<PAGE> 1
As filed with the Securities and Exchange Commission on March 28, 1996
Registration No. 2-79285
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
POST-EFFECTIVE AMENDMENT NO. 35
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ X ]
AMENDMENT NO. 36
THE ARCH FUND, INC.
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road
Columbus, Ohio 43219
(Address of Principal Executive Offices)
Registrant's Telephone Number: (800) 551-3731
W. BRUCE MCCONNEL, III, Esq.
Drinker Biddle & Reath
1100 Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
(Name and Address of Agent for Service)
Copy to:
Jon W. Bilstrom, Esq.
Mercantile Bank of St. Louis N.A.
One Mercantile Center
8th and Washington Streets
St. Louis, MO 63101
It is proposed that this filing will become effective (check appropriate box)
[x] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has
registered an indefinite number of shares under the Securities Act of 1933.
Registrant filed a Rule 24f-2 Notice for the fiscal year ended November 30,
1995 on January 29, 1996. Registrant continues its election to register an
indefinite number of shares pursuant to Rule 24f-2 under the Investment Company
Act of 1940, as amended.
<PAGE> 2
THIS POST-EFFECTIVE AMENDMENT RELATES SOLELY TO REGISTRANT'S MONEY MARKET,
TREASURY MONEY MARKET, TAX-EXEMPT MONEY MARKET, GROWTH & INCOME EQUITY,
EMERGING GROWTH, GOVERNMENT & CORPORATE BOND, U.S. GOVERNMENT SECURITIES,
BALANCED, INTERNATIONAL EQUITY, SHORT-INTERMEDIATE MUNICIPAL, MISSOURI
TAX-EXEMPT BOND AND KANSAS TAX-EXEMPT BOND PORTFOLIOS. ACCORDINGLY, THE
PROSPECTUSES AND STATEMENT OF ADDITIONAL INFORMATION FOR REGISTRANT'S PROPOSED
EQUITY INCOME, NATIONAL MUNICIPAL BOND AND SHORT-INTERMEDIATE CORPORATE BOND
PORTFOLIOS ARE NOT INCLUDED IN THIS FILING.
<PAGE> 3
CROSS REFERENCE SHEET
---------------------
(Trust Shares)
The ARCH Money Market Portfolio
The ARCH Treasury Money Market Portfolio
The ARCH Tax-Exempt Money Market Portfolio
The ARCH Growth & Income Equity Portfolio
The ARCH Emerging Growth Portfolio
The ARCH Government & Corporate Bond Portfolio
The ARCH U.S. Government Securities Portfolio
The ARCH Balanced Portfolio
The ARCH International Equity Portfolio
The ARCH Short-Intermediate Municipal Portfolio
The ARCH Missouri Tax-Exempt Bond Portfolio
The ARCH Kansas Tax-Exempt Bond Portfolio
<TABLE>
<CAPTION>
Form N-1A Part A Item Prospectus Caption
- --------------------- ------------------
<S> <C> <C>
1. Cover Page . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . . . . . . . . . . . . . . . . Expense Summary
for Trust Shares
3. Condensed Financial
Information . . . . . . . . . . . . . . . . . . . . . . Certain Financial
Information; Financial
Highlights; Yields and Total
Returns
4. General Description
of Registrant . . . . . . . . . . . . . . . . . . . . . Highlights; Investment
Objectives, Policies and Risk
Considerations; Other
Information Concerning
the Fund and Its Shares
5. Management of the Fund . . . . . . . . . . . . . . . . . . Management of the Fund
5A. Management's Discussion of
Fund Performance . . . . . . . . . . . . . . . . . . . . Inapplicable
6. Capital Stock and
Other Securities . . . . . . . . . . . . . . . . . . . . How to Purchase and
Redeem Shares; Dividends
and Distributions;
Taxes; Other Information
Concerning the Fund
and Its Shares
7. Purchase of Securities
Being Offered . . . . . . . . . . . . . . . . . . . . . How to Purchase and
Redeem Shares
8. Redemption or Repurchase . . . . . . . . . . . . . . . . . How to Purchase and
Redeem Shares
9. Pending Legal Proceedings . . . . . . . . . . . . . . . . Inapplicable
</TABLE>
<PAGE> 4
THE ARCH FUND(R), INC.
TRUST SHARES
The ARCH Fund, Inc. is an open-end, management investment company
authorized to issue Shares in twelve investment portfolios. This Prospectus
describes the Trust Shares in each of those portfolios. Trust Shares are offered
to financial institutions acting on their own behalf or on behalf of certain
qualified accounts.
THE ARCH MONEY MARKET PORTFOLIO'S investment objective is to seek
current income with liquidity and stability of principal. The Portfolio invests
substantially all of its assets in a broad range of "money market" instruments.
THE ARCH TREASURY MONEY MARKET PORTFOLIO'S investment objective is to
seek a high level of current income exempt from state income tax consistent with
liquidity and security of principal. The Portfolio invests in selected
obligations issued by the U.S. Government (or its agencies and
instrumentalities) that are guaranteed as to principal and interest by the U.S.
Government, the interest income on which is generally exempt from state income
tax.
THE ARCH TAX-EXEMPT MONEY MARKET PORTFOLIO'S investment objective is
to seek as high a level of current interest income exempt from federal income
tax as is consistent with liquidity and stability of principal. The Portfolio
invests substantially all of its assets in short-term tax-exempt obligations and
tax-exempt derivative securities.
THE ARCH GROWTH & INCOME EQUITY PORTFOLIO'S investment objective is
to provide long-term capital growth, with income a secondary consideration. The
Portfolio normally invests substantially all of its assets in common stock,
preferred stock, rights, warrants, and securities convertible into common stock.
THE ARCH EMERGING GROWTH PORTFOLIO'S investment objective is capital
appreciation. Current income is an incidental consideration in the selection of
portfolio securities. The Portfolio normally invests primarily in common stock
of emerging or established small- to medium-sized companies with above-average
potential for price appreciation.
THE ARCH GOVERNMENT & CORPORATE BOND PORTFOLIO'S investment objective
is to seek the highest level of current income consistent with conservation of
capital. The Portfolio normally invests at least 65% of its assets in
fixed-income and
<PAGE> 5
related debt securities rated "A" or better or in securities deemed comparable
in quality.
THE ARCH U.S. GOVERNMENT SECURITIES PORTFOLIO'S investment objective
is to seek a high rate of current income that is consistent with relative
stability of principal. The Portfolio invests in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
repurchase agreements relating to such obligations.
THE ARCH BALANCED PORTFOLIO'S investment objective is to maximize
total return through a combination of growth of capital and current income
consistent with the preservation of capital. The Portfolio uses a disciplined
approach of allocating assets primarily among three major asset groups, i.e.
equity securities, fixed-income securities and cash equivalents.
THE ARCH INTERNATIONAL EQUITY PORTFOLIO'S investment objective is to
provide capital growth consistent with reasonable investment risk by investing
primarily in foreign equity securities, most of which will be denominated in
foreign currencies. During normal market conditions, the Portfolio will invest
substantially all of its assets in securities of companies which derive more
than 50% of their gross revenues from, or have more than 50% of their assets
outside, the United States.
THE ARCH SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO'S investment
objective is to seek as high a level of current income, exempt from regular
federal income tax, as is consistent with preservation of capital. The Portfolio
normally invests substantially all of its assets in investment-grade municipal
obligations. The Portfolio's dollar-weighted average maturity will be between
two and five years.
THE ARCH MISSOURI TAX-EXEMPT BOND PORTFOLIO'S investment objective is
to seek as high a level of interest income exempt from federal income tax as is
consistent with conservation of capital. The Portfolio normally invests
substantially all of its assets in investment grade municipal obligations having
remaining maturities of up to 30 years. Under normal market conditions,
substantially all of the Portfolio's assets are expected to be invested in
municipal obligations that are also exempt from Missouri income tax.
THE ARCH KANSAS TAX-EXEMPT BOND PORTFOLIO'S investment objective is
to seek as high a level of current income exempt from federal income tax as is
consistent with conservation of capital. The Portfolio intends normally to
invest substantially all of its assets in investment grade municipal obligations
having remaining maturities of up to 30 years. Under normal market conditions,
substantially all of the Portfolio's assets
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are expected to be invested in municipal obligations that are also exempt from
Kansas income tax and the local intangibles tax.
Mississippi Valley Advisors Inc. ("MVA" or the "Adviser"), a
wholly-owned subsidiary of Mercantile Bank of St. Louis National Association
("Mercantile"), acts as investment adviser for the Portfolios. Mercantile serves
as custodian; BISYS Fund Services Ohio, Inc. (the "Administrator") serves as
administrator; and BISYS Fund Services (the "Distributor") serves as sponsor and
distributor. In addition, Clay Finlay, Inc. ("Clay Finlay" or the "Sub-Adviser")
serves as sub-investment adviser for the International Equity Portfolio.
This Prospectus sets forth concisely certain information about the
Portfolios that prospective investors should know before investing. Investors
should read this Prospectus and retain it for future reference. Additional
information about the Portfolios, contained in a Statement of Additional
Information dated March 28, 1996, has been filed with the Securities and
Exchange Commission and is incorporated by reference in its entirety into this
Prospectus. An investor may obtain the Statement of Additional Information
without charge by writing the Fund at P.O. Box 78069, St. Louis, Missouri 63178
or by calling 1-800-551-3731.
An investment in the Money Market Portfolio, Treasury Money Market
Portfolio or Tax-Exempt Money Market Portfolio is neither insured nor guaranteed
by the U.S. Government. THERE CAN BE NO ASSURANCE THAT ANY OF THESE PORTFOLIOS
WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
Portfolio Shares are not bank deposits, are not federally insured or
guaranteed by the U.S. Government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other governmental agency, and are not the
obligations of or guaranteed or otherwise supported by any bank. An investment
in the Portfolios involves investment risk, including the possible loss of
principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
MARCH 28, 1996
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<PAGE> 7
HIGHLIGHTS
The ARCH Fund, Inc. (the "Fund") is an open-end, management
investment company (commonly known as a mutual fund) registered under the
Investment Company Act of 1940, as amended. The Fund offers investment
opportunities in twelve investment portfolios: the ARCH MONEY MARKET, TREASURY
MONEY MARKET AND TAX-EXEMPT MONEY MARKET PORTFOLIOS (the "Money Market
Portfolios") and the ARCH GROWTH & INCOME EQUITY, EMERGING GROWTH, GOVERNMENT &
CORPORATE BOND, U.S. GOVERNMENT SECURITIES, BALANCED, INTERNATIONAL EQUITY,
SHORT-INTERMEDIATE MUNICIPAL, MISSOURI TAX-EXEMPT BOND AND KANSAS TAX-EXEMPT
BOND PORTFOLIOS (the "Equity and Bond Portfolios" and, together with the Money
Market Portfolios, the "Portfolios"). Each Portfolio represents a separate pool
of assets with different investment objectives and policies (as described below
under "Investment Objectives, Policies and Risk Considerations"). MVA serves as
Adviser, Mercantile as Custodian, BISYS Fund Services Ohio, Inc. as
Administrator and BISYS Fund Services as sponsor and Distributor. In addition,
Clay Finlay serves as Sub- Adviser for the International Equity Portfolio. (For
information on expenses, fee waivers, and services, see "Certain Financial
Information," "Financial Highlights" and "Management of the Fund.")
The following information generally describes the Portfolios and
their investment objectives. There can be no assurance that the Portfolios will
be able to achieve their respective investment objectives.
The Money Market Portfolios each seek to maintain a net asset value
of $1.00 per Share. Each Money Market Portfolio's assets are invested in
dollar-denominated debt securities with remaining maturities of 397 days (13
months) or less as defined by the Securities and Exchange Commission, and each
Money Market Portfolio's dollar-weighted average portfolio maturity will not
exceed 90 days. All securities acquired by these Money Market Portfolios will be
determined by MVA, under guidelines approved by the Fund's Board of Directors,
to present minimal credit risks and to be rated in the highest category (or
deemed comparable in quality) at the time of purchase. There can be no assurance
that the Money Market Portfolios will be able to achieve a stable net asset
value on a continuous basis.
The Government & Corporate Bond and U.S. Government Securities
Portfolios are designed for investors who seek higher current income than is
typically offered by money market funds and who are willing to accept a variable
Share value to achieve that objective.
The Growth & Income Equity, Emerging Growth and Balanced Portfolios
are designed for investors who seek capital growth,
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<PAGE> 8
and who are prepared to accept the risks associated with equity securities.
The International Equity Portfolio is designed for investors who seek
capital growth, wish to diversify their investments beyond the United States,
and are prepared to accept the risks entailed in such investments. These risks
may be greater than those associated with equity securities of companies located
in the United States.
The Short-Intermediate Municipal Portfolio is designed for investors
who seek a yield that is higher than a municipal money market fund with less
principal volatility than is normally associated with a long-term municipal bond
fund.
The Missouri Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios
are designed for investors who seek a higher rate of return than that typically
offered by tax-exempt money market funds and who are willing to accept a
variable Share value to achieve that objective.
The Tax-Exempt Money Market, Short-Intermediate Municipal, Missouri
Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios seek to provide income
exempt from federal tax. In addition, the Missouri Tax-Exempt Bond Portfolio
seeks to provide income that is also exempt from Missouri income tax and the
Kansas Tax-Exempt Bond Portfolio seeks to provide income that is also exempt
from Kansas income tax and the local intangibles tax.
Investors should note that one or more of the Portfolios may, subject
to their investment policies and limitations, purchase variable and floating
rate instruments, revenue bonds, private activity bonds and municipal lease
obligations, enter into repurchase agreements and reverse repurchase agreements,
make securities loans, acquire the securities of foreign issuers, invest in
options and futures, and make limited investments in illiquid securities and
securities issued by other investment companies. These investment practices
involve investment risks of varying degrees. The Equity and Bond Portfolios may
engage in short-term trading, which may also involve greater risk and increase
such Portfolios' expenses. The International Equity Portfolio will invest
principally in foreign equity securities, most of which will be denominated in
foreign currencies. The other Portfolios do not invest in instruments
denominated in foreign currencies (except that the Growth & Income Equity,
Emerging Growth, and Balanced Portfolios may invest in certain Canadian
securities). The Tax-Exempt Money Market, Short- Intermediate Municipal,
Missouri Tax-Exempt Bond and Kansas Tax- Exempt Bond Portfolios may, under
certain conditions, make limited investments in securities the income from which
may be subject to federal income tax. See "Investment Objectives, Policies and
Risk Considerations" below and the Statement of
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<PAGE> 9
Additional Information under "Investment Objectives and Policies."
The Fund offers investors the opportunity to invest in a variety of
professionally managed investments without having to become involved with
detailed management, accounting and safekeeping procedures normally related to
direct investments in securities. The Portfolios also offer the economic
advantages of block trading in securities and the availability of a family of
twelve mutual funds should an investor's investment goals change.
For information on purchasing, exchanging or redeeming Trust Shares
of the Portfolios, please see "How to Purchase and Redeem Shares" below.
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<PAGE> 10
CERTAIN FINANCIAL INFORMATION
Shares of the Money Market, Growth & Income Equity, Emerging Growth,
Government & Corporate Bond, U.S. Government Securities, Balanced and
International Equity Portfolios have been classified into four classes of Shares
- -- Trust Shares, Institutional Shares, Investor A Shares and Investor B Shares.
Shares of the Treasury Money Market Portfolio have been classified into three
classes of Shares -- Trust Shares, Institutional Shares and Investor A Shares.
Shares of the Missouri Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios
have been classified into three classes of Shares -- Trust Shares, Investor A
Shares and Investor B Shares. Shares of the Tax-Exempt Money Market and Short-
Intermediate Municipal Portfolios have been classified into two classes of
Shares -- Trust Shares and Investor A Shares. Shares of each class in a
Portfolio represent equal, pro rata interests in the investments held by that
Portfolio and are identical in all respects, except that Shares of each class
bear separate distribution and/or shareholder administrative servicing fees and
certain other operating expenses, and enjoy certain exclusive voting rights on
matters relating to these fees. (See "Other Information Concerning the Fund and
Its Shares," "Management of the Fund -- Administrative Services Plan," and
"Management of the Fund -- Custodian, Sub-Custodian and Transfer Agent" below.)
As a result of payments for distribution and/or shareholder administrative
servicing fees and certain other operating expenses that may be made in
differing amounts, the net investment income of Trust Shares, Institutional
Shares, Investor A Shares and/or Investor B Shares in a Portfolio can be
expected, at any given time, to be different.
The Tax-Exempt Money Market Portfolio and Missouri Tax- Exempt Bond
Portfolio commenced operations on July 10, 1986 and July 15, 1988, respectively,
as separate investment portfolios (the "Predecessor Tax-Exempt Money Market
Portfolio" and "Predecessor Missouri Tax-Exempt Bond Portfolio", respectively)
of The ARCH Tax-Exempt Trust (the "Trust"), which was organized as a
Massachusetts business trust. On October 2, 1995, the Predecessor Tax-Exempt
Money Market Portfolio and the Predecessor Missouri Tax-Exempt Bond Portfolio
were reorganized as new portfolios of the Fund. Prior to the reorganization,
these Predecessor Portfolios offered and sold shares of beneficial interest that
were similar to the Fund's Trust Shares, Investor A Shares and Investor B
Shares.
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EXPENSE SUMMARY FOR TRUST SHARES
<TABLE>
<CAPTION>
TREASURY TAX-EXEMPT GROWTH & GOV'T &
MONEY MONEY MONEY INCOME EMERGING CORPORATE U.S. GOV'T
MARKET MARKET MARKET EQUITY GROWTH BOND SECURITIES
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price).................. .00% .00% .00% .00% .00% .00% .00%
ANNUAL PORTFOLIO OPERATING
EXPENSES
(as a percentage of average
net assets)
Investment Advisory Fees (net
of fee waivers)................. .35%(2) .35%(2) .35%(2) .55% .75% .45% .45%
12b-1 Fees ....................... .00% .00% .00% .00% .00% .00% .00%
Other Expenses (including
administration fees,
administrative services
fees and other expenses)
(net of fee waivers and
expense reimbursements)(3),(4).. .24% .25% .17% .20% .21% .20% .22%
--- --- --- --- --- --- ---
Total Portfolio Operating
Expenses (net of fee waivers
and expense reimbursements)(4).. .59% .60% .52% .75% .96% .65% .67%
=== === === === === === ===
</TABLE>
<TABLE>
<CAPTION>
SHORT- MISSOURI KANSAS
INTER- INTER- TAX- TAX-
NATIONAL MEDIATE EXEMPT EXEMPT
BALANCED EQUITY MUNICIPAL BOND BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price)................... .00% .00% .00% .00% .00%
ANNUAL PORTFOLIO OPERATING
EXPENSES
(as a percentage of average
net assets)
Investment Advisory Fees (net
of fee waivers)................. .75% .75%(2) .00%(2) .45% .00%(2)
12b-1 Fees ....................... .00% .00% .00% .00% .00%
Other Expenses (including
administration fees,
administrative services
fees and other expenses)
(net of fee waivers and
expense reimbursements)(3),(4)... .22% .41% .30% .19% .43%
--- ---- --- --- ---
Total Portfolio Operating
Expenses (net of fee waivers
and expense reimbursements)(4)... .97% 1.16% .30% .64% .43%
=== ==== === === ===
</TABLE>
(1) The Kansas Tax-Exempt Bond Portfolio intends to commence operations in
1997.
(2) Without fee waivers, investment advisory fees would be .40%, .40%, .40%,
1.00%, .55% and .45% for the Money Market, Treasury Money Market,
Tax-Exempt Money Market, International Equity, Short-Intermediate
Municipal and Kansas Tax-Exempt Bond Portfolios, respectively.
(3) Without fee waivers, administration fees would be .10% for the Tax-Exempt
Money Market Portfolio and .20% for each other Portfolio. Administrative
services fees are payable at an annual rate not to exceed .25% for the
Money Market Portfolios and .30% for the Equity and Bond Portfolios.
(4) Without fee waivers and/or expense reimbursements, Other Expenses would
be .34%, .35%, .22%, .30%, .31%, .30%, .32%, .32%, .46%, .40%, .29% and
.53% and Total Portfolio Operating Expenses would be .74%, .75%, .62%,
.85%, 1.06% .75%, .77%, 1.07%, 1.46%, .95%, .74% and .98% for the Money
Market, Treasury Money Market, Tax-Exempt Money Market, Growth & Income
Equity, Emerging Growth, Government & Corporate Bond, U.S. Government
Securities, Balanced, International Equity, Short-Intermediate Municipal,
Missouri Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios,
respectively.
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<PAGE> 12
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following
expenses on a $1,000 investment,
assuming (1) a 5% annual return
and (2) redemption at the end of
each period:
Money Market Portfolio............................. $ 6 $ 19 $ 33 $ 74
Treasury Money Market Portfolio.................... $ 6 $ 19 $ 33 $ 75
Tax-Exempt Money Market Portfolio.................. $ 5 $ 17 $ 29 $ 65
Growth & Income Equity Portfolio................... $ 8 $ 24 $ 42 $ 93
Emerging Growth Portfolio.......................... $ 10 $ 31 $ 53 $118
Government & Corporate Bond Portfolio.............. $ 7 $ 21 $ 36 $ 81
U.S. Government Securities Portfolio............... $ 7 $ 21 $ 37 $ 83
Balanced Portfolio................................. $ 10 $ 31 $ 54 $119
International Equity Portfolio..................... $ 12 $ 37 $ 64 $141
Short-Intermediate Municipal Portfolio............. $ 3 $ 10 $ 17 $ 38
Missouri Tax-Exempt Bond Portfolio................. $ 7 $ 20 $ 36 $ 80
Kansas Tax-Exempt Bond Portfolio................... $ 4 $ 14 $ N/A $N/A
</TABLE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN. Information about the actual performance of all
of the Portfolios is contained in the Fund's Annual Report to Shareholders dated
November 30, 1995 which may be obtained without charge by contacting the Fund at
the address or telephone number provided on the cover page of this Prospectus.
The purpose of the foregoing tables is to assist in understanding the
various costs and expenses that an investor in a Portfolio's Trust Shares will
bear directly or indirectly. The information contained in such tables for the
Money Market, Treasury Money Market, Growth & Income Equity, Emerging Growth,
Government & Corporate Bond, U.S. Government Securities, Balanced and
International Equity Portfolios is based on expenses incurred by each of these
Portfolios during the last fiscal year with respect to its Trust Shares. The
information contained in such tables for the Tax-Exempt Money Market,
Short-Intermediate Municipal and Missouri Tax-Exempt Bond Portfolios is based on
expenses incurred by each of these Portfolios during the last fiscal year,
restated to reflect the expenses that each such Portfolio expects to incur
during the current fiscal year with respect to its Trust Shares. Such
information with respect to the Kansas Tax-Exempt Bond Portfolio is based on
expenses the Portfolio expects to incur during the current fiscal year with
respect to such Shares. (For more complete descriptions of the various costs and
expenses, see "Management of the Fund" in this Prospectus and the Statement of
Additional Information.) The Tables and Examples have not been audited by the
Fund's independent auditors and do not reflect any charges that may be imposed
by financial institutions on their customers.
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<PAGE> 13
FINANCIAL HIGHLIGHTS
The "Financial Highlights" in the following tables supplement the
Fund's financial statements, which are contained in the Fund's Annual Report to
Shareholders dated November 30, 1995 and incorporated by reference into the
Statement of Additional Information, and set forth certain historic results for
Trust Shares of each Portfolio. The data for the years ended November 30, 1989
through 1995, and with respect to the Tax- Exempt Money Market and Missouri
Tax-Exempt Bond Portfolios (and their Predecessor Portfolios), for the six-month
period ended November 30, 1995 and each of the years or periods ended May 31,
1990 through 1995, has been audited by KPMG Peat Marwick LLP, independent
auditors, whose unqualified report insofar as it relates to each of the years or
periods in the five-year period ended November 30, 1995 (the six-month period
ended November 30, 1995 and each of the years or periods in the five-year period
ended May 31, 1995 with respect to the Tax-Exempt Money Market and Missouri
Tax-Exempt Bond Portfolios (and their Predecessor Portfolios)) on the financial
statements containing such information is incorporated by reference into the
Statement of Additional Information. The data for the years ended November 30,
1986 through 1988 and with respect to the Predecessor Tax- Exempt Money Market
and Predecessor Missouri Tax-Exempt Bond Portfolios, for the years ended May 31,
1989 and 1988 and the period ended May 31, 1987, were derived from financial
statements audited by the Fund's and the Trust's prior auditors. Further
information about the performance of the Portfolios is available in the Fund's
Annual Report. Both the Statement of Additional Information and the Annual
Report may be obtained free of charge by contacting the Fund at the address or
telephone number provided on the front cover page of this Prospectus.
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<PAGE> 14
Money Market Portfolio
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
----------------------------------------------------------------------------------
1995 1994 1993 1992 1991(a)
---- ---- ---- ---- --------
Trust Trust Trust Trust Trust
Shares Shares Shares Shares Shares 1990
------ ------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Investment Activities
Net investment income . 0.054 0.035 0.026 0.034 0.058 0.078
-------- -------- -------- -------- -------- --------
Distributions
Net investment income . (0.054) (0.035) (0.026) (0.034) (0.058) (0.078)
-------- -------- -------- -------- -------- --------
Net Asset Value,
End of Period ......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total Return ............ 5.52% 3.55% 2.72% 3.44% 5.95% 8.08%
Ratios/Supplemental Data:
Net Assets at end
of period (000) ....... $698,131 $544,952 $621,717 $574,941 $700,474 $896,903
Ratio of expenses to
average net assets
(including waivers) ... 0.59% 0.61% 0.59% 0.57% 0.59% 0.55%
Ratio of net investment
income to average net
assets (including
waivers) .............. 5.38% 3.45% 2.70% 3.44% 5.81% 7.77%
Ratio of expenses to
average net assets
(before waivers)* ..... 0.74% 0.93% 0.80% 0.71% 0.67% 0.60%
Ratio of net investment
income to average net
assets (before
waivers)* ............. 5.23% 3.13% 2.49% 3.30% 5.73% 7.72%
<CAPTION>
1989 1988 1987 1986
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Investment Activities
Net investment income . 0.088 0.071 0.062 0.065
-------- -------- -------- --------
Distributions
Net investment income . (0.088) (0.071) (0.062) (0.065)
-------- -------- -------- --------
Net Asset Value,
End of Period ......... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total Return ............ 9.21% 7.33%(b) 6.40%(b) 6.70%(b)
Ratios/Supplemental Data:
Net Assets at end
of period (000) ....... $661,145 $289,764 $220,944 $179,224
Ratio of expenses to
average net assets
(including waivers) ... 0.45% 0.45% 0.45% 0.45%
Ratio of net investment
income to average net
assets (including
waivers) .............. 8.82% 7.12% 6.22% 6.49%
Ratio of expenses to
average net assets
(before waivers)* ..... 0.60% 0.58% 0.68% 0.66%
Ratio of net investment
income to average net
assets (before
waivers)* ............. 8.67% 6.99% 5.99% 6.26%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) As of December 1, 1990, the Portfolio designated existing Shares as
"Investor" Shares. In addition, on December 1, 1990, the Portfolio issued
a second series of Shares which were designated as "Trust" Shares. The
financial highlights presented for periods prior to December 1, 1990 are
financial highlights applicable to Investor Shares. On September 27, 1994
the Portfolio redesignated the Investor Shares as "Investor A" Shares.
(b) Unaudited.
-11-
<PAGE> 15
Treasury Money Market Portfolio
(For a Share(b) outstanding throughout each period)
<TABLE>
<CAPTION>
December 2, 1991
Year Ended November 30, to November 30,
----------------------------------------------------------------
1995 1994 1993 1992(a)(b)
---- ---- ---- ----------------
Trust Shares Trust Shares Trust Shares Trust Shares
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ........... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Investment Activities
Net investment income ......... 0.050 0.033 0.026 0.034
-------- -------- -------- --------
Distributions
Net investment income ......... (0.050) (0.033) (0.026) (0.034)
-------- -------- -------- --------
Net Asset Value, End of Period .. $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total Return .................... 5.12% 3.38% 2.67% 3.16%(c)
Ratios/Supplemental Data:
Net Assets at end of period (000) $252,780 $242,099 $256,503 $229,288
Ratio of expenses to average net
assets (including waivers) .... 0.60% 0.49% 0.41% 0.28%(d)
Ratio of net investment income to
average net assets (including
waivers) ...................... 5.01% 3.26% 2.64% 3.35%(d)
Ratio of expenses to average net
assets (before waivers)* ...... 0.75% 0.94% 0.85% 0.72%(d)
Ratio of net investment income to
average net assets (before
waivers)* ..................... 4.86% 2.82% 2.21% 2.91%(d)
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Period from commencement of operations.
(b) On December 2, 1991, the Portfolio issued a series of Shares which were
designated as "Trust" Shares. In addition, on April 20, 1992, the
Portfolio issued a second series of Shares which were designated as
"Investor" Shares. On September 27, 1994, the Portfolio redesignated
Investor Shares as "Investor A" Shares.
(c) Not Annualized.
(d) Annualized.
-12-
<PAGE> 16
Tax-Exempt Money Market Portfolio(a)
(For a Share(b) outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended May 31,
November 30, ----------------------------------------------------------
1995(f) 1995 1994 1993 1992
-------- -------- -------- -------- --------
Trust Trust Trust Trust Trust
Shares Shares Shares Shares Shares
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period .......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Investment Activities
Net investment income ........ 0.016 0.029 0.020 0.021 0.034
-------- -------- -------- -------- --------
Distributions
Net investment income ........ (0.016) (0.029) (0.020) (0.021) (0.034)
-------- -------- -------- -------- --------
Net Asset Value, End of
Period ....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return ................... 1.57%(d) 2.93% 1.97% 2.16% 3.44%
Ratios/Supplemental Data:
Net Assets at end of
period (000) ................. $ 78,031 $ 85,324 $112,594 $137,602 $126,079
Ratio of expenses to
average net asset
(including waivers) .......... 0.70%(e) 0.61% 0.52% 0.52% 0.59%
Ratio of net investment
income to average net
assets (including waivers) ... 3.10%(e) 2.87% 1.95% 2.13% 3.38%
Ratio of expenses to average
net assets (before
waivers)* .................... 0.75%(e) 0.70% 0.86% 0.62% 0.69%
Ratio of net investment
income to average net
assets (before
waivers)* .................... 3.05%(e) 2.78% 1.61% 2.03% 3.28%
<CAPTION>
Period
Year Ended May 31, Ended
----------------------------------------------------------- May 31,
1991(b) 1990(b) 1989(b) 1988(b) 1987(a),(b)
-------- -------- -------- -------- -----------
Trust Trust Trust Trust Portfolio
Shares Shares Shares Shares Shares
-------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period .......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Investment Activities
Net investment income ........ 0.031 0.056 0.056 0.043 0.036
-------- -------- -------- -------- --------
Distributions
Net investment income ........ (0.031) (0.056) (0.056) (0.043) (0.036)
-------- -------- -------- -------- --------
Net Asset Value, End of
Period ....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return ................... 2.25% 5.71% 5.74% 4.35% 3.80%(d)
Ratios/Supplemental Data:
Net Assets at end of
period (000) ................. $137,847 $132,407 $ 70,153 $ 72,120 $147,799
Ratio of expenses to
average net asset
(including waivers) .......... 0.58% 0.51% 0.45% 0.45% 0.37%(c),(e)
Ratio of net investment
income to average net
assets (including waivers) ... 4.65% 5.57% 5.59% 4.27% 4.02%(c),(e)
Ratio of expenses to average
net assets (before
waivers)* .................... 0.68% 0.61% 0.63% 0.60% 0.62%(c),(e)
Ratio of net investment
income to average net
assets (before
waivers)* .................... 4.55% 5.47% 5.41% 4.12% 3.77%(c),(e)
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) The Portfolio commenced operations on July 10, 1986 as a portfolio of The
ARCH Tax-Exempt Trust. On October 2, 1995, it was reorganized as a new
portfolio of the Fund.
(b) "Trust" Shares were originally issued as "Money" Shares. As of September
28, 1990, the Portfolio issued a second series of Shares which were
designated as "Trust" Shares. The financial highlights presented for
periods prior to September 28, 1990 are financial highlights applicable to
Money Shares.
(c) Includes waiver of sub-advisory fees for the period ended May 31, 1987.
(d) Not Annualized.
(e) Annualized.
(f) Upon its reorganization as a portfolio of the Fund, the Portfolio changed
its fiscal year-end from May 31 to November 30.
-13-
<PAGE> 17
Growth & Income Equity Portfolio
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
1995 1994 1993 1992
---- ---- ---- ----
Trust Trust Trust Trust
Shares Shares Shares Shares
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ....... $ 12.72 $ 14.74 $ 14.49 $ 12.33
--------- --------- --------- ---------
Investment Activities
Net investment income ..... 0.27 0.22 0.25 0.24
Net realized and
unrealized gains
(losses) from
investments ............... 3.74 (0.17) 1.06 2.25
--------- ---------- ---------- ---------
Total from
Investment
Activities ................ 4.01 0.05 1.31 2.49
--------- ---------- ---------- ---------
Distributions
Net investment income ..... (0.27) (0.21) (0.25) (0.26)
Net realized gains ........ (0.14) (0.18) (0.81) (0.07)
In excess of net
realized gains ........... (1.68)
--------- --------- --------- ---------
Total Distributions ...... (0.41) (2.07) (1.06) (0.33)
--------- --------- --------- ---------
Net Asset Value,
End of Period ............. $ 16.32 $ 12.72 $ 14.74 $ 14.49
========= ========= ========= =========
Total Return ................ 32.27% 0.36% 9.65% 20.59%
Ratios/Supplemental
Data:
Net Assets at end of
period (000) .............. $ 286,546 $ 235,955 $ 238,771 $ 232,967
Ratio of expenses to
average net assets ........ 0.75% 0.75% 0.74% 0.71%
Ratio of net investment
income to average net
assets .................... 1.89% 1.72% 1.74% 1.94%
Ratio of expenses to
average net assets
(before waivers)* ......... 0.85% 1.15% 0.96% 0.85%
Ratio of net investment
income to average
net assets (before
waivers)* ................. 1.79% 1.32% 1.52% 1.80%
Portfolio turnover .......... 58.50% 65% 41% 79%
<CAPTION>
June 2,
1991(a) 1988
--------- to
Trust November 30,
Shares 1990 1989 1988(b)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ....... $ 12.24 $ 12.41 $ 10.25 $ 10.00
--------- --------- --------- ---------
Investment Activities
Net investment income ..... 0.22 0.39 0.41 0.28
Net realized and
unrealized gains
(losses) from
investments ............... 0.03 (0.56) 2.29 0.06
--------- --------- --------- ---------
Total from
Investment Activities ....... 0.25 (0.17) 2.70 0.34
--------- --------- --------- ---------
Distributions
Net investment income ...... (0.16) (0.39) (0.51) (0.09)
Net realized gains (0.63) (0.03)
In excess of net
realized gains
--------- --------- --------- ---------
Total Distributions ...... (0.16) (1.02) (0.54) (0.09)
---------- --------- --------- ---------
Net Asset Value,
End of Period ............. $ 12.33 $ 11.22 $ 12.41 $ 10.25
========= ========= ========= =========
Total Return ................ 17.39% (1.36)% 27.11% 3.45%(c),(d)
Ratios/Supplemental
Data:
Net Assets at end of
period (000) .............. $ 139,021 $ 20,116 $ 17,892 10,890
Ratio of expenses to
average net assets ........ 0.27% 0.35% 0.42% 0.41%(e)
Ratio of net investment
income to average net
assets .................... 2.56% 3.42% 3.69% 5.62%(e)
Ratio of expenses to
average net assets
(before waivers)* ......... 0.91% 1.00% 1.07% 1.12%(e)
Ratio of net investment
income to average
net assets (before
waivers)* ................. 1.92% 2.77% 3.04% 4.91%(e)
Portfolio turnover .......... 78% 227% 133% 30%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. In addition, on April 1, 1991, the Portfolio
issued a second series of Shares which were designated as "Trust" Shares.
The financial highlights presented for the periods prior to December 1,
1990 are financial highlights applicable to Investor Shares. On September
27, 1994, the Portfolio redesignated the Investor Shares as "Investor A"
Shares.
(b) Period from commencement of operations.
(c) Unaudited.
(d) Not Annualized.
(e) Annualized.
-14-
<PAGE> 18
Government & Corporate Bond Portfolio
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
----------------------------------------------------------------------------------- June 15
1995 1994 1993 1992 1991(a) 1988 to
------- ------- ------- ------- ------- November
Trust Trust Trust Trust Trust 30,
Shares Shares Shares Shares Shares 1990 1989 1988(b)
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period .. $ 9.64 $ 10.65 $ 10.26 $ 10.15 $ 9.84 $ 10.12 $ 9.91 $ 10.00
-------- -------- -------- -------- ------- ------- ------- -------
Investment Activities
Net investment
income .............. 0.64 0.63 0.68 0.70 0.64 0.84 0.89 0.39
Net realized and
unrealized gains
(losses) from
investments ......... 0.89 (0.94) 0.39 0.11 0.31 (0.41) 0.22 (0.13)
-------- -------- -------- -------- ------- ------- ------- -------
Total from
Investment
Activities .......... 1.53 (0.31) 1.07 0.81 0.95 0.43 1.11 0.26
-------- -------- -------- -------- ------- ------- ------- -------
Distributions
Net investment
income .............. (0.64) (0.63) (0.68) (0.70) (0.64) (0.84) (0.90) (0.35)
In excess of net
realized gains ...... (0.07)
-------- -------- -------- -------- ------- ------- ------- -------
Total
Distributions ....... (0.64) (0.70) (0.68) (0.70) (0.64) (0.84) (0.90) (0.35)
-------- -------- -------- -------- ------- ------- ------- -------
Net Asset Value, End
of Period ........... $ 10.53 $ 9.64 $ 10.65 $ 10.26 $ 10.15 $ 9.71 $ 10.12 $ 9.91
======== ======== ======== ======== ======= ======= ======= =======
Total Return ........... 16.31% (3.03)% 10.55% 8.14% 13.04% 4.96% 11.79% 2.66%(c)(d)
Ratios/Supplemental
Data:
Net Assets at end of
period (000) ......... $127,741 $132,577 $149,674 $135,404 $89,975 $11,005 $10,327 $ 7,483
Ratio of expenses to
average net assets
(including waivers) .. 0.65% 0.65% 0.65% 0.63% 0.36% 0.53% 0.44% 0.56%(e)
Ratio of net
Investment
income to average
net assets
(including waivers) .. 6.32% 6.25% 6.32% 6.73% 7.51% 8.69% 8.97% 8.47%(e)
Ratio of expenses to
average net assets
(before waivers)* .... 0.75% 1.05% 0.88% 0.76% 0.91% 1.08% 0.99% 1.17%(e)
Ratio of net
investment income
to average net
assets (before
waivers)* ............ 6.22% 5.85% 6.09% 6.60% 6.96% 8.14% 8.42% 7.86%(e)
Portfolio turnover ..... 59.32% 50% 31% 52% 105% 75% 148% 22%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. In addition, on February 1, 1991, the
Portfolio issued a second series of Shares which were designated as "Trust"
Shares. The financial highlights presented for periods prior to February 1,
1991 are financial highlights applicable to Investor Shares. On September
27, 1994 the Portfolio redesignated the Investor Shares as "Investor A"
Shares.
(b) Period from commencement of operations.
(c) Unaudited.
(d) Not Annualized.
(e) Annualized.
-15-
<PAGE> 19
U.S. Government Securities Portfolio
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
---------------------------------------------------------------------------------
1995 1994 1993 1992 1991(a) June 2,
---- ---- ---- ---- ------- 1988 to
Trust Trust Trust Trust Trust November 30,
Shares Shares Shares Shares Shares 1990 1989 1988(b)
------- ------- ------- ------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period .... $ 10.05 $ 11.20 $ 10.80 $ 10.68 $ 10.42 $10.06 $ 9.94 $ 10.00
------- ------- ------- ------- ------- ------ ------ -------
Investment Activities
Net investment income .. 0.67 0.66 0.62 0.66 0.64 0.76 0.85 0.36
Net realized and
unrealized gains
(losses) from
investments .......... 0.80 (0.97) 0.47 0.13 0.26 0.16 0.11 (0.06)
------- ------- ------- ------- ------- ------ ------ -------
Total from Investment
Activities .......... 1.47 (0.31) 1.09 0.79 0.90 0.92 0.96 0.30
------- ------- ------- ------- ------- ------ ------ -------
Distributions
Net investment income .. (0.67) (0.66) (0.62) (0.66) (0.64) (0.77) (0.84) (0.36)
Net realized gains ..... (0.07) (0.01)
In excess of net
realized gains ....... (0.18)
------- ------- ------- ------- ------- ------ ------ -------
Total Distributions ... (0.67) (0.84) (0.69) (0.67) (0.64) (0.77) (0.84) (0.36)
------- ------- ------- ------- ------- ------ ------ -------
Net Asset Value,
End of Period ......... $ 10.85 $ 10.05 $ 11.20 $ 10.80 $ 10.68 $10.21 $10.06 $ 9.94
======= ======= ======= ======= ======= ====== ====== =======
Total Return ............. 15.00% (2.85)% 10.36% 7.52% 12.62% 9.66% 10.04% 3.05%(c),(d)
Ratios/Supplemental
Data:
Net Assets at end of
period (000) ........... $45,513 $33,166 $35,121 $31,106 $21,484 $6,856 $5,954 $4,335
Ratio of expenses to
average net assets
(including waivers) .... 0.67% 0.66% 0.67% 0.65% 0.56% 0.73% 0.74% 0.79%(e)
Ratio of net investment
income to average net
assets (including
waivers) ............... 6.36% 6.25% 5.57% 6.02% 7.26% 7.80% 8.50% 7.26%(e)
Ratio of expenses to
average net assets
(before waivers)* ...... 0.77% 1.06% 0.91% 0.79% 1.11% 1.28% 1.29% 1.40%(e)
Ratio of net investment
income to average net
assets (before
waivers)* .............. 6.26% 5.85% 5.33% 5.88% 6.71% 7.25% 7.95% 6.65%(e)
Portfolio turnover ....... 93.76% 50% 24% 74% 36% 53% 84% 215%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. In addition, on February 1, 1991, the
Portfolio issued a second series of Shares which were designated as "Trust"
Shares. The financial highlights presented for periods prior to February 1,
1991 are financial highlights applicable to Investor Shares. On September
27, 1994 the Portfolio redesignated the Investor Shares as "Investor A"
Shares.
(b) Period from commencement of operations.
(c) Unaudited.
(d) Not Annualized.
(e) Annualized.
-16-
<PAGE> 20
<TABLE>
<CAPTION>
For a Share outstanding throughout each period
----------------------------------------------
Emerging Growth Portfolio Balanced Portfolio
---------------------------------------------------- -------------------------------------------
Year Ended Year Ended Year Ended May 1, 1992 Year Ended Year Ended April 1, 1993
Nov. 30, Nov. 30, Nov. 30, to Nov. 30, Nov. 30, Nov. 30, to Nov. 30,
1995 Trust 1994 Trust 1993 Trust 1992(a) 1995 Trust 1994 1993(a)
Shares Shares Shares Trust Shares Shares Trust Shares Trust Shares
--------- --------- --------- ------------ --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ... $ 12.01 $ 13.14 $11.23 $10.10 $ 9.62 $ 10.22 $ 10.00
------- ------- ------ ------ -------- --------- ---------
Investment Activities
Net investment
income (loss) ........ 0.03 (0.01) 0.03 0.04 0.34 0.29 0.23
Net realized and
unrealized gains
(losses) from
investments .......... 2.36 0.89 2.14 1.21 2.02 (0.47) 0.15
------- ------- ------ ------ --------- --------- ---------
Total from Investment
Activities ........... 2.39 0.88 2.17 1.25 2.36 (0.18) 0.38
------- ------- ------ ------ --------- --------- ---------
Distributions
Net investment income . (0.05) (0.02) (0.34) (0.29) (0.16)
Net realized gains .... (0.91) (1.78) (0.21)
In excess of realized
gains ................ (0.23) (0.13)
------- ------- ------ ------ --------- --------- ---------
Total Distributions .. (0.91) (2.01) (0.26) (0.02) (0.34) (0.42) (0.16)
------- ------- ------ ------ --------- --------- ---------
Net Asset Value,
End of Period ......... $ 13.49 $ 12.01 $ 13.14 $ 11.23 $ 11.64 $ 9.62 $ 10.22
========= ========= ======== ========= ========= ========= =========
Total Return ............ 21.70% 7.56% 19.75% 12.55%(b) 24.97% (1.81)% (3.86)%(b)
Ratios/Supplemental
Data:
Net Assets at end of
period (000) .......... $ 139,681 $ 77,690 $ 47,473 $ 26,829 $ 72,669 $ 65,286 $ 69,720
Ratio of expenses to
average net assets
(including waivers) ... 0.96% 0.95% 0.61% 0.30%(c) 0.98% 0.97% 0.56%(c)
Ratio of net
investment income to
average net assets
(including waivers) .... 0.18% (0.16)% 0.19% 0.78%(c) 3.29% 3.04% 3.42%(c)
Ratio of expenses to
average net assets
(before waivers)* ...... 1.06% 1.36% 1.23% 1.12%(c) 1.08% 1.39% 1.21%(c)
Ratio of net investment
income to average net
assets (before
waivers)* ............. 0.08% (0.56)% (0.43)% (0.04)%(c) 3.19% 2.63% 2.77%(c)
Portfolio turnover ...... 83.13% 85% 65% 56% 58.16% 49% 26%
</TABLE>
-17-
<PAGE> 21
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not Annualized.
(c) Annualized.
-18-
<PAGE> 22
For a Share outstanding throughout each period
<TABLE>
<CAPTION>
International Equity Portfolio Short-
------------------------------ Intermediate
April 4, Municipal
Year Ended 1994 to Portfolio
Nov. 30, Nov. 30 July 10, 1995 to
1995 1994(a) Nov. 30, 1995(a)
Trust Trust Trust
Shares Shares Shares
---------- -------- ----------------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period ... $ 9.92 $ 10.00 $ 10.00
------- ------- -------
Investment Activities
Net investment
income (loss) ........ 0.03 0.01 0.14
Net realized and
unrealized gains
(losses) from
investments and
foreign currency ..... 0.86 (0.09) 0.07
------- ------- -------
Total from Investment
Activities ........... 0.89 (0.08) 0.21
------- ------- -------
Distributions
Net investment income
Net realized gains .... (0.01) (0.14)
In excess of realized
gains ................ (0.01)
------- ------- -------
Total Distributions .. (0.02)
------- ------- -------
Net Asset Value,
End of Period ......... $ 10.79 $ 9.92 $ 10.07
======= ======= =======
Total Return ............ 8.97% (0.80%)(b) 2.15%(b)
Ratios/Supplemental
Data:
Net Assets at end of
period (000) .......... $36,096 $23,746 $23,754
Ratio of expenses to
average net assets
(including waivers) ... 1.16% 1.23%(c) 0.47%(c)
Ratio of net
investment income to
average net assets
(including waivers) .... 0.39% 0.23%(c) 3.81%(c)
Ratio of expenses to
average net assets
(before waivers)* ...... 1.46% 1.95%(c) 1.12%(c)
Ratio of net investment
income to average net
assets (before
waivers)* ............. 0.09% (0.49%)(c) 3.16%(c)
Portfolio turnover ...... 62.78% 21% 0.00%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
-19-
<PAGE> 23
Missouri Tax-Exempt Bond Portfolio(a)
(For a Share(b) outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months
Ended
November 30, Year Ended May 31,
------------ ------------------------------------------
1995(c) 1995 1994 1993
Trust Trust Trust Trust
Shares Shares Shares Shares
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ............... $ 11.52 $ 11.13 $ 11.54 $ 10.97
-------- -------- --------
Investment Activities:
Net investment income ............. 0.28 0.57 0.58 0.60
Net realized and unrealized gains
(losses) on investments ............ 0.22 0.40 (0.37) 0.64
-------- -------- -------- --------
Total from Investment Activities . 0.50 0.97 0.21 1.24
Distributions
Net investment income ............. (0.28) (0.57) (0.58) (0.60)
Net realized gains ................ (0.01) (0.04) (0.07)
-------- -------- -------- --------
Total Distributions .............. 0.28) (0.58) (0.62) (0.67)
-------- -------- -------- --------
Net Asset Value, End of
Period ............................ $ 11.74 $ 11.52 $ 11.13 $ 15.54
======== ======== ======== ========
Total Return ........................ 4.41%(d) 9.12% 1.73% 11.70%
Ratios/Supplemental Data:
Net Assets at end of
period (000) ...................... $ 47,773 $ 44,336 $ 47,743 $ 32,777
Ratio of expenses to
average net assets (including
waivers) .......................... 0.78%(e) 0.64% 0.45% 0.43%
Ratio of net investment
income to average net
assets (including
waivers) .......................... 4.83%(e) 5.22% 4.96% 5.30%
Ratio of expenses to average net
assets (before waivers)* .......... 0.88%(e) 1.16% 1.13% 0.98%
Ratio of net investment income
to average net assets (before
waivers)* ......................... 4.73%(e) 4.70% 4.28% 4.75%
Portfolio turnover rate ............. 1.55% 0% 20% 15%
<CAPTION>
Period
Year Ended May 31, Ended,
------------------------------------------ May 31,
1992 1991(b) 1990(b) 1989(a)(b)
Trust Portfolio Portfolio Portfolio
Shares Shares Shares Shares
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ............... $ 10.62 $ 10.50 $ 10.56 $ 10.00
-------- -------- -------- --------
Investment Activities:
Net investment income ............. 0.64 0.67 0.68 0.58
Net realized and unrealized gains
(losses) on investments ............ 0.43 0.24 (0.09) 0.58
-------- -------- -------- --------
Total from Investment Activities . 1.07 0.91 0.59 1.16
Distributions
Net investment income ............. (0.64) (0.70) (0.65) (0.60)
Net realized gains ................ (0.08) (0.09) 0.00 0.00
-------- -------- -------- --------
Total Distributions .............. (0.72) (0.79) (0.65) 0.00
-------- -------- -------- --------
Net Asset Value, End of
Period ............................ $ 10.97 $ 10.62 $ 10.58 $ 10.56
======== ======== ======== ========
Total Return ........................ 10.37% 9.08% 5.50% 12.08%(d)
Ratios/Supplemental Data:
Net Assets at end of
period (000) ...................... $ 6,609 $ 4,735 $ 4,568 $ 4,53
Ratio of expenses to
average net assets (including
waivers) .......................... 0.73% 0.70%(e) 0.70% 0.81%(e)
Ratio of net investment
income to average net
assets (including
waivers) .......................... 5.87% 6.37%(e) 6.38% 6.36%(e)
Ratio of expenses to average net
assets (before waivers)* .......... 1.38% 1.66% 1.70% 1.38%(e)
Ratio of net investment income
to average net assets (before
waivers)* ......................... 5.22% 5.41% 5.38% 5.79%(e)
Portfolio turnover rate ............. 21% 71% 41% 73%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) The Portfolio (formerly, the Long-Term Tax-Exempt Portfolio) commenced
operations on July 15, 1988 as a portfolio of The ARCH Tax-Exempt Trust. On
October 2, 1995, it was reorganized as a new portfolio of the Fund.
(b) The Portfolio had one class of Shares outstanding ("Portfolio Shares")
through September 27, 1990. As of September 28, 1990 the Portfolio issued a
second class of Shares and designated such Shares as "Trust" Shares. The
financial highlights presented for periods prior to September 28, 1990
represent financial highlights applicable to Portfolio Shares.
(c) Upon its reorganization as a portfolio of the Fund, the Portfolio changed
its fiscal-year end from May 31 to November 30.
(d) Not Annualized.
(e) Annualized.
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<PAGE> 24
INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS
The investment objective of a Portfolio may not be changed without
the affirmative vote of a majority of the outstanding Shares of the Portfolio.
Although management will use its best efforts to achieve the investment
objective of each Portfolio, there can be no assurance that it will be able to
do so. The Money Market, Treasury Money Market and Tax-Exempt Money Market
Portfolios are "money market" funds that invest in instruments with remaining
maturities of 397 days or less (with certain exceptions) and with
dollar-weighted average portfolio maturities of 90 days or less, subject to the
quality, diversification and other requirements of Rule 2a-7 under the
Investment Company Act of 1940, as amended (the "1940 Act") and other rules of
the Securities and Exchange Commission (the "SEC").
THE MONEY MARKET PORTFOLIO
The Money Market Portfolio's investment objective is to seek current
income with liquidity and stability of principal. In pursuing its investment
objective, the Money Market Portfolio invests substantially all of its assets in
a broad range of money market instruments. These instruments include obligations
of the U.S. Government, U.S. dollar-denominated foreign securities, obligations
of U.S. and foreign banks and savings and loan institutions and commercial
obligations that meet the applicable quality requirements described below.
The Money Market Portfolio will purchase only "First Tier Eligible
Securities" (as defined by the SEC) that present minimal credit risks as
determined by the Adviser pursuant to guidelines approved by the Fund's Board of
Directors. First Tier Eligible Securities consist of (i) securities that either
(a) have short-term debt ratings at the time of purchase in the highest rating
category by at least two unaffiliated nationally recognized statistical rating
organizations ("Rating Agencies") (or one Rating Agency if the security was
rated by only one Rating Agency), or (b) are issued by issuers with such
ratings, and (ii) certain securities that are unrated (including securities of
issuers that have long-term but not short-term ratings) but are of comparable
quality as determined in accordance with guidelines approved by the Board of
Directors. The applicable ratings by Rating Agencies are described in Appendix A
to the Statement of Additional Information. The following descriptions
illustrate the types of instruments in which the Portfolio invests.
BANKING OBLIGATIONS. The Money Market Portfolio may purchase
obligations of issuers in the banking industry, such as certificates of deposit,
letters of credit, bankers' acceptances and time deposits, including U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions having total assets at the time of
purchase
-21-
<PAGE> 25
in excess of $1 billion. The Money Market Portfolio may invest in obligations of
foreign banks or foreign branches of U.S. banks in amounts not in excess of 25%
of its assets where the Adviser deems the instrument to present minimal credit
risks. (See "Risk Factors -- Risks Associated with Foreign Securities and
Currencies" below.) The Money Market Portfolio may also make interest-bearing
savings deposits in commercial and savings banks in amounts not in excess of 5%
of the value of its total assets.
COMMERCIAL PAPER AND VARIABLE AND FLOATING RATE INSTRUMENTS. The
Money Market Portfolio may invest in commercial paper, including asset-backed
commercial paper representing interests in a pool of corporate receivables,
dollar-denominated obligations issued by domestic and foreign bank holding
companies, and corporate bonds that meet the quality and maturity requirements
described above. The Money Market Portfolio may also invest in variable or
floating rate notes that may have a stated maturity in excess of thirteen months
but will, in any event, permit the Portfolio to demand payment of the principal
of the instrument at least once every thirteen months upon no more than 30 days'
notice (unless the instrument is guaranteed by the U.S. Government or an agency
or instrumentality thereof). Such instruments may include variable amount master
demand notes, which are unsecured instruments that permit the indebtedness
thereunder to vary in addition to providing for periodic adjustments in the
interest rate. Unrated variable and floating rate instruments will be determined
by the Adviser (under the supervision of the Board of Directors) to be of
comparable quality at the time of purchase to First Tier Eligible Securities.
There may be no active secondary market in the instruments, which could make it
difficult for the Portfolio to dispose of an instrument in the event the issuer
were to default on its payment obligation or during periods that the Portfolio
could not exercise its demand rights. The Money Market Portfolio could, for
these or other reasons, suffer a loss with respect to such instruments. Variable
and floating rate instruments held by the Portfolio will be subject to the
Portfolio's 10% limitation on illiquid investments when the Portfolio may not
demand payment of the principal amount within seven days and a liquid trading
market is absent.
GOVERNMENT OBLIGATIONS. The Money Market Portfolio may invest in
obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities. In addition, the Portfolio may, when deemed appropriate by
the Adviser, invest in short-term obligations issued by state and local
governmental issuers that meet the quality requirements described above and, as
a result of the Tax Reform Act of 1986, carry yields that are competitive with
those of other types of money market instruments of comparable quality.
-22-
<PAGE> 26
THE TREASURY MONEY MARKET PORTFOLIO
The Treasury Money Market Portfolio's investment objective is to seek
a high level of current income exempt from state income tax consistent with
liquidity and security of principal. In pursuing its investment objective, the
Portfolio invests in selected money market obligations issued by the U.S.
Government (or its agencies and instrumentalities) that are guaranteed as to
principal and interest by the U.S. Government, the interest on which is
generally exempt from state income tax. Securities that are generally eligible
for this exemption include those issued by the U.S. Treasury (bills,
certificates of indebtedness, notes and certain bonds) and certain U.S.
Government agencies and instrumentalities, including the General Services
Administration and Small Business Administration. Each investor should consult
his or her tax advisor to determine whether distributions from the Portfolio are
exempt from state income tax in the investor's home state. Under normal market
conditions, the Portfolio intends to invest substantially all (but not less than
65%) of its total assets in securities with the above characteristics and
(except to the extent discussed below) will not enter into repurchase agreements
or purchase any U.S. Government security that the Adviser believes is subject to
state income tax.
Under extraordinary circumstances, such as when appropriate exempt
securities are unavailable or pending investment, the Treasury Money Market
Portfolio may temporarily hold cash or invest in repurchase agreements
collateralized by U.S. Government securities, other U.S. Government agency or
instrumentality securities, securities of other investment companies that invest
in securities in which the Portfolio is permitted to invest, or cash
equivalents.
THE TAX-EXEMPT MONEY MARKET PORTFOLIO
The Tax-Exempt Money Market Portfolio's investment objective is to
seek as high a level of current interest income exempt from federal income tax
as is consistent with liquidity and stability of principal. The Portfolio seeks
to achieve its objective by investing substantially all of its assets in
short-term obligations issued by or on behalf of states, territories and
possessions of the United States, the District of Columbia and their respective
political subdivisions, agencies, instrumentalities and authorities the interest
on which, in the opinion of bond counsel or counsel to the issuer, is exempt
from regular federal income tax (collectively, "Municipal Obligations"). The
Portfolio my also hold tax-exempt derivative securities such as tender option
bonds, participations, beneficial interests in trusts and partnership interests
The Tax-Exempt Money Market Portfolio will purchase only "First Tier
Eligible Securities" (as defined by the SEC) that
-23-
<PAGE> 27
present minimal credit risks as determined by the Adviser pursuant to guidelines
approved by the Board of Directors. See "The Money Market Portfolio" above for a
description of "First Tier Eligible Securities".
Dividends paid by the Tax-Exempt Money Market Portfolio that are
derived from interest attributable to tax-exempt obligations of a particular
state and its political subdivisions as well as of certain other governmental
issuers including Puerto Rico, Guam and the Virgin Islands may be exempt from
federal and state income tax. Dividends derived from interest on obligations of
other governmental issuers are exempt from federal income tax but may be subject
to state income tax.
As a matter of fundamental policy, under normal market conditions or
when the Adviser deems suitable tax-exempt Municipal Obligations to be
available, at least 80% of the Tax- Exempt Money Market Portfolio's total assets
will be invested in Municipal Obligations. The Portfolio may hold uninvested
cash reserves pending investment during temporary defensive periods or if, in
the opinion of the Adviser, suitable Municipal Obligations are unavailable.
There is no percentage limitation on the amount of assets which may be held
uninvested during temporary defensive periods.
In addition, during temporary defensive periods or if, in the opinion
of the Adviser, suitable Municipal Obligations are unavailable and subject to
its quality standards described above, the Tax-Exempt Money Market Portfolio may
invest up to 20% of its assets in money market instruments, the income from
which is subject to federal income tax. Such instruments may include obligations
of the U.S. Government, its agencies or instrumentalities; debt securities
(including commercial paper) of issuers having, at the time of purchase, a
quality rating within the highest rating category by a Rating Agency;
certificates of deposit or bankers' acceptances of domestic branches of U.S.
banks with total assets at the time of purchase of $1 billion or more; or
repurchase agreements with respect to such obligations.
THE GROWTH & INCOME EQUITY PORTFOLIO
The Growth & Income Equity Portfolio's investment objective is to
provide long-term capital growth, with income a secondary consideration. In
pursuing its investment objective, the Portfolio normally invests substantially
all of its assets in common stock, preferred stock, rights, warrants and
securities convertible into common stock. The Adviser selects stocks based on a
number of factors, including historical and projected earnings, growth and asset
value, earnings compared to stock prices generally (as measured by the S&P 500
Index), and consistency of earnings growth and earnings quality. Stocks
-24-
<PAGE> 28
purchased for the Portfolio generally will be listed on a national securities
exchange or will be unlisted securities with an established over-the-counter
market. A convertible security may be purchased for the Portfolio when, in the
Adviser's opinion, the price and yield of the convertible security is favorable
compared to the price and yield of the common stock. The stocks or securities in
which the Portfolio invests may be expected to produce some income but income is
not a major criterion in their selection. In general, the Portfolio's stocks and
securities will be diversified over a number of industry groups in an effort to
reduce the risks inherent in such investments.
The Growth & Income Equity Portfolio may indirectly invest in foreign
securities through the purchase of American Depository Receipts ("ADRs") and
European Depository Receipts ("EDRs") but will not do so if, immediately after
and as a result of the purchase, the value of ADRs and EDRs would exceed 15% of
the Portfolio's total assets. (For further information, see "Other Applicable
Policies -- Foreign Securities" below and the Statement of Additional
Information under "Investment Objectives and Policies -- ADRs and EDRs.") The
Portfolio may also invest in Canadian securities listed on a national securities
exchange.
The Growth & Income Equity Portfolio reserves the right to hold as a
temporary defensive measure up to 100% of its total assets in cash and
short-term obligations (having remaining maturities of 12 months or less) at
such times and in such proportions as, in the opinion of the Adviser, prevailing
market or economic conditions warrant. Short-term obligations include, but are
not limited to, commercial paper, bankers' acceptances, certificates of deposit,
demand and time deposits of domestic and foreign banks and savings and loan
associations, repurchase agreements, and obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities.
THE EMERGING GROWTH PORTFOLIO
The Emerging Growth Portfolio's investment objective is capital
appreciation. Current income is an incidental consideration in the selection of
portfolio securities. In pursuing its investment objective, the Portfolio
normally invests primarily in common stock of emerging or established small- to
medium-sized companies with above-average potential for price appreciation. The
Portfolio may invest in preferred stock, rights, warrants, and securities
convertible into common stock. It may invest a portion of its assets in
established larger companies that, in the opinion of the Adviser, offer improved
growth possibilities because of rejuvenated management, product changes, or
other developments that might stimulate earnings or asset growth, or in
companies that seem undervalued relative to their underlying assets. The
Portfolio does not intend to invest
-25-
<PAGE> 29
more than 5% of the value of its total assets in the securities of unseasoned
companies, that is, companies (or their predecessors) with less than three
years' continuous operation.
The Emerging Growth Portfolio may also invest a portion of its assets
in smaller companies that have limited specialized- product lines, markets or
financial resources, or are dependent upon one-person management. The securities
of such smaller companies may have limited marketability, may be subject to more
abrupt or erratic market movements than securities of larger companies or the
market averages in general, and may involve greater risk than is customarily
associated with more established companies. To qualify for investment by the
Portfolio, however, a company will be expected to have, in the opinion of the
Adviser, above-average possibilities for capital appreciation (when compared
with the average appreciation of companies whose securities are included in the
S&P 500 Index).
The Emerging Growth Portfolio uses a research intensive approach and
valuation techniques that emphasize earnings and asset growth. The Adviser
selects stocks based on a number of factors, including historical and projected
earnings, asset value, potential for price appreciation and earnings growth, and
quality of products manufactured and/or services offered. Stocks purchased for
the Portfolio may be listed on a national securities exchange or may be unlisted
securities with or without an established over-the-counter market. The Portfolio
may also invest in initial public offerings of new companies that demonstrate
the potential for price appreciation. A convertible security may be purchased
for the Portfolio when, in the Adviser's opinion, the price of the convertible
security is favorable compared to the price of the common stock. In general, the
Portfolio's stocks and other securities will be diversified over a number of
industry groups in an effort to reduce the risks inherent in such investments.
The Emerging Growth Portfolio may indirectly invest in foreign
securities through the purchase of such obligations as ADRs and EDRs but will
not do so if, immediately after and as a result of the purchase, the value of
ADRs and EDRs would exceed 25% of the Portfolio's total assets. (For further
information, see "The Growth & Income Equity Portfolio" above, "Other Applicable
Policies -- Foreign Securities" below, and the Statement of Additional
Information under "Investment Objectives and Policies -- ADRs and EDRs.") The
Portfolio may also invest in securities issued by Canadian corporations and
Canadian counterparts of U.S. corporations, which may or may not be listed on a
national securities exchange or traded in over-the-counter markets.
The Emerging Growth Portfolio reserves the right to hold as a
temporary defensive measure up to 100% of its total assets in
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<PAGE> 30
cash and short-term obligations (having remaining maturities of 12 months or
less) at such times and in such proportions as, in the opinion of the Adviser,
prevailing market or economic conditions warrant. See "The Growth & Income
Equity Portfolio" above for a description of the types of short-term obligations
in which the Portfolio may invest.
THE GOVERNMENT & CORPORATE BOND PORTFOLIO
The Government & Corporate Bond Portfolio's investment objective is
to seek the highest level of current income consistent with conservation of
capital. In pursuing its investment objective, the Portfolio intends to invest
at least 65% of its assets in fixed-income and related debt securities rated in
one of the three highest rating categories assigned by a Rating Agency at the
time of purchase or in unrated investments deemed by the Adviser to be of
comparable quality pursuant to guidelines approved by the Fund's Board of
Directors. Debt securities may include a broad range of fixed and variable rate
bonds, debentures, notes, and securities convertible into or exchangeable for
common stock; dollar-denominated debt obligations of foreign issuers, including
foreign corporations and governments; and first mortgage loans, income
participation loans, participation certificates in pools of mortgages, including
mortgages issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, collateralized mortgage obligations and other
mortgage-related securities, and other asset-backed securities. The Portfolio
may invest up to 10% of its total assets at the time of purchase in
dollar-denominated debt obligations of foreign issuers, either directly or
through ADRs and EDRs, and up to 25% of its total assets at the time of purchase
in non-mortgage asset-backed securities, respectively. (See "Other Applicable
Policies -- Foreign Securities" below and the Statement of Additional
Information under "Investment Objectives and Policies -- ADRs and EDRs.")
The Government & Corporate Bond Portfolio may purchase debt
securities which are rated at the time of purchase within the four highest
rating categories assigned by Rating Agencies or unrated debt securities
(including convertible securities) which the Adviser believes present attractive
opportunities and are of at least comparable quality to instruments so rated.
The Portfolio's dollar-weighted average portfolio quality is expected to be at
least "A" or higher. Securities rated in the lowest of the above four rating
categories have speculative characteristics, even though they are of
investment-grade quality, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade securities. Such
securities will be purchased (and retained) only when the Adviser believes the
issuers have an adequate capacity to pay interest and repay principal. (For a
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<PAGE> 31
description of the rating categories of Rating Agencies, see Appendix A to the
Statement of Additional Information.) In making investment decisions, the
Adviser will consider a number of factors including current yield, maturity,
yield to maturity, anticipated changes in interest rates, and the overall
quality of the investment. The Portfolio seeks to provide a current yield
greater than that generally available from money market instruments.
The Government & Corporate Bond Portfolio may purchase asset-backed
securities (i.e., securities backed by mortgages, installment sale contracts,
corporate receivables, credit card receivables or other assets) that are issued
by entities such as the Government National Mortgage Association ("GNMA"),
Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage
Corporation ("FHLMC") and private issuers such as commercial banks, financial
companies, finance subsidiaries of industrial companies, savings and loan
associations, mortgage banks, and investment banks. To the extent that the
Portfolio invests in asset-backed securities issued by companies that are
investment companies under the 1940 Act, such acquisitions will be subject to
the percentage limitations prescribed by the 1940 Act. (See "Other Applicable
Policies -- Securities of Other Investment Companies" below.)
Presently there are several types of mortgage-backed securities,
including guaranteed mortgage pass-through certificates, which provide the
holder with a pro rata interest in the underlying mortgages, and collateralized
mortgage obligations ("CMOs"), which provide the holder with a specified
interest in the cash flow of a pool of underlying mortgages or other
mortgage-backed securities. CMOs are issued in multiple classes, each with a
specified fixed or floating interest rate and a final distribution date. The
relative payment rights of the various CMO classes may be subject to greater
volatility and interest-rate risk than other types of mortgage-backed
securities. The average life of asset-backed securities varies with the
underlying instruments or assets and market conditions, which in the case of
mortgages have maximum maturities of forty years. The average life of a
mortgage-backed instrument, in particular, is likely to be substantially less
than the original maturity of the mortgages underlying the securities as the
result of unscheduled principal payments and mortgage prepayments. The
relationship between mortgage prepayment and interest rates may give some
high-yielding mortgage-backed securities less potential for growth in value than
conventional bonds with comparable maturities. In addition, in periods of
falling interest rates, the rate of mortgage prepayments tends to increase.
During such periods, the reinvestment of prepayment proceeds by the Government &
Corporate Bond Portfolio will generally be at lower rates than the rates that
were carried by the obligations that have been prepaid. When interest rates
rise, the value of an
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<PAGE> 32
asset-backed security generally will decline; however, when interest rates
decline, the value of an asset-backed security with prepayment features may not
increase as much as that of other fixed-income securities. Because of these and
other reasons, an asset-backed security's total return may be difficult to
predict precisely.
In general, the collateral supporting non-mortgage asset- backed
securities is of shorter maturity than mortgage loans and is less likely to
experience substantial prepayments. Non- mortgage asset-backed securities
involve certain risks that are not presented by mortgage-backed securities
arising primarily from the nature of the underlying assets (i.e., credit card
and automobile loan receivables as opposed to real estate mortgages). For
example, credit card receivables are generally unsecured and the repossession of
automobiles and other personal property upon the default of the debtor may be
difficult or impracticable in some cases.
The Government & Corporate Bond Portfolio reserves the right to hold
as a temporary defensive measure up to 100% of its total assets in cash and
short-term obligations (having remaining maturities of 12 months or less) at
such times and in such proportions as, in the opinion of the Adviser, prevailing
market or economic conditions warrant. See "The Growth & Income Equity
Portfolio" above for a description of the types of short-term obligations in
which the Portfolio may invest.
THE U.S. GOVERNMENT SECURITIES PORTFOLIO
The U.S. Government Securities Portfolio's investment objective is to
seek a high rate of current income that is consistent with relative stability of
principal. In pursuing its investment objective, the Portfolio invests in
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities normally having remaining maturities of 1 to 30 years and
repurchase agreements relating to such obligations. (For further information,
see "Other Applicable Policies -- U.S. Government Obligations" below.)
Consistent with its investment policies, the U.S. Government
Securities Portfolio may invest in mortgage-backed securities, including those
representing an undivided ownership interest in a pool of mortgage loans, such
as certificates issued by GNMA, FNMA, and FHLMC and CMOs. (For further
information regarding these instruments, see "The Government & Corporate Bond
Portfolio" above.)
THE BALANCED PORTFOLIO
The Balanced Portfolio's investment objective is to maximize total
return through a combination of growth of capital and
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<PAGE> 33
current income consistent with the preservation of capital. The Portfolio seeks
to achieve its objective by using a disciplined approach of allocating assets
primarily among three major asset groups, i.e. equity securities, fixed-income
securities and cash equivalents. In pursuing the Portfolio's investment
objective, the Adviser allocates the Portfolio's assets based upon its
evaluation of the relative attractiveness of the major asset groups. In an
effort to better quantify the relative attractiveness of the major asset groups
over a one- to three-year period of time, the Adviser has incorporated into its
asset allocation decision-making process several dynamic computer models which
it has created. The purpose of these models is to show the statistical impact of
the Adviser's economic outlook upon the future returns of each asset group. The
models are especially sensitive to the forecasts for inflation, interest rates
and long-term corporate earnings growth. Investment returns are normally heavily
impacted by such variables and their expected changes over time. Therefore, the
Adviser's method attempts to take advantage of changing economic conditions by
increasing or decreasing the ratio of stocks to bonds in the Portfolio. For
example, if the Adviser expected more rapid economic growth leading to better
corporate earnings, it would increase the Portfolio's holdings of equity
securities and reduce its holdings of fixed income securities and cash
equivalents.
Under normal market conditions, the Balanced Portfolio's policy is
generally to invest at least 25% of the value of its total assets in
fixed-income securities and no more than 75% in equity securities. The actual
percentage of assets invested in equity securities, fixed-income securities and
cash equivalents will vary from time to time, depending on the judgment of the
Adviser as to general market and economic conditions, trends and yields,
interest rates and fiscal and monetary developments.
The equity securities in which the Balanced Portfolio normally
invests include common stock, preferred stock, rights, warrants and securities
convertible into common or preferred stock. (For further information regarding
these instruments, see "The Growth & Income Equity Portfolio" above.)
The fixed-income securities in which the Balanced Portfolio invests
include U.S. Government securities or other fixed-income and related debt
securities rated in one of the four highest rating categories assigned by a
Rating Agency at the time of purchase or in unrated investments deemed by the
Adviser to be of comparable quality pursuant to guidelines approved by the
Fund's Board of Directors. (For further information regarding these instruments,
see "The Government & Corporate Bond Portfolio" above.)
The Balanced Portfolio may purchase asset-backed securities.
(For further information regarding these instruments, see "The
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<PAGE> 34
Government & Corporate Bond Portfolio" above and "Other Applicable Policies --
Securities of Other Investment Companies" below.)
The Balanced Portfolio reserves the right to hold as a temporary
defensive measure up to 100% of its total assets in cash and short-term
obligations (having remaining maturities of 12 months or less) at such times and
in such proportions as, in the opinion of the Adviser, prevailing market or
economic conditions warrant. See "The Growth & Income Equity Portfolio" above
for a description of the types of short-term obligations in which the Portfolio
may invest.
THE INTERNATIONAL EQUITY PORTFOLIO
The International Equity Portfolio's investment objective is to
provide capital growth consistent with reasonable investment risk. The Portfolio
seeks to achieve this objective by investing principally in foreign equity
securities, most of which will be denominated in foreign currencies. During
normal market conditions, the Portfolio will invest substantially all of its
assets in securities of companies which derive more than 50% of their gross
revenues from, or have more than 50% of their assets outside, the United States.
Additionally, under normal market conditions, the Portfolio will invest in
equity securities from at least three different countries (excluding the United
States). However, the Portfolio may invest all its assets in a single country
during temporary defensive periods.
The International Equity Portfolio expects to invest at least half of
its assets in securities of companies located either in developed countries in
Western Europe or in Japan, although it may also purchase securities of
companies located in other developed countries and developing countries. (For
further information, see "Risk Factors -- Risks Associated with Foreign
Securities and Currencies" below).
By investing in foreign securities, the International Equity
Portfolio will attempt to take advantage of differences between economic trends
and the performance of securities markets in various countries, regions and
geographic areas. The Portfolio will achieve diversification by investing in
securities from various countries and geographic areas that offer different
investment opportunities and are affected by different economic trends. The
multinational character of the Portfolio's investments should reduce the effect
that events in any one country or geographic area will have on its investment
holdings. Of course, negative movement by one of the Portfolio's investments in
one foreign market may offset gains from the Portfolio's investments in another
market.
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Equity securities in which the International Equity Portfolio may
invest include common stock, preferred stock, rights, warrants and securities
convertible into common stock. A convertible security may be purchased for the
Portfolio when, in the Adviser's or Sub-Adviser's opinion, the price and yield
of the convertible security is favorable compared to the price and yield of the
common stock.
During temporary defensive periods, when deemed necessary by the
Adviser or Sub-Adviser, the International Equity Portfolio may invest up to 100%
of its assets in U.S. Government obligations or debt obligations of companies
incorporated and having their principal business activities in the United
States. The Portfolio does not intend to invest in such securities for the
purpose of meeting its investment objective.
The International Equity Portfolio may also invest, without
limitation, in foreign securities through the purchase of ADRs and EDRs. (For
further information, see "Risk Factors -- Risks Associated with Foreign
Securities and Currencies" below and the Statement of Additional Information
under "Investment Objectives and Policies -- ADRs and EDRs.")
The International Equity Portfolio reserves the right to hold as a
temporary defensive measure up to 100% of its total assets in cash and
short-term obligations (having remaining maturities of 12 months or less) at
such times and in such proportions as, in the opinion of the Adviser or
Sub-Adviser, prevailing market or economic conditions warrant. See "The Growth &
Income Equity Portfolio" above for a description of the types of short-term
obligations in which the Portfolio may invest.
Although investing in any mutual fund has certain inherent risks, an
investment in the International Equity Portfolio may have even greater risks
than investments in most other types of mutual funds. The Portfolio is not a
complete investment program, and it may not be appropriate for investors who
cannot financially bear the loss of at least a significant portion of their
investment. The Portfolio's net asset value per Share is subject to rapid and
substantial changes because greater risk is assumed in seeking the Portfolio's
objective. See "Risk Factors -- Risks Associated with Foreign Securities and
Currencies" below.
THE SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
The Short-Intermediate Municipal Portfolio's investment objective is
to seek as high a level of current income, exempt from regular federal income
tax, as is consistent with preservation of capital. The Portfolio seeks to
achieve its objective by investing substantially all of its assets in
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investment-grade Municipal Obligations. As a matter of fundamental policy, under
normal market conditions at least 80% of the Portfolio's total assets will be
invested in Municipal Obligations, primarily bonds (at least 65% under normal
market conditions).
The Short-Intermediate Municipal Portfolio invests in Municipal
Obligations that are rated at the time of purchase within the four highest
rating categories assigned by a Rating Agency. The Portfolio may also invest in
short-term Municipal Obligations such as municipal notes, tax-exempt commercial
paper, and variable and floating rate demand obligations that are rated at the
time of purchase within the two highest rating categories assigned by a Rating
Agency. Municipal Obligations rated in the lowest of the four highest rating
categories for bonds are considered to have speculative characteristics, even
though they are of investment grade quality. Such bonds will be purchased only
if the Adviser believes they have an adequate capacity to pay interest and repay
principal. Unrated obligations will be purchased only if they are considered by
the Adviser to be at least comparable in quality at the time of purchase to
instruments within the rating categories listed above. Municipal Obligations
purchased by the Portfolio whose ratings are subsequently downgraded below the
four highest rating categories of a Rating Agency will be disposed of in an
orderly manner, normally within 30-60 days. The applicable ratings issued by the
Rating Agencies are described in the Appendix to the Statement of Additional
Information.
In addition, the Short-Intermediate Municipal Portfolio may from time
to time during temporary defensive periods, invest in taxable obligations in
such proportions as, in the opinion of the Adviser, prevailing market or
economic conditions warrant. Such instruments may include obligations of the
U.S. Government, its agencies or instrumentalities; debt securities (including
commercial paper) of issuers having, at the time of purchase, a quality rating
within the two highest rating categories assigned by a Rating Agency; or
repurchase agreements with respect to such obligations.
During temporary defensive periods or if, in the opinion of the
Adviser, suitable tax-exempt obligations are unavailable, the Short-Intermediate
Municipal Portfolio may also hold uninvested cash reserves which do not earn
income pending investment. There is no percentage limitation on the amount of
assets that may be held uninvested during these temporary defensive periods.
The Short-Intermediate Municipal Portfolio's average dollar-weighted
maturity will be between two and five years and will vary in light of current
market and economic conditions, the comparative yields on instruments with
different maturities, and other factors.
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THE MISSOURI TAX-EXEMPT BOND PORTFOLIO
The Missouri Tax-Exempt Bond Portfolio's investment objective is to
seek as high a level of interest income exempt from federal income tax as is
consistent with conservation of capital. In pursuing its investment objective,
the Portfolio invests substantially all of its assets in investment-grade
Missouri Municipal Obligations (which, to the extent possible, are also exempt
from Missouri income tax).
Dividends paid by the Missouri Tax-Exempt Bond Portfolio that are
derived from interest attributable to tax-exempt obligations of the State of
Missouri and its political subdivisions as well as of certain other governmental
issuers including Puerto Rico, Guam and the Virgin Islands ("Missouri Municipal
Obligations") are exempt from federal and Missouri income tax. Dividends derived
from interest on obligations of other governmental issuers are exempt from
federal income tax but may be subject to Missouri income tax.
As a matter of fundamental policy, under normal market conditions, at
least 65% of the Missouri Tax-Exempt Bond Portfolio's total assets will be
invested in Missouri Municipal Obligations. The Portfolio will seek to maximize
the proportion of its dividends which are exempt from both federal and Missouri
income tax and presently expects to invest substantially all of its total assets
in Missouri Municipal Obligations.
The Missouri Tax-Exempt Bond Portfolio invests in Municipal
Obligations that are rated at the time of purchase within the four highest
rating categories assigned by a Rating Agency. The Portfolio may also invest in
short-term Municipal Obligations such as municipal notes, tax-exempt commercial
paper and variable or floating rate demand obligations that are rated at the
time of purchase within the two highest rating categories assigned by a Rating
Agency. Municipal Obligations rated in the lowest of the four highest rating
categories for bonds are considered to have speculative characteristics, even
though they are of investment grade quality. Such bonds will be purchased only
if the Adviser believes the issuers have an adequate capacity to pay interest
and repay principal. Unrated obligations will be purchased only if they are
considered by the Adviser to be at least comparable in quality at the time of
purchase to instruments within the rating categories listed above. The
applicable Municipal Obligation ratings are described in the Appendix to the
Statement of Additional Information.
As a matter of fundamental policy, under normal market conditions or
when the Adviser deems suitable tax-exempt Municipal Obligations to be
available, at least 80% of the Missouri Tax-Exempt Bond Portfolio's total assets
will be invested in Municipal Obligations. The Portfolio may hold
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uninvested cash reserves pending investment during temporary defensive periods
or if, in the opinion of the Adviser, suitable Municipal Obligations are
unavailable. There is no percentage limitation on the amount of assets which may
be held uninvested during temporary defensive periods.
In addition, during temporary defensive periods or if, in the opinion
of the Adviser, suitable Municipal Obligations are unavailable and subject to
its quality standards described above, the Missouri Tax-Exempt Bond Portfolio
may invest up to 20% of its assets in money market instruments, the income from
which is subject to federal income tax. Such instruments may include obligations
of the U.S. Government, its agencies or instrumentalities; debt securities
(including commercial paper) of issuers having, at the time of purchase, a
quality rating within the two highest rating categories by a Rating Agency;
certificates of deposit or bankers' acceptances of domestic branches of U.S.
banks with total assets at the time of purchase of $1 billion or more; or
repurchase agreements with respect to such obligations.
The Missouri Tax-Exempt Bond Portfolio's average weighted maturity
will vary in light of market and economic conditions, the comparative yields on
instruments with different maturities, and other factors.
THE KANSAS TAX-EXEMPT BOND PORTFOLIO
The Kansas Tax-Exempt Bond Portfolio's investment objective is to
seek as high a level of current income exempt from federal income tax as is
consistent with conservation of capital. In pursuing its investment objective,
the Portfolio invests substantially all of its assets in investment-grade Kansas
Municipal Obligations (which, to the extent possible, are also exempt from
Kansas income tax and the local intangibles tax).
Dividends paid by the Kansas Bond Portfolio that are derived from
interest attributable to tax-exempt obligations issued after December 31, 1987
by the State of Kansas or its political subdivisions, or on certain specific
obligations issued before January 1, 1988 by such entities, as well as certain
tax-exempt obligations of any authority, commission or instrumentality of the
United States or its possessions ("Kansas Municipal Obligations") are exempt
from federal and Kansas income tax and are not subject to the local intangibles
tax imposed by various counties, cities and townships in Kansas. Dividends
derived from interest on obligations of other governmental issuers are exempt
from federal income tax but may be subject to Kansas income tax and the local
intangibles tax. The foregoing exemption from Kansas income tax does not apply
to banks or certain other individuals or entities who are in the banking
business.
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As a matter of fundamental policy, under normal market conditions, at
least 65% of the Kansas Tax-Exempt Bond Portfolio's total assets will be
invested in Kansas Municipal Obligations. The Portfolio will seek to maximize
the proportion of its dividends which are exempt from both federal and Kansas
income tax and presently expects to invest substantially all of its total assets
in Kansas Municipal Obligations.
The Kansas Tax-Exempt Bond Portfolio invests in Municipal Obligations
that are rated at the time of purchase within the four highest rating categories
assigned by a Rating Agency. The Portfolio may also invest in short-term
Municipal Obligations such as municipal notes, tax-exempt commercial paper and
variable or floating rate demand obligations that are rated at the time of
purchase within the two highest rating categories assigned by a Rating Agency.
Municipal Obligations rated in the lowest of the four highest rating categories
for bonds are considered to have speculative characteristics, even though they
are of investment grade quality. Such bonds will be purchased only if the
Adviser believes the issuers have an adequate capacity to pay interest and repay
principal. Unrated obligations will be purchased only if they are considered by
the Adviser to be at least comparable in quality at the time of purchase to
instruments within the rating categories listed above. The applicable Municipal
Obligation ratings are described in the Appendix to the Statement of Additional
Information.
As a matter of fundamental policy, under normal market conditions or
when the Adviser deems suitable tax-exempt Municipal Obligations to be
available, at least 80% of the Kansas Tax-Exempt Bond Portfolio's total assets
will be invested in Municipal Obligations. The Portfolio may hold uninvested
cash reserves pending investment during temporary defensive periods or if, in
the opinion of the Adviser, suitable Municipal Obligations are unavailable.
There is no percentage limitation on the amount of assets which may be held
uninvested during temporary defensive periods.
In addition, during temporary defensive periods or if, in the opinion
of the Adviser, suitable Municipal Obligations are unavailable and subject to
its quality standards described above, the Kansas Tax-Exempt Bond Portfolio may
invest up to 20% of its assets in money market instruments, the income from
which is subject to federal income tax. See "The Missouri Tax-Exempt Bond
Portfolio" above for a description of the types of taxable money market
instruments in which the Portfolio may invest.
The Kansas Tax-Exempt Bond Portfolio's average weighted maturity will
vary in light of market and economic conditions, the comparative yields on
instruments with different maturities, and other factors.
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RISK FACTORS
MARKET RISK. The Growth & Income Equity, Emerging Growth and
International Equity Portfolios invest primarily, and the Balanced Portfolio
invests to a significant degree, in equity securities. As with other mutual
funds that invest primarily or to a significant degree in equity securities,
these Portfolios are subject to market risks. That is, the possibility exists
that common stocks will decline over short or even extended periods of time and
both the U.S. and certain foreign equity markets tend to be cyclical,
experiencing both periods when stock prices generally increase and periods when
stock prices generally decrease.
INTEREST RATE RISK. Generally, the market value of fixed-income
securities, including Municipal Obligations, held by the Money Market, Treasury
Money Market, Tax-Exempt Money Market, Government & Corporate Bond, U.S.
Government Securities, Balanced, Short-Intermediate Municipal, Missouri
Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios can be expected to vary
inversely to changes in prevailing interest rates. During periods of declining
interest rates, the market value of investment portfolios comprised primarily of
fixed income securities will tend to increase, and during periods of rising
interest rates, the market value will tend to decrease. Fixed income securities
with longer maturities, which tend to produce higher yields, are subject to
potentially greater capital appreciation and depreciation than obligations with
shorter maturities. Changes in the financial strength of an issuer or changes in
the ratings of any particular security may also offset the value of these
investments. Fluctuations in the market value of fixed income securities
subsequent to their acquisition will not offset cash income from such securities
but will be reflected in a Portfolio's net asset value.
RISKS ASSOCIATED WITH FOREIGN SECURITIES AND CURRENCIES. Investments
in securities of foreign issuers, whether made directly or indirectly, carry
certain risks not ordinarily associated with investments in securities of
domestic issuers. Such risks include future political and economic developments,
and the possible imposition of exchange controls or other foreign governmental
laws or restrictions. In addition, with respect to certain countries, there is
the possibility of expropriation of assets, confiscatory taxation, political or
social instability or diplomatic developments which could adversely affect
investments in those countries.
There may be less publicly available information about a foreign
company than about a U.S. company, and foreign companies may not be subject to
accounting, auditing and financial
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reporting standards and requirements comparable to or as uniform as those of
U.S.-based companies. Foreign securities markets,while growing in volume, have,
for the most part, substantially less volume than U.S. markets, and securities
of many foreign companies are less liquid and their prices more volatile than
securities of comparable U.S.-based companies. There is generally less
government supervision and regulation of foreign exchanges, brokers and issuers
than there is in the United States. In the event of a default by the issuer of a
foreign security, it may be more difficult to obtain or enforce a judgment
against such issuer than it would be against a domestic issuer. In addition,
foreign banks and foreign branches of U.S. banks are subject to less stringent
reserve requirements and to different accounting, auditing, reporting, and
recordkeeping standards than those applicable to domestic branches of U.S.
banks.
Certain of the risks associated with international investments are
heightened with respect to investments in developing countries. The risks of
expropriation, nationalization and social, political and economic instability
are greater in those countries than in more developed capital markets. In
addition, developing countries may have economies based on only a few industries
and small securities markets with a low volume of trading. Certain countries may
also impose substantial restrictions on investments in their capital markets by
foreign entities, including restrictions on investments in issuers of industries
deemed sensitive to relevant national interests. These factors may limit the
investment opportunities available to the International Equity Portfolio and
result in a lack of liquidity and a high price volatility with respect to
securities of issuers from developing countries.
Certain countries may also impose restrictions on the International
Equity Portfolio's ability to repatriate investment income or capital. Even when
there is no outright restriction on repatriation of investment income or
capital, the mechanics of repatriation may affect certain aspects of the
operations of the International Equity Portfolio.
Governments of many developing countries exercise substantial
influence over many aspects of the private sector. In some countries, the
government may own or control many companies, including the largest company or
companies. As such, government actions in the future could have a significant
effect on economic conditions in these countries, affecting private sector
companies, the International Equity Portfolio and the value of its portfolio
securities.
Since the International Equity Portfolio will invest substantially in
securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange
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rates will affect the value of securities in the International Equity Portfolio
and the unrealized appreciation or depreciation of investments so far as U.S.
investors are concerned. Foreign currency exchange rates are determined by
forces of supply and demand on the foreign exchange markets and the regulatory
control of the exchanges on which the currencies trade. These forces are
themselves affected by the international balance of payments and other economic
and financial conditions, government intervention, speculation and other
factors. Costs are incurred in connection with conversions between various
currencies.
The expense ratio of the International Equity Portfolio can be
expected to be higher than that of funds investing in domestic securities. The
costs attributable to investing abroad are usually higher for several reasons,
such as the higher cost of investment research, higher cost of custody of
foreign securities, higher commissions paid on comparable transactions on
foreign markets and additional costs arising from delays in settlements of
transactions involving foreign securities.
Interest and dividends payable on the International Equity
Portfolio's foreign portfolio securities may be subject to foreign withholding
taxes. To the extent such taxes are not offset by credits or deductions allowed
to investors under U.S. federal income tax provisions, they may reduce the net
return to the Portfolio's shareholders. (For further information, see "Taxes.)"
In addition to the International Equity Portfolio, other Portfolios
may be subject to certain of the risks described above in connection with
investment in foreign securities. As stated above, the Money Market Portfolio
may acquire U.S. dollar-denominated securities of foreign corporations and
certain types of bank instruments issued or supported by the credit of foreign
banks or foreign branches of domestic banks where the Adviser deems the
investment to present minimal credit risks. The Government & Corporate Bond
Portfolio may acquire dollar-denominated debt obligations of foreign issuers and
the Growth & Income Equity, Emerging Growth, Government & Corporate Bond,
Balanced and International Equity Portfolios may acquire ADRs and EDRs.
MUNICIPAL OBLIGATIONS. The ability of the Tax-Exempt Money Market,
Short-Intermediate Municipal, Missouri Tax-Exempt Bond and Kansas Tax-Exempt
Bond Portfolios (collectively, the "Tax- Exempt Portfolios") to achieve their
respective investment objectives are dependent upon the ability of issuers of
Municipal Obligations to meet their continuing obligations for the payment of
principal and interest. There will be additional risks associated with
investment in a Tax-Exempt Portfolio to the extent it invests its assets
predominantly in Missouri Municipal Obligations or Kansas Municipal Obligations.
With respect to the
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Missouri Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios, investors should
be aware that certain provisions of, and amendments to, the Missouri
Constitution or Kansas Constitution limit tax increases which could result in
certain adverse consequences affecting Missouri Municipal Obligations or Kansas
Municipal Obligations. Some of the significant financial considerations relating
to a Portfolio's investments in Missouri Municipal Obligations or Kansas
Municipal Obligations are summarized in the Statement of Additional Information.
ADDITIONAL RISKS AND OTHER CONSIDERATIONS. Although the Tax-Exempt
Money Market and Short-Intermediate Municipal Portfolios may invest 25% or more
of their respective net assets in (i) Municipal Obligations whose issuers are in
the same state, (ii) Municipal Obligations the interest on which is paid solely
from revenues of similar projects, and (iii) private activity bonds, neither
Portfolio presently intends to do so unless in the opinion of the Adviser the
investment is warranted.
Although neither the Missouri Tax-Exempt Bond Portfolio nor the
Kansas Tax-Exempt Bond Portfolio presently intends to do so on a regular basis,
each may invest more than 25% of their respective assets in industrial
development bonds issued before August 7, 1986, the interest on which is not
treated as a specific tax preference item under the federal alternative minimum
tax, and in Municipal Obligations, the interest on which is paid solely from
revenues of similar projects, if such investments are deemed necessary or
appropriate by the Adviser. To the extent that a Portfolio's assets are invested
in Municipal Obligations that are payable from the revenues of similar projects
or in private activity bonds, a Portfolio will be subject to the peculiar risks
presented by the laws and economic conditions relating to such projects and
bonds to a greater extent that it would be if its assets were not so invested.
(See "Investment Objectives and Policies -- Municipal Obligations" in the
Statement on Additional Information.)
Each of the Tax-Exempt Money Market, Missouri Tax-Exempt Bond and
Kansas Tax-Exempt Bond Portfolios is classified as non-diversified under the
1940 Act. Investment return on a non-diversified portfolio typically is
dependent upon the performance of a smaller number of securities relative to the
number held in a diversified portfolio. Consequently, the change in value of any
one security may affect the overall value of a non-diversified portfolio more
than it would a diversified portfolio. In addition, a non-diversified portfolio
may be more susceptible to economic, political, and regulatory developments than
a diversified investment portfolio with similar objectives. The value of a
Portfolio's securities can be expected to vary inversely with changes in
prevailing interest rates.
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Investors in the Missouri Tax-Exempt Bond and Kansas Tax- Exempt Bond
Portfolios should consider the risk inherent in such Portfolios' respective
concentrations in Missouri Municipal Obligations and Kansas Municipal
Obligations, respectively, versus the safety that comes with a less
geographically concentrated investment portfolio, and should compare the yields
and tax-equivalent yields available on portfolios of Missouri Municipal
Obligations and Kansas Municipal Obligations with the yields and tax-equivalent
yields of more diversified portfolios with securities of comparable quality,
including non-Missouri and non-Kansas securities, respectively, before making an
investment decision.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax (and, with respect to
Missouri Municipal Obligations and Kansas Municipal Obligations, to the
exemption from Missouri income tax or Kansas income tax and local intangible
tax, respectively) are rendered by bond counsel to the respective issuers at the
time of issuance, and opinions relating to the validity and the tax-exempt
status of payments received by a Portfolio from tax-exempt derivative securities
are rendered by counsel to the respective sponsors of such securities. The
Tax-Exempt Portfolios and their Adviser will rely on such opinions and will not
review independently the underlying proceedings relating to the issuance of
Municipal Obligations, the creation of any tax-exempt derivative security, or
the bases for such opinions.
OTHER APPLICABLE POLICIES
U.S. GOVERNMENT OBLIGATIONS. Securities issued or guaranteed by the
U.S. Government, its agencies and instrumentalities have historically involved
little risk of loss of principal if held to maturity. However, due to
fluctuations in interest rates, the market value of such securities may vary
during the period a shareholder owns Shares of a Portfolio. Certain U.S.
Government securities held by the Money Market, Treasury Money Market or
Tax-Exempt Money Market Portfolio may have remaining maturities exceeding
thirteen months if such securities provide for adjustments in their interest
rates no less frequently than every thirteen months. Examples of the types of
U.S. Government obligations that may be held by the Portfolios, subject to their
respective investment objectives and policies, include, in addition to U.S.
Treasury bonds, notes and bills, the obligations of Federal Home Loan Banks,
Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, GNMA, FNMA, FHLMC, General Services
Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Resolution Trust Corporation,
and Maritime Administration. Obligations of certain agencies and
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instrumentalities of the U.S. Government, such as those of GNMA, are supported
by the full faith and credit of the U.S. Treasury; others, such as the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of FNMA, are supported
by the discretionary authority of the U.S. Government to purchase the agency's
obligations; still others such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. There is
no assurance that the U.S. Government would provide financial support to U.S.
Government-sponsored instrumentalities if it is not obligated to do so by law.
STRIPPED GOVERNMENT SECURITIES. To the extent consistent with their
respective investment policies, each Portfolio may invest in bills, notes and
bonds (including zero coupon bonds) issued by the U.S. Treasury. In addition,
each Portfolio (except the Tax-Exempt Portfolios) may also invest in "stripped"
U.S. Treasury obligations offered under the Separate Trading of Registered
Interest and Principal Securities ("STRIPS") program or Coupon Under Bank-Entry
Safekeeping ("CUBES") program or other stripped securities issued directly by
agencies or instrumentalities of the U.S. Government (and, with respect to the
Treasury Money Market Portfolio only, that are also guaranteed as to principal
and interest by the U.S. Government). STRIPS and CUBES represent either future
interest or principal payments and are direct obligations of the U.S. Government
that clear through the Federal Reserve System. The Money Market, Growth & Income
Equity, Emerging Growth, Government & Corporate Bond, and Balanced Portfolios
may also purchase U.S. Treasury and agency securities that are stripped by
brokerage firms and custodian banks and sold under proprietary names. These
stripped securities are resold in custodial receipt programs with a number of
different names (such as TIGRs and CATS) and are not considered U.S. Government
securities for purposes of the 1940 Act.
Stripped securities are issued at a discount to their "face value"
and may exhibit greater price volatility than ordinary debt securities because
of the manner in which their principal and interest are returned to investors.
The Adviser will consider the liquidity needs of a Portfolio when any
investments in zero coupon obligations or other principal-only obligations are
made.
REPURCHASE AGREEMENTS. Under certain circumstances described above
and subject to their respective investment policies, each Portfolio may agree to
purchase U.S. Government securities from financial institutions such as banks
and broker-dealers, subject to the seller's agreement to repurchase them at a
mutually agreed-upon date and price ("repurchase agreements"). A Portfolio will
enter into repurchase agreements only with financial institutions such as banks
and broker-dealers that the
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Adviser or Sub-Adviser believes to be creditworthy. During the term of any
repurchase agreement, the Adviser or Sub-Adviser will continue to monitor the
creditworthiness of the seller and will require the seller to maintain the value
of the securities subject to the agreement at not less than 102% of the
repurchase price (including accrued interest). Default by a seller could expose
a Portfolio to possible loss because of adverse market action or possible delay
in disposing of the underlying obligations. Because of the seller's repurchase
obligations, the securities subject to repurchase agreements do not have
maturity limitations. Although no Portfolio presently intends to enter into
repurchase agreements providing for settlement in more than seven days, each
Portfolio does have the authority to do so subject to its limitation on the
purchase of illiquid securities described below. Repurchase agreements are
considered to be loans under the 1940 Act. The income on repurchase agreements
is taxable. (See "Taxes" below.)
REVERSE REPURCHASE AGREEMENTS. Subject to their investment policies,
each Portfolio except the Treasury Money Market Portfolio and the Tax-Exempt
Portfolios) may borrow funds for temporary purposes by entering into reverse
repurchase agreements in accordance with their respective investment limitations
below. Pursuant to such agreements, a Portfolio would sell portfolio securities
to financial institutions such as banks and broker-dealers and agree to
repurchase them at an agreed upon date and price. Reverse repurchase agreements
involve the risk that the market value of the securities sold by a Portfolio may
decline below the repurchase price which the Portfolio is obligated to pay.
Reverse repurchase agreements are considered to be borrowings by a Portfolio
under the 1940 Act.
SECURITIES LENDING. To increase return or offset expenses, each
Portfolio (except the Money Market, Treasury Money Market, Tax-Exempt Money
Market, Missouri Tax-Exempt Bond and Kansas Tax- Exempt Bond Portfolios) may,
from time to time, lend its portfolio securities to broker-dealers, banks or
institutional borrowers pursuant to agreements requiring that the loans be
continuously secured by collateral equal at all times in value to at least the
market value of the securities loaned. Collateral for such loans may include
cash, securities of the U.S. Government, or its agencies or instrumentalities,
or an irrevocable letter of credit issued by a bank that has at least $1.5
billion in total assets, or any combination thereof. The collateral must be
valued daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the lending Portfolio. By lending
its securities, a Portfolio can increase its income by continuing to receive
interest on the loaned securities as well as by either investing the cash
collateral in short-term instruments or obtaining yield in the form of interest
paid by the borrower when U.S. Government securities are used as collateral. In
accordance
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with current SEC policies, each Portfolio is currently limiting its securities
lending to 33-1/3% of the aggregate net assets of such Portfolio. Loans are
subject to termination by a Portfolio or a borrower at any time.
SECURITIES OF OTHER INVESTMENT COMPANIES. Under certain circumstances
described above and subject to their respective investment policies and
limitations, each Portfolio may invest in securities issued by other investment
companies which invest in securities in which the Portfolio is permitted to
invest and which determine their net asset value per Share based on the
amortized cost or penny-rounding method. Each Portfolio may invest in securities
of other investment companies within the limits prescribed by the 1940 Act,
which include, subject to certain exceptions, a prohibition on a Portfolio
investing more than 10% of the value of its total assets in such securities.
Investment companies in which a Portfolio may invest may impose a sales or
distribution charge in connection with the purchase or redemption of their
shares as well as other types of commissions or charges (no sales charge will be
paid by the Tax-Exempt Money Market, Missouri Tax-Exempt Bond and Kansas
Tax-Exempt Bond Portfolios in connection with such investments). Such charges
will be payable by a Portfolio and, therefore, will be borne indirectly by its
shareholders. To the extent that a Portfolio may invest in securities of other
investment companies, the Fund and the Adviser will ensure that there will be no
duplication of advisory fees. If necessary to accomplish this, the Adviser will
rebate its advisory fee to the Fund. (See the Statement of Additional
Information under "Investment Objectives and Policies -- Securities of Other
Investment Companies.") The income on securities of other investment companies
may be taxable to investors at the state or local level. (See "Taxes" below.)
WHEN-ISSUED PURCHASES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS.
Each Portfolio may purchase securities on a "when- issued" basis and may
purchase or sell securities on a "forward commitment" basis. These transactions
involve a commitment by a Portfolio to purchase or sell securities at a stated
price and yield with settlement beyond the normal settlement date. Such
transactions permit a Portfolio to lock-in a price or yield on a security,
regardless of future changes in interest rates. Additionally, the
Short-Intermediate Municipal Portfolio may purchase or sell securities on a
"delayed settlement" basis. This refers to a transaction in the secondary market
that will settle some time in the future. When issued purchases, forward
commitments and delayed settlement transactions involve a risk of loss if the
value of the security to be purchased declines prior to the settlement date, or
if the value of the security to be sold increases prior to the settlement date.
Each Portfolio expects that these transactions will not exceed 25% of the value
of its total assets (at the time of purchase) under normal
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market conditions. No Portfolio intends to engage in such transactions for
speculative purposes but only for the purpose of acquiring portfolio securities.
OPTIONS. Each of the Equity and Bond Portfolios (except the Missouri
Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios) may purchase put and call
options listed on a national securities exchange and issued by the Options
Clearing Corporation in an amount not exceeding 10% of its net assets. Such
options may relate to particular securities or to various stock or bond indices.
Purchasing options is a specialized investment technique which entails a
substantial risk of a complete loss of the amounts paid as premiums to the
option writer. Such transactions will be entered into only as a hedge against
fluctuations in the value of securities which a Portfolio holds or intends to
purchase.
These Portfolios may also write covered call options. A covered call
option is an option to acquire a security that a Portfolio owns or has the right
to acquire during the option period. Such options will be listed on a national
securities exchange and issued by the Options Clearing Corporation.
The International Equity Portfolio may write covered call options,
buy put options, buy call options and write secured put options for hedging (or
cross-hedging) purposes or for the purpose of earning additional income. Such
options may relate to particular securities, foreign or domestic stock or bond
indices, financial instruments or foreign currencies; may or may not be listed
on a domestic or foreign securities exchange; and may or may not be issued by
the Options Clearing Corporation. The International Equity Portfolio will invest
and trade in unlisted over-the-counter options only with firms deemed
creditworthy by the Adviser or Sub-Adviser. However, unlisted options are not
subject to the protections afforded purchasers of listed options by the Options
Clearing Corporation, which performs the obligations of its members which fail
to perform them in connection with the purchase or sale of options. The
International Equity Portfolio will not purchase put and call options in an
amount that exceeds 10% of its net assets at the time of purchase.
The aggregate value of the securities subject to covered call options written
by a Portfolio will not exceed 25% of the value of its net assets. In order to
close out an option position, a Portfolio may enter into a "closing purchase
transaction" -- the purchase of a covered call option on the same security with
the same exercise price and expiration date as the option which the Portfolio
previously wrote. By writing a covered call option, a Portfolio forgoes the
opportunity to profit from an increase in the market price of the underlying
security above the exercise price except insofar as the premium represents such
a profit and
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it is not able to sell the underlying security until the option expires, is
exercised, or the Portfolio effects a closing purchase transaction by purchasing
an option of the same series. The use of covered call options will not be a
primary investment technique of any Portfolio. (For additional information
relating to option trading practices, including particular risks, see the
Statement of Additional Information and Appendix B thereof.)
FOREIGN CURRENCY PUT OPTIONS. The International Equity Portfolio may
purchase foreign currency put options on U.S. exchanges or U.S. over-the-counter
markets. A put option gives the Portfolio, upon payment of a premium, the right
to sell a currency at the exercise price until the expiration of the option and
serves to insure against adverse currency price movements in the underlying
portfolio assets denominated in that currency.
UNLISTED CURRENCY OPTIONS. The International Equity Portfolio may
purchase unlisted currency options. A number of major investment firms trade
unlisted options which are more flexible than exchange listed options with
respect to strike price and maturity date. These unlisted options generally are
available on a wider range of currencies. Unlisted foreign currency options are
generally less liquid than listed options and involve the credit risk associated
with the individual issuer. They will be deemed to be illiquid for purposes of
the limitation on investments in illiquid securities.
WRITING FOREIGN CURRENCY CALL OPTIONS. A call option written by the
International Equity Portfolio gives the purchaser, upon payment of a premium,
the right to purchase from the International Equity Fund a currency at the
exercise price until the expiration of the option.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the International
Equity Portfolio may buy and sell securities denominated in currencies other
than the U.S. dollar, and receive interest, dividends and sale proceeds in
currencies other than the U.S. dollar, the Portfolio may from time to time enter
into foreign currency exchange transactions to convert to and from different
foreign currencies and to convert foreign currencies to and from the U.S.
dollar. The Portfolio may enter into currency exchange transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or use forward currency contracts to purchase or sell foreign
currencies.
A forward foreign currency contract is an obligation by the
International Equity Portfolio to purchase or sell a specific currency at a
future date at a price set at the time of the contract. In this respect, forward
currency contracts are similar to foreign currency futures contracts described
below; however, unlike futures contracts, which are traded on recognized
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commodities exchanges, forward currency contracts are traded in the interbank
market conducted directly between currency traders (usually large commercial
banks) and their customers. Also, forward currency contracts usually involve
delivery of the currency involved instead of cash payment as in the case of
futures contracts.
The International Equity Portfolio may use forward foreign currency
exchange contracts in order to protect against uncertainty in the level of
future foreign exchange rates. The use of such forward contracts is limited to
hedging against movements in the value of foreign currencies relative to the
U.S. dollar in connection with specific portfolio transactions or with respect
to portfolio positions. The purpose of transaction hedging is to "lock in" the
U.S. dollar equivalent price of such specific securities. Position hedging is
the sale of foreign currency with respect to portfolio security positions
denominated or quoted in that currency. The Portfolio will not speculate in
foreign currency exchange transactions. Transaction and position hedging will
not be limited to an overall percentage of the Portfolio's assets but will be
employed as necessary to correspond to particular transactions or positions. The
Portfolio may not hedge its currency positions to an extent greater than the
aggregate market value (at the time of entering into the forward contract) of
the securities held in its portfolio denominated in, quoted in, or currently
convertible into that particular currency. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of the
Portfolio's portfolio securities or in foreign exchange rates, or prevent loss
if the prices of these securities decline, but forward foreign currency exchange
contracts do allow the Portfolio to establish a rate of exchange for a future
point in time.
FUTURES CONTRACTS AND RELATED OPTIONS. The Growth & Income Equity,
Emerging Growth, Government & Corporate Bond, U.S. Government Securities and
Balanced Portfolios may invest in futures contracts and options on futures
contracts to the extent permitted by the Commodity Futures Trading Commission
("CFTC") and the SEC. The International Equity Portfolio may invest in interest
rate futures contracts, options on futures contracts and other types of
financial futures contracts (such as foreign currency contracts), as well as any
index or foreign market futures which are available in recognized exchanges or
in other established financial markets to the extent permitted by the CFTC and
the SEC. Such transactions, including stock or bond index futures contracts, or
options thereon, act as a hedge to protect a Portfolio from fluctuations in the
value of its securities caused by anticipated changes in interest rate or market
conditions without necessarily buying or selling the securities. Hedging is a
specialized investment technique that entails skills different from other
investment management. The Adviser (or Sub-
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Adviser) may also consider such transactions to be economically appropriate for
the reduction of risk inherent in the ongoing management of a Portfolio. A stock
or bond index futures contract is an agreement in which one party agrees to take
or make delivery of an amount of cash equal to a specified dollar amount times
the difference between the index value (which assigns relative values to the
common stock or bonds included in the index) at the close of the last trading
day of the contract and the price at which the agreement is originally made. No
physical delivery of the underlying stock or bond in the index is contemplated.
Similarly, it may be in the best interest of a Portfolio to purchase or sell
interest rate futures contracts, or options thereon, which provide for the
future delivery of specified fixed income securities.
The purchase and sale of futures contracts or related options will
not be a primary investment technique of any Portfolio. None of the Portfolios
will purchase or sell futures contracts (or related options thereon) for hedging
purposes if, immediately after purchase, the aggregate initial margin deposits
and premiums paid by a Portfolio on its open futures and options positions
exceeds 5% of the liquidation value of the Portfolio, after taking into account
any unrealized profits and unrealized losses on any such futures or related
options contracts into which it has entered. (For a more detailed description of
futures contracts and related options, see the Statement of Additional
Information and Appendix B thereof.)
TYPES OF MUNICIPAL OBLIGATIONS. The two principal classifications of
Municipal Obligations that may be held by the Tax-Exempt Portfolios are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenues securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
revenue source such as the user of the facility being financed. Revenue
securities include private activity bonds which are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved. Municipal Obligations may also include
"moral obligation" bonds, which are normally issued by special purpose public
authorities. If the issuer of a moral obligation bond is unable to meet its debt
service obligations from current revenues, it may draw on a reserve fund, the
restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer.
Municipal Obligations include debt obligations issued by governmental
entities to obtain funds for various public
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purposes, including the construction of a wide range of public facilities, the
refunding of outstanding obligations, the payment of general operating expenses
and the extension of loans to public institutions and facilities. Private
activity bonds issued by or on behalf of public authorities to finance various
privately operated facilities are considered Municipal Obligations. Interest on
private activity bonds, although free of regular federal income tax, may be an
item of tax preference for purposes of the federal alternative minimum tax.
Each of the Tax-Exempt Portfolios may acquire zero coupon
obligations, which may have greater price volatility than coupon obligations and
which will not result in payment of interest until maturity. Also included
within the general category of Municipal Obligations are participation
certificates in leases, installment purchase contracts, or conditional sales
contracts ("lease obligations") entered into by state or political subdivisions
to finance the acquisition or construction of equipment, land, or facilities.
Although lease obligations do not constitute general obligations of the issuer
for which the lessee's unlimited taxing power is pledged, certain lease
obligations are backed by the lessee's covenant to appropriate money to make the
lease obligation payments. However, under certain lease obligations, the lessee
has no obligation to make these payments in future years unless money is
appropriated on a yearly basis. Although "non-appropriation" lease obligations
are secured by the leased property, disposition of the property in the event of
foreclosure might prove difficult. These securities represent a relatively new
type of financing and may not be as marketable as more conventional securities.
To the extent these securities are illiquid, they are subject to each
Portfolio's applicable limitation on illiquid securities described below. The
Portfolios do not intend to invest in such lease obligations during the current
year. (See "Investment Objectives and Policies" in the Statement of Additional
Information for a description of other investment policies.)
Municipal Obligations purchased by the Tax-Exempt Portfolios may be
backed by letters of credit or guarantees issued by domestic or foreign banks
and other financial institutions which are not subject to federal deposit
insurance. Adverse developments affecting the banking industry generally or a
particular bank or financial institution that has provided its credit or a
guarantee with respect to a Municipal Obligation held by a Tax-Exempt Portfolio
could have an adverse effect on the Portfolio's investment portfolio and the
value of its shares. Foreign letters of credit and guarantees involve certain
risks in addition to those of domestic obligations, including less stringent
reserve requirements and different accounting, auditing and recordkeeping
requirements.
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VARIABLE AND FLOATING RATE MUNICIPAL OBLIGATIONS. Municipal
Obligations purchased by the Tax-Exempt Portfolios may include rated or unrated
variable and floating rate instruments, including variable rate master demand
notes that permit the indebtedness thereunder to vary in addition to providing
for periodic adjustments in the interest rate. Unrated instruments purchased by
a Portfolio will be determined by the Adviser to be of comparable quality at the
time of purchase to rated instruments that may be purchased. The absence of an
active secondary market for a particular variable or floating rate instrument,
however, could make it difficult for a Portfolio to dispose of an instrument if
the issuer were to default on its payment obligation. A Portfolio could, for
these or other reasons, suffer a loss with respect to such instruments.
STAND-BY COMMITMENTS. Each of the Tax-Exempt Portfolios may acquire
"stand-by commitments" with respect to Municipal Obligations held by it. Under a
stand-by commitment, a dealer agrees to purchase, at the Portfolio's option,
specified Municipal Obligations at a specified price. The Portfolio will acquire
stand-by commitments solely to facilitate portfolio liquidity and does not
intend to exercise its rights thereunder for trading purposes. The Portfolio
expects that stand-by commitments will generally be available without the
payment of any direct or indirect consideration. However, if necessary or
advisable, the Portfolio may pay for a stand-by commitment either separately in
cash or by paying a higher price for portfolio securities which are acquired
subject to the commitment (thus reducing the yield otherwise available for the
same securities). Stand-by commitments acquired by the Portfolio will be valued
at zero in determining the Portfolio's net asset value.
TAX-EXEMPT DERIVATIVES. Each of the Tax-Exempt Portfolios may hold
tax-exempt derivatives which may be in the form of tender option bonds,
participations, beneficial interests in a trust, partnership interests or other
forms. The Adviser expects that less than 5% of each Tax-Exempt Portfolio's
assets will be invested in such securities during the current year. (See the
Statement of Additional Information under "Investment Objectives and Policies -
Tax-Exempt Derivatives.")
ILLIQUID SECURITIES. A Portfolio will not knowingly invest more than
15% (10% for each of the Money Market Portfolios) of the value of its net assets
in illiquid securities. Repurchase agreements that do not provide for settlement
within seven days, time deposits maturing in more than seven days, and
securities that are not registered under the Securities Act of 1933, as amended
(the "1933 Act") but that may be purchased by institutional buyers pursuant to
SEC Rule 144A are subject to the applicable limit (unless the Adviser or
Sub-Adviser, pursuant to guidelines established by the Board of Directors,
determines that a liquid market exists).
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PORTFOLIO TURNOVER AND TRANSACTIONS. Although the Equity and Bond
Portfolios will not normally engage in short-term trading, each Portfolio
reserves the right to do so if the Adviser (or Sub-Adviser) believes that
selling a particular security is appropriate in light of the Portfolio's
investment objective. Investments may be sold for a variety of reasons, such as
a more favorable investment opportunity or other circumstances bearing on the
desirability of continuing to hold such investments. A high rate of portfolio
turnover involves correspondingly greater brokerage commission expenses and
other transaction costs, which must be borne directly by the Portfolio involved
and ultimately by its shareholders. High portfolio turnover may result in the
realization of substantial net capital gains; distributions derived from such
gains may be treated as ordinary income for federal income tax purposes. (See
"Taxes" in this Prospectus and the Statement of Additional Information.")
Although the Kansas Tax-Exempt Bond Portfolio cannot accurately
predict its annual portfolio turnover rate, it is not expected to exceed 100%.
All orders for transactions in securities or options on behalf of the
Portfolios are placed by the Adviser (or Sub- Adviser) with broker-dealers that
it selects. To the extent permitted by the 1940 Act and guidelines adopted by
the Fund's Board of Directors, a Portfolio may utilize the Distributor or one or
more of its affiliates as a broker in connection with the purchase or sale of
securities when the Adviser believes the charge for the transaction does not
exceed the usual and customary broker's commission.
INVESTMENT LIMITATIONS
The investment limitations set forth below are fundamental policies
and may be changed only by a vote of a majority of the outstanding Shares of a
Portfolio. Other investment limitations that also cannot be changed without a
vote of shareholders are contained in the Statement of Additional Information
under "Investment Objectives and Policies."
THE MONEY MARKET AND TREASURY MONEY MARKET PORTFOLIOS
A Portfolio may not:
1. Make loans, except that a Portfolio may purchase or hold
debt instruments in accordance with its investment objective and
policies and may enter into repurchase agreements with respect to
securities (together with any cash collateral) that are consistent
with the Portfolio's permitted investments and that equal at all
times at least 100% of the value of the repurchase price.
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2. Borrow money or issue senior securities, except that a
Portfolio may borrow from banks, and the Money Market Portfolio may
enter into reverse repurchase agreements, for temporary purposes in
amounts up to 10% of the value of its total assets at the time of
such borrowing; or mortgage, pledge or hypothecate any assets, except
in connection with any such borrowing and in amounts not in excess of
the lesser of the dollar amounts borrowed or 10% of the value of a
Portfolio's total assets at the time of such borrowing. A Portfolio
will not purchase securities while its borrowings (including reverse
repurchase agreements) are outstanding.
3. With respect to the Treasury Money Market Portfolio,
purchase securities other than obligations of the U.S. Government,
its agencies and instrumentalities, some of which may be subject to
repurchase agreements, except that the Portfolio may purchase
securities of other investment companies that seek to maintain a
constant net asset value per Share and that are permitted themselves
only to invest in securities which may be acquired by the Portfolio.
4. With respect to the Money Market Portfolio, purchase any
securities which would cause more than 25% of the value of the
Portfolio's total assets at the time of purchase to be invested in
the securities of one or more issuers conducting their principal
business activities in the same industry, provided that (a) there is
no limitation with respect to obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, domestic bank
certificates of deposit, bankers' acceptances and repurchase
agreements secured by domestic bank instruments or obligations of the
U.S. Government, its agencies or instrumentalities; (b) wholly-owned
finance companies will be considered to be in the industries of their
parents if their activities are primarily related to financing the
activities of the parents; and (c) utilities will be divided
according to their services, for example, gas, gas transmission,
electric and gas, electric and telephone will each be considered a
separate industry.
In accordance with current regulations of the SEC, the Money Market
Portfolio intends to limit investments in the securities of any single issuer
(other than securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities) to not more than 5% of the Portfolio's total assets at the
time of purchase, provided that the Portfolio may invest up to 25% of its total
assets in the securities of any one issuer for a period of up to three business
days. This intention is not, however, a fundamental policy of the Money Market
Portfolio. The Portfolio would have the ability to invest more than five percent
of its assets in any one issuer in accordance with its fundamental
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policy only in the event that Rule 2a-7 of the 1940 Act is amended in the
future.
THE GROWTH & INCOME EQUITY, EMERGING GROWTH, GOVERNMENT & CORPORATE BONDS, U.S.
GOVERNMENT SECURITIES, BALANCED, INTERNATIONAL EQUITY AND SHORT-INTERMEDIATE
MUNICIPAL PORTFOLIOS
A Portfolio may not:
1. Purchase securities of any one issuer (other than
obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities), if, immediately after and as a result of such
investments, more than 5% of the Portfolio's total assets would be
invested in the securities of such issuer, or more than 10% of the
issuer's outstanding voting securities would be owned by the
Portfolio or the Fund, except that up to 25% of the Portfolio's total
assets may be invested without regard to such limitations.
2. Purchase any securities which would cause 25% or more of
the Portfolio's total assets at the time of purchase to be invested
in the securities of one or more issuers conducting their principal
business activities in the same industry, provided that, however, (a)
with respect to each Portfolio except the Short-Intermediate
Municipal Portfolio, (i) there is no limitation with respect to
obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities, and repurchase agreements secured by
obligations of the U.S. Government or its agencies or
instrumentalities; (ii) wholly-owned finance companies will be
considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their
parents; and (iii) utilities will be divided according to their
services (for example, gas, gas transmission, electric and gas,
electric, and telephone will each be considered a separate industry);
and (b) with respect to the Short-Intermediate Municipal Portfolio,
there is no limitation with respect to obligations issued or
guaranteed by the U.S. Government, any state, territory or possession
of the U.S. Government, the District of Columbia, or any of their
authorities, agencies, instrumentalities or political subdivisions.
3. Borrow money or issue senior securities, except that
each Portfolio may borrow from banks and enter into reverse
repurchase agreements for temporary defensive purposes in amounts not
in excess of 10% of the Portfolio's total assets at the time of such
borrowing; or mortgage, pledge, or hypothecate any assets, except in
connection with any such borrowing and in amounts not in excess of
the lesser of the dollar amounts borrowed or 10% of the Portfolio's
total assets at the time of such borrowing; or
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purchase securities while its borrowings exceed 5% of its total
assets. A Portfolio's transactions in futures and related options
(including the margin posted by a Portfolio in connection with such
transactions), and securities held in escrow or separate accounts in
connection with a Portfolio's investment practices described in this
Prospectus or the Statement of Additional Information are not subject
to this limitation.
[/R]
4. Make loans, except that each Portfolio may purchase or
hold debt instruments, lend portfolio securities, enter into
repurchase agreements and make other investments in accordance with
its investment objective and policies.
5. Purchase securities on margin, make short sales of
securities or maintain a short position, except that (a) this
investment limitation shall not apply to a Portfolio's transactions
in options, and futures contracts and related options, and (b) a
Portfolio may obtain short-term credits as may be necessary for the
clearance of purchases and sales of portfolio securities.
THE TAX-EXEMPT MONEY MARKET, MISSOURI TAX-EXEMPT BOND AND KANSAS TAX-EXEMPT BOND
PORTFOLIOS
A Portfolio may not:
1. Purchase securities of any one issuer if, immediately
after and as a result of such purchase, more than 5% of the
Portfolio's total assets would be invested in the securities of such
issuer, except that (a) up to 50% of the Portfolio's total assets may
be invested without regard to this 5% limitation provided that no
more than 25% of the Portfolio's total assets are invested in the
securities of any one issuer and (b) this 5% limitation does not
apply to securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. For purposes of this limitation, a
security is considered to be issued by the governmental entity (or
entities) whose assets and revenues back the security, or, with
respect to an industrial development bond (in the case of the
Tax-Exempt Money Market Portfolio) or a private activity bond (in the
case of the Missouri Tax-Exempt Bond and Kansas Tax-Exempt Bond
Portfolios) that is backed only by the assets and revenues of a
non-governmental user, a security is considered to be issued by such
non-governmental user. In certain circumstances, the guarantor of a
guaranteed security may also be considered to be an issuer in
connection with such guarantee, except that a guarantee of a security
shall not be deemed to be a security issued by the guarantor when the
value of all securities issued and guaranteed by the
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guarantor, and owned by the Portfolio, does not exceed 10% of the
Portfolio's total assets.
2. Borrow money or issue senior securities, except that
each Portfolio may borrow from banks, and the Missouri Tax-Exempt
Bond and Kansas Tax-Exempt Bond Portfolios may enter into reverse
repurchase agreements, for temporary defensive purposes in amounts
not in excess of 10% of its total assets at the time of such
borrowing; or mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing and in amounts not in excess of
the lesser of the dollar amounts borrowed or 10% of its total assets
at the time of such borrowing (including any reverse repurchase
agreements); or purchase securities while borrowings exceed 5% of
Tax-Exempt Money Market Portfolio's net assets or 5% of the Missouri
Tax-Exempt Bond or Kansas Tax-Exempt Bond Portfolios' respective
total assets. Securities held in escrow or separate accounts in
connection with the Portfolios' investment practices described in
this Prospectus or the Statement of Additional Information are not
subject to this limitation.
THE MISSOURI TAX-EXEMPT BOND AND KANSAS TAX-EXEMPT BOND PORTFOLIOS
A Portfolio may not:
1. Purchase any securities, except securities issued (as
defined in Investment Limitation No. 1 above with respect to the
Tax-Exempt Money Market, Missouri Tax-Exempt Bond and Kansas
Tax-Exempt Bond Portfolios) or guaranteed by the United States, any
state, territory or possession of the United States, the District of
Columbia or any of their authorities, agencies, instrumentalities or
political subdivisions, which would cause more than 25% of the
Portfolio's net assets at the time of purchase to be invested in the
securities of issuers conducting their principal business activities
in the same industry.
2. Make loans except that each Portfolio may purchase and
hold debt instruments and enter into repurchase agreements in
accordance with its investment objective and policies.
In addition, under normal market conditions or when the Adviser deems
that suitable tax-exempt obligations are available, at least 80% of the
Tax-Exempt Money Market Portfolio's assets must be invested in obligations the
interest on which is exempt from federal income tax and stand-by commitments
with respect to such obligations.
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Notwithstanding the Investment Limitation in the preceding paragraph,
the Tax-Exempt Money Market Portfolio may invest in securities of other
investment companies that (a) invest in securities that are substantially
similar to those the Portfolio may acquire, and (b) distribute income that is
exempt from regular federal income tax.
The following additional investment policies with respect to the
Tax-Exempt Money Market, Missouri Tax-Exempt Bond and Kansas Tax-Exempt Bond
Portfolios are not fundamental and may be changed by the Board of Directors
without shareholder approval:
The Portfolios may not purchase securities which are not
readily marketable, enter into repurchase agreements providing for
settlement in more than seven days after notice, or purchase other
illiquid securities if, as a result of such purchase, illiquid
securities would exceed 15% (10% with respect to the Tax-Exempt Money
Market Portfolio) of the Portfolios' respective total assets.
The Tax-Exempt Money Market Portfolio has an operating policy to
comply with the requirements of Rule 2a-7 of the 1940 Act. To the extent that
Rule 2a-7 is more restrictive than the Portfolio's fundamental limitations, the
Portfolio will operate in accordance with Rule 2a-7.
If a percentage limitation is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in value
in the Portfolio's securities will not constitute a violation of such
limitation.
In order to permit the sale of Portfolio Shares in certain states,
each Portfolio may make commitments more restrictive than the investment
policies and limitations described above. Should the Board of Directors
determine that any such commitment is no longer in a Portfolio's best interest,
the Board may revoke the commitment by terminating the sale of such Portfolio's
Shares to investors residing in the state involved.
PRICING OF SHARES
THE MONEY MARKET PORTFOLIOS
The Money Market Portfolios' respective net asset values per Share
are determined by the Administrator as of 12:00 noon (Eastern Time) and as of
the close of regular trading hours on the New York Stock Exchange (the
"Exchange") (currently, 4:00 p.m. Eastern time) on each weekday, with the
exception of those holidays on which the Exchange or the Federal Reserve Bank of
St. Louis are closed (a "Business Day"). Currently one or both of these
institutions are closed on the customary national business holidays of New
Year's Day, Martin Luther King, Jr. Day,
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Presidents' Day, Good Friday, Memorial Day (observed), Independence Day
(observed), Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day and
Christmas Day (observed).
Each Portfolio's assets are valued based upon the amortized cost
method. Although each Portfolio seeks to maintain its net asset value per Share
at $1.00, there can be no assurance that the net asset value per Share will not
vary. (See the Statement of Additional Information under "Net Asset Value" for
further information.)
THE EQUITY AND BOND PORTFOLIOS
The Equity and Bond Portfolios' respective net asset values per Share
are determined by the Administrator as of the close of regular trading hours on
the Exchange on each Business Day (currently 4:00 p.m. Eastern time).
Securities which are traded on a recognized stock exchange are valued
at the last sale price on the securities exchange on which such securities are
primarily traded or at the last sale price on the national securities market.
Securities traded on only over-the-counter markets are valued on the basis of
market values when available. Securities for which there are no transactions are
valued at the average of the current bid and asked prices. Other securities,
including restricted and other securities for which market quotations are not
readily available, and other assets are valued at fair value by the Adviser (or
Sub- Adviser) under the supervision of the Board of Directors. Investments in
debt securities with remaining maturities of 60 days or less may be valued based
upon the amortized cost method. (For further information about valuation of
investments, see "Net Asset Value" in the Statement of Additional Information.)
OTHER INFORMATION
The public offering price for each class of Shares of a Portfolio is
based upon net asset value per Share plus, in the case of Investor A Shares of
each Portfolio except the Money Market Portfolios, a front-end sales charge. A
class will calculate its net asset value per Share by adding the value of a
Portfolio's investments, cash and other assets attributable to the class,
subtracting the Portfolio's liabilities attributable to that class, and then
dividing the result by the total number of Shares in the class that are
outstanding. Because the operating expenses of Investor B Shares are higher than
those associated with the other classes of Shares, the net asset value per Share
of Investor B Shares of a Portfolio which declares its net investment income
quarterly will generally be lower than the net asset value per Share of Trust,
Institutional or Investor A Shares of the same Portfolio.
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HOW TO PURCHASE AND REDEEM SHARES
PURCHASE OF SHARES
Trust Shares are sold to financial institutions, such as banks, trust
companies, thrift institutions, mutual funds or other financial institutions
(collectively "financial institutions"), acting on their own behalf or on behalf
of their qualified fiduciary accounts, employee benefit, retirement plan, or
other such qualified accounts. Trust Shares are sold to qualified purchasers
without a sales charge imposed by the Fund or the Distributor. Generally,
investors purchase Trust Shares through a financial institution, which is
responsible for transmitting purchase orders directly to the Fund.
Purchases may be effected on Business Days when the Adviser,
Distributor and Mercantile (the Custodian) are open for business. The Fund
reserves the right to reject any purchase order, including purchases made with
foreign and third party drafts or checks.
Financial institutions placing orders directly or on behalf of their
customers should contact the Fund at 1-800-551-3731. Investors may also call the
Fund for information on how to purchase Shares.
All shareholders of record will receive confirmations of Share
purchases, exchanges, and redemptions in the mail. If Shares are held in the
name of banks or other financial institutions, such institution is responsible
for transmitting purchase, exchange, and redemption orders to the Fund on a
timely basis, recording all purchase, exchange, and redemption transactions, and
providing regular account statements which confirm such transactions to
beneficial owners. Payment for orders which are not received or accepted will be
returned after prompt inquiry to the transmitting financial institution.
PURCHASE OF SHARES -- THE MONEY MARKET PORTFOLIOS
A purchase order received and accepted by the Fund by 12:00 noon
(Eastern time) on a Business Day is effected at the net asset value per Share
next determined after receipt of the order in good form if the Fund's Custodian
has received payment in federal funds by 4:00 p.m. (Eastern time) that day. If
such funds are not available for investment by 4:00 p.m. (Eastern time), the
order will be cancelled. Purchase orders received after 12:00 noon (Eastern
time) will be placed the following business day.
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PURCHASE OF SHARES -- THE EQUITY AND BOND PORTFOLIOS
If purchase orders are received in good form and accepted by the Fund
prior to 4:00 p.m. (Eastern time) on any Business Day, Trust Shares will be
priced according to the net asset value per Share next determined on that day
after receipt of the order. Immediately available funds must be received by the
Custodian prior to 4:00 p.m. on the next Business Day following receipt of such
order. If funds are not received by such date, the order will be cancelled, and
notice thereof will be given to the financial institution placing the order.
EXCHANGES
The exchange privilege enables shareholders to exchange Trust Shares
of a Portfolio for Trust Shares of another Portfolio offered by the Fund.
Exchanges for Trust Shares in another Portfolio are effected without payment of
any exchange or sales charges. In addition, Trust Shares of a Portfolio may also
be exchanged for Investor A Shares of the same Portfolio in connection with the
distribution of assets held in a qualified trust, agency or custodian account
with the trust department of Mercantile or any of its affiliated or
correspondent banks. Such exchanges will also be effected without payment of any
exchange or sales charges. The exchange privilege may be exercised only in those
states where the class of shares of such other Portfolios may be legally sold.
The Fund reserves the right to reject any exchange request. The
exchange privilege may be modified or terminated at any time upon 60 days'
written notice to shareholders. An investor may telephone an exchange request by
calling his or her financial institution, which is responsible for transmitting
such request to the Distributor. (See "Other Exchange or Redemption Information"
below.) An investor should consult the financial institution or the Distributor
for further information regarding procedures for exchanging Shares.
REDEMPTION OF SHARES
Redemption orders should be placed with or through the same financial
institution that placed the original purchase order. Redemption orders are
effected at a Portfolio's net asset value per Share next determined after
receipt of the order by the Fund. The financial institution is responsible for
transmitting redemption orders to the Fund on a timely basis. No charge for
sending redemption payments electronically is currently imposed by the Fund,
although a charge may be imposed in the future. The Fund reserves the right to
send redemption proceeds electronically within seven days after receiving a
redemption
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order if, in the judgment of the Adviser, an earlier payment could adversely
affect a Portfolio.
A written redemption request must be accompanied by any Share
certificates which are properly endorsed for transfer. The Transfer Agent may
require a signature guarantee by an eligible guarantor institution. For purposes
of this policy, the term "eligible guarantor institution" shall include banks,
brokers, dealers, credit unions, securities exchanges and associations, clearing
agencies and savings associations as those terms are defined in Rule 17Ad-15
under the Securities Exchange Act of 1934. The Transfer Agent reserves the right
to reject any signature guarantee if (1) it has reason to believe that the
signature is not genuine, (2) it has reason to believe that the transaction
would otherwise be improper, or (3) the guarantor institution is a broker or
dealer that is neither a member of a clearing corporation nor maintains net
capital of at least $100,000. The signature guarantee requirement will be waived
if all of the following conditions apply: (1) the redemption check is payable to
the shareholder(s) of record and (2) the redemption check is mailed to the
shareholder(s) at the address of record or the proceeds are either mailed or
sent electronically to a commercial bank account previously designated on the
account application. An investor with questions or needing assistance should
contact the financial institution servicing his or her account or the
Distributor. Additional documentation may be required if the redemption is
requested by a corporation, partnership, trust, fiduciary, executor, or
administrator. If, due to temporary adverse conditions, investors are unable to
effect telephone transactions, investors are encouraged to follow the procedures
described in "Other Exchange or Redemption Information" below.
Neither the Fund nor its service providers will be liable for any
loss, damage, expense or cost arising out of any telephone redemption effected
in accordance with the Fund's telephone redemption procedures, upon instructions
reasonably believed to be genuine. The Fund will employ procedures designed to
provide reasonable assurance that instructions by telephone are genuine; if
these procedures are not followed, the Fund or its service providers may be
liable for any losses due to unauthorized or fraudulent instructions. If Share
certificates are outstanding with respect to an account, the telephone
redemption and exchange privilege is not available.
Proceeds from redemptions of Shares of the MONEY MARKET PORTFOLIOS
with respect to redemption orders received by the Fund before 12:00 noon
(Eastern time) on a Business Day normally are sent electronically the same day
to the financial institution that placed the redemption order in good form.
Proceeds for redemption orders that are received after 12:00 noon (Eastern
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time) or on a non-Business Day normally are wired to the financial institution
on the next Business Day.
Proceeds from redemptions of Shares of the EQUITY AND BOND PORTFOLIOS
with respect to redemption orders received by the Fund before 4:00 p.m. (Eastern
time) on a Business Day normally are sent electronically to the financial
institution that placed the redemption order the next Business Day after the
Distributor's receipt of the order in good form.
OTHER EXCHANGE OR REDEMPTION INFORMATION
During periods of substantial economic or market change or activity,
telephone redemptions or exchanges may be difficult to complete. In such event,
Shares may be redeemed or exchanged by mailing the request directly to the
financial institution through which the original Shares were purchased or
directly to the Fund at P.O. Box 78069, St. Louis, Missouri 63178.
At various times, the Fund may be requested to redeem Shares for
which it has not yet received good payment. In such circumstances, the Fund may
delay the forwarding of proceeds until payment has been collected for the
purchase of such Shares which may take up to 15 days or more. To avoid delay in
payment upon redemption shortly after purchasing Shares, investors should
purchase Shares by certified or bank check or by electronic transfer. The Fund
intends to pay cash for all Shares redeemed, but under abnormal conditions which
make payment in cash unwise, the Fund may make payment wholly or partly in
portfolio securities at their then market value equal to the redemption price.
In such cases, an investor may incur brokerage costs in converting such
securities to cash.
A shareholder may be required to redeem Shares in a Portfolio upon 60
days' written notice if the balance in the shareholder's account drops below
$500. The Fund will not require a shareholder to redeem Portfolio Shares if the
value of the shareholder's account drops below $500 due to fluctuations in net
asset value. Share balances may also be redeemed pursuant to arrangements
between financial institutions and their investors.
YIELDS AND TOTAL RETURNS
Yield and total return quotations are computed separately for Trust
Shares, Institutional Shares, Investor A Shares and/or Investor B Shares of a
Portfolio. TOTAL RETURN AND YIELD FIGURES WILL FLUCTUATE, ARE BASED ON
HISTORICAL EARNINGS, AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The
methods used to compute each Portfolio's yields and total returns are described
below and in the Statement of Additional Information.
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THE MONEY MARKET PORTFOLIOS
From time to time, performance information such as total return,
"yield" and "effective yield" for the Money Market Portfolios' Trust Shares may
be quoted in advertisements or in communications to shareholders. The "yield"
quoted in advertisements refers to the income generated by an investment in such
Shares of a Portfolio over a specified period (such as a seven-day period)
identified in connection with the particular yield quotation. This income is
then "annualized." That is, the amount of income generated by the investment
during that period is assumed to be generated for each such period over a
52-week or one-year period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly but, when annualized, the income
earned by an investment in such Shares of a Portfolio is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment.
In addition, the Treasury Money Market Portfolio's "state
tax-equivalent yield" may also be quoted. The "state tax- equivalent yield"
shows the level of taxable yield needed to produce an after-tax yield that is
equivalent to a particular state's tax-exempt yield achieved by the Portfolio.
The "state tax-equivalent yield" refers to the portion of income that is derived
from interest income on direct obligations of the U.S. Government, its agencies
or instrumentalities that qualifies for exemption from state income tax. The
yield calculation assumes that 100% of the interest income is exempt from state
income tax. The "state tax-equivalent yield" is computed by dividing the
tax-exempt portion of the Portfolio's yield by a denominator consisting of one
minus a stated income tax rate.
The Tax-Exempt Money Market Portfolio may also quote its
"tax-equivalent yield" and "tax-equivalent effective yield", which demonstrate
the level of taxable yield needed to produce an after-tax yield that is
equivalent to the Portfolio's yield and effective yield. Each are calculated by
increasing the Portfolio's yield and effective yield by the amount necessary to
reflect the payment of federal (and/or state) tax at a stated tax rate. The "tax
equivalent yield" and "tax-equivalent effective yield" will always be higher
than the Portfolio's yield and effective yield, respectively. The Tax-Exempt
Money Market Portfolio may also compute its "tax-equivalent yield" and "tax-
equivalent effective yield" with respect to certain states, which shows the
level of taxable yield and effective yield, respectively, needed to produce an
after-tax equivalent to the federal and state tax-exempt yield of the
Portfolio's particular class of Shares, assuming payment of federal income tax
and state personal income tax each at a stated rate and based upon a specified
percentage of the Portfolio's income which is exempt from state income tax as
well as federal income tax.
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THE EQUITY AND BOND PORTFOLIOS
From time to time, performance information such as total return and
yield data for the Equity and Bond Portfolios' Trust Shares may be quoted in
advertisements or in communications to shareholders. The yield is computed based
on the net income of such Shares in the particular Portfolio during a 30-day (or
one-month) period identified in connection with the particular yield quotation.
More specifically, the yield is computed by dividing the Portfolio's net income
per Share during a 30-day (or one-month) period by the net asset value per Share
on the last day of the period and annualizing the result. The Short-Intermediate
Municipal, Missouri Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios' "tax
equivalent" yields, which show the level of taxable yield needed to produce an
after-tax equivalent to each Portfolio's tax-free yield may also be quoted from
time to time. This is done by increasing a Portfolio's yield (calculated as
above) by the amount necessary to reflect the payment of federal income tax at a
stated tax rate. The Missouri Tax-Exempt Bond Portfolio may also compute its
"Missouri tax-equivalent" yield and the Kansas Tax-Exempt Bond Portfolio may
also compute its "Kansas tax-equivalent" yield, which shows the level of taxable
yield needed to produce an after-tax equivalent to the federal and Missouri or
Kansas tax-exempt yield of the Portfolio's Shares, assuming payment of federal
income tax and Missouri or Kansas income tax each at a stated rate.
The Portfolios' total returns may be calculated on an average annual
total return basis, and may also be calculated on an aggregate total return
basis, for various periods. Average annual total returns with respect to Trust
Shares reflect the average annual percentage change in value of an investment in
such Shares of the particular Portfolio over the particular measuring period.
Aggregate total returns reflect the cumulative percentage change in value over
the measuring period. Both methods of calculating total returns assume that
dividends and capital gain distributions made by a Portfolio during the period
are reinvested in the Portfolio's Trust Shares. When considering average annual
total return figures for periods longer than one year, it is important to note
that a Portfolio's annual total return for any one year in the period might have
been more or less than the average for the entire period.
INFORMATION APPLICABLE TO ALL PORTFOLIOS
Performance data of the Portfolios' Trust Shares may be compared to
the performance of other mutual funds with comparable investment objectives and
policies through various mutual fund or market indices and data such as that
provided by Lehman Brothers, Inc., or any of its affiliates, Ibbotson
Associates, Inc., Lipper Analytical Services, Inc., Mutual Fund Forecaster and
IBC/Donoghue's MONEY FUND REPORT(R) published by IBC/Donoghue.
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References may also be made to indices or data published in Money Magazine,
Forbes, Barron's, The Wall Street Journal, The New York Times, Business Week,
American Banker, Institutional Investor, Pensions and Investments, U.S.A. Today,
Fortune, CDA/Weisenberger, Morningstar, Inc. and publications of a local or
regional nature. In addition to performance information, general information
about the Portfolios that appears in a publication such as those mentioned above
may be included in advertisements and in reports to shareholders.
Performance quotations of a class of Shares in a Portfolio represent
that Portfolio's past performance and should not be considered as representative
of future results. Any account fees charged by a bank or other financial
institution (as described in "Management of The Fund -- Service Organizations"
below) or other institutions will not be included in the calculations of a
Portfolio's yields and total returns. Such fees, if any, will reduce the
investor's net return on an investment in a Portfolio. Investors may call
1-800-452-4015 to obtain current yield and total return information.
DIVIDENDS AND DISTRIBUTIONS
THE MONEY MARKET, TREASURY MONEY MARKET, TAX-EXEMPT MONEY MARKET,
GOVERNMENT & CORPORATE BOND, U.S. GOVERNMENT SECURITIES, SHORT-
INTERMEDIATE MUNICIPAL, MISSOURI TAX-EXEMPT BOND AND KANSAS TAX-
EXEMPT BOND PORTFOLIOS
Dividends from net investment income of the Money Market, Treasury
Money Market, Tax-Exempt Money Market, Government & Corporate Bond, U.S.
Government Securities, Short-Intermediate Municipal, Missouri Tax-Exempt Bond
and Kansas Tax-Exempt Bond Portfolios are declared daily and paid monthly not
later than five Business Days after the end of each month. Trust Shares of the
Money Market, Treasury Money Market and Tax-Exempt Money Market Portfolios earn
dividends from the day the purchase order is received by the Transfer Agent
through the day before the redemption order for such Shares is received. Trust
Shares of the Government & Corporate Bond, U.S. Government Securities,
Short-Intermediate Municipal, Missouri Tax-Exempt Bond and Kansas Tax-Exempt
Bond Portfolios earn dividends from the day after the purchase order is received
by the Transfer Agent through the day the redemption order for such Shares is
received. Dividends on each Share of such Portfolios are determined in the same
manner and are paid in the same amounts irrespective of class, except that a
Portfolio's Trust Shares and Institutional Shares (other than the Tax-Exempt
Portfolios which do not offer Insitutional Shares) bear all expenses of the
respective Administrative Services Plans adopted for such Shares and a
Portfolio's Investor A Shares and Investor B Shares (other than the Treasury
Money Market, Tax-Exempt Money Market and Short-Intermediate Municipal
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Portfolios which do not offer Investor B Shares) bear all expenses of the
respective Distribution and Services Plans adopted for such Shares. In addition,
a Portfolio's Institutional Shares bear the expense of certain sub-transfer
agency fees. (See "Management of the Fund -- Administrative Services Plan" and
"Other Information Concerning the Fund and Its Shares" below.)
THE GROWTH & INCOME EQUITY, EMERGING GROWTH, BALANCED AND INTERNATIONAL EQUITY
PORTFOLIOS
Net investment income for the Growth & Income Equity, Emerging
Growth, Balanced and International Equity Portfolios is declared and paid
quarterly as a dividend to shareholders of record. Dividends on each Share of
each of these Portfolios are determined in the same manner and are paid in the
same amount, irrespective of class, except that a Portfolio's Trust Shares and
Institutional Shares bear all expenses of the respective Administrative Services
Plans adopted for such Shares and a Portfolio's Investor A Shares and Investor B
Shares bear all expenses of the respective Distribution and Services Plans
adopted for such Shares. In addition, a Portfolio's Institutional Shares bear
the expense of certain sub-transfer agency fees. (See "Management of the Fund"
and "Other Information Concerning the Fund and Its Shares" below.)
OTHER DIVIDEND AND DISTRIBUTION INFORMATION
The Money Market Portfolios do not expect to realize capital gains.
Net realized capital gains of a Portfolio, if any, are distributed at least
annually. All dividends and distributions paid on a Portfolio's Shares are
automatically reinvested in additional Shares of the same class unless the
investor has (i) otherwise indicated in the account application, or (ii)
redeemed all the Shares held in a Portfolio, in which case a distribution will
be paid in cash. Reinvested dividends and distributions will be taxed in the
same manner as those paid in cash.
TAXES
FEDERAL TAXES
Each Portfolio of the Fund intends to qualify as a "regulated
investment company" for the current taxable year. It is intended that each
Portfolio will continue to so qualify as long as such qualification is in the
best interests of shareholders. A regulated investment company is generally
exempt from federal income tax on amounts distributed to shareholders.
Qualification as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code"), for a
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taxable year requires, among other things, that each Portfolio distribute to its
shareholders an amount equal to at least the sum of 90% of its investment
company taxable income and 90% of its net exempt-interest income (if any). In
general, a Portfolio's investment company taxable income will be its taxable
income, including dividends, interest and short-term capital gains (the excess
of net short-term capital gain over net long-term capital loss), subject to
certain adjustments and excluding the excess of any net long-term capital gain
over net short-term capital loss, if any, for such taxable year. The Money
Market, Treasury Money Market, Growth & Income Equity, Emerging Growth,
Government & Corporate Bond, U.S. Government Securities, Balanced and
International Equity Portfolios intend to distribute as dividends substantially
all of their respective investment company taxable income and any net tax-exempt
interest income each year. Such dividends will be taxable as ordinary income to
a Portfolio's shareholders who are not currently exempt from federal income
taxes, whether such income is received in cash or reinvested in additional
Shares. (Federal income taxes for distributions to an IRA are deferred under the
Code.) In the case of the Growth & Income Equity, Emerging Growth, Balanced and
International Equity Portfolios, such dividends will qualify for the dividends
received deduction for corporations to the extent of the total qualifying
dividends received by the Portfolios from domestic corporations for the taxable
year. Because all of the Money Market, Treasury Money Market, Government &
Corporate Bond, and U.S. Government Securities Portfolios' net investment income
is expected to be derived from earned interest, it is not expected that any
distributions from such Portfolios will be eligible for the dividends received
deduction.
It is the policy of each Tax-Exempt Portfolio to distribute as
dividends substantially all of its net tax-exempt interest income and any
investment company taxable income each year. Dividends derived from interest on
Municipal Obligations (known as exempt-interest dividends) may be treated by
shareholders as items of interest excludable from their gross income under
Section 103(a) of the Code, unless under the circumstances applicable to the
particular shareholder the exclusion would be disallowed. (See the Statement of
Additional Information under "Additional Information Concerning Taxes.")
Distributions of net income may be taxable to investors under state or local law
as dividend income even though a substantial portion of such distributions may
be derived from interest on tax-exempt obligations which, if realized directly,
would be exempt from such income tax.
If a Tax-Exempt Portfolio should hold certain private activity bonds
issued after August 7, 1986, shareholders must include, as an item of tax
preference, the portion of dividends paid by the Portfolio that is attributable
to interest on such bonds in their federal alternative minimum taxable income
for
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purposes of determining liability (if any) for the 26-28% alternative minimum
tax applicable to individuals and the 20% alternative minimum tax and the
environmental tax applicable to corporations. Corporate shareholders also must
take all exempt- interest dividends into account in determining certain
adjustments for federal alternative minimum and environmental tax purposes. The
environmental tax applicable to corporations is imposed at the rate of .12% on
the excess of the corporation's modified federal alternative minimum taxable
income over $2,000,000.
Substantially all of each Portfolio's net realized long-term capital
gains, if any, will be distributed at least annually to its shareholders. A
Portfolio will generally have no tax liability with respect to such gains and
the distributions will be taxable to shareholders who are not currently exempt
from federal income taxes as long-term capital gains, regardless of how long the
shareholders have held the Shares and whether such gains are received in cash or
reinvested in additional Shares.
To the extent dividends paid to shareholders of a Tax-Exempt
Portfolio are derived from taxable income or from long-term or short-term
capital gains, such dividends will be subject to federal income tax, whether
such dividends are paid in the form of cash or additional Shares.
An investor considering purchasing Shares of a Money Market Portfolio
on or just before the record date of any capital gains distribution (or in the
case of the Equity and Bond Portfolios, the record date of any dividend or
capital gains distribution) should be aware that the amount of the forthcoming
distribution, although in effect a return of capital, will be taxable.
Dividends declared by a Portfolio in October, November, or December
of any year payable to shareholders of record on a specified date in such months
will be deemed to have been received by shareholders and paid by the Fund on
December 31 of such year, if such dividends are actually paid during January of
the following year.
Each Portfolio may be required in certain cases to withhold and remit
to the U.S. Treasury 31% of taxable dividends or gross sale proceeds paid to
shareholders who have failed to provide a correct tax identification number in
the manner required, who are subject to withholding by the Internal Revenue
Service for failure properly to include on their return payments of taxable
interest or dividends, or who have failed to certify to the Portfolio that they
are not subject to backup withholding when required to do so or that they are
"exempt recipients."
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A taxable gain or loss may be realized by an investor upon
redemption, transfer or exchange of Shares of the Equity and Bond Portfolios,
depending upon the tax basis of such Shares and their price at the time of
redemption, transfer or exchange. If an investor holds Shares for six months or
less and during that time receives an exempt-interest dividend on those Shares,
any loss realized on the sale or exchange of those Shares will be disallowed to
the extent of the exempt-interest dividend.
Certain interest income and dividends earned by the International
Equity Portfolio from foreign securities is expected to be subject to foreign
withholding taxes or other taxes. So long as more than 50% of the value of the
Portfolio's total assets at the close of any taxable year consists of stock or
securities of foreign corporations, the Portfolio may elect, for U.S. federal
income tax purposes, to treat certain foreign taxes paid by it, including
generally any withholding taxes and other foreign income taxes, as paid by its
shareholders. The Portfolio may make this election. As a consequence, the amount
of these foreign taxes paid by the Portfolio will be included in its
shareholders' taxable income pro rata (in addition to taxable distributions
actually received by them), and each shareholder may elect either (a) to credit
his proportionate amount of such taxes against his U.S. federal income tax
liabilities (subject to certain limitations), or (b) if he itemizes his
deductions, to deduct such proportionate amounts from his U.S. taxable income.
MISSOURI TAX CONSIDERATIONS. For each year in which a Portfolio
qualifies as a regulated investment company for federal income tax purposes,
shareholders of such Portfolio who are Missouri resident individuals, trusts or
estates resident in Missouri, or corporations subject to Missouri taxing
jurisdiction (collectively, "Missouri Taxpayers") will not be subject to
Missouri income taxation on dividends distributed to them to the extent that
such dividends (a) qualify as exempt-interest dividends of a regulated
investment company under Code section 852(b)(5), (b) are the subject of the
written notice to shareholders required by 12 C.S.R. section 10-2.155(2), (c)
are attributable to interest on (1) obligations issued by the State of Missouri
or any of its political subdivisions or authorities, or (2) certain obligations
of the United States, any territory or possession of the United States, or any
authority, commission, or instrumentality of the United Sates, to the extent
exempted from Missouri income tax under Federal Law, and (d) are properly
reported on the Missouri income tax returns of the shareholder in the respective
Portfolio.
To the extent possible, the Missouri Tax-Exempt Bond Portfolio
intends to invest in obligations which will permit distributions attributable to
interest to be excludable by Missouri Taxpayers. Despite this intention,
Missouri Taxpayers generally will be subject to Missouri income tax on other
types
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of distributions received from the Missouri Tax-Exempt Bond Portfolio, including
distributions of interest on obligations of other issuers and all long-term and
short-term capital gains.
Except as noted above with respect to Missouri income taxation,
distributions from a Portfolio may be taxable to shareholders under other state
and local laws imposing taxes on or measured by net income, even though such
distribution were derived, in whole or in part, from interest on obligations
which, if realized directly by the shareholder, or by a shareholder of another
type, would be nontaxable.
The foregoing discussion of Missouri law does not apply to
shareholders that are subject to the Missouri bank tax or other comparable forms
of specialized Missouri taxation.
All shareholders of the Portfolios should consult with their tax
advisors with respect to the state and local tax consequences of the purchase,
ownership, and disposition of Shares in the Portfolios, the receipt of
distributions from the Portfolios, and the proper method in which to report
Portfolio-related items on a shareholder's Missouri tax returns.
KANSAS TAX CONSIDERATIONS. In each year that a Portfolio qualifies as
a regulated investment company for federal income tax purposes, dividends
distributed to shareholders of the Portfolio who are Kansas resident
individuals, or estates or trusts resident in Kansas, will be excluded from the
computation of Kansas adjusted gross income to the extent that such dividends
(a)(i) qualify as exempt-interest dividends of a regulated investment company
under section 852(b)(5) of the Code and (ii) are attributable to interest on
obligations issued after December 31, 1987 by the State of Kansas or its
political subdivisions or on certain specific obligations issued before January
1, 1988 by such entities, or (b) are derived from interest on certain
obligations of any authority, commission or instrumentality of the United States
or its possessions, to the extent exempted from state income taxes under Federal
law. The Kansas Tax-Exempt Bond Portfolio intends to invest only in obligations
which will permit distributions attributable to interest to be excludable from
Kansas adjusted gross income on resident individuals, estates and trusts.
Resident individuals, estates and trusts will generally be subject to Kansas
income tax on other types of distributions received from the Kansas Tax-Exempt
Bond Portfolio, including distributions attributable to interest on certain
obligations issued before January 1, 1988, by the State of Kansas or its
political subdivisions, to interest on obligations of other issuers and to all
long-term and short-term capital gains, if any, to the extent such capital gains
distributions are included in federal taxable income. Corporations within
Kansas' tax jurisdiction are subject to the same rules as Kansas individuals in
computing such corporation's net income before apportionment.
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The foregoing discussion of Kansas law does not apply to shareholders
which are banks or to certain other individuals or entities who are in the
banking business. Banks and others in the banking business are subject to the
Kansas privilege tax on net income for which distributions from the Kansas Bond
Portfolio are not exempt.
Except as noted above with respect to Kansas income taxation,
distributions from a Portfolio may be taxable to investors under other state and
local laws imposing taxes on or measured by net income, even though all or a
portion of such distributions are derived from tax-exempt obligations which, if
realized directly by the investor, would be nontaxable. The Kansas Tax-Exempt
Bond Portfolio will notify its shareholders within 60 days after the close of
each year as to the amount of exempt interest dividends from Kansas obligations
which is exempt from Kansas individual income taxation.
Earnings derived from the Kansas Bond Portfolio will not be subject
to the local intangibles tax imposed by various counties, cities and townships
in Kansas.
Shareholders of the Kansas Tax-Exempt Bond Portfolio should consult
their tax advisors with respect to the state and local tax consequences of the
purchase, ownership and disposition of Shares in the Portfolio.
STATE AND LOCAL TAXES
Shareholders should note that dividends paid by a Portfolio may be
taxable to investors under state or local law as dividend income even though all
or a portion of such dividends may be derived from interest on obligations that,
if realized directly, would be exempt from such income taxes.
The Treasury Money Market Portfolio is structured to provide
investors, to the extent permissible by federal and state law, with income that
is exempt or excluded from taxation at the state and local level. Shareholders
should note that many, but not all, states permit all or a portion of a
regulated investment company's dividends which are derived from interest on U.S.
Treasury obligations (and obligations of certain U.S. Government
agencies)("Treasury Obligations") to be exempt or excluded from state and local
taxation. In addition, only certain states allow dividends of a regulated
investment company that are derived from dividends of other regulated investment
companies investing directly in Treasury Obligations to be exempt or excluded
from state and local taxation. Some states reduce a shareholder's allowable
deductions by interest on debt incurred to carry obligations producing state
tax-exempt interest and by other expenses related to such obligations. Income
earned by the Portfolio from repurchase agreements generally is not exempt from
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state or local income tax. Shareholders should consult their own tax advisors
about the status of distributions from the Treasury Money Market Portfolio under
state and local law.
MISCELLANEOUS
The foregoing summarizes some of the important federal and state tax
considerations generally affecting the Portfolios and their shareholders and is
not intended as a substitute for careful tax planning. Accordingly, potential
investors in the Portfolios should consult their tax advisers with specific
reference to their own tax situation. Shareholders will be advised at least
annually as to the federal and, for the Treasury Money Market Portfolio, the
state income tax consequences, and for the Missouri Tax-Exempt Bond and Kansas
Tax-Exempt Bond Portfolios, the Missouri or Kansas state income tax
consequences, of distributions made each year.
MANAGEMENT OF THE FUND
The Fund is managed under the direction of its Board of Directors.
The Statement of Additional Information contains the names of and general
background information concerning each director.
INVESTMENT ADVISER AND SUB-ADVISER
Mississippi Valley Advisors Inc. ("MVA") serves as the investment
adviser to each Portfolio. MVA's principal office is located at One Mercantile
Center, Seventh & Washington Streets, St. Louis, Missouri 63101. MVA is a
wholly-owned subsidiary of Mercantile. As of December 31, 1995, MVA had
approximately $7 billion in assets under investment management, including the
Funds' assets, which were approximately $2.1 billion.
Subject to the general supervision of the Fund's Board of Directors
and in accordance with the Fund's investment policies, MVA manages the
Portfolios, makes investment decisions with respect to and places orders for all
purchases and sales of the Portfolios' securities and other investments, and
directs the maintenance of each Portfolio's records relating to such purchases
and sales.
For the services provided and expenses assumed pursuant to the
investment advisory agreement, MVA is entitled to receive fees, computed daily
and payable monthly, with respect to the Money Market and Treasury Money Market
Portfolios, at the annual rates of .40% of the first $1.5 billion of each such
Portfolio's average daily net assets, .35% of the next $1.0 billion of net
assets and .25% of net assets in excess of $2.5 billion, and with respect to the
Tax-Exempt Money Market, Growth & Income Equity,
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Emerging Growth, Government & Corporate Bond, U.S. Government Securities,
Balanced, International Equity, Short-Intermediate Municipal, Missouri
Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios, at the annual rates of
.40%, .55%, .75%, .45%, .45%, .75%, 1.00%, .55%, .45% and .45% of the average
daily net assets of each Portfolio, respectively. For the fiscal year/period
ended November 30, 1995, MVA received advisory fees (net of waivers) at the
effective annual rates of .35%, .35%, .35%, .55%, .75%, .45%, .45%, .75%, .75%,
0% and .45% of the respective average daily net assets of the Money Market,
Treasury Money Market, Tax-Exempt Money Market, Growth & Income Equity, Emerging
Growth, Government & Corporate Bond, U.S. Government Securities, Balanced,
International Equity, Short-Intermediate Municipal and Missouri Tax-Exempt Bond
Portfolios. For the fiscal year ended May 31, 1995, MVA received advisory fees
(net of waivers) at the effective annual rates of .31% and .32% of the average
daily net assets of the Predecessor Tax-Exempt Money Market and Predecessor
Missouri Tax-Exempt Bond Portfolios, respectively. Without fee waivers, MVA
would have been entitled to receive advisory fees at the annual rate of .40% and
.45% of the average daily net assets of the Predecessor Tax-Exempt Money Market
Portfolio and Predecessor Missouri Tax-Exempt Bond Portfolios, respectively. The
Kansas Tax-Exempt Bond Portfolio had not commenced operations as of the date of
this Prospectus. MVA has informed the Fund that, upon commencement of operations
of the Kansas Tax-Exempt Bond Portfolio, it intends to waive its fee with
respect to that Portfolio through November 30, 1996.
MVA may from time to time voluntarily reduce all or a portion of its
advisory fee to increase the net income of one or more Portfolios available for
distributions as dividends. The voluntary fee reduction will cause the return of
any such Portfolio to be higher than it would otherwise be in the absence of
such reduction.
Gene E. Gillespie, CFA, is the person primarily responsible for the
day-to-day management of the Growth & Income Equity and Balanced Portfolios. Mr.
Gillespie, Director of Research, has been with MVA for 23 years.
Robert J. Anthony is the person primarily responsible for the
day-to-day management of the Emerging Growth Portfolio. Mr. Anthony, Senior
Associate, has been with MVA for 21 years.
David A. Bethke, CFA, is the person primarily responsible for the
day-to-day management of the U.S. Government Securities and Government &
Corporate Bond Portfolios. Mr. Bethke, Senior Associate, joined MVA in 1987 and
has six years of prior investment experience.
Peter Merzian, is the person primarily responsible for the day-to-day
management of the Short-Intermediate Municipal,
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Missouri Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios' investments. Mr.
Merzian, a Senior Associate of MVA, is assisted by several research analysts who
utilize a wide range of technological resources in selecting portfolio
investments. Mr. Merzian served as portfolio manager of the Predecessor Missouri
Tax-Exempt Bond Portfolio since 1993 and prior thereto, was employed as a
portfolio manager of another financial institution.
MVA has entered into a sub-investment advisory agreement with Clay
Finlay, Inc. Pursuant to the terms of such sub- investment advisory agreement,
Clay Finlay has been retained by MVA to manage the investment and reinvestment
of the assets of the International Equity Portfolio and to provide analytical
and investment research services to it, subject to the supervision of MVA and to
the direction and control of the Fund's Board of Directors.
Under this arrangement, Clay Finlay is responsible for the day-to-day
management of the International Equity Portfolio's assets. MVA reviews
investment performance policies and guidelines, maintains certain books and
records, is responsible for selecting and monitoring the performance of Clay
Finlay, and for reporting the activities of Clay Finlay in managing the
Portfolio to the Fund's Board of Directors.
Clay Finlay is registered as an investment adviser with the SEC and
is entirely owned by its investment professionals. Clay Finlay's principal
office is located at 200 Park Avenue, 56th Floor, New York, New York 10166. As
of December 31, 1995 Clay Finlay had approximately $6.0 billion in assets under
management. Clay Finlay, founded in 1982, has eight senior investment
professionals with extensive experience in international investments. Each of
the eight senior investment professionals has been with the firm since its
inception.
Frances Dakers is the person primarily responsible for the day-to-day
management of the International Equity Portfolio's investments. Ms. Dakers, a
Principal of Clay Finlay, has been associated with Clay Finlay since January,
1982.
For the services provided and expenses assumed pursuant to its
sub-investment advisory agreement with MVA, Clay Finlay receives from MVA a fee,
computed daily and payable monthly, at the annual rate of .75% of the
International Equity Portfolio's average daily net assets. For the fiscal year
ended November 30, 1995, Clay Finlay received sub-advisory fees at the effective
annual rate of .75% of the International Equity Fund's average daily net assets.
Clay Finlay bears all expenses incurred by it in connection with its services
under the sub-investment advisory agreement.
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ADMINISTRATOR
BISYS Fund Services Ohio, Inc. located at 3435 Stelzer Road,
Columbus, Ohio 43219, acts as the Portfolios' Administrator.
The Administrator generally assists in all aspects of each
Portfolio's administration and operation and also monitors and performs other
services pertaining to the Fund's arrangements under the Administrative Services
Plan described below. For its services, the Administrator is entitled to receive
a fee, computed daily and payable monthly, at the annual rate of .20% (.10% for
the Tax-Exempt Money Market Portfolio) of each Portfolio's average daily net
assets. For the fiscal year ended November 30, 1995, the Administrator received
administration fees (net of waivers) at the effective rate of .10% of the
average daily net assets of the Money Market, Treasury Money Market, Growth &
Income Equity, Emerging Growth, Government & Corporate Bond, U.S. Government
Securities, Balanced, Short-Intermediate Municipal and Missouri Tax-Exempt Bond
Portfolios, at the effective rate of .10% of the average daily net assets of the
Tax-Exempt Money Market Portfoio, and at the effective rate of .15% of the
average daily net assets of the International Equity Portfolio. From time to
time, the Administrator may voluntarily waive all or a portion of the
administration fees otherwise payable by a Portfolio in order to increase the
net income available for distribution to shareholders. The Administrator has
advised the Fund that, upon commencement of operations of the Kansas Tax-Exempt
Bond Portfolio, it intends to waive .10% of the administration fee payable to it
by that Portfolio through the Fund's 1997 fiscal year.
DISTRIBUTOR
Trust Shares in each Portfolio are sold continuously by the
Distributor, BISYS Fund Services, an affiliate of the Administrator. The
Distributor is a registered broker-dealer with principal offices at 3435 Stelzer
Road, Columbus, Ohio 43219.
ADMINISTRATIVE SERVICES PLAN
The Fund has adopted an Administrative Services Plan with respect to
the Trust Shares of the Portfolios. Pursuant to the Administrative Services
Plan, Trust Shares are sold to banks and other financial institutions (which may
include Mercantile or its affiliated or correspondent banks) acting on behalf of
their qualified accounts (such financial institutions collectively, the "Service
Organizations") which agree to provide certain shareholder administrative
services for their clients or account holders (collectively, the "customers")
who are the beneficial owners of such Shares. The holders of Trust Shares bear
their
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pro rata portion of the fees which may be paid to Service Organizations for such
services at an annual rate of up to .25%, for the Money Market Portfolios, and
up to .30%, for the Equity and Bond Portfolios, respectively, of the average
daily net assets of a Portfolio's Trust Shares owned beneficially by a Service
Organization's customers.
SERVICE ORGANIZATIONS
The servicing agreements adopted under the Administrative Services
Plan (the "Servicing Agreements") require the Service Organizations receiving
such compensation (which may include Mercantile and its affiliates) to perform
certain services, including providing administrative services with respect to
the beneficial owners of Trust Shares of a Portfolio, such as establishing and
maintaining accounts and records for their customers who invest in such Shares,
assisting customers in processing purchase, exchange and redemption requests,
and responding to customer inquiries concerning their investments.
Under the Servicing Agreements and upon notice to the Fund, a Service
Organization may subcontract with one or more entities for the performance of
certain services provided under its Servicing Agreements with the Fund. Such
Service Organization shall be as fully responsible to the Fund for the acts or
omissions of any sub-contractor as it would be for its own acts or omissions.
The fees payable to any sub-contractor are paid by the Service Organization out
of the fees it receives from the Fund.
The Fund understands that Service Organizations providing such
administrative services may also charge fees to their customers beneficially
owning such Shares. These fees would be in addition to any amounts which may be
received by such Service Organization under its Servicing Agreement with the
Fund. The Fund's Servicing Agreements require a Service Organization to disclose
to its customers any compensation payable to the Service Organization by a
Portfolio and any other compensation payable by its customers in connection with
their investment in such Shares. Customers of such Service Organizations
receiving servicing fees should read this Prospectus in light of the terms
governing their accounts with their Service Organization.
CUSTODIAN, SUB-CUSTODIAN AND TRANSFER AGENT
Mercantile Bank of St. Louis National Association, an affiliate of
the Fund and a wholly-owned subsidiary of Mercantile Bancorporation, Inc., with
principal offices located at One Mercantile Center, 8th and Locust Streets, St.
Louis, Missouri 63101, serves as Custodian of each Portfolio's assets. In
addition, Bankers Trust Company of New York, with principal offices at 16 Wall
Street, New York, New York 10005, serves as
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Sub-Custodian for the International Equity Portfolio. BISYS Fund Services Ohio,
Inc. also serves as the Fund's transfer agent and dividend disbursing agent. Its
address is 3435 Stelzer Road, Columbus, Ohio 43219.
REGULATORY MATTERS
Banking laws and regulations currently prohibit a bank holding
company registered under the Federal Bank Holding Company Act of 1956 or any
affiliate thereof from sponsoring, organizing, or controlling 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 such as Shares of the Portfolios. Such banking laws and
regulations do not prohibit such a holding company or affiliate, or banks, from
acting as investment adviser, transfer agent, or custodian to such an investment
company, or from purchasing Shares of such a company as agent for and upon the
order of customers. Mercantile, MVA, Service Organizations that are banks or
bank affiliates, and broker-dealers that are bank affiliates are subject to such
laws and regulations, but believe they may perform the services for the
Portfolios contemplated by their respective agreements, this Prospectus and the
Statement of Additional Information without violating applicable banking laws
and regulations. In addition, state securities laws on this issue may differ
from the interpretation of federal laws expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
Should future legislative, judicial, or administrative action
prohibit or restrict the activities of such companies in connection with the
provision of services on behalf of the Portfolios and the shareholders, the Fund
might be required to alter materially or discontinue its arrangements with such
companies and change its method of operation. It is not expected that investors
would suffer any adverse financial consequences as a result of any of these
occurrences.
If current restrictions preventing a bank from legally sponsoring,
organizing, controlling, or distributing Shares of an investment company were
relaxed, Mercantile, or an affiliate of Mercantile, would consider the
possibility of offering to perform additional services for the Portfolios. It is
not possible, of course, to predict whether or in what form such legislation
might be enacted or the terms upon which Mercantile, or such an affiliate, might
offer to provide such services.
Conflict of interest restrictions may apply to the receipt of
compensation paid pursuant to a Servicing Agreement by the Portfolios to a
financial intermediary in connection with the investment of fiduciary funds in a
Portfolio's Shares.
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Institutions, including banks regulated by the Comptroller of the Currency and
investment advisers and other money managers subject to the jurisdiction of the
SEC, the Department of Labor or state securities commissions, should consult
legal counsel before entering into Servicing Agreements.
EXPENSES
Except as noted above and in the Statement of Additional Information
under "Investment Advisory and Administrative Contracts" and "Custodian and
Transfer Agent," the Fund's service contractors bear all expenses in connection
with the performance of their services, except that the Distributor is
compensated pursuant to the Distribution and Services Plans (as described below
under "Other Information Concerning the Fund and Its Shares"). Expenses are
deducted from the total income of each Portfolio before dividends and
distributions are paid. These expenses include, but are not limited to, fees
paid to the Adviser and Administrator, transfer agency fees, fees and expenses
of officers and directors who are not affiliated with the Adviser or the
Distributor, taxes, interest, legal fees, custodian fees, auditing fees, 12b-1
fees, servicing fees, certain fees and expenses in registering and qualifying a
Portfolio and its Shares for distribution under Federal and state securities
laws, costs of preparing and printing prospectuses and statements of additional
information for regulatory purposes and for distribution to existing
shareholders, the expense of reports to shareholders, shareholders' meetings and
proxy solicitations, fidelity bond and directors and officers liability
insurance premiums, the expense of using independent pricing services and other
expenses which are not expressly assumed by the Adviser, Distributor or
Administrator under their respective agreements with the Fund. The Fund also
pays for brokerage fees, commissions and other transaction charges, if any, in
connection with the purchase and sale of portfolio securities. Any general
expenses of the Fund that are not readily identifiable as belonging to a
particular Portfolio will be allocated among all Portfolios by or under the
direction of the Board of Directors in a manner the Board determines to be fair
and equitable. Any expenses relating only to a particular class of Shares within
a Portfolio will be borne solely by such class. (See "Certain Financial
Information" and "Management of the Fund" above for additional information
regarding expenses of each Portfolio.)
OTHER INFORMATION CONCERNING
THE FUND AND ITS SHARES
DESCRIPTION OF SHARES
The Fund was organized as a Maryland corporation on September 9, 1982
and is a mutual fund of the type known as an
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"open-end management investment company". The Fund's principal office is located
at 3435 Stelzer Road, Columbus, Ohio 43219.
The Fund's Charter authorizes the Board of Directors to issue up to
seven billion full and fractional shares of common stock, and to classify and
reclassify any unauthorized and unissued shares into one or more classes of
shares. The Board of Directors may similarly classify or reclassify any class of
shares into one or more series.
Pursuant to such authority, the Board of Directors has authorized the
issuance of the following series of shares representing interests in the
Portfolios, each of which (except the Tax-Exempt Money Market, Missouri
Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios) is classified as a
diversified company under the 1940 Act: 1.8 billion Trust Shares, 300 million
Institutional Shares, 550 million Investor A Shares and 50 million Investor B
Shares, representing interests in the Money Market Portfolio; 1 billion Trust
Shares, 300 million Institutional Shares and 100 million Investor A Shares,
representing interests in the Treasury Money Market Portfolio; 300 million Trust
Shares and 50 million Investor A Shares, representing interests in the
Tax-Exempt Money Market Portfolio; 50 million Trust Shares, 20 million
Institutional Shares, 5 million Investor A Shares and 50 million Investor B
Shares, representing interests in the Growth & Income Equity Portfolio; 50
million Trust Shares, 20 million Institutional Shares, 5 million Investor A
Shares and 50 million Investor B Shares, representing interests in the
Government & Corporate Bond Portfolio; 15 million Trust Shares, 20 million
Institutional Shares, 5 million Investor A Shares and 50 million Investor B
Shares, representing interests in the U.S. Government Securities Portfolio; 15
million Trust Shares, 20 million Institutional Shares, 5 million Investor A
Shares and 50 million Investor B Shares and 50 million Investor B Shares,
representing interests in the Emerging Growth Portfolio; 15 million Trust
Shares, 20 million Institutional Shares, 5 million Investor A Shares and 50
million Investor B Shares, representing interests in the Balanced Portfolio; 10
million Trust Shares, 10 million Institutional Shares, 10 million Investor A
Shares and 50 million Investor B Shares, representing interests in the
International Equity Portfolio; 25 million Trust Shares and 25 million Investor
A Shares, representing interests in the Short-Intermediate Municipal Portfolio;
25 million Trust Shares, 25 million Investor A Shares and 25 million Investor B
Shares, representing interests in the Missouri Tax-Exempt Bond Portfolio; and 25
million Trust Shares, 25 million Investor A Shares and 10 million Investor B
Shares, representing interests in the Kansas Tax-Exempt Bond Portfolio.
Institutional, Investor A and/or Investor B Shares of the Portfolios are
described in separate prospectuses which are available from the Distributor at
the telephone number on the
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cover of this Prospectus. Shares in the Fund's Portfolios will
be issued without Share certificates.
The Trust Shares of the Portfolios are described in this Prospectus.
The Portfolios also offer Investor A Shares and, in addition, each Portfolio
except the Tax-Exempt Portfolios offers Institutional Shares and each Portfolio
except the Treasury Money Market and Tax-Exempt Money Market Portfolios offers
Investor B Shares. Institutional Shares, which are offered to financial
institutions acting on behalf of accounts for which they do not exercise
investment discretion, are sold without a sales charge. Investor A Shares (other
than Investor A Shares of the Money Market Portfolios which are sold without a
sales charge) are sold with a maximum 4.5% (2.5% with respect to the
Short-Intermediate Municipal Portfolio) front-end sales charge, and Investor B
Shares are sold with a maximum 5.0% contingent deferred sales charge. Investor A
Shares and Investor B Shares are sold through selected broker/dealers and other
financial intermediaries to individual or institutional customers. Trust Shares,
Institutional Shares, Investor A Shares and/or Investor B Shares bear their pro
rata portion of all operating expenses paid by a Portfolio, except that Trust
Shares and Institutional Shares bear all payments under the Portfolio's
respective Administrative Services Plans adopted for such Shares and Investor A
Shares and Investor B Shares bear all payments under the Portfolio's respective
Distribution and Services Plans adopted for such Shares. In addition,
Institutional Shares of a Portfolio bear the expense of certain sub-transfer
agency fees.
Payments under the Administrative Services Plans for Institutional
Shares are made to Service Organizations for administrative services provided to
the Service Organizations' clients or account holders who are the beneficial
owners of Institutional Shares. Payments under the Administrative Services Plans
may not exceed .25% (on an annual basis) of the average daily net asset value of
outstanding Institutional Shares of the Money Market Portfolios or .30% (on an
annual basis) of the average daily net asset value of outstanding Institutional
Shares of the Equity and Bond Portfolios.
Payments under the Distribution and Services Plans for Investor A
Shares and Investor B Shares are made to (i) the Distributor or another person
for providing distribution assistance and assuming certain related expenses, and
(ii) Service Organizations for administrative services provided to the Service
Organizations' clients or account holders who are the beneficial owners of
Investor A Shares or Investor B Shares. Payments under the Distribution and
Services Plan for Investor A Shares may not exceed .25% (on an annual basis) of
the average daily net asset value of outstanding Investor A Shares of the Money
Market Portfolios or .30% (on an annual basis) of the
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average daily net asset value of Investor A Shares of the Equity and Bond
Portfolios. Payments under the Distribution and Services Plan for Investor B
Shares may not exceed 1.00% (on an annual basis) of the average daily net asset
value of outstanding Investor B Shares of a Portfolio. Distribution payments
made under the Distribution and Services Plans are subject to the requirements
of Rule 12b-1 under the 1940 Act.
The Fund offers various services and privileges in connection with
Investor A Shares and Investor B Shares of a Portfolio that are not offered in
connection with the Portfolio's Trust or Institutional Shares, including an
automatic investment program and an automatic withdrawal plan. Each class of
shares also offers different exchange privileges. Investor B Shares convert
automatically into Investor A Shares eight years after the beginning of the
calendar month in which the Shares were purchased.
Shareholders are entitled to one vote for each full Share held and
proportionate fractional votes for fractional Shares held. Shares of all
Portfolios will vote together and not by class unless otherwise required by law
or permitted by the Board of Directors. All shareholders of a particular
Portfolio will vote together as a single class on matters relating to the
Portfolio's investment advisory (or sub-advisory) agreement and investment
objective and fundamental policies. Only holders of Trust Shares, however, will
vote on matters relating to the Administrative Services Plan for Trust Shares
and only holders of Institutional Shares will vote on matters pertaining to the
Administrative Services Plan for Institutional Shares. Similarly, only holders
of Investor A Shares will vote on matters pertaining to the Distribution and
Services Plan for Investor A Shares and only holders of Investor B Shares will
vote on matters pertaining to the Distribution and Services Plan for Investor B
Shares.
The Fund is not required, and currently does not intend, to hold
annual meetings except as required by the 1940 Act or other applicable law. Upon
the written request of the holders of 10% or more of the outstanding Shares, the
Fund will call a special meeting to vote on the question of removal of a
director.
Shares of the Portfolios have noncumulative voting rights and,
accordingly, the holders of more than 50% of the Fund's outstanding Shares
(irrespective of Portfolio or class) may elect all of the Directors. Shares have
no preemptive rights and only such conversion and exchange rights as the Board
may grant in its discretion. When issued for payment as described in this
Prospectus, Shares will be fully paid and nonassessable.
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MISCELLANEOUS
As used in this Prospectus, a "vote of a majority of the outstanding
Shares" of a Portfolio means, with respect to the approval of an investment
advisory agreement or a change in an investment objective or fundamental
investment policy, the affirmative vote of the lesser of (a) more than 50% of
the outstanding Shares of such Portfolio (irrespective of class), or (b) 67% or
more of the Shares of such Portfolio (irrespective of class) present at a
meeting if more than 50% of the outstanding Shares of such Portfolio are
represented at the meeting in person or by proxy.
As of January 1, 1996, Mercantile and its affiliates possessed, of
record on behalf of their underlying customer accounts, voting or investment
power with respect to more than 25% of the Fund's outstanding Shares. Therefore,
Mercantile may be deemed to be a controlling person of the Fund within the
meaning of the 1940 Act.
Inquiries regarding the Portfolios may be directed to the Fund at
1-800-551-3731.
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NO PERSON HAS BEEN AUTHORIZED
TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS NOT CONTAINED
IN THIS PROSPECTUS, OR IN THE
PORTFOLIOS' STATEMENT OF ADDITIONAL
INFORMATION INCORPORATED HEREIN BY
REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE
PORTFOLIOS, THE FUND, OR THE
DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFERING BY THE
PORTFOLIOS, THE FUND OR THE DISTRIBUTOR
IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
THE ARCH
FUND(R), INC.
Money Market
Portfolio
Treasury Money
Market Portfolio
Tax-Exempt
Money Market
Portfolio
Growth &
Income Equity
Portfolio
Emerging Growth
Portfolio
Government &
Corporate Bond
Portfolio
U.S. Government
Securities
Portfolio
Balanced
Portfolio
International
Equity Portfolio
Short-Intermediate
Municipal
Portfolio
Missouri
Tax-Exempt Bond
Portfolio
Kansas Tax-
Exempt Bond
Portfolio
-82-
<PAGE> 86
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Highlights............................................... TRUST
Certain Financial SHARES
Information............................................
Expense Summary for
Trust Shares...........................................
Financial Highlights.....................................
Investment Objectives,
Policies and Risk
Considerations.........................................
Pricing of Shares........................................
The Money Market Portfolios............................
The Equity and Bond Portfolios.........................
How to Purchase and
Redeem Shares..........................................
Purchase of Shares -- ........................
Purchase of Shares -- The [OLD LOGO]
Money Market Portfolios.....................
Purchase of Shares -- The
Equity and Bond Portfolios..................
Exchanges.....................................
Redemption of Shares..........................
Other Exchange or
Redemption Information......................
Yields and Total Returns.................................
Dividends and Distributions..............................
Taxes....................................................
Management of the Fund...................................
Other Information
Concerning the Fund
and its Shares......................................... PROSPECTUS
Miscellaneous................................. MARCH 28, 1996
Investment Adviser:
Mississippi Valley Advisors Inc.
a wholly-owned subsidiary of
Mercantile Bank of St. Louis National Association
Distributor: BISYS Fund Services
</TABLE>
-83-
<PAGE> 87
CROSS REFERENCE SHEET
---------------------
(Investor A and Investor B Shares)
The ARCH Money Market Portfolio
The ARCH Treasury Money Market Portfolio
The ARCH Tax-Exempt Money Market Portfolio
The ARCH Growth & Income Equity Portfolio
The ARCH Emerging Growth Portfolio
The ARCH Government & Corporate Bond Portfolio
The ARCH U.S. Government Securities Portfolio
The ARCH Balanced Portfolio
The ARCH International Equity Portfolio
The ARCH Short-Intermediate Municipal Portfolio
The ARCH Missouri Tax-Exempt Bond Portfolio
The ARCH Kansas Tax-Exempt Bond Portfolio
<TABLE>
<CAPTION>
Form N-1A Part A Item Prospectus Caption
- --------------------- ------------------
<S> <C> <C>
1. Cover Page . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . . . . . . . . . . . . . . . . Expense Summary
for Investor A and Investor B
Shares
3. Condensed Financial
Information . . . . . . . . . . . . . . . . . . . . . . Certain Financial
Information; Financial
Highlights; Yields and Total
Returns
4. General Description
of Registrant . . . . . . . . . . . . . . . . . . . . . Highlights; Investment
Objectives, Policies and
Risk Considerations; Other
Information Concerning
the Fund and Its Shares
5. Management of the Fund . . . . . . . . . . . . . . . . . . Management of the Fund
5A. Management's Discussion of
Fund Performance . . . . . . . . . . . . . . . . . . . . Inapplicable
6. Capital Stock and
Other Securities . . . . . . . . . . . . . . . . . . . . How to Purchase and
Redeem Shares; Dividends
and Distributions;
Taxes; Other Information
Concerning the Fund
and Its Shares
7. Purchase of Securities
Being Offered . . . . . . . . . . . . . . . . . . . . . How to Purchase and
Redeem Shares
8. Redemption or Repurchase . . . . . . . . . . . . . . . . . How to Purchase and
Redeem Shares
9. Pending Legal Proceedings . . . . . . . . . . . . . . . . Inapplicable
</TABLE>
<PAGE> 88
THE ARCH FUND(R), INC.
INVESTOR A SHARES AND INVESTOR B SHARES
For information, write: Or call your investment
P.O. Box 78069 representative or
St. Louis, Missouri 63178 the ARCH Funds' Service Center
at 1-800-551-3731
The ARCH Fund, Inc. (the "Fund") is an open-end management investment
company authorized to issue Shares in twelve investment portfolios. This
Prospectus describes the Investor A Shares in each of those portfolios and the
Investor B Shares in nine of those portfolios. Except as provided below,
Investor A Shares and Investor B Shares are sold through selected broker/dealers
and other financial intermediaries to individual or institutional customers.
Investor A Shares (with the exception of Investor A Shares in the money market
portfolios) are sold with a front-end sales charge. Investor B Shares are sold
with a contingent deferred sales charge.
THE ARCH MONEY MARKET PORTFOLIO'S investment objective is to seek
current income with liquidity and stability of principal. Features of the
Portfolio include:
- MONEY MARKET RETURNS
- ACTIVE PROFESSIONAL PORTFOLIO MANAGEMENT
THE ARCH TREASURY MONEY MARKET PORTFOLIO'S investment objective is to
seek a high level of current income exempt from state income tax consistent with
liquidity and security of principal. Features of the Portfolio include:
- HIGH DEGREE OF CREDIT SAFETY
- INCOME GENERALLY EXEMPT FROM STATE INCOME TAX
THE ARCH TAX-EXEMPT MONEY MARKET PORTFOLIO'S investment objective is to
seek as high a level of current interest income exempt from federal income tax
as is consistent with liquidity and stability of principal. Features of the
Portfolio include:
- TAX-FREE MONEY MARKET RETURNS
- ACTIVE PROFESSIONAL PORTFOLIO MANAGEMENT
[/R]
THE ARCH GROWTH & INCOME EQUITY PORTFOLIO'S investment objective is to
provide long-term capital growth, with income a secondary consideration.
Features of the Portfolio include:
<PAGE> 89
- OBJECTIVE OF CAPITAL GROWTH OVER THE LONG-TERM
- EQUITY INVESTMENTS PROVIDING SOME DIVIDEND INCOME
THE ARCH EMERGING GROWTH PORTFOLIO'S investment objective is capital
appreciation. Current income is an incidental consideration in the selection of
portfolio securities. Features of the Portfolio include:
- OBJECTIVE OF LONG-TERM CAPITAL APPRECIATION
- EMPHASIS ON SMALL TO MEDIUM-SIZED COMPANIES WITH ABOVE-
AVERAGE POTENTIAL FOR PRICE APPRECIATION
THE ARCH GOVERNMENT & CORPORATE BOND PORTFOLIO'S investment objective
is to seek the highest level of current income consistent with conservation of
capital. Features of the Portfolio include:
- OBJECTIVE OF CURRENT INCOME FROM GOVERNMENT AND
CORPORATE SECURITIES
- AT LEAST 65% OF ASSETS RATED "A" OR HIGHER OR DEEMED
COMPARABLE IN QUALITY.
THE ARCH U.S. GOVERNMENT SECURITIES PORTFOLIO'S investment objective is
to seek a high rate of current income that is consistent with relative stability
of principal. Features of the Portfolio include:
- OBJECTIVE OF CURRENT INCOME FROM GOVERNMENT SECURITIES
- HIGH DEGREE OF CREDIT SAFETY
THE ARCH BALANCED PORTFOLIO'S investment objective is to maximize total
return through a combination of growth of capital and current income consistent
with the preservation of capital. Features of the Portfolio include:
- PROFESSIONAL ASSET ALLOCATION AMONG EQUITY SECURITIES,
FIXED INCOME SECURITIES AND CASH EQUIVALENTS
- POTENTIAL FOR MAXIMIZING TOTAL RETURN
THE ARCH INTERNATIONAL EQUITY PORTFOLIO'S investment objective is to
provide capital growth consistent with reasonable investment risk by investing
principally in foreign equity securities, most of which will be denominated in
foreign currencies. Features of the Portfolio include:
- OBJECTIVE OF CAPITAL GROWTH
- DIVERSIFIED PORTFOLIO OF FOREIGN EQUITY SECURITIES
THE ARCH SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO'S investment objective
is to seek as high a level of current income, exempt
-2-
<PAGE> 90
from regular federal income tax, as is consistent with preservation of capital.
Features of the Portfolio include:
- TAX-FREE CURRENT INCOME
- POTENTIAL YIELD THAT IS HIGHER THAN A MUNICIPAL MONEY
MARKET FUND BUT A LOWER POTENTIAL YIELD WITH LESS PRICE
VOLATILITY THAN A LONG-TERM MUNICIPAL BOND FUND
THE ARCH MISSOURI TAX-EXEMPT BOND PORTFOLIO'S investment objective is
to seek as high a level of interest income exempt from federal income tax as is
consistent with conservation of capital. Features of the Portfolio include:
- INTEREST INCOME EXEMPT FROM FEDERAL INCOME TAX AND
MISSOURI INCOME TAX
- OBJECTIVE OF CONSERVATION OF CAPITAL
THE ARCH KANSAS TAX-EXEMPT BOND PORTFOLIO'S investment objective is to
seek as a high level of current income exempt from federal income tax as is
consistent with conservation of capital. Features of the Portfolio include:
- INTEREST INCOME EXEMPT FROM FEDERAL INCOME TAX AND
KANSAS INCOME TAX AND LOCAL INTANGIBLES TAX
- OBJECTIVE OF CONSERVATION OF CAPITAL
Mississippi Valley Advisors Inc. ("MVA" or the "Adviser"), a
wholly-owned subsidiary of Mercantile Bank of St. Louis National Association
("Mercantile"), acts as investment adviser for the Portfolios; Mercantile serves
as custodian; BISYS Fund Services Ohio, Inc. (the "Administrator") serves as
administrator; and BISYS Fund Services (the "Distributor") serves as sponsor and
distributor. In addition, Clay Finlay, Inc. ("Clay Finlay" or the "Sub-Adviser")
serves as sub-investment adviser for the International Equity Portfolio.
This Prospectus sets forth concisely certain information about the
Portfolios that prospective investors should know before investing. Investors
should read this Prospectus and retain it for future reference. Additional
information about the Portfolios, contained in a Statement of Additional
Information dated March 28, 1996, has been filed with the Securities and
Exchange Commission and is incorporated by reference in its entirety into this
Prospectus. An investor may obtain the Statement of Additional Information
without charge by writing the Fund at P.O. Box 78069, St. Louis, Missouri 63178
or by calling 1-800-551-3731.
An investment in the Money Market Portfolio, Treasury Money Market
Portfolio or Tax-Exempt Money Market Portfolio is neither insured nor guaranteed
by the U.S. Government. There can be no
-3-
<PAGE> 91
assurance that any of these Portfolios will be able to maintain a stable net
asset value of $1.00 per Share.
Portfolio Shares are not bank deposits, are not federally insured or
guaranteed by the U.S. Government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other governmental agency, and are not the
obligations of or guaranteed or otherwise supported by any bank. An investment
in the Portfolios involves investment risk, including possible loss of
principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
MARCH 28, 1996
[/R]
-4-
<PAGE> 92
HIGHLIGHTS
The ARCH Fund, Inc. is an open-end, management investment company
(commonly known as a mutual fund) registered under the Investment Company Act of
1940, as amended. The Fund offers investment opportunities in twelve investment
portfolios: the ARCH MONEY MARKET, TREASURY MONEY MARKET AND TAX-EXEMPT MONEY
MARKET PORTFOLIOS (the "Money Market Portfolios") and the ARCH GROWTH & INCOME
EQUITY, EMERGING GROWTH, GOVERNMENT & CORPORATE BOND, U.S. GOVERNMENT
SECURITIES, BALANCED, INTERNATIONAL EQUITY, SHORT-INTERMEDIATE MUNICIPAL,
MISSOURI TAX-EXEMPT BOND AND KANSAS TAX-EXEMPT BOND PORTFOLIOS (the "Equity and
Bond Portfolios" and, together with the Money Market Portfolios, the
"Portfolios"). Each Portfolio represents a separate pool of assets with
different investment objectives and policies (as described below under
"Investment Objectives, Policies and Risk Considerations"). MVA serves as
Adviser, Mercantile as Custodian, BISYS Fund Services Ohio, Inc. as
Administrator, and BISYS Fund Services as sponsor and Distributor. In addition,
Clay Finlay serves as Sub- Adviser for the International Equity Portfolio. (For
information on expenses, fee waivers, and services, see "Certain Financial
Information," Financial Highlights" and "Management of the Fund.")
The following information generally describes the Portfolios and their
investment objectives. There can be no assurance that the Portfolios will be
able to achieve their respective investment objectives.
The Money Market Portfolios each seek to maintain a net asset value of
$1.00 per Share. Each Money Market Portfolio's assets are invested in
dollar-denominated debt securities with remaining maturities of 397 days (13
months) or less as defined by the Securities and Exchange Commission, and each
Money Market Portfolio's dollar-weighted average portfolio maturity will not
exceed 90 days. All securities acquired by these Money Market Portfolios will be
determined by MVA, under guidelines approved by the Fund's Board of Directors,
to present minimal credit risks and to be rated in the highest category (or
deemed comparable in quality) at the time of purchase. There can be no assurance
that the Money Market Portfolios will be able to achieve a stable net asset
value on a continuous basis.
The Government & Corporate Bond and U.S. Government Securities
Portfolios are designed for investors who seek higher current income than is
typically offered by money market funds and who are willing to accept a variable
Share value to achieve that objective.
The Growth & Income Equity, Emerging Growth and Balanced Portfolios are
designed for investors who seek capital growth,
-5-
<PAGE> 93
and who are prepared to accept the risks associated with equity securities.
The International Equity Portfolio is designed for investors who seek
capital growth, wish to diversify their investments beyond the United States,
and are prepared to accept the risks entailed in such investments. These risks
may be greater than those associated with equity securities of companies located
in the United States.
The Short-Intermediate Municipal Portfolio is designed for investors
who seek a yield that is higher than a municipal money market fund with less
principal volatility than is normally associated with a long-term municipal bond
fund.
The Missouri Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios are
designed for investors who seek a higher rate of return than that typically
offered by tax-exempt money market funds and who are willing to accept a
variable Share value to achieve that objective.
The Tax-Exempt Money Market, Short-Intermediate Municipal, Missouri
Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios seek to provide income
exempt from federal income tax. In addition, the Missouri Tax-Exempt Bond
Portfolio seeks to provide income that is also exempt from Missouri income tax
and the Kansas Tax-Exempt Bond Portfolio seeks to provide income that is also
exempt from Kansas income tax and the local intangibles tax.
Investors should note that one or more of the Portfolios may, subject
to their investment policies and limitations, purchase variable and floating
rate instruments, revenue bonds, private activity bonds and municipal lease
obligations, enter into repurchase agreements and reverse repurchase agreements,
make securities loans, acquire the securities of foreign issuers, invest in
options and futures, and make limited investments in illiquid securities and
securities issued by other investment companies. These investment practices
involve investment risks of varying degrees. The Equity and Bond Portfolios may
also engage in short-term trading, which may also involve greater risk and
increase such Portfolios' expenses. The International Equity Portfolio will
invest principally in foreign equity securities, most of which will be
denominated in foreign currencies. The other Portfolios do not invest in
instruments denominated in foreign currency (except that the Growth & Income
Equity, Emerging Growth, and Balanced Portfolios may invest in certain Canadian
securities). The Tax-Exempt Money Market, Short- Intermediate Municipal,
Missouri Tax-Exempt Bond and Kansas Tax- Exempt Bond Portfolios may, under
certain conditions, make limited investments in securities the income on which
may be subject to federal income tax. See "Investment Objectives, Policies and
Risk Considerations" below and the Statement of
-6-
<PAGE> 94
Additional Information under "Investment Objectives and Policies."
The Fund offers investors the opportunity to invest in a variety of
professionally managed investments without having to become involved with
detailed management, accounting and safekeeping procedures normally related to
direct investments in securities. The Portfolios also offer the economic
advantages of block trading in securities and the availability of a family of
twelve mutual funds should your investment goals change.
This Prospectus describes the Investor A Shares of each Portfolio and
the Investor B Shares of the Money Market, Growth & Income Equity, Emerging
Growth, Government & Corporate Bond, U.S. Government Securities, Balanced,
International Equity, Missouri Tax-Exempt Bond and Kansas Tax-Exempt Bond
Portfolios (the "CDSC Portfolios"). Investor A Shares of each Portfolio are sold
with a front-end sales charge, except for Investor A Shares of the Money Market
Portfolios which are sold without a sales charge. Investor B Shares of the CDSC
Portfolios are sold with a contingent deferred sales charge. For information on
purchasing, exchanging or redeeming Investor A Shares and/or Investor B Shares
of the Portfolios, please see "How to Purchase and Redeem Shares" below. For a
discussion comparing Investor A Shares and Investor B Shares, please see
"Characteristics of Investor A Shares and Investor B Shares," and "Factors to
Consider When Selecting Investor A Shares or Investor B Shares" on pages 79
and 80, respectively.
[/R]
-7-
<PAGE> 95
CERTAIN FINANCIAL INFORMATION
Shares of the Money Market, Growth & Income Equity, Emerging Growth,
Government & Corporate Bond, U.S. Government Securities, Balanced and
International Equity Portfolios have been classified into four classes of Shares
- -- Trust Shares, Institutional Shares, Investor A Shares and Investor B Shares.
Shares of the Treasury Money Market Portfolio have been classified into three
classes of Shares -- Trust Shares, Institutional Shares and Investor A Shares.
Shares of the Missouri Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios
have been classified into three classes of Shares -- Trust Shares, Investor A
Shares and Investor B Shares. Shares of the Tax-Exempt Money Market and Short-
Intermediate Municipal Portfolios have been classified into two classes of
Shares -- Trust Shares and Investor A Shares. Shares of each class in a
Portfolio represent equal, pro rata interests in the investments held by that
Portfolio and are identical in all respects, except that Shares of each class
bear separate distribution and/or shareholder administrative servicing fees and
certain other operating expenses, and enjoy certain exclusive voting rights on
matters relating to these fees. (See "Other Information Concerning the Fund and
Its Shares," "Management of the Fund -- Distribution and Services Plans" and
"Management of the Fund -- Custodian, Sub-Custodian and Transfer Agent" below.)
As a result of payments for distribution and/or shareholder administrative
servicing fees and certain other operating expenses that may be made in
differing amounts, the net investment income of Trust Shares, Institutional
Shares, Investor A Shares and/or Investor B Shares in a Portfolio can be
expected, at any given time, to be different.
The Tax-Exempt Money Market Portfolio and Missouri Tax- Exempt Bond
Portfolio commenced operations on July 10, 1986 and July 15, 1988, respectively,
as separate investment portfolios (the "Predecessor Tax-Exempt Money Market
Portfolio" and the "Predecessor Missouri Tax-Exempt Bond Portfolio",
respectively) of The ARCH Tax-Exempt Trust (the "Trust"), which was organized as
a Massachusetts business trust. On October 2, 1995, the Predecessor Tax-Exempt
Money Market Portfolio and the Predecessor Missouri Tax-Exempt Bond Portfolio
were reorganized as new portfolios of the Fund. Prior to the reorganization,
these Predecessor Portfolios offered and sold shares of beneficial interest that
were similar to the Fund's Trust Shares, Investor A Shares and Investor B
Shares.
-8-
<PAGE> 96
EXPENSE SUMMARY FOR
INVESTOR A AND INVESTOR B SHARES
<TABLE>
<CAPTION>
GROWTH &
TREASURY TAX-EXEMPT INCOME
MONEY MARKET MONEY MARKET MONEY MARKET EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------------- --------- --------- ----------------------
INVESTOR A INVESTOR B INVESTOR A INVESTOR A INVESTOR A INVESTOR B
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Load Imposed on
Purchases (as a percentage of
offering price)..................... NONE NONE NONE NONE 4.5%(1) NONE
Deferred Sales Charge
(as a percentage of original
purchase price or redemption
proceeds, whichever is lower)....... NONE 5.0%(2) NONE NONE NONE 5.0%(2)
ANNUAL PORTFOLIO OPERATING
EXPENSES
(as a percentage of average
net assets)
Investment Advisory Fees (net
of fee waivers)(3)................. .35% .35% .35% .35% .55% .55%
12b-1 Fees, including
distribution and service
fees .............................. .25% 1.00% .25% .25% .30% 1.00%
Other Expenses (including
administration fees
and other expenses) (net
of fee waivers and expense
reimbursements)(4),(5)............. .17% .17% .18% .16% .20% .20%
--- --- ---- ---- ---- ----
Total Portfolio Operating
Expenses (net of fee waivers
and expense reimbursements)(5)..... .77% 1.52% .78% .76% 1.05% 1.75%
--- ---- ---- ---- ===== =====
</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT &
EMERGING CORPORATE
GROWTH BOND
PORTFOLIO PORTFOLIO
------------------------ ----------------------
INVESTOR A INVESTOR B INVESTOR A INVESTOR B
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Load Imposed on
Purchases (as a percentage of
offering price)..................... 4.5%(1) NONE 4.5%(1) NONE
Deferred Sales Charge
(as a percentage of original
purchase price or redemption
proceeds, whichever is lower)....... NONE 5.0%(2) NONE 5.0%(2)
ANNUAL PORTFOLIO OPERATING
EXPENSES
(as a percentage of average
net assets)
Investment Advisory Fees (net
of fee waivers)(3)................. .75% .75% .45% .45%
12b-1 Fees, including
distribution and service
fees .............................. .30% 1.00% .30% 1.00%
Other Expenses (including
administration fees
and other expenses) (net
of fee waivers and expense
reimbursements)(4),(5)............. .21% .21% .20% .20%
---- ---- ---- ----
Total Portfolio Operating
Expenses (net of fee waivers
and expense reimbursements)(5)..... 1.26% 1.96% .95% 1.65%
===== ===== ==== =====
</TABLE>
1 Reduced sales charges may be available. See "How to Purchase and Redeem
Shares -- Reduced Sales Charges - Investor A Shares of the Equity and Bond
Portfolios".
2 This amount applies to redemptions during the first year. The deferred sales
charge decreases to 4.0%, 3.0%, 3.0%, 2.0% and 1.0% for redemptions made
during the second through sixth years, respectively. No deferred sales
charge is charged after the sixth year. See "How to Purchase and Redeem
Shares -- Applicable Sales Charge - Investor B Shares of the CDSC
Portfolios."
3 Without fee waivers, advisory fees for the Money Market, Treasury Money
Market and Tax-Exempt Money Market Portfolios would be .40%, .40% and .40%,
respectively.
4 Without fee waivers, administration fees for a Portfolio would be .20% (.10%
for the Tax-Exempt Money Market Portfolio).
5 Without fee waivers and/or expense reimbursements, Other Expenses would be
.27%, .28%, .16%, .30%, .31% and .30% for Investor A Shares of the Money
Market, Treasury Money Market, Tax- Exempt Money Market, Growth & Income
Equity, Emerging Growth and Government & Corporate Bond Portfolios,
respectively, and .27%, .30%, .31% and .30% for Investor B Shares of the
Money Market, Growth & Income Equity, Emerging Growth and Government &
Corporate Bond Portfolios, respectively, and Total Portfolio Operating
Expenses would be .92%, .93%, .81%, 1.15%, 1.36% and 1.05% for Investor A
Shares of the Money Market, Treasury Money Market, Tax-Exempt Money Market,
Growth & Income Equity, Emerging Growth and Government & Corporate Bond
Portfolios, respectively, and 1.67%, 1.85%, 2.06% and 1.75% for Investor B
Shares of the Money Market, Growth & Income Equity, Emerging Growth and
Government & Corporate Bond Portfolios, respectively.
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<PAGE> 97
<TABLE>
<CAPTION>
SHORT-
U.S. GOVERNMENT INTERNATIONAL INTERMEDIATE
SECURITIES BALANCED EQUITY MUNICIPAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------------------- ---------------------- ----------------------- ----------
INVESTOR A INVESTOR B INVESTOR A INVESTOR B INVESTOR A INVESTOR B INVESTOR A
---------- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Front-End Sales Load
Imposed on Purchases
(as a percentage of
offering price)........... 4.5%(1) NONE 4.5%(1) NONE 4.5%(1) NONE 2.5%(1)
Deferred Sales Charge
(as a percentage of
original purchase
price or redemption
proceeds, whichever
is lower)................. NONE 5.0%(2) NONE 5.0%(2) NONE 5.0%(2) NONE
ANNUAL PORTFOLIO
OPERATING EXPENSES
(as a percentage of
average net assets)
Investment Advisory
Fees (net of fee waivers). .45% .45% .75% .75% .75%(3) .75%(3) 0.00%(3)
12b-1 Fees, including
distribution and
service fees ............ .30% 1.00% .30% 1.00% .30% 1.00% .20%(4)
Other Expenses
(including
administration fees
and other expenses)
(net of fee waivers
and expense
reimbursements)(5),(6)... .22% .23% .22% .18% .40% .27% .30%
---- ----- ---- ---- ---- ----- ----
Total Portfolio
Operating Expenses (net
of fee waivers and
expense reimbursements)(6) .97% 1.68% 1.27% 1.93% 1.45% 2.02% .50%
==== ===== ===== ===== ===== ===== ====
</TABLE>
<TABLE>
<CAPTION>
MISSOURI KANSAS
TAX-EXEMPT TAX-EXEMPT
BOND BOND
PORTFOLIO PORTFOLIO
---------------------- -----------------------
INVESTOR A INVESTOR B INVESTOR A INVESTOR B
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Front-End Sales Load
Imposed on Purchases
(as a percentage of
offering price)........... 4.5%(1) NONE 4.5%(1) NONE
Deferred Sales Charge
(as a percentage of
original purchase
price or redemption
proceeds, whichever
is lower)................. NONE 5.0%(2) NONE 5.0%(2)
ANNUAL PORTFOLIO
OPERATING EXPENSES
(as a percentage of
average net assets)
Investment Advisory
Fees (net of fee waivers). .45% .45% 0.00%(3) 0.00%(3)
12b-1 Fees, including
distribution and
service fees ............ .20%(4) 1.00% .20%(4) 1.00%
Other Expenses
(including
administration fees
and other expenses)
(net of fee waivers
and expense
reimbursements)(5),(6)... .19% .18% .43% .43%
---- ----- ---- ----
Total Portfolio
Operating Expenses (net
of fee waivers and
expense reimbursements)(6) .84% 1.63% .63% 1.43%
==== ===== ==== =====
</TABLE>
1 Reduced sales charge may be available. See "How to Purchase and Redeem
Shares -- Reduced Sales Charges - Investor A Shares of the Equity and Bond
Portfolios".
2 This amount applies to redemptions during the first year. The deferred sales
charge decreases to 4.0%, 3.0%, 3.0%, 2.0% and 1.0% for redemptions made
during the second through sixth years, respectively. No deferred sales
charge is charged after the sixth year. See "How to Purchase and Redeem
Shares -- Applicable Sales Charge - Investor B Shares of the CDSC
Portfolios."
3 Without fee waivers, investment advisory fees for the International Equity,
Short-Intermediate Municipal and Kansas Tax-Exempt Bond Portfolios would be
1.00%, .55% and .45%, respectively. 4 Without fee waivers, 12b-1 fees would
be .30% for Investor A Shares of the Short-Intermediate Municipal, Missouri
Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios.
4 Without fee waivers, 12b-1 fees would be .30% for Investor A Shares of the
Short-Intermediate Municipal, Missouri Tax-Exempt Bond and Kansas
Tax-Exempt Bond Portfolios.
5 Without fee waivers, administration fees for a Portfolio would be .20%.
6 Without fee waivers and/or expense reimbursements, Other Expenses would be
.32%, .32%, .46%, .40%, .29% and .53% for Investor A Shares of the U.S.
Government Securities, Balanced, International Equity, Short- Intermediate
Municipal, Missouri Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios,
respectively, and .33%, .28%, .44%, .28% and .53% for Investor B Shares of
the U.S. Government Securities, Balanced, International Equity, Missouri
Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios, respectively, and
Total Portfolio Operating Expenses would be 1.07%, 1.37%, 1.76%, 1.25%,
1.04% and 1.28% for Investor A Shares of the U.S. Government Securities,
Balanced, International Equity, Missouri Tax-Exempt Bond and Kansas
Tax-Exempt Bond Portfolios, respectively, and 1.78%, 2.03%, 2.44%, 1.73% and
1.98% for Investor B Shares of the U.S. Government Securities, Balanced,
International Equity, Missouri Tax-Exempt Bond and Kansas Tax-Exempt Bond
Portfolios, respectively.
[/R]
-10-
<PAGE> 98
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) a 5% annual return and
(2) redemption at the end of each period:
Money Market Portfolio
Investor A Shares ................................ $ 8 $ 25 $ 43 $ 95
Investor B Shares
Assuming complete redemption
at end of period(1) ............................ $ 65 $ 78 $ 93 $ 161(3)
Assuming no redemption ......................... $ 15 $ 48 $ 83 $ 161(3)
Treasury Money Market Portfolio
Investor A Shares ................................ $ 8 $ 25 $ 43 $ 97
Tax-Exempt Money Market Portfolio
Investor A Shares ................................ $ 8 $ 24 $ 42 $ 94
Growth & Income Equity Portfolio
Investor A Shares(2) ............................. $ 55 $ 77 $ 100 $ 167
Investor B Shares
Assuming complete redemption at
end of period(1) ............................... $ 68 $ 85 $ 105 $ 188(3)
Assuming no redemption ......................... $ 18 $ 55 $ 95 $ 188(3)
Emerging Growth Portfolio
Investor A Shares(2) ............................. $ 57 $ 83 $ 111 $ 190
Investor B Shares
Assuming complete redemption at
end of period(1) ............................... $ 70 $ 92 $ 116 $ 210(3)
Assuming no redemption ......................... $ 20 $ 62 $ 106 $ 210(3)
Government & Corporate Bond Portfolio
Investor A Shares(2) ............................. $ 54 $ 74 $ 95 $ 156
Investor B Shares
Assuming complete redemption at
end of period(1) ............................... $ 67 $ 82 $ 100 $ 177(3)
Assuming no redemption ......................... $ 17 $ 52 $ 90 $ 177(3)
U.S. Government Securities Portfolio
Investor A Shares(2) ............................. $ 54 $ 75 $ 96 $ 159
Investor B Shares
Assuming complete redemption at
end of period(1) ............................... $ 67 $ 83 $ 101 $ 180(3)
Assuming no redemption ......................... $ 17 $ 53 $ 91 $ 180(3)
Balanced Portfolio
Investor A Shares(2) ............................. $ 57 $ 83 $ 112 $ 191
Investor B Shares
Assuming complete redemption at
end of period(1) ............................... $ 70 $ 91 $ 114 $ 208(3)
Assuming no redemption ......................... $ 20 $ 61 $ 104 $ 208(3)
</TABLE>
-11-
<PAGE> 99
<TABLE>
<S> <C> <C> <C> <C>
International Equity Portfolio
Investor A Shares(2) .................... $59 $89 $121 $ 211
Investor B Shares
Assuming complete redemption at
end of period(1) ...................... $71 $93 $119 $ 220(3)
Assuming no redemption ................ $21 $63 $109 $ 220(3)
Short-Intermediate Municipal Portfolio
Investor A Shares(2) .................... $30 $41 $ 52 $ 86
Missouri Tax-Exempt Bond Portfolio
Investor A Shares(2) .................... $53 $71 $ 89 $ 144
Investor B Shares
Assuming complete redemption at
end of period(1) ...................... $67 $81 $ 99 $ 172(3)
Assuming no redemption ................ $17 $51 $ 89 $ 172(3)
Kansas Tax-Exempt Bond Portfolio
Investor A Shares(2) .................... $51 $64 $N/A $N/A
Investor B Shares
Assuming complete redemption at
end of period(1) ...................... $65 $75 $N/A $N/A
Assuming no Redemption ................ $15 $45 $N/A $N/A
</TABLE>
1 Assumes deduction of maximum applicable contingent deferred sales
charge.
2 Assumes deduction at time of purchase of maximum applicable front-end
sales charge.
3 Based on conversion of Investor B Shares into Investor A Shares after
eight years.
-12-
<PAGE> 100
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN. Information about the actual performance of all
of the Portfolios is contained in the Fund's Annual Report to Shareholders dated
November 30, 1995 which may be obtained without charge by contacting the Fund at
the address or telephone number provided on the cover page of this Prospectus.
The purpose of the foregoing tables is to assist in understanding the
various costs and expenses that an investor in a Portfolio's Investor A or
Investor B Shares will bear directly or indirectly. The information contained in
such tables for the Money Market, Treasury Money Market, Growth & Income Equity,
Emerging Growth, Government & Corporate Bond, U.S. Government Securities,
Balanced and International Equity Portfolios is based on the expenses incurred
by each of these Portfolios during the last fiscal year with respect to its
Investor A and/or Investor B Shares. The information contained in such tables
for the Tax- Exempt Money Market, Short-Intermediate Municipal and Missouri
Tax-Exempt Bond Portfolios is based on expenses incurred by each of these
Portfolios during the last fiscal year, restated to reflect the expenses which
each such Portfolio expects to incur during the current fiscal year with respect
to its Investor A and/or Investor B Shares. Such information with respect to the
Kansas Bond Portfolio is based on expenses the Portfolio expects to incur during
the current fiscal year. (For more complete descriptions of the various costs
and expenses, see "Condensed Financial Information" and "Management of the Fund"
in this Prospectus and the Statement of Additional Information.) The Table and
Examples have not been audited by the Fund's independent auditors and do not
reflect any charges that may be imposed by financial institutions on their
customers.
Because of the payments for distribution services (12b-1 fees) under
the Distribution and Services Plans as shown in the above table, long-term
shareholders of Investor A Shares of the Equity and Bond Portfolios and Investor
B Shares of the CDSC Portfolios may pay more than the economic equivalent of the
maximum front-end sales load permitted by the National Association of Securities
Dealers, Inc.
-13-
<PAGE> 101
FINANCIAL HIGHLIGHTS
The "Financial Highlights" in the following tables supplement the
Fund's financial statements, which are contained in the Fund's Annual Report to
Shareholders dated November 30, 1995 and incorporated by reference into the
Statement of Additional Information, and set forth certain historic results for
Investor A Shares of each Portfolio and Investor B Shares of the Growth & Income
Equity, Emerging Growth, Government & Corporate Bond, U.S. Government
Securities, Balanced, International Equity and Missouri Bond Portfolios. The
data for the years or periods ended November 30, 1989 through 1995 and with
respect to the Tax-Exempt Money Market and Missouri Tax- Exempt Bond Portfolios
(and their Predecessor Portfolios), for the six-month period ended November 30,
1995 and each of the years or periods ended May 31, 1990 through 1995, has been
audited by KPMG Peat Marwick LLP, independent auditors, whose unqualified report
insofar as it relates to each of the years or periods in the five-year period
ended November 30, 1995 (the six-month period ended November 30, 1995 and each
of the years or periods in the five-year period ended May 31, 1995 with respect
to the Tax-Exempt Money Market and Missouri Tax-Exempt Bond Portfolios (and
their Predecessor Portfolios)) on the financial statements containing such
information is incorporated by reference into the Statement of Additional
Information. The data for years ended November 30, 1986 through 1988 and with
respect to the Predecessor Tax-Exempt Money Market and Predecessor Missouri
Tax-Exempt Bond Portfolios, for the years ended May 31, 1989 and 1988 and the
period ended May 31, 1987 were derived from financial statements audited by the
Fund's and the Trust's prior auditors.
During the periods shown, Investor B Shares were not offered by the
Money Market Portfolio and Investor A Shares were not offered by the
Short-Intermediate Municipal Portfolio. Information in the financial highlights
for the Short- Intermediate Municipal Portfolio sets forth certain historic
investment results for Trust Shares of the Portfolio and is intended to provide
investors with a perspective as to that Portfolio's financial history (Trust
Shares are offered without a sales charge and are subject to administrative
servicing fees at an annual rate of up to .30% of the Portfolio's outstanding
Trust Shares).
Further information about the performance of the Portfolios is
available in the Annual Report. Both the Statement of Additional Information and
the Annual Report may be obtained free of charge by contacting the Fund at the
address or telephone number on the front cover page of this Prospectus.
-14-
<PAGE> 102
MONEY MARKET PORTFOLIO
(FOR A SHARE(A) OUTSTANDING THROUGHOUT EACH PERIOD)
INVESTOR A SHARES
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991(A)
-------- -------- -------- -------- --------
INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR
A SHARES A SHARES SHARES SHARES SHARES
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period ............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------ ------------ ------------ ------------
Investment Activities
Net investment income ............ 0.052 0.033 0.025 0.032 0.056
------------ ------------ ------------ ------------ ------------
Distributions
Net investment income ............ (0.052) (0.033) (0.025) (0.032) (0.056)
------------ ------------ ------------ ------------ ------------
Net Asset Value, End of Period ..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============ ============ ============ ============ ============
Total Return ....................... 5.33% 3.37% 2.52% 3.21% 5.75%
Ratios/Supplemental Data:
Net Assets at end of period (000) .. $ 64,865 $ 48,384 $ 46,920 $ 52,224 $ 60,436
Ratio of expenses to average net
assets (including waivers) ....... 0.77% 0.78% 0.79% 0.80% 0.72%
Ratio of net investment income to
average net assets (including
waivers) ......................... 5.20% 3.35% 2.50% 3.21% 5.69%
Ratio of expenses to average net
assets (before waivers)* ......... 0.92% 0.93% 0.93% 0.94% 0.80%
Ratio of net investment income to
average net assets (before
waivers)* ........................ 5.05% 3.20% 2.36% 3.07% 5.61%
</TABLE>
<TABLE>
<CAPTION>
1990 1989 1988 1987 1986
------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period ............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------ ------------ ------------ ------------
Investment Activities
Net investment income ............ 0.078 0.088 0.071 0.062 0.065
------------ ------------ ------------ ------------ ------------
Distributions
Net investment income ............ (0.078) (0.088) 0.071 0.062 0.065
------------ ------------ ------------ ------------ ------------
Net Asset Value, End of Period ..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============ ============ ============ ============ ============
Total Return ....................... 8.08% 9.21% 7.33%(b) 6.40%(b) 6.70%(b)
Ratios/Supplemental Data:
Net Assets at end of period (000) .. $ 896,903 $ 661,145 $ 289,764 $ 220,944 $ 179,224
Ratio of expenses to average net
assets (including waivers) ....... 0.55% 0.45% 0.45% 0.45% 0.45
Ratio of net investment income to
average net assets (including
waivers) ......................... 7.77% 8.82% 7.12% 6.22% 6.49%
Ratio of expenses to average net
assets (before waivers)* ......... 0.60% 0.60% 0.58% 0.68% 0.68%
Ratio of net investment income to
average net assets (before
waivers)* ........................ 7.72% 8.67% 6.99% 5.99% 6.26%
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) As of December 1, 1990, the Portfolio designated existing Shares as
"Investor" Shares. On September 27, 1994 the Portfolio redesignated
Investor Shares as "Investor A" Shares.
(b) Unaudited.
-15-
<PAGE> 103
TREASURY MONEY MARKET PORTFOLIO
(FOR A SHARE(B) OUTSTANDING THROUGHOUT EACH PERIOD)
INVESTOR A SHARES
<TABLE>
<CAPTION>
DEC. 2, 1991
YEAR ENDED YEAR ENDED YEAR ENDED TO NOV. 30,
NOV. 30, 1995 NOV. 30, 1994 NOV. 30, 1993 1992(A)(B)
------------- ------------- ------------- ----------
INVESTOR A INVESTOR A INVESTOR INVESTOR
SHARES SHARES SHARES SHARES
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ..... $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ----------
Investment Activities
Net investment income .................. 0.048 0.31 0.024 0.017
---------- ---------- ---------- ----------
Distributions
Net investment income .................. (0.048) (0.031) (0.024) (0.017)
---------- ---------- ---------- ----------
Net Asset Value, End of Period ........... $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ==========
Total Return ............................. 4.93% 3.16% 2.43% 1.79%(c)
Ratios/Supplemental Data:
Net Assets at end of period (000) ........ $ 2,776 $ 1,713 $ 1,411 $ 3,257
Ratio of expenses to average net assets
(including waivers) .................... 0.78% 0.71% 0.64% 0.58%(d)
Ratio of net investment income to
average net assets (including
waivers) ............................... 4.84% 3.14% 2.41% 2.88%(d)
Ratio of expenses to average net assets
(before waivers)* ...................... 0.93% 0.94% 0.97% 1.02%(d)
Ratio of net investment income to
average net assets (before
waivers)* .............................. 4.69% 2.90% 2.08% 2.44%(d)
</TABLE>
- ----------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) On December 2, 1991, the Portfolio issued a series of Shares which were
designated as "Trust" Shares. In addition, on April 20, 1992, the Portfolio
issued a second series of Shares which were designated as "Investor"
Shares. The financial highlights presented for the period prior to April
20, 1992 represent financial highlights applicable to Trust Shares. On
September 27, 1994 the Portfolio redesignated Investor Shares as "Investor
A" Shares.
(c) Not Annualized.
(d) Annualized.
-16-
<PAGE> 104
TAX-EXEMPT MONEY MARKET PORTFOLIO(A)
(FOR A SHARE(B) OUTSTANDING THROUGHOUT EACH PERIOD)
INVESTOR A SHARES
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED NOV. 30 MAY 31,
------------- -----------------------------------------------------------------------
1995(F) 1995 1994(B) 1993 1992
------------ ---------- ------------ ---------- ----------
INVESTOR A INVESTOR A INVESTOR INVESTOR INVESTOR
SHARES SHARES SHARES SHARES SHARES
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------ ------------ ------------ ------------
Investment Activities
Net investment income ......... 0.014 0.027 0.017 0.019 0.031
------------ ------------ ------------ ------------ ------------
Distributions
Net investment income ......... (0.014) (0.027) (0.017) (0.019) (0.031)
------------ ------------ ------------ ------------
Net Asset Value,
End of Period ................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============ ============ ============ ============ ============
Total Return .................... 1.45%(d) 2.70% 1.73% 1.90% 3.16%
Ratios/Supplemental Data:
Net assets at end of period
(000) ......................... $ 5,403 $ 5,138 $ 8,631 $ 6,837 $ 10,956
Ratio of expenses to
average net assets (including
waivers) ...................... 0.94%(e) 0.84% 0.76% 0.80% 0.87%
Ratio of net investment income
to average net assets
(including waivers) ........... 2.87%(e) 2.63% 1.72% 1.88% 3.10%
Ratio of expenses to
average net assets (before
waivers)* ..................... 0.99%(e) 0.93% 0.86% 0.90% 0.97%
Ratio of net investment income
to average net assets (before
waivers)* ..................... 2.82%(e) 2.54% 1.62% 1.78% 3.00%
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
MAY 31,
--------------------------------------------------------------- ----------
1991 1990(B) 1989(B) 1988(B) 1987(A)
---------- ---------- ---------- --------- ----------
INVESTOR DOLLAR DOLLAR DOLLAR PORTFOLIO
SHARES SHARES SHARES SHARES SHARES
---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------ ------------ ------------ ------------ ------------
Investment Activities
Net investment income .......... 0.047 0.041 0.042 0.025 0.036
------------ ------------ ------------ ------------ ------------
Distributions
Net investment income .......... (0.047) (0.041) (0.042) (0.025) (0.036)
------------ ------------ ------------ ------------ ------------
Net Asset Value,
End of Period .................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============ ============ ============ ============ ============
Total Return ..................... 4.82% 5.73% 5.72% 1.81% 3.80%(d)
Ratios/Supplemental Data:
Net assets at end of period (000) $ 8,286 0 $ 3,083 0 $ 147,799
Ratio of expenses to
average net assets (including
waivers) ....................... 0.58% 0.78% 0.65% 0.65% 0.37%(c),(e)
Ratio of net investment income
to average net assets
(including waivers) ............ 5.09% 5.30% 5.38% 4.05% 4.02%(c),(e)
Ratio of expenses to
average net assets (before
waivers)* ...................... 0.68% 0.87% 0.83% 0.80% 0.62%(c),(e)
Ratio of net investment income
to average net assets (before
waivers)* ...................... 4.99% 5.21% 5.20% 3.90% 3.77%(c),(e)
</TABLE>
- -----------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) The Portfolio commenced operations on July 10, 1986 as an investment
portfolio of The ARCH Tax-Exempt Trust. On October 27, 1995, it was
reorganized as a new portfolio of the Fund.
(b) "Investor A" Shares were originally issued as "Dollar" Shares in June of
1987. As of September 28, 1990, the Portfolio redesignated its existing
Shares as "Investor" Shares. On September 27, 1994 the Portfolio
redesignated Investor Shares as "Investor A" Shares.
(c) Includes waiver of sub-advisory fees for the period ended May 31, 1987.
(d) Not Annualized.
(e) Annualized.
(f) Upon its reorganization as a portfolio of the Fund, the Portfolio changed
its fiscal year-end from May 31 to November 30.
-17-
<PAGE> 105
GROWTH & INCOME EQUITY PORTFOLIO
(FOR A SHARE(A) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INVESTOR A SHARES
-----------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
-----------------------------------------------------------------------------------
1995 1994(A) 1993 1992 1991(A)
---- ------- ---- ---- -------
INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR
A SHARES A SHARES SHARES SHARES SHARES
-------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ................ $ 12.70 $ 14.74 $ 14.49 $ 12.33 $ 11.22
---------- ---------- ---------- ---------- ----------
Investment Activities
Net investment income .............. 0.23 0.20 0.25 0.25 0.39
Net realized and unrealized gains
(losses) from investments ......... 3.74 (0.17) 1.06 2.24 1.47
---------- ---------- ---------- ---------- ----------
Total from Investment Activities ... 3.97 0.03 1.31 2.49 1.86
---------- ---------- ---------- ---------- ----------
Distributions
Net investment income .............. (0.23) (0.21) (0.25) (0.26) (0.39)
Net realized gain .................. (0.14) (0.18) (0.81) (0.07) (0.36)
In excess of net realized gains .... (1.68)
---------- ---------- ---------- ---------- ----------
Total Distributions ............... (0.37) (2.07) (1.06) (0.33) (0.75)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ....... $ 16.30 $ 12.70 $ 14.74 $ 14.49 $ 12.33
========== ========== ========== ========== ==========
Total Return (excludes sales
charges) ............................. 31.95% 0.20% 9.65% 20.59% 17.39%
Ratios/Supplemental Data:
Net Assets at end of period (000) .... $ 25,082 $ 18,343 $ 11,157 $ 6,044 $ 3,254
Ratio of expenses to average net
assets (including waivers) ......... 1.05% 1.05% 0.74% 0.71% 0.34%
Ratio of net investment income to
average net assets (including
waivers) ........................... 1.59% 1.45% 1.74% 1.94% 3.50%
Ratio of expenses to average net
assets (before waivers)* ........... 1.15% 1.15% 0.96% 0.85% 1.05%
Ratio of net investment income to
average net assets (before
waivers)* .......................... 1.49% 1.35% 1.52% 1.80% 2.79%
Portfolio turnover ................... 58.50% 65% 41% 79% 78%
</TABLE>
<TABLE>
<CAPTION>
INVESTOR A SHARES
-----------------------------------------------
YEAR ENDED NOVEMBER 30,
----------------------------------
INVESTOR B
JUNE 2, SHARES
1988 MARCH 1, 1995
TO NOVEMBER 30, TO NOVEMBER 30,
1990 1989 1988(B) 1995(C)
------- ------ ---------- --------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ................. $ 12.41 $ 10.25 $ 10.00 $ 13.43
---------- ---------- ---------- ----------
Investment Activities
Net investment income ............... 0.39 0.41 0.28 0.14
Net realized and unrealized gains
(losses) from investments .......... (0.56) 2.29 0.06 2.81
---------- ---------- ---------- ----------
Total from Investment Activities .... (0.17) 2.70 0.34 2.95
---------- ---------- ---------- ----------
Distributions
Net investment income ............... (0.39) (0.51) (0.09) (0.15)
Net realized gain ................... (0.63) (0.03)
In excess of net realized gains .....
---------- ---------- ---------- ----------
Total Distributions ................ (1.02) (0.54) (0.09) (0.15)
---------- ---------- ---------- ----------
Net Asset Value, End of Period ........ $ 11.22 $ 12.41 $ 10.25 $ 16.23
========== ========== ========== ==========
Total Return (excludes sales
charges) .............................. (1.36)% 27.11% 3.46%(d),(f) 31.20%(e)
Ratios/Supplemental Data:
Net Assets at end of period (000) ..... $ 20,116 $ 17,892 $ 10,890 $ 781
Ratio of expenses to average net
assets (including waivers) .......... 0.35% 0.42% 0.41%(g) 1.75%(g)
Ratio of net investment income to
average net assets (including
waivers) ............................ 3.42% 3.69% 5.62%(g) 0.87%(g)
Ratio of expenses to average net
assets (before waivers)* ............ 1.00% 1.07% 1.12%(g) 1.85%(g)
Ratio of net investment income to
average net assets (before
waivers)* ........................... 2.77% 3.04% 4.91%(g) 0.77%(g)
Portfolio turnover .................... 227% 133% 30% 58.50%(g)
</TABLE>
- ---------------
* During the period, fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. On September 27, 1994 the Portfolio
redesignated Investor Shares as "Investor A" Shares and authorized the
issuance of a series of Shares designated as "Investor B" Shares.
(b) Period from commencement of operations.
[/R]
-18-
<PAGE> 106
(c) Period from date of initial public offering.
(d) Unaudited.
(e) Represents total return for Investor A Shares from December 1, 1994 to
February 28, 1995 plus total return for Investor B Shares from March 1,
1995 to November 30, 1995.
(f) Not Annualized.
(g) Annualized
-19-
<PAGE> 107
GOVERNMENT & CORPORATE BOND PORTFOLIO
(FOR A SHARE(A) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INVESTOR A SHARES
YEAR ENDED NOVEMBER 30,
-----------------------------------------------------------------------------------
1995 1994(A) 1993 1992 1991(A)
---- ------- ---- ---- -------
INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR
A SHARES A SHARES SHARES SHARES SHARES
-------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ................ $ 9.64 $ 10.65 $ 10.26 $ 10.15 $ 9.71
---------- ---------- ---------- ---------- ----------
Investment Activities
Net investment income .............. 0.61 0.60 0.64 0.66 0.75
Net realized and unrealized gains
(losses) from investments ......... 0.89 (0.94) 0.39 0.11 0.48
---------- ---------- ---------- ---------- ----------
Total from Investment Activities ... 1.50 (0.34) 1.03 0.77 1.23
---------- ---------- ---------- ---------- ----------
Distributions
Net investment income .............. (0.61) (0.60) (0.64) (0.66) (0.79)
In excess of net realized gains .... (0.07)
---------- ---------- ---------- ---------- ----------
Total Distributions ............... (0.61) (0.67) (0.64) (0.66) (0.79)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period ....... $ 10.53 $ 9.64 $ 10.65 $ 10.26 $ 10.15
========== ========== ========== ========== ==========
Total Return (excludes sales
charges) ............................. 15.98% (3.32)% 10.23% 7.81% 12.79%
Ratios/Supplemental Data:
Net Assets at end of period (000) .... $ 5,496 $ 5,167 $ 3,737 $ 2,490 $ 2,010
Ratio of expenses to average net
assets (including waivers) ......... 0.95% 0.95% 0.95% 0.93% 0.59%
Ratio of net investment income to
average net assets (including
waivers) ........................... 6.03% 6.00% 6.00% 6.45% 7.77%
Ratio of expenses to average net
assets (before waivers)* ........... 1.05% 1.05% 1.05% 1.06% 1.14%
Ratio of net investment income to
average net assets (before
waivers)* .......................... 5.93% 5.90% 5.90% 6.32% 7.22%
Portfolio turnover ................... 59.32% 50% 31% 52% 105%
</TABLE>
<TABLE>
<CAPTION>
INVESTOR A SHARES
--------------------------------------------------
YEAR ENDED NOVEMBER 30,
------------------------- INVESTOR B
JUNE 15, SHARES
1988 MARCH 1, 1995
TO NOVEMBER 30, TO NOVEMBER 30,
1990 1989 1988(B) 1995(C)
------- ------ --------------- --------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 10.12 $ 9.91 $ 10.00 $ 9.92
---------- ---------- ---------- ----------
Investment Activities
Net investment income 0.84 0.89 0.39 0.38
Net realized and unrealized gains
(losses) from investments (0.41) 0.22 (0.13) 0.61
---------- ---------- ---------- ----------
Total from Investment Activities (0.43) 1.11 0.26 0.99
---------- ---------- ---------- ----------
Distributions
Net investment income (0.84) (0.90) (0.35) (0.38)
---------- ---------- ---------- ----------
In excess of net realized gains
Total Distributions (0.84) (0.90) (0.35) (0.38)
---------- ---------- ---------- ----------
Net Asset Value, End of Period $ 9.71 $ 10.12 $ 9.91 $ 10.53
========== ========== ========== ==========
Total Return (excludes sales
charges) (4.96)% 11.79% 2.66%(d),(f) 15.27%(e)
Ratios/Supplemental Data:
Net Assets at end of period (000) $ 11,005 $ 10,327 $ 7,483 $ 106
Ratio of expenses to average net
assets (including waivers) 0.53% 0.44% 0.56%(g) 1.65%(g)
Ratio of net investment income to
average net assets (including
waivers) 8.69% 8.97% 8.47%(g) 5.19%(g)
Ratio of expenses to average net
assets (before waivers)* 1.08% 0.99% 1.17%(g) 1.75%(g)
Ratio of net investment income to
average net assets (before
waivers)* 8.14% 8.42% 7.86%(g) 5.09%(g)
Portfolio turnover 75% 148% 22% 59.32%
</TABLE>
- -------------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. On September 27, 1994 the Portfolio
redesignated Investor Shares as "Investor A" Shares and authorized the
issuance of a series of Shares designated as "Investor B" Shares.
(b) Period from commencement of operations.
-20-
<PAGE> 108
(c) Period from date of initial public offering.
(d) Unaudited.
(e) Represents total return for Investor A Shares from December 1, 1994 to
February 28, 1995 plus total return for Investor B Shares from March 1,
1995 to November 30, 1995.
(f) Not Annualized.
(g) Annualized
-21-
<PAGE> 109
U.S. GOVERNMENT SECURITIES PORTFOLIO
(FOR A SHARE(A) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INVESTOR A SHARES
-------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
-------------------------------------------------------------------------------
1995 1994(A) 1993 1992 1991(A)
---- ------- ---- ---- -------
INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR
A SHARES A SHARES SHARES SHARES SHARES
-------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 10.05 $ 11.20 $ 10.80 $ 10.68 $ 10.21
--------- --------- --------- --------- ---------
Investment Activities
Net investment income 0.64 0.63 0.59 0.62 0.75
Net realized and unrealized gains
(losses) from investments 0.80 (0.97) 0.47 0.13 0.47
--------- --------- --------- --------- ---------
Total from Investment Activities 1.44 (0.34) 1.06 0.75 1.22
--------- --------- --------- --------- ---------
Distributions
Net investment income (0.64) (0.63) (0.59) (0.62) (0.75)
Net realized gains (0.07) (0.01)
In excess of net realized gains (0.18)
--------- --------- --------- --------- ---------
Total Distributions (0.64) (0.81) (0.66) (0.63) (0.75)
--------- --------- --------- --------- ---------
Net Asset Value, End of Period $ 10.85 $ 10.05 $ 11.20 $ 10.80 $ 10.68
========= ========= ========= ========= =========
Total Return (excludes sales
charges) 14.66% (3.14)% 10.03% 7.20% 12.36%
Ratios/Supplemental Data:
Net Assets at end of period (000) $ 8,179 $ 9,631 $ 9,567 $ 7,499 $ 5,791
Ratio of expenses to average net
assets (including waivers) 0.97% 0.96% 0.97% 0.95% 0.82%
Ratio of net investment income to
average net assets (including
waivers) 6.05% 5.98% 5.25% 5.72% 7.12%
Ratio of expenses to average net
assets (before waivers)* 1.07% 1.06% 1.08% 1.09% 1.36%
Ratio of net investment income to
average net assets (before
waivers)* 5.95% 5.88% 5.14% 5.58% 6.58%
Portfolio turnover 93.76% 50% 24% 74% 36%
</TABLE>
<TABLE>
<CAPTION>
INVESTOR A SHARES
---------------------------------------------------
YEAR ENDED NOVEMBER 30,
-------------------------------
INVESTOR B
JUNE 2, SHARES
1988 MARCH 1, 1995
TO NOVEMBER 30, TO NOVEMBER 30,
1990 1989 1988(B) 1995(C)
------- ------ --------------- --------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 10.06 $ 9.94 $ 10.00 $ 10.34
--------- --------- --------- ---------
Investment Activities
Net investment income 0.76 0.85 0.36 0.31
Net realized and unrealized gains
(losses) from investments 0.16 0.11 (0.06) 0.50
--------- --------- --------- ---------
Total from Investment Activities 0.92 1.96 0.30 0.81
--------- --------- --------- ---------
Distributions
Net investment income (0.77) (0.84) (0.36) (0.31)
Net realized gains
In excess of net realized gains
--------- --------- --------- ---------
Total Distributions (0.77) (0.84) (0.36) (0.31)
--------- --------- --------- ---------
Net Asset Value, End of Period $ 10.21 $ 10.06 $ 9.94 $ 10.84
========= ========= ========= =========
Total Return (excludes sales
charges) 9.66% 10.40% 3.05%(d),(f) 12.85%(e)
Ratios/Supplemental Data:
Net Assets at end of period (000) $ 6,856 $ 5,954 $ 4,335 $ 41
Ratio of expenses to average net
assets (including waivers) 0.73% 0.74% 0.79%(g) 1.68%(g)
Ratio of net investment income to
average net assets (including
waivers) 7.80% 8.50% 7.26%(g) 5.37%(g)
Ratio of expenses to average net
assets (before waivers)* 1.28% 1.29% 1.40%(g) 1.78%(g)
Ratio of net investment income to
average net assets (before
waivers)* 7.25% 7.95% 6.65%(g) 5.27%(g)
Portfolio turnover 53% 84% 215% 93.76%
</TABLE>
- ------------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. On September 27, 1994 the Portfolio
redesignated Investor Shares as "Investor A" Shares and authorized the
issuance of a series of Shares designated as "Investor B" Shares.
(b) Period from commencement of operations.
-22-
<PAGE> 110
(c) Period from date of initial public offering.
(d) Unaudited
(e) Represents total return for Investor A Shares from December 1, 1994 to
February 28, 1995 plus total return for Investor B Shares from March 1,
1995 to November 30, 1995.
(f) Not Annualized.
(g) Annualized.
-23-
<PAGE> 111
Emerging Growth Portfolio
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
Investor A Shares
-----------------------------------------------------------------
Year Ended Year Ended Year Ended May 6, 1992
Nov. 30, Nov. 30, Nov. 30, to Nov. 30, Investor B
1995 1994(a) 1993 1992(b) Shares
---------- ----------- ---------- ----------- March 1, 1995 to
Investor Investor Investor Investor November 30,
A Shares A Shares Shares Shares 1995(C)
---------- ----------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 11.99 $ 13.14 $ 11.23 $ 10.10 $ 11.83
---------- ---------- ---------- ---------- ----------
Investment Activities
Net investment income (loss) (0.03) 0.03 0.02 (0.03)
Net realized and unrealized
gains from investments 2.36 0.89 2.14 1.13 1.57
---------- ---------- ---------- ---------- ----------
Total from Investment
Activities 2.36 0.86 2.17 1.15 1.54
---------- ---------- ---------- ---------- ----------
Distributions
Net investment income (0.05) (0.02)
Net realized gains (0.91) (1.78) (0.21)
In excess of net
realized gains (0.23)
---------- ---------- ---------- ---------- ----------
Total Distributions (0.91) (2.01) (0.26) (0.02)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period $ 13.44 $ 11.99 $ 13.14 $ 11.23 $ 13.37
========== ========== ========== ========== ==========
Total Return (excludes 21.47% 7.38% 19.75% 12.55%(e) 20.83%(d)
sales charges)
Ratios/Supplemental Data:
Net Assets at end of period (000)
$ 15,056 $ 10,899 $ 4,559 $ 753 $ 603
Ratio of expenses to average net
assets (including waivers) 1.26% 1.25% 0.61% 0.30%(f) 1.96%(f)
Ratio of net investment income to
average net assets (including
waivers) (0.12)% (0.44)% 0.19% 0.78%(f) (0.78%)(f)
Ratio of expenses to average net
assets (before waivers)* 1.36% 1.36% 1.23% 1.12%(f) 2.06%(f)
Ratio of net investment income to
average net assets (before
waivers)* (0.22)% (0.55)% (0.43)% (0.04)%(f) (0.88%)(f)
Portfolio turnover 83.13% 85% 65% 56% 83.13%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
-24-
<PAGE> 112
(A) ON MAY 6, 1992, THE PORTFOLIO ISSUED A SERIES OF SHARES WHICH WERE
DESIGNATED AS "INVESTOR" SHARES. ON SEPTEMBER 27, 1994 THE PORTFOLIO
REDESIGNATED INVESTOR SHARES AS "INVESTOR A" SHARES AND AUTHORIZED THE
ISSUANCE OF A SERIES OF SHARES DESIGNATED AS "INVESTOR B" SHARES.
(B) PERIOD FROM COMMENCEMENT OF OPERATIONS.
(C) PERIOD FROM DATE OF INITIAL PUBLIC OFFERING.
(D) REPRESENTS TOTAL RETURN FOR INVESTOR A SHARES FROM DECEMBER 1, 1994 TO
FEBRUARY 28, 1995 PLUS TOTAL RETURN FOR INVESTOR B SHARES FROM MARCH 1,
1995 THROUGH NOVEMBER 30, 1995.
(E) NOT ANNUALIZED.
(F) ANNUALIZED.
-25-
<PAGE> 113
<TABLE>
<CAPTION>
Balanced Portfolio
(For a Share(a) outstanding throughout each period)
Investor A Shares
------------------------------------------------
April 1, Investor B
Year Ended Year Ended 1993 Shares
Nov. 30, Nov. 30 to Nov. 30, ----------------
1995 1994 1993(b) March 1, 1995 to
Investor Investor Investor November 30,
A Shares A Shares Shares 1995(c)
---------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ............... $ 9.61 $10.22 $10.00 $10.13
------ ------ ------ ------
Investment Activities
Net investment income (loss) ...... 0.32 0.28 0.23 (0.22)
Net realized and unrealized
gains from investments ........... 2.02 (0.47) 0.15 1.44
------ ------ ------ ------
Total from Investment
Activities ....................... 2.34 (0.19) 0.38 1.66
------ ------ ------ ------
Distributions
Net investment income ............. (0.30) (0.29) (0.16) (0.20)
Net realized gains ................
In excess of net
realized gains ................... (0.13)
------ ------ ------ ------
Total Distributions .............. (0.30) (0.42) (0.16) (0.20)
------ ------ ------ ------
Net Asset Value, End of Period ...... $11.65 $ 9.61 $10.22 $11.59
====== ====== ====== ======
Total Return (excludes 24.85% (1.91)% 3.86%(e) 23.92%(d)
sales charges) ....................
Ratios/Supplemental Data:
Net Assets at end of period (000) ... $8,348 $7,321 $1,978 $ 36
Ratio of expenses to average net
assets (including waivers) ........ 1.27% 1.27% 0.56%(f) 1.93%(f)
Ratio of net investment income to
average net assets (including
waivers) .......................... 2.98% 2.77% 3.42%(f) 2.28%(f)
Ratio of expenses to average net
assets (before waivers)* .......... 1.37% 1.39% 1.21%(f) 2.03%(f)
Ratio of net investment income to
average net assets (before
waivers)* ......................... 2.88% 2.65% 2.77%(f) 2.18%(f)
Portfolio turnover .................. 58.16% 49% 26%(f) 58.16%
</TABLE>
-26-
<PAGE> 114
- ---------------------------------------
* DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH
VOLUNTARY FEE REDUCTIONS HAD NOT OCCURRED, THE RATIOS WOULD HAVE BEEN
AS INDICATED.
(a) ON SEPTEMBER 27, 1994, THE PORTFOLIO REDESIGNATED INVESTOR SHARES AS
"INVESTOR A" SHARES AND AUTHORIZED THE ISSUANCE OF A SERIES OF SHARES
DESIGNATED AS "INVESTOR B" SHARES.
(b) PERIOD FROM COMMENCEMENT OF OPERATIONS.
(c) PERIOD FROM DATE OF INITIAL PUBLIC OFFERING.
(d) REPRESENTS TOTAL RETURN FOR INVESTOR A SHARES FROM DECEMBER 1, 1994 TO
FEBRUARY 28, 1995 PLUS TOTAL RETURN FOR INVESTOR B SHARES FROM MARCH 1,
1995 THROUGH NOVEMBER 30, 1995.
(e) NOT ANNUALIZED.
(f) ANNUALIZED.
-27-
<PAGE> 115
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY PORTFOLIO
(FOR A SHARE(a) OUTSTANDING THROUGHOUT EACH PERIOD)
Investor A Shares
----------------------------------------- Investor B
Year Ended April 4, 1993 Shares
Nov. 30, to Nov. 30, ----------------
1995 1994(a)(b)(c) March 1, 1995 to
Investor Investor November 30,
A Shares Shares 1995(d)
---------- ----------------- ----------------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period ............... $ 9.90 $10.00 $ 9.26
------ ------ ------
Investment Activities
Net investment income (loss) ...... 0.02 (0.01) (0.03)
Net realized and unrealized
gains from investments and
foreign currency ................. 0.86 (0.09) 1.48
------ ------ ------
Total from Investment
Activities ....................... 0.88 (0.10) 1.45
------ ------ ------
Distributions
Net investment income ............. (0.01)
Tax return of capital ............. (0.01)
------ ------ ------
Total Distributions .............. (0.02)
------ ------ ------
Net Asset Value, End of Period ...... $10.76 $ 9.90 $10.71
====== ====== ======
Total Return (excludes
sales charges) .................... 8.89% (1.00%)(f) 8.38%(e)
Ratios/Supplemental Data:
Net Assets at end of period (000) ... $1,568 $ 791 $ 102
Ratio of expenses to average net
assets (including waivers) ........ 1.45% 1.55%(g) 2.02%(g)
Ratio of net investment income to
average net assets (including
waivers) .......................... 0.07% (0.39%)(g) (0.96%)(g)
Ratio of expenses to average net
assets (before waivers)* .......... 1.76% 1.89%(g) 2.44%(g)
Ratio of net investment income to
average net assets (before
waivers)* ......................... (0.24)% (0.73)%(g) (1.38%)(g)
Portfolio turnover .................. 62.78% 21% 62.78%
</TABLE>
* DURING THE PERIOD, CERTAIN FEES WERE VOLUNTARILY REDUCED. IF SUCH
VOLUNTARY FEE REDUCTIONS HAD NOT OCCURRED, THE RATIOS WOULD HAVE BEEN
AS INDICATED.
(a) PERIOD FROM COMMENCEMENT OF OPERATIONS.
-28-
<PAGE> 116
(b) ON APRIL 4, 1994, THE PORTFOLIO ISSUED A SERIES OF SHARES WHICH WERE
DESIGNATED AS "TRUST" SHARES. IN ADDITION, ON MAY 2, 1994, THE
PORTFOLIO ISSUED A NEW SERIES OF SHARES WHICH WERE DESIGNATED AS
"INVESTOR" SHARES. THE FINANCIAL HIGHLIGHTS PRESENTED FOR APRIL 4, 1994
TO MAY 2, 1994 REPRESENT FINANCIAL HIGHLIGHTS APPLICABLE TO TRUST
SHARES.
(c) ON SEPTEMBER 27, 1994, THE PORTFOLIO REDESIGNATED INVESTOR SHARES AS
"INVESTOR A" SHARES AND AUTHORIZED THE ISSUANCE OF A SERIES OF SHARES
DESIGNATED AS "INVESTOR B" SHARES.
(d) PERIOD FROM DATE OF INITIAL PUBLIC OFFERING.
(e) REPRESENTS TOTAL RETURN FOR INVESTOR A SHARES FROM DECEMBER 1, 1994 TO
FEBRUARY 28, 1995 PLUS TOTAL RETURN FOR INVESTOR B SHARES FROM MARCH 1,
1995 THROUGH NOVEMBER 30, 1995.
(f) NOT ANNUALIZED.
(g) ANNUALIZED.
-29-
<PAGE> 117
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
(FOR A TRUST SHARE OUTSTANDING THROUGHOUT THE PERIOD)
July 10, 1995 to
November 30,
1995(a)
----------------
Trust
Shares
----------------
<S> <C>
Net Asset Value, Beginning of Period ..... $ 10.00
-------
Investment Activities
Net investment income .................. 0.14
Net realized and unrealized gains
(losses) from investments ............ 0.07
-------
Total from Investment Activities ..... 0.21
-------
Distributions
Net investment income .................. (0.14)
-------
Total Distributions .................. (0.14)
-------
Net Asset Value, End of Period ........... $ 10.07
=======
Total Return ............................. 2.15%(b)
Ratios/Supplemental Data:
Net assets at end of period (000) ........ $23,754
Ratio of expenses to average net assets .. 0.47%(c)
(including waivers)
Ratio of net investment income
to average net assets (including
waivers) ............................... 3.81%(c)
Ratio of expenses to average net assets
(before waivers)* ...................... 1.12%(c)
Ratio of net investment income
to average net assets (before
waivers)* .............................. 3.16%(c)
Portfolio turnover ....................... 0.00%
</TABLE>
- -----------------------------------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been
as indicated.
(a) Period from commencement of operations.
(b) Not Annualized.
(C) Annualized.
-30-
<PAGE> 118
<TABLE>
<CAPTION>
MISSOURI TAX-EXEMPT BOND PORTFOLIO(a)
(FOR A SHARE(b) OUTSTANDING THROUGHOUT EACH PERIOD)
INVESTOR A SHARES
---------------------------------------------
SIX
MONTHS YEAR ENDED
ENDED MAY 31,
NOV. 30, --------------------------------
1995(c) 1995(b) 1994 1993
---------- ---------- -------- --------
INVESTOR A INVESTOR A INVESTOR INVESTOR
SHARES SHARES SHARES SHARES
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .. $ 11.52 $ 11.13 $ 11.54 $ 10.97
------- ------- ------- -------
Investment Activities
Net investment income .............. 0.27 0.55 0.55 0.58
Net realized and unrealized
gains (losses) on
investments ....................... 0.22 0.40 (0.37) 0.64
------- ------- ------- -------
Total from Investment
Activities ....................... 0.49 0.95 0.18 1.22
------- ------- ------- -------
Distributions
Net investment income .............. (0.27) (0.55) (0.55) (0.58)
Net realized gains ................. (0.01) (0.04) (0.07)
------- ------- ------- -------
Total Distributions ................ (0.27) (0.56) (0.59) (0.65)
------- ------- ------- -------
Net Asset Value, End of Period ........ $ 11.74 $ 11.52 $ 11.13 $ 11.54
======= ======= ======= =======
Total Return (excludes sales
charges) ............................ 4.32%(g) 8.91% 1.53% 11.47%
Ratios/Supplemental Data:
Net assets at end of period (000) ..... $24,726 $24,318 $27,919 $23,223
Ratio of expenses to average
net assets (including
waivers)(4).......................... 0.95%(h) 0.84% 0.65% 0.63%
Ratio of net investment income
to average net assets (including
waivers) ............................ 4.64%(h) 5.02% 4.75% 5.11%
Ratio of expenses to average
net assets (before waivers)* ........ 1.18%(h) 1.18% 1.12% 1.18%
Ratio of net investment income to
average net assets (before
waivers)* ........................... 4.44%(h) 4.68% 4.28% 4.56%
Portfolio turnover rate ............... 1.55% 0% 20% 15%
</TABLE>
<TABLE>
<CAPTION>
INVESTOR A SHARES
---------------------------------------------
YEAR ENDED PERIOD INVESTOR B
MAY 31, ENDED SHARES
--------------------------------- MAY 31, -------------------------------
1992 1991(b) 1990(b) 1989(a),(b) SIX MONTHS
--------- -------- --------- ----------- ENDED
INVESTOR INVESTOR PORTFOLIO PORTFOLIO NOV. 30, MARCH 1, 1995 TO
SHARES SHARES SHARES SHARES 1995(c) MAY 31, 1995(d)
--------- -------- --------- ----------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .. $ 10.62 $10.35 $10.56 $10.00 $11.52 $11.19
------- ------ ------ ------ ------ ------
Investment Activities
Net investment income .............. 0.63 0.44 0.68 0.58 0.22 0.11
Net realized and unrealized
gains (losses) on
investments ....................... 0.43 0.36 (0.09) 0.58 0.22 0.33
------- ------ ------ ------ ------ ------
Total from Investment
Activities ....................... 1.06 0.80 0.59 1.16 0.44 0.44
------- ------ ------ ------ ------ ------
Distributions
Net investment income .............. (0.63) (0.44) (0.65) (0.60) (0.22) (0.11)
Net realized gains ................. (0.08) (0.09)
------- ------ ------ ------ ------ ------
Total Distributions ................ (0.71) (0.53) (0.65) (0.60) (0.22) (0.11)
------- ------ ------ ------ ------ ------
Net Asset Value, End of Period ........ $ 10.97 $10.62 $10.50 $10.56 $11.74 $11.52
======= ====== ====== ====== ====== ======
Total Return (excludes sales
charges) ............................ 10.24% 8.72% 5.50% 12.08%(f) 3.88%(g) 8.61%(e)
Ratios/Supplemental Data:
Net assets at end of period (000) ..... $12,635 $6,211 $4,572 $4,053 $ 433 $ 94
Ratio of expenses to average
net assets (including
waivers)(4).......................... 0.85% 0.85%(3) 0.70% 0.81%(h) 1.77%(h) 1.76%(h)
Ratio of net investment income
to average net assets (including
waivers) ............................ 5.75% 6.12%(3) 6.38% 6.36%(h) 3.82%(h) 4.00%(h)
Ratio of expenses to average
net assets (before waivers)* ........ 1.49% 1.63% 1.70% 1.38%(h) 1.87%(h) 1.88%(h)
Ratio of net investment income to
average net assets (before
waivers)* ........................... 5.11% 5.34% 5.38% 5.79%(h) 3.72%(h) 3.89%(h)
Portfolio turnover rate ............... 21% 71% 41% 73% 1.55% 0.00%
</TABLE>
- ------------------------------
* During the period, certain fees were voluntary reduced. If such
voluntary fee reductions had not occurred, the ratios would have been
as indicated.
(a) The Portfolio (formerly, the Long-Term Tax-Exempt Portfolio) commenced
operations on July 15, 1988 as an investment portfolio of The ARCH
Tax-Exempt Trust. On October 2, 1995, it was reorganized as a new
portfolio of the Fund.
(b) The Portfolio had one series of Shares outstanding ("Portfolio Shares")
through September 27, 1990. On September 28, 1990, the Portfolio issued
a second series of Shares that were designated as "Investor" Shares. On
September 27, 1994, the Portfolio redesignated Investor Shares as
"Investor A" Shares and authorized the issuance of a series of Shares
designated as "Investor B" Shares.
-31-
<PAGE> 119
(c) Upon its reorganization as a portfolio of the Fund, the Portfolio
changed its fiscal year-end from May 31 to November 30.
(d) For period from date of initial public offering.
(e) Represents total return for Investor A Shares from June 1, 1994 to
February 28, 1995 plus total return for Investor B Shares from March 1,
1995 to May 31, 1995.
(f) Aggregate.
(g) Not Annualized.
(h) Annualized.
-32-
<PAGE> 120
INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS
The investment objective of a Portfolio may not be changed without the
affirmative vote of a majority of the outstanding Shares of the Portfolio.
Although management will use its best efforts to achieve the investment
objective of each Portfolio, there can be no assurance that it will be able to
do so. The Money Market, Treasury Money Market and Tax-Exempt Money Market
Portfolios are "money market" funds that invest in instruments with remaining
maturities of 397 days or less (with certain exceptions) and with
dollar-weighted average portfolio maturities of 90 days or less, subject to the
quality, diversification and other requirements of Rule 2a-7 under the
Investment Company Act of 1940, as amended (the "1940 Act") and other rules of
the Securities and Exchange Commission (the "SEC").
THE MONEY MARKET PORTFOLIO
The Money Market Portfolio's investment objective is to seek current
income with liquidity and stability of principal. In pursuing its investment
objective, the Money Market Portfolio invests substantially all of its assets in
a broad range of money market instruments. These instruments include obligations
of the U.S. Government, U.S. dollar-denominated foreign securities, obligations
of U.S. and foreign banks and savings and loan institutions and commercial
obligations that meet the applicable quality requirements described below.
The Money Market Portfolio will purchase only "First Tier Eligible
Securities" (as defined by the SEC) that present minimal credit risks as
determined by the Adviser pursuant to guidelines approved by the Fund's Board of
Directors. First Tier Eligible Securities consist of (i) securities that either
(a) have short-term debt ratings at the time of purchase in the highest rating
category by at least two unaffiliated nationally recognized statistical rating
organizations ("Rating Agencies") (or one Rating Agency if the security was
rated by only one Rating Agency), or (b) are issued by issuers with such
ratings, and (ii) certain securities that are unrated (including securities of
issuers that have long-term but not short-term ratings) but are of comparable
quality as determined in accordance with guidelines approved by the Board of
Directors. The applicable ratings by Rating Agencies are described in Appendix A
to the Statement of Additional Information. The following descriptions
illustrate the types of instruments in which the Portfolio invests.
BANKING OBLIGATIONS. The Money Market Portfolio may purchase
obligations of issuers in the banking industry, such as certificates of deposit,
letters of credit, bankers' acceptances and time deposits, including U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions having total assets at the time of
purchase
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in excess of $1 billion. The Money Market Portfolio may invest in obligations of
foreign banks or foreign branches of U.S. banks in amounts not in excess of 25%
of its assets where the Adviser deems the instrument to present minimal credit
risks. (See "Risk Factors -- Risks Associated with Foreign Securities and
Currencies" below.) The Money Market Portfolio may also make interest-bearing
savings deposits in commercial and savings banks in amounts not in excess of 5%
of the value of its total assets.
COMMERCIAL PAPER AND VARIABLE AND FLOATING RATE INSTRUMENTS. The Money
Market Portfolio may invest in commercial paper, including asset-backed
commercial paper representing interests in a pool of corporate receivables,
dollar-denominated obligations issued by domestic and foreign bank holding
companies, and corporate bonds that meet the quality and maturity requirements
described above. The Money Market Portfolio may also invest in variable or
floating rate notes that may have a stated maturity in excess of thirteen months
but will, in any event, permit the Portfolio to demand payment of the principal
of the instrument at least once every thirteen months upon no more than 30 days'
notice (unless the instrument is guaranteed by the U.S. Government or an agency
or instrumentality thereof). Such instruments may include variable amount master
demand notes, which are unsecured instruments that permit the indebtedness
thereunder to vary in addition to providing for periodic adjustments in the
interest rate. Unrated variable and floating rate instruments will be determined
by the Adviser (under the supervision of the Board of Directors) to be of
comparable quality at the time of purchase to First Tier Eligible Securities.
There may be no active secondary market in the instruments, which could make it
difficult for the Portfolio to dispose of an instrument in the event the issuer
were to default on its payment obligation or during periods that the Portfolio
could not exercise its demand rights. The Money Market Portfolio could, for
these or other reasons, suffer a loss with respect to such instruments. Variable
and floating rate instruments held by the Portfolio will be subject to the
Portfolio's 10% limitation on illiquid investments when the Portfolio may not
demand payment of the principal amount within seven days and a liquid trading
market is absent.
GOVERNMENT OBLIGATIONS. The Money Market Portfolio may invest in
obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities. In addition, the Portfolio may, when deemed appropriate by
the Adviser, invest in short-term obligations issued by state and local
governmental issuers that meet the quality requirements described above and, as
a result of the Tax Reform Act of 1986, carry yields that are competitive with
those of other types of money market instruments of comparable quality.
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THE TREASURY MONEY MARKET PORTFOLIO
The Treasury Money Market Portfolio's investment objective is to seek a
high level of current income exempt from state income tax consistent with
liquidity and security of principal. In pursuing its investment objective, the
Portfolio invests in selected money market obligations issued by the U.S.
Government (or its agencies and instrumentalities) that are guaranteed as to
principal and interest by the U.S. Government, the interest on which is
generally exempt from state income tax. Securities that are generally eligible
for this exemption include those issued by the U.S. Treasury (bills,
certificates of indebtedness, notes and certain bonds) and certain U.S.
Government agencies and instrumentalities, including the General Services
Administration and Small Business Administration. Each investor should consult
his or her tax advisor to determine whether distributions from the Portfolio are
exempt from state income tax in the investor's home state. Under normal market
conditions, the Portfolio intends to invest substantially all (but not less than
65%) of its total assets in securities with the above characteristics and
(except to the extent discussed below) will not enter into repurchase agreements
or purchase any U.S. Government security that the Adviser believes is subject to
state income tax.
Under extraordinary circumstances, such as when appropriate exempt
securities are unavailable or pending investment, the Treasury Money Market
Portfolio may temporarily hold cash or invest in repurchase agreements
collateralized by U.S. Government securities, other U.S. Government agency or
instrumentality securities, securities of other investment companies that invest
in securities in which the Portfolio is permitted to invest, or cash
equivalents.
THE TAX-EXEMPT MONEY MARKET PORTFOLIO
The Tax-Exempt Money Market Portfolio's investment objective is to seek
as high a level of current interest income exempt from federal income tax as is
consistent with liquidity and stability of principal. The Portfolio seeks to
achieve its objective by investing substantially all of its assets in short-term
obligations issued by or on behalf of states, territories and possessions of the
United States, the District of Columbia and their respective political
subdivisions, agencies, instrumentalities and authorities the interest on which,
in the opinion of bond counsel or counsel to the issuer, is exempt from regular
federal income tax (collectively, "Municipal Obligations"). The Portfolio my
also hold tax-exempt derivative securities such as tender option bonds,
participations, beneficial interests in trusts and partnership interests
The Tax-Exempt Money Market Portfolio will purchase only "First Tier
Eligible Securities" (as defined by the SEC) that
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present minimal credit risks as determined by the Adviser pursuant to guidelines
approved by the Board of Directors. See "The Money Market Portfolio" above for a
description of "First Tier Eligible Securities".
Dividends paid by the Tax-Exempt Money Market Portfolio that are
derived from interest attributable to tax-exempt obligations of a particular
state and its political subdivisions as well as of certain other governmental
issuers including Puerto Rico, Guam and the Virgin Islands may be exempt from
federal and state income tax. Dividends derived from interest on obligations of
other governmental issuers are exempt from federal income tax but may be subject
to state income tax.
As a matter of fundamental policy, under normal market conditions or
when the Adviser deems suitable tax-exempt Municipal Obligations to be
available, at least 80% of the Tax- Exempt Money Market Portfolio's total assets
will be invested in Municipal Obligations. The Portfolio may hold uninvested
cash reserves pending investment during temporary defensive periods or if, in
the opinion of the Adviser, suitable Municipal Obligations are unavailable.
There is no percentage limitation on the amount of assets which may be held
uninvested during temporary defensive periods.
In addition, during temporary defensive periods or if, in the opinion
of the Adviser, suitable Municipal Obligations are unavailable and subject to
its quality standards described above, the Tax-Exempt Money Market Portfolio may
invest up to 20% of its assets in money market instruments, the income from
which is subject to federal income tax. Such instruments may include obligations
of the U.S. Government, its agencies or instrumentalities; debt securities
(including commercial paper) of issuers having, at the time of purchase, a
quality rating within the highest rating category by a Rating Agency;
certificates of deposit or bankers' acceptances of domestic branches of U.S.
banks with total assets at the time of purchase of $1 billion or more; or
repurchase agreements with respect to such obligations.
THE GROWTH & INCOME EQUITY PORTFOLIO
The Growth & Income Equity Portfolio's investment objective is to
provide long-term capital growth, with income a secondary consideration. In
pursuing its investment objective, the Portfolio normally invests substantially
all of its assets in common stock, preferred stock, rights, warrants and
securities convertible into common stock. The Adviser selects stocks based on a
number of factors, including historical and projected earnings, growth and asset
value, earnings compared to stock prices generally (as measured by the S&P 500
Index), and consistency of earnings growth and earnings quality. Stocks
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purchased for the Portfolio generally will be listed on a national securities
exchange or will be unlisted securities with an established over-the-counter
market. A convertible security may be purchased for the Portfolio when, in the
Adviser's opinion, the price and yield of the convertible security is favorable
compared to the price and yield of the common stock. The stocks or securities in
which the Portfolio invests may be expected to produce some income but income is
not a major criterion in their selection. In general, the Portfolio's stocks and
securities will be diversified over a number of industry groups in an effort to
reduce the risks inherent in such investments.
The Growth & Income Equity Portfolio may indirectly invest in foreign
securities through the purchase of American Depository Receipts ("ADRs") and
European Depository Receipts ("EDRs") but will not do so if, immediately after
and as a result of the purchase, the value of ADRs and EDRs would exceed 15% of
the Portfolio's total assets. (For further information, see "Other Applicable
Policies -- Foreign Securities" below and the Statement of Additional
Information under "Investment Objectives and Policies -- ADRs and EDRs.") The
Portfolio may also invest in Canadian securities listed on a national securities
exchange.
The Growth & Income Equity Portfolio reserves the right to hold as a
temporary defensive measure up to 100% of its total assets in cash and
short-term obligations (having remaining maturities of 12 months or less) at
such times and in such proportions as, in the opinion of the Adviser, prevailing
market or economic conditions warrant. Short-term obligations include, but are
not limited to, commercial paper, bankers' acceptances, certificates of deposit,
demand and time deposits of domestic and foreign banks and savings and loan
associations, repurchase agreements, and obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities.
THE EMERGING GROWTH PORTFOLIO
The Emerging Growth Portfolio's investment objective is capital
appreciation. Current income is an incidental consideration in the selection of
portfolio securities. In pursuing its investment objective, the Portfolio
normally invests primarily in common stock of emerging or established small- to
medium-sized companies with above-average potential for price appreciation. The
Portfolio may invest in preferred stock, rights, warrants, and securities
convertible into common stock. It may invest a portion of its assets in
established larger companies that, in the opinion of the Adviser, offer improved
growth possibilities because of rejuvenated management, product changes, or
other developments that might stimulate earnings or asset growth, or in
companies that seem undervalued relative to their underlying assets. The
Portfolio does not intend to invest
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more than 5% of the value of its total assets in the securities of unseasoned
companies, that is, companies (or their predecessors) with less than three
years' continuous operation.
The Emerging Growth Portfolio may also invest a portion of its assets
in smaller companies that have limited specialized- product lines, markets or
financial resources, or are dependent upon one-person management. The securities
of such smaller companies may have limited marketability, may be subject to more
abrupt or erratic market movements than securities of larger companies or the
market averages in general, and may involve greater risk than is customarily
associated with more established companies. To qualify for investment by the
Portfolio, however, a company will be expected to have, in the opinion of the
Adviser, above-average possibilities for capital appreciation (when compared
with the average appreciation of companies whose securities are included in the
S&P 500 Index).
The Emerging Growth Portfolio uses a research intensive approach and
valuation techniques that emphasize earnings and asset growth. The Adviser
selects stocks based on a number of factors, including historical and projected
earnings, asset value, potential for price appreciation and earnings growth, and
quality of products manufactured and/or services offered. Stocks purchased for
the Portfolio may be listed on a national securities exchange or may be unlisted
securities with or without an established over-the-counter market. The Portfolio
may also invest in initial public offerings of new companies that demonstrate
the potential for price appreciation. A convertible security may be purchased
for the Portfolio when, in the Adviser's opinion, the price of the convertible
security is favorable compared to the price of the common stock. In general, the
Portfolio's stocks and other securities will be diversified over a number of
industry groups in an effort to reduce the risks inherent in such investments.
The Emerging Growth Portfolio may indirectly invest in foreign
securities through the purchase of such obligations as ADRs and EDRs but will
not do so if, immediately after and as a result of the purchase, the value of
ADRs and EDRs would exceed 25% of the Portfolio's total assets. (For further
information, see "The Growth & Income Equity Portfolio" above, "Other Applicable
Policies -- Foreign Securities" below, and the Statement of Additional
Information under "Investment Objectives and Policies -- ADRs and EDRs.") The
Portfolio may also invest in securities issued by Canadian corporations and
Canadian counterparts of U.S. corporations, which may or may not be listed on a
national securities exchange or traded in over-the-counter markets.
The Emerging Growth Portfolio reserves the right to hold as a temporary
defensive measure up to 100% of its total assets in
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cash and short-term obligations (having remaining maturities of 12 months or
less) at such times and in such proportions as, in the opinion of the Adviser,
prevailing market or economic conditions warrant. See "The Growth & Income
Equity Portfolio" above for a description of the types of short-term obligations
in which the Portfolio may invest.
THE GOVERNMENT & CORPORATE BOND PORTFOLIO
The Government & Corporate Bond Portfolio's investment objective is to
seek the highest level of current income consistent with conservation of
capital. In pursuing its investment objective, the Portfolio intends to invest
at least 65% of its assets in fixed-income and related debt securities rated in
one of the three highest rating categories assigned by a Rating Agency at the
time of purchase or in unrated investments deemed by the Adviser to be of
comparable quality pursuant to guidelines approved by the Fund's Board of
Directors. Debt securities may include a broad range of fixed and variable rate
bonds, debentures, notes, and securities convertible into or exchangeable for
common stock; dollar-denominated debt obligations of foreign issuers, including
foreign corporations and governments; and first mortgage loans, income
participation loans, participation certificates in pools of mortgages, including
mortgages issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, collateralized mortgage obligations and other
mortgage-related securities, and other asset-backed securities. The Portfolio
may invest up to 10% of its total assets at the time of purchase in
dollar-denominated debt obligations of foreign issuers, either directly or
through ADRs and EDRs, and up to 25% of its total assets at the time of purchase
in non-mortgage asset-backed securities, respectively. (See "Other Applicable
Policies -- Foreign Securities" below and the Statement of Additional
Information under "Investment Objectives and Policies -- ADRs and EDRs.")
The Government & Corporate Bond Portfolio may purchase debt securities
which are rated at the time of purchase within the four highest rating
categories assigned by Rating Agencies or unrated debt securities (including
convertible securities) which the Adviser believes present attractive
opportunities and are of at least comparable quality to instruments so rated.
The Portfolio's dollar-weighted average portfolio quality is expected to be at
least "A" or higher. Securities rated in the lowest of the above four rating
categories have speculative characteristics, even though they are of
investment-grade quality, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade securities. Such
securities will be purchased (and retained) only when the Adviser believes the
issuers have an adequate capacity to pay interest and repay principal. (For a
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description of the rating categories of Rating Agencies, see Appendix A to the
Statement of Additional Information.) In making investment decisions, the
Adviser will consider a number of factors including current yield, maturity,
yield to maturity, anticipated changes in interest rates, and the overall
quality of the investment. The Portfolio seeks to provide a current yield
greater than that generally available from money market instruments.
The Government & Corporate Bond Portfolio may purchase asset-backed
securities (i.e., securities backed by mortgages, installment sale contracts,
corporate receivables, credit card receivables or other assets) that are issued
by entities such as the Government National Mortgage Association ("GNMA"),
Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage
Corporation ("FHLMC") and private issuers such as commercial banks, financial
companies, finance subsidiaries of industrial companies, savings and loan
associations, mortgage banks, and investment banks. To the extent that the
Portfolio invests in asset-backed securities issued by companies that are
investment companies under the 1940 Act, such acquisitions will be subject to
the percentage limitations prescribed by the 1940 Act. (See "Other Applicable
Policies -- Securities of Other Investment Companies" below.)
Presently there are several types of mortgage-backed securities,
including guaranteed mortgage pass-through certificates, which provide the
holder with a pro rata interest in the underlying mortgages, and collateralized
mortgage obligations ("CMOs"), which provide the holder with a specified
interest in the cash flow of a pool of underlying mortgages or other
mortgage-backed securities. CMOs are issued in multiple classes, each with a
specified fixed or floating interest rate and a final distribution date. The
relative payment rights of the various CMO classes may be subject to greater
volatility and interest-rate risk than other types of mortgage-backed
securities. The average life of asset-backed securities varies with the
underlying instruments or assets and market conditions, which in the case of
mortgages have maximum maturities of forty years. The average life of a
mortgage-backed instrument, in particular, is likely to be substantially less
than the original maturity of the mortgages underlying the securities as the
result of unscheduled principal payments and mortgage prepayments. The
relationship between mortgage prepayment and interest rates may give some
high-yielding mortgage-backed securities less potential for growth in value than
conventional bonds with comparable maturities. In addition, in periods of
falling interest rates, the rate of mortgage prepayments tends to increase.
During such periods, the reinvestment of prepayment proceeds by the Government &
Corporate Bond Portfolio will generally be at lower rates than the rates that
were carried by the obligations that have been prepaid. When interest rates
rise, the value of an
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asset-backed security generally will decline; however, when interest rates
decline, the value of an asset-backed security with prepayment features may not
increase as much as that of other fixed-income securities. Because of these and
other reasons, an asset-backed security's total return may be difficult to
predict precisely.
In general, the collateral supporting non-mortgage asset- backed
securities is of shorter maturity than mortgage loans and is less likely to
experience substantial prepayments. Non- mortgage asset-backed securities
involve certain risks that are not presented by mortgage-backed securities
arising primarily from the nature of the underlying assets (i.e., credit card
and automobile loan receivables as opposed to real estate mortgages). For
example, credit card receivables are generally unsecured and the repossession of
automobiles and other personal property upon the default of the debtor may be
difficult or impracticable in some cases.
The Government & Corporate Bond Portfolio reserves the right to hold as
a temporary defensive measure up to 100% of its total assets in cash and
short-term obligations (having remaining maturities of 12 months or less) at
such times and in such proportions as, in the opinion of the Adviser, prevailing
market or economic conditions warrant. See "The Growth & Income Equity
Portfolio" above for a description of the types of short-term obligations in
which the Portfolio may invest.
THE U.S. GOVERNMENT SECURITIES PORTFOLIO
The U.S. Government Securities Portfolio's investment objective is to
seek a high rate of current income that is consistent with relative stability of
principal. In pursuing its investment objective, the Portfolio invests in
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities normally having remaining maturities of 1 to 30 years and
repurchase agreements relating to such obligations. (For further information,
see "Other Applicable Policies -- U.S. Government Obligations" below.)
Consistent with its investment policies, the U.S. Government Securities
Portfolio may invest in mortgage-backed securities, including those representing
an undivided ownership interest in a pool of mortgage loans, such as
certificates issued by GNMA, FNMA, and FHLMC and CMOs. (For further information
regarding these instruments, see "The Government & Corporate Bond Portfolio"
above.)
THE BALANCED PORTFOLIO
The Balanced Portfolio's investment objective is to maximize total
return through a combination of growth of capital and
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current income consistent with the preservation of capital. The Portfolio seeks
to achieve its objective by using a disciplined approach of allocating assets
primarily among three major asset groups, i.e. equity securities, fixed-income
securities and cash equivalents. In pursuing the Portfolio's investment
objective, the Adviser allocates the Portfolio's assets based upon its
evaluation of the relative attractiveness of the major asset groups. In an
effort to better quantify the relative attractiveness of the major asset groups
over a one- to three-year period of time, the Adviser has incorporated into its
asset allocation decision-making process several dynamic computer models which
it has created. The purpose of these models is to show the statistical impact of
the Adviser's economic outlook upon the future returns of each asset group. The
models are especially sensitive to the forecasts for inflation, interest rates
and long-term corporate earnings growth. Investment returns are normally heavily
impacted by such variables and their expected changes over time. Therefore, the
Adviser's method attempts to take advantage of changing economic conditions by
increasing or decreasing the ratio of stocks to bonds in the Portfolio. For
example, if the Adviser expected more rapid economic growth leading to better
corporate earnings, it would increase the Portfolio's holdings of equity
securities and reduce its holdings of fixed income securities and cash
equivalents.
Under normal market conditions, the Balanced Portfolio's policy is
generally to invest at least 25% of the value of its total assets in
fixed-income securities and no more than 75% in equity securities. The actual
percentage of assets invested in equity securities, fixed-income securities and
cash equivalents will vary from time to time, depending on the judgment of the
Adviser as to general market and economic conditions, trends and yields,
interest rates and fiscal and monetary developments.
The equity securities in which the Balanced Portfolio normally invests
include common stock, preferred stock, rights, warrants and securities
convertible into common or preferred stock. (For further information regarding
these instruments, see "The Growth & Income Equity Portfolio" above.)
The fixed-income securities in which the Balanced Portfolio invests
include U.S. Government securities or other fixed-income and related debt
securities rated in one of the four highest rating categories assigned by a
Rating Agency at the time of purchase or in unrated investments deemed by the
Adviser to be of comparable quality pursuant to guidelines approved by the
Fund's Board of Directors. (For further information regarding these instruments,
see "The Government & Corporate Bond Portfolio" above.)
The Balanced Portfolio may purchase asset-backed securities.
(For further information regarding these instruments, see "The
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Government & Corporate Bond Portfolio" above and "Other Applicable Policies --
Securities of Other Investment Companies" below.)
The Balanced Portfolio reserves the right to hold as a temporary
defensive measure up to 100% of its total assets in cash and short-term
obligations (having remaining maturities of 12 months or less) at such times and
in such proportions as, in the opinion of the Adviser, prevailing market or
economic conditions warrant. See "The Growth & Income Equity Portfolio" above
for a description of the types of short-term obligations in which the Portfolio
may invest.
THE INTERNATIONAL EQUITY PORTFOLIO
The International Equity Portfolio's investment objective is to provide
capital growth consistent with reasonable investment risk. The Portfolio seeks
to achieve this objective by investing principally in foreign equity securities,
most of which will be denominated in foreign currencies. During normal market
conditions, the Portfolio will invest substantially all of its assets in
securities of companies which derive more than 50% of their gross revenues from,
or have more than 50% of their assets outside, the United States. Additionally,
under normal market conditions, the Portfolio will invest in equity securities
from at least three different countries (excluding the United States). However,
the Portfolio may invest all its assets in a single country during temporary
defensive periods.
The International Equity Portfolio expects to invest at least half of
its assets in securities of companies located either in developed countries in
Western Europe or in Japan, although it may also purchase securities of
companies located in other developed countries and developing countries. (For
further information, see "Risk Factors -- Risks Associated with Foreign
Securities and Currencies" below).
By investing in foreign securities, the International Equity Portfolio
will attempt to take advantage of differences between economic trends and the
performance of securities markets in various countries, regions and geographic
areas. The Portfolio will achieve diversification by investing in securities
from various countries and geographic areas that offer different investment
opportunities and are affected by different economic trends. The multinational
character of the Portfolio's investments should reduce the effect that events in
any one country or geographic area will have on its investment holdings. Of
course, negative movement by one of the Portfolio's investments in one foreign
market may offset gains from the Portfolio's investments in another market.
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Equity securities in which the International Equity Portfolio may
invest include common stock, preferred stock, rights, warrants and securities
convertible into common stock. A convertible security may be purchased for the
Portfolio when, in the Adviser's or Sub-Adviser's opinion, the price and yield
of the convertible security is favorable compared to the price and yield of the
common stock.
During temporary defensive periods, when deemed necessary by the
Adviser or Sub-Adviser, the International Equity Portfolio may invest up to 100%
of its assets in U.S. Government obligations or debt obligations of companies
incorporated and having their principal business activities in the United
States. The Portfolio does not intend to invest in such securities for the
purpose of meeting its investment objective.
The International Equity Portfolio may also invest, without limitation,
in foreign securities through the purchase of ADRs and EDRs. (For further
information, see "Risk Factors -- Risks Associated with Foreign Securities and
Currencies" below and the Statement of Additional Information under "Investment
Objectives and Policies -- ADRs and EDRs.")
The International Equity Portfolio reserves the right to hold as a
temporary defensive measure up to 100% of its total assets in cash and
short-term obligations (having remaining maturities of 12 months or less) at
such times and in such proportions as, in the opinion of the Adviser or
Sub-Adviser, prevailing market or economic conditions warrant. See "The Growth &
Income Equity Portfolio" above for a description of the types of short-term
obligations in which the Portfolio may invest.
Although investing in any mutual fund has certain inherent risks, an
investment in the International Equity Portfolio may have even greater risks
than investments in most other types of mutual funds. The Portfolio is not a
complete investment program, and it may not be appropriate for investors who
cannot financially bear the loss of at least a significant portion of their
investment. The Portfolio's net asset value per Share is subject to rapid and
substantial changes because greater risk is assumed in seeking the Portfolio's
objective. See "Risk Factors -- Risks Associated with Foreign Securities and
Currencies" below.
THE SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
The Short-Intermediate Municipal Portfolio's investment objective is to
seek as high a level of current income, exempt from regular federal income tax,
as is consistent with preservation of capital. The Portfolio seeks to achieve
its objective by investing substantially all of its assets in
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investment-grade Municipal Obligations. As a matter of fundamental policy, under
normal market conditions at least 80% of the Portfolio's total assets will be
invested in Municipal Obligations, primarily bonds (at least 65% under normal
market conditions).
The Short-Intermediate Municipal Portfolio invests in Municipal
Obligations that are rated at the time of purchase within the four highest
rating categories assigned by a Rating Agency. The Portfolio may also invest in
short-term Municipal Obligations such as municipal notes, tax-exempt commercial
paper, and variable and floating rate demand obligations that are rated at the
time of purchase within the two highest rating categories assigned by a Rating
Agency. Municipal Obligations rated in the lowest of the four highest rating
categories for bonds are considered to have speculative characteristics, even
though they are of investment grade quality. Such bonds will be purchased only
if the Adviser believes they have an adequate capacity to pay interest and repay
principal. Unrated obligations will be purchased only if they are considered by
the Adviser to be at least comparable in quality at the time of purchase to
instruments within the rating categories listed above. Municipal Obligations
purchased by the Portfolio whose ratings are subsequently downgraded below the
four highest rating categories of a Rating Agency will be disposed of in an
orderly manner, normally within 30-60 days. The applicable ratings issued by the
Rating Agencies are described in the Appendix to the Statement of Additional
Information.
In addition, the Short-Intermediate Municipal Portfolio may from time
to time during temporary defensive periods, invest in taxable obligations in
such proportions as, in the opinion of the Adviser, prevailing market or
economic conditions warrant. Such instruments may include obligations of the
U.S. Government, its agencies or instrumentalities; debt securities (including
commercial paper) of issuers having, at the time of purchase, a quality rating
within the two highest rating categories assigned by a Rating Agency; or
repurchase agreements with respect to such obligations.
During temporary defensive periods or if, in the opinion of the
Adviser, suitable tax-exempt obligations are unavailable, the Short-Intermediate
Municipal Portfolio may also hold uninvested cash reserves which do not earn
income pending investment. There is no percentage limitation on the amount of
assets that may be held uninvested during these temporary defensive periods.
The Short-Intermediate Municipal Portfolio's average dollar-weighted
maturity will be between two and five years and will vary in light of current
market and economic conditions, the comparative yields on instruments with
different maturities, and other factors.
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THE MISSOURI TAX-EXEMPT BOND PORTFOLIO
The Missouri Tax-Exempt Bond Portfolio's investment objective is to
seek as high a level of interest income exempt from federal income tax as is
consistent with conservation of capital. In pursuing its investment objective,
the Portfolio invests substantially all of its assets in investment-grade
Missouri Municipal Obligations (which, to the extent possible, are also exempt
from Missouri income tax).
Dividends paid by the Missouri Tax-Exempt Bond Portfolio that are
derived from interest attributable to tax-exempt obligations of the State of
Missouri and its political subdivisions as well as of certain other governmental
issuers including Puerto Rico, Guam and the Virgin Islands ("Missouri Municipal
Obligations") are exempt from federal and Missouri income tax. Dividends derived
from interest on obligations of other governmental issuers are exempt from
federal income tax but may be subject to Missouri income tax.
As a matter of fundamental policy, under normal market conditions, at
least 65% of the Missouri Tax-Exempt Bond Portfolio's total assets will be
invested in Missouri Municipal Obligations. The Portfolio will seek to maximize
the proportion of its dividends which are exempt from both federal and Missouri
income tax and presently expects to invest substantially all of its total assets
in Missouri Municipal Obligations.
The Missouri Tax-Exempt Bond Portfolio invests in Municipal Obligations
that are rated at the time of purchase within the four highest rating categories
assigned by a Rating Agency. The Portfolio may also invest in short-term
Municipal Obligations such as municipal notes, tax-exempt commercial paper and
variable or floating rate demand obligations that are rated at the time of
purchase within the two highest rating categories assigned by a Rating Agency.
Municipal Obligations rated in the lowest of the four highest rating categories
for bonds are considered to have speculative characteristics, even though they
are of investment grade quality. Such bonds will be purchased only if the
Adviser believes the issuers have an adequate capacity to pay interest and repay
principal. Unrated obligations will be purchased only if they are considered by
the Adviser to be at least comparable in quality at the time of purchase to
instruments within the rating categories listed above. The applicable Municipal
Obligation ratings are described in the Appendix to the Statement of Additional
Information.
As a matter of fundamental policy, under normal market conditions or
when the Adviser deems suitable tax-exempt Municipal Obligations to be
available, at least 80% of the Missouri Tax-Exempt Bond Portfolio's total assets
will be invested in Municipal Obligations. The Portfolio may hold
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uninvested cash reserves pending investment during temporary defensive periods
or if, in the opinion of the Adviser, suitable Municipal Obligations are
unavailable. There is no percentage limitation on the amount of assets which may
be held uninvested during temporary defensive periods.
In addition, during temporary defensive periods or if, in the opinion
of the Adviser, suitable Municipal Obligations are unavailable and subject to
its quality standards described above, the Missouri Tax-Exempt Bond Portfolio
may invest up to 20% of its assets in money market instruments, the income from
which is subject to federal income tax. Such instruments may include obligations
of the U.S. Government, its agencies or instrumentalities; debt securities
(including commercial paper) of issuers having, at the time of purchase, a
quality rating within the two highest rating categories by a Rating Agency;
certificates of deposit or bankers' acceptances of domestic branches of U.S.
banks with total assets at the time of purchase of $1 billion or more; or
repurchase agreements with respect to such obligations.
The Missouri Tax-Exempt Bond Portfolio's average weighted maturity will
vary in light of market and economic conditions, the comparative yields on
instruments with different maturities, and other factors.
THE KANSAS TAX-EXEMPT BOND PORTFOLIO
The Kansas Tax-Exempt Bond Portfolio's investment objective is to seek
as high a level of current income exempt from federal income tax as is
consistent with conservation of capital. In pursuing its investment objective,
the Portfolio invests substantially all of its assets in investment-grade Kansas
Municipal Obligations (which, to the extent possible, are also exempt from
Kansas income tax and the local intangibles tax).
Dividends paid by the Kansas Bond Portfolio that are derived from
interest attributable to tax-exempt obligations issued after December 31, 1987
by the State of Kansas or its political subdivisions, or on certain specific
obligations issued before January 1, 1988 by such entities, as well as certain
tax-exempt obligations of any authority, commission or instrumentality of the
United States or its possessions ("Kansas Municipal Obligations") are exempt
from federal and Kansas income tax and are not subject to the local intangibles
tax imposed by various counties, cities and townships in Kansas. Dividends
derived from interest on obligations of other governmental issuers are exempt
from federal income tax but may be subject to Kansas income tax and the local
intangibles tax. The foregoing exemption from Kansas income tax does not apply
to banks or certain other individuals or entities who are in the banking
business.
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As a matter of fundamental policy, under normal market conditions, at
least 65% of the Kansas Tax-Exempt Bond Portfolio's total assets will be
invested in Kansas Municipal Obligations. The Portfolio will seek to maximize
the proportion of its dividends which are exempt from both federal and Kansas
income tax and presently expects to invest substantially all of its total assets
in Kansas Municipal Obligations.
The Kansas Tax-Exempt Bond Portfolio invests in Municipal Obligations
that are rated at the time of purchase within the four highest rating categories
assigned by a Rating Agency. The Portfolio may also invest in short-term
Municipal Obligations such as municipal notes, tax-exempt commercial paper and
variable or floating rate demand obligations that are rated at the time of
purchase within the two highest rating categories assigned by a Rating Agency.
Municipal Obligations rated in the lowest of the four highest rating categories
for bonds are considered to have speculative characteristics, even though they
are of investment grade quality. Such bonds will be purchased only if the
Adviser believes the issuers have an adequate capacity to pay interest and repay
principal. Unrated obligations will be purchased only if they are considered by
the Adviser to be at least comparable in quality at the time of purchase to
instruments within the rating categories listed above. The applicable Municipal
Obligation ratings are described in the Appendix to the Statement of Additional
Information.
As a matter of fundamental policy, under normal market conditions or
when the Adviser deems suitable tax-exempt Municipal Obligations to be
available, at least 80% of the Kansas Tax-Exempt Bond Portfolio's total assets
will be invested in Municipal Obligations. The Portfolio may hold uninvested
cash reserves pending investment during temporary defensive periods or if, in
the opinion of the Adviser, suitable Municipal Obligations are unavailable.
There is no percentage limitation on the amount of assets which may be held
uninvested during temporary defensive periods.
In addition, during temporary defensive periods or if, in the opinion
of the Adviser, suitable Municipal Obligations are unavailable and subject to
its quality standards described above, the Kansas Tax-Exempt Bond Portfolio may
invest up to 20% of its assets in money market instruments, the income from
which is subject to federal income tax. See "The Missouri Tax-Exempt Bond
Portfolio" above for a description of the types of taxable money market
instruments in which the Portfolio may invest.
The Kansas Tax-Exempt Bond Portfolio's average weighted maturity will
vary in light of market and economic conditions, the comparative yields on
instruments with different maturities, and other factors.
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RISK FACTORS
MARKET RISK. The Growth & Income Equity, Emerging Growth and
International Equity Portfolios invest primarily, and the Balanced Portfolio
invests to a significant degree, in equity securities. As with other mutual
funds that invest primarily or to a significant degree in equity securities,
these Portfolios are subject to market risks. That is, the possibility exists
that common stocks will decline over short or even extended periods of time and
both the U.S. and certain foreign equity markets tend to be cyclical,
experiencing both periods when stock prices generally increase and periods when
stock prices generally decrease.
INTEREST RATE RISK. Generally, the market value of fixed-income
securities, including Municipal Obligations, held by the Money Market, Treasury
Money Market, Tax-Exempt Money Market, Government & Corporate Bond, U.S.
Government Securities, Balanced, Short-Intermediate Municipal, Missouri
Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios can be expected to vary
inversely to changes in prevailing interest rates. During periods of declining
interest rates, the market value of investment portfolios comprised primarily of
fixed income securities will tend to increase, and during periods of rising
interest rates, the market value will tend to decrease. Fixed income securities
with longer maturities, which tend to produce higher yields, are subject to
potentially greater capital appreciation and depreciation than obligations with
shorter maturities. Changes in the financial strength of an issuer or changes in
the ratings of any particular security may also offset the value of these
investments. Fluctuations in the market value of fixed income securities
subsequent to their acquisition will not offset cash income from such securities
but will be reflected in a Portfolio's net asset value.
RISKS ASSOCIATED WITH FOREIGN SECURITIES AND CURRENCIES. Investments in
securities of foreign issuers, whether made directly or indirectly, carry
certain risks not ordinarily associated with investments in securities of
domestic issuers. Such risks include future political and economic developments,
and the possible imposition of exchange controls or other foreign governmental
laws or restrictions. In addition, with respect to certain countries, there is
the possibility of expropriation of assets, confiscatory taxation, political or
social instability or diplomatic developments which could adversely affect
investments in those countries.
There may be less publicly available information about a foreign
company than about a U.S. company, and foreign companies may not be subject to
accounting, auditing and financial
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reporting standards and requirements comparable to or as uniform as those of
U.S.-based companies. Foreign securities markets, while growing in volume, have,
for the most part, substantially less volume than U.S. markets, and securities
of many foreign companies are less liquid and their prices more volatile than
securities of comparable U.S.-based companies. There is generally less
government supervision and regulation of foreign exchanges, brokers and issuers
than there is in the United States. In the event of a default by the issuer of a
foreign security, it may be more difficult to obtain or enforce a judgment
against such issuer than it would be against a domestic issuer. In addition,
foreign banks and foreign branches of U.S. banks are subject to less stringent
reserve requirements and to different accounting, auditing, reporting, and
recordkeeping standards than those applicable to domestic branches of U.S.
banks.
Certain of the risks associated with international investments are
heightened with respect to investments in developing countries. The risks of
expropriation, nationalization and social, political and economic instability
are greater in those countries than in more developed capital markets. In
addition, developing countries may have economies based on only a few industries
and small securities markets with a low volume of trading. Certain countries may
also impose substantial restrictions on investments in their capital markets by
foreign entities, including restrictions on investments in issuers of industries
deemed sensitive to relevant national interests. These factors may limit the
investment opportunities available to the International Equity Portfolio and
result in a lack of liquidity and a high price volatility with respect to
securities of issuers from developing countries.
Certain countries may also impose restrictions on the International
Equity Portfolio's ability to repatriate investment income or capital. Even when
there is no outright restriction on repatriation of investment income or
capital, the mechanics of repatriation may affect certain aspects of the
operations of the International Equity Portfolio.
Governments of many developing countries exercise substantial influence
over many aspects of the private sector. In some countries, the government may
own or control many companies, including the largest company or companies. As
such, government actions in the future could have a significant effect on
economic conditions in these countries, affecting private sector companies, the
International Equity Portfolio and the value of its portfolio securities.
Since the International Equity Portfolio will invest substantially in
securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange
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rates will affect the value of securities in the International Equity Portfolio
and the unrealized appreciation or depreciation of investments so far as U.S.
investors are concerned. Foreign currency exchangerates are determined by forces
of supply and demand on the foreign exchange markets and the regulatory control
of the exchanges on which the currencies trade. These forces are themselves
affected by the international balance of payments and other economic and
financial conditions, government intervention, speculation and other factors.
Costs are incurred in connection with conversions between various currencies.
The expense ratio of the International Equity Portfolio can be expected
to be higher than that of funds investing in domestic securities. The costs
attributable to investing abroad are usually higher for several reasons, such as
the higher cost of investment research, higher cost of custody of foreign
securities, higher commissions paid on comparable transactions on foreign
markets and additional costs arising from delays in settlements of transactions
involving foreign securities.
Interest and dividends payable on the International Equity Portfolio's
foreign portfolio securities may be subject to foreign withholding taxes. To the
extent such taxes are not offset by credits or deductions allowed to investors
under U.S. federal income tax provisions, they may reduce the net return to the
Portfolio's shareholders. (For further information, see "Taxes.)"
In addition to the International Equity Portfolio, other Portfolios may
be subject to certain of the risks described above in connection with investment
in foreign securities. As stated above, the Money Market Portfolio may acquire
U.S. dollar-denominated securities of foreign corporations and certain types of
bank instruments issued or supported by the credit of foreign banks or foreign
branches of domestic banks where the Adviser deems the investment to present
minimal credit risks. The Government & Corporate Bond Portfolio may acquire
dollar-denominated debt obligations of foreign issuers and the Growth & Income
Equity, Emerging Growth, Government & Corporate Bond, Balanced and International
Equity Portfolios may acquire ADRs and EDRs.
MUNICIPAL OBLIGATIONS. The ability of the Tax-Exempt Money Market,
Short-Intermediate Municipal, Missouri Tax-Exempt Bond and Kansas Tax-Exempt
Bond Portfolios (collectively, the "Tax- Exempt Portfolios") to achieve their
respective investment objectives are dependent upon the ability of issuers of
Municipal Obligations to meet their continuing obligations for the payment of
principal and interest. There will be additional risks associated with
investment in a Tax-Exempt Portfolio to the extent it invests its assets
predominantly in Missouri Municipal Obligations or Kansas Municipal Obligations.
With respect to the
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Missouri Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios, investors should
be aware that certain provisions of, and amendments to, the Missouri
Constitution or Kansas Constitution limit tax increases which could result in
certain adverse consequences affecting Missouri Municipal Obligations or Kansas
Municipal Obligations. Some of the significant financial considerations relating
to a Portfolio's investments in Missouri Municipal Obligations or Kansas
Municipal Obligations are summarized in the Statement of Additional Information.
ADDITIONAL RISKS AND OTHER CONSIDERATIONS. Although the Tax-Exempt
Money Market and Short-Intermediate Municipal Portfolios may invest 25% or more
of their respective net assets in (i) Municipal Obligations whose issuers are in
the same state, (ii) Municipal Obligations the interest on which is paid solely
from revenues of similar projects, and (iii) private activity bonds, neither
Portfolio presently intends to do so unless in the opinion of the Adviser the
investment is warranted.
Although neither the Missouri Tax-Exempt Bond Portfolio nor the Kansas
Tax-Exempt Bond Portfolio presently intends to do so on a regular basis, each
may invest more than 25% of their respective assets in industrial development
bonds issued before August 7, 1986, the interest on which is not treated as a
specific tax preference item under the federal alternative minimum tax, and in
Municipal Obligations, the interest on which is paid solely from revenues of
similar projects, if such investments are deemed necessary or appropriate by the
Adviser. To the extent that a Portfolio's assets are invested in Municipal
Obligations that are payable from the revenues of similar projects or in private
activity bonds, a Portfolio will be subject to the peculiar risks presented by
the laws and economic conditions relating to such projects and bonds to a
greater extent that it would be if its assets were not so invested. (See
"Investment Objectives and Policies -- Municipal Obligations" in the Statement
on Additional Information.)
Each of the Tax-Exempt Money Market, Missouri Tax-Exempt Bond and
Kansas Tax-Exempt Bond Portfolios is classified as non-diversified under the
1940 Act. Investment return on a non-diversified portfolio typically is
dependent upon the performance of a smaller number of securities relative to the
number held in a diversified portfolio. Consequently, the change in value of any
one security may affect the overall value of a non-diversified portfolio more
than it would a diversified portfolio. In addition, a non-diversified portfolio
may be more susceptible to economic, political, and regulatory developments than
a diversified investment portfolio with similar objectives. The value of a
Portfolio's securities can be expected to vary inversely with changes in
prevailing interest rates.
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Investors in the Missouri Tax-Exempt Bond and Kansas Tax- Exempt Bond
Portfolios should consider the risk inherent in such Portfolios' respective
concentrations in Missouri Municipal Obligations and Kansas Municipal
Obligations, respectively, versus the safety that comes with a less
geographically concentrated investment portfolio, and should compare the yields
and tax-equivalent yields available on portfolios of Missouri Municipal
Obligations and Kansas Municipal Obligations with the yields and tax-equivalent
yields of more diversified portfolios with securities of comparable quality,
including non-Missouri and non-Kansas securities, respectively, before making an
investment decision.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax (and, with respect to
Missouri Municipal Obligations and Kansas Municipal Obligations, to the
exemption from Missouri income tax or Kansas income tax and local intangible
tax, respectively) are rendered by bond counsel to the respective issuers at the
time of issuance, and opinions relating to the validity and the tax-exempt
status of payments received by a Portfolio from tax-exempt derivative securities
are rendered by counsel to the respective sponsors of such securities. The
Tax-Exempt Portfolios and their Adviser will rely on such opinions and will not
review independently the underlying proceedings relating to the issuance of
Municipal Obligations, the creation of any tax-exempt derivative security, or
the bases for such opinions.
OTHER APPLICABLE POLICIES
U.S. GOVERNMENT OBLIGATIONS. Securities issued or guaranteed by the
U.S. Government, its agencies and instrumentalities have historically involved
little risk of loss of principal if held to maturity. However, due to
fluctuations in interest rates, the market value of such securities may vary
during the period a shareholder owns Shares of a Portfolio. Certain U.S.
Government securities held by the Money Market, Treasury Money Market or
Tax-Exempt Money Market Portfolio may have remaining maturities exceeding
thirteen months if such securities provide for adjustments in their interest
rates no less frequently than every thirteen months. Examples of the types of
U.S. Government obligations that may be held by the Portfolios, subject to their
respective investment objectives and policies, include, in addition to U.S.
Treasury bonds, notes and bills, the obligations of Federal Home Loan Banks,
Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, GNMA, FNMA, FHLMC, General Services
Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Resolution Trust Corporation,
and Maritime Administration. Obligations of certain agencies and
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instrumentalities of the U.S. Government, such as those of GNMA, are supported
by the full faith and credit of the U.S. Treasury; others, such as the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of FNMA, are supported
by the discretionary authority of the U.S. Government to purchase the agency's
obligations; still others such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. There is
no assurance that the U.S. Government would provide financial support to U.S.
Government-sponsored instrumentalities if it is not obligated to do so by law.
STRIPPED GOVERNMENT SECURITIES. To the extent consistent with their
respective investment policies, each Portfolio may invest in bills, notes and
bonds (including zero coupon bonds) issued by the U.S. Treasury. In addition,
each Portfolio (except the Tax-Exempt Portfolios) may also invest in "stripped"
U.S. Treasury obligations offered under the Separate Trading of Registered
Interest and Principal Securities ("STRIPS") program or Coupon Under Bank-Entry
Safekeeping ("CUBES") program or other stripped securities issued directly by
agencies or instrumentalities of the U.S. Government (and, with respect to the
Treasury Money Market Portfolio only, that are also guaranteed as to principal
and interest by the U.S. Government). STRIPS and CUBES represent either future
interest or principal payments and are direct obligations of the U.S. Government
that clear through the Federal Reserve System. The Money Market, Growth & Income
Equity, Emerging Growth, Government & Corporate Bond, and Balanced Portfolios
may also purchase U.S. Treasury and agency securities that are stripped by
brokerage firms and custodian banks and sold under proprietary names. These
stripped securities are resold in custodial receipt programs with a number of
different names (such as TIGRs and CATS) and are not considered U.S. Government
securities for purposes of the 1940 Act.
Stripped securities are issued at a discount to their "face value" and
may exhibit greater price volatility than ordinary debt securities because of
the manner in which their principal and interest are returned to investors. The
Adviser will consider the liquidity needs of a Portfolio when any investments in
zero coupon obligations or other principal-only obligations are made.
REPURCHASE AGREEMENTS. Under certain circumstances described above and
subject to their respective investment policies, each Portfolio may agree to
purchase U.S. Government securities from financial institutions such as banks
and broker-dealers, subject to the seller's agreement to repurchase them at a
mutually agreed-upon date and price ("repurchase agreements"). A Portfolio will
enter into repurchase agreements only with financial institutions such as banks
and broker-dealers that the
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Adviser or Sub-Adviser believes to be creditworthy. During the term of any
repurchase agreement, the Adviser or Sub-Adviser will continue to monitor the
creditworthiness of the seller and will require the seller to maintain the value
of the securities subject to the agreement at not less than 102% of the
repurchase price (including accrued interest). Default by a seller could expose
a Portfolio to possible loss because of adverse market action or possible delay
in disposing of the underlying obligations. Because of the seller's repurchase
obligations, the securities subject to repurchase agreements do not have
maturity limitations. Although no Portfolio presently intends to enter into
repurchase agreements providing for settlement in more than seven days, each
Portfolio does have the authority to do so subject to its limitation on the
purchase of illiquid securities described below. Repurchase agreements are
considered to be loans under the 1940 Act. The income on repurchase agreements
is taxable. (See "Taxes" below.)
REVERSE REPURCHASE AGREEMENTS. Subject to their investment policies,
each Portfolio except the Treasury Money Market Portfolio and the Tax-Exempt
Portfolios) may borrow funds for temporary purposes by entering into reverse
repurchase agreements in accordance with their respective investment limitations
below. Pursuant to such agreements, a Portfolio would sell portfolio securities
to financial institutions such as banks and broker-dealers and agree to
repurchase them at an agreed upon date and price. Reverse repurchase agreements
involve the risk that the market value of the securities sold by a Portfolio may
decline below the repurchase price which the Portfolio is obligated to pay.
Reverse repurchase agreements are considered to be borrowings by a Portfolio
under the 1940 Act.
SECURITIES LENDING. To increase return or offset expenses, each
Portfolio (except the Money Market, Treasury Money Market, Tax-Exempt Money
Market, Missouri Tax-Exempt Bond and Kansas Tax- Exempt Bond Portfolios) may,
from time to time, lend its portfolio securities to broker-dealers, banks or
institutional borrowers pursuant to agreements requiring that the loans be
continuously secured by collateral equal at all times in value to at least the
market value of the securities loaned. Collateral for such loans may include
cash, securities of the U.S. Government, or its agencies or instrumentalities,
or an irrevocable letter of credit issued by a bank that has at least $1.5
billion in total assets, or any combination thereof. The collateral must be
valued daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the lending Portfolio. By lending
its securities, a Portfolio can increase its income by continuing to receive
interest on the loaned securities as well as by either investing the cash
collateral in short-term instruments or obtaining yield in the form of interest
paid by the borrower when U.S. Government securities are used as collateral. In
accordance
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with current SEC policies, each Portfolio is currently limiting its securities
lending to 33-1/3% of the aggregate net assets of such Portfolio. Loans are
subject to termination by a Portfolio or a borrower at any time.
SECURITIES OF OTHER INVESTMENT COMPANIES. Under certain circumstances
described above and subject to their respective investment policies and
limitations, each Portfolio may invest in securities issued by other investment
companies which invest in securities in which the Portfolio is permitted to
invest and which determine their net asset value per Share based on the
amortized cost or penny-rounding method. Each Portfolio may invest in securities
of other investment companies within the limits prescribed by the 1940 Act,
which include, subject to certain exceptions, a prohibition on a Portfolio
investing more than 10% of the value of its total assets in such securities.
Investment companies in which a Portfolio may invest may impose a sales or
distribution charge in connection with the purchase or redemption of their
Shares as well as other types of commissions or charges (no sales charge will be
paid by the Tax-Exempt Money Market, Missouri Tax-Exempt Bond and Kansas
Tax-Exempt Bond Portfolios in connection with such investments). Such charges
will be payable by a Portfolio and, therefore, will be borne indirectly by its
shareholders. To the extent that a Portfolio may invest in securities of other
investment companies, the Fund and the Adviser will ensure that there will be no
duplication of advisory fees. If necessary to accomplish this, the Adviser will
rebate its advisory fee to the Fund. (See the Statement of Additional
Information under "Investment Objectives and Policies -- Securities of Other
Investment Companies.") The income on securities of other investment companies
may be taxable to investors at the state or local level. (See "Taxes" below.)
WHEN-ISSUED PURCHASES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS.
Each Portfolio may purchase securities on a "when- issued" basis and may
purchase or sell securities on a "forward commitment" basis. These transactions
involve a commitment by a Portfolio to purchase or sell securities at a stated
price and yield with settlement beyond the normal settlement date. Such
transactions permit a Portfolio to lock-in a price or yield on a security,
regardless of future changes in interest rates. Additionally, the
Short-Intermediate Municipal Portfolio may purchase or sell securities on a
"delayed settlement" basis. This refers to a transaction in the secondary market
that will settle some time in the future. When issued purchases, forward
commitments and delayed settlement transactions involve a risk of loss if the
value of the security to be purchased declines prior to the settlement date, or
if the value of the security to be sold increases prior to the settlement date.
Each Portfolio expects that these transactions will not exceed 25% of the value
of its total assets (at the time of purchase) under normal market conditions. No
Portfolio intends to engage in such
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transactions for speculative purposes but only for the purpose of acquiring
portfolio securities.
OPTIONS. Each of the Equity and Bond Portfolios (except the Missouri
Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios) may purchase put and call
options listed on a national securities exchange and issued by the Options
Clearing Corporation in an amount not exceeding 10% of its net assets. Such
options may relate to particular securities or to various stock or bond indices.
Purchasing options is a specialized investment technique which entails a
substantial risk of a complete loss of the amounts paid as premiums to the
option writer. Such transactions will be entered into only as a hedge against
fluctuations in the value of securities which a Portfolio holds or intends to
purchase.
These Portfolios may also write covered call options. A covered call
option is an option to acquire a security that a Portfolio owns or has the right
to acquire during the option period. Such options will be listed on a national
securities exchange and issued by the Options Clearing Corporation.
The International Equity Portfolio may write covered call options, buy
put options, buy call options and write secured put options for hedging (or
cross-hedging) purposes or for the purpose of earning additional income. Such
options may relate to particular securities, foreign or domestic stock or bond
indices, financial instruments or foreign currencies; may or may not be listed
on a domestic or foreign securities exchange; and may or may not be issued by
the Options Clearing Corporation. The International Equity Portfolio will invest
and trade in unlisted over-the-counter options only with firms deemed
creditworthy by the Adviser or Sub-Adviser. However, unlisted options are not
subject to the protections afforded purchasers of listed options by the Options
Clearing Corporation, which performs the obligations of its members which fail
to perform them in connection with the purchase or sale of options. The
International Equity Portfolio will not purchase put and call options in an
amount that exceeds 10% of its net assets at the time of purchase.
The aggregate value of the securities subject to covered call options written
by a Portfolio will not exceed 25% of the value of its net assets. In order to
close out an option position, a Portfolio may enter into a "closing purchase
transaction" -- the purchase of a covered call option on the same security with
the same exercise price and expiration date as the option which the Portfolio
previously wrote. By writing a covered call option, a Portfolio forgoes the
opportunity to profit from an increase in the market price of the underlying
security above the exercise price except insofar as the premium represents such
a profit and it is not able to sell the underlying security until the option
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expires, is exercised, or the Portfolio effects a closing purchase transaction
by purchasing an option of the same series. The use of covered call options will
not be a primary investment technique of any Portfolio. (For additional
information relating to option trading practices, including particular risks,
see the Statement of Additional Information and Appendix B thereof.)
FOREIGN CURRENCY PUT OPTIONS. The International Equity Portfolio may
purchase foreign currency put options on U.S. exchanges or U.S. over-the-counter
markets. A put option gives the Portfolio, upon payment of a premium, the right
to sell a currency at the exercise price until the expiration of the option and
serves to insure against adverse currency price movements in the underlying
portfolio assets denominated in that currency.
UNLISTED CURRENCY OPTIONS. The International Equity Portfolio may
purchase unlisted currency options. A number of major investment firms trade
unlisted options which are more flexible than exchange listed options with
respect to strike price and maturity date. These unlisted options generally are
available on a wider range of currencies. Unlisted foreign currency options are
generally less liquid than listed options and involve the credit risk associated
with the individual issuer. They will be deemed to be illiquid for purposes of
the limitation on investments in illiquid securities.
WRITING FOREIGN CURRENCY CALL OPTIONS. A call option written by the
International Equity Portfolio gives the purchaser, upon payment of a premium,
the right to purchase from the International Equity Fund a currency at the
exercise price until the expiration of the option.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the International
Equity Portfolio may buy and sell securities denominated in currencies other
than the U.S. dollar, and receive interest, dividends and sale proceeds in
currencies other than the U.S. dollar, the Portfolio may from time to time enter
into foreign currency exchange transactions to convert to and from different
foreign currencies and to convert foreign currencies to and from the U.S.
dollar. The Portfolio may enter into currency exchange transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or use forward currency contracts to purchase or sell foreign
currencies.
A forward foreign currency contract is an obligation by the
International Equity Portfolio to purchase or sell a specific currency at a
future date at a price set at the time of the contract. In this respect, forward
currency contracts are similar to foreign currency futures contracts described
below; however, unlike futures contracts, which are traded on recognized
commodities exchanges, forward currency contracts are traded in
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the interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. Also, forward currency contracts usually
involve delivery of the currency involved instead of cash payment as in the case
of futures contracts.
The International Equity Portfolio may use forward foreign currency
exchange contracts in order to protect against uncertainty in the level of
future foreign exchange rates. The use of such forward contracts is limited to
hedging against movements in the value of foreign currencies relative to the
U.S. dollar in connection with specific portfolio transactions or with respect
to portfolio positions. The purpose of transaction hedging is to "lock in" the
U.S. dollar equivalent price of such specific securities. Position hedging is
the sale of foreign currency with respect to portfolio security positions
denominated or quoted in that currency. The Portfolio will not speculate in
foreign currency exchange transactions. Transaction and position hedging will
not be limited to an overall percentage of the Portfolio's assets but will be
employed as necessary to correspond to particular transactions or positions. The
Portfolio may not hedge its currency positions to an extent greater than the
aggregate market value (at the time of entering into the forward contract) of
the securities held in its portfolio denominated in, quoted in, or currently
convertible into that particular currency. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of the
Portfolio's portfolio securities or in foreign exchange rates, or prevent loss
if the prices of these securities decline, but forward foreign currency exchange
contracts do allow the Portfolio to establish a rate of exchange for a future
point in time.
FUTURES CONTRACTS AND RELATED OPTIONS. The Growth & Income Equity,
Emerging Growth, Government & Corporate Bond, U.S. Government Securities and
Balanced Portfolios may invest in futures contracts and options on futures
contracts to the extent permitted by the Commodity Futures Trading Commission
("CFTC") and the SEC. The International Equity Portfolio may invest in interest
rate futures contracts, options on futures contracts and other types of
financial futures contracts (such as foreign currency contracts), as well as any
index or foreign market futures which are available in recognized exchanges or
in other established financial markets to the extent permitted by the CFTC and
the SEC. Such transactions, including stock or bond index futures contracts, or
options thereon, act as a hedge to protect a Portfolio from fluctuations in the
value of its securities caused by anticipated changes in interest rate or market
conditions without necessarily buying or selling the securities. Hedging is a
specialized investment technique that entails skills different from other
investment management. The Adviser (or Sub- Adviser) may also consider such
transactions to be economically
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appropriate for the reduction of risk inherent in the ongoing management of a
Portfolio. A stock or bond index futures contract is an agreement in which one
party agrees to take or make delivery of an amount of cash equal to a specified
dollar amount times the difference between the index value (which assigns
relative values to the common stock or bonds included in the index) at the close
of the last trading day of the contract and the price at which the agreement is
originally made. No physical delivery of the underlying stock or bond in the
index is contemplated. Similarly, it may be in the best interest of a Portfolio
to purchase or sell interest rate futures contracts, or options thereon, which
provide for the future delivery of specified fixed income securities.
The purchase and sale of futures contracts or related options will not
be a primary investment technique of any Portfolio. None of the Portfolios will
purchase or sell futures contracts (or related options thereon) for hedging
purposes if, immediately after purchase, the aggregate initial margin deposits
and premiums paid by a Portfolio on its open futures and options positions
exceeds 5% of the liquidation value of the Portfolio, after taking into account
any unrealized profits and unrealized losses on any such futures or related
options contracts into which it has entered. (For a more detailed description of
futures contracts and related options, see the Statement of Additional
Information and Appendix B thereof.)
TYPES OF MUNICIPAL OBLIGATIONS. The two principal classifications of
Municipal Obligations that may be held by the Tax-Exempt Portfolios are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenues securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
revenue source such as the user of the facility being financed. Revenue
securities include private activity bonds which are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved. Municipal Obligations may also include
"moral obligation" bonds, which are normally issued by special purpose public
authorities. If the issuer of a moral obligation bond is unable to meet its debt
service obligations from current revenues, it may draw on a reserve fund, the
restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer.
Municipal Obligations include debt obligations issued by governmental
entities to obtain funds for various public purposes, including the construction
of a wide range of public
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facilities, the refunding of outstanding obligations, the payment of general
operating expenses and the extension of loans to public institutions and
facilities. Private activity bonds issued by or on behalf of public authorities
to finance various privately operated facilities are considered Municipal
Obligations. Interest on private activity bonds, although free of regular
federal income tax, may be an item of tax preference for purposes of the federal
alternative minimum tax.
Each of the Tax-Exempt Portfolios may acquire zero coupon obligations,
which may have greater price volatility than coupon obligations and which will
not result in payment of interest until maturity. Also included within the
general category of Municipal Obligations are participation certificates in
leases, installment purchase contracts, or conditional sales contracts ("lease
obligations") entered into by state or political subdivisions to finance the
acquisition or construction of equipment, land, or facilities. Although lease
obligations do not constitute general obligations of the issuer for which the
lessee's unlimited taxing power is pledged, certain lease obligations are backed
by the lessee's covenant to appropriate money to make the lease obligation
payments. However, under certain lease obligations, the lessee has no obligation
to make these payments in future years unless money is appropriated on a yearly
basis. Although "non-appropriation" lease obligations are secured by the leased
property, disposition of the property in the event of foreclosure might prove
difficult. These securities represent a relatively new type of financing and may
not be as marketable as more conventional securities. To the extent these
securities are illiquid, they are subject to each Portfolio's applicable
limitation on illiquid securities described below. The Portfolios do not intend
to invest in such lease obligations during the current year. (See "Investment
Objectives and Policies" in the Statement of Additional Information for a
description of other investment policies.)
Municipal Obligations purchased by the Tax-Exempt Portfolios may be
backed by letters of credit or guarantees issued by domestic or foreign banks
and other financial institutions which are not subject to federal deposit
insurance. Adverse developments affecting the banking industry generally or a
particular bank or financial institution that has provided its credit or a
guarantee with respect to a Municipal Obligation held by a Tax-Exempt Portfolio
could have an adverse effect on the Portfolio's investment portfolio and the
value of its Shares. Foreign letters of credit and guarantees involve certain
risks in addition to those of domestic obligations, including less stringent
reserve requirements and different accounting, auditing and recordkeeping
requirements.
VARIABLE AND FLOATING RATE MUNICIPAL OBLIGATIONS. Municipal Obligations
purchased by the Tax-Exempt Portfolios may include
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rated or unrated variable and floating rate instruments, including variable rate
master demand notes that permit the indebtedness thereunder to vary in addition
to providing for periodic adjustments in the interest rate. Unrated instruments
purchased by a Portfolio will be determined by the Adviser to be of comparable
quality at the time of purchase to rated instruments that may be purchased. The
absence of an active secondary market for a particular variable or floating rate
instrument, however, could make it difficult for a Portfolio to dispose of an
instrument if the issuer were to default on its payment obligation. A Portfolio
could, for these or other reasons, suffer a loss with respect to such
instruments.
STAND-BY COMMITMENTS. Each of the Tax-Exempt Portfolios may acquire
"stand-by commitments" with respect to Municipal Obligations held by it. Under a
stand-by commitment, a dealer agrees to purchase, at the Portfolio's option,
specified Municipal Obligations at a specified price. The Portfolio will acquire
stand-by commitments solely to facilitate portfolio liquidity and does not
intend to exercise its rights thereunder for trading purposes. The Portfolio
expects that stand-by commitments will generally be available without the
payment of any direct or indirect consideration. However, if necessary or
advisable, the Portfolio may pay for a stand-by commitment either separately in
cash or by paying a higher price for portfolio securities which are acquired
subject to the commitment (thus reducing the yield otherwise available for the
same securities). Stand-by commitments acquired by the Portfolio will be valued
at zero in determining the Portfolio's net asset value.
TAX-EXEMPT DERIVATIVES. Each of the Tax-Exempt Portfolios may hold
tax-exempt derivatives which may be in the form of tender option bonds,
participations, beneficial interests in a trust, partnership interests or other
forms. The Adviser expects that less than 5% of each Tax-Exempt Portfolio's
assets will be invested in such securities during the current year. (See the
Statement of Additional Information under "Investment Objectives and Policies -
Tax-Exempt Derivatives.")
ILLIQUID SECURITIES. A Portfolio will not knowingly invest more than
15% (10% for each of the Money Market Portfolios) of the value of its net assets
in illiquid securities. Repurchase agreements that do not provide for settlement
within seven days, time deposits maturing in more than seven days, and
securities that are not registered under the Securities Act of 1933, as amended
(the "1933 Act") but that may be purchased by institutional buyers pursuant to
SEC Rule 144A are subject to the applicable limit (unless the Adviser or
Sub-Adviser, pursuant to guidelines established by the Board of Directors,
determines that a liquid market exists).
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PORTFOLIO TURNOVER AND TRANSACTIONS. Although the Equity and Bond
Portfolios will not normally engage in short-term trading, each Portfolio
reserves the right to do so if the Adviser (or Sub-Adviser) believes that
selling a particular security is appropriate in light of the Portfolio's
investment objective. Investments may be sold for a variety of reasons, such as
a more favorable investment opportunity or other circumstances bearing on the
desirability of continuing to hold such investments. A high rate of portfolio
turnover involves correspondingly greater brokerage commission expenses and
other transaction costs, which must be borne directly by the Portfolio involved
and ultimately by its shareholders. High portfolio turnover may result in the
realization of substantial net capital gains; distributions derived from such
gains may be treated as ordinary income for federal income tax purposes. (See
"Taxes" in this Prospectus and the Statement of Additional Information.")
Although the Kansas Tax-Exempt Bond Portfolio cannot accurately predict
its annual portfolio turnover rate, it is not expected to exceed 100%.
All orders for transactions in securities or options on behalf of the
Portfolios are placed by the Adviser (or Sub- Adviser) with broker-dealers that
it selects. To the extent permitted by the 1940 Act and guidelines adopted by
the Fund's Board of Directors, a Portfolio may utilize the Distributor or one or
more of its affiliates as a broker in connection with the purchase or sale of
securities when the Adviser believes the charge for the transaction does not
exceed the usual and customary broker's commission.
INVESTMENT LIMITATIONS
The investment limitations set forth below are fundamental policies and
may be changed only by a vote of a majority of the outstanding Shares of a
Portfolio. Other investment limitations that also cannot be changed without a
vote of shareholders are contained in the Statement of Additional Information
under "Investment Objectives and Policies."
THE MONEY MARKET AND TREASURY MONEY MARKET PORTFOLIOS
A Portfolio may not:
1. Make loans, except that a Portfolio may purchase or hold
debt instruments in accordance with its investment objective and
policies and may enter into repurchase agreements with respect to
securities (together with any cash collateral) that are consistent with
the Portfolio's permitted investments and that equal at all times at
least 100% of the value of the repurchase price.
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2. Borrow money or issue senior securities, except that a
Portfolio may borrow from banks, and the Money Market Portfolio may
enter into reverse repurchase agreements, for temporary purposes in
amounts up to 10% of the value of its
total assets at the time of such borrowing; or mortgage, pledge or
hypothecate any assets, except in connection with any such borrowing
and in amounts not in excess of the lesser of the dollar amounts
borrowed or 10% of the value of a Portfolio's total assets at the time
of such borrowing. A Portfolio will not purchase securities while its
borrowings (including reverse repurchase agreements) are outstanding.
3. With respect to the Treasury Money Market Portfolio,
purchase securities other than obligations of the U.S. Government, its
agencies and instrumentalities, some of which may be subject to
repurchase agreements, except that the Portfolio may purchase
securities of other investment companies that seek to maintain a
constant net asset value per Share and that are permitted themselves
only to invest in securities which may be acquired by the Portfolio.
4. With respect to the Money Market Portfolio, purchase any
securities which would cause more than 25% of the value of the
Portfolio's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, domestic bank
certificates of deposit, bankers' acceptances and repurchase agreements
secured by domestic bank instruments or obligations of the U.S.
Government, its agencies or instrumentalities; (b) wholly-owned finance
companies will be considered to be in the industries of their parents
if their activities are primarily related to financing the activities
of the parents; and (c) utilities will be divided according to their
services, for example, gas, gas transmission, electric and gas,
electric and telephone will each be considered a separate industry.
In accordance with current regulations of the SEC, the Money Market
Portfolio intends to limit investments in the securities of any single issuer
(other than securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities) to not more than 5% of the Portfolio's total assets at the
time of purchase, provided that the Portfolio may invest up to 25% of its total
assets in the securities of any one issuer for a period of up to three business
days. This intention is not, however, a fundamental policy of the Money Market
Portfolio. The Portfolio would have the ability to invest more than five percent
of its assets in any one issuer in accordance with its fundamental
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policy only in the event that Rule 2a-7 of the 1940 Act is amended in the
future.
THE GROWTH & INCOME EQUITY, EMERGING GROWTH, GOVERNMENT &
CORPORATE BONDS, U.S. GOVERNMENT SECURITIES, BALANCED,
INTERNATIONAL EQUITY AND SHORT-INTERMEDIATE MUNICIPAL PORTFOLIOS
A Portfolio may not:
1. Purchase securities of any one issuer (other than
obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities), if, immediately after and as a result of such
investments, more than 5% of the Portfolio's total assets would be
invested in the securities of such issuer, or more than 10% of the
issuer's outstanding voting securities would be owned by the Portfolio
or the Fund, except that up to 25% of the Portfolio's total assets may
be invested without regard to such limitations.
2. Purchase any securities which would cause 25% or more of
the Portfolio's total assets at the time of purchase to be invested in
the securities of one or more issuers conducting their principal
business activities in the same industry, provided that, however, (a)
with respect to each Portfolio except the Short-Intermediate Municipal
Portfolio, (i) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements secured by obligations of
the U.S. Government or its agencies or instrumentalities; (ii)
wholly-owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related
to financing the activities of their parents; and (iii) utilities will
be divided according to their services (for example, gas, gas
transmission, electric and gas, electric, and telephone will each be
considered a separate industry); and (b) with respect to the
Short-Intermediate Municipal Portfolio, there is no limitation with
respect to obligations issued or guaranteed by the U.S. Government, any
state, territory or possession of the U.S. Government, the District of
Columbia, or any of their authorities, agencies, instrumentalities or
political subdivisions.
3. Borrow money or issue senior securities, except that each
Portfolio may borrow from banks and enter into reverse repurchase
agreements for temporary defensive purposes in amounts not in excess of
10% of the Portfolio's total assets at the time of such borrowing; or
mortgage, pledge, or hypothecate any assets, except in connection with
any such borrowing and in amounts not in excess of the lesser of the
dollar amounts borrowed or 10% of the Portfolio's total assets at the
time of such borrowing; or
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purchase securities while its borrowings exceed 5% of its total assets.
A Portfolio's transactions in futures and related options (including
the margin posted by a Portfolio in connection with such transactions),
and securities held in escrow or separate accounts in connection with a
Portfolio's investment practices described in this Prospectus or the
Statement of Additional Information are not subject to this limitation.
4. Make loans, except that each Portfolio may purchase or hold
debt instruments, lend portfolio securities, enter into repurchase
agreements and make other investments in accordance with its investment
objective and policies.
5. Purchase securities on margin, make short sales of
securities or maintain a short position, except that (a) this
investment limitation shall not apply to a Portfolio's transactions in
options, and futures contracts and related options, and (b) a Portfolio
may obtain short-term credits as may be necessary for the clearance of
purchases and sales of portfolio securities.
THE TAX-EXEMPT MONEY MARKET, MISSOURI TAX-EXEMPT BOND AND KANSAS
TAX-EXEMPT BOND PORTFOLIOS
A Portfolio may not:
1. Purchase securities of any one issuer if, immediately after
and as a result of such purchase, more than 5% of the Portfolio's total
assets would be invested in the securities of such issuer, except that
(a) up to 50% of the Portfolio's total assets may be invested without
regard to this 5% limitation provided that no more than 25% of the
Portfolio's total assets are invested in the securities of any one
issuer and (b) this 5% limitation does not apply to securities issued
or guaranteed by the U.S. Government, its agencies or
instrumentalities. For purposes of this limitation, a security is
considered to be issued by the governmental entity (or entities) whose
assets and revenues back the security, or, with respect to an
industrial development bond (in the case of the Tax-Exempt Money Market
Portfolio) or a private activity bond (in the case of the Missouri
Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios) that is backed
only by the assets and revenues of a non-governmental user, a security
is considered to be issued by such non-governmental user. In certain
circumstances, the guarantor of a guaranteed security may also be
considered to be an issuer in connection with such guarantee, except
that a guarantee of a security shall not be deemed to be a security
issued by the guarantor when the value of all securities issued and
guaranteed by the
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guarantor, and owned by the Portfolio, does not exceed 10% of the
Portfolio's total assets.
2. Borrow money or issue senior securities, except that each
Portfolio may borrow from banks, and the Missouri Tax-Exempt Bond and
Kansas Tax-Exempt Bond Portfolios may enter into reverse repurchase
agreements, for temporary defensive purposes in amounts not in excess
of 10% of its total assets at the time of such borrowing; or mortgage,
pledge, or hypothecate any assets except in connection with any such
borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of its total assets at the time of such
borrowing (including any reverse repurchase agreements); or purchase
securities while borrowings exceed 5% of Tax-Exempt Money Market
Portfolio's net assets or 5% of the Missouri Tax-Exempt Bond or Kansas
Tax-Exempt Bond Portfolios' respective total assets. Securities held in
escrow or separate accounts in connection with the Portfolios'
investment practices described in this Prospectus or the Statement of
Additional Information are not subject to this limitation.
THE MISSOURI TAX-EXEMPT BOND AND KANSAS TAX-EXEMPT BOND
PORTFOLIOS
A Portfolio may not:
1. Purchase any securities, except securities issued (as
defined in Investment Limitation No. 1 above with respect to the
Tax-Exempt Money Market, Missouri Tax-Exempt Bond and Kansas Tax-Exempt
Bond Portfolios) or guaranteed by the United States, any state,
territory or possession of the United States, the District of Columbia
or any of their authorities, agencies, instrumentalities or political
subdivisions, which would cause more than 25% of the Portfolio's net
assets at the time of purchase to be invested in the securities of
issuers conducting their principal business activities in the same
industry.
2. Make loans except that each Portfolio may purchase and hold
debt instruments and enter into repurchase agreements in accordance
with its investment objective and policies.
In addition, under normal market conditions or when the Adviser deems
that suitable tax-exempt obligations are available, at least 80% of the
Tax-Exempt Money Market Portfolio's assets must be invested in obligations the
interest on which is exempt from federal income tax and stand-by commitments
with respect to such obligations.
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Notwithstanding the Investment Limitation in the preceding paragraph,
the Tax-Exempt Money Market Portfolio may invest in securities of other
investment companies that (a) invest in securities that are substantially
similar to those the Portfolio may acquire, and (b) distribute income that is
exempt from regular federal income tax.
The following additional investment policies with respect to the
Tax-Exempt Money Market, Missouri Tax-Exempt Bond and Kansas Tax-Exempt Bond
Portfolios are not fundamental and may be changed by the Board of Directors
without shareholder approval:
The Portfolios may not purchase securities which are not
readily marketable, enter into repurchase agreements providing for
settlement in more than seven days after notice, or purchase other
illiquid securities if, as a result of such purchase, illiquid
securities would exceed 15% (10% with respect to the Tax-Exempt Money
Market Portfolio) of the Portfolios' respective total assets.
The Tax-Exempt Money Market Portfolio has an operating policy to comply
with the requirements of Rule 2a-7 of the 1940 Act. To the extent that Rule 2a-7
is more restrictive than the Portfolio's fundamental limitations, the Portfolio
will operate in accordance with Rule 2a-7.
If a percentage limitation is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in value
in the Portfolio's securities will not constitute a violation of such
limitation.
In order to permit the sale of Portfolio Shares in certain states, each
Portfolio may make commitments more restrictive than the investment policies and
limitations described above. Should the Board of Directors determine that any
such commitment is no longer in a Portfolio's best interest, the Board may
revoke the commitment by terminating the sale of such Portfolio's Shares to
investors residing in the state involved.
PRICING OF SHARES
THE MONEY MARKET PORTFOLIOS
The Money Market Portfolios' respective net asset values per Share are
determined by the Administrator as of 12:00 noon (Eastern Time) and as of the
close of regular trading hours on the New York Stock Exchange (the "Exchange")
(currently 4:00 p.m. Eastern Time) on each weekday, with the exception of those
holidays on which the New York Stock Exchange or the Federal Reserve Bank of St.
Louis are closed (a "Business Day"). Currently one or both of these institutions
are closed on the
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customary national business holidays of New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day (observed),
Independence Day (observed), Labor Day, Columbus Day, Veterans' Day,
Thanksgiving Day and Christmas Day (observed).
Each Portfolio's assets are valued based upon the amortized cost
method. Although each Portfolio seeks to maintain its net asset value per Share
at $1.00, there can be no assurance that the net asset value per Share will not
vary. (See the Statement of Additional Information under "Net Asset Value" for
further information.)
THE EQUITY AND BOND PORTFOLIOS
The Equity and Bond Portfolios' respective net asset values per Share
are determined by the Administrator as of the close of regular trading hours on
the Exchange on each Business Day (currently 4:00 p.m. Eastern Time).
Securities which are traded on a recognized stock exchange are valued
at the last sale price on the securities exchange on which such securities are
primarily traded or at the last sale price on the national securities market.
Securities traded on only over-the-counter markets are valued on the basis of
market values when available. Securities for which there are no transactions are
valued at the average of the current bid and asked prices. Other securities,
including restricted and other securities for which market quotations are not
readily available, and other assets are valued at fair value by the Adviser (or
Sub-Adviser) under the supervision of the Board of Directors. Investments in
debt securities with remaining maturities of 60 days or less may be valued based
upon the amortized cost method. (For further information about valuation of
investments, see "Net Asset Value" in the Statement of Additional Information.)
OTHER INFORMATION
The public offering price for each class of Shares of a Portfolio is
based upon net asset value per Share plus, in the case of Investor A Shares of
each Portfolio except the Money Market Portfolios, a front-end sales charge. A
class will calculate its net asset value per Share by adding the value of a
Portfolio's investments, cash and other assets attributable to the class,
subtracting the Portfolio's liabilities attributable to that class, and then
dividing the result by the total number of Shares in the class that are
outstanding. Because the operating expenses of Investor B Shares are higher than
those associated with the other classes of Shares, the net asset value per Share
of Investor B Shares of a Portfolio which declares its net investment income
quarterly will generally be lower than the
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net asset value per Share of Trust, Institutional or Investor A Shares of the
same Portfolio.
HOW TO PURCHASE AND REDEEM SHARES
PURCHASE OF SHARES
Investor A Shares of each Portfolio are sold subject to a front-end
sales charge, except for Investor A Shares of the Money Market Portfolios which
are sold without any sales charge. Investor B Shares of each Portfolio except
for the Treasury Money Market, Tax-Exempt Money Market and Short-Intermediate
Municipal Portfolios which do not offer Investor B Shares, are sold subject to a
back-end sales charge. This back-end sales charge declines over time and is
known as a "contingent deferred sales charge." Before choosing between Investor
A Shares or Investor B Shares of a Portfolio, investors should read
"Characteristics of Investor A Shares and Investor B Shares" and "Factors to
Consider When Selecting Investor A Shares or Investor b Shares" below.
Except as provided below with respect to Investor B Shares of the Money
Market Portfolio, Investor A Shares and Investor B Shares are sold through
broker-dealers or other organizations acting on behalf of their customers.
Generally, investors purchase Investor A Shares or Investor B Shares through a
broker-dealer organization which has a sales agreement with the Distributor or
through an organization which has entered into a servicing agreement with the
Fund with respect to Investor A Shares and/or Investor B Shares. The
organization is responsible for transmitting purchase orders directly to the
Fund. Investors purchasing Shares of a Portfolio which offers both Investor A
and Investor B Shares must specify at the time of investment whether they are
purchasing Investor A Shares or Investor B Shares.
Investor B Shares of the Money Market Portfolio are available for
purchase only by those investors participating in the ARCH Asset Adviser
Program. Otherwise, Investor B Shares of the Money Market Portfolio are
available only to the holders of Investor B Shares of another Portfolio who wish
to exchange their Investor B Shares of such other Portfolio for Investor B
Shares of the Money Market Portfolio. For further information on the ARCH Asset
Adviser Program, investors should, contact their investment representatives or
the ARCH Funds' Service Center at 1-800-551-3731.
In general, the minimum initial investment in each Portfolio is $1,000
and the minimum for each subsequent investment is $100. In the case of
investments made through (a) the Automatic Investment Program, in which case the
initial minimum and subsequent minimum investments are $50, (b) a sweep
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program available through an investor's financial institution, in which
case there are no minimum investments, (c) a payroll deduction program, in which
case there is no minimum initial investment and minimum subsequent investments
are $25 per month, or (d) a wrap fee program, in which case there are no minimum
investments. The minimum initial investment to participate in the Automatic
Exchange program is $5,000. (See "How to Purchase and Redeem Shares -- Exchange
Privileges -- Automatic Exchange Program" below for additional requirements.)
Purchases may be effected on Business Days when the Adviser,
Distributor, and Mercantile (the Custodian) are open for business. The Fund
reserves the right to reject any purchase order, including purchases made with
foreign and third party drafts or checks. All orders for new IRAs or other
retirement plan accounts placed through the transfer agent must be accompanied
by an account application. Account applications may be obtained from your
investment representative or the Fund at 1-800-551-3731.
Organizations placing orders directly or on behalf of their customers
should contact the Fund at 1-800-551-3731. Investors may also call the Fund for
information on how to purchase Shares.
EFFECTIVE TIME OF PURCHASE. A purchase order for the Money Market
Portfolios received and accepted by the Fund by 12:00 noon (Eastern time) on a
Business Day, is effected at the net asset value per Share next determined after
receipt of the order in good form if the Fund's Custodian has received payment
in federal funds or other immediately available funds by 4:00 p.m. (Eastern
time) on that day. If such funds are not available for investment by 4:00 p.m.
(Eastern time), the order will be cancelled. Purchase orders received after
12:00 noon (Eastern time) will be placed the following Business Day.
If purchase orders for the Equity and Bond Portfolios are received in
good form and accepted by the Fund prior to 4:00 p.m. (Eastern time) on any
Business Day, Shares will be priced according to the net asset value per Share
next determined on that day after receipt of the order. Immediately available
funds must be received by the Custodian prior to 4:00 p.m. within three Business
Days following the receipt of such order. If funds are not received by such
date, the order will be cancelled, and notice thereof will be given to the
person or organization placing the order.
In the case of an order for the purchase of Shares placed through a
broker-dealer, it is the responsibility of the broker-dealer to promptly
transmit the order to the Distributor. If the broker-dealer fails to do so, the
investor's right to that day's closing price must be settled between the
investor and the broker-dealer. Payment for orders which are not received or
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accepted will be returned after prompt inquiry to the transmitting organization.
PURCHASES BY MAIL. To purchase Shares of a Portfolio by mail, complete
an account application and send it to the Fund along with a check (or other
negotiable bank draft or money order) in at least the minimum initial purchase
amount, made payable to the appropriate Portfolio. Investors purchasing Shares
of a Portfolio which offers both Investor A Shares and Investor B Shares by mail
must indicate whether they wish to buy Investor A Shares or Investor B Shares.
Subsequent purchases of Shares of a Portfolio may be made at any time in at
least the minimum subsequent purchase amount by mailing a check payable to the
Portfolio.
All shareholders of record will receive confirmations of Share
purchases, exchanges, and redemptions in the mail. If Shares are held in the
name of an organization, such organization is responsible for transmitting
purchase, exchange, and redemption orders to the Fund on a timely basis,
recording all purchase, exchange, and redemption transactions, and providing
regular account statements which confirm such transactions to beneficial owners
(or arranging for such services).
AUTOMATIC INVESTMENT PROGRAM (AIP)
Shareholders may open an account or add to their investment on a
monthly basis in a minimum amount of $50, on the 20th day (or the next Business
Day after the 20th) of each month. Under the AIP, funds may be automatically
withdrawn from the shareholder's checking account (as long as the shareholder's
bank is a member of the Automated Clearing House). Such funds are invested in
Investor A or Investor B Shares, as appropriate, at the net asset value plus any
applicable front-end sales charge next determined on the day an order is
effected by the transfer agent, BISYS Fund Services Ohio, Inc. (the "Transfer
Agent"). An investor may apply for participation in the AIP through the
organization servicing his or her Fund account and by completing the
supplementary AIP authorization form. The AIP may be modified or terminated by a
shareholder on 30 days' written notice to his or her investment representative
or to the Fund, or by the Fund at any time.
The AIP is one means by which investors may use "Dollar Cost Averaging"
in making investmeaunts. Dollar Cost Averaging can be useful in investing in
portfolios such as the Equity and Bond Portfolios whose price per Share
fluctuates. Instead of trying to time market performance, a fixed dollar amount
is invested in Portfolio Shares at predetermined intervals. This may help
investors to reduce their average cost per Share because the agreed upon fixed
investment amount allows more Shares to be purchased during periods of lower
Share prices and fewer Shares
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during periods of higher prices. In order to be effective, Dollar Cost
Averaging should usually be followed on a sustained, consistent basis. Investors
should be aware, however, that Shares bought using Dollar Cost Averaging are
made without regard to their price on the day of investment or to market trends.
In addition, while investors may find Dollar Cost Averaging to be beneficial, it
will not prevent a loss if an investor ultimately redeems his or her Shares at a
price which is lower than their purchase price.
APPLICABLE SALES CHARGES - INVESTOR A SHARES OF THE EQUITY AND
BOND PORTFOLIOS
The public offering price for Investor A Shares of the Equity and Bond
Portfolios is the sum of the net asset value of the Shares being purchased plus
any applicable sales charge. No sales charge is assessed on the reinvestment of
distributions.
The sales charge is assessed as follows:
The ARCH Growth & Income Equity, Emerging Growth,
Government & Corporate Bond, U.S. Government Securities,
Balanced, International Equity, Missouri Tax-Exempt Bond
and Kansas Tax-Exempt Bond Portfolios
<TABLE>
<CAPTION>
AS A % AS A % DEALERS'
OF OF REALLOWANCE
OFFERING NET ASSET AS A % OF
PRICE VALUE OFFERING
AMOUNT OF TRANSACTION PER SHARE PER SHARE PRICE
- --------------------- --------- --------- -----
<S> <C> <C> <C>
Less than $50,000............................................. 4.50% 4.71% 4.00%
$50,000 but less than $100,000................................ 3.50 3.63 3.00
$100,000 but less than $250,000............................... 2.50 2.56 2.00
$250,000 but less than $500,000............................... 1.50 1.52 1.00
$500,000 but less than $1,000,000............................. 1.00 1.01 0.50
$1,000,000 and over........................................... .50 .50 .40
</TABLE>
The ARCH Short-Intermediate Municipal Portfolio
<TABLE>
<CAPTION>
AS A % AS A % DEALERS'
OF OF REALLOWANCE
OFFERING NET ASSET AS A % OF
PRICE VALUE OFFERING
AMOUNT OF TRANSACTION PER SHARE PER SHARE PRICE
- --------------------- --------- --------- -----
<S> <C> <C> <C>
Less than $250,000............................................ 2.50% 2.56% 2.00%
$50,000 but less than $500,000................................ 1.50 1.52 1.30
$100,000 but less than $1,000,000............................. 1.00 1.01 .85
$1,000,000 and over........................................... .50 .50 .40
</TABLE>
The Distributor will pay the appropriate Dealers' Reallowance to
broker-dealer organizations which have entered into an agreement with the
Distributor. The Dealers' Reallowance may be changed from time to time. Upon
notice to the Fund's shareholders, the Distributor, at its sole discretion, may
reallow up to the full
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applicable sales charge as shown on the above schedule during periods
specified in such notice. Dealers who receive 90% or more of a sales load may be
deemed to be "underwriters" under the Securities Act of 1933, as amended.
No sales charge is assessed on purchases of Investor A Shares of the
Equity and Bond Portfolios by: (a) directors and officers of the Fund and the
immediate family members of such individuals; (b) directors, current and retired
employees and participants in employee benefit/retirement plans (future and
current annuitants) of Mercantile Bancorporation Inc. or any of its affiliates
or the Distributor or its affiliates and the immediate family members of such
individuals; (c) brokers, dealers, and agents who have a sales agreement with
the Distributor, and their employees (and the immediate family members of such
individuals); (d) customers who purchase pursuant to a wrap fee program offered
by any broker-dealer or other financial institution or financial planning
organization; (e) individuals who purchase Investor A Shares with the proceeds
of Trust Shares or Institutional Shares redeemed in connection with a rollover
of benefits paid by a qualified retirement or employee benefit plan or
distribution on behalf of any other qualified account administered by Mercantile
or its affiliates or correspondent banks, within 60 days of receipt of such
payment; (f) investors who purchase Investor A Shares through a payroll
deduction program; (g) employees of any sub-adviser to the Fund; (h) holders of
Southwestern Bell Visa cards issued by Mercantile Bank of Illinois, N.A. who
participate in the Automatic Investment Program (credit cards may not be used
for the purchase of Fund Shares); (i) investors exchanging Trust Shares of a
Portfolio received from the distribution of assets held in a qualified trust,
agency or custodian account with the trust department of Mercantile or any of
its affiliated or correspondent banks; or (j) other investment companies
distributed by the Distributor or its affiliates. Investors who believe that
they may qualify under any of the exemptions listed above should contact the
Fund at 1-800-551-3731 prior to making a purchase.
REDUCED SALES CHARGES - INVESTOR A SHARES OF THE EQUITY AND BOND
PORTFOLIOS
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The sales charge on purchases of Investor A Shares of the Equity and
Bond Portfolios may be reduced through:
- rights of accumulation
- quantity discounts
- letter of intent
- reinvestment privilege
To qualify for a reduced sales load, an investor must so notify his or her
investment representative, who in turn will notify the Distributor at the time
of purchase.
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RIGHTS OF ACCUMULATION - INVESTOR A SHARES. An investor who has
previously purchased Investor A Shares of a Portfolio and has paid a sales
charge ("load") may be eligible for reduced sales charges when purchasing
additional Investor A Shares of a Portfolio with a sales charge. An investor's
aggregate investment in Shares of such load Portfolios is the total value (based
on the higher of current net asset value or the public offering price originally
paid) of: (a) current purchases, and (b) Shares that are already beneficially
owned by the investor on which a sales charge has already been paid. If, for
example, an investor beneficially owns Investor A Shares of a load Portfolio
with an aggregate current value of $240,000 and subsequently purchases
additional Investor A Shares of a load Portfolio having a current value of
$10,000, the sales charge applicable to the subsequent purchase would be reduced
to 1.50% of the offering price.
QUANTITY DISCOUNTS - INVESTOR A SHARES. As shown in the table under
"Applicable Sales Charges - Investor A Shares of the Equity and Bond
Portfolios," larger purchases reduce the sales charge paid. The Fund will
combine purchases made in a load Portfolio on the same day by the investor and
immediate family members when calculating the applicable sales charge.
LETTER OF INTENT - INVESTOR A SHARES. By checking the Letter of Intent
box on the account application, a shareholder becomes eligible for reduced sales
charges applicable to the total amount invested in Investor A Shares in a load
Portfolio over a 13-month period (beginning up to 90 days prior to the date
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indicated on the account application). The Transfer Agent will hold in escrow 5%
of the amount indicated for payment of a higher sales load if a shareholder does
not purchase the full amount indicated on the account application. Upon
completion of the total minimum investment specified on the account application,
the escrow will be released, and an adjustment will be made to reflect any
reduced sales charge applicable to Shares purchased during the 90-day period
prior to submission of the account application. Additionally, if total purchases
within the 13- month period exceed the amount specified, an adjustment will be
made to reflect further reduced sales charges applicable to such purchases. All
such adjustments will be made at the conclusion of the 13-month period and in
the form of additional Shares credited to the shareholder's account at the then
current public offering price applicable to a single purchase of the total
amount of the total purchases. If total purchases are less than the amount
specified, escrowed Shares may be involuntarily redeemed to pay the additional
sales charge. Checking a Letter of Intent box does not bind an investor to
purchase, or the Fund to sell, the full amount indicated at the sales load in
effect at the time of signing, but an investor must complete the intended
purchase to obtain the reduced sales load.
REINVESTMENT PRIVILEGE - INVESTOR A SHARES. Upon redemption of Investor
A Shares on which a sales charge was paid, a shareholder has a one-time right,
to be exercised within 60 days, to reinvest the redemption proceeds at the next
determined net asset value without paying any additional sales charge. The
shareholder must notify his or her investment representative or the Distributor
in writing of the reinvestment and provide a receipt or other evidence of the
redemption in order to eliminate a sales charge.
MISCELLANEOUS - INVESTOR A SHARES. Reduced sales charges may be
modified or terminated at any time and are subject to confirmation of an
investor's holdings. For more information about reduced sales charges, an
investor should contact his or her investment representative or the Distributor.
APPLICABLE SALES CHARGES - INVESTOR B SHARES OF THE CDSC
PORTFOLIOS
Investor B Shares of the CDSC Portfolios are sold at their net asset
value next determined after a purchase order is received in good form by the
Fund's Distributor. Although investors pay no front-end sales charge on
purchases of Investor B Shares, such Shares are subject to a deferred sales
charge at the rates set forth in the chart below if they are redeemed within six
years of purchase. Service Organizations will receive commissions from the
Distributor in connection with sales of Investor B Shares. These commissions may
be different than the reallowances or placement fees, if any, paid to dealers in
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connection with sales of Investor A Shares. The deferred sales charge on
Investor B Shares is based on the lesser of the net asset value of the Shares on
the redemption date or the original cost of the Shares being redeemed. As a
result, no sales charge is charged on any increase in the principal value of an
investor's Shares. In addition, a contingent deferred sales charge will not be
assessed on Investor B Shares purchased through reinvestment of dividends or
capital gains distributions.
The amount of any contingent deferred sales charge an investor must pay
on Investor B Shares depends on the number of years that elapse between the
purchase date and the date such Investor B Shares are redeemed. Solely for
purposes of determining the number of years from the time of payment for an
investor's Share purchase, all payments during a month will be aggregated and
deemed to have been made on the first day of the month.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE (AS A
NUMBER OF YEARS PERCENTAGE OF DOLLAR AMOUNT
ELAPSED SINCE PURCHASE SUBJECT TO THE CHARGE)
- ---------------------- ----------------------
<S> <C>
One or less........................... 5.0%
More than one, but less
than two............................ 4.0%
Two, but less than three.............. 3.0%
Three, but less than four............. 3.0%
Four, but less than five.............. 2.0%
Five, and up to and
including six....................... 1.0%
After six years....................... None
</TABLE>
When an investor redeems his or her Investor B Shares, the redemption
order is processed to minimize the amount of the contingent deferred sales
charge that will be charged. Investor B Shares are redeemed first from those
Investor B Shares that are not subject to the deferred sales load (i.e.,
Investor B Shares that were acquired through reinvestment of dividends or
capital gain distributions) and after that from the Investor B Shares that have
been held the longest.
For example, assume an investor purchased 100 Investor B Shares at $10
a Share (for a total cost of $1,000), three years later the Shares have a net
asset value of $12 per Share and during that time the investor acquired 10
additional Shares through dividend reinvestment. If the investor then makes one
redemption of 50 Shares (resulting in proceeds of $600, 50 Shares x $12 per
share), the first 10 Shares redeemed will not be
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subject to the contingent deferred sales charge because they were acquired
through reinvestment of dividends. With respect to the remaining 40 Shares
redeemed, the contingent deferred sales charge is charged at $10 per Share
(because the original purchase price of $10 per Share is lower than the current
net asset value of $12 per share). Therefore, only $400 of the $600 such
investor received from selling his or her Shares will be subject to the
contingent deferred sales charge, at a rate of 3.0% (the applicable rate in the
third year after purchase). The proceeds from the contingent deferred sales
charge that the investor may pay upon redemption go to the Distributor, which
may use such amounts to defray the expenses associated with the
distributionrelated services involved in selling Investor B Shares. The
contingent deferred sales charge, along with ongoing distribution fees paid with
respect to Investor B Shares, enables those Shares to be purchased without the
imposition of a front-end sales charge.
EXEMPTIONS FROM THE CONTINGENT DEFERRED SALES CHARGE. The following
types of redemptions qualify for an exemption from the contingent deferred sales
charge: (i) exchanges described under "Exchange Privileges" below; (ii)
redemptions in connection with required (or, in some cases, discretionary)
distributions to participants or beneficiaries of an employee pension,
profit-sharing or other trust or qualified retirement or Keogh plan, individual
retirement account or custodial account maintained pursuant to Section 403(b)(7)
of the Internal Revenue Code due to death, disability or the attainment of a
specified age; (iii) redemptions effected pursuant to a Portfolio's right to
liquidate a shareholder's account if the aggregate net asset value of Shares
held in the account is less than the minimum account size; (iv) redemptions in
connection with the death or disability of a shareholder; or (v) redemptions
resulting from a tax-free return of an excess contribution pursuant to Section
408(d)(4) or (5) of the Internal Revenue Code.
CHARACTERISTICS OF INVESTOR A SHARES AND INVESTOR B SHARES
The primary difference between Investor A Shares and Investor B Shares
lies in their sales charge structures and distribution arrangements. An investor
should understand that the purpose and function of the sales charge structures
and distribution arrangements for both Investor A Shares and Investor B Shares
are the same.
Investor A Shares are sold at their net asset value plus, in the case
of the Equity and Bond Portfolios, a front-end sales charge of up to 4.50%
(2.50% with respect to the ShortIntermediate Municipal Portfolio). (See "Pricing
of Shares.") This front-end sales charge may be reduced or waived in some cases.
(See "Applicable Sales Charges - Investor A Shares of the Equity and Bond
Portfolios.") Investor A Shares are subject
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to ongoing distribution and service fees at an annual rate of up to 0.30% (0.25%
with respect to the Money Market Portfolios) of a Portfolio's average daily net
assets attributable to its Investor A Shares.
Investor B Shares are sold at net asset value without an initial sales
charge. Normally, however, a deferred sales charge is paid if the Shares are
redeemed within six years of investment. (See "Applicable Sales Charges -
Investor B Shares of the CDSC Portfolios.") Investor B Shares are subject to
ongoing distribution and service fees at an annual rate of up to 1.00% of a
Portfolio's average daily net assets attributable to its Investor B Shares.
These ongoing fees, which are higher than those charged on Investor A Shares,
will cause Investor B Shares to have a higher expense ratio and pay lower
dividends than Investor A Shares.
Eight years after purchase, Investor B Shares will convert
automatically to Investor A Shares. The purpose of the conversion is to relieve
a holder of Investor B Shares of the higher ongoing expenses charged to those
Shares, after enough time has passed to allow the Distributor to recover
approximately the amount it would have received if a front-end sales charge had
been charged. The conversion from Investor B Shares to Investor A Shares takes
place at net asset value, as a result of which an investor receives
dollar-for-dollar the same value of Investor A Shares as he or she had of
Investor B Shares. The conversion occurs eight years after the beginning of the
calendar month in which the Shares are purchased. As a result of the conversion,
the converted Shares are relieved of the distribution and service fees and borne
by Investor B Shares, although they are subject to the distribution and service
fees borne by Investor A Shares.
Investor B Shares acquired through a reinvestment of dividends or
distributions are also converted at the earlier of two dates - eight years after
the beginning of the calendar month in which the reinvestment occurred or the
date of conversion of the most recently purchased Investor B Shares that were
not acquired through reinvestment of dividends or distributions. For example, if
an investor makes a one-time purchase of Investor B Shares of a particular
Portfolio, and subsequently acquires additional Investor B Shares of that
Portfolio only through reinvestment of dividends and/or distributions, all of
such investor's Investor B Shares in that Portfolio, including those acquired
through reinvestment, will convert to Investor A Shares of that Portfolio on the
same date.
FACTORS TO CONSIDER WHEN SELECTING INVESTOR A SHARES OR INVESTOR
B SHARES
Before purchasing Shares of a Portfolio which offers both Investor A
Shares and Investor B Shares, investors should
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consider whether, during the anticipated life of their investment in the
Portfolio, the accumulated distribution fees and potential contingent deferred
sales charges on Investor B Shares prior to conversion would be less than the
initial sales charge and accumulated distribution fees on Investor A Shares
purchased at the same time (note that Investor A Shares of the Money Market
Portfolio are sold without a sales charge), and to what extent such differential
would be offset by the higher yield of Investor A Shares. In this regard, to the
extent that there is no sales charge for Investor A Shares, in the case of the
Money Market Portfolio, or the sales charge for Investor A Shares is waived or
reduced by one of the methods described above, in the case of the Equity and
Bond Portfolios, investments in Investor A Shares become more desirable. The
Fund will refuse all purchase orders for Investor B Shares of over $100,000.
Although Investor A Shares are subject to a distribution and service
fee, they are not subject to the higher distribution and service fee applicable
to Investor B Shares. For this reason, Investor A Shares can be expected to pay
correspondingly higher dividends per Share. However, because initial sales
charges are deducted at the time of purchase, purchasers of Investor A Shares of
the Equity and Bond Portfolios that do not qualify for waivers of or reductions
in the initial sales charge would have less of their purchase price initially
invested in a Portfolio than purchasers of Investor B Shares of the same
Portfolio.
As described above, purchasers of Investor B Shares of the Equity and
Bond Portfolios will have more of their initial purchase price invested. Any
positive investment return on this additional invested amount would partially or
wholly offset the expected higher annual expenses borne by Investor B Shares of
those Portfolios. Because the Portfolios' future returns cannot be predicted,
there can be no assurance that this will be the case. Holders of Investor B
Shares would, however, own Shares that are subject to higher annual expenses
and, for a six-year period, such Shares would be subject to a contingent
deferred sales charge of up to 5.00% upon redemption, depending upon the year of
redemption. Investors expecting to redeem during this six-year period should
compare the cost of the contingent deferred sales charge plus the aggregate
annual Investor B Shares' distribution and service fees to the cost of the
initial sales charge and distribution and service fees on the Investor A Shares
(note that Investor A Shares of the Money Market Portfolio are sold without a
sales charge). Over time, the expense of the annual distribution and service
fees on the Investor B Shares may equal or exceed the initial sales charge, if
any, and annual distribution and service fees applicable to Investor A Shares.
For example, if net asset value remains constant, the aggregate distribution and
service fees with respect to Investor B Shares of the Equity and Bond Portfolios
would equal or exceed the initial sales charge and aggregate distribution fees
of Investor
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A Shares of those Portfolios approximately eight years after the purchase. In
order to reduce such fees of investors that hold Investor B Shares for more than
eight years, Investor B Shares will be automatically converted to Investor A
Shares as described above at the end of such eight-year period.
EXCHANGE PRIVILEGES
The exchange privilege enables shareholders to exchange (i) Investor A
Shares of a Portfolio for Investor A Shares of another Portfolio offered by the
Fund or, under certain circumstances described below, for Trust Shares or
Institutional Shares of the same Portfolio, and (ii) Investor B Shares of a
Portfolio for Investor B Shares of another Portfolio offered by the Fund.
The exchange privilege may be exercised only in those states where the class of
shares of such other Portfolios may be legally sold.
EXCHANGES - INVESTOR A SHARES. Shareholders who have purchased Investor
A Shares of a Portfolio and who have paid any applicable sales charge ("load")
(including Shares acquired through reinvestment of dividends or distributions on
such Shares) may exchange those Shares for Investor A Shares of another load
Portfolio without paying an additional sales load. Shareholders who have
purchased Investor A Shares of a Portfolio (other than through a previous
exchange from another load Portfolio on which any applicable sales load has been
paid) with a lower sales load may be charged an additional sales load on
exchanges of Shares of such Portfolio for Shares of a Portfolio with a higher
sales load. Shareholders may also exchange Investor A Shares of a no-load
Portfolio for Investor A Shares of another no-load Portfolio without paying a
sales load. When Investor A Shares of a no-load Portfolio are exchanged for
Investor A Shares of a load Portfolio, the applicable sales load (if any) will
be assessed. However, shareholders exchanging Investor A Shares of a no-load
Portfolio that were acquired through a previous exchange involving Shares on
which a load was paid will not be required to pay an additional sales load upon
the reinvestment of the equivalent investment into a load Portfolio within a
twelve month period. Under such circumstances, the shareholder must notify the
Distributor that a sales load was originally paid and provide the Distributor
with sufficient information to permit confirmation of the shareholder's right
not to pay a sales load.
In addition, shareholders who have a qualified trust, agency or
custodian account with the trust department of Mercantile or any of its
affiliated or correspondent banks, and whose Shares are to be held in that
account, may also exchange Investor A Shares of a Portfolio for Trust Shares or
Institutional Shares in the same Portfolio.
EXCHANGES - INVESTOR B SHARES. Shareholders who have purchased Investor
B Shares of a Portfolio (including Shares acquired through reinvestment of
dividends or distributions on
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such Shares) may exchange those Shares for Investor B Shares of another
Portfolio without the payment of any contingent deferred sales charge at the
time the exchange is made. In determining the holding period for calculating the
contingent deferred sales charge payable on redemptions of Investor B Shares,
the holding period of the Investor B Shares originally held will be added to the
holding period of the Investor B Shares acquired through the exchange. No
exchange fee is imposed by the Fund.
The Shares exchanged must have a current value at least equal to the
minimum initial or subsequent investment required by the particular Portfolio
into which the exchange is being made. The Fund reserves the right to reject any
exchange request. The exchange privilege may be modified or terminated at any
time upon 60 days' written notice to shareholders. An investor may telephone an
exchange request by calling his or her investment representative, which is
responsible for transmitting such exchange request to the Fund. (See "Other
Exchange or Redemption Information" below.) Investors who want to telephone an
exchange request directly to the Fund, and, have elected this privilege on the
account application may follow the procedures described below under "Redemption
by Telephone." An investor should consult his or her investment representative
or the Fund for further information regarding procedures for exchanging Shares.
AUTOMATIC EXCHANGE PROGRAM. The Automatic Exchange Program enables
shareholders to make regular, automatic withdrawals from an Investor A Share or
Investor B Share account in a Portfolio and use those proceeds to benefit from
Dollar Cost Averaging by automatically making purchases of the same class of
Shares in another Portfolio. With shareholder authorization, the Fund's Transfer
Agent will withdraw the amount specified (subject to the applicable minimums)
from the shareholder's account and will automatically invest that amount in
Shares of the Portfolio designated by the shareholder on the date of such
deduction.
In order to participate in the Automatic Exchange Program, shareholders
must make a minimum initial purchase of $5,000 and maintain a minimum account
balance of $1,000. Additionally, shareholders must complete the supplementary
authorization form which may be obtained from the service organization servicing
their Fund accounts. To change instructions with respect to the Automatic
Exchange Program or to discontinue this feature, shareholders must send a
written request to their investment representative or to the Fund. The Automatic
Exchange Program may be amended or terminated without notice at any time by the
Distributor.
REDEMPTION OF SHARES
Redemption orders should be placed with or through the same
broker-dealer organization that placed the original purchase
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order. Redemption orders are effected at a Portfolio's net asset value per Share
next determined after receipt of the order by the Fund. Proceeds from the
redemptions of Investor B Shares will be reduced by the amount of any applicable
contingent deferred sales charge. The organization through which the investor
placed the order is responsible for transmitting redemption orders to the Fund
on a timely basis. No charge for sending redemption payments electronically is
currently imposed by the Fund, although a charge may be imposed in the future.
The Fund reserves the right to send redemption proceeds electronically within
seven days after receiving a redemption order if, in the judgment of the
Adviser, an earlier payment could adversely affect a Portfolio.
REDEMPTION BY MAIL
A written redemption request must be accompanied by any Share
certificates which are properly endorsed for transfer. The Transfer Agent may
require a signature guarantee by an eligible guarantor institution. For purposes
of this policy, the term "eligible guarantor institution" shall include banks,
brokers, dealers, credit unions, securities exchanges and associations, clearing
agencies and savings associations as those terms are defined in Rule 17Ad-15
under the Securities Exchange Act of 1934. The Transfer Agent reserves the right
to reject any signature guarantee if (1) it has reason to believe that the
signature is not genuine, (2) it has reason to believe that the transaction
would otherwise be improper, or (3) the guarantor institution is a broker or
dealer that is neither a member of a clearing corporation nor maintains net
capital of at least $100,000. The signature guarantee requirement will be waived
if all of the following conditions apply: (1) the redemption check is payable to
the shareholder(s) of record and (2) the redemption check is mailed to the
shareholder(s) at the address of record or the proceeds are either mailed or
sent electronically to a commercial bank account previously designated on the
account application. An investor with questions or needing assistance should
contact his or her investment representative or the Fund. Additional
documentation may be required if the redemption is requested by a corporation,
partnership, trust, fiduciary, executor, or administrator.
REDEMPTION BY TELEPHONE
Shares may be redeemed by telephone if the shareholder selected that
option on the account application. The shareholder may have the proceeds mailed
to his or her address or mailed or sent electronically to a bank account
previously designated on the account application. It is not necessary for
shareholders to confirm telephone redemption requests in writing. If a
shareholder did not originally select the telephone redemption privilege, the
shareholder must provide written instructions to
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the Transfer Agent to add this feature. Neither the Fund nor its service
contractors will be liable for any loss, damage, expense or cost arising out of
any telephone redemption effected in accordance with the Fund's telephone
redemption procedures, acting upon instructions reasonably believed to be
genuine. The Fund will employ procedures designed to provide reasonable
assurance that instructions by telephone are genuine; if these procedures are
not followed the Fund or its service contractors may be liable for any losses
due to unauthorized or fraudulent instructions. If Share certificates are
outstanding with respect to an account, the telephone redemption and exchange
privilege is not available. If, due to temporary adverse conditions, investors
are unable to effect telephone transactions, investors are encouraged to follow
the procedures described in "Other Exchange or Redemption Information" below.
Proceeds from redemptions of Investor A Shares and/or Investor B Shares
of the MONEY MARKET PORTFOLIOS with respect to redemption orders received by the
Distributor before 12:00 noon (Eastern time) on a Business Day normally will be
sent electronically the same day (or mailed by check the next Business Day) to
the organization that placed the redemption order in good form. Proceeds for
redemption orders that are received after 12:00 noon (Eastern time) or on a
non-business Day normally will be sent electronically on the next Business Day
(or mailed by check on the second Business Day thereafter).
Proceeds from redemptions of Investor A Shares and/or Investor B Shares
of the EQUITY AND BOND PORTFOLIOS with respect to redemption orders received by
the Fund before 4:00 p.m. (Eastern time) on a Business Day normally are sent
electronically or mailed by check to the organization that placed the redemption
order within three Business Days after the Distributor's receipt of the order in
good form.
CHECKWRITING -- MONEY MARKET PORTFOLIOS
Checkwriting is available from certain institutions with respect to
each of the Money Market Portfolios. No charge for use of the checkwriting
privilege is currently imposed by the Fund, although a charge may be imposed in
the future. With this service, a shareholder may write up to six checks per
month in an amount per check of $250 or more. To obtain checks, a shareholder
must complete the signature card that accompanies the account application. To
establish this checkwriting service after opening an account in a Money Market
Portfolio, the shareholder must contact his or her investment representative by
telephone or mail to obtain an account application. A signature guarantee may be
required. A SHAREHOLDER WILL RECEIVE THE DAILY DIVIDENDS DECLARED ON THE SHARES
TO BE REDEEMED UP TO THE DAY THAT A CHECK IS PRESENTED TO THE CUSTODIAN FOR
PAYMENT. Upon 30 days' written notice to shareholders, the checkwriting
privilege
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may be modified or terminated. An investor cannot close an account in a Money
Market Portfolio by writing a check.
AUTOMATIC WITHDRAWAL PLAN (AWP)
An Automatic Withdrawal Plan may be established by a new or existing
shareholder of any Portfolio if the value of his or her account (valued at the
net asset value at the time of the establishment of the AWP) equals $10,000 or
more. Shareholders who elect to establish an AWP may receive a monthly,
quarterly, semi-annual, or annual check in a stated amount of not less than $50
on or about the 25th day of the applicable month of withdrawal. Periodic
payments will be reduced by any applicable contingent deferred sales charge.
Portfolio Shares will be redeemed as necessary to meet withdrawal payments.
Withdrawals may reduce principal and eventually deplete the shareholder's
account. The maintenance of an AWP may be disadvantageous for holders of
Investor B Shares due to the effect of the contingent deferred sales charge. A
shareholder who desires to establish an AWP after opening an account should
complete the AWP form in the back of the Prospectus or contact his or her
investment representative or the Distributor for an AWP application. A signature
guarantee will be required. An AWP may be terminated by a shareholder on 30
days' written notice to his or her investment representative or to the Fund or
by the Fund at any time.
PURCHASE OF INVESTOR A SHARES AT NET ASSET VALUE
From time to time the Distributor may offer special concessions to
enable investors to purchase Investor A Shares of the Equity and Bond Portfolios
offered by the Fund at net asset value without payment of a front-end sales
charge. To qualify for a net asset value purchase, the investor must pay for
such purchase with the proceeds from the redemption of shares of a
non-affiliated mutual fund on which a front-end sales charge was paid. A
qualifying purchase of Investor A Shares must occur within 30 days of the prior
redemption and must be evidenced by a confirmation of the redemption
transaction. At the time of purchase, the investment representative must notify
the Distributor that the purchase qualifies for a purchase at net asset value.
Proceeds from the redemption of Shares on which no front-end sales charge was
paid do not qualify for a purchase at net asset value.
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OTHER EXCHANGE OR REDEMPTION INFORMATION
WHEN REDEEMING SHARES IN A PORTFOLIO THAT OFFERS BOTH INVESTOR A SHARES
AND INVESTOR B SHARES, SHAREHOLDERS SHOULD INDICATE WHETHER THEY ARE REDEEMING
INVESTOR A SHARES OR INVESTOR B SHARES. In the event a redeeming shareholder
owns both Investor A Shares and Investor B Shares in a Portfolio, the Investor A
Shares will be redeemed first unless the shareholder indicates otherwise.
During periods of substantial economic or market change or activity,
telephone redemptions or exchanges may be difficult to complete. In such event,
Shares may be redeemed or exchanged by mailing the request directly to the
organization through which the original Shares were purchased or directly to the
Fund at P.O. Box 78069, St. Louis, Missouri 63178.
At various times, the Fund may be requested to redeem Shares for which
it has not yet received good payment. In such circumstances, the Fund may delay
the forwarding of proceeds until payment has been collected for the purchase of
such Shares which may take up to 15 days or more. To avoid delay in payment upon
redemption shortly after purchasing Shares, investors should purchase Shares by
certified or bank check or by electronic transfer. The Fund intends to pay cash
for all Shares redeemed, but under abnormal conditions which make payment in
cash unwise, the Fund may make payment wholly or partly in portfolio securities
at their then market value equal to the redemption price. In such cases, an
investor may incur brokerage costs in converting such securities to cash.
A shareholder may be required to redeem Shares in a Portfolio upon 60
days' written notice if the balance in the shareholder's account drops below
$500. The Fund will not require a shareholder to redeem Portfolio Shares if the
value of the shareholder's account drops below $500 due to fluctuations in net
asset value. Share balances may also be redeemed pursuant to arrangements
between broker-dealer organizations and their investors.
YIELDS AND TOTAL RETURNS
Yield and total return quotations are computed separately for Trust
Shares, Institutional Shares, Investor A Shares and/or Investor B Shares of a
Portfolio. TOTAL RETURN AND YIELD FIGURES WILL FLUCTUATE, ARE BASED ON
HISTORICAL EARNINGS, AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The
methods used to compute each Portfolio's yields and total returns are described
below and in the Statement of Additional Information.
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THE MONEY MARKET PORTFOLIOS
From time to time, performance information such as total return,
"yield," and "effective yield" for the Money Market Portfolios' Investor A
Shares and/or Investor B Shares may be quoted in advertisements or in
communications to shareholders. The "yield" quoted in advertisements refers to
the income generated by an investment in a particular class of Shares of a
Portfolio over a specified period (such as a seven-day period) identified in
connection with the particular yield quotation. This income is then
"annualized." That is, the amount of income generated by the investment during
that period is assumed to be generated for each such period over a 52-week or
one-year period and is shown as a percentage of the investment. The "effective
yield" is calculated similarly but, when annualized, the income earned by an
investment in a particular class of Shares of a Portfolio is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment.
In addition, the Treasury Money Market Portfolio's "state
tax-equivalent yield" may also be quoted. The "state tax- equivalent yield"
shows the level of taxable yield needed to produce an after-tax yield that is
equivalent to a particular state's tax-exempt yield achieved by the Portfolio.
The "state tax-equivalent yield" refers to the portion of income that is derived
from interest income on direct obligations of the U.S. Government, its agencies
or instrumentalities that qualifies for exemption from state income tax. The
yield calculation assumes that 100% of the interest income is exempt from state
income tax. The "state tax-equivalent yield" is computed by dividing the
tax-exempt portion of the Portfolio's yield by a denominator consisting of one
minus a stated income tax rate.
The Tax-Exempt Money Market Portfolio may also quote its
"tax-equivalent yield" and "tax-equivalent effective yield", which demonstrate
the level of taxable yield need to produce an after-tax yield that is equivalent
to the Portfolio's yield and effective yield. Each are calculated by increasing
the Portfolio's yield and effective yield by the amount necessary to reflect the
payment of federal (and/or state) tax at a stated tax rate. The "tax equivalent
yield" and "tax-equivalent effective yield" will always be higher than the
Portfolio's yield and effective yield, respectively. The Tax-Exempt Money Market
Portfolio may also compute its "tax-equivalent yield" and "tax- equivalent
effective yield" with respect to certain states, which shows the level of
taxable yield and effective yield, respectively, needed to produce an after-tax
equivalent to the federal and state tax-exempt yield of the Portfolio's
particular class of Shares, assuming payment of federal income tax and state
personal income tax each at a stated rate and based upon a
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specified percentage of the Portfolio's income which is exempt from state income
tax as well as federal income tax.
THE EQUITY AND BOND PORTFOLIOS
From time to time, performance information such as total return and
yield data for the Equity and Bond Portfolios' Investor A Shares and/or Investor
B Shares may be quoted in advertisements, sales literature or in communications
to shareholders. The yield is computed based on the net income of a particular
class of Shares in the particular Portfolio during a 30-day (or one-month)
period identified in connection with the particular yield quotation. More
specifically, the yield is computed by dividing the Portfolio's net income per
Share during a 30-day (or one-month) period by the maximum Public Offering Price
per Share on the last day of the period and annualizing the result. The
Short-Intermediate Municipal, Missouri Tax-Exempt Bond and Kansas Tax-Exempt
Bond Portfolios' "tax equivalent" yields, which show the level of taxable yield
needed to produce an after-tax equivalent to each Portfolio's tax-free yield,
may also be quoted from time to time. This is done by increasing a Portfolio's
yield (calculated as above) by the amount necessary to reflect the payment of
federal income tax at a stated tax rate. The Missouri Tax-Exempt Bond Portfolio
may also compute its "Missouri tax-equivalent" yield and the Kansas Tax-Exempt
Bond Portfolio may also compute its "Kansas tax-equivalent" yield, which shows
the amount of taxable yield needed to produce an after-tax equivalent to the
federal and Missouri or Kansas tax-exempt yield of the Portfolio's Shares,
assuming payment of federal income tax and Missouri or Kansas income tax each at
a stated rate.
The Portfolios' total returns may be calculated on an average annual
total return basis, and may also be calculated on an aggregate total return
basis, for various periods. Average annual total returns with respect to a
particular class of Shares reflect the average annual percentage change in value
of an investment in such Shares of a Portfolio over the particular measuring
period. Aggregate total returns reflect the cumulative percentage change in
value over the measuring period. Both methods of calculating total returns
assume that dividends and capital gain distributions made by a Portfolio during
the period are reinvested in the same class of Shares of the Portfolio and that
the maximum sales load in effect during the period has been charged by the
Portfolio. The Portfolios' total return figures may also be calculated without
the deduction of the maximum sales charge in effect during the period. The
effect of not deducting the sales charge will be to increase the total return
reflected. When considering average annual total return figures for periods
longer than one year, it is important to note that a Portfolio's annual total
return for any one year in the
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period might have been more or less than the average for the entire period.
INFORMATION APPLICABLE TO ALL PORTFOLIOS
Performance data of the Portfolios' Investor A Shares and/or Investor B
Shares may be compared to the performance of other mutual funds with comparable
investment objectives and policies through various mutual fund or market indices
and data such as that provided by Lehman Brothers, Inc. or any of its
affiliates, Ibbotson Associates, Inc., Lipper Analytical Services, Inc., Mutual
Fund Forecaster and IBC/Donoghue's MONEY FUND REPORT(R) published by
IBC/Donoghue. References may also be made to indices or data published in Money
Magazine, Forbes, Barron's, The Wall Street Journal, The New York Times,
Business Week, American Banker, Institutional Investor, Pensions and
Investments, U.S.A. Today, Fortune, CDA/Wiesenberger, Morningstar, Inc. and
publications of a local or regional nature. In addition to performance
information, general information about the Portfolios that appears in a
publication such as those mentioned above may be included in advertisements and
in reports to Shareholders.
Performance quotations of a class of Shares in a Portfolio represent
that Portfolio's past performance and should not be considered as representative
of future results. Any account fees charged by an investment representative will
not be included in the calculations of the Portfolios' yields and total returns.
Such fees, if any, will reduce the investor's net return on an investment in a
Portfolio. Investors may call 1-800-452-ARCH to obtain current yield and total
return information.
DIVIDENDS AND DISTRIBUTIONS
THE MONEY MARKET, TREASURY MONEY MARKET, TAX-EXEMPT MONEY MARKET,
GOVERNMENT & CORPORATE BOND, U.S. GOVERNMENT SECURITIES, SHORT-
INTERMEDIATE MUNICIPAL, MISSOURI TAX-EXEMPT BOND AND KANSAS TAX-
EXEMPT BOND PORTFOLIOS
Dividends from investment income of the Money Market, Treasury Money
Market, Tax-Exempt Money Market, Government & Corporate Bond, U.S. Government
Securities, Short-Intermediate Municipal, Missouri Tax-Exempt Bond and Kansas
Tax-Exempt Bond Portfolios are declared daily and paid monthly not later than
five Business Days after the end of each month. Investor A Shares and/or
Investor B Shares of the Money Market, Treasury Money Market and Tax-Exempt
Money Market Portfolios earn dividends from the day the purchase order is
received by the Fund through the day before the redemption order for such Shares
is received. Investor A Shares and/or Investor B Shares of the
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Government & Corporate Bond, U.S. Government Securities, Short- Intermediate
Municipal, Missouri Tax-Exempt Bond and Kansas Tax- Exempt Bond Portfolios earn
dividends from the day after the purchase order is received by the Transfer
Agent through the day the redemption order for such Shares is received. Shares
of a Portfolio purchased by check begin earning dividends when payment for
Shares purchased are converted into federal funds and are available for
investment. For purchases by check, this normally will be the second Business
Day following receipt of the check.
Dividends on each Share of such Portfolios are determined in the same
manner and are paid in the same amounts, irrespective of class, except that a
Portfolio's Trust Shares and Institutional Shares (other than the Tax-Exempt
Portfolios which do not offer Institutional Shares) bear all expenses of the
respective Administrative Services Plans adopted for such Shares and a
Portfolio's Investor A Shares and Investor B Shares (other than the Treasury
Money Market, Tax-Exempt Money Market and Short- Intermediate Municipal
Portfolios which do not offer Investor B Shares) bear all expenses of the
respective Distribution and Services Plans adopted for such Shares. In addition,
a Portfolio's Institutional Shares bear the expense of certain sub- transfer
agency fees. (See "Management of the Fund" and "Other Information Concerning the
Fund and Its Shares" below.)
THE GROWTH & INCOME EQUITY, EMERGING GROWTH, BALANCED AND
INTERNATIONAL EQUITY PORTFOLIOS
Net investment income for the Growth & Income Equity, Emerging Growth,
Balanced and International Equity Portfolios is declared and paid quarterly as a
dividend to shareholders of record. Dividends on each Share of each of these
Portfolios are determined in the same manner and are paid in the same amount,
irrespective of class, except that a Portfolio's Trust Shares and Institutional
Shares bear all expenses of the respective Administrative Services Plans adopted
for such Shares and a Portfolio's Investor A Shares and Investor B Shares bear
all expenses of the respective Distribution and Services Plans adopted for such
Shares. In addition, a Portfolio's Institutional Shares bear the expense of
certain sub-transfer agency fees. (See "Management of the Fund" and "Other
Information Concerning the Fund and Its Shares".)
OTHER DIVIDEND AND DISTRIBUTION INFORMATION
The Money Market Portfolios do not expect to realize capital gains. Net
realized capital gains of a Portfolio, if any, are distributed at least
annually. All dividends and distributions paid on a Portfolio's Shares are
automatically reinvested (without a sales load) in additional Shares of the same
class unless the investor has (i) otherwise indicated in the account
application, or (ii) redeemed all the Shares held in a Portfolio,
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in which case a distribution will be paid in cash. Reinvested dividends and
distributions will be taxed in the same manner as those paid in cash.
TAXES
FEDERAL TAXES
Each Portfolio of the Fund intends to qualify as a "regulated
investment company" for the current taxable year. It is intended that each
Portfolio will continue to so qualify as long as such qualification is in the
best interests of shareholders. A regulated investment company is generally
exempt from federal income tax on amounts distributed to shareholders.
Qualification as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code"), for a taxable year requires,
among other things, that each Portfolio distribute to its shareholders an amount
equal to at least the sum of 90% of its investment company taxable income and
90% of its net exempt-interest income (if any). In general, a Portfolio's
investment company taxable income will be its taxable income, including
dividends, interest and short-term capital gains (the excess of net short-term
capital gain over net long-term capital loss), subject to certain adjustments
and excluding the excess of any net long-term capital gain over net short-term
capital loss, if any, for such taxable year. The Money Market, Treasury Money
Market, Growth & Income Equity, Emerging Growth, Government & Corporate Bond,
U.S. Government Securities, Balanced and International Equity Portfolios intend
to distribute as dividends substantially all of their respective investment
company taxable income and any net tax-exempt interest income each year. Such
dividends will be taxable as ordinary income to a Portfolio's shareholders who
are not currently exempt from federal income taxes, whether such income is
received in cash or reinvested in additional Shares. (Federal income taxes for
distributions to an IRA are deferred under the Code.) In the case of the Growth
& Income Equity, Emerging Growth, Balanced and International Equity Portfolios,
such dividends will qualify for the dividends received deduction for
corporations to the extent of the total qualifying dividends received by the
Portfolios from domestic corporations for the taxable year. Because all of the
Money Market, Treasury Money Market, Government & Corporate Bond and U.S.
Government Securities Portfolios' net investment income is expected to be
derived from earned interest, it is not expected that any distributions from
such Portfolios will be eligible for the dividends received deduction.
It is the policy of each Tax-Exempt Portfolio to distribute as
dividends substantially all of its net tax-exempt interest income and any
investment company taxable income each year.
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Dividends derived from interest on Municipal Obligations (known as
exempt-interest dividends) may be treated by shareholders as items of interest
excludable from their gross income under Section 103(a) of the Code, unless
under the circumstances applicable to the particular shareholder the exclusion
would be disallowed. (See the Statement of Additional Information under
"Additional Information Concerning Taxes.") Distributions of net income may be
taxable to investors under state or local law as dividend income even though a
substantial portion of such distributions may be derived from interest on
tax-exempt obligations which, if realized directly, would be exempt from such
income tax.
If a Tax-Exempt Portfolio should hold certain private activity bonds
issued after August 7, 1986, shareholders must include, as an item of tax
preference, the portion of dividends paid by the Portfolio that is attributable
to interest on such bonds in their federal alternative minimum taxable income
for purposes of determining liability (if any) for the 26-28% alternative
minimum tax applicable to individuals and the 20% alternative minimum tax and
the environmental tax applicable to corporations. Corporate shareholders also
must take all exempt- interest dividends into account in determining certain
adjustments for federal alternative minimum and environmental tax purposes. The
environmental tax applicable to corporations is imposed at the rate of .12% on
the excess of the corporation's modified federal alternative minimum taxable
income over $2,000,000.
Substantially all of each Portfolio's net realized long-term capital
gains, if any, will be distributed at least annually to its shareholders. A
Portfolio will generally have no tax liability with respect to such gains and
the distributions will be taxable to shareholders who are not currently exempt
from federal income taxes as long-term capital gains, regardless of how long the
shareholders have held the Shares and whether such gains are received in cash or
reinvested in additional Shares.
To the extent dividends paid to shareholders of a Tax-Exempt Portfolio
are derived from taxable income or from long-term or short-term capital gains,
such dividends will be subject to federal income tax, whether such dividends are
paid in the form of cash or additional Shares.
An investor considering purchasing Shares of a Money Market Portfolio
on or just before the record date of any capital gains distribution (or in the
case of the Equity and Bond Portfolios, the record date of any dividend or
capital gains distribution) should be aware that the amount of the forthcoming
distribution, although in effect a return of capital, will be taxable.
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Dividends declared by a Portfolio in October, November, or December of
any year payable to shareholders of record on a specified date in such months
will be deemed to have been received by shareholders and paid by the Fund on
December 31 of such year, if such dividends are actually paid during January of
the following year.
Each Portfolio may be required in certain cases to withhold and remit
to the U.S. Treasury 31% of taxable dividends or gross sale proceeds paid to
shareholders who have failed to provide a correct tax identification number in
the manner required, who are subject to withholding by the Internal Revenue
Service for failure properly to include on their return payments of taxable
interest or dividends, or who have failed to certify to the Portfolio that they
are not subject to backup withholding when required to do so or that they are
"exempt recipients."
A taxable gain or loss may be realized by an investor upon redemption,
transfer or exchange of Shares of the Equity and Bond Portfolios, depending upon
the tax basis of such Shares and their price at the time of redemption, transfer
or exchange. If an investor holds Shares for six months or less and during that
time receives an exempt-interest dividend on those Shares, any loss realized on
the sale or exchange of those Shares will be disallowed to the extent of the
exempt-interest dividend.
Certain interest income and dividends earned by the International
Equity Portfolio from foreign securities is expected to be subject to foreign
withholding taxes or other taxes. So long as more than 50% of the value of the
Portfolio's total assets at the close of any taxable year consists of stock or
securities of foreign corporations, the Portfolio may elect, for U.S. federal
income tax purposes, to treat certain foreign taxes paid by it, including
generally any withholding taxes and other foreign income taxes, as paid by its
shareholders. The Portfolio may make this election. As a consequence, the amount
of these foreign taxes paid by the Portfolio will be included in its
shareholders' taxable income pro rata (in addition to taxable distributions
actually received by them), and each shareholder may elect either (a) to credit
his proportionate amount of such taxes against his U.S. federal income tax
liabilities (subject to certain limitations), or (b) if he itemizes his
deductions, to deduct such proportionate amounts from his U.S. taxable income.
MISSOURI TAX CONSIDERATIONS. For each year in which a Portfolio
qualifies as a regulated investment company for federal income tax purposes,
shareholders of such Portfolio who are Missouri resident individuals, trusts or
estates resident in Missouri, or corporations subject to Missouri taxing
jurisdiction (collectively, "Missouri Taxpayers") will not be subject to
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Missouri income taxation on dividends distributed to them to the extent that
such dividends (a) qualify as exempt-interest dividends of a regulated
investment company under Code section 852(b)(5), (b) are the subject of the
written notice to shareholders required by 12 C.S.R. section 10-2.155(2), (c)
are attributable to interest on (1) obligations issued by the State of Missouri
or any of its political subdivisions or authorities, or (2) certain obligations
of the United States, any territory or possession of the United States, or any
authority, commission, or instrumentality of the United Sates, to the extent
exempted from Missouri income tax under Federal Law, and (d) are properly
reported on the Missouri income tax returns of the shareholder in the respective
Portfolio.
To the extent possible, the Missouri Tax-Exempt Bond Portfolio intends
to invest in obligations which will permit distributions attributable to
interest to be excludable by Missouri Taxpayers. Despite this intention,
Missouri Taxpayers generally will be subject to Missouri income tax on other
types of distributions received from the Missouri Tax-Exempt Bond Portfolio,
including distributions of interest on obligations of other issuers and all
long-term and short-term capital gains.
Except as noted above with respect to Missouri income taxation,
distributions from a Portfolio may be taxable to shareholders under other state
and local laws imposing taxes on or measured by net income, even though such
distribution were derived, in whole or in part, from interest on obligations
which, if realized directly by the shareholder, or by a shareholder of another
type, would be nontaxable.
The foregoing discussion of Missouri law does not apply to shareholders
that are subject to the Missouri bank tax or other comparable forms of
specialized Missouri taxation.
All shareholders of the Portfolios should consult with their tax
advisors with respect to the state and local tax consequences of the purchase,
ownership, and disposition of Shares in the Portfolios, the receipt of
distributions from the Portfolios, and the proper method in which to report
Portfolio-related items on a shareholder's Missouri tax returns.
KANSAS TAX CONSIDERATIONS. In each year that a Portfolio qualifies as a
regulated investment company for federal income tax purposes, dividends
distributed to shareholders of the Portfolio who are Kansas resident
individuals, or estates or trusts resident in Kansas, will be excluded from the
computation of Kansas adjusted gross income to the extent that such dividends
(a)(i) qualify as exempt-interest dividends of a regulated investment company
under section 852(b)(5) of the Code and (ii) are attributable to interest on
obligations issued after December 31, 1987 by the State of Kansas or its
political subdivisions or
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on certain specific obligations issued before January 1, 1988 by such entities,
or (b) are derived from interest on certain obligations of any authority,
commission or instrumentality of the United States or its possessions, to the
extent exempted from state income taxes under Federal law. The Kansas Tax-Exempt
Bond Portfolio intends to invest only in obligations which will permit
distributions attributable to interest to be excludable from Kansas adjusted
gross income on resident individuals, estates and trusts. Resident individuals,
estates and trusts will generally be subject to Kansas income tax on other types
of distributions received from the Kansas Tax-Exempt Bond Portfolio, including
distributions attributable to interest on certain obligations issued before
January 1, 1988, by the State of Kansas or its political subdivisions, to
interest on obligations of other issuers and to all long-term and short-term
capital gains, if any, to the extent such capital gains distributions are
included in federal taxable income. Corporations within Kansas' tax jurisdiction
are subject to the same rules as Kansas individuals in computing such
corporation's net income before apportionment.
The foregoing discussion of Kansas law does not apply to shareholders
which are banks or to certain other individuals or entities who are in the
banking business. Banks and others in the banking business are subject to the
Kansas privilege tax on net income for which distributions from the Kansas Bond
Portfolio are not exempt.
Except as noted above with respect to Kansas income taxation,
distributions from a Portfolio may be taxable to investors under other state and
local laws imposing taxes on or measured by net income, even though all or a
portion of such distributions are derived from tax-exempt obligations which, if
realized directly by the investor, would be nontaxable. The Kansas Tax-Exempt
Bond Portfolio will notify its shareholders within 60 days after the close of
each year as to the amount of exempt interest dividends from Kansas obligations
which is exempt from Kansas individual income taxation.
Earnings derived from the Kansas Bond Portfolio will not be subject to
the local intangibles tax imposed by various counties, cities and townships in
Kansas.
Shareholders of the Kansas Tax-Exempt Bond Portfolio should consult
their tax advisors with respect to the state and local tax consequences of the
purchase, ownership and disposition of Shares in the Portfolio.
STATE AND LOCAL TAXES
Shareholders should note that dividends paid by a Portfolio may be
taxable to investors under state or local law as dividend income even though all
or a portion of such dividends may be
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derived from interest on obligations that, if realized directly, would be exempt
from such income taxes.
The Treasury Money Market Portfolio is structured to provide investors,
to the extent permissible by federal and state law, with income that is exempt
or excluded from taxation at the state and local level. Shareholders should note
that many, but not all, states permit all or a portion of a regulated investment
company's dividends which are derived from interest on U.S. Treasury obligations
(and obligations of certain U.S. Government agencies)("Treasury Obligations") to
be exempt or excluded from state and local taxation. In addition, only certain
states allow dividends of a regulated investment company that are derived from
dividends of other regulated investment companies investing directly in Treasury
Obligations to be exempt or excluded from state and local taxation. Some states
reduce a shareholder's allowable deductions by interest on debt incurred to
carry obligations producing state tax-exempt interest and by other expenses
related to such obligations. Income earned by the Portfolio from repurchase
agreements generally is not exempt from state or local income tax. Shareholders
should consult their own tax advisors about the status of distributions from the
Treasury Money Market Portfolio under state and local law.
MISCELLANEOUS
The foregoing summarizes some of the important federal and state tax
considerations generally affecting the Portfolios and their shareholders and is
not intended as a substitute for careful tax planning. Accordingly, potential
investors in the Portfolios should consult their tax advisers with specific
reference to their own tax situation. Shareholders will be advised at least
annually as to the federal and, for the Treasury Money Market Portfolio, the
state income tax consequences, and for the Missouri Tax-Exempt Bond and Kansas
Tax-Exempt Bond Portfolios, the Missouri or Kansas state income tax
consequences, of distributions made each year.
MANAGEMENT OF THE FUND
The Fund is managed under the direction of its Board of Directors. The
Statement of Additional Information contains the names of and general background
information concerning each director.
INVESTMENT ADVISER AND SUB-ADVISER
Mississippi Valley Advisors Inc. ("MVA") serves as the investment
adviser to each Portfolio. MVA's principal office is located at One Mercantile
Center, Seventh & Washington Streets, St. Louis, Missouri 63101. MVA is a
wholly-owned subsidiary of
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Mercantile. As of December 31, 1995, MVA had approximately $7 billion in assets
under investment management, including the assets of the Fund, which were
approximately $2.1 billion.
Subject to the general supervision of the Fund's Board of
Directors and in accordance with the Fund's investment policies,
MVA manages the Portfolios, makes investment decisions with respect to and
places orders for all purchases and sales of the Portfolios' securities and
other investments, and directs the maintenance of each Portfolio's records
relating to such purchases and sales.
For the services provided and expenses assumed pursuant to the
investment advisory agreement, MVA is entitled to receive fees, computed daily
and payable monthly, with respect to the Money Market and Treasury Money Market
Portfolios, at the annual rates of .40% of the first $1.5 billion of each such
Portfolio's average daily net assets, .35% of the next $1.0 billion of net
assets and .25% of net assets in excess of $2.5 billion, and with respect to the
Tax-Exempt Money Market, Growth & Income Equity, Emerging Growth, Government &
Corporate Bond, U.S. Government Securities, Balanced, International Equity,
Short-Intermediate Municipal, Missouri Tax-Exempt Bond and Kansas Tax-Exempt
Bond Portfolios, at the annual rates of .40%, .55%, .75%, .45%, .45%, .75%,
1.00%, .55%, .45% and .45% of the average daily net assets of each Portfolio,
respectively. For the fiscal year/period ended November 30, 1995, MVA received
advisory fees (net of waivers) at the effective annual rates of .35%, .35%,
.35%, .55%, .75%, .45%, .45%, .75%, .75%, 0% and .45% of the respective average
daily net assets of the Money Market, Treasury Money Market, Tax-Exempt Money
Market, Growth & Income Equity, Emerging Growth, Government & Corporate Bond,
U.S. Government Securities, Balanced, International Equity, Short-Intermediate
Municipal and Missouri Tax-Exempt Bond Portfolios. For the fiscal year ended May
31, 1995, MVA received advisory fees (net of waivers) at the effective annual
rates of .31% and .32% of the average daily net assets of the Predecessor
Tax-Exempt Money Market and Predecessor Missouri Tax-Exempt Bond Portfolios,
respectively. Without fee waivers, MVA would have been entitled to receive
advisory fees at the annual rate of .40% and .45% of the average daily net
assets of the Predecessor Tax-Exempt Money Market Portfolio and Predecessor
Missouri Tax-Exempt Bond Portfolios, respectively. The Kansas Tax-Exempt Bond
Portfolio had not commenced operations as of the date of this Prospectus. MVA
has informed the Fund that, upon commencement of operations of the Kansas
Tax-Exempt Bond Portfolio, it intends to waive its fee with respect to that
Portfolio through November 30, 1996.
MVA may from time to time voluntarily reduce all or a portion of its
advisory fee to increase the net income of one or more Portfolios available for
distributions as dividends. The voluntary fee reduction will cause the return of
any such
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Portfolio to be higher than it would otherwise be in the absence of such
reduction.
Gene E. Gillespie, CFA, is the person primarily responsible for the
day-to-day management of the Growth & Income Equity and Balanced Portfolios. Mr.
Gillespie, Director of Research, has been with MVA for 23 years.
Robert J. Anthony is the person primarily responsible for the
day-to-day management of the Emerging Growth Portfolio. Mr. Anthony, Senior
Associate, has been with MVA for 21 years.
David A. Bethke, CFA, is the person primarily responsible for the
day-to-day management of the U.S. Government Securities and Government &
Corporate Bond Portfolios. Mr. Bethke, Senior Associate, joined MVA in 1987 and
has six years of prior investment experience.
Peter Merzian is the person primarily responsible for the day-to-day
management of the Short-Intermediate Municipal, Missouri Tax-Exempt Bond and
Kansas Tax-Exempt Bond Portfolios' investments. Mr. Merzian, a Senior Associate
of MVA, is assisted by several research analysts who utilize a wide range of
technological resources in selecting portfolio investments. Mr. Merzian served
as portfolio manager of the Predecessor Missouri Tax-Exempt Bond Portfolio since
1993 and prior thereto was employed as a portfolio manager by another financial
institution.
MVA has entered into a sub-investment advisory agreement with Clay
Finlay, Inc. Pursuant to the terms of such sub- investment advisory agreement,
Clay Finlay has been retained by MVA to manage the investment and reinvestment
of the assets of the International Equity Portfolio and to provide analytical
and investment research services to it, subject to the supervision of MVA and to
the direction and control of the Fund's Board of Directors.
Under this arrangement, Clay Finlay is responsible for the day-to-day
management of the International Equity Portfolio's assets. MVA reviews
investment performance policies and guidelines, maintains certain books and
records, is responsible for selecting and monitoring the performance of Clay
Finlay, and for reporting the activities of Clay Finlay in managing the
Portfolio to the Fund's Board of Directors.
Clay Finlay is registered as an investment adviser with the SEC and is
entirely owned by its investment professionals. Clay Finlay's principal office
is located at 200 Park Avenue, 56th Floor, New York, New York 10166. As of
December 31, 1995, Clay Finlay had approximately $6.0 billion in assets under
management. Clay Finlay, founded in 1982, has eight senior investment
professionals with extensive experience in
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international investments. Each of the eight senior investment professionals
has been with the firm since its inception.
Frances Dakers is the person primarily responsible for the day-to-day
management of the International Equity Portfolio's investments. Ms. Dakers, a
Principal of Clay Finlay, has been associated with Clay Finlay since January,
1982.
For the services provided and expenses assumed pursuant to its
sub-investment advisory agreement with MVA, Clay Finlay receives from MVA a fee,
computed daily and payable monthly, at the annual rate of .75% of the
International Equity Portfolio's average daily net assets. For the fiscal year
ended November 30, 1995, Clay Finlay received sub-advisory fees at the effective
annual rate of .75% of the International Equity Portfolios's average daily net
assets. Clay Finlay bears all expenses incurred by it in connection with its
services under the sub- investment advisory agreement.
ADMINISTRATOR
BISYS Fund Services Ohio, Inc., located at 3435 Stelzer
Road, Columbus, Ohio 43219, acts as the Portfolios' Administrator.
The Administrator generally assists in all aspects of each Portfolio's
administration and operation and also monitors and performs other services
pertaining to the Portfolios' arrangements with Service Organizations (see
"Service Organizations" below). For its services, the Administrator is entitled
to receive a fee, computed daily and payable monthly, at the annual rate of .20%
(.10% for the Tax-Exempt Money Market Portfolio) of each Portfolio's average
daily net assets. For the fiscal year ended November 30, 1995, the Administrator
received administration fees (net of waivers) at the effective rate of .10% of
the average daily net assets of the Money Market, Treasury Money Market, Growth
& Income Equity, Emerging Growth, Government & Corporate Bond, U.S. Government
Securities, Balanced, Short-Intermediate Municipal and Missouri Tax-Exempt Bond
Portfolios, at the effective rate of .10% of the average daily net assets of the
Tax-Exempt Money Market Portfolio, and at the effective rate of .15% of the
average daily net assets of the International Equity Portfolio. From time to
time, the Administrator may voluntarily waive all or a portion of the
administration fees otherwise payable by a Portfolio in order to increase the
net income available for distribution to shareholders. The Administrator has
advised the Fund that, upon commencement of operations of the Kansas Tax-Exempt
Bond Portfolio, it intends to waive .10% of the administration fee payable to it
by that Portfolio through the Fund's 1997 fiscal year.
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DISTRIBUTOR
Investor A Shares and/or Investor B Shares in each Portfolio are sold
continuously by the Distributor, BISYS Fund Services, an affiliate of the
Administrator. The Distributor also monitors the Fund's arrangements under the
Distribution and Services Plans described below. The Distributor is a registered
broker-dealer with principal offices at 3435 Stelzer Road, Columbus, Ohio 43219.
The Distributor may, at its expense, provide compensation to dealers in
connection with sales of Shares of any of the Portfolios. Such compensation may
include financial assistance to dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising
campaigns regarding one or more of the Portfolios, and/or other dealer-sponsored
special events. In some instances, this compensation will be made available only
to certain dealers whose representatives have sold a significant amount of such
Shares. Compensation will include payment for travel expenses, including
lodging, incurred in connection with trips taken by invited registered
representatives and members of their families to locations within or outside of
the United States for meetings or seminars of a business nature. Compensation
will also include the following types of non-cash compensation offered through
sales contests: (1) business and vacation trips, including the provision of
travel arrangements and lodging at resorts, (2) tickets for entertainment events
(such as concerts, cruises and sporting events) and (3) merchandise (such as
clothing, trophies, clocks and pens). Dealers may not use sales of a Portfolio's
Shares to qualify for this compensation to the extent such may be prohibited by
the laws of any state or any self-regulatory agency, such as the National
Association of Securities Dealers, Inc. None of the aforementioned compensation
is paid for by the Portfolios or their shareholders.
DISTRIBUTION AND SERVICES PLANS
The Fund has adopted separate Distribution and Services Plans pursuant
to Rule 12b-1 under the 1940 Act with respect to Investor A Shares of the
Portfolios and Investor B Shares of the CDSC Portfolios. Under the Distribution
and Services Plans, the Fund may pay (i) the Distributor or another person for
distribution services provided and expenses assumed and (ii) Service
Organizations for shareholder administrative services provided pursuant to
servicing agreements in connection with Investor A Shares or Investor B Shares
of a Portfolio. Payments to the Distributor are to compensate it for
distribution assistance and expenses assumed and activities primarily intended
to result in the sale of Investor A Shares or Investor B Shares, including
compensating dealers and other sales personnel (which may include affiliates of
the Fund's Adviser), direct advertising
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and marketing expenses and expenses incurred in connection with preparing,
printing, mailing and distributing or publishing advertisements and sales
literature, for printing and mailing Prospectuses and Statements of Additional
Information (except those used for regulatory purposes or for distribution to
existing shareholders), and costs associated with implementing and operating the
Distribution and Services Plan. In addition, payments under the Distribution and
Services Plan for Investor B Shares will be used to pay for or finance sales
commissions and other fees payable to Service Organizations and other
broker-dealers who sell Investor B Shares. (See "Management of the Fund --
Service Organizations" below for a description of the servicing agreements and
the services provided by Service Organizations.)
Under the Distribution and Services Plan for Investor A Shares,
payments by the Fund for distribution expenses may not exceed .10% (annualized)
of the average daily net asset value of a Portfolio's outstanding Investor A
Shares and payments for shareholder administrative servicing expenses may not
exceed .20% (.15% with respect to the Money Market Portfolios) (annualized) of
the average daily net asset value of a Portfolio's outstanding Investor A
Shares.
Under the Distribution and Services Plan for Investor B Shares,
payments by the Fund for distribution expenses may not exceed .75% (annualized)
of the average daily net asset value of a Portfolio's outstanding Investor B
Shares and payments for shareholder administrative servicing expenses may not
exceed .25% (annualized) of the average daily net asset value of a Portfolio's
outstanding Investor B Shares.
Actual distribution expenses paid by the Distributor with respect to
Investor B Shares for any given year may exceed the distribution fees and
contingent deferred sales charges received with respect to those Shares. These
excess expenses may be reimbursed by Investor B shareholders out of contingent
deferred sales charges and distribution payments in future years as long as the
Distribution Plan for Investor B Shares is in effect.
SERVICE ORGANIZATIONS
The servicing agreements adopted under the Distribution and Services
Plans (the "Servicing Agreements") require the Service Organizations receiving
such compensation (which may include Mercantile and its affiliates) to perform
certain services, including providing administrative services with respect to
the beneficial owners of Investor A Shares or Investor B Shares of a Portfolio,
such as establishing and maintaining accounts and records for their customers
who invest in such Shares, assisting customers in processing purchase, exchange
and redemption
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requests, and responding to customer inquiries concerning their investments.
Under the Servicing Agreements and upon notice to the Fund, a Service
Organization may subcontract with one or more entities for the performance of
certain services provided under its Servicing Agreement with the Fund. Such
Service Organization shall be as fully responsible to the Fund for the acts or
omissions of any subcontractor as it would be for its own acts or omissions. The
fees payable to any sub-contractor are paid by the Service Organization out of
the fees it receives from the Fund.
The Fund understands that Service Organizations providing such
administrative services may also charge fees to their customers beneficially
owning such Shares. These fees would be in addition to any amounts which may be
received by such a Service Organization under its Servicing Agreement with the
Fund. The Fund's Servicing Agreements require a Service Organization to disclose
to its customers any compensation payable to the Service Organization by a
Portfolio and any other compensation payable by its customers in connection with
their investment in such Shares. Customers of such a Service Organization
receiving servicing fees should read this Prospectus in light of the terms
governing their accounts with their Service Organization.
CUSTODIAN, SUB-CUSTODIAN AND TRANSFER AGENT
Mercantile Bank of St. Louis National Association, an affiliate of the
Fund and a wholly-owned subsidiary of Mercantile Bancorporation, Inc., with
principal offices located at One Mercantile Center, 8th and Locust Streets, St.
Louis, Missouri 63101, serves as Custodian of each Portfolio's assets. In
addition, Bankers Trust Company of New York, with principal offices at 16 Wall
Street, New York, New York 10005, serves as the Sub-Custodian for the
International Equity Portfolio. BISYS Fund Services Ohio, Inc. also serves as
the Fund's transfer agent and dividend disbursing agent. Its address is 3435
Stelzer Road, Columbus, Ohio 43219.
REGULATORY MATTERS
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any affiliate
thereof from sponsoring, organizing, or controlling 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 such as Shares of the Portfolios. Such banking laws and
regulations do not prohibit such a holding company or affiliate, or banks, from
acting as investment adviser, transfer agent, or custodian to such an investment
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company, or from purchasing Shares of such a company as agent for and upon the
order of customers. Mercantile, MVA, Service Organizations that are banks or
bank affiliates, and broker-dealers that are bank affiliates are subject to such
laws and regulations, but believe they may perform the services for the
Portfolios contemplated by their respective agreements, this Prospectus and the
Statement of Additional Information without violating applicable banking laws
and regulations. In addition, state securities laws on this issue may differ
from the interpretation of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
Should future legislative, judicial, or administrative action prohibit
or restrict the activities of such companies in connection with the provision of
services on behalf of the Portfolios and the shareholders, the Fund might be
required to alter materially or discontinue its arrangements with such companies
and change its method of operation. It is not expected that investors would
suffer any adverse financial consequences as a result of any of these
occurrences.
If current restrictions preventing a bank from legally sponsoring,
organizing, controlling, or distributing Shares of an investment company were
relaxed, Mercantile, or an affiliate of Mercantile, would consider the
possibility of offering to perform additional services for the Portfolios. It is
not possible, of course, to predict whether or in what form such legislation
might be enacted or the terms upon which Mercantile, or such an affiliate, might
offer to provide such services.
Conflict of interest restrictions may apply to the receipt of
compensation paid pursuant to a Servicing Agreement by a Portfolio to a
financial intermediary in connection with the investment of fiduciary funds in a
Portfolio's Shares. Institutions, including banks regulated by the Comptroller
of the Currency and investment advisers and other money managers subject to the
jurisdiction of the SEC, the Department of Labor or state securities
commissions, should consult legal counsel before entering into Servicing
Agreements.
EXPENSES
Except as noted above and in the Statement of Additional Information
under "Investment Advisory and Administrative Contracts" and "Custodian and
Transfer Agent," the Fund's service contractors bear all expenses in connection
with the performance of their services, except that the Distributor is
compensated pursuant to the Distribution and Services Plans (as described under
"Distribution and Services Plans" above). Expenses are deducted from the total
income of each Portfolio before dividends and distributions are paid. These
expenses include, but are not
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limited to, fees paid to the Adviser and Administrator, transfer agency fees,
fees and expenses of officers and directors who are not affiliated with the
Adviser or the Distributor, taxes, interest, legal fees, custodian fees,
auditing fees, 12b-1 fees, servicing fees, certain fees and expenses in
registering and qualifying a Portfolio and its Shares for distribution under
Federal and state securities laws, costs of preparing and printing prospectuses
and statements of additional information for regulatory purposes and for
distribution to existing shareholders, the expense of reports to shareholders,
shareholders' meetings and proxy solicitations, fidelity bond and directors and
officers liability insurance premiums, the expense of using independent pricing
services and other expenses which are not expressly assumed by the Adviser,
Distributor or Administrator under their respective agreements with the Fund.
The Fund also pays for brokerage fees, commissions and other transaction
charges, if any, in connection with the purchase and sale of portfolio
securities. Any general expenses of the Fund that are not readily identifiable
as belonging to a particular Portfolio will be allocated among all Portfolios by
or under the direction of the Board of Directors in a manner the Board
determines to be fair and equitable. Any expenses relating only to a particular
class of Shares within a Portfolio will be borne solely by such class. (See
"Certain Financial Information" and "Management of the Fund" above for
additional information regarding expenses of each Portfolio.)
OTHER INFORMATION CONCERNING
THE FUND AND ITS SHARES
DESCRIPTION OF SHARES
The Fund was organized on September 9, 1982 as a Maryland corporation,
and is a mutual fund of the type known as an "open-end management investment
company." The Fund's principal office is located at 3435 Stelzer Road, Columbus,
Ohio 43219.
The Fund's Charter authorizes the Board of Directors to issue up to
seven billion full and fractional Shares of common stock, and to classify and
reclassify any unauthorized and unissued Shares into one or more classes of
Shares. The Board of Directors may similarly classify or reclassify any class of
Shares into one or more series.
Pursuant to such authority, the Board of Directors has authorized the
issuance of the following series of Shares representing interests in the
Portfolios, each of which (except the Tax-Exempt Money Market, Missouri
Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios) is classified as a
diversified company under the 1940 Act: 1.8 billion Trust Shares, 300 million
Institutional Shares, 550 million Investor A Shares and
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50 million Investor B Shares, representing interests in the Money Market
Portfolio; 1 billion Trust Shares, 300 million Institutional Shares and 100
million Investor A Shares, representing interests in the Treasury Money Market
Portfolio; 300 million Trust Shares and 50 million Investor A Shares,
representing interests in the Tax-Exempt Money Market Portfolio; 50 million
Trust Shares, 20 million Institutional Shares, 5 million Investor A Shares and
50 million Investor B Shares, representing interests in the Growth & Income
Equity Portfolio; 50 million Trust Shares, 20 million Institutional Shares, 5
million Investor A Shares and 50 million Investor B Shares, representing
interests in the Government & Corporate Bond Portfolio; 15 million Trust Shares,
20 million Institutional Shares, 5 million Investor A Shares and 50 million
Investor B Shares, representing interests in the U.S. Government Securities
Portfolio; 15 million Trust Shares, 20 million Institutional Shares, 5 million
Investor A Shares and 50 million Investor B Shares and 50 million Investor B
Shares, representing interests in the Emerging Growth Portfolio; 15 million
Trust Shares, 20 million Institutional Shares, 5 million Investor A Shares and
50 million Investor B Shares, representing interests in the Balanced Portfolio;
10 million Trust Shares, 10 million Institutional Shares, 10 million Investor A
Shares and 50 million Investor B Shares, representing interests in the
International Equity Portfolio; 25 million Trust Shares and 25 million Investor
A Shares, representing interests in the Short-Intermediate Municipal Portfolio;
25 million Trust Shares, 25 million Investor A Shares and 25 million Investor B
Shares, representing interests in the Missouri Tax-Exempt Bond Portfolio; and 25
million Trust Shares, 25 million Investor A Shares and 10 million Investor B
Shares, representing interests in the Kansas Tax-Exempt Bond Portfolio.
Institutional, Investor A and/or Investor B Shares of the Portfolios are
described in separate prospectuses which are available from the Distributor at
the telephone number on the cover of this Prospectus. Shares in the Fund's
Portfolios will be issued without Share certificates.
The Investor A Shares and/or Investor B Shares of the Portfolios are
described in this Prospectus. The Portfolios also offer Trust Shares and, in
addition, each Portfolio except the Tax-Exempt Portfolios offers Institutional
Shares. Institutional Shares, which are offered to financial institutions acting
on behalf of accounts for which they do not exercise investment discretion, and
Trust Shares, which are offered to financial institutions acting on their own
behalf or on behalf of certain qualified accounts, are sold without a sales
charge. Trust, Institutional, Investor A and/or Investor B Shares bear their pro
rata portion of all operating expenses paid by a Portfolio, except that Trust
Shares and Institutional Shares bear all payments under the Portfolio's
respective Administrative Services Plans adopted for such Shares and Investor A
Shares and Investor B Shares bear all payments under the Portfolio's
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respective Distribution and Services Plans adopted for such Shares. In addition,
Institutional Shares of a Portfolio bear the expense of certain sub-transfer
agency fees.
Payments under the Administrative Services Plans for Trust Shares and
Institutional Shares are made to Service Organizations for administrative
services provided to the Service Organizations' clients or account holders who
are the beneficial owners of Trust Shares or Institutional Shares. Payments
under the Administrative Services Plans may not exceed .25% (on an annual basis)
of the average daily net asset value of outstanding Trust or Institutional
Shares of the Money Market Portfolios or .30% (on an annual basis) of the
average daily net asset value of outstanding Trust or Institutional Shares of
the Equity and Bond Portfolios.
The Fund offers various services and privileges in connection with its
Investor A Shares and Investor B Shares that are not offered in connection with
its Trust or Institutional Shares, including an automatic investment program and
automatic withdrawal plan. In addition, each class of Shares offers different
exchange privileges.
Shareholders are entitled to one vote for each full Share held and
proportionate fractional votes for fractional Shares held. Shares of all
Portfolios will vote together and not by class unless otherwise required by law
or permitted by the Board of Directors. All shareholders of a particular
Portfolio will vote together as a single class on matters relating to the
Portfolio's investment advisory (or sub-advisory) agreement and investment
objective and fundamental policies. Only holders of Trust Shares, however, will
vote on matters relating to the Administrative Services Plan for Trust Shares
and only holders of Institutional Shares will vote on matters pertaining to the
Administrative Services Plan for Institutional Shares. Similarly, only holders
of Investor A Shares will vote on matters pertaining to the Distribution and
Services Plan for Investor A Shares and only holders of Investor B Shares will
vote on matters pertaining to the Distribution and Services Plan for Investor B
Shares.
The Fund is not required, and currently does not intend, to hold annual
meetings except as required by the 1940 Act or other applicable law. Upon the
written request of the holders of 10% or more of the outstanding Shares, the
Fund will call a special meeting to vote on the question of removal of a
director.
Shares of the Portfolios have noncumulative voting rights and,
accordingly, the holders of more than 50% of the Fund's outstanding Shares
(irrespective of Portfolio or class) may elect all of the Directors. Shares have
no preemptive rights and only such conversion and exchange rights as the Board
may grant in its
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discretion. When issued for payment as described in this Prospectus, Shares will
be fully paid and nonassessable.
MISCELLANEOUS
As used in this Prospectus, a "vote of a majority of the outstanding
Shares" of a Portfolio or a particular class of Shares means, with respect to
the approval of an investment advisory agreement or distribution plan or a
change in an investment objective or fundamental investment policy, the
affirmative vote of the lesser of (a) more than 50% of the outstanding Shares of
such Portfolio or class of Shares, or (b) 67% or more of the Shares of such
Portfolio or class of Shares present at a meeting if more than 50% of the
outstanding Shares of such Portfolio or class of Shares are represented at the
meeting in person or by proxy.
As of January 1, 1996, Mercantile and its affiliates possessed, of
record on behalf of their underlying customer accounts, voting or investment
power with respect to more than 25% of the Fund's outstanding Shares. Therefore,
Mercantile may be deemed to be a controlling person of the Fund within the
meaning of the 1940 Act.
Inquiries regarding the Portfolios may be directed to the Fund at
1-800-551-3731.
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NO PERSON HAS BEEN AUTHORIZED THE ARCH
TO GIVE ANY INFORMATION OR TO MAKE FUND(R), INC.
ANY REPRESENTATIONS NOT CONTAINED
IN THIS PROSPECTUS, OR IN THE MONEY MARKET PORTFOLIO
PORTFOLIOS' STATEMENT OF ADDITIONAL
INFORMATION INCORPORATED HEREIN BY TREASURY MONEY MARKET
REFERENCE, IN CONNECTION WITH THE PORTFOLIO
OFFERING MADE BY THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION TAX-EXEMPT MONEY MARKET
OR REPRESENTATIONS MUST NOT BE RELIED PORTFOLIO
UPON AS HAVING BEEN AUTHORIZED BY THE
PORTFOLIOS, THE FUND, OR THE GROWTH & INCOME EQUITY
DISTRIBUTOR. THIS PROSPECTUS DOES PORTFOLIO
NOT CONSTITUTE AN OFFERING BY THE
PORTFOLIOS, THE FUND OR THE DISTRIBUTOR EMERGING GROWTH
IN ANY JURISDICTION IN WHICH SUCH PORTFOLIO
OFFERING MAY NOT LAWFULLY BE MADE.
GOVERNMENT & CORPORATE
BOND PORTFOLIO
U.S. GOVERNMENT
SECURITIES
PORTFOLIO
BALANCED
PORTFOLIO
INTERNATIONAL
EQUITY
PORTFOLIO
SHORT-INTERMEDIATE
MUNICIPAL PORTFOLIO
MISSOURI TAX-EXEMPT BOND
PORTFOLIO
KANSAS TAX-EXEMPT BOND
PORTFOLIO
INVESTOR A SHARES
AND
INVESTOR B SHARES
-109-
<PAGE> 197
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
Highlights....................................
Certain Financial
Information.................................
Expense Summary for
Investor Shares.............................
Financial Highlights
Investment Objectives,
Policies and Risk
Considerations..............................
Pricing of Shares............................. [OLD LOGO]
How to Purchase and
Redeem Shares...............................
Purchase of Shares...................
Automatic Investment
Program (AIP)......................
Applicable Sales Charges
-- Investor A Shares
of the Equity and Bond
Portfolios.........................
Reduced Sales Charges
-- Investor A Shares
Applicable Sales Charges
-- Investor B Shares of
the CDSC Portfolios................
Exchange Privileges..................
Redemption of Shares.................
Redemption by Mail...................
Redemption by Telephone..............
Automatic Withdrawal
Plan (AWP).........................
Purchase of Shares at
Net Asset Value....................
Other Exchange or
Redemption
Information........................
Yields and Total Returns...................... PROSPECTUS
Dividends and Distributions................... March 28, 1996
Taxes.........................................
Management of the Fund........................
Other Information
Concerning the Fund
and its Shares..............................
Miscellaneous........................
Investment Adviser:
Mississippi Valley Advisors Inc.
a wholly-owned subsidiary of
Mercantile Bank of
St. Louis National Association
Distributor: BISYS Fund Services
</TABLE>
-110-
<PAGE> 198
CROSS REFERENCE SHEET
---------------------
(Institutional Shares)
The ARCH Money Market Portfolio
The ARCH Treasury Money Market Portfolio
The ARCH Growth & Income Equity Portfolio
The ARCH Emerging Growth Portfolio
The ARCH Government & Corporate Bond Portfolio
The ARCH U.S. Government Securities Portfolio
The ARCH Balanced Portfolio
The ARCH International Equity Portfolio
<TABLE>
<CAPTION>
Form N-1A Part A Item Prospectus Caption
- --------------------- ------------------
<S> <C> <C>
1. Cover Page . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
2. Synopsis . . . . . . . . . . . . . . . . . . . . . . . . . Expense Summary
for Institutional Shares
3. Condensed Financial
Information . . . . . . . . . . . . . . . . . . . . . . Certain Financial
Information; Financial
Highlights; Yields and Total
Returns
4. General Description
of Registrant . . . . . . . . . . . . . . . . . . . . . Highlights; Investment
Objectives, Policies and Risk
Considerations; Other
Information Concerning
the Fund and Its Shares
5. Management of the Fund . . . . . . . . . . . . . . . . . . Management of the Fund
5A. Management's Discussion of
Fund Performance . . . . . . . . . . . . . . . . . . . . Inapplicable
6. Capital Stock and
Other Securities . . . . . . . . . . . . . . . . . . . . How to Purchase and
Redeem Shares; Dividends
and Distributions;
Taxes; Other Information
Concerning the Fund
and Its Shares
7. Purchase of Securities
Being Offered . . . . . . . . . . . . . . . . . . . . . How to Purchase and
Redeem Shares
8. Redemption or Repurchase . . . . . . . . . . . . . . . . . How to Purchase and
Redeem Shares
9. Pending Legal Proceedings . . . . . . . . . . . . . . . . Inapplicable
</TABLE>
<PAGE> 199
THE ARCH FUND(R), INC.
INSTITUTIONAL SHARES
The ARCH Fund, Inc. is an open-end, management investment company
authorized to issue Shares in twelve investment portfolios. This Prospectus
describes the Institutional Shares in eight of those portfolios. Institutional
Shares are offered to financial institutions acting on behalf of accounts for
which they do not exercise investment discretion.
THE ARCH MONEY MARKET PORTFOLIO'S investment objective is to seek
current income with liquidity and stability of principal. The Portfolio invests
substantially all of its assets in a broad range of "money market" instruments.
THE ARCH TREASURY MONEY MARKET PORTFOLIO'S investment objective is to
seek a high level of current income exempt from state income tax consistent with
liquidity and security of principal. The Portfolio invests in selected
obligations issued by the U.S. Government (or its agencies and
instrumentalities) that are guaranteed as to principal and interest by the U.S.
Government, the interest income on which is generally exempt from state income
tax.
THE ARCH GROWTH & INCOME EQUITY PORTFOLIO'S investment objective is to
provide long-term capital growth, with income a secondary consideration. The
Portfolio normally invests substantially all of its assets in common stock,
preferred stock, rights, warrants, and securities convertible into common stock.
THE ARCH EMERGING GROWTH PORTFOLIO'S investment objective is capital
appreciation. Current income is an incidental consideration in the selection of
portfolio securities. The Portfolio normally invests primarily in common stock
of emerging or established small- to medium-sized companies with above-average
potential for price appreciation.
THE ARCH GOVERNMENT & CORPORATE BOND PORTFOLIO'S investment objective
is to seek the highest level of current income consistent with conservation of
capital. The Portfolio normally invests at least 65% of its assets in
fixed-income and related debt securities rated "A" or better or in securities
deemed comparable in quality.
THE ARCH U.S. GOVERNMENT SECURITIES PORTFOLIO'S investment objective is
to seek a high rate of current income that is consistent with relative stability
of principal. The Portfolio invests in obligations issued or guaranteed by the
U.S.
<PAGE> 200
Government, its agencies or instrumentalities and repurchase agreements
relating to such obligations.
THE ARCH BALANCED PORTFOLIO'S investment objective is to maximize total
return through a combination of growth of capital and current income consistent
with the preservation of capital. The Portfolio uses a disciplined approach of
allocating assets primarily among three major asset groups, i.e. equity
securities, fixed-income securities and cash equivalents.
THE ARCH INTERNATIONAL EQUITY PORTFOLIO'S investment objective is to
provide capital growth consistent with reasonable investment risk by investing
principally in foreign equity securities, most of which will be denominated in
foreign currencies. During normal market conditions, the Portfolio will invest
substantially all of its assets in securities of companies which derive more
than 50% of their gross revenues from, or have more than 50% of their assets
outside, the United States.
Mississippi Valley Advisors Inc. ("MVA" or the "Adviser"), a
wholly-owned subsidiary of Mercantile Bank of St. Louis National Association
("Mercantile"), acts as investment adviser for the Portfolios; Mercantile serves
as custodian; BISYS Fund Services Ohio, Inc. (the "Administrator") serves as
administrator; and BISYS Fund Services (the "Distributor") serves as sponsor and
distributor. In addition, Clay Finlay, Inc. ("Clay Finlay" or the "Sub-Adviser")
serves as sub-investment adviser for the International Equity Portfolio.
This Prospectus sets forth concisely certain information about the
Portfolios that prospective investors should know before investing. Investors
should read this Prospectus and retain it for future reference. Additional
information about the Portfolios, contained in a Statement of Additional
Information dated March 28, 1996, has been filed with the Securities and
Exchange Commission and is incorporated by reference in its entirety into this
Prospectus. An investor may obtain the Statement of Additional Information
without charge by writing the Fund at P.O. Box 78069, St. Louis, Missouri 63178
or by calling 1-800-551-3731.
An investment in the Money Market Portfolio or Treasury Money Market
Portfolio is neither insured nor guaranteed by the U.S. Government. There can be
no assurance that either of these Portfolios will be able to maintain a stable
net asset value of $1.00 per Share.
Portfolio Shares are not bank deposits, are not federally insured or
guaranteed by the U.S. Government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other governmental agency, and are not the
obligations of or guaranteed
-2-
<PAGE> 201
or otherwise supported by any bank. An investment in the Portfolios involves
investment risk, including the possible loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
MARCH 28, 1996
-3-
<PAGE> 202
HIGHLIGHTS
The ARCH Fund, Inc. (the "Fund") is an open-end, management investment
company (commonly known as a mutual fund) registered under the Investment
Company Act of 1940, as amended. The Fund offers investment opportunities in
twelve investment portfolios, eight of which are described in this Prospectus:
the ARCH MONEY MARKET AND TREASURY MONEY MARKET PORTFOLIOS (the "Money Market
Portfolios") and the ARCH GROWTH & INCOME EQUITY, EMERGING GROWTH, GOVERNMENT &
CORPORATE BOND, U.S. GOVERNMENT SECURITIES, BALANCED AND INTERNATIONAL EQUITY
PORTFOLIOS (the "Equity and Bond Portfolios" and, together with the Money Market
Portfolios, the "Portfolios"). Each Portfolio represents a separate pool of
assets with different investment objectives and policies (as described below
under "Investment Objectives, Policies and Risk Considerations"). MVA serves as
Adviser, Mercantile as Custodian, BISYS Fund Services Ohio, Inc. as
Administrator, and BISYS Fund Services as sponsor and Distributor. In addition,
Clay Finlay serves as Sub-Adviser for the International Equity Portfolio. (For
information on expenses, fee waivers, and services, see "Certain Financial
Information" and "Management of the Fund.")
The following information describes the Portfolios and their
objectives. There can be no assurance that the Portfolios will be able to
achieve their respective investment objectives.
The Money Market Portfolios each seek to maintain a net asset value of
$1.00 per Share. Each Money Market Portfolio's assets are invested in
dollar-denominated debt securities with remaining maturities of 397 days (13
months) or less as defined by the Securities and Exchange Commission, and each
Money Market Portfolio's dollar-weighted average portfolio maturity will not
exceed 90 days. All securities acquired by these Money Market Portfolios will be
determined by MVA, under guidelines approved by the Fund's Board of Directors,
to present minimal credit risks and to be rated in the highest category (or
deemed comparable in quality) at the time of purchase. There can be no assurance
that the Money Market Portfolios will be able to achieve a stable net asset
value on a continuous basis.
The Government & Corporate Bond and U.S. Government Securities
Portfolios are designed for investors who seek higher current income than is
typically offered by money market funds and who are willing to accept a variable
Share value to achieve that objective.
The Growth & Income Equity, Emerging Growth and Balanced Portfolios are
designed for investors who seek capital growth, and who are prepared to accept
the risks associated with equity securities.
-4-
<PAGE> 203
The International Equity Portfolio is designed for investors who seek
capital growth, wish to diversify their investments beyond the United States,
and are prepared to accept the risks entailed in such investments. These risks
may be greater than those associated with equity securities of companies located
in the United States.
Investors should note that one or more of the Portfolios may, subject
to their investment policies and limitations, purchase variable and floating
rate instruments, enter into repurchase agreements and reverse repurchase
agreements, make securities loans, acquire the securities of foreign issuers,
invest in options and futures, and make limited investments in illiquid
securities and securities issued by other investment companies. These investment
practices involve investment risks of varying degrees. The Equity and Bond
Portfolios may engage in short-term trading, which may also involve greater risk
and increase such Portfolios' expenses. The International Equity Portfolio will
invest principally in foreign equity securities, most of which will be
denominated in foreign currencies. The other Portfolios do not invest in
instruments denominated in foreign currencies (except that the Growth & Income
Equity, Emerging Growth, and Balanced Portfolios may invest in certain Canadian
securities). See "Investment Objectives, Policies and Risk Considerations" below
and the Statement of Additional Information under "Investment Objectives and
Policies."
The Fund offers investors the opportunity to invest in a variety of
professionally managed investments without having to become involved with
detailed management, accounting and safekeeping procedures normally related to
direct investments in securities. The Portfolios also offer the economic
advantages of block trading in securities and the availability of a family of
twelve mutual funds should an investor's investment goals change.
For information on purchasing, exchanging or redeeming Institutional
Shares of the Portfolios, please see "How to Purchase and Redeem Shares" below.
-5-
<PAGE> 204
CERTAIN FINANCIAL INFORMATION
Shares of the Money Market, Growth & Income Equity, Emerging Growth,
Government & Corporate Bond, U.S. Government Securities, Balanced and
International Equity Portfolios have been classified into four classes of Shares
- -- Trust Shares, Institutional Shares, Investor A Shares and Investor B Shares.
Shares of the Treasury Money Market Portfolio have been classified into three
classes of Shares -- Trust Shares, Institutional Shares and Investor A Shares.
Shares of each class in a Portfolio represent equal, pro rata interests in the
investments held by that Portfolio and are identical in all respects, except
that Shares of each class bear separate distribution and/or shareholder
administrative servicing fees and certain other operating expenses, and enjoy
certain exclusive voting rights on matters related to these fees. (See "Other
Information Concerning the Fund and Its Shares," "Management of the Fund --
Administrative Services Plan," and "Management of the Fund -- Custodian,
SubCustodian, Transfer Agent and Sub-Transfer Agent" below.) As a result of
payments for distribution and/or shareholder administrative servicing fees and
certain other operating expenses that may be made in differing amounts, the net
investment income of Trust Shares, Institutional Shares, Investor A Shares
and/or Investor B Shares in a Portfolio can be expected, at any given time, to
be different.
-6-
<PAGE> 205
EXPENSE SUMMARY FOR INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
TREASURY GROWTH & GOV'T & INTER-
MONEY MONEY INCOME EMERGING CORPORATE U.S. GOV'T NATIONAL
MARKET MARKET EQUITY GROWTH BOND SECURITIES BALANCED EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price)................. .00% .00% .00% .00% .00% .00% .00% .00%
ANNUAL PORTFOLIO OPERATING
EXPENSES (as a percentage of
average net assets)
Investment Advisory Fees (net
of fee waivers)................ .35%(1) .35%(1) .55% .75% .45% .45% .75% .75%(1)
12b-1 Fees ...................... .00% .00% .00% .00% .00% .00% .00% .00%
Other Expenses (including
administration fees,
administrative services
fees, sub-transfer agency fees
(if any), and other expenses)
(net of fee waivers and
expense reimbursements)(2),(3).. .42% .43% .50% .51% .50% .52% .52% .69%
---- ---- ---- ---- ---- ---- ---- ----
Total Portfolio Operating
Expenses (net of fee
waivers and expense
reimbursements)(3)............. .77% .78% 1.05% 1.26% .95% .97% 1.27% 1.44%
==== ==== ===== ===== ==== ==== ===== =====
</TABLE>
(1) Without fee waivers, investment advisory fees for the Money Market,
Treasury Money Market and International Equity Portfolios would be .40%,
.40% and 1.00%, respectively.
(2) Without fee waivers, administration fees for a Portfolio would be .20%.
Administrative services fees are payable at an annual rate not to exceed
.25% for the Money Market Portfolios and .30% for the Equity and Bond
Portfolios.
(3) Without fee waives and/or expense reimbursements, Other Expenses would be
.52%, .53%, .60%, .61%, .60%, .62%, .62% and .75%, and Total Portfolio
Operating Expenses would be .92%, .93%, 1.15%, 1.36%, 1.05%, 1.07%, 1.37%
and 1.75% for the Money Market, Treasury Money Market, Growth & Income
Equity, Emerging Growth, Government & Corporate Bond, U.S. Government
Securities, Balanced and International Equity Portfolios, respectively.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following
expenses on a $1,000 investment,
assuming (1) a 5% annual return
and (2) redemption at the end of
each period:
Money Market Portfolio.......................... $ 8 $25 $43 $ 95
Treasury Money Market Portfolio................. $ 8 $25 $43 $ 97
Growth & Income Equity Portfolio................ $11 $33 $58 $128
Emerging Growth Portfolio....................... $13 $40 $69 $152
Government & Corporate Bond Portfolio........... $10 $30 $53 $117
U.S. Government Securities Portfolio............ $10 $31 $54 $119
Balanced Portfolio.............................. $13 $40 $70 $153
International Equity Portfolio.................. $15 $46 $79 $172
</TABLE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN. Information about the actual performance of all
of the Portfolios
-7-
<PAGE> 206
is contained in the Fund's Annual Report to Shareholders dated November 30,
1995, which may be obtained without charge by contacting the Fund at the address
or telephone number provided on the cover page of this Prospectus.
The purpose of the foregoing tables is to assist in understanding the
various costs and expenses that an investor in a Portfolio's Institutional
Shares will bear directly or indirectly. The information contained in such
tables is based on expenses incurred by each Portfolio, other than the Treasury
Money Market Portfolio, during the last fiscal year with respect to its
Institutional Shares. The information contained in such tables for the Treasury
Money Market Portfolio is based on expenses incurred by the Portfolio during the
last fiscal year, restated to reflect the expenses that the Portfolio expects to
incur during the current fiscal year with respect to its Institutional Shares.
(For more complete descriptions of the various costs and expenses, see
"Management of the Fund" in this Prospectus and the Statement of Additional
Information.) The Tables and Examples have not been audited by the Fund's
independent auditors and do not reflect any charges that may be imposed by
financial institutions on their customers.
FINANCIAL HIGHLIGHTS
The "Financial Highlights" in the following tables supplement the
Fund's financial statements, which are contained in the Fund's Annual Report to
Shareholders dated November 30, 1995 and incorporated by reference into the
Statement of Additional Information, and set forth certain historic investment
results for Institutional Shares of each Portfolio. The data for the years
November 30, 1989 through 1995 has been audited by KPMG Peat Marwick LLP,
independent auditors, whose unqualified report on the financial statements
containing such information is incorporated by reference into the Statement of
Additional Information. The data for the years ended November 30, 1986 through
1988 were derived from financial statements audited by the Fund's prior
auditors. Further information about the performance of the Portfolios is
available in the Fund's Annual Report. Both the Statement of Additional
Information and the Annual Report may be obtained free of charge by contacting
the Fund at the address or telephone number provided on the front cover page of
this Prospectus.
-8-
<PAGE> 207
MONEY MARKET PORTFOLIO
(FOR A SHARE(A) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
---------------------------------------------------------------------------------------
1995 1994(A) 1993 1992 1991
---- ------- ---- ---- ----
INSTITUTIONAL INSTITUTIONAL Investor Investor Investor
SHARES SHARES Shares Shares Shares 1990 1989
------ ------ ------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- -------- --------
Investment Activities
Net investment
income................... 0.052 0.033 0.025 0.032 0.056 0.078 0.088
------- ------- ------- ------- ------- -------- --------
Distributions
Net investment
income................... (0.052) (0.033) (0.025) (0.032) (0.056) (0.078) (0.088)
------- ------- ------- ------- ------- -------- --------
Net Asset Value,
End of Period............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= ======== ========
Total Return............... 5.33% 3.34% 2.52% 3.21% 5.75% 8.08% 9.21%
Ratios/Supplemental
Data:
Net Assets at end of $13,340 $10,295 $46,920 $52,224 $60,436 $896,903 $661,145
period (000).............
Ratio of expenses to
average net assets
(including waivers)...... 0.77% 0.78% 0.79% 0.80% 0.72% 0.55% 0.45%
Ratio of net
investment income
to average net
assets (including
waivers)................. 5.20% 3.48% 2.50% 3.21% 5.69% 7.77% 8.82%
Ratio of expenses to
average net assets
(before waivers)*........ 0.92% 0.95% 0.93% 0.94% 0.80% 0.60% 0.60%
Ratio of net
investment income
to average net
assets (before
waivers)*................ 5.05% 3.31% 2.36% 3.07% 5.61% 7.72% 8.67%
</TABLE>
<TABLE>
<CAPTION>
1988 1987 1986
-------- -------- ------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period...... $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Investment Activities
Net investment
income................... 0.071 0.062 0.065
-------- -------- --------
Distributions
Net investment (0.065)
income................... (0.071) (0.062)
-------- -------- --------
Net Asset Value,
End of Period............ $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total Return............... 7.33%(b) 6.40%(b) 6.70%(b)
Ratios/Supplemental
Data:
Net Assets at end of
period (000)............. $289,764 $220,944 $179,224
Ratio of expenses to
average net assets
(including waivers)...... 0.45% 0.45% 0.45%
Ratio of net
investment income
to average net
assets (including
waivers)................. 7.12% 6.22% 6.49%
Ratio of expenses to
average net assets
(before waivers)*........ 0.58% 0.68% 0.68%
Ratio of net
investment income
to average net
assets (before
waivers)*................ 6.99% 5.99% 6.26%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been
as indicated.
-9-
<PAGE> 208
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. In addition, on January 3, 1994, the
Portfolio issued a new series of Shares which were designated as
"Institutional" Shares. The financial highlights presented for periods
prior to January 3, 1994 represent financial highlights applicable to
Investor Shares. On September 27, 1994, the Portfolio redesignated the
Investor Shares as "Investor A" Shares.
(b) Unaudited.
-10-
<PAGE> 209
TREASURY MONEY MARKET PORTFOLIO
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
JANUARY 26, 1995 TO
NOVEMBER 30,
1995 (A),(B)
INSTITUTIONAL
SHARES
-------------------
<S> <C>
Net Asset Value,
Beginning of Period ................. $ 1.00
-------
Investment Activities
Net investment income ............... 0.042
-------
Distributions
Net investment income ............... (0.042)
-------
Net Asset Value, End of Period ........ $ 1.00
Total Return .......................... 4.94%(c)
Ratios/Supplemental Data:
Net Assets at end of period (000) ..... $ 28
Ratio of expenses to average net
assets (including waivers) .......... 0.92%(d)
Ratio of net investment income
to average net assets
(including waivers) ................. 5.76%(d)
Ratio of expenses to average net assets
(before waivers)* ................... 1.07%(d)
Ratio of net investment income to
average net assets (before waivers)* 5.61%(d)
</TABLE>
- --------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been
as indicated.
(a) Period from commencement of operations.
(b) On December 2, 1991 the Portfolio issued a series of shares which were
designated as "Trust" Shares. In addition, on April 20, 1992, the
Portfolio issued a second series of shares which were designated as
"Investor" Shares and on January 26, 1995, the Portfolio issued a third
series of shares which were designated as "Institutional" Shares. On
September 27, 1994 the Portfolio redesignated the "Investor" shares as
"Investor A" shares.
(c) Represents total return for Investor A Shares from December 1, 1994 to
January 25, 1995 plus the total return for Institutional Shares from
January 26, 1995 to November 30, 1995.
(d) Annualized.
-11-
<PAGE> 210
GROWTH & INCOME EQUITY PORTFOLIO
(FOR A SHARE(A) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
------------------------------------------------------------------------------- June 2,
1995 1994(a) 1993 1992 1991 1988 to
Institutional Institutional Investor Investor Investor November 30,
Shares Shares Shares Shares Shares 1990 1989 1988(b)
------- ------- ------- ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ............. $ 12.70 $ 14.74 $ 14.49 $12.33 $11.22 $ 12.41 $ 10.25 $ 10.00
------- ------- ------- ------ ------ ------- ------- -------
Investment Activities
Net investment income ........... 0.23 0.20 0.25 0.25 0.39 0.39 0.41 0.28
Net realized and unrealized gains
(losses) from investments ..... 3.74 (0.17) 1.06 2.24 1.47 (0.56) 2.29 0.06
------- ------- ------- ------ ------ ------- ------- -------
Total from Investment Activities 3.97 0.03 1.31 2.49 1.86 (0.17) 2.70 0.34
------- ------- ------- ------ ------ ------- ------- -------
Distributions
Net investment income ........... (0.24) (0.21) (0.25) (0.26) (0.39) (0.39) (0.51) (0.09)
Net realized gains .............. (0.14) (0.18) (0.81) (0.07) (0.36) (0.63) (0.03)
In excess of net realized gains . (1.68)
------- ------- ------- ------ ------ ------- ------- -------
Total Distributions ............. (0.38) (2.07) (1.06) (0.33) (0.75) (1.02) (0.54) (0.09)
------- ------- ------- ------ ------ ------- ------- -------
Net Asset Value, End of Period .... $ 16.29 $ 12.70 $ 14.74 $14.49 $12.33 $ 11.22 $ 12.41 $ 10.25
======= ======= ======= ====== ====== ======= ======= =======
Total Return
31.88% 0.19% 9.65% 20.59% 17.39% (1.36)% 27.11% 3.46%(c),(d)
Ratios/Supplemental Data:
Net Assets at end of period (000) . $40,228 $21,897 $11,157 $6,044 $3,254 $20,116 $17,892 $10,890
Ratio of expenses to average net
assets (including waivers) ...... 1.05% 1.05% 0.74% 0.71% 0.34% 0.35% 0.42% 0.41%(e)
Ratio of net investment income to
average net assets (including
waivers) ........................ 1.58% 1.41% 1.74% 1.94% 3.50% 3.42% 3.69% 5.62%(e)
Ratio of expenses to average net
assets (before waivers)* ........ 1.15% 1.16% 0.96% 0.85% 1.05% 1.00% 1.07% 1.12%(e)
Ratio of net investment income to
average net assets (before
waivers)* ....................... 1.48% 1.30% 1.52% 1.80% 2.79% 2.77% 3.04% 4.91%(e)
Portfolio turnover ................ 58.50% 65% 41% 79% 78% 227% 133% 30%
</TABLE>
-12-
<PAGE> 211
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been
as indicated.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. In addition, on January 3, 1994, the
Portfolio issued a new series of Shares which were designated as
"Institutional" Shares. The financial highlights presented for periods
prior to January 3, 1994 represent financial highlights applicable to
Investor Shares. On September 27, 1994, the Portfolio redesignated the
Investor Shares as "Investor A" Shares.
(b) Period from commencement of operations.
(c) Unaudited.
(d) Not Annualized.
(e) Annualized.
-13-
<PAGE> 212
EMERGING GROWTH PORTFOLIO
(FOR A SHARE(A) OUTSTANDING THROUGHOUT EACH PERIOD)
===================================================
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended May 6, 1992
November 30, November 30, November 30, to November 30,
1995 1994(a) 1993 1992(b)
------ --------- ------ --------
Institutional Institutional Investor Investor
Shares Shares Shares Shares
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ............... $ 11.96 $ 13.14 $ 11.23 $ 10.10
---------- ---------- ---------- ----------
Investment Activities
Net investment income (loss) ...... (0.01) (0.03) 0.03 0.02
Net realized and unrealized gains
from investments ................ 2.36 0.86 2.14 1.13
---------- ---------- ---------- ----------
Total from Investment Activities .. 2.35 0.83 2.17 1.15
---------- ---------- ---------- ----------
Distributions
Net investment income ............. (0.05) (0.02)
Net realized gains ................ (0.91) (1.78) (0.21)
In excess of net realized gains ... (0.23)
---------- ---------- ---------- ----------
Total Distributions ............... (O.91) (2.01) (0.26) (0.02)
---------- ---------- ---------- ----------
Net Asset Value, End of Period ...... $ 13.40 $ 11.96 $ 13.14 $ 11.23
========== ========== ========== ==========
Total Return ........................ 21.43% 7.11% 19.75% 12.55%(c)
Ratios/Supplemental Data:
Net Assets at end of period (000)
$ 17,620 $ 5,633 $ 4,559 $ 753
Ratio of expenses to average net
assets (including waivers) ........ 1.26% 1.25% 0.61% 0.30%(d)
Ratio of net investment income to
average net assets (including
waivers) .......................... (0.11)% (0.41)% 0.19% 0.78%(d)
Ratio of expenses to average net
assets (before waivers)* .......... 1.36% 1.37% 1.23% 1.12%(d)
Ratio of net investment income to
average net assets (before
waivers)* ......................... (0.21)% (0.53)% (0.43)% (0.04)%(d)
Portfolio turnover .................. 83.13% 85% 65% 56%
</TABLE>
- --------------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been
as indicated.
(a) The Portfolio issued a series of Shares which were designated as
"Investor" Shares on May 6, 1992. In addition, on January 3, 1994, the
Portfolio issued a new series of Shares which were designated as
"Institutional" Shares. The financial highlights presented for periods
prior to January 3, 1994 represent financial highlights applicable to
Investor Shares. On September 27, 1994, the Portfolio redesignated the
Investor Shares as "Investor A" Shares.
(b) Period from commencement of operations.
(c) Not Annualized.
(d) Annualized.
-14-
<PAGE> 213
GOVERNMENT & CORPORATE BOND PORTFOLIO
(FOR A SHARE(A) OUTSTANDING THROUGHOUT EACH PERIOD)
======================================================
<TABLE>
<CAPTION>
Year ended November 30,
----------------------------------------------------------------------------------
1995 1994(a) 1993 1992 1991
Institutional Institutional Investor Investor Investor
Shares Shares Shares Shares Shares
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period............... $ 9.64 $ 10.65 $ 10.26 $ 10.15 $ 9.71
---------- ---------- ---------- ---------- ----------
Investment Activities...............
Net investment income 0.61 0.60 0.64 0.66 0.75
Net realized and unrealized gains
(losses) from investments....... 0.89 (0.94) 0.39 0.11 0.48
---------- ---------- ---------- ---------- ----------
Total from Investment Activities 1.50 (0.34) 1.03 0.77 1.23
---------- ---------- ---------- ---------- ----------
Distributions
Net investment income............. (0.61) (0.60) (0.64) (0.66) (0.79)
In excess of net realized gains... (0.07)
---------- ---------- ---------- ---------- ----------
Total Distributions............... (0.61) (0.67) (0.64) (0.66) (0.79)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period...... $ 10.53 $ 9.64 $ 10.65 $ 10.26 $ 10.15
========== ========== ========== ========== ==========
Total Return........................ 15.98% (3.32)% 10.23% 7.81% 12.79%
Ratios/Supplemental Data:
Net Assets at end of period (000) $ 9,413 $ 5,965 $ 3,737 $ 2,490 $ 2,010
Ratio of expenses to average net
assets (including waivers)........ 0.95% 0.96% 0.95% 0.93% 0.59%
Ratio of net investment income to
average net assets (including
waivers).......................... 6.01% 6.03% 6.00% 6.45% 7.77%
Ratio of expenses to average net
assets (before waivers)*.......... 1.05% 1.07% 1.05% 1.06% 1.14%
Ratio of net investment income to
average net assets (before
waivers)*......................... 5.91% 5.92% 5.90% 6.32% 7.22%
Portfolio turnover.................. 59.32% 50% 31% 52% 105%
</TABLE>
<TABLE>
<CAPTION>
Year ended November 30,
- ---------------------------------------------------------------------------------------
June 15,
1988 to
November 30,
1990 1989 1988(b)
------ ------ --------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period ............... $ 10.12 $ 9.91 $ 10.00
---------- ---------- ----------
Investment Activities
Net investment income ............. 0.84 0.89 0.39
Net realized and unrealized gains
(losses) from investments ....... (0.41) 0.22 (0.13)
---------- ---------- ----------
Total from Investment Activities .. 0.43 1.11 0.26
---------- ---------- ----------
Distributions
Net investment income ............. (0.84) (0.90) (0.35)
In excess of net realized gains ...
---------- ---------- ----------
Total Distributions ............... (0.84) (0.90) (0.35)
---------- ---------- ----------
Net Asset Value, End of Period ...... $ 9.71 $ 10.12 $ 9.91
========== ========== ==========
Total Return ........................ 4.96% 11.79% 2.66%(c)
Ratios/Supplemental Data:
Net Assets at end of period (000) ... $ 11,005 $ 10,327 $ 7,483
Ratio of expenses to average net
assets (including waivers) ......... 0.53% 0.44% 0.56%(d)
Ratio of net investment income to
average net assets (including
waivers) ........................... 8.69% 8.97% 8.47%(d)
Ratio of expenses to average net
assets (before waivers)* ........... 1.08% 0.99% 1.17%(d)
Ratio of net investment income to
average net assets (before
waivers)* .......................... 8.14% 8.42% 7.86%(d)
Portfolio turnover ................... 75% 148% 22%
</TABLE>
-15-
<PAGE> 214
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been
as indicated.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. In addition, on January 3, 1994, the
Portfolio issued a new series of Shares which were designated as
"Institutional" Shares. The financial highlights presented for periods
prior to January 3, 1994 represent financial highlights applicable to
Investor Shares. On September 27, 1994, the Portfolio redesignated the
Investor Shares as "Investor A" Shares.
(b) Period from commencement of operations.
(c) Not Annualized.
(d) Annualized.
-16-
<PAGE> 215
U.S. GOVERNMENT SECURITIES PORTFOLIO
(FOR A SHARE(A) OUTSTANDING THROUGHOUT EACH PERIOD)
====================================================
<TABLE>
<CAPTION>
Year Ended November 30,
- ------------------------------------------------------------------------------------------------------------------
1995 1994(a) 1993 1992 1991
Institutional Institutional Investor Investor Investor
Shares Shares Shares Shares Shares
------ ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ............. $ 10.02 $ 11.20 $ 10.80 $ 10.68 $ 10.21
--------- --------- --------- --------- ---------
Investment Activities
Net investment income ........... 0.63 0.61 0.59 0.62 0.75
Net realized and unrealized gains
(losses) from investments ..... 0.80 (1.00) 0.47 0.13 0.47
--------- --------- --------- --------- ---------
Total from Investment Activities 1.43 (0.39) 1.06 0.75 1.22
--------- --------- --------- --------- ---------
Distributions
Net investment income ........... (0.63) (0.61) (0.59) (0.62) (0.75)
Net realized gains .............. 0.00 (0.07) (0.01)
In excess of net realized gains . (0.18)
--------- --------- --------- --------- ---------
Total Distributions ............. (0.63) (0.79) (0.66) (0.63) (0.75)
--------- --------- --------- --------- ---------
Net Asset Value, End of Period .... $ 10.82 $ 10.02 $ 11.20 $ 10.80 $ 10.68
========= --------- ========= ========= =========
Total Return ...................... 14.69% (3.46)% 10.03% 7.20% 12.36%
Ratios/Supplemental Data:
Net Assets at end of period (000) . $ 667 $ 51 $ 9,567 $ 7,499 $ 5,791
Ratio of expenses to average net
assets (including waivers) ...... 0.97% 0.95% 0.97% 0.95% 0.82%
Ratio of net investment income to
average net assets (including
waivers) ........................ 5.91% 6.54% 5.25% 5.72% 7.12%
Ratio of expenses to average net
assets (before waivers)* ........ 1.07% 1.16% 1.08% 1.09% 1.36%
Ratio of net investment income to
average net assets (before
waivers)* ....................... 5.81% 6.33% 5.14% 5.58% 6.58%
Portfolio turnover ................ 93.76% 50% 24% 74% 36%
</TABLE>
<TABLE>
<CAPTION>
Year Ended November 30,
-------------------------
June 2, 1988
to
November 30,
1990 1989 1988(b)
------ ------ --------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period ............. $ 10.06 $ 9.94 $ 10.00
--------- --------- ---------
Investment Activities
Net investment income ........... 0.76 0.85 0.36
Net realized and unrealized gains
(losses) from investments ..... 0.16 0.11 (0.06)
--------- --------- ---------
Total from Investment Activities 0.92 0.96 0.30
--------- --------- ---------
Distributions
Net investment income ........... (0.77) (0.84) (0.36)
Net realized gains ..............
In excess of net realized gains .
--------- --------- ---------
Total Distributions ............. (0.77) (0.84) (0.36)
--------- --------- ---------
Net Asset Value, End of Period .... $ 10.21 $ 10.06 $ 9.94
========= ========= =========
Total Return ...................... 9.66% 10.04% 3.05%(c)
Ratios/Supplemental Data:
Net Assets at end of period (000) . $ 6,856 $ 5,954 $ 4,335
Ratio of expenses to average net
assets (including waivers) ...... 0.73% 0.74% 0.79%(d)
Ratio of net investment income to
average net assets (including
waivers) ........................ 7.80% 8.50% 7.26%(d)
Ratio of expenses to average net
assets (before waivers)* ........ 1.28% 1.29% 1.40%(d)
Ratio of net investment income to
average net assets (before
waivers)* ....................... 7.25% 7.95% 6.65%(d)
Portfolio turnover ................ 53% 84% 215%
</TABLE>
-17-
<PAGE> 216
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been
as indicated.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. In addition, on June 7, 1994, the
Portfolio issued an additional series of Shares which were designated
as "Institutional" Shares. The financial highlights presented for
periods prior to June 7, 1994 represent financial highlights applicable
to Investor Shares. On September 27, 1994, the Portfolio redesignated
the Investor Shares as "Investor A" Shares.
(b) Period from commencement of operations.
(c) Not Annualized.
(d) Annualized.
[/R]
-18-
<PAGE> 217
BALANCED PORTFOLIO
(FOR A SHARE(A) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Year Ended Year Ended April 1, 1993
November 30, November 30, to November 30,
1995 1994(a) 1993(b)
------ --------- --------
Institutional Institutional Investor
Shares Shares Shares
------------- ---------- ----------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period ............. $ 9.60 $ 10.22 $ 10.00
---------- ---------- ----------
Investment Activities
Net investment income ........... 0.31 0.28 0.23
Net realized and unrealized gains
from investments .............. 2.02 (0.48) .15
---------- ---------- ----------
Total from Investment Activities 2.33 (0.20) .38
---------- ---------- ----------
Distributions
Net investment income ........... (0.31) (0.29) (0.16)
Net realized gains .............. 0.00
In excess of net realized gains . (0.13)
---------- ---------- ----------
Total Distributions ............... (0.31) (0.42) (0.16)
---------- ---------- ----------
Net Asset Value, End of Period .... $ 11.62 $ 9.60 $ 10.22
========== ========== ==========
Total Return ...................... 24.67% (2.00)% 3.86%(c)
Ratios/Supplemental Data:
Net Assets at end of period (000)
$ 36,827 $ 22,723 $ 1,978
Ratio of expenses to average net
assets (including waivers) ...... 1.27% 1.27% 0.56%(d)
Ratio of net investment income to
average net assets (including
waivers) ........................ 2.97% 2.77% 3.42%(d)
Ratio of expenses to average net
assets (before waivers)* ........ 1.37% 1.40% 1.21%(d)
Ratio of net investment income to
average net assets (before
waivers)* ....................... 2.87% 2.64% 2.77%(d)
Portfolio turnover ................ 58.16% 49% 26%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been
as indicated.
(a) The Portfolio issued a series of Shares which were designated as
"Investor" Shares on April 1, 1993. In addition, on January 3, 1994,
the Portfolio issued a new series of Shares which were designated as
"Institutional" Shares. The financial highlights presented for periods
prior to January 3, 1994 represent financial highlights applicable to
Investor Shares. On September 27, 1994, the Portfolio redesignated the
Investor Shares as "Investor A" Shares.
(b) Period from commencement of operations.
(c) Not Annualized.
(d) Annualized.
-19-
<PAGE> 218
INTERNATIONAL EQUITY PORTFOLIO
(FOR A SHARE(A) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30, April 4, 1994 to
1995 November 30, 1994(a)
------ ------------------
INSTITUTIONAL Institutional
SHARES Shares
------ ------
<S> <C> <C>
Net Asset Value,
Beginning of Period ........................... $ 9.90 $ 10.00
Investment Activities
Net investment income ......................... 0.01 (0.01)
Net realized and unrealized gains (losses) from
investments and foreign currency ............. 0.86 (0.09)
--------- ---------
Total from Investment Activities .............. 0.87 (0.10)
--------- ---------
Distributions
Net realized gain ............................. (0.01) 0.00
--------- ---------
Tax return of capital ......................... (0.01) 0.00
--------- ---------
Total Distributions ........................... (0.02) 0.00
--------- ---------
Net Asset Value,
End of Period ................................. $ 10.75 $ 9.90
========= =========
Total Return .................................... 8.78% (1.00)%(b)
Ratios/Supplemental Data:
Net Assets at end of period (000) ............... $ 2,159 $ 197
Ratio of expenses to average net
assets (including waivers) .................... 1.44% 1.70%(c)
Ratio of net investment income to average
net assets (including waivers) ................ 0.13% (0.48%)(c)
Ratio of expenses to average net assets
(before waivers)* ............................. 1.75% 2.17%(c)
Ratio of net investment income to
average net assets (before
waivers)* ..................................... (0.18)% (0.94)%(c)
Portfolio turnover .............................. 62.78% 21%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been
as indicated.
(a) On April 4, 1994, the Portfolio issued a series of Shares which were
designated as "Trust" Shares. In addition, on April 24, 1994, the
Portfolio issued an additional series of Shares which were designated
as "Institutional" Shares. The financial highlights presented for the
period April 4, 1994 to April 24, 1994 represent financial highlights
applicable to Trust Shares.
(b) Not Annualized.
(c) Annualized.
-20-
<PAGE> 219
INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS
The investment objective of a Portfolio may not be changed without the
affirmative vote of a majority of the outstanding Shares of the Portfolio.
Although management will use its best efforts to achieve the investment
objective of each Portfolio, there can be no assurance that it will be able to
do so. The Money Market and Treasury Money Market Portfolios are "money market"
funds that invest in instruments with remaining maturities of 397 days or less
(with certain exceptions) and with dollar-weighted average portfolio maturities
of 90 days or less, subject to the quality, diversification and other
requirements of Rule 2a-7 under the Investment Company Act of 1940, as amended
(the "1940 Act") and other rules of the Securities and Exchange Commission (the
"SEC").
THE MONEY MARKET PORTFOLIO
The Money Market Portfolio's investment objective is to seek current
income with liquidity and stability of principal. In pursuing its investment
objective, the Money Market Portfolio invests substantially all of its assets in
a broad range of money market instruments. These instruments include obligations
of the U.S. Government, U.S. dollar-denominated foreign securities, obligations
of U.S. and foreign banks and savings and loan institutions and commercial
obligations that meet the applicable quality requirements described below.
The Money Market Portfolio will purchase only "First Tier Eligible
Securities" (as defined by the SEC) that present minimal credit risks as
determined by the Adviser pursuant to guidelines approved by the Fund's Board of
Directors. First Tier Eligible Securities consist of (i) securities that either
(a) have short-term debt ratings at the time of purchase in the highest rating
category by at least two unaffiliated nationally recognized statistical rating
organizations ("Rating Agencies") (or one Rating Agency if the security was
rated by only one Rating Agency), or (b) are issued by issuers with such
ratings, and (ii) certain securities that are unrated (including securities of
issuers that have long-term but not short-term ratings) but are of comparable
quality as determined in accordance with guidelines approved by the Board of
Directors. The applicable ratings by Rating Agencies are described in Appendix A
to the Statement of Additional Information. The following descriptions
illustrate the types of instruments in which the Money Market Portfolio invests.
Banking Obligations. The Money Market Portfolio may purchase
obligations of issuers in the banking industry, such as certificates of deposit,
letters of credit, bankers' acceptances and time deposits, including U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or
-21-
<PAGE> 220
savings institutions having total assets at the time of purchase in excess of $1
billion. The Money Market Portfolio may invest in obligations of foreign banks
or foreign branches of U.S. banks in amounts not in excess of 25% of its assets
where the Adviser deems the instrument to present minimal credit risks. (See
"Risk Factors -- Risks Associated with Foreign Securities and Currencies"
below.) The Money Market Portfolio may also make interest-bearing savings
deposits in commercial and savings banks in amounts not in excess of 5% of the
value of its total assets.
Commercial Paper and Variable and Floating Rate Instruments. The Money
Market Portfolio may invest in commercial paper, including asset-backed
commercial paper representing interests in a pool of corporate receivables,
dollar-denominated obligations issued by domestic and foreign bank holding
companies, and corporate bonds that meet the quality and maturity requirements
described above. The Money Market Portfolio may also invest in variable or
floating rate notes that may have a stated maturity in excess of thirteen months
but will, in any event, permit the Portfolio to demand payment of the principal
of the instrument at least once every thirteen months upon no more than 30 days'
notice (unless the instrument is guaranteed by the U.S. Government or an agency
or instrumentality thereof). Such instruments may include variable amount master
demand notes, which are unsecured instruments that permit the indebtedness
thereunder to vary in addition to providing for periodic adjustments in the
interest rate. Unrated variable and floating rate instruments will be determined
by the Adviser (under the supervision of the Board of Directors) to be of
comparable quality at the time of purchase to First Tier Eligible Securities.
There may be no active secondary market in the instruments, which could make it
difficult for the Portfolio to dispose of an instrument in the event the issuer
were to default on its payment obligation or during periods that the Portfolio
could not exercise its demand rights. The Portfolio could, for these or other
reasons, suffer a loss with respect to such instruments. Variable and floating
rate instruments held by the Portfolio will be subject to the Portfolio's 10%
limitation on illiquid investments when the Portfolio may not demand payment of
the principal amount within seven days and a liquid trading market is absent.
Government Obligations. The Money Market Portfolio may invest in
obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities. In addition, the Portfolio may, when deemed appropriate by
the Adviser, invest in short-term obligations issued by state and local
governmental issuers that meet the quality requirements described above and, as
a result of the Tax Reform Act of 1986, carry yields that are competitive with
those of other types of money market instruments of comparable quality.
-22-
<PAGE> 221
THE TREASURY MONEY MARKET PORTFOLIO
The Treasury Money Market Portfolio's investment objective is to seek a
high level of current income exempt from state income tax consistent with
liquidity and security of principal. In pursuing its investment objective, the
Portfolio invests in selected money market obligations issued by the U.S.
Government (or its agencies and instrumentalities) that are guaranteed as to
principal and interest by the U.S. Government, the interest on which is
generally exempt from state income tax. Securities that are generally eligible
for this exemption include those issued by the U.S. Treasury (bills,
certificates of indebtedness, notes and certain bonds) and certain U.S.
Government agencies and instrumentalities, including the General Services
Administration and Small Business Administration. Each investor should consult
his or her tax advisor to determine whether distributions from the Portfolio are
exempt from state income tax in the investor's home state. Under normal market
conditions, the Portfolio intends to invest substantially all (but not less than
65%) of its total assets in securities with the above characteristics and
(except to the extent discussed below) will not enter into repurchase agreements
or purchase any U.S. Government security that the Adviser believes is subject to
state income tax.
Under extraordinary circumstances, such as when appropriate exempt
securities are unavailable or pending investment, the Treasury Money Market
Portfolio may temporarily hold cash or invest in repurchase agreements
collateralized by U.S. Government securities, other U.S. Government agency or
instrumentality securities, securities of other investment companies that invest
in securities in which the Portfolio is permitted to invest, or cash
equivalents.
THE GROWTH & INCOME EQUITY PORTFOLIO
The Growth & Income Equity Portfolio's investment objective is to
provide long-term capital growth, with income a secondary consideration. In
pursuing its investment objective, the Portfolio normally invests substantially
all of its assets in common stock, preferred stock, rights, warrants and
securities convertible into common stock. The Adviser selects stocks based on a
number of factors, including historical and projected earnings, growth and asset
value, earnings compared to stock prices generally (as measured by the S&P 500
Index), and consistency of earnings growth and earnings quality. Stocks
purchased for the Portfolio generally will be listed on a national securities
exchange or will be unlisted securities with an established over-the-counter
market. A convertible security may be purchased for the Portfolio when, in the
Adviser's opinion, the price and yield of the convertible security is favorable
compared to the price and yield of the common stock.
-23-
<PAGE> 222
The stocks or securities in which the Portfolio invests may be expected to
produce some income but income is not a major criterion in their selection. In
general, the Portfolio's stocks and securities will be diversified over a number
of industry groups in an effort to reduce the risks inherent in such
investments.
The Growth & Income Equity Portfolio may indirectly invest in foreign
securities through the purchase of American Depository Receipts ("ADRs") and
European Depository Receipts ("EDRs") but will not do so if, immediately after
and as a result of the purchase, the value of ADRs and EDRs would exceed 15% of
the Portfolio's total assets. (For further information, see "Other Applicable
Policies -- Foreign Securities" below and the Statement of Additional
Information under "Investment Objectives and Policies -- ADRs and EDRs.") The
Portfolio may also invest in Canadian securities listed on a national securities
exchange.
The Growth & Income Equity Portfolio reserves the right to hold as a
temporary defensive measure up to 100% of its total assets in cash and
short-term obligations (having remaining maturities of 12 months or less) at
such times and in such proportions as, in the opinion of the Adviser, prevailing
market or economic conditions warrant. Short-term obligations include, but are
not limited to, commercial paper, bankers' acceptances, certificates of deposit,
demand and time deposits of domestic and foreign banks and savings and loan
associations, repurchase agreements, and obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities.
THE EMERGING GROWTH PORTFOLIO
The Emerging Growth Portfolio's investment objective is capital
appreciation. Current income is an incidental consideration in the selection of
portfolio securities. In pursuing its investment objective, the Portfolio
normally invests primarily in common stock of emerging or established small- to
medium-sized companies with above-average potential for price appreciation. The
Portfolio may invest in preferred stock, rights, warrants, and securities
convertible into common stock. It may invest a portion of its assets in
established larger companies that, in the opinion of the Adviser, offer improved
growth possibilities because of rejuvenated management, product changes, or
other developments that might stimulate earnings or asset growth, or in
companies that seem undervalued relative to their underlying assets. The
Portfolio does not intend to invest more than 5% of the value of its total
assets in the securities of unseasoned companies, that is, companies (or their
predecessors) with less than three years' continuous operation.
The Emerging Growth Portfolio may also invest a portion of its assets
in smaller companies that have limited specialized-
-24-
<PAGE> 223
product lines, markets or financial resources, or are dependent upon one-person
management. The securities of such smaller companies may have limited
marketability, may be subject to more abrupt or erratic market movements than
securities of larger companies or the market averages in general, and may
involve greater risk than is customarily associated with more established
companies. To qualify for investment by the Portfolio, however, a company will
be expected to have, in the opinion of the Adviser, above-average possibilities
for capital appreciation (when compared with the average appreciation of
companies whose securities are included in the S&P 500 Index).
The Emerging Growth Portfolio uses a research intensive approach and
valuation techniques that emphasize earnings and asset growth. The Adviser
selects stocks based on a number of factors, including historical and projected
earnings, asset value, potential for price appreciation and earnings growth, and
quality of products manufactured and/or services offered. Stocks purchased for
the Portfolio may be listed on a national securities exchange or may be unlisted
securities with or without an established over-the-counter market. The Portfolio
may also invest in initial public offerings of new companies that demonstrate
the potential for price appreciation. A convertible security may be purchased
for the Portfolio when, in the Adviser's opinion, the price of the convertible
security is favorable compared to the price of the common stock. In general, the
Portfolio's stocks and other securities will be diversified over a number of
industry groups in an effort to reduce the risks inherent in such investments.
The Emerging Growth Portfolio may indirectly invest in foreign
securities through the purchase of such obligations as ADRs and EDRs but will
not do so if, immediately after and as a result of the purchase, the value of
ADRs and EDRs would exceed 25% of the Portfolio's total assets. (For further
information, see "The Growth & Income Equity Portfolio" above, "Other Applicable
Policies -- Foreign Securities" below, and the Statement of Additional
Information under "Investment Objectives and Policies -- ADRs and EDRs.") The
Portfolio may also invest in securities issued by Canadian corporations and
Canadian counterparts of U.S. corporations, which may or may not be listed on a
national securities exchange or traded in over-the-counter markets.
The Emerging Growth Portfolio reserves the right to hold as a temporary
defensive measure up to 100% of its total assets in cash and short-term
obligations (having remaining maturities of 12 months or less) at such times and
in such proportions as, in the opinion of the Adviser, prevailing market or
economic conditions warrant. See "The Growth & Income Equity Portfolio" above
for a description of the types of short-term obligations in which the Portfolio
may invest.
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THE GOVERNMENT & CORPORATE BOND PORTFOLIO
The Government & Corporate Bond Portfolio's investment objective is to
seek the highest level of current income consistent with conservation of
capital. In pursuing its investment objective, the Portfolio intends to invest
at least 65% of its assets in fixed-income and related debt securities rated in
one of the three highest rating categories assigned by a Rating Agency at the
time of purchase or in unrated investments deemed by the Adviser to be of
comparable quality pursuant to guidelines approved by the Fund's Board of
Directors. Debt securities may include a broad range of fixed and variable rate
bonds, debentures, notes, and securities convertible into or exchangeable for
common stock; dollar-denominated debt obligations of foreign issuers, including
foreign corporations and governments; and first mortgage loans, income
participation loans, participation certificates in pools of mortgages, including
mortgages issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, collateralized mortgage obligations and other
mortgage-related securities, and other asset-backed securities. The Portfolio
may invest up to 10% of its total assets at the time of purchase in
dollar-denominated debt obligations of foreign issuers, either directly or
through ADRs and EDRs, and up to 25% of its total assets at the time of purchase
in non-mortgage asset-backed securities, respectively. (See "Other Applicable
Policies -- Foreign Securities" below and the Statement of Additional
Information under "Investment Objectives and Policies -- ADRs and EDRs.")
The Government & Corporate Bond Portfolio may purchase debt securities
which are rated at the time of purchase within the four highest rating
categories assigned by Rating Agencies or unrated debt securities (including
convertible securities) which the Adviser believes present attractive
opportunities and are of at least comparable quality to instruments so rated.
The Portfolio's dollar-weighted average portfolio quality is expected to be at
least "A" or higher. Securities rated in the lowest of the above four rating
categories have speculative characteristics, even though they are of
investment-grade quality, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade securities. Such
securities will be purchased (and retained) only when the Adviser believes the
issuers have an adequate capacity to pay interest and repay principal. (For a
description of the rating categories of Rating Agencies, see Appendix A to the
Statement of Additional Information.) In making investment decisions, the
Adviser will consider a number of factors including current yield, maturity,
yield to maturity, anticipated changes in interest rates, and the overall
quality of the investment. The Portfolio seeks to provide a current yield
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greater than that generally available from money market instruments.
The Government & Corporate Bond Portfolio may purchase asset-backed
securities (i.e., securities backed by mortgages, installment sale contracts,
corporate receivables, credit card receivables or other assets) that are issued
by entities such as the Government National Mortgage Association ("GNMA"),
Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage
Corporation ("FHLMC") and private issuers such as commercial banks, financial
companies, finance subsidiaries of industrial companies, savings and loan
associations, mortgage banks, and investment banks. To the extent that the
Portfolio invests in asset-backed securities issued by companies that are
investment companies under the 1940 Act, such acquisitions will be subject to
the percentage limitations prescribed by the 1940 Act. (See "Other Applicable
Policies -- Securities of Other Investment Companies" below.)
Presently there are several types of mortgage-backed securities,
including guaranteed mortgage pass-through certificates, which provide the
holder with a pro-rata interest in the underlying mortgages, and collateralized
mortgage obligations ("CMOs"), which provide the holder with a specified
interest in the cash flow of a pool of underlying mortgages or other
mortgage-backed securities. CMOs are issued in multiple classes, each with a
specified fixed or floating interest rate and a final distribution date. The
relative payment rights of the various CMO classes may be subject to greater
volatility and interest-rate risk than other types of mortgage-backed
securities. The average life of asset-backed securities varies with the
underlying instruments or assets and market conditions, which in the case of
mortgages have maximum maturities of forty years. The average life of a
mortgage-backed instrument, in particular, is likely to be substantially less
than the original maturity of the mortgages underlying the securities as the
result of unscheduled principal payments and mortgage prepayments. The
relationship between mortgage prepayment and interest rates may give some
high-yielding mortgage-backed securities less potential for growth in value than
conventional bonds with comparable maturities. In addition, in periods of
falling interest rates, the rate of mortgage prepayments tends to increase.
During such periods, the reinvestment of prepayment proceeds by the Government &
Corporate Bond Portfolio will generally be at lower rates than the rates that
were carried by the obligations that have been prepaid. When interest rates
rise, the value of an asset-backed security generally will decline; however,
when interest rates decline, the value of an asset-backed security with
prepayment features may not increase as much as that of other fixed-income
securities. Because of these and other reasons, an asset-backed security's total
return may be difficult to predict precisely.
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In general, the collateral supporting non-mortgage assetbacked
securities is of shorter maturity than mortgage loans and is less likely to
experience substantial prepayments. Nonmortgage asset-backed securities involve
certain risks that are not presented by mortgage-backed securities arising
primarily from the nature of the underlying assets (i.e., credit card and
automobile loan receivables as opposed to real estate mortgages). For example,
credit card receivables are generally unsecured and the repossession of
automobiles and other personal property upon the default of the debtor may be
difficult or impracticable in some cases.
The Government & Corporate Bond Portfolio reserves the right to hold as
a temporary defensive measure up to 100% of its total assets in cash and
short-term obligations (having remaining maturities of 12 months or less) at
such times and in such proportions as, in the opinion of the Adviser, prevailing
market or economic conditions warrant. See "The Growth & Income Equity
Portfolio" above for a description of the types of short-term obligations in
which the Portfolio may invest.
THE U.S. GOVERNMENT SECURITIES PORTFOLIO
The U.S. Government Securities Portfolio's investment objective is to
seek a high rate of current income that is consistent with relative stability of
principal. In pursuing its investment objective, the Portfolio invests in
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities normally having remaining maturities of 1 to 30 years and
repurchase agreements relating to such obligations. (For further information,
see "Other Applicable Policies -- U.S. Government Obligations" below.)
Consistent with its investment policies, the U.S. Government Securities
Portfolio may invest in mortgage-backed securities, including those representing
an undivided ownership interest in a pool of mortgage loans, such as
certificates issued by GNMA, FNMA, and FHLMC and CMOs. (For further information
regarding these instruments, see "The Government & Corporate Bond Portfolio"
above.)
THE BALANCED PORTFOLIO
The Balanced Portfolio's investment objective is to maximize total
return through a combination of growth of capital and current income consistent
with the preservation of capital. The Portfolio seeks to achieve its objective
by using a disciplined approach of allocating assets primarily among three major
asset groups, i.e. equity securities, fixed-income securities and cash
equivalents. In pursuing the Portfolio's investment objective, the Adviser
allocates the Portfolio's assets based upon its evaluation of the relative
attractiveness of the major asset
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groups. In an effort to better quantify the relative attractiveness of the major
asset groups over a one- to three-year period of time, the Adviser has
incorporated into its asset allocation decision-making process several dynamic
computer models which it has created. The purpose of these models is to show the
statistical impact of the Adviser's economic outlook upon the future returns of
each asset group. The models are especially sensitive to the forecasts for
inflation, interest rates and long term corporate earnings growth. Investment
returns are normally heavily impacted by such variables and their expected
changes over time. Therefore, the Adviser's method attempts to take advantage of
changing economic conditions by increasing or decreasing the ratio of stocks to
bonds in the Portfolio. For example, if the Adviser expected more rapid economic
growth leading to better corporate earnings, it would increase the Portfolio's
holdings of equity securities and reduce its holdings of fixed income securities
and cash equivalents.
Under normal market conditions, the Balanced Portfolio's policy is
generally to invest at least 25% of the value of its total assets in
fixed-income securities and no more than 75% in equity securities. The actual
percentage of assets invested in equity securities, fixed-income securities and
cash equivalents will vary from time to time, depending on the judgment of the
Adviser as to general market and economic conditions, trends and yields,
interest rates and fiscal and monetary developments.
The equity securities in which the Balanced Portfolio normally invests
include common stock, preferred stock, rights, warrants and securities
convertible into common or preferred stock. (For further information regarding
these instruments, see "The Growth & Income Equity Portfolio" above.)
The fixed-income securities in which the Balanced Portfolio invests
include U.S. Government securities or other fixed income and related debt
securities rated in one of the four highest rating categories assigned by a
Rating Agency at the time of purchase or in unrated investments deemed by the
Adviser to be of comparable quality pursuant to guidelines approved by the
Fund's Board of Directors. (For further information regarding these instruments,
see "The Government & Corporate Bond Portfolio" above.)
The Balanced Portfolio may purchase asset-backed securities. (For
further information regarding these instruments, see "The Government & Corporate
Bond Portfolio" above and "Other Applicable Policies -- Securities of Other
Investment Companies" below.)
The Balanced Portfolio reserves the right to hold as a temporary
defensive measure up to 100% of its total assets in cash and short-term
obligations (having remaining maturities of
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12 months or less) at such times and in such proportions as, in the opinion of
the Adviser, prevailing market or economic conditions warrant. See "The Growth &
Income Equity Portfolio" above for a description of the types of short-term
obligations in which the Portfolio may invest.
THE INTERNATIONAL EQUITY PORTFOLIO
The International Equity Portfolio's investment objective is to provide
capital growth consistent with reasonable investment risk. The Portfolio seeks
to achieve this objective by investing principally in foreign equity securities,
most of which will be denominated in foreign currencies. During normal market
conditions, the Portfolio will invest substantially all of its assets in
securities of companies which derive more than 50% of their gross revenues from,
or have more than 50% of their assets outside, the United States. Additionally,
under normal market conditions, the Portfolio will invest in equity securities
from at least three different countries (excluding the United States). However,
the Portfolio may invest all its assets in a single country during temporary
defensive periods.
The International Equity Portfolio expects to invest at least half of
its assets in securities of companies located either in developed countries in
Western Europe or in Japan, although it may also purchase securities of
companies located in other developed countries and developing countries. (For
further information, see "Risk Factors -- Risks Associated with Foreign
Securities and Currencies" below.)
By investing in foreign securities, the International Equity Portfolio
will attempt to take advantage of differences between economic trends and the
performance of securities markets in various countries, regions and geographic
areas. The Portfolio will achieve diversification by investing in securities
from various countries and geographic areas that offer different investment
opportunities and are affected by different economic trends. The multinational
character of the Portfolio's investments should reduce the effect that events in
any one country or geographic area will have on its investment holdings. Of
course, negative movement by one of the Portfolio's investments in one foreign
market may offset gains from the Portfolio's investments in another market.
Equity securities in which the International Equity Portfolio may
invest include common stock, preferred stock, rights, warrants and securities
convertible into common stock. A convertible security may be purchased for the
Portfolio when, in the Adviser's or Sub-Adviser's opinion, the price and yield
of the convertible security is favorable compared to the price and yield of the
common stock.
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During temporary defensive periods, when deemed necessary by the
Adviser or Sub-Adviser, the International Equity Portfolio may invest up to 100%
of its assets in U.S. Government obligations or debt obligations of companies
incorporated and having their principal business activities in the United
States. The Portfolio does not intend to invest in such securities for the
purpose of meeting its investment objective.
The International Equity Portfolio may also invest, without limitation,
in foreign securities through the purchase of ADRs and EDRs. (For further
information, see "Risk Factors -- Risks Associated with Foreign Securities and
Currencies" below and the Statement of Additional Information under "Investment
Objectives and Policies -- ADRs and EDRs.")
The International Equity Portfolio reserves the right to hold as a
temporary defensive measure up to 100% of its total assets in cash and
short-term obligations (having remaining maturities of 12 months or less) at
such times and in such proportions as, in the opinion of the Adviser or
Sub-Adviser, prevailing market or economic conditions warrant. See "The Growth &
Income Equity Portfolio" above for a description of the types of short-term
obligations in which the Portfolio may invest.
Although investing in any mutual fund has certain inherent risks, an
investment in the International Equity Portfolio may have even greater risks
than investments in most other types of mutual funds. The Portfolio is not a
complete investment program, and it may not be appropriate for investors who
cannot financially bear the loss of at least a significant portion of their
investment. The Portfolio's net asset value per Share is subject to rapid and
substantial changes because greater risk is assumed in seeking the Portfolio's
objective. See "Risk Factors -- Risks Associated with Foreign Securities and
Currencies" below.
RISK FACTORS
MARKET RISK. The Growth & Income Equity, Emerging Growth and
International Equity Portfolios invest primarily, and the Balanced Portfolio
invests to a significant degree, in equity securities. As with other mutual
funds that invest primarily or to a significant degree in equity securities,
these Portfolios are subject to market risks. That is, the possibility exists
that common stocks will decline over short or even extended periods of time and
both the U.S. and certain foreign equity markets tend to be cyclical,
experiencing both periods when stock prices generally increase and periods when
stock prices generally decrease.
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INTEREST RATE RISK. Generally, the market value of fixed-income
securities held by the Money Market, Treasury Money Market, Government &
Corporate Bond, U.S. Government Securities and Balanced Portfolios can be
expected to vary inversely to changes in prevailing interest rates. During
periods of declining interest rates, the market value of investment portfolios
comprised primarily of fixed income securities will tend to increase, and during
periods of rising interest rates, the market value will tend to decrease. Fixed
income securities with longer maturities, which tend to produce higher yields,
are subject to potentially greater capital appreciation and depreciation than
obligations with shorter maturities. Changes in the financial strength of an
issuer or changes in the ratings of any particular security may also offset the
value of these investments. Fluctuations in the market value of fixed income
securities subsequent to their acquisition will not offset cash income from such
securities but will be reflected in a Portfolio's net asset value.
RISKS ASSOCIATED WITH FOREIGN SECURITIES AND CURRENCIES. Investments in
securities of foreign issuers, whether made directly or indirectly, carry
certain risks not ordinarily associated with investments in securities of
domestic issuers. Such risks include future political and economic developments,
and the possible imposition of exchange controls or other foreign governmental
laws or restrictions. In addition, with respect to certain countries, there is
the possibility of expropriation of assets, confiscatory taxation, political or
social instability or diplomatic developments which could adversely affect
investments in those countries.
There may be less publicly available information about a foreign
company than about a U.S. company, and foreign companies may not be subject to
accounting, auditing and financial reporting standards and requirements
comparable to or as uniform as those of U.S.-based companies. Foreign securities
markets, while growing in volume, have, for the most part, substantially less
volume than U.S. markets, and securities of many foreign companies are less
liquid and their prices more volatile than securities of comparable U.S.-based
companies. There is generally less government supervision and regulation of
foreign exchanges, brokers and issuers than there is in the United States. In
the event of a default by the issuer of a foreign security, it may be more
difficult to obtain or enforce a judgment against such issuer than it would be
against a domestic issuer. In addition, foreign banks and foreign branches of
U.S. banks are subject to less stringent reserve requirements and to different
accounting, auditing, reporting, and recordkeeping standards than those
applicable to domestic branches of U.S. banks.
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Certain of the risks associated with international investments are
heightened with respect to investments in developing countries. The risks of
expropriation, nationalization and social, political and economic instability
are greater in those countries than in more developed capital markets. In
addition, developing countries may have economies based on only a few industries
and small securities markets with a low volume of trading. Certain countries may
also impose substantial restrictions on investments in their capital markets by
foreign entities, including restrictions on investments in issuers of industries
deemed sensitive to relevant national interests. These factors may limit the
investment opportunities available to the International Equity Portfolio and
result in a lack of liquidity and a high price volatility with respect to
securities of issuers from developing countries.
Certain countries may also impose restrictions on the International
Equity Portfolio's ability to repatriate investment income or capital. Even when
there is no outright restriction on repatriation of investment income or
capital, the mechanics of repatriation may affect certain aspects of the
operations of the International Equity Portfolio.
Governments of many developing countries exercise substantial influence
over many aspects of the private sector. In some countries, the government may
own or control many companies, including the largest company or companies. As
such, government actions in the future could have a significant effect on
economic conditions in these countries, affecting private sector companies, the
International Equity Portfolio and the value of its portfolio securities.
Since the International Equity Portfolio will invest substantially in
securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates will affect the value of securities
in the International Equity Portfolio and the unrealized appreciation or
depreciation of investments so far as U.S. investors are concerned. Foreign
currency exchange rates are determined by forces of supply and demand on the
foreign exchange markets and the regulatory control of the exchanges on which
the currencies trade. These forces are themselves affected by the international
balance of payments and other economic and financial conditions, government
intervention, speculation and other factors. Costs are incurred in connection
with conversions between various currencies.
The expense ratio of the International Equity Portfolio can be expected
to be higher than that of funds investing in domestic securities. The costs
attributable to investing abroad are usually higher for several reasons, such as
the higher cost of investment research, higher cost of custody of foreign
securities, higher commissions paid on comparable transactions on
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foreign markets and additional costs arising from delays in settlements of
transactions involving foreign securities.
Interest and dividends payable on the International Equity Portfolio's
foreign portfolio securities may be subject to foreign withholding taxes. To the
extent such taxes are not offset by credits or deductions allowed to investors
under U.S. federal income tax provisions, they may reduce the net return to the
Portfolio's shareholders. (For further information, see "Taxes.")
In addition to the International Equity Portfolio, other Portfolios may
be subject to certain of the risks described above in connection with investment
in foreign securities. As stated above, the Money Market Portfolio may acquire
U.S. dollar-denominated securities of foreign corporations as well as certain
types of bank instruments issued or supported by the credit of foreign banks or
foreign branches of domestic banks where the Adviser deems the investment to
present minimal credit risks. The Government & Corporate Bond Portfolio may
acquire dollar-denominated debt obligations of foreign issuers and the Growth &
Income Equity, Emerging Growth, Government & Corporate Bond, Balanced and
International Equity Portfolios may acquire ADRs and EDRs.
OTHER APPLICABLE POLICIES
U.S. GOVERNMENT OBLIGATIONS. Securities issued or guaranteed by the
U.S. Government, its agencies and instrumentalities have historically involved
little risk of loss of principal if held to maturity. However, due to
fluctuations in interest rates, the market value of such securities may vary
during the period a shareholder owns Shares of a Portfolio. Certain U.S.
Government securities held by the Money Market or Treasury Money Market
Portfolios may have remaining maturities exceeding thirteen months if such
securities provide for adjustments in their interest rates no less frequently
than every thirteen months. Examples of the types of U.S. Government obligations
that may be held by the Portfolios, subject to their respective investment
objectives and policies, include, in addition to U.S. Treasury bonds, notes and
bills, the obligations of Federal Home Loan Banks, Federal Farm Credit Banks,
Federal Land Banks, the Federal Housing Administration, Farmers Home
Administration, Export-Import Bank of the United States, Small Business
Administration, GNMA, FNMA, FHLMC, General Services Administration, Student Loan
Marketing Association, Central Bank for Cooperatives, Federal Intermediate
Credit Banks, Resolution Trust Corporation, and Maritime Administration.
Obligations of certain agencies and instrumentalities of the U.S. Government,
such as those of GNMA, are supported by the full faith and credit of the U.S.
Treasury; others, such as the Export-Import Bank of the United States, are
supported by the right of the issuer to
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borrow from the Treasury; others, such as those of FNMA, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. There is
no assurance that the U.S. Government would provide financial support to U.S.
Government-sponsored instrumentalities if it is not obligated to do so by law.
STRIPPED GOVERNMENT SECURITIES. To the extent consistent with their
respective investment policies, each Portfolio may invest in bills, notes and
bonds (including zero coupon bonds) issued by the U.S. Treasury. In addition,
each Portfolio may also invest in "stripped" U.S. Treasury obligations offered
under the Separate Trading of Registered Interest and Principal Securities
("STRIPS") program or Coupon Under Book-Entry Safekeeping ("CUBES") program or
other stripped securities issued directly by agencies or instrumentalities of
the U.S. Government (and, with respect to the Treasury Money Market Portfolio
only, that are also guaranteed as to principal and interest by the U.S.
Government). STRIPS and CUBES are direct obligations of the U.S. Government that
clear through the Federal Reserve System. The Money Market, Growth & Income
Equity, Emerging Growth, Government & Corporate Bond, and Balanced Portfolios
may also purchase U.S. Treasury and agency securities that are stripped by
brokerage firms and custodian banks and sold under proprietary names. These
stripped securities are resold in custodial receipt programs with a number of
different names (such as TIGRs and CATS) and are not considered U.S. Government
securities for purposes of the 1940 Act.
Stripped securities are issued at a discount to their "face value" and
may exhibit greater price volatility than ordinary debt securities because of
the manner in which their principal and interest are returned to investors. The
Adviser will consider the liquidity needs of a Portfolio when any investments in
zero coupon obligations or other principal-only obligations are made.
REPURCHASE AGREEMENTS. Under certain circumstances described above and
subject to their respective investment policies, each Portfolio may agree to
purchase U.S. Government securities from financial institutions such as banks
and broker-dealers, subject to the seller's agreement to repurchase them at a
mutually agreed-upon date and price ("repurchase agreements"). A Portfolio will
enter into repurchase agreements only with financial institutions such as banks
and broker-dealers that the Adviser or Sub-Adviser believes to be creditworthy.
During the term of any repurchase agreement, the Adviser or Sub-Adviser will
continue to monitor the creditworthiness of the seller and will require the
seller to maintain the value of the securities subject to the agreement at not
less than 102% of the repurchase
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price (including accrued interest). Default by a seller could expose a Portfolio
to possible loss because of adverse market action or possible delay in disposing
of the underlying obligations. Because of the seller's repurchase obligations,
the securities subject to repurchase agreements do not have maturity
limitations. Although no Portfolio presently intends to enter into repurchase
agreements providing for settlement in more than seven days, each Portfolio does
have the authority to do so subject to its limitation on the purchase of
illiquid securities described below. Repurchase agreements are considered to be
loans under the 1940 Act. The income on repurchase agreements is taxable. (See
"Taxes" below.)
REVERSE REPURCHASE AGREEMENTS. Subject to their investment policies,
each Portfolio (except the Treasury Money Market Portfolio) may borrow funds for
temporary purposes by entering into reverse repurchase agreements in accordance
with their respective investment limitations below. Pursuant to such agreements,
a Portfolio would sell portfolio securities to financial institutions such as
banks and broker-dealers and agree to repurchase them at an agreed upon date and
price. Reverse repurchase agreements involve the risk that the market value of
the securities sold by a Portfolio may decline below the repurchase price which
the Portfolio is obligated to pay. Reverse repurchase agreements are considered
to be borrowings by a Portfolio under the 1940 Act.
SECURITIES LENDING. To increase return or offset expenses, each of the
Equity and Bond Portfolios may, from time to time, lend its portfolio securities
to broker-dealers, banks or institutional borrowers of securities pursuant to
agreements requiring that the loans be continuously secured by collateral equal
at all times in value to at least the market value of the securities loaned.
Collateral for such loans may include cash, securities of the U.S. Government,
or its agencies or instrumentalities, or an irrevocable letter of credit issued
by a bank that has at least $1.5 billion in total assets, or any combination
thereof. The collateral must be valued daily, and, should the market value of
the loaned securities increase, the borrower must furnish additional collateral
to the lending Portfolio. By lending its securities, a Portfolio can increase
its income by continuing to receive interest on the loaned securities as well as
by either investing the cash collateral in short-term instruments or obtaining
yield in the form of interest paid by the borrower when U.S. Government
securities are used as collateral. In accordance with current SEC policies, each
Portfolio is currently limiting its securities lending to 33-1/3% of the
aggregate net assets of such Portfolio. Loans are subject to termination by a
Portfolio or the borrower at any time.
[/R]
SECURITIES OF OTHER INVESTMENT COMPANIES. Under certain
circumstances described above and subject to their respective
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investment policies and limitations, each Portfolio may invest in securities
issued by other investment companies which invest in securities in which that
Portfolio is permitted to invest and which determine their net asset value per
Share based on the amortized cost or penny-rounding method. Each Portfolio may
invest in securities of other investment companies within the limits prescribed
by the 1940 Act, which include, subject to certain exceptions, a prohibition on
a Portfolio investing more than 10% of the value of its total assets in such
securities. Investment companies in which a Portfolio may invest may impose a
sales or distribution charge in connection with the purchase or redemption of
their Shares as well as other types of commissions or charges. Such charges will
be payable by a Portfolio and, therefore, will be borne indirectly by its
shareholders. To the extent that a Portfolio may invest in securities of other
investment companies, the Fund and the Adviser will ensure that there will be no
duplication of advisory fees. If necessary to accomplish this, the Adviser will
rebate its advisory fee to the Fund. (See the Statement of Additional
Information under "Investment Objectives and Policies -- Securities of Other
Investment Companies.") The income on securities of other investment companies
may be taxable to investors at the state or local level. (See "Taxes" below.)
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. Each Portfolio may
purchase securities on a "when-issued" basis and may purchase or sell securities
on a "forward commitment" basis. These transactions involve a commitment by a
Portfolio to purchase or sell securities at a stated price and yield with
settlement beyond the normal settlement date. Such transactions permit a
Portfolio to lock-in a price or yield on a security, regardless of future
changes in interest rates. When-issued and forward commitment transactions
involve a risk of loss if the value of the security to be purchased declines
prior to the settlement date, or if the value of the security to be sold
increases prior to the settlement date. Each Portfolio expects that these
transactions will not exceed 25% of the value of its total assets (at the time
of purchase) under normal market conditions. No Portfolio intends to engage in
such transactions for speculative purposes but only for the purpose of acquiring
portfolio securities.
OPTIONS. Each of the Equity and Bond Portfolios may purchase put and
call options listed on a national securities exchange and issued by the Options
Clearing Corporation in an amount not exceeding 10% of their respective net
assets. Such options may relate to particular securities or to various stock or
bond indices. Purchasing options is a specialized investment technique which
entails a substantial risk of a complete loss of the amounts paid as premiums to
the option writer. Such
[/R]
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transactions will be entered into only as a hedge against fluctuations in the
value of securities which a Portfolio holds or intends to purchase.
These Portfolios may also write covered call options. A covered call
option is an option to acquire a security that a Portfolio owns or has the right
to acquire during the option period. Such options will be listed on a national
securities exchange and issued by the Options Clearing Corporation.
The International Equity Portfolio may write covered call options, buy
put options, buy call options and write secured put options for hedging (or
cross-hedging) purposes or for the purpose of earning additional income. Such
options may relate to particular securities, foreign or domestic stock or bond
indices, financial instruments or foreign currencies; may or may not be listed
on a domestic or foreign securities exchange; and may or may not be issued by
the Options Clearing Corporation. The International Equity Portfolio will invest
and trade in unlisted over-the-counter options only with firms deemed
creditworthy by the Adviser or Sub-Adviser. However, unlisted options are not
subject to the protections afforded purchasers of listed options by the Options
Clearing Corporation, which performs the obligations of its members which fail
to perform them in connection with the purchase or sale of options. The
International Equity Portfolio will not purchase put and call options in an
amount that exceeds 10% of its net assets at the time of purchase.
The aggregate value of the securities subject to covered call options
written by a Portfolio will not exceed 25% of the value of its net assets. In
order to close out an option position, a Portfolio may enter into a "closing
purchase transaction" -- the purchase of a covered call option on the same
security with the same exercise price and expiration date as the option which
the Portfolio previously wrote. By writing a covered call option, a Portfolio
forgoes the opportunity to profit from an increase in the market price of the
underlying security above the exercise price except insofar as the premium
represents such a profit and it is not able to sell the underlying security
until the option expires, is exercised, or the Portfolio effects a closing
purchase transaction by purchasing an option of the same series. The use of
covered call options will not be a primary investment technique of any
Portfolio. (For additional information relating to option trading practices,
including particular risks, see the Statement of Additional Information and
Appendix B thereof.)
FOREIGN CURRENCY PUT OPTIONS. The International Equity Portfolio may
purchase foreign currency put options on U.S. exchanges or U.S. over-the-counter
markets. A put option gives the Portfolio, upon payment of a premium, the right
to sell a
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currency at the exercise price until the expiration of the option and
serves to insure against adverse currency price movements in the underlying
portfolio assets denominated in that currency.
UNLISTED CURRENCY OPTIONS. The International Equity Portfolio may
purchase unlisted currency options. A number of major investment firms trade
unlisted options which are more flexible than exchange listed options with
respect to strike price and maturity date. These unlisted options generally are
available on a wider range of currencies. Unlisted foreign currency options are
generally less liquid than listed options and involve the credit risk associated
with the individual issuer. They will be deemed to be illiquid for purposes of
the limitation on investments in illiquid securities.
WRITING FOREIGN CURRENCY CALL OPTIONS. A call option written by the
International Equity Portfolio gives the purchaser, upon payment of a premium,
the right to purchase from the International Equity Portfolio a currency at the
exercise price until the expiration of the option.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the International
Equity Portfolio may buy and sell securities denominated in currencies other
than the U.S. dollar, and receive interest, dividends and sale proceeds in
currencies other than the U.S. dollar, the Portfolio may from time to time enter
into foreign currency exchange transactions to convert to and from different
foreign currencies and to convert foreign currencies to and from the U.S.
dollar. The Portfolio may enter into currency exchange transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or use forward currency contracts to purchase or sell foreign
currencies.
A forward foreign currency contract is an obligation by the
International Equity Portfolio to purchase or sell a specific currency at a
future date at a price set at the time of the contract. In this respect, forward
currency contracts are similar to foreign currency futures contracts described
below; however, unlike futures contracts, which are traded on recognized
commodities exchanges, forward currency contracts are traded in the interbank
market conducted directly between currency traders (usually large commercial
banks) and their customers. Also, forward currency contracts usually involve
delivery of the currency involved instead of cash payment as in the case of
futures contracts.
The International Equity Portfolio may use forward foreign currency
exchange contracts in order to protect against uncertainty in the level of
future foreign exchange rates. The use of such forward contracts is limited to
hedging against movements in the value of foreign currencies relative to the
U.S.
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dollar in connection with specific portfolio transactions or with respect to
portfolio positions. The purpose of transaction hedging is to "lock in" the U.S.
dollar equivalent price of such specific securities. Position hedging is the
sale of foreign currency with respect to portfolio security positions
denominated or quoted in that currency. The Portfolio will not speculate in
foreign currency exchange transactions. Transaction and position hedging will
not be limited to an overall percentage of the Portfolio's assets but will be
employed as necessary to correspond to particular transactions or positions. The
Portfolio may not hedge its currency positions to an extent greater than the
aggregate market value (at the time of entering into the forward contract) of
the securities held in its portfolio denominated in, quoted in, or currently
convertible into that particular currency. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of the
Portfolio's portfolio securities or in foreign exchange rates, or prevent loss
if the prices of these securities decline, but forward foreign currency exchange
contracts do allow the Portfolio to establish a rate of exchange for a future
point in time.
FUTURES CONTRACTS AND RELATED OPTIONS. The Growth & Income Equity,
Emerging Growth, Government & Corporate Bond, U.S. Government Securities and
Balanced Portfolios may invest in futures contracts and options on futures
contracts to the extent permitted by the Commodity Futures Trading Commission
("CFTC") and the SEC. The International Equity Portfolio may invest in interest
rate futures contracts, options on futures contracts and other types of
financial futures contracts (such as foreign currency contracts), as well as any
index or foreign market futures which are available in recognized exchanges or
in other established financial markets to the extent permitted by the CFTC and
the SEC. Such transactions, including stock or bond index futures contracts, or
options thereon, act as a hedge to protect a Portfolio from fluctuations in the
value of its securities caused by anticipated changes in interest rate or market
conditions without necessarily buying or selling the securities. Hedging is a
specialized investment technique that entails skills different from other
investment management skills. The Adviser (or Sub-Adviser) may also consider
such transactions to be economically appropriate for the reduction of risk
inherent in the ongoing management of a Portfolio. A stock or bond index futures
contract is an agreement in which one party agrees to take or make delivery of
an amount of cash equal to a specified dollar amount times the difference
between the index value (which assigns relative values to the common stock or
bonds included in the index) at the close of the last trading day of the
contract and the price at which the agreement is originally made. No physical
delivery of the underlying stock or bond in the index is contemplated.
Similarly, it may be in the best interest of a Portfolio to purchase or sell
interest rate futures contracts, or
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options thereon, which provide for the future delivery of specified fixed-income
securities.
The purchase and sale of futures contracts or related options will not
be a primary investment technique of any Portfolio. None of the Portfolios will
purchase or sell futures contracts (or related options thereon) for hedging
purposes if, immediately after purchase, the aggregate initial margin deposits
and premiums paid by a Portfolio on its open futures and options positions
exceeds 5% of the liquidation value of the Portfolio, after taking into account
any unrealized profits and unrealized losses on any such futures or related
options contracts into which it has entered. (For a more detailed description of
futures contracts and related options, see the Statement of Additional
Information and Appendix B thereof.)
ILLIQUID SECURITIES. A Portfolio will not knowingly invest more than
15% (10% for each of the Money Market Portfolios) of the value of its net assets
in illiquid securities. Repurchase agreements that do not provide for settlement
within seven days, time deposits maturing in more than seven days, and
securities that are not registered under the Securities Act of 1933, as amended
(the "1933 Act") but that may be purchased by institutional buyers pursuant to
SEC Rule 144A are subject to the applicable limit (unless the Adviser or
Sub-Adviser, pursuant to guidelines established by the Board of Directors,
determines that a liquid market exists).
PORTFOLIO TURNOVER AND TRANSACTIONS. Although the Equity and Bond
Portfolios will not normally engage in short-term trading, each Portfolio
reserves the right to do so if the Adviser (or Sub-Adviser) believes that
selling a particular security is appropriate in light of the Portfolio's
investment objective. Investments may be sold for a variety of reasons, such as
a more favorable investment opportunity or other circumstances bearing on the
desirability of continuing to hold such investments. A high rate of portfolio
turnover involves correspondingly greater brokerage commission expenses and
other transaction costs, which must be borne directly by the Portfolio involved
and ultimately by its shareholders. High portfolio turnover may result in the
realization of substantial net capital gains. (See "Taxes" in this Prospectus
and the Statement of Additional Information.)
All orders for transactions in securities or options on behalf of the
Portfolios are placed by the Adviser (or SubAdviser) with broker-dealers that it
selects. To the extent permitted by the 1940 Act and guidelines adopted by the
Fund's Board of Directors, a Portfolio may utilize the Distributor or one or
more of its affiliates as a broker in connection with the purchase or sale of
securities when the Adviser believes the
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charge for the transaction does not exceed the usual and customary broker's
commission.
INVESTMENT LIMITATIONS
The investment limitations set forth below are fundamental policies and
may be changed only by a vote of a majority of the outstanding Shares of a
Portfolio. Other investment limitations that also cannot be changed without a
vote of shareholders are contained in the Statement of Additional Information
under "Investment Objectives and Policies."
THE MONEY MARKET PORTFOLIOS
A Portfolio may not:
1. Make loans, except that a Portfolio may purchase or hold
debt instruments in accordance with its investment objective and
policies and may enter into repurchase agreements with respect to
securities (together with any cash collateral) that are consistent with
the Portfolio's permitted investments and that equal at all times at
least 100% of the value of the repurchase price.
2. Borrow money or issue senior securities, except that a
Portfolio may borrow from banks, and the Money Market Portfolio may
enter into reverse repurchase agreements, for temporary purposes in
amounts up to 10% of the value of its total assets at the time of such
borrowing; or mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of a
Portfolio's total assets at the time of such borrowing. A Portfolio
will not purchase securities while its borrowings (including reverse
repurchase agreements) are outstanding.
3. With respect to the Treasury Money Market Portfolio,
purchase securities other than obligations of the U.S. Government, its
agencies and instrumentalities, some of which may be subject to
repurchase agreements, except that the Portfolio may purchase
securities of other investment companies that seek to maintain a
constant net asset value per Share and that are permitted themselves
only to invest in securities which may be acquired by the Portfolio.
4. With respect to the Money Market Portfolio, purchase any
securities which would cause more than 25% of the value of the
Portfolio's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
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Government, its agencies or instrumentalities, domestic bank
certificates of deposit, bankers' acceptances and repurchase agreements
secured by domestic bank instruments or obligations of the U.S.
Government, its agencies or instrumentalities; (b) wholly-owned finance
companies will be considered to be in the industries of their parents
if their activities are primarily related to financing the activities
of the parents; and (c) utilities will be divided according to their
services, for example, gas, gas transmission, electric and gas,
electric and telephone will each be considered a separate industry.
In accordance with current regulations of the SEC, the Money Market
Portfolio intends to limit investments in the securities of any single issuer
(other than securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities) to not more than 5% of the Portfolio's total assets at the
time of purchase, provided that the Portfolio may invest up to 25% of its total
assets in the securities of any one issuer for a period of up to three business
days. This intention is not, however, a fundamental policy of the Money Market
Portfolio. The Portfolio would have the ability to invest more than five percent
of its assets in any one issuer in accordance with its fundamental policy only
in the event that Rule 2a-7 of the 1940 Act is amended in the future.
THE EQUITY AND BOND PORTFOLIOS
A Portfolio may not:
1. Purchase securities of any one issuer (other than
obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities), if, immediately after and as a result of such
investments, more than 5% of the Portfolio's total assets would be
invested in the securities of such issuer, or more than 10% of the
issuer's outstanding voting securities would be owned by the Portfolio
or the Fund, except that up to 25% of the Portfolio's total assets may
be invested without regard to such limitations.
2. Purchase any securities which would cause 25% or more of
the Portfolio's total assets at the time of purchase to be invested in
the securities of one or more issuers conducting their principal
business activities in the same industry, provided, however, that (a)
there is no limitation with respect to obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities, and
repurchase agreements secured by obligations of the U.S. Government or
its agencies or instrumentalities; (b) wholly-owned finance companies
will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their
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parents; and (c) utilities will be divided according to their services
(for example, gas, gas transmission, electric and gas, electric, and
telephone will each be considered a separate industry).
3. Borrow money or issue senior securities, except that each
Portfolio may borrow from banks and enter into reverse repurchase
agreements for temporary defensive purposes in amounts not in excess of
10% of the Portfolio's total assets at the time of such borrowing; or
mortgage, pledge, or hypothecate any assets, except in connection with
any such borrowing and in amounts not in excess of the lesser of the
dollar amounts borrowed or 10% of the Portfolio's total assets at the
time of such borrowing; or purchase securities while its borrowings
exceed 5% of its total assets. A Portfolio's transactions in futures
and related options (including the margin posted by a Portfolio in
connection with such transactions), and securities held in escrow or
separate accounts in connection with a Portfolio's investment practices
described in this Prospectus or the Statement of Additional Information
are not subject to this limitation.
4. Make loans, except that each Portfolio may purchase or hold
debt instruments, lend portfolio securities, enter into repurchase
agreements and make other investments in accordance with its investment
objective and policies.
5. Purchase securities on margin, make short sales of
securities or maintain a short position, except that (a) this
investment limitation shall not apply to a Portfolio's transactions in
options, and futures contracts and related options, and (b) a Portfolio
may obtain short-term credits as may be necessary for the clearance of
purchases and sales of portfolio securities.
If a percentage limitation is satisfied at the time of
investment, a later increase or decrease in such percentage resulting solely
from a change in the value of a Portfolio's portfolio securities will not
constitute a violation of such limitation.
In order to permit the sale of a Portfolio's Shares in certain
states, the Portfolio may make commitments more restrictive than the investment
policies and limitations described above. Should the Adviser (or Sub-Adviser)
determine that any such commitment is no longer in the best interests of a
Portfolio, it will revoke the commitment by terminating sales of its Shares in
the state involved.
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PRICING OF SHARES
THE MONEY MARKET PORTFOLIOS
The Money Market Portfolios' respective net asset values per Share are
determined by the Administrator as of 12:00 noon (Eastern Time) and as of the
close of regular trading hours on the New York Stock Exchange (the "Exchange")
(currently 4:00 p.m. Eastern time) on each weekday, with the exception of those
holidays on which the Exchange or the Federal Reserve Bank of St. Louis are
closed (a "Business Day"). Currently one or both of these institutions are
closed on the customary national business holidays of New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day (observed),
Independence Day (observed), Labor Day, Columbus Day, Veterans' Day,
Thanksgiving Day and Christmas Day (observed).
Each Portfolio's assets are valued based upon the amortized cost
method. Although each Portfolio seeks to maintain its net asset value per Share
at $1.00, there can be no assurance that the net asset value per Share will not
vary. (See the Statement of Additional Information under "Net Asset Value" for
further information.)
THE EQUITY AND BOND PORTFOLIOS
The Equity and Bond Portfolios' respective net asset values per Share
are determined by the Administrator as of the close of regular trading hours on
the Exchange on each Business Day (currently 4:00 p.m. Eastern Time).
Securities which are traded on a recognized stock exchange are valued
at the last sale price on the securities exchange on which such securities are
primarily traded or at the last sale price on the national securities market.
Securities traded on only over-the-counter markets are valued on the basis of
market values when available. Securities for which there are no transactions are
valued at the average of the current bid and asked prices. Other securities,
including restricted and other securities for which market quotations are not
readily available, and other assets are valued at fair value by the Adviser (or
Sub-Adviser) under the supervision of the Board of Directors. Investments in
debt securities with remaining maturities of 60 days or less may be valued based
upon the amortized cost method. (For further information about valuation of
investments, see "Net Asset Value" in the Statement of Additional Information.)
OTHER INFORMATION
The public offering price for each class of Shares of a Portfolio is
based upon net asset value per Share plus, in the case of Investor A Shares of
each Portfolio except the Money
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Market Portfolios, a front-end sales charge. A class will calculate its net
asset value per Share by adding the value of a Portfolio's investments, cash and
other assets attributable to the class, subtracting the Portfolio's liabilities
attributable to that class, and then dividing the result by the total number of
shares in the class that are outstanding. Because the operating expenses of
Investor B Shares are higher than those associated with the other classes of
Shares, the net asset value per Share of Investor B Shares of a Portfolio which
declares its net investment income quarterly will generally be lower than the
net asset value per Share of Trust, Institutional or Investor A Shares of the
same Portfolio.
HOW TO PURCHASE AND REDEEM SHARES
PURCHASE OF SHARES
Institutional Shares are sold to financial institutions, such as banks,
trust companies, thrift institutions, mutual funds or other financial
institutions (collectively "financial institutions") acting on behalf of their
employee benefit, retirement plan or other such accounts for which they do not
have investment discretion. Institutional Shares are sold to qualified
purchasers without a sales charge imposed by the Fund or the Distributor.
Generally, investors purchase Institutional Shares through a financial
institution, which is responsible for transmitting purchase orders directly to
the Fund.
Purchases may be effected on Business Days when the Adviser,
Distributor and Mercantile (the Custodian) are open for business. The Fund
reserves the right to reject any purchase order, including purchases made with
foreign and third party drafts or checks.
Financial institutions placing orders directly or on behalf of their
clients should contact the Fund at 1-800-551-3731. Investors may also call the
Fund for information on how to purchase Shares.
All shareholders of record will receive confirmations of Share
purchases, exchanges and redemptions in the mail. An investor's Shares are held
in the name of a financial institution that has entered into a servicing
agreement with the Fund, and such financial institution is responsible for
transmitting purchase, exchange and redemption orders to the Fund on a timely
basis, recording all purchase, exchange and redemption transactions, and
providing regular account statements which confirm such transactions to
beneficial owners (or arranging for such services). Payment for orders which are
not received or accepted will be returned after prompt inquiry to the
transmitting financial institution.
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PURCHASE OF SHARES -- THE MONEY MARKET PORTFOLIOS
A purchase order received and accepted by the Fund by 12:00 noon
(Eastern time) on a Business Day is effected at the net asset value per Share
next determined after receipt of the order in good form if the Fund's Custodian
has received payment in federal funds by 4:00 p.m. (Eastern time) that day. If
such funds are not available for investment by 4:00 p.m. (Eastern time), the
order will be cancelled. Purchase orders received after 12:00 noon (Eastern
time) will be placed the following Business Day.
PURCHASE OF SHARES -- THE EQUITY AND BOND PORTFOLIOS
If purchase orders are received in good form and accepted by the Fund
prior to 4:00 p.m. (Eastern time) on any Business Day, Institutional Shares will
be priced according to the net asset value per Share next determined on that day
after receipt of the order. Immediately available funds must be received by the
Custodian prior to 4:00 p.m. on the next Business Day following receipt of such
order. If funds are not received by such date, the order will be cancelled, and
notice thereof will be given to the financial institution placing the order.
EXCHANGES
The exchange privilege enables shareholders to exchange Institutional
Shares of a Portfolio for Institutional Shares of another Portfolio offered by
the Fund. Exchanges for Institutional Shares in another Portfolio are effected
without payment of any exchange or sales charges. The exchange privilege may be
exercised only in those states where the class of Shares of such other
Portfolios may legally be sold.
The Fund reserves the right to reject any exchange request. The
exchange privilege may be modified or terminated at any time upon 60 days'
written notice to shareholders. An investor may telephone an exchange request by
calling his or her financial institution, which is responsible for transmitting
such request to the Distributor. (See "Other Exchange or Redemption Information"
below.) An investor should consult the financial institution or the Distributor
for further information regarding procedures for exchanging Shares.
REDEMPTION OF SHARES
Redemption orders should be placed with or through the same financial
institution that placed the original purchase order. Redemption orders are
effected at a Portfolio's net asset value per share next determined after
receipt of the order by the Fund. The financial institution is responsible for
transmitting redemption orders to the Fund on a timely basis. A charge for
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sending redemption payments electronically may be imposed by the Fund. The Fund
reserves the right to send redemption proceeds electronically within seven days
after receiving a redemption order if, in the judgment of the Adviser, an
earlier payment could adversely affect a Portfolio.
A written request for redemption must be received by the Fund in order
to honor the request. The Transfer Agent may require a signature guarantee by an
eligible guarantor institution. For purposes of this policy, the term "eligible
guarantor institution" shall include banks, brokers, dealers, credit unions,
securities exchanges and associations, clearing agencies and savings
associations as those terms are defined in Rule 17Ad-15 under the Securities
Exchange Act of 1934. The Transfer Agent reserves the right to reject any
signature guarantee if (1) it has reason to believe that the signature is not
genuine, (2) it has reason to believe that the transaction would otherwise be
improper, or (3) the guarantor institution is a broker or dealer that is neither
a member of a clearing corporation nor maintains net capital of at least
$100,000. The signature guarantee requirement will be waived if all of the
following conditions apply: (1) the redemption check is payable to the
shareholder(s) of record and (2) the redemption check is mailed to the
shareholder(s) at the address of record or the proceeds are either mailed or
sent electronically to a commercial bank account previously designated on the
account application. An investor with questions or needing assistance should
contact the financial institution servicing his or her account or the
Distributor. Additional documentation may be required if the redemption is
requested by a corporation, partnership, trust, fiduciary, executor or
administrator. If, due to temporary adverse conditions, investors are unable to
effect telephone transactions, investors are encouraged to follow the procedures
described in "Other Exchange or Redemption Information" below.
Neither the Fund nor its service providers will be liable for any loss,
damages, expense or cost arising out of any telephone redemption effected in
accordance with the Fund's telephone redemption procedures, upon instructions
reasonably believed to be genuine. The Fund will employ procedures designed to
provide reasonable assurance that instructions by telephone are genuine; if
these procedures are not followed, the Fund or its service providers may be
liable for any losses due to unauthorized or fraudulent instructions. If Share
certificates are outstanding with respect to an account, the telephone
redemption and exchange privilege is not available.
Proceeds from redemptions of Shares of the MONEY MARKET PORTFOLIOS with
respect to redemption orders received by the Fund before 12:00 noon (Eastern
time) on a Business Day normally are sent electronically the same day to the
financial institution that placed the redemption order in good form. Proceeds
for
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redemption orders that are received after 12:00 noon (Eastern time) or on a
non-Business Day normally are sent electronically to the financial institution
on the next Business Day.
Proceeds from redemptions of Shares of the EQUITY AND BOND PORTFOLIOS
with respect to redemption orders received by the Fund before 4:00 p.m. (Eastern
time) on a Business Day normally are sent electronically to the financial
institution that placed the redemption order the next Business Day after the
Distributor's receipt of the order.
OTHER EXCHANGE OR REDEMPTION INFORMATION
During periods of substantial economic or market change or activity,
telephone redemptions or exchanges may be difficult to complete. In such event,
Shares may be redeemed or exchanged by mailing the request directly to the
financial institution through which the original Shares were purchased or
directly to the Fund at P.O. Box 78069, St. Louis, Missouri 63178.
At various times, the Fund may be requested to redeem Shares for which
it has not yet received good payment. In such circumstances, the Fund may delay
the forwarding of proceeds only until payment has been collected for the
purchase of such Shares which may take up to 15 days or more. To avoid delay in
payment upon redemption shortly after purchasing Shares, investors should
purchase Shares by certified or bank check or by electronic transfer. The Fund
intends to pay cash for all Shares redeemed, but under abnormal conditions which
make payment in cash unwise, the Fund may make payment wholly or partly in
portfolio securities at their then market value equal to the redemption price.
In such cases, an investor may incur brokerage costs in converting such
securities to cash.
A shareholder may be required to redeem Shares in a Portfolio upon 60
days' written notice if the balance in the shareholder's account drops below
$500. The Fund will not require a shareholder to redeem Shares if the value of
the shareholder's account drops below $500 due to fluctuations in net asset
value.
YIELDS AND TOTAL RETURNS
Yield and total return quotations are computed separately for Trust
Shares, Institutional Shares, Investor A Shares and/or Investor B Shares of a
Portfolio. TOTAL RETURN AND YIELD FIGURES WILL FLUCTUATE, ARE BASED ON
HISTORICAL EARNINGS, AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The
methods used to compute each Portfolio's yields and total returns are described
below and in the Statement of Additional Information.
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THE MONEY MARKET PORTFOLIOS
From time to time, performance information such as total return,
"yield" and "effective yield" for the Money Market Portfolios' Institutional
Shares may be quoted in advertisements or in communications to shareholders. The
"yield" quoted in advertisements refers to the income generated by an investment
in such Shares of a Portfolio over a specified period (such as a seven-day
period) identified in connection with the particular yield quotation. This
income is then "annualized." That is, the amount of income generated by the
investment during that period is assumed to be generated for each such period
over a 365-day or one-year period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly but, when annualized,
the income earned by an investment in such Shares of a Portfolio is assumed to
be reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment.
In addition, the Treasury Money Market Portfolio's "state
tax-equivalent yield" may also be quoted. The "state taxequivalent yield" shows
the level of taxable yield needed to produce an after-tax yield that is
equivalent to a particular state's tax-exempt yield achieved by the Portfolio.
The "state tax-equivalent yield" refers to the portion of income that is derived
from interest income on direct obligations of the U.S. Government, its agencies
or instrumentalities that qualifies for exemption from state income tax. The
yield calculation assumes that 100% of the interest income is exempt from state
income tax. The "state tax-equivalent yield" is computed by dividing the
tax-exempt portion of the Portfolio's yield by a denominator consisting of one
minus a stated income tax rate.
THE EQUITY AND BOND PORTFOLIOS
From time to time, performance information such as total return and
yield data for the Equity and Bond Portfolios' Institutional Shares may be
quoted in advertisements or in communications to shareholders. The yield is
computed based on the net income of such Shares in the particular Portfolio
during a 30-day (or one-month) period identified in connection with the
particular yield quotation. More specifically, the yield is computed by dividing
the Portfolio's net income per Share during a 30-day (or one-month) period by
the net asset value per Share on the last day of the period and annualizing the
result.
The Portfolios' total returns may be calculated on an average annual
total return basis, and may also be calculated on an aggregate total return
basis, for various periods. Average annual total returns with respect to
Institutional Shares reflect the average annual percentage change in value of an
investment in such Shares of the particular Portfolio over the
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particular measuring period. Aggregate total returns reflect the cumulative
percentage change in value over the measuring period. Both methods of
calculating total returns assume that dividends and capital gain distributions
made by a Portfolio during the period are reinvested in the Portfolio's
Institutional Shares. When considering average annual total return figures for
periods longer than one year, it is important to note that a Portfolio's annual
total return for any one year in the period might have been more or less than
the average for the entire period.
INFORMATION APPLICABLE TO ALL PORTFOLIOS
Performance data of the Portfolios' Institutional Shares may be
compared to the performance of other mutual funds with comparable investment
objectives and policies through various mutual fund or market indices and data
such as that provided by Lehman Brothers, Inc. or any of its affiliates,
Ibbotson Associates, Inc., Lipper Analytical Services, Inc., Mutual Fund
Forecaster and IBC/Donoghue's MONEY FUND REPORT(R) published by IBC/Donoghue.
References may also be made to indices or data published in Money Magazine,
Forbes, Barron's, The Wall Street Journal, The New York Times, Business Week,
American Banker, Institutional Investor, Pensions and Investments, U.S.A. Today,
Fortune, CDA/Weisenberger, Morningstar, Inc. and publications of a local or
regional nature. In addition to performance information, general information
about the Portfolios that appears in a publication such as those mentioned above
may be included in advertisements and in reports to shareholders.
Performance quotations of a class of Shares in a Portfolio represent
that Portfolio's past performance and should not be considered as representative
of future results. Any account fees charged by Service Organizations (as
described under "Management of The Fund -- Service Organizations") or other
institutions will not be included in the calculations of a Portfolio's yields
and total returns. Such fees, if any, will reduce the investor's net return on
an investment in a Portfolio. Investors may call 1-800-452-4015 to obtain
current yield and total return information.
DIVIDENDS AND DISTRIBUTIONS
THE MONEY MARKET, TREASURY MONEY MARKET, GOVERNMENT & CORPORATE
BOND AND U.S. GOVERNMENT SECURITIES PORTFOLIOS
Dividends from net investment income of the Money Market, Treasury
Money Market, Government & Corporate Bond and U.S. Government Securities
Portfolios are declared daily and paid monthly not later than five Business Days
after the end of each month. Institutional Shares of the Money Market and
Treasury Money Market Portfolios earn dividends from the day the purchase
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order is received by the Transfer Agent through the day before the redemption
order for such Shares is received. Institutional Shares of the Government &
Corporate Bond and U.S. Government Securities Portfolios earn dividends from the
day after the purchase order is received by the Transfer Agent through the day
the redemption order for such Shares is received. Dividends on each Share of
such Portfolios are determined in the same manner and are paid in the same
amounts irrespective of class, except that a Portfolio's Trust Shares and
Institutional Shares bear all expenses of the respective Administrative Services
Plans adopted for such Shares and a Portfolio's Investor A Shares and Investor B
Shares (other than the Treasury Money Market Portfolio which does not offer
Investor B Shares) bear all expenses of the respective Distribution and Services
Plans adopted for such Shares. In addition, a Portfolio's Institutional Shares
bear the expense of certain sub-transfer agency fees. (See "Management of the
Fund" and "Other Information Concerning the Fund and Its Shares" below.)
THE GROWTH & INCOME EQUITY, EMERGING GROWTH, BALANCED AND
INTERNATIONAL EQUITY PORTFOLIOS
Net investment income for the Growth & Income Equity, Emerging Growth,
Balanced and International Equity Portfolios is declared and paid quarterly as a
dividend to shareholders of record. Dividends on each Share of each of these
Portfolios are determined in the same manner and paid in the same amount,
irrespective of class, except that a Portfolio's Trust Shares and Institutional
Shares bear all expenses of the respective Administrative Services Plans adopted
for such Shares and a Portfolio's Investor A Shares and Investor B Shares bear
all expenses of the respective Distribution and Service Plans adopted for such
Shares. In addition, a Portfolio's Institutional Shares bear the expense of
certain sub-transfer agency fees. (See "Management of the Fund" and "Other
Information Concerning the Fund and Its Shares" below.)
OTHER DIVIDEND AND DISTRIBUTION INFORMATION
The Money Market Portfolios do not expect to realize capital gains. Net
realized capital gains of a Portfolio, if any, are distributed at least
annually. All dividends and distributions paid on a Portfolio's Shares are
automatically reinvested in additional Shares of the same class unless the
investor has (i) otherwise indicated in the account application, or (ii)
redeemed all the Shares held in a Portfolio, in which case a distribution will
be paid in cash. Reinvested dividends and distributions will be taxed in the
same manner as those paid in cash.
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TAXES
FEDERAL TAXES
Each Portfolio of the Fund intends to qualify as a "regulated
investment company" for the current taxable year. It is intended that each
Portfolio will continue to so qualify as long as such qualification is in the
best interests of shareholders. A regulated investment company is generally
exempt from federal income tax on amounts distributed to shareholders.
Qualification as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code"), for a taxable year requires,
among other things, that each Portfolio distribute to its shareholders an amount
equal to at least the sum of 90% of its investment company taxable income and
90% of its net exempt-interest income (if any). In general, a Portfolio's
investment company taxable income will be its taxable income, including
dividends, interest and short-term capital gains (the excess of net short-term
capital gain over net long-term capital loss), subject to certain adjustments
and excluding the excess of any net long-term capital gain over net short-term
capital loss, if any, for such taxable year. Each Portfolio intends to
distribute as dividends substantially all of its investment company taxable
income and any net tax-exempt interest income each year. Such dividends will be
taxable as ordinary income to a Portfolio's shareholders who are not currently
exempt from federal income taxes, whether such income is received in cash or
reinvested in additional Shares. (Federal income taxes for distributions to an
IRA are deferred under the Code.) In the case of the Growth & Income Equity,
Emerging Growth, Balanced and International Equity Portfolios, such dividends
will qualify for the dividends received deduction for corporations to the extent
of the total qualifying dividends received by the Portfolios from domestic
corporations for the taxable year. Because all of the Money Market, Treasury
Money Market, Government & Corporate Bond, and U.S. Government Securities
Portfolios' net investment income is expected to be derived from earned
interest, it is not expected that any distributions from such Portfolios will be
eligible for the dividends received deduction.
Substantially all of each Portfolio's net realized long-term capital
gains, if any, will be distributed at least annually to its shareholders. A
Portfolio generally will have no tax liability with respect to such gains and
the distributions will be taxable to shareholders who are not currently exempt
from federal income taxes as long-term capital gains, regardless of how long the
shareholders have held the Shares and whether such gains are received in cash or
reinvested in additional Shares.
An investor considering purchasing Shares of a Money Market Portfolio
on or just before the record date of any capital gains
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distribution (or in the case of the Equity and Bond Portfolios, the record date
of any dividend or capital gains distribution) should be aware that the amount
of the forthcoming distribution, although in effect a return of capital, will be
taxable.
Dividends declared by a Portfolio in October, November, or December of
any year payable to shareholders of record on a specified date in such months
will be deemed to have been received by shareholders and paid by the Fund on
December 31 of such year, if such dividends are actually paid during January of
the following year.
Each Portfolio may be required in certain cases to withhold and remit
to the U.S. Treasury 31% of taxable dividends or gross sale proceeds paid to
shareholders who have failed to provide a correct tax identification number in
the manner required, who are subject to withholding by the Internal Revenue
Service for failure properly to include on their return payments of taxable
interest or dividends, or who have failed to certify to the Portfolio that they
are not subject to backup withholding when required to do so or that they are
"exempt recipients."
A taxable gain or loss may be realized by an investor upon redemption,
transfer or exchange of Shares of the Equity and Bond Portfolios, depending upon
the tax basis of such Shares and their price at the time of redemption, transfer
or exchange.
Certain interest income and dividends earned by the International
Equity Portfolio from foreign securities is expected to be subject to foreign
withholding taxes or other taxes. So long as more than 50% of the value of the
Portfolio's total assets at the close of any taxable year consists of stock or
securities of foreign corporations, the Portfolio may elect, for U.S. federal
income tax purposes, to treat certain foreign taxes paid by it, including
generally any withholding taxes and other foreign income taxes, as paid by its
shareholders. The Portfolio may make this election. As a consequence, the amount
of these foreign taxes paid by the Portfolio will be included in its
shareholders' taxable income pro rata (in addition to taxable distributions
actually received by them), and each shareholder may elect either (a) to credit
his proportionate amount of such taxes against his U.S. federal income tax
liabilities (subject to certain limitations), or (b) if he itemizes his
deductions, to deduct such proportionate amounts from his U.S. taxable income.
STATE AND LOCAL TAXES
Shareholders should note that dividends paid by a Portfolio may be
taxable to investors under state or local law as dividend income even though all
or a portion of such dividends may be
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derived from interest on obligations that, if realized directly, would be exempt
from such income taxes.
The Treasury Money Market Portfolio is structured to provide investors,
to the extent permissible by federal and state law, with income that is exempt
or excluded from taxation at the state and local level. Shareholders should note
that many, but not all, states permit all or a portion of a regulated investment
company's dividends which are derived from interest on U.S. Treasury obligations
(and obligations of certain U.S. Government agencies)("Treasury Obligations") to
be exempt or excluded from state and local taxation. In addition, only certain
states allow dividends of a regulated investment company that are derived from
dividends of other regulated investment companies investing directly in Treasury
Obligations to be exempt or excluded from state and local taxation. Some states
reduce a shareholder's allowable deductions by interest on debt incurred to
carry obligations producing state tax-exempt interest and by other expenses
related to such obligations. Income earned by the Portfolio from repurchase
agreements generally is not exempt from state or local income tax. Shareholders
should consult their own tax advisors about the status of distributions from the
Treasury Money Market Portfolio under state and local law.
MISCELLANEOUS
The foregoing summarizes some of the important federal and state tax
considerations generally affecting the Portfolios and their shareholders and is
not intended as a substitute for careful tax planning. Accordingly, potential
investors in the Portfolios should consult their tax advisers with specific
reference to their own tax situation. Shareholders will be advised at least
annually as to the federal and, for the Treasury Money Market Portfolio, the
state income tax consequences of distributions made each year.
MANAGEMENT OF THE FUND
The Fund is managed under the direction of its Board of Directors. The
Statement of Additional Information contains the names of and general background
information concerning each director.
INVESTMENT ADVISER AND SUB-ADVISER
Mississippi Valley Advisors Inc. ("MVA") serves as the investment adviser to
each Portfolio. MVA's principal office is located at One Mercantile Center,
Seventh & Washington Streets, St. Louis, Missouri 63101. MVA is a wholly-owned
subsidiary of Mercantile. As of December 31, 1995, MVA had approximately $7
billion in assets under investment management, including the
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Fund's assets, which were approximately $2.1 billion. MVA also serves as
investment adviser for the Fund's Short-Intermediate Municipal, Tax-Exempt Money
Market, Missouri Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios.
Subject to the general supervision of the Fund's Board of Directors and
in accordance with the Fund's investment policies, MVA manages the Portfolios,
makes investment decisions with respect to and places orders for all purchases
and sales of the Portfolios' securities and other investments, and directs the
maintenance of each Portfolio's records relating to such purchases and sales.
For the services provided and expenses assumed pursuant to the
investment advisory agreement, MVA is entitled to receive fees, computed daily
and payable monthly, with respect to the Money Market and Treasury Money Market
Portfolios, at the annual rates of .40% of the first $1.5 billion of each such
Portfolio's average daily net assets, .35% of the next $1.0 billion of net
assets and .25% of net assets in excess of $2.5 billion, and with respect to the
Growth & Income Equity, Emerging Growth, Government & Corporate Bond, U.S.
Government Securities, Balanced and International Equity Portfolios, at the
annual rates of .55%, .75%, .45%, .45%, .75% and 1.00% of the average daily net
assets of each Portfolio, respectively. For the fiscal year ended November 30,
1995, MVA received advisory fees (net of waivers) at the effective annual rates
of .35%, .35%, .55%, .75%, .45%, .45%, .75% and .75% of the respective average
daily net assets of the Money Market, Treasury Money Market, Growth & Income
Equity, Emerging Growth, Government & Corporate Bond, U.S. Government
Securities, Balanced and International Equity Portfolios.
MVA may from time to time voluntarily reduce all or a portion of its
advisory fee to increase the net income of one or more Portfolios available for
distributions as dividends. The voluntary fee reduction will cause the return of
any such Portfolio to be higher than it would otherwise be in the absence of
such reduction.
Gene E. Gillespie, CFA, is the person primarily responsible for the
day-to-day management of the Growth & Income Equity and Balanced Portfolios. Mr.
Gillespie, Director of Research, has been with MVA for 23 years.
Robert J. Anthony is the person primarily responsible for the
day-to-day management of the Emerging Growth Portfolio. Mr. Anthony, Senior
Associate, has been with MVA for 21 years.
David A. Bethke, CFA, is the person primarily responsible for the
day-to-day management of the U.S. Government Securities and Government &
Corporate Bond Portfolios. Mr. Bethke, Senior
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Associate, joined MVA in 1987 and has six years of prior investment experience.
MVA has entered into a sub-investment advisory agreement with Clay
Finlay, Inc. Pursuant to the terms of such subinvestment advisory agreement,
Clay Finlay has been retained by MVA to manage the investment and reinvestment
of the assets of the International Equity Portfolio and to provide analytical
and investment research services to it, subject to the supervision of MVA and to
the direction and control of the Fund's Board of Directors.
Under this arrangement, Clay Finlay is responsible for the day-to-day
management of the International Equity Portfolio's assets. MVA reviews
investment performance policies and guidelines, maintains certain books and
records, is responsible for selecting and monitoring the performance of Clay
Finlay, and for reporting the activities of Clay Finlay in managing the
Portfolio to the Fund's Board of Directors.
Clay Finlay is registered as an investment adviser with the SEC and is
entirely owned by its investment professionals. Clay Finlay's principal office
is located at 200 Park Avenue, 56th Floor, New York, New York 10166. As of
December 31, 1995, Clay Finlay had approximately $6.0 billion in assets under
management. Clay Finlay, founded in 1982, has eight senior investment
professionals with extensive experience in international investments. Each of
the eight senior investment professionals has been with the firm since its
inception.
Frances Dakers is the person primarily responsible for the day-to-day
management of the International Equity Portfolio's investments. Ms. Dakers, a
Principal of Clay Finlay, has been associated with Clay Finlay since January,
1982.
For the services provided and expenses assumed pursuant to its
sub-investment advisory agreement with MVA, Clay Finlay receives from MVA a fee,
computed daily and payable monthly, at the annual rate of .75% of the
International Equity Portfolio's average daily net assets. For the fiscal year
ended November 30, 1995, Clay Finlay received sub-advisory fees at an effective
annual rate of .75% of the International Equity Portfolio's average daily net
assets. Clay Finlay bears all expenses incurred by it in connection with its
services under the subinvestment advisory agreement.
ADMINISTRATOR
BISYS Fund Services Ohio, Inc. located at 3435 Stelzer Road, Columbus,
Ohio 43219, acts as the Portfolios' Administrator. The Administrator also acts
as administrator for the Fund's ShortIntermediate Municipal, Tax-Exempt Money
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Market, Missouri TaxExempt Bond and Kansas Tax-Exempt Bond Portfolios.
The Administrator generally assists in all aspects of each Portfolio's
administration and operation and also monitors and performs other services
pertaining to the Fund's arrangements under the Administrative Services Plan
described below. For its services, the Administrator is entitled to receive a
fee, computed daily and payable monthly, at the annual rate of .20% of each
Portfolio's average daily net assets. For the fiscal year ended November 30,
1995, the Administrator received administration fees (net of waivers) at the
effective rates of 0.10% of the average daily net assets of the Money Market,
Treasury Money Market, Growth & Income Equity, Emerging Growth, Government &
Corporate Bond, U.S. Government Securities and Balanced Portfolios and at the
effective rate of 0.15% of the average daily net assets of the International
Equity Portfolio. From time to time, the Administrator may voluntarily waive all
or a portion of the administration fees otherwise payable by a Portfolio in
order to increase the net income available for distribution to shareholders.
DISTRIBUTOR
Institutional Shares in each Portfolio are sold continuously by the
Distributor, BISYS Fund Services, an affiliate of the Administrator. BISYS is a
registered broker-dealer with principal offices at 3435 Stelzer Road, Columbus,
Ohio 43219. The Distributor also acts as distributor of the Fund's
Short-Intermediate Municipal, Tax-Exempt Money Market, Missouri Tax-Exempt Bond
and Kansas Tax-Exempt Bond Portfolios.
ADMINISTRATIVE SERVICES PLAN
The Fund has adopted an Administrative Services Plan with respect to
Institutional Shares of the Portfolios. Pursuant to the Administrative Services
Plan, Institutional Shares are sold to banks and other financial institutions
(which may include Mercantile or its affiliated or correspondent banks) on
behalf of their qualified accounts (such financial institutions collectively,
the "Service Organizations"), which agree to provide certain shareholder
administrative services for their clients or account holders (collectively, the
"customers") who are the beneficial owners of such Shares. The holders of
Institutional Shares bear separately their pro rata portion of the fees which
may be paid to Service Organizations for such services at an annual rate of up
to .25%, for the Money Market Portfolios, and up to .30%, for the Equity and
Bond Portfolios, of the average daily net assets of a Portfolio's Institutional
Shares owned beneficially by a Service Organization's customers.
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SERVICE ORGANIZATIONS
The servicing agreements adopted under the Administrative Services Plan
(the "Servicing Agreements") require the Service Organizations receiving such
compensation (which may include Mercantile and its affiliates) to perform
certain services, including providing administrative services with respect to
the beneficial owners of Institutional Shares of a Portfolio, such as
establishing and maintaining accounts and records for their customers who invest
in such Shares and assisting customers in processing purchase, exchange and
redemption requests, and responding to customer inquiries concerning their
investments.
Under the Servicing Agreements and upon notice to the Fund, a Service
Organization may subcontract with one or more entities for the performance of
certain services provided under its Servicing Agreements with the Fund. Such
Service Organization shall be fully responsible to the Fund for the acts or
omissions of any sub-contractor as it would be for its own acts or omissions.
The fees payable to any sub-contractor are paid by the Service Organization out
of the fees it receives from the Fund.
The Fund understands that Service Organizations providing such
administrative services may also charge fees to their customers beneficially
owning such Shares. These fees would be in addition to any amounts which may be
received by such a Service Organization under its Servicing Agreement with the
Fund. The Fund's Servicing Agreements require a Service Organization to disclose
to its customers any compensation payable to the Service Organization by a
Portfolio and any other compensation payable by its customers in connection with
their investment in such Shares. Customers of such Service Organizations
receiving servicing fees should read this Prospectus in light of the terms
governing their accounts with their Service Organization.
CUSTODIAN, SUB-CUSTODIAN, TRANSFER AGENT AND SUB-TRANSFER AGENT
Mercantile Bank of St. Louis National Association, an affiliate of the
Fund and a wholly-owned subsidiary of Mercantile Bancorporation, Inc., with
principal offices located at One Mercantile Center, 8th and Locust Streets, St.
Louis, Missouri 63101, serves as Custodian of each Portfolio's assets. In
addition, Bankers Trust Company of New York, with principal offices located at
16 Wall Street, New York, New York 10005, serves as Sub-Custodian for the
International Equity Portfolio. BISYS Fund Services Ohio, Inc. also serves as
the Fund's transfer agent and dividend disbursing agent. Its address is 3435
Stelzer Road, Columbus, Ohio 43219.
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Pursuant to an agreement with BISYS Fund Services Ohio, Inc. and in
connection with the Institutional Shares offered to its customers, a financial
institution (which may include Mercantile or its affiliated or correspondent
banks) serves as sub-transfer agent with respect to the underlying beneficial
owners of Institutional Shares. For the account maintenance services provided, a
sub-transfer agent is entitled to receive an annual fee of $30 with respect to
each beneficial owner's holdings in Institutional Shares (irrespective of the
number of Portfolios in which such Institutional Shares are held).
REGULATORY MATTERS
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any affiliate
thereof from sponsoring, organizing, or controlling 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 such as Shares of the Portfolios. Such banking laws and
regulations do not prohibit such a holding company or affiliate, or banks, from
acting as investment adviser, transfer agent or custodian to such an investment
company, or from purchasing Shares of such a company as agent for and upon the
order of customers. Mercantile, MVA, Service Organizations that are banks or
bank affiliates, and broker-dealers that are bank affiliates are subject to such
laws and regulations, but believe they may perform the services for the
Portfolios contemplated by their respective agreements, this Prospectus and the
Statement of Additional Information without violating applicable banking laws
and regulations.
Should future legislative, judicial or administrative action prohibit
or restrict the activities of such companies in connection with the provision of
services on behalf of the Portfolios and the shareholders, the Fund might be
required to alter materially or discontinue its arrangements with such companies
and change its method of operation. It is not expected that investors would
suffer any adverse financial consequences as a result of any of these
occurrences.
If current restrictions preventing a bank from legally sponsoring,
organizing, controlling or distributing Shares of an investment company were
relaxed, Mercantile, or an affiliate of Mercantile, would consider the
possibility of offering to perform additional services for the Portfolios. It is
not possible, of course, to predict whether or in what form such legislation
might be enacted or the terms upon which Mercantile, or such an affiliate, might
offer to provide such services.
Conflict of interest restrictions may apply to the receipt of
compensation paid pursuant to a Servicing Agreement by the
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Portfolios to a financial intermediary in connection with the investment of
fiduciary funds in a Portfolio's Shares. Institutions, including banks regulated
by the Comptroller of the Currency and investment advisers and other money
managers subject to the jurisdiction of the SEC, the Department of Labor or
state securities commissions, should consult legal counsel before entering into
Servicing Agreements.
EXPENSES
Except as noted above and in the Statement of Additional Information
under "Investment Advisory and Administrative Contracts" and "Custodian and
Transfer Agent," the Fund's service contractors bear all expenses in connection
with the performance of their services, except that the Distributor is
compensated pursuant to the Distribution and Services Plans (as described below
under "Other Information Concerning The Fund and Its Shares"). Expenses are
deducted from the total income of each Portfolio before dividends and
distributions are paid. These expenses include, but are not limited to, fees
paid to the Adviser and Administrator, transfer agency fees, fees and expenses
of officers and directors who are not affiliated with the Adviser or the
Distributor, taxes, interest, legal fees, custodian fees, auditing fees, 12b-1
fees, servicing fees, certain fees and expenses in registering and qualifying a
Portfolio and its Shares for distribution under federal and state securities
laws, costs of preparing and printing prospectuses and statements of additional
information for regulatory purposes and for distribution to existing
shareholders, the expense of reports to shareholders, shareholders' meetings and
proxy solicitations, fidelity bond and directors and officers liability
insurance premiums, the expense of using independent pricing services and other
expenses which are not expressly assumed by the Adviser, Distributor or
Administrator under their respective agreements with the Fund. The Fund also
pays for brokerage fees, commissions and other transaction charges, if any, in
connection with the purchase and sale of portfolio securities. Any general
expenses of the Fund that are not readily identifiable as belonging to a
particular Portfolio will be allocated among all Portfolios by or under the
direction of the Board of Directors in a manner the Board determines to be fair
and equitable. Any expenses relating only to a particular class of Shares within
a Portfolio will be borne solely by such class. (See "Certain Financial
Information" and "Management of the Fund" above for additional information
regarding expenses of each Portfolio.)
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OTHER INFORMATION CONCERNING
THE FUND AND ITS SHARES
DESCRIPTION OF SHARES
The Fund was organized as a Maryland corporation on September 9, 1982
and is a mutual fund of the type known as an "open-end management investment
company". The Fund's principal office is located at 3435 Stelzer Road, Columbus,
Ohio 43219.
The Fund's Charter authorizes the Board of Directors to issue up to
seven billion full and fractional Shares of common stock, and to classify and
reclassify any unauthorized and unissued Shares into one or more classes of
Shares. The Board of Directors may similarly classify or reclassify any class of
shares into one or more series.
Pursuant to such authority, the Board of Directors has authorized the
issuance of the following series of Shares representing interests in the
Portfolios, each of which is classified as a diversified company under the 1940
Act: 1.8 billion Trust Shares, 300 million Institutional Shares, 550 million
Investor A Shares and 50 million Investor B Shares, representing interests in
the Money Market Portfolio; 1 billion Trust Shares, 300 million Institutional
Shares and 100 million Investor A Shares representing interests in the Treasury
Money Market Portfolio; 50 million Trust Shares, 20 million Institutional
Shares, 5 million Investor A Shares and 50 million Investor B Shares,
representing interests in the Growth & Income Equity Portfolio; 50 million Trust
Shares, 20 million Institutional Shares, 5 million Investor A Shares and 50
million Investor B Shares, representing interests in the Government & Corporate
Bond Portfolio; 15 million Trust Shares, 20 million Institutional Shares, 5
million Investor A Shares and 50 million Investor B Shares, representing
interests in the U.S. Government Securities Portfolio; 15 million Trust Shares,
20 million Institutional Shares, 5 million Investor A Shares and 50 million
Investor B Shares and 50 million Investor B Shares, representing interests in
the Emerging Growth Portfolio; 15 million Trust Shares, 20 million Institutional
Shares, 5 million Investor A Shares and 50 million Investor B Shares,
representing interests in the Balanced Portfolio; and 10 million Trust Shares,
10 million Institutional Shares, 10 million Investor A Shares and 50 million
Investor B Shares, representing interests in the International Equity Portfolio.
Trust, Investor A and/or Investor B Shares of the Portfolios are described in
separate prospectuses which are available from the Distributor at the telephone
number on the cover of this Prospectus. Shares in the Fund's Portfolios will be
issued without Share certificates.
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The Institutional Shares of the Portfolios are described in this
Prospectus. The Portfolios also offer Trust Shares and Investor A Shares and, in
addition, the Money Market Portfolio and Equity and Bond Portfolios offer
Investor B Shares. Trust Shares, which are offered to financial institutions
acting on their own behalf or on behalf of certain qualified accounts, are sold
without a sales charge. Investor A Shares (other than Investor A Shares of the
Money Market Portfolios which are sold without a sales charge) are sold with a
maximum 4.5% (2.5% with respect to the Short-Intermediate Municipal Portfolio)
front-end sales charge, and Investor B Shares are sold with a maximum 5.0%
contingent deferred sales charge. Investor A Shares and Investor B Shares are
sold through selected broker/dealers and other financial intermediaries to
individual or institutional customers. Trust Shares, Institutional Shares,
Investor A Shares and Investor B Shares bear their pro rata portion of all
operating expenses paid by a Portfolio, except that Trust Shares and
Institutional Shares bear all payments under the Portfolio's respective
Administrative Services Plans adopted for such Shares and Investor A Shares and
Investor B Shares bear all payments under the Portfolio's respective
Distribution and Services Plans adopted for such Shares. In addition,
Institutional Shares of a Portfolio bear the expense of certain sub-transfer
agency fees.
Payments under the Administrative Services Plans for Trust Shares are
made to Service Organizations for administrative services provided to the
Service Organizations' clients or account holders who are the beneficial owners
of Trust Shares. Payments under the Administrative Services Plans may not exceed
.25% (on an annual basis) of the average daily net asset value of outstanding
Trust Shares of the Money Market Portfolios or .30% (on an annual basis) of the
average daily net asset value of outstanding Trust Shares of the Equity and Bond
Portfolios.
Payments under the Distribution and Services Plans for Investor A
Shares and Investor B Shares are made to (i) the Distributor or another person
for providing distribution assistance and assuming certain related expenses, and
(ii) Service Organizations for administrative services provided to the Service
Organizations' clients or account holders who are the beneficial owners of
Investor A Shares or Investor B Shares. Payments under the Distribution and
Services Plan for Investor A Shares may not exceed .25% (on an annual basis) of
the average daily net asset value of outstanding Investor A Shares of the Money
Market Portfolios or .30% (on an annual basis) of the average daily net asset
value of Investor A Shares of the Equity and Bond Portfolios. Payments under the
Distribution and Services Plan for Investor B Shares may not exceed 1.00% (on an
annual basis) of the average daily net asset value of outstanding Investor B
Shares of a Portfolio. Distribution payments made
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<PAGE> 262
under the Distribution and Services Plans are subject to the requirements of
Rule 12b-1 under the 1940 Act.
The Fund offers various services and privileges in connection with
Investor A Shares and Investor B Shares of a Portfolio that are not offered in
connection with the Portfolio's Trust or Institutional Shares, including an
automatic investment program and an automatic withdrawal plan. In addition, each
class of Shares offer different exchange privileges. Investor B Shares convert
automatically into Investor A Shares eight years after the beginning of the
calendar month in which the Shares were purchased.
Shareholders are entitled to one vote for each full Share held and
proportionate fractional votes for fractional Shares held. Shares of all
Portfolios will vote together and not by class unless otherwise required by law
or permitted by the Board of Directors. All shareholders of a particular
Portfolio will vote together as a single class on matters relating to the
Portfolio's investment advisory (or sub-advisory) agreement and investment
objective and fundamental policies. Only holders of Trust Shares, however, will
vote on matters relating to the Administrative Services Plan for Trust Shares
and only holders of Institutional Shares will vote on matters pertaining to the
Administrative Services Plan for Institutional Shares. Similarly, only holders
of Investor A Shares will vote on matters pertaining to the Distribution and
Services Plan for Investor A Shares and only holders of Investor B Shares will
vote on matters pertaining to the Distribution and Services Plan for Investor B
Shares.
Shares of the Portfolios have noncumulative voting rights and,
accordingly, the holders of more than 50% of the Fund's outstanding Shares
(irrespective of Portfolio or class) may elect all of the Directors. Shares have
no preemptive rights and only such conversion and exchange rights as the Board
may grant in its discretion. When issued for payment as described in this
Prospectus, Shares will be fully paid and nonassessable.
MISCELLANEOUS
As used in this Prospectus, a "vote of a majority of the outstanding
Shares" of a Portfolio means, with respect to the approval of an investment
advisory agreement or a change in an investment objective or fundamental
investment policy, the affirmative vote of the lesser of (a) more than 50% of
the outstanding Shares of such Portfolio (irrespective of class), or (b) 67% or
more of the Shares of such Portfolio (irrespective of class) present at a
meeting if more than 50% of the outstanding Shares of such Portfolio are
represented at the meeting in person or by proxy.
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<PAGE> 263
As of January 1, 1996, Mercantile and its affiliates possessed, of
record on behalf of their underlying customer accounts, voting or investment
power with respect to more than 25% of the Fund's outstanding Shares; and
Mercantile may be deemed to be a controlling person of the Fund within the
meaning of the 1940 Act.
Inquiries regarding the Portfolios may be directed to the Fund at
1-800-551-3731.
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<PAGE> 264
NO PERSON HAS BEEN AUTHORIZED THE ARCH
TO GIVE ANY INFORMATION OR TO MAKE FUND(R), INC.
ANY REPRESENTATIONS NOT CONTAINED
IN THIS PROSPECTUS, OR IN THE MONEY MARKET
PORTFOLIOS' STATEMENT OF ADDITIONAL PORTFOLIO
INFORMATION INCORPORATED HEREIN BY
REFERENCE, IN CONNECTION WITH THE TREASURY MONEY
OFFERING MADE BY THIS PROSPECTUS AND, MARKET PORTFOLIO
IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED GROWTH &
UPON AS HAVING BEEN AUTHORIZED BY THE INCOME EQUITY
PORTFOLIOS, THE FUND, OR THE PORTFOLIO
DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFERING BY THE EMERGING GROWTH
PORTFOLIOS, THE FUND OR THE DISTRIBUTOR PORTFOLIO
IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE. GOVERNMENT &
CORPORATE BOND
PORTFOLIO
U.S. GOVERNMENT
SECURITIES
PORTFOLIO
BALANCED
PORTFOLIO
INTERNATIONAL
EQUITY
PORTFOLIO
INSTITUTIONAL
TABLE OF CONTENTS SHARES
PAGE
----
Highlights..........................
Certain Financial Information.......
Financial Highlights................
Expense Summary for
Institutional Shares..............
Investment Objectives,
Policies and Risk Considerations..
Pricing of Shares................... [OLD LOGO]
The Money Market
Portfolios
The Equity and Bond
Income Portfolios
How to Purchase and Redeem Shares...
Purchase of Shares ........
Purchase of Shares - The
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<PAGE> 265
Money Market Portfolios...
Purchase of Shares - The
Equity and Bond Portfolios
Exchanges...................
Redemption of Shares........
Other Exchange or
Redemption Information....
Yields and Total Returns............. PROSPECTUS
Dividends and Distributions.......... MARCH 28, 1996
Taxes................................
Management of the Fund ..............
Other Information Concerning
the Fund and its Shares............
Miscellaneous...............
Investment Adviser:
Mississippi Valley Advisors Inc.
a wholly-owned subsidiary of
Mercantile Bank of
St. Louis National Association
Distributor: BISYS Fund Services
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<PAGE> 266
CROSS REFERENCE SHEET
---------------------
The ARCH Money Market Portfolio
The ARCH Treasury Money Market Portfolio
The ARCH Tax-Exempt Money Market Portfolio
The ARCH Growth & Income Equity Portfolio
The ARCH Emerging Growth Portfolio
The ARCH Government & Corporate Bond Portfolio
The ARCH U.S. Government Securities Portfolio
The ARCH Balanced Portfolio
The ARCH International Equity Portfolio
The ARCH Short-Intermediate Municipal Portfolio
The ARCH Missouri Tax-Exempt Bond Portfolio
The ARCH Kansas Tax-Exempt Bond Portfolio
<TABLE>
<CAPTION>
HEADING IN STATEMENT OF
ITEM NO. IN PART B ADDITIONAL INFORMATION
- ------------------ -----------------------
<S> <C>
10. Cover Page . . . . . . . . . . . . . . . . . . . . . . . . . . Cover Page
11. Table of Contents . . . . . . . . . . . . . . . . . . . . . . . Table of Contents
12. General Information and History . . . . . . . . . . . . . . . . The Fund
13. Investment Objectives and Policies . . . . . . . . . . . . . . Investment
Objectives and Policies
14. Management of the Fund . . . . . . . . . . . . . . . . . . . . Management of the Fund
15. Control Persons and Principal . . . . . . . . . . . . . . . . . Miscellaneous
Holders of Securities
16. Investment Advisory and Other . . . . . . . . . . . . . . . . . Management of the Fund;
Services Independent Auditors; Counsel
17. Brokerage Allocation and Other . . . . . . . . . . . . . . . . Investment Objectives
Practices and Policies
18. Capital Stock and Other . . . . . . . . . . . . . . . . . . . Description of Shares
Securities
19. Purchase, Redemption and Pricing . . . . . . . . . . . . . . . Net Asset Value;
of Securities Being Offered Additional Purchase and
Redemption Information
20. Tax Status . . . . . . . . . . . . . . . . . . . . . . . . . . Additional Information
Concerning Taxes
21. Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . Management of the Fund
22. Calculation of Performance Data . . . . . . . . . . . . . . . . Additional Yield and
Total Return
Information; Net Asset
Value
23. Financial Statements . . . . . . . . . . . . . . . . . . . . . Financial Statements
</TABLE>
<PAGE> 267
THE ARCH FUND(R), INC.
THE ARCH MONEY MARKET PORTFOLIO
THE ARCH TREASURY MONEY MARKET PORTFOLIO
THE ARCH TAX-EXEMPT MONEY MARKET PORTFOLIO
THE ARCH GROWTH & INCOME EQUITY PORTFOLIO
THE ARCH EMERGING GROWTH PORTFOLIO
THE ARCH GOVERNMENT & CORPORATE BOND PORTFOLIO
THE ARCH U.S. GOVERNMENT SECURITIES PORTFOLIO
THE ARCH BALANCED PORTFOLIO
THE ARCH INTERNATIONAL EQUITY PORTFOLIO
THE ARCH SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
THE ARCH MISSOURI TAX-EXEMPT BOND PORTFOLIO
THE ARCH KANSAS TAX-EXEMPT BOND PORTFOLIO
Statement of Additional Information
Part B
March 28, 1996
<PAGE> 268
THE ARCH FUND, INC.
Statement of Additional Information
for
The ARCH Money Market Portfolio
The ARCH Treasury Money Market Portfolio
The ARCH Tax-Exempt Money Market Portfolio
The ARCH Growth & Income Equity Portfolio
The ARCH Emerging Growth Portfolio
The ARCH Government & Corporate Bond Portfolio
The ARCH U.S. Government Securities Portfolio
The ARCH Balanced Portfolio
The ARCH International Equity Portfolio
The ARCH Short-Intermediate Municipal Portfolio
The ARCH Missouri Tax-Exempt Bond Portfolio
The ARCH Kansas Tax-Exempt Bond Portfolio
March 28, 1996
TABLE OF CONTENTS
Page
----
Investment Objectives and Policies . . . . . . . . . . . . . . . . .
Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional Purchase and Redemption Information . . . . . . . . . . .
Additional Yield and Total Return Information . . . . . . . . . . . .
Description of Shares . . . . . . . . . . . . . . . . . . . . . . . .
Additional Information Concerning Taxes . . . . . . . . . . . . . . .
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . .
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . .
Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . .
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Appendix B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
This Statement of Additional Information, which provides supplemental
information applicable to the Money Market, Treasury Money Market, Tax-Exempt
Money Market, Growth & Income Equity, Emerging Growth, Government & Corporate
Bond, U.S. Government Securities, Balanced, International Equity,
Short-Intermediate Municipal, Missouri Tax-Exempt Bond and Kansas Tax-Exempt
Bond Portfolios (the "Portfolios"), is not a prospectus. It should be read only
in conjunction with the Portfolios' Prospectuses dated March 28, 1996 and is
incorporated by reference in its entirety into the Prospectuses. No investment
in shares of any Portfolio should be made without reading the applicable
Prospectus. A copy of the applicable Prospectus may be obtained by writing the
Fund at P.O. Box 78069, St. Louis Missouri 63178 or by calling 1-800-551-3731.
Capitalized terms used but not defined herein have the same meanings as in each
Prospectus.
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<PAGE> 269
THE FUND
The ARCH Fund, Inc. (the "Fund") is an open-end investment company
currently offering forty-one classes of shares in twelve investment portfolios.
The Fund was organized on September 9, 1982 as a Maryland corporation.
The ARCH Tax-Exempt Money Market Portfolio (the "Predecessor Tax-Exempt Money
Market Portfolio") and the ARCH Missouri Tax Exempt Bond Portfolio (the
"Predecessor Missouri Tax-Exempt Bond Portfolio") commenced operations on July
10, 1986 and July 15, 1988, respectively, as separate investment portfolios of
The ARCH Tax-Exempt Trust, which was organized as a Massachusetts business
trust. On October 2, 1995, the Predecessor Tax-Exempt Money Market Portfolio and
the Predecessor Missouri Tax-Exempt Bond Portfolio were reorganized as new
portfolios of the Fund. Prior to the reorganization, these Predecessor
Portfolios offered and sold shares of beneficial interest that were similar to
the Fund's Trust Shares, Investor A Shares and Investor B Shares. As of the date
of this Statement of Additional Information, the Kansas Tax-Exempt Bond
Portfolio had not commenced operations.
INVESTMENT OBJECTIVES AND POLICIES
The following policies supplement the description of the investment
objectives and policies of the Money Market, Treasury Money Market and
Tax-Exempt Money Market Portfolios (the "Money Market Portfolios") and the
Growth & Income Equity, Emerging Growth, Government & Corporate Bond, U.S.
Government Securities, Balanced, International Equity, Short-Intermediate
Municipal, Missouri Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios (the
"Equity and Bond Portfolios") described in the Prospectuses.
MONEY MARKET PORTFOLIO
The Adviser makes investment decisions with respect to the Money Market
Portfolio in accordance with the SEC's rules and regulations for money market
funds.
COMMERCIAL PAPER, BANKERS' ACCEPTANCES, CERTIFICATES OF DEPOSIT AND
TIME DEPOSITS. Commercial paper represents short-term unsecured promissory notes
issued in bearer form by banks or bank holding companies, corporations and
finance companies. Certificates of deposit are negotiable certificates issued
against funds deposited in a commercial bank for a definite period of time and
earning a specified return. Bankers' acceptances are negotiable drafts or bills
of exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning, in effect, that the bank
<PAGE> 270
unconditionally agrees to pay the face value of the instrument on maturity.
Fixed time deposits are bank obligations payable at a stated maturity date and
bearing interest at a fixed rate. Fixed time deposits may be withdrawn on demand
by the investor but may be subject to early withdrawal penalties that vary
depending upon market conditions and the remaining maturity of the obligation.
There are no contractual restrictions on the right to transfer a beneficial
interest in a fixed time deposit to a third party, although there is no market
for such deposits.
As stated in the Prospectuses, the Money Market Portfolio may invest a
portion of its assets in the obligations of foreign banks and foreign branches
of domestic banks. Such obligations may include Eurodollar Certificates of
Deposit ("ECDs") which are U.S. dollar-denominated certificates of deposit
issued by offices of foreign and domestic banks located outside the United
States; Eurodollar Time Deposits ("ETDs") which are U.S. dollar-denominated
deposits in a foreign branch of a U.S. bank or a foreign bank; Canadian Time
Deposits ("CTDs") which are essentially the same as ETDs except they are issued
by Canadian offices of major Canadian banks; Schedule Bs, which are obligations
issued by Canadian branches of foreign or domestic banks; Yankee Certificates of
Deposit ("Yankee CDs") which are U.S. dollar-denominated certificates of deposit
issued by a U.S. branch of a foreign bank and held in the United States; and
Yankee Bankers' Acceptances ("Yankee BAs") which are U.S. dollar-denominated
bankers' acceptances issued by a U.S. branch of a foreign bank and held in the
United States.
TREASURY MONEY MARKET PORTFOLIO
The Adviser makes investment decisions with respect to the Treasury
Money Market Portfolio in accordance with the SEC's rules and regulations for
money market funds.
STATE EXEMPTIONS AND U.S. GOVERNMENT OBLIGATIONS. As stated in the
Prospectuses, the Treasury Money Market Portfolio invests primarily in selected
U.S. Government (and certain agency and instrumentality) obligations, the income
from which is generally exempt from state income tax. In addition, investments
in certain of these obligations are, or may be, exempt from your State's income
tax. For a current list of the types of investments that are and are not exempt
from your State's income tax, please consult your tax adviser or write to your
State's Department of Revenue.
TAX-EXEMPT MONEY MARKET PORTFOLIO
The Adviser makes investment decisions with respect to the Tax-Exempt
Money Market Portfolio in accordance with the SEC's rules and regulations for
money market funds.
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<PAGE> 271
GROWTH & INCOME EQUITY PORTFOLIO
The Growth & Income Equity Portfolio will not normally invest in
securities of issuers having a record, together with predecessors, of less than
three years of continuous operations.
RIGHTS AND WARRANTS. As stated in the Prospectuses, the Growth & Income
Equity Portfolio may participate in rights offerings and purchase warrants,
which are privileges issued by corporations enabling the owners to subscribe to
and purchase a specified number of shares of the corporation at a specified
price during a specified period of time. Subscription rights normally have a
short life span to expiration. The purchase of rights or warrants involves the
risk that the Portfolio could lose the purchase value of a right or warrant if
the right to subscribe to additional shares is not exercised prior to the
rights' or warrants' expiration. Also, the purchase of rights or warrants
involves the risk that the effective price paid for the right or warrant added
to the subscription price of the related security may exceed the value of the
subscribed security's market price such as when there is no movement in the
level of the underlying security. The Portfolio will not invest more than 5% of
its total assets, taken at market value, in warrants, or more than 2% of its
total assets, taken at market value, in warrants not listed on the New York,
American or Canadian Stock Exchanges. Warrants acquired by the Portfolio in
units or attached to other securities are not subject to this restriction.
EMERGING GROWTH PORTFOLIO
As stated in the Prospectuses, the Emerging Growth Portfolio may
participate in rights offerings and purchase warrants. (See "Investment
Objectives and Policies -- Growth & Income Equity Portfolio" above for a
discussion of rights and warrants). The Portfolio will not invest more than 5%
of its total assets, taken at market value, in warrants.
GOVERNMENT & CORPORATE BOND PORTFOLIO
An increase in interest rates will generally reduce the value of the
investments in the Government & Corporate Bond Portfolio, and a decline in
interest rates will generally increase the value of those investments. Depending
upon the prevailing market conditions, the Adviser may purchase debt securities
at a discount from face value, which produces a yield greater than the coupon
rate. Conversely, if debt securities are purchased at a premium over face value,
the yield will be lower than the coupon rate. In response to changing conditions
in fixed-income markets, the Portfolio may make modest shifts in terms of
anticipated interest rate and sector spread changes.
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<PAGE> 272
U.S. GOVERNMENT SECURITIES PORTFOLIO
The U.S. Government Securities Portfolio may invest in certificates
issued by government-backed trusts. Such certificates represent an undivided
fractional interest in the respective government-backed trust's assets. The
assets of each government-backed trust consist of (i) a promissory note issued
by a foreign government (the "Note"), (ii) a guaranty by the U.S. Government,
acting through the Defense Security Assistance Agency of the Department of
Defense, of the due and punctual payment of 90% of all principal and interest
due on such Note, and (iii) a beneficial interest in a government securities
trust holding U.S. Treasury bills, notes and other direct obligations of the
U.S. Treasury sufficient to provide the Portfolio with funds in an amount equal
to at least 10% of all principal and interest payments due on the Note.
BALANCED PORTFOLIO
The fixed-income securities in which the Balanced Portfolio may invest
are rated "investment grade" (e.g., fixed income securities rated at the time of
purchase in the four highest categories by Rating Agencies or deemed
comparable). The Portfolio will not normally invest in securities of issuers
having a record, together with predecessors, of less than three years of
continuous operations.
The value of the fixed income investments of the Balanced Portfolio is
generally sensitive to change in interest rates. (See "Investment Objectives and
Policies -- Government & Corporate Bond Portfolio" above for a discussion of the
effects of interest rate changes). The Portfolio may also participate in rights
offerings and purchase warrants. (See "Investment Objectives and Policies --
Growth & Income Equity Portfolio" above for a discussion of rights and
warrants).
INTERNATIONAL EQUITY PORTFOLIO
The International Equity Portfolio will not normally invest in
securities of issuers having a record, together with predecessors, of less than
three years of continuous operations.
As stated in the Prospectuses, the Portfolio may participate in rights
offerings and purchase warrants. (See "Investment Objectives and Policies --
Growth & Income Equity Portfolio" above for a discussion of rights and
warrants). The Portfolio will not invest more than 5% of its total assets, taken
at market value, in warrants. Warrants acquired by the Portfolio in units or
attached to other securities are not subject to this restriction.
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<PAGE> 273
CONVERTIBLE SECURITIES. Convertible securities entitle the holder to
receive interest paid or accrued on debt until the convertible securities mature
or are redeemed, converted or exchanged. Prior to conversion, convertible
securities have characteristics similar to ordinary debt securities in that they
normally provide a stable stream of income with generally higher yields than
those of common stock of the same or similar issuers. Convertible securities
rank senior to common stock in a corporation's capital structure and therefore
generally entail less risk than the corporation's common stock, although the
extent to which such risk is reduced depends in large measure upon the degree to
which the convertible security sells above its value as a fixed income security.
In selecting convertible securities for the International Equity
Portfolio, the Adviser or Sub-Adviser will consider, among other factors, its
evaluation of the creditworthiness of the issuers of the securities; the
interest or dividend income generated by the securities; the potential for
capital appreciation of the securities and the underlying stocks; the prices of
the securities relative to other comparable securities and to the benefits of
sinking funds or other protective conditions; diversification of the Portfolio
as to issuers; and whether the securities are rated by Ratings Agencies and, if
so, the ratings assigned.
The value of convertible securities is a function of their investment
value (determined by yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and
their conversion value (their worth, at market value, if converted into the
underlying stock). The investment value of convertible securities is influenced
by changes in interest rates, with investment value declining as interest rates
increase and increasing as interest rates decline, and by the credit standing of
the issuer and other factors. The conversion value of convertible securities is
determined by the market price of the underlying stock. If the conversion value
is low relative to the investment value, the price of the convertible securities
is governed principally by their investment value. To the extent the market
price of the underlying stock approaches or exceeds the conversion price, the
price of the convertible securities will be increasingly influenced by their
conversion value. In addition, convertible securities generally sell at a
premium over their conversion value determined by the extent to which investors
place value on the right to acquire the underlying stock while holding fixed
income securities.
The other Equity Portfolios may also invest in convertible securities,
subject to their investment objectives and policies.
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<PAGE> 274
SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
The Municipal Obligations in which the Short-Intermediate Municipal
Portfolio may invest are rated "investment grade". (See "Investment Objectives
and Policies -- Balanced Portfolio" above for a description of investment grade
securities). The value of the Municipal Obligations held by the Portfolio is
generally sensitive to change in interest rates. (See "Investment Objectives and
Policies -- Government & Corporate Bond Portfolio" above for a discussion of the
effects of interest rate changes.)
MISSOURI TAX-EXEMPT BOND PORTFOLIO
The Municipal Obligations in which the Missouri Tax-Exempt Bond
Portfolio may invest are rated "investment grade". (See "Investment Objectives
and Policies -- Balanced Portfolio" above for a description of investment grade
securities.) The value of the Municipal Obligations held by the Portfolio is
generally sensitive to change in interest rates. (See "Investment Objectives and
Policies -- Government & Corporate Bond Portfolio" above for a discussion of the
effects of interest rate changes.)
KANSAS TAX-EXEMPT BOND PORTFOLIO
The Municipal Obligations in which the Kansas Tax-Exempt Bond Portfolio
may invest are rated "investment grade". (See "Investment Objectives and
Policies -- Balanced Portfolio" above for a description of investment grade
securities.) The value of the Municipal Obligations held by the Portfolio is
generally sensitive to change in interest rates. (See "Investment Objectives and
Policies -- Government & Corporate Bond Portfolio" above for a discussion of the
effects of interest rate changes.)
* * *
The following policies supplement the description of the Portfolios'
investment objectives and policies in the Prospectuses.
OTHER APPLICABLE INVESTMENT POLICIES
MUNICIPAL OBLIGATIONS. As described in their Prospectuses and subject
to their respective investment limitations, the Tax-Exempt Money Market,
Short-Intermediate Municipal, Missouri Tax-Exempt Bond and Kansas Tax-Exempt
Bond Portfolios (the "Tax-Exempt Portfolios") may invest in Municipal
Obligations. Municipal Obligations include debt obligations issued by
governmental entities which obtain funds for various
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<PAGE> 275
public purposes, including the construction of a wide range of public
facilities, the refunding of outstanding obligations, the payment of general
operating expenses and the extension of loans to public institutions and
facilities.
As described in the Prospectuses, the two principal classifications of
Municipal Obligations consist of "general obligation" and "revenue" issues. In
addition, the Portfolios may purchase "moral obligation" issues, which are
normally issued by special purpose authorities. There are, of course, variations
in the quality of Municipal Obligations both within a particular classification
and between classifications, and the yields on Municipal Obligations depend upon
a variety of factors, including general conditions of the money market and/or
the municipal bond market, the financial condition of the issuer, the size of a
particular offering, the maturity of the obligation and the rating of the issue.
The ratings of Rating Agencies, such as Moody's Investors Service, Inc.
("Moody's") and Standard & Poor's Ratings Group ("S&P"), represent their
opinions as to the quality of Municipal Obligations. It should be emphasized,
however, that ratings are general and are not absolute standards of quality, and
Municipal Obligations with the same maturity, interest rate and rating may have
different yields while Municipal Obligations of the same maturity and interest
rate with different ratings may have the same yield. Subsequent to its purchase
by a Portfolio, an issue of Municipal Obligations may cease to be rated or its
rating may be reduced below the minimum rating required for purchase by such
Portfolio. The Adviser will consider such an event in determining whether the
Portfolio involved should continue to hold the obligation.
The Tax-Exempt Portfolios may also purchase Municipal Obligations in
the form of certificates of participation which represent undivided interests in
lease payments by a governmental or nonprofit entity. A lease may provide that
the certificate trustee cannot accelerate lease obligations upon default. The
trustee would only be able to enforce lease payments as they become due. In the
event of a default or failure of appropriation, it is unlikely that the trustee
would be able to obtain an acceptable substitute source of payment. In addition,
certificates of participation are less liquid than other bonds because there is
a limited secondary trading market for such obligations. To alleviate potential
liquidity problems with respect to these investments, a Portfolio may enter into
remarketing agreements which may provide that the seller or a third party will
repurchase the obligation within seven days after demand by the Portfolio and
upon certain conditions such as the Portfolio's payment of a fee.
The payment of principal and interest on most securities purchased by a
Tax-Exempt Portfolio will depend upon
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<PAGE> 276
the ability of the issuers to meet their obligations. An issuer's obligations
under its Municipal Obligations are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the federal bankruptcy code, and laws, if any, which may be enacted by
federal or state legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations or upon the ability of municipalities to levy taxes. The power or
ability of an issuer to meet its obligations for the payment of interest on and
principal of its Municipal Obligations may be materially adversely affected by
litigation or other conditions. The District of Columbia, each state, each of
their political subdivisions, agencies, instrumentalities and authorities and
each multi-state agency of which a state is a member is a separate "issuer" as
that term is used in this Statement of Additional Information and the
Prospectuses. The non-governmental user of facilities financed by private
activity bonds is also considered to be an "issuer."
Each Tax-Exempt Portfolio may also purchase General Obligation Notes,
Tax Anticipation Notes, Bond Anticipation Notes, Revenue Anticipation Notes,
Tax-Exempt Commercial Paper, Construction Loan Notes and other tax-exempt loans.
Such instruments are issued in anticipation of the receipt of tax funds, the
proceeds of bond placements, or other revenues.
Certain types of Municipal Obligations (private activity bonds) have
been or are issued to obtain funds to provide, among other things, privately
operated housing facilities, pollution control facilities, convention or trade
show facilities, mass transit, airport, port or parking facilities and certain
local facilities for water supply, gas, electricity or sewage or solid waste
disposal. Private activity bonds are also issued to privately held or publicly
owned corporations in the financing of commercial or industrial facilities.
State and local governments are authorized in most states to issue private
activity bonds for such purposes in order to encourage corporations to locate
within their communities. The principal and interest on these obligations may be
payable from the general revenues of the users of such facilities. Furthermore,
payment of principal and interest on Municipal Obligations of certain projects
may be secured by mortgages or deeds of trust. In the event of a default,
enforcement of the mortgages or deeds of trust will be subject to statutory
enforcement procedures and limitations, including rights of redemption and
limitations on obtaining deficiency judgments. In the event of a foreclosure,
collection of the proceeds of the foreclosure may be delayed, and the amount of
proceeds from the foreclosure may not be sufficient to pay the principal of and
accrued interest on the defaulted Municipal Obligations.
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From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Obligations. For example, the Tax Reform Act of 1986 (the
"Act"), adopted in October 1986, substantially revised provisions of prior law
affecting the issuance and use of proceeds of certain tax-exempt obligations.
The Act made a new definition of private activity bonds applicable to many types
of bonds, including those which were industrial development bonds under prior
law. Interest on private activity bonds is exempt from regular federal income
tax only if the bonds fall within and meet the requirements of certain defined
categories of qualified private activity bonds. The Act also extended to all
Municipal Obligations issued after August 16, 1986 (August 31, 1986 in the case
of certain bonds) certain rules formerly applicable only to industrial
development bonds. If the issuer fails to observe such rules, the interest on
the Municipal Obligations may become taxable retroactive to the date of issue.
In addition, interest on certain private activity bonds must be included in an
investor's federal alternative minimum taxable income, and corporate investors
must include all tax-exempt interest in their federal alternative minimum
taxable income. (See the applicable Prospectus under "Taxes - Federal Taxes.")
Moreover, with respect to Missouri and Kansas Obligations, the Fund cannot
predict what legislation, if any, may be proposed in the Missouri or Kansas
Legislatures relating to the status of the Missouri or Kansas income tax on
interest on such obligations, or which proposals, if any, might be enacted. Such
proposals, while pending or if enacted, might adversely affect the availability
of Municipal Obligations generally, or Missouri or Kansas Obligations
specifically, for investment by a Portfolio and the liquidity and value of a
Portfolio's assets. In such an event, each Portfolio would reevaluate its
investment objective and policies and consider possible changes in its structure
or possible dissolution.
As stated in the Prospectuses and subject to its investment policies,
the Money Market Portfolio may also invest in Municipal Obligations. Dividends
paid by the Money Market Portfolio that are derived from interest on Municipal
Obligations would be taxable to its shareholders for federal income tax
purposes.
VARIABLE AND FLOATING RATE INSTRUMENTS. Subject to their respective
investment limitations, each Portfolio may purchase variable and floating rate
obligations as described in the Prospectuses. The Adviser will consider the
earning power, cash flows and other liquidity ratios of the issuers and
guarantors of such obligations and, for obligations subject to a demand feature,
will monitor their financial status to meet payment on demand. The Money Market
Portfolios and the
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International Equity Portfolio will invest in such instruments only when the
Adviser believes that any risk of loss due to issuer default is minimal. In
determining average weighted portfolio maturity, a variable or floating rate
instrument issued or guaranteed by the U.S. Government, its agencies and
instrumentalities, or a variable or floating rate instrument scheduled on its
face to be paid in 397 days or less, will be deemed to have a maturity equal to
the period remaining until the obligation's next interest rate adjustment. Other
variable or floating rate notes will be deemed to have a maturity equal to the
longer of the period remaining to the next interest rate adjustment or the time
the Portfolio can recover payment of principal as specified in the instrument.
Variable or floating rate obligations held by the Money Market
Portfolios may have maturities of more than 397 days provided that: (i) the
Portfolio is entitled to payment of principal at any time upon not more than 30
days' notice or at specified intervals not exceeding 397 days (upon not more
than 30 days' notice); (ii) the rate of interest on a variable rate instrument
is adjusted automatically on set dates not exceeding 397 days, and the
instrument, upon adjustment, can reasonably be expected to have a market value
that approximates its par value; and (iii) the rate of interest on a floating
rate instrument is adjusted automatically whenever a specified interest rate
changes and the instrument, at any time, can reasonably be expected to have a
market value that approximates its par value.
The variable and floating rate demand instruments that the Tax-Exempt
Portfolios may purchase include participations in Municipal Obligations
purchased from and owned by financial institutions, primarily banks.
Participation interests provide a Portfolio with a specified undivided interest
(up to 100%) in the underlying obligation and the right to demand payment of the
unpaid principal balance plus accrued interest on the participation interest
from the institution upon a specified number of days' notice, not to exceed
thirty days. Each participation interest is backed by an irrevocable letter of
credit or guarantee of a bank that the Adviser has determined meets the
prescribed quality standards for the Portfolio. The bank typically retains fees
out of the interest paid on the obligation for servicing the obligation,
providing the letter of credit and issuing the repurchase commitment.
RESTRICTED SECURITIES. The SEC has adopted Rule 144A which allows for a
broader institutional trading market for securities otherwise subject to
restrictions on resale to the general public. Rule 144A establishes a "safe
harbor" from the registration requirements of the Securities Act of 1933 for the
resale of certain securities to qualified institutional buyers. The purchase of
securities which can be sold under Rule 144A
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could have the effect of increasing the level of illiquidity in the Portfolios
to the extent that qualified institutional buyers become, for a time,
uninterested in purchasing these restricted securities. The International Equity
Portfolio will not invest more than 10% of its total assets in the securities of
issuers which are restricted as to disposition, other than restricted securities
eligible for resale pursuant to Rule 144A.
The Adviser or Sub-Adviser monitors the liquidity of restricted
securities in the Fund's Portfolios under the supervision of the Board of
Directors. In reaching liquidity decisions, the Adviser and Sub-Adviser may
consider the following factors, although such factors may not necessarily be
determinative: (1) the unregistered nature of a security; (2) the frequency of
trades and quotes for the security; (3) the number of dealers willing to
purchase or sell the security and the number of other potential purchasers; (4)
the trading markets for the security; (5) dealer undertakings to make a market
in the security; and (6) the nature of the security and the nature of the
marketplace trades (including the time needed to dispose of the security,
methods of soliciting offers, and mechanics of transfer).
STAND-BY COMMITMENTS. As described in their Prospectuses and subject to
their respective investment limitations, the Tax-Exempt Portfolios may acquire
"stand-by commitments" with respect to Municipal Obligations held by a
Portfolio. Under a stand-by commitment, a dealer or bank agrees to purchase from
a Portfolio, at the Portfolio's option, specified Municipal Obligations at their
amortized cost value to the Portfolio plus accrued interest, if any. Standby
commitments acquired by a Portfolio must meet the quality standards described in
the Prospectuses (be rated in the two highest categories as determined by a
Rating Agency, or, if not rated, must be of comparable quality as determined by
the Adviser pursuant to guidelines approved by the Fund's Board of Directors).
Stand-by commitments are exercisable by a Portfolio at any time before the
maturity of the underlying Municipal Obligations and may be sold, transferred or
assigned by the Portfolio only with the underlying instruments. Each of the
Missouri Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios expects that its
investments in stand-by commitments will not exceed 5% of the value of its total
assets under normal market conditions.
The Fund expects that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, a Tax-Exempt Portfolio may pay for a stand-by commitment
either separately in cash or by paying a higher price for portfolio securities
which are acquired subject to the commitment (thus
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reducing the yield to maturity otherwise available for the same securities).
The Tax-Exempt Portfolios intend to enter into stand-by commitments
only with dealers, banks and broker-dealers which, in the Adviser's opinion,
present minimal credit risks. A Portfolio's reliance upon the credit of these
dealers, banks and broker-dealers will be secured by the value of the underlying
Municipal Obligations that are subject to the commitment. In evaluating the
creditworthiness of the issuer of a stand-by commitment, the Adviser will review
periodically the issuer's assets, liabilities, contingent claims and other
relevant financial information.
Each Tax-Exempt Portfolio will acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes. Stand-by commitments acquired by a Portfolio
would be valued at zero in determining net asset value. The acquisition of a
"stand-by commitment" by the Tax-Exempt Money Market Portfolio would thus not
affect the valuation or assumed maturity of the underlying Municipal
Obligations, which would continue to be valued in accordance with the amortized
cost method. Where a Portfolio paid any consideration directly or indirectly for
a stand-by commitment, its cost would be reflected as unrealized depreciation
for the period during which the commitment was held by the Portfolio. If a
stand-by commitment is exercised, its cost will reduce the amount realized on
the sale of the Municipal Obligations for purposes of determining the amount of
gain or loss. If a stand-by commitment expires unexercised, its cost is added to
the basis of the security to which it relates in those instances where the
stand-by commitment was acquired on the same day as the bond, and in other cases
will be treated as a capital loss at the time of expiration. Stand-by
commitments would not affect the average weighted maturity of a Portfolio.
TAX-EXEMPT DERIVATIVES. As described in their Prospectuses and subject
to their respective investment limitations, the Tax-Exempt Portfolios may hold
tax-exempt derivatives which may be in the form of tender option bonds,
participations, beneficial interests in a trust, partnership interests or other
forms. A number of different structures have been used. For example, interests
in long-term fixed-rate Municipal Obligations, held by a bank as trustee or
custodian, are coupled with tender option, demand and other features when the
tax-exempt derivatives are created. Together, these features entitle the holder
of the interest to tender (or put), the underlying Municipal Obligation to a
third party at periodic intervals and to receive the principal amount thereof.
In some cases, Municipal Obligations are represented by custodial receipts
evidencing rights to receive specific future interest
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payments, principal payments, or both, on the underlying municipal securities
held by the custodian. Under such arrangements, the holder of the custodial
receipt has the option to tender the underlying Municipal Obligation at its face
value to the sponsor (usually a bank or broker dealer or other financial
institution), which is paid periodic fees equal to the difference between the
bond's fixed coupon rate and the rate that would cause the bond, coupled with
the tender option, to trade at par on the date of a rate adjustment. The
Portfolios may hold tax-exempt derivatives, such as participation interests and
custodial receipts, for Municipal Obligations which give the holder the right to
receive payment of principal subject to the conditions described above. The
Internal Revenue Service has not ruled on whether the interest received on
tax-exempt derivatives in the form of participation interests or custodial
receipts is tax-exempt, and accordingly, purchases of any such interests or
receipts are based on the opinion of counsel to the sponsors of such derivative
securities. Neither the Fund nor its investment adviser will review the
proceedings related to the creation of any tax-exempt derivatives or the basis
for such opinions.
U.S. GOVERNMENT OBLIGATIONS. Examples of the types of U.S. Government
obligations that may be held by the Portfolios, subject to their respective
investment policies, include, in addition to U.S. Treasury bills, the
obligations of Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land
Banks, the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration,
Government National Mortgage Association, General Services Administration,
Central Bank for Cooperatives, Federal Home Loan Mortgage Corporation, Federal
Intermediate Credit Banks, Maritime Administration, Resolution Trust
Corporation, and International Bank for Reconstruction and Development.
Obligations of certain agencies and instrumentalities of the U.S.
Government, such as the Government National Mortgage Association, are supported
by the full faith and credit of the U.S. Treasury; others, such as those of the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still others, such as
those of the Student Loan Marketing Association, are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored
instrumentalities if it is not obligated to do so by law.
STRIPPED U.S. GOVERNMENT OBLIGATIONS. As described in the Prospectuses
and subject to their respective investment
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policies, each Portfolio, except the International Equity Portfolio and the
Tax-Exempt Portfolios, may hold stripped U.S. Treasury securities, including (1)
coupons that have been stripped from U.S. Treasury bonds, which are held through
the Federal Reserve Bank's book-entry system called "Separate Trading of
Registered Interest and Principal of Securities" ("STRIPS") or (2) through a
program entitled "Coupon Under Book-Entry Safekeeping" ("CUBES"). Each Portfolio
(except the Treasury Money Market and U.S. Government Securities Portfolios) may
also acquire U.S. Government obligations and their unmatured interest coupons
that have been stripped by a custodian bank or investment brokerage firm. Having
separated the interest coupons from the underlying principal of the U.S.
Government obligations, the holder will resell the stripped securities in
custodial receipt programs with a number of different names, including "Treasury
Income Growth Receipts" ("TIGRS") and "Certificates of Accrual on Treasury
Securities" ("CATS"). Such securities may not be as liquid as STRIPS and CUBES
and are not viewed by the staff of the SEC as U.S. Government securities for
purposes of the 1940 Act.
The stripped coupons are sold separately from the underlying principal,
which is sold at a deep discount because the buyer receives only the right to
receive a future fixed payment on the security and does not receive any rights
to periodic interest (cash) payments. Purchasers of stripped principal-only
securities acquire, in effect, discount obligations that are economically
identical to the zero coupon securities that the Treasury Department sells
itself. In the case of bearer securities (i.e., unregistered securities which
are owned ostensibly by the bearer or holder, the underlying U.S. Treasury bonds
and notes themselves are held in trust on behalf of the owners. Counsel to the
underwriters of these certificates or other evidences of ownership of the U.S.
Treasury securities have stated that, in their opinion, purchasers of the
stripped securities, such as the Portfolios, most likely will be deemed the
beneficial holders of the underlying U.S. Government obligations for federal tax
and security purposes.
The U.S. Government does not issue stripped Treasury securities
directly. The STRIPS program, which is ongoing, is designed to facilitate the
secondary market in the stripping of selected U.S. Treasury notes and bonds into
separate interest and principal components. Under the program, the U.S. Treasury
continues to sell its notes and bonds through its customary auction process. A
purchaser of those specified notes and bonds who has access to a book-entry
account at a Federal Reserve bank, however, may separate the Treasury notes and
bonds into interest and principal components. The selected Treasury securities
thereafter may be maintained in the book-entry system operated by the Federal
Reserve in a manner that permits the separate trading and ownership of the
interest and principal payments.
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For custodial receipts, the underlying debt obligations are held
separate from the general assets of the custodian and nominal holder of such
securities, and are not subject to any right, charge, security interest, lien or
claim of any kind in favor of or against the custodian or any person claiming
through the custodian. The custodian is also responsible for applying all
payments received on those underlying debt obligations to the related receipts
or certificates without making any deductions other than applicable tax
withholding. The custodian is required to maintain insurance for the protection
of holders of receipts or certificates in customary amounts against losses
resulting from the custody arrangement due to dishonest or fraudulent action by
the custodian's employees. The holders of receipts or certificates, as the real
parties in interest, are entitled to the rights and privileges of the underlying
debt obligations, including the right, in the event of default in payment of
principal or interest, to proceed individually against the issuer without acting
in concert with other holders of those receipts or certificates or the
custodian.
SECURITIES LENDING. As described in the Prospectuses, each Portfolio
(except the Money Market, Treasury Money Market, Tax-Exempt Money Market,
Missouri Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios) may lend its
portfolio securities to broker-dealers, banks or institutional borrowers. While
these Portfolios would not have the right to vote securities on loan, each
Portfolio intends to terminate the loan and regain the right to vote should this
be considered important with respect to the investment. When the Portfolios lend
their securities, they continue to receive interest or dividends on the
securities loaned and may simultaneously earn interest on the investment of the
cash collateral which will be invested in readily marketable, high quality,
short-term obligations. Although voting rights, or rights to consent, attendant
to securities on loan pass to the borrower, such loans may be called at any time
and will be called so that the securities may be voted by a Portfolio if a
material event affecting the investment is to occur.
Securities lending arrangements with broker/dealers require that the
loans be secured by the collateral equal in value to at least the market value
of the securities loaned. During the term of such arrangements, the Portfolios
will maintain such value by the daily marking-to-market of the collateral.
SECURITIES OF OTHER INVESTMENT COMPANIES. As described in the
applicable Prospectuses, the Portfolios intend to limit investments in
securities issued by other investment companies
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within the limits prescribed by the 1940 Act. Each Portfolio currently intends
to limit its investments so that, as determined immediately after a securities
purchase is made: (a) not more than 5% of the value of its total assets will be
invested in the securities of any one investment company; (b) not more than 10%
of the value of its total assets will be invested in the aggregate in securities
of investment companies as a group; (c) not more than 3% of the outstanding
voting stock of any one investment company will be owned by the Portfolio; and
(d) not more than 10% of the outstanding voting stock of any one investment
company will be owned in the aggregate by the Portfolios and other investment
companies advised by the Adviser.
ASSET-BACKED SECURITIES. Subject to their respective investment
policies, the Portfolios (except the Treasury Money Market and International
Equity Portfolios) may purchase asset-backed securities, as described in the
Prospectuses. Asset-backed securities represent interests in "pools" of assets
in which payments of both interest and principal on the securities are made
monthly, thus in effect "passing through" monthly payments made by the
individual borrowers on the assets that underlie the securities, net of any fees
paid to the issuer or guarantor of the securities. The average life of
asset-backed securities varies with the maturities of the underlying
instruments, and for this and other reasons, an asset-backed security's stated
maturity may be shortened, and the security's total return may be difficult to
predict precisely.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-backed securities
and among the securities that they issue. Mortgage-backed securities guaranteed
by GNMA include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie
Maes") which are guaranteed as to the timely payment of principal and interest
by GNMA and such guarantee is backed by the full faith and credit of the United
States. GNMA is a wholly-owned U.S. Government corporation with the Department
of Housing and Urban Development. GNMA certificates also are supported by the
authority of GNMA to borrow funds from the U.S. Treasury to make payments under
its guarantee. Mortgage-backed securities issued by the FNMA include FNMA
Guaranteed Mortgage Pass-through Certificates (also known as "Fannie Maes")
which are solely the obligations of the FNMA and are not backed by or entitled
to the full faith and credit of the United States, but are supported by the
right of the issuer to borrow from the Treasury. FNMA is a government-sponsored
organization owned entirely by private stockholders. Fannie Maes are guaranteed
as to timely payment of the principal and interest by FNMA. Mortgage-backed
securities issued by the FHLMC include FHLMC Mortgage Participation Certificates
(also known as "Freddie Macs" or "Pcs"). FHLMC is a corporate instrumentality of
the United States, created
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pursuant to an Act of Congress, which is owned entirely by Federal Home Loan
Banks. Freddie Macs are not guaranteed by the United States or by any Federal
Home Loan Bank. Freddie Macs entitle the holder to timely payment of interest,
which is guaranteed by the FHLMC. FHLMC guarantees either ultimate collection or
timely payment of all principal payments on the underlying mortgage loans. When
FHLMC does not guarantee timely payment of principal, FHLMC may remit the amount
due on account of its guarantee of ultimate payment of principal at any time
after default on an underlying mortgage, but in no event later than one year
after it becomes payable.
Non-mortgage asset-backed securities involve certain risks that are not
presented by mortgage-backed securities. Primarily, these securities do not have
the benefit of the same security interest in the underlying collateral. Credit
card receivables are generally unsecured, and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
have given debtors the right to set off certain amounts owed on the credit
cards, thereby reducing the balance due. Most issuers of automobile receivables
permit the servicers to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
related automobile receivables. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of the automobile receivables may not have an
effective security interest in all of the obligations backing such receivables.
Therefore, there is a possibility that recoveries on repossessed collateral may
not, in some cases, be able to support payments on these securities.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. When a Portfolio agrees
to purchase securities on a when-issued or forward commitment basis, the
Custodian (or sub-custodian) will maintain in a segregated account cash, U.S.
Government securities, liquid portfolio securities or other high-grade debt
obligations having a value (determined daily) at least equal to the amount of
the Portfolio's commitments. In the case of a forward commitment to sell
portfolio securities, the Custodian (or sub-custodian) will hold the portfolio
securities themselves in a segregated account while the commitment is
outstanding. These procedures are designed to ensure that a Portfolio will
maintain sufficient assets at all times to cover is obligations under
when-issued purchases and forward commitments.
A Portfolio will make commitments to purchase securities on a
when-issued basis or to purchase or sell securities on a forward commitment
basis only with the intention
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of completing the transaction and actually purchasing or selling the securities.
If deemed advisable as a matter of investment strategy, however, a Portfolio may
dispose of or renegotiate a commitment after it is entered into and may sell
securities it has committed to purchase before those securities are delivered to
the Portfolio on the settlement date. In these cases, the Portfolio may realize
a capital gain or loss.
When a Portfolio engages in when-issued and forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such party to do so may result in the Portfolio's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
The value of the securities underlying a when-issued purchase or a
forward commitment to purchase securities, and any subsequent fluctuations in
their value, is taken into account when determining a Portfolio's net asset
value starting on the day the Portfolio agrees to purchase the securities. The
Portfolio does not earn interest on the securities it has committed to purchase
until they are paid for and delivered on the settlement date. When a Portfolio
makes a forward commitment to sell securities it owns, the proceeds to be
received upon settlement are included in the Portfolio's assets, and
fluctuations in the value of the underlying securities are not reflected in the
Portfolio's net asset value as long as the commitment remains in effect.
Because the Portfolios will each set aside cash or liquid assets to
satisfy its purchase commitments in the manner described, a Portfolio's
liquidity and ability to manage its portfolio might be affected in the event its
commitments to purchase securities on a when-issued or forward commitment basis
ever exceeded 25% of the value of its total assets.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The International Equity
Portfolio is authorized to enter into forward foreign currency exchange
contracts. These contracts involve an obligation to purchase or sell a specified
currency at a future date at a price set at the time of the contract. Forward
currency contracts do not eliminate fluctuations in the values of portfolio
securities but rather allow the Portfolio to establish a rate of exchange for a
future point in time. The Portfolio may enter into forward foreign currency
exchange contracts when deemed advisable by their investment adviser under two
circumstances.
When entering into a contract for the purchase or sale of a security,
the International Equity Portfolio may enter into a forward foreign currency
exchange contract for the amount of the purchase or sale price to protect
against variations in
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the value of the foreign currency relative to the U.S. dollar or other foreign
currency between the date the security is purchased or sold and the date on
which payment is made or received.
When the Sub-Adviser anticipates that a particular foreign currency may
decline substantially relative to the U.S. dollar or other leading currencies,
in order to reduce risk, the International Equity Portfolio may enter into a
forward contract to sell, for a fixed amount, the amount of foreign currency
approximating the value of some or all of the Portfolio's securities denominated
in such foreign currency. The Portfolio does not intend to enter into forward
contracts under this second circumstance on a regular or continuing basis. The
Portfolio will not enter into such forward contracts or maintain a net exposure
to such contracts where the consummation of the contracts would obligate the
Portfolio to deliver an amount of foreign currency in excess of the value of its
portfolio securities or other assets denominated in that currency. While forward
contracts may offer protection from losses resulting from declines in the value
of a particular foreign currency, they also limit potential gains which might
result from increases in the value of such currency. Furthermore, forward
foreign currency exchange contracts do not eliminate fluctuations in the
underlying prices of securities. In addition, the Portfolio will incur costs in
connection with forward foreign currency exchange contracts and conversions of
foreign currencies and U.S. dollars.
The International Equity Portfolio's Custodian will place in a separate
account of the Portfolio cash or liquid securities in an amount equal to the
value of the Portfolio's assets that could be required to consummate forward
contracts entered into under the second circumstance, as set forth above. For
the purpose of determining the adequacy of the securities in the account, the
deposited securities will be valued at market or fair value. If the market or
fair value of such securities declines, additional cash or securities will be
placed in the account daily so that the value of the account will equal the
amount of such commitments by the Portfolio.
At the maturity of a forward contract, the International Equity
Portfolio may either sell the portfolio security and make delivery of the
foreign currency, or it may retain the security and terminate its contractual
obligation to deliver the foreign currency by purchasing an "offsetting"
contract with the same currency trader obligating it to purchase, on the same
maturity date, the same amount of the foreign currency.
It is impossible to forecast with absolute precision the market value
of portfolio securities at the expiration of the contract. Accordingly, it may
be necessary for the International
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Equity Portfolio to purchase additional foreign currency on the spot market (and
bear the expense of such purchase) if the market value of the security is less
than the amount of foreign currency the Portfolio is obligated to deliver and if
a decision is made to sell the security and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some of the
foreign currency received upon the sale of the portfolio security if its market
value exceeds the amount of foreign currency the Portfolio is obligated to
deliver.
If the International Equity Portfolio retains the portfolio security
and engages in an offsetting transaction, it will incur a gain or a loss (as
described below) to the extent that there has been movement in forward contract
prices. If the Portfolio engages in an offsetting transaction, it may
subsequently enter into a new forward contract to sell the foreign currency.
Should forward prices decline between the date the Fund enters into a forward
contract for the sale of a foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, it will realize a
gain to the extent the price of the currency it has agreed to sell exceeds the
price of the currency it has agreed to purchase. Should forward prices increase,
the Portfolio will suffer a loss to the extent the price of the currency it has
agreed to purchase exceeds the price of the currency it has agreed to sell. For
a discussion of the Federal tax treatment of forward contracts, see "Additional
Information Concerning Taxes -- Taxation of Certain Financial Instruments."
OPTIONS TRADING. As described in the Prospectuses, each of the Growth &
Income Equity, Emerging Growth, Government & Corporate Bond, U.S. Government
Securities, Balanced and International Equity Portfolios may purchase put and
call options listed on a national securities exchange and issued by the Options
Clearing Corporation in an amount not exceeding 10% of that Portfolio's net
assets. The International Equity Portfolio will not invest more than 5% of its
total assets in initial margin deposits and premiums (including without
limitation, puts, calls, straddles and spreads) and any combination thereof.
Options trading is a specialized activity which entails greater than ordinary
investment risks. Regardless of how much the market price of the underlying
security or index increases or decreases, the option buyer's risk is limited to
the amount of the original investment for the purchase of the option. However,
options may be more volatile than the underlying securities, and therefore, on a
percentage basis, an investment in options may be subject to greater fluctuation
than an investment in the underlying securities. A listed call option gives the
purchaser of the option the right to buy from a clearing corporation, and a
writer has the obligation to sell to the clearing corporation, the underlying
security at the stated
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exercise price at any time prior to the expiration of the option, regardless of
the market price of the security. The premium paid to the writer is in
consideration for undertaking the obligations under the option contract. A
listed put option gives the purchaser the right to sell to a clearing
corporation the underlying security at the stated exercise price at any time
prior to the expiration date of the option, regardless of the market price of
the security. In contrast to an option on a particular security, an option on a
stock or bond index provides the holder with the right to make or receive a cash
settlement upon the exercise of the option. The amount of this settlement will
be equal to the difference between the closing price of the index at the time of
exercise and the exercise price of the option expressed in dollars, times a
specified multiple.
A Portfolio's obligation to sell a security subject to a covered call
option written by it may be terminated prior to the expiration date of the
option by the Portfolio's executing a closing purchase transaction, which is
effected by purchasing on an exchange an option of the same series (i.e., same
underlying security, exercise price and expiration date) as the option
previously written. Such a purchase does not result in the ownership of an
option. A closing purchase transaction will ordinarily be effected to realize a
profit on an outstanding option, to prevent an underlying security from being
called, to permit the sale of the underlying security or to permit the writing
of a new option containing different terms on such underlying security. The cost
of such a liquidation purchase plus transaction costs may be greater than the
premium received upon the original option, in which event the Portfolio will
have incurred a loss in the transaction. An option position may be closed out
only on an exchange which provides a secondary market for an option of the same
series. There is no assurance that a liquid secondary market on an exchange will
exist for any particular option. A covered call option writer, unable to effect
a closing purchase transaction, would not be able to sell the underlying
security until the option expires or the underlying security is delivered upon
exercise with the result that the writer in such circumstances will be subject
to the risk of market decline in the underlying security during such period. A
Portfolio will write an option on a particular security only if the Adviser or
Sub-Adviser believes that a liquid secondary market will exist on an exchange
for options of the same series which will permit the Portfolio to make a closing
purchase transaction in order to close out its position.
When a Portfolio writes a covered call option, an amount equal to the
net premium (the premium less the commission) received by the Portfolio is
included in the liability section of the Portfolio's statement of assets and
liabilities as a deferred credit. The amount of the deferred credit is
subsequently
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marked-to-market to reflect the current value of the option written. The current
value of the traded option is the last sale price or, in the absence of a sale,
the average of the closing bid and asked prices. If an option expires on the
stipulated expiration date or if the Portfolio enters into a closing purchase
transaction, it will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold) and the
deferred credit related to such option will be eliminated. Any gain on a covered
call option may be offset by a decline in the market price of the underlying
security during the option period. If a covered call option is exercised, the
Portfolio may deliver the underlying security held by it or purchase the
underlying security in the open market. In either event, the proceeds of the
sale will be increased by the net premium originally received, and the Portfolio
will realize a gain or loss. Premiums from expired options written by a
Portfolio and net gains from closing purchase transactions are treated as
short-term capital gains for federal income tax purposes, and losses on closing
purchase transactions are short-term capital losses.
As noted previously, there are several risks associated with
transactions in options on securities and indices. For example, there are
significant differences between the securities and options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objectives. In addition, a liquid secondary
market for particular options, even when traded on a national securities
exchange ("Exchange"), may be absent for reasons which include the following:
there may be insufficient trading interest in certain options; restrictions may
be imposed by an Exchange on opening transactions or closing transactions or
both; trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of options or underlying securities;
unusual or unforeseen circumstances may interrupt normal operations on an
Exchange; the facilities of an Exchange or the Options Clearing Corporation may
not at all times be adequate to handle current trading volume; or one or more
Exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that Exchange (or in
that class or series of options) would cease to exist, although outstanding
options that had been issued by the Options Clearing Corporation as a result of
trades on that Exchange would continue to be exercisable in accordance with
their terms.
A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events.
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FOREIGN CURRENCY PUT AND CALL OPTIONS. The International Equity
Portfolio may purchase foreign currency put options on U.S. exchanges or U.S.
over-the-counter markets. (See "Other Applicable Investment Policies -- Options
Trading" above for a discussion of options trading). A put option gives the
Portfolio, upon payment of a premium, the right to sell a currency at the
exercise price until the expiration of the option and serves to insure against
adverse currency price movements in the underlying portfolio assets denominated
in that currency. Exchange listed options markets in the United States include
seven major currencies, and trading may be thin and illiquid. The seven major
currencies are Australian dollars, British pounds, Canadian dollars, German
marks, French francs, Japanese yen and Swiss francs.
FUTURES CONTRACTS. As discussed in the Prospectuses, the Growth &
Income Equity, Emerging Growth, Government & Corporate Bond, U.S. Government
Securities and Balanced Portfolios may invest in futures contracts (and with
respect to the International Equity Portfolio -- interest rate, foreign currency
and other types of financial futures contracts) and options thereon (stock or
bond index futures contracts or interest rate futures or options) to hedge or
manage risks associated with a Portfolio's securities investments.
To enter into a futures contract, an amount of cash and cash
equivalents, equal to the market value of the futures contracts, is deposited in
a segregated account with the Fund's Custodian and/or in a margin account with a
broker to collateralize the position and thereby insure that the use of such
futures is unleveraged. Positions in futures contracts may be closed out only on
an exchange which provides a secondary market for such futures. However, there
can be no assurance that a liquid secondary market will exist for any particular
futures contract at any specific time. Thus, it may not be possible to close a
futures position. In the event of adverse price movements, a Portfolio would
continue to be required to make daily cash payments to maintain its required
margin. In such situations, if a Portfolio had insufficient cash, it might have
to sell portfolio securities to meet daily margin requirements at a time when it
would be disadvantageous to do so. In addition, a Portfolio might be required to
make delivery of the instruments underlying futures contracts that it holds. The
inability to close options and futures positions also could have an adverse
impact on a Portfolio's ability to hedge effectively.
Successful use of futures by a Portfolio is also subject to the
Adviser's or Sub-Adviser's ability to predict movements correctly in the
direction of the market. There is an imperfect correlation between movements in
the price of futures and movements in the price of the securities which are the
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subject of the hedge. In addition, the price of futures may not correlate
perfectly with movement in the cash market due to certain market distortions.
Due to the possibility of price distortion in the futures market and because of
the imperfect correlation between the movements in the cash market and movements
in the price of futures, a correct forecast of general market trends or interest
rate movements by the Adviser or Sub-Adviser may still not result in a
successful hedging transaction over a short time frame.
The risk of loss in trading futures contracts in some strategies can be
substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (or gain) to the investor. For example, if at the time of
purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit, before any deduction for the
transaction costs, if the contract were closed out. Thus, a purchase or sale of
a futures contract may result in losses in excess of the amount invested in the
contract.
Utilization of futures transactions by a Portfolio involves the risk of
loss by the Portfolio of margin deposits in the event of bankruptcy of a broker
with whom the Fund has an open position in a futures contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of a trading session.
Once the daily limit has been reached in a particular type of contract, no
trades may be made on that day at a price beyond the limit. The daily limit
governs only price movement during a particular trading day and therefore does
not limit potential losses, because the limit may prevent the liquidation of
unfavorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses.
The trading of futures contracts is also subject to the risk of trading
halts, suspensions, exchange or clearing house equipment failures, government
intervention, insolvency of a brokerage firm or clearing house or other
disruptions of normal
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trading activity, which could at times make it difficult or impossible to
liquidate existing positions or to recover excess variation margin payments.
ADRS AND EDRS. The Growth & Income Equity, Emerging Growth, Government
& Corporate Bond, Balanced and International Equity Portfolios may invest their
assets in securities such as ADRs and EDRs, which are receipts issued by a U.S.
bank or trust company evidencing ownership of underlying securities issued by a
foreign issuer. ADRs and EDRs may be listed on a national securities exchange or
may trade in the over-the-counter market. ADR and EDR prices are denominated in
U.S. dollars, even though the underlying security may be denominated in a
foreign currency. The underlying security may be subject to foreign government
taxes which would reduce the yield on such securities. Investments in such
instruments involve risks similar to those of investing directly in foreign
securities. Such risks include political or economic instability of the issuer
or the country of issue, the difficulty of predicting international trade
patterns and the possibility of imposition of exchange controls. Such securities
may also be subject to greater fluctuations in price than securities of domestic
corporations. In addition, there may be less publicly available information
about a foreign company than about a domestic company. Foreign companies
generally are not subject to uniform accounting, auditing and financial
reporting standards comparable to those applicable to domestic companies. With
respect to certain foreign countries, there is a possibility of expropriation or
confiscatory taxation, or diplomatic developments which could affect investment
in those countries.
CASH EQUIVALENTS. As stated in the Prospectuses and subject to their
respective investment policies, the Equity and Bond Portfolios may invest in the
following taxable investments for temporary defensive or other purposes:
commercial paper, bankers' acceptances, certificates of deposit, time deposits
and floating rate notes. (See "Investment Objectives and Policies --Money Market
Portfolio" above for a discussion of cash equivalents and "Investment Objectives
and Policies -- Other Applicable Investment Policies -- Variable and Floating
Rate Instruments" above for a discussion of variable and floating rate
instruments.)
Commercial paper represents short-term unsecured promissory notes
issued in bearer form by banks or bank holding companies, corporations and
finance companies. Certificates of deposit are negotiable certificates issued
against funds deposited in a commercial bank for a definite period of time and
earning a specified return. Bankers' acceptances are negotiable drafts or bills
of exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by
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a bank, meaning, in effect, that the bank unconditionally agrees to pay the face
value of the instrument on maturity. Fixed time deposits are bank obligations
payable at a stated maturity date and bearing interest at a fixed rate. Fixed
time deposits may be withdrawn on demand by the investor but may be subject to
early withdrawal penalties that vary depending upon market conditions and the
remaining maturity of the obligation. There are no contractual restrictions on
the right to transfer a beneficial interest in a fixed time deposit to a third
party, although there is no market for such deposits.
The International Equity Portfolio may invest a portion of its assets
in the obligations of foreign banks and foreign branches of domestic banks. Such
obligations may include ECDs; ETDs; CTDs; Schedule Bs, which are obligations
issued by Canadian branches of foreign or domestic banks; Yankee CDs; and Yankee
BAs. (See "Investment Objectives and Policies -- Money Market Portfolio" above
for a description of certain of these obligations.)
REPURCHASE AGREEMENTS. The repurchase price under the repurchase
agreements described in the Prospectuses generally equals 102% of the price paid
by a Portfolio plus interest negotiated on the basis of current short-term rates
(which may be more or less than the rate on the underlying portfolio
securities). Securities subject to repurchase agreements are held by the
Portfolios' Custodian in segregated accounts or in the Federal Reserve/Treasury
book-entry system.
REVERSE REPURCHASE AGREEMENTS. As described in the Prospectuses, the
Portfolios (except for the Treasury Money Market Portfolio and the Tax-Exempt
Portfolios) may enter into reverse repurchase agreements. At the time a
Portfolio enters into such an arrangement, it will place, in a segregated
custodial account, liquid assets having a value at least equal to the repurchase
price (including accrued interest) and will subsequently monitor the account to
ensure that such equivalent value is maintained.
PORTFOLIO TURNOVER AND TRANSACTIONS
Subject to the general control of the Fund's Board of Directors, the
Adviser (and with respect to the International Equity Portfolio, the
Sub-Adviser) is responsible for, makes decisions with respect to, and places
orders for all purchases and sales of portfolio securities for the Portfolios.
In the case of the Equity and Bond Portfolios, portfolio turnover may
vary greatly from year to year as well as within a particular year. Portfolio
turnover may also be affected by cash requirements for redemptions of shares and
by
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requirements which enable a Portfolio to receive certain favorable tax
treatment. Portfolio turnover will not be a limiting factor in making investment
decisions.
The Fund is required to identify any securities of its "regular brokers
or dealers" or their parents which the Fund acquired during its most recent
fiscal year. As of May 31, 1995, the Predecessor Tax-Exempt Money Market
Portfolio held commercial paper of J.P. Morgan in the aggregate principal amount
of $28,000,000 and commercial paper of Merrill Lynch in the aggregate principal
amount of $25,000,000.
Transactions on United States stock exchanges involve the payment of
negotiated brokerage commissions. On the exchanges on which commissions are
negotiated, the cost of the transactions may vary among different brokers.
During the fiscal years ended November 30, 1995, 1994 and 1993, the Growth &
Income Equity Portfolio paid $461,078, $504,330 and $534,491, respectively, in
brokerage commissions. During the fiscal years ended November 30, 1995, 1994 and
1993, the Emerging Growth Portfolio paid $307,607, $174,206 and $143,805,
respectively, in brokerage commissions. During the fiscal year ended November
30, 1995, 1994 and the period April 1, 1993 (commencement of operations) through
November 30, 1993, the Balanced Portfolio paid $96,090, $115,913 and $75,773,
respectively, in brokerage commissions. During the fiscal year ended November
30, 1995 and the period April 4, 1994 (commencement of operations) through
November 30, 1994, the International Equity Portfolio paid $129,568 and $98,911
in brokerage commissions. No commissions were paid by the Fund to any
"affiliated" persons (as defined in the 1940 Act) of the Fund.
Securities purchased and sold by the Portfolios which are traded in the
over-the-counter market are generally done so on a net basis (i.e., without
commission) through dealers, or otherwise involve transactions directly with the
issuer of an instrument. There is generally no stated commission in the case of
securities traded in the over-the-counter markets, but the price of those
securities includes an undisclosed commission or mark-up. The cost of securities
purchased from underwriters includes an underwriter's commission or concession,
and the prices at which securities are purchased from and sold to dealers
include a dealer's mark-up or mark-down.
The Portfolios may participate, if and when practicable, in bidding for
the purchase of portfolio securities directly from an issuer in order to take
advantage of the lower purchase price available to members of a bidding group.
The Portfolios will engage in this practice, however, only when the Adviser (or
Sub-Adviser in the case of the International Equity
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Portfolio), in its sole discretion, believes such practice to be otherwise in a
Portfolio's interests.
While the Adviser (or Sub-Adviser in the case of the International
Equity Portfolio) generally seeks competitive spreads or commissions, it may not
necessarily allocate each transaction to the underwriter or dealer charging the
lowest spread or commission available on the transaction. Allocation of
transactions, including their frequency, to various dealers is determined by the
Adviser or Sub-Adviser in its best judgment and in a manner deemed fair and
reasonable to shareholders. The primary consideration is prompt execution of
orders in an effective manner at the most favorable price.
Subject to this consideration, dealers who provide supplemental
investment research to the Adviser (or Sub-Adviser) may receive orders for
transactions by a Portfolio. Information so received is in addition to and not
in lieu of services required to be performed by the Adviser (or Sub-Adviser) and
does not reduce the advisory fees payable to it by a Portfolio. Such information
may be useful to the Adviser (or Sub-Adviser) in serving both the Portfolios and
other clients, and conversely, supplemental information obtained by the
placement of business of other clients may be useful to the Adviser (or
Sub-Adviser) in carrying out its obligations to the Portfolios. Portfolio
securities will not be purchased from or sold to the Adviser, the Sub-Adviser,
the Distributor, the Administrator or any "affiliated person" (as such term is
defined under the 1940 Act) or any of them acting as principal, except to the
extent permitted by the SEC. In addition, the Portfolios will not give
preference to the Adviser's correspondents with respect to such transactions,
securities, savings deposits, repurchase agreements and reverse repurchase
agreements.
Investment decisions for the Portfolios are made independently from
those for other investment companies and accounts advised or managed by the
Adviser (or Sub-Adviser). Such other investment companies and accounts may also
invest in the same securities as the Portfolios. When a purchase or sale of the
same security is made at substantially the same time on behalf of a Portfolio
and another investment company or account, the transaction will be averaged as
to price, and available investments allocated as to amount, in a manner which
the Adviser (or Sub-Adviser) believes to be equitable to the Portfolio and such
other investment company or account. In some instances, this investment
procedure may adversely affect the price paid or received by the Portfolio or
the size of the position obtained by the Portfolio. To the extent permitted by
law, the Adviser (or Sub-Adviser) may aggregate the securities to be sold or
purchased for the Portfolios with those to be sold or purchased for other
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investment companies or accounts in order to obtain best execution.
SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN MISSOURI OBLIGATIONS
The following highlights some of the more important economic and
financial trends and considerations and is based on information from official
statements, prospectuses and other publicly available documents relating to
securities offerings of the State of Missouri, its agencies and
instrumentalities, as available on the date of this Statement of Additional
Information. The Fund has not independently verified any of the information
contained in such statements or other documents.
Missouri's population was 5,117,073 according to the 1990 decennial
census of the United States Bureau of Census, which represented an increase of
4.1% from the 1980 decennial census of 4,916,686 inhabitants. Based on July,
1992 U.S. Census Bureau estimates, St. Louis and the surrounding metropolitan
area constituted the 17th largest Metropolitan Statistical Area ("MSA") in the
nation with approximately 2.52 million inhabitants, of which 1.92 million are
Missouri residents. St. Louis is located on the eastern boundary of the state on
the Mississippi River and is a distribution center and an important site for
banking and manufacturing activity, Anchoring the western boundary is Kansas
City, which is Missouri's second largest metropolitan area. Based on July, 1992
U.S. Census Bureau estimates, Kansas City was the 25th largest MSA nationally
with approximately 1.62 million inhabitants, nearly one million of which were
Missouri residents. Kansas City is a major agri-business center for the United
States and is an important center for finance and industry. Springfield, St.
Joseph, Joplin and Columbia are also important population and industrial centers
in the State. [Source: U.S. Department of Commerce, Bureau of the Census.] Per
capita personal income in Missouri grew 3.1% between 1992 and 1993 while during
the same period per capita personal income nationally grew 3.2%. [Source: U.S.
Department of Commerce, Bureau of Economic Analysis.]
The major sectors of the State's economy include agriculture,
manufacturing, trade, government and services. Farming has traditionally played
a dominant role in the State's economy contributing between $15 billion and $17
billion annually. Although the concentration in farming remains above the
national average, with increasing urbanization, significant income-generating
activity has shifted from agriculture to the manufacturing and services sectors.
Earnings and employment are distributed among the manufacturing, trade and
service sectors in a close approximation of the average national distribution,
thus lessening the State's cyclical sensitivity to impact by any
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single sector. In 1990, services represented the single most significant
economic activity, with wholesale and retail trade ranking second and
manufacturing ranking third. In 1990, these three economic sectors accounted for
66% of the State's nonagricultural employment. Manufacturing, which accounts for
approximately 15.4% of employment, is concentrated in defense, transportation
equipment and other durable goods.
Defense-related business plays an important role in Missouri's economy.
In addition to the large number of civilians employed at the various military
installations and training bases in the State, aircraft production and defense
related businesses receive sizeable annual defense contract awards. Over the
past decade, Missouri has annually ranked among the top six states in total
military contract awards. Although declining defense appropriations by the U.S.
Congress have had and will continue to have an impact on the State, Missouri's
defense related industries have rebounded and shown significant strength over
the past year. Nonetheless, McDonnell-Douglas remains the state's largest
employer with over 29,000 employees and analysts expect the long term effects of
federal downsizing in defense to be negligible. [Source: Missouri's Economic
Forecast: 1994; Mo. Dept. of Economic Development].
Limitations on State debt and bond issues are contained in Article III,
Section 37 of the Constitution of Missouri. Pursuant to this section, the
General Assembly may issue general obligation bonds solely (1) to refund
outstanding bonds (provided that the refunding bonds must mature within 25 years
of issuance) or (2) upon the recommendation of the Governor, to incur a
temporary liability by reason of unforeseen emergency or of deficiency in
revenue, in an amount not to exceed $1,000,000 for any one year and to be paid
in not more than five years. When the liability exceeds $1,000,000, the General
Assembly, or the people by initiative, may submit the proposition to incur
indebtedness to the voters of the State, and the bonds may be issued if approved
by a majority of those voting. Such bonds must be retired serially and by
installment within 25 years of issuance. Before any bonds which are so
authorized are issued, the General Assembly must make provisions for the payment
of principal and interest and may provide for an annual tax on all taxable
property in an amount sufficient for that purpose. Certain water pollution bonds
and state building bonds are also authorized pursuant to Sections 37(b)-(e),
inclusive, of Article III.
In 1971, Missouri voters approved a constitutional amendment providing
for the issuance of $150,000,000 of general obligation bonds for the protection
of the environment through the control of water pollution. The bonds were
subsequently issued over a period of years. In 1979, voters approved a
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constitutional amendment authorizing an additional $200,000,000 State Water
Pollution Control Bonds. In 1982 State voters approved a constitutional
amendment authorizing the issuance of $600,000,000 Third State Building Bonds.
Proceeds from the Third State Building Bonds are used to provide funds for
improvement of State buildings and property, including education, mental health,
parks, corrections and other State facilities, and for water, sewer,
transportation, soil conservation and other economic development projects. In
1988, Missouri voters approved a constitutional amendment authorizing the
issuance of bonds in the aggregate sum of $275,000,000 for controlling water
pollution and making improvements to drinking water systems.
Article III, Section 36 of the Constitution of Missouri requires that
the General Assembly appropriate the annual principal and interest requirements
for outstanding general obligation bonds before any other appropriations are
made. Such amounts must be transferred from the General Revenue Fund to bond
interest and sinking funds. Authorization for these transfers, as well as the
actual payments of principal and interest, are provided in the first
appropriation bill of each fiscal year.
In addition to general obligation bonds, the Missouri legislature has
established numerous entities as bodies corporate and politic which are
authorized to issue bonds to carry out their corporate purposes.
Article X, Sections 16-24 of the Constitution of Missouri (the "Tax
Limitation Amendment"), imposes a limit on the amount of taxes and other revenue
enhancement charges such as user fees which may be imposed by the State or a
political subdivision in any fiscal year. This limit is tied to total State
revenues for the fiscal year ended June 30, 1981, as defined in the Tax
Limitation Amendment, adjusted annually, in accordance with the formula set
forth in the amendment. Under that formula, the revenue limit for any fiscal
year equals the product of the ratio of total state revenues in fiscal year
1980-1981 divided by the aggregate personal income received by persons in
Missouri from all sources ("Personal Income of Missouri") in calendar year 1979
multiplied by the Personal Income of Missouri in either the calendar year prior
to the calendar year in which appropriations for the fiscal year for which the
calculation is being made, or the average of Personal Income of Missouri in the
previous three calendar years, whichever is greater. If the revenue limit is
exceeded by 1% or more in any fiscal year, a refund of the excess revenues
collected by the State is required. If the excess revenues collected are less
than 1%, then they are not refunded but are transferred to the General Revenue
Fund. Since passage of the legislation, no refund to taxpayers has ever
occurred.
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The details of the Tax Limitation Amendment are complex. The revenue
limit can be exceeded only if the General Assembly approves by a two-thirds vote
of each house an emergency declaration as requested by the Governor. As
previously noted, however, Article III, Section 36 of the Constitution of
Missouri requires the General Assembly to appropriate the annual principal and
interest requirements for outstanding general obligation bonds before any other
appropriations are made. The revenue limitation also does not apply to taxes
imposed for payment of principal and interest on bonds that have been approved
by the voters, as authorized by the Missouri Constitution. The Tax Limitation
Amendment could adversely affect the repayment capabilities of certain
non-general obligation issues if payment is dependent upon increases in taxes or
appropriations by the State's General Assembly.
In the spring of 1993, the Missouri legislature passed into law a
$310,000,000 tax increase, with most of the increase being allocated for
state-wide education needs. This tax increase was approved by the citizens of
the state in November, 1994.
Revenue collections for the fiscal year ended June 30, 1995 ("Fiscal
Year 1995") were $5,390.3 million, excluding $48 million from the state lottery
and other transfers, representing an increase of 15.7 percent over revenue
collections from the fiscal year ended June 30, 1994. These revenues supplement
a carry-over balance from the previous year of $173.7 million. Expenditures for
Fiscal Year 1995 are estimated at $5,326.1 million including $155.7 million and
$203.2 million, respectively, for the St. Louis and Kansas City school
desegregation cases.
For the fiscal year ending June 30, 1996 ("Fiscal Year 1996") revenues
are projected to be $5,455.6 million. This projection does not include an
estimated $26.4 million in proceeds from other transfers or a carry-over balance
of approximately $238.1 million. Expenditures are projected at $5,762 million,
including $143.5 million and $200.9 million respectively for the St. Louis and
Kansas City desegregation cases. Projected expenditures also include $62.2
million for supplemental appropriations for Fiscal Year 1996.
SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN KANSAS OBLIGATIONS
The following highlights some of the more important economic and
financial trends and considerations relating to the State of Kansas and is based
on information contained in publicly available documents prepared by agencies of
the federal government and the State of Kansas and in official statements
relating to securities offerings of political subdivisions of the
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State of Kansas. The Fund has not independently verified any of the information
contained in such documents or official statements.
According to revised data released by the United States Bureau of the
Census during 1994, the population of Kansas increased from 2,478,099 in 1990 to
2,515,320 in 1992. The population growth rate from 1990 to 1992 was 1.5%, while
the national population growth rate was 2.6% for the same period. The population
growth rate from 1980 to 1990 was 4.8%, while the national population growth
rate was 9.8% for the same period. The majority of Kansas counties lost
population during that decade. Johnson County, which is adjacent to Kansas City,
Missouri and is included in the Kansas City Standard Metropolitan Statistical
Area, experienced the most dramatic growth during that decade, with an increase
in population of approximately 85,000 representing a growth rate in excess of
31%. The population of Sedgwick County, which includes the City of Wichita, the
largest city in the State, increased 10% to 403,662. By 1994, the populations of
Johnson and Sedgwick Counties were 375,147 and 416,690, respectively.
Employment growth in Kansas, as measured by household survey data, did
not exceed the national rate in 1993. National employment based on household
survey data increased 1.4 percent in 1993. As measured by place-of-residence
data, Kansas employment increased from 1,270,000 to 1,275,000, or 0.4 percent in
1993. [Source: Kansas Department of Human Resources, Labor Market Information
Services.] The weakly growing economy contributed to the reduction in
manufacturing employment in Kansas in 1993 of 2,500 workers, or 1.4 percent.
Nationally manufacturing employment fell 1.8 percent. Retail trade employed 2.7
percent more persons, and wholesale trade added 1.9 percent to its employment
base in Kansas in 1993. Nationally, employment in wholesale and retail trade
rose 0.9 percent for the same year. Employment increases in Kansas were
concentrated in service industries, with an increase in 1993 of 7,100 service
sector jobs, or 22.0 percent. The most important service industries in Kansas,
in terms of employment, are health services and business services. Nationally,
service sector employment rose at a slower rate 2.9 percent for this same
period. Since 1987, the Kansas unemployment rate has been 4.9 percent or below,
in contrast to the national unemployment rate of 7.4 percent in 1992. The Kansas
unemployment rate was 4.0 percent in 1992, and rose to 4.9 percent in 1993 but
was still below the national average. According to The Governor's Economic and
Demographic Report, 1994-1995 the growth of Kansas personal income was improved
in 1994 with an estimated growth rate of 5.3% compared with 4.0% in 1993. The
1995 forecast for personal income growth in Kansas is 5.2%, slightly below an
anticipated U.S. growth rate of 5.4%.
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The issuance of general obligation debt by the State of Kansas is
significantly limited by Article II of the Constitution of the State of Kansas.
As of the date of this Statement of Additional Information, the State has no
such debt outstanding. Statutory authority exists to issue revenue bonds
(generally payable from user fees) for academic and hospital facilities, parking
facilities and other facilities at state universities, for highway construction,
for sewage disposal facilities and certain other revenue producing facilities.
The Kansas Development Finance Authority also issues conduit revenue debt on
behalf of state agencies and other entities. Limitations on bond issues of
Kansas cities and counties are contained in Article 3 of Chapter 10 of the
Kansas Statutes Annotated. In general, the bonded indebtedness of a city may not
exceed 30% (35% for the City of Olathe) of the assessed value of all taxable
tangible property in such city, and the bonded indebtedness of a county may not
exceed 3% (30% for Wyandotte County) of the assessed value of all taxable
tangible property in such county. In connection with a state-wide property
reappraisal of taxable tangible property in Kansas mandated by the legislature
in 1988, the statutory debt limitations of Kansas cities and counties stated in
Article 3, Chapter 10 of the Kansas Statutes were suspended. The currently
applicable limitation is calculated by taking the maximum legal debt available
to such city or county under the applicable limitations in 1988 and dividing
that amount by the 1989 assessed valuation of the city or county. The resulting
percentage factor is applied against subsequent years assessed valuations to
determine each city or county limit. The percentage factor which limits each
city's or county's general obligation debt is unique to each city or county.
Revenue bonds are not included in computing the total bonded indebtedness of a
city or county for the purpose of determining such limitations. In addition,
certain other bonds (e.g., bonds issued for a county hospital, courthouse or
jail or for a city sewer system or utility) are not included in such
computation. The majority of general obligation debt issued by Kansas counties
is exempt from such limitation.
The Constitution of the State of Kansas has no provision that limits
the amount of taxes and other similar charges that may be imposed by the State
or its political subdivisions. Tax levies on tangible property by cities,
counties and certain other taxing subdivisions in Kansas are subject to the
restrictions of the "Tax Lid Law" of Kansas. Although those restrictions affect
most operating funds of such taxing subdivisions, including the general fund,
they do not apply to or limit the levy of taxes for the payment of principal and
interest on bonds and certain other indebtedness. Kansas cities and counties may
utilize their home rule powers to exempt them from the Tax Lid Law. Such action
is subject to protest by voters.
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Since 1992, the Kansas school finance law (K.S.A. 72-6405 to K.S.A.
72-6440, inclusive) has placed the majority of responsibility for funding of
Kansas public education on the State and equalized the per pupil spending the
public education across the State. A school district's authority to issue
general obligation bonds and to levy unlimited ad valorem taxes to pay such
bonds was not amended by the 1992 legislation.
In conjunction with the November, 1986 general election, Kansas voters
approved a proposition to modify the Kansas Constitution with respect to
classification of property for ad valorem taxation. In 1985, the Kansas
legislature passed a bill requiring county assessors to reassess property for
tax purposes, with an effective date of January 1, 1989. The 1985 legislation
also made provision for a new limitation on taxing authority effective January
1, 1989. Legislation adopted in 1992 continued this limitation. Although the
limitation affects most operating funds of Kansas municipalities, it does not
affect their ability to levy unlimited taxes to make principal and interest
payment on indebtedness.
On November 3, 1992, Kansas voters approved a proposition to amend the
Kansas Constitution with regard to property classification and assessment rates
for ad valorem tax purposes. Under such amendment, assessment rates for certain
classes of property were increased and assessment rates for certain other
classes of property were decreased. The ability of Kansas municipalities to levy
unlimited taxes to make principal and interest payments on general obligation
indebtedness was not affected by the 1992 constitutional amendment.
INVESTMENT LIMITATIONS
The following investment limitations may be changed with respect to a
particular Portfolio only by an affirmative vote of a majority of the
outstanding shares of that Portfolio (as defined under "Other Information
Concerning the Fund and Its Shares -- Miscellaneous" in the Portfolios'
Prospectuses). These investment limitations supplement those that appear in the
Prospectuses.
THE MONEY MARKET PORTFOLIO MAY NOT:
1. Acquire any other investment company or investment company security
except in connection with a merger, consolidation, reorganization or acquisition
of assets, or where otherwise permitted by the 1940 Act.
2. Purchase securities of any one issuer, other than obligations of the
U.S. Government, its agencies or instrumentalities, if immediately after such
purchase more than
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5% of the value of the Portfolio's total assets would be invested in such
issuer, except that up to 25% of the value of a Portfolio's total assets may be
invested without regard to such 5% limitation.
3. Buy common stocks or voting securities, or state, municipal or
industrial revenue bonds.
4. Purchase or sell real estate (the Portfolio may purchase commercial
paper issued by companies which invest in real estate or interests therein).
5. Purchase securities on margin, make short sales of securities or
maintain a short position.
6. Underwrite the securities of other issuers.
7. Purchase or sell commodity contracts, or invest in oil, gas or
mineral exploration or development programs.
8. Write or purchase put or call options.
In accordance with Rule 2a-7 of the 1940 Act, the Money Market
Portfolio intends to invest no more than five percent of its total assets in
securities issued by the issuer of the security, provided, however, that the
Portfolio may invest more than five percent of its total assets in the First
Tier Eligible Securities of a single issuer for a period of up to three business
days after the purchase thereof, provided, further that the Portfolio would not
make more than one investment in accordance with the foregoing provision at any
time. This intention is not, however, a fundamental policy of the Portfolio and
may change in the event Rule 2a-7 is amended in the future.
THE TREASURY MONEY MARKET PORTFOLIO MAY NOT:
1. Acquire any other investment company or investment company security
except in connection with a merger, consolidation, reorganization or acquisition
of assets or where otherwise permitted by the 1940 Act.
2. Borrow money except from banks for temporary purposes and then in an
amount not exceeding 10% of the value of the Portfolio's total assets, or
mortgage, pledge or hypothecate its assets except in connection with any such
borrowing and in amounts not in excess of the lesser of the dollar amounts
borrowed or 10% of the value of the Portfolio's total assets at the time of such
borrowing. (This borrowing provision is not for investment leverage, but solely
to facilitate management of the Portfolio by enabling the Fund to meet
redemption requests where the liquidation of portfolio securities is deemed to
be
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inconvenient or disadvantageous). Borrowing may take the form of a sale of
portfolio securities accompanied by a simultaneous agreement as to their
repurchase. Interest paid on borrowed funds will not be available for
investment.
3. Underwrite the securities of other issuers.
4. Make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective and policies and, under
the certain circumstances described in the Prospectuses, may enter into
repurchase agreements for U.S. Treasury securities.
THE TAX-EXEMPT MONEY MARKET PORTFOLIO MAY NOT:
1. Make loans, except that the Portfolio may purchase or hold debt
instruments in accordance with its investment objective and policies.
2. Purchase securities of other investment companies except in
connection with a merger, consolidation, acquisition or reorganization or where
otherwise permitted by the 1940 Act.
3. Purchase securities on margin, make short sales of securities, or
maintain a short position.
4. Act as an underwriter of securities within the meaning of the
Securities Act of 1933, except insofar as the Portfolio might be deemed to be an
underwriter upon purchase of certain portfolio securities acquired subject to
the investment limitation pertaining to purchases of restricted securities.
5. Purchase or sell real estate, except that the Portfolio may invest
in Municipal Obligations which are secured by real estate or interests therein.
6. Purchase or sell commodities or commodity contracts or invest in
oil, gas, or other mineral exploration or development programs.
7. Invest in or sell put options (except as described above under
"Investment Objectives and Policies --Stand-by Commitments"), call options,
straddles, spreads, or any combination thereof.
8. Purchase foreign securities.
9. Invest in industrial development bonds where the payment of
principal and interest are the responsibility of a company (including its
predecessors) with less than three years
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of continuous operation, or buy common stock or voting securities.
With respect to investment limitation number 1 pertaining to the
Tax-Exempt Money Market Portfolio in the Prospectuses, the Fund intends that
guarantees will only be treated as separate securities for diversification
purposes to the extent required by Rule 5b-2 under the 1940 Act. Letters of
credit will not be treated as separate securities with regard to diversification
as the Fund does not consider the latter instruments to be securities.
THE GROWTH & INCOME EQUITY, EMERGING GROWTH, GOVERNMENT & CORPORATE
BOND, U.S. GOVERNMENT SECURITIES, AND BALANCED PORTFOLIOS MAY NOT:
1. Make investments for the purpose of exercising control or
management.
2. Purchase or sell real estate, provided that each Portfolio may
invest in securities secured by real estate or interests therein or issued by
companies or investment trusts which invest in real estate or interests therein,
provided further that, as described in the Prospectuses, the Government &
Corporate Bond Portfolio may invest in first mortgage loans, income
participation loans and participation certificates in pools of mortgages,
including mortgages issued or guaranteed by the U.S. Government, its agencies or
its instrumentalities and CMOs; and, as described in the Prospectuses, the U.S.
Government Securities Portfolio may invest in certain mortgage-backed
securities, CMOs and certain other securities.
3. Act as an underwriter of securities within the meaning of the
Securities Act of 1933 except insofar as a Portfolio might be deemed to be an
underwriter upon disposition of portfolio securities acquired within the
limitation on purchases of restricted securities and except to the extent that
the purchase of obligations directly from the issuer thereof in accordance with
a Portfolio's investment objective, policies and limitations may be deemed to be
underwriting.
4. Purchase or sell commodity contracts, or invest in oil, gas or
mineral exploration or development programs, except that the Balanced Portfolio
may, to the extent appropriate to its investment objective, purchase publicly
traded securities of companies engaging in whole or in part in such activities
and may enter into futures contracts and related options.
5. Purchase securities on margin, make short sales of securities or
maintain a short position, except that (a) this investment limitation shall not
apply to a Portfolio's
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transactions in options, and futures contracts and related options, and (b) a
Portfolio may obtain short-term credits as may be necessary for the clearance of
purchases and sales of portfolio securities.
THE INTERNATIONAL EQUITY PORTFOLIO MAY NOT:
1. Make investments for the purpose of exercising control or
management.
2. Purchase or sell real estate, provided that the Portfolio may invest
in securities secured by real estate or interests therein or issued by companies
or investment trusts which invest in real estate or interests therein.
3. Act as an underwriter of securities within the meaning of the
Securities Act of 1933 except insofar as the Portfolio might be deemed to be an
underwriter upon disposition of portfolio securities acquired within the
limitation on purchases of restricted securities and except to the extent that
the purchase of obligations directly from the issuer thereof in accordance with
the Portfolio's investment objective, policies and limitations may be deemed to
be underwriting.
4. Purchase or sell commodity contracts, or invest in oil, gas or
mineral exploration or development programs, except that: (a) it may, to the
extent appropriate to its investment objective, invest in securities issued by
companies which purchase or sell commodities or commodity contracts or which
invest in such programs; and (b) it may purchase and sell futures contracts and
options on futures contracts.
THE SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO MAY NOT:
1. Make investments for the purpose of exercising control or
management.
2. Purchase or sell real estate, except that the Portfolio may invest
in Municipal Obligations which are secured by real estate or interests therein.
3. Act as an underwriter of securities within the meaning of the
Securities Act of 1933 except insofar as the Portfolio might be deemed to be an
underwriter upon disposition of portfolio securities acquired within the
limitation on purchases of restricted securities and except to the extent that
the purchase of obligations directly from the issuer thereof in accordance with
the Portfolio's investment objective, policies and limitations may be deemed to
be underwriting.
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<PAGE> 308
4. Purchase or sell commodity contracts, or invest in oil, gas or
mineral exploration or development programs.
THE MISSOURI TAX-EXEMPT BOND AND KANSAS TAX-EXEMPT BOND PORTFOLIOS MAY
NOT:
1. Purchase or sell real estate, except that the Portfolio may purchase
securities of issuers which deal in real estate and may purchase securities
which are secured by interests in real estate.
2. Purchase securities of companies for the purpose of exercising
control.
3. Acquire any other investment company or investment company security
except in connection with a merger, consolidation, reorganization or acquisition
of assets or as otherwise permitted by the 1940 Act.
4. Act as an underwriter of securities within the meaning of the
Securities Act of 1933 except insofar as it might be deemed to be an underwriter
upon disposition of portfolio securities acquired within the limitation on
purchases of restricted securities and except to the extent that the purchase of
obligations directly from the issuer thereof in accordance with the Portfolio's
investment objective, policies and limitations may be deemed to be underwriting.
5. Purchase securities on margin, make short sales of securities or
maintain a short position, except that the Portfolio may obtain short-term
credit as may be necessary for the clearance of purchases and sales of portfolio
securities.
6. Purchase or sell commodity contracts, or invest in oil, gas or
mineral exploration or development programs, except that the Portfolio may, to
the extent appropriate to its investment objective, purchase publicly traded
securities of companies engaging in whole or in part in such activities.
7. Write or sell put options, call options, straddles, spreads, or any
combination thereof.
NET ASSET VALUE
As stated in the applicable Prospectuses, the net asset value per share
of each class of shares of a Portfolio is calculated separately by adding the
value of all of the portfolio securities and other assets belonging to a
Portfolio that are attributable to such class, subtracting the liabilities of
the Fund that are attributable to such class, and dividing the result
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by the number of outstanding shares of such class. Assets attributable to a
particular class of shares of a Portfolio are charged with any direct
liabilities that the Board of Directors has allocated to such class pursuant to
the Fund's Plan for Operation of a Multi-Class System adopted pursuant to Rule
18f-3 under the 1940 Act. The determinations by the Board of Directors as to the
direct and allocable liabilities, and the allocable portion of general assets,
with respect to a particular Portfolio or class are conclusive.
THE MONEY MARKET PORTFOLIOS
The assets in the Money Market Portfolios are valued according to the
amortized cost method of valuation. Pursuant to this method, an instrument is
valued at its cost initially and, thereafter, a constant amortization to
maturity of any discount or premium is assumed, regardless of the impact of
fluctuating interest rates on the market value of the instrument. This method
may result in periods during which value, as determined by amortized cost, is
higher or lower than the market price a Portfolio would receive if it sold the
instrument. The value of securities in the Portfolios can be expected to vary
inversely with changes in prevailing interest rates.
Each Portfolio invests only in instruments that present minimal credit
risks and meet the ratings criteria described in the Prospectuses. In addition,
each Portfolio maintains a dollar-weighted average portfolio maturity
appropriate to its objective of maintaining a stable net asset value per share,
provided that no Portfolio will purchase any security with a remaining maturity
of more than thirteen months (397 days) (securities subject to repurchase
agreements and certain other securities may bear longer maturities) nor maintain
a dollar-weighted average portfolio maturity that exceeds 90 days. The Fund's
Board of Directors has approved procedures that are intended to stabilize the
Portfolios' net asset value per share at $1.00 for purposes of pricing sales and
redemptions. These procedures include the determination, at such intervals as
the Board deems appropriate, of the extent, if any, to which the net asset value
per share of a Portfolio calculated by using available market quotations
deviates from $1.00 per share. In the event such deviation exceeds one-half of
one percent, the Board will promptly consider what action, if any, should be
initiated. If the Board believes that the extent of any deviation from a
Portfolio's $1.00 amortized cost price per share may result in material dilution
or other unfair results to new or existing investors, it will take such steps as
it considers appropriate to eliminate or reduce to the extent reasonably
practicable any such dilution or unfair results. These steps may include, but
are not limited to, selling portfolio instruments prior to maturity; shortening
the average portfolio maturity;
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withholding or reducing dividends; redeeming shares in kind; or utilizing a net
asset value per share determined by using available market quotations.
THE EQUITY AND BOND PORTFOLIOS
Securities which are traded on a recognized stock exchange are valued
at the last sale price on the securities exchange on which such securities are
primarily traded or at the last sale price on the national securities market.
Securities traded on only over-the-counter markets are valued on the basis of
closing over-the-counter bid prices. Securities for which there were no
transactions are valued at the average of the current bid and asked prices.
Restricted securities and other assets for which market quotations are not
readily available are valued at fair value as determined in accordance with
guidelines approved by the Fund's Board of Directors. In computing net asset
value, the current value of a Portfolio's open futures contracts and related
options will be "marked-to-market." Short-term securities are valued at
amortized cost, which approximates fair market value.
Among the factors that ordinarily will be considered in valuing
portfolio securities are the existence of restrictions upon the sale of the
security by the Portfolio, the existence and extent of a market for the
security, the extent of any discount in acquiring the security, the estimated
time during which the security will not be freely marketable, the expenses of
registering or otherwise qualifying the security for public sale, underwriting
commissions if underwriting would be required to effect a sale, the current
yields on comparable securities for debt obligations traded independently of any
equity equivalent, changes in the financial condition and prospects of the
issuer, and any other factors affecting fair value. In making valuations,
opinions of counsel to the issuer may be relied upon as to whether or not
securities are restricted securities and as to the legal requirements for public
sale.
The Administrator may use a pricing service to value certain portfolio
securities where the prices provided are believed to reflect the fair market
value of such securities. The methods of valuation used by the pricing service
will be reviewed by the Administrator under the general supervision of the
Fund's Board of Directors. Several pricing services are available, one or more
of which may be used by the Administrator from time to time. In valuing a
Portfolio's securities, the pricing service would normally take into
consideration such factors as yield, risk, quality, maturity, type of issue,
trading characteristics, special circumstances, and other factors which are
deemed relevant in determining valuations for normal
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institutionalized trading units of debt securities and would not rely
exclusively on quoted prices.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares in each Portfolio are sold on a continuous basis by the
Distributor. As described in the applicable Prospectuses, Trust shares and
Institutional shares of each Portfolio are sold to certain qualified customers
at their net asset value without a sales charge. Investor A Shares of each
Portfolio (other than Investor A Shares of the Money Market Portfolios which are
sold at their net asset value without a sales charge) are sold to retail
customers at the public offering price based on a Portfolio's net asset value
plus a front-end load or sales charge as described in the applicable
Prospectuses. Investor B Shares of each Portfolio (other than the Treasury Money
Market, Tax-Exempt Money Market and Short-Intermediate Municipal Portfolios
which do not offer Investor B Shares) are sold to retail customers at the net
asset value next determined after a purchase order is received, but are subject
to a contingent deferred sales charge which is payable on redemption of such
shares as described in the applicable Prospectuses.
The Fund may redeem shares involuntarily if the net income with respect
to a Portfolio's shares is negative or such redemption otherwise appears
appropriate in light of the Fund's responsibilities under the 1940 Act.
An illustration of the computation of the public offering price per
share of Investor A Shares of the Equity and Bond Portfolios, based on the value
of each Portfolio's net assets and the number of outstanding Investor A Shares
on November 30, 1995 (with respect to the Kansas Tax-Exempt Bond Portfolio,
based on the projected value of the Portfolio's estimated net assets and
projected number of outstanding shares on the date its shares are first offered
for sale to public investors) and the maximum front-end sales charge of 4.5%
(2.5% with respect to the Short-Intermediate Municipal Portfolio) currently
applicable, is as follows:
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<TABLE>
<CAPTION>
U.S.
Government & Emerging Government
Growth & Income Corporate Bond Growth Securities
Equity Portfolio Portfolio Portfolio Portfolio
---------------- -------------- ------------ -----------
<S> <C> <C> <C> <C>
Net Assets $ 25,081,694 $ 5,496,120 $ 15,056,268 $ 8,178,713
Outstanding Shares 1,538,629 521,953 1,119,927 753,697
Net Asset Value $ 10.53
Per Share $ 16.30 $ 13.44 $ 10.85
Sales Charge, 4.50%
of offering price
(4.70% of net
asset value per
share) $ 0.77 $ 0.50 $ 0.63 $ 0.51
Offering Price
to Public $ 17.07 $ 11.03 $ 14.07 $ 11.36
<CAPTION>
Missouri
Balanced International Tax-Exempt Bond Kansas Tax-Exempt
Portfolio Equity Portfolio Portfolio Bond Portfolio
---------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
Net Assets $8,347,972 $1,567,574 $24,725,527 $100.00
Outstanding Shares 716,840 145,651 2,106,529 10
Net Asset Value
Per Share $ 11.65 $ 10.76 $11.74 $ 10.00
Sales Charge, 4.50%
of offering price
(4.70% of net
asset value per
share) $ 0.55 $ 0.51 $ 0.55 $ .47
Offering Price
to Public $ 12.20 $ 11.27 $ 12.29 $ 10.47
</TABLE>
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<TABLE>
<CAPTION>
Short-Intermediate
Municipal Portfolio
-------------------
<S> <C>
Net Assets $10.00
Outstanding Shares 1
Net Asset Value
Per Share $10.08
Sales Charge, 2.50%
of offering price
(2.56% of net
asset value per
share) $ 0.26
Offering Price
to Public $10.34
</TABLE>
Under the 1940 Act, a Portfolio may suspend the right of redemption or
postpone the date of payment for shares during any period when (a) trading on
the Exchange is restricted by applicable rules and regulations of the SEC; (b)
the Exchange is closed for other than customary weekend and holiday closing; (c)
the SEC has by order permitted such suspension; or (d) an emergency exists as
determined by the SEC. A Portfolio may also suspend or postpone the recordation
of the transfer of its shares upon the occurrence of any of the foregoing
conditions.
In addition to the situations described in the Prospectuses under "How
to Purchase and Redeem Shares," the Portfolios may redeem shares involuntarily
to reimburse the Portfolios for any loss sustained by reason of the failure of a
shareholder to make full payment for shares purchased by the shareholder or to
collect any charge relating to a transaction effected for the benefit of a
shareholder which is applicable to Portfolio shares as provided in the
applicable Prospectuses from time to time.
ADDITIONAL YIELD AND TOTAL RETURN INFORMATION
THE MONEY MARKET PORTFOLIOS
A Money Market Portfolio's "yield" and "effective yield," as described
in the Prospectuses, are calculated
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separately for Trust shares, Institutional shares, Investor A Shares and/or
Investor B Shares of the Portfolios according to formulas prescribed by the SEC.
Standardized 7 day "yield" is computed by determining the net change, exclusive
of capital changes, in the value of a hypothetical pre-existing account in a
Portfolio having a balance of one share at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from shareholder
accounts, dividing the difference by the value of the account at the beginning
of the base period to obtain the base period return, and then multiplying the
base period return by (365/7). The net change in the value of an account
includes the value of additional shares purchased with dividends from the
original share, and dividends declared on both the original share and any such
additional shares, net of all fees, other than nonrecurring account or sales
charges, that are charged by the Portfolio to all shareholder accounts in
proportion to the length of the base period and the Portfolio's mean (or median)
account size. The capital changes to be excluded from the calculation of the net
change in account value are realized gains and losses from the sale of
securities and unrealized appreciation and depreciation. "Effective yield" is
computed by compounding the unannualized base period return (calculated as
above) by adding one to the base period return, raising the sum to a power equal
to 365 divided by seven, and subtracting one from the result. Based upon the
same calculations, each Portfolio's 30 day yields and 30 day effective yields
may also be quoted. The Tax-Exempt Money Market Portfolio's "tax-equivalent
yield" is computed by dividing the tax-exempt portion of the yield (calculated
as above) by one minus a stated federal income tax rate and adding the product
to that portion, if any, of the yield that is not tax-exempt. In addition, a
"Missouri" tax-equivalent yield may be calculated by dividing the portion of the
Tax-Exempt Money Market Portfolio's yield (calculated as above) that is exempt
from federal tax and the portion that is exempt from Missouri personal income
tax by one minus a stated tax rate and adding such figure to that portion, if
any, of the Portfolio's yield that is not exempt from federal or state income
tax. Based on the foregoing calculations, for the year ended November 30, 1995,
the 7-day yields, 7-day effective yields and the 30-day yields were as follows:
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<TABLE>
<CAPTION>
7-DAY EFFECTIVE
PORTFOLIO 7-DAY YIELD YIELD 30-DAY YIELD
--------- ----------- --------------- ------------
<S> <C> <C> <C>
Money Market
Trust Shares 5.30% 5.44% 5.30%
Institutional Shares 5.10% 5.23% 5.09%
Investor A Shares 5.10% 5.23% 5.09%
Investor B Shares* N/A N/A N/A
Treasury Money Market
Trust Shares 4.91% 5.04% 4.83%
Institutional Shares 4.74% 4.85% 4.70%
Investor A Shares 4.74% 4.86% 4.70%
Tax-Exempt Money Market
Trust Shares 3.21% 3.26% 3.11%
Investor A Shares 2.97% 3.01% 2.93%
</TABLE>
* Public offering had not commenced as of November 30, 1995.
Based on the foregoing calculations, the tax-equivalent yields and
tax-equivalent effective yields of the Tax-Exempt Money Market Portfolio for the
same 7-day and 30-day periods were as follows (assuming payment of federal
income tax at a rate of 39.60%):
<TABLE>
<CAPTION>
7-DAY TAX- 30-DAY TAX-
7-DAY TAX- EQUIVALENT EQUIVALENT
PORTFOLIO EQUIVALENT YIELD EFFECTIVE YIELD YIELD
--------- ---------------- --------------- -----------
<S> <C> <C> <C>
Tax-Exempt Money Market
Trust Shares 5.31% 5.40% 5.14%
Investor A Shares 4.92% 4.98% 4.85%
</TABLE>
In addition, as described in the applicable Prospectuses, the Treasury
Money Market Portfolio may calculate a 7 day "state tax-exempt yield," which is
computed by dividing the portion of the Portfolio's yield (calculated as above)
that is exempt from state income tax by one minus a state income tax rate. Based
upon the same calculations, the Portfolio's 30 day state tax-exempt yield may
also be quoted.
A Portfolio's quoted yield is not indicative of future yields and
depends upon factors such as portfolio maturity, the Portfolio's expenses, and
the types of instruments held by the Portfolio. Any account fees imposed by
financial institutions, Service Organizations, or broker-dealers would reduce a
Portfolio's effective yield.
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THE EQUITY AND BOND PORTFOLIOS
An Equity and Bond Portfolio's 30 day "yield" described in the
Prospectuses is calculated separately for Trust shares, Institutional shares,
Investor A Shares and/or Investor B Shares of a Portfolio by dividing the
Portfolio's net investment income per share earned during a 30-day period by the
maximum offering price per share (the "maximum offering price") with respect to
Investor A Shares and the net asset value per share with respect to Trust
shares, Institutional shares and Investor B Shares on the last day of the period
and annualizing the result on a semi-annual basis by adding one to the quotient,
raising the sum to the power of six, subtracting one from the result and then
doubling the difference. A Portfolio's net investment income per share
(irrespective of series) earned during the period is based on the average daily
number of shares outstanding during the period entitled to receive dividends and
includes income dividends and interest earned during the period minus expenses
accrued for the period, net of reimbursements. This calculation can be expressed
as follows:
a-b
Yield = 2 [(------- + 1)(6) - 1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding that were
entitled to receive dividends.
d = maximum offering price per share on the last day of the
period.
For the purpose of determining interest earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
Portfolio is recognized by accruing 1/360 of the stated dividend rate of the
security each day that the security is in that Portfolio. A Portfolio calculates
interest earned on any debt obligation held in its portfolio by computing the
yield to maturity of each obligation held by it based on the market value of the
obligation
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<PAGE> 317
(including actual accrued interest) at the close of business on the last
business day of each 30 day period, or, with respect to obligations purchased
during the 30 day period, the purchase price (plus actual accrued interest) and
dividing the result by 360 and multiplying the quotient by the market value of
the obligation (including actual accrued interest) in order to determine the
interest income on the obligation for each day of the subsequent 30 day period
that the obligation is in the portfolio. The maturity of an obligation with a
call provision is the next call date on which the obligation reasonably may be
expected to be called or, if none, the maturity date. With respect to debt
obligations purchased at a discount or premium, the formula generally calls for
amortization of the discount or premium. The amortization schedule will be
adjusted monthly to reflect changes in the market values of such debt
obligations.
Interest earned on Municipal Obligations of the Short-Intermediate
Municipal, Missouri Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios that
are issued without original issue discount and have a current market discount is
calculated by using the coupon rate of interest instead of the yield to
maturity. In the case of Municipal Obligations that are issued with original
issue discount but which have discounts based on current market value that
exceed the then-remaining portion of the original issue discount (market
discount), the yield to maturity is the imputed rate based on the original issue
discount calculation. On the other hand, in the case of Municipal Obligations
that are issued with original issue discount but which have discounts based on
current market value that are less than the then-remaining portion of the
original issue discount (market premium), the yield to maturity is based on the
market value.
Expenses accrued for the period (variable "b" in the formula) include all
recurring fees charged by a Portfolio to all shareholder accounts in proportion
to the length of the base period and the Portfolio's mean (or median) account
size. Investor A Shares, Investor B Shares, Institutional shares and Trust
shares each bear separate fees applicable to the particular class of shares.
Undeclared earned income will not be subtracted from the maximum offering price
per share (variable "d" in the formula). Undeclared earned income is net
investment income which, at the end of the base period, has not been declared
and paid as a dividend, but is reasonably expected to be and is declared and
paid as a dividend shortly thereafter.
The Short-Intermediate Municipal, Missouri Tax-Exempt Bond and Kansas
Tax-Exempt Bond Portfolios' "tax-equivalent" yield for each class of shares is
computed by dividing the portion of a Portfolio's yield (calculated as above)
that is exempt from federal income tax by one minus a stated federal income tax
rate and adding that figure to that portion, if any, of the Portfolio's yield
that is not exempt from federal income tax. Similarly, the Missouri Tax-Exempt
Bond and Kansas Tax-Exempt Bond Portfolios' "Missouri tax-equivalent" or "Kansas
tax-equivalent" yields for each class of shares is calculated by
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<PAGE> 318
dividing the portion of a Portfolio's yield (calculated as above) that is exempt
from federal tax and the portion that is exempt from Missouri or Kansas personal
income tax by one minus a stated tax rate and adding such figure to that
portion, if any, of the Portfolio's yield that is not exempt from federal or
state income tax.
The Fund currently calculates 30-day yields for its Bond Portfolios but
not for its Equity Portfolios. For the 30- day period ended November 30, 1995,
the yields on the Bond Portfolios were as follows:
<TABLE>
<CAPTION>
PORTFOLIO 30-Day Yield
--------- ------------
<S> <C>
Government & Corporate Bond
Trust Shares 5.87%
Institutional Shares 5.57%
Investor A Shares 5.31%
Investor B Shares 4.89%
U.S. Government Securities
Trust Shares 5.99%
Institutional Shares 5.69%
Investor A Shares 5.43%
Investor B Shares 4.99%
Balanced
Trust Shares 3.02%
Institutional Shares 2.73%
Investor A Shares 2.60%
Investor B Shares 2.04%
Short-Intermediate Municipal
Trust Shares 3.99%
Investor A Shares 0%
Missouri Tax Exempt Bond
Trust Shares 4.48%
Investor A Shares 4.09%
Investor B Shares 3.49%
</TABLE>
For the same 30-day period, the Short-Intermediate Municipal and Missouri
Tax-Exempt Bond Portfolios' tax-equivalent yields (assuming payment of federal
income taxes at a rate of 39.60%) and the Missouri Tax-Exempt Bond Portfolio's
Missouri tax-equivalent yield (assuming Missouri state income taxes at a rate of
43.20%) were as follows:
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<PAGE> 319
<TABLE>
<CAPTION>
30-DAY TAX- 30-DAY MISSOURI
PORTFOLIO EQUIVALENT YIELD TAX-EQUIVALENT YIELD
--------- ---------------- --------------------
<S> <C> <C>
Short-Intermediate Municipal
Trust Shares 6.61% N/A
Investor A Shares 0% N/A
Missouri Tax-Exempt Bond
Trust Shares 7.42% 7.89%
Investor A Shares 6.77% 7.20%
Investor B Shares 5.78% 6.14%
</TABLE>
A Portfolio computes its "average annual total return" for
each series of that Portfolio by determining the average annual compounded rate
of return during specified periods that would equate the initial amount invested
in a particular series to the ending redeemable value of such investment in the
series by dividing the ending redeemable value of a hypothetical $1,000 payment
by $1,000 (representing a hypothetical initial payment) and raising the quotient
to a power equal to one divided by the number of years (or fractional portion
thereof) covered by the computation and subtracting one from the result. This
calculation can be expressed as follows:
ERV 1/n
T = [(-------) - 1]
P
Where: T = average annual total return
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
1, 5 or 10 year (or other) periods at the end
of the 1, 5 or 10 year (or other) periods (or
a fractional portion thereof)
P = hypothetical initial payment of $1,000
n = period covered by the computation, expressed
in terms of years
A Portfolio computes its aggregate total returns separately
for each series by determining the aggregate compounded rates of return during
specified periods that likewise equate the initial amount invested in a
particular series to the ending redeemable value of such investment in the
series. The formula for calculating aggregate total return is as follows:
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<PAGE> 320
ERV
Aggregate Total Return = [(------)- 1]
P
The calculations of average annual total return and aggregate
total return assume reinvestment of all income dividends and capital gain
distributions on the reinvestment dates during the period and include all
recurring fees charged to all shareholder accounts, assuming an account size
equal to a Portfolio's mean or median account size for any fees that vary with
the size of the account. The ending redeemable value (variable "ERV" in each
quotation) is determined by assuming complete redemption of the hypothetical
investment and the deduction of all non-recurring charges at the end of the
period covered by the computation. In addition, a non-money market Portfolio's
average annual total return and aggregate total return quotations reflect the
deduction of the maximum front-end sales charge in connection with the purchase
of Investor A Shares and the deduction of any applicable contingent deferred
sales charge with respect to Investor B Shares.
Based on the foregoing calculations, the average annual total
returns for the year ended November 30, 1995, the average annual total returns
for the 5-year period ended November 30, 1995 and the average annual total
returns for the period from commencement of operations were as follows:
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------
FOR THE 5 SINCE
FOR THE YEAR YEARS ENDED COMMENCEMENT
PORTFOLIO ENDED 11/30/95 11/30/95 OF OPERATIONS
--------- -------------- -------- -------------
<S> <C> <C> <C>
Growth & Income Equity
Trust Shares(1) 32.27% 15.56% 14.00%
Institutional Shares(2) 31.88% 15.45%(3) 13.93%(3)
Investor A Shares(1) 26.00% 14.44% 13.28%
Investor B Shares(4) 26.20% 15.22% 13.86%
Government & Corporate Bond
Trust Shares(5) 16.31% 8.79% 8.48%
Institutional Shares(2) 15.98% 8.49%(6) 8.27%(6)
Investor A Shares(5) 10.81% 7.42% 7.56%
Investor B Shares(4) 10.27% 8.21% 8.19%
U.S. Government Securities
Trust Shares(1) 15.00% 8.34% 8.60%
Institutional Shares(7) 14.69% 7.97%(8) 8.35%(8)
Investor A Shares(1) 9.54% 6.99% 7.69%
Investor B Shares(4) 7.85% 7.54% 8.16%
</TABLE>
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<PAGE> 321
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------
FOR THE 5 SINCE
FOR THE YEAR YEARS ENDED COMMENCEMENT
PORTFOLIO ENDED 11/30/95 11/30/95 OF OPERATIONS
--------- -------------- -------- -------------
<S> <C> <C> <C>
Emerging Growth
Trust Shares(9) 21.70% N/A 17.22%
Institutional Shares(2) 21.43% N/A 17.01%(11)
Investor A Shares(10) 16.04% N/A 15.61%
Investor B Shares(4) 15.83% N/A 16.37%
Balanced
Trust Shares(12) 24.97% N/A 9.51%
Institutional Shares(12) 24.67% N/A 9.34%(13)
Investor A Shares(12) 19.26% N/A 7.56%
Investor B Shares(4) 18.92% N/A 8.74%
International Equity
Trust Shares(14) 8.97% N/A 4.80%
Institutional Shares(14) 8.78% N/A 4.57%(16)
Investor A Shares(15) 3.95% N/A 1.77%
Investor B Shares(4) 3.38% N/A 1.97%
Short-Intermediate Municipal
Trust Shares(17) N/A N/A 2.15%
Investor A Shares(18) 0 N/A - 1.75%
Missouri Tax-Exempt Bond(19)
Trust Shares(20) 18.64% 8.33% 8.64%
Investor A Shares(21) 13.09% 7.15% 7.80%
Investor B Shares(4) 12.60% 7.74% 8.29%
Kansas Tax-Exempt Bond(22)
Trust Shares N/A N/A N/A
Investor A Shares N/A N/A N/A
Investor B Shares N/A N/A N/A
</TABLE>
- -----------------------------
(1) Commenced operations on June 2, 1988.
(2) Initial public offering commenced on January 4, 1994.
(3) Reflects combined performance of Institutional Shares which were
initially offered to the public on January 4, 1994 and Investor A
Shares for the period prior to January 4, 1994.
(4) Investor B Shares were initially offered on March 1, 1995. The
performance figures for Investor B Shares for periods prior to such
date represent the performance for Investor A Shares of the Portfolio
which has been restated to reflect the contingent deferred sales
charges payable by holders of Investor B Shares that redeem within
six years of the date of purchase. Investor B Shares are also subject
to distribution and services fees at a maximum annual rate of 1.00%.
Had those distribution and services fees been reflected, performance
would have been reduced.
(5) Commenced operations on June 15, 1988.
(6) Reflects combined performance of Institutional Shares which were
initially offered to the public on January 4, 1994 and Investor A
Shares for the period prior to January 4, 1994.
(7) Commenced operations on June 7, 1994.
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<PAGE> 322
(8) Reflects combined performance of Institutional Shares which were
initially offered to the public on June 7, 1994 and Investor A Shares
for the period prior to January 4, 1994.
(9) Commenced operations on May 1, 1992.
(10) Initial public offering commenced on May 6, 1992.
(11) Reflects combined performance of Institutional Shares which were
initially offered to the public on January 4, 1994 and Investor A
Shares for the period May 1, 1992 through January 3, 1994.
(12) Commenced operations on April 1, 1993.
(13) Reflects combined performance of Institutional Shares which were
initially offered to the public on January 4, 1994 and Investor A
Shares for the period April 1, 1993 through January 3, 1994.
(14) Commenced operations on April 4, 1994.
(15) Initial public offering commenced on May 2, 1994.
(16) Reflects combined performance of Institutional Shares which were
initially offered to the public on April 24, 1994 and Investor A
Shares for the period April 4, 1994 through April 23, 1994.
(17) Commenced operations on July 10, 1995.
(18) Initial public offering had not commenced as of November 30, 1995.
(19) Commenced operations on July 15, 1988 as a portfolio of The ARCH
Tax-Exempt Trust. On October 2, 1995, the Portfolio was reorganized
as a new Portfolio of the Fund.
(20) Commenced operations on July 15, 1988.
(21) Initial public offering commenced on September 28, 1990.
(22) Portfolio had not commenced operations as of November 30, 1995.
Based on the foregoing calculations, the aggregate total returns for
the Equity and Bond Portfolios from their respective dates of commencement of
operations through November 30, 1995 were as follows:
<TABLE>
<CAPTION>
AGGREGATE TOTAL RETURN
PORTFOLIO SINCE COMMENCEMENT
--------- OF OPERATIONS
-------------
<S> <C>
Growth & Income Equity
Trust Shares 167.27%
Institutional Shares(1) 166.04%
Investor A Shares 154.73%
Investor B Shares(2) 164.72%
Government & Corporate Bond
Trust Shares 83.59%
Institutional Shares(1) 81.04%
Investor A Shares 72.32%
Investor B Shares(2) 79.94%
U.S. Government Securities
Trust Shares 85.64%
Institutional Shares(1) 82.47%
Investor A Shares 74.34%
Investor B Shares(2) 80.12%
</TABLE>
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<PAGE> 323
<TABLE>
<CAPTION>
AGGREGATE TOTAL RETURN
PORTFOLIO SINCE COMMENCEMENT
--------- OF OPERATIONS
-------------
<S> <C>
Emerging Growth
Trust Shares 76.42%
Institutional Shares(1) 75.31%
Investor A Shares 67.90%
Investor B Shares(2) 71.87%
Balanced
Trust Shares 27.44%
Institutional Shares(1) 26.90%
Investor A Shares 21.48%
Investor B Shares(2) 25.06%
International Equity
Trust Shares 8.10%
Institutional Shares(1) 7.70%
Investor A Shares 2.96%
Investor B Shares(2) 3.30%
Short-Intermediate Municipal
Trust Shares 2.15%
Investor A Shares -1.75%
Missouri Tax-Exempt Bond
Trust Shares 84.30%
Investor A Shares 74.03%
Investor B Shares(2) 80.07%
Kansas Tax-Exempt Bond(3)
Trust Shares N/A
Investor A Shares N/A
Investor B Shares(2) N/A
</TABLE>
- -----------------------------
(1) Reflects combined performance of Institutional Shares which were
initially offered to the public on January 4, 1994 and Investor A
Shares for the period prior to January 4, 1994.
(2) Investor B Shares were initially offered on March 1, 1995. The
performance figures for Investor B Shares for periods prior to such
date represent the performance for Investor A Shares of the Portfolio
which has been restated to reflect the contingent deferred sales
charges payable by holders of Investor B Shares that redeem within six
years of the date of purchase. Investor B Shares are also subject to
distribution and services fees at a maximum annual rate of 1.00%. Had
those distribution and services fees been reflected, performance would
have been reduced.
(3) Portfolio had not commenced operations as of November 30, 1995.
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<PAGE> 324
As stated in the Prospectuses relating to Investor A Shares and
Investor B Shares, a Portfolio may also calculate total return figures for that
Portfolio without deducting the maximum sales charge imposed on purchases or
redemptions. The effect of not deducting the sales charge will be to increase
the total return reflected.
Investors may judge the performance of the Portfolios by
comparing them to the performance of other mutual funds or mutual fund
portfolios with comparable investment objectives and policies. Such comparisons
may be made by referring to market indices such as those prepared by Dow Jones &
Co., Inc., Russell, Salomon Brothers, Inc., Lehman or Standard & Poor's Ratings
Group or any of their affiliates, the Consumer Price Index, the EAFE Index, the
NASDAQ Composite, or to rankings prepared by independent services or other
financial or industry publications that monitor the performance of mutual funds.
Such comparisons may also be made by referring to data prepared by Lipper
Analytical Services, Inc., (a widely recognized independent service which
monitors the performance of mutual funds) Indata, Frank Russell, CDA, and the
Bank Rate Monitor (which reports average yields for money market accounts
offered by the 50 leading banks and thrift institutions in the top five standard
metropolitan statistical areas). Other similar yield data, including comparisons
to the performance of Mercantile repurchase agreements, or the average yield
data for similar asset classes including but not limited to Treasury bills,
notes and bonds, may also be used for comparison purposes. Comparisons may also
be made to indices or data published in the following national financial
publications: IBC/Donoghue's Money Fund Report(R) published by IBC/Donoghue,
MorningStar, CDA/Wiesenberger, Money Magazine, Forbes, Fortune, Barron's, The
Wall Street Journal, The New York Times, Business Week, American Banker,
Fortune, Institutional Investor, U.S.A. Today and publications of Ibbotson
Associates, Inc. and other publications of a local or regional nature. In
addition to performance information, general information about the Portfolios
that appears in a publication such as those mentioned above may be included in
advertisements, supplemental sales literature and in reports to Shareholders.
From time to time, the Fund may include the following types
of information in advertisements, supplemental sales literature and reports to
Shareholders: (1) discussions of general economic or financial principles (such
as the effects of inflation, the power of compounding and the benefits of
dollar-cost averaging); (2) discussions of general economic trends; (3)
presentations of statistical data to supplement such discussions; (4)
descriptions of past or anticipated portfolio holdings for one or more of the
Portfolios within the Fund; (5) descriptions of investment strategies for one or
more of such Portfolios; (6) descriptions or comparisons of various investment
products, which
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<PAGE> 325
may or may not include the Portfolios; (7) comparisons of investment products
(including the Portfolios) with relevant market or industry indices or other
appropriate benchmarks; and (8) discussions of rankings or ratings by recognized
rating organizations.
In addition, with respect to the Short-Intermediate Municipal, Missouri
Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios the benefits of tax-free
investments may be communicated in advertisements or communications to
shareholders. For example, the tables below present the approximate yield that a
taxable investment must earn at various income brackets to produce after-tax
yields equivalent to those of tax-exempt investments yielding from 4.50% to
7.00%. The yields below are for illustration purposes only and are not intended
to represent current or future yields for the Portfolios, which may be higher or
lower than those shown. The tax brackets shown below will be indexed for
inflation for years after 1996. Investors should consult their tax advisor with
specific reference to their own tax situation.
APPROXIMATE YIELD TABLE: SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
<TABLE>
<CAPTION>
SINGLE RETURN
Sample Taxable Federal --------Tax-Exempt Yields---------
Income Marginal
(1996) Tax Rate 4.50% 5.00% 5.50% 6.50% 7.00%
<S> <C> <C> <C> <C> <C> <C>
FROM
$0 TO
$24,000 15.00% 5.29% 5.88% 6.47% 7.65% 8.24%
FROM
$24,000 TO
$58,150 28.00% 6.25% 6.64% 7.64% 9.03% 9.72%
FROM
$58,150 TO
$121,300 31.00% 6.52% 7.25% 7.97% 9.42 10.41%
FROM
$121,300 TO
$263,750 36.00% 7.03% 7.81% 8.59% 10.16% 10.94%
OVER
$263,750 39.60% 7.45% 8.28% 9.11% 10.76% 11.59%
</TABLE>
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<PAGE> 326
APPROXIMATE YIELD TABLE: SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
<TABLE>
<CAPTION>
MARRIED FILING
JOINTLY
Sample Taxable Federal --------Tax-Exempt Yields---------
Income Marginal
(1996) Tax Rate 4.50% 5.00% 5.50% 6.50% 7.00%
<S> <C> <C> <C> <C> <C> <C>
FROM
$0 TO
$40,000 15.00% 5.29% 5.88% 6.47% 7.65% 8.24%
FROM
$40,000 TO
$96,900 28.00% 6.25% 6.94% 7.64% 9.03% 9.72%
FROM
$96,900 TO
$147,700 31.00% 6.52% 7.25% 7.97% 9.42% 10.14%
FROM
$147,700 TO
$263,750 36.00% 7.03% 7.81% 8.59% 10.16% 10.94%
OVER
$263,750 39.60% 7.45% 8.28% 9.11% 10.76% 11.59%
</TABLE>
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<PAGE> 327
APPROXIMATE YIELD TABLE: KANSAS TAX-EXEMPT BOND PORTFOLIO
<TABLE>
<CAPTION>
SINGLE RETURN Combined
Federal and ---------------Tax-Exempt Yields--------------
Sample Taxable Federal Kansas Kansas
Income Marginal Marginal Marginal Tax
(1996) Tax Rate Tax Rate Rate 4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM
$0 TO
$20,000 15.00% 4.40% 18.74% 5.54% 6.15% 6.77% 7.38% 8.00% 8.61%
FROM
$20,000 TO
$24,000 15.00% 7.50% 21.38% 5.72% 6.36% 7.00% 7.63% 8.27% 8.90%
FROM
$24,000 TO
$30,000 28.00% 7.50% 33.40% 6.76% 7.51% 8.26% 9.01% 9.76% 10.51%
FROM
$30,000 TO
$58,150 28.00% 7.75% 34.59% 6.88% 7.64% 8.41% 9.17% 9.94% 10.70%
FROM
$58,150 TO
$121,300 31.00% 7.75% 37.59% 7.21% 8.01% 8.81% 9.61% 10.41% 11.22%
FROM
$121,300 TO
$263,750 36.00% 7.75% 40.96% 7.62% 8.47% 9.32% 10.16% 11.01% 11.86%
OVER
$263,750 39.60% 7.75% 44.28% 8.08% 8.97% 9.87% 10.77% 11.67% 12.56%
</TABLE>
APPROXIMATE YIELD TABLE: KANSAS TAX-EXEMPT BOND PORTFOLIO
<TABLE>
<CAPTION>
MARRIED FILING
JOINTLY Combined
Federal and ---------------Tax-Exempt Yields--------------
Sample Taxable Federal Kansas Kansas
Income Marginal Marginal Marginal Tax
(1996) Tax Rate Tax Rate Rate 4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM
$0 TO
$30,000 15.00% 3.50% 17.98% 5.49% 6.10% 6.71% 7.31% 7.92% 8.53%
FROM
$30,000 TO
$40,100 15.00% 6.25% 20.31% 5.65% 6.27% 6.90% 7.53% 8.16% 8.78%
FROM
$40,100 TO
$60,000 28.00% 6.25% 32.50% 6.67% 7.41% 8.15% 8.89% 9.63% 10.37%
FROM
$60,000 TO
$96,900 28.00% 6.45% 32.64% 6.68% 7.42% 8.17% 8.91% 9.65% 10.39%
FROM
$96,900 TO
$147,700 31.00% 6.45% 35.45% 6.97% 7.75% 8.52% 9.30% 10.07% 10.84%
FROM
$147,700 TO
$263,750 36.00% 6.45% 40.13% 7.52% 8.35% 9.19% 10.02% 10.86% 11.69%
OVER
$263,750 39.60% 6.45% 43.50% 7.96% 8.85% 9.73% 10.62% 11.50% 12.39%
</TABLE>
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<PAGE> 328
APPROXIMATE YIELD TABLE: MISSOURI TAX-EXEMPT BOND PORTFOLIO
<TABLE>
<CAPTION>
SINGLE RETURN Combined
Federal and ---------------Tax-Exempt Yields--------------
Sample Taxable Federal Missouri Missouri
Income Marginal Marginal Marginal Tax
(1996) Tax Rate Tax Rate Rate 4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM
$0 TO
$24,000 15.00% 6.00% 20.10% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
FROM
$24,000 TO
$58,150 28.00% 6.00% 32.32% 6.65% 7.39% 8.13% 8.87% 9.60% 10.34%
FROM
$58,150 TO
$121,300 31.00% 6.00% 35.14% 6.94% 7.71% 8.48% 9.25% 10.02% 10.79%
FROM
$121,300 TO
$263,750 36.00% 6.00% 39.84% 7.48% 8.31% 9.14% 9.97% 10.80% 11.64%
OVER
$263,750 39.60% 6.00% 43.22% 7.93% 8.81% 9.69% 10.57% 11.45% 12.33%
</TABLE>
APPROXIMATE YIELD TABLE: MISSOURI TAX-EXEMPT BOND PORTFOLIO
<TABLE>
<CAPTION>
MARRIED FILING
JOINTLY Combined
Federal and ---------------Tax-Exempt Yields--------------
Sample Taxable Federal Missouri Missouri
Income Marginal Marginal Marginal Tax
(1996) Tax Rate Tax Rate Rate 4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM
$0 TO
$40,000 15.00% 6.00% 20.10% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
FROM
$40,000 TO
$96,900 28.00% 6.00% 32.32% 6.65% 7.39% 8.13% 8.87% 9.60% 10.34%
FROM
$96,900 TO
$147,700 31.00% 6.00% 35.14% 6.94% 7.71% 8.48% 9.25% 10.02% 10.79%
FROM
$147,700 TO
$263,750 36.00% 6.00% 39.84% 7.48% 8.31% 9.14% 9.97% 10.80% 11.64%
OVER
$263,750 39.60% 6.00% 43.22% 7.93% 8.81% 9.69% 10.57% 11.45% 12.33%
</TABLE>
Such data are for illustrative purposes only and are not intended to
indicate past or future performance results of a Portfolio. Actual
performance of the Portfolios' may be more or less than that noted in the
hypothetical illustrations.
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Since performance will fluctuate, performance data for the Portfolios
cannot necessarily be used to compare an investment in the Portfolios' shares
with bank deposits, savings accounts, and similar investment alternatives which
often provide an agreed or guaranteed fixed yield for a stated period of time.
Shareholders should remember that performance is generally a function of the
kind and quality of the instruments held in a portfolio, portfolio maturity,
operating expenses, and market conditions. The current yield and performance of
the Portfolios may be obtained by calling the Fund at: INVESTOR A OR INVESTOR B
SHARES - 1-800-452-ARCH; OR TRUST OR INSTITUTIONAL SHARES - 1-800-452-401K.
DESCRIPTION OF SHARES
The Fund's Articles of Incorporation authorize the Board of Directors
to issue up to seven billion full and fractional shares of capital stock, and to
classify or reclassify any unissued shares of the Fund into one or more
additional classes or by setting or changing in any one or more respects, their
respective preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption. Pursuant to such authority the Fund's Board of Directors has
authorized the issuance of forty-one classes of shares representing interests in
one of twelve investment Portfolios: the Money Market, Treasury Money Market,
Tax-Exempt Money Market, Growth & Income Equity, Emerging Growth, Government &
Corporate Bond, U.S. Government Securities, Balanced, International Equity,
Short-Intermediate Municipal, Missouri Tax-Exempt Bond and Kansas Tax-Exempt
Bond Portfolios. Trust shares, Institutional shares, Investor A Shares and
Investor B Shares in each Portfolio (except the Treasury Money Market Portfolio
which does not offer Investor B Shares, the Tax-Exempt Money Market and
Short-Intermediate Municipal Portfolios which do not offer Institutional or
Investor B Shares and the Missouri Tax-Exempt Bond and Kansas Tax-Exempt Bond
Portfolios which do not offer Institutional Shares) are offered through separate
prospectuses to different categories of investors. Portfolio shares have no
preemptive rights and only such conversion or exchange rights as the Board may
grant in its discretion. When issued for payment as described in the
Prospectuses, the shares will be fully paid and nonassessable.
Except as noted in the Prospectuses with respect to certain
sub-transfer agency expenses borne by Institutional shares and below with
respect to the Administrative Services Plans for Trust shares and Institutional
shares and the Distribution and Services Plans for Investor A Shares and
Investor B Shares, shares of the Portfolios bear the same types of ongoing
expenses with respect to the Portfolio to which they belong. In addition,
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Investor A Shares (other than Investor A Shares of the Money Market Portfolios)
are subject to a front-end sales charge and Investor B Shares are subject to a
contingent deferred sales charge as described in the Prospectuses. The classes
also have different exchange privileges, and Investor B Shares are subject to
conversion as described in the Prospectus for those shares.
In the event of a liquidation or dissolution of the Fund, shares of a
Portfolio are entitled to receive the assets available for distribution
belonging to that Portfolio, and a proportionate distribution, based upon the
relative asset values of the respective Portfolios, of any general assets not
belonging to any particular Portfolio which are available for distribution.
Shareholders of a Portfolio are entitled to participate equally in the net
distributable assets of the particular Portfolio involved on liquidation, except
that Trust shares of a particular Portfolio will be solely responsible for that
Portfolio's payments pursuant to the Administrative Services Plan for those
shares, Institutional shares of a particular Portfolio will be solely
responsible for that Portfolio's payments pursuant to the Administrative Service
Plan for those shares, Investor A Shares of a particular Portfolio will be
solely responsible for that Portfolio's payments pursuant to the Distribution
and Services Plan for those shares and Investor B Shares of a particular
Portfolio will be solely responsible for that Portfolio's payments pursuant to
the Distribution and Services Plan for those shares. In addition, Institutional
shares will be solely responsible for the payment of certain sub-transfer agency
fees attributable to those shares.
Holders of all outstanding shares of a particular Portfolio
will vote together in the aggregate and not by class, except that only Trust
shares of a Portfolio will be entitled to vote on matters submitted to a vote of
shareholders pertaining to a Portfolio's Administrative Services Plan for Trust
shares, only Institutional shares of a Portfolio's will be entitled to vote on
matters submitted to a vote of shareholders pertaining to such Portfolio's
Administrative Services Plan for Institutional shares, only Investor A Shares of
a Portfolio will be entitled to vote on matters submitted to a vote of
shareholders pertaining to such Portfolio's Distribution and Services Plan for
Investor A Shares and only Investor B Shares of a Portfolio will be entitled to
vote on matters submitted to a vote of shareholders pertaining to such
Portfolio's Distribution and Services Plan for Investor B Shares. Further,
shareholders of all of the Portfolios, irrespective of class, will vote in the
aggregate and not separately on a Portfolio-by-Portfolio basis, except as
otherwise required by law or when the Board of Directors determines that the
matter to be voted upon affects only the interests of the shareholders of a
particular Portfolio or class
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of shares. Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of a "series"
investment company such as the Fund shall not be deemed to have been effectively
acted upon unless approved by the holders of a majority of the outstanding
shares of each series (Portfolio) affected by the matter. A Portfolio is
considered to be affected by a matter unless it is clear that the interests of
each Portfolio in the matter are identical or that the matter does not affect
any interest of the Portfolio. Under the Rule, the approval of an investment
advisory agreement or any change in investment policy would be effectively acted
upon with respect to a Portfolio only if approved by a majority of the
outstanding shares of that Portfolio. However, the Rule also provides that the
ratification of the appointment of independent auditors, the approval of
principal underwriting contracts, and the election of directors may be
effectively acted upon by shareholders of the Fund's Portfolios voting without
regard to class or Portfolio.
Shares in the Fund's Portfolios will be issued without
certificates.
ADDITIONAL INFORMATION CONCERNING TAXES
IN GENERAL
The following summarizes certain additional 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 tax treatment of the Portfolios or their shareholders, and
the discussion here and in the Prospectuses are not intended as a substitute for
careful tax planning. Potential investors should consult their tax advisors with
specific reference to their own tax situations.
Each Portfolio of the Fund is treated as a separate corporate
entity under the Code. Each Portfolio intends to qualify each year as a
regulated investment company. In order to so qualify for a taxable year under
the Code, each Portfolio must satisfy, in addition to the distribution
requirement described in the Prospectuses, certain other requirements set forth
below.
At least 90% of the gross income for a taxable year of each
Portfolio must be derived from dividends, interest, payments with respect to
securities loans, 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 the
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Portfolio's business of investing in such stock, securities or currencies (the
"90% gross income test").
A Portfolio also must derive less than 30% of its gross
income for a taxable year from gains realized on the sale or other disposition
of securities and certain other investments held for less than three months (the
"30% test"). Interest (including original issue discount and accrued market
discount) received by a Portfolio upon maturity or disposition of a security
held for less than three months will not be treated as gross income derived from
the sale or other disposition of such security within the meaning of this
requirement. However, any income that is attributable to real market
appreciation will be treated as gross income from the sale or other disposition
of securities for this purpose. With respect to covered call options, if the
call is exercised by the holder, the premium and the price received on exercise
constitute the proceeds of sale, and the difference between the proceeds and the
cost of the securities subject to the call is capital gain or loss. Premiums
from expired call options written by a Portfolio and net gains from closing
purchase transactions are treated as short-term capital gains for federal income
tax purposes, and losses on closing purchase transactions are short-term capital
losses. With respect to forward contracts, futures contracts, options on futures
contracts, and other financial instruments subject to the mark-to-market rules
described below under "Taxation of Certain Financial Instruments," the Internal
Revenue Service has ruled in private letter rulings that a gain realized from
such a contract, option or financial instrument will be treated as being derived
from a security held for three months or more (regardless of the actual period
for which the contract, option or instrument is held) if the gain arises as a
result of a constructive sale under the mark-to-market rules, and will be
treated as being derived from a security held for less than three months only if
the contract, option or instrument is terminated (or transferred) during the
taxable year (other than by reason of mark-to-market) and less than three months
have elapsed between the date the contract, option or instrument is acquired and
the termination date. Increases and decreases in the value of a Portfolio's
forward contracts, futures contracts, options on futures contracts and other
investments that qualify as part of a "designated hedge," as defined in Section
851(g) of the Code, may be netted for purposes of determining whether the 30%
test is met.
Finally, at the close of each quarter of its taxable year, at
least 50% of the value of a Portfolio's assets must consist of cash and cash
items, U.S. government securities, securities of other regulated investment
companies, and securities of other issuers (as to which a Portfolio has not
invested more than 5% of the value of its total assets in
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securities of such issuer and as to which that Portfolio does not hold more than
10% of the outstanding voting securities of such issuer) and no more than 25% of
the value of such Portfolio's total assets may be invested in the securities of
any one issuer (other than U.S. government securities and securities of other
regulated investment companies), or in two or more issuers which the Portfolio
controls and which are engaged in the same or similar trades or businesses.
Each Portfolio will designate any distribution of the excess
of net long-term capital gain over net short-term capital loss as a capital gain
dividend in a written notice mailed to shareholders within 60 days after the
close of the Portfolio's taxable year. Such distributions, if any, will be
taxable to shareholders who are not currently exempt from federal income tax as
long-term capital gains, no matter how long the shareholder has held these
shares. Shareholders should note that, upon the sale or exchange of Portfolio
shares, if the shareholder has not held such shares for more than six months,
any loss on the sale or exchange of those shares will be treated as long-term
capital loss to the extent of the capital gain dividends received with respect
to the shares.
Ordinary income of individuals is taxable at a maximum
nominal rate of 39.6%, but because of limitations on itemized deductions
otherwise allowable and the phase-out of personal exemptions, the maximum
effective marginal rate of tax for some taxpayers may be higher. An individual's
long-term capital gains are taxable at a maximum rate of 28%. For corporations,
long-term capital gains and ordinary income are both taxable at a maximum
nominal rate of 35% (or at a maximum marginal rate of 39% in the case of
corporations having taxable income between $100,000 and $335,000).
A 4% nondeductible excise tax is imposed on regulated
investment companies that fail to currently distribute specified percentages of
their ordinary taxable income and capital gain net income (excess of capital
gains over capital losses). Each Portfolio intends to make sufficient
distributions or deemed distributions of its ordinary taxable income and any
capital gain net income each year to avoid liability for this excise tax.
If for any taxable year a Portfolio does not qualify for the
special federal income tax treatment afforded regulated investment companies,
all of its taxable income will be subject to federal income tax at regular
corporate rates (without any deduction for distributions to its shareholders).
In such event, dividend distributions would be taxable as ordinary income to
shareholders, to the extent of the Portfolio's current and
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accumulated earnings and profits and would be eligible for the dividends
received deduction allowed to corporations.
THE TAX-EXEMPT PORTFOLIOS
The policy of each Tax-Exempt Portfolio is to pay to its
shareholders each year as exempt-interest dividends substantially all of its
Municipal Obligation interest income net of certain deductions. In order for a
Tax-Exempt Portfolio to pay exempt-interest dividends for any taxable year, at
the close of each quarter of its taxable year at least 50% of the aggregate
value of the Portfolio's assets must consist of exempt-interest obligations.
Exempt-interest dividends may be treated by the shareholders as items of
interest excludable from their gross income under Section 103(a) of the Code. An
exempt-interest dividend is any dividend or part thereof (other than a capital
gain dividend) paid by a Tax-Exempt Portfolio and designated as an
exempt-interest dividend in a written notice mailed to shareholders not later
than forty-five days (with respect to Missouri income tax) and sixty days (with
respect to federal income tax) after the close of the Portfolio's taxable year.
However, the aggregate amount of dividends so designated by the Portfolio cannot
exceed the excess of the amount of interest exempt from tax under Section 103 of
the Code received by the Portfolio during the taxable year over any amounts
disallowed as deductions under Sections 265 and 171(a)(2) of the Code. The
percentage of total dividends paid for any taxable year which qualifies as
exempt-interest dividends will be the same for all shareholders receiving
dividends from the Portfolio during such year, regardless of the period for
which the Shares were held.
Shareholders who might be treated as a "substantial user" or
a "related person" to such user with respect to facilities financed through any
of the tax-exempt obligations held by a Tax-Exempt Portfolio, are advised to
consult their tax advisors with respect to whether exempt-interest dividends
retain the exclusion under Section 103(a). A "substantial user" is defined under
U.S. Treasury Regulations to include a non-exempt person (i) who regularly uses
a part of such facilities in his trade or business and (ii)(A) whose gross
revenues derived with respect to the facilities financed by the issuance of
bonds are more than 5% of the total revenues derived by all users of such
facilities, (B) who occupies more than 5% of the usable area of such facilities
or (C) for whom such facilities or a part thereof were specifically constructed,
reconstructed or acquired. "Related persons" include certain related natural
persons, affiliated corporations, partnerships and its partners, and S
corporations and their shareholders.
Interest on indebtedness incurred by a shareholder to
purchase or carry shares of the Tax-Exempt Portfolios generally
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is not deductible for federal income tax purposes. In addition, if a shareholder
holds Portfolio Shares for six months or less, any loss on the sale or exchange
of those Shares will be disallowed to the extent of the amount of
exempt-interest dividends received with respect to the Shares. The Treasury
Department, however, is authorized to issue regulations reducing the six months
holding requirement to a period of not less than the greater of 31 days or the
period between regular dividend distributions where the investment company
regularly distributes at least 90% of its net tax-exempt interest. No such
regulations had been issued as of the date of this Statement of Additional
Information.
TAXATION OF CERTAIN FINANCIAL INSTRUMENTS
Special rules govern the federal income tax treatment of
financial instruments that may be held by the Growth & Income Equity, Emerging
Growth, Government & Corporate Bond, U.S. Government, Balanced or International
Equity Portfolios. These rules may have a particular impact on the amount of
income or gain that a Portfolio must distribute to shareholders to comply with
the distribution requirement, on the income or gain qualifying under the 90%
gross income test, and on a Portfolio's ability to comply with the 30% test
described above.
Generally, futures contracts and options on futures contracts
held by a Portfolio at the close of its taxable year are treated for federal
income tax purposes as sold for their fair market value on the last business day
of such year, a process known as "mark-to-market." Forty percent of any gain or
loss resulting from such constructive sales are treated as short-term capital
gain or loss and 60% of such gain or loss are treated as long-term capital gain
or loss without regard to the period the Portfolio holds the futures contract or
related option (the "40%-60% rule"). The amount of any capital gain or loss
actually realized by a Portfolio in a subsequent sale or other disposition of
those futures contracts and related options is adjusted to reflect any capital
gain or loss taken into account by a Portfolio in a prior year as a result of
the constructive sale of the contracts and options. Losses with respect to
futures contracts to sell and related options, which are regarded as parts of a
"mixed straddle" because their values fluctuate inversely to the values of
specific securities held by a Portfolio, are subject to certain loss deferral
rules which limit the amount of loss currently deductible on either part of the
straddle to the amount thereof which exceeds the unrecognized gain (if any) with
respect to the other part of the straddle, and to certain wash sales
regulations. Under short sales rules, which are also applicable, the holding
period of the securities forming part of the straddle will (if they have not
been held for the long-term holding period) be deemed not to begin prior to
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termination of the straddle. With respect to certain futures contracts and
related options, deductions for interest and carrying charges may not be
allowed. Notwithstanding the rules described above, with respect to futures
contracts to sell and related options which are properly identified as such, a
Portfolio may make an election which will exempt (in whole or in part) those
identified futures contracts and options from being treated for federal income
tax purposes as sold on the last business day of the Portfolio's taxable year,
but gains and losses will be subject to such short sales, wash sales and loss
deferral rules and the requirement to capitalize interest and carrying charges.
Under Temporary Regulations, a Portfolio would be allowed (in lieu of the
foregoing) to elect either (1) to offset gains or losses from positions which
are part of a mixed straddle by separately identifying each mixed straddle to
which such treatment applies, or (2) to establish a mixed straddle account for
which gains and losses would be recognized and offset on a periodic basis during
the taxable year. Under either election, the 40%-60% rule will apply to the net
gain or loss attributable to the futures contracts and options, but in the case
of a mixed straddle account election, not more than 50% of any net gain may be
treated as long-term and no more than 40% of any net loss may be treated as
short-term.
Certain foreign currency contracts (including forward foreign
currency exchange contracts) entered into by the Growth & Income Equity,
Emerging Growth, Government & Corporate Bond, U.S. Government Securities,
Balanced or International Equity Portfolios may be subject to the mark-to-market
rules described above. To receive such treatment, a foreign currency contract
must meet the following conditions: (1) the contract must require delivery of a
foreign currency of a type in which regulated futures contracts are traded or
upon which the settlement value of the contract depends; (2) the contract must
be entered into at arm's length at a price determined by reference to the price
in the interbank market; and (3) the contract must be traded in the interbank
market. The Treasury Department has broad authority to issue regulations under
these provisions. As of the date of this Statement of Additional Information,
the Treasury Department had not issued any such regulations. Other foreign
currency contracts entered into by a Portfolio may result in the creation of one
or more straddles for federal income tax purposes, in which case certain loss
deferral, short sales, and wash sales rules and the requirement to capitalize
interest and carrying charges may apply.
Some of the non-U.S. dollar denominated investments that the
Growth & Income Equity, Emerging Growth, Government & Corporate Bond, U.S.
Government Securities, Balanced and International Equity Portfolios may make,
such as non-U.S. dollar-denominated debt securities and obligations and
preferred
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stock, as well as some of the foreign currency contracts a Portfolio may enter
into, may be subject to the provisions of Subpart J of the Code, which govern
the federal income tax treatment of certain transactions denominated in terms of
a currency other than the U.S. dollar or determined by reference to the value of
one or more currencies other than the U.S dollar. The types of transactions
covered by these provisions include the following: (1) the acquisition of, or
becoming the obligor under, a bond or other debt instrument (including, to the
extent provided in Treasury regulations, preferred stock); (2) the accruing of
certain trade receivables and payables; and (3) the entering into or acquisition
of any forward contract, futures contract, option and similar financial
instrument. The disposition of a currency other than the U.S. dollar by a U.S.
taxpayer also is treated as a transaction subject to the special currency rules.
However, foreign currency-related regulated futures contracts and nonequity
options generally are not subject to the special currency rules if they are or
would be treated as sold for their fair market value at year-end under the
mark-to-market rules, unless an election is made to have such currency rules
apply. With respect to transactions covered by the special rules, foreign
currency gain or loss is calculated separately from any gain or loss on the
underlying transaction and normally is taxable as ordinary gain or loss. A
Portfolio may elect to treat as capital gain or loss foreign currency gain or
loss arising from certain identified forward contracts, futures contracts and
options that are capital assets in the hands of the Portfolio and which are not
part of a straddle. In accordance with Treasury Regulations, certain
transactions subject to the special currency rules that are part of a "Section
988 hedging transaction" (as defined in the Code and Treasury regulations) will
be integrated and treated as a single transaction or otherwise treated
consistently for purposes of the Code. "Section 988 hedging transactions" are
not subject to the mark-to-market or loss deferral rules under the Code. Gain or
loss attributable to the foreign currency component of transactions engaged in
by a Portfolio which are not subject to the special currency rules (such as
foreign equity investments other than certain preferred stocks) is treated as
capital gain or loss and is not segregated from the gain or loss on the
underlying transaction.
CONCLUSIONS
The foregoing discussion is based on federal tax laws and
regulations which are in effect on the date of this Statement of Additional
Information; such laws and regulations may be changed by legislative or
administrative action. Shareholders are advised to consult their tax advisors
concerning the application of state and local taxes.
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MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The directors and executive officers(1) of the Fund, their
addresses, ages, principal occupations during the past five years, and other
affiliations are as follows:
<TABLE>
<CAPTION>
Principal Occupations
Position with During Past 5 years
Name and Address the Fund and other affiliations
- ---------------- -------- ----------------------
<S> <C> <C>
Jerry V. Woodham(2) Chairman of Former Treasurer, Washington
745 Stump Road The Board; University, 1981 to 1995.
St. Louis, MO 63131 President and
Age: 52 Director
Robert M. Cox, Jr. Director Senior Vice President and Advisory
Emerson Electric Co. Director, Emerson Electric Co.
8000 W. Florissant Ave. since November 1990.
P.O. Box 4100
St. Louis, MO 63136-8506
Age: 50
Joseph J. Hunt Director General Vice-President
Iron Workers District International Association of
Council Bridge, Structural and Ornamental
3544 Watson Road Iron Workers (International Labor
St. Louis, MO 63139 Union), January 1994 to present;
Age: 53 General Organizer, International
Association of Bridge, Structural
and Ornamental Iron Workers,
September 1983 to December 1993.
James C. Jacobsen Director Director, Kellwood Company, since
Kellwood Company 1975; Vice Chairman, Kellwood
600 Kellwood Parkway Company since May 1989.
Chesterfield, MO 63017
Age: 60
</TABLE>
- ------------------------
(1) Directors and officers of the Fund owned less than 1% of the outstanding
shares of the Fund as of November 30, 1995.
(2) Mr. Woodham is an "interested person" of the Fund as defined in the 1940
Act.
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<TABLE>
<CAPTION>
Principal Occupations
Position with During Past 5 years
Name and Address the Fund and other affiliations
- ---------------- -------- ----------------------
<S> <C> <C>
Donald E. Kiernan Director Senior Vice President - Finance
Southwestern Bell and Treasurer, Southwestern Bell
Corporation Corporation since December 1990.
175 E. Houston St.
P.O. Box 2933
Room 7-A-50
San Antonio, TX 78299
Age: 55
Lyle L. Meyer Director Vice President, The Jefferson
Jefferson Smurfit Smurfit Corporation, April 1989 to
Corporation present; President, Smurfit
8182 Maryland Avenue Pension & Insurance Services
St. Louis, MO 63105 Company, November 1982 to December
Age: 59 1992.
Ronald D. Winney* Director and Treasurer, Ralston Purina Company
Ralston Purina Company Treasurer Since 1985.
Checkerboard Square
St. Louis, MO 63164
Age: 53
W. Bruce McConnel, III Secretary Partner of the law firm of Drinker
Suite 1100 Biddle & Reath, Philadelphia,
1345 Chestnut Street Pennsylvania Since 1977.
Philadelphia, PA 19107
Age: 53
Walter B. Grimm* Assistant From June, 1992 to present,
3435 Stelzer Road Secretary employee of BISYS Fund Services;
Columbus, OH 43219 From 1989 to June, 1992 President
Age: 50 of Leigh Investments Consulting/
Investments (investment firm).
Stephen G. Mintos* Vice President From April, 1987 to present,
3435 Stelzer Road and Assistant employee of BISYS Fund Services.
Columbus, OH 43219 Treasurer
Age: 42
</TABLE>
- ------------------------
* Messrs. Grimm, Winney, and Mintos are "interested persons" of the Fund as
defined in the 1940 Act.
For the fiscal year ended November 30, 1995, the Directors received the
following compensation:
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<TABLE>
<CAPTION>
PENSION OR TOTAL
RETIREMENT COMPENSATION
AGGREGATE BENEFITS ACCRUED FROM THE FUND AND
COMPENSATION AS PART OF FUND FUND COMPLEX(1)
NAME OF DIRECTOR FROM THE FUND EXPENSE
<S> <C> <C> <C>
Jerry V. Woodham $13,459.70 N/A $15,000.00
Robert M. Cox, Jr. $8,973.13 N/A $10.000.00
Joseph J. Hunt $8,973.13 N/A $10,000.00
James C. Jacobsen $8,973.13 N/A $10,000.00
Donald E. Kiernan $8,973.13 N/A $10,000.00
Lyle L. Meyer $8,973.13 N/A $10,000.00
Ronald D. Winney $8,973.13 N/A $10,000.00
</TABLE>
(1) The "Fund Complex" includes The ARCH Fund, Inc. and The ARCH Tax-Exempt
Trust.
Drinker Biddle & Reath, of which Mr. McConnel is a
partner, receives legal fees as counsel to the Fund.
INVESTMENT ADVISORY, SUB-ADVISORY AND ADMINISTRATION AGREEMENTS
MVA serves as investment adviser to each Portfolio. In
addition, Clay Finlay serves as sub-investment adviser to the
International Equity Portfolio. Pursuant to the advisory and
sub-advisory agreements, MVA and Clay Finlay have agreed to
provide investment advisory and sub-investment advisory services,
respectively, as described in the Portfolios' Prospectuses. MVA
and Clay Finlay have agreed to pay all expenses incurred by them
in connection with their activities under their respective
agreements other than the cost of securities, including brokerage
commissions, if any, purchased for the Portfolios.
The investment advisory agreement (and sub-investment advisory
agreement for the International Equity Portfolio) provide that MVA and Clay
Finlay, respectively, shall not be liable for any error of judgment or mistake
of law or for any loss suffered in connection with the performance of their
respective agreements, except a loss resulting from a breach of fiduciary duty
with respect to the receipt of compensation for services or a loss resulting
from willful misfeasance, bad faith or gross negligence in the performance of
their duties or from reckless disregard by them of their duties and obligations
thereunder.
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Under its administration agreement with the Fund, BISYS Fund
Services Ohio, Inc. (the "Administrator") serves as administrator. The
Administrator has agreed to maintain office facilities for the Portfolios,
furnish the Portfolios with statistical and research data, clerical, accounting,
and certain bookkeeping services, stationery and office supplies, and certain
other services required by the Portfolios, and to compute the net asset value
and net income of the Portfolios. The Administrator prepares annual and
semi-annual reports to the SEC on Form N-SAR, compiles data for and prepares
federal and state tax returns and required tax filings other than those required
to be made by the Fund's custodian and transfer agent, prepares the Fund's
compliance filings with state securities commissions, maintains the registration
or qualification of shares for sale under the securities laws of any state in
which the Fund's shares shall be registered, assists in the preparation of
annual and semi-annual reports to shareholders of record, participates in the
periodic updating of the Fund's Registration Statement, prepares and assists in
the timely filing of notices to the SEC required pursuant to Rule 24f-2 under
the 1940 Act, arranges for and bears the cost of processing share purchase,
exchange and redemption orders, keeps and maintains the Portfolios' financial
accounts and records including calculation of daily expense accruals, monitors
compliance procedures for each of the classes of the Fund's Portfolios with each
Portfolio's investment objective, policies and limitations, tax matters, and
applicable laws and regulations, and generally assists in all aspects of the
Portfolios' operations. The Administrator bears all expenses in connection with
the performance of its services, except that a Portfolio bears any expenses
incurred in connection with any use of a pricing service to value portfolio
securities. (See "Net Asset Value -- Equity and Bond Portfolios" above).
From time to time, MVA and the Administrator may voluntarily
waive a portion or all of their respective fees otherwise payable to them with
respect to the Fund's Portfolios in order to increase the net income available
for distribution to shareholders. For the fiscal year or period ended November
30, 1995, MVA was paid advisory fees, after waivers, as follows:
<TABLE>
<CAPTION>
FEES PAID
PORTFOLIOS (AFTER WAIVERS) WAIVERS
---------- --------------- -------
<S> <C> <C>
Money Market $2,202,658 $314,865
Treasury Money Market $ 795,911 $124,279
Tax-Exempt Money Market(1) $ 161,659 $ 23,094
Growth & Income Equity $1,736,792 $ 0
Emerging Growth $ 962,984 $ 0
</TABLE>
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<PAGE> 342
<TABLE>
<CAPTION>
FEES PAID
PORTFOLIOS (AFTER WAIVERS) WAIVERS
---------- --------------- -------
<S> <C> <C>
Government & Corporate Bond $ 660,877 $ 0
U.S. Government Securities $ 208,179 $ 0
Balanced $ 775,992 $ 0
International Equity $ 239,167 $78,752
Short-Intermediate Municipal(2) $ 0 $38,167
Missouri Tax-Exempt Bond(1) $ 156,100 $ 0
Kansas Tax-Exempt Bond(3) N/A N/A
</TABLE>
- -----------------------------
(1) For the six-month period ended November 30, 1995.
(2) For the period from commencement of operations (July 10, 1995) through
November 30, 1995.
(3) Portfolio had not commenced operations as of November 30, 1995.
For the fiscal year or period ended November 30, 1994 (May 31,
1995 with respect to the Predecessor Tax-Exempt Money Market and Predecessor
Missouri Tax-Exempt Bond Portfolios), MVA was paid advisory fees, after waivers,
as follows:
<TABLE>
<CAPTION>
FEES PAID
PORTFOLIOS (AFTER WAIVERS) WAIVERS
---------- --------------- -------
<S> <C> <C>
Money Market $2,158,091 $311,198
Treasury Money Market $ 676,057 $353,812
Tax-Exempt Money Market $ 327,584 $ 93,173
Growth & Income Equity $1,441,612 $ 9,612
Emerging Growth $ 577,534 $ 2,815
Government & Corporate Bond $ 668,999 $ 2,128
U.S. Government Securities $ 200,493 $ 209
Balanced $ 685,226 $ 14,157
International Equity(1) $ 73,083 $ 42,943
Short-Intermediate Municipal(2) N/A N/A
</TABLE>
-74-
<PAGE> 343
<TABLE>
<CAPTION>
FEES PAID
PORTFOLIOS (AFTER WAIVERS) WAIVERS
---------- --------------- -------
<S> <C> <C>
Missouri Tax-Exempt Bond $ 230,777 $ 91,762
Kansas Tax-Exempt Bond(2) N/A N/A
</TABLE>
- -----------------------------
(1) For the period from commencement of operations (April 4, 1994) through
November 30, 1994.
(2) Portfolio had not commenced operations as of November 30, 1994.
For the fiscal year or period ended November 30, 1993 (May 31,
1994 with respect to the Predecessor Tax-Exempt Money Market and Predecessor
Missouri Tax-Exempt Bond Portfolios), MVA was paid advisory fees, after waivers,
as follows:
<TABLE>
<CAPTION>
FEES PAID
PORTFOLIOS (AFTER WAIVERS) WAIVERS
---------- --------------- -------
<S> <C> <C>
Money Market $2,202,383 $314,626
Treasury Money Market $ 344,642 $450,623
Tax-Exempt Money Market $ 440,267 $146,756
Growth & Income Equity $1,323,589 $ 0
Emerging Growth $ 152,048 $157,368
Government & Corporate Bond $ 661,241 $ 0
U.S. Government Securities $ 197,616 $ 0
Balanced(1) $ 219,850 $120,723
International Equity(2) N/A N/A
Short-Intermediate Municipal(2) N/A N/A
Missouri Tax-Exempt Bond $ 123,192 $193,555
Kansas Tax-Exempt Bond(2) N/A N/A
</TABLE>
- -----------------------------
(1) For the period from commencement of operations (April 1, 1993) through
November 30, 1993.
(2) Portfolio had not commenced operations as of November 30, 1993.
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<PAGE> 344
For the year ended May 31, 1993, the Predecessor Tax-Exempt
Money Market and Predecessor Missouri Tax-Exempt Bond Portfolios paid MVA
advisory fees, after waivers, as follows:
<TABLE>
<CAPTION>
FEES PAID
PORTFOLIOS (AFTER WAIVERS) WAIVERS
---------- --------------- -------
<S> <C> <C>
Tax-Exempt Money Market $570,098 $142,782
Missouri Tax-Exempt Bond $ 0 $157,753
</TABLE>
For the fiscal year or period ended November 30, 1995, the
Administrator was paid administration fees, after waivers, as follows:
<TABLE>
<CAPTION>
FEES PAID
PORTFOLIOS (AFTER WAIVERS) WAIVERS
---------- --------------- -------
<S> <C> <C>
Money Market $629,331 $629,431
Treasury Money Market $230,049 $230,045
Tax-Exempt Money Market(1) $ 46,188 $ 0
Growth & Income Equity $315,754 $316,168
Emerging Growth $128,398 $128,825
Government & Corporate Bond $146,859 $147,087
U.S. Government Securities $ 46,262 $ 46,322
Balanced $103,465 $103,589
International Equity $ 47,635 $ 15,949
Short-Intermediate Municipal(2) $ 6,965 $ 6,914
Missouri Tax-Exempt Bond(1) $ 34,689 $ 34,808
Kansas Tax-Exempt Bond(3) N/A N/A
</TABLE>
- -----------------------------
(1) For the six-month period ended November 30, 1995.
(2) For the period from commencement of operations (July 10, 1995) through
November 30, 1995.
(3) Portfolio had not commenced operations as of November 30, 1995.
For the fiscal year or period ended November 30, 1994 (May 31, 1995
with respect to the Predecessor Tax-Exempt Money Market and Predecessor Missouri
Tax-Exempt Bond Portfolios), the Administrator was paid administration fees,
after waivers, as follows:
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<PAGE> 345
<TABLE>
<CAPTION>
FEES PAID
PORTFOLIOS (AFTER WAIVERS) WAIVERS
---------- --------------- -------
<S> <C> <C>
Money Market $616,597 $618,047
Treasury Money Market $257,468 $257,467
Tax-Exempt Money Market $105,189 $ 0
Growth & Income Equity $262,112 $265,606
Emerging Growth $ 77,005 $ 77,755
Government & Corporate Bond $148,667 $149,612
U.S. Government Securities $ 44,554 $ 44,647
Balanced $ 91,363 $ 95,139
International Equity(1) $ 17,350 $ 5,855
Short-Intermediate Municipal(2) N/A N/A
Missouri Tax-Exempt Bond $143,351 $ 71,654
Kansas Tax-Exempt Bond(2) N/A N/A
</TABLE>
- -----------------------------
(1) Commenced operations April 4, 1994.
(2) Portfolio had not commenced operations as of November 30, 1994.
For the fiscal year or period ended November 30, 1993 (May 31,
1994 with respect to the Predecessor Tax-Exempt Money Market and Predecessor
Missouri Tax-Exempt Bond Portfolios), the Administrator was paid administration
fees, after waivers, as follows:
<TABLE>
<CAPTION>
FEES PAID
PORTFOLIOS (AFTER WAIVERS) WAIVERS
---------- --------------- -------
<S> <C> <C>
Money Market $686,636 $571,868
Treasury Money Market $198,816 $198,816
Tax-Exempt Money Market $146,756 $ 0
Growth & Income Equity $240,652 $240,752
Emerging Growth $ 38,225 $ 44,286
Government & Corporate Bond $146,941 $147,022
U.S. Government Securities $ 40,213 $ 47,622
Balanced(1) $ 45,398 $ 45,422
International Equity(2) N/A N/A
</TABLE>
-77-
<PAGE> 346
<TABLE>
<CAPTION>
FEES PAID
PORTFOLIOS (AFTER WAIVERS) WAIVERS
---------- --------------- -------
<S> <C> <C>
Short-Intermediate Municipal(2) N/A N/A
Missouri Tax-Exempt Bond $ 70,367 $ 70,449
Kansas Tax-Exempt Bond(2) N/A N/A
</TABLE>
- -----------------------------
(1) Commenced operations April 1, 1993.
(2) Portfolio had not commenced operations as of November 30, 1993.
For the fiscal year ended November 30, 1993 with respect to
the Money Market, Treasury Money Market, Growth & Income Equity, Emerging
Growth, Government & Corporate Bond, U.S. Government Securities and Balanced
Portfolios, administration fees were paid to the former administrator, The
Boston Company Advisors, Inc. ("Boston Advisors") until May 31, 1993 and
thereafter were paid to the Administrator. Therefore, the fees listed above for
such period with respect to these Portfolios represent the combined fees paid to
both administrators after fee waivers and the combined fee waivers of both
administrators. For the fiscal year ended May 31, 1993 the Predecessor
Tax-Exempt Money Market and Predecessor Missouri Tax-Exempt Bond Portfolios paid
administration fees to Boston Advisors pursuant to the administration agreement
then in effect of $142,442 and $70,113, respectively. For the same period,
Boston Advisors voluntarily waived administration fees of $35,056 payable to it
by the Predecessor Missouri Tax-Exempt Bond Portfolio.
In addition, the Portfolios' advisory and administration
agreements provide that if expenses borne by any Portfolio in any fiscal year
exceed expense limitations imposed by applicable state securities regulations,
(i) MVA will reimburse the Fund for 60% of such excess expenses and (ii) the
Administrator will reimburse the Fund for a portion of any such excess expenses
in an amount equal to the proportion that the administration fees otherwise
payable by the Portfolio to the Administrator bears to the total amount of the
investment advisory and administration fees otherwise payable by the Portfolio,
in each case to the extent required by such regulations. To the Fund's
knowledge, it is not presently subject to any expense limitation. The fees that
financial institutions, Service Organizations, and broker-dealers may charge to
customers for services provided in connection with their investments in the
Portfolios are not covered by the state securities expense limitations described
above.
-78-
<PAGE> 347
CUSTODIAN AND TRANSFER AGENT
Mercantile is Custodian of the Portfolios' assets pursuant to a Custodian
Agreement. Under the Custodian Agreement, Mercantile has agreed to (i) maintain
a separate account or accounts in the name of each Portfolio; (ii) receive and
disburse money on behalf of each Portfolio; (iii) collect and receive all income
and other payments and distributions on account of each Portfolio's portfolio
securities; (iv) respond to correspondence relating to its duties; and (v) make
periodic reports to the Fund's Board of Directors concerning the operations of
each Portfolio. Mercantile may, at its own expense, open and maintain a custody
account or accounts on behalf of each Portfolio with other banks or trust
companies, provided that Mercantile shall remain liable for the performance of
all of its custodial duties under the Custodian Agreement, notwithstanding any
delegation. Mercantile is authorized to select one or more banks or trust
companies to serve as sub-custodian on behalf of the Portfolios, provided that
Mercantile shall remain responsible for the performance of all of its duties
under the Custodian Agreement and shall hold the Fund harmless from the acts and
omissions of any bank or trust company servicing as sub-custodian.
In the opinion of the staff of the SEC, since the Custodian is an
affiliate of the investment adviser, the Fund and the Custodian are subject to
the requirements of Rule 17f-2 under the 1940 Act. Accordingly the Fund and the
Custodian intend to comply with the requirements of such rule.
Pursuant to the Custodian Agreement with the Fund, each Portfolio pays
Mercantile an annual fee. For each Money Market Portfolio this fee is paid
monthly and calculated daily at the rate of $.125 for each $1,000 of each such
Portfolio's average daily net assets plus, in the case of the Tax-Exempt Money
Market Portfolio only, $50 for each interest collection or claim item. For the
Equity and Bond Portfolios (except the International Equity Portfolio), this
fee, which is paid monthly, is calculated as the greater of $6,000 or $.30. For
the International Equity Portfolio, this fee, which is calculated daily and paid
monthly, is .17% of the Portfolio's average daily net assets for the first $50
million; .155% of the Portfolio's average daily net assets for the next $50
million; .13% of the Portfolio's average daily net assets for the next $150
million; and .105% of the Portfolio's average daily net assets thereafter. Each
Equity and Bond Portfolio also pays $15.00 for each purchase, sale or delivery
of a security upon its maturity date, $50.00 for each interest collection or
claim item, $20.00 for each transaction involving GNMA, tax-free or other
non-depository registered items with monthly dividends or interest, $30.00 for
each purchase, sale or expiration of an option contract, $50.00
-79-
<PAGE> 348
for each purchase, sale or expiration of a futures contract, and $15.00 for each
repurchase trade with an institution other than Mercantile. In addition, each
Portfolio pays Mercantile's incremental costs in providing foreign custody
services for any foreign-denominated and foreign-held securities and reimburses
Mercantile for out-of-pocket expenses related to such services.
BISYS Fund Services Ohio, Inc. also serves as the Fund's transfer agent
and dividend disbursing agent (in those capacities, the "Transfer Agent")
pursuant to a Transfer Agency Agreement. Under the Agreement, the Transfer Agent
has agreed to (i) process shareholder purchase and redemption orders; (ii)
maintain shareholder records for each of the Portfolios' shareholders; (iii)
process transfers and exchanges of shares of the Portfolios; (iv) issue periodic
statements for each of the Portfolios' shareholders; (v) process dividend
payments and reinvestments; (vi) assist in the mailing of shareholder reports
and proxy solicitation materials; and (vii) make periodic reports to the Fund's
Board of Directors concerning the operations of each Portfolio.
DISTRIBUTION AND SERVICE ORGANIZATIONS
BISYS Fund Services (the "Distributor"), an affiliate of the
Administrator, serves as the Distributor of the Portfolios' shares pursuant to a
Distribution Agreement. Under the Distribution Agreement, the Distributor, as
agent, sells shares of the Portfolios on a continuous basis. The Distributor has
agreed to use appropriate efforts to solicit orders for the sale of shares. With
respect to each Portfolio's Trust shares and Institutional shares, no
compensation is payable by the Fund to the Distributor for distribution
services. The Distributor is entitled to the payment of a front-end sales charge
on the sale of Investor A Shares of the Equity and Bond Portfolios as described
in the Prospectus for such shares. For the fiscal years ended November 30, 1995,
1994 and the period from June 1, 1993 through November 30, 1993, the Distributor
received front-end sales charges in connection with Investor A share purchases
as follows: Growth & Income Equity Portfolio -- $96,851, $95,623, and $47,729,
respectively; Government & Corporate Bond Portfolio -- $10,250, $12,979 and
$12,037, respectively; U.S. Government Securities Portfolio -- $6,238, $26,300
and $21,460, respectively; Emerging Growth Portfolio -- $60,626, $87,769 and
$27,493, respectively; Balanced Portfolio -- $7,442, $24,483 and $26,433,
respectively; and Missouri Tax-Exempt Bond Portfolio, $45,981, $96,782 and
$148,121, respectively. For the fiscal year ended November 30, 1995 and the
period May 2, 1994 (commencement of operations) through November 30, 1994, the
Distributor received front-end sales charges in connection with Investor A share
purchases of the International Equity Portfolio of $14,251 and $11,880,
respectively. Of these amounts, the
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<PAGE> 349
Distributor retained $11,647, $11,846 and $5,810, respectively, and MVA and
affiliates retained $27,761, $21,021 and $7,635, respectively, with respect to
the Growth & Income Equity Portfolio; the Distributor retained $1,354, $1,720
and $1,454, respectively, and MVA and its affiliates retained $5,711, $5,834 and
$1,792, respectively, with respect to the Government & Corporate Bond Portfolio;
the Distributor retained $784, $3,318 and $2,759, respectively, and MVA and
affiliates retained $2,101, $10,456 and $4,586, respectively, with respect to
the U.S. Government Securities Portfolio; the Distributor retained $7,085,
$10,476 and $3,425, respectively, and MVA and affiliates retained $15,259,
$22,854 and $5,713, respectively, with respect to the Emerging Growth Portfolio;
the Distributor retained $871, $3,466 and $3,280, respectively, and MVA and
affiliates retained $2,721, $8,755 and $4,571, respectively, with respect to the
Balanced Portfolio; the Distributor retained $6,400, $13,608 and $22,328,
respectively, and MVA and affiliates retained $9,735, $8,954 and $22,350,
respectively, with respect to the Missouri Tax-Exempt Bond Portfolio; and the
Distributor retained $1,626 and $1,441, respectively, and MVA and affiliates
retained $5,431 and $1,952, respectively, with respect to the International
Equity Portfolio.
The Distributor is also entitled to the payment of contingent deferred
sales charges upon the redemption of Investor B Shares of the Portfolios. For
the period from March 1, 1995 (date of their initial public offering) through
November 30, 1995, the Distributor received contingent deferred sales charge in
connection with Investor B share redemptions as follows: Growth & Income Equity
Portfolio -- $209; Emerging Growth Portfolio -- $253; Government & Corporate
Bond Portfolio -- $1,246; U.S. Government Securities Portfolio -- $135; Balanced
Portfolio -- $0; International Equity Portfolio -- $0; and Missouri Tax-Exempt
Bond Portfolio -- $7. All such amounts were assigned to MVA pursuant to the
financing arrangement between the Distributor and MVA described below under "The
Plans -- Distribution and Services Plans."
The following table shows all sales charges, commissions and other
compensation received by the Distributor directly or indirectly from the Fund's
existing Portfolios during the fiscal year ended November 30, 1995:
<TABLE>
<CAPTION>
Brokerage
Commissions in
Net Underwriting Compensation on Connection with
Discounts and Redemption and Portfolio Other
Portfolio Commissions(1) Repurchase(2) Transactions Compensation(3)
--------- ---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
</TABLE>
-81-
<PAGE> 350
<TABLE>
<S> <C> <C> <C> <C>
Money Market $ 0 $ 0 $0 $544,358
Treasury Money $ 0 $ 0 $0 $157,186
Market
Tax-Exempt
Money Market $ 0 $ 0 $0 $ 13,027
Growth & Income
Income Equity $15,339 $ 209 $0 $148,479
Emerging Growth $10,091 $ 253 $0 $ 72,904
Government &
Corporate Bond $ 2,037 $ 1,246 $0 $ 36,484
U.S. Government
Securities $ 1,001 $ 135 $0 $ 28,279
Balanced $ 1,030 $ 0 $0 $107,537
International
Equity $ 2,122 $ 0 $0 $ 8,093
Short-Intermediate
Municipal $ 0 $ 0 $0 $ 0
Missouri Tax-
Exempt Bond $ 8,505 $ 7 $0 $ 37,905
</TABLE>
(1) Represents amounts received from front-end sales charges on Investor A
Shares and commissions received in connection with sales of Investor B
Shares.
(2) Represents amounts received from contingent deferred sales charges on
Investor B Shares. The basis on which such sales charges are paid is
described in the Prospectus relating to Investor B Shares. All such amounts
were assigned to MVA pursuant to the financing arrangements between the
Distributor and MVA described below.
(3) Represents payments made under the Administrative Services Plans and
Distribution and Services Plans that have been adopted by the Fund (see
discussion below).
THE PLANS
DISTRIBUTION AND SERVICES PLANS. As described in the Prospectuses, the
Fund has adopted separate Distribution and
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<PAGE> 351
Services Plans with respect to Investor A and Investor B Shares of the
Portfolios pursuant to the 1940 Act and Rule 12b-1 thereunder. Any material
amendment to either of these Plans or arrangements with the Distributor or
Service Organizations (which may include affiliates of the Fund's Adviser) must
be approved by a majority of the Board of Directors, including a majority of the
directors who are not "interested persons" of the Fund as defined in the 1940
Act and have no direct or indirect financial interest in such arrangements (the
"Disinterested Directors") and by a majority of the Investor A Shares or
Investor B Shares, respectively, of the Portfolio. Pursuant to the Plans, the
Fund may enter into Servicing Agreements with broker-dealers and other
organizations ("Servicing Agreements") that purchase Investor A or Investor B
Shares of a Portfolio. The Servicing Agreements provide that the Servicing
Organizations will render certain shareholder administrative support services to
their customers who are the record or beneficial owners of Investor A or
Investor B Shares. Services provided pursuant to the Servicing Agreements may
include such services as providing information periodically to customers showing
their positions in Investor A or Investor B Shares and monitoring services for
their customers who have invested in Investor A or Investor B Shares, including
the operation of telephone lines for daily quotations of return information.
Service Organizations and other broker/dealers receive commissions from
the Distributor for selling Investor B Shares, which are paid at the time of the
sale. These commissions approximate the commissions payable with respect to
sales of Investor A Shares. The distribution fees payable under the Distribution
and Services Plan for Investor B Shares (at an annual rate of .75%) are intended
to cover the expense to the Distributor of paying such up-front commissions, and
the contingent deferred sales charge is calculated to charge the investor with
any shortfall that would occur if Investor B Shares are redeemed prior to the
expiration of the eight year period, after which Investor B Shares automatically
convert to Investor A Shares. To provide funds for the payment of up-front sales
commissions, the Distributor has entered into an agreement with MVA pursuant to
which MVA provides funds for the payment of commissions and other fees payable
to Service Organizations and broker/dealers who sell Investor B Shares. Under
the terms of that agreement, the Distributor has assigned to MVA the fees which
may be payable from time to time to the Distributor under the Distribution and
Services Plan for Investor B Shares and the contingent deferred sales charges
payable to the Distributor with respect to Investor B Shares.
ADMINISTRATIVE SERVICES PLANS. As stated in the applicable Prospectuses,
separate Administrative Services Plans have been adopted with respect to Trust
shares and Institutional
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<PAGE> 352
shares of the Portfolios. Pursuant to each Plan and the Distribution and
Services Plans described above, the Fund may enter into Servicing Agreements
with banks, trust departments, and other financial institutions ("Trust
Servicing Agreements") and with broker-dealers and other organizations
("Servicing Agreements") that purchase Trust shares, Institutional shares,
Investor A Shares or Investor B Shares of a Portfolio, respectively. The
Servicing Agreements provide that the Service Organizations will render certain
shareholder administrative support services to their customers who are the
record or beneficial owners of Trust Shares, Institutional shares, Investor A
Shares or Investor B Shares, respectively. Services provided pursuant to the
Servicing Agreements may include some or all of the following services: (i)
processing dividend and distribution payments from the Portfolios on behalf of
customers; (ii) providing information periodically to customers showing their
positions in Trust, Institutional, Investor A Shares or Investor B Shares; (iii)
arranging for bank wires; (iv) responding to routine customer inquiries relating
to services performed by the particular Service Organization; (v) providing
sub-accounting with respect to shares owned of record or beneficially by
customers or the information necessary for sub-accounting; (vi) as required by
law, forwarding shareholder communications (such as proxies, shareholder
reports, annual and semi-annual financial statements and dividend, distribution
and tax notices) to customers; (vii) forwarding to customers proxy statements
and proxies containing any proposals regarding Servicing Agreements or the
related Plan; (viii) aggregating and processing purchase, redemption, and
exchange requests from customers and placing net purchase and redemption orders
with the Fund's Distributor; (ix) providing customers with a service that
invests the assets of their accounts in shares pursuant to specific or
pre-authorized instructions; (x) maintaining records relating to each customer's
share transactions; or (xi) other similar services if requested by the Fund and
permitted by law. In addition, Service Organizations may also provide dedicated
facilities and equipment in various local locations to serve the needs of
investors, including walk-in facilities, 800 numbers, and communication systems
to handle shareholder inquiries, and in connection with such facilities, provide
on-site management personnel and monitoring services for their customers who
have invested in Investor A or Investor B Shares, including the operation of
telephone lines for daily quotations of return information.
For the fiscal year or period ended November 30, 1995, pursuant
to the Distribution and Services Plan for Investor A Shares, the Portfolios were
- -charged the following amounts:
DISTRIBUTION AND SERVICES PLAN -- INVESTOR A SHARES
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<PAGE> 353
<TABLE>
<CAPTION>
Amount Paid Amount Paid
to the Amount Paid to Affiliates
Portfolios Total Charged Distributor to MVA of MVA
---------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Money Market $137,460 $ 0 $0 $14,620
Treasury Money Market $ 6,872 $ 0 $0 $ 1,578
Tax-Exempt Money Market(1) $ 7,090 $ 0 $0 $ 1,535
Growth & Income Equity $ 62,142 $ 874 $0 $43,313
Emerging Growth $ 40,545 $1,802 $0 $20,745
Government & Corporate Bond $ 15,376 $ 79 $0 $13,308
U.S. Government Securities $ 26,948 $ 559 $0 $20,188
Balanced $ 23,011 $ 257 $0 $18,675
International Equity $ 3,517 $ 245 $0 $ 1,306
Short-Intermediate Municipal(2) $ 0 $ 0 $0 $ 0
Missouri Tax-Exempt Bond1 $ 36,453 $ 378 $0 $27,151
Kansas Tax-Exempt Bond(3) $ 0 $ 0 $0 $ 0
</TABLE>
- ------------
(1) For the six-month period ended November 30, 1995.
(2) Commenced operations on July 10, 1995.
(3) Portfolio had not commenced operations as of November 30, 1995.
All amounts paid under the Distribution and Servcies Plan for Investor
A Shares for the fiscal year/period ended November 30, 1995 were
attributable to payments to broker-dealers. For the fiscal year ended
November 30, 1995, no brokers of record waived fees.
For the period from March 1, 1995 (date of initial public offering)
through November 30, 1995, pursuant to the Distribution and Services Plan
for Investor B Shares of the Portfolios, the Portfolios were charged the
following amounts:
DISTRIBUTION AND SERVICES PLAN - INVESTOR B SHARES
<TABLE>
<CAPTION>
Amount Paid Amount Paid
to the Amount Paid to Affiliates
Portfolios Total Charged Distributor to MVA of MVA
---------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Money Market(2) $ 0 $0 $ 0 $0
Growth & Income Equity $2,730 $0 $2,730 $0
Emerging Growth $1,821 $0 $1,821 $0
</TABLE>
-85-
<PAGE> 354
<TABLE>
<CAPTION>
Amount Paid Amount Paid
to the Amount Paid to Affiliates
Portfolios Total Charged Distributor to MVA of MVA
---------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Government & Corporate Bond $ 324 $0 $ 324 $0
U.S. Government Securities $ 112 $0 $ 112 $0
Balanced $ 126 $0 $ 126 $0
International Equity $ 271 $0 $ 271 $0
Missouri Tax-Exempt Bond(1) $1,452 $0 $1,452 $0
Kansas Tax-Exempt Bond(2) $ 0 $0 $ 0 $0
</TABLE>
- --------
(1) For the six-month period ended November 30, 1995.
(2) Portfolio had not commenced operations as of November 30, 1995.
For the fiscal year or period ended November 30, 1995, pursuant to the
Administrative Services Plan for Trust shares, the Portfolios were charged
the following amounts:
ADMINISTRATIVE SERVICES PLAN - TRUST SHARES
<TABLE>
<CAPTION>
Amount Paid Amount Paid
to the Amount Paid to Affiliates
Portfolios Total Charged Administrator to MVA of MVA
---------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Money Market $378,044 $0 $0 $378,044
Treasury Money Market $150,278 $0 $0 $150,278
Tax-Exempt Money Market(1) $ 5,937 $0 $0 $ 5,937
Growth & Income Equity $ 0 $0 $0 $ 0
Emerging Growth $ 0 $0 $0 $ 0
Government & Corporate Bond $ 0 $0 $0 $ 0
U.S. Government Securities $ 0 $0 $0 $ 0
Balanced $ 0 $0 $0 $ 0
International Equity $ 0 $0 $0 $ 0
Short-Intermediate Municipal(2) $ 0 $0 $0 $ 0
Missouri Tax-Exempt Bond(1) $ 0 $0 $0 $ 0
</TABLE>
-86-
<PAGE> 355
<TABLE>
<CAPTION>
Amount Paid Amount Paid
to the Amount Paid to Affiliates
Portfolios Total Charged Administrator to MVA of MVA
---------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Kansas Tax-Exempt Bond(3) $ 0 $0 $0 $ 0
</TABLE>
- -------
(1) For the six month period ended through November 30, 1995.
(2) Commenced operations on July 10, 1995.
(3) Portfolio had not commenced operations as of November 30, 1995.
For the fiscal year ended November 30, 1995, pursuant to the
Administrative Services Plan for Institutional shares, the Portfolios paid the
following amounts:
ADMINISTRATIVE SERVICES PLAN - INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
Amount Paid Amount paid
to the Amount Paid to Affiliates
Portfolios Total Charged Administrator to MVA of MVA
---------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Money Market $28,854 $0 $0 $28,854
Treasury Money Market $ 36 $0 $0 $ 36
Growth & Income Equity $83,607 $0 $0 $83,607
Emerging Growth $30,538 $0 $0 $30,538
Government & Corporate Bond $20,784 $0 $0 $20,784
U.S. Government Securities $ 1,291 $0 $0 $ 1,291
Balanced $84,400 $0 $0 $84,400
International Equity $ 4,305 $0 $0 $ 4,305
</TABLE>
For the fiscal year ended November 30, 1995, the Administrator, MVA
and/or various service organizations waived no fees with respect to the
Administrative Services Plans.
OTHER PLAN INFORMATION. The Board of Directors has approved each Plan and
its respective arrangements with the Distributor, Service Organizations and
broker-dealer based on information provided by the Fund's service contractors
that there is a reasonable likelihood that these Plans and arrangements will
benefit the Portfolios and their shareholders. Pursuant to each Plan, the Board
of Directors reviews, at least quarterly, a written report of the amounts of
distribution fees and servicing
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fees expended pursuant to each Plan and the Service Organizations and the
purposes for which the expenditures were made. So long as the Fund has one or
more of the above described Plans in effect, the selection and nomination of the
members of the Board of Directors who are not "interested persons" (as defined
in the 1940 Act) of the Fund will be committed to the discretion of such
Disinterested Directors.
Depending upon the terms governing the particular customer accounts,
Service Organizations and other institutions may also charge their customers
directly for cash management and other services provided in connection with the
accounts, including, for example, account maintenance fees, compensating balance
requirements, or fees based upon account transactions, assets, or income. An
investor should therefore read the Prospectuses and this Statement of Additional
Information in light of the terms of his or her account with a Service
Organization, or other institution before purchasing shares of a Portfolio.
INDEPENDENT AUDITORS
For the fiscal year or period ended November 30, 1995, KPMG Peat Marwick
LLP, certified public accountants, with offices at Two Nationwide Plaza,
Columbus, Ohio 43215, served as independent auditors for the Fund. KPMG Peat
Marwick LLP performs an annual audit of the Fund's financial statements. Reports
of its activities are provided to the Fund's Board of Directors. The financial
statements dated November 30, 1995, which are incorporated by reference into
this Statement of Additional Information, have been audited by KPMG Peat Marwick
LLP, whose report thereon is incorporated herein by reference.
COUNSEL
Drinker Biddle & Reath (of which Mr. McConnel, Secretary of the Fund, is
a partner), Suite 1100, 1345 Chestnut Street, Philadelphia, Pennsylvania
19107-3496, is counsel to the Fund and will pass upon certain legal matters on
its behalf.
MISCELLANEOUS
As of March 5, 1996, Mercantile held of record 99.999% and 41.838% of the
outstanding Institutional and Trust shares, respectively, in the Money Market
Portfolio; 95.316% and 59.242% of the outstanding Institutional and Trust
shares, respectively, in the Treasury Money Market Portfolio; 98.604% and
97.020% of the outstanding Institutional and Trust shares, respectively, in the
Growth & Income Equity Portfolio; 99.012% and 63.208% of the outstanding
Institutional and Trust shares, respectively, in the Emerging Growth Portfolio;
99.738% and 97.067% of the outstanding Institutional and Trust shares,
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respectively, in the Government & Corporate Bond Portfolio; 99.998% and 93.391%
of the outstanding Institutional and Trust shares, respectively, in the U.S.
Government Securities Portfolio; 99.895% and 96.143% of the outstanding
Institutional and Trust shares, respectively, in the Balanced Portfolio; 97.578%
and 94.549% of the outstanding Institutional and Trust shares, respectively, in
the International Equity Portfolio; 99.850% of the outstanding Trust shares in
the Short-Intermediate Municipal Portfolio; 74.877% of the outstanding Trust
shares in the Tax-Exempt Money Market Portfolio; and 99.999% of the outstanding
Trust shares in the Missouri Tax-Exempt Bond Portfolio, as fiduciary or agent on
behalf of its customers. Mercantile is a wholly owned subsidiary of Mercantile
Bancorporation Inc., a Missouri corporation. Under the 1940 Act, Mercantile may
be deemed to be a controlling person of the Fund.
As of the same date, the following institutions also owned of record 5%
or more of the Money Market Portfolio's outstanding shares as fiduciary or agent
on behalf of their customers: Trust Shares - First Fidelity Bank NA, Broad &
Walnut Streets, Philadelphia, PA 19109 (13.672%); Hawaiian Trust Company Ltd.,
783 Funds Accounting, P.O. Box 3170, Honolulu, HI 96802- 3170 (10.219%);
Mercantile Bank NA Trust, Trust Securities Unit 17-1, Attn: Dede Clark, P.O. Box
387 Main Post Office, St. Louis, MO 63166 (41.838%); Institutional Shares -
Mercantile Bank St. Louis NA, Attn: Trust Securities Unit 17-1, P.O. Box 387,
St. Louis, MO 63166 (99.999%); Investor A Shares - BHC Securities, Attn: Cash
Balance Sweep Dept., One Commerce Square, 11th Floor, 2005 Market Street,
Philadelphia, PA 19103 (90.354%); Mercantile Investment Services, Inc., Firm
Capital Account, Attn: Judy Horbelt, P.O. Box 790121, St. Louis, MO 63179-0121
(6.033%);
As of the same date, the following institutions also owned of record 5%
or more of the Treasury Money Market Portfolio's outstanding shares as fiduciary
or agent on behalf of their customers: Trust Shares - American Trust Co. of
Hawaii Inc., Trust Short-Term Investment Fund, P.O. Box 3170, Honolulu, HI
96802-3170 (7.408%); Hawaiian Trust Company Ltd., 783 Funds Accounting, P.O. Box
3170, Honolulu, HI 96802-3170 (9.009%); Express Scripts, Inc., Attn: Joe Plum,
14000 Riverport Drive, Maryland Heights, MO 63043 (5.500%); City of St. Louis,
Airport Revenue Fund, Attn: Kenneth L. Below, Room 2200 City Hall, 101 S.
Tucker, St. Louis, MO 63013 (8.867%); Mercantile Bank NA Trust, Trust Securities
Unit 17-1, Attn: Dede Clark, P.O. Box 387 Main Post Office, St. Louis, MO 63166
(59.242%); Institutional Shares - Mercantile Bank St. Louis NA, Attn: Trust
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<PAGE> 358
Securities Unit 17-1, P.O. Box 387, St. Louis, MO 63166 (95.316%); Investor A
Shares - BHC Securities Inc., Attn: Cash Balance Sweep Dept., 1 Commerce Square,
11th Floor, 2005 Market Street, Philadelphia, PA 19103 (79.319%); Mercantile
Bank of St. Louis NA, Custodian Richard E. Crippa Rollover IRA, 2948 Castelford
Drive, Florissant, MO 63033 (16.570%).
As of the same date, the following institutions also owned of record 5%
or more of the Tax-Exempt Money Market Portfolio's outstanding shares as
fiduciary or agent on behalf of their customers: Trust Shares - Hawaiian Trust
Company Ltd., 783 Funds Accounting, P.O. Box 3170, Honolulu, HI 96802-3170
(10.790%); Mercantile Bank NA Trust, Trust Securities Unit 17-1, Attn: Dede
Clark, P.O. Box 387 Main Post Office, St. Louis, MO 63166 (74.877%); Investor A
Shares - BHC Securities Inc., Attn: Cash Balance Sweep Dept., 1 Commerce Square,
11th Floor, 2005 Market Street, Philadelphia, PA 19103 (87.226%); Charles H.
Weiss, Trustee Charles H. Weiss Trust, UA Dated 08/15/72, 1209 Washington
Avenue, St. Louis, MO 63103-1934 (11.114%).
As of the same date, the following institutions also owned of record 5%
or more of the International Equity Portfolio's outstanding shares as fiduciary
or agent on behalf of their customers: Trust Shares - Olive & Company, Attn:
Trust Securities Unit 17-1, P.O. Box 387, St. Louis, MO 63166-0387 (40.367%);
Locust & Company, Attn: Trust Securities Unit 17-1, P.O. Box 387, St. Louis, MO
63166 (54.182%); Boat & Co., P.O. Box 14737, St. Louis, MO 63178-4737 (5.248%);
Institutional Shares Locust and Company, Attn: Trust Securities Unit 17-1, P.O.
Box 387, St. Louis, MO 63166 (97.578%); Investor A Shares - BHC Securities Inc.,
Trade House Acct., 2005 Market Street, Philadelphia, PA 19103 (51.338%); Frances
Dakers, 200 E. 89th St., 28D, New York, NY 10128 (16.506%); Investor B Shares -
BHC Securities, Inc., FAO 24252597, Attn: Mutual Funds Dept., One Commerce
Square, Suite 1200, Philadelphia, PA 19103 (5.566%); BHC Securities, Inc., FAO
24104352, Attn: Mutual Funds Dept., One Commerce Square, 2005 Market Street,
Suite 1200, Philadelphia, PA 19103 (5.572%); Mercantile Bank of St. Louis NA,
Custodian Glenn Richard Chitwood IRA, 965 Weathervane Lane, Troy, IL 62294
(9.704%); BHC Securities Inc., FAO 24283805, Attn: Mutual Funds Dept., One
Commerce Square, 2005 Market Street, Suite 1200, Philadelphia, PA 19103
(5.237%).
As of the same date, the following institutions also owned of
record 5% or more of the Growth & Income Equity Portfolio's outstanding shares
as fiduciary or agent on behalf of their customers: Trust Shares - Locust &
Company, Mercantile Bank St. Louis NA, Trust Securities Unit 17-1, P.O. Box 387,
St. Louis, MO 63166-0387 (77.844%); Olive & Company, Mercantile Bank St. Louis
NA, Trust Securities Unit 17-1, P.O. Box 387, St. Louis, MO 63166-0387
(19.176%); Institutional
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<PAGE> 359
Shares - Locust & Company, Mercantile Bank St. Louis NA, Attn: Trust Securities
Unit 17-1, P.O. Box 387, St. Louis, MO 63166 (98.604%); Investor A Shares -BHC
Securities Inc., Trade House Account, Attn: Mutual Fund Dept., One Commerce
Square, 2005 Market Street, Philadelphia, PA 19103 (29.835%); Investor B Shares
- - BHC Securities Inc., FAO 24282580, Attn: Mutual Funds Dept., One Commerce
Square, 2005 Market Street, Suite 1200, Philadelphia, PA 19103 (6.353%).
As of the same date, the following institutions also owned of record 5%
or more of the Emerging Growth Portfolio's outstanding shares as fiduciary or
agent on behalf of their customers: Trust Shares - State Street Bank & Trust
Co., Trustee Pioneer Hi-Bred International Savings Plan Trust, One Enterprise
Drive, Mail Stop D13, North Quincy, MA 02171 (12.498%); Olive & Company,
Mercantile Bank St. Louis NA, Trust Securities Unit 17-1, P.O. Box 387, St.
Louis, MO 63166-0387 (13.879%); American Bar Endowment, 750 North Lake Shore
Drive, Chicago, IL 60611 (6.330%); Locust & Company, Mercantile Bank St. Louis
NA, Trust Securities Unit 17-1, P.O. Box 387, St. Louis, MO 63166-0387
(49.329%); Institutional Shares - Locust & Company, Mercantile Bank St. Louis
NA, Attn: Trust Securities Unit 17-1, P.O. Box 387, St. Louis, MO 63166
(99.012%); Investor A Shares - BHC Securities Inc., Trade House Account, Attn:
Mutual Funds Dept., One Commerce Square, 2005 Market Street, Philadelphia, PA
19103 (39.210%).
As of the same date, the following institutions also owned of record 5%
or more of the U.S. Government Securities Portfolio's outstanding shares as
fiduciary or agent on behalf of their customers: Trust Shares - First American
Bank of Louisiana, Attn: Gerald Ferrar, P.O. Box 7232, Monroe, LA 71211
(6.167%); Locust & Company, Mercantile Bank St. Louis NA, Trust Securities Unit
17-1, P.O. Box 387, St. Louis, MO 63166-0387 (59.936%); Olive & Company,
Mercantile Bank St. Louis NA, Trust Securities Unit 17-1, P.O. Box 387, St.
Louis, MO 63166-0387 (33.455%); Institutional Shares - Locust & Company,
Mercantile Bank St. Louis NA, Attn: Trust Securities Unit 17-1, P.O. Box 387,
St. Louis, MO 63166 (99.998%); Investor A Shares - BHC Securities Inc., Trade
House Account, Attn: Mutual Funds Dept., One Commerce Square, 2005 Market
Street, Philadelphia, PA 19103 (13.688%); Mercantile Bank of St. Louis NA,
Custodian Edmund C. Albrecht, Jr. IRA, 17 Outer Ladue Dr., St. Louis, MO 63131
(5.364%); Mercantile Bank of St. Louis NA, Custodian Robert W. Davis Rollover
IRA, 818 Broadway, Elsberry, MO 63343-1109 (5.920%); Investor B Shares - BHC
Securities Inc., FAO 24297242, Attn: Mutual Funds Dept., One Commerce Square,
2005 Market Street, Suite 1200, Philadelphia, PA 19103 (7.032%); BHC Securities
Inc., FAO 24130191, Attn: Mutual Funds Dept., One Commerce Square, 2005 Market
Street, Suite 1200, Philadelphia, PA 19103 (21.082%); BHC Securities Inc., FAO
24248505, Attn: Mutual
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Funds Dept., One Commerce Square, 2005 Market Street, Suite 1200, Philadelphia,
PA 19103 (6.281%); Mercantile Bank of St. Louis NA, Custodian Richard Dell
Woods, SEP IRA, 3114 Pickett Road, St. Joseph, MO 64503 (5.639%); BHC Securities
Inc., FAO 24297609, Attn: Mutual Funds Dept., One Commerce Square, 2005 Market
Street, Suite 1200, Philadelphia, PA 19103 (6.245%).
As of the same date, the following institutions also owned of record 5%
or more of the Balanced Portfolio's outstanding share as fiduciary or agent on
behalf of their customers: Trust Shares - Locust & Company, Mercantile Bank St.
Louis NA, Trust Securities Unit 17-1, P.O. Box 387, St. Louis, MO 63166-0387
(96.143%); Institutional Shares - Locust & Company, Mercantile Bank St. Louis
NA, Attn: Trust Securities Unit 17-1, P.O. Box 387, St. Louis, MO 63166
(99.895%); Investor A Shares - Mercantile Bank of St. Louis NA, Custodian Edmund
J. Markevicius Rollover IRA, 17 Agate Avenue, Worcester, MA 01604 (6.503%); BHC
Securities Inc., Trade House Account, Attn: Mutual Funds Dept., One Commerce
Square, 2005 Market Street, Philadelphia, PA 19103 (19.059%); Investor B Shares
- - Mercantile Bank of St. Louis NA, Custodian Richard Dell Wood SEP IRA, 3114
Pickett Road, St. Joseph, MO 64503 (16.477%); BHC Securities Inc., FAO 24123548,
Attn: Mutual Funds Dept., One Commerce Square, 2005 Market Street, Suite 1200,
Philadelphia, PA 19103 (12.889%); Mercantile Bank of St. Louis, NA Custodian
Edmund Frances CODR, Rollover IRA, 2820 South 42nd Street, St. Joseph, MO 64503
(9.393%); Mercantile Bank of St. Louis, NA Custodian David J. Neumann, IRA, 2330
Goff Avenue, St. Joseph, MO 64505 (13.437%); Mercantile Bank of St. Louis, NA
Custodian Robert L. Barnes, IRA, 2307 Coventry Glenn Court, Chesterfield, MO
63017 (7.756%).
As of the same date, the following institutions also owned of record 5%
or more of the Government & Corporate Bond Portfolio's outstanding shares as
fiduciary or agent on behalf of their customers: Trust Shares - Locust &
Company, Mercantile Bank St. Louis NA, Trust Securities Unit 17-1, P.O. Box 387,
St. Louis, MO 63166-0387 (57.955%); Olive & Company, Mercantile Bank St. Louis
NA, Trust Securities Unit 17-1, P.O. Box 387, St. Louis, MO 63166-0387
(39.112%); Institutional Shares - Locust & Company, Mercantile Bank St. Louis
NA, Attn: Trust Securities Unit 17-1, P.O. Box 387, St. Louis, MO 63166
(99.738%); Investor A Shares -BHC Securities Inc., Attn: Mutual Funds Dept., One
Commerce Square, 2005 Market Street, Philadelphia, PA 19103 (13.505%); Investor
B Shares - Mercantile Bank of St. Louis NA, Custodian Edmund Frances CODR,
Rollover IRA, 2820 South 42nd Street, St. Joseph, MO 64503 (11.313%); BHC
Securities Inc., FAO 24284744, Attn: Mutual Funds Dept., One Commerce Square,
2005 Market Street, Suite 1200, Philadelphia, PA 19103 (5.561%); BHC Securities
Inc., FAO 24294267, Attn: Mutual Funds Dept., One Commerce Square, 2005 Market
Street, Suite 1200, Philadelphia, PA 19103 (11.574%); BHC Securities Inc., FAO
24297770, Attn: Mutual
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Funds Dept., One Commerce Square, 2005 Market Street, Suite 1200, Philadelphia,
PA 19103 (24.510%); Mercantile Bank of St. Louis NA, Custodian Edwin C. Hogrebe,
IRA, 5537 Goethe, St. Louis, MO 63109 (5.531%); Lloyd R. Updegraff and Mildred
L. Updegraff, JTWROS T.O.D. Snyder, Route 1, Box 540, Gower, MD 64454 (7.761%).
As of the same date, the following institutions also owned of record 5%
or more of the Short - Intermediate Municipal Portfolio's outstanding shares as
fiduciary or agent on behalf of their customers: Trust Shares - Locust &
Company, Attn: Trust Securities Unit 17-1, P.O. Box 387, St. Louis, MO 63166
(7.459%); Olive & Company, Attn: Trust Securities Unit 17-1, P.O. Box 387, St.
Louic, MO 63166-0387 (92.391%); Investor A Shares - Ben J. Fazio and Antonina
Fazio, JTWROS, 9912 Emil Avenue, St. Louis, MO 63126 (99.109%).
As of the same date, the following institutions also owned of record 5%
or more of the Missouri Tax-Exempt Bond Portfolio's outstanding shares as
fiduciary or agent on behalf of their customers: Trust Shares - Locust &
Company, Mercantile Bank St. Louis NA, Trust Securities Unit 17-1, P.O. Box 387,
St. Louis, MO 63166-0387 (21.710%); Olive & Company, Mercantile Bank St. Louis
NA, Trust Securities Unit 17-1, P.O. Box 387, St. Louis MO 63166-0387 (78.289%);
Investor A Shares - BHC Securities Inc., Trade House Account, Attn: Mutual Funds
Dept., One Commerce Square, 2005 Market Street, Philadelphia, PA 19103
(28.274%); Investor B Shares - BHC Securities Inc., FAO 24126820, Attn: Mutual
Funds Dept., One Commerce Square, 2005 Market Street, Suite 1200, Philadelphia,
PA 19103 (13.734%); BHC Securities Inc., FAO 24131119, Attn: Mutual Funds Dept.,
One Commerce Square, 2005 Market Street, Suite 1200, Philadelphia, PA 19103
(7.401%); BHC Securities Inc., FBO 24282580, Attn: Mutual Funds Dept., 100 N.
20th Street, Philadelphia, PA 19103 (5.677%); BHC Securities Inc. FAO 24286677,
Attn: Mutual Funds Dept., One Commerce Square, 2005 Market Street, Suite 1200,
Philadelphia, PA 19103 (11.275%); BHC Securities Inc., FAO 24290504, Attn:
Mutual Funds Dept., One Commerce Square, 2005 Market Street, Suite 1200,
Philadelphia, PA 19103 (18.743%).
On the basis of information received from these institutions, the Fund
believes that substantially all of the shares owned of record were also
beneficially owned by these institutions because they possessed or shared voting
or investment power with respect to such shares on behalf of their underlying
accounts.
FINANCIAL STATEMENTS
The Fund's Annual Report to Shareholders for the fiscal year or period
ended November 30, 1995 has been filed with the
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Securities and Exchange Commission. The financial statements in such Annual
Report (the "Financial Statements") are incorporated into this Statement of
Additional Information by reference. The Financial Statements included in such
Annual Report have been audited by the Fund's independent accountants, KPMG Peat
Marwick LLP, whose report thereon also appears in such Annual Report and is
incorporated herein by reference. The Financial Statements in such Annual Report
have been incorporated herein in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
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<PAGE> 363
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt considered short-term in the relevant
market. The following summarizes the rating categories used by Standard and
Poor's for commercial paper:
"A-1" - Issue's degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory. However, the
relative degree of safety is not as high as for issues designated "A-1."
"A-3" - Issue has an adequate capacity for timely payment. It is,
however, somewhat more vulnerable to the adverse effects of changes and
circumstances than an obligation carrying a higher designation.
"B" - Issue has only a speculative capacity for timely payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability of issuers
to repay punctually promissory obligations not having an original maturity in
excess of 9 months. The following summarizes the rating categories used by
Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are considered to
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 earning
coverage of fixed financial charges and high internal cash generation; and well
established access to a range of financial markets and assured sources of
alternate liquidity.
A-1
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"Prime-2" - Issuer or related supporting institutions are considered to
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 alternative liquidity is
maintained.
"Prime-3" - Issuer or related supporting institutions have an acceptable
capacity for repayment of short-term promissory obligations. The effects of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the Prime rating
categories.
The three rating categories of Duff & Phelps for investment grade
commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental protection factors. Risk
factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"D-3" - Debt possesses satisfactory liquidity, and other protection
factors qualify issue as investment grade. Risk
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factors are larger and subject to more variation. Nevertheless, timely payment
is expected.
"D-4" - Debt possesses speculative investment characteristics. Liquidity
is not sufficient to ensure against disruption in debt service. Operating
factors and market access may be subject to a high degree of variation.
"D-5" - Issuer has failed to meet scheduled principal and/or interest
payments.
Fitch short-term ratings apply to debt obligations that are payable on
demand or have original maturities of up to three years. The following
summarizes the rating categories used by Fitch for short-term obligations:
"F-1+" - Securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of assurance
for timely payment.
"F-1" - Securities possess very strong credit quality. Issues assigned
this rating reflect an assurance of timely payment only slightly less in degree
than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues assigned this
rating have a satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as the "F-1+" and "F-1" categories.
"F-3" - Securities possess fair credit quality. Issues assigned this
rating have characteristics suggesting that the degree of assurance for timely
payment is adequate; however, near-term adverse changes could cause these
securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues assigned this
rating have characteristics suggesting a minimal degree of assurance for timely
payment and are vulnerable to near-term adverse changes in financial and
economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term ratings to
indicate that the rating is based upon a letter of credit issued by a commercial
bank.
Thomson BankWatch short-term ratings assess the likelihood of an untimely
or incomplete payment of principal or
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interest of unsubordinated instruments having a maturity of one year or less
which is issued by United States commercial banks, thrifts and non-bank banks;
non-United States banks; and broker-dealers. The following summarizes the
ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest rating
category and indicates a very high degree of likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment grade
category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
"TBW-4" - This designation indicates that the debt is regarded as
non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an original
maturity of less than one year which is issued by bank holding companies and
their principal bank subsidiaries. The following summarizes the rating
categories used by IBCA for short-term debt ratings:
"A1+" - Obligations supported by the highest capacity for timely
repayment.
"A1" - Obligations are supported by a strong capacity for timely
repayment.
"A2" - Obligations are supported by a satisfactory capacity for timely
repayment, although such capacity may be susceptible to adverse changes in
business, economic or financial conditions.
"A3" - Obligations are supported by a satisfactory capacity for timely
repayment. Such capacity is more susceptible to adverse changes in business,
economic or financial conditions than for obligations in higher categories.
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"B" - Obligations for which the capacity for timely repayment is
susceptible to adverse changes in business, economic or financial conditions.
"C" - Obligations for which there is an inadequate capacity to ensure
timely repayment.
"D" - Obligations which have a high risk of default or which are
currently in default.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - This designation represents the highest rating assigned by
Standard & Poor's to a debt obligation and indicates an extremely strong
capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to pay interest
and repay principal and differs from AAA issues only in small degree.
"A" - Debt is considered to have a strong capacity to pay interest and
repay principal although such issues are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay interest
and repay principal. Whereas such issues normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt 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. The "BB"
rating
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category is also used for debt subordinated to senior debt that is assigned an
actual or implied "BBB-" rating.
"B" - Debt 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" or "BB-"
rating.
"CCC" - Debt 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. The "CCC" rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
"B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.
"C" - This rating 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" - This rating is reserved for income bonds on which no interest is
being paid.
"D" - Debt is in payment default. This rating 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 such payments
will be made during such grace period. "D" rating is also used upon the filing
of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid, and
certain other obligations that S & P believes may experience high volatility or
high variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities.
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The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt
edged." 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 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 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 considered 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," "B," "Caa," "Ca," and "C" - Bonds that possess one of these ratings
provide questionable protection of interest and principal ("Ba" indicates some
speculative elements; "B" indicates a general lack of characteristics of
desirable investment; "Caa" represents a poor standing; "Ca" represents
obligations which are speculative in a high degree; and "C" represents the
lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting condition
attaches. Parenthetical rating denotes
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probable credit stature upon completion of construction or elimination of basis
of condition.
Moody's applies numerical modifiers 1, 2 and 3 in each generic
classification from "Aa" to "B" in its bond rating system. The modifier 1
indicates that the issuer 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 issuer ranks at the lower end of its generic rating category.
The following summarizes the long-term debt ratings used by Duff & Phelps
for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The risk
factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered of high credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
"A" - Debt possesses protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
"BBB" - Debt possesses below average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. Although below investment
grade, debt rated "BB" is deemed likely to meet obligations when due. Debt rated
"B" possesses the risk that obligations will not be met when due. Debt rated
"CCC" is well below investment grade and has considerable uncertainty as to
timely payment of principal, interest or preferred dividends. Debt rated "DD" is
a defaulted debt obligation, and the rating "DP" represents preferred stock with
dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:
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"AAA" - Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA" - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds rated
in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable
future developments, short-term debt of these issuers is generally rated "F-1+."
"A" - Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" - Bonds that possess
one of these ratings are considered by Fitch to be speculative investments. The
ratings "BB" to "C" represent Fitch's assessment of the likelihood of timely
payment of principal and interest in accordance with the terms of obligation for
bond issues not in default. For defaulted bonds, the rating "DDD" to "D" is an
assessment of the ultimate recovery value through reorganization or liquidation.
To provide more detailed indications of credit quality, the Fitch ratings
from and including "AA" to "C" may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major rating categories.
IBCA assesses the investment quality of unsecured debt with an original
maturity of more than one year which is issued by bank holding companies and
their principal bank subsidiaries. The following summarizes the rating
categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation of
investment risk. Capacity for timely repayment of
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principal and interest is substantial such that adverse changes in business,
economic or financial conditions are unlikely to increase investment risk
substantially.
"AA" - Obligations for which there is a very low expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk albeit not very significantly.
"A" - Obligations for which there is a low expectation of investment
risk. Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions may lead
to increased investment risk.
"BBB" - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial conditions
are more likely to lead to increased investment risk than for obligations in
higher categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one of these
ratings where it is considered that speculative characteristics are present.
"BB" represents the lowest degree of speculation and indicates a possibility of
investment risk developing. "C" represents the highest degree of speculation and
indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating to denote
relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and preferred
stock which are issued by United States commercial banks, thrifts and non-bank
banks; nonUnited States banks; and broker-dealers. The following summarizes the
rating categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to repay
principal and interest on a timely basis with limited
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incremental risk compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BBB" - This designation represents Thomson BankWatch's lowest investment
grade category and indicates an acceptable capacity to repay principal and
interest. Issues rated "BBB" are, however, more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by Thomson
BankWatch to non-investment grade long-term debt. Such issues are regarded as
having speculative characteristics regarding the likelihood of timely payment of
principal and interest. "BB" indicates the lowest degree of speculation and "CC"
the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may include a
plus or minus sign designation which indicates where within the respective
category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns and market
access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit very strong or
strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term loans
are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable
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Moody's Investment Grade ("VMIG"). Such ratings recognize the differences
between short-term credit risk and long-term risk. The following summarizes the
ratings by Moody's Investors Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high quality,
with margins of protection ample although not so large as in the preceding
group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of favorable
quality, with all security elements accounted for but lacking the undeniable
strength of the preceding grades. Liquidity and cash flow protection may be
narrow and market access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of adequate
quality, carrying specific risk but having protection commonly regarded as
required of an investment security and not distinctly or predominantly
speculative.
"SG" - Loans bearing this designation are of speculative quality and lack
margins of protection.
Fitch and Duff & Phelps use the short-term ratings described under
Commercial Paper Ratings for municipal notes.
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APPENDIX B
The Growth & Income Equity, Emerging Growth, Government & Corporate Bond,
U.S. Government Securities, Balanced and International Equity Portfolios may
enter into futures contracts and options for hedging purposes in furtherance of
their respective investment objectives as stated in the Prospectuses. Such
transactions are described further in this Appendix.
I. Interest Rate Futures Contracts.
Use of Interest Rate Futures Contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, each Portfolio may use interest rate
futures as a defense, or hedge, against anticipated interest rate changes and
not for speculation. As described below, this would include the use of futures
contract sales to protect against expected increases in interest rates and
futures contract purchases to offset the impact of interest rate declines.
Each Portfolio presently could accomplish a similar result to that which
it hopes to achieve through the use of futures contracts by selling bonds with
long maturities and investing in bonds with short maturities when interest rates
are expected to increase, or conversely, selling short-term bonds and investing
in long-term bonds when interest rates are expected to decline. However, because
of the liquidity that is often available in the futures market, the protection
is more likely to be achieved, perhaps at a lower cost and without changing the
rate of interest being earned by the Portfolio, through using futures contracts.
A Portfolio would engage in an interest rate futures contract sale to maintain
the income advantage from continued holding of a long-term bond while
endeavoring to avoid part or all of the loss in market value that would
otherwise accompany a decline in long-term securities prices. A Portfolio would
engage in an interest rate futures contract purchase when it is not fully
invested in long-term bonds but wishes to defer for a time the purchase of
long-term bonds in light of the availability of advantageous interim
investments, for example, shorter-term securities whose yields are greater than
those available on long-term bonds.
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Description of Interest Rate Futures Contracts. An interest rate futures
contract sale would create an obligation by the Portfolio, as seller, to deliver
the specific type of financial instrument called for in the contract at a
specific future time for a specified price. A futures contract purchase would
create an obligation by the Portfolio, as purchaser, to take delivery of the
specific type of financial instrument at a specific future time at a specific
price. The specific securities delivered or taken, respectively, at settlement
date, would not be determined until at or near that date. The determination
would be in accordance with the rules of the exchange on which the futures
contract sale or purchase was made.
Although interest rate futures contracts by their terms call for actual
delivery or acceptance of securities, in most cases the contracts are closed out
before the settlement date without the making or taking of delivery of
securities. Closing out a futures contract sale is effected by the Portfolio's
entering into a futures contract purchase for the same aggregate amount of the
specific type of financial instrument and the same delivery date. If the price
in the sale exceeds the price in the offsetting purchase, the Portfolio is paid
the difference and thus realizes a gain. If the offsetting purchase price
exceeds the sale price, the Portfolio pays the difference and realizes a loss.
Similarly, the closing out of a futures contract purchase is effected by the
Portfolio's entering into a futures contract sale. If the offsetting sale price
exceeds the purchase price, the Portfolio realizes a gain, and if the purchase
price exceeds the offsetting sale price, the Portfolio realizes a loss.
Interest rate futures contracts are traded in an auction environment on
the floors of several exchanges principally, the Chicago Board of Trade and the
Chicago Mercantile Exchange. A Portfolio would deal only in standardized
contracts on recognized exchanges. Each exchange guarantees performance under
contract provisions through a clearing corporation, a nonprofit organization
managed by the exchange membership.
A public market now exists in futures contracts covering various
financial instruments including long-term United States Treasury Bonds and
Notes; Government National Mortgage Association (GNMA) modified pass-through
mortgage-backed securities; three-month United States Treasury Bills; and
ninety-day commercial paper. The Portfolios may trade in any futures contract
for which there exists a public market, including, without limitation, the
foregoing instruments.
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II. Stock Index Futures Contracts.
A stock index assigns relative values to the stocks included in the index
and the index fluctuates with changes in the market values of the stocks
included. Some stock index futures contracts are based on broad market indexes,
such as the Standard & Poor's 500 or the New York Stock Exchange Composite
Index. In contrast, certain exchanges offer futures contracts on narrower market
indexes, such as the Standard & Poor's 100 or indexes based on an industry or
market segment, such as oil and gas stocks. Futures contracts are traded on
organized exchanges regulated by the Commodity Futures Trading Commission.
Transactions on such exchanges are cleared through a clearing corporation, which
guarantees the performance of the parties to each contract.
A Portfolio will sell stock index futures contracts in order to offset a
decrease in market value of its portfolio securities that might otherwise result
from a market decline. The Portfolio may do so either to hedge the value of its
portfolio as a whole, or to protect against declines, occurring prior to sales
of securities, in the value of the securities to be sold. Conversely, the
Portfolio will purchase stock index futures contracts in anticipation of
purchases of securities. In a substantial majority of these transactions, the
Portfolio will purchase such securities upon termination of the long futures
position, but a long futures position may be terminated without a corresponding
purchase of securities.
In addition, the Portfolio may utilize stock index futures contracts in
anticipation of changes in the composition of its portfolio holdings. For
example, in the event that the Portfolio expects to narrow the range of industry
groups represented in its holdings it may, prior to making purchases of the
actual securities, establish a long futures position based on a more restricted
index, such as an index comprised of securities of a particular industry group.
The Portfolio may also sell futures contracts in connection with this strategy,
in order to protect against the possibility that the value of the securities to
be sold as part of the restructuring of the portfolio will decline prior to the
time of sale.
III. Futures Contracts on Foreign Currencies.
A futures contract on foreign currency creates a binding obligation on
one party to deliver, and a corresponding obligation on another party to accept
delivery of, a stated quantity of a foreign currency, for an amount fixed in
U.S. dollars. Foreign currency futures may be used by a Portfolio to hedge
against exposure to fluctuations in exchange
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rates between the U.S. dollar and other currencies arising from multi-national
transactions.
IV. Margin Payments.
Unlike when a Portfolio purchases or sells a security, no price is paid
or received by the Portfolio upon the purchase or sale of a futures contract.
Initially, the Portfolio will be required to deposit with the broker or in a
segregated account with the Fund's custodian an amount of cash or cash
equivalents, the value of which may vary but is generally equal to 10% or less
of the value of the contract. This amount is known as initial margin. The nature
of initial margin in futures transactions is different from that of margin in
security transactions in that futures contract margin does not involve the
borrowing of funds by the customer to finance the transactions. Rather, the
initial margin is in the nature of a performance bond or good faith deposit on
the contract which is returned to the Portfolio upon termination of the futures
contract assuming all contractual obligations have been satisfied. Subsequent
payments, called variation margin, to and from the broker, will be made on a
daily basis as the price of the underlying instruments fluctuates making the
long and short positions in the futures contract more or less valuable, a
process known as marking-to-market. For example, when a Portfolio has purchased
a futures contract and the price of the contract has risen in response to a rise
in the underlying instruments, that position will have increased in value and
the Portfolio will be entitled to receive from the broker a variation margin
payment equal to that increase in value. Conversely, where a Portfolio has
purchased a futures contract and the price of the future contract has declined
in response to a decrease in the underlying instruments, the position would be
less valuable and the Portfolio would be required to make a variation margin
payment to the broker. At any time prior to expiration of the futures contract,
the adviser may elect to close the position by taking an opposite position,
subject to the availability of a secondary market, which will operate to
terminate the Portfolio's position in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid by or released to the Portfolio, and the Portfolio realizes a loss or
gain.
V. Other Hedging Transactions.
Although noted above, none of the Portfolios presently intend to use
interest rate futures contracts and stock index and foreign currency futures
contracts (and related options) in connection with their hedging activities.
Nevertheless, each of these Portfolios is authorized to enter into hedging
transactions in any other futures or options
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contracts which are currently traded or which may subsequently become available
for trading. Such instruments may be employed in connection with the Portfolios'
hedging strategies if, in the judgment of the adviser, transactions therein are
necessary or advisable.
VI. Accounting Treatment.
Accounting for futures contracts and options will be in accordance with
generally accepted accounting principles.
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FORM N-1A
PART C. OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(a) FINANCIAL STATEMENTS:
---------------------
(1) (a) Included in Part A: Financial Highlights for Registrant's Money
Market Portfolio for the fiscal years ended November 30, 1986
through November 30, 1995 (Investor A Shares and Trust Shares) and
the fiscal years ended November 30, 1994 and 1995 (Institutional
Shares); (ii) Treasury Money Market Portfolio for the period
December 2, 1991 (commencement of operations) through November 30,
1992, the fiscal years ended November 30, 1993, 1994 and 1995
(Investor A Shares and Trust Shares); (iii) Tax-Exempt Money
Market Portfolio for the period July 10, 1986 (commencement of
operations) through May 31, 1987, the fiscal years ended May 31,
1988 through May 31, 1995 and the six-months ended November 30,
1995 (Trust Shares and Investor A Shares); (iv) Growth & Income
Equity Portfolio for the period June 2, 1988 (commencement of
operations) through November 30, 1988, the fiscal years ended
November 30, 1989 through November 30, 1995 (Trust Shares and
Investor A Shares), the fiscal years ended November 30, 1994 and
1995 (Institutional Shares) and the period March 1, 1995 through
November 30, 1995 (Investor B Shares); (v) Government & Corporate
Bond Portfolio for the period June 15, 1988 (commencement of
operations) through November 30, 1988, the fiscal years ended
November 30, 1989 through November 30, 1995 (Trust Shares and
Investor A Shares), the fiscal years ended November 30, 1994 and
1995 (Institutional Shares) and the period March 1, 1995 through
November 30, 1995 (Investor B Shares); (vi) U.S. Government
Securities Portfolio for the period June 2, 1988 (commencement of
operations) through November 30, 1988, the fiscal years ended
November 30, 1989 through November 30, 1995 (Trust Shares and
Investor A Shares), the fiscal years ended November 30, 1994
and 1995 (Institutional Shares) and the period March
<PAGE> 381
1, 1995 through November 30, 1995 (Investor B Shares); (vii)
Emerging Growth Portfolio for the period May 1, 1992 (commencement
of operations) through November 30, 1992, the fiscal years ended
November 30, 1993, 1994 and 1995 (Trust Shares), the period May 6,
1992 (date of initial public offering) through November 30, 1992
and the fiscal years ended November 30, 1994 and 1995 (Investor A
Shares), the fiscal years ended November 30, 1994 and 1995
(Institutional Shares) and the period March 1, 1995 through
November 30, 1995 (Investor B Shares); (viii) Balanced Portfolio
for the period April 1, 1993 (commencement of operations) through
November 30, 1993 and the fiscal years ended November 30, 1994 and
1995 (Trust Shares and Investor A Shares), the fiscal years ended
November 30, 1994 and 1995 (Institutional Shares) and the period
March 1, 1995 through November 30, 1995 (Investor B Shares); (ix)
International Equity Portfolio for the period April 4, 1994
(commencement of operations) through November 30, 1994 and the
fiscal year ended November 30, 1995 (Investor A Shares, Trust
Shares and Institutional Shares) and the period March 1, 1995
through November 30, 1995 (Investor B Shares); (x)
Short-Intermediate Municipal Portfolio for the period July 11,
1995 (commencement of operations) through November 30, 1995 (Trust
Shares); (xi) Missouri Tax-Exempt Bond Portfolio for the period
July 15, 1988 (commencement of operations) through May 31, 1989,
the fiscal years ended May 31, 1990 through 1995 and the
six-months ended November 30, 1995 (Trust Shares and Investor A
Shares) and the period March 1, 1995 through May 31, 1995 and the
six-months ended November 30, 1995 (Investor B Shares).
(b) Included in Part B: Financial Statements included in The ARCH Fund,
Inc.'s Annual Report to Shareholders for the fiscal year ended
November 30, 1995, as previously filed with the Commission, are
incorporated herein by reference.
(2) All required financial statements are included in Parts A and B
hereof, or incorporated by reference. All other
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financial statements and schedules are inapplicable.
(b) EXHIBITS:
--------
(1) (a) Articles of Incorporation dated September 9, 1982.(3)
(b) Articles Supplementary to Registrant's Articles of Incorporation
dated October 28, 1982.(3)
(c) Articles Supplementary to Registrant's Articles of Incorporation
dated December 22, 1987.(3)
(d) Articles Supplementary to Registrant's Articles of
Incorporation dated as of October 30, 1990.(3)
(e) Articles Supplementary to Registrant's Articles of
Incorporation dated as of November 9, 1990.(3)
(f) Articles Supplementary to Registrant's Articles of
Incorporation dated as of March 19, 1991.(3)
(g) Certificate of Correction dated April 30, 1991 to Articles
Supplementary dated as of March 19, 1991.(3)
(h) Articles Supplementary to Registrant's Articles of
Incorporation dated as of June 25, 1991.(3)
(i) Articles Supplementary to Registrant's Articles of
Incorporation dated as of November 15, 1991.(3)
(j) Articles Supplementary to Registrant's Articles of
Incorporation dated as of January 26, 1993.(3)
(k) Articles Supplementary to Registrant's Articles of
Incorporation dated as of March 23, 1993.(3)
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<PAGE> 383
(l) Articles Supplementary to Registrant's Articles of Incorporation dated
as of March 7, 1994.(3)
(m) Certificate of Correction dated October 17, 1994 to Articles
Supplementary dated as of March 8, 1994 to Registrant's Articles of
Incorporation.(3)
(n) Articles Supplementary to Registrant's Articles of Incorporation dated
as of February 22, 1995.(3)
(o) Articles Supplementary to Registrant's Articles of Incorporation dated
as of April 17, 1995.(3)
(p) Articles Supplementary to Registrant's Articles of Incorporation dated
July 7, 1995.(3)
(q) Articles Supplementary to Registrant's Articles of Incorporation dated
September 20, 1995.(3)
(r) Form of Articles Supplementary to Registrant's Articles of
Incorporation.(3)
(2) (a) By-Laws as approved and adopted by Registrant's Board of Directors
are incorporated herein by reference to Exhibit (2) of Registrant's
Registration Statement on Form N-1, filed on September 10, 1982.
(b) Amendment No. 1 to Registrant's By-Laws adopted June 28, 1983 is
incorporated herein by reference to Exhibit (2)(b) of Post-Effective
Amendment No. 2 to Registrant's Registration Statement on Form N-1A,
filed on January 20, 1984.
(c) Amendment No. 2 to Registrant's By-Laws adopted November 23, 1987 is
incorporated herein by reference to Exhibit (2)(c) of Post- Effective
Amendment No. 7 to Registrant's Registration Statement on Form N-1A,
filed on March 31, 1988.
(3) None.
(4) None.
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<PAGE> 384
(5) (a) Amended and Restated Advisory Agreement between Registrant and
Mississippi Valley Advisors Inc. dated April 1, 1991.(3)
(b) Addendum No. 1 to Amended and Restated Advisory Agreement between
Registrant and Mississippi Valley Advisors Inc. with respect to the
ARCH Treasury Money Market Portfolio, dated as of
September 27, 1991.(3)
(c) Addendum No. 2 to Amended and Restated Advisory Agreement between the
Registrant and Mississippi Valley Advisors, Inc. with respect to the
ARCH Emerging Growth Portfolio, dated as of April 1, 1992.(3)
(d) Addendum No. 3 to Amended and Restated Advisory Agreement between the
Registrant and Mississippi Valley Advisors Inc. with respect to the
ARCH Balanced Portfolio dated April 1, 1993.(3)
(e) Addendum No. 4 to Amended and Restated Advisory Agreement between
Registrant and Mississippi Valley Advisors Inc. dated March 15,
1994.(3)
(f) Addendum No. 5 to Amended and Restated Advisory Agreement between
Registrant and Mississippi Valley Advisors Inc. with respect to the
Short-Intermediate Municipal Portfolio dated July 10, 1995.(3)
(g) Addendum No. 6 to Amended and Restated Advisory Agreement between
Registrant and Mississippi Valley Advisors Inc. with respect to the
Tax-Exempt Money Market, Missouri Tax-Exempt Bond and Kansas
Tax-Exempt Bond Portfolios dated September 29, 1995.(3)
(h) Form of Addendum No. 7 to Amended and Restated Advisory Agreement
between Registrant and Mississippi Valley Advisors Inc. with respect
to the Equity Income, National Municipal Bond and Short-Intermediate
Corporate Bond Portfolios.(3)
(i) Sub-Advisory Agreement between Mississippi Valley Advisors Inc. and
Clay Finlay, Inc. dated January 25, 1994.(3)
-5-
<PAGE> 385
(6) (a) Distribution Agreement between Registrant and The Winsbury Company
Limited Partnership dated October 1, 1993 is incorporated herein by
reference to Exhibit (6)(a) of Post-Effective Amendment No. 25 to
Registrant's Registration Statement on Form N-1A, filed November 8,
1994.
(b) Addendum No. 1 to Distribution Agreement between the Registrant and
The Winsbury Company Limited Partnership with respect to the ARCH
International Equity Portfolio dated March 15, 1994 is incorporated
herein by reference to Exhibit (6)(b) of Post-Effective Amendment No.
25 to Registrant's Registration Statement on Form N-1A, filed November
8, 1994.
(c) Addendum No. 2 to Distribution Agreement between the Registrant and
The Winsbury Company Limited Partnership with respect to Investor B
Shares of the non-money market Portfolios dated March 1, 1995 is
incorporated herein by reference to Exhibit (6)(c) of Post-Effective
Amendment No. 29 to Registrant's Registration Statement on Form N-1A,
filed April 14, 1995.
(d) Addendum No. 3 to Distribution Agreement between the Registrant and
The Winsbury Company Limited Partnership with respect to the Short-
Intermediate Municipal Portfolio and Investor B Shares of the Money
Market Portfolio is incorporated herein by reference to Exhibit (6)(d)
of Post-Effective Amendment No. 31 to Registrant's Registration
Statement on Form N-1A, filed September 20, 1995.
(e) Addendum No. 4 to Distribution Agreement between the Registrant and
The Winsbury Company Limited Partnership with respect to the Tax-
Exempt Money Market, Missouri Tax-Exempt Bond and Kansas Tax-Exempt
Bond Portfolios dated September 29, 1995(3)
(f) Form of Addendum No. 5 to Distribution Agreement between the
Registrant and BISYS Fund Services with respect to the Equity Income,
National Municipal Bond and Short-Intermediate Corporate Bond
Portfolios.(3)
-6-
<PAGE> 386
(g) Amendment No. 1 to Distribution Agreement between the Registrant and
The Winsbury Company Limited Partnership dated as of September 29,
1995.(1)
(7) None.
(8) (a) Custodian Agreement between Registrant and Mercantile Bank of St.
Louis, National Association dated as of April 1, 1992 is
incorporated herein by reference to Exhibit (8)(a) of Post-Effective
Amendment No. 17 to Registrant's Registration Statement on Form
N-1A, filed March 31, 1992.
(b) Custody Fee Agreement between Registrant and Mercantile Bank of St.
Louis, National Association dated April 1, 1995 is incorporated herein
by reference to Exhibit (8)(b) of Post-Effective Amendment No. 29 to
Registrant's Registration Statement on Form N-1A, filed April 14,
1995.
(c) Custody Fee Agreement between Registrant and Mercantile Bank of St.
Louis, National Association is incorporated herein by reference to
Exhibit (8)(c) of Post-Effective Amendment No. 31 to Registrant's
Registration Statement on Form N-1A, filed September 20, 1995.
(d) Custody Fee Agreement between Registrant and Mercantile Bank of St.
Louis, National Association dated September 29, 1995.(3)
(e) Form of Custody Fee Agreement between Registrant and Mercantile
Bank of St. Louis, National Association.(3)
(f) Global Sub-Custodian Agreement among Bankers Trust Company of New
York, Registrant and Mercantile Bank of St. Louis, National
Association dated as of April 1, 1994 is incorporated herein by
reference to Exhibit (8)(j) of Post-Effective Amendment No. 25 to
Registrant's Registration Statement on Form N-1A, filed November 8,
1994.
(g) Securities Lending Amendment dated August 4, 1994 to Custodian
Agreement dated April 1, 1992 between Registrant and Mercantile Bank
-7-
<PAGE> 387
of St. Louis, National Association is incorporated herein by reference
to Exhibit (8)(k) of Post-Effective Amendment No. 25 to Registrant's
Registration Statement on Form N-1A, filed November 8, 1994.
(9) (a) Administration Agreement between Registrant and The Winsbury Service
Corporation dated October 1, 1993 is incorporated herein by
reference to Exhibit (9)(a) of Post-Effective Amendment No. 25 to
Registrant's Registration Statement on Form N-1A, filed November 8,
1994.
(b) Addendum No. 1 to Administration Agreement between Registrant and The
Winsbury Service Corporation with respect to the ARCH International
Equity Portfolio dated March 15, 1994 is incorporated herein by
reference to Exhibit (9)(b) of Post-Effective Amendment No. 25 to
Registrant's Registration Statement on Form N-1A, filed November 8,
1994.
(c) Addendum No. 2 to Administration Agreement between Registrant and
BISYS Fund Services Ohio, Inc. (formerly known as The Winsbury Service
Corporation) with respect to Investor B Shares of the non-money market
Portfolios dated as of March 1, 1995 is incorporated herein by
reference to Exhibit (9)(c) of Post-Effective Amendment No. 29 to
Registrant's Registration Statement on Form N-1A, filed April 14,
1995.
(d) Addendum No. 3 to Administration Agreement between Registrant and
BISYS Fund Services Ohio, Inc. with respect to the Short-Intermediate
Municipal Portfolio and Investor B Shares of the Money Market
Portfolio is incorporated herein by reference to Exhibit (9)(d) of
Post- Effective Amendment No. 31 to Registrant's Registration
Statement on Form N-1A, filed September 20, 1995.
(e) Addendum No. 4 to Administration Agreement between Registrant and
BISYS Fund Services Ohio, Inc. with respect to the Tax-Exempt Money
Market, Missouri Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios
dated September 29, 1995.(3)
-8-
<PAGE> 388
(f) Form of Addendum No. 5 to Administration Agreement between Registrant
and BISYS Fund Services Ohio, Inc. with respect to the Equity Income,
National Municipal Bond and Short-Intermediate Corporate Bond
Portfolios.(3)
(g) Transfer Agency Agreement between Registrant and The Winsbury Service
Corporation dated October 1, 1993 is incorporated herein by reference
to Exhibit (9)(c) of Post-Effective Amendment No. 25 to Registrant's
Registration Statement on Form N-1A, filed November 8, 1994.
(h) Addendum No. 1 to Transfer Agency Agreement between Registrant and The
Winsbury Service Corporation with respect to the ARCH International
Equity Portfolio dated March 15, 1994 is incorporated herein by
reference to Exhibit (9)(d) of Post-Effective Amendment No. 25 to
Registrant's Registration Statement on Form N-1A, filed November 8,
1994.
(i) Addendum No. 2 to Transfer Agency Agreement between Registrant and
BISYS Fund Services Ohio, Inc. (formerly known as The Winsbury Service
Corporation) with respect to Investor B Shares of the non-money market
Portfolios dated as of March 1, 1995 is incorporated herein by
reference to Exhibit (9)(g) of Post-Effective Amendment No. 29 to
Registrant's Registration Statement on Form N-1A, filed April 14,
1995.
(j) Addendum No. 3 to Transfer Agency Agreement between Registrant and
BISYS Fund Services Ohio, Inc. with respect to the Short- Intermediate
Municipal Portfolio and Investor B Shares of the Money Market
Portfolio is incorporated herein by reference to Exhibit (9)(i) of
Post-Effective Amendment No. 31 to Registrant's Registration Statement
on Form N-1A, filed September 20, 1995.
(k) Addendum No. 4 to Transfer Agency Agreement between Registrant and
BISYS Fund Services Ohio, Inc. with respect to the Tax-Exempt Money
Market, Missouri Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios
dated September 29, 1995.(3)
-9-
<PAGE> 389
(l) Form of Addendum No. 5 to Transfer Agency Agreement between Registrant
and BISYS Fund Services Ohio, Inc. with respect to the Equity Income,
National Municipal Bond and Short-Intermediate Corporate Bond
Portfolios.(3)
(m) Amendment No. 1 to Transfer Agency Agreement between Registrant and
BISYS Fund Services Ohio, Inc. dated as of September 29, 1995.(1)
(n) Form of Amendment No. 2 to Transfer Agency Agreement between
Registrant and BISYS Fund Services Ohio, Inc. dated October 1,
1995.(3)
(o) (1) Distribution and Services Plan (Investor A Shares) under Rule
12b-1 and Form of Agreement.
(2) Distribution and Services Plan (Investor B Shares) under Rule 12b-1
and Form of Agreement.
(3) Administrative Services Plan (Trust Shares) and Form of Agreement.
(4) Administrative Services Plan (Institutional Shares) and Form of
Agreement.
(10) Opinion and consent of counsel.(2)
(11) (a) Consent of Drinker Biddle & Reath.
(b) Consent of KPMG Peat Marwick LLP.
(12) None.
(13) (a) Purchase Agreement between Registrant and Shearson/American
Express Inc. dated November 23, 1982, is incorporated herein by
reference to Exhibit (13) of Pre-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1, filed on November
24, 1982.
(b) Purchase Agreement between Registrant and The Winsbury Service
Corporation dated April 1, 1994 is incorporated herein by reference to
Exhibit (13)(b) of Post-Effective Amendment
-10-
<PAGE> 390
No. 25 to Registrant's Registration Statement on Form N-1A, filed
November 8, 1994.
(c) Purchase Agreements between Registrant and BISYS Fund Services Ohio,
Inc. dated as of February 28, 1995 are incorporated herein by
reference to Exhibit (13)(c) of Post-Effective Amendment No. 29 to
Registrant's Registration Statement on Form N-1A, filed April 14,
1995.
(d) Purchase Agreements between Registrant and BISYS Fund Services Ohio,
Inc. dated as of July 7, 1995 are incorporated herein by reference to
Exhibit (13)(d) of Post-Effective Amendment No. 31 to Registrant's
Registration Statement on Form N-1A, filed September 20, 1995.
(e) Purchase Agreements between Registrant and BISYS Fund Services Ohio,
Inc. dated September 29, 1995.(3)
(f) Form of Purchase Agreements between Registrant and BISYS Fund Services
Ohio, Inc.(3)
(14) None.
(15) None.
(16) (a) Schedule of Computation of Performance Calculations for Investor A
(formerly Investor) Shares and Trust Shares of the Money Market,
Treasury Money Market, Government & Corporate Bond, Growth & Income
Equity, U.S. Government Securities, Emerging Growth and Balanced
Portfolio are incorporated herein by reference to Exhibit (16) of
Post-Effective Amendment No. 24 to Registrant's Registration
Statement on Form N-1A, filed on March 31, 1994.
(b) Schedule of Computation of Performance Calculations for Investor A
(formerly Investor), Trust and Institutional Shares of the
International Equity Portfolio is incorporated herein by reference to
Exhibit (16)(b) of Post-Effective Amendment No. 25 to Registrant's
Registration Statement on Form N-1A, filed November 8, 1994.
-11-
<PAGE> 391
(c) Schedule of Computation of Performance Calculations for Institutional
Shares of the Money Market, Treasury Money Market, Government &
Corporate Bond, Growth & Income Equity, U.S. Government Securities,
Emerging Growth, Balanced and International Equity Portfolios is
incorporated herein by reference to Exhibit (16)(c) of Post-Effective
Amendment No. 29 to Registrant's Registration Statement on Form N-1A,
filed April 14, 1995.
(d) Schedule of Computation of Performance Calculations for Investor B
Shares of the Government & Corporate Bond, Growth & Income Equity,
U.S. Government Securities, Emerging Growth, Balanced and
International Equity Portfolios is incorporated herein by reference to
Exhibit (16)(c) of Post-Effective Amendment No. 29 to Registrant's
Registration Statement on Form N-1A, filed April 14, 1995.
(e) Schedule of Computation of Performance Calculations for Trust Shares
and Investor A Shares of the Short-Intermediate Municipal
Portfolio.(1)
(f) Schedule of Computation of Performance Calculations for Trust
and Investor A Shares of the Tax-Exempt Money Market, Missouri
Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios and for Investor
B Shares of the Missouri Tax-Exempt Bond and Kansas Tax-Exempt Bond
Portfolios.(3)
(18) Amended and Restated Plan Pursuant to Rule 18f-3 for Operation of a
Multi-Class System.
(27) Financial Data Schedules.
_____________________________
(1) Filed electronically as an exhibit and incorporated herein by reference
to Post-Effective Amendment No. 33 to Registrant's Registration
Statement on Form N-1A (File No. 2-79285) on January 2, 1996.
(2) Filed under Rule 24f-2 as part of Registrant's Rule 24f-2 Notice on
January 29, 1996.
(3) Filed electronically as an exhibit and incorporated herein by reference
to Post Effective Amendment No. 34 to
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<PAGE> 392
Registrant's Registration Statement on Form N-1A (File No. 2-79285) on
February 28, 1996.
Item 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
-------------------------------------------------------------
Registrant is controlled by its Board of Directors.
Item 26. NUMBER OF HOLDERS OF SECURITIES
-------------------------------
As of February 1, 1996:
<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
-------------- --------------
<S> <C>
Class A Common Stock (The ARCH
Money Market Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Class A - Special Series 1 Common Stock
(The ARCH Money Market
Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244
Class A - Special Series 2 Common Stock
(The ARCH Money Market Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . 2
Class A - Special Series 3 Common Stock
(The ARCH Money Market
Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Class B Common Stock (The ARCH
(Treasury Money Market
Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Class B - Special Series 1 Common Stock
(The ARCH Treasury Money Market
Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Class B - Special Series 2 Common Stock
(The ARCH Treasury Money Market
Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Class C Common Stock (The ARCH
Growth & Income Equity
Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 957
Class C - Special Series 1 Common Stock
(The ARCH Growth & Income Equity
Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Class C - Special Series 2 Common Stock
(The ARCH Growth & Income Equity
Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Class C - Special Series 3 Common Stock
(The ARCH Growth & Income Equity
Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
Class D Common Stock (The ARCH
Government & Corporate Bond
Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208
Class D - Special Series 1 Common Stock
(The ARCH Government & Corporate Bond
Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Class D - Special Series 2 Common Stock
(The ARCH Government & Corporate Bond
Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Class D - Special Series 3 Common Stock
(The ARCH Government & Corporate Bond
Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
-13-
<PAGE> 393
<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
-------------- --------------
<S> <C>
Class E Common Stock (The ARCH
U.S. Government Securities
Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239
Class E - Special Series 1 Common Stock
(The ARCH U.S. Government Securities
Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Class E - Special Series 2 Common Stock
(The ARCH U.S. Government Securities
Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Class E - Special Series 3 Common Stock
(The ARCH U.S. Government Securities
Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Class F Common Stock (The ARCH Emerging
Growth Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 779
Class F - Special Series 1 Common Stock
(The ARCH Emerging Growth
Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Class F - Special Series 2 Common Stock
(The ARCH Emerging Growth
Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Class F - Special Series 3 Common Stock
(The ARCH Emerging Growth
Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
Class G Common Stock (The ARCH Balanced
Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199
Class G - Special Series 1 Common Stock
Common Stock (The ARCH Balanced
Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Class G - Special Series 2 Common Stock
Stock (The ARCH Balanced
Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Class G Common Stock - Special Series 3
Common Stock (The ARCH Balanced
Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Class H Common Stock (The ARCH
International Equity
Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
Class H - Special Series 1 Common
Stock - (The ARCH International Equity
Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Class H - Special Series 2 Common Stock
(The ARCH International Equity
Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Class H - Special Series 3 Common Stock
(The ARCH International Equity
Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Class I Common Stock (The ARCH
Short-Intermediate Municipal
Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Class I - Special Series 1 Common Stock
(The ARCH Short-Intermediate
Municipal Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Class J Common Stock (The ARCH Tax-Exempt
Money Market Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Class J - Special Series 1
Common Stock (The ARCH Tax-Exempt Money
Market Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Class K Common Stock (The ARCH Missouri
</TABLE>
-14-
<PAGE> 394
<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
-------------- --------------
<S> <C>
Tax-Exempt Bond Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . 533
Class K - Special Series 1
Common Stock (The ARCH Missouri
Tax-Exempt Bond Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Class K - Special Series 2
Common Stock (The ARCH Missouri
Tax-Exempt Bond Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Class L Common Stock (The ARCH Kansas
Tax-Exempt Bond Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . 0
Class L - Special Series 1
Common Stock (The ARCH Kansas
Tax-Exempt Bond Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . 0
Class L - Special Series 2
Common Stock (The ARCH Kansas
Tax-Exempt Bond Portfolio) . . . . . . . . . . . . . . . . . . . . . . . . . . . 0
</TABLE>
Item 27. INDEMNIFICATION
---------------
Indemnification of Registrant's principal underwriter, custodian and
transfer agent against certain losses is provided for, respectively, in
Sections 1.11 and 1.12 of the Distribution Agreement, incorporated herein by
reference as Exhibit (6)(a), and Sections 24 and 18, respectively, of the
Custody Agreement, incorporated herein by reference as Exhibit (8)(a) and the
Transfer Agency Agreement incorporated herein by reference as Exhibit (9)(c).
The Registrant has obtained from a major insurance carrier a directors' and
officers' liability policy covering certain types of errors and omissions. In
no event will the Registrant indemnify any of its directors, officers,
employees or agents against any liability to which such person would otherwise
be subject by reason of his willful misfeasance, bad faith or gross negligence
in the performance of his duties, or by reason of his reckless disregard of the
duties involved in the conduct of his office or under his agreement with the
Registrant. Registrant will comply with Rule 484 under the Securities Act of
1933 and Release 11330 under the Investment Company Act of 1940 in connection
with any indemnification.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, 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 Registrant of expenses
incurred or paid by a director, officer or controlling person of Registrant in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its
-15-
<PAGE> 395
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
----------------------------------------------------
A. Mercantile Bank of St. Louis National Association
("Mercantile") is a full-service national bank located in St. Louis, Missouri.
Mississippi Valley Advisors Inc. is a wholly-owned subsidiary of Mercantile and
is responsible for providing advisory services to The ARCH Money Market,
Treasury Money Market, Tax-Exempt Money Market, Growth & Income Equity,
Emerging Growth, Government & Corporate Bond, U.S. Government Securities,
Balanced, International Equity, Short-Intermediate Municipal, Missouri
Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios of the Registrant.
B. The information required by this Item 28 with respect to each
Director and Officer of Mercantile and Mississippi Valley Advisors Inc. is
incorporated by reference to Form ADV and Schedules A and D filed by
Mississippi Valley Advisors Inc. with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934 (File No. 801-28897).
C. Clay Finlay, Inc. is registered as an investment adviser with
the Securities and Exchange Commission and provides sub- investment advisory
services to the Registrant's International Equity Portfolio.
D. The information required by this Item 28 with respect to each
Director and Officer of Clay Finlay, Inc. is included in Form ADV and Schedules
A and D filed by Clay Finlay, Inc. with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934 (File No. 801-17316).
Item 29. PRINCIPAL UNDERWRITER
---------------------
A. BISYS Fund Services Limited Partnership d/b/a BISYS Fund
Services (formerly The Winsbury Company Limited Partnership) acts as
distributor and its affiliate, BISYS Funds Services Ohio, Inc., acts
as administrator for the Registrant. BISYS Fund Services also
distributes the securities of the American Performance Funds, The
Highmark Group, The Parkstone Group of Funds, The Sessions Group, the
AmSouth Mutual Funds, The Coventry Group, the BB&T Mutual Funds Group,
the MarketWatch Funds, The M.S.D & T Funds, Inc., The Riverfront
Funds, Inc., the Pacific Capital Funds, the MMA Praxis Mutual Funds,
the Mariner Funds Trust, the Mariner Mutual Funds Trust, Fountain
Square Funds, the Summit Investment Trust, the Qualivest Funds and The
Victory Portfolios, each of which is a management investment company.
-16-
<PAGE> 396
B. To the best of Registrant's knowledge, the partners of BISYS
Fund Services are as follows:
<TABLE>
<CAPTION>
Name and
Principal Positions and Positions and
Business Offices with Offices with
Address BISYS Fund Services Registrant
- -------- ------------------- -------------
<S> <C> <C>
BISYS Fund Services, Inc. Sole General Partner None
150 Clove Road
Little Falls, NJ 07424
WC Subsidiary Corporation Limited Partner None
150 Clove Road
Little Falls, NJ 07424
</TABLE>
C. None.
Item 30. LOCATION OF ACCOUNTS AND RECORDS
--------------------------------
(1) Mercantile Bank of St. Louis National Association, One Mercantile
Center, 8th and Locust Streets, St. Louis, MO 63101 (records relating
to its functions as custodian).
(2) BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio 43219 (records
relating to its functions as distributor).
(3) Mississippi Valley Advisors Inc., 7th and Washington Streets, 21st
Floor, St. Louis, MO 63101 (records relating to its functions as
investment adviser for The ARCH Money Market, Treasury Money Market,
Growth & Income Equity, Emerging Growth, Government & Corporate Bond,
U.S. Government Securities, Balanced, International Equity and
Short-Intermediate Municipal, Tax-Exempt Money Market, Missouri
Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios).
(4) BISYS Fund Services Ohio, Inc., 3435 Stelzer Road, Columbus, Ohio
43219 (records relating to its function as administrator).
(5) BISYS Fund Services Ohio, Inc., 3435 Stelzer Road, Columbus, Ohio
43219 (records relating to its function as transfer agent and dividend
disbursing agent).
(6) Drinker Biddle & Reath, Philadelphia National Bank Building, 1345
Chestnut Street, Philadelphia, PA 19107-3496 (Registrant's Articles of
Incorporation, By-Laws and Minute Books).
(7) Clay Finlay, Inc. 200 Park Avenue, 56th Floor, New York, New York
10166 (records relating to its function as sub-investment advisor to
the International Equity Portfolio).
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<PAGE> 397
(8) Bankers Trust Company, 16 Wall Street, New York, New York 10005
(records relating to its function as sub-custodian for the
International Equity Portfolio).
Item 31. MANAGEMENT SERVICES
-------------------
Inapplicable.
Item 32. UNDERTAKINGS
------------
(a) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered a copy of the Registrant's latest annual report to
shareholders upon request and without charge.
-18-
<PAGE> 398
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this registration statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment No. 35 to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
St. Louis and the State of Missouri, on the 28th day of March, 1996.
THE ARCH FUND, INC.
(Registrant)
/s/ Jerry V. Woodham
--------------------
Jerry V. Woodham
President
Pursuant to the requirements of the Securities Act of 1933, this
Registrant's Post-Effective Amendment No. 35 to its Registration Statement has
been signed below by the following persons in the capacities and on the dates
indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Jerry V. Woodham Chairman of the March 28, 1996
- --------------------
Jerry V. Woodham Board and President
/s/* James C. Jacobsen Director March 28, 1996
- ----------------------
James C. Jacobsen
/s/* Joseph J. Hunt Director March 28, 1996
- -------------------
Joseph J. Hunt
/s/* Donald E. Kiernan Director March 28, 1996
- ----------------------
Donald E. Kiernan
/s/* Robert M. Cox, Jr. Director March 28, 1996
- -----------------------
Robert M. Cox, Jr.
/s/* Lyle L. Meyer Director March 28, 1996
- ------------------
Lyle L. Meyer
/s/* Ronald D. Winney Director & Treasurer March 28, 1996
- ---------------------
Ronald D. Winney
</TABLE>
*By: /s/ Jerry V. Woodham
--------------------
Jerry V. Woodham
Attorney-in-fact
<PAGE> 399
THE ARCH FUND, INC.
Power of Attorney
-----------------
Jerry V. Woodham, whose signature appears below, does hereby constitute and
appoint W. Bruce McConnel, III his true and lawful attorney and agent, with
full power of substitution and resubstitution, to do any and all acts and
things and execute any and all instruments which said attorney and agent may
deem necessary or advisable or which may be required to enable The ARCH Fund,
Inc. (the "Fund") to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended, and any rules,
regulations, or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing and effectiveness of the Fund's
Registration Statement and of any and all amendments (including post-effective
amendments) to the Fund's Registration Statement on Form N-1A pursuant to said
Acts, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned on behalf of the Fund and/or as a director and/or officer of the
Fund any and all amendments filed with the Securities and Exchange Commission
under said Acts, and any other instruments or documents related thereto, and
the undersigned does hereby ratify and confirm all that said attorney and agent
shall do or cause to be done by virtue hereof.
/s/ Jerry V. Woodham
--------------------
Jerry V. Woodham
Date: March 31, 1992
<PAGE> 400
THE ARCH FUND, INC.
Power of Attorney
-----------------
Joseph J. Hunt, whose signature appears below, does hereby constitute and
appoint Jerry V. Woodham and W. Bruce McConnel, III, and either of them, his
true and lawful attorneys and agents, with full power of substitution and
resubstitution, to do any and all acts and things and execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable The ARCH Fund, Inc.
(the "Fund") to comply with the Investment Company Act of 1940, as amended, and
the Securities Act of 1933, as amended, and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of the Fund's Registration
Statement and of any and all amendments (including post-effective amendments)
to the Fund's Registration Statement on Form N-1A pursuant to said Acts,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in the name and on behalf of the undersigned on
behalf of the Fund and/or as a director and/or officer of the Fund any and all
amendments filed with the Securities and Exchange Commission under said Acts,
and any other instruments or documents related thereto, and the undersigned
does hereby ratify and confirm all that said attorneys and agents, or either of
them, shall do or cause to be done by virtue hereof.
/s/ Joseph J. Hunt
------------------
Joseph J. Hunt
Date: October 25, 1994
<PAGE> 401
THE ARCH FUND, INC.
Power of Attorney
-----------------
James C. Jacobsen, whose signature appears below, does hereby constitute and
appoint Jerry V. Woodham and W. Bruce McConnel, III, and either of them, his
true and lawful attorneys and agents, with full power of substitution and
resubstitution, to do any and all acts and things and execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable The ARCH Fund, Inc.
(the "Fund") to comply with the Investment Company Act of 1940, as amended, and
the Securities Act of 1933, as amended, and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of the Fund's Registration
Statement and of any and all amendments (including post-effective amendments)
to the Fund's Registration Statement on Form N-1A pursuant to said Acts,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in the name and on behalf of the undersigned on
behalf of the Fund and/or as a director and/or officer of the Fund any and all
amendments filed with the Securities and Exchange Commission under said Acts,
and any other instruments or documents related thereto, and the undersigned
does hereby ratify and confirm all that said attorneys and agents, or either of
them, shall do or cause to be done by virtue hereof.
/s/ James C. Jacobsen
---------------------
James C. Jacobsen
Date: October 25, 1994
<PAGE> 402
THE ARCH FUND, INC.
Power of Attorney
-----------------
Donald E. Kiernan, whose signature appears below, does hereby constitute and
appoint Jerry V. Woodham and W. Bruce McConnel, III, and either of them, his
true and lawful attorneys and agents, with full power of substitution and
resubstitution, to do any and all acts and things and execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable The ARCH Fund, Inc.
(the "Fund") to comply with the Investment Company Act of 1940, as amended, and
the Securities Act of 1933, as amended, and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of the Fund's Registration
Statement and of any and all amendments (including post-effective amendments)
to the Fund's Registration Statement on Form N-1A pursuant to said Acts,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in the name and on behalf of the undersigned on
behalf of the Fund and/or as a director and/or officer of the Fund any and all
amendments filed with the Securities and Exchange Commission under said Acts,
and any other instruments or documents related thereto, and the undersigned
does hereby ratify and confirm all that said attorneys and agents, or either of
them, shall do or cause to be done by virtue hereof.
/s/ Donald E. Kiernan
---------------------
Donald E. Kiernan
Date: March 31, 1992
<PAGE> 403
THE ARCH FUND, INC.
Power of Attorney
-----------------
Robert M. Cox, Jr., whose signature appears below, does hereby constitute
and appoint Jerry V. Woodham and W. Bruce McConnel, III, and either of them,
his true and lawful attorneys and agents, with full power of substitution and
resubstitution, to do any and all acts and things and execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable The ARCH Fund, Inc.
(the "Fund") to comply with the Investment Company Act of 1940, as amended, and
the Securities Act of 1933, as amended, and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of the Fund's Registration
Statement and of any and all amendments (including post-effective amendments)
to the Fund's Registration Statement on Form N-1A pursuant to said Acts,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in the name and on behalf of the undersigned on
behalf of the Fund and/or as a director and/or officer of the Fund any and all
amendments filed with the Securities and Exchange Commission under said Acts,
and any other instruments or documents related thereto, and the undersigned
does hereby ratify and confirm all that said attorneys and agents, or either of
them, shall do or cause to be done by virtue hereof.
/s/ Robert M. Cox, Jr.
----------------------
Robert M. Cox, Jr.
Date: March 31, 1992
<PAGE> 404
THE ARCH FUND, INC.
Power of Attorney
-----------------
Lyle L. Meyer, whose signature appears below, does hereby constitute and
appoint Jerry V. Woodham and W. Bruce McConnel, III, and either of them, his
true and lawful attorneys and agents, with full power of substitution and
resubstitution, to do any and all acts and things and execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable The ARCH Fund, Inc.
(the "Fund") to comply with the Investment Company Act of 1940, as amended, and
the Securities Act of 1933, as amended, and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of the Fund's Registration
Statement and of any and all amendments (including post-effective amendments)
to the Fund's Registration Statement on Form N-1A pursuant to said Acts,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in the name and on behalf of the undersigned on
behalf of the Fund and/or as a director and/or officer of the Fund any and all
amendments filed with the Securities and Exchange Commission under said Acts,
and any other instruments or documents related thereto, and the undersigned
does hereby ratify and confirm all that said attorneys and agents, or either of
them, shall do or cause to be done by virtue hereof.
/s/ Lyle L. Meyer
-----------------
Lyle L. Meyer
Date: March 31, 1992
<PAGE> 405
THE ARCH FUND, INC.
Power of Attorney
-----------------
Ronald D. Winney, whose signature appears below, does hereby constitute and
appoint Jerry V. Woodham and W. Bruce McConnel, III, and either of them, his
true and lawful attorneys and agents, with full power of substitution and
resubstitution, to do any and all acts and things and execute any and all
instruments which said attorneys and agents, or either of them, may deem
necessary or advisable or which may be required to enable The ARCH Fund, Inc.
(the "Fund") to comply with the Investment Company Act of 1940, as amended, and
the Securities Act of 1933, as amended, and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of the Fund's Registration
Statement and of any and all amendments (including post-effective amendments)
to the Fund's Registration Statement on Form N-1A pursuant to said Acts,
including specifically, but without limiting the generality of the foregoing,
the power and authority to sign in the name and on behalf of the undersigned on
behalf of the Fund and/or as a director and/or officer of the Fund any and all
amendments filed with the Securities and Exchange Commission under said Acts,
and any other instruments or documents related thereto, and the undersigned
does hereby ratify and confirm all that said attorneys and agents, or either of
them, shall do or cause to be done by virtue hereof.
/s/ Ronald D. Winney
--------------------
Ronald D. Winney
Date: December 1, 1994
<PAGE> 406
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
<S> <C> <C>
9 (o) (1) Distribution and Services Plan
(Investor A Shares) under Rule
12b-1 and Form of Agreement.
9 (o) (2) Distribution and Services Plan
(Investor B Shares) under Rule
12b-1 and Form of Agreement.
9 (o) (3) Administrative Services Plan
(Trust Shares) and Form of
Agreement.
9 (o) (4) Administrative Services Plan
(Institutional Shares) and Form
of Agreement.
11(a) Consent of Drinker Biddle & Reath.
11(b) Consent of KPMG Peat Marwick.
18 Amended and Restated Plan Pursuant
to Rule 18f-3 for Operation of a
Multi-Class System.
27 Financial Data Schedules.
</TABLE>
<PAGE> 1
Exhibit 9(o)(1)
Adopted January 26, 1993 (and
June 29, 1993, March 15, 1994,
June 27, 1995 and March 19,
1996 as restated)
THE ARCH FUND(R), INC.
DISTRIBUTION AND SERVICES PLAN
------------------------------
(Investor A Shares)
This Distribution and Services Plan (the "Plan") has been adopted by the
Board of Directors of The ARCH Fund, Inc. (the "Company") in connection with
the Class A, Class B, Class C, Class D, Class E, Class F, Class G, Class H,
Class I, Class J, Class K, Class L, Class M, Class N and Class O shares of the
Money Market, Treasury Money Market, Growth & Income Equity, Emerging Growth,
Government & Corporate Bond, U.S. Government Securities, Balanced,
International Equity, Short-Intermediate Municipal, Tax-Exempt Money Market,
Missouri Tax-Exempt Bond, Kansas Tax-Exempt Bond, Equity Income, National
Municipal Bond and Short-Intermediate Corporate Bond Portfolios (such shares
hereinafter called "Investor A Shares" and such portfolios the "Portfolios") in
conformance with Rule 12b-1 under the Investment Company Act of 1940, as
amended (the "1940 Act").
Section 1. EXPENSES. The Company may incur expenses under the Plan in an
amount not to exceed .30% (.25% for the Money Market, Treasury Money Market or
Tax-Exempt Money Market Portfolio) annually of the average daily net assets of
a Portfolio's Investor A Shares.
Section 2. DISTRIBUTION PAYMENTS. The Company may pay the Distributor (or
any other person) a fee of up to .10% annually of the average daily net assets
of a Portfolio's Investor A Shares (a "Distribution Fee"). Such Distribution
Fee shall be calculated and accrued daily, paid monthly and shall be in
consideration for distribution services and the assumption of related expenses
in conjunction with the offering and sale of Investor A Shares of the Company's
Portfolios. In determining the amounts payable on behalf of a Portfolio under
the Plan, the net asset value of such Investor A Shares shall be computed in
the manner specified in the Company's then current Prospectuses and Statements
of Additional Information describing such Investor A Shares.
Section 3. DISTRIBUTION EXPENSES AND ACTIVITIES COVERED BY PLAN. Payments
to the Distributor under Section 2
<PAGE> 2
shall be used by the Distributor to cover expenses and activities primarily
intended to result in the sale of Investor A Shares. Such expenses and
activities may include but are not limited to: (a) direct out-of-pocket
promotional expenses incurred by the Distributor in advertising and marketing
Investor A Shares; (b) expenses incurred in connection with preparing,
printing, mailing, and distributing or publishing advertisements and sales
literature; expenses incurred in connection with printing and mailing
Prospectuses and Statements of Additional Information to other than current
shareholders; (c) periodic payments to one or more securities dealers, brokers,
financial institutions or other industry professionals, such as investment
advisors, accountants, and estate planning firms (severally, "a Distribution
Organization") with respect to a Portfolio's Investor A Shares beneficially
owned by customers for whom the Distribution Organization is the dealer of
record or holder of record of such Investor A Shares; or (d) for such other
services as may be construed, by any court or governmental agency or
commission, including the Securities and Exchange Commission (the
"Commission"), to constitute distribution services under the 1940 Act or rules
and regulations thereunder.
Section 4. ADMINISTRATIVE SERVICES COVERED BY PLAN. The Company may also
pay securities dealers, brokers, financial institutions or other industry
professionals, such as investment advisors, accountants, and estate planning
firms (severally, a "Service Organization") for administrative support services
provided with respect to its customers' Investor A Shares. Such administrative
support services shall be provided pursuant to the administrative servicing
agreements in substantially the form attached ("Servicing Agreements"). Any
organization providing distribution assistance may also become a Service
Organization and receive administrative servicing fees pursuant to a Servicing
Agreement under this Plan.
Section 5. ADMINISTRATIVE SERVICING FEES COVERED BY PLAN. Fees paid to a
Service Organization shall be in consideration for the administrative support
services provided pursuant to its Servicing Agreement and may be paid at an
annual rate of up to .20% (.15% for the money market Portfolios) of the average
daily net assets of a Portfolio's Investor A Shares owned beneficially by that
Service Organization's customers. Such fees shall be calculated and accrued
daily, paid monthly and computed in the manner set forth in the Servicing
Agreement.
Section 6. EXPENSES ALLOCATED, COMPLIANCE.
(a) Amounts paid by a Portfolio must be for distribution and/or shareholder
administrative support services rendered for or on behalf of the holders of the
Portfolio's Investor A Shares. However, joint distribution financing with
respect to such Investor A Shares (which may involve other investment
portfolios
-2-
<PAGE> 3
or companies that are affiliated persons of the Company or affiliated persons
of the Distributor) shall be permitted in accordance with applicable
regulations of the Commission as in effect from time to time.
(b) Amounts paid to a broker-dealer under Section 2 above shall be subject
to compliance by the broker-dealer with the terms of an agreement between the
broker-dealer and the Distributor, including a provision that each Dealer
Organization shall warrant and represent that it is licensed as a dealer under
applicable law. Amounts paid under Section 5 above shall be subject to
compliance by the Service Organization with the terms of an agreement between
the Service Organization and the Company, including a provision that each
Service Organization shall warrant and represent that it is licensed as a
dealer under applicable law or will not engage in activities that would require
it to be so licensed. The Company's current Section 18 Exemptive Order permits
allocation of such expenses proportionally to the assets held with respect to a
Portfolio's Investor A Shares, provided that the Board of Directors has
determined that such expenses should be so allocated.
Section 7. REPORTS TO COMPANY. So long as this Plan is in effect, the
Distributor shall provide the Company's Board of Directors, and the Directors
shall review, at least quarterly, a written report of the amounts expended
pursuant to the Plan and the purposes for which such expenditures were made.
Section 8. APPROVAL OF PLAN. This Plan will become effective with respect
to a Portfolio (a) either (i) for the Short-Intermediate Municipal, Tax-Exempt
Money Market, Missouri Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios,
upon their respective commencements of operations upon the approval of the sole
shareholder of the outstanding Shares, or (ii) upon its approval by a majority
of the outstanding Investor A Shares of a Portfolio (except for so long as the
Plan expenses are borne by all shares of the Growth & Income Equity, Emerging
Growth, Balanced and International Equity Portfolios, a majority of the
outstanding shares of such Portfolios), and (b) upon its approval by a majority
of the Board of Directors, including a majority of those directors who are not
"interested persons" (as defined in the Act) of the Company and who have no
direct or indirect financial interest in the operation of the Plan or in any
agreements entered into in connection with the Plan (the "Disinterested
Directors"), pursuant to a vote cast in person at a meeting called for the
purpose of voting on the approval of the Plan.
Section 9. CONTINUANCE OF PLAN. Unless sooner terminated, the Plan shall
continue until January 31, 1997, and thereafter, shall continue in effect for
so long as its continuance is specifically approved at least annually by the
-3-
<PAGE> 4
Company's Board of Directors in the manner described in Section 8(b).
Section 10. AMENDMENTS. The Plan may be amended at any time by the Board
of Directors provided that (a) any amendment to increase materially the costs
which the shares of a Portfolio may bear for distribution pursuant to the Plan
shall be effective only upon approval by a vote of a majority of the
outstanding shares affected by such matter, and (b) any material amendments of
the terms of the Plan shall become effective only upon approval as provided in
Section 8(b) hereof.
Section 11. TERMINATION. The Plan is terminable without penalty at any
time by (a) a vote of a majority of the Disinterested Directors and who have no
direct or indirect financial interest in the operation of the Plan or in any
agreements entered into in connection with the Plan, or (b) a vote of a
majority of the outstanding shares of a Portfolio affected by the matter.
Section 12. SELECTION/NOMINATION OF DIRECTORS. While this Plan is in
effect, the selection and nomination of those Disinterested Directors shall be
committed to the discretion of such Disinterested Directors.
Section 13. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the Company has executed the Plan as of March 19, 1996 on
behalf of the Portfolios.
THE ARCH FUND, INC.
By:_________________________
President
-4-
<PAGE> 5
Form Approved June 29, l993,
January 25, 1994, March 15,
1994, June 27, 1995 and March
19, 1996 as restated
THE ARCH FUND(R), INC.
(the "Company")
1900 East Dublin-Granville Road
Columbus, Ohio 43229
SERVICING AGREEMENT
to
DISTRIBUTION AND SERVICES PLANS
(Investor A Shares)
Ladies and Gentlemen:
We wish to enter into this servicing Agreement with you concerning the
provision of administrative support services to your customers who may from
time to time be the record or beneficial owners of Investor A shares (such
shares referred to herein as the "Shares") of one or more of the Company's
investment portfolios (individually, a "Portfolio" and collectively, the
"Portfolios"), which are listed on Appendix A.
The terms and conditions of this Servicing Agreement are as follows:
Section 1. You agree to provide administrative support services to your
customers who may from time to time own of record or beneficially a Portfolio's
Shares. Services provided may include some or all of the following: (i)
processing dividend and distribution payments from a Portfolio on behalf of
customers; (ii) providing information periodically to your customers showing
their positions in the Shares; (iii) arranging for bank wires; (iv) responding
to routine customer inquiries relating to services performed by you; (v)
providing sub-accounting with respect to the Shares beneficially owned by your
customers or the information necessary for sub-accounting; (vi) if required by
law, forwarding shareholder communications from a Portfolio (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to your customers; (vii) forwarding to customers
proxy statements and proxies containing any proposals regarding this Agreement
or the Administrative Services Plan related hereto; (viii) aggregating and
processing purchase, exchange, and redemption requests from customers and
placing net purchase, exchange, and redemption orders for your customers; (ix)
providing customers with a service that invests the assets of their accounts in
the Shares pursuant to specific or pre-authorized instructions; (x)
establishing and maintaining accounts and records relating to transactions in
the Shares; (xi) assisting customers in changing dividend or distribution
options, account designations and addresses; or (xii) other similar services if
requested by the Company.
Section 2. You will provide such office space and equipment, telephone and
personnel (which may be any part of the space, equipment and facilities
currently used in your business, or any personnel employed by you) as may be
reasonably necessary or beneficial in order to provide the aforementioned
services to customers.
Section 3. Neither you nor any of your officers, employees or agents are
authorized to make any representations concerning us, a Portfolio, or its
Shares except those contained in our then current prospectus for such shares,
<PAGE> 6
copies of which will be supplied by us to you, or in such supplemental
literature or advertising as may be authorized by us in writing.
Section 4. For all purposes of this Agreement you will be deemed to be an
independent contractor, and will have no authority to act as agent for us in
any matter or in any respect. By your written acceptance of this Agreement,
you agree to and do release, indemnify and hold us harmless from and against
any and all direct or indirect liabilities or losses resulting from requests,
directions, actions or inactions of or by you or your officers, employees or
agents regarding your responsibilities hereunder or the purchase, redemption,
transfer or registration of the Shares by or on behalf of customers. You and
your employees will, upon request, be available during normal business hours to
consult with us or our designees concerning the performance of your
responsibilities under this Agreement.
Section 5. In consideration of the services and facilities provided by you
hereunder, we will pay to you, and you will accept as full payment therefore, a
fee at the annual rate of up to .20% (.15% for the money market Portfolios) of
the average daily net assets of a Portfolio's Shares owned of record or
beneficially by your customers from time to time, which fee will be computed
daily and payable monthly. For purposes of determining the fees payable under
this Section 5, the average daily net asset value of the customers' Shares will
be computed in the manner specified in our then current Prospectus in
connection with the computation of the net asset value of a Portfolio's Shares
for purposes of purchases, exchanges, and redemptions. The fee rate stated
above may be prospectively increased or decreased by us, in our sole
discretion, at any time upon notice to you. Further, we may, in our discretion
and without notice, suspend or withdraw the sale of such Shares, including the
sale of such shares to you for the account of any customer(s).
Section 6. Any person authorized to direct the disposition of monies paid or
payable by us pursuant to this Agreement will provide to the Board of
Directors, and the Directors will review, at least quarterly, a written report
of the amounts so expended and the purposes for which such expenditures were
made. In addition, you will furnish us or our designees with such information
as we or they may reasonably request (including, without limitation, periodic
certifications confirming the provision to customers of some or all of the
services described herein), and will otherwise cooperate with us and our
designees (including, without limitation, any auditors designated by us), in
connection with the preparation of reports to our Board of Directors concerning
this Agreement and the monies paid or payable by us pursuant hereto, as well as
any other reports or filings that may be required by law.
Section 7. We may enter into other similar Servicing Agreements with any other
person or persons without your consent.
Section 8. By your written acceptance of this Agreement, you represent,
warrant and agree that: (i) in no event will any of the services provided by
you hereunder be primarily intended to result in the sale of any shares issued
by us; (ii) the compensation payable to you hereunder, together with any other
compensation you receive from customers for services contemplated by this
Agreement, will be fully disclosed to your customers, and will not be excessive
or unreasonable under the laws and instruments governing your
- 2 -
<PAGE> 7
relationships with customers; (iii) if you are a member of the National
Association of Securities Dealers, Inc. (the "NASD")and subject to the rules
and regulations of the NASD, including its Rules of Fair Practice, you agree to
act in accordance with such rules and regulations; and (iv) and if you are
subject to the provisions of the Glass-Steagall Act and other laws governing,
among other things, the conduct of activities by federally chartered and
supervised banks and other affiliated banking organizations, you will perform
only those activities which are consistent with your statutory and regulatory
obligations and will act solely as agent for, upon the order of, and for the
account of, your customers.
Section 9. This Agreement will become effective on the date a fully executed
copy of this Agreement is received by us or our designee. Unless sooner
terminated, this Agreement will continue until January 31, 1997, and thereafter
will continue automatically for successive annual periods provided such
continuance is specifically approved at least annually by us in the manner
described in Section 12 hereof. This Agreement is terminable, without penalty,
at any time by us (which termination may be by vote of a majority of our
Disinterested Directors as defined in Section 12 hereof) or by you upon notice
to the other party hereto.
Section 10. All notices and other communications to either you or us will be
duly given if mailed, telegraphed, telexed or transmitted by similar
telecommunications device to the appropriate address shown above.
Section 11. This Agreement will be construed in accordance with the laws of
the State of Delaware and is non-assignable by the parties hereto.
Section 12. This Agreement has been approved by vote of a majority of (i) a
Company's Board of Directors and (ii) those Directors who are not "interested
persons" (as defined in the Investment Company Act of 1940) of the Company and
have no direct or indirect financial interest in the operation of the restated
Administrative Services Plan adopted by us regarding the provision of
administrative support services to the beneficial owners of Trust Shares or in
any agreements related thereto ("Disinterested Directors"), cast in person at a
meeting called for the purpose of voting on such approval.
If you agree to be legally bound by the provisions of this Agreement, please
sign a copy of this letter where indicated below and promptly return it
- 3 -
<PAGE> 8
to us, c/o BISYS Fund Services, c/o Walter B. Grimm at 3435 Stelzer Road,
Columbus, Ohio 43219.
Very truly yours,
THE ARCH FUND, INC.
By:____________________________________________________
Authorized Officer
Date:_______________________________
Accepted and Agreed to:
By:___________________________________________________
Authorized Officer, Name of Organization
Date:_______________________________
______________________________________________________
Taxpayer Identification Number
_____________________________________________
Account Number
_____________________________________________
Dealer Code
- 4 -
<PAGE> 9
APPENDIX A
Please check the appropriate boxes to indicate the Portfolios of the
Companies for which you wish to act as a Service Organization with respect to
the Shares:
THE ARCH FUND, INC.
[ ] Money Market Investor A Shares (Class A)
[ ] Treasury Money Market Investor A Shares (Class B)
[ ] Growth & Income Equity Investor A Shares (Class C)
[ ] Emerging Growth Investor A Shares (Class F)
[ ] Government & Corporate Bond Investor A Shares (Class D)
[ ] U.S. Government Securities Investor A Shares (Class E)
[ ] Balanced Investor A Shares (Class G)
[ ] International Equity Investor A Shares (Class H)
[ ] Short-Intermediate Municipal Investor A Shares (Class I)
[ ] Tax-Exempt Money Market Investor A Shares (Class J)
[ ] Missouri Tax-Exempt Bond Investor A Shares (Class K)
[ ] Kansas Tax-Exempt Bond Investor A Shares (Class L)
[ ] Equity Income Investor A Shares (Class M)
[ ] National Municipal Bond Investor A Shares (Class N)
[ ] Short-Intermediate Corporate Bond Investor A Shares (Class O)
Signed:______________________ ___________________________
(Title) (Service Organization Name)
Dated:______________________
A-1
<PAGE> 1
Exhibit 9(o)(2)
Adopted September 27, 1994
Revised February 28, 1995,
March 21, 1995, June 27, 1995
and March 19, 1996
THE ARCH FUND(R), INC.
DISTRIBUTION AND SERVICES PLAN
(Investor B Shares)
This Distribution and Services Plan (the "Plan") has been adopted by the
Board of Directors of The ARCH Fund, Inc. (the "Company") in connection with
the Class A - Special Series 3, Class C - Special Series 3, Class D - Special
Series 3, Class E - Special Series 3, Class F - Special Series 3, Class G -
Special Series 3, Class H - Special Series 3 shares, Class K - Special Series 2
shares, Class L - Special Series 2 shares, Class M - Special Series 3 and Class
N - Special Series 2 of the Money Market, Growth & Income Equity, Emerging
Growth, Government & Corporate Bond, U.S. Government Securities, Balanced,
International Equity, Missouri Tax-Exempt Bond, Kansas Tax-Exempt Bond, Equity
Income and National Municipal Bond Portfolios, respectively, (such shares
hereinafter called "Investor B shares" and such portfolios the "Portfolios") in
conformance with Rule 12b-1 under the Investment Company Act of 1940, as
amended (the "1940 Act").
Section 1. EXPENSES. The Company may incur expenses under the Plan in an
amount not to exceed 1.00% annually of the average daily net assets of a
Portfolio's Investor B shares.
Section 2. DISTRIBUTION PAYMENTS. The Company may pay the Distributor (or
any other person) a fee of up to .75% annually of the average daily net assets
of a Portfolio's Investor B shares (a "Distribution Fee"). Such Distribution
Fee shall be calculated and accrued daily, paid monthly and shall be in
consideration for distribution services and the assumption of related expenses
in conjunction with the offering and sale of Investor B shares of the
Portfolios. In determining the amounts payable on behalf of a Portfolio under
the Plan, the net asset value of such Investor B shares shall be computed in
the manner specified in the Company's then current Prospectuses and Statements
of Additional Information describing such Investor B shares.
<PAGE> 2
Section 3. DISTRIBUTION EXPENSES AND ACTIVITIES COVERED BY PLAN. Payments
to the Distributor under Section 2 shall be used by the Distributor to cover
expenses and activities primarily intended to result in the sale of Investor B
shares. Such expenses and activities may include but are not limited to: (a)
direct out-of-pocket promotional expenses incurred by the Distributor in
advertising and marketing Investor B shares; (b) expenses incurred in
connection with preparing, printing, mailing, and distributing or publishing
advertisements and sales literature; expenses incurred in connection with
printing and mailing Prospectuses and Statements of Additional Information to
other than current shareholders; (c) periodic payments or commissions to one or
more securities dealers, brokers, financial institutions or other industry
professionals, such as investment advisors, accountants, and estate planning
firms (severally, "a Distribution Organization") with respect to a Portfolio's
Investor B shares beneficially owned by customers for whom the Distribution
Organization is the dealer of record or holder of record of such Investor B
shares; (d) the direct or indirect cost of financing the payments or expenses
included in (a) and (c) above; or (e) for such other services as may be
construed, by any court or governmental agency or commission, including the
Securities and Exchange Commission (the "Commission"), to constitute
distribution services under the 1940 Act or rules and regulations thereunder.
Section 4. ADMINISTRATIVE SERVICES COVERED BY PLAN. The Company may also
pay securities dealers, brokers, financial institutions or other industry
professionals, such as investment advisors, accountants, and estate planning
firms (severally, a "Service Organization") for administrative support services
provided with respect to its customers' Investor B shares. Such administrative
support services shall be provided pursuant to the administrative servicing
agreements in substantially the form attached ("Servicing Agreements"). Any
organization providing distribution assistance may also become a Service
Organization and receive administrative servicing fees pursuant to a Servicing
Agreement under this Plan.
Section 5. ADMINISTRATIVE SERVICING FEES COVERED BY PLAN. Fees paid to a
Service Organization shall be in consideration for the administrative support
services provided pursuant to its Servicing Agreement and may be paid at an
annual rate of up to .25% of the average daily net assets of a Portfolio's
Investor B shares owned beneficially by that Service Organization's customers.
Such fees shall be calculated and accrued daily, paid monthly and computed in
the manner set forth in the Servicing Agreement.
Section 6. EXPENSES ALLOCATED, COMPLIANCE.
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<PAGE> 3
(a) Amounts paid by a Portfolio must be for distribution and/or shareholder
administrative support services rendered for or on behalf of the holders of the
Portfolio's Investor B shares. However, joint distribution financing with
respect to such Investor B shares (which may involve other investment
portfolios or companies that are affiliated persons of the Company or
affiliated persons of the Distributor) shall be permitted in accordance with
applicable regulations of the Commission as in effect from time to time.
(b) Amounts paid to a broker-dealer under Section 2 above shall be subject
to compliance by the broker-dealer with the terms of an agreement between the
broker-dealer and the Distributor, including a provision that each
broker-dealer shall warrant and represent that it is licensed as a dealer under
applicable law. Amounts paid under Section 5 above shall be subject to
compliance by the Service Organization with the terms of an agreement between
the Service Organization and the Company, including a provision that each
Service Organization shall warrant and represent that it is licensed as a
dealer under applicable law or will not engage in activities that would require
it to be so licensed. The Company's current Section 18 Exemptive Order permits
allocation of such expenses proportionally to the assets held with respect to a
Portfolio's Investor B shares, provided that the Board of Directors has
determined that such expenses should be so allocated.
Section 7. REPORTS TO COMPANY. So long as this Plan is in effect, the
Distributor shall provide the Company's Board of Directors, and the Directors
shall review, at least quarterly, a written report of the amounts expended
pursuant to the Plan and the purposes for which such expenditures were made.
Section 8. APPROVAL OF PLAN. This Plan will become effective with respect
to a particular Portfolio's Investor B shares (a) on the date the public
offering of such shares commences upon the approval by written consent of the
sole shareholder of outstanding Investor B shares of that Portfolio, and (b)
upon the approval by a majority of the Board of Directors, including a majority
of those directors who are not "interested persons" (as defined in the Act) of
the Company and who have no direct or indirect financial interest in the
operation of the Plan or in any agreements entered into in connection with the
Plan (the "Disinterested Directors"), pursuant to a vote cast in person at a
meeting called for the purpose of voting on the approval of the Plan.
Section 9. CONTINUANCE OF PLAN. Unless sooner terminated in accordance
with the terms hereof, this Plan shall continue until January 31, 1997, and
thereafter, shall continue in effect for so long as its continuance is
specifically approved
-3-
<PAGE> 4
at least annually by the Company's Board of Directors in the manner described
in Section 8(b) hereof.
Section 10. AMENDMENTS. This Plan may be amended at any time by the Board
of Directors provided that (a) any amendment to increase materially the costs
which the Investor B shares of a Portfolio may bear for distribution pursuant
to the Plan shall be effective only upon approval by a vote of a majority of
the outstanding Investor B shares affected by such matter, and (b) any material
amendments of the terms of the Plan shall become effective only upon approval
in the manner described in Section 8(b) hereof.
Section 11. TERMINATION. This Plan, as to any Portfolio, is terminable
without penalty at any time by (a) a vote of a majority of the Disinterested
Directors, or (b) a vote of a majority of the outstanding Investor B shares of
such Portfolio.
Section 12. SELECTION/NOMINATION OF DIRECTORS. While this Plan is in
effect, the selection and nomination of those Disinterested Directors shall be
committed to the discretion of such Disinterested Directors.
Section 13. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the Company has executed the Plan as of March 19, 1996 on
behalf of the Portfolios.
THE ARCH FUND, INC.
By:_____________________
President
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<PAGE> 5
Form Approved September 27, 1994 as
Revised March 21, 1995, June 27,
1995 and March 19, 1996
THE ARCH FUND(R), INC.
(the "Company")
1900 East Dublin-Granville Road
Columbus, Ohio 43229
SERVICING AGREEMENT
to
DISTRIBUTION AND SERVICES PLANS
(Investor B Shares)
Ladies and Gentlemen:
We wish to enter into this servicing Agreement with you concerning the
provision of administrative support services to your customers who may from
time to time be the record or beneficial owners of Investor B shares (such
shares referred to herein as the "Shares") of one or more of the Company's
investment portfolios (individually, a "Portfolio" and collectively, the
"Portfolios"), which are listed on Appendix A.
The terms and conditions of this Servicing Agreement are as follows:
Section 1. You agree to provide administrative support services to your
customers who may from time to time own of record or beneficially a Portfolio's
Shares. Services provided may include some or all of the following: (i)
processing dividend and distribution payments from a Portfolio on behalf of
customers; (ii) providing information periodically to your customers showing
their positions in the Shares; (iii) arranging for bank wires; (iv) responding
to routine customer inquiries relating to services performed by you; (v)
providing sub-accounting with respect to the Shares beneficially owned by your
customers or the information necessary for sub-accounting; (vi) if required by
law, forwarding shareholder communications from a Portfolio (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to your customers; (vii) forwarding to customers
proxy statements and proxies containing any proposals regarding this Agreement
or the Administrative Services Plan related hereto; (viii) aggregating and
processing purchase, exchange, and redemption requests from customers and
placing net purchase, exchange, and redemption orders for your customers; (ix)
providing customers with a service that invests the assets of their accounts in
the Shares pursuant to specific or pre-authorized instructions; (x)
establishing and maintaining accounts and records relating to transactions in
the Shares; (xi) assisting customers in changing dividend or distribution
options, account designations and addresses; or (xii) other similar services if
requested by the Company.
Section 2. You will provide such office space and equipment, telephone and
personnel (which may be any part of the space, equipment and facilities
currently used in your business, or any personnel employed by you) as may be
reasonably necessary or beneficial in order to provide the aforementioned
services to customers.
Section 3. Neither you nor any of your officers, employees or agents are
authorized to make any representations concerning us, a Portfolio, or its
Shares except those contained in our then current prospectus for such shares,
copies of which will be supplied by us to you, or in such supplemental
literature or advertising as may be authorized by us in writing.
<PAGE> 6
Section 4. For all purposes of this Agreement you will be deemed to be an
independent contractor, and will have no authority to act as agent for us in
any matter or in any respect. By your written acceptance of this Agreement,
you agree to and do release, indemnify and hold us harmless from and against
any and all direct or indirect liabilities or losses resulting from requests,
directions, actions or inactions of or by you or your officers, employees or
agents regarding your responsibilities hereunder or the purchase, redemption,
transfer or registration of the Shares by or on behalf of customers. You and
your employees will, upon request, be available during normal business hours to
consult with us or our designees concerning the performance of your
responsibilities under this Agreement.
Section 5. In consideration of the services and facilities provided by you
hereunder, we will pay to you, and you will accept as full payment therefore, a
fee at the annual rate of up to .25% of the average daily net assets of a
Portfolio's Shares owned of record or beneficially by your customers from time
to time, which fee will be computed daily and payable monthly. For purposes of
determining the fees payable under this Section 5, the average daily net asset
value of the customers' Shares will be computed in the manner specified in our
then current Prospectus in connection with the computation of the net asset
value of a Portfolio's Shares for purposes of purchases, exchanges, and
redemptions. The fee rate stated above may be prospectively increased or
decreased by us, in our sole discretion, at any time upon notice to you.
Further, we may, in our discretion and without notice, suspend or withdraw the
sale of such Shares, including the sale of such shares to you for the account
of any customer(s).
Section 6. Any person authorized to direct the disposition of monies paid or
payable by us pursuant to this Agreement will provide to the respective Board
of Directors, and the Directors will review, at least quarterly, a written
report of the amounts so expended and the purposes for which such expenditures
were made. In addition, you will furnish us or our designees with such
information as we or they may reasonably request (including, without
limitation, periodic certifications confirming the provision to customers of
some or all of the services described herein), and will otherwise cooperate
with us and our designees (including, without limitation, any auditors
designated by us), in connection with the preparation of reports to our Board
of Directors concerning this Agreement and the monies paid or payable by us
pursuant hereto, as well as any other reports or filings that may be required
by law.
Section 7. We may enter into other similar Servicing Agreements with any other
person or persons without your consent.
Section 8. By your written acceptance of this Agreement, you represent,
warrant and agree that: (i) in no event will any of the services provided by
you hereunder be primarily intended to result in the sale of any shares issued
by us; (ii) the compensation payable to you hereunder, together with any other
compensation you receive from customers for services contemplated by this
Agreement, will be fully disclosed to your customers, and will not be excessive
or unreasonable under the laws and instruments governing your relationships
with customers; (iii) if you are a member of the National
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<PAGE> 7
Association of Securities Dealers, Inc. (the "NASD") and subject to the rules
and regulations of the NASD, including its Rules of Fair Practice, you agree to
act in accordance with such rules and regulations; and (iv) and if you are
subject to the provisions of the Glass- Steagall Act and other laws governing,
among other things, the conduct of activities by federally chartered and
supervised banks and other affiliated banking organizations, you will perform
only those activities which are consistent with your statutory and regulatory
obligations and will act solely as agent for, upon the order of, and for the
account of, your customers.
Section 9. This Agreement will become effective on the date a fully executed
copy of this Agreement is received by us or our designee. Unless sooner
terminated, this Agreement will continue until January 31, 1997, and thereafter
will continue automatically for successive annual periods provided such
continuance is specifically approved at least annually by us in the manner
described in Section 12 hereof. This Agreement is terminable, without penalty,
at any time by us (which termination may be by vote of a majority of our
Disinterested Directors as defined in Section 12 hereof) or by you upon notice
to the other party hereto.
Section 10. All notices and other communications to either you or us will be
duly given if mailed, telegraphed, telexed or transmitted by similar
telecommunications device to the appropriate address shown above.
Section 11. This Agreement will be construed in accordance with the laws of
the State of Delaware and is non-assignable by the parties hereto.
Section 12. This Agreement has been approved by vote of a majority of (i) a
Company's Board of Directors and (ii) those Directors who are not "interested
persons" (as defined in the Investment Company Act of 1940) of the Company and
have no direct or indirect financial interest in the operation of the restated
Administrative Services Plan adopted by us regarding the provision of
administrative support services to the beneficial owners of Trust Shares or in
any agreements related thereto ("Disinterested Directors"), cast in person at a
meeting called for the purpose of voting on such approval.
If you agree to be legally bound by the provisions of this Agreement, please
sign a copy of this letter where indicated below and promptly return it
- 3 -
<PAGE> 8
to us, c/o BISYS Fund Services, c/o Walter B. Grimm at 3435 Stelzer Road,
Columbus, Ohio 43219.
Very truly yours,
THE ARCH FUND, INC.
By:____________________________________________________
Authorized Officer
Date:_______________________________
Accepted and Agreed to:
By:___________________________________________________
Authorized Officer, Name of Organization
Date:_______________________________
______________________________________________________
Taxpayer Identification Number
_____________________________________________
Account Number
_____________________________________________
Dealer Code
- 4 -
<PAGE> 9
APPENDIX A
Please check the appropriate boxes to indicate the Portfolios of the
Companies for which you wish to act as a Service Organization with respect to
the Shares:
THE ARCH FUND, INC.
[ ] Money Market Investor B Shares (Class A - Special Series 3)
[ ] Growth & Income Equity Investor B Shares (Class C - Special Series 3)
[ ] Emerging Growth Investor B Shares (Class D - Special Series 3)
[ ] Government & Corporate Bond Investor B Shares (Class E - Special Series 3)
[ ] U.S. Government Securities Investor B Shares (Class F - Special Series 3)
[ ] Balanced Investor B Shares (Class G - Special Series 3)
[ ] International Equity Investor B Shares (Class H - Special Series 3)
[ ] Missouri Tax-Exempt Bond Investor B Shares (Class K - Special Series 2)
[ ] Kansas Tax-Exempt Bond Investor B Shares (Class L - Special Series 2)
[ ] Equity Income Investor B Shares (Class M - Special Series 3)
[ ] National Municipal Bond Investor B Shares (Class N - Special Series 2)
Signed:______________________ ___________________________
(Title) (Service Organization Name)
Dated:______________________
A-1
<PAGE> 1
Exhibit 9(o)(3)
THE ARCH FUND(R), INC.
Administrative Services Plan
----------------------------
(Trust Shares)
SECTION 1. Upon the recommendation of the administrator of The ARCH Fund,
Inc. (the "Company"), any officer of the Company is authorized to execute and
deliver, in the name and on behalf of the Company, written agreements in
substantially the form attached hereto or in any other form duly approved by
the Board of Directors ("Servicing Agreements") with financial institutions
which are shareholders of record or have a servicing relationship ("Service
Organizations") with the beneficial owners of a class of the Company's shares
of Common Stock ("Trust Shares") of the Money Market, Treasury Money Market,
Growth & Income Equity, Emerging Growth, Government & Corporate Bond, U.S.
Government Securities, Balanced, International Equity, Short-Intermediate
Municipal, Tax-Exempt Money Market, Missouri Tax-Exempt Bond, Kansas Tax-Exempt
Bond, Equity Income, National Municipal Bond and Short-Intermediate Corporate
Bond Portfolios (such portfolios hereinafter individually called a "Portfolio"
and collectively the "Portfolios"). Such Servicing Agreements shall require
the Service Organizations to provide administrative support services as set
forth therein to their customers who own of record or beneficially Trust Shares
(as described in the Company's applicable Prospectuses) in consideration for a
fee, computed daily and paid monthly in the manner set forth in the Servicing
Agreements, at the annual rate of up to .30% (.25% for the Money Market and
Treasury Money Market Portfolios) of the average daily net asset value of Trust
Shares owned of record or beneficially by such customers. Any bank, trust
company, thrift institution, or other financial institution is eligible to
become a Service Organization and to receive fees under this Plan. All
expenses incurred by the Company with respect to Trust Shares of a particular
Portfolio in connection with the Servicing Agreements and the implementation of
this Plan shall be borne entirely by the holders of Trust Shares of that
Portfolio, PROVIDED that the Company's current Section 18 Exemptive Order
permits allocation of such expenses proportionally to the assets held with
respect to a Portfolio's Trust Shares, and FURTHER PROVIDED that the Board of
Directors has determined that such expenses should be so allocated.
SECTION 2. The administrator shall monitor the arrangements pertaining to
the Company's Servicing Agreements with Service Organizations in accordance
with the terms of the Administration Agreement between the administrator and
the Company. The administrator shall not, however, be obliged by this Plan to
recommend, and the Company shall not be obliged to execute, any Servicing
Agreement with any qualifying Service Organization.
<PAGE> 2
SECTION 3. So long as this Plan is in effect, the administrator shall
provide to the Company's Board of Directors, and the Directors shall review, at
least quarterly, a written report of the amounts expended pursuant to this Plan
and the purposes for which such expenditures were made.
SECTION 4. Unless sooner terminated, this Plan shall continue until
January 31, 1997 and thereafter, shall continue automatically for successive
annual periods provided such continuance is approved at least annually by a
majority of the Board of Directors, including a majority of the Directors who
are not "interested persons" as defined in the Investment Company Act of 1940,
as amended (the "Act"), of the Company and who have no direct or indirect
financial interest in the operation of this Plan or in any Agreements related
to this Plan (the "Disinterested Directors").
SECTION 5. This Plan may be amended at any time with respect to any
Portfolio by the Board of Directors, provided that any material amendments of
the terms of this Plan shall become effective only upon the approvals set forth
in Section 4.
SECTION 6. This Plan is terminable at any time with respect to any
Portfolio by vote of a majority of the Disinterested Directors.
SECTION 7. While this Plan is in effect, the selection and nomination of
those Disinterested Directors shall be committed to the discretion of the
Company's Disinterested Directors.
SECTION 8. This Plan has been adopted as of June 19, 1990 and reapproved
as restated as of September 18, 1990, June 25, 1991, January 28, 1992, January
26, 1993 and as restated June 29, 1993, March 15, 1994, June 27, 1995 and March
19, 1996.
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<PAGE> 3
Form approved June 29, 1993,
March 15, 1994, June 27, 1995 and
March 19, 1996 as restated
THE ARCH FUND(R), INC.
(the "Company")
1900 East Dublin-Granville Road
Columbus, Ohio 43229
SERVICING AGREEMENT
to
ADMINISTRATIVE SERVICES PLANS
(Trust Shares and Institutional Shares)
Ladies and Gentlemen:
We wish to enter into this servicing Agreement with you concerning the
provision of administrative support services to your customers who may from
time to time be the record or beneficial owners of Trust shares or
Institutional shares (such shares referred to herein as the "Shares") of one or
more of the Company's investment portfolios (individually, a "Portfolio" and
collectively, the "Portfolios"), which are listed on Appendix A.
The terms and conditions of this Servicing Agreement are as follows:
Section 1. You agree to provide administrative support services to your
customers who may from time to time own of record or beneficially a Portfolio's
Shares. Services provided may include some or all of the following: (i)
processing dividend and distribution payments from a Portfolio on behalf of
customers; (ii) providing information periodically to your customers showing
their positions in the Shares; (iii) arranging for bank wires; (iv) responding
to routine customer inquiries relating to services performed by you; (v)
providing sub-accounting with respect to the Shares beneficially owned by your
customers or the information necessary for sub-accounting; (vi) if required by
law, forwarding shareholder communications from a Portfolio (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to your customers; (vii) forwarding to customers
proxy statements and proxies containing any proposals regarding this Agreement
or the Administrative Services Plan related hereto; (viii) aggregating and
processing purchase, exchange, and redemption requests from customers and
placing net purchase, exchange, and redemption orders for your customers; (ix)
providing customers with a service that invests the assets of their accounts in
the Shares pursuant to specific or pre-authorized instructions; (x)
establishing and maintaining accounts and records relating to transactions in
the Shares; (xi) assisting customers in changing dividend or distribution
options, account designations and addresses; or (xii) other similar services if
requested by the Company.
Section 2. You will provide such office space and equipment, telephone and
personnel (which may be any part of the space, equipment and facilities
currently used in your business, or any personnel employed by you) as may be
reasonably necessary or beneficial in order to provide the aforementioned
services to customers.
Section 3. Neither you nor any of your officers, employees or agents are
authorized to make any representations concerning us, a Portfolio, or its
Shares except those contained in our then current prospectus for such shares,
copies of which will be supplied by us to you, or in such supplemental
literature or advertising as may be authorized by us in writing.
<PAGE> 4
Section 4. For all purposes of this Agreement you will be deemed to be an
independent contractor, and will have no authority to act as agent for us in
any matter or in any respect. By your written acceptance of this Agreement,
you agree to and do release, indemnify and hold us harmless from and against
any and all direct or indirect liabilities or losses resulting from requests,
directions, actions or inactions of or by you or your officers, employees or
agents regarding your responsibilities hereunder or the purchase, redemption,
transfer or registration of the Shares by or on behalf of customers. You and
your employees will, upon request, be available during normal business hours to
consult with us or our designees concerning the performance of your
responsibilities under this Agreement.
Section 5. In consideration of the services and facilities provided by you
hereunder, we will pay to you, and you will accept as full payment therefore, a
fee at the annual rate of up to .30% (.25% for the money market Portfolios) of
the average daily net assets of a Portfolio's Shares owned of record or
beneficially by your customers from time to time, which fee will be computed
daily and payable monthly. For purposes of determining the fees payable under
this Section 5, the average daily net asset value of the customers' Shares will
be computed in the manner specified in our then current Prospectus in
connection with the computation of the net asset value of a Portfolio's Shares
for purposes of purchases, exchanges, and redemptions. The fee rate stated
above may be prospectively increased or decreased by us, in our sole
discretion, at any time upon notice to you. Further, we may, in our discretion
and without notice, suspend or withdraw the sale of such Shares, including the
sale of such shares to you for the account of any customer(s).
Section 6. Any person authorized to direct the disposition of monies paid or
payable by us pursuant to this Agreement will provide to the Board of
Directors, and the Directors will review, at least quarterly, a written report
of the amounts so expended and the purposes for which such expenditures were
made. In addition, you will furnish us or our designees with such information
as we or they may reasonably request (including, without limitation, periodic
certifications confirming the provision to customers of some or all of the
services described herein), and will otherwise cooperate with us and our
designees (including, without limitation, any auditors designated by us), in
connection with the preparation of reports to our Board of Directors concerning
this Agreement and the monies paid or payable by us pursuant hereto, as well as
any other reports or filings that may be required by law.
Section 7. We may enter into other similar Servicing Agreements with any other
person or persons without your consent.
Section 8. By your written acceptance of this Agreement, you represent,
warrant and agree that: (i) in no event will any of the services provided by
you hereunder be primarily intended to result in the sale of any shares issued
by us; (ii) the compensation payable to you hereunder, together with any other
compensation you receive from customers for services contemplated by this
Agreement, will be fully disclosed to your customers, and will not be excessive
or unreasonable under the laws and instruments governing your relationships
with customers; and (iii) if you are subject to the provisions of the
Glass-Steagall Act and other laws governing, among other things, the conduct of
activities by federally chartered and supervised banks and other
- 2 -
<PAGE> 5
affiliated banking organizations, you will perform only those activities which
are consistent with your statutory and regulatory obligations and will act
solely as agent for, upon the order of, and for the account of, your customers.
Section 9. This Agreement will become effective on the date a fully executed
copy of this Agreement is received by us or our designee. Unless sooner
terminated, this Agreement will continue until January 31, 1997, and thereafter
will continue automatically for successive annual periods provided such
continuance is specifically approved at least annually by us in the manner
described in Section 12 hereof. This Agreement is terminable, without penalty,
at any time by us (which termination may be by vote of a majority of our
Disinterested Directors as defined in Section 12 hereof) or by you upon notice
to the other party hereto.
Section 10. All notices and other communications to either you or us will be
duly given if mailed, telegraphed, telexed or transmitted by similar
telecommunications device to the appropriate address shown above.
Section 11. This Agreement will be construed in accordance with the laws of
the State of Delaware and is non-assignable by the parties hereto.
Section 12. This Agreement has been approved by vote of a majority of (i) a
Company's Board of Directors and (ii) those Directors who are not "interested
persons" (as defined in the Investment Company Act of 1940) of the Company and
have no direct or indirect financial interest in the operation of the restated
Administrative Services Plan adopted by us regarding the provision of
administrative support services to the beneficial owners of Trust Shares or in
any agreements related thereto ("Disinterested Directors"), cast in person at a
meeting called for the purpose of voting on such approval.
If you agree to be legally bound by the provisions of this Agreement, please
sign a copy of this letter where indicated below and promptly return it
- 3 -
<PAGE> 6
to us, c/o BISYS Fund Services Ohio, Inc., c/o Walter B. Grimm at 3435 Stelzer
Road, Columbus, Ohio 43219.
Very truly yours,
THE ARCH FUND, INC.
By:____________________________________________________
Authorized Officer
Date:_______________________________
Accepted and Agreed to:
By:___________________________________________________
Authorized Officer, Name of Organization
Date:_______________________________
______________________________________________________
Taxpayer Identification Number
_____________________________________________
Account Number
_____________________________________________
Dealer Code
- 4 -
<PAGE> 7
APPENDIX A
Please check the appropriate boxes to indicate the Portfolios of the
Companies for which you wish to act as a Service Organization with respect to
the Shares:
THE ARCH FUND, INC.
[ ] Money Market Trust Shares (Class A - Special Series 1)
[ ] Money Market Institutional Shares (Class A - Special Series 2)
[ ] Treasury Money Market Trust Shares (Class B - Special Series 1)
[ ] Treasury Money Market Institutional Shares (Class B - Special Series 2)
[ ] Growth & Income Equity Trust Shares (Class C - Special Series 1)
[ ] Growth & Income Equity Institutional Shares (Class C - Special Series 2)
[ ] Emerging Growth Trust Shares (Class F - Special Series 1)
[ ] Emerging Growth Institutional Shares (Class F - Special Series 2)
[ ] Government & Corporate Bond Trust Shares (Class D - Special Series 1)
[ ] Government & Corporate Bond Institutional Shares (Class D - Special Series
2)
[ ] U.S. Government Securities Trust Shares (Class E - Special Series 1)
[ ] U.S. Government Securities Institutional Shares (Class E - Special Series
2)
[ ] Balanced Trust Shares (Class G - Special Series 1)
[ ] Balanced Institutional Shares (Class G - Special Series 2)
[ ] International Equity Trust Shares (Class H - Special Series 1)
[ ] International Equity Institutional Shares (Class H - Special Series 2)
[ ] Short-Intermediate Municipal Trust Shares (Class I - Special Series 1)
[ ] Tax-Exempt Money Market Trust Shares (Class J - Special Series 1)
[ ] Missouri Tax-Exempt Bond Trust Shares (Class K - Special Series 1)
[ ] Kansas Tax-Exempt Bond Trust Shares (Class L - Special Series 1)
[ ] Equity Income Trust Shares (Class M - Special Series 1)
[ ] Equity Income Institutional Shares (Class M - Special Series 2)
A-1
<PAGE> 8
[ ] National Municipal Bond Trust Shares (Class N - Special Series 1)
[ ] Short-Intermediate Corporate Bond Trust Shares (Class O - Special Series 1)
[ ] Short-Intermediate Corporate Bond Institutional Shares (Class O - Special
Series 2)
Signed:______________________ ___________________________
(Title) (Service Organization Name)
Dated:______________________
A-1
<PAGE> 1
Exhibit 9(o)(4)
THE ARCH FUND(R), INC.
Administrative Services Plan
----------------------------
(Institutional Shares)
SECTION 1. Upon the recommendation of the administrator of The ARCH Fund,
Inc. (the "Company"), any officer of the Company is authorized to execute and
deliver, in the name and on behalf of the Company, written agreements in
substantially the form attached hereto or in any other form duly approved by
the Board of Directors ("Servicing Agreements") with financial institutions
which are shareholders of record or which have a servicing relationship
("Service Organizations") with the beneficial owners of a class of the
Company's shares of Common Stock ("Institutional Shares") of the Money Market,
Treasury Money Market, Growth & Income Equity, Emerging Growth, Government &
Corporate Bond, U.S. Government Securities, Balanced, International Equity,
Equity Income and Short-Intermediate Corporate Bond Portfolios (such portfolios
hereinafter individually called a "Portfolio" and collectively the
"Portfolios"). Such Servicing Agreements shall require the Service
Organizations to provide administrative support services as set forth therein
to their customers who own of record or beneficially Institutional Shares (as
described in the Company's applicable Prospectuses) in consideration for a fee,
computed daily and paid monthly in the manner set forth in the Servicing
Agreements, at the annual rate of up to .30% (.25% for the money market
Portfolios) of the average daily net asset value of Institutional Shares owned
of record or beneficially by such customers. Any bank, trust company, thrift
institution, or other financial institution is eligible to become a Service
Organization and to receive fees under this Plan. All expenses incurred by the
Company with respect to Institutional Shares of a particular Portfolio in
connection with the Servicing Agreements and the implementation of this Plan
shall be borne entirely by the holders of Institutional Shares of the
Portfolio, PROVIDED that the Company's current Section 18 Exemptive Order
permits allocation of such expenses proportionally to the assets held with
respect to a Portfolio's Institutional Shares, and FURTHER PROVIDED that the
Board of Directors has determined that such expenses should be so allocated.
SECTION 2. The administrator shall monitor the arrangements pertaining to
the Company's Servicing Agreements with Service Organizations in accordance
with the terms of the Administration Agreement between the administrator and
the Company. The administrator shall not, however, be obliged by
<PAGE> 2
this Plan to recommend, and the Company shall not be obliged to execute, any
Servicing Agreement with any qualifying Service Organization.
SECTION 3. So long as this Plan is in effect, the administrator shall
provide to the Company's Board of Directors, and the Directors shall review, at
least quarterly, a written report of the amounts expended pursuant to this Plan
and the purposes for which such expenditures were made.
SECTION 4. Unless sooner terminated, this Plan shall continue until
January 31, 1997, and thereafter, shall continue automatically for successive
annual periods provided such continuance is approved at least annually by a
majority of the Board of Directors, including a majority of the Directors who
are not "interested persons" as defined in the Investment Company Act of 1940,
as amended (the "Act"), of the Company and who have no direct or indirect
financial interest in the operation of this Plan or in any Agreements related
to this Plan (the "Disinterested Directors").
SECTION 5. This Plan may be amended at any time with respect to any
Portfolio by the Board of Directors, provided that any material amendments of
the terms of this Plan shall become effective only upon the approvals set forth
in Section 4.
SECTION 6. This Plan is terminable at any time with respect to any
Portfolio by vote of a majority of the Disinterested Directors.
SECTION 7. While this Plan is in effect, the selection and nomination of
those Disinterested Directors shall be committed to the discretion of the
Company's Disinterested Directors.
SECTION 8. This Plan has been adopted as of June 29, 1993 as restated
March 15, 1994 and March 19, 1996.
-2-
<PAGE> 3
Form approved June 29, 1993,
March 15, 1994, June 27, 1995 and
March 19, 1996 as restated
THE ARCH FUND(R), INC.
(the "Company")
1900 East Dublin-Granville Road
Columbus, Ohio 43229
SERVICING AGREEMENT
to
ADMINISTRATIVE SERVICES PLANS
(Trust Shares and Institutional Shares)
Ladies and Gentlemen:
We wish to enter into this servicing Agreement with you concerning the
provision of administrative support services to your customers who may from
time to time be the record or beneficial owners of Trust shares or
Institutional shares (such shares referred to herein as the "Shares") of one or
more of the Company's investment portfolios (individually, a "Portfolio" and
collectively, the "Portfolios"), which are listed on Appendix A.
The terms and conditions of this Servicing Agreement are as follows:
Section 1. You agree to provide administrative support services to your
customers who may from time to time own of record or beneficially a Portfolio's
Shares. Services provided may include some or all of the following: (i)
processing dividend and distribution payments from a Portfolio on behalf of
customers; (ii) providing information periodically to your customers showing
their positions in the Shares; (iii) arranging for bank wires; (iv) responding
to routine customer inquiries relating to services performed by you; (v)
providing sub-accounting with respect to the Shares beneficially owned by your
customers or the information necessary for sub-accounting; (vi) if required by
law, forwarding shareholder communications from a Portfolio (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to your customers; (vii) forwarding to customers
proxy statements and proxies containing any proposals regarding this Agreement
or the Administrative Services Plan related hereto; (viii) aggregating and
processing purchase, exchange, and redemption requests from customers and
placing net purchase, exchange, and redemption orders for your customers; (ix)
providing customers with a service that invests the assets of their accounts in
the Shares pursuant to specific or pre-authorized instructions; (x)
establishing and maintaining accounts and records relating to transactions in
the Shares; (xi) assisting customers in changing dividend or distribution
options, account designations and addresses; or (xii) other similar services if
requested by the Company.
Section 2. You will provide such office space and equipment, telephone and
personnel (which may be any part of the space, equipment and facilities
currently used in your business, or any personnel employed by you) as may be
reasonably necessary or beneficial in order to provide the aforementioned
services to customers.
Section 3. Neither you nor any of your officers, employees or agents are
authorized to make any representations concerning us, a Portfolio, or its
Shares except those contained in our then current prospectus for such shares,
copies of which will be supplied by us to you, or in such supplemental
literature or advertising as may be authorized by us in writing.
<PAGE> 4
Section 4. For all purposes of this Agreement you will be deemed to be an
independent contractor, and will have no authority to act as agent for us in
any matter or in any respect. By your written acceptance of this Agreement,
you agree to and do release, indemnify and hold us harmless from and against
any and all direct or indirect liabilities or losses resulting from requests,
directions, actions or inactions of or by you or your officers, employees or
agents regarding your responsibilities hereunder or the purchase, redemption,
transfer or registration of the Shares by or on behalf of customers. You and
your employees will, upon request, be available during normal business hours to
consult with us or our designees concerning the performance of your
responsibilities under this Agreement.
Section 5. In consideration of the services and facilities provided by you
hereunder, we will pay to you, and you will accept as full payment therefore, a
fee at the annual rate of up to .30% (.25% for the money market Portfolios) of
the average daily net assets of a Portfolio's Shares owned of record or
beneficially by your customers from time to time, which fee will be computed
daily and payable monthly. For purposes of determining the fees payable under
this Section 5, the average daily net asset value of the customers' Shares will
be computed in the manner specified in our then current Prospectus in
connection with the computation of the net asset value of a Portfolio's Shares
for purposes of purchases, exchanges, and redemptions. The fee rate stated
above may be prospectively increased or decreased by us, in our sole
discretion, at any time upon notice to you. Further, we may, in our discretion
and without notice, suspend or withdraw the sale of such Shares, including the
sale of such shares to you for the account of any customer(s).
Section 6. Any person authorized to direct the disposition of monies paid or
payable by us pursuant to this Agreement will provide to the Board of
Directors, and the Directors will review, at least quarterly, a written report
of the amounts so expended and the purposes for which such expenditures were
made. In addition, you will furnish us or our designees with such information
as we or they may reasonably request (including, without limitation, periodic
certifications confirming the provision to customers of some or all of the
services described herein), and will otherwise cooperate with us and our
designees (including, without limitation, any auditors designated by us), in
connection with the preparation of reports to our Board of Directors concerning
this Agreement and the monies paid or payable by us pursuant hereto, as well as
any other reports or filings that may be required by law.
Section 7. We may enter into other similar Servicing Agreements with any other
person or persons without your consent.
Section 8. By your written acceptance of this Agreement, you represent,
warrant and agree that: (i) in no event will any of the services provided by
you hereunder be primarily intended to result in the sale of any shares issued
by us; (ii) the compensation payable to you hereunder, together with any other
compensation you receive from customers for services contemplated by this
Agreement, will be fully disclosed to your customers, and will not be excessive
or unreasonable under the laws and instruments governing your relationships
with customers; and (iii) if you are subject to the provisions of the
Glass-Steagall Act and other laws governing, among other things, the conduct of
activities by federally chartered and supervised banks and other
- 2 -
<PAGE> 5
affiliated banking organizations, you will perform only those activities which
are consistent with your statutory and regulatory obligations and will act
solely as agent for, upon the order of, and for the account of, your customers.
Section 9. This Agreement will become effective on the date a fully executed
copy of this Agreement is received by us or our designee. Unless sooner
terminated, this Agreement will continue until January 31, 1997, and thereafter
will continue automatically for successive annual periods provided such
continuance is specifically approved at least annually by us in the manner
described in Section 12 hereof. This Agreement is terminable, without penalty,
at any time by us (which termination may be by vote of a majority of our
Disinterested Directors as defined in Section 12 hereof) or by you upon notice
to the other party hereto.
Section 10. All notices and other communications to either you or us will be
duly given if mailed, telegraphed, telexed or transmitted by similar
telecommunications device to the appropriate address shown above.
Section 11. This Agreement will be construed in accordance with the laws of
the State of Delaware and is non-assignable by the parties hereto.
Section 12. This Agreement has been approved by vote of a majority of (i) a
Company's Board of Directors and (ii) those Directors who are not "interested
persons" (as defined in the Investment Company Act of 1940) of the Company and
have no direct or indirect financial interest in the operation of the restated
Administrative Services Plan adopted by us regarding the provision of
administrative support services to the beneficial owners of Trust Shares or in
any agreements related thereto ("Disinterested Directors"), cast in person at a
meeting called for the purpose of voting on such approval.
If you agree to be legally bound by the provisions of this Agreement, please
sign a copy of this letter where indicated below and promptly return it
- 3 -
<PAGE> 6
to us, c/o BISYS Fund Services Ohio, Inc., c/o Walter B. Grimm at 3435 Stelzer
Road, Columbus, Ohio 43219.
Very truly yours,
THE ARCH FUND, INC.
By:____________________________________________________
Authorized Officer
Date:_______________________________
Accepted and Agreed to:
By:___________________________________________________
Authorized Officer, Name of Organization
Date:_______________________________
______________________________________________________
Taxpayer Identification Number
_____________________________________________
Account Number
_____________________________________________
Dealer Code
- 4 -
<PAGE> 7
APPENDIX A
Please check the appropriate boxes to indicate the Portfolios of the
Companies for which you wish to act as a Service Organization with respect to
the Shares:
THE ARCH FUND, INC.
[ ] Money Market Trust Shares (Class A - Special Series 1)
[ ] Money Market Institutional Shares (Class A - Special Series 2)
[ ] Treasury Money Market Trust Shares (Class B - Special Series 1)
[ ] Treasury Money Market Institutional Shares (Class B - Special Series 2)
[ ] Growth & Income Equity Trust Shares (Class C - Special Series 1)
[ ] Growth & Income Equity Institutional Shares (Class C - Special Series 2)
[ ] Emerging Growth Trust Shares (Class F - Special Series 1)
[ ] Emerging Growth Institutional Shares (Class F - Special Series 2)
[ ] Government & Corporate Bond Trust Shares (Class D - Special Series 1)
[ ] Government & Corporate Bond Institutional Shares (Class D - Special Series
2)
[ ] U.S. Government Securities Trust Shares (Class E - Special Series 1)
[ ] U.S. Government Securities Institutional Shares (Class E - Special Series
2)
[ ] Balanced Trust Shares (Class G - Special Series 1)
[ ] Balanced Institutional Shares (Class G - Special Series 2)
[ ] International Equity Trust Shares (Class H - Special Series 1)
[ ] International Equity Institutional Shares (Class H - Special Series 2)
[ ] Short-Intermediate Municipal Trust Shares (Class I - Special Series 1)
[ ] Tax-Exempt Money Market Trust Shares (Class J - Special Series 1)
[ ] Missouri Tax-Exempt Bond Trust Shares (Class K - Special Series 1)
[ ] Kansas Tax-Exempt Bond Trust Shares (Class L - Special Series 1)
[ ] Equity Income Trust Shares (Class M - Special Series 1)
[ ] Equity Income Institutional Shares (Class M - Special Series 2)
A-1
<PAGE> 8
[ ] National Municipal Bond Trust Shares (Class N - Special Series 1)
[ ] Short-Intermediate Corporate Bond Trust Shares (Class O - Special Series 1)
[ ] Short-Intermediate Corporate Bond Institutional Shares (Class O - Special
Series 2)
Signed:______________________ ___________________________
(Title) (Service Organization Name)
Dated:______________________
A-1
<PAGE> 1
Exhibit 11(a)
CONSENT OF COUNSEL
------------------
We hereby consent to the use of our name and to the reference to our Firm
under the caption "Counsel" in the Statement of Additional Information that is
included in Post-Effective Amendment No. 35 to the Registration Statement on
Form N-1A under the Investment Company Act of 1940, as amended, of The ARCH
Fund, Inc. This consent does not constitute a consent under Section 7 of the
Securities Act of 1933, and in consenting to the use of our name and the
references to our Firm under such caption we have not certified any part of the
Registration Statement and do not otherwise come within the categories of
persons whose consent is required under Section 7 or the rules and regulations
of the Securities and Exchange Commission thereunder.
/s/ Drinker Biddle & Reath
--------------------------
DRINKER BIDDLE & REATH
Philadelphia, Pennsylvania
March 28, 1996
<PAGE> 1
Exhibit 11 (b)
AUDITOR'S CONSENT
The Board of Trustees of
The ARCH Fund, Inc.:
We consent to the use of our report dated January 17, 1996, incorporated by
reference herein, for The ARCH Fund, Inc. (comprised of ARCH Money Market
Portfolio, ARCH Treasury Money Market Portfolio, ARCH Tax-Exempt Money Market
Portfolio, ARCH Growth & Income Equity Portfolio, ARCH Emerging Growth
Portfolio, ARCH Balanced Portfolio, ARCH Government & Corporate Bond Portfolio,
ARCH U.S. Government Securities Portfolio, ARCH Missouri Tax-Exempt Bond
Portfolio, ARCH Short-Intermediate Municipal Portfolio, and ARCH International
Equity Portfolio) as of November 30, 1995 and for each of the periods indicated
therein, and the references to our firm under the headings "Financial
Highlights" in each of the prospectuses and under "Independent Auditors" and
"Financial Statements" in the Statement of Additional Information.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG PEAT MARWICK LLP
Columbus, Ohio
March 20, 1996
<PAGE> 1
Exhibit 18
THE ARCH FUND, INC.
(THE "COMPANY")
AMENDED AND RESTATED
PLAN PURSUANT TO RULE 18F-3 FOR OPERATION OF
A MULTI-CLASS SYSTEM
------------------------
I. INTRODUCTION
----------------
On February 23, 1995, the Securities and Exchange Commission (the
"Commission") promulgated Rule 18f-3 under the Investment Company Act of 1940,
as amended (the "1940 Act"), which permits the creation and operation of a
multi-class distribution structure without the need to obtain an exemptive
order under Section 18 of the 1940 Act. Rule 18f-3, which became effective on
April 3, 1995, requires an investment company to file with the Commission, a
written plan specifying all of the differences among the classes, including the
various services offered to shareholders, the different distribution
arrangements for each class, the methods for allocating expenses relating to
those differences and any conversion features or exchange privileges. On June
27, 1995, the Board of Directors of the Company authorized the Company to
operate its current multi-class distribution structure in compliance with Rule
18f-3. On October 5, 1995, the Company filed a Plan pursuant to Rule 18f-3 for
operation of a multi-class system (the "Prior Plan"), which had been approved
by the Board of Directors of the Company on September 26, 1995, with the
Commission. Prior to the filing of the Prior Plan, the Company operated a
multi-class distribution structure pursuant to an exemptive order granted by
the Commission on April 20, 1994. This Amended and Restated Plan pursuant to
Rule 18f-3 for operation of a multi-class system, which was approved by the
Board of Directors of the Company on March 19, 1996, shall become effective
when it is filed with the Commission.
II. ATTRIBUTES OF CLASSES
--------------------------
A. Generally
---------
Money Market Portfolios
-----------------------
The Company shall initially offer (i) four classes of shares -- Trust
Shares, Institutional Shares, Investor A Shares and Investor B Shares -- in the
Money Market Portfolio; (ii)
<PAGE> 2
three classes of shares -- Trust Shares, Institutional Shares and Investor A
Shares -- in the Treasury Money Market Portfolio; and (iii) two classes of
shares -- Trust Shares and Investor A Shares -- in the Tax-Exempt Money Market
Portfolio (each a "Portfolio" and collectively, the "Money Market Portfolios").
Equity Portfolios
-----------------
The Company shall initially offer four classes of shares -- Trust Shares,
Institutional Shares, Investor A Shares and Investor B Shares -- in the Growth
& Income Equity Portfolio, Emerging Growth Portfolio, Balanced Portfolio,
International Equity Portfolio and Equity Income Portfolio (each a "Portfolio"
and collectively, the "Equity Portfolios").
Bond Portfolios
---------------
The Company shall initially offer (i) four classes of shares -- Trust
Shares, Institutional Shares, Investor A Shares and Investor B Shares -- in the
Government & Corporate Bond Portfolio and U.S. Government Securities Portfolio;
(ii) three classes of shares -- Trust Shares, Investor A Shares and Investor B
Shares -- in the Missouri Tax-Exempt Bond Portfolio, Kansas Tax-Exempt Bond
Portfolio and National Municipal Bond Portfolio; (iii) three classes of shares
- -- Trust Shares, Institutional Shares and Investor A Shares -- in the
Short-Intermediate Corporate Bond Portfolio; and (iv) two classes of shares --
Trust Shares and Investor A Shares -- in the Short-Intermediate Municipal
Portfolio (each a "Portfolio" and collectively, the "Bond Portfolios").
In general, shares of each class shall be identical except for different
expense variables (which will result in different returns for each class),
certain related rights and certain shareholder services. More particularly,
the Trust Shares, Institutional Shares, Investor A Shares and/or Investor B
Shares of each Portfolio shall represent interests in the same portfolio of
investments of the particular Portfolio, and shall be identical in all
respects, except for: (a) the impact of (i) expenses assessed to a class
pursuant to the Administrative Services Plan or the Distribution and Services
Plan adopted for the class; (ii) certain sub-transfer agency fees; and (iii)
any other incremental expenses identified from time to time that should be
properly allocated to one class so long as any changes in expense allocations
are reviewed and approved by a vote of the Board of Directors, including a
majority of the independent Directors; (b) the fact that (i) Trust Shares and
Institutional Shares shall vote separately, as a class, on any matter submitted
to holders of Trust Shares or Institutional Shares that pertains to the
Administrative Services Plan adopted for the class; (ii) Investor A Shares and
Investor B Shares shall vote separately, as a class, on any matter submitted to
holders of Investor A Shares
-2-
<PAGE> 3
or Investor B Shares that pertains to the Distribution and Services Plan
adopted for that class; and (iii) each class shall vote separately on any
matter submitted to shareholders that pertains to the class expenses borne by
the class; (c) the exchange privileges of each class of shares; (d) the
designation of each class of shares; and (e) the different shareholder services
relating to a class of shares.
B. Distribution Arrangements, Expenses and Sales Charges
-----------------------------------------------------
1. Money Market Portfolios
-----------------------
TRUST SHARES
Trust Shares of each Money Market Portfolio shall be available for
purchase by financial institutions, such as banks, trust companies, thrift
institutions, mutual funds or other financial institutions acting on their own
behalf or on behalf of their qualified fiduciary accounts, employee benefit,
retirement plan, or other such qualified accounts.
Trust Shares of each Money Market Portfolio shall not be subject to a
sales charge but shall be subject to a fee payable pursuant to the
Administrative Services Plan adopted for the class which shall not initially
exceed .25% (on an annual basis) of the average daily net asset value of the
Money Market Portfolio's outstanding Trust Shares owned of record or
beneficially by customers of securities dealers, brokers, financial
institutions and other industry professionals ("Service Organizations") that
provide administrative support services with respect to such customers' Trust
Shares.
Administrative support services provided under the Administrative Services
Plan adopted for the class may include, but are not limited to, (i)
establishing and maintaining accounts and records for customers who invest in
Trust Shares; (ii) assisting customers in processing purchase, exchange and
redemption requests; (iii) providing sub-accounting with respect to Trust
Shares beneficially owned by customers; and (iv) responding to customer
inquiries concerning their investments.
INSTITUTIONAL SHARES
Institutional Shares of a Money Market Portfolio shall be available for
purchase by financial institutions, such as banks, trust companies, thrift
institutions, mutual funds or other financial institutions acting on behalf of
their employee benefit, retirement plan or other such qualified accounts for
which they do not have investment discretion.
-3-
<PAGE> 4
Institutional Shares of a Money Market Portfolio shall not be subject to a
sales charge but shall be subject to a fee payable pursuant to an
Administrative Services Plan which shall not initially exceed .25% (on an
annual basis) of the average daily net asset value of the Money Market
Portfolio's outstanding Institutional Shares owned of record or beneficially by
customers of Service Organizations that provide administrative support services
with respect to such customers' Institutional Shares.
Administrative support services provided under the Administrative Services
Plan adopted for the class may include, but are not limited to, (i)
establishing and maintaining accounts and records for customers who invest in
Institutional Shares; (ii) assisting customers in processing purchase, exchange
and redemption requests; (iii) providing sub-accounting with respect to
Institutional Shares beneficially owned by customers; and (iv) responding to
customer inquiries concerning their investments.
INVESTOR A SHARES
Investor A Shares of each Money Market Portfolio shall be available for
purchase through selected broker-dealers and other financial intermediaries
acting on behalf of their individual or institutional customers.
Investor A Shares of each Money Market Portfolio shall not be subject to a
sales charge. Investor A Shares of each Money Market Portfolio shall be
subject to a fee payable pursuant to the Distribution and Services Plan adopted
for the class for distribution expenses which shall not initially exceed .10%
(on an annual basis) of the average daily net asset value of the Money Market
Portfolio's outstanding Investor A Shares and for shareholder servicing
expenses which shall not initially exceed .15% (on an annual basis) of the
average daily net asset value of the Money Market Portfolio's outstanding
Investor A Shares owned of record or beneficially by customers of Service
Organizations that provide administrative support services with respect to such
customers' Investor A Shares.
Administrative support services provided under the Distribution and
Services Plan adopted for the class may include, but are not limited to, (i)
establishing and maintaining accounts and records for customers who invest in
Investor A Shares; (ii) assisting customers in processing purchase, exchange
and redemption requests; and (iii) responding to customer inquiries concerning
their investments.
INVESTOR B SHARES
Investor B shares of the Money Market Portfolio shall be available for
purchase only by those investors
-4-
<PAGE> 5
participating in the Arch Asset Adviser Program. Otherwise, Investor B Shares
of the Money Market Portfolio shall be available only to holders of Investor B
Shares of an Equity Portfolio or Bond Portfolio who wish to exchange such
Investor B Shares for Investor B Shares of the Money Market Portfolio.
Investor B Shares of the Money Market Portfolio, if redeemed within six
years of purchase or, in the case of Investor B Shares of the Money Market
Portfolio acquired through an exchange of Investor B Shares of an Equity
Portfolio or Bond Portfolio, if redeemed within six years of purchase of such
exchanged Investor B Shares, shall be subject to a contingent deferred sales
charge which shall not initially exceed 5.0% of the original purchase price of
the Investor B Shares or exchanged Investor B Shares, as the case may be, or
redemption proceeds, whichever is lower. The Company shall not impose an
exchange or contingent deferred sales charge at the time Investor B Shares of
an Equity Portfolio or Bond Portfolio are exchanged for Investor B Shares of
the Money Market Portfolio. Investor B Shares of the Money Market Portfolio
shall be subject to a fee payable pursuant to the Distribution and Services
Plan adopted for the class for distribution expenses which shall not initially
exceed .75% (on an annual basis) of the average daily net asset value of the
Money Market Portfolio's outstanding Investor B Shares and for shareholder
servicing expenses which shall not initially exceed .25% (on an annual basis)
of the average daily net asset value of the Money Market Portfolio's
outstanding Investor B Shares owned of record or beneficially by customers of
Service Organizations that provide administrative support services with respect
to such customers' Investor B Shares.
2. Equity and Bond Portfolios
--------------------------
TRUST SHARES
Trust Shares of each Equity Portfolio and Bond Portfolio shall be
available for purchase by financial institutions, such as banks, trust
companies, thrift institutions, mutual funds or other financial institutions,
acting on their own behalf or on behalf of their qualified fiduciary accounts,
employee benefit, retirement plan, or other such qualified accounts.
Trust Shares of each Equity Portfolio and Bond Portfolio shall not be
subject to a sales charge but shall be subject to a fee payable pursuant to the
Administrative Services Plan adopted for the class which shall not initially
exceed .30% (on an annual basis) of the average daily net asset value of the
Equity Portfolio's or Bond Portfolio's outstanding Trust Shares owned of record
or beneficially by customers of Service Organizations that provide
administrative support services with respect to such customers' Trust Shares.
-5-
<PAGE> 6
Administrative support services provided under the Administrative Services
Plan adopted for the class may include, but are not limited to, (i)
establishing and maintaining accounts and records for customers who invest in
Trust Shares; (ii) assisting customers in processing purchase, exchange and
redemption requests; (iii) providing sub-accounting with respect to Trust
Shares beneficially owned by customers; and (iv) responding to customer
inquiries concerning their investments.
INSTITUTIONAL SHARES
Institutional Shares of an Equity Portfolio or Bond Portfolio shall be
available for purchase by financial institutions, such as banks, trust
companies, thrift institutions, mutual funds or other financial institutions
acting on behalf of their employee benefit, retirement plan or other such
accounts for which they do not have investment discretion.
Institutional Shares of an Equity Portfolio or Bond Portfolio shall not be
subject to a sales charge but shall be subject to a fee payable pursuant to the
Administrative Services Plan adopted for the class which shall not initially
exceed .30% (on an annual basis) of the average daily net asset value of the
Equity Portfolio's or Bond Portfolio's outstanding Institutional Shares owned
or record or beneficially by customers of Service Organizations that provide
administrative support services with respect to such customers' Institutional
Shares.
Administrative support services provided under the Administrative Services
Plan adopted for the class may include, but are not limited to, (i)
establishing and maintaining accounts and records for customers who invest in
Institutional Shares; (ii) assisting customers in processing purchase, exchange
and redemption requests; (iii) providing sub-accounting with respect to
Institutional Shares beneficially owned by customers; and (iv) responding to
customer inquiries concerning their investments.
INVESTOR A SHARES
Investor A Shares of each Equity Portfolio and Bond Portfolio shall be
available for purchase through selected broker-dealers and other organizations
acting on behalf of their individual or institutional customers.
Investor A Shares of each Equity Portfolio and Bond Portfolio shall be
subject to a front-end sales charge which shall not initially exceed 4.5% (2.5%
for the Short-Intermediate Municipal Portfolio and Short-Intermediate Corporate
Bond Portfolio) of the offering price. Investor A Shares of each Equity
Portfolio and Bond Portfolio shall be further subject to a fee payable pursuant
to the Distribution and Services Plan adopted for the class for distribution
expenses which shall not
-6-
<PAGE> 7
initially exceed .10% (on an annual basis) of the average daily net asset value
of the Equity Portfolio's or Bond Portfolio's outstanding Investor A Shares and
for shareholder servicing expenses which shall not initially exceed .20% (on an
annual basis) of the average daily net asset value of the Equity Portfolio's or
Bond Portfolio's outstanding Investor A Shares owned of record or beneficially
by customers of Service Organizations that provide administrative support
services with respect to such customers' Investor A Shares.
Administrative support services provided under the Distribution and
Services Plan adopted for the class may include, but are not limited to, (i)
establishing and maintaining accounts and records for customers who invest in
shares; (ii) assisting customers in processing purchase, exchange and
redemption requests and (iii) responding to customer inquiries concerning their
investments.
INVESTOR B SHARES
Investor B Shares of an Equity Portfolio or Bond Portfolio shall be
available for purchase through selected broker-dealers or other organizations
acting on behalf of their individual or institutional customers.
Investor B Shares of an Equity Portfolio or Bond Portfolio, if redeemed
within six years of purchase, shall be subject to a contingent deferred sales
charge which shall not initially exceed 5.0% of the original purchase price or
redemption proceeds, whichever is lower. Investor B Shares of an Equity
Portfolio or Bond Portfolio shall be further subject to a fee payable pursuant
to the Distribution and Services Plan adopted for the class for distribution
expenses which shall not initially exceed .75% (on an annual basis) of the
average daily net asset value of the Equity Portfolio's or Bond Portfolio's
outstanding Investor B Shares and for shareholder servicing expenses which
shall not initially exceed .25% (on an annual basis) of the average daily net
asset value of the Equity Portfolio's or Bond Portfolio's outstanding Investor
B Shares owned of record or beneficially by customers of Service Organizations
that provide administrative support services with respect to such customers'
Investor B Shares.
Administrative support services provided under the Distribution and
Services Plan adopted for the class may include, but are not limited to, (i)
establishing and maintaining accounts and records for customers who invest in
Investor B Shares; (ii) assisting customers in processing purchase, exchange
and redemption requests; and (iii) responding to customer inquiries concerning
their investments.
-7-
<PAGE> 8
C. Exchange Privileges
-------------------
TRUST SHARES
Holders of Trust Shares generally shall be permitted to exchange those
shares for Trust Shares of another Portfolio offered by the Company without
paying any exchange fee or sales charge. In addition, Trust Shares may also be
exchanged for Investor A Shares of the same Portfolio in connection with the
distribution of assets held in a qualified trust, agency or custodian account
with the trust department of Mercantile or any of its affiliated or
correspondent banks without paying any exchange fee or sales charge.
INSTITUTIONAL SHARES
Holders of Institutional Shares generally shall be permitted to exchange
those shares for Institutional Shares of another Portfolio offered by the
Company without paying any exchange fee or sales charge. In addition,
Institutional Shares may also be exchanged for Investor A Shares of the same
Portfolio in connection with the distribution of assets held in a qualified
trust, agency or custodian account with the trust department of Mercantile or
any of its affiliated or correspondent banks without paying any exchange fee or
sales charge.
INVESTOR A SHARES
Holders of Investor A Shares who paid a front-end sales charge ("load")
generally shall be permitted to exchange those shares for Investor A Shares of
another Portfolio offered by the Company without paying an exchange fee or
sales load on shares acquired through the exchange, provided, however, that
holders of Investor A Shares of a Portfolio with a lower sales load may be
charged an additional sales load on exchanges of those shares for Investor A
Shares of a Portfolio with a higher sales load. Holders of Investor A Shares
of a no-load Portfolio generally shall be permitted to exchange those shares
for Investor A Shares of another no-load Portfolio offered by the Company
without paying a sales load. Holders of Investor A Shares of a no-load
Portfolio generally shall be permitted to exchange those shares for Investor A
Shares of a load Portfolio but shall be subject to the sales load applicable to
the load Portfolio. However, holders of Investor A Shares of a no-load
Portfolio who acquired those shares through a previous exchange involving
shares on which a load was paid, generally shall not be required to pay an
additional sales load upon the reinvestment of the equivalent investment into a
load Portfolio. In addition, holders of Investor A Shares who have a qualified
trust, agency or custodian account with the trust department of Mercantile or
any of its affiliated or correspondent banks, and whose Shares are to be held
in that account, may exchange Investor A Shares
-8-
<PAGE> 9
for Trust Shares or Institutional Shares of the same Portfolio without paying
any exchange fee or sales charge.
INVESTOR B SHARES
Holders of Investor B Shares generally shall be permitted to exchange
those shares for Investor B Shares of another Portfolio offered by the Company
without paying any exchange fee or contingent deferred sales charge at the time
the exchange is made.
D. Conversion Features
-------------------
TRUST SHARES
The Company shall not initially offer a conversion feature to holders of
Trust Shares.
INSTITUTIONAL SHARES
The Company shall not initially offer a conversion feature to holders of
Institutional Shares.
INVESTOR A SHARES
The Company shall not initially offer a conversion feature to holders of
Investor A Shares.
INVESTOR B SHARES
Investor B Shares acquired by purchase generally shall convert automatically
to Investor A Shares, based on relative net asset value, eight years after the
beginning of the calendar month in which the Shares were purchased. Investor B
Shares of the Money Market Portfolio acquired through exchange generally shall
convert automatically to Investor A Shares, based on relative net asset value,
eight years after the date of purchase of the exchanged Investor B Shares of an
Equity Portfolio or Bond Portfolio.
Investor B Shares acquired through a reinvestment of dividends or
distributions generally shall convert automatically to Investor A Shares, based
on relative net asset value, at the earlier of (i) eight years after the
beginning of the calendar month in which the reinvestment occurred or (ii) the
date of conversion of the most recently purchased Investor B Shares that were
not acquired through reinvestment of dividends or distributions.
-9-
<PAGE> 10
E. Shareholder Services
--------------------
1. Automatic Investment Program
----------------------------
TRUST SHARES AND INSTITUTIONAL SHARES
The Company shall not initially offer an automatic investment program to
holders of Trust Shares and Institutional Shares.
INVESTOR A SHARES AND INVESTOR B SHARES
Holders of Investor A Shares and Investor B Shares shall initially be
offered an automatic investment program whereby, in general, a shareholder's
bank account will be debited in an amount specified by the shareholder and
shares in a Portfolio will be automatically purchased at regular intervals.
2. Automatic Withdrawal Plan
-------------------------
TRUST SHARES AND INSTITUTIONAL SHARES
The Company shall not initially offer an automatic withdrawal plan to
holders of Trust Shares and Institutional Shares.
INVESTOR A SHARES AND INVESTOR B SHARES
Holders of Investor A Shares and Investor B Shares shall initially be
offered an automatic withdrawal plan which generally allows a shareholder to
request regular account withdrawals of a fixed sum of money.
3. Checkwriting Privilege
----------------------
TRUST SHARES AND INSTITUTIONAL SHARES
The Company shall not initially offer a checkwriting privilege to holders
of Trust Shares and Institutional Shares.
INVESTOR A SHARES AND INVESTOR B SHARES
Holders of Investor A Shares and Investor B Shares of the Money Market
Portfolios shall initially be offered a checkwriting privilege whereby a
shareholder may write checks against amounts in the shareholder's Money Market
Portfolio account. The Company shall not initially offer a checkwriting
privilege to holders of Investor A Shares and Investor B Shares of the Equity
Portfolios and Bond Portfolios.
4. Automatic Exchange Program
--------------------------
TRUST SHARES AND INSTITUTIONAL SHARES
The Company shall not initially offer an automatic exchange program to
holders of Trust Shares and Institutional Shares.
INVESTOR A SHARES AND INVESTOR B SHARES
Holders of Investor A Shares and Investor B Shares shall initially be
offered an automatic exchange program whereby a shareholder may make regular,
automatic withdrawals from a Portfolio account and use the proceeds to purchase
Shares of the same class in another Portfolio.
-10-
<PAGE> 11
F. Methodology for Allocating Expenses Between Classes
---------------------------------------------------
On a daily basis, expenses are attributable to each class of shares
depending on the nature of the expenditures. These fall into three categories:
(1) Expenses incurred by the Company (e.g. directors' fees, audit fees,
etc.) not attributable to a particular Portfolio or a particular class
thereof ("Company Expenses");
(2) Expenses incurred by the Portfolio but not attributable to any
particular class of the Portfolio's shares (e.g. investment advisory
fees) ("Portfolio Expenses"); and
(3) Expenses specifically attributable to the particular class ("Class
Expenses").
In addition, fees payable pursuant to the Distribution and Services Plan
adopted for a class will be assessed to the class and fees payable pursuant to
the Administrative Services Plan adopted for a class will be assessed to the
class.
Prior to determining the day's net asset value or dividends and/or
distributions, the following expense items must be calculated as indicated:
(1) Company Expenses -- Determine daily accrual from expense budget and
allocate to each class of shares based upon the relative net assets of
each class of shares.
(2) Portfolio Expenses -- Using the beginning of the day's net assets for
each class of shares, calculate the current day's accrual for each
class. The effective rate used will be the same for all classes and
is based on the total net assets of the Portfolio.
(3) Class Expenses -- Determine daily accrual from expense budget and
allocate to each class of shares based upon the relative net assets of
each class of shares.
(4) Fees under Distribution and Services Plans -- Using the beginning of
the day's net assets for each class of shares, calculate the current
day's accrual.
-11-
<PAGE> 12
(5) Fees under Administrative Services Plans -- Using the beginning of the
day's net assets for each class of shares, calculate the current day's
accrual.
-12-
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<TABLE> <S> <C>
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<NAME> THE ARCH GROWTH & INCOME EQUITY PORTFOLIO
<S> <C>
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<TABLE> <S> <C>
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<NAME> THE ARCH GOVERNMENT & CORPORATE BOND PORTFOLIO
<S> <C>
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<FISCAL-YEAR-END> NOV-30-1995
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<TABLE> <S> <C>
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<SERIES>
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<NAME> THE ARCH GOVERNMENT & CORPORATE BOND PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> MAR-01-1995
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<TABLE> <S> <C>
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<NAME> THE ARCH GOVERNMENT & CORPORATE BOND PORTFOLIO
<S> <C>
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<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
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<TABLE> <S> <C>
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<NAME> THE ARCH GOVERNMENT & CORPORATE BOND PORTFOLIO
<S> <C>
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<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
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<TABLE> <S> <C>
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<NAME> THE ARCH GOVERNMENT SECURITIES PORTFOLIO
<S> <C>
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<NAME> THE ARCH GOVERNMENT SECURITIES PORTFOLIO
<S> <C>
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<NAME> THE ARCH GOVERNMENT SECURITIES PORTFOLIO
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<NAME> THE ARCH GOVERNMENT SECURITIES PORTFOLIO
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<NAME> THE ARCH TREASURY MONEY MARKET PORTFOLIO
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<NAME> THE ARCH TREASURY MONEY MARKET PORTFOLIO
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<NAME> THE ARCH TREASURY MONEY MARKET PORTFOLIO
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<NAME> THE ARCH EMERGING GROWTH PORTFOLIO
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<NAME> THE ARCH EMERGING GROWTH PORTFOLIO
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<NAME> THE ARCH EMERGING GROWTH PORTFOLIO
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<NAME> THE ARCH EMERGING GROWTH PORTFOLIO
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<NAME> THE ARCH BALANCED PORTFOLIO
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<NAME> THE ARCH BALANCED PORTFOLIO
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<NAME> THE ARCH BALANCED PORTFOLIO
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<NAME> THE ARCH BALANCED PORTFOLIO
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<NAME> THE ARCH INTERNATIONAL PORTFOLIO
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<NAME> THE ARCH INTERNATIONAL PORTFOLIO
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<NAME> THE ARCH INTERNATIONAL PORTFOLIO
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<NAME> THE ARCH INTERNATIONAL PORTFOLIO
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<NAME> THE ARCH TAX-EXEMPT MONEY MARKET PORTFOLIO
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<NAME> THE ARCH TAX-EXEMPT MONEY MARKET PORTFOLIO
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<NAME> THE ARCH MISSOURI TAX-EXEMPT BOND PORTFOLIO
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