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As filed with the Securities and Exchange Commission on October 8, 1996
Registration No. 2-79285/811-3567
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
POST-EFFECTIVE AMENDMENT NO. 36
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
AMENDMENT NO. 37
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)
[ ] 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)
[x] 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 of beneficial interest pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended.
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THIS POST-EFFECTIVE AMENDMENT IS BEING FILED SOLELY IN ORDER TO
REGISTER SHARES OF TWO NEW INVESTMENT PORTFOLIOS, I.E. THE EQUITY INDEX
PORTFOLIO AND THE BOND INDEX PORTFOLIO. ACCORDINGLY, THE PROSPECTUSES AND
STATEMENT OF ADDITIONAL INFORMATION FOR THE MONEY MARKET PORTFOLIO, TREASURY
MONEY MARKET PORTFOLIO, TAX-EXEMPT MONEY MARKET PORTFOLIO, GROWTH & INCOME
EQUITY PORTFOLIO, GOVERNMENT & CORPORATE BOND PORTFOLIO, EMERGING GROWTH
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, EQUITY INCOME
PORTFOLIO, NATIONAL MUNICIPAL BOND PORTFOLIO AND SHORT-INTERMEDIATE CORPORATE
BOND PORTFOLIO ARE NOT INCLUDED IN THIS FILING.
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CROSS REFERENCE SHEET
(Trust Shares)
The ARCH Equity Index Portfolio
The ARCH Bond Index Portfolio
<TABLE>
<CAPTION>
Form N-1A Part A Item Prospectus Caption
- --------------------- ------------------
<S> <C>
1. Cover Page.................................................... Cover Page
2. Synopsis...................................................... Expense Summary
for Trust Shares
3. Condensed Financial
Information................................................. Certain Financial
Information; Yields
and Total Returns
4. General Description
of Registrant............................................... Highlights; Investment
Objectives, Policies
and Risk Considerations;
Investment Limitations;
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.
THE ARCH EQUITY INDEX PORTFOLIO
THE ARCH BOND INDEX PORTFOLIO
TRUST 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. is an open-end management investment company
authorized to issue Shares in seventeen investment portfolios. This Prospectus
describes the Trust Shares of the ARCH EQUITY INDEX and BOND INDEX PORTFOLIOS.
Trust Shares are offered to financial institutions acting on their own behalf
or on behalf of certain qualified accounts.
The Portfolios use a strategy called "indexing", which means that they
seek to provide investment results that, before deduction of operating
expenses, approximate the price and yield performance of particular sets of
securities or market segments. The Portfolios' market segments are:
THE ARCH EQUITY INDEX PORTFOLIO - U.S. publicly traded common stocks with
large stock market capitalizations as represented by the Standard & Poor's 500
Composite Stock Price Index (the "S&P 500").
THE ARCH BOND INDEX PORTFOLIO - U.S. Government, mortgage-backed,
asset-backed, and corporate debt securities as represented by the Lehman
Brothers Aggregate Bond Index (the "Lehman Aggregate").
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.
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 __________, 1996, has been filed with the Securities and
Exchange Commission and is incorporated by reference in its
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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.
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.
______________, 1996
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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 "1940 Act"). The Fund offers investment
opportunities in seventeen investment portfolios. This Prospectus relates to
two of those portfolios: the ARCH EQUITY INDEX and BOND INDEX PORTFOLIOS (the
"Portfolios"). In addition, the Fund offers investment opportunities in the
ARCH Money Market, Treasury Money Market, Tax-Exempt Money Market, Growth &
Income Equity, Equity Income, Emerging Growth, International Equity, Balanced,
Government & Corporate Bond, Short-Intermediate Corporate Bond, U.S. Government
Securities, Short-Intermediate Municipal, National Municipal Bond, Missouri
Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios, which are described in
separate Prospectuses. 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. (For
information on expenses, fee waivers and services, see "Certain Financial
Information" 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 Equity Index Portfolio is designed for investors who are willing to
accept the risks associated with an investment in equity securities, and who
seek investment results that, before deduction for operating expenses,
approximate the price and yield performance of U.S. publicly traded common
stocks with large stock market capitalizations, as represented by the S&P 500.
The Bond Index Portfolio is designed for investors who are willing to
accept the risks associated with an investment in fixed income securities, and
who seek investment results that, before deduction for operating expenses,
approximate the price and yield performance of U.S. Government, mortgage-backed,
asset-backed, and corporate debt securities, as represented by the Lehman
Aggregate.
Investors should note that one or more of the Portfolios may, subject to
their investment policies and limitations, enter into repurchase agreements and
reverse repurchase agreements, make securities loans, invest in options and
futures and index-based depository receipts, and make limited investments in
illiquid securities and securities issued by other investment companies. These
investment practices involve investment risks of varying degrees. For example,
the absence of
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a secondary market for a particular variable or floating rate instrument could
make it difficult for a Portfolio to dispose of an instrument if the issuer
were to default on its payment obligation. Default by a counterparty to a
repurchase agreement or securities lending transaction could expose a Portfolio
to loss because of adverse market action or possible delay in disposing of the
underlying collateral. Reverse repurchase agreements are subject to the risk
that the market value of the securities sold by a Portfolio will decline below
the repurchase price which the Portfolio is obligated to pay. Purchasing
options is a specialized investment technique which entails a substantial risk
of loss of amounts paid as premiums to option writers. There is no assurance
that a liquid market will exist for a particular futures contract at any
particular time. 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 Fund also offers the availability of a
family of seventeen mutual funds should your investment goals change.
This Prospectus describes the Trust Shares of the Portfolios. For
information on purchasing, exchanging or redeeming Trust Shares of these
Portfolios, please see "How to Purchase and Redeem Shares" below.
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CERTAIN FINANCIAL INFORMATION
Shares of each 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 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 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 and Investor A Shares in a Portfolio can be
expected, at any given time, to be different.
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EXPENSE SUMMARY FOR
TRUST SHARES
<TABLE>
<CAPTION>
EQUITY BOND
INDEX INDEX
PORTFOLIO PORTFOLIO
--------- ---------
<S> <C> <C>
ANNUAL PORTFOLIO OPERATING
EXPENSES
(as a percentage of average
net assets)
Investment Advisory Fees (net
of fee waivers)1 . . . . . . . 0.00% 0.00%
12b-1 Fees . . . . . . . . . . . 0.00% 0.00%
Other Expenses (including
administration fees,
administrative services fees
and other expenses) (net
of fee waivers and expense
reimbursements)2,3 . . . . . . .29% .29%
---- ----
TOTAL PORTFOLIO OPERATING
EXPENSES (net of fee waivers
and expense reimbursements)3 . .29% .29%
==== ====
</TABLE>
____________________
1 Without fee waivers, advisory fees for each Portfolio would be .30%.
2 Without fee waivers, administration fees for each Portfolio would be .20%.
3 Without fee waivers and expense reimbursements, Other Expenses for
each Portfolio would be .39% and Total Portfolio Operating Expenses
for each Portfolio would be .69%.
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<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
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<S> <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:
Equity Index Portfolio . . . . . . . . . . . . $3 $9
Bond Index Portfolio . . . . . . . . . . . . . $3 $9
</TABLE>
__________________________
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OR RATES OF RETURN. THE PORTFOLIOS ARE NEW AND ACTUAL
EXPENSES AND RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN. Information
about the actual performance of the Portfolios will be contained in the Fund's
future Annual Reports to Shareholders, which may be obtained without charge
when they become available 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 tables reflect the expenses which each Portfolio
expects to incur during the next twelve months on its Trust 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 example 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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INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS
The Fund offers you two indexed investment options:
The Equity Index Portfolio seeks to provide investment results that,
before deduction of operating expenses, approximate the price and yield
performance of U.S. publicly traded common stocks with large stock market
capitalizations as represented by the S&P 500.
The Bond Index Portfolio seeks to provide investment results that,
before deduction of operating expenses, approximate the price and yield
performance of U.S. Government, mortgage-backed, asset-backed and corporate
debt securities as represented by the Lehman Aggregate.
The investment objective of a Portfolio (other than the fundamental
investment policies described below under "Investment Limitations") may be
changed by the Fund's Board of Directors without shareholder approval.
However, shareholders will be given at least 30 day's written notice before any
such change occurs. 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 INDEXING APPROACH
The Equity Index and Bond Index Portfolios are not managed in a
traditional sense, that is, by making discretionary judgments based on analysis
of economic, financial and market conditions. Instead, these Portfolios seek
to approximate the investment performance of their respective market segments,
as represented by their respective indexes, through the use of sophisticated
computer models to determine which stocks or bonds should be purchased or sold,
while keeping transaction and administrative costs to a minimum. Under normal
market and economic conditions, each Portfolio will invest at least 65% of its
total assets in securities listed in that portfolio's respective index. The
Adviser generally selects securities for each Portfolio on the basis of their
weightings in the respective indexes. A Portfolio will only purchase a
security that is included in its respective index at the time of such purchase.
With respect to the remaining portion of its net assets, each Portfolio has the
ability to hold temporary cash balances which may be invested in U.S.
Government obligations and money market investments. If appropriate, each
Portfolio may use options, futures contracts and depository receipts to increase
efficiency. Each Portfolio also may enter into reverse repurchase agreements
and lend its portfolio securities.
While there can be no guarantee that each Portfolio's investment
results will precisely match the results of its corresponding index, the
Adviser believes that, before deduction of operating expenses, there will be a
very high correlation between the returns generated by the Portfolios and their
respective indexes. A perfect correlation would be achieved when a Portfolio's
net asset value, including the value of its dividend and capital gains
distributions, increases or
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decreases in exact proportion to changes in its respective index. Each
Portfolio's ability to correlate its performance with its respective index,
however, may be affected by, among other things, transaction costs, changes in
securities markets, the manner in which Standard & Poor's Ratings Group ("S&P")
or Lehman Brothers ("Lehman") calculate their respective indexes, and the
timing of purchases and redemptions. The Adviser monitors the correlation of
the performance of the Portfolios in relation to their indexes under the
supervision of the Board of Directors.
THE INCLUSION OF A SECURITY IN EITHER OF THE PORTFOLIOS' INDEXES IN NO
WAY IMPLIES AN OPINION BY S&P OR LEHMAN AS TO ITS ATTRACTIVENESS AS AN
INVESTMENT. S&P AND LEHMAN ARE NOT SPONSORS OF, OR IN ANY WAY AFFILIATED WITH,
THE PORTFOLIOS.
The Adviser believes that the indexing approach should involve less
portfolio turnover, and thus lower brokerage costs, transfer taxes and
operating expenses, than in more traditionally managed funds, although there is
no assurance that this will be the case. Ordinarily, a Portfolio will buy or
sell securities only to reflect changes in an index (including mergers or
changes in the composition of an index) or to accommodate cash flows into and
out of the Portfolio. The costs and other expenses incurred in securities
transactions, apart from any difference between the investment results of a
Portfolio and that of its respective index, may cause the return of a Portfolio
to be lower than the return of its respective index. The Portfolios may invest
in less than all of the securities included in their respective indexes, which
may result in a return that does not correspond with that of the indexes, after
taking expenses into account.
THE EQUITY INDEX PORTFOLIO
The S&P 500 is composed of approximately 500 common stocks, most of
which are listed on the New York Stock Exchange (the "NYSE"). S&P chooses the
stocks for the S&P 500 on a statistical basis. As of December 31, 1995 the
stocks in the S&P 500 have an average market capitalization of $___ billion and
account for approximately __% of the total market value of all U.S. common
stocks. Normally, the Equity Index Portfolio will hold all 500 stocks in the
S&P 500 and will hold each stock in approximately the same percentage as that
stock represents in the S&P 500. "Market capitalization" for a company is the
market price per share of stock multiplied by the number of shares outstanding.
The Adviser believes that the S&P 500 is an appropriate benchmark for the
Portfolio because it is diversified, it is familiar to many investors and it is
widely accepted as a reference for common stock investments.
THE BOND INDEX PORTFOLIO
The Lehman Aggregate is composed of U.S. Government, mortgage-backed,
asset-backed, and non-convertible corporate debt securities that meet the
following criteria: the securities have at least $100
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million par amount outstanding; the securities are rated investment grade (at
least Baa or BBB) by Moody's Investors Service, Inc. ("Moody's") or S&P (if not
rated by Moody's); have at least one year until maturity; and have coupons with
fixed rates. The Lehman Aggregate excludes collateralized mortgage obligations
("CMOs"), adjustable rate mortgages, manufactured homes, non-agency bonds,
buydowns, graduated equity mortgages, project loans and non-conforming (i.e.,
"jumbo") mortgages. As of December 31, 1995, over ____ issues were included in
the Lehman Aggregate, representing $____ in market value. U.S. Treasury and
agency securities represented ____% of the total market value, asset-backed and
mortgage-backed securities represented ____% of the total market value, with
corporate debt securities representing the balance of ____%. The average
maturity of the Lehman Aggregate was ____ years. The Adviser believes that the
Lehman Aggregate is an appropriate benchmark for the Portfolio because it is
diversified, it is familiar to investors, and it is widely accepted as a
reference for bonds and other fixed income investments.
Because of the large number of issues included in the Lehman
Aggregate, the Portfolio cannot invest in all such issues. Instead, the
Portfolio will hold a representative sample of the securities in the Lehman
Aggregate, selecting one or two issues to represent an entire "class" or type
of securities in the Lehman Aggregate. At a minimum, the Portfolio seeks to
hold securities which reflect the major asset classes in the Lehman Aggregate -
U.S. Treasury and agency issues, mortgage-backed securities, asset-backed
securities and non-convertible corporate debt securities. As the Portfolio's
assets increase, these classes will be further delineated along the lines of
sector, term-to- maturity, coupon and credit ratings. This sampling technique
is expected to be an effective means of substantially duplicating the price and
performance provided by the securities comprising the Lehman Aggregate.
Securities rated Baa by Moody's or BBB by S&P 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.
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. 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
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<PAGE> 14
United States, Small Business Administration, Government National Mortgage
Association ("GNMA"), Federal National Mortgage Association ("FNMA"), Federal
Home Loan Mortgage Corporation ("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 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.
MONEY MARKET INSTRUMENTS. Under certain circumstances described
above, each Portfolio may purchase "money market instruments," including
commercial paper and bank obligations.
Investment by the Portfolios in commercial paper will consist of
issues that are rated at the time of purchase in one of the two highest rating
categories assigned by S&P, Moody's or another nationally recognized
statistical rating organization (each a "Rating Agency") or, if unrated, deemed
to be of comparable quality by the Adviser at the time of purchase. Commercial
paper may include variable and floating rate instruments. See "Other
Applicable Policies -- Variable and Floating Rate Instruments" below.
Bank obligations include bankers' acceptances, negotiable certificates
of deposit and non-negotiable time deposits of U.S. or foreign banks, having
total assets at the time of purchase in excess of $1 billion. Although the
Portfolios may invest in obligations of foreign banks or foreign branches of
U.S. banks only when the Adviser determines that the instrument presents
minimal credit risks, such investments nevertheless entail risks that are
different from those of investments in domestic obligations of U.S. banks.
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. Investments in the obligations of foreign banks or foreign branches of
U.S. banks will not exceed 25% of a particular Portfolio's total assets at the
time of purchase.
REPURCHASE AGREEMENTS. Under certain circumstances described above
and subject to their respective investment policies, the Portfolios 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
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<PAGE> 15
agreements only with financial institutions such as banks and broker-dealers
that the Adviser believes to be creditworthy. During the term of any
repurchase agreement, the 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 the
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 the Portfolios presently do not intend to enter
into repurchase agreements providing for settlement in more than seven days,
the Portfolios have the authority to do so subject to their limitation on the
purchase of illiquid securities described below. Repurchase agreements are
considered to be loans under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS. Subject to their respective investment
policies and limitations, the Portfolios may borrow funds for temporary
purposes by entering into reverse repurchase agreements. 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 may, from time to time, lend 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 or marketable securities. 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 marketable securities are used as collateral. In
accordance with current Securities and Exchange Commission ("SEC") policies,
each Portfolio is currently limiting its securities lending to 33-1/3% of its
aggregate net assets. Loans are subject to termination by a Portfolio or the
borrower at any time.
OPTIONS. The 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 indexes.
Purchasing options is a specialized investment technique which entails a
substantial risk of a complete loss of the
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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.
The 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 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 either
Portfolio. (For additional information relating to option trading practices,
including particular risks, see the Statement of Additional Information.)
FUTURES CONTRACTS AND RELATED OPTIONS. The Portfolios may invest in
futures contracts and options on futures contracts. Such transactions,
including stock or bond index futures contracts, or options thereon, can be
used to simulate full investment in the S&P 500 or Lehman Aggregate while
retaining a cash balance for Portfolio management purposes, or act as a hedge
to protect a Portfolio from fluctuations in the value of its securities caused
by anticipated changes in interest rates 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 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
bonds in the index is contemplated. Similarly, it may be in the best interest
of the Bond Index Portfolio to purchase or sell interest rate futures
contracts, or options thereon, which provide for the future delivery of
specified fixed income securities.
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<PAGE> 17
The purchase and sale of futures contracts or related options will not
be a primary investment technique of either Portfolio. Neither Portfolio 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.)
ASSET-BACKED SECURITIES. The Bond Index 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 included in the Lehman Aggregate and which are issued by entities such as
the GNMA, FNMA, 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. 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 Bond Index 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 also decline or 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
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<PAGE> 18
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.
DEPOSITORY RECEIPTS. Each Portfolio may invest in receipts that are
issued by banks or brokerage firms and are created by depositing securities
listed in the respective index into a special account at a custodian bank. The
custodian holds such securities for the benefit of the registered owners of the
certificates or receipts. The custodian arranges for the issuance of the
certificates or receipts evidencing ownership and maintains the register. The
Portfolios may invest in index-based depository receipts in lieu of investment
in the actual securities that are listed on the index.
VARIABLE AND FLOATING RATE INSTRUMENTS. Each Portfolio may purchase
rated or unrated variable and floating rate instruments. These instruments may
include 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.
SECURITIES OF OTHER INVESTMENT COMPANIES. Under certain circumstances
described above and subject to its investment policies, each Portfolio may
invest in securities issued by other investment companies 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 distribution fees as well as other types of
commissions or charges. Such charges will be payable by the Portfolio and,
therefore, will be borne indirectly by its shareholders. (See the Statement of
Additional Information under "Investment Objectives and Policies -- Securities
of Other Investment Companies.")
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. 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. Neither Portfolio intends to
engage in such transactions
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<PAGE> 19
for speculative purposes but only for the purpose of acquiring portfolio
securities.
ILLIQUID SECURITIES. A Portfolio will not knowingly invest more than
15% 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 this
15% limit (unless the Adviser, pursuant to guidelines established by the Fund's
Board of Directors, determines that a liquid market exists). The Adviser
expects that less than 5% of each Portfolio's net assets will be invested in
Rule 144A securities during the current year.
INVESTMENT RISKS AND OTHER CONSIDERATIONS. A Portfolio's ability to
correlate its performance with an index may be affected by, among other things,
changes in the securities markets, the manner in which the index is calculated
and the timing of purchases and redemptions of the Portfolio's shares. The
Fund expects the investments of each Portfolio to decline in value whenever the
market, as represented by the securities in its index, declines. The Equity
Index Portfolio should exhibit price volatility similar to that of the S&P 500.
It is impossible to eliminate risk from investments in common stocks. The
average annual total return of the U.S. stock market, as measured by Ibbotson
Associates, from 1926 to 1995 was _____%. Returns in individual calendar years
ranged from a low of -43.3% (in 1931) to a high of 53.9% (in 1933). You should
consider your investment in the Equity Index Portfolio to be long-term. This
Portfolio is not designed to provide you with a means to speculate on
short-term movements in the stock market.
The Bond Index Portfolio should exhibit price and yield volatility
similar to that of the Lehman Aggregate. Generally, the market value of fixed
income securities 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, such
as the Bond Index Portfolio, will tend to increase, and during periods of
rising interest rates, the market value will tend to decrease. In addition,
during periods of declining interest rates, the yields of investment portfolios
comprised primarily of fixed income securities will tend to be higher than
prevailing market rates and, in periods of rising interest rates, yields will
tend to be somewhat lower. 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 the Portfolio's net asset value.
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<PAGE> 20
PORTFOLIO TRANSACTIONS. All orders for transactions in securities or
options on behalf of the Portfolios are placed by the 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."
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)
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 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 may 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
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<PAGE> 21
securities while its borrowings exceed 5% of its total assets. A
Portfolio's transactions in futures and related options (including the
margin posted by the 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 and make other
investments in accordance with its investment objective and policies,
and enter into repurchase agreements.
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 securities will not constitute a violation of such
limitation.
In order to permit the sale of a Portfolio's Shares in certain states,
each Portfolio may make commitments more restrictive than the investment
policies and limitations described above. Should the 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.
PRICING OF SHARES
The Portfolios' respective net asset values per Share are determined
by the Administrator as of the close of regular trading hours on the New York
Stock 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 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).
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
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<PAGE> 22
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 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.)
The public offering price for each class of Shares is based upon net
asset value per Share plus, in the case of Investor A Shares, 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.
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.
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<PAGE> 23
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.
EXCHANGE PRIVILEGE
The exchange privilege enables shareholders to exchange Trust Shares
of a Portfolio for Trust Shares of another Portfolio offered by the Fund or,
under certain circumstances described below, for Investor A Shares of the same
Portfolio. 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 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. The exchanges are made without a sales
charge at the net asset value of the respective share class.
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 exchange request to the Fund. (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.
In addition to the Portfolios described in this Prospectus, the Fund
currently offers Trust Shares in the following Portfolios:
o The ARCH Money Market Portfolio
o The ARCH Treasury Money Market Portfolio
o The ARCH Tax-Exempt Money Market Portfolio
o The ARCH Growth & Income Equity Portfolio
o The ARCH Equity Income Portfolio*
o The ARCH Emerging Growth Portfolio
o The ARCH International Equity Portfolio
o The ARCH Balanced Portfolio
o The ARCH Government & Corporate Bond Portfolio
o The ARCH Short-Intermediate Corporate Bond Portfoli*
o The ARCH U.S. Government Securities Portfolio
o The ARCH National Municipal Bond Portfolio
o The ARCH Kansas Tax-Exempt Bond Portfolio*
o The ARCH Missouri Tax-Exempt Bond Portfolio
o The ARCH Short-Intermediate Municipal Portfolio
__________________________________
* Expected to commence operations in 1997.
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<PAGE> 24
For information concerning these Portfolios, please call
1-800-551-3731. Shareholders exercising the exchange privilege with any of the
other Portfolios in the Fund should request and review the Portfolio's
Prospectus carefully prior to making an exchange.
REDEMPTION OF SHARES
Redemption orders should be placed, in writing or by phone, 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. Proceeds from redemptions of Trust Shares of the Portfolios with
respect to redemption orders received and accepted 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. 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.
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.
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<PAGE> 25
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.
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 and Investor A 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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<PAGE> 26
From time to time, performance information such as total return and
yield data for the Portfolios' Trust Shares may be quoted in advertisements or
in communications to shareholders. The yield of a Portfolio 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 such
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 the 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.
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 S&P, Lehman Brothers, or any of its affiliates, Ibbotson
Associates, Inc., Lipper Analytical Services, Inc. and Mutual Fund Forecaster.
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.
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<PAGE> 27
DIVIDENDS AND DISTRIBUTIONS
THE EQUITY INDEX PORTFOLIO
Net investment income for the Equity Index Portfolio is declared and
paid monthly as a dividend to shareholders of record. Shares of the Portfolio
earn dividends from the day after the purchase order is received by the Fund
through the day the redemption order for such Shares is received. Dividends on
each Share of the Portfolio are determined in the same manner and are paid in
the same amount, irrespective of class, except that the Portfolio's Trust
Shares and Institutional Shares bear all expenses of the respective
Administrative Services Plans adopted for such Shares and the Portfolio's
Investor A Shares bear all expenses of the Distribution and Services Plan
adopted for such Shares. (See "Management of the Fund" and "Other Information
Concerning the Fund and Its Shares".)
THE BOND INDEX PORTFOLIO
Dividends from net investment income of the Bond Index Portfolio are
declared daily and paid monthly not later than five Business Days after the end
of each month. Shares of the Portfolio earn dividends from the day after the
purchase order is received by the Fund 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 the Portfolio's Trust Shares and Institutional Shares bear
all expenses of the respective Administrative Services Plans adopted for such
Shares and the Portfolio's Investor A Shares bear all expenses of the
Distribution and Services Plan adopted for such Shares. (See "Management of
the Fund" and "Other Information Concerning the Fund and Its Shares".)
OTHER DIVIDEND AND DISTRIBUTION INFORMATION
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 on 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 intends to qualify as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Code"), for the
current taxable year. It is intended that each Portfolio will continue to so
qualify as long as such qualification is
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<PAGE> 28
in the best interests of shareholders. A regulated investment company
generally is exempt from federal income tax on amounts distributed to
shareholders.
Qualification as a regulated investment company under 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 exempt-interest income (if any) net of
certain deductions for such year. 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 for the taxable year over the net
short-term capital loss, if any, for such year. It is the policy of the
Portfolios 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 Equity Index Portfolio, such dividends will qualify for the
dividends received deduction for corporations to the extent of the total
qualifying dividends received by the Portfolio from domestic corporations for
the taxable year.
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 dividends are received
in cash or reinvested in additional Shares.
An investor considering purchasing Shares of a Portfolio on or just
before the record date of any capital gains distribution (or in the case of the
Equity Index Portfolio, 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 the shareholders and paid by the
Portfolio on December 31 of such year in the event 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
-25-
<PAGE> 29
identification number in the manner required, who are subject to withholding by
the Internal Revenue Service for failure to properly 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, depending upon the cost of such Shares when
purchased 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.
STATE AND LOCAL TAXES
The application of state and local taxes may have different
consequences from those of the federal income tax law described above. In
particular, 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.
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 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
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 June 30, 1996, MVA had
approximately $7.3 billion in assets under investment management, including the
Fund's assets, which were approximately $2.3 billion. MVA also serves as
investment adviser to each of the Fund's other Portfolios.
-26-
<PAGE> 30
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, at the annual rates of .30% and .30% of the average daily
net assets of the Equity Index and Bond Index Portfolios, respectively.
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.
ADMINISTRATOR
BISYS Fund Services Ohio, Inc., located at 3435 Stelzer Road,
Columbus, Ohio 43219, acts as the Portfolios' Administrator. The Administrator
also serves as the administrator to each of the Fund's other 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 Portfolios' arrangements with Service Organizations 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.
From time to time, the Administrator may voluntarily waive all or a
portion of the fees otherwise payable by a Portfolio in order to increase the
net income available for distribution to shareholders.
DISTRIBUTOR
Trust Shares of each Portfolio are sold continuously by the
Distributor, BISYS Fund Services ("BISYS"), 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 to each
of the Fund's other Portfolios.
-27-
<PAGE> 31
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 pro rata portion of the fees which may be paid to
Service Organizations for such services at an annual rate of up to .30% 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 (collectively, 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.
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 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. BISYS
Fund Services Ohio, Inc. also serves as the Fund's transfer agent
-28-
<PAGE> 32
and dividend disbursing agent. Its address is 3435 Stelzer Road, Columbus,
Ohio 43219.
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 Plan (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 the Fund's 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.
-29-
<PAGE> 33
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: 25 million Trust Shares, 25 million Institutional Shares and 25 million
Investor A Shares, representing interests in the Equity Index Portfolio; and 25
million Trust Shares, 25 million Institutional shares and 25 million Investor A
Shares, representing interests in the Bond Index Portfolio. Institutional and
Investor A Shares of these Portfolios are described in separate prospectuses
which are available from the Distributor at the telephone number on the cover
of this Prospectus. The Board of Directors has also authorized the issuance of
additional classes of shares representing interests in other investment
portfolios of the Fund, which are likewise described in separate prospectuses
available from the Distributor. Shares in the Portfolios will be issued
without Share certificates.
The Trust Shares of the Portfolios are described in this Prospectus.
The Portfolios also offer Institutional Shares and Investor A 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 of the Portfolios are sold with
a maximum 2.5% front-end sales charge. Investor A Shares are sold through
selected broker/dealers and other financial intermediaries to individual or
institutional customers. Trust, Institutional and Investor A 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 a Portfolio's
respective Administrative Services Plans adopted for such Shares and Investor A
Shares bear all payments under a Portfolio's Distribution and Services Plan
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 Plan 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
Plan may not exceed .30% (on an annual basis) of the average daily net asset
value of a Portfolio's outstanding Institutional Shares. Payments under the
Distribution and Services Plan for
-30-
<PAGE> 34
Investor A 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. Payments under the Distribution and Services Plan for
Investor A Shares may not exceed .30% (on an annual basis) of the average daily
net asset value of Investor A Shares of a Portfolio. Distribution payments
made under the Distribution and Services Plan 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 of the Portfolios that are not offered in connection with its
Trust Shares or Institutional Shares, including an automatic investment program
and an 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 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.
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 Fund's 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.
-31-
<PAGE> 35
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 __________, 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.
For information with respect to Trust Shares of the Fund's other
investment portfolios, call the Fund at 1-800-551-3731.
-32-
<PAGE> 36
NO PERSON HAS BEEN AUTHORIZED
TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS NOT CONTAINED THE ARCH
IN THIS PROSPECTUS, OR IN THE FUND(R), INC.
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. EQUITY INDEX
THIS PROSPECTUS DOES NOT CONSTITUTE PORTFOLIO
AN OFFERING BY THE PORTFOLIOS,
THE FUND OR THE DISTRIBUTOR IN ANY BOND INDEX
JURISDICTION IN WHICH SUCH OFFERING PORTFOLIO
MAY NOT LAWFULLY BE MADE.
TRUST SHARES
___________________
TABLE OF CONTENTS
PAGE
Highlights . . . . . . . . . . .
Certain Financial
Information . . . . . . . . . .
Expense Summary for
Trust Shares . . . . . . . . .
Investment Objectives, Policies
and Risk Considerations . . . .
Investment Limitations . . . . .
Pricing of Shares . . . . . . . .
How to Purchase and [OLD LOGO]
Redeem Shares . . . . . . . . .
Purchase of Shares . . .
Exchange Privileges . .
Redemption of Shares . .
Other Exchange or
Redemption
Information . . . . .
Yields and Total Returns . . . .
Dividends and Distributions . . . PROSPECTUS
Taxes . . . . . . . . . . . . . . ________, 1996
Management of the Fund . . . . .
Other Information
Concerning the Fund
and its Shares . . . . . . . .
Miscellaneous . . . . .
-33-
<PAGE> 37
PAGE
Investment Adviser:
Mississippi Valley Advisors Inc.
a wholly-owned subsidiary of
Mercantile Bank of
St. Louis National Association
Distributor: BISYS Fund Services
-34-
<PAGE> 38
CROSS REFERENCE SHEET
(Institutional Shares)
The ARCH Equity Index Portfolio
The ARCH Bond Index Portfolio
<TABLE>
<CAPTION>
Form N-1A Part A Item Prospectus Caption
- --------------------- ------------------
<S> <C>
1. Cover Page.................................................... Cover Page
2. Synopsis...................................................... Expense Summary
for Institutional Shares
3. Condensed Financial
Information................................................. Certain Financial
Information; 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> 39
THE ARCH FUND(R), INC.
THE ARCH EQUITY INDEX PORTFOLIO
THE ARCH BOND INDEX PORTFOLIO
INSTITUTIONAL 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. is an open-end management investment company
authorized to issue Shares in seventeen investment portfolios. This Prospectus
describes the Institutional Shares of the ARCH EQUITY INDEX and BOND INDEX
PORTFOLIOS. Institutional Shares are offered to financial institutions acting
on behalf of accounts for which they do not exercise investment discretion.
The Portfolios use a strategy called "indexing", which means that they
seek to provide investment results that, before deduction of operating
expenses, approximate the price and yield performance of particular sets of
securities or market segments. The Portfolios' market segments are:
THE ARCH EQUITY INDEX PORTFOLIO - U.S. publicly traded common stocks with
large stock market capitalizations as represented by the Standard & Poor's 500
Composite Stock Price Index (the "S&P 500").
THE ARCH BOND INDEX PORTFOLIO - U.S. Government, mortgage-backed,
asset-backed, and corporate debt securities as represented by the Lehman
Brothers Aggregate Bond Index (the "Lehman Aggregate").
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.
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 __________, 1996, has been filed with the Securities and
<PAGE> 40
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.
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.
______________, 1996
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<PAGE> 41
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 "1940 Act"). The Fund offers investment
opportunities in seventeen investment portfolios. This Prospectus relates to
two of those portfolios: the ARCH EQUITY INDEX and BOND INDEX PORTFOLIOS (the
"Portfolios"). In addition, the Fund offers investment opportunities in the
ARCH Money Market, Treasury Money Market, Tax-Exempt Money Market, Growth &
Income Equity, Equity Income, Emerging Growth, International Equity, Balanced,
Government & Corporate Bond, Short-Intermediate Corporate Bond, U.S. Government
Securities, Short-Intermediate Municipal, National Municipal Bond, Missouri
Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios, which are described in
separate Prospectuses. 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. (For
information on expenses, fee waivers and services, see "Certain Financial
Information" 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 Equity Index Portfolio is designed for investors who are willing to
accept the risks associated with an investment in equity securities, and who
seek investment results that, before deduction for operating expenses,
approximate the price and yield performance of U.S. publicly traded common
stocks with large stock market capitalizations, as represented by the S&P 500.
The Bond Index Portfolio is designed for investors who are willing to
accept the risks associated with an investment in fixed income securities, and
who seek investment results that, before deduction for operating expenses,
approximate the price and yield performance of U.S. Government,
mortgage-backed, asset-backed, and corporate debt securities, as represented by
the Lehman Aggregate.
Investors should note that one or more of the Portfolios may, subject to
their investment policies and limitations, enter into repurchase agreements and
reverse repurchase agreements, make securities loans, invest in options and
futures and index-based depository receipts, and make limited investments in
illiquid securities and securities issued by other investment companies. These
investment practices involve investment risks of varying degrees. For example,
the absence of
-3-
<PAGE> 42
a secondary market for a particular variable or floating rate instrument could
make it difficult for a Portfolio to dispose of an instrument if the issuer
were to default on its payment obligation. Default by a counterparty to a
repurchase agreement or securities lending transaction could expose a Portfolio
to loss because of adverse market action or possible delay in disposing of the
underlying collateral. Reverse repurchase agreements are subject to the risk
that the market value of the securities sold by a Portfolio will decline below
the repurchase price which the Portfolio is obligated to pay. Purchasing
options is a specialized investment technique which entails a substantial risk
of loss of amounts paid as premiums to option writers. There is no assurance
that a liquid market will exist for a particular futures contract at any
particular time. 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 Fund also offers the availability of a
family of seventeen mutual funds should your investment goals change.
This Prospectus describes the Institutional Shares of the Portfolios. For
information on purchasing, exchanging or redeeming Institutional Shares of
these Portfolios, please see "How to Purchase and Redeem Shares" below.
-4-
<PAGE> 43
CERTAIN FINANCIAL INFORMATION
Shares of each 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 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 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 and Investor A Shares in a Portfolio can be
expected, at any given time, to be different.
-5-
<PAGE> 44
EXPENSE SUMMARY FOR
INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
EQUITY BOND
INDEX INDEX
PORTFOLIO PORTFOLIO
--------- ---------
<S> <C> <C>
ANNUAL PORTFOLIO OPERATING
EXPENSES
(as a percentage of average
net assets)
Investment Advisory Fees (net
of fee waivers)1 . . . . . . . 0.00% 0.00%
12b-1 Fees . . . . . . . . . . . 0.00% 0.00%
Other Expenses (including
administration fees,
administrative services fees
and other expenses) (net
of fee waivers and expense
reimbursements)2,3 . . . . . . .59% .59%
==== ====
TOTAL PORTFOLIO OPERATING
EXPENSES (net of fee waivers
and expense reimbursements)3 . .59% .59%
==== ====
____________________
<FN>
1 Without fee waivers, advisory fees for each Portfolio would be .30%.
2 Without fee waivers, administration fees for each Portfolio would be
.20%.
3 Without fee waivers and expense reimbursements, Other Expenses for
each Portfolio would be .69% and Total Portfolio Operating Expenses
for each Portfolio would be .99%.
</TABLE>
-6-
<PAGE> 45
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- ------- ------ -------
<S> <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:
Equity Index Portfolio . . . . . . . . $6 $19
Bond Index Portfolio . . . . . . . . . $6 $19
_________________
</TABLE>
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OR RATES OF RETURN. THE PORTFOLIOS ARE NEW AND ACTUAL
EXPENSES AND RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN. Information
about the actual performance of the Portfolios will be contained in the Fund's
future Annual Reports to Shareholders, which may be obtained without charge
when they become available 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 tables reflect the expenses which
each Portfolio expects to incur during the next twelve months on 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 example 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.
-7-
<PAGE> 46
INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS
The Fund offers you two indexed investment options:
The Equity Index Portfolio seeks to provide investment results that,
before deduction of operating expenses, approximate the price and yield
performance of U.S. publicly traded common stocks with large stock market
capitalizations as represented by the S&P 500.
The Bond Index Portfolio seeks to provide investment results that,
before deduction of operating expenses, approximate the price and yield
performance of U.S. Government, mortgaged-backed, asset-backed and corporate
debt securities as represented by the Lehman Aggregate.
The investment objective of a Portfolio (other than the fundamental
investment policies described below under "Investment Limitations") may be
changed by the Fund's Board of Directors without shareholder approval.
However, shareholders will be given at least 30 days' written notice before any
such change occurs. 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 INDEXING APPROACH
The Equity Index and Bond Index Portfolios are not managed in a
traditional sense, that is, by making discretionary judgments based on analysis
of economic, financial and market conditions. Instead, these Portfolios seek
to approximate the investment performance of their respective market segments,
as represented by their respective indexes, through the use of sophisticated
computer models to determine which stocks or bonds should be purchased or sold,
while keeping transaction and administrative costs to a minimum. Under normal
market and economic conditions, each Portfolio will invest at least 65% of its
total assets in securities listed on that Portfolio's respective index. The
Adviser generally selects securities for each Portfolio on the basis of their
weightings in the respective indexes. A Portfolio will only purchase a
security that is included in its respective index at the time of such purchase.
With respect to the remaining portion of its net assets, each Portfolio has the
ability to hold temporary cash balances which may be invested in U.S.
Government obligations and money market investments. If appropriate, each
Portfolio may use options, futures contracts and depository receipts to
increase efficiency. Each Portfolio also may enter into reverse repurchase
agreements and lend its portfolio securities.
While there can be no guarantee that each Portfolio's investment
results will precisely match the results of its corresponding index, the
Adviser believes that, before deduction
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of operating expenses, there will be a very high correlation between the
returns generated by the Portfolios and their respective indexes. A perfect
correlation would be achieved when a Portfolio's net asset value, including the
value of its dividend and capital gains distributions, increases or decreases
in exact proportion to changes in its respective index. Each Portfolio's
ability to correlate its performance with its respective index, however, may be
affected by, among other things, transaction costs, changes in securities
markets, the manner in which Standard & Poor's Ratings Group ("S&P") or Lehman
Brothers ("Lehman") calculate their respective indexes, and the timing of
purchases and redemptions. The Adviser monitors the correlation of the
performance of the Portfolios in relation to their indexes under the
supervision of the Board of Directors.
THE INCLUSION OF A SECURITY IN EITHER OF THE PORTFOLIOS' INDEXES IN NO
WAY IMPLIES AN OPINION BY S&P OR LEHMAN AS TO ITS ATTRACTIVENESS AS AN
INVESTMENT. S&P AND LEHMAN ARE NOT SPONSORS OF, OR IN ANY WAY AFFILIATED WITH,
THE PORTFOLIOS.
The Adviser believes that the indexing approach should involve less
portfolio turnover, and thus lower brokerage costs, transfer taxes and
operating expenses, than in more traditionally managed funds, although there is
no assurance that this will be the case. Ordinarily, a Portfolio will buy or
sell securities only to reflect changes in an index (including mergers or
changes in the composition of an index) or to accommodate cash flows into and
out of the Portfolio. The costs and other expenses incurred in securities
transactions, apart from any difference between the investment results of a
Portfolio and that of its respective index, may cause the return of a Portfolio
to be lower than the return of its respective index. The Portfolios may invest
in less than all of the securities included in their respective indexes, which
may result in a return that does not correspond with that of the indexes, after
taking expenses into account.
THE EQUITY INDEX PORTFOLIO
The S&P 500 is composed of approximately 500 common stocks, most of
which are listed on the New York Stock Exchange (the "NYSE"). S&P chooses the
stocks for the S&P 500 on a statistical basis. As of December 31, 1995 the
stocks in the S&P 500 have an average market capitalization of $____ billion
and account for approximately ___% of the total market value of all U.S. common
stocks. Normally, the Equity Index Portfolio will hold all 500 stocks in the
S&P 500 and will hold each stock in approximately the same percentage as that
stock represents in the S&P 500. "Market capitalization" for a company is the
market price per share of stock multiplied by the number of shares outstanding.
The Adviser believes that the S&P 500 is an appropriate benchmark for the
Portfolio because it is diversified, it is familiar to
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many investors and it is widely accepted as a reference for common stock
investments.
THE BOND INDEX PORTFOLIO
The Lehman Aggregate is composed of U.S. Government, mortgage-backed,
asset-backed, and non-convertible corporate debt securities that meet the
following criteria: the securities have at least $100 million par amount
outstanding; the securities are rated investment grade (at least Baa or BBB) by
Moody's Investors Service, Inc. ("Moody's") or S&P (if not rated by Moody's);
have at least one year until maturity; and have coupons with fixed rates. The
Lehman Aggregate excludes collateralized mortgage obligations ("CMOs"),
adjustable rate mortgages, manufactured homes, non-agency bonds, buydowns,
graduated equity mortgages, project loans and non-conforming (i.e., "jumbo")
mortgages. As of December 31, 1995, over ____ issues were included in the
Lehman Aggregate, representing $____ in market value. U.S. Treasury and agency
securities represented ____% of the total market value, asset-backed and
mortgage-backed securities represented ____% of the total market value, with
corporate debt securities representing the balance of ____%. The average
maturity of the Lehman Aggregate was ____ years. The Adviser believes that the
Lehman Aggregate is an appropriate benchmark for the Portfolio because it is
diversified, it is familiar to investors, and it is widely accepted as a
reference for bonds and other fixed income investments.
Because of the large number of issues included in the Lehman
Aggregate, the Portfolio cannot invest in all such issues. Instead, the
Portfolio will hold a representative sample of the securities in the Lehman
Aggregate, selecting one or two issues to represent an entire "class" or type
of securities in the Lehman Aggregate. At a minimum, the Portfolio seeks to
hold securities which reflect the major asset classes in the Lehman Aggregate -
U.S. Treasury and agency issues, mortgage-backed securities, asset-backed
securities and non-convertible corporate debt securities. As the Portfolio's
assets increase, these classes will be further delineated along the lines of
sector, term-to-maturity, coupon and credit ratings. This sampling technique
is expected to be an effective means of substantially duplicating the price and
performance provided by the securities comprising the Lehman Aggregate.
Securities rated Baa by Moody's or BBB by S&P 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.
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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. 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, Government National Mortgage
Association ("GNMA"), Federal National Mortgage Association ("FNMA"), Federal
Home Loan Mortgage Corporation ("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 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.
MONEY MARKET INSTRUMENTS. Under certain circumstances described
above, each Portfolio may purchase "money market instruments," including
commercial paper and bank obligations.
Investment by the Portfolios in commercial paper will consist of
issues that are rated at the time of purchase in one of the two highest rating
categories assigned by S&P, Moody's or another nationally recognized
statistical rating organization (each a "Rating Agency") or, if unrated, deemed
to be of comparable quality by the Adviser at the time of purchase. Commercial
paper may include variable and floating rate instruments. See "Other
Applicable Policies -- Variable and Floating Rate Instruments" below.
Bank obligations include bankers' acceptances, negotiable certificates
of deposit and non-negotiable time deposits of U.S. or foreign banks, having
total assets at the time of purchase in excess of $1 billion. Although the
Portfolios may invest in
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obligations of foreign banks or foreign branches of U.S. banks only when the
Adviser determines that the instrument presents minimal credit risks, such
investments nevertheless entail risks that are different from those of
investments in domestic obligations of U.S. banks. 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. Investments in the
obligations of foreign banks or foreign branches of U.S. banks will not exceed
25% of a particular Portfolio's total assets at the time of purchase.
REPURCHASE AGREEMENTS. Under certain circumstances described above
and subject to their respective investment policies, the Portfolios 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 believes to be
creditworthy. During the term of any repurchase agreement, the 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 the 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 the
Portfolios presently do not intend to enter into repurchase agreements
providing for settlement in more than seven days, the Portfolios have the
authority to do so subject to their limitation on the purchase of illiquid
securities described below. Repurchase agreements are considered to be loans
under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS. Subject to their respective investment
policies and limitations, the Portfolios may borrow funds for temporary
purposes by entering into reverse repurchase agreements. 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 may, from time to time, lend portfolio securities to broker- dealers,
banks or institutional borrowers pursuant to
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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 or marketable securities. 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 marketable securities
are used as collateral. In accordance with current Securities and Exchange
Commission ("SEC") policies, each Portfolio is currently limiting its
securities lending to 33-1/3% of its aggregate net assets. Loans are subject
to termination by a Portfolio or the borrower at any time.
OPTIONS. The 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 indexes.
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.
The 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 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 either
Portfolio. (For additional information relating to option trading practices,
including particular risks, see the Statement of Additional Information.)
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FUTURES CONTRACTS AND RELATED OPTIONS. The Portfolios may invest in
futures contracts and options on futures contracts. Such transactions,
including stock or bond index futures contracts, or options thereon, can be
used to simulate full investment in the S&P 500 or Lehmen Aggregate while
retaining a cash balance for Portfolio management purposes, or act as a hedge
to protect a Portfolio from fluctuations in the value of its securities caused
by anticipated changes in interest rates 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 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
bonds in the index is contemplated. Similarly, it may be in the best interest
of the Bond Index 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 either Portfolio. Neither Portfolio 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.)
ASSET-BACKED SECURITIES. The Bond Index 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 included in the Lehman Aggregate and which are issued by entities such as
the GNMA, FNMA, 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
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"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. 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 Bond Index 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 also decline or 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.
DEPOSITORY RECEIPTS. Each Portfolio may invest in receipts that are
issued by banks or brokerage firms and are created by depositing securities
listed in the respective index into a special account at a custodian bank. The
custodian holds such securities for the benefit of the registered owners of the
certificates or receipts. The custodian arranges for the issuance of the
certificates or receipts evidencing ownership and maintains the register. The
Portfolio may invest in index-based depository receipts in lieu of investment
in the actual securities that are listed on the index.
VARIABLE AND FLOATING RATE INSTRUMENTS. Each Portfolio may purchase
rated or unrated variable and floating rate instruments. These instruments may
include 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
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payment obligation. A Portfolio could, for these or other reasons, suffer a
loss with respect to such instruments.
SECURITIES OF OTHER INVESTMENT COMPANIES. Under certain circumstances
described above and subject to its investment policies, each Portfolio may
invest in securities issued by other investment companies 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 distribution fees as well as other types of
commissions or charges. Such charges will be payable by the Portfolio and,
therefore, will be borne indirectly by its shareholders. (See the Statement of
Additional Information under "Investment Objectives and Policies -- Securities
of Other Investment Companies.")
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. 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. Neither Portfolio intends to
engage in such transactions for speculative purposes but only for the purpose
of acquiring portfolio securities.
ILLIQUID SECURITIES. A Portfolio will not knowingly invest more than
15% 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 this
15% limit (unless the Adviser, pursuant to guidelines established by the Fund's
Board of Directors, determines that a liquid market exists). The Adviser
expects that less than 5% of each Portfolio's net assets will be invested in
Rule 144A securities during the current year.
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INVESTMENT RISKS AND OTHER CONSIDERATIONS. A Portfolio's ability to
correlate its performance with an index may be affected by, among other things,
changes in the securities markets, the manner in which the index is calculated
and the timing of purchases and redemptions of the Portfolio's shares. The
Fund expects the investments of each Portfolio to decline in value whenever the
market, as represented by the securities in its index, declines. The Equity
Index Portfolio should exhibit price volatility similar to that of the S&P 500.
It is impossible to eliminate risk from investments in common stocks. The
average annual total return of the U.S. stock market, as measured by Ibbotson
Associates, from 1926 to 1995 was _____%. Returns in individual calendar years
ranged from a low of -43.3% (in 1931) to a high of 53.9% (in 1933). You should
consider your investment in the Equity Index Portfolio to be long-term. This
Portfolio is not designed to provide you with a means to speculate on
short-term movements in the stock market.
The Bond Index Portfolio should exhibit price and yield volatility
similar to that of the Lehman Aggregate. Generally, the market value of fixed
income securities 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, such
as the Bond Index Portfolio, will tend to increase, and during periods of
rising interest rates, the market value will tend to decrease. In addition,
during periods of declining interest rates, the yields of investment portfolios
comprised primarily of fixed income securities will tend to be higher than
prevailing market rates and, in periods of rising interest rates, yields will
tend to be somewhat lower. 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 the Portfolio's net asset value.
PORTFOLIO TRANSACTIONS. All orders for transactions in securities or
options on behalf of the Portfolios are placed by the 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.
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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."
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)
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 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 may 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 the
Portfolio in connection with such transactions), and securities held
in escrow or separate accounts in connection
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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 and make other
investments in accordance with its investment objective and policies,
and enter into repurchase agreements.
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 securities will not constitute a violation of such
limitation.
In order to permit the sale of a Portfolio's Shares in certain states,
each Portfolio may make commitments more restrictive than the investment
policies and limitations described above. Should the 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.
PRICING OF SHARES
The Portfolios' respective net asset values per Share are determined
by the Administrator as of the close of regular trading hours on the New York
Stock 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 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).
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
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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 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.)
The public offering price for each class of Shares is based upon net
asset value per Share plus, in the case of Investor A Shares, 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.
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 the 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
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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.
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.
EXCHANGE PRIVILEGE
The exchange privilege enables shareholders to exchange Institutional
Shares of a Portfolio for Institutional Shares of another Portfolio offered by
the Fund or, under certain circumstances described below, for Investor A Shares
of the same Portfolio. Exchanges for Institutional Shares in another Portfolio
are effected without payment of any exchange or sales charges. In addition,
Institutional Shares of a Portfolio may 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. The exchanges are
made without a sales charge at the net asset value of the respective share
class.
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.
In addition to the Portfolios described in this Prospectus, the Fund
currently offers Institutional Shares in the following Portfolios:
o The ARCH Money Market Portfolio
o The ARCH Treasury Money Market Portfolio
o The ARCH Growth & Income Equity Portfolio
o The ARCH Equity Income Portfolio*
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o The ARCH Emerging Growth Portfolio
o The ARCH International Equity Portfolio
o The ARCH Balanced Portfolio
o The ARCH Government & Corporate Bond Portfolio
o The ARCH Short-Intermediate Corporate Bond Portfoli*
o The ARCH U.S. Government Securities Portfolio
For information concerning these Portfolios, please call
1-800-551-3731. Shareholders exercising the exchange privilege with any of the
other Portfolios in the Fund should request and review the Portfolio's
Prospectus carefully prior to making an exchange.
_______________________
* Expected to commence operations in 1997.
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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. Proceeds from
redemptions of Institutional Shares of the Portfolios with respect to
redemption orders received and accepted 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. 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.
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, damage, expense or cost arising out of any
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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.
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.
YIELDS AND TOTAL RETURNS
Yield and total return quotations are computed separately for Trust
Shares, Institutional Shares and Investor A 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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From time to time, performance information such as total return and
yield data for the 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 such
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 the 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.
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 S&P, Lehman Brothers, or any of its affiliates,
Ibbotson Associates, Inc., Lipper Analytical Services, Inc. and Mutual Fund
Forecaster. 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.
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DIVIDENDS AND DISTRIBUTIONS
THE EQUITY INDEX PORTFOLIO
Net investment income for the Equity Index Portfolio is declared and
paid monthly as a dividend to shareholders of record. Shares of the
Portfolio earn dividends from the day after the purchase order is received by
the Fund through the day the redemption order for such Shares is received.
Dividends on each Share of the Portfolio are determined in the same manner and
are paid in the same amount, irrespective of class, except that the Portfolio's
Trust Shares and Institutional Shares bear all expenses of the respective
Administrative Services Plans adopted for such Shares and the Portfolio's
Investor A Shares bear all expenses of the Distribution and Services Plan
adopted for such Shares. (See "Management of the Fund" and "Other Information
Concerning the Fund and Its Shares".)
THE BOND INDEX PORTFOLIO
Dividends from net investment income of the Bond Index Portfolio are
declared daily and paid monthly not later than five Business Days after the end
of each month. Shares of the Portfolio earn dividends from the day after the
purchase order is received by the Fund 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 the Portfolio's Trust Shares and Institutional Shares bear
all expenses of the respective Administrative Services Plans adopted for such
Shares and the Portfolio's Investor A Shares bear all expenses of the
Distribution and Services Plan adopted for such Shares. (See "Management of
the Fund" and "Other Information Concerning the Fund and Its Shares".)
OTHER DIVIDEND AND DISTRIBUTION INFORMATION
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 on 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 intends to qualify as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Code"), 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 generally is exempt from federal income tax on
amounts distributed to shareholders.
Qualification as a regulated investment company under 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 exempt- interest income (if any) net of
certain deductions for such year. 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 for the taxable year over the net
short-term capital loss, if any, for such year. It is the policy of the
Portfolios 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 Equity Index Portfolio, such dividends will qualify for the
dividends received deduction for corporations to the extent of the total
qualifying dividends received by the Portfolio from domestic corporations for
the taxable year.
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 dividends are received
in cash or reinvested in additional Shares.
An investor considering purchasing Shares of a Portfolio on or just
before the record date of any capital gains distribution (or in the case of the
Equity Index Portfolio, the record date of any dividend or capital gains
distribution) should be aware that
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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 the shareholders and paid by the
Portfolio on December 31 of such year in the event 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 to properly 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, depending upon the cost of such Shares when
purchased 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.
STATE AND LOCAL TAXES
The application of state and local taxes may have different
consequences from those of the federal income tax law described above. In
particular, 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.
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 income tax consequences of distributions made each
year.
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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
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 June 30, 1996, MVA had
approximately $7.3 billion in assets under investment management, including the
Fund's assets, which were approximately $2.3 billion. MVA also serves as
investment adviser to each of the Fund's other 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, at the annual rates of .30% and .30% of the average daily
net assets of the Equity Index and Bond Index Portfolios, respectively.
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.
ADMINISTRATOR
BISYS Fund Services Ohio, Inc., located at 3435 Stelzer Road,
Columbus, Ohio 43219, acts as the Portfolios' Administrator. The Administrator
also serves as the administrator to each of the Fund's other 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 Portfolios' arrangements with Service Organizations under the
Services Plan described below. For its services, the Administrator is entitled
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to receive a fee, computed daily and payable monthly, at the annual rate of
.20% of each Portfolio's average daily net assets.
From time to time, the Administrator may voluntarily waive all or a
portion of the fees otherwise payable by a Portfolio in order to increase the
net income available for distribution to shareholders.
DISTRIBUTOR
Institutional Shares of each Portfolio are sold continuously by the
Distributor, BISYS Fund Services ("BISYS"), 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 to each
of the Fund's other 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 .30% of the average daily net assets of a Portfolio's
Institutional Shares owned beneficially by a Service Organization's customers.
SERVICE ORGANIZATIONS
The servicing agreements adopted under the Administrative Services
Plan (collectively, 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, assisting customers in processing
purchase, exchange and redemption requests, and responding to customer
inquiries concerning their investments.
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
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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 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. 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.
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 Plan (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
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the Fund's 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 is classified as a diversified company under the 1940
Act: 25 million Trust Shares, 25 million Institutional Shares and 25 million
Investor A Shares, representing interests in the Equity Index Portfolio; and 25
million Trust Shares, 25 million Institutional shares and 25 million Investor A
Shares, representing interests in the Bond Index Portfolio. Investor A Shares
and Trust Shares of these Portfolios are described in separate prospectuses
which are available from the Distributor at the telephone number on the cover
of this Prospectus. The Board of Directors has also authorized the issuance of
additional classes of shares representing interests in other investment
portfolios of the Fund, which are likewise described in separate prospectuses
available from the Distributor. Shares in the Portfolios will be issued
without Share certificates.
The Institutional Shares of the Portfolios are described in this
Prospectus. The Portfolios also offer Trust Shares and Investor A 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 of the Portfolios are sold with a maximum 2.5%
front-end sales charge. Investor A Shares are sold through selected
broker/dealers and other financial intermediaries to individual or
institutional customers. Trust Shares, Institutional Shares
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and Investor A 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 a Portfolio's respective Administrative Services Plans adopted
for such Shares and Investor A Shares bear all payments under a Portfolio's
Distribution and Services Plan adopted for such Shares. In addition,
Institutional Shares of the Portfolios bear the expense of certain sub-transfer
agency fees.
Payments under the Administrative Services Plan 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 .30% (on an annual basis) of the average daily net asset value of a
Portfolio's outstanding Trust Shares.
Payments under the Distribution and Services Plan for Investor A
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. Payments under the Distribution and Services Plan for
Investor A Shares may not exceed .30% (on an annual basis) of the average daily
net asset value of the outstanding Investor A Shares of a Portfolio.
Distribution payments made under the Distribution and Services Plan 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 of the Portfolios that are not offered in connection with its
Trust Shares or Institutional Shares, including an automatic investment program
and an 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 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
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pertaining to the Distribution and Services Plan for Investor A 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 Fund's 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.
As of __________, 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.
For information with respect to Institutional Shares of the Fund's
other investment portfolios, call 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
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 EQUITY INDEX
PORTFOLIOS, THE FUND, OR THE PORTFOLIO
DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFERING BY THE BOND INDEX
PORTFOLIOS, THE FUND OR THE DISTRIBUTOR PORTFOLIO
IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
___________________
INSTITUTIONAL SHARES
TABLE OF CONTENTS
PAGE
Highlights . . . . . . . . . . . . . .
Certain Financial
Information . . . . . . . . . . . . .
Expense Summary for
Institutional Shares . . . . . . . .
Financial Highlights . . . . . . . . .
Investment Objectives, Policies
and Risk Considerations . . . . . . .
Pricing of Shares . . . . . . . . . . . [OLD LOGO]
How to Purchase and
Redeem Shares . . . . . . . . . . . .
Purchase of Shares . . . . . .
Exchange Privilege . . . . . .
Redemption of Shares . . . . .
Other Exchange or
Redemption
Information . . . . . . . .
Yields and Total Returns . . . . . . . PROSPECTUS
Dividends and Distributions . . . . . . ________, 1996
Taxes . . . . . . . . . . . . . . . . .
Management of the Fund . . . . . . . .
Other Information
Concerning the Fund
and its Shares . . . . . . . . . . .
Miscellaneous . . . . . . . .
-35-
<PAGE> 74
PAGE
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> 75
CROSS REFERENCE SHEET
(Investor A SHARES)
The ARCH Equity Index Portfolio
The ARCH Bond Index Portfolio
<TABLE>
<CAPTION>
Form N-1A Part A Item Prospectus Caption
- --------------------- ------------------
<S> <C>
1. Cover Page.................................................... Cover Page
2. Synopsis...................................................... Expense Summary
for Investor A Shares
3. Condensed Financial
Information................................................. Certain Financial
Information; 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> 76
THE ARCH FUND(R), INC.
THE ARCH EQUITY INDEX PORTFOLIO
THE ARCH BOND INDEX PORTFOLIO
INVESTOR A 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. is an open-end management investment company
authorized to issue Shares in seventeen investment portfolios. This Prospectus
describes the Investor A Shares of The ARCH EQUITY INDEX and BOND INDEX
PORTFOLIOS. Investor A Shares are sold through selected broker/dealers and
other financial intermediaries to individual customers. Investor A Shares are
sold with a front-end sales charge.
The Portfolios use a strategy called "indexing", which means that they
seek to provide investment results that, before deduction of operating
expenses, approximate the price and yield performance of particular sets of
securities or market segments. The Portfolios' market segments are:
THE ARCH EQUITY INDEX PORTFOLIO - U.S. publicly traded common stocks with
large stock market capitalizations as represented by the Standard & Poor's 500
Composite Stock Price Index (the "S&P 500").
THE ARCH BOND INDEX PORTFOLIO - U.S. Government, mortgage-backed,
asset-backed, and corporate debt securities as represented by the Lehman
Brothers Aggregate Bond Index (the "Lehman Aggregate").
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.
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 __________, 1996, has been filed with the Securities and
Exchange Commission and is incorporated by reference in its
<PAGE> 77
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.
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.
______________, 1996
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<PAGE> 78
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 "1940 Act"). The Fund offers investment
opportunities in seventeen investment portfolios. This Prospectus relates to
two of those portfolios: the ARCH EQUITY INDEX and BOND INDEX PORTFOLIOS (the
"Portfolios"). In addition, the Fund offers investment opportunities in the
ARCH Money Market, Treasury Money Market, Tax-Exempt Money Market, Growth &
Income Equity, Equity Income, Emerging Growth, International Equity, Balanced,
Government & Corporate Bond, Short-Intermediate Corporate Bond, U.S. Government
Securities, Short-Intermediate Municipal, National Municipal Bond, Missouri
Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios, which are described in
separate Prospectuses. 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. (For
information on expenses, fee waivers and services, see "Certain Financial
Information" 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 Equity Index Portfolio is designed for investors who are willing to
accept the risks associated with an investment in equity securities, and who
seek investment results that, before deduction for operating expenses,
approximate the price and yield performance of U.S. publicly traded common
stocks with large stock market capitalizations, as represented by the S&P 500.
The Bond Index Portfolio is designed for investors who are willing to
accept the risks associated with an investment in fixed income securities, and
who seek investment results that, before deduction for operating expenses,
approximate the price and yield performance of U.S. Government,
mortgage-backed, asset-backed, and corporate debt securities, as represented by
the Lehman Aggregate.
Investors should note that one or more of the Portfolios may, subject to
their investment policies and limitations, enter into repurchase agreements and
reverse repurchase agreements, make securities loans, invest in options and
futures and index-based depository receipts, and make limited investments in
illiquid securities and securities issued by other investment companies. These
investment practices involve investment risks of varying degrees. For
example, the absence of
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<PAGE> 79
a secondary market for a particular variable or floating rate instrument could
make it difficult for a Portfolio to dispose of an instrument if the issuer
were to default on its payment obligation. Default by a counterparty to a
repurchase agreement or securities lending transaction could expose a Portfolio
to loss because of adverse market action or possible delay in disposing of the
underlying collateral. Reverse repurchase agreements are subject to the risk
that the market value of the securities sold by a Portfolio will decline below
the repurchase price which the Portfolio is obligated to pay. Purchasing
options is a specialized investment technique which entails a substantial risk
of loss of amounts paid as premiums to option writers. There is no assurance
that a liquid market will exist for a particular futures contract at any
particular time. 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 Fund also offers the availability of a
family of seventeen mutual funds should your investment goals change.
This Prospectus describes the Investor A Shares of the Portfolios.
Investor A Shares are sold with a front-end sales charge. For information on
purchasing, exchanging or redeeming Investor A Shares of these Portfolios,
please see "How to Purchase and Redeem Shares" below.
-4-
<PAGE> 80
CERTAIN FINANCIAL INFORMATION
Shares of each 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 relating to these fees. (See "Other
Information Concerning the Fund and Its Shares," "Management of the Fund --
Distribution and Services Plan" and "Management of the Fund -- 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 and Investor A Shares in a Portfolio can be
expected, at any given time, to be different.
-5-
<PAGE> 81
EXPENSE SUMMARY FOR
INVESTOR A SHARES
<TABLE>
<CAPTION>
EQUITY BOND
INDEX INDEX
PORTFOLIO PORTFOLIO
--------- ---------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Load Imposed on
Purchases (as a percentage of
offering price)1 . . . . . . . 2.5% 2.5%
ANNUAL PORTFOLIO OPERATING
EXPENSES
(as a percentage of average
net assets)
Investment Advisory Fees (net
of fee waivers)2 . . . . . . . 0.00% 0.00%
12b-1 Fees, including
distribution and services
fees . . . . . . . . . . . . 0.30% 0.30%
Other Expenses (including
administration fees
and other expenses) (net
of fee waivers and expense
reimbursements)3,4 . . . . . . 0.29% 0.29%
----- -----
TOTAL PORTFOLIO OPERATING
EXPENSES (net of fee waivers
and expense reimbursements)4 . 0.59% 0.59%
===== =====
- --------------------
</TABLE>
1 Reduced sales charges may be available. See "How to Purchase and
Redeem Shares".
2 Without fee waivers, advisory fees for each Portfolio would be .30%.
3 Without fee waivers, administration fees for each Portfolio would be
.20%.
4 Without fee waivers and expense reimbursements, Other Expenses for
each Portfolio would be .69% and Total Portfolio Operating Expenses
for each Portfolio would be .99%.
-6-
<PAGE> 82
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
------ -------
<S> <C> <C>
You would pay the following
expenses on a $1,000 investment,
assuming (1) a 5% annual return,
(2) redemption at the end of
each period and (3) deduction at
time of purchase of maximum
applicable front-end sales charge:
Equity Index Portfolio . . . . . . . . . . . . $31 $43
Bond Index Portfolio . . . . . . . . . . . . . $31 $43
</TABLE>
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OR RATES OF RETURN. THE PORTFOLIOS ARE NEW AND ACTUAL
EXPENSES AND RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN. Information
about the actual performance of the Portfolios will be contained in the Fund's
future Annual Reports to Shareholders, which may be obtained without charge
when they become available 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 Shares
will bear directly or indirectly. The tables reflect the expenses which each
Portfolio expects to incur during the next twelve months on its Investor A
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 example 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 may pay more than the economic equivalent of the maximum front-end
sales load permitted by the National Association of Securities Dealers, Inc.
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<PAGE> 83
INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS
The Fund offers you two indexed investment options:
The Equity Index Portfolio seeks to provide investment results that,
before deduction of operating expenses, approximate the price and yield
performance of U.S. publicly traded common stocks with large stock market
capitalizations as represented by the S&P 500.
The Bond Index Portfolio seeks to provide investment results that,
before deduction of operating expenses, approximate the price and yield
performance of U.S. Government, mortgaged-backed, asset-backed and corporate
debt securities as represented by the Lehman Aggregate.
The investment objective of a Portfolio (other than the fundamental
investment polices described below under "Investment Limitations") may be
changed by the Fund's Board of Directors without shareholder approval.
However, shareholders will be given at least 30 days' written notice before any
such change occurs. 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 INDEXING APPROACH
The Equity Index and Bond Index Portfolios are not managed in a
traditional sense, that is, by making discretionary judgments based on analysis
of economic, financial and market conditions. Instead, these Portfolios seek
to approximate the investment performance of their respective market segments,
as represented by their respective indexes, through the use of sophisticated
computer models to determine which stocks or bonds should be purchased or sold,
while keeping transaction and administrative costs to a minimum. Under normal
market and economic conditions, each Portfolio will invest at least 65% of its
total assets in securties listed in that Portfolio's respective index. The
Adviser generally selects securities for each Portfolio on the basis of their
weightings in the respective indexes. A Portfolio will only purchase a
security that is included in its respective index at the time of such purchase.
With respect to the remaining portion of its net assets, each Portfolio has the
ability to hold temporary cash balances which may be invested in U.S.
Government obligations and money market investments. If appropriate, each
Portfolio may use options, futures contracts and depository receipts to
increase efficiency. Each Portfolio also may enter into reverse repurchase
agreements and lend its portfolio securities.
While there can be no guarantee that each Portfolio's investment
results will precisely match the results of its corresponding index, the
Adviser believes that, before deduction
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<PAGE> 84
of operating expenses, there will be a very high correlation between the
returns generated by the Portfolios and their respective indexes. A perfect
correlation would be achieved when a Portfolio's net asset value, including the
value of its dividend and capital gains distributions, increases or decreases
in exact proportion to changes in its respective index. Each Portfolio's
ability to correlate its performance with its respective index, however, may be
affected by, among other things, transaction costs, changes in securities
markets, the manner in which Standard & Poor's Ratings Group ("S&P") or Lehman
Brothers ("Lehman") calculate their respective indexes, and the timing of
purchases and redemptions. The Adviser monitors the correlation of the
performance of the Portfolios in relation to their indexes under the
supervision of the Board of Directors.
THE INCLUSION OF A SECURITY IN EITHER OF THE PORTFOLIOS' INDEXES IN NO
WAY IMPLIES AN OPINION BY S&P OR LEHMAN AS TO ITS ATTRACTIVENESS AS AN
INVESTMENT. S&P AND LEHMAN ARE NOT SPONSORS OF, OR IN ANY WAY AFFILIATED WITH,
THE PORTFOLIOS.
The Adviser believes that the indexing approach should involve less
portfolio turnover, and thus lower brokerage costs, transfer taxes and
operating expenses, than in more traditionally managed funds, although there is
no assurance that this will be the case. Ordinarily, a Portfolio will buy or
sell securities only to reflect changes in an index (including mergers or
changes in the composition of an index) or to accommodate cash flows into and
out of the Portfolio. The costs and other expenses incurred in securities
transactions, apart from any difference between the investment results of a
Portfolio and that of its respective index, may cause the return of a Portfolio
to be lower than the return of its respective index. The Portfolios may invest
in less than all of the securities included in their respective indexes, which
may result in a return that does not correspond with that of the indexes, after
taking expenses into account.
THE EQUITY INDEX PORTFOLIO
The S&P 500 is composed of approximately 500 common stocks, most of
which are listed on the New York Stock Exchange (the "NYSE"). S&P chooses the
stocks for the S&P 500 on a statistical basis. As of December 31, 1995 the
stocks in the S&P 500 have an average market capitalization of ___ billion and
account for approximately __% of the total market value of all U.S. common
stocks. Normally, the Equity Index Portfolio will hold all 500 stocks in the
S&P 500 and will hold each stock in approximately the same percentage as that
stock represents in the S&P 500. "Market capitalization" for a company is the
market price per share of stock multiplied by the number of shares outstanding.
The Adviser believes that the S&P 500 is an appropriate benchmark for the
Portfolio because it is diversified, it is familiar to
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<PAGE> 85
many investors and it is widely accepted as a reference for common stock
investments.
THE BOND INDEX PORTFOLIO
The Lehman Aggregate is composed of U.S. Government, mortgage-backed,
asset-backed, and non-convertible corporate debt securities that meet the
following criteria: the securities have at least $100 million par amount
outstanding; the securities are rated investment grade (at least Baa or BBB) by
Moody's Investors Service, Inc. ("Moody's") or S&P (if not rated by Moody's);
have at least one year until maturity; and have coupons with fixed rates. The
Lehman Aggregate excludes collateralized mortgage obligations ("CMOs"),
adjustable rate mortgages, manufactured homes, non-agency bonds, buydowns,
graduated equity mortgages, project loans and non-conforming (i.e., "jumbo")
mortgages. As of December 31, 1995, over ____ issues were included in the
Lehman Aggregate, representing $____ in market value. U.S. Treasury and agency
securities represented ____% of the total market value, asset-backed and
mortgage-backed securities represented ____% of the total market value, with
corporate debt securities representing the balance of ____%. The average
maturity of the Lehman Aggregate was ____ years. The Adviser believes that the
Lehman Aggregate is an appropriate benchmark for the Portfolio because it is
diversified, it is familiar to investors, and it is widely accepted as a
reference for bonds and other fixed income investments.
Because of the large number of issues included in the Lehman
Aggregate, the Portfolio cannot invest in all such issues. Instead, the
Portfolio will hold a representative sample of the securities in the Lehman
Aggregate, selecting one or two issues to represent an entire "class" or type
of securities in the Lehman Aggregate. At a minimum, the Portfolio seeks to
hold securities which reflect the major asset classes in the Lehman Aggregate -
U.S. Treasury and agency issues, mortgage-backed securities, asset-backed
securities and non-convertible corporate debt securities. As the Portfolio's
assets increase, these classes will be further delineated along the lines of
sector, term-to-maturity, coupon and credit ratings. This sampling technique
is expected to be an effective means of substantially duplicating the price and
performance provided by the securities comprising the Lehman Aggregate.
Securities rated Baa by Moody's or BBB by S&P 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.
-10-
<PAGE> 86
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. 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, Government National Mortgage
Association ("GNMA"), Federal National Mortgage Association ("FNMA"), Federal
Home Loan Mortgage Corporation ("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 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.
MONEY MARKET INSTRUMENTS. Under certain circumstances described
above, each Portfolio may purchase "money market instruments," including
commercial paper and bank obligations.
Investment by the Portfolios in commercial paper will consist of
issues that are rated at the time of purchase in one of the two highest rating
categories assigned by S&P, Moody's or another nationally recognized
statistical rating organization (each a "Rating Agency") or, if unrated, deemed
to be of comparable quality by the Adviser at the time of purchase. Commercial
paper may include variable and floating rate instruments. See "Other
Applicable Policies -- Variable and Floating Rate Instruments" below.
Bank obligations include bankers' acceptances, negotiable certificates
of deposit and non-negotiable time deposits of U.S. or foreign banks, having
total assets at the time of purchase in excess of $1 billion. Although the
Portfolios may invest in
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<PAGE> 87
obligations of foreign banks or foreign branches of U.S. banks only when the
Adviser determines that the instrument presents minimal credit risks, such
investments nevertheless entail risks that are different from those of
investments in domestic obligations of U.S. banks. 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. Investments in the
obligations of foreign banks or foreign branches of U.S. banks will not exceed
25% of a particular Portfolio's total assets at the time of purchase.
REPURCHASE AGREEMENTS. Under certain circumstances described above
and subject to their respective investment policies, the Portfolios 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 believes to be
creditworthy. During the term of any repurchase agreement, the 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 the 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 the
Portfolios presently do not intend to enter into repurchase agreements
providing for settlement in more than seven days, the Portfolios have the
authority to do so subject to their limitation on the purchase of illiquid
securities described below. Repurchase agreements are considered to be loans
under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS. Subject to their respective investment
policies and limitations, the Portfolios may borrow funds for temporary
purposes by entering into reverse repurchase agreements. 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 may, from time to time, lend portfolio securities to broker-dealers,
banks or institutional borrowers pursuant to
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<PAGE> 88
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 or marketable securities. 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 marketable securities
are used as collateral. In accordance with current Securities and Exchange
Commission ("SEC") policies, each Portfolio is currently limiting its
securities lending to 33-1/3% of its aggregate net assets. Loans are subject
to termination by a Portfolio or the borrower at any time.
OPTIONS. The 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 indexes.
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.
The 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 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 either
Portfolio. (For additional information relating to option trading practices,
including particular risks, see the Statement of Additional Information.)
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<PAGE> 89
FUTURES CONTRACTS AND RELATED OPTIONS. The Portfolios may invest in
futures contracts and options on futures contracts. Such transactions,
including stock or bond index futures contracts, or options thereon, can be
used to simulate full investment in the S&P 500 or Lehman Aggregate while
retaining a cash balance for Portfolio management purposes, or act as a hedge
to protect a Portfolio from fluctuations in the value of its securities caused
by anticipated changes in interest rates 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 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
bonds in the index is contemplated. Similarly, it may be in the best interest
of the Bond Index 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 either Portfolio. Neither Portfolio 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.)
ASSET-BACKED SECURITIES. The Bond Index 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 included in the Lehman Aggregate and which are issued by entities such as
the GNMA, FNMA, 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
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"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. 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 Bond Index 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 also decline or 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.
DEPOSITORY RECEIPTS. Each Portfolio may invest in receipts that are
issued by banks or brokerage firms and are created by deposting securities
listed in the respective index into a special account at a custodian bank. The
custodian holds such securities for the benefit of the registered owners of the
certificates or receipts. The custodian arranges for the issuance of the
certificates or receipts evidencing ownership and maintains the register. The
Portfolios may invest in index-based depository receipts in lieu of investment
in the actual securities that are listed on the index.
VARIABLE AND FLOATING RATE INSTRUMENTS. Each Portfolio may purchase
rated or unrated variable and floating rate instruments. These instruments may
include 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
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payment obligation. A Portfolio could, for these or other reasons, suffer a
loss with respect to such instruments.
SECURITIES OF OTHER INVESTMENT COMPANIES. Under certain circumstances
described above and subject to its investment policies, each Portfolio may
invest in securities issued by other investment companies 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 distribution fees as well as other types of
commissions or charges. Such charges will be payable by the Portfolio and,
therefore, will be borne indirectly by its shareholders. (See the Statement of
Additional Information under "Investment Objectives and Policies -- Securities
of Other Investment Companies.")
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. 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. Neither Portfolio intends to
engage in such transactions for speculative purposes but only for the purpose
of acquiring portfolio securities.
ILLIQUID SECURITIES. A Portfolio will not knowingly invest more than
15% 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 this
15% limit (unless the Adviser, pursuant to guidelines established by the Fund's
Board of Directors, determines that a liquid market exists). The Adviser
expects that less than 5% of each Portfolio's net assets will be invested in
Rule 144A securities during the current year.
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INVESTMENT RISKS AND OTHER CONSIDERATIONS. A Portfolio's ability to
correlate its performance with an index may be affected by, among other things,
changes in the securities markets, the manner in which the index is calculated
and the timing of purchases and redemptions of the Portfolio's shares. The
Fund expects the investments of each Portfolio to decline in value whenever the
market, as represented by the securities in its index, declines. The Equity
Index Portfolio should exhibit price volatility similar to that of the S&P 500.
It is impossible to eliminate risk from investments in common stocks. The
average annual total return of the U.S. stock market, as measured by Ibbotson
Associates, from 1926 to 1995 was _____%. Returns in individual calendar years
ranged from a low of -43.3% (in 1931) to a high of 53.9% (in 1933). You should
consider your investment in the Equity Index Portfolio to be long-term. This
Portfolio is not designed to provide you with a means to speculate on
short-term movements in the stock market.
The Bond Index Portfolio should exhibit price and yield volatility
similar to that of the Lehman Aggregate. Generally, the market value of fixed
income securities 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, such
as the Bond Index Portfolio, will tend to increase, and during periods of
rising interest rates, the market value will tend to decrease. In addition,
during periods of declining interest rates, the yields of investment portfolios
comprised primarily of fixed income securities will tend to be higher than
prevailing market rates and, in periods of rising interest rates, yields will
tend to be somewhat lower. 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 the Portfolio's net asset value.
PORTFOLIO TRANSACTIONS. All orders for transactions in securities or
options on behalf of the Portfolios are placed by the 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.
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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."
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)
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 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 may 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 the
Portfolio in connection with such transactions), and securities held
in escrow or separate accounts in connection
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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 and make other
investments in accordance with its investment objective and policies,
and enter into repurchase agreements.
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 securities will not constitute a violation of such
limitation.
In order to permit the sale of a Portfolio's Shares in certain states,
each Portfolio may make commitments more restrictive than the investment
policies and limitations described above. Should the 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.
PRICING OF SHARES
The Portfolios' respective net asset values per Share are determined
by the Administrator as of the close of regular trading hours on the New York
Stock 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 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).
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
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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 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.)
The public offering price for each class of Shares is based upon net
asset value per Share plus, in the case of Investor A Shares, 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.
HOW TO PURCHASE AND REDEEM SHARES
PURCHASE OF SHARES
Investor A Shares of each Portfolio are sold subject to a front-end
sales charge, and are sold through broker-dealers or other organizations acting
on behalf of their customers. Generally, investors purchase Investor A 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. The organization is
responsible for transmitting purchase orders directly to the Fund.
In general, the minimum initial investment in each Portfolio is $1,000
and the minimum subsequent investment is $100, except for investments made
through (a) the Automatic Investment Program, in which case the initial minimum
and subsequent minimum investments are $50, (b) a sweep 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
investment and minimum subsequent investments are $25 per month, or (d) a wrap
fee program, in which case there are no minimum investments. (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
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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. 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, 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
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. Subsequent
purchases of Shares of a Portfolio may be made at any time in at least the
subsequent minimum 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 day) of each month.
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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 Shares 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 investments. Dollar Cost Averaging can be useful in
investing in portfolios such as the Equity Index and Bond Index 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 regular fixed investment amount allows more Shares to be
purchased during periods of lower Share prices and fewer Shares 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
The public offering price for Investor A Shares of the 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 charges are assessed as follows:
<TABLE>
<CAPTION>
DEALERS'
AS A % OF AS A % OF REALLOWANCE
OFFERING NET ASSET AS A % OF
AMOUNT OF PRICE VALUE OFFERING
TRANSACTION PER SHARE PER SHARE PRICE
- ----------- --------- --------- -----------
<S> <C> <C> <C>
Less than $250,000. . . . . . . . . . 2.50% 2.56% 2.00%
$250,000 but less than $500,000 . . . 1.50 1.52 1.30
$500,000 but less than $1,000,000 . . 1.00 1.01 0.85
$1,000,000 and over . . . . . . . . . 0.50 0.50 0.40
</TABLE>
The Distributor will pay the appropriate Dealers' Reallowance to broker-dealer
organizations which have entered into an agreement
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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 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 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 AIP
(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. An investor who believes that he or she may qualify under any of
the exemptions listed above must notify his or her investment representative,
who in turn will notify the Distributor at the time of purchase.
REDUCED SALES CHARGES
The sales charge on purchases of Investor A Shares of the Portfolios
may be reduced through:
o rights of accumulation
o quantity discounts
o letter of intent
o reinvestment privilege
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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.
RIGHTS OF ACCUMULATION. An investor who has previously purchased
Investor A Shares of the 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. As shown in the table under "Applicable Sales
Charges - Investor A Shares," 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. 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
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
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the time of signing, but an investor must complete the intended purchase to
obtain the reduced sales load.
REINVESTMENT PRIVILEGE. 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. 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.
EXCHANGE PRIVILEGES
The exchange privilege enables shareholders to exchange 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. The exchange privilege may be
exercised only in those states where the class of Shares of such other
Portfolios may legally be sold.
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.
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 in a Portfolio for Trust Shares or
Institutional Shares in the same Portfolio.
OTHER INFORMATION ON EXCHANGES. 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.)
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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.
In addition to the Portfolios described in this Prospectus, the Fund
currently offers Investor A Shares in the following Portfolios:
o The ARCH Money Market Portfolio
o The ARCH Treasury Money Market Portfolio
o The ARCH Tax-Exempt Money Market Portfolio
o The ARCH Growth & Income Equity Portfolio
o The ARCH Equity Income Portfolio*
o The ARCH Emerging Growth Portfolio
o The ARCH International Equity Portfolio
o The ARCH Balanced Portfolio
o The ARCH Government & Corporate Bond Portfolio
o The ARCH Short-Intermediate Corporate Bond Portfolio*
o The ARCH U.S. Government Securities Portfolio
o The ARCH Short-Intermediate Municipal Portfolio
o The ARCH National Municipal Bond Portfolio
o The ARCH Missouri Tax-Exempt Bond Portfolio
o The ARCH Kansas Tax-Exempt Bond Portfolio*
For information concerning these Portfolios, please call
1-800-551-3731. Shareholders exercising the exchange privilege with any of the
other Portfolios in the Fund should request and review the Portfolio's
Prospectus carefully prior to making an exchange.
AUTOMATIC EXCHANGE PROGRAM. The Automatic Exchange Program enables
shareholders to make regular, automatic withdrawals from an Investor A 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
_________________
* Expected to commence operations in 1997.
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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 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 organization through which the
investor placed the order is responsible for transmitting redemption orders to
the Fund on a timely basis. Proceeds from redemptions of Investor A Shares of
the Portfolios with respect to redemption orders received and accepted 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 five Business Days after the Distributor's receipt of
the order in good form. 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, as amended.
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
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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 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, 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.
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. 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.
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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 a Portfolio 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 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.
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 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.
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YIELDS AND TOTAL RETURNS
Yield and total return quotations are computed separately for Trust
Shares, Institutional Shares and Investor A 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.
From time to time, performance information such as total return and
yield data for the Portfolios' Investor A Shares may be quoted in
advertisements or in communications to shareholders. The yield of a Portfolio
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 maximum public offering price 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 such
Shares reflect the average annual percentage change in value of an investment
in such Shares of the particular class 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 the
Portfolio during the period are reinvested in the same class 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 period might have been more or less than
the average for the entire period.
Performance data of the Portfolios' Investor A 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 S&P, Lehman Brothers or any of its affiliates, Ibbotson
Associates, Inc., Lipper Analytical Services, Inc., Mutual Fund Forecaster.
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,
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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 an investment
representative will not be included in the calculations of a 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 EQUITY INDEX PORTFOLIO
Net investment income for the Equity Index Portfolio is declared and
paid monthly as a dividend to shareholders of record. Shares of the Portfolio
earn dividends from the day after the purchase order is received by the Fund
through the day the redemption order for such Shares is received. Dividends on
each Share of the Portfolio are determined in the same manner and are paid in
the same amount, irrespective of class, except that the Portfolio's Trust Shares
and Institutional Shares bear all expenses of the respective Administrative
Services Plan adopted for such Shares and the Portfolio's Investor A Shares
bear all expenses of the Distribution and Services Plan adopted for such
Shares. (See "Management of the Fund" and "Other Information Concerning the
Fund and Its Shares".)
THE BOND INDEX PORTFOLIO
Dividends from net investment income of the Bond Index Portfolio are
declared daily and paid monthly not later than five Business Days after the end
of each month. Shares of the Portfolio earn dividends from the day after the
purchase order is received by the Fund 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 the Portfolio's Trust Shares and Institutional Shares bear
all expenses of the respective Administrative Services Plans adopted for such
Shares and the Portfolio's Investor A Shares bear all expenses of the
Distribution and Services Plan adopted for such Shares. (See "Management of
the Fund" and "Other Information Concerning the Fund and Its Shares".)
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OTHER DIVIDEND AND DISTRIBUTION INFORMATION
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 on 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 intends to qualify as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Code"), 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 generally is exempt from federal income tax on
amounts distributed to shareholders.
Qualification as a regulated investment company under 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 exempt-interest income (if any) net of
certain deductions for such year. 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 for the taxable year over the net
short-term capital loss, if any, for such year. It is the policy of the
Portfolios 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 Equity Index Portfolio, such dividends will qualify for the
dividends received deduction for corporations to the extent of the total
qualifying dividends received by the Portfolio from domestic corporations for
the taxable year.
Substantially all of each Portfolio's net realized long-term capital
gains, if any, will be distributed at least annually
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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
dividends are received in cash or reinvested in additional Shares.
An investor considering purchasing Shares of a Portfolio on or just
before the record date of any capital gains distribution (or in the case of the
Equity Index Portfolio, 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 the shareholders and paid by the
Portfolio on December 31 of such year in the event 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 to properly 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, depending upon the cost of such Shares when
purchased 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.
STATE AND LOCAL TAXES
The application of state and local taxes may have different
consequences from those of the federal income tax law described above. In
particular, 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.
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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 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
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 June 30, 1996, MVA had
approximately $7.3 billion in assets under investment management, including the
Fund's assets, which were approximately $2.3 billion. MVA also serves as
investment adviser to each of the Fund's other 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, at the annual rates of .30% and .30% of the average daily
net assets of the Equity Index and Bond Index Portfolios, respectively.
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.
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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
also serves as the administrator to each of the Fund's other 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 Portfolios' arrangements with Service Organizations under the
Distribution and 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.
From time to time, the Administrator may voluntarily waive all or a
portion of the fees otherwise payable by a Portfolio in order to increase the
net income available for distribution to shareholders.
DISTRIBUTOR
Investor A Shares of each Portfolio are sold continuously by the
Distributor, BISYS Fund Services ("BISYS"), an affiliate of the Administrator.
The Distributor also monitors the Fund's arrangements under the Distribution
and Services Plan described below. BISYS is a registered broker-dealer with
principal offices at 3435 Stelzer Road, Columbus, Ohio 43219. The Distributor
also acts as distributor to each of the Fund's other Portfolios.
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
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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 shareholders.
DISTRIBUTION AND SERVICES PLAN
The Fund has adopted a Distribution and Services Plan pursuant to Rule
12b-1 under the 1940 Act with respect to Investor A Shares of the Portfolios.
Under the Distribution and Services Plan, 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 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, including compensating dealers and other sales
personnel (which may include affiliates of the Fund's Adviser), direct
advertising 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. (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,
payment by the Fund for distribution expenses may not exceed .10% (annualized)
of the average daily net asset value of each Portfolio's outstanding Investor A
Shares and payments for shareholder administrative servicing expenses may not
exceed .20% (annualized) of the average daily net asset value of each
Portfolio's outstanding Investor A Shares.
SERVICE ORGANIZATIONS
The servicing agreements adopted under the Distribution and 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 Investor A 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.
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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 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 Service
Organizations receiving servicing fees should read this Prospectus in light of
the terms governing their accounts with their Service Organization.
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. 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.
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 Plan (as described under
"Distribution and Services Plan" above). 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
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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
the Fund's 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 is classified as a diversified company under the 1940
Act: 25 million Trust Shares, 25 million Institutional Shares and 25 million
Investor A Shares, representing interests in the Equity Index Portfolio; and 25
million Trust Shares, 25 million Institutional shares and 25 million Investor A
Shares, representing interests in the Bond Index Portfolio. Institutional and
Trust Shares of these Portfolios are described in separate prospectuses which
are available from the Distributor at the telephone number on the cover of this
Prospectus. The Board of Directors has also authorized the issuance of
additional classes of shares representing interests in other investment
portfolios of the Fund, which are likewise described in separate
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prospectuses available from the Distributor. Shares in the Portfolios will be
issued without Share certificates.
The Investor A Shares of the Portfolios are described in this
Prospectus. The Portfolios also offer Trust Shares and Institutional Shares.
Trust Shares, which are offered for financial institutions acting on their own
behalf or on behalf of certain qualified accounts, and 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. Trust, Institutional and Investor A 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 a Portfolio's respective
Administrative Services Plans adopted for such Shares and Investor A Shares
bear all payments under a Portfolio's Distribution and Services Plan 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 .30% (on an annual
basis) of the average daily net asset value of a Portfolio's outstanding Trust
Shares or Institutional Shares.
The Fund offers various services and privileges in connection with
Investor A Shares of the Portfolios that are not offered in connection with its
Trust Shares or Institutional Shares, including an automatic investment program
and an 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 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.
-39-
<PAGE> 115
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 Fund's 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 or class of shares means, with respect to the approval
of an investment advisory agreement or Distribution and Services 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 __________, 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.
For information with respect to Investor A Shares of the Fund's other
investment portfolios, call the Fund at 1-800-551-3731.
-40-
<PAGE> 116
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
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 EQUITY INDEX
PORTFOLIOS, THE FUND, OR THE PORTFOLIO
DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFERING BY THE BOND INDEX
PORTFOLIOS, THE FUND OR THE DISTRIBUTOR PORTFOLIO
IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
___________________
INVESTOR A SHARES
TABLE OF CONTENTS
PAGE
----
Highlights . . . . . . . . . . . . .
Certain Financial
Information . . . . . . . . . . . .
Expense Summary for
Investor A Shares . . . . . . . . .
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
Reduced Sales Charges. . . .
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
-41-
<PAGE> 117
PAGE
----
Redemption
Information . . . . . . .
Yields and Total Returns . . . . . . PROSPECTUS
Dividends and Distributions . . . . . ________, 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
-42-
<PAGE> 118
CROSS REFERENCE SHEET
The ARCH Equity Index Portfolio
The ARCH Bond Index Portfolio
Statement of Additional Information
<TABLE>
<CAPTION>
Heading in Statement of
Form N-1A Part B Item 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 Objective 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..................................................... Not Applicable
</TABLE>
<PAGE> 119
THE ARCH FUND(R), INC.
THE ARCH EQUITY INDEX PORTFOLIO
THE ARCH BOND INDEX PORTFOLIO
Statement of Additional Information
Part B
__________________, 1996
<PAGE> 120
THE ARCH FUND, INC.
Statement of Additional Information
for
The ARCH Equity Index Portfolio
The ARCH Bond Index Portfolio
______________, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
THE FUND . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . .
APPENDIX A . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
This Statement of Additional Information, which provides supplemental
information applicable to the ARCH Equity Index and Bond Index Portfolios, is
not a prospectus. It should be read only in conjunction with the Portfolios'
Prospectuses dated _______________, 1996 and is incorporated by reference in
its entirety into the Prospectuses. No investment in shares of either
Portfolio should be made without reading the relevant 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 (800) 551-3731. Capitalized
terms used but not defined herein have the same meanings as in each Prospectus.
-i-
<PAGE> 121
THE FUND
The ARCH Fund, Inc. (the "Fund") is an open-end investment company
currently offering fifty-five classes of shares in seventeen investment
portfolios.
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the description of the investment
objectives and policies of the Equity Index and Bond Index Portfolios (the
"Portfolios") described in the Prospectuses.
THE INDEXING APPROACH
In using sophisticated computer models to select securities, each
Portfolio will only purchase a security that is included in its respective
index at the time of such purchase. A Portfolio may, however, temporarily
continue to hold a security that has been deleted from its respective index
pending the rebalancing of the Portfolio's holdings.
EQUITY INDEX PORTFOLIO
As stated in the Prospectuses, the investment objective of the Equity
Index Portfolio is to provide investment results that, before deduction of
operating expenses, approximate the price and yield performance of U.S.
publicly traded common stocks with large stock market capitalizations as
represented by the Standard & Poor's 500 Composite Stock Price Index (the "S&P
500").
RIGHTS AND WARRANTS. The Equity Index 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 net assets, taken at market value, in rights or warrants, or more than
2% of its net assets, taken at market value, in rights or warrants not listed
on the New York, American or Canadian Stock Exchanges.
<PAGE> 122
Warrants acquired by the Portfolio in units or attached to other securities are
not subject to this restriction.
BOND INDEX PORTFOLIO
As stated in the Prospectuses, the investment objective of the Bond
Index Portfolio is to provide investment results that, before deduction for
operating expenses, approximate the price and yield performance of U.S.
Government, mortgage-backed, asset-backed, and non-convertible corporate
obligations issued by issuers whose debt securities are listed on the Lehman
Brothers Aggregate Bond Index (the "Lehman Aggregate").
The value of the Portfolio's securities is generally sensitive to
change in interest rates. An increase in interest rates will generally reduce
the value of the investments in the Bond Index 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.
OTHER APPLICABLE INVESTMENT POLICIES
VARIABLE AND FLOATING RATE INSTRUMENTS. Subject to its investment
limitations, the Portfolios 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. In determining average
weighted portfolio maturity, an instrument issued or guaranteed by the U.S.
Government or an agency or instrumentality thereof, or a variable 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 next interest rate
adjustment. Other variable and floating rate obligations 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.
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
[/R]
-2-
<PAGE> 123
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 Adviser monitors the liquidity of restricted securities in the
Portfolios under the supervision of the Board of Directors. In reaching
liquidity decisions, the 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).
U.S. GOVERNMENT OBLIGATIONS. Examples of the types of U.S. Government
obligations that may be held by the Bond Index Portfolio, subject to its
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.
-3-
<PAGE> 124
STRIPPED U.S. GOVERNMENT OBLIGATIONS. Subject to its investment
objectives and policies, the Bond Index Portfolio 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"). The Bond Index Portfolio 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.
-4-
<PAGE> 125
For custodial receipts, by agreement 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. While the 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 OF OTHER INVESTMENT COMPANIES. As described in the
applicable Prospectuses, the Portfolios intend to limit investments in
securities issued by other investment companies 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.
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<PAGE> 126
ASSET-BACKED SECURITIES. The Bond Index Portfolio 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 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.
-6-
<PAGE> 127
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 its 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 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.
-7-
<PAGE> 128
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.
OPTIONS TRADING. As described in the Prospectuses, the 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 a
Portfolio's total net assets. 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
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
-8-
<PAGE> 129
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 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 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.
-9-
<PAGE> 130
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.
FUTURES CONTRACTS. As discussed in the Prospectuses, the Portfolios
may invest in 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
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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.
There is an imperfect correlation between movements in the price of
futures and movements in the price of the securities which are the subject of
the hedge. As a result, the use of futures may not serve the objective of an
index fund.
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 (as well as 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.
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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 trading activity, which could at times make it difficult
or impossible to liquidate existing positions or to recover excess variation
margin payments.
MONEY MARKET INVESTMENTS. As stated in the Prospectuses and subject to
their respective investment policies, the Portfolios may invest in the
following money market instruments for temporary defensive or other purposes:
commercial paper, bankers' acceptances, certificates of deposit and time
deposits, floating rate notes.
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 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.
REPURCHASE AGREEMENTS. The Portfolios may enter into repurchase
agreements with respect to their respective securities. Under the terms of a
repurchase agreement, a Portfolio purchases securities from financial
institutions such as banks and broker-dealers that are deemed to be
creditworthy by the Adviser under guidelines approved by the Board of
Directors, subject to the seller's agreement to repurchase them at a mutually
agreed-upon date and price. Securities subject to repurchase agreements are
held by the Portfolios' Custodian or in the Federal Reserve/Treasury book-entry
system. During the term of any repurchase agreement, the Adviser will continue
to monitor the creditworthiness of the seller. The repurchase price generally
equals 102% of the price paid by the 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). Under a repurchase agreement, the seller
is required to maintain the value of the securities subject to
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the agreement at not less than the repurchase price, and securities subject to
repurchase agreements are maintained by the Portfolios' Custodian in segregated
accounts in accordance with the 1940 Act. Default by the seller could,
however, expose the Portfolio to possible loss because of adverse market action
or delay in connection with the disposition of the underlying securities.
Repurchase agreements are considered to be loans by the Portfolio under the
1940 Act.
REVERSE REPURCHASE AGREEMENTS. As described in the Prospectuses, the
Portfolios may enter into reverse repurchase agreements (agreements under which
a Portfolio sells portfolio securities and agrees to repurchase them at an
agreed-upon date and price). 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.
Reverse repurchase agreements involve the risk that the market value of
the securities sold by the Portfolio may decline below the price of the
securities that it is obligated to repurchase. Reverse repurchase agreements
are considered to be borrowings under the 1940 Act. Each Portfolio intends to
limit its borrowings (including reverse repurchase agreements) during the
current fiscal year to not more than 5% of its net assets.
PORTFOLIO TURNOVER AND TRANSACTIONS
Subject to the general control of the Fund's Board of Directors, the
Adviser is responsible for, makes decisions with respect to, and places orders
for all purchases and sales of portfolio securities for the Portfolios.
The Portfolios' rate of 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 requirements
which enable a Portfolio to receive certain favorable tax treatment. Portfolio
turnover will not be a limiting factor in making investment decisions. These
Portfolios follow an index strategy and, therefore, any variation in turnover
rate should be related to the turnover of securities listed in each Portfolio's
respective index.
Transactions on United States stock exchanges involve the payment of
negotiated brokerage commissions. On the exchanges on which commissions are
negotiated, the cost of transactions may vary among different brokers. There
is generally no stated commission in the case of securities traded in the
over-the-counter markets, but the price of those
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<PAGE> 134
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, in
its sole discretion, believes such practice to be otherwise in a Portfolio's
interests.
While the Adviser 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 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 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 and does not reduce the
advisory fees payable to it by a Portfolio. Such information may be useful to
the 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 in carrying out its obligations to the Portfolios.
Portfolio securities will not be purchased from or sold to the 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. 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
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investments allocated as to amount, in a manner which the 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 may aggregate the
securities to be sold or purchased for the Portfolios with those to be sold or
purchased for other investment companies or accounts in order to obtain best
execution.
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 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 Bond Index
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
mortgage-backed 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, provided that each 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
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provided further that the Portfolios may invest in futures contracts and
related options in accordance with their respective investment activities 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 transactions by either Portfolio 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.
NET ASSET VALUE
As stated in the applicable Prospectuses, the net asset value per share
of each class of a Portfolio is calculated by adding the value of all of the
portfolio securities and other assets belonging to a Portfolio, subtracting the
liabilities charged to such class, and dividing the result by the number of
outstanding shares of such class. "Assets belonging to" each class of a
Portfolio consist of the consideration received upon the issuance of shares of
each class of the Portfolio together with all income, earnings, profits, and
proceeds derived from the investment thereof, including any proceeds from the
sale, exchange, or liquidation of such investments, any funds or payments
derived from any reinvestment of such proceeds, and a portion of any general
assets of the Fund not belonging to a particular Portfolio. Assets belonging
to each class of a Portfolio are charged with the direct liabilities of each
class of that Portfolio and with a share of the general liabilities of the Fund
allocated in proportion to the relative net assets of that Portfolio and the
Fund's other Portfolios. 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 class of a Portfolio are conclusive.
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."
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<PAGE> 137
Among the factors that ordinarily will be considered in valuing
portfolio securities are the existence of restrictions upon the sale of the
security by a 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.
Additionally, 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 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 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 Prospectus.
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.
A hypothetical illustration of the computation of the public offering
price per share of Investor A shares of the Portfolios, based on the projected
value of each Portfolio's estimated net assets and projected number of
outstanding shares
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on the date its shares are first offered for sale to public investors and the
maximum front-end 2.5% sales charge currently applicable, is as follows:
TABLE
<TABLE>
<CAPTION>
Equity Index
Portfolio Bond Index Portfolio
------------ --------------------
<S> <C> <C>
Net Assets $10.00 $10.00
----- -----
Outstanding Shares 1 1
- -
Net Asset Value Per Share $10.00 $10.00
----- -----
Sales Charge, (2.50% of offering
price, 2.60% of net asset value per
share) $ 0.26 $ 0.26
Offering to Public $10.26 $10.26
===== =====
</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. The 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.
EXCHANGE PRIVILEGE
Shareholders may exchange all or part of their shares in the Portfolios
as so described in the applicable Prospectus. Any rights an investor may have
to reduce (or have waived) the sales load applicable to an exchange, as may be
provided in a Prospectus, will apply in connection with any such exchange.
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By use of the exchange privilege, the investor authorizes his or her
Selected Dealer, Service Organization or the Distributor to act on telephonic
instructions from any person representing himself or herself to be the investor
and believed by the Selected Dealer, Service Organization or the Distributor to
be genuine. The investor, Selected Dealer, Service Organization or the
Distributor must notify the transfer agent of the investor's prior ownership of
Portfolio shares and account number. The transfer agent's records of such
instructions are binding. The exchange privilege may be modified or terminated
at any time upon 60 days' written notice to shareholders.
ADDITIONAL YIELD AND TOTAL RETURN INFORMATION
From time to time yields and total returns of Trust Shares,
Institutional Shares and Investor A Shares (computed separately) of a Portfolio
may be quoted in advertisements, shareholder reports or other communications to
Shareholders.
Yield Calculations. A Portfolio's 30 day "yield" described in the
Prospectuses is calculated separately for Trust shares, Institutional shares
and Investor A 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 and Institutional
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
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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 (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.
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, Institutional Shares and Trust Shares
each bear separate fees applicable to each series 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 Fund currently calculates 30 day yield for its fixed income
non-money market Portfolios but not for its equity Portfolios.
Total Return Calculations. 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
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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:
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 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.
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As stated in the Prospectus relating to Investor A 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.
IN GENERAL
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 BROTHERS, INC. 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: 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 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)
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descriptions or comparisons of various investment products, which 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.
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.
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 SHARES -
(800) 452-ARCH; OR TRUST OR INSTITUTIONAL SHARES - (800) 452-4015.
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 fifty-five classes of shares
representing interests in one of seventeen investment Portfolios: the Money
Market, Treasury Money Market, Tax-Exempt Money Market, Growth & Equity Income,
Emerging Growth, Government & Corporate Bond, U.S. Government Securities,
Balanced, International Equity, Short-Intermediate Municipal, Missouri
Tax-Exempt Bond, Kansas Tax-Exempt Bond, Equity Income, National Municipal
Bond, Short-Intermediate Corporate Bond, Equity Index and Bond Index
Portfolios. Trust shares, Institutional shares, Investor A shares and/or
Investor B shares in each Portfolio 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.
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<PAGE> 144
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 Plan for Investor A shares, shares of
each class of the Equity Index and Bond Index Portfolios bear the same types of
ongoing expenses with respect to the Portfolio to which they belong. In
addition, Investor A shares are subject to a front-end sales charge as
described in the Prospectuses. The series also have different exchange
privileges.
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, and 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. 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, and 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. 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 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
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<PAGE> 145
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
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 Internal Revenue Code of 1986, as amended, (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 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
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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 red 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 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
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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 accumulated earnings
and profits, and would be eligible for the dividends received deduction allowed
to corporations.
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Each Portfolio will be required in certain cases to withhold and remit
to the United States Treasury 31% of taxable dividends or 31% of gross sale
proceeds paid to shareholders who have failed to provide a correct tax
identification number in the manner required, or who are subject to withholding
by the Internal Revenue Service for failure to properly include on his return
payments of taxable interest or dividends.
In those states and localities which have income tax laws, the
treatment of a Portfolio and its shareholders under such laws may differ from
their treatment under federal income tax laws. Under state or local law,
distributions of net income may be taxable to shareholders as dividend income.
Shareholders are advised to consult their tax advisors concerning the
application of state and local taxes.
TAXATION OF CERTAIN FINANCIAL INSTRUMENTS
Special rules govern the federal income tax treatment of financial
instruments that may be held by the 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
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the long-term holding period) be deemed not to begin prior to 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.
Some of the non-U.S. dollar denominated investments that the Portfolios
may make, such as non-U.S. dollar-denominated debt securities and obligations
and preferred stock 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
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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 Treasurer, St. Louis
St. Louis University The Board; and University, August, 1996
3500 Linden Blvd. President and to present; Treasurer,
Fitzgerald Hall Director Washington University,
St. Louis, MO 63103 1981 to 1995
Age: 53
Robert M. Cox, Jr. Director Senior Vice President,
Emerson Electric Co. Emerson Electric Co.
8000 W. Florissant Ave. since November 1990.
P.O. Box 4100
St. Louis, MO 63136-8506
Age: 51
Joseph J. Hunt Director General Vice-President
Iron Workers District International Association of
Council Bridge, Structural and Orna-
3544 Watson Road mental Iron Workers (Interna-
St. Louis, MO 63139 tional Labor Union), January 1994
Age: 53 to present; General Organizer,
International Association of Bridge,
Structural and Ornamental Iron
Workers, September 1983 to
December 1993.
James C. Jacobsen Director Director, Kellwood Company,
Kellwood Company (manufacturer of wearing
600 Kellwood Parkway apparel and camping soft
Chesterfield, MO 63017 goods) since 1975; Vice Chairman,
Age: 61 Kellwood Company since May 1989.
____________________
<FN>
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.
</TABLE>
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<PAGE> 152
<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 -
Southwestern Bell Finance and Treasurer,
Corporation Southwestern Bell
175 E. Houston St. Corporation since
P.O. Box 2933 December 1990; Vice
Room 7-A-50 President-Finance,
San Antonio, TX 78299 Southwestern Bell Corporation
Age: 55 May 1990 to December 1990; Partner,
Ernst & Young (predecessor firm, Arthur
Young & Company), prior thereto.
Lyle L. Meyer Director Vice President, The Jefferson
Jefferson Smurfit Smurfit Corporation (manufacturer of
Corporation paperboard and packaging materials),
8182 Maryland Avenue April 1989 to present; President,
St. Louis, MO 63105 Smurfit Pension & Insurance Services
Age: 60 Company, November 1982 to December
1992.
Ronald D. Winney* Director and Treasurer, Ralston
Ralston Purina Company Treasurer Purina Company
Checkerboard Square since 1985
St. Louis, MO 63164
Age: 54
W. Bruce McConnel, III Secretary Partner of the law
Suite 1100 firm of Drinker Biddle
1345 Chestnut Street & Reath, Philadelphia,
Philadelphia, PA 19107 Pennsylvania
Age: 53
Walter B. Grimm* Assistant From June, 1992 to present,
3435 Stelzer Road Secretary employee of BISYS Fund Services;
Age: 52 From Columbus, Ohio 432191981 to
present, President of Leigh
Investments Consulting/
Investments (investment
firm); from May, 1989 to
November, 1990, President
of Security Bank.
Stephen G. Mintos* Vice President From April, 1987 to present,
3435 Stelzer Road and Assistant employee of BISYS Fund Services.
Columbus, Ohio 43219 Treasurer
Age: 43
_____________________________
<FN>
* Messrs. Grimm, Winney and Mintos are "interested persons" of the Fund
as defined in the 1940 Act.
</TABLE>
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<PAGE> 153
For the fiscal year ended November 30, 1995, the Directors
received the following compensation:
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT
AGGREGATE BENEFITS ACCRUED TOTAL COMPENSATION
COMPENSATION FROM AS PART OF FUND FROM THE FUND AND
NAME OF DIRECTOR THE FUND EXPENSE FUND COMPLEX(1)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Jerry V. Woodham $13,459.70 $0 $15,000.00
Robert M. Cox, Jr. $8,973.13 $0 $10,000.00
Joseph J. Hunt $8,793.13 $0 $10,000.00
James C. Jacobsen $8,793.13 $0 $10,000.00
Donald E. Kiernan $8,793.13 $0 $10,000.00
Lyle L. Meyer $8,793.13 $0 $10,000.00
Ronald D. Winney $8,793.13 $0 $10,000.00
<FN>
1 The "Fund Complex" includes The ARCH Fund, Inc. and, prior to its
reorganization into The ARCH Fund, Inc., The ARCH Tax-Exempt Trust.
</TABLE>
Drinker Biddle & Reath, of which Mr. McConnel is a partner, receives
legal fees as counsel to the Fund.
INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENTS
MVA serves as investment adviser to each Portfolio. Pursuant to the
advisory agreement, MVA has agreed to provide investment advisory services as
described in the Portfolios' Prospectuses. MVA has agreed to pay all expenses
incurred by it in connection with its activities under the agreement other than
the cost of securities, including brokerage commissions, if any, purchased for
the Portfolios.
The investment advisory agreement provides that MVA shall not be liable
for any error of judgment or mistake of law or for any loss suffered in
connection with the performance of its agreement, 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 it
of its duties and obligations thereunder.
Under its administration agreement with the Fund, BISYS Fund Services
Ohio, Inc. (the "Administrator") serves as
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<PAGE> 154
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" 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.
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 Selected Dealers may
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<PAGE> 155
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.
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. This fee, which is paid monthly, is calculated as
the greater of $6,000 or $.30 for each $1,000 of such Portfolio's average daily
net assets, plus $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 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.
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<PAGE> 156
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.
DISTRIBUTOR 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 a Portfolio's Trust shares and Institutional
shares, no compensation is payable by the Fund to the Distributor for
distribution services. With respect to a Portfolio's Investor A shares, the
Distributor is entitled to receive a portion of the front-end sales charge
imposed on such shares. In addition, under the Distribution and Services Plans
for Investor A shares described below, the Distributor is entitled to a
distribution fee at the annual rate of .10% for distribution services. (For
information regarding the distribution services provided and distribution fees
payable thereunder, see "Distribution and Services Plan(s)" under "Management
of the Fund" in the Prospectuses and "The Plans" below).
THE PLANS
DISTRIBUTION AND SERVICES PLANS. As described in the Prospectuses, the
Fund has adopted a Distribution and Services Plan with respect to Investor A
shares of the Portfolios pursuant to the 1940 Act and Rule 12b-1 thereunder.
Any material amendment to the Plan or arrangements with the Distributor or
Service Organizations (which may include selected dealers and 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 of the Portfolio. Pursuant to the Plan, the Fund may
enter into Servicing Agreements with
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<PAGE> 157
broker-dealers and other organizations ("Servicing Agreements") that purchase
Investor A 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
shares. Services provided pursuant to the Servicing Agreements may include
such services as providing information periodically to customers showing their
positions in Investor A shares and monitoring services for their customers who
have invested in Investor A shares, including the operation of telephone lines
for daily quotations of return information.
ADMINISTRATIVE SERVICES PLANS. As stated in the applicable
Prospectuses, separate Administrative Services Plans have been adopted with
respect to Trust shares and Institutional shares of the Portfolios. Pursuant
to each Plan and the Distribution and Services Plan described above, the Fund
may enter into Servicing Agreements with banks, trust departments, and other
financial institutions and with broker-dealers and other organizations
("Service Organizations") that purchase Trust shares, Institutional shares or
Investor A 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 or Investor A 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 or Investor A 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,
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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 shares, including
the operation of telephone lines for daily quotations of return information.
OTHER PLAN INFORMATION. The Board of Directors has approved each Plan
and its respective arrangements with the Distributor, Service Organizations and
broker-dealers 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 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, selected dealers, 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, selected dealer, or other institution before
purchasing Trust or Investor shares of a Portfolio.
FUND EXPENSES. As discussed previously, the Portfolios' service
contractors bear all expenses in connection with the performance of their
services, except that the Portfolios bear certain expenses incurred pursuant to
their Distribution and Services Plan, their Administration Services Plans and
certain sub-transfer agency fees (with respect to Institutional shares). The
Portfolios bear the expenses incurred in their operations. Fund expenses
include taxes, interest, fees and salaries of its directors and officers,
Securities and Exchange Commission fees, state securities qualification fees,
costs of preparing and printing prospectuses for regulatory purposes and for
distribution to shareholders, advisory and administration fees, distribution
fees for distribution services provided to and expenses assumed in connection
with marketing Investor A shares, charges of the Custodian, transfer agent, and
dividend disbursing agent, Service Organization fees, certain insurance
premiums, outside auditing and legal expenses, costs of
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any independent pricing service, costs of shareholder reports and meetings and
any extraordinary expenses. The Portfolios also pay for brokerage fees,
commission and other transaction charges (if any) incurred in connection with
the purchase and sale of portfolio securities.
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 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 their 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.
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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.
INDEPENDENT AUDITORS
For the fiscal year 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.
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 September 27, 1996, Mercantile held of record 99.314% and 68.32%
of the outstanding Institutional and Trust shares, respectively, in the Money
Market Portfolio; 97.539% and 80.942% of the outstanding Institutional and
Trust shares, respectively, in the Treasury Money Market Portfolio; 84.76% of
the outstanding Trust shares in the Tax-Exempt Money Market Portfolio; 97.608%
and 97.111% of the outstanding Institutional and Trust shares, respectively, in
the Growth & Income Equity Portfolio; 99.251% and 59.012% of the outstanding
Institutional and Trust shares, respectively, in the Emerging Growth Portfolio;
96.985% and 98.108% of the outstanding Institutional and Trust shares,
respectively, in the Government & Corporate Bond Portfolio; 99.999% and 94.369%
of the outstanding Institutional and Trust shares, respectively, in the U.S.
Government Securities Portfolio; 96.392% of the outstanding Trust shares in
the Balanced Portfolio; 98.456% and 94.174% of the outstanding Institutional
and Trust shares, respectively, in the International Equity Portfolio; 95.925%
of the outstanding Trust shares in the Short-Intermediate Municipal Portfolio;
99.68% of the outstanding Trust shares in the Missouri Tax-Exempt Bond
Portfolio,
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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 Union National Bank, CMG
2-1151 Attn: Funds Group, 401 South Tryon Street, Charlotte, NC 28288 (9.580%);
Hawaiian Trust Company Ltd., 783 Funds Accounting, P.O. Box 3170, Honolulu, HI
96802-3170 (10.963%); Mercantile Bank NA Trust, Trust Securities Unit 17-1,
Attn: Dede Clark, P.O. Box 387 Main Post Office, St. Louis, MO 63166 (33.119%);
BISYS Fund Services, PBO Mercantile EOD Sweep, Attn: Linda Zerbe, First and
Market Building, Suite 300, Pittsburgh, PA 15222 (35.201%); Institutional Shares
- - Mercantile Bank St. Louis, NA Attn: Trust Securities Unit 17-1, P.O. Box 387,
St. Louis, MO 63166 (99.314%); Investor A Shares - BHC Securities, Attn: Cash
Balance Sweep Dept., One Commerce Square, 11th Floor, 2005 Market Street,
Philadelphia, PA 19103 (86.715%); Mercantile Investment Services, Inc., Firm
Capital Account, Attn: Judy Horbelt, P.O. Box 790121, St. Louis, MO 63179-0121
(5.406%); Mercantile Bank of St. Louis, NA Custodian Pheba A. Steinmeyer, IRA,
314 Westbrook, Ofallon, MO 63366 (5.527%); Alberta Buenemann and Ernie W.
Buenemann, TRST Alberta Buenemann Rev Liv Trust, DTD 08/30/91, 1649 Sand Run
Rd., Troy, MO 63379 (7.451%); Mercantile Bank of St. Louis, NA, Custodian Wayne
D. Matheis, Rollover IRA, RR2 Box 142, Russellville, MO 65074 (12.734%);
Mercantile Bank of St. Louis, NA Custodian Edwin C. Hogrebe, IRA, 5537 Goethe,
St. Louis, MO 63109 (5.182%); Merlin R. Burke and Mary Alice Burke, JTWROS, 2516
Highland, Sedalia, MO 65301 (5.251%).
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 - Hawaiian Trust Company
Ltd., Trust Short-Term Investment Fund, P.O. Box 3170, Honolulu, HI 96802-3170
(8.747%); Hawaiian Trust Company Ltd., 783 Funds Accounting, P.O. Box 3170,
Honolulu, HI 96802-3170 (9.321%); Mercantile Bank NA Trust, Trust Securities
Unit 17-1, Attn: Dede Clark, P.O. Box 387 Main Post Office, St. Louis, MO 63166
(55.239%); BISYS Fund Services, PBO Mercantile EOD Sweep, Attn: Linda Zerbe,
First and Market Building, Suite 300, Pittsburgh, PA 15222 (25.703%);
Institutional Shares - Mercantile Bank St. Louis, NA Attn: Trust Securities Unit
17-1, P.O. Box 387, St. Louis, MO 63166 (97.539%); Investor A Shares - BHC
Securities Inc., Attn: Cash Balance Sweep Dept., 1 Commerce Square, 11th Floor,
2005 Market Street, Philadelphia, PA 19103 (31.059%); Mercantile Bank of St.
Louis NA, Custodian Richard E. Crippa, Rollover IRA, 2948 Castelford Drive,
Florissant, MO 63033 (6.283%); St. Louis Regional Medical Center, Attn: Sharon
Edison, 5535 Delmar Blvd., St. Louis, MO 63112 (57.461%).
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 - Mercantile
Bank NA Trust, Trust Securities Unit 17-1, Attn: Dede Clark, P.O. Box 387 Main
Post Office, St. Louis, MO 63166 (76.872%) Investor B Shares - First American
Bank LA, Trust Department, Attn: Bill Keith, P.O. Box 7232, Monroe, LA 71211
(10.617%); BISYS Fund Services, PBO Mercantile BOD Sweep, Attn: Linda Zerbe,
First and Market Building, Suite 300, Pittsburgh, PA 15222 (7.888%); Investor A
Shares - BHC Securities Inc., Attn: Cash Balance Sweep Dept., 1 Commerce
Square, 11th Floor, 2005 Market Street, Philadelphia, PA 19103 (98.072%).
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 (45.824%);
Locust & Company, Attn: Trust Securities Unit 17-1, P.O. Box 387, St. Louis, MO
63166 (48.360%); Boat & Co., P.O. Box 14737, St. Louis, MO 63178-4737 (5.634%);
Institutional Shares - Locust and Company, Attn: Trust Securities Unit 17-1,
P.O. Box 387, St. Louis, MO 63166 (98.456%); Investor A Shares - BHC
Securities Inc., Trade House Acct., 2005 Market Street, Philadelphia, PA 19103
(45.966%); Frances Dakers, 200 E. 89th St., 28D, New York, NY 10128 (14.052%);
Investor B Shares - BHC Securities, Inc., FAO 24275966, Attn: Mutual Funds
Dept., One Commerce Square, Suite 1200, Philadelphia, PA 19103 (5.686%).
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 (75.409%); Olive & Company, Mercantile Bank St.
Louis NA, Trust Securities Unit 17-1, P.O. Box 387, St. Louis, MO 63166-0387
(21.702%); Institutional Shares - Locust & Company, Mercantile Bank St. Louis
NA, Attn: Trust Securities Unit 17-1, P.O. Box 387, St. Louis, MO 63166
(97.608%); Investor A Shares - BHC Securities Inc., Trade House Account, Attn:
Mutual Fund Dept., One Commerce Square, 2005 Market Street, Philadelphia, PA
19103 (34.929%).
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 (12.335%); Olive & Company,
Mercantile Bank St. Louis NA, Trust Securities Unit 17-1, P.O. Box 387, St.
Louis, MO 63166-0387 (13.726%); American Bar Endowment, 750 North Lake Shore
Drive, Chicago, IL 60611 (5.784%) Locust & Company, Mercantile Bank St. Louis
NA, Trust Securities Unit 17-1, P.O. Box 387, St. Louis, MO 63166-0387
(45.286%); Boatmens Trust Co, TRST Carpenters Pension Trust Fund, Attn: William
Grayson, 100 N. Broadway, St. Louis, MO 63102 (6.727%); Institutional Shares -
Locust & Company, Mercantile Bank St. Louis NA, Attn: Trust Securities Unit
17-1, P.O. Box 387, St. Louis, MO 63166 (93.453%); Mercantile Bank, Expediter
Daily Valuation Account, Attn: Institutional Retirement Team 16-2, P.O. Box
387, St. Louis, MO 63166 (5.798%) Investor A Shares - BHC Securities Inc.,
Trade House Account, Attn: Mutual Funds Dept., One Commerce Square, 2005 Market
Street, Philadelphia, PA 19103 (41.414%); Investor B Shares - BHC Securities
Inc., FAO 24044848, Attn: Mutual Funds Dept., One Commerce Square, 2005 Market
Street, Suite 1200, Philadelphia, PA 19103 (5.342%).
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
(5.371%); Locust & Company, Mercantile Bank St. Louis NA, Trust Securities Unit
17-1, P.O. Box 387, St. Louis, MO 63166-0387 (60.025%); Olive & Company,
Mercantile Bank St. Louis NA, Trust Securities Unit 17-1, P.O. Box 387, St.
Louis, MO 63166-0387 (34.344%); Institutional Shares - Locust & Company,
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 Inc., Trade
House Account, Attn: Mutual Funds Dept., One Commerce Square, 2005 Market
Street, Philadelphia, PA 19103 (13.165%); Mercantile Bank of St. Louis NA,
Custodian Robert W. Davis, Rollover IRA, 818 Broadway, Elsberry, MO 63343-1109
(6.487%); Investor B Shares - BHC Securities Inc., FAO 24130191, Attn: Mutual
Funds Dept., One Commerce Square, 2005 Market Street, Suite 1200, Philadelphia,
PA 19103 (14.830%); BHC Securities Inc., FAO 24275966, Attn: Mutual Funds
Dept., One Commerce Square, 2005 Market Street, Suite 1200, Philadelphia, PA
19103 (9.542%).
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 (96.392%); Investor A Shares - BHC Securities Inc., Trade House
Account, Attn: Mutual Funds Dept., One Commerce Square, 2005 Market Street,
Philadelphia, PA 19103 (19.542%); Investor B Shares - Mercantile Bank of St.
Louis NA, Custodian Richard Dell Wood, SEP IRA, 3114 Pickett Road, St. Joseph,
MO 64503 (8.489%); BHC Securities Inc., FAO 24123548, Attn: Mutual
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<PAGE> 162
Funds Dept., One Commerce Square, 2005 Market Street, Suite 1200, Philadelphia,
PA 19103 (6.370%); BHC Securities Inc., FBO 24273057, Attn: Mutual Funds Dept.,
One Commerce Square, 2005 Market Street, Suite 1200, Philadelphia, PA 19103
(9.126%); Mercantile Bank of St Louis, NA Custodian Gerald C. Pasch, IRA, 2817
Duncan, St. Joseph, MO 64507 (8.177%); Mercantile Bank of St. Louis, NA
Custodian Edmund Frances CODR, Rollover IRA, 2820 South 42nd Street, St.
Joseph, MO 64503 (7.861%); Mercantile Bank of St. Louis, NA Custodian David J.
Neumann, IRA, 2330 Goff Avenue, St. Joseph, MO 64505 (6.641%); Mercantile Bank
of St. Louis, NA Custodian Betty J. Renfro, IRA, 2317 Penn, St. Joseph, MO
64507 (5.324%).
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 (53.916%); Olive & Company, Mercantile Bank St. Louis
NA, Trust Securities Unit 17-1, P.O. Box 387, St. Louis, MO 63166-0387
(44.192%); Institutional Shares - Locust & Company, Mercantile Bank St. Louis
NA, Attn: Trust Securities Unit 17-1, P.O. Box 387, St. Louis, MO 63166
(96.985%); Investor A Shares - BHC Securities Inc., Attn: Mutual Funds Dept.,
One Commerce Square, 2005 Market Street, Philadelphia, PA 19103 (12.661%);
Mercantile Bank of St. Louis NA, Custodian Eugene P. Tucker, IRA Rollover, 70
Berkshire, St. Louis, MO 63117 (5.421%); Investor B Shares - Mercantile Bank of
St. Louis, NA Custodian Gerald C. Pasch, IRA, 2817 Duncan, St. Joseph, MO 64507
(6.962%); Mercantile Bank of St. Louis, NA Custodian Wayne D. Matheis, Rollover
IRA, RR2 Box 142, Russellville, MO 65074 (8.678%); Alberta Buenemann and Ernie
W. Buenemann, TRST Alberta Buenemann Rev Liv Trust, DTD 08 30 91, 1649 Sand Run
Rd., Troy MO 63379 (5.123%) BHC Securities Inc., FAO 24294267, Attn: Mutual
Funds Dept., One Commerce Square, 2005 Market Street, Suite 1200, Philadelphia,
PA 19103 (6.204%); BHC Securities Inc., FAO 24297770, Attn: Mutual Funds Dept.,
One Commerce Square, 2005 Market Street, Suite 1200, Philadelphia, PA 19103
(13.139%).
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 - Olive & Company,
Attn: Trust Securities Unit 17-1, P.O. Box 387, St. Louis, MO 63166-0387
(95.925%); Investor A Shares - Ben J. Fazio and Antonina Fazio, JTWROS, 9912
Emil Avenue, St Louis, MO 63126 (97.971%).
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 (13.268%); Olive & Company, Mercantile Bank St. Louis
NA, Trust Securities Unit 17-1, P.O. Box 387, St. Louis MO 63166-0387 (86.412%);
Investor A Shares - BHC Securities Inc., Trade House Account, Attn: Mutual Funds
Dept., One Commerce Square, 2005 Market Street, Philadelphia, PA 19103
(30.326%); Investor B Shares - BHC Securities Inc., FAO 24126820, Attn: Mutual
Funds Dept., One Commerce Square, 2005 Market Street, Suite 1200, Philadelphia,
PA 19103 (12.393%); BHC Securities Inc., FAO 24131119, Attn: Mutual Funds Dept.,
One Commerce Square, 2005 Market Street, Suite 1200, Philadelphia, PA 19103
(5.439%); BHC Securities Inc., FBO 24017977, Attn: Mutual Funds Dept., 100 N.
20th Street, Philadelphia, PA 19103 (8.925%); BHC Securities Inc. FAO 24286677,
Attn: Mutual Funds Dept., One Commerce Square, 2005 Market Street, Suite 1200,
Philadelphia, PA 19103 (8.286%); BHC Securities INc., FAO 24290504, Attn: Mutual
Funds Dept., One Commerce Square, 2005 Market Street, Suite 1200, Philadelphia,
PA 19103 (13.775%); BHC Securities Inc., FAO 24293705 Attn: Mutual Funds Dept.,
One Commerce Square, 2005 Market Street, Suite 1200, Philadelphia, PA 19103
(6.271%).
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.
As used in the Statement of Additional Information and in the
Prospectuses of the same date, "assets belonging to a Portfolio" means the
consideration received by the Fund upon the issuance or sale of shares in that
Portfolio, together with all income, earnings, profits and proceeds derived from
the investment thereof, including any proceeds from the sale, exchange or
liquidation of such investments, any funds or payments derived from any
reinvestments of such proceeds, and a portion of any general assets of the Fund
not belonging to a particular Portfolio. Assets belonging to a particular
Portfolio are charged with the direct liabilities in respect of that Portfolio
and with a share of the general liabilities of the Fund which are normally
allocated in proportion to the relative net asset levels of the respective
Portfolios. Determinations by the Board of Directors as to the direct and
allocable liabilities, and allocable portion of any general assets, with respect
to a particular Portfolio are conclusive.
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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
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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.
"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
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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 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.
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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 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.
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"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.
"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.
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"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 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
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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.
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.
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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 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
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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:
"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.
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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 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; non-United States banks; and broker-dealers. The following summarizes
the rating categories used by Thomson BankWatch for long-term debt ratings:
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"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 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.
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FORM N-1A
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) Not Applicable.
(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)
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<PAGE> 175
(k) Articles Supplementary to Registrant's
Articles of Incorporation dated as of March
23, 1993.(3)
(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.
(q) Articles Supplementary to Registrant's
Articles of Incorporation dated September
20, 1995.(3)
(r) Articles Supplementary to Registrant's
Articles of Incorporation dated August 30,
1996.
(s) Form of Articles Supplementary to
Registrant's Articles of Incorporation.
(2) (a) By-Laws as approved and adopted by Regis-
trant'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
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<PAGE> 176
Post-Effective Amendment No. 7 to Registrant's Registration
Statement on Form N-1A, filed on March 31, 1988.
(3) None.
(4) None.
(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
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<PAGE> 177
Inc. with respect to the Equity Income, National
Municipal Bond and Short-Intermediate Corporate Bond
Portfolios.(3)
(i) Form of Addendum No. 8 to Amended and Restated
Advisory Agreement between Registrant and Mississippi
Valley Advisors Inc. with respect to the Equity Index
and Bond Index Portfolios.
(j) Sub-Advisory Agreement between Mississippi Valley
Advisors Inc. and Clay Finlay, Inc. dated August 29,
1996.
(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.
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<PAGE> 178
(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).
(g) Form of Addendum No. 6 to Distribution Agreement
between the Registrant and BISYS Fund Services with
respect to the Equity Index and Bond Index
Portfolios.
(h) 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.
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<PAGE> 179
(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) Form of Custody Fee Agreement between Registrant and
Mercantile Bank of St. Louis National Association.
(g) 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.
(h) Securities Lending Amendment dated August 4, 1994
to Custodian Agreement dated April 1, 1992 between
Registrant and Mercantile Bank 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
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<PAGE> 180
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.(3)
(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)
(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) Form of Addendum No. 6 to Administration Agreement
between Registrant and BISYS Fund Services Ohio, Inc.
with respect to the Equity Index and Bond Index
Portfolios.
(h) 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.
(i) 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
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<PAGE> 181
No. 25 to Registrant's Registration Statement on Form
N-1A, filed November 8, 1994.
(j) 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.
(k) 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.
(l) 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)
(m) 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)
(n) Form of Addendum No. 6 to Transfer Agency Agreement
between Registrant and BISYS Fund Services Ohio, Inc.
with respect to the Equity Index and Bond Index
Portfolios.
(o) Amendment No. 1 to Transfer Agency Agreement between
Registrant and BISYS Fund Services Ohio, Inc. dated
as of September 29, 1995.(1)
(p) Form of Amendment No. 2 to Transfer Agency Agreement
between Registrant and BISYS Fund Services Ohio, Inc.
dated October 1, 1995.(3)
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<PAGE> 182
(q) (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.(4)
(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 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
-9-
<PAGE> 183
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)
(g) Form of Purchase Agreements between Registrant and BISYS Fund
Services Ohio, Inc.
(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.
(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.
-10-
<PAGE> 184
(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)
(17) Not Applicable.
(18) Amended and Restated Plan Pursuant to Rule 18f-3 for Operation of a
Multi-Class System.
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 Registrant's Registration
Statement on Form N-1A (File No. 2-79285) on February 28, 1996.
4. Filed electronically as an Exhibit and incorporated herein by reference
to Post-Effective Amendment No. 35 to Registrant's Registration
Statement on form N-1A (File No. 2-79285) on March 28, 1996.
-11-
<PAGE> 185
Item 25. Persons Controlled By or Under Common Control with
Registrant
Not Applicable.
Item 26. Number of Holders of Securities
As of August 31, 1996:
<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
-------------- --------------
Class A Common Stock (The ARCH
<S> <C>
Money Market Portfolio)................................................................ 153
Class A - Special Series 1 Common Stock
(The ARCH Money Market
Portfolio)............................................................................. 252
Class A - Special Series 2 Common Stock
(The ARCH Money Market Portfolio)...................................................... 3
Class A - Special Series 3 Common Stock
(The ARCH Money Market
Portfolio)............................................................................. 46
Class B Common Stock (The ARCH
(Treasury Money Market
Portfolio)............................................................................. 9
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)............................................................................. 1,245
Class C -Special Series 1 Common Stock
(The ARCH Growth & Income Equity
Portfolio)............................................................................. 14
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)............................................................................. 427
Class D Common Stock (The ARCH
Government & Corporate Bond
Portfolio)............................................................................. 232
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)............................................................................. 4
Class D - Special Series 3 Common Stock
(The ARCH Government & Corporate Bond
Portfolio)............................................................................. 53
Class E Common Stock (The ARCH
U.S. Government Securities
Portfolio)............................................................................. 230
</TABLE>
-12-
<PAGE> 186
<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
-------------- --------------
Class E - Special Series 1 Common Stock
(The ARCH U.S. Government Securities
<S> <C>
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)............................................................................. 50
Class F Common Stock (The ARCH Emerging
Growth Portfolio)...................................................................... 905
Class F - Special Series 1 Common Stock
(The ARCH Emerging Growth
Portfolio)............................................................................. 21
Class F - Special Series 2 Common Stock
(The ARCH Emerging Growth
Portfolio)............................................................................. 4
Class F - Special Series 3 Common Stock
(The ARCH Emerging Growth
Portfolio)............................................................................. 252
Class G Common Stock (The ARCH Balanced
Portfolio)............................................................................. 240
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)............................................................................. 4
Class G Common Stock - Special Series 3
Common Stock (The ARCH Balanced
Portfolio)............................................................................. 45
Class H Common Stock (The ARCH
International Equity
Portfolio)............................................................................. 232
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)............................................................................. 4
Class H - Special Series 3 Common Stock
(The ARCH International Equity
Portfolio)............................................................................. 121
Class I Common Stock (The ARCH
Short-Intermediate Municipal
Portfolio)............................................................................. 3
Class I - Special Series 1 Common Stock
(The ARCH Short-Intermediate
Municipal Portfolio).................................................................. 3
Class J Common Stock (The ARCH Tax-Exempt
Money Market Portfolio)............................................................... 15
Class J - Special Series 1
Common Stock (The ARCH Tax-Exempt Money
Market Portfolio)...................................................................... 25
Class K Common Stock (The ARCH Missouri
Tax-Exempt Bond Portfolio)............................................................ 527
Class K - Special Series 1
</TABLE>
-13-
<PAGE> 187
<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
-------------- --------------
Common Stock (The ARCH Missouri
<S> <C>
Tax-Exempt Bond Portfolio)............................................................. 4
Class K - Special Series 2
Common Stock (The ARCH Missouri
Tax-Exempt Bond Portfolio)............................................................. 41
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
Class M - Common Stock (The ARCH Equity
Income Portfolio)...................................................................... 0
Class M - Special Series 1
Common Stock (The ARCH Equity Income Portfolio)........................................ 0
Class M - Special Series 2
Common Stock (The ARCH Equity Income Portfolio)........................................ 0
Class M - Special Series 3
Common Stock (The ARCH Equity Income Portfolio)........................................ 0
Class N - Common Stock (The ARCH National
Municipal Bond Portfolio).............................................................. 0
Class N - Special Series 1
Common Stock (The ARCH National
Municipal Bond Portfolio).............................................................. 0
Class N - Special Series 2
Common Stock (The ARCH National
Municipal Bond Portfolio).............................................................. 0
Class O - Common Stock (The ARCH Short-Intermediate
Corporate Bond Portfolio).............................................................. 0
Class O - Special Series 1
Common Stock (The ARCH Short-Intermediate
Corporate Bond Portfolio).............................................................. 0
Class O - Special Series 2
Common Stock (The ARCH Short Intermediate
Corporate 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,
-14-
<PAGE> 188
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 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 Equity Income, National Municipal Bond and Short-Intermediate Corporate
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.
-15-
<PAGE> 189
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 FUND Services Ohio, Inc., acts as
administrator for the Registrant. BISYS Fund Services also distributes
the securities of American Performance Funds, AmSouth Mutual Funds, The
BB&T Mutual Funds Group, The Coventry Group, Fountain Square Funds,
HSBC Family of Funds, The Highmark Group, The Infinity Mutual Funds,
Inc., The Kent Funds, MarketWatch Funds, MMA Praxis Mutual Funds,
M.S.D. & T. Funds, Inc., Pacific Capital Funds, Parkstone Group of
Funds, The Parkstone Advantage Funds, Pegasus Funds, Qualivest Funds,
The Republic Funds, The Riverfront Funds, Inc., SBSF Funds, Inc. d/b/a
Key Mutual Funds, The Sessions Group, Summit Investment Trust, The Time
Horizon Funds and The Victory Portfolios, each of which is a management
investment company.
B. To the best of Registrant's knowledge, the partners of
BISYS Fund Services are as follows:
<TABLE>
<CAPTION>
Positions and
Name and Principal Offices Positions and Offices
Business Address with BISYS With Registrant
Fund Services
<S> <C> <C>
BISYS Fund Services, Inc. Sole General Partner None
3435 Stelzer Road
Columbus, Ohio 43219-3035
WC Subsidiary Sole Limited Partner
Corporation None
3435 Stelzer Road
Columbus, Ohio 43219-3035
</TABLE>
C. None.
-16-
<PAGE> 190
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, Equity Income, National
Municipal Bond and Short-Intermediate Corporate 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).
(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.
-17-
<PAGE> 191
(b) Registrant hereby undertakes to file a post-effective amendment
with respect to the ARCH Equity Income, National Municipal Bond and
Short-Intermediate Corporate Bond Portfolios, using financial statements that
need not be certified, within four to six months from the effective date of the
Registration Statement pertaining to such Portfolios.
(c) Registrant hereby undertakes to file a post-effective amendment
with respect to the ARCH Equity Index and Bond Index Portfolios, using financial
statements that need not be certified, within four to six months from the
effective date of the Registration Statement pertaining to such Portfolios.
-18-
<PAGE> 192
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly caused
this Post-Effective Amendment No. 36 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 30th day of September, 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. 36 to its Registration Statement has
been signed below by the following persons in the capacities and on the dates
indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Jerry V. Woodham Chairman of the September 30, 1996
- --------------------
Jerry V. Woodham Board and President
/s/* James C. Jacobsen Director September 30, 1996
- ----------------------
James C. Jacobsen
/s/* Joseph J. Hunt Director September 30, 1996
- -------------------
Joseph J. Hunt
/s/* Donald E. Kiernan Director September 30, 1996
- ----------------------
Donald E. Kiernan
/s/* Robert M. Cox, Jr. Director September 30, 1996
- -----------------------
Robert M. Cox, Jr.
/s/* Lyle L. Meyer Director September 30, 1996
- ------------------
Lyle L. Meyer
/s/* Ronald D. Winney Director & Treasurer September 30, 1996
- ---------------------
Ronald D. Winney
*By: /s/ Jerry V. Woodham
----------------------
Jerry V. Woodham
Attorney-in-fact
<PAGE> 193
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> 194
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> 195
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> 196
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> 197
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> 198
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> 199
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> 200
EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ----------- --------
(1)(r) Articles Supplementary to
Registrant's Articles of
Incorporation dated August 30, 1996.
(1)(s) Form of Articles Supplementary to
Registrant's Articles of
Incorporation.
(5)(i) Form of Addendum No. 8 to Amended
and Restated Advisory Agreement
between Registrant and Mississippi
Valley Advisors Inc. with respect
to the Equity Index and Bond Index
Portfolios.
(5)(j) Sub-Advisory Agreement between
Mississippi Valley Advisors Inc.
and Clay Finlay Inc. dated
August 29, 1996.
(6)(g) Form of Addendum No. 6 to
Distribution Agreement between the
Registrant and BISYS Fund Services
with respect to the Equity Index and
Bond Index Portfolios.
(8)(f) Form of Custody Fee Agreement
between Registrant and Mercantile
Bank of St. Louis National
Association.
(9)(g) Form of Addendum No. 6 to
Administration Agreement between
Registrant and BISYS Fund Services
Ohio, Inc. with respect to the
Equity Index and Bond Index
Portfolios.
(9)(n) Form of Addendum No. 6 to Transfer
Agency Agreement between
Registrant and BISYS Fund Services
Ohio, Inc. with respect to the
Equity Index and Bond Index
Portfolios.
(9)(q)(1) Distribution and Services Plan
(Investor A Shares) under Rule
12b-1 and Form of Agreement.
(9)(q)(3) Administrative Services Plan
(Trust Shares) and Form of
Agreement.
(9)(q)(4) Administrative Services Plan
(Institutional Shares) and Form of
Agreement.
<PAGE> 201
Exhibit No. Description Page No.
- ----------- ----------- --------
(11)(a) Consent of Drinker Biddle & Reath.
(11)(b) Consent of KPMG Peat Marwick LLP.
(13)(g) Form of Purchase Agreements
between Registrant and BISYS Fund
Services Ohio, Inc.
(18) Amended and Restated Plan Pursuant
to Rule 18f-3 for Operation of a
Multi-Class System.
-2-
<PAGE> 1
Exhibit (1)(r)
THE ARCH FUND, INC.
ARTICLES SUPPLEMENTARY
THE ARCH FUND, INC., a Maryland corporation having its
principal office in Maryland in the City of Baltimore, Maryland (hereinafter
called the "Corporation"), hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: The total number of shares of capital stock
which the Corporation was heretofore authorized to issue was Seven
Billion (7,000,000,000) shares (of the par value of One Mill ($.001)
each) and of the aggregate par value of Seven Million Dollars
($7,000,000) of Common Stock classified as follows:
<TABLE>
<CAPTION>
Number of Shares
Classification Authorized
-------------- ----------
<S> <C>
Class A 550,000,000
Class A-Special Series 1 1,800,000,000
Class A-Special Series 2 300,000,000
Class A-Special Series 3 50,000,000
Class B 100,000,000
Class B-Special Series 1 1,000,000,000
Class B-Special Series 2 300,000,000
Class C 5,000,000
Class C-Special Series 1 50,000,000
Class C-Special Series 2 20,000,000
Class C-Special Series 3 50,000,000
Class D 5,000,000
Class D-Special Series 1 50,000,000
Class D-Special Series 2 20,000,000
Class D-Special Series 3 50,000,000
Class E 5,000,000
Class E-Special Series 1 15,000,000
Class E-Special Series 2 20,000,000
Class E-Special Series 3 50,000,000
Class F 5,000,000
Class F-Special Series 1 15,000,000
Class F-Special Series 2 20,000,000
Class F-Special Series 3 50,000,000
Class G 5,000,000
Class G-Special Series 1 15,000,000
Class G-Special Series 2 20,000,000
Class G-Special Series 3 50,000,000
Class H 10,000,000
Class H-Special Series 1 10,000,000
Class H-Special Series 2 10,000,000
Class H-Special Series 3 50,000,000
Class I 25,000,000
Class I-Special Series 1 25,000,000
Class J 50,000,000
Class J-Special Series 1 300,000,000
Class K 25,000,000
Class K-Special Series 1 25,000,000
Class K-Special Series 2 10,000,000
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
Number of Shares
Classification Authorized
-------------- ----------
<S> <C>
Class L 25,000,000
Class L-Special Series 1 25,000,000
Class L-Special Series 2 10,000,000
Unclassified 1,780,000,000
</TABLE>
SECOND: Pursuant to Article VI of the Corporation's
Articles of Incorporation (the "Charter"), the Board of Directors of
the Corporation has classified Three Hundred Twenty-Five Million
(325,000,000) authorized and unissued shares of previously unclassified
Common Stock as follows:
<TABLE>
<CAPTION>
Number of Shares
Classification Classified
-------------- ----------
<S> <C>
Class M 25,000,000
Class M-Special Series 1 50,000,000
Class M-Special Series 2 25,000,000
Class M-Special Series 3 25,000,000
Class N 25,000,000
Class N-Special Series 1 50,000,000
Class N-Special Series 2 25,000,000
Class O 25,000,000
Class O-Special Series 1 50,000,000
Class O-Special Series 2 25,000,000
</TABLE>
pursuant to resolutions unanimously adopted by the Board of Directors
of the Corporation on March 19, 1996.
THIRD: Pursuant to Article VI, Section (5) of the
Charter, the shares of Common Stock newly classified hereby shall have
the following preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption:
A.1. Assets Belonging to a Class. All consideration received
by the Corporation for the issue and sale of shares of Class M Common
Stock, Class M Common Stock - Special Series 1, Class M Common Stock -
Special Series 2 and Class M Common Stock - Special Series 3 shall be
invested and reinvested with the consideration received by the
Corporation for the issue and sale of all other shares now or hereafter
classified as shares of Class M Common Stock (irrespective of whether
said shares have been classified as a part of a series of said Class
and, if so classified as a part of a series, irrespective of the
particular series classification), together with all income, earnings,
profits, and proceeds thereof, including any proceeds derived from the
sale, exchange, or liquidation thereof, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the
same may be, and any general
-2-
<PAGE> 3
assets of the Corporation allocated to Class M shares, Class M -
Special Series 1 shares, Class M - Special Series 2 shares and Class M
- Special Series 3 shares or such other shares with respect to such
Class by the Board of Directors in accordance with the Corporation's
Charter. All income, earnings, profits, and proceeds, including any
proceeds derived from the sale, exchange or liquidation of such shares,
and any assets derived from any reinvestment of such proceeds in
whatever form shall be allocated among Class M shares, Class M -
Special Series 1 shares, Class M - Special Series 2 shares and Class M
- Special Series 3 shares and all other shares now or hereafter
designated as Class M Common Stock, respectively, (irrespective of
whether said shares have been classified as a part of a series of said
Class and, if so classified as a part of a series, irrespective of the
particular series classification), in proportion to their respective
net asset values.
2. Liabilities Belonging to a Class. All the liabilities
(including expenses) of the Corporation in respect of Class M shares,
Class M - Special Series 1 shares, Class M - Special Series 2 shares
and Class M Special Series 3 shares and all other shares now or
hereafter designated as Class M Common Stock and in respect of any
general liabilities (including expenses) of the Corporation allocated
to Class M shares, Class M - Special Series 1 shares, Class M - Special
Series 2 shares and Class M - Special Series 3 shares or such other
shares by the Board of Directors in accordance with the Corporation's
Charter shall be allocated among Class M shares, Class M Special Series
1 shares, Class M - Special Series 2 shares and Class M - Special
Series 3 shares and such other shares, respectively, (irrespective of
whether said shares have been classified as a part of a series of said
Class and, if so classified as a part of a series, irrespective of the
particular series classification), in proportion to their respective
net asset values:
a. If in the future the Board of Directors determines to enter
into agreements which provide for services only for Class M
shares, Class M - Special Series 1 shares, Class M - Special
Series 2 shares and Class M Special Series 3 shares and to
allocate any related expenses to the extent that may be from
time to time determined by the Board of Directors:
(1) only the shares of Class M Common Stock
shall bear: (i) the expenses and liabilities of
payments to institutions under any agreements entered
into by or on behalf of the Corporation which provide
for services by the institutions exclusively for
their customers who own of record
-3-
<PAGE> 4
or beneficially such shares; and (ii) such other
expenses and liabilities as the Board of Directors
may from time to time determine are directly
attributable to such shares and which therefore
should be borne solely by shares of Class M Common
Stock;
(2) only the shares of Class M - Special
Series 1 Common Stock shall bear: (i) the expenses
and liabilities of payments to institutions under any
agreements entered into by or on behalf of the
Corporation which provide for services by the
institutions exclusively for their customers who own
of record or beneficially such shares; and (ii) such
other expenses and liabilities as the Board of
Directors may from time to time determine are
directly attributable to such shares and which
therefore should be borne solely by shares of Class M
- Special Series 1 Common Stock;
(3) only the shares of Class M - Special
Series 2 Common Stock shall bear: (i) the expenses
and liabilities of payments to institutions under any
agreements entered into by or on behalf of the
Corporation which provide for services by the
institutions exclusively for their customers who own
of record or beneficially such shares; and (ii) such
other expenses and liabilities as the Board of
Directors may from time to time determine are
directly attributable to such shares and which
therefore should be borne solely by shares of Class M
- Special Series 2 Common Stock;
(4) only the shares of Class M - Special
Series 3 Common Stock shall bear: (i) the expenses
and liabilities of payments to institutions under any
agreements entered into by or on behalf of the
Corporation which provide for services by the
institutions exclusively for their customers who own
of record or beneficially such shares; and (ii) such
other expenses and liabilities as the Board of
Directors may from time to time determine are
directly attributable to such shares and which
therefore should be borne solely by shares of Class M
- Special Series 3 Common Stock;
(5) No shares of Class M Common Stock shall
bear the expenses and liabilities described in
subparagraphs (2), (3) and (4) above; and
-4-
<PAGE> 5
(6) No shares of Class M - Special Series 1
Common Stock shall bear the expenses and liabilities
described in subparagraph (1), (3) and (4) above.
(7) No shares of Class M - Special Series 2
Common Stock shall bear the expenses and liabilities
described in subparagraphs (1), (2) and (4) above.
(8) No shares of Class M - Special Series 3
Common Stock shall bear the expenses and liabilities
described in subparagraphs (1), (2) and (3) above.
3. Preferences, Conversion and Other Rights, Voting Powers,
Restrictions, Limitations as to Dividends, Qualifications, and Terms
and Conditions of Redemption. Except as provided hereby, each share of
Class M Common Stock, Class M Common Stock - Special Series 1, Class M
Common Stock - Special Series 2 and Class M Common Stock Special Series
3 shall have the same preferences, conversion, and other rights, voting
powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption applicable to all other shares of
Common Stock as set forth in the Charter and shall also have the same
preferences, conversion, and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions
of redemption as each other share formerly, now or hereafter classified
as a share of Class M Common Stock (irrespective of whether said share
has been classified as a part of a series of said Class and, if so
classified as a part of a series, irrespective of the particular series
classification) except that:
(a)(i) on any matter that pertains to the agreements
or expenses and liabilities described in Section 2, clause
a.(1) (or to any plan or other document adopted by the
Corporation relating to said agreements, expenses, or
liabilities) and is submitted to a vote of shareholders of the
Corporation, only the shares of Class M Common Stock
(excluding the other shares classified as a series of such
Class other than Class M Common Stock) shall be entitled to
vote, except that if said matter affects shares of capital
stock in the Corporation other than shares of Class M Common
Stock, such other affected shares of capital stock in the
Corporation shall also be entitled to vote, and in such case,
such shares of Class M Common Stock shall be voted in the
aggregate together with such other affected shares and not by
class or series except where
-5-
<PAGE> 6
otherwise required by law or permitted by the Board of
Directors of the Corporation; and (ii) if any matter submitted
to a vote of the shareholders of the Corporation does not
affect the shares of Class M Common Stock, such shares shall
not be entitled to vote (except where required by law or
permitted by the Board of Directors) even though the matter is
submitted to a vote of the holders of shares of capital stock
in the Corporation other than said shares of Class M Common
Stock; and
(b)(i) on any matter that pertains to the agreements
or expenses and liabilities described in Section 2, clause
a.(2) above (or to any plan or other document adopted by the
Corporation relating to said agreements, expenses, or
liabilities) and is submitted to a vote of shareholders of the
Corporation, only shares of Class M Common Stock - Special
Series 1 (excluding shares designated as a series of such
Class other than Class M Common Stock - Special Series 1)
shall be entitled to vote, except that if said matter affects
shares of capital stock of the Corporation other than shares
of Class M Common Stock - Special Series 1, such other
affected shares of capital stock of the Corporation shall also
be entitled to vote, and in such case shares of Class M Common
Stock - Special Series 1 shall be voted in the aggregate
together with such other affected shares and not by class or
series except were otherwise required by law or permitted by
the Board of Directors of the Corporation; and (ii) if any
matter submitted to a vote of the shareholders of the
Corporation does not affect shares of Class M Common Stock -
Special Series 1, said shares shall not be entitled to vote
(except where required by law or permitted by the Board of
Directors) even though the matter is submitted to a vote of
holders of shares of capital stock of the Corporation other
than said shares of Class M Common Stock - Special Series 1.
(c)(i) on any matter that pertains to the agreements
or expenses and liabilities described in Section 2, clause
a.(3) above (or to any plan or other document adopted by the
Corporation relating to said agreements, expenses, or
liabilities) and is submitted to a vote of shareholders of the
Corporation, only shares of Class M Common Stock - Special
Series 2 (excluding shares designated as a series of such
Class other than Class M Common Stock - Special Series 2)
shall be entitled to vote, except that if said matter affects
shares of capital stock of the Corporation other than shares
of Class M Common Stock - Special Series 2, such other
affected shares of capital stock
-6-
<PAGE> 7
of the Corporation shall also be entitled to vote, and in such
case shares of Class M Common Stock - Special Series 2 shall
be voted in the aggregate together with such other affected
shares and not by class or series except were otherwise
required by law or permitted by the Board of Directors of the
Corporation; and (ii) if any matter submitted to a vote of the
shareholders of the Corporation does not affect shares of
Class M Common Stock - Special Series 2, said shares shall not
be entitled to vote (except where required by law or permitted
by the Board of Directors) even though the matter is submitted
to a vote of holders of shares of capital stock of the
Corporation other than said shares of Class M Common Stock -
Special Series 2.
(d)(i) on any matter that pertains to the agreements
or expenses and liabilities described in Section 2, clause
a.(4) above (or to any plan or other document adopted by the
Corporation relating to said agreements, expenses, or
liabilities) and is submitted to a vote of shareholders of the
Corporation, only shares of Class M Common Stock - Special
Series 3 (excluding shares designated as a series of such
Class other than Class M Common Stock - Special Series 3 shall
be entitled to vote, except that if said matter affects shares
of capital stock of the Corporation other than shares of Class
M Common Stock - Special Series 3, such other affected shares
of capital stock of the Corporation shall also be entitled to
vote, and in such case shares of Class M Common Stock -
Special Series 3 shall be voted in the aggregate together with
such other affected shares and not by class or series except
were otherwise required by law or permitted by the Board of
Directors of the Corporation; and (ii) if any matter submitted
to a vote of the shareholders of the Corporation does not
affect shares of Class M Common Stock - Special Series 3, said
shares shall not be entitled to vote (except where required by
law or permitted by the Board of Directors) even though the
matter is submitted to a vote of holders of shares of capital
stock of the Corporation other than said shares of Class M
Common Stock - Special Series 3.
(d) At such times, which may vary among the holders
of shares within the series, as may be determined by the Board
of Directors (or with the authorization of the Board of
Directors, the officers of the Corporation) in accordance with
the Investment Company Act of 1940, as amended, and applicable
rules and regulations of the National Association of
Securities Dealers, Inc. and reflected in the registration
statement relating to the Corporation's
-7-
<PAGE> 8
Class M - Special Series 3 Common Stock, shares of the Class M
- Special Series 3 Common Stock may be automatically converted
into shares of Class M Common Stock of the Corporation based
on the relative net asset values of such series at the time of
conversion, subject, however, to any conditions of conversion
that may be imposed by the Board of Directors (or with the
authorization of the Board of Directors, the officers of the
Corporation) and reflected in the registration statement
relating to the Class M - Special Series 3 Common Stock as
aforesaid.
B.1. Assets Belonging to a Class. All consideration received
by the Corporation for the issue and sale of shares of Class N Common
Stock, Class N Common Stock - Special Series 1 and Class N Common Stock
- Special Series 2 shall be invested and reinvested with the
consideration received by the Corporation for the issue and sale of all
other shares now or hereafter classified as shares of Class N Common
Stock (irrespective of whether said shares have been classified as a
part of a series of said Class and, if so classified as a part of a
series, irrespective of the particular series classification), together
with all income, earnings, profits, and proceeds thereof, including any
proceeds derived from the sale, exchange, or liquidation thereof, and
any funds or payments derived from any reinvestment of such proceeds in
whatever form the same may be, and any general assets of the
Corporation allocated to Class N shares, Class N - Special Series 1
shares and Class N - Special Series 2 shares or such other shares with
respect to such Class by the Board of Directors in accordance with the
Corporation's Charter. All income, earnings, profits, and proceeds,
including any proceeds derived from the sale, exchange or liquidation
of such shares, and any assets derived from any reinvestment of such
proceeds in whatever form shall be allocated among Class N shares,
Class N - Special Series 1 shares and Class N Special Series 2 shares
and all other shares now or hereafter designated as Class N Common
Stock, respectively, (irrespective of whether said shares have been
classified as a part of a series of said Class and, if so classified as
a part of a series, irrespective of the particular series
classification), in proportion to their respective net asset values.
2. Liabilities Belonging to a Class. All the liabilities
(including expenses) of the Corporation in respect of Class N shares,
Class N - Special Series 1 shares and Class N - Special Series 2 shares
and all other shares now or hereafter designated as Class N Common
Stock and in respect of any general liabilities (including expenses) of
the Corporation allocated to Class N shares, Class N -
-8-
<PAGE> 9
Special Series 1 shares and Class N - Special Series 2 shares or such
other shares by the Board of Directors in accordance with the
Corporation's Charter shall be allocated among Class N shares, Class N
- Special Series 1 shares and Class N - Special Series 2 shares and
such other shares, respectively, (irrespective of whether said shares
have been classified as a part of a series of said Class and, if so
classified as a part of a series, irrespective of the particular series
classification), in proportion to their respective net asset values:
a. If in the future the Board of Directors determines to enter
into agreements which provide for services only for Class N
shares, Class N - Special Series 1 shares or Class N - Special
Series 2 shares and to allocate any related expenses to the
extent that may be from time to time determined by the Board
of Directors:
(1) only the shares of Class N Common Stock
shall bear: (i) the expenses and liabilities of
payments to institutions under any agreements entered
into by or on behalf of the Corporation which provide
for services by the institutions exclusively for
their customers who own of record or beneficially
such shares; and (ii) such other expenses and
liabilities as the Board of Directors may from time
to time determine are directly attributable to such
shares and which therefore should be borne solely by
shares of Class N Common Stock;
(2) only the shares of Class N - Special
Series 1 Common Stock shall bear: (i) the expenses
and liabilities of payments to institutions under any
agreements entered into by or on behalf of the
Corporation which provide for services by the
institutions exclusively for their customers who own
of record or beneficially such shares; and (ii) such
other expenses and liabilities as the Board of
Directors may from time to time determine are
directly attributable to such shares and which
therefore should be borne solely by shares of Class N
- Special Series 1 Common Stock;
(3) Only the shares of Class N - Special
Series 2 Common Stock shall bear: (i) the expenses
and liabilities of payments to institutions under any
agreements entered into by or on behalf of the
Corporation which provide for services by the
institutions exclusively for their customers who own
of record or beneficially such
-9-
<PAGE> 10
shares; and (ii) such other expenses and liabilities
as the Board of Directors may from time to time
determine are directly attributable to such shares
and which therefore should be borne solely by shares
of Class N - Special Series 2 Common Stock;
(4) No shares of Class N Common Stock shall
bear the expenses and liabilities described in
subparagraphs (2) and (3) above;
(5) No shares of Class N - Special Series 1
Common Stock shall bear the expenses and liabilities
described in subparagraphs (1) and (3) above; and
(6) No shares of Class N - Special Series 2
Common Stock shall bear the expenses and liabilities
described in subparagraphs (1) and (2) above.
3. Preferences, Conversion and Other Rights, Voting Powers,
Restrictions, Limitations as to Dividends, Qualifications, and Terms
and Conditions of Redemption. Except as provided hereby, each share of
Class N Common Stock, Class N Common Stock - Special Series 1 and Class
N Common Stock - Special Series 2 shall have the same preferences,
conversion, and other rights, voting powers, restrictions, limitations
as to dividends, qualifications, and terms and conditions of redemption
applicable to all other shares of Common Stock as set forth in the
Charter and shall also have the same preferences, conversion, and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption as each other
share formerly, now or hereafter classified as a share of Class N
Common Stock (irrespective of whether said share has been classified as
a part of a series of said Class and, if so classified as a part of a
series, irrespective of the particular series classification) except
that:
(a)(i) on any matter that pertains to the agreements
or expenses and liabilities described in Section 2, clause
a.(1) (or to any plan or other document adopted by the
Corporation relating to said agreements, expenses, or
liabilities) and is submitted to a vote of shareholders of the
Corporation, only the shares of Class N Common Stock
(excluding the other shares classified as a series of such
Class other than Class N Common Stock) shall be entitled to
vote, except that if said matter affects shares of capital
stock in the Corporation other than shares of Class N Common
-10-
<PAGE> 11
Stock, such other affected shares of capital stock in the
Corporation shall also be entitled to vote, and in such case,
such shares of Class N Common Stock shall be voted in the
aggregate together with such other affected shares and not by
class or series except where otherwise required by law or
permitted by the Board of Directors of the Corporation; and
(ii) if any matter submitted to a vote of the shareholders of
the Corporation does not affect the shares of Class N Common
Stock, such shares shall not be entitled to vote (except where
required by law or permitted by the Board of Directors) even
though the matter is submitted to a vote of the holders of
shares of capital stock in the Corporation other than said
shares of Class N Common Stock;
(b)(i) on any matter that pertains to the agreements
or expenses and liabilities described in Section 2, clause
a.(2) above (or to any plan or other document adopted by the
Corporation relating to said agreements, expenses, or
liabilities) and is submitted to a vote of shareholders of the
Corporation, only shares of Class N Common Stock - Special
Series 1 (excluding shares designated as a series of such
Class other than Class N Common Stock - Special Series 1)
shall be entitled to vote, except that if said matter affects
shares of capital stock of the Corporation other than shares
of Class N Common Stock - Special Series 1, such other
affected shares of capital stock of the Corporation shall also
be entitled to vote, and in such case shares of Class N Common
Stock - Special Series 1 shall be voted in the aggregate
together with such other affected shares and not by class or
series except where otherwise required by law or permitted by
the Board of Directors of the Corporation; and (ii) if any
matter submitted to a vote of the shareholders of the
Corporation does not affect shares of Class N Common Stock -
Special Series 1, said shares shall not be entitled to vote
(except where required by law or permitted by the Board of
Directors) even though the matter is submitted to a vote of
holders of shares of capital stock of the Corporation other
than said shares of Class N Common Stock - Special Series 1;
and
(c)(i) on any matter that pertains to the agreements
or expenses and liabilities described in Section 2, clause
a.(3) above (or to any plan or other document adopted by the
Corporation relating to said agreements, expenses or
liabilities) and is submitted to a vote of shareholders of the
Corporation, only shares of Class N Common Stock - Special
Series 2 (excluding shares designated as a series of such
Class
-11-
<PAGE> 12
other than Class N Common Stock - Special Series 2 shall be
entitled to vote except that if said matter affects shares of
capital stock other than shares of Class N Common Stock -
Special Series 2, such other affected shares of capital stock
in the Corporation shall also be entitled to vote, and in such
case, such shares of Class N Common Stock - Special Series 2
shall be voted in the aggregate together with such other
affected shares and not by class or series except where
otherwise required by law or permitted by the Board of
Directors of the Corporation; and (ii) if any matter submitted
to a vote of the shareholders of the Corporation does not
affect the shares of Class N Common Stock - Special Series 2,
such shares shall not be entitled to vote (except where
required by law or permitted by the Board of Directors) even
though the matter is submitted to a vote of the holders of
shares of capital stock in the Corporation other than said
shares of Class N Common Stock - Special Series 2.
(d) At such times, which may vary among the holders
of shares within the series, as may be determined by the Board
of Directors (or with the authorization of the Board of
Directors, the officers of the Corporation) in accordance with
the Investment Company Act of 1940, as amended, and applicable
rules and regulations of the National Association of
Securities Dealers, Inc. and reflected in the registration
statement relating to the Corporation's Class N - Special
Series 2 Common Stock, shares of the Class N - Special Series
2 Common Stock may be automatically converted into shares of
Class N Common Stock of the Corporation based on the relative
net asset values of such series at the time of conversion,
subject, however, to any conditions of conversion that may be
imposed by the Board of Directors (or with the authorization
of the Board of Directors, the officers of the Corporation)
and reflected in the registration statement relating to the
Class N - Special Series 2 Common Stock as aforesaid.
C.1. Assets Belonging to a Class. All consideration received
by the Corporation for the issue and sale of shares of Class O Common
Stock, Class O Common Stock - Special Series 1 and Class O Common Stock
- Special Series 2 shall be invested and reinvested with the
consideration received by the Corporation for the issue and sale of all
other shares now or hereafter classified as shares of Class O Common
Stock (irrespective of whether said shares have been classified as a
part of a series of said Class and, if so classified as a part of a
series, irrespective of the particular series classification), together
with all income,
-12-
<PAGE> 13
earnings, profits, and proceeds thereof, including any proceeds derived
from the sale, exchange, or liquidation thereof, and any funds or
payments derived from any reinvestment of such proceeds in whatever
form the same may be, and any general assets of the Corporation
allocated to Class O shares, Class O - Special Series 1 shares and
Class O - Special Series 2 shares or such other shares with respect to
such Class by the Board of Directors in accordance with the
Corporation's Charter. All income, earnings, profits, and proceeds,
including any proceeds derived from the sale, exchange or liquidation
of such shares, and any assets derived from any reinvestment of such
proceeds in whatever form shall be allocated among Class O shares,
Class O - Special Series 1 shares and Class O Special Series 2 shares
and all other shares now or hereafter designated as Class O Common
Stock, respectively, (irrespective of whether said shares have been
classified as a part of a series of said Class and, if so classified as
a part of a series, irrespective of the particular series
classification), in proportion to their respective net asset values.
2. Liabilities Belonging to a Class. All the liabilities
(including expenses) of the Corporation in respect of Class O shares,
Class O - Special Series 1 shares and Class O - Special Series 2 shares
and all other shares now or hereafter designated as Class O Common
Stock and in respect of any general liabilities (including expenses) of
the Corporation allocated to Class O shares, Class O Special Series 1
shares and Class O - Special Series 2 shares or such other shares by
the Board of Directors in accordance with the Corporation's Charter
shall be allocated among Class O shares, Class O - Special Series 1
shares and Class O - Special Series 2 shares and such other shares,
respectively, (irrespective of whether said shares have been classified
as a part of a series of said Class and, if so classified as a part of
a series, irrespective of the particular series classification), in
proportion to their respective net asset values:
a. If in the future the Board of Directors determines to enter
into agreements which provide for services only for Class O
shares, Class O - Special Series 1 shares or Class O - Special
Series 2 shares and to allocate any related expenses to the
extent that may be from time to time determined by the Board
of Directors:
(1) only the shares of Class O Common Stock
shall bear: (i) the expenses and liabilities of
payments to institutions under any agreements
entered into by or on behalf of the Corporation
which provide for services by the institutions
-13-
<PAGE> 14
exclusively for their customers who own of record or
beneficially such shares; and (ii) such other
expenses and liabilities as the Board of Directors
may from time to time determine are directly
attributable to such shares and which therefore
should be borne solely by shares of Class O Common
Stock;
(2) only the shares of Class O - Special
Series 1 Common Stock shall bear: (i) the expenses
and liabilities of payments to institutions under any
agreements entered into by or on behalf of the
Corporation which provide for services by the
institutions exclusively for their customers who own
of record or beneficially such shares; and (ii) such
other expenses and liabilities as the Board of
Directors may from time to time determine are
directly attributable to such shares and which
therefore should be borne solely by shares of Class O
- Special Series 1 Common Stock;
(3) Only the shares of Class O - Special
Series 2 Common Stock shall bear: (i) the expenses
and liabilities of payments to institutions under any
agreements entered into by or on behalf of the
Corporation which provide for services by the
institutions exclusively for their customers who own
of record or beneficially such shares; and (ii) such
other expenses and liabilities as the Board of
Directors may from time to time determine are
directly attributable to such shares and which
therefore should be borne solely by shares of Class O
- Special Series 2 Common Stock;
(4) No shares of Class O Common Stock shall
bear the expenses and liabilities described in
subparagraphs (2) and (3) above;
(5) No shares of Class O - Special Series 1
Common Stock shall bear the expenses and liabilities
described in subparagraphs (1) and (3) above; and
(6) No shares of Class O - Special Series 2
Common Stock shall bear the expenses and liabilities
described in subparagraphs (1) and (2) above.
-14-
<PAGE> 15
3. Preferences, Conversion and Other Rights, Voting Powers,
Restrictions, Limitations as to Dividends, Qualifications, and Terms
and Conditions of Redemption. Except as provided hereby, each share of
Class O Common Stock, Class O Common Stock - Special Series 1 and Class
O Common Stock - Special Series 2 shall have the same preferences,
conversion, and other rights, voting powers, restrictions, limitations
as to dividends, qualifications, and terms and conditions of redemption
applicable to all other shares of Common Stock as set forth in the
Charter and shall also have the same preferences, conversion, and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption as each other
share formerly, now or hereafter classified as a share of Class O
Common Stock (irrespective of whether said share has been classified as
a part of a series of said Class and, if so classified as a part of a
series, irrespective of the particular series classification) except
that:
(a)(i) on any matter that pertains to the agreements
or expenses and liabilities described in Section 2, clause
a.(1) (or to any plan or other document adopted by the
Corporation relating to said agreements, expenses, or
liabilities) and is submitted to a vote of shareholders of the
Corporation, only the shares of Class O Common Stock
(excluding the other shares classified as a series of such
Class other than Class O Common Stock) shall be entitled to
vote, except that if said matter affects shares of capital
stock in the Corporation other than shares of Class O Common
Stock, such other affected shares of capital stock in the
Corporation shall also be entitled to vote, and in such case,
such shares of Class O Common Stock shall be voted in the
aggregate together with such other affected shares and not by
class or series except where otherwise required by law or
permitted by the Board of Directors of the Corporation; and
(ii) if any matter submitted to a vote of the shareholders of
the Corporation does not affect the shares of Class O Common
Stock, such shares shall not be entitled to vote (except where
required by law or permitted by the Board of Directors) even
though the matter is submitted to a vote of the holders of
shares of capital stock in the Corporation other than said
shares of Class O Common Stock;
(b)(i) on any matter that pertains to the agreements
or expenses and liabilities described in Section 2, clause
a.(2) above (or to any plan or other document adopted by the
Corporation relating to said agreements, expenses, or
liabilities) and is submitted
-15-
<PAGE> 16
to a vote of shareholders of the Corporation, only shares of
Class O Common Stock - Special Series 1 (excluding shares
designated as a series of such Class other than Class O Common
Stock - Special Series 1) shall be entitled to vote, except
that if said matter affects shares of capital stock of the
Corporation other than shares of Class O Common Stock -
Special Series 1, such other affected shares of capital stock
of the Corporation shall also be entitled to vote, and in such
case shares of Class O Common Stock - Special Series 1 shall
be voted in the aggregate together with such other affected
shares and not by class or series except where otherwise
required by law or permitted by the Board of Directors of the
Corporation; and (ii) if any matter submitted to a vote of the
shareholders of the Corporation does not affect shares of
Class O Common Stock - Special Series 1, said shares shall not
be entitled to vote (except where required by law or permitted
by the Board of Directors) even though the matter is submitted
to a vote of holders of shares of capital stock of the
Corporation other than said shares of Class O Common Stock -
Special Series 1; and
(c)(i) on any matter that pertains to the agreements
or expenses and liabilities described in Section 2, clause
a.(3) above (or to any plan or other document adopted by the
Corporation relating to said agreements, expenses or
liabilities) and is submitted to a vote of shareholders of the
Corporation, only shares of Class O Common Stock - Special
Series 2 (excluding shares designated as a series of such
Class other than Class O Common Stock - Special Series 2)
shall be entitled to vote except that if said matter affects
shares of capital stock other than shares of Class O Common
Stock - Special Series 2, such other affected shares of
capital stock in the Corporation shall also be entitled to
vote, and in such case, such shares of Class O Common Stock -
Special Series 2 shall be voted in the aggregate together with
such other affected shares and not by class or series except
where otherwise required by law or permitted by the Board of
Directors of the Corporation; and (ii) if any matter submitted
to a vote of the shareholders of the Corporation does not
affect the shares of Class O Common Stock - Special Series 2,
such shares shall not be entitled to vote (except where
required by law or permitted by the Board of Directors) even
though the matter is submitted to a vote of the holders of
shares of capital stock in the Corporation other than said
shares of Class O Common Stock - Special Series 2.
-16-
<PAGE> 17
FOURTH: The total number of shares of capital stock
which the Corporation is presently authorized to issue is Seven Billion
(7,000,000,000) shares (of the par value of One Mill ($.001) each) of
Common Stock classified as follows:
<TABLE>
<CAPTION>
Number of Shares
Classification Authorized
-------------- ----------
<S> <C>
Class A 550,000,000
Class A-Special Series 1 1,800,000,000
Class A-Special Series 2 300,000,000
Class A-Special Series 3 50,000,000
Class B 100,000,000
Class B-Special Series 1 1,000,000,000
Class B-Special Series 2 300,000,000
Class C 5,000,000
Class C-Special Series 1 50,000,000
Class C-Special Series 2 20,000,000
Class C-Special Series 3 50,000,000
Class D 5,000,000
Class D-Special Series 1 50,000,000
Class D-Special Series 2 20,000,000
Class D-Special Series 3 50,000,000
Class E 5,000,000
Class E-Special Series 1 15,000,000
Class E-Special Series 2 20,000,000
Class E-Special Series 3 50,000,000
Class F 5,000,000
Class F-Special Series 1 15,000,000
Class F-Special Series 2 20,000,000
Class F-Special Series 3 50,000,000
Class G 5,000,000
Class G-Special Series 1 15,000,000
Class G-Special Series 2 20,000,000
Class G-Special Series 3 50,000,000
Class H 10,000,000
Class H-Special Series 1 10,000,000
Class H-Special Series 2 10,000,000
Class H-Special Series 3 50,000,000
Class I 25,000,000
Class I-Special Series 1 25,000,000
Class J 50,000,000
Class J-Special Series 1 300,000,000
Class K 25,000,000
Class K-Special Series 1 25,000,000
Class K-Special Series 2 10,000,000
Class L 25,000,000
Class L-Special Series 1 25,000,000
Class L-Special Series 2 10,000,000
Class M 25,000,000
Class M-Special Series 1 50,000,000
Class M-Special Series 2 25,000,000
Class M-Special Series 3 25,000,000
Class N 25,000,000
Class N-Special Series 1 50,000,000
Class N-Special Series 2 25,000,000
Class O 25,000,000
Class O-Special Series 1 50,000,000
Class O-Special Series 2 25,000,000
Unclassified 1,455,000,000
</TABLE>
-17-
<PAGE> 18
The aggregate par value of all shares having par value is Seven Million
Dollars ($7,000,000).
FIFTH: The Corporation is registered as an open-end company
under the Investment Company Act of 1940.
IN WITNESS WHEREOF, The ARCH Fund, Inc. has caused these presents to be
signed in its name and on its behalf by its President and its corporate seal to
be hereunto affixed and attested to by its Secretary as of August 30, 1996.
THE ARCH FUND, INC.
Attest:
By:/s/Jerry V. Woodham
---------------------------
Jerry V. Woodham, President
/s/W. Bruce McConnel, III
- -------------------------
W. Bruce McConnel, III
Secretary
-18-
<PAGE> 19
CERTIFICATE
THE UNDERSIGNED, Chairman of the Board and President of THE ARCH FUND,
INC., who executed on behalf of said Corporation the attached Articles
Supplementary of said Corporation, of which this Certificate is made a part,
hereby acknowledges, in the name and on behalf of said Corporation, the attached
Articles Supplementary to be the corporate act of said Corporation, and
certifies that to the best of his knowledge, information and belief the matters
and facts set forth in the attached Articles Supplementary with respect to
authorization and approval are true in all material respects, under the
penalties for perjury.
/s/Jerry V. Woodham
---------------------------
Jerry V. Woodham, President
Dated: August 30, 1996
<PAGE> 1
Exhibit (1)(s)
THE ARCH FUND, INC.
ARTICLES SUPPLEMENTARY
THE ARCH FUND, INC., a Maryland corporation having its
principal office in Maryland in the City of Baltimore, Maryland (hereinafter
called the "Corporation"), hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: The total number of shares of capital stock
which the Corporation was heretofore authorized to issue was Seven
Billion (7,000,000,000) shares (of the par value of One Mill ($.001)
each) and of the aggregate par value of Seven Million Dollars
($7,000,000) of Common Stock classified as follows:
<TABLE>
<CAPTION>
Number of Shares
Classification Authorized
-------------- ----------
<S> <C>
Class A 550,000,000
Class A-Special Series 1 1,800,000,000
Class A-Special Series 2 300,000,000
Class A-Special Series 3 50,000,000
Class B 100,000,000
Class B-Special Series 1 1,000,000,000
Class B-Special Series 2 300,000,000
Class C 5,000,000
Class C-Special Series 1 50,000,000
Class C-Special Series 2 20,000,000
Class C-Special Series 3 50,000,000
Class D 5,000,000
Class D-Special Series 1 50,000,000
Class D-Special Series 2 20,000,000
Class D-Special Series 3 50,000,000
Class E 5,000,000
Class E-Special Series 1 15,000,000
Class E-Special Series 2 20,000,000
Class E-Special Series 3 50,000,000
Class F 5,000,000
Class F-Special Series 1 15,000,000
Class F-Special Series 2 20,000,000
Class F-Special Series 3 50,000,000
Class G 5,000,000
Class G-Special Series 1 15,000,000
Class G-Special Series 2 20,000,000
Class G-Special Series 3 50,000,000
Class H 10,000,000
Class H-Special Series 1 10,000,000
Class H-Special Series 2 10,000,000
Class H-Special Series 3 50,000,000
Class I 25,000,000
Class I-Special Series 1 25,000,000
Class J 50,000,000
Class J-Special Series 1 300,000,000
Class K 25,000,000
Class K-Special Series 1 25,000,000
Class K-Special Series 2 10,000,000
Class L 25,000,000
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
Number of Shares
Classification Authorized
-------------- ----------
<S> <C>
Class L-Special Series 1 25,000,000
Class L-Special Series 2 10,000,000
Class M 25,000,000
Class M-Special Series 1 50,000,000
Class M-Special Series 2 25,000,000
Class M-Special Series 3 25,000,000
Class N 25,000,000
Class N-Special Series 1 50,000,000
Class N-Special Series 2 25,000,000
Class O 25,000,000
Class O-Special Series 1 50,000,000
Class O-Special Series 2 25,000,000
Unclassified 1,455,000,000
</TABLE>
SECOND: Pursuant to Article VI of the Corporation's
Articles of Incorporation (the "Charter"), the Board of Directors of
the Corporation has classified One Hundred Fifty Million (150,000,000)
authorized and unissued shares of previously unclassified Common Stock
as follows:
<TABLE>
<CAPTION>
Number of Shares
Classification Classified
-------------- ----------
<S> <C>
Class P 25,000,000
Class P - Special Series 1 25,000,000
Class P - Special Series 2 25,000,000
Class Q 25,000,000
Class Q - Special Series 1 25,000,000
Class Q - Special Series 2 25,000,000
</TABLE>
pursuant to resolutions unanimously adopted by the Board of Directors
of the Corporation on September 17, 1996.
THIRD: Pursuant to Article VI, Section (5) of the
Charter, the shares of Common Stock newly classified hereby shall have
the following preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption:
A.1. Assets Belonging to a Class. All consideration received
by the Corporation for the issue and sale of shares of Class P Common
Stock, Class P Common Stock - Special Series 1 and Class P Common Stock
- Special Series 2 shall be invested and reinvested with the
consideration received by the Corporation for the issue and sale of all
other shares now or hereafter classified as shares of Class P Common
Stock (irrespective of whether said shares have been classified as a
part of a series of said Class and, if so classified as a part of a
series, irrespective of the particular series classification), together
with all income, earnings, profits, and proceeds thereof, including any
proceeds derived from the sale, exchange, or liquidation
-2-
<PAGE> 3
thereof, and any funds or payments derived from any reinvestment of
such proceeds in whatever form the same may be, and any general assets
of the Corporation allocated to Class P shares, Class P - Special
Series 1 shares and Class P - Special Series 2 shares or such other
shares with respect to such Class by the Board of Directors in
accordance with the Corporation's Charter. All income, earnings,
profits, and proceeds, including any proceeds derived from the sale,
exchange or liquidation of such shares, and any assets derived from any
reinvestment of such proceeds in whatever form shall be allocated among
Class P shares, Class P - Special Series 1 shares and Class P Special
Series 2 shares and all other shares now or hereafter designated as
Class P Common Stock, respectively, (irrespective of whether said
shares have been classified as a part of a series of said Class and, if
so classified as a part of a series, irrespective of the particular
series classification), in proportion to their respective net asset
values.
2. Liabilities Belonging to a Class. All the liabilities
(including expenses) of the Corporation in respect of Class P shares,
Class P - Special Series 1 shares and Class P - Special Series 2 shares
and all other shares now or hereafter designated as Class P Common
Stock and in respect of any general liabilities (including expenses) of
the Corporation allocated to Class P shares, Class P Special Series 1
shares and Class P - Special Series 2 shares or such other shares by
the Board of Directors in accordance with the Corporation's Charter
shall be allocated among Class P shares, Class P - Special Series 1
shares and Class P - Special Series 2 shares and such other shares,
respectively, (irrespective of whether said shares have been classified
as a part of a series of said Class and, if so classified as a part of
a series, irrespective of the particular series classification), in
proportion to their respective net asset values:
a. If in the future the Board of Directors determines to enter
into agreements which provide for services only for Class P
shares, Class P - Special Series 1 shares or Class P - Special
Series 2 shares and to allocate any related expenses to the
extent that may be from time to time determined by the Board
of Directors:
(1) only the shares of Class P Common Stock
shall bear: (i) the expenses and liabilities of
payments to institutions under any agreements entered
into by or on behalf of the Corporation which provide
for services by the institutions exclusively for
their customers who own of record or beneficially
such shares; and (ii) such other
-3-
<PAGE> 4
expenses and liabilities as the Board of Directors
may from time to time determine are directly
attributable to such shares and which therefore
should be borne solely by shares of Class P Common
Stock;
(2) only the shares of Class P - Special
Series 1 Common Stock shall bear: (i) the expenses
and liabilities of payments to institutions under any
agreements entered into by or on behalf of the
Corporation which provide for services by the
institutions exclusively for their customers who own
of record or beneficially such shares; and (ii) such
other expenses and liabilities as the Board of
Directors may from time to time determine are
directly attributable to such shares and which
therefore should be borne solely by shares of Class P
- Special Series 1 Common Stock;
(3) Only the shares of Class P - Special
Series 2 Common Stock shall bear: (i) the expenses
and liabilities of payments to institutions under any
agreements entered into by or on behalf of the
Corporation which provide for services by the
institutions exclusively for their customers who own
of record or beneficially such shares; and (ii) such
other expenses and liabilities as the Board of
Directors may from time to time determine are
directly attributable to such shares and which
therefore should be borne solely by shares of Class P
- Special Series 2 Common Stock;
(4) No shares of Class P Common Stock shall
bear the expenses and liabilities described in
subparagraphs (2) and (3) above;
(5) No shares of Class P - Special Series 1
Common Stock shall bear the expenses and liabilities
described in subparagraphs (1) and (3) above; and
(6) No shares of Class P - Special Series 2
Common Stock shall bear the expenses and liabilities
described in subparagraphs (1) and (2) above.
3. Preferences, Conversion and Other Rights, Voting Powers,
Restrictions, Limitations as to Dividends, Qualifications, and Terms
and Conditions of Redemption. Except as provided hereby, each share of
Class P Common
-4-
<PAGE> 5
Stock, Class P Common Stock - Special Series 1 and Class P Common Stock
- Special Series 2 shall have the same preferences, conversion, and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption applicable to
all other shares of Common Stock as set forth in the Charter and shall
also have the same preferences, conversion, and other rights, voting
powers, restrictions, limitations as to dividends, qualifications, and
terms and conditions of redemption as each other share formerly, now or
hereafter classified as a share of Class P Common Stock (irrespective
of whether said share has been classified as a part of a series of said
Class and, if so classified as a part of a series, irrespective of the
particular series classification) except that:
(a)(i) on any matter that pertains to the agreements
or expenses and liabilities described in Section 2, clause
a.(1) (or to any plan or other document adopted by the
Corporation relating to said agreements, expenses, or
liabilities) and is submitted to a vote of shareholders of the
Corporation, only the shares of Class P Common Stock
(excluding the other shares classified as a series of such
Class other than Class P Common Stock) shall be entitled to
vote, except that if said matter affects shares of capital
stock in the Corporation other than shares of Class P Common
Stock, such other affected shares of capital stock in the
Corporation shall also be entitled to vote, and in such case,
such shares of Class P Common Stock shall be voted in the
aggregate together with such other affected shares and not by
class or series except where otherwise required by law or
permitted by the Board of Directors of the Corporation; and
(ii) if any matter submitted to a vote of the shareholders of
the Corporation does not affect the shares of Class P Common
Stock, such shares shall not be entitled to vote (except where
required by law or permitted by the Board of Directors) even
though the matter is submitted to a vote of the holders of
shares of capital stock in the Corporation other than said
shares of Class P Common Stock;
(b)(i) on any matter that pertains to the agreements
or expenses and liabilities described in Section 2, clause
a.(2) above (or to any plan or other document adopted by the
Corporation relating to said agreements, expenses, or
liabilities) and is submitted to a vote of shareholders of the
Corporation, only shares of Class P Common Stock - Special
Series 1 (excluding shares designated as a series of such
Class other than Class P Common Stock - Special Series 1)
-5-
<PAGE> 6
shall be entitled to vote, except that if said matter affects
shares of capital stock of the Corporation other than shares
of Class P Common Stock - Special Series 1, such other
affected shares of capital stock of the Corporation shall also
be entitled to vote, and in such case shares of Class P Common
Stock - Special Series 1 shall be voted in the aggregate
together with such other affected shares and not by class or
series except where otherwise required by law or permitted by
the Board of Directors of the Corporation; and (ii) if any
matter submitted to a vote of the shareholders of the
Corporation does not affect shares of Class P Common Stock -
Special Series 1, said shares shall not be entitled to vote
(except where required by law or permitted by the Board of
Directors) even though the matter is submitted to a vote of
holders of shares of capital stock of the Corporation other
than said shares of Class P Common Stock - Special Series 1;
and
(c)(i) on any matter that pertains to the agreements
or expenses and liabilities described in Section 2, clause
a.(3) above (or to any plan or other document adopted by the
Corporation relating to said agreements, expenses or
liabilities) and is submitted to a vote of shareholders of the
Corporation, only shares of Class P Common Stock - Special
Series 2 (excluding shares designated as a series of such
Class other than Class P Common Stock - Special Series 2 shall
be entitled to vote except that if said matter affects shares
of capital stock other than shares of Class P Common Stock -
Special Series 2, such other affected shares of capital stock
in the Corporation shall also be entitled to vote, and in such
case, such shares of Class P Common Stock - Special Series 2
shall be voted in the aggregate together with such other
affected shares and not by class or series except where
otherwise required by law or permitted by the Board of
Directors of the Corporation; and (ii) if any matter submitted
to a vote of the shareholders of the Corporation does not
affect the shares of Class P Common Stock - Special Series 2,
such shares shall not be entitled to vote (except where
required by law or permitted by the Board of Directors) even
though the matter is submitted to a vote of the holders of
shares of capital stock in the Corporation other than said
shares of Class P Common Stock - Special Series 2.
B.1. Assets Belonging to a Class. All consideration received
by the Corporation for the issue and sale of shares of Class Q Common
Stock, Class Q Common Stock - Special Series 1 and Class Q Common Stock
- Special Series 2 shall be invested and reinvested with the
consideration received
-6-
<PAGE> 7
by the Corporation for the issue and sale of all other shares now or
hereafter classified as shares of Class Q Common Stock (irrespective of
whether said shares have been classified as a part of a series of said
Class and, if so classified as a part of a series, irrespective of the
particular series classification), together with all income, earnings,
profits, and proceeds thereof, including any proceeds derived from the
sale, exchange, or liquidation thereof, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the
same may be, and any general assets of the Corporation allocated to
Class Q shares, Class Q - Special Series 1 shares and Class Q - Special
Series 2 shares or such other shares with respect to such Class by the
Board of Directors in accordance with the Corporation's Charter. All
income, earnings, profits, and proceeds, including any proceeds derived
from the sale, exchange or liquidation of such shares, and any assets
derived from any reinvestment of such proceeds in whatever form shall
be allocated among Class Q shares, Class Q - Special Series 1 shares
and Class Q Special Series 2 shares and all other shares now or
hereafter designated as Class Q Common Stock, respectively,
(irrespective of whether said shares have been classified as a part of
a series of said Class and, if so classified as a part of a series,
irrespective of the particular series classification), in proportion to
their respective net asset values.
2. Liabilities Belonging to a Class. All the liabilities
(including expenses) of the Corporation in respect of Class Q shares,
Class Q - Special Series 1 shares and Class Q - Special Series 2 shares
and all other shares now or hereafter designated as Class Q Common
Stock and in respect of any general liabilities (including expenses) of
the Corporation allocated to Class Q shares, Class Q Special Series 1
shares and Class Q - Special Series 2 shares or such other shares by
the Board of Directors in accordance with the Corporation's Charter
shall be allocated among Class Q shares, Class Q - Special Series 1
shares and Class Q - Special Series 2 shares and such other shares,
respectively, (irrespective of whether said shares have been classified
as a part of a series of said Class and, if so classified as a part of
a series, irrespective of the particular series classification), in
proportion to their respective net asset values:
a. If in the future the Board of Directors determines to enter
into agreements which provide for services only for Class Q
shares, Class Q - Special Series 1 shares or Class Q - Special
Series 2 shares and to allocate any related expenses to the
extent that may be from time to time determined by the Board
of Directors:
-7-
<PAGE> 8
(1) only the shares of Class Q Common Stock
shall bear: (i) the expenses and liabilities of
payments to institutions under any agreements entered
into by or on behalf of the Corporation which provide
for services by the institutions exclusively for
their customers who own of record or beneficially
such shares; and (ii) such other expenses and
liabilities as the Board of Directors may from time
to time determine are directly attributable to such
shares and which therefore should be borne solely by
shares of Class Q Common Stock;
(2) only the shares of Class Q - Special
Series 1 Common Stock shall bear: (i) the expenses
and liabilities of payments to institutions under any
agreements entered into by or on behalf of the
Corporation which provide for services by the
institutions exclusively for their customers who own
of record or beneficially such shares; and (ii) such
other expenses and liabilities as the Board of
Directors may from time to time determine are
directly attributable to such shares and which
therefore should be borne solely by shares of Class Q
- Special Series 1 Common Stock;
(3) Only the shares of Class Q - Special
Series 2 Common Stock shall bear: (i) the expenses
and liabilities of payments to institutions under any
agreements entered into by or on behalf of the
Corporation which provide for services by the
institutions exclusively for their customers who own
of record or beneficially such shares; and (ii) such
other expenses and liabilities as the Board of
Directors may from time to time determine are
directly attributable to such shares and which
therefore should be borne solely by shares of Class Q
- Special Series 2 Common Stock;
(4) No shares of Class Q Common Stock shall
bear the expenses and liabilities described in
subparagraphs (2) and (3) above;
(5) No shares of Class Q - Special Series 1
Common Stock shall bear the expenses and liabilities
described in subparagraphs (1) and (3) above; and
(6) No shares of Class Q - Special Series 2
Common Stock shall bear the expenses and
-8-
<PAGE> 9
liabilities described in subparagraphs (1) and (2)
above.
3. Preferences, Conversion and Other Rights, Voting Powers,
Restrictions, Limitations as to Dividends, Qualifications, and Terms
and Conditions of Redemption. Except as provided hereby, each share of
Class Q Common Stock, Class Q Common Stock - Special Series 1 and Class
Q Common Stock - Special Series 2 shall have the same preferences,
conversion, and other rights, voting powers, restrictions, limitations
as to dividends, qualifications, and terms and conditions of redemption
applicable to all other shares of Common Stock as set forth in the
Charter and shall also have the same preferences, conversion, and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption as each other
share formerly, now or hereafter classified as a share of Class Q
Common Stock (irrespective of whether said share has been classified as
a part of a series of said Class and, if so classified as a part of a
series, irrespective of the particular series classification) except
that:
(a)(i) on any matter that pertains to the agreements
or expenses and liabilities described in Section 2, clause
a.(1) (or to any plan or other document adopted by the
Corporation relating to said agreements, expenses, or
liabilities) and is submitted to a vote of shareholders of the
Corporation, only the shares of Class Q Common Stock
(excluding the other shares classified as a series of such
Class other than Class Q Common Stock) shall be entitled to
vote, except that if said matter affects shares of capital
stock in the Corporation other than shares of Class Q Common
Stock, such other affected shares of capital stock in the
Corporation shall also be entitled to vote, and in such case,
such shares of Class Q Common Stock shall be voted in the
aggregate together with such other affected shares and not by
class or series except where otherwise required by law or
permitted by the Board of Directors of the Corporation; and
(ii) if any matter submitted to a vote of the shareholders of
the Corporation does not affect the shares of Class Q Common
Stock, such shares shall not be entitled to vote (except where
required by law or permitted by the Board of Directors) even
though the matter is submitted to a vote of the holders of
shares of capital stock in the Corporation other than said
shares of Class Q Common Stock;
(b)(i) on any matter that pertains to the agreements
or expenses and liabilities described in
-9-
<PAGE> 10
Section 2, clause a.(2) above (or to any plan or other
document adopted by the Corporation relating to said
agreements, expenses, or liabilities) and is submitted to a
vote of shareholders of the Corporation, only shares of Class
Q Common Stock - Special Series 1 (excluding shares designated
as a series of such Class other than Class Q Common Stock -
Special Series 1) shall be entitled to vote, except that if
said matter affects shares of capital stock of the Corporation
other than shares of Class Q Common Stock - Special Series 1,
such other affected shares of capital stock of the Corporation
shall also be entitled to vote, and in such case shares of
Class Q Common Stock - Special Series 1 shall be voted in the
aggregate together with such other affected shares and not by
class or series except where otherwise required by law or
permitted by the Board of Directors of the Corporation; and
(ii) if any matter submitted to a vote of the shareholders of
the Corporation does not affect shares of Class Q Common Stock
- Special Series 1, said shares shall not be entitled to vote
(except where required by law or permitted by the Board of
Directors) even though the matter is submitted to a vote of
holders of shares of capital stock of the Corporation other
than said shares of Class Q Common Stock - Special Series 1;
and
(c)(i) on any matter that pertains to the agreements
or expenses and liabilities described in Section 2, clause
a.(3) above (or to any plan or other document adopted by the
Corporation relating to said agreements, expenses or
liabilities) and is submitted to a vote of shareholders of the
Corporation, only shares of Class Q Common Stock - Special
Series 2 (excluding shares designated as a series of such
Class other than Class Q Common Stock - Special Series 2)
shall be entitled to vote except that if said matter affects
shares of capital stock other than shares of Class Q Common
Stock - Special Series 2, such other affected shares of
capital stock in the Corporation shall also be entitled to
vote, and in such case, such shares of Class Q Common Stock -
Special Series 2 shall be voted in the aggregate together with
such other affected shares and not by class or series except
where otherwise required by law or permitted by the Board of
Directors of the Corporation; and (ii) if any matter submitted
to a vote of the shareholders of the Corporation does not
affect the shares of Class Q Common Stock - Special Series 2,
such shares shall not be entitled to vote (except where
required by law or permitted by the Board of Directors) even
though the matter is submitted to a vote of the holders of
shares
-10-
<PAGE> 11
of capital stock in the Corporation other than said shares of
Class Q Common Stock - Special Series 2.
FOURTH: The total number of shares of capital stock
which the Corporation is presently authorized to issue is Seven Billion
(7,000,000,000) shares (of the par value of One Mill ($.001) each) of
Common Stock classified as follows:
<TABLE>
<CAPTION>
Number of Shares
Classification Authorized
-------------- ----------
<S> <C>
Class A 550,000,000
Class A-Special Series 1 1,800,000,000
Class A-Special Series 2 300,000,000
Class A-Special Series 3 50,000,000
Class B 100,000,000
Class B-Special Series 1 1,000,000,000
Class B-Special Series 2 300,000,000
Class C 5,000,000
Class C-Special Series 1 50,000,000
Class C-Special Series 2 20,000,000
Class C-Special Series 3 50,000,000
Class D 5,000,000
Class D-Special Series 1 50,000,000
Class D-Special Series 2 20,000,000
Class D-Special Series 3 50,000,000
Class E 5,000,000
Class E-Special Series 1 15,000,000
Class E-Special Series 2 20,000,000
Class E-Special Series 3 50,000,000
Class F 5,000,000
Class F-Special Series 1 15,000,000
Class F-Special Series 2 20,000,000
Class F-Special Series 3 50,000,000
Class G 5,000,000
Class G-Special Series 1 15,000,000
Class G-Special Series 2 20,000,000
Class G-Special Series 3 50,000,000
Class H 10,000,000
Class H-Special Series 1 10,000,000
Class H-Special Series 2 10,000,000
Class H-Special Series 3 50,000,000
Class I 25,000,000
Class I-Special Series 1 25,000,000
Class J 50,000,000
Class J-Special Series 1 300,000,000
Class K 25,000,000
Class K-Special Series 1 25,000,000
Class K-Special Series 2 10,000,000
Class L 25,000,000
Class L-Special Series 1 25,000,000
Class L-Special Series 2 10,000,000
Class M 25,000,000
Class M-Special Series 1 50,000,000
Class M-Special Series 2 25,000,000
Class M-Special Series 3 25,000,000
Class N 25,000,000
Class N-Special Series 1 50,000,000
Class N-Special Series 2 25,000,000
</TABLE>
-11-
<PAGE> 12
<TABLE>
<CAPTION>
Number of Shares
Classification Authorized
-------------- ----------
<S> <C>
Class O 25,000,000
Class O-Special Series 1 50,000,000
Class O-Special Series 2 25,000,000
Class P 25,000,000
Class P - Special Series 1 25,000,000
Class P - Special Series 2 25,000,000
Class Q 25,000,000
Class Q - Special Series 1 25,000,000
Class Q - Special Series 2 25,000,000
Unclassified 1,305,000,000
</TABLE>
The aggregate par value of all shares having par value is Seven Million
Dollars ($7,000,000).
FIFTH: The Corporation is registered as an open-end company
under the Investment Company Act of 1940.
IN WITNESS WHEREOF, The ARCH Fund, Inc. has caused these presents to be
signed in its name and on its behalf by its President and its corporate seal to
be hereunto affixed and attested to by its Secretary as of _________, 1996.
THE ARCH FUND, INC.
Attest:
By:
---------------------------
Jerry V. Woodham, President
- ----------------------
W. Bruce McConnel, III
Secretary
-12-
<PAGE> 13
CERTIFICATE
THE UNDERSIGNED, Chairman of the Board and President of THE ARCH FUND,
INC., who executed on behalf of said Corporation the attached Articles
Supplementary of said Corporation, of which this Certificate is made a part,
hereby acknowledges, in the name and on behalf of said Corporation, the attached
Articles Supplementary to be the corporate act of said Corporation, and
certifies that to the best of his knowledge, information and belief the matters
and facts set forth in the attached Articles Supplementary with respect to
authorization and approval are true in all material respects, under the
penalties for perjury.
---------------------------
Jerry V. Woodham, President
Dated: , 1996
---------
<PAGE> 1
Exhibit (5)(i)
ADDENDUM NO. 8 TO AMENDED AND RESTATED ADVISORY AGREEMENT
This Addendum, dated as of , 1996, is
entered into between THE ARCH FUND, INC., a Maryland corporation (the "Fund"),
and MISSISSIPPI VALLEY ADVISORS INC., a Missouri corporation ("MVA").
WHEREAS, the Fund and MVA have entered into an Amended and
Restated Advisory Agreement dated as of April 1, 1991, which was extended to
additional investment portfolios of the Fund (pursuant to Section 1(b) of the
Agreement) by Addenda dated September 27, 1991, April 1, 1992, April 1, 1993,
March 15, 1994, July 10, 1995, September 29, 1995 and ________, 1996 (the
"Advisory Agreement"), pursuant to which the Fund appointed MVA to act as
investment adviser to the Fund for the ARCH 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;
WHEREAS, Section 1(b) of the Advisory Agreement provides that
in the event the Fund establishes one or more additional investment portfolios
with respect to which it desires to retain MVA to act as the investment adviser
under the Advisory Agreement, the Fund shall so notify MVA in writing, and if
MVA is willing to render such services it shall notify the Fund in writing, and
the compensation to be paid to MVA shall be that which is agreed to in writing
by the Fund and MVA; and
WHEREAS, the Fund has notified MVA that it has established two
new portfolios, namely, the ARCH Equity Index and ARCH Bond Index Portfolios
(collectively, the "New Portfolios"), and that it desires to retain MVA to act
as the investment adviser therefor, and MVA has notified the Fund that it is
willing to serve as investment adviser for the New Portfolios;
NOW THEREFORE, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. APPOINTMENT. The Fund hereby appoints MVA to act as
investment adviser to the Fund for the New Portfolios for the period and on the
terms set forth in the Advisory Agreement. MVA hereby accepts such appointment
and agrees to render the services set forth in the Advisory Agreement, for the
compensation herein provided.
<PAGE> 2
2. COMPENSATION. For the services provided and expenses
assumed pursuant to the Advisory Agreement with respect to the New Portfolios,
the Fund will pay MVA from the assets belonging to the respective Portfolios,
and MVA will accept as full compensation therefor a fee, computed daily and
payable monthly (in arrears), at the annual rate of .30% of the average daily
net assets of each of the ARCH Equity Index and ARCH Bond Index Portfolios,
respectively.
The fee attributable to each of the ARCH Equity Index and ARCH
Bond Index Portfolios shall be the obligation of that respective Portfolio and
not of any other Portfolio of the Fund.
3. CAPITALIZED TERMS. From and after the date hereof, the term
"Portfolios" as used in the Advisory Agreement shall be deemed to include the
New Portfolios. Capitalized terms used herein and not otherwise defined shall
have the meanings ascribed to them in the Advisory Agreement.
4. MISCELLANEOUS. Except to the extent supplemented hereby,
the Advisory Agreement shall remain unchanged and in full force and effect and
is hereby ratified and confirmed in all respects as supplemented hereby.
IN WITNESS WHEREOF, the undersigned have executed this
Addendum as of the date and year first above written.
THE ARCH FUND, INC.
By:
--------------------
Jerry V. Woodham
President
MISSISSIPPI VALLEY ADVISORS INC.
By:
--------------------
John H. Blixen
President
-2-
<PAGE> 1
Exhibit (5)(j)
SUB-ADVISORY AGREEMENT
(INTERNATIONAL EQUITY FUND)
AGREEMENT made as of August 29, 1996 between Mississippi
Valley Advisors Inc., a Missouri corporation (the "Adviser"), and Clay Finlay,
Inc., a New York corporation ("Sub-Adviser").
WHEREAS, The ARCH Fund, Inc. (the "Fund") is registered as an
open-end, management investment company under the Investment Company Act of
1940, as amended (the "1940 Act");
WHEREAS, the Adviser has been appointed investment adviser to
the Fund's International Equity Portfolio (the "Portfolio"); and
WHEREAS, the Adviser desires to retain Sub-Adviser to assist
it in the provision of a continuous investment program for the Portfolio and
Sub-Adviser is willing to do so;
WHEREAS, the Board of Directors of the Fund has approved this
Agreement, subject to approval by the shareholders of the Portfolio, and
Sub-Adviser is willing to furnish such services upon the terms and conditions
herein set forth;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Adviser hereby appoints Sub-Adviser to act
as sub-advisor to the Portfolio as permitted by the Adviser's Advisory Agreement
with the Fund pertaining to the Portfolio. Intending to be legally bound,
Sub-Adviser accepts such appointment and agrees to render the services herein
set forth for the compensation herein provided.
2. Sub-Advisory Services. Subject to the supervision of the
Fund's Board of Directors, Sub-Adviser will assist the Adviser in providing a
continuous investment program for the Portfolio, including investment research
and management with respect to all securities and investments and cash
equivalents in the Portfolio. Sub-Adviser will provide services under this
Agreement in accordance with the Portfolio's investment objective, policies and
restrictions as stated in the Portfolio's prospectus and resolutions of the
Fund's Board of Directors applicable to the Portfolio.
<PAGE> 2
Without limiting the generality of the foregoing, Sub-Adviser
further agrees that it:
(a) will prepare, subject to the Adviser's approval,
lists of foreign countries for investment by the Portfolio and
determine from time to time what securities and other
investments will be purchased, retained or sold for the
Portfolio, including, with the assistance of the Adviser, the
Portfolio's investments in futures and forward currency
contracts;
(b) will manage in consultation with the Adviser the
Portfolio's temporary investments in securities;
(c) will place orders pursuant to its investment
determinations for the Portfolio either directly with the
issuer or with any broker or dealer;
(d) will not purchase shares of the Portfolio for
itself or for accounts with respect to which it exercises sole
investment discretion in connection with such transactions
except as permitted by the Fund's Board of Directors or by
federal, state and local law;
(e) will manage the Portfolio's overall cash
position, and determine from time to time what portion of the
Portfolio's assets will be held in different currencies;
(f) will provide the Adviser with foreign broker
research, a quarterly review of international economic and
investment developments, and occasional "White Papers" on
international investment issues;
(g) will attend regular business and
investment-related meetings with the Fund's Board of Directors
and the Adviser if requested to do so by the Fund and/or the
Adviser; and
(h) will maintain books and records with respect to
the securities transactions for the Portfolio, furnish to the
Adviser and the Fund's Board of Directors such periodic and
special reports as they may request with respect to the
Portfolio, and provide in advance to the Adviser all reports
to the Board of Directors for examination and review within a
reasonable time prior to the Fund's Board meetings.
3. Covenants by Sub-Adviser. Sub-Adviser agrees with respect
to the services provided to the Portfolio that it:
-2-
<PAGE> 3
(a) will conform with all Rules and Regulations
of the Securities and Exchange Commission;
(b) will telecopy trade information to the Adviser on
the first business day following the day of the trade and
cause broker confirmations to be sent directly to the Adviser;
and
(c) will treat confidentially and as proprietary
information of the Fund all records and other information
relative to the Fund and prior, present or potential
shareholders, and will not use such records and information
for any purpose other than performance of its responsibilities
and duties hereunder (except after prior notification to and
approval in writing by the Fund, which approval shall not be
unreasonably withheld and may not be withheld and will be
deemed granted where Sub-Adviser may be exposed to civil or
criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted
authorities, or when so requested by the Fund).
4. Services Not Exclusive. The services furnished by
Sub-Adviser hereunder are deemed not to be exclusive, and nothing in this
Agreement shall (i) prevent Sub-Adviser or any affiliated person (as defined in
the 1940 Act) of Sub-Adviser from acting as investment adviser or manager for
any other person or persons, including other management investment companies
with investment objectives and policies the same as or similar to those of the
Portfolio or (ii) limit or restrict Sub-Adviser or any such affiliated person
from buying, selling or trading any securities or other investments (including
any securities or other investments which the Portfolio is eligible to buy) for
its or their own accounts or for the accounts of others for whom it or they may
be acting; provided, however, that Sub-Adviser agrees that it will not undertake
any activities which, in its reasonable judgment, will adversely affect the
performance of its obligations to the Portfolio under this Agreement.
5. Portfolio Transactions. Investment decisions for the
Portfolio shall be made by Sub-Adviser independently from those for any other
investment companies and accounts advised or managed by Sub-Adviser. The
Portfolio and such investment companies and accounts may, however, invest in the
same securities. When a purchase or sale of the same security is made at
substantially the same time on behalf of the Portfolio and/or another investment
company or account, the transaction will be averaged as to price, and available
investments allocated as to amount, in a manner which 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
-3-
<PAGE> 4
the price paid or received by the Portfolio or the size of the position obtained
or sold by the Portfolio. To the extent permitted by law, Sub-Adviser may
aggregate the securities to be sold or purchased for the Portfolio with those to
be sold or purchased for other investment companies or accounts in order to
obtain best execution.
Sub-Adviser shall place orders for the purchase and sale of
portfolio securities and will solicit broker-dealers to execute transactions in
accordance with the Portfolio's policies and restrictions regarding brokerage
allocations. Sub-Adviser shall place orders pursuant to its investment
determinations for the Portfolio either directly with the issuer or with any
broker or dealer selected by Sub-Adviser. In executing portfolio transactions
and selecting brokers or dealers, Sub-Adviser shall use its reasonable best
efforts to seek the most favorable execution of orders, after taking into
account all factors Sub-Adviser deems relevant, including the breadth of the
market in the security, the price of the security, the financial condition and
execution capability of the broker or dealer, and the reasonableness of the
commission, if any, both for the specific transaction and on a continuing basis.
Consistent with this obligation, Sub-Adviser may, to the extent permitted by
law, purchase and sell portfolio securities to and from brokers and dealers who
provide brokerage and research services (within the meaning of Section 28(e) of
the Securities Exchange Act of 1934) to or for the benefit of the Portfolio
and/or other accounts over which Sub-Adviser or any of its affiliates exercises
investment discretion. Sub-Adviser is authorized to pay to a broker or dealer
who provides such brokerage and research services a commission for executing a
portfolio transaction for the Portfolio which is in excess of the amount of
commission another broker or dealer would have charged for effecting that
transaction if Sub-Adviser determines in good faith that such commission was
reasonable in relation to the value of the brokerage and research services
provided by such broker or dealer, viewed in terms of either that particular
transaction or Sub-Adviser's overall responsibilities to the Portfolio and to
the Fund. In no instance will portfolio securities be purchased from or sold to
Sub-Adviser, or the Portfolio's principal underwriter, or any affiliated person
thereof except as permitted by the Securities and Exchange Commission.
6. Books and Records. In compliance with the requirements of
Rule 31a-3 under the 1940 Act, Sub-Adviser hereby agrees that all records which
it maintains for the Fund are the property of the Fund and further agrees to
surrender promptly to the Fund any of such records upon the Fund's request.
Sub-Adviser further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act the records required to be maintained by Rule 31a-1 under the
1940 Act.
-4-
<PAGE> 5
7. Expenses. During the term of this Agreement, Sub-Adviser
will pay all expenses incurred by it in connection with its activities under
this Agreement other than the cost of securities, commodities and other
investments (including brokerage commissions and other transaction charges, if
any) purchased for the Portfolio.
8. Compensation.
(a) For the services provided and the expenses
assumed with respect to the Portfolio pursuant to this Agreement, Sub-Adviser
will be entitled to a fee, computed daily and payable monthly, from Adviser,
calculated at the annual rate of .75% of the first $50 million of the
Portfolio's average daily net assets, plus .50% of the next $50 million of
average daily net assets, plus .25% of average daily net assets in excess of
$100 million.
(b) If the Adviser reimburses the Fund, pursuant to
Section 8(b) of the Advisory Agreement, with respect to the Portfolio, the
Sub-Adviser will bear its share of the amount of such reimbursement by waiving
fees otherwise payable to it hereunder on a proportionate basis to be determined
by comparing the aggregate fees otherwise payable to it hereunder with respect
to the Portfolio to the aggregate fees otherwise payable by the Fund to the
Adviser under the Advisory Agreement with respect to the Portfolio.
9. Standard of Care; Limitation of Liability. Sub-Adviser
shall exercise due care and diligence and use the same skill and care in
providing its services hereunder as it uses in providing services to other
investment companies, but shall not be liable for any action taken or omitted by
Sub-Adviser in the absence of bad faith, willful misconduct, gross negligence or
reckless disregard of its duties.
10. Reference to Sub-Adviser. Neither the Adviser nor any
affiliate or agent of it shall make reference to or use the name of Sub-Adviser
or any of its affiliates, or any of their clients, except references concerning
the identity of and services provided by Sub-Adviser to the Portfolio, which
references shall not differ in substance from those included in the current
registration statement pertaining to the Portfolio, this Agreement and the
Advisory Agreement between the Adviser and the Fund with respect to the
Portfolio, in any advertising or promotional materials without the prior
approval of Sub-Adviser, which approval shall not be unreasonably withheld or
delayed. The Adviser hereby agrees to make all reasonable efforts to cause the
Fund and any affiliate thereof to satisfy the foregoing obligation.
-5-
<PAGE> 6
11. Duration and Termination. Unless sooner terminated, this
Agreement shall continue until January 25, 1998, and thereafter shall continue
automatically for successive annual periods, provided such continuance is
specifically approved at least annually by the Fund's Board of Directors or vote
of the lesser of (a) 67% of the shares of the Portfolio represented at a meeting
if holders of more than 50% of the outstanding shares of the Portfolio are
present in person or by proxy or (b) more than 50% of the outstanding shares of
the Portfolio, provided that in either event its continuance also is approved by
a majority of the Fund's Directors who are not "interested persons" (as defined
in the 1940 Act) of any party to this Agreement, by vote cast in person at a
meeting called for the purpose of voting on such approval. This Agreement is
terminable at any time without penalty, on 60 days' notice, by Adviser,
Sub-Adviser or by the Fund's Board of Directors or by vote of the lesser of (a)
67% of the shares of the Portfolio represented at a meeting if holders of more
than 50% of the outstanding shares of the Portfolio are present in person or by
proxy or (b) more than 50% of the outstanding shares of the Portfolio. This
Agreement will terminate automatically in the event of its assignment (as
defined in the 1940 Act).
12. Amendment of this Agreement. No provision of this
Agreement may be changed, waived, discharged or terminated orally, but only by
an instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought. No amendment of this
Agreement shall be effective with respect to the Portfolio until approved by the
vote of a majority of the outstanding voting securities of the Portfolio.
13. Notice. Any notice, advice or report to be given pursuant
to this Agreement shall be delivered or mailed:
To Sub-Adviser at:
200 Park Avenue
New York, NY 10166
To the Adviser at:
One Mercantile Center
7th and Washington Streets
Suite 2100
St. Louis, MO 63101
To the Fund at:
1345 Chestnut Street, Suite 1100
-6-
<PAGE> 7
Philadelphia, PA 19107
14. 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. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby.
This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by Maryland law.
15. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day and
year first above written.
MISSISSIPPI VALLEY ADVISORS INC.
Attest:
/s/Timothy S. Engelbrecht By: /s/Ralph W. Webster III
- ------------------------- -----------------------
CLAY FINLAY, INC.
Attest:
/s/John P. Clay By: /s/D. Francis Finlay
- --------------- --------------------
-7-
<PAGE> 1
Exhibit (6)(g)
ADDENDUM NO. 6 TO DISTRIBUTION AGREEMENT
This Addendum, dated as of , 1996, is entered
into between THE ARCH FUND, INC. (the "Fund"), a Maryland corporation, and
BISYS FUND SERVICES ("BISYS"), an Ohio limited partnership formerly known as
The Winsbury Company Limited Partnership.
WHEREAS, the Fund and BISYS have entered into a Distribution
Agreement dated as of October 1, 1993 as amended March 15, 1994, March 1, 1995,
July 10, 1995, September 29, 1995 and ________, 1996 (the "Distribution
Agreement"), pursuant to which the Fund appointed BISYS to act as Distributor
for the Fund's ARCH 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;
WHEREAS, Section 9 of the Distribution Agreement provides that
no provision of the Agreement may be changed, discharged or terminated orally,
but only by an instrument in writing signed by the party against which
enforcement of the change, discharge or termination is sought; and
WHEREAS, the Fund has notified BISYS that it has established
two new portfolios, namely, the ARCH Equity Index and ARCH Bond Index Portfolios
(collectively, the "New Portfolios"), and that it desires to retain BISYS to act
as the Distributor therefor, and BISYS has notified the Fund that it is willing
to serve as Distributor for the New Portfolios.
NOW THEREFORE, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. APPOINTMENT. The Fund hereby appoints BISYS to act as
Distributor to the Fund for the New Portfolios for the period and on the terms
set forth in the Distribution Agreement. BISYS hereby accepts such appointment
and agrees to render the services set forth in the Distribution Agreement.
2. TERMS. From and after the date hereof, the term
"Portfolios" as used in the Distribution Agreement shall be deemed to include
the New Portfolios. Capitalized terms used herein and not otherwise defined
shall have the meanings ascribed to them in the Distribution Agreement.
<PAGE> 2
3. APPENDIX A. Appendix A to the Distribution Agreement is
hereby supplemented to read as set forth in Appendix A attached hereto.
4. MISCELLANEOUS. Except to the extent supplemented hereby,
the Distribution Agreement shall remain unchanged and in full force and effect
and is hereby ratified and confirmed in all respects as supplemented hereby.
IN WITNESS WHEREOF, the undersigned have executed this
Addendum as of the date and year first above written.
THE ARCH FUND, INC.
By:
------------------------
Jerry V. Woodham
President
BISYS FUND SERVICES, INC.
By:
------------------------
Stephen G. Mintos
Executive Vice President
<PAGE> 3
APPENDIX A
to the
DISTRIBUTION AGREEMENT
between
THE ARCH FUND, INC.
and
BISYS FUND SERVICES, INC.
- --------------------------------------------------------------------------------
Money Market Portfolio (Trust shares, Investor A shares, Institutional shares
and Investor B shares)
Treasury Money Market Portfolio (Trust shares, Investor A shares and
Institutional shares)
Growth & Income Equity Portfolio (Trust shares, Investor A shares, Institutional
shares and Investor B shares)
Emerging Growth Portfolio (Trust shares, Investor A shares, Institutional shares
and Investor B shares)
Government & Corporate Bond Portfolio (Trust shares, Investor A shares,
Institutional shares and Investor B shares)
U.S. Government Securities Portfolio (Trust shares, Investor A shares,
Institutional shares and Investor B shares)
Balanced Portfolio (Trust shares, Investor A shares, Institutional shares and
Investor B shares)
International Equity Portfolio (Trust shares, Investor A shares, Institutional
shares and Investor B shares)
Short-Intermediate Municipal Portfolio (Trust Shares and Investor A shares)
Tax-Exempt Money Market Portfolio (Trust shares and Investor A shares)
Missouri Tax-Exempt Bond Portfolio (Trust shares, Investor A shares and Investor
B shares)
Kansas Tax-Exempt Bond Portfolio (Trust shares, Investor A shares and Investor B
shares)
Equity Income Portfolio (Trust shares, Investor A shares, Institutional shares
and Investor B shares)
<PAGE> 4
National Municipal Bond Portfolio (Trust shares, Investor A shares and Investor
B shares)
Short-Intermediate Corporate Bond Portfolio (Trust shares, Investor A shares and
Institutional shares)
Equity Index Portfolio (Trust shares, Investor A shares and Institutional
shares)
Bond Index Portfolio (Trust shares, Investor A shares and Institutional shares)
<PAGE> 1
Exhibit (8)(f)
, 1996
Mercantile Bank of St. Louis National Association
One Mercantile Center
St. Louis, Missouri 63101
RE: Custody Fees for the ARCH Equity Index and ARCH
Bond Index Portfolios
-----------------------------------------------
Gentlemen:
This letter constitutes our agreement with respect to
compensation to be paid to Mercantile Bank of St. Louis National Association
("Mercantile") with respect to the ARCH Equity Index Portfolio (comprised of
Class P, Class P - Special Series 1 and Class P - Special Series 2 shares) and
the ARCH Bond Index Portfolio (comprised of Class Q, Class Q - Special Series 1
and Class O - Special Series 2 shares) (each class a "Series") under the terms
of the Custodian Agreement dated as of April 1, 1992 (the "Custodian Agreement")
between The ARCH Fund, Inc. (the "Fund") and Mercantile. Pursuant to Paragraph
23 of the Custodian Agreement, and in consideration of the services to be
provided by you, we will pay Mercantile the following:
1. An annual custody fee (exclusive of any transaction charges),
which shall be calculated daily and paid monthly (in arrears) for each Series as
follows:
- The ARCH Equity Index Portfolio - the greater of $6,000.00 or
$.30 for each $1,000.00 of the Series' average daily net
assets; and
- The ARCH Bond Index Portfolio - the greater of $6,000.00 or
$.30 for each $1,000.00 of the Series' average daily net
assets.
2. A transaction charge of $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 for
each purchase, sale or expiration of a futures contract, and $15.00
<PAGE> 2
Mercantile Bank of St. Louis, N.A.
, 1996
Page Two
for each repurchase trade with an institution other than Mercantile;
3. Mercantile's incremental costs in providing foreign custody services
for foreign denominated and held securities; and
4. Mercantile's out-of-pocket expenses, including but not limited to
postage, telephone, telex, Federal Express and Federal Reserve wire fees, on
behalf of the Series.
The fee and expenses attributable to each Series shall be the
obligation of that Series and not of any other portfolio of the Fund. The fee
for the period from the day of the year this agreement is entered into until the
end of that fiscal year of the Series, or for any portion of a fiscal year
immediately prior to its termination, shall be pro-rated according to the
proportion which such period bears to the full annual period.
If the foregoing accurately sets forth our agreement and you
intend to be legally bound thereby, please execute a copy of this letter and
return it to us.
Very truly yours,
THE ARCH FUND, INC.
By:
---------------------------
Jerry V. Woodham, President
ACCEPTED: MERCANTILE BANK OF ST. LOUIS
NATIONAL ASSOCIATION
By:
---------------------------------------
Donald A. Salama, Senior Vice President
Dated as of: , 1996
<PAGE> 1
Exhibit (9)(g)
ADDENDUM NO. 6 TO ADMINISTRATION AGREEMENT
This Addendum, dated as of __________, 1996, is entered into
between THE ARCH FUND, INC. (the "Fund"), a Maryland corporation, and BISYS
FUND SERVICES OHIO, INC. ("BISYS Ohio"), an Ohio corporation formerly known as
The Winsbury Service Corporation.
WHEREAS, the Fund and BISYS Ohio have entered into an
Administration Agreement dated as of October 1, 1993 as amended March 15, 1994,
March 1, 1995, July 10, 1995, September 29, 1995 and ___________, 1996 (the
"Administration Agreement"), pursuant to which the Fund appointed BISYS Ohio to
act as Administrator for the Fund's ARCH 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;
WHEREAS, Section 10 of the Administration Agreement provides
that no provision of the Agreement may be changed, discharged or terminated
orally, but only by an instrument in writing signed by the party against which
enforcement of the change, discharge or termination is sought; and
WHEREAS, the Fund has notified BISYS Ohio that it has
established two new portfolios, namely, the ARCH Equity Index and ARCH Bond
Index Portfolios (collectively, the "New Portfolios"), and that it desires to
retain BISYS Ohio to act as the Administrator therefor, and BISYS Ohio has
notified the Fund that it is willing to serve as Administrator for the New
Portfolios.
NOW THEREFORE, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. APPOINTMENT. The Fund hereby appoints BISYS Ohio to act as
Administrator to the Fund for the New Portfolios for the period and on the terms
set forth in the Administration Agreement. BISYS Ohio hereby accepts such
appointment and agrees to render the services set forth in the Administration
Agreement, for the compensation herein provided.
2. COMPENSATION. For the services provided and expenses
assumed pursuant to the Administration Agreement with respect to the Portfolios,
the Fund will pay BISYS Ohio, as agent for itself, a monthly fee (in arrears) on
the first business day of each month at the annual rates of .20% and .20% of the
average
<PAGE> 2
daily net assets of the ARCH Equity Index and ARCH Bond Index Portfolios,
respectively.
The fee attributable to each of the ARCH Equity Index and ARCH
Bond Index Portfolios shall be the obligation of that respective Portfolio and
not of any other Portfolio of the Fund.
3. TERMS. From and after the date hereof, the term "Portfolios" as used
in the Administration Agreement shall be deemed to include the New Portfolios.
Capitalized terms used herein and not otherwise defined shall have the meanings
ascribed to them in the Administration Agreement.
4. APPENDIX A. Appendix A to the Administration Agreement is hereby
supplemented to read as set forth in Appendix A attached hereto.
5. MISCELLANEOUS. Except to the extent supplemented hereby, the
Administration Agreement shall remain unchanged and in full force and effect and
is hereby ratified and confirmed in all respects as supplemented hereby.
IN WITNESS WHEREOF, the undersigned have executed this
Addendum as of the date and year first above written.
THE ARCH FUND, INC.
By:______________________________
Jerry V. Woodham
President
BISYS FUND SERVICES OHIO, INC.
By:______________________________
Stephen G. Mintos
Executive Vice President
-2-
<PAGE> 3
APPENDIX A
to the
ADMINISTRATION AGREEMENT
between
THE ARCH FUND, INC.
and
BISYS FUND SERVICES OHIO, INC. (formerly
known as The Winsbury Service Corporation)
- --------------------------------------------------------------------------------
Money Market Portfolio (Trust Shares, Investor A Shares, Institutional Shares
and Investor B Shares)
Treasury Money Market Portfolio (Trust Shares, Investor A Shares and
Institutional Shares)
Growth & Income Equity Portfolio (Trust Shares, Investor A Shares, Institutional
and Investor B Shares)
Emerging Growth Portfolio (Trust Shares, Investor A Shares, Institutional and
Investor B Shares)
Government & Corporate Bond Portfolio (Trust Shares, Investor A Shares,
Institutional and Investor B Shares)
U.S. Government Securities Portfolio (Trust Shares, Investor A Shares,
Institutional and Investor B Shares)
Balanced Portfolio (Trust Shares, Investor A Shares, Institutional and Investor
B Shares)
International Equity Portfolio (Trust Shares, Investor A Shares, Institutional
and Investor B Shares)
Short-Intermediate Municipal Portfolio (Trust Shares and Investor A Shares)
Tax-Exempt Money Market Portfolio (Trust Shares and Investor A Shares)
Missouri Tax-Exempt Bond Portfolio (Trust Shares, Investor A Shares and Investor
B Shares)
Kansas Tax Exempt Bond Portfolio (Trust Shares, Investor A Shares and Investor B
Shares)
-3-
<PAGE> 4
Equity Income Portfolio (Trust Shares, Investor A Shares, Institutional Shares
and Investor B Shares)
National Municipal Bond Portfolio (Trust Shares, Investor A Shares and Investor
B Shares)
Short-Intermediate Corporate Bond Portfolio (Trust Shares, Investor A Shares and
Institutional Shares)
Equity Index Portfolio (Trust Shares, Investor A Shares and Institutional
Shares)
Bond Index Portfolio (Trust Shares, Investor A Shares and Institutional Shares)
-4-
<PAGE> 1
Exhibit (9)(n)
ADDENDUM NO. 6 TO TRANSFER AGENCY AGREEMENT
This Addendum, dated as of ________, 1996, is entered into
between THE ARCH FUND, INC. (the "Fund"), a Maryland corporation, and BISYS
FUND SERVICES OHIO, INC. ("BISYS Ohio"), an Ohio corporation formerly known as
The Winsbury Service Corporation.
WHEREAS, the Fund and BISYS Ohio have entered into a Transfer
Agency Agreement dated as of October 1, 1993 as amended March 15, 1994, March 1,
1995, July 10, 1995, September 29, 1995 and ________, 1996 (the "Transfer Agency
Agreement"), pursuant to which the Fund appointed BISYS Ohio to act as Transfer
Agent for the Fund's ARCH 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;
WHEREAS, Section 20 of the Transfer Agency Agreement provides
that no provision of the Agreement may be changed, discharged or terminated
orally, but only by an instrument in writing signed by the party against which
enforcement of the change, discharge or termination is sought; and
WHEREAS, the Fund has notified BISYS Ohio that it has
established two new portfolios, namely, the ARCH Equity Index and ARCH Bond
Index Portfolios (collectively, the "New Portfolios"), and that it desires to
retain BISYS Ohio to act as the Transfer Agent therefor, and BISYS Ohio has
notified the Fund that it is willing to serve as Transfer Agent for the New
Portfolios.
NOW THEREFORE, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. APPOINTMENT. The Fund hereby appoints BISYS Ohio to act as
Transfer Agent to the Fund for the New Portfolios for the period and on the
terms set forth in the Transfer Agency Agreement. BISYS Ohio hereby accepts such
appointment and agrees to render the services set forth in the Transfer Agency
Agreement, for the compensation herein provided.
2. FEES. For the services provided and expenses assumed
pursuant to the Transfer Agency Agreement with respect to the New Portfolios,
the Fund will pay BISYS Ohio in accordance with, and in the manner set forth in,
Appendix C hereto. Fees for any additional services to be provided by the
Transfer Agent pursuant to an amendment to Appendix B hereto shall be subject to
<PAGE> 2
mutual agreement at the time such amendment to Appendix B is proposed.
3. TERMS. From and after the date hereof, the term "Portfolios" as used
in the Transfer Agency Agreement shall be deemed to include the New Portfolios.
Capitalized terms used herein and not otherwise defined shall have the meanings
ascribed to them in the Transfer Agency Agreement.
4. APPENDIX A. Appendix A to the Transfer Agency Agreement is hereby
supplemented to read as set forth in Appendix A attached hereto.
5. MISCELLANEOUS. Except to the extent supplemented hereby, the
Transfer Agency Agreement shall remain unchanged and in full force and effect
and is hereby ratified and confirmed in all respects as supplemented hereby.
IN WITNESS WHEREOF, the undersigned have executed this
Addendum as of the date and year first above written.
THE ARCH FUND, INC.
By:____________________________
Jerry V. Woodham
President
BISYS FUND SERVICES OHIO, INC.
By:____________________________
Stephen G. Mintos
Executive Vice President
-2-
<PAGE> 3
APPENDIX A
TO THE
TRANSFER AGENCY AGREEMENT
BETWEEN
THE ARCH FUND, INC.
AND
BISYS FUND SERVICES OHIO, INC. (FORMERLY
KNOWN AS THE WINSBURY SERVICE CORPORATION)
- --------------------------------------------------------------------------------
Money Market Portfolio (Trust shares, Investor A shares, Institutional shares
and Investor B shares)
Treasury Money Market Portfolio (Trust shares, Investor A shares and
Institutional shares)
Growth & Income Equity Portfolio (Trust shares, Investor A shares, Institutional
shares and Investor B shares)
Emerging Growth Portfolio (Trust shares, Investor A shares, Institutional shares
and Investor B shares)
Government & Corporate Bond Portfolio (Trust shares, Investor A shares,
Institutional shares and Investor B shares)
U.S. Government Securities Portfolio (Trust shares, Investor A shares,
Institutional shares and Investor B shares)
Balanced Portfolio (Trust shares, Investor A shares, Institutional shares and
Investor B shares)
International Equity Portfolio (Trust shares, Investor A shares, Institutional
shares and Investor B shares)
Short-Intermediate Municipal Portfolio (Trust Shares and Investor A shares)
Tax-Exempt Money Market Portfolio (Trust shares and Investor A shares)
Missouri Tax-Exempt Bond Portfolio (Trust shares, Investor A shares and Investor
B shares)
Kansas Tax-Exempt Bond Portfolio (Trust shares, Investor A shares and Investor B
shares)
-3-
<PAGE> 4
Equity Income Portfolio (Trust shares, Investor A shares, Institutional shares
and Investor B shares)
National Municipal Bond Portfolio (Trust shares, Investor A shares and Investor
B shares)
Short-Intermediate Corporate Bond Portfolio (Trust shares, Investor A shares and
Institutional shares)
Equity Index Portfolio (Trust shares, Investor A shares and Institutional
shares)
Bond Index Portfolio (Trust shares, Investor A shares and Institutional shares)
-4-
<PAGE> 5
APPENDIX B
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
THE ARCH FUND, INC. AND BISYS FUND SERVICES OHIO, INC.
(FORMERLY KNOWN AS THE WINSBURY SERVICE CORPORATION)
TRANSFER AGENCY SERVICES
1. SHAREHOLDER TRANSACTIONS
a. Process shareholder purchase and redemption orders.
b. Set up account information, including address,
dividend option, taxpayer identification numbers and
wire instructions.
c. Issue confirmations in compliance with Rule 10 under
the Securities Exchange Act of 1934, as amended, and
in accordance with Section 8-408 of the Maryland
Commercial Law Article, as amended.
d. Issue periodic statements for shareholders.
e. Process transfers and exchanges.
f. Process dividend payments, including the purchase of
new shares through dividend reinvestment.
2. SHAREHOLDER INFORMATION SERVICES
a. Make information available to shareholder servicing
unit and other remote access units regarding trade
date, share price, current holdings, yields, and
dividend information.
b. Produce detailed history of transactions through
duplicate or special order statements upon request.
c. Provide mailing labels for distribution of financial
reports, prospectuses, proxy statements, or marketing
material to current shareholders.
3. COMPLIANCE REPORTING
a. Provide reports to the Securities and Exchange
Commission, the National Association of Securities
Dealers and the States in which the Fund is
registered.
-5-
<PAGE> 6
b. Prepare and distribute appropriate Internal Revenue
Service forms for corresponding Portfolio and
shareholder income and capital gains.
c. Issue tax withholding reports to the Internal Revenue
Service.
4. DEALER/LOAD PROCESSING
a. Provide reports for tracking rights of accumulation
and purchases made under a Letter of Intent.
b. Account for separation of shareholder investments
from transaction sale charges for purchases of
Portfolio shares.
c. Calculate fees due under 12b-1 plans for distribution
and marketing expenses.
d. Track sales and commission statistics by dealer and
provide for payment of commissions on direct
shareholder purchases in a load Portfolio.
5. SHAREHOLDER ACCOUNT MAINTENANCE
a. Maintain all shareholder records for each account in
the Company.
b. Issue customer statements on scheduled cycle,
providing duplicate second and third party copies if
required.
c. Record shareholder account information changes.
d. Maintain account documentation files for each
shareholder.
e. Provide sub-accounting services for a record holder
upon request of such record holder.
-6-
<PAGE> 7
APPENDIX C
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
THE ARCH FUND, INC. AND BISYS FUND SERVICES OHIO, INC.
(FORMERLY KNOWN AS THE WINSBURY SERVICE CORPORATION)
FEE SCHEDULE
A. ANNUAL BASE FEE
1. Portfolios which have Investor A Shares shall pay an
Annual Base Fee of $10,000 plus $19 per shareholder
per Portfolio.
2. Portfolios which have Investor B Shares shall pay an
Annual Base Fee of $10,000 plus $19 per shareholder
per Portfolio.
3. Portfolios which have Trust Shares shall pay an
Annual Base Fee of $8,000 plus $15 per shareholder
per Portfolio.
4. Portfolios which have Institutional Shares shall pay
an Annual Base Fee of $8,000 plus $15 per shareholder
per Portfolio.
B. ANNUAL ADDITIONAL FEES. These fees are in addition to the
Annual Base Fees.
1. Portfolios participating in the Asset Advisor (asset
allocation) program shall pay an annual fee of $3,000
per Portfolio
2. Out of pocket costs, including postage, Tymnet
charges, statement/confirm paper, forms, and
microfiche will be added to the Transfer Agency Fees.
C. ALLOCATION OF FEES. Transfer Agency fees paid under this
Agreement shall be treated as an expense of the Company and
shall be accrued and allocated pro rata each month to the
Portfolios on the basis of their respective net assets at
the end of the preceding month and paid monthly.
C-1
<PAGE> 8
APPENDIX D
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
THE ARCH FUND, INC. AND BISYS FUND SERVICES OHIO, INC.
(FORMERLY KNOWN AS THE WINSBURY SERVICE CORPORATION)
REPORTS
I. Daily Shareholder Activity Journal
II. Daily Portfolio Activity Summary Report
A. Beginning Balance
B. Dealer Transactions
C. Shareholder Transactions
D. Reinvested Dividends
E. Exchanges
F. Adjustments
G. Ending Balance
III. Daily Wire and Check Registers
IV. Monthly Dealer Processing Reports
V. Monthly Dividend Reports
VI. Sales Data Reports for Blue Sky Registration
VII. Annual report by independent auditors concerning the
Transfer Agent's shareholder system and internal
accounting control systems to be filed with the
Securities and Exchange Commission pursuant to Rule
17Ad-13 of the Securities Exchange Act of 1934, as
amended.
D-1
<PAGE> 1
Exhibit (9)(q)(1)
Adopted January 26, 1993 (and June 29, 1993,
March 15, 1994, June 27, 1995, June 18, 1996
and September 17, 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, Class O, Class
P and Class Q 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, Short-Intermediate Corporate Bond,
Equity Index and Bond Index 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.
<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 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.
-2-
<PAGE> 3
However, joint distribution financing with respect to such Investor A 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
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 Equity Income, National
Municipal Bond, Short-Intermediate Corporate Bond, Equity Index, Bond Index and
Kansas Tax-Exempt Bond Portfolios, upon their respective commencement of
operations upon the approval of the sole shareholder of the outstanding Investor
A Shares, or (ii) upon its approval by a majority of the outstanding Investor A
Shares of a Portfolio, 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
September 17, 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, June
18, 1996 and September 17, 1996 as restated
THE ARCH FUND(R), INC.
(the "Company")
3435 Stelzer Road
Columbus, Ohio 43219
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
<PAGE> 6
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.
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
- 2 -
<PAGE> 7
excessive or unreasonable under the laws and instruments governing your
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)
[ ] Equity Index Investor A Shares (Class P)
[ ] Bond Index Investor A Shares (Class Q)
Signed:______________________ ___________________________
(Title) (Service Organization Name)
Dated:______________________
A-1
<PAGE> 1
Exhibit (9)(q)(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, Short-Intermediate Corporate Bond,
Equity Index and Bond Index 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, Treasury Money Market and Tax-Exempt 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 Plan pursuant to Rule 18f-3 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
<PAGE> 2
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 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, March 19, 1996 and September 17, 1996.
-2-
<PAGE> 3
Form approved June
29, 1993, March
15, 1994, June 27,
1995, March 19,
1996 and September
17, 1996 as
restated
THE ARCH FUND(R), INC.
(the "Company")
3435 Stelzer Road
Columbus, Ohio 43219
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,
<PAGE> 4
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 .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
- 2 -
<PAGE> 5
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 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:
<TABLE>
<CAPTION>
THE ARCH FUND, INC.
<S> <C>
/ / 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)
</TABLE>
A-1
<PAGE> 8
<TABLE>
<CAPTION>
<S> <C>
/ / 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)
/ / 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)
/ / Equity Index Trust Shares (Class P - Special Series 1)
/ / Equity Index Institutional Shares (Class P - Special Series 2)
/ / Bond Index Trust Shares (Class Q - Special Series 1)
/ / Bond Index Institutional Shares (Class Q - Special Series 2)
</TABLE>
Signed:______________________ ___________________________
(Title) (Service Organization Name)
Dated:______________________
A-1
<PAGE> 1
Exhibit 9(q)(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,
Short- Intermediate Corporate Bond, Equity Index and Bond Index 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 and Treasury 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 Plan pursuant to Rule 18f-3 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
<PAGE> 2
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.
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, March 19, 1996 and September 17, 1996.
-2-
<PAGE> 3
Form approved June
29, 1993, March
15, 1994, June 27,
1995, March 19,
1996 and September
17, 1996 as
restated
THE ARCH FUND(R), INC.
(the "Company")
3435 Stelzer Road
Columbus, Ohio 43219
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,
<PAGE> 4
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 .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
- 2 -
<PAGE> 5
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 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:
<TABLE>
<CAPTION>
THE ARCH FUND, INC.
<S> <C>
/ / 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)
</TABLE>
A-1
<PAGE> 8
<TABLE>
<CAPTION>
<S> <C>
/ / 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)
/ / 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)
/ / Equity Index Trust Shares (Class P - Special Series 1)
/ / Equity Index Institutional Shares (Class P - Special Series 2)
/ / Bond Index Trust Shares (Class Q - Special Series 1)
/ / Bond Index Institutional Shares (Class Q - Special Series 2)
</TABLE>
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. 36 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
September __, 1996
<PAGE> 1
EXHIBIT 11(b)
Auditors' Consent
The Board of Trustees of
The ARCH Fund, Inc.:
We consent to the reference to our firm under the heading "Independent
Auditors" in the Statement of Additional Information.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Columbus, Ohio
September 30, 1996
<PAGE> 1
Exhibit (13)(g)
PURCHASE AGREEMENT
The ARCH Fund, Inc. (the "Fund"), a Maryland corporation with
transferable shares, and BISYS Fund Services Ohio, Inc. ("BISYS Ohio"), an
Ohio corporation, hereby agree with each other as follows:
1. The Fund hereby offers BISYS Ohio and BISYS Ohio hereby
purchases Class P shares of common stock representing interests in the ARCH
Equity Index Portfolio (the "Portfolio") at a price of $10.00 per share (such
shares of common stock in the Portfolio being hereinafter known as the
"Shares"). BISYS Ohio hereby acknowledges the purchase of the Shares and the
Fund hereby acknowledges receipt from BISYS Ohio of funds in the amount of $
in full payment for the Shares.
2. BISYS Ohio represents and warrants to the Fund that the
Shares are being acquired for investment purposes and not with a view to the
distribution thereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day of , 1996.
THE ARCH FUND, INC.
By:_____________________________________
Title: President
BISYS FUND SERVICES OHIO, INC.
By:_____________________________________
Title: Executive Vice President
<PAGE> 2
PURCHASE AGREEMENT
The ARCH Fund, Inc. (the "Fund"), a Maryland corporation with
transferable shares, and BISYS Fund Services Ohio, Inc. ("BISYS Ohio"), an
Ohio corporation, hereby agree with each other as follows:
1. The Fund hereby offers BISYS Ohio and BISYS Ohio hereby
purchases Class P - Special Series 1 shares of common stock representing
interests in the ARCH Equity Index Portfolio (the "Portfolio") at a price of
$10.00 per share (such shares of common stock in the Portfolio being hereinafter
known as the "Shares"). BISYS Ohio hereby acknowledges the purchase of the
Shares and the Fund hereby acknowledges receipt from BISYS Ohio of funds in the
amount of $ in full payment for the Shares.
2. BISYS Ohio represents and warrants to the Fund that the
Shares are being acquired for investment purposes and not with a view to the
distribution thereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day of , 1996.
THE ARCH FUND, INC.
By:_____________________________________
Title: President
BISYS FUND SERVICES OHIO, INC.
By:_____________________________________
Title: Executive Vice President
<PAGE> 3
PURCHASE AGREEMENT
The ARCH Fund, Inc. (the "Fund"), a Maryland corporation with
transferable shares, and BISYS Fund Services Ohio, Inc. ("BISYS Ohio"), an
Ohio corporation, hereby agree with each other as follows:
1. The Fund hereby offers BISYS Ohio and BISYS Ohio hereby
purchases Class P - Special Series 2 shares of common stock representing
interests in the ARCH Equity Index Portfolio (the "Portfolio") at a price of
$10.00 per share (such shares of common stock in the Portfolio being hereinafter
known as the "Shares"). BISYS Ohio hereby acknowledges the purchase of the
Shares and the Fund hereby acknowledges receipt from BISYS Ohio of funds in the
amount of $ in full payment for the Shares.
2. BISYS Ohio represents and warrants to the Fund that the
Shares are being acquired for investment purposes and not with a view to the
distribution thereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day of , 1996.
THE ARCH FUND, INC.
By:_____________________________________
Title: President
BISYS FUND SERVICES OHIO, INC.
By:_____________________________________
Title: Executive Vice President
<PAGE> 4
PURCHASE AGREEMENT
The ARCH Fund, Inc. (the "Fund"), a Maryland corporation with
transferable shares, and BISYS Fund Services Ohio, Inc. ("BISYS Ohio"), an
Ohio corporation, hereby agree with each other as follows:
1. The Fund hereby offers BISYS Ohio and BISYS Ohio hereby
purchases Class Q shares of common stock representing interests in the
ARCH Bond Index Portfolio (the "Portfolio") at a price of $10.00 per share
(such shares of common stock in the Portfolio being hereinafter known as the
"Shares"). BISYS Ohio hereby acknowledges the purchase of the Shares and the
Fund hereby acknowledges receipt from BISYS Ohio of funds in the amount of $
in full payment for the Shares.
2. BISYS Ohio represents and warrants to the Fund that the
Shares are being acquired for investment purposes and not with a view to the
distribution thereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day of , 1996.
THE ARCH FUND, INC.
By:_____________________________________
Title: President
BISYS FUND SERVICES OHIO, INC.
By:_____________________________________
Title: Executive Vice President
<PAGE> 5
PURCHASE AGREEMENT
The ARCH Fund, Inc. (the "Fund"), a Maryland corporation with
transferable shares, and BISYS Fund Services Ohio, Inc. ("BISYS Ohio"), an
Ohio corporation, hereby agree with each other as follows:
1. The Fund hereby offers BISYS Ohio and BISYS Ohio hereby
purchases Class Q - Special Series 1 shares of common stock representing
interests in the ARCH Bond Index Portfolio (the "Portfolio") at a price of
$10.00 per share (such shares of common stock in the Portfolio being hereinafter
known as the "Shares"). BISYS Ohio hereby acknowledges the purchase of the
Shares and the Fund hereby acknowledges receipt from BISYS Ohio of funds in the
amount of $ in full payment for the Shares.
2. BISYS Ohio represents and warrants to the Fund that the
Shares are being acquired for investment purposes and not with a view to the
distribution thereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day of , 1996.
THE ARCH FUND, INC.
By:_____________________________________
Title: President
BISYS FUND SERVICES OHIO, INC.
By:_____________________________________
Title: Executive Vice President
<PAGE> 6
PURCHASE AGREEMENT
The ARCH Fund, Inc. (the "Fund"), a Maryland corporation with
transferable shares, and BISYS Fund Services Ohio, Inc. ("BISYS Ohio"), an
Ohio corporation, hereby agree with each other as follows:
1. The Fund hereby offers BISYS Ohio and BISYS Ohio hereby
purchases Class Q - Special Series 2 shares of common stock representing
interests in the ARCH Bond Index Portfolio (the "Portfolio") at a price of
$10.00 per share (such shares of common stock in the Portfolio being hereinafter
known as the "Shares"). BISYS Ohio hereby acknowledges the purchase of the
Shares and the Fund hereby acknowledges receipt from BISYS Ohio of funds in the
amount of $ in full payment for the Shares.
2. BISYS Ohio represents and warrants to the Fund that the
Shares are being acquired for investment purposes and not with a view to the
distribution thereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day of , 1996.
THE ARCH FUND, INC.
By:_____________________________________
Title: President
BISYS FUND SERVICES OHIO, INC.
By:_____________________________________
Title: Executive Vice President
<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 September 17, 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) 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
<PAGE> 2
Shares -- in the Tax-Exempt Money Market Portfolio (each a "Portfolio" and
collectively, the "Money Market Portfolios").
Equity Portfolios
The Company shall initially offer (i) 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; and (ii)
three classes of shares -- Trust Shares, Institutional Shares and Investor A
Shares -- in the Equity Index 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 Bond Index 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 or Investor B Shares that pertains to the
Distribution and
-2-
<PAGE> 3
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.
Institutional Shares of a Money Market Portfolio
shall not be subject to a sales charge but shall be subject to a
-3-
<PAGE> 4
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 participating in the Arch
Asset Adviser Program. Otherwise, Investor B Shares of the Money Market
Portfolio shall be
-4-
<PAGE> 5
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,
Short-Intermediate Corporate Bond Portfolio, Equity Index Portfolio and Bond
Index 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
-6-
<PAGE> 7
distribution expenses which shall not 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.
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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
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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.
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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.
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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.
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,
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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.
(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.
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