfolio). If a purchase order, together with available
funds, is received after 12:00 noon or 1:30 p.m., but before 4:00 p.m., it will
be processed at the net asset value determined at 4:00 p.m. and the shares
purchased 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 net asset
value next determined on the following Business Day. Purchase orders for
non-money-market Portfolios received by the transfer agent prior to 4:00 p.m.
will be processed at that day's public offering price (the net asset value plus
the applicable sales charge). The shares purchased will begin to earn dividends
on the Business Day following the date the purchase order is accepted.

When the NYSE or the Federal Reserve Bank of New York closes early, the
Fund reserves the right to advance the time on any such day by which purchase
orders must be received.

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 net asset value calculation on a Business Day in order for you
to receive the next-determined share price.

The Fund 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 net asset value 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 the Portfolio or its

21
<PAGE> 92

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.

SALES CHARGES
- --------------------------------------------------------------------------------

There are no sales charges imposed on the money market Portfolios. For the
other Portfolios, the following table shows total sales charges:

<TABLE>
<CAPTION>
SHORT-TERM TREASURY, BALANCED, EQUITY INCOME,
INTERMEDIATE FIXED INCOME, BLUE CHIP EQUITY,
INCOME, MARYLAND TAX-FREE MID-CAP EQUITY, STOCK,
AND PENNSYLVANIA MUNICIPAL CAPITAL GROWTH
BOND PORTFOLIOS AND 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 Retail Class 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
all non-money-market Portfolios. These sales load waivers will be in effect at
least through .

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 of a Portfolio may be exchanged
for Retail Class shares of another Portfolio. The redemption will be made at the
net asset value of the shares to be redeemed next determined 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 of another, which may produce a gain or
loss for tax purposes. In order to protect each Portfolio's performance and its
shareholders, frequent exchange activity in response to short-term market
fluctuations is discouraged. The Fund reserves the right to modify or withdraw
the exchange privilege or to suspend the offering of shares of a Portfolio of
any class without notice to shareholders if, in the Adviser's judgment, the
Portfolio would be unable to invest effectively in accordance with its
investment objective and policies, or would otherwise potentially be adversely
affected. The Fund also reserves the right to reject any specific purchase
order, including certain purchases by exchange.

If Retail Class shares are exchanged for Retail Class 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 the sales
charges.

22
<PAGE> 93

An exchange between the Retail Class and the Institutional or Institutional
II Classes of any Portfolio is generally not permitted, except that exchanges
between 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
Institutional Class shares. In this case, an exchange will be permitted between
the Retail Class and the Institutional Class of a Portfolio at net asset value,
without the imposition of a sales load (if any), fee or other charge. An
exchange from the Institutional Class to the Retail Class of a Portfolio will
occur automatically, at net asset value without the imposition of a sales load
(if any), fee or other charge, when an Institutional Class shareholder becomes
ineligible to invest in the Institutional Class. The Fund will provide at least
30 days' notice of any such exchange. 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, the
Fund reserves the right to redeem the shares upon expiration of the 30-day
period. The Fund reserves the right to require shareholders to complete an
application or other documentation in connection with the exchange. The Fund has
received a private letter tax 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 Retail Class shares on any Business
Day. Call your Investment Professional with redemption requests. Shares will be
redeemed at the net asset value 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. When the NYSE or the Federal Reserve Bank of New York closes early,
the Fund reserves the right to advance the time on any such day by which
redemption orders must be received.

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.

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 the Tax-Free Money Market Portfolio, Maryland Tax-Free
Portfolio and Pennsylvania Municipal Bond 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 . Plans include Individual Retirement Accounts ("IRAs"), Rollover IRAs,
Keogh Plans, and Simplified Employee Pension Plans.

DISTRIBUTION OPTIONS. The money market Portfolios earn interest from their
investments. This interest, after payment of expenses, is passed along to
shareholders as income dividends. Income

23
<PAGE> 94

dividends for each money market Portfolio are declared daily and paid monthly.
The other Portfolios earn 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 the
Short-Term Treasury Portfolio, Intermediate Fixed Income Portfolio, Income
Portfolio, Maryland Tax-Free Portfolio and Pennsylvania Municipal Bond Portfolio
are declared and paid monthly; for the Balanced Portfolio, Equity Income
Portfolio and Blue Chip Equity Portfolio they are declared and paid quarterly;
and for the Mid-Cap Equity Portfolio, Stock Portfolio, Capital Growth Portfolio
and Special Equity Portfolio they are declared and paid annually. Net realized
capital gains, if any, for any Portfolio, are declared and paid at least
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 dividends and capital gain distributions, if
any, in additional shares of the same Portfolio. Reinvestment will be made at
the net asset value next determined after 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 Portfolios (other than the money
market Portfolios), your capital gain distributions will be automatically
reinvested in shares of the same Portfolio, and your dividends, 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 $500. This program is not available for the
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 ADVISER

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

Allied Investment Advisors, Inc. 100 E. Pratt Street, Baltimore, Maryland
21202, provides investment advisory services to each Portfolio subject to the
general supervision of the Board of Trustees of the Fund. The Adviser is
entitled to receive for its advisory services payment at an annual rate based on
the following fee schedule: money market Portfolios: .25% of each Portfolio's
average daily net assets; Short-Term Treasury Portfolio: .35% of average daily
net assets; Intermediate Fixed Income Portfolio: .60% of average daily net
assets; Income Portfolio: .50% of average daily net assets; Maryland Tax Free
Portfolio: 50% of average daily net assets; Pennsylvania Municipal Bond
Portfolio: .50% of average daily net assets; Balanced Portfolio: .55% of average
daily net assets; Equity Income Portfolio: .70% of average daily net assets;
Blue Chip Equity Portfolio: .60% of average daily net assets; Mid-Cap Equity
Portfolio: .70% of average daily net assets; Stock Portfolio: .70% of average
daily net assets; Capital Growth Portfolio: .60% of average daily net assets;
and Special Equity Portfolio: .60% of average daily net assets. The Adviser, in
its sole discretion, may waive all or any

24
<PAGE> 95

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.

The Portfolios may from time to time, consistent with their investment
policies and applicable law, invest in securities of companies with which First
Maryland or its affiliates has a lending relationship. The lending relationship
will not be a factor in the selection by the Adviser of the securities in which
the Portfolios invest.

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

James M. Hannan is a Principal of the Adviser and has been the portfolio
manager for the 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. He served as a Vice President of First Maryland from
1987 to 1996. 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 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

25
<PAGE> 96

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.

Christopher E. Baggini is a Vice President of First Maryland and serves as
the portfolio manager of the Capital Growth Portfolio. 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.

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

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

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 Fund's Board of
Trustees. 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 in
order to limit their total operating expenses. Any such voluntary waiver, which
can be discontinued at any time, will increase the Portfolio's yield for the
period during which it is in effect.

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

SEI Financial Services Company (the "Distributor"), 680 East Swedesford
Road, Wayne, Pennsylvania 19087, a wholly-owned subsidiary of SEI, serves as the
distributor for the Fund pursuant to a distribution agreement with the Fund. The
Distributor, a Pennsylvania corporation incorporated on

26
<PAGE> 97

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 of the
Fund.

The Board of Trustees has adopted a distribution plan on behalf of the
Retail Class of each Portfolio pursuant to Rule 12b-1 under the 1940 Act
("Plan"). The 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 fee rates: .25% of the average net assets of
the Retail Class of each money market Portfolio; .30% of the average net assets
of the Retail Class of the Intermediate Fixed Income Portfolio, Income
Portfolio, the Maryland Tax-Free Portfolio and Pennsylvania Municipal Bond
Portfolio; .40% of the average net assets of the Retail Class of the Balanced
Portfolio, Equity Income Portfolio, Short-Term Treasury Portfolio, Mid-Cap
Equity Portfolio, Stock Portfolio, Capital Growth Portfolio and Special Equity
Portfolio; and .55% of the average net assets of the Retail Class of the Blue
Chip Equity Portfolio.

The Distributor and Investment Professionals that receive portions of the
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 Plan does not obligate a Portfolio to reimburse the Distributor for the
actual expenses the Distributor may incur in fulfilling its obligations under
the Plan on behalf of the Retail Class. Thus, under the 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 fee it receives,
the Distributor will retain the full amount of the fee.

Under a Shareholder Services Plan in effect with respect to the Retail
Class of a Portfolio, the Retail Class of a 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 Retail Class 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 of Trustees has
approved an annual shareholder servicing fee rate of .15% of the average net
assets of the Retail Class of each Portfolio, except for the 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.

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

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

27
<PAGE> 98

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

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 net asset value of the Portfolio's shares or
result in any financial loss to any shareholder.

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

28
<PAGE> 99

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.

The Tax-Free Money Market Portfolio, Maryland Tax-Free Portfolio and
Pennsylvania Municipal Bond 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.

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

29
<PAGE> 100

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

The Board of Trustees of the Fund has established three classes of shares
of each money market Portfolio; two classes of shares of the Short-Term Treasury
Portfolio, Intermediate Fixed Income Portfolio, Income Portfolio, Maryland
Tax-Free Portfolio, Pennsylvania Municipal Bond Portfolio, Balanced Portfolio,
Equity Income Portfolio, Blue Chip Equity Portfolio, Mid-Cap Equity Portfolio,
Stock Portfolio, Capital Growth Portfolio and Special Equity Portfolio; and one
class of shares of the International Equity Portfolio. The classes of shares of
a Portfolio have different sales charges and other expenses that may affect
performance. You may obtain more information on the classes of shares not
offered through this Prospectus from your Investment Professional or by calling
1-800-624-4116 (inside Maryland 1-800-638-7751).

30
<PAGE> 101

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

ASSET-BACKED SECURITIES. Asset-backed securities 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 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.)

BANK OBLIGATIONS. Bank obligations 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.

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.

HEDGING STRATEGIES. The Adviser may, to the extent permitted by the
investment policies and limitations of a Portfolio, buy and sell options on
securities, currencies, futures contracts and options on such contracts
("Hedging Instruments") to manage 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 a Portfolio 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.

31
<PAGE> 102

Hedging Instruments can be volatile investments and involve certain risks.
If the Adviser 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 normal conditions, no Portfolio will hedge more than 25% of its total
assets by selling futures, writing calls, and buying puts. 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 a Portfolio will not buy calls
with a value exceeding 5% of its total assets.

ILLIQUID SECURITIES. Under currently applicable regulations, each money
market Portfolio (other than the U.S. Treasury Money Market Portfolio) may
invest up to 10%, and the other 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 the
Adviser determines, in accordance with guidelines established by the Board of
Trustees, 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.

INDEXED SECURITIES. Indexed securities are 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.

MORTGAGE-BACKED SECURITIES. Mortgage-backed securities are issued by
government and non-government entities such as banks, mortgage lenders, or other
financial institutions and 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
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.

32
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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.

U.S. GOVERNMENT SECURITIES. U.S. Government Securities 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.

WARRANTS. Warrants entitle the holder to buy equity securities at a
specified price for a specified period of time. They 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 that 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.

WHEN-ISSUED TRANSACTIONS. The market value of securities purchased on a
when-issued or delayed-delivery basis 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, a
Portfolio will not earn interest on the securities purchased until they are
delivered.

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<PAGE> 104

ADDITIONAL INVESTMENTS FOR THE TAX-FREE MONEY MARKET, MARYLAND TAX-FREE AND
PENNSYLVANIA MUNICIPAL BOND PORTFOLIOS

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

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.

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<PAGE> 105

ARKPROR-2/96
BS-2870A-9506
<PAGE> 106
ARK FUNDS:
U.S. TREASURY MONEY MARKET PORTFOLIO
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
MONEY MARKET PORTFOLIO
TAX-FREE MONEY MARKET PORTFOLIO
SHORT-TERM TREASURY PORTFOLIO
INTERMEDIATE FIXED INCOME PORTFOLIO
INCOME PORTFOLIO
MARYLAND TAX-FREE PORTFOLIO
PENNSYLVANIA MUNICIPAL BOND PORTFOLIO
BALANCED PORTFOLIO
EQUITY INCOME PORTFOLIO
BLUE CHIP EQUITY PORTFOLIO
MID-CAP EQUITY PORTFOLIO
STOCK PORTFOLIO
CAPITAL GROWTH PORTFOLIO
SPECIAL EQUITY PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIO

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).............. Investment Advisers
a(iii),b,c,d......... Portfolio Transactions
e.................... *
f.................... Administrator and Distributor
g.................... *
h.................... Description of the Fund
i.................... Administrator and Distributor
<PAGE> 107
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

* Not Applicable

<PAGE> 108

ARK FUNDS

U.S. TREASURY MONEY MARKET PORTFOLIO
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
MONEY MARKET PORTFOLIO
TAX-FREE MONEY MARKET PORTFOLIO
SHORT-TERM TREASURY PORTFOLIO
INTERMEDIATE FIXED INCOME PORTFOLIO
INCOME PORTFOLIO
BALANCED PORTFOLIO
EQUITY INCOME PORTFOLIO
BLUE CHIP EQUITY PORTFOLIO
MID-CAP EQUITY PORTFOLIO
STOCK PORTFOLIO
CAPITAL GROWTH PORTFOLIO
SPECIAL EQUITY PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIO
MARYLAND TAX-FREE PORTFOLIO
PENNSYLVANIA MUNICIPAL BOND PORTFOLIO

STATEMENT OF ADDITIONAL INFORMATION
______________, 1996

This Statement of Additional Information is not a prospectus but should be read
in conjunction with the current Prospectuses dated _____________, 1996, for the
Retail Class, Institutional Class, and Institutional II Class of ARK Funds (the
"Fund"). Please retain this document for future reference. The Fund's
financial statements and financial highlights, included in the Annual Report
for the fiscal year ended April 30, 1996, are incorporated herein by reference.
To obtain additional copies of the Retail Class, Institutional Class or
Institutional II Class Prospectus, the Annual Report dated April 30, 1996, or
this Statement of Additional Information, please call 1-800-ARK FUND.

TABLE OF CONTENTS PAGE

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

Investment Advisers:
Allied Investment Advisors, Inc. ("AIA"); AIB Investment Managers Limited
("AIBIM")

Administrator;
SEI Fund Resources (the "Administrator")

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<PAGE> 109
Distributor:
SEI Financial Services Company (the "Distributor")

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

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

- 2 -
<PAGE> 110
INVESTMENT POLICIES AND LIMITATIONS

The following policies and limitations supplement those set forth in
the Retail Class Prospectus, Institutional Class Prospectus, and 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, as amended (the "1940 Act")) of a Portfolio. The Portfolios' investment
limitations are as follows.

Each 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;

Each Portfolio (other than the Maryland Tax-Free and Pennsylvania
Municipal Bond Portfolio), as a matter of fundamental policy, may not:

(3) 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;

Each money market Portfolio, and the Short Term Treasury Portfolio,
Income Portfolio, Intermediate Fixed Income Portfolio, Balanced Portfolio,
Equity Income Portfolio and Capital Growth Portfolio as a matter of fundamental
policy may not:

(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 portfolio securities;

The Blue Chip Equity Portfolio, Stock Portfolio, Mid-Cap Equity
Portfolio, International Equity Portfolio, Special Equity Portfolio, Maryland
Tax-Free Portfolio and Pennsylvania Municipal Bond Portfolio as a matter of
fundamental policy, may not:

All Portfolios (other than the Money Market Portfolio and Tax-Free
Money Market Portfolio) as a fundamental policy, may not:

(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

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<PAGE> 111
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 Money Market Portfolio as a matter of fundamental policy, may not:

(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 except that the Money Market Portfolio may invest 25% or
more of its assets in obligations of domestic banks;

The Tax-Free Money Market Portfolio as a matter of fundamental policy,
may not:

(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;

All Portfolios as a matter of fundamental policy, may not:

(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);

All money market Portfolios as a matter of fundamental policy, may
not:

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

Each Portfolio (other than the money market Portfolios) as a matter of
fundamental policy, may not:

(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

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

(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.