<PAGE>
As filed with the Securities and Exchange Commission on January 2, 1996
Registration No. 2-79285
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
POST-EFFECTIVE AMENDMENT NO. 33
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
AMENDMENT NO. 34
THE ARCH FUND, INC.
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road
Columbus, Ohio 43219
(Address of Principal Executive Offices)
Registrant's Telephone Number: (800) 551-3731
W. BRUCE MCCONNEL, III, Esq.
Drinker Biddle & Reath
1100 Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
(Name and Address of Agent for Service)
Copy to:
Jon W. Bilstrom, Esq.
Mercantile Bank of St. Louis N.A.
One Mercantile Center
8th and Washington Streets
St. Louis, MO 63101
It is proposed that this filing will become effective (check appropriate box)
[x] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has
registered an indefinite number of shares under the Securities Act of 1933.
Registrant filed a Rule 24f-2 Notice for the fiscal year ended November 30,
1994 on January 30, 1995 and intends to file a Rule 24f-2 Notice for the fiscal
year ended November 30, 1995 on or before 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.
<PAGE>
THE PURPOSE OF THIS FILING IS TO COMPLY WITH AN UNDERTAKING TO FILE A POST-
EFFECTIVE AMENDMENT CONTAINING FINANCIAL INFORMATION WITH RESPECT TO
REGISTRANT'S SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO. AS OF THE DATE OF THE
FINANCIAL INFORMATION CONTAINED IN THIS FILING, THE SHORT-INTERMEDIATE MUNICIPAL
PORTFOLIO HAD NOT COMMENCED ITS PUBLIC OFFERING OF INVESTOR A SHARES. AS SUCH,
THE PROSPECTUS FOR INVESTOR A SHARES OF THE SHORT-INTERMEDIATE MUNICIPAL
PORTFOLIO AND THE PROSPECTUSES AND STATEMENTS OF ADDITIONAL INFORMATION FOR
REGISTRANT'S 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, MISSOURI TAX-EXEMPT BOND
PORTFOLIO AND KANSAS TAX-EXEMPT BOND PORTFOLIO ARE NOT INCLUDED IN THIS FILING.
<PAGE>
CROSS REFERENCE SHEET
(Trust Shares)
The ARCH Short-Intermediate Municipal Portfolio
Form N-1A Part A Item Prospectus Caption
1. Cover Page ................................... Cover Page
2. Synopsis ..................................... Expense Summary
for Trust Shares
3. Condensed Financial
Information ................................ Certain Financial
Information; Financial
Highlights; Yields and Total
Returns
4. General Description
of Registrant .............................. Highlights; Investment
Objective and Policies;
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
<PAGE>
THE ARCH FUND(R), INC.
(the "Fund")
SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
(Trust Shares)
(the "Portfolio")
Supplement dated January 2, 1996 to
the Prospectus dated June 28, 1995
The following Financial Highlights appear before the section entitled
"Investment Objective and Policies" on page 5 of the Prospectus:
The "Financial Highlights" in the following table supplement the
Portfolio's financial statements, which are included in the Portfolio's
Statement of Additional Information, and set forth certain historic investment
results for Trust Shares of the Portfolio. The information has not been audited
by the Fund's independent auditors. Information about the performance of the
Portfolio will be contained in the Fund's future annual report to shareholders,
which may be obtained without charge when it becomes available by calling the
Fund at 1-800-551-3731 or writing the Fund at 3435 Stelzer Road, Columbus, Ohio
43219.
<PAGE>
FINANCIAL HIGHLIGHTS Period ended October 31, 1995 (Unaudited)
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<TABLE>
<CAPTION>
Short-Intermediate
Municipal
Portfolio/(1)/
(Trust Shares)
- --------------------------------------------------------------------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.11
Net realized and unrealized gain
on investments 0.02
------
Total income from investment operations 0.13
------
LESS DISTRIBUTIONS:
Dividends from net investment income (0.11)
------
NET ASSET VALUE, END OF PERIOD $10.02
======
TOTAL RETURN/(2)/ 1.31%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (000) $22,289
Ratio of expenses to average
net assets (including of waivers)/(3)/ 0.50%
Ratio of expenses to average
net assets (before waivers)/(3)(4)/ 1.45%
Ratio of net investment income to
average net assets (Including waivers)/(3)/ 3.72%
Ratio of net investment income to
average net assets (before waivers)/(3)(4)/ 2.77%
PORTFOLIO TURNOVER RATE 0.00%
</TABLE>
(1) Commenced investment operations on July 11, 1995.
(2) Not Annualized.
(3) Annualized.
(4) During the period, fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
<PAGE>
THE ARCH FUND, INC.(R)
SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
TRUST SHARES
The ARCH Fund, Inc. is an open-end management investment company authorized
to issue Shares in nine investment portfolios. This Prospectus describes the
Trust Shares of THE ARCH SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO. Trust Shares
are offered to financial institutions acting on their own behalf or on behalf
of certain qualified accounts.
THE ARCH SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO'S investment objective is to
seek as high a level of current income, exempt from regular federal income
tax, as is consistent with preservation of capital.
FEATURES OF THE PORTFOLIO INCLUDE:
. OBJECTIVE OF INCOME EXEMPT FROM REGULAR FEDERAL INCOME TAX
. POTENTIAL YIELD THAT IS HIGHER THAN A MUNICIPAL MONEY MARKET FUND BUT A
LOWER POTENTIAL YIELD WITH LESS PRICE VOLATILITY THAN A LONG-TERM
MUNICIPAL BOND FUND
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 Portfolio; Mercantile
serves as custodian; BISYS Fund Services Ohio, Inc. (the "Administrator")
serves as administrator; and The Winsbury Company (the "Distributor") serves
as sponsor and distributor.
This Prospectus sets forth concisely certain information about the Portfolio
that prospective investors should know before investing. Investors should read
this Prospectus and retain it for future reference. Additional information
about the Portfolio, contained in a Statement of Additional Information dated
June 28, 1995, has been filed with the Securities and Exchange Commission and
is incorporated by reference in its entirety into this Prospectus. An investor
may obtain the Statement of Additional Information without charge by writing
the Fund at its address 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 Portfolio 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.
JUNE 28, 1995
<PAGE>
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 nine investment portfolios. This Prospectus relates to one of
those portfolios: THE ARCH SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO (the
"Portfolio"). In addition, the Fund offers investment opportunities in the
ARCH Money Market, Treasury Money Market, Growth & Income Equity, Emerging
Growth, Government & Corporate Bond, U.S. Government Securities, Balanced and
International Equity Portfolios, which are described in separate Prospectuses.
MVA serves as Adviser, Mercantile as Custodian, BISYS Fund Services Ohio, Inc.
as Administrator, and The Winsbury Company 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 Portfolio and its
investment objective.
The Short-Intermediate Municipal Portfolio is designed for investors who
seek a high level of income, exempt from regular federal income tax, while
preserving capital. There can be no assurance that the Portfolio will be able
to achieve its investment objective.
Investors should note that the Portfolio may, subject to its investment
policies and limitations, purchase variable and floating rate instruments,
enter into repurchase agreements, make securities loans and make limited
investments in illiquid securities and securities issued by other investment
companies. These investment practices involve investment risks of varying
degrees. Although it will not normally do so, the Portfolio may engage in
short-term trading, which may also involve greater risk. The Portfolio may,
under certain conditions, make limited investments in securities the income
from which may be subject to federal income tax.
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 economic advantages
of block trading in securities and the availability of a family of twelve
mutual funds should your investment goals change.
This Prospectus describes the Trust Shares of the Portfolio. For information
on purchasing, exchanging or redeeming Trust Shares of the Portfolio, please
see "How to Purchase and Redeem Shares" below.
2
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CERTAIN FINANCIAL INFORMATION
Shares of the Portfolio have been classified into two classes of Shares--
Trust Shares and Investor A Shares. Shares of each class in the Portfolio
represent equal, pro rata interests in the investments held by the Portfolio
and are identical in all respects, except that Shares of each class bear
separate distribution and/or shareholder administrative servicing fees and
enjoy certain exclusive voting rights on matters relating to these fees. (See
"Other Information Concerning the Fund and Its Shares" and "Management of the
Fund--Administrative Services Plan" below.) As a result of payments for
distribution and/or shareholder administrative servicing fees that may be made
in differing amounts, the net investment income of Trust Shares and Investor A
Shares in the Portfolio can be expected, at any given time, to be different.
EXPENSE SUMMARY FOR TRUST SHARES
SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)..................................... 0.00%
ANNUAL PORTFOLIO OPERATING EXPENSES
(as a percentage of average net assets)
Investment Advisory Fees (net of waivers)/1/............................. 0.00%
12b-1 Fees............................................................... 0.00%
Other Expenses, (including administration fees,
administrative services fees and other expenses)
(net of fee waivers and expense reimbursements)/2/...................... .33%
----
TOTAL PORTFOLIO OPERATING EXPENSES
(net of fee waivers and expense reimbursements)/3/........................ .33%
====
</TABLE>
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/1/Without fee waivers, advisory fees for the Portfolio would be .55%.
/2/Without fee waivers, administration fees for the Portfolio would be .20%.
Administrative services fees are payable at an annual rate not to exceed .30%.
/3/Without fee waivers and expense reimbursements, Other Expenses would be .73%
and Total Portfolio Operating Expenses would be 1.28%.
3
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<TABLE>
<CAPTION>
1 YEAR 3 YEARS
EXAMPLE ------ -------
<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:
Short-Intermediate Municipal Portfolio Trust Shares........... $3 $11
</TABLE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR RATES OF RETURN. THE PORTFOLIO IS NEW AND ACTUAL OPERATING EXPENSES
AND INVESTMENT RETURN MAY BE MORE OR LESS THAN THOSE SHOWN. INFORMATION ABOUT
THE ACTUAL PERFORMANCE OF THE PORTFOLIO WILL BE CONTAINED IN THE FUND'S FUTURE
ANNUAL REPORTS TO SHAREHOLDERS, WHICH MAY BE OBTAINED WITHOUT CHARGE WHEN THEY
BECOME AVAILABLE. The Table and Examples do not reflect any charges that may be
imposed by financial institutions on their customers.
The purpose of the foregoing table is to assist in understanding the various
costs and expenses that an investor in the Portfolio's Trust Shares will bear
directly or indirectly. The table has not been audited by the Fund's
independent auditors. (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 Expense Summary reflects the expenses which the
Portfolio expects to incur during the next twelve months on its Trust Shares.
4
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INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Portfolio is to seek as high a level of
current income, exempt from regular federal income tax, as is consistent with
preservation of capital. Although management will use its best efforts to
achieve the investment objective of the Portfolio, there can be no assurance
that it will be able to do so. The investment objective of the Portfolio may
not be changed without the affirmative vote of a majority of the outstanding
Shares of the Portfolio.
POLICIES
The Portfolio seeks to achieve its objective by investing substantially all
of its assets in investment-grade debt obligations issued by or on behalf of
states, territories and possessions of the United States, the District of
Columbia and their respective political subdivisions, agencies,
instrumentalities and authorities the interest on which, in the opinion of
bond counsel or counsel to the issuer, is exempt from regular federal income
tax (collectively, "Municipal Obligations"). As a matter of fundamental
policy, under normal market conditions at least 80% of the Portfolio's total
assets will be invested in Municipal Obligations, primarily bonds (at least
65% under normal market conditions).
The Portfolio invests in Municipal Obligations that are rated at the time of
purchase within the four highest rating categories assigned by an unaffiliated
nationally recognized statistical rating organization ("Rating Agency"). The
Portfolio may also invest in short-term Municipal Obligations such as
municipal notes, tax-exempt commercial paper, and variable and floating rate
demand obligations that are rated at the time of purchase within the two
highest rating categories assigned by a Rating Agency. Municipal Obligations
rated in the lowest of the four highest rating categories for bonds are
considered to have speculative characteristics, even though they are of
investment grade quality. Such bonds will be purchased only if the Adviser
believes they have an adequate capacity to pay interest and repay principal.
Unrated obligations will be purchased only if they are considered by the
Adviser to be at least comparable in quality at the time of purchase to
instruments within the rating categories listed above. Municipal Obligations
purchased by the Portfolio whose ratings are subsequently downgraded below the
four highest rating categories of a Rating Agency will be disposed of in an
orderly manner, normally within 30-60 days. The applicable ratings issued by
the Rating Agencies are described in the Appendix to the Statement of
Additional Information.
In addition, the Portfolio may from time to time during temporary defensive
periods, invest in taxable obligations in such proportions as, in the opinion
of the Adviser, prevailing market or economic conditions warrant. Such
instruments may include obligations of the U.S. Government, its agencies or
instrumentalities; debt securities (including commercial paper) of issuers
having, at the time of purchase, a quality rating within the two highest
rating categories assigned by a Rating Agency; or repurchase agreements with
respect to such obligations.
During temporary defensive periods or if, in the opinion of the Adviser,
suitable tax-exempt obligations are unavailable, the Portfolio may also hold
uninvested cash reserves which do not earn income pending investment. There is
no percentage limitation on the amount of assets that may be held uninvested
during these temporary defensive periods.
The Portfolio's average dollar-weighted maturity will be between two and
five years and will vary in light of current market and economic conditions,
the comparative yields on instruments with different maturities, and other
factors.
5
<PAGE>
TYPES OF MUNICIPAL OBLIGATIONS. The two principal classifications of
Municipal Obligations are "general obligation" securities and "revenue"
securities. General obligation securities are secured by the issuer's pledge
of its full faith, credit and taxing power for the payment of principal and
interest. Revenue securities are payable only from the revenues derived from a
particular facility or class of facilities or, in some cases, from the
proceeds of a special excise tax or other specific revenue source such as the
user of the facility being financed. Revenue securities include private
activity bonds which are not payable from the unrestricted revenues of the
issuer. Consequently, the credit quality of private activity bonds is usually
directly related to the credit standing of the corporate user of the facility
involved. Municipal Obligations may also include "moral obligation" bonds,
which are normally issued by special purpose public authorities. If the issuer
of a moral obligation bond is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality which
created the issuer.
Municipal Obligations include debt obligations issued by governmental
entities to obtain funds for various public purposes, including the
construction of a wide range of public facilities, the refunding of
outstanding obligations, the payment of general operating expenses and the
extension of loans to public institutions and facilities. Private activity
bonds issued by or on behalf of public authorities to finance various
privately operated facilities are considered Municipal Obligations. Interest
on private activity bonds, although free of regular federal income tax, may be
an item of tax preference for purposes of the federal alternative minimum tax.
The Portfolio may acquire zero coupon obligations, which may have greater
price volatility than coupon obligations and which will not result in payment
of interest until maturity. Also included within the general category of
Municipal Obligations are participation certificates in leases, installment
purchase contracts, or conditional sales contracts ("lease obligations")
entered into by state or political subdivisions to finance the acquisition or
construction of equipment, land, or facilities. Although lease obligations do
not constitute general obligations of the issuer for which the lessee's
unlimited taxing power is pledged, certain lease obligations are backed by the
lessee's covenant to appropriate money to make the lease obligation payments.
However, under certain lease obligations, the lessee has no obligation to make
these payments in future years unless money is appropriated on a yearly basis.
Although "non-appropriation" lease obligations are secured by the leased
property, disposition of the property in the event of foreclosure might prove
difficult. These securities represent a relatively new type of financing and
may not be as marketable as more conventional securities. To the extent these
securities are illiquid, they are subject to the Portfolio's applicable
limitation on illiquid securities described below. The Portfolio does not
intend to invest in such lease obligations during the current year. (See
"Investment Objective and Policies" in the Statement of Additional Information
for a description of other investment policies.)
Municipal Obligations purchased by the Portfolio may be backed by letters of
credit or guarantees issued by domestic or foreign banks and other financial
institutions which are not subject to federal deposit insurance. Adverse
developments affecting the banking industry generally or a particular bank or
financial institution that has provided its credit or a guarantee with respect
to a Municipal Obligation held by the Portfolio could have an adverse effect
on the Portfolio's investment portfolio and the value of its shares. Foreign
letters of credit and guarantees involve certain risks in addition to those of
domestic obligations, including less stringent reserve requirements and
different accounting, auditing and recordkeeping requirements.
6
<PAGE>
See "Investment Objective and Policies" in the Statement of Additional
Information for a description of other investment policies.
VARIABLE AND FLOATING RATE INSTRUMENTS. Municipal Obligations purchased by
the Portfolio may include rated or unrated variable and floating rate
instruments, including variable rate master demand notes that permit the
indebtedness thereunder to vary in addition to providing for periodic
adjustments in the interest rate. Unrated instruments purchased by the
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 the Portfolio to dispose of an instrument
if the issuer were to default on its payment obligation. The Portfolio could,
for these or other reasons, suffer a loss with respect to such instruments.
SECURITIES LENDING. To increase return or offset expenses, the 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, securities of the U.S. Government, or its agencies or instrumentalities,
or an irrevocable letter of credit issued by a bank that has at least $1.5
billion in total assets, or any combination thereof. The collateral must be
valued daily, and, should the market value of the loaned securities increase,
the borrower must furnish additional collateral to the Portfolio. By lending
its securities, the Portfolio can increase its income by continuing to receive
interest on the loaned securities as well as by either investing the cash
collateral in short-term instruments or obtaining yield in the form of
interest paid by the borrower when U.S. Government securities are used as
collateral. In accordance with current Securities and Exchange Commission
("SEC") policies, the Portfolio is limiting its securities lending to 33 1/3%
of its aggregate net assets. Loans are subject to termination by the Portfolio
or the borrower at any time.
SECURITIES OF OTHER INVESTMENT COMPANIES. Under certain circumstances
described above and subject to its investment policies, the Portfolio may
invest in securities issued by other investment companies which invest in
securities in which the Portfolio is permitted to invest and which determine
their net asset value per share based on the amortized cost or penny- rounding
method. The 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 the Portfolio may invest may impose a sales or distribution charge in
connection with the purchase or redemption of their Shares as well as other
types of commissions or charges. Such charges will be payable by the Portfolio
and, therefore, will be borne indirectly by its shareholders. To the extent
that the Portfolio may invest in securities of other investment companies, the
Fund and the Adviser will ensure that there will be no duplication of advisory
fees. If necessary to accomplish this, the Adviser will rebate its advisory
fee to the Fund. (See the Statement of Additional Information under
"Investment Objective and Policies--Securities of Other Investment
Companies.")
WHEN-ISSUED PURCHASES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS. The
Portfolio may purchase securities on a "when-issued" basis and may purchase or
sell securities on a "forward commitment" basis. Additionally, the Portfolio
may purchase or sell securities on a "delayed
7
<PAGE>
settlement" basis. When-issued and forwarded commitment transactions involve a
commitment by the Portfolio to purchase or sell securities at a stated price
and yield with settlement beyond the normal settlement date. Such transactions
permit the Portfolio to lock-in a price or yield on a security, regardless of
future changes in interest rates. Delayed settlement refers to a transaction
in the secondary market that will settle some time in the future. These
transactions involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date, or if the value of the
security to be sold increases prior to the settlement date. The 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. The Portfolio
does not intend to engage in such transactions for speculative purposes but
only for the purpose of acquiring portfolio securities.
STAND-BY COMMITMENTS. The Portfolio may acquire "stand-by commitments" with
respect to Municipal Obligations held by it. Under a stand-by commitment, a
dealer agrees to purchase, at the Portfolio's option, specified Municipal
Obligations at a specified price. The Portfolio will acquire stand-by
commitments solely to facilitate portfolio liquidity and does not intend to
exercise its rights thereunder for trading purposes. The Portfolio expects
that stand-by commitments will generally be available without the payment of
any direct or indirect consideration. However, if necessary or advisable, the
Portfolio may pay for a stand-by commitment either separately in cash or by
paying a higher price for portfolio securities which are acquired subject to
the commitment (thus reducing the yield otherwise available for the same
securities). Stand-by commitments acquired by the Portfolio will be valued at
zero in determining the Portfolio's net asset value.
TAX-EXEMPT DERIVATIVES. The Portfolio may hold tax-exempt derivatives which
may be in the form of tender option bonds, participations, beneficial
interests in a trust, partnership interests or other forms. The Adviser
expects that less than 5% of the Portfolio's assets will be invested in such
securities during the current year. (See the Statement of Additional
Information under "Investment Objective and Policies--Tax-Exempt
Derivatives.")
ILLIQUID SECURITIES. The 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 Board of
Directors, determines that a liquid market exists).
OTHER CONSIDERATIONS. Although the Portfolio may invest 25% or more of its
total assets in (i) Municipal Obligations whose issuers are in the same state,
and (ii) Municipal Obligations the interest on which is paid solely from
revenues of similar projects, it does not presently intend to do so unless, in
the opinion of the Adviser, the investment is warranted. The Portfolio's
ability to achieve its investment objective is dependent upon the ability of
issuers of Municipal Obligations to meet their continuing obligations for the
payment of principal and interest. To the extent that the Portfolio's assets
are invested in Municipal Obligations that are payable from the revenues of
similar projects or by issuers located in the same state, the Portfolio will
be subject to the particular risks (including legal and economic conditions)
relating to such securities to a greater extent than it would be if its assets
were not so concentrated. (See "Investment Objective and Policies--Municipal
Obligations" in the Statement of Additional Information.)
8
<PAGE>
Generally, the market value of fixed income securities, such as Municipal
Obligations, in the Portfolio 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 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.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance, and opinions
relating to the validity and the tax-exempt status of payments received by the
Portfolio from tax-exempt derivative securities are rendered by counsel to the
respective sponsors of such securities. The Portfolio and its Adviser will
rely on such opinions and will not review independently the underlying
proceedings relating to the issuance of Municipal Obligations, the creation of
any tax-exempt derivative security, or the bases for such opinions.
PORTFOLIO TURNOVER AND TRANSACTIONS. Although the Portfolio will not
normally engage in short-term trading, the Portfolio reserves the right to do
so if the Adviser believes that selling a particular security is appropriate
in light of the Portfolio's investment objective. Investments may be sold for
a variety of reasons, such as a more favorable investment opportunity or other
circumstances bearing on the desirability of continuing to hold such
investments. A high rate of portfolio turnover involves correspondingly
greater brokerage commission expenses and other transaction costs, which must
be borne directly by the Portfolio and ultimately by its shareholders. High
portfolio turnover may result in the realization of substantial net capital
gains; distributions derived from such gains may be treated as ordinary income
for federal income tax purposes. (See "Taxes" in this Prospectus and the
Statement of Additional Information.) Although the Portfolio cannot accurately
predict its annual portfolio turnover rate, it is not expected to exceed 100%.
All orders for transactions in securities or options on behalf of the
Portfolio 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, the 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 the
Portfolio. Other investment limitations that also cannot be changed without a
vote of shareholders are contained in the Statement of Additional Information
under "Investment Objective and Policies."
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The Portfolio may not:
1. Purchase securities of any one issuer (other than obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities),
if, immediately after and as a result of such investments, more than 5% of
the Portfolio's total assets would be invested in the securities of such
issuer, or more than 10% of the issuer's outstanding voting securities
would be owned by the Portfolio or the Fund, except that up to 25% of the
Portfolio's total assets may be invested without regard to such
limitations.
2. Purchase any securities which would cause 25% or more of the
Portfolio's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided, however, that there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, any state, territory or possession of the U.S. Government, the
District of Columbia, or any of their authorities, agencies,
instrumentalities or political subdivisions.
3. Borrow money or issue senior securities, except that the Portfolio may
borrow from banks and enter into reverse repurchase agreements for
temporary defensive purposes in amounts not in excess of 10% of the
Portfolio's total assets at the time of such borrowing; or mortgage,
pledge, or hypothecate any assets, except in connection with any such
borrowing and in amounts not in excess of the lesser of the dollar amounts
borrowed or 10% of the Portfolio's total assets at the time of such
borrowing; or purchase securities while its borrowings exceed 5% of its
total assets. Securities held in escrow or separate accounts in connection
with the 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 the Portfolio may purchase or hold debt
instruments, lend portfolio securities, enter into repurchase agreements
and make other investments in accordance with its investment objective and
policies.
5. Purchase securities on margin, make short sales of securities or
maintain a short position, except that the 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 the Portfolio's securities will not constitute a violation of such
limitation.
In order to permit the sale of the Portfolio's Shares in certain states, the
Portfolio may make commitments more restrictive than the investment policies
and limitations described above. Should the Board of Directors determine that
any such commitment is no longer in the best interests of the Portfolio, the
Board may revoke the commitment by terminating sales of the Portfolio's Shares
in the state involved.
PRICING OF SHARES
The public offering price for each class of Shares of the Portfolio 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
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net asset value per Share by adding the value of the 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.
The Portfolio's net asset value per Share is 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 (Washington's
Birthday), 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 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.)
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 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 (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
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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.
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 the
Portfolio for Trust Shares of another Portfolio offered by the Fund and by The
ARCH Tax-Exempt Trust (collectively, the "ARCH Family of Funds"). Exchanges
for Trust Shares in another Portfolio are effected without payment of any
exchange or sales charges.
The ARCH Family of Funds 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 Portfolio described in this Prospectus, the ARCH Family
of Funds currently includes the following Portfolios:
. The ARCH Money Market Portfolio
. The ARCH Treasury Money Market Portfolio
. The ARCH Growth & Income Equity Portfolio
. The ARCH Emerging Growth Portfolio
. The ARCH Government & Corporate Bond Portfolio
. The ARCH U.S. Government Securities Portfolio
. The ARCH Balanced Portfolio
. The ARCH International Equity Portfolio
. The ARCH Tax-Exempt Money Market Portfolio
. The ARCH Missouri Tax-Exempt Bond Portfolio
. The ARCH Kansas Tax-Exempt Bond Portfolio/1/
For information concerning these Portfolios, please call (800) 551-3731.
Shareholders exercising the exchange privilege with any of the other
Portfolios in the ARCH Family of Funds should request and review the
Portfolio's Prospectus carefully prior to making an exchange.
- --------
/1/Expected to commence operations in 1995.
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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 the Portfolio's net asset value per Share
next determined after receipt of the order by the Fund. The financial
institution is responsible for transmitting redemption orders to the Fund on a
timely basis. No charge for sending electronically redemption payments is
currently imposed by the Fund, although a charge may be imposed in the future.
The Fund reserves the right to send electronically redemption proceeds within
three days after receiving a redemption order if, in the judgment of the
Adviser, an earlier payment could adversely affect the 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.
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. If, due to temporary
adverse conditions, investors are unable to effect telephone transactions,
investors are encouraged to follow the procedures described in "Other Exchange
or Redemption Information" below.
Proceeds from redemptions of Trust Shares of the Portfolio 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.
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
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<PAGE>
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 the 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
and Investor A Shares of the 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 the 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 Portfolio's Trust Shares may be quoted in advertisements or in
communications to shareholders. The yield is computed based on the net income
of such Shares in the 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 Portfolio's "tax
equivalent" yield, which shows the level of taxable yield needed to produce an
after-tax equivalent to the Portfolio's tax-free yield may also be quoted from
time to time. This is done by increasing the Portfolio's yield (calculated as
above) by the amount necessary to reflect the payment of federal income tax at
a stated tax rate.
The Portfolio's 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 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 the 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.
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<PAGE>
Performance data of the Portfolio's Trust Shares may be compared to the
performance of other mutual funds with comparable investment objectives and
policies through various mutual fund or market indices and data such as that
provided by Lehman Brothers, Inc., or any of its affiliates, Ibbotson
Associates, Inc., Lipper Analytical Services, Inc., Mutual Fund Forecaster and
IBC/Donoghue's MONEY FUND REPORT(R) published by IBC/Donoghue. 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
Portfolio 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 the Portfolio represent 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 the Portfolio's
yields and total returns. Such fees, if any, will reduce the investor's net
return on an investment in the Portfolio. Investors may call (800) 452-401K to
obtain current yield and total return information.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Portfolio are declared daily and
paid monthly not later than five Business Days after the end of each month.
Trust 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 amounts irrespective of class, except
that the Portfolio's Trust Shares bear all expenses of the 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--"Administrative Services Plan and "Other
Information Concerning the Fund and Its Shares").
OTHER DIVIDEND AND DISTRIBUTION INFORMATION
Net realized capital gains of the Portfolio, if any, are distributed at
least annually. All dividends and distributions paid on the 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 the 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
Management of the Fund believes that the Portfolio will qualify as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code") for the taxable year
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ending November 30, 1995, and it is intended that the 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 the Portfolio distribute to its
shareholders an amount equal to at least the sum of 90% of its exempt-interest
income net of certain deductions and 90% of its investment company taxable
income (if any) for such year. The policy of the Portfolio is to distribute as
dividends substantially all of its net tax-exempt interest income and any
investment company taxable income each year. Dividends derived from interest
on Municipal Obligations (known as exempt-interest dividends) may be treated
by shareholders as items of interest excludable from their gross income under
Section 103(a) of the Code, unless under the circumstances applicable to the
particular shareholder the exclusion would be disallowed. (See Statement of
Additional Information under "Additional Information Concerning Taxes.")
Distributions of net income may be taxable to investors under state or local
law as dividend income even though a substantial portion of such distributions
may be derived from interest on tax-exempt obligations which, if realized
directly, would be exempt from such income tax.
If the Portfolio should hold certain private activity bonds issued after
August 7, 1986, shareholders must include, as an item of tax preference, the
portion of dividends paid by the Portfolio that is attributable to interest on
such bonds in their federal alternative minimum taxable income for purposes of
determining liability (if any) for the 26-28% alternative minimum tax
applicable to individuals and the 20% alternative minimum tax and the
environmental tax applicable to corporations. Corporate shareholders also must
take all exempt-interest dividends into account in determining certain
adjustments for federal alternative minimum and environmental tax purposes.
The environmental tax applicable to corporations is imposed at the rate of
.12% on the excess of the corporation's modified federal alternative minimum
taxable income over $2,000,000.
To the extent dividends paid to shareholders are derived from taxable income
or from long-term or short-term capital gains, such dividends will be subject
to federal income tax, whether such dividends are paid in the form of cash or
additional Shares. In addition any capital gain distributions that are paid
after a purchase by a shareholder shortly before the record date will have the
effect of reducing the per Share net asset value of his or her Shares by the
per Share amount of the distributions and all or a portion of such payment,
although in effect a return of capital, will be subject to taxes.
Dividends declared 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.
The Portfolio may be required in certain cases to withhold and remit to the
U.S. Treasury 31% of taxable dividends or gross sale proceeds paid to
shareholders who have failed to provide a correct tax identification number in
the manner required, who are subject to withholding by the Internal Revenue
Service for failure properly to include on their return payments of taxable
interest or dividends, or who have failed to certify to the Portfolio that
they are not subject to backup withholding when required to do so or that they
are "exempt recipients."
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<PAGE>
A taxable gain or loss may be realized by an investor upon his or her
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.
APPLICABLE STATE AND LOCAL TAXES
Shareholders should note that dividends paid by the 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.
All shareholders of the Portfolio should consult with their tax advisors
with respect to the state and local tax consequences of the purchase,
ownership, and disposition of Shares in the Portfolio, the receipt of
distributions from the Portfolio, and the proper method in which to report
Portfolio-related items on a shareholder's state tax returns.
MISCELLANEOUS
The foregoing summarizes some of the important federal and state tax
considerations generally affecting the Portfolio and its shareholders and is
not intended as a substitute for careful tax planning. Accordingly, potential
investors in the Portfolio 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
the Portfolio. MVA's principal office is located at One Mercantile Center,
Seventh & Washington Streets, St. Louis, Missouri 63101. MVA is a wholly-owned
subsidiary of Mercantile. As of December 31, 1994, MVA had approximately $5.4
billion in assets under investment management, including the ARCH Family of
Funds' assets, which were approximately $1.7 billion. MVA also serves as
investment adviser to the Fund's Money Market, Treasury Money Market, Growth &
Income Equity, Emerging Growth, Government & Corporate Bond, U.S. Government
Securities, Balanced, and International Equity Portfolios and to The ARCH Tax-
Exempt Trust's Tax-Exempt Money Market, Missouri Tax-Exempt Bond and Kansas
Tax-Exempt Bond Portfolios.
Subject to the general supervision of the Fund's Board of Directors and in
accordance with the Fund's investment policies, MVA manages the Portfolio,
makes investment decisions with respect to and places orders for all purchases
and sales of the Portfolio's securities and other investments, and directs the
maintenance of the Portfolio's records relating to such purchases and sales.
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<PAGE>
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 rate of .55% of the average daily net assets of
the Portfolio.
MVA may from time to time voluntarily reduce all or a portion of its
advisory fee to increase the net income of the Portfolio available for
distributions as dividends. The voluntary fee reduction will cause the return
of the Portfolio to be higher than it would otherwise be in the absence of
such reduction.
Peter Merzian is the person primarily responsible for the day-to-day
management of the Portfolio. Mr. Merzian, a Senior Associate of MVA, is
assisted by several research analysts who utilize a wide range of
technological resources in selecting portfolio investments. Mr. Merzian has
been an investment manager for the Fund since 1993 and prior thereto was
employed as a portfolio manager by another financial institution.
ADMINISTRATOR
BISYS Fund Services Ohio, Inc., located at 1900 East Dublin-Granville Road,
Columbus, Ohio 43229, acts as the Fund's Administrator. The Administrator also
serves as the administrator to the Fund's Money Market, Treasury Money Market,
Growth & Income Equity, Emerging Growth, Government & Corporate Bond, U.S.
Government Securities, Balanced, and International Equity Portfolios and The
ARCH Tax-Exempt Trust's Tax-Exempt Money Market, Missouri Tax-Exempt Bond and
Kansas Tax-Exempt Bond Portfolios.
The Administrator generally assists in all aspects of each Portfolio's
administration and operation and also monitors and performs other services
pertaining to the Fund's arrangements under the Administrative Services Plan
described below. For its services, the Administrator is entitled to receive a
fee, computed daily and payable monthly, at the annual rate of .20% of the
Portfolio's average daily net assets.
DISTRIBUTOR
Trust Shares of the Portfolio are sold continuously by the Distributor, The
Winsbury Company ("Winsbury"), an affiliate of the Administrator. Winsbury is
a registered broker-dealer with principal offices at 1900 East Dublin-
Granville Road, Columbus, Ohio 43229. The Distributor also acts as distributor
of the Fund's Money Market, Treasury Money Market, Growth & Income Equity,
Emerging Growth, Government & Corporate Bond, U.S. Government Securities,
Balanced, and International Equity Portfolios and The ARCH Tax-Exempt Trust's
Tax-Exempt Money Market, Missouri Tax-Exempt Bond and Kansas Tax-Exempt Bond
Portfolios.
ADMINISTRATIVE SERVICES PLAN
The Fund has adopted an Administrative Services Plan with respect to the
Trust Shares of the Portfolio. 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")
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<PAGE>
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
the Portfolio's Trust Shares owned beneficially by a Service Organization's
customers.
SERVICE ORGANIZATIONS
The servicing agreements adopted under the Administrative Services Plan (the
"Servicing Agreements") require the Service Organizations receiving such
compensation (which may include Mercantile and its affiliates) to perform
certain services, including providing administrative services with respect to
the beneficial owners of Shares of the 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 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 the 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 the Portfolio's assets.
BISYS Fund Services Ohio, Inc. also serves as the Fund's transfer agent and
dividend disbursing agent. Its address is 1900 East Dublin-Granville Road,
Columbus, Ohio 43229.
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 Portfolio. 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 Portfolio contemplated by their respective
agreements, this Prospectus and the Statement of Additional Information
without violating applicable banking laws and regulations.
19
<PAGE>
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 Portfolio and its 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 Portfolio. It
is not possible, of course, to predict whether or in what form such
legislation might be enacted or the terms upon which Mercantile, or such an
affiliate, might offer to provide such services.
Conflict of interest restrictions may apply to the receipt of compensation
paid pursuant to a Servicing Agreement by the Portfolio to a financial
intermediary in connection with the investment of fiduciary funds in the
Portfolio's Shares. Institutions, including banks regulated by the Comptroller
of the Currency and investment advisers and other money managers subject to
the jurisdiction of the SEC, the Department of Labor or state securities
commissions, should consult legal counsel before entering into Servicing
Agreements.
EXPENSES
Except as noted above and in the Statement of Additional Information under
"Investment Advisory and Administrative Contracts" and "Custodian and Transfer
Agent," the Fund's service contractors bear all expenses in connection with
the performance of their services, except that the Distributor is compensated
pursuant to the Distribution and Services Plan for Investor A Shares (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 the 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 the 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 the Portfolio will be borne solely
by such class. (See "Certain Financial Information" and "Management of the
Fund" above for additional information regarding expenses of the Portfolio.)
20
<PAGE>
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 1900 East Dublin-Granville
Road, Columbus, Ohio 43229. The Fund is a "series" investment company
authorized to issue thirty-two classes of common stock in the following ARCH
Portfolios: the Money Market Portfolio (Class A Shares, Class A--Special
Series 1 Shares, Class A--Special Series 2 Shares and Class A--Special Series
3 Shares), the Treasury Money Market Portfolio (Class B Shares, Class B--
Special Series 1 Shares and Class B--Special Series 2 Shares), the Growth &
Income Equity Portfolio (Class C Shares, Class C--Special Series 1 Shares,
Class C--Special Series 2 Shares and Class C--Special Series 3 Shares), the
Government & Corporate Bond Portfolio (Class D Shares, Class D--Special Series
1 Shares, Class D--Special Series 2 Shares and Class D--Special Series 3
Shares), the U.S. Government Securities Portfolio (Class E Shares, Class E--
Special Series 1 Shares, Class E--Special Series 2 Shares and Class E--Special
Series 3 Shares), the Emerging Growth Portfolio (Class F Shares, Class F--
Special Series 1 Shares, Class F--Special Series 2 Shares and Class F--Special
Series 3 Shares), the Balanced Portfolio (Class G Shares, Class G--Special
Series 1 Shares, Class G--Special Series 2 Share and Class G--Special Series 3
Shares), the International Equity Portfolio (Class H Shares, Class H--Special
Series 1 Shares, Class H--Special Series 2 Shares and Class H--Special Series
3 Shares) and the Short-Intermediate Municipal Portfolio (Class I Shares and
Class I--Special Series 1 Shares). Currently, Class A, B, C, D, E, F, G, H and
I Shares in a Portfolio constitute the "Investor A Shares", the "Special
Series 1 Shares" in a Portfolio constitute the "Trust Shares", the "Special
Series 2 Shares" in a Portfolio constitute the "Institutional Shares", and the
"Special Series 3 Shares" in a Portfolio constitute the "Investor B Shares".
The Short-Intermediate Municipal Portfolio does not offer Institutional or
Investor B Shares. The Fund's Articles of Incorporation authorize the Board of
Directors to classify or reclassify any class of Shares into one or more
classes of Shares. Shares in the Fund's Portfolios will be issued without
Share certificates.
The Trust Shares of the Portfolio are described in this Prospectus. The
Portfolio also offers Investor A Shares. Investor A Shares of the Portfolio
are sold with a maximum 4.5% front-end sales charge. Investor A Shares are
sold through selected broker/dealers and other financial intermediaries to
individual or institutional customers. Trust and Investor A Shares bear their
pro rata portion of all operating expenses paid by the Portfolio, except that
Trust Shares bear all payments under the Portfolio's Administrative Services
Plan and Investor A Shares bear all payments under the Portfolio's
Distribution and Services Plan.
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 Investor A Shares of the Portfolio. Distribution
payments made under the Distribution and Services Plan are subject to the
requirements of Rule 12b-1 under the 1940 Act.
21
<PAGE>
The Fund offers various services and privileges in connection with Investor
A Shares of the Portfolio that are not offered in connection with the
Portfolio's Trust Shares. In addition, each class of Shares in the Portfolio
offers different exchange privileges, such that Investor A Shares of the
Portfolio are exchangeable only for Investor A Shares of another portfolio
offered by the ARCH Family of Funds and Trust Shares of the Portfolio are
exchangeable only for Trust Shares of another portfolio offered by the ARCH
Family of Funds. Persons selling or servicing Trust and Investor A Shares of
the Portfolio may receive different compensation with respect to one
particular class of Shares over another in the Portfolio.
Shareholders are entitled to one vote for each full Share held and
proportionate fractional votes for fractional Shares held. Shares of all Fund
Portfolios will vote together and not by class unless otherwise required by
law or permitted by the Board of Directors. All shareholders of the 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. 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.
MISCELLANEOUS
As used in this Prospectus, a "vote of a majority of the outstanding Shares"
of the Portfolio means the affirmative vote of the lesser of (a) more than 50%
of the outstanding Shares of the Portfolio (irrespective of class), or (b) 67%
or more of the Shares of the Portfolio (irrespective of class) present at a
meeting if more than 50% of the outstanding Shares of the Portfolio are
represented at the meeting in person or by proxy.
As of December 1, 1994, Mercantile and its affiliates possessed, of record
on behalf of their underlying customer accounts, voting or investment power
with respect to more than 25% of the Fund's outstanding Shares. Therefore,
Mercantile may be deemed to be a controlling person of the Fund within the
meaning of the 1940 Act.
Inquiries regarding the Portfolio may be directed to the Fund at (800) 551-
3731.
For information with respect to Trust Shares of the Fund's Money Market,
Treasury Money Market, Growth & Income Equity, Emerging Growth, Government &
Corporate Bond, U.S. Government Securities, Balanced and International Equity
Portfolios or Trust Shares offered by The ARCH Tax-Exempt Trust in the ARCH
Tax-Exempt Money Market, Missouri Tax-Exempt Bond or Kansas Tax-Exempt Bond
Portfolios, call the Fund at (800) 551-3731.
22
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE PORTFOLIO'S 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 PORT-
FOLIO, THE FUND, OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OF-
FERING BY THE PORTFOLIO, THE FUND OR THE DISTRIBUTOR IN ANY JURISDICTION IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Highlights................................................................. 2
Certain Financial Information.............................................. 3
Expense Summary for Trust Shares........................................... 3
Investment Objective and Policies.......................................... 5
Pricing of Shares.......................................................... 10
How to Purchase and Redeem Shares.......................................... 11
Exchange Privilege........................................................ 12
Redemption of Shares...................................................... 13
Other Exchange or Redemption Information.................................. 13
Yields and Total Returns................................................... 14
Dividends and Distributions................................................ 15
Taxes...................................................................... 15
Management of the Fund..................................................... 17
Other Information Concerning the Fund and its Shares....................... 21
</TABLE>
Investment Adviser:
Mississippi Valley Advisors Inc., a wholly-owned subsidiary of Mercantile Bank
of St. Louis National Association
Distributor:
The Winsbury Company
THE ARCH FUND(R), INC.
SHORT-INTERMEDIATE MUNICIPAL
PORTFOLIO
TRUST SHARES
LOGO
PROSPECTUS
JUNE 28, 1995
<PAGE>
THE ARCH FUND(R), INC.
The ARCH Short-Intermediate Municipal Portfolio
Statement of Additional Information
Part B
June 28, 1995
(as revised January 2, 1996)
<PAGE>
THE ARCH FUND, INC.
Statement of Additional Information
for
The ARCH Short-Intermediate Municipal Portfolio
June 28, 1995
(as revised January 2, 1996)
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
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<S> <C>
Investment Objective and Policies......................................... 1
Net Asset Value........................................................... 17
Additional Purchase and Redemption Information............................ 19
Additional Yield and Total Return Information............................. 20
Description of Shares..................................................... 25
Additional Information Concerning Taxes................................... 27
Management of the Fund.................................................... 30
Independent Auditors...................................................... 38
Counsel................................................................... 38
Miscellaneous............................................................. 38
Appendix A................................................................ A-1
Appendix B................................................................ B-1
</TABLE>
This Statement of Additional Information, which provides supplemental
information applicable to the Short-Intermediate Municipal Portfolio (the
"Portfolio"), is not a prospectus. It should be read only in conjunction with
the Portfolio's Prospectuses dated June 28, 1995 (as revised January 2, 1996
with respect to Trust Shares) and is incorporated by reference in its entirety
into the Prospectuses. No investment in Shares of the Portfolio should be made
without reading a 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>
INVESTMENT OBJECTIVE AND POLICIES
As stated in the Prospectuses, the Portfolio's investment objective is
to seek as high a level of current income, exempt from federal income tax, as is
consistent with preservation of capital. The Portfolio seeks to achieve its
objective by investing substantially all of its assets in investment-grade debt
obligations issued by or on behalf of states, territories and possessions of the
United States, the District of Columbia and their respective political
subdivisions, agencies, instrumentalities and authorities the interest on which,
in the opinion of bond counsel or counsel to the issuer, is exempt from regular
federal income tax (collectively, "Municipal Obligations").
The following policies supplement the description of the investment
objective and policies of the Short-Intermediate Municipal Portfolio described
in the Prospectuses.
Municipal Obligations
Municipal Obligations include debt obligations issued by governmental
entities which obtain funds for various public purposes, including the
construction of a wide range of public facilities, the refunding of outstanding
obligations, the payment of general operating expenses and the extension of
loans to public institutions and facilities.
As described in the Prospectuses, the two principal classifications of
Municipal Obligations consist of "general obligation" and "revenue" issues. In
addition, the Portfolio may purchase "moral obligation" issues, which are
normally issued by special purpose authorities. There are, of course, variations
in the quality of Municipal Obligations both within a particular classification
and between classifications, and the yields on Municipal Obligations depend upon
a variety of factors, including general conditions of the money market and/or
the municipal bond market, the financial condition of the issuer, the size of a
particular offering, the maturity of the obligation and the rating of the issue.
The ratings of Rating Agencies, such as Moody's and S&P, represent their
opinions as to the quality of Municipal Obligations. It should be emphasized,
however, that ratings are general and are not absolute standards of quality, and
Municipal Obligations with the same maturity, interest rate and rating may have
different yields while Municipal Obligations of the same maturity and interest
rate with different ratings may have the same yield. Subsequent to its purchase
by the Portfolio, an issue of Municipal Obligations may cease to be rated or its
rating may be reduced below the minimum rating required for purchase by the
Portfolio. The Adviser will consider such an event in determining whether the
Portfolio should continue to hold the obligation.
<PAGE>
The Portfolio may also purchase Municipal Obligations in the form of
certificates of participation which represent undivided interests in lease
payments by a governmental or nonprofit entity. A lease may provide that the
certificate trustee cannot accelerate lease obligations upon default. The
trustee would only be able to enforce lease payments as they become due. In the
event of a default or failure of appropriation, it is unlikely that the trustee
would be able to obtain an acceptable substitute source of payment. In
addition, certificates of participation are less liquid than other bonds because
there is a limited secondary trading market for such obligations. To alleviate
potential liquidity problems with respect to these investments, the Portfolio
may enter into remarketing agreements which may provide that the seller or a
third party will repurchase the obligation within seven days after demand by
the Portfolio and upon certain conditions such as the Portfolio's payment of a
fee.
The payment of principal and interest on most securities purchased by
the Portfolio will depend upon the ability of the issuers to meet their
obligations. An issuer's obligations under its Municipal Obligations are
subject to the provisions of bankruptcy, insolvency, and other laws affecting
the rights and remedies of creditors, such as the federal bankruptcy code, and
laws, if any, which may be enacted by federal or state legislatures extending
the time for payment of principal or interest, or both, or imposing other
constraints upon enforcement of such obligations or upon the ability of
municipalities to levy taxes. The power or ability of an issuer to meet its
obligations for the payment of interest on and principal of its Municipal
Obligations may be materially adversely affected by litigation or other
conditions. The District of Columbia, each state, each of their political
subdivisions, agencies, instrumentalities and authorities and each multi-state
agency of which a state is a member is a separate "issuer" as that term is used
in this Statement of Additional Information and the Prospectuses. The non-
governmental user of facilities financed by private activity bonds is also
considered to be an "issuer."
The Portfolio may also purchase General Obligation Notes, Tax
Anticipation Notes, Bond Anticipation Notes, Revenue Anticipation Notes, Tax-
Exempt Commercial Paper, Construction Loan Notes and other tax-exempt loans.
Such instruments are issued in anticipation of the receipt of tax funds, the
proceeds of bond placements, or other revenues.
Certain types of Municipal Obligations (private activity bonds) have
been or are issued to obtain funds to provide, among other things, privately
operated housing facilities, pollution control facilities, convention or trade
show facilities, mass transit, airport, port or parking facilities and certain
local facilities for water supply, gas, electricity or sewage or solid
-3-
<PAGE>
waste disposal. Private activity bonds are also issued to privately held or
publicly owned corporations in the financing of commercial or industrial
facilities. State and local governments are authorized in most states to issue
private activity bonds for such purposes in order to encourage corporations to
locate within their communities. The principal and interest on these
obligations may be payable from the general revenues of the users of such
facilities. Furthermore, payment of principal and interest on Municipal
Obligations of certain projects may be secured by mortgages or deeds of trust.
In the event of a default, enforcement of the mortgages or deeds of trust will
be subject to statutory enforcement procedures and limitations, including rights
of redemption and limitations on obtaining deficiency judgments. In the event
of a foreclosure, collection of the proceeds of the foreclosure may be delayed,
and the amount of proceeds from the foreclosure may not be sufficient to pay the
principal of and accrued interest on the defaulted Municipal Obligations.
From time to time, proposals have been introduced before Congress for
the purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Obligations. For example, the Tax Reform Act of 1986 (the
"Act"), adopted in October 1986, substantially revised provisions of prior law
affecting the issuance and use of proceeds of certain tax-exempt obligations.
The Act made a new definition of private activity bonds applicable to many types
of bonds, including those which were industrial development bonds under prior
law. Interest on private activity bonds is exempt from regular federal income
tax only if the bonds fall within and meet the requirements of certain defined
categories of qualified private activity bonds. The Act also extended to all
Municipal Obligations issued after August 16, 1986 (August 31, 1986 in the case
of certain bonds) certain rules formerly applicable only to industrial
development bonds. If the issuer fails to observe such rules, the interest on
the Municipal Obligations may become taxable retroactive to the date of issue.
In addition, interest on certain private activity bonds must be included in an
investor's federal alternative minimum taxable income, and corporate investors
must include all tax-exempt interest in their federal alternative minimum
taxable income. (See the Prospectuses under "Taxes - Federal Taxes".)
Variable and Floating Rate Instruments
The Portfolio may purchase variable and floating rate obligations as
described in the Prospectuses. The Adviser will consider the earning power, cash
flows and other liquidity ratios of the issuers and guarantors of such
obligations and, for obligations subject to a demand feature, will monitor their
financial status to meet payment on demand. In determining average weighted
portfolio maturity, an instrument issued or guaranteed by the U.S. Government or
an agency or instrumentality thereof, or a
-4-
<PAGE>
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.
The variable and floating rate demand instruments that the Portfolio
may purchase include participations in Municipal Obligations purchased from and
owned by financial institutions, primarily banks. Participation interests
provide the Portfolio with a specified undivided interest (up to 100%) in the
underlying obligation and the right to demand payment of the unpaid principal
balance plus accrued interest on the participation interest from the institution
upon a specified number of days' notice, not to exceed thirty days. Each
participation interest is backed by an irrevocable letter of credit or guarantee
of a bank that the Adviser has determined meets the prescribed quality standards
for the Portfolio. The bank typically retains fees out of the interest paid on
the obligation for servicing the obligation, providing the letter of credit and
issuing the repurchase commitment.
Securities of Other Investment Companies
When investing in securities issued by other investment companies as
permitted by the 1940 Act and its respective investment objective, policies, and
limitations, the Portfolio currently intends to limit its investments so that,
as determined immediately after a purchase of securities 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 Portfolio and other investment companies advised by the
Adviser.
Illiquid Securities
The Portfolio may invest up to 15% of its net assets in illiquid
securities. Securities that have legal or contractual restrictions on resale
but have a readily available market are not considered illiquid for purposes of
this limitation. The Adviser will monitor on a ongoing basis the liquidity of
such restricted securities under the supervision of the Board of Directors.
The SEC has adopted Rule 144A which allows for a broader institutional
trading market for securities otherwise subject to
-5-
<PAGE>
restriction 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 Adviser
believes that the market for certain restricted securities such as institutional
commercial paper may expand further as a result of this new regulation and the
development of automated systems for the trading, clearance and settlement of
unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the NASD. The purchase of securities which can be sold only
under Rule 144A could have the effect of increasing the level of illiquidity in
the Portfolio to the extent that qualified institutional buyers become, for a
time, uninterested in purchasing these restricted securities.
The Adviser monitors the liquidity of any restricted securities held
in the Portfolio under the supervision of the Board of Directors. In reaching
liquidity decisions, the Adviser will consider such factors as: (1) the
frequency of trades and quotes for the security; (2) the number of dealers
wishing to purchase or sell the security and the number of other potential
purchasers; (3) dealer undertakings to make a market in the security; and (4)
the nature of the security and the nature of the marketplace trades (e.g., the
time needed to dispose of the security, the method of soliciting offers and the
mechanics of the transfer).
Stand-by Commitments
The Portfolio may acquire "stand-by commitments" with respect to
Municipal Obligations it holds. Under a stand-by commitment, a dealer or bank
agrees to purchase from the Portfolio, at the Portfolio's option, specified
Municipal Obligations at their amortized cost value to the Portfolio plus
accrued interest, if any. Standby commitments acquired by the Portfolio must
meet the quality standards described in the Prospectuses (be rated in the two
highest categories as determined by a Rating Agency, or, if not rated, must be
of comparable quality as determined by the Adviser pursuant to guidelines
approved by the Fund's Board of Directors). Stand-by commitments are
exercisable by the Portfolio at any time before the maturity of the underlying
Municipal Obligations and may be sold, transferred or assigned by the Portfolio
only with the underlying instruments.
The Fund expects that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, the Portfolio may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities).
-6-
<PAGE>
The Portfolio intends to enter into stand-by commitments only with
dealers, banks and broker-dealers which, in the Adviser's opinion, present
minimal credit risks. The Portfolio's reliance upon the credit of these
dealers, banks and broker-dealers will be secured by the value of the underlying
Municipal Obligations that are subject to the commitment. In evaluating the
creditworthiness of the issuer of a stand-by commitment, the Adviser will review
periodically the issuer's assets, liabilities, contingent claims and other
relevant financial information.
The Portfolio will acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its rights thereunder for
trading purposes. Stand-by commitments acquired by a Portfolio would be valued
at zero in determining net asset value. Where the Portfolio paid any
consideration directly or indirectly for a stand-by commitment, its cost would
be reflected as unrealized depreciation for the period during which the
commitment was held by the Portfolio. If a stand-by commitment is exercised,
its cost will reduce the amount realized on the sale of the Municipal
Obligations for purposes of determining the amount of gain or loss. If a stand-
by commitment expires unexercised, its cost is added to the basis of the
security to which it relates in those instances where the stand-by commitment
was acquired on the same day as the bond, and in other cases will be treated as
a capital loss at the time of expiration. Stand-by commitments would not affect
the average weighted maturity of the Portfolio.
When-Issued Purchases and Forward Commitments
When the Portfolio agrees to purchase securities on a when-issue or
forward commitment basis, the Custodian will set aside cash or liquid portfolio
securities equal to the amount of the commitment in a separate account.
Normally, the Custodian will set aside portfolio securities to satisfy a
purchase commitment, and in such a case the Portfolio may be required
subsequently to place additional assets in the separate account in order to
ensure that the value of the account remains equal to the amount of the
Portfolio's commitments.
Because the Portfolio will set aside cash or liquid assets to satisfy
its purchase commitments in the manner described, the Portfolio's liquidity and
ability to manage its portfolio might be affected in the event its commitments
to purchase securities on a when-issued or forward commitment basis ever
exceeded 25% of the value of its total assets. The Portfolio expects that
commitments to purchase when-issued securities will not exceed 5% of the value
of its total assets under normal market conditions.
When the Portfolio engages in when-issued or forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such party to do so may result in the
-7-
<PAGE>
Portfolio's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
The value of the securities underlying a when-issued purchase or a
forward commitment to purchase securities, and any subsequent fluctuations in
their value, are taken into account when determining the 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 the
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.
The 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, the 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 taxable capital gain or loss.
Tax-Exempt Derivatives
The Portfolio may hold tax-exempt derivatives which may be in the form
of tender option bonds, participations, beneficial interests in a trust,
partnership interests or other forms. A number of different structures have
been used. For example, interests in long-term fixed-rate municipal
obligations, held by a bank as trustee or custodian, are coupled with tender
option, demand and other features when the tax-exempt derivatives are created.
Together, these features entitle the holder of the interest to tender (or put),
the underlying municipal obligation to a third party at periodic intervals and
to receive the principal amount thereof. In some cases, municipal obligations
are represented by custodial receipts evidencing rights to receive specific
future interest payments, principal payments, or both, on the underlying
municipal securities held by the custodian. Under such arrangements, the holder
of the custodial receipt has the option to tender the underlying municipal
securities at its face value to the sponsor (usually a bank or broker dealer or
other financial institution), which is paid periodic fees equal to the
difference between the bond's fixed coupon rate and the rate that would cause
the bond, coupled with the tender option, to trade at par on the date of a rate
adjustment. The Portfolio may hold tax-exempt derivatives, such as
participation interests and custodial
-8-
<PAGE>
receipts, for Municipal Obligations which give the holder the right to receive
payment of principal subject to the conditions described above. The Internal
Revenue Service has not ruled on whether the interest received on tax-exempt
derivatives in the form of participation interests or custodial receipts is tax-
exempt, and accordingly, purchases of any such interests or receipts are based
on the opinion of counsel to the sponsors of such derivative securities.
Neither the Fund nor the Adviser will review the proceedings related to the
creation of any tax-exempt derivatives or the basis for such opinions.
Securities Lending
While the Portfolio would not have the right to vote securities on
loan, the Portfolio intends to terminate the loan and regain the right to vote
should this be considered important with respect to the investment. When the
Portfolio lends its securities, it continues 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 the Portfolio if a
material event affecting the investment is to occur.
Securities lending arrangements with broker/dealers require that the
loans be secured by the collateral equal in value to at least the market value
of the securities loaned. During the term of such arrangements, the Portfolio
will maintain such value by the daily marking-to-market of the collateral.
Temporary Investments
As stated in the Prospectuses, the Portfolio may invest a portion of
its assets for temporary defensive or other purposes in taxable instruments
which include instruments within the classes listed below:
U.S. Government Obligations
The Portfolio may invest in obligations issued or guaranteed by the
U.S. Government, its agencies and instrumentalities. 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
-9-
<PAGE>
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.
Certificates of Deposit and Bankers' Acceptances
The Portfolio may invest in certificates of deposit of domestic
branches of U.S. financial institutions which are members of the Federal Reserve
System or the deposits of institutions which are insured by the Federal Deposit
Insurance Corporation and which have total assets at the time of purchase in
excess of $1 billion, and bankers' acceptances guaranteed by domestic branches
of U.S. commercial banks having total assets at the time of purchase in excess
of $1 billion.
Commercial Paper
The Portfolio may invest in commercial paper rated at the time of
purchase in the two highest rating categories by a Rating Agency or, if not
rated, determined by the Adviser to be of comparable quality to securities
within the two highest rating categories. In determining whether a security is
of comparable quality to those that the Portfolio may purchase, the Adviser will
consider the earning power, cash flow, and other liquidity ratios of the issuer
and will continuously monitor its financial condition. The Appendix to this
Statement of Additional Information contains a description of these quality
ratings.
Repurchase Agreements
The Portfolio may enter into repurchase agreements with respect to
portfolio securities. Under the terms of a repurchase agreement, the 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. During the term of
any repurchase agreement, the Adviser will continue to monitor the
creditworthiness of the seller. The repurchase price generally equals 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 the agreement at not less than the
repurchase price, and securities subject to repurchase agreements are maintained
by the Portfolios' Custodian in segregated accounts
-10-
<PAGE>
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
The Portfolio may enter into reverse repurchase agreements,
(agreements under which the Portfolio sells portfolio securities and agrees to
repurchase them at an agreed-upon date and price). At the time the Portfolio
enters into reverse repurchase agreements, the Portfolio will place in a
segregated custodial account liquid assets such as U.S. Government securities or
other liquid high-grade debt securities having a value equal to or greater than
the repurchase price (including accrued interest) and will subsequently monitor
the account to ensure that such 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. The 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 Portfolio.
In the case of the Portfolio, portfolio turnover may vary greatly from
year to year as well as within a particular year. The Adviser expects that the
Portfolio's annual turnover rate will generally not exceed 100%. Portfolio
turnover may also be affected by cash requirements for redemptions of Shares and
by requirements which enable the Portfolio to receive certain favorable tax
treatment. Portfolio turnover will not be a limiting factor in making
investment decisions.
Securities purchased and sold by the Portfolio are generally traded in
the over-the-counter market on a net basis (i.e., without commission) through
dealers, or otherwise involve transactions directly with the issuer of an
instrument. There is generally no stated commission in the case of securities
traded in the over-the-counter markets, but the price of those securities
includes an undisclosed commission or mark-up. The cost of securities purchased
from underwriters includes an underwriter's commission or concession, and the
prices at which securities are
-11-
<PAGE>
purchased from and sold to dealers include a dealer's mark-up or mark-down.
The Portfolio may participate, if and when practicable, in bidding for
the purchase of Municipal Obligations directly from an issuer in order to take
advantage of the lower purchase price available to members of a bidding group.
The Portfolio will engage in this practice, however, only when the Adviser, in
its sole discretion, believes such practice to be otherwise in the 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 the 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 the
Portfolio. Such information may be useful to the Adviser in serving both the
Portfolio 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 Portfolio. 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 Portfolio 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 Portfolio 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 Portfolio. When a purchase or sale of the same security
is made at substantially the same time on behalf of the Portfolio and another
investment company or account, the transaction will be averaged as to price, and
available investments allocated as to amount, in a manner which the Adviser
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
-12-
<PAGE>
the Portfolio 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
the Portfolio only by an affirmative vote of a majority of the outstanding
Shares of the Portfolio (as defined under "Other Information Concerning the Fund
and Its Shares -- Miscellaneous" in the Portfolio's Prospectuses). These
investment limitations supplement those that appear in the Prospectuses.
The Portfolio may not:
1. Make investments for the purpose of exercising control or
management.
2. Purchase or sell real estate, except that the Portfolio may
invest in Municipal Obligations which are secured by real estate or interests
therein.
3. Act as an underwriter of securities within the meaning of the
Securities Act of 1933 except insofar as the Portfolio might be deemed to be an
underwriter upon disposition of portfolio securities acquired within the
limitation on purchases of restricted securities and except to the extent that
the purchase of obligations directly from the issuer thereof in accordance with
the Portfolio's investment objective, policies and limitations may be deemed to
be underwriting.
4. Purchase or sell commodity contracts, or invest in oil, gas or
mineral exploration or development programs.
NET ASSET VALUE
As stated in the Prospectuses, the net asset value per share of each
class of the Portfolio is calculated by adding the value of all of the portfolio
securities and other assets belonging to the Portfolio, subtracting the
liabilities charged to such class, and dividing the result by the number of the
outstanding shares of such class. "Assets belonging to" each class of the
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 the Portfolio are charged with the direct liabilities of each
class of the Portfolio and with a share
-13-
<PAGE>
of the general liabilities of the Fund allocated in proportion to the relative
net assets of the 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 the
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 the Portfolio's open futures contracts and related
options will be "marked-to-market".
Among the factors that ordinarily will be considered in valuing
portfolio securities are the existence of restrictions upon the sale of the
security by the Portfolio, the existence and extent of a market for the
security, the extent of any discount in acquiring the security, the estimated
time during which the security will not be freely marketable, the expenses of
registering or otherwise qualifying the security for public sale, underwriting
commissions if underwriting would be required to effect a sale, the current
yields on comparable securities for debt obligations traded independently of any
equity equivalent, changes in the financial condition and prospects of the
issuer, and any other factors affecting fair value. In making valuations,
opinions of counsel to the issuer may be relied upon as to whether or not
securities are restricted securities and as to the legal requirements for public
sale.
The Administrator may use a pricing service to value certain portfolio
securities where the prices provided are believed to reflect the fair market
value of such securities. The methods of valuation used by the pricing service
will be reviewed by the Administrator under the general supervision of the
Fund's Board of Directors. Several pricing services are available, one or more
of which may be used by the Administrator from time to time. In valuing the
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.
-14-
<PAGE>
Short-term securities are valued at amortized cost, which approximates
market value. The amortized cost method involves valuing a security at its cost
on the date of purchase and thereafter assuming a constant amortization to
maturity of the difference between the principal amount due at maturity and
cost.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares in the Portfolio are sold on a continuous basis by the
Distributor. As described in the applicable Prospectus, Trust Shares of the
Portfolio are sold to certain qualified customers at their net asset value
without a sales charge. Investor A Shares of the Portfolio are sold to retail
customers at the public offering price based on the Portfolio's net asset value
plus a front-end load or sales charge as described in the applicable Prospectus.
No Shares of the Portfolio were issued during the fiscal year ended October
31, 1994.
The Fund may redeem Shares involuntarily if the net income with
respect to the Portfolio's Shares is negative or such redemption otherwise
appears appropriate in light of the Fund's responsibilities under the 1940 Act.
An illustration of the computation of the public offering price per
share of Investor A Shares of the Portfolio based on the value of the net
assets and number of outstanding shares on October 31, 1995 and maximum 2.5%
sales charge currently applicable, is as follows:
<TABLE>
<S> <C>
Net Assets $10.00
------
Outstanding Shares 1
------
Net Asset Value Per Share $10.01
------
Sales Charge, 2.50% of
offering price (2.56% of
net asset value per share) $ 0.26
------
Offering to Public $10.27
======
</TABLE>
Under the 1940 Act, the 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
-15-
<PAGE>
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 Portfolio may redeem Shares involuntarily to
reimburse the Portfolio for any loss sustained by reason of the failure of a
shareholder to make full payment for Shares purchased by the shareholder or to
collect any charge relating to a transaction effected for the benefit of a
shareholder which is applicable to Portfolio Shares as provided in the
applicable Prospectuses from time to time.
ADDITIONAL YIELD AND TOTAL RETURN INFORMATION
From time to time yields and total returns of Trust Shares and
Investor A Shares (computed separately) of the Portfolio may be quoted in
advertisements, shareholder reports or other communications to shareholders.
Yield Calculations
The Portfolio's yields are calculated separately for Trust Shares and
Investor A Shares by dividing their net investment income per share (as
described below) earned during a 30 day (or one-month) period by the maximum
offering price which a shareholder would pay per share (the "maximum offering
price") with respect to Investor A Shares and the net asset value per share with
respect to Trust 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.
The 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 the applicable expenses accrued with
respect to a series of the Portfolio's Shares for the period, net of
reimbursements. This calculation can be expressed as follows:
-16-
<PAGE>
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 during the
period that were entitled to receive dividends, and
d = maximum offering price per share on the last day of the
period.
Except as noted below, for the purpose of determining net investment
income earned during the period (variable "a" in the formula), interest earned
on debt obligations held by the Portfolio is calculated by computing the yield
to maturity of each obligation based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
business day of each month, or, with respect to obligations purchased during the
month, 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 month that the obligation is held
by the Portfolio. For purposes of this calculation, it is assumed that each
month contains 30 days. 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.
Interest earned on tax-exempt obligations that are issued without
original issue discount and have a current market discount is calculated by
using the coupon rate of interest instead of the yield to maturity. In the case
of tax-exempt obligations that are issued with original issue discount but which
have discounts based on current market value that exceed the then-remaining
portion of the original issue discount (market discount), the yield to maturity
is the imputed rate based on the original issue discount calculation. On the
other hand, in the case of tax-exempt obligations that are issued with original
issue discount but which have discounts based on current market value that are
less than the then-remaining portion of the original issue discount (market
premium), the yield to maturity is based on the market value.
-17-
<PAGE>
Expenses accrued for the period (variable "b" in the formula) include
all expenses charged to the Portfolio and all recurring fees charged by the
Portfolio or series of Shares in the Portfolio with respect to a shareholder
account in proportion to the length of the base period and the Portfolio's mean
[or median] account size. Investor A Shares and Trust Shares each bear separate
fees applicable to each series of Shares.
Undeclared earned income is not subtracted from the maximum offering
price per share (variable "d" in the formula). For applicable sales charges,
see "How to Purchase and Redeem Shares -- Applicable Sales Charges" in the
Portfolio's Prospectus for Investor A Shares.
The Portfolio's "tax-equivalent" yield for each class of Shares is
computed by dividing the portion of the Portfolio's yield (calculated as above)
that is exempt from federal income tax by one minus a stated federal income tax
rate and adding that figure to that portion, if any, of the Portfolio's yield
that is not exempt from federal income tax.
Total Return Calculations
Each class of Shares of the Portfolio computes its average annual
total return by determining the average annual compounded rates of return during
specified periods that equate the initial amount invested in a particular series
to the ending redeemable value of such investment in the series. This is done
by dividing the ending redeemable value of a hypothetical $1,000 initial payment
by $1,000 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 at the end of the period covered by
the computation of a hypothetical $1,000 payment made at the
beginning of the period,
P = hypothetical initial payment of $1,000, and
n = period covered by the computation, expressed in terms of
years.
-18-
<PAGE>
The 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 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 the Portfolio's
mean or median account size for any fees that vary with the size of the account.
The maximum sales load, with respect to the Portfolio's Investor A Shares, and
other charges deducted from payments are deducted from the initial $1,000
payment (variable "P" in the formula). The ending redeemable value (variable
"ERV" in each formula) is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the end
of the period covered by the computation. As stated in the Prospectus, the
Portfolio may also calculate total return figures without the deduction of the
maximum front-end sales charge in connection with the purchase of Investor A
Shares. The effect of not deducting the respective sales charges will be to
increase the total returns reflected.
Based on the foregoing calculations, for the 30-day period ended
October 31, 1995, the Portfolio's yield for Trust Shares was 3.90% and its tax-
equivalent yield was 6.46% (assuming payment of federal income taxes at a rate
of 39%). The Portfolio's average annual total return for the period July 11,
1995 (commencement of operations) to October 31, 1995 was 1.31% for Trust
shares.
In General
Investors may judge the performance of the Portfolio by comparing it
to the performance of other mutual funds or mutual fund portfolios with
comparable investment objectives and policies.
-19-
<PAGE>
Such comparisons may be made by referring to market indices such as those
prepared by Dow Jones & Co., Inc., Russell, Salomon Brothers, Inc., Lehman or
Standard & Poor's Ratings Group, Division of McGraw Hill or any of their
affiliates, the Consumer Price Index, the Nasdaq Composite, or to rankings
prepared by independent services or other financial or industry publications
that monitor the performance of mutual funds. Such comparisons may also be made
by referring to data prepared by Lipper Analytical Services, Inc., (a widely
recognized independent service which monitors the performance of mutual funds),
Indata, Frank Russell, CDA and the Bank Rate Monitor (which reports average
yields for money market accounts offered by the 50 leading banks and thrift
institutions in the top five standard metropolitan statistical areas). Other
similar yield data, including comparisons to the performance of Mercantile
repurchase agreements, or the average yield data for similar asset classes
including but not limited to Treasury bills, notes and bonds, may also be used
for comparison purposes. Comparisons may also be made to indices or data
published in the following national financial publications: IBC/Donoghue's
Money Fund Report(R) published by IBC/Donoghue, MorningStar, CDA/Wiesenberger,
Money Magazine, Forbes, Fortune, Barron's, The Wall Street Journal, The New York
Times, Business Week, American Banker, Fortune, Institutional Investor, U.S.A.
Today, publications of Ibbotson Associates, Inc. and other publications of a
local or regional nature. In addition to performance information, general
information about the Portfolio 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 the Portfolio or other
Fund Portfolios; (5) descriptions of investment strategies for one or more of
such Portfolios; (6) descriptions or comparisons of various investment products,
which may or may not include the Portfolios; (7) comparisons of investment
products (including the Fund Portfolios) with relevant market or industry
indices or other appropriate benchmarks; and (8) discussions of rankings or
ratings by recognized rating organizations.
In addition, with respect to the Portfolio the benefits of tax-free
investments may be communicated in advertisements or communications to
shareholders. For example, the table below presents the approximate yield that
a taxable investment must earn at various income brackets to produce after-tax
yields equivalent to those of tax-exempt investments yielding from 4.50% to
7.00%.
-20-
<PAGE>
The yields below are for illustration purposes only and are not intended to
represent current or future yields for the Portfolios, which may be higher or
lower than those shown. The tax brackets shown below will be indexed for
inflation for years after 1994. Investors should consult their tax advisor with
specific reference to their own tax situation.
APPROXIMATE YIELD TABLE: SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
SINGLE RETURN
Sample Taxable Federal ----------Tax-Exempt Yields----------
Income Marginal
(1994) Tax Rate 4.50% 5.00% 5.50% 6.50% 7.00%
- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM
$0 TO 15.00% 5.29% 5.88% 6.47% 7.65% 8.24%
$22,750
FROM
$22,750 TO 28.00% 6.25% 6.64% 7.64% 9.03% 9.72%
$55,100
FROM
$55,101 TO 31.00% 6.52% 7.25% 7.97% 9.42 10.41%
$115,000
FROM
$115,000 TO 36.00% 7.03% 7.81% 8.59% 10.16% 10.94%
$250,000
OVER
$250,000 39.60% 7.45% 8.28% 9.11% 10.76% 11.59%
- --------------------------------------------------------------------
</TABLE>
APPROXIMATE YIELD TABLE: SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
MARRIED FILING
JOINTLY
Sample Taxable Federal ----------Tax-Exempt Yields----------
Income Marginal
(1994) Tax Rate 4.50% 5.00% 5.50% 6.50% 7.00%
- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM
$0 TO 15.00% 5.29% 5.88% 6.47% 7.65% 8.24%
$38,000
FROM 6.25% 6.94% 7.64% 9.03% 9.72%
$38,000 TO 28.00%
$91,850
FROM 6.52% 7.25% 7.97% 9.42% 10.14%
$91,850 TO 31.00%
$140,000
FROM 36.00% 7.03% 7.81% 8.59% 10.16% 10.94%
$140,000 TO
$250,000
OVER
$250,000 39.60% 7.45% 8.28% 9.11% 10.76% 11.59%
- --------------------------------------------------------------------
</TABLE>
-21-
<PAGE>
DESCRIPTION OF SHARES
The Fund's Articles of Incorporation authorize the Board of Directors
to issue up to seven billion full and fractional Shares of capital stock, and to
classify or reclassify any unissued Shares of the Fund into one or more
additional classes or by setting or changing in any one or more respects, their
respective preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption. Pursuant to such authority, the Fund's Board of Directors has
authorized the issuance of forty-one classes of Shares representing interests in
one of twelve investment Portfolios: the Money Market, Treasury Money Market,
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 and Kansas Tax-
Exempt Bond Portfolios. Trust Shares, Institutional Shares (taxable Portfolios
only), Investor A Shares and Investor B Shares (other than the Treasury Money
Market, Tax-Exempt Money Market and Short-Intermediate Municipal Portfolios) 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.
Except as noted in the Prospectuses with respect to the Administrative
Services Plan for Trust Shares and the Distribution and Services Plan for
Investor A Shares, Shares of the Portfolio bear the same types of ongoing
expenses. 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, Investor A Shares of a particular Portfolio will be
solely responsible for that Portfolio's payments pursuant to the Distribution
and Services Plan for those Shares and Investor B Shares of a particular
Portfolio will be solely responsible for that Portfolio's payments pursuant to
the Distribution and Services
-22-
<PAGE>
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 will be entitled to vote on
matters submitted to a vote of shareholders pertaining to such Portfolio's
Administrative Services Plan for Institutional Shares, only Investor A Shares of
a Portfolio will be entitled to vote on matters submitted to a vote of
shareholders pertaining to such Portfolio's Distribution and Services Plan for
Investor A Shares and only Investor B Shares of a Portfolio will be entitled to
vote on matters submitted to a vote of shareholders pertaining to such
Portfolio's Distribution and Services Plan for Investor B Shares. Further,
shareholders of all of the Portfolios, irrespective of class, will vote in the
aggregate and not separately on a Portfolio-by-Portfolio basis, except as
otherwise required by law or when the Board of Directors determines that the
matter to be voted upon affects only the interests of the shareholders of a
particular Portfolio or class of Shares. Rule 18f-2 under the 1940 Act provides
that any matter required to be submitted to the holders of the outstanding
voting securities of a "series" investment company such as the Fund shall not be
deemed to have been effectively acted upon unless approved by the holders of a
majority of the outstanding Shares of each series (Portfolio) affected by the
matter. A Portfolio is considered to be affected by a matter unless it is clear
that the interests of each Portfolio in the matter are identical or that the
matter does not affect any interest of the Portfolio. Under the Rule, the
approval of an investment advisory agreement or any change in investment policy
would be effectively acted upon with respect to a Portfolio only if approved by
a majority of the outstanding Shares of that Portfolio. However, the Rule also
provides that the ratification of the appointment of independent auditors, the
approval of principal underwriting contracts, and the election of directors may
be effectively acted upon by shareholders of the Fund's Portfolios voting
without regard to class or Portfolio.
Shares in the Fund's Portfolios will be issued without certificates.
ADDITIONAL INFORMATION CONCERNING TAXES
The following summarizes certain additional tax considerations
generally affecting the Portfolio and its shareholders that are not described in
the Prospectuses. No attempt is made to present a detailed explanation of the
tax
-23-
<PAGE>
treatment of the Portfolio or its shareholders, and the discussion here and in a
Prospectus is not intended as a substitute for careful tax planning. Potential
investors should consult their tax advisers with specific reference to their own
tax situation.
The Portfolio is treated as a separate corporate entity under the
Internal Revenue Code of 1986, as amended, (the "Code"). The Portfolio intends
to qualify as a regulated investment company each year. In order to so qualify
under the Code for a taxable year, the Portfolio is required, among other
things, to derive less than 30% of its gross income for such year from the sale
or other disposition of securities and certain other investments held for less
than three months. Interest (including original issue discount and accrued
market discount) received by the 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, other income that is attributable to realized
market appreciation will be treated as gross income from the sale or other
disposition of securities for this purpose.
If for any taxable year the Portfolio does not qualify for the special
tax treatment afforded regulated investment companies, all of its taxable income
would be subject to tax at regular corporate rates (without any deduction for
distributions to its shareholders). In such event, dividend distributions
(including amounts derived from interest on Municipal Obligations) would be
taxable to shareholders, to the extent of earnings and profits, and would be
eligible for the dividends received deduction for corporations.
The policy of the Portfolio is to pay to its shareholders each year as
exempt-interest dividends substantially all of its Municipal Obligation interest
income net of certain deductions. In order for the Portfolio to pay exempt-
interest dividends for any taxable year, at the close of each quarter of its
taxable year at least 50% of the aggregate value of the Portfolio's assets must
consist of exempt-interest obligations. Exempt-interest dividends may be
treated by the shareholders as items of interest excludable from their gross
income under Section 103(a) of the Code. An exempt-interest dividend is any
dividend or part thereof (other than a capital gain dividend) paid by the
Portfolio and designated as an exempt-interest dividend in a written notice
mailed to shareholders not later than forty-five days (with respect to Missouri
income tax) and sixty days (with respect to federal income tax) after the close
of the Portfolio's taxable year. However, the aggregate amount of dividends so
designated by the Portfolio cannot exceed the excess of the amount of interest
exempt from tax under Section 103 of the Code received by the Portfolio during
the taxable year over any amounts disallowed as deductions under Sections 265
and 171(a)(2) of the Code. The percentage of total dividends paid for any
taxable year which qualifies as exempt-
-24-
<PAGE>
interest dividends will be the same for all shareholders receiving dividends
from the Portfolio during such year, regardless of the period for which the
Shares were held.
Shareholders who might be treated as a "substantial user" or a
"related person" to such user with respect to facilities financed through any of
the tax-exempt obligations held by a Portfolio, are advised to consult their tax
advisors with respect to whether exempt-interest dividends retain the exclusion
under Section 103(a). A "substantial user" is defined under U.S. Treasury
Regulations to include a non-exempt person (i) who regularly uses a part of such
facilities in his trade or business and whose gross revenues derived with
respect to the facilities financed by the issuance of bonds are more than 5% of
the total revenues derived by all users of such facilities, (ii) who occupies
more than 5% of the usable area of such facilities or (iii) for whom such
facilities or a part thereof were specifically constructed, reconstructed or
acquired. "Related persons" include certain related natural persons, affiliated
corporations, partnerships and its partners, and S corporations and their
shareholders.
Interest on indebtedness incurred by a shareholder to purchase or
carry the Portfolio's Shares, generally is not deductible for federal income tax
purposes. In addition, if a shareholder holds Portfolio Shares for six months
or less, any loss on the sale or exchange of those Shares will be disallowed to
the extent of the amount of exempt-interest dividends received with respect to
the Shares. The Treasury Department, however, is authorized to issue
regulations reducing the six months holding requirement to a period of not less
than the greater of 31 days or the period between regular dividend distributions
where the investment company regularly distributes at least 90% of its net tax-
exempt interest. No such regulations had been issued as of the date of this
Statement of Additional Information.
While the Portfolio does not expect to realize long-term capital
gains, any net realized long-term capital gains will be distributed at least
annually. A Portfolio generally will have no tax liability with respect to such
gains and distributions derived from such gains will be taxable to the
Portfolio's shareholders as long-term capital gains, regardless of how long a
shareholder has held the Portfolio Shares. Such distributions will be
designated as capital gain dividends in a written notice mailed by the Portfolio
to shareholders after the close of the Portfolio's taxable year.
Similarly, while the Portfolio does not expect to earn any investment
company taxable income, any taxable income earned by the Portfolio will be
distributed to shareholders. In general, the Portfolio's investment company
taxable income will be its taxable income subject to certain adjustments and
excluding the excess of
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<PAGE>
any net long-term capital gain for the taxable year over any net short-term
capital loss for such year. The Portfolio would be taxed on any undistributed
investment company taxable income. To the extent such income is distributed by
the Portfolio, it will be taxable to shareholders as ordinary income (whether
paid in cash or additional Shares).
A 4% non-deductible 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). The Portfolio intends to make sufficient distributions or
deemed distributions of its ordinary taxable income and any capital gain net
income prior to the end of each calendar year to avoid liability for this excise
tax.
The 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 the 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
even though such distributions are derived from interest on Municipal
Obligations which, if realized directly, would be exempt from such income taxes.
Shareholders are advised to consult their tax advisors concerning the
application of state and local taxes.
MANAGEMENT OF THE FUND
Directors and Officers
The directors and executive officers of the Fund, their addresses,
principal occupations during the past five years, and other affiliations are as
follows:
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<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Position with During Past 5 years
Name, Address and Age the Fund and other affiliations
- --------------------- ------------- ----------------------
<S> <C> <C>
Jerry V. Woodham* Chairman of Treasurer, Washington
Washington University The Board; University, since June
Campus Box 1047 President and 1981.
St. Louis, MO 63130 Director
Age: 52
Robert M. Cox, Jr. Director Senior Vice President and
Emerson Electric Co. Advisory Director, Emerson
8000 W. Florissant Ave. Electric Co. since November P.O.
Box 4100 1990; President and Chief
St. Louis, MO 63136-8506 Administrative Officer,
Age: 50 Rosemont, Inc. (a wholly-owned
subsidiary of Emerson Electric
Co.), October 1987 to November
1990; Vice President &
Treasurer, Emerson Electric
Co., June 1985 to September,
1987.
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: 52 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 since 1975; Vice Chairman,
600 Kellwood Parkway Kellwood Company since May
Chesterfield, MO 63017 1989.
Age: 60
</TABLE>
- ------------
*Mr. Woodham is an "interested person" of the Fund as defined in the 1940 Act.
Directors and Officers of the Fund owned less than 1% of the outstanding Shares
of the Fund as of November 30, 1994.
-27-
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Position with During Past 5 years
Name, Address and Age 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, April
Corporation 1989 to present; President,
8182 Maryland Avenue Smurfit Pension & Insurance
St. Louis, MO 63105 Services Company, November
Age: 59 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: 53
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: 52
Walter B. Grimm** Assistant From June, 1992 to present,
3435 Stelzer Road Secretary employee of BISYS Fund
Columbus, Ohio 43219 Services; From 1981 to
Age: 50 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
Columbus, OH 43219 Treasurer Services.
Age: 41
</TABLE>
- ------------
**Messrs. Grimm, Winney, and Mintos are "interested persons" of the Fund as
defined in the 1940 Act.
-28-
<PAGE>
For the fiscal year ended November 30, 1994, the Directors received the
following compensation:
<TABLE>
<CAPTION>
Pension or
Retirement Total
Aggregate Benefits Compensation
Compensation Accrued as from the Fund
Name of from the Part of Fund and Fund
Director Fund Expense Complex/1/
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Jerry V. Woodham $12,138.60 $0 $13,825
- -----------------------------------------------------------------------
Robert M. Cox, Jr. $ 8,092.41 $0 $ 9,250
- -----------------------------------------------------------------------
Joseph J. Hunt/2/ $ 0.00 $0 $ 0
- -----------------------------------------------------------------------
James C. Jacobsen/2/ $ 0.00 $0 $ 0
- -----------------------------------------------------------------------
Donald E. Kiernan $ 8,092.41 $0 $ 9,250
- -----------------------------------------------------------------------
Lyle L. Meyer $ 8,092.41 $0 $ 9,250
- -----------------------------------------------------------------------
Ronald D. Winney $ 8,092.41 $0 $ 9,250
- -----------------------------------------------------------------------
Eugene Smith/3/ $ 8,092.41 $0 $ 9,250
- -----------------------------------------------------------------------
James J. Cunnane/3/ $ 8,092.41 $0 $ 9,250
=======================================================================
</TABLE>
/1/ The "Fund Complex" includes The ARCH Fund, Inc. and The ARCH Tax-Exempt
Trust.
/2/ Messrs. Hunt and Jacobson became directors on September 27, 1994.
/3/ Messrs. Smith and Cunnane resigned from their respective positions with the
Fund on September 27, 1994.
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 the Portfolio. Pursuant to the
advisory agreement, MVA has agreed to provide investment advisory services,
respectively, as described in the Portfolio's Prospectuses. MVA has agreed to
pay all expenses incurred by it in connection with its activities under its
agreement other than the cost of securities, including brokerage commissions, if
any, purchased for the Portfolio.
Under its administration agreement with the Fund, BISYS Fund Services
Ohio, Inc. (the "Administrator") serves as administrator. The Administrator has
agreed to maintain office facilities for the Portfolio, furnish the Portfolio
with statistical and research
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<PAGE>
data, clerical, accounting, and certain bookkeeping services and stationery and
office supplies, and certain other services required by the Portfolio, and to
compute the net asset value and net income of the Portfolio. 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 Portfolio's financial accounts and records including calculation
of daily expense accruals, monitors compliance procedures for each of the
classes of the Fund's Portfolio with the Portfolio's investment objective,
policies and limitations, tax matters, and applicable laws and regulations, and
generally assists in all aspects of the Portfolio's operations. The
Administrator bears all expenses in connection with the performance of its
services, except that the 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 Portfolio in order to increase the net income available for
distribution to shareholders.
In addition, the Portfolio's advisory and administration agreements
provide that if expenses borne by the 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 charge
to customers for services provided in connection with their investments in the
Portfolio are not covered by the state securities expense limitations described
above.
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<PAGE>
Custodian and Transfer Agent
Mercantile is Custodian of the Portfolio's 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 the Portfolio; (ii)
receive and disburse money on behalf of the Portfolio; (iii) collect and receive
all income and other payments and distributions on account of the 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 the Portfolio. Mercantile may, at its own expense, open and
maintain a custody account or accounts on behalf of the 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.
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, the Portfolio pays
Mercantile an annual fee. For the Portfolio, this fee, which is paid monthly,
is calculated as the greater of $6,000 or $.30 for each $1,000 of the
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, the
Portfolio pays Mercantile's incremental costs in providing foreign custody
services for any foreign-denominated and foreign-held securities and reimburses
Mercantile for out-of-pocket expenses related to such services.
BISYS Fund Services Ohio, Inc. also serves as the Fund's transfer
agent and dividend disbursing agent (in those capacities, the "Transfer Agent")
pursuant to a Transfer Agency Agreement. Under the Agreement, the Transfer
Agent has agreed to (i) process shareholder purchase and redemption orders; (ii)
maintain shareholder records for each of the Portfolio's shareholders; (iii)
process transfers and exchanges of Shares of the Portfolio; (iv) issue periodic
statements for each of the Portfolio's 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 the Portfolio.
-31-
<PAGE>
Distribution and Service Organizations
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services
(formerly known as The Winsbury Company Limited Partnership d/b/a The Winsbury
Company) (the "Distributor"), an affiliate of the Administrator, serves as the
Distributor of the Portfolio's Shares pursuant to a Distribution Agreement.
Under the Distribution Agreement, the Distributor, as agent, sells Shares of the
Portfolio on a continuous basis. The Distributor has agreed to use appropriate
efforts to solicit orders for the sale of Shares. With respect to the
Portfolio's Trust Shares, no compensation is payable by the Fund to the
Distributor for distribution services. With respect to the Portfolio's Investor
A Shares, the Distributor is entitled to receive a portion of the front-end
sales charge or contingent deferred sales charge imposed on such Shares. In
addition, under the Distribution and Services Plan 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" under "Management of the Fund" in the
Prospectuses and "The Plans" below).
The Plans
Distribution and Services Plan
As described in the Prospectuses, the Fund has adopted a Distribution
and Services Plan with respect to Investor A Shares of the Portfolio 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 broker-
dealers and other organizations ("Servicing Agreements") that purchase Investor
A Shares of the 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.
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<PAGE>
Administrative Services Plan
As stated in the Prospectuses, an Administrative Services Plan has
been adopted with respect to Trust Shares of the Portfolio. Pursuant to the
Plan and the Distribution and Services Plan described above, the Fund may enter
into Servicing Agreements with banks, trust departments, and other financial
institutions ("Trust Servicing Agreements") and with broker-dealers and other
organizations ("Servicing Agreements") that purchase Trust Shares or Investor A
Shares of the 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 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 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, 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.
The Portfolio's Administrative Services Plan is an administrative
support services plan. Pursuant to the Plans, the Portfolio's arrangements with
the Service Organizations must be approved annually by a majority of the Fund's
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
-33-
<PAGE>
financial interest in such arrangements (the "Disinterested Directors").
Other Plan Information
The Board of Directors has approved each Plan and its respective
arrangements with the Distributor and Service Organizations based on information
provided by the Fund's service contractors that there is a reasonable likelihood
that these Plans and arrangements will benefit the Portfolio and its
shareholders. Pursuant to each Plan, the Board of Directors reviews, at least
quarterly, a written report of the amounts of distribution fees and/or 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 A Shares of the Portfolio.
INDEPENDENT AUDITORS
For the fiscal year ended November 30, 1994, 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 and provides other
services related to filings with respect to securities regulations. 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.
-34-
<PAGE>
MISCELLANEOUS
As of December 20, 1995, Mercantile held of record 100.401% and
33.439% of the outstanding Institutional and Trust shares, respectively, in the
Money Market Portfolio; 83.446% and 50.175% of the outstanding Institutional
and Trust shares, respectively, in the Treasury Money Market Portfolio;
98.154% and 96.874% of the outstanding Institutional and Trust shares,
respectively, in the Growth & Income Equity Portfolio; 99.012% and 66.094%
of the outstanding Institutional and Trust shares, respectively, in the Emerging
Growth Portfolio; 99.680% and 96.845% of the outstanding Institutional and
Trust shares, respectively, in the Government & Corporate Bond Portfolio;
99.998% and 92.657% of the outstanding Institutional and Trust shares,
respectively, in the U.S. Government Securities Portfolio; 99.879% and
96.081% of the outstanding Institutional and Trust shares, respectively, in the
Balanced Portfolio; 96.762% and 95.097% of the outstanding Institutional and
Trust shares, respectively, in the International Equity Portfolio; 99.999% of
the outstanding Trust shares in the Short-Intermediate Municipal Portfolio;
69.976% of the outstanding Trust shares in the Tax-Exempt Money Market
Portfolio; and 99.999% of the outstanding Trust shares in the Missouri Tax-
Exempt Bond Portfolio, as fiduciary or agent on behalf of its customers.
Mercantile is a wholly owned subsidiary of Mercantile Bancorporation Inc., a
Missouri corporation. Under the 1940 Act, Mercantile may be deemed to be a
controlling person of the Fund.
As of the same date, the following institutions also owned of record
5% or more of the Money Market Portfolio's outstanding shares as fiduciary or
agent on behalf of their customers: Trust Shares - First Fidelity Bank NA,
Broad & Walnut Streets, Philadelphia, PA 19109 (16.565%); Hawaiian Trust
Company Ltd., 783 Funds Accounting, P.O. Box 3170, Honolulu, HI 96802-3170
(12.966%); American Trust Co. of Hawaii Inc., Trust Short-Term Investment Fund,
P.O. Box 3170, Honolulu, HI 96802-3170 (5.648%); Investor A Shares - BHC
Securities, Attn: Cash Balance Sweep Dept., One Commerce Square, 11th
Floor, 2005 Market Street, Philadelphia, PA 19103 (90.883%); Mercantile
Investment Services, Inc., Firm Capital Account, Attn: Judy Horbelt, P.O. Box
790121, St. Louis, MO 63179-6121 (5.718%);
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: Institutional Shares - Wasab &
Co., Attn: Luann Ray, P.O.Box 88, Waterloo, IA 50704 (16.534%); Trust Shares -
American Trust Co. of Hawaii Inc., Trust Short-Term Investment Fund, P.O. Box
3170, Honolulu, HI 96802-3170 (8.850%); Hawaiian Trust Company Ltd., 783 Funds
Accounting, P.O. Box 3170, Honolulu, HI 96802-3170 (8.395%); Express Scripts,
Inc., Attn: Joe Plum, 14000 Riverport Drive, Maryland Heights, MO 63043
(8.934%); City of St.
-35-
<PAGE>
Louis, Airport Revenue Fund, Attn: Kenneth L. Below, Room 2200 City Hall, 101
S. Tucker, St. Louis, MO 63013 (10.913%); Investor A Shares -BHC Securities
Inc., Attn: Cash Balance Sweep Dept., 1 Commerce Square, 11th Floor, 2005
Market Street, Philadelphia, PA 19103 (74.377%); Mercantile Bank of St. Louis
NA, Custodian Richard E. Crippa Rollover IRA, 2948 Castelford Drive, Florissant,
MO 63033 (20.516%).
As of the same date, the following institutions also owned of record
5% or more of the Tax-Exempt Money Market Portfolio's outstanding shares as
fiduciary or agent on behalf of their customers: Trust Shares - Hawaiian Trust
Company Ltd., 783 Funds Accounting, P.O. Box 3170, Honolulu, HI 96802-3170
(10.225%); Thompson & Mitchell, Attn: Mary Ann Hallman, One Mercantile Center,
St. Louis, MO 63101 (5.3%); Investor A Shares - BHC Securities Inc., Attn:
Cash Balance Sweep Dept., 1 Commerce Square, 11th Floor, 2005 Market Street,
Philadelphia, PA 19103 (85.509%); Charles H. Weiss, Trustee Charles H. Weiss
Trust, UA Dated 08/15/72, 1209 Washington Avenue, St. Louis, MO 63103-1934
(12.058%).
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: Investor A Shares - Mercantile
Bank of St. Louis NA, Custodian James L. Jones Rollover IRA, 1432 Fair Meadows
Lane, St. Louis, MO 63138 (10.948%); BHC Securities Inc., Trade House Acct.,
2005 Market Street, Philadelphia, PA 19103 (45.014%); Frances Dakers, 200 E.
89th St., 28D, New York, NY 10128 (17.423%); Investor B Shares - BHC
Securities, Inc., FAO 24252597, Attn: Mutual Funds Dept., One Commerce
Square, Suite 1200, Philadelphia, PA 19103 (8.955%); BHC Securities, Inc.,
FAO 24126127, Attn: Mutual Funds Dept., One Commerce Square, 2005 Market
Street, Suite 1200, Philadelphia, PA 19103 (7.830%); Mercantile Bank of St.
Louis NA, Custodian Darwin E. Earnest Rollover IRA, 14625 La Quinta, Grandview,
MO 64030 (6.399%); BHC Securities Inc., FAO 24275966, Attn: Mutual Funds
Dept., One Commerce Square, 2005 Market Street, Suite 1200, Philadelphia, PA
19103 (5.903%); BHC Securities Inc., FAO 24283805, Attn: Mutual Funds Dept.,
One Commerce Square, 2005 Market Street, Suite 1200, Philadelphia, PA 19103
(8.425%).
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: Investor A Shares - BHC
Securities Inc., Trade House Account, Attn: Mutual Fund Dept., One Commerce
Square, 2005 Market Street, Philadelphia, PA 19103 (27.566%); Investor B
Shares - BHC Securities Inc., FAO 24282580, Attn: Mutual Funds Dept., One
Commerce Square, 2005 Market Street, Suite 1200, Philadelphia, PA 19103
(11.033%).
-36-
<PAGE>
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 (13.466%); Investor A Shares - BHC
Securities Inc., Trade House Account, Attn: Mutual Funds Dept., One Commerce
Square, 2005 Market Street, Philadelphia, PA 19103 (45.754%).
As of the same date, the following institutions also owned of record
5% or more of the U.S. Government Securities Portfolio's outstanding shares as
fiduciary or agent on behalf of their customers: Trust Shares - First American
Bank of Louisiana, Attn: Gerald Ferrar, P.O. Box 7232, Monroe, LA 71211
(6.979%); Investor A Shares - BHC Securities Inc., Trade House Account, Attn:
Mutual Funds Dept., One Commerce Square, 2005 Market Street, Philadelphia, PA
19103 (12.7917%); Mercantile Bank of St. Louis NA, Custodian Edmund C. Albrecht,
Jr. IRA, 17 Outer Ladue Dr., St. Louis, MO 63131 (5.19%); Mercantile Bank of
St. Louis NA, Custodian Robert W. Davis Rollover IRA, 818 Broadway, Elsberry, MO
63343-1109 (5.729%); Investor B Shares - BHC Securities Inc., FAO 24293753,
Attn: Mutual Funds Dept., One Commerce Square, 2005 Market Street,
Philadelphia, PA 19103 (10.155%); BHC Securities Inc., FAO 24289384, Attn:
Mutual Funds Dept., One Commerce Square, 2005 Market Street, Suite 1200,
Philadelphia, PA 19103 (5.226%); BHC Securities Inc., FAO 24127532, Attn:
Mutual Funds Dept., One Commerce Square, 2005 Market Street, Suite 1200,
Philadelphia, PA 19103 (13.729%); Mercantile Bank of St. Louis NA, Custodian
Patricia A. Eggers IRA, 2003 Meadows Road, Poplar Bluff, MO 63901 (5.749%); BHC
Securities Inc., FAO 24293550, Attn: Mutual Funds Dept., One Commerce Square,
2005 Market Street, Suite 1200, Philadelphia, PA 19103 (10.167%); BHC
Securities Inc., FAO 24292032, Attn: Mutual Funds Dept., One Commerce Square,
2005 Market Street, Suite 1200, Philadelphia, PA 19103 (5.812%); BHC Securities
Inc., FAO 24275966, Attn: Mutual Funds Dept., One Commerce Square, 2005 Market
Street, Suite 1200, Philadelphia, PA 19103 (14.117%); BHC Securities Inc., FAO
24292027, Attn: Mutual Funds Dept., One Commerce Square, 2005 Market Street,
Suite 1200, Philadelphia, PA 19103 (5.812%); BHC Securities Inc., FAO 24286253,
Attn: Mutual Funds Dept., One Commerce Square, 2005 Market Street, Suite 1200,
Philadelphia, PA 19103 (20.854%).
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: Investor A Shares - Mercantile Bank of St. Louis
NA, Custodian Edmund J. Markevicius Rollover IRA, 17 Agate Avenue, Worcester, MA
01604 (6.716%); BHC Securities Inc., Trade House Account, Attn: Mutual Funds
Dept., One Commerce Square, 2005 Market Street, Philadelphia, PA 19103
(17.202%); Investor B Shares - Mercantile Bank of St. Louis NA, Custodian
William J. Sipe IRA, 4606 Zebra Lane, St. Joseph, MO
-37-
<PAGE>
64506 (13.213%); BHC Securities Inc., FAO 24123548, Attn: Mutual Funds Dept.,
One Commerce Square, 2005 Market Street, Suite 1200, Philadelphia, PA 19103
(41.319%); BHC Securities Inc., FAO 24318923, Attn: Mutual Funds Dept., One
Commerce Square, 2005 Market Street, Suite 1200, Philadelphia, PA 19103;
Mercantile Bank of St. Louis NA, Custodian Brian A. Bundy IRA, 1807 Hilltop Dr.,
St. Joseph, MO 64505 (14.369%); Mercantile Bank of St. Louis NA, Custodian Gary
D. Combs Rollover IRA, 3026 Cronkite Rd., St. Joseph, MO 64506 (6.793%).
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: Investor A Shares - BHC
Securities Inc., Attn: Mutual Funds Dept., One Commerce Square, 2005 Market
Street, Philadelphia, PA 19103 (11.246%); Investor B Shares - Mercantile Bank
of St. Louis NA, Custodian Ruth Ann Darby IRA, Rt. 1, Box 84, Hughesville, MO
65334 (5.892%); Robert L. Branyan and Helen B. Branyan, Trustees Robert L. and
Helen B. Branyan Trust, UA Dated 6/24/93, RR2, Box 239, Sunrise Beach, MO 65079
(5.237%); BHC Securities Inc., FAO 24284744, Attn: Mutual Funds Dept., One
Commerce Square, 2005 Market Street, Suite 1200, Philadelphia, PA 19103
(12.511%); BHC Securities Inc., FAO 24294267, Attn: Mutual Funds Dept., One
Commerce Square, 2005 Market Street, Suite 1200, Philadelphia, PA 19103
(26.43%); Mark A. Ritsema and Christina M. Ritsema JTWROS, 1023 W. 7th, Sedalia,
MO 65301 (6.182%); BHC Securities Inc., FAO 24273057, Attn: Mutual Funds
Dept., One Commerce Square, 2005 Market Street, Suite 1200, Philadelphia, PA
19103 (5.462%); Mercantile Bank of St. Louis NA, Custodian Darrell F. Vansell
IRA, RR2, Box 214D, Versailles, MO 65084 (6.54%); BHC Securities Inc., FAO
24293550, Attn: Mutual Funds Dept., One Commerce Square, 2005 Market Street,
Suite 1200, Philadelphia, PA 19103 (7.973%).
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: Investor A Shares - James
Sutton, P.O. Box 2465, Inverness, FL 34451-2465 (87.841%); BISYS Fund Services
Ohio, Inc., Attn: Fund Administration and Regulatory Services, 3435 Stelzer
Road, Columbus, OH 43219 (12.158%).
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: Investor A Shares - BHC
Securities Inc., Trade House Account, Attn: Mutual Funds Dept., One Commerce
Square, 2005 Market Street, Philadelphia, PA 19103 (27.089%); Investor B
Shares - BHC Securities Inc., FAO 24126820, Attn: Mutual Funds Dept., One
Commerce Square, 2005 Market Street, Suite 1200, Philadelphia, PA 19103
(11.451%); BHC Securities Inc., FAO 24290804, Attn: Mutual Funds Dept., One
Commerce Square, 2005 Market Street, Suite 1200, Philadelphia, PA 19103
-38-
<PAGE>
(23.424%); BHC Securities Inc., FBO 24282580, Attn: Mutual Funds Dept., 100 N.
20th Street, Philadelphia, PA 19103 (7.027%); BHC Securities Inc. FAO
24286677, Attn: Mutual Funds Dept., One Commerce Square, 2005 Market Street,
Suite 1200, Philadelphia, PA 19103 (14.091%); BHC Securities Inc., FAO
24124029, Attn: Mutual Funds Dept., One Commerce Square, 2005 Market Street,
Suite 1200, Philadelphia, PA 19103 (5.966%); BHC Securities Inc., FAO 24318796,
Attn: Mutual Funds Dept., One Commerce Square, 2005 Market Street, Suite 1200,
Philadelphia, PA 19103 (6.098%).
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.
-39-
<PAGE>
Appendix A
----------
DESCRIPTION OF RATINGS
The following summarizes the highest four ratings used by Standard & Poor's
Ratings Group, Division of McGraw Hill for bonds:
"AAA" - This is 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 rated "AA" is considered to have a very strong capacity to pay
interest and repay principal and differs from "AAA" issues only in a small
degree.
"A" - Debt rated "A" is considered to have a strong capacity to pay
interest and repay principal, although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions
than debt in higher rated categories.
"BBB" - Debt rated "BBB" 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 bonds in this category than in higher
rated categories.
To provide more detailed indications of credit quality, the "AA," "A" and
"BBB" ratings may be modified by the addition of a plus or minus sign to show
relative standing within these major rating categories.
The following summarizes the highest four ratings used by Moody's Investors
Service, Inc. for bonds:
"Aaa" - Bonds that are rated "Aaa" are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large or
by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of
such issues.
"Aa" - Bonds that are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in "Aaa" securities or
fluctuation of protective elements may be of greater amplitude
A-1
<PAGE>
or there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
"A" - Bonds which are rated "A" are deemed to possess many favorable
investment attributes and are 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 that are rated "Baa" are considered as medium grade
obligations: i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Moody's applies numerical modifiers ("1," "2" and "3") with respect to
bonds rated "Aa", "A" and "Baa". The modifier "1" indicates that the bond being
rated 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 bond
ranks in the lower end of its generic rating category.
Duff & Phelps Credit Rating Co. ("D&P") uses "AAA" as the highest rating
for corporate bonds. Securities rated "AAA" are of the highest credit quality.
The risk factors are negligible being only slightly more than for risk-free U.S.
Treasury debt. Securities rated "AA" are of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions. Securities rated "A" have protection factors
that are average but adequate. However, risk factors are more variable and
greater in periods of economic stress. Securities rated "BBB" have below
average protection factors but are still considered sufficient for prudent
investment. Considerable variability in risk exists during economic cycles.
The rating "AA", "A" and "BBB" may be modified by the addition of a plus (+) or
a minus (-) sign to show relative standing within the major rating categories.
Fitch Investors Service, Inc. ("Fitch")uses "AAA" as the highest rating for
corporate bonds. Bonds rated "AAA" 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. Bonds rated "AA" are considered to be investments 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
A-2
<PAGE>
vulnerable to foreseeable future developments, short-term debt of these issuers
is generally rated "F-1+". Bonds rated "A" 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.
Bonds rated "BBB" are 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 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.
The rating "SP-1" is the highest rating assigned by Standard & Poor's to
municipal notes and indicates very strong or strong capacity to pay principal
and interest. Those issues determined to possess overwhelming safety
characteristics are given a plus (+) designation. The rating "SP-2", the second
highest rating assigned by Standard & Poor's to municipal notes, indicates a
satisfactory capacity to pay principal and interest.
The following summarizes the highest ratings used by Moody's for short-term
notes and variable rate demand obligations:
"MIG-1/VMIG-1" -- Obligations bearing these designations are of the best
quality. There is present strong protection by established cash flows,
superior liquidity support or demonstrated broad-based access to the market
for refinancing.
"MIG-2/VMIG-2" -- Obligations bearing these designations are of high
quality, with ample margins of protection although not so large as in the
preceding group.
The two highest rating categories of D&P for short-term debt are "Duff 1"
and "Duff 2." D&P employs three designations, "Duff 1+," "Duff 1" and "Duff
1-," within the highest rating category. "Duff 1+" indicates highest certainty
of timely payment. Short-term liquidity, including internal operating factors
and/or access to alternative sources of fund, is judged to be "outstanding, and
safety is just below risk-free U.S. Treasury short-term obligations." "Duff 1"
indicates very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are
considered to be minor. "Duff 1-" indicates high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small. "Duff 2" indicates good certainty of
timely payment. Liquidity factors and company fundamentals are sound. Although
ongoing funding needs may enlarge total financing requirements, access to
capital markets is good. Risk factors are small.
A-3
<PAGE>
The following summarizes the two highest rating categories used by Fitch
for short-term obligations:
"F-1+" securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded has 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+."
Commercial paper rated "A" by Standard & Poor's is regarded as having the
greatest capacity for timely payment. Issues in this category are delineated
with the numbers "1," "2" and "3" to indicate the relative degree of safety.
The "A-1" designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted A-1+. The "A-2" designation indicates that the
capacity for timely payment is satisfactory. However, the relative degree of
safety is not as high as for issues designated "A-1."
The ratings "Prime" and "Prime-2" are the highest commercial paper ratings
assigned by Moody's. Issuers rated "Prime-1" (or related supporting
institutions) are considered to have a superior capacity for repayment of short-
term promissory obligations. Issuers rated "Prime 2" (or related supporting
institutions) are considered to have a strong capacity for repayment of short-
term promissory obligations.
D&P commercial paper ratings apply to all obligations with maturities of
under one year. The ratings "Duff 1" and "Duff 2" are the two highest
commercial paper rating assigned by D&P. D&P employs three designations, "Duff
1 plus", "Duff 1" and "Duff 1 minus", within the highest rating category. "Duff
1 plus" indicates the highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or ready access to
alternative sources of funds, is judged to be "outstanding, and safety is just
below risk-free U.S. Treasury short-term obligations." "Duff 1" indicates very
high certainty of timely payment. Liquidity factors are excellent and supported
by strong fundamental protection factors. Risk factors are considered to be
minor. "Duff 1 minus" indicates high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small. "Duff 2" indicates good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital market is
good. Risk factors are small.
Fitch designates "F-1+" and "F-1" the two highest commercial paper ratings.
"F-1+" securities possess exceptionally strong
A-4
<PAGE>
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+".
A-5
<PAGE>
APPENDIX B
----------
The Portfolio may enter into futures contracts and options for hedging
purposes in furtherance of its investment objective as stated in the
Prospectuses. Such transactions are described further in this Appendix.
I. Interest Rate Futures Contracts.
-------------------------------
Use of Interest Rate Futures Contracts. Bond prices are established
--------------------------------------
in both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, only a contract is made to purchase or sell a bond in the future
for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, each Portfolio may use interest rate
futures as a defense, or hedge, against anticipated interest rate changes and
not for speculation. As described below, this would include the use of futures
contract sales to protect against expected increases in interest rates and
futures contract purchases to offset the impact of interest rate declines.
The Portfolio presently could accomplish a similar result to that
which it hopes to achieve through the use of futures contracts by selling bonds
with long maturities and investing in bonds with short maturities when interest
rates are expected to increase, or conversely, selling short-term bonds and
investing in long-term bonds when interest rates are expected to decline.
However, because of the liquidity that is often available in the futures market,
the protection is more likely to be achieved, perhaps at a lower cost and
without changing the rate of interest being earned by the Portfolio, through
using futures contracts. The Portfolio would engage in an interest rate futures
contract sale to maintain the income advantage from continued holding of a long-
term bond while endeavoring to avoid part or all of the loss in market value
that would otherwise accompany a decline in long-term securities prices. The
Portfolio would engage in an interest rate futures contract purchase when it is
not fully invested in long-term bonds but wishes to defer for a time the
purchase of long-term bonds in light of the availability of advantageous interim
investments, for example, shorter-term securities whose yields are greater than
those available on long-term bonds.
Description of Interest Rate Futures Contracts. An interest rate
----------------------------------------------
futures contract sale would create an obligation by the Portfolio, as seller, to
deliver the specific type of financial instrument called for in the contract at
a specific future time for
B-1
<PAGE>
a specified price. A futures contract purchase would create an obligation by
the Portfolio, as purchaser, to take delivery of the specific type of financial
instrument at a specific future time at a specific price. The specific
securities delivered or taken, respectively, at settlement date, would not be
determined until at or near that date. The determination would be in accordance
with the rules of the exchange on which the futures contract sale or purchase
was made.
Although interest rate futures contracts by their terms call for
actual delivery or acceptance of securities, in most cases the contracts are
closed out before the settlement date without the making or taking of delivery
of securities. Closing out a futures contract sale is effected by the
Portfolio's entering into a futures contract purchase for the same aggregate
amount of the specific type of financial instrument and the same delivery date.
If the price in the sale exceeds the price in the offsetting purchase, the
Portfolio is paid the difference and thus realizes a gain. If the offsetting
purchase price exceeds the sale price, the Portfolio pays the difference and
realizes a loss. Similarly, the closing out of a futures contract purchase is
effected by the Portfolio's entering into a futures contract sale. If the
offsetting sale price exceeds the purchase price, the Portfolio realizes a gain,
and if the purchase price exceeds the offsetting sale price, the Portfolio
realizes a loss.
Interest rate futures contracts are traded in an auction environment
on the floors of several exchanges - principally, the Chicago Board of Trade and
the Chicago Mercantile Exchange. The Portfolio would deal only in standardized
contracts on recognized exchanges. Each exchange guarantees performance under
contract provisions through a clearing corporation, a nonprofit organization
managed by the exchange membership.
A public market now exists in futures contracts covering various
financial instruments including long-term United States Treasury Bonds and
Notes; Government National Mortgage Association (GNMA) modified pass-through
mortgage-backed securities; three-month United States Treasury Bills; and
ninety-day commercial paper. The Portfolios may trade in any futures contract
for which there exists a public market, including, without limitation, the
foregoing instruments.
II. Municipal Bond Index Futures Contracts
--------------------------------------
A municipal bond index assigns relative values to the bonds included
in the index and the index fluctuates with changes in the market values of the
bonds so included. The Chicago Board of Trade has designed a futures contract
based on the Bond Buyer Municipal Bond Index. This Index is composed of 40 term
revenue and general obligation bonds, and its composition is updated regularly
as new bonds meeting the criteria of the Index are issued
B-2
<PAGE>
and existing bonds mature. The Index is intended to provide an accurate
indicator of trends and changes in the municipal bond market. Each bond in the
Index is independently priced by six dealer-to-dealer municipal bond brokers
daily. The 40 prices then are averaged and multiplied by a coefficient. The
coefficient is used to maintain the continuity of the Index when its composition
changes. The Chicago Board of Trade, on which futures contracts based on this
Index are traded, as well as other U.S. commodities exchanges, are regulated by
the Commodity Futures Trading Commission. Transactions on such exchange are
cleared through a clearing corporation, which guarantees the performance of the
parties to each contract.
The Portfolio will sell index futures contracts in order to offset a
decrease in market value of its portfolio securities that might otherwise result
from a market decline. The Portfolio may do so either to hedge the value of its
portfolio as a whole, or to protect against declines, occurring prior to sales
of securities, in the value of the securities to be sold. Conversely, the
Portfolio will purchase index futures contracts in anticipation of purchases of
securities. In a substantial majority of these transactions, the Portfolio will
purchase such securities upon termination of the long futures position, but a
long futures position may be terminated without a corresponding purchase of
securities.
Closing out a futures contract sale prior to the settlement date may
be effected by the Portfolio's entering into a futures contract purchase for the
same aggregate amount of the index involved and the same delivery date. If the
price in the sale exceeds the price in the offsetting purchase, the Portfolio is
paid the difference and thus realizes a gain. If the offsetting purchase price
exceeds the sale price, the Portfolio pays the difference and realizes a loss.
Similarly, the closing out of a futures contract purchase is effected by the
Portfolio's entering into a futures contract sale. If the offsetting sale price
exceeds the purchase price, the Portfolio realizes a gain, and if the purchase
price exceeds the offsetting sale price, the Portfolio realizes a loss.
Example of a Municipal Bond Index Futures Contract
- --------------------------------------------------
Consider a portfolio manager holding $1 million par value of each of
the following municipal bonds on February 2 in a particular year.
B-3
<PAGE>
<TABLE>
<CAPTION>
Current Price
(points and
Maturity thirty-seconds
Issue Coupon Issue Date Date of a point)
- -------------------- ------ ------------- -------- ---------------
<S> <C> <C> <C> <C>
Ohio HFA 9 3/8 5/05/83 5/1/13 94-2
NYS Power 9 3/4 5/24/83 1/1/17 102-0
San Diego, CA IDR 10 6/07/83 6/1/18 100-14
Muscatine, IA Elec 10 5/8 8/24/83 1/1/08 103-16
Mass Health & Ed 10 9/23/83 7/1/16 100-12
</TABLE>
The current value of the portfolio is $5,003,750.
To hedge against a decline in the value of the portfolio, resulting from a
rise in interest rates, the portfolio manager can use the municipal bond index
futures contract. The current value of the Municipal Bond Index is 86-09.
Suppose the portfolio manager takes a position in the futures market opposite to
his or her cash market position by selling 50 municipal bond index futures
contracts (each contract represents $100,000 in principal value) at this price.
On March 23, the bonds in the portfolio have the following values:
<TABLE>
<S> <C>
Ohio HFA 81-28
NYS Power 98-26
San Diego, CA IDB 98-11
Muscatine, IA Elec 99-24
Mass Health & Ed 97-18
</TABLE>
The bond prices have fallen, and the portfolio has sustained a loss of
$130,312. This would have been the loss incurred without hedging. However, the
Municipal Bond Index also has fallen, and its value stands at 83-27. Suppose
now the portfolio manager closes out his or her futures position by buying back
50 municipal bond index futures contracts at this price.
The following table provides a summary of transactions and the results of
the hedge.
<TABLE>
<CAPTION>
Cash Market Futures Market
--------------------- ----------------------
<S> <C> <C>
February 2 $5,003,750 long posi- Sell 50 Municipal Bond
tion in municipal futures contracts at
bonds 86-09
March 23 $4,873,438 long posi- Buy 50 Municipal Bond
tion in municipal futures contracts at
bonds 83-27
--------------------- ----------------------
$130,312 Loss $121,875 Gain
</TABLE>
While the gain in the futures market did not entirely offset the loss in
the cash market, the $8,437 loss is significantly lower than the loss which
would have been incurred without hedging.
B-4
<PAGE>
The numbers reflected in this appendix do not take into account the effect
of brokerage fees or taxes.
III. Margin Payments.
---------------
Unlike when the Portfolio purchases or sells a security, no price is
paid or received by the Portfolio upon the purchase or sale of a futures
contract. Initially, the Portfolio will be required to deposit with the broker
or in a segregated account with the Fund's custodian an amount of cash or cash
equivalents, the value of which may vary but is generally equal to 10% or less
of the value of the contract. This amount is known as initial margin. The
nature of initial margin in futures transactions is different from that of
margin in security transactions in that futures contract margin does not involve
the borrowing of funds by the customer to finance the transactions. Rather, the
initial margin is in the nature of a performance bond or good faith deposit on
the contract which is returned to the Portfolio upon termination of the futures
contract assuming all contractual obligations have been satisfied. Subsequent
payments, called variation margin, to and from the broker, will be made on a
daily basis as the price of the underlying instruments fluctuates making the
long and short positions in the futures contract more or less valuable, a
process known as marking-to-market. For example, when the Portfolio has
purchased a futures contract and the price of the contract has risen in response
to a rise in the underlying instruments, that position will have increased in
value and the Portfolio will be entitled to receive from the broker a variation
margin payment equal to that increase in value. Conversely, where the Portfolio
has purchased a futures contract and the price of the future contract has
declined in response to a decrease in the underlying instruments, the position
would be less valuable and the Portfolio would be required to make a variation
margin payment to the broker. At any time prior to expiration of the futures
contract, the adviser may elect to close the position by taking an opposite
position, subject to the availability of a secondary market, which will operate
to terminate the Portfolio's position in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid by or released to the Portfolio, and the Portfolio realizes a loss or
gain.
IV. Risks of Transactions in Futures Contracts
------------------------------------------
There are several risks in connection with the use of futures by the
Portfolio as hedging devices. One risk arises because of the imperfect
correlation between movements in the price of the futures and movements in the
price of the instruments which are the subject of the hedge. The price of the
futures may move more than or less than the price of the instruments being
hedged. If the price of the futures moves less than the price of the
instruments which are the subject of the hedge, the hedge will not be fully
effective but, if the price of the instruments being hedged has moved in an
unfavorable direction, the Portfolio would be in a better position than if it
had not hedged at all. If the price of the instruments being hedged has moved
in a
B-5
<PAGE>
favorable direction, this advantage will be partially offset by the loss on the
futures. If the price of the futures moves more than the price of the hedged
instruments, the Portfolio will experience either a loss or gain on the futures
which will not be completely offset by movements in the price of the instruments
which are the subject of the hedge. To compensate for the imperfect correlation
of movements in the price of instruments being hedged and movements in the price
of futures contracts, the Portfolio may buy or sell futures contracts in a
greater dollar amount than the dollar amount of instruments being hedged if the
volatility over a particular time period of the prices of such instruments has
been greater than the volatility over such time period of the futures, or if
otherwise deemed to be appropriate by the investment adviser. Conversely, the
Portfolio may buy or sell fewer futures contracts if the volatility over a
particular time period of the prices of the instruments being hedged is less
than the volatility over such time period of the futures contract being used, or
if otherwise deemed to be appropriate by the Adviser. It is also possible that,
where the Portfolio had sold futures to hedge its portfolio against a decline in
the market, the market may advance and the value of instruments held in the
Portfolio may decline. If this occurred, the Portfolio would lose money on the
futures and also experience a decline in value in its portfolio securities.
Where futures are purchased to hedge against a possible increase in the
price of securities before the Portfolio is able to invest its cash (or cash
equivalents) in an orderly fashion, it is possible that the market may decline
instead; if the Portfolio then concludes not to invest its cash at that time
because of concern as to possible further market decline or for other reasons,
the Portfolio will realize a loss on the futures contract that is not offset by
a reduction in the price of the instruments that were to be purchased.
In instances involving the purchase of futures contracts by the Portfolio,
an amount of cash and cash equivalents, equal to the market value of the futures
contracts, will be 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.
In addition to the possibility that there may be an imperfect correlation,
or no correlation at all, between movements in the futures and the instruments
being hedged, the price of futures may not correlate perfectly with movement in
the cash market due to certain market distortions. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through off-setting transactions which could distort the normal relationship
between the cash and futures markets. Second, with respect to financial futures
contracts, the liquidity of the futures market depends on participants entering
into off-setting transactions rather than making or taking delivery. To the
extent participants decide to make or take delivery, liquidity in the futures
market could be reduced thus producing distortions. Third, from the point of
view of speculators, the deposit
B-6
<PAGE>
requirements in the futures market are less onerous than margin requirements in
the securities market. Therefore, increased participation by speculators in the
futures market may also cause temporary price distortions. Due to the
possibility of price distortion in the futures market, and because of the
imperfect correlation between the movements in the cash market and movements in
the price of futures, a correct forecast of general market trends or interest
rate movements by the adviser may still not result in a successful hedging
transaction over a short time frame.
Positions in futures may be closed out only on an exchange or board of
trade which provides a secondary market for such futures. Although the
Portfolio intends to purchase or sell futures only on exchanges or boards of
trade where there appear to be active secondary markets, there is no assurance
that a liquid secondary market on any exchange or board of trade will exist for
any particular contract or at any particular time. In such event, it may not be
possible to close a futures investment position, and in the event of adverse
price movements, the Portfolio would continue to be required to make daily cash
payments of variation margin. However, in the event futures contracts have been
used to hedge portfolio securities, such securities will not be sold until the
futures contract can be terminated. In such circumstances, an increase in the
price of the securities, if any, may partially or completely offset losses on
the futures contract. However, as described above, there is no guarantee that
the price of the securities will in fact correlate with the price movements in
the futures contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in a
futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions. 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 activity, which could at times make it difficult or
impossible to liquidate existing positions or to recover excess variation margin
payments.
Successful use of futures by the Portfolio is also subject to the Adviser's
ability to predict correctly movements in the direction of the market. For
example, if the Portfolio has hedged against the possibility of a decline in the
market adversely affecting securities held by it and securities prices increase
instead, the Portfolio will lose part or all of the benefit to the increased
value of its securities which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the
Portfolio has insufficient cash, it may have to sell securities to meet daily
variation margin requirements. Such sales of securities may be,
B-7
<PAGE>
but will not necessarily be, at increased prices which reflect the rising
market. The Portfolio may have to sell securities at a time when it may be
disadvantageous to do so.
V. Accounting Treatment.
--------------------
Accounting for futures contracts and options will be in accordance
with generally accepted accounting principles.
B-8
<PAGE>
THE ARCH FUND, INC.
SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
INVESTOR A SHARES
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
7/11/95
THROUGH
10/31/95 (A)
-------------------
(UNAUDITED)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
-------------------
INVESTMENT ACTIVITIES
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 0.01
-------------------
NET ASSET VALUE, END OF PERIOD $ 10.01
===================
TOTAL RETURN (EXCLUDES SALES CHARGE) (B) 0.10 %
ANNUALIZED RATIOS / SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD $ 10
RATIO OF EXPENSES TO AVERAGE NET ASSETS (INCLUDING WAIVERS) 0.00 %
RATIO OF EXPENSES TO AVERAGE NET ASSETS (BEFORE WAIVERS)* 0.00 %
RATIO OF NET INVESTMENT INCOME
TO AVERAGE NET ASSETS (INCLUDING WAIVERS) 0.00 %
RATIO OF NET INVESTMENT INCOME
TO AVERAGE NET ASSETS (BEFORE WAIVERS)* 0.00 %
PORTFOLIO TURNOVER 0.00 %
</TABLE>
(A) PERIOD FROM COMMENCEMENT OF OPERATIONS.
(B) NOT ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
THE ARCH FUND, INC.
SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
TRUST SHARES
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
7/11/95
THROUGH
10/31/95 (A)
-------------------
(UNAUDITED)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
-------------------
INVESTMENT ACTIVITIES
NET INVESTMENT INCOME 0.11
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 0.02
-------------------
TOTAL FROM INVESTMENT ACTIVITIES 0.13
-------------------
DISTRIBUTIONS
FROM NET INVESTMENT INCOME (0.11)
-------------------
NET ASSET VALUE, END OF PERIOD $ 10.02
===================
TOTAL RETURN (C) 1.31 %
ANNUALIZED RATIOS / SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (000) $ 22,289
RATIO OF EXPENSES TO AVERAGE NET ASSETS (INCLUDING WAIVERS) (B) 0.50 %
RATIO OF EXPENSES TO AVERAGE NET ASSETS (BEFORE WAIVERS)(B)* 1.45 %
RATIO OF NET INVESTMENT INCOME
TO AVERAGE NET ASSETS (INCLUDING WAIVERS)(B) 3.72 %
RATIO OF NET INVESTMENT INCOME
TO AVERAGE NET ASSETS (BEFORE WAIVERS)(B)* 2.77 %
PORTFOLIO TURNOVER 0.00 %
</TABLE>
(A) PERIOD FROM COMMENCEMENT OF OPERATIONS.
(B) ANNUALIZED.
(C) NOT ANNUALIZED.
* DURING THE PERIOD FEES WERE VOLUNTARILY REDUCED. IF SUCH VOLUNTARY FEE
REDUCTIONS HAD NOT OCCURRED, THE RATIOS WOULD HAVE BEEN AS INDICATED.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
THE ARCH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
SHORT-
INTERMEDIATE
MUNICIPAL
PORTFOLIO
-------------------
<S> <C>
ASSETS
INVESTMENT SECURITIES AT VALUE $ 24,354,881
CASH 58
RECEIVABLES
ACCRUED INCOME 267,153
INCOME RECEIVABLE 9,103
OTHER ASSETS 19,398
-------------------
TOTAL ASSETS 24,650,593
-------------------
LIABILITIES
PAYABLES
INCOME DISTRIBUTION PAYABLE 68,075
INVESTMENT SECURITIES PURCHASED 2,272,044
ACCRUED EXPENSES 12,039
OTHER PAYABLES 9,103
-------------------
TOTAL LIABILITIES 2,361,261
-------------------
NET ASSETS $ 22,289,332
===================
CAPITAL SHARES OUTSTANDING
INVESTOR A SHARES 1
TRUST SHARES 2,225,500
-------------------
TOTAL 2,225,501
===================
NET ASSET VALUE PER SHARE
INVESTOR A SHARES $ 10.01
===================
TRUST SHARES $ 10.02
===================
MAXIMUM SALES CHARGE - INVESTOR A SHARES 2.50%
MAXIMUM OFFERING PRICE (100%/(100%-MAXIMUM SALES CHARGE)
OF NET ASSET VALUE) PER SHARE - INVESTOR A SHARES $ 10.27
===================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
THE ARCH FUND, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED OCTOBER 31, 1995 (A)
(UNAUDITED)
<TABLE>
<CAPTION>
SHORT-
INTERMEDIATE
MUNICIPAL
PORTFOLIO
-------------------
<S> <C>
INVESTMENT INCOME:
INCOME:
INVESTMENT INCOME $ 213,444
-------------------
TOTAL INCOME 213,444
EXPENSES:
INVESTMENT ADVISORY FEES 27,844
ADMINISTRATION FEES 10,125
ADMINISTRATIVE SERVICE FEES - TRUST SHARES 15,188
CUSTODIAN FEES 2,168
ACCOUNTING FEES 2,705
LEGAL FEES 1,630
AUDIT FEES 994
ORGANIZATION COSTS 1,808
TRUSTEES' FEES 437
TRANSFER AGENT FEES 1,841
REGISTRATION & FILING FEES 3,958
PRINTING COSTS 4,537
OTHER 221
EXPENSES VOLUNTARILY REDUCED (48,114)
-------------------
TOTAL EXPENSES 25,342
-------------------
NET INVESTMENT INCOME 188,102
-------------------
REALIZED AND UNREALIZED GAIN(LOSS) ON INVESTMENTS:
NET REALIZED GAIN (LOSS) FROM INVESTMENT TRANSACTIONS 0
-------------------
CHANGE IN UNREALIZED APPRECIATION(DEPRECIATION) 91,160
-------------------
NET REALIZED AND UNREALIZED GAIN(LOSS) ON INVESTMENTS 91,160
-------------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 279,262
===================
</TABLE>
(A) PERIOD FROM COMMENCEMENT OF OPERATIONS, 7/11/95 THROUGH 10/31/95.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
THE ARCH FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED OCTOBER 31, 1995 (A)
(UNAUDITED)
<TABLE>
<CAPTION>
SHORT-
INTERMEDIATE
MUNICIPAL
PORTFOLIO
-------------------
<S> <C>
OPERATIONS:
NET INVESTMENT INCOME $ 188,102
CHANGE IN UNREALIZED APPRECIATION OF INVESTMENTS 91,160
-------------------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 279,262
-------------------
DISTRIBUTIONS:
FROM NET INVESTMENT INCOME (188,102)
FROM NET REALIZED GAIN ON INVESTMENTS 0
-------------------
TOTAL DISTRIBUTIONS (188,102)
-------------------
CHANGE FROM CAPITAL SHARE TRANSACTIONS:
ISSUED - REGULAR 22,472,081
ISSUED - IN LIEU OF CASH DISTRIBUTIONS 5,359
REDEEMED - REGULAR (279,268)
-------------------
CHANGE IN NET ASSETS FROM CAPITAL SHARE TRANSACTIONS 22,198,172
-------------------
TOTAL CHANGE IN NET ASSETS 22,289,332
NET ASSETS BEGINNING OF PERIOD 0
-------------------
NET ASSETS END OF PERIOD $ 22,289,332
===================
SHARE TRANSACTIONS
ISSUED 2,253,057
REINVESTED 537
REDEEMED (28,093)
-------------------
CHANGE IN SHARES 2,225,501
===================
</TABLE>
(A) PERIOD FROM COMMENCEMENT OF OPERATIONS, 7/11/95 THROUGH 10/31/95.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
THE ARCH FUNDS, INC.
SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
<TABLE>
<CAPTION>
SECURITY NO YIELD
SHARES/ DESCRIPTION BOOK VALUE MARKET VALUE AT
PAR VALUE LOT ID ACQUISITION DATE CF UNIT TOTAL UNIT TOTAL MARKET
- --------------- ----------------------------------------------------- -------- ------------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
MUNICIPAL NOTES
ALASKA
033160SZ6 ANCHORAGE, ALASKA
5.40%, 8/01/98
DTD 6/15/92
300,000.000 225370 07/26/95 103.196 309,587.88
300,000.000 TOTAL SECURITY 309,587.88 309,375.00 5.24
TOTAL ALASKA 309,587.88 309,375.00 5.24
COLORADO
051598AV2 AURORA-COLORADO SPRN
5.40%, 9/01/98
DTD 6/15/92
390,000.000 225377 07/26/95 102.783 400,853.46
390,000.000 TOTAL SECURITY 400,853.46 402,675.00 5.23
TOTAL COLORADO 400,853.46 402,675.00 5.23
ILLINOIS
167560ED9 CHICAGO, ILLINOIS WATER REVENUE
4.70%, 12/01/99
DTD 3/1/93 DID @ 99.715
500,000.000 225375 07/27/95 101.469 507,346.75
500,000.000 TOTAL SECURITY 507,346.75 506,250.00 4.64
452148ME6 ILLINOIS STATE GENERAL OBLIGATIONS REFUNDING BONDS
5.60%, 10/1/99
400,000.000 231513 08/29/95 104.252 417,006.65
400,000.000 TOTAL SECURITY 417,006.65 418,500.00 5.35
452149TC1 ILLINOIS STATE GENERAL OBLIGATIONS BONDS
5.25%, 4/1/01
</TABLE>
<PAGE>
THE ARCH FUNDS, INC.
SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
<TABLE>
<CAPTION>
SECURITY NO YIELD
SHARES/ DESCRIPTION BOOK VALUE MARKET VALUE AT
PAR VALUE LOT ID ACQUISITION DATE CF UNIT TOTAL UNIT TOTAL MARKET
- --------------- ----------------------------------------------------- -------- ------------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
DTD 3/1/94
400,000.000 222363 07/11/95 102.577 410,306.82
400,000.000 TOTAL SECURITY 410,306.82 414,000.00 5.07
TOTAL ILLINOIS 1,334,660.22 1,338,750.00 5.00
INDIANA
625854BJ2 MUNCIE, INDIANA SCHOOL BOARD
4.95%, 1/15/02
DTD 7/15/92
500,000.000 225373 07/27/95 100.000 500,000.00
500,000.000 TOTAL SECURITY 500,000.00 505,625.00 4.89
TOTAL INDIANA 500,000.00 505,625.00 4.89
IOWA
689733BD4 OTTUMWA COUNTY, IOWA
5.10%, 6/01/01
DTD 8/1/95 S/D
425,000.000 224591 07/20/95 102.177 434,253.54
425,000.000 TOTAL SECURITY 434,253.54 439,875.00 4.93
TOTAL IOWA 434,253.54 439,875.00 4.93
KENTUCKY
491098LZ0 KENTON COUNTY, KENTUCKY WATER REVENUE
5.60%, 2/01/99
DTD 8/1/95 1ST PAY 2/1/96
380,000.000 225371 07/26/95 103.576 393,589.85
380,000.000 TOTAL SECURITY 393,589.85 396,150.00 5.37
TOTAL KENTUCKY 393,589.85 396,150.00 5.37
MAINE
</TABLE>
<PAGE>
THE ARCH FUNDS, INC.
SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
<TABLE>
<CAPTION>
SECURITY NO YIELD
SHARES/ DESCRIPTION BOOK VALUE MARKET VALUE AT
PAR VALUE LOT ID ACQUISITION DATE CF UNIT TOTAL UNIT TOTAL MARKET
- --------------- ---------------------------------------- -------- ------------ -------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
560458UM1 MAINE MUNI BOND REF
4.90%, 11/01/02
DTD 6/15/93 OID @ 99.253
800,000.000 230504 08/25/95 100.580 804,637.73
800,000.000 TOTAL SECURITY 804,637.73 814,000.00 4.82
TOTAL MAINE 804,637.73 814,000.00 4.82
MARYLAND
574204KY8 MARYLAND TRANS
4.10%, 12/15/00
DTD 12/15/93
400,000.000 222650 07/11/95 98.092 392,368.00
400,000.000 TOTAL SECURITY 392,368.00 392,000.00 4.18
940156UZ3 WASHINGTON SUBURBAN SANITATION DISTRICT
MARYLAND SEWER REVENUE
5.00%, 06/01/00
500,000.000 241570 10/25/95 102.535 512,674.59
500,000.000 TOTAL SECURITY 512,720.00 515,625.00 4.85
TOTAL MARYLAND 905,088.00 907,625.00 4.56
MICHIGAN
163357DG8 CHELSEA, MICHIGAN
5.25%, 5/01/01
DTD 7/15/95 S/D
400,000.000 225369 07/28/95 102.617 410,469.32
400,000.000 TOTAL SECURITY 410,469.32 414,500.00 5.07
490303CS1 KENT CITY MICHIGAN BUILDING AUTHORITY
GENERAL OBLIGATIONS
4.50%, 12/1/01
800,000.000 241571 10/25/95 100.000 800,000.00
800,000.000 TOTAL SECURITY 800,000.00 800,000.00 4.50
</TABLE>
<PAGE>
THE ARCH FUNDS, INC.
SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
<TABLE>
<CAPTION>
SECURITY NO YIELD
SHARES/ DESCRIPTION BOOK VALUE MARKET VALUE AT
PAR VALUE LOT ID ACQUISITION DATE CF UNIT TOTAL UNIT TOTAL MARKET
- --------------- ----------------------------------------------------- -------- ------------ -------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
672423BQ2 OAKLAND COUNTY, MICHIGAN BUILDING AUTHORITY
4.75%, 4/01/00
450,000.000 224217 07/20/95 100.780 453,510.54
450,000.000 TOTAL SECURITY 453,510.54 460,125.00 4.65
TOTAL MICHIGAN 1,663,979.86 1,674,625.00 4.68
MINNESOTA
264436EN2 DULUTH, MINNESOTA
4.65%, 2/01/02
DTD 6/1/95 1ST PAY 2/1/96
365,000.000 222651 07/11/95 99.718 363,970.70
365,000.000 TOTAL SECURITY 363,970.70 367,281.25 4.62
604128WR5 MINNESOTA STATE
5.50%, 8/01/98
DTD 8/1/95
500,000.000 225214 07/25/95 103.470 517,349.42
500,000.000 TOTAL SECURITY 517,349.42 518,125.00 5.31
TOTAL MINNESOTA 881,320.12 885,406.25 5.02
MISSISSIPPI
605577AJ4 MISSISSIPPI CAPITAL IMPROVEMENT
5.00%, 8/01/99
DTD 8/1/95 1ST PAY 2/1/96
500,000.000 225471 07/26/95 102.387 511,933.78
500,000.000 TOTAL SECURITY 511,933.78 512,500.00 4.88
TOTAL MISSISSIPPI 511,933.78 512,500.00 4.88
MISSOURI
473138BS3 JEFF COUNTY, MISSOURI S/D
4.70%, 3/01/01
DTD 8/9/95 1ST PAY 3/1/96
</TABLE>
<PAGE>
THE ARCH FUNDS, INC.
SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
<TABLE>
<CAPTION>
SECURITY NO YIELD
SHARES/ DESCRIPTION BOOK VALUE MARKET VALUE AT
PAR VALUE LOT ID ACQUISITION DATE CF UNIT TOTAL UNIT TOTAL MARKET
- --------------- ----------------------------------------------------- -------- ------------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
320,000.000 225631 07/27/95 100.000 320,000.00
320,000.000 TOTAL SECURITY 320,000.00 324,000.00 4.64
TOTAL MISSOURI 320,000.00 324,000.00 4.64
NEVADA
846523ND6 SPARKS NEVADA GENERAL OBLIGATIONS
4.80%, 3/1/04
OID
900,000.000 233876 09/12/95 100.000 900,000.00
900,000.000 TOTAL SECURITY 900,000.00 900,000.00 4.80
940858QF3 WASHOE COUNTY, NEVADA
5.30%, 8/01/00
DTD 12/1/92 S/D
500,000.000 224518 07/24/95 103.364 516,819.65
5900,000.000 TOTAL SECURITY 516,819.65 520,000.00 5.10
TOTAL NEVADA 1,416,819.65 1,420,000.00 4.91
NEW MEXICO
013554MP7 ALBUQUERQUE, NEW MEXICO
4.40%, 7/1/00
DTD 8/1/95 OID
ACTUAL CUSIP 013554MP2
345,000.000 223916 07/13/95 99.788 344,270.08
345,000.000 TOTAL SECURITY 344,270.08 347,156.25 4.37
647293FE4 NEW MEXICO STATE CAPITAL PROJECTS GENERAL OBL.
4.60%, 08/01/00
OID
700,000.000 229881 08/18/95 100.208 701,453.36
700,000.000 TOTAL SECURITY 701,453.36 705,250.00 4.57
TOTAL NEW MEXICO 1,045,723.44 1,052,406.25 4.50
</TABLE>
<PAGE>
THE ARCH FUNDS, INC.
SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
<TABLE>
<CAPTION>
SECURITY NO YIELD
SHARES/ DESCRIPTION BOOK VALUE MARKET VALUE AT
PAR VALUE LOT ID ACQUISITION DATE CF UNIT TOTAL UNIT TOTAL MARKET
- --------------- ----------------------------------------------------- -------- ------------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
NEW YORK
649892XN1 NEW YORK POWER AUTHORITY
5.85%, 01/01/00
DTD 12/1/91 OID @ 99.676
500,000.000 225215 07/26/95 105.313 526,566.67
500,000.000 TOTAL SECURITY 526,566.67 531,875.00 5.50
TOTAL NEW YORK 526,566.67 531,875.00 5.50
PENNSYLVANIA
118565MF4 BUCKS COUNTY, PENNSYLVANIA
5.60%, 3/01/98
DTD 3/15/92 SER A
500,000.000 225216 07/26/95 103.282 516,411.50
500,000.000 TOTAL SECURITY 516,411.50 515,625.00 5.43
246001SL6 DELAWARE COUNTY, PENNSYLVANIA
4.35%, 10/1/00
DTD 7/1/95
WHEN ISSUED ARBITRARY SETTLE DATE OF 8/10/95 USED
400,000.000 223141 07/13/95 100.000 400,000.00
400,000.000 TOTAL SECURITY 400,000.00 401,000.00 4.34
TOTAL PENNSYLVANIA 916,411.50 916,625.00 4.95
RHODE ISLAND
762222GSO RHODE ISLAND STATE CONSTRUCTION CAPITAL DEVELOPMENT
4.60%, 11/1/03
900,000.000 233841 09/12/95 99.325 893,925.00
900,000.000 TOTAL SECURITY 893,925.00 887,625.00 4.66
TOTAL RHODE ISLAND 893,925.00 887,625.00 4.66
SOUTH CAROLINA
</TABLE>
<PAGE>
THE ARCH FUNDS, INC.
SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
<TABLE>
<CAPTION>
SECURITY NO YIELD
SHARES/ DESCRIPTION BOOK VALUE MARKET VALUE AT
PAR VALUE LOT ID ACQUISITION DATE CF UNIT TOTAL UNIT TOTAL MARKET
- --------------- ----------------------------------------------------- -------- ------------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
160075MJ3 CHARLESTON SCHOOL DISTRICT
4.40%, 2/1/98
DTD 7/1/95 1ST PAY 2/1/96
450,000.00 223936 07/19/95 100.633 452,850.08
450,000.00 TOTAL SECURITY 452,850.08 452,250.00 4.38
TOTAL SOUTH CAROLINA 452,850.08 452,250.00 4.38
SOUTH DAKOTA
160075ML8 CHARLESTON SOUTH CAROLINA GENERAL OBLIGATION UNLTD
4.50%, 02/01/00
DTD 07/01/95
400,000.00 222393 07/13/95 100.646 402,582.69
400,000.00 TOTAL SECURITY 402,582.69 402,000.00 4.48
837557PA9 SOUTH DAKOTA BUILDING AUTHORITY FINANCE BONDS
5.00%, 9/1/02
640,000.00 232192 08/31/95 101.437 649,199.29
640,000.00 TOTAL SECURITY 649,199.29 648,800.00 4.93
TOTAL SOUTH DAKOTA 1,051,781.98 1,050,800.00 4.76
TEXAS
235416GC2 DALLAS, TEXAS WATER & SEWER REVENUE
4.60%, 4/01/01
DTD 2/15/93 OID
450,000.00 224516 07/21/95 100.000 450,000.00
450,000.00 TOTAL SECURITY 450,000.00 452,812.50 4.57
442330WD4 HOUSTON, TEXAS SERIES C
5.50%, 4/01/01
DTD 8/15/95 1ST PAY 4/1/96
800,000.00 230301 08/22/95 103.765 830,120.65
800,000.00 TOTAL SECURITY 830,120.65 839,000.00 5.24
</TABLE>
<PAGE>
THE ARCH FUNDS, INC.
SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
<TABLE>
<CAPTION>
SECURITY NO YIELD
SHARES/ DESCRIPTION BOOK VALUE MARKET VALUE AT
PAR VALUE LOT ID ACQUISITION DATE CF UNIT TOTAL UNIT TOTAL MARKET
- --------------- ----------------------------------------------------- -------- ------------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
796235ST2 SAN ANTONIO TEXAS GENERAL OBLIGATION
4.875%, 08/01/99
OID
DTD: 07/15/92
400,000.00 222935 07/12/95 102.233 408,930.04
400,000.00 TOTAL SECURITY 408,930.04 407,500.00 4.79
876424EW8 TARRANT TEXAS WATER CONTROL
5.60%, 3/1/00
450,000.00 242022 10/26/95 104.477 470,147.26
450,000.00 TOTAL SECURITY 470,147.26 471,375.00 5.35
TOTAL TEXAS 2,159,197.95 2,170,687.50 5.04
UTAH
659052GP3 NORTH DAVIS COUNTY UTAH SEWER DISTRICT
5.70%, 3/1/02
560,000.00 242021 10/26/95 105.374 590,096.54
560,000.00 TOTAL SECURITY 590,161.60 592,200.00 5.39
659052GQ1 NORTH DAVIS COUNTY UTAH SEWER DISTRICT GENERAL
OBLIGATION UNLIMITED
5.70%, 3/1/03
350,000.00 242020 10/26/95 105.465 369,126.78
350,000.00 TOTAL SECURITY 369,162.50 371,000.00 5.38
TOTAL UTAH 959,324.10 963,200.00 5.39
VERMONT
924211VX0 VERMONT MUNI BOND
4.50%, 12/01/01
DTD 7/1/95 OID
270,000.00 223918 07/13/95 99.472 268,573.42
270,000.00 TOTAL SECURITY 268,573.42 271,012.50 4.48
</TABLE>
<PAGE>
THE ARCH FUNDS, INC.
SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
<TABLE>
<CAPTION>
SECURITY NO YIELD
SHARES/ DESCRIPTION BOOK VALUE MARKET VALUE AT
PAR VALUE LOT ID ACQUISITION DATE CF UNIT TOTAL UNIT TOTAL MARKET
- --------------- ----------------------------------------------------- -------- ------------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
TOTAL VERMONT 268,573.42 271,012.50 4.48
VIRGINIA
927734CE1 VIRGINIA BEACH VIRGINIA GENERAL OBLIGATIONS
4.20%, 7/15/98
OID
DTD 4/15/93
400,000.00 222365 07/11/95 100.251 401,004.09
400,000.00 TOTAL SECURITY 401,004.09 402,000.00 4.18
928168FP3 VIRGINIA PUBLIC BUILDING REF
5.70%, 8/01/00
DTD 2/1/93
400,000.00 222649 07/11/95 105.590 422,360.00
400,000.00 TOTAL SECURITY 422,360.00 423,000.00 5.39
TOTAL VIRGINIA 823,364.09 825,000.00 4.80
WASHINGTON
812642YS9 SEATTLE, WASHINGTON
4.80%, 5/01/02
DTD 7/1/93 OID @ 99.283
600,000.00 230569 08/25/95 100.000 600,000.00
600,000.00 TOTAL SECURITY 600,000.00 608,250.00 4.73
812728AQ6 SEATTLE WASHINGTON WATER SYSTEM REFUNDING
BONDS, 4.70%, 12/1/00
OID
DTD 6/1/93
250,000.00 222360 07/11/95 100.888 252,220.94
250,000.00 TOTAL SECURITY 252,220.94 254,375.00 4.62
9397404Z6 WASHINGTON STATE REFUNDING BONDS SER R-92C
5.75%, 9/1/02
OID
DTD 2/1/92
</TABLE>
<PAGE>
THE ARCH FUNDS, INC.
SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
<TABLE>
<CAPTION>
SECURITY NO YIELD
SHARES/ DESCRIPTION BOOK VALUE MARKET VALUE AT
PAR VALUE LOT ID ACQUISITION DATE CF UNIT TOTAL UNIT TOTAL MARKET
- --------------- ----------------------------------------------------- -------- ------------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
250,000.00 222355 07/11/95 105.611 264,026.83
250,000.00 TOTAL SECURITY 264,026.83 265,937.50 5.41
TOTAL WASHINGTON 1,116,247.77 1,128,562.50 4.87
WEST VIRGINIA
387874SF8 GRANT COUNTY WASHINGTON PUBLIC UTILITIES DISTRICT
NO. 2 ELECTRIC REVENUE SERIES F
500,000.00 234885 09/14/95 99.659 498,295.99
500,000.00 TOTAL SECURITY 498,295.99 498,125.00 4.82
TOTAL WEST VIRGINIA 498,295.99 498,125.00 4.82
WISCONSIN
115511UZ8 BROWN COUNTY, WISCONSIN
4.80%, 11/01/01
DTD 05/01/93
325,000.00 222654 07/12/95 101.156 328,757.00
325,000.00 TOTAL SECURITY 328,757.00 330,281.25 4.72
6022442A2 MILWAUKEE COUNTY WISCONSIN REFUNDING BONDS SER A
5.25%, 9/1/00
OID
DTD 9/1/92
380,000.00 222364 07/11/95 103.415 392,978.03
380,000.00 TOTAL SECURITY 392,978.03 392,825.00 5.08
TOTAL WISCONSIN 721,735.03 723,106.25 4.92
TOTAL MUNICIPAL NOTES 21,310,721.11 21,401,881.25 4.89
DAILY DEMAND NOTES
TEXAS
</TABLE>
<PAGE>
THE ARCH FUNDS, INC.
SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
<TABLE>
<CAPTION>
SECURITY NO YIELD
SHARES/ DESCRIPTION BOOK VALUE MARKET VALUE AT
PAR VALUE LOT ID ACQUISITION DATE CF UNIT TOTAL UNIT TOTAL MARKET
- --------------- ----------------------------------------------------- -------- ------------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
034686AC9 ANGELINA & NECHES TEXAS RIVER AUTHORITY,
VRN, 05/01/14
DTD 05/31/84
RESETS: DAILY
PAYS ON 5TH BUSINESS DAY
RECORD DATE IS LAST DAY OF MONTH
300,000.00 223082 07/14/95 100.000 300,000.00
100,000.00 223845 07/19/95 100.000 100,000.00
400,000.00 TOTAL SECURITY 400,000.00 400,000.00 4.05
TOTAL TEXAS 400,000.00 400,000.00 4.05
VIRGINIA
707168CA6 PENINSULA PORT AUTHORITY REVENUE - SHELL CO,
VRN 12/01/05
RESETS DAILY PAYS MONTHLY ON 1ST CALENDAR DAY
DTD 12/01/87
1,000,000.00 241361 10/25/95 100.000 1,000,000.00
1,000,000.00 TOTAL SECURITY 1,000,000.00 1,000,000.00 3.95
TOTAL VIRGINIA 1,000,000.00 1,000,000.00 3.95
TOTAL DAILY DEMAND NOTES 1,400,000.00 1,400,000.00 3.98
WEEKLY DEMAND NOTES
LOUISIANA
128321AT3 CALCASIEU PARISH LA
WEEKLY FLOATER, 02/01/16
200,000.00 229610 08/21/95 100.000 200,000.00
300,000.00 232271 09/05/95 100.000 300,000.00
500,000.00 TOTAL SECURITY 500,000.00 500,000.00 3.90
TOTAL LOUISIANA 500,000.00 500,000.00 3.90
TOTAL WEEKLY DEMAND NOTES 500,000.00 500,000.00 3.90
</TABLE>
<PAGE>
THE ARCH FUNDS, INC.
SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
<TABLE>
<CAPTION>
SECURITY NO YIELD
SHARES/ DESCRIPTION BOOK VALUE MARKET VALUE AT
PAR VALUE LOT ID ACQUISITION DATE CF UNIT TOTAL UNIT TOTAL MARKET
- --------------- ----------------------------------------------------- -------- ------------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
MUTUAL FUNDS
314282104 FEDERATED TAX-FREE TRUST MUTUAL FUND
T/F #73
29,000.00 240173 10/18/95 100.000 29,000.00
50,000.00 240380 10/19/95 100.000 50,000.00
60,000.00 240867 10/23/95 100.000 60,000.00
139,000.00 TOTAL SECURITY 139,000.00 139,000.00 3.50
670634104 NUVEEN TAX EXEMPT MONEY MARKET FUND
43,000.00 237553 10/03/95 100.000 43,000.00
696,000.00 241366 10/25/95 100.000 696,000.00
175,000.00 242087 10/30/95 100.000 175,000.00
914,000.00 TOTAL SECURITY 914,000.00 914,000.00 3.53
TOTAL MUTUAL FUNDS 1,053,000.00 1,053,000.00 3.53
TOTAL ASSETS SECTION 24,263,721.11 24,354,881.25 4.76
</TABLE>
<PAGE>
THE ARCH FUND, INC.
NOTES TO FINANCIAL STATEMENTS
October 31, 1995
(Unaudited)
1. Organization
The ARCH Fund, Inc. (the "Fund") was organized as a Maryland corporation on
September 9, 1982, and is registered under the Investment Company Act of 1940,
as amended, as open-end management investment company. As of October 31, 1995,
the Fund offered the following investment portfolios: Money Market, Treasury
Money Market, Growth & Income Equity, Emerging Growth, Balanced, Government &
Corporate Bond, U.S. Government Securities, Short-Intermediate Municipal,
International Equity, Tax-Exempt Money Market and Missouri Tax-Exempt Bond
Portfolios. The accompanying financial statements and financial highlights are
those of the Short-Intermediate Municipal Portfolio (the "Portfolio) only, which
commenced operations on July 11, 1995. The Fund has issued two classes of shares
in the Portfolio: Investor A Shares and Trust Shares. Investor A shares of the
Portfolio are sold with a front-end sales charge. Each class of shares of the
Portfolio has identical rights and privileges except with respect to the fees
paid by the classes under either a Distribution and Services Plan or an
Administrative Services Plan, expenses allocable exclusively to each class of
shares, voting rights on matters affecting a single class of shares and the
exchange privilege of each class of shares.
2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements.
Portfolio valuation:
The securities of the Portfolio that are traded on a recognized stock exchange
are valued at the last sale price on the securities exhange on which such
securities are primarily traded or at the last sale price on the national
securities market. Securities traded only on over-the-counter markets are
valued on the basis of market value when available. Securities for which there
were no transactions are valued at the average of the most recent bid and asked
prices. Securities maturing in 60 days or less are valued at amortized cost.
Securities, including restricted securities, for which market quotations are not
readily available, are valued at fair market value by the investment adviser in
accordance with guidelines approved by the Fund's Board of Directors.
Investments in investment companies are valued at their respective net asset
values as reported by such companies.
Securities transactions and investment income:
Securities transactions are recorded on the trade date. Realized gains and
losses on investments sold are recorded on the identified cost basis. Interest
income is accrued on a daily basis. Dividend income is recorded on the ex-
dividend date. Realized and unrealized gains and losses are allocated based upon
relative net assets of each class of shares. The differences between cost and
market values of the investments of the Portfolio are reflected as unrealized
appreciation or depreciation.
-continued-
<PAGE>
THE ARCH FUND, INC.
Notes to Financial Statements, Continued
October 31, 1995
(Unaudited)
Dividends and distributions to shareholders:
Dividends on each share of the Portfolio are determined in the same manner,
irrespective of class, except that Portfolio shares of each class bear separate
fees under either a Distribution and Services Plan or an Administrative Services
Plan adopted for each class and enjoy certain exclusive voting rights on matters
relating to these fees. It is the policy of the Portfolio to declare dividends
daily from net investment income and to pay such dividends no later than five
business days after the end of the month. Net realized capital gains for the
Portfolio, if any, are distributed at least annually. Additional distributions
of net investment income and capital gains may be made at the discretion of the
Board of Directors in order to avoid the 4% excise tax to which the Portfolio is
subject with respect to certain undistributed amounts of net investment income
and capital gains.
Dividends from net investment income and from net realized capital gains are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due
to differing treatments for foreign currency transactions, expiring capital loss
carryforwards and deferrals of certain losses.
Federal income taxes:
It is the policy of the Portfolio to qualify and to continue to qualify as a
regulated investment company by complying with the provisions available to
certain investment companies, as defined in applicable sections of the Internal
Revenue Code, and to make distributions of net investment income and net
realized capital gains sufficient to relieve it from all, or substantially all,
federal income taxes.
Organization costs:
The Portfolio bears all costs in connection with its organization, including the
fees and expenses of registering and qualifying shares for distribution under
Federal and state securities regulations. All such costs are amortized using
the straight-line method over a period of five years from the date the Portfolio
commenced operations. In the event that any of the initial shares of the
Portfolio are redeemed during such period by any holder thereof, the redemption
proceeds will be reduced by a pro rata portion of any unamortized organization
costs in the same proportion as the number of initial shares redeemed bears to
the number of initial shares outstanding at the time of redemption.
Other:
Operating expenses of the Fund not directly attributable to a portfolio or to
any class of shares of a portfolio are prorated among the portfolios of the Fund
based on the relative net assets of each portfolio or other appropriate basis.
Operating expenses directly attributable to a portfolio are charged directly to
that portfolio's operations. Fees paid under either a Distribution and Services
Plan or an Administrative Services Plan are borne by the specific class of
shares to which they apply.
3. Shares of Common Stock
As of October 31, 1995, the Fund's Articles of Incorporation authorize the Board
of Directors, in its discretion, to issue up to seven billion full and
fractional shares of capital stock, $.001 par value per share, and to classify
or reclassify any unissued shares of the Fund into one or more additional
classes. Pursuant to such authority, as of October 31, 1995, 550,000,000 shares
of the Fund's shares were classified as Class A shares; 1,800,000,000 shares
were classified as Class A - Special Series 1 shares; 300,000,000 shares were
classified as Class A - Special Series 2 shares; 50,000,000 shares were
classified as Class A - Special Series 3 shares; 100,000,000 shares were
classified as Class B shares; 1,000,000,000 shares were classified as Class B -
Special Series 1 shares; 300,000,000 shares were classified as Class B - Special
Series 2 shares; 5,000,000 shares were classified as Class C shares; 50,000,000
shares were classified as Class C - Special Series 1 shares; 20,000,000 shares
were classified as Class C - Special Series 2 shares; 50,000,000 shares were
classified as Class C -Special Series 3 shares; 5,000,000 shares were classified
as Class D shares; 50,000,000 shares were classified as Class D -Special Series
1 shares; 20,000,000 shares were classified as Class D - Special Series 2
shares; 50,000,000 shares were classified as Class D - Special Series 3 shares;
5,000,000 shares were classified as Class E shares; 15,000,000 shares were
classified as Class E - Special Series 1 shares; 20,000,000 shares were
classified as Class E - Special Series 2 shares;
<PAGE>
THE ARCH FUND, INC.
Notes to Financial Statements, Continued
October 31, 1995
(Unaudited)
50,000,000 shares were classified as Class E - Special Series 3 shares;
5,000,000 shares were classified as Class F shares; 15,000,000 shares were
classified as Class F - Special Series 1 shares; 20,000,000 shares were
classified as Class F - Special Series 2 shares; 50,000,000 shares were
classified as Class F - Special Series 3 shares; 5,000,000 shares were
classified as Class G shares; 15,000,000 shares were classified as Class G -
Special Series 1 shares; 20,000,000 shares were classified as Class G - Special
Series 2 shares; 50,000,000 shares were classified as Class G - Special Series 3
shares; 10,000,000 shares were classified as Class H shares; 10,000,000 shares
were classified as Class H - Special Series 1 shares; 10,000,000 shares were
classified as Class H - Special Series 2 shares; 50,000,000 shares were
classified as Class H - Special Series 3 shares; 25,000,000 shares were
classified as Class I Shares; 25,000,000 shares were classified as Class I -
Special Series 1 shares; 50,000,000 shares were classified as Class J shares;
300,000,000 shares were classified as Class J - Special Series 1 shares;
25,000,000 shares were classified as Class K shares; 25,000,000 shares were
classified as Class K - Special Series 1 shares; 10,000,000 shares were
classified as Class K - Special Series 2 shares; 25,000,000 shares were
classified as Class L shares; 25,000,000 shares were classified as Class L -
Special Series 1 shares; 10,000,000 shares were classified as Class L - Special
Series 2 shares; and 1,780,000,000 shares were unclassified shares. Class A,
Class A-Special Series 1, Class A - Special Series 2 and Class A - Special
Series 3 shares represent interests in the Money Market Portfolio; Class B,
Class B-Special Series 1 and Class B-Special Series 2 shares represent interests
in the Treasury Money Market Portfolio; Class C, Class C-Special Series 1, Class
C-Special Series 2 and Class C-Special Series 3 shares represent interests in
the Growth & Income Equity Portfolio; Class D, Class D-Special Series 1,
Class D-Special Series 2 and Class D-Special Series 3 shares represent
interests in the Government & Corporate Bond Portfolio; Class E, Class
E-Special Series 1, Class E-Special Series 2 and Class E-Special 3 shares
represent interests in the U.S. Government Securities Portfolio; Class F,
Class F-Special Series 1, Class F-Special Series 2 and Class F-Special Series
3 shares represent interests in the Emerging Growth Portfolio; Class G, Class G-
Special Series 1, Class G-Special Series 2 and Class G-Special Series 3 shares
represent interests in the Balanced Portfolio; Class H, Class H-Special Series
1, Class H-Special Series 2 and Class H-Special Series 3 shares represent
interests in the International Equity Portfolios. Class I and Class I - Special
Series 1 shares represent interests in the Short-Intermediate Municipal
Portfolio; Class J and Class J Special Series 1 shares represent interests in
the Tax-Exempt Money Market Portfolio; Class K, Class K - Special Series 1 and
Class K Special Series 2 shares represent interests in the Missouri Tax-Exempt
Bond Portfolio; and Class L, Class L - Special Series 1 and Class L Special
Series 2 shares represent interests in the Kansas Tax-Exempt Bond Portfolio.
Each Portfolio share represents an equal, proportionate interest in the
Portfolio with respect to other shares outstanding, irrespective of series,
except as described under Note 1-"Dividends and distributions to shareholders."
4. Capital Share Transactions
Transactions in capital shares for the Portfolio were as follows:
<TABLE>
<CAPTION>
Capital Transactions Investor A Shares Trust Shares
<S> <C> <C>
Proceeds from shares issued 10 22,472,071
Dividends reinvested 5.359
Cost of shares redeemed (279,268)
--- ----------
10 22,198,162
=== ==========
Share Transactions
Issued 1 2,253,056
Reinvested 537
Redeemed (28,093)
--- ----------
1 2,225,500
=== ==========
</TABLE>
5. Purchases and Sales of Investment Securities
Purchases and sales of securities (excluding short-term securities) during the
period from commencement of operations (July 11, 1995) through October 31, 1995
were:
<TABLE>
<CAPTION>
Purchases Sales
--------- -----
<S> <C> <C>
Short-Intermediate Municipal.................. $21,310,721 $0
</TABLE>
-continued-
<PAGE>
THE ARCH FUND, INC.
Notes to Financial Statements, Continued
October 31, 1995
(Unaudited)
6. Related Party Transactions
Investment advisory services are provided to the Portfolio by Mississippi Valley
Advisors Inc. ("MVA"), a subsidiary of Mercantile Bank of St. Louis National
Association ("Mercantile"), which in turn is a wholly owned subsidiary of
Mercantile Bancorporation Inc. Under the terms of the investment advisory
agreement, MVA is entitled to receive fees based on a percentage of the average
daily net assets of the Portfolio. Mercantile serves as custodian for the
Portfolio.
BISYS Fund Services Limited Partnership d/b/a/ BISYS Fund Services ("BISYS") an
Ohio limited partnership, serves as distributor of the Portfolio's shares. The
sole general partner of BISYS is BISYS Fund Services, Inc. The sole limited
partner of BISYS is WC Subsidiary Corporation. BISYS Fund Services, Inc.; BISYS
Fund Services Ohio, Inc.; and WC Subsidiary Corporation are all subsidiaries of
The BISYS Group, Inc.
BISYS Fund Services Ohio, Inc., (the "Company"), with whom certain officers of
the Fund are affiliated, serves the Fund as Administrator. Such officers are
paid no fees directly by the Fund for serving as officers of the Fund. Under
the terms of the administration agreement, the Company's fees are computed daily
as a percentage of the average net assets of the portfolios of the Fund. The
Company also serves the Fund as Transfer Agent. BISYS is entitled to receive
commissions on sales of Investor A shares of the Portfolio.
With respect to Investor A Shares of the Portfolio, the Fund has adopted a
Distribution and Services Plan (the "Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Under the Plan, the Fund may pay (i) up to .10%
of the average daily net assets of the Portfolio's outstanding Investor A Shares
to BISYS or another organization for distribution services performed and
expenses assumed relating to the Investor A shares and (ii) up to .20% of the
average daily net assets of the Portfolio's outstanding Investor A Shares to
broker-dealers and other organizations for shareholder administrative services
provided pursuant to servicing agreements under the Plan.
With respect to Trust Shares of the Portfolio, the Fund has adopted an
Administrative Services Plan pursuant to which Trust Shares are sold to banks
and other financial institutions on behalf of their qualified accounts. The
Fund may pay these banks and other financial institutions, which have agreed to
provide certain shareholder administrative services for their clients or account
holders, up to .30% of the average daily net assets of the Portfolio's Trust
Shares.
-continued-
<PAGE>
THE ARCH FUND, INC.
Notes to Financial Statements, Continued
October 31, 1995
(Unaudited)
Information regarding these transaction is as follows for the period ended
October 31, 1995.
<TABLE>
<CAPTION>
Short
Intermediate
Municipal
Portfolio
---------
<S> <C>
Investment Advisory Fees:
Annual fee before voluntary
fee reductions (percentage
of average net assets) .55%
Voluntary fee reductions $27,844
Administration Fees:
Annual fee before voluntary
fee reductions (percentage
of average net assets) .20%
Voluntary fee reductions $5,082
Distribution & Services Fees
(Investor A Shares):
Annual distribution fee
(percentage of average net
assets of Investor A Shares) .10%
Annual services fee
(percentage of average net
assets of Investor A Shares) .20%
Administrative Service Fees
(Trust Shares):
Annual fee before voluntary fee
reductions (percentage of
average net assets of Trust .30%
Voluntary fee reductions (Trust Shares) $15,188
Custodian: $ 2,168
Transfer Agent: $ 1,841
</TABLE>
<PAGE>
FORM N-1A
---------
PART C. OTHER INFORMATION
--------------------------
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements:
(1) (a) Included in Part A: Unaudited Financial Highlights for
Registrant's Short-Intermediate Municipal Portfolio for the
period July 11, 1995 (commencement of operations) through
October 31, 1995 (Trust Shares).
(b) Included in Part B: Short-Intermediate Municipal Portfolio--
Schedule of Investments - October 31, 1995 (unaudited);
Statement of Assets and Liabilities - October 31, 1995
(unaudited); Statement of Operations for the period July 11,
1995 (commencement of operations) through October 31, 1995
(unaudited); Statement of Changes in Net Assets for the
period July 11, 1995 (commencement of operations) through
October 31, 1995 (unaudited); Financial Highlights (Trust
Shares) for the period July 11, 1995 (commencement of
operations) through October 31, 1995 (unaudited).
(2) All required financial statements are included in Parts A
and B hereof. All other financial statements and schedules
are inapplicable.
(b) Exhibits:
(1) (a) Articles of Incorporation dated September 9, 1982, are
incorporated herein by reference to Exhibit (1) of
Registrant's Registration Statement on Form N-1, filed on
September 10, 1982.
(b) Articles Supplementary to Registrant's Articles of
Incorporation dated October 28, 1982, are incorporated
herein by reference to Exhibit (1)(b) of Pre-Effective
Amendment No. 1 to Registrant's Registration Statement on
Form N-1, filed on November 24, 1982.
<PAGE>
(c) Articles Supplementary dated December 22, 1987 to
Registrant's Articles of Incorporation are incorporated
herein by reference to Exhibit (1)(c) of Post-Effective
Amendment No. 7 to Registrant's Registration Statement on
Form N-1A, filed on March 31, 1988.
(d) Articles Supplementary dated as of October 30, 1990 to
Registrant's Articles of Incorporation are incorporated
herein by reference to Exhibit (1)(d) of Post-Effective
Amendment No. 13 to Registrant's Registration Statement on
Form N-1A, filed on March 25, 1991.
(e) Articles Supplementary dated as of November 9, 1990 to
Registrant's Articles of Incorporation are incorporated
herein by reference to Exhibit (1)(e) of Post-Effective
Amendment No. 13 to Registrant's Registration Statement on
Form N-1A, filed on March 25, 1991.
(f) Articles Supplementary dated as of March 19, 1991 to
Registrant's Articles of Incorporation is incorporated
herein by reference to Exhibit (1)(f) of Post-Effective
Amendment No. 14 to the Registrant's Registration Statement
on Form N-1A, filed October 2, 1991.
(g) Certificate of Correction dated April 30, 1991 to Articles
Supplementary dated as of March 19, 1991 to Registrant's
Articles of Incorporation is incorporated herein by
reference to Exhibit (1)(g) of Post-Effective Amendment No.
14 to the Registrant's Registration Statement on Form N-1A,
filed October 2, 1991.
(h) Articles Supplementary dated as of June 25, 1991 to
Registrant's Articles of Incorporation is incorporated
herein by reference to Exhibit (1)(h) of Post-Effective
Amendment No. 15 to the Registration Statement on Form N-1A,
filed January 31, 1992.
(i) Articles Supplementary dated as of November 15, 1991 to
Registrant's Articles of Incorporation is incorporated
herein by reference to Exhibit (1)(i) of Post-Effective
-2-
<PAGE>
Amendment No. 15 to the Registration Statement on Form N-1A,
filed January 31, 1992.
(j) Articles Supplementary dated as of January 26, 1993 to
Registrant's Articles of Incorporation is incorporated
herein by reference to Exhibit (1)(j) of Post-Effective
Amendment No. 21 to the Registration Statement on Form N-1A,
filed April 30, 1993.
(k) Articles Supplementary dated as of March 23, 1993 to
Registrant's Articles of Incorporation is incorporated
herein by reference to Exhibit (1)(k) of Post-Effective
Amendment No. 22 to Registrant's Registration Statement on
Form N-1A, filed on June 30, 1993.
(l) Articles Supplementary dated as of March 7, 1994 to
Registrant's Articles of Incorporation is incorporated
herein by reference to Exhibit (1)(l) of Post-Effective
Amendment No. 24 to Registrant's Registration Statement on
Form N-1A, filed on March 31, 1994.
(m) Certificate of Correction dated October 17, 1994 to Articles
Supplementary dated as of March 8, 1994 to Registrant's
Articles of Incorporation is incorporated herein by
reference to Exhibit (1)(m) of Post-Effective Amendment No.
25 to Registrant's Registration Statement on Form N-1A,
filed on November 8, 1994.
(n) Articles Supplementary to Registrant's Articles of
Incorporation dated as of February 22, 1995 is incorporated
herein by reference to Exhibit (1)(n) of Post-Effective
Amendment No. 28 to Registrant's Registration Statement on
Form N-1A, filed on February 28, 1995.
(o) Articles Supplementary to Registrant's Articles of
Incorporation dated as of April 17, 1995 is incorporated
herein by reference to Exhibit (1)(o) of Post-Effective
Amendment No. 30 to Registrant's Registration Statement on
Form N-1A, filed on July 7, 1995.
-3-
<PAGE>
(p) Form of Articles Supplementary to Registrant's Articles of
Incorporation is incorporated herein by reference to Exhibit
(1)(p) of Post-Effective Amendment No. 29 to Registrant's
Registration Statement on Form N-1A, filed April 14, 1995.
(q) Form of Articles Supplementary to Registrant's Articles of
Incorporation is incorporated herein by reference to Exhibit
(1)(q) of Post-Effective Amendment No. 30 to Registrant's
Registration Statement on Form N-1A, filed July 7, 1995.
(2) (a) By-Laws as approved and adopted by Registrant's Board of
Directors are incorporated herein by reference to Exhibit
(2) of Registrant's Registration Statement on Form N-1,
filed on September 10, 1982.
(b) Amendment No. 1 to Registrant's By-Laws adopted June 28,
1983 is incorporated herein by reference to Exhibit (2)(b)
of Post-Effective Amendment No. 2 to Registrant's
Registration Statement on Form N-1A, filed on January 20,
1984.
(c) Amendment No. 2 to Registrant's By-Laws adopted November 23,
1987 is incorporated herein by reference to Exhibit (2)(c)
of Post-Effective Amendment No. 7 to Registrant's
Registration Statement on Form N-1A, filed on March 31,
1988.
(3) None.
(4) None.
(5) (a) Amended and Restated Advisory Agreement between Registrant
and Mississippi Valley Advisors Inc. dated April 1, 1991 is
incorporated herein by reference to Exhibit (5)(d) of Post-
Effective Amendment No. 14 to Registrant's Registration
Statement on Form N-1A, filed October 2, 1991.
(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 is incorporated herein by reference
to Exhibit
-4-
<PAGE>
(5)(b) of Post-Effective Amendment No. 17 to Registrant's
Registration Statement on Form N-1A, filed March 31, 1992.
(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 is incorporated herein by reference to
Exhibit (5)(c) of Post-Effective Amendment No. 17 to
Registrant's Registration Statement on Form N-1A, filed
March 31, 1992.
(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 is incorporated herein by reference to Exhibit (5)(d)
of Post-Effective Amendment No. 20 to Registrant's
Registration Statement on Form N-1A, filed April 1, 1993.
(e) Addendum No. 4 to Amended and Restated Advisory Agreement
between Registrant and Mississippi Valley Advisors Inc.
dated March 15, 1994 is incorporated herein by reference to
Exhibit (5)(e) of Post-Effective Amendment No. 25 to
Registrant's Registration Statement on Form N-1A, filed
November 8, 1994.
(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 is
incorporated herein by reference to Exhibit (5)(f) of Post-
Effective Amendment No. 31 to Registrant's Registration
Statement on Form N-1A, filed September 20, 1995.
(g) Form of 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 is
incorporated herein by reference to Exhibit (5)(g) of Post-
Effective Amendment No. 30 to Registrant's Registration
Statement on Form N-1A, filed July 7, 1995.
-5-
<PAGE>
(h) Sub-Advisory Agreement between Mississippi Valley Advisors
Inc. and Clay Finlay, Inc. dated January 25, 1994 is
incorporated herein by reference to Exhibit (5)(f) of Post-
Effective Amendment No. 25 to Registrant's Registration
Statement on Form N-1A, filed November 8, 1994.
(6) (a) Distribution Agreement between Registrant and The Winsbury
Company Limited Partnership dated October 1, 1993 is
incorporated herein by reference to Exhibit (6)(a) of Post-
Effective Amendment No. 25 to Registrant's Registration
Statement on Form N-1A, filed November 8, 1994.
(b) Addendum No. 1 to Distribution Agreement between the
Registrant and The Winsbury Company Limited Partnership with
respect to the ARCH International Equity Portfolio dated
March 15, 1994 is incorporated herein by reference to
Exhibit (6)(b) of Post-Effective Amendment No. 25 to
Registrant's Registration Statement on Form N-1A, filed
November 8, 1994.
(c) Addendum No. 2 to Distribution Agreement between the
Registrant and The Winsbury Company Limited Partnership with
respect to Investor B Shares of the non-money market
Portfolios dated March 1, 1995 is incorporated herein by
reference to Exhibit (6)(c) of Post-Effective Amendment No.
29 to Registrant's Registration Statement on Form N-1A,
filed April 14, 1995.
(d) Addendum No. 3 to Distribution Agreement between the
Registrant and The Winsbury Company Limited Partnership with
respect to the Short-Intermediate Municipal Portfolio and
Investor B Shares of the Money Market Portfolio is
incorporated herein by reference to Exhibit (6)(d) of Post-
Effective Amendment No. 31 to Registrant's Registration
Statement on Form N-1A, filed September 20, 1995.
(e) Form of 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 is incorporated
herein
-6-
<PAGE>
by reference to Exhibit (6)(d) of Post-Effective Amendment
No. 30 to Registrant's Registration Statement on Form N-1A,
filed July 7, 1995.
(f) Amendment No. 1 to Distribution Agreement between the
Registrant and The Winsbury Company Limited Partnership
dated as of September 29, 1995.
(7) None.
(8) (a) Custodian Agreement between Registrant and Mercantile Bank
of St. Louis, National Association dated as of April 1, 1992
is incorporated herein by reference to Exhibit (8)(a) of
Post-Effective Amendment No. 17 to Registrant's Registration
Statement on Form N-1A, filed March 31, 1992.
(b) Custody Fee Agreement between Registrant and Mercantile Bank
of St. Louis, National Association dated April 1, 1995 is
incorporated herein by reference to Exhibit (8)(b) of Post-
Effective Amendment No. 29 to Registrant's Registration
Statement on Form N-1A, filed April 14, 1995.
(c) Custody Fee Agreement between Registrant and Mercantile Bank
of St. Louis, National Association is incorporated herein by
reference to Exhibit (8)(c) of Post-Effective Amendment No.
31 to Registrant's Registration Statement on Form N-1A,
filed September 20, 1995.
(d) Form of Custody Fee Agreement between Registrant and
Mercantile Bank of St. Louis, National Association is
incorporated herein by reference to Exhibit (8)(d) of Post-
Effective Amendment No. 30 to Registrant's Registration
Statement on Form N-1A, filed July 7, 1995.
(e) 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.
-7-
<PAGE>
(f) 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 B Shares of the non-money market Portfolios dated
as of March 1, 1995 is incorporated herein by reference to
Exhibit (9)(c) of Post-Effective Amendment No. 29 to
Registrant's Registration Statement on Form N-1A, filed
April 14, 1995.
(d) Addendum No. 3 to Administration Agreement between
Registrant and BISYS Fund Services Ohio, Inc. with respect
to the Short-Intermediate Municipal Portfolio and Investor B
Shares of the Money Market Portfolio is incorporated herein
by reference to Exhibit (9)(d) of Post-Effective Amendment
No. 31 to Registrant's Registration Statement on Form N-1A,
filed September 20, 1995.
(e) Form of 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 is
-8-
<PAGE>
incorporated herein by reference to Exhibit (9)(e) of Post-
Effective Amendment No. 30 to Registrant's Registration
Statement on Form N-1A, filed July 7, 1995.
(f) 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.
(g) Addendum No. 1 to Transfer Agency Agreement between
Registrant and The Winsbury Service Corporation with respect
to the ARCH International Equity Portfolio dated March 15,
1994 is incorporated herein by reference to Exhibit (9)(d)
of Post-Effective Amendment No. 25 to Registrant's
Registration Statement on Form N-1A, filed November 8, 1994.
(h) 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.
(i) 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.
(j) Form of 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 is incorporated herein by
reference to Exhibit (9)(j) of Post-Effective Amendment No.
30 to Registrant's Registration Statement on Form N-1A,
filed July 7, 1995.
-9-
<PAGE>
(k) Amendment No. 1 to Transfer Agency Agreement between
Registrant and BISYS Fund Services Ohio, Inc. dated as of
September 29, 1995.
(l) (1) Distribution and Services Plan (Investor A Shares)
under Rule 12b-1 and Form of Agreement is incorporated
herein by reference to Exhibit (9)(k)(1) of Post-
Effective Amendment No. 30 to Registrant's Registration
Statement on Form N-1A, filed July 7, 1995.
(2) Distribution and Services Plan (Investor B Shares)
under Rule 12b-1 and Form of Agreement is incorporated
herein by reference to Exhibit (9)(k)(2) of Post-
Effective Amendment No. 30 to Registrant's Registration
Statement on Form N-1A, filed July 7, 1995.
(3) Administrative Services Plan (Trust Shares) and Form of
Agreement is incorporated herein by reference to
Exhibit (9)(k)(3) of Post-Effective Amendment No. 30 to
Registrant's Registration Statement on Form N-1A, filed
July 7, 1995.
(4) Administrative Services Plan (Institutional Shares) and
Form of Agreement is incorporated herein by reference
to Exhibit (9)(k)(4) of Post-Effective Amendment No. 30
to Registrant's Registration Statement on Form N-1A,
filed July 7, 1995.
(10) Opinion and consent of counsel./*/
(11) Consent of Drinker Biddle & Reath.
(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
- ---------------------
/*/ Filed under Rule 24f-2 as part of Registrant's Rule 24f-2 Notice on January
30, 1995.
-10-
<PAGE>
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 Registration
Statement on Form N-1A, filed September 20, 1995.
(e) Form of Purchase Agreements between Registrant and BISYS
Fund Services Ohio, Inc. are incorporated herein by
reference to Exhibit (13)(e) of Post-Effective Amendment No.
30 to Registrant's Registration Statement on Form N-1A,
filed July 7, 1995.
(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
-11-
<PAGE>
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.
(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 of the Short-Intermediate Municipal Portfolio.
(18) Plan Pursuant to Rule 18f-3 for Operation of a Multi-Class
System is incorporated herein by reference to Exhibit (18)
of Post-Effective Amendment No. 32 to Registrant's
Registration Statement on Form N-1A, filed October 5, 1995.
(27) Financial Data Schedules.
Item 25. Persons Controlled By or Under Common Control with Registrant
-------------------------------------------------------------
Registrant is controlled by its Board of Directors.
Item 26. Number of Holders of Securities
-------------------------------
As of December 2, 1995:
-12-
<PAGE>
<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
-------------- --------------
<S> <C>
Class A Common Stock (The ARCH
Money Market Portfolio)........................ 204
Class A - Special Series 1 Common Stock
(The ARCH Money Market
Portfolio)..................................... 343
Class A - Special Series 2 Common Stock
(The ARCH Money Market Portfolio).............. 2
Class A - Special Series 3 Common Stock
(The ARCH Money Market
Portfolio)..................................... 0
Class B Common Stock (The ARCH
Treasury Money Market
Portfolio)..................................... 22
Class B - Special Series 1 Common Stock
(The ARCH Treasury Money Market
Portfolio)..................................... 89
Class B - Special Series 2 Common Stock
(The ARCH Treasury Money Market
Portfolio)..................................... 3
Class C Common Stock (The ARCH
Growth & Income Equity
Portfolio)..................................... 1,189
Class C -Special Series 1 Common Stock
(The ARCH Growth & Income Equity
Portfolio)..................................... 19
Class C -Special Series 2 Common Stock
(The ARCH Growth & Income Equity
Portfolio)..................................... 3
Class C -Special Series 3 Common Stock
(The ARCH Growth & Income Equity
Portfolio)..................................... 105
Class D Common Stock (The ARCH
Government & Corporate Bond
Portfolio)..................................... 313
Class D - Special Series 1 Common Stock
(The ARCH Government & Corporate Bond
Portfolio)..................................... 15
Class D - Special Series 2 Common Stock
(The ARCH Government & Corporate Bond
Portfolio)..................................... 3
Class D - Special Series 3 Common Stock
(The ARCH Government & Corporate Bond
Portfolio)..................................... 19
Class E Common Stock (The ARCH
U.S. Government Securities
Portfolio)..................................... 400
Class E - Special Series 1 Common Stock
(The ARCH U.S. Government Securities
Portfolio)..................................... 6
Class E - Special Series 2 Common Stock
(The ARCH U.S. Government Securities
Portfolio)..................................... 3
Class E - Special Series 3 Common Stock
(The ARCH U.S. Government Securities
Portfolio)...................................... 12
Class F Common Stock (The ARCH Emerging
Growth Portfolio)............................... 902
</TABLE>
-13-
<PAGE>
<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
-------------- --------------
<S> <C>
Class F - Special Series 1 Common Stock
(The ARCH Emerging Growth
Portfolio)..................................... 25
Class F - Special Series 2 Common Stock
(The ARCH Emerging Growth
Portfolio)..................................... 3
Class F - Special Series 3 Common Stock
(The ARCH Emerging Growth
Portfolio)..................................... 110
Class G Common Stock (The ARCH Balanced
Portfolio)..................................... 253
Class G - Special Series 1 Common Stock
Common Stock (The ARCH Balanced
Portfolio)..................................... 3
Class G - Special Series 2 Common Stock
Stock (The ARCH Balanced
Portfolio)..................................... 3
Class G Common Stock - Special Series 3
Common Stock (The ARCH Balanced
Portfolio)..................................... 9
Class H Common Stock (The ARCH
International Equity
Portfolio)..................................... 137
Class H - Special Series 1 Common
Stock - (The ARCH International Equity
Portfolio)..................................... 6
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)..................................... 39
Class I Common Stock (The ARCH
Short-Intermediate Municipal
Portfolio)..................................... 1
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)....................... 21
Class J - Special Series 1
Common Stock (The ARCH Tax-Exempt Money
Market Portfolio).............................. 38
Class K Common Stock (The ARCH Missouri
Tax-Exempt Bond Portfolio).................... 836
Class K - Special Series 1
Common Stock (The ARCH Missouri
Tax-Exempt Bond Portfolio)..................... 11
Class K - Special Series 2
Common Stock (The ARCH Missouri
Tax-Exempt Bond Portfolio)..................... 22
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
</TABLE>
-14-
<PAGE>
<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
-------------- --------------
<S> <C>
Class L - Special Series 2
Common Stock (The ARCH Kansas
Tax-Exempt Bond Portfolio)................... 0
</TABLE>
Item 27. Indemnification
---------------
Indemnification of Registrant's principal underwriter, custodian and
transfer agent against certain losses is provided for, respectively, in Sections
1.11 and 1.12 of the Distribution Agreement, incorporated herein by reference as
Exhibit (6)(a), and Sections 24 and 18, respectively, of the Custody Agreement,
incorporated herein by reference as Exhibit (8)(a) and the Transfer Agency
Agreement incorporated herein by reference as Exhibit (9)(c). The Registrant
has obtained from a major insurance carrier a directors' and officers' liability
policy covering certain types of errors and omissions. In no event will the
Registrant indemnify any of its directors, officers, employees or agents against
any liability to which such person would otherwise be subject by reason of his
willful misfeasance, bad faith or gross negligence in the performance of his
duties, or by reason of his reckless disregard of the duties involved in the
conduct of his office or under his agreement with the Registrant. Registrant
will comply with Rule 484 under the Securities Act of 1933 and Release 11330
under the Investment Company Act of 1940 in connection with any indemnification.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a director, officer or controlling person of Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its 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.
-15-
<PAGE>
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, 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 and Kansas Tax-Exempt Bond Portfolios of the Registrant.
B. The information required by this Item 28 with respect to each Director
and Officer of Mercantile and Mississippi Valley Advisors Inc. is incorporated
by reference to Form ADV and Schedules A and D filed by Mississippi Valley
Advisors Inc. with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934 (File No. 801-28897).
C. Clay Finlay, Inc. is registered as an investment adviser with the
Securities and Exchange Commission and provides sub-investment advisory services
to the Registrant's International Equity Portfolio.
D. The information required by this Item 28 with respect to each Director
and Officer of Clay Finlay, Inc. is included in Form ADV and Schedules A and D
filed by Clay Finlay, Inc. with the Securities and Exchange Commission pursuant
to the Securities Exchange Act of 1934 (File No. 801-17316).
Item 29. Principal Underwriter
---------------------
A. BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services
(formerly The Winsbury Company Limited Partnership) acts as distributor and
its affiliate, BISYS Funds Services Ohio, Inc., acts as administrator for
the Registrant. BISYS Fund Services also distributes the securities of
the American Performance Funds, The Highmark Group, The Parkstone Group of
Funds, The Sessions Group, the AmSouth Mutual Funds, The Coventry Group,
the BB&T Mutual Funds Group, the MarketWatch Funds, The M.S.D & T Funds,
Inc., The Riverfront Funds, Inc., the Pacific Capital Funds, the MMA Praxis
Mutual Funds, the Summit Investment Trust, the Qualivest 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:
-16-
<PAGE>
<TABLE>
<CAPTION>
Name and
Principal Positions and Positions and
Business Offices with Offices with
Address BISYS Fund Services Registrant
- --------------------------- -------------------- -------------
<S> <C> <C>
BISYS Fund Services, Inc. Sole General Partner None
150 Clove Road
Little Falls, NJ 07424
WC Subsidiary Corporation Limited Partner None
150 Clove Road
Little Falls, NJ 07424
</TABLE>
C. None.
Item 30. Location of Accounts and Records
--------------------------------
(1) Mercantile Bank of St. Louis National Association, One Mercantile Center,
8th and Locust Streets, St. Louis, MO 63101 (records relating to its
functions as custodian).
(2) BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio 43219 (records
relating to its functions as distributor).
(3) Mississippi Valley Advisors Inc., 7th and Washington Streets, 21st Floor,
St. Louis, MO 63101 (records relating to its functions as investment
adviser for The ARCH Money Market, Treasury Money Market, Growth & Income
Equity, Emerging Growth, Government & Corporate Bond, U.S. Government
Securities, Balanced, International Equity and Short-Intermediate
Municipal, Tax-Exempt Money Market, Missouri Tax-Exempt Bond and Kansas
Tax-Exempt Bond Portfolios).
(4) BISYS Fund Services Ohio, Inc., 3435 Stelzer Road, Columbus, Ohio 43219
(records relating to its function as administrator).
(5) BISYS Fund Services Ohio, Inc., 3435 Stelzer Road, Columbus, Ohio 43219
(records relating to its function as transfer agent and dividend disbursing
agent).
(6) Drinker Biddle & Reath, Philadelphia National Bank Building, 1345 Chestnut
Street, Philadelphia, PA 19107-3496 (Registrant's Articles of
Incorporation, By-Laws and Minute Books).
(7) Clay Finlay, Inc. 200 Park Avenue, 56th Floor, New York, New York 10166
(records relating to its function as sub-investment advisor to the
International Equity Portfolio).
-17-
<PAGE>
(8) Bankers Trust Company, 16 Wall Street, New York, New York 10005 (records
relating to its function as sub-custodian for the International Equity
Portfolio).
Item 31. Management Services
-------------------
Inapplicable.
Item 32. Undertakings
------------
(a) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered a copy of the Registrant's latest annual report to
shareholders upon request and without charge.
-18-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this registration statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-
Effective Amendment No. 33 to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of St. Louis
and the State of Missouri, on the 28th day of December, 1995.
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. 33 to its Registration Statement has
been signed below by the following persons in the capacities and on the dates
indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/Jerry V. Woodham Chairman of the December 28, 1995
- ------------------------- Board and President
Jerry V. Woodham
/s/* James C. Jacobsen Director December 28, 1995
- -------------------------
James C. Jacobsen
/s/* Joseph J. Hunt Director December 28, 1995
- -------------------------
Joseph J. Hunt
/s/* Donald E. Kiernan Director December 28, 1995
- -------------------------
Donald E. Kiernan
/s/* Robert M. Cox, Jr. Director December 28, 1995
- -------------------------
Robert M. Cox, Jr.
/s/* Lyle L. Meyer Director December 28, 1995
- -------------------------
Lyle L. Meyer
/s/* Ronald D. Winney Director & Treasurer December 28, 1995
- -------------------------
Ronald D. Winney
</TABLE>
*By: /s/ Jerry V. Woodham
----------------------
Jerry V. Woodham
Attorney-in-fact
<PAGE>
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>
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>
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>
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>
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>
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>
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>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Item Page
- -------------- ---- ----
<C> <S> <C>
6(f) Amendment No. 1 to Distribution
Agreement between Registrant and
The Winsbury Company Limited
Partnership dated as of
September 29, 1995.
9(k) Amendment No. 1 to Transfer Agency
Agreement between Registrant and
BISYS Fund Services Ohio, Inc.
dated as of September 29, 1995.
11 Consent of Drinker Biddle & Reath.
16(e) Schedule of Computation of Performance
Calculations for Trust Shares and
Investor A Shares of the Short-
Intermediate Municipal Portfolio.
27 Financial Data Schedules
</TABLE>
<PAGE>
Exhibit 6(f)
AMENDMENT NO. 1 TO DISTRIBUTION AGREEMENT
-----------------------------------------
This Amendment No. 1, dated as of September 29, 1995, is entered into
between THE ARCH FUND, INC. (the "Fund"), a Maryland corporation, and THE
WINSBURY COMPANY LIMITED PARTNERSHIP ("Winsbury"), an Ohio limited partnership.
WHEREAS, the Fund and Winsbury have entered into a Distribution
Agreement, dated as of October 1, 1993, and certain addenda thereto, dated as of
March 15, 1994, March 1, 1995 and July 10, 1995 (the "Distribution Agreement"),
pursuant to which the Fund appointed Winsbury to act as Distributor for the
Fund's portfolios; and
WHEREAS, Section 9 of the Distribution Agreement provides that no
provision of the Distribution 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;
NOW THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. The following paragraph is added to the Distribution Agreement as
Paragraph 3A:
"3A. Payments Relating to Distribution Plans. Payments by the
---------------------------------------
Company relating to any distribution plan adopted in accordance with Rule 12b-1
under the 1940 Act (a "Plan") shall be payable to the Distributor or its
assignees, all in accordance with the terms and conditions of such Plan."
2. The following paragraph is added to the Distribution Agreement as
Paragraph 3B:
"3B. Payments of Sales Charges. Any front-end sales charges or
-------------------------
deferred sales charges payable in connection with purchases or redemptions of
shares shall be payable to the Distributor or its assignees, all in accordance
with the Prospectuses."
3. Miscellaneous. Except to the extent amended hereby, the
-------------
Distribution Agreement shall remain unchanged and in full force and effect and
is hereby ratified and confirmed in all respects as amended hereby.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 1
as of the date and year first above written.
THE ARCH FUND, INC.
By: /s/ Jerry V. Woodham
-----------------------
Name: Jerry V. Woodham
Title: President
THE WINSBURY COMPANY LIMITED PARTNERSHIP
By: BISYS FUND SERVICES, INC.,
General Partner
By: /s/ Stephen G. Mintos
-------------------------
Name: Stephen G. Mintos
Title:
-2-
<PAGE>
Exhibit 9(k)
AMENDMENT NO. 1 TO TRANSFER AGENCY AGREEMENT
--------------------------------------------
This Amendment No. 1, dated as of September 29, 1995, is entered into
between THE ARCH FUND, INC. (the "Fund"), a Maryland corporation, and BISYS FUND
SERVICES OHIO, INC. ("BISYS"), an Ohio corporation formerly known as The
Winsbury Service Corporation.
WHEREAS, the Fund and BISYS have entered into a Transfer Agency
Agreement, dated as of October 1, 1993, and certain addenda thereto, dated as of
March 15, 1994, March 1, 1995 and July 10, 1995 (the "Transfer Agency
Agreement"), pursuant to which the Fund appointed BISYS to act as Transfer Agent
for the Fund's Portfolios;
WHEREAS, Section 20 of the Transfer Agency Agreement provides that no
provision of the Transfer Agency 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 parties hereto wish to amend Section 4(b) of Appendix B
to the Transfer Agency Agreement in order to confirm that the Transfer Agent is
obligated to account for separation of shareholder investments from transaction
sale charges in connection with both purchases and redemptions of Portfolio
shares;
NOW THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Appendix B. Section 4(b) of Appendix B to the Transfer Agency
----------
Agreement is hereby amended to read as follows:
"b. Account for separation of shareholder investments from transaction
sale charges in connection with purchases and redemptions of Portfolio
shares."
2. Miscellaneous. Except to the extent amended hereby, the Transfer
-------------
Agency Agreement shall remain unchanged and in full force and effect and is
hereby ratified and confirmed in all respects as amended hereby.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amendment No. 1
as of the date and year first above written.
THE ARCH FUND, INC.
By: /s/ Jerry V. Woodham
------------------------
Name: Jerry V. Woodham
Title: President
BISYS FUND SERVICES OHIO, INC.
By: /s/ Stephen G. Mintos
-------------------------
Name: Stephen G. Mintos
Title:
-2-
<PAGE>
Exhibit 11
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. 33 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
December 29, 1995
<PAGE>
Exhibit 16(e)
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INVESTOR SHARES
LOAD CALCULATIONS
SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 2.50%
-----------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 07/11/95 TO 10/31/95 ):
( 975.6 /1,000) - 1 = -2.44%
YEAR TO DATE: ( 07/11/95 TO 10/31/95 ):
( 975.6 /1,000) - 1 = -2.44%
QUARTERLY: ( 08/01/95 TO 10/31/95 ):
( 980.4 /1,000) - 1 = -1.96%
MONTHLY: ( 10/01/95 TO 10/31/95 ):
( 978.5 /1,000) - 1 = -2.15%
<PAGE>
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INVESTOR SHARES
NO LOAD CALCULATIONS
SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
----------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: (07/11/95 TO 10/31/95 ):
(1,001.0 /1,000) - 1 = 0.10%
YEAR TO DATE: (07/11/95 TO 10/31/95 ):
(1,001.0 /1,000) - 1 = 0.10%
QUARTERLY: (08/01/95 TO 10/31/95 ):
(1,006.0 /1,000) - 1 = 0.60%
MONTHLY: (10/01/95 TO 10/31/95 ):
(1,004.0 /1,000) - 1 = 0.40%
<PAGE>
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
TRUST SHARES
NO LOAD CALCULATIONS
SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
----------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 07/11/95 TO 10/31/95 ):
(1,013.1 /1,000) - 1 = 1.31%
YEAR TO DATE: ( 07/11/95 TO 10/31/95 ):
(1,013.1 /1,000) - 1 = 1.31%
QUARTERLY: ( 08/01/95 TO 10/31/95 ):
(1,015.7 /1,000) - 1 = 1.57%
MONTHLY: ( 10/01/95 TO 10/31/95 ):
(1,007.4 /1,000) - 1 = 0.74%
<PAGE>
THE ARCH FUND, INC.
EXHIBIT 16
TRUST SHARES
NO LOAD CALCULATIONS
30-DAY S.E.C. YIELD CALCULATIONS - WITH WAIVED FEES
SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
(a-b)
---------------
30-Day S.E.C. Yield Equation = 2 *{[( (cd) +1)/6]-1} =
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 during
the period that were entitled to receive dividends
d = The maximum offering price (NAV for No Load) per
share on the last day of the period
WITHOUT 0.00% LOAD:
( 73,156.03 - 7,162.89 )
------------------------------
2 *{[( +1)/6]-1} = 3.90%
( 2,044,142.826 * 10.02 )
The performance was computed based on the thirty day period ending
October 31, 1995.
<PAGE>
THE ARCH FUND, INC.
EXHIBIT 16
TRUST SHARES
30-DAY S.E.C. YIELD CALCULATIONS - WITHOUT WAIVED FEES
SHORT INTERMEDIATE MUNICIPAL PORTFOLIO
(a-b)
---------------
30-Day S.E.C. Yield Equation = 2 *{[( (cd) +1)/6]-1} =
WHERE a = Dividends and interest earned during the period
b = Expenses accrued for the period (gross)
c = The average daily number of shares outstanding during
the period that were entitled to receive dividends
d = The maximum offering price (NAV for No Load) per
share on the last day of the period
WITHOUT 0.00% LOAD:
( 73,156.03 - 23,647.26 )
------------------------------
2 *{[( +1)/6]-1} = 2.92%
( 2,044,142.826 * 10.02 )
The performance was computed based on the thirty day period ending
October 31, 1995.
<PAGE>
THE ARCH FUND, INC.
EXHIBIT 16
INVESTOR SHARES
NO LOAD CALCULATIONS
30-DAY S.E.C. YIELD CALCULATIONS - WITH WAIVED FEES
SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
(a-b)
----------------
30-Day S.E.C. Yield Equation = 2 *{[( (cd) +1)/6]-1} =
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 during
the period that were entitled to receive dividends
d = The maximum offering price (NAV for No Load) per
share on the last day of the period
WITH 2.50% LOAD:
( 0.00 - 0.00 )
------------------------------
2 *{[( +1)/6]-1} = 0.00%
( 1.000 * 10.27 )
WITHOUT 2.50% LOAD:
( 0.00 - 0.00 )
------------------------------
2 *{[( +1)/6]-1} = 0.00%
( 1.000 * 10.01 )
The performance was computed based on the thirty day period ending
October 31, 1995.
<PAGE>
THE ARCH FUND, INC.
EXHIBIT 16
INVESTOR SHARES
30-DAY S.E.C. YIELD CALCULATIONS - WITHOUT WAIVED FEES
SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
(a-b)
---------------
30-Day S.E.C. Yield Equation = 2 *{[( (cd) +1)/6]-1} =
WHERE a = Dividends and interest earned during the period
b = Expenses accrued for the period (gross)
c = The average daily number of shares outstanding during
the period that were entitled to receive dividends
d = The maximum offering price (NAV for No Load) per
share on the last day of the period
WITH 2.50% LOAD:
( 0.00 - 0.00 )
------------------------------
2 *{[( +1)/6]-1} = 0.00%
( 1.000 * 10.27 )
WITHOUT 2.50% LOAD:
( 0.00 - 0.00 )
------------------------------
2 *{[( +1)/6]-1} = 0.00%
( 1.000 * 10.01 )
The performance was computed based on the thirty day period ending
October 31, 1995.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUNDS, INC.
<SERIES>
<NUMBER> 11
<NAME> SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO-TRUST SHARES
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> JUL-11-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 24,263,721
<INVESTMENTS-AT-VALUE> 24,354,881
<RECEIVABLES> 276,256
<ASSETS-OTHER> 19,398
<OTHER-ITEMS-ASSETS> 58
<TOTAL-ASSETS> 24,650,593
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</TABLE>
