ARK FUNDS/MA, 485APOS, 1999-06-29

ARK FUNDS/MA
485APOS, 1999-06-29

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 29, 1999.
FILE NO. 33-53690
FILE NO. 811-7310

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A

REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT / /
POST-EFFECTIVE AMENDMENT NO. 21 /X/
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/

AMENDMENT NO. 19 /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

LYNDA J. STRIEGEL, ESQ.
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 BECOME EFFECTIVE:
/ / IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (b)
/ / ON [DATE] PURSUANT TO PARAGRAPH (b)
/ / 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a) (1)
/X/ 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a) (2)
/ / ON [DATE] PURSUANT TO PARAGRAPH (a) OF RULE 485

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

ARK FUNDS

INSTITUTIONAL II CLASS

PROSPECTUS
SEPTEMBER 1, 1999

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

INVESTMENT ADVISOR:
ALLIED INVESTMENT ADVISORS, INC.

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED ANY PORTFOLIO SHARES
OR DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE. IT IS A
CRIME FOR ANYONE TO TELL YOU OTHERWISE.

Page 1 of 24

<PAGE>

HOW TO READ THIS PROSPECTUS

ARK Funds is a mutual fund family that offers shares in separate investment
portfolios (Portfolios). The Portfolios have individual investment goals and
strategies. This prospectus gives you important information about the
Institutional II Class Shares of the Portfolios that you should know before
investing. Please read this prospectus and keep it for future reference.

THIS PROSPECTUS HAS BEEN ARRANGED INTO DIFFERENT SECTIONS SO THAT YOU CAN EASILY
REVIEW THIS IMPORTANT INFORMATION. ON THE NEXT PAGE, THERE IS SOME GENERAL
INFORMATION YOU SHOULD KNOW ABOUT THE PORTFOLIOS. FOR MORE DETAILED INFORMATION
ABOUT EACH PORTFOLIO, PLEASE SEE:
<TABLE>
<CAPTION>

Page 2 of 24
<PAGE>

INTRODUCTION - INFORMATION COMMON TO ALL FUNDS

Each Portfolio is a mutual fund. A mutual fund pools shareholders' money and,
using professional investment managers, invests it in securities.

Each Portfolio has its own investment goal and strategies for reaching that
goal. The investment advisor invests each Portfolio's assets in a way that it
believes will help each Portfolio achieve its goal. Still, investing in each
Portfolio involves risk, and there is no guarantee that a Portfolio will achieve
its goal. The investment advisor's judgments about the markets, the economy, or
companies may not anticipate actual market movements, economic conditions or
company performance, and these judgments may affect the return on your
investment. In fact, no matter how good a job the investment advisor does, you
could lose money on your investment in a Portfolio, just as you could with other
investments. A Portfolio share is not a bank deposit and it is not insured or
guaranteed by the FDIC or any government agency.

THE PORTFOLIOS TRY TO MAINTAIN A CONSTANT PRICE PER SHARE OF $1.00, BUT THERE IS
NO GUARANTEE THAT THESE PORTFOLIOS WILL ACHIEVE THIS GOAL.

Page 3 of 24
<PAGE>

U.S. TREASURY MONEY MARKET PORTFOLIO

PORTFOLIO SUMMARY

INVESTMENT GOAL Maximizing current income and providing
liquidity and security of principal

INVESTMENT FOCUS Short-term U.S. Treasury securities

SHARE PRICE VOLATILITY Very low

PRINCIPAL INVESTMENT STRATEGY Investing in U.S. Treasury obligations

INVESTOR PROFILE Conservative investors seeking current income
through a low-risk, liquid investment

INVESTMENT STRATEGY OF THE U.S. TREASURY MONEY MARKET PORTFOLIO

The U.S. Treasury Money Market Portfolio invests exclusively in U.S. Treasury
obligations.

In selecting securities for the Portfolio, the Advisor considers factors such as
current yield, the anticipated level of interest rates, and the maturity of the
instrument relative to the maturity of the entire Portfolio. In addition, the
Portfolio may only purchase securities that meet certain SEC requirements
relating to maturity, diversification and credit quality. Under these
requirements, the Portfolio's securities must have remaining maturities of 397
days or less, and the Portfolio must have an average maturity of 90 days or
less.

PRINCIPAL RISKS OF INVESTING IN THE U.S. TREASURY MONEY MARKET PORTFOLIO

An investment in the Portfolio is subject to income risk, which is the
possibility that the Portfolio's yield will decline due to falling interest
rates. A Portfolio share is not a bank deposit and is not insured or guaranteed
by the FDIC or any government agency. In addition, although a money market fund
seeks to preserve the value of your investment at $1.00 per share, it is
possible to lose money by investing in the Portfolio.

Although the Portfolio's U.S. Treasury securities are considered to be among the
safest investments, they are not guaranteed against price movements due to
changing interest rates.

PERFORMANCE INFORMATION

The bar chart and the performance table below illustrate the risks and
volatility of an investment in the Portfolio. Of course, the Portfolio's past
performance does not necessarily indicate how the Portfolio will perform in the
future.

This bar chart shows changes in the performance of the Portfolio's Institutional
II Class Shares from year to year for three years.

Page 4 of 24
<PAGE>

<TABLE>
<S> <C>
1996 X.XX%
1997 X.XX%
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED DECEMBER 31, 1998, TO THOSE OF THE IBC FINANCIAL 100% U.S.
TREASURY AVERAGE.

INSTITUTIONAL II CLASS 1 YEAR SINCE INCEPTION
- -------------------------------------------------- ------------ ------------------
<S> <C> <C>
U.S. TREASURY MONEY MARKET PORTFOLIO X.XX% X.XX%*
IBC FINANCIAL 100% U.S. TREASURY AVERAGE X.XX% X.XX%**
</TABLE>

* Since 7/28/95
** Since

WHAT IS AN AVERAGE?

An average measures the share prices of a specific group of mutual funds with a
particular investment objective. You cannot invest directly in an average. The
IBC Financial 100% U.S. Treasury Average is a composite of mutual funds with
investment goals similar to the Portfolio's goals.

PORTFOLIO FEES AND EXPENSES

EVERY MUTUAL FUND HAS OPERATING EXPENSES TO PAY FOR SERVICES SUCH AS
PROFESSIONAL ADVISORY, SHAREHOLDER, DISTRIBUTION, ADMINISTRATION AND CUSTODY
SERVICES AND OTHER COSTS OF DOING BUSINESS. THIS TABLE DESCRIBES THE HIGHEST
FEES AND EXPENSES THAT YOU MAY PAY INDIRECTLY IF YOU BUY AND HOLD SHARES OF THE
PORTFOLIO.

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
<TABLE>
<CAPTION>

- --------------------------------------------------------------------------------
* The Portfolio's total actual annual operating expenses for the most recent
fiscal year were less than the amount shown above because the Advisor is waiving
a portion of the fees in order to keep total operating expenses at a specified
level. The Advisor may discontinue all or part of these waivers at any time.
With these fee waivers, the Portfolio's actual total operating expenses are as
follows:

U.S. Treasury Money Market Portfolio -- Institutional II Class ____%

For more information about these fees, see "Investment Advisor " and
"Distribution of Portfolio Shares."

Page 5 of 24
<PAGE>

EXAMPLE

This Example is intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds. The Example assumes
that you invest $10,000 in the Portfolio for the time periods indicated and that
you sell your shares at the end of the period.

The Example also assumes that each year your investment has a 5% return and
Portfolio expenses remain the same. Although your actual costs and returns might
be different, your approximate costs of investing $10,000 in the Portfolio would
be:
<TABLE>
<CAPTION>

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$---- $---- $---- $----
</TABLE>

Page 6 of 24
<PAGE>

U.S. GOVERNMENT MONEY MARKET PORTFOLIO

PORTFOLIO SUMMARY

INVESTMENT GOAL Maximizing current income and providing
liquidity and security of principal

INVESTMENT FOCUS Short-term U.S. government securities

SHARE PRICE VOLATILITY Very low

PRINCIPAL INVESTMENT STRATEGY Investing in U.S. government obligations and
repurchase agreements

INVESTOR PROFILE Conservative investors seeking current income
through a low-risk, liquid investment

INVESTMENT STRATEGY OF THE U.S. GOVERNMENT MONEY MARKET PORTFOLIO

The U.S. Government Money Market Portfolio invests exclusively in obligations
issued by the U.S. government and its agencies and instrumentalities and in
repurchase agreements.

PRINCIPAL RISKS OF INVESTING IN THE U.S. GOVERNMENT MONEY MARKET PORTFOLIO

Although the Portfolio's U.S. Government securities are considered to be among
the safest investments, they are not guaranteed against price movements due to
changing interest rates. Obligations issued by some U.S. Government agencies are
backed by the U.S. Treasury, while others are backed solely by the ability of
the agency to borrow from the U.S. Treasury or by the agency's own resources.

Page 7 of 24
<PAGE>

PERFORMANCE INFORMATION

This bar chart shows changes in the performance of the Portfolio's Institutional
II Class Shares from year to year for three years.
<TABLE>
<S> <C>
1996 X.XX%
1997 X.XX%
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 1998, TO THOSE OF THE IBC FINANCIAL GOVERNMENT ONLY,
INSTITUTIONAL-ONLY AVERAGE.
<TABLE>
<CAPTION>

INSTITUTIONAL II CLASS 1 YEAR SINCE INCEPTION
- --------------------------------------------------------------------- -------------- ----------------
<S> <C> <C>
U.S. GOVERNMENT MONEY MARKET PORTFOLIO X.XX% X.XX%*
IBC FINANCIAL GOVERNMENT ONLY, INSTITUTIONAL-ONLY AVERAGE X.XX% X.XX%**
</TABLE>

* Since 7/28/95
** Since

WHAT IS AN AVERAGE?

An average measures the share prices of a specific group of mutual funds with a
particular investment objective. You cannot invest directly in an average. The
IBC Financial Government Only, Institutional-Only Average is a composite of
mutual funds with investment goals similar to the Portfolio's goals.

PORTFOLIO FEES AND EXPENSES

Page 8 of 24
<PAGE>

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
<TABLE>
<CAPTION>

U.S. Government Money Market Portfolio -- Institutional II Class ____%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$---- $---- $---- $----
</TABLE>

Page 9 of 24
<PAGE>

MONEY MARKET PORTFOLIO

PORTFOLIO SUMMARY

INVESTMENT GOAL Maximizing current income and providing
liquidity and security of principal

INVESTMENT FOCUS Short-term money market instruments

SHARE PRICE VOLATILITY Very low

PRINCIPAL INVESTMENT STRATEGY Investing in high quality U.S. dollar
denominated money market securities

INVESTOR PROFILE Conservative investors seeking current income
through a low-risk, liquid investment

INVESTMENT STRATEGY OF THE MONEY MARKET PORTFOLIO

The Money Market Portfolio primarily invests in high quality, short-term U.S.
dollar denominated debt securities issued by corporations, the U.S. government,
banks, including U.S. and foreign branches of U.S. banks and U.S. branches of
foreign banks. At least 95% of such securities will be rated in the highest
ratings category by two or more nationally recognized statistical ratings
organizations.

PRINCIPAL RISKS OF INVESTING IN THE MONEY MARKET PORTFOLIO

Although the Portfolio's U.S. Government securities are considered to be among
the safest investments, they are not guaranteed against price movements due to
changing interest rates. Obligations issued by some U.S. government agencies are
backed by the U.S. Treasury, while others are backed solely by the ability of
the agency to borrow from the U.S. Treasury or by the agency's own resources.

Page 10 of 24
<PAGE>

PERFORMANCE INFORMATION

This bar chart shows changes in the performance of the Portfolio's Institutional
II Class Shares from year to year for four years.
<TABLE>
<S> <C>
1995 X.XX%
1996 X.XX%
1997 X.XX%
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED DECEMBER 31, 1998, TO THOSE OF IBC FINANCIAL FIRST TIER,
INSTITUTIONAL-ONLY AVERAGE. <TABLE><CAPTION>

INSTITUTIONAL II CLASS 1 YEAR SINCE INCEPTION
- ------------------------------------------------------------ -------------- ------------------
<S> <C> <C>
MONEY MARKET PORTFOLIO X.XX% X.XX%*
IBC FINANCIAL FIRST TIER, INSTITUTIONAL-ONLY AVERAGE X.XX% X.XX%**
</TABLE>

* Since 7/21/95
** Since

WHAT IS AN AVERAGE?

An average measures the share prices of a specific group of mutual funds with a
particular investment objective. You cannot invest directly in an average. The
IBC Financial First Tier, Institutional-Only Average is a composite of mutual
funds with investment goals similar to the Portfolio's goals.

PORTFOLIO FEES AND EXPENSES

Page 11 of 24
<PAGE>

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
<TABLE>
<CAPTION>

INSTITUTIONAL II
CLASS
- --------------------------------------------------------------------- ----------------------
<S> <C>
Investment Advisory Fees .XX%
Distribution and Service (12b-1) Fees .XX%
Other Expenses .XX%
------
Total Annual Portfolio Operating Expenses X.XX%*
</TABLE>
- --------------------------------------------------------------------------------
* The Portfolio's total actual annual operating expenses for the most recent
fiscal year were less than the amount shown above because the Advisor is waiving
a portion of the fees in order to keep total operating expenses at a specified
level. The Advisor may discontinue all or part of these waivers at any time.
With these fee waivers, the Portfolio's actual total operating expenses are as
follows:

Money Market Portfolio -- Institutional II Class ____%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$---- $---- $---- $----
</TABLE>

Page 12 of 24
<PAGE>

TAX-FREE MONEY MARKET PORTFOLIO

PORTFOLIO SUMMARY

INVESTMENT GOAL High current income exempt from Federal income
taxes

INVESTMENT FOCUS Short-term, high-quality municipal money market
obligations

SHARE PRICE VOLATILITY Very Low

PRINCIPAL INVESTMENT STRATEGY Investing in tax-exempt U.S. dollar-denominated
money market securities

INVESTOR PROFILE Conservative investors seeking tax-exempt income
through a low risk, liquid investment

INVESTMENT STRATEGY OF THE TAX-FREE MONEY MARKET PORTFOLIO

The Tax-Free Money Market Portfolio invests substantially all of its assets in a
broad range of high quality, short-term municipal money market instruments that
pay interest that is exempt from Federal income taxes. The issuers of these
securities may be state and local governments and agencies located in any of the
fifty states, the District of Columbia, Puerto Rico and other U.S. territories
and possessions. The Portfolio is well diversified among issuers and comprised
only of short-term debt securities that are rated in the two highest categories
by nationally recognized statistical ratings organizations or determined by the
Advisor to be of equal credit quality. The Portfolio will not invest in
securities subject to the alternative minimum tax or in taxable municipal
securities.

PRINCIPAL RISKS OF INVESTING IN THE TAX-FREE MONEY MARKET PORTFOLIO

There may be economic or political changes that impact the ability of municipal
issuers to repay principal and to make interest payments on municipal
securities. Changes in the financial condition or credit rating of municipal
issuers also may adversely affect the value of the Portfolio's securities.

Page 13 of 24
<PAGE>

PERFORMANCE INFORMATION

This bar chart shows changes in the performance of the Portfolio's Institutional
II Class Shares from year to year for four years.
<TABLE>
<S> <C>
1995 X.XX%
1996 X.XX%
1997 X.XX%
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED DECEMBER 31, 1998, TO THOSE OF THE IBC FINANCIAL TAX-FREE,
INSTITUTIONAL-ONLY AVERAGE.

INSTITUTIONAL II CLASS 1 YEAR SINCE INCEPTION
- ----------------------------------------------------------- -------------- ------------------
<S> <C> <C>
TAX-FREE MONEY MARKET PORTFOLIO X.XX% X.XX%*
IBC FINANCIAL TAX-FREE, INSTITUTIONAL-ONLY AVERAGE X.XX% X.XX%**
</TABLE>

* Since 7/28/95
** Since

WHAT IS AN AVERAGE?

An average measures the share prices of a specific group of mutual funds with a
particular investment objective. You cannot invest directly in an average. The
IBC Financial Tax-Free, Institutional-Only Average is a composite of mutual
funds with investment goals similar to the Portfolio's goals.

PORTFOLIO FEES AND EXPENSES

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
<TABLE>
<CAPTION>

Page 14 of 24
<PAGE>

Tax-Free Money Market Portfolio -- Institutional II Class ____%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$---- $---- $---- $----
</TABLE>

Page 15 of 24
<PAGE>
<TABLE>
<CAPTION>
<S><C>
RISKS FUNDS AFFECTED
BY THE RISKS

MUNICIPAL ISSUER RISK-- There may be economic or political changes Tax-Free Money Market Portfolio
that impact the ability of municipal issuers to repay principal
and to make interest payments on municipal securities. Changes to
the financial condition or credit rating of municipal issuers may
also adversely affect the value of the Portfolio's municipal
securities. Constitutional or legislative limits on borrowing by
municipal issuers may result in reduced supplies of municipal
securities. Moreover, certain municipal securities are backed
only by a municipal issuer's ability to levy and collect taxes.

YEAR 2000 RISK-- The Portfolios depend on the smooth functioning All Portfolios
of computer systems in almost every aspect of their business. Like
other mutual funds, businesses and individuals around the world,
the Portfolios could be adversely affected if the computer systems
used by their service providers do not properly process dates on
and after January 1, 2000, and do not distinguish between the year
2000 and the year 1900. The Portfolios have asked their service
providers whether they expect to have their computer systems
adjusted for the year 2000 transition, and are seeking assurances
from each service provider that they are devoting significant
resources to prevent material adverse consequences to the
Portfolios. While it is likely that such assurances will be
obtained, the Portfolios and their shareholders may experience
losses if these assurances prove to be incorrect or as a result of
year 2000 computer difficulties experienced by issuers of
portfolio securities or third parties, such as custodians, banks,
broker-dealers or others with which the Portfolios do business.
</TABLE>

Page 16 of 24
<PAGE>

EACH PORTFOLIO'S OTHER INVESTMENTS

This prospectus describes the Portfolios' primary strategies, and each Portfolio
will invest substantially all of its assets in the types of securities described
in this prospectus. However, each Portfolio also may invest in other securities,
use other strategies and engage in other investment practices. These investments
and strategies, as well as those described in this prospectus, are described in
detail in our Statement of Additional Information. Of course, there is no
guarantee that any Portfolio will achieve its investment goal.

The investments and strategies described in this prospectus are those that we
use under normal conditions. During unusual economic or market conditions, or
for temporary defensive or liquidity purposes, each Portfolio may invest up to
100% of its assets in cash and cash equivalents. A Portfolio will do so only if
the Advisor believes that the risk of loss outweighs the opportunity for capital
gains or higher income.

INVESTMENT ADVISOR

The Advisor makes investment decisions for the Portfolios and continuously
reviews, supervises and administers the Portfolios' respective investment
programs.

The Board of Trustees of the ARK Funds supervises the Advisor and establishes
policies that the Advisor must follow in its management activities.

Allied Investment Advisors, Inc. (AIA), a wholly-owned subsidiary of Allfirst
Bank (formerly, First National Bank of Maryland) (Allfirst) serves as the
Advisor to the Portfolios. As of May 31, 1999, AIA had approximately
$_______________ in assets under management. For the fiscal period ended April
30, 1999, AIA received advisory fees of:
<TABLE>
<S> <C>
U.S. TREASURY MONEY MARKET PORTFOLIO [VAR:Advisor1.Portfolio1.Fees]%
U.S. GOVERNMENT MONEY MARKET PORTFOLIO [VAR:Advisor1.Portfolio2.Fees]%
MONEY MARKET PORTFOLIO [VAR:Advisor1.Portfolio3.Fees]%
TAX-FREE MONEY MARKET PORTFOLIO [VAR:Advisor1.Portfolio4.Fees]%
</TABLE>

James M. Hannan is a Principal of AIA and manager of each Portfolio. He is also
manager of the 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 Allfirst since 1987. Prior to 1987 he served
as the Treasurer for the City of Hyattsville, Maryland.

PURCHASING, SELLING AND EXCHANGING PORTFOLIO SHARES

This section tells you how to buy, sell (sometimes called "redeem") or exchange
Institutional II Class Shares of the Portfolios.

Institutional II Class Shares are for individuals, financial institutions and
other entities that have established trust relationships with Allfirst or its
affiliates or correspondent banks (qualified accounts). Before you can buy
Institutional II Class Shares, you must establish a qualified account. For
information on fee schedules and agreements for opening qualified accounts, call
1-800-624-4116 (inside Maryland 1-800-638-7751).

Page 17 of 24
<PAGE>

HOW TO PURCHASE PORTFOLIO SHARES

You may purchase shares directly by Federal funds, wire or other funds
immediately available to the Portfolios. A Portfolio cannot accept checks,
third-party checks, credit cards, credit card checks or cash.

You will have to follow the procedures applicable to qualified accounts. Your
qualified account agreement may require you to pay a fee that is in addition to
the fees charged by the Portfolios.

It is expected that Allfirst will be the record owner of Institutional II Class
Shares held through qualified accounts. Allfirst will supply clients with
quarterly statements showing all account activity.

Shareholders may instruct Allfirst to purchase Institutional II Class Shares
automatically at preset intervals. Allfirst may charge additional fees for this
and other services, including cash sweeps. For more information, please call
1-800-624-4116 (inside Maryland 1-800-638-7751).

GENERAL INFORMATION

You may purchase shares on any day that the New York Stock Exchange (NYSE) and
the Federal Reserve are open for business (a Business Day). Shares cannot be
purchased by Federal Reserve Wire on days when either the NYSE or the Federal
Reserve is closed.

A Portfolio or its distributor may reject any purchase order if it is determined
that accepting the order would not be in the best interests of the Portfolio or
its shareholders.

The price per share (the offering price) will be the net asset value per share
(NAV) next determined after a Portfolio receives your purchase order. We expect
that the NAV of the Portfolios will remain constant at $1.00 per share.

The U.S. Treasury Money Market Portfolio and Tax-Free Money Market Portfolio
calculate their NAV each Business Day at 12:00 noon Eastern time and 4:00 p.m.
Eastern time. So, for you to be eligible to receive dividends declared on the
day you submit your purchase order, generally the Portfolio must receive and
accept your order and receive Federal funds (readily available funds) before
12:00 noon Eastern time. For orders received and accepted after 12:00 p.m.
Eastern time but before 4:00 p.m. Eastern time, you will begin earning dividends
on the next Business Day.

The Money Market Portfolio and U.S. Government Money Market Portfolio calculate
their NAV each Business Day at 5:00 p.m. Eastern time. So, for you to be
eligible to receive dividends declared on the day you submit your purchase
order, generally the Portfolio must receive and accept your order and receive
Federal funds before 5:00 p.m. Eastern time.

When the NYSE or Federal Reserve Bank of New York close early, the Portfolios
will advance the time on any such day by which purchase orders must be received.

HOW WE CALCULATE NAV

NAV for one Portfolio share is the value of that share's portion of all of the
net assets in the Portfolio.

Page 18 of 24
<PAGE>

In calculating NAV for the Portfolios, we generally value a Portfolio's
investment portfolio using the amortized cost valuation method, which is
described in detail in our Statement of Additional Information. If this method
is determined to be unreliable during certain market conditions or for other
reasons, a Fund may value its portfolio at market price or fair value prices may
be determined in good faith using methods approved by the Board of Trustees.

MINIMUM PURCHASES

To purchase shares for the first time, you must invest at least $500 in any
Portfolio. Your subsequent investments in any Portfolio may be made in any
amount.

HOW TO SELL YOUR PORTFOLIO SHARES

Holders of Institutional II Class shares may sell shares by telephone or by mail
on any Business Day by following procedures established when they opened their
qualified account. If you have questions, call 1-800-624-4116 (inside Maryland
1-800-638-7751).

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

Signatures on the written request must be guaranteed. Signature guarantees may
be obtained from banks or other financial institutions. A notarized signature is
not sufficient.

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

RECEIVING YOUR MONEY

Normally, if we receive your redemption request by 12:00 p.m. (1:30 p.m. for the
U.S. Treasury Money Market and Money Market Funds) on any Business Day, we will
send your sale proceeds on that day. Your proceeds can be wired to your bank
account. Currently, Allfirst pays the costs of these wires. The Portfolios
reserve the right to charge wire fees to investors. You may not close your
account by telephone.

SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES

A Portfolio may suspend your right to sell your shares if the NYSE restricts
trading, the SEC declares an emergency or for other reasons. More information
about this is in our Statement of Additional Information.

HOW TO EXCHANGE YOUR SHARES

You may exchange your Institutional II Class shares on any Business Day by
contacting us directly by telephone by calling 1-800-624-4116 (inside Maryland
1-800-638-7751).

When you exchange shares, you are really selling your shares and buying other
Portfolio shares. So, your sale price and purchase price will be based on the
NAV next calculated after the Portfolio receives your exchange request. The
Portfolios reserve the right to modify or suspend this exchange privilege.

Page 19 of 24
<PAGE>

TELEPHONE TRANSACTIONS

Purchasing, selling and exchanging Portfolio shares over the telephone is
extremely convenient, but not without risk. Although the Portfolio has certain
safeguards and procedures to confirm the identity of callers and the
authenticity of instructions, the Portfolios are not responsible for any losses
or costs incurred by following telephone instructions we reasonably believe to
be genuine. If you or your financial institution transact with the Portfolios
over the telephone, you will generally bear the risk of any loss.

DISTRIBUTION OF PORTFOLIO SHARES

Each Portfolio has adopted a distribution plan that allows the Portfolio to pay
distribution and service fees for the sale and distribution of its shares, and
for services provided to shareholders. Because these fees are paid out of a
Portfolio's assets continuously, over time these fees will increase the cost of
your investment and may cost you more than paying other types of sales charges.

Distribution fees, as a percentage of average daily net assets, may be up to
0.75%. The Board has set the distribution fees as follows:
<TABLE>
<S> <C>
U.S. Treasury Money Market Portfolio 0.10%
U.S. Government Money Market Portfolio 0.10%
Money Market Portfolio 0.10%
Tax-Free Money Market Portfolio 0.10%
</TABLE>

The Distributor may, from time to time in its sole discretion, institute one or
more promotional incentive programs for dealers, which will be paid for by the
Distributor from any source available to it. Under any such program, the
Distributor may provide incentives, in the form of cash or other compensation,
including merchandise, airline vouchers, trips and vacation packages, to dealers
selling shares of a Portfolio.

DIVIDENDS, DISTRIBUTIONS AND TAXES

DIVIDENDS AND DISTRIBUTIONS

Dividends are declared daily and paid monthly. Each Portfolio makes
distributions of capital gains, if any, at least annually. If you own Portfolio
shares on a Portfolio's record date, you will be entitled to receive the
distribution.

You will receive dividends and distributions in the form of additional Portfolio
shares unless you elect to receive payment in cash. To elect cash payment, you
must notify the Portfolio in writing prior to the date of the distribution. Your
election will be effective for dividends and distributions paid after the
Portfolio receives your written notice. To cancel your election, simply send the
Portfolio written notice.

Page 20 of 24
<PAGE>

TAXES

PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Below we have summarized some important tax issues
that affect the Portfolios and their shareholders. This summary is based on
current tax laws, which may change.

Each Portfolio will distribute substantially all of its income and capital
gains, if any. The dividends and distributions you receive may be subject to
federal, state and local taxation, depending upon your tax situation.
Distributions you receive from a Portfolio may be taxable whether or not you
reinvest them. Income distributions are generally taxable at ordinary income tax
rates. Capital gains distributions are generally taxable at the rates applicable
to long-term capital gains. EACH SALE OR EXCHANGE OF SHARES IS A TAXABLE EVENT.

The Tax-Free Money Market Portfolio intends to distribute federally tax-exempt
income. Income exempt from federal tax may be subject to state and local taxes.
Any capital gains distributed by the Portfolio may be taxable.

MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION.

Page 21 of 24
<PAGE>

FINANCIAL HIGHLIGHTS

The tables that follows presents performance information about Institutional II
Class Shares of each Portfolio. This information is intended to help you
understand each Portfolio's financial performance for the past five years, or,
if shorter, the period of the Portfolio's operations. Some of this information
reflects financial information for a single Portfolio share. The total returns
in the table represent the rate that you would have earned (or lost) on an
investment in a Portfolio, assuming you reinvested all of your dividends and
distributions. This information has been audited by KPMG Peat Marwick LLP,
independent public accountants. Their report, along with each Portfolio's
financial statements, appears in the annual report that accompanies our
Statement of Additional Information. You can obtain the annual report, which
contains more performance information, at no charge by calling 1-800-624-4116
(inside Maryland 1-800-638-7751).

Page 22 of 24
<PAGE>

ARK FUNDS

INVESTMENT ADVISOR

Allied Investment Advisors, Inc.
100 E. Pratt Street
Baltimore, MD 21202

DISTRIBUTOR

SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, PA 19456

LEGAL COUNSEL
Piper & Marbury L.L.P.
36 South Charles Street
Baltimore, MD 21201

More information about the Portfolios is available without charge through the
following:

STATEMENT OF ADDITIONAL INFORMATION (SAI)

The SAI dated September 1, 1999, includes detailed information about ARK Funds.
The SAI is on file with the SEC and is incorporated by reference into this
prospectus. This means that the SAI, for legal purposes, is a part of this
prospectus.

ANNUAL AND SEMI-ANNUAL REPORTS

These reports list each Portfolio's holdings and contain information from the
Portfolio's managers about strategies and recent market conditions and trends.
The reports also contain detailed financial information about the Portfolios.

TO OBTAIN MORE INFORMATION:

BY TELEPHONE: Call 1-800-624-4116 (INSIDE MARYLAND 1-800-638-7751)

BY MAIL: Write to us at:
Allfirst Bank Trust Division
[Banc #101-681]
P.O. Box 1596
Baltimore, MD 21203

BY E-MAIL: [VAR:FUND.EMAILADDRESS]]

BY INTERNET: [VAR:FUND.INTERNETADDRESS]]

Page 23 of 24
<PAGE>

FROM THE SEC: You can also obtain the SAI or the Annual and Semi-Annual reports,
as well as other information about ARK Funds, from the SEC's website
("http://www.sec.gov"). You may review and copy documents at the SEC Public
Reference Room in Washington, DC (for information call 1-800-SEC-0330). You may
request documents by mail from the SEC, upon payment of a duplicating fee, by
writing to: Securities and Exchange Commission, Public Reference Section,
Washington, DC 20549-6009. ARK Funds' Investment Company Act registration number
is 811-7310.

Page 24 of 24
<PAGE>

ARK FUNDS

CLASS A AND CLASS B SHARES

PROSPECTUS
SEPTEMBER 1, 1999

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
U.S. GOVERNMENT BOND PORTFOLIO
INCOME PORTFOLIO
MARYLAND TAX-FREE PORTFOLIO
PENNSYLVANIA TAX-FREE PORTFOLIO
BALANCED PORTFOLIO
EQUITY INCOME PORTFOLIO
EQUITY INDEX PORTFOLIO
BLUE CHIP EQUITY PORTFOLIO
MID-CAP EQUITY PORTFOLIO
VALUE EQUITY PORTFOLIO
CAPITAL GROWTH PORTFOLIO
SMALL-CAP EQUITY PORTFOLIO
INTERNATIONAL EQUITY SELECTION PORTFOLIO

INVESTMENT ADVISOR:
ALLIED INVESTMENT ADVISORS, INC.

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED ANY PORTFOLIO SHARES OR
DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE. IT IS A CRIME FOR
ANYONE TO TELL YOU OTHERWISE.

Page 1 of 97
<PAGE>

HOW TO READ THIS PROSPECTUS

ARK Funds is a mutual fund family that offers different classes of shares in
separate investment portfolios (Portfolios). The Portfolios have individual
investment goals and strategies. This prospectus gives you important information
about the Class A and Class B Shares of the Portfolios that you should know
before investing. Please read this prospectus and keep it for future reference.

Class A and Class B Shares have different expenses and other characteristics,
allowing you to choose the class that best suits your needs. You should consider
the amount you want to invest, how long you plan to have it invested, and
whether you plan to make additional investments.

PAGE
<S> <C>
U.S. TREASURY MONEY MARKET PORTFOLIO..........................XXX
U.S. GOVERNMENT MONEY MARKET PORTFOLIO........................XXX
MONEY MARKET PORTFOLIO........................................XXX
TAX-FREE MONEY MARKET PORTFOLIO...............................XXX
SHORT-TERM TREASURY PORTFOLIO.................................XXX
INTERMEDIATE FIXED INCOME PORTFOLIO...........................XXX
U.S. GOVERNMENT BOND PORTFOLIO................................XXX
INCOME PORTFOLIO..............................................XXX
MARYLAND TAX-FREE PORTFOLIO...................................XXX
PENNSYLVANIA TAX-FREE PORTFOLIO...............................XXX
BALANCED PORTFOLIO............................................XXX
EQUITY INCOME PORTFOLIO.......................................XXX
EQUITY INDEX PORTFOLIO........................................XXX
BLUE CHIP EQUITY PORTFOLIO....................................XXX
MID-CAP EQUITY PORTFOLIO......................................XXX
VALUE EQUITY PORTFOLIO........................................XXX
CAPITAL GROWTH PORTFOLIO......................................XXX
SMALL-CAP EQUITY PORTFOLIO....................................XXX
INTERNATIONAL EQUITY SELECTION PORTFOLIO......................XXX
MORE INFORMATION ABOUT RISK...................................XXX
EACH PORTFOLIO'S OTHER INVESTMENTS............................XXX
THE INVESTMENT ADVISOR........................................XXX
PURCHASING, SELLING AND EXCHANGING PORTFOLIO SHARES...........XXX
DIVIDENDS, DISTRIBUTIONS AND TAXES............................XXX
FINANCIAL HIGHLIGHTS..........................................XXX
HOW TO OBTAIN MORE INFORMATION ABOUT ARK FUNDS................Back Cover
</TABLE>

Page 2 of 97
<PAGE>

INTRODUCTION - INFORMATION COMMON TO ALL FUNDS

Each Portfolio is a mutual fund. A mutual fund pools shareholders' money and,
using professional investment managers, invests it in securities.

Each Portfolio has its own investment goal and strategies for reaching that
goal. The investment advisor invests each Portfolio's assets in a way that it
believes will help a Portfolio achieve its goal. Still, investing in each
Portfolio involves risk, and there is no guarantee that a Portfolio will achieve
its goal. The investment advisor's judgments about the markets, the economy, or
companies may not anticipate actual market movements, economic conditions or
company performance, and these judgments may affect the return on your
investment. In fact, no matter how good a job the investment advisor does, you
could lose money on your investment in a Portfolio, just as you could with other
investments. A Portfolio share is not a bank deposit and it is not insured or
guaranteed by the FDIC or any government agency.

The value of your investment in a Portfolio (other than a money market
portfolio) is based on the market prices of the securities the Portfolio holds.
These prices change daily due to economic and other events that affect
particular companies and other issuers. These price movements, sometimes called
volatility, may be greater or lesser depending on the types of securities a
Portfolio owns and the markets in which they trade. The effect on a Portfolio of
a change in the value of a single security will depend on how widely the
Portfolio diversifies its holdings.

THE U.S. TREASURY MONEY MARKET PORTFOLIO, U.S. GOVERNMENT MONEY MARKET
PORTFOLIO, MONEY MARKET PORTFOLIO AND TAX-FREE MONEY MARKET PORTFOLIO TRY TO
MAINTAIN A CONSTANT PRICE PER SHARE OF $1.00, BUT THERE IS NO GUARANTEE THAT
THESE PORTFOLIOS WILL ACHIEVE THIS GOAL.

Page 3 of 97
<PAGE>

U.S. TREASURY MONEY MARKET PORTFOLIO

PORTFOLIO SUMMARY

INVESTMENT GOAL Maximizing current income and providing
liquidity and security of principal

INVESTMENT FOCUS Short-term U.S. Treasury securities

SHARE PRICE VOLATILITY Very low

PRINCIPAL INVESTMENT STRATEGY Investing in U.S. Treasury obligations

INVESTOR PROFILE Conservative investors seeking current income
through a low-risk, liquid investment

INVESTMENT STRATEGY OF THE U.S. TREASURY MONEY MARKET PORTFOLIO

The U.S. Treasury Money Market Portfolio invests exclusively in U.S. Treasury
obligations.

PRINCIPAL RISKS OF INVESTING IN THE U.S. TREASURY MONEY MARKET PORTFOLIO

Although the Portfolio's U.S. Treasury securities are considered to be among the
safest investments, they are not guaranteed against price movements due to
changing interest rates.

PERFORMANCE INFORMATION

Page 4 of 97
<PAGE>

This bar chart shows changes in the performance of the Portfolio's Class A
Shares from year to year for three years.

<TABLE>

<S> <C>
1996 X.XX%
1997 X.XX%
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED DECEMBER 31, 1998, TO THOSE OF THE IBC FINANCIAL 100% U.S.
TREASURY AVERAGE.

CLASS A SHARES 1 YEAR SINCE INCEPTION
- ---------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury Money Market Portfolio X.XX% X.XX%*
IBC Financial 100% U.S. Treasury Average X.XX% X.XX%**
</TABLE>

* Since 12/15/95
** Since _______

WHAT IS AN AVERAGE?

PORTFOLIO FEES AND EXPENSES

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
<TABLE>
<CAPTION>

CLASS A SHARES
- --------------------------------------------------------------------------------------------
<S> <C>
Investment Advisory Fees .XX%
Distribution and Service (12b-1) Fees .XX%
Other Expenses .XX%
-----
Total Annual Portfolio Operating Expenses X.XX%*
</TABLE>
- -------------------------------------------------------------------------------
* The Portfolio's total actual annual operating expenses for the most recent
fiscal year were less than the amount shown above because the Advisor is waiving
a portion of the fees in order to keep total operating expenses at a specified
level. The Advisor may discontinue all or part of these waivers at any time.
With these fee waivers, the Portfolio's actual total operating expenses are as
follows:

Page 5 of 97
<PAGE>

U.S. Treasury Money Market Portfolio -- Class A Shares ____%

Page 6 of 97
<PAGE>

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$---- $---- $---- $----
</TABLE>

Page 7 of 97
<PAGE>

U.S. GOVERNMENT MONEY MARKET PORTFOLIO

PORTFOLIO SUMMARY

INVESTMENT GOAL Maximizing current income and providing
liquidity and security of principal

INVESTMENT FOCUS Short-term U.S. government securities

SHARE PRICE VOLATILITY Very low

PRINCIPAL INVESTMENT STRATEGY Investing in U.S. government obligations and
repurchase agreements

INVESTOR PROFILE Conservative investors seeking current income
through a low-risk, liquid investment

INVESTMENT STRATEGY OF THE U.S. GOVERNMENT MONEY MARKET PORTFOLIO

The U.S. Government Money Market Portfolio invests exclusively in obligations
issued by the U.S. government and its agencies and instrumentalities and in
repurchase agreements.

PRINCIPAL RISKS OF INVESTING IN THE U.S. GOVERNMENT MONEY MARKET PORTFOLIO

Although the Portfolio's U.S. government securities are considered to be among
the safest investments, they are not guaranteed against price movements due to
changing interest rates.

Obligations issued by some U.S. government agencies are backed by the U.S.
Treasury, while others are backed solely by the ability of the agency to borrow
from the U.S. Treasury or by the agency's own resources.

Page 8 of 97
<PAGE>

PERFORMANCE INFORMATION

This bar chart shows the performance of the Portfolio's Class A Shares for the
most recent year.

<TABLE>

<S> <C>
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED DECEMBER 31, 1998, TO THOSE OF THE IBC FINANCIAL GOVERNMENT
ONLY, INSTITUTIONAL-ONLY AVERAGE.

CLASS A SHARES 1 YEAR SINCE INCEPTION
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT MONEY MARKET PORTFOLIO X.XX% X.XX% *
IBC FINANCIAL GOVERNMENT ONLY, INSTITUTIONAL-ONLY AVERAGE X.XX% X.XX%**
</TABLE>

* Since 7/7/97
** Since _____

WHAT IS AN AVERAGE?

PORTFOLIO FEES AND EXPENSES

Page 9 of 97
<PAGE>

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
<TABLE>
<CAPTION>

- -------------------------------------------------------------------------------
* The Portfolio's total actual annual operating expenses for the most recent
fiscal year were less than the amount shown above because the Advisor is waiving
a portion of the fees in order to keep total operating expenses at a specified
level. The Advisor may discontinue all or part of these waivers at any time.
With these fee waivers, the Portfolio's actual total operating expenses are as
follows:

U.S. Government Money Market Portfolio -- Class A Shares ____%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$---- $---- $---- $----
</TABLE>

Page 10 of 97
<PAGE>

MONEY MARKET PORTFOLIO

PORTFOLIO SUMMARY

INVESTMENT GOAL Maximizing current income and providing
liquidity and security of principal

INVESTMENT FOCUS Short-term money market instruments

SHARE PRICE VOLATILITY Very low

PRINCIPAL INVESTMENT STRATEGY Investing in high quality U.S. dollar
denominated money market securities

INVESTOR PROFILE Conservative investors seeking current income
through a low-risk, liquid investment

INVESTMENT STRATEGY OF THE MONEY MARKET PORTFOLIO

The Money Market Portfolio primarily invests in high quality, short-term U.S.
dollar denominated debt securities issued by corporations, the U.S. government
and banks, including U.S. and foreign branches of U.S. banks and U.S. branches
of foreign banks. At least 95% of such securities will be rated in the highest
ratings category by two or more nationally recognized statistical ratings
organizations.

PRINCIPAL RISKS OF INVESTING IN THE MONEY MARKET PORTFOLIO

Although the Portfolio's U.S. government securities are considered to be among
the safest investments, they are not guaranteed against price movements due to
changing interest rates.

Page 11 of 97
<PAGE>

PERFORMANCE INFORMATION

The performance of Class A and Class B Shares will differ due to differences in
expenses.

This bar chart shows changes in the performance of the Portfolio's Class A
Shares from year to year for four years.
<TABLE>

<S> <C>
1995 X.XX%
1996 X.XX%
1997 X.XX%
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED DECEMBER 31, 1998, TO THOSE OF THE IBC FINANCIAL FIRST TIER,
INSTITUTIONAL-ONLY AVERAGE.

1 YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
MONEY MARKET PORTFOLIO CLASS A SHARES X.XX% X.XX%*
MONEY MARKET PORTFOLIO CLASS B SHARES X.XX% X.XX%**
IBC FINANCIAL FIRST TIER, INSTITUTIONAL-ONLY AVERAGE X.XX% X.XX%***
</TABLE>

* Since 3/2/94
** Since _____
*** Since _____

WHAT IS AN AVERAGE?

PORTFOLIO FEES AND EXPENSES

Page 12 of 97
<PAGE>

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
<TABLE>
<CAPTION>

CLASS A SHARES CLASS B SHARES
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Advisory Fees .XX% .XX%
Distribution and Service (12b-1) Fees .XX% .XX%
Other Expenses .XX% .XX%
----- -----
Total Annual Portfolio Operating Expenses X.XX%* X.XX%*
</TABLE>

Money Market Portfolio -- Class A Shares ____%
Money Market Portfolio -- Class B Shares ____%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

IF YOU SELL YOUR SHARES AT THE END OF THE PERIOD:
<TABLE>
<CAPTION>

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
CLASS A SHARES $____ $____ $____ $____
CLASS B SHARES* $____ $____ $____ $____
</TABLE>

IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD:
<TABLE>
<CAPTION>

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
CLASS A SHARES $____ $____ $____ $____
CLASS B SHARES* $____ $____ $____ $____
</TABLE>

* In certain circumstances involving redemptions of Class B shares that were
obtained by exchanging Class B Shares of another Portfolio for Class B Shares of
the Money Market Portfolio, a contingent deferred sales charge will apply. The
contingent deferred sales charge applied will be equal to the charge that would
have applied had Class B Shares of another Portfolio not been exchanged for
Class B Shares of the Money Market Portfolio. See "Selling Fund Shares."

Page 13 of 97
<PAGE>

TAX-FREE MONEY MARKET PORTFOLIO

PORTFOLIO SUMMARY

INVESTMENT GOAL High current income exempt from Federal income
taxes

INVESTMENT FOCUS Short-term, high-quality municipal money market
obligations

SHARE PRICE VOLATILITY Very Low

PRINCIPAL INVESTMENT STRATEGY Investing in tax-exempt U.S. dollar denominated
money market securities

INVESTOR PROFILE Conservative investors seeking tax-exempt income
through a low risk, liquid investment

INVESTMENT STRATEGY OF THE TAX-FREE MONEY MARKET PORTFOLIO

The Tax-Free Money Market Portfolio invests substantially all of its assets in a
broad range of high-quality, short-term municipal money market instruments that
pay interest that is exempt from Federal income taxes. The issuers of these
securities may be state and local governments and agencies located in any of the
fifty states, the District of Columbia, Puerto Rico and other U.S. territories
and possessions. The Portfolio is well diversified among issuers and comprised
only of short-term debt securities that are rated in the two highest categories
by nationally recognized statistical ratings organizations or determined by the
Advisor to be of equal credit quality. The Portfolio will not invest in
securities subject to the Alternative Minimum Tax or in taxable municipal
securities.

PRINCIPAL RISKS OF INVESTING IN THE TAX-FREE MONEY MARKET PORTFOLIO

There may be economic or political changes that impact the ability of municipal
issuers to repay principal and to make interest payments on municipal
securities. Changes in the financial

Page 14 of 97
<PAGE>

condition or credit rating of municipal issuers also may adversely affect the
value of the Portfolio's securities.

PERFORMANCE INFORMATION

This bar chart shows changes in the performance of the Portfolio's Class A
Shares from year to year for four years.
<TABLE>

<S> <C>

1995 X.XX%
1996 X.XX%
1997 X.XX%
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED DECEMBER 31, 1998, TO THOSE OF THE IBC FINANCIAL TAX-FREE,
INSTITUTIONAL-ONLY AVERAGE.

CLASS A SHARES 1 YEAR SINCE INCEPTION
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
TAX-FREE MONEY MARKET PORTFOLIO X.XX% X.XX% *
IBC FINANCIAL TAX-FREE, INSTITUTIONAL-ONLY AVERAGE X.XX% X.XX%**
</TABLE>

* Since 3/15/94
** Since _______

WHAT IS AN AVERAGE?

PORTFOLIO FEES AND EXPENSES

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)

Page 15 of 97
<PAGE>
<TABLE>
<CAPTION>

Tax-Free Money Market Portfolio -- Class A Shares ____%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$---- $---- $---- $----
</TABLE>

Page 16 of 97
<PAGE>

SHORT-TERM TREASURY PORTFOLIO

PORTFOLIO SUMMARY

INVESTMENT GOAL Current income with relative stability of
principal

INVESTMENT FOCUS Short-term U.S. Treasury securities

SHARE PRICE VOLATILITY Low

PRINCIPAL INVESTMENT STRATEGY Investing in short-term fixed income securities
issued or guaranteed by the U.S. Treasury

INVESTOR PROFILE Investors seeking to preserve principal and earn
current income

INVESTMENT STRATEGY OF THE SHORT-TERM TREASURY PORTFOLIO

The Short-Term Treasury Portfolio invests exclusively in fixed income securities
issued directly by the U.S. Treasury. The Portfolio's Advisor will select
securities that are backed by the U.S. Treasury that pay interest that is exempt
from state and local taxes. The Portfolio has no maturity restrictions, and the
average maturity of the Portfolio's investments will vary depending on market
conditions. The Portfolio normally invests in short-term securities, and the
Portfolio will typically have an average maturity of approximately two years.

In selecting securities for the Portfolio, the Advisor considers a security's
current yield, as well as its capital appreciation potential, maturity and yield
to maturity. The Advisor will monitor changing economic conditions and trends,
including interest rates, and may sell securities in anticipation of an increase
in interest rates or purchase securities in anticipation of a decrease in
interest rates.

Due to its investment strategy, the Portfolio may buy and sell securities
frequently. This may result in higher transaction costs and additional capital
gains tax liabilities.

PRINCIPAL RISKS OF INVESTING IN THE SHORT-TERM TREASURY PORTFOLIO

The prices of the Portfolio's fixed income securities respond to economic
developments, particularly interest rate changes. Generally, the Portfolio's
fixed income securities will decrease in value if interest rates rise and vice
versa. Also, longer-term securities are generally more volatile, so the average
maturity or duration of these securities affects risk.

Although the Portfolio's U.S. Treasury securities are considered to be among the
safest investments, they are not guaranteed against price movements due to
changing interest rates.

Page 17 of 97
<PAGE>

PERFORMANCE INFORMATION

This bar chart shows changes in the performance of the Portfolio's Class A
Shares from year to year for two years. For the period from January 1, 1999, to
June 30, 1999, the Portfolio's Class A total return was ___%.

<TABLE>

<S> <C>

1997 X.XX%
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 1998, TO THOSE OF THE LEHMAN 1-3 YEAR GOVERNMENT BOND INDEX.
<TABLE>
<CAPTION>

CLASS A SHARES 1 YEAR SINCE INCEPTION
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM TREASURY PORTFOLIO X.XX% X.XX%*
LEHMAN 1-3 YEAR GOVERNMENT BOND INDEX X.XX% X.XX% **
</TABLE>

* Class A Shares of the Short-Term Treasury Portfolio were offered
beginning September 30, 1996.
** Since March 31, 1996.

WHAT IS AN INDEX?

PORTFOLIO FEES AND EXPENSES

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)

Page 18 of 97
<PAGE>
<TABLE>
<CAPTION>

Short-Term Treasury Portfolio -- Class A Shares ____%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$---- $---- $---- $----
</TABLE>

Page 19 of 97
<PAGE>

INTERMEDIATE FIXED INCOME PORTFOLIO

PORTFOLIO SUMMARY

INVESTMENT GOAL Current income

INVESTMENT FOCUS Intermediate-term investment-grade fixed income
securities

SHARE PRICE VOLATILITY Low to medium

PRINCIPAL INVESTMENT STRATEGY Investing in intermediate-term government and
corporate fixed income securities

INVESTOR PROFILE Investors seeking current income who are willing
to accept the risks of investing in fixed income
securities

INVESTMENT STRATEGY OF THE INTERMEDIATE FIXED INCOME PORTFOLIO

The Intermediate Fixed Income Portfolio invests primarily in corporate and
government fixed income securities, including mortgage-backed securities. The
Portfolio's Advisor will select investment-grade fixed income securities and
unrated securities determined to be of comparable quality. The Portfolio
normally invests in securities with intermediate maturities, and the Portfolio
will typically have an average maturity of three to ten years. However, the
Portfolio has no maturity restrictions, and the average maturity of the
Portfolio's investments will vary depending on market conditions.

In selecting securities for the Portfolio, the Advisor considers a security's
current yield, credit quality, capital appreciation potential, maturity and
yield to maturity. The Advisor will monitor changing economic conditions and
trends, including interest rates, and may sell securities in anticipation of an
increase in interest rates or purchase securities in anticipation of a decline
in interest rates.

PRINCIPAL RISKS OF INVESTING IN THE INTERMEDIATE FIXED INCOME PORTFOLIO

The prices of the Portfolio's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers. Generally, the Portfolio's
fixed income securities will decrease in value if interest rates rise and vice
versa, and the volatility of lower rated securities is even greater than that of
higher rated securities. Also, longer-term securities are generally more
volatile, so the average maturity or duration of these securities affects risk.

The mortgages underlying mortgage-backed securities may be paid off early, which
makes it difficult to determine their actual maturity and therefore calculate
how they will respond to changes in interest rates. The Portfolio may have to
reinvest prepaid amounts at lower interest rates. This risk of prepayment is an
additional risk of mortgage-backed securities.

Page 20 of 97
<PAGE>

Although the Portfolio's U.S. government securities are considered to be among
the safest investments, they are not guaranteed against price movements due to
changing interest rates. Obligations issued by some U.S. government agencies are
backed by the U.S. Treasury, while others are backed solely by the ability of
the agency to borrow from the U.S. Treasury or by the agency's own resources.

PERFORMANCE INFORMATION

As of the date of this prospectus, the Portfolio's Class A Shares are not being
offered, and there is no performance information available.

PORTFOLIO FEES AND EXPENSES

THIS TABLE DESCRIBES THE SHAREHOLDER FEES THAT YOU MAY PAY IF YOU PURCHASE OR
SELL PORTFOLIO SHARES. YOU WOULD PAY THESE FEES DIRECTLY FROM YOUR INVESTMENT IN
THE PORTFOLIO.

CLASS A SHARES
- ----------------------------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 4.50%*
Maximum Deferred Sales Charge (Load)(as a percentage of net asset value) None
Maximum Sales Charge (Load) Imposed on
Reinvested Dividends and other Distributions (as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>

This sales charge varies depending upon how much you invest. See "Purchasing
Portfolio Shares."

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
<TABLE>
<CAPTION>

CLASS A SHARES
- -------------------------------------------------------------------------------------------
<S> <C>
Investment Advisory Fees .XX%
Distribution and Service (12b-1) Fees .XX%
Other Expenses .XX%
-----
Total Annual Portfolio Operating Expenses X.XX%*
</TABLE>

Intermediate Fixed Income Portfolio -- Class A Shares ____%

Page 21 of 97
<PAGE>

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$---- $---- $---- $----
</TABLE>

Page 22 of 97
<PAGE>

U.S. GOVERNMENT BOND PORTFOLIO

PORTFOLIO SUMMARY

INVESTMENT GOAL Current income

INVESTMENT FOCUS U.S. government securities

SHARE PRICE VOLATILITY Low to medium

PRINCIPAL INVESTMENT STRATEGY Investing in U.S. government fixed income
securities

INVESTOR PROFILE Investors seeking current income who are willing
to accept the risks of investing in fixed income
securities

INVESTMENT STRATEGY OF THE U.S. GOVERNMENT BOND PORTFOLIO

The U.S. Government Bond Portfolio invests primarily in fixed income securities
issued or guaranteed by the U.S. government and its agencies or
instrumentalities, including mortgage-backed securities. The Portfolio also
invests in a range of investment-grade corporate fixed income securities. The
Portfolio normally invests in securities with intermediate maturities, and the
Portfolio will typically have an average maturity of between three and ten
years. However, the Portfolio has no maturity restrictions, and the average
maturity of the Portfolio's investments will vary depending on market
conditions.

Due to its investment strategy, the Portfolio may buy and sell securities
frequently. This may result in higher transaction costs and additional capital
gains tax liabilities.

PRINCIPAL RISKS OF INVESTING IN THE U.S. GOVERNMENT BOND PORTFOLIO

The mortgages underlying mortgage-backed securities may be paid off early, which
makes it difficult to determine their actual maturity and therefore calculate
how the securities will respond to changes in interest rates. The Portfolio may
have to reinvest prepaid amounts at lower interest rates. This risk of
prepayment is an additional risk of mortgage-backed securities.

Page 23 of 97
<PAGE>

PERFORMANCE INFORMATION

This bar chart shows changes in the performance of the Portfolio's Institutional
Class Shares from year to year for two years. The Portfolio's Class A Shares
commenced operations on April 1, 1998, and do not have a full calendar year of
performance. For the period from January 1, 1999, to June 30, 1999, the
Portfolio's Class A total return was ___%.

The chart does not reflect sales charges. If sales charges had been reflected,
returns would be less than those shown below.
<TABLE>

<S> <C>

1997 X.XX%
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 1998, TO THOSE OF THE LEHMAN INTERMEDIATE
GOVERNMENT/CORPORATE INDEX.
<TABLE>
<CAPTION>

CLASS A SHARES 1 YEAR SINCE INCEPTION
- -----------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT BOND PORTFOLIO X.XX%* X.XX%*
LEHMAN INTERMEDIATE GOVERNMENT/CORPORATE INDEX X.XX% X.XX%**
</TABLE>

* Class A Shares of the U.S. Government Bond Portfolio were offered
beginning April 1, 1998. The performance information shown prior to that
date represents performance of the Portfolio's Institutional Class
Shares. For Institutional Class Shares, performance presented prior to
March 22, 1998, reflects the performance of the Marketvest U.S.
Government Bond Fund shares, which were offered beginning March 31, 1996.
The performance of the Institutional Class Shares has been adjusted for
the sales charge applicable to Class A Shares, but does not reflect the
Class A Shares' Rule 12b-1 fees and expenses. With those adjustments,
performance would be lower than that shown.
** Since March 31, 1996.

WHAT IS AN INDEX?

Page 24 of 97
<PAGE>

An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment Advisor
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower. The Lehman Intermediate Government/Corporate Index
is a widely-recognized, market value-weighted (higher market value bonds have
more influence than lower market value bonds) index of U.S. Treasury securities,
U.S. Government agency obligations, corporate debt securities, fixed-rate
nonconvertible corporate debt securities, Yankee bonds and nonconvertible debt
securities issued by or guaranteed by foreign governments and agencies. All
securities in the index are rated investment grade (BBB) or higher, with
maturities of one to ten years.

PORTFOLIO FEES AND EXPENSES

THIS TABLE DESCRIBES THE SHAREHOLDER FEES THAT YOU MAY PAY IF YOU PURCHASE OR
SELL PORTFOLIO SHARES. YOU WOULD PAY THESE FEES DIRECTLY FROM YOUR INVESTMENT IN
THE PORTFOLIO.
<TABLE>
<CAPTION>

CLASS A SHARES
- -------------------------------------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price)* 4.50%*
Maximum Deferred Sales Charge (Load)(as a percentage of net asset value) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
and other Distributions (as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>

This sales charge varies depending upon how much you invest. See "Purchasing
Portfolio Shares."

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
<TABLE>
<CAPTION>

U.S. Government Bond Portfolio -- Class A Shares ____%

Page 25 of 97
<PAGE>

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$---- $---- $---- $----
</TABLE>

Page 26 of 97
<PAGE>

INCOME PORTFOLIO

INVESTMENT GOAL Current income and capital growth

INVESTMENT FOCUS Investment-grade fixed income securities

SHARE PRICE VOLATILITY Medium

PRINCIPAL INVESTMENT STRATEGY Investing in government and corporate fixed
income securities with varying maturities

INVESTOR PROFILE Investors seeking current income and growth of
capital who are willing to accept the risks of
investing in fixed income securities

INVESTMENT STRATEGY OF THE INCOME PORTFOLIO

The Income Portfolio invests primarily in corporate and government fixed income
securities, including mortgage-backed securities. The Portfolio's Advisor will
generally select investment-grade fixed income securities and unrated securities
determined to be of comparable quality, but also may invest a limited percentage
of the Portfolio's assets in lower rated debt securities (or "junk bonds"). The
average maturity of the Portfolio's investments will vary depending on market
conditions, but will typically be between 5 and 20 years.

Due to its investment strategy, the Portfolio may buy and sell securities
frequently. This may result in higher transaction costs and additional capital
gains tax liabilities.

PRINCIPAL RISKS OF INVESTING IN THE INCOME PORTFOLIO

Page 27 of 97
<PAGE>

Junk bonds involve greater risks of default or downgrade and are more volatile
than investment-grade securities. Junk bonds involve a greater risk of price
declines than investment-grade securities due to actual or perceived changes in
an issuer's creditworthiness. In addition, issuers of junk bonds may be more
susceptible than other issuers to economic downturns. Junk bonds are subject to
the risk that the issuer may not be able to pay interest and ultimately to repay
principal upon maturity. Discontinuation of these payments could substantially
adversely affect the market value of the security.

PERFORMANCE INFORMATION

The performance of Class A and Class B Shares will differ due to differences in
expenses.

This bar chart shows changes in the performance of the Portfolio's Class A
Shares from year to year for five years. For the period from January 1, 1999, to
June 30, 1999, the Portfolio's Class A total return was ___%, and its Class B
total return was ___%.

The chart does not reflect sales charges. If sales charges had been reflected,
returns would be less than those shown below.
<TABLE>

<S> <C>
1994 X.XX%*
1995 X.XX%
1996 X.XX%
1997 X.XX%
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

* Performance Prior to April 12, 1994, is for the Portfolio's Institutional
Class Shares.

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 1998, TO THOSE OF THE LEHMAN AGGREGATE BOND INDEX.
<TABLE>
<CAPTION>

1 YEAR SINCE INCEPTION
- ---------------------------------------------------------------------------
<S> <C> <C>
INCOME PORTFOLIO CLASS A SHARES X.XX% X.XX%*
INCOME PORTFOLIO CLASS B SHARES X.XX%** X.XX%**
LEHMAN AGGREGATE BOND INDEX X.XX% X.XX%***
</TABLE>

Page 28 of 97
<PAGE>

* Class A Shares of the Income Portfolio were offered beginning April 12,
1994. The performance information shown prior to that date represents
performance of the Portfolio's Institutional Class Shares, which were
offered beginning July 16, 1993. The performance of the Institutional Class
Shares has been adjusted for the sales charge applicable to Class A Shares,
but does not reflect the Class A Shares' Rule 12b-1 fees and expenses. With
those adjustments, performance would be lower than that shown.

** Class B Shares of the Income Portfolio were offered beginning September 14,
1998. The performance information shown prior to that date represents
performance of the Portfolio's Institutional Class Shares, which were
offered beginning July 16, 1993. The performance of the Institutional Class
Shares has been adjusted for the maximum contingent deferred sales charge
applicable to Class B Shares in year one only, but does not reflect the
Class B Shares' Rule 12b-1 fees and expenses. With those adjustments,
performance would be lower than that shown.

*** Since July 31, 1993.

WHAT IS AN INDEX?

PORTFOLIO FEES AND EXPENSES

THIS TABLE DESCRIBES THE SHAREHOLDER FEES THAT YOU MAY PAY IF YOU PURCHASE OR
SELL PORTFOLIO SHARES. YOU WOULD PAY THESE FEES DIRECTLY FROM YOUR INVESTMENT IN
THE PORTFOLIO.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 4.50%* None
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) None 5.00%**
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and other
Distributions (as a percentage of offering price) None None
Redemption Fee (as a percentage of amount redeemed, if applicable) None None
Exchange Fee None None
</TABLE>

* This sales charge varies depending upon how much you invest. See "Purchasing
Portfolio Shares."

** A sales charge is imposed if you sell Class B Shares within six years of
your purchase. See "Selling Portfolio Shares."

Page 29 of 97
<PAGE>

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
<TABLE>
<CAPTION>

CLASS A SHARES CLASS B SHARES
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Advisory Fees .XX% .XX%
Distribution and Service (12b-1) Fees .XX% .XX%
Other Expenses .XX% .XX%
----- -----
Total Annual Portfolio Operating Expenses X.XX%* X.XX%*
</TABLE>

Income Portfolio -- Class A Shares ____%
Income Portfolio -- Class B Shares ____%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

IF YOU SELL YOUR SHARES AT THE END OF THE PERIOD:
<TABLE>
<CAPTION>

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
CLASS A SHARES $____ $____ $____ $____
CLASS B SHARES $____ $____ $____ $____
</TABLE>

IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD:
<TABLE>
<CAPTION>

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
CLASS A SHARES $____ $____ $____ $____
CLASS B SHARES $____ $____ $____ $____
</TABLE>

Page 30 of 97
<PAGE>

MARYLAND TAX-FREE PORTFOLIO

PORTFOLIO SUMMARY

INVESTMENT GOAL Current income exempt from Federal and Maryland
state and local income taxes

INVESTMENT FOCUS Maryland municipal securities

SHARE PRICE VOLATILITY Low to medium

PRINCIPAL INVESTMENT STRATEGY Investing in attractively-priced Maryland
municipal securities

INVESTOR PROFILE Investors seeking income exempt from Federal and
Maryland state and local income taxes

INVESTMENT STRATEGY OF THE MARYLAND TAX-FREE PORTFOLIO

The Maryland Tax-Free Portfolio invests primarily in municipal securities that
generate income exempt from Federal and Maryland state and local income taxes.
The principal issuers of these securities are state and local governments and
agencies located in Maryland, as well as the District of Columbia, Puerto Rico
and other U.S. territories and possessions. The Portfolio normally invests in
securities with long and intermediate maturities, and the Portfolio will
typically have an average maturity of seven to twelve years. However, the
Portfolio has no maturity restrictions, and the average maturity of the
Portfolio's investments will vary depending on market conditions.

In selecting securities, the Portfolio's Advisor considers the future direction
of interest rates and the shape of the yield curve, as well as credit quality
and sector allocation issues. Normally, the Portfolio's assets will be invested
in securities that are not subject to Federal taxes, including the Alternative
Minimum Tax.

PRINCIPAL RISKS OF INVESTING IN THE MARYLAND TAX-FREE PORTFOLIO

The prices of the Portfolio's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Portfolio's fixed income securities will decrease in value if
interest rates rise and vice versa, and the volatility of lower rated securities
is even greater than that of higher rated securities. Also, longer-term
securities are generally more volatile, so the average maturity or duration of
these securities affects risk.

Page 31 of 97
<PAGE>

The Portfolio's concentration of investments in securities of issuers located in
Maryland subjects the Portfolio to the effects of economic and government
policies of Maryland.

The Portfolio is non-diversified, which means that it may invest in the
securities of relatively few issuers. As a result, the Portfolio may be more
susceptible to a single adverse economic or regulatory occurrence affecting one
or more of these issuers, and may experience increased volatility due to its
investments in those securities.

PERFORMANCE INFORMATION

The chart does not reflect sales charges. If sales charges had been reflected,
returns would be less than those shown below.
<TABLE>

<S> <C>
1997 X.XX%
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 1998, TO THOSE OF THE LEHMAN 10 YEAR MUNICIPAL BOND INDEX AND
THE LEHMAN 7 YEAR MUNICIPAL BOND INDEX.
<TABLE>
<CAPTION>

1 YEAR SINCE INCEPTION
- ---------------------------------------------------------------------------------
<S> <C> <C>
MARYLAND TAX-FREE PORTFOLIO CLASS A SHARES X.XX% X.XX%*
MARYLAND TAX-FREE PORTFOLIO CLASS B SHARES X.XX% X.XX%**
LEHMAN 10 YEAR MUNICIPAL BOND INDEX X.XX% X.XX%***
LEHMAN 7 YEAR MUNICIPAL BOND INDEX X.XX% X.XX%***
</TABLE>

* Class A Shares of the Maryland Tax-Free Portfolio were offered beginning
January 2, 1997.
** Class B Shares of the Portfolio were offered beginning September 1, 1999.
The performance information shown prior to that date represents performance
of the Portfolio's Institutional Class Shares, which were offered beginning
November 15, 1996. The performance of the Institutional Class Shares has
been adjusted for the maximum contingent deferred sales charge applicable to
Class B Shares in year one only, but does not reflect the Class B Shares'
Rule 12b-1 fees and expenses. With those adjustments, performance would be
lower than that shown.
*** Since January 31, 1997.

WHAT IS AN INDEX?

Page 32 of 97
<PAGE>

Year Municipal Bond Index is a widely-recognized index of long-term
investment grade tax-exempt bonds. The index includes general obligation
bonds, revenue bonds, insured bonds and prefunded bonds with maturities
between 6 and 8 years.

PORTFOLIO FEES AND EXPENSES

THIS TABLE DESCRIBES THE SHAREHOLDER FEES THAT YOU MAY PAY IF YOU PURCHASE OR
SELL PORTFOLIO SHARES. YOU WOULD PAY THESE FEES DIRECTLY FROM YOUR INVESTMENT IN
THE PORTFOLIO.
<TABLE>
<CAPTION>

CLASS A SHARES CLASS B SHARES
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 4.50%* None
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) None 5.00%**
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and other
Distributions (as a percentage of offering price) None None
Redemption Fee (as a percentage of amount redeemed, if applicable) None None
Exchange Fee None None
</TABLE>

* This sales charge varies depending upon how much you invest. See
"Purchasing Portfolio Shares."
** This sales charge is imposed if you sell Class B Shares within six years of
your purchase. See "Selling Fund Shares."

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
<TABLE>
<CAPTION>

CLASS A SHARES CLASS B SHARES
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Advisory Fees .XX% .XX%
Distribution and Service (12b-1) Fees .XX% .XX%
Other Expenses .XX% .XX%
----- -----
Total Annual Portfolio Operating Expenses X.XX%** X.XX%*
</TABLE>

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

* Other Expenses for Class B Shares are estimated for the current fiscal year.
** The Portfolio's total actual annual operating expenses for the most recent
fiscal year were less than the amount shown above because the Advisor is waiving
a portion of the fees in order to keep total operating expenses at a specified
level. The Advisor may discontinue all or part of these waivers at any time.
With these fee waivers, the Portfolio's actual total operating expenses are as
follows:

Maryland Tax-Free Portfolio -- Class A Shares ____%
Maryland Tax-Free Portfolio -- Class B Shares ____%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

Page 33 of 97
<PAGE>

IF YOU SELL YOUR SHARES AT THE END OF THE PERIOD:
<TABLE>
<CAPTION>

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
CLASS A SHARES $____ $____ $____ $____
CLASS B SHARES $____ $____ $____ $____
</TABLE>

IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD:
<TABLE>
<CAPTION>

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
CLASS A SHARES $____ $____ $____ $____
CLASS B SHARES $____ $____ $____ $____
</TABLE>

Page 34 of 97
<PAGE>

PENNSYLVANIA TAX-FREE PORTFOLIO

PORTFOLIO SUMMARY

INVESTMENT GOAL Current income exempt from Federal and
Pennsylvania state income taxes

INVESTMENT FOCUS Pennsylvania municipal securities

SHARE PRICE VOLATILITY Low to medium

PRINCIPAL INVESTMENT STRATEGY Investing in attractively-priced Pennsylvania
municipal securities

INVESTOR PROFILE Investors seeking income exempt from Federal and
Pennsylvania state income taxes

INVESTMENT STRATEGY OF THE PENNSYLVANIA TAX-FREE PORTFOLIO

The Pennsylvania Tax-Free Portfolio invests primarily in municipal securities
that generate income exempt from Federal and Pennsylvania state income taxes.
The principal issuers of these securities are state and local governments and
agencies located in Pennsylvania, as well as the District of Columbia, Puerto
Rico and other U.S. territories and possessions. The Portfolio normally invests
in securities with long and intermediate maturities, and the Portfolio will
typically have an average maturity of seven to twelve years. However, the
Portfolio has no maturity restrictions, and the average maturity of the
Portfolio's investments will vary depending on market conditions.

PRINCIPAL RISKS OF INVESTING IN THE PENNSYLVANIA TAX-FREE PORTFOLIO

The prices of the Portfolio's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Portfolio's fixed income securities will decrease in value if
interest rates rise and vice versa, and the volatility of lower rated securities
is even greater than that of higher rated securities. Also, longer-term
securities are generally more volatile, so the average maturity or duration of
these securities affects risk.

Page 35 of 97
<PAGE>

The Portfolio's concentration of investments in securities of issuers located in
Pennsylvania subjects the Portfolio to the effects of economic and government
policies of Pennsylvania.

PERFORMANCE INFORMATION

This bar chart shows changes in the performance of the Portfolio's Institutional
Class Shares from year to year for two years. The Portfolio's Class A Shares
commenced operations on March 23, 1998, and do not have a full calendar year of
performance. For the period from January 1, 1999, to June 30, 1999, the
Portfolio's Class A total return was ___%.

The chart does not reflect sales charges. If sales charges had been reflected,
returns would be less than those shown below.
<TABLE>

<S> <C>
1997 X.XX%
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

1 YEAR SINCE INCEPTION
- -----------------------------------------------------------------------------------------
<S> <C> <C>
PENNSYLVANIA TAX-FREE PORTFOLIO CLASS A SHARES X.XX%* X.XX%*
PENNSYLVANIA TAX-FREE PORTFOLIO CLASS B SHARES X.XX%** X.XX%**
LEHMAN 10 YEAR MUNICIPAL BOND INDEX X.XX% X.XX%***
LEHMAN 7 YEAR MUNICIPAL BOND INDEX X.XX% X.XX%***
</TABLE>

* Class A Shares of the Pennsylvania Tax-Free Portfolio were offered
beginning March 23, 1998. The performance information shown prior to that
date represents performance of the Portfolio's Institutional Class
Shares. For Institutional Class Shares, performance presented prior to
March 22, 1998, reflects the performance of the Marketvest Pennsylvania
Intermediate Municipal Bond Fund shares, which were offered beginning
March 31, 1996. The performance of the Institutional Class Shares has
been adjusted for the sales charge applicable to Class A Shares, but does
not reflect the Class A Shares' Rule 12b-1 fees and expenses. With those
adjustments, performance would be lower than that shown.
** Class B Shares of the Portfolio were offered beginning
September 1, 1999. The performance information shown prior to that date
represents performance of the Portfolio's Institutional Class Shares,
which were offered beginning March 31, 1996. The performance for
the Institutional Class Shares has been adjusted for the maximum
contingent deferred sales charge applicable to Class B Shares in year
one only, but does not reflect the Class B Shares' Rule 12b-1 fees
and expenses. With those adjustments, performance would be lower
than that shown.
*** Since March 31, 1996.

Page 36 of 97
<PAGE>

WHAT IS AN INDEX?

PORTFOLIO FEES AND EXPENSES

THIS TABLE DESCRIBES THE SHAREHOLDER FEES THAT YOU MAY PAY IF YOU PURCHASE OR
SELL PORTFOLIO SHARES. YOU WOULD PAY THESE FEES DIRECTLY FROM YOUR INVESTMENT IN
THE PORTFOLIO.
<TABLE>
<CAPTION>

CLASS A SHARES CLASS B SHARES
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price)* 4.50% None
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) None None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and other
Distributions (as a percentage of offering price) None 5.00%**
Redemption Fee (as a percentage of amount redeemed, if applicable) None None
Exchange Fee None None
Maximum Account Fee None None
</TABLE>

Page 37 of 97
<PAGE>

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
<TABLE>
<CAPTION>

- --------------------------------------------------------------------------------
* Other Expenses for Class B Shares are estimated for the current fiscal year.
** The Portfolio's total actual annual operating expenses for the most recent
fiscal year were less than the amount shown above because the Advisor is waiving
a portion of the fees in order to keep total operating expenses at a specified
level. The Advisor may discontinue all or part of these waivers at any time.
With these fee waivers, the Portfolio's actual total operating expenses are as
follows:

Pennsylvania Tax-Free Portfolio -- Class A Shares ____%
Pennsylvania Tax-Free Portfolio -- Class B Shares ____%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

IF YOU SELL YOUR SHARES AT THE END OF THE PERIOD:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
CLASS A SHARES $____ $____ $____ $____
CLASS B SHARES $____ $____ $____ $____
</TABLE>

IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
CLASS A SHARES $____ $____ $____ $____
CLASS B SHARES $____ $____ $____ $____
</TABLE>

Page 38 of 97
<PAGE>

BALANCED PORTFOLIO

PORTFOLIO SUMMARY

INVESTMENT GOAL Long-term total return

INVESTMENT FOCUS Common stocks and fixed income securities

SHARE PRICE VOLATILITY Medium

PRINCIPAL INVESTMENT STRATEGY Investing in stocks and bonds to generate total
return

INVESTOR PROFILE Investors seeking total return who are unwilling
to tolerate the volatility of investing solely
in equity securities or who are seeking higher
income than is associated with an all equity
portfolio

INVESTMENT STRATEGY OF THE BALANCED PORTFOLIO

The Balanced Portfolio invests primarily in a diverse portfolio of common stocks
and investment-grade fixed income securities. The Portfolio's Advisor will
select common stocks of well-established companies of all capitalizations. The
Advisor will also purchase investment-grade fixed income securities with varying
maturities, including corporate and government securities and mortgage-backed
securities. The Advisor will adjust the Portfolio's asset mix based on its
interpretation of economic, financial and other market trends.

In selecting securities for the Portfolio, the Advisor attempts to maximize
total return by purchasing a combination of common stocks and fixed income
securities of U.S. and foreign issuers. The Advisor will also attempt to
minimize price declines during equity market downturns by reallocating assets to
fixed income securities. The average maturity of the Portfolio's fixed income
securities may vary depending on market conditions, but will typically have an
average duration of between four and six years.

Due to its investment strategy, the Portfolio may buy and sell securities
frequently. This may result in higher transaction costs and additional capital
gains tax liabilities.

PRINCIPAL RISKS OF INVESTING IN THE BALANCED PORTFOLIO

Since it purchases equity securities, the Portfolio is subject to the risk that
stock prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles, and the value of the Portfolio's equity
securities may fluctuate drastically from day to day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer a
decline in response. These factors contribute to price volatility, which is the
principal risk of investing in the Portfolio.

Page 39 of 97
<PAGE>

The prices of the Portfolio's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Portfolio's fixed income securities will decrease in value if
interest rates rise and vice versa, and the volatility of lower rated securities
is even greater than that of higher rated securities. Also, longer-term
securities are generally more volatile, so the average maturity or duration of
these securities affects risk.

The Portfolio is also subject to the risk that the Advisor's asset allocation
decisions will not anticipate market trends successfully. For example, investing
too heavily in common stocks during a stock market decline may result in a
failure to preserve capital. Conversely, investing too heavily in fixed income
securities during a period of stock market appreciation may result in lower
total return.

PERFORMANCE INFORMATION

The performance of Class A and Class B Shares will differ due to differences in
expenses.

This bar chart shows changes in the performance of the Portfolio's Class A
Shares from year to year for four years.

The chart does not reflect sales charges. If sales charges had been reflected,
returns would be less than those shown below.
<TABLE>

<S> <C>
1995 X.XX%
1996 X.XX%
1997 X.XX%
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 1998, TO THOSE OF THE STANDARD & POOR'S 500 COMPOSITE INDEX.
<TABLE>
<CAPTION>

1 YEAR SINCE INCEPTION
- -------------------------------------------------------------------------------------
<S> <C> <C>
BALANCED PORTFOLIO CLASS A SHARES X.XX% X.XX%*
BALANCED PORTFOLIO CLASS B SHARES X.XX% X.XX%**
STANDARD & POOR'S 500 COMPOSITE INDEX X.XX% X.XX%***
</TABLE>

* Since 3/9/94
** Since _____
*** Since _____

Page 40 of 97
<PAGE>

WHAT IS AN INDEX?

PORTFOLIO FEES AND EXPENSES

THIS TABLE DESCRIBES THE SHAREHOLDER FEES THAT YOU MAY PAY IF YOU PURCHASE OR
SELL PORTFOLIO SHARES. YOU WOULD PAY THESE FEES DIRECTLY FROM YOUR INVESTMENT IN
THE PORTFOLIO.
<TABLE>
<CAPTION>

CLASS A SHARES CLASS B SHARES
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 4.75%* None
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) None 5.00%**
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and other
Distributions (as a percentage of offering price) None None
Redemption Fee (as a percentage of amount redeemed, if applicable) None None
Exchange Fee None None
</TABLE>

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
<TABLE>
<CAPTION>

CLASS A SHARES CLASS B SHARES
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Advisory Fees .XX% .XX%
Distribution and Service (12b-1) Fees .XX% .XX%
Other Expenses .XX% .XX%
----- -----
Total Annual Portfolio Operating Expenses X.XX%* X.XX%*
</TABLE>

Balanced Portfolio -- Class A Shares ____%
Balanced Portfolio -- Class B Shares ____%

Page 41 of 97
<PAGE>

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

IF YOU SELL YOUR SHARES AT THE END OF THE PERIOD:
<TABLE>
<CAPTION>

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
CLASS A SHARES $____ $____ $____ $____
CLASS B SHARES $____ $____ $____ $____
</TABLE>

IF YOU DO NOT SELL YOUR SHARES AT THE END OF THE PERIOD:
<TABLE>
<CAPTION>

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
CLASS A SHARES $____ $____ $____ $____
CLASS B SHARES $____ $____ $____ $____
</TABLE>

Page 42 of 97
<PAGE>

EQUITY INCOME PORTFOLIO

PORTFOLIO SUMMARY

INVESTMENT GOAL Current income and growth of capital

INVESTMENT FOCUS Dividend-paying U.S. common stocks

SHARE PRICE VOLATILITY Medium to high

PRINCIPAL INVESTMENT STRATEGY Investing in stocks which have an above-average
dividend yield relative to the broad stock
market

INVESTOR PROFILE Investors seeking current income and growth of
capital who can tolerate the share price
volatility of equity investing

INVESTMENT STRATEGY OF THE EQUITY INCOME PORTFOLIO

The Equity Income Portfolio invests primarily in dividend-paying U.S. common
stocks and other equity securities. The Portfolio may, to a limited extent,
purchase convertible and preferred stocks and investment-grade fixed income
securities. The Portfolio's Advisor will build a broadly-diversified portfolio
of stocks of companies that have a dividend yield that is higher than the stocks
in the Standard & Poor's 500 Composite Stock Price Index.

In selecting securities for the Portfolio, the Advisor purchases stocks of
high-quality companies that have consistently paid dividends. The Advisor will
generally invest in stocks of companies that have strong balance sheets and
whose securities are attractively valued relative to comparable investments.

PRINCIPAL RISKS OF INVESTING IN THE EQUITY INCOME PORTFOLIO

PERFORMANCE INFORMATION

Page 43 of 97
<PAGE>

This bar chart shows the performance of the Portfolio's Class A Shares for the
most recent year. For the period from January 1, 1999, to June 30, 1999, the
Portfolio's Class A total return was _____%.

The chart does not reflect sales charges. If sales charges had been reflected,
returns would be less than those shown below.
<TABLE>

<S> <C>
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 1998, TO THOSE OF THE STANDARD & POOR'S 500 COMPOSITE INDEX.
<TABLE>
<CAPTION>

CLASS A SHARES 1 YEAR SINCE INCEPTION
- ---------------------------------------------------------------------------------
<S> <C> <C>
EQUITY INCOME PORTFOLIO X.XX% X.XX%*
STANDARD & POOR'S 500 COMPOSITE INDEX X.XX% X.XX%**
</TABLE>

* Class A Shares of the Equity Income Portfolio were offered beginning
May 9, 1997.
** Since November 30, 1996.

WHAT IS AN INDEX?

PORTFOLIO FEES AND EXPENSES

THIS TABLE DESCRIBES THE SHAREHOLDER FEES THAT YOU MAY PAY IF YOU PURCHASE OR
SELL PORTFOLIO SHARES. YOU WOULD PAY THESE FEES DIRECTLY FROM YOUR INVESTMENT IN
THE PORTFOLIO.
<TABLE>
<CAPTION>

CLASS A SHARES
- -----------------------------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 4.50%*
Maximum Deferred Sales Charge (Load)(as a percentage of net asset value) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and other
Distributions (as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>

* This sales charge varies depending upon how much you invest. See "Purchasing
Portfolio Shares."

Page 44 of 97
<PAGE>

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
<TABLE>
<CAPTION>

Equity Income Portfolio -- Class A Shares ____%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$---- $---- $---- $----
</TABLE>

Page 45 of 97
<PAGE>

EQUITY INDEX PORTFOLIO

PORTFOLIO SUMMARY

INVESTMENT GOAL Investment results that correspond to the
performance of the Standard & Poor's 500
Composite Stock Price Index (S&P 500)

INVESTMENT FOCUS U.S. common stocks

SHARE PRICE VOLATILITY Medium to high

PRINCIPAL INVESTMENT STRATEGY Attempts to replicate the performance of the
S&P 500

INVESTOR PROFILE Investors seeking growth of capital who can
tolerate the share price volatility of equity
investing

INVESTMENT STRATEGY OF THE EQUITY INDEX PORTFOLIO

The Equity Index Portfolio invests exclusively in securities listed in the S&P
500, which is comprised of 500 selected securities (mostly common stocks). The
Portfolio is managed by utilizing a computer program that identifies which
stocks should be purchased or sold in order to replicate, as closely as
practicable, the composition of the S&P 500. The Portfolio will approximate the
industry and sector weightings of the S&P 500 by matching the weightings of the
stocks included in the S&P 500.

Although the Portfolio will not replicate the performance of the S&P 500
precisely, it is anticipated that there will be a close correlation between the
Portfolio's performance and that of the S&P 500 in both rising and falling
markets. The size and timing of cash flows and the level of expenses are the
principal factors that contribute to the lack of precise correlation between the
S&P 500 and the Portfolio.

PRINCIPAL RISKS OF INVESTING IN THE EQUITY INDEX PORTFOLIO

The Advisor may not be able to match the performance of the Portfolio's
benchmark.

Page 46 of 97
<PAGE>

PERFORMANCE INFORMATION

This bar chart shows the performance of the Portfolio's Class A Shares for the
most recent year. For the period from January 1, 1999, to June 30, 1999, the
Portfolio's Class A total return was ___%

The chart does not reflect sales charges. If sales charges had been reflected,
returns would be less than those shown below.
<TABLE>

<S> <C>
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 1998, TO THOSE OF THE S&P 500 COMPOSITE STOCK PRICE INDEX.
<TABLE>
<CAPTION>

CLASS A SHARES 1 YEAR SINCE INCEPTION
- -----------------------------------------------------------------------------
<S> <C> <C>
EQUITY INDEX PORTFOLIO X.XX% X.XX%*
S&P 500 COMPOSITE STOCK PRICE INDEX X.XX% X.XX% **
</TABLE>

* Class A Shares of the Equity Index Portfolio were offered beginning
November 3, 1997.
** Since November 30, 1997.

WHAT IS AN INDEX?

PORTFOLIO FEES AND EXPENSES

THIS TABLE DESCRIBES THE SHAREHOLDER FEES THAT YOU MAY PAY IF YOU PURCHASE OR
SELL PORTFOLIO SHARES. YOU WOULD PAY THESE FEES DIRECTLY FROM YOUR INVESTMENT IN
THE PORTFOLIO.
<TABLE>
<CAPTION>

Page 47 of 97
<PAGE>

Maximum Sales Charge (Load) Imposed on Reinvested Dividends and other
Distributions (as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>

* This sales charge varies depending upon how much you invest. See "Purchasing
Portfolio Shares."

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
<TABLE>
<CAPTION>

Equity Index Portfolio -- Class A Shares ____%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$---- $---- $---- $----
</TABLE>

Page 48 of 97
<PAGE>

BLUE CHIP EQUITY PORTFOLIO

PORTFOLIO SUMMARY

INVESTMENT GOAL Long term capital appreciation

INVESTMENT FOCUS Large capitalization U.S. common stocks

SHARE PRICE VOLATILITY Medium to high

PRINCIPAL INVESTMENT STRATEGY Investing in stocks of established large
capitalization companies

INVESTOR PROFILE Investors seeking capital appreciation who can
tolerate the share price volatility of equity
investing

INVESTMENT STRATEGY OF THE BLUE CHIP EQUITY PORTFOLIO

The Portfolio invests primarily in common stocks and other equity securities of
established U.S. companies with market capitalizations in excess of $5 billion.
The Portfolio's Advisor generally purchases stocks of companies with at least
ten years of operating history that are recognized leaders in their respective
markets. The Portfolio also may, to a limited extent, purchase stocks of rapidly
growing companies in developing industries, convertible and preferred stocks,
and investment-grade fixed income securities.

In selecting investments for the Portfolio, the Advisor will purchase securities
of large companies with strong balance sheets and prospects for above-average
growth. The Advisor will also purchase securities of issuers based on their
current financial strength and their market valuations relative to their
competitors.

PRINCIPAL RISKS OF INVESTING IN THE BLUE CHIP EQUITY PORTFOLIO

PERFORMANCE INFORMATION

The performance of Class A and Class B Shares will differ due to differences in
expenses.

Page 49 of 97
<PAGE>

The chart does not reflect sales charges. If sales charges had been reflected,
returns would be less than those shown below.
<TABLE>

<S> <C>
1997 X.XX%
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 1998, TO THOSE OF THE STANDARD & POOR'S COMPOSITE STOCK PRICE
INDEX.
<TABLE>
<CAPTION>

1 YEAR SINCE INCEPTION
- -----------------------------------------------------------------------------------------
<S> <C> <C>
BLUE CHIP EQUITY PORTFOLIO CLASS A SHARES X.XX% X.XX%*
BLUE CHIP EQUITY PORTFOLIO CLASS B SHARES X.XX%** X.XX%**
STANDARD & POOR'S COMPOSITE STOCK PRICE INDEX X.XX% X.XX%***
</TABLE>

* Class A Shares of the Blue Chip Equity Portfolio were offered beginning May
31, 1996.
** Class B Shares of the Portfolio were offered beginning July 31, 1998. The
performance information shown prior to that date represents performance of the
Portfolio's Institutional Class Shares, which were offered beginning April 1,
1996. The performance of the Institutional Class Shares has been adjusted for
the maximum contingent deferred sales charge applicable to Class B Shares in
year one only, but does not reflect the Class B Shares' Rule 12b-1 fees and
expenses. With those adjustments, performance would be lower than that shown.
*** Since April 30, 1996.

WHAT IS AN INDEX?

PORTFOLIO FEES AND EXPENSES

THIS TABLE DESCRIBES THE SHAREHOLDER FEES THAT YOU MAY PAY IF YOU PURCHASE OR
SELL PORTFOLIO SHARES. YOU WOULD PAY THESE FEES DIRECTLY FROM YOUR INVESTMENT IN
THE PORTFOLIO.

Page 50 of 97
<PAGE>
<TABLE>
<CAPTION>

CLASS A SHARES CLASS B SHARES
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 4.75%* None
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) None 5.00%**
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and other
Distributions (as a percentage of offering price) None None
Redemption Fee (as a percentage of amount redeemed, if applicable) None None
Exchange Fee None None
Maximum Account Fee None None
</TABLE>

* This sales charge varies depending upon how much you invest. See "Purchasing
Portfolio Shares."

** A sales charge is imposed if you sell Class B Shares within six years of
your purchase. See "Selling Portfolio Shares."

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
<TABLE>
<CAPTION>

CLASS A SHARES CLASS B SHARES
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Advisory Fees .XX% .XX%
Distribution and Service (12b-1) Fees .XX% .XX%
Other Expenses .XX% .XX%
----- -----
Total Annual Portfolio Operating Expenses X.XX%* X.XX%*
</TABLE>

Blue Chip Equity Portfolio -- Class A Shares ____%
Blue Chip Equity Portfolio -- Class B Shares ____%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

IF YOU SELL YOUR SHARES AT THE END OF THE PERIOD:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
CLASS A SHARES $____ $____ $____ $____

Page 51 of 97
<PAGE>

CLASS B SHARES $____ $____ $____ $____
</TABLE>

Page 52 of 97
<PAGE>

MID-CAP EQUITY PORTFOLIO

PORTFOLIO SUMMARY

INVESTMENT GOAL Long-term capital appreciation

INVESTMENT FOCUS Medium capitalization U.S. common stocks

SHARE PRICE VOLATILITY High

PRINCIPAL INVESTMENT STRATEGY Investing in stocks of mid-sized companies that
have significant growth potential

INVESTOR PROFILE Investors seeking growth of capital who can
tolerate the share price volatility of mid-cap
equity investing

INVESTMENT STRATEGY OF THE MID-CAP EQUITY PORTFOLIO

The Mid-Cap Equity Portfolio invests primarily in common stocks and other equity
securities of U.S. issuers. The Portfolio's Advisor chooses stocks of companies
with market capitalizations of between $500 million and $8 billion that have
significant growth potential.

In selecting securities for the Portfolio, the Advisor purchases securities of
companies that have not reached full maturity, but which have above-average
sales and earnings growth. The Advisor also looks for medium-sized companies
with relatively low or unrecognized market valuations.

PRINCIPAL RISKS OF INVESTING IN THE MID-CAP EQUITY PORTFOLIO

The medium capitalization companies the Portfolio invests in may be more
vulnerable to adverse business or economic events than larger, more established
companies. In particular, these mid-sized companies may have limited product
lines, markets and financial resources, and may depend upon a relatively small
management group. Therefore, mid-cap stocks may be more volatile than those of
larger companies. These securities may be traded over the counter or listed on
an exchange and may or may not pay dividends.

Page 53 of 97
<PAGE>

PERFORMANCE INFORMATION

This bar chart shows changes in the performance of the Portfolio's Institutional
Class Shares from year to year for two years.

The chart does not reflect sales charges. If sales charges had been reflected,
returns would be less than those shown below.
<TABLE>

<S> <C>
1997 X.XX%
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 1998, TO THOSE OF THE S&P 400 MID-CAP INDEX.
<TABLE>
<CAPTION>

CLASS A SHARES 1 YEAR SINCE INCEPTION
- -----------------------------------------------------------------------------
<S> <C> <C>
MID-CAP EQUITY PORTFOLIO X.XX% X.XX%*
S&P 400 MID-CAP INDEX X.XX% X.XX%**
</TABLE>

* The performance information shown represents performance of the Mid-Cap
Equity Portfolio's Institutional Class Shares, which were offered
beginning November 15, 1996. The performance of the Institutional Class
Shares has been adjusted for the sales charge applicable to Class A
Shares, but does not reflect the Class A Shares' Rule 12b-1 fees and
expenses. With those adjustments, performance would be lower than that
shown.
** Since November 30, 1996.

WHAT IS AN INDEX?

PORTFOLIO FEES AND EXPENSES

THIS TABLE DESCRIBES THE SHAREHOLDER FEES THAT YOU MAY PAY IF YOU PURCHASE OR
SELL PORTFOLIO SHARES. YOU WOULD PAY THESE FEES DIRECTLY FROM YOUR INVESTMENT IN
THE PORTFOLIO.

Page 54 of 97
<PAGE>

CLASS A SHARES
- -----------------------------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 4.75%*
Maximum Deferred Sales Charge (Load)(as a percentage of net asset value) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and other
Distributions (as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>

* This sales charge varies depending upon how much you invest. See "Purchasing
Portfolio Shares."

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
<TABLE>
<CAPTION>

Mid-Cap Equity Portfolio -- Class A Shares ____%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$---- $---- $---- $----
</TABLE>

Page 55 of 97
<PAGE>

VALUE EQUITY PORTFOLIO

INVESTMENT GOAL Growth of principal

INVESTMENT FOCUS U.S. common stocks

SHARE PRICE VOLATILITY Medium to high

PRINCIPAL INVESTMENT STRATEGY Investing in undervalued stocks of U.S.
companies

INVESTOR PROFILE Investors seeking long-term growth of principal
who can tolerate the share price volatility of
equity investing

INVESTMENT STRATEGY OF THE VALUE EQUITY PORTFOLIO

The Value Equity Portfolio invests primarily in a diversified portfolio of
common stocks and other equity securities of U.S. issuers. The Portfolio's
Advisor purchases stocks whose prices appear low when compared to measures such
as present and/or future earnings and cash flows, as well as other out-of-favor
stocks that the Advisor believes are undervalued by the market.

In selecting investments for the Portfolio, the Advisor emphasizes stocks with
higher-than-average sales growth, higher-than-average return on equity,
above-average free cash flow, and return on invested capital that exceeds the
cost of capital. The Advisor will also weigh corporate management's ability to
adjust to the dynamics of rapidly-changing economic and business conditions. The
Advisor's investment approach is based on the conviction that, over the long
term, broad-based economic growth will be reflected in the growth of the
revenues and earnings of publicly-held corporations.

PRINCIPAL RISKS OF INVESTING IN THE VALUE EQUITY PORTFOLIO

PERFORMANCE INFORMATION

The performance of Class A and Class B Shares will differ due to differences
in expenses.

Page 56 of 97
<PAGE>

commenced operations on September 14, 1998, and do not have a full calendar year
of performance. For the period from January 1, 1999, to June 30, 1999, the
Portfolio's Class A total return was ___%, and its Class B total return was
___%.

The chart does not reflect sales charges. If sales charges had been reflected,
returns would be less than those shown below.
<TABLE>

<S> <C>
1997 X.XX%
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 1998, TO THOSE OF THE S&P 500 VALUE INDEX.
<TABLE>
<CAPTION>

1 YEAR SINCE INCEPTION
- -----------------------------------------------------------------------------------------
<S> <C> <C>
VALUE EQUITY PORTFOLIO CLASS A SHARES X.XX% X.XX%*
VALUE EQUITY PORTFOLIO CLASS B SHARES X.XX%** X.XX%**
S&P 500 VALUE INDEX X.XX% X.XX%***
</TABLE>

* Class A Shares of the Value Equity Portfolio were offered beginning April
1, 1998. The performance information shown prior to that date represents
performance of the Portfolio's Institutional Class Shares. For
Institutional Class Shares, performance presented prior to March 29,
1998, reflects the performance of the Marketvest Equity Fund shares,
which were offered beginning March 31, 1996. The performance of the
Institutional Class Shares has been adjusted for the sales charge
applicable to Class A Shares, but does not reflect the Class A Shares'
Rule 12b-1 fees and expenses. With those adjustments, performance would
be lower than that shown.
** Class B Shares of the Portfolio were offered beginning September 14,
1998. The performance information shown prior to that date represents
performance of the Portfolio's Institutional Class Shares. For
Institutional Class Shares, performance presented prior to March 29,
1998, reflects the performance of the Marketvest Equity Fund shares,
which were offered beginning March 31, 1996. The performance of the
Institutional Class Shares has been adjusted for the maximum contingent
deferred sales charge applicable to Class B Shares in year one only, but
does not reflect the Class B Shares' Rule 12b-1 fees and expenses. With
those adjustments, performance would be lower than that shown.
*** Since April 30, 1996.

WHAT IS AN INDEX?

Page 57 of 97
<PAGE>

PORTFOLIO FEES AND EXPENSES

THIS TABLE DESCRIBES THE SHAREHOLDER FEES THAT YOU MAY PAY IF YOU PURCHASE OR
SELL PORTFOLIO SHARES. YOU WOULD PAY THESE FEES DIRECTLY FROM YOUR INVESTMENT IN
THE PORTFOLIO.
<TABLE>
<CAPTION>

CLASS A SHARES CLASS B SHARES
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 4.75%* None
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) None 5.00%**
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and other
Distributions (as a percentage of offering price) None None
Redemption Fee (as a percentage of amount redeemed, if applicable) None None
Exchange Fee None None
</TABLE>

* This sales charge varies depending upon how much you invest. See "Purchasing
Portfolio Shares."

** A sales charge is imposed if you sell Class B Shares within six years of
your purchase. See "Selling Portfolio Shares."

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
<TABLE>
<CAPTION>

Value Equity Portfolio -- Class A Shares ____%
Value Equity Portfolio -- Class B Shares ____%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

Page 58 of 97
<PAGE>

Page 59 of 97
<PAGE>

CAPITAL GROWTH PORTFOLIO

PORTFOLIO SUMMARY

INVESTMENT GOAL Long-term capital appreciation

INVESTMENT FOCUS U.S. common stocks of various market
capitalizations

SHARE PRICE VOLATILITY Medium to high

PRINCIPAL INVESTMENT STRATEGY Investing in stocks that offer above-average
growth potential

INVESTOR PROFILE Investors seeking capital appreciation who can
tolerate the share price volatility of equity
investing

INVESTMENT STRATEGY OF THE CAPITAL GROWTH PORTFOLIO

The Capital Growth Portfolio invests primarily in common stocks and other equity
securities, including preferred securities. The Portfolio's Advisor will build a
broadly-diversified portfolio of stocks with above average capital growth
potential.

In selecting securities for the Portfolio, the Advisor purchases securities of
well-known, established companies and smaller, less-well-known companies. In
evaluating securities for the Portfolio, the Advisor considers each company's
current financial strength, as well as its earnings momentum and the relative
valuation of its stock.

Due to its investment strategy, the Portfolio may buy and sell securities
frequently. This may result in higher transaction costs and additional capital
gains tax liabilities.

PRINCIPAL RISKS OF INVESTING IN THE CAPITAL GROWTH PORTFOLIO

The smaller capitalization companies the Portfolio invests in may be more
vulnerable to adverse business or economic events than larger, more established
companies. In particular, these small companies may have limited product lines,
markets and financial resources, and may depend upon a relatively small
management group. Therefore, small cap stocks may be more volatile than those of
larger companies. These securities may be traded over the counter or listed on
an exchange and may or may not pay dividends.

Page 60 of 97
<PAGE>

PERFORMANCE INFORMATION

The performance of Class A and Class B Shares will differ due to differences in
expenses.

The chart does not reflect sales charges. If sales charges had been reflected,
returns would be less than those shown below.
<TABLE>

<S> <C>
1994 X.XX%
1995 X.XX%
1996 X.XX%
1997 X.XX%
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 1998, TO THOSE OF THE STANDARD & POOR'S 500 COMPOSITE INDEX.
<TABLE>
<CAPTION>

1 YEAR SINCE INCEPTION
- ---------------------------------------------------------------------------------
<S> <C> <C>
CAPITAL GROWTH PORTFOLIO CLASS A SHARES X.XX% X.XX%*
CAPITAL GROWTH PORTFOLIO CLASS B SHARES X.XX%** X.XX%**
STANDARD & POOR'S 500 COMPOSITE INDEX X.XX% X.XX%***
</TABLE>

* Class A Shares of the Capital Growth Portfolio were offered beginning March 9,
1994.
** Class B Shares of the Capital Growth Portfolio were offered beginning
September 14, 1998. The performance information shown prior to that date
represents performance of the Portfolio's Institutional Class Shares, which were
offered beginning July 16, 1993. The performance of the Institutional Class
Shares has been adjusted for the maximum contingent deferred sales charge
applicable to Class B Shares in year one only, but does not reflect the
Class B Shares' Rule 12b-1 fees and expenses. With those adjustments,
performance would be lower than that shown.
*** Since July 31, 1993.

WHAT IS AN INDEX?

Page 61 of 97
<PAGE>

lower market value stocks) index of 500 stocks designed to mimic the overall
equity market's industry weightings.

Page 62 of 97
<PAGE>

PORTFOLIO FEES AND EXPENSES

THIS TABLE DESCRIBES THE SHAREHOLDER FEES THAT YOU MAY PAY IF YOU PURCHASE OR
SELL PORTFOLIO SHARES. YOU WOULD PAY THESE FEES DIRECTLY FROM YOUR INVESTMENT IN
THE PORTFOLIO.
<TABLE>
<CAPTION>

CLASS A SHARES CLASS B SHARES
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 4.75%* None
Maximum Deferred Sales Charge (Load) (as a percentage of net asset value) None 5.00%**
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and other
Distributions (as a percentage of offering price) None None
Redemption Fee (as a percentage of amount redeemed, if applicable) None None
Exchange Fee None None
</TABLE>

* This sales charge varies depending upon how much you invest. See "Purchasing
Portfolio Shares."
** A sales charge is imposed if you sell Class B Shares within six years of
your purchase. See "Selling Portfolio Shares."

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
<TABLE>
<CAPTION>

Capital Growth Portfolio -- Class A Shares ____%
Capital Growth Portfolio -- Class B Shares ____%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

Page 63 of 97
<PAGE>

Page 64 of 97
<PAGE>

SMALL-CAP EQUITY PORTFOLIO

PORTFOLIO SUMMARY

INVESTMENT GOAL Long-term capital appreciation

INVESTMENT FOCUS Common stock of small capitalization U.S.
issuers

SHARE PRICE VOLATILITY High

PRINCIPAL INVESTMENT STRATEGY Investing in stocks of smaller companies with
long-term earnings growth potential

INVESTOR PROFILE Investors seeking long-term capital appreciation
who can tolerate the share price volatility of
small cap equity investing

INVESTMENT STRATEGY OF THE SMALL-CAP EQUITY PORTFOLIO

The Small-Cap Equity Portfolio invests primarily in common stocks and other
equity securities of U.S. issuers. The Portfolio's Advisor purchases stocks of
smaller companies that are in the early stages of development and which the
Advisor believes have the potential to achieve substantial long-term earnings
growth. Generally, the Portfolio invests in companies with market
capitalizations of $2.0 billion or less at the time of investment. The Portfolio
may also invest in securities rated below investment-grade ("junk bonds") and in
foreign securities and currency contracts.

In selecting investments for the Portfolio, the Advisor purchases securities of
small cap U.S. companies with strong earnings growth potential. The Advisor but
may also purchase stocks of companies that are experiencing unusual,
non-repetitive "special" situations (such as mergers or spinoffs) or that have
valuable fixed assets whose value is not fully reflected in a stock's price. The
Advisor may also purchase stocks of smaller companies that it believes are
undervalued relative to their assets, earnings or growth potential.

Due to its investment strategy, the Portfolio may buy and sell securities
frequently. This may result in higher transaction costs and additional capital
gains tax liabilities

PRINCIPAL RISKS OF INVESTING IN THE SMALL-CAP EQUITY PORTFOLIO

Page 65 of 97
<PAGE>

PERFORMANCE INFORMATION

The chart does not reflect sales charges. If sales charges had been reflected,
returns would be less than those shown below.
<TABLE>

<S> <C>
1996 X.XX%
1997 X.XX%
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 1998, TO THOSE OF THE RUSSELL 2000 INDEX AND THE RUSSELL 2000
GROWTH INDEX.
<TABLE>
<CAPTION>

CLASS A SHARES 1 YEAR SINCE INCEPTION
- ---------------------------------------------------------------------------
<S> <C> <C>
SMALL-CAP EQUITY PORTFOLIO X.XX% X.XX%*
RUSSELL 2000 INDEX X.XX% X.XX%**
RUSSELL 2000 GROWTH INDEX X.XX% X.XX%**
</TABLE>

* Class A Shares of the Small-Cap Equity Portfolio were offered beginning May
16, 1996.
** Since May 31, 1996.

WHAT IS AN INDEX?

Page 66 of 97
<PAGE>

those with smaller market capitilizations) index of the 2000 largest U.S.
companies with lower growth rates and price-to book ratios.

PORTFOLIO FEES AND EXPENSES

THIS TABLE DESCRIBES THE SHAREHOLDER FEES THAT YOU MAY PAY IF YOU PURCHASE OR
SELL PORTFOLIO SHARES. YOU WOULD PAY THESE FEES DIRECTLY FROM YOUR INVESTMENT IN
THE PORTFOLIO.
<TABLE>
<CAPTION>

CLASS A SHARES
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 4.75%*
Maximum Deferred Sales Charge (Load)(as a percentage of net asset value) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and other
Distributions (as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>

* This sales charge varies depending upon how much you invest. See "Purchasing
Portfolio Shares."

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
<TABLE>
<CAPTION>

Small-Cap Equity Portfolio -- Class A Shares ____%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

Page 67 of 97
<PAGE>

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$---- $---- $---- $----
</TABLE>

Page 68 of 97
<PAGE>

INTERNATIONAL EQUITY SELECTION PORTFOLIO

PORTFOLIO SUMMARY

INVESTMENT GOAL Long-term capital appreciation

INVESTMENT FOCUS Investment companies that invest in equity
securities of non-U.S. issuers

SHARE PRICE VOLATILITY High

PRINCIPAL INVESTMENT STRATEGY Investing in investment companies that purchase
stocks of companies located outside the U.S.

INVESTOR PROFILE Investors seeking capital appreciation who want
to diversify their portfolio by investing
overseas and who can tolerate the risks of
international investing

INVESTMENT STRATEGY OF THE INTERNATIONAL EQUITY SELECTION PORTFOLIO

The International Equity Selection Portfolio invests primarily in shares of
mutual funds that purchase common stocks and other equity securities of
companies located outside the United States. The Portfolio's Advisor will
attempt to build a managed portfolio of international equity funds which
presents the greatest long-term capital growth potential by investing in various
funds managed by different Advisors. In addition to investing in funds that
purchase securities of companies in developed foreign countries, the Portfolio
may also purchase shares of funds that invest in emerging market countries and
individual country funds and, to a limited extent, in global funds and domestic
equity and debt funds.

In selecting funds for the Portfolio to purchase, the Advisor attempts to
develop a portfolio offering investors exposure to different global markets and
equity investment styles. To achieve this diversity, the Advisor selects
international funds based on screening criteria such as fund investment styles,
investment objectives and policies, and fund management methodology and
consistency. The Advisor also considers past performance, rankings by
independent third parties, fund size, historic volatility, manager tenure, and
operating and transaction expenses, as well as geographic diversity and current
global economic conditions.

PRINCIPAL RISKS OF INVESTING IN THE INTERNATIONAL EQUITY SELECTION PORTFOLIO

Since it purchases shares of funds that buy equity securities, the Portfolio is
subject to the risk that stock prices will decline over short or extended
periods of time. Historically, the equity markets have moved in cycles, and the
value of the equity securities that the Portfolio owns may fluctuate drastically
from day to day. Individual companies may report poor results or be negatively
affected by industry and/or economic trends and developments. The prices of
securities issued by such companies may suffer a decline in response. These
factors contribute to price volatility, which is the principal risk of investing
in the Portfolio.

Page 69 of 97
<PAGE>

Investing in foreign countries poses additional risks since political and
economic events unique to a country or region will affect those markets and
their issuers. These events will not necessarily affect the U.S. economy or
similar issuers located in the United States. In addition, investments in
foreign countries are generally denominated in a foreign currency. As a result,
changes in the value of those currencies compared to the U.S. dollar may affect
(positively or negatively) the value of a Portfolio's investments in fund
shares. These currency movements may happen separately from and in response to
events that do not otherwise affect the value of the security in the issuer's
home country. These various risks will be even greater for investments in
emerging market countries since political turmoil and rapid changes in economic
conditions are more likely to occur in these countries.

Since the Portfolio purchases shares of other funds, shareholders will bear the
costs of the underlying funds and the costs of the Portfolio.

PERFORMANCE INFORMATION

This bar chart shows changes in the performance of the Portfolio's Institutional
Class Shares from year to year for seven years. The Portfolio's Class A Shares
commenced operations on April 1, 1998, and do not have a full calendar year of
performance. For the period from January 1, 1999, to June 30, 1999, the
Portfolio's Class A total return was ___%.

The chart does not reflect sales charges. If sales charges had been reflected,
returns would be less than those shown below.
<TABLE>

<S> <C>
1992 X.XX%
1993 X.XX%
1994 X.XX%
1995 X.XX%
1996 X.XX%
1997 X.XX%
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIODS
ENDED DECEMBER 31, 1998, TO THOSE OF THE MORGAN STANLEY MSCI EAFE INDEX.
<TABLE>
<CAPTION>

CLASS A SHARES 1 YEAR SINCE INCEPTION
- -----------------------------------------------------------------------------------------
<S> <C> <C>
INTERNATIONAL EQUITY SELECTION PORTFOLIO X.XX%* X.XX%*
MSCI EAFE INDEX X.XX% X.XX%**
</TABLE>

Page 70 of 97
<PAGE>

* Class A Shares of the International Equity Selection Portfolio were offered
beginning April 1, 1998. The performance information shown prior to that
date represents performance of the Portfolio's Institutional Class Shares.
For Institutional Class Shares, performance presented prior to March 29,
1998, reflects the performance of the Marketvest International Equity Fund
shares, which is the successor to a collective trust fund. The performance
information shown includes performance of the collective trust fund for the
period from May 31, 1991 (the inception date of the collective trust fund),
to March 31, 1997, when the Portfolio's registration statement became
effective. The performance of the Institutional Class Shares has been
adjusted for the sales charge applicable to Class A Shares, but does not
reflect the Class A Shares' Rule 12b-1 fees and expenses. With those
adjustments, performance would be lower than that shown.
** Since May 31, 1991.

WHAT IS AN INDEX?

PORTFOLIO FEES AND EXPENSES

THIS TABLE DESCRIBES THE SHAREHOLDER FEES THAT YOU MAY PAY IF YOU PURCHASE OR
SELL PORTFOLIO SHARES. YOU WOULD PAY THESE FEES DIRECTLY FROM YOUR INVESTMENT IN
THE PORTFOLIO.
<TABLE>
<CAPTION>

CLASS A SHARES
- -----------------------------------------------------------------------------------------------------
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 1.50%*
Maximum Deferred Sales Charge (Load)(as a percentage of net asset value) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends and other
Distributions (as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>

* This sales charge varies depending upon how much you invest. See "Purchasing
Portfolio Shares."

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)
<TABLE>
<CAPTION>

Page 71 of 97
<PAGE>

International Equity Selection Portfolio -- Class A Shares ____%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

The expenses set forth above do not reflect the costs of the underlying funds
that are borne by the Portfolio and its shareholders.

EXAMPLE

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$---- $---- $---- $----
</TABLE>

Page 72 of 97
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
RISKS PORTFOLIOS AFFECTED BY THE RISKS

EQUITY RISK-- Equity securities include publicly and privately Balanced Portfolio
issued equity securities, common and preferred stocks, warrants, Equity Income Portfolio
rights to subscribe to common stock and convertible securities, as Equity Index Portfolio
well as instruments that attempt to track the price movement of Blue Chip Equity Portfolio
equity indices. Investments in equity securities and equity Mid-Cap Equity Portfolio
derivatives in general are subject to market risks that may cause Value Equity Portfolio
their prices to fluctuate over time. The value of securities Capital Growth Portfolio
convertible into equity securities, such as warrants or Small-Cap Equity Portfolio
convertible debt, is also affected by prevailing interest rates, International Equity Selection Portfolio
the credit quality of the issuer and any call provision.
Fluctuations in the value of equity securities in which a mutual
fund invests will cause a Portfolio's net asset value to
fluctuate. An investment in a portfolio of equity securities may
be more suitable for long-term investors who can bear the risk of
these share price fluctuations.

FIXED INCOME RISK-- The market values of fixed income investments Short-Term Treasury Portfolio
change in response to interest rate changes and other factors. Intermediate Fixed Income Portfolio
During periods of falling interest rates, the values of U.S. Government Bond Portfolio
outstanding fixed income securities generally rise. Moreover, Income Portfolio
while securities with longer maturities tend to produce higher Maryland Tax-Free Portfolio
yields, the prices of longer maturity securities are also subject Pennsylvania Tax-Free Portfolio
to greater market fluctuations as a result of changes in interest Balanced Portfolio
rates. In addition to these fundamental risks, different types of
fixed income securities may be subject to the following additional
risks:

CALL RISK -- During periods of falling interest rates, Intermediate Fixed Income Portfolio
certain debt obligations with high interest rates may be U.S. Government Bond Portfolio
prepaid (or "called") by the issuer prior to maturity. Income Portfolio
This may cause a Portfolio's average weighted maturity to Maryland Tax-Free Portfolio
fluctuate, and may require a Portfolio to invest the Pennsylvania Tax-Free Portfolio
resulting proceeds at lower interest rates. Balanced Portfolio

CREDIT RISK -- The possibility that an issuer will be Intermediate Fixed Income Portfolio
unable to make timely payments of either principal or U.S. Government Bond Portfolio
interest. Income Portfolio
Maryland Tax-Free Portfolio
Pennsylvania Tax-Free Portfolio
Balanced Portfolio

Page 73 of 97
<PAGE>

EVENT RISK -- Securities may suffer declines in credit Intermediate Fixed Income Portfolio
quality and market value due to issuer restructurings or Income Portfolio
other factors. This risk should be reduced because of a Maryland Tax-Free Portfolio
Portfolio's multiple holdings. Pennsylvania Tax-Free Portfolio
Balanced Portfolio

MUNICIPAL ISSUER RISK-- There may be economic or Tax-Free Money Market Portfolio
political changes that impact the ability of municipal Maryland Tax-Free Portfolio
issuers to repay principal and to make interest payments Pennsylvania Tax-Free Portfolio
on municipal securities. Changes to the financial
condition or credit rating of municipal issuers may also
adversely affect the value of a Portfolio's municipal
securities. Constitutional or legislative limits on
borrowing by municipal issuers may result in reduced
supplies of municipal securities. Moreover, certain
municipal securities are backed only by a municipal
issuer's ability to levy and collect taxes.

In addition, a Portfolio's concentration of investments Maryland Tax-Free Portfolio
in issuers located in a single state makes the Portfolio Pennsylvania Tax-Free Portfolio
more susceptible to adverse political or economic
developments affecting that state. Such a Portfolio also
may be riskier than mutual funds that buy securities of
issuers in numerous states.

Page 74 of 97
<PAGE>

FOREIGN SECURITY RISKS-- Investments in securities of foreign International Equity Selection Portfolio
companies or governments can be more volatile than investments in Small-Cap Equity Portfolio
U.S. companies or governments. Diplomatic, political, or economic
developments, including nationalization or appropriation, could
affect investments in foreign countries. Foreign securities
markets generally have less trading volume and less liquidity than
U.S. markets. In addition, the value of securities denominated in
foreign currencies, and of dividends from such securities, can
change significantly when foreign currencies strengthen or weaken
relative to the U.S. dollar. Foreign companies or governments
generally are not subject to uniform accounting, auditing, and
financial reporting standards comparable to those applicable to
U.S. companies or governments. Transaction costs are generally
higher than those in the U.S. and expenses for custodial
arrangements of foreign securities may be somewhat greater than
typical expenses for custodial arrangements of similar U.S.
securities. Some foreign governments levy withholding taxes
against dividend and interest income. Although in some countries
a portion of these taxes are recoverable, the non-recovered
portion will reduce the income received from the securities
comprising the Portfolio.

In addition to these risks, certain foreign securities may be
subject to the following additional risks factors:

CURRENCY RISK -- Investments in foreign securities International Equity Selection Portfolio
denominated in foreign currencies involve additional Small-Cap Equity Portfolio
risks, including:

- The value of a Portfolio's assets measured in U.S.
dollars may be affected by changes in currency rates and
in exchange control regulations.
- A Portfolio may incur substantial costs in connection
with conversions between various currencies.
- A Portfolio may be unable to hedge against possible
variations in foreign exchange rates or to hedge a
specific security transaction or portfolio position.
- Only a limited market currently exists for hedging
transactions relating to currencies in certain
emerging markets.

Page 75 of 97
<PAGE>

MORTGAGE-BACKED SECURITIES-- Mortgage-backed securities are fixed Intermediate Fixed Income Portfolio
income securities representing an interest in a pool of underlying U.S. Government Bond Portfolio
mortgage loans. They are sensitive to changes in interest rates, Income Portfolio
but may respond to these changes differently from other fixed Balanced Portfolio
income securities due to the possibility of prepayment of the
underlying mortgage loans. As a result, it may not be possible to
determine in advance the actual maturity date or average life of a
mortgage-backed security. Rising interest rates tend to
discourage refinancings, with the result that the average life and
volatility of the security will increase, exacerbating its
decrease in market price. When interest rates fall, however,
mortgage-backed securities may not gain as much in market value
because of the expectation of additional mortgage prepayments that
must be reinvested at lower interest rates. Prepayment risk may
make it difficult to calculate the average maturity of a portfolio
of mortgage-backed securities and, therefore, to assess the
volatility risk of that portfolio.

TRACKING ERROR RISK-- Factors such as Portfolio expenses, Equity Index Portfolio
imperfect correlation between the Portfolio's investments and
those of their benchmarks, rounding of share prices, changes to
the benchmark, regulatory policies, and leverage, may affect their
ability to achieve perfect correlation. The magnitude of any
tracking error may be affected by a higher portfolio turnover
rate. Because an index is just a composite of the prices of the
securities it represents rather than an actual portfolio of those
securities, an index will have no expenses. As a result, a
Portfolio, which will have expenses such as custody, management
fees and other operational costs, and brokerage expenses, may not
achieve its investment objective of accurately correlating to an
index.

Page 76 of 97
<PAGE>

Furthermore, many foreign countries are not as prepared as the International Equity Selection Portfolio
U.S. for the year 2000 transition. As a result, computer Small-Cap Equity Portfolio
difficulties in foreign markets and with foreign institutions
as a result of the year 2000 may add to the possibility of losses
to the Portfolio and its shareholders.
</TABLE>

Page 77 of 97
<PAGE>

EACH PORTFOLIO'S OTHER INVESTMENTS

This prospectus describes the Portfolios' primary strategies, and the Portfolios
will normally invest at least 65% of their assets in the types of securities
described in this prospectus. However, each Portfolio also may invest in other
securities, use other strategies and engage in other investment practices. These
investments and strategies, as well as those described in this prospectus, are
described in detail in our Statement of Additional Information. Of course, there
is no guarantee that any Portfolio will achieve its investment goal.

The investments and strategies described in this prospectus are those that we
use under normal conditions. During unusual economic or market conditions, or
for temporary defensive or liquidity purposes, each Portfolio may invest up to
100% of its assets in cash and short-term securities that may not ordinarily be
consistent with a Portfolio's objectives. A Portfolio will do so only if the
Advisor believes that the risk of loss outweighs the opportunity for capital
gains or higher income.

INVESTMENT ADVISOR

The Advisor makes investment decisions for the Portfolios and continuously
reviews, supervises and administers the Portfolios' respective investment
programs. The Board of Trustees of ARK Funds supervises the Advisor and
establishes policies that the Advisor must follow in its management activities.

Allied Investment Advisors, Inc. (AIA), an affiliate of Allfirst Financial, Inc.
(Allfirst), serves as the Advisor to the Portfolios. As of May 31, 1999, AIA had
approximately $ _______________ in assets under management. For the fiscal
period ended April 30, 1999, AIA received advisory fees of:
<TABLE>
<S> <C>
U.S. TREASURY MONEY MARKET PORTFOLIO [VAR:Advisor1.Portfolio1.Fees]%
U.S. GOVERNMENT MONEY MARKET PORTFOLIO [VAR:Advisor1.Portfolio2.Fees]%
MONEY MARKET PORTFOLIO [VAR:Advisor1.Portfolio3.Fees]%
TAX-FREE MONEY MARKET PORTFOLIO [VAR:Advisor1.Portfolio4.Fees]%
SHORT-TERM TREASURY PORTFOLIO [VAR:Advisor1.Portfolio5.Fees]%
INTERMEDIATE FIXED INCOME PORTFOLIO [VAR:Advisor1.Portfolio7.Fees]%
U.S. GOVERNMENT BOND PORTFOLIO [VAR:Advisor1.Portfolio6.Fees]%
INCOME PORTFOLIO [VAR:Advisor1.Portfolio8.Fees]%
MARYLAND TAX-FREE PORTFOLIO [VAR:Advisor1.Portfolio9.Fees]%
PENNSYLVANIA TAX-FREE PORTFOLIO [VAR:Advisor1.Portfolio10.Fees]%
BALANCED PORTFOLIO [VAR:Advisor1.Portfolio11.Fees]%
EQUITY INCOME PORTFOLIO [VAR:Advisor1.Portfolio12.Fees]%
EQUITY INDEX PORTFOLIO [VAR:Advisor1.Portfolio13.Fees]%
BLUE CHIP EQUITY PORTFOLIO [VAR:Advisor1.Portfolio14.Fees]%
MID-CAP EQUITY PORTFOLIO [VAR:Advisor1.Portfolio15.Fees]%
VALUE EQUITY PORTFOLIO [VAR:Advisor1.Portfolio16.Fees]%
CAPITAL GROWTH PORTFOLIO [VAR:Advisor1.Portfolio17.Fees]%
SMALL-CAP EQUITY PORTFOLIO [VAR:Advisor1.Portfolio18.Fees]%
INTERNATIONAL EQUITY SELECTION PORTFOLIO [VAR:Advisor1.Portfolio19.Fees]%
</TABLE>

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<PAGE>

James M. Hannan is a Principal of AIA and manager of the U.S. Treasury Money
Market, U.S. Government Money Market, Money Market, and Tax-Free Money Market
Portfolios and the Short-Term Treasury Portfolio. He is responsible for several
separately managed institutional portfolios which he has managed since 1992. He
has served as a Vice President of First National since 1987. Prior to 1987 he
served as the Treasurer for the City of Hyattsville, Maryland.

Susan S. Schnaars is a Principal of AIA and manager of the Intermediate Fixed
Income Portfolio, Maryland Tax-Free Portfolio and Pennsylvania Tax-Free
Portfolio. Ms. Schnaars is also responsible for managing several 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, and Director of Fixed Income
Investments for, AIA and manager of the Income Portfolio, co-manager, with Ms.
Volk, of the U.S. Government Bond Portfolio, and co-manager, with Mr. Stith, of
the Short-Term Bond Portfolio. Prior to joining First National in January 1996,
Mr. Gradow was responsible for the management of $15 billion of fixed income
pension assets for Washington State Investment Board in Seattle for four years.
Mr. Gradow's experience also includes five years fixed income management for the
Public Employees Retirement System of California (CALPERS).

N. Beth Volk is a Principal of AIA and Senior Fixed Income Credit Analyst
responsible for leading the corporate research efforts of the Fixed Income
Group. Ms. Volk is co-manager, with Mr. Gradow, of the U.S. Government Bond
Portfolio. Prior to 1996, she was the head of corporate fixed income research at
Alex. Brown & Sons. Ms. Volk has over 18 years experience in the industry and is
a Chartered Financial Analyst.

Wilmer C. Stith, III is a Vice President of AIA and co-manager, with Mr. Gradow,
of the Short-Term Bond Portfolio. He manages separate account money market
accounts, assists in the management of the money market portfolios, and is
responsible for analyzing and trading various fixed income securities. Prior to
joining AIA he was an investment executive with the Treasury Banking Group of
First National.

Charles E. Knudsen is a Managing Director of AIA and manager of the Balanced
Portfolio. He follows several equity industry groups. In addition, he is a
senior portfolio manager for key, tax-free institutional accounts, including
pension and profit-sharing plans, foundations, and endowments. Mr. Knudsen has
more than ten years of investment management experience with First National. Mr.
Knudsen is a Chartered Financial Analyst.

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

Allen J. Ashcroft, Jr. is a Principal of AIA and co-manager, with Mr. Randall,
of the Blue Chip Equity Portfolio and manager of the Equity Income Portfolio.
Prior to joining First National, Mr. Ashcroft was an equity analyst and
portfolio manager for McGlinn Capital Management,

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<PAGE>

Wyomissing, Pennsylvania, for 12 years. Mr. Ashcroft has more than 18 years of
experience in investment research and equity analysis.

H. Giles Knight is a Principal of AIA and manager of the Small-Cap Equity
Portfolio (formerly the Special Equity Portfolio). Prior to joining First
National, 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. Mr. Knight has almost 30
years of investment experience.

Christopher E. Baggini is a Principal of AIA and manager of the Mid-Cap Equity
Portfolio and the Capital Growth Portfolio. Prior to joining First National, Mr.
Baggini served as portfolio manager and research analyst for First Metropolitan
Development Corporation. He has more than 12 years of experience in investment
management, including more than four years at Salomon Brothers with
responsibilities in equity research, sales and trading. Mr. Baggini is a
Chartered Financial Analyst.

J. Eric Leo is a Managing Director of, and Director of Equity Research for AIA.
Mr. Leo is manager of the Value Equity Portfolio and the Equity Index Portfolio.
Prior to 1997, he was Executive Vice President and Chief Investment Officer of
Legg Mason Capital Management, Inc. Mr. Leo has more than 25 years of experience
in investment management, including managing mutual fund portfolios and accounts
for both individuals and institutions.

Brett A. Hoffacker is a Principal of AIA and the manager of the International
Equity Selection Portfolio. Prior to 1997, he was a Vice President of Dauphin
Deposit Bank and Trust Company responsible for managing four equity funds as
well as various individual institutional, employee benefit and personal trust
portfolios. Mr. Hoffacker is a Certified Financial Planner and Certified
Retirement Plan Specialist.

PURCHASING, SELLING AND EXCHANGING PORTFOLIO SHARES

This section tells you how to buy, sell (sometimes called "redeem") or exchange
Class A and Class B Shares of the Portfolios.

The classes have different expenses and other characteristics.

CLASS A SHARES OF MONEY MARKET PORTFOLIOS
- NO SALES CHARGE
- 12b-1 FEES AND SHAREHOLDER SERVICING FEES
- $500 MINIMUM INITIAL INVESTMENT

CLASS A SHARES OF THE OTHER PORTFOLIOS
- FRONT-END SALES CHARGE
- 12b-1 FEES AND SHAREHOLDER SERVICING FEES
- $500 MINIMUM INITIAL INVESTMENT

CLASS B SHARES
- CONTINGENT DEFERRED SALES CHARGE

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<PAGE>

- HIGHER 12b-1 FEES AND SHAREHOLDER SERVICING FEES
- $500 MINIMUM INITIAL INVESTMENT

For some investors the minimum initial investment for Class A and Class B Shares
may be lower.

Class A and Class B Shares are for individual investors.

HOW TO PURCHASE PORTFOLIO SHARES

You may purchase shares directly by:
- - Mail
- - Wire, or
- - Direct Deposit.

To purchase shares directly from us, please call 1-888-4ARK-FUND, or complete
and send in an Account application. Unless you arrange to pay by wire or through
direct deposit, write your check, payable in U.S. dollars, to "ARK Funds" and
include the name of the appropriate Portfolio(s) on the check. A Portfolio
cannot accept third-party checks, credit cards, credit card checks or cash.

You may also buy shares through accounts with brokers and other institutions
that are authorized to place trades in Portfolio shares for their customers
(Investment Professionals). If you invest through an authorized institution, you
will have to follow its procedures, which may be different from the procedures
for investing directly. Your institution may charge a fee for its services, in
addition to the fees charged by the Portfolio. You will also generally have to
address your correspondence or questions regarding a Portfolio to your
institution.

To set up an account through an Investment Professional, contact your Investment
Professional or call 1-800-4ARK-FUND. Be sure to read the brokerage account
application along with this Prospectus.

PURCHASES BY MAIL

You can buy shares by sending a completed Account Application along with a check
and investment instructions to:

ARK Funds
P.O. Box 8525
Boston, MA 02266-8525

All purchases made by check should be in U.S. dollars and made payable to ARK
Funds or, for an IRA account, to State Street Bank and Trust Company, as
custodian. Redemptions of shares purchased through the Automatic Investment Plan
will be delayed until the investment has been in the account for 15 calendar
days.

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<PAGE>

PURCHASES BY WIRE

You can buy shares by wiring money to:

State Street Bank and Trust Company
Boston, MA
ABA 011000028
Account Number: 99051609
Attention: [ARK Portfolio Name]
Further Credit to: [Account Name and Number]

You should notify the Fund's transfer agent at 1-888-4ARK-FUND by 12:00 p.m. if
you plan to wire money. This way, an order to purchase shares by Federal Funds
wire will be deemed to have been received on the day of the wire.

AUTOMATIC INVESTMENT PLAN (AIP)

Employees and investors may arrange on any Business Day for periodic investments
in a Portfolio through automatic deductions from a checking account by
completing the appropriate section of the Account Application. The minimum
pre-authorized investment amount is $50 per month per Portfolio. All IRA
investments made through the AIP will be credited as contribution for the
current calendar year.

EMPLOYEE INVESTMENT PROGRAM

Class A Shares of the Portfolios may be purchased without a sales charge for an
employee account. Current and former trustees and officers of the Portfolios,
current and retired officers, directors and regular employees of Allied Irish
Banks, p.l.c., and its direct and indirect subsidiaries, including Allfirst and
its affiliates, and their spouses and minor children ("employees") may open an
employee account directly with the Fund by making an initial investment of $100
or more in Class A Shares of any Portfolio. Automatic Investment and Systematic
Withdrawal Plans are available for employee accounts. Call 1-888-4ARK-FUND to
request an Account Application.

Any Portfolio (other than the Tax-Free Money Market, Maryland Tax-Free and
Pennsylvania Tax-Free Portfolios) may be used for an existing or new employee
IRA account. IRA accounts are subject to minimum initial and subsequent
investments of $100 in a Portfolio, and the applicable contribution limits set
by the IRS.

AUTOMATIC ASSET BUILDER

This program is available to you if you invest through First Maryland Brokerage
Corporation, and offers a simple way to maintain a regular investment program.
You may arrange automatic transfers (minimum $100 per transaction) from your
bank account to your brokerage account on a period basis. When you participate
in the Automatic Asset Builder, the minimum initial investment in each Portfolio
is $500. You may change the amount of your automatic investment, skip an
investment, or stop your Automatic Asset Builder investment by calling your
Investment Professional at least three Business Days prior to your next
scheduled investment date. This program is not available for the money market
Portfolios.

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<PAGE>

GENERAL INFORMATION

A Portfolio may reject any purchase order if it is determined that accepting the
order would not be in the best interests of the Portfolio or its shareholders.

The price per share (the offering price) will be the net asset value per share
(NAV) next determined after a Portfolio receives your purchase order plus, in
the case of Class A Shares, the applicable front-end sales charge.

The U.S. Treasury Money Market Portfolio and Tax-Free Money Market Portfolio
calculate NAV each Business Day at 12:00 noon Eastern time and 4:00 p.m. Eastern
time. So, for you to be eligible to receive dividends declared on the day you
submit your purchase order, generally the Portfolio must receive your order and
Federal funds (readily available funds) before 12:00 noon Eastern time.

The Money Market Portfolio and U.S. Government Money Market Portfolio calculate
their NAV each Business Day at 5:00 p.m. Eastern time. So, for you to be
eligible to receive dividends declared on the day you submit your purchase
order, generally the Portfolio must receive your order and Federal funds before
5:00 p.m. Eastern time.

The fixed income and equity portfolios each calculate its NAV each Business Day
at 4:00 p.m. Eastern time. So, for you to be eligible to receive dividends
declared on the day you submit your purchase order, generally the Portfolio must
receive your order and Federal funds before 4:00 Eastern time.

HOW WE CALCULATE NAV

NAV for one Portfolio share is the value of that share's portion of all of the
net assets in the Portfolio.

In calculating NAV, each non-money market Portfolio generally values its
investment portfolio at its market price. If market prices are unavailable or
the Portfolios think that they are unreliable, fair value prices may be
determined in good faith using methods approved by the Board of Trustees.

In calculating NAV for the U.S. Treasury Money Market, U.S. Government Money
Market, Tax-Free Money Market, and Money Market Portfolios, we generally value
their investment portfolios using the amortized cost valuation method, which is
described in detail in our Statement of Additional Information. If this method
is determined to be unreliable during certain market conditions or for other
reasons, a Portfolio may value its portfolio at market price or fair value
prices may be determined in good faith using methods approved by the Board of
Trustees.

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<PAGE>

Some Portfolios hold securities that are listed on foreign exchanges. These
securities may trade on weekends or other days when the Portfolios do not
calculate NAV. As a result, the market value of these Portfolio's investments
may change on days when you cannot purchase or sell Portfolio shares.

MINIMUM PURCHASES

To purchase shares for the first time, you must invest at least $500 in any
Portfolio. Your subsequent investments in any Portfolio must be made in amounts
of at least $500.

SALES CHARGES

ALTERNATIVE SALES CHARGE OPTIONS

You may purchase Class A or Class B Shares of the Portfolios at a price equal to
their net asset value per share plus any applicable sales charge. Class A Shares
include an initial sales charge. Class B Shares may pay a contingent deferred
sales charge (CDSC). The classes have the same rights and are identical in all
respects except that: (i) Class B Shares may pay deferred sales charges and pay
higher distribution and service fees; (ii) each class has exclusive voting
rights with respect to approvals of its Rule 12b-1 plan (although Class B
shareholders may be entitled to vote on any distribution fees imposed on Class A
Shares so long as Class B Shares convert into Class A Shares); (iii) only Class
B Shares carry a conversion feature; and (iv) each class has different exchange
privileges.

FRONT-END SALES CHARGES -- CLASS A SHARES

The offering price of Class A Shares is the NAV next calculated after a
Portfolio receives your request, plus the front-end sales load.

The amount of any front-end sales charge included in your offering price varies,
depending on the amount of your investment:
<TABLE>
<CAPTION>

U.S. GOVERNMENT BOND, INCOME, MARYLAND TAX-FREE AND PENNSYLVANIA
TAX-FREE PORTFOLIOS
YOUR SALES CHARGE AS A
PERCENTAGE OF OFFERING YOUR SALES CHARGE AS A
IF YOUR INVESTMENT IS: PRICE PERCENTAGE OF YOUR NET INVESTMENT
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LESS THAN $50,000 4.50% 4.71%
$50,000 BUT LESS THAN $100,000 4.00% 4.17%
$100,000 BUT LESS THAN $250,000 3.00% 3.09%
$250,000 BUT LESS THAN $500,000 2.50% 2.56%
$500,000 BUT LESS THAN $1,000,000 2.00% 2.04%
$1,000,000 BUT LESS THAN $3,000,000 1.00% 1.01%
$3,000,000 BUT LESS THAN $5,000,000 0.50% 0.50%
$5,000,000 AND ABOVE 0.00% 0.00%
</TABLE>

Page 84 of 97
<PAGE>
<TABLE>
<CAPTION>

BALANCED, EQUITY INCOME, EQUITY INDEX, BLUE CHIP EQUITY, VALUE
EQUITY, CAPITAL GROWTH AND SMALL-CAP EQUITY PORTFOLIOS
YOUR SALES CHARGE AS A
PERCENTAGE OF OFFERING YOUR SALES CHARGE AS A
IF YOUR INVESTMENT IS: PRICE PERCENTAGE OF YOUR NET INVESTMENT
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LESS THAN $50,000 4.75% 4.99%
$50,000 BUT LESS THAN $100,000 4.50% 4.71%
$100,000 BUT LESS THAN $250,000 3.50% 3.63%
$250,000 BUT LESS THAN $500,000 2.50% 2.56%
$500,000 BUT LESS THAN $1,000,000 2.00% 2.04%
$1,000,000 BUT LESS THAN $3,000,000 1.00% 1.01%
$3,000,000 BUT LESS THAN $5,000,000 0.50% 0.50%
$5,000,000 AND ABOVE 0.00% 0.00%
</TABLE>

Page 85 of 97
<PAGE>
<TABLE>
<CAPTION>

INTERNATIONAL EQUITY SELECTION PORTFOLIO
YOUR SALES CHARGE AS A
PERCENTAGE OF OFFERING YOUR SALES CHARGE AS A
IF YOUR INVESTMENT IS: PRICE PERCENTAGE OF YOUR NET INVESTMENT
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LESS THAN $100,000 1.50% 1.52%
$100,000 BUT LESS THAN $250,000 1.00% 1.01%
$250,000 BUT LESS THAN $500,000 0.75% 0.76%
$500,000 BUT LESS THAN $1,000,000 0.50% 0.50%
$1,000,000 AND ABOVE 0.00% 0.00%
</TABLE>

WAIVER OF FRONT-END SALES CHARGE -- CLASS A SHARES

The front-end sales charge will be waived on Class A Shares purchased:

(1) by a bank trust officer, registered representative, or other employee (or a
member of their immediate families) of Investment Professionals;

(2) by a charitable organization (as defined in Section 501(c)(3) of the
Internal Revenue Code) investing $100,000 or more;

(3) for a charitable remainder trust or life income pool established for the
benefit of a charitable organization (as defined in Section 501(c)(3) of
the Internal Revenue Code);

(4) for an account affiliated with Allfirst, with the proceeds of a
distribution from certain employee benefit plans;

(5) for any state, county or city, or any governmental instrumentality,
department, authority or agency;

(6) with redemption proceeds from other mutual fund complexes on which you have
previously paid an initial or contingent deferred sales charge;

(7) for use in a broker-dealer managed account program, provided the
broker-dealer has executed a participation agreement with the Portfolios'
distributor specifying certain qualifications;

(8) as part of an employee benefit plan having more than 25 eligible employees
or a minimum of $250,000 of plan assets invested in the Portfolios;

(9) as part of an employee benefit plan through an intermediary that has signed
a participation agreement with the Portfolios' distributor specifying
certain qualifications; and

(10) on a discretionary basis by a registered investment advisor that is not
part of an organization primarily engaged in the brokerage business and
that has executed a participation agreement with the Portfolios'
distributor specifying certain qualifications.

REPURCHASE OF CLASS A SHARES

You may repurchase any amount of Class A Shares of any Portfolio at NAV (without
the normal front-end sales charge), up to the limit of the value of any amount
of Class A Shares (other than

Page 86 of 97
<PAGE>

those which were purchased with reinvested dividends and distributions) that you
redeemed within the past 30 days. In effect, this allows you to reacquire shares
that you have redeemed, without paying the front-end sales charge a second time.
To exercise this privilege, the Portfolio must receive your purchase order
within 30 days of your redemption. IN ADDITION, YOU MUST NOTIFY THE PORTFOLIO
WHEN YOU SEND IN YOUR PURCHASE ORDER THAT YOU ARE REPURCHASING SHARES.

REDUCED SALES CHARGES -- CLASS A SHARES

RIGHTS OF ACCUMULATION. In calculating the appropriate sales charge rate, this
right allows you to add the value of the Class A Shares you already own to the
amount that you are currently purchasing. The Portfolio will combine the value
of your current purchases with the current value of any Class A Shares you
purchased previously for (i) your account, (ii) your spouse's account, (iii) a
joint account with your spouse, or (iv) your minor children's trust or custodial
accounts. A fiduciary purchasing shares for the same fiduciary account, trust or
estate may also use this right of accumulation. The Portfolio will consider the
value of Class A Shares purchased previously only if they were sold subject to a
sales charge. TO BE ENTITLED TO A REDUCED SALES CHARGE BASED ON SHARES ALREADY
OWNED, YOU MUST ASK US FOR THE REDUCTION AT THE TIME OF PURCHASE. You must
provide the Portfolio with your account number(s) and, if applicable, the
account numbers for your spouse and/or children (and provide the children's
ages). The Portfolio may amend or terminate this right of accumulation at any
time.

LETTER OF INTENT. You may purchase Class A Shares at the sales charge rate
applicable to the total amount of the purchases you intend to make over a
13-month period. In other words, a Letter of Intent allows you to purchase Class
A Shares of a Portfolio over a 13-month period and receive the same sales charge
as if you had purchased all the shares at the same time. The Portfolio will only
consider the value of Class A Shares sold subject to a sales charge. As a
result, Class A Shares purchased with dividends or distributions will not be
included in the calculation. To be entitled to a reduced sales charge based on
shares you intend to purchase over the 13-month period, you must send the
Portfolio a Letter of Intent. In calculating the total amount of purchases, you
may include in your letter purchases made up to 90 days before the date of the
Letter. The 13-month period begins on the date of the first purchase, including
those purchases made in the 90-day period before the date of the Letter. Please
note that the purchase price of these prior purchases will not be adjusted.

You are not legally bound by the terms of your Letter of Intent to purchase the
amount of your shares stated in the Letter. The Letter does, however, authorize
the Portfolio to hold in escrow 5% of the total amount you intend to purchase.
If you do not complete the total intended purchase at the end of the 13-month
period, the Portfolio's transfer agent will redeem the necessary portion of the
escrowed shares to make up the difference between the reduced rate sales charge
(based on the amount you intended to purchase) and the sales charge that would
normally apply (based on the actual amount you purchased).

COMBINED PURCHASE/QUANTITY DISCOUNT PRIVILEGE. When calculating the appropriate
sales charge rate, the Portfolio will combine same day purchases of Class A
Shares (that are subject to a sales charge) made by you, your spouse and your
minor children (under age 21). This combination also applies to Class A Shares
you purchase with a Letter of Intent.

Page 87 of 97
<PAGE>

CONTINGENT DEFERRED SALES CHARGES -- CLASS B SHARES

You do not pay a sales charge when you purchase Class B Shares. The offering
price of Class B Shares is simply the next calculated NAV. But if you sell your
shares within seven years after your purchase, you will pay a contingent
deferred sales charge as described in the table below for either (1) the NAV of
the shares at the time of purchase, or (2) NAV of the shares next calculated
after the Portfolio receives your sale request, whichever is less. The sales
charge does not apply to shares you purchase through reinvestment of dividends
or distributions. So, you never pay a deferred sales charge on any increase in
your investment above the initial offering price. This sales charge does not
apply to exchanges of Class B Shares of one Portfolio for Class B Shares of
another Portfolio.

At the end of eight years from the date of purchase, Class B Shares convert to
Class A Shares based on their relative net asset value. Class A Shares pay lower
expenses than Class B Shares.

YEAR SINCE PURCHASE CONTINGENT DEFERRED SALES CHARGE AS A PERCENTAGE OF DOLLAR AMOUNT SUBJECT TO CHARGE
- --------------------------------------------------------------------------------------------------------------
<S> <C>
First 5%
Second 4%
Third 3%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh 0%
</TABLE>

The contingent deferred sales charge will be waived if you sell your Class B
Shares for the following reasons:

- - to make certain withdrawals from a retirement plan (not including IRAs);

- - because of death or disability; or

- - for certain payments under the Systematic Withdrawal Plan (which is discussed
later).

GENERAL INFORMATION ABOUT SALES CHARGES

Your securities dealer is paid a commission when you buy your shares and is paid
a servicing fee as long as you hold your shares. Your securities dealer or
servicing agent may receive different levels of compensation depending on which
class of shares you buy.

From time to time, some financial institutions including brokerage firms
affiliated with the Allfirst may be reallowed up to the entire sales charge.
Firms that receive a reallowance of the entire sales charge may be considered
underwriters for the purpose of federal securities law.

No CDSC is imposed on redemptions of Class B Shares received from the
reinvestment of distributions on Class B Shares or exchanged for shares of
another Portfolio. However, Class B Shares acquired in exchanges (including
shares of the Money Market Portfolio) will continue to remain subject to the
CDSC, if applicable, until the applicable holding period expires. Class B Shares
not subject to a CDSC will always be redeemed first.

If you exchange Class A Shares for shares of another Portfolio with a higher
sales charge, you will have to pay the difference between the sales charges. The
CDSC will be computed using the

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<PAGE>

schedule of the Portfolio with the highest CDSC owned by you. In computing the
CDSC, the length of time you owned the shares will be measured from the date of
original purchase and will not be affected by exchanges. To exchange into
another Portfolio, you must meet the $500 minimum initial investment.

HOW TO SELL YOUR PORTFOLIO SHARES

If you own your shares through an account with a broker or other institution,
contact that broker or institution to sell your shares.

If you own your shares directly, you may sell your shares on any Business Day by
contacting a Portfolio directly by mail or telephone at 1-888-4ARK-FUND. There
is no minimum amount for telephone redemptions.

The sale price of each share will be the next NAV determined after the
Portfolios receive your request less, in the case of Class B Shares, any
applicable deferred sales charge.

REDEMPTION BY MAIL

To redeem your shares by mail, send your redemption request to:

ARK FUNDS
P.O. Box 8525
Boston, MA 02266-8525

The transfer agent may require a signature guarantee if: (a) the redemption
request is for $25,000 or more; (b) you ask us to send redemption proceeds to a
name and/or address that differs from the name or address of record; or (c) you
request a transfer of registration.

You may not close your account by telephone.

REDEMPTION BY CHECKWRITING

Checkwriting is available for accounts investing in Class A Shares of a money
market Portfolio. You will be required to sign signature cards and will be
subject to the applicable rules and regulations of the clearing bank.

Checks in an amount of $500 or more drawn on one of the money market Portfolios
may be made payable to the order of any payee. You should be aware that, as the
case with regular bank checks, certain banks may not provide cash at the time of
deposit, but will wait until they have received payment from the clearing bank.
When a check is presented to the clearing bank for payment, subject to the
Fund's acceptance of the check, the clearing bank causes the Fund to redeem, at
the next net asset value, a sufficient number of shares to cover the amount of
the check. Checks will be returned by the clearing bank if there are not
sufficient shares available. If you wish to use this checkwriting feature, you
should check the appropriate box on the Account Application, obtain a signature
card by calling 1-888-4ARK-FUND, and mail the completed form and signature card
to ARK Funds, P.O. Box 8525, Boston, MA 02266-8525. There is no charge for the
checks, although the clearing bank will impose its customary overdraft

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<PAGE>

fee in connection with checks returned for insufficient funds. As of the date of
this Prospectus, the overdraft fee is $20.

SYSTEMATIC WITHDRAWAL PLAN (SWP)

The SWP may be used by employees who wish to receive regular distributions from
their accounts. Upon commencement of the SWP, an account must have a current
value of $10,000 or more. Investors may elect to receive automatic payments of
$200 or more via check or direct deposit to a checking account on a monthly,
quarterly, semi-annual or annual basis. Automatic withdrawals are normally
processed on the 25th day of the month (or on the next Business Day). To arrange
an SWP, an employee must complete the appropriate section of the Account
Application.

If you withdraw 10% or less of your Class B Shares in one year pursuant to the
SWP, your redemptions will not be subject to the CDSC. Because automatic
withdrawals of Class B Shares in amounts greater than 10% of the initial value
of the account will be subject to the CDSC, Class B shareholders should not
participate in the SWP.

RECEIVING YOUR MONEY

Normally, we will send your sale proceeds within three Business Days after we
receive your request. Your proceeds can be wired to your bank account (subject
to a $10 fee) or sent to you by check. IF YOU RECENTLY PURCHASED YOUR SHARES BY
CHECK, REDEMPTION PROCEEDS MAY NOT BE AVAILABLE UNTIL YOUR CHECK HAS CLEARED
(WHICH MAY TAKE UP TO 15 DAYS FROM YOUR DATE OF PURCHASE). YOU MAY NOT CLOSE
YOUR ACCOUNT BY TELEPHONE.

REDEMPTIONS IN KIND

We generally pay sale (redemption) proceeds in cash. However, under unusual
conditions that make the payment of cash unwise (and for the protection of the
Portfolio's remaining shareholders) we might pay all or part of your redemption
proceeds in liquid securities with a market value equal to the redemption price
(redemption in kind). It is highly unlikely that your shares would ever be
redeemed in kind, but if they were you would probably have to pay transaction
costs to sell the securities distributed to you, as well as taxes on any capital
gains from the sale as with any redemption.

INVOLUNTARY SALES OF YOUR SHARES

If your account balance drops below $500 because of redemptions for either class
you may be required to sell your shares. But, we will always give you at least
30 days' written notice to give you time to add to your account and avoid the
sale of your shares.

SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES

Page 90 of 97
<PAGE>

HOW TO EXCHANGE YOUR SHARES

You may exchange your shares on any Business Day by contacting us directly by
mail or telephone.

You may exchange shares through your financial institution by mail or telephone.
Exchange requests must be for an amount of at least $500.

IF YOU RECENTLY PURCHASED SHARES BY CHECK, YOU MAY NOT BE ABLE TO EXCHANGE YOUR
SHARES UNTIL YOUR CHECK HAS CLEARED (WHICH MAY TAKE UP TO 15 DAYS FROM YOUR DATE
OF PURCHASE). This exchange privilege may be changed or canceled at any time
upon 60 days' notice.

CLASS A SHARES

You may exchange Class A Shares of any Portfolio for Class A Shares of any other
Portfolio. If you exchange shares that you purchased without a sales charge or
with a lower sales charge into a Portfolio with a sales charge or with a higher
sales charge, the exchange is subject to an incremental sales charge (e.g., the
difference between the lower and higher applicable sales charges). If you
exchange shares into a Portfolio with the same, lower or no sales charge there
is no incremental sales charge for the exchange.

CLASS B SHARES

You may exchange Class B Shares of any Portfolio for Class B Shares of any other
Portfolio. No contingent deferred sales charge is imposed on redemptions of
shares you acquire in an exchange, provided you hold your shares for at least
seven years from your initial purchase.

TELEPHONE TRANSACTIONS

Purchasing, selling and exchanging Portfolio shares over the telephone is
extremely convenient, but not without risk. Although the Portfolios have certain
safeguards and procedures to confirm the identity of callers and the
authenticity of instructions, the Portfolios are not responsible for any losses
or costs incurred by following telephone instructions we reasonably believe to
be genuine. If you or your financial institution transact with the Portfolios
over the telephone, you will generally bear the risk of any loss.

DISTRIBUTION OF PORTFOLIO SHARES

Each Portfolio has adopted a distribution plan that allows the Portfolios to pay
distribution and service fees for the sale and distribution of its shares, and
for services provided to shareholders. Because these fees are paid out of a
Portfolio's assets continuously, over time these fees will increase the cost of
your investment and may cost you more than paying other types of sales charges.

Page 91 of 97
<PAGE>

Distribution fees, as a percentage of average daily net assets, are as follows:

For Class A Shares
<S> <C>
U.S. Treasury Money Market Portfolio 0.25%
U.S. Government Money Market Portfolio 0.25%
Money Market Portfolio 0.25%
Tax-Free Money Market Portfolio 0.25%
Short-Term Treasury Portfolio 0.40%
Intermediate Fixed Income Portfolio 0.30%
U.S. Government Bond Portfolio 0.30%
Income Portfolio 0.30%
Maryland Tax-Free Portfolio 0.30%
Pennsylvania Tax-Free Portfolio 0.30%
Balanced Portfolio 0.40%
Equity Income Portfolio 0.40%
Equity Index Portfolio 0.40%
Blue Chip Equity Portfolio 0.55%
Mid-Cap Equity Portfolio 0.40%
Value Equity Portfolio 0.40%
Capital Growth Portfolio 0.40%
Small-Cap Equity Portfolio 0.40%
International Equity Selection Portfolio 0.40%

For Class B Shares

Money Market Portfolio 0.75%
Income Portfolio 0.75%
Maryland Tax-Free Portfolio 0.75%
Pennsylvania Tax-Free Portfolio 0.75%
Balanced Portfolio 0.75%
Blue Chip Equity Portfolio 0.75%
Value Equity Portfolio 0.75%
Capital Growth Portfolio 0.75%
</TABLE>

The Distributor may, from time to time in its sole discretion, institute one or
more promotional incentive programs for dealers, which will be paid for by the
Distributor from any sales charge it receives or from any other source available
to it. Under any such program, the Distributor may provide incentives, in the
form of cash or other compensation, including merchandise, airline vouchers,
trips and vacation packages, to dealers selling shares of a Portfolios.

Page 92 of 97
<PAGE>

DIVIDENDS, DISTRIBUTIONS AND TAXES

DIVIDENDS AND DISTRIBUTIONS

Dividends are declared and paid according to the following schedules:
<TABLE>
<CAPTION>

- ---------------------------------------------------------------------------------------------------
FREQUENCY OF
DECLARATION OF FREQUENCY OF PAYMENT
PORTFOLIO DIVIDENDS OF DIVIDENDS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury Money Market Portfolio Daily Monthly
- ---------------------------------------------------------------------------------------------------
U.S. Government Money Market Portfolio Daily Monthly
- ---------------------------------------------------------------------------------------------------
Money Market Portfolio Daily Monthly
- ---------------------------------------------------------------------------------------------------
Tax-Free Money Market Portfolio Daily Monthly
- ---------------------------------------------------------------------------------------------------
Short-Term Treasury Portfolio Daily Monthly
- ---------------------------------------------------------------------------------------------------
Intermediate Fixed Income Portfolio Daily Monthly
- ---------------------------------------------------------------------------------------------------
U.S. Government Bond Portfolio Daily Monthly
- ---------------------------------------------------------------------------------------------------
Income Portfolio Daily Monthly
- ---------------------------------------------------------------------------------------------------
Maryland Tax-Free Portfolio Daily Monthly
- ---------------------------------------------------------------------------------------------------
Pennsylvania Tax-Free Portfolio Daily Monthly
- ---------------------------------------------------------------------------------------------------
Balanced Portfolio Quarterly Quarterly
- ---------------------------------------------------------------------------------------------------
Equity Income Portfolio Monthly Monthly
- ---------------------------------------------------------------------------------------------------
Equity Index Portfolio Quarterly Quarterly
- ---------------------------------------------------------------------------------------------------
Blue Chip Equity Portfolio Quarterly Quarterly
- ---------------------------------------------------------------------------------------------------
Mid-Cap Equity Portfolio Quarterly Quarterly
- ---------------------------------------------------------------------------------------------------
Value Equity Portfolio Quarterly Quarterly
- ---------------------------------------------------------------------------------------------------
Capital Growth Portfolio Annually Annually
- ---------------------------------------------------------------------------------------------------
Small-Cap Equity Portfolio Annually Annually
- ---------------------------------------------------------------------------------------------------
International Equity Selection Portfolio Annually Annually
- ---------------------------------------------------------------------------------------------------
</TABLE>

Each Portfolio makes distributions of capital gains, if any, at least annually.
If you own Portfolio shares on a Portfolio's record date, you will be entitled
to receive the distribution.

TAXES

Each Portfolio will distribute substantially all of its income and capital
gains, if any. The dividends and distributions you receive may be subject to
federal, state and local taxation,

Page 93 of 97
<PAGE>

depending upon your tax situation. Distributions you receive from a Portfolio
may be taxable whether or not you reinvest them. Income distributions are
generally taxable at ordinary income tax rates. Capital gains distributions are
generally taxable at the rates applicable to long-term capital gains. EACH SALE
OR EXCHANGE OF SHARES IS A TAXABLE EVENT.

The Tax-Free Money Market, Maryland Tax-Free and Pennsylvania Tax-Free
Portfolios intend to distribute federally tax-exempt income. Each of the
Maryland Tax-Free Portfolio and the Pennsylvania Tax-Free Portfolio may invest a
portion of its assets in securities that generate taxable income for federal or
state income taxes. Income exempt from federal tax may be subject to state and
local taxes. Any capital gains distributed by these Portfolios may be taxable.

MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION.

Page 94 of 97
<PAGE>

FINANCIAL HIGHLIGHTS

The tables that follow present performance information about Class A and, if
applicable, Class B Shares of each Portfolio. This information is intended to
help you understand each Portfolio's financial performance for the past five
years, or, if shorter, the period of the Portfolio's operations. Some of this
information reflects financial information for a single Portfolio share. The
total returns in the table represent the rate that you would have earned (or
lost) on an investment in a Portfolio, assuming you reinvested all of your
dividends and distributions. This information has been audited by KPMG Peat
Marwick LLP, independent public accountants. Their report, along with each
Portfolio's financial statements, appears in the annual report that accompanies
our Statement of Additional Information. You can obtain the annual report, which
contains more performance information, at no charge by calling 1-888-4ARK-FUND.

Page 95 of 97
<PAGE>

ARK FUNDS

INVESTMENT ADVISOR

Allied Investment Advisors, Inc.
100 E. Pratt Street
Baltimore, MD 21202

DISTRIBUTOR

SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, PA 19456

LEGAL COUNSEL

Piper & Marbury L.L.P.
36 South Charles Street
Baltimore, MD 21201

More information about the Portfolios is available without charge through the
following:

STATEMENT OF ADDITIONAL INFORMATION (SAI)

ANNUAL AND SEMI-ANNUAL REPORTS

TO OBTAIN MORE INFORMATION:

BY TELEPHONE: Call 1-888-4ARK-FUND

BY MAIL: Write to us
ARK Funds
P.O. Box 8525
Boston, MA 02266-8525

BY E-MAIL: [VAR:FUND.EMAILADDRESS]]

BY INTERNET: [VAR:FUND.INTERNETADDRESS]]

Page 96 of 97
<PAGE>

Page 97 of 97
<PAGE>

ARK FUNDS

INSTITUTIONAL CLASS

PROSPECTUS
SEPTEMBER 1, 1999

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

INVESTMENT ADVISOR:
ALLIED INVESTMENT ADVISORS, INC.

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED ANY PORTFOLIO SHARES OR
DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE.
IT IS A CRIME FOR ANYONE TO TELL YOU OTHERWISE.

<PAGE>

HOW TO READ THIS PROSPECTUS

ARK Funds is a mutual fund family that offers Institutional Class shares in
separate investment portfolios (Portfolios). The Portfolios have individual
investment goals and strategies. This prospectus gives you important
information about the Institutional Class shares of the Portfolios that you
should know before investing. Please read this prospectus and keep it for
future reference.

<TABLE>
<CAPTION>
Page
<S> <C>
U.S. TREASURY MONEY MARKET PORTFOLIO. . . . . . . . . . . . . . . .XXX
U.S. GOVERNMENT MONEY MARKET PORTFOLIO. . . . . . . . . . . . . . .XXX
MONEY MARKET PORTFOLIO. . . . . . . . . . . . . . . . . . . . . . .XXX
TAX-FREE MONEY MARKET PORTFOLIO . . . . . . . . . . . . . . . . . .XXX
SHORT-TERM TREASURY PORTFOLIO . . . . . . . . . . . . . . . . . . .XXX
SHORT-TERM BOND PORTFOLIO . . . . . . . . . . . . . . . . . . . . .XXX
INTERMEDIATE FIXED INCOME PORTFOLIO . . . . . . . . . . . . . . . .XXX
U.S. GOVERNMENT BOND PORTFOLIO. . . . . . . . . . . . . . . . . . .XXX
INCOME PORTFOLIO. . . . . . . . . . . . . . . . . . . . . . . . . .XXX
MARYLAND TAX-FREE PORTFOLIO . . . . . . . . . . . . . . . . . . . .XXX
PENNSYLVANIA TAX-FREE PORTFOLIO . . . . . . . . . . . . . . . . . .XXX
BALANCED PORTFOLIO. . . . . . . . . . . . . . . . . . . . . . . . .XXX
EQUITY INCOME PORTFOLIO . . . . . . . . . . . . . . . . . . . . . .XXX
EQUITY INDEX PORTFOLIO. . . . . . . . . . . . . . . . . . . . . . .XXX
BLUE CHIP EQUITY PORTFOLIO. . . . . . . . . . . . . . . . . . . . .XXX
MID-CAP EQUITY PORTFOLIO. . . . . . . . . . . . . . . . . . . . . .XXX
VALUE EQUITY PORTFOLIO. . . . . . . . . . . . . . . . . . . . . . .XXX
CAPITAL GROWTH PORTFOLIO. . . . . . . . . . . . . . . . . . . . . .XXX
SMALL-CAP EQUITY PORTFOLIO. . . . . . . . . . . . . . . . . . . . .XXX
INTERNATIONAL EQUITY SELECTION PORTFOLIO. . . . . . . . . . . . . .XXX
MORE INFORMATION ABOUT RISK . . . . . . . . . . . . . . . . . . . .XXX
EACH PORTFOLIO'S OTHER INVESTMENTS. . . . . . . . . . . . . . . . .XXX
THE INVESTMENT ADVISOR. . . . . . . . . . . . . . . . . . . . . . .XXX
PURCHASING, SELLING AND EXCHANGING PORTFOLIO SHARES . . . . . . . .XXX
DIVIDENDS, DISTRIBUTIONS AND TAXES. . . . . . . . . . . . . . . . .XXX
FINANCIAL HIGHLIGHTS. . . . . . . . . . . . . . . . . . . . . . . .XXX
HOW TO OBTAIN MORE INFORMATION ABOUT ARK FUNDS. . . . . . . Back Cover
</TABLE>

Page 2 of 78
<PAGE>

INTRODUCTION - INFORMATION COMMON TO ALL FUNDS

Each Portfolio is a mutual fund. A mutual fund pools shareholders' money and,
using professional investment managers, invests it in securities.

The value of your investment in a Portfolio (other than a money market
portfolio) is based on the market value of the securities the Portfolio holds.
These prices change daily due to economic and other events that affect
particular companies and other issuers. These price movements, sometimes called
volatility, may be greater or lesser depending on the types of securities a
Portfolio owns and the markets in which they trade. The effect on a Portfolio
of a change in the value of a single security will depend on how widely the
Portfolio diversifies its holdings.

THE U.S. TREASURY MONEY MARKET PORTFOLIO, U.S. GOVERNMENT MONEY MARKET
PORTFOLIO, MONEY MARKET PORTFOLIO AND TAX-FREE MONEY MARKET PORTFOLIO
TRY TO MAINTAIN A CONSTANT PRICE PER SHARE OF $1.00, BUT THERE IS NO GUARANTEE
THAT THESE PORTFOLIOS WILL ACHIEVE THIS GOAL.

Page 3 of 78
<PAGE>

U.S. TREASURY MONEY MARKET PORTFOLIO

PORTFOLIO SUMMARY

<TABLE>
<S> <C>
INVESTMENT GOAL Maximizing current income and
providing liquidity and security
of principal

INVESTMENT FOCUS Short-term U.S. Treasury securities

SHARE PRICE VOLATILITY Very low

PRINCIPAL INVESTMENT STRATEGY Investing in U.S. Treasury obligations

INVESTOR PROFILE Conservative investors seeking
current income through a low-risk,
liquid investment
</TABLE>

INVESTMENT STRATEGY OF THE U.S. TREASURY MONEY MARKET PORTFOLIO

The U.S. Treasury Money Market Portfolio invests exclusively in U.S. Treasury
obligations.

PRINCIPAL RISKS OF INVESTING IN THE U.S. TREASURY MONEY MARKET PORTFOLIO

Although the Portfolio's U.S. Treasury securities are considered to be among the
safest investments, they are not guaranteed against price movements due to
changing interest rates.

PERFORMANCE INFORMATION

This bar chart shows changes in the performance of the Portfolio's Institutional
Class shares from year to year for five years.

Page 4 of 78
<PAGE>

<TABLE>
<S> <C>
1994 X.XX%
1995 X.XX%
1996 X.XX%
1997 X.XX%
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED DECEMBER 31, 1998, TO THOSE OF THE IBC FINANCIAL 100% U.S.
TREASURY AVERAGE.

<TABLE>
<CAPTION>
INSTITUTIONAL CLASS 1 YEAR SINCE INCEPTION
---------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. TREASURY MONEY MARKET PORTFOLIO X.XX% X.XX%*
IBC FINANCIAL 100% U.S. TREASURY AVERAGE X.XX% X.XX%**
</TABLE>

* Since 6/14/93
** Since ______

WHAT IS AN AVERAGE?

PORTFOLIO FEES AND EXPENSES

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)

<TABLE>
<CAPTION>
INSTITUTIONAL CLASS
- ---------------------------------------------------------------------------------------------------
<S> <C>
Investment Advisory Fees .XX%
Distribution and Service (12b-1) Fees .XX%
Other Expenses .XX%
-----
Total Annual Portfolio Operating Expenses X.XX%*
</TABLE>

U.S. Treasury Money Market Portfolio -- Institutional Class ____%

Page 5 of 78
<PAGE>

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

The Example also assumes that each year your investment has a 5% return and
Portfolio expenses remain the same. Although your actual costs and returns
might be different, your approximate costs of investing $10,000 in the Portfolio
would be:

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$____ $____ $____ $____

</TABLE>

Page 6 of 78
<PAGE>

U.S. GOVERNMENT MONEY MARKET PORTFOLIO

PORTFOLIO SUMMARY

<TABLE>
<S> <C>
INVESTMENT GOAL Maximizing current income and providing liquidity and
security of principal

INVESTMENT FOCUS Short-term U.S. government securities

SHARE PRICE VOLATILITY Very low

PRINCIPAL INVESTMENT STRATEGY Investing in U.S. government obligations and
repurchase agreements

INVESTOR PROFILE Conservative investors seeking current income through
a low-risk, liquid investment
</TABLE>

INVESTMENT STRATEGY OF THE U.S. GOVERNMENT MONEY MARKET PORTFOLIO

The U.S. Government Money Market Portfolio invests exclusively in obligations
issued by the U.S. government and its agencies and instrumentalities and in
repurchase agreements.

PRINCIPAL RISKS OF INVESTING IN THE U.S. GOVERNMENT MONEY MARKET PORTFOLIO

Although the Portfolio's U.S. government securities are considered to be among
the safest investments, they are not guaranteed against price movements due to
changing interest rates.

Page 7 of 78
<PAGE>

PERFORMANCE INFORMATION

This bar chart shows changes in the performance of the Portfolio's Institutional
Class shares from year to year for two years.

<TABLE>
<S> <C>
1997 X.XX%
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED DECEMBER 31, 1998, TO THOSE OF THE IBC FINANCIAL GOVERNMENT
ONLY, INSTITUTIONAL-ONLY AVERAGE.

<TABLE>
<CAPTION>
INSTITUTIONAL CLASS 1 YEAR SINCE INCEPTION
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT MONEY MARKET PORTFOLIO X.XX% X.XX%*
IBC FINANCIAL GOVERNMENT ONLY, INSTITUTIONAL-ONLY AVERAGE X.XX% X.XX%**
</TABLE>

* Since 11/18/96
** Since _______

WHAT IS AN AVERAGE?

PORTFOLIO FEES AND EXPENSES

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)

Page 8 of 78
<PAGE>

U.S. Government Money Market Portfolio -- Institutional Class ____%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

The Example also assumes that each year your investment has a 5% return and
Portfolio expenses remain the same. Although your actual costs and returns
might be different, your approximate costs of investing $10,000 in the Portfolio
would be:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$____ $____ $____ $____

</TABLE>

Page 9 of 78
<PAGE>

MONEY MARKET PORTFOLIO

PORTFOLIO SUMMARY

<TABLE>
<S> <C>
INVESTMENT GOAL Maximizing current income and providing liquidity and security of
principal

INVESTMENT FOCUS Short-term money market instruments

SHARE PRICE VOLATILITY Very low

PRINCIPAL INVESTMENT STRATEGY Investing in high quality U.S. dollar denominated money market
securities

INVESTOR PROFILE Conservative investors seeking current income through a low-risk,
liquid investment
</TABLE>

INVESTMENT STRATEGY OF THE MONEY MARKET PORTFOLIO

PRINCIPAL RISKS OF INVESTING IN THE MONEY MARKET PORTFOLIO

Although the Portfolio's U.S. government securities are considered to be among
the safest investments, they are not guaranteed against price movements due to
changing interest rates.

Page 10 of 78
<PAGE>

PERFORMANCE INFORMATION

This bar chart shows changes in the performance of the Portfolio's Institutional
Class shares from year to year for two years.

<TABLE>
<S> <C>
1997 X.XX%
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED DECEMBER 31, 1998, TO THOSE OF THE IBC FINANCIAL FIRST TIER,
INSTITUTIONAL-ONLY AVERAGE.

<TABLE>
<CAPTION>
INSTITUTIONAL CLASS 1 YEAR SINCE INCEPTION
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
MONEY MARKET PORTFOLIO X.XX% X.XX%*
IBC FINANCIAL FIRST TIER, INSTITUTIONAL-ONLY AVERAGE X.XX% X.XX%**
</TABLE>

* Since 3/20/96
** Since _______

WHAT IS AN AVERAGE?

PORTFOLIO FEES AND EXPENSES

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)

Page 11 of 78
<PAGE>

Money Market Portfolio -- Institutional Class ____%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

The Example also assumes that each year your investment has a 5% return and
Portfolio expenses remain the same. Although your actual costs and returns
might be different, your approximate costs of investing $10,000 in the Portfolio
would be:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$____ $____ $____ $____
</TABLE>

Page 12 of 78
<PAGE>

TAX-FREE MONEY MARKET PORTFOLIO

PORTFOLIO SUMMARY

<TABLE>
<S> <C>
INVESTMENT GOAL High current income exempt from federal income taxes

INVESTMENT FOCUS Short-term, high-quality municipal money market obligations

SHARE PRICE VOLATILITY Very Low

PRINCIPAL INVESTMENT STRATEGY Investing in tax-exempt U.S. dollar denominated money market securities

INVESTOR PROFILE Conservative investors seeking tax-exempt income through a low-risk, liquid investment
</TABLE>

INVESTMENT STRATEGY OF THE TAX-FREE MONEY MARKET PORTFOLIO

The Tax-Free Money Market Portfolio invests substantially all of its assets in a
broad range of high-quality, short-term municipal money market instruments that
pay interest that is exempt from federal income taxes. The issuers of these
securities may be state and local governments and agencies located in any of the
fifty states, the District of Columbia, Puerto Rico and other U.S. territories
and possessions. The Portfolio is well diversified among issuers and comprised
only of short-term debt securities that are rated in the two highest categories
by nationally recognized statistical ratings organizations or determined by the
Advisor to be of equal credit quality. The Portfolio will not invest in
securities subject to the Alternative Minimum Tax or in taxable municipal
securities.

In selecting securities for the Portfolio, the Advisor considers factors such as
current yield, the anticipated level of interest rates, and the maturity of the
instrument relative to the maturity of the entire Portfolio. In addition, the
Portfolio may only purchase securities that meet certain SEC requirements.
Under these requirements, the Portfolio's securities must have remaining
maturities of 397 days or less, and the Portfolio must have an average maturity
of 90 days or less.

PRINCIPAL RISKS OF INVESTING IN THE TAX-FREE MONEY MARKET PORTFOLIO

Page 13 of 78
<PAGE>

PERFORMANCE INFORMATION

This bar chart shows changes in the performance of the Portfolio's Institutional
Class shares from year to year for two years.

<TABLE>
<S> <C>
1997 X.XX%
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED DECEMBER 31, 1998, TO THOSE OF THE IBC FINANCIAL TAX-FREE,
INSTITUTIONAL-ONLY AVERAGE.

<TABLE>
<CAPTION>
INSTITUTIONAL CLASS 1 YEAR SINCE INCEPTION
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
TAX-FREE MONEY MARKET PORTFOLIO X.XX% X.XX%*
IBC FINANCIAL TAX-FREE, INSTITUTIONAL-ONLY AVERAGE X.XX% X.XX%**
</TABLE>

* Since 4/1/96
** Since _______

WHAT IS AN AVERAGE?

PORTFOLIO FEES AND EXPENSES

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)

Page 14 of 78
<PAGE>

Tax-Free Money Market Portfolio -- Institutional Class ____%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

The Example also assumes that each year your investment has a 5% return and
Portfolio expenses remain the same. Although your actual costs and returns
might be different, your approximate costs of investing $10,000 in the Portfolio
would be:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$____ $____ $____ $____
</TABLE>

Page 15 of 78
<PAGE>

SHORT-TERM TREASURY PORTFOLIO

PORTFOLIO SUMMARY

<TABLE>
<S> <C>
INVESTMENT GOAL Current income with relative stability of principal

INVESTMENT FOCUS Short-term U.S. Treasury securities

SHARE PRICE VOLATILITY Low

PRINCIPAL INVESTMENT STRATEGY Investing in short-term fixed income securities issued or guaranteed by the U.S.
Treasury

INVESTOR PROFILE Investors seeking to preserve principal and earn current income

</TABLE>

INVESTMENT STRATEGY OF THE SHORT-TERM TREASURY PORTFOLIO

In selecting securities for the Portfolio, the Advisor considers a security's
current yield, capital appreciation potential, maturity and yield to maturity.
The Advisor will monitor changing economic conditions and trends, including
interest rates, and may sell securities in anticipation of an increase in
interest rates or purchase securities in anticipation of a decrease in interest
rates.

Due to its investment strategy, the Portfolio may buy and sell securities
frequently. This may result in higher transaction costs and additional capital
gains tax liabilities.

PRINCIPAL RISKS OF INVESTING IN THE SHORT-TERM TREASURY PORTFOLIO

Although the Portfolio's U.S. Treasury securities are considered to be among the
safest investments, they are not guaranteed against price movements due to
changing interest rates.

Page 16 of 78
<PAGE>

PERFORMANCE INFORMATION

This bar chart shows changes in the performance of the Portfolio's Institutional
Class shares from year to year for two years.

<TABLE>
<S> <C>
1997 X.XX%
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED DECEMBER 31, 1998, TO THOSE OF THE LEHMAN 1-3 YEAR GOVERNMENT
BOND INDEX.

<TABLE>
<CAPTION>
INSTITUTIONAL CLASS 1 YEAR SINCE INCEPTION
---------------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM TREASURY PORTFOLIO X.XX% X.XX%*
LEHMAN 1-3 YEAR GOVERMENT BOND INDEX X.XX% X.XX%**
</TABLE>

* Since 9/9/96
** Since ______

WHAT IS AN INDEX?

PORTFOLIO FEES AND EXPENSES

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)

Page 17 of 78
<PAGE>

Short-Term Treasury Portfolio -- Institutional Class ____%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

The Example also assumes that each year your investment has a 5% return and
Portfolio expenses remain the same. Although your actual costs and returns
might be different, your approximate costs of investing $10,000 in the Portfolio
would be:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$____ $____ $____ $____

</TABLE>

Page 18 of 78
<PAGE>

SHORT-TERM BOND PORTFOLIO

PORTFOLIO SUMMARY

<TABLE>
<S> <C>
INVESTMENT GOAL Current income

INVESTMENT FOCUS Short-term fixed income securities

SHARE PRICE VOLATILITY Low

PRINCIPAL INVESTMENT STRATEGY Investing in short-term investment-grade fixed income securities of U.S. issuers

INVESTOR PROFILE Investors seeking current income who are willing to accept the risks of investing
in fixed income securities
</TABLE>

INVESTMENT STRATEGY OF THE SHORT-TERM BOND PORTFOLIO

The Short-Term Bond Portfolio invests primarily in U.S. corporate and government
securities, including mortgage- and asset-backed securities. The Portfolio's
Advisor will select investment-grade securities and unrated securities
determined to be of comparable quality. The average maturity of the Portfolio's
investments will vary depending on market conditions, but will typically be
between one and three years.

Due to its investment strategy, the Portfolio may buy and sell securities
frequently. This may result in higher transaction costs and additional capital
gains tax liabilities.

PRINCIPAL RISKS OF INVESTING IN THE SHORT-TERM BOND PORTFOLIO

The prices of the Portfolio's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Portfolio's fixed income securities will decrease in value if
interest rates rise and vice versa, and the volatility of lower rated securities
is even greater than that of higher rated securities. Also, longer-term
securities are generally more volatile, so the average maturity or duration of
these securities affects risk.

Page 19 of 78
<PAGE>

others are backed solely by the ability of the agency to borrow from the U.S.
Treasury or by the agency's own resources.

PERFORMANCE INFORMATION

This bar chart shows changes in the performance of the Portfolio's Institutional
Class shares from year to year for two years.

<TABLE>
<S> <C>
1997 X.XX%
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDES DECEMBER 31, 1998, TO THOSE OF THE LEHMAN 1-3 YEAR GOVERNMENT
BOND INDEX.

<TABLE>
<CAPTION>
INSTITUTIONAL CLASS 1 YEAR SINCE INCEPTION
---------------------------------------------------------------------------------------------------
<S> <C> <C>
SHORT-TERM BOND PORTFOLIO X.XX% X.XX%*
LEHMAN 1-3 YEAR GOVERNMENT BOND INDEX X.XX% X.XX%**
</TABLE>

* Since 4/1/96
** Since _____

WHAT IS AN INDEX?

PORTFOLIO FEES AND EXPENSES

Page 20 of 78
<PAGE>

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)

Short-Term Bond Portfolio -- Institutional Class ____%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

The Example also assumes that each year your investment has a 5% return and
Portfolio expenses remain the same. Although your actual costs and returns
might be different, your approximate costs of investing $10,000 in the Portfolio
would be:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$____ $____ $____ $____
</TABLE>

Page 21 of 78
<PAGE>

INTERMEDIATE FIXED INCOME PORTFOLIO

PORTFOLIO SUMMARY

<TABLE>
<S> <C>
INVESTMENT GOAL Current income

INVESTMENT FOCUS Intermediate-term investment-grade fixed income securities

SHARE PRICE VOLATILITY Low to medium

PRINCIPAL INVESTMENT STRATEGY Investing in intermediate-term government and corporate fixed income securities

INVESTOR PROFILE Investors seeking current income who are willing to accept the risks of investing
in fixed income securities
</TABLE>

INVESTMENT STRATEGY OF THE INTERMEDIATE FIXED INCOME PORTFOLIO

PRINCIPAL RISKS OF INVESTING IN THE INTERMEDIATE FIXED INCOME PORTFOLIO

Although the Portfolio's U.S. government securities are considered to be among
the safest investments, they are not guaranteed against price movements due to
changing interest rates.

Page 22 of 78
<PAGE>

PERFORMANCE INFORMATION

This bar chart shows changes in the performance of the Portfolio's Institutional
Class shares from year to year for two years.

<TABLE>
<S> <C>
1997 X.XX%
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED DECEMBER 31, 1998, TO THOSE OF THE LEHMAN INTERMEDIATE
GOVERNMENT/CORPORATE BOND INDEX.

<TABLE>
<CAPTION>
INSTITUTIONAL CLASS 1 YEAR SINCE INCEPTION
---------------------------------------------------------------------------------------------------
<S> <C> <C>
INTERMEDIATE FIXED INCOME PORTFOLIO X.XX% X.XX%*
LEHMAN INTERMEDIATE GOVERMENT/CORPORATE BOND INDEX X.XX% X.XX%**
</TABLE>

* Since 11/18/96
** Since ______

WHAT IS AN INDEX?

An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment Advisor
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower. The Lehman Intermediate Government/Corporate Bond
Index is a widely-recognized, market value-weighted (higher market value bonds
have more influence than lower market value bonds) index of U.S. Treasury
securities, U.S. government agency obligations, corporate debt securities backed
by the U.S. government, fixed-rate nonconvertible corporate debt securities,
Yankee bonds and nonconvertible debt securities issued by or guaranteed by
foreign governments and agencies. All securities in the index are rated
investment grade (BBB) or higher, with maturities of 1 to 10 years.

PORTFOLIO FEES AND EXPENSES

Page 23 of 78
<PAGE>

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)

Intermediate Fixed Income Portfolio -- Institutional Class ____%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

The Example also assumes that each year your investment has a 5% return and
Portfolio expenses remain the same. Although your actual costs and returns
might be different, your approximate costs of investing $10,000 in the Portfolio
would be:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$____ $____ $____ $____
</TABLE>

Page 24 of 78
<PAGE>

U.S. GOVERNMENT BOND PORTFOLIO

PORTFOLIO SUMMARY

<TABLE>
<S> <C>
INVESTMENT GOAL Current income

INVESTMENT FOCUS U.S. government securities

SHARE PRICE VOLATILITY Low to medium

PRINCIPAL INVESTMENT STRATEGY Investing in U.S. government fixed income securities

INVESTOR PROFILE Investors seeking current income who are willing to accept the risks of investing
in fixed income securities
</TABLE>

INVESTMENT STRATEGY OF THE U.S. GOVERNMENT BOND PORTFOLIO

The U.S. Government Bond Portfolio invests primarily in fixed-income securities
issued or guaranteed by the U.S. government and its agencies or
instrumentalities, including mortgage-backed securities. The Portfolio also
invests in a range of investment-grade corporate fixed income securities. The
Portfolio normally invests in intermediate-term securities, and the Portfolio
will typically have an average maturity of between three and ten years.
However, the Portfolio has no maturity restrictions, and the average maturity of
the Portfolio's investments will vary depending on market conditions.

Due to its investment strategy, the Portfolio may buy and sell securities
frequently. This may result in higher transaction costs and additional capital
gains tax liabilities.

PRINCIPAL RISKS OF INVESTING IN THE U.S. GOVERNMENT BOND PORTFOLIO

Although the Portfolio's U.S. government securities are considered to be among
the safest investments, they are not guaranteed against price movements due to
changing interest rates.

Page 25 of 78
<PAGE>

PERFORMANCE INFORMATION

This bar chart shows changes in the performance of the Portfolio's Institutional
Class shares from year to year for two years.

<TABLE>
<S> <C>
1997 X.XX%
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED DECEMBER 31, 1998, TO THOSE OF THE LEHMAN INTERMEDIATE
GOVERNMENT/CORPORATE BOND INDEX AND THE LEHMAN AGGREGATE BOND INDEX.

<TABLE>
<CAPTION>
INSTITUTIONAL CLASS 1 YEAR SINCE INCEPTION
---------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT BOND PORTFOLIO X.XX% X.XX%*
LEHMAN INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX X.XX% X.XX%**
LEHMAN AGGREGATE BOND INDEX X.XX% X.XX%**
</TABLE>

* Since 4/1/96
** Since ______

WHAT IS AN INDEX?

An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment Advisor
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower. The Lehman Intermediate Government/Corporate Bond
Index is a widely-recognized, market value-weighted (higher market value bonds
have more influence than lower market value bonds) index of U.S. Treasury
securities, U.S. government agency obligations, corporate debt securities,
fixed-rate nonconvertible corporate debt securities, Yankee bonds and
nonconvertible debt securities issued by or guaranteed by foreign governments
and agencies. All securities in the index are rated investment grade (BBB) or
higher, with maturities of 1 to 10 years. The Lehman Aggregate Bond Index is a
widely-recognized, market-value-weighted (higher market value bonds have more
influence than lower market value bonds) index of U.S. government obligations,
corporate debt securities, and AAA rated mortgage-backed securities. All
securities in the index are rated investment grade (BBB) or higher, with
maturities of at least one year.

PORTFOLIO FEES AND EXPENSES

Page 26 of 78
<PAGE>

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)

U.S. Goverment Bond Portfolio -- Institutional Class ____%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

The Example also assumes that each year your investment has a 5% return and
Portfolio expenses remain the same. Although your actual costs and returns
might be different, your approximate costs of investing $10,000 in the Portfolio
would be:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$____ $____ $____ $____
</TABLE>

Page 27 of 78
<PAGE>

INCOME PORTFOLIO

PORTFOLIO SUMMARY

INVESTMENT GOAL Current income and capital growth

INVESTMENT FOCUS Investment-grade fixed income securities

SHARE PRICE VOLATILITY Medium

PRINCIPAL INVESTMENT STRATEGY Investing in government and corporate fixed income securities with varying
maturities

INVESTOR PROFILE Investors seeking current income and growth of capital who are willing to accept
the risks of investing in fixed income

</TABLE>

INVESTMENT STRATEGY OF THE INCOME PORTFOLIO

Due to its investment strategy, the Portfolio may buy and sell securities
frequently. This may result in higher transaction costs and additional capital
gains tax liabilities.

PRINCIPAL RISKS OF INVESTING IN THE INCOME PORTFOLIO

Page 28 of 78
<PAGE>

Although the Portfolio's U.S. government securities are considered to be among
the safest investments, they are not guaranteed against price movements due to
changing interest rates.

PERFORMANCE INFORMATION

This bar chart shows changes in the performance of the Portfolio's Institutional
Class shares from year to year for five years.

<TABLE>
<S> <C>
1994 X.XX%
1995 X.XX%
1996 X.XX%
1997 X.XX%
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED DECEMBER 31, 1998, TO THOSE OF THE LEHMAN AGGREGATE BOND INDEX.

<TABLE>
<CAPTION>
INSTITUTIONAL CLASS 1 YEAR SINCE INCEPTION
---------------------------------------------------------------------------------------------------
<S> <C> <C>
INCOME PORTFOLIO X.XX% X.XX%*
LEHMAN AGGREGATE BOND INDEX X.XX% X.XX%**
</TABLE>

* Since 7/16/93
* Since ______

WHAT IS AN INDEX?

Page 29 of 78
<PAGE>

lower market value bonds) index of U.S. government obligations, corporate debt
securities, and AAA rated mortgage-backed securities. All securities in the
index are rated investment grade (BBB) or higher, with maturities of at least
one year.

PORTFOLIO FEES AND EXPENSES

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)

Income Portfolio -- Institutional Class ____%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

The Example also assumes that each year your investment has a 5% return and
Portfolio expenses remain the same. Although your actual costs and returns
might be different, your approximate costs of investing $10,000 in the Portfolio
would be:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$____ $____ $____ $____
</TABLE>

Page 30 of 78
<PAGE>

MARYLAND TAX-FREE PORTFOLIO

PORTFOLIO SUMMARY

<TABLE>
<S> <C>
INVESTMENT GOAL Current income exempt from federal and Maryland state and local income taxes

INVESTMENT FOCUS Maryland municipal securities

SHARE PRICE VOLATILITY Low to medium

PRINCIPAL INVESTMENT STRATEGY Investing in attractively-priced Maryland municipal securities

INVESTOR PROFILE Investors seeking income exempt from federal and Maryland state and local income
taxes
</TABLE>

INVESTMENT STRATEGY OF THE MARYLAND TAX-FREE PORTFOLIO

The Maryland Tax-Free Portfolio invests primarily in municipal securities that
generate income exempt from federal and Maryland State and local income taxes.
The principal issuers of these securities are state and local governments and
agencies located in Maryland, as well as the District of Columbia, Puerto Rico
and other U.S. territories and possessions. The Portfolio normally invests in
securities with long and intermediate maturities, and the Portfolio will
typically have an average maturity of seven to twelve years. However, the
Portfolio has no maturity restrictions, and the average maturity of the
Portfolio's investments will vary depending on market conditions.

In selecting securities, the Portfolio's Advisor considers the future direction
of interest rates and the shape of the yield curve, as well as credit quality
and sector allocation issues. Normally, the Portfolio's assets will be invested
in securities that are not subject to federal taxes, including the Alternative
Minimum Tax.

PRINCIPAL RISKS OF INVESTING IN THE MARYLAND TAX-FREE PORTFOLIO

The prices of the Portfolio's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Portfolio's fixed income securities will decrease in value if
interest rates rise and vice versa, and the volatility of lower rated securities
is even greater than that of higher rated securities. Also, longer-term
securities are generally more volatile, so the average maturity or duration of
these securities affects risk.

The Portfolio's concentration of investments in securities of issuers located in
Maryland subjects the Portfolio to the effects of economic and government
policies of Maryland.

Page 31 of 78
<PAGE>

PERFORMANCE INFORMATION

This bar chart shows changes in the performance of the Portfolio's Institutional
Class shares from year to year for two years.

<TABLE>
<S> <C>
1997 X.XX%
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED DECEMBER 31, 1998, TO THOSE OF THE LEHMAN 10 YEAR MUNICIPAL
BOND INDEX AND THE LEHMAN 7 YEAR MUNICIPAL BOND INDEX.

<TABLE>
<CAPTION>
INSTITUTIONAL CLASS 1 YEAR SINCE INCEPTION
---------------------------------------------------------------------------------------------------
<S> <C> <C>
MARYLAND TAX-FREE PORTFOLIO X.XX% X.XX%*
LEHMAN 10 YEAR MUNICIPAL BOND INDEX X.XX% X.XX%**
LEHMAN 7 YEAR MUNICIPAL BOND INDEX X.XX% X.XX%**
</TABLE>

* Since 11/16/96
** Since _______

WHAT IS AN INDEX?

Page 32 of 78
<PAGE>

PORTFOLIO FEES AND EXPENSES

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)

Maryland Tax-Free Portfolio -- Institutional Class ____%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

The Example also assumes that each year your investment has a 5% return and
Portfolio expenses remain the same. Although your actual costs and returns
might be different, your approximate costs of investing $10,000 in the Portfolio
would be:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$____ $____ $____ $____
</TABLE>

Page 33 of 78
<PAGE>

PENNSYLVANIA TAX-FREE PORTFOLIO

PORTFOLIO SUMMARY

INVESTMENT GOAL Current income exempt from federal and Pennsylvania state income taxes

INVESTMENT FOCUS Pennsylvania municipal securities

SHARE PRICE VOLATILITY Low to medium

PRINCIPAL INVESTMENT STRATEGY Investing in attractively-priced Pennsylvania municipal securities

INVESTOR PROFILE Investors seeking income exempt from federal and Pennsylvania state income taxes
</TABLE>

INVESTMENT STRATEGY OF THE PENNSYLVANIA TAX-FREE PORTFOLIO

The Pennsylvania Tax-Free Portfolio invests primarily in municipal securities
that generate income exempt from federal and Pennsylvania state income taxes.
The principal issuers of these securities are state and local governments and
agencies located in Pennsylvania, as well as the District of Columbia, Puerto
Rico and other U.S. territories and possessions. The Portfolio normally invests
in securities with long and intermediate maturities, and the Portfolio will
typically have an average maturity of seven to twelve years. However, the
Portfolio has no maturity restrictions, and the average maturity of the
Portfolio's investments will vary depending on market conditions.

In selecting securities, the Portfolio's Advisor considers the future direction
of interest rates and the shape of the yield curve, as well as credit quality
and sector allocation issues. Normally, the Portfolio's assets will be invested
in securities that are not subject to federal taxes, including the Alternative
Minimum Tax.

PRINCIPAL RISKS OF INVESTING IN THE PENNSYLVANIA TAX-FREE PORTFOLIO

The prices of the Portfolio's fixed income securities respond to economic
developments, particularly interest rate changes, as well as to perceptions
about the creditworthiness of individual issuers, including governments.
Generally, the Portfolio's fixed income securities will decrease in value if
interest rates rise and vice versa, and the volatility of lower rated securities
is even greater than that of higher rated securities. Also, longer-term
securities are generally more volatile, so the average maturity or duration of
these securities affects risk.

The Portfolio's concentration of investments in securities of issuers located in
Pennsylvania subjects the Portfolio to the effects of economic and government
policies of Pennsylvania.

Page 34 of 78
<PAGE>

PERFORMANCE INFORMATION

This bar chart shows changes in the performance of the Portfolio's Institutional
Class shares from year to year.

<TABLE>
<S> <C>
1997 X.XX%
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED DECEMBER 31, 1998, TO THOSE OF THE LEHMAN 10 YEAR MUNICIPAL
BOND INDEX AND THE LEHMAN 7 YEAR MUNICIPAL INDEX.

<TABLE>
<CAPTION>
INSTITUTIONAL CLASS 1 YEAR SINCE INCEPTION
---------------------------------------------------------------------------------------------------
<S> <C> <C>
PENNSYLVANIA TAX-FREE PORTFOLIO X.XX% X.XX%*
LEHMAN 10 YEAR MUNICIPAL BOND INDEX X.XX% X.XX%**
LEHMAN 7 YEAR MUNICIPAL INDEX X.XX% X.XX%**
</TABLE>

* Since 4/1/96
** Since _____

WHAT IS AN INDEX?

Page 35 of 78
<PAGE>

PORTFOLIO FEES AND EXPENSES

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)

Pennsylvania Tax-Free Portfolio -- Institutional Class ____%

For more information about these fees, see "Investment Advisor " and
"Distribution of Portfolio Shares."

EXAMPLE

The Example also assumes that each year your investment has a 5% return and
Portfolio expenses remain the same. Although your actual costs and returns
might be different, your approximate costs of investing $10,000 in the Portfolio
would be:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$____ $____ $____ $____
</TABLE>

Page 36 of 78
<PAGE>

BALANCED PORTFOLIO

PORTFOLIO SUMMARY

<TABLE>
<S> <C>
INVESTMENT GOAL Long-term total return

INVESTMENT FOCUS Common stocks and fixed income securities

SHARE PRICE VOLATILITY Medium

PRINCIPAL INVESTMENT STRATEGY Investing in stocks and bonds to generate total return

INVESTOR PROFILE Investors seeking total return who are unwilling to tolerate the volatility of
investing solely in equity securities or who are seeking higher income than is
associated with an all equity portfolio
</TABLE>

INVESTMENT STRATEGY OF THE BALANCED PORTFOLIO

Due to its investment strategy, the Portfolio may buy and sell securities
frequently. This may result in higher transaction costs and additional capital
gains tax liabilities.

PRINCIPAL RISKS OF INVESTING IN THE BALANCED PORTFOLIO

Since it purchases equity securities, the Portfolio is subject to the risk that
stock prices will fall over short or extended periods of time. Historically,
the equity markets have moved in cycles, and the value of the Portfolio's equity
securities may fluctuate drastically from day to day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer
a decline in response. These factors contribute to price volatility, which is
the principal risk of investing in the Portfolio.

Page 37 of 78
<PAGE>

even greater than that of higher rated securities. Also, longer-term securities
are generally more volatile, so the average maturity or duration of these
securities affects risk.

The Portfolio is also subject to the risk that the Advisor's asset allocation
decisions will not anticipate market trends successfully. For example,
investing too heavily in common stocks during a stock market decline may result
in a failure to preserve capital. Conversely, investing too heavily in fixed
income securities during a period of stock market appreciation may result in
lower total return.

PERFORMANCE INFORMATION

This bar chart shows changes in the performance of the Portfolio's Institutional
Class shares from year to year for five years.

<TABLE>
<S> <C>
1994 X.XX%
1995 X.XX%
1996 X.XX%
1997 X.XX%
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED DECEMBER 31, 1998, TO THOSE OF THE STANDARD & POOR'S 500
COMPOSITE INDEX AND THE LEHMAN AGGREGATE BOND INDEX.

<TABLE>
<CAPTION>
INSTITUTIONAL CLASS 1 YEAR 5 YEARS SINCE INCEPTION
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCED PORTFOLIO X.XX% X.XX% X.XX%*
STANDARD POOR'S 500 COMPOSITE INDEX X.XX% X.XX% X.XX%**
LEHMAN AGGREGATE BOND INDEX X.XX% X.XX% X.XX%**
</TABLE>

* Since 7/16/93
** Since ______

WHAT IS AN INDEX?

Page 38 of 78
<PAGE>

All securities in the index are rated investment grade (BBB) or higher, with
maturities of at least one year.

PORTFOLIO FEES AND EXPENSES

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)

Balanced Portfolio -- Institutional Class ____%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

The Example also assumes that each year your investment has a 5% return and
Portfolio expenses remain the same. Although your actual costs and returns
might be different, your approximate costs of investing $10,000 in the Portfolio
would be:

<TABLE>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$____ $____ $____ $____
</TABLE>

Page 39 of 78
<PAGE>

EQUITY INCOME PORTFOLIO

PORTFOLIO SUMMARY

<TABLE>
<S> <C>
INVESTMENT GOAL Current income and growth of capital

INVESTMENT FOCUS Dividend-paying U.S. common stocks

SHARE PRICE VOLATILITY Medium to high

PRINCIPAL INVESTMENT STRATEGY Investing in stocks which have an above-average dividend yield relative to the
broad stock market

INVESTOR PROFILE Investors seeking current income and growth of capital who can tolerate the share
price volatility of equity
</TABLE>

INVESTMENT STRATEGY OF THE EQUITY INCOME PORTFOLIO

PRINCIPAL RISKS OF INVESTING IN THE EQUITY INCOME PORTFOLIO

Since it purchases equity securities, the Portfolio is subject to the risk that
stock prices will fall over short or extended periods of time. Historically,
the equity markets have moved in cycles, and the value of the Portfolio's equity
securities may fluctuate drastically from day to day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer
a decline in response. These factors contribute to price volatility, which is
the principal risk of investing in the Portfolio.

PERFORMANCE INFORMATION

Page 40 of 78
<PAGE>

This bar chart shows changes in the performance of the Portfolio's Institutional
Class shares from year to year for two years.

<TABLE>
<S> <C>
1997 X.XX%
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED DECEMBER 31, 1998, TO THOSE OF THE STANDARD & POOR'S 500
COMPOSITE INDEX.

<TABLE>
<CAPTION>
INSTITUTIONAL CLASS 1 YEAR SINCE INCEPTION
---------------------------------------------------------------------------------------------------
<S> <C> <C>
EQUITY INCOME PORTFOLIO X.XX% X.XX%*
STANDARD & POOR'S 500 COMPOSITE INDEX X.XX% X.XX%**
</TABLE>

* Since 11/18/96
** Since _______

WHAT IS AN INDEX?

PORTFOLIO FEES AND EXPENSES

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)

Page 41 of 78
<PAGE>

Equity Income Portfolio -- Institutional Class ____%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

The Example also assumes that each year your investment has a 5% return and
Portfolio expenses remain the same. Although your actual costs and returns
might be different, your approximate costs of investing $10,000 in the Portfolio
would be:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$____ $____ $____ $____
</TABLE>

Page 42 of 78
<PAGE>

EQUITY INDEX PORTFOLIO

PORTFOLIO SUMMARY

<TABLE>
<S> <C>
INVESTMENT GOAL Investment results that correspond to the performance of the Standard & Poor's 500
Composite Stock Price Index (S&P 500)

INVESTMENT FOCUS U.S. common stocks

SHARE PRICE VOLATILITY Medium to high

PRINCIPAL INVESTMENT STRATEGY Attempts to replicate the performance of the S&P 500

INVESTOR PROFILE Investors seeking growth of capital who can tolerate the share price volatility of
equity investing
</TABLE>

INVESTMENT STRATEGY OF THE EQUITY INDEX PORTFOLIO

PRINCIPAL RISKS OF INVESTING IN THE EQUITY INDEX PORTFOLIO

Since it purchases equity securities, the Portfolio is subject to the risk that
stock prices will fall over short or extended periods of time. Historically,
the equity markets have moved in cycles, and the value of the Portfolio's equity
securities may fluctuate drastically from day to day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer
a decline in response. These factors contribute to price volatility, which is
the principal risk of investing in the Portfolio.

The Advisor may not be able to match the performance of the Portfolio's
benchmark.

PERFORMANCE INFORMATION

Page 43 of 78
<PAGE>

This bar chart shows the performance of the Portfolio's Institutional Class
shares for the most recent year.

<TABLE>
<S> <C>
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED DECEMBER 31, 1998, TO THOSE OF THE S&P 500 COMPOSITE STOCK
PRICE INDEX.

<TABLE>
<CAPTION>
INSTITUTIONAL CLASS 1 YEAR SINCE INCEPTION
---------------------------------------------------------------------------------------------------
<S> <C> <C>
EQUITY INDEX PORTFOLIO X.XX% X.XX%*
S&P 500 COMPOSITE STOCK PRICE INDEX X.XX% X.XX%**
</TABLE>

* Since 10/1/97
** Since ______

WHAT IS AN INDEX?

PORTFOLIO FEES AND EXPENSES

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)

Page 44 of 78
<PAGE>

Equity Index Portfolio -- Institutional Class ____%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

The Example also assumes that each year your investment has a 5% return and
Portfolio expenses remain the same. Although your actual costs and returns
might be different, your approximate costs of investing $10,000 in the Portfolio
would be:

<TABLE>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$____ $____ $____ $____
</TABLE>

Page 45 of 78
<PAGE>

BLUE CHIP EQUITY PORTFOLIO

PORTFOLIO SUMMARY

<TABLE>
<S> <C>
INVESTMENT GOAL Long term capital appreciation

INVESTMENT FOCUS Large capitalization U.S. common stocks

SHARE PRICE VOLATILITY Medium to high

PRINCIPAL INVESTMENT STRATEGY Investing in stocks of established large capitalization companies

INVESTOR PROFILE Investors seeking capital appreciation who can tolerate the share price
volatility of equity investing
</TABLE>

INVESTMENT STRATEGY OF THE BLUE CHIP EQUITY PORTFOLIO

The Portfolio invests primarily in common stocks and other equity securities of
established U.S. companies with market capitalizations in excess of $5 billion.
The Portfolio's Advisor generally purchases stocks of companies with at least
ten years of operating history that are recognized leaders in their respective
markets. The Portfolio also may, to a limited extent, purchase stocks of
rapidly growing companies in developing industries, convertible and preferred
stocks, and investment-grade fixed income securities.

PRINCIPAL RISKS OF INVESTING IN THE BLUE CHIP EQUITY PORTFOLIO

Since it purchases equity securities, the Portfolio is subject to the risk that
stock prices will fall over short or extended periods of time. Historically,
the equity markets have moved in cycles, and the value of the Portfolio's equity
securities may fluctuate drastically from day to day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer
a decline in response. These factors contribute to price volatility, which is
the principal risk of investing in the Portfolio.

PERFORMANCE INFORMATION

Page 46 of 78
<PAGE>

This bar chart shows changes in the performance of the Portfolio's Institutional
Class shares from year to year for two years.

<TABLE>
<S> <C>
1997 X.XX%
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED DECEMBER 31, 1998, TO THOSE OF THE STANDARD & POOR'S 500
COMPOSITE STOCK PRICE INDEX.

<TABLE>
<CAPTION>
INSTITUTIONAL CLASS 1 YEAR SINCE INCEPTION
---------------------------------------------------------------------------------------------------
<S> <C> <C>
BLUE CHIP EQUITY PORTFOLIO X.XX% X.XX%*
STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX X.XX% X.XX%**
</TABLE>

* Since 4/1/96
** Since _____

WHAT IS AN INDEX?

PORTFOLIO FEES AND EXPENSES

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)

Page 47 of 78
<PAGE>

Blue Chip Equity Portfolio -- Institutional Class ____%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

The Example also assumes that each year your investment has a 5% return and
Portfolio expenses remain the same. Although your actual costs and returns
might be different, your approximate costs of investing $10,000 in the Portfolio
would be:

<TABLE>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$____ $____ $____ $____
</TABLE>

Page 48 of 78
<PAGE>

MID-CAP EQUITY PORTFOLIO

<TABLE>
<S> <C>
INVESTMENT GOAL Long-term capital appreciation

INVESTMENT FOCUS Medium capitalization U.S. common stocks

SHARE PRICE VOLATILITY High

PRINCIPAL INVESTMENT STRATEGY Investing in stocks of mid-sized companies that have significant growth potential

INVESTOR PROFILE Investors seeking growth of capital who can tolerate the share price volatility
of mid-cap equity investing
</TABLE>

INVESTMENT STRATEGY OF THE MID-CAP EQUITY PORTFOLIO

PRINCIPAL RISKS OF INVESTING IN THE MID-CAP EQUITY PORTFOLIO

Since it purchases equity securities, the Portfolio is subject to the risk that
stock prices will fall over short or extended periods of time. Historically,
the equity markets have moved in cycles, and the value of the Portfolio's equity
securities may fluctuate drastically from day to day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer
a decline in response. These factors contribute to price volatility, which is
the principal risk of investing in the Portfolio.

PERFORMANCE INFORMATION

Page 49 of 78
<PAGE>

This bar chart shows changes in the performance of the Portfolio's Institutional
Class shares from year to year for two years.

<TABLE>
<S> <C>
1997 X.XX%
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED DECEMBER 31, 1998, TO THOSE OF THE [insert index name].

<TABLE>
<CAPTION>
INSTITUTIONAL CLASS 1 YEAR SINCE INCEPTION
---------------------------------------------------------------------------------------------------
<S> <C> <C>
MID-CAP EQUITY PORTFOLIO X.XX% X.XX%*
[insert index name] X.XX% X.XX%**
</TABLE>

* Since 11/18/96
** Since _______

WHAT IS AN INDEX?

PORTFOLIO FEES AND EXPENSES

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)

Mid-Cap Equity Portfolio -- Institutional Class ____%

Page 50 of 78
<PAGE>

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

The Example also assumes that each year your investment has a 5% return and
Portfolio expenses remain the same. Although your actual costs and returns
might be different, your approximate costs of investing $10,000 in the Portfolio
would be:

<TABLE>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$____ $____ $____ $____
</TABLE>

Page 51 of 78
<PAGE>

VALUE EQUITY PORTFOLIO

<TABLE>
<S> <C>
INVESTMENT GOAL Growth of principal

INVESTMENT FOCUS U.S. common stocks

SHARE PRICE VOLATILITY Medium to high

PRINCIPAL INVESTMENT STRATEGY Investing in undervalued stocks of U.S. companies

INVESTOR PROFILE Investors seeking long-term growth of principal who can tolerate the share price
volatility of equity investing
</TABLE>

INVESTMENT STRATEGY OF THE VALUE EQUITY PORTFOLIO

In selecting investments for the Portfolio, the Advisor emphasizes stocks with
higher-than-average sales growth, higher-than-average return on equity,
above-average free cash flow, and return on invested capital that exceeds the
cost of capital. The Advisor will also weigh corporate management's ability to
adjust to the dynamics of rapidly-changing economic and business conditions.
The Advisor's investment approach is based on the conviction that, over the long
term, broad-based economic growth will be reflected in the growth of the
revenues and earnings of publicly-held corporations.

PRINCIPAL RISKS OF INVESTING IN THE VALUE EQUITY PORTFOLIO

Since it purchases equity securities, the Portfolio is subject to the risk that
stock prices will fall over short or extended periods of time. Historically,
the equity markets have moved in cycles, and the value of the Portfolio's equity
securities may fluctuate drastically from day to day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer
a decline in response. These factors contribute to price volatility, which is
the principal risk of investing in the Portfolio.

PERFORMANCE INFORMATION

This bar chart shows changes in the performance of the Portfolio's Institutional
Class shares from year to year for two years.

<TABLE>
<S> <C>
1997 X.XX%
1998 X.XX%

Page 52 of 78
<PAGE>

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED DECEMBER 31, 1998, TO THOSE OF THE S&P 500 VALUE INDEX.

<TABLE>
<CAPTION>
INSTITUTIONAL CLASS 1 YEAR SINCE INCEPTION
---------------------------------------------------------------------------------------------------
<S> <C> <C>
VALUE EQUITY PORTFOLIO X.XX% X.XX%*
S&P 500 VALUE INDEX X.XX% X.XX%**
</TABLE>

* Since 4/1/96
** Since _____

WHAT IS AN INDEX?

PORTFOLIO FEES AND EXPENSES

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)

Value Equity Portfolio -- Institutional Class ____%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

Page 53 of 78
<PAGE>

EXAMPLE

The Example also assumes that each year your investment has a 5% return and
Portfolio expenses remain the same. Although your actual costs and returns
might be different, your approximate costs of investing $10,000 in the Portfolio
would be:

<TABLE>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$____ $____ $____ $____
</TABLE>

Page 54 of 78
<PAGE>

CAPITAL GROWTH PORTFOLIO

<TABLE>
<S> <C>
INVESTMENT GOAL Long-term capital appreciation

INVESTMENT FOCUS U.S. common stocks of various market capitalizations

SHARE PRICE VOLATILITY Medium to high

PRINCIPAL INVESTMENT STRATEGY Investing in stocks that offer above-average growth potential

INVESTOR PROFILE Investors seeking capital appreciation who can tolerate the share price
volatility of equity investing
</TABLE>

INVESTMENT STRATEGY OF THE CAPITAL GROWTH PORTFOLIO

The Capital Growth Portfolio invests primarily in common stocks and other equity
securities, including preferred securities. The Portfolio's Advisor will build
a broadly-diversified portfolio of stocks with above average capital growth
potential.

Due to its investment strategy, the Portfolio may buy and sell securities
frequently. This may result in higher transaction costs and additional capital
gains tax liabilities.

PRINCIPAL RISKS OF INVESTING IN THE CAPITAL GROWTH PORTFOLIO

Since it purchases equity securities, the Portfolio is subject to the risk that
stock prices will fall over short or extended periods of time. Historically,
the equity markets have moved in cycles, and the value of the Portfolio's equity
securities may fluctuate drastically from day to day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer
a decline in response. These factors contribute to price volatility, which is
the principal risk of investing in the Portfolio.

The smaller capitalization companies the Portfolio invests in may be more
vulnerable to adverse business or economic events than larger, more established
companies. In particular, these small companies may have limited product lines,
markets and financial resources, and may depend upon a relatively small
management group. Therefore, small cap stocks may be more volatile than those
of larger companies. These securities may be traded over the counter or listed
on an exchange and may or may not pay dividends.

Page 55 of 78
<PAGE>

PERFORMANCE INFORMATION

This bar chart shows changes in the performance of the Portfolio's Institutional
Class shares from year to year for five years.

<TABLE>
<S> <C>
1994 X.XX%
1995 X.XX%
1996 X.XX%
1997 X.XX%
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED DECEMBER 31, 1998, TO THOSE OF THE STANDARD & POOR'S 500
COMPOSITE INDEX.

<TABLE>
<CAPTION>
INSTITUTIONAL CLASS 1 YEAR 5 YEARS SINCE INCEPTION
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CAPITAL GROWTH PORTFOLIO X.XX% X.XX% X.XX%*
STANDARD POOR'S 500 COMPOSITE INDEX X.XX% X.XX% X.XX%**
</TABLE>

* Since 7/16/93
** Since ______

WHAT IS AN INDEX?

Page 56 of 78
<PAGE>

PORTFOLIO FEES AND EXPENSES

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)

Capital Growth Portfolio -- Institutional Class ____%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

The Example also assumes that each year your investment has a 5% return and
Portfolio expenses remain the same. Although your actual costs and returns
might be different, your approximate costs of investing $10,000 in the Portfolio
would be:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$____ $____ $____ $____
</TABLE>

Page 57 of 78
<PAGE>

SMALL-CAP EQUITY PORTFOLIO

<TABLE>
<S> <C>
INVESTMENT GOAL Long-term capital appreciation

INVESTMENT FOCUS Common stock of small capitalization U.S. issuers

SHARE PRICE VOLATILITY High

PRINCIPAL INVESTMENT STRATEGY Investing in stocks of smaller companies with long-term earnings growth potential

INVESTOR PROFILE Investors seeking long-term capital appreciation who can tolerate the share price
volatility of small cap equity investing
</TABLE>

INVESTMENT STRATEGY OF THE SMALL-CAP EQUITY PORTFOLIO

The Small-Cap Equity Portfolio invests primarily in common stocks and other
equity securities of U.S. issuers. The Portfolio's Advisor purchases stocks of
smaller companies that are in the early stages of development and which the
Advisor believes have the potential to achieve substantial long-term earnings
growth. Generally, the Portfolio invests in companies with market
capitalizations of $2.0 billion or less at the time of investment. The
Portfolio may also invest in securities rated below investment-grade ("junk
bonds") and in foreign securities and currency contracts.

In selecting investments for the Portfolio, the Advisor purchases securities of
small cap U.S. companies with strong earnings growth potential. The Advisor may
also purchase stocks of companies that are experiencing unusual, non-repetitive
"special" situations (such as mergers or spinoffs) or that have valuable fixed
assets whose value is not fully reflected in a stock's price. The Advisor may
also purchase stocks of smaller companies that it believes are undervalued
relative to their assets, earnings or growth potential.

Due to its investment strategy, the Portfolio may buy and sell securities
frequently. This may result in higher transaction costs and additional capital
gains tax liabilities.

PRINCIPAL RISKS OF INVESTING IN THE SMALL-CAP EQUITY PORTFOLIO

Since it purchases equity securities, the Portfolio is subject to the risk that
stock prices will fall over short or extended periods of time. Historically,
the equity markets have moved in cycles, and the value of the Portfolio's equity
securities may fluctuate drastically from day to day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may suffer
a decline in response. These factors contribute to price volatility, which is
the principal risk of investing in the Portfolio.

Page 58 of 78
<PAGE>

than those of larger companies. These securities may be traded over the counter
or listed on an exchange and may or may not pay dividends.

PERFORMANCE INFORMATION

This bar chart shows changes in the performance of the Portfolio's Institutional
Class shares from year to year for three years.

<TABLE>
<S> <C>
1996 X.XX%
1997 X.XX%
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED DECEMBER 31, 1998, TO THOSE OF THE RUSSELL 2000 INDEX AND THE
RUSSELL 2000 GROWTH INDEX.

<TABLE>
<CAPTION>
INSTITUTIONAL CLASS 1 YEAR SINCE INCEPTION
---------------------------------------------------------------------------------------------------
<S> <C> <C>
SMALL-CAP EQUITY PORTFOLIO X.XX% X.XX%*
RUSSELL 2000 INDEX X.XX% X.XX%**
RUSSELL 2000 GROWTH INDEX X.XX% X.XX%**
</TABLE>

* Since 7/13/95
** Since ______

WHAT IS AN INDEX?

An index measures the market prices of a specific group of securities in a
particular market or securities in a market sector. You cannot invest directly
in an index. Unlike a mutual fund, an index does not have an investment Advisor
and does not pay any commissions or expenses. If an index had expenses, its
performance would be lower. Russell 2000 Index is a widely-recognized,
capitalization-weighted (companies with larger market capitalizations have more
influence than those with smaller market capitilizations) index of the 2000
largest U.S. companies with lower growth rates and price-to book ratios.
Russell 2000 Growth Index is a widely-recognized, capitalization-weighted
(companies with larger market capitalizations have more influence than those
with smaller market capitilizations) index of the 2000 largest U.S. companies
with lower growth rates and price-to book ratios.

PORTFOLIO FEES AND EXPENSES

Page 59 of 78
<PAGE>

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)

Small-Cap Equity Portfolio -- Institutional Class ____%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

EXAMPLE

The Example also assumes that each year your investment has a 5% return and
Portfolio expenses remain the same. Although your actual costs and returns
might be different, your approximate costs of investing $10,000 in the Portfolio
would be:

<TABLE>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$____ $____ $____ $____
</TABLE>

Page 60 of 78
<PAGE>

INTERNATIONAL EQUITY SELECTION PORTFOLIO

INVESTMENT GOAL Long-term capital appreciation

INVESTMENT FOCUS Investment companies that invest in equity securities of non-U.S. issuers

SHARE PRICE VOLATILITY High

PRINCIPAL INVESTMENT STRATEGY Investing in investment companies that purchase stocks of companies located
outside the U.S.

INVESTOR PROFILE Investors seeking capital appreciation who want to diversify their portfolio
by investing overseas and who can tolerate the risks of international investing

</TABLE>

INVESTMENT STRATEGY OF THE INTERNATIONAL EQUITY SELECTION PORTFOLIO

The International Equity Selection Portfolio invests primarily in shares of
mutual funds that purchase common stocks and other equity securities of
companies located in countries outside the United States. The Portfolio's
Advisor will attempt to build a managed portfolio of international equity funds
which presents the greatest long-term capital growth potential by investing in
various funds managed by different Advisors. In addition to investing in funds
that purchase securities of companies in developed foreign countries, the
Portfolio may also purchase shares of funds that invest in emerging market
countries and individual country funds and, to a limited extent, in global funds
and domestic equity and debt funds.

PRINCIPAL RISKS OF INVESTING IN THE INTERNATIONAL EQUITY SELECTION PORTFOLIO

Since it purchases shares of funds that buy equity securities, the Portfolio is
subject to the risk that stock prices will decline over short or extended
periods of time. Historically, the equity markets have moved in cycles, and the
value of the equity securities that the fund shares the Portfolio owns may
fluctuate drastically from day to day. Individual companies may report poor
results or be negatively affected by industry and/or economic trends and
developments. The prices of securities issued by such companies may suffer a
decline in response. These factors contribute to price volatility, which is the
principal risk of investing in the Portfolio.

Page 61 of 78
<PAGE>

in foreign countries are generally denominated in a foreign currency. As a
result, changes in the value of those currencies compared to the U.S. dollar may
affect (positively or negatively) the value of a Portfolio's investments in fund
shares. These currency movements may happen separately from and in response to
events that do not otherwise affect the value of the security in the issuer's
home country. These various risks will be even greater for investments in
emerging market countries since political turmoil and rapid changes in economic
conditions are more likely to occur in these countries.

Since the Portfolio purchases shares of other funds, shareholders will bear the
costs of the underlying funds and the costs of the Portfolio.

PERFORMANCE INFORMATION

This bar chart shows the performance of the Portfolio's Institutional Class
shares for the most recent year.

<TABLE>
<S> <C>
1998 X.XX%

BEST QUARTER WORST QUARTER
X.XX% X.XX%
(X/X/XX) (X/X/XX)
</TABLE>

THIS TABLE COMPARES THE PORTFOLIO'S AVERAGE ANNUAL TOTAL RETURNS FOR THE
PERIODS ENDED DECEMBER 31, 1998, TO THOSE OF THE MORGAN STANLEY MSCI EAFE
INDEX.

<TABLE>
<CAPTION>
INSTITUTIONAL CLASS 1 YEAR SINCE INCEPTION
---------------------------------------------------------------------------------------------------
<S> <C> <C>
INTERNATIONAL EQUITY SELECTION PORTFOLIO X.XX% X.XX%*
MORGAN STANLEY MSCI EAFE INDEX X.XX% X.XX%**
</TABLE>

* Since 4/1/97
* Since _____

WHAT IS AN INDEX?

PORTFOLIO FEES AND EXPENSES

EVERY MUTUAL FUND HAS OPERATING EXPENSES TO PAY FOR SERVICES SUCH AS
PROFESSIONAL ADVISORY, SHAREHOLDER, DISTRIBUTION, ADMINISTRATION AND CUSTODY
SERVICES AND OTHER COSTS OF DOING BUSINESS.

Page 62 of 78
<PAGE>

THIS TABLE DESCRIBES THE HIGHEST FEES AND EXPENSES THAT YOU MAY PAY INDIRECTLY
IF YOU BUY AND HOLD SHARES OF THE PORTFOLIO.

ANNUAL PORTFOLIO OPERATING EXPENSES (EXPENSES DEDUCTED FROM PORTFOLIO ASSETS)

International Equity Selection Portfolio-- Institutional Class ____%

For more information about these fees, see "Investment Advisor" and
"Distribution of Portfolio Shares."

The expenses set forth above do not reflect the costs of the underlying funds
that are borne by the Portfolio and its shareholders.

EXAMPLE

The Example also assumes that each year your investment has a 5% return and
Portfolio expenses remain the same. Although your actual costs and returns
might be different, your approximate costs of investing $10,000 in the Portfolio
would be:

<TABLE>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$____ $____ $____ $____
</TABLE>

Page 63 of 78
<PAGE>

MORE INFORMATION ABOUT RISK

<TABLE>
<CAPTION>
RISKS PORTFOLIOS AFFECTED BY THE RISKS
<S> <C>
EQUITY RISK -- Equity securities include publicly and privately Balanced Portfolio
issued equity securities, common and preferred stocks, warrants, Equity Income Portfolio
rights to subscribe to common stock and convertible securities, as Equity Index Portfolio
well as instruments that attempt to track the price movement of Blue Chip Equity Portfolio
equity indices. Investments in equity securities and equity Mid-Cap Equity Portfolio
derivatives in general are subject to market risks that may cause Value Equity Portfolio
their prices to fluctuate over time. The value of securities Capital Growth Portfolio
convertible into equity securities, such as warrants or Small-Cap Equity Portfolio
convertible debt, is also affected by prevailing interest rates, International Equity Selection Portfolio
the credit quality of the issuer and any call provision.
Fluctuations in the value of equity securities in which a mutual
fund invests will cause a Portfolio's net asset value to
fluctuate. An investment in a portfolio of equity securities may
be more suitable for long-term investors who can bear the risk of
these share price fluctuations.

FIXED INCOME RISK -- The market values of fixed income investments Short-Term Treasury Portfolio
change in response to interest rate changes and other factors. Short-Term Bond Portfolio
During periods of falling interest rates, the values of Intermediate Fixed Income Portfolio
outstanding fixed income securities generally rise. Moreover, U.S. Government Bond Portfolio
while securities with longer maturities tend to produce higher Income Portfolio
yields, the prices of longer maturity securities are also subject Maryland Tax-Free Portfolio
to greater market fluctuations as a result of changes in interest Pennsylvania Tax-Free Portfolio
rates. In addition to these fundamental risks, different types of Balanced Portfolio
fixed income securities may be subject to the following additional
risks:

CALL RISK -- During periods of falling interest rates, Short-Term Bond Portfolio
may be certain all debt obligations with high interest Intermediate Fixed Income Portfolio
prepaid (or "called") by the issuer prior to maturity. U.S. Government Bond Portfolio
rates. This may cause a Portfolio's average weighted Income Portfolio
maturity to fluctuate, and may require a Portfolio Maryland Tax-Free Portfolio
to invest the resulting proceeds at lower interest rates. Pennsylvania Tax-Free Portfolio
Balanced Portfolio

CREDIT RISK -- The possibility that an issuer will be Short-Term Bond Portfolio
unable to make timely payments of either principal or Intermediate Fixed Income Portfolio
interest. U.S. Government Bond Portfolio
Income Portfolio
Maryland Tax-Free Portfolio
Pennsylvania Tax-Free Portfolio
Balanced Portfolio

Page 64 of 78
<PAGE>

<CAPTION>
RISKS PORTFOLIOS AFFECTED BY THE RISKS
<S> <C>
EVENT RISK -- Securities may suffer declines in credit Short-Term Bond Portfolio
quality and market value due to issuer restructurings or Intermediate Fixed Income Portfolio
other factors. This risk should be reduced because of a Income Portfolio
Portfolio's multiple holdings. Maryland Tax-Free Portfolio
Pennsylvania Tax-Free Portfolio
Balanced Portfolio

MUNICIPAL ISSUER RISK -- There may be economic or Tax-Free Money Market Portfolio
political changes that impact the ability of municipal Maryland Tax-Free Portfolio
issuers to repay principal and to make interest payments Pennsylvania Tax-Free Portfolio
on municipal securities. Changes to the financial
condition or credit rating of municipal issuers may also
adversely affect the value of a Portfolio's municipal
securities. Constitutional or legislative limits on
borrowing by municipal issuers may result in reduced
supplies of municipal securities. Moreover, certain
municipal securities are backed only by a municipal
issuer's ability to levy and collect taxes.

In addition, a Portfolio's concentration of investments Maryland Tax-Free Portfolio
in issuers located in a single state makes the Portfolio Pennsylvania Tax-Free Portfolio
more susceptible to adverse political or economic
developments affecting that state. Such Portfolio also
may be riskier than mutual funds that buy securities of
issuers in numerous states.

FOREIGN SECURITY RISKS -- Investments in securities of foreign International Equity Selection Portfolio
companies or governments can be more volatile than investments in Small-Cap Equity Portfolio
U.S. companies or governments. Diplomatic, political, or economic
developments, including nationalization or appropriation, could
affect investments in foreign countries. Foreign securities
markets generally have less trading volume and less liquidity than
U.S. markets. In addition, the value of securities denominated in
foreign currencies, and of dividends from such securities, can
change significantly when foreign currencies strengthen or weaken
relative to the U.S. dollar. Foreign companies or governments
generally are not subject to uniform accounting, auditing, and
financial reporting standards comparable to those applicable to
U.S. companies or governments. Transaction costs are generally
higher than those in the U.S. and expenses for custodial
arrangements of foreign securities may be somewhat greater than
typical expenses for custodial arrangements of similar U.S.
securities. Some foreign governments levy withholding taxes
against dividend and interest income. Although in some countries
a portion of these taxes are recoverable, the non-recovered

Page 65 of 78
<PAGE>

<CAPTION>
RISKS PORTFOLIOS AFFECTED BY THE RISKS
<S> <C>
portion will reduce the income received from the securities
comprising the Portfolio.

In addition to these risks, certain foreign securities may be
subject to the following additional risks factors:

CURRENCY RISK -- Investments in foreign securities International Equity Selection Portfolio
denominated in foreign currencies involve additional Small-Cap Equity Portfolio
risks, including:

- - The value of a Portfolio's assets measured in U.S.
dollars may be affected by changes in currency rates and
in exchange control regulations.
- - A Portfolio may incur substantial costs in connection
with conversions between various currencies.
- - A Portfolio may be unable to hedge against possible
variations in foreign exchange rates or to hedge a
specific security transaction or portfolio position.
- - Only a limited market currently exists for hedging
transactions relating to currencies in certain emerging
markets.

MORTGAGE-BACKED SECURITIES -- Mortgage-backed securities are fixed Short-Term Bond Portfolio
income securities representing an interest in a pool of underlying Intermediate Fixed Income Portfolio
mortgage loans. They are sensitive to changes in interest rates, U.S. Government Bond Portfolio
but may respond to these changes differently from other fixed Income Portfolio
income securities due to the possibility of prepayment of the Balanced Portfolio
underlying mortgage loans. As a result, it may not be possible to
determine in advance the actual maturity date or average life of a
mortgage-backed security. Rising interest rates tend to
discourage refinancings, with the result that the average life and
volatility of the security will increase, exacerbating its
decrease in market price. When interest rates fall, however,
mortgage-backed securities may not gain as much in market value
because of the expectation of additional mortgage prepayments that
must be reinvested at lower interest rates. Prepayment risk may
make it difficult to calculate the average maturity of a portfolio
of mortgage-backed securities and, therefore, to assess the
volatility risk of that Portfolio.

Page 66 of 78
<PAGE>

<CAPTION>
RISKS PORTFOLIOS AFFECTED BY THE RISKS
<S> <C>
TRACKING ERROR RISK -- Factors such as Portfolio expenses, Equity Index Portfolio
imperfect correlation between the Portfolio's investments and
those of their benchmarks, rounding of share prices, changes to
the benchmark, regulatory policies, and leverage, may affect their
ability to achieve perfect correlation. The magnitude of any
tracking error may be affected by a higher portfolio turnover
rate. Because an index is just a composite of the prices of the
securities it represents rather than an actual portfolio of those
securities, an index will have no expenses. As a result, a
Portfolio, which will have expenses such as custody, management
fees and other operational costs, and brokerage expenses, may not
achieve its investment objective of accurately correlating to an
index.

YEAR 2000 RISK -- The Portfolios depend on the smooth functioning All Portfolios
of computer systems in almost every aspect of their business. Like
other mutual funds, businesses and individuals around the world,
the Portfolios could be adversely affected if the computer systems
used by their service providers do not properly process dates on
and after January 1, 2000, and do not distinguish between the year
2000 and the year 1900. The Portfolios have asked their service
providers whether they expect to have their computer systems
adjusted for the year 2000 transition, and are seeking assurances
from each service provider that they are devoting significant
resources to prevent material adverse consequences to the
Portfolios. While it is likely that such assurances will be
obtained, the Portfolios and their shareholders may experience
losses if these assurances prove to be incorrect or as a result of
year 2000 computer difficulties experienced by issuers of
portfolio securities or third parties, such as custodians, banks,
broker-dealers or others with which the Portfolios do business.

Furthermore, many foreign countries are not as prepared as the International Equity Selection Portfolio
U.S. for the year 2000 transition. As a result, computer Small-Cap Equity Portfolio
difficulties in foreign markets and with foreign institutions as a
result of the year 2000 may add to the possibility of losses to
the Portfolio and its shareholders.
</TABLE>

Page 67 of 78
<PAGE>

EACH PORTFOLIO'S OTHER INVESTMENTS

This prospectus describes the Portfolios' primary strategies, and the Portfolios
will normally invest at least 65% of their assets in the types of securities
described in this prospectus. However, each Portfolio also may invest in other
securities, use other strategies and engage in other investment practices.
These investments and strategies, as well as those described in this prospectus,
are described in detail in our Statement of Additional Information. Of course,
there is no guarantee that any Portfolio will achieve its investment goal.

The investments and strategies described in this prospectus are those that we
use under normal conditions. During unusual economic or market conditions, or
for temporary defensive or liquidity purposes, each Portfolio may invest up to
100% of its assets in cash and short-term securities that may not ordinarily be
consistent with a Portfolio's objectives. A Portfolio will do so only if the
Advisor believes that the risk of loss outweighs the opportunity for capital
gains or higher income.

INVESTMENT ADVISOR

The Advisor makes investment decisions for the Portfolios and continuously
reviews, supervises and administers the Portfolios' respective investment
program. The Board of Trustees of the ARK Funds supervises the Advisor and
establishes policies that the Advisor must follow in its management activities.

Allied Investment Advisors, Inc. (AIA), an affiliate of Allfirst Bank (formerly,
First National Bank of Maryland) (Allfirst) serves as the Advisor to the
Portfolios. As of May 31, 1999, AIA had approximately $_______________ in
assets under management. For the fiscal period ended April 30, 1999, AIA
received advisory fees of:

<TABLE>
<S> <C>
U.S. TREASURY MONEY MARKET PORTFOLIO [VAR:Advisor1.Portfolio1.Fees]%
U.S. GOVERNMENT MONEY MARKET PORTFOLIO [VAR:Advisor1.Portfolio2.Fees]%
MONEY MARKET PORTFOLIO [VAR:Advisor1.Portfolio3.Fees]%
TAX-FREE MONEY MARKET PORTFOLIO [VAR:Advisor1.Portfolio4.Fees]%
SHORT-TERM TREASURY PORTFOLIO [VAR:Advisor1.Portfolio5.Fees]%
SHORT-TERM BOND PORTFOLIO [VAR:Advisor1.Portfolio6.Fees]%
U.S. GOVERNMENT BOND PORTFOLIO [VAR:Advisor1.Portfolio7.Fees]%
INTERMEDIATE FIXED INCOME PORTFOLIO [VAR:Advisor1.Portfolio8.Fees]%
INCOME PORTFOLIO [VAR:Advisor1.Portfolio9.Fees]%
MARYLAND TAX-FREE PORTFOLIO [VAR:Advisor1.Portfolio10.Fees]%
PENNSYLVANIA TAX-FREE PORTFOLIO [VAR:Advisor1.Portfolio11.Fees]%
BALANCED PORTFOLIO [VAR:Advisor1.Portfolio12.Fees]%
EQUITY INCOME PORTFOLIO [VAR:Advisor1.Portfolio13.Fees]%
EQUITY INDEX PORTFOLIO [VAR:Advisor1.Portfolio14.Fees]%
BLUE CHIP EQUITY PORTFOLIO [VAR:Advisor1.Portfolio15.Fees]%
MID-CAP EQUITY PORTFOLIO [VAR:Advisor1.Portfolio16.Fees]%
VALUE EQUITY PORTFOLIO [VAR:Advisor1.Portfolio17.Fees]%
CAPITAL GROWTH PORTFOLIO [VAR:Advisor1.Portfolio18.Fees]%
SMALL-CAP EQUITY PORTFOLIO [VAR:Advisor1.Portfolio19.Fees]%
INTERNATIONAL EQUITY SELECTION PORTFOLIO [VAR:Advisor1.Portfolio20.Fees]%

</TABLE>

Page 68 of 78
<PAGE>

James M. Hannan is a Principal of AIA and manager of the U.S. Treasury Money
Market, U.S. Government Money Market, Money Market and Tax-Free 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 Allfirst since 1987. Prior to 1987
he served as the Treasurer for the City of Hyattsville, Maryland.

Susan S. Schnaars is a Principal of AIA and manager of the Intermediate Fixed
Income Portfolio, Maryland Tax-Free Portfolio and Pennsylvania Tax-Free
Portfolio. Ms. Schnaars is also responsible for managing several 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, and Director of Fixed Income
Investments for, AIA and manager of the Income Portfolio, co-manager, with Ms.
Volk, of the U.S. Government Bond Portfolio, and co-manager, with Mr. Stith, of
the Short-Term Bond Portfolio. Prior to joining Allfirst in January 1996, Mr.
Gradow was responsible for the management of $15 billion of fixed income pension
assets for Washington State Investment Board in Seattle for four years. Mr.
Gradow's experience also includes five years fixed income management for the
Public Employees Retirement System of California (CALPERS).

N. Beth Volk is a Principal of AIA and Senior Fixed Income Credit Analyst
responsible for leading the corporate research efforts of the Fixed Income
Group. Ms. Volk is co-manager, with Mr. Gradow, of the U.S. Government Bond
Portfolio. Prior to 1996, she was the head of corporate fixed income research
at Alex. Brown & Sons. Ms. Volk has over 18 years experience in the industry
and is a Chartered Financial Analyst.

Charles E. Knudsen is a Managing Director of AIA and manager of the Balanced
Portfolio. He follows several equity industry groups. In addition, he is a
senior portfolio manager for key, tax-free institutional accounts, including
pension and profit-sharing plans, foundations, and endowments. Mr. Knudsen has
more than ten years of investment management experience with Allfirst. Mr.
Knudsen is a Chartered Financial Analyst.

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

Allen J. Ashcroft, Jr. is a Principal of AIA and co-manager, with Mr. Randall,
of the Blue Chip Equity Portfolio and manager of the Equity Income Portfolio.
Prior to joining Allfirst, Mr. Ashcroft was an equity analyst and portfolio
manager for McGlinn Capital Management, Wyomissing, Pennsylvania, for 12 years.
Mr. Ashcroft has more than 18 years of experience in investment research and
equity analysis.

Page 69 of 78
<PAGE>

H. Giles Knight is a Principal of AIA and manager of the Small-Cap Equity
Portfolio (formerly the Special Equity Portfolio). Prior to joining Allfirst,
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. Mr. Knight has almost 30 years of
investment experience.

Christopher E. Baggini is a Principal of AIA and manager of the Mid-Cap Equity
Portfolio and the Capital Growth Portfolio. Prior to joining Allfirst, Mr.
Baggini served as portfolio manager and research analyst for First Metropolitan
Development Corporation. He has over 12 years of experience in investment
management, including more than four years at Salomon Brothers with
responsibilities in equity research, sales and trading. Mr. Baggini is a
Chartered Financial Analyst.

J. Eric Leo is a Managing Director of, and Director of Equity Research for AIA.
Mr. Leo is manager of the Value Equity Portfolio and the Equity Index Portfolio.
Prior to 1997, he was Executive Vice President and Chief Investment Officer of
Legg Mason Capital Management, Inc. Mr. Leo has more than 25 years of
experience in investment management, including managing mutual fund portfolios
and accounts for both individuals and institutions.

PURCHASING, SELLING AND EXCHANGING PORTFOLIO SHARES

This section tells you how to buy, sell (sometimes called "redeem") or exchange
Institutional Class shares of the Portfolios.

Institutional Class shares are for individuals, financial institutions and other
entities that have established trust, custodial or money management
relationships with Allfirst or its affiliates or correspondent banks (qualified
accounts). Before you can buy Institutional Class Shares, you must establish a
qualified account. For information on fee schedules and agreements for opening
qualified accounts, call 1-800-624-4116 (inside Maryland 1-800-638-7751).

HOW TO PURCHASE PORTFOLIO SHARES

You may purchase shares of the money market portfolios directly by Federal
Funds, wire or other funds immediately available to the Portfolios. For the
other Portfolios, payment must be received within three Business Days (as
defined below) of your choice. A Portfolio cannot accept checks, third-party
checks, credit cards, credit card checks or cash.

You will have to follow the procedures applicable to qualified accounts. Your
qualified account agreement may require you to pay a fee that is in addition to
the fees charged by the Portfolios.

Page 70 of 78
<PAGE>

It is expected that Allfirst will be the record owner of Institutional Class
Shares held through qualified accounts. Allfirst will supply clients with
quarterly statements showing all account activity.

Shareholders may instruct Allfirst to purchase Institutional Class Shares
automatically at preset intervals. Allfirst may charge additional fees for this
and other services, including cash sweeps. For more information, please call
1-800-624-4116 (inside Maryland 1-800-638-7751).

GENERAL INFORMATION

You may purchase shares on any day that the New York Stock Exchange (NYSE) and
the Federal Reserve are open for business (a Business Day). Shares of the money
market portfolios cannot be purchased by Federal Reserve Wire on days when
either the NYSE or the Federal Reserve is closed.

A Portfolio or its distributor may reject any purchase order if it is determined
that accepting the order would not be in the best interests of the Portfolio or
its shareholders.

The price per share (the offering price) will be the net asset value per share
(NAV) next determined after a Portfolio receives your purchase order. For the
money market portfolios, NAV is expected to remain constant at $1.00 per share.

The U.S. Treasury Money Market Portfolio and Tax-Free Money Market Portfolio
calculate their NAV each Business Day at 12:00 noon Eastern time and 4:00
Eastern time. So, for you to be eligible to receive dividends declared on the
day you submit your purchase order, generally the Portfolio must receive and
accept your order and receive Federal funds (readily available funds) before
12:00 noon Eastern time. For orders received and accepted after 12:00 p.m.
Eastern time but before 4:00 p.m. Eastern time, you will begin earning dividends
on the next Business Day.

The fixed income and equity portfolios each calculate its NAV each Business Day
at 5:00 p.m. Eastern time. So, for your order to be effective the day you
submit your purchase order, generally the Portfolio must receive and accept your
order before 4:00 Eastern time.

When the NYSE or the Federal Reserve Bank of New York (for the money market
portfolios only) close early, the Portfolios will advance the time on any such
day by which purchase orders must be received.

HOW WE CALCULATE NAV

NAV for one Portfolio share is the value of that share's portion of all of the
net assets in the Portfolio.

Some Portfolios hold securities that are listed on foreign exchanges. These
securities may trade on weekends or other days when the Portfolios do not
calculate NAV. As a result, the market value of these Portfolios' investments
may change on days when you cannot purchase or sell Portfolio shares.

Page 71 of 78
<PAGE>

In calculating NAV for the U.S. Treasury Money Market, U.S. Government Money
Market, Money Market and Tax-Free Money Market Portfolios, we generally values
their investment portfolios using the amortized cost valuation method, which is
described in detail in our Statement of Additional Information. If this method
is determined to be unreliable during certain market conditions or for other
reasons, a Portfolio may value its portfolio at market price or fair value
prices may be determined in good faith using methods approved by the Board of
Trustees.

MINIMUM PURCHASES

To purchase shares for the first time, you must invest in any Portfolio at least
$100,000. Within six months, you must achieve and maintain an aggregate balance
of $250,000. Accounts of individual investors or other master accounts may be
aggregated for this purpose.

Your subsequent investments in any Portfolio may be made in any amount.

HOW TO SELL YOUR PORTFOLIO SHARES

Holders of Institutional Class shares may sell shares by telephone or mail by
following procedures established when they opened their qualified account. If
you have questions, call 1-800-624-4116 (inside Maryland 1-800-638-7751).

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

Signatures on the written request must be guaranteed. Signature guarantees may
be obtained from banks or other financial institutions. A notarized signature
is not sufficient.

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

RECEIVING YOUR MONEY

Normally, if we receive your redemption request by 12:00 p.m. Eastern time for
the U.S. Treasury Money Market and Tax Free Money Market Portfolios (1:30 p.m.
Eastern time for the U.S. Government Money Market and Money Market Portfolios)
on any Business Day, we will send your sale proceeds on that day. For the other
Portfolios, if we receive your redemption request before 4:00 Eastern time, we
will wire your redemption proceeds via Federal Funds wire on the next Business
Day. Currently, Allfirst pays the costs of these wires. The Portfolios reserve
the right to charge wire fees to investors. Your proceeds can be wired to your
bank account.

INVOLUNTARY SALES OF YOUR SHARES

If your account balance drops below $250,000, you may be required to sell your
shares. But, we will always give you at least 30 days' written notice to give
you time to add to your account and avoid the sale of your shares.

Page 72 of 78
<PAGE>

SUSPENSION OF YOUR RIGHT TO SELL YOUR SHARES

HOW TO EXCHANGE YOUR SHARES

You may exchange your Institutional Class shares on any Business Day by
contacting us directly by telephone by calling 1-800-624-4116 (inside Maryland
1-800-638-7751).

When you exchange shares, you are really selling your shares and buying other
Portfolio shares. So, your sale price and purchase price will be based on the
NAV next calculated after the Portfolios receive your exchange request. The
Portfolios reserve the right to modify or suspend this exchange privilege.

TELEPHONE TRANSACTIONS

Purchasing, selling and exchanging Portfolio shares over the telephone is
extremely convenient, but not without risk. Although the Portfolios have
certain safeguards and procedures to confirm the identity of callers and the
authenticity of instructions, the Portfolios are not responsible for any losses
or costs incurred by following telephone instructions we reasonably believe to
be genuine. If you or your financial institution transact with the Portfolios
over the telephone, you will generally bear the risk of any loss.

Page 73 of 78
<PAGE>

DISTRIBUTION OF PORTFOLIO SHARES

The Distributor receives no compensation for its distribution of Institutional
Shares.

DIVIDENDS, DISTRIBUTIONS AND TAXES

DIVIDENDS AND DISTRIBUTIONS

Dividends are declared and paid according to the following schedule:

FREQUENCY OF DECLARATION OF FREQUENCY OF PAYMENT OF
PORTFOLIO DIVIDENDS DIVIDENDS
<S> <C> <C>
U.S. Treasury Money Market Portfolio Daily Monthly
U.S. Government Money Market Portfolio Daily Monthly
Money Market Portfolio Daily Monthly
Tax-Free Money Market Portfolio Daily Monthly
Short-Term Treasury Portfolio Daily Monthly
Short-Term Bond Portfolio Daily Monthly
Intermediate Fixed Income Portfolio Daily Monthly
U.S. Government Bond Portfolio Daily Monthly
Income Portfolio Daily Monthly
Maryland Tax-Free Portfolio Daily Monthly
Pennsylvania Tax-Free Portfolio Daily Monthly
Balanced Portfolio Quarterly Quarterly
Equity Income Portfolio Monthly Monthly
Equity Index Portfolio Quarterly Quarterly
Blue Chip Equity Portfolio Quarterly Quarterly
Mid-Cap Equity Portfolio Quarterly Quarterly
Value Equity Portfolio Quarterly Quarterly
Capital Growth Portfolio Annually Annually
Small-Cap Equity Portfolio Annually Annually
International Equity Selection Portfolio Annually Annually
</TABLE>

Each Portfolio makes distributions of capital gains, if any, at least annually.
If you own Portfolio shares on a Portfolio's record date, you will be entitled
to receive the distribution.

You will receive dividends and distributions in the form of additional Portfolio
shares unless you elect to receive payment in cash. To elect cash payment, you
must notify the Portfolio in writing prior to the date of the distribution.
Your election will be effective for dividends and distributions paid after the
Portfolio receives your written notice. To cancel your election, simply send
the Portfolio written notice.

TAXES

PLEASE CONSULT YOUR TAX ADVISOR REGARDING YOUR SPECIFIC QUESTIONS ABOUT FEDERAL,
STATE AND LOCAL INCOME TAXES. Below we have summarized some important tax
issues that affect the Portfolios and their shareholders. This summary is based
on current tax laws, which may change.

Page 74 of 78
<PAGE>

Each Portfolio will distribute substantially all of its income and capital
gains, if any. The dividends and distributions you receive may be subject to
federal, state and local taxation, depending upon your tax situation.
Distributions you receive from a Portfolio may be taxable whether or not you
reinvest them. Income distributions are generally taxable at ordinary income
tax rates. Capital gains distributions are generally taxable at the rates
applicable to long-term capital gains. EACH SALE OR EXCHANGE OF SHARES IS A
TAXABLE EVENT.

The Tax-Free Money Market, Pennsylvania Tax-Free and Maryland Tax-Free
Portfolios intend to distribute federally tax-exempt income. The Portfolio may
invest a portion of its assets in securities that generate taxable income for
federal or state income taxes. Income exempt from federal tax may be subject to
state and local taxes. Any capital gains distributed by the Portfolio may be
taxable.

MORE INFORMATION ABOUT TAXES IS IN THE STATEMENT OF ADDITIONAL INFORMATION.

Page 75 of 78
<PAGE>

FINANCIAL HIGHLIGHTS

The tables that follows presents performance information about Institutional
Class Shares of each Portfolio. This information is intended to help you
understand each Portfolio's financial performance for the past five years, or,
if shorter, the period of the Portfolio's operations. Some of this information
reflects financial information for a single Portfolio share. The total returns
in the table represent the rate that you would have earned (or lost) on an
investment in a Portfolio, assuming you reinvested all of your dividends and
distributions. This information has been audited by KPMG Peat Marwick LLP,
independent public accountants. Their report, along with each Portfolio's
financial statements, appears in the annual report that accompanies our
Statement of Additional Information. You can obtain the annual report, which
contains more performance information, at no charge by calling 1-800-624-4116
(inside Maryland 1-800-638-7751).

Page 76 of 78
<PAGE>

ARK FUNDS

INVESTMENT ADVISOR

Allied Investment Advisors, Inc.
100 E. Pratt Street
Baltimore, MD 21202

DISTRIBUTOR

SEI Investments Distribution Co.
One Freedom Valley Drive
Oaks, PA 19456

LEGAL COUNSEL

Piper & Marbury L.L.P.
36 South Charles Street
Baltimore, MD 21201

More information about the Portfolios is available without charge through the
following:

STATEMENT OF ADDITIONAL INFORMATION (SAI)

ANNUAL AND SEMI-ANNUAL REPORTS

TO OBTAIN MORE INFORMATION:

BY TELEPHONE: Call 1-800-624-4116 (inside Maryland 1-800-638-7751)

BY MAIL: Write to us at:
Allfirst Bank Trust Division
[Banc #101-621]
P.O. Box 1596
Baltimore, MD 21203

BY E-MAIL: [VAR:FUND.EMAILADDRESS]]

BY INTERNET: [VAR:FUND.INTERNETADDRESS]]

Page 77 of 78
<PAGE>

FROM THE SEC: You can also obtain the SAI or the Annual and Semi-Annual
reports, as well as other information about ARK Funds, from the SEC's website
("http://www.sec.gov"). You may review and copy documents at the SEC Public
Reference Room in Washington, DC (for information call 1-800-SEC-0330). You may
request documents by mail from the SEC, upon payment of a duplicating fee, by
writing to: Securities and Exchange Commission, Public Reference Section,
Washington, DC 20549-6009. ARK Funds' Investment Company Act registration
number is 811-7310.

Page 78 of 78

<PAGE>

ARK FUNDS

STATEMENT OF ADDITIONAL INFORMATION

_____________, 1999

This Statement of Additional Information is not a prospectus but should be
read in conjunction with the current Prospectuses dated _________, 1999, for
Retail Class A and Retail Class B, Institutional Class and Institutional II
Class shares of ARK Funds (the "Fund"). Please retain this document for future
reference. Capitalized terms used by not defined herein have the meanings given
them in the Prospectuses. The Fund's Annual Report (including financial
statements for the fiscal year ended April 30, 1999) is incorporated herein by
reference. To obtain additional copies of the Retail Class A and Retail Class B,
Institutional Class and Institutional II Class Prospectuses, the Annual Report
or this Statement of Additional Information, please call 1-800-ARK-FUND.

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

Investment Policies and Limitations
Investment Practices
Special Considerations
Portfolio Transactions
Valuation of Portfolio Securities
Portfolio Performance
Additional Purchase and Redemption Information
Taxes
Trustees and Officers
Investment Adviser
Administrator and Distributor
Transfer Agent
Description of the Fund
Independent Auditors
Financial Statements
Appendix A - Description of Indices and Ratings A-1
Appendix B - 1999 Tax Rates B-1

<PAGE>

INVESTMENT POLICIES AND LIMITATIONS

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

The portfolios' investment limitations are listed in the following tables.
Fundamental investment policies and limitations cannot be changed without
approval by a "majority of the outstanding voting securities" (as defined in the
Investment Company Act of 1940, as amended (the "1940 Act")) of a portfolio.

FUNDAMENTAL POLICIES: PORTFOLIOS TO WHICH THE
POLICY APPLIES:
<S> <C>

The portfolios may not issue senior securities, except as permitted under All portfolios.
the 1940 Act.

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

The portfolios may not with respect to 75% of each particular portfolio's total All portfolios (other than the Maryland
assets, purchase the securities of any issuer (other than securities issued or Tax-Free Portfolio and Pennsylvania
guaranteed by the U.S. Government or any of its agencies or instrumentalities) Tax-Free Portfolio).
if, as a result, (a) more than 5% of the portfolio's total assets would be
invested in the securities of that issuer, or (b) the portfolio would hold
more than 10% of the outstanding voting securities of that issuer.

<PAGE>

The portfolios may not underwrite securities issued by others, except to the Each money market portfolio and the
extent that the portfolio may be considered an underwriter within the meaning Short-Term Treasury Portfolio, Short-Term
of the Securities Act of 1933 in the disposition of portfolio securities. Bond Portfolio, U.S. Government Bond
Portfolio, Income Portfolio, Intermediate
Fixed Income Portfolio, Balanced Portfolio,
Equity Income Portfolio, Value Equity
Portfolio, Capital Growth Portfolio and
International Equity Selection Portfolio.

The portfolios may not underwrite securities issued by others, except to the The Maryland Tax-Free Portfolio, Pennsylvania
extent that the portfolio may be considered an underwriter within the meaning Tax-Free Portfolio, Equity Index Portfolio,
of the Securities Act of 1933 in the disposition of restricted securities. Blue Chip Equity Portfolio, Mid-Cap Equity
Portfolio and Small-Cap Equity Portfolio.

The portfolios may not purchase the securities of any issuer (other than All portfolios (other than the Money Market
securities issued or guaranteed by the U.S.government or any of its agencies Portfolio and Tax-Free Money Market
or instrumentalities) if, as a result, more than 25% of the portfolio's total Portfolio).(1)
assets would be invested in the securities of companies whose principal business
activities are in the same industry.

- --------------
(1) For the Maryland Tax-Free Portfolio and the Pennsylvania Tax-Free
Portfolio, the portfolio's investment adviser identifies the issuer of a
security depending on its terms and conditions. In identifying the issuer, the
adviser will consider the entity or entities responsible for payment and
repayment of principal and the source of such payments; the way in which assets
and revenues of an issuing political subdivision are separated from those of
other political entities; and whether a governmental body is guaranteeing the
security.

-2-
<PAGE>

The portfolio may not purchase the securities of any issuer (other than The Money Market Portfolio.
securities issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, more than 25% of the portfolio's total
assets would be invested in the securities of companies whose principal business
activities are in the same industry except that the Money Market Portfolio may
invest 25% or more of its assets in obligations of domestic banks.

The portfolio may not purchase the securities of any issuer (other than Tax-Free Money Market Portfolio.
securities issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities, or tax-exempt obligations issued or guaranteed by a U.S.
territory or possession or a state or local government, or a political
subdivision of any of the foregoing) if, as a result, more than 25% of the
portfolio's total assets would be invested in securities of companies whose
principal business activities are in the same industry.

The portfolio may not derive over 20% of its income, under normal market Tax-Free Money Market Portfolio
conditions, from income not exempt from Federal income tax, including the
Federal alternative minimum tax.

The portfolio may not purchase the securities of any issuer (other than Institutional Equity Selection Portfolio.
securities issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, more than 25% of the portfolio's total
assets would be invested in the securities of companies whose principal business
activities are in the same industry, except that the portfolio will invest in
other investment companies.

The portfolios may not purchase or sell real estate unless acquired as a result All portfolios.
of ownership of securities or other instruments (but this shall not prevent the
portfolios from investing in securities or other instruments backed by real
estate or securities of companies engaged in the real estate business).

-3-
<PAGE>

The portfolios may not purchase or sell commodities unless acquired as a result All money market portfolios.
of ownership of securities or other instruments.

The portfolios may not purchase or sell commodities unless acquired as a result Each non-money-market portfolio
of ownership of securities or other instruments (but this shall not prevent the (other than the Value Equity
portfolio from purchasing or selling futures contracts or options on such Portfolio and International
contracts for the purpose of managing its exposure to changing interest rates, Equity Selection Portfolio).
security prices, and currency exchange rates).

The portfolios may engage in transactions involving financial and stock index The Value Equity Portfolio and the
and futures contracts or options on such futures contracts, the International International Equity Selection Portfolio.
Equity Selection Portfolio may engage in foreign currency transactions, invest
in options and futures on foreign currencies, and purchase or sell forward
contracts with respect to foreign currencies and related options.

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

THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL:

NON-FUNDAMENTAL POLICY: PORTFOLIOS TO WHICH THE POLICY
APPLIES:
<S> <C>

The portfolios do not currently intend to sell securities short, unless they own All portfolios.(2)
or have the right to obtain securities equivalent in kind and amount to the
securities sold short, and provided that transactions in futures contracts and
options are not deemed to constitute selling securities short.

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

(2) For the Maryland Tax-Free Portfolio and the Pennsylvania Tax-Free
Portfolio, the portfolio's investment adviser identifies the issuer of a
security depending on its terms and conditions. In identifying the issuer, the
adviser will consider the entity or entities responsible for payment and
repayment of principal and the source of such payments; the way in which assets
and revenues of an issuing political subdivision are separated from those of
other political entities; and whether a governmental body is guaranteeing the
security.

-4-
<PAGE>

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

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

The portfolio does not currently intend, with respect to securities comprising International Equity Selection Portfolio.
75% of the value of its total assets, to invest more than 5% in securities of
any one issuer (other than cash, cash items, securities of investment companies
or securities issued or guaranteed by the government of the United States or its
agencies or instrumentalities and repurchase agreements collateralized by such
securities) if, as a result, more than 5% of the value of its total assets would
be invested in the securities of that issuer, and will not acquire more than 10%
of the outstanding voting securities of any one issuer.

The portfolios will not purchase any security while borrowings (including All portfolios.
reverse repurchase agreements) representing more than 5% of each portfolio's
total assets are outstanding.

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

-5-
<PAGE>

The portfolios do not currently intend to engage in repurchase agreements or U.S. Treasury Money Market Portfolio
make loans, but this limitation does not apply to purchases of debt securities. and Tax-Free Money Market Portfolio.

The portfolios do not currently intend to purchase securities of other All portfolios.
investment companies, except to the extent permitted by the 1940 Act.

The portfolios do not currently intend to purchase any security if, as a result, All non-money market portfolios.
more than 15% of each portfolio's net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or contractual
restrictions on resale or because they cannot be sold or disposed of in the
ordinary course of business at approximately the prices at which they are
valued.

The portfolios do not currently intend to purchase any security if, as a result, All money market portfolios.
more than 10% of each portfolio's net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or contractual
restrictions on resale or because they cannot be sold or disposed of in the
ordinary course of business at approximately the prices at which they are
valued.

-6-
<PAGE>

The portfolios (a) do not currently intend to invest in securities of real Balanced Portfolio, Equity Income
estate investment trusts that are not readily marketable, or to invest in Portfolio, Equity Index
securities of real estate limited partnerships that are not listed on the New Portfolio, Blue Chip Equity
York Stock Exchange or the American Stock Exchange or traded on the NASDAQ Portfolio, Mid-Cap Equity
National Market System; (b) do not currently intend to invest in oil, gas or Portfolio, Capital Growth
other mineral exploration or development programs or leases; and (c) do not Portfolio and Small-Cap Equity
currently intend to purchase the securities of any issuer (other than securities Portfolio.
issued or guaranteed by domestic or foreign governments or political
subdivisions thereof) if, as a result, more than 5% of each portfolio's total
assets would be invested in the securities of business enterprises that,
including predecessors, have a record of less than three years of continuous
operation.

The portfolios do not currently intend to purchase warrants, valued at the lower Balanced Portfolio, Equity Income
of cost or market, in excess of 5% of each portfolio's net assets. Included in Portfolio, Equity Index
that amount, but not to exceed 2% of each portfolio's net assets, may be Portfolio, Blue Chip Equity
warrants that are not listed on the New York Stock Exchange or the American Portfolio, Mid-Cap Equity
Stock Exchange. Warrants acquired by the portfolios in units or attached to Portfolio and Capital Growth
securities are not subject to these restrictions. Portfolio.

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

The portfolios do not currently intend to invest more than 25% of their total Maryland Tax-Free Portfolio and
assets in industrial revenue bonds issued by entities whose principal business Pennsylvania Tax-Free Portfolio.
activities are in the same industry.
</TABLE>

-7-
<PAGE>

INVESTMENT PRACTICES

A portfolio may engage in the following investment practices consistent
with its investment objectives, policies and restrictions. Please refer to the
current Prospectuses for the ARK Funds and the section "Investment Policies and
Limitations" contained in this Statement of Additional Information for a further
description of each portfolio's investment objectives, policies and
restrictions.

DEPOSITORY RECEIPTS

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

DELAYED DELIVERY TRANSACTIONS

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

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

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

-8-
<PAGE>

FEDERALLY TAXABLE OBLIGATIONS

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

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

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

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

FOREIGN CURRENCY EXCHANGE TRANSACTIONS

The International Equity Selection Portfolio may conduct foreign currency
exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market, or by entering into forward contracts
to purchase or sell foreign currencies at a future date and price (i.e., a
"forward foreign currency contract" or "forward contract"). The portfolio will
convert currency on a spot basis from time to time, and investors should be
aware of the

-9-
<PAGE>

costs of currency conversion. Although foreign exchange dealers do not charge a
fee for conversion, they do realize a profit based on the difference between the
prices at which they are buying and selling various currencies. Thus, a dealer
may offer to sell a foreign currency to the portfolio at one rate, while
offering a lesser rate of exchange should the portfolio desire to resell that
currency to the dealer. Forward contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. The parties to a forward contract may agree to offset or
terminate the contract before maturity, or may hold the contract to maturity and
complete the contemplated currency exchange.

The International Equity Selection Portfolio may use currency forward
contracts for any purpose consistent with its investment objectives. The
Small-Cap Equity Portfolio may invest in currency forward contracts to manage
exchange rate risks and to facilitate transactions in foreign securities. The
following discussion summarizes some, but not all, of the possible currency
management strategies involving forward contracts that could be used by the
portfolio. The portfolio may also use options and futures contracts relating to
foreign currencies for the same purposes.

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

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

-10-
<PAGE>

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

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

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

FOREIGN INVESTMENTS

Foreign investments can involve significant risks in addition to the risks
inherent in U.S. investments. The International Equity Selection Portfolio
Small-Cap Equity Portfolio may invest in foreign investments. The International
Equity Selection Portfolio primarily invests in underlying funds that are
international equity funds investing in foreign securities. The Small-Cap Equity
Portfolio may invest up to 35% of its total assets in foreign securities of all
types. The value of securities denominated in or indexed to foreign currencies,
and of dividends and interest from such securities, can change significantly
when foreign currencies strengthen or weaken relative to the U.S. dollar.
Foreign securities markets generally have less trading volume and less liquidity
than U.S. markets, and prices on some foreign markets can be highly volatile.
Many foreign countries lack uniform accounting and disclosure standards
comparable to those

-11-
<PAGE>

applicable to U.S. companies, and it may be more difficult to obtain reliable
information regarding an issuer's financial condition and operations. In
addition, the costs of foreign investing, including withholding taxes, brokerage
commissions, and custodial costs, are generally higher than for U.S.
investments.

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

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

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

The portfolios may invest in foreign securities that impose restrictions on
transfer within the United States or to U.S. persons. Although securities
subject to transfer restrictions may be marketable abroad, they may be less
liquid than foreign securities of the same class that are not subject to such
restrictions.

ILLIQUID INVESTMENTS

A portfolio may invest in illiquid investments. Illiquid investments cannot
be sold or disposed of in the ordinary course of business at approximately the
prices at which they are valued. Under the supervision of the Board of Trustees,
a portfolio's adviser determines the liquidity of each portfolio's investments
and, through reports from the adviser, the Board monitors investment in illiquid
instruments. In determining the liquidity of a portfolio's investments, the
adviser may consider various factors including (1) the frequency of trades and
quotations, (2) the number of dealers and prospective purchasers in the
marketplace, (3) dealer undertakings to make a market, (4) the nature of the
security (including any demand or tender features), (5) the nature of the
marketplace for trades (including the ability to assign or offset a portfolio's
rights and obligations relating to the investment), and (6) general credit
quality.

-12-
<PAGE>

Investments currently considered by a portfolio to be illiquid include
repurchase agreements not entitling the holder to payment of principal and
interest within seven days, non-government stripped fixed-rate mortgage-backed
securities and government stripped fixed-rate mortgage-backed securities, loans
and other direct debt instruments, over-the-counter options and swap agreements.
Although restricted securities and municipal lease obligations are sometimes
considered illiquid, the portfolio's adviser may determine certain restricted
securities and municipal lease obligations to be liquid. In the absence of
market quotations, illiquid investments are valued for purposes of monitoring
amortized cost valuation (for money market portfolios) and priced (for other
portfolios) at fair value as determined in good faith by a committee appointed
by the Board of Trustees. If, as a result of a change in values, net assets or
other circumstances, a portfolio were in a position where more than 10% (for
money market portfolios) or 15% (for other portfolios) of its assets were
invested in illiquid securities, it would seek to take appropriate steps to
protect liquidity.

RESTRICTED SECURITIES

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

INDEXED SECURITIES

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

-13-
<PAGE>

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

LOANS AND OTHER DIRECT DEBT INSTRUMENTS

A portfolio may invest in loans and other direct debt instruments. Direct
debt instruments are interests in amounts owed by a corporate, governmental or
other borrower to lenders or lending syndicates (loans and loan participations),
to suppliers of goods or services (trade claims or other receivables), or to
other parties. Direct debt instruments are subject to a portfolio's policies
regarding the quality of debt securities.

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

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

-14-
<PAGE>

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

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

LOWER-QUALITY MUNICIPAL SECURITIES

The Maryland Tax-Free Portfolio and Pennsylvania Tax-Free Portfolio may
invest a portion of their assets in lower-quality municipal securities as
described in the Prospectus. While the markets for Maryland and Pennsylvania
municipal securities are considered to be adequate, adverse publicity and
changing investor perceptions may affect the ability of outside pricing services
used by the portfolios to value their portfolio securities, and a portfolio's
ability to dispose of lower-quality bonds. The outside pricing services are
monitored by a portfolio's adviser to determine whether the services are
furnishing prices that accurately reflect fair value. The impact of changing
investor perceptions may be especially pronounced in markets where municipal
securities are thinly traded.

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

LOWER-RATED DEBT SECURITIES

A portfolio may invest in lower-rated debt securities (i.e., securities
rated Ba or lower by Moody's or BB or lower by S&P, or having comparable ratings
by other NRSROs) consistent

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with its investment objective, policies and restrictions. Lower-rated debt
securities may have poor protection with respect to the payment of interest and
repayment of principal. These securities are often considered to be speculative
and involve greater risk of loss or price changes due to changes in the issuer's
capacity to pay. The market prices of lower-rated debt securities may fluctuate
more than those of higher-rated debt securities and may decline significantly in
periods of general economic difficulty, which may follow periods of rising
interest rates.

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

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

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

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

MUNICIPAL LEASE OBLIGATIONS

The Tax-Free Money Market Portfolio, Maryland Tax-Free Portfolio and
Pennsylvania Tax-Free Portfolio each may invest in municipal leases and
participation interests therein. These obligations, which may take the form of a
lease, an installment purchase, or a conditional sale contract, are issued by
state and local governments and authorities to acquire land and a wide

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variety of equipment and facilities, such as fire and sanitation vehicles,
telecommunications equipment, and other capital assets. Generally, the
portfolios will not hold such obligations directly as a lessor of the property,
but will purchase a participation interest in a municipal obligation from a bank
or other third party. A participation interest gives a portfolio a specified,
undivided interest in the obligation in proportion to its purchased interest in
the total amount of the obligation.

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

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

MARKET DISRUPTION RISK

The value of municipal securities may be affected by uncertainties in the
municipal market related to legislation or litigation involving the taxation of
municipal securities or the rights of municipal securities holders in the event
of a bankruptcy. Municipal bankruptcies are relatively rare, and certain
provisions of the U.S. Bankruptcy Code governing such bankruptcies are unclear
and remain untested. Further, the application of state law to municipal issuers
could produce varying results among the states or among municipal securities
issuers within a state. These legal uncertainties could affect the municipal
securities market generally, certain specific segments of the market, or the
relative credit quality of particular securities.

Any of these effects could have a significant impact on the prices of some
or all of the municipal securities held by a portfolio. For the money market
portfolios, investing in these securities may make it more difficult to maintain
a stable net asset value per share.

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PORTFOLIOS' RIGHTS AS SHAREHOLDERS

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

REAL-ESTATE-RELATED INSTRUMENTS

A portfolio may invest in real-estate-related instruments, which include
real estate investment trusts (REITs), commercial and residential
mortgage-backed securities and real estate financings. Real-estate-related
instruments are sensitive to factors such as changes in real estate values and
property taxes, interest rates, cash flow of underlying real assets,
overbuilding and the management and creditworthiness of the issuer.
Real-estate-related instruments may also be affected by tax and regulatory
requirements, such as those relating to the environment.

REFUNDING CONTRACTS

The Maryland Tax-Free Portfolio and Pennsylvania Tax-Free Portfolio may
purchase securities on a when-issued basis in connection with the refinancing of
an issuer's outstanding indebtedness. Refunding obligations require the issuer
to sell and the portfolio to buy refunded municipal obligations at a stated
price and yield on a settlement date that may be several months or years in the
future. A portfolio generally will not be obligated to pay the full purchase
price if it fails to perform under a refunding contract. Instead, refunding
contracts generally provide for payment of liquidated damages to the issuer
(currently 15% to 20% of the purchase price). A portfolio may secure its
obligations under a refunding contract by depositing collateral or a letter of
credit equal to the liquidated damages provisions of the refunding contract.
When required by SEC guidelines, a portfolio will place liquid assets in a
segregated custodial account equal in amount to its obligations under refunding
contracts.

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REPURCHASE AGREEMENTS

A portfolio may invest in repurchase agreements. In a repurchase agreement,
a portfolio purchases a security and simultaneously commits to resell it to the
seller at an agreed upon price on an agreed upon date. The resale price reflects
the purchase price plus an agreed-upon incremental amount which is unrelated to
the coupon rate or maturity of the purchased security. A repurchase agreement
involves the obligation of the seller to pay the agreed-upon price, which
obligation is in effect secured by the value (at least equal to the amount of
the agreed-upon resale price and marked to market daily) of the underlying
security. The risk associated with repurchase agreements is that a portfolio may
be unable to sell the collateral at its full value in the event of the seller's
default. While it does not presently appear possible to eliminate all risks from
these transactions (particularly the possibility of a decline in the market
value of the underlying securities, as well as delays and costs to a portfolio
in connection with bankruptcy proceedings), it is each portfolio's current
policy to limit repurchase agreements to those parties whose creditworthiness
has been reviewed and found satisfactory by its adviser pursuant to procedures
established by the Board of Trustees.

REVERSE REPURCHASE AGREEMENTS

Each portfolio may enter into reverse repurchase agreements. In a reverse
repurchase agreement, a portfolio sells a portfolio instrument to another party,
such as a bank or broker-dealer, in return for cash and agrees to repurchase the
instrument at a particular price and time. While a reverse repurchase agreement
is outstanding, the portfolio will maintain appropriate liquid assets in a
segregated custodial account to cover its obligation under the agreement. A
portfolio will enter into reverse repurchase agreements only with parties whose
creditworthiness has been found satisfactory by its adviser. These transactions
may increase fluctuations in the market value of a portfolio's assets and may be
viewed as a form of leverage.

SECURITIES LENDING

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

It is the current view of the SEC that a portfolio may engage in loan
transactions only under the following conditions: (1) the portfolio must receive
100% collateral in the form of cash or cash equivalents (e.g., U.S. Treasury
bills or notes) from the borrower; (2) the borrower must increase the collateral
whenever the market value of the securities loaned (determined on a daily

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basis) rises above the value of the collateral; (3) after giving notice, the
portfolio must be able to terminate the loan at any time; (4) the portfolio must
receive reasonable interest on the loan or a flat fee from the borrower, as well
as amounts equivalent to any dividends, interest, or other distributions on the
securities loaned and to any increase in market value; (5) the portfolio may pay
only reasonable custodian fees in connection with the loan; and (6) the Board of
Trustees must be able to vote proxies on the securities loaned, either by
terminating the loan or by entering into an alternative arrangement with the
borrower. Cash received through loan transactions may be invested in any
security in which the portfolio is authorized to invest. Investing this cash
subjects that investment, as well as the security loaned, to market forces
(i.e., capital appreciation or depreciation).

SOVEREIGN DEBT OBLIGATIONS

A portfolio may purchase sovereign debt instruments issued or guaranteed by
foreign governments or their agencies, including debt of Latin American nations
or other developing countries. Sovereign debt may be in the form of conventional
securities or other types of debt instruments, such as loans or loan
participations. Sovereign debt of developing countries may involve a high degree
of risk, and may be in default or present the risk of default. Governmental
entities responsible for repayment of the debt may be unable or unwilling to
repay principal and interest when due, and may require negotiations or
rescheduling of debt payments. In addition, prospects for repayment of principal
and interest may depend on political as well as economic factors. Although some
sovereign debt, such as Brady Bonds, is collateralized by U.S. government
securities, repayment of principal and interest is not guaranteed by the U.S.
government.

The International Equity Selection Portfolio may invest in underlying funds
that invest in Sovereign debt obligations.

SPECIAL SITUATIONS

The Small-Cap Equity Portfolio may invest in companies experiencing an
unusual or possibly non-repetitive development or "special situation." An
unusual or possibly non-repetitive development or special situation may involve
one or more of the following characteristics:

- 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

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

STANDARD & POOR'S DEPOSITARY RECEIPTS ("SPDRS")

SPDRs are interests in a unit investment trust ("UIT") that may be obtained
from the UIT or purchased in the secondary market as SPDRs are listed on the
American Stock Exchange. The UIT will issue SPDRs in aggregations of 50,000
known as "Creation Units" in exchange for a "Portfolio Deposit" consisting of
(a) a portfolio of securities substantially similar to the component securities
("Index Securities") of the Standard & Poor's 500 Composite Stock Price Index
(the "S&P 500"), (b) a cash payment equal to a pro rata portion of the dividends
accrued to the UIT's portfolio securities since the last dividend payment by the
UIT, net of expenses and liabilities, and (c) a cash payment or credit
("Balancing Amount") designed to equalize the net asset value of the S&P 500 and
the net asset value of a Portfolio Deposit.

SPDRs are not individually redeemable, except upon termination of the UIT.
To redeem, the portfolio must accumulate enough SPDRs to reconstitute a Creation
Unit. The liquidity of small holdings of SPDRs, therefore, will depend upon the
existence of a secondary market. Upon redemption of a Creation Unit, the
portfolio will receive Index Securities and cash identical to the Portfolio
Deposit required of an investor wishing to purchase a Creation Unit that day.

The price of SPDRs is derived and based upon the securities held by the
UIT. Accordingly, the level of risk involved in the purchase or sale of a SPDR
is similar to the risk involved in the purchase or sale of a traditional common
stock, with the exception that the pricing mechanism for SPDRs is based on a
basket of stocks. Disruptions in the markets for the securities underlying SPDRs
purchased or sold by a portfolio could result in losses on SPDRs. Trading in
SPDRs involves risks similar to those risks, described below under "Hedging
Strategies" relating to options, involved in the writing of options on
securities.

STANDBY COMMITMENTS

The Tax-Free Money Market Portfolio, Maryland Tax-Free Portfolio and
Pennsylvania Tax-Free Portfolio each may invest in standby commitments. These
obligations are puts that entitle holders to same day settlement at an exercise
price equal to the amortized cost of the underlying security plus accrued
interest, if any, at the time of exercise. The portfolios may acquire standby
commitments to enhance the liquidity of portfolio securities when the issuers of
the commitments present minimal risk of default.

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Ordinarily a portfolio will not transfer a standby commitment to a third
party, although it could sell the underlying municipal security to a third party
at any time. The portfolios may purchase standby commitments separate from or in
conjunction with the purchase of securities subject to such commitments. In the
latter case, a portfolio would pay a higher price for the securities acquired,
thus reducing their yield to maturity. Standby commitments will not affect the
dollar-weighted average maturity of a portfolio, or the valuation of the
securities underlying the commitments.

Standby commitments are subject to certain risks, including the ability of
issuers of standby commitments to pay for securities at the time the commitments
are exercised; the fact that standby commitments are not marketable by the
portfolio and the possibility that the maturities of the underlying securities
may be different from those of the commitments.

SWAP AGREEMENTS

A portfolio may invest in swap agreements. Swap agreements can be
individually negotiated and structured to include exposure to a variety of
different types of investments or market factors. Depending on their structure,
swap agreements may increase or decrease a portfolio's exposure to long- or
short-term interest rates (in the United States or abroad), foreign currency
values, mortgage securities, corporate borrowing rates, or other factors such as
security prices or inflation rates. Swap agreements can take many different
forms and are known by a variety of names. A portfolio is not limited to any
particular form of swap agreement if its adviser determines it is consistent
with the portfolio's investment objective and policies.

In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by the
other party. For example, the buyer of an interest rate cap obtains the rights
to receive payments to the extent that a specified interest rate exceeds an
agreed-upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an
agreed-upon level. An interest rate collar combines elements of buying a cap and
selling a floor.

Swap agreements will tend to shift a portfolio's investment exposure from
one type of investment to another. For example, if the portfolio agreed to
exchange payments in dollars for payments in foreign currency, the swap
agreement would tend to decrease the portfolio's exposure to U.S. interest rates
and increase its exposure to foreign currency and interest rates. Caps and
floors have an effect similar to buying or writing options. Depending on how
they are used, swap agreements may increase or decrease the overall volatility a
portfolio's investments and its share price and yield.

The most significant factor in the performance of swap agreements is the
change in the specific interest rate, currency, or other factors that determine
the amounts of payments due to

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and from a portfolio. If a swap agreement calls for payments by a portfolio, the
portfolio must be prepared to make such payments when due. In addition, if the
counterparty's creditworthiness declined, the value of a swap agreement would be
likely to decline, potentially resulting in losses. The portfolios expect to be
able to reduce their exposure under swap agreements either by assignment or
other disposition, or by entering into an offsetting swap agreement with the
same party or a similarly creditworthy party.

A portfolio will maintain appropriate liquid assets in segregated custodial
accounts to cover its current obligations under swap agreements. If a portfolio
enters into a swap agreement on a net basis, it will segregate assets with a
daily value at least equal to the excess, if any, of the portfolio's accrued
obligations under the swap agreement over the accrued amount the portfolio is
entitled to receive under the agreement. If a portfolio enters into a swap
agreement on other than a net basis, it will segregate assets with a value equal
to the full amount of the portfolio's accrued obligations under the agreement.

TENDER OPTION BONDS

The Tax-Free Money Market Portfolio, Maryland Tax-Free Portfolio and
Pennsylvania Tax-Free Portfolio may invest in tender option bonds. These bonds
are created by coupling an intermediate- or long-term fixed-rate tax-exempt bond
(generally held pursuant to a custodial agreement) with a tender agreement that
gives the holder the option to tender the bond at its face value. As
consideration for providing the tender option, the sponsor (usually a bank,
broker-dealer, or other financial institution) receives periodic fees equal to
the difference between the bond's fixed coupon rate and the rate (determined by
a remarketing or similar agent) that would cause the bond, coupled with the
tender option to trade at par on the date of such determination. After payment
of the tender option fee, a portfolio effectively holds a demand obligation that
bears interest at the prevailing short-term tax-exempt rate. Subject to
applicable regulatory requirements, the Tax-Free Money Market Portfolio may buy
tender option bonds if the agreement gives the portfolio the right to tender the
bond to its sponsor no less frequently than once every 397 days. In selecting
tender option bonds for a portfolio, the adviser will, pursuant to procedures
established by the Board of Trustees, consider the creditworthiness of the
issuer of the underlying bond, the custodian, and the third-party provider of
the tender option. In certain instances, a sponsor may terminate a tender option
if, for example, the issuer of the underlying bond defaults on interest
payments.

VARIABLE OR FLOATING RATE INSTRUMENTS

Each money market portfolio (other than the U.S. Treasury Money Market
Portfolio) may invest in variable or floating rate instruments that ultimately
mature in more than 397 days, if the portfolio acquires a right to sell the
securities that meet certain requirements set forth in Rule 2a-7 under the 1940
Act. Variable rate instruments (including instruments subject to a demand
feature) that mature in 397 days or less may be deemed to have maturities equal
to the period

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remaining until the next readjustment of the interest rate. Other variable rate
instruments with demand features may be deemed to have a maturity equal to the
longer of the period remaining until the next readjustment of the interest rate
or the period remaining until the principal amount can be recovered through
demand. A floating rate instrument subject to a demand feature may be deemed to
have a maturity equal to the period remaining until the principal amount can be
recovered through demand.

The non-money-market portfolios (other than the Short-Term Treasury
Portfolio and Equity Index Portfolio) may invest in variable or floating rate
instruments.

VARIABLE OR FLOATING RATE DEMAND OBLIGATIONS

Each money market portfolio (other than the U.S. Treasury Money Market
Portfolio) may invest in variable or floating rate demand obligations
(VRDOs/FRDOs). These obligations are tax-exempt obligations that bear variable
or floating interest rates and carry rights that permit holders to demand
payment of the unpaid principal balance plus accrued interest from the issuers
or certain financial intermediaries. Floating rate obligations have interest
rates that change whenever there is a change in a designated base rate while
variable rate obligations provide for a specified periodic adjustment in the
interest rate. These formulas are designed to result in a market value for the
VRDO or FRDO that approximates its par value.

A demand obligation with a conditional demand feature must have received
both a short-term and a long-term high quality rating from a NRSRO or, if
unrated, have been determined by the portfolio's adviser to be of comparable
quality pursuant to procedures adopted by the Board of Trustees. A demand
obligation with an unconditional demand feature may be acquired solely in
reliance upon a short-term high quality rating or, if unrated, upon finding of
comparable short-term quality pursuant to procedures adopted by the Board.

A portfolio may invest in fixed-rate bonds that are subject to third party
puts and in participation interests in such bonds held by a bank in trust or
otherwise. These bonds and participation interests have tender options or demand
features that permit a portfolio to tender (or put) the bonds to an institution
at periodic intervals of up to one year and to receive the principal amount
thereof. A portfolio considers variable rate obligations structured in this way
(participating VRDOs) to be essentially equivalent to other VRDOs that it may
purchase. The Internal Revenue Service (the "IRS") has not ruled whether or not
the interest on participating VRDOs is tax-exempt and, accordingly, the
portfolios intend to purchase these obligations based on opinions of bond
counsel.

A variable rate instrument that matures in 397 or fewer days may be deemed
to have a maturity equal to the period remaining until the next readjustment of
the interest rate. A variable rate obligation that matures in more than 397 days
but that is subject to a demand feature that is 397 days or fewer may be deemed
to have a maturity equal to the longer of the period remaining

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until the next readjustment of the interest rate or the period remaining until
the principal amount can be recovered through demand. A floating rate obligation
that is subject to a demand feature may be deemed to have a maturity equal to
the period remaining until the principal amount may be recovered through demand.
The money market portfolios may purchase a demand obligation with a remaining
final maturity in excess of 397 days only if the demand feature can be exercised
on no more than 30 days' notice (a) at any time or (b) at specific intervals not
exceeding 397 days.

WARRANTS

Warrants are securities that give a portfolio the right to purchase equity
securities from an issuer at a specific price (the "strike price") for a limited
period of time. The strike price of a warrant is typically much lower than the
current market price of the underlying securities, yet a warrant is subject to
greater price fluctuations. As a result, warrants may be more volatile
investments than the underlying securities and may offer greater potential for
capital appreciation as well as capital loss.

Warrants do not entitle a holder to dividends or voting rights with respect
to the underlying securities and do not represent any rights in the assets of
the issuing company. Also, the value of the warrant does not necessarily change
with the value of the underlying securities and a warrant ceases to have value
if it is not exercised prior to the expiration date. These factors can make
warrants more speculative than other types of investments.

HEDGING STRATEGIES

FUTURES TRANSACTIONS

A portfolio may use futures contracts and options on such contracts for
bona fide hedging purposes within the meaning of regulations promulgated by the
Commodity Futures Trading Commission ("CFTC"). A portfolio may also establish
positions for other purposes provided that the aggregate initial margin and
premiums required to establish such positions will not exceed 5% of the
liquidation value of the portfolio after taking into account unrealized profits
and unrealized losses on any such instruments.

FUTURES CONTRACTS

When a portfolio purchases a futures contract, it agrees to purchase a
specified underlying instrument at a specified future date. When a portfolio
sells a futures contract, it agrees to sell the underlying instrument at a
specified future date. The price at which the purchase and sale will take place
is fixed when a portfolio enters into the contract. Some currently available
futures contracts are based on specific securities, such as U.S. Treasury bonds
or notes, and some are based on indices of securities prices, such as the S&P
500. A futures contract can be held until its

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delivery date, or can be closed out prior to its delivery date if a liquid
secondary market is available.

The value of a futures contract tends to increase and decrease in tandem
with the value of its underlying instrument. Therefore, purchasing futures
contracts will tend to increase a portfolio's exposure to positive and negative
price fluctuations in the underlying instrument, much as if it had purchased the
underlying instrument directly. When a portfolio sells a futures contract, by
contrast, the value of its futures position will tend to move in a direction
contrary to the market. Selling futures contracts, therefore, will tend to
offset both positive and negative market price changes, much as if the
underlying instrument had been sold.

FUTURES MARGIN PAYMENTS

The purchaser or seller of a futures contract is not required to deliver or
pay for the underlying instrument unless the contract is held until the delivery
date. However, both the purchaser and seller are required to deposit "initial
margin" with a futures broker, known as a futures commission merchant ("FCM"),
when the contract is entered into. Initial margin deposits are typically equal
to a percentage of the contract's value. If the value of either party's position
declines, that party will be required to make additional "variation margin"
payments to settle the change in value on a daily basis. The party that has a
gain may be entitled to receive all or a portion of this amount. Initial and
variation margin payments do not constitute purchasing securities on margin for
purposes of a portfolio's investment limitations. In the event of the bankruptcy
of a FCM that holds margin on behalf of a portfolio, the portfolio may be
entitled to return of margin owed to it only in proportion to the amount
received by the FCM's other customers, potentially resulting in losses to the
portfolio.

PURCHASING PUT AND CALL OPTIONS RELATING TO SECURITIES OR FUTURES CONTRACTS

By purchasing a put option, a portfolio obtains the right (but not the
obligation) to sell the option's underlying instrument at a fixed price (strike
price). In return for this right, a portfolio pays the current market price for
the option (known as the option premium). Options have various types of
underlying instruments, including specific securities, indices of securities
prices, and futures contracts. A portfolio may terminate its position in a put
option it has purchased by allowing it to expire or by exercising the option. If
the option is allowed to expire, the portfolio will lose the entire premium it
paid. If a portfolio exercises the option, it completes the sale of the
underlying instrument at the strike price. A portfolio may also terminate a put
option position by closing it out in the secondary market at its current price,
if a liquid secondary market exists.

The buyer of a typical put option can expect to realize a gain if the price
of the underlying security falls substantially. However, if the underlying
instrument's price does not fall enough to offset the cost of purchasing the
option, a put-buyer can expect to suffer a loss (limited to the amount of the
premium paid, plus related transaction costs).

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The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's strike
price. A call-buyer typically attempts to participate in potential price
increases of the underlying instrument with risk limited to the cost of the
option if security prices fall. At the same time, the buyer can expect to suffer
a loss if the price of the underlying instrument does not rise sufficiently to
offset the cost of the option.

WRITING PUT AND CALL OPTIONS

When a portfolio writes a put option, it takes the opposite side of the
transaction from the option's purchaser. In return for receipt of the premium,
the portfolio assumes the obligation to pay the strike price for the option's
underlying instrument if the other party to the option chooses to exercise it.
When writing an option on a futures contract a portfolio will be required to
make margin payments to a FCM as described above for futures contracts. A
portfolio may seek to terminate its position in a put option it writes before
exercise by closing out the option in the secondary market at its current price.
If the secondary market is not liquid for a put option a portfolio has written,
however, the portfolio must continue to be prepared to pay the strike price
while the option is outstanding, regardless of price changes, and must continue
to set aside assets to cover its position.

If the price of the underlying instrument rises, a put-writer would
generally expect to profit, although its gain would be limited to the amount of
the premium it received. If the price of the underlying instrument remains the
same over time, it is likely that the writer will also profit, because it should
be able to close out the option at a lower price. If the price of the underlying
instrument falls, the put-writer would expect to suffer a loss. This loss should
be less than the loss from purchasing the underlying instrument directly,
however, because the premium received for writing the option should mitigate the
effects of the decline.

Writing a call option obligates a portfolio to sell or deliver the option's
underlying instrument, in return for the strike price, upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing a call option is generally a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call-writer mitigates the effects of a price decline. At the same
time, because a call-writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call-writer gives up some ability to participate in security price increases.

COMBINED POSITIONS

A portfolio may purchase and write options in combination with each other,
or in combination with futures contracts or forward contracts, to adjust the
risk and return

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characteristics of the overall position. For example, a portfolio may purchase a
put option and write a call option on the same underlying instrument, in order
to construct a combined position whose risk and return characteristics are
similar to selling a futures contract. Another possible combined position would
involve writing a call option at one strike price and buying a call option at a
lower strike price, in order to reduce the risk of the written call option in
the event of a substantial price increase. Because combined options positions
involve multiple trades, they result in higher transaction costs and may be more
difficult to open and close out.

CORRELATION OF PRICE CHANGES

Because there are a limited number of types of exchange-traded options and
futures contracts, it is likely that the standardized contracts available will
not match a portfolio's current or anticipated investments exactly. A portfolio
may invest in options and futures contracts based on securities with different
issuers, maturities, or other characteristics than those of the securities in
which it typically invests -- for example, by hedging intermediate-term
securities with a futures contract on an index of long-term bond prices, or by
hedging stock holdings with a futures contract on a broad-based stock index such
as the S&P 500 -- which involves a risk that the options or futures position
will not track the performance of the portfolio's other investments.

Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the portfolio's
investments well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect the price of the underlying security the same way.
Imperfect correlation may also result from differing levels of demand in the
options and futures markets and the securities markets, from structural
differences in the trading of options, futures and securities, or from
imposition of daily price fluctuation limits or trading halts. A portfolio may
purchase or sell options and futures contracts with a greater or lesser value
than the securities it wishes to hedge or intends to purchase in order to
attempt to compensate for differences in volatility between the contract and the
securities, although this may not be successful in all cases. If price changes
in a portfolio's options or futures positions are poorly correlated with its
other investments, the positions may fail to produce anticipated gains or may
result in losses that are not offset by gains in other investments.

LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS

There is no assurance that a liquid secondary market will exist for any
particular options or futures contract at any particular time. Options may have
relatively-low trading volume and liquidity if their strike prices are not close
to the underlying instrument's current price. In addition, exchanges may
establish daily price fluctuation limits for options and futures contracts, and
may halt trading if the price of an option or futures contract moves upward or
downward more than the limit in a given day. On volatile trading days when the
price fluctuation limit is

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reached or a trading halt is imposed, it may be impossible for a portfolio to
enter into new positions or close out existing positions. If the secondary
market for a contract is not liquid because of price fluctuation limits or
otherwise, it could prevent prompt liquidation of unfavorable positions, and
potentially could require a portfolio to continue to hold a position until
delivery or expiration regardless of changes in its value. As a result, the
portfolio's access to other assets held to cover its options or futures
positions could also be impaired.

OTC OPTIONS

Unlike exchange-traded options, which are standardized with respect to the
underlying instrument, expiration date, contract size and strike price, the
terms of over-the-counter ("OTC") options (options not traded on exchanges)
generally are established through negotiation with the other party to the
option. While this type of arrangement allows a portfolio greater flexibility to
tailor an option to its needs, OTC options generally involve greater credit risk
than exchange-traded options, which are guaranteed by the clearing organization
of the exchanges upon which they are traded.

OPTIONS AND FUTURES CONTRACTS RELATING TO FOREIGN CURRENCIES

Currency futures contracts are similar to forward currency exchange
contracts, except that they are traded on exchanges (and have margin
requirements) and are standardized as to contract size and delivery date. Most
currency futures contracts call for payment or delivery in U.S. dollars. The
underlying instrument of a currency option may be a foreign currency, which
generally is purchased or delivered in exchange for U.S. dollars, or may be a
futures contract. The purchaser of a currency call option obtains the right to
purchase the underlying currency, and the purchaser of a currency put option
obtains the right to sell the underlying currency.

The uses and risks of currency options and futures contracts are similar to
options and futures contracts relating to securities or securities indices, as
discussed above. A portfolio may purchase and sell currency futures and may
purchase and write currency options to increase or decrease its exposure to
different foreign currencies. A portfolio may also purchase and write currency
options in conjunction with each other or with currency futures or forward
contracts. Currency futures and option values can be expected to correlate with
exchange rates, but may not reflect other factors that affect the value of the
portfolio's investments. A currency hedge, for example, should protect a
yen-denominated security from a decline in the yen, but will not protect the
portfolio against a price decline resulting from deterioration in the issuer's
creditworthiness. Because the value of the portfolio's foreign-denominated
investments changes in response to many factors other than exchange rates, it
may not be possible to match exactly the amount of currency options and futures
held by the portfolio to the value of its investments over time.

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ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS

The portfolios will comply with guidelines established by the SEC with
respect to coverage of options and futures strategies by mutual funds, and if
the guidelines so require, will set aside appropriate liquid assets in a
segregated custodial account in the amount prescribed. Securities held in a
segregated account cannot be sold while the futures or option position is
outstanding, unless they are replaced with other appropriate liquid assets. As a
result, there is a possibility that segregation of a large percentage of a
portfolio's assets could impede portfolio management or the portfolio's ability
to meet redemption requests or other current obligations.

SHORT SALES

A portfolio may enter into short sales with respect to securities it owns,
or with respect to stocks underlying its convertible bond holdings (short sales
"against the box"). For example, if the portfolio's adviser anticipates a
decline in the price of the stock underlying a convertible security it holds,
the portfolio may sell the stock short. If the stock price substantially
declines, the proceeds of the short sale could be expected to offset all or a
portion of the effect of the stock's decline on the value of the convertible
security.

When a portfolio enters into a short sale against the box, it will be
required to set aside securities equivalent in kind and amount to those sold
short (or securities convertible or exchangeable into such securities) and will
be required to continue to hold them while the short sale is outstanding. A
portfolio will incur transaction costs, including interest expense, in
connection with opening, maintaining and closing short sales against the box.

HEALTH CARE INDUSTRY

The health care industry is subject to regulatory action by a number of
private and governmental agencies, including federal, state, and local
governmental agencies. A major source of revenues for the health care industry
is payments from Medicare and Medicaid programs. As a result, the industry is
sensitive to legislative changes and reductions in governmental spending for
such programs. Numerous other factors may affect the industry, such as general
and local economic conditions; demands for services; expenses (including
malpractice insurance premiums); and competition among health care providers. In
the future, the following elements may adversely affect health care facility
operations: adoption of legislation proposing a national health insurance
program; medical and technological advances that dramatically alter the need for
health services or the way in which such services are delivered; and efforts by
employers, insurers, and governmental agencies to reduce the costs of health
insurance and healthcare services.

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TRANSPORTATION

Transportation debt may be issued to finance the construction of airports,
toll roads, and highways. Airport bonds are dependent on the general stability
of the airline industry and stability of a specific carrier which uses the
airport as a hub. Air traffic generally follows broader economic trends and is
also affected by the price and availability of fuel. Toll-road bonds are also
affected by the cost and availability of fuel as well as toll levels, the
presence of competing roads and the general economic health of an area. Fuel
costs and availability also affect other transportation-related services, as do
the presence of alternate forms of transportation, such as public
transportation.

SPECIAL CONSIDERATIONS

The following information as to certain Maryland and Pennsylvania risk
factors has been provided in view of the policy of the Maryland Tax-Free
Portfolio and Pennsylvania Tax-Free Portfolio of concentrating in Maryland and
Pennsylvania municipal securities, respectively. This information constitutes
only a brief summary, does not purport to be a complete description of risk
factors and is principally drawn from official statements relating to securities
offerings of the State of Maryland and the Commonwealth of Pennsylvania that
were available as of the date of this Statement of Additional Information.

MARYLAND TAX-FREE PORTFOLIO

According to 1990 Census reports, Maryland's population in that year was
4,780,800, reflecting an increase of 13.4% from the 1980 Census. Maryland's
population in 1998 was 5,134,808. Maryland's population is concentrated in urban
areas: the eleven counties and Baltimore City located in the
Baltimore-Washington Corridor contain 50.4% of the State's land area and 87.2%
of its population. The estimated 1990 population for the Baltimore Primary
Metropolitan Statistical Area was 2,382,172 and for the Maryland portion of the
Washington Primary Metropolitan Statistical Area, 1,788,314. Overall, Maryland's
population per square mile in 1990 was 489.1.

Per capita personal income in Maryland, which had grown at rates no lower
than 6.4% for the period from 1972 to 1989, grew at a rate of 4.7% in 1990 and
only 1.7% in 1991. Subsequently, per capita personal income has grown at annual
rates of between 2.9% and 5.0% in each of the years 1992 through 1997.
Unemployment in Maryland peaked in 1992 at 6.7% in 1992, before dropping to 6.2%
in 1993. The unemployment rate in Maryland has been between 5.1% and 4.5% in
each of the years 1994 through 1998. In April 1999, the Maryland unemployment
rate was 3.4%.

Since 1991, retail sales in Maryland have grown in each year. Most
recently, retail sales in Maryland have grown at annual rates of 2.9% in 1996,
4.7% in 1997 and 3.1% in 1998.

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Services (including mining), wholesale and retail trade, government and
manufacturing (primarily printing and publishing, food and kindred products,
instruments and related products, industrial machinery, electronic equipment and
chemical and allied products) are the leading areas of employment in the State
of Maryland. In contrast to the nation as a whole, more people in Maryland are
employed in services than in manufacturing (33.3% versus 7.8% in 1997).

In April 1998, the General Assembly approved a $16.6 billion fiscal year
1999 budget. This budget includes, among other things, (i) sufficient funds to
meet all specific statutory funding requirements; (ii) sufficient funds to meet
the actuarial recommended contributions for the State's seven retirement
systems, determined on a basis consistent with prior years' practice; (iii)
sufficient general funds to enable the State to maintain the State property tax
rate at $.21 per $100 of assessed valuation; (iv) $3.3 billion in aid to local
governments (reflecting a $169.1 million increase over fiscal year 1998); and
(v) $75.5 million in general fund deficiency appropriations, which include $25
million for computer programming modifications to address the "year 2000"
problem. The fiscal year 1999 budget also incorporates the first full year of a
five-year phase-in of the 10% reduction in personal income taxes, accelerated by
legislation enacted by the 1998 General Assembly, estimated to result in a
reduction of revenues of approximately $300 million in fiscal year 1999.
Legislation was also enacted making the State's existing earned income tax
credit refundable, with an estimated reduction in fiscal 1999 revenues of $17.5
million. The reduction in fiscal 1999 revenues resulting from the reductions in
income taxes enacted by the 1998 General Assembly will be mitigated by a
transfer of $185.2 million to the General Fund from the Revenue Stabilization
Account of the State Reserve Fund. The 1999 budget includes $50 million for the
funding to Baltimore City Public Schools related to a consent decree and $61.5
million to provide funding for a statewide public education proposal targeted
primarily to at-risk students. The 1999 budget also includes $76 million ($29
million in general funds and $47 million in federal funds) to provide medical
coverage to low income children and pregnant women currently without coverage.

The State's fiscal year 1999 capital budget is to be funded with $430
million general obligation bonds (net of $13 million of prior year
authorizations to be deauthorized), $156.7 million general funds appropriated in
the operating budget, $1,244.5 million in special and federal funds (of which
$572 million is appropriated to the Department of Transportation) and $46.5
million in revenue bonds. In the fiscal year 1999 general obligation bond
program, $21.8 million is reserved as an allotment for legislative initiatives,
private hospitals and independent colleges and universities.

Based on the 1999 budget, the State estimates that the General Fund surplus
on a budgetary basis at June 30, 1999 will approximately $249.5 million, in
addition to which the State projects that there will be $635.8 million in the
Revenue Stabilization Account of the State Reserve Fund.

In April 1999, the General Assembly approved a $17.6 billion fiscal year
2000 budget. This budget includes, among other things, (i) sufficient funds to
meet all specific statutory

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funding requirements; (ii) sufficient funds to meet the actuarial recommended
contributions for the State's seven retirement systems, determined on a basis
consistent with prior years' practice; and (iii) sufficient general funds to
enable the State to maintain the State property tax rate at $.21 per $100 of
assessed valuation. The fiscal year 2000 budget also contains funds needed to
continue management and correction of the State's "year 2000" problem.
Legislation was passed creating the Cigarette Restitution Fund designed to
utilize payments to the State under the November 1998 settlement between the
State and the tobacco industry. It is estimated that the General Fund balance on
a budgetary basis at June 30, 2001, will be approximately $12.7 million. In
addition, the balance in the Revenue Stabilization Fund of the State Reserve
Fund is estimated to be $578.3 million at June 30, 2001.

The State of Maryland and its various political subdivisions issue a number
of different kinds of municipal obligations, including general obligation bonds
supported by tax collections, revenue bonds payable from certain identified tax
levies or revenue streams, conduit revenue bonds payable from the repayment of
certain loans to authorized entities such as hospitals and universities, and
certificates of participation in tax-exempt municipal leases.

The State of Maryland issues general obligation bonds, which are payable
from ad valorem property taxes. The State Constitution prohibits the contracting
of State debt unless the debt is authorized by law levying an annual tax or
taxes sufficient to pay the debt service within 15 years and prohibiting the
repeal of the tax or taxes or their use for another purpose until the debt has
been paid. The State also enters into lease-purchase agreements, in which
participation interests are often sold publicly as individual securities.

As of March 1999, the State's general obligation bonds were rated "Aaa" by
Moody's, "AAA" by S&P, and "AAA" by Fitch IBCA ("Fitch").

The Maryland Department of Transportation issues Consolidated
Transportation Bonds, which are payable out of specific excise taxes, motor
vehicle taxes, and corporate income taxes, and from the general revenues of the
Department. Issued to finance highway, port, transit, rail or aviation
facilities, these bonds are rated "Aa" by Moody's, "AA" by S&P, and "AA" by
Fitch. The Maryland Transportation Authority, a unit of the Department, issues
its own revenue bonds for transportation facilities, which are payable from
certain highway, bridge and tunnel tolls. These bonds are rated "A+" by S&P.

Other State agencies which issue municipal obligations include the Maryland
Stadium Authority, which has issued bonds payable from sports facility and other
lease revenues and certain lottery revenues and convention center lease revenue
bonds; the Maryland Water Quality Financing Administration, which issues bonds
to provide loans to local governments or private entities for wastewater control
and drinking water projects; the Community Development Administration of the
Department of Housing and Community Development, which issues mortgage revenue
bonds for housing; the Maryland Environmental Service, which issues bonds
secured by the revenues from its various water supply, wastewater treatment and
waste

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management projects; and the various public institutions of higher education in
Maryland (which include the University System of Maryland, Morgan State
University and St. Mary's College of Maryland) which issue their own revenue
bonds. None of these bonds constitute debts or pledges of the full faith and
credit of the State of Maryland. The issuers of these obligations are subject to
various economic risks and uncertainties, and the credit quality of the
securities issued by them may vary considerably from the quality of obligations
backed by the full faith and credit of the State.

In addition, the Maryland Health and Higher Educational Facilities
Authority, the Maryland Industrial Development Financing Authority, the
Northeast Maryland Waste Disposal Authority, the Maryland Economic Development
Corporation and the Maryland Energy Financing Administration issue conduit
revenue bonds, the proceeds of which are lent to borrowers eligible under
relevant state and federal law. Conduit revenue bonds of these issuers are
payable solely from the loan payments made by borrowers and other financing
participants, and their credit quality varies with the financial strengths of
these entities.

Maryland has 24 geographical subdivisions, composed of 23 counties plus the
independent City of Baltimore, which functions much like a county. Some of the
counties and the City of Baltimore operate pursuant to the provisions of codes
of their own adoption, while others operate pursuant to State-approved charters
and State statutes.

Maryland counties and municipalities and the City of Baltimore receive most
of their revenues from ad valorem taxes on real and personal property,
individual income taxes, transfer taxes, miscellaneous taxes and aid from the
State. Their expenditures include public safety, public works, health, public
welfare, court and correctional services, education, and general governmental
costs.

The economic factors affecting the State, as discussed above, also have
affected the counties, municipalities and the City of Baltimore. In addition,
reductions in State aid caused by State budget deficits have caused the local
governments to trim expenditures and, in some cases, raise taxes.

According to recent available ratings, general obligation bonds of
Montgomery County (abutting Washington, D.C.) are rated "Aaa" by Moody's and
"AAA" by S&P. Prince George's County, also in the Washington, D.C. suburbs,
issues general obligation bonds rated "Aa3" by Moody's and "AA-" by S&P, while
Baltimore County, a separate political subdivision surrounding the City of
Baltimore, issues general obligation bonds rated "Aaa" by Moody's and "AAA" by
S&P and Anne Arundel County issues general obligation bonds which are rated
"AA+" by both Fitch and S&P and "Aa2" by Moody's. The City of Baltimore's
general obligation bonds are rated "A1" by Moody's and "A" by S&P. The other
counties in Maryland all have general obligation bond ratings of "A" or better,
except for Allegany County and Garrett County, the bonds of which are rated
"Baa2" and "Baa3", respectively, by Moody's and Kent County and Somerset County
which are not rated. The Washington Suburban Sanitary District, a

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bi-county agency providing water and sewerage services in Montgomery and Prince
George's counties, issues general obligation bonds rated "Aa1" by Moody's and
"AA" by S&P. Additionally, some of the large municipal corporations in Maryland
(such as the cities of Rockville, Annapolis and Frederick) have issued general
obligation bonds. There can be no assurance that these ratings will continue.

Many of Maryland's counties and the City of Baltimore have established
subsidiary agencies with bond issuing powers, such as housing authorities,
parking revenue authorities, and industrial development authorities. In
addition, all Maryland municipalities have the authority under State law to
issue conduit revenue bonds. These entities are subject to various economic
risks and uncertainties and the credit quality of the securities issued by them
may vary considerably from the credit quality of obligations backed by the full
the faith and credit of the State.

PENNSYLVANIA TAX-FREE PORTFOLIO

GENERAL

Pennsylvania has historically been dependent on heavy industry, although
declines over the past thirty years in the coal, steel and railroad industries
have led to diversification of the Commonwealth's economy. Recent sources of
economic growth in Pennsylvania are in the service sector, including trade,
medical and health services, education and financial institutions. Agriculture
continues to be an important component of the Commonwealth's economic structure,
with nearly one-third of the Commonwealth's total land area devoted to cropland,
pasture and farm woodlands.

In 1998, the population of Pennsylvania was 12.0 million people. According
to the U.S. Department of Commerce, Bureau of the Census, Pennsylvania's
population experienced a slight increase from the 1989 estimate of 11.87
million. Pennsylvania has a high proportion of persons 65 years of age or older.
The Commonwealth is highly urbanized, with 79% of the 1990 census population
residing in metropolitan statistical areas. The cities of Philadelphia and
Pittsburgh, the Commonwealth's largest metropolitan statistical areas, together
comprise approximately 44% of the Commonwealth's total population.

Pennsylvania's average annual unemployment rate remained below the national
average between 1986 and 1990. Slower economic growth caused the rate to rise to
6.9% in 1991 and 7.5% in 1992. The resumption of faster economic growth resulted
in a decrease in the Commonwealth's unemployment rate to 7.1% in 1993. In 1994
and 1995, Pennsylvania's annual average unemployment rate was below the overall
rate in the Mid-Atlantic region, but slightly higher than in the United States
as a whole. Seasonally adjusted data for March 1999, the most recent month for
which data is available, shows an unemployment rate of 4.4%, which is the same
rate for the United States.

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FINANCIAL ACCOUNTING

Pennsylvania utilizes the fund method of accounting and over 150 funds have
been established for the purpose of recording receipts and disbursements, of
which the General Fund is the largest. Most operating and administrative
expenses are payable from the General Fund. The Motor License Fund is a special
revenue fund that receives tax and fee revenues relating to motor fuels and
vehicles (except one-half cent per gallon of the liquid fuels tax which is
deposited in the Liquid Fuels Tax Fund for distribution to local municipalities)
and all such revenues are required to be used for highway purposes. Other
special revenue funds have been established to receive specified revenues
appropriated to specific departments, boards, and/or commissions. These funds
include the Game, Fish, Boat, Banking Department, Milk Marketing, State Farm
Products Show, State Racing and State Lottery Funds. The General Fund, all
special revenue funds, the Debt Service Funds and the Capital Project Funds
combine to form the Governmental Fund Types.

Enterprise funds are maintained for departments or programs operated like
private enterprises. The largest of the Enterprise funds is the State Stores
Fund, which is used for the receipts and disbursements of the Commonwealth's
liquor store system. Sale and distribution of all liquor within Pennsylvania is
a government enterprise.

Financial information for the funds is maintained on a budgetary basis of
accounting ("Budgetary"). Since 1984, the Commonwealth has also prepared
financial statements in accordance with generally accepted accounting principles
("GAAP"). The GAAP statements have been audited jointly by the Auditor General
of the Commonwealth and an independent public accounting firm. The Budgetary
information is adjusted at fiscal year end to reflect appropriate accruals for
financial reporting in conformity with GAAP. The Commonwealth maintains a June
30th fiscal year end.

The Constitution of Pennsylvania provides that operating budget
appropriations may not exceed the actual and estimated revenues and available
surplus in the fiscal year for which funds are appropriated. Annual budgets are
enacted for the General Fund and for certain special revenue funds which
represent the majority of expenditures of the Commonwealth.

REVENUES AND EXPENDITURES

Pennsylvania's Governmental Fund Types receive over 57% of their revenues
from taxes levied by the Commonwealth. Interest earnings, licenses and fees,
lottery ticket sales, liquor store profits, miscellaneous revenues,
augmentations and federal government grants supply the balance of the receipts
of these funds. Revenues not required to be deposited in another fund are
deposited in the General Fund. The major tax sources for the General Fund are
the 6% sales and use tax (33.9% of General Fund revenues in fiscal 1998), the
2.8% personal income tax (34.4%

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of General Fund revenues in fiscal 1998) and the 9.99% corporate net income tax
(9.4% of General Fund revenues in fiscal 1998). Tax and fee proceeds relating to
motor fuels and vehicles are constitutionally dedicated to highway purposes and
are deposited into the Motor License Fund. The major sources of revenue for the
Motor License Fund include the liquid fuels tax, the oil company franchise tax,
aviation taxes and revenues from fees levied on heavy trucks. These revenues are
restricted to the repair and construction of highway bridges and aviation
programs. Lottery ticket sales revenues are deposited in the State Lottery Fund
and are reserved by statute for programs to benefit senior citizens.

Pennsylvania's major expenditures include funding for education ($7.5
billion of fiscal 1998 expenditures, the projected $7.85 billion of the fiscal
1999 budget and the proposed almost $8.05 billion of the fiscal 2000 budget) and
public health and human services ($13.5 billion of fiscal 1998 expenditures, the
projected $15.1 billion of the fiscal 1999 budget and the proposed increase of
the fiscal 2000 $15.2 billion budget).

GOVERNMENTAL FUND TYPES: FINANCIAL CONDITION/RESULTS OF OPERATIONS (GAAP
BASIS)

Assets in the Commonwealth's governmental fund types rose during fiscal
1998 by 16.1 percent to $7,635.6 million. Liabilities for the governmental fund
types during fiscal 1998 increased by 4.6 percent to $3,843.8 million. A larger
gain in assets than in liabilities during fiscal 1998 for governmental fund
types produced a 30.7 percent increase in equity and other credits at June 30,
1998. Equity and other credits at the end of fiscal 1998 totaled $3,791.8
million, up from $2,900.9 million at the end of fiscal 1997. The five-year
period ending with fiscal 1998 was a time of economic growth with modest growth
rates at the beginning of the period and faster increased during the most recent
years. Throughout the period inflation has remained relatively low, helping to
restrain expenditure growth. Favorable economic conditions have helped total
revenues and other sources rise at an annual average 4.2 percent rate during the
five-year period. The growth rate for taxes of 4.3 percent almost matched the
total revenue rate. License and fee revenues expanded at a 7.9 percent rate,
largely because of various motor vehicle fees effective for fiscal 1998. Other
revenues, mostly charges for sales and services and investment income, increased
an average 17.6 percent during the period. Expenditure and other uses during the
fiscal 1994 through fiscal 1998 period rose at a 3.8 percent average rate, led
by a 10.2 percent average increase for protection of person and property costs.
Though still high, the growth rate for this program is declining as the
increased costs to acquire, staff and operate expanded prison facilities becomes
part of the expenditure base. Public health and welfare programs, the largest
single category of expenditures, have experienced a 5.5 percent average growth
rate for expenditure, slightly above the average for total expenditures. A
departmental restructuring in fiscal 1996 resulted in a re-categorization of
expenditures from conservation of natural resources to other categories and is
responsible for the decline of expenditures in that category beginning in fiscal
1996.

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GENERAL FUND: FINANCIAL CONDITIONS/RESULTS OF OPERATIONS

FIVE-YEAR OVERVIEW (GAAP BASIS)

For the five-year period from fiscal 1994 through fiscal 1998, total
revenues and other sources rose at a 5.0% average annual rate while total
expenditures and other uses grew by 5.0% annually. Tax revenues from this same
period increased by an average of 4.2% per year. The largest rate of growth for
any single revenue source during this period came from intergovernmental
revenues, which increased by 6.7% per year. As indicated above, this growth was
largely due to an accounting change that made food stamp coupon revenue from the
Federal government an item of intergovernmental revenue to the Commonwealth.

Expenditures and other uses rose at a slightly higher percentage than
revenues during the period from fiscal 1994 through fiscal 1998, at a rate of
5.0% per year. Program costs for protection of persons and property increased at
an average rate of 11.8% per year, due to the high amounts expended to acquire,
staff and operate expanded prison facilities for Pennsylvania's increased inmate
population. Public health and welfare costs increased at an average annual rate
of 5.8% during this period, the second-highest rate of percentage increase among
Commonwealth programs. The amount and growth of these costs has been restrained
by efforts to control costs for various social programs and by generally
favorable economic conditions throughout the Commonwealth.

The fund balance at June 30, 1998 totaled $1,958.9 million, an increase of
$594 million over the $1,364.9 million balance at June 30, 1997. The fund
balance has a $1,144 million unreserved-designated component, of which almost
one-half is represented by the Tax Stabilization Reserve Fund. The increase in
the fund balance at June 30, 1998 also includes a return of an
unreserved-undesignated balance, of $497.6 million is the largest balance
recorded since fiscal 1984.

FISCAL 1994 BUDGET (GAAP BASIS)

The fund balance of the General Fund increased by $194.0 million due
largely to an increased reserve for encumbrances and an increase in other
designated funds. The fund balance for June 30, 1994 was restated for the fiscal
1995 financial statements. That restatement totals $116.7 million to recognize
previously unreported revenues and expenditures for fiscal 1994. The fund
balance for June 30, 1994, as restated, was $776.5 million and the
unreserved-undesignated balance totaled $79.1 million. A continuing recovery of
the Commonwealth's financial condition from the effects of the national economic
recession of 1990 and 1991 is demonstrated by this increase in the balance and a
return to a positive unreserved-undesignated balance. For the third consecutive
fiscal year the increase in the unreserved-undesignated balance exceeded the
increase recorded in the budgetary basis unappropriated surplus during the
fiscal year.

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FISCAL 1995 BUDGET (GAAP BASIS)

Revenues and other sources totaled $23,771.6 million, an increase of
$1,135.0 million (0.5%) over the prior fiscal year. The largest increase was
$817.9 million in taxes which represents a 5.6% increase over taxes in the prior
fiscal year. Expenditures and other uses rose by $1,364.1 million to $23,821.4
million, an increase over the prior fiscal year of 6.1%. Consequently, an
operating deficit of $49.8 million was recorded for the fiscal year and led to a
fund balance decline to $688.3 million at June 30, 1995. Two items predominately
contributed to the fund balance decline. First, a more comprehensive procedure
was used for fiscal 1995 to compute the liabilities for certain public welfare
programs leading to an increase for the year-end accruals. Second, a change to
the methodology to calculate the year-end accrual for corporate tax payables
increased the tax refund liability by $72 million for the 1995 fiscal year when
compared to the previous fiscal year.

FISCAL 1996 BUDGET (GAAP BASIS)

Revenues and other sources totaled $25,850.3 million, an 8.0% increase from
the previous fiscal year. The fund balance for fiscal 1996 was drawn down $53.1
million from the balance at the end of fiscal 1995 to $635.2 million.
Expenditures and other uses exceeded revenues and other sources by $28.0
million. Consequently, the unreserved fund balance declined by $61.1 million,
reducing the balance to $381.8 million at the end of fiscal 1996. Total revenues
and other sources increased by 8.7%, led by a 24.2% increase in
intergovernmental revenues due to the aforementioned accounting change to count
Federal food-stamp coupon revenue as income to the Commonwealth. Expenditures
and other uses increased by 8.6% for the fiscal year, including a 24.8% increase
for protection of persons and property program costs due to higher correctional
program costs and re-categorization of expenditures. Costs for the conservation
of natural resources programs declined as a result of the abolishment of one
department, the creation of new departments in its place and the
re-classification of expenditures for natural resources programs of several
organizations and/or appropriations. The consolidated programs were absorbed
within existing organizations. Savings of $5.2 million are anticipated to result
from these consolidations and eliminations.

FISCAL 1997 BUDGET (GAAP BASIS)

Assets for fiscal 1997 increased $563.4 million and liabilities declined
$166.3 million to produce a $729.7 million increase in the fund balance at June
30, 1997. The fund balance increase during fiscal 1997 has brought a restoration
of an undesignated-unreserved balance, which totaled $187.3 million in fiscal
1997. Total revenues and other sources rose 3.5% for fiscal 1997. An increase of
5.5% in tax revenue from an improving state economy was partially offset by a
$175.2 million decline in intergovernmental revenues. Expenditures and other
uses increased by 1.0% for the fiscal year led, again, by costs associated with
the program for the protection of persons and property. These prison
construction- and staffing-related costs

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increased by 4.7% in fiscal 1997, well below the average 17.1% annual increase
that occurred over the four previous fiscal years. General government program
costs for fiscal 1997 declined by 14.3% from fiscal 1996, largely due to a
reduction in estimated expenditures for maintaining Pennsylvania's self-insured
worker's compensation program.

FISCAL 1998 BUDGET (GAAP BASIS)

GAAP Basis: For fiscal 1998, general fund (including the tax stabilization
reserve fund) assets increased $705.1 million and liabilities rose by $111.1
million during the fiscal year. These changes contributed to a $310.3 million
rise in the undesignated-unreserved balance for June 30, 1998 to $497.6 million,
the highest level achieved since audited GAAP reporting was instituted in 1984
for the Commonwealth. Fiscal 1998 total revenues and other sources rose 4.3
percent led by an 11.1 percent increase in other revenues, largely charges for
sales and services and investment income. Tax revenues rose 4.2 percent.

Expenditures and other uses during fiscal 1998 rose by 4.5 percent. Program
areas with the largest percentage increase for the fiscal year were economic
development and assistance (21.3 percent), transportation (19.3 percent) and
general government (14.3 percent). A drop in general government expenditures for
fiscal 1997 exaggerates the increase for fiscal 1998.

ADOPTED FISCAL 1999 BUDGET (BUDGETARY BASIS)

The budget for fiscal 1999 was enacted in April 1998 at which time the
official revenue estimate for the 1999 fiscal year was established at $18,456.6
million. Enactment of tax legislation in November 198 reduced estimated revenues
by a net $2.4 million. Only Commonwealth funds are included in the official
revenue estimate. The official revenue estimate is based on an economic forecast
for national gross domestic product, on a year-to-year basis, to slow from an
estimated annualized 3.9 percent rate in the fourth quarter of 1997 to a
projected 1.8 percent annualized growth rate by the second quarter of 1999. The
forecast of slowing economic activity is based on the expectation that consumers
will reduce their pace of spending, particularly on motor vehicles, housing and
other durable goods. Business is also expected to trim its spending on fixed
investments. Foreign demand for domestic goods is expected to decline in
reaction to economic difficulties in Asia and Latin America, while an economic
recovery in Europe is expected to proceed slowly. The underlying growth rate,
excluding any effect of scheduled or proposed tax changes, for the General Fund
fiscal 1999 official revenue estimate is 3.0 percent over actual fiscal 1998
revenues. When adjusted to include the estimated effect of enacted tax changes,
fiscal 1999 Commonwealth revenues are projected to increase by 1.6 percent over
actual Commonwealth revenues for fiscal 1998.

Tax reductions enacted with the 1999 fiscal year budget totaled an
estimated $241.0 million for fiscal 1999. The major components of the enacted
tax reductions and their estimated fiscal 1999 cost are: (i) reduce the capital
stock and franchise tax rate from 12.75 mills to 11.99

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mills ($72.5 million); (ii) increase the eligibility income limit for
qualification for personal income tax forgiveness ($57.1 million); (iii)
eliminate personal income tax on gains from the sale of an individual's
residence ($30.0 million); (iv) extend the time period from three to ten years
over which net operating loss deductions may be taken for the corporate net
income tax ($17.8); (v) expand various sales tax exemption ($40.4 million); and
(vi) reduce various other miscellaneous items ($23.2 million). The major tax
changes were enacted with January 1, 1998 effective dates. Consequently, the
cost of these changes during fiscal 1999 may be above the expected annualized
cost of the changes.

Appropriations enacted for fiscal 1999 when the budget was adopted in April
1998 were 4.1 percent ($713.2 million) above the appropriations enacted for
fiscal 1998 (including supplemental appropriations). Major increase in
expenditures budgeted for fiscal 1999 at that time included: (i) $249.5 million
in direct support of local school district education costs (local school
districts will also benefit from an estimated $104 million of reduced
contributions by school districts to their worker's retirement costs from a
reduced employer contribution rate); (ii) $60.4 million for higher education,
including scholarship grants; (iii) $56.5 million to fund the correctional
system, including $21.0 million to operate a new correctional facility; (iv)
$121.1 million for long-term care medical assistance costs; (v) $14.4 million
for technology and Year 2000 investments; (vi) $55.9 million to fund the first
year's cost of a July 1, 1998 annuitant cost of living increase for state and
school district employees; and (v) $20 million to replace bond funding for
equipment loans for volunteer fire and rescue companies. The balance of the
increase is spread over many departments and program operations. In May 1999,
along with the adoption of the fiscal 2000 budget, supplemental fiscal 1999
appropriations totaling $357.8 million were enacted. Of this amount, $200
million was appropriated for general obligations debt service that will be
available for possible use to retire outstanding debt; $59.0 million to accrue
the fourth quarterly Commonwealth contribution to the School Employees'
Retirement System; and $90.0 million is proposed for the Public Welfare
department to pay additional medical assistance costs anticipated to occur in
the current fiscal year. With these additional amounts, total appropriation for
fiscal 1998 represent a 6.2 percent increase over fiscal 1998 appropriations. An
anticipated $180 million of appropriation lapses and anticipated additional
revenues provide the funding for the additional appropriations. Appropriation
lapses in fiscal 1998 and 1997 were $161.8 million and $200.6 million
respectively.

Reserves for tax refunds for fiscal 1999 total $631.0 million, a $26.2
million increase over the budget as enacted. This amount includes $33.1 million
of tax refunds anticipated from the enacted fiscal 1999 tax changes and included
in the estimated cost of those changes. Reserves for tax refunds for fiscal 1999
are $279.0 million below the reserve established for fiscal 1998. The fiscal
1998 amount includes a one-time addition intended to fund all fiscal 1998 tax
refund liabilities, including that portion to be paid during fiscal 1999.
Without the necessity to pay fiscal 1998 tax refund liabilities from fiscal 1999
reserves, the fiscal 1999 reserve need only be in an amount equal to the
estimated fiscal 1999 estimate for tax refund liabilities.

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<PAGE>

Current revenue estimates for fiscal 1999 anticipated $722 million of
receipts above the official estimate used in the enactment of the fiscal 1999
budget. As of the fiscal year through April 1999, revenues are $547 million
over the official estimate, principally due to receipts from the sales tax
and the personal income tax. The higher revenues, if maintained during the
remainder of the fiscal year, will more than offset the planned draw down of
the $265.4 million beginning unappropriated balance. Using the most recent
fiscal 1999 estimates for revenues and expenditures, the fiscal year-end
unappropriated surplus is projected to rise by $364.3 million to $629.7
million, before transfers to the Tax Stabilization Reserve Fund. The transfer
to the Tax Stabilization Reserve Fund for fiscal 1999 is currently estimated
at $244.5 million, including a $150 million one-time transfer authorized by
the general assembly in May 1999. With this transfer, the Tax Stabilization
Reserve Fund will total approximately $932 million and represent 4.9% of
General Fund revenues.

Fiscal 2000 Budget (Budgetary Basis)

The General Fund budget for the 1999-2000 fiscal year was approved by
the General Assembly in May 1999. The adopted budget includes estimated
spending of $19,103.8 million and estimated revenues (net of estimated tax
refunds and enacted tax changes) of $18,718.5 million. Funds to cover the
$342.1 million difference between estimated revenues and projected spending
will be obtained from a draw down of the projected fiscal 1999 year-end
balance. The level of proposed spending represents an increase of 3.8 percent
over the revised spending authorized for fiscal 1999 of $18,360.3 million.
Enacted tax changes effective for fiscal 2000 total a net reduction of $380.2
million for the General Fund.

The estimate of Commonwealth revenues for fiscal 1999 is based on an
economic forecast for real gross domestic product to grow at a 1.4 percent
rate from the second quarter of 1999 to the second quarter of 2000. Growth of
real gross domestic product is expected to be restrained by a slowing of the
rate of consumer spending to a level consistent with personal income gains
and by smaller gains in business investment in response to falling capacity
utilization and profits. Slowing economic growth is expected to cause the
unemployment rate to rise through the fiscal year but inflation is expected
to remain quite moderate.

Trends for the Pennsylvania economy are expected to maintain their close
association with national economic trends. Personal income growth is
anticipated to remain slightly below that of the U.S. while the Pennsylvania
unemployment rate is anticipated to be very close to the national rate.

Commonwealth Debt

Current constitutional provisions permit Pennsylvania to issue the
following types of debt: (i) debt to suppress insurrection or rehabilitate
areas affected by disaster, (ii) electorate approved debt, (iii) debt for
capital projects subject to an aggregate debt limit of 1.75 times the annual
average tax revenues of the preceding five fiscal years, and (iv) tax
anticipation notes payable in the fiscal year of issuance. All debt except
tax anticipation notes must be amortized in substantial and regular amounts.

General obligation debt totaled $4,724.5 million at June 30, 1998, a
decrease of $70.6 million from June 30, 1997. Over the 10-year period ended
June 30, 1998, total outstanding general obligation debt increased at an
annual rate of 0.1%. For the most recent five years, total outstanding
general obligation debt decreased at an annual rate of 1.3%. All outstanding
general obligation bonds of the Commonwealth are rated AA by S & P's, Aa3 by
Moody's and AA by Fitch. The ratings reflect only the views of the rating
agencies.

Pennsylvania engages in short-term borrowing to fund expenses within a
fiscal year through the sale of tax anticipation notes which must mature within
the fiscal year of issuance. The principal amount issued, when added to that
already outstanding, may not exceed in aggregate 20% of the revenues estimated
to accrue to the appropriate fund in the fiscal year. The Commonwealth is not
permitted to fund deficits between fiscal years with any form of debt. All
year-end deficit balances must be fielded within the succeeding fiscal year's
budget. Currently, the Commonwealth has no tax anticipation notes outstanding.
The fiscal 1999 budget includes the issuance of $560 million of tax anticipation
notes. The Commonwealth has no plans to issue tax anticipation notes for fiscal
1999.

Pending the issuance of bonds, Pennsylvania may issue bond anticipation
notes subject to the applicable statutory and constitutional limitations
generally imposed on bonds. The term of such borrowings may not exceed three
years. Currently, $60 million of bond anticipation notes are authorized to be
issued in the form of commercial paper notes. As of April 30, 1999, $21.4
million was issued and outstanding.

STATE-RELATED OBLIGATIONS

Certain state-created agencies have statutory authorization to incur
debt for which no legislation providing for state appropriations to pay debt
service thereon is required. The debt of these agencies is supported by
assets of, or revenues derived from, the various projects financed and the
debt of such agencies is not an obligation of Pennsylvania although some of
the agencies are indirectly dependent on Commonwealth appropriations. In
addition, Pennsylvania may choose to take action to financially assist these
organizations. The following agencies had debt currently outstanding as of
June 30, 1998: Delaware River Joint Toll Bridge Commission ($51.4 million),
Delaware River Port Authority ($504.1 million), Pennsylvania Economic
Development Financing Authority ($1,106.4 million), Pennsylvania Energy
Development Authority ($43.1 million), Pennsylvania Higher Education
Assistance Agency ($1,633.8 million), Pennsylvania Higher Educational
Facilities Authority ($3,057.6 million), Pennsylvania Industrial Development
Authority ($394.5 million), Pennsylvania Infrastructure Investment Authority
($196.4 million), Pennsylvania Turnpike Commission ($1,127.9 million),
Philadelphia Regional Port Authority ($59.5 million), and the State Public
School Building Authority ($343.3 million). In addition, the

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Governor is statutorily required to place in the budget of the Commonwealth an
amount sufficient make up any deficiency in the capital reserve fund created
for, or to avoid default on, bonds issued by the Pennsylvania Housing Finance
Agency ($2,716.4 million of revenue bonds outstanding as of June 30, 1998), and
an amount of funds sufficient to alleviate any deficiency that may arise in the
debt service reserve fund for bonds issued by The Hospitals and Higher Education
Facilities Authority of Philadelphia ($1.1 million of the loan principal was
outstanding as of June 30, 1998). The budget as finally adopted by the
legislation may or may not include the amounts requested by the Governor.

LITIGATION

Certain litigation is pending against the Commonwealth that could
adversely affect the ability of the Commonwealth to pay debt service on its
obligations, including suits relating to the following matters: (a)
approximately 3,500 suits are pending against the Commonwealth pursuant to
the General Assembly's 1978 approval of a limited waiver of sovereign
immunity which permits recovery of damages for any loss up to $250,000 per
person and $1,000,000 per accident ($27.0 million has been appropriated from
the Motor License Fund in fiscal 1998); (b) the ACLU filed suit in April 1990
in federal court demanding additional funding for child welfare services (no
available estimates of potential liability), the Commonwealth then sought
dismissal based on, among other things, the settlement in a similar
Commonwealth court action that provided for more funding in fiscal 1991 as
well as a commitment to pay to counties $30.0 million over five years (In
January 1992, the U.S. District Court, per Judge Kelly, denied the ACLU's
motion for class certification, following which the Commonwealth filed a
motion for summary judgment on most of the counts in the ACLU's complaints.
After the filing of the motion for summary judgment, the ACLU filed a renewed
motion to certify sub-classes of plaintiffs. In December of 1994, the U.S.
Court of Appeals for the Third Circuit reversed Judge Kelly's ruling, finding
that he erred in refusing to certify the class. Consistent with the Third
Circuit's ruling, the district court recently certified the class, and the
parties have resumed discovery. In July 1998, the plaintiffs entered into a
settlement agreement with the City of Philadelphia and related parties and
submitted the agreement to the district court for approval. The district
court has preliminarily approved the settlement. Recently, the remaining
parties, including the Commonwealth, have agreed to settle the claims made
against them. The Commonwealth has agreed to pay $100,000 to settle
plaintiffs' $1.4 million claim for attorneys' fees and to take other actions
in exchange for a full and final release and dismissal of the case against
the Commonwealth parties. The settlement was approved by the district court
on February 1, 1999, and dismissed the case.); (c) in 1987, the Supreme Court
of Pennsylvania held that the statutory scheme for county funding of the
judicial system was in conflict with the Pennsylvania Constitution but stayed
judgment pending enactment by the legislature of funding consistent with the
opinion (In response to an action in mandamus seeking to compel the
Commonwealth to comply with the 1987 decision, on July 26, 1996, the Supreme
Court appointed retired Justice Montemuro as special master to devise a plan
and submit it for implementation by January 1, 1998. On January 28, 1997, the
Supreme Court announced the

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establishment of a tripartite committee, including representatives of the
Commonwealth Executive and Legislative Departments and Justice Montemuro, to
develop an implementation plan. On July 26, 1997, Justice Montemuro filed an
interim report wherein he recommended a transition to state funding of a
unified judicial system in four phases, during each of which specified court
employees would transfer into the Commonwealth payroll system. Justice
Montemuro recommended implementation of the system effective July 1, 1998,
with completion of the first phase early in the next century. Objections to
the report were due by September 1, 1997. Although the General Assembly is
yet to enact legislation implementing the Supreme Court's decision, the
Governor has proposed an appropriation of $15.6 million to implement Phase I
of Justice Montemuro's report as part of his proposed fiscal 1999 budget.);
(d) several banks have filed suit against the Commonwealth contesting the
constitutionality of a 1989 law imposing a bank shares tax on banking
institutions (Pursuant to a Settlement Agreement dated as of April 2, 1995,
the Commonwealth agreed to enter a credit in favor of one plaintiff bank in
the amount of $4,100,000 in settlement of the constitutional and
non-constitutional issues including interest. Pursuant to a separate
Settlement Agreement dated as of April 21, 1995, the Commonwealth settled
with the intervening banks, referred to as "New Banks." As part of the
settlement, the Commonwealth agreed neither to assess nor attempt to recoup
any New Bank tax credits which had been granted or taken by any of the
intervening banks. Certain other banks have filed petitions in the same
matter that are currently pending with the Commonwealth Court, and one of
these banks proceeded forward on behalf of the other banks to litigate the
same issues involved in the Settlement Agreements. A panel of the
Commonwealth Court, by a decision dated January 8, 1998, found no
constitutional violations by the Commonwealth. Royal Bank filed exceptions.
On July 30, 1998, the Commonwealth Court, EN BANC, denied those exceptions.
Royal Bank has appealed to the Pennsylvania Supreme Court and briefing has
been completed. The Court has not schedule oral argument.); (f) litigation
has been filed in both state and federal court by an association of rural and
small schools and several individual school districts and parents challenging
the constitutionality of the Commonwealth's system for funding local school
districts (The federal case has been stayed pending resolution of the state
case. The state case is assigned to Judge Pellegrini. Judge Pellegrini heard
oral argument on September 8, 1997 and has taken the case under advisement.
After a lengthy trail, Judge Dan Pellegrini on July 9, 1998, issued an
opinion and decree NISI dismissing the petitioners' claim in its entirely.
Judge Pellegrini held that Pennsylvania's system for funding public school is
constitutional under both the education clause and the equal protection
clause of the Pennsylvania Constitution. On July 20, 1998, the petitioners
filed a timely motion for post-trial relief, taking exception of Judge
Pellegrini's findings of fact that conclusions of law, and again asking
Commonwealth Court to declare Pennsylvania' public school funding system to
be unconstitutional. Also, the petitioners on July 21, 1998, filed an
application asking the Supreme Court of Pennsylvania to assume extraordinary,
plenary jurisdiction over the case to decide one legal issue - whether the
petitioners' constitutional claims are justiciable in the courts of the
Commonwealth. The petitioners have asked the court to consider the issue in
conjunction with a separate appeal in another case, MARRERO V. COMMONWEALTH
OF PENNSYLVANIA, involving the same provisions of the Constitution and a
similar issue of justiciability. On September 2, 1998, the Supreme Court

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granted the petitioners' application and directed the filing of briefs. The
respondents asked the Supreme Court to clarify its assumption of
jurisdiction. Specifically, the respondents asked the Court to state
expressly that it will consider only the issue of justiciability, as
requested in the petitioners' application and not other issues presented in
petitioners' motion for post-trial relief pending in the Commonwealth Court.
The Supreme Court denied the respondents' motion and, therefore, the parties
have addressed in their briefs all of the issues presented in the
petitioners' motion for post-trial relief. The Supreme Court has indicated
that it will not hear oral argument in the case but will decide the
petitioners' motion based on the briefs alone.); (g) on November 3, 1995, the
Commonwealth and the Governor, along with the Mayor and City of Philadelphia,
were joined as additional respondents in an enforcement action commenced in
Commonwealth Court in 1973 against the School District of Philadelphia, to
remedy unintentional conditions of segregation in the Philadelphia public
schools. The Governor and Commonwealth were joined in the remedial phase of
the proceeding to determine their liability, if any, to pay additional costs
necessary to remedy the unlawful conditions of segregation found to exist in
Philadelphia public schools. On February 28, 1996, the School District of
Philadelphia and certain public interest intervenors each filed third-party
actions against the Commonwealth to require the Commonwealth to supply the
funding necessary to fully comply with the remedial orders of the
Commonwealth Court. Following denial of the Commonwealth's preliminary
objections seeking dismissal of the claims against it, the Commonwealth
asserted numerous defenses and filed a cross-claim against the City of
Philadelphia claiming that sole liability rests with the City or, in the
alternative, that the Commonwealth has a right of indemnity or contribution
against the City if liability exists (Trial commenced on May 30, 1996 in the
Commonwealth Court, but the Supreme Court of Pennsylvania assumed
extraordinary plenary jurisdiction on July 3, 1996 for a resolution of the
case before Judge Smith. On August 20, 1996, Judge Smith issued an opinion
and order and entered judgment in favor of the School District and the
intervenors against the Commonwealth and Governor; entered judgment in favor
of the City and Mayor on the intervenors' claim and on the Commonwealth's and
Governor's cross-claim; and required the Commonwealth and Governor to submit
a plan to the Court within 30 days to effect a transfer of funds to enable
the School District to comply with the remedial order. The Governor and
Commonwealth moved to vacate Judge Smith's order, and on September 10, 1996,
the Supreme Court granted the motion to vacate, retaining further
jurisdiction in the case. On January 28, 1997, the Supreme Court issued an
order directing the parties to brief, among other issues, whether the lower
court erred in its opinion joining the Commonwealth and Governor and City and
Mayor as additional respondents. Oral argument was heard in the case on
February 3, 1998, and the Supreme Court took the matter under advisement.);
(h) on December 29, 1993 a former judge of the Allegheny Court of Common
Pleas filed a complaint for declaratory judgment in the Commonwealth Court
against the State Employees' Retirement Board, alleging that its use of
gender distinct actuarial factors for benefits based on service prior to
August 1, 1983 violated the equal protection and equal rights provisions of
the Pennsylvania Constitution. Due to the constitutional nature of the
claims, it is possible that a decision adverse to the State Employee's
Retirement Board would also be applicable to other Commonwealth retirement
systems which paid lower benefits to some participants on the basis of their
gender or the gender of their

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survivor annuitants (The Commonwealth Court granted the State Employee's
Retirement Board's preliminary objections to the plaintiff's claims for all
damages except for a recalculation of his pension benefits should he prevail. On
February 13, 1997, the Commonwealth Court en banc denied the plaintiff's motion
for judgment and the pleadings.); and (i) five residents of the City of
Philadelphia, on their own behalf and that of their school-aged children,
together with a number of public interest organizations, filed an action for
declaratory judgment in the Commonwealth Court on February 24, 1997, against the
Commonwealth, the General Assembly, the Governor and numerous other Legislative
and Executive Branch officials. The plaintiffs claim that Pennsylvania's
statutory education financing system violates the Pennsylvania Constitution as
applied in Philadelphia, and that they were denied their constitutional right to
a "thorough and efficient" system of public education in the financial and
administrative circumstances faced by the School District of Philadelphia. The
plaintiffs sought a declaration that the present funding system is
unconstitutional and that the legislature must amend the present or enact new
education legislation so as to assure that future funding for the School
District of Philadelphia makes adequate provision for the special needs of its
students (The respondents filed preliminary objections seeking dismissal of the
action and the Commonwealth Court heard oral argument on the matter on September
10, 1997. The Commonwealth Court subsequently dismissed the case on the grounds
that it presented non-justiciable issues. An appeal is presently expected.).

PHILADELPHIA

Legislation providing for the establishment of the Pennsylvania
Intergovernmental Cooperation Authority ("PICA") to assist Philadelphia in
remedying fiscal emergencies was enacted by the General Assembly and approved by
the Governor in June 1991. PICA is designed to provide assistance through the
issuance of funding debt and to make factual findings and recommendations to the
assisted city concerning its budgetary and fiscal affairs. At this time,
Philadelphia is operating under a five-year fiscal plan approved by PICA on June
9, 1998.

To date, PICA has issued $2,371.7 million of its Special Tax Revenue Bonds.
This financial assistance has included the refunding of certain city general
obligation bonds, funding of capital projects and the liquidation of the
Cumulative General Fund balance deficit of $224.9 million as of June 30, 1992.
The audited General Fund balance of the city as of June 30, 1998 showed a
surplus of approximately $169.2 million.

No further bonds are to be issued by PICA for the purpose of financing a
capital project or deficit as the authority for such bond sales expired December
31, 1994. PICA's authority to issue debt for the purpose of financing a cash
flow deficit expires on December 31, 1996.

PORTFOLIO TRANSACTIONS

The portfolios' adviser, Allied Investment Advisors, Inc. ("AIA") seeks the
most favorable execution result with respect to transactions. In seeking the
most favorable execution,

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AIA, having in mind a portfolio's best interest, considers all factors it deems
relevant, including, by way of illustration: price; the size of the transaction;
the nature of the market for the security; the amount of the commission; the
timing of the transaction, taking into account market process and trends; the
reputation, experience and financial stability of the broker-dealer involved;
and the quality of service rendered by the broker-dealer in other transactions.
For additional information about the portfolio's adviser, see "Investment
Adviser" below.

Transactions on U.S. stock exchanges and other agency transactions involve
the payment by a portfolio of negotiated brokerage commissions. Such commissions
vary by the price and the size of the transaction along with the quality of
service. Transactions in foreign securities often involve the payment of fixed
brokerage commissions, that are generally higher than those in the United
States. There is generally no stated commission in the case of securities traded
in the OTC markets, but the price paid by a portfolio usually includes an
undisclosed dealer commission or mark-up. In underwritten offerings, the price
paid by a portfolio includes a disclosed, fixed commission or discount retained
by the underwriter or dealer.

For each portfolio, AIA places all orders for the purchase and sale of
portfolio securities and buys and sells securities for the portfolio through a
number of brokers and dealers.

It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional investors
to receive research, statistical, and quotation services from broker-dealers
that execute portfolio transactions for the clients of such advisers. Consistent
with this practice, AIA may receive research, statistical, and quotation
services from broker-dealers with which it places the portfolio's portfolio
transactions. These services, which in some cases may also be purchased for
cash, include such matters as general economic and security market reviews,
industry and company reviews, evaluations of securities, and recommendations as
to the purchase and sale of securities. Some of these services are of value to
AIA and its affiliates in advising various of their clients (including the
portfolios), although not all of these services are necessarily useful and of
value in managing the portfolios. The fee paid by a portfolio to AIA is not
reduced because AIA and its affiliates receive such services.

As permitted by Section 28(e) of the Securities Exchange Act of 1934, as
amended, AIA as the adviser of a portfolio may cause the portfolio to pay a
broker-dealer that provides brokerage and research services to AIA a commission
in excess of the commission charged by another broker-dealer for effecting a
particular transaction. To cause a portfolio to pay any such greater
commissions, AIA must determine in good faith that such commissions are
reasonable in relation to the value of the brokerage or research service
provided by such executing broker-dealers viewed in terms of a particular
transaction or AIA's overall responsibilities to the portfolio or its other
clients. In reaching this determination, AIA will not attempt to place a
specific dollar value on the brokerage or research services provided or to
determine what portion of the compensation should be related to those services.

-47-
<PAGE>

Certain investments may be appropriate for a portfolio and for other
clients advised by AIA. Investment decisions for a portfolio and other clients
are made with a view to achieving their respective investment objectives and
after consideration of such factors as their current holdings, availability of
cash for investment, and the size of their investments generally. A particular
security may be bought or sold for only one client or in different amounts and
at different times for more than one but fewer than all clients. Likewise, a
particular security may be bought for one or more clients when one or more other
clients are selling the security. In addition, purchases or sales of the same
security may be made for two or more clients of AIA on the same day. In each of
these situations, the transactions will be allocated among the clients in a
manner considered by AIA to be equitable to each. In some cases, this procedure
could have an adverse effect on the price or amount of the securities purchased
or sold by a portfolio. Purchase and sale orders for a portfolio may be combined
with those of other clients of AIA in the interest of achieving the most
favorable execution for the portfolio.

For the fiscal year ended April 30, 1997, the Balanced Portfolio, Capital
Growth Portfolio, Small-Cap Equity Portfolio, Blue Chip Equity Portfolio, Equity
Income Portfolio and Mid-Cap Equity Portfolio paid brokerage commissions of
$251,132, $204,310, $274,131, $61,450, $65,133, and $14,645, respectively. For
the fiscal year ended April 30, 1998, the Balanced Portfolio, Capital Growth
Portfolio, Small-Cap Equity Portfolio, Blue Chip Equity Portfolio, Equity Income
Portfolio, Mid-Cap Equity Portfolio, Equity Index Portfolio and Value Equity
Portfolio paid brokerage commissions of $121,443, $178,598, $210,728, $83,365,
$127,244, $52,089, $33,683 and $87,444, respectively. For the fiscal year ended
April 30, 1999, the ______________ Portfolio, ___________ Portfolio and
__________________ Portfolio paid brokerage commission of $_________, $_________
and $_________, respectively.

For the fiscal year ended April 30, 1997, the Small-Cap Equity Portfolio,
Blue Chip Equity Portfolio and Stock Portfolio paid brokerage commissions of
$28, $112 and $350 to affiliated brokers. For the fiscal year ended April 30,
1998, the portfolios paid no brokerage commissions to affiliated brokers. For
the fiscal year ended April 30, 1999, the ____________ Portfolio paid brokerage
commissions of $ _____________ to affiliated brokers.

The Fund is required to identify any securities of its "regular brokers or
dealers" (as such term is defined in the 1940 Act) which the Fund has acquired
during its most recent fiscal year. As of April 30, 1999, the portfolios held
securities of the Fund's "regular brokers or dealers" as follows: the
_______________________ Portfolio held __________________issued by
___________________ valued at $____________________.

-48-
<PAGE>

VALUATION OF PORTFOLIO SECURITIES

MONEY MARKET PORTFOLIOS

Each money market portfolio values its investments on the basis of
amortized cost. This technique involves valuing an instrument at its cost as
adjusted for amortization of premium or accretion of discount rather than its
value based on current market quotations or appropriate substitutes which
reflect current market conditions. The amortized cost value of an instrument may
be higher or lower than the price the portfolio would receive if it sold the
instrument.

Valuing a portfolio's instruments on the basis of amortized cost and use of
the term "money market portfolio" are permitted by Rule 2a-7 under the 1940 Act.
Each money market portfolio must adhere to certain conditions under Rule 2a-7.

The Board of Trustees oversees AIA's adherence to SEC rules concerning
money market portfolios, and has established procedures designed to stabilize
each money market's portfolio's net asset value per share ("NAV") at $1.00. At
such intervals as they deem appropriate, the trustees consider the extent to
which NAV calculated by using market valuations would deviate from $1.00 per
share. If the trustees believe that a deviation from the portfolio's amortized
cost per share may result in material dilution or other unfair results to
shareholders, the trustees will take such corrective action, if any, as they
deem appropriate to eliminate or reduce, to the extent reasonably practicable,
such dilution or other unfair result. Such corrective action could include
selling portfolio instruments prior to maturity to realize capital gains or
losses or to shorten average portfolio maturity; withholding dividends;
redeeming shares in kind; establishing NAV by using available market quotations;
and such other measures as the trustees may deem appropriate.

During periods of declining interest rates, a portfolio's yield based on
amortized cost may be higher than the yield based on market valuations. Under
these circumstances, a shareholder in the portfolio would be able to obtain a
somewhat higher yield than would result if the portfolio utilized market
valuations to determine its NAV. The converse would apply in a period of rising
interest rates.

SHORT-TERM TREASURY PORTFOLIO, SHORT-TERM BOND PORTFOLIO, U.S. GOVERNMENT BOND
PORTFOLIO, INTERMEDIATE FIXED INCOME PORTFOLIO, INCOME PORTFOLIO, MARYLAND
TAX-FREE PORTFOLIO AND PENNSYLVANIA TAX-FREE PORTFOLIO

Valuations of portfolio securities furnished by the pricing service
utilized by the Fund are based upon a computerized matrix system and/or
appraisals by the pricing service, in each case in reliance upon information
concerning market transactions and quotations from recognized securities
dealers. The methods used by the pricing service and the quality of valuations
so established are reviewed by officers of the Fund and each portfolio's
respective pricing agent under general supervision of the Board of Trustees.
There are a number of pricing services available, and the Board, on the basis of
evaluation of these services, may use other pricing services or discontinue the
use of any pricing service in whole or in part.

-49-
<PAGE>

BALANCED PORTFOLIO, EQUITY INCOME PORTFOLIO, EQUITY INDEX PORTFOLIO, BLUE CHIP
EQUITY PORTFOLIO, MID-CAP EQUITY PORTFOLIO, VALUE EQUITY PORTFOLIO, CAPITAL
GROWTH PORTFOLIO, SMALL-CAP EQUITY PORTFOLIO AND INTERNATIONAL EQUITY SELECTION
PORTFOLIO

Securities owned by each of these portfolios are valued by various methods
depending on the market or exchange on which they trade. Securities traded on a
national securities exchange are valued at the last sale price, or if no sale
has occurred, at the closing bid price. Securities traded in the
over-the-counter market are valued at the last sale price, or if no sale has
occurred, at the closing bid price. Securities and other assets for which market
quotations are not readily available are valued at their fair value as
determined under procedures established by the Board of Trustees.

Generally, the valuation of foreign and domestic equity securities, as well
as corporate bonds, U.S. government securities, money market instruments, and
repurchase agreements, is substantially completed each day at the close of the
NYSE. The values of any such securities held by a portfolio are determined as of
such time for the purpose of computing a portfolio's NAV. Foreign security
prices are furnished by independent brokers or quotation services which express
the value of securities in their local currency. The pricing agent gathers all
exchange rates daily at 2:00 p.m., Eastern Time, and using the last quoted price
of the security in the local currency, translates the value of foreign
securities from their local currency into U.S. dollars. Any changes in the value
of forward contracts due to exchange rate fluctuations and days to maturity are
included in the calculation of NAV. If an extraordinary event that is expected
to affect materially the value of a portfolio security occurs after the close of
an exchange on which that security is traded, then the security will be valued
pursuant to the procedures established by the Board of Trustees.

PORTFOLIO PERFORMANCE

YIELD CALCULATIONS

In computing the yield of shares of a money market portfolio for a period,
the net change in value of a hypothetical account containing one share reflects
the value of additional shares purchased with dividends from the one original
share and dividends declared on both the original share and any additional
shares. The net change is then divided by the value of the account at the
beginning of the period to obtain a base period return. This base period return
is annualized to obtain a current annualized yield. A money market portfolio may
also calculate a compounded effective yield for its shares by compounding the
base period return over a one-year period. In addition to the current yield, the
money market portfolios may quote yields in advertising based on any historical
seven-day period. Yields for the shares of the money market portfolios are
calculated on the same basis as other money market portfolios, as required by
regulation.

-50-
<PAGE>

For shares of the non-money-market portfolios, yields used in advertising
are computed by dividing the interest income for a given 30-day or one-month
period, net of the portfolio's expenses, by the average number of shares
entitled to receive dividends during the period, dividing this figure by the
portfolio's NAV at the end of the period and annualizing the result (assuming
compounding of income) in order to arrive at an annual percentage rate. Income
is calculated for purposes of the yield quotations in accordance with
standardized methods applicable to all stock and bond funds. In general,
interest income is reduced with respect to bonds trading at a premium over their
par value by subtracting a portion of the premium from income on a daily basis,
and is increased with respect to bonds trading at a discount by adding a portion
of the discount to daily income. Capital gains and losses generally are excluded
from the calculation.

Income calculated for the purposes of determining yield differs from income
as determined for other accounting purposes. Because of the different accounting
methods used, and because of the compounding of income assumed in yield
calculations, a portfolio's yield may not equal its distribution rate, the
income paid to your account, or income reported in the portfolio's financial
statements.

For the Tax-Free Money Market Portfolio, Maryland Tax-Free Portfolio and
Pennsylvania Tax-Free Portfolio, a tax-equivalent yield is the rate an investor
would have to earn from a fully taxable investment before taxes to equal the
portfolio's tax-free yield. Tax-equivalent yields are calculated by dividing a
portfolio's yield by the result of one minus a stated federal or combined
federal, state and city tax rate. (If only a portion of a portfolio's yield was
tax-exempt, only that portion is included in the calculation.) If any portion of
a portfolio's income is derived from obligations subject to state or federal
income taxes, its tax-equivalent yield will generally be lower.

See Appendix B for tables showing the effect of a shareholder's tax status
on effective yield under the federal income tax laws for 1999.

For the seven-day period ended April 30, 1999, the yields and effective
yields for the following portfolios were:

<TABLE>
<CAPTION>
NAME OF PORTFOLIO AND CLASS YIELD EFFECTIVE YIELD
- --------------------------- ----- ---------------
<S> <C> <C>
U.S. TREASURY MONEY
MARKET PORTFOLIO
Retail Class A
Institutional Class
Institutional II Class

-51-
<PAGE>

U.S. GOVERNMENT MONEY
MARKET PORTFOLIO
Retail Class A
Institutional Class
Institutional II Class

MONEY MARKET PORTFOLIO
Retail Class A
Institutional Class
Institutional II Class

TAX-FREE MONEY MARKET
PORTFOLIO
Retail Class A
Institutional Class
Institutional II Class
</TABLE>

-52-
<PAGE>

For the 30-day period ended April 30, 1999, the yields for the
non-money-market portfolios were as follows:
<TABLE>
<CAPTION>

NAME OF PORTFOLIO AND CLASS YIELD YIELD
--------------------------------- -----
<S> <C>
SHORT-TERM TREASURY PORTFOLIO
Retail Class A
Institutional Class

U.S. GOVERNMENT BOND PORTFOLIO
Retail Class A
Institutional Class

INTERMEDIATE FIXED INCOME PORTFOLIO
Retail Class A
Institutional Class

INCOME PORTFOLIO
Retail Class A
Retail Class B
Institutional Class

MARYLAND TAX-FREE PORTFOLIO
Retail Class A
Retail Class B
Institutional Class

PENNSYLVANIA TAX-FREE PORTFOLIO
Retail Class A
Retail Class B
Institutional Class

BALANCED PORTFOLIO
Retail Class A
Retail Class B
Institutional Class

EQUITY INCOME PORTFOLIO
Retail Class A
Institutional Class

-53-
<PAGE>

EQUITY INDEX PORTFOLIO
Retail Class A
Institutional Class

BLUE CHIP EQUITY PORTFOLIO
Retail Class A
Retail Class B
Institutional Class

MID-CAP EQUITY PORTFOLIO
Retail Class A
Institutional Class

VALUE EQUITY PORTFOLIO
Retail Class A
Retail Class B
Institutional Class

CAPITAL GROWTH PORTFOLIO
Retail Class A
Retail Class B
Institutional Class

SMALL-CAP EQUITY PORTFOLIO
Retail Class A
Institutional Class

INTERNATIONAL EQUITY SELECTION PORTFOLIO
Retail Class A
Institutional Class
</TABLE>

-54-
<PAGE>

TOTAL RETURN

The average annual total returns for the one-year period and five-year
period ended April 30, 1999 and since inception are shown in the table below.

NAME OF PORTFOLIO
AND CLASS ONE-YEAR FIVE-YEAR SINCE INCEPTION
------------ -------- --------- ---------------
<S> <C> <C> <C>
INCOME PORTFOLIO
Retail Class A (April 12, 1994)
Retail Class B
----------------
Institutional Class (June 14, 1993)

BALANCED PORTFOLIO
Retail Class A (March 9, 1994)
Retail Class B
----------------
Institutional Class (July 16, 1993)

SMALL-CAP EQUITY PORTFOLIO
Retail Class A
Institutional Class (July 13, 1995)
(May 16, 1996)
BLUE CHIP EQUITY PORTFOLIO
Retail Class A (May 16, 1996)
Retail Class B
----------------
Institutional Class (April 30, 1996)

SHORT-TERM
TREASURY PORTFOLIO
Retail Class A (March 20, 1996)
Institutional Class (May 16, 1996)

MARYLAND TAX-FREE PORTFOLIO
Retail Class A (January 2, 1997)
Institutional Class (November 18, 1996)

-55-
<PAGE>

PENNSYLVANIA TAX-
FREE PORTFOLIO
Retail Class A (March 23, 1998)
Institutional Class (March 23, 1998)(3)

INTERMEDIATE FIXED
INCOME PORTFOLIO
Retail Class A
Institutional Class (November 18, 1996)

EQUITY INCOME
PORTFOLIO
Retail Class A
Institutional Class (November 18, 1996)

MID-CAP EQUITY
PORTFOLIO
Retail Class A
Institutional Class (November 18, 1996)

VALUE EQUITY
PORTFOLIO
Retail Class A (April 1, 1996)(4)
Retail Class B
-------------------
Institutional Class (April 1, 1996)
</TABLE>

(3) PERFORMANCE SHOWN PRIOR TO THE INCEPTION DATE OF RETAIL CLASS A (MARCH
23, 1998) IS SYNTHETIC (NOT ACTUAL) AND REPRESENTS THAT OF THE INSTITUTIONAL
CLASS ADJUSTED FOR THE SALES CHARGE. PERFORMANCE PRESENTED FROM INCEPTION
REFLECTS THE PERFORMANCE OF THE MARKETVEST PENNSYLVANIA INTERMEDIATE MUNICIPAL
BOND FUND SHARES, WHICH WERE OFFERED BEGINNING APRIL 1, 1996.

(4) PERFORMANCE SHOWN PRIOR TO THE INCEPTION DATE OF RETAIL CLASS A (APRIL
1, 1998) IS SYNTHETIC (NOT ACTUAL) AND REPRESENTS THAT OF THE INSTITUTIONAL
CLASS ADJUSTED FOR THE SALES CHARGE. PERFORMANCE PRESENTED FROM INCEPTION
REFLECTS THE PERFORMANCE OF THE MARKETVEST EQUITY FUND SHARES, WHICH WERE
OFFERED BEGINNING APRIL 1, 1996.

-56-
<PAGE>

<TABLE>

<S> <C>
INTERNATIONAL EQUITY
SELECTION PORTFOLIO
Retail Class A (May 31, 1991)(5)
Institutional Class (May 31, 1991)

SHORT-TERM BOND PORTFOLIO
Retail Class A
Institutional Class (April 1, 1996)(6)
(April 1, 1996)
U.S. GOVERNMENT BOND PORTFOLIO
Retail Class A
Institutional Class (April 1, 1996)(7)
(April 1, 1996)
EQUITY INDEX PORTFOLIO
Retail Class A
Institutional Class (March 20, 1998)
(March 20, 1998)
</TABLE>

(5) PERFORMANCE SHOWN PRIOR TO THE INCEPTION DATE OF RETAIL CLASS A (APRIL
1, 1998) IS SYNTHETIC (NOT ACTUAL) AND REPRESENTS THAT OF THE INSTITUTIONAL
CLASS ADJUSTED FOR THE SALES CHARGE. PERFORMANCE PRESENTED FROM INCEPTION
REFLECTS THE PERFORMANCE OF THE MARKETVEST INTERNATIONAL EQUITY FUND SHARES,
WHICH IS THE SUCCESSOR TO A COLLECTIVE TRUST FUND. THE QUOTED PERFORMANCE DATA
INCLUDES PERFORMANCE OF THE COLLECTIVE TRUST FUND FOR THE PERIOD FROM MAY 31,
1991 TO APRIL 1, 1997 WHEN THE MARKETVEST INTERNATIONAL EQUITY FUND'S
REGISTRATION STATEMENT BECAME EFFECTIVE, AS ADJUSTED TO REFLECT THE MARKETVEST
INTERNATIONAL EQUITY FUND'S ANTICIPATED EXPENSES.

(6) PERFORMANCE PRESENTED FROM INCEPTION REFLECTS THE PERFORMANCE OF THE
MARKETVEST SHORT-TERM BOND FUND SHARES, WHICH WERE OFFERED BEGINNING APRIL 1,
1996.

(7) PERFORMANCE SHOWN PRIOR TO THE INCEPTION DATE FOR RETAIL CLASS A (APRIL
1, 1998) IS SYNTHETIC (NOT ACTUAL) AND REPRESENTS THAT OF THE INSTITUTIONAL
CLASS ADJUSTED FOR THE SALES CHARGE. PERFORMANCE PRESENTED FROM INCEPTION
REFLECTS THE PERFORMANCE OF THE MARKETVEST INTERMEDIATE U.S. GOVERNMENT BOND
FUND SHARES, WHICH WERE OFFERED BEGINNING APRIL 1, 1996.

-57-
<PAGE>

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

Each portfolio is open for business and its NAV is calculated each day that
the Federal Reserve Bank of New York ("FRB") and the New York Stock Exchange
("NYSE") are open for trading (a "Business Day").

The calculation of the NAV, dividends and distributions of a portfolio's
Retail Class A, Retail Class B, Institutional Class and Institutional II Class
shares recognizes two types of expenses. General expenses that do not pertain
specifically to any class are allocated pro rata to the shares of each class,
based on the percentage of the net assets of such class to the portfolio's total
assets, and then equally to each outstanding share within a given class. Such
general expenses include (i) management fees, (ii) legal, bookkeeping and audit
fees, (iii) printing and mailing costs of shareholder reports, prospectuses,
Statements of Additional Information and other materials for current
shareholders, (iv) fees to Independent Directors, (v) custodian expenses, (vi)
share issuance costs, (vii) organization and start-up costs, (viii) interest,
taxes and brokerage commissions, and (ix) non-recurring expenses, such as
litigation costs. Other expenses that are directly attributable to a class are
allocated equally to each outstanding share within that class. Such expenses
include (i) distribution and/or other fees, (ii) transfer and shareholder
servicing agent fees and expenses, (iii) registration fees and (iv) shareholder
meeting expenses, to the extent that such expenses pertain to a specific class
rather than to a portfolio as a whole.

The NAV per share of Retail Class A, Retail Class B, Institutional Class
and Institutional II Class shares of a portfolio are determined as of the close
of business of the NYSE on each day that the NYSE is open, by dividing the value
of the portfolio's net assets attributable to that class by the number of shares
of that class outstanding.

The NAV of the Short-Term Treasury Portfolio, Short-Term Bond Portfolio,
U.S. Government Bond Portfolio, Intermediate Fixed Income Portfolio, Income
Portfolio, Maryland Tax-Free Portfolio, Pennsylvania Tax-Free Portfolio,
Balanced Portfolio, Equity Income, Equity Index Portfolio, Blue Chip Equity
Portfolio, Mid-Cap Equity Portfolio, Value Equity Portfolio, Capital Growth
Portfolio, Small-Cap Equity Portfolio and International Equity Selection
Portfolio is determined as of the close of regular trading on the NYSE, normally
4:00 p.m., Eastern Time ("4:00 p.m."). Shares purchased at 4:00 p.m. begin to
earn dividends on the following Business Day.

The NAV of the U.S. Treasury Money Market Portfolio and Tax-Free Money
Market Portfolio is determined at 12:00 noon, Eastern Time ("12:00 noon"), and
as of the close of regular trading on the NYSE, normally 4:00 p.m. The NAV of
the U.S. Government Money Market Portfolio and Money Market Portfolio is
determined at 5:00 p.m., Eastern Time ("5:00 p.m.").

-58-
<PAGE>

The following holiday closings have been scheduled for 1999 and the Fund
expects the schedule to be the same in the future: New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Columbus Day, Veterans Day, Thanksgiving Day and Christmas Day. The
NYSE or FRB may also close on other days. When the NYSE or the FRB is closed, or
when trading is restricted for any reason other than its customary weekend or
holiday closings, or under emergency circumstances as determined by the SEC to
merit such action, each portfolio will determine its NAV at the close of
business, the time of which will coincide with the closing of the NYSE. To the
extent that securities held by a portfolio are traded in other markets on days
the NYSE or FRB is closed (when investors do not have access to the portfolio to
purchase or redeem shares), the portfolio's NAV may be significantly affected.

If, in the opinion of the Board of Trustees, conditions exist which make
cash payment undesirable, redemption payments may be made in whole or in part in
securities or other property, valued for this purpose as they are valued in
computing the NAV of the portfolio. Shareholders receiving securities or other
property on redemption may realize a gain or loss for tax purposes and will
incur any costs of sale as well as the associated inconveniences.

Retail Class B shares will automatically convert into Retail Class A shares
at the end of the month eight years after the purchase date. Retail Class B
shares acquired by exchanging Retail Class B shares of another portfolio will
convert into Retail Class A shares based on the time of the initial purchase.
Retail Class B shares acquired through reinvestment of distributions will
convert into Retail Class A shares based on the date of the initial purchase to
which such shares relate. For this purpose, Retail Class B shares acquired
through reinvestment of distributions will be attributed to particular purchases
of Retail Class B shares in accordance with such procedures as the Trustees may
determine from time to time. The conversion of Retail Class B shares to Retail
Class A shares is subject to the condition that such conversions will not
constitute taxable events for Federal tax purposes.

TAXES

The following is only a summary of certain additional federal income tax
considerations generally affecting the portfolios and their shareholders that
are not described in the Prospectuses. No attempt is made to present a detailed
explanation of the federal, state or local tax treatment of the portfolios or
their shareholders, and the discussion here and in the Prospectuses is not
intended as a substitute for careful tax planning.

The following discussion of federal income tax consequences is based on the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
issued thereunder as in effect on the date of this Statement of Additional
Information. New legislation, as well as administrative changes or court
decisions, may significantly change the conclusions expressed herein, and may
have a retroactive effect with respect to the transactions contemplated herein.

-59-
<PAGE>

Each portfolio calculates dividend and capital gain distributions
separately, and is treated as a separate entity in all respects for tax
purposes.

TAXATION OF THE PORTFOLIOS

Each portfolio intends to qualify as a regulated investment company ("RIC")
under Subchapter M of the Code. In order to qualify as a RIC for any taxable
year, a portfolio must derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans and gains from the
sale or other disposition of stock, securities or foreign currencies and other
income (including, but not limited to gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "Income Requirement"). In addition, at the close
of each quarter of the portfolio's taxable year, (1) at least 50% of the value
of its assets must consist of cash and cash items, U.S. Government securities,
securities of other RICs, and securities of other issuers (as to which the
portfolio has not invested more than 5% of the value of its total assets in
securities of any one such issuer and as to which the portfolio does not hold
more than 10% of the outstanding voting securities of any one such issuer), and
(2) no more than 25% of the value of its total assets may be invested in the
securities of any one issuer (other than U.S. Government securities and
securities of other RICs), or in two or more issuers that the portfolio controls
and that are engaged in the same or similar trades or businesses or related
trades or businesses (the "Asset Diversification Test"). Generally, a portfolio
will not lose its status as a RIC if it fails to meet the Asset Diversification
Test solely as a result of a fluctuation in value of portfolio assets not
attributable to a purchase.

Under Subchapter M of the Code, a portfolio is not subject to federal
income tax on the portion of its taxable net investment income and net capital
gains that it distributes to shareholders, provided generally that it
distributes at least 90% of its investment company taxable income (net
investment income and the excess of net short-term capital gains over net
long-term capital loss) for the year and at least 90% of the excess of its
tax-exempt interest income over related expenses (the "Distribution
Requirement") and complies with the other requirements of the Code described
above. The Distribution Requirement for any year may be waived if a RIC
establishes to the satisfaction of the Internal Revenue Service that it is
unable to satisfy the Distribution Requirement by reason of distributions
previously made for the purpose of avoiding liability for federal excise tax
(discussed below).

If for any taxable year a portfolio does not qualify as a RIC, all of its
taxable income will be subject to tax at regular corporate rates without any
deduction for distributions to shareholders, and such distributions generally
will be taxable as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. However, in the case of corporate
shareholders, such distributions generally will be eligible for the 70%
dividends received deduction for "qualifying dividends."

-60-
<PAGE>

The Code imposes a nondeductible 4% excise tax on RICs that do not
distribute in each calendar year an amount equal to 98% of their ordinary income
for the calendar year plus 98% of their capital gains net income for the
one-year period ending on October 31 of such calendar year. The balance of such
income must be distributed during the next calendar year. For the foregoing
purposes, a RIC will include in the amount distributed any amount taxed to the
RIC as investment company taxable income or capital gains for any taxable year
ending in such calendar year. Each portfolio intends to make sufficient
distributions of its ordinary income and capital gains net income prior to the
end of each calendar year to avoid liability for excise tax. However, a
portfolio may in certain circumstances be required to liquidate portfolio
investments in order to make sufficient distributions to avoid excise tax
liability.

TAXATION OF SHAREHOLDERS

Distributions from each portfolio's taxable net investment income and
short-term capital gain are taxed as dividends. Distributions that are (i)
designated by a portfolio as capital gains dividends and (ii) made out of the
"net capital gain" (the excess of net long-term capital gain over net short-term
capital loss), if any, of a portfolio will be taxed to shareholders as net
capital gain, regardless of the length of time a shareholder has held shares,
whether such gain was reflected in the price paid for the shares, or whether
such gain was attributable to bonds bearing tax-exempt interest. Net capital
gain of a noncorporate taxpayer is generally taxed at a rate of 20%.
Distributions that are not net capital gain dividends or exempt-interest
dividends will generally be taxed at a maximum marginal rate of 39.6% in the
case of non-corporate taxpayers. Corporate taxpayers are currently taxed at the
same maximum marginal rates on both ordinary income and capital gains. A portion
of the dividends may qualify for the dividends received deduction for
corporations to the extent derived from dividend income received by the
portfolio. The portfolios' distributions are taxable when they are paid, whether
taken in cash or reinvested in additional shares, except that distributions
declared in October, November or December and payable to shareholders of record
in such month, if paid in January of the following year, will be taxed as though
paid on December 31. The portfolios will send non-corporate shareholders a tax
statement by January 31 showing the tax status of the distributions received in
the prior year. Shareholders also will be notified as to the portion of
distributions from the Tax-Free Money Market Portfolio, Maryland Tax-Free
Portfolio and Pennsylvania Tax-Free Portfolio that are exempt from federal
income taxes. It is suggested that shareholders keep all statements received to
assist in personal record keeping.

Shareholders may realize a capital gain or loss when they redeem (sell) or
exchange shares of the portfolios. For most types of accounts, the portfolios
will report the proceeds of a shareholder's redemptions to the shareholder and
the IRS annually. However, because the tax treatment also depends on the
purchase price and the shareholder's personal tax position, shareholders should
keep their regular account statements for use in determining their tax. If a
shareholder receives a long-term capital gain distribution on shares of the
portfolios, and such

-61-
<PAGE>

shares are held six months or less and are sold at a loss, the portion of the
loss equal to the amount of the long-term capital gain distribution will be
considered a long-term loss for tax purposes. Short-term capital gains
distributed by the portfolios are taxable to shareholders as dividends, not as
capital gains.

Any gain or loss recognized on a sale or redemption of shares of a
portfolio by a shareholder who is not a dealer in securities generally will be
treated as a long-term capital gain or loss if the shares have been held for
more than twelve months and otherwise generally will be treated as a short-term
capital gain or loss. Any resultant net capital gain will be subject to the 20%
rate.

On the record date for a distribution or dividend, the applicable
portfolio's share value is reduced by the amount of the distribution. If a
shareholder were to buy shares just before the record date ("buying a
dividend"), he would pay the full price for the shares and then receive a
portion of the price back as a taxable distribution.

INTERNATIONAL EQUITY SELECTION PORTFOLIO

Income that the International Equity Selection Portfolio receives from
sources within various foreign countries may be subject to foreign income taxes
withheld at the source. If the portfolio more than 50% of its assets invested in
foreign securities at the end of its taxable year, it may elect to pass through
the foreign tax credit to its shareholders. It is expected that the portfolio
will not have more than 50% of the value of its total assets at the close of its
taxable year invested in foreign securities, and therefore will not be permitted
to make this election and "pass through" to its shareholders. Each shareholder's
respective pro rata share of foreign taxes the portfolio pays will, therefore in
effect, be netted against their share of the portfolio's gross income.

The portfolio may invest in non-U.S. corporations which could be treated as
passive foreign investment companies ("PFICs"). This could result in adverse tax
consequences upon the disposition of, or the receipt of "excess distributions"
with respect to, such equity investments. To the extent the portfolio does
invest in PFICs, it may adopt certain tax strategies to reduce or eliminate the
adverse effects of certain federal tax provisions governing PFIC investments.
Some of these strategies may require the portfolio to distribute amounts in
excess of its realized income and gains. Many non-U.S. banks and insurance
companies may not be treated as PFICs if they satisfy certain technical
requirements under the Code. To the extent that the portfolio does invest in
foreign securities which are determined to be PFIC securities and is required to
pay a tax on such investments, a credit for this tax would not be allowed to be
passed through to its shareholders. Therefore, the payment of this tax would
reduce the portfolio's economic return from its PFIC shares, and excess
distributions received with respect to such shares are treated as ordinary
income rather than capital gains.

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An underlying fund may inadvertently invest in non-U.S. corporations which
would be treated as PFICs or become a PFIC under the Code. This could result in
adverse tax consequences upon the disposition of, or the receipt of "excess
distributions" with respect to, such equity investments. To the extent an
underlying fund does invest in PFICs, it may elect to treat the PFIC as a
"qualified electing fund" or mark-to-market its investments in PFICs annually.
In either case, the underlying fund may be required to distribute amounts in
excess of its realized income and gains. To the extent that the underlying fund
itself is required to pay a tax on income or gain from investment in PFICs, the
payment of this tax would reduce the portfolio's economic return.

TAX-FREE MONEY MARKET PORTFOLIO, MARYLAND TAX-FREE PORTFOLIO AND PENNSYLVANIA
TAX-FREE PORTFOLIO

Dividends (i) designated by these portfolios as exempt-interest dividends
and (ii) paid to shareholders out of tax-exempt interest income earned by the
portfolios (exempt-interest dividends) generally will not be subject to federal
income tax paid by the portfolios' shareholders. However, persons who are
"substantial users" or "related persons" of facilities financed by private
activity bonds held by the portfolios may be subject to tax on their pro-rata
share of the interest income from such bonds and should consult their tax
advisers before purchasing shares of the portfolios. Realized market discount on
tax-exempt obligations purchased after April 30, 1993 is treated as ordinary
income and not as a capital gain. Dividends paid by a portfolio out of its
taxable net investment income (including realized net short-term capital gains,
if any) are taxable to shareholders as ordinary income notwithstanding that such
dividends are reinvested in additional shares of the portfolio. The "exempt
interest dividend" portion of a distribution is determined by the ratio of the
net tax-exempt income realized by a portfolio for the entire year to the
aggregate amount of distributions for such year and, thus, is an annual average,
rather than a day-to-day determination for each shareholder. Distributions of
long-term capital gains, if any, are taxable as long-term capital gains to the
shareholder receiving them regardless of the length of time he or she may have
held his or her shares. Under current tax law (1) interest on certain private
activity bonds is treated as an item of tax preference for purposes of the
federal alternative minimum tax imposed on individuals and corporations,
although for regular federal income tax purposes such interest remains fully
tax-exempt, and (2) interest on all tax-exempt obligations is included in
"adjusted current earnings" of corporations for federal alternative minimum tax
purposes. Because the portfolios expect to purchase private activity bonds, a
portion (not expected to exceed 20%) of each portfolio's exempt-interest
dividends may constitute an item of tax preference for those shareholders
subject to the federal alternative minimum tax.

Interest on indebtedness incurred by shareholders to purchase or carry
shares of portfolios generating exempt-interest dividends generally is not
deductible for federal income tax purposes. Under IRS rules for determining when
borrowed funds are used for purchasing or carrying

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particular assets, shares of the portfolios may be considered to have been
purchased or carried with borrowed funds even though those funds are not
directly linked to the shares.

The exemption for federal income tax purposes of dividends derived from
interest on municipal securities does not necessarily result in an exemption
under the income or other tax laws of any state or local taxing authority.
Shareholders of the portfolio may be exempt from state and local taxes on
distributions of tax-exempt interest income derived from obligations of the
state and/or municipalities of the state in which they reside but may be subject
to tax on income derived from the municipal securities of other jurisdictions.
Shareholders are advised to consult with their tax advisers concerning the
application of state and local taxes to investments in the portfolio which may
differ from the federal income tax consequences described above.

Receipt of tax-exempt income may result in collateral tax consequences to
certain taxpayers, including, without limitation, financial institutions,
property and casualty insurance companies, certain foreign corporations doing
business in the United States, certain S corporations with excess passive
income, individual recipients of social security or railroad retirement benefits
and individuals otherwise eligible for the earned income credit. For example,
shareholders who receive social security benefits may be subject to federal
income tax on up to 85% of such benefits to the extent that their income,
including tax-exempt income, exceeds certain base amounts. Prospective
purchasers of portfolio shares should consult their own tax advisors as to the
applicability of any such collateral consequences.

The portfolios purchase municipal obligations based on opinions of bond
counsel regarding the federal income tax status of the obligations. These
opinions generally will be based upon covenants by the issuers regarding
continuing compliance with federal tax requirements. If the issuer of an
obligation fails to comply with its covenant at any time, interest on the
obligation could become federally taxable retroactive to the date the obligation
was issued.

Corporate investors should note that the corporate Alternative Minimum Tax
base is increased by 75% of the amount by which adjusted current earnings (which
includes tax-exempt interest not already included as a specified item of tax
preference) exceeds the alternative minimum taxable income of the corporation
(computed without regard to such increase and net operating loss deductions).

If a shareholder receives an exempt-interest dividend and sells shares at a
loss after holding them for a period of six months or less, the loss will be
disallowed to the extent of the amount of exempt-interest dividend.

Shares of the Tax-Free Money Market Portfolio, Maryland Tax-Free Portfolio
and Pennsylvania Tax-Free Portfolio would not be suitable for tax-exempt
institutions and may not be suitable for retirement plans qualified under
Section 401 of the Internal Revenue Code, H.R. 10 plans and individual
retirement accounts, because such plans and accounts are generally

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tax-exempt. Therefore, such plans and accounts would not gain any additional
benefit from the tax-exempt status of the portfolios' dividends and, moreover,
such dividends would be taxable when distributed to the beneficiary.

MARYLAND TAX MATTERS

To the extent that dividends paid by the portfolios qualify as
exempt-interest dividends of a regulated investment company, the portion of
exempt-interest dividends that represents interest received by the portfolios
(a) on obligations of Maryland or its political subdivisions and authorities,
(b) on obligations of the United States, or (c) obligations of certain
authorities, commissions, instrumentalities, possessions or territories of the
United States, will be exempt from Maryland state and local income taxes when
allocated or distributed to a shareholder of the portfolios.

In addition, gains realized by the portfolios from the sale or exchange of
a bond issued by Maryland or a political subdivision of Maryland, will not be
subject to Maryland state and local income taxes. To the extent that
distributions of the portfolios are attributable to sources other than those
described in the preceding sentences, such as interest received by the
portfolios on obligations issued by states other than Maryland or capital gains
realized on obligations issued by U.S. territories and possessions and from
states other than Maryland, and income earned on repurchase agreements, such
distributions will be subject to Maryland state and local income taxes. Income
earned on certain private activity bonds (other than obligations of the State of
Maryland or a political subdivision or authority thereof) which the portfolios
might hold will constitute a Maryland tax preference for individual
shareholders. In addition, capital gains realized by a shareholder upon a
redemption or exchange of portfolio shares will be subject to Maryland state and
local income taxes.

PENNSYLVANIA TAX MATTERS

To the extent that dividends paid by the portfolios qualify as
exempt-interest dividends of a regulated investment company, the portion of
exempt-interest dividends that represents interest received by the portfolios on
obligations (a) of Pennsylvania or its political subdivisions and authorities,
or (b) of the United States or an authority, commission, instrumentality,
possession or territory of the United States, will be exempt from Pennsylvania
state and local income taxes when allocated or distributed to a shareholder of
the portfolios.

In addition, gains realized by the portfolios from the sale or exchange of
a bond issued by Pennsylvania or a political subdivision of Pennsylvania, or by
the United States or an authority, commission or instrumentality of the United
States, will not be subject to Pennsylvania state and local income taxes. To the
extent that distributions of the portfolios are attributable to sources other
than those described in the preceding sentences, such as interest received by
the portfolios on obligations issued by states other than Pennsylvania or
capital gains realized on obligations

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issued by U.S. territories and possessions and from states other than
Pennsylvania, and income earned on repurchase agreements, such distributions
will be subject to Pennsylvania state and local income taxes. Income earned on
certain private activity bonds which the portfolios might hold will constitute a
Pennsylvania tax preference for individual shareholders. In addition, capital
gains realized by a shareholder upon a redemption or exchange of portfolio
shares will be subject to Pennsylvania state and local income taxes.

OTHER TAX INFORMATION

In addition to federal taxes, shareholders may be subject to state or local
taxes on their investment, depending on state law.

The Fund will be required in certain cases to withhold and remit to the
U.S. Treasury 31% of distributions payable to any shareholder who (1) has
provided the Fund either an incorrect tax identification number or no number at
all, (2) is subject to backup withholding by the Internal Revenue Service for
failure to properly report payments of interest or dividends, or (3) has failed
to certify to the Fund that such shareholder is not subject to backup
withholding.

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TRUSTEES AND OFFICERS

The trustees and officers of the Fund and their principal occupations
during the past five years are set forth below. Each trustee who is an
"interested person" of the Fund (as defined in the 1940 Act) is indicated by an
asterisk (*). Unless otherwise indicated the business address of each is One
Freedom Valley Drive, Oaks, PA 19456.

WILLIAM H. COWIE, JR., 1408 Ruxton Road, Baltimore, MD 21204. Date of
Birth: 1/24/31. Trustee since 1993. Prior to retirement, Mr. Cowie was Chief
Financial Officer (1991-1995) of Pencor, Inc. (developers of environmental
projects). Prior to 1991, Mr. Cowie was Vice Chairman of Signet Banking
Corporation.

CHARLOTTE R. KERR, American City Building, 10227 Wincopin Circle, Suite
108, Columbia, MD 21044. Date of Birth: 9/26/46. Trustee since 1993. Ms. Kerr is
Practitioner and faculty member at the Traditional Acupuncture Institute.

*DAVID D. DOWNES, 210 Allegheny Ave., Towson, MD 21204. Date of Birth:
7/16/35. President and Trustee since 1995. Mr. Downes is an attorney in private
practice (since October 1996). Prior thereto he was a partner (1989-1995) and of
counsel (1995-Sept. 1996) of Venable, Baetjer & Howard (law firm).

THOMAS SCHWEIZER, 6 Betty Bush Lane, Baltimore, MD 21212. Date of Birth:
8/21/22. Trustee since 1993. Prior to his retirement in 1987, Mr. Schweizer was
self-employed. He currently is a board member of various charity organizations
and hospitals.

RICHARD B. SEIDEL, 770 Hedges Lane, Wayne, Pennsylvania 19087. Date of
Birth: 4/20/41. Trustee since 1998. Mr. Seidel is a Director and President
(since 1994) of Girard Partners, Ltd. (a registered broker-dealer). Prior to
1994, Mr. Seidel was a Director and President of Fairfield Group, Inc.

JAMES F. VOLK, Controller. Date of Birth: 8/28/62. Controller, Treasurer
and Chief Financial Officer since March 1997. Mr. Volk is Director of Investment
Accounting Operations. He joined SEI Investments Mutual Fund Services in
February 1996 and is co-director of the International Fund Accounting Group.
From December 1993 to January 1996, Mr. Volk was Assistant Chief Accountant of
the Securities and Exchange Commission's Division of Investment Management.
Prior to December 1993, Mr. Volk spent nine years with Coopers & Lybrand L.L.P.,
most recently as a senior manager.

KATHRYN L. STANTON. Date of Birth: 11/18/58. Vice President since November
1995. Ms. Stanton has been Vice President and Assistant Secretary of SEI
Investments since 1994. Prior to 1994, Ms. Stanton was an Associate with Morgan,
Lewis & Bockius (law firm) since 1989.

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LYNDA J. STRIEGEL. Date of Birth: 10/30/48. Vice President and Secretary
since June 1998. Ms. Striegel is Vice President and Assistance Secretary of SEI
Investments, since 1998. Prior to 1998, Ms. Striegel was Senior Assets
Management Counsel, Barnet Banks from 1997 to 1998; Partners, Groom and
Nordberg, Chartered from 1996 to 1997; Associate General Counsel, Riggs Bank,
N.A. from 1991 to 1995.

LYDIA A. GAVALIS. Date of Birth: 6/5/64. Vice President and Assistant
Secretary since 1998. Vice President and Assistant Secretary of SEI Investments
Company since 1998. Assistant General Counsel and Director of Arbitration,
Philadelphia Stock Exchange from 1989 to 1998.

KATHY HEILIG. Date of Birth: 12/21/58. Vice President and Assistant
Secretary since 1998. Treasurer of SEI Investments Company since 1997. Assistant
Controller of SEI Investments Company since 1995; Vice President of SEI
Investments Company since 1991; Director of Taxes of SEI Investments Company
from 1987 to 1991; Tax Manager - Arthur Anderson LLP prior to 1987.

KEVIN P. ROBINS. Date of Birth: 4/15/61. Vice President and Assistant
Secretary since November 1995. Mr. Robins is Senior Vice President, General
Counsel and Secretary of SEI Investments since 1994. Prior to 1994, Mr. Robins
was Vice President and Assistant Secretary of SEI Investments. Prior to 1992,
Mr. Robins was an Associate with Morgan Lewis & Bockius (law firm) since 1988.

TODD CIPPERMAN. Date of Birth: 2/14/66. Vice President and Assistant
Secretary since November 1995. Mr. Cipperman is Vice President and Assistant
Secretary of SEI Investments since 1995. From 1994 to May 1995, Mr. Cipperman
was an Associate with Dewey Ballantine (law firm). Prior to 1994, Mr. Cipperman
was an Associate with Winston & Strawn (law firm) since 1991.

The following table sets forth information describing the compensation of
each current trustee of the Fund for his or her services as trustee for the
fiscal year ended April 30, 1999.

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TRUSTEE COMPENSATION TABLE

PENSION
RETIREMENT ESTIMATED
BENEFITS ANNUAL TOTAL
AGGREGATE ACCRUED FROM RETIREMENT COMPENSATION
COMPENSATION THE FUND FROM THE FUND FROM THE FUND
NAME OF TRUSTEE FROM THE FUND COMPLEX* COMPLEX* COMPLEX*
--------------- ------------- -------- -------- --------
<S> <C> <C> <C> <C>
William H. Cowie, Jr. $ -- -- $
David D. Downes -- --
Charlotte R. Kerr -- --
Thomas Schweizer -- --
Richard B. Seidel -- --
</TABLE>

*The Fund's trustees do not receive any pension or retirement benefits from
the Fund as compensation for their services as trustees of the Fund. The Fund, a
Massachusetts business trust, is the sole investment company in the fund
complex.

INVESTMENT ADVISER

Pursuant to an advisory agreement with the Fund dated as of February 12,
1998, Allied Investment Advisors, Inc. ("AIA") furnishes, at its own expense,
all services, facilities and personnel necessary to manage each applicable
portfolio's investments and effect portfolio transactions on its behalf.

The advisory contract has been approved by the Board of Trustees and will
continue in effect with respect to a portfolio only if such continuance is
specifically approved at least annually by the Board or by vote of the
shareholders of the portfolio, and in either case by a majority of the trustees
who are not parties to the advisory contract or interested persons of any such
party, at a meeting called for the purpose of voting on the advisory contract.
The advisory contract is terminable with respect to a portfolio without penalty
on 60 days' written notice when authorized either by vote of the shareholders of
the portfolio or by a vote of a majority of the trustees, or by AIA, on 60 days'
written notice, and will automatically terminate in the event of its assignment.

The advisory contract provides that, with respect to each portfolio,
neither AIA nor its personnel shall be liable for any error of judgment or
mistake of law or for any act or omission in the performance of its duties to a
portfolio, except for willful misfeasance, bad faith or gross negligence in the
performance by AIA of its duties or by reason of reckless disregard of its

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<PAGE>

obligations and duties under the advisory contract. The advisory contract
provides that AIA may render services to others.

For the fiscal year ended April 30, 1999, the advisory fee payable to AIA
with respect to the U.S. Treasury Money Market Portfolio was $___________of
which $___________ was waived; with respect to the U.S. Government Money Market
Portfolio was $___________ of which $___________ was waived; with respect to the
Money Market Portfolio was $___________ of which $___________ was waived; with
respect to the Tax-Free Money Market Portfolio was $___________ of which
$___________ was waived; with respect to the Short-Term Treasury Portfolio was
$___________ of which $___________ was waived; with respect to the Short-Term
Bond Portfolio was $___________ of which $___________ was waived; with respect
to the U.S. Government Bond Portfolio was $___________ of which $___________ was
waived; with respect to the Intermediate Fixed Income Portfolio was $___________
of which $___________ was waived; with respect to the Income Portfolio was
$___________ of which $___________ was waived; with respect to the Maryland
Tax-Free Portfolio was $___________ of which $___________ was waived; with
respect to the Pennsylvania Tax-Free Portfolio was $___________ of which
$___________ was waived; with respect to the Balanced Portfolio was $___________
of which $___________ was waived; with respect to the Equity Income Portfolio
was $___________ of which $___________ was waived; with respect to the Equity
Index Portfolio was $___________ of which $___________ was waived; with respect
to the Blue Chip Equity Portfolio was $___________ of which $___________ was
waived; with respect to the Mid-Cap Equity Portfolio was $___________ of which
$___________ was waived; with respect to the Value Equity Portfolio was
$___________ of which $___________ was waived; with respect to the Capital
Growth Portfolio was $___________ of which $___________ was waived; with respect
to the Small-Cap Equity Portfolio was $___________ of which $___________ was
waived; and with respect to the International Equity Selection Portfolio was
$___________ of which $___________ was waived.

For the fiscal year ended April 30, 1998, the advisory fee payable to AIA
with respect to the U.S. Treasury Money Market Portfolio was $950,471 of which
$228,108 was waived; with respect to the U.S. Government Money Market Portfolio
was $3,419,050 of which $1,504,386 was waived; with respect to the Money Market
Portfolio was $1,340,587 of which $750,727 was waived; with respect to the
Tax-Free Money Market Portfolio was $363,632 of which $232,727 was waived; with
respect to the Short-Term Treasury Portfolio was $142,899 of which $7,217 was
waived; with respect to the Short-Term Bond Portfolio was $173,712 of which
$26,223 was waived; with respect to the U.S. Government Bond Portfolio was
$333,031 of which $49,534 was waived; with respect to the Intermediate Fixed
Income Portfolio was $470,633 of which $114,918 was waived; with respect to the
Income Portfolio was $1,430,536 of which $24,176 was waived; with respect to the
Maryland Tax-Free Portfolio was $523,716 of which $60,920 was waived; with
respect to the Pennsylvania Tax-Free Portfolio was $232,022 of which $22,998 was
waived; with respect to the Balanced Portfolio was $537,057 of which $8,299 was
waived; with respect to the Equity Income Portfolio was $691,714 of which
$95,123 was waived; with

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respect to the Equity Index Portfolio was $39,637 of which $37,626 was waived;
with respect to the Blue Chip Equity Portfolio was $473,707 of which $27,150 was
waived; with respect to the Mid-Cap Equity Portfolio was $286,418 of which
$20,587 was waived; with respect to the Value Equity Portfolio was $997,541 of
which $162,273 was waived; with respect to the Capital Growth Portfolio was
$304,120 of which $2,637 was waived; with respect to the Small-Cap Equity
Portfolio was $150,514 of which $238 was waived; and with respect to the
International Equity Selection Portfolio was $42,205 of which $23,706 was
waived. Prior to February 12, 1998, the fees set forth above were payable
pursuant to an advisory agreement with AIA which provided a different fee
schedule.

For the fiscal year ended April 30, 1997, the advisory fee payable to AIA
with respect to the U.S. Treasury Money Market Portfolio was $868,468 of which
$208,427 was waived; with respect to the U.S. Government Money Market Portfolio
was $2,979,910 of which $1,311,172 was waived; with respect to the Money Market
Portfolio was $1,152,587 of which $668,387 was waived; with respect to the
Tax-Free Money Market Portfolio was $293,764 of which $188,010 was waived; with
respect to the Income Portfolio was $1,065,590; with respect to the Balanced
Portfolio was $534,609; with respect to the Capital Growth Portfolio was
$230,061 of which $171,884 was waived; with respect to the Small-Cap Equity
Portfolio was $149,991; with respect to the Short-Term Treasury Portfolio was
$113,265 of which $16,181 was waived; with respect to the Blue Chip Equity
Portfolio was $155,125 of which $51,706 was waived; with respect to the
Intermediate Fixed Income Portfolio was $210,973 of which $52,655 was waived;
with respect to the Maryland Tax-Free Portfolio was $190,624 of which $18,909
was waived; with respect to the Pennsylvania Tax-Free Portfolio was $52,803 of
which $13,698 was waived; and with respect to the Equity Income Portfolio was
$262,270 of which $37,287 was waived; and with respect to the Mid-Cap Equity
Portfolio was $83,933 of which $5,948 was waived.

In addition to receiving its advisory fee AIA may also act and be
compensated as investment manager for its clients with respect to assets which
are invested in a portfolio. In some instances AIA may elect to credit against
any investment management fee received from a client who is also a shareholder
in a portfolio an amount equal to all or a portion of the fee received by AIA,
or its affiliate, from a portfolio with respect to the client's assets invested
in the portfolio.

Each portfolio has, under its advisory contract, confirmed its obligation
to pay all expenses, including interest charges, taxes, brokerage fees and
commissions; certain insurance premiums; fees, interest charges and expenses of
the custodian, transfer agent and dividend disbursing agent; telecommunications
expenses; auditing, legal and compliance expenses; organization costs and costs
of maintaining existence; costs of preparing and printing the portfolios'
prospectuses, statements of additional information and shareholder reports and
delivering them to existing and prospective shareholders; costs of maintaining
books of original entry for portfolio accounting and other required books and
accounts of calculating the NAV of shares of the portfolios; costs of
reproduction, stationery and supplies; compensation of trustees

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<PAGE>

and officers of the portfolios and costs of other personnel performing services
for the portfolios who are not officers of the Administrator or Distributor, or
their respective affiliates; costs of shareholder meetings; SEC registration
fees and related expenses; state securities laws registration fees and related
expenses; fees payable under the advisory contracts and under the administration
agreement, and all other fees and expenses paid by the portfolios.

ADMINISTRATOR AND DISTRIBUTOR

ADMINISTRATOR AND SUB-ADMINISTRATOR

SEI Investments Mutual Fund Services serves as administrator (the
"Administrator") to the Fund. The Administrator assists in supervising all
operations of the portfolios, except those performed by AIA under the advisory
contracts, by the Distributor under the distribution agreement and by FMB Trust
Company, National Association, 25 South Charles Street, Baltimore, Maryland
21201 ("the Custodian") under the custodian agreement.

Under its administration agreement with the Fund, the Administrator has
agreed to maintain office facilities for the Fund. The Administrator prepares
annual and semi-annual reports to the SEC, prepares federal and state tax
returns, prepares filings with state securities commissions, and generally
assists in all aspects of the Fund's operations other than those discussed
above. Under the administration agreement, the Administrator also provides fund
accounting and related accounting services. The Administrator may delegate its
responsibilities under the administration agreement with the Fund's written
approval.

The Administrator, a Delaware business trust, has its principal business
offices at 1 Freedom Valley Drive, Oaks, PA 19456. SEI Investments Management
Corporation, a wholly-owned subsidiary of SEI Investments Company ("SEI"), is
the owner of all beneficial interest in the Administrator. SEI and its
subsidiaries and affiliates are leading providers of funds evaluation services,
trust accounting systems, and brokerage and information services to financial
institutions, institutional investors and money managers. The Administrator also
serves as administrator or sub-administrator to the following mutual funds: SEI
Daily Income Trust, SEI Liquid Asset Trust, SEI Tax Exempt Trust, SEI Index
Funds, SEI Institutional Managed Trust, SEI Institutional International Trust,
The Advisors' Inner Circle Fund, The Pillar Funds, CUFUND, STI Classic Funds,
First American Funds, Inc., First American Investment Funds, Inc., The Arbor
Fund, Boston 1784 Funds, The PBHG Funds, Inc., Morgan Grenfell Investment Trust,
The Achievement Funds Trust, Bishop Street Funds, CrestFunds, Inc., STI Classic
Variable Trust, Huntington Funds, SEI Asset Allocation Trust, TIP Funds, SEI
Institutional Investments Trust, First American Strategy Funds, Inc., HighMark
Funds, PBHG Insurance Series Fund, Inc., Expedition Funds, Alpha Select Funds,
Oak Associates Funds, The Nevis Fund, Inc., The Parkstone Group of Funds, CNI
Charter Funds and The Parkstone Advantage Fund.

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<PAGE>

For the fiscal year ended April 30, 1999, the administration fee payable to
the Administrator with respect to the U.S. Treasury Money Market Portfolio was
$___________; with respect to the U.S. Government Money Market Portfolio was
$___________; with respect to the Money Market Portfolio was $___________; with
respect to the Tax-Free Money Market Portfolio was $___________; with respect to
the Income Portfolio was $___________; with respect to the Balanced Portfolio
was $___________; with respect to the Capital Growth Portfolio was $___________;
with respect to the Small-Cap Equity Portfolio was $___________; with respect to
Blue Chip Equity Portfolio was $___________; with respect to the Short-Term
Treasury Portfolio was $___________; with respect to the Intermediate Fixed
Income Portfolio was $___________; with respect to the Maryland Tax-Free
Portfolio was $___________; with respect to the Pennsylvania Tax-Free Portfolio
was $___________; with respect to the Equity Income Portfolio was $___________;
with respect to the Mid-Cap Equity Portfolio was $___________; with respect to
the Short-Term Bond Portfolio was $___________; with respect to the U.S.
Government Bond Portfolio was $___________; with respect to the Value Equity
Portfolio was $___________; and with respect to the International Equity
Selection Portfolio was $___________.

Pursuant to a separate agreement with the Administrator, FMB Trust Company,
National Association, the Fund's custodian, performs sub-administration services
on behalf of the portfolios, for which it receives a monthly fee paid by the
Administrator at the annual rate of up to 0.0275% of the aggregate 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. For the fiscal year ended April 30, 1999, the
Administrator paid sub-administration fee to FMB Trust Company, National
Association of $___________.

For the fiscal year ended April 30, 1998, the administration fee payable to
the Administrator with respect to the U.S. Treasury Money Market Portfolio was
$494,240; with respect to the U.S. Government Money Market Portfolio was
$1,777,888; with respect to the Money Market Portfolio was $697,098; with
respect to the Tax-Free Money Market Portfolio was $189,087; with respect to the
Income Portfolio was $364,951; with respect to the Balanced Portfolio was
$124,759; with respect to the Capital Growth Portfolio was $64,748; with respect
to the Small-Cap Equity Portfolio (formerly Special Equity Portfolio) was
$31,575; with respect to Blue Chip Equity Portfolio was $100,718; with respect
to the Short-Term Treasury Portfolio was $53,076; with respect to the
Intermediate Fixed Income Portfolio was $101,969; with respect to the Maryland
Tax-Free Portfolio was $132,656; with respect to the Pennsylvania Tax-Free
Portfolio was $30,476 (an additional $16,803 was paid to Federated Investors,
the administrator of the Market vest Funds prior to the reorganizations
("Federated")); with respect to the Equity Income Portfolio was $128,459; with
respect to the Mid-Cap Equity Portfolio was $52,356; with respect to the
Short-Term Bond Portfolio was $18,456 (an additional $12,347 was paid to
Federated; with respect to the U.S. Government Bond Portfolio was $36,989 (an
additional $22,521 was paid to Federated); with respect to the Value Equity
Portfolio was $69,147 (an

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additional $86,672 was paid to Federated); and with respect to the International
Equity Selection Portfolio was $4,627 (an additional $10,640 was paid to
Federated).

For the fiscal year ended April 30, 1998, the Administrator paid
sub-administration fee to FMB Trust Company, National Association of
$429,472.47.

For the fiscal year ended April 30, 1997, the administration fee payable to
the Administrator with respect to the U.S. Treasury Money Market Portfolio was
$451,599; with respect to the U.S. Government Money Market Portfolio was
$1,549,513; with respect to the Money Market Portfolio was $599,341 of which
$15,103 was waived; with respect to the Tax-Free Money Market Portfolio was
$153,254; with respect to the Income Portfolio was $277,052; with respect to the
Balanced Portfolio was $126,362; with respect to the Capital Growth Portfolio
was $49,846; with respect to the Small-Cap Equity Portfolio was $32,496; with
respect to Blue Chip Equity Portfolio was $34,734; with respect to the
Short-Term Treasury Portfolio was $42,070; with respect to the Intermediate
Fixed Income Portfolio was $45,699; with respect to the Maryland Tax-Free
Portfolio was $49,562; with respect to the Pennsylvania Tax-Free Portfolio was
$13,729; with respect to the Equity Income Portfolio was $48,707; and with
respect to the Mid-Cap Equity Portfolio was $15,587.

The administration agreement permits the Administrator to subcontract its
services thereunder, provided that the Administrator will not be relieved of its
obligations under the agreement by the appointment of a subcontractor and the
Administrator shall be responsible to the Fund for all acts of the subcontractor
as if such acts were its own, except for losses suffered by any portfolio
resulting from willful misfeasance, bad faith or gross negligence by the
subcontractor in the performance of its duties or for reckless disregard by it
of its obligations and duties. Pursuant to a sub-administration agreement
between the Administrator and FMB Trust Company, National Association, FMB Trust
Company, National Association will perform services which may include clerical,
bookkeeping, accounting, stenographic, and administrative services, for which it
will receive a fee, paid by the Administrator, at the annual rate of up to
0.0275% of aggregate average net assets.

DISTRIBUTOR

SEI Investments Distribution Co. (formerly SEI Financial Services Company)
serves as the distributor (the "Distributor") of the Fund. The Distributor
offers shares continuously and has agreed to use its best efforts to solicit
purchase orders.

DISTRIBUTION PLANS

The Board of Trustees has adopted distribution plans (the "Plans") pursuant
to Rule 12b-1 under the 1940 Act (the "Rule") on behalf of the Retail Class A
and Retail Class B of each portfolio and Institutional II Class of each money
market portfolio. The Plans allow the portfolios

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to pay the Distributor a distribution fee at the annual rate of up to .75% of
the average net assets of such class, or such lesser amount as approved from
time to time by the Board. These fees may be used to pay expenses associated
with the promotion and administration of activities primarily intended to result
in the sale of shares of the portfolios, including, but not limited to:
advertising the availability of services and products; designing material to
send to customers and developing methods of making such materials accessible to
customers; providing information about the product needs of customers; providing
facilities to solicit sales and to answer questions from prospective and
existing investors about the portfolios; receiving and answering correspondence
from prospective investors, including requests for sales literature,
prospectuses and statements of additional information; displaying and making
sales literature and prospectuses available; acting as liaison between
shareholders and the portfolios, including obtaining information from the
portfolios regarding the portfolios and providing performance and other
information about the portfolios; and providing additional distribution-related
services.

The Plans have been approved by the Board of Trustees, including the
majority of disinterested trustees, and where required by the sole shareholder
of the classes. As required by the Rule, the Board considered all pertinent
factors relating to the implementation of each of the Plans prior to its
approval, and the trustees have determined that there is a reasonable likelihood
that the Plans will benefit the classes and their respective shareholders. To
the extent that the Plans provide greater flexibility in connection with the
distribution of shares of the portfolios, additional sales may result.

The Board has approved a distribution fee of .15% of the average net assets
of the Institutional II Class. For the fiscal year ended April 30, 1999, the
Institutional II Class of the U.S. Treasury Money Market Portfolio, U.S.
Government Money Market Portfolio, Money Market Portfolio and Tax-Free Money
Market Portfolio paid distribution fees of $___________, $___________,
$___________ and $___________, respectively.

The Board has approved distribution fees based on the following percentages
of the average daily net assets of the Retail Class A: .25% for each money
market portfolio; .30% for the Short-Term Bond Portfolio, U.S. Government Bond
Portfolio, Intermediate Fixed Income Portfolio, Income Portfolio, Maryland
Tax-Free Portfolio and Pennsylvania Tax-Free Portfolio; .40% for the Short-Term
Treasury Portfolio, Balanced Portfolio, Equity Income Portfolio, Equity Index
Portfolio, Mid-Cap Equity Portfolio, Value Equity Portfolio, Capital Growth
Portfolio, Small-Cap Equity Portfolio, and International Equity Selection
Portfolio; and 55% for the Blue Chip Equity Portfolio. For the fiscal year ended
April 30, 1999, the Retail Class A of the portfolios paid distribution fees in
the following amounts: $___________ for the U.S. Treasury Money Market
Portfolio, $___________ for the U.S. Government Money Market Portfolio,
$___________ for the Money Market Portfolio, $___________ for the Tax-Free Money
Market Portfolio, $___________ for the Income Portfolio, $___________ for the
Balanced Portfolio, $___________ for the Capital Growth Portfolio, $___________
for the Small-Cap Equity Portfolio, $___________ for the Blue Chip Equity
Portfolio, $___________ for the Short-Term

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Treasury Portfolio, $___________ for the Maryland Tax-Free Portfolio,
$___________ for the Pennsylvania Tax-Free Portfolio, $___________ for the U.S.
Government Bond Portfolio, $___________ for the Equity Income Portfolio;
$___________ for the Equity Index Portfolio, $___________ for the Value Equity
Portfolio and $___________ for the International Equity Selection Portfolio.

The Board has approved distribution fees of .75% for each portfolio based
on the average daily net assets of the Retail Class B. For the fiscal year ended
April 30, 1999, the Retail Class B of the portfolios paid distribution fees in
the following amounts: $___________ for the Money Market Portfolio; $___________
for the Income Portfolio; $___________ for the Maryland Tax-Free Portfolio;
$___________ for the Pennsylvania Tax-Free Portfolio; $___________ for the
Balanced Portfolio; $___________ for the Blue Chip Equity Portfolio;
$___________ for the Value Equity Portfolio; and $___________ for the Capital
Growth Portfolio.

As of the date of this Statement of Additional Information, all
distribution fees received by the Distributor under the Plans are paid to
qualified securities brokers or financial institutions or other investment
professionals in respect of their share accounts. The Plans are a compensation
plan because the Distributor is paid a fixed fee and is given discretion
concerning what expenses are payable under the Plans. The Distributor may spend
more for marketing and distribution than it receives in fees. However, to the
extent fees received exceed expenses, including indirect expenses such as
overhead, the Distributor could be said to have received a profit. For example,
if the Distributor pays $1 for distribution-related expenses and receives $2
under the Plan, the $1 difference could be said to be a profit for the
Distributor. If, after payments by the Distributor for marketing and
distribution, there are any remaining fees which have been paid under the Plan,
they may be used as the Distributor may elect. Since the amounts payable under
the Plan are commingled with the Distributor's general funds, including the
revenues it receives in the conduct of its business, it is possible that certain
of the Distributor's overhead expenses will be paid out of distribution fees and
that these expenses may include the costs of leases, depreciation,
communications, salaries, training and supplies.

SHAREHOLDER SERVICES PLANS

The Board of Trustees has adopted shareholder services plans on behalf of
the Retail Class A, Retail Class B and Institutional Class of the portfolios to
compensate qualified recipients for individual shareholder services and account
maintenance. These functions include, but are not limited to, answering
shareholder questions and handling correspondence, assisting customers, and
account record keeping and maintenance. For these services the participating
qualified recipients are paid a service fee at the annual rate of up to ______%
of average net assets of Retail Class A and Retail Class B of each portfolio or
such lesser amount as may be approved by the Board and _____% of average net
assets of the Institutional Class. Currently, the Board has approved a fee for
shareholder services of _____% of average net assets of the Institutional II
Class.

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For the fiscal year ended April 30, 1999, Retail Class A of the
______________ Portfolio paid shareholder servicing fees of $________________.

For the fiscal year ended April 30, 1999, Retail Class B of the
______________ Portfolio paid shareholder servicing fees of $________________.

For the fiscal year ended April 30, 1999, Institutional Class of the
______________ Portfolio paid shareholder servicing fees of $________________.

For the fiscal year ended April 30, 1998, Retail Class A of the U.S.
Treasury Money Market Portfolio, U.S. Government Money Market Portfolio, Money
Market Portfolio and Tax-Free Money Market Portfolio paid shareholder servicing
fees of $16,492, $19,162, 109,013 and $15,603, respectively.

For the fiscal year ended April 30, 1998, the Institutional Class of the
U.S. Treasury Money Market Portfolio, U.S. Government Money Market Portfolio,
Money Market Portfolio, Tax-Free Money Market Portfolio, Income Portfolio,
Balanced Portfolio, Capital Growth Portfolio, Small-Cap Equity Portfolio, Blue
Chip Equity Portfolio, Short-Term Treasury Portfolio, Intermediate Fixed Income
Portfolio, Maryland Tax-Free Portfolio, Pennsylvania Tax-Free Portfolio, Equity
Income Portfolio, Mid-Cap Equity Portfolio, International Equity Selection
Portfolio, U.S. Government Bond Portfolio, Value Equity Portfolio and Short-Term
Bond Portfolio paid shareholder servicing fees of $59,751, $210,161, $52,733,
$19,720, $61,137, $18,509, $9,213, $4,891, $11,688, $4,700, $16,149, $16,836,
$13,905, $20,520, $9,987, $2,135, $17,071, $31,907 and $8,518, respectively.

For the fiscal year ended April 30, 1997, Retail Class A of the U.S.
Treasury Money Market Portfolio, Money Market Portfolio and Tax-Free Money
Market Portfolio paid shareholder servicing fees of $6,142, $69,190 and $10,416,
respectively.

TRANSFER AGENT

The Fund has a Transfer Agency and Services Agreement dated November 1,
1995, with SEI Investments Management Corporation. SEI Investments Management
Corporation has subcontracted transfer agency services to State Street Bank and
Trust Company ("State Street Bank"). State Street Bank maintains an account for
each shareholder, provides tax reporting for each portfolio, performs other
transfer agency functions and acts as dividend disbursing agent for each
portfolio.

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DESCRIPTION OF THE FUND

TRUST ORGANIZATION

The U.S. Government Money Market Portfolio, U.S. Treasury Money Market
Portfolio, Money Market Portfolio, Tax-Free Money Market Portfolio, Short-Term
Treasury Portfolio, Short-Term Bond Portfolio, U.S. Government Bond 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, Mid-Cap Equity
Portfolio, Value Equity Portfolio, Capital Growth Portfolio, Small-Cap Equity
Portfolio and International Equity Selection Portfolio are series of ARK Funds,
an open-end management investment company organized as a Massachusetts business
trust by a Declaration of Trust dated October 22, 1992, and amended and restated
on March 19, 1993. A supplement to the Declaration of Trust was executed and
filed on March 23, 1993. The Declaration of Trust permits the Board to create
additional series and classes of shares.

In the event that an affiliate of Allied Irish Banks, p.l.c. ceases to be
the investment adviser to the portfolios, the right of the Fund and portfolio to
use the identifying name "ARK" may be withdrawn.

The assets of the Fund received for the issue or sale of shares of a
portfolio and all income, earnings, profits and proceeds thereof, subject only
to the rights of creditors, are allocated to the portfolio, and constitute the
underlying assets thereof. The underlying assets of a portfolio are segregated
on the books of account, and are to be charged with the liabilities with respect
to the portfolio and with a share of the general expenses of the Fund. General
expenses of the Fund are allocated in proportion to the asset value of the
respective portfolios, except where allocations of direct expense can otherwise
fairly be made. The officers of the Fund, subject to the general supervision of
the Board of Trustees, have the power to determine which expenses are allocable
to a given portfolio, or which are general or allocable to all of the
portfolios. In the event of the dissolution or liquidation of the Fund,
shareholders of a portfolio are entitled to receive as a class the underlying
assets of the portfolio available for distribution.

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 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, AIA believes that it may
perform the advisory services described in the prospectuses or

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this Statement of Additional Information for the Fund and its shareholders
without violating applicable federal banking laws or regulations.

Judicial or administrative decisions or interpretations of, as well as
changes in, either federal or state statutes or regulations relating to the
activities of banks and their affiliates could prevent a bank or bank affiliate
from continuing to perform all or a part of the activities contemplated by the
prospectuses or this Statement of Additional Information. If banks or bank
affiliates were prohibited from so acting, changes in the operating of the Fund
might occur. It is not anticipated, however, that any such change would affect
the net asset value of the shares of any portfolio or result in any financial
loss to any shareholder.

SHAREHOLDER AND TRUSTEE LIABILITY

The Fund is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a trust may,
under certain circumstances, be held personally liable for the obligations of
the trust. The Declaration of Trust provides that the Fund shall not have any
claim against shareholders, except for the payment of the purchase price of
shares, and requires that each agreement, obligation or instrument entered into
or executed by the Fund or the trustees shall include a provision limiting the
obligations created thereby to the Fund and its assets. The Declaration of Trust
provides for indemnification out of a portfolio's property of any shareholders
of the portfolio held personally liable for the obligations of the portfolio.
The Declaration of Trust also provides that a portfolio shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of the portfolio and satisfy any judgment thereon. Thus, the risk of
a shareholder incurring financial loss because of shareholder liability is
limited to circumstances in which the portfolio itself would be unable to meet
its obligations. AIA believes that, in view of the above, the risk of personal
liability to shareholders is remote.

The Declaration of Trust further provides that the trustees, if they have
exercised reasonable care, will not be liable for any neglect or wrongdoing, but
nothing in the Declaration of Trust protects a trustee against any liability to
which he or she would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in the
conduct of his or her office.

Shares of a portfolio of any class are fully paid and non-assessable,
except as set forth under the heading "Shareholder and Trustee Liability" above.
Shareholders may, as set forth in the Declaration of Trust, call meetings for
any purpose related to the Fund, a portfolio or a class, respectively, including
in the case of a meeting of the entire Fund, the purpose of voting on removal of
one or more trustees. The Fund or any portfolio may be terminated upon the sale
of its assets to another open-end management investment company, or upon
liquidation and

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distribution of its assets, if approved by vote of the holders of a majority of
the outstanding shares of the Fund or the portfolio. If not so terminated, the
Fund and the portfolios will continue indefinitely.

As of ____________, 1999, the officers and trustees of the Fund owned less
than 1% of the outstanding shares of any portfolio and the following persons
owned beneficially more than 5% of the outstanding shares of:

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Unless otherwise indicated the address for the below-listed 5% shareholders
should be c/o First National Bank of Maryland, 110 South Paca Street, Baltimore,
Maryland 21201.

U.S. TREASURY MONEY MARKET PORTFOLIO

U.S. GOVERNMENT MONEY MARKET PORTFOLIO

MONEY MARKET PORTFOLIO

TAX-FREE MONEY MARKET PORTFOLIO

SHORT-TERM BOND PORTFOLIO

U.S. GOVERNMENT BOND PORTFOLIO

INCOME PORTFOLIO

PENNSYLVANIA TAX-FREE PORTFOLIO

BALANCED PORTFOLIO

EQUITY INDEX PORTFOLIO

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BLUE CHIP EQUITY PORTFOLIO

MID-CAP EQUITY PORTFOLIO

VALUE EQUITY PORTFOLIO

CAPITAL GROWTH PORTFOLIO

SMALL-CAP EQUITY PORTFOLIO

INTERNATIONAL EQUITY SELECTION PORTFOLIO

A shareholder owning beneficially more than 25% of a particular portfolio's
shares may be considered to be a "controlling person" of that portfolio.
Accordingly, its vote could have a more significant effect on matters presented
at shareholder meetings than the votes of the portfolio's other shareholders.
First National Bank of Maryland or its affiliates, however, may receive voting
instructions from certain underlying customer accounts and will vote the shares
in accordance with those instructions. In the absence of such instructions,
First National Bank of Maryland or its affiliates will vote those shares in the
same proportion as it votes the shares for which it has received instructions
from its customers and fiduciary accounts.

INDEPENDENT AUDITORS

KPMG Peat Marwick LLP, located at 99 High Street, Boston, Massachusetts
02110, are the Fund's independent auditors, providing audit services and
consultation in connection with the review of various Securities and Exchange
Commission filings.

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FINANCIAL STATEMENTS

The portfolios' financial statements and financial highlights for the
fiscal year ended April 30, 1999 are included in the Annual Report which report
is supplied with this Statement of Additional Information. The portfolios'
financial statements and financial highlights are incorporated herein by
reference.

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APPENDIX A

DESCRIPTION OF SELECTED INDICES

Dow Jones Industrial Average is an unmanaged index of common stock prices
representing stocks of major industrial companies and includes reinvestment of
dividends.

Standard & Poor's 500 Composite Stock Price Index is an unmanaged index of
common stock prices and includes reinvestment of dividends.

Standard & Poor's MidCap 400 Index is an unmanaged index of common stock prices
and includes reinvestment of dividends.

NASDAQ Composite Index is an unmanaged index of over-the-counter stock prices
and does not assume reinvestment of dividends.

Russell 2000 Index is an unmanaged index of Small-Capitalization stocks that
includes reinvestment of dividends.

Morgan Stanley Capital International Europe, Australia, Far East (EAFE)

Index is an unmanaged index of over 1,000 foreign securities in Europe,
Australia and the Far East, and includes reinvestment of dividends.

Morgan Stanley Capital World Index is an unmanaged index of over 1,500 foreign
securities, and includes reinvestment of dividends.

Lehman Brothers Aggregate Bond Index, an unmanaged index, is a broad measure of
bond performance and includes reinvestment of dividends. It is comprised of
securities from the Lehman Brothers Government/Corporate Bond Index,
Mortgage-Backed Securities Index, and Yankee Bond Index.

Lehman Brothers Government Bond Index is an index comprised of all public
obligations of the U.S. Treasury, U.S. government agencies, quasi-federal
corporations, and of corporate debt guaranteed by the U.S. government. The index
excludes flower bonds, foreign targeted issues, and mortgage-backed securities.

Lehman Brothers Corporate Bond Index is an index comprised of all public,
fixed-rate, non-convertible investment-grade domestic corporate debt. Issues
included in this index are rated at least Baa by Moody's or BBB by S&P or, in
the case of unrated bonds, BBB by Fitch Investors Service. Collateralized
mortgage obligations are not included in the Corporate Bond Index.

A-1
<PAGE>

The Lehman Brothers Government Bond Index and the Lehman Brothers Corporate Bond
Index combine to form the Government/Corporate Bond Index.

Lehman Brothers Intermediate Corporate Bond Index is an index comprised of all
public, fixed-rate, non-convertible investment-grade domestic corporate debt.
Issues included in this index have remaining maturities of one to ten years and
are rated at least Baa by Moody's or BBB by S&P, or, in the case of unrated
bonds, BBB by Fitch Investors Service.

Lehman Brothers Long-Term Corporate Bond Index is an index comprised of all
public, fixed-rate, non-convertible investment-grade domestic corporate debt.
Issues included in this index have remaining maturities greater than ten years
and are rated at least Baa by Moody's or BBB by S&P, or, in the case of unrated
bonds, BBB by Fitch Investors Service.

Salomon Brothers High Grade Corporate Bond Index is an index of high quality
corporate bonds with a minimum maturity of at least ten years and with total
debt outstanding of at least $50 million. Issues included in the index are rated
AA or better by Moody's or AA or better by S&P.

Merrill Lynch High and Medium Quality Intermediate-Term Corporate Index is an
index comprised of all public, fixed-rate, non-convertible corporate debt.
Issues included in this index have remaining maturities of between one year and
9.99 years. Issues included in the index are rated at least BBB by S&P.

DESCRIPTION OF MOODY'S RATINGS OF STATE AND MUNICIPAL NOTES

Moody's ratings for state and municipal and other short-term obligations are
designated Moody's Investment Grade ("MIG," or "VMIG" for variable rate
obligations). This distinction is in recognition of the difference between
short-term credit risk and long-term credit risk. Factors affecting the
liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in bond risk,
long-term secular trends for example, may be less important over the short run.
Symbols used will be as follows:

MIG-1/VMIG-1 - This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.

MIG-2/VMIG-2 - This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.

A-2
<PAGE>

DESCRIPTION OF S&P'S RATINGS OF STATE AND MUNICIPAL NOTES

SP-1 - Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will be given a
plus (+) designation.

SP-2 - Satisfactory capacity to pay principal and interest.

DESCRIPTION OF MOODY'S MUNICIPAL BOND RATINGS

Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long- term risks appear somewhat larger than Aaa securities.

A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest may be present which suggest a susceptibility to
impairment sometime in the future.

Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.

DESCRIPTION OF S&P'S MUNICIPAL BOND RATINGS

AAA - Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated debt issues only in small degree.

A-3
<PAGE>

A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher categories.

The ratings from AA to BBB may be modified by the addition of a plus or minus to
show relative standing within the major rating categories.

DESCRIPTION OF MOODY'S COMMERCIAL PAPER RATINGS

Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics:

- Leading market positions in well-established industries.

- High rates of return on funds employed.

- Conservative capitalization structures with moderate
reliance on debt and ample asset protection.

- Broad margins in earnings coverage of fixed financial
charges and with high internal cash generation.

- Well established access to a range of financial markets and
assured sources of alternate liquidity.

Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

DESCRIPTION OF S&P'S COMMERCIAL PAPER RATINGS

A - Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2, and 3 to indicate the relative degree of safety.

A-4
<PAGE>

A-1 - This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics will be denoted with a plus (+) sign
designation.

A-2 - Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.

DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS

Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.

Aa - Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.

A - Bonds rated A possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

Baa - Bonds rated Baa are considered as medium-grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.

Ba - Bonds rated Ba are judged to have speculative elements. Their future cannot
be considered as well assured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.

B - Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or maintenance of other terms of
the contract over any long period of time may be small.

A-5
<PAGE>

Caa - Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.

Ca - Bonds rated Ca represent obligations which are speculative to a high
degree. Such issues are often in default or have other marked short-comings.

C - Bonds rated C are the lowest rated class of bonds, and issues so rated can
be regarded as having extremely poor prospects of ever attaining any real
investment standing.

DESCRIPTION OF S&P'S CORPORATE BOND RATINGS

AAA - Debt rated AAA has the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.

AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only to a small degree.

A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.

BB - Debt rate BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.

B - Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB- rating.

A-6
<PAGE>

CCC - Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal.

CC - Debt rated CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.

C - The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed but debt service
payments are continued.

CI - The rating CI is reserved for income bonds on which no interest is being
paid.

D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating will also be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.

The ratings from AA to CCC may be modified by the addition of a plus or minus to
show relative standing within the major rating categories.

A-7
<PAGE>

APPENDIX B

1999 TAX RATES

The following tables show the effect of a shareholder's tax status on
effective yield under the federal and applicable state and local income tax laws
for 1999. The second table shows the approximate yield a taxable security must
provide at various income brackets to produce after-tax yields equivalent to
those of hypothetical tax-exempt obligations yielding from 3% to 7%. Of course,
no assurance can be given that a portfolio will achieve any specific tax-exempt
yield. While the portfolios invest principally in obligations whose interest is
exempt from federal income tax (and, in the case of the Maryland Tax-Free
Portfolio and Pennsylvania Tax-Free Portfolio, from Maryland and Pennsylvania
state income tax, respectively, as well) other income received by a portfolio
may be taxable.

Use the first table to find your approximate effective tax bracket taking
into account federal and state taxes for 1999.
<TABLE>
<CAPTION>
COMBINE COMBINED
COMBINED PENNSYL- PENNSYL-
MARYLAND VANIA VANIA
FEDERAL MARYLAND AND FEDERAL PENNSYL- AND AND
SINGLE RETURN JOINT RETURN INCOME MARGINAL EFFECTIVE VANIA FEDERAL FEDERAL
TAXABLE INCOME TAXABLE INCOME TAX RATE TAX MARGINAL EFFECTIVE EFFECTIVE
BRACKET BRACKET** RATE TAX TAX
BRACKET** BRACKET**
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
25,751 62,450 43,051 104,050 28.00% 4.85% 33.68% 2.80% 33.50% 30.02%
62,451 130,250 104,051 158,550 31.00% 4.85% 36.44% 2.80% 36.27% 32.93%
130,251 283,150 158,551 283,150 36.00% 4.85% 41.05% 2.80% 40.89% 37.79%
283,151 283,151 39.60% 4.85% 44.37% 2.80% 44.21% 41.29%
</TABLE>

* Net amount subject to federal income tax after deductions and exemptions.
Assumes ordinary income only.

** Excludes the impact of the phaseout of personal exemptions, limitations on
itemized deductions, and other credits, exclusions, and adjustments which
may increase a taxpayer's marginal tax rate. An increase in a shareholder's
marginal tax rate would increase that shareholder's tax-equivalent yield.

*** Combined Maryland and federal effective tax brackets take into account the
highest combined Maryland state and county income tax rate of 7.89% (applicable
to residents of

B-1
<PAGE>

Caroline County). The table below sets forth the combined Maryland state and
county income tax rate in descending order for each county:
<TABLE>
<CAPTION>

COMBINED
COUNTY RATE

<S> <C>
Caroline 7.89%
Somerset 7.88%
Wicomico 7.87%
Price George's 7.86%
Montgomery 7.86%
St. Mary's 7.77%
Allegany 7.68%
Baltimore 7.62%
Carroll 7.62%
Queen Anne's 7.62%
Garrett 7.39%
Charles 7.37%
Calvert 7.37%
Washington 7.37%
Kent 7.37%
Frederick 7.37%
Dorchester 7.37%
Harford 7.37%
Cecil 7.37%
Anne Arundel 7.36%
Baltimore City 7.35%
Howard 7.26%
Talbot 6.61%
Worcester 5.86%
</TABLE>

Figures are tax-effected to reflect the federal tax benefit for persons who
itemized deductions.

**** Combined Pennsylvania and federal effective tax brackets take into account
the Pennsylvania state income tax rate of 2.8% and Philadelphia school
district investment income tax rate of 4.84%. Figures are tax-effected to
reflect the federal tax benefit for persons who itemized deductions. Having
determined your effective tax bracket above, use the following table to
determine the tax equivalent yield for a given tax-free yield.

***** Combined Pennsylvania and federal effective tax brackets take into
account the highest Pennsylvania state income tax rate of 2.8% but does not
take into account any

B-2
<PAGE>

local income tax rate since only residents of the school district of
Philadelphia are subject to a local income tax on the net income from the
ownership, sale or other disposition of tangible and intangible personal
property. Figures are tax-effected to reflect the federal tax benefit for
persons who itemized deductions.

If your combined effective federal, Maryland state and county personal income
tax rate in 1999 is:
<TABLE>

To match these tax free rates: Your taxable investment would have to earn the
following yield:
<TABLE>

If your combined effective federal, Pennsylvania state and Philadelphia school
district investment income tax rate in 1999 is:
<TABLE>

Your taxable investment would have to earn the following yield:
<TABLE>

If your combined effective federal and Pennsylvania state income tax rate in
1997 is:
<TABLE>

B-3
<PAGE>

Your taxable investment would have to earn the following yield:
<TABLE>

A portfolio may invest a portion of its assets in obligations that are subject
to federal, state, or county (or City of Baltimore) income taxes. When the
portfolio invests in these obligations, its tax-equivalent yield will be lower.
In the table above, tax-equivalent yields are calculated assuming investments
are 100% federal- and state- tax-free.

Yield information may be useful in reviewing a portfolio's performance and in
providing a basis for comparison with other investment alternatives. However,
each portfolio's yield fluctuates, unlike investments that pay a fixed interest
rate over a stated period of time. When comparing investment alternatives,
investors should also note the quality and maturity of the portfolio securities
of the respective investment companies that they have chosen to consider.

Investors should recognize that in periods of declining interest rates a
portfolio's yield will tend to be somewhat higher than prevailing market rates,
and in periods of rising interest rates a portfolio's yield will tend to be
somewhat lower. Also, when interest rates are falling, the inflow of net new
money to a portfolio from the continuous sale of its shares will likely be
invested in instruments producing lower yields than the balance of the
portfolio's holdings, thereby reducing the portfolio's current yield. In periods
of rising interest rates, the opposite can be expected to occur. THE YIELDS OF
THE RETAIL CLASS A, RETAIL CLASS B, INSTITUTIONAL CLASS OR INSTITUTIONAL II
CLASS OF A PORTFOLIO ARE EACH CALCULATED SEPARATELY. THE YIELDS OF THE RETAIL
CLASS A, RETAIL CLASS B AND INSTITUTIONAL CLASS OF A PORTFOLIO WILL BE LOWER
THAN THOSE OF THE INSTITUTIONAL CLASS OF THE SAME PORTFOLIO, DUE TO HIGHER
EXPENSES IN GENERAL.

B-4
<PAGE>

Part C - Other Information Item

Item 23. Exhibits

(a) (1) Declaration of Trust dated October 22, 1992 is
incorporated by reference to Exhibit 1 to the Registration
Statement.

(2) Amended and Restated Declaration of Trust dated March
19, 1993 is incorporated by reference to Exhibit 1(b) to
Pre-Effective Amendment No. 2.

(3) Supplement dated March 23, 1993 to the Amended and
Restated Declaration of Trust dated March 19, 1993 is
incorporated by reference to Exhibit 1(c) to Pre-Effective
Amendment No. 2.

(b) By-Laws of the Registrant are incorporated by reference to
Exhibit 1(d) to Pre-Effective Amendment No. 2.

(d) Investment Advisory Agreement dated February 12, 1998,
between the Registrant and Allied Investment Advisors, Inc. is
incorporated herein by reference to Exhibit 5(b) to
Post-Effective Amendment No. 17.

(e) (1) Distribution Agreement dated November 1, 1995,
between the Registrant and SEI Investments Distribution Co. is
incorporated herein by reference to Exhibit 6(a) to
Post-Effective Amendment No. 6.

(2) Administration Agreement dated November 1, 1995,
between the Registrant and SEI Investments Mutual Fund Services
is incorporated herein by reference to Exhibit 6(b) to
Post-Effective Amendment No. 6.

(f) Not applicable.

(g) Custody Agreement dated April 1, 1997, between the Registrant
and FMB Trust Company, National Association, is incorporated herein
by reference to Exhibit 8(a) to Post-Effective Amendment No. 17.

(h) (1) Transfer Agency and Service Agreement dated November 1,
1995, between the Registrant and SEI Investments Mutual Fund
Services is incorporated herein by reference to Exhibit 9 to
Post-Effective Amendment No. 6.

(2) Sub-Administration Agreement dated January 1, 1998,
between

C-1
<PAGE>

SEI Investments Management Corporation and FMB Trust Company,
National Association, is incorporated herein by reference to Exhibit
9(b) to Post-Effective Amendment No. 17.

(i) Opinion and consent of legal counsel is incorporated herein by
reference to Registrant's Form 24f-2 Notices filed with the SEC.

(j) Consent of independent auditors to be filed by Amendment.

(k) Not applicable.

(l) Written assurance dated May 27, 1993 that purchase
representing initial capital was made for investment purposes
without any present intention of redeeming or reselling is
incorporated herein by reference to Exhibit 13 to Pre-Effective
Amendment No. 3.

(m) (1) Amended and Restated Distribution and Shareholder
Services Plan.*

(2) Shareholder Services Plan for Institutional Class
Shares*

(3) Amended and Restated Distribution and Service Plan with
respect to Institutional II Class Shares*

(4) Distribution and Shareholder Services Plan with respect
to Retail Class B Shares.*

(n) Not applicable.

(o) Amended and Restated Rule 18f-3 Plan is incorporated herein by
reference to Exhibit 18 to Post-Effective Amendment No. 20.

- ----------------
* Filed herewith.

C-2
<PAGE>

Item 24. Persons Controlled by or Under Common Control with Registrant

None.

Item 25. Indemnification

Article XI, Section 2 of the Declaration of Trust sets forth the
reasonable and fair means for determining whether indemnification shall be
provided to any past or present trustee or officer. It states that the
Registrant shall indemnify any present or past trustee or officer to the
fullest extent permitted by law against liability and all expenses
reasonably incurred by him in connection with any claim, action, suit or
proceeding in which he is involved by virtue of his service as a trustee,
an officer, or both. Additionally, amounts paid or incurred in settlement
of such matters are covered by this indemnification. Indemnification will
not be provided in certain circumstances, however. These include instances
of willful misfeasance, bad faith, gross negligence, and reckless
disregard of the duties involved in the conduct of the particular office
involved.

Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such trustee, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.

Item 26. Business and Other Connections of Investment Adviser

Allied Investment Advisors, Inc. ("AIA") serves as investment adviser to
all Portfolios of the Registrant. A description of the directors and officers of
AIA and other required information is included in the Form ADV and schedules
thereto of AIA, as amended, on file with the Securities and Exchange Commission
(File No. 801-50883) and is incorporated herein by reference.

C-3

<PAGE>

Item 27. Principal Underwriters

(a) SEI Investments Distribution Co. (the "Distributor")
acts as distributor for the Registrant. The Distributor also acts as
distributor for:

SEI Daily Income Trust July 15, 1982
SEI Liquid Asset Trust November 29, 1982
SEI Tax Exempt Trust December 3, 1982
SEI Index Funds July 10, 1985
SEI Institutional Managed Trust January 22, 1987
SEI Institutional International Trust August 30, 1988
The Advisors' Inner Circle Fund November 14, 1991
The Pillar Funds February 28, 1992
CUFUND May 1, 1992
STI Classic Funds May 29, 1992
First American Funds, Inc. November 1, 1992
First American Investment Funds, Inc. November 1, 1992
The Arbor Fund January 28, 1993
Boston 1784 Funds June 1, 1993
The PBHG Funds, Inc. July 16, 1993
Morgan Grenfell Investment Trust January 3, 1994
The Achievement Funds Trust December 27, 1994
Bishop Street Funds January 27, 1995
STI Classic Variable Trust August 18, 1995
Huntington Funds January 11, 1996
SEI Asset Allocation Trust April 1, 1996
TIP Funds April 28, 1996
SEI Institutional Investments Trust June 14, 1996
First American Strategy Funds, Inc. October 1, 1996
HighMark Funds February 15, 1997
Armada Funds March 8, 1997
PBHG Insurance Series Fund, Inc. April 1, 1997
The Expedition Funds June 9, 1997
Alpha Select Funds January 1, 1998
Oak Associates Funds February 27, 1998
The Nevis Fund, Inc. June 29, 1998
The Parkstone Group of Funds September 14, 1998
CNI Charter Funds April 1, 1999
The Parkstone Advantage Fund May 1, 1999

The Distributor provides numerous financial services to investment
managers, pension plan sponsors and bank trust departments. These services
include portfolio evaluation, performance measurement and consulting
services ("Funds Evaluation") and

C-4
<PAGE>

automated execution, clearing and settlement of securities transactions
("MarketLink").

(b) Directors, officers and partners of SEI Investments
Distribution Co. are as follows:

<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH POSITIONS AND OFFICES WITH
BUSINESS ADDRESS* UNDERWRITER REGISTRANT
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman of the
Board of Directors

Richard B. Lieb Director and Executive Vice
President

Carmen V. Romeo Director

Mark J. Held President and Chief Operating
Officer

Gilbert L. Beebower Executive Vice President

Dennis J. McGonigle Executive Vice President

Robert M. Silvestri Chief Financial Officer and
Treasurer

Leo J. Dolan, Jr. Senior Vice President

Carl A. Guarino Senior Vice President

Larry Hutchinson Senior Vice President

Jack May Senior Vice President

Hartland J. McKeown Senior Vice President

Kevin P. Robins Senior Vice President and Vice President and Assistant
General Counsel Secretary

Patrick K. Walsh Senior Vice President

Robert Crudup Vice President and Managing
Director

Barbara Doyne Vice President
</TABLE>

C-5

<PAGE>

<TABLE>
<S> <C> <C>
Vic Galef Vice President and Managing
Director

Kim Kirk Vice President and Managing
Director

John Krzeminski Vice President and Managing
Director

Carolyn McLaurin Vice President and Managing
Director

Lori White Vice President and Assistant
Secretary

Wayne M. Withrow Vice President and Managing
Director

Robert Aller Vice President

Gordon W. Carpenter Vice President

Todd Cipperman Vice President and Assistant Vice President and Assistant
Secretary Secretary

S. Courtney E. Collier Vice President and Assistant
Secretary

Richard A. Deak Vice President and Assistant
Secretary

Jeff Drennen Vice President

James R. Foggi Vice President and Assistant
Secretary

Lydia A. Gavalis Vice President and Assistant Vice President and Assistant
Secretary Secretary

Greg Gettinger Vice President and Assistant
Secretary

Kathy Heilig Vice President
</TABLE>

C-6

<PAGE>

<TABLE>
<S> <C> <C>
Jeff Jacobs Vice President

Samuel King Vice President

W. Kelso Morrill Vice President

Mark Nagle Vice President

Joanne Nelson Vice President

Cynthia M. Parrish Vice President and Secretary

Kim Rainey Vice President

Robert Redican Vice President

Maria Rinehart Vice President

Steve Smith Vice President

Kathryn L. Stanton Vice President

Lynda J. Striegel Vice President and Assistant Vice President and Secretary
Secretary

Daniel Spaventa Vice President
</TABLE>

- ----------------
* 1 Freedom Valley Drive, Oaks, PA 19456

Item 28. Location of Accounts and Records

The Registrant maintains the records required by Section 31(a) of
the Investment Company Act of 1940 and Rules 31a-1 to 31a-3 inclusive
thereunder at its principal office located at One Freedom Valley Drive,
Oaks, PA 19456. Certain records, including records relating to the
Registrant's shareholders, may be maintained pursuant to Rule 31a-3 at the
offices of the Registrant's investment adviser, Allied Investment
Advisors, Inc., located at 100 E. Pratt Street, Baltimore, MD 21202; and
its transfer agent, SEI Investments Mutual Fund Services, located at One
Freedom Valley Drive, Oaks, PA

C-7

<PAGE>

19456. Certain records relating to the physical possession of the
Registrant's securities may be maintained at the offices of the
Registrant's custodian, FMB Trust Company, N.A., located at 25 S. Charles
Street, Baltimore, MD 21201.

Item 29. Management Services

Not applicable.

Item 30. Undertakings

(a) Not applicable.

C-8

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Post
Effective Amendment No. 21 to the Registration Statement to be signed on its
behalf by the undersigned, hereunto duly authorized, in the City of Baltimore,
and State of Maryland, on the 28th day of June, 1999.

ARK FUNDS

By: *
-------------------------------------
David D. Downes
President

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 21 to the Registration Statement has been signed
below by the following persons in the capacities and on the date indicated.

President (principal executive officer)
* and Trustee
- ------------------------------------
David D. Downes

Treasurer, Controller and Chief
Financial Officer (principal financial
* and accounting officer)
- ------------------------------------
James F. Volk

* Trustee
- ------------------------------------
William H. Cowie, Jr.

* Trustee
- ------------------------------------
Charlotte R. Kerr

* Trustee
- ------------------------------------
Thomas Schweizer

* Trustee
- ------------------------------------
Richard B. Seidel

* By:/s/ Alan C. Porter June 28, 1999
----------------------
Alan C. Porter
Attorney-in-Fact

An original power-of-attorney authorizing Alan C. Porter to execute
amendments to this Registration Statement for each trustee of the Registrant on
whose behalf this amendment to the Registration Statement is filed has been
executed and filed with the Securities and Exchange Commission.

C-9

<PAGE>

Exhibit Index

Exhibit Name

EX-99.M.1 Amended and Restated Distribution and Shareholder Services
Plan.*

EX-99.M.2 Shareholder Services Plan for Institutional Class Shares.*

EX-99.M.3 Amended and Restated Distribution and Service Plan with
respect to Institutional II Class Shares.

EX-99.M.4 Distribution and Shareholder Services Plan with respect to
Retail Class B Shares.*

- -------------------
* Filed herewith.

<PAGE>

AMENDED AND RESTATED DISTRIBUTION PLAN
The ARK Funds: RETAIL CLASS A

THIS Amended and Restated Distribution Plan (the "Distribution Plan"), made as
of March 20, 1998, is the plan of ARK Funds (the "Trust"), a business trust
organized and existing under the laws of the Commonwealth of Massachusetts, on
behalf of each series of the Trust, U.S. Government Market Portfolio, Money
Market Portfolio, Tax-Free Money Market Portfolio, U.S. Treasury Money
Portfolio, Short-Term Treasury Portfolio, Short-Term Bond Portfolio, U.S.
Government Bond 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, Value Equity Portfolio, Stock Portfolio, Capital Growth
Portfolio, Small-Cap Equity Portfolio, International Equity Portfolio, Equity
Index Portfolio, and International Equity Selection Portfolio (each a
Portfolio).

1. This Distribution Plan, when effective in accordance with its terms,
shall be the written plan contemplated by Securities and Exchange Commission
Rule 12b-1 under the Investment Company Act of 1940, as amended (the "1940 Act")
for shares of beneficial interest of RETAIL CLASS A ("Retail A Shares") of each
Portfolio of the Trust.

2. The Trust has entered into a Distribution Agreement on behalf of each
Portfolio with SEI Investments Distribution Co. (the "Distributor") under which
the Distributor uses all reasonable efforts, consistent with its other business,
to secure purchasers of each Portfolio's shares including the Retail A Shares.
Such efforts may include, but neither are required to include nor are limited
to, the following:

(1) formulation and implementation of marketing and promotional
activities, such as mail promotions and television, radio,
newspaper, magazine and other mass media advertising,
(2) preparation, printing and distribution of sales literature;
(3) preparation, printing and distribution of prospectuses of each
Portfolio and reports to recipients other than existing
shareholders of each Portfolio,
(4) obtaining such information, analyses and reports with respect to
marketing and promotional activities as the Distributor may from
time to time, deem advisable;
(5) making payments to securities dealers and others engaged in the
sales of Retail A Shares; and
(6) providing training, marketing and support to such dealers and
others with respect to the sale of Retail A Shares.

3. In consideration for the services provided and the expenses incurred by
the Distributor pursuant to the Distribution Agreement, Retail Class A of each
Portfolio shall pay to the Distributor a fee at the annual rate of up to (and
including) .75% of such Class' average daily net assets throughout the month, or
such lesser amount as may be established from time to time by the Trustees of
the Trust, as specified in this paragraph; provided that, for any period during
which the total of such fee and all other expenses of a Portfolio holding itself
out as a money market fund under Rule 2a-7 under the 1940 Act or of the Retail
Class A of such a Portfolio, would exceed the gross income of that Portfolio (or
of the Retail Class A thereof), such fee shall be reduced by such excess. Such
fee shall be computed daily and paid monthly. The determination of daily net
assets shall be made at the close of business each day throughout the month and
computed in the manner specified in each Portfolio's then current Prospectus for
the determination of the net asset value of Retail A Shares, but shall exclude
assets attributable to any other Class of each Portfolio. The Distributor may
use all or any portion of the fee received pursuant to the Distribution Plan to
compensate securities dealers or other persons who have engaged in the sale of
Retail A Shares pursuant to agreements with the Distributor, or to pay any of
the expenses associated with other activities authorized under paragraph 2
hereof.

4. This Amended and Restated Distribution Plan shall become effective with
respect to the Retail

<PAGE>

Class A of a Portfolio on March 20, 1998, this Distribution Plan having been
approved (1) by a vote of a majority of the Trustees of the Trust including a
majority of Trustees who are not "interested persons" of the Trust (as defined
in the 1940 Act) and who have no direct or indirect financial interest in the
operation of this Distribution Plan or in any agreement related to the
Distribution Plan (the Independent Trustees), cast in person at a meeting called
for the purpose of voting on Distribution Plan; and (2) by a vote of a majority
of the outstanding voting securities (as such term is defined in Section
2(a)(42) of the 1940 Act) of the Retail Class A of the affected Portfolio.

5. During the existence of this Distribution Plan, the Trust will commit
the selection and nomination of those Trustees who are not interested persons of
the Trust to the discretion of such Independent Trustees.

6. This Distribution Plan shall, unless terminated as hereinafter provided,
remain in effect until April 1, 1999 and from year to year thereafter; provided,
however, that such continuance is subject to approval annually by a vote of a
majority of the Trustees of the trust, including a majority of the Independent
Trustees, cast in person at a meeting called for the purpose of voting on this
Distribution Plan.

7. This Distribution Plan may be amended with respect to the Retail Class A
of a Portfolio, at any time by the Board of Trustees, provided that (a) any
amendment to increase materially the maximum fee provided for in paragraph 3
hereof must be approved by a vote of a majority of the outstanding voting,
securities (as such term is defined in Section 2(a)(42) of the 1940 Act) of the
Retail Class A of the affected Portfolio, and (b) any material amendment of this
Distribution Plan must be approved in the manner provided in paragraph 4(1)
above.

8. This Distribution Plan may be terminated with respect to the Retail
Class A of a Portfolio at any time, without the payment of any penalty, by vote
of a majority of the Independent Trustees or by a vote of a majority of the
outstanding voting securities (as such term is defined in Section 2(a)(42) of
the 1940 Act) of the Retail Class A of the affected Portfolio.

9. During the existence of this Distribution Plan, the Trust shall require
the Distributor to provide the Trust, for review by the Trust's Trustees, and
the Trustees shall review, at least quarterly, a written report of the amounts
expended in connection with financing any activity primarily intended to result
in the sale of Retail A Shares (making estimates of such costs where necessary
or desirable) and the purposes for which such expenditures were made.

10. This Distribution Plan does not require the Distributor to perform any
specific type or level of distribution activities or to incur any specific level
of expenses for activities primarily intended to result in the sale of shares of
Retail Class A.

11. In the event that Rule 2830 of the NASD Rules of Conduct precludes
any Portfolio of the Trust (or any NASD member) from imposing a sales charge
(as defined in that Section) or any portion thereof then the Distributor
shall not make payments hereunder from the date that the Portfolio
discontinues or is required to discontinue imposition of some or all of its
sales charges. If the Portfolio resumes imposition of some or all of its
sales charge, the Distributor will receive payments hereunder.

12. Consistent with the limitation of shareholder and Trustee liability as
set forth in the Trust's Declaration of Trust, any obligations assumed by the
Trust, a Portfolio or Retail Class A thereof pursuant to this Plan and any
agreements related to this Plan shall be limited in all cases to the
proportionate ownership of Retail Class A of the affected Portfolio and its
assets, and shall not constitute obligations of any shareholder of any other
Class of the affected Portfolio or other Portfolios of the Trust or of any
Trustee.

13. If any provision of the Distribution Plan shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the
Distribution Plan shall not be affected thereby.

Originally adopted: December 20, 1993
Amended and Restated: March 20, 1998

<PAGE>

SHAREHOLDER SERVICES PLAN
ARK Funds: INSTITUTIONAL CLASS

1. The Shareholder Services Plan (the Plan) is the Shareholder Services
Plan of the Institutional Class of each series of ARK Funds (the Trust), a
Massachusetts business trust, registered as an open-end investment company under
the Investment Company Act of 1940 (the 1940 Act), as amended, issuing separate
series of shares designated as follows: U.S. Government Money Market Portfolio,
U.S. Treasury Money Market Portfolio, Money Market Portfolio, Tax-Free Money
Market Portfolio, Short-Term Treasury Portfolio, Income Portfolio, Balanced
Portfolio, Capital Growth Portfolio, Intermediate Fixed Income Portfolio,
Maryland Tax-Free Portfolio, Pennsylvania Tax-Free Portfolio, Equity Income
Portfolio, Equity Index Portfolio, Blue Chip Equity Portfolio, Large-Cap Value
Portfolio, Mid-Cap Equity Portfolio, Stock Portfolio, Special Equity Portfolio,
and International Equity Portfolio, and any future series established and
designated by the Board of Trustees (each a Portfolio).

2. The Trust has entered into an Administration Agreement with SEI
Investments Management Corporation (the "Administrator") and a Distribution
Agreement with SEI Investments Distribution Co. (the "Distributor") under which
the Distributor uses all reasonable efforts, consistent with its other business,
to secure purchasers for the Portfolio's shares of beneficial interest. The
Trust has entered into an Investment Advisory Contract with Allied Investment
Advisors, Inc. (the "Investment Adviser"). The Trust has further entered into a
Custody Agreement with FMB Trust Company and a Transfer Agency Agreement with
SEI Investments Management Corporation. Payments under this Plan shall not be
made for advisory, administrative, custodial or transfer agency services.

3. Each Portfolio's shares of beneficial interest are divided into classes,
including a class of shares designated Institutional Class (Institutional
shares). Institutional shares are subject to this Plan and the eligible
investors in the Institutional shares shall be as described in the current
prospectus for the Institutional Class, as amended or supplemented from time to
time.

4. The Portfolio may make periodic payments to parties (each a Shareholder
Servicing Agent) that have entered into a Shareholder Services Contract in the
form attached hereto with the Trust in respect of Institutional shares at an
annualized rate of up to (and including) .15% of Institutional Class' average
net assets attributable to the Shareholder Servicing Agent. The personal and
account maintenance services to be provided under this Plan by each Shareholder
Servicing Agent, may include, but are not limited to, maintaining account
records for each shareholder who beneficially owns Institutional shares;
answering questions and handling correspondence from shareholders about their
accounts; handling the transmission of funds representing the purchase price or
redemption proceeds; issuing confirmations for transactions in Institutional
shares by shareholders; assisting customers in completing application forms;
communicating with the transfer agent; and providing account maintenance and
account level support for all transactions. The Distributor may act as the
Trust's agent for transmitting or arranging for transmission of fees to
Shareholder Servicing Agents under the Shareholder Services Contract.

5. This Plan shall become effective upon having been approved by a vote of
a majority of the Trustees of the Trust, including a majority of Trustees who
are not interested persons of the Trust (as defined in the 1940 Act) and who
have no direct or indirect social interest in the operation of this Plan or in
any agreements related to this Plan (the Independent Trustees), cast in person
at a meeting called for the purpose of voting on this Plan.

6. This Plan shall, unless terminated as hereinafter provided, remain in
effect from the date specified above until December 31, 1998, and from year to
year thereafter, provided, however, that such continuance is subject to approval
annually by a vote of a majority of the Trustees of the Trust, including a
majority of the Independent Trustees, cast in person at a meeting called for the
purpose of voting on this Plan.

7. This Plan may be amended with respect to the Institutional Class of a
Portfolio at any time by the Board of Trustees, provided that any material
amendment of this Plan shall be effective only upon approval

<PAGE>

in the manner provided in paragraph 5 above.

8. This Plan may be terminated at any time, without the payment of any
penalty, by vote of a majority of the Independent Trustees.

9. Consistent with the limitation of shareholder and Trustee liability as
set forth in the Trust's Declaration of Trust, any obligations assumed by the
Trust, a Portfolio or Institutional Class thereof pursuant to this Plan and any
agreements related to this Plan shall be limited in all cases to the
proportionate ownership of the Institutional Class of the affected Portfolio and
its assets, and shall not constitute obligations of any shareholder of any other
Class of the affected Portfolio or Portfolios of the Trust or of any Trustee.

10. During the existence of this Plan, the Trust shall require the
Administrator to provide the Trust, for review by the Trust's Trustees, and the
Trustees shall review, at least quarterly, a written report of the amounts
expended under the Plan and the purposes for which such expenditures were made.

11. If any provision of this Plan shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of the Plan shall not be
affected thereby.

Adopted: November 7, 1997

<PAGE>

AMENDED AND RESTATED DISTRIBUTION AND SERVICE PLAN
The ARK Funds: INSTITUTIONAL II CLASS

THIS Distribution and Service Plan (the "Distribution Plan"), made as of March
20, 1998, is the plan of ARK Funds (the Trust), a business trust organized and
existing under the laws of the Commonwealth of Massachusetts, on behalf of each
money market series of the Trust, U.S. Government Market Portfolio, Money Market
Portfolio, Tax-Free Money Market Portfolio, and U.S. Treasury Money Portfolio
(each a "Portfolio").

1. This Distribution Plan, when effective in accordance with its terms,
shall be the written plan contemplated by Securities and Exchange Commission
Rule 12b-1 under the Investment Company Act of 1940, as amended (the "1940 Act")
for shares of beneficial interest of Institutional II Class ("Institutional II
Shares") of each Portfolio of the Trust.

2. The Trust has entered into a Distribution Agreement on behalf of each
Portfolio with SEI Investment Distribution Co. (the "Distributor") under which
the Distributor uses all reasonable efforts, consistent with its other business,
to secure purchasers of each Portfolio's shares including the Institutional II
Shares. Such efforts may include, but neither are required to include nor are
limited to, the following:

(1) formulation and implementation of marketing and promotional
activities, such as mail promotions and television, radio,
newspaper, magazine and other mass media advertising,
(2) preparation, printing and distribution of sales literature;
(3) preparation, printing and distribution of prospectuses of each
Portfolio and reports to recipients other than existing
shareholders of each Portfolio,
(4) obtaining such information, analyses and reports with respect to
marketing and promotional activities as the Distributor may from
time to time, deem advisable;
(5) making payments to securities dealers and others engaged in the
sales of Institutional II Shares; and
(6) providing training, marketing and support to such dealers and
others with respect to the sale of Institutional II Shares.

3. In consideration for the services provided and the expenses incurred by
the Distributor pursuant to the Distribution Agreement, Institutional II Class
of each Portfolio shall pay to the Distributor a fee at the annual rate of up to
(and including) .75% of such Class' average daily net assets throughout the
month, or such lesser amount as may be established from time to time by the
Trustees of the Trust, as specified in this paragraph; provided that, for any
period during which the total of such fee and all other expenses of a Portfolio
holding itself out as a money market fund under Rule 2a-7 under the 1940 Act or
of the Institutional II Class of such a Portfolio, would exceed the gross income
of that Portfolio (or of the Institutional II Class thereof), such fee shall be
reduced by such excess. Such fee shall be computed daily and paid monthly. The
determination of daily net assets shall be made at the close of business each
day throughout the month and computed in the manner specified in each
Portfolio's then current Prospectus for the determination of the net asset value
of Institutional II Shares, but shall exclude assets attributable to any other
Class of each Portfolio. The Distributor may use all or any portion of the fee
received pursuant to the Distribution Plan to compensate securities dealers or
other persons who have engaged in the sale of Institutional II Shares pursuant
to agreements with the Distributor, or to pay any of the expenses associated
with other activities authorized under paragraph 2 hereof.

4. This Distribution Plan shall become effective with respect to the
Institutional II Class of a Portfolio on March 20, 1998, this Distribution Plan
having been approved (1) by a vote of a majority of the Trustees of the Trust.
including a majority of Trustees who are not "interested persons" of the Trust
(as defined in the 1940 Act) and who have no direct or indirect financial
interest in the operation of this Distribution Plan or in any agreement related
to the Distribution Plan (the Independent Trustees), cast in

<PAGE>

person at a meeting called for the purpose of voting on Distribution Plan; and
(2) by a vote of a majority of the outstanding voting securities (as such term
is defined in Section 2(a)(42) of the 1940 Act) of the Institutional II Class of
the affected Portfolio.

7. This Distribution Plan may be amended with respect to the Institutional
II Class of a Portfolio, at any time by the Board of Trustees, provided that (a)
any amendment to increase materially the maximum fee provided for in paragraph 3
hereof must be approved by a vote of a majority of the outstanding voting,
securities (as such term is defined in Section 2(a)(42) of the 1940 Act) of the
Institutional II Class of the affected Portfolio, and (b) any material amendment
of this Distribution Plan must be approved in the manner provided in paragraph
4(1) above.

8. This Distribution Plan may be terminated with respect to the
Institutional II Class of a Portfolio at any time, without the payment of any
penalty, by vote of a majority of the Independent Trustees or by a vote of a
majority of the outstanding voting securities (as such term is defined in
Section 2(a)(42) of the 1940 Act) of the Institutional II Class of the affected
Portfolio.

9. During the existence of this Distribution Plan, the Trust shall require
the Distributor to provide the Trust, for review by the Trust's Trustees, and
the Trustees shall review, at least quarterly, a written report of the amounts
expended in connection with financing any activity primarily intended to result
in the sale of Institutional II Shares (making estimates of such costs where
necessary or desirable) and the purposes for which such expenditures were made.

11. In the event that Rule 2830 of the NASD Rules of Conduct precludes any
Portfolio of the Trust (or any NASD member) from imposing a sales charge(as
defined in that Section) or any portion thereof then the Distributor shall not
make payments hereunder from the date that the Portfolio discontinues or is
required to discontinue imposition of some or all of its sales charges. If the
Portfolio resumes imposition of some or all of its sales charge, the Distributor
will receive payments hereunder.

12. Consistent with the limitation of shareholder and Trustee liability as
set forth in the Trust's Declaration of Trust, any obligations assumed by the
Trust, a Portfolio or Institutional II Class thereof pursuant to this Plan and
any agreements related to this Plan shall be limited in all cases to the
proportionate ownership of Institutional II Class of the affected Portfolio and
its assets, and shall not constitute obligations of any shareholder of any other
Class of the affected Portfolio or other Portfolios of the Trust or of any
Trustee.

13. If any provision of the Distribution Plan shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the
Distribution Plan shall not be affected thereby.

Originally adopted: June 22, 1995
Amended and Restated: March 20, 1998

<PAGE>

RESTATED DISTRIBUTION AND SHAREHOLDER SERVICES PLAN
The ARK Funds: RETAIL B CLASS

THIS Distribution and Shareholder Services Plan (the "Plan"), made as of
December 12, 1997, is the plan of ARK Funds (the Trust), a business trust
organized and existing under the laws of the Commonwealth of Massachusetts, on
behalf of the Blue Chip Equity Portfolio, Capital Growth Portfolio, Value Equity
Portfolio, Balanced Portfolio, Income Portfolio and Money Market Portfolio (each
a Portfolio) or those portfolios listed on Schedule A hereto.

1. This Plan, when effective in accordance with its terms, shall be the
written plan contemplated by Securities and Exchange Commission Rule 12b-1 under
the Investment Company Act of 1940, as amended (the 1940 Act) for shares of
beneficial interest of Retail B Class (Retail B Shares) of the Blue Chip Equity
Portfolio, Capital Growth Portfolio, Value Equity Portfolio, Balanced Portfolio,
Income Portfolio and Money Market Portfolio of the Trust.

2. The Trust has entered into a Distribution Agreement on behalf of each
Portfolio with SEI Investment Distribution Co.(the "Distributor") under which
the Distributor uses all reasonable efforts, consistent with its other business,
to secure purchasers of each Portfolio's shares including the Class B Shares.
Such efforts may include, but neither are required to include nor are limited
to, the following:

(1) formulation and implementation of marketing and promotional
activities, such as mail promotions and television, radio,
newspaper, magazine and other mass media advertising,
(2) preparation, printing and distribution of sales literature;
(3) preparation, printing and distribution of prospectuses of each
Portfolio and reports to recipients other than existing
shareholders of each Portfolio,
(4) obtaining such information, analyses and reports with respect to
marketing and promotional activities as the Distributor may from
time to time, deem advisable;
(5) making payments to securities dealers and others engaged in the
sales of Retail B Shares; and
(6) providing training, marketing and support to such dealers and
others with respect to the sale of Retail B Shares.

3. In consideration for the services provided and the expenses incurred by
the Distributor pursuant to the Distribution Agreement, Retail B Shares of each
Portfolio shall pay to the Distributor a fee at the annual rate of up to (and
including) .75% of such Class' average daily net assets throughout the month, or
such lesser amount as may be established from time to time by the Trustees of
the Trust, as specified in this paragraph; provided that , for any period during
which the total of such fee and all other expenses of a Portfolio holding itself
out as a money market fund under Rule 2a-7 under the 1940 Act or of the Retail B
Class of such a Portfolio, would exceed the gross income of that Portfolio (or
of the Retail B Class thereof), such fee shall be reduced by such excess. Such
fee shall be computed daily and paid monthly. The determination of daily net
assets shall be made at the close of business each day throughout the month and
computed in the manner specified in each Portfolio's then current Prospectus for
the determination of the net asset value of Retail B Shares, but shall exclude
assets attributable to any other Class of each Portfolio. The Distributor may
use all or any portion of the fee received pursuant to the Plan to compensate
securities dealers or other persons who have engaged in the sale of Retail B
Shares pursuant to agreements with the Distributor, or to pay any of the
expenses associated with other activities authorized under paragraph 2 hereof.

4. Each Portfolio may make periodic payments to parties (each a Shareholder
Servicing Agent) that have entered into a Shareholder Services Contract in the
form attached hereto with the Trust in respect of Retail B shares at an
annualized rate of up to (and including) .25% of Retail B Shares' average net
assets attributable to the Shareholder Servicing Agent. The personal and account
maintenance services to be

<PAGE>

provided under this Plan by each Shareholder Servicing Agent, may include, but
are not limited to, maintaining account records for each shareholder who
beneficially owns Retail B Shares; answering questions and handling
correspondence from shareholders about their accounts; handling the transmission
of funds representing the purchase price or redemption proceeds; issuing
confirmations for transactions in Retail B Shares by shareholders; assisting
customers in completing application forms; communicating with the transfer
agent; and providing account maintenance and account level support for all
transactions. The Distributor may act as the Trust's agent for transmitting or
arranging for transmission of fees to Shareholder Servicing Agents under the
Shareholder Services Contract.

5. This Plan shall become effective with respect to the Retail B Class of a
Portfolio on December 12, 1997, this Plan having been approved (1) by a vote of
a majority of the Trustees of the Trust including a majority of Trustees who
are not "interested persons" of the Trust (as defined in the 1940 Act) and who
have no direct or indirect financial interest in the operation of this Plan or
in any agreement related to the Plan (the Independent Trustees), cast in person
at a meeting called for the purpose of voting on Plan; and (2) by a vote of a
majority of the outstanding voting securities (as such term is defined in
Section 2(a)(42) of the 1940 Act) of the Retail B Class of the affected
Portfolio.

6. During the existence of this Plan, the Trust will commit the selection
and nomination of those Trustees who are not interested persons of the Trust to
the discretion of such Independent Trustees.

7. This Plan shall, unless terminated as hereinafter provided, remain in
effect until December 31, 1998 and from year to year thereafter; provided,
however, that such continuance is subject to approval annually by a vote of a
majority of the Trustees of the trust, including a majority of the Independent
Trustees, cast in person at a meeting called for the purpose of voting on this
Plan.

8. This Plan may be amended with respect to the Retail B Class of a
Portfolio, at any time by the Board of Trustees, provided that (a) any amendment
to increase materially the maximum fee provided for in paragraph 3 hereof must
be approved by a vote of a majority of the outstanding voting, securities (as
such term is defined in Section 2(a)(42) of the 1940 Act) of the Retail B Class
of the affected Portfolio, and (b) any material amendment of this Plan must be
approved in the manner provided in paragraph 5(1) above.

9. This Plan may be terminated with respect to the Retail B Class of a
Portfolio at any time, without the payment of any penalty, by vote of a majority
of the Independent Trustees or by a vote of a majority of the outstanding voting
securities (as such term is defined in Section 2(a)(42) of the 1940 Act) of the
Retail B Class of the affected Portfolio.

10. During the existence of this Plan, the Trust shall require the
Distributor to provide the Trust, for review by the Trust's Trustees, and the
Trustees shall review, at least quarterly, a written report of the amounts
expended in connection with financing any activity primarily intended to result
in the sale of Retail B Shares (making estimates of such costs where necessary
or desirable) and the purposes for which such expenditures were made.

11. This Plan does not require the Distributor to perform any specific type
or level of distribution activities or to incur any specific level of expenses
for activities primarily intended to result in the sale of shares of Retail B
Class.

12. In the event that Rule 2830 of the NASD Rules of Conduct precludes any
Portfolio of the Trust (or any NASD member) from imposing a sales charge(as
defined in that Section) or any portion thereof then the Distributor shall not
receive payments hereunder from the date that the Portfolio discontinues or is
required to discontinue imposition of some or all of its sales charges. If the
Portfolio resumes imposition of some or all of its sales charge, the Distributor
will resume receipt of payments hereunder.

<PAGE>

13. Consistent with the limitation of shareholder and Trustee liability as
set forth in the Trust's Declaration of Trust, any obligations assumed by the
Trust, a Portfolio or Retail B Class thereof pursuant to this Plan and any
agreements related to this Plan shall be limited in all cases to the
proportionate ownership of Retail B Class of the affected Portfolio and its
assets, and shall not constitute obligations of any shareholder of any other
Class of the affected Portfolio or other Portfolios of the Trust or of any
Trustee.

14. If any provision of the Plan shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of the Plan shall not be
affected thereby.

<PAGE>

SCHEDULE A
TO THE RESTATED DISTRIBUTION AND SHAREHOLDER SERVICES PLAN

Maryland Tax-Free Portfolio

Pennsylvania Tax-Free Portfolio