ARK FUNDS/MA, 485APOS, 1997-05-07

ARK FUNDS/MA
485APOS, 1997-05-07

Previous: REMBRANDT FUNDS, 497, 1997-05-07

Next: FRESH CHOICE INC, 10-Q, 1997-05-07

<PAGE> 1

As filed with the Securities and Exchange Commission on May 5, 1997

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. 11 [ x ]

and

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

Amendment No. 9 [ x ]

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

One Freedom Valley Drive
Oaks, PA 19456
(Address of Principal Executive Office)

Registrant's Telephone Number
1-610-676-1000

Ms. Kathryn L. Stanton
Vice President and Secretary
ARK Funds
One Freedom Valley Drive
Oaks, PA 19456
(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.
<PAGE> 2

The Registrant hereby elects to register an indefinite number of shares of
beneficial interest of its Equity Index Portfolio and Large-Cap Value 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 beneficial
interest of its U.S. Treasury Money Market Portfolio, U.S. Government Money
Market Portfolio, Money Market Portfolio, Tax-Free Money Market Portfolio,
Short-Term Treasury Portfolio, Intermediate Fixed Income Portfolio, Income
Portfolio, Maryland Tax-Free Portfolio, Pennsylvania Tax-Free Portfolio,
Balanced Portfolio, Equity Income Portfolio, Blue Chip Equity Portfolio, Mid-Cap
Equity Portfolio, Stock Portfolio, Capital Growth Portfolio, Special Equity
Portfolio and International Equity Portfolio pursuant to Rule 24f-2. The Rule
24f-2 Notice for the Registrant's fiscal year ended April 30, 1996 was filed on
June 25, 1996.

Page 1 of _____

ARK FUNDS

CONTENTS OF
POST-EFFECTIVE AMENDMENT NO. 11

<TABLE>
<CAPTION>
Page
<S> <C>
Facing Sheet

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

Exhibits
</TABLE>
<PAGE> 3

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 TAX-FREE PORTFOLIO
BALANCED PORTFOLIO
EQUITY INCOME PORTFOLIO
EQUITY INDEX PORTFOLIO
BLUE CHIP EQUITY PORTFOLIO
LARGE-CAP VALUE PORTFOLIO
MID-CAP EQUITY PORTFOLIO
STOCK PORTFOLIO
CAPITAL GROWTH PORTFOLIO
SPECIAL EQUITY PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIO

CROSS REFERENCE SHEET

Form N-1A Item Number

<TABLE>
<CAPTION>
Part A Prospectus Caption
<S> <C>
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 Valuation; Tax Matters
h . . . . . . . . . . . . . . . . . . . . . General Information
7 a . . . . . . . . . . . . . . . . . . . . . Purchases, Exchanges and Redemptions
b(i),(ii) . . . . . . . . . . . . . . . . . Portfolio Transactions and Valuation
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 . . . . . . . . . . . . . . . . . . . . . . *
</TABLE>

_____________________

* Not applicable.

<PAGE> 4

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

, 1997

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

<TABLE>
<S> <C>
* U.S. Treasury Money Market Portfolio * Equity Income Portfolio
* U.S. Government Money Market Portfolio * Equity Index Portfolio
* Money Market Portfolio * Blue Chip Equity Portfolio
* Tax-Free Money Market Portfolio * Large-Cap Value 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
* Pennsylvania Tax-Free Portfolio * International Equity Portfolio
* Balanced Portfolio (formerly Growth
and Income 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 FEDERAL DEPOSIT INSURANCE CORPORATION, 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 , 1997, Annual Report
(including financial statements for the fiscal year ended April 30, 1996) and
Semi-Annual Report (including financial statements, for the six months ended
October 31, 1996), have been filed with the Securities and Exchange Commission
and are incorporated herein by reference. The Statement of Additional
Information, Annual Report and Semi-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........... 10
Additional Investment Policies and
Limitations................................ 22
Risks to Consider............................ 23
Performance.................................. 26
Portfolio Transactions and Valuation......... 27
Purchases, Exchanges and Redemptions......... 28
Management of the Fund....................... 32
Tax Matters.................................. 37
General Information.......................... 38
Appendix..................................... 40
</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
- --------------------------------------------------------------------------------

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
money market 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 TAX-FREE 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 (formerly Growth and Income 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.

EQUITY INDEX PORTFOLIO -- seeks to provide investment results that
correspond to the performance of the Standard & Poor's 500 Composite Stock Price
Index.

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

LARGE-CAP VALUE PORTFOLIO -- seeks to provide long-term capital
appreciation by investing primarily in common stocks of large companies which
the adviser believes are undervalued.

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.

2
<PAGE> 6

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".

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 managed by AIB Investment Managers
Limited. SEI Financial Services Company serves as the distributor of the
Portfolios' shares and SEI Fund Resources 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
Fund's 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".

SHAREHOLDER 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% .11% .09%
Other Expenses (after waivers)(2)............ .18% .18% .18% .20%
---- ---- ---- ----
Total Operating Expenses (after
waivers)(3)................................ .37% .32% .29% .29%
==== ==== ==== ====
</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%.

(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 YR 3 YRS 5 YRS 10 YRS
---- ----- ----- ------
<S> <C> <C> <C> <C>
U.S. Treasury Money Market Portfolio....................... 4 12 21 47
U.S. Government Money Market Portfolio..................... 3 10 18 41
Money Market Portfolio..................................... 3 9 16 37
Tax-Free Money Market Portfolio............................ 3 9 16 37
</TABLE>

4
<PAGE> 8

ANNUAL OPERATING EXPENSES (as a percentage of average net assets)
- --------------------------------------------------------------------------------

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

(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 Tax-Free 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 Tax-Free Portfolio would be .35%, .60%, .50% and .50%,
respectively.

(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 Tax-Free Portfolio would be .60%, .83%, .70% 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 YR 3 YRS 5 YRS 10 YRS
---- ----- ----- ------
<S> <C> <C> <C> <C>
Short-Term Treasury Portfolio.............................. 6 18 31 69
Intermediate Fixed Income Portfolio........................ 7 22 38 85
Income Portfolio........................................... 7 22 39 87
Maryland Tax-Free Portfolio................................ 7 22 38 85
Pennsylvania Tax-Free Portfolio............................ 6 20 35 79
</TABLE>

5
<PAGE> 9

ANNUAL OPERATING EXPENSES (as a percentage of average net assets)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
INSTITUTIONAL CLASS
------------------------------------------------------------
EQUITY EQUITY BLUE CHIP LARGE CAP
BALANCED INCOME INDEX EQUITY VALUE
PORTFOLIO* PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Advisory Fees (after waivers)(1)................. .55% .60% .10% .40% .50%
Other Expenses(2)................................ .20% .23% .15% .30% .50%
---- ---- ---- ---- ----
Total Operating Expenses (after waivers)(3)...... .75% .83% .25% .70% 1.00%
==== ==== ==== ==== =====
</TABLE>

* Formerly Growth and Income Portfolio.

(1) The adviser has agreed to waive, on a voluntary basis, a portion of its fees
for the Equity Income Portfolio, Equity Index Portfolio, Blue Chip Equity
Portfolio and Large-Cap Value 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, Equity Index Portfolio, Blue
Chip Equity Portfolio and Large-Cap Value Portfolio would be .70%, .20%, 60%
and .70%, respectively.

(2) Other expenses are estimated based on amounts incurred during the previous
fiscal year and include all expenses except nonrecurring account fees,
brokerage commissions and other capital items, and advisory fees. The Fund's
administrator has agreed to waive, on a voluntary basis, .08% of its fee for
the Equity Index Portfolio.

(3) Absent the voluntary fee waivers described above, total operating expenses
for Institutional Class shares of the Equity Income Portfolio, Equity Index
Portfolio, Blue Chip Equity Portfolio and Large-Cap Value Portfolio would be
.93%, .43%, .90% and 1.20%, 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 YR 3 YRS 5 YRS 10 YRS
---- ----- ----- ------
<S> <C> <C> <C> <C>
Balanced Portfolio......................................... 8 24 42 93
Equity Income Portfolio.................................... 8 26 46 103
Equity Index Portfolio..................................... 3 8 -- --
Blue Chip Equity Portfolio................................. 7 22 39 87
Large-Cap Value Portfolio.................................. 10 32 -- --
</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. Because the
Equity Index Portfolio and Large-Cap Value Portfolio were not in operation as of
the date of this Prospectus, their expenses have not been projected beyond the
three-year period shown.

6
<PAGE> 10

ANNUAL OPERATING EXPENSES (as a percentage of average net assets)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
INSTITUTIONAL CLASS
-----------------------------------------------------------------
MID-CAP CAPITAL SPECIAL INTERNATIONAL
EQUITY STOCK GROWTH EQUITY EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
Advisory Fees (after waivers)(1)................. .65% .65% .60% .60% .56%
Other Expenses(2)................................ .25% .25% .26% .38% .99%
---- ---- ---- ---- -----
Total Operating Expenses (after waivers)(3)...... .90% .90% .86% .98% 1.55%
==== ==== ==== ==== =====
</TABLE>

(1) The adviser has agreed, on a voluntary basis, to waive a portion or all of
its fees for the Mid-Cap Equity Portfolio and Stock 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 Mid-Cap Equity Portfolio, Stock Portfolio and
International Equity Portfolio would be .70%, .70% and .80%, respectively.

(3) Absent the voluntary fee waivers described above, total operating expenses
for Institutional Class shares of the Mid-Cap Equity Portfolio, Stock
Portfolio and International Equity Portfolio would be .95%, .95% 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 YR 3 YRS 5 YRS 10 YRS
---- ----- ----- ------
<S> <C> <C> <C> <C>
Mid-Cap Equity Portfolio................................... 9 29 50 11
Stock Portfolio............................................ 9 29 50 11
Capital Growth Portfolio................................... 9 27 48 106
Special Equity Portfolio................................... 10 31 54 120
International Equity Portfolio............................. 16 49 84 185
</TABLE>

7
<PAGE> 11
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

The following table provides information about the financial history of the
Institutional Class of each Portfolio (excluding Portfolios which as of October
31, 1996 had not commenced operations). The table expresses the information in
terms of a single share outstanding throughout the period. The information
(other than the information for the six months ended October 31, 1996) has been
audited by KPMG Peat Marwick LLP, independent accountants for the Fund. Their
report on the financial statements and financial highlights for the period ended
April 30, 1996 is included in the Annual Report, which is incorporated by
reference into the Statement of Additional Information. The table should be read
in conjunction with the Fund's financial statements and the notes thereto, which
may be obtained free of charge from the Fund.

For a Share Outstanding Throughout the Period Ended October 31, 1996 (Unaudited)
and the Years Ended April 30,

<TABLE>
<CAPTION>
Realized
and Dividends Ratio of
Net Unrealized from Distri- Net Net Expenses
Asset Gains or Net butions Asset Assets to
Value, Net (Losses) Invest- from Value, End of Average
Beginning Investment on ment Capital End of Total Period Net
of Period Income Investments Income Gains Period Return (000) Assets
----------------------------------------------------------------------------------------------------------------------------
- ------------------------------------
U.S. TREASURY MONEY MARKET PORTFOLIO
- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996*** $1.00 $ 0.02 -- $ (0.02) -- $1.00 5.06%* $261,387 0.37%*
1996 1.00 0.05 -- (0.05) -- 1.00 5.32 275,259 0.36
1995 1.00 0.05 -- (0.05) -- 1.00 4.60 221,069 0.38
1994(1) 1.00 0.03 -- (0.03) -- 1.00 2.48 137,826 0.43*

<CAPTION>
- --------------------------------------
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
- --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996*** $1.00 $ 0.03 -- $ (0.03) -- $1.00 5.31%* $1,186,576 0.32%*
1996 1.00 0.05 -- (0.05) -- 1.00 5.64 1,043,758 0.31
1995 1.00 0.05 -- (0.05) -- 1.00 5.00 651,113 0.25
1994(1) 1.00 0.03 -- (0.03) -- 1.00 2.70 271,437 0.35*

<CAPTION>
- ----------------------
MONEY MARKET PORTFOLIO
- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996*** $1.00 $ 0.03 -- $ (0.03) -- $1.00 5.44%* $251,882 0.27%*
1996 1.00 0.06 -- (0.06) -- 1.00 5.78 348,343 0.25
1995 1.00 0.05 -- (0.05) -- 1.00 5.13 277,859 0.20
1994(1) 1.00 0.03 -- (0.03) -- 1.00 2.80 197,162 0.26*

<CAPTION>
- -------------------------------
TAX-FREE MONEY MARKET PORTFOLIO
- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996*** $1.00 $ 0.02 -- $ (0.02) -- $1.00 3.38%* $81,142 0.28%*
1996 1.00 0.04 -- (0.04) -- 1.00 3.61 74,739 0.22
1995 1.00 0.03 -- (0.03) -- 1.00 3.24 64,112 0.22
1994(1) 1.00 0.02 -- (0.02) -- 1.00 1.87 66,692 0.35*

<CAPTION>
- -----------------------------
SHORT-TERM TREASURY PORTFOLIO
- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996*** $ 9.96 $ 0.25 $ 0.06 $ (0.24) -- $10.03 3.34% $20,591 0.55%*
1996(2) 10.00 0.06 (0.04) (0.06) -- 9.96 0.16 18,823 0.55*

<CAPTION>
- ----------------
INCOME PORTFOLIO
- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996*** $9.80 $ 0.30 $ 0.16 $ (0.30) -- $9.96 4.80% $185,648 0.68%*
1996 9.60 0.61 0.20 (0.61) -- 9.80 8.46 180,962 0.73
1995 9.61 0.58 0.02 (0.58) (0.03) 9.60 6.53 66,441 0.74
1994(3) 10.00 0.38 (0.38) (0.38) (0.01) 9.61 (0.08) 54,289 0.77*

<CAPTION>
Ratio of Ratio of
Net Expenses
Investment to Average
Income Net
to Average Assets Portfolio Average
Net (Excluding Turnover Commission
Assets Waivers) Rate Rate**
-------------------------------------------------------------
- ------------------------------------
U.S. TREASURY MONEY MARKET PORTFOLIO
- ------------------------------------
<S> <C> <C> <C> <C> <C>
1996*** 4.86%* 0.43%* -- --
1996 5.18 0.45 -- --
1995 4.59 0.47 -- --
1994(1) 2.80* 0.51* -- --

<CAPTION>
- --------------------------------------
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
- --------------------------------------
<S> <C> <C> <C> <C> <C>
1996*** 5.06%* 0.43%* -- --
1996 5.45 0.44 -- --
1995 5.09 0.47 -- --
1994(1) 3.03* 0.62* -- --

<CAPTION>
- ----------------------
MONEY MARKET PORTFOLIO
- ----------------------
<S> <C> <C> <C> <C> <C>
1996*** 5.20%* 0.43%* -- --
1996 5.62 0.44 -- --
1995 5.13 0.46 -- --
1994(1) 3.16* 0.52* -- --

<CAPTION>
- -------------------------------
TAX-FREE MONEY MARKET PORTFOLIO
- -------------------------------
<S> <C> <C> <C> <C> <C>
1996*** 3.21%* 0.44%* -- --
1996 3.54 0.45 -- --
1995 3.21 0.47 -- --
1994(1) 2.10* 0.53* -- --

<CAPTION>
- -----------------------------
SHORT-TERM TREASURY PORTFOLIO
- -----------------------------
<S> <C> <C> <C> <C> <C>
1996*** 5.04%* 0.60%* 80.21% --
1996(2) (0.55)* 0.60* -- --

<CAPTION>
- ---------------
INCOME PORFOLIO
- ---------------
<S> <C> <C> <C> <C> <C>
1996*** 6.10%* 0.68%* 151.90% --
1996 6.00 0.73 107.33 --
1995 6.15 0.74 73.00 --
1994(3) 4.90* 0.77* 20.00 --
</TABLE>

8
<PAGE> 12

<TABLE>
<CAPTION>
Realized
and Dividends Ratio of
Net Unrealized from Distri- Net Net Expenses
Asset Gains or Net butions Asset Assets to
Value, Net (Losses) Invest- from Value, End of Average
Beginning Investment on ment Capital End of Total Period Net
of Period Income Investments Income Gains Period Return (000) Assets
----------------------------------------------------------------------------------------------------------------------------
- -------------------
BALANCED PORTFOLIO+
- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996*** $11.38 $0.16 $(0.07) $(0.13) -- $11.34 0.80% $ 99,614 0.74%*
1996 10.04 0.34 1.71 (0.34) $(0.37) 11.38 20.90 102,233 0.75
1995 10.16 0.33 0.03 (0.29) (0.19) 10.04 3.75 91,039 0.77
1994(3) 10.00 0.19 0.17 (0.19) (0.01) 10.16 3.56 88,208 0.81*

<CAPTION>
- --------------------------
BLUE CHIP EQUITY PORTFOLIO
- --------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996*** $10.12 $0.10 $ 0.82 $ (0.09) -- $10.95 9.10 % $20,058 0.65%*
1996(4) 10.00 -- 0.12 -- -- 10.12 1.20 11,456 0.65*

<CAPTION>
- ------------------------
CAPITAL GROWTH PORTFOLIO
- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996*** $11.60 $0.13 $ 0.31 -- -- $12.04 3.79 % $33,463 0.22%*
1996 10.20 0.16 2.17 $(0.16) $(0.77) 11.60 23.62 39,560 0.24
1995 10.19 0.14 0.16 (0.11) (0.18) 10.20 3.15 41,170 0.74
1994(3) 10.00 0.06 0.21 (0.03) (0.05) 10.19 2.66 52,233 0.87*

<CAPTION>
- ------------------------
SPECIAL EQUITY PORTFOLIO
- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996*** $14.72 $(0.03) $ (1.40) -- -- $13.29 (9.71)% $24,457 0.86%*
1996(5) 10.00 0.09 4.72 $ (0.09) -- 14.72 48.34 33,621 0.91*

<CAPTION>
- ------------------------------
INTERNATIONAL EQUITY PORTFOLIO
- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996*** $11.23 $ 0.03 $ (0.64) -- -- $10.62 (5.43)% $3,379 1.55%*
1996 10.13 0.19 1.37 $ (0.23) $(0.23) 11.23 15.66 3,571 1.55
1995(6) 10.00 0.03 0.10 -- -- 10.13 1.30 2,940 1.55*

Ratio of Ratio of
Net Expenses
Investment to Average
Income Net
to Average Assets Portfolio Average
Net (Excluding Turnover Commission
Assets Waivers) Rate Rate**
-------------------------------------------------------------
- ------------------
BALANCED PORTFOLIO
- ------------------
<S> <C> <C> <C> <C>
1996*** 2.90%* 0.74%* 77.51% $0.0694
1996 3.19 0.75 107.56 --
1995 3.32 0.77 81.00 --
1994(3) 2.41* 0.81* 37.00 --

<CAPTION>
- --------------------------
BLUE CHIP EQUITY PORTFOLIO
- --------------------------
<S> <C> <C> <C> <C>
1996*** 1.78%* 0.85%* 17.78% $0.0761
1996(4) 1.52* 1.38* 0.97 --

<CAPTION>
- ------------------------
CAPITAL GROWTH PORTFOLIO
- ------------------------
<S> <C> <C> <C> <C>
1996*** 1.08%* 0.82%* 130.76% $0.0741
1996 1.26 0.84 578.57 --
1995 1.35 0.85 182.00 --
1994(3) 0.78* 0.87* 41.00 --

<CAPTION>
- ------------------------
SPECIAL EQUITY PORTFOLIO
- ------------------------
<S> <C> <C> <C> <C>
1996*** (0.24)%* 0.86%* 385.76% $0.0717
1996(5) 0.60* 0.91* 286.80 --

<CAPTION>
- ------------------------------
INTERNATIONAL EQUITY PORTFOLIO
- ------------------------------
<S> <C> <C> <C> <C>
1996*** 0.60%* 1.92%* 8.05% $ .0424
1996 0.15 2.96 37.16 --
1995(6) 0.97* 5.35* 2.0 --

</TABLE>

* Annualized

** Average commission rate paid per share for security purchases and sales
during the period.

Presentation of the rate is only required for fiscal years beginning after
September 1, 1995.

*** For the period ended October 31, 1996 (unaudited).

(1) Commenced operations on June 14, 1993.

(2) Commenced operations on March 20, 1996.

(3) Commenced operations on July 16, 1993.

(4) Commenced operations on April 1, 1996.

(5) Commenced operations on July 13, 1995.

(6) Commenced operations on December 30, 1994.

9
<PAGE> 13

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 invest 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 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 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.

10
<PAGE> 14

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"). 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 in accordance with guidelines adopted by
the Board of Trustees. The Portfolio may invest in U.S. dollar-denominated
obligations of U.S. banks and foreign branches of U.S. banks ("Eurodollars"),
U.S. branches and agencies of foreign banks ("Yankee dollars"), and foreign
branches of foreign banks. See the Appendix for more information. The Portfolio
may also invest more than 25% of its total assets in certain obligations of
domestic banks and normally may not invest more than 5% of its total assets in
the securities of any single issuer (other than the U.S. government). Under
certain conditions, however, the Portfolio may invest up to 25% of its total
assets in first-tier securities of a single issuer for up to three days.

The investment 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 Portfolio invests in high-quality, short-term municipal securities but may
also invest in high-quality, long-term fixed, variable, or floating rate
instruments (including tender option bonds) which have demand features or
interest rate adjustment features that result in interest rates, maturities, and
prices similar to short-term instruments. The Portfolio's investments in
municipal securities may include tax, revenue, or bond anticipation notes;
tax-exempt commercial paper; general obligation or revenue bonds (including
municipal lease obligations and resource recovery bonds); and zero coupon bonds.
At least 95% of the assets of the Portfolio will be invested in securities that
have received the highest rating assigned by any two NRSROs or, if only one such
rating organization has assigned a rating, such single organization. The
Portfolio may also acquire unrated securities determined by the adviser to be of
comparable quality 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.

11
<PAGE> 15

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

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

The investment 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 restriction on maturity; however, it normally invests
in short-term securities and maintains a dollar-weighted average maturity of
approximately two years. The average maturity of the Portfolio's investments
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
- --------------------------------------------------------------------------------

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

12
<PAGE> 16

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. The Portfolio has no restriction on maturity;
however, it normally invests in intermediate-term securities and maintains a
dollar-weighted average maturity of three to ten years. The average maturity of
the Portfolio's investments 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
- --------------------------------------------------------------------------------

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 investments 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.

13
<PAGE> 17

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
restriction on maturity; however, it normally invests in intermediate- and
long-term bonds and maintains a dollar-weighted average maturity of seven to ten
years. The average maturity of the Portfolio's investments 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. However, the Portfolio reserves the right to invest without
limitation in short-term instruments, to hold a substantial amount of uninvested
cash, and to invest more than normally permitted in taxable obligations for
temporary, defensive purposes.

PENNSYLVANIA TAX-FREE PORTFOLIO
- --------------------------------------------------------------------------------

The investment objective of the PENNSYLVANIA TAX-FREE 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 restriction on
maturity; however, it normally invests in intermediate- and long-term bonds and
maintains a dollar-weighted average maturity of seven to ten years. The average
maturity of the Portfolio's investments will vary depending on market
conditions.

14
<PAGE> 18

BALANCED PORTFOLIO (formerly Growth and Income Portfolio)
- --------------------------------------------------------------------------------

The investment objective of the BALANCED 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. 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 Composite
Stock Price Index. Under normal circumstances, at least 65% of the Portfolio
will be invested in dividend-paying common stocks. The Portfolio may invest up
to 35% of its assets in other types of securities, including preferred stock,
which may be convertible into common stock, and investment-grade debt securities
(including convertible debt securities) and unrated securities determined by the
adviser to be of comparable quality. The Portfolio may invest up to 5% of its
total assets in lower-quality debt securities, sometimes referred to as "junk
bonds".

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

15
<PAGE> 19

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.

EQUITY INDEX PORTFOLIO

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

The investment objective of the Equity Index Portfolio is to provide
investment results that correspond to the performance of the Standard & Poor's
500 Composite Stock Price Index (the "S&P 500").

The Portfolio invests at least 65% of total assets in common stocks
included in the S&P 500. The Portfolio's adviser believes that the Portfolio's
objective can best be achieved by investing in the common stocks of
approximately 250 to 500 of the companies included in the S&P 500, depending
upon the size of the Portfolio.

Standard & Poor's designates the stocks included in the S&P 500 on a
statistical basis. A particular stock's weighting in the S&P 500 is based on its
total market value (that is, its market price per share times the number of
shares outstanding) relative to the total market value of all stocks included in
the S&P 500. From time to time, Standard & Poor's may add or delete stocks to or
from the S&P 500. Inclusion of a particular stock in the S&P 500 does not imply
any opinion by Standard & Poor's as to its merits as an investment, nor is
Standard & Poor's a sponsor of or in any way affiliated with the Portfolio or
the Fund.

The Portfolio is managed by utilizing a computer program that identifies
which stocks should be purchased or sold in order to replicate, as closely as
practicable, the composition of the S&P 500. The Portfolio includes a stock in
the order of its weighting in the S&P 500, starting with the most heavily
weighted stock. Thus, the proportion of the Portfolio's assets invested in a
stock or industry closely approximates the percentage of the S&P 500 represented
by that stock or industry. Portfolio turnover is expected to be well below that
of actively managed mutual funds.

Although the Portfolio will not duplicate the performance of the S&P 500
precisely, it is anticipated that there will be a close correlation between the
Portfolio's performance and that of the S&P 500 in both rising and falling
markets. The Portfolio will attempt to achieve a correlation of at least 95%,
without taking into account expenses of the Portfolio. A perfect correlation
would be indicated by a figure of 100%, which would be achieved if the
Portfolio's net asset value, including the value of its dividends and capital
gains distributions, increased or decreased in exact proportion to changes in
the S&P 500. The Portfolio's ability to replicate the performance of the S&P 500
may be affected by, among other things, changes in securities markets, the
manner in which Standard & Poor's calculates the S&P 500, and the amount and
timing of cash flows into and out of the Portfolio. Although cash flows into and
out of the Portfolio will affect the Portfolio's ability to replicate the S&P
500's performance as well as its portfolio turnover rate, investment adjustments
will be made, as practicable, to account for these circumstances.

16
<PAGE> 20

purposes, but rather to maintain sufficient liquidity to meet redemption
requests, to increase the level of Portfolio assets devoted to replicating the
composition of the S&P 500, and to reduce transaction costs. These types of
contracts and options and certain associated risks are described in the Appendix
to this Prospectus and in the Statement of Additional Information.

BLUE CHIP EQUITY PORTFOLIO

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

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. As of , the
median market capitalization of the stocks included in the S&P 500 was
approximately $ billion. It is expected that the companies in which the
Portfolio invests will be based primarily in the United States, and will be
recognized market leaders with strong financial positions. 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.

LARGE-CAP VALUE PORTFOLIO

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

The investment objective of the Large-Cap Value Portfolio is to provide
long-term capital appreciation by investing primarily in common stocks of large
companies which the adviser believes are undervalued. Current income is a
secondary objective.

The Portfolio seeks capital appreciation from a broadly diversified
portfolio of common stocks of large companies. Under normal circumstances, at
least 65% of the Portfolio will be invested in companies having stock market
capitalizations of above $1.0 billion which the adviser believes are undervalued
in relation to their earnings, book value, cash flows or other tangible
measures. As of , the median market capitalization of the stocks
included in the S&P 500 was approximately $ billion. While many of the
stocks selected by the adviser may have above-average current yields as a result
of their low valuations, the Portfolio also may invest in non-dividend paying
securities.

17
<PAGE> 21

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

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. As of
, the median market capitalization of the stocks included in the
Standard & Poor's Mid-Cap 400 Index was approximately $ billion. The companies
in which the Portfolio invests 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.

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

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

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.

18
<PAGE> 22

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.

- 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.

19
<PAGE> 23

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
under most market conditions. However, the Portfolio 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
- --------------------------------------------------------------------------------

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 risks of investing in foreign securities
are heightened when investing in emerging markets. See "Risks to
Consider -- Foreign Securities". 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

20
<PAGE> 24

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 subsequently rises, the Portfolio will lose the opportunity to participate
in the currency's appreciation.

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.

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 Tax-Free 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.
(Under applicable regulations, a money market Portfolio may not invest more than
5% of its total assets in securities of a single issuer unless the securities
are first-tier 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.

21
<PAGE> 25

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. Only the Short-Term Treasury Portfolio, Intermediate
Fixed Income Portfolio and Income Portfolio 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.

RISKS TO CONSIDER
- --------------------------------------------------------------------------------

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 lower than Baa by Moody's or BB 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 Tax-Free 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

22
<PAGE> 26

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 ("LOCs") furnished by domestic or foreign banks.

Issuers or financial intermediaries which provide demand features or
standby commitments often support their ability to buy securities on demand by
obtaining 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.

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. In addition,
investing in securities involving a "special situation" bears the risk that the
situation will not develop as favorably as expected, or that it may deteriorate.
For example, a merger with favorable implications may be blocked, an industrial
development may not enjoy anticipated market acceptance, or a bankruptcy may not
be as favorably resolved as had been expected.

23
<PAGE> 27

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. Investing in emerging markets involves special
considerations (in addition to those relating to foreign investments generally)
which include, among others, greater political uncertainty, an economy's
dependence on revenues from particular commodities or on international aide or
development assistance, currency transfer restrictions, a limited number of
potential buyers for securities, and delays and disruptions in securities
settlement procedures. 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 Tax-Free 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 greater impact on the total value of its holdings
than would be the case if the securities were diversified among more issuers.

Maryland tax-free securities include obligations issued by the State of
Maryland or its counties, municipalities, authorities or other subdivisions. The
performance of these securities is closely tied to economic and political
conditions in the state. Maryland's rate of economic growth has been slower in
the early 1990s than it had been during the 1980s. State revenues in recent
years have been less than expected and, because Maryland's constitution requires
a balanced budget, expenditures have been cut. While the ratings assigned to
Maryland municipal investments indicate that Maryland and its principal
subdivisions and agencies are overall in satisfactory economic health, there can
be no assurance that this will continue or that particular bond issues may not
be adversely affected by changes in state or local economic or political
conditions.

Pennsylvania's economy is based on a mixture of manufacturing, mining,
trade, medical and health services, education and financial institutions.
Pennsylvania's continued dependence on manufacturing, mining, steel and coal,
however, has made the state vulnerable to cyclical fluctuations, foreign imports
and environmental concerns. Pennsylvania's population and per capita income have
been increasing slightly over the past five years, and its employment and
unemployment rates have generally not been significantly different over the past
five years from that of the United States. Pennsylvania is engaged in certain
litigation matters which are described in the Statement of Additional
Information.

OTHER CONSIDERATIONS. 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

24
<PAGE> 28

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 Tax-Free Portfolio. All
types of performance are based on historical results and are not intended to
indicate future performance.

The YIELD of shares of 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.

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.

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

25
<PAGE> 29

predecessor vehicle. The classes of shares of a Portfolio have different sales
charges and other expenses that may affect performance.

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 or the portfolio turnover rate will
vary from year to year depending on market conditions. The annual portfolio
turnover rate is estimated to be 50% for the Intermediate Fixed Income
Portfolio, Maryland Tax-Free Portfolio, Pennsylvania Tax-Free Portfolio, Equity
Income Portfolio and Large-Cap Value Portfolio; 150% for the Mid-Cap Equity
Portfolio and 60% for the Stock Portfolio. The annual portfolio turnover rate
for the Equity Index Portfolio is not expected to exceed 50%. The Capital Growth
Portfolio's turnover rate was higher for the fiscal year ended April 30, 1996
due to market volatility during the period, liquidations related to share
redemptions and the realignment of certain portfolio investments. 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 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 of the money market
Portfolios are valued based upon the amortized cost method. Assets of the
non-money-market Portfolios that are traded on an exchange or in the
over-the-counter market are valued based upon market quotations. Other assets
for which market quotations are not readily available are valued by an
independent pricing service

26
<PAGE> 30

approved by the Board of Trustees. Foreign securities held by a Portfolio are
valued on the basis of quotations from the primary U.S. market in which they are
traded or, if not traded on a U.S. market, then their primary foreign market and
are translated from foreign market quotations into U.S. dollars using current
exchange rates.

PRICING OF SHARES. The Portfolios are open for business and 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 Fund's 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 account of a bank or other
institution may be aggregated for this purpose. Subsequent investments may be
made in any amount. Shareholders of record whose aggregate account balance falls
below $250,000 due to redemption may be automatically redeemed upon 30 days'
notice.

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 will become
effective on the day of receipt of the order by the Fund's transfer agent, and
the shares purchased will be entitled to that day's dividend, if the order,

27
<PAGE> 31

together with available funds, 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.

OTHER PORTFOLIOS. Purchase orders for Institutional Class shares of a
non-money-market Portfolio 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 purchases is expected at the time of the purchase order but must be
received within three Business Days of the date of the purchase order. If funds
are not received within three Business Days, the order may be canceled and
notice thereof provided to the party placing the order. Any fees 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 and its distributor reserve 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 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 shareholder. 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 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

28
<PAGE> 32

three 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, Pennsylvania
Tax-Free Portfolio and Equity Income Portfolio are declared and paid monthly;
for the Balanced Portfolio, Equity Index Portfolio, Large-Cap Value Portfolio,
Blue Chip Equity Portfolio, Mid-Cap Equity Portfolio and Stock Portfolio
dividends are declared and paid quarterly; and for the Capital Growth Portfolio,
Special Equity Portfolio and International Equity Portfolio dividends 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 capital gain distributions and pays
income dividends in cash.

C. The CASH OPTION pays 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.

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.

29
<PAGE> 33

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 should an investor
become ineligible to purchase Institutional Class shares (except in the case of
a Portfolio which is not currently offering Retail Class shares). 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 the 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 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
Fund's 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 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.

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, MD
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 redemption proceeds 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.

30
<PAGE> 34

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 that 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 Securities and Exchange Commission 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 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.

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

INVESTMENT ADVISERS
- --------------------------------------------------------------------------------

Allied Investment Advisors, Inc., 100 E. Pratt Street, Baltimore, MD 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 net assets; Short-Term Treasury Portfolio: .35% of average
net assets; Intermediate Fixed Income Portfolio: .60% of average net assets;
Income Portfolio: .50% of average net assets; Maryland Tax-Free Portfolio: .50%
of average net assets; Pennsylvania Tax-Free Portfolio: .50% of average net
assets; Balanced Portfolio: .55% of average net assets; Equity Income Portfolio:
.70% of average net assets; Equity Index Portfolio: .20% of average net assets;
Blue Chip Equity Portfolio: .60% of average net assets; Large-Cap Value
Portfolio: .70% of average net assets; Mid-Cap Equity Portfolio: .70% of average
net assets; Stock Portfolio: .70% of average net assets; Capital Growth
Portfolio: .60% of average net assets; Special Equity Portfolio: .60% of average
net assets; and International Equity Portfolio: .80% of

31
<PAGE> 35

average net assets. The 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 September 1, 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 , 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
, AIB Investment Managers Limited had assets under
management of approximately $ billion.

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 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.

32
<PAGE> 36

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

James M. Hannan is a Principal of Allied Investment Advisors, Inc. and
manager of the money market Portfolios and the Short-Term Treasury Portfolio. He
is also responsible for several separately managed institutional portfolios
which he has managed since 1992. He has served as a Vice President of First
Maryland since 1987. Prior to 1987 he served as the Treasurer for the City of
Hyattsville, Maryland.

Susan S. Schnaars is a Principal of Allied Investment Advisors, Inc. and
co-manager, with Mr. Gradow, of the Intermediate Fixed Income Portfolio and
Income Portfolio. She is also manager of the Maryland Tax-Free Portfolio and
Pennsylvania Tax-Free 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 Managing Director of Allied Investment Advisors, Inc.
and co-manager, with Ms. Schnaars, of the Intermediate Fixed Income Portfolio
and Income Portfolio. 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 four years. Mr.
Gradow's recent experience also includes five years fixed-income management for
the Public Employees Retirement System of California (CALPERS).

Charles E. Knudsen is a Principal of Allied Investment Advisors, Inc. and
co-manager, with Mr. Leo, of the Balanced Portfolio (formerly Growth and Income
Portfolio). He follows several equity industry groups. In addition, he is a
senior portfolio manager for key, tax-free institutional accounts, including
pension and profit sharing plans, foundations, and endowments. Mr. Knudsen is a
Chartered Financial Analyst.

Clyde L. Randall is a Principal of Allied Investment Advisors, Inc. and
co-manager, with Mr. Ashcroft, of the Equity Income Portfolio, Blue Chip Equity
Portfolio and Large-Cap Value Portfolio. Prior to March 1995, Mr. Randall was an
equity analyst and portfolio manager for more than five years at Mercantile Safe
Deposit and Trust, Baltimore, Maryland. Mr. Randall is a Chartered Financial
Analyst.

Allen J. Ashcroft, Jr. is a Principal of Allied Investment Advisors, Inc.
and co-manager, with Mr. Randall, of the Equity Income Portfolio, Blue Chip
Equity Portfolio and Large-Cap Value Portfolio. 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 is a Principal of Allied Investment Advisors, Inc. and
manager of the Stock Portfolio and Special Equity Portfolio. Prior to joining
First Maryland, Mr. Knight was with ASB Capital Management, a subsidiary of
NationsBank from 1990 to 1994. He was Director of Special Equity Investments,
Capital Markets Division, where he was responsible for one mutual fund and six
employee benefit and personal trust common stock funds.

33
<PAGE> 37

Christopher E. Baggini is a Principal of Allied Investment Advisors, Inc.
and co-manager, with Mr. Baker, of the Mid-Cap Equity Portfolio and 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. He has over nine years experience in investment
management, including over four years at Salomon Brothers with responsibilities
in equity research, sales and trading. Mr. Baggini is a Chartered Financial
Analyst.

Christopher D. Baker is an Investment Officer of Allied Investment
Advisors, Inc. and the co-manager, with Mr. Baggini, of the Mid-Cap Equity
Portfolio and manager of the Equity Index Portfolio. Mr. Baker has over two
years of experience in managing mid-cap index common trust funds for the Trust
Division of First Maryland and over five years of experience in First Maryland's
Trust Division in investment research and equity analysis.

J. Eric Leo is a Managing Director of, and Director of Equity Research for,
Allied Investment Advisors, Inc., as well as co-manager, with Mr. Baker, of the
Balanced Portfolio. Prior to 1997, he was Executive Vice President and Chief
Investment Officer of Legg Mason Capital Management, Inc. Mr. Leo has over 20
years experience in investment management, including managing mutual fund
portfolios and separately accounts for both individuals and institutions.

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.

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

SEI Fund Resources (the "Administrator") serves as the Portfolios'
administrator under an administration agreement with the Fund. SEI Financial
Management Corporation, which served as administrator for the Fund prior to June
1, 1996, is the owner of all beneficial interest in the 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 net assets of the Fund, paid monthly, for services performed
under the administration agreement. The Administrator may voluntarily agree to
waive a portion of its administration fee on a Portfolio in order to limit its
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.

34
<PAGE> 38

SEI Financial Services Company (the "Distributor"), a wholly-owned
subsidiary of SEI Corporation, 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 One Freedom
Valley Drive, Oaks, PA 19456.

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

SEI Fund Resources, One Freedom Valley Drive, Oaks, PA 19456, provides
transfer agent and related services for the Portfolios. SEI Fund Resources 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.

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

FMB Trust Company, National Association, 25 South Charles Street,
Baltimore, MD 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 net assets of the Portfolios. 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 Portfolio. All expenses incurred through this
network are paid by the Portfolio.

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

Banking laws and regulations generally permit a bank or bank affiliate to
act as an investment adviser and to purchase shares of an investment company as
agent for and upon the order of a customer. However, banking laws and
regulations, including the Glass-Steagall Act as currently interpreted by the
Board of Governors of the Federal Reserve System, prohibit a bank holding
company registered under the Federal Bank Holding Company Act of 1956 or any
affiliate thereof from sponsoring, organizing, controlling or distributing the
shares of a registered, open-end investment company continuously engaged in the
issuance of its shares, and prohibit banks generally from issuing, underwriting,
selling or distributing securities. Upon advice of 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.

35
<PAGE> 39

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

Each Portfolio has elected to be taxed as a regulated investment company
under Subchapter M of the Code. 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.

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

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

36
<PAGE> 40

political subdivisions, interest on obligations of the United States or its
possessions and territories, or gains realized from the disposition of either of
these categories of obligations (with the express exception of dividends
attributable to gain from the disposition of obligations of a U.S. territory or
possession which are subject to Maryland state and local income tax). Dividends
attributable to interest on obligations issued by states other than Maryland and
income from repurchase agreements are subject to Maryland state and local income
tax.

Individual shareholders of the Pennsylvania Tax-Free Portfolio will not be
subject to Pennsylvania personal income taxes on distributions of interest
attributable to exempt obligations (generally, obligations issued by
Pennsylvania and its agencies, public authorities, municipalities and other
political subdivisions as well as obligations of the United States), but will be
subject to Pennsylvania personal income taxes on distributions of profits, gains
or income derived from the sale, exchange or other disposition of obligations
issued by Pennsylvania and its agencies, public authorities, municipalities and
other political subdivisions as well as obligations of the United States. Exempt
interest in Pennsylvania is referred to as excludable exempt-interest dividends
and will be identified by the Portfolio.

The Fund will send written notices to shareholders annually regarding the
tax status of distributions made by each Portfolio.

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 are urged to consult their tax advisers concerning their own
tax situation, including the application of state and local income taxes to
investments in a Portfolio.

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

ARK Funds is an open-end 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 the
companies that provide the Fund and its Portfolios with services. 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.

The Fund may issue an unlimited number of shares of each of its Portfolios.
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.

37
<PAGE> 41

The Fund is composed of the following nineteen separately managed
Portfolios: 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 Tax-Free Portfolio, Balanced Portfolio
(formerly Growth and Income Portfolio), Equity Income Portfolio, Equity Index
Portfolio, Blue Chip Equity Portfolio, Large-Cap Value Portfolio, Mid-Cap Equity
Portfolio, Stock Portfolio, Capital Growth Portfolio, Special Equity Portfolio
and International Equity Portfolio. The Maryland Tax-Free Portfolio and
Pennsylvania Tax-Free Portfolio are non-diversified Portfolios; the remaining
Portfolios are diversified Portfolios.

The Board of Trustees of the Fund has established three classes of shares
of each money market Portfolio and two classes of shares of each
non-money-market Portfolio. 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).

38
<PAGE> 42

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,

39
<PAGE> 43

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 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 derivative 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.

40
<PAGE> 44

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.

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

41
<PAGE> 45

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.

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 TAX-FREE PORTFOLIOS
- --------------------------------------------------------------------------------

42
<PAGE> 46

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

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

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

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

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

ARKPROI- -

BS-3014A-9506

43
<PAGE> 47
ARK FUNDS: INSTITUTIONAL II CLASS

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

CROSS REFERENCE SHEET

Form N-1A Item Number

<TABLE>
<CAPTION>
Part A Prospectus Caption
<S> <C>
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 Valuation; Tax Matters
h . . . . . . . . . . . . . . . . . . . . . General Information
7 a . . . . . . . . . . . . . . . . . . . . . Purchases, Exchanges and Redemptions
b(i),(ii) . . . . . . . . . . . . . . . . . Portfolio Transactions and Valuation
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 . . . . . . . . . . . . . . . . . . . . . . *
</TABLE>

_____________________

* Not applicable.

<PAGE> 48

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

, 1997

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

U.S. TREASURY MONEY MARKET PORTFOLIO, U.S. GOVERNMENT MONEY MARKET PORTFOLIO and
MONEY MARKET PORTFOLIO each seek to maximize current income and provide
liquidity and security of principal by investing in high-quality, short-term,
U.S. dollar-denominated debt securities. TAX-FREE MONEY MARKET PORTFOLIO seeks
to provide a high level of interest income by investing in high-quality
municipal obligations that are exempt from federal income taxes. Each portfolio
seeks to maintain a constant net asset value per share of $1.00.

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 FEDERAL DEPOSIT INSURANCE CORPORATION, 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 , 1997, and Annual Report
(including financial statements for the fiscal year ended April 30, 1996) and
Semi-Annual Report (including financial statements for the six months ended
October 31, 1996) have been filed with the Securities and Exchange Commission
and are incorporated herein by reference. The Statement of Additional
Information, Annual Report and Semi-Annual Report, and additional information
about the classes of shares not offered through this Prospectus, is 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
Additional Investment Policies and
Limitations........................... 8
Performance............................. 9
Portfolio Transactions and Valuation.... 9
Purchases, Exchanges and Redemptions.... 10
Management of the Fund.................. 13
Tax Matters............................. 16
General Information..................... 17
Appendix................................ 18
</TABLE>

SUMMARY
- --------------------------------------------------------------------------------

U.S. TREASURY MONEY MARKET PORTFOLIO -- seeks to maximize current income
and provide liquidity and security of principal by investing in instruments
which are insured or guaranteed as to principal and interest by the U.S.
government and thus constitute direct obligations of the United States.

U.S. GOVERNMENT MONEY MARKET PORTFOLIO -- seeks 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, or in repurchase
agreements backed by such instruments.

MONEY MARKET PORTFOLIO -- seeks 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.

TAX-FREE MONEY MARKET PORTFOLIO -- seeks to provide a high level of
interest income by investing primarily in high-quality municipal obligations
that are exempt from federal income taxes.

INVESTMENT ADVISER, DISTRIBUTOR AND ADMINISTRATOR. Allied Investment
Advisors, Inc. serves as investment adviser to each of the Portfolios. SEI
Financial Services Company serves as the distributor of the Portfolios' shares
and SEI Fund Resources 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 Fund's transfer agent has received the redemption request. See
"Purchases, Exchanges and Redemptions".

SHAREHOLDER 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> 50

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% .11% .09%
12b-1 Fees................................... .10% .10% .10% .10%
Other Expenses (after waivers)(2)............ 18% .18% .18% .20%
------ ------ --------- ------
Total Operating Expenses (after
waivers)(3)................................ .47% .42% .39% .39%
=========== ============= ======= ===========
</TABLE>

(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 YR 3 YRS 5 YRS 10 YRS
----- ------ ------ -------
<S> <C> <C> <C> <C>
U.S. Treasury Money Market Portfolio............. 5 15 26 59
U.S. Government Money Market Portfolio........... 4 13 24 53
Money Market Portfolio........................... 4 13 22 49
Tax-Free Money Market Portfolio.................. 4 13 22 49
</TABLE>

3
<PAGE> 51
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------

The following table provides information about the financial history of the
Institutional II Class of each Portfolio. The table expresses the information in
terms of a single share outstanding throughout the period. The information for
the period ended April 30, 1996 has been audited by KPMG Peat Marwick LLP,
independent accountants for the Fund. Their report on the financial statements
and financial highlights is included in the Annual Report, which is incorporated
by reference into the Statement of Additional Information. The table should be
read in conjunction with the Fund's financial statements and the notes thereto,
which may be obtained free of charge from the Fund.

For a Share Outstanding Throughout the Period Ended October 31, 1996 (Unaudited)
and Period Ended April 30,

<TABLE>
<CAPTION>
Realized
and Dividends Ratio of
Net Unrealized from Distri- Net Net Expenses
Asset Gains or Net butions Asset Assets to
Value, Net (Losses) Invest- from Value, End of Average
Beginning Investment on ment Capital End of Total Period Net
of Period Income Investments Income Gains Period Return (000) Assets
---------------------------------------------------------------------------------------------------------------------
- ------------------------------------
U.S. TREASURY MONEY MARKET PORTFOLIO
- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996** $1.00 0.02 -- $ (0.02) -- $1.00 4.95%* $68,368 0.47%*
1996(1) 1.00 0.04 -- (0.04) -- 1.00 3.87 47,220 0.47*

<CAPTION>
- --------------------------------------
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
- --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996** $1.00 0.03 -- $ (0.03) -- $1.00 5.21%* $30,876 0.42%*
1996(1) 1.00 0.04 -- (0.04) -- 1.00 4.11 17,027 0.41*

<CAPTION>
- ----------------------
MONEY MARKET PORTFOLIO
- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996** $1.00 0.03 -- $ (0.03) -- $1.00 5.34%* $50,278 0.37%*
1996(2) 1.00 0.04 -- (0.04) -- 1.00 4.33 28,790 0.36*

<CAPTION>
- -------------------------------
TAX-FREE MONEY MARKET PORTFOLIO
- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996** $1.00 0.02 -- $ (0.02) -- $1.00 3.28%* $11,981 0.38%*
1996(1) $1.00 0.02 -- (0.02) -- 1.00 2.62 9,387 0.33*
</TABLE>

<TABLE>
<CAPTION>
Ratio of
Net Ratio of
Investment Expenses
Income to Average
to Net
Average Assets Portfolio
Net (Excluding Turnover
Assets Waivers) Rate
------------------------------------------------
- ------------------------------------
U.S. TREASURY MONEY MARKET PORTFOLIO
- ------------------------------------
<S> <C> <C> <C>
1996** 4.76%* 0.53%* --
1996(1) 4.98* 0.55* --

<CAPTION>
- --------------------------------------
U.S. GOVERNMENT MONEY MARKET PORTFOLIO
- --------------------------------------
<S> <C> <C> <C>
1996** 4.97%* 0.53%* --
1996(1) 5.25* 0.56* --

<CAPTION>
- ----------------------
MONEY MARKET PORTFOLIO
- ----------------------
<S> <C> <C> <C>
1996** 5.10%* 0.53%* --
1996(2) 5.37* 0.55* --

<CAPTION>
- -------------------------------
TAX-FREE MONEY MARKET PORTFOLIO
- -------------------------------
<S> <C> <C> <C>
1996** 3.13%* 0.58%* --
1996(1) 3.35* 0.58* --
</TABLE>

* Annualized

** For the period ended October 31, 1996 (unaudited).

(1) Commenced operations on July 28, 1995.

(2) Commenced operations on July 21, 1995.

4
<PAGE> 52

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 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.

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

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.

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

5
<PAGE> 53

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.

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

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. 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. 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.

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,

6
<PAGE> 54

and prices similar to short-term instruments. The Portfolio's investments in
municipal securities may include tax, revenue, or bond anticipation notes;
tax-exempt commercial paper; general obligation or revenue bonds (including
municipal lease obligations and resource recovery bonds); and zero coupon bonds.
At least 95% of the assets of the Portfolio will be invested in securities that
have received the highest rating assigned by any two NRSROs or, if only one such
rating organization has assigned a rating, such single organization. The
Portfolio may also acquire unrated securities determined by the adviser to be of
comparable quality in accordance with guidelines adopted by the Board of
Trustees.

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 ("LOCs") furnished by domestic or foreign banks.

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.

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.

7
<PAGE> 55

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.

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.

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.
(Under applicable regulations, a money market Portfolio may not invest more than
5% of its total assets in securities of a single issuer unless the securities
are first-tier 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.

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.

8
<PAGE> 56

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.

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. The classes of shares of a Portfolio have different sales
charges and other expenses that may affect performance.

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

9
<PAGE> 57

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 Fund's 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.

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).

10
<PAGE> 58

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 will become effective on the day of receipt of the
order by the Fund's transfer agent, and the shares purchased will be entitled to
that day's dividend, if the order, together with available funds, 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 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 and its distributor reserve 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 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).

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 capital gain distributions and pays
dividends in cash.

11
<PAGE> 59

C. The CASH OPTION pays 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
Fund's 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 of the redemption. Shares redeemed at 4:00 p.m. continue to earn
dividends on the date of redemption.

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, MD
21203.

BY TELEPHONE. To redeem by telephone call 1-800-624-4116 (inside Maryland
1-800-638-7751).

12
<PAGE> 60

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 redemption proceeds 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 that 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.

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

INVESTMENT ADVISER
- --------------------------------------------------------------------------------

Allied Investment Advisors, Inc., 100 E. Pratt Street, Baltimore, MD 21202,
provides investment advisory services to each Portfolio subject to the general
supervision of the Board of Trustees of the Fund. It is entitled to receive for
its advisory services payment at an annual rate of .25% of each Portfolio's
average net assets. Allied Investment Advisors, Inc., 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.

13
<PAGE> 61

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 to the Adviser effective as of
September 1, 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 , Allied Investment Advisors, Inc. had
assets under management of approximately $ billion.

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

James M. Hannan is a Principal of Allied Investment Advisors, Inc. and
manager of the Portfolios. He is also manager of the Fund's Short-Term Treasury
Portfolio and is responsible for several separately managed institutional
portfolios which he has managed since 1992. He has served as a Vice President of
First Maryland since 1987. 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.

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

SEI Fund Resources (the "Administrator"), One Freedom Valley Drive, Oaks,
PA 19456, serves as the Portfolios' administrator under an administration
agreement with the Fund. SEI Financial Management Corporation, which served as
administrator for the Fund prior to June 1, 1996, is the owner of all beneficial
interest in the 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
aggregate average net assets of the Fund, paid monthly, for services performed
under the administration agreement. The Administrator may voluntarily agree to
waive a portion of its administration fee on a Portfolio in order to limit its
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.

14
<PAGE> 62

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

SEI Financial Services Company (the "Distributor"), One Freedom Valley
Drive, Oaks, PA 19456, a wholly-owned subsidiary of SEI Corporation, 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 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.

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.

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

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

FMB Trust Company, National Association, 25 South Charles Street,
Baltimore, MD 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 net assets of the Portfolios. The Custodian
also charges the Fund transaction fees ranging from $5 to $75 per transaction
and receives reimbursement for out-of-pocket expenses.

15
<PAGE> 63

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.

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

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

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.

16
<PAGE> 64

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 such percentages uniformly to
all distributions declared from net investment income during that year. These
percentages may differ significantly from the actual percentages for any
particular day.

The Fund will send written notices to shareholders annually regarding the
tax status of distributions made by each Portfolio.

Shareholders are urged to consult their tax advisers concerning their own
tax situation, including the application of state and local income taxes to
investments in a Portfolio.

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

The Fund may issue an unlimited number of shares of each of its Portfolios.
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 Fund is composed of the following nineteen separately managed
Portfolios:
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 Tax-Free Portfolio, Balanced Portfolio
(formerly Growth and Income Portfolio), Equity Income Portfolio, Equity Index
Portfolio, Blue Chip Equity Portfolio, Large-Cap Value Portfolio, Mid-Cap Equity
Portfolio, Stock Portfolio, Capital Growth Portfolio, Special Equity Portfolio
and International Equity Portfolio. The Maryland Tax-Free Portfolio and
Pennsylvania Tax-Free Portfolio are non-diversified Portfolios; the remaining
Portfolios are diversified Portfolios.

17
<PAGE> 65

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-
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.

18
<PAGE> 66

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 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 the adviser.

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,

19
<PAGE> 67

are backed by the full faith and credit of the U.S. government and are the
highest quality government securities.

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.

20
<PAGE> 68

ARKPROIC---

BS-3015A-9506

21
<PAGE> 69

ARK FUNDS: RETAIL CLASS

CROSS REFERENCE SHEET

Form N-1A Item Number

<TABLE>
<CAPTION>
Part A Prospectus Caption
<S> <C>
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 Valuation; Tax Matters
h . . . . . . . . . . . . . . . . . . . . . General Information
7 a . . . . . . . . . . . . . . . . . . . . . Purchases, Exchanges and Redemptions
b(i),(ii) . . . . . . . . . . . . . . . . . Portfolio Transactions and Valuation
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 . . . . . . . . . . . . . . . . . . . . . . *
</TABLE>

_____________________

* Not applicable.

<PAGE> 70

ARK FUNDS -- RETAIL CLASS

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

, 1997

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

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 FEDERAL DEPOSIT INSURANCE CORPORATION,
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 , 1997, Annual Report (including
financial statements for the fiscal year ended April 30, 1996) and Semi-Annual
Report (including financial statements for the six months ended October 31,
1996) have been filed with the Securities and Exchange Commission and are
incorporated herein by reference. The Statement of Additional Information,
Annual Report and Semi-Annual Report, and additional information about the
classes of shares not offered through this Prospectus, is 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............
Additional Investment Policies and
Limitations................................. 18
Risks to Consider............................. 19
Performance................................... 21
Portfolio Transactions and Valuation.......... 22
Purchases, Exchanges and Redemptions.......... 23
Management of the Fund........................ 31
Tax Matters................................... 35
General Information........................... 36
Appendix...................................... 38
</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> 71

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 portfolios
listed below (the "Portfolios" or a "Portfolio"). The U.S. Government Money
Market Portfolio, Intermediate Fixed Income Portfolio, Equity Income Portfolio,
Mid-Cap Equity Portfolio and Stock Portfolio are not currently offering Retail
Class shares.