<PAGE> 1
As filed with the Securities and Exchange Commission on January 30, 1997
Registration No. 2-79285/811-3567
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [x]
POST-EFFECTIVE AMENDMENT NO. 37
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
AMENDMENT NO. 38
THE ARCH FUND, INC.
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road
Columbus, Ohio 43219
(Address of Principal Executive Offices)
Registrant's Telephone Number: (800) 551-3731
W. BRUCE MCCONNEL, III, Esq.
Drinker Biddle & Reath
1100 Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
(Name and Address of Agent for Service)
Copy to:
Jon W. Bilstrom, Esq.
Mercantile Bank of St. Louis N.A.
One Mercantile Center
8th and Washington Streets
St. Louis, MO 63101
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[x] 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, 1996
on January 28, 1997. 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> 2
CROSS REFERENCE SHEET
---------------------
(Trust Shares)
The ARCH Treasury Money Market Portfolio
The ARCH Money Market Portfolio
The ARCH Tax-Exempt Money Market Portfolio
The ARCH U.S. Government Securities Portfolio
The ARCH Intermediate Corporate Bond Portfolio
The ARCH Bond Index Portfolio
The ARCH Government & Corporate Bond Portfolio
The ARCH Short-Intermediate Municipal Portfolio
The ARCH Missouri Tax-Exempt Bond Portfolio
The ARCH National Municipal Bond Portfolio
The ARCH Equity Income Portfolio
The ARCH Equity Index Portfolio
The ARCH Growth & Income Equity Portfolio
The ARCH Small Cap Equity Portfolio
The ARCH International Equity Portfolio
The ARCH Balanced 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; Yields and
Total Returns
4. General Description
of Registrant........................ Highlights; Investment
Objectives, Policies and
Risk Considerations; Other
Information Concerning
the Fund and Its Shares
5. Management of the Fund................. Management of the Fund
5A. Management's Discussion of
Fund Performance..................... Inapplicable
6. Capital Stock and
Other Securities..................... How to Purchase and
Redeem Shares; Dividends
and Distributions;
Taxes; Other Information
Concerning the Fund
and Its Shares
7. Purchase of Securities
Being Offered........................ How to Purchase and
Redeem Shares
8. Redemption or Repurchase............... How to Purchase and
Redeem Shares
9. Pending Legal Proceedings.............. Inapplicable
<PAGE> 3
THE ARCH FAMILY
OF MUTUAL FUNDS
TRUST SHARES
MONEY MARKET PORTFOLIOS
TREASURY MONEY MARKET PORTFOLIO
MONEY MARKET PORTFOLIO
TAX-EXEMPT MONEY MARKET PORTFOLIO
TAXABLE BOND PORTFOLIOS
U.S. GOVERNMENT SECURITIES PORTFOLIO
INTERMEDIATE CORPORATE BOND PORTFOLIO
BOND INDEX PORTFOLIO
GOVERNMENT & CORPORATE BOND PORTFOLIO
TAX-EXEMPT BOND PORTFOLIOS
SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
MISSOURI TAX-EXEMPT BOND PORTFOLIO
NATIONAL MUNICIPAL BOND PORTFOLIO
EQUITY PORTFOLIOS
EQUITY INCOME PORTFOLIO
EQUITY INDEX PORTFOLIO
GROWTH & INCOME EQUITY PORTFOLIO
SMALL CAP EQUITY PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIO
BALANCED PORTFOLIO
PROSPECTUS DATED ________, 1997
<PAGE> 4
TABLE OF CONTENTS
PAGE
Highlights..............................................................
Certain Financial
Information...........................................................
Expense Summary for
Trust Shares..........................................................
Financial Highlights....................................................
Investment Objectives,
Policies and Risk
Considerations........................................................
Pricing of Shares.......................................................
The Money Market Portfolios...........................................
The Equity and Bond Portfolios........................................
How to Purchase and
Redeem Shares.........................................................
Purchase of Shares -- .............................................
Purchase of Shares -- The
Money Market Portfolios..........................................
Purchase of Shares -- The
Equity and Bond Portfolios.......................................
Exchanges..........................................................
Redemption of Shares...............................................
Other Exchange or
Redemption Information...........................................
Yields and Total Returns................................................
Dividends and Distributions.............................................
Taxes....
Management of the Fund..................................................
Other Information
Concerning the Fund
and its Shares........................................................
Miscellaneous..................................................
<PAGE> 5
THE ARCH FUND(R), INC.
TRUST SHARES
The ARCH Fund, Inc. is an open-end, management investment company that
currently offers Shares in sixteen investment portfolios. This Prospectus
describes the Trust Shares in each of those portfolios. Trust Shares are offered
to financial institutions acting on their own behalf or on behalf of certain
qualified accounts.
THE ARCH TREASURY MONEY MARKET PORTFOLIO'S investment objective is to
seek a high level of current income exempt from state income tax consistent with
liquidity and security of principal.
THE ARCH MONEY MARKET PORTFOLIO'S investment objective is to seek
current income with liquidity and stability of principal.
THE ARCH TAX-EXEMPT MONEY MARKET PORTFOLIO'S investment objective is to
seek as high a level of current interest income exempt from federal income tax
as is consistent with liquidity and stability of principal.
THE ARCH U.S. GOVERNMENT SECURITIES PORTFOLIO'S investment objective is
to seek a high rate of current income that is consistent with relative stability
of principal.
THE ARCH INTERMEDIATE CORPORATE BOND PORTFOLIO'S investment objective
is to seek as high a level of current income as is consistent with preservation
of capital.
THE ARCH BOND INDEX PORTFOLIO'S investment objective is to seek to
provide investment results that, before deduction of operating expenses,
approximate the price and yield performance of U.S. Government, mortgage-backed,
asset-backed and corporate debt securities, as represented by the Lehman
Brothers Aggregate Bond Index.
THE ARCH GOVERNMENT & CORPORATE BOND PORTFOLIO'S investment objective
is to seek the highest level of current income consistent with conservation of
capital.
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.
<PAGE> 6
THE ARCH MISSOURI TAX-EXEMPT BOND PORTFOLIO'S investment objective is
to seek as high a level of interest income exempt from federal income tax as is
consistent with conservation of capital. Under normal market conditions,
substantially all of the Portfolio's assets are expected to be invested in
municipal obligations that are also exempt from Missouri income tax.
THE ARCH NATIONAL MUNICIPAL BOND PORTFOLIO'S investment objective is to
seek as high a level of current income exempt from regular federal income tax as
is consistent with conservation of capital.
THE ARCH EQUITY INCOME PORTFOLIO'S investment objective is to seek to
provide an above-average level of income consistent with long-term capital
appreciation.
THE ARCH EQUITY INDEX PORTFOLIO'S investment objective is to seek to
provide investment results that, before deduction of operating expenses,
approximate the price and yield performance of U.S. publicly traded common
stocks with large stock market capitalizations, as represented by the Standard &
Poor's 500 Composite Stock Price Index.
THE ARCH GROWTH & INCOME EQUITY PORTFOLIO'S investment objective is to
provide long-term capital growth, with income a secondary consideration.
THE ARCH SMALL CAP EQUITY PORTFOLIO'S investment objective is capital
appreciation. Current income is an incidental consideration in the selection of
portfolio securities. The Portfolio was formerly known as the ARCH Emerging
Growth Portfolio.
THE ARCH INTERNATIONAL EQUITY PORTFOLIO'S investment objective is to
provide capital growth consistent with reasonable investment risk by investing
primarily in foreign equity securities, most of which will be denominated in
foreign currencies.
THE ARCH BALANCED PORTFOLIO'S investment objective is to maximize total
return through a combination of growth of capital and current income consistent
with the preservation of capital.
Mississippi Valley Advisors Inc. ("MVA" or the "Adviser"), a
wholly-owned subsidiary of Mercantile Bank National Association ("Mercantile"),
acts as investment adviser for the Portfolios. Mercantile serves as custodian;
BISYS Fund Services Ohio, Inc. (the "Administrator") serves as administrator;
and BISYS Fund Services (the "Distributor") serves as sponsor and distributor.
In addition, Clay Finlay Inc. ("Clay Finlay" or the "Sub-Adviser") serves as
sub-adviser for the International Equity Portfolio.
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This Prospectus sets forth concisely certain information about the
Portfolios that prospective investors should know before investing. Investors
should read this Prospectus and retain it for future reference. Additional
information about the Portfolios, contained in a Statement of Additional
Information dated ________, 1997, has been filed with the Securities and
Exchange Commission and is incorporated by reference in its entirety into this
Prospectus. An investor may obtain the Statement of Additional Information
without charge by writing the Fund at P.O. Box 78069, St. Louis, Missouri 63178
or by calling 1-800-551-3731.
AN INVESTMENT IN THE TREASURY MONEY MARKET PORTFOLIO, MONEY MARKET
PORTFOLIO OR TAX-EXEMPT MONEY MARKET PORTFOLIO IS NEITHER INSURED NOR GUARANTEED
BY THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT ANY OF THESE PORTFOLIOS
WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
Portfolio Shares are not bank deposits, are not federally insured or
guaranteed by the U.S. Government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other governmental agency, and are not the
obligations of or guaranteed or otherwise supported by any bank. An investment
in the Portfolios involves investment risk, including the possible loss of
principal.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
________, 1997
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<PAGE> 8
HIGHLIGHTS
The ARCH Fund, Inc. (the "Fund") is an open-end, management investment
company (commonly known as a mutual fund) registered under the Investment
Company Act of 1940, as amended. The Fund offers investment opportunities in
sixteen investment portfolios: the ARCH TREASURY MONEY MARKET, MONEY MARKET and
TAX-EXEMPT MONEY MARKET PORTFOLIOS (the "Money Market Portfolios") and the ARCH
U.S. GOVERNMENT SECURITIES, INTERMEDIATE CORPORATE BOND, BOND INDEX, GOVERNMENT
& CORPORATE BOND, SHORT-INTERMEDIATE MUNICIPAL, MISSOURI TAX-EXEMPT BOND,
NATIONAL MUNICIPAL BOND, EQUITY INCOME, EQUITY INDEX, GROWTH & INCOME EQUITY,
SMALL CAP EQUITY, INTERNATIONAL EQUITY and BALANCED PORTFOLIOS (the "Equity and
Bond Portfolios" and, together with the Money Market Portfolios, the
"Portfolios"). Each Portfolio represents a separate pool of assets with
different investment objectives and policies (as described below under
"Investment Objectives, Policies and Risk Considerations"). MVA serves as
adviser, Mercantile as custodian, BISYS Fund Services Ohio, Inc. as
administrator and BISYS Fund Services as sponsor and distributor. In addition,
Clay Finlay serves as sub-adviser for the International Equity Portfolio. For
information on expenses, fee waivers, and services, see "Certain Financial
Information," "Financial Highlights" and "Management of the Fund."
The following information generally describes the Portfolios and their
investment objectives. There can be no assurance that the Portfolios will be
able to achieve their respective investment objectives.
The Money Market Portfolios each seek to maintain a net asset value of
$1.00 per Share. Each Money Market Portfolio's assets are invested in
dollar-denominated debt securities with remaining maturities of 397 days (13
months) or less as defined by the Securities and Exchange Commission, and each
Money Market Portfolio's dollar-weighted average portfolio maturity will not
exceed 90 days. All securities acquired by the Money Market Portfolios will be
determined by MVA, under guidelines approved by the Fund's Board of Directors,
to present minimal credit risks and to be rated in the highest category (or
deemed comparable in quality) at the time of purchase. There can be no assurance
that the Money Market Portfolios will be able to achieve a stable net asset
value on a continuous basis.
The U.S. Government Securities and Government & Corporate Bond
Portfolios are designed for investors who seek higher current income than is
typically offered by money market funds and who are willing to accept a variable
Share value to achieve that objective.
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<PAGE> 9
The Intermediate Corporate Bond Portfolio is designed for investors who
seek higher current income than is typically offered by money market funds with
less principal volatility than is normally associated with a long-term bond
fund.
The Bond Index Portfolio is designed for investors who are willing to
accept the risks associated with an investment in fixed income securities, and
who seek investment results that, before deduction of operating expenses,
approximate the price and yield performance of U.S. Government, mortgage-backed,
asset- backed and corporate debt securities, as represented by the Lehman
Brothers Aggregate Bond Index.
The Short-Intermediate Municipal Portfolio is designed for investors
who seek a yield that is higher than a municipal money market fund with less
principal volatility than is normally associated with a long-term municipal bond
fund.
The Missouri Tax-Exempt Bond Portfolio is designed for investors who
seek a higher rate of return than that typically offered by tax-exempt money
market funds and who are willing to accept a variable Share value to achieve
that objective.
The National Municipal Bond Portfolio is designed for investors who
seek current income that is exempt from regular federal income tax and relative
stability of principal.
The Equity Income Portfolio is designed for investors who seek an
above-average level of income consistent with long-term capital appreciation,
and who are prepared to accept the risks associated with an investment in equity
securities.
The Equity Index Portfolio is designed for investors who are willing to
accept the risks associated with an investment in equity securities, and who
seek investment results that, before deduction of operating expenses,
approximate the price and yield performance of U.S. publicly traded common
stocks with large stock market capitalizations, as represented by the Standard &
Poor's 500 Composite Stock Price Index.
The Growth & Income Equity, Small Cap Equity and Balanced Portfolios
are designed for investors who seek capital growth, and who are prepared to
accept the risks associated with equity securities.
The International Equity Portfolio is designed for investors who seek
capital growth, wish to diversify their investments beyond the United States,
and are prepared to accept the risks entailed in such investments. These risks
may be greater than those associated with investments in the equity securities
of companies located in the United States.
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The Tax-Exempt Money Market, Short-Intermediate Municipal, Missouri
Tax-Exempt Bond and National Municipal Bond Portfolios seek to provide income
exempt from federal tax. In addition, the Missouri Tax-Exempt Bond Portfolio
seeks to provide income that is also exempt from Missouri income tax.
Investors should note that one or more of the Portfolios may, subject
to their investment policies and limitations, purchase variable and floating
rate instruments, enter into repurchase agreements and reverse repurchase
agreements, make securities loans, invest in options, futures and index-based
depository receipts, and make limited investments in illiquid securities and
securities issued by other investment companies. These investment practices
involve investment risks of varying degrees. For example, the absence of a
secondary market for a particular variable or floating rate instrument could
make it difficult for a Portfolio to dispose of an instrument if the issuer were
to default on its payment obligation. Default by a counterparty to a repurchase
agreement or securities lending transaction could expose a Portfolio to loss
because of adverse market action or possible delay in disposing of the
underlying collateral. Reverse repurchase agreements are subject to the risk
that the market value of the securities sold by a Portfolio will decline below
the repurchase price which the Portfolio is obligated to pay. Purchasing options
is a specialized investment technique which entails a substantial risk of loss
of amounts paid as premiums to option writers. Investments in futures and
related options are subject to the ability of the Adviser to correctly predict
movements in the direction of the market and there is no assurance that a liquid
market will exist for a particular futures contract at any particular time. The
Equity and Bond Portfolios, other than the Bond Index and Equity Index
Portfolios, may engage in short-term trading, which may also involve greater
risk and increase such Portfolios' expenses. The International Equity Portfolio
will invest principally in foreign equity securities, most of which will be
denominated in foreign currencies. The other Portfolios do not invest in
instruments denominated in foreign currencies (except that the Growth & Income
Equity, Small Cap Equity, and Balanced Portfolios may invest in certain Canadian
securities and the Intermediate Corporate Bond Portfolio may invest in debt
securities issued by foreign corporations and governments). Foreign securities
entail certain inherent risks, such as future political and economic
developments and the adoption of foreign government restrictions, that might
adversely affect payment of dividends or principal and interest. The Tax-Exempt
Money Market, Short-Intermediate Municipal, Missouri Tax-Exempt Bond and
National Municipal Bond Portfolios may, under certain conditions, make limited
investments in securities the income from which may be subject to federal income
tax. See "Investment Objectives, Policies and
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<PAGE> 11
Risk Considerations" below and the Statement of Additional Information under
"Investment Objectives and Policies."
The Fund offers investors the opportunity to invest in a variety of
professionally managed investments without having to become involved with
detailed management, accounting and safekeeping procedures normally related to
direct investments in securities. The Portfolios also offer the economic
advantages of block trading in securities and the availability of a family of
sixteen mutual funds should an investor's investment goals change.
For information on purchasing, exchanging or redeeming Trust Shares of
the Portfolios, please see "How to Purchase and Redeem Shares" below.
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<PAGE> 12
CERTAIN FINANCIAL INFORMATION
Shares of the Money Market, U.S. Government Securities, Government &
Corporate Bond, Equity Income, Growth & Income Equity, Small Cap Equity,
International Equity and Balanced Portfolios have been classified into four
classes of Shares -- Trust Shares, Institutional Shares, Investor A Shares and
Investor B Shares. Shares of the Treasury Money Market, Intermediate Corporate
Bond, Bond Index and Equity Index Portfolios have been classified into three
classes of Shares -- Trust Shares, Institutional Shares and Investor A Shares.
Shares of the Missouri Tax-Exempt Bond and National Municipal Bond Portfolios
have been classified into three classes of Shares -- Trust Shares, Investor A
Shares and Investor B Shares. Shares of the Tax-Exempt Money Market and
Short-Intermediate Municipal Portfolios have been classified into two classes of
Shares -- Trust Shares and Investor A Shares. Shares of each class in a
Portfolio represent equal, pro rata interests in the investments held by that
Portfolio and are identical in all respects, except that Shares of each class
bear separate distribution and/or shareholder administrative servicing fees and
certain other operating expenses, and enjoy certain exclusive voting rights on
matters relating to these fees. See "Other Information Concerning the Fund and
Its Shares," "Management of the Fund -- Administrative Services Plan," and
"Management of the Fund -- Custodian, Sub-Custodian and Transfer Agent" below.
As a result of payments for distribution and/or shareholder administrative
servicing fees and certain other operating expenses that may be made in
differing amounts, the net investment income of Trust Shares, Institutional
Shares, Investor A Shares and/or Investor B Shares in a Portfolio can be
expected, at any given time, to be different.
The Tax-Exempt Money Market Portfolio and Missouri Tax-Exempt Bond
Portfolio commenced operations on July 10, 1986 and July 15, 1988, respectively,
as separate investment portfolios (the "Predecessor Tax-Exempt Money Market
Portfolio" and "Predecessor Missouri Tax-Exempt Bond Portfolio", respectively)
of The ARCH Tax-Exempt Trust (the "Trust"), which was organized as a
Massachusetts business trust. On October 2, 1995, the Predecessor Tax-Exempt
Money Market Portfolio and the Predecessor Missouri Tax-Exempt Bond Portfolio
were reorganized as new portfolios of the Fund. Prior to the reorganization,
these Predecessor Portfolios offered and sold shares of beneficial interest that
were similar to the Fund's Trust Shares, Investor A Shares and Investor B
Shares.
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<PAGE> 13
<TABLE>
EXPENSE SUMMARY FOR TRUST SHARES
<CAPTION>
===================================================================================================================================
TREASURY TAX-EXEMPT U.S. INTERMEDIATE GOVERNMENT & SHORT-
MONEY MONEY MONEY GOVERNMENT CORPORATE CORPORATE INTERMEDIATE
MARKET MARKET MARKET SECURITIES BOND BOND INDEX BOND MUNICIPAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- ---------- --------- --------- --------- ---------
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING
EXPENSES
(as a percentage of average
net assets)
Investment Advisory Fees
(net ............................ .35% .35% .35% .45% 0% 0% .45% 0%
of fee waivers)1................ .00% .00% .00% .00% .00% .00% .00% .00%
12b-1 Fees
Other Expenses (including
administration fees,
administrative services
fees and other expenses)
(net of fee waivers and ....... .26% .26% .18% .22% .23% .20% .20% .31%
expense reimbursements)2,3
Total Portfolio Operating ....... .61% .61% .53% .67% .23% .20% .65% .31%
===== ===== ===== ===== ===== ===== ===== =====
Expenses (net of fee
waivers and expense
reimbursements)(3)
- --------------------------------
<FN>
1 Without fee waivers, investment advisory fees would be .40%, .40%, .40%,
.45%, .55%, .30%, .45% and .45% for the Treasury Money Market, Money Market,
Tax-Exempt Money Market, U.S. Government Securities, Intermediate Corporate
Bond, Bond Index, Government & Corporate Bond and Short-Intermediate
Municipal Portfolios, respectively.
2 Without fee waivers, administration fees would be .10% for the Tax-Exempt
Money Market Portfolio and .20% for each other Portfolio. Administrative
services fees are payable at an annual rate not to exceed .25% for the Money
Market Portfolios and .30% for the Equity and Bond Portfolios.
3 Without fee waivers and/or expense reimbursements, Other Expenses would be
1.26%, .36%, .18%, .62%, .67%, .60%, .30% and .71% and Total Portfolio
Operating Expenses would be .76%, .76%, .58%, 1.07%, 1.22%, .90%, 1.05% and
.36% for the Treasury Money Market, Money Market, Tax-Exempt Money Market,
U.S. Government Securities, Intermediate Corporate Bond, Bond Index,
Government & Corporate Bond and Short-Intermediate Municipal Portfolios,
respectively.
</TABLE>
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<PAGE> 14
<TABLE>
<CAPTION>
MISSOURI NATIONAL GROWTH &
TAX-EXEMPT MUNICIPAL EQUITY EQUITY INCOME SMALL CAP INTERNATIONAL
BOND BOND INCOME INDEX EQUITY EQUITY EQUITY BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------- --------- --------- --------- --------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING
EXPENSES
(as a percentage of average
net assets)
Investment Advisory Fees
(net ............................... .45% 0% 0% 0% .55% .75% .75% .75%
of fee waivers)1 ................. .00% .00% .00% .00% .00% .00% .00% .00%
12b-1 Fees
Other Expenses (including
administration fees,
administrative services
fees and other expenses)
(net of fee waivers and .......... .20% .12% .18% .28% .20% .21% .39% .22%
expense reimbursements)2,3
Total Portfolio Operating
Expenses (net of fee waivers
and expenses reimbursements)...... .65% .12% .18% .28% .75% .96% 1.14% .97%
===== ===== ===== ===== ===== ===== ===== =====
1 Without fee waivers, investment advisory fees would be .45%, .55%, .75%,
.30%, .55%, .75%, 1.00% and .75% for the Missouri Tax-Exempt Bond, National
Municipal Bond, Equity Income, Equity Index, Growth & Income Equity, Small
Cap Equity, International Equity and Balanced Portfolios, respectively.
2 Without fee waivers, administration fees would be .20% for each Portfolio.
Administrative services fees are payable at an annual rate not to exceed
.25% for the Money Market Portfolios and .30% for the Equity and Bond
Portfolios.
3 Without fee waivers and/or expense reimbursements, Other Expenses would be
.60%, .57%, .63%, .68%, .30%, .31%, .74% and .62% and Total Portfolio
Operating Expenses would be 1.05%, 1.12%, 1.38%, .98%, .85%, 1.06%, 1.74% and
1.37% for the Missouri Tax-Exempt Bond, National Municipal Bond, Equity
Income, Equity Index, Growth & Income Equity, Small Cap Equity,
International Equity and Balanced Portfolios, respectively.
</TABLE>
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<PAGE> 15
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
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:
Treasury Money Market Portfolio..................................... $ 6 $20 $34 $ 76
Money Market Portfolio.............................................. $ 6 $20 $34 $ 76
Tax-Exempt Money Market Portfolio................................... $ 5 $17 $30 $ 66
U.S. Government Securities Portfolio................................ $ 7 $21 $37 $ 83
Intermediate Corporate Bond Portfolio............................... $ 2 $ 7 $13 $ 38
Bond Index Portfolio................................................ $ 2 $ 7 $11 $ 35
Government & Corporate Bond Portfolio............................... $ 7 $21 $36 $ 81
Short-Intermediate Municipal Portfolio.............................. $ 3 $10 $17 $ 39
Missouri Tax-Exempt Bond Portfolio.................................. $ 7 $21 $36 $ 81
National Municipal Bond Portfolio................................... $ 1 $ 4 $ 7 $ 15
Equity Income Portfolio............................................. $ 2 $ 6 $10 $ 53
Equity Index Portfolio.............................................. $ 3 $ 9 $16 $ 45
Growth & Income Equity Portfolio.................................... $ 8 $24 $42 $ 93
Small Cap Equity Portfolio.......................................... $10 $31 $53 $118
International Equity Portfolio...................................... $12 $36 $63 $139
Balanced Portfolio.................................................. $10 $31 $54 $119
</TABLE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN. Information about the actual performance of all
of the Portfolios is contained in the Fund's Annual Report to Shareholders dated
November 30, 1996 which may be obtained without charge by contacting the Fund at
the address or telephone number provided on page __ of this Prospectus.
The purpose of the foregoing tables is to assist in understanding the
various costs and expenses that an investor in a Portfolio's Trust Shares will
bear directly or indirectly. The information contained in such tables with
respect to the Treasury Money Market, Money Market, Tax-Exempt Money Market,
U.S. Government Securities, Government & Corporate Bond, Short-Intermediate
Municipal, Missouri Tax-Exempt Bond, Growth & Income Equity, Small Cap Equity,
International Equity and Balanced Portfolios is based on expenses incurred by
each of these Portfolios during the last fiscal year with respect to its Trust
Shares. Such information with respect to the National Municipal Bond Portfolio
is based on expenses incurred by such Portfolio during the last fiscal year,
restated to reflect the expenses that the Portfolio expects to incur during the
current fiscal year with respect to its Trust Shares. Such information with
respect to the Intermediate Corporate Bond, Bond Index, Equity Income and Equity
Index Portfolios is based on expenses each such Portfolio expects to incur
during the current fiscal year with respect to its Trust Shares. (For more
complete descriptions of the various costs and expenses, see "Management of the
Fund" in this Prospectus and the Statement of Additional Information.) The
Tables and Examples have not been audited by
-11-
<PAGE> 16
the Fund's independent auditors and do not reflect any charges that may be
imposed by financial institutions on their customers.
-12-
<PAGE> 17
FINANCIAL HIGHLIGHTS
The Financial Highlights in the following tables supplement the Fund's
financial statements, which are contained in the Fund's Annual Report to
Shareholders dated November 30, 1996 and [________________________] into the
Statement of Additional Information. The Financial Highlights set forth certain
historic results for Trust Shares of each Portfolio other than the Intermediate
Corporate Bond, Bond Index, Equity Income and Equity Index Portfolios which had
not commenced investment operations as of November 30, 1996. The data for the
years ended November 30, 1989 through 1996, and with respect to the Tax-Exempt
Money Market and Missouri Tax-Exempt Bond Portfolios (and their Predecessor
Portfolios), for the year ended November 30, 1996, the six-month period ended
November 30, 1995 and each of the years or periods ended May 31, 1990 through
1995, has been audited by [____________________], independent auditors, whose
unqualified report insofar as it relates to each of the years or periods in the
five-year period ended November 30, 1996 (the year ended November 30, 1996, the
six-month period ended November 30, 1995 and each of the years or periods in the
four-year period ended May 31, 1995 with respect to the Tax-Exempt Money Market
and Missouri Tax-Exempt Bond Portfolios (and their Predecessor Portfolios)) on
the financial statements containing such information is [______________] into
the Statement of Additional Information. The data for the years ended November
30, 1987 and 1988 and with respect to the Predecessor Tax-Exempt Money Market
and Predecessor Missouri Tax-Exempt Bond Portfolios, for the years ended May 31,
1989 and 1988 and the period ended May 31, 1987, were derived from financial
statements audited by the Fund's and the Trust's prior auditors. Further
information about the performance of the Portfolios is available in the Fund's
Annual Report. Both the Statement of Additional Information and the Annual
Report may be obtained free of charge by contacting the Fund at the address or
telephone number provided on page __ of this Prospectus.
-13-
<PAGE> 18
Treasury Money Market Portfolio
(For a Share(b) outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30, December 2, 1991
------------------------------------------------- to November 30,
1996 1995 1994 1993 1992(a)(b)
---- ---- ---- ---- --------------
Trust Shares Trust Shares Trust Shares Trust Shares Trust Shares
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period........................ $1.00 $1.00 $1.00 $1.00
----- ----- ----- -----
Investment Activities
Net investment income...................... 0.050 0.033 0.026 0.034
----- ----- ----- ------
Distributions
Net investment income...................... (0.050) (0.033) (0.026) (0.034)
----- ----- ----- ------
Net Asset Value, End of Period............... $1.00 $1.00 $1.00 $1.00
===== ======= ======== ======
Total Return................................. 5.12% 3.38% 2.67% 3.16%(c)
Ratios/Supplemental Data:
Net Assets at end of period (000)............ $252,780 $242,099 $256,503 $229,288
Ratio of expenses to average net
assets (including waivers)................. 0.60% 0.49% 0.41% 0.28%(d)
Ratio of net investment income to
average net assets (including
waivers)................................... 5.01% 3.26% 2.64% 3.35%(d)
Ratio of expenses to average net
assets (before waivers)*................... 0.75% 0.94% 0.85% 0.72%(d)
Ratio of net investment income to
average net assets (before
waivers)*.................................. 4.86% 2.82% 2.21% 2.91%(d)
<FN>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Period from commencement of operations.
(b) On December 2, 1991, the Portfolio issued a series of Shares which were
designated as "Trust" Shares. In addition, on April 20, 1992, the
Portfolio issued a second series of Shares which were designated as
"Investor" Shares. On September 27, 1994, the Portfolio redesignated
Investor Shares as "Investor A" Shares.
(c) Not Annualized.
(d) Annualized.
</TABLE>
-14-
<PAGE> 19
<TABLE>
Money Market Portfolio
(For a Share(a) outstanding throughout each period)
Year Ended November 30,
<CAPTION>
1996 1995 1994 1993 1992 1991(a)
---- ---- ---- ---- ---- -------
Trust Trust Trust Trust Trust Trust
Shares Shares Shares Shares Shares Shares
------ ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period......... $1.00 $1.00 $1.00 $1.00 $1.00
----- ------ ------- ------- --------
Investment Activities
Net investment income....... 0.054 0.035 0.026 0.034 0.058
----- ------ -------- -------- --------
Distributions
Net investment income....... (0.054) (0.035) (0.026) (0.034) (0.058)
------- ------- -------- -------- --------
Net Asset Value,
End of Period............... $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== =====
Total Return.................. 5.52% 3.55% 2.72% 3.44% 5.95%
Ratios/Supplemental
Data:
Net Assets at end $698,131 $544,952 $621,717 $574,941 $700,474
of period (000)
Ratio of expenses to
average net assets
(including waivers)......... 0.59% 0.61% 0.59% 0.57% 0.59%
Ratio of net investment
income to average net
assets (including
waivers).................... 5.38% 3.45% 2.70% 3.44% 5.81%
Ratio of expenses to
average net assets
(before waivers)*........... 0.74% 0.93% 0.80% 0.71% 0.67%
Ratio of net investment
income to average net
assets (before
waivers)*................... 5.23% 3.13% 2.49% 3.30% 5.73%
1990 1989 1988 1987
------ ---- ----- -----
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ................ $1.00 $1.00 $ 1.00 $ 1.00
----- ------ ------ ------
Investment Activities
Net investment income .............. 0.078 0.088 0.071 0.062
----- ----- ------ ------
Distributions
Net investment income .............. (0.078) (0.088) (0.071) (0.062)
------ ------ -------- -------
Net Asset Value,
End of Period ...................... $1.00 $1.00 $ 1.00 $ 1.00
===== ===== ======== ======
Total Return ......................... 8.08% 9.21% 7.33%(b) 6.40%(b)
Ratios/Supplemental
Data:
Net Assets at end .................... $896,903 $661,145 $289,764 $220,944
of period (000)
Ratio of expenses to
average net assets
(including waivers) ................ 0.55% 0.45% 0.45% 0.45%
Ratio of net investment
income to average net
assets (including
waivers) ........................... 7.77% 8.82% 7.12% 6.22%
Ratio of expenses to
average net assets
(before waivers)* .................. 0.60% 0.60% 0.58% 0.68%
Ratio of net investment
income to average net
assets (before
waivers)* .......................... 7.72% 8.67% 6.99% 5.99%
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) As of December 1, 1990, the Portfolio designated existing Shares as
"Investor" Shares. In addition, on December 1, 1990, the Portfolio issued a
second series of Shares which were designated as "Trust" Shares. The
financial highlights presented for periods prior to December 1, 1990 are
the financial highlights applicable to Investor Shares. On September 27,
1994 the Portfolio redesignated the Investor Shares as "Investor A" Shares.
(b) Unaudited.
</TABLE>
-15-
<PAGE> 20
Tax-Exempt Money Market Portfolio(a)
(For a Share(b) outstanding throughout each period)
<TABLE>
<CAPTION>
Year Six Months Period
Ended Ended Year Ended May 31, Ended
November 30, November 30,--------------------------------------------------------------------------- May 31,
1996 1995(f) 1995 1994 1993 1992 1991(b) 1990(b) 1989(b) 1988(b) 1987(a),(b)
-------- ---------- ---- ---- ---- ---- ------- ------- ------- ------- ----------
Trust Trust Trust Trust Trust Trust Trust Trust Trust Portfolio
Shares Shares Shares Shares Shares Shares Shares Shares Shares Shares
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----- -------- -------- --------- -------- -------- ------- ------- --------- -------
Investment Activities
Net investment income... 0.016 0.029 0.020 0.021 0.034 0.031 0.056 0.056 0.043 0.036
------ ------- ------- -------- -------- -------- ------- ------- -------- -------
Distributions (0.016) (0.029) (0.020) (0.021) (0.034) (0.031) (0.056) (0.056) (0.043) (0.036)
Net investment income... ------- ------- -------- -------- -------- --------- -------- -------- --------- --------
Net Asset Value, End of $1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $1.00 $ 1.00 $ 1.00
Period.................. ====== ======== ======== ========= ========= ========= ======== ======= ========= =======
Total Return.............. 1.57%(d) 2.93% 1.97% 2.16% 3.44% 2.25% 5.71% 5.74% 4.35% 3.80%(d)
Ratios/Supplemental Data:
Net Assets at end of
period (000)............ $78,031 $85,324 $112,594 $137,602 $126,079 $137,847 $132,407 $70,153 $72,120 $147,799
Ratio of expenses to
average net asset
(including waivers)..... 0.70%(e) 0.61% 0.52% 0.52% 0.59% 0.58% 0.51% 0.45% 0.45% 0.37%(c),(e)
Ratio of net investment
income to average net
assets (including waivers) 3.10%(e) 2.87% 1.95% 2.13% 3.38% 4.65% 5.57% 5.59% 4.27% 4.02%(c),(e)
Ratio of expenses to average
net assets (before
waivers)*............... 0.75%(e) 0.70% 0.86% 0.62% 0.69% 0.68% 0.61% 0.63% 0.60% 0.62%(c),(e)
Ratio of net investment
income to average net
assets (before
waivers)*............... 3.05%(e) 2.78% 1.61% 2.03% 3.28% 4.55% 5.47% 5.41% 4.12% 3.77%(c),(e)
- --------------
<FN>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) The Portfolio commenced operations on July 10, 1986 as a portfolio of The
ARCH Tax-Exempt Trust. On October 2, 1995, it was reorganized as a new
portfolio of the Fund.
(b) "Trust" Shares were originally issued as "Money" Shares. As of September 28,
1990, the Portfolio issued a second series of Shares which were designated
as "Trust" Shares. The financial highlights presented for periods prior to
September 28, 1990 are the financial highlights applicable to Money Shares.
(c) Includes waiver of sub-advisory fees for the period ended May 31, 1987.
(d) Not Annualized.
(e) Annualized.
(f) Upon its reorganization as a portfolio of the Fund, the Portfolio changed
its fiscal year-end from May 31 to November 30.
</TABLE>
-16-
<PAGE> 21
U.S. Government Securities Portfolio
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
----------------------------------------------------------------------------------- June 2,
1996 1995 1994 1993 1992 1991(a) 1988
---- ---- ---- ---- ---- ------- to
Trust Trust Trust Trust Trust Trust Nov. 30,
Shares Shares Shares Shares Shares Shares 1990 1989 1988(b)
------ ------ ------ ------ ------ ------ ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period........ $10.05 $11.20 $10.80 $10.68 $10.42 $10.06 $ 9.94 $10.00
------ ------- -------- ------ ------- ------- ------- -------
Investment Activities
Net investment income...... 0.67 0.66 0.62 0.66 0.64 0.76 0.85 0.28
Net realized and
unrealized gains
(losses) from
investments................ 0.80 (0.97) 0.47 0.13 0.26 (0.16) 0.11 0.06
---- ------- -------- ------ ------- ------- ------- -------
Total from Investment
Activities................. 1.47 (0.31) 1.09 0.79 0.90 (0.92) 0.96 0.34
---- ------- -------- ------ ------- ------- ------- -------
Distributions
Net investment income...... (0.67) (0.66) (0.62) (0.66) (0.64) (0.77) (0.84) (0.09)
Net realized gains......... (0.07) (0.01)
In excess of net
realized gains............ (0.18)
------ ------- -------- ------ ------- ------- ------- -------
Total Distributions....... (0.67) (0.84) (0.69) (0.67) (0.64) (0.77) (0.84) (0.09)
------ ------- ------- ------- ------ ------- ------- --------
Net Asset Value,
End of Period.............. $10.85 $10.05 $11.20 $10.80 $10.68 $10.21 $10.06 $10.25
====== ======== ======= ======= ======= ======= ======= =======
Total Return................. 15.00% (2.85)% 10.36% 7.52% 12.62% 9.66% 10.04% 3.45%(c),(d)
Ratios/Supplemental
Data:
Net Assets at end of
period (000)............... $ 45,513 $ 33,166 $ 35,121 $ 31,106 $ 21,484 $ 6,856 $ 5,954 $10,890
Ratio of expenses to
average net assets......... 0.67% 0.66% 0.67% 0.65% 0.56% 0.73% 0.74% 0.41%(e)
Ratio of net investment
income to average net
assets..................... 6.36% 6.25% 5.57% 6.02% 7.26% 7.80% 8.50% 5.62%(e)
Ratio of expenses to
average net assets
(before waivers)*.......... 0.77% 1.06% 0.91% 0.79% 1.11% 1.28% 1.29% 1.12%(e)
Ratio of net investment
income to average
net assets (before
waivers)*.................. 6.26% 5.85% 5.33% 5.88% 6.71% 7.25% 7.95% 4.91%(e)
Portfolio turnover........... 93.76% 50% 24% 74% 36% 53% 84% 30%
- ----------------
<FN>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. In addition, on February 1, 1991, the
Portfolio issued a second series of Shares which were designated as
"Trust" Shares. The financial highlights presented for the periods prior
to February 1, 1991 are the financial highlights applicable to Investor
Shares. On September 27, 1994, the Portfolio redesignated the Investor
Shares as "Investor A" Shares.
(b) Period from commencement of operations.
(c) Unaudited.
(d) Not Annualized.
(e) Annualized.
</TABLE>
-17-
<PAGE> 22
Government & Corporate Bond Portfolio
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
----------------------------------------------------------------------------------------- June 15
1996 1995 1994 1993 1992 1991(a) 1988 to
---- ---- ---- ---- ---- ------- November
Trust Trust Trust Trust Trust Trust 30,
Shares Shares Shares Shares Shares Shares 1990 1989 1988(b)
------ ------ ------ ------ ------ ------ ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of 9.64 $10.65 $10.26 $10.15 $ 9.84 $10.12 $ 9.91 $10.00
Period................. -------- -------- ------- ------- ------- ------- -------
Investment
Activities
Net investment 0.64 0.63 0.68 0.70 0.64 0.84 0.89 0.39
income................
Net realized and
unrealized gains
(losses) from 0.89 (0.94) 0.39 0.11 0.31 (0.41) 0.22 (0.13)
investments........... ---- -------- ------- ------- ------- ------- ------- --------
Total from
Investment 1.53 (0.31) 1.07 0.81 0.95 0.43 1.11 0.26
Activities............ ---- -------- ------- ------- ------- ------ ------- -------
Distributions
Net investment
income................ (0.64) (0.63) (0.68) (0.70) (0.64) (0.84) (0.90) (0.35)
In excess of net ------
realized gains........ (0.07)
------ ------ ------- ------- ------- ------- ------- ------
Total
Distributions......... (0.64) (0.70) (0.68) (0.70) (0.64) (0.84) (0.90) (0.35)
------ ------ ------- ------- ------- ------- ------- ------
Net Asset Value, End
of Period............. $10.53 $9.64 $10.65 $10.26 $10.15 $ 9.71 $10.12 $9.91
====== ======== ======= ======= ======= ======= ======= =====
Total Return............. 16.31% (3.03)% 10.55% 8.14% 13.04% 4.96% 11.79% 2.66%(c)(d)
Ratios/Supplemental
Data:
Net Assets at end of
period (000)........... $127,741 $132,577 $149,674 $135,404 $89,975 $11,005 $10,327 $7,483
Ratio of expenses to
average net assets
(including
waivers)............... 0.65% 0.65% 0.65% 0.63% 0.36% 0.53% 0.44% 0.56%(e)
Ratio of net
investment
income to average
net assets
(including
waivers)............... 6.32% 6.25% 6.32% 6.73% 7.51% 8.69% 8.97% 8.47%(e)
Ratio of expenses to
average net assets
(before waivers)*...... 0.75% 1.05% 0.88% 0.76% 0.91% 1.08% 0.99% 1.17%(e)
Ratio of net
investment income
to average net
assets (before
waivers)*.............. 6.22% 5.85% 6.09% 6.60% 6.96% 8.14% 8.42% 7.86%(e)
Portfolio turnover....... 59.32% 50% 31% 52% 105% 75% 148% 22%
- ------------------
<FN>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. In addition, on February 1, 1991, the
Portfolio issued a second series of Shares which were designated as "Trust"
Shares. The financial highlights presented for periods prior to February 1,
1991 are the financial highlights applicable to Investor Shares. On
September 27, 1994 the Portfolio redesignated the Investor Shares as
"Investor A" Shares.
(b) Period from commencement of operations.
(c) Unaudited.
(d) Not Annualized.
(e) Annualized.
</TABLE>
-18-
<PAGE> 23
Short-Intermediate Municipal Portfolio
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
July 10, 1995 to
Year Ended November 30,
November 30, 1996 1995(a)
----------------- -------
Trust Shares Trust Shares
------------- ------------
<S> <C> <C>
Net Asset Value,
Beginning of Period .......................... $ 10.00
Investment Activities ----------
Net investment
income (loss) ............................... 0.14
Net realized and
unrealized gains
(losses) from
investments ................................. 0.07
----------
Total from Investment
Activities .................................. 0.21
----------
Distributions
Net investment income ........................
Net realized gains ........................... (0.14)
In excess of realized
gains .......................................
----------
Total Distributions
----------
Net Asset Value,
End of Period ................................ $ 10.07
==========
Total Return ................................... 2.15%(b)
Ratios/Supplemental
Data:
Net Assets at end of
period (000) ................................. $ 23,754
Ratio of expenses to
average net assets
(including waivers) .......................... 0.47%(c)
Ratio of net
investment income to
average net assets
(including waivers) ........................... 3.81%
Ratio of expenses to
average net assets
(before waivers)* ............................. 1.12%(c)
Ratio of net investment
income to average net
assets (before
waivers)* .................................... 3.16%(c)
Portfolio turnover ............................. 0.00%
- -----------------
<FN>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been
as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
</TABLE>
-19-
<PAGE> 24
Missouri Tax-Exempt Bond Portfolio(a)
(For a Share(b) outstanding throughout each period)
<TABLE>
<CAPTION>
Year Six Months Period
Ended Ended Year Ended May 31, Ended
November 30, November 30, --------------------------------------------------------- May 31,
1996 1995(c) 1995 1994 1993 1992 1991(b) 1990(b) 1989(a)(b)
---------- ---------- ---- ---- ---- ---- ------- ------- ---------
Trust Trust Trust Trust Trust Trust Portfolio Portfolio Portfolio
Shares Shares Shares Shares Shares Shares Shares Shares Shares
------ ------ ------ ------ ------ ------ --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ............. $ 11.52 $ 11.13 $ 11.54 $ 10.97 $ 10.62 $ 10.50 $ 10.56 $ 10.00
------- ------- ------- ------- ------- ------- ------- --------
Investment Activities:
Net investment income ........... 0.28 0.57 0.58 0.60 0.64 0.67 0.68 0.58
Net realized and unrealized gains
(losses) on investments .......... 0.22 0.40 (0.37) 0.64 0.43 0.24 (0.09) 0.58
------- ------- ------- ------- ------- ------- ------- --------
Total from Investment Activities 0.50 0.97 0.21 1.24 1.07 0.91 0.59 1.16
-------
Distributions
Net investment income ........... (0.28) (0.57) (0.58) (0.60) (0.64) (0.70) (0.65) (0.60)
Net realized gains .............. (0.01) (0.04) (0.07) (0.08) (0.09) 0.00 0.00
------- ------- ------- ------- ------- ------- ------- --------
Total Distributions ............ (0.28) (0.58) (0.62) (0.67) (0.72) (0.79) (0.65) 0.00
------- ------- ------- ------- ------- ------- ------- --------
Net Asset Value, End of
Period .......................... $ 11.74 $ 11.52 $ 11.13 $ 15.54 $ 10.97 $ 10.62 $ 10.58 $ 10.56
======= ======= ======= ======= ======= ======= ======= ========
Total Return ...................... 4.41%(d) 9.12% 1.73% 11.70% 10.37% 9.08% 5.50% 12.08%(d)
Ratios/Supplemental Data:
Net Assets at end of
period (000) .................... $47,773 $44,336 $47,743 $32,777 $ 6,609 $ 4,735 $ 4,568 $ 4,053
Ratio of expenses to
average net assets (including
waivers) ........................ 0.78%(e) 0.64% 0.45% 0.43% 0.73% 0.70%(e) 0.70% 0.81%(e)
Ratio of net investment
income to average net
assets (including
waivers) ........................ 4.83%(e) 5.22% 4.96% 5.30% 5.87% 6.37%(e) 6.38% 6.36%(e)
Ratio of expenses to average net
assets (before waivers)* ........ 0.88%(e) 1.16% 1.13% 0.98% 1.38% 1.66% 1.70% 1.38%(e)
Ratio of net investment income ....
to average net assets (before
waivers)* ....................... 4.73%(e) 4.70% 4.28% 4.75% 5.22% 5.41% 5.38% 5.79%(e)
Portfolio turnover rate ........... 1.55% 0% 20% 15% 21% 71% 41% 73%
- ---------------
<FN>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) The Portfolio (formerly, the Long-Term Tax-Exempt Portfolio) commenced
operations on July 15, 1988 as a portfolio of The ARCH Tax-Exempt Trust. On
October 2, 1995, it was reorganized as a new portfolio of the Fund.
(b) The Portfolio had one class of Shares outstanding ("Portfolio Shares")
through September 27, 1990. As of September 28, 1990 the Portfolio issued a
second class of Shares and designated such Shares as "Trust" Shares. The
financial highlights presented for periods prior to September 28, 1990
represent the financial highlights applicable to Portfolio Shares.
(c) Upon its reorganization as a portfolio of the Fund, the Portfolio changed
its fiscal-year end from May 31 to November 30.
(d) Not Annualized.
(e) Annualized.
</TABLE>
-20-
<PAGE> 25
National Municipal Bond Portfolio
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
November 18, 1996
to
November 30, 1996(a)
--------------------
Trust Shares
------------
<S> <C>
Net Asset Value,
Beginning of Period...........................................
Investment Activities
Net Investment
income (loss)...............................................
Net realized and
unrealized gains
(losses) from
investments.................................................
Total from Investment
Activities....................................................
Distributions
Net investment income.........................................
Net realized gains............................................
In excess of realized
gains.......................................................
Total Distributions...........................................
Net Asset Value,
End of Period.................................................
Total Return....................................................
Ratios/Supplemental
Data:
Net Assets at end of
period (000)..................................................
Ratio of expenses to
average net assets
(including waivers)...........................................
Ratio of net
investment income to
average net assets
(including waivers)...........................................
Ratio of expenses to
average net assets
(before waivers)*.............................................
Ratio of net investment
income to average net
assets (before
waivers)*.....................................................
Portfolio turnover..............................................
- -------------
<FN>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been
as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
</TABLE>
-21-
<PAGE> 26
Growth & Income Equity Portfolio
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30, June 2,
-------------------------------------------------------------------------------------- 1988
1996 1995 1994 1993 1992 1991(a) to
---- ---- ---- ---- ---- ------- November
Trust Trust Trust Trust Trust Trust 30,
Shares Shares Shares Shares Shares Shares 1990 1989 1988(b)
------ ------ ------ ------ ------ ------ ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period........ $12.72 $14.74 $14.49 $12.33 $12.24 $12.41 $10.25 $10.00
------ ------- -------- ------ ------- ------- -------- -------
Investment Activities
Net investment income...... 0.27 0.22 0.25 0.24 0.22 0.39 0.41 0.28
Net realized and
unrealized gains
(losses) from
investments................ 3.74 (0.17) 1.06 2.25 0.03 (0.56) 2.29 0.06
---- ------- ------ -------- ------- ------- ------- -------
Total from Investment
Activities................. 4.01 0.05 1.31 2.49 0.25 (0.17) 2.70 0.34
---- ------- ------ -------- ------- ------- ------- -------
Distributions
Net investment income...... (0.27) (0.21) (0.25) (0.26) (0.16) (0.39) (0.51) (0.09)
Net realized gains......... (0.14) (0.18) (0.81) (0.07) (0.63) (0.03)
In excess of net
realized gains............ (1.68)
------ ------- ------- ------- ------ ------- ------- ---------
Total Distributions....... (0.41) (2.07) (1.06) (0.33) (0.16) (1.02) (0.54) (0.09)
------ ------- ------- ------- ------ ------- ------- ---------
Net Asset Value,
End of Period.............. $16.32 $12.72 $14.74 $14.49 $12.33 $11.22 $12.41 $10.25
====== ======== ======= ======= ======= ======= ======= ========
Total Return................. 32.27% 0.36% 9.65% 20.59% 17.39% (1.36)% 27.11% 3.45%(c),(d)
Ratios/Supplemental
Data:
Net Assets at end of
period (000)............... $286,546 $235,955 $238,771 $232,967 $139,021 $20,116 $17,892 $10,890
Ratio of expenses to
average net assets......... 0.75% 0.75% 0.74% 0.71% 0.27% 0.35% 0.42% 0.41%(e)
Ratio of net investment
income to average net
assets..................... 1.89% 1.72% 1.74% 1.94% 2.56% 3.42% 3.69% 5.62%(e)
Ratio of expenses to
average net assets
(before waivers)*.......... 0.85% 1.15% 0.96% 0.85% 0.91% 1.00% 1.07% 1.12%(e)
Ratio of net investment
income to average
net assets (before
waivers)*.................. 1.79% 1.32% 1.52% 1.80% 1.92% 2.77% 3.04% 4.91%(e)
Portfolio turnover........... 58.50% 65% 41% 79% 78% 227% 133% 30%
<FN>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. In addition, on April 1, 1991, the Portfolio
issued a second series of Shares which were designated as "Trust" Shares.
The financial highlights presented for the periods prior to December 1,
1990 are the financial highlights applicable to Investor Shares. On
September 27, 1994, the Portfolio redesignated the Investor Shares as
"Investor A" Shares.
(b) Period from commencement of operations.
(c) Unaudited.
(d) Not Annualized.
(e) Annualized.
</TABLE>
-22-
<PAGE> 27
For a Share outstanding throughout each period
<TABLE>
<CAPTION>
Small Cap Equity Portfolio(a) International Equity Portfolio
Year Ended Year Ended Year Ended Year Ended May 1, Year Ended Year Ended
Nov. 30, Nov. 30, Nov. 30, Nov. 30, 1992 Nov. 30, Nov. 30, April 4, 1994
-------- -------- -------- -------- to Nov. 30, -------- -------- to Nov. 30,
1996 Trust 1995 Trust 1994 Trust 1993 Trust 1992(b) 1996 Trust 1995 Trust 1994(b)
---------- ---------- ---------- ---------- ------- ---------- ---------- -------
Shares Shares Shares Shares Trust Shares Shares Shares Trust Shares
------ ------ ------ ------ ------------ ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period........ $12.01 $13.14 $11.23 $10.10 $ 9.92 $10.00
------ ------ ------ ------ ------ ------
Investment Activities
Net investment
income (loss)............. 0.03 (0.01) 0.03 0.04 0.03 0.01
Net realized and
unrealized gains
(losses) from
investments and foreign 2.36 0.89 2.14 1.21 0.86 (0.09)
currency.................. ---- ----- ------ ------ ----- ------
Total from Investment 2.39 0.88 2.17 1.25 (0.89) (0.08)
Activities................ ---- ----- ------ ------ ------ ------
Distributions
Net investment income...... (0.05) (0.02) (0.01)
Net realized gains......... (0.91) (1.78) (0.21)
In excess of realized
gains..................... (0.23) (0.01)
------ ------ ------ ------ ------ ------
Total Distributions....... (0.91) (2.01) (0.26) (0.02) (0.02)
------ ------ ------ ------ ------ ------
Net Asset Value,
End of Period.............. $13.49 $12.01 $13.14 $11.23 $10.79 $ 9.92
====== ====== ====== ====== ====== ======
Total Return................. 21.70% 7.56% 19.75% 12.55%(c) 8.97% (0.80%)(c)
Ratios/Supplemental
Data:
Net Assets at end of
period (000)............... $139,681 $77,690 $47,473 $26,829 $36,096 $23,746
Ratio of expenses to
average net assets
(including waivers)........ 0.96% 0.95% 0.61% 0.30%(d) 1.16% 1.23%(d)
Ratio of net
investment income to
average net assets
(including waivers)......... 0.18% (0.16)% 0.19% 0.78%(d) 0.39% 0.23%(d)
Ratio of expenses to
average net assets
(before waivers)*........... 1.06% 1.36% 1.23% 1.12%(d) 1.46% 1.95%(d)
Ratio of net investment
income to average net
assets (before
waivers)*.................. 0.08% (0.56)% (0.43)% (0.04)%(d) 0.09% (0.49%)(d)
Portfolio turnover........... 83.13% 85% 65% 56% 62.78% 21%
</TABLE>
-23-
<PAGE> 28
- ---------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) The Emerging Growth Portfolio changed its name to Small Cap Equity
Portfolio on December 1, 1996.
(b) Period from commencement of operations.
(c) Not Annualized.
(d) Annualized.
-24-
<PAGE> 29
Balanced Portfolio
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended Year Ended April 1, 1993
Year Ended Nov. 30, Nov. 30, to Nov. 30,
Nov. 30, 1996 1995 Trust 1994 Trust 1993(a)
--------------- ------------- ---------- -------------
Trust Shares Shares Shares Trust Shares
--------------- ------------- ---------- -------------
<S> <C> <C> <C>
Net Asset Value, $10.22 $10.00
Beginning of Period.............. $9.62 ------
-----
Investment Activities
Net Investment
income (loss).................. 0.34 0.29 0.23
Net realized and
unrealized gains
(losses) from
investments.................... 2.02 (0.47) 0.15
---- ------ ----
Total from Investment
Activities....................... 2.36 (0.18) 0.38
---- ------ ----
Distributions
Net investment income............ (0.34) (0.29) (0.16)
Net realized gains...............
In excess of realized
gains.......................... (0.13)
------ ------ ------
Total Distributions.............. (0.34) (0.42) (0.16)
------ ------ ------
Net Asset Value,
End of Period.................... $11.64 $9.62 $10.22
====== ===== ======
Total Return....................... 24.97% (1.81)% 3.86%(b)
Ratios/Supplemental
Data:
Net Assets at end of
period (000)..................... $72,669 $65,286 $69,720
Ratio of expenses to
average net assets
(including waivers).............. 0.98% 0.97% 0.56%(c)
Ratio of net
investment income to
average net assets
(including waivers).............. 3.29% 3.04% 3.42%(c)
Ratio of expenses to
average net assets
(before waivers)*................ 1.08% 1.39% 1.21%(c)
Ratio of net investment
income to average net
assets (before
waivers)*........................ 3.19% 2.63% 2.77%(c)
Portfolio turnover................. 58.16% 49% 26%
- -----------------
<FN>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been
as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
</TABLE>
-25-
<PAGE> 30
INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS
Although management will use its best efforts to achieve the
investment objective of each Portfolio, there can be no assurance that it will
be able to do so. The investment objective of each Portfolio, other than the
Bond Index and Equity Index Portfolios, may not be changed without the
affirmative vote of a majority of the outstanding Shares of the Portfolio. The
investment objectives of the Bond Index and Equity Index Portfolios may be
changed by the Fund's Board of Directors without shareholder approval, although
shareholders of these Portfolios will be given at least 30 days' written notice
before any such change occurs. The Treasury Money Market, Money Market and
Tax-Exempt Money Market Portfolios are "money market" funds that invest in
instruments with remaining maturities of 397 days or less (with certain
exceptions) and with dollar-weighted average portfolio maturities of 90 days or
less, subject to the quality, diversification and other requirements of Rule
2a-7 under the Investment Company Act of 1940, as amended, (the "1940 Act") and
other rules of the Securities and Exchange Commission (the "SEC").
THE TREASURY MONEY MARKET PORTFOLIO
The Treasury Money Market Portfolio's investment objective is to seek a
high level of current income exempt from state income tax consistent with
liquidity and security of principal. In pursuing its investment objective, the
Portfolio invests in selected money market obligations issued by the U.S.
Government (or its agencies and instrumentalities) that are guaranteed as to
principal and interest by the U.S. Government, the interest on which is
generally exempt from state income tax. Securities that are generally eligible
for this exemption include those issued by the U.S. Treasury (bills,
certificates of indebtedness, notes and certain bonds) and certain U.S.
Government agencies and instrumentalities, including the General Services
Administration and Small Business Administration. Each investor should consult
his or her tax advisor to determine whether distributions from the Portfolio are
exempt from state income tax in the investor's home state. Under normal market
conditions, the Portfolio intends to invest substantially all (but not less than
65%) of its total assets in securities with the above characteristics and
(except to the extent discussed below) will not enter into repurchase agreements
or purchase any U.S. Government security that the Adviser believes is subject to
state income tax.
Under extraordinary circumstances, such as when appropriate exempt
securities are unavailable or pending investment, the Treasury Money Market
Portfolio may temporarily hold cash or invest in repurchase agreements
collateralized by U.S. Government securities, other U.S. Government agency or
instrumentality securities, securities of other investment companies that invest
-26-
<PAGE> 31
in securities in which the Portfolio is permitted to invest, or cash
equivalents.
THE MONEY MARKET PORTFOLIO
The Money Market Portfolio's investment objective is to seek current
income with liquidity and stability of principal. In pursuing its investment
objective, the Portfolio invests substantially all of its assets in a broad
range of money market instruments. These instruments include obligations of the
U.S. Government, U.S. dollar-denominated foreign securities, obligations of U.S.
and foreign banks and savings and loan institutions and commercial obligations
that meet the applicable quality requirements described below.
The Money Market Portfolio will purchase only "First Tier Eligible
Securities" (as defined by the SEC) that present minimal credit risks as
determined by the Adviser pursuant to guidelines approved by the Fund's Board of
Directors. First Tier Eligible Securities consist of (i) securities that either
(a) have short-term debt ratings at the time of purchase in the highest rating
category by at least two unaffiliated nationally recognized statistical rating
organizations ("Rating Agencies") (or one Rating Agency if the security was
rated by only one Rating Agency), or (b) are issued by issuers with such
ratings, and (ii) certain securities that are unrated (including securities of
issuers that have long-term but not short-term ratings) but are of comparable
quality as determined in accordance with guidelines approved by the Board of
Directors. The applicable ratings by Rating Agencies are described in Appendix A
to the Statement of Additional Information. The following descriptions
illustrate the types of instruments in which the Portfolio invests.
BANKING OBLIGATIONS. The Money Market Portfolio may purchase
obligations of issuers in the banking industry, such as certificates of deposit,
letters of credit, bankers' acceptances and time deposits, including U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions having total assets at the time of
purchase in excess of $1 billion. The Portfolio may invest in obligations of
foreign banks or foreign branches of U.S. banks in amounts not in excess of 25%
of its assets where the Adviser deems the instrument to present minimal credit
risks. (See "Risk Factors -- Risks Associated with Foreign Securities and
Currencies" below.) The Portfolio may also make interest-bearing savings
deposits in commercial and savings banks in amounts not in excess of 5% of the
value of its total assets.
COMMERCIAL PAPER AND VARIABLE AND FLOATING RATE INSTRUMENTS. The
Portfolio may invest in commercial paper, including asset-backed commercial
paper representing interests in a pool of corporate receivables,
dollar-denominated obligations issued by
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<PAGE> 32
domestic and foreign bank holding companies, and corporate bonds that meet the
quality and maturity requirements described above. The Portfolio may also invest
in variable or floating rate notes that may have a stated maturity in excess of
thirteen months but will, in any event, permit the Portfolio to demand payment
of the principal of the instrument at least once every thirteen months upon no
more than 30 days' notice (unless the instrument is guaranteed by the U.S.
Government or an agency or instrumentality thereof). Such instruments may
include variable amount master demand notes, which are unsecured instruments
that permit the indebtedness thereunder to vary in addition to providing for
periodic adjustments in the interest rate. Unrated variable and floating rate
instruments will be determined by the Adviser (under the supervision of the
Board of Directors) to be of comparable quality at the time of purchase to First
Tier Eligible Securities. There may be no active secondary market in the
instruments, which could make it difficult for the Portfolio to dispose of an
instrument in the event the issuer were to default on its payment obligation or
during periods that the Portfolio could not exercise its demand rights. The
Portfolio could, for these or other reasons, suffer a loss with respect to such
instruments. Variable and floating rate instruments held by the Portfolio will
be subject to the Portfolio's 10% limitation on illiquid investments when the
Portfolio may not demand payment of the principal amount within seven days and a
liquid trading market is absent.
GOVERNMENT OBLIGATIONS. The Money Market Portfolio may invest in
obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities. In addition, the Portfolio may, when deemed appropriate by
the Adviser, invest in short-term obligations issued by state and local
governmental issuers that meet the quality requirements described above and, as
a result of the Tax Reform Act of 1986, carry yields that are competitive with
those of other types of money market instruments of comparable quality.
THE TAX-EXEMPT MONEY MARKET PORTFOLIO
The Tax-Exempt Money Market Portfolio's investment objective is to seek
as high a level of current interest income exempt from federal income tax as is
consistent with liquidity and stability of principal. The Portfolio seeks to
achieve its objective by investing substantially all of its assets in short-term
obligations issued by or on behalf of states, territories and possessions of the
United States, the District of Columbia and their respective political
subdivisions, agencies, instrumentalities and authorities the interest on which,
in the opinion of bond counsel or counsel to the issuer, is exempt from regular
federal income tax (collectively, "Municipal
-28-
<PAGE> 33
Obligations"). The Portfolio my also hold tax-exempt derivative securities such
as tender option bonds, participations, beneficial interests in trusts and
partnership interests
The Tax-Exempt Money Market Portfolio will purchase only "First Tier
Eligible Securities" (as defined by the SEC) that present minimal credit risks
as determined by the Adviser pursuant to guidelines approved by the Board of
Directors. See "The Money Market Portfolio" above for a description of "First
Tier Eligible Securities".
Dividends paid by the Tax-Exempt Money Market Portfolio that are
derived from interest attributable to tax-exempt obligations of a particular
state and its political subdivisions as well as of certain other governmental
issuers including Puerto Rico, Guam and the Virgin Islands may be exempt from
federal and state income tax. Dividends derived from interest on obligations of
other governmental issuers are exempt from federal income tax but may be subject
to state income tax.
As a matter of fundamental policy, under normal market conditions or
when the Adviser deems suitable tax-exempt Municipal Obligations to be
available, at least 80% of the Tax-Exempt Money Market Portfolio's total assets
will be invested in Municipal Obligations. The Portfolio may hold uninvested
cash reserves pending investment during temporary defensive periods or if, in
the opinion of the Adviser, suitable Municipal Obligations are unavailable.
There is no percentage limitation on the amount of assets which may be held
uninvested during temporary defensive periods.
In addition, during temporary defensive periods or if, in the opinion
of the Adviser, suitable Municipal Obligations are unavailable and subject to
the quality standards described above, the Tax-Exempt Money Market Portfolio may
invest up to 20% of its assets in money market instruments, the income from
which is subject to federal income tax. Such instruments may include obligations
of the U.S. Government, its agencies or instrumentalities; debt securities
(including commercial paper) of issuers having, at the time of purchase, a
quality rating within the highest rating category by a Rating Agency;
certificates of deposit or bankers' acceptances of domestic branches of U.S.
banks with total assets at the time of purchase of $1 billion or more; or
repurchase agreements with respect to such obligations.
THE U.S. GOVERNMENT SECURITIES PORTFOLIO
The U.S. Government Securities Portfolio's investment objective is to
seek a high rate of current income that is consistent with relative stability of
principal. In pursuing its investment objective, the Portfolio invests in
obligations
-29-
<PAGE> 34
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
normally having remaining maturities of 1 to 30 years and repurchase agreements
relating to such obligations . (For further information, see "Other Applicable
Policies -- U.S. Government Obligations" below.)
Consistent with its investment policies, the U.S. Government
Securities Portfolio may invest in mortgage-backed securities, including those
representing an undivided ownership interest in a pool of mortgage loans, such
as certificates issued by the Government National Mortgage Association ("GNMA"),
the Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC") and collateralized mortgage obligations ("CMOs").
For further information regarding these instruments, see "Other Applicable
Policies -- Asset-Backed Securities" below.
THE INTERMEDIATE CORPORATE BOND PORTFOLIO
The Intermediate Corporate Bond Portfolio's investment objective is to
seek as high a level of current income as is consistent with preservation of
capital. In pursuing its investment objective, the Portfolio will invest, under
normal market and economic conditions, at least 65% of its total assets in
non-convertible corporate debt obligations, which shall mean obligations of (i)
domestic or foreign business corporations, or (ii) agencies, instrumentalities
or authorities which are organized in corporate form by one or more states or
political subdivisions in the United States or one or more foreign governments.
The Portfolio may also invest in obligations issued or guaranteed by the U.S. or
foreign governments, their agencies or instrumentalities, and asset-backed
securities, including various collateralized mortgage obligations and other
mortgage-related securities. For further information regarding these
instruments, see "Other Applicable Policies -- Asset-Backed Securities" below.
In making investment decisions, the Adviser will consider a number of factors
including current yield, maturity, yield to maturity, anticipated changes in
interest rates, and the overall quality of the investment. The Portfolio seeks
to provide a current yield greater than that generally available from money
market instruments.
The Portfolio may purchase debt securities which are rated at the time
of purchase in one of the four highest rating categories assigned by one or more
Rating Agencies or in unrated debt securities deemed by the Adviser to be of
comparable quality. Under normal market and economic conditions, however, the
Portfolio intends to invest at least 65% of its total assets in debt obligations
rated in one of the three highest rating categories assigned by one or more
Rating Agencies (or unrated debt obligations determined to be of comparable
quality). Securities that are rated in the lowest of the four highest
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<PAGE> 35
rating categories have speculative characteristics, even though they are of
investment grade quality, and such securities will be purchased (and retained)
only if the Adviser believes that the issuers have an adequate capacity to pay
interest and repay principal. Unrated debt securities 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. Debt
securities 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 to 60 days. The applicable ratings
issued by the Rating Agencies are described in the Appendix to the Statement of
Additional Information.
The Portfolio reserves the right to hold as a temporary defensive
measure up to 100% of its total assets in cash and short-term obligations
(having remaining maturities of 13 months or less) at such times and in such
proportions as, in the opinion of the Adviser, prevailing market or economic
conditions warrant. Short-term obligations in which the Portfolio may invest
include (i) money market instruments, such as commercial paper, including
variable and floating rate instruments, rated at the time of purchase in one of
the two highest rating categories assigned by a Rating Agency or, if unrated,
deemed to be of comparable quality by the Adviser at the time of purchase, and
bank obligations, including bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits of U.S. and foreign banks having total
assets at the time of purchase in excess of $1 billion, (ii) obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, and
(iii) repurchase agreements. For further information regarding variable and
floating rate instruments, see "The Money Market Portfolio -- Commercial Paper
and Variable and Floating Rate Instruments" above. Although the Portfolio will
invest in obligations of foreign banks or foreign branches of U.S. banks only
when the Adviser determines that the instrument presents minimal credit risks,
such investments nevertheless entail risks that are different from those of
investments in domestic obligations of U.S. banks. See "Risk Factors -- Risks
Associated with Foreign Securities and Currencies" below. Investments in the
obligations of foreign banks or foreign branches of U.S. banks will not exceed
25% of the Portfolio's total assets at the time of purchase.
The Portfolio's average weighted maturity will be between three and ten
years and will vary in light of current market and economic conditions, the
comparative yields on instruments with different maturities, and other factors.
-31-
<PAGE> 36
THE BOND INDEX PORTFOLIO
The Bond Index Portfolio seeks to provide investment results that,
before deduction of operating expenses, approximate the price and yield
performance of U.S. Government, mortgage-backed, asset-backed and corporate debt
securities as represented by the Lehman Brothers Aggregate Bond Index (the
"Lehman Aggregate").
The Portfolio is not managed in a traditional sense, that is, by making
discretionary judgments based on analysis of economic, financial and market
conditions. Instead, the Portfolio uses an investment strategy called "indexing"
whereby it seeks to approximate the investment performance of the market segment
comprised of U.S. Government, mortgage-backed, asset-backed and corporate debt
securities, as represented by the Lehman Aggregate, through the use of
sophisticated computer models to determine which securities should be purchased
or sold, while keeping transaction and administrative costs to a minimum. The
Portfolio will invest substantially all of its total assets in securities listed
in the Lehman Aggregate, including without limitation, asset-backed securities.
For further information regarding asset-backed securities see "Other Applicable
Policies -- Asset-Backed Securities" below. The Adviser generally selects
securities for the Portfolio on the basis of their weightings in the Lehman
Aggregate and will only purchase a security for the Portfolio that is included
in the Lehman Aggregate at the time of such purchase. The Portfolio should
exhibit price and yield volatility similar to that of the Lehman Aggregate. For
further information, see "Other Investment Policies -- The Indexing Approach"
below and the Statement of Additional Information under "Investment Objectives
and Policies -- The Indexing Approach."
With respect to the remaining portion of its total assets, the
Portfolio has the ability to hold temporary cash balances which may be invested
in U.S. Government obligations and money market instruments. See "The
Intermediate Corporate Bond Portfolio" above for a description of the types of
money market instruments in which the Portfolio may invest and the applicable
limitations with respect to such investments. If appropriate, the Portfolio may
use options, futures contracts and depository receipts to hedge its positions or
for other permissible purposes. The Portfolio also may enter into reverse
repurchase agreements and lend its portfolio securities.
The Lehman Aggregate. The Lehman Aggregate is composed of U.S.
Government, mortgage-backed, asset-backed and non-convertible corporate debt
securities that meet the following criteria: the securities have at least $100
million par amount outstanding; the securities are rated investment grade (at
least Baa or BBB) by Moody's Investors Service, Inc. ("Moody's") or Standard &
Poor's Ratings Group ("S&P") (if not rated by
-32-
<PAGE> 37
Moody's); have at least one year until maturity; and have coupons with fixed
rates. The Lehman Aggregate excludes collateralized mortgage obligations
("CMOs"), adjustable rate mortgages, manufactured homes, non-agency bonds,
buydowns, graduated equity mortgages, project loans and non-conforming (i.e.,
"jumbo") mortgages. As of December 31, 1996, over ____ issues were included in
the Lehman Aggregate, representing $____ in market value. U.S. Treasury and
agency securities represented ____% of the total market value, asset-backed and
mortgage-backed securities represented ____% of the total market value, with
corporate debt securities representing the balance of ____%. The average
maturity of the Lehman Aggregate was ____ years. The Adviser believes that the
Lehman Aggregate is an appropriate benchmark for the Portfolio because it is
diversified, it is familiar to investors, and it is widely accepted as a
reference for bonds and other fixed income investments.
Because of the large number of issues included in the Lehman Aggregate,
the Portfolio cannot invest in all such issues. Instead, the Portfolio will hold
a representative sample of approximately 100 of the securities in the Lehman
Aggregate, selecting one or two issues to represent an entire "class" or type of
securities in the Lehman Aggregate. At a minimum, the Portfolio seeks to hold
securities which reflect the major asset classes in the Lehman Aggregate - U.S.
Treasury and agency issues, mortgage-backed securities, asset-backed securities
and non-convertible corporate debt securities. As the Portfolio's assets
increase, these classes will be further delineated along the lines of sector,
term-to-maturity, coupon and credit ratings. This sampling technique is expected
to be an effective means of substantially duplicating the price and performance
provided by the securities comprising the Lehman Aggregate.
Securities rated Baa by Moody's or BBB by S&P have speculative
characteristics even though they are of investment-grade quality, and changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case with
higher-grade securities.
THE GOVERNMENT & CORPORATE BOND PORTFOLIO
The Government & Corporate Bond Portfolio's investment objective is to
seek the highest level of current income consistent with conservation of
capital. In pursuing its investment objective, the Portfolio intends to invest
at least 65% of its assets in fixed-income and related debt securities rated in
one of the three highest rating categories assigned by a Rating Agency at the
time of purchase or in unrated investments deemed by the Adviser to be of
comparable quality pursuant to guidelines approved by the Fund's Board of
Directors. Debt securities may include a broad range of fixed and variable rate
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<PAGE> 38
bonds, debentures, notes, and securities convertible into or exchangeable for
common stock; dollar-denominated debt obligations of foreign issuers, including
foreign corporations and governments; and first mortgage loans, income
participation loans, participation certificates in pools of mortgages, including
mortgages issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, CMOs and other mortgage-related securities, and other
asset-backed securities. For further information regarding asset-backed
securities, see "Other Applicable Policies -- Asset-Backed Securities" below.
The Portfolio may invest up to 10% of its total assets at the time of purchase
in dollar-denominated debt obligations of foreign issuers, either directly or
through American Depository Receipts ("ADRs") and European Depository Receipts
("EDRs"), and up to 25% of its total assets at the time of purchase in
non-mortgage asset-backed securities, respectively. See "Other Applicable
Policies -- Foreign Securities" below and the Statement of Additional
Information under "Investment Objectives and Policies -- ADRs and EDRs."
The Government & Corporate Bond Portfolio may purchase debt securities
which are rated at the time of purchase within the four highest rating
categories assigned by Rating Agencies or unrated debt securities (including
convertible securities) which the Adviser believes present attractive
opportunities and are of at least comparable quality to instruments so rated.
The Portfolio's dollar-weighted average portfolio quality is expected to be at
least "A" or higher. Securities rated in the lowest of the above four rating
categories have speculative characteristics, even though they are of
investment-grade quality, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade securities. Such
securities will be purchased (and retained) only when the Adviser believes the
issuers have an adequate capacity to pay interest and repay principal. (For a
description of the rating categories of Rating Agencies, see Appendix A to the
Statement of Additional Information.) In making investment decisions, the
Adviser will consider a number of factors including current yield, maturity,
yield to maturity, anticipated changes in interest rates, and the overall
quality of the investment. The Portfolio seeks to provide a current yield
greater than that generally available from money market instruments.
The Government & Corporate Bond Portfolio reserves the right to hold as
a temporary defensive measure up to 100% of its total assets in cash and
short-term obligations (having remaining maturities of 12 months or less) at
such times and in such proportions as, in the opinion of the Adviser, prevailing
market
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or economic conditions warrant. Short-term obligations include, but are not
limited to, commercial paper, bankers' acceptances, certificates of deposit,
demand and time deposits of domestic and foreign banks and savings and loan
associations, repurchase agreements and obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities.
THE SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
The Short-Intermediate Municipal Portfolio's investment objective is to
seek as high a level of current income, exempt from regular federal income tax,
as is consistent with preservation of capital. The Portfolio seeks to achieve
its objective by investing substantially all of its assets in investment grade
Municipal Obligations. As a matter of fundamental policy, under normal market
conditions at least 80% of the Portfolio's total assets will be invested in
Municipal Obligations, primarily bonds (at least 65% under normal market
conditions).
The Short-Intermediate Municipal Portfolio invests in Municipal
Obligations that are rated at the time of purchase within the four highest
rating categories assigned by a Rating Agency. The Portfolio may also invest in
short-term Municipal Obligations such as municipal notes, tax-exempt commercial
paper, and variable and floating rate demand obligations that are rated at the
time of purchase within the two highest rating categories assigned by a Rating
Agency. Municipal Obligations rated in the lowest of the four highest rating
categories for bonds are considered to have speculative characteristics, even
though they are of investment grade quality. Such bonds will be purchased only
if the Adviser believes they have an adequate capacity to pay interest and repay
principal. Unrated obligations will be purchased only if they are considered by
the Adviser to be at least comparable in quality at the time of purchase to
instruments within the rating categories listed above. Municipal Obligations
purchased by the Portfolio whose ratings are subsequently downgraded below the
four highest rating categories of a Rating Agency will be disposed of in an
orderly manner, normally within 30-60 days. The applicable ratings issued by the
Rating Agencies are described in the Appendix to the Statement of Additional
Information.
In addition, the Short-Intermediate Municipal Portfolio may from time
to time during temporary defensive periods, invest in taxable obligations in
such proportions as, in the opinion of the Adviser, prevailing market or
economic conditions warrant. Such instruments may include obligations of the
U.S. Government, its agencies or instrumentalities; debt securities (including
commercial paper) of issuers having, at the time of purchase, a quality rating
within the two highest rating categories assigned
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by a Rating Agency; or repurchase agreements with respect to such obligations.
During temporary defensive periods or if, in the opinion of the
Adviser, suitable tax-exempt obligations are unavailable, the Short-Intermediate
Municipal Portfolio may also hold uninvested cash reserves which do not earn
income pending investment. There is no percentage limitation on the amount of
assets that may be held uninvested during these temporary defensive periods.
The Short-Intermediate Municipal Portfolio's average dollar-weighted
maturity will be between two and five years and will vary in light of current
market and economic conditions, the comparative yields on instruments with
different maturities, and other factors.
THE MISSOURI TAX-EXEMPT BOND PORTFOLIO
The Missouri Tax-Exempt Bond Portfolio's investment objective is to
seek as high a level of interest income exempt from federal income tax as is
consistent with conservation of capital. In pursuing its investment objective,
the Portfolio invests substantially all of its assets in investment-grade
Missouri Municipal Obligations (which, to the extent possible, are also exempt
from Missouri income tax).
Dividends paid by the Missouri Tax-Exempt Bond Portfolio that are
derived from interest attributable to tax-exempt obligations of the State of
Missouri and its political subdivisions as well as of certain other governmental
issuers including Puerto Rico, Guam and the Virgin Islands ("Missouri Municipal
Obligations") are exempt from federal and Missouri income tax. Dividends derived
from interest on obligations of other governmental issuers are exempt from
federal income tax but may be subject to Missouri income tax.
As a matter of fundamental policy, under normal market conditions, at
least 65% of the Missouri Tax-Exempt Bond Portfolio's total assets will be
invested in Missouri Municipal Obligations. The Portfolio will seek to maximize
the proportion of its dividends which are exempt from both federal and Missouri
income tax and presently expects to invest substantially all of its total assets
in Missouri Municipal Obligations.
The Missouri Tax-Exempt Bond Portfolio invests in Municipal Obligations
that are rated at the time of purchase within the four highest rating categories
assigned by a Rating Agency. The Portfolio may also invest in short-term
Municipal Obligations such as municipal notes, tax-exempt commercial paper and
variable or floating rate demand obligations that are rated at the time of
purchase within the two highest rating categories assigned by a Rating Agency.
Municipal Obligations rated in the lowest of the
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four highest rating categories for bonds are considered to have speculative
characteristics, even though they are of investment grade quality. Such bonds
will be purchased only if the Adviser believes the issuers have an adequate
capacity to pay interest and repay principal. Unrated obligations will be
purchased only if they are considered by the Adviser to be at least comparable
in quality at the time of purchase to instruments within the rating categories
listed above. The applicable Municipal Obligation ratings are described in the
Appendix to the Statement of Additional Information.
As a matter of fundamental policy, under normal market conditions or
when the Adviser deems suitable tax-exempt Municipal Obligations to be
available, at least 80% of the Missouri Tax-Exempt Bond Portfolio's total assets
will be invested in Municipal Obligations. The Portfolio may hold uninvested
cash reserves pending investment during temporary defensive periods or if, in
the opinion of the Adviser, suitable Municipal Obligations are unavailable.
There is no percentage limitation on the amount of assets which may be held
uninvested during temporary defensive periods.
In addition, during temporary defensive periods or if, in the opinion
of the Adviser, suitable Municipal Obligations are unavailable and subject to
the quality standards described above, the Missouri Tax-Exempt Bond Portfolio
may invest up to 20% of its assets in money market instruments, the income from
which is subject to federal income tax. See "The Tax-Exempt Money Market
Portfolio" above for a description of the types of taxable money market
instruments in which the Portfolio may invest.
The Missouri Tax-Exempt Bond Portfolio's average weighted maturity will
vary in light of market and economic conditions, the comparative yields on
instruments with different maturities, and other factors.
THE NATIONAL MUNICIPAL BOND PORTFOLIO
The National Municipal Bond Portfolio's investment objective is to seek
as high a level of current income exempt from regular federal income tax as is
consistent with conservation of capital. In pursuing its investment objective,
the Portfolio intends to invest, under normal market and economic conditions,
substantially all of its assets in investment grade Municipal Obligations. As a
matter of fundamental policy, under normal market and economic 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).
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The Portfolio may purchase Municipal Obligations that are rated at the
time of purchase in one of the four highest rating categories assigned by one or
more Rating Agencies or in unrated Municipal Obligations deemed by the Adviser
to be of comparable quality. Under normal market and economic conditions,
however, the Portfolio intends to invest at least 65% of its assets in Municipal
Obligations rated at the time of purchase in one of the three highest rating
categories assigned by one or more Rating Agencies (or unrated Municipal
Obligations determined to be of comparable quality). Securities that are rated
in the lowest of the four highest rating categories are considered to have
speculative characteristics, even though they are of investment grade quality,
and will be purchased (and retained) only if the Adviser believes that the
issuers have an adequate capacity to pay interest and repay principal. Unrated
obligations will be purchased only if they are considered by the Adviser to be
at least comparable in quality at the time of purchase to instruments within the
rating categories listed above. 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 to 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 and debt securities (including commercial paper) of issuers
having, at the time of purchase, a quality rating within the two highest rating
categories of a Rating Agency. The Portfolio does not intend to invest in
taxable obligations under normal market conditions.
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 does not intend to hold
uninvested cash reserves under normal market conditions.
The Portfolio's average dollar-weighted maturity will vary in light of
current market and economic conditions, the comparative yields on instruments
with different maturities, and other factors.
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THE EQUITY INCOME PORTFOLIO
The Equity Income Portfolio's investment objective is to seek to
provide an above-average level of income consistent with long-term capital
appreciation. In pursuing its investment objective, the Portfolio intends to
invest, under normal market and economic conditions, substantially all of its
assets in common stock, preferred stock, rights, warrants, and securities
convertible into common stock. The Adviser will select stocks based on a number
of quantitative factors, including dividend yield, current and future earnings
potential compared to stock prices, total return potential and other measures of
value, such as cash flow, asset value or book value, if appropriate. Stocks
purchased for the Portfolio generally will be listed on a national securities
exchange or will be unlisted securities with an established over-the-counter
market. A convertible security may be purchased for the Portfolio when, in the
Adviser's opinion, the price and yield of the convertible security is favorable
as compared to the price and yield of the common stock. The stocks or securities
in which the Portfolio invests may be expected to produce an above average level
of income (as measured by the Standard & Poor's 500 Composite Stock Price
Index). Under normal market and economic conditions, at least 65% of the
Portfolio's total assets will be invested in income-producing equity securities.
The Portfolio may indirectly invest in foreign securities through the
purchase of ADRs and EDRs, but will not do so if, immediately after and as a
result of the purchase, the value of ADRs and EDRs would exceed 15% of the
Portfolio's total assets. For further information, see "Other Applicable
Policies --Foreign Securities" below and the Statement of Additional Information
under "Investment Objectives and Policies -- ADRs and EDRs".
The Portfolio reserves the right to hold as a temporary defensive
measure during abnormal market or economic conditions up to 100% of its total
assets in cash and short-term obligations (having remaining maturities of 13
months or less) at such times and in such proportions as, in the opinion of the
Adviser, such abnormal market or economic conditions warrant. See "The
Intermediate Corporate Bond Portfolio" above for a description of the types of
short-term obligations in which the Portfolio may invest and the applicable
limitations with respect to such investments.
THE EQUITY INDEX PORTFOLIO
The Equity Index Portfolio seeks to provide investment results that,
before deduction of operating expenses, approximate the price and yield
performance of U.S. publicly traded common stocks with large stock market
capitalizations as represented by
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the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500").
Like the Bond Index Portfolio, the Equity Index Portfolio is not
managed in a traditional sense, that is, by making discretionary judgments based
on analysis of economic, financial and market conditions. Instead, the Portfolio
uses an investment strategy called "indexing" whereby it seeks to approximate
the investment performance of the market segment comprised of U.S. publicly
traded common stocks with large stock market capitalizations, as represented by
the S&P 500, through the use of sophisticated computer models to determine which
securities should be purchased or sold, while keeping transaction and
administrative costs to a minimum. The Portfolio will invest substantially all
of its total assets in securities listed in the S&P 500. The Adviser generally
selects securities for the Portfolio on the basis of their weightings in the S&P
500 and will only purchase a security for the Portfolio that is included in the
S&P 500 at the time of such purchase. The Portfolio should exhibit price
volatility similar to that of the S&P 500. For further information, see "Other
Investment Policies -- The Indexing Approach" below and the Statement of
Additional Information under "Investment Objectives and Policies -- The Indexing
Approach."
With respect to the remaining portion of its total assets, the
Portfolio has the ability to hold temporary cash balances which may be invested
in U.S. Government obligations and money market instruments. See "The
Intermediate Corporate Bond Portfolio" above for a description of the money
market instruments in which the Portfolio may invest and the applicable
limitations with respect to such investments. If appropriate, the Portfolio may
use options, futures contracts and depository receipts to hedge its positions or
for other permissible purposes. The Portfolio also may enter into reverse
repurchase agreements and lend its portfolio securities.
The S&P 500. The S&P 500 is composed of approximately 500 common
stocks, most of which are listed on the New York Stock Exchange. S&P chooses the
stocks for the S&P 500 on a statistical basis. As of December 31, 1996 the
stocks in the S&P 500 have an average market capitalization of $___ billion and
account for approximately __% of the total market value of all U.S. common
stocks. Normally, the Equity Index Portfolio will hold all 500 stocks in the S&P
500 and will hold each stock approximately the same percentage as that stock
represents in the S&P 500. Under certain circumstances, the Portfolio may not
hold all 500 stocks in the S&P 500, for example because of changes in the S&P
500, or as a result of shareholder activity in the Portfolio. The Portfolio will
rebalance its holdings monthly to reflect changes in the S&P 500. "Market
capitalization" for a company is the market price per share of stock multiplied
by the
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number of shares outstanding. The Adviser believes that the S&P 500 is an
appropriate benchmark for the Portfolio because it is diversified, it is
familiar to many investors and it is widely accepted as a reference for common
stock investments.
THE GROWTH & INCOME EQUITY PORTFOLIO
The Growth & Income Equity Portfolio's investment objective is to
provide long-term capital growth, with income a secondary consideration. In
pursuing its investment objective, the Portfolio normally invests substantially
all of its assets in common stock, preferred stock, rights, warrants and
securities convertible into common stock. The Adviser selects stocks based on a
number of factors, including historical and projected earnings, growth and asset
value, earnings compared to stock prices generally (as measured by the S&P 500,
and consistency of earnings growth and earnings quality. Stocks purchased for
the Portfolio generally will be listed on a national securities exchange or will
be unlisted securities with an established over-the-counter market. A
convertible security may be purchased for the Portfolio when, in the Adviser's
opinion, the price and yield of the convertible security is favorable compared
to the price and yield of the common stock. The stocks or securities in which
the Portfolio invests may be expected to produce some income but income is not a
major criterion in their selection.
The Growth & Income Equity Portfolio may indirectly invest in foreign
securities through the purchase of ADRs and EDRs but will not do so if,
immediately after and as a result of the purchase, the value of ADRs and EDRs
would exceed 15% of the Portfolio's total assets. For further information, see
"Other Applicable Policies -- Foreign Securities" below and the Statement of
Additional Information under "Investment Objectives and Policies -- ADRs and
EDRs." The Portfolio may also invest in Canadian securities listed on a national
securities exchange.
The Growth & Income Equity Portfolio reserves the right to hold as a
temporary defensive measure up to 100% of its total assets in cash and
short-term obligations (having remaining maturities of 12 months or less) at
such times and in such proportions as, in the opinion of the Adviser, prevailing
market or economic conditions warrant. See "The Government & Corporate Bond
Portfolio" above for a description of the types of short-term obligations in
which the Portfolio may invest.
THE SMALL CAP EQUITY PORTFOLIO
The Small Cap Equity Portfolio's investment objective is capital
appreciation. Current income is an incidental consideration in the selection of
portfolio securities. In pursuing its investment objective, the Portfolio (which
was formerly known as the Emerging Growth Portfolio) normally invests
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primarily in common stock of emerging or established small- to medium-sized
companies with above-average potential for price appreciation. The Portfolio may
invest in preferred stock, rights, warrants, and securities convertible into
common stock. It may invest a portion of its assets in established larger
companies that, in the opinion of the Adviser, offer improved growth
possibilities because of rejuvenated management, product changes, or other
developments that might stimulate earnings or asset growth, or in companies that
seem undervalued relative to their underlying assets. The Portfolio does not
intend to invest more than 5% of the value of its total assets in the securities
of unseasoned companies, that is, companies (or their predecessors) with less
than three years' continuous operation.
The Small Cap Equity Portfolio may also invest a portion of its assets
in smaller companies that have limited specialized- product lines, markets or
financial resources, or are dependent upon one-person management. The securities
of such smaller companies may have limited marketability, may be subject to more
abrupt or erratic market movements than securities of larger companies or the
market averages in general, and may involve greater risk than is customarily
associated with more established companies. To qualify for investment by the
Portfolio, however, a company will be expected to have, in the opinion of the
Adviser, above-average possibilities for capital appreciation (when compared
with the average appreciation of companies whose securities are included in the
S&P 500).
The Small Cap Equity Portfolio uses a research intensive approach and
valuation techniques that emphasize earnings and asset growth. The Adviser
selects stocks based on a number of factors, including historical and projected
earnings, asset value, potential for price appreciation and earnings growth, and
quality of products manufactured and/or services offered. Stocks purchased for
the Portfolio may be listed on a national securities exchange or may be unlisted
securities with or without an established over-the-counter market. The Portfolio
may also invest in initial public offerings of new companies that demonstrate
the potential for price appreciation. A convertible security may be purchased
for the Portfolio when, in the Adviser's opinion, the price of the convertible
security is favorable compared to the price of the common stock. In general, the
Portfolio's stocks and other securities will be diversified over a number of
industry groups in an effort to reduce the risks inherent in such investments.
The Small Cap Equity Portfolio may indirectly invest in foreign
securities through the purchase of such obligations as ADRs and EDRs but will
not do so if, immediately after and as a result of the purchase, the value of
ADRs and EDRs would exceed 25% of the Portfolio's total assets. For further
information, see "Other Applicable Policies -- Foreign Securities" below, and
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the Statement of Additional Information under "Investment Objectives and
Policies -- ADRs and EDRs." The Portfolio may also invest in securities issued
by Canadian corporations and Canadian counterparts of U.S. corporations, which
may or may not be listed on a national securities exchange or traded in
over-the-counter markets.
The Small Cap Equity Portfolio reserves the right to hold as a
temporary defensive measure up to 100% of its total assets in cash and
short-term obligations (having remaining maturities of 12 months or less) at
such times and in such proportions as, in the opinion of the Adviser, prevailing
market or economic conditions warrant. See "The Government & Corporate Bond
Portfolio" above for a description of the types of short-term obligations in
which the Portfolio may invest.
THE INTERNATIONAL EQUITY PORTFOLIO
The International Equity Portfolio's investment objective is to provide
capital growth consistent with reasonable investment risk. The Portfolio seeks
to achieve this objective by investing principally in foreign equity securities,
most of which will be denominated in foreign currencies. During normal market
conditions, the Portfolio will invest substantially all of its assets in
securities of companies which derive more than 50% of their gross revenues from,
or have more than 50% of their assets outside, the United States. Additionally,
under normal market conditions, the Portfolio will invest in equity securities
from at least three different countries (excluding the United States). However,
the Portfolio may invest all its assets in a single country during temporary
defensive periods.
The International Equity Portfolio expects to invest at least half of
its assets in securities of companies located either in developed countries in
Western Europe or in Japan, although it may also purchase securities of
companies located in other developed countries and developing countries. For
further information, see "Risk Factors -- Risks Associated with Foreign
Securities and Currencies" below.
By investing in foreign securities, the International Equity Portfolio
will attempt to take advantage of differences between economic trends and the
performance of securities markets in various countries, regions and geographic
areas. The Portfolio will achieve diversification by investing in securities
from various countries and geographic areas that offer different investment
opportunities and are affected by different economic trends. The multinational
character of the Portfolio's investments should reduce the effect that events in
any one country or geographic area will have on its investment holdings. Of
course, negative movement by one of the Portfolio's
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investments in one foreign market may offset gains from the Portfolio's
investments in another market.
Equity securities in which the International Equity Portfolio may
invest include common stock, preferred stock, rights, warrants and securities
convertible into common stock. A convertible security may be purchased for the
Portfolio when, in the Adviser's or Sub-Adviser's opinion, the price and yield
of the convertible security is favorable compared to the price and yield of the
common stock.
During temporary defensive periods, when deemed necessary by the
Adviser or Sub-Adviser, the International Equity Portfolio may invest up to 100%
of its assets in U.S. Government obligations or debt obligations of companies
incorporated and having their principal business activities in the United
States. The Portfolio does not intend to invest in such securities for the
purpose of meeting its investment objective.
The International Equity Portfolio may also invest, without limitation,
in foreign securities through the purchase of ADRs and EDRs. For further
information, see "Risk Factors -- Risks Associated with Foreign Securities and
Currencies" below and the Statement of Additional Information under "Investment
Objectives and Policies -- ADRs and EDRs."
The International Equity Portfolio reserves the right to hold as a
temporary defensive measure up to 100% of its total assets in cash and
short-term obligations (having remaining maturities of 12 months or less) at
such times and in such proportions as, in the opinion of the Adviser or
Sub-Adviser, prevailing market or economic conditions warrant. See "The
Government & Corporate Bond Portfolio" above for a description of the types of
short-term obligations in which the Portfolio may invest.
Although investing in any mutual fund has certain inherent risks, an
investment in the International Equity Portfolio may have even greater risks
than investments in most other types of mutual funds. The Portfolio is not a
complete investment program, and it may not be appropriate for investors who
cannot financially bear the loss of at least a significant portion of their
investment. The Portfolio's net asset value per Share is subject to rapid and
substantial changes because greater risk is assumed in seeking the Portfolio's
objective. See "Risk Factors -- Risks Associated with Foreign Securities and
Currencies" below.
THE BALANCED PORTFOLIO
The Balanced Portfolio's investment objective is to maximize total
return through a combination of growth of capital and
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current income consistent with the preservation of capital. The Portfolio seeks
to achieve its objective by using a disciplined approach of allocating assets
primarily among three major asset groups, i.e. equity securities, fixed income
securities and cash equivalents. In pursuing the Portfolio's investment
objective, the Adviser allocates the Portfolio's assets based upon its
evaluation of the relative attractiveness of the major asset groups. In an
effort to better quantify the relative attractiveness of the major asset groups
over a one- to three-year period of time, the Adviser has incorporated into its
asset allocation decision-making process several dynamic computer models which
it has created. The purpose of these models is to show the statistical impact of
the Adviser's economic outlook upon the future returns of each asset group. The
models are especially sensitive to the forecasts for inflation, interest rates
and long-term corporate earnings growth. Investment returns are normally heavily
impacted by such variables and their expected changes over time. Therefore, the
Adviser's method attempts to take advantage of changing economic conditions by
increasing or decreasing the ratio of stocks to bonds in the Portfolio. For
example, if the Adviser expected more rapid economic growth leading to better
corporate earnings, it would increase the Portfolio's holdings of equity
securities and reduce its holdings of fixed income securities and cash
equivalents.
Under normal market conditions, the Balanced Portfolio's policy is
generally to invest at least 25% of the value of its total assets in fixed
income securities and no more than 75% in equity securities. The actual
percentage of assets invested in equity securities, fixed income securities and
cash equivalents will vary from time to time, depending on the judgment of the
Adviser as to general market and economic conditions, trends and yields,
interest rates and fiscal and monetary developments.
The equity securities in which the Balanced Portfolio normally invests
include common stock, preferred stock, rights, warrants and securities
convertible into common or preferred stock. For further information regarding
these instruments, see "The Equity Income Portfolio" and "The Growth & Income
Equity Portfolio" above.
The fixed income securities in which the Balanced Portfolio invests
include U.S. Government securities or other fixed income and related debt
securities rated in one of the four highest rating categories assigned by a
Rating Agency at the time of purchase or in unrated investments deemed by the
Adviser to be of comparable quality pursuant to guidelines approved by the
Fund's Board of Directors. For further information regarding these instruments,
see "The Government & Corporate Bond Portfolio" above.
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The Balanced Portfolio may purchase asset-backed securities. For
further information regarding these instruments, see "Other Applicable Policies
- -- Asset-Backed Securities" below.
The Balanced Portfolio reserves the right to hold as a temporary
defensive measure up to 100% of its total assets in cash and short-term
obligations (having remaining maturities of 12 months or less) at such times and
in such proportions as, in the opinion of the Adviser, prevailing market or
economic conditions warrant. See "The Government & Corporate Bond Portfolio"
above for a description of the types of short-term obligations in which the
Portfolio may invest.
RISK FACTORS
MARKET RISK. The Equity Income, Equity Index, Growth & Income Equity,
Small Cap Equity and International Equity Portfolios invest primarily, and the
Balanced Portfolio invests to a significant degree, in equity securities. As
with other mutual funds that invest primarily or to a significant degree in
equity securities, these Portfolios are subject to market risks. That is, the
possibility exists that common stocks will decline over short or even extended
periods of time and both the U.S. and certain foreign equity markets tend to be
cyclical, experiencing both periods when stock prices generally increase and
periods when stock prices generally decrease.
INTEREST RATE RISK. Generally, the market value of fixed income
securities, including Municipal Obligations, held by the Treasury Money Market,
Money Market, Tax-Exempt Money Market, U.S. Government Securities, Intermediate
Corporate Bond, Bond Index, Government & Corporate Bond, Short-Intermediate
Municipal, Missouri Tax-Exempt Bond , National Municipal Bond and Balanced
Portfolios can be expected to vary inversely to changes in prevailing interest
rates. During periods of declining interest rates, the market value of
investment portfolios comprised primarily of fixed income securities will tend
to increase, and during periods of rising interest rates, the market value will
tend to decrease. Fixed income securities with longer maturities, which tend to
produce higher yields, are subject to potentially greater capital appreciation
and depreciation than obligations with shorter maturities. Changes in the
financial strength of an issuer or changes in the ratings of any particular
security may also offset the value of these investments. Fluctuations in the
market value of fixed income securities subsequent to their acquisition will not
offset cash income from such securities but will be reflected in a Portfolio's
net asset value.
RISKS ASSOCIATED WITH FOREIGN SECURITIES AND CURRENCIES. Investments in
securities of foreign issuers, whether made directly or indirectly, carry
certain risks not ordinarily
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associated with investments in securities of domestic issuers. Such risks
include future political and economic developments, and the possible imposition
of exchange controls or other foreign governmental laws or restrictions. In
addition, with respect to certain countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social instability
or diplomatic developments which could adversely affect investments in those
countries.
There may be less publicly available information about a foreign
company than about a U.S. company, and foreign companies may not be subject to
accounting, auditing and financial reporting standards and requirements
comparable to or as uniform as those of U.S.-based companies. Foreign securities
markets, while growing in volume, have, for the most part, substantially less
volume than U.S. markets, and securities of many foreign companies are less
liquid and their prices more volatile than securities of comparable U.S.-based
companies. There is generally less government supervision and regulation of
foreign exchanges, brokers and issuers than there is in the United States. In
the event of a default by the issuer of a foreign security, it may be more
difficult to obtain or enforce a judgment against such issuer than it would be
against a domestic issuer. In addition, foreign banks and foreign branches of
U.S. banks are subject to less stringent reserve requirements and to different
accounting, auditing, reporting, and recordkeeping standards than those
applicable to domestic branches of U.S.
banks.
Certain of the risks associated with international investments are
heightened with respect to investments in developing countries. The risks of
expropriation, nationalization and social, political and economic instability
are greater in those countries than in more developed capital markets. In
addition, developing countries may have economies based on only a few industries
and small securities markets with a low volume of trading. Certain countries may
also impose substantial restrictions on investments in their capital markets by
foreign entities, including restrictions on investments in issuers of industries
deemed sensitive to relevant national interests. These factors may limit the
investment opportunities available to the International Equity Portfolio and
result in a lack of liquidity and a high price volatility with respect to
securities of issuers from developing countries.
Certain countries may also impose restrictions on the International
Equity Portfolio's ability to repatriate investment income or capital. Even when
there is no outright restriction on repatriation of investment income or
capital, the mechanics of repatriation may affect certain aspects of the
operations of the International Equity Portfolio.
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Governments of many developing countries exercise substantial influence
over many aspects of the private sector. In some countries, the government may
own or control many companies, including the largest company or companies. As
such, government actions in the future could have a significant effect on
economic conditions in these countries, affecting private sector companies, the
International Equity Portfolio and the value of its portfolio securities.
Since the International Equity Portfolio will invest substantially in
securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates will affect the value of securities
in the International Equity Portfolio and the unrealized appreciation or
depreciation of investments so far as U.S. investors are concerned. Foreign
currency exchange rates are determined by forces of supply and demand on the
foreign exchange markets and the regulatory control of the exchanges on which
the currencies trade. These forces are themselves affected by the international
balance of payments and other economic and financial conditions, government
intervention, speculation and other factors. Costs are incurred in connection
with conversions between various currencies.
The expense ratio of the International Equity Portfolio can be expected
to be higher than that of funds investing in domestic securities. The costs
attributable to investing abroad are usually higher for several reasons, such as
the higher cost of investment research, higher cost of custody of foreign
securities, higher commissions paid on comparable transactions on foreign
markets and additional costs arising from delays in settlements of transactions
involving foreign securities.
Interest and dividends payable on the International Equity Portfolio's
foreign portfolio securities may be subject to foreign withholding taxes. To the
extent such taxes are not offset by credits or deductions allowed to investors
under U.S. federal income tax provisions, they may reduce the net return to the
Portfolio's shareholders. For further information, see "Taxes."
In addition to the International Equity Portfolio, other Portfolios may
be subject to certain of the risks described above in connection with investment
in foreign securities.
MUNICIPAL OBLIGATIONS. The ability of the Tax-Exempt Money Market,
Short-Intermediate Municipal, Missouri Tax-Exempt Bond and National Municipal
Bond Portfolios (collectively, the "Tax-Exempt Portfolios") to achieve their
respective investment objectives are dependent upon the ability of issuers of
Municipal Obligations to meet their continuing obligations for the payment of
principal and interest. There are additional risks associated with investment in
the Missouri Tax-Exempt Bond
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Portfolio because it invests its assets predominantly in Missouri Municipal
Obligations . Investors in the Missouri Tax- Exempt Bond Portfolio should be
aware that certain provisions of, and amendments to, the Missouri Constitution
limit tax increases which could result in certain adverse consequences affecting
Missouri Municipal Obligations . Some of the significant financial
considerations relating to the Missouri Tax-Exempt Bond Portfolio's investments
in Missouri Municipal Obligations are summarized in the Statement of Additional
Information.
ADDITIONAL RISKS AND OTHER CONSIDERATIONS. Although the Tax-Exempt
Money Market , Short-Intermediate Municipal and National Municipal Bond
Portfolios may invest 25% or more of their respective net assets in (i)
Municipal Obligations whose issuers are in the same state, (ii) Municipal
Obligations the interest on which is paid solely from revenues of similar
projects, and (iii) private activity bonds, no Portfolio presently intends to do
so unless in the opinion of the Adviser the investment is warranted. Although
the Missouri Tax-Exempt Bond Portfolio does not presently intend to do so on a
regular basis, it may invest more than 25% of its assets in industrial
development bonds issued before August 7, 1986, the interest on which is not
treated as a specific tax preference item under the federal alternative minimum
tax, and in Municipal Obligations, the interest on which is paid solely from
revenues of similar projects, if such investments are deemed necessary or
appropriate by the Adviser. To the extent that a Portfolio's assets are invested
in Municipal Obligations the issuers of which are in the same state or that are
payable from the revenues of similar projects or in private activity bonds, a
Portfolio will be subject to the peculiar risks presented by the laws and
economic conditions relating to such projects and bonds to a greater extent that
it would be if its assets were not so invested. See "Investment Objectives and
Policies -- Municipal Obligations" in the Statement on Additional Information.
Each of the Tax-Exempt Money Market and Missouri Tax-Exempt Bond
Portfolios is classified as non-diversified under the 1940 Act. Investment
return on a non-diversified portfolio typically is dependent upon the
performance of a smaller number of securities relative to the number held in a
diversified portfolio. Consequently, the change in value of any one security may
affect the overall value of a non-diversified portfolio more than it would a
diversified portfolio. In addition, a non-diversified portfolio may be more
susceptible to economic, political, and regulatory developments than a
diversified investment portfolio with similar objectives. The value of a
Portfolio's securities can be expected to vary inversely with changes in
prevailing interest rates.
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Investors in the Missouri Tax-Exempt Bond Portfolio should consider the
risk inherent in such Portfolio's concentrations in Missouri Municipal
Obligations versus the safety that comes with a less geographically concentrated
investment portfolio, and should compare the yields and tax-equivalent yields
available on portfolios of Missouri Municipal Obligations with the yields and
tax-equivalent yields of more diversified portfolios with securities of
comparable quality, including non-Missouri securities, before making an
investment decision.
Municipal Obligations purchased by the Tax-Exempt Portfolios may be
backed by letters of credit or guarantees issued by domestic or foreign banks
and other financial institutions which are not subject to federal deposit
insurance. Adverse developments affecting the banking industry generally or a
particular bank or financial institution that has provided its credit or a
guarantee with respect to a Municipal Obligation held by a Tax-Exempt Portfolio
could have an adverse effect on the Portfolio's investment portfolio and the
value of its shares. Foreign letters of credit and guarantees involve certain
risks in addition to those of domestic obligations, including less stringent
reserve requirements and different accounting, auditing and recordkeeping
requirements.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax (and, with respect to
Missouri Municipal Obligations , to the exemption from Missouri 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 a Portfolio from tax-exempt derivative securities are rendered by counsel to
the respective sponsors of such securities. The Tax-Exempt Portfolios and their
Adviser will rely on such opinions and will not review independently the
underlying proceedings relating to the issuance of Municipal Obligations, the
creation of any tax-exempt derivative security, or the bases for such opinions.
OTHER APPLICABLE POLICIES
The investment policies described in this Prospectus are among those
which one or more of the Portfolios have the ability to utilize. Some of these
policies may be employed on a regular basis; others may not be used at all.
Accordingly, reference to any particular policy, method or technique carries no
implication that will be utilized or, if it is, that it will be successful.
U.S. GOVERNMENT OBLIGATIONS. Securities issued or guaranteed by the
U.S. Government, its agencies and instrumentalities have historically involved
little risk of loss of principal if held to maturity. However, due to
fluctuations in interest rates, the market value of such securities may vary
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during the period a shareholder owns Shares of a Portfolio. Certain U.S.
Government securities held by the Treasury Money Market, Money Market or
Tax-Exempt Money Market Portfolios may have remaining maturities exceeding
thirteen months if such securities provide for adjustments in their interest
rates no less frequently than every thirteen months. Examples of the types of
U.S. Government obligations that may be held by the Portfolios, subject to their
respective investment objectives and policies, include, in addition to U.S.
Treasury bonds, notes and bills, the obligations of Federal Home Loan Banks,
Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, GNMA, FNMA, FHLMC, General Services
Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Resolution Trust Corporation,
and Maritime Administration. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as those of GNMA, are supported
by the full faith and credit of the U.S. Treasury; others, such as the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of FNMA, are supported
by the discretionary authority of the U.S. Government to purchase the agency's
obligations; still others such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. There is
no assurance that the U.S. Government would provide financial support to U.S.
Government-sponsored instrumentalities if it is not obligated to do so by law.
STRIPPED GOVERNMENT SECURITIES. To the extent consistent with their
respective investment policies, each Portfolio may invest in bills, notes and
bonds (including zero coupon bonds) issued by the U.S. Treasury. In addition,
each Portfolio (except the Tax-Exempt Money Market, Short-Intermediate
Municipal, Missouri Tax-Exempt Bond and Equity Index Portfolios) may also invest
in "stripped" U.S. Treasury obligations offered under the Separate Trading of
Registered Interest and Principal Securities ("STRIPS") program or Coupon Under
Bank-Entry Safekeeping ("CUBES") program or other stripped securities issued
directly by agencies or instrumentalities of the U.S. Government (and, with
respect to the Treasury Money Market Portfolio only, that are also guaranteed as
to principal and interest by the U.S. Government). STRIPS and CUBES represent
either future interest or principal payments and are direct obligations of the
U.S. Government that clear through the Federal Reserve System. The Money Market,
Intermediate Corporate Bond, Bond Index, Government & Corporate Bond, Growth &
Income Equity, Small Cap Equity and Balanced Portfolios may also purchase U.S.
Treasury and agency securities that are stripped by brokerage firms and
custodian banks and sold under proprietary names. These stripped securities are
resold in custodial receipt programs with a number of different names (such as
TIGRs and CATS) and are not
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considered U.S. Government securities for purposes of the 1940 Act.
Stripped securities are issued at a discount to their "face value" and
may exhibit greater price volatility than ordinary debt securities because of
the manner in which their principal and interest are returned to investors. The
Adviser will consider the liquidity needs of a Portfolio when any investments in
zero coupon obligations or other principal-only obligations are made.
REPURCHASE AGREEMENTS. Under certain circumstances described above and
subject to their respective investment policies, each Portfolio (except the
National Municipal Bond Portfolio) may agree to purchase U.S. Government
securities from financial institutions such as banks and broker-dealers, subject
to the seller's agreement to repurchase them at a mutually agreed-upon date and
price ("repurchase agreements"). A Portfolio will enter into repurchase
agreements only with financial institutions such as banks and broker-dealers
that the Adviser or Sub-Adviser believes to be creditworthy. During the term of
any repurchase agreement, the Adviser or Sub-Adviser will continue to monitor
the creditworthiness of the seller and will require the seller to maintain the
value of the securities subject to the agreement at not less than 102% of the
repurchase price (including accrued interest). Default by a seller could expose
a Portfolio to possible loss because of adverse market action or possible delay
in disposing of the underlying obligations. Because of the seller's repurchase
obligations, the securities subject to repurchase agreements do not have
maturity limitations. Although no Portfolio presently intends to enter into
repurchase agreements providing for settlement in more than seven days, each
Portfolio does have the authority to do so subject to its limitation on the
purchase of illiquid securities described below. Repurchase agreements are
considered to be loans under the 1940 Act. The income on repurchase agreements
is taxable. See "Taxes" below.
REVERSE REPURCHASE AGREEMENTS. Subject to their investment policies,
each Portfolio (except the Treasury Money Market Portfolio and the Tax-Exempt
Portfolios) may borrow funds for temporary purposes by entering into reverse
repurchase agreements in accordance with their respective investment limitations
below. Pursuant to such agreements, a Portfolio would sell portfolio securities
to financial institutions such as banks and broker-dealers and agree to
repurchase them at an agreed upon date and price. Reverse repurchase agreements
involve the risk that the market value of the securities sold by a Portfolio may
decline below the repurchase price which the Portfolio is obligated to pay.
Reverse repurchase agreements are considered to be borrowings by a Portfolio
under the 1940 Act.
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SECURITIES LENDING. To increase return or offset expenses, each
Portfolio (except the Treasury Money Market, Money Market, Tax-Exempt Money
Market and Missouri Tax-Exempt Bond Portfolios) may, from time to time, lend its
portfolio securities to broker-dealers, banks or institutional borrowers
pursuant to agreements requiring that the loans be continuously secured by
collateral equal at all times in value to at least the market value of the
securities loaned. Collateral for such loans may include cash, securities of the
U.S. Government, or its agencies or instrumentalities, or an irrevocable letter
of credit issued by a bank that has at least $1.5 billion in total assets, or
any combination thereof. The collateral must be valued daily and, should the
market value of the loaned securities increase, the borrower must furnish
additional collateral to the lending Portfolio. By lending its securities, a
Portfolio can increase its income by continuing to receive interest on the
loaned securities as well as by either investing the cash collateral in
short-term instruments or obtaining yield in the form of interest paid by the
borrower when U.S. Government securities are used as collateral. In accordance
with current SEC policies, each Portfolio is currently limiting its securities
lending to 33-1/3% of the aggregate net assets of such Portfolio. Loans are
subject to termination by a Portfolio or a borrower at any time.
SECURITIES OF OTHER INVESTMENT COMPANIES. Under certain circumstances
described above and subject to their respective investment policies and
limitations, each Portfolio may invest in securities issued by other investment
companies which determine their net asset value per Share based on the amortized
cost or penny-rounding method and which invest in securities in which the
Portfolio is permitted to invest. Each Portfolio may invest in securities of
other investment companies within the limits prescribed by the 1940 Act, which
include, subject to certain exceptions, a prohibition on a Portfolio investing
more than 10% of the value of its total assets in such securities. Investments
in other investment companies will cause a Portfolio (and, indirectly, the
Portfolio's shareholders) to bear proportionately the cost incurred in
connection with the operations of such other investment companies. In addition,
investment companies in which a Portfolio may invest may impose a sales or
distribution charge in connection with the purchase or redemption of their
shares as well as other types of commissions or charges (no sales charge will be
paid by the Missouri Tax-Exempt Bond Portfolio in connection with such
investments). Such charges will be payable by a Portfolio and, therefore, will
be borne indirectly by its shareholders. See the Statement of Additional
Information under "Investment Objectives and Policies -- Securities of Other
Investment Companies." The income on securities of other investment companies
may be taxable to investors at the state or local level. See "Taxes" below.
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WHEN-ISSUED PURCHASES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS.
Each Portfolio may purchase securities on a "when-issued" basis and may
purchase or sell securities on a "forward commitment" basis. These transactions
involve a commitment by a Portfolio to purchase or sell securities at a stated
price and yield with settlement beyond the normal settlement date. Such
transactions permit a Portfolio to lock-in a price or yield on a security,
regardless of future changes in interest rates. Additionally, the
Short-Intermediate Municipal and National Municipal Bond Portfolios may purchase
or sell securities on a "delayed settlement" basis. This refers to a transaction
in the secondary market that will settle some time in the future. When issued
purchases, forward commitments and delayed settlement transactions involve a
risk of loss if the value of the security to be purchased declines prior to the
settlement date, or if the value of the security to be sold increases prior to
the settlement date. Each Portfolio expects that these transactions will not
exceed 25% of the value of its total assets (at the time of purchase) under
normal market conditions. No Portfolio intends to engage in such transactions
for speculative purposes but only for the purpose of acquiring portfolio
securities.
OPTIONS. Each of the Equity and Bond Portfolios (except the
Short-Intermediate Municipal, Missouri Tax-Exempt Bond and National Municipal
Bond Portfolios) may purchase put and call options listed on a national
securities exchange and issued by the Options Clearing Corporation in an amount
not exceeding 10% of its net assets. Such options may relate to particular
securities or to various stock or bond indices. Purchasing options is a
specialized investment technique which entails a substantial risk of a complete
loss of the amounts paid as premiums to the option writer. Such transactions
will be entered into only as a hedge against fluctuations in the value of
securities which a Portfolio holds or intends to purchase.
These Portfolios may also write covered call options. A covered call
option is an option to acquire a security that a Portfolio owns or has the right
to acquire during the option period. Such options will be listed on a national
securities exchange and issued by the Options Clearing Corporation.
The International Equity Portfolio may write covered call options, buy
put options, buy call options and write secured put options for hedging (or
cross-hedging) purposes or for the purpose of earning additional income. Such
options may relate to particular securities, foreign or domestic stock or bond
indices, financial instruments or foreign currencies; may or may not be listed
on a domestic or foreign securities exchange; and may or may not be issued by
the Options Clearing Corporation. The International Equity Portfolio will invest
and trade in unlisted over-the-counter options only with firms deemed
creditworthy by the Adviser or Sub-Adviser. However, unlisted options are not
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subject to the protections afforded purchasers of listed options by the Options
Clearing Corporation, which performs the obligations of its members which fail
to perform them in connection with the purchase or sale of options. The
International Equity Portfolio will not purchase put and call options in an
amount that exceeds 10% of its net assets at the time of purchase.
The aggregate value of the securities subject to covered call options
written by a Portfolio will not exceed 25% of the value of its net assets. In
order to close out an option position, a Portfolio may enter into a "closing
purchase transaction" -- the purchase of a covered call option on the same
security with the same exercise price and expiration date as the option which
the Portfolio previously wrote. By writing a covered call option, a Portfolio
forgoes the opportunity to profit from an increase in the market price of the
underlying security above the exercise price except insofar as the premium
represents such a profit and it is not able to sell the underlying security
until the option expires, is exercised, or the Portfolio effects a closing
purchase transaction by purchasing an option of the same series. The use of
covered call options will not be a primary investment technique of any
Portfolio. For additional information relating to option trading practices,
including particular risks, see the Statement of Additional Information and
Appendix B thereof.
FOREIGN CURRENCY PUT OPTIONS. The International Equity Portfolio may
purchase foreign currency put options on U.S. exchanges or U.S. over-the-counter
markets. A put option gives the Portfolio, upon payment of a premium, the right
to sell a currency at the exercise price until the expiration of the option and
serves to insure against adverse currency price movements in the underlying
portfolio assets denominated in that currency.
UNLISTED CURRENCY OPTIONS. The International Equity Portfolio may
purchase unlisted currency options. A number of major investment firms trade
unlisted options which are more flexible than exchange listed options with
respect to strike price and maturity date. These unlisted options generally are
available on a wider range of currencies. Unlisted foreign currency options are
generally less liquid than listed options and involve the credit risk associated
with the individual issuer. They will be deemed to be illiquid for purposes of
the limitation on investments in illiquid securities.
WRITING FOREIGN CURRENCY CALL OPTIONS. A call option written by the
International Equity Portfolio gives the purchaser, upon payment of a premium,
the right to purchase from the International Equity Fund a currency at the
exercise price until the expiration of the option.
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FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the International
Equity Portfolio may buy and sell securities denominated in currencies other
than the U.S. dollar, and receive interest, dividends and sale proceeds in
currencies other than the U.S. dollar, the Portfolio may from time to time enter
into foreign currency exchange transactions to convert to and from different
foreign currencies and to convert foreign currencies to and from the U.S.
dollar. The Portfolio may enter into currency exchange transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or use forward currency contracts to purchase or sell foreign
currencies.
A forward foreign currency contract is an obligation by the
International Equity Portfolio to purchase or sell a specific currency at a
future date at a price set at the time of the contract. In this respect, forward
currency contracts are similar to foreign currency futures contracts described
below; however, unlike futures contracts, which are traded on recognized
commodities exchanges, forward currency contracts are traded in the interbank
market conducted directly between currency traders (usually large commercial
banks) and their customers. Also, forward currency contracts usually involve
delivery of the currency involved instead of cash payment as in the case of
futures contracts.
The International Equity Portfolio may use forward foreign currency
exchange contracts in order to protect against uncertainty in the level of
future foreign exchange rates. The use of such forward contracts is limited to
hedging against movements in the value of foreign currencies relative to the
U.S. dollar in connection with specific portfolio transactions or with respect
to portfolio positions. The purpose of transaction hedging is to "lock in" the
U.S. dollar equivalent price of such specific securities. Position hedging is
the sale of foreign currency with respect to portfolio security positions
denominated or quoted in that currency. The Portfolio will not speculate in
foreign currency exchange transactions. Transaction and position hedging will
not be limited to an overall percentage of the Portfolio's assets but will be
employed as necessary to correspond to particular transactions or positions. The
Portfolio may not hedge its currency positions to an extent greater than the
aggregate market value (at the time of entering into the forward contract) of
the securities held in its portfolio denominated in, quoted in, or currently
convertible into that particular currency. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of the
Portfolio's portfolio securities or in foreign exchange rates, or prevent loss
if the prices of these securities decline, but forward foreign currency exchange
contracts do allow the Portfolio to establish a rate of exchange for a future
point in time.
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FUTURES CONTRACTS AND RELATED OPTIONS. The U.S. Government Securities,
Intermediate Corporate Bond, Bond Index, Government & Corporate Bond, Equity
Income, Equity Index, Growth and Income Equity, Small Cap Equity and Balanced
Portfolios may invest in futures contracts and options on futures contracts to
the extent permitted by the Commodity Futures Trading Commission ("CFTC") and
the SEC. The International Equity Portfolio may invest in interest rate futures
contracts, options on futures contracts and other types of financial futures
contracts (such as foreign currency contracts), as well as any index or foreign
market futures which are available in recognized exchanges or in other
established financial markets to the extent permitted by the CFTC and the SEC.
Such transactions, including stock or bond index futures contracts, or options
thereon, act as a hedge to protect a Portfolio from fluctuations in the value of
its securities caused by anticipated changes in interest rate or market
conditions without necessarily buying or selling the securities or, with respect
to the Bond Index and Equity Index Portfolios, can be used to simulate full
investment in the Lehman Aggregate or S&P 500 while retaining a cash balance for
portfolio management purposes. Hedging is a specialized investment technique
that entails skills different from other investment management. The Adviser (or
Sub-Adviser) may also consider such transactions to be economically appropriate
for the reduction of risk inherent in the ongoing management of a Portfolio. A
stock or bond index futures contract is an agreement in which one party agrees
to take or make delivery of an amount of cash equal to a specified dollar amount
times the difference between the index value (which assigns relative values to
the common stock or bonds included in the index) at the close of the last
trading day of the contract and the price at which the agreement is originally
made. No physical delivery of the underlying stock or bond in the index is
contemplated. Similarly, it may be in the best interest of a Portfolio to
purchase or sell interest rate futures contracts, or options thereon, which
provide for the future delivery of specified fixed income securities.
The purchase and sale of futures contracts or related options will not
be a primary investment technique of any Portfolio. None of the Portfolios will
purchase or sell futures contracts (or related options thereon) for hedging
purposes if, immediately after purchase, the aggregate initial margin deposits
and premiums paid by a Portfolio on its open futures and options positions
exceeds 5% of the liquidation value of the Portfolio, after taking into account
any unrealized profits and unrealized losses on any such futures or related
options contracts into which it has entered. For a more detailed description of
futures contracts and related options, see the Statement of Additional
Information and Appendix B thereof.
ASSET-BACKED SECURITIES. The U.S. Government Securities, Intermediate
Corporate Bond, Bond Index, Government & Corporate
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Bond and Balanced Portfolios may purchase asset-backed securities (i.e.,
securities backed by mortgages, installment sale contracts, corporate
receivables, credit card receivables or other assets) that are issued by
entities such as GNMA, FNMA and FHLMC and private issuers such as commercial
banks, financial companies, finance subsidiaries of industrial companies,
savings and loan associations, mortgage banks, and investment banks. To the
extent that a Portfolio invests in asset-backed securities issued by companies
that are investment companies under the 1940 Act, such acquisitions will be
subject to the percentage limitations prescribed by the 1940 Act. See "Other
Applicable Policies -- Securities of Other Investment Companies" above.
Presently there are several types of mortgage-backed securities,
including guaranteed mortgage pass-through certificates, which provide the
holder with a pro rata interest in the underlying mortgages, and CMOs, which
provide the holder with a specified interest in the cash flow of a pool of
underlying mortgages or other mortgage-backed securities. CMOs are issued in
multiple classes, each with a specified fixed or floating interest rate and a
final distribution date. The relative payment rights of the various CMO classes
may be subject to greater volatility and interest-rate risk than other types of
mortgage-backed securities. The average life of asset-backed securities varies
with the underlying instruments or assets and market conditions, which in the
case of mortgages have maximum maturities of forty years. The average life of a
mortgage-backed instrument, in particular, is likely to be substantially less
than the original maturity of the mortgages underlying the securities as the
result of unscheduled principal payments and mortgage prepayments. The
relationship between mortgage prepayment and interest rates may give some
high-yielding mortgage-backed securities less potential for growth in value than
conventional bonds with comparable maturities. In addition, in periods of
falling interest rates, the rate of mortgage prepayments tends to increase.
During such periods, the reinvestment of prepayment proceeds by a Portfolio will
generally be at lower rates than the rates that were carried by the obligations
that have been prepaid. When interest rates rise, the value of an asset-backed
security generally will decline; however, when interest rates decline, the value
of an asset- backed security with prepayment features may not increase as much
as that of other fixed-income securities. Because of these and other reasons, an
asset-backed security's total return may be difficult to predict precisely.
In general, the collateral supporting non-mortgage asset- backed
securities is of shorter maturity than mortgage loans and is less likely to
experience substantial prepayments. Non- mortgage asset-backed securities
involve certain risks that are not presented by mortgage-backed securities
arising primarily from the nature of the underlying assets (i.e., credit card
and
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automobile loan receivables as opposed to real estate mortgages). For example,
credit card receivables are generally unsecured and the repossession of
automobiles and other personal property upon the default of the debtor may be
difficult or impracticable in some cases.
TYPES OF MUNICIPAL OBLIGATIONS. The two principal classifications of
Municipal Obligations that may be held by the Tax-Exempt Portfolios are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenues securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
revenue source such as the user of the facility being financed. Revenue
securities include private activity bonds which are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved. Municipal Obligations may also include
"moral obligation" bonds, which are normally issued by special purpose public
authorities. If the issuer of a moral obligation bond is unable to meet its debt
service obligations from current revenues, it may draw on a reserve fund, the
restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer.
Municipal Obligations include debt obligations issued by governmental
entities to obtain funds for various public purposes, including the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses and the extension of loans to public
institutions and facilities. Private activity bonds issued by or on behalf of
public authorities to finance various privately operated facilities are
considered Municipal Obligations. Interest on private activity bonds, although
free of regular federal income tax, may be an item of tax preference for
purposes of the federal alternative minimum tax.
Each of the Tax-Exempt Portfolios may acquire zero coupon obligations,
which may have greater price volatility than coupon obligations and which will
not result in payment of interest until maturity. Also included within the
general category of Municipal Obligations are participation certificates in
leases, installment purchase contracts, or conditional sales contracts ("lease
obligations") entered into by state or political subdivisions to finance the
acquisition or construction of equipment, land, or facilities. Although lease
obligations do not constitute general obligations of the issuer for which the
lessee's unlimited taxing power is pledged, certain lease obligations are backed
by the lessee's covenant to appropriate
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money to make the lease obligation payments. However, under certain lease
obligations, the lessee has no obligation to make these payments in future years
unless money is appropriated on a yearly basis. Although "non-appropriation"
lease obligations are secured by the leased property, disposition of the
property in the event of foreclosure might prove difficult. These securities
represent a relatively new type of financing and may not be as marketable as
more conventional securities. To the extent these securities are illiquid, they
are subject to each Portfolio's applicable limitation on illiquid securities
described below.
VARIABLE AND FLOATING RATE MUNICIPAL OBLIGATIONS. Municipal Obligations
purchased by the Tax-Exempt Portfolios may include rated or unrated variable and
floating rate instruments, including variable rate master demand notes that
permit the indebtedness thereunder to vary in addition to providing for periodic
adjustments in the interest rate. Unrated instruments purchased by a Portfolio
will be determined by the Adviser to be of comparable quality at the time of
purchase to rated instruments that may be purchased. The absence of an active
secondary market for a particular variable or floating rate instrument, however,
could make it difficult for a Portfolio to dispose of an instrument if the
issuer were to default on its payment obligation. A Portfolio could, for these
or other reasons, suffer a loss with respect to such instruments.
STAND-BY COMMITMENTS. Each of the Tax-Exempt Portfolios may acquire
"stand-by commitments" with respect to Municipal Obligations held by it. Under a
stand-by commitment, a dealer agrees to purchase, at a Portfolio's option,
specified Municipal Obligations at a specified price. The Portfolios will
acquire stand-by commitments solely to facilitate portfolio liquidity and
do not intend to exercise their rights thereunder for trading purposes. The
Portfolios expect that stand-by commitments will generally be available without
the payment of any direct or indirect consideration. However, if necessary or
advisable, a 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 a Portfolio will be valued at
zero in determining the Portfolio's net asset value.
TAX-EXEMPT DERIVATIVES. Each of the Tax-Exempt Portfolios may hold
tax-exempt derivatives which may be in the form of tender option bonds,
participations, beneficial interests in a trust, partnership interests or other
forms. The Adviser expects that less than 5% of each Tax-Exempt Portfolio's
assets will be invested in such securities during the current year. See the
Statement of Additional Information under "Investment Objectives and Policies -
Tax-Exempt Derivatives."
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DEPOSITORY RECEIPTS. The Bond Index and Equity Index Portfolios may
invest in receipts issued by banks or brokerage firms that are created by
depositing securities listed in each Portfolio's respective index into a special
account at a custodian bank. The custodian holds such securities for the benefit
of the registered owners of the certificates or receipts. The custodian arranges
for the issuance of the certificates or receipts evidencing ownership and
maintains the register. The Portfolios may invest in index-based depository
receipts in lieu of investment in the actual securities that are listed in the
respective indexes.
THE INDEXING APPROACH. The Bond Index and Equity Index Portfolios seek
to approximate the investment performance of their respective market segments,
as represented by their respective indexes, i.e. the Lehman Aggregate in the
case of the Bond Index Portfolio and the S&P 500 in the case of the Equity Index
Portfolio. While there can be no guarantee that a Portfolio's investment results
will precisely match the results of its corresponding index, the Adviser
believes that, before deduction of operating expenses, there will be a very high
correlation between the returns generated by the Portfolios and their respective
indexes. Each Portfolio will attempt to achieve a correlation between its
performance and its respective index of at least 0.95 before deduction of
operating expenses. A correlation of 1.00 would indicate a perfect correlation,
which would be achieved when a Portfolio's net asset value, including the value
of its dividend and capital gains distributions, increases or decreases in exact
proportion to changes in its respective index. Each Portfolio's ability to
correlate its performance with its respective index, however, may be affected
by, among other things, transaction costs, changes in securities markets, the
manner in which S&P or Lehman Brothers, Inc. ("Lehman") calculate their
respective indexes, and the timing of purchases and redemptions. The Adviser
monitors the correlation of the performance of the Portfolios in relation to
their indexes under the supervision of the Board of Directors. In the unlikely
event that a high correlation is not achieved, the Board of Directors will take
appropriate steps to correct the reason for the lower correlation.
THE INCLUSION OF A SECURITY IN EITHER OF THE PORTFOLIOS' INDEXES IN NO
WAY IMPLIES AN OPINION BY S&P OR LEHMAN AS TO ITS ATTRACTIVENESS AS AN
INVESTMENT. S&P AND LEHMAN ARE NOT SPONSORS OF, OR IN ANY WAY AFFILIATED WITH,
THE PORTFOLIOS.
The Adviser believes that the indexing approach should involve less
portfolio turnover, and thus lower brokerage costs, transfer taxes and operating
expenses, than in more traditionally managed funds, although there is no
assurance that this will be the case. Ordinarily, a Portfolio will buy or sell
securities only to reflect changes in an index (including mergers or changes
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in the composition of an index) or to accommodate cash flows into and out of the
Portfolio. The costs and other expenses incurred in securities transactions,
apart from any difference between the investment results of a Portfolio and that
of its respective index, may cause the return of a Portfolio to be lower than
the return of its respective index. The Portfolios may invest in less than all
of the securities included in their respective indexes, which may result in a
return that does not correspond with that of the indexes, after taking expenses
into account.
ILLIQUID SECURITIES. A Portfolio will not knowingly invest more than
15% (10% for each of the Money Market Portfolios) of the value of its net assets
in illiquid securities. Repurchase agreements that do not provide for settlement
within seven days, time deposits maturing in more than seven days, and
securities that are not registered under the Securities Act of 1933, as amended
(the "1933 Act") but that may be purchased by institutional buyers pursuant to
SEC Rule 144A are subject to the applicable limit (unless the Adviser or
Sub-Adviser, pursuant to guidelines established by the Board of Directors,
determines that a liquid market exists).
PORTFOLIO TURNOVER AND TRANSACTIONS. Although the Equity and Bond
Portfolios will not normally engage in short-term trading, each Portfolio
(except the Bond Index and Equity Index Portfolios) reserves the right to do so
if the Adviser (or Sub-Adviser) believes that selling a particular security is
appropriate in light of the Portfolio's investment objective. Investments may be
sold for a variety of reasons, such as a more favorable investment opportunity
or other circumstances bearing on the desirability of continuing to hold such
investments. A high rate of portfolio turnover involves correspondingly greater
brokerage commission expenses and other transaction costs, which must be borne
directly by the Portfolio involved and ultimately by its shareholders. High
portfolio turnover may result in the realization of substantial net capital
gains; distributions derived from such gains may be treated as ordinary income
for federal income tax purposes. See "Taxes" in this Prospectus and the
Statement of Additional Information.
Although the Intermediate Corporate Bond, Bond Index, Equity Income
and Equity Index Portfolios cannot accurately predict their respective annual
portfolio turnover rates, such rates are not expected to exceed 100%.
All orders for transactions in securities or options on behalf of the
Portfolios are placed by the Adviser (or Sub-Adviser) with broker-dealers that
it selects. To the extent permitted by the 1940 Act and guidelines adopted by
the Fund's Board of Directors, a Portfolio may utilize the Distributor or one or
more of its affiliates as a broker in connection with the purchase or sale of
securities when the Adviser believes the
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charge for the transaction does not exceed the usual and customary broker's
commission.
INVESTMENT LIMITATIONS
Except as otherwise noted, each Portfolio's investment policies
discussed above are not fundamental and may be changed by the Fund's Board of
Directors without shareholder approval. However, each Portfolio also has in
place certain fundamental investment limitations, some of which are set forth
below, which may be changed only by a vote of a majority of the outstanding
Shares of a Portfolio. Other investment limitations that also cannot be changed
without a vote of shareholders are contained in the Statement of Additional
Information under "Investment Objectives and Policies."
THE TREASURY MONEY MARKET AND MONEY MARKET PORTFOLIOS
A Portfolio may not:
1. Make loans, except that a Portfolio may purchase or hold
debt instruments in accordance with its investment objective and
policies and may enter into repurchase agreements with respect to
securities (together with any cash collateral) that are consistent with
the Portfolio's permitted investments and that equal at all times at
least 100% of the value of the repurchase price.
2. Borrow money or issue senior securities, except that a
Portfolio may borrow from banks, and the Money Market Portfolio may
enter into reverse repurchase agreements, for temporary purposes in
amounts up to 10% of the value of its total assets at the time of such
borrowing; or mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of a
Portfolio's total assets at the time of such borrowing. A Portfolio
will not purchase securities while its borrowings (including reverse
repurchase agreements) are outstanding.
3. With respect to the Treasury Money Market Portfolio,
purchase securities other than obligations of the U.S. Government, its
agencies and instrumentalities, some of which may be subject to
repurchase agreements, except that the Portfolio may purchase
securities of other investment companies that seek to maintain a
constant net asset value per Share and that are permitted themselves
only to invest in securities which may be acquired by the Portfolio.
4. With respect to the Money Market Portfolio, purchase any
securities which would cause more than 25% of the value of the
Portfolio's total assets at the time of
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purchase to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry,
provided that (a) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, domestic bank certificates of deposit, bankers'
acceptances and repurchase agreements secured by domestic bank
instruments or obligations of the U.S. Government, its agencies or
instrumentalities; (b) wholly-owned finance companies will be
considered to be in the industries of their parents if their activities
are primarily related to financing the activities of the parents; and
(c) utilities will be divided according to their services, for example,
gas, gas transmission, electric and gas, electric and telephone will
each be considered a separate industry.
In accordance with current regulations of the SEC, the Money Market
Portfolio intends to limit investments in the securities of any single issuer
(other than securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities) to not more than 5% of the Portfolio's total assets at the
time of purchase, provided that the Portfolio may invest up to 25% of its total
assets in the securities of any one issuer for a period of up to three business
days. This intention is not, however, a fundamental policy of the Money Market
Portfolio. The Portfolio would have the ability to invest more than five percent
of its assets in any one issuer in accordance with its fundamental policy only
in the event that Rule 2a-7 of the 1940 Act is amended in the future.
THE U.S. GOVERNMENT SECURITIES, INTERMEDIATE CORPORATE BOND, BOND INDEX,
GOVERNMENT & CORPORATE BOND, SHORT-INTERMEDIATE MUNICIPAL, NATIONAL MUNICIPAL
BOND, EQUITY INCOME, EQUITY INDEX, GROWTH & INCOME EQUITY, SMALL CAP EQUITY,
INTERNATIONAL EQUITY AND BALANCED PORTFOLIOS
A Portfolio may not:
1. Purchase securities of any one issuer (other than
obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities) if, immediately after and as a result of such
investments, more than 5% of the Portfolio's total assets would be
invested in the securities of such issuer, or more than 10% of the
issuer's outstanding voting securities would be owned by the Portfolio
or the Fund, except that up to 25% of the Portfolio's total assets may
be invested without regard to such limitations.
2. Purchase any securities which would cause 25% or more of
the Portfolio's total assets at the time of purchase to be invested in
the securities of one or more issuers conducting their principal
business activities in the same
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industry, provided however, that (a) with respect to each Portfolio
except the Short-Intermediate Municipal and National Municipal Bond
Portfolios, (i) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements secured by obligations of
the U.S. Government or its agencies or instrumentalities; (ii)
wholly-owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related
to financing the activities of their parents; and (iii) utilities will
be divided according to their services (for example, gas, gas
transmission, electric and gas, electric, and telephone will each be
considered a separate industry); and (b) with respect to the Short-
Intermediate Municipal and National Municipal Bond Portfolios, there is
no limitation with respect to obligations issued or guaranteed by the
U.S. Government, any state, territory or possession of the U.S.
Government, the District of Columbia, or any of their authorities,
agencies, instrumentalities or political subdivisions.
3. Borrow money or issue senior securities, except that each
Portfolio may borrow from banks and each Portfolio other than the
National Municipal Bond Portfolio may enter into reverse repurchase
agreements for temporary defensive purposes in amounts not in excess of
10% of the Portfolio's total assets at the time of such borrowing; or
mortgage, pledge, or hypothecate any assets, except in connection with
any such borrowing and in amounts not in excess of the lesser of the
dollar amounts borrowed or 10% of the Portfolio's total assets at the
time of such borrowing; or purchase securities while its borrowings
exceed 5% of its total assets. A Portfolio's transactions in futures
and related options (including the margin posted by a Portfolio in
connection with such transactions), and securities held in escrow or
separate accounts in connection with a Portfolio's investment practices
described in this Prospectus or the Statement of Additional Information
are not subject to this limitation.
4. Make loans, except that (a) each Portfolio may purchase or
hold debt instruments, lend portfolio securities and make other
investments in accordance with its investment objective and policies,
and (b) each Portfolio except the National Municipal Bond Portfolio may
enter into repurchase agreements.
5. Purchase securities on margin, make short sales of
securities or maintain a short position, except that (a) this
investment limitation shall not apply to a Portfolio's transactions in
options, and futures contracts and related options, and (b) a Portfolio
may obtain short-term credits
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as may be necessary for the clearance of purchases and sales of
portfolio securities.
THE TAX-EXEMPT MONEY MARKET AND MISSOURI TAX-EXEMPT BOND PORTFOLIOS
A Portfolio may not:
1. Purchase securities of any one issuer if, immediately after
and as a result of such purchase, more than 5% of the Portfolio's total
assets would be invested in the securities of such issuer, except that
(a) up to 50% of the Portfolio's total assets may be invested without
regard to this 5% limitation provided that no more than 25% of the
Portfolio's total assets are invested in the securities of any one
issuer and (b) this 5% limitation does not apply to securities issued
or guaranteed by the U.S. Government, its agencies or
instrumentalities. For purposes of this limitation, a security is
considered to be issued by the governmental entity (or entities) whose
assets and revenues back the security, or, with respect to an
industrial development bond (in the case of the Tax-Exempt Money Market
Portfolio) or a private activity bond (in the case of the Missouri
Tax-Exempt Bond Portfolio) that is backed only by the assets and
revenues of a non-governmental user, a security is considered to be
issued by such non-governmental user. In certain circumstances, the
guarantor of a guaranteed security may also be considered to be an
issuer in connection with such guarantee, except that a guarantee of a
security shall not be deemed to be a security issued by the guarantor
when the value of all securities issued and guaranteed by the
guarantor, and owned by the Portfolio, does not exceed 10% of the
Portfolio's total assets.
2. Borrow money or issue senior securities, except that each
Portfolio may borrow from banks, and the Missouri Tax-Exempt Bond
Portfolio may enter into reverse repurchase agreements, for temporary
defensive purposes in amounts not in excess of 10% of its total assets
at the time of such borrowing; or mortgage, pledge, or hypothecate any
assets except in connection with any such borrowing and in amounts not
in excess of the lesser of the dollar amounts borrowed or 10% of its
total assets at the time of such borrowing (including any reverse
repurchase agreements); or purchase securities while borrowings exceed
5% of Tax-Exempt Money Market Portfolio's net assets or 5% of the
Missouri Tax- Exempt Bond Portfolio's total assets. Securities held in
escrow or separate accounts in connection with the Portfolios'
investment practices described in this Prospectus or the Statement of
Additional Information are not subject to this limitation.
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THE MISSOURI TAX-EXEMPT BOND PORTFOLIO
The Portfolio may not:
1. Purchase any securities, except securities issued (as
defined in Investment Limitation No. 1 above with respect to the
Tax-Exempt Money Market and Missouri Tax-Exempt Bond Portfolios) or
guaranteed by the United States, any state, territory or possession of
the United States, the District of Columbia or any of their
authorities, agencies, instrumentalities or political subdivisions,
which would cause more than 25% of the Portfolio's net assets at the
time of purchase to be invested in the securities of issuers conducting
their principal business activities in the same industry.
2. Make loans except that the Portfolio may purchase and hold
debt instruments and enter into repurchase agreements in accordance
with its investment objective and policies.
In addition, under normal market conditions or when the Adviser deems
that suitable tax-exempt obligations are available, at least 80% of the
Tax-Exempt Money Market Portfolio's assets must be invested in obligations the
interest on which is exempt from federal income tax and stand-by commitments
with respect to such obligations.
Notwithstanding the Investment Limitation in the preceding paragraph,
the Tax-Exempt Money Market Portfolio may invest in securities of other
investment companies that (a) invest in securities that are substantially
similar to those the Portfolio may acquire, and (b) distribute income that is
exempt from regular federal income tax.
The following additional investment policies with respect to the
Tax-Exempt Money Market and Missouri Tax-Exempt Bond Portfolio are not
fundamental and may be changed by the Board of Directors without shareholder
approval:
The Portfolios may not purchase securities which are not
readily marketable, enter into repurchase agreements providing for
settlement in more than seven days after notice, or purchase other
illiquid securities if, as a result of such purchase, illiquid
securities would exceed 15% (10% with respect to the Tax-Exempt Money
Market Portfolio) of the Portfolios' respective total assets.
The Tax-Exempt Money Market Portfolio has an operating policy to comply
with the requirements of Rule 2a-7 of the 1940 Act. To the extent that Rule 2a-7
is more restrictive than the
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Portfolio's fundamental limitations, the Portfolio will operate in accordance
with Rule 2a-7.
If a percentage limitation is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in value
in the Portfolio's securities will not constitute a violation of such
limitation.
PRICING OF SHARES
THE MONEY MARKET PORTFOLIOS
The Money Market Portfolios' respective net asset values per Share are
determined by the Administrator as of 12:00 noon (Eastern Time) and as of the
close of regular trading hours on the New York Stock Exchange (the "Exchange")
(currently, 4:00 p.m. Eastern time) on each weekday, with the exception of those
holidays on which the Exchange or the Federal Reserve Bank of St. Louis are
closed (a "Business Day"). Currently one or both of these institutions are
closed on the customary national business holidays of New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day (observed),
Independence Day (observed), Labor Day, Columbus Day, Veterans' Day,
Thanksgiving Day and Christmas Day (observed).
Each Portfolio's assets are valued based upon the amortized cost
method. Although each Portfolio seeks to maintain its net asset value per Share
at $1.00, there can be no assurance that the net asset value per Share will not
vary. See the Statement of Additional Information under "Net Asset Value" for
further information.
THE EQUITY AND BOND PORTFOLIOS
The Equity and Bond Portfolios' respective net asset values per Share
are determined by the Administrator as of the close of regular trading hours on
the Exchange on each Business Day (currently 4:00 p.m. Eastern time).
Securities which are traded on a recognized stock exchange are valued
at the last sale price on the securities exchange on which such securities are
primarily traded or at the last sale price on the national securities market.
Securities traded on only over-the-counter markets are valued on the basis of
market values when available. Securities for which there are no transactions are
valued at the average of the current bid and asked prices. Other securities,
including restricted and other securities for which market quotations are not
readily available, and other assets are valued at fair value by the Adviser (or
Sub-Adviser) under the supervision of the Board of Directors.
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Investments in debt securities with remaining maturities of 60 days or less may
be valued based upon the amortized cost method. For further information about
valuation of investments, see "Net Asset Value" in the Statement of Additional
Information.
OTHER INFORMATION
The public offering price for each class of Shares of a Portfolio is
based upon net asset value per Share plus, in the case of Investor A Shares of
each Portfolio except the Money Market Portfolios, a front-end sales charge. A
class will calculate its net asset value per Share by adding the value of a
Portfolio's investments, cash and other assets attributable to the class,
subtracting the Portfolio's liabilities attributable to that class, and then
dividing the result by the total number of Shares in the class that are
outstanding. Because the operating expenses of Investor B Shares are higher than
those associated with the other classes of Shares, the net asset value per Share
of Investor B Shares of a Portfolio which declares its net investment income
quarterly will generally be lower than the net asset value per Share of Trust,
Institutional or Investor A Shares of the same Portfolio.
HOW TO PURCHASE AND REDEEM SHARES
PURCHASE OF SHARES
Trust Shares are sold to financial institutions, such as banks, trust
companies, thrift institutions, mutual funds or other financial institutions
(collectively "financial institutions"), acting on their own behalf or on behalf
of their qualified fiduciary accounts, employee benefit, retirement plan, or
other such qualified accounts. Trust Shares are sold to qualified purchasers
without a sales charge imposed by the Fund or the Distributor. Generally,
investors purchase Trust Shares through a financial institution, which is
responsible for transmitting purchase orders directly to the Fund.
Purchases may be effected on Business Days when the Adviser,
Distributor and Mercantile (the Custodian) are open for business. The Fund
reserves the right to reject any purchase order, including purchases made with
foreign and third party drafts or checks.
Financial institutions placing orders directly or on behalf of their
customers should contact the Fund at 1-800-551-3731. Investors may also call the
Fund for information on how to purchase Shares.
All shareholders of record will receive confirmations of Share
purchases, exchanges, and redemptions in the mail. If
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Shares are held in the name of banks or other financial institutions, such
institution is responsible for transmitting purchase, exchange, and redemption
orders to the Fund on a timely basis, recording all purchase, exchange, and
redemption transactions, and providing regular account statements which confirm
such transactions to beneficial owners. Payment for orders which are not
received or accepted will be returned after prompt inquiry to the transmitting
financial institution.
PURCHASE OF SHARES -- THE MONEY MARKET PORTFOLIOS
A purchase order received and accepted by the Fund by 12:00 noon
(Eastern time) on a Business Day is effected at the net asset value per Share
next determined after receipt of the order in good form if the Fund's Custodian
has received payment in federal funds by 4:00 p.m. (Eastern time) that day. If
such funds are not available for investment by 4:00 p.m. (Eastern time), the
order will be cancelled. Purchase orders received after 12:00 noon (Eastern
time) will be placed the following business day.
PURCHASE OF SHARES -- THE EQUITY AND BOND PORTFOLIOS
If purchase orders are received in good form and accepted by the Fund
prior to 4:00 p.m. (Eastern time) on any Business Day, Trust Shares will be
priced according to the net asset value per Share next determined on that day
after receipt of the order. Immediately available funds must be received by the
Custodian prior to 4:00 p.m. on the next Business Day following receipt of such
order. If funds are not received by such date, the order will be cancelled, and
notice thereof will be given to the financial institution placing the order.
EXCHANGES
The exchange privilege enables shareholders to exchange Trust Shares of
a Portfolio for Trust Shares of another Portfolio offered by the Fund. Exchanges
for Trust Shares in another Portfolio are effected without payment of any
exchange or sales charges. In addition, Trust Shares of a Portfolio may also be
exchanged for Investor A Shares of the same Portfolio in connection with the
distribution of assets held in a qualified trust, agency or custodian account
with the trust department of Mercantile or any of its affiliated or
correspondent banks. Such exchanges will also be effected without payment of any
exchange or sales charges. The exchange privilege may be exercised only in those
states where the class of shares of such other Portfolios may be legally sold.
The Fund reserves the right to reject any exchange request. The
exchange privilege may be modified or terminated at any time upon 60 days'
written notice to shareholders. An investor may
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telephone an exchange request by calling his or her financial institution, which
is responsible for transmitting such request to the Distributor. See "Other
Exchange or Redemption Information" below. An investor should consult the
financial institution or the Distributor for further information regarding
procedures for exchanging Shares.
REDEMPTION OF SHARES
Redemption orders should be placed with or through the same financial
institution that placed the original purchase order. Redemption orders are
effected at a Portfolio's net asset value per Share next determined after
receipt of the order by the Fund. The financial institution is responsible for
transmitting redemption orders to the Fund on a timely basis. No charge for
sending redemption payments electronically is currently imposed by the Fund,
although a charge may be imposed in the future. The Fund reserves the right to
send redemption proceeds electronically within seven days after receiving a
redemption order if, in the judgment of the Adviser, an earlier payment could
adversely affect a Portfolio.
A written redemption request must be accompanied by any Share
certificates which are properly endorsed for transfer. The Transfer Agent may
require a signature guarantee by an eligible guarantor institution. For purposes
of this policy, the term "eligible guarantor institution" shall include banks,
brokers, dealers, credit unions, securities exchanges and associations, clearing
agencies and savings associations as those terms are defined in Rule 17Ad-15
under the Securities Exchange Act of 1934. The Transfer Agent reserves the right
to reject any signature guarantee if (1) it has reason to believe that the
signature is not genuine, (2) it has reason to believe that the transaction
would otherwise be improper, or (3) the guarantor institution is a broker or
dealer that is neither a member of a clearing corporation nor maintains net
capital of at least $100,000. The signature guarantee requirement will be waived
if all of the following conditions apply: (1) the redemption check is payable to
the shareholder(s) of record and (2) the redemption check is mailed to the
shareholder(s) at the address of record or the proceeds are either mailed or
sent electronically to a commercial bank account previously designated on the
account application. An investor with questions or needing assistance should
contact the financial institution servicing his or her account or the
Distributor. Additional documentation may be required if the redemption is
requested by a corporation, partnership, trust, fiduciary, executor, or
administrator. If, due to temporary adverse conditions, investors are unable to
effect telephone transactions, investors are encouraged to follow the procedures
described in "Other Exchange or Redemption Information" below.
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Neither the Fund nor its service providers will be liable for any loss,
damage, expense or cost arising out of any telephone redemption effected in
accordance with the Fund's telephone redemption procedures, upon instructions
reasonably believed to be genuine. The Fund will employ procedures designed to
provide reasonable assurance that instructions by telephone are genuine; if
these procedures are not followed, the Fund or its service providers may be
liable for any losses due to unauthorized or fraudulent instructions. If Share
certificates are outstanding with respect to an account, the telephone
redemption and exchange privilege is not available.
Proceeds from redemptions of Shares of the MONEY MARKET PORTFOLIOS with
respect to redemption orders received by the Fund before 12:00 noon (Eastern
time) on a Business Day normally are sent electronically the same day to the
financial institution that placed the redemption order in good form. Proceeds
for redemption orders that are received after 12:00 noon (Eastern time) or on a
non-Business Day normally are wired to the financial institution on the next
Business Day.
Proceeds from redemptions of Shares of the EQUITY AND BOND PORTFOLIOS
with respect to redemption orders received by the Fund before 4:00 p.m. (Eastern
time) on a Business Day normally are sent electronically to the financial
institution that placed the redemption order the next Business Day after the
Distributor's receipt of the order in good form.
OTHER EXCHANGE OR REDEMPTION INFORMATION
During periods of substantial economic or market change or activity,
telephone redemptions or exchanges may be difficult to complete. In such event,
Shares may be redeemed or exchanged by mailing the request directly to the
financial institution through which the original Shares were purchased or
directly to the Fund at P.O. Box 78069, St. Louis, Missouri 63178.
At various times, the Fund may be requested to redeem Shares for which
it has not yet received good payment. In such circumstances, the Fund may delay
the forwarding of proceeds until payment has been collected for the purchase of
such Shares which may take up to 15 days or more. To avoid delay in payment upon
redemption shortly after purchasing Shares, investors should purchase Shares by
certified or bank check or by electronic transfer. The Fund intends to pay cash
for all Shares redeemed, but under abnormal conditions which make payment in
cash unwise, the Fund may make payment wholly or partly in portfolio securities
at their then market value equal to the redemption price. In such cases, an
investor may incur brokerage costs in converting such securities to cash.
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A shareholder may be required to redeem Shares in a Portfolio upon 60
days' written notice if the balance in the shareholder's account drops below
$500. The Fund will not require a shareholder to redeem Portfolio Shares if the
value of the shareholder's account drops below $500 due to fluctuations in net
asset value. Share balances may also be redeemed pursuant to arrangements
between financial institutions and their investors.
YIELDS AND TOTAL RETURNS
Yield and total return quotations are computed separately for Trust
Shares, Institutional Shares, Investor A Shares and/or Investor B Shares of a
Portfolio. TOTAL RETURN AND YIELD FIGURES WILL FLUCTUATE, ARE BASED ON
HISTORICAL EARNINGS, AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The
methods used to compute each Portfolio's yields and total returns are described
below and in the Statement of Additional Information.
THE MONEY MARKET PORTFOLIOS
From time to time, performance information such as total return,
"yield" and "effective yield" for the Money Market Portfolios' Trust Shares may
be quoted in advertisements or in communications to shareholders. The "yield"
quoted in advertisements refers to the income generated by an investment in such
Shares of a Portfolio over a specified period (such as a seven-day period)
identified in connection with the particular yield quotation. This income is
then "annualized." That is, the amount of income generated by the investment
during that period is assumed to be generated for each such period over a
52-week or one-year period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly but, when annualized, the income
earned by an investment in such Shares of a Portfolio is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment.
In addition, the Treasury Money Market Portfolio's "state
tax-equivalent yield" may also be quoted. The "state tax- equivalent yield"
shows the level of taxable yield needed to produce an after-tax yield that is
equivalent to a particular state's tax-exempt yield achieved by the Portfolio.
The "state tax-equivalent yield" refers to the portion of income that is derived
from interest income on direct obligations of the U.S. Government, its agencies
or instrumentalities that qualifies for exemption from state income tax. The
yield calculation assumes that 100% of the interest income is exempt from state
income tax. The "state tax-equivalent yield" is computed by dividing the
tax-exempt portion of the Portfolio's yield by a denominator consisting of one
minus a stated income tax rate.
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The Tax-Exempt Money Market Portfolio may also quote its
"tax-equivalent yield" and "tax-equivalent effective yield", which demonstrate
the level of taxable yield needed to produce an after-tax yield that is
equivalent to the Portfolio's yield and effective yield. Each are calculated by
increasing the Portfolio's yield and effective yield by the amount necessary to
reflect the payment of federal (and/or state) tax at a stated tax rate. The "tax
equivalent yield" and "tax-equivalent effective yield" will always be higher
than the Portfolio's yield and effective yield, respectively. The Tax-Exempt
Money Market Portfolio may also compute its "tax-equivalent yield" and "tax-
equivalent effective yield" with respect to certain states, which shows the
level of taxable yield and effective yield, respectively, needed to produce an
after-tax equivalent to the federal and state tax-exempt yield of the
Portfolio's particular class of Shares, assuming payment of federal income tax
and state personal income tax each at a stated rate and based upon a specified
percentage of the Portfolio's income which is exempt from state income tax as
well as federal income tax.
THE EQUITY AND BOND PORTFOLIOS
From time to time, performance information such as total return and
yield data for the Equity and Bond Portfolios' Trust Shares may be quoted in
advertisements or in communications to shareholders. The yield is computed based
on the net income of such Shares in the particular Portfolio during a 30-day (or
one-month) period identified in connection with the particular yield quotation.
More specifically, the yield is computed by dividing the Portfolio's net income
per Share during a 30-day (or one-month) period by the net asset value per Share
on the last day of the period and annualizing the result. The Short-Intermediate
Municipal, Missouri Tax-Exempt Bond and National Municipal Bond Portfolios' "tax
equivalent" yields, which show the level of taxable yield needed to produce an
after-tax equivalent to each Portfolio's tax-free yield may also be quoted from
time to time. This is done by increasing a Portfolio's yield (calculated as
above) by the amount necessary to reflect the payment of federal income tax at a
stated tax rate. The Missouri Tax-Exempt Bond Portfolio may also compute its
"Missouri tax-equivalent" yield which shows the level of taxable yield needed to
produce an after-tax equivalent to the federal and Missouri tax-exempt yield of
the Portfolio's Shares, assuming payment of federal income tax and Missouri
income tax each at a stated rate.
The Portfolios' total returns may be calculated on an average annual
total return basis, and may also be calculated on an aggregate total return
basis, for various periods. Average annual total returns with respect to Trust
Shares reflect the average annual percentage change in value of an investment in
such Shares of the particular Portfolio over the particular measuring period.
Aggregate total returns reflect the cumulative
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percentage change in value over the measuring period. Both methods of
calculating total returns assume that dividends and capital gain distributions
made by a Portfolio during the period are reinvested in the Portfolio's Trust
Shares. When considering average annual total return figures for periods longer
than one year, it is important to note that a Portfolio's annual total return
for any one year in the period might have been more or less than the average for
the entire period.
INFORMATION APPLICABLE TO ALL PORTFOLIOS
Performance data of the Portfolios' Trust Shares may be compared to the
performance of other mutual funds with comparable investment objectives and
policies through various mutual fund or market indices and data such as that
provided by Lehman Brothers, Inc., or any of its affiliates, Ibbotson
Associates, Inc., Lipper Analytical Services, Inc., Mutual Fund Forecaster and
IBC/Donoghue's MONEY FUND REPORT(R) published by IBC/Donoghue. References may
also be made to indices or data published in Money Magazine, Forbes, Barron's,
The Wall Street Journal, The New York Times, Business Week, American Banker,
Institutional Investor, Pensions and Investments, U.S.A. Today, Fortune,
CDA/Weisenberger, Morningstar, Inc. and publications of a local or regional
nature. In addition to performance information, general information about the
Portfolios that appears in a publication such as those mentioned above may be
included in advertisements and in reports to shareholders.
Performance quotations of a class of Shares in a Portfolio represent
that Portfolio's past performance and should not be considered as representative
of future results. Any account fees charged by a bank or other financial
institution (as described in "Management of The Fund -- Service Organizations"
below) or other institutions will not be included in the calculations of a
Portfolio's yields and total returns. Such fees, if any, will reduce the
investor's net return on an investment in a Portfolio. Investors may call
1-800-452-4015 to obtain current yield and total return information.
DIVIDENDS AND DISTRIBUTIONS
THE TREASURY MONEY MARKET, MONEY MARKET, TAX-EXEMPT MONEY MARKET, U.S.
GOVERNMENT SECURITIES, INTERMEDIATE CORPORATE BOND, BOND INDEX, GOVERNMENT &
CORPORATE BOND, SHORT-INTERMEDIATE MUNICIPAL, MISSOURI TAX-EXEMPT BOND AND
NATIONAL MUNICIPAL BOND PORTFOLIOS
Dividends from net investment income of the Treasury Money Market,
Money Market, Tax-Exempt Money Market, U.S. Government Securities, Intermediate
Corporate Bond, Bond Index, Government & Corporate Bond, Short-Intermediate
Municipal, Missouri Tax-Exempt
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Bond and National Municipal Bond Portfolios are declared daily and paid monthly
not later than five Business Days after the end of each month. Trust Shares of
the Treasury Money Market, Money Market and Tax-Exempt Money Market Portfolios
earn dividends from the day the purchase order is received by the Transfer Agent
through the day before the redemption order for such Shares is received. Trust
Shares of the U.S. Government Securities, Intermediate Corporate Bond, Bond
Index, Government & Corporate Bond, Short-Intermediate Municipal, Missouri
Tax-Exempt Bond and National Municipal Bond Portfolios earn dividends from the
day after the purchase order is received by the Transfer Agent through the day
the redemption order for such Shares is received. Dividends on each Share of
such Portfolios are determined in the same manner and are paid in the same
amounts irrespective of class, except that a Portfolio's Trust Shares and
Institutional Shares (other than the Tax-Exempt Portfolios which do not offer
Institutional Shares) bear all expenses of the respective Administrative
Services Plans adopted for such Shares and a Portfolio's Investor A Shares and
Investor B Shares (other than the Treasury Money Market, Tax-Exempt Money
Market, Intermediate Corporate Bond, Bond Index and Short-Intermediate Municipal
Portfolios which do not offer Investor B Shares) bear all expenses of the
respective Distribution and Services Plans adopted for such Shares. In addition,
a Portfolio's Institutional Shares bear the expense of certain sub-transfer
agency fees. See "Management of the Fund -- Administrative Services Plan" and
"Other Information Concerning the Fund and Its Shares" below.
THE EQUITY INCOME, EQUITY INDEX, GROWTH & INCOME EQUITY AND BALANCED PORTFOLIOS
Net investment income for the Equity Income, Equity Index, Growth &
Income Equity and Balanced Portfolios is declared and paid monthly as a dividend
to shareholders of record. Dividends on each Share of each of these Portfolios
are determined in the same manner and are paid in the same amount, irrespective
of class, except that a Portfolio's Trust Shares and Institutional Shares bear
all expenses of the respective Administrative Services Plans adopted for such
Shares and a Portfolio's Investor A Shares and Investor B Shares (other than the
Equity Index Portfolio which does not offer Investor B Shares) bear all expenses
of the respective Distribution and Services Plans adopted for such Shares. In
addition, a Portfolio's Institutional Shares bear the expense of certain
sub-transfer agency fees. See "Management of the Fund -- Administrative Services
Plan" and "Other Information Concerning the Fund and Its Shares" below.
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THE SMALL CAP EQUITY AND INTERNATIONAL EQUITY PORTFOLIOS
Net investment income for the Small Cap Equity and International Equity
Portfolios is declared and paid quarterly as a dividend to shareholders of
record. Dividends on each Share of each of these Portfolios are determined in
the same manner and are paid in the same amount, irrespective of class, except
that a Portfolio's Trust Shares and Institutional Shares bear all expenses of
the respective Administrative Services Plans adopted for such Shares and a
Portfolio's Investor A Shares and Investor B Shares bear all expenses of the
respective Distribution and Services Plans adopted for such Shares. In addition,
a Portfolio's Institutional Shares bear the expense of certain sub- transfer
agency fees. See "Management of the Fund -- Administrative Services Plan" and
"Other Information Concerning the Fund and Its Shares" below.
OTHER DIVIDEND AND DISTRIBUTION INFORMATION
The Money Market Portfolios do not expect to realize capital gains. Net
realized capital gains of a Portfolio, if any, are distributed at least
annually. All dividends and distributions paid on a Portfolio's Shares are
automatically reinvested in additional Shares of the same class unless the
investor has (i) otherwise indicated in the account application, or (ii)
redeemed all the Shares held in a Portfolio, in which case a distribution will
be paid in cash. Reinvested dividends and distributions will be taxed in the
same manner as those paid in cash.
TAXES
FEDERAL TAXES
Each Portfolio of the Fund intends to qualify as a "regulated
investment company" for the current taxable year. It is intended that each
Portfolio will continue to so qualify as long as such qualification is in the
best interests of shareholders. A regulated investment company is generally
exempt from federal income tax on amounts distributed to shareholders.
Qualification as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code"), for a taxable year requires,
among other things, that each Portfolio distribute to its shareholders an amount
equal to at least the sum of 90% of its investment company taxable income and
90% of its net exempt-interest income (if any). In general, a Portfolio's
investment company taxable income will be its taxable income, including
dividends, interest and short-term capital gains (the excess of net short-term
capital gain over net long-term capital loss), subject to certain adjustments
and excluding the excess of any net long-term capital gain over net short-term
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capital loss, if any, for such taxable year. The Treasury Money Market, Money
Market, U.S. Government Securities, Intermediate Corporate Bond, Bond Index,
Government & Corporate Bond, Equity Income, Equity Index, Growth & Income
Equity, Small Cap Equity, International Equity and Balanced Portfolios intend to
distribute as dividends substantially all of their respective investment company
taxable income and any net tax-exempt interest income each year. Such dividends
will be taxable as ordinary income to a Portfolio's shareholders who are not
currently exempt from federal income taxes, whether such income is received in
cash or reinvested in additional Shares. (Federal income taxes for distributions
to an IRA are deferred under the Code.) In the case of the Equity Income, Equity
Index, Growth & Income Equity, Small Cap Equity, International Equity and
Balanced Portfolios, such dividends will qualify for the dividends received
deduction for corporations to the extent of the total qualifying dividends
received by the Portfolios from domestic corporations for the taxable year.
Because all of the Treasury Money Market, Money Market, U.S. Government
Securities, Intermediate Corporate Bond, Bond Index and Government & Corporate
Bond Portfolios' net investment income is expected to be derived from earned
interest, it is not expected that any distributions from such Portfolios will be
eligible for the dividends received deduction.
It is the policy of each Tax-Exempt Portfolio to distribute as
dividends substantially all of its net tax-exempt interest income and any
investment company taxable income each year. Dividends derived from interest on
Municipal Obligations (known as exempt-interest dividends) may be treated by
shareholders as items of interest excludable from their gross income under
Section 103(a) of the Code, unless under the circumstances applicable to the
particular shareholder the exclusion would be disallowed. See the Statement of
Additional Information under "Additional Information Concerning Taxes."
Distributions of net income may be taxable to investors under state or local law
as dividend income even though a substantial portion of such distributions may
be derived from interest on tax-exempt obligations which, if realized directly,
would be exempt from such income tax.
If a Tax-Exempt Portfolio should hold certain private activity bonds
issued after August 7, 1986, shareholders must include, as an item of tax
preference, the portion of dividends paid by the Portfolio that is attributable
to interest on such bonds in their federal alternative minimum taxable income
for 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
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imposed at the rate of .12% on the excess of the corporation's modified federal
alternative minimum taxable income over $2,000,000.
Substantially all of each Portfolio's net realized long-term capital
gains, if any, will be distributed at least annually to its shareholders. A
Portfolio will generally have no tax liability with respect to such gains and
the distributions will be taxable to shareholders who are not currently exempt
from federal income taxes as long-term capital gains, regardless of how long the
shareholders have held the Shares and whether such gains are received in cash or
reinvested in additional Shares.
To the extent dividends paid to shareholders of a Tax-Exempt Portfolio
are derived from taxable income or from long-term or short-term capital gains,
such dividends will be subject to federal income tax, whether such dividends are
paid in the form of cash or additional Shares.
An investor considering purchasing Shares of a Money Market Portfolio
on or just before the record date of any capital gains distribution (or in the
case of the Equity and Bond Portfolios, the record date of any dividend or
capital gains distribution) should be aware that the amount of the forthcoming
distribution, although in effect a return of capital, will be taxable.
Dividends declared by a Portfolio in October, November, or December of
any year payable to shareholders of record on a specified date in such months
will be deemed to have been received by shareholders and paid by the Fund on
December 31 of such year, if such dividends are actually paid during January of
the following year.
Each Portfolio may be required in certain cases to withhold and remit
to the U.S. Treasury 31% of taxable dividends or gross sale proceeds paid to
shareholders who have failed to provide a correct tax identification number in
the manner required, who are subject to withholding by the Internal Revenue
Service for failure properly to include on their return payments of taxable
interest or dividends, or who have failed to certify to the Portfolio that they
are not subject to backup withholding when required to do so or that they are
"exempt recipients."
A taxable gain or loss may be realized by an investor upon redemption,
transfer or exchange of Shares of the Equity and Bond Portfolios, depending upon
the tax basis of such Shares and their price at the time of redemption, transfer
or exchange. If an investor holds Shares for six months or less and during that
time receives an exempt-interest dividend on those Shares, any loss realized on
the sale or exchange of those Shares will be disallowed to the extent of the
exempt-interest dividend.
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Certain interest income and dividends earned by the International
Equity Portfolio from foreign securities is expected to be subject to foreign
withholding taxes or other taxes. So long as more than 50% of the value of the
Portfolio's total assets at the close of any taxable year consists of stock or
securities of foreign corporations, the Portfolio may elect, for U.S. federal
income tax purposes, to treat certain foreign taxes paid by it, including
generally any withholding taxes and other foreign income taxes, as paid by its
shareholders. The Portfolio may make this election. As a consequence, the amount
of these foreign taxes paid by the Portfolio will be included in its
shareholders' taxable income pro rata (in addition to taxable distributions
actually received by them), and each shareholder may elect either (a) to credit
his proportionate amount of such taxes against his U.S. federal income tax
liabilities (subject to certain limitations), or (b) if he itemizes his
deductions, to deduct such proportionate amounts from his U.S. taxable income.
MISSOURI TAX CONSIDERATIONS. For each year in which a Portfolio
qualifies as a regulated investment company for federal income tax purposes,
shareholders of such Portfolio who are Missouri resident individuals, trusts or
estates resident in Missouri, or corporations subject to Missouri taxing
jurisdiction (collectively, "Missouri Taxpayers") will not be subject to
Missouri income taxation on dividends distributed to them to the extent that
such dividends (a) qualify as exempt-interest dividends of a regulated
investment company under Code section 852(b)(5), (b) are the subject of the
written notice to shareholders required by 12 C.S.R. section 10-2.155(2), (c)
are attributable to interest on (1) obligations issued by the State of Missouri
or any of its political subdivisions or authorities, or (2) certain obligations
of the United States, any territory or possession of the United States, or any
authority, commission, or instrumentality of the United Sates, to the extent
exempted from Missouri income tax under Federal Law, and (d) are properly
reported on the Missouri income tax returns of the shareholder in the respective
Portfolio.
To the extent possible, the Missouri Tax-Exempt Bond Portfolio intends
to invest in obligations which will permit distributions attributable to
interest to be excludable by Missouri Taxpayers. Despite this intention,
Missouri Taxpayers generally will be subject to Missouri income tax on other
types of distributions received from the Missouri Tax-Exempt Bond Portfolio,
including distributions of interest on obligations of other issuers and all
long-term and short-term capital gains.
Except as noted above with respect to Missouri income taxation,
distributions from a Portfolio may be taxable to shareholders under other state
and local laws imposing taxes on or measured by net income, even though such
distribution were derived, in whole or in part, from interest on obligations
which,
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if realized directly by the shareholder, or by a shareholder of another type,
would be nontaxable.
The foregoing discussion of Missouri law does not apply to shareholders
that are subject to the Missouri bank tax or other comparable forms of
specialized Missouri taxation.
All shareholders of the Portfolios should consult with their tax
advisors with respect to the state and local tax consequences of the purchase,
ownership, and disposition of Shares in the Portfolios, the receipt of
distributions from the Portfolios, and the proper method in which to report
Portfolio-related items on a shareholder's Missouri tax returns.
STATE AND LOCAL TAXES
Shareholders should note that dividends paid by a Portfolio may be
taxable to investors under state or local law as dividend income even though all
or a portion of such dividends may be derived from interest on obligations that,
if realized directly, would be exempt from such income taxes.
The Treasury Money Market Portfolio is structured to provide investors,
to the extent permissible by federal and state law, with income that is exempt
or excluded from taxation at the state and local level. Shareholders should note
that many, but not all, states permit all or a portion of a regulated investment
company's dividends which are derived from interest on U.S. Treasury obligations
(and obligations of certain U.S. Government agencies)("Treasury Obligations") to
be exempt or excluded from state and local taxation. In addition, only certain
states allow dividends of a regulated investment company that are derived from
dividends of other regulated investment companies investing directly in Treasury
Obligations to be exempt or excluded from state and local taxation. Some states
reduce a shareholder's allowable deductions by interest on debt incurred to
carry obligations producing state tax-exempt interest and by other expenses
related to such obligations. Income earned by the Portfolio from repurchase
agreements generally is not exempt from state or local income tax. Shareholders
should consult their own tax advisors about the status of distributions from the
Treasury Money Market Portfolio under state and local law.
MISCELLANEOUS
The foregoing summarizes some of the important federal and state tax
considerations generally affecting the Portfolios and their shareholders and is
not intended as a substitute for careful tax planning. Accordingly, potential
investors in the Portfolios should consult their tax advisers with specific
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reference to their own tax situation. Shareholders will be advised at least
annually as to the federal and, for the Treasury Money Market Portfolio, the
state income tax consequences, and for the Missouri Tax-Exempt Bond Portfolio,
the Missouri state income tax consequences, of distributions made each year.
MANAGEMENT OF THE FUND
The Fund is managed under the direction of its Board of Directors. The
Statement of Additional Information contains the names of and general background
information concerning each director.
INVESTMENT ADVISER AND SUB-ADVISER
Mississippi Valley Advisors Inc. ("MVA") serves as the investment
adviser to each Portfolio. MVA's principal office is located at One Mercantile
Center, Seventh & Washington Streets, St. Louis, Missouri 63101. MVA is a
wholly-owned subsidiary of Mercantile. As of December 31, 1996, MVA had
approximately $7.9 billion in assets under investment management, including the
Funds' assets, which were approximately $___ billion.
Subject to the general supervision of the Fund's Board of Directors and
in accordance with the Fund's investment policies, MVA manages the Portfolios,
makes investment decisions with respect to and places orders for all purchases
and sales of the Portfolios' securities and other investments, and directs the
maintenance of each Portfolio's records relating to such purchases and sales.
For the services provided and expenses assumed pursuant to the
investment advisory agreement, MVA is entitled to receive fees, computed daily
and payable monthly, with respect to the Treasury Money Market and Money Market
Portfolios, at the annual rates of .40% of the first $1.5 billion of each such
Portfolio's average daily net assets, .35% of the next $1.0 billion of net
assets and .25% of net assets in excess of $2.5 billion, and with respect to the
Tax-Exempt Money Market, U.S. Government Securities, Intermediate Corporate
Bond, Bond Index, Government & Corporate Bond, Short-Intermediate Municipal,
Missouri Tax-Exempt Bond , National Municipal Bond, Equity Income, Equity Index,
Growth & Income Equity, Small Cap Equity, International Equity and Balanced
Portfolios, at the annual rates of .40%, .45%, .55%, .30%, .45%, .55%, .45%,
.55%, .75%, .30%, .55%, .75%, 1.00% and .75%, respectively, of the average daily
net assets of each Portfolio, respectively. For the fiscal year ended November
30, 1996, MVA received advisory fees (net of waivers) at the effective annual
rates of .__%, .__%, .__%, .__%, .__%, .__%, .__%, .__%, .__%, .__%, .__% and
.__% of the respective average daily net assets of the Treasury Money Market,
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Money Market, Tax-Exempt Money Market, U.S. Government Securities, Government &
Corporate Bond, Short-Intermediate Municipal , Missouri Tax-Exempt Bond ,
National Municipal Bond, Growth & Income Equity, Small Cap Equity, International
Equity and Balanced Portfolios. The Intermediate Corporate Bond, Bond Index,
Equity Income and Equity Index Portfolios had not commenced operations as of
November 30, 1996.
MVA may from time to time voluntarily reduce all or a portion of its
advisory fee to increase the net income of one or more Portfolios available for
distributions as dividends. The voluntary fee reduction will cause the return of
any such Portfolio to be higher than it would otherwise be in the absence of
such reduction.
David A. Bethke, CFA, is the person primarily responsible for the
day-to-day management of the U.S. Government Securities, Intermediate Corporate
Bond and Government & Corporate Bond Portfolios. Mr. Bethke, Senior Associate,
joined MVA in 1987 and has seven years of prior investment experience.
Peter Merzian, is the person primarily responsible for the day-to-day
management of the Short-Intermediate Municipal, Missouri Tax-Exempt Bond ,
National Municipal Bond and Balanced Portfolios. Mr. Merzian, a Senior Associate
of MVA, has been with MVA since 1993 and prior thereto was employed as a
portfolio manager of another financial institution. Mr. Merzian has served as
portfolio manager of the Short-Intermediate Municipal and National Municipal
Bond Portfolios since their respective dates of inception and of the Balanced
Portfolio since May 1996. Mr. Merzian has served as portfolio manager of the
Missouri Tax- Exempt Bond Portfolio (including the Predecessor Missouri Tax-
Exempt Bond Portfolio) since 1993.
Gregory A. Glidden is the person primarily responsible for the
day-to-day management of the Equity Income Portfolio. Mr. Glidden, Senior
Associate, has been with MVA since 1983. For the past 13 years, he has served as
a stock analyst and has managed several of Mercantile's common funds. Mr.
Glidden has managed the Equity Income Portfolio since its inception.
Timothy S. Engelbrecht, is the person primarily responsible for the
day-to-day management of the Growth & Income Equity Portfolio. Mr. Engelbrecht,
a Senior Associate, has been employed by MVA for the past sixteen years and has
had portfolio management and other responsibilities for MVA for the past fifteen
years. Mr. Engelbrecht has managed the Growth & Income Equity Portfolio since
May 1996.
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Robert J. Anthony is the person primarily responsible for the
day-to-day management of the Small Cap Equity Portfolio. Mr. Anthony, Senior
Associate, has been with MVA for 21 years.
MVA has entered into a sub- advisory agreement with Clay Finlay Inc.
Pursuant to the terms of such sub-investment advisory agreement, Clay Finlay has
been retained by MVA to manage the investment and reinvestment of the assets of
the International Equity Portfolio and to provide analytical and investment
research services to it, subject to the supervision of MVA and to the direction
and control of the Fund's Board of Directors.
Under this arrangement, Clay Finlay is responsible for the day-to-day
management of the International Equity Portfolio's assets. MVA reviews
investment performance policies and guidelines, maintains certain books and
records, is responsible for selecting and monitoring the performance of Clay
Finlay, and for reporting the activities of Clay Finlay in managing the
Portfolio to the Fund's Board of Directors.
Clay Finlay is registered as an investment adviser with the SEC and is
a wholly-owned subsidiary of United Asset Management Corporation, a financial
services holding company. Clay Finlay's principal office is located at 200 Park
Avenue, 56th Floor, New York, New York 10166. Clay Finlay, founded in 1982, has
extensive experience in international investments and as of December 31, 1996
had approximately $6.5 billion in assets under management.
Frances Dakers is the person primarily responsible for the day-to-day
management of the International Equity Portfolio's investments. Ms. Dakers, a
Principal and Senior Portfolio Manager of Clay Finlay, has been associated with
Clay Finlay since January, 1982.
For the services provided and expenses assumed pursuant to its sub-
advisory agreement with MVA, Clay Finlay receives from MVA a fee, computed daily
and payable monthly, at the annual rate of .75% of the first $50 million of the
International Equity Portfolio's average daily net assets, plus .50% of the next
$50 million of average daily net assets, plus .25% of average daily net assets
in excess of $100 million. Prior to August 29, 1996, Clay Finlay received from
MVA a fee, computed daily and paid monthly, at the annual rate of .75% of the
International Equity Portfolio's average daily net assets. For the fiscal year
ended November 30, 1996, Clay Finlay received sub-advisory fees at the effective
annual rate of ___% of the International Equity Portfolio's average daily net
assets. Clay Finlay bears all expenses incurred by it in connection with its
services under the sub- advisory agreement.
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ADMINISTRATOR
BISYS Fund Services Ohio, Inc. located at 3435 Stelzer Road, Columbus,
Ohio 43219, acts as the Portfolios' Administrator.
The Administrator generally assists in all aspects of each Portfolio's
administration and operation and also monitors and performs other services
pertaining to the Fund's arrangements under the Administrative Services Plan
described below. For its services, the Administrator is entitled to receive a
fee, computed daily and payable monthly, at the annual rate of .20% (.10% for
the Tax-Exempt Money Market Portfolio) of each Portfolio's average daily net
assets. For the fiscal year ended November 30, 1996, the Administrator received
administration fees (net of waivers) at the effective annual rate of .__% (.__%
with respect to the International Equity Portfolio) of the average daily net
assets of each Portfolio other than the Intermediate Corporate Bond, Bond Index,
Equity Income and Equity Index Portfolios which had not commenced operations as
of November 30, 1996. From time to time, the Administrator may voluntarily waive
all or a portion of the administration fees otherwise payable by a Portfolio in
order to increase the net income available for distribution to shareholders.
DISTRIBUTOR
Trust Shares in each Portfolio are sold continuously by the
Distributor, BISYS Fund Services, an affiliate of the Administrator. The
Distributor is a registered broker-dealer with principal offices at 3435 Stelzer
Road, Columbus, Ohio 43219.
ADMINISTRATIVE SERVICES PLAN
The Fund has adopted an Administrative Services Plan with respect to
the Trust Shares of the Portfolios. Pursuant to the Administrative Services
Plan, Trust Shares are sold to banks and other financial institutions (which may
include Mercantile or its affiliated or correspondent banks) acting on behalf of
their qualified accounts (such financial institutions collectively, the "Service
Organizations") which agree to provide certain shareholder administrative
services for their clients or account holders (collectively, the "customers")
who are the beneficial owners of such Shares. The holders of Trust Shares bear
their pro rata portion of the fees which may be paid to Service Organizations
for such services at an annual rate of up to .25%, for the Money Market
Portfolios, and up to .30%, for the Equity and Bond Portfolios, respectively, of
the average daily net assets of a Portfolio's Trust Shares owned beneficially by
a Service Organization's customers.
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<PAGE> 90
SERVICE ORGANIZATIONS
The servicing agreements adopted under the Administrative Services Plan
(the "Servicing Agreements") require the Service Organizations receiving such
compensation (which may include Mercantile and its affiliates) to perform
certain services, including providing administrative services with respect to
the beneficial owners of Trust Shares of a Portfolio, such as establishing and
maintaining accounts and records for their customers who invest in such Shares,
assisting customers in processing purchase, exchange and redemption requests,
and responding to customer inquiries concerning their investments.
Under the Servicing Agreements and upon notice to the Fund, a Service
Organization may subcontract with one or more entities for the performance of
certain services provided under its Servicing Agreements with the Fund. Such
Service Organization shall be as fully responsible to the Fund for the acts or
omissions of any sub-contractor as it would be for its own acts or omissions.
The fees payable to any sub-contractor are paid by the Service Organization out
of the fees it receives from the Fund.
The Fund understands that Service Organizations providing such
administrative services may also charge fees to their customers beneficially
owning such Shares. These fees would be in addition to any amounts which may be
received by such Service Organization under its Servicing Agreement with the
Fund. The Fund's Servicing Agreements require a Service Organization to disclose
to its customers any compensation payable to the Service Organization by a
Portfolio and any other compensation payable by its customers in connection with
their investment in such Shares. Customers of such Service Organizations
receiving servicing fees should read this Prospectus in light of the terms
governing their accounts with their Service Organization.
CUSTODIAN, SUB-CUSTODIAN AND TRANSFER AGENT
Mercantile Bank National Association, an affiliate of the Fund and a
wholly-owned subsidiary of Mercantile Bancorporation, Inc., with principal
offices located at One Mercantile Center, 8th and Locust Streets, St. Louis,
Missouri 63101, serves as Custodian of each Portfolio's assets. In addition,
Bankers Trust Company of New York, with principal offices at 16 Wall Street, New
York, New York 10005, serves as Sub-Custodian for the International Equity
Portfolio. BISYS Fund Services Ohio, Inc. also serves as the Fund's transfer
agent and dividend disbursing agent. Its address is 3435 Stelzer Road, Columbus,
Ohio 43219.
REGULATORY MATTERS
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<PAGE> 91
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any affiliate
thereof from sponsoring, organizing, or controlling the Shares of a registered,
open-end investment company continuously engaged in the issuance of its Shares,
and prohibit banks generally from issuing, underwriting, selling, or
distributing securities such as Shares of the Portfolios. Such banking laws and
regulations do not prohibit such a holding company or affiliate, or banks, from
acting as investment adviser, transfer agent, or custodian to such an investment
company, or from purchasing Shares of such a company as agent for and upon the
order of customers. Mercantile, MVA, Service Organizations that are banks or
bank affiliates, and broker-dealers that are bank affiliates are subject to such
laws and regulations, but believe they may perform the services for the
Portfolios contemplated by their respective agreements, this Prospectus and the
Statement of Additional Information without violating applicable banking laws
and regulations. In addition, state securities laws on this issue may differ
from the interpretation of federal laws expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
Should future legislative, judicial, or administrative action prohibit
or restrict the activities of such companies in connection with the provision of
services on behalf of the Portfolios and the shareholders, the Fund might be
required to alter materially or discontinue its arrangements with such companies
and change its method of operation. It is not expected that investors would
suffer any adverse financial consequences as a result of any of these
occurrences.
If current restrictions preventing a bank from legally sponsoring,
organizing, controlling, or distributing Shares of an investment company were
relaxed, Mercantile, or an affiliate of Mercantile, would consider the
possibility of offering to perform additional services for the Portfolios. It is
not possible, of course, to predict whether or in what form such legislation
might be enacted or the terms upon which Mercantile, or such an affiliate, might
offer to provide such services.
Conflict of interest restrictions may apply to the receipt of
compensation paid pursuant to a Servicing Agreement by the Portfolios to a
financial intermediary in connection with the investment of fiduciary funds in a
Portfolio's Shares. 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.
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<PAGE> 92
EXPENSES
Except as noted above and in the Statement of Additional Information
under "Investment Advisory and Administrative Contracts" and "Custodian and
Transfer Agent," the Fund's service contractors bear all expenses in connection
with the performance of their services, except that the Distributor is
compensated pursuant to the Distribution and Services Plans (as described below
under "Other Information Concerning the Fund and Its Shares"). Expenses are
deducted from the total income of each Portfolio before dividends and
distributions are paid. These expenses include, but are not limited to, fees
paid to the Adviser and Administrator, transfer agency fees, fees and expenses
of officers and directors who are not affiliated with the Adviser or the
Distributor, taxes, interest, legal fees, custodian fees, auditing fees, 12b-1
fees, servicing fees, certain fees and expenses in registering and qualifying a
Portfolio and its Shares for distribution under federal and state securities
laws, costs of preparing and printing prospectuses and statements of additional
information for regulatory purposes and for distribution to existing
shareholders, the expense of reports to shareholders, shareholders' meetings and
proxy solicitations, fidelity bond and directors and officers liability
insurance premiums, the expense of using independent pricing services and other
expenses which are not expressly assumed by the Adviser, Distributor or
Administrator under their respective agreements with the Fund. The Fund also
pays for brokerage fees, commissions and other transaction charges, if any, in
connection with the purchase and sale of portfolio securities. Any general
expenses of the Fund that are not readily identifiable as belonging to a
particular Portfolio will be allocated among all Portfolios by or under the
direction of the Board of Directors in a manner the Board determines to be fair
and equitable. Any expenses relating only to a particular class of Shares within
a Portfolio will be borne solely by such class. See "Certain Financial
Information" and "Management of the Fund" above for additional information
regarding expenses of each Portfolio.
OTHER INFORMATION CONCERNING
THE FUND AND ITS SHARES
DESCRIPTION OF SHARES
The Fund was organized as a Maryland corporation on September 9, 1982
and is a mutual fund of the type known as an "open-end management investment
company". The Fund's principal office is located at 3435 Stelzer Road, Columbus,
Ohio 43219.
The Fund's Charter authorizes the Board of Directors to issue up to
seven billion full and fractional shares of common
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<PAGE> 93
stock, and to classify and reclassify any unauthorized and unissued shares into
one or more classes of shares. The Board of Directors may similarly classify or
reclassify any class of shares into one or more series.
Pursuant to such authority, the Board of Directors has authorized the
issuance of the following series of shares representing interests in the
Portfolios, each of which (except the Tax-Exempt Money Market and Missouri
Tax-Exempt Bond Portfolios) is classified as a diversified company under the
1940 Act: 1 billion Trust Shares, 300 million Institutional Shares and 100
million Investor A Shares, representing interests in the Treasury Money Market
Portfolio; 1.8 billion Trust Shares, 300 million Institutional Shares, 550
million Investor A Shares and 50 million Investor B Shares, representing
interests in the Money Market Portfolio; 300 million Trust Shares and 50 million
Investor A Shares, representing interests in the Tax-Exempt Money Market
Portfolio; 15 million Trust Shares, 20 million Institutional Shares, 5 million
Investor A Shares and 50 million Investor B Shares, representing interests in
the U.S. Government Securities Portfolio; 50 million Trust Shares, 25 million
Institutional Shares and 25 million Investor A Shares, representing interests in
the Intermediate Corporate Bond Portfolio; 25 million Trust Shares, 25 million
Institutional Shares and 25 million Investor A Shares representing interests in
the Bond Index Portfolio; 50 million Trust Shares, 20 million Institutional
Shares, 5 million Investor A Shares and 50 million Investor B Shares,
representing interests in the Government & Corporate Bond Portfolio; 25 million
Trust Shares and 25 million Investor A Shares, representing interests in the
Short- Intermediate Municipal Portfolio; 25 million Trust Shares, 25 million
Investor A Shares and 25 million Investor B Shares, representing interests in
the Missouri Tax-Exempt Bond Portfolio; 50 million Trust Shares, 25 million
Investor A Shares and 25 million Investor B Shares representing interests in the
National Municipal Bond Portfolio; 50 million Trust Shares, 25 million
Institutional Shares, 25 million Investor A Shares and 25 million Investor B
Shares representing interests in the Equity Income Portfolio; 25 million Trust
Shares, 25 million Institutional Shares and 25 million Investor A Shares
representing interests in the Equity Index Portfolio; 50 million Trust Shares,
20 million Institutional Shares, 5 million Investor A Shares and 50 million
Investor B Shares, representing interests in the Growth & Income Equity
Portfolio; 15 million Trust Shares, 20 million Institutional Shares, 5 million
Investor A Shares and 50 million Investor B Shares and 50 million Investor B
Shares, representing interests in the Small Cap Equity Portfolio; 10 million
Trust Shares, 10 million Institutional Shares, 10 million Investor A Shares and
50 million Investor B Shares, representing interests in the International Equity
Portfolio; and 15 million Trust Shares , 20 million Institutional Shares, 5
million Investor A Shares and 50 million Investor B Shares, representing
interests
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in the Balanced Portfolio. Institutional, Investor A and/or Investor B Shares of
the Portfolios are described in separate prospectuses which are available from
the Distributor at the telephone number on the cover of this Prospectus. Shares
in the Fund's Portfolios will be issued without Share certificates.
The Trust Shares of the Portfolios are described in this Prospectus.
The Portfolios also offer Investor A Shares and, in addition, each Portfolio
except the Tax-Exempt Portfolios offers Institutional Shares and each Portfolio
except the Treasury Money Market , Tax-Exempt Money Market, Intermediate
Corporate Bond, Bond Index, Short-Intermediate Municipal and Equity Index
Portfolios offers Investor B Shares. Institutional Shares, which are offered to
financial institutions acting on behalf of accounts for which they do not
exercise investment discretion, are sold without a sales charge. Investor A
Shares (other than Investor A Shares of the Money Market Portfolios which are
sold without a sales charge) are sold with a maximum 4.5% (2.5% with respect to
the Intermediate Corporate Bond, Bond Index, Short-Intermediate Municipal and
Equity Index Portfolios) front-end sales charge, and Investor B Shares are sold
with a maximum 5.0% contingent deferred sales charge. Investor A Shares and
Investor B Shares are sold through selected broker/dealers and other financial
intermediaries to individual or institutional customers. Trust Shares,
Institutional Shares, Investor A Shares and/or Investor B Shares bear their pro
rata portion of all operating expenses paid by a Portfolio, except that Trust
Shares and Institutional Shares bear all payments under the Portfolio's
respective Administrative Services Plans adopted for such Shares and Investor A
Shares and Investor B Shares bear all payments under the Portfolio's respective
Distribution and Services Plans adopted for such Shares. In addition,
Institutional Shares of a Portfolio bear the expense of certain sub-transfer
agency fees.
Payments under the Administrative Services Plans for Institutional
Shares are made to Service Organizations for administrative services provided to
the Service Organizations' clients or account holders who are the beneficial
owners of Institutional Shares. Payments under the Administrative Services Plans
may not exceed .25% (on an annual basis) of the average daily net asset value of
outstanding Institutional Shares of the Money Market Portfolios or .30% (on an
annual basis) of the average daily net asset value of outstanding Institutional
Shares of the Equity and Bond Portfolios.
Payments under the Distribution and Services Plans for Investor A
Shares and Investor B Shares are made to (i) the Distributor or another person
for providing distribution assistance and assuming certain related expenses, and
(ii) Service Organizations for administrative services provided to the Service
Organizations' clients or account holders who are the beneficial owners of
Investor A Shares or Investor B Shares.
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<PAGE> 95
Payments under the Distribution and Services Plan for Investor A Shares may not
exceed .25% (on an annual basis) of the average daily net asset value of
outstanding Investor A Shares of the Money Market Portfolios or .30% (on an
annual basis) of the average daily net asset value of Investor A Shares of the
Equity and Bond Portfolios. Payments under the Distribution and Services Plan
for Investor B Shares may not exceed 1.00% (on an annual basis) of the average
daily net asset value of outstanding Investor B Shares of a Portfolio.
Distribution payments made under the Distribution and Services Plans are subject
to the requirements of Rule 12b-1 under the 1940 Act.
The Fund offers various services and privileges in connection with
Investor A Shares and Investor B Shares of a Portfolio that are not offered in
connection with the Portfolio's Trust or Institutional Shares, including an
automatic investment program and an automatic withdrawal plan. Each class of
shares also offers different exchange privileges. Investor B Shares convert
automatically into Investor A Shares eight years after the beginning of the
calendar month in which the Shares were purchased.
Shareholders are entitled to one vote for each full Share held and
proportionate fractional votes for fractional Shares held. Shares of all
Portfolios will vote together and not by class unless otherwise required by law
or permitted by the Board of Directors. All shareholders of a particular
Portfolio will vote together as a single class on matters relating to the
Portfolio's investment advisory (or sub-advisory) agreement and investment
objective and fundamental policies. Only holders of Trust Shares, however, will
vote on matters relating to the Administrative Services Plan for Trust Shares
and only holders of Institutional Shares will vote on matters pertaining to the
Administrative Services Plan for Institutional Shares. Similarly, only holders
of Investor A Shares will vote on matters pertaining to the Distribution and
Services Plan for Investor A Shares and only holders of Investor B Shares will
vote on matters pertaining to the Distribution and Services Plan for Investor B
Shares.
The Fund is not required, and currently does not intend, to hold annual
meetings except as required by the 1940 Act or other applicable law. Upon the
written request of the holders of 10% or more of the outstanding Shares, the
Fund will call a special meeting to vote on the question of removal of a
director.
Shares of the Portfolios have noncumulative voting rights and,
accordingly, the holders of more than 50% of the Fund's outstanding Shares
(irrespective of Portfolio or class) may elect all of the Directors. Shares have
no preemptive rights and only such conversion and exchange rights as the Board
may grant in its
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<PAGE> 96
discretion. When issued for payment as described in this Prospectus, Shares will
be fully paid and nonassessable.
MISCELLANEOUS
As used in this Prospectus, a "vote of a majority of the outstanding
Shares" of a Portfolio means, with respect to the approval of an investment
advisory or sub-advisory agreement or a change in an investment objective or
fundamental investment policy, the affirmative vote of the lesser of (a) more
than 50% of the outstanding Shares of such Portfolio (irrespective of class), or
(b) 67% or more of the Shares of such Portfolio (irrespective of class) present
at a meeting if more than 50% of the outstanding Shares of such Portfolio are
represented at the meeting in person or by proxy.
As of January 1, 1997, Mercantile and its affiliates possessed, of
record on behalf of their underlying customer accounts, voting or investment
power with respect to more than 25% of the Fund's outstanding Shares. Therefore,
Mercantile may be deemed to be a controlling person of the Fund within the
meaning of the 1940 Act.
Inquiries regarding the Portfolios may be directed to the Fund at
1-800-551-3731.
--------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE PORTFOLIOS'
STATEMENT OF ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN
CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE PORTFOLIOS, THE FUND, OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE PORTFOLIOS, THE FUND OR THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
-92-
<PAGE> 97
THE ARCH FUND(R), INC.
TRUST SHARES
[OLD LOGO]
PROSPECTUS
________, 1997
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<PAGE> 98
CROSS REFERENCE SHEET
(Trust Shares)
The ARCH Treasury Money Market Portfolio
The ARCH Money Market Portfolio
The ARCH Tax-Exempt Money Market Portfolio
<TABLE>
<CAPTION>
Form N-1A Part A Item..................................................
- ---------------------
Prospectus Caption
------------------
<S> <C> <C>
1. Cover Page.................................................... Cover Page
2. Synopsis...................................................... Expense Summary
for Trust Shares
3. Condensed Financial
Information................................................. Certain Financial
Information; Yields and Total
Returns
4. General Description
of Registrant............................................... Highlights; Investment
Objectives, Policies and
Risk Considerations;
Other Information Concerning
the Fund and Its Shares
5. Management of the Fund........................................ Management of the Fund
5A. Management's Discussion of
Fund Performance............................................ Inapplicable
6. Capital Stock and
Other Securities............................................ How to Purchase and
Redeem Shares; Dividends
and Distributions;
Taxes; Other Information
Concerning the Fund
and Its Shares
7. Purchase of Securities
Being Offered............................................... How to Purchase and
Redeem Shares
8. Redemption or Repurchase...................................... How to Purchase and
Redeem Shares
9. Pending Legal Proceedings..................................... Inapplicable
</TABLE>
<PAGE> 99
THE ARCH FUND(R), INC.
THE ARCH TREASURY MONEY MARKET PORTFOLIO
THE ARCH MONEY MARKET PORTFOLIO
THE ARCH TAX-EXEMPT MONEY MARKET PORTFOLIO
TRUST SHARES
The ARCH Fund, Inc. is an open-end, management investment company which
currently offers Shares in sixteen investment portfolios. This Prospectus
describes the Trust Shares of the ARCH TREASURY MONEY MARKET, MONEY MARKET and
TAX-EXEMPT MONEY MARKET PORTFOLIOS. Trust Shares are offered to financial
institutions acting on their own behalf or on behalf of certain qualified
accounts.
THE ARCH TREASURY MONEY MARKET PORTFOLIO'S investment objective is to
seek a high level of current income exempt from state income tax consistent with
liquidity and security of principal.
THE ARCH MONEY MARKET PORTFOLIO'S investment objective is to seek
current income with liquidity and stability of principal.
THE ARCH TAX-EXEMPT MONEY MARKET PORTFOLIO'S investment objective is to
seek as high a level of current interest income exempt from federal income tax
as is consistent with liquidity and stability of principal.
Mississippi Valley Advisors Inc. ("MVA" or the "Adviser"), a
wholly-owned subsidiary of Mercantile Bank National Association ("Mercantile"),
acts as investment adviser for the Portfolios. Mercantile serves as custodian;
BISYS Fund Services Ohio, Inc. (the "Administrator") serves as administrator;
and BISYS Fund Services (the "Distributor") serves as sponsor and distributor.
This Prospectus sets forth concisely certain information about the
Portfolios that prospective investors should know before investing. Investors
should read this Prospectus and retain it for future reference. Additional
information about the Portfolios, contained in a Statement of Additional
Information dated __________, 1997, has been filed with the Securities and
Exchange Commission and is incorporated by reference in its entirety into this
Prospectus. An investor may obtain the Statement of Additional Information
without charge by writing the Fund at P.O. Box 78069, St. Louis, Missouri 63178
or by calling 1-800-551-3731.
<PAGE> 100
AN INVESTMENT IN THE PORTFOLIOS IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE
THAT ANY PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE.
Portfolio Shares are not bank deposits, are not federally insured or
guaranteed by the U.S. Government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other governmental agency, and are not the
obligations of or guaranteed or otherwise supported by any bank. An investment
in the Portfolios involves investment risk, including the possible loss of
principal.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
___________, 1997
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<PAGE> 101
HIGHLIGHTS
The ARCH Fund, Inc. (the "Fund") is an open-end, management investment
company (commonly known as a mutual fund) registered under the Investment
Company Act of 1940, as amended. The Fund currently offers investment
opportunities in sixteen investment portfolios. This Prospectus relates to three
of those portfolios: the ARCH TREASURY MONEY MARKET, MONEY MARKET and TAX-EXEMPT
MONEY MARKET PORTFOLIOS (the "Portfolios"). In addition, the Fund offers
investment opportunities in the ARCH U.S. Government Securities, Intermediate
Corporate Bond, Bond Index, Government & Corporate Bond, Short-Intermediate
Municipal, Missouri Tax-Exempt Bond , National Municipal Bond, Equity Income,
Equity Index, Growth & Income Equity, Small Cap Equity, International Equity and
Balanced Portfolios, which are described in separate prospectuses. Each
Portfolio represents a separate pool of assets with different investment
objectives and policies (as described below under "Investment Objectives,
Policies and Risk Considerations"). MVA serves as adviser, Mercantile as
custodian, BISYS Fund Services Ohio, Inc. as administrator and BISYS Fund
Services as sponsor and distributor. For information on expenses, fee waivers,
and services, see "Certain Financial Information," "Financial Highlights" and
"Management of the Fund."
The following information generally describes the Portfolios and their
investment objectives. There can be no assurance that the Portfolios will be
able to achieve their respective investment objectives.
Each Portfolio seeks to maintain a net asset value of $1.00 per Share.
Each Portfolio's assets are invested in dollar-denominated debt securities with
remaining maturities of 397 days (13 months) or less as defined by the
Securities and Exchange Commission, and each Portfolio's dollar-weighted average
portfolio maturity will not exceed 90 days. All securities acquired by the
Portfolios will be determined by MVA, under guidelines approved by the Fund's
Board of Directors, to present minimal credit risks and to be rated in the
highest category (or deemed comparable in quality) at the time of purchase.
There can be no assurance that the Portfolios will be able to achieve a stable
net asset value on a continuous basis.
Investors should note that one or more of the Portfolios may, subject to
their investment policies and limitations, purchase variable and floating rate
instruments, enter into repurchase agreements and reverse repurchase agreements,
acquire certain U.S. dollar-denominated instruments of foreign issuers, and make
limited investments in illiquid securities and securities issued by other
investment companies. These investment practices involve investment risks of
varying degrees.
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<PAGE> 102
For example, the absence of a secondary market for a particular variable or
floating rate instrument could make it difficult for a Portfolio to dispose of
an instrument if the issuer were to default on its payment obligation. Default
by a counterparty to a repurchase agreement could expose a Portfolio to loss
because of adverse market action or possible delay in disposing of the
underlying collateral. Reverse repurchase agreements are subject to the risk
that the market value of the securities sold by a Portfolio will decline below
the repurchase price which the Portfolio is obligated to pay. Foreign securities
entail certain inherent risks, such as future political and economic
developments and the adoption of foreign government restrictions, that might
adversely affect payment of principal and interest. The Tax-Exempt Money Market
Portfolio may, under certain conditions, make limited investments in securities
the income from which may be subject to federal income tax. See "Investment
Objectives, Policies and Risk Considerations" below and the Statement of
Additional Information under "Investment Objectives and Policies."
The Fund offers investors the opportunity to invest in a variety of
professionally managed investments without having to become involved with
detailed management, accounting and safekeeping procedures normally related to
direct investments in securities. The Portfolios also offer the economic
advantages of block trading in securities and the availability of a family of
sixteen mutual funds should an investor's investment goals change.
For information on purchasing, exchanging or redeeming Trust Shares of
the Portfolios, please see "How to Purchase and Redeem Shares" below.
-4-
<PAGE> 103
CERTAIN FINANCIAL INFORMATION
Shares of the Money Market Portfolio have been classified into four
classes of Shares -- Trust Shares, Institutional Shares, Investor A Shares and
Investor B Shares. Shares of the Treasury Money Market Portfolio have been
classified into three classes of Shares -- Trust Shares, Institutional Shares
and Investor A Shares. Shares of the Tax-Exempt Money Market have been
classified into two classes of Shares -- Trust Shares and Investor A Shares.
Shares of each class in a Portfolio represent equal, pro rata interests in the
investments held by that Portfolio and are identical in all respects, except
that Shares of each class bear separate distribution and/or shareholder
administrative servicing fees and certain other operating expenses, and enjoy
certain exclusive voting rights on matters relating to these fees. (See "Other
Information Concerning the Fund and Its Shares," "Management of the Fund --
Administrative Services Plan," and "Management of the Fund -- Custodian and
Transfer Agent" below.) As a result of payments for distribution and/or
shareholder administrative servicing fees and certain other operating expenses
that may be made in differing amounts, the net investment income of Trust
Shares, Institutional Shares, Investor A Shares and/or Investor B Shares in a
Portfolio can be expected, at any given time, to be different.
The Tax-Exempt Money Market Portfolio commenced operations on July 10,
1986 as a separate investment portfolio (the "Predecessor Tax-Exempt Money
Market Portfolio") of The ARCH Tax-Exempt Trust (the "Trust"), which was
organized as a Massachusetts business trust. On October 2, 1995, the Predecessor
Tax-Exempt Money Market Portfolio was reorganized as a new portfolio of the
Fund. Prior to the reorganization, the Predecessor Tax-Exempt Money Market
Portfolio offered and sold shares of beneficial interest that were similar to
the Fund's Trust Shares and Investor A Shares.
-5-
<PAGE> 104
EXPENSE SUMMARY FOR TRUST SHARES
<TABLE>
<CAPTION>
TREASURY TAX-EXEMPT
MONEY MONEY MONEY
MARKET MARKET MARKET
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
<S> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING
EXPENSES
(as a percentage of average
net assets)
Investment Advisory Fees (net
of fee waivers)1............................. .35% .35% .35%
12b-1 Fees .................................... .00% .00% .00%
Other Expenses (including
administration fees,
administrative services
fees and other expenses)
(net of fee waivers and
expense reimbursements)2,3................... .26% .26% .18%
---- ---- ----
Total Portfolio Operating
Expenses (net of fee waivers
and expense reimbursements)3................. .61% .61% .53%
==== ==== ====
<FN>
- ----------
1 Without fee waivers, investment advisory fees would be .40%, .40% and
.40% for the Treasury Money Market, Money Market and Tax-Exempt Money
Market
Portfolios, respectively.
2 Without fee waivers, administration fees would be .10% for the
Tax-Exempt Money Market Portfolio and .20% for each other Portfolio.
Administrative services fees are payable at an annual rate not to exceed
.25% for each Portfolio.
3 Without fee waivers and/or expense reimbursements, Other Expenses would
be .36%, .36% and .18% and Total Portfolio Operating Expenses would be
.76%, .76% and .58% for the Treasury Money Market, Money Market and
Tax-Exempt Money Market Portfolios, respectively.
</TABLE>
-6-
<PAGE> 105
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following
expenses on a $1,000 investment,
assuming (1) a 5% annual return
and (2) redemption at the end of
each period:
Treasury Money Market Portfolio.................... $6 $20 $34 $76
Money Market Portfolio.............................. $6 $20 $34 $76
Tax-Exempt Money Market Portfolio................... $5 $17 $30 $66
</TABLE>
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY
BE MORE OR LESS THAN THOSE SHOWN. Information about the actual performance of
the Portfolios is contained in the Fund's Annual Report to Shareholders dated
November 30, 1996 which may be obtained without charge by contacting the Fund at
the address or telephone number provided on page ___ of this Prospectus.
The purpose of the foregoing tables is to assist in understanding the
various costs and expenses that an investor in a Portfolio's Trust Shares will
bear directly or indirectly. The information contained in such tables is based
on expenses incurred by each Portfolio during the last fiscal year with respect
to its Trust Shares. For more complete descriptions of the various costs and
expenses, see "Management of the Fund" in this Prospectus and the Statement of
Additional Information. The Tables and Examples have not been audited by the
Fund's independent auditors and do not reflect any charges that may be imposed
by financial institutions on their customers.
-7-
<PAGE> 106
FINANCIAL HIGHLIGHTS
The "Financial Highlights" in the following tables supplement the Fund's
financial statements, which are contained in the Fund's Annual Report to
Shareholders dated November 30, 1996 and [_________________________] into the
Statement of Additional Information, and set forth certain historic results for
Trust Shares of the Portfolios. The data for the years ended November 30, 1989
through 1996, and with respect to the Tax-Exempt Money Market Portfolio (and
its Predecessor Portfolio), for the year ended November 30, 1996, the six-month
period ended November 30, 1995 and each of the years or periods ended May 31,
1990 through 1995, has been audited by [____________________], independent
auditors, whose unqualified report insofar as it relates to each of the years or
periods in the five-year period ended November 30, 1996 (the year ended November
30, 1996, the six-month period ended November 30, 1995 and each of the years or
periods in the four-year period ended May 31, 1995 with respect to the
Tax-Exempt Money Market Portfolio (and its Predecessor Portfolio)) on the
financial statements containing such information is [_________________________]
into the Statement of Additional Information. The data for the years ended
November 30, 1987 and 1988 and with respect to the Predecessor Tax-Exempt Money
Market Portfolio, for the years ended May 31, 1989 and 1988 and the period ended
May 31, 1987, were derived from financial statements audited by the Fund's and
the Trust's prior auditors. Further information about the performance of the
Portfolios is available in the Fund's Annual Report. Both the Statement of
Additional Information and the Annual Report may be obtained free of charge by
contacting the Fund at the address or telephone number provided on the front
cover page of this Prospectus.
-8-
<PAGE> 107
Treasury Money Market Portfolio
(For a Share(b) outstanding throughout each period)
<TABLE>
<CAPTION>
December 2, 1991
Year Ended November 30, to November 30,
----------------------- 1992(a)(b)
1996 1995 1994 1993 Trust Shares
---- ---- ---- ---- ------------
Trust Shares Trust Shares Trust Shares Trust Shares
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period........... $1.00 $1.00 $1.00 $1.00
----- ------- ------- ------
Investment Activities
Net investment income......... 0.050 0.033 0.026 0.034
----- ------- -------- -------
Distributions
Net investment income......... (0.050) (0.033) (0.026) (0.034)
------- ------- -------- --------
Net Asset Value, End of Period.. $1.00 $1.00 $1.00 $1.00
===== ======= ======== ========
Total Return.................... 5.12% 3.38% 2.67% 3.16%(c)
Ratios/Supplemental Data:
Net Assets at end of period (000) $252,780 $242,099 $256,503 $229,288
Ratio of expenses to average net
assets (including waivers).... 0.60% 0.49% 0.41% 0.28%(d)
Ratio of net investment income to
average net assets (including
waivers)...................... 5.01% 3.26% 2.64% 3.35%(d)
Ratio of expenses to average net
assets (before waivers)*...... 0.75% 0.94% 0.85% 0.72%(d)
Ratio of net investment income to
average net assets (before
waivers)*..................... 4.86% 2.82% 2.21% 2.91%(d)
<FN>
- ----------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Period from commencement of operations.
(b) On December 2, 1991, the Portfolio issued a series of Shares which were
designated as "Trust" Shares. In addition, on April 20, 1992, the
Portfolio issued a second series of Shares which were designated as
"Investor" Shares. On September 27, 1994, the Portfolio redesignated
Investor Shares as "Investor A" Shares.
(c) Not Annualized.
(d) Annualized.
</TABLE>
-9-
<PAGE> 108
Money Market Portfolio
(For a Share(a) outstanding throughout each period)
Year Ended November 30,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991(a)
---- ---- ---- ---- ---- -------
Trust Trust Trust Trust Trust Trust
Shares Shares Shares Shares Shares Shares 1990 1989 1988 1987
------ ------ ------ -------- ------- -------- -------- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ------ ------- ------- -------- ------- -------- ------- ------
Investment Activities
Net investment income.. 0.054 0.035 0.026 0.034 0.058 0.078 0.088 0.071 0.062
----- ------ -------- -------- -------- -------- -------- ------- --------
Distributions
Net investment income.. (0.054) (0.035) (0.026) (0.034) (0.058) (0.078) (0.088) (0.071) (0.062)
------- ------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value,
End of Period.......... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ======= ======== ======== ======== ======== ======== ======== ======
Total Return............. 5.52% 3.55% 2.72% 3.44% 5.95% 8.08% 9.21% 7.33%(b) 6.40%(b)
Ratios/Supplemental
Data:
Net Assets at end $698,131 $544,952 $621,717 $574,941 $700,474 $896,903 $661,145 $289,764 $220,944
of period (000)
Ratio of expenses to
average net assets
(including waivers).... 0.59% 0.61% 0.59% 0.57% 0.59% 0.55% 0.45% 0.45% 0.45%
Ratio of net investment
income to average net
assets (including
waivers)............... 5.38% 3.45% 2.70% 3.44% 5.81% 7.77% 8.82% 7.12% 6.22%
Ratio of expenses to
average net assets
(before waivers)*...... 0.74% 0.93% 0.80% 0.71% 0.67% 0.60% 0.60% 0.58% 0.68%
Ratio of net investment
income to average net
assets (before
waivers)*.............. 5.23% 3.13% 2.49% 3.30% 5.73% 7.72% 8.67% 6.99% 5.99%
<FN>
- ----------
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred,
the ratios would have been as indicated.
(a) As of December 1, 1990, the Portfolio designated existing Shares as "Investor" Shares. In addition, on December 1, 1990,
the Portfolio issued a second series of Shares which were designated as "Trust" Shares. The financial highlights presented
for periods prior to December 1, 1990 are the financial highlights applicable to Investor Shares. On September 27, 1994 the
Portfolio redesignated the Investor Shares as "Investor A" Shares.
(b) Unaudited.
</TABLE>
-10-
<PAGE> 109
Tax-Exempt Money Market Portfolio(a)
(For a Share(b) outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months
Year Ended Ended Year Ended May 31,
November 30, November 30, -------------------------------------
1996 1995(f) 1995 1994 1993 1992
---- ------- ---- ---- ---- ----
Trust Trust Trust Trust Trust Trust
Shares Shares Shares Shares Shares Shares
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------ ------
Investment Activities
Net investment income... 0.016 0.029 0.020 0.021 0.034
------ ------ ------ ------ ------
Distributions (0.016) (0.029) (0.020) (0.021) (0.034)
Net investment income... ------ ------ ------ ------ ------
Net Asset Value, End of $1.00 $1.00 $1.00 $1.00 $1.00
Period.................. ===== ===== ===== ===== =====
Total Return.............. 1.57%(d) 2.93% 1.97% 2.16% 3.44%
Ratios/Supplemental Data:
Net Assets at end of
period (000)............ $78,031 $85,324 $112,594 $137,602 $126,079
Ratio of expenses to
average net asset
(including waivers)..... 0.70%(e) 0.61% 0.52% 0.52% 0.59%
Ratio of net investment
income to average net
assets (including 3.10%(e) 2.87% 1.95% 2.13% 3.38%
waivers)................
Ratio of expenses to
average net assets 0.75%(e) 0.70% 0.86% 0.62% 0.69%
(before waivers)*.......
Ratio of net investment
income to average net
assets (before 3.05%(e) 2.78% 1.61% 2.03% 3.28%
waivers)*...............
<CAPTION>
Period
Year Ended May 31, Ended
----------------------------------------- May 31,
1991(b) 1990(b) 1989(b) 1988 1987(a),(b)
Trust Trust Trust Trust Portfolio
Shares Shares Shares Shares Shares
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------ ------
Investment Activities
Net investment income... 0.031 0.056 0.056 0.043 0.036
------ ------ ------ ------ ------
Distributions (0.031) (0.056) (0.056) (0.043) (0.036)
Net investment income... ------ ------ ------ ------ ------
Net Asset Value, End of $1.00 $1.00 $1.00 $1.00 $1.00
Period.................. ===== ===== ===== ===== =====
Total Return.............. 2.25% 5.71% 5.74% 4.35% 3.80%(d)
Ratios/Supplemental Data:
Net Assets at end of
period (000)............ $137,847 $132,407 $70,153 $72,120 $147,799
Ratio of expenses to
average net asset
(including waivers)..... 0.58% 0.51% 0.45% 0.45% 0.37%(c),(e)
Ratio of net investment
income to average net
assets (including 4.65% 5.57% 5.59% 4.27% 4.02%(c),(e)
waivers)................
Ratio of expenses to
average net assets 0.68% 0.61% 0.63% 0.60% 0.62%(c),(e)
(before waivers)*.......
Ratio of net investment
income to average net
assets (before 4.55% 5.47% 5.41% 4.12% 3.77%(c),(e)
waivers)*...............
<FN>
- ----------
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would
have been as indicated.
(a) The Portfolio commenced operations on July 10, 1986 as a portfolio of The ARCH Tax-Exempt Trust. On October 2, 1995, it was
reorganized as a new portfolio of the Fun d.
(b) "Trust" Shares were originally issued as "Money" Shares. As of September 28, 1990, the Portfolio issued a second series of
Shares which were designated as "Trust" Shares. The financial highlights presented for periods prior to September 28,
1990 are the financial highlights applicable to Money Shares.
(c) Includes waiver of sub-advisory fees for the period ended May 31, 1987.
(d) Not Annualized.
(e) Annualized.
(f) Upon its reorganization as a portfolio of the Fund, the Portfolio changed its fiscal year-end from May 31 to November 30.
</TABLE>
-11-
<PAGE> 110
INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS
Although management will use its best efforts to achieve the investment
objective of each Portfolio, there can be no assurance that it will be able to
do so. The investment objective of a Portfolio may not be changed without the
affirmative vote of a majority of the outstanding Shares of the Portfolio. The
Treasury Money Market, Money Market and Tax- Exempt Money Market Portfolios are
"money market" funds that invest in instruments with remaining maturities of 397
days or less (with certain exceptions) and with dollar-weighted average
portfolio maturities of 90 days or less, subject to the quality, diversification
and other requirements of Rule 2a-7 under the Investment Company Act of 1940, as
amended (the "1940 Act") and other rules of the Securities and Exchange
Commission (the "SEC").
THE TREASURY MONEY MARKET PORTFOLIO
The Treasury Money Market Portfolio's investment objective is to seek a
high level of current income exempt from state income tax consistent with
liquidity and security of principal. In pursuing its investment objective, the
Portfolio invests in selected money market obligations issued by the U.S.
Government (or its agencies and instrumentalities) that are guaranteed as to
principal and interest by the U.S. Government, the interest on which is
generally exempt from state income tax. Securities that are generally eligible
for this exemption include those issued by the U.S. Treasury (bills,
certificates of indebtedness, notes and certain bonds) and certain U.S.
Government agencies and instrumentalities, including the General Services
Administration and Small Business Administration. Each investor should consult
his or her tax advisor to determine whether distributions from the Portfolio are
exempt from state income tax in the investor's home state. Under normal market
conditions, the Portfolio intends to invest substantially all (but not less than
65%) of its total assets in securities with the above characteristics and
(except to the extent discussed below) will not enter into repurchase agreements
or purchase any U.S. Government security that the Adviser believes is subject to
state income tax.
Under extraordinary circumstances, such as when appropriate exempt
securities are unavailable or pending investment, the Treasury Money Market
Portfolio may temporarily hold cash or invest in repurchase agreements
collateralized by U.S. Government securities, other U.S. Government agency or
instrumentality securities, securities of other investment companies that invest
in securities in which the Portfolio is permitted to invest, or cash
equivalents.
-12-
<PAGE> 111
THE MONEY MARKET PORTFOLIO
The Money Market Portfolio's investment objective is to seek current
income with liquidity and stability of principal. In pursuing its investment
objective, the Portfolio invests substantially all of its assets in a broad
range of money market instruments. These instruments include obligations of the
U.S. Government, U.S. dollar-denominated foreign securities, obligations of U.S.
and foreign banks and savings and loan institutions and commercial obligations
that meet the applicable quality requirements described below.
The Money Market Portfolio will purchase only "First Tier Eligible
Securities" (as defined by the SEC) that present minimal credit risks as
determined by the Adviser pursuant to guidelines approved by the Fund's Board of
Directors. First Tier Eligible Securities consist of (i) securities that either
(a) have short-term debt ratings at the time of purchase in the highest rating
category by at least two unaffiliated nationally recognized statistical rating
organizations ("Rating Agencies") (or one Rating Agency if the security was
rated by only one Rating Agency), or (b) are issued by issuers with such
ratings, and (ii) certain securities that are unrated (including securities of
issuers that have long-term but not short-term ratings) but are of comparable
quality as determined in accordance with guidelines approved by the Board of
Directors. The applicable ratings by Rating Agencies are described in Appendix A
to the Statement of Additional Information. The following descriptions
illustrate the types of instruments in which the Portfolio invests.
BANKING OBLIGATIONS. The Money Market Portfolio may purchase obligations
of issuers in the banking industry, such as certificates of deposit, letters of
credit, bankers' acceptances and time deposits, including U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions having total assets at the time of
purchase in excess of $1 billion. The Portfolio may invest in obligations of
foreign banks or foreign branches of U.S. banks in amounts not in excess of 25%
of its assets where the Adviser deems the instrument to present minimal credit
risks. See "Risk Factors --Risks Associated with Foreign Securities" below. The
Portfolio may also make interest-bearing savings deposits in commercial and
savings banks in amounts not in excess of 5% of the value of its total assets.
COMMERCIAL PAPER AND VARIABLE AND FLOATING RATE INSTRUMENTS. The Money
Market Portfolio may invest in commercial paper, including asset-backed
commercial paper representing interests in a pool of corporate receivables,
dollar-denominated obligations issued by domestic and foreign bank holding
companies, and corporate bonds that meet the quality and maturity requirements
described above. The Portfolio may also invest in variable or
-13-
<PAGE> 112
floating rate notes that may have a stated maturity in excess of thirteen
months but will, in any event, permit the Portfolio to demand payment of the
principal of the instrument at least once every thirteen months upon no more
than 30 days' notice (unless the instrument is guaranteed by the U.S. Government
or an agency or instrumentality thereof). Such instruments may include variable
amount master demand notes, which are unsecured instruments that permit the
indebtedness thereunder to vary in addition to providing for periodic
adjustments in the interest rate. Unrated variable and floating rate instruments
will be determined by the Adviser (under the supervision of the Board of
Directors) to be of comparable quality at the time of purchase to First Tier
Eligible Securities. There may be no active secondary market in the instruments,
which could make it difficult for the Portfolio to dispose of an instrument in
the event the issuer were to default on its payment obligation or during periods
that the Portfolio could not exercise its demand rights. The Portfolio could,
for these or other reasons, suffer a loss with respect to such instruments.
Variable and floating rate instruments held by the Portfolio will be subject to
the Portfolio's 10% limitation on illiquid investments when the Portfolio may
not demand payment of the principal amount within seven days and a liquid
trading market is absent.
GOVERNMENT OBLIGATIONS. The Money Market Portfolio may
invest in obligations issued or guaranteed by the U.S.
Government, its agencies and instrumentalities. In addition, the
Portfolio may, when deemed appropriate by the Adviser, invest in short-term
obligations issued by state and local governmental issuers that meet the quality
requirements described above and, as a result of the Tax Reform Act of 1986,
carry yields that are competitive with those of other types of money market
instruments of comparable quality.
THE TAX-EXEMPT MONEY MARKET PORTFOLIO
The Tax-Exempt Money Market Portfolio's investment objective is to seek
as high a level of current interest income exempt from federal income tax as is
consistent with liquidity and stability of principal. The Portfolio seeks to
achieve its objective by investing substantially all of its assets in short-term
obligations issued by or on behalf of states, territories and possessions of the
United States, the District of Columbia and their respective political
subdivisions, agencies, instrumentalities and authorities the interest on which,
in the opinion of bond counsel or counsel to the issuer, is exempt from regular
federal income tax (collectively, "Municipal Obligations"). The Portfolio may
also hold tax-exempt derivative securities such as tender option bonds,
participations, beneficial interests in trusts and partnership interests.
-14-
<PAGE> 113
The Tax-Exempt Money Market Portfolio will purchase only "First Tier
Eligible Securities" (as defined by the SEC) that present minimal credit risks
as determined by the Adviser pursuant to guidelines approved by the Board of
Directors. See "The Money Market Portfolio" above for a description of "First
Tier Eligible Securities."
Dividends paid by the Tax-Exempt Money Market Portfolio that are derived
from interest attributable to tax-exempt obligations of a particular state and
its political subdivisions as well as of certain other governmental issuers
including Puerto Rico, Guam and the Virgin Islands may be exempt from federal
and state income tax. Dividends derived from interest on obligations of other
governmental issuers are exempt from federal income tax but may be subject to
state income tax.
As a matter of fundamental policy, under normal market conditions or
when the Adviser deems suitable tax-exempt Municipal Obligations to be
available, at least 80% of the Tax-Exempt Money Market Portfolio's total assets
will be invested in Municipal Obligations. The Portfolio may hold uninvested
cash reserves pending investment during temporary defensive periods or if, in
the opinion of the Adviser, suitable Municipal Obligations are unavailable.
There is no percentage limitation on the amount of assets which may be held
uninvested during temporary defensive periods.
In addition, during temporary defensive periods or if, in the opinion of
the Adviser, suitable Municipal Obligations are unavailable and subject to the
quality standards described above, the Tax-Exempt Money Market Portfolio may
invest up to 20% of its assets in money market instruments, the income from
which is subject to federal income tax. Such instruments may include obligations
of the U.S. Government, its agencies or instrumentalities; debt securities
(including commercial paper) of issuers having, at the time of purchase, a
quality rating within the highest rating category by a Rating Agency;
certificates of deposit or bankers' acceptances of domestic branches of U.S.
banks with total assets at the time of purchase of $1 billion or more; or
repurchase agreements with respect to such obligations.
-15-
<PAGE> 114
OTHER APPLICABLE POLICIES
The investment policies described in this Prospectus are among those
which one or more of the Portfolios have the ability to utilize. Some of these
policies may be employed on a regular basis; others may not be used at all.
Accordingly, reference to any particular policy, method or technique carries no
implication that it will be utilized or, if it is, that it will be successful.
U.S. GOVERNMENT OBLIGATIONS. Securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities have historically involved little
risk of loss of principal if held to maturity. However, due to fluctuations in
interest rates, the market value of such securities may vary during the period a
shareholder owns Shares of a Portfolio. Certain U.S. Government securities held
by the Portfolios may have remaining maturities exceeding thirteen months if
such securities provide for adjustments in their interest rates no less
frequently than every thirteen months. Examples of the types of U.S. Government
obligations that may be held by the Portfolios, subject to their respective
investment objectives and policies, include, in addition to U.S. Treasury bonds,
notes and bills, the obligations of Federal Home Loan Banks, Federal Farm Credit
Banks, Federal Land Banks, the Federal Housing Administration, Farmers Home
Administration, Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association ("GNMA"), Federal
National Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation,
General Services Administration, Student Loan Marketing Association, Central
Bank for Cooperatives, Federal Intermediate Credit Banks, Resolution Trust
Corporation, and Maritime Administration. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as those of GNMA, are supported
by the full faith and credit of the U.S. Treasury; others, such as the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of FNMA, are supported
by the discretionary authority of the U.S. Government to purchase the agency's
obligations; still others such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. There is
no assurance that the U.S. Government would provide financial support to U.S.
Government-sponsored instrumentalities if it is not obligated to do so by law.
STRIPPED GOVERNMENT SECURITIES. To the extent consistent with their
respective investment policies, each Portfolio may invest in bills, notes and
bonds (including zero coupon bonds) issued by the U.S. Treasury. In addition,
the Treasury Money Market and Money Market Portfolios may also invest in
"stripped" U.S. Treasury obligations offered under the Separate Trading of
Registered Interest and Principal Securities
-16-
<PAGE> 115
("STRIPS") program or Coupon Under Bank-Entry Safekeeping ("CUBES") program or
other stripped securities issued directly by agencies or instrumentalities of
the U.S. Government (and, with respect to the Treasury Money Market Portfolio
only, that are also guaranteed as to principal and interest by the U.S.
Government). STRIPS and CUBES represent either future interest or principal
payments and are direct obligations of the U.S. Government that clear through
the Federal Reserve System. The Money Market Portfolio may also purchase U.S.
Treasury and agency securities that are stripped by brokerage firms and
custodian banks and sold under proprietary names. These stripped securities are
resold in custodial receipt programs with a number of different names (such as
TIGRs and CATS) and are not considered U.S. Government securities for purposes
of the 1940 Act.
Stripped securities are issued at a discount to their "face value" and
may exhibit greater price volatility than ordinary debt securities because of
the manner in which their principal and interest are returned to investors. The
Adviser will consider the liquidity needs of a Portfolio when any investments in
zero coupon obligations or other principal-only obligations are made.
REPURCHASE AGREEMENTS. Under certain circumstances described above and
subject to their respective investment policies, each Portfolio may agree to
purchase U.S. Government securities from financial institutions such as banks
and broker-dealers, subject to the seller's agreement to repurchase them at a
mutually agreed-upon date and price ("repurchase agreements"). A Portfolio will
enter into repurchase agreements only with financial institutions such as banks
and broker-dealers that the Adviser believes to be creditworthy. During the term
of any repurchase agreement, the Adviser will continue to monitor the
creditworthiness of the seller and will require the seller to maintain the value
of the securities subject to the agreement at not less than 102% of the
repurchase price (including accrued interest). Default by a seller could expose
a Portfolio to possible loss because of adverse market action or possible delay
in disposing of the underlying obligations. Because of the seller's repurchase
obligations, the securities subject to repurchase agreements do not have
maturity limitations. Although no Portfolio presently intends to enter into
repurchase agreements providing for settlement in more than seven days, each
Portfolio does have the authority to do so subject to its limitation on the
purchase of illiquid securities described below. Repurchase agreements are
considered to be loans under the 1940 Act. The income on repurchase agreements
is taxable. See "Taxes" below.
REVERSE REPURCHASE AGREEMENTS. Subject to its investment
policies, the Money Market Portfolio may borrow funds for
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<PAGE> 116
temporary purposes by entering into reverse repurchase agreements in accordance
with its investment limitations below. Pursuant to such agreements, the
Portfolio would sell portfolio securities to financial institutions such as
banks and broker-dealers and agree to repurchase them at an agreed upon date and
price. Reverse repurchase agreements involve the risk that the market value of
the securities sold by the Portfolio may decline below the repurchase price
which the Portfolio is obligated to pay. Reverse repurchase agreements are
considered to be borrowings by the Portfolio under the 1940 Act.
SECURITIES OF OTHER INVESTMENT COMPANIES. Under certain circumstances
described above and subject to their respective investment policies and
limitations, each Portfolio may invest in securities issued by other investment
companies which invest in securities in which the Portfolio is permitted to
invest and which determine their net asset value per Share based on the
amortized cost or penny-rounding method. Each Portfolio may invest in securities
of other investment companies within the limits prescribed by the 1940 Act,
which include, subject to certain exceptions, a prohibition on a Portfolio
investing more than 10% of the value of its total assets in such securities.
Investments in other investment companies will cause a Portfolio (and,
indirectly, the Portfolio's shareholders) to bear proportionately the cost
incurred in connection with the operations of such other investment companies.
In addition, investment companies in which a Portfolio may invest may impose a
sales or distribution charge in connection with the purchase or redemption of
their shares as well as other types of commissions or charges (no sales charge
will be paid by the Tax-Exempt Money Market Portfolio in connection with such
investments). Such charges will be payable by a Portfolio and, therefore, will
be borne indirectly by its shareholders. To the extent that a Portfolio may
invest in securities of other investment companies, the Fund and the Adviser
will ensure that there will be no duplication of advisory fees. If necessary to
accomplish this, the Adviser will rebate its advisory fee to the Fund. See the
Statement of Additional Information under "Investment Objectives and Policies --
Securities of Other Investment Companies." The income on securities of other
investment companies may be taxable to investors at the state or local level.
See "Taxes" below.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. Each Portfolio may
purchase securities on a "when-issued" basis and may purchase or sell securities
on a "forward commitment" basis. These transactions involve a commitment by a
Portfolio to purchase or sell securities at a stated price and yield with
settlement beyond the normal settlement date. Such transactions permit a
Portfolio to lock-in a price or yield on a security, regardless of future
changes in interest rates. When-issued purchases and forward commitment
transactions involve a risk of loss if the value of the security to be purchased
declines prior
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to the settlement date, or if the value of the security to be sold increases
prior to the settlement date. Each Portfolio expects that these transactions
will not exceed 25% of the value of its total assets (at the time of purchase)
under normal market conditions. No Portfolio intends to engage in such
transactions for speculative purposes but only for the purpose of acquiring
portfolio securities.
TYPES OF MUNICIPAL OBLIGATIONS. The two principal classifications of
Municipal Obligations that may be held by the Tax-Exempt Money Market Portfolio
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 Tax-Exempt Money Market 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
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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.
VARIABLE AND FLOATING RATE MUNICIPAL OBLIGATIONS. Municipal Obligations
purchased by the Tax-Exempt Money Market 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
Tax-Exempt Money Market Portfolio could, for these or other reasons, suffer a
loss with respect to such instruments.
STAND-BY COMMITMENTS. The Tax-Exempt Money Market 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 Tax-Exempt Money Market Portfolio may hold
tax-exempt derivatives which may be in the form of tender option bonds,
participations, beneficial interests in a trust 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
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Information under "Investment Objectives and Policies - Tax-Exempt
Derivatives."
FOREIGN SECURITIES. The Money Market Portfolio may acquire U.S.
dollar-denominated securities of foreign corporations and certain types of bank
instruments issued or supported by the credit of foreign banks or foreign
branches of domestic banks where the Adviser deems the investments to present
minimal credit risks. Investments made in foreign securities involve certain
inherent risks, such as future political and economic developments, the possible
imposition of foreign withholding tax on the interest income payable on such
instruments, the possible establishment of foreign controls, the possible
seizure or nationalization of foreign deposits or assets, or the adoption of
other foreign government restrictions that might adversely affect payment of
interest or principal. In addition, foreign banks and foreign branches of U.S.
banks are subject to less stringent reserve requirements and to different
accounting, auditing, reporting, and recordkeeping standards than those
applicable to domestic branches of U.S. banks.
ILLIQUID SECURITIES. A Portfolio will not knowingly invest more than 10%
of the value of its net assets in illiquid securities. Repurchase agreements
that do not provide for settlement within seven days, time deposits maturing in
more than seven days, and securities that are not registered under the
Securities Act of 1933, as amended (the "1933 Act") but that may be purchased by
institutional buyers pursuant to SEC Rule 144A are subject to the applicable
limit (unless the Adviser, pursuant to guidelines established by the Board of
Directors, determines that a liquid market exists).
RISK FACTORS AND OTHER CONSIDERATIONS. The Tax-Exempt Money Market
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. Although the Tax-Exempt Money Market
Portfolio may invest 25% more of its net assets in (i) Municipal Obligations
whose issuers are in the same state, (ii) Municipal Obligations the interest on
which is paid solely from revenues of similar projects, (iii) private activity
bonds, it does not presently intend to do so unless, in the opinion of the
Adviser, the investment is warranted. To the extent that the Portfolio's assets
are invested in Municipal Obligations whose issuers are in the same state or
that are payable from the revenues of similar projects or in private activity
bonds, the Portfolio will be subject to the peculiar risks presented by the laws
and economic conditions relating to such states, projects and bonds to a greater
extent than it would be if its assets were not so invested. See "Investment
Objectives and Policies - Municipal Obligations" in the Statement of Additional
Information.
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The Tax-Exempt Money Market Portfolio is classified as non-diversified
under the 1940 Act. Investment return on a non-diversified portfolio typically
is dependent upon the performance of a smaller number of securities relative to
the number held in a diversified portfolio. Consequently, the change in value of
any one security may affect the overall value of a non-diversified portfolio
more than it would a diversified portfolio. In addition, a non-diversified
portfolio may be more susceptible to economic, political and regulatory
developments than a diversified investment portfolio with similar objectives.
The value of the Tax-Exempt Money Market Portfolio's securities can be expected
to vary inversely with changes in prevailing interest rates.
Municipal Obligations purchased by the Tax-Exempt Money Market 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.
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 derivatives are rendered by counsel to the respective sponsors
of such derivatives. 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
securities, or the bases for such opinions.
INVESTMENT LIMITATIONS
Except as otherwise noted, each Portfolio's investment policies
discussed above are not fundamental and may be changed by the Fund's Board of
Directors without shareholder approval. However, each Portfolio also has in
place certain fundamental investment limitations, some of which are set forth
below, which may be changed only by a vote of a majority of the outstanding
Shares of a Portfolio. Other investment limitations that also cannot be changed
without a vote of shareholders are contained in the Statement of Additional
Information under "Investment Objectives and Policies."
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THE TREASURY MONEY MARKET AND MONEY MARKET PORTFOLIOS
A Portfolio may not:
1. Make loans, except that a Portfolio may purchase or hold debt
instruments in accordance with its investment objective and policies and
may enter into repurchase agreements with respect to securities
(together with any cash collateral) that are consistent with the
Portfolio's permitted investments and that equal at all times at least
100% of the value of the repurchase price.
2. Borrow money or issue senior securities, except that a
Portfolio may borrow from banks, and the Money Market Portfolio may
enter into reverse repurchase agreements, for temporary purposes in
amounts up to 10% of the value of its total assets at the time of such
borrowing; or mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of a
Portfolio's total assets at the time of such borrowing. A Portfolio will
not purchase securities while its borrowings (including reverse
repurchase agreements) are outstanding.
3. With respect to the Treasury Money Market Portfolio, purchase
securities other than obligations of the U.S. Government, its agencies
and instrumentalities, some of which may be subject to repurchase
agreements, except that the Portfolio may purchase securities of other
investment companies that seek to maintain a constant net asset value
per Share and that are permitted themselves only to invest in securities
which may be acquired by the Portfolio.
4. With respect to the Money Market Portfolio, purchase any
securities which would cause more than 25% of the value of the
Portfolio's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, domestic bank
certificates of deposit, bankers' acceptances and repurchase agreements
secured by domestic bank instruments or obligations of the U.S.
Government, its agencies or instrumentalities; (b) wholly-owned finance
companies will be considered to be in the industries of their parents
if their activities are primarily related to financing the activities
of the parents; and (c) utilities will be divided according to their
services, for example, gas, gas transmission, electric and gas,
electric and telephone will each be considered a separate industry.
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In accordance with current regulations of the SEC, the Money Market
Portfolio intends to limit investments in the securities of any single issuer
(other than securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities) to not more than 5% of the Portfolio's total assets at the
time of purchase, provided that the Portfolio may invest up to 25% of its total
assets in the securities of any one issuer for a period of up to three business
days. This intention is not, however, a fundamental policy of the Money Market
Portfolio. The Portfolio would have the ability to invest more than five percent
of its assets in any one issuer in accordance with its fundamental policy only
in the event that Rule 2a-7 of the 1940 Act is amended in the future.
THE TAX-EXEMPT MONEY MARKET PORTFOLIO
The Portfolio may not:
1. Purchase securities of any one issuer if, immediately after
and as a result of such purchase, more than 5% of the Portfolio's total
assets would be invested in the securities of such issuer, except that
(a) up to 50% of the Portfolio's total assets may be invested without
regard to this 5% limitation provided that no more than 25% of the
Portfolio's total assets are invested in the securities of any one
issuer and (b) this 5% limitation does not apply to securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
For purposes of this limitation, a security is considered to be issued
by the governmental entity (or entities) whose assets and revenues
back the security, or, with respect to an industrial development bond
that is backed only by the assets and revenues of a non-governmental
user, a security is considered to be issued by such non-governmental
user. In certain circumstances, the guarantor of a guaranteed security
may also be considered to be an issuer in connection with such
guarantee, except that a guarantee of a security shall not be deemed to
be a security issued by the guarantor when the value of all securities
issued and guaranteed by the guarantor, and owned by the Portfolio, does
not exceed 10% of the Portfolio's total assets.
2. Borrow money or issue senior securities, except that the
Portfolio may borrow from banks for temporary defensive purposes in
amounts not in excess of 10% of its total assets at the time of such
borrowing; or mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of its total assets at the
time of such borrowing; or purchase securities while borrowings exceed
5% of the Portfolio's net assets. Securities held in escrow or separate
accounts in connection
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with the Portfolio's investment practices described in this Prospectus
or the Statement of Additional Information are not subject to this
limitation.
3. Under normal market conditions or when the Adviser deems that
suitable tax-exempt obligations are available, at least 80% of the
Portfolio's assets must be invested in obligations the interest on which
is exempt from federal income tax and stand-by commitments with respect
to such obligations.
Notwithstanding Investment Limitation No. 3, the Portfolio may invest in
securities of other investment companies that (a) invest in securities that are
substantially similar to those the Portfolio may acquire, and (b) distribute
income that is exempt from regular federal income tax.
The following additional investment policies with respect to the
Tax-Exempt Money Market Portfolio are not fundamental and may be changed by the
Board of Directors without shareholder approval:
The Portfolio may not purchase securities which are not readily
marketable, enter into repurchase agreements providing for settlement in
more than seven days after notice, or purchase other illiquid securities
if, as a result of such purchase, illiquid securities would exceed 10%
of the Portfolio's respective total assets.
The Tax-Exempt Money Market Portfolio has an operating policy to comply
with the requirements of Rule 2a-7 of the 1940 Act. To the extent that Rule 2a-7
is more restrictive than the Portfolio's fundamental limitations, the Portfolio
will operate in accordance with Rule 2a-7.
If a percentage limitation is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in value
in the Portfolio's securities will not constitute a violation of such
limitation.
PRICING OF SHARES
The Portfolios' respective net asset values per Share are determined by
the Administrator as of 12:00 noon (Eastern Time) and as of the close of regular
trading hours on the New York Stock Exchange (the "Exchange") (currently, 4:00
p.m. Eastern time) on each weekday, with the exception of those holidays on
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which the Exchange or the Federal Reserve Bank of St. Louis are closed (a
"Business Day"). Currently one or both of these institutions are closed on the
customary national business holidays of New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day
(observed), Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day and
Christmas Day (observed).
Each Portfolio's assets are valued based upon the amortized cost method.
Although each Portfolio seeks to maintain its net asset value per Share at
$1.00, there can be no assurance that the net asset value per Share will not
vary. See the Statement of Additional Information under "Net Asset Value" for
further information.
The public offering price for each class of Shares of a Portfolio is
based upon net asset value per Share. A class will calculate its net asset value
per Share by adding the value of a Portfolio's investments, cash and other
assets attributable to the class, subtracting the Portfolio's liabilities
attributable to that class, and then dividing the result by the total number of
Shares in the class that are outstanding.
HOW TO PURCHASE AND REDEEM SHARES
PURCHASE OF SHARES
Trust Shares are sold to financial institutions, such as banks, trust
companies, thrift institutions, mutual funds or other financial institutions
(collectively "financial institutions"), acting on their own behalf or on behalf
of their qualified fiduciary accounts, employee benefit, retirement plan, or
other such qualified accounts. Trust Shares are sold to qualified purchasers
without a sales charge imposed by the Fund or the Distributor. Generally,
investors purchase Trust Shares through a financial institution, which is
responsible for transmitting purchase orders directly to the Fund.
Purchases may be effected on Business Days when the Adviser, Distributor
and Mercantile (the Custodian) are open for business. The Fund reserves the
right to reject any purchase order, including purchases made with foreign and
third party drafts or checks.
Financial institutions placing orders directly or on behalf of their
customers should contact the Fund at 1-800-551-3731. Investors may also call the
Fund for information on how to purchase Shares.
All shareholders of record will receive confirmations of Share
purchases, exchanges, and redemptions in the mail. If
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Shares are held in the name of banks or other financial institutions, such
institution is responsible for transmitting purchase, exchange, and redemption
orders to the Fund on a timely basis, recording all purchase, exchange, and
redemption transactions, and providing regular account statements which confirm
such transactions to beneficial owners. Payment for orders which are not
received or accepted will be returned after prompt inquiry to the transmitting
financial institution.
A purchase order received and accepted by the Fund by 12:00 noon
(Eastern time) on a Business Day is effected at the net asset value per Share
next determined after receipt of the order in good form if the Fund's Custodian
has received payment in federal funds by 4:00 p.m. (Eastern time) that day. If
such funds are not available for investment by 4:00 p.m. (Eastern time), the
order will be cancelled. Purchase orders received after 12:00 noon (Eastern
time) will be placed the following Business Day.
EXCHANGES
The exchange privilege enables shareholders to exchange Trust Shares of
a Portfolio for Trust Shares of another Portfolio or any other portfolio offered
by the Fund. Exchanges for Trust Shares in another portfolio are effected
without payment of any exchange or sales charges. In addition, Trust Shares of a
Portfolio may also be exchanged for Investor A Shares of the same Portfolio in
connection with the distribution of assets held in a qualified trust, agency or
custodian account with the trust department of Mercantile or any of its
affiliated or correspondent banks. Such exchanges will also be effected without
payment of any exchange or sales charges. The exchange privilege may be
exercised only in those states where the class of shares of such other
portfolios may be legally sold.
The Fund reserves the right to reject any exchange request. The exchange
privilege may be modified or terminated at any time upon 60 days' written notice
to shareholders. An investor may telephone an exchange request by calling his or
her financial institution, which is responsible for transmitting such request to
the Distributor. See "Other Exchange or Redemption Information" below. An
investor should consult the financial institution or the Distributor for further
information regarding procedures for exchanging Shares.
REDEMPTION OF SHARES
Redemption orders should be placed with or through the same financial
institution that placed the original purchase order. Redemption orders are
effected at a Portfolio's net asset value per Share next determined after
receipt of the order by the Fund. The financial institution is responsible for
transmitting
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redemption orders to the Fund on a timely basis. No charge for sending
redemption payments electronically is currently imposed by the Fund, although a
charge may be imposed in the future. The Fund reserves the right to send
redemption proceeds electronically within seven days after receiving a
redemption order if, in the judgment of the Adviser, an earlier payment could
adversely affect a Portfolio.
A written redemption request must be accompanied by any Share
certificates which are properly endorsed for transfer. The Transfer Agent may
require a signature guarantee by an eligible guarantor institution. For purposes
of this policy, the term "eligible guarantor institution" shall include banks,
brokers, dealers, credit unions, securities exchanges and associations, clearing
agencies and savings associations as those terms are defined in Rule 17Ad-15
under the Securities Exchange Act of 1934. The Transfer Agent reserves the right
to reject any signature guarantee if (1) it has reason to believe that the
signature is not genuine, (2) it has reason to believe that the transaction
would otherwise be improper, or (3) the guarantor institution is a broker or
dealer that is neither a member of a clearing corporation nor maintains net
capital of at least $100,000. The signature guarantee requirement will be waived
if all of the following conditions apply: (1) the redemption check is payable to
the shareholder(s) of record and (2) the redemption check is mailed to the
shareholder(s) at the address of record or the proceeds are either mailed or
sent electronically to a commercial bank account previously designated on the
account application. An investor with questions or needing assistance should
contact the financial institution servicing his or her account or the
Distributor. Additional documentation may be required if the redemption is
requested by a corporation, partnership, trust, fiduciary, executor, or
administrator. If, due to temporary adverse conditions, investors are unable to
effect telephone transactions, investors are encouraged to follow the procedures
described in "Other Exchange or Redemption Information" below.
Neither the Fund nor its service providers will be liable for any loss,
damage, expense or cost arising out of any telephone redemption effected in
accordance with the Fund's telephone redemption procedures, upon instructions
reasonably believed to be genuine. The Fund will employ procedures designed to
provide reasonable assurance that instructions by telephone are genuine; if
these procedures are not followed, the Fund or its service providers may be
liable for any losses due to unauthorized or fraudulent instructions. If Share
certificates are outstanding with respect to an account, the telephone
redemption and exchange privilege is not available.
Proceeds from redemptions of Shares with respect to redemption orders
received by the Fund before 12:00 noon (Eastern
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time) on a Business Day normally are sent electronically the same day to the
financial institution that placed the redemption order in good form. Proceeds
for redemption orders that are received after 12:00 noon (Eastern time) or on a
non-Business Day normally are wired to the financial institution on the next
Business Day.
OTHER EXCHANGE OR REDEMPTION INFORMATION
During periods of substantial economic or market change or activity,
telephone redemptions or exchanges may be difficult to complete. In such event,
Shares may be redeemed or exchanged by mailing the request directly to the
financial institution through which the original Shares were purchased or
directly to the Fund at P.O. Box 78069, St. Louis, Missouri 63178.
At various times, the Fund may be requested to redeem Shares for which
it has not yet received good payment. In such circumstances, the Fund may delay
the forwarding of proceeds until payment has been collected for the purchase of
such Shares which may take up to 15 days or more. To avoid delay in payment upon
redemption shortly after purchasing Shares, investors should purchase Shares by
certified or bank check or by electronic transfer. The Fund intends to pay cash
for all Shares redeemed, but under abnormal conditions which make payment in
cash unwise, the Fund may make payment wholly or partly in portfolio securities
at their then market value equal to the redemption price. In such cases, an
investor may incur brokerage costs in converting such securities to cash.
A shareholder may be required to redeem Shares in a Portfolio upon 60
days' written notice if the balance in the shareholder's account drops below
$500. The Fund will not require a shareholder to redeem Portfolio Shares if the
value of the shareholder's account drops below $500 due to fluctuations in net
asset value. Share balances may also be redeemed pursuant to arrangements
between financial institutions and their investors.
YIELDS
Yield quotations are computed separately for Trust Shares, Institutional
Shares, Investor A Shares and/or Investor B Shares of a Portfolio. TOTAL RETURN
AND YIELD FIGURES WILL FLUCTUATE, ARE BASED ON HISTORICAL EARNINGS, AND ARE NOT
INTENDED TO INDICATE FUTURE PERFORMANCE. The methods used to compute each
Portfolio's yields are described below and in the Statement of Additional
Information.
From time to time, performance information such as "yield" and
"effective yield" for the Portfolios' Trust Shares may be quoted in
advertisements or in communications to shareholders. The "yield" quoted in
advertisements refers to the income
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generated by an investment in such Shares of a Portfolio over a specified period
(such as a seven-day period) identified in connection with the particular yield
quotation. This income is then "annualized." That is, the amount of income
generated by the investment during that period is assumed to be generated for
each such period over a 52-week or one-year period and is shown as a percentage
of the investment. The "effective yield" is calculated similarly but, when
annualized, the income earned by an investment in such Shares of a Portfolio is
assumed to be reinvested. The "effective yield" will be slightly higher than the
"yield" because of the compounding effect of this assumed reinvestment.
In addition, the Treasury Money Market Portfolio's "state tax-equivalent
yield" may also be quoted. The "state tax-equivalent yield" shows the level of
taxable yield needed to produce an after-tax yield that is equivalent to a
particular state's tax-exempt yield achieved by the Portfolio. The "state
tax-equivalent yield" refers to the portion of income that is derived from
interest income on direct obligations of the U.S. Government, its agencies or
instrumentalities that qualifies for exemption from state income tax. The yield
calculation assumes that 100% of the interest income is exempt from state income
tax. The "state tax-equivalent yield" is computed by dividing the tax-exempt
portion of the Portfolio's yield by a denominator consisting of one minus a
stated income tax rate.
The Tax-Exempt Money Market Portfolio may also quote its "tax-equivalent
yield" and "tax-equivalent effective yield", which demonstrate the level of
taxable yield needed to produce an after-tax yield that is equivalent to the
Portfolio's yield and effective yield. Each are calculated by increasing the
Portfolio's yield and effective yield by the amount necessary to reflect the
payment of federal (and/or state) tax at a stated tax rate. The "tax equivalent
yield" and "tax-equivalent effective yield" will always be higher than the
Portfolio's yield and effective yield, respectively. The Tax-Exempt Money Market
Portfolio may also compute its "tax-equivalent yield" and "tax-equivalent
effective yield" with respect to certain states, which shows the level of
taxable yield and effective yield, respectively, needed to produce an after-tax
equivalent to the federal and state tax-exempt yield of the Portfolio's
particular class of Shares, assuming payment of federal income tax and state
personal income tax each at a stated rate and based upon a specified percentage
of the Portfolio's income which is exempt from state income tax as well as
federal income tax.
Performance data for the Portfolios' Trust Shares may be compared to the
performance of other mutual funds with comparable investment objectives and
policies through various mutual fund or market indices and data such as that
provided by Lehman Brothers, Inc., or any of its affiliates, Ibbotson
Associates, Inc., Lipper
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Analytical Services, Inc., Mutual Fund Forecaster and IBC/Donoghue's MONEY FUND
REPORT(R) published by IBC/Donoghue. References may also be made to indices or
data published in Money Magazine, Forbes, Barron's, The Wall Street Journal, The
New York Times, Business Week, American Banker, Institutional Investor, Pensions
and Investments, U.S.A. Today, Fortune, CDA/Weisenberger, Morningstar, Inc. and
publications of a local or regional nature. In addition to performance
information, general information about the Portfolios that appears in a
publication such as those mentioned above may be included in advertisements and
in reports to shareholders.
Performance quotations of a class of Shares in a Portfolio represent
that Portfolio's past performance and should not be considered as representative
of future results. Any account fees charged by a bank or other financial
institution (as described in "Management of The Fund -- Service Organizations"
below) or other institutions will not be included in the calculations of a
Portfolio's yields. Such fees, if any, will reduce the investor's net return on
an investment in a Portfolio. Investors may call 1-800-452-4015 to obtain
current yield information.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Portfolios are declared
daily and paid monthly not later than five Business Days after the end of each
month. Trust Shares earn dividends from the day the purchase order is received
by the Transfer Agent through the day before the redemption order for such
Shares is received. Dividends on each Share of the Portfolios are determined in
the same manner and are paid in the same amounts irrespective of class, except
that a Portfolio's Trust Shares and Institutional Shares (other than the
Tax-Exempt Money Market Portfolio which does not offer Institutional Shares)
bear all expenses of the respective Administrative Services Plans adopted for
such Shares and a Portfolio's Investor A Shares and, in the case of the Money
Market Portfolio only, Investor B Shares bear all expenses of the respective
Distribution and Services Plans adopted for such Shares. In addition, a
Portfolio's Institutional Shares bear the expense of certain sub-transfer agency
fees. See "Management of the Fund -- Administrative Services Plan" and "Other
Information Concerning the Fund and Its Shares" below.
The Portfolios do not expect to realize capital gains. Net realized
capital gains of a Portfolio, if any, are distributed at least annually. All
dividends and distributions paid on a Portfolio's Shares are automatically
reinvested in additional Shares of the same class unless the investor has (i)
otherwise indicated in the account application, or (ii) redeemed all the Shares
held in a Portfolio, in which case a distribution will be
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paid in cash. Reinvested dividends and distributions will be taxed in the same
manner as those paid in cash.
TAXES
FEDERAL TAXES
Each Portfolio intends to qualify as a "regulated investment company"
for the current taxable year. It is intended that each Portfolio will continue
to so qualify as long as such qualification is in the best interests of
shareholders. A regulated investment company is generally exempt from federal
income tax on amounts distributed to shareholders.
Qualification as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code"), for a taxable year requires,
among other things, that each Portfolio distribute to its shareholders an amount
equal to at least the sum of 90% of its investment company taxable income and
90% of its net exempt-interest income (if any). In general, a Portfolio's
investment company taxable income will be its taxable income, including
dividends, interest and short-term capital gains (the excess of net short-term
capital gain over net long-term capital loss), subject to certain adjustments
and excluding the excess of any net long-term capital gain over net short-term
capital loss, if any, for such taxable year. The Treasury Money Market and Money
Market Portfolios intend to distribute as dividends substantially all of their
respective investment company taxable income and any net tax-exempt interest
income each year. Such dividends will be taxable as ordinary income to a
Portfolio's shareholders who are not currently exempt from federal income taxes,
whether such income is received in cash or reinvested in additional Shares.
(Federal income taxes for distributions to an IRA are deferred under the Code.)
Because all of the Treasury Money Market and Money Market Portfolios' net
investment income is expected to be derived from earned interest, it is not
expected that any distributions from such Portfolios will be eligible for the
dividends received deduction.
It is the policy of the Tax-Exempt Money Market Portfolio to distribute
as dividends substantially all of its net tax-exempt interest income and any
investment company taxable income each year. Dividends derived from interest on
Municipal Obligations (known as exempt-interest dividends) may be treated by
shareholders as items of interest excludable from their gross income under
Section 103(a) of the Code, unless under the circumstances applicable to the
particular shareholder the exclusion would be disallowed. (See the Statement of
Additional Information under "Additional Information Concerning Taxes.")
Distributions of net income may be taxable to investors under
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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 Tax-Exempt Money Market Portfolio should hold certain private
activity bonds issued after August 7, 1986, shareholders must include, as an
item of tax preference, the portion of dividends paid by the Portfolio that is
attributable to interest on such bonds in their federal alternative minimum
taxable income for purposes of determining liability (if any) for the 26-28%
alternative minimum tax applicable to individuals and the 20% alternative
minimum tax and the environmental tax applicable to corporations. Corporate
shareholders also must take all exempt-interest dividends into account in
determining certain adjustments for federal alternative minimum and
environmental tax purposes. The environmental tax applicable to corporations is
imposed at the rate of .12% on the excess of the corporation's modified federal
alternative minimum taxable income over $2,000,000.
Substantially all of each Portfolio's net realized long-term capital
gains, if any, will be distributed at least annually to its shareholders. A
Portfolio will generally have no tax liability with respect to such gains and
the distributions will be taxable to shareholders who are not currently exempt
from federal income taxes as long-term capital gains, regardless of how long the
shareholders have held the Shares and whether such gains are received in cash or
reinvested in additional Shares.
To the extent dividends paid to shareholders of the Tax-Exempt Money
Market Portfolio are derived from taxable income or from long-term or short-term
capital gains, such dividends will be subject to federal income tax, whether
such dividends are paid in the form of cash or additional Shares.
An investor considering purchasing Shares of a Portfolio on or just
before the record date of any capital gains distribution should be aware that
the amount of the forthcoming distribution, although in effect a return of
capital, will be taxable.
Dividends declared by a Portfolio in October, November, or December of
any year payable to shareholders of record on a specified date in such months
will be deemed to have been received by shareholders and paid by the Fund on
December 31 of such year, if such dividends are actually paid during January of
the following year.
Each Portfolio may be required in certain cases to withhold and remit to
the U.S. Treasury 31% of taxable dividends or gross sale proceeds paid to
shareholders who have failed to provide a correct tax identification number in
the manner required, who are
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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."
STATE AND LOCAL TAXES
Shareholders should note that dividends paid by a Portfolio may be
taxable to investors under state or local law as dividend income even though all
or a portion of such dividends may be derived from interest on obligations that,
if realized directly, would be exempt from such income taxes.
The Treasury Money Market Portfolio is structured to provide investors,
to the extent permissible by federal and state law, with income that is exempt
or excluded from taxation at the state and local level. Shareholders should note
that many, but not all, states permit all or a portion of a regulated investment
company's dividends which are derived from interest on U.S. Treasury obligations
(and obligations of certain U.S. Government agencies)("Treasury Obligations") to
be exempt or excluded from state and local taxation. In addition, only certain
states allow dividends of a regulated investment company that are derived from
dividends of other regulated investment companies investing directly in Treasury
Obligations to be exempt or excluded from state and local taxation. Some states
reduce a shareholder's allowable deductions by interest on debt incurred to
carry obligations producing state tax-exempt interest and by other expenses
related to such obligations. Income earned by the Portfolio from repurchase
agreements generally is not exempt from state or local income tax. Shareholders
should consult their own tax advisors about the status of distributions from the
Treasury Money Market Portfolio under state and local law.
MISCELLANEOUS
The foregoing summarizes some of the important federal and state tax
considerations generally affecting the Portfolios and their shareholders and is
not intended as a substitute for careful tax planning. Accordingly, potential
investors in the Portfolios should consult their tax advisers with specific
reference to their own tax situation. Shareholders will be advised at least
annually as to the federal and, for the Treasury Money Market Portfolio, the
state income tax consequences.
MANAGEMENT OF THE FUND
The Fund is managed under the direction of its Board of Directors. The
Statement of Additional Information contains the
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names of and general background information concerning each director.
INVESTMENT ADVISER
Mississippi Valley Advisors Inc. ("MVA") serves as the investment
adviser to each Portfolio. MVA's principal office is located at One Mercantile
Center, Seventh & Washington Streets, St. Louis, Missouri 63101. MVA is a
wholly-owned subsidiary of Mercantile. As of December 31, 1996, MVA had
approximately $__ billion in assets under investment management, including the
Funds' assets, which were approximately $___ billion.
Subject to the general supervision of the Fund's Board of
Directors and in accordance with the Fund's investment policies,
MVA manages the Portfolios, makes investment decisions with respect to and
places orders for all purchases and sales of the Portfolios' securities and
other investments, and directs the maintenance of each Portfolio's records
relating to such purchases and sales.
For the services provided and expenses assumed pursuant to the
investment advisory agreement, MVA is entitled to receive fees, computed daily
and payable monthly, with respect to the Treasury Money Market and Money Market
Portfolios, at the annual rates of .40% of the first $1.5 billion of each such
Portfolio's average daily net assets, .35% of the next $1.0 billion of net
assets and .25% of net assets in excess of $2.5 billion, and with respect to the
Tax-Exempt Money Market Portfolio, at the annual rate of .40% of the average
daily net assets of the Portfolio. For the fiscal year ended November 30, 1996,
MVA received advisory fees (net of waivers) at the effective annual rates of
___%, ___% and ___% of the respective average daily net assets of the Treasury
Money Market, Money Market and Tax-Exempt Money Market Portfolios.
MVA may from time to time voluntarily reduce all or a portion of its
advisory fee to increase the net income of one or more Portfolios available for
distributions as dividends. The voluntary fee reduction will cause the return of
any such Portfolio to be higher than it would otherwise be in the absence of
such reduction.
ADMINISTRATOR
BISYS Fund Services Ohio, Inc. located at 3435 Stelzer Road, Columbus,
Ohio 43219, acts as the Portfolios' Administrator.
The Administrator generally assists in all aspects of each Portfolio's
administration and operation and also monitors and performs other services
pertaining to the Fund's arrangements under the Administrative Services Plan
described below. For its
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services, the Administrator is entitled to receive a fee, computed daily and
payable monthly, at the annual rate of .20% (.10% for the Tax-Exempt Money
Market Portfolio) of each Portfolio's average daily net assets. For the fiscal
year ended November 30, 1996, the Administrator received administration fees
(net of waivers) at the effective annual rate of ___% of the average daily net
assets of each Portfolio. From time to time, the Administrator may voluntarily
waive all or a portion of the administration fees otherwise payable by a
Portfolio in order to increase the net income available for distribution to
shareholders.
DISTRIBUTOR
Trust Shares in each Portfolio are sold continuously by the Distributor,
BISYS Fund Services, an affiliate of the Administrator. The Distributor is a
registered broker-dealer with principal offices at 3435 Stelzer Road, Columbus,
Ohio 43219.
ADMINISTRATIVE SERVICES PLAN
The Fund has adopted an Administrative Services Plan with respect to the
Trust Shares of the Portfolios. Pursuant to the Administrative Services Plan,
Trust Shares are sold to banks and other financial institutions (which may
include Mercantile or its affiliated or correspondent banks) acting on behalf of
their qualified accounts (such financial institutions collectively, the "Service
Organizations") which agree to provide certain shareholder administrative
services for their clients or account holders (collectively, the "customers")
who are the beneficial owners of such Shares. The holders of Trust Shares bear
their pro rata portion of the fees which may be paid to Service Organizations
for such services at an annual rate of up to .25%, for the Money Market
Portfolios, of the average daily net assets of a Portfolio's Trust Shares owned
beneficially by a Service Organization's customers.
SERVICE ORGANIZATIONS
The servicing agreements adopted under the Administrative Services Plan
(the "Servicing Agreements") require the Service Organizations receiving such
compensation (which may include Mercantile and its affiliates) to perform
certain services, including providing administrative services with respect to
the beneficial owners of Trust Shares of a Portfolio, such as establishing and
maintaining accounts and records for their customers who invest in such Shares,
assisting customers in processing purchase, exchange and redemption requests,
and responding to customer inquiries concerning their investments.
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<PAGE> 135
Under the Servicing Agreements and upon notice to the Fund, a Service
Organization may subcontract with one or more entities for the performance of
certain services provided under its Servicing Agreements with the Fund. Such
Service Organization shall be as fully responsible to the Fund for the acts or
omissions of any sub-contractor as it would be for its own acts or omissions.
The fees payable to any sub-contractor are paid by the Service Organization out
of the fees it receives from the Fund.
The Fund understands that Service Organizations providing such
administrative services may also charge fees to their customers beneficially
owning such Shares. These fees would be in addition to any amounts which may be
received by such Service Organization under its Servicing Agreement with the
Fund. The Fund's Servicing Agreements require a Service Organization to disclose
to its customers any compensation payable to the Service Organization by a
Portfolio and any other compensation payable by its customers in connection with
their investment in such Shares. Customers of such Service Organizations
receiving servicing fees should read this Prospectus in light of the terms
governing their accounts with their Service Organization.
CUSTODIAN AND TRANSFER AGENT
Mercantile Bank National Association, an affiliate of the Fund and a
wholly-owned subsidiary of Mercantile Bancorporation, Inc., with principal
offices located at One Mercantile Center, 8th and Locust Streets, St. Louis,
Missouri 63101, serves as Custodian of each Portfolio's assets. BISYS Fund
Services Ohio, Inc. also serves as the Fund's transfer agent and dividend
disbursing agent. Its address is 3435 Stelzer Road, Columbus, Ohio 43219.
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 investmentcompany continuously engaged in the issuance of its Shares,
and prohibit banks generally from issuing, underwriting, selling, or
distributing securities such as Shares of the Portfolios. Such banking laws and
regulations do not prohibit such a holding company or affiliate, or banks, from
acting as investment adviser, transfer agent, or custodian to such an investment
company, or from purchasing Shares of such a company as agent for and upon the
order of customers. Mercantile, MVA, Service Organizations that are banks or
bank affiliates, and broker-dealers that are bank affiliates are subject to such
laws and regulations, but believe they may perform the services for the
Portfolios contemplated by their respective agreements, this
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<PAGE> 136
Prospectus and the Statement of Additional Information without violating
applicable banking laws and regulations. In addition, state securities laws on
this issue may differ from the interpretation of federal laws expressed herein
and banks and financial institutions may be required to register as dealers
pursuant to state law.
Should future legislative, judicial, or administrative action prohibit
or restrict the activities of such companies in connection with the provision of
services on behalf of the Portfolios and the shareholders, the Fund might be
required to alter materially or discontinue its arrangements with such companies
and change its method of operation. It is not expected that investors would
suffer any adverse financial consequences as a result of any of these
occurrences.
If current restrictions preventing a bank from legally sponsoring,
organizing, controlling, or distributing Shares of an investment company were
relaxed, Mercantile, or an affiliate of Mercantile, would consider the
possibility of offering to perform additional services for the Portfolios. It is
not possible, of course, to predict whether or in what form such legislation
might be enacted or the terms upon which Mercantile, or such an affiliate, might
offer to provide such services.
Conflict of interest restrictions may apply to the receipt of
compensation paid pursuant to a Servicing Agreement by the Portfolios to a
financial intermediary in connection with the investment of fiduciary funds in a
Portfolio's Shares. Institutions, including banks regulated by the Comptroller
of the Currency and investment advisers and other money managers subject to the
jurisdiction of the SEC, the Department of Labor or state securities
commissions, should consult legal counsel before entering into Servicing
Agreements.
EXPENSES
Except as noted above and in the Statement of Additional Information
under "Investment Advisory and Administrative Contracts" and "Custodian and
Transfer Agent," the Fund's service contractors bear all expenses in connection
with the performance of their services, except that the Distributor is
compensated pursuant to the Distribution and Services Plans (as described below
under "Other Information Concerning the Fund and Its Shares"). Expenses are
deducted from the total income of each Portfolio before dividends and
distributions are paid. These expenses include, but are not limited to, fees
paid to the Adviser and Administrator, transfer agency fees, fees and expenses
of officers and directors who are not affiliated with the Adviser or the
Distributor, taxes, interest, legal fees, custodian fees, auditing fees, 12b-1
fees, servicing fees, certain fees and expenses in registering and qualifying a
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Portfolio and its Shares for distribution under federal and state securities
laws, costs of preparing and printing prospectuses and statements of additional
information for regulatory purposes and for distribution to existing
shareholders, the expense of reports to shareholders, shareholders' meetings and
proxy solicitations, fidelity bond and directors and officers liability
insurance premiums, the expense of using independent pricing services and other
expenses which are not expressly assumed by the Adviser, Distributor or
Administrator under their respective agreements with the Fund. The Fund also
pays for brokerage fees, commissions and other transaction charges, if any, in
connection with the purchase and sale of portfolio securities. Any general
expenses of the Fund that are not readily identifiable as belonging to a
particular Portfolio will be allocated among all Portfolios by or under the
direction of the Board of Directors in a manner the Board determines to be fair
and equitable. Any expenses relating only to a particular class of Shares within
a Portfolio will be borne solely by such class. See "Certain Financial
Information" and "Management of the Fund" above for additional information
regarding expenses of each Portfolio.
OTHER INFORMATION CONCERNING
THE FUND AND ITS SHARES
DESCRIPTION OF SHARES
The Fund was organized as a Maryland corporation on September 9, 1982
and is a mutual fund of the type known as an "open-end management investment
company". The Fund's principal office is located at 3435 Stelzer Road, Columbus,
Ohio 43219.
The Fund's Charter authorizes the Board of Directors to issue up to
seven billion full and fractional shares of common stock, and to classify and
reclassify any unauthorized and unissued shares into one or more classes of
shares. The Board of Directors may similarly classify or reclassify any class of
shares into one or more series.
Pursuant to such authority, the Board of Directors has authorized the
issuance of the following series of shares representing interests in the
Portfolios, each of which (except the Tax-Exempt Money Market Portfolio) is
classified as a diversified company under the 1940 Act: 1 billion Trust Shares,
300 million Institutional Shares and 100 million Investor A Shares, representing
interests in the Treasury Money Market Portfolio; 1.8 billion Trust Shares, 300
million Institutional Shares, 550 million Investor A Shares and 50 million
Investor B Shares, representing interests in the Money Market Portfolio; and 300
million Trust Shares and 50 million Investor A Shares, representing interests in
the Tax-Exempt Money Market Portfolio.
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Institutional, Investor A and/or Investor B Shares of the Portfolios are
described in separate prospectuses which are available from the Distributor at
the telephone number on the cover of this Prospectus. Shares in the Portfolios
will be issued without Share certificates.
The Trust Shares of the Portfolios are described in this Prospectus. The
Portfolios also offer Investor A Shares and, in addition, each Portfolio except
the Tax-Exempt Money Market Portfolio offers Institutional Shares and the Money
Market Portfolio offers Investor B Shares. Institutional Shares of the
Portfolios, which are offered to financial institutions acting on behalf of
accounts for which they do not exercise investment discretion, are sold without
a sales charge. Investor A Shares of the Portfolios are sold without a sales
charge through selected broker/dealers and other financial intermediaries to
individual or institutional customers. Investor B Shares of the Money Market
Portfolio, which are sold with a maximum 5.0% contingent deferred sales load,
are available for purchase only by those investors participating int he ARCH
Asset Adviser Program. Otherwise, Investor B Shares of the Money Market
Portfolio are available only to the holders of Investor B Shares of another
portfolio offered by the Fund who wish to exchange their Investor B Shares of
such other portfolio for Investor B Shares of the Money Market Portfolio. Trust
Shares, Institutional Shares, Investor A Shares and/or Investor B Shares bear
their pro rata portion of all operating expenses paid by a Portfolio, except
that Trust Shares and Institutional Shares bear all payments under the
Portfolio's respective Administrative Services Plans adopted for such Shares and
Investor A Shares and Investor B Shares bear all payments under the Portfolio's
respective Distribution and Services Plans adopted for such Shares. In addition,
Institutional Shares of a Portfolio bear the expense of certain sub-transfer
agency fees.
Payments under the Administrative Services Plans for Institutional
Shares are made to Service Organizations for administrative services provided to
the Service Organizations' clients or account holders who are the beneficial
owners of Institutional Shares. Payments under the Administrative Services Plans
may not exceed .25% (on an annual basis) of the average daily net asset value of
outstanding Institutional Shares of the Money Market Portfolios.
Payments under the Distribution and Services Plans for Investor A Shares
and Investor B Shares are made to (i) the Distributor or another person for
providing distribution assistance and assuming certain related expenses, and
(ii) Service Organizations for administrative services provided to the Service
Organizations' clients or account holders who are the beneficial owners of
Investor A Shares. Payments under the Distribution and Services Plan for
Investor A Shares may not
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exceed .25% (on an annual basis) of the average daily net asset value of
outstanding Investor A Shares of the Portfolios. Payments under the Distribution
and Services Plan for Investor B Shares may not exceed 1.00% (on an annual
basis) of the average daily net asset value of the Money Market Portfolio's
outstanding Investor B Shares. Distribution payments made under the Distribution
and Services Plans are subject to the requirements of Rule 12b-1 under the 1940
Act.
The Fund offers various services and privileges in connection with
Investor A Shares and/or Investor B Shares of a Portfolio that are not offered
in connection with the Portfolio's Trust or Institutional Shares, including an
automatic investment program and an automatic withdrawal plan. Each class of
Shares also offers different exchange privileges. Investor B Shares convert
automatically into Investor A Shares eight years after the beginning of the
calendar month in which the Shares were purchased.
Shareholders are entitled to one vote for each full Share held and
proportionate fractional votes for fractional Shares held. Shares of all
Portfolios will vote together and not by class unless otherwise required by law
or permitted by the Board of Directors. All shareholders of a particular
Portfolio will vote together as a single class on matters relating to the
Portfolio's investment advisory agreement and investment objective and
fundamental policies. Only holders of Trust Shares, however, will vote on
matters relating to the Administrative Services Plan for Trust Shares and only
holders of Institutional Shares will vote on matters pertaining to the
Administrative Services Plan for Institutional Shares. Similarly, only holders
of Investor A Shares will vote on matters pertaining to the Distribution and
Services Plan for Investor A Shares and only holders of Investor B Shares will
vote on matters pertaining to the Distribution and Services Plan for Investor B
Shares.
The Fund is not required, and currently does not intend, to hold annual
meetings except as required by the 1940 Act or other applicable law. Upon the
written request of the holders of 10% or more of the outstanding Shares, the
Fund will call a special meeting to vote on the question of removal of a
director.
Shares of the Portfolios have noncumulative voting rights and,
accordingly, the holders of more than 50% of the Fund's outstanding Shares
(irrespective of Portfolio or class) may elect all of the Directors. Shares have
no preemptive rights and only such conversion and exchange rights as the Board
may grant in its discretion. When issued for payment as described in this
Prospectus, Shares will be fully paid and nonassessable.
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<PAGE> 140
MISCELLANEOUS
As used in this Prospectus, a "vote of a majority of the outstanding
Shares" of a Portfolio means, with respect to the approval of an investment
advisory agreement or a change in an investment objective or fundamental
investment policy, the affirmative vote of the lesser of (a) more than 50% of
the outstanding Shares of such Portfolio (irrespective of class), or (b) 67% or
more of the Shares of such Portfolio (irrespective of class) present at a
meeting if more than 50% of the outstanding Shares of such Portfolio are
represented at the meeting in person or by proxy.
As of January 1, 1997, Mercantile and its affiliates possessed, of
record on behalf of their underlying customer accounts, voting or investment
power with respect to more than 25% of the Fund's outstanding Shares. Therefore,
Mercantile may be deemed to be a controlling person of the Fund within the
meaning of the 1940 Act.
Inquiries regarding the Portfolios may be directed to the Fund at
1-800-551-3731.
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<PAGE> 141
NO PERSON HAS BEEN AUTHORIZED THE ARCH
TO GIVE ANY INFORMATION OR TO MAKE FUND(R), INC.
ANY REPRESENTATIONS NOT CONTAINED
IN THIS PROSPECTUS, OR IN THE TREASURY MONEY
PORTFOLIOS' STATEMENT OF ADDITIONAL MARKET PORTFOLIO
INFORMATION INCORPORATED HEREIN BY
REFERENCE, IN CONNECTION WITH THE MONEY MARKET
OFFERING MADE BY THIS PROSPECTUS AND, PORTFOLIO
IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED TAX-EXEMPT
UPON AS HAVING BEEN AUTHORIZED BY THE MONEY MARKET
PORTFOLIOS, THE FUND, OR THE PORTFOLIO
DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFERING BY THE
PORTFOLIOS, THE FUND OR THE DISTRIBUTOR
IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
----------
TRUST
TABLE OF CONTENTS SHARES
PAGE
----
Highlights......................................
Certain Financial
Information...................................
Expense Summary for
Trust Shares..................................
Financial Highlights............................
Investment Objectives,
Policies and Risk
Considerations...............................
Pricing of Shares.............................. [OLD LOGO]
The Money Market Portfolios..................
The Equity and Bond Portfolios...............
How to Purchase and
Redeem Shares................................
Purchase of Shares ...................
Exchanges..............................
Redemption of Shares...................
Other Exchange or
Redemption Information...............
Yields PROSPECTUS
Dividends and Distributions.................... ____________, 1997
Taxes
Management of the Fund..........................
Other Information
Concerning the Fund
and Its Shares...............................
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<PAGE> 142
PAGE
----
Investment Adviser:
Mississippi Valley Advisors Inc.
a wholly-owned subsidiary of
Mercantile Bank National
Association
Distributor: BISYS Fund Services
<PAGE> 143
CROSS REFERENCE SHEET
---------------------
(Trust Shares)
The ARCH Kansas Tax-Exempt Bond 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; Yields and
Total Returns
4. General Description
of Registrant........................ Highlights; Investment
Objectives, Policies and
Risk Considerations; Other
Information Concerning
the Fund and Its Shares
5. Management of the Fund................. Management of the Fund
5A. Management's Discussion of
Fund Performance..................... Inapplicable
6. Capital Stock and
Other Securities..................... How to Purchase and
Redeem Shares; Dividends
and Distributions;
Taxes; Other Information
Concerning the Fund
and Its Shares
7. Purchase of Securities
Being Offered........................ How to Purchase and
Redeem Shares
8. Redemption or Repurchase............... How to Purchase and
Redeem Shares
9. Pending Legal Proceedings.............. Inapplicable
<PAGE> 144
THE ARCH FAMILY
OF MUTUAL FUNDS
TRUST SHARES
KANSAS TAX-EXEMPT BOND PORTFOLIO
PROSPECTUS DATED _______, 1997
<PAGE> 145
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Highlights.....................................................................
Certain Financial
Information.................................................................
Expense Summary for
Trust Shares................................................................
Financial Highlights
Investment Objectives,
Policies and Risk
Considerations...............................................................
Pricing of Shares..............................................................
How to Purchase and
Redeem Shares...............................................................
Purchase of Shares...................................................
Automatic Investment
Program (AIP).......................................................
Exchange Privileges..................................................
Redemption of Shares.................................................
Redemption by Mail...................................................
Redemption by Telephone..............................................
Automatic Withdrawal
Plan (AWP).........................................................
Purchase of Shares at
Net Asset Value....................................................
Other Exchange or
Redemption
Information........................................................
Yields and Total Returns.......................................................
Dividends and Distributions....................................................
Taxes.........................................................................
Management of the Fund........................................................
Other Information
Concerning the Fund
and its Shares..............................................................
Miscellaneous........................................................
</TABLE>
For information, write: Or call your investment
P.O. Box 78069 representative or The ARCH Fund's
St. Louis, Missouri 63178 Service Center at 1-800-551-3731
<PAGE> 146
THE ARCH FUND(R), INC.
TRUST SHARES
The ARCH Fund, Inc. (the "Fund") is an open-end management investment
company that currently offers Shares in seventeen investment portfolios. This
Prospectus describes the Trust Shares in the Kansas Tax-Exempt Bond Portfolio.
Trust Shares are offered to financial institutions acting on their own behalf or
on behalf of certain qualified accounts.
THE ARCH KANSAS TAX-EXEMPT BOND PORTFOLIO'S investment objective is to
seek as high a level of current income exempt from federal income tax as is
consistent with conservation of capital. The Portfolio intends normally to
invest substantially all of its assets in investment grade municipal obligations
having remaining maturities of up to 30 years. Under normal market conditions,
substantially all of the Portfolio's assets are expected to be invested in
municipal obligations that are also exempt from Kansas income tax and the local
intangibles tax.
Mississippi Valley Advisors Inc. ("MVA" or the "Adviser"), a
wholly-owned subsidiary of Mercantile Bank 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 BISYS Fund Services (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 March __, 1997, has been filed with the Securities and
Exchange Commission and is incorporated by reference in its entirety into this
Prospectus. An investor may obtain the Statement of Additional Information
without charge by writing the Fund at P.O. Box 78069, St. Louis, Missouri 63178
or by calling 1-800-551-3731.
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 the possible loss of
principal.
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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.
________, 1997
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HIGHLIGHTS
The ARCH Fund, Inc. (the "Fund") is an open-end, management investment
company (commonly known as a mutual fund) registered under the Investment
Company Act of 1940, as amended. The Fund offers investment opportunities in
seventeen investment portfolios. This Prospectus concerns one of those
portfolios: the KANSAS TAX-EXEMPT BOND PORTFOLIO (the "Portfolio"). In addition,
the Fund offers investment opportunities in the ARCH TREASURY MONEY MARKET,
MONEY MARKET, TAX-EXEMPT MONEY MARKET, U.S. GOVERNMENT SECURITIES, INTERMEDIATE
CORPORATE BOND, BOND INDEX, GOVERNMENT & CORPORATE BOND, SHORT-INTERMEDIATE
MUNICIPAL, MISSOURI TAX-EXEMPT BOND, NATIONAL MUNICIPAL BOND, EQUITY INCOME,
EQUITY INDEX, GROWTH & INCOME EQUITY, SMALL CAP EQUITY, INTERNATIONAL EQUITY AND
BALANCED PORTFOLIOS, which are described in separate prospectuses. The Portfolio
represents a separate pool of assets with a different investment objective and
different policies than the Fund's other portfolios (as described below under
"Investment Objective, Policies and Risk Considerations"). MVA serves as
adviser, Mercantile as custodian, BISYS Fund Services Ohio, Inc. as
administrator and BISYS Fund Services as sponsor and distributor. (For
information on expenses, fee waivers, and services, see "Certain Financial
Information," "Financial Highlights" and "Management of the Fund.")
The following information generally describes the Portfolio and its
investment objective. There can be no assurance that the Portfolio will be able
to achieve its investment objective.
The Portfolio is designed for investors who seek a higher rate of
return than that typically offered by tax-exempt money market funds and who are
willing to accept a variable Share value to achieve that objective. The
Portfolio seeks to provide income exempt from federal tax. In addition, the
Portfolio seeks to provide income that is also exempt from Kansas income tax and
the local intangibles tax.
Investors should note that the Portfolio may, subject to its
investment policies and limitations, purchase variable and floating rate
instruments, enter into repurchase agreements, and make limited investments in
illiquid securities and securities issued by other investment companies. These
investment practices involve investment risks of varying degrees. For example,
the absence of a secondary market for a particular variable or floating rate
instrument could make it difficult for the Portfolio to dispose of an instrument
if the issuer were to default on its payment obligation. Default by a
counterparty to a repurchase agreement could expose a Portfolio to loss because
of adverse market action or possible delay in disposing of the underlying
collateral. The Portfolio may engage in short-term trading, which may also
involve greater risk and increase the
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Portfolio's expenses. The Portfolio may, under certain conditions, make limited
investments in securities the income from which may be subject to federal income
tax. See "Investment Objective, Policies and Risk Considerations" below and the
Statement of Additional Information under "Investment Objectives and Policies."
The Fund offers investors the opportunity to invest in a variety of
professionally managed investments without having to become involved with
detailed management, accounting and safekeeping procedures normally related to
direct investments in securities. The Portfolio also offers the economic
advantages of block trading in securities and the availability of a family of
seventeen mutual funds should an investor's 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.
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CERTAIN FINANCIAL INFORMATION
Shares of the Portfolio have been classified into three classes of
Shares -- Trust Shares, Investor A Shares and Investor B 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 certain other operating expenses, and enjoy certain exclusive
voting rights on matters relating to these fees. (See "Other Information
Concerning the Fund and Its Shares," "Management of the Fund -- Administrative
Services Plan," and "Management of the Fund -- Custodian, Sub-Custodian and
Transfer Agent" below.) As a result of payments for distribution and/or
shareholder administrative servicing fees and certain other operating expenses
that may be made in differing amounts, the net investment income of Trust
Shares, Investor A Shares and/or Investor B Shares in the Portfolio can be
expected, at any given time, to be different.
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EXPENSE SUMMARY FOR TRUST SHARES
<TABLE>
<CAPTION>
KANSAS
TAX-EXEMPT BOND
PORTFOLIO (1)
---------------
<S> <C>
ANNUAL PORTFOLIO OPERATING
EXPENSES
(as a percentage of average
net assets)
Investment Advisory Fees (net
of fee waivers(2)................................................... .00%
12b-1 Fees, including distribution
and service fees (net of
waivers)............................................................ .00%
Other Expenses (including
administration fees
and other expenses)
(net of fee waivers and
expense reimbursements)(3),(4)...................................... .43%
------
Total Portfolio Operating
Expenses (net of fee waivers
and expense reimbursements)(4)...................................... .43%
======
</TABLE>
- ------------------------------
1 The Kansas Tax-Exempt Bond Portfolio intends to commence
operations in 1997.
2 Without fee waivers, investment advisory fees would be
.45%.
3 Administrative services fees are payable at an annual rate not to
exceed .30%. Without fee waivers, administration fees would be .20%.
4 Without fee waivers and/or expense reimbursements, Other Expenses
would be .53% and Total Portfolio Operating Expenses would be .98%.
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<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming (1) a 5% annual
return and (2) redemption at the end of each
period:
Kansas Tax-Exempt Bond Portfolio......... $ 4 $ 14 N/A N/A
</TABLE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN. Information about the actual performance of the
Portfolio will be contained in the Fund's future Annual Reports to Shareholders,
the Fund's Annual Report to Shareholders dated November 30, 1996 may be obtained
without charge by contacting the Fund at the address or telephone number
provided on the cover page of this Prospectus.
The purpose of the foregoing tables is to assist in understanding the
various costs and expenses that an investor in the Portfolio's Trust Shares will
bear directly or indirectly. The information contained in the tables for the
Portfolio is based on expenses the Portfolio expects to incur during the current
fiscal year with respect to such Shares. (For more complete descriptions of the
various costs and expenses, see "Management of the Fund" in this Prospectus and
the Statement of Additional Information.) The Tables and Examples have not been
audited by the Fund's independent auditors and do not reflect any charges that
may be imposed by financial institutions on their customers.
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INVESTMENT OBJECTIVE, POLICIES AND RISK CONSIDERATIONS
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.
The Portfolio's investment objective is to seek as high a level of
current income exempt from federal income tax as is consistent with conservation
of capital. In pursuing its investment objective, the Portfolio invests
substantially all of its assets in investment grade Kansas municipal obligations
(which, to the extent possible, are also exempt from Kansas income tax and the
local intangibles tax).
Dividends paid by the Portfolio that are derived from interest
attributable to tax-exempt obligations issued after December 31, 1987 by the
State of Kansas or its political subdivisions, or on certain specific
obligations issued before January 1, 1988 by such entities, as well as certain
tax-exempt obligations of any authority, commission or instrumentality of the
United States or its possessions ("Kansas Municipal Obligations") are exempt
from federal and Kansas income tax and are not subject to the local intangibles
tax imposed by various counties, cities and townships in Kansas. Dividends
derived from interest on obligations of other governmental issuers are exempt
from federal income tax but may be subject to Kansas income tax and the local
intangibles tax. The foregoing exemption from Kansas income tax does not apply
to banks or certain other individuals or entities who are in the banking
business.
As a matter of fundamental policy, under normal market conditions, at
least 65% of the Portfolio's total assets will be invested in Kansas Municipal
Obligations. The Portfolio will seek to maximize the proportion of its dividends
which are exempt from both federal and Kansas income tax and presently expects
to invest substantially all of its total assets in Kansas Municipal Obligations.
The Portfolio invests in municipal obligations that are rated at the
time of purchase within the four highest rating categories assigned by a Rating
Agency. The Portfolio may also invest in short-term municipal obligations such
as municipal notes, tax-exempt commercial paper and variable or floating rate
demand obligations that are rated at the time of purchase within the two highest
rating categories assigned by a Rating Agency. Municipal obligations rated in
the lowest of the four highest rating categories for bonds are considered to
have speculative characteristics, even though they are of investment grade
quality. Such bonds will be purchased only if the Adviser believes the issuers
have an adequate capacity to pay interest
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and repay principal. Unrated obligations will be purchased only if they are
considered by the Adviser to be at least comparable in quality at the time of
purchase to instruments within the rating categories listed above. The
applicable municipal obligation ratings are described in the Appendix to the
Statement of Additional Information.
As a matter of fundamental policy, under normal market conditions or
when the Adviser deems suitable tax-exempt municipal obligations to be
available, at least 80% of the Portfolio's total assets will be invested in
municipal obligations. The Portfolio may hold uninvested cash reserves pending
investment during temporary defensive periods or if, in the opinion of the
Adviser, suitable municipal obligations are unavailable. There is no percentage
imitation on the amount of assets which may be held uninvested during temporary
defensive periods.
In addition, during temporary defensive periods or if, in the opinion
of the Adviser, suitable municipal obligations are unavailable and subject to
its quality standards described above, the Portfolio may invest up to 20% of its
assets in money market instruments, the income from which is subject to federal
income tax. Such instruments may include obligations of the U.S. Government, its
agencies or instrumentalities; debt securities (including commercial paper) of
issuers having, at the time of purchase, a quality rating within the two highest
rating categories by a Rating Agency; certificates of deposit or bankers'
acceptances of domestic branches of U.S. banks with total assets at the time of
purchase of $1 billion or more; or repurchase agreements with respect to such
obligations.
The Portfolio's average weighted maturity will vary in light of market
and economic conditions, the comparative yields on instruments with different
maturities, and other factors.
RISK FACTORS
INTEREST RATE RISK. Generally, the market value of fixed income
securities, including municipal obligations, held by 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 will tend to increase, and during
periods of rising interest rates, the market value will tend to decrease. Fixed
income securities with longer maturities, which tend to produce higher yields,
are subject to potentially greater capital appreciation and depreciation than
obligations with shorter maturities. Changes in the financial strength of an
issuer or changes in the ratings of any particular security may also offset the
value of these investments. Fluctuations in the market value of fixed income
securities
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subsequent to their acquisition will not offset cash income from such securities
but will be reflected in the Portfolio's net asset value.
MUNICIPAL OBLIGATIONS. The ability of the Portfolio to achieve its
investment objectives is dependent upon the ability of issuers of municipal
obligations to meet their continuing obligations for the payment of principal
and interest. There are additional risks associated with investment in the
Portfolio because it invests its assets predominantly in Kansas Municipal
Obligations. Investors in the Portfolio should be aware that certain provisions
of, and amendments to, the Kansas Constitution limit tax increases which could
result in certain adverse consequences affecting Kansas Municipal Obligations.
Some of the significant financial considerations relating to the Portfolio's
investments in Kansas Municipal Obligations are summarized in the Statement of
Additional Information.
ADDITIONAL RISKS AND OTHER CONSIDERATIONS. Although the Portfolio does
not presently intend to do so on a regular basis, it may invest more than 25% of
its assets in industrial development bonds issued before August 7, 1986, the
interest on which is not treated as a specific tax preference item under the
federal alternative minimum tax, and in municipal obligations, the interest on
which is paid solely from revenues of similar projects, if such investments are
deemed necessary or appropriate by the Adviser. To the extent that the
Portfolio's assets are invested in municipal obligations the issuers of which
are in the same state or that are payable from the revenues of similar projects
or in private activity bonds, the Portfolio will be subject to the peculiar
risks presented by the laws and economic conditions relating to such projects
and bonds to a greater extent that it would be if its assets were not so
invested. See "Investment Objectives and Policies -- Municipal Obligations" in
the Statement on Additional Information.
The Portfolio is classified as non-diversified under the 1940 Act.
Investment return on a non-diversified portfolio typically is dependent upon the
performance of a smaller number of securities relative to the number held in a
diversified portfolio. Consequently, the change in value of any one security may
affect the overall value of a non-diversified portfolio more than it would a
diversified portfolio. In addition, a non-diversified portfolio may be more
susceptible to economic, political, and regulatory developments than a
diversified investment portfolio with similar objectives. The value of the
Portfolio's securities can be expected to vary inversely with changes in
prevailing interest rates.
Investors in the Portfolio should consider the risk inherent in such
Portfolio's concentrations in Kansas Municipal Obligations versus the safety
that comes with a less
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geographically concentrated investment portfolio, and should compare the yields
and tax-equivalent yields available on portfolios of Kansas Municipal
Obligations with the yields and tax-equivalent yields of more diversified
portfolios having securities of comparable quality, including non-Kansas
securities, before making an investment decision.
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.
Opinions relating to the validity of municipal obligations and to the
exemption of interest thereon from federal income tax (and, with respect to
Kansas Municipal Obligations, to the exemption from Kansas 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.
OTHER APPLICABLE POLICIES
The investment policies described in this Prospectus are among those
which the Portfolio has the ability to utilize. Some of these policies may be
employed on a regular basis; others may not be used at all. Accordingly,
reference to any particular policy, method or technique carries no implication
that will be utilized or, if it is, that it will be successful.
U.S. GOVERNMENT OBLIGATIONS. Securities issued or guaranteed by the
U.S. Government, its agencies and instrumentalities have historically involved
little risk of loss of principal if held to maturity. However, due to
fluctuations in interest rates, the market value of such securities may vary
during the period a shareholder owns Shares of the Portfolio. Examples of the
types of U.S. Government obligations that may be held by the Portfolio, subject
to its investment objective and
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<PAGE> 157
policies, include, in addition to U.S. Treasury bonds, notes and bills, the
obligations of Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land
Banks, the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration,
Government National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA"), Federal Home Loan Mortgage Corporation, General Services
Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Resolution Trust Corporation,
and Maritime Administration. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as those of GNMA, are supported
by the full faith and credit of the U.S. Treasury; others, such as the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of FNMA, are supported
by the discretionary authority of the U.S. Government to purchase the agency's
obligations; still others such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. There is
no assurance that the U.S. Government would provide financial support to U.S.
Government-sponsored instrumentalities if it is not obligated to do so by law.
REPURCHASE AGREEMENTS. Under certain circumstances described above and
subject to its investment policies, the Portfolio may agree to purchase U.S.
Government securities from financial institutions such as banks and
broker-dealers, subject to the seller's agreement to repurchase them at a
mutually agreed-upon date and price ("repurchase agreements"). The Portfolio
will enter into repurchase agreements only with financial institutions such as
banks and broker-dealers that the Adviser believes to be creditworthy. During
the term of any repurchase agreement, the Adviser will continue to monitor the
creditworthiness of the seller and will require the seller to maintain the value
of the securities subject to the agreement at not less than 102% of the
repurchase price (including accrued interest). Default by a seller could expose
the Portfolio to possible loss because of adverse market action or possible
delay in disposing of the underlying obligations. Because of the seller's
repurchase obligations, the securities subject to repurchase agreements do not
have maturity limitations. Although the Portfolio presently does not intend to
enter into repurchase agreements providing for settlement in more than seven
days, the Portfolio does have the authority to do so subject to its limitation
on the purchase of illiquid securities described below. Repurchase agreements
are considered to be loans under the 1940 Act. The income on repurchase
agreements is taxable. See "Taxes" below.
SECURITIES OF OTHER INVESTMENT COMPANIES. Under certain circumstances
described above and subject to its investment policies and limitations, the
Portfolio may invest in securities issued by other investment companies which
determine their net asset value per Share based on the amortized cost or penny-
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rounding method and which invest in securities in which the Portfolio is
permitted to invest. 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. Investments in other
investment companies will cause the Portfolio (and, indirectly, the Portfolio's
shareholders) to bear proportionately the cost incurred in connection with the
operations of such other investment companies. In addition, 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. See the Statement
of Additional Information under "Investment Objectives and Policies --
Securities of Other Investment Companies." The income on securities of other
investment companies may be taxable to investors at the state or local level.
See "Taxes" below.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. The Portfolio may
purchase securities on a "when-issued" basis and may purchase or sell securities
on a "forward commitment" basis. These transactions involve a commitment by 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. When issued purchases and forward commitments 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.
TYPES OF MUNICIPAL OBLIGATIONS. The two principal classifications of
municipal obligations that may be held by the Portfolio are "general obligation"
securities and "revenue" securities. General obligation securities are secured
by the issuer's pledge of its full faith, credit and taxing power for the
payment of principal and interest. Revenues securities are payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise tax or other specific revenue
source such as the user of the facility being financed. Revenue securities
include private activity bonds which are not payable from the unrestricted
revenues of the issuer. Consequently, the credit quality of private activity
bonds is usually directly related to the credit standing of the corporate user
of the facility
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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.
VARIABLE AND FLOATING RATE MUNICIPAL OBLIGATIONS. 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
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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.
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 their 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 Objectives 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 the applicable
limit (unless the Adviser pursuant to guidelines established by the Board of
Directors, determines that a liquid market exists).
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
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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 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
Except as otherwise noted, the Portfolio's investment policies
discussed above are not fundamental and may be changed by the Fund's Board of
Directors without shareholder approval. However, the Portfolio also has in place
certain fundamental investment limitations, some of which are set forth below,
which 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 Objectives and Policies."
The Portfolio may not:
1. Purchase securities of any one issuer if, immediately after
and as a result of such purchase, more than 5% of the Portfolio's total
assets would be invested in the securities of such issuer, except that
(a) up to 50% of the Portfolio's total assets may be invested without
regard to this 5% limitation provided that no more than 25% of the
Portfolio's total assets are invested in the securities of any one
issuer and (b) this 5% limitation does not apply to securities issued
or guaranteed by the U.S. Government, its agencies or
instrumentalities. For purposes of this limitation, a security is
considered to be issued by the governmental entity (or entities) whose
assets and revenues back the security, or, with respect to a private
activity bond that is backed only by the assets and revenues of a
non-governmental user, a security is considered to be issued by such
non-governmental user. In certain circumstances, the guarantor of a
guaranteed security may also be considered to be an issuer in
connection with such guarantee, except that a guarantee of a security
shall not be deemed to be a security issued by the guarantor when the
value of all securities issued and guaranteed by the
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guarantor, and owned by the Portfolio, does not exceed 10% of the
Portfolio's total assets.
2. Borrow money or issue senior securities, except that the
Portfolio may borrow from banks and may enter into reverse repurchase
agreements, for temporary defensive purposes in amounts not in excess
of 10% of its total assets at the time of such borrowing; or mortgage,
pledge, or hypothecate any assets except in connection with any such
borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of its total assets at the time of such
borrowing (including any reverse repurchase agreements); or purchase
securities while borrowings exceed 5% of the Portfolio's 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.
3. Purchase any securities, except securities issued (as
defined in Investment Limitation No. 1 above) or guaranteed by the
United States, any state, territory or possession of the United States,
the District of Columbia or any of their authorities, agencies,
instrumentalities or political subdivisions, which would cause more
than 25% of the Portfolio's net assets at the time of purchase to be
invested in the securities of issuers conducting their principal
business activities in the same industry.
4. Make loans except that the Portfolio may purchase and hold
debt instruments and enter into repurchase agreements in accordance
with its investment objective and policies.
The following additional investment policies are not fundamental and
may be changed by the Board of Directors without shareholder approval:
The Portfolio may not purchase securities which are not
readily marketable, enter into repurchase agreements providing for
settlement in more than seven days after notice, or purchase other
illiquid securities if, as a result of such purchase, illiquid
securities would exceed 15% of the Portfolio's respective total assets.
If a percentage limitation is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in value
in the Portfolio's securities will not constitute a violation of such
limitation.
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PRICING OF SHARES
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 (the "Exchange") (currently 4:30 p.m. Eastern Time) on each weekday
with the exception of those holidays on which the Exchange or the Federal
Reserve Bank of St. Louis are closed (" a Business Day"). Currently one or both
of these institutions are closed on the customary national business holidays of
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day (observed), Independence Day (observed), Labor Day, Columbus Day,
Veterans' Day, Thanksgiving Day and Christmas Day (observed).
Securities which are traded on a recognized stock exchange are valued
at the last sale price on the securities exchange on which such securies 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.
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 of
the Portfolio, a front-end sales charge. A class will calculate its 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.
HOW TO PURCHASE AND REDEEM SHARES
PURCHASE OF SHARES
Trust Shares are sold to financial institutions, such as banks, trust
companies, thrift institutions, mutual funds or other financial institutions
(collectively "financial institutions"), acting on their own behalf or on behalf
of their qualified fiduciary accounts, employee benefit, retirement plan, or
other such qualified accounts. Trust Shares are sold to qualified purchasers
without a sales charge imposed by the Fund or the Distributor. Generally,
investors purchase Trust Shares through a financial institution, which is
responsible for transmitting purchase orders directly to the Fund.
Purchases may be effected on Business Days when the Adviser,
Distributor and Mercantile (the Custodian) are open for business.
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The Fund reserves the right to reject any purchase order, including purchases
made with foreign and third party drafts or checks.
Financial institutions placing orders directly or on behalf of their
customers should contact the Fund at 1-800-551-3731. Investors may also call the
Fund for information on how to purchase Shares.
All shareholders of record will receive confirmations of Share
purchases, exchanges, and redemptions in the mail. If Shares are held in the
name of banks or other financial institutions, such institution is responsible
for transmitting purchase, exchange, and redemption orders to the Fund on a
timely basis, recording all purchase, exchange, and redemption transactions, and
providing regular account statements which confirm such transactions to
beneficial owners. Payment for orders which are not received or accepted will be
returned after prompt inquiry to the transmitting financial institution.
If purchase orders are received in good form and accepted by the Fund
prior to 4:00 p.m. (Eastern time) on any Business Day, Trust Shares will be
priced according to the net asset value per Share next determined on that day
after receipt of the order. Immediately available funds must be received by the
Custodian prior to 4:00 p.m. on the next Business Day following receipt of such
order. If funds are not received by such date, the order will be cancelled, and
notice thereof will be given to the financial institution placing the order.
EXCHANGES
The exchange privilege enables shareholders to exchange Trust Shares of
the Portfolio for Trust Shares of another portfolio offered by the Fund.
Exchanges for Trust Shares in another Portfolio are effected without payment of
any exchange or sales charges. In addition, Trust Shares of the Portfolio may
also be exchanged for Investor A Shares of the Portfolio in connection with the
distribution of assets held in a qualified trust, agency or custodian account
with the trust department of Mercantile or any of its affiliated or
correspondent banks. Such exchanges will also be effected without payment of any
exchange or sales charges. The exchange privilege may be exercised only in those
states where the class of shares of such other portfolios may be legally sold.
The Fund reserves the right to reject any exchange request. The
exchange privilege may be modified or terminated at any time upon 60 days'
written notice to shareholders. An investor may telephone an exchange request by
calling his or her financial institution, which is responsible for transmitting
such request to the Distributor. (See "Other Exchange or Redemption
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Information" below.) An investor should consult the financial institution or the
Distributor for further information regarding procedures for exchanging Shares.
REDEMPTION OF SHARES
Redemption orders should be placed with or through the same financial
institution that placed the original purchase order. Redemption orders are
effected at 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 redemption payments electronically is currently imposed by the Fund,
although a charge may be imposed in the future. The Fund reserves the right to
send redemption proceeds electronically within seven days after receiving a
redemption order if, in the judgment of the Adviser, an earlier payment could
adversely affect the Portfolio.
A written redemption request must be accompanied by any Share
certificates which are properly endorsed for transfer. The Transfer Agent may
require a signature guarantee by an eligible guarantor institution. For purposes
of this policy, the term "eligible guarantor institution" shall include banks,
brokers, dealers, credit unions, securities exchanges and associations, clearing
agencies and savings associations as those terms are defined in Rule 17Ad-15
under the Securities Exchange Act of 1934. The Transfer Agent reserves the right
to reject any signature guarantee if (1) it has reason to believe that the
signature is not genuine, (2) it has reason to believe that the transaction
would otherwise be improper, or (3) the guarantor institution is a broker or
dealer that is neither a member of a clearing corporation nor maintains net
capital of at least $100,000. The signature guarantee requirement will be waived
if all of the following conditions apply: (1) the redemption check is payable to
the shareholder(s) of record and (2) the redemption check is mailed to the
shareholder(s) at the address of record or the proceeds are either mailed or
sent electronically to a commercial bank account previously designated on the
account application. An investor with questions or needing assistance should
contact the financial institution servicing his or her account or the
Distributor. Additional documentation may be required if the redemption is
requested by a corporation, partnership, trust, fiduciary, executor, or
administrator. If, due to temporary adverse conditions, investors are unable to
effect telephone transactions, investors are encouraged to follow the procedures
described in "Other Exchange or Redemption Information" below.
Neither the Fund nor its service providers will be liable for any loss,
damage, expense or cost arising out of any telephone redemption effected in
accordance with the Fund's
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telephone redemption procedures, upon instructions reasonably believed to be
genuine. The Fund will employ procedures designed to provide reasonable
assurance that instructions by telephone are genuine; if these procedures are
not followed, the Fund or its service providers may be liable for any losses due
to unauthorized or fraudulent instructions. If Share certificates are
outstanding with respect to an account, the telephone redemption and exchange
privilege is not available.
Proceeds from redemptions of Shares of the Portfolio with respect to
redemption orders received by the Fund before 4:00 p.m. (Eastern time) on a
Business Day normally are sent electronically to the financial institution that
placed the redemption order the next Business Day after the Distributor's
receipt of the order in good form.
OTHER EXCHANGE OR REDEMPTION INFORMATION
During periods of substantial economic or market change or activity,
telephone redemptions or exchanges may be difficult to complete. In such event,
Shares may be redeemed or exchanged by mailing the request directly to the
financial institution through which the original Shares were purchased or
directly to the Fund at P.O. Box 78069, St. Louis, Missouri 63178.
At various times, the Fund may be requested to redeem Shares for which
it has not yet received good payment. In such circumstances, the Fund may delay
the forwarding of proceeds until payment has been collected for the purchase of
such Shares which may take up to 15 days or more. To avoid delay in payment upon
redemption shortly after purchasing Shares, investors should purchase Shares by
certified or bank check or by electronic transfer. The Fund intends to pay cash
for all Shares redeemed, but under abnormal conditions which make payment in
cash unwise, the Fund may make payment wholly or partly in portfolio securities
at their then market value equal to the redemption price. In such cases, an
investor may incur brokerage costs in converting such securities to cash.
A shareholder may be required to redeem Shares in 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, Investor A Shares and
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Investor B 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 particular Portfolio during a 30-day (or one-month) period
identified in connection with the particular yield quotation. More specifically,
the yield is computed by dividing the Portfolio's net income per Share during a
30-day (or one-month) period by the net asset value per Share on the last day of
the period and annualizing the result. The Portfolio's "tax equivalent" yields,
which show 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 may also compute its "Kansas tax-equivalent" yield, which shows the
level of taxable yield needed to produce an after-tax equivalent to the federal
and Kansas tax-exempt yield of the Portfolio's Shares, assuming payment of
federal income tax and Kansas income tax each at a stated rate.
The Portfolio's total return may be calculated on an average annual
total return basis, and may also be calculated on an aggregate total return
basis, for various periods. Average annual total returns with respect to Trust
Shares reflect the average annual percentage change in value of an investment in
such Shares of the particular Portfolio over the particular measuring period.
Aggregate total returns reflect the cumulative percentage change in value over
the measuring period. Both methods of calculating total returns assume that
dividends and capital gain distributions made by 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.
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). References may also be made to
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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
the Portfolio's past performance and should not be considered as representative
of future results. Any account fees charged by a bank or other financial
institution (as described in "Management of The Fund -- Service Organizations"
below) or other institutions will not be included in the calculations of 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
1-800-452-4015 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 Transfer Agent 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 and Investor B Shares bear all expenses of the respective
Distribution and Services Plans adopted for such Shares. (See "Management of the
Fund -- Administrative Services Plan" and "Other Information Concerning the Fund
and Its Shares" below.)
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 in 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.
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TAXES
FEDERAL TAXES
The Portfolio intends to qualify as a "regulated investment company"
for the current taxable year. 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 is generally exempt from federal
income tax on amounts distributed to shareholders.
It is the policy of the Portfolio to distribute as dividends
substantially all of its net tax-exempt interest income and any investment
company taxable income each year. Dividends derived from interest on municipal
obligations (known as exempt-interest dividends) may be treated by shareholders
as items of interest excludable from their gross income under Section 103(a) of
the Code, unless under the circumstances applicable to the particular
shareholder the exclusion would be disallowed. See the Statement of Additional
Information under "Additional Information Concerning Taxes." Distributions of
net income may be taxable to investors under state or local law as dividend
income even though a substantial portion of such distributions may be derived
from interest on tax-exempt obligations which, if realized directly, would be
exempt from such income tax.
If 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
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rate of .12% on the excess of the corporation's modified federal alternative
minimum taxable income over $2,000,000.
Substantially all of the Portfolio's net realized long-term capital
gains, if any, will be distributed at least annually to its shareholders. The
Portfolio will generally have no tax liability with respect to such gains and
the distributions will be taxable to shareholders who are not currently exempt
from federal income taxes as long-term capital gains, regardless of how long the
shareholders have held the Shares and whether such gains are received in cash or
reinvested in additional Shares.
To the extent dividends paid to shareholders of the Portfolio are
derived from taxable income or from long-term or short-term capital gains, such
dividends will be subject to federal income tax, whether such dividends are paid
in the form of cash or additional Shares.
An investor considering purchasing Shares of the Portfolio on or just
before the record date of any dividend or capital gains distribution should be
aware that the amount of the forthcoming distribution, although in effect a
return of capital, will be taxable.
Dividends declared by the Portfolio in October, November, or December
of any year payable to shareholders of record on a specified date in such months
will be deemed to have been received by shareholders and paid by the Fund on
December 31 of such year, if such dividends are actually paid during January of
the following year.
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."
A taxable gain or loss may be realized by an investor upon redemption,
transfer or exchange of Shares of the Portfolio, depending upon the tax basis of
such Shares and their price at the time of redemption, transfer or exchange. If
an investor holds Shares for six months or less and during that time receives an
exempt-interest dividend on those Shares, any loss realized on the sale or
exchange of those Shares will be disallowed to the extent of the exempt-interest
dividend.
KANSAS TAX CONSIDERATIONS. In each year that the Portfolio qualifies as
a regulated investment company for federal income
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tax purposes, dividends distributed to shareholders of the Portfolio who are
Kansas resident individuals, or estates or trusts resident in Kansas, will be
excluded from the computation of Kansas adjusted gross income to the extent that
such dividends (a) (i) qualify as exempt-interest dividends of a regulated
investment company under section 852(b)(5) of the Code and (ii) are attributable
to interest on obligations issued after December 31, 1987 by the State of Kansas
or its political subdivisions or on certain specific obligations issued before
January 1, 1988 by such entities, or (b) are derived from interest on certain
obligations of any authority, commission or instrumentality of the United States
or its possessions, to the extent exempted from state income taxes under Federal
law. The Portfolio intends to invest only in obligations which will permit
distributions attributable to interest to be excludable from Kansas adjusted
gross income on resident individuals, estates and trusts. Resident individuals,
estates and trusts will generally be subject to Kansas income tax on other types
of distributions received from the Portfolio, including distributions
attributable to interest on certain obligations issued before January 1, 1988,
by the State of Kansas or its political subdivisions, to interest on obligations
of other issuers and to all long-term and short-term capital gains, if any, to
the extent such capital gains distributions are included in federal taxable
income. Corporations within Kansas' tax jurisdiction are subject to the same
rules as Kansas individuals in computing such corporation's net income before
apportionment.
The foregoing discussion of Kansas law does not apply to shareholders
which are banks or to certain other individuals or entities who are in the
banking business. Banks and others in the banking business are subject to the
Kansas privilege tax or net income for which distributions from the Portfolio
are not exempt.
Except as noted above with respect to Kansas income taxation,
distributions from the Portfolio may be taxable to investors under other state
and local laws imposing taxes on or measured by net income, even though all or a
portion of such distributions are derived from tax-exempt obligations which, if
realized directly by the investor, would be nontaxable. The Portfolio will
notify its shareholders within 60 days after the close of each year as to the
amount of exempt interest dividends from Kansas obligations which is exempt from
Kansas individual income taxation.
Earnings derived from the Portfolio will not be subject to the local
intangibles tax imposed by various counties, cities and townships in Kansas.
Shareholders of the Portfolio should consult their tax advisors with
respect to the state and local tax consequences of
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the purchase, ownership and disposition of Shares in the Portfolio.
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 and Kansas state income tax consequences of
distributions made each year.
MANAGEMENT OF THE FUND
The Fund is managed under the direction of its Board of Directors. The
Statement of Additional Information contains the names of and general background
information concerning each director.
INVESTMENT ADVISER
Mississippi Valley Advisors Inc. ("MVA") serves as the investment
adviser to each Portfolio. MVA's principal office is located at One Mercantile
Center, Seventh & Washington Streets, St. Louis, Missouri 63101. MVA is a
wholly-owned subsidiary of Mercantile. As of December 31, 1996, MVA had
approximately $__ billion in assets under investment management, including the
Funds' assets, which were approximately $__ billion.
Subject to the general supervision of the Fund's Board of Directors and
in accordance with the Fund's investment policies, MVA manages the Portfolios,
makes investment decisions with respect to and places orders for all purchases
and sales of the Portfolios' securities and other investments, and directs the
maintenance of each Portfolio's records relating to such purchases and sales.
For the services provided and expenses assumed pursuant to the
investment advisory agreement, MVA is entitled to receive fees, computed daily
and payable monthly at the annual rate of .45% 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. The Portfolio had not commenced operations as of the date of this
Prospectus. MVA has informed the Fund that, upon
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commencement of operations of the Portfolio, it intends to waive its fee with
respect to that Portfolio through November 30, 1997.
Peter Merzian is the person primarily responsible for the day-to-day
management of the Portfolio. Mr. Merzian, a Senior Associate of MVA, has been
with MVA since 1993 and prior thereto, was employed as a portfolio manager of
another financial institution.
ADMINISTRATOR
BISYS Fund Services Ohio, Inc. located at 3435 Stelzer Road, Columbus,
Ohio 43219, acts as the Portfolio's Administrator.
The Administrator generally assists in all aspects of each Portfolio's
administration and operation and also monitors and performs other services
pertaining to the Fund's arrangements under the Administrative Services Plan
described below. For its services, the Administrator is entitled to receive a
fee, computed daily and payable monthly, at the annual rate of .20% of the
Portfolio's average daily net assets. From time to time, the Administrator may
voluntarily waive all or a portion of the administration fees otherwise payable
by a Portfolio in order to increase the net income available for distribution to
shareholders. The Administrator has advised the Fund that, upon commencement of
operations of the Portfolio, it intends to waive .10% of the administration fee
payable to it by that Portfolio through the Fund's 1997 fiscal year.
DISTRIBUTOR
Trust Shares in each Portfolio are sold continuously by the
Distributor, BISYS Fund Services, an affiliate of the Administrator. The
Distributor is a registered broker-dealer with principal offices at 3435 Stelzer
Road, Columbus, Ohio 43219.
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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") 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 Trust Shares of a Portfolio, such as establishing and
maintaining accounts and records for their customers who invest in such Shares,
assisting customers in processing purchase, exchange and redemption requests,
and responding to customer inquiries concerning their investments.
Under the Servicing Agreements and upon notice to the Fund, a Service
Organization may subcontract with one or more entities for the performance of
certain services provided under its Servicing Agreements with the Fund. Such
Service Organization shall be as fully responsible to the Fund for the acts or
omissions of any sub-contractor as it would be for its own acts or omissions.
The fees payable to any sub-contractor are paid by the Service Organization out
of the fees it receives from the Fund.
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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 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 3435 Stelzer Road, Columbus, Ohio 43219.
REGULATORY MATTERS
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any affiliate
thereof from sponsoring, organizing, or controlling the Shares of a registered,
open-end investment company continuously engaged in the issuance of its Shares,
and prohibit banks generally from issuing, underwriting, selling, or
distributing securities such as Shares of the Portfolios. Such banking laws and
regulations do not prohibit such a holding company or affiliate, or banks, from
acting as investment adviser, transfer agent, or custodian to such an investment
company, or from purchasing Shares of such a company as agent for and upon the
order of customers. Mercantile, MVA, Service Organizations that are banks or
bank affiliates, and broker-dealers that are bank affiliates are subject to such
laws and regulations, but believe they may perform the services for the
Portfolios contemplated by their respective agreements, this Prospectus and the
Statement of Additional Information without violating applicable banking laws
and regulations. In addition, state securities laws on this issue may differ
from the interpretation of federal laws expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
Should future legislative, judicial, or administrative action prohibit
or restrict the activities of such companies in connection with the provision of
services on behalf of the
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<PAGE> 176
Portfolio and the shareholders, the Fund might be required to alter materially
or discontinue its arrangements with such companies and change its method of
operation. It is not expected that investors would suffer any adverse financial
consequences as a result of any of these occurrences.
If current restrictions preventing a bank from legally sponsoring,
organizing, controlling, or distributing Shares of an investment company were
relaxed, Mercantile, or an affiliate of Mercantile, would consider the
possibility of offering to perform additional services for the 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 Plans (as described below
under "Other Information Concerning the Fund and Its Shares"). Expenses are
deducted from the total income of each Portfolio before dividends and
distributions are paid. These expenses include, but are not limited to, fees
paid to the Adviser and Administrator, transfer agency fees, fees and expenses
of officers and directors who are not affiliated with the Adviser or the
Distributor, taxes, interest, legal fees, custodian fees, auditing fees, 12b-1
fees, servicing fees, certain fees and expenses in registering and qualifying a
Portfolio and its Shares for distribution under Federal and state securities
laws, costs of preparing and printing prospectuses and statements of additional
information for regulatory purposes and for distribution to existing
shareholders, the expense of reports to shareholders, shareholders' meetings and
proxy solicitations, fidelity bond and directors and officers liability
insurance premiums, the expense of using independent pricing services and other
expenses which are not expressly assumed by the Adviser, Distributor or
Administrator under their respective agreements with the Fund. The Fund also
pays for brokerage fees,
-31-
<PAGE> 177
commissions and other transaction charges, if any, in connection with the
purchase and sale of portfolio securities. Any general expenses of the Fund that
are not readily identifiable as belonging to a particular portfolio will be
allocated among all portfolios by or under the direction of the Board of
Directors in a manner the Board determines to be fair and equitable. Any
expenses relating only to a particular class of Shares within a portfolio will
be borne solely by such class. (See "Certain Financial Information" and
"Management of the Fund" above for additional information regarding expenses of
each Portfolio.)
OTHER INFORMATION CONCERNING
THE FUND AND ITS SHARES
DESCRIPTION OF SHARES
The Fund was organized on September 9, 1982 as a Maryland corporation,
and is a mutual fund of the type known as an "open-end management investment
company." The Fund's principal office is located at 3435 Stelzer Road, Columbus,
Ohio 43219.
The Fund's Charter authorizes the Board of Directors to issue up to
seven billion full and fractional Shares of common stock, and to classify and
reclassify any unauthorized and unissued Shares into one or more classes of
Shares. The Board of Directors may similarly classify or reclassify any class of
Shares into one or more series.
Pursuant to such authority, the Board of Directors has authorized the
issuance of the following series of shares representing interests in the
Portfolio, which is classified as a diversified company under the 1940 Act: 25
million Trust Shares, 25 million Investor A Shares and 10 million Investor B
Shares, representing interests in the Portfolio.
-32-
<PAGE> 178
Investor A and Investor B Shares of the Portfolio are described in a separate
prospectus which is available from the Distributor at the telephone number on
the cover of this Prospectus. Shares in the Portfolio will be issued without
Share certificates.
The Trust Shares of the Portfolio are described in this Prospectus.
The Portfolios also offers Investor A Shares and front-end sales charge, and
Investor B Shares are sold with a maximum 5.0% contingent deferred sales
charge. Investor A Shares and Investor B Shares are sold through selected
broker/dealers and other
-33-
<PAGE> 179
financial intermediaries to individual or institutional customers. Trust Shares,
Investor A Shares and Investor B 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 respective Administrative Services Plan adopted
for such Shares and Investor A Shares and Investor B Shares bear all payments
under the Portfolio's respective Distribution and Services Plans adopted for
such Shares.
Payments under the Distribution and Services Plans for Investor A
Shares and Investor B Shares are made to (i) the Distributor or another person
for providing distribution assistance and assuming certain related expenses, and
(ii) Service Organizations for administrative services provided to the Service
Organizations' clients or account holders who are the beneficial owners of
Investor A Shares or Investor B Shares. Payments under the Distribution and
Services Plan for Investor A Shares may not exceed .30% (on an annual basis) of
the average daily net asset value of Investor A Shares of the Equity and Bond
Portfolios. Payments under the Distribution and Services Plan for Investor B
Shares may not exceed 1.00% (on an annual basis) of the average daily net asset
value of outstanding Investor B Shares of the Portfolio. Distribution payments
made under the Distribution and Services Plans are subject to the requirements
of Rule 12b-1 under the 1940 Act.
The Fund offers various services and privileges in connection with
Investor A Shares and Investor B Shares of the Portfolio that are not offered in
connection with the Portfolio's Trust Shares, including an
automatic investment program and an automatic withdrawal plan. Each class of
shares also offers different exchange privileges. Investor B Shares convert
automatically into Investor A Shares eight years after the beginning of the
calendar month in which the Shares were purchased.
-34-
<PAGE> 180
Shareholders are entitled to one vote for each full Share held and
proportionate fractional votes for fractional Shares held. Shares of all
Portfolios will vote together and not by class unless otherwise required by law
or permitted by the Board of Directors. All shareholders of a particular
Portfolio will vote together as a single class on matters relating to the
Portfolio's investment advisory agreement and investment objective and
fundamental policies. Only holders of Trust Shares, however, will vote on
matters relating to the Administrative Services Plan for Trust Shares.
Similarly, only holders of Investor A Shares will vote on matters pertaining to
the Distribution and Services Plan for Investor A Shares and only holders of
Investor B Shares will vote on matters pertaining to the Distribution and
Services Plan for Investor B Shares.
The Fund is not required, and currently does not intend, to hold annual
meetings except as required by the 1940 Act or other applicable law. Upon the
written request of the holders of 10% or more of the outstanding Shares, the
Fund will call a special meeting to vote on the question of removal of a
director.
Shares of the Portfolio 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, with respect to the approval of an investment
advisory agreement or a change in an investment objective or fundamental
investment policy, the affirmative vote of the lesser of (a) more than 50% of
the outstanding Shares of such Portfolio (irrespective of class), or (b) 67% or
more of the Shares of such Portfolio (irrespective of class) present at a
meeting if more than 50% of the outstanding Shares of such Portfolio are
represented at the meeting in person or by proxy.
As of January 1, 1997, 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.
-35-
<PAGE> 181
Inquiries regarding the Portfolio may be directed to the Fund at
1-800-551-3731.
-36-
<PAGE> 182
NO PERSON HAS BEEN AUTHORIZED THE ARCH
TO GIVE ANY INFORMATION OR TO MAKE FUND(R), INC.
ANY REPRESENTATIONS NOT CONTAINED
IN THIS PROSPECTUS, OR IN THE
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
PORTFOLIO, THE FUND, OR THE
DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFERING BY THE
PORTFOLIO, THE FUND OR THE DISTRIBUTOR
IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
------------------------
TRUST
TABLE OF CONTENTS SHARES
PAGE
Highlights...................................
Certain Financial
Information................................
Expense Summary for
Trust Shares...............................
Financial Highlights.........................
Investment Objectives,
Policies and Risk
Considerations.............................
Pricing of Shares............................ [OLD LOGO]
How to Purchase and
Redeem Shares..............................
Purchase of Shares -- ..............
Exchanges...........................
Redemption of Shares................
Other Exchange or
Redemption Information............
Yields and Total Returns..................... PROSPECTUS
Dividends and Distributions.................. _______, 1997
Taxes........................................
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<PAGE> 183
Management of the Fund.....................
Other Information
Concerning the Fund
and its Shares...........................
Miscellaneous.....................
Investment Adviser:
Mississippi Valley Advisors Inc.
a wholly-owned subsidiary of
Mercantile Bank
National Association
Distributor: BISYS Fund Services
-38-
<PAGE> 184
CROSS REFERENCE SHEET
---------------------
(Institutional Shares)
The ARCH Treasury Money Market Portfolio
The ARCH Money Market Portfolio
The ARCH U.S. Government Securities Portfolio
The ARCH Intermediate Corporate Bond Portfolio
The ARCH Bond Index Portfolio
The ARCH Government & Corporate Bond Portfolio
The ARCH Equity Income Portfolio
The ARCH Equity Index Portfolio
The ARCH Growth & Income Equity Portfolio
The ARCH Small Cap Equity Portfolio
The ARCH International Equity Portfolio
The ARCH Balanced Portfolio
FORM N-1A PART A ITEM PROSPECTUS CAPTION
- --------------------- ------------------
1. Cover Page............................ Cover Page
2. Synopsis.............................. Expense Summary
for Institutional Shares
3. Condensed Financial
Information......................... Certain Financial
Information; Yields and
Total Returns
4. General Description
of Registrant....................... Highlights; Investment
Objectives, Policies and
Risk Considerations; Other
Information Concerning
the Fund and Its Shares
5. Management of the Fund................ Management of the Fund
5A. Management's Discussion of
Fund Performance.................... Inapplicable
6. Capital Stock and
Other Securities.................... How to Purchase and
Redeem Shares; Dividends
and Distributions;
Taxes; Other Information
Concerning the Fund
and Its Shares
7. Purchase of Securities
Being Offered....................... How to Purchase and
Redeem Shares
8. Redemption or Repurchase.............. How to Purchase and
Redeem Shares
9. Pending Legal Proceedings............. Inapplicable
<PAGE> 185
THE ARCH FAMILY
OF MUTUAL FUNDS
INSTITUTIONAL SHARES
MONEY MARKET PORTFOLIOS
-----------------------
TREASURY MONEY MARKET PORTFOLIO
MONEY MARKET PORTFOLIO
TAXABLE BOND PORTFOLIOS
-----------------------
U.S. GOVERNMENT SECURITIES PORTFOLIO
INTERMEDIATE CORPORATE BOND PORTFOLIO
BOND INDEX PORTFOLIO
GOVERNMENT & CORPORATE BOND PORTFOLIO
EQUITY PORTFOLIOS
-----------------
EQUITY INCOME PORTFOLIO
EQUITY INDEX PORTFOLIO
GROWTH & INCOME EQUITY PORTFOLIO
SMALL CAP EQUITY PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIO
BALANCED PORTFOLIO
PROSPECTUS DATED ________, 1997
<PAGE> 186
TABLE OF CONTENTS
PAGE
----
Highlights...........................................................
Certain Financial
Information........................................................
Expense Summary for
Institutional Shares...............................................
Financial Highlights.................................................
Investment Objectives,
Policies and Risk
Considerations.....................................................
Pricing of Shares....................................................
The Money Market Portfolios........................................
The Equity and Bond Portfolios.....................................
How to Purchase and
Redeem Shares......................................................
Purchase of Shares -- ..........................................
Purchase of Shares -- The
Money Market Portfolios.......................................
Purchase of Shares -- The
Equity and Bond Portfolios....................................
Exchanges.......................................................
Redemption of Shares............................................
Other Exchange or
Redemption Information........................................
Yields and Total Returns.............................................
Dividends and Distributions..........................................
Taxes...
Management of the Fund...............................................
Other Information
Concerning the Fund
and its Shares.....................................................
Miscellaneous................................................
<PAGE> 187
THE ARCH FUND(R), INC.
INSTITUTIONAL SHARES
The ARCH Fund, Inc. is an open-end, management investment
company that currently offers Shares in sixteen investment
portfolios. This Prospectus describes the Institutional Shares
in twelve of those portfolios. Institutional Shares are offered
to financial institutions acting on behalf of accounts for which
they do not exercise investment discretion.
THE ARCH TREASURY MONEY MARKET PORTFOLIO'S investment objective is to
seek a high level of current income exempt from state income tax consistent with
liquidity and security of principal.
THE ARCH MONEY MARKET PORTFOLIO'S investment objective is to seek
current income with liquidity and stability of principal.
THE ARCH U.S. GOVERNMENT SECURITIES PORTFOLIO'S investment objective is
to seek a high rate of current income that is consistent with relative stability
of principal.
THE ARCH INTERMEDIATE CORPORATE BOND PORTFOLIO'S investment objective is
to seek as high a level of current income as is consistent with preservation of
capital.
THE ARCH BOND INDEX PORTFOLIO'S investment objective is to seek to
provide investment results that, before deduction of operating expenses,
approximate the price and yield performance of U.S. Government, mortgage-backed,
asset-backed and corporate debt securities, as represented by the Lehman
Brothers Aggregate Bond Index.
THE ARCH GOVERNMENT & CORPORATE BOND PORTFOLIO'S investment objective is
to seek the highest level of current income consistent with conservation of
capital.
THE ARCH EQUITY INCOME PORTFOLIO'S investment objective is to seek to
provide an above-average level of income consistent with long-term capital
appreciation.
THE ARCH EQUITY INDEX PORTFOLIO'S investment objective is to seek to
provide investment results that, before deduction of operating expenses,
approximate the price and yield performance of U.S. publicly traded common
stocks with large stock market capitalizations, as represented by the Standard &
Poor's 500 Composite Stock Price Index.
<PAGE> 188
THE ARCH GROWTH & INCOME EQUITY PORTFOLIO'S investment objective is to
provide long-term capital growth, with income a secondary consideration.
THE ARCH SMALL CAP EQUITY PORTFOLIO'S investment objective is capital
appreciation. Current income is an incidental consideration in the selection of
portfolio securities. The Portfolio was formerly known as the ARCH Emerging
Growth Portfolio.
THE ARCH INTERNATIONAL EQUITY PORTFOLIO'S investment objective is to
provide capital growth consistent with reasonable investment risk by investing
primarily in foreign equity securities, most of which will be denominated in
foreign currencies .
THE ARCH BALANCED PORTFOLIO'S investment objective is to maximize total
return through a combination of growth of capital and current income consistent
with the preservation of capital.
Mississippi Valley Advisors Inc. ("MVA" or the "Adviser"), a
wholly-owned subsidiary of Mercantile Bank National Association ("Mercantile"),
acts as investment adviser for the Portfolios; Mercantile serves as custodian;
BISYS Fund Services Ohio, Inc. (the "Administrator") serves as administrator;
and BISYS Fund Services (the "Distributor") serves as sponsor and distributor.
In addition, Clay Finlay Inc. ("Clay Finlay" or the "Sub-Adviser") serves as
sub- adviser for the International Equity Portfolio.
This Prospectus sets forth concisely certain information about the
Portfolios that prospective investors should know before investing. Investors
should read this Prospectus and retain it for future reference. Additional
information about the Portfolios, contained in a Statement of Additional
Information dated ________, 1997, has been filed with the Securities and
Exchange Commission and is incorporated by reference in its entirety into this
Prospectus. An investor may obtain the Statement of Additional Information
without charge by writing the Fund at P.O. Box 78069, St. Louis, Missouri 63178
or by calling 1-800-551-3731.
AN INVESTMENT IN THE TREASURY MONEY MARKET PORTFOLIO OR MONEY MARKET
PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE
NO ASSURANCE THAT EITHER OF THESE PORTFOLIOS WILL BE ABLE TO MAINTAIN A STABLE
NET ASSET VALUE OF $1.00 PER SHARE.
Portfolio Shares are not bank deposits, are not federally insured or
guaranteed by the U.S. Government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other governmental agency, and are not the
obligations of or guaranteed
-2-
<PAGE> 189
or otherwise supported by any bank. An investment in the Portfolios involves
investment risk, including the possible loss of principal.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
________, 1997
-3-
<PAGE> 190
HIGHLIGHTS
The ARCH Fund, Inc. (the "Fund") is an open-end, management investment
company (commonly known as a mutual fund) registered under the Investment
Company Act of 1940, as amended. The Fund offers investment opportunities in
sixteen investment portfolios, twelve of which are described in this Prospectus:
the ARCH MONEY MARKET and TREASURY MONEY MARKET PORTFOLIOS (the "Money Market
Portfolios") and the ARCH U.S. GOVERNMENT SECURITIES, INTERMEDIATE CORPORATE
BOND, BOND INDEX, GOVERNMENT & CORPORATE BOND, EQUITY INCOME, EQUITY INDEX,
GROWTH & INCOME EQUITY, SMALL CAP EQUITY, INTERNATIONAL EQUITY and BALANCED
PORTFOLIOS (the "Equity and Bond Portfolios" and, together with the Money Market
Portfolios, the "Portfolios"). Each Portfolio represents a separate pool of
assets with different investment objectives and policies (as described below
under "Investment Objectives, Policies and Risk Considerations"). MVA serves as
adviser, Mercantile as custodian, BISYS Fund Services Ohio, Inc. as
administrator, and BISYS Fund Services as sponsor and distributor. In addition,
Clay Finlay serves as sub-adviser for the International Equity Portfolio. For
information on expenses, fee waivers, and services, see "Certain Financial
Information" and "Management of the Fund."
The following information describes the Portfolios and their objectives.
There can be no assurance that the Portfolios will be able to achieve their
respective investment objectives.
The Money Market Portfolios each seek to maintain a net asset value of
$1.00 per Share. Each Money Market Portfolio's assets are invested in
dollar-denominated debt securities with remaining maturities of 397 days (13
months) or less as defined by the Securities and Exchange Commission, and each
Money Market Portfolio's dollar-weighted average portfolio maturity will not
exceed 90 days. All securities acquired by the Money Market Portfolios will be
determined by MVA, under guidelines approved by the Fund's Board of Directors,
to present minimal credit risks and to be rated in the highest category (or
deemed comparable in quality) at the time of purchase. There can be no assurance
that the Money Market Portfolios will be able to achieve a stable net asset
value on a continuous basis.
The U.S. Government Securities and Government & Corporate Bond
Portfolios are designed for investors who seek higher current income than is
typically offered by money market funds and who are willing to accept a variable
Share value to achieve that objective.
The Intermediate Corporate Bond Portfolio is designed for investors who
seek higher current income than is typically
-4-
<PAGE> 191
offered by money market funds with less principal volatility than is normally
associated with a long-term bond fund.
The Bond Index Portfolio is designed for investors who are willing to
accept the risks associated with an investment in fixed income securities, and
who seek investment results that, before deduction of operating expenses,
approximate the price and yield performance of U.S. Government, mortgage-backed,
asset- backed and corporate debt securities, as represented by the Lehman
Brothers Aggregate Bond Index.
The Equity Income Portfolio is designed for investors who seek an
above-average level of income consistent with long-term capital appreciation,
and who are prepared to accept the risks associated with an investment in equity
securities.
The Equity Index Portfolio is designed for investors who are willing to
accept the risks associated with an investment in equity securities, and who
seek investment results that, before deduction of operating expenses,
approximate the price and yield performance of U.S. publicly traded common
stocks with large stock market capitalizations, as represented by the Standard &
Poor's 500 Composite Stock Price Index.
The Growth & Income Equity, Small Cap Equity and Balanced Portfolios are
designed for investors who seek capital growth, and who are prepared to accept
the risks associated with equity securities.
The International Equity Portfolio is designed for investors who seek
capital growth, wish to diversify their investments beyond the United States,
and are prepared to accept the risks entailed in such investments. These risks
may be greater than those associated with equity securities of companies located
in the United States.
Investors should note that one or more of the Portfolios may, subject to
their investment policies and limitations, purchase variable and floating rate
instruments, enter into repurchase agreements and reverse repurchase agreements,
make securities loans, invest in options , futures and index-based depository
receipts, and make limited investments in illiquid securities and securities
issued by other investment companies. These investment practices involve
investment risks of varying degrees. For example, the absence of a secondary
market for a particular variable or floating rate instrument could make it
difficult for a Portfolio to dispose of an instrument if the issuer were to
default on its payment obligation. Default by a counterparty to a repurchase
agreement or securities lending transaction could expose a Portfolio to loss
because of adverse market action or possible delay in disposing of the
underlying collateral. Reverse repurchase agreements are subject to the
-5-
<PAGE> 192
risk that the market value of the securities sold by a Portfolio will decline
below the repurchase price which the Portfolio is obligated to pay. Purchasing
options is a specialized investment technique which entails a substantial risk
of loss of amounts paid as premiums to option writers. Investments in futures
and related options are subject to the ability of the Adviser to correctly
predict movements in the direction of the market and there is no assurance that
a liquid market will exist for a particular futures contract at any particular
time. The Equity and Bond Portfolios, other than the Bond Index and Equity Index
Portfolios, may engage in short-term trading, which may also involve greater
risk and increase such Portfolios' expenses. The International Equity Portfolio
will invest principally in foreign equity securities, most of which will be
denominated in foreign currencies. The other Portfolios do not invest in
instruments denominated in foreign currencies (except that the Growth & Income
Equity, Small Cap Equity, and Balanced Portfolios may invest in certain Canadian
securities and the Intermediate Corporate Bond Portfolio may invest in debt
securities issued by foreign corporations and governments). Foreign securities
entail certain inherent risks, such as future political and economic
developments and the adoption of foreign government restrictions, that might
adversely affect payment of dividends or principal and interest. See "Investment
Objectives, Policies and Risk Considerations" below and the Statement of
Additional Information under "Investment Objectives and Policies."
The Fund offers investors the opportunity to invest in a variety of
professionally managed investments without having to become involved with
detailed management, accounting and safekeeping procedures normally related to
direct investments in securities. The Portfolios also offer the economic
advantages of block trading in securities and the availability of a family of
sixteen mutual funds should an investor's investment goals change.
For information on purchasing, exchanging or redeeming Institutional
Shares of the Portfolios, please see "How to Purchase and Redeem Shares" below.
-6-
<PAGE> 193
CERTAIN FINANCIAL INFORMATION
Shares of the Money Market, U.S. Government Securities, Government &
Corporate Bond, Equity Income, Growth & Income Equity, Small Cap Equity,
International Equity and Balanced Portfolios have been classified into four
classes of Shares -- Trust Shares, Institutional Shares, Investor A Shares and
Investor B Shares. Shares of the Treasury Money Market , Intermediate Corporate
Bond, Bond Index and Equity Index Portfolios have been classified into three
classes of Shares -- Trust Shares, Institutional Shares and Investor A Shares.
Shares of each class in a Portfolio represent equal, PRO RATA interests in the
investments held by that Portfolio and are identical in all respects, except
that Shares of each class bear separate distribution and/or shareholder
administrative servicing fees and certain other operating expenses, and enjoy
certain exclusive voting rights on matters related to these fees. See "Other
Information Concerning the Fund and Its Shares," "Management of the Fund --
Administrative Services Plan," and "Management of the Fund -- Custodian, Sub --
Custodian, Transfer Agent and Sub-Transfer Agent" below. As a result of
payments for distribution and/or shareholder administrative servicing fees and
certain other operating expenses that may be made in differing amounts, the net
investment income of Trust Shares, Institutional Shares, Investor A Shares
and/or Investor B Shares in a Portfolio can be expected, at any given time, to
be different.
-7-
<PAGE> 194
EXPENSE SUMMARY FOR INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
TREASURY U.S. INTERMEDIATE GOVERNMENT &
MONEY MONEY GOVERNMENT CORPORATE CORPORATE
MARKET MARKET SECURITIES BOND BOND INDEX BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING
EXPENSES
(as a percentage of average
net assets)
Investment Advisory Fees (net
of fee waivers1 ........... .35% .35% .45% 0% 0% .45%
12b-1 Fees ................... .00% .00% .00% .00% .00% .00%
Other Expenses (including
administration fees,
administrative services
fees and other expenses)
(net of fee waivers and
expense reimbursements)2,3 . .44% .43% .51% .23% .50% .50%
---- ---- ---- ---- ---- ---
Total Portfolio Operating
Expenses (net of fee waivers
and expense reimbursements)3 .79% .78% .96% .23% .50% .95%
===== ===== ===== ===== ===== ====
<FN>
- ----------
1 Without fee waivers, investment advisory fees would be .40%, .40%, .45%,
.55%, .30% and .45% for the Treasury Money Market, Money Market, U.S.
Government Securities, Intermediate Corporate Bond, Bond Index and
Government & Corporate Bond Portfolios, respectively.
2 Without fee waivers, administration fees would be .20% for each Portfolio.
Administrative services fees are payable at an annual rate not to exceed
.25% for the Money Market Portfolios and .30% for the Equity and Bond
Portfolios.
3 Without fee waivers and/or expense reimbursements, Other Expenses would
be .54%, .53%, .61%, .68%, .60% and .60% and Total Portfolio Operating
Expenses would be .94%, .93%, 1.06%, 1.23%, .90% and 1.05% for the Treasury
Money Market, Money Market, U.S. Government Securities, Intermediate
Corporate Bond, Bond Index and Government & Corporate Bond Portfolios,
respectively.
</TABLE>
-8-
<PAGE> 195
<TABLE>
<CAPTION>
GROWTH &
EQUITY EQUITY INCOME SMALL CAP INTERNATIONAL
INCOME INDEX EQUITY EQUITY EQUITY BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING
EXPENSES
(as a percentage of average
net assets)
Investment Advisory Fees (net
of fee waivers1 ............ 0% 0% .55% .75% .75% .75%
12b-1 Fees ................... .00% .00% .00% .00% .00% .00%
Other Expenses (including
administration fees,
administrative services
fees and other expenses)
(net of fee waivers and
expense reimbursements)2,3 . .23% .58% .50% .51% .69% .52%
---- ---- ---- ---- ---- ----
Total Portfolio Operating
Expenses (net of fee waivers
and expense reimbursements)3 .23% .58% 1.05% 1.26% 1.44% 1.27%
===== ===== ===== ===== ==== =====
<FN>
1 Without fee waivers, investment advisory fees would be .75%, .30%, .55%, .75%, 1.00% and .75% for the Equity Income,
Equity Index, Growth & Income Equity, Small Cap Equity, International Equity and Balanced Portfolios, respectively.
2 Without fee waivers, administration fees would be .20% for each Portfolio. Administrative services fees are payable at
an annual rate not to exceed .25% for the Money Market Portfolios and .30% for the Equity and Bond Portfolios.
3 Without fee waivers and/or expense reimbursements, Other Expenses would be .68%, .98%, .60%, .61%, .74%, and .62% and Total
Portfolio Operating Expenses would be 1.23%, 1.28%, 1.15%, 1.36%, 1.74%, and 1.37% for the Equity
Income, Equity Index, Growth & Income Equity, Small Cap Equity, International Equity and Balanced Portfolios, respectively.
</TABLE>
-9-
<PAGE> 196
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) a 5% annual return and (2)
redemption at the end of each period:
Treasury Money Market Portfolio....................... $ 8 $25 $44 $ 98
Money Market Portfolio................................ $ 8 $25 $43 $ 97
U.S. Government Securities Portfolio................... $10 $31 $53 $118
Intermediate Corporate Bond Portfolio................. $ 2 $ 7 $13 $ 29
Bond Index Portfolio................................... $ 5 $16 $28 $ 63
Government & Corporate Bond Portfolio.................. $10 $30 $53 $117
Equity Income Portfolio................................ $ 2 $ 7 $13 $ 29
Equity Index Portfolio................................. $ 6 $19 $32 $ 73
Growth & Income Equity Portfolio....................... $11 $33 $58 $128
Small Cap Equity Portfolio............................. $13 $40 $69 $152
International Equity Portfolio......................... $15 $46 $79 $172
Balanced Portfolio..................................... $13 $40 $70 $153
</TABLE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN. Information about the actual performance of all
of the Portfolios is contained in the Fund's Annual Report to Shareholders dated
November 30, 1996 which may be obtained without charge by contacting the Fund at
the address or telephone number provided on page __ of this Prospectus.
The purpose of the foregoing tables is to assist in understanding the
various costs and expenses that an investor in a Portfolio's Institutional
Shares will bear directly or indirectly. The information contained in such
tables with respect to the Treasury Money Market, Money Market, U.S. Government
Securities, Government & Corporate Bond, Growth & Income Equity, Small Cap
Equity, International Equity and Balanced Portfolios is based on expenses
incurred by each of these Portfolios during the last fiscal year with respect to
its Institutional Shares. Such information with respect to the Intermediate
Corporate Bond, Bond Index, Equity Income and Equity Index Portfolios is based
on expenses each such Portfolio expects to incur during the current fiscal year
with respect to its Institutional Shares. For more complete descriptions of the
various costs and expenses, see "Management of the Fund" in this Prospectus and
the Statement of Additional Information. The Tables and Examples have not been
audited by the Fund's independent auditors and do not reflect any charges that
may be imposed by financial institutions on their customers.
-10-
<PAGE> 197
FINANCIAL HIGHLIGHTS
The "Financial Highlights" in the following tables supplement the Fund's
financial statements, which are contained in the Fund's Annual Report to
Shareholders dated November 30, 1996 and [______________________] into the
Statement of Additional Information, and set forth certain historic investment
results for Institutional Shares of each Portfolio other than the Intermediate
Corporate Bond, Bond Index, Equity Income and Equity Index Portfolios which had
not commenced investment operations as of November 30, 1996. The data for the
years November 30, 1989 through 1996 has been audited by [______________],
independent auditors, whose unqualified report on the financial statements
containing such information is [__________________________] into the Statement
of Additional Information. The data for the years ended November 30, 1987 and
1988 were derived from financial statements audited by the Fund's prior
auditors. Further information about the performance of the Portfolios is
available in the Fund's Annual Report. Both the Statement of Additional
Information and the Annual Report may be obtained free of charge by contacting
the Fund at the address or telephone number provided on page __ of this
Prospectus.
-11-
<PAGE> 198
TREASURY MONEY MARKET PORTFOLIO
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 26, 1995 TO
NOVEMBER 30, NOVEMBER 30,
1996 1995 (a),(b)
------------ -----------------
INSTITUTIONAL INSTITUTIONAL
SHARES SHARES
------ ------
<S> <C> <C>
Net Asset Value,
Beginning of Period.................. $1.00
------
Investment Activities
Net investment income................ 0.042
------
Distributions
Net investment income................ (0.042)
-------
Net Asset Value, End of Period......... $1.00
=====
Total Return........................... 4.94%(c)
Ratios/Supplemental Data:
Net Assets at end of period (000)...... $ 28
Ratio of expenses to average net
assets (including waivers)........... 0.92%(d)
Ratio of net investment income
to average net assets
(including waivers).................. 5.76%(d)
Ratio of expenses to average net
assets (before waivers)*............. 1.07%(d)
Ratio of net investment income to
average net assets (before waivers)* 5.61%(d)
<FN>
- ----------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Period from commencement of operations.
(b) On December 2, 1991 the Portfolio issued a series of shares which were
designated as "Trust" Shares. In addition, on April 20, 1992, the
Portfolio issued a second series of shares which were designated as
"Investor" Shares and on January 26, 1995, the Portfolio issued a third
series of shares which were designated as "Institutional" Shares. On
September 27, 1994 the Portfolio redesignated the "Investor" shares as
"Investor A" shares.
(c) Represents total return for Investor A Shares from December 1, 1994 to
January 25, 1995 plus the total return for Institutional Shares from
January 26, 1995 to November 30, 1995.
(d) Annualized.
</TABLE>
-12-
<PAGE> 199
MONEY MARKET PORTFOLIO
(FOR A SHARE(a) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
----------------------------------------------------------------------------------
1996 1995 1994(a) 1993 1992 1991
---- ---- ------- ---- ---- ----
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL Investor Investor Investor
SHARES SHARES SHARES Shares Shares Shares
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period. $1.00 $1.00 $1.00 $1.00 $1.00
------- ------- -------- ------- --------
Investment Activities
Net investment
income.............. 0.052 0.033 0.025 0.032 0.056
------- ------- -------- -------- --------
Distributions
Net investment
income.............. (0.052) (0.033) (0.025) (0.032) (0.056)
------- ------- -------- -------- --------
Net Asset Value,
End of Period....... $1.00 $1.00 $1.00 $1.00 $1.00
====== ------- ======= ======== ========
Total Return.......... 5.33% 3.34% 2.52% 3.21% 5.75%
Ratios/Supplemental
Data:
Net Assets at end of
period (000)........ $13,340 $10,295 $46,920 $52,224 $60,436
Ratio of expenses to
average net assets
(including waivers). 0.77% 0.78% 0.79% 0.80% 0.72%
Ratio of net
investment income
to average net
assets (including
waivers)............ 5.20% 3.48% 2.50% 3.21% 5.69%
Ratio of expenses to
average net assets
(before waivers)*... 0.92% 0.95% 0.93% 0.94% 0.80%
Ratio of net
investment income
to average net
assets (before
waivers)*........... 5.05% 3.31% 2.36% 3.07% 5.61%
<CAPTION>
1990 1989 1988 1987
------- ------- -------- -------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period. $1.00 $1.00 $1.00 $1.00
-------- -------- -------- -------
Investment Activities
Net investment
income.............. 0.078 0.088 0.071 0.062
-------- -------- -------- --------
Distributions
Net investment
income.............. (0.078) (0.088) (0.071) (0.062)
-------- -------- -------- --------
Net Asset Value,
End of Period....... $1.00 $1.00 $1.00 $1.00
======== ======== ======== ======
Total Return.......... 8.08% 9.21% 7.33%(b) 6.40%(b)
Ratios/Supplemental
Data:
Net Assets at end of
period (000)........ $896,903 $661,145 $289,764 $220,944
Ratio of expenses to
average net assets
(including waivers). 0.55% 0.45% 0.45% 0.45%
Ratio of net
investment income
to average net
assets (including
waivers)............ 7.77% 8.82% 7.12% 6.22%
Ratio of expenses to
average net assets
(before waivers)*... 0.60% 0.60% 0.58% 0.68%
Ratio of net
investment income
to average net
assets (before
waivers)*........... 7.72% 8.67% 6.99% 5.99%
<FN>
- ----------
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios
would have been as indicated.
(a) As of December 1, 1990, the Portfolio designated the existing series of Shares as "Investor" Shares. In addition, on
January 3, 1994, the Portfolio issued a new series of Shares which were designated as "Institutional" Shares. The financial
highlights presented for periods prior to January 3, 1994 represent the financial highlights applicable to Investor Shares.
On September 27, 1994, the Portfolio redesignated the Investor Shares as "Investor A" Shares.
</TABLE>
-13-
<PAGE> 200
(b) Unaudited.
-14-
<PAGE> 201
U.S. GOVERNMENT SECURITIES PORTFOLIO
(FOR A SHARE(a) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Year Ended November 30,
------------------------------------------------------------------------------------
1996 1995 1994(a) 1993 1992 1991
Institutional Institutional Institutional Investor Investor Investor
Shares Shares Shares Shares Shares Shares
------ ------ ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $10.02 $11.20 $10.80 $10.68 $10.21
------ ------ ------- ------- -------
Investment Activities
Net investment income... 0.63 0.61 0.59 0.62 0.75
Net realized and
unrealized gains
(losses) from
investments........... 0.80 (1.00) 0.47 0.13 0.47
----- ----- ------ ------ ------
Total from Investment
Activities............ 1.43 (0.39) 1.06 0.75 1.22
----- ----- ------ ------ ------
Distributions
Net investment income... (0.63) (0.61) (0.59) (0.62) (0.75)
Net realized gains...... 0.00 (0.07) (0.01)
In excess of net
realized gains........ (0.18)
----- ----- ------ ------ ------
Total Distributions..... (0.63) (0.79) (0.66) (0.63) (0.75)
------ ----- ------ ------ ------
Net Asset Value, End of
Period.................. $10.82 $10.02 $11.20 $10.80 $10.68
====== ====== ====== ====== ======
Total Return.............. 14.69% (3.46)% 10.03% 7.20% 12.36%
Ratios/Supplemental Data:
Net Assets at end of
period (000)............ $667 $51 $9,567 $7,499 $5,791
Ratio of expenses to
average net assets
(including waivers)..... 0.97% 0.95% 0.97% 0.95% 0.82%
Ratio of net investment
income to average net
assets (including
waivers)................ 5.91% 6.54% 5.25% 5.72% 7.12%
Ratio of expenses to
average net assets
(before waivers)*....... 1.07% 1.16% 1.08% 1.09% 1.36%
Ratio of net investment
income to average net
assets (before
waivers)*............... 5.81% 6.33% 5.14% 5.58% 6.58%
Portfolio turnover........ 93.76% 50% 24% 74% 36%
<CAPTION>
Year Ended November 30,
-----------------------------------
June 2,
1988 to
Nov. 30,
1990 1989 1988(b)
------ ------ --------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $10.06 $ 9.94 $ 10.00
------- ------- -------
Investment Activities
Net investment income... 0.76 0.85 0.36
Net realized and
unrealized gains
(losses) from
investments........... 0.16 0.11 (0.06)
------ ------ -------
Total from Investment
Activities............ 0.92 0.96 0.30
------ ------ -------
Distributions
Net investment income... (0.77) (0.84) (0.36)
Net realized gains......
In excess of net
realized gains........
------- ------- -------
Total Distributions.....
(0.77) (0.84) (0.36)
------ ------ -------
Net Asset Value, End of
Period.................. $10.21 $10.06 $ 9.94
====== ====== =======
Total Return.............. 9.66% 10.04% 3.05%(c)
Ratios/Supplemental Data:
Net Assets at end of
period (000)............ $6,856 $5,954 $4,335
Ratio of expenses to
average net assets
(including waivers)..... 0.73% 0.74% 0.79%(d)
Ratio of net investment
income to average net
assets (including
waivers)................ 7.80% 8.50% 7.26%(d)
Ratio of expenses to
average net assets
(before waivers)*....... 1.28% 1.29% 1.40%(d)
Ratio of net investment
income to average net
assets (before
waivers)*............... 7.25% 7.95% 6.65%(d)
Portfolio turnover........ 53% 84% 215%
</TABLE>
-15-
<PAGE> 202
- ----------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. In addition, on June 7, 1994, the Portfolio
issued an additional series of Shares which were designated as
"Institutional" Shares. The financial highlights presented for periods prior
to June 7, 1994 represent the financial highlights applicable to Investor
Shares. On September 27, 1994, the Portfolio redesignated the Investor
Shares as "Investor A" Shares.
(b) Period from commencement of operations.
(c) Not Annualized.
(d) Annualized.
-16-
<PAGE> 203
GOVERNMENT & CORPORATE BOND PORTFOLIO
(FOR A SHARE(a) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Year ended November 30,
-------------------------------------------------------------------------------------------------
1996 1995 1994(a) 1993 1992 1991
----- ----- ------- ---- ---- ----
Institutional Institutional Institutional Investor Investor Investor
Shares Shares Shares Shares Shares Shares
------ ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ...... $9.64 $10.65 $10.26 $10.15 $9.71
Investment Activities --------- --------- --------- ---------
Net investment income .... 0.61 0.60 0.64 0.66 0.75
Net realized and
unrealized gains
(losses) from
investments ............ 0.89 (0.94) 0.39 0.11 0.48
--------- --------- --------- --------- ---------
Total from Investment
Activities ............. 1.50 (0.34) 1.03 0.77 1.23
--------- --------- --------- --------- ---------
Distributions
Net investment income .... (0.61) (0.60) (0.64) (0.66) (0.79)
In excess of net realized
gains .................... (0.07)
--------- --------- --------- --------- ---------
Total Distributions ...... (0.61) (0.67) (0.64) (0.66) (0.79)
--------- --------- --------- --------- ---------
Net Asset Value, End of
Period ................... $10.53 $9.64 $10.65 $10.26 $10.15
========= ========= ========= ========= =========
Total Return ............... 15.98% (3.32)% 10.23% 7.81% 12.79%
Ratios/Supplemental Data:
Net Assets at end of period
(000) $9,413 $5,965 $3,737 $2,490 $2,010
Ratio of expenses to average
net assets (including ... 0.95% 0.96% 0.95% 0.93% 0.59%
waivers)
Ratio of net investment
income to average net
assets (including
waivers) .................. 6.01% 6.03% 6.00% 6.45% 7.77%
Ratio of expenses to average
net assets (before
waivers)* ................ 1.05% 1.07% 1.05% 1.06% 1.14%
Ratio of net investment
income to average net
assets (before waivers)* . 5.91% 5.92% 5.90% 6.32% 7.22%
Portfolio turnover ......... 59.32% 50% 31% 52% 105%
<CAPTION>
June 15,
1988 to
November 30,
1990 1989 1988(b)
------ ------ --------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period....... $10.12 $ 9.91 $ 10.00
Investment Activities -------- -------- -------
Net investment income..... 0.84 0.89 0.39
Net realized and
unrealized gains
(losses) from
investments............. (0.41) 0.22 (0.13)
------ ------ -------
Total from Investment
Activities.............. 0.43 1.11 0.26
------ ------ -------
Distributions
Net investment income..... (0.84) (0.90) (0.35)
In excess of net realized
gains.....................
------ ------ -------
Total Distributions.......
(0.84) (0.90) (0.35)
------ ------ -------
Net Asset Value, End of
Period.................... $ 9.71 $10.12 $ 9.91
======= ====== =======
Total Return................ 4.96% 11.79% 2.66%(c)
Ratios/Supplemental Data:
Net Assets at end of period
(000) $11,005 $10,327 $7,483
Ratio of expenses to average
net assets (including 0.53% 0.44% 0.56%(d)
waivers)..................
Ratio of net investment
income to average net
assets (including
waivers)................... 8.69% 8.97% 8.47%(d)
Ratio of expenses to average
net assets (before
waivers)*................. 1.08% 0.99% 1.17%(d)
Ratio of net investment
income to average net
assets (before waivers)*.. 8.14% 8.42% 7.86%(d)
Portfolio turnover.......... 75% 148% 22%
</TABLE>
-17-
<PAGE> 204
- ----------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares . In addition, on January 3, 1994, the Portfolio
issued a new series of Shares which were designated as "Institutional"
Shares. The financial highlights presented for periods prior to January 3,
1994 represent the financial highlights applicable to Investor Shares. On
September 27, 1994, the Portfolio redesignated the Investor Shares as
"Investor A" Shares.
(b) Period from commencement of operations.
(c) Not Annualized.
(d) Annualized.
-18-
<PAGE> 205
GROWTH & INCOME EQUITY PORTFOLIO
(FOR A SHARE(a) OUTSTANDING THROUGHOUT EACH PERIOD)
YEAR ENDED NOVEMBER 30,
-----------------------
<TABLE>
<CAPTION>
June 2,
1994(a) 1988
1996 1995 Institu- 1993 1992 1991 to
INSTITUTIONAL Institutional tional Investor Investor Investor Nov 30,
SHARES Shares Shares Shares Shares Shares 1990 1989 1988(b)
------ ------ ------ ------ ------ ------ -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.......... $12.70 $14.74 $14.49 $12.33 $11.22 $12.41 $10.25 $10.00
------ ------- ------- ------- ------- ------- ------- ------
Investment Activities
Net investment income........ 0.23 0.20 0.25 0.25 0.39 0.39 0.41 0.28
Net realized and unrealized
gains (losses) from
investments.................. 3.74 (0.17) 1.06 2.24 1.47 (0.56) 2.29 0.06
----- ------ ------ ------ ------ ------ ------ ------
Total from Investment
Activities................. 3.97 0.03 1.31 2.49 1.86 (0.17) 2.70 0.34
----- ----- ------ ------ ------ ------ ------ ------
Distributions
Net investment income........ (0.24) (0.21) (0.25) (0.26) (0.39) (0.39) (0.51) (0.09)
Net realized gains........... (0.14) (0.18) (0.81) (0.07) (0.36) (0.63) (0.03)
In excess of net realized
gains........................ (1.68)
------ ------- ------- ------- ------- ------- ------- ------
Total Distributions.......... (0.38) (2.07) (1.06) (0.33) (0.75) (1.02) (0.54) (0.09)
------ ----- ------ ------ ------ ------ ------ -------
Net Asset Value, End of Period. $16.29 $12.70 $14.74 $14.49 $12.33 $11.22 $12.41 $10.25
====== ====== ====== ====== ====== ====== ====== ======
Total Return................... 31.88% 0.19% 9.65% 20.59% 17.39% (1.36)% 27.11% 3.46%(c),(d)
Ratios/Supplemental Data:
Net Assets at end of period
(000) $40,228 $21,897 $11,157 $6,044 $3,254 $20,116 $17,892 $10,890
Ratio of expenses to average
net assets (including
waivers)..................... 1.05% 1.05% 0.74% 0.71% 0.34% 0.35% 0.42% 0.41%(e)
Ratio of net investment income
to average net assets
(including waivers).......... 1.58% 1.41% 1.74% 1.94% 3.50% 3.42% 3.69% 5.62%(e)
Ratio of expenses to average
net assets (before waivers)*. 1.15% 1.16% 0.96% 0.85% 1.05% 1.00% 1.07% 1.12%(e)
Ratio of net investment income
to average net assets (before
waivers)*.................... 1.48% 1.30% 1.52% 1.80% 2.79% 2.77% 3.04% 4.91%(e)
Portfolio turnover............. 58.50% 65% 41% 79% 78% 227% 133% 30%
</TABLE>
-19-
<PAGE> 206
- ---------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. In addition, on January 3, 1994, the Portfolio
issued a new series of Shares which were designated as "Institutional"
Shares. The financial highlights presented for periods prior to January 3,
1994 represent the financial highlights applicable to Investor Shares. On
September 27, 1994, the Portfolio redesignated the Investor Shares as
"Investor A" Shares.
(b) Period from commencement of operations.
(c) Unaudited.
(d) Not Annualized.
(e) Annualized.
-20-
<PAGE> 207
SMALL CAP EQUITY PORTFOLIO(a)
(FOR A SHARE(b) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
Year Ended YEAR ENDED Year Ended Year Ended May 6, 1992
November 30, NOVEMBER 30, November 30, November 30, to November 30,
1996 1995 1994(a) 1993 1992(c)
------ ------ --------- ------ --------
Institutional INSTITUTIONAL Institutional Investor Investor
Shares SHARES Shares Shares Shares
------ ------ --------- ------ --------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period............. $11.96 $13.14 $11.23 $10.10
------ ------- ------- ------
Investment Activities
Net investment income (loss).... (0.01) (0.03) 0.03 0.02
Net realized and unrealized gains
from investments.............. 2.36 0.86 2.14 1.13
---- ----- ------ ------
Total from Investment Activities 2.35 0.83 2.17 1.15
---- ----- ------ ------
Distributions
Net investment income........... (0.05) (0.02)
Net realized gains.............. (0.91) (1.78) (0.21)
In excess of net realized gains. (0.23)
---- ----- ------ ------
Total Distributions............. (O.91) (2.01) (0.26) (0.02)
------ ------- ------- -------
Net Asset Value, End of Period.... $13.40 $11.96 $13.14 $11.23
====== ====== ====== ======
Total Return...................... 21.43% 7.11% 19.75% 12.55%(d)
Ratios/Supplemental Data:
Net Assets at end of period (000)
$17,620 $5,633 $4,559 $ 753
Ratio of expenses to average net
assets (including waivers)...... 1.26% 1.25% 0.61% 0.30%(e)
Ratio of net investment income to
average net assets (including
waivers)........................ (0.11)% (0.41)% 0.19% 0.78%(e)
Ratio of expenses to average net
assets (before waivers)*........ 1.36% 1.37% 1.23% 1.12%(e)
Ratio of net investment income to
average net assets (before
waivers)*....................... (0.21)% (0.53)% (0.43)% (0.04)%(e)
Portfolio turnover................ 83.13% 85% 65% 56%
<FN>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) The Emerging Growth Portfolio changed its name to Small Cap Equity
Portfolio on December 1, 1996.
(b) The Portfolio issued a series of Shares which were designated as "Investor"
Shares on May 6, 1992. In addition, on January 3, 1994, the Portfolio
issued a new series of Shares which were designated as "Institutional"
Shares. The financial highlights presented for periods prior to January 3,
1994 represent the financial highlights applicable to Investor Shares. On
September 27, 1994, the Portfolio redesignated the Investor Shares as
"Investor A" Shares.
(c) Period from commencement of operations.
(d) Not Annualized.
(e) Annualized.
</TABLE>
-21-
<PAGE> 208
INTERNATIONAL EQUITY PORTFOLIO
(FOR A SHARE(a) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
NOVEMBER 30, NOVEMBER 30, April 4, 1994 to
1996 1995 November 30, 1994(a)
------ ------ --------------------
INSTITUTIONAL INSTITUTIONAL Institutional
SHARES SHARES Shares
------ ------ --------------------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period................................ $ 9.90 $10.00
------ ------
Investment Activities
Net investment income.............................. 0.01 (0.01)
Net realized and unrealized gains (losses) from
investments and foreign currency.................. 0.86 (0.09)
---- ------
Total from Investment Activities................... 0.87 (0.10)
---- ------
Distributions
Net realized gain.................................. (0.01) 0.00
------ -----
Tax return of capital.............................. (0.01) 0.00
------ -----
Total Distributions................................ (0.02) 0.00
------ -----
Net Asset Value,
End of Period...................................... $10.75 $ 9.90
====== ======
Total Return......................................... 8.78% (1.00)%(b)
Ratios/Supplemental Data:
Net Assets at end of period (000) $2,159 $197
Ratio of expenses to average net
assets (including waivers)......................... 1.44% 1.70%(c)
Ratio of net investment income to average
net assets (including waivers)..................... 0.13% (0.48%)(c)
Ratio of expenses to average net assets
(before waivers)*.................................. 1.75% 2.17%(c)
Ratio of net investment income to
average net assets (before
waivers)*.......................................... (0.18)% (0.94)%(c)
Portfolio turnover................................... 62.78% 21%
<FN>
- -------------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) On April 4, 1994, the Portfolio issued a series of Shares which were
designated as "Trust" Shares. In addition, on April 24, 1994, the
Portfolio issued an additional series of Shares which were designated as
"Institutional" Shares. The financial highlights presented for the period
April 4, 1994 to April 24, 1994 represent the financial highlights
applicable to Trust Shares.
(b) Not Annualized.
(c) Annualized.
</TABLE>
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BALANCED PORTFOLIO
(FOR A SHARE(a) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
APRIL 1, 1993
Year Ended YEAR ENDED YEAR ENDED TO NOVEMBER
November 30, NOVEMBER 30, NOVEMBER 30, 30,
1996 1995 1994(a) 1993(b)
------ ------ --------- --------
Institutional INSTITUTIONAL INSTITUTIONAL INVESTOR
Shares SHARES SHARES SHARES
------ ------ --------- --------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period............. $ 9.60 $10.22 $10.00
------- ------- -------
Investment Activities
Net investment income........... 0.31 0.28 0.23
Net realized and unrealized gains
from investments.............. 2.02 (0.48) .15
---- ------ ------
Total from Investment Activities 2.33 (0.20) .38
---- ------ ------
Distributions
Net investment income........... (0.31) (0.29) (0.16)
Net realized gains.............. 0.00
In excess of net realized gains. (0.13)
---- ------ ------
Total Distributions............... (0.31) (0.42) (0.16)
------- ------- -------
Net Asset Value, End of Period.... $ 11.62 $ 9.60 $10.22
======= ====== ======
Total Return...................... 24.67% (2.00)% 3.86%(c)
Ratios/Supplemental Data:
Net Assets at end of period (000)
$36,827 $22,723 $1,978
Ratio of expenses to average net
assets (including waivers)...... 1.27% 1.27% 0.56%(d)
Ratio of net investment income to
average net assets (including
waivers)........................ 2.97% 2.77% 3.42%(d)
Ratio of expenses to average net
assets (before waivers)*........ 1.37% 1.40% 1.21%(d)
Ratio of net investment income to
average net assets (before
waivers)*....................... 2.87% 2.64% 2.77%(d)
Portfolio turnover................ 58.16% 49% 26%
<FN>
- ------------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) The Portfolio issued a series of Shares which were designated as
"Investor" Shares on April 1, 1993. In addition, on January 3, 1994,
the Portfolio issued a new series of Shares which were designated as
"Institutional" Shares. The financial highlights presented for
periods prior to January 3, 1994 represent the financial highlights
applicable to Investor Shares. On September 27, 1994, the Portfolio
redesignated the Investor Shares as "Investor A" Shares.
(b) Period from commencement of operations.
(c) Not Annualized.
(d) Annualized.
</TABLE>
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INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS
Although management will use its best efforts to achieve the investment
objective of each Portfolio, there can be no assurance that it will be able to
do so. The investment objective of each Portfolio, other than the Bond Index and
Equity Index Portfolios, may not be changed without the affirmative vote of a
majority of the outstanding Shares of the Portfolio. The investment objectives
of the Bond Index and Equity Index Portfolios may be changed by the Fund's Board
of Directors without shareholder approval, although shareholders of these
Portfolios will be given at least 30 days' written notice before any such change
occurs. The Treasury Money Market and Money Market Portfolios are "money market"
funds that invest in instruments with remaining maturities of 397 days or less
(with certain exceptions) and with dollar-weighted average portfolio maturities
of 90 days or less, subject to the quality, diversification and other
requirements of Rule 2a-7 under the Investment Company Act of 1940, as amended,
(the "1940 Act") and other rules of the Securities and Exchange Commission (the
"SEC").
THE TREASURY MONEY MARKET PORTFOLIO
The Treasury Money Market Portfolio's investment objective is to seek a
high level of current income exempt from state income tax consistent with
liquidity and security of principal. In pursuing its investment objective, the
Portfolio invests in selected money market obligations issued by the U.S.
Government (or its agencies and instrumentalities) that are guaranteed as to
principal and interest by the U.S. Government, the interest on which is
generally exempt from state income tax. Securities that are generally eligible
for this exemption include those issued by the U.S. Treasury (bills,
certificates of indebtedness, notes and certain bonds) and certain U.S.
Government agencies and instrumentalities, including the General Services
Administration and Small Business Administration. Each investor should consult
his or her tax advisor to determine whether distributions from the Portfolio are
exempt from state income tax in the investor's home state. Under normal market
conditions, the Portfolio intends to invest substantially all (but not less than
65%) of its total assets in securities with the above characteristics and
(except to the extent discussed below) will not enter into repurchase agreements
or purchase any U.S. Government security that the Adviser believes is subject to
state income tax.
Under extraordinary circumstances, such as when appropriate exempt
securities are unavailable or pending investment, the Treasury Money Market
Portfolio may temporarily hold cash or invest in repurchase agreements
collateralized by U.S. Government securities, other U.S. Government agency or
instrumentality securities, securities of other investment companies that invest
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in securities in which the Portfolio is permitted to invest, or cash
equivalents.
THE MONEY MARKET PORTFOLIO
The Money Market Portfolio's investment objective is to seek current income
with liquidity and stability of principal. In pursuing its investment objective,
the Portfolio invests substantially all of its assets in a broad range of money
market instruments. These instruments include obligations of the U.S.
Government, U.S. dollar-denominated foreign securities, obligations of U.S. and
foreign banks and savings and loan institutions and commercial obligations that
meet the applicable quality requirements described below.
The Money Market Portfolio will purchase only "First Tier Eligible
Securities" (as defined by the SEC) that present minimal credit risks as
determined by the Adviser pursuant to guidelines approved by the Fund's Board of
Directors. First Tier Eligible Securities consist of (i) securities that either
(a) have short-term debt ratings at the time of purchase in the highest rating
category by at least two unaffiliated nationally recognized statistical rating
organizations ("Rating Agencies") (or one Rating Agency if the security was
rated by only one Rating Agency), or (b) are issued by issuers with such
ratings, and (ii) certain securities that are unrated (including securities of
issuers that have long-term but not short-term ratings) but are of comparable
quality as determined in accordance with guidelines approved by the Board of
Directors. The applicable ratings by Rating Agencies are described in Appendix A
to the Statement of Additional Information. The following descriptions
illustrate the types of instruments in which the Portfolio invests.
BANKING OBLIGATIONS. The Money Market Portfolio may purchase obligations of
issuers in the banking industry, such as certificates of deposit, letters of
credit, bankers' acceptances and time deposits, including U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions having total assets at the time of
purchase in excess of $1 billion. The Portfolio may invest in obligations of
foreign banks or foreign branches of U.S. banks in amounts not in excess of 25%
of its assets where the Adviser deems the instrument to present minimal credit
risks. (See "Risk Factors -- Risks Associated with Foreign Securities and
Currencies" below.) The Portfolio may also make interest-bearing savings
deposits in commercial and savings banks in amounts not in excess of 5% of the
value of its total assets.
COMMERCIAL PAPER AND VARIABLE AND FLOATING RATE INSTRUMENTS. The Portfolio
may invest in commercial paper, including asset-backed commercial paper
representing interests in a pool of corporate receivables, dollar-denominated
obligations issued by
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domestic and foreign bank holding companies, and corporate bonds that meet the
quality and maturity requirements described above. The Portfolio may also invest
in variable or floating rate notes that may have a stated maturity in excess of
thirteen months but will, in any event, permit the Portfolio to demand payment
of the principal of the instrument at least once every thirteen months upon no
more than 30 days' notice (unless the instrument is guaranteed by the U.S.
Government or an agency or instrumentality thereof). Such instruments may
include variable amount master demand notes, which are unsecured instruments
that permit the indebtedness thereunder to vary in addition to providing for
periodic adjustments in the interest rate. Unrated variable and floating rate
instruments will be determined by the Adviser (under the supervision of the
Board of Directors) to be of comparable quality at the time of purchase to First
Tier Eligible Securities. There may be no active secondary market in the
instruments, which could make it difficult for the Portfolio to dispose of an
instrument in the event the issuer were to default on its payment obligation or
during periods that the Portfolio could not exercise its demand rights. The
Portfolio could, for these or other reasons, suffer a loss with respect to such
instruments. Variable and floating rate instruments held by the Portfolio will
be subject to the Portfolio's 10% limitation on illiquid investments when the
Portfolio may not demand payment of the principal amount within seven days and a
liquid trading market is absent.
GOVERNMENT OBLIGATIONS. The Money Market Portfolio may invest in
obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities. In addition, the Portfolio may, when deemed appropriate by
the Adviser, invest in short-term obligations issued by state and local
governmental issuers that meet the quality requirements described above and, as
a result of the Tax Reform Act of 1986, carry yields that are competitive with
those of other types of money market instruments of comparable quality.
THE U.S. GOVERNMENT SECURITIES PORTFOLIO
The U.S. Government Securities Portfolio's investment objective is to seek
a high rate of current income that is consistent with relative stability of
principal. In pursuing its investment objective, the Portfolio invests in
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities normally having remaining maturities of 1 to 30 years and
repurchase agreements relating to such obligations. (For further information,
see "Other Applicable Policies -- U.S. Government Obligations" below.)
Consistent with its investment policies, the U.S. Government Securities
Portfolio may invest in mortgage-backed securities, including those representing
an undivided ownership
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interest in a pool of mortgage loans, such as certificates issued by the
Government National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC")
and collateralized mortgage obligations ("CMOs"). For further information
regarding these instruments, see "Other Applicable Policies -- Asset-Backed
Securities" below.
THE INTERMEDIATE CORPORATE BOND PORTFOLIO
The Intermediate Corporate Bond Portfolio's investment objective is to seek
as high a level of current income as is consistent with preservation of capital.
In pursuing its investment objective, the Portfolio will invest, under normal
market and economic conditions, at least 65% of its total assets in
non-convertible corporate debt obligations, which shall mean obligations of (i)
domestic or foreign business corporations, or (ii) agencies, instrumentalities
or authorities which are organized in corporate form by one or more states or
political subdivisions in the United States or one or more foreign governments.
The Portfolio may also invest in obligations issued or guaranteed by the U.S. or
foreign governments, their agencies or instrumentalities, and asset-backed
securities, including various collateralized mortgage obligations and other
mortgage-related securities. For further information regarding these
instruments, see "Other Applicable Policies -- Asset-Backed Securities" below.
In making investment decisions, the Adviser will consider a number of factors
including current yield, maturity, yield to maturity, anticipated changes in
interest rates, and the overall quality of the investment. The Portfolio seeks
to provide a current yield greater than that generally available from money
market instruments.
The Portfolio may purchase debt securities which are rated at the time of
purchase in one of the four highest rating categories assigned by one or more
Rating Agencies or in unrated debt securities deemed by the Adviser to be of
comparable quality. Under normal market and economic conditions, however, the
Portfolio intends to invest at least 65% of its total assets in debt obligations
rated in one of the three highest rating categories assigned by one or more
Rating Agencies (or unrated debt obligations determined to be of comparable
quality). Securities that are rated in the lowest of the four highest rating
categories have speculative characteristics, even though they are of investment
grade quality, and such securities will be purchased (and retained) only if the
Adviser believes that the issuers have an adequate capacity to pay interest and
repay principal. Unrated debt securities 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. Debt
securities purchased by the Portfolio whose ratings are subsequently downgraded
below the
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four highest rating categories of a Rating Agency will be disposed of in an
orderly manner, normally within 30 to 60 days. The applicable ratings issued by
the Rating Agencies are described in the Appendix to the Statement of Additional
Information.
The Portfolio reserves the right to hold as a temporary defensive measure
up to 100% of its total assets in cash and short-term obligations (having
remaining maturities of 12 months or less) at such times and in such proportions
as, in the opinion of the Adviser, prevailing market or economic conditions
warrant. Short-term obligations in which the Portfolio may invest include (i)
money market instruments, such as commercial paper, including variable and
floating rate instruments, rated at the time of purchase in one of the two
highest rating categories assigned by a Rating Agency or, if unrated, deemed to
be of comparable quality by the Adviser at the time of purchase, and bank
obligations, including bankers' acceptances, negotiable certificates of deposit
and non-negotiable time deposits of U.S. and foreign banks having total assets
at the time of purchase in excess of $1 billion, (ii) obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, and (iii)
repurchase agreements. For further information regarding variable and floating
rate instruments, see "The Money Market Portfolio -- Commercial Paper and
Variable and Floating Rate Instruments" above. Although the Portfolio will
invest in obligations of foreign banks or foreign branches of U.S. banks only
when the Adviser determines that the instrument presents minimal credit risks,
such investments nevertheless entail risks that are different from those of
investments in domestic obligations of U.S. banks. See "Risk Factors -- Risks
Associated with Foreign Securities and Currencies" below. Investments in the
obligations of foreign banks or foreign branches of U.S. banks will not exceed
25% of the Portfolio's total assets at the time of purchase.
The Portfolio's average weighted maturity will be between three and ten
years and will vary in light of current market and economic conditions, the
comparative yields on instruments with different maturities, and other factors.
THE BOND INDEX PORTFOLIO
The Bond Index Portfolio seeks to provide investment results that, before
deduction of operating expenses, approximate the price and yield performance of
U.S. Government, mortgage-backed, asset-backed and corporate debt securities as
represented by the Lehman Brothers Aggregate Bond Index (the "Lehman
Aggregate").
The Portfolio is not managed in a traditional sense, that is, by making
discretionary judgments based on analysis of economic, financial and market
conditions. Instead, the
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Portfolio uses an investment strategy called "indexing" whereby it seeks to
approximate the investment performance of the market segment comprised of U.S.
Government, mortgage-backed, asset- backed and corporate debt securities, as
represented by the Lehman Aggregate, through the use of sophisticated computer
models to determine which securities should be purchased or sold, while keeping
transaction and administrative costs to a minimum. The Portfolio will invest
substantially all of its total assets in securities listed in the Lehman
Aggregate, including without limitation, asset-backed securities. For further
information regarding asset-backed securities see "Other Applicable Policies --
Asset-Backed Securities" below. The Adviser generally selects securities for the
Portfolio on the basis of their weightings in the Lehman Aggregate and will only
purchase a security for the Portfolio that is included in the Lehman Aggregate
at the time of such purchase. The Portfolio should exhibit price and yield
volatility similar to that of the Lehman Aggregate. For further information, see
"Other Investment Policies -- The Indexing Approach" below and the Statement of
Additional Information under "Investment Objectives and Policies -- The Indexing
Approach."
With respect to the remaining portion of its total assets, the Portfolio
has the ability to hold temporary cash balances which may be invested in U.S.
Government obligations and money market instruments. See "The Intermediate
Corporate Bond Portfolio" above for a description of the types of money market
instruments in which the Portfolio may invest and the applicable limitations
with respect to such investments. If appropriate, the Portfolio may use options,
futures contracts and depository receipts to hedge its positions or for other
permissible purposes. The Portfolio also may enter into reverse repurchase
agreements and lend its portfolio securities.
The Lehman Aggregate. The Lehman Aggregate is composed of U.S. Government,
mortgage-backed, asset-backed and non- convertible corporate debt securities
that meet the following criteria: the securities have at least $100 million par
amount outstanding; the securities are rated investment grade (at least Baa or
BBB) by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings
Group ("S&P") (if not rated by Moody's); have at least one year until maturity;
and have coupons with fixed rates. The Lehman Aggregate excludes collateralized
mortgage obligations ("CMOs"), adjustable rate mortgages, manufactured homes,
non-agency bonds, buydowns, graduated equity mortgages, project loans and
non-conforming (i.e., "jumbo") mortgages. As of December 31, 1996, over ____
issues were included in the Lehman Aggregate, representing $____ in market
value. U.S. Treasury and agency securities represented ____% of the total market
value, asset-backed and mortgage-backed securities represented ____% of the
total market value, with corporate debt securities representing the balance of
____%. The
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average maturity of the Lehman Aggregate was ____ years. The Adviser believes
that the Lehman Aggregate is an appropriate benchmark for the Portfolio because
it is diversified, it is familiar to investors, and it is widely accepted as a
reference for bonds and other fixed income investments.
Because of the large number of issues included in the Lehman Aggregate,
the Portfolio cannot invest in all such issues. Instead, the Portfolio will hold
a representative sample of approximately 100 of the securities in the Lehman
Aggregate, selecting one or two issues to represent an entire "class" or type of
securities in the Lehman Aggregate. At a minimum, the Portfolio seeks to hold
securities which reflect the major asset classes in the Lehman Aggregate - U.S.
Treasury and agency issues, mortgage-backed securities, asset-backed securities
and non-convertible corporate debt securities. As the Portfolio's assets
increase, these classes will be further delineated along the lines of sector,
term-to-maturity, coupon and credit ratings. This sampling technique is expected
to be an effective means of substantially duplicating the price and performance
provided by the securities comprising the Lehman Aggregate.
Securities rated Baa by Moody's or BBB by S&P have speculative
characteristics even though they are of investment- grade quality, and changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case with
higher-grade securities.
THE GOVERNMENT & CORPORATE BOND PORTFOLIO
The Government & Corporate Bond Portfolio's investment objective is to seek
the highest level of current income consistent with conservation of capital. In
pursuing its investment objective, the Portfolio intends to invest at least 65%
of its assets in fixed-income and related debt securities rated in one of the
three highest rating categories assigned by a Rating Agency at the time of
purchase or in unrated investments deemed by the Adviser to be of comparable
quality pursuant to guidelines approved by the Fund's Board of Directors. Debt
securities may include a broad range of fixed and variable rate bonds,
debentures, notes, and securities convertible into or exchangeable for common
stock; dollar-denominated debt obligations of foreign issuers, including foreign
corporations and governments; and first mortgage loans, income participation
loans, participation certificates in pools of mortgages, including mortgages
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
CMOs and other mortgage-related securities, and other asset-backed securities.
For further information regarding asset-backed securities, see "Other Applicable
Policies -- Asset-Backed Securities" below. The Portfolio may invest up to 10%
of its total assets at the time of
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purchase in dollar-denominated debt obligations of foreign issuers, either
directly or through American Depository Receipts ("ADRs") and European
Depository Receipts ("EDRs"), and up to 25% of its total assets at the time of
purchase in non-mortgage asset-backed securities, respectively. See "Other
Applicable Policies -- Foreign Securities" below and the Statement of Additional
Information under "Investment Objectives and Policies -- ADRs and EDRs."
The Government & Corporate Bond Portfolio may purchase debt securities
which are rated at the time of purchase within the four highest rating
categories assigned by Rating Agencies or unrated debt securities (including
convertible securities) which the Adviser believes present attractive
opportunities and are of at least comparable quality to instruments so rated.
The Portfolio's dollar-weighted average portfolio quality is expected to be at
least "A" or higher. Securities rated in the lowest of the above four rating
categories have speculative characteristics, even though they are of
investment-grade quality, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade securities. Such
securities will be purchased (and retained) only when the Adviser believes the
issuers have an adequate capacity to pay interest and repay principal. (For a
description of the rating categories of Rating Agencies, see Appendix A to the
Statement of Additional Information.) In making investment decisions, the
Adviser will consider a number of factors including current yield, maturity,
yield to maturity, anticipated changes in interest rates, and the overall
quality of the investment. The Portfolio seeks to provide a current yield
greater than that generally available from money market instruments.
The Government & Corporate Bond Portfolio reserves the right to hold as a
temporary defensive measure up to 100% of its total assets in cash and
short-term obligations (having remaining maturities of 13 months or less) at
such times and in such proportions as, in the opinion of the Adviser, prevailing
market or economic conditions warrant. Short-term obligations include, but are
not limited to, commercial paper, bankers' acceptances, certificates of deposit,
demand and time deposits of domestic and foreign banks and savings and loan
associations, repurchase agreements and obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities.
THE EQUITY INCOME PORTFOLIO
The Equity Income Portfolio's investment objective is to seek to provide an
above-average level of income consistent with long-term capital appreciation. In
pursuing its investment objective, the Portfolio intends to invest, under normal
market
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and economic conditions, substantially all of its assets in common stock,
preferred stock, rights, warrants, and securities convertible into common stock.
The Adviser will select stocks based on a number of quantitative factors,
including dividend yield, current and future earnings potential compared to
stock prices, total return potential and other measures of value, such as cash
flow, asset value or book value, if appropriate. Stocks purchased for the
Portfolio generally will be listed on a national securities exchange or will be
unlisted securities with an established over-the-counter market. A convertible
security may be purchased for the Portfolio when, in the Adviser's opinion, the
price and yield of the convertible security is favorable as compared to the
price and yield of the common stock. The stocks or securities in which the
Portfolio invests may be expected to produce an above average level of income
(as measured by the Standard & Poor's 500 Composite Stock Price Index). Under
normal market and economic conditions, at least 65% of the Portfolio's total
assets will be invested in income-producing equity securities.
The Portfolio may indirectly invest in foreign securities through the
purchase of ADRs and EDRs, but will not do so if, immediately after and as a
result of the purchase, the value of ADRs and EDRs would exceed 15% of the
Portfolio's total assets. For further information, see "Other Applicable
Policies --Foreign Securities" below and the Statement of Additional Information
under "Investment Objectives and Policies -- ADRs and EDRs."
The Portfolio reserves the right to hold as a temporary defensive measure
during abnormal market or economic conditions up to 100% of its total assets in
cash and short-term obligations (having remaining maturities of 12 months or
less) at such times and in such proportions as, in the opinion of the Adviser,
such abnormal market or economic conditions warrant. See "The Intermediate
Corporate Bond Portfolio" above for a description of the types of short-term
obligations in which the Portfolio may invest and the applicable limitations
with respect to such investments.
THE EQUITY INDEX PORTFOLIO
The Equity Index Portfolio seeks to provide investment results that, before
deduction of operating expenses, approximate the price and yield performance of
U.S. publicly traded common stocks with large stock market capitalizations as
represented by the Standard & Poor's 500 Composite Stock Price Index (the "S&P
500").
Like the Bond Index Portfolio, the Equity Index Portfolio is not managed in
a traditional sense, that is, by making discretionary judgments based on
analysis of economic, financial and market conditions. Instead, the Portfolio
uses an investment
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strategy called "indexing" whereby it seeks to approximate the investment
performance of the market segment comprised of U.S. publicly traded common
stocks with large stock market capitalizations, as represented by the S&P 500,
through the use of sophisticated computer models to determine which securities
should be purchased or sold, while keeping transaction and administrative costs
to a minimum. The Portfolio will invest substantially all of its total assets in
securities listed in the S&P 500. The Adviser generally selects securities for
the Portfolio on the basis of their weightings in the S&P 500 and will only
purchase a security for the Portfolio that is included in the S&P 500 at the
time of such purchase. The Portfolio should exhibit price volatility similar to
that of the S&P 500. For further information, see "Other Investment Policies --
The Indexing Approach" below and the Statement of Additional Information under
"Investment Objectives and Policies -- The Indexing Approach."
With respect to the remaining portion of its total assets, the Portfolio
has the ability to hold temporary cash balances which may be invested in U.S.
Government obligations and money market instruments. See "The Intermediate
Corporate Bond Portfolio" above for a description of the money market
instruments in which the Portfolio may invest and the applicable limitations
with respect to such investments. If appropriate, the Portfolio may use options,
futures contracts and depository receipts to hedge its positions or for other
permissible purposes. The Portfolio also may enter into reverse repurchase
agreements and lend its portfolio securities.
The S&P 500. The S&P 500 is composed of approximately 500 common stocks,
most of which are listed on the New York Stock Exchange. S&P chooses the stocks
for the S&P 500 on a statistical basis. As of December 31, 1996 the stocks in
the S&P 500 have an average market capitalization of $___ billion and account
for approximately __% of the total market value of all U.S. common stocks.
Normally, the Equity Index Portfolio will hold all 500 stocks in the S&P 500 and
will hold each stock approximately the same percentage as that stock represents
in the S&P 500. Under certain circumstances, the Portfolio may not hold all 500
stocks in the S&P 500, for example because of changes in the S&P 500, or as a
result of shareholder activity in the Portfolio. The Portfolio will rebalance
its holdings monthly to reflect changes in the S&P 500. "Market capitalization"
for a company is the market price per share of stock multiplied by the number of
shares outstanding. The Adviser believes that the S&P 500 is an appropriate
benchmark for the Portfolio because it is diversified, it is familiar to many
investors and it is widely accepted as a reference for common stock investments.
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THE GROWTH & INCOME EQUITY PORTFOLIO
The Growth & Income Equity Portfolio's investment objective is to provide
long-term capital growth, with income a secondary consideration. In pursuing its
investment objective, the Portfolio normally invests substantially all of its
assets in common stock, preferred stock, rights, warrants and securities
convertible into common stock. The Adviser selects stocks based on a number of
factors, including historical and projected earnings, growth and asset value,
earnings compared to stock prices generally (as measured by the S&P 500, and
consistency of earnings growth and earnings quality. Stocks purchased for the
Portfolio generally will be listed on a national securities exchange or will be
unlisted securities with an established over-the-counter market. A convertible
security may be purchased for the Portfolio when, in the Adviser's opinion, the
price and yield of the convertible security is favorable compared to the price
and yield of the common stock. The stocks or securities in which the Portfolio
invests may be expected to produce some income but income is not a major
criterion in their selection.
The Growth & Income Equity Portfolio may indirectly invest in foreign
securities through the purchase of ADRs and EDRs but will not do so if,
immediately after and as a result of the purchase, the value of ADRs and EDRs
would exceed 15% of the Portfolio's total assets. For further information, see
"Other Applicable Policies -- Foreign Securities" below and the Statement of
Additional Information under "Investment Objectives and Policies -- ADRs and
EDRs." The Portfolio may also invest in Canadian securities listed on a national
securities exchange.
The Growth & Income Equity Portfolio reserves the right to hold as a
temporary defensive measure up to 100% of its total assets in cash and
short-term obligations (having remaining maturities of 12 months or less) at
such times and in such proportions as, in the opinion of the Adviser, prevailing
market or economic conditions warrant. See "The Government & Corporate Bond
Portfolio" above for a description of the types of short-term obligations in
which the Portfolio may invest.
THE SMALL CAP EQUITY PORTFOLIO
The Small Cap Equity Portfolio's investment objective is capital
appreciation. Current income is an incidental consideration in the selection of
portfolio securities. In pursuing its investment objective, the Portfolio (which
was formerly known as the Emerging Growth Portfolio) normally invests primarily
in common stock of emerging or established small- to medium-sized companies with
above-average potential for price appreciation. The Portfolio may invest in
preferred stock, rights, warrants, and securities convertible into common stock.
It may invest a portion of its assets in established larger
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companies that, in the opinion of the Adviser, offer improved growth
possibilities because of rejuvenated management, product changes, or other
developments that might stimulate earnings or asset growth, or in companies that
seem undervalued relative to their underlying assets. The Portfolio does not
intend to invest more than 5% of the value of its total assets in the securities
of unseasoned companies, that is, companies (or their predecessors) with less
than three years' continuous operation.
The Small Cap Equity Portfolio may also invest a portion of its assets in
smaller companies that have limited specialized-product lines, markets or
financial resources, or are dependent upon one-person management. The securities
of such smaller companies may have limited marketability, may be subject to more
abrupt or erratic market movements than securities of larger companies or the
market averages in general, and may involve greater risk than is customarily
associated with more established companies. To qualify for investment by the
Portfolio, however, a company will be expected to have, in the opinion of the
Adviser, above-average possibilities for capital appreciation (when compared
with the average appreciation of companies whose securities are included in the
S&P 500).
The Small Cap Equity Portfolio uses a research intensive approach and
valuation techniques that emphasize earnings and asset growth. The Adviser
selects stocks based on a number of factors, including historical and projected
earnings, asset value, potential for price appreciation and earnings growth, and
quality of products manufactured and/or services offered. Stocks purchased for
the Portfolio may be listed on a national securities exchange or may be unlisted
securities with or without an established over-the-counter market. The Portfolio
may also invest in initial public offerings of new companies that demonstrate
the potential for price appreciation. A convertible security may be purchased
for the Portfolio when, in the Adviser's opinion, the price of the convertible
security is favorable compared to the price of the common stock. In general, the
Portfolio's stocks and other securities will be diversified over a number of
industry groups in an effort to reduce the risks inherent in such investments.
The Small Cap Equity Portfolio may indirectly invest in foreign securities
through the purchase of such obligations as ADRs and EDRs but will not do so if,
immediately after and as a result of the purchase, the value of ADRs and EDRs
would exceed 25% of the Portfolio's total assets. For further information, see
"Other Applicable Policies -- Foreign Securities" below, and the Statement of
Additional Information under "Investment Objectives and Policies -- ADRs and
EDRs." The Portfolio may also invest in securities issued by Canadian
corporations and Canadian counterparts of U.S. corporations, which may or may
not
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be listed on a national securities exchange or traded in over-the-counter
markets.
The Small Cap Equity Portfolio reserves the right to hold as a temporary
defensive measure up to 100% of its total assets in cash and short-term
obligations (having remaining maturities of 12 months or less) at such times and
in such proportions as, in the opinion of the Adviser, prevailing market or
economic conditions warrant. See "The Government & Corporate Bond Portfolio"
above for a description of the types of short-term obligations in which the
Portfolio may invest.
THE INTERNATIONAL EQUITY PORTFOLIO
The International Equity Portfolio's investment objective is to provide
capital growth consistent with reasonable investment risk. The Portfolio seeks
to achieve this objective by investing principally in foreign equity securities,
most of which will be denominated in foreign currencies. During normal market
conditions, the Portfolio will invest substantially all of its assets in
securities of companies which derive more than 50% of their gross revenues from,
or have more than 50% of their assets outside, the United States. Additionally,
under normal market conditions, the Portfolio will invest in equity securities
from at least three different countries (excluding the United States). However,
the Portfolio may invest all its assets in a single country during temporary
defensive periods.
The International Equity Portfolio expects to invest at least half of its
assets in securities of companies located either in developed countries in
Western Europe or in Japan, although it may also purchase securities of
companies located in other developed countries and developing countries. For
further information, see "Risk Factors -- Risks Associated with Foreign
Securities and Currencies" below.
By investing in foreign securities, the International Equity Portfolio will
attempt to take advantage of differences between economic trends and the
performance of securities markets in various countries, regions and geographic
areas. The Portfolio will achieve diversification by investing in securities
from various countries and geographic areas that offer different investment
opportunities and are affected by different economic trends. The multinational
character of the Portfolio's investments should reduce the effect that events in
any one country or geographic area will have on its investment holdings. Of
course, negative movement by one of the Portfolio's investments in one foreign
market may offset gains from the Portfolio's investments in another market.
Equity securities in which the International Equity Portfolio may invest
include common stock, preferred stock,
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rights, warrants and securities convertible into common stock. A convertible
security may be purchased for the Portfolio when, in the Adviser's or
Sub-Adviser's opinion, the price and yield of the convertible security is
favorable compared to the price and yield of the common stock.
During temporary defensive periods, when deemed necessary by the Adviser or
Sub-Adviser, the International Equity Portfolio may invest up to 100% of its
assets in U.S. Government obligations or debt obligations of companies
incorporated and having their principal business activities in the United
States. The Portfolio does not intend to invest in such securities for the
purpose of meeting its investment objective.
The International Equity Portfolio may also invest, without limitation, in
foreign securities through the purchase of ADRs and EDRs. For further
information, see "Risk Factors -- Risks Associated with Foreign Securities and
Currencies" below and the Statement of Additional Information under "Investment
Objectives and Policies -- ADRs and EDRs."
The International Equity Portfolio reserves the right to hold as a
temporary defensive measure up to 100% of its total assets in cash and
short-term obligations (having remaining maturities of 12 months or less) at
such times and in such proportions as, in the opinion of the Adviser or
Sub-Adviser, prevailing market or economic conditions warrant. See "The
Government & Corporate Bond Portfolio" above for a description of the types of
short-term obligations in which the Portfolio may invest.
Although investing in any mutual fund has certain inherent risks, an
investment in the International Equity Portfolio may have even greater risks
than investments in most other types of mutual funds. The Portfolio is not a
complete investment program, and it may not be appropriate for investors who
cannot financially bear the loss of at least a significant portion of their
investment. The Portfolio's net asset value per Share is subject to rapid and
substantial changes because greater risk is assumed in seeking the Portfolio's
objective. See "Risk Factors -- Risks Associated with Foreign Securities and
Currencies" below.
THE BALANCED PORTFOLIO
The Balanced Portfolio's investment objective is to maximize total return
through a combination of growth of capital and current income consistent with
the preservation of capital. The Portfolio seeks to achieve its objective by
using a disciplined approach of allocating assets primarily among three major
asset groups, i.e. equity securities, fixed income securities and cash
equivalents. In pursuing the Portfolio's investment objective,
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the Adviser allocates the Portfolio's assets based upon its evaluation of the
relative attractiveness of the major asset groups. In an effort to better
quantify the relative attractiveness of the major asset groups over a one- to
three-year period of time, the Adviser has incorporated into its asset
allocation decision-making process several dynamic computer models which it has
created. The purpose of these models is to show the statistical impact of the
Adviser's economic outlook upon the future returns of each asset group. The
models are especially sensitive to the forecasts for inflation, interest rates
and long-term corporate earnings growth. Investment returns are normally heavily
impacted by such variables and their expected changes over time. Therefore, the
Adviser's method attempts to take advantage of changing economic conditions by
increasing or decreasing the ratio of stocks to bonds in the Portfolio. For
example, if the Adviser expected more rapid economic growth leading to better
corporate earnings, it would increase the Portfolio's holdings of equity
securities and reduce its holdings of fixed income securities and cash
equivalents.
Under normal market conditions, the Balanced Portfolio's policy is
generally to invest at least 25% of the value of its total assets in fixed
income securities and no more than 75% in equity securities. The actual
percentage of assets invested in equity securities, fixed income securities and
cash equivalents will vary from time to time, depending on the judgment of the
Adviser as to general market and economic conditions, trends and yields,
interest rates and fiscal and monetary developments.
The equity securities in which the Balanced Portfolio normally invests
include common stock, preferred stock, rights, warrants and securities
convertible into common or preferred stock. For further information regarding
these instruments, see "The Equity Income Portfolio" and "The Growth & Income
Equity Portfolio" above.
The fixed income securities in which the Balanced Portfolio invests include
U.S. Government securities or other fixed income and related debt securities
rated in one of the four highest rating categories assigned by a Rating Agency
at the time of purchase or in unrated investments deemed by the Adviser to be of
comparable quality pursuant to guidelines approved by the Fund's Board of
Directors. For further information regarding these instruments, see "The
Government & Corporate Bond Portfolio" above.
The Balanced Portfolio may purchase asset-backed securities. For further
information regarding these instruments, see "Other Applicable Policies --
Asset-Backed Securities" below.
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The Balanced Portfolio reserves the right to hold as a temporary defensive
measure up to 100% of its total assets in cash and short-term obligations
(having remaining maturities of 12 months or less) at such times and in such
proportions as, in the opinion of the Adviser, prevailing market or economic
conditions warrant. See "The Government & Corporate Bond Portfolio" above for a
description of the types of short-term obligations in which the Portfolio may
invest.
RISK FACTORS
MARKET RISK. The Equity Income, Equity Index, Growth & Income Equity, Small
Cap Equity and International Equity Portfolios invest primarily, and the
Balanced Portfolio invests to a significant degree, in equity securities. As
with other mutual funds that invest primarily or to a significant degree in
equity securities, these Portfolios are subject to market risks. That is, the
possibility exists that common stocks will decline over short or even extended
periods of time and both the U.S. and certain foreign equity markets tend to be
cyclical, experiencing both periods when stock prices generally increase and
periods when stock prices generally decrease.
INTEREST RATE RISK. Generally, the market value of fixed income securities
held by the Treasury Money Market, Money Market, U.S. Government Securities,
Intermediate Corporate Bond, Bond Index, Government & Corporate Bond and
Balanced Portfolios can be expected to vary inversely to changes in prevailing
interest rates. During periods of declining interest rates, the market value of
investment portfolios comprised primarily of fixed income securities will tend
to increase, and during periods of rising interest rates, the market value will
tend to decrease. Fixed income securities with longer maturities, which tend to
produce higher yields, are subject to potentially greater capital appreciation
and depreciation than obligations with shorter maturities. Changes in the
financial strength of an issuer or changes in the ratings of any particular
security may also offset the value of these investments. Fluctuations in the
market value of fixed income securities subsequent to their acquisition will not
offset cash income from such securities but will be reflected in a Portfolio's
net asset value.
RISKS ASSOCIATED WITH FOREIGN SECURITIES AND CURRENCIES. Investments in
securities of foreign issuers, whether made directly or indirectly, carry
certain risks not ordinarily associated with investments in securities of
domestic issuers. Such risks include future political and economic developments,
and the possible imposition of exchange controls or other foreign governmental
laws or restrictions. In addition, with respect to certain countries, there is
the possibility of expropriation of assets, confiscatory taxation, political or
social instability or
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diplomatic developments which could adversely affect investments in those
countries.
There may be less publicly available information about a foreign company
than about a U.S. company, and foreign companies may not be subject to
accounting, auditing and financial reporting standards and requirements
comparable to or as uniform as those of U.S.-based companies. Foreign securities
markets, while growing in volume, have, for the most part, substantially less
volume than U.S. markets, and securities of many foreign companies are less
liquid and their prices more volatile than securities of comparable U.S.-based
companies. There is generally less government supervision and regulation of
foreign exchanges, brokers and issuers than there is in the United States. In
the event of a default by the issuer of a foreign security, it may be more
difficult to obtain or enforce a judgment against such issuer than it would be
against a domestic issuer. In addition, foreign banks and foreign branches of
U.S. banks are subject to less stringent reserve requirements and to different
accounting, auditing, reporting, and recordkeeping standards than those
applicable to domestic branches of U.S. banks.
Certain of the risks associated with international investments are
heightened with respect to investments in developing countries. The risks of
expropriation, nationalization and social, political and economic instability
are greater in those countries than in more developed capital markets. In
addition, developing countries may have economies based on only a few industries
and small securities markets with a low volume of trading. Certain countries may
also impose substantial restrictions on investments in their capital markets by
foreign entities, including restrictions on investments in issuers of industries
deemed sensitive to relevant national interests. These factors may limit the
investment opportunities available to the International Equity Portfolio and
result in a lack of liquidity and a high price volatility with respect to
securities of issuers from developing countries.
Certain countries may also impose restrictions on the International Equity
Portfolio's ability to repatriate investment income or capital. Even when there
is no outright restriction on repatriation of investment income or capital, the
mechanics of repatriation may affect certain aspects of the operations of the
International Equity Portfolio.
Governments of many developing countries exercise substantial influence
over many aspects of the private sector. In some countries, the government may
own or control many companies, including the largest company or companies. As
such, government actions in the future could have a significant effect on
economic conditions in these countries, affecting private
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sector companies, the International Equity Portfolio and the value of its
portfolio securities.
Since the International Equity Portfolio will invest substantially in
securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates will affect the value of securities
in the International Equity Portfolio and the unrealized appreciation or
depreciation of investments so far as U.S. investors are concerned. Foreign
currency exchange rates are determined by forces of supply and demand on the
foreign exchange markets and the regulatory control of the exchanges on which
the currencies trade. These forces are themselves affected by the international
balance of payments and other economic and financial conditions, government
intervention, speculation and other factors. Costs are incurred in connection
with conversions between various currencies.
The expense ratio of the International Equity Portfolio can be expected to
be higher than that of funds investing in domestic securities. The costs
attributable to investing abroad are usually higher for several reasons, such as
the higher cost of investment research, higher cost of custody of foreign
securities, higher commissions paid on comparable transactions on foreign
markets and additional costs arising from delays in settlements of transactions
involving foreign securities.
Interest and dividends payable on the International Equity Portfolio's
foreign portfolio securities may be subject to foreign withholding taxes. To the
extent such taxes are not offset by credits or deductions allowed to investors
under U.S. federal income tax provisions, they may reduce the net return to the
Portfolio's shareholders. For further information, see "Taxes."
In addition to the International Equity Portfolio, other Portfolios may be
subject to certain of the risks described above in connection with investment in
foreign securities.
OTHER APPLICABLE POLICIES
The investment policies described in this Prospectus are among those which
one or more of the Portfolios have the ability to utilize. Some of these
policies may be employed on a regular basis; others may not be used at all.
Accordingly, reference to any particular policy, method or technique carries no
implication that will be utilized or, if it is, that it will be successful.
U.S. GOVERNMENT OBLIGATIONS. Securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities have historically involved little
risk of loss of principal if held to maturity. However, due to fluctuations in
interest rates, the market value of such securities may vary
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during the period a shareholder owns Shares of a Portfolio. Certain U.S.
Government securities held by the Treasury Money Market, Money Market or
Tax-Exempt Money Market Portfolios may have remaining maturities exceeding
thirteen months if such securities provide for adjustments in their interest
rates no less frequently than every thirteen months. Examples of the types of
U.S. Government obligations that may be held by the Portfolios, subject to their
respective investment objectives and policies, include, in addition to U.S.
Treasury bonds, notes and bills, the obligations of Federal Home Loan Banks,
Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, GNMA, FNMA, FHLMC, General Services
Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Resolution Trust Corporation,
and Maritime Administration. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as those of GNMA, are supported
by the full faith and credit of the U.S. Treasury; others, such as the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of FNMA, are supported
by the discretionary authority of the U.S. Government to purchase the agency's
obligations; still others such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. There is
no assurance that the U.S. Government would provide financial support to U.S.
Government-sponsored instrumentalities if it is not obligated to do so by law.
STRIPPED GOVERNMENT SECURITIES. To the extent consistent with their
respective investment policies, each Portfolio may invest in bills, notes and
bonds (including zero coupon bonds) issued by the U.S. Treasury. In addition,
each Portfolio (except the Equity Index Portfolio) may also invest in "stripped"
U.S. Treasury obligations offered under the Separate Trading of Registered
Interest and Principal Securities ("STRIPS") program or Coupon Under Bank-Entry
Safekeeping ("CUBES") program or other stripped securities issued directly by
agencies or instrumentalities of the U.S. Government (and, with respect to the
Treasury Money Market Portfolio only, that are also guaranteed as to principal
and interest by the U.S. Government). STRIPS and CUBES represent either future
interest or principal payments and are direct obligations of the U.S. Government
that clear through the Federal Reserve System. The Money Market, Intermediate
Corporate Bond, Bond Index, Government & Corporate Bond, Growth & Income Equity,
Small Cap Equity and Balanced Portfolios may also purchase U.S. Treasury and
agency securities that are stripped by brokerage firms and custodian banks and
sold under proprietary names. These stripped securities are resold in custodial
receipt programs with a number of different names (such as TIGRs and CATS) and
are not considered U.S. Government securities for purposes of the 1940 Act.
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Stripped securities are issued at a discount to their "face value" and may
exhibit greater price volatility than ordinary debt securities because of the
manner in which their principal and interest are returned to investors. The
Adviser will consider the liquidity needs of a Portfolio when any investments in
zero coupon obligations or other principal-only obligations are made.
REPURCHASE AGREEMENTS. Under certain circumstances described above and
subject to their respective investment policies, each Portfolio may agree to
purchase U.S. Government securities from financial institutions such as banks
and broker-dealers, subject to the seller's agreement to repurchase them at a
mutually agreed-upon date and price ("repurchase agreements"). A Portfolio will
enter into repurchase agreements only with financial institutions such as banks
and broker-dealers that the Adviser or Sub-Adviser believes to be creditworthy.
During the term of any repurchase agreement, the Adviser or Sub-Adviser will
continue to monitor the creditworthiness of the seller and will require the
seller to maintain the value of the securities subject to the agreement at not
less than 102% of the repurchase price (including accrued interest). Default by
a seller could expose a Portfolio to possible loss because of adverse market
action or possible delay in disposing of the underlying obligations. Because of
the seller's repurchase obligations, the securities subject to repurchase
agreements do not have maturity limitations. Although no Portfolio presently
intends to enter into repurchase agreements providing for settlement in more
than seven days, each Portfolio does have the authority to do so subject to its
limitation on the purchase of illiquid securities described below. Repurchase
agreements are considered to be loans under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS. Subject to their investment policies, each
Portfolio (except the Treasury Money Market Portfolio) may borrow funds for
temporary purposes by entering into reverse repurchase agreements in accordance
with their respective investment limitations below. Pursuant to such agreements,
a Portfolio would sell portfolio securities to financial institutions such as
banks and broker-dealers and agree to repurchase them at an agreed upon date and
price. Reverse repurchase agreements involve the risk that the market value of
the securities sold by a Portfolio may decline below the repurchase price which
the Portfolio is obligated to pay. Reverse repurchase agreements are considered
to be borrowings by a Portfolio under the 1940 Act.
SECURITIES LENDING. To increase return or offset expenses, each Portfolio
(except the Treasury Money Market and Money Market Portfolios) may, from time to
time, lend its portfolio securities to broker-dealers, banks or institutional
borrowers pursuant to agreements requiring that the loans be continuously
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secured by collateral equal at all times in value to at least the market value
of the securities loaned. Collateral for such loans may include cash, securities
of the U.S. Government, or its agencies or instrumentalities, or an irrevocable
letter of credit issued by a bank that has at least $1.5 billion in total
assets, or any combination thereof. The collateral must be valued daily and,
should the market value of the loaned securities increase, the borrower must
furnish additional collateral to the lending Portfolio. By lending its
securities, a Portfolio can increase its income by continuing to receive
interest on the loaned securities as well as by either investing the cash
collateral in short-term instruments or obtaining yield in the form of interest
paid by the borrower when U.S. Government securities are used as collateral. In
accordance with current SEC policies, each Portfolio is currently limiting its
securities lending to 33-1/3% of the aggregate net assets of such Portfolio.
Loans are subject to termination by a Portfolio or a borrower at any time.
SECURITIES OF OTHER INVESTMENT COMPANIES. Under certain circumstances
described above and subject to their respective investment policies and
limitations, each Portfolio may invest in securities issued by other investment
companies which determine their net asset value per Share based on the amortized
cost or penny-rounding method and which invest in securities in which the
Portfolio is permitted to invest. Each Portfolio may invest in securities of
other investment companies within the limits prescribed by the 1940 Act, which
include, subject to certain exceptions, a prohibition on a Portfolio investing
more than 10% of the value of its total assets in such securities. Investments
in other investment companies will cause a Portfolio (and, indirectly, the
Portfolio's shareholders) to bear proportionately the cost incurred in
connection with the operations of such other investment companies. In addition,
investment companies in which a Portfolio may invest may impose a sales or
distribution charge in connection with the purchase or redemption of their
shares as well as other types of commissions or charges. Such charges will be
payable by a Portfolio and, therefore, will be borne indirectly by its
shareholders. See the Statement of Additional Information under "Investment
Objectives and Policies -- Securities of Other Investment Companies."
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. Each Portfolio may purchase
securities on a "when-issued" basis and may purchase or sell securities on a
"forward commitment" basis. These transactions involve a commitment by a
Portfolio to purchase or sell securities at a stated price and yield with
settlement beyond the normal settlement date. Such transactions permit a
Portfolio to lock-in a price or yield on a security, regardless of future
changes in interest rates. When issued purchases and forward commitments
transactions involve a risk
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of loss if the value of the security to be purchased declines prior to the
settlement date, or if the value of the security to be sold increases prior to
the settlement date. Each Portfolio expects that these transactions will not
exceed 25% of the value of its total assets (at the time of purchase) under
normal market conditions. No Portfolio intends to engage in such transactions
for speculative purposes but only for the purpose of acquiring portfolio
securities.
OPTIONS. Each of the Equity and Bond Portfolios may purchase put and call
options listed on a national securities exchange and issued by the Options
Clearing Corporation in an amount not exceeding 10% of its net assets. Such
options may relate to particular securities or to various stock or bond indices.
Purchasing options is a specialized investment technique which entails a
substantial risk of a complete loss of the amounts paid as premiums to the
option writer. Such transactions will be entered into only as a hedge against
fluctuations in the value of securities which a Portfolio holds or intends to
purchase.
These Portfolios may also write covered call options. A covered call option
is an option to acquire a security that a Portfolio owns or has the right to
acquire during the option period. Such options will be listed on a national
securities exchange and issued by the Options Clearing Corporation.
The International Equity Portfolio may write covered call options, buy put
options, buy call options and write secured put options for hedging (or
cross-hedging) purposes or for the purpose of earning additional income. Such
options may relate to particular securities, foreign or domestic stock or bond
indices, financial instruments or foreign currencies; may or may not be listed
on a domestic or foreign securities exchange; and may or may not be issued by
the Options Clearing Corporation. The International Equity Portfolio will invest
and trade in unlisted over-the-counter options only with firms deemed
creditworthy by the Adviser or Sub-Adviser. However, unlisted options are not
subject to the protections afforded purchasers of listed options by the Options
Clearing Corporation, which performs the obligations of its members which fail
to perform them in connection with the purchase or sale of options. The
International Equity Portfolio will not purchase put and call options in an
amount that exceeds 10% of its net assets at the time of purchase.
The aggregate value of the securities subject to covered call options
written by a Portfolio will not exceed 25% of the value of its net assets. In
order to close out an option position, a Portfolio may enter into a "closing
purchase transaction" -- the purchase of a covered call option on the same
security with the same exercise price and expiration date as the
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option which the Portfolio previously wrote. By writing a covered call option, a
Portfolio forgoes the opportunity to profit from an increase in the market price
of the underlying security above the exercise price except insofar as the
premium represents such a profit and it is not able to sell the underlying
security until the option expires, is exercised, or the Portfolio effects a
closing purchase transaction by purchasing an option of the same series. The use
of covered call options will not be a primary investment technique of any
Portfolio. For additional information relating to option trading practices,
including particular risks, see the Statement of Additional Information and
Appendix B thereof.
FOREIGN CURRENCY PUT OPTIONS. The International Equity Portfolio may
purchase foreign currency put options on U.S. exchanges or U.S. over-the-counter
markets. A put option gives the Portfolio, upon payment of a premium, the right
to sell a currency at the exercise price until the expiration of the option and
serves to insure against adverse currency price movements in the underlying
portfolio assets denominated in that currency.
UNLISTED CURRENCY OPTIONS. The International Equity Portfolio may purchase
unlisted currency options. A number of major investment firms trade unlisted
options which are more flexible than exchange listed options with respect to
strike price and maturity date. These unlisted options generally are available
on a wider range of currencies. Unlisted foreign currency options are generally
less liquid than listed options and involve the credit risk associated with the
individual issuer. They will be deemed to be illiquid for purposes of the
limitation on investments in illiquid securities.
WRITING FOREIGN CURRENCY CALL OPTIONS. A call option written by the
International Equity Portfolio gives the purchaser, upon payment of a premium,
the right to purchase from the International Equity Fund a currency at the
exercise price until the expiration of the option.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the International Equity
Portfolio may buy and sell securities denominated in currencies other than the
U.S. dollar, and receive interest, dividends and sale proceeds in currencies
other than the U.S. dollar, the Portfolio may from time to time enter into
foreign currency exchange transactions to convert to and from different foreign
currencies and to convert foreign currencies to and from the U.S. dollar. The
Portfolio may enter into currency exchange transactions on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign currency exchange market, or
use forward currency contracts to purchase or sell foreign currencies.
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A forward foreign currency contract is an obligation by the International
Equity Portfolio to purchase or sell a specific currency at a future date at a
price set at the time of the contract. In this respect, forward currency
contracts are similar to foreign currency futures contracts described below;
however, unlike futures contracts, which are traded on recognized commodities
exchanges, forward currency contracts are traded in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. Also, forward currency contracts usually involve delivery of
the currency involved instead of cash payment as in the case of futures
contracts.
The International Equity Portfolio may use forward foreign currency
exchange contracts in order to protect against uncertainty in the level of
future foreign exchange rates. The use of such forward contracts is limited to
hedging against movements in the value of foreign currencies relative to the
U.S. dollar in connection with specific portfolio transactions or with respect
to portfolio positions. The purpose of transaction hedging is to "lock in" the
U.S. dollar equivalent price of such specific securities. Position hedging is
the sale of foreign currency with respect to portfolio security positions
denominated or quoted in that currency. The Portfolio will not speculate in
foreign currency exchange transactions. Transaction and position hedging will
not be limited to an overall percentage of the Portfolio's assets but will be
employed as necessary to correspond to particular transactions or positions. The
Portfolio may not hedge its currency positions to an extent greater than the
aggregate market value (at the time of entering into the forward contract) of
the securities held in its portfolio denominated in, quoted in, or currently
convertible into that particular currency. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of the
Portfolio's portfolio securities or in foreign exchange rates, or prevent loss
if the prices of these securities decline, but forward foreign currency exchange
contracts do allow the Portfolio to establish a rate of exchange for a future
point in time.
FUTURES CONTRACTS AND RELATED OPTIONS. The U.S. Government Securities,
Intermediate Corporate Bond, Bond Index, Government & Corporate Bond, Equity
Income, Equity Index, Growth and Income Equity, Small Cap Equity and Balanced
Portfolios may invest in futures contracts and options on futures contracts to
the extent permitted by the Commodity Futures Trading Commission ("CFTC") and
the SEC. The International Equity Portfolio may invest in interest rate futures
contracts, options on futures contracts and other types of financial futures
contracts (such as foreign currency contracts), as well as any index or foreign
market futures which are available in recognized exchanges or in other
established financial markets to the extent
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permitted by the CFTC and the SEC. Such transactions, including stock or bond
index futures contracts, or options thereon, act as a hedge to protect a
Portfolio from fluctuations in the value of its securities caused by anticipated
changes in interest rate or market conditions without necessarily buying or
selling the securities or, with respect to the Bond Index and Equity Index
Portfolios, can be used to simulate full investment in the Lehman Aggregate or
S&P 500 while retaining a cash balance for portfolio management purposes.
Hedging is a specialized investment technique that entails skills different from
other investment management . The Adviser (or Sub-Adviser) may also consider
such transactions to be economically appropriate for the reduction of risk
inherent in the ongoing management of a Portfolio. A stock or bond index futures
contract is an agreement in which one party agrees to take or make delivery of
an amount of cash equal to a specified dollar amount times the difference
between the index value (which assigns relative values to the common stock or
bonds included in the index) at the close of the last trading day of the
contract and the price at which the agreement is originally made. No physical
delivery of the underlying stock or bond in the index is contemplated.
Similarly, it may be in the best interest of a Portfolio to purchase or sell
interest rate futures contracts, or options thereon, which provide for the
future delivery of specified fixed income securities.
The purchase and sale of futures contracts or related options will not be a
primary investment technique of any Portfolio. None of the Portfolios will
purchase or sell futures contracts (or related options thereon) for hedging
purposes if, immediately after purchase, the aggregate initial margin deposits
and premiums paid by a Portfolio on its open futures and options positions
exceeds 5% of the liquidation value of the Portfolio, after taking into account
any unrealized profits and unrealized losses on any such futures or related
options contracts into which it has entered. For a more detailed description of
futures contracts and related options, see the Statement of Additional
Information and Appendix B thereof.
ASSET-BACKED SECURITIES. The U.S. Government Securities, Intermediate
Corporate Bond, Bond Index, Government & Corporate Bond and Balanced Portfolios
may purchase asset-backed securities (i.e., securities backed by mortgages,
installment sale contracts, corporate receivables, credit card receivables or
other assets) that are issued by entities such as GNMA, FNMA and FHLMC and
private issuers such as commercial banks, financial companies, finance
subsidiaries of industrial companies, savings and loan associations, mortgage
banks, and investment banks. To the extent that a Portfolio invests in
asset-backed securities issued by companies that are investment companies under
the 1940 Act, such acquisitions will be subject to the percentage
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limitations prescribed by the 1940 Act. See "Other Applicable Policies --
Securities of Other Investment Companies" above.
Presently there are several types of mortgage-backed securities, including
guaranteed mortgage pass-through certificates, which provide the holder with a
pro rata interest in the underlying mortgages, and CMOs, which provide the
holder with a specified interest in the cash flow of a pool of underlying
mortgages or other mortgage-backed securities. CMOs are issued in multiple
classes, each with a specified fixed or floating interest rate and a final
distribution date. The relative payment rights of the various CMO classes may be
subject to greater volatility and interest-rate risk than other types of
mortgage-backed securities. The average life of asset-backed securities varies
with the underlying instruments or assets and market conditions, which in the
case of mortgages have maximum maturities of forty years. The average life of a
mortgage-backed instrument, in particular, is likely to be substantially less
than the original maturity of the mortgages underlying the securities as the
result of unscheduled principal payments and mortgage prepayments. The
relationship between mortgage prepayment and interest rates may give some
high-yielding mortgage-backed securities less potential for growth in value than
conventional bonds with comparable maturities. In addition, in periods of
falling interest rates, the rate of mortgage prepayments tends to increase.
During such periods, the reinvestment of prepayment proceeds by a Portfolio will
generally be at lower rates than the rates that were carried by the obligations
that have been prepaid. When interest rates rise, the value of an asset-backed
security generally will decline; however, when interest rates decline, the value
of an asset- backed security with prepayment features may not increase as much
as that of other fixed-income securities. Because of these and other reasons, an
asset-backed security's total return may be difficult to predict precisely.
In general, the collateral supporting non-mortgage asset- backed securities
is of shorter maturity than mortgage loans and is less likely to experience
substantial prepayments. Non- mortgage asset-backed securities involve certain
risks that are not presented by mortgage-backed securities arising primarily
from the nature of the underlying assets (i.e., credit card and automobile loan
receivables as opposed to real estate mortgages). For example, credit card
receivables are generally unsecured and the repossession of automobiles and
other personal property upon the default of the debtor may be difficult or
impracticable in some cases.
DEPOSITORY RECEIPTS. The Bond Index and Equity Index Portfolios may invest
in receipts issued by banks or brokerage firms that are created by depositing
securities listed in each Portfolio's respective index into a special account at
a
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custodian bank. The custodian holds such securities for the benefit of the
registered owners of the certificates or receipts. The custodian arranges for
the issuance of the certificates or receipts evidencing ownership and maintains
the register. The Portfolios may invest in index-based depository receipts in
lieu of investment in the actual securities that are listed in the respective
indexes.
THE INDEXING APPROACH. The Bond Index and Equity Index Portfolios seek to
approximate the investment performance of their respective market segments, as
represented by their respective indexes, i.e. the Lehman Aggregate in the case
of the Bond Index Portfolio and the S&P 500 in the case of the Equity Index
Portfolio. While there can be no guarantee that a Portfolio's investment results
will precisely match the results of its corresponding index, the Adviser
believes that, before deduction of operating expenses, there will be a very high
correlation between the returns generated by the Portfolios and their respective
indexes. Each Portfolio will attempt to achieve a correlation between its
performance and its respective index of at least 0.95 before deduction of
operating expenses. A correlation of 1.00 would indicate a perfect correlation,
which would be achieved when a Portfolio's net asset value, including the value
of its dividend and capital gains distributions, increases or decreases in exact
proportion to changes in its respective index. Each Portfolio's ability to
correlate its performance with its respective index, however, may be affected
by, among other things, transaction costs, changes in securities markets, the
manner in which S&P or Lehman Brothers, Inc. ("Lehman") calculate their
respective indexes, and the timing of purchases and redemptions. The Adviser
monitors the correlation of the performance of the Portfolios in relation to
their indexes under the supervision of the Board of Directors. In the unlikely
event that a high correlation is not achieved, the Board of Directors will take
appropriate steps to correct the reason for the lower correlation.
THE INCLUSION OF A SECURITY IN EITHER OF THE PORTFOLIOS' INDEXES IN NO WAY
IMPLIES AN OPINION BY S&P OR LEHMAN AS TO ITS ATTRACTIVENESS AS AN INVESTMENT.
S&P AND LEHMAN ARE NOT SPONSORS OF, OR IN ANY WAY AFFILIATED WITH, THE
PORTFOLIOS.
The Adviser believes that the indexing approach should involve less
portfolio turnover, and thus lower brokerage costs, transfer taxes and operating
expenses, than in more traditionally managed funds, although there is no
assurance that this will be the case. Ordinarily, a Portfolio will buy or sell
securities only to reflect changes in an index (including mergers or changes in
the composition of an index) or to accommodate cash flows into and out of the
Portfolio. The costs and other expenses incurred in securities transactions,
apart from any difference between the investment results of a Portfolio and that
of its respective
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index, may cause the return of a Portfolio to be lower than the return of its
respective index. The Portfolios may invest in less than all of the securities
included in their respective indexes, which may result in a return that does not
correspond with that of the indexes, after taking expenses into account.
ILLIQUID SECURITIES. A Portfolio will not knowingly invest more than 15%
(10% for each of the Money Market Portfolios) of the value of its net assets in
illiquid securities. Repurchase agreements that do not provide for settlement
within seven days, time deposits maturing in more than seven days, and
securities that are not registered under the Securities Act of 1933, as amended
(the "1933 Act") but that may be purchased by institutional buyers pursuant to
SEC Rule 144A are subject to the applicable limit (unless the Adviser or
Sub-Adviser, pursuant to guidelines established by the Board of Directors,
determines that a liquid market exists).
PORTFOLIO TURNOVER AND TRANSACTIONS. Although the Equity and Bond
Portfolios will not normally engage in short-term trading, each Portfolio
(except the Bond Index and Equity Index Portfolios) reserves the right to do so
if the Adviser (or Sub-Adviser) believes that selling a particular security is
appropriate in light of the Portfolio's investment objective. Investments may be
sold for a variety of reasons, such as a more favorable investment opportunity
or other circumstances bearing on the desirability of continuing to hold such
investments. A high rate of portfolio turnover involves correspondingly greater
brokerage commission expenses and other transaction costs, which must be borne
directly by the Portfolio involved and ultimately by its shareholders. High
portfolio turnover may result in the realization of substantial net capital
gains; distributions derived from such gains may be treated as ordinary income
for federal income tax purposes. See "Taxes" in this Prospectus and the
Statement of Additional Information.
Although the Intermediate Corporate Bond, Bond Index, Equity Income and
Equity Index Portfolios cannot accurately predict their respective annual
portfolio turnover rates, such rates are not expected to exceed 100%.
All orders for transactions in securities or options on behalf of the
Portfolios are placed by the Adviser (or Sub- Adviser) with broker-dealers that
it selects. To the extent permitted by the 1940 Act and guidelines adopted by
the Fund's Board of Directors, a Portfolio may utilize the Distributor or one or
more of its affiliates as a broker in connection with the purchase or sale of
securities when the Adviser believes the charge for the transaction does not
exceed the usual and customary broker's commission.
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INVESTMENT LIMITATIONS
Except as otherwise noted, each Portfolio's investment policies discussed
above are not fundamental and may be changed by the Fund's Board of Directors
without shareholder approval. However, each Portfolio also has in place certain
fundamental investment limitations, some of which are set forth below, which may
be changed only by a vote of a majority of the outstanding Shares of a
Portfolio. Other investment limitations that also cannot be changed without a
vote of shareholders are contained in the Statement of Additional Information
under "Investment Objectives and Policies."
THE MONEY MARKET PORTFOLIOS
A Portfolio may not:
1. Make loans, except that a Portfolio may purchase or hold debt
instruments in accordance with its investment objective and policies and
may enter into repurchase agreements with respect to securities
(together with any cash collateral) that are consistent with the
Portfolio's permitted investments and that equal at all times at least
100% of the value of the repurchase price.
2. Borrow money or issue senior securities, except that a
Portfolio may borrow from banks, and the Money Market Portfolio may
enter into reverse repurchase agreements, for temporary purposes in
amounts up to 10% of the value of its total assets at the time of such
borrowing; or mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of a
Portfolio's total assets at the time of such borrowing. A Portfolio will
not purchase securities while its borrowings (including reverse
repurchase agreements) are outstanding.
3. With respect to the Treasury Money Market Portfolio, purchase
securities other than obligations of the U.S. Government, its agencies
and instrumentalities, some of which may be subject to repurchase
agreements, except that the Portfolio may purchase securities of other
investment companies that seek to maintain a constant net asset value
per Share and that are permitted themselves only to invest in securities
which may be acquired by the Portfolio.
4. With respect to the Money Market Portfolio, purchase any
securities which would cause more than 25% of the value of the
Portfolio's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no
limitation
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with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, domestic bank
certificates of deposit, bankers' acceptances and repurchase
agreements secured by domestic bank instruments or obligations of the
U.S. Government, its agencies or instrumentalities; (b) wholly-owned
finance companies will be considered to be in the industries of their
parents if their activities are primarily related to financing the
activities of the parents; and (c) utilities will be divided according
to their services, for example, gas, gas transmission, electric and
gas, electric and telephone will each be considered a separate
industry.
In accordance with current regulations of the SEC, the Money Market
Portfolio intends to limit investments in the securities of any single issuer
(other than securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities) to not more than 5% of the Portfolio's total assets at the
time of purchase, provided that the Portfolio may invest up to 25% of its total
assets in the securities of any one issuer for a period of up to three business
days. This intention is not, however, a fundamental policy of the Money Market
Portfolio. The Portfolio would have the ability to invest more than five percent
of its assets in any one issuer in accordance with its fundamental policy only
in the event that Rule 2a-7 of the 1940 Act is amended in the future.
THE EQUITY AND BOND PORTFOLIOS
A Portfolio may not:
1. Purchase securities of any one issuer (other than obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities), if, immediately after and as a result of such
investments, more than 5% of the Portfolio's total assets would be
invested in the securities of such issuer, or more than 10% of the
issuer's outstanding voting securities would be owned by the Portfolio
or the Fund, except that up to 25% of the Portfolio's total assets may
be invested without regard to such limitations.
2. Purchase any securities which would cause 25% or more of the
Portfolio's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided, however, that (a) there is
no limitation with respect to obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, and repurchase
agreements secured by obligations of the U.S. Government or its
agencies or instrumentalities; (b) wholly-owned finance companies will
be considered to be in the industries of their parents if their
activities are
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primarily related to financing the activities of their parents; and
(c) utilities will be divided according to their services (for
example, gas, gas transmission, electric and gas, electric, and
telephone will each be considered a separate industry).
3. Borrow money or issue senior securities, except that each
Portfolio may borrow from banks and enter into reverse repurchase
agreements for temporary defensive purposes in amounts not in excess
of 10% of the Portfolio's total assets at the time of such borrowing;
or mortgage, pledge, or hypothecate any assets, except in connection
with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed or 10% of the Portfolio's total assets at
the time of such borrowing; or purchase securities while its
borrowings exceed 5% of its total assets. A Portfolio's transactions
in futures and related options (including the margin posted by a
Portfolio in connection with such transactions), and securities held
in escrow or separate accounts in connection with a Portfolio's
investment practices described in this Prospectus or the Statement of
Additional Information are not subject to this limitation.
4. Make loans, except that each Portfolio may purchase or hold
debt instruments, lend portfolio securities, enter into repurchase
agreements and make other investments in accordance with its
investment objective and policies.
5. Purchase securities on margin, make short sales of securities
or maintain a short position, except that (a) this investment
limitation shall not apply to a Portfolio's transactions in options,
and futures contracts and related options, and (b) a Portfolio may
obtain short-term credits as may be necessary for the clearance of
purchases and sales of portfolio securities.
If a percentage limitation is satisfied at the time of investment, a later
increase or decrease in such percentage resulting solely from a change in the
value of a Portfolio's portfolio securities will not constitute a violation of
such limitation.
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PRICING OF SHARES
THE MONEY MARKET PORTFOLIOS
The Money Market Portfolios' respective net asset values per Share are
determined by the Administrator as of 12:00 noon (Eastern Time) and as of the
close of regular trading hours on the New York Stock Exchange (the "Exchange")
(currently 4:00 p.m. Eastern time) on each weekday, with the exception of those
holidays on which the Exchange or the Federal Reserve Bank of St. Louis are
closed (a "Business Day"). Currently one or both of these institutions are
closed on the customary national business holidays of New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day (observed),
Independence Day (observed), Labor Day, Columbus Day, Veterans' Day,
Thanksgiving Day and Christmas Day (observed).
Each Portfolio's assets are valued based upon the amortized cost method.
Although each Portfolio seeks to maintain its net asset value per Share at
$1.00, there can be no assurance that the net asset value per Share will not
vary. See the Statement of Additional Information under "Net Asset Value" for
further information.
THE EQUITY AND BOND PORTFOLIOS
The Equity and Bond Portfolios' respective net asset values per Share
are determined by the Administrator as of the close of regular trading hours on
the Exchange on each Business Day (currently 4:00 p.m. Eastern Time).
Securities which are traded on a recognized stock exchange are valued at
the last sale price on the securities exchange on which such securities are
primarily traded or at the last sale price on the national securities market.
Securities traded on only over-the-counter markets are valued on the basis of
market values when available. Securities for which there are no transactions are
valued at the average of the current bid and asked prices. Other securities,
including restricted and other securities for which market quotations are not
readily available, and other assets are valued at fair value by the Adviser (or
Sub-Adviser) under the supervision of the Board of Directors. Investments in
debt securities with remaining maturities of 60 days or less may be valued based
upon the amortized cost method. For further information about valuation of
investments, see "Net Asset Value" in the Statement of Additional Information.
OTHER INFORMATION
The public offering price for each class of Shares of a Portfolio is based
upon net asset value per Share plus, in the case of Investor A Shares of each
Portfolio except the Money
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Market Portfolios, a front-end sales charge. A class will calculate its net
asset value per Share by adding the value of a Portfolio's investments, cash and
other assets attributable to the class, subtracting the Portfolio's liabilities
attributable to that class, and then dividing the result by the total number of
shares in the class that are outstanding. Because the operating expenses of
Investor B Shares are higher than those associated with the other classes of
Shares, the net asset value per Share of Investor B Shares of a Portfolio which
declares its net investment income quarterly will generally be lower than the
net asset value per Share of Trust, Institutional or Investor A Shares of the
same Portfolio.
HOW TO PURCHASE AND REDEEM SHARES
PURCHASE OF SHARES
Institutional Shares are sold to financial institutions, such as banks,
trust companies, thrift institutions, mutual funds or other financial
institutions (collectively "financial institutions") acting on behalf of their
employee benefit, retirement plan or other such accounts for which they do not
have investment discretion. Institutional Shares are sold to qualified
purchasers without a sales charge imposed by the Fund or the Distributor.
Generally, investors purchase Institutional Shares through a financial
institution, which is responsible for transmitting purchase orders directly to
the Fund.
Purchases may be effected on Business Days when the Adviser, Distributor
and Mercantile (the Custodian) are open for business. The Fund reserves the
right to reject any purchase order, including purchases made with foreign and
third party drafts or checks.
Financial institutions placing orders directly or on behalf of their
clients should contact the Fund at 1-800-551-3731. Investors may also call the
Fund for information on how to purchase Shares.
All shareholders of record will receive confirmations of Share purchases,
exchanges and redemptions in the mail. An investor's Shares are held in the name
of a financial institution that has entered into a servicing agreement with the
Fund, and such financial institution is responsible for transmitting purchase,
exchange and redemption orders to the Fund on a timely basis, recording all
purchase, exchange and redemption transactions, and providing regular account
statements which confirm such transactions to beneficial owners (or arranging
for such services). Payment for orders which are not received or accepted will
be returned after prompt inquiry to the transmitting financial institution.
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PURCHASE OF SHARES -- THE MONEY MARKET PORTFOLIOS
A purchase order received and accepted by the Fund by 12:00 noon (Eastern
time) on a Business Day is effected at the net asset value per Share next
determined after receipt of the order in good form if the Fund's Custodian has
received payment in federal funds by 4:00 p.m. (Eastern time) that day. If such
funds are not available for investment by 4:00 p.m. (Eastern time), the order
will be cancelled. Purchase orders received after 12:00 noon (Eastern time) will
be placed the following Business Day.
PURCHASE OF SHARES -- THE EQUITY AND BOND PORTFOLIOS
If purchase orders are received in good form and accepted by the Fund prior
to 4:00 p.m. (Eastern time) on any Business Day, Institutional Shares will be
priced according to the net asset value per Share next determined on that day
after receipt of the order. Immediately available funds must be received by the
Custodian prior to 4:00 p.m. on the next Business Day following receipt of such
order. If funds are not received by such date, the order will be cancelled, and
notice thereof will be given to the financial institution placing the order.
EXCHANGES
The exchange privilege enables shareholders to exchange Institutional
Shares of a Portfolio for Institutional Shares of another Portfolio offered by
the Fund. Exchanges for Institutional Shares in another Portfolio are effected
without payment of any exchange or sales charges. The exchange privilege may be
exercised only in those states where the class of Shares of such other
Portfolios may legally be sold.
The Fund reserves the right to reject any exchange request. The exchange
privilege may be modified or terminated at any time upon 60 days' written notice
to shareholders. An investor may telephone an exchange request by calling his or
her financial institution, which is responsible for transmitting such request to
the Distributor. See "Other Exchange or Redemption Information" below. An
investor should consult the financial institution or the Distributor for further
information regarding procedures for exchanging Shares.
REDEMPTION OF SHARES
Redemption orders should be placed with or through the same financial
institution that placed the original purchase order. Redemption orders are
effected at a Portfolio's net asset value per share next determined after
receipt of the order by the Fund. The financial institution is responsible for
transmitting redemption orders to the Fund on a timely basis. A charge for
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sending redemption payments electronically may be imposed by the Fund. The Fund
reserves the right to send redemption proceeds electronically within seven days
after receiving a redemption order if, in the judgment of the Adviser, an
earlier payment could adversely affect a Portfolio.
A written request for redemption must be received by the Fund in order to
honor the request. The Transfer Agent may require a signature guarantee by an
eligible guarantor institution. For purposes of this policy, the term "eligible
guarantor institution" shall include banks, brokers, dealers, credit unions,
securities exchanges and associations, clearing agencies and savings
associations as those terms are defined in Rule 17Ad-15 under the Securities
Exchange Act of 1934. The Transfer Agent reserves the right to reject any
signature guarantee if (1) it has reason to believe that the signature is not
genuine, (2) it has reason to believe that the transaction would otherwise be
improper, or (3) the guarantor institution is a broker or dealer that is neither
a member of a clearing corporation nor maintains net capital of at least
$100,000. The signature guarantee requirement will be waived if all of the
following conditions apply: (1) the redemption check is payable to the
shareholder(s) of record and (2) the redemption check is mailed to the
shareholder(s) at the address of record or the proceeds are either mailed or
sent electronically to a commercial bank account previously designated on the
account application. An investor with questions or needing assistance should
contact the financial institution servicing his or her account or the
Distributor. Additional documentation may be required if the redemption is
requested by a corporation, partnership, trust, fiduciary, executor or
administrator. If, due to temporary adverse conditions, investors are unable to
effect telephone transactions, investors are encouraged to follow the procedures
described in "Other Exchange or Redemption Information" below.
Neither the Fund nor its service providers will be liable for any loss,
damages, expense or cost arising out of any telephone redemption effected in
accordance with the Fund's telephone redemption procedures, upon instructions
reasonably believed to be genuine. The Fund will employ procedures designed to
provide reasonable assurance that instructions by telephone are genuine; if
these procedures are not followed, the Fund or its service providers may be
liable for any losses due to unauthorized or fraudulent instructions. If Share
certificates are outstanding with respect to an account, the telephone
redemption and exchange privilege is not available.
Proceeds from redemptions of Shares of the MONEY MARKET PORTFOLIOS with
respect to redemption orders received by the Fund before 12:00 noon (Eastern
time) on a Business Day normally are sent electronically the same day to the
financial institution that placed the redemption order in good form. Proceeds
for
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redemption orders that are received after 12:00 noon (Eastern time) or on a
non-Business Day normally are sent electronically to the financial institution
on the next Business Day.
Proceeds from redemptions of Shares of the EQUITY AND BOND PORTFOLIOS with
respect to redemption orders received by the Fund before 4:00 p.m. (Eastern
time) on a Business Day normally are sent electronically to the financial
institution that placed the redemption order the next Business Day after the
Distributor's receipt of the order.
OTHER EXCHANGE OR REDEMPTION INFORMATION
During periods of substantial economic or market change or activity,
telephone redemptions or exchanges may be difficult to complete. In such event,
Shares may be redeemed or exchanged by mailing the request directly to the
financial institution through which the original Shares were purchased or
directly to the Fund at P.O. Box 78069, St. Louis, Missouri 63178.
At various times, the Fund may be requested to redeem Shares for which it
has not yet received good payment. In such circumstances, the Fund may delay the
forwarding of proceeds only until payment has been collected for the purchase of
such Shares which may take up to 15 days or more. To avoid delay in payment upon
redemption shortly after purchasing Shares, investors should purchase Shares by
certified or bank check or by electronic transfer. The Fund intends to pay cash
for all Shares redeemed, but under abnormal conditions which make payment in
cash unwise, the Fund may make payment wholly or partly in portfolio securities
at their then market value equal to the redemption price. In such cases, an
investor may incur brokerage costs in converting such securities to cash.
A shareholder may be required to redeem Shares in a Portfolio upon 60 days'
written notice if the balance in the shareholder's account drops below $500. The
Fund will not require a shareholder to redeem Shares if the value of the
shareholder's account drops below $500 due to fluctuations in net asset value.
YIELDS AND TOTAL RETURNS
Yield and total return quotations are computed separately for Trust Shares,
Institutional Shares, Investor A Shares and/or Investor B Shares of a Portfolio.
TOTAL RETURN AND YIELD FIGURES WILL FLUCTUATE, ARE BASED ON HISTORICAL EARNINGS,
AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The methods used to compute
each Portfolio's yields and total returns are described below and in the
Statement of Additional Information.
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THE MONEY MARKET PORTFOLIOS
From time to time, performance information such as total return, "yield"
and "effective yield" for the Money Market Portfolios' Institutional Shares may
be quoted in advertisements or in communications to shareholders. The "yield"
quoted in advertisements refers to the income generated by an investment in such
Shares of a Portfolio over a specified period (such as a seven-day period)
identified in connection with the particular yield quotation. This income is
then "annualized." That is, the amount of income generated by the investment
during that period is assumed to be generated for each such period over a
365-day or one-year period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly but, when annualized, the income
earned by an investment in such Shares of a Portfolio is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment.
In addition, the Treasury Money Market Portfolio's "state tax-equivalent
yield" may also be quoted. The "state tax- equivalent yield" shows the level of
taxable yield needed to produce an after-tax yield that is equivalent to a
particular state's tax-exempt yield achieved by the Portfolio. The "state
tax-equivalent yield" refers to the portion of income that is derived from
interest income on direct obligations of the U.S. Government, its agencies or
instrumentalities that qualifies for exemption from state income tax. The yield
calculation assumes that 100% of the interest income is exempt from state income
tax.The "state tax-equivalent yield" is computed by dividing the tax-exempt
portion of the Portfolio's yield by a denominator consisting of one minus a
stated income tax rate.
THE EQUITY AND BOND PORTFOLIOS
From time to time, performance information such as total return and yield
data for the Equity and Bond Portfolios' Institutional Shares may be quoted in
advertisements or in communications to shareholders. The yield is computed based
on the net income of such Shares in the particular Portfolio during a 30-day (or
one-month) period identified in connection with the particular yield quotation.
More specifically, the yield is computed by dividing the Portfolio's net income
per Share during a 30-day (or one-month) period by the net asset value per Share
on the last day of the period and annualizing the result.
The Portfolios' total returns may be calculated on an average annual total
return basis, and may also be calculated on an aggregate total return basis, for
various periods. Average annual total returns with respect to Institutional
Shares reflect the average annual percentage change in value of an investment in
such Shares of the particular Portfolio over the particular
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measuring period. Aggregate total returns reflect the cumulative percentage
change in value over the measuring period. Both methods of calculating total
returns assume that dividends and capital gain distributions made by a Portfolio
during the period are reinvested in the Portfolio's Institutional Shares. When
considering average annual total return figures for periods longer than one
year, it is important to note that a Portfolio's annual total return for any one
year in the period might have been more or less than the average for the entire
period.
INFORMATION APPLICABLE TO ALL PORTFOLIOS
Performance data of the Portfolios' Institutional Shares may be compared to
the performance of other mutual funds with comparable investment objectives and
policies through various mutual fund or market indices and data such as that
provided by Lehman Brothers, Inc. or any of its affiliates, Ibbotson Associates,
Inc., Lipper Analytical Services, Inc., Mutual Fund Forecaster and
IBC/Donoghue's MONEY FUND REPORT(R) published by IBC/Donoghue. References may
also be made to indices or data published in Money Magazine, Forbes, Barron's,
The Wall Street Journal, The New York Times, Business Week, American Banker,
Institutional Investor, Pensions and Investments, U.S.A. Today, Fortune,
CDA/Weisenberger, Morningstar, Inc. and publications of a local or regional
nature. In addition to performance information, general information about the
Portfolios that appears in a publication such as those mentioned above may be
included in advertisements and in reports to shareholders.
Performance quotations of a class of Shares in a Portfolio represent that
Portfolio's past performance and should not be considered as representative of
future results. Any account fees charged by Service Organizations (as described
under "Management of The Fund -- Service Organizations") or other institutions
will not be included in the calculations of a Portfolio's yields and total
returns. Such fees, if any, will reduce the investor's net return on an
investment in a Portfolio. Investors may call 1-800-452-4015 to obtain current
yield and total return information.
DIVIDENDS AND DISTRIBUTIONS
THE TREASURY MONEY MARKET, MONEY MARKET, U.S. GOVERNMENT SECURITIES,
INTERMEDIATE CORPORATE BOND, BOND INDEX AND GOVERNMENT & CORPORATE BOND
PORTFOLIOS
Dividends from net investment income of the Treasury Money Market, Money
Market, U.S. Government Securities, Intermediate Corporate Bond, Bond Index and
Government & Corporate Bond Portfolios are declared daily and paid monthly not
later than five Business Days after the end of each month.
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Institutional Shares of the Treasury Money Market and Money Market Portfolios
earn dividends from the day the purchase order is received by the Transfer Agent
through the day before the redemption order for such Shares is received.
Institutional Shares of the U.S. Government Securities, Intermediate Corporate
Bond, Bond Index and Government & Corporate Bond Portfolios earn dividends from
the day after the purchase order is received by the Transfer Agent through the
day the redemption order for such Shares is received. Dividends on each Share of
such Portfolios are determined in the same manner and are paid in the same
amounts irrespective of class, except that a Portfolio's Trust Shares and
Institutional Shares bear all expenses of the respective Administrative Services
Plans adopted for such Shares and a Portfolio's Investor A Shares and Investor B
Shares (other than the Treasury Money Market , Intermediate Corporate Bond and
Bond Index Portfolios which do not offer Investor B Shares) bear all expenses of
the respective Distribution and Services Plans adopted for such Shares. In
addition, a Portfolio's Institutional Shares bear the expense of certain
sub-transfer agency fees. See "Management of the Fund" and "Other Information
Concerning the Fund and Its Shares" below.
THE EQUITY INCOME, EQUITY INDEX, GROWTH & INCOME EQUITY AND BALANCED
PORTFOLIOS
Net investment income for the Equity Income, Equity Index, Growth & Income
Equity and Balanced Portfolios is declared and paid monthly as a dividend to
shareholders of record. Dividends on each Share of each of these Portfolios are
determined in the same manner and are paid in the same amount, irrespective of
class, except that a Portfolio's Trust Shares and Institutional Shares bear all
expenses of the respective Administrative Services Plans adopted for such Shares
and a Portfolio's Investor A Shares and Investor B Shares (other than the Equity
Index Portfolio which does not offer Investor B Shares) bear all expenses of the
respective Distribution and Services Plans adopted for such Shares. In addition,
a Portfolio's Institutional Shares bear the expense of certain sub-transfer
agency fees. See "Management of the Fund -- Administrative Services Plan" and
"Other Information Concerning the Fund and Its Shares" below.
THE SMALL CAP EQUITY AND INTERNATIONAL EQUITY PORTFOLIOS
Net investment income for the Small Cap Equity and International Equity
Portfolios is declared and paid quarterly as a dividend to shareholders of
record. Dividends on each Share of each of these Portfolios are determined in
the same manner and paid in the same amount, irrespective of class, except that
a Portfolio's Trust Shares and Institutional Shares bear all expenses of the
respective Administrative Services Plans adopted for such Shares and a
Portfolio's Investor A Shares and Investor
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B Shares bear all expenses of the respective Distribution and Service Plans
adopted for such Shares. In addition, a Portfolio's Institutional Shares bear
the expense of certain sub- transfer agency fees. See "Management of the Fund"
and "Other Information Concerning the Fund and Its Shares" below.
OTHER DIVIDEND AND DISTRIBUTION INFORMATION
The Money Market Portfolios do not expect to realize capital gains. Net
realized capital gains of a Portfolio, if any, are distributed at least
annually. All dividends and distributions paid on a Portfolio's Shares are
automatically reinvested in additional Shares of the same class unless the
investor has (i) otherwise indicated in the account application, or (ii)
redeemed all the Shares held in a Portfolio, in which case a distribution will
be paid in cash. Reinvested dividends and distributions will be taxed in the
same manner as those paid in cash.
TAXES
FEDERAL TAXES
Each Portfolio of the Fund intends to qualify as a "regulated investment
company" for the current taxable year. It is intended that each Portfolio will
continue to so qualify as long as such qualification is in the best interests of
shareholders. A regulated investment company is generally exempt from federal
income tax on amounts distributed to shareholders.
Qualification as a regulated investment company under the Internal Revenue
Code of 1986, as amended (the "Code"), for a taxable year requires, among other
things, that each Portfolio distribute to its shareholders an amount equal to at
least the sum of 90% of its investment company taxable income and 90% of its net
exempt-interest income (if any). In general, a Portfolio's investment company
taxable income will be its taxable income, including dividends, interest and
short-term capital gains (the excess of net short-term capital gain over net
long-term capital loss), subject to certain adjustments and excluding the excess
of any net long-term capital gain over net short-term capital loss, if any, for
such taxable year. Each Portfolio intends to distribute as dividends
substantially all of its investment company taxable income and any net
tax-exempt interest income each year. Such dividends will be taxable as ordinary
income to a Portfolio's shareholders who are not currently exempt from federal
income taxes, whether such income is received in cash or reinvested in
additional Shares. (Federal income taxes for distributions to an IRA are
deferred under the Code.) In the case of the Equity Income, Equity Index, Growth
& Income Equity, Small Cap Equity, International Equity and Balanced Portfolios,
such dividends will qualify for the dividends received deduction
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for corporations to the extent of the total qualifying dividends received by the
Portfolios from domestic corporations for the taxable year. Because all of the
Treasury Money Market, Money Market, U.S. Government Securities, Intermediate
Corporate Bond, Bond Index and Government & Corporate Bond Portfolios' net
investment income is expected to be derived from earned interest, it is not
expected that any distributions from such Portfolios will be eligible for the
dividends received deduction.
Substantially all of each Portfolio's net realized long-term capital gains,
if any, will be distributed at least annually to its shareholders. A Portfolio
generally will have no tax liability with respect to such gains and the
distributions will be taxable to shareholders who are not currently exempt from
federal income taxes as long-term capital gains, regardless of how long the
shareholders have held the Shares and whether such gains are received in cash or
reinvested in additional Shares.
An investor considering purchasing Shares of a Money Market Portfolio on or
just before the record date of any capital gains distribution (or in the case of
the Equity and Bond Portfolios, the record date of any dividend or capital gains
distribution) should be aware that the amount of the forthcoming distribution,
although in effect a return of capital, will be taxable.
Dividends declared by a Portfolio in October, November, or December of any
year payable to shareholders of record on a specified date in such months will
be deemed to have been received by shareholders and paid by the Fund on December
31 of such year, if such dividends are actually paid during January of the
following year.
Each Portfolio may be required in certain cases to withhold and remit to
the U.S. Treasury 31% of taxable dividends or gross sale proceeds paid to
shareholders who have failed to provide a correct tax identification number in
the manner required, who are subject to withholding by the Internal Revenue
Service for failure properly to include on their return payments of taxable
interest or dividends, or who have failed to certify to the Portfolio that they
are not subject to backup withholding when required to do so or that they are
"exempt recipients."
A taxable gain or loss may be realized by an investor upon redemption,
transfer or exchange of Shares of the Equity and Bond Portfolios, depending upon
the tax basis of such Shares and their price at the time of redemption, transfer
or exchange.
Certain interest income and dividends earned by the International Equity
Portfolio from foreign securities is expected to be subject to foreign
withholding taxes or other taxes. So long as more than 50% of the value of the
Portfolio's total assets at the close of any taxable year consists of stock
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or securities of foreign corporations, the Portfolio may elect, for U.S. federal
income tax purposes, to treat certain foreign taxes paid by it, including
generally any withholding taxes and other foreign income taxes, as paid by its
shareholders. The Portfolio may make this election. As a consequence, the amount
of these foreign taxes paid by the Portfolio will be included in its
shareholders' taxable income pro rata (in addition to taxable distributions
actually received by them), and each shareholder may elect either (a) to credit
his proportionate amount of such taxes against his U.S. federal income tax
liabilities (subject to certain limitations), or (b) if he itemizes his
deductions, to deduct such proportionate amounts from his U.S. taxable income.
STATE AND LOCAL TAXES
Shareholders should note that dividends paid by a Portfolio may be taxable
to investors under state or local law as dividend income even though all or a
portion of such dividends may be derived from interest on obligations that, if
realized directly, would be exempt from such income taxes.
The Treasury Money Market Portfolio is structured to provide investors, to
the extent permissible by federal and state law, with income that is exempt or
excluded from taxation at the state and local level. Shareholders should note
that many, but not all, states permit all or a portion of a regulated investment
company's dividends which are derived from interest on U.S. Treasury obligations
(and obligations of certain U.S. Government agencies)("Treasury Obligations") to
be exempt or excluded from state and local taxation. In addition, only certain
states allow dividends of a regulated investment company that are derived from
dividends of other regulated investment companies investing directly in Treasury
Obligations to be exempt or excluded from state and local taxation. Some states
reduce a shareholder's allowable deductions by interest on debt incurred to
carry obligations producing state tax-exempt interest and by other expenses
related to such obligations. Income earned by the Portfolio from repurchase
agreements generally is not exempt from state or local income tax. Shareholders
should consult their own tax advisors about the status of distributions from the
Treasury Money Market Portfolio under state and local law.
MISCELLANEOUS
The foregoing summarizes some of the important federal and state tax
considerations generally affecting the Portfolios and their shareholders and is
not intended as a substitute for careful tax planning. Accordingly, potential
investors in the Portfolios should consult their tax advisers with specific
reference to their own tax situation. Shareholders will be advised at least
annually as to the federal and, for the Treasury
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Money Market Portfolio, the state income tax consequences of distributions made
each year.
MANAGEMENT OF THE FUND
The Fund is managed under the direction of its Board of Directors. The
Statement of Additional Information contains the names of and general background
information concerning each director.
INVESTMENT ADVISER AND SUB-ADVISER
Mississippi Valley Advisors Inc. ("MVA") serves as the investment adviser
to each Portfolio. MVA's principal office is located at One Mercantile Center,
Seventh & Washington Streets, St. Louis, Missouri 63101. MVA is a wholly-owned
subsidiary of Mercantile. As of December 31, 1996, MVA had approximately $7.9
billion in assets under investment management, including the Fund's assets,
which were approximately $___ billion. MVA also serves as investment adviser for
the Fund's Tax-Exempt Money Market, Short-Intermediate Municipal, Missouri
Tax-Exempt Bond and National Municipal Bond Portfolios.
Subject to the general supervision of the Fund's Board of Directors and in
accordance with the Fund's investment policies, MVA manages the Portfolios,
makes investment decisions with respect to and places orders for all purchases
and sales of the Portfolios' securities and other investments, and directs the
maintenance of each Portfolio's records relating to such purchases and sales.
For the services provided and expenses assumed pursuant to the investment
advisory agreement, MVA is entitled to receive fees, computed daily and payable
monthly, with respect to the Treasury Money Market and Money Market Portfolios,
at the annual rates of .40% of the first $1.5 billion of each such Portfolio's
average daily net assets, .35% of the next $1.0 billion of net assets and .25%
of net assets in excess of $2.5 billion, and with respect to the U.S. Government
Securities, Intermediate Corporate Bond, Bond Index, Government & Corporate
Bond, Equity Income, Equity Index, Growth & Income Equity, Small Cap Equity,
International Equity and Balanced Portfolios, at the annual rates of .45%, .55%,
.30%, .45%, .75%, .30%, .55%, .75%, 1.00% and .75%, respectively, of the average
daily net assets of each Portfolio, respectively. For the fiscal year ended
November 30, 1996, MVA received advisory fees (net of waivers) at the effective
annual rates of .__%, .__%, .__%, .__%, .__%, .__%, .__% and .__% of the
respective average daily net assets of the Treasury Money Market, Money Market,
U.S. Government Securities, Government & Corporate Bond, Growth & Income Equity,
Small Cap Equity, International Equity and
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Balanced Portfolios. The Intermediate Corporate Bond, Bond Index, Equity Income
and Equity Index Portfolios had not commenced operations as of November 30,
1996.
MVA may from time to time voluntarily reduce all or a portion of its
advisory fee to increase the net income of one or more Portfolios available for
distributions as dividends. The voluntary fee reduction will cause the return of
any such Portfolio to be higher than it would otherwise be in the absence of
such reduction.
David A. Bethke, CFA, is the person primarily responsible for the
day-to-day management of the U.S. Government Securities, Intermediate Corporate
Bond and Government & Corporate Bond Portfolios. Mr. Bethke, Senior Associate,
joined MVA in 1987 and has seven years of prior investment experience.
Peter Merzian, is the person primarily responsible for the day-to-day
management of the Balanced Portfolio. Mr. Merzian, a Senior Associate of MVA,
has been with MVA since 1993 and prior thereto was employed as a portfolio
manager of another financial institution. Mr. Merzian has served as portfolio
manager of the Balanced Portfolio since May 1996. Mr. Merzian also serves as
portfolio manager for the Fund's Short-Intermediate Municipal, Missouri
Tax-Exempt Bond and National Municipal Bond Portfolios.
Gregory A. Glidden is the person primarily responsible for the day-to-day
management of the Equity Income Portfolio. Mr. Glidden, Senior Associate, has
been with MVA since 1983. For the past 13 years, he has served as a stock
analyst and has managed several of Mercantile's common funds. Mr. Glidden has
managed the Equity Income Portfolio since its inception.
Timothy S. Engelbrecht, is the person primarily responsible for the
day-to-day management of the Growth & Income Equity Portfolio. Mr. Engelbrecht,
a Senior Associate, has been employed by MVA for the past sixteen years and has
had portfolio management and other responsibilities for MVA for the past fifteen
years. Mr. Engelbrecht has managed the Growth & Income Equity Portfolio since
May 1996.
Robert J. Anthony is the person primarily responsible for the day-to-day
management of the Small Cap Equity Portfolio. Mr. Anthony, Senior Associate, has
been with MVA for 21 years.
MVA has entered into a sub- advisory agreement with Clay Finlay Inc.
Pursuant to the terms of such sub-investment advisory agreement, Clay Finlay has
been retained by MVA to manage the investment and reinvestment of the assets of
the International Equity Portfolio and to provide analytical and
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investment research services to it, subject to the supervision of MVA and to the
direction and control of the Fund's Board of Directors.
Under this arrangement, Clay Finlay is responsible for the day-to-day
management of the International Equity Portfolio's assets. MVA reviews
investment performance policies and guidelines, maintains certain books and
records, is responsible for selecting and monitoring the performance of Clay
Finlay, and for reporting the activities of Clay Finlay in managing the
Portfolio to the Fund's Board of Directors.
Clay Finlay is registered as an investment adviser with the SEC and is a
wholly-owned subsidiary of United Asset Management Corporation, a financial
services holding company. Clay Finlay's principal office is located at 200 Park
Avenue, 56th Floor, New York, New York 10166. Clay Finlay, founded in 1982, has
extensive experience in international investments and as of December 31, 1996
had approximately $6.5 billion in assets under management.
Frances Dakers is the person primarily responsible for the day-to-day
management of the International Equity Portfolio's investments. Ms. Dakers, a
Principal and Senior Portfolio Manager of Clay Finlay, has been associated with
Clay Finlay since January, 1982.
For the services provided and expenses assumed pursuant to its sub-
advisory agreement with MVA, Clay Finlay receives from MVA a fee, computed daily
and payable monthly, at the annual rate of .75% of the first $50 million of the
International Equity Portfolio's average daily net assets, plus .50% of the next
$50 million of average daily net assets, plus .25% of average daily net assets
in excess of $100 million. Prior to August 29, 1996, Clay Finlay received from
MVA a fee, computed daily and paid monthly, at the annual rate of .75% of the
International Equity Portfolio's average daily net assets. For the fiscal year
ended November 30, 1996, Clay Finlay received sub-advisory fees at the effective
annual rate of ___% of the International Equity Portfolio's average daily net
assets. Clay Finlay bears all expenses incurred by it in connection with its
services under the sub- advisory agreement.
ADMINISTRATOR
BISYS Fund Services Ohio, Inc. located at 3435 Stelzer Road, Columbus, Ohio
43219, acts as the Portfolios' Administrator. The Administrator also acts as
administrator for the Fund's Tax- Exempt Money Market, Short-Intermediate
Municipal, Missouri Tax- Exempt Bond and National Municipal Bond Portfolios.
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The Administrator generally assists in all aspects of each Portfolio's
administration and operation and also monitors and performs other services
pertaining to the Fund's arrangements under the Administrative Services Plan
described below. For its services, the Administrator is entitled to receive a
fee, computed daily and payable monthly, at the annual rate of .20% of each
Portfolio's average daily net assets. For the fiscal year ended November 30,
1996, the Administrator received administration fees (net of waivers) at the
effective annual rates of ____% (____% with respect to the International Equity
Portfolio) of the average daily net assets of each Portfolio other than the
Intermediate Corporate Bond, Bond Index, Equity Income and Equity Index
Portfolios which had not commenced operations as of November 30, 1996. From time
to time, the Administrator may voluntarily waive all or a portion of the
administration fees otherwise payable by a Portfolio in order to increase the
net income available for distribution to shareholders.
DISTRIBUTOR
Institutional Shares in each Portfolio are sold continuously by the
Distributor, BISYS Fund Services, an affiliate of the Administrator. BISYS is a
registered broker-dealer with principal offices at 3435 Stelzer Road, Columbus,
Ohio 43219. The Distributor also acts as distributor of the Fund's Tax-Exempt
Money Market, Short-Intermediate Municipal, Missouri Tax-Exempt Bond and
National Municipal Bond Portfolios.
ADMINISTRATIVE SERVICES PLAN
The Fund has adopted an Administrative Services Plan with respect to
Institutional Shares of the Portfolios. Pursuant to the Administrative Services
Plan, Institutional Shares are sold to banks and other financial institutions
(which may include Mercantile or its affiliated or correspondent banks) on
behalf of their qualified accounts (such financial institutions collectively,
the "Service Organizations"), which agree to provide certain shareholder
administrative services for their clients or account holders (collectively, the
"customers") who are the beneficial owners of such Shares. The holders of
Institutional Shares bear separately their pro rata portion of the fees which
may be paid to Service Organizations for such services at an annual rate of up
to .25%, for the Money Market Portfolios, and up to .30%, for the Equity and
Bond Portfolios, of the average daily net assets of a Portfolio's Institutional
Shares owned beneficially by a Service Organization's customers.
SERVICE ORGANIZATIONS
The servicing agreements adopted under the Administrative Services Plan
(the "Servicing Agreements") require the Service
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Organizations receiving such compensation (which may include Mercantile and its
affiliates) to perform certain services, including providing administrative
services with respect to the beneficial owners of Institutional Shares of a
Portfolio, such as establishing and maintaining accounts and records for their
customers who invest in such Shares and assisting customers in processing
purchase, exchange and redemption requests, and responding to customer inquiries
concerning their investments.
Under the Servicing Agreements and upon notice to the Fund, a Service
Organization may subcontract with one or more entities for the performance of
certain services provided under its Servicing Agreements with the Fund. Such
Service Organization shall be fully responsible to the Fund for the acts or
omissions of any sub-contractor as it would be for its own acts or omissions.
The fees payable to any sub-contractor are paid by the Service Organization out
of the fees it receives from the Fund.
The Fund understands that Service Organizations providing such
administrative services may also charge fees to their customers beneficially
owning such Shares. These fees would be in addition to any amounts which may be
received by such a Service Organization under its Servicing Agreement with the
Fund. The Fund's Servicing Agreements require a Service Organization to disclose
to its customers any compensation payable to the Service Organization by a
Portfolio and any other compensation payable by its customers in connection with
their investment in such Shares. Customers of such Service Organizations
receiving servicing fees should read this Prospectus in light of the terms
governing their accounts with their Service Organization.
CUSTODIAN, SUB-CUSTODIAN, TRANSFER AGENT AND SUB-TRANSFER AGENT
Mercantile Bank National Association, an affiliate of the Fund and a
wholly-owned subsidiary of Mercantile Bancorporation, Inc., with principal
offices located at One Mercantile Center, 8th and Locust Streets, St. Louis,
Missouri 63101, serves as Custodian of each Portfolio's assets. In addition,
Bankers Trust Company of New York, with principal offices located at 16 Wall
Street, New York, New York 10005, serves as Sub-Custodian for the International
Equity Portfolio. BISYS Fund Services Ohio, Inc. also serves as the Fund's
transfer agent and dividend disbursing agent. Its address is 3435 Stelzer Road,
Columbus, Ohio 43219.
Pursuant to an agreement with BISYS Fund Services Ohio, Inc. and in
connection with the Institutional Shares offered to its customers, a financial
institution (which may include Mercantile or its affiliated or correspondent
banks) serves as sub-transfer agent with respect to the underlying beneficial
owners of Institutional Shares. For the account maintenance services
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provided, a sub-transfer agent is entitled to receive an annual fee of $30 with
respect to each beneficial owner's holdings in Institutional Shares
(irrespective of the number of Portfolios in which such Institutional Shares are
held).
REGULATORY MATTERS
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any affiliate
thereof from sponsoring, organizing, or controlling the shares of a registered,
open-end investment company continuously engaged in the issuance of its Shares,
and prohibit banks generally from issuing, underwriting, selling, or
distributing securities such as Shares of the Portfolios. Such banking laws and
regulations do not prohibit such a holding company or affiliate, or banks, from
acting as investment adviser, transfer agent or custodian to such an investment
company, or from purchasing Shares of such a company as agent for and upon the
order of customers. Mercantile, MVA, Service Organizations that are banks or
bank affiliates, and broker-dealers that are bank affiliates are subject to such
laws and regulations, but believe they may perform the services for the
Portfolios contemplated by their respective agreements, this Prospectus and the
Statement of Additional Information without violating applicable banking laws
and regulations.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of such companies in connection with the provision of
services on behalf of the Portfolios and the shareholders, the Fund might be
required to alter materially or discontinue its arrangements with such companies
and change its method of operation. It is not expected that investors would
suffer any adverse financial consequences as a result of any of these
occurrences.
If current restrictions preventing a bank from legally sponsoring,
organizing, controlling or distributing Shares of an investment company were
relaxed, Mercantile, or an affiliate of Mercantile, would consider the
possibility of offering to perform additional services for the Portfolios. It is
not possible, of course, to predict whether or in what form such legislation
might be enacted or the terms upon which Mercantile, or such an affiliate, might
offer to provide such services.
Conflict of interest restrictions may apply to the receipt of compensation
paid pursuant to a Servicing Agreement by the Portfolios to a financial
intermediary in connection with the investment of fiduciary funds in a
Portfolio's Shares. Institutions, including banks regulated by the Comptroller
of the Currency and investment advisers and other money managers subject to the
jurisdiction of the SEC, the Department of Labor or state
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securities commissions, should consult legal counsel before entering into
Servicing Agreements.
EXPENSES
Except as noted above and in the Statement of Additional Information under
"Investment Advisory and Administrative Contracts" and "Custodian and Transfer
Agent," the Fund's service contractors bear all expenses in connection with the
performance of their services, except that the Distributor is compensated
pursuant to the Distribution and Services Plans (as described below under "Other
Information Concerning The Fund and Its Shares"). Expenses are deducted from the
total income of each Portfolio before dividends and distributions are paid.
These expenses include, but are not limited to, fees paid to the Adviser and
Administrator, transfer agency fees, fees and expenses of officers and directors
who are not affiliated with the Adviser or the Distributor, taxes, interest,
legal fees, custodian fees, auditing fees, 12b-1 fees, servicing fees, certain
fees and expenses in registering and qualifying a Portfolio and its Shares for
distribution under federal and state securities laws, costs of preparing and
printing prospectuses and statements of additional information for regulatory
purposes and for distribution to existing shareholders, the expense of reports
to shareholders, shareholders' meetings and proxy solicitations, fidelity bond
and directors and officers liability insurance premiums, the expense of using
independent pricing services and other expenses which are not expressly assumed
by the Adviser, Distributor or Administrator under their respective agreements
with the Fund. The Fund also pays for brokerage fees, commissions and other
transaction charges, if any, in connection with the purchase and sale of
portfolio securities. Any general expenses of the Fund that are not readily
identifiable as belonging to a particular Portfolio will be allocated among all
Portfolios by or under the direction of the Board of Directors in a manner the
Board determines to be fair and equitable. Any expenses relating only to a
particular class of Shares within a Portfolio will be borne solely by such
class. See "Certain Financial Information" and "Management of the Fund" above
for additional information regarding expenses of each Portfolio.
OTHER INFORMATION CONCERNING
THE FUND AND ITS SHARES
DESCRIPTION OF SHARES
The Fund was organized as a Maryland corporation on September 9, 1982 and
is a mutual fund of the type known as an "open-end management investment
company". The Fund's principal office is located at 3435 Stelzer Road, Columbus,
Ohio 43219.
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<PAGE> 259
The Fund's Charter authorizes the Board of Directors to issue up to seven
billion full and fractional Shares of common stock, and to classify and
reclassify any unauthorized and unissued Shares into one or more classes of
Shares. The Board of Directors may similarly classify or reclassify any class of
shares into one or more series.
Pursuant to such authority, the Board of Directors has authorized the
issuance of the following series of Shares representing interests in the
Portfolios, each of which is classified as a diversified company under the 1940
Act: 1 billion Trust Shares, 300 million Institutional Shares and 100 million
Investor A Shares, representing interests in the Treasury Money Market
Portfolio; 1.8 billion Trust Shares, 300 million Institutional Shares, 550
million Investor A Shares and 50 million Investor B Shares, representing
interests in the Money Market Portfolio; 15 million Trust Shares, 20 million
Institutional Shares, 5 million Investor A Shares and 50 million Investor B
Shares, representing interests in the U.S. Government Securities Portfolio; 50
million Trust Shares, 25 million Institutional Shares and 25 million Investor A
Shares, representing interests in the Intermediate Corporate Bond Portfolio; 25
million Trust Shares, 25 million Institutional Shares and 25 million Investor A
Shares representing interests in the Bond Index Portfolio; 50 million Trust
Shares, 20 million Institutional Shares, 5 million Investor A Shares and 50
million Investor B Shares, representing interests in the Government & Corporate
Bond Portfolio; 50 million Trust Shares, 25 million Institutional Shares, 25
million Investor A Shares and 25 million Investor B Shares representing
interests in the Equity Income Portfolio; 25 million Trust Shares, 25 million
Institutional Shares and 25 million Investor A Shares representing interests in
the Equity Index Portfolio; 50 million Trust Shares, 20 million Institutional
Shares, 5 million Investor A Shares and 50 million Investor B Shares,
representing interests in the Growth & Income Equity Portfolio; 15 million Trust
Shares, 20 million Institutional Shares, 5 million Investor A Shares and 50
million Investor B Shares and 50 million Investor B Shares, representing
interests in the Small Cap Equity Portfolio; 10 million Trust Shares, 10 million
Institutional Shares, 10 million Investor A Shares and 50 million Investor B
Shares, representing interests in the International Equity Portfolio; and 15
million Trust Shares, 20 million Institutional Shares, 5 million Investor A
Shares and 50 million Investor B Shares, representing interests in the Balanced
Portfolio. Trust, Investor A and/or Investor B Shares of the Portfolios are
described in separate prospectuses which are available from the Distributor at
the telephone number on the cover of this Prospectus. Shares in the Fund's
Portfolios will be issued without Share certificates.
The Institutional Shares of the Portfolios are described in this
Prospectus. The Portfolios also offer Trust Shares and
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<PAGE> 260
Investor A Shares and, in addition, the Money Market Portfolio and Equity and
Bond Portfolios (other than the Intermediate Corporate Bond, Bond Index and
Equity Index Portfolios) offer Investor B Shares. Trust Shares, which are
offered to financial institutions acting on their own behalf or on behalf of
certain qualified accounts, are sold without a sales charge. Investor A Shares
(other than Investor A Shares of the Money Market Portfolios which are sold
without a sales charge) are sold with a maximum 4.5% (2.5% with respect to the
Intermediate Corporate Bond, Bond Index and Equity Index Portfolios) front-end
sales charge, and Investor B Shares are sold with a maximum 5.0% contingent
deferred sales charge. Investor A Shares and Investor B Shares are sold through
selected broker/dealers and other financial intermediaries to individual or
institutional customers. Trust Shares, Institutional Shares, Investor A Shares
and Investor B Shares bear their pro rata portion of all operating expenses paid
by a Portfolio, except that Trust Shares and Institutional Shares bear all
payments under the Portfolio's respective Administrative Services Plans adopted
for such Shares and Investor A Shares and Investor B Shares bear all payments
under the Portfolio's respective Distribution and Services Plans adopted for
such Shares. In addition, Institutional Shares of a Portfolio bear the expense
of certain sub-transfer agency fees.
Payments under the Administrative Services Plans for Trust Shares are made
to Service Organizations for administrative services provided to the Service
Organizations' clients or account holders who are the beneficial owners of Trust
Shares. Payments under the Administrative Services Plans may not exceed .25% (on
an annual basis) of the average daily net asset value of outstanding Trust
Shares of the Money Market Portfolios or .30% (on an annual basis) of the
average daily net asset value of outstanding Trust Shares of the Equity and Bond
Portfolios.
Payments under the Distribution and Services Plans for Investor A Shares
and Investor B Shares are made to (i) the Distributor or another person for
providing distribution assistance and assuming certain related expenses, and
(ii) Service Organizations for administrative services provided to the Service
Organizations' clients or account holders who are the beneficial owners of
Investor A Shares or Investor B Shares. Payments under the Distribution and
Services Plan for Investor A Shares may not exceed .25% (on an annual basis) of
the average daily net asset value of outstanding Investor A Shares of the Money
Market Portfolios or .30% (on an annual basis) of the average daily net asset
value of Investor A Shares of the Equity and Bond Portfolios. Payments under the
Distribution and Services Plan for Investor B Shares may not exceed 1.00% (on an
annual basis) of the average daily net asset value of outstanding Investor B
Shares of a Portfolio. Distribution payments made under the Distribution and
Services Plans are subject to the requirements of Rule 12b-1 under the 1940 Act.
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<PAGE> 261
The Fund offers various services and privileges in connection with Investor
A Shares and Investor B Shares of a Portfolio that are not offered in connection
with the Portfolio's Trust or Institutional Shares, including an automatic
investment program and an automatic withdrawal plan. In addition, each class of
Shares offer different exchange privileges. Investor B Shares convert
automatically into Investor A Shares eight years after the beginning of the
calendar month in which the Shares were purchased.
Shareholders are entitled to one vote for each full Share held and
proportionate fractional votes for fractional Shares held. Shares of all
Portfolios will vote together and not by class unless otherwise required by law
or permitted by the Board of Directors. All shareholders of a particular
Portfolio will vote together as a single class on matters relating to the
Portfolio's investment advisory (or sub-advisory) agreement and investment
objective and fundamental policies. Only holders of Trust Shares, however, will
vote on matters relating to the Administrative Services Plan for Trust Shares
and only holders of Institutional Shares will vote on matters pertaining to the
Administrative Services Plan for Institutional Shares. Similarly, only holders
of Investor A Shares will vote on matters pertaining to the Distribution and
Services Plan for Investor A Shares and only holders of Investor B Shares will
vote on matters pertaining to the Distribution and Services Plan for Investor B
Shares.
Shares of the Portfolios have noncumulative voting rights and, accordingly,
the holders of more than 50% of the Fund's outstanding Shares (irrespective of
Portfolio or class) may elect all of the Directors. Shares have no preemptive
rights and only such conversion and exchange rights as the Board may grant in
its discretion. When issued for payment as described in this Prospectus, Shares
will be fully paid and nonassessable.
MISCELLANEOUS
As used in this Prospectus, a "vote of a majority of the outstanding
Shares" of a Portfolio means, with respect to the approval of an investment
advisory agreement or a change in an investment objective or fundamental
investment policy, the affirmative vote of the lesser of (a) more than 50% of
the outstanding Shares of such Portfolio (irrespective of class), or (b) 67% or
more of the Shares of such Portfolio (irrespective of class) present at a
meeting if more than 50% of the outstanding Shares of such Portfolio are
represented at the meeting in person or by proxy.
As of January 1, 1997, Mercantile and its affiliates possessed, of record
on behalf of their underlying customer accounts, voting or investment power with
respect to more than
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25% of the Fund's outstanding Shares; and Mercantile may be deemed to be a
controlling person of the Fund within the meaning of the 1940 Act.
Inquiries regarding the Portfolios may be directed to the Fund at
1-800-551-3731.
------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE PORTFOLIOS'
STATEMENT OF ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN
CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE PORTFOLIOS, THE FUND, OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE PORTFOLIOS, THE FUND OR THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
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<PAGE> 263
THE ARCH FUND(R), INC.
INSTITUTIONAL SHARES
[OLD LOGO]
PROSPECTUS
________, 1997
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<PAGE> 264
CROSS REFERENCE SHEET
---------------------
(Investor A and B Shares)
The ARCH Treasury Money Market Portfolio
The ARCH Money Market Portfolio
The ARCH Tax-Exempt Money Market Portfolio
The ARCH U.S. Government Securities Portfolio
The ARCH Intermediate Corporate Bond Portfolio
The ARCH Bond Index Portfolio
The ARCH Government & Corporate Bond Portfolio
The ARCH Short-Intermediate Municipal Portfolio
The ARCH Missouri Tax-Exempt Bond Portfolio
The ARCH National Municipal Bond Portfolio
The ARCH Equity Income Portfolio
The ARCH Equity Index Portfolio
The ARCH Growth & Income Equity Portfolio
The ARCH Small Cap Equity Portfolio
The ARCH International Equity Portfolio
The ARCH Balanced Portfolio
FORM N-1A PART A ITEM PROSPECTUS CAPTION
- --------------------- ------------------
1. Cover Page............................. Cover Page
2. Synopsis............................... Expense Summary
for Investor A Shares
3. Condensed Financial
Information.......................... Certain Financial
Information; Yields and
Total Returns
4. General Description
of Registrant........................ Highlights; Investment
Objectives, Policies and
Risk Considerations; Other
Information Concerning
the Fund and Its Shares
5. Management of the Fund................. Management of the Fund
5A. Management's Discussion of
Fund Performance..................... Inapplicable
6. Capital Stock and
Other Securities..................... How to Purchase and
Redeem Shares; Dividends
and Distributions;
Taxes; Other Information
Concerning the Fund
and Its Shares
7. Purchase of Securities
Being Offered........................ How to Purchase and
Redeem Shares
8. Redemption or Repurchase............... How to Purchase and
Redeem Shares
9. Pending Legal Proceedings.............. Inapplicable
<PAGE> 265
THE ARCH FAMILY
OF MUTUAL FUNDS
INVESTOR SHARES
MONEY MARKET PORTFOLIOS
-----------------------
TREASURY MONEY MARKET PORTFOLIO
MONEY MARKET PORTFOLIO
TAX-EXEMPT MONEY MARKET PORTFOLIO
TAXABLE BOND PORTFOLIOS
-----------------------
U.S. GOVERNMENT SECURITIES PORTFOLIO
INTERMEDIATE CORPORATE BOND PORTFOLIO
BOND INDEX PORTFOLIO
GOVERNMENT & CORPORATE BOND PORTFOLIO
TAX-EXEMPT BOND PORTFOLIOS
--------------------------
SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
MISSOURI TAX-EXEMPT BOND PORTFOLIO
NATIONAL MUNICIPAL BOND PORTFOLIO
EQUITY PORTFOLIOS
-----------------
EQUITY INCOME PORTFOLIO
EQUITY INDEX PORTFOLIO
GROWTH & INCOME EQUITY PORTFOLIO
SMALL CAP EQUITY PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIO
BALANCED PORTFOLIO
PROSPECTUS DATED _______, 1997
<PAGE> 266
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
Highlights.................................................................
Certain Financial
Information..............................................................
Expense Summary for
Investor Shares..........................................................
Financial Highlights
Investment Objectives,
Policies and Risk
Considerations...........................................................
Pricing of Shares..........................................................
How to Purchase and
Redeem Shares............................................................
Purchase of Shares................................................
Automatic Investment
Program (AIP)...................................................
Applicable Sales Charges
-- Investor A Shares
of the Equity and Bond
Portfolios......................................................
Reduced Sales Charges
-- Investor A Shares
Applicable Sales Charges
-- Investor B Shares of
the CDSC Portfolios.............................................
Exchange Privileges...............................................
Redemption of Shares..............................................
Redemption by Mail................................................
Redemption by Telephone...........................................
Automatic Withdrawal
Plan (AWP)......................................................
Purchase of Shares at
Net Asset Value.................................................
Other Exchange or
Redemption
Information.....................................................
Yields and Total Returns...................................................
Dividends and Distributions................................................
Taxes......................................................................
Management of the Fund.....................................................
Other Information
Concerning the Fund
and its Shares...........................................................
Miscellaneous.....................................................
For information, write: Or call your investment
P.O. Box 78069 representative or The ARCH Fund's
St. Louis, Missouri 63178 Service Center at 1-800-551-3731
</TABLE>
<PAGE> 267
THE ARCH FUND(R), INC.
INVESTOR A SHARES AND INVESTOR B SHARES
The ARCH Fund, Inc. (the "Fund") is an open-end management investment
company that currently offers Shares in sixteen investment portfolios. This
Prospectus describes the Investor A Shares in each of those portfolios and the
Investor B Shares in ten of those portfolios. Except as provided below, Investor
A Shares and Investor B Shares are sold through selected broker/dealers and
other financial intermediaries to individual or institutional customers.
Investor A Shares (with the exception of Investor A Shares in the money market
portfolios) are sold with a front-end sales charge. Investor B Shares are sold
with a contingent deferred sales charge.
THE ARCH TREASURY MONEY MARKET PORTFOLIO'S investment objective is to
seek a high level of current income exempt from state income tax consistent with
liquidity and security of principal. Features of the Portfolio include:
- HIGH DEGREE OF CREDIT SAFETY
- INCOME GENERALLY EXEMPT FROM STATE INCOME TAX
THE ARCH MONEY MARKET PORTFOLIO'S investment objective is to seek
current income with liquidity and stability of principal. Features of the
Portfolio include:
- MONEY MARKET RETURNS
- ACTIVE PROFESSIONAL PORTFOLIO MANAGEMENT
THE ARCH TAX-EXEMPT MONEY MARKET PORTFOLIO'S investment objective is to
seek as high a level of current interest income exempt from federal income tax
as is consistent with liquidity and stability of principal. Features of the
Portfolio include:
- TAX-FREE MONEY MARKET RETURNS
- ACTIVE PROFESSIONAL PORTFOLIO MANAGEMENT
THE ARCH U.S. GOVERNMENT SECURITIES PORTFOLIO'S investment objective
is to seek a high rate of current income that is consistent with relative
stability of principal. Features of the Portfolio include:
<PAGE> 268
- OBJECTIVE OF CURRENT INCOME FROM GOVERNMENT SECURITIES
- HIGH DEGREE OF CREDIT SAFETY
THE ARCH INTERMEDIATE CORPORATE BOND PORTFOLIO'S investment objective
is to seek as high a level of current income as is consistent with preservation
of capital. Features of the Portfolio include:
- POTENTIAL YIELD THAT IS HIGHER THAN A MONEY MARKET FUND
BUT A LOWER POTENTIAL YIELD WITH LESS PRICE VOLATILITY
THAN A LONG-TERM CORPORATE BOND FUND
- AVERAGE WEIGHTED MATURITY BETWEEN THREE AND TEN YEARS
THE ARCH BOND INDEX PORTFOLIO'S investment objective is to seek to
provide investment results that, before deduction of operating expenses,
approximate the price and yield performance of U.S. Government, mortgage-backed,
asset-backed and corporate debt securities, as represented by the Lehman
Brothers Aggregate Bond Index. Features of the Portfolio include:
- PRICE AND YIELD VOLATILITY SIMILAR TO THAT OF THE
LEHMAN BROTHERS AGGREGATE BOND INDEX
- LOW PORTFOLIO TURNOVER AND TRANSACTION COSTS
THE ARCH GOVERNMENT & CORPORATE BOND PORTFOLIO'S investment objective
is to seek the highest level of current income consistent with conservation of
capital. Features of the Portfolio include:
- OBJECTIVE OF CURRENT INCOME FROM GOVERNMENT AND
CORPORATE SECURITIES
- AT LEAST 65% OF ASSETS RATED "A" OR HIGHER OR DEEMED
COMPARABLE IN QUALITY.
THE ARCH 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:
- TAX-FREE CURRENT INCOME
- POTENTIAL YIELD THAT IS HIGHER THAN A MUNICIPAL MONEY
MARKET FUND BUT A LOWER POTENTIAL YIELD WITH LESS PRICE
VOLATILITY THAN A LONG-TERM MUNICIPAL BOND FUND
THE ARCH MISSOURI TAX-EXEMPT BOND PORTFOLIO'S investment objective is
to seek as high a level of interest income exempt from federal income tax as is
consistent with conservation of capital. Features of the Portfolio include:
- INTEREST INCOME EXEMPT FROM FEDERAL INCOME TAX AND
MISSOURI INCOME TAX
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<PAGE> 269
- OBJECTIVE OF CONSERVATION OF CAPITAL
THE ARCH NATIONAL MUNICIPAL BOND PORTFOLIO'S investment objective is to
seek as high a level of current income exempt from regular federal income tax as
is consistent with conservation of capital. Features of the Portfolio include:
- OBJECTIVE OF INCOME EXEMPT FROM REGULAR FEDERAL INCOME
TAX
- POTENTIAL YIELD THAT IS HIGHER THAN A SHORT-TERM
MUNICIPAL FUND WITH GREATER PRICE VOLATILITY
THE ARCH EQUITY INCOME PORTFOLIO'S investment objective is to seek to
provide an above-average level of income consistent with long-term capital
appreciation. Features of the Portfolio include:
- OBJECTIVE OF ABOVE AVERAGE INCOME AND LONG-TERM CAPITAL
APPRECIATION
- EMPHASIS ON EQUITY INVESTMENTS PROVIDING DIVIDEND
INCOME
THE ARCH EQUITY INDEX PORTFOLIO'S investment objective is to seek
investment results that, before deduction of operating expenses, approximate the
price and yield performance of U.S. publicly traded common stocks with large
stock market capitalizations, as represented by the Standard & Poor's 500
Composite Stock Price Index. Features of the Portfolio include:
- PRICE VOLATILITY SIMILAR TO THAT OF THE STANDARD &
POOR'S 500 COMPOSITE STOCK PRICE INDEX
- LOW PORTFOLIO TURNOVER AND TRANSACTION COSTS
THE ARCH GROWTH & INCOME EQUITY PORTFOLIO'S investment objective is to
provide long-term capital growth, with income a secondary consideration.
Features of the Portfolio include:
- OBJECTIVE OF CAPITAL GROWTH OVER THE LONG-TERM
- EQUITY INVESTMENTS PROVIDING SOME DIVIDEND INCOME
THE ARCH SMALL CAP EQUITY PORTFOLIO'S investment objective is capital
appreciation. Current income is an incidental consideration in the selection of
portfolio securities. The Portfolio was formerly known as the Emerging Growth
Portfolio. Features of the Portfolio include:
- OBJECTIVE OF LONG-TERM CAPITAL APPRECIATION
- EMPHASIS ON SMALL TO MEDIUM-SIZED COMPANIES WITH ABOVE-
AVERAGE POTENTIAL FOR PRICE APPRECIATION
THE ARCH INTERNATIONAL EQUITY PORTFOLIO'S investment objective is to
provide capital growth consistent with reasonable
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<PAGE> 270
investment risk by investing principally in foreign equity securities, most of
which will be denominated in foreign currencies. Features of the Portfolio
include:
- OBJECTIVE OF CAPITAL GROWTH
- DIVERSIFIED PORTFOLIO OF FOREIGN EQUITY SECURITIES
THE ARCH BALANCED PORTFOLIO'S investment objective is to maximize total
return through a combination of growth of capital and current income consistent
with the preservation of capital. Features of the Portfolio include:
- PROFESSIONAL ASSET ALLOCATION AMONG EQUITY SECURITIES,
FIXED INCOME SECURITIES AND CASH EQUIVALENTS
- POTENTIAL FOR MAXIMIZING TOTAL RETURN
Mississippi Valley Advisors Inc. ("MVA" or the "Adviser"), a
wholly-owned subsidiary of Mercantile Bank National Association ("Mercantile"),
acts as investment adviser for the Portfolios; Mercantile serves as custodian;
BISYS Fund Services Ohio, Inc. (the "Administrator") serves as administrator;
and BISYS Fund Services (the "Distributor") serves as sponsor and distributor.
In addition, Clay Finlay Inc. ("Clay Finlay" or the "Sub-Adviser") serves as
sub-adviser for the International Equity Portfolio.
This Prospectus sets forth concisely certain information about the
Portfolios that prospective investors should know before investing. Investors
should read this Prospectus and retain it for future reference. Additional
information about the Portfolios, contained in a Statement of Additional
Information dated _______, 1997, has been filed with the Securities and Exchange
Commission and is incorporated by reference in its entirety into this
Prospectus. An investor may obtain the Statement of Additional Information
without charge by writing the Fund at P.O. Box 78069, St. Louis, Missouri 63178
or by calling 1-800-551-3731.
AN INVESTMENT IN THE TREASURY MONEY MARKET PORTFOLIO, MONEY MARKET
PORTFOLIO OR TAX-EXEMPT MONEY MARKET PORTFOLIO IS NEITHER INSURED NOR GUARANTEED
BY THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT ANY OF THESE PORTFOLIOS
WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
Portfolio Shares are not bank deposits, are not federally insured or
guaranteed by the U.S. Government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other governmental agency, and are not the
obligations of or guaranteed or otherwise supported by any bank. An investment
in the Portfolios involves investment risk, including possible loss of
principal.
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<PAGE> 271
------------------------
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.
_______, 1997
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<PAGE> 272
HIGHLIGHTS
The ARCH Fund, Inc. (the "Fund") is an open-end, management investment
company (commonly known as a mutual fund) registered under the Investment
Company Act of 1940, as amended. The Fund offers investment opportunities in
sixteen investment portfolios: the ARCH TREASURY MONEY MARKET, MONEY MARKET and
TAX-EXEMPT MONEY MARKET PORTFOLIOS (the "Money Market Portfolios") and the ARCH
U.S. GOVERNMENT SECURITIES, INTERMEDIATE CORPORATE BOND, BOND INDEX, GOVERNMENT
& CORPORATE BOND, SHORT-INTERMEDIATE MUNICIPAL, MISSOURI TAX-EXEMPT BOND ,
NATIONAL MUNICIPAL BOND, EQUITY INCOME, EQUITY INDEX, GROWTH & INCOME EQUITY,
SMALL CAP EQUITY, INTERNATIONAL EQUITY and BALANCED PORTFOLIOS (the "Equity and
Bond Portfolios" and, together with the Money Market Portfolios, the
"Portfolios"). Each Portfolio represents a separate pool of assets with
different investment objectives and policies (as described below under
"Investment Objectives, Policies and Risk Considerations"). MVA serves as
adviser, Mercantile as custodian, BISYS Fund Services Ohio, Inc. as
administrator and BISYS Fund Services as sponsor and distributor. In addition,
Clay Finlay serves as sub-adviser for the International Equity Portfolio. For
information on expenses, fee waivers, and services, see "Certain Financial
Information," "Financial Highlights" and "Management of the Fund."
The following information generally describes the Portfolios and their
investment objectives. There can be no assurance that the Portfolios will be
able to achieve their respective investment objectives.
The Money Market Portfolios each seek to maintain a net asset value of
$1.00 per Share. Each Money Market Portfolio's assets are invested in
dollar-denominated debt securities with remaining maturities of 397 days (13
months) or less as defined by the Securities and Exchange Commission, and each
Money Market Portfolio's dollar-weighted average portfolio maturity will not
exceed 90 days. All securities acquired by the Money Market Portfolios will be
determined by MVA, under guidelines approved by the Fund's Board of Directors,
to present minimal credit risks and to be rated in the highest category (or
deemed comparable in quality) at the time of purchase. There can be no assurance
that the Money Market Portfolios will be able to achieve a stable net asset
value on a continuous basis.
The U.S. Government Securities and Government & Corporate Bond
Portfolios are designed for investors who seek higher current income than is
typically offered by money market funds and who are willing to accept a variable
Share value to achieve that objective.
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<PAGE> 273
The Intermediate Corporate Bond Portfolio is designed for investors who
seek higher current income than is typically offered by money market funds with
less principal volatility than is normally associated with a long-term bond
fund.
The Bond Index Portfolio is designed for investors who are willing to
accept the risks associated with an investment in fixed income securities, and
who seek investment results that, before deduction of operating expenses,
approximate the price and yield performance of U.S. Government, mortgage-backed,
asset-backed and corporate debt securities, as represented by the Lehman
Brothers Aggregate Bond Index.
The Short-Intermediate Municipal Portfolio is designed for investors
who seek a yield that is higher than a municipal money market fund with less
principal volatility than is normally associated with a long-term municipal bond
fund.
The Missouri Tax-Exempt Bond Portfolio is designed for investors who
seek a higher rate of return than that typically offered by tax-exempt money
market funds and who are willing to accept a variable Share value to achieve
that objective.
The National Municipal Bond Portfolio is designed for investors who
seek current income that is exempt from regular federal income tax and relative
stability of principal.
The Equity Income Portfolio is designed for investors who seek an
above-average level of income consistent with long-term capital appreciation,
and who are prepared to accept the risks associated with an investment in equity
securities.
The Equity Index Portfolio is designed for investors who are willing to
accept the risks associated with an investment in equity securities, and who
seek investment results that, before deduction of operating expenses,
approximate the price and yield performance of U.S. publicly traded common
stocks with large stock market capitalizations, as represented by the Standard &
Poor's 500 Composite Stock Price Index.
The Growth & Income Equity, Small Cap Equity and Balanced Portfolios
are designed for investors who seek capital growth, and who are prepared to
accept the risks associated with equity securities.
The International Equity Portfolio is designed for investors who seek
capital growth, wish to diversify their investments beyond the United States,
and are prepared to accept the risks entailed in such investments. These risks
may be greater than those associated with investments in the equity securities
of companies located in the United States.
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<PAGE> 274
The Tax-Exempt Money Market, Short-Intermediate Municipal, Missouri
Tax-Exempt Bond and National Municipal Bond Portfolios seek to provide income
exempt from federal tax. In addition, the Missouri Tax-Exempt Bond Portfolio
seeks to provide income that is also exempt from Missouri income tax .
Investors should note that one or more of the Portfolios may, subject
to their investment policies and limitations, purchase variable and floating
rate instruments,enter into repurchase agreements and reverse repurchase
agreements, make securities loans, invest in options , futures and index-based
depository receipts, and make limited investments in illiquid securities and
securities issued by other investment companies. These investment practices
involve investment risks of varying degrees. For example, the absence of a
secondary market for a particular variable or floating rate instrument could
make it difficult for a Portfolio to dispose of an instrument if the issuer were
to default on its payment obligation. Default by a counterparty to a repurchase
agreement or securities lending transaction could expose a Portfolio to loss
because of adverse market action or possible delay in disposing of the
underlying collateral. Reverse repurchase agreements are subject to the risk
that the market value of the securities sold by a Portfolio will decline below
the repurchase price which the Portfolio is obligated to pay. Purchasing options
is a specialized investment technique which entails a substantial risk of loss
of amounts paid as premiums to option writers. Investments in futures and
related options are subject to the ability of the Adviser to correctly predict
movements in the direction of the market and there is no assurance that a liquid
market will exist for a particular futures contract at any particular time. The
Equity and Bond Portfolios , other than the Bond Index and Equity Index
Portfolios, may engage in short-term trading, which may also involve greater
risk and increase such Portfolios' expenses. The International Equity Portfolio
will invest principally in foreign equity securities, most of which will be
denominated in foreign currencies. The other Portfolios do not invest in
instruments denominated in foreign currencies (except that the Growth & Income
Equity, Small Cap Equity, and Balanced Portfolios may invest in certain Canadian
securities and the Intermediate Corporate Bond Portfolio may invest in debt
securities issued by foreign corporations and governments). Foreign securities
entail certain inherent risks, such as future political and economic
developments and the adoption of foreign government restrictions, that might
adversely affect payment of dividends or principal and interest. The Tax-Exempt
Money Market, Short-Intermediate Municipal, Missouri Tax-Exempt Bond and
National Municipal Bond Portfolios may, under certain conditions, make limited
investments in securities the income from which may be subject to federal income
tax. See "Investment Objectives, Policies and
-8-
<PAGE> 275
Risk Considerations" below and the Statement of Additional Information under
"Investment Objectives and Policies."
The Fund offers investors the opportunity to invest in a variety of
professionally managed investments without having to become involved with
detailed management, accounting and safekeeping procedures normally related to
direct investments in securities. The Portfolios also offer the economic
advantages of block trading in securities and the availability of a family of
sixteen mutual funds should an investor's investment goals change.
This Prospectus describes the Investor A Shares of each Portfolio and
the Investor B Shares of the Money Market, U.S. Government Securities,
Government & Corporate Bond, Missouri Tax-Exempt Bond , National Municipal Bond,
Equity Income, Growth & Income Equity, Small Cap Equity, International Equity
and Balanced Portfolios (the "CDSC Portfolios"). Investor A Shares of each
Portfolio are sold with a front-end sales charge, except for Investor A Shares
of the Money Market Portfolios which are sold without a sales charge. Investor B
Shares of the CDSC Portfolios are sold with a contingent deferred sales charge.
For information on purchasing, exchanging or redeeming Investor A Shares and/or
Investor B Shares of the Portfolios, please see "How to Purchase and Redeem
Shares" below. For a discussion comparing Investor A Shares and Investor B
Shares, please see "Characteristics of Investor A Shares and Investor B Shares,"
and "Factors to Consider When Selecting Investor A Shares or Investor B Shares"
on pages __ and __, respectively.
-9-
<PAGE> 276
CERTAIN FINANCIAL INFORMATION
Shares of the Money Market, U.S. Government Securities, Government &
Corporate Bond, Equity Income, Growth & Income Equity, Small Cap Equity,
International Equity and Balanced Portfolios have been classified into four
classes of Shares -- Trust Shares, Institutional Shares, Investor A Shares and
Investor B Shares. Shares of the Treasury Money Market , Intermediate Corporate
Bond, Bond Index and Equity Index Portfolios have been classified into three
classes of Shares -- Trust Shares, Institutional Shares and Investor A Shares.
Shares of the Missouri Tax-Exempt Bond and National Municipal Bond Portfolios
have been classified into three classes of Shares -- Trust Shares, Investor A
Shares and Investor B Shares. Shares of the Tax-Exempt Money Market and
Short-Intermediate Municipal Portfolios have been classified into two classes of
Shares -- Trust Shares and Investor A Shares. Shares of each class in a
Portfolio represent equal, pro rata interests in the investments held by that
Portfolio and are identical in all respects, except that Shares of each class
bear separate distribution and/or shareholder administrative servicing fees and
certain other operating expenses, and enjoy certain exclusive voting rights on
matters relating to these fees. See "Other Information Concerning the Fund and
Its Shares," "Management of the Fund -- Administrative Services Plan," and
"Management of the Fund -- Custodian, Sub-Custodian and Transfer Agent" below.
As a result of payments for distribution and/or shareholder administrative
servicing fees and certain other operating expenses that may be made in
differing amounts, the net investment income of Trust Shares, Institutional
Shares, Investor A Shares and/or Investor B Shares in a Portfolio can be
expected, at any given time, to be different.
The Tax-Exempt Money Market Portfolio and Missouri Tax-Exempt Bond
Portfolio commenced operations on July 10, 1986 and July 15, 1988, respectively,
as separate investment portfolios (the "Predecessor Tax-Exempt Money Market
Portfolio" and "Predecessor Missouri Tax-Exempt Bond Portfolio", respectively)
of The ARCH Tax-Exempt Trust (the "Trust"), which was organized as a
Massachusetts business trust. On October 2, 1995, the Predecessor Tax-Exempt
Money Market Portfolio and the Predecessor Missouri Tax-Exempt Bond Portfolio
were reorganized as new portfolios of the Fund. Prior to the reorganization,
these Predecessor Portfolios offered and sold shares of beneficial interest that
were similar to the Fund's Trust Shares, Investor A Shares and Investor B
Shares.
-10-
<PAGE> 277
EXPENSE SUMMARY FOR
INVESTOR A AND INVESTOR B SHARES
<TABLE>
<CAPTION>
TREASURY U.S. INTERMEDIATE
MONEY MONEY TAX-EXEMPT GOVERNMENT CORPORATE
MARKET MARKET MONEY MARKET SECURITIES BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ------------------------- ---------- ----------------------- ---------
INVESTOR A INVESTOR A INVESTOR B INVESTOR A INVESTOR A INVESTOR B INVESTOR A
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Load Imposed on
Purchases (as a percentage of
offering price)................... NONE NONE NONE NONE 4.5%(1) NONE 2.5%(1)
Deferred Sales Charge
(as a percentage of offering
price)............................ NONE NONE 5.0% NONE NONE 5.0%(2) NONE
ANNUAL PORTFOLIO OPERATING
EXPENSES
(as a percentage of average
net assets)
Investment Advisory Fees (net
of fee waivers(3)................. .35% .35% .35% .35% .45% .45% 0%
12b-1 Fees, including distribution
and service fees (net of
waivers)(4) ...................... .25% .25% 1.00% .25% .30% 1.00% .30%
Other Expenses (including
administration fees
and other expenses)
(net of fee waivers and
expense reimbursements)(5),(6) ... .21% .18% .12% .15% .22% .21% .23%
Total Portfolio Operating
Expenses (net of fee waivers
and expense reimbursements)(6).... .81% .78% 1.47% .75% .97% 1.66% .53%
=== === ==== === === ==== ===
BOND INDEX
PORTFOLIO
---------
INVESTOR A
----------
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Load Imposed on
Purchases (as a percentage of
offering price)................... 2.5%(1)
Deferred Sales Charge
(as a percentage of offering
price)............................ NONE
ANNUAL PORTFOLIO OPERATING
EXPENSES
(as a percentage of average
net assets)
Investment Advisory Fees (net
of fee waivers(3)................. 0%
12b-1 Fees, including distribution
and service fees (net of
waivers)(4) ...................... .30%
Other Expenses (including
administration fees
and other expenses)
(net of fee waivers and
expense reimbursements)(5),(6) ... .20%
Total Portfolio Operating
Expenses (net of fee waivers
and expense reimbursements)(6).... .50%
===
<FN>
- -----------------
1 Reduced sales charge may be available. See "How to Purchase and Redeem
Shares -- Reduced Sales Charges - Investor A Shares of the Equity and Bond
Portfolios".
2 This amount applies to redemptions during the first year. The deferred
sales charge decreases to 4.0%, 3.0%, 3.0%, 2.0% and 1.0% for redemptions
made during the second through sixth years, respectively. No deferred sales
charge is charged after the sixth year. See "How to Purchase and Redeem
Shares -- Applicable Sales Charge - Investor B Shares of the CDSC
Portfolios."
3 Without fee waivers, Investment Advisory Fees for the Treasury Money
Market, Money Market , Tax-Exempt Money Market, U.S. Government Securities,
Intermediate Corporate Bond and Bond Index Portfolios would be .40%, .40% ,
.40%, .45%, .55% and .30%, respectively.
4 Without waivers, 12b-1 fees would be .25% for Investor A Shares of the
Treasury Money Market, Money Market and Tax-Exempt Money Market Portfolios.
5 Without fee waivers, administration fees for a Portfolio would be .20%
(.10% for the Tax-Exempt Money Market Portfolio).
6 Without fee waivers and/or expense reimbursements, Other Expenses would be
.31%, .28%, .15%, .32%, .37% and .30% for Investor A Shares of the Treasury
Money Market, Money Market, Tax-Exempt Money Market, U.S. Government
Securities, Intermediate Corporate Bond and Bond Index Portfolios,
respectively, and .22% and .31% for Investor B Shares of the Money
Marketand U.S. Government Securities Portfolios, respectively, and Total
Portfolio Operating Expenses would be .96%, .93%, .80%, 1.07%, 1.22% and
.90% for Investor A Shares of the Treasury Money Market, Money Market,
Tax-Exempt Money Market, U.S. Government Securities, Intermediate Corporate
Bond and Bond Index Portfolios, respectively, and 1.62% and 1.76% for
Investor B Shares of the Money Marketand U.S. Government Securities
Portfolios, respectively.
</TABLE>
-11-
<PAGE> 278
<TABLE>
<CAPTION>
MISSOURI
GOVERNMENT & SHORT INTERMEDIATE TAX-EXEMPT NATIONAL MUNICIPAL
CORPORATE BOND MUNICIPAL BOND BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------------------- ---------- ------------------------- -------------------------
INVESTOR A INVESTOR B INVESTOR A INVESTOR A INVESTOR B INVESTOR A INVESTOR B
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Load Imposed on
Purchases (as a percentage of
offering price).................. 4.5%(1) NONE 2.5%(1) 4.5%(1) NONE 4.5%(1) NONE
Deferred Sales Charge
(as a percentage of offering
price)........................... NONE 5.0(2) NONE NONE 5.0%(2) NONE 5.0%(2)
ANNUAL PORTFOLIO OPERATING
EXPENSES
(as a percentage of average
net assets)
Investment Advisory Fees (after
of fee waivers(3)................ .45% .45% 0% .45% .45% 0% 0%
12b-1 Fees, including distribution
and service fees (net of
waivers)(4)...................... .30% 1.00% .25% .20% 1.00% .30% 1.00%
Other Expenses (including
administration fees
and other expenses)
(net of fee waivers and
expense reimbursements)(5),(6)... .20% .20% .31% .20% .20% .07% .10%
Total Portfolio Operating
Expenses (net of fee waivers
and expense reimbursements)(6)... .95% 1.66% .56% .85% 1.65% .37% 1.10%
=== ==== === === ==== === ====
EQUITY EQUITY
INCOME INDEX
PORTFOLIO PORTFOLIO
------------------------- -----------
INVESTOR A INVESTOR B INVESTOR A
---------- ---------- ----------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Load Imposed on
Purchases (as a percentage of
offering price)................... 4.5%(1) NONE 2.5%(1)
Deferred Sales Charge
(as a percentage of offering
price)............................ NONE 5.0%(2) NONE
ANNUAL PORTFOLIO OPERATING
EXPENSES
(as a percentage of average
net assets)
Investment Advisory Fees (after
of fee waivers(3)................. 0% 0% 0%
12b-1 Fees, including distribution
and service fees (net of
waivers)(4)....................... .30% 1.00% .30%
Other Expenses (including
administration fees
and other expenses)
(net of fee waivers and
expense reimbursements)(5),(6).... .18% .18% .28%
Total Portfolio Operating
Expenses (net of fee waivers
and expense reimbursements)(6).... .48% 1.18% .58%
=== ==== ===
<FN>
- -----------------
1 Reduced sales charge may be available. See "How to Purchase and Redeem
Shares -- Reduced Sales Charges - Investor A Shares of the Equity and Bond
Portfolios".
2 This amount applies to redemptions during the first year. The deferred
sales charge decreases to 4.0%, 3.0%, 3.0%, 2.0% and 1.0% for redemptions
made during the second through sixth years, respectively. No deferred sales
charge is charged after the sixth year. See "How to Purchase and Redeem
Shares -- Applicable Sales Charge - Investor B Shares of the CDSC
Portfolios."
3 Without fee waivers, Investment Advisory Fees for the Government &
Corporate Bond, Short-Intermediate Municipal , Missouri Tax-Exempt Bond,
National Municipal Bond, Equity Income and Equity Index Portfolios would be
.45%, .55% , .45%, .55%, .75% and .30%, respectively.
4 Without waivers, 12b-1 fees would be .30% for Investor A Shares of each
Portfolio.
5 Without fee waivers, administration fees for a Portfolio would be .20%
(.10% for the Tax-Exempt Money Market Portfolio).
6 Without fee waivers and/or expense reimbursements, Other Expenses would be
.30%, .41%, .30%, .22%, .32% and .38% for Investor A Shares of the
Government & Corporate Bond, Short-Intermediate Municipal, Missouri
Tax-Exempt Bond, National Municipal Bond, Equity Income and Equity Index
Portfolios, respectively, and Total Portfolio Operating Expenses would be
1.05%, 1.26%, 1.05%, 1.07%, 1.37% and .98% for Investor A Shares of the
Government & Corporate Bond, Short-Intermediate Municipal, Missouri
Tax-Exempt Bond , National Municipal Bond, Equity Income and Equity Index
Portfolios, respectively. Other Expenses would be .30%, .30%, .25% and
.32% for Investor B Shares of the Government & Corporate Bond, Missouri
Tax-Exempt Bond, National Municipal Bond and Equity Income Portfolios,
respectively, and 1.75%, 1.75%, 1.80% and 2.07% for Investor B Shares of
the Government & Corporate Bond, Missouri Tax-Exempt Bond, National
Municipal Bond and Equity Income Portfolios, respectively.
</TABLE>
-12-
<PAGE> 279
<TABLE>
<CAPTION>
GROWTH & INCOME INTERNATIONAL
EQUITY SMALL CAP EQUITY EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO
----------------------- ----------------------- -------------------------
INVESTOR A INVESTOR B INVESTOR A INVESTOR B INVESTOR A INVESTOR B
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Load Imposed on
Purchases (as a percentage of
offering price)................... 4.5%(1) NONE 4.5%(1) NONE 4.5%(1) NONE
Deferred Sales Charge
(as a percentage of offering
price)............................ NONE 5.0%(2) NONE 5.05(2) NONE 5.0%(2)
ANNUAL PORTFOLIO OPERATING
EXPENSES
(as a percentage of average
net assets)
Investment Advisory Fees (net
of fee waivers(3)................. .55% .55% .75% .75% .75% .75%
12b-1 Fees, including distribution
and service fees (after
waivers(4))....................... .30% 1.00% .30% 1.00% .30% 1.00%
Other Expenses (including
administration fees
and other expenses)
(net of fee waivers and
expense reimbursements)(5),(6).... .20% .20% .21% .21% .39% .39%
Total Portfolio Operating
Expenses (net of fee waivers
and expense reimbursements)(6).... 1.05% 1.75% 1.26% 2.06% 1.44% 2.14%
==== ==== ==== ==== ==== ====
BALANCED
PORTFOLIO
---------------------------
INVESTOR A INVESTOR B
---------- ----------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Load Imposed on
Purchases (as a percentage of
offering price).................. 4.5%(1) NONE
Deferred Sales Charge
(as a percentage of offering
price)........................... NONE 5.0%(2)
ANNUAL PORTFOLIO OPERATING
EXPENSES
(as a percentage of average
net assets)
Investment Advisory Fees (net
of fee waivers(3)................ .75% .75%
12b-1 Fees, including distribution
and service fees (after
waivers(4))...................... .30% 1.00%
Other Expenses (including
administration fees
and other expenses)
(net of fee waivers and
expense reimbursements)(5),(6)... .22% .21%
Total Portfolio Operating
Expenses (net of fee waivers
and expense reimbursements)(6)... 1.27% 1.96%
==== ====
<FN>
- -----------------
1 Reduced sales charge may be available. See "How to Purchase and Redeem
Shares -- Reduced Sales Charges - Investor A Shares of the Equity and Bond
Portfolios".
2 This amount applies to redemptions during the first year. The deferred
sales charge decreases to 4.0%, 3.0%, 3.0%, 2.0% and 1.0% for redemptions
made during the second through sixth years, respectively. No deferred sales
charge is charged after the sixth year. See "How to Purchase and Redeem
Shares -- Applicable Sales Charge - Investor B Shares of the CDSC
Portfolios."
3 Without fee waivers, Investment Advisory Fees for the Growth & Income
Equity, Small Cap Equity, International Equity and Balanced Portfolios
would be .75%, 1.00% and .75%, respectively.
4 Without waivers, 12b-1 fees would be .30% for Investor A Shares of each
Portfolio.
5 Without fee waivers, administration fees for a Portfolio would be .20%
(.10% for the Tax-Exempt Money Market Portfolio).
6 Without fee waivers and/or expense reimbursements, Other Expenses would be
.30%, .31%, .44% and .32% for Investor A Shares and .30%, .31%, .44% and
.31% for Investor B Shares of the Growth & Income Equity, Small Cap Equity,
International Equity and Balanced Portfolios, respectively, and Total
Portfolio Operating Expenses would be 1.15%, 1.36%, 1.74% and 1.37% for
Investor A Shares and 1.85%, 2.06%, 2.44% and 2.06% for Investor B Shares
of the Growth & Income Equity, Small Cap Equity, International Equity and
Balanced Portfolios, respectively.
</TABLE>
-13-
<PAGE> 280
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following
expenses on a $1,000 investment,
assuming (1) a 5% annual return
and (2) redemption at the end of
each period:
Treasury Money Market Portfolio
Investor A Shares................................. $ 8 $ 26 $ 45 $100
Money Market Portfolio
Investor A Shares................................. $ 8 $ 25 $ 43 $ 97
Investor B Shares
Assuming complete redemption
at end of period(1)............................. $ 65 $ 76 $100 $157
Assuming no redemption.......................... $ 15 $ 46 $ 80 $157
Tax-Exempt Money Market Portfolio
Investor A Shares................................. $ 8 $ 24 $ 42 $ 93
U.S. Government Securities Portfolio
Investor A Shares(2).............................. $ 9 $ 30 $ 51 $114
Investor B Shares
Assuming complete redemption at
end of period(1)................................ $ 67 $ 82 $110 $178
Assuming no redemption.......................... $ 17 $ 52 $ 90 $178
Intermediate Corporate Bond Portfolio
Investor A Shares(2).............................. $ 5 $ 16 $ 28 $ 63
Bond Index Portfolio
Investor A Shares(2).............................. $ 5 $ 16 $ 27 $ 62
Government & Corporate Portfolio
Investor A Shares(2).............................. $ 9 $ 29 $ 50 $111
Investor B Shares
Assuming complete redemption at
end of period(1)................................ $ 67 $ 82 $110 $177
Assuming no redemption.......................... $ 17 $ 52 $ 90 $177
Short-Intermediate Municipal Portfolio
Investor A Shares(2).............................. $ 5 $ 17 $ 30 $ 67
Missouri Tax-Exempt Bond Portfolio
Investor A Shares(2).............................. $ 8 $ 26 $ 45 $100
Investor B Shares
Assuming complete redemption at
end of period(1)................................ $ 67 $ 82 $110 $177
Assuming no redemption.......................... $ 17 $ 52 $ 90 $174
National Municipal Bond Portfolio
Investor A Shares(2).............................. $ 4 $ 11 $ 20 $ 45
Investor B Shares
Assuming complete redemption at
end of period(1)................................ $ 61 $ 65 $ 81 $113
Assuming no Redemption.......................... $ 11 $ 35 $ 61 $113
Equity Income Portfolio
Investor A Shares(2).............................. $ 5 $ 15 $ 26 $ 58
Investor B Shares
Assuming complete redemption at
end of period(1)................................ $ 62 $ 67 $ 85 $124
Assuming no redemption.......................... $ 12 $ 37 $ 65 $124
Equity Index Portfolio
Investor A Shares(2).............................. $ 6 $ 18 $ 32 $ 71
</TABLE>
-14-
<PAGE> 281
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth & Income Equity Portfolio
Investor A Shares(2).............................. $ 10 $ 32 $ 55 $122
Investor B Shares
Assuming complete redemption at
end of period(1)................................ $ 68 $ 85 $115 $188
Assuming no redemption.......................... $ 18 $ 55 $ 95 $188
Small Cap Equity Portfolio
Investor A Shares(2).............................. $ 12 $ 38 $ 66 $145
Investor B Shares
Assuming complete redemption at
end of period(1)................................ $ 70 $ 92 $126 $210
Assuming no redemption.......................... $ 20 $ 62 $106 $210
International Equity Portfolio
Investor A Shares(2).............................. $ 14 $ 44 $ 75 $165
Investor B Shares
Assuming complete redemption at
end of period(1)................................ $ 72 $ 97 $135 $229
Assuming no redemption.......................... $ 22 $ 67 $115 $229
Balanced Portfolio
Investor A Shares(2).............................. $ 12 $ 38 $ 67 $146
Investor B Shares
Assuming complete redemption at
end of period(1)................................ $ 70 $ 92 $126 $211
Assuming no redemption.......................... $ 20 $ 62 $106 $211
<FN>
- -----------------
1 Assumes deduction of maximum applicable contingent deferred sales charge.
2 Assumes deduction at time of purchase of maximum applicable front-end sales
charge.
3 Based on conversion of Investor B Shares into Investor A Shares after eight
years.
</TABLE>
-15-
<PAGE> 282
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN. Information about the actual performance of all
of the Portfolios is contained in the Fund's Annual Report to Shareholders dated
November 30, 1996 which may be obtained without charge by contacting the Fund at
the address or telephone number provided on page ____ of this Prospectus.
The purpose of the foregoing tables is to assist in understanding the
various costs and expenses that an investor in a Portfolio's Investor A Shares
or Investor B Shares will bear directly or indirectly. The information contained
in such tables with respect to the Treasury Money Market, Money Market,
Tax-Exempt Money Market, U.S. Government Securities, Government & Corporate
Bond, Short-Intermediate Municipal, Missouri Tax-Exempt Bond, Growth & Income
Equity, Small Cap Equity, International Equity and Balanced Portfolios is based
on expenses incurred by each of these Portfolios during the last fiscal year
with respect to its Investor A and/or Investor B Shares. Such information with
respect to the National Municipal Bond Portfolio is based on expenses incurred
by such Portfolio during the last fiscal year, restated to reflect the expenses
that the Portfolio expects to incur during the current fiscal year with respect
to its Investor A and Investor B Shares. Such information with respect to the
Intermediate Corporate Bond, Bond Index, Equity Income and Equity Index
Portfolios is based on expenses each such Portfolio expects to incur during the
current fiscal year with respect to its Investor A and/or Investor B Shares. For
more complete descriptions of the various costs and expenses, see "Management of
the Fund" in this Prospectus and the Statement of Additional Information. The
Tables and Examples have not been audited by the Fund's independent auditors and
do not reflect any charges that may be imposed by financial institutions on
their customers. Because of the payments for distribution services (12b-1 fees)
under the Distribution and Services Plans as shown in the above table, long-term
shareholders of Investor A Shares of the Equity and Bond Portfolios and Investor
B Shares of the CDSC Portfolios may pay more than the economic equivalent of the
maximum front-end sales load permitted by the National Association of Securities
Dealers, Inc.
-16-
<PAGE> 283
FINANCIAL HIGHLIGHTS
The "Financial Highlights" in the following tables supplement the
Fund's financial statements, which are contained in the Fund's Annual Report to
Shareholders dated November 30, 1996 and [________________________] into the
Statement of Additional Information, and set forth certain historic results for
(i) Investor A Shares of each Portfolio other than the Intermediate Corporate
Bond, Bond Index, Equity Income and Equity Index Portfolios which had not
commenced operations as of November 30, 1996, and (ii) Investor B Shares of the
Money Market, U.S. Government Securities, Government & Corporate Bond, Missouri
Tax-Exempt Bond, National Municipal Bond, Growth & Income Equity, Small Cap
Equity, International Equity and Balanced Portfolios (the Equity Income
Portfolio had not commenced operations as of November 30, 1996). The data for
the years or periods ended November 30, 1989 through 1996 and with respect to
the Tax-Exempt Money Market and Missouri Tax-Exempt Bond Portfolios (and their
Predecessor Portfolios), for the year ended November 30, 1996. The six-month
period ended November 30, 1995 and each of the years or periods ended May 31,
1990 through 1995, has been audited by [___________________], independent
auditors, whose unqualified report insofar as it relates to each of the years or
periods in the five-year period ended November 30, 1996 (the year ended November
30, 1996, the six-month period ended November 30, 1995 and each of the years or
periods in the four-year period ended May 31, 1995 with respect to the
Tax-Exempt Money Market and Missouri Tax-Exempt Bond Portfolios (and their
Predecessor Portfolios)) on the financial statements containing such information
is [__________________] into the Statement of Additional Information. The data
for years ended November 30, 1987 and 1988 and with respect to the Predecessor
Tax-Exempt Money Market and Predecessor Missouri Tax-Exempt Bond Portfolios, for
the years ended May 31, 1989 and 1988 and the period ended May 31, 1987 were
derived from financial statements audited by the Fund's and the Trust's prior
auditors.
Further information about the performance of the Portfolios is
available in the Annual Report. Both the Statement of Additional Information and
the Annual Report may be obtained free of charge by contacting the Fund at the
address or telephone number on the front cover page of this Prospectus.
-17-
<PAGE> 284
<TABLE>
<CAPTION>
TREASURY MONEY MARKET PORTFOLIO
(FOR A SHARE(b) OUTSTANDING THROUGHOUT EACH PERIOD)
INVESTOR A SHARES
DEC. 2, 1991
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED TO NOV. 30,
NOV. 30, 1996 NOV. 30, 1995 NOV. 30, 1994 NOV. 30, 1993 1992(a)(b)
------------- ------------- ------------- ------------- ----------
INVESTOR A INVESTOR A INVESTOR A INVESTOR INVESTOR
SHARES SHARES SHARES SHARES SHARES
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............ $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ -------- -------- --------
Investment Activities
Net investment income......................... 0.048 0.31 0.024 0.017
------ -------- -------- --------
Distributions
Net investment income......................... (0.048) (0.031) (0.024) (0.017)
------ -------- -------- -------
Net Asset Value, End of Period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ======== ======== ========
Total Return.................................... 4.93% 3.16% 2.43% 1.79%(c)
Ratios/Supplemental Data:
Net Assets at end of period (000)............... $2,776 $ 1,713 $ 1,411 $ 3,257
Ratio of expenses to average net assets
(including waivers)........................... 0.78% 0.71% 0.64% 0.58%(d)
Ratio of net investment income to
average net assets (including
waivers)...................................... 4.84% 3.14% 2.41% 2.88%(d)
Ratio of expenses to average net assets
(before waivers)*............................. 0.93% 0.94% 0.97% 1.02%(d)
Ratio of net investment income to
average net assets (before
waivers)*..................................... 4.69% 2.90% 2.08% 2.44%(d)
<FN>
- -----------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) On December 2, 1991, the Portfolio issued a series of Shares which were
designated as "Trust" Shares. In addition, on April 20, 1992, the Portfolio
issued a second series of Shares which were designated as "Investor"
Shares. The financial highlights presented for the period prior to April
20, 1992 represent the financial highlights applicable to Trust Shares. On
September 27, 1994 the Portfolio redesignated Investor Shares as "Investor
A" Shares.
(c) Not Annualized.
(d) Annualized.
</TABLE>
-18-
<PAGE> 285
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
(FOR A SHARE(a) OUTSTANDING THROUGHOUT EACH PERIOD)
INVESTOR A SHARES
YEAR ENDED NOVEMBER 30,
--------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991(a)
-------- -------- -------- -------- -------- --------
INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR
A SHARES A SHARES A SHARES SHARES SHARES SHARES
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period.............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- -------- -------- --------
Investment Activities
Net investment income............. 0.052 0.033 0.025 0.032 0.056
-------- --------- -------- -------- --------
Distributions
Net investment income............. (0.052) (0.033) (0.025) (0.032) (0.056)
--------- --------- -------- -------- --------
Net Asset Value, End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ======== ========= ========
Total Return........................ 5.33% 3.37% 2.52% 3.21% 5.75%
Ratios/Supplemental Data:
Net Assets at end of period (000) $ 64,865 $ 48,384 $ 46,920 $52,224 $60,436
Ratio of expenses to average net
assets (including waivers)........ 0.77% 0.78% 0.79% 0.80% 0.72%
Ratio of net investment income to
average net assets (including
waivers).......................... 5.20% 3.35% 2.50% 3.21% 5.69%
Ratio of expenses to average net
assets (before waivers)*.......... 0.92% 0.93% 0.93% 0.94% 0.80%
Ratio of net investment income to
average net assets (before
waivers)*......................... 5.05% 3.20% 2.36% 3.07% 5.61%
YEAR ENDED NOVEMBER 30,
----------------------------------------------------
INVESTOR B
SHARES
----------------
JAN. 26, 1996
TO
1990 1989 1988 1987 NOV. 30, 1996(c)
------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period.............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Investment Activities
Net investment income............. 0.078 0.088 0.071 0.062
-------- -------- -------- --------
Distributions
Net investment income............. (0.078) (0.088) 0.071 0 .062
-------- -------- -------- --------
Net Asset Value, End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total Return........................ 8.08% 9.21% 7.33%(b) 6.40%(b)
Ratios/Supplemental Data:
Net Assets at end of period (000) $896,903 $661,145 $289,764 $220,944
Ratio of expenses to average net
assets (including waivers)........ 0.55% 0.45% 0.45% 0.45%
Ratio of net investment income to
average net assets (including
waivers).......................... 7.77% 8.82% 7.12% 6.22%
Ratio of expenses to average net
assets (before waivers)*.......... 0.60% 0.60% 0.58% 0.68%
Ratio of net investment income to
average net assets (before
waivers)*......................... 7.72% 8.67% 6.99% 5.99%
<FN>
- ----------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) As of December 1, 1990, the Portfolio designated existing Shares as
"Investor" Shares. On September 27, 1994 the Portfolio redesignated
Investor Shares as "Investor A" Shares.
(b) Unaudited.
(c) Period from data of initial public offering.
</TABLE>
-19-
<PAGE> 286
<TABLE>
<CAPTION>
TAX-EXEMPT MONEY MARKET PORTFOLIO(a)
(FOR A SHARE(b) OUTSTANDING THROUGHOUT EACH PERIOD)
INVESTOR A SHARES
SIX
YEAR MONTHS
ENDED ENDED YEAR ENDED
NOV. 30 NOV. 30 MAY 31,
---------- ---------- ----------------------------------------------------------------------------
1996 1995(f) 1995 1994(b) 1993 1992 1991 1990(b)
---------- ---------- ---------- ---------- ---------- --------- --------- ---------
INVESTOR A INVESTOR A INVESTOR A INVESTOR INVESTOR INVESTOR INVESTOR DOLLAR
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- -------- -------- -------- -------- -------- --------
Investment Activities
Net investment income 0.014 0.027 0.017 0.019 0.031 0.047 0.041
------- -------- -------- -------- -------- -------- --------
Distributions
Net investment income (0.014) (0.027) (0.017) (0.019) (0.031) (0.047) (0.041)
------- -------- -------- -------- -------- -------- --------
Net Asset Value,
End of Period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======== ======== ======== ======== ======== ========
Total Return................. 1.45%(d) 2.70% 1.73% 1.90% 3.16% 4.82% 5.73%
Ratios/Supplemental Data:
Net assets at end of period
(000)...................... $ 5,403 $ 5,138 $8,631 $ 6,837 $10,956 $ 8,286 0
Ratio of expenses to
average net assets
(including waivers)......... 0.94%(e) 0.84% 0.76% 0.80% 0.87% 0.58% 0.78%
Ratio of net investment
income to average net
assets
(including waivers)......... 2.87%(e) 2.63% 1.72% 1.88% 3.10% 5.09% 5.30%
Ratio of expenses to
average net assets
(before waivers)*.......... 0.99%(e) 0.93% 0.86% 0.90% 0.97% 0.68% 0.87%
Ratio of net investment
income to average
net assets (before
waivers)*................. 2.82%(e) 2.54% 1.62% 1.78% 3.00% 4.99% 5.21%
PERIOD
YEAR ENDED ENDED
MAY 31, MAY 31,
-----------------------------------
1989(b) 1988(b) 1987(a)
---------- ---------- ---------
DOLLAR DOLLAR PORTFOLIO
SHARES SHARES SHARES
---------- ---------- ---------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period....... $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Investment Activities
Net investment income 0.042 0.0 0.036
-------- -------- --------
Distributions
Net investment income (0.042) (0.025) (0.036)
-------- -------- --------
Net Asset Value,
End of Period............. $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total Return................ 5.72% 1.81% 3.80%(d)
Ratios/Supplemental Data:
Net assets at end of period
(000)..................... $ 3,083 0 $147,799
Ratio of expenses to
average net assets
(including waivers)....... 0.65% 0.65% 0.37%(c),(e)
Ratio of net investment
income to average net
assets
(including waivers)........ 5.38% 4.05% 4.02%(c),(e)
Ratio of expenses to
average net assets
(before waivers)*......... 0.83% 0.80% 0.62%(c),(e)
Ratio of net investment
income to average
net assets (before
waivers)*................ 5.20% 3.90% 3.77%(c),(e)
<FN>
- ------------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) The Portfolio commenced operations on July 10, 1986 as an investment
portfolio of The ARCH Tax-Exempt Trust. On October 27, 1995, it was
reorganized as a new portfolio of the Fund.
(b) "Investor A" Shares were originally issued as "Dollar" Shares in June of
1987. As of September 28, 1990, the Portfolio redesignated its existing
Shares as "Investor" Shares. On September 27, 1994 the Portfolio
redesignated Investor Shares as "Investor A" Shares.
(c) Includes waiver of sub-advisory fees for the period ended May 31, 1987.
(d) Not Annualized.
(e) Annualized.
(f) Upon its reorganization as a portfolio of the Fund, the Portfolio changed
its fiscal year-end from May 31 to November 30.
</TABLE>
-20-
<PAGE> 287
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES PORTFOLIO
(FOR A SHARE(a) OUTSTANDING THROUGHOUT EACH PERIOD)
INVESTOR A SHARES
----------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
---------------------------------------------------------------------------------------
1996 1995 1994(a) 1993 1992 1991(a)
---- ---- ------- ---- ---- -------
INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR
A SHARES A SHARES SHARES SHARES SHARES SHARES 1990 1989
-------- -------- ------ ------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period...................... $10.05 $11.20 $ 10.80 $ 10.68 $ 10.21 $ 10.06 $ 9.94
------ ------ ------- ------- ------- ------- -------
Investment Activities
Net investment income.................... 0.64 0.63 0.59 0.62 0.75 0.76 0.85
Net realized and unrealized gains
(losses) from investments............... 0.80 (0.97) 0.47 0.13 0.47 0.16 0.11
------ ------- ------- ------- ------- ------- -------
Total from Investment Activities......... 1.44 (0.34) 1.06 0.75 1.22 0.92 1.96
------ ------- ------- ------- ------- ------- -------
Distributions
Net investment income.................... (0.64) (0.63) (0.59) (0.62) (0.75) (0.77) (0.84)
Net realized gain........................ _____ (0.07) (0.01)
In excess of net realized gains.......... (0.18)
------ ------- ------- ------- ------- -------- --------
Total Distributions..................... (0.64) (0.81) (0.66) (0.63) (0.75) (0.77) (0.84)
------ ------- ------- ------- ------- ------- -------
Net Asset Value, End of Period............. $10.85 $ 10.05 $ 11.20 $ 10.80 $ 10.68 $ 10.21 $ 10.06
====== ======= ======= ======== ======= ======= =======
Total Return (excludes sales
charges)................................... 14.66% (3.14)% 10.03% 7.20% 12.36% 9.66% 10.40%
Ratios/Supplemental Data:
Net Assets at end of period (000) $8,179 $ 9,631 $ 9,567 $ 7,499 $ 5,791 $ 6,856 $ 5,954
Ratio of expenses to average net
assets (including waivers)............... 0.97% 0.96% 0.97% 0.95% 0.82% 0.73% 0.74%
Ratio of net investment income to
average net assets (including
waivers)................................. 6.05% 5.98% 5.25% 5.72% 7.12% 7.80% 8.50%
Ratio of expenses to average net
assets (before waivers)*................. 1.07% 1.06% 1.08% 1.09% 1.36% 1.28% 1.29%
Ratio of net investment income to
average net assets (before
waivers)*................................ 5.95% 5.88% 5.14% 5.58% 6.58% 7.25% 7.95%
Portfolio turnover......................... 93.76% 50% 24% 74% 36% 53% 84%
INVESTOR B
SHARES
---------------------------
JUNE 2, YEAR
1988 TO ENDED MARCH 1, 1995
NOV. 30, NOV. 30, TO NOV. 30,
1988(b) 1996 1995(c)
--------- -------- -----------
<S> <C> <C>
Net Asset Value,
Beginning of Period..................... $ 10.00 $ 10.34
------- -------
Investment Activities
Net investment income................... 0.36 0.31
Net realized and unrealized gains
(losses) from investments.............. (0.06) 0.50
------- -------
Total from Investment Activities........ 0.30 0.81
------- -------
Distributions
Net investment income................... (0.36) (0.31)
Net realized gain.......................
In excess of net realized gains.........
------- -------
Total Distributions.................... (0.36) (0.31)
------- -------
Net Asset Value, End of Period............ $ 9.94 $ 10.84
======= =======
Total Return (excludes sales
charges).................................. 3.05%(d),(f) 12.85%(e)
Ratios/Supplemental Data:
Net Assets at end of period (000) $ 4,335 $ 41
Ratio of expenses to average net
assets (including waivers).............. 0.79%(g) 1.68%(g)
Ratio of net investment income to
average net assets (including
waivers)................................ 7.26%(g) 5.37%(g)
Ratio of expenses to average net
assets (before waivers)*................ 1.40%(g) 1.78%(g)
Ratio of net investment income to
average net assets (before
waivers)*............................... 6.65%(g) 5.27%(g)
Portfolio turnover........................ 215% 93.76%(g)
<FN>
- -----------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. On September 27, 1994 the Portfolio
redesignated Investor Shares as "Investor A" Shares and authorized the
issuance of a series of Shares designated as "Investor B" Shares.
</TABLE>
-21-
<PAGE> 288
(b) Period from commencement of operations.
(c) Period from date of initial public offering.
(d) Unaudited.
(e) Represents total return for Investor A Shares from December 1, 1994 to
February 28, 1995 plus total return for Investor B Shares from March 1,
1995 to November 30, 1995.
(f) Not Annualized.
(g) Annualized.
-22-
<PAGE> 289
<PAGE> 290
<TABLE>
<CAPTION>
GOVERNMENT & CORPORATE BOND PORTFOLIO
(FOR A SHARE(a) OUTSTANDING THROUGHOUT EACH PERIOD)
INVESTOR A SHARES
YEAR ENDED NOVEMBER 30,
-------------------------------------------------------------------------------------------
1996 1995 1994(a) 1993 1992 1991(a) JUNE 2,
---- ---- ------- ---- ---- ------- 1988 TO
INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR NOV. 30,
A SHARES A SHARES SHARES SHARES SHARES SHARES 1990 1989 1988(b)
-------- -------- ------ ------ ------ ------ ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period............... $19.64 $10.65 $ 10.26 $ 10.15 $ 9.71 $ 10.12 $ 9.91 $ 10.00
------ ------ ------- ------- ------- ------- ------- -------
Investment Activities
Net investment income............. 0.61 0.60 0.64 0.66 0.75 0.84 0.89 0.39
Net realized and unrealized gains
(losses) from investments........ 0.89 (0.94) 0.39 0.11 0.48 (0.41) 0.22 (0.13)
------ ------ ------- ------- ------- ------- ------- -------
Total from Investment Activities.. 1.50 (0.34) 1.03 0.77 1.23 (0.43) 1.11 0.26
------ ------ ------- ------- ------- ------- ------- -------
Distributions
Net investment income............. (0.61) (0.60) (0.64) (0.66) (0.79) (0.84) (0.90) (0.35)
In excess of net realized gains... (0.07)
------ ------ ------- ------- ------- ------- ------- -------
Total Distributions.............. (0.61) (0.67) (0.64) (0.66) (0.79) (0.84) (0.90) (0.35)
------ ------ ------- ------- ------- ------- ------- ------
Net Asset Value, End of Period...... $10.53 $ 9.64 $ 10.65 $ 10.26 $ 10.15 $ 9.71 $ 10.12 $ 9.91
====== ====== ======= ====== ======= ======= ======= ======
Total Return (excludes sales
charges)............................ 15.98% (3.32)% 10.23% 7.81% 12.79% (4.96)% 11.79% 2.66%(d),(f)
Ratios/Supplemental Data:
Net Assets at end of period (000) $5,496 $5,167 $ 3,737 $ 2,490 $ 2,010 $11,005 $10,327 $7,483
Ratio of expenses to average net
assets (including waivers)........ 0.95% 0.95% 0.95% 0.93% 0.59% 0.53% 0.44% 0.56%(g)
Ratio of net investment income to
average net assets (including
waivers).......................... 6.03% 6.00% 6.00% 6.45% 7.77% 8.69% 8.97% 8.47%(g)
Ratio of expenses to average net
assets (before waivers)*.......... 1.05% 1.05% 1.05% 1.06% 1.14% 1.08% 0.99% 1.17%(g)
Ratio of net investment income to
average net assets (before
waivers)*......................... 5.93% 5.90% 5.90% 6.32% 7.22% 8.14% 8.42% 7.86%(g)
Portfolio turnover.................. 59.32% 50% 31% 52% 105% 75% 148% 22%
INVESTOR B
SHARES
--------------------------
YEAR
ENDED MARCH 1, 1995
NOV. 30, TO NOV. 30,
1996 1995(c)
-------- ----------
<S> <C>
Net Asset Value,
Beginning of Period................. $ 9.92
------
Investment Activities
Net investment income............... 0.38
Net realized and unrealized gains
(losses) from investments.......... 0.61
------
Total from Investment Activities.... 0.99
------
Distributions
Net investment income............... (0.38)
In excess of net realized gains.....
------
Total Distributions................ (0.38)
------
Net Asset Value, End of Period........ $10.53
======
Total Return (excludes sales
charges).............................. 15.27%(e)
Ratios/Supplemental Data:
Net Assets at end of period (000) $ 106
Ratio of expenses to average net
assets (including waivers).......... 1.65%(g)
Ratio of net investment income to
average net assets (including
waivers)............................ 5.19%(g)
Ratio of expenses to average net
assets (before waivers)*............ 1.75%(g)
Ratio of net investment income to
average net assets (before
waivers)*........................... 5.09%(g)
Portfolio turnover.................... 59.32%(g)
<FN>
- -----------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. On September 27, 1994 the Portfolio
redesignated Investor Shares as "Investor A" Shares and authorized the
issuance of a series of Shares designated as "Investor B" Shares.
(b) Period from commencement of operations.
</TABLE>
-23-
<PAGE> 291
(c) Period from date of initial public offering.
(d) Unaudited.
(e) Represents total return for Investor A Shares from December 1, 1994 to
February 28, 1995 plus total return for Investor B Shares from March 1,
1995 to November 30, 1995.
(f) Not Annualized.
(g) Annualized.
-24-
<PAGE> 292
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
YEAR ENDED JULY 10, 1995 TO
NOVEMBER 30, NOVEMBER 30,
1996 1995(a)
------------ -----------
INVESTOR A INVESTOR A
SHARES SHARES
<S> <C> <C>
Net Asset Value, Beginning of Period............................ $ 10.00
-------
Investment Activities
Net investment income......................................... --
Net realized and unrealized gains
(losses) from investments................................... 0.08
-------
Total from Investment Activities............................ 0.08
-------
Distributions
Net investment income......................................... --
--
Total Distributions......................................... --
--
Net Asset Value, End of Period.................................. $ 10.08
=======
Total Return.................................................... 0.80%(b)
Ratios/Supplemental Data:
Net assets at end of period (000)............................... ______ (c)
Ratio of expenses to average net assets......................... 0.00%(d)
(including waivers)
Ratio of net investment income
to average net assets (including
waivers)...................................................... 0.00%(d)
Ratio of expenses to average net assets
(before waivers)*............................................. 0.00%(d)
Ratio of net investment income
to average net assets (before
waivers)*..................................................... 0.00%(d)
Portfolio turnover.............................................. 0.00%
<FN>
- -----------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not Annualized.
(c) Only one share, worth $10.08, was outstanding as of November 30, 1995.
(d) Annualized.
</TABLE>
-25-
<PAGE> 293
<TABLE>
<CAPTION>
MISSOURI TAX-EXEMPT BOND PORTFOLIO(a)
(FOR A SHARE(b) OUTSTANDING THROUGHOUT EACH PERIOD)
INVESTOR A SHARES
----------------------------------------------------------------------------------
SIX
YEAR MONTHS
ENDED ENDED YEAR ENDED
NOV. 30 NOV. 30 MAY 31,
1996 1995(c) 1995(b) 1994 1993 1992 1991(b)
---- ------- ------- ---- ---- ---- -------
INVESTOR A INVESTOR A INVESTOR A INVESTOR INVESTOR INVESTOR INVESTOR
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.................. $ 11.52 $ 11.13 $ 11.54 $ 10.97 $ 10.62 $10.35
---------- ------- ------- ------- ------- ------
Investment Activities
Net investment income................ 0.27 0.55 0.55 0.58 0.63 0.44
Net realized and unrealized
gains (losses) on
investments........................ 0.22 0.40 (0.37) 0.64 0.43 0.36
---------- ------- -------- ------- ------- -------
Total from Investment
Activities......................... 0.49 0.95 0.18 1.22 1.06 0.80
---------- ------- ------- ------- ------- -------
Distributions
Net investment income................ (0.27) (0.55) (0.55) (0.58) (0.63) (0.44)
Net realized gains................... (0.01) (0.04) (0.07) (0.08) (0.09)
---------- ------- ------- ------- ------- -------
Total Distributions.................. (0.27) (0.56) (0.59) (0.65) (0.71) (0.53)
---------- ------- ------- ------- ------- -------
Net Asset Value, End of Period......... $ 11.74 $ 11.52 $ 11.13 $ 11.54 $ 10.97 $ 10.62
========== ======= ======= ======= ======= =======
Total Return (excludes sales
charges)............................. 4.32%(g) 8.91% 1.53% 11.47% 10.24% 8.72%
Ratios/Supplemental Data:
Net assets at end of period (000) $ 24,726 $24,318 $27,919 $23,223 $12,635 $ 6,211
Ratio of expenses to average
net assets (including
waivers)............................. 0.95%(h) 0.84% 0.65% 0.63% 0.85% 0.85%3
Ratio of net investment income
to average net assets (including
waivers)............................. 4.64%(h) 5.02% 4.75% 5.11% 5.75% 6.12%3
Ratio of expenses to average
net assets (before waivers)*......... 1.18%(h) 1.18% 1.12% 1.18% 1.49% 1.63%
Ratio of net investment income to
average net assets (before
waivers)*............................ 4.44%(h) 4.68% 4.28% 4.56% 5.11% 5.34%
Portfolio turnover rate................ 1.55% 0% 20% 15% 21% 71%
MISSOURI TAX-EXEMPT BOND PORTFOLIO(A)
(FOR A SHARE(B) OUTSTANDING THROUGHOUT EACH PERIOD)
INVESTOR A SHARES
-----------------------------------------
PERIOD INVESTOR B
ENDED SHARES
MAY 31, ------------------------------------
1992 1989(a),(b) YEAR SIX MONTHS
---- ----------- ENDED ENDED
PORTFOLIO PORTFOLIO NOV. 30, NOV. 30, MARCH 1, 1995 TO
SHARES SHARES 1996 1995(c) MAY 31, 1995(d)
--------- ----------- ---- ------- ---------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.................. $10.56 $10.00 $11.52 $11.19
------ ------ ------ ------
Investment Activities
Net investment income................ 0.68 0.58 0.22 0.11
Net realized and unrealized
gains (losses) on
investments........................ (0.09) 0.58 0.22 0.33
-------- ------- ------ ------
Total from Investment
Activities......................... 0.59 1.16 0.44 0.44
------- ------- ------ ------
Distributions
Net investment income................ (0.65) (0.60) (0.22) (0.11)
Net realized gains...................
Total Distributions.................. (0.65) (0.60) (0.22) (0.11)
------- ------- ------ ------
Net Asset Value, End of Period......... $ 10.50 $ 10.56 $11.74 $11.52
======= ======= ====== ======
Total Return (excludes sales
charges)............................. 5.50% 12.08%(f) 3.88%(g) 8.61%(e)
Ratios/Supplemental Data:
Net assets at end of period (000) $ 4,572 $ 4,053 $ 433 $ 94
Ratio of expenses to average
net assets (including
waivers)............................. 0.70% 0.81%(h) 1.77%(h) 1.76%(h)
Ratio of net investment income
to average net assets (including
waivers)............................. 6.38% 6.36%(h) 3.82%(h) 4.00%(h)
Ratio of expenses to average
net assets (before waivers)*......... 1.70% 1.38%(h) 1.87%(h) 1.88%(h)
Ratio of net investment income to
average net assets (before
waivers)*............................ 5.38% 5.79%(h) 3.72%(h) 3.89%(h)
Portfolio turnover rate................ 41% 73%* 1.55% 0.00%
<FN>
- -----------------------------
* During the period, certain fees were voluntary reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) The Portfolio (formerly, the Long-Term Tax-Exempt Portfolio) commenced
operations on July 15, 1988 as an investment portfolio of The ARCH
Tax-Exempt Trust. On October 2, 1995, it was reorganized as a new portfolio
of the Fund.
(b) The Portfolio had one series of Shares outstanding ("Portfolio Shares")
through September 27, 1990. On September 28, 1990, the Portfolio issued a
second series of Shares that were designated as "Investor" Shares. On
September 27, 1994, the Portfolio redesignated Investor Shares as "Investor
A" Shares and authorized the issuance of a series of Shares designated as
"Investor B" Shares.
(c) Upon its reorganization as a portfolio of the Fund, the Portfolio changed
its fiscal year-end from May 31 to November 30.
</TABLE>
-26-
<PAGE> 294
(d) For period from date of initial public offering.
(e) Represents total return for Investor A Shares from June 1, 1994 to February
28, 1995 plus total return for Investor B Shares from March 1, 1995 to May
31, 1995.
(f) Aggregate.
(g) Not Annualized.
(h) Annualized.
-27-
<PAGE> 295
<TABLE>
<CAPTION>
NATIONAL MUNICIPAL BOND PORTFOLIO
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
NOV. 18, 1996 NOV. 30, 1996
THROUGH THROUGH
NOV. 30, 1996(a) NOV. 30, 1996(a)
---------------- ----------------
INVESTOR A INVESTOR B
<S> <C> <C>
Net Asset Value, Beginning of Period............................
Investment Activities
Net investment income.........................................
Net realized and unrealized gains
(losses) from investments...................................
Total from Investment Activities............................
Distributions
Net investment income.........................................
Total Distributions.........................................
Net Asset Value, End of Period..................................
Total Return....................................................
Ratios/Supplemental Data:
Net assets at end of period (000)...............................
Ratio of expenses to average net assets.........................
(including waivers)
Ratio of net investment income
to average net assets (including
waivers)......................................................
Ratio of expenses to average net assets
(before waivers)*.............................................
Ratio of net investment income
to average net assets (before
waivers)*.....................................................
Portfolio turnover..............................................
<FN>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
</TABLE>
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<PAGE> 296
<TABLE>
GROWTH & INCOME EQUITY PORTFOLIO
(FOR A SHARE(A) OUTSTANDING THROUGHOUT EACH PERIOD)
<CAPTION>
INVESTOR A SHARES
--------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
--------------------------------------------------------------------------------------
1996 1995 1994(a) 1993 1992 1991(a)
---- ---- ------- ---- ---- -------
INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR
A SHARES A SHARES SHARES SHARES SHARES SHARES 1990 1989
-------- -------- ------ ------ ------ ------ ------- ------
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning of Period...................... $12.70 $14.74 $14.49 $12.33 $11.22 $12.41 $10.25
------ ------- ------- ------- ------- ------- -------
Investment Activities
Net investment income.................... 0.23 0.20 0.25 0.25 0.39 0.39 0.41
Net realized and unrealized gains
(losses) from investments............... 3.74 (0.17) 1.06 2.24 1.47 (0.56) 2.29
------ -------- ------ ------- ------- -------- -------
Total from Investment Activities......... 3.97 0.03 1.31 2.49 1.86 (0.17) 2.70
------ ------- ------ ------- ------- -------- -------
Distributions
Net investment income.................... (0.23) (0.21) (0.25) (0.26) (0.39) (0.39) (0.51)
Net realized gain........................ (0.14) (0.18) (0.81) (0.07) (0.36) (0.63) (0.03)
In excess of net realized gains.......... (1.68)
------- -------- ------ ------- ------- -------- -------
Total Distributions..................... (0.37) (2.07) (1.06) (0.33) (0.75) (1.02) (0.54)
------- -------- ------- -------- ------- -------- --------
Net Asset Value, End of Period............. $16.30 $12.70 $14.74 $14.49 $12.33 $11.22 $12.41
====== ====== ====== ====== ====== ====== ======
Total Return (excludes sales charges)......
31.95% 0.20% 9.65% 20.59% 17.39% (1.36)% 27.11%
Ratios/Supplemental Data:
Net Assets at end of period (000) $25,082 $18,343 $11,157 $6,044 $3,254 $20,116 $17,892
Ratio of expenses to average net
assets (including waivers)............... 1.05% 1.05% 0.74% 0.71% 0.34% 0.35% 0.42%
Ratio of net investment income to
average net assets (including
waivers)................................. 1.59% 1.45% 1.74% 1.94% 3.50% 3.42% 3.69%
Ratio of expenses to average net
assets (before waivers)*................. 1.15% 1.15% 0.96% 0.85% 1.05% 1.00% 1.07%
Ratio of net investment income to
average net assets (before
waivers)*................................ 1.49% 1.35% 1.52% 1.80% 2.79% 2.77% 3.04%
Portfolio turnover......................... 58.50% 65% 41% 79% 78% 227% 133%
<CAPTION>
INVESTOR A SHARES INVESTOR B. SHARES
------------------------ ---------------------------------
JUNE 2,
1988 TO YEAR ENDED MARCH 1, 1995
NOV. 30, NOVEMBER 30, TO NOV. 30,
1988(b) 1996 1995(c)
-------- ----------- ------------
Net Asset Value,
<S> <C> <C> <C>
Beginning of Period...................... $10.00 $13.43
------ ------
Investment Activities
Net investment income.................... 0.28 0.14
Net realized and unrealized gains
(losses) from investments............... (0.06) 2.81
------- ------
Total from Investment Activities......... 0.34 2.95
------ ------
Distributions
Net investment income.................... (0.09) (0.15)
Net realized gain........................
In excess of net realized gains..........
Total Distributions..................... (0.09) (0.15)
------- -------
Net Asset Value, End of Period............. $10.25 $16.23
====== ======
Total Return (excludes sales charges)......
3.46%(d),(f) 31.20%(e)
Ratios/Supplemental Data:
Net Assets at end of period (000) $10,890 $ 781
Ratio of expenses to average net
assets (including waivers)............... 0.41%(g) 1.75%(g)
Ratio of net investment income to
average net assets (including
waivers)................................. 5.62%(g) 0.87%(g)
Ratio of expenses to average net
assets (before waivers)*................. 1.12%(g) 1.85%(g)
Ratio of net investment income to
average net assets (before
waivers)*................................ 4.91%(g) 0.77%(g)
Portfolio turnover......................... 30% 58.50%(g)
</TABLE>
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<PAGE> 297
- -------------------
* During the period, fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. On September 27, 1994 the Portfolio
redesignated Investor Shares as "Investor A" Shares and authorized the
issuance of a series of Shares designated as "Investor B" Shares.
(b) Period from commencement of operations.
(c) Period from date of initial public offering.
(d) Unaudited.
(e) Represents total return for Investor A Shares from December 1, 1994 to
February 28, 1995 plus total return for Investor B Shares from March 1,
1995 to November 30, 1995.
(f) Not Annualized.
(g) Annualized.
-30-
<PAGE> 298
<TABLE>
SMALL CAP EQUITY PORTFOLIO(a)
(FOR A SHARE(b) OUTSTANDING THROUGHOUT EACH PERIOD)
<CAPTION>
INVESTOR A SHARES
--------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED MAY 6, 1992
NOV. 30, NOV. 30, NOV. 30, NOV. 30, TO NOV. 30,
1996 1995 1994(a) 1993 1992(b)
---------- ----------- ----------- ----------- ------------
INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR
A SHARES A SHARES A SHARES A SHARES A SHARES
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period .............. $ 11.99 $13.14 $11.23 $10.10
Investment Activities
Net investment income (loss) ..... (0.03) 0.03 0.02
Net realized and unrealized
gains from investments .......... 2.36 0.89 2.14 1.13
------- ------ ------ ------
Total from Investment
Activities ...................... 2.36 0.86 2.17 1.15
------- ------ ------ ------
Distributions
Net investment income ............ (0.05) (0.02)
Net realized gains ............... (0.91) (1.78) (0.21)
In excess of net
realized gains .................. (0.23)
------- ------ ------ ------
Total Distributions ............. (0.91) (2.01) (0.26) (0.02)
------- ------ ------ ------
Net Asset Value, End of Period ..... $ 13.44 $ 11.99 $13.14 $11.23
======= ======= ====== ======
Total Return (excludes
sales charges) ................... 21.47% 7.38% 19.75% 12.55%(f)
Ratios/Supplemental Data:
Net Assets at end of period (000) $15,056 $10,899 $4,559 $753
Ratio of expenses to average net
assets (including waivers) ....... 1.26% 1.25% 0.61% 0.30%(g)
Ratio of net investment income to
average net assets (including
waivers) ......................... (0.12)% (0.44)% 0.19% 0.78%(g)
Ratio of expenses to average net
assets (before waivers)* ......... 1.36% 1.36% 1.23% 1.12%(g)
Ratio of net investment income to
average net assets (before
waivers)* ........................ (0.22)% (0.55)% (0.43)% (0.04)%(g)
Portfolio turnover ................. 83.13% 85% 65% 56%
<CAPTION>
INVESTOR B SHARES
-------------------------------------------
MARCH 1, 1995 TO
YEAR ENDED NOV. 30,
NOV. 30, 1996 1995(d)
--------------------- ------------------
INVESTOR INVESTOR
B SHARES B SHARES
--------------------- -------------------
<S> <C> <C>
Net Asset Value,
Beginning of Period .............. $11.83
Investment Activities
Net investment income (loss) ..... (0.03)
Net realized and unrealized
gains from investments .......... 1.57
-------
Total from Investment
Activities ...................... 1.54
-------
Distributions
Net investment income ............
Net realized gains ...............
In excess of net
realized gains ..................
------
Total Distributions .............
------
Net Asset Value, End of Period ..... $13.37
======
Total Return (excludes
sales charges) ................... 20.83%(e)
Ratios/Supplemental Data:
Net Assets at end of period (000) $ 603
Ratio of expenses to average net
assets (including waivers) ....... 1.96%(g)
Ratio of net investment income to
average net assets (including
waivers) ......................... (0.78%)(g)
Ratio of expenses to average net
assets (before waivers)* .........
2.06%(g)
Ratio of net investment income to
average net assets (before
waivers)* ........................ (0.88%)(g)
Portfolio turnover ................. 83.13%
- ----------------
<FN>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
</TABLE>
-31-
<PAGE> 299
(a) The Emerging Growth Portfolio changed its name to Small Cap Equity
Portfolio on December 1, 1996.
(b) On May 6, 1992, the Portfolio issued a series of Shares which were
designated as "Investor" Shares. On September 27, 1994 the Portfolio
redesignated Investor Shares as "Investor A" Shares and authorized the
issuance of a series of Shares designated as "Investor B" Shares.
(c) Period from commencement of operations.
(d) Period from date of initial public offering.
(e) Represents total return for Investor A Shares from December 1, 1994 to
February 28, 1995 plus total return for Investor B Shares from March 1,
1995 through November 30, 1995.
(f) Not Annualized.
(g) Annualized.
-32-
<PAGE> 300
INTERNATIONAL EQUITY PORTFOLIO
(FOR A SHARE(a) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INVESTOR A SHARES
---------------------------------------------------
YEAR ENDED YEAR ENDED APRIL 4, 1993 INVESTOR B
NOV. 30, NOV. 30, TO NOV. 30, SHARES
1996 1995 1994(a)(b)(c) -----------------------------
---------- ---------- ------------------ YEAR ENDED MARCH 1, 1995 TO
INVESTOR INVESTOR INVESTOR NOVEMBER 30, NOVEMBER 30,
A SHARES A SHARES A SHARES 1996 1995(d)
---------- ---------- --------------- ------------ ---------------
Net Asset Value,
<S> <C> <C> <C>
Beginning of Period ........... $ 9.90 $ 10.00 $ 9.26
--------- ------- ---------
Investment Activities
Net investment income (loss) .. 0.02 (0.01) (0.03)
Net realized and unrealized
gains from investments and ...
foreign currency ............. 0.86 (0.09) 1.48
-------- ------- ---------
1.45
Total from Investment ---------
Activities ................... 0.88 (0.10)
-------- ------- ---------
Distributions
Net investment income ......... (0.01)
Tax return of capital ......... (0.01)
--------- -------- ---------
Total Distributions .......... (0.02)
--------- --------
Net Asset Value, End of Period .. $ 10.76 $ 9.90 $ 10.71
========= ======== =========
Total Return (excludes ..........
sales charges) ................ 8.89% (1.00%)(f) 8.38%(e)
Ratios/Supplemental Data:
Net Assets at end of period (000) $ 1,568 $ 791 $102
Ratio of expenses to average net
assets (including waivers) .... 1.45% 1.55%(g) 2.02%(g)
Ratio of net investment income to
average net assets (including
waivers) ...................... 0.07% (0.39%)(g) (0.96%)(g)
Ratio of expenses to average net
assets (before waivers)* ...... 1.76% 1.89%(g) 2.44%(g)
Ratio of net investment income to
average net assets (before
waivers)* ..................... (0.24)% (0.73)%(g) (1.38%)(g)
Portfolio turnover .............. 62.78% 21% 62.78%
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
</TABLE>
-33-
<PAGE> 301
(b) On April 4, 1994, the Portfolio issued a series of Shares which were
designated as "Trust" Shares. In addition, on May 2, 1994, the Portfolio
issued a new series of Shares which were designated as "Investor" Shares.
The financial highlights presented for April 4, 1994 to May 2, 1994
represent financial highlights applicable to Trust Shares.
(c) On September 27, 1994, the Portfolio redesignated Investor Shares as
"Investor A" Shares and authorized the issuance of a series of Shares
designated as "Investor B" Shares.
(d) Period from date of initial public offering.
(e) Represents total return for Investor A Shares from December 1, 1994 to
February 28, 1995 plus total return for Investor B Shares from March 1,
1995 through November 30, 1995.
(f) Not Annualized.
(g) Annualized.
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<PAGE> 302
BALANCED PORTFOLIO
(FOR A SHARE(a) OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
INVESTOR B
INVESTOR A SHARES SHARES
------------------------------------------------------- --------------------------------
APRIL 1, Year Ended March 1, 1995 to
YEAR ENDED YEAR ENDED YEAR ENDED 1993 November 30, November 30,
NOV. 30, NOV. 30, NOV. 30 TO NOV. 30, 1996 1995(c)
1996 1995 1994 1993(b) ----------- ----------------
---------- ---------- ---------- ----------
INVESTOR INVESTOR INVESTOR INVESTOR
A SHARES A SHARES A SHARES A SHARES
-------- -------- -------- ------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ............ $ 9.61 $ 10.22 $ 10.00 $ 10.13
--------- --------- --------- ---------
Investment Activities
Net investment income (loss) ... 0.32 0.28 0.23 (0.22)
Net realized and unrealized
gains from investments ........ 2.02 (0.47) 0.15 1.44
--------- --------- --------- ---------
Total from Investment .......... 1.66
---------
Activities .................... 2.34 (0.19) 0.38
--------- --------- --------- ---------
Distributions
Net investment income .......... (0.30) (0.29) (0.16) (0.20)
Net realized gains
In excess of net
realized gains ................ (0.13)
--------- --------- --------- ---------
Total Distributions ........... (0.30) (0.42) (0.16) (0.20)
--------- --------- --------- ---------
Net Asset Value, End of Period ... $ 11.65 $ 9.61 $ 10.22 $ 11.59
========= ========= ========= =========
Total Return (excludes
sales charges) ................. 24.85% (1.91%) 3.86%(e) 23.92%(d)
Ratios/Supplemental Data:
Net Assets at end of period (000) $ 8,348 $ 7,321 $ 1,978 $ 36
Ratio of expenses to average net
assets (including waivers) ..... 1.27% 1.27% 0.56%(f) 1.93%(f)
Ratio of net investment income to
average net assets (including
waivers) ....................... 2.98% 2.77% 3.42%(f) 2.28%(f)
Ratio of expenses to average net
assets (before waivers)* ....... 1.37% 1.39% 1.21%(f) 2.03%(f)
Ratio of net investment income to
average net assets (before
waivers)* ...................... 2.88% 2.65% 2.77%(f) 2.18%(f)
Portfolio turnover ............... 58.16% 49% 26%(f) 58.16%
</TABLE>
-35-
<PAGE> 303
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) On September 27, 1994, the Portfolio redesignated Investor Shares as
"Investor A" Shares and authorized the issuance of a series of Shares
designated as "Investor B" Shares.
(b) Period from commencement of operations.
(c) Period from date of initial public offering.
(d) Represents total return for Investor A Shares from December 1, 1994 to
February 28, 1995 plus total return for Investor B Shares from March 1,
1995 through November 30, 1995.
(e) Not Annualized.
(f) Annualized.
-36-
<PAGE> 304
INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS
Although management will use its best efforts to achieve the investment
objective of each Portfolio, there can be no assurance that it will be able to
do so. The investment objective of each Portfolio, other than the Bond Index and
Equity Index Portfolios, may not be changed without the affirmative vote of a
majority of the outstanding Shares of the Portfolio. The investment objectives
of the Bond Index and Equity Index Portfolios may be changed by the Fund's Board
of Directors without shareholder approval, although shareholders of these
Portfolios will be given at least 30 days' written notice before any such change
occurs. The Treasury Money Market, Money Market and Tax-Exempt Money Market
Portfolios are "money market" funds that invest in instruments with remaining
maturities of 397 days or less (with certain exceptions) and with
dollar-weighted average portfolio maturities of 90 days or less, subject to the
quality, diversification and other requirements of Rule 2a-7 under the
Investment Company Act of 1940, as amended, (the "1940 Act") and other rules of
the Securities and Exchange Commission (the "SEC").
THE TREASURY MONEY MARKET PORTFOLIO
The Treasury Money Market Portfolio's investment objective is to seek a
high level of current income exempt from state income tax consistent with
liquidity and security of principal. In pursuing its investment objective, the
Portfolio invests in selected money market obligations issued by the U.S.
Government (or its agencies and instrumentalities) that are guaranteed as to
principal and interest by the U.S. Government, the interest on which is
generally exempt from state income tax. Securities that are generally eligible
for this exemption include those issued by the U.S. Treasury (bills,
certificates of indebtedness, notes and certain bonds) and certain U.S.
Government agencies and instrumentalities, including the General Services
Administration and Small Business Administration. Each investor should consult
his or her tax advisor to determine whether distributions from the Portfolio are
exempt from state income tax in the investor's home state. Under normal market
conditions, the Portfolio intends to invest substantially all (but not less than
65%) of its total assets in securities with the above characteristics and
(except to the extent discussed below) will not enter into
repurchase agreements or purchase any U.S. Government security
that the Adviser believes is subject to state income tax.
Under extraordinary circumstances, such as when appropriate exempt
securities are unavailable or pending investment, the Treasury Money Market
Portfolio may temporarily hold cash or invest in repurchase agreements
collateralized by U.S. Government securities, other U.S. Government agency or
instrumentality securities, securities of other investment companies that invest
-37-
<PAGE> 305
in securities in which the Portfolio is permitted to invest, or cash
equivalents.
THE MONEY MARKET PORTFOLIO
The Money Market Portfolio's investment objective is to seek current
income with liquidity and stability of principal. In pursuing its investment
objective, the Portfolio invests substantially all of its assets in a broad
range of money market instruments. These instruments include obligations of the
U.S. Government, U.S. dollar-denominated foreign securities, obligations of U.S.
and foreign banks and savings and loan institutions and commercial obligations
that meet the applicable quality requirements described below.
The Money Market Portfolio will purchase only "First Tier Eligible
Securities" (as defined by the SEC) that present minimal credit risks as
determined by the Adviser pursuant to guidelines approved by the Fund's Board of
Directors. First Tier Eligible Securities consist of (i) securities that either
(a) have short-term debt ratings at the time of purchase in the highest rating
category by at least two unaffiliated nationally recognized statistical rating
organizations ("Rating Agencies") (or one Rating Agency if the security was
rated by only one Rating Agency), or (b) are issued by issuers with such
ratings, and (ii) certain securities that are unrated (including securities of
issuers that have long-term but not short-term ratings) but are of comparable
quality as determined in accordance with guidelines approved by the Board of
Directors. The applicable ratings by Rating Agencies are described in Appendix A
to the Statement of Additional Information. The following descriptions
illustrate the types of instruments in which the Portfolio invests.
BANKING OBLIGATIONS. The Money Market Portfolio may purchase
obligations of issuers in the banking industry, such as certificates of deposit,
letters of credit, bankers' acceptances and time deposits, including U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions having total assets at the time of
purchase in excess of $1 billion. The Portfolio may invest in obligations of
foreign banks or foreign branches of U.S. banks in amounts not in excess of 25%
of its assets where the Adviser deems the instrument to present minimal credit
risks. (See "Risk Factors -- Risks Associated with Foreign Securities and
Currencies" below.) The Portfolio may also make interest-bearing savings
deposits in commercial and savings banks in amounts not in excess of 5% of the
value of its total assets.
COMMERCIAL PAPER AND VARIABLE AND FLOATING RATE INSTRUMENTS.
The Portfolio may invest in commercial paper, including asset-
backed commercial paper representing interests in a pool of corporate
receivables, dollar-denominated obligations issued by
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<PAGE> 306
domestic and foreign bank holding companies, and corporate bonds that meet the
quality and maturity requirements described above. The Portfolio may also invest
in variable or floating rate notes that may have a stated maturity in excess of
thirteen months but will, in any event, permit the Portfolio to demand payment
of the principal of the instrument at least once every thirteen months upon no
more than 30 days' notice (unless the instrument is guaranteed by the U.S.
Government or an agency or instrumentality thereof). Such instruments may
include variable amount master demand notes, which are unsecured instruments
that permit the indebtedness thereunder to vary in addition to providing for
periodic adjustments in the interest rate. Unrated variable and floating rate
instruments will be determined by the Adviser (under the supervision of the
Board of Directors) to be of comparable quality at the time of purchase to First
Tier Eligible Securities. There may be no active secondary market in the
instruments, which could make it difficult for the Portfolio to dispose of an
instrument in the event the issuer were to default on its payment obligation or
during periods that the Portfolio could not exercise its demand rights. The
Portfolio could, for these or other reasons, suffer a loss with respect to such
instruments. Variable and floating rate instruments held by the Portfolio will
be subject to the Portfolio's 10% limitation on illiquid investments when the
Portfolio may not demand payment of the principal amount within seven days and a
liquid trading market is absent.
GOVERNMENT OBLIGATIONS. The Money Market Portfolio may invest in
obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities. In addition, the Portfolio may, when deemed appropriate by
the Adviser, invest in short-term obligations issued by state and local
governmental issuers that meet the quality requirements described above and, as
a result of the Tax Reform Act of 1986, carry yields that are competitive with
those of other types of money market instruments of comparable quality.
THE TAX-EXEMPT MONEY MARKET PORTFOLIO
The Tax-Exempt Money Market Portfolio's investment objective is to seek
as high a level of current interest income exempt from federal income tax as is
consistent with liquidity and stability of principal. The Portfolio seeks to
achieve its objective by investing substantially all of its assets in short-term
obligations issued by or on behalf of states, territories and possessions of the
United States, the District of Columbia and their respective political
subdivisions, agencies, instrumentalities and authorities the interest on which,
in the opinion of bond counsel or counsel to the issuer, is exempt from regular
federal income tax (collectively, "Municipal
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<PAGE> 307
Obligations"). The Portfolio may also hold tax-exempt derivative securities such
as tender option bonds, participations, beneficial interests in trusts and
partnership interests.
The Tax-Exempt Money Market Portfolio will purchase only "First Tier
Eligible Securities" (as defined by the SEC) that present minimal credit risks
as determined by the Adviser pursuant to guidelines approved by the Board of
Directors. See "The Money Market Portfolio" above for a description of "First
Tier Eligible Securities".
Dividends paid by the Tax-Exempt Money Market Portfolio that are
derived from interest attributable to tax-exempt obligations of a particular
state and its political subdivisions as well as of certain other governmental
issuers including Puerto Rico, Guam and the Virgin Islands may be exempt from
federal and state income tax. Dividends derived from interest on obligations of
other governmental issuers are exempt from federal income tax but may be subject
to state income tax.
As a matter of fundamental policy, under normal market conditions or
when the Adviser deems suitable tax-exempt Municipal Obligations to be
available, at least 80% of the Tax-Exempt Money Market Portfolio's total assets
will be invested in Municipal Obligations. The Portfolio may hold uninvested
cash reserves pending investment during temporary defensive periods or if, in
the opinion of the Adviser, suitable Municipal Obligations are unavailable.
There is no percentage limitation on the amount of assets which may be held
uninvested during temporary defensive periods.
In addition, during temporary defensive periods or if, in the opinion
of the Adviser, suitable Municipal Obligations are unavailable and subject to
the quality standards described above, the Tax-Exempt Money Market Portfolio may
invest up to 20% of its assets in money market instruments, the income from
which is subject to federal income tax. Such instruments may include obligations
of the U.S. Government, its agencies or instrumentalities; debt securities
(including commercial paper) of issuers having, at the time of purchase, a
quality rating within the highest rating category by a Rating Agency;
certificates of deposit or bankers' acceptances of domestic branches of U.S.
banks with total assets at the time of purchase of $1 billion or more; or
repurchase agreements with respect to such obligations.
THE U.S. GOVERNMENT SECURITIES PORTFOLIO
The U.S. Government Securities Portfolio's investment objective is to
seek a high rate of current income that is consistent with relative stability of
principal. In pursuing its investment objective, the Portfolio invests in
obligations
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issued or guaranteed by the U.S. Government, its agencies or
instrumentalities normally having remaining maturities of 1 to 30 years and
repurchase agreements relating to such obligations . (For further information,
see "Other Applicable Policies -- U.S. Government Obligations" below.)
Consistent with its investment policies, the U.S. Government Securities
Portfolio may invest in mortgage-backed securities, including those representing
an undivided ownership interest in a pool of mortgage loans, such as
certificates issued by the Government National Mortgage Association ("GNMA"),
the Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC") and collateralized mortgage obligations ("CMOs").
For further information regarding these instruments, see "Other Applicable
Policies -- Asset-Backed Securities" below.
THE INTERMEDIATE CORPORATE BOND PORTFOLIO
The Intermediate Corporate Bond Portfolio's investment objective is to
seek as high a level of current income as is consistent with preservation of
capital. In pursuing its investment objective, the Portfolio will invest, under
normal market and economic conditions, at least 65% of its total assets in
non-convertible corporate debt obligations, which shall mean obligations of (i)
domestic or foreign business corporations, or (ii) agencies, instrumentalities
or authorities which are organized in corporate form by one or more states or
political subdivisions in the United States or one or more foreign governments.
The Portfolio may also invest in obligations issued or guaranteed by the U.S. or
foreign governments, their agencies or instrumentalities, and asset-backed
securities, including various collateralized mortgage obligations and other
mortgage-related securities. For further information regarding these
instruments, see "Other Applicable Policies -- Asset-Backed Securities" below.
In making investment decisions, the Adviser will consider a number of factors
including current yield, maturity, yield to maturity, anticipated changes in
interest rates, and the overall quality of the investment. The Portfolio seeks
to provide a current yield greater than that generally available from money
market instruments.
The Portfolio may purchase debt securities which are rated at the time
of purchase in one of the four highest rating categories assigned by one or more
Rating Agencies or in unrated debt securities deemed by the Adviser to be of
comparable quality. Under normal market and economic conditions, however, the
Portfolio intends to invest at least 65% of its total assets in debt obligations
rated in one of the three highest rating categories assigned by one or more
Rating Agencies (or unrated debt obligations determined to be of comparable
quality). Securities that are rated in the lowest of the four highest
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rating categories have speculative characteristics, even though they are of
investment grade quality, and such securities will be purchased (and retained)
only if the Adviser believes that the issuers have an adequate capacity to pay
interest and repay principal. Unrated debt securities 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. Debt
securities 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 to 60 days. The applicable ratings
issued by the Rating Agencies are described in the Appendix to the Statement of
Additional Information.
The Portfolio reserves the right to hold as a temporary defensive
measure up to 100% of its total assets in cash and short-term obligations
(having remaining maturities of 13 months or less) at such times and in such
proportions as, in the opinion of the Adviser, prevailing market or economic
conditions warrant. Short-term obligations in which the Portfolio may invest
include (i) money market instruments, such as commercial paper, including
variable and floating rate instruments, rated at the time of purchase in one of
the two highest rating categories assigned by a Rating Agency or, if unrated,
deemed to be of comparable quality by the Adviser at the time of purchase, and
bank obligations, including bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits of U.S. and foreign banks having total
assets at the time of purchase in excess of $1 billion, (ii) obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, and
(iii) repurchase agreements. For further information regarding variable and
floating rate instruments, see "The Money Market Portfolio -- Commercial Paper
and Variable and Floating Rate Instruments" above. Although the Portfolio will
invest in obligations of foreign banks or foreign branches of U.S. banks only
when the Adviser determines that the instrument presents minimal credit risks,
such investments nevertheless entail risks that are different from those of
investments in domestic obligations of U.S. banks. See "Risk Factors -- Risks
Associated with Foreign Securities and Currencies" below. Investments in
the obligations of foreign banks or foreign branches of U.S.
banks will not exceed 25% of the Portfolio's total assets at the
time of purchase.
The Portfolio's average weighted maturity will be between three and ten
years and will vary in light of current market and economic conditions, the
comparative yields on instruments with different maturities, and other factors.
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THE BOND INDEX PORTFOLIO
The Bond Index Portfolio seeks to provide investment results that,
before deduction of operating expenses, approximate the price and yield
performance of U.S. Government, mortgage-backed, asset-backed and corporate debt
securities as represented by the Lehman Brothers Aggregate Bond Index (the
"Lehman Aggregate").
The Portfolio is not managed in a traditional sense, that is, by making
discretionary judgments based on analysis of economic, financial and market
conditions. Instead, the Portfolio uses an investment strategy called "indexing"
whereby it seeks to approximate the investment performance of the market segment
comprised of U.S. Government, mortgage-backed, asset-backed and corporate debt
securities, as represented by the Lehman Aggregate, through the use of
sophisticated computer models to determine which securities should be purchased
or sold, while keeping transaction and administrative costs to a minimum. The
Portfolio will invest substantially all of its total assets in securities listed
in the Lehman Aggregate, including without limitation, asset-backed securities.
For further information regarding asset-backed securities see "Other Applicable
Policies -- Asset-Backed Securities" below. The Adviser generally selects
securities for the Portfolio on the basis of their weightings in the Lehman
Aggregate and will only purchase a security for the Portfolio that is included
in the Lehman Aggregate at the time of such purchase. The Portfolio should
exhibit price and yield volatility similar to that of the Lehman Aggregate. For
further information, see "Other Investment Policies -- The Indexing Approach"
below and the Statement of Additional Information under "Investment Objectives
and Policies -- The Indexing Approach."
With respect to the remaining portion of its total assets, the
Portfolio has the ability to hold temporary cash balances which may be invested
in U.S. Government obligations and money market instruments. See "The
Intermediate Corporate Bond Portfolio" above for a description of the types of
money market instruments in which the Portfolio may invest and the applicable
limitations with respect to such investments. If appropriate, the Portfolio may
use options, futures contracts and depository receipts to hedge its positions or
for other permissible purposes. The Portfolio also may enter into reverse
repurchase agreements and lend its portfolio securities.
The Lehman Aggregate. The Lehman Aggregate is composed of U.S.
Government, mortgage-backed, asset-backed and non-convertible corporate debt
securities that meet the following criteria: the securities have at least $100
million par amount outstanding; the securities are rated investment grade (at
least Baa or BBB) by Moody's Investors Service, Inc. ("Moody's") or Standard &
Poor's Ratings Group ("S&P") (if not rated by
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Moody's); have at least one year until maturity; and have coupons with fixed
rates. The Lehman Aggregate excludes collateralized mortgage obligations
("CMOs"), adjustable rate mortgages, manufactured homes, non-agency bonds,
buydowns, graduated equity mortgages, project loans and non-conforming (i.e.,
"jumbo") mortgages. As of December 31, 1996, over ____ issues were included in
the Lehman Aggregate, representing $____ in market value. U.S. Treasury and
agency securities represented ____% of the total market value, asset-backed and
mortgage-backed securities represented ____% of the total market value, with
corporate debt securities representing the balance of ____%. The average
maturity of the Lehman Aggregate was ____ years. The Adviser believes that the
Lehman Aggregate is an appropriate benchmark for the Portfolio because it is
diversified, it is familiar to investors, and it is widely accepted as a
reference for bonds and other fixed income investments.
Because of the large number of issues included in the Lehman Aggregate,
the Portfolio cannot invest in all such issues. Instead, the Portfolio will hold
a representative sample of approximately 100 of the securities in the Lehman
Aggregate, selecting one or two issues to represent an entire "class" or type of
securities in the Lehman Aggregate. At a minimum, the Portfolio seeks to hold
securities which reflect the major asset classes in the Lehman Aggregate - U.S.
Treasury and agency issues, mortgage-backed securities, asset-backed securities
and non-convertible corporate debt securities. As the Portfolio's assets
increase, these classes will be further delineated along the lines of sector,
term-to-maturity, coupon and credit ratings. This sampling technique is expected
to be an effective means of substantially duplicating the price and performance
provided by the securities comprising the Lehman Aggregate.
Securities rated Baa by Moody's or BBB by S&P have speculative
characteristics even though they are of investment-grade quality, and changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with
higher-grade securities.
THE GOVERNMENT & CORPORATE BOND PORTFOLIO
The Government & Corporate Bond Portfolio's investment objective is to
seek the highest level of current income consistent with conservation of
capital. In pursuing its investment objective, the Portfolio intends to invest
at least 65% of its assets in fixed-income and related debt securities rated in
one of the three highest rating categories assigned by a Rating Agency at the
time of purchase or in unrated investments deemed by the Adviser to be of
comparable quality pursuant to guidelines approved by the Fund's Board of
Directors. Debt securities may include a broad range of fixed and variable rate
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bonds, debentures, notes, and securities convertible into or exchangeable for
common stock; dollar-denominated debt obligations of foreign issuers, including
foreign corporations and governments; and first mortgage loans, income
participation loans, participation certificates in pools of mortgages, including
mortgages issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, CMOs and other mortgage-related securities, and other
asset-backed securities. For further information regarding asset-backed
securities, see "Other Applicable Policies -- Asset-Backed Securities" below.
The Portfolio may invest up to 10% of its total assets at the time of purchase
in dollar-denominated debt obligations of foreign issuers, either directly or
through American Depository Receipts ("ADRs") and European Depository Receipts
("EDRs"), and up to 25% of its total assets at the time of purchase in
non-mortgage asset-backed securities, respectively. See "Other Applicable
Policies -- Foreign Securities" below and the Statement of Additional
Information under "Investment Objectives and Policies -- ADRs and EDRs."
The Government & Corporate Bond Portfolio may purchase debt securities
which are rated at the time of purchase within the four highest rating
categories assigned by Rating Agencies or unrated debt securities (including
convertible securities) which the Adviser believes present attractive
opportunities and are of at least comparable quality to instruments so rated.
The Portfolio's dollar-weighted average portfolio quality is expected to be at
least "A" or higher. Securities rated in the lowest of the above four rating
categories have speculative characteristics, even though they are of
investment-grade quality, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade securities. Such
securities will be purchased (and retained) only when the Adviser believes the
issuers have an adequate capacity to pay interest and repay principal. (For a
description of the rating categories of Rating Agencies, see Appendix A to the
Statement of Additional Information.) In making investment decisions, the
Adviser will consider a number of factors including current yield, maturity,
yield to maturity, anticipated changes in interest rates, and the overall
quality of the investment. The Portfolio seeks to provide a current yield
greater than that generally available from money market instruments.
The Government & Corporate Bond Portfolio reserves the right to hold as
a temporary defensive measure up to 100% of its total assets in cash and
short-term obligations (having remaining maturities of 12 months or less) at
such times and in such proportions as, in the opinion of the Adviser, prevailing
market
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or economic conditions warrant. Short-term obligations include, but are
not limited to, commercial paper, bankers' acceptances, certificates of deposit,
demand and time deposits of domestic and foreign banks and savings and loan
associations, repurchase agreements and obligations issued or guaranteed by the
U.S.Government or its agencies or instrumentalities.
THE SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
The Short-Intermediate Municipal Portfolio's investment objective is to
seek as high a level of current income, exempt from regular federal income tax,
as is consistent with preservation of capital. The Portfolio seeks to achieve
its objective by investing substantially all of its assets in investment grade
Municipal Obligations. As a matter of fundamental policy, under normal market
conditions at least 80% of the Portfolio's total assets will be invested in
Municipal Obligations, primarily bonds (at least 65% under normal market
conditions).
The Short-Intermediate Municipal Portfolio invests in Municipal
Obligations that are rated at the time of purchase within the four highest
rating categories assigned by a Rating Agency. The Portfolio may also invest in
short-term Municipal Obligations such as municipal notes, tax-exempt commercial
paper, and variable and floating rate demand obligations that are rated at the
time of purchase within the two highest rating categories assigned by a Rating
Agency. Municipal Obligations rated in the lowest of the four highest rating
categories for bonds are considered to have speculative characteristics, even
though they are of investment grade quality. Such bonds will be purchased only
if the Adviser believes they have an adequate capacity to pay interest and repay
principal. Unrated obligations will be purchased only if they are considered by
the Adviser to be at least comparable in quality at the time of purchase to
instruments within the rating categories listed above. Municipal Obligations
purchased by the Portfolio whose ratings are subsequently downgraded below the
four highest rating categories of a Rating Agency will be disposed of in an
orderly manner, normally within 30-60 days. The applicable ratings issued by the
Rating Agencies are described in the Appendix to the Statement of Additional
Information.
In addition, the Short-Intermediate Municipal Portfolio may from time
to time during temporary defensive periods, invest in taxable obligations in
such proportions as, in the opinion of the Adviser, prevailing market or
economic conditions warrant. Such instruments may include obligations of the
U.S. Government, its agencies or instrumentalities; debt securities (including
commercial paper) of issuers having, at the time of purchase, a quality rating
within the two highest rating categories assigned
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by a Rating Agency; or repurchase agreements with respect to such obligations.
During temporary defensive periods or if, in the opinion of the
Adviser, suitable tax-exempt obligations are unavailable, the Short-Intermediate
Municipal Portfolio may also hold uninvested cash reserves which do not earn
income pending investment. There is no percentage limitation on the amount of
assets that may be held uninvested during these temporary defensive periods.
The Short-Intermediate Municipal Portfolio's average dollar-weighted
maturity will be between two and five years and will vary in light of current
market and economic conditions, the comparative yields on instruments with
different maturities, and other factors.
THE MISSOURI TAX-EXEMPT BOND PORTFOLIO
The Missouri Tax-Exempt Bond Portfolio's investment objective is to
seek as high a level of interest income exempt from federal income tax as is
consistent with conservation of capital. In pursuing its investment objective,
the Portfolio invests substantially all of its assets in investment-grade
Missouri Municipal Obligations (which, to the extent possible, are also exempt
from Missouri income tax).
Dividends paid by the Missouri Tax-Exempt Bond Portfolio that are
derived from interest attributable to tax-exempt obligations of the State of
Missouri and its political subdivisions as well as of certain other governmental
issuers including Puerto Rico, Guam and the Virgin Islands ("Missouri Municipal
Obligations") are exempt from federal and Missouri income tax. Dividends derived
from interest on obligations of other governmental issuers are exempt from
federal income tax but may be subject to Missouri income tax.
As a matter of fundamental policy, under normal market conditions, at
least 65% of the Missouri Tax-Exempt Bond Portfolio's total assets will be
invested in Missouri Municipal Obligations. The Portfolio will seek to maximize
the proportion of its dividends which are exempt from both federal and Missouri
income tax and presently expects to invest substantially all of its total assets
in Missouri Municipal Obligations.
The Missouri Tax-Exempt Bond Portfolio invests in Municipal Obligations
that are rated at the time of purchase within the four highest rating categories
assigned by a Rating Agency. The Portfolio may also invest in short-term
Municipal Obligations such as municipal notes, tax-exempt commercial paper and
variable or floating rate demand obligations that are rated at the time of
purchase within the two highest rating categories assigned by a Rating Agency.
Municipal Obligations rated in the lowest of the
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four highest rating categories for bonds are considered to have speculative
characteristics, even though they are of investment grade quality. Such bonds
will be purchased only if the Adviser believes the issuers have an adequate
capacity to pay interest and repay principal. Unrated obligations will be
purchased only if they are considered by the Adviser to be at least comparable
in quality at the time of purchase to instruments within the rating categories
listed above. The applicable Municipal Obligation ratings are described in the
Appendix to the Statement of Additional Information.
As a matter of fundamental policy, under normal market conditions or
when the Adviser deems suitable tax-exempt Municipal Obligations to be
available, at least 80% of the Missouri Tax-Exempt Bond Portfolio's total assets
will be invested in Municipal Obligations. The Portfolio may hold uninvested
cash reserves pending investment during temporary defensive periods or if, in
the opinion of the Adviser, suitable Municipal Obligations are unavailable.
There is no percentage limitation on the amount of assets which may be held
uninvested during temporary defensive periods.
In addition, during temporary defensive periods or if, in the opinion
of the Adviser, suitable Municipal Obligations are unavailable and subject to
the quality standards described above, the Missouri Tax-Exempt Bond Portfolio
may invest up to 20% of its assets in money market instruments, the income from
which is subject to federal income tax. See "The Tax-Exempt Money Market
Portfolio" above for a description of the types of taxable money market
instruments in which the Portfolio may invest.
The Missouri Tax-Exempt Bond Portfolio's average weighted maturity will
vary in light of market and economic conditions, the comparative yields on
instruments with different maturities, and other factors.
THE NATIONAL MUNICIPAL BOND PORTFOLIO
The National Municipal Bond Portfolio's investment objective is to seek
as high a level of current income exempt from regular federal income tax as is
consistent with conservation of capital. In pursuing its investment objective,
the Portfolio intends to invest, under normal market and economic conditions,
substantially all of its assets in investment grade Municipal Obligations. As a
matter of fundamental policy, under normal market and economic 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).
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The Portfolio may purchase Municipal Obligations that are rated at the
time of purchase in one of the four highest rating categories assigned by one or
more Rating Agencies or in unrated Municipal Obligations deemed by the Adviser
to be of comparable quality. Under normal market and economic conditions,
however, the Portfolio intends to invest at least 65% of its assets in Municipal
Obligations rated at the time of purchase in one of the three highest rating
categories assigned by one or more Rating Agencies (or unrated Municipal
Obligations determined to be of comparable quality). Securities that are rated
in the lowest of the four highest rating categories are considered to have
speculative characteristics, even though they are of investment grade quality,
and will be purchased (and retained) only if the Adviser believes that the
issuers have an adequate capacity to pay interest and repay principal. Unrated
obligations will be purchased only if they are considered by the Adviser to be
at least comparable in quality at the time of purchase to instruments within the
rating categories listed above. 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 to 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 and debt securities (including commercial paper) of issuers
having, at the time of purchase, a quality rating within the two highest rating
categories of a Rating Agency. The Portfolio does not intend to invest in
taxable obligations under normal market conditions.
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 does not intend to hold
uninvested cash reserves under normal market conditions.
The Portfolio's average dollar-weighted maturity will vary in light of
current market and economic conditions, the comparative yields on instruments
with different maturities, and other factors.
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THE EQUITY INCOME PORTFOLIO
The Equity Income Portfolio's investment objective is to seek to
provide an above-average level of income consistent with long-term capital
appreciation. In pursuing its investment objective, the Portfolio intends to
invest, under normal market and economic conditions, substantially all of its
assets in common stock, preferred stock, rights, warrants, and securities
convertible into common stock. The Adviser will select stocks based on a number
of quantitative factors, including dividend yield, current and future earnings
potential compared to stock prices, total return potential and other measures of
value, such as cash flow, asset value or book value, if appropriate. Stocks
purchased for the Portfolio generally will be listed on a national securities
exchange or will be unlisted securities with an established over-the-counter
market. A convertible security may be purchased for the Portfolio when, in the
Adviser's opinion, the price and yield of the convertible security is favorable
as compared to the price and yield of the common stock. The stocks or securities
in which the Portfolio invests may be expected to produce an above average level
of income (as measured by the Standard & Poor's 500 Composite Stock Price
Index). Under normal market and economic conditions, at least 65% of the
Portfolio's total assets will be invested in income-producing equity securities.
The Portfolio may indirectly invest in foreign securities through the
purchase of ADRs and EDRs, but will not do so if, immediately after and as a
result of the purchase, the value of ADRs and EDRs would exceed 15% of the
Portfolio's total assets. For further information, see "Other Applicable
Policies --Foreign Securities" below and the Statement of Additional Information
under "Investment Objectives and Policies -- ADRs and EDRs."
The Portfolio reserves the right to hold as a temporary defensive
measure during abnormal market or economic conditions up to 100% of its total
assets in cash and short-term obligations (having remaining maturities of 13
months or less) at such times and in such proportions as, in the opinion of the
Adviser, such abnormal market or economic conditions warrant. See "The
Intermediate Corporate Bond Portfolio" above for a description of the types of
short-term obligations in which the Portfolio may invest and the applicable
limitations with respect to such investments.
THE EQUITY INDEX PORTFOLIO
The Equity Index Portfolio seeks to provide investment results that,
before deduction of operating expenses, approximate the price and yield
performance of U.S. publicly traded common stocks with large stock market
capitalizations as represented by
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the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500").
Like the Bond Index Portfolio, the Equity Index Portfolio is not
managed in a traditional sense, that is, by making discretionary judgments based
on analysis of economic, financial and market conditions. Instead, the Portfolio
uses an investment strategy called "indexing" whereby it seeks to approximate
the investment performance of the market segment comprised of U.S. publicly
traded common stocks with large stock market capitalizations, as represented by
the S&P 500, through the use of sophisticated computer models to determine which
securities should be purchased or sold, while keeping transaction and
administrative costs to a minimum. The Portfolio will invest substantially all
of its total assets in securities listed in the S&P 500. The Adviser generally
selects securities for the Portfolio on the basis of their weightings in the S&P
500 and will only purchase a security for the Portfolio that is included in the
S&P 500 at the time of such purchase. The Portfolio should exhibit price
volatility similar to that of the S&P 500. For further information, see "Other
Investment Policies -- The Indexing Approach" below and the Statement of
Additional Information under "Investment Objectives and Policies -- The Indexing
Approach."
With respect to the remaining portion of its total assets, the
Portfolio has the ability to hold temporary cash balances which may be invested
in U.S. Government obligations and money market instruments. See "The
Intermediate Corporate Bond Portfolio" above for a description of the money
market instruments in which the Portfolio may invest and the applicable
limitations with respect to such investments. If appropriate, the Portfolio may
use options, futures contracts and depository receipts to hedge its positions or
for other permissible purposes. The Portfolio also may enter into reverse
repurchase agreements and lend its portfolio securities.
The S&P 500. The S&P 500 is composed of approximately 500 common
stocks, most of which are listed on the New York Stock Exchange. S&P chooses the
stocks for the S&P 500 on a statistical basis. As of December 31, 1996 the
stocks in the S&P 500 have an average market capitalization of $___ billion and
account for approximately __% of the total market value of all U.S. common
stocks. Normally, the Equity Index Portfolio will hold all 500 stocks in the S&P
500 and will hold each stock approximately the same percentage as that stock
represents in the S&P 500. Under certain circumstances, the Portfolio may not
hold all 500 stocks in the S&P 500, for example because of changes in the S&P
500, or as a result of shareholder activity in the Portfolio. The Portfolio will
rebalance its holdings monthly to reflect changes in the S&P 500. "Market
capitalization" for a company is the market price per share of stock multiplied
by the
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number of shares outstanding. The Adviser believes that the S&P 500 is an
appropriate benchmark for the Portfolio because it is diversified, it is
familiar to many investors and it is widely accepted as a reference for common
stock investments.
THE GROWTH & INCOME EQUITY PORTFOLIO
The Growth & Income Equity Portfolio's investment objective is to
provide long-term capital growth, with income a secondary consideration. In
pursuing its investment objective, the Portfolio normally invests substantially
all of its assets in common stock, preferred stock, rights, warrants and
securities convertible into common stock. The Adviser selects stocks based on a
number of factors, including historical and projected earnings, growth and asset
value, earnings compared to stock prices generally (as measured by the S&P 500,
and consistency of earnings growth and earnings quality. Stocks purchased for
the Portfolio generally will be listed on a national securities exchange or will
be unlisted securities with an established over-the-counter market. A
convertible security may be purchased for the Portfolio when, in the Adviser's
opinion, the price and yield of the convertible security is favorable compared
to the price and yield of the common stock. The stocks or securities in which
the Portfolio invests may be expected to produce some income but income is not a
major criterion in their selection.
The Growth & Income Equity Portfolio may indirectly invest in foreign
securities through the purchase of ADRs and EDRs but will not do so if,
immediately after and as a result of the purchase, the value of ADRs and EDRs
would exceed 15% of the Portfolio's total assets. For further information, see
"Other Applicable Policies -- Foreign Securities" below and the Statement of
Additional Information under "Investment Objectives and Policies -- ADRs and
EDRs." The Portfolio may also invest in Canadian securities listed on a national
securities exchange.
The Growth & Income Equity Portfolio reserves the right to hold as a
temporary defensive measure up to 100% of its total assets in cash and
short-term obligations (having remaining maturities of 12 months or less) at
such times and in such proportions as, in the opinion of the Adviser, prevailing
market or economic conditions warrant. See "The Government & Corporate Bond
Portfolio" above for a description of the types of short-term obligations in
which the Portfolio may invest.
THE SMALL CAP EQUITY PORTFOLIO
The Small Cap Equity Portfolio's investment objective is capital
appreciation. Current income is an incidental consideration in the selection of
portfolio securities. In pursuing its investment objective, the Portfolio (which
was formerly known as the Emerging Growth Portfolio) normally invests
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primarily in common stock of emerging or established small- to medium-sized
companies with above-average potential for price appreciation. The Portfolio may
invest in preferred stock, rights, warrants, and securities convertible into
common stock. It may invest a portion of its assets in established larger
companies that, in the opinion of the Adviser, offer improved growth
possibilities because of rejuvenated management, product changes, or other
developments that might stimulate earnings or asset growth, or in companies that
seem undervalued relative to their underlying assets. The Portfolio does not
intend to invest more than 5% of the value of its total assets in the securities
of unseasoned companies, that is, companies (or their predecessors) with less
than three years' continuous operation.
The Small Cap Equity Portfolio may also invest a portion of its assets
in smaller companies that have limited specialized-product lines, markets or
financial resources, or are dependent upon one-person management. The securities
of such smaller companies may have limited marketability, may be subject to more
abrupt or erratic market movements than securities of larger companies or the
market averages in general, and may involve greater risk than is customarily
associated with more established companies. To qualify for investment by the
Portfolio, however, a company will be expected to have, in the opinion of the
Adviser, above-average possibilities for capital appreciation (when compared
with the average appreciation of companies whose securities are included in the
S&P 500).
The Small Cap Equity Portfolio uses a research intensive approach and
valuation techniques that emphasize earnings and asset growth. The Adviser
selects stocks based on a number of factors, including historical and projected
earnings, asset value, potential for price appreciation and earnings growth, and
quality of products manufactured and/or services offered. Stocks purchased for
the Portfolio may be listed on a national securities exchange or may be unlisted
securities with or without an established over-the-counter market. The Portfolio
may also invest in initial public offerings of new companies that demonstrate
the potential for price appreciation. A convertible security may be purchased
for the Portfolio when, in the Adviser's opinion, the price of the convertible
security is favorable compared to the price of the common stock. In general, the
Portfolio's stocks and other securities will be diversified over a number of
industry groups in an effort to reduce the risks inherent in such investments.
The Small Cap Equity Portfolio may indirectly invest in foreign
securities through the purchase of such obligations as ADRs and EDRs but will
not do so if, immediately after and as a result of the purchase, the value of
ADRs and EDRs would exceed 25% of the Portfolio's total assets. For further
information, see "Other Applicable Policies -- Foreign Securities" below, and
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the Statement of Additional Information under "Investment Objectives and
Policies -- ADRs and EDRs." The Portfolio may also invest in securities issued
by Canadian corporations and Canadian counterparts of U.S. corporations, which
may or may not be listed on a national securities exchange or traded in
over-the-counter markets.
The Small Cap Equity Portfolio reserves the right to hold as a
temporary defensive measure up to 100% of its total assets in cash and
short-term obligations (having remaining maturities of 12 months or less) at
such times and in such proportions as, in the opinion of the Adviser, prevailing
market or economic conditions warrant. See "The Government & Corporate Bond
Portfolio" above for a description of the types of short-term obligations in
which the Portfolio may invest.
THE INTERNATIONAL EQUITY PORTFOLIO
The International Equity Portfolio's investment objective is to provide
capital growth consistent with reasonable investment risk. The Portfolio seeks
to achieve this objective by investing principally in foreign equity securities,
most of which will be denominated in foreign currencies. During normal market
conditions, the Portfolio will invest substantially all of its assets in
securities of companies which derive more than 50% of their gross revenues from,
or have more than 50% of their assets outside, the United States. Additionally,
under normal market conditions, the Portfolio will invest in equity securities
from at least three different countries (excluding the United States). However,
the Portfolio may invest all its assets in a single country during temporary
defensive periods.
The International Equity Portfolio expects to invest at least half of
its assets in securities of companies located either in developed countries in
Western Europe or in Japan, although it may also purchase securities of
companies located in other developed countries and developing countries. For
further information, see "Risk Factors -- Risks Associated with Foreign
Securities and Currencies" below.
By investing in foreign securities, the International Equity Portfolio
will attempt to take advantage of differences between economic trends and the
performance of securities markets in various countries, regions and geographic
areas. The Portfolio will achieve diversification by investing in securities
from various countries and geographic areas that offer different investment
opportunities and are affected by different economic trends. The multinational
character of the Portfolio's investments should reduce the effect that events in
any one country or geographic area will have on its investment holdings. Of
course, negative movement by one of the Portfolio's
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investments in one foreign market may offset gains from the Portfolio's
investments in another market.
Equity securities in which the International Equity Portfolio may
invest include common stock, preferred stock, rights, warrants and securities
convertible into common stock. A convertible security may be purchased for the
Portfolio when, in the Adviser's or Sub-Adviser's opinion, the price and yield
of the convertible security is favorable compared to the price and yield of the
common stock.
During temporary defensive periods, when deemed necessary by the
Adviser or Sub-Adviser, the International Equity Portfolio may invest up to 100%
of its assets in U.S. Government obligations or debt obligations of companies
incorporated and having their principal business activities in the United
States. The Portfolio does not intend to invest in such securities for the
purpose of meeting its investment objective.
The International Equity Portfolio may also invest, without limitation,
in foreign securities through the purchase of ADRs and EDRs. For further
information, see "Risk Factors -- Risks Associated with Foreign Securities and
Currencies" below and the Statement of Additional Information under "Investment
Objectives and Policies -- ADRs and EDRs."
The International Equity Portfolio reserves the right to hold as a
temporary defensive measure up to 100% of its total assets in cash and
short-term obligations (having remaining maturities of 12 months or less) at
such times and in such proportions as, in the opinion of the Adviser or
Sub-Adviser, prevailing market or economic conditions warrant. See "The
Government & Corporate Bond Portfolio" above for a description of the types of
short-term obligations in which the Portfolio may invest.
Although investing in any mutual fund has certain inherent risks, an
investment in the International Equity Portfolio may have even greater risks
than investments in most other types of mutual funds. The Portfolio is not a
complete investment program, and it may not be appropriate for investors who
cannot financially bear the loss of at least a significant portion of their
investment. The Portfolio's net asset value per Share is subject to rapid and
substantial changes because greater risk is assumed in seeking the Portfolio's
objective. See "Risk Factors -- Risks Associated with Foreign Securities and
Currencies" below.
THE BALANCED PORTFOLIO
The Balanced Portfolio's investment objective is to maximize total
return through a combination of growth of capital and
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current income consistent with the preservation of capital. The Portfolio seeks
to achieve its objective by using a disciplined approach of allocating assets
primarily among three major asset groups, i.e. equity securities, fixed income
securities and cash equivalents. In pursuing the Portfolio's investment
objective, the Adviser allocates the Portfolio's assets based upon its
evaluation of the relative attractiveness of the major asset groups. In an
effort to better quantify the relative attractiveness of the major asset groups
over a one- to three-year period of time, the Adviser has incorporated into its
asset allocation decision-making process several dynamic computer models which
it has created. The purpose of these models is to show the statistical impact of
the Adviser's economic outlook upon the future returns of each asset group. The
models are especially sensitive to the forecasts for inflation, interest rates
and long-term corporate earnings growth. Investment returns are normally heavily
impacted by such variables and their expected changes over time. Therefore, the
Adviser's method attempts to take advantage of changing economic conditions by
increasing or decreasing the ratio of stocks to bonds in the Portfolio. For
example, if the Adviser expected more rapid economic growth leading to better
corporate earnings, it would increase the Portfolio's holdings of equity
securities and reduce its holdings of fixed income securities and cash
equivalents.
Under normal market conditions, the Balanced Portfolio's policy is
generally to invest at least 25% of the value of its total assets in fixed
income securities and no more than 75% in equity securities. The actual
percentage of assets invested in equity securities, fixed income securities and
cash equivalents will vary from time to time, depending on the judgment of the
Adviser as to general market and economic conditions, trends and yields,
interest rates and fiscal and monetary developments.
The equity securities in which the Balanced Portfolio normally invests
include common stock, preferred stock, rights, warrants and securities
convertible into common or preferred stock. For further information regarding
these instruments, see "The Equity Income Portfolio" and "The Growth & Income
Equity Portfolio" above.
The fixed income securities in which the Balanced Portfolio invests
include U.S. Government securities or other fixed income and related debt
securities rated in one of the four highest rating categories assigned by a
Rating Agency at the time of purchase or in unrated investments deemed by the
Adviser to be of comparable quality pursuant to guidelines approved by the
Fund's Board of Directors. For further information regarding these instruments,
see "The Government & Corporate Bond Portfolio" above.
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The Balanced Portfolio may purchase asset-backed securities. For
further information regarding these instruments, see "Other Applicable Policies
- -- Asset-Backed Securities" below.
The Balanced Portfolio reserves the right to hold as a temporary
defensive measure up to 100% of its total assets in cash and short-term
obligations (having remaining maturities of 12 months or less) at such times and
in such proportions as, in the opinion of the Adviser, prevailing market or
economic conditions warrant. See "The Government & Corporate Bond Portfolio"
above for a description of the types of short-term obligations in which the
Portfolio may invest.
RISK FACTORS
MARKET RISK. The Equity Income, Equity Index, Growth & Income Equity,
Small Cap Equity and International Equity Portfolios invest primarily, and the
Balanced Portfolio invests to a significant degree, in equity securities. As
with other mutual funds that invest primarily or to a significant degree in
equity securities, these Portfolios are subject to market risks. That is, the
possibility exists that common stocks will decline over short or even extended
periods of time and both the U.S. and certain foreign equity markets tend to be
cyclical, experiencing both periods when stock prices generally increase and
periods when stock prices generally decrease.
INTEREST RATE RISK. Generally, the market value of fixed income
securities, including Municipal Obligations, held by the Treasury Money Market,
Money Market, Tax-Exempt Money Market,U.S. Government Securities, Intermediate
Corporate Bond, Bond Index, Government & Corporate Bond, Short-Intermediate
Municipal, Missouri Tax-Exempt Bond , National Municipal Bond and Balanced
Portfolios can be expected to vary inversely to changes in prevailing interest
rates. During periods of declining interest rates, the market value of
investment portfolios comprised primarily of fixed income securities will tend
to increase, and during periods of rising interest rates, the market value will
tend to decrease. Fixed income securities with longer maturities, which tend to
produce higher yields, are subject to potentially greater capital appreciation
and depreciation than obligations with shorter maturities. Changes in the
financial strength of an issuer or changes in the ratings of any particular
security may also offset the value of these investments. Fluctuations in the
market value of fixed income securities subsequent to their acquisition will not
offset cash income from such securities but will be reflected in a Portfolio's
net asset value.
RISKS ASSOCIATED WITH FOREIGN SECURITIES AND CURRENCIES. Investments in
securities of foreign issuers, whether made directly or indirectly, carry
certain risks not ordinarily
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associated with investments in securities of domestic issuers. Such risks
include future political and economic developments, and the possible imposition
of exchange controls or other foreign governmental laws or restrictions. In
addition, with respect to certain countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social instability
or diplomatic developments which could adversely affect investments in those
countries.
There may be less publicly available information about a foreign
company than about a U.S. company, and foreign companies may not be subject to
accounting, auditing and financial reporting standards and requirements
comparable to or as uniform as those of U.S.-based companies. Foreign securities
markets, while growing in volume, have, for the most part, substantially less
volume than U.S. markets, and securities of many foreign companies are less
liquid and their prices more volatile than securities of comparable U.S.-based
companies. There is generally less government supervision and regulation of
foreign exchanges, brokers and issuers than there is in the United States. In
the event of a default by the issuer of a foreign security, it may be more
difficult to obtain or enforce a judgment against such issuer than it would be
against a domestic issuer. In addition, foreign banks and foreign branches of
U.S. banks are subject to less stringent reserve requirements and to different
accounting, auditing, reporting, and recordkeeping standards than those
applicable to domestic branches of U.S.
banks.
Certain of the risks associated with international investments are
heightened with respect to investments in developing countries. The risks of
expropriation, nationalization and social, political and economic instability
are greater in those countries than in more developed capital markets. In
addition, developing countries may have economies based on only a few industries
and small securities markets with a low volume of trading. Certain countries may
also impose substantial restrictions on investments in their capital markets by
foreign entities, including restrictions on investments in issuers of industries
deemed sensitive to relevant national interests. These factors may limit the
investment opportunities available to the International Equity Portfolio and
result in a lack of liquidity and a high price volatility with respect to
securities of issuers from developing countries.
Certain countries may also impose restrictions on the International
Equity Portfolio's ability to repatriate investment income or capital. Even when
there is no outright restriction on repatriation of investment income or
capital, the mechanics of repatriation may affect certain aspects of the
operations of the International Equity Portfolio.
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Governments of many developing countries exercise substantial influence
over many aspects of the private sector. In some countries, the government may
own or control many companies, including the largest company or companies. As
such, government actions in the future could have a significant effect on
economic conditions in these countries, affecting private sector companies, the
International Equity Portfolio and the value of its portfolio securities.
Since the International Equity Portfolio will invest substantially in
securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates will affect the value of securities
in the International Equity Portfolio and the unrealized appreciation or
depreciation of investments so far as U.S. investors are concerned. Foreign
currency exchange rates are determined by forces of supply and demand on the
foreign exchange markets and the regulatory control of the exchanges on which
the currencies trade. These forces are themselves affected by the international
balance of payments and other economic and financial conditions, government
intervention, speculation and other factors. Costs are incurred in connection
with conversions between various currencies.
The expense ratio of the International Equity Portfolio can be expected
to be higher than that of funds investing in domestic securities. The costs
attributable to investing abroad are usually higher for several reasons, such as
the higher cost of investment research, higher cost of custody of foreign
securities, higher commissions paid on comparable transactions on foreign
markets and additional costs arising from delays in settlements of transactions
involving foreign securities.
Interest and dividends payable on the International Equity Portfolio's
foreign portfolio securities may be subject to foreign withholding taxes. To the
extent such taxes are not offset by credits or deductions allowed to investors
under U.S. federal income tax provisions, they may reduce the net return to the
Portfolio's shareholders. For further information, see "Taxes."
In addition to the International Equity Portfolio, other Portfolios may
be subject to certain of the risks described above in connection with investment
in foreign securities.
MUNICIPAL OBLIGATIONS. The ability of the Tax-Exempt Money Market,
Short-Intermediate Municipal, Missouri Tax-Exempt Bond and National Municipal
Bond Portfolios (collectively, the "Tax-Exempt Portfolios") to achieve their
respective investment objectives are dependent upon the ability of issuers of
Municipal Obligations to meet their continuing obligations for the payment of
principal and interest. There are additional risks associated with investment in
the Missouri Tax-Exempt Bond
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Portfolio because it invests its assets predominantly in Missouri Municipal
Obligations . Investors in the Missouri Tax-Exempt Bond Portfolio should be
aware that certain provisions of, and amendments to, the Missouri Constitution
limit tax increases which could result in certain adverse consequences affecting
Missouri Municipal Obligations . Some of the significant financial
considerations relating to the Missouri Tax-Exempt Bond Portfolio's investments
in Missouri Municipal Obligations are summarized in the Statement of Additional
Information.
ADDITIONAL RISKS AND OTHER CONSIDERATIONS. Although the Tax-Exempt
Money Market , Short-Intermediate Municipal and National Municipal Bond
Portfolios may invest 25% or more of their respective net assets in (i)
Municipal Obligations whose issuers are in the same state, (ii) Municipal
Obligations the interest on which is paid solely from revenues of similar
projects, and (iii) private activity bonds, no Portfolio presently intends to do
so unless in the opinion of the Adviser the investment is warranted. Although
the Missouri Tax-Exempt Bond Portfolio does not presently intend to do so on a
regular basis, it may invest more than 25% of its assets in industrial
development bonds issued before August 7, 1986, the interest on which is not
treated as a specific tax preference item under the federal alternative minimum
tax, and in Municipal Obligations, the interest on which is paid solely from
revenues of similar projects, if such investments are deemed necessary or
appropriate by the Adviser. To the extent that a Portfolio's assets are invested
in Municipal Obligations the issuers of which are in the same state or that are
payable from the revenues of similar projects or in private activity bonds, a
Portfolio will be subject to the peculiar risks presented by the laws and
economic conditions relating to such projects and bonds to a greater extent that
it would be if its assets were not so invested. See "Investment Objectives and
Policies -- Municipal Obligations" in the Statement on Additional Information.
Each of the Tax-Exempt Money Market and Missouri Tax-Exempt Bond
Portfolios is classified as non-diversified under the 1940 Act. Investment
return on a non-diversified portfolio typically is dependent upon the
performance of a smaller number of securities relative to the number held in a
diversified portfolio. Consequently, the change in value of any one security may
affect the overall value of a non-diversified portfolio more than it would a
diversified portfolio. In addition, a non-diversified portfolio may be more
susceptible to economic, political, and regulatory developments than a
diversified investment portfolio with similar objectives. The value of a
Portfolio's securities can be expected to vary inversely with changes in
prevailing interest rates.
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Investors in the Missouri Tax-Exempt Bond Portfolio should consider the
risk inherent in such Portfolio's concentrations in Missouri Municipal
Obligations versus the safety that comes with a less geographically concentrated
investment portfolio, and should compare the yields and tax-equivalent yields
available on portfolios of Missouri Municipal Obligations with the yields and
tax-equivalent yields of more diversified portfolios with securities of
comparable quality, including non-Missouri securities, before making an
investment decision.
Municipal Obligations purchased by the Tax-Exempt Portfolios may be
backed by letters of credit or guarantees issued by domestic or foreign banks
and other financial institutions which are not subject to federal deposit
insurance. Adverse developments affecting the banking industry generally or a
particular bank or financial institution that has provided its credit or a
guarantee with respect to a Municipal Obligation held by a Tax-Exempt Portfolio
could have an adverse effect on the Portfolio's investment portfolio and the
value of its shares. Foreign letters of credit and guarantees involve certain
risks in addition to those of domestic obligations, including less stringent
reserve requirements and different accounting, auditing and recordkeeping
requirements.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax (and, with respect to
Missouri Municipal Obligations , to the exemption from Missouri 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 a Portfolio from tax-exempt derivative securities are rendered by counsel to
the respective sponsors of such securities. The Tax-Exempt Portfolios and their
Adviser will rely on such opinions and will not review independently the
underlying proceedings relating to the issuance of Municipal Obligations, the
creation of any tax-exempt derivative security, or the bases for such opinions.
OTHER APPLICABLE POLICIES
The investment policies described in this Prospectus are among those
which one or more of the Portfolios have the ability to utilize. Some of these
policies may be employed on a regular basis; others may not be used at all.
Accordingly, reference to any particular policy, method or technique carries no
implication that will be utilized or, if it is, that it will be successful.
U.S. GOVERNMENT OBLIGATIONS. Securities issued or guaranteed by the
U.S. Government, its agencies and instrumentalities have historically involved
little risk of loss of principal if held to maturity. However, due to
fluctuations in interest rates, the market value of such securities may vary
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during the period a shareholder owns Shares of a Portfolio. Certain U.S.
Government securities held by the Treasury Money Market, Money Market or
Tax-Exempt Money Market Portfolios may have remaining maturities exceeding
thirteen months if such securities provide for adjustments in their interest
rates no less frequently than every thirteen months. Examples of the types of
U.S. Government obligations that may be held by the Portfolios, subject to their
respective investment objectives and policies, include, in addition to U.S.
Treasury bonds, notes and bills, the obligations of Federal Home Loan Banks,
Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, GNMA, FNMA, FHLMC, General Services
Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Resolution Trust Corporation,
and Maritime Administration. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as those of GNMA, are supported
by the full faith and credit of the U.S. Treasury; others, such as the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of FNMA, are supported
by the discretionary authority of the U.S. Government to purchase the agency's
obligations; still others such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. There is
no assurance that the U.S. Government would provide financial support to U.S.
Government-sponsored instrumentalities if it is not obligated to do so by law.
STRIPPED GOVERNMENT SECURITIES. To the extent consistent with their
respective investment policies, each Portfolio may invest in bills, notes and
bonds (including zero coupon bonds) issued by the U.S. Treasury. In addition,
each Portfolio (except the Tax-Exempt Money Market, Short-Intermediate
Municipal, Missouri Tax-Exempt Bond and Equity Index Portfolios) may also invest
in "stripped" U.S. Treasury obligations offered under the Separate Trading of
Registered Interest and Principal Securities ("STRIPS") program or Coupon Under
Bank-Entry Safekeeping ("CUBES") program or other stripped securities issued
directly by agencies or instrumentalities of the U.S. Government (and, with
respect to the Treasury Money Market Portfolio only, that are also guaranteed as
to principal and interest by the U.S. Government). STRIPS and CUBES represent
either future interest or principal payments and are direct obligations of the
U.S. Government that clear through the Federal Reserve System. The Money Market,
Intermediate Corporate Bond, Bond Index, Government & Corporate Bond, Growth &
Income Equity, Small Cap Equity and Balanced Portfolios may also purchase U.S.
Treasury and agency securities that are stripped by brokerage firms and
custodian banks and sold under proprietary names. These stripped securities are
resold in custodial receipt programs with a number of different names (such as
TIGRs and CATS) and are not
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considered U.S. Government securities for purposes of the 1940 Act.
Stripped securities are issued at a discount to their "face value" and
may exhibit greater price volatility than ordinary debt securities because of
the manner in which their principal and interest are returned to investors. The
Adviser will consider the liquidity needs of a Portfolio when any investments in
zero coupon obligations or other principal-only obligations are made.
REPURCHASE AGREEMENTS. Under certain circumstances described above and
subject to their respective investment policies, each Portfolio (except the
National Municipal Bond Portfolio) may agree to purchase U.S. Government
securities from financial institutions such as banks and broker-dealers, subject
to the seller's agreement to repurchase them at a mutually agreed-upon date and
price ("repurchase agreements"). A Portfolio will enter into repurchase
agreements only with financial institutions such as banks and broker-dealers
that the Adviser or Sub-Adviser believes to be creditworthy. During the term of
any repurchase agreement, the Adviser or Sub-Adviser will continue to monitor
the creditworthiness of the seller and will require the seller to maintain the
value of the securities subject to the agreement at not less than 102% of the
repurchase price (including accrued interest). Default by a seller could expose
a Portfolio to possible loss because of adverse market action or possible delay
in disposing of the underlying obligations. Because of the seller's repurchase
obligations, the securities subject to repurchase agreements do not have
maturity limitations. Although no Portfolio presently intends to enter into
repurchase agreements providing for settlement in more than seven days, each
Portfolio does have the authority to do so subject to its limitation on the
purchase of illiquid securities described below. Repurchase agreements are
considered to be loans under the 1940 Act. The income on repurchase agreements
is taxable. See "Taxes" below.
REVERSE REPURCHASE AGREEMENTS. Subject to their investment policies,
each Portfolio (except the Treasury Money Market Portfolio and the Tax-Exempt
Portfolios) may borrow funds for temporary purposes by entering into reverse
repurchase agreements in accordance with their respective investment limitations
below. Pursuant to such agreements, a Portfolio would sell portfolio securities
to financial institutions such as banks and broker-dealers and agree to
repurchase them at an agreed upon date and price. Reverse repurchase agreements
involve the risk that the market value of the securities sold by a Portfolio may
decline below the repurchase price which the Portfolio is obligated to pay.
Reverse repurchase agreements are considered to be borrowings by a Portfolio
under the 1940 Act.
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SECURITIES LENDING. To increase return or offset expenses, each
Portfolio (except the Treasury Money Market, Money Market, Tax-Exempt Money
Marketand Missouri Tax-Exempt Bond Portfolios) may, from time to time, lend its
portfolio securities to broker-dealers, banks or institutional borrowers
pursuant to agreements requiring that the loans be continuously secured by
collateral equal at all times in value to at least the market value of the
securities loaned. Collateral for such loans may include cash, securities of the
U.S. Government, or its agencies or instrumentalities, or an irrevocable letter
of credit issued by a bank that has at least $1.5 billion in total assets, or
any combination thereof. The collateral must be valued daily and, should the
market value of the loaned securities increase, the borrower must furnish
additional collateral to the lending Portfolio. By lending its securities, a
Portfolio can increase its income by continuing to receive interest on the
loaned securities as well as by either investing the cash collateral in
short-term instruments or obtaining yield in the form of interest paid by the
borrower when U.S. Government securities are used as collateral. In accordance
with current SEC policies, each Portfolio is currently limiting its securities
lending to 33-1/3% of the aggregate net assets of such Portfolio. Loans are
subject to termination by a Portfolio or a borrower at any time.
SECURITIES OF OTHER INVESTMENT COMPANIES. Under certain circumstances
described above and subject to their respective investment policies and
limitations, each Portfolio may invest in securities issued by other investment
companies which determine their net asset value per Share based on the amortized
cost or penny-rounding method and which invest in securities in which the
Portfolio is permitted to invest. Each Portfolio may invest in securities of
other investment companies within the limits prescribed by the 1940 Act, which
include, subject to certain exceptions, a prohibition on a Portfolio investing
more than 10% of the value of its total assets in such securities. Investments
in other investment companies will cause a Portfolio (and, indirectly, the
Portfolio's shareholders) to bear proportionately the cost incurred in
connection with the operations of such other investment companies. In addition,
investment companies in which a Portfolio may invest may impose a sales or
distribution charge in connection with the purchase or redemption of their
shares as well as other types of commissions or charges (no sales charge will be
paid by the Missouri Tax-Exempt Bond Portfolios in connection with such
investments). Such charges will be payable by a Portfolio and, therefore, will
be borne indirectly by its shareholders. See the Statement of Additional
Information under "Investment Objectives and Policies -- Securities of Other
Investment Companies." The income on securities of other investment companies
may be taxable to investors at the state or local level. See "Taxes" below.
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WHEN-ISSUED PURCHASES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS.
Each Portfolio may purchase securities on a "when-issued" basis and may purchase
or sell securities on a "forward commitment" basis. These transactions involve a
commitment by a Portfolio to purchase or sell securities at a stated price and
yield with settlement beyond the normal settlement date. Such transactions
permit a Portfolio to lock-in a price or yield on a security, regardless of
future changes in interest rates. Additionally, the Short-Intermediate Municipal
and National Municipal Bond Portfolios may purchase or sell securities on a
"delayed settlement" basis. This refers to a transaction in the secondary market
that will settle some time in the future. When issued purchases, forward
commitments and delayed settlement transactions involve a risk of loss if the
value of the security to be purchased declines prior to the settlement date, or
if the value of the security to be sold increases prior to the settlement date.
Each Portfolio expects that these transactions will not exceed 25% of the value
of its total assets (at the time of purchase) under normal market conditions. No
Portfolio intends to engage in such transactions for speculative purposes but
only for the purpose of acquiring portfolio securities.
OPTIONS. Each of the Equity and Bond Portfolios (except the
Short-Intermediate Municipal, Missouri Tax-Exempt Bond and National Municipal
Bond Portfolios) may purchase put and call options listed on a national
securities exchange and issued by the Options Clearing Corporation in an amount
not exceeding 10% of its net assets. Such options may relate to particular
securities or to various stock or bond indices. Purchasing options is a
specialized investment technique which entails a substantial risk of a complete
loss of the amounts paid as premiums to the option writer. Such transactions
will be entered into only as a hedge against fluctuations in the value of
securities which a Portfolio holds or intends to purchase.
These Portfolios may also write covered call options. A covered call
option is an option to acquire a security that a Portfolio owns or has the right
to acquire during the option period. Such options will be listed on a national
securities exchange and issued by the Options Clearing Corporation.
The International Equity Portfolio may write covered call options, buy
put options, buy call options and write secured put options for hedging (or
cross-hedging) purposes or for the purpose of earning additional income. Such
options may relate to particular securities, foreign or domestic stock or bond
indices, financial instruments or foreign currencies; may or may not be listed
on a domestic or foreign securities exchange; and may or may not be issued by
the Options Clearing Corporation. The International Equity Portfolio will invest
and trade in unlisted over-the-counter options only with firms deemed
creditworthy by the Adviser or Sub-Adviser. However, unlisted options are not
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subject to the protections afforded purchasers of listed options by the Options
Clearing Corporation, which performs the obligations of its members which fail
to perform them in connection with the purchase or sale of options. The
International Equity Portfolio will not purchase put and call options in an
amount that exceeds 10% of its net assets at the time of purchase.
The aggregate value of the securities subject to covered call options
written by a Portfolio will not exceed 25% of the value of its net assets. In
order to close out an option position, a Portfolio may enter into a "closing
purchase transaction" -- the purchase of a covered call option on the same
security with the same exercise price and expiration date as the option which
the Portfolio previously wrote. By writing a covered call option, a Portfolio
forgoes the opportunity to profit from an increase in the market price of the
underlying security above the exercise price except insofar as the premium
represents such a profit and it is not able to sell the underlying security
until the option expires, is exercised, or the Portfolio effects a closing
purchase transaction by purchasing an option of the same series. The use of
covered call options will not be a primary investment technique of any
Portfolio. For additional information relating to option trading practices,
including particular risks, see the Statement of Additional Information and
Appendix B thereof.
FOREIGN CURRENCY PUT OPTIONS. The International Equity Portfolio may
purchase foreign currency put options on U.S. exchanges or U.S. over-the-counter
markets. A put option gives the Portfolio, upon payment of a premium, the right
to sell a currency at the exercise price until the expiration of the option and
serves to insure against adverse currency price movements in the underlying
portfolio assets denominated in that currency.
UNLISTED CURRENCY OPTIONS. The International Equity Portfolio may
purchase unlisted currency options. A number of major investment firms trade
unlisted options which are more flexible than exchange listed options with
respect to strike price and maturity date. These unlisted options generally are
available on a wider range of currencies. Unlisted foreign currency options are
generally less liquid than listed options and involve the credit risk associated
with the individual issuer. They will be deemed to be illiquid for purposes of
the limitation on investments in illiquid securities.
WRITING FOREIGN CURRENCY CALL OPTIONS. A call option written by the
International Equity Portfolio gives the purchaser, upon payment of a premium,
the right to purchase from the International Equity Fund a currency at the
exercise price until the expiration of the option.
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FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the International
Equity Portfolio may buy and sell securities denominated in currencies other
than the U.S. dollar, and receive interest, dividends and sale proceeds in
currencies other than the U.S. dollar, the Portfolio may from time to time enter
into foreign currency exchange transactions to convert to and from different
foreign currencies and to convert foreign currencies to and from the U.S.
dollar. The Portfolio may enter into currency exchange transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or use forward currency contracts to purchase or sell foreign
currencies.
A forward foreign currency contract is an obligation by the
International Equity Portfolio to purchase or sell a specific currency at a
future date at a price set at the time of the contract. In this respect, forward
currency contracts are similar to foreign currency futures contracts described
below; however, unlike futures contracts, which are traded on recognized
commodities exchanges, forward currency contracts are traded in the interbank
market conducted directly between currency traders (usually large commercial
banks) and their customers. Also, forward currency contracts usually involve
delivery of the currency involved instead of cash payment as in the case of
futures contracts.
The International Equity Portfolio may use forward foreign currency
exchange contracts in order to protect against uncertainty in the level of
future foreign exchange rates. The use of such forward contracts is limited to
hedging against movements in the value of foreign currencies relative to the
U.S. dollar in connection with specific portfolio transactions or with respect
to portfolio positions. The purpose of transaction hedging is to "lock in" the
U.S. dollar equivalent price of such specific securities. Position hedging is
the sale of foreign currency with respect to portfolio security positions
denominated or quoted in that currency. The Portfolio will not speculate in
foreign currency exchange transactions. Transaction and position hedging will
not be limited to an overall percentage of the Portfolio's assets but will be
employed as necessary to correspond to particular transactions or positions. The
Portfolio may not hedge its currency positions to an extent greater than the
aggregate market value (at the time of entering into the forward contract) of
the securities held in its portfolio denominated in, quoted in, or currently
convertible into that particular currency. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of the
Portfolio's portfolio securities or in foreign exchange rates, or prevent loss
if the prices of these securities decline, but forward foreign currency exchange
contracts do allow the Portfolio to establish a rate of exchange for a future
point in time.
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FUTURES CONTRACTS AND RELATED OPTIONS. The U.S. Government Securities,
Intermediate Corporate Bond, Bond Index, Government & Corporate Bond, Equity
Income, Equity Index, Growth and Income Equity, Small Cap Equity and Balanced
Portfolios may invest in futures contracts and options on futures contracts to
the extent permitted by the Commodity Futures Trading Commission ("CFTC") and
the SEC. The International Equity Portfolio may invest in interest rate futures
contracts, options on futures contracts and other types of financial futures
contracts (such as foreign currency contracts), as well as any index or foreign
market futures which are available in recognized exchanges or in other
established financial markets to the extent permitted by the CFTC and the SEC.
Such transactions, including stock or bond index futures contracts, or options
thereon, act as a hedge to protect a Portfolio from fluctuations in the value of
its securities caused by anticipated changes in interest rate or market
conditions without necessarily buying or selling the securities or, with respect
to the Bond Index and Equity Index Portfolios, can be used to simulate full
investment in the Lehman Aggregate or S&P 500 while retaining a cash balance for
portfolio management purposes. Hedging is a specialized investment technique
that entails skills different from other investment management. The Adviser (or
Sub-Adviser) may also consider such transactions to be economically appropriate
for the reduction of risk inherent in the ongoing management of a Portfolio. A
stock or bond index futures contract is an agreement in which one party agrees
to take or make delivery of an amount of cash equal to a specified dollar amount
times the difference between the index value (which assigns relative values to
the common stock or bonds included in the index) at the close of the last
trading day of the contract and the price at which the agreement is originally
made. No physical delivery of the underlying stock or bond in the index is
contemplated. Similarly, it may be in the best interest of a Portfolio to
purchase or sell interest rate futures contracts, or options thereon, which
provide for the future delivery of specified fixed income securities.
The purchase and sale of futures contracts or related options will not
be a primary investment technique of any Portfolio. None of the Portfolios will
purchase or sell futures contracts (or related options thereon) for hedging
purposes if, immediately after purchase, the aggregate initial margin deposits
and premiums paid by a Portfolio on its open futures and options positions
exceeds 5% of the liquidation value of the Portfolio, after taking into account
any unrealized profits and unrealized losses on any such futures or related
options contracts into which it has entered. For a more detailed description of
futures contracts and related options, see the Statement of Additional
Information and Appendix B thereof.
ASSET-BACKED SECURITIES. The U.S. Government Securities, Intermediate
Corporate Bond, Bond Index, Government & Corporate
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Bond and Balanced Portfolios may purchase asset-backed securities (i.e.,
securities backed by mortgages, installment sale contracts, corporate
receivables, credit card receivables or other assets) that are issued by
entities such as GNMA, FNMA and FHLMC and private issuers such as commercial
banks, financial companies, finance subsidiaries of industrial companies,
savings and loan associations, mortgage banks, and investment banks. To the
extent that a Portfolio invests in asset-backed securities issued by companies
that are investment companies under the 1940 Act, such acquisitions will be
subject to the percentage limitations prescribed by the 1940 Act. See "Other
Applicable Policies -- Securities of Other Investment Companies" above.
Presently there are several types of mortgage-backed securities,
including guaranteed mortgage pass-through certificates, which provide the
holder with a pro rata interest in the underlying mortgages, and CMOs, which
provide the holder with a specified interest in the cash flow of a pool of
underlying mortgages or other mortgage-backed securities. CMOs are issued in
multiple classes, each with a specified fixed or floating interest rate and a
final distribution date. The relative payment rights of the various CMO classes
may be subject to greater volatility and interest-rate risk than other types of
mortgage-backed securities. The average life of asset-backed securities varies
with the underlying instruments or assets and market conditions, which in the
case of mortgages have maximum maturities of forty years. The average life of a
mortgage-backed instrument, in particular, is likely to be substantially less
than the original maturity of the mortgages underlying the securities as the
result of unscheduled principal payments and mortgage prepayments. The
relationship between mortgage prepayment and interest rates may give some
high-yielding mortgage-backed securities less potential for growth in value than
conventional bonds with comparable maturities. In addition, in periods of
falling interest rates, the rate of mortgage prepayments tends to increase.
During such periods, the reinvestment of prepayment proceeds by a Portfolio will
generally be at lower rates than the rates that were carried by the obligations
that have been prepaid. When interest rates rise, the value of an asset-backed
security generally will decline; however, when interest rates decline, the value
of an asset-backed security with prepayment features may not increase as much as
that of other fixed-income securities. Because of these and other reasons, an
asset-backed security's total return may be difficult to predict precisely.
In general, the collateral supporting non-mortgage asset-backed
securities is of shorter maturity than mortgage loans and is less likely to
experience substantial prepayments. Non-mortgage asset-backed securities involve
certain risks that are not presented by mortgage-backed securities arising
primarily from the nature of the underlying assets (i.e., credit card and
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automobile loan receivables as opposed to real estate mortgages). For example,
credit card receivables are generally unsecured and the repossession of
automobiles and other personal property upon the default of the debtor may be
difficult or impracticable in some cases.
TYPES OF MUNICIPAL OBLIGATIONS. The two principal classifications of
Municipal Obligations that may be held by the Tax-Exempt Portfolios are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenues securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
revenue source such as the user of the facility being financed. Revenue
securities include private activity bonds which are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved. Municipal Obligations may also include
"moral obligation" bonds, which are normally issued by special purpose public
authorities. If the issuer of a moral obligation bond is unable to meet its debt
service obligations from current revenues, it may draw on a reserve fund, the
restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer.
Municipal Obligations include debt obligations issued by governmental
entities to obtain funds for various public purposes, including the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses and the extension of loans to public
institutions and facilities. Private activity bonds issued by or on behalf of
public authorities to finance various privately operated facilities are
considered Municipal Obligations. Interest on private activity bonds, although
free of regular federal income tax, may be an item of tax preference for
purposes of the federal alternative minimum tax.
Each of the Tax-Exempt Portfolios may acquire zero coupon obligations,
which may have greater price volatility than coupon obligations and which will
not result in payment of interest until maturity. Also included within the
general category of Municipal Obligations are participation certificates in
leases, installment purchase contracts, or conditional sales contracts ("lease
obligations") entered into by state or political subdivisions to finance the
acquisition or construction of equipment, land, or facilities. Although lease
obligations do not constitute general obligations of the issuer for which the
lessee's unlimited taxing power is pledged, certain lease obligations are backed
by the lessee's covenant to appropriate
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money to make the lease obligation payments. However, under certain lease
obligations, the lessee has no obligation to make these payments in future years
unless money is appropriated on a yearly basis. Although "non-appropriation"
lease obligations are secured by the leased property, disposition of the
property in the event of foreclosure might prove difficult. These securities
represent a relatively new type of financing and may not be as marketable as
more conventional securities. To the extent these securities are illiquid, they
are subject to each Portfolio's applicable limitation on illiquid securities
described below.
VARIABLE AND FLOATING RATE MUNICIPAL OBLIGATIONS. Municipal Obligations
purchased by the Tax-Exempt Portfolios may include rated or unrated variable and
floating rate instruments, including variable rate master demand notes that
permit the indebtedness thereunder to vary in addition to providing for periodic
adjustments in the interest rate. Unrated instruments purchased by a Portfolio
will be determined by the Adviser to be of comparable quality at the time of
purchase to rated instruments that may be purchased. The absence of an active
secondary market for a particular variable or floating rate instrument, however,
could make it difficult for a Portfolio to dispose of an instrument if the
issuer were to default on its payment obligation. A Portfolio could, for these
or other reasons, suffer a loss with respect to such instruments.
STAND-BY COMMITMENTS. Each of the Tax-Exempt Portfolios may acquire
"stand-by commitments" with respect to Municipal Obligations held by it. Under a
stand-by commitment, a dealer agrees to purchase, at a Portfolio's option,
specified Municipal Obligations at a specified price. The Portfolios will
acquire stand-by commitments solely to facilitate portfolio liquidity and do not
intend to exercise their rights thereunder for trading purposes. The Portfolios
expect that stand-by commitments will generally be available without the payment
of any direct or indirect consideration. However, if necessary or advisable, a
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 a Portfolio will be valued at zero
in determining the Portfolio's net asset value.
TAX-EXEMPT DERIVATIVES. Each of the Tax-Exempt Portfolios may hold
tax-exempt derivatives which may be in the form of tender option bonds,
participations, beneficial interests in a trust, partnership interests or other
forms. The Adviser expects that less than 5% of each Tax-Exempt Portfolio's
assets will be invested in such securities during the current year. See the
Statement of Additional Information under "Investment Objectives
and Policies - Tax-Exempt Derivatives."
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DEPOSITORY RECEIPTS. The Bond Index and Equity Index Portfolios may
invest in receipts issued by banks or brokerage firms that are created by
depositing securities listed in each Portfolio's respective index into a special
account at a custodian bank. The custodian holds such securities for the benefit
of the registered owners of the certificates or receipts. The custodian arranges
for the issuance of the certificates or receipts evidencing ownership and
maintains the register. The Portfolios may invest in index-based depository
receipts in lieu of investment in the actual securities that are listed in the
respective indexes.
THE INDEXING APPROACH. The Bond Index and Equity Index Portfolios seek
to approximate the investment performance of their respective market segments,
as represented by their respective indexes, i.e. the Lehman Aggregate in the
case of the Bond Index Portfolio and the S&P 500 in the case of the Equity Index
Portfolio. While there can be no guarantee that a Portfolio's investment results
will precisely match the results of its corresponding index, the Adviser
believes that, before deduction of operating expenses, there will be a very high
correlation between the returns generated by the Portfolios and their respective
indexes. Each Portfolio will attempt to achieve a correlation between its
performance and its respective index of at least 0.95 before deduction of
operating expenses. A correlation of 1.00 would indicate a perfect correlation,
which would be achieved when a Portfolio's net asset value, including the value
of its dividend and capital gains distributions, increases or decreases in exact
proportion to changes in its respective index. Each Portfolio's ability to
correlate its performance with its respective index, however, may be affected
by, among other things, transaction costs, changes in securities markets, the
manner in which S&P or Lehman Brothers, Inc. ("Lehman") calculate their
respective indexes, and the timing of purchases and redemptions. The Adviser
monitors the correlation of the performance of the Portfolios in relation to
their indexes under the supervision of the Board of Directors. In the unlikely
event that a high correlation is not achieved, the Board of Directors will take
appropriate steps to correct the reason for the lower correlation.
THE INCLUSION OF A SECURITY IN EITHER OF THE PORTFOLIOS' INDEXES IN NO
WAY IMPLIES AN OPINION BY S&P OR LEHMAN AS TO ITS ATTRACTIVENESS AS AN
INVESTMENT. S&P AND LEHMAN ARE NOT SPONSORS OF, OR IN ANY WAY AFFILIATED WITH,
THE PORTFOLIOS.
The Adviser believes that the indexing approach should involve less
portfolio turnover, and thus lower brokerage costs, transfer taxes and operating
expenses, than in more traditionally managed funds, although there is no
assurance that this will be the case. Ordinarily, a Portfolio will buy or sell
securities only to reflect changes in an index (including mergers or changes
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in the composition of an index) or to accommodate cash flows into and out of the
Portfolio. The costs and other expenses incurred in securities transactions,
apart from any difference between the investment results of a Portfolio and that
of its respective index, may cause the return of a Portfolio to be lower than
the return of its respective index. The Portfolios may invest in less than all
of the securities included in their respective indexes, which may result in a
return that does not correspond with that of the indexes, after taking expenses
into account.
ILLIQUID SECURITIES. A Portfolio will not knowingly invest more than
15% (10% for each of the Money Market Portfolios) of the value of its net assets
in illiquid securities. Repurchase agreements that do not provide for settlement
within seven days, time deposits maturing in more than seven days, and
securities that are not registered under the Securities Act of 1933, as amended
(the "1933 Act") but that may be purchased by institutional buyers pursuant to
SEC Rule 144A are subject to the applicable limit (unless the Adviser or
Sub-Adviser, pursuant to guidelines established by the Board of Directors,
determines that a liquid market exists).
PORTFOLIO TURNOVER AND TRANSACTIONS. Although the Equity and Bond
Portfolios will not normally engage in short-term trading, each Portfolio
(except the Bond Index and Equity Index Portfolios) reserves the right to do so
if the Adviser (or Sub- Adviser) believes that selling a particular security is
appropriate in light of the Portfolio's investment objective. Investments may be
sold for a variety of reasons, such as a more favorable investment opportunity
or other circumstances bearing on the desirability of continuing to hold such
investments. A high rate of portfolio turnover involves correspondingly greater
brokerage commission expenses and other transaction costs, which must be borne
directly by the Portfolio involved and ultimately by its shareholders. High
portfolio turnover may result in the realization of substantial net capital
gains; distributions derived from such gains may be treated as ordinary income
for federal income tax purposes. See "Taxes" in this Prospectus and the
Statement of Additional Information.
Although the Intermediate Corporate Bond, Bond Index, Equity Income and
Equity Index Portfolios cannot accurately predict their respective annual
portfolio turnover rates, such rates are not expected to exceed 100%.
All orders for transactions in securities or options on behalf of the
Portfolios are placed by the Adviser (or Sub-Adviser) with broker-dealers that
it selects. To the extent permitted by the 1940 Act and guidelines adopted by
the Fund's Board of Directors, a Portfolio may utilize the Distributor or one or
more of its affiliates as a broker in connection with the purchase or sale of
securities when the Adviser believes the
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charge for the transaction does not exceed the usual and customary broker's
commission.
INVESTMENT LIMITATIONS
Except as otherwise noted, each Portfolio's investment policies
discussed above are not fundamental and may be changed by the Fund's Board of
Directors without shareholder approval. However, each Portfolio also has in
place certain fundamental investment limitations, some of which are set forth
below, which may be changed only by a vote of a majority of the outstanding
Shares of a Portfolio. Other investment limitations that also cannot be changed
without a vote of shareholders are contained in the Statement of Additional
Information under "Investment Objectives and Policies."
THE TREASURY MONEY MARKET AND MONEY MARKET PORTFOLIOS
A Portfolio may not:
1. Make loans, except that a Portfolio may purchase
or hold debt instruments in accordance with its investment
objective and policies and may enter into repurchase agreements with
respect to securities (together with any cash collateral) that are
consistent with the Portfolio's permitted investments and that equal at
all times at least 100% of the value of the repurchase price.
2. Borrow money or issue senior securities, except that a
Portfolio may borrow from banks, and the Money Market Portfolio may
enter into reverse repurchase agreements, for temporary purposes in
amounts up to 10% of the value of its total assets at the time of such
borrowing; or mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of a
Portfolio's total assets at the time of such borrowing. A Portfolio
will not purchase securities while its borrowings (including reverse
repurchase agreements) are outstanding.
3. With respect to the Treasury Money Market Portfolio,
purchase securities other than obligations of the U.S. Government, its
agencies and instrumentalities, some of which may be subject to
repurchase agreements, except that the Portfolio may purchase
securities of other investment companies that seek to maintain a
constant net asset value per Share and that are permitted themselves
only to invest in securities which may be acquired by the Portfolio.
4. With respect to the Money Market Portfolio, purchase any
securities which would cause more than 25% of the value of the
Portfolio's total assets at the time of
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purchase to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry,
provided that (a) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, domestic bank certificates of deposit, bankers'
acceptances and repurchase agreements secured by domestic bank
instruments or obligations of the U.S. Government, its agencies or
instrumentalities; (b) wholly-owned finance companies will be
considered to be in the industries of their parents if their activities
are primarily related to financing the activities of the parents; and
(c) utilities will be divided according to their services, for example,
gas, gas transmission, electric and gas, electric and telephone will
each be considered a separate industry.
In accordance with current regulations of the SEC, the Money Market
Portfolio intends to limit investments in the securities of any single issuer
(other than securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities) to not more than 5% of the Portfolio's total assets at the
time of purchase, provided that the Portfolio may invest up to 25% of its total
assets in the securities of any one issuer for a period of up to three business
days. This intention is not, however, a fundamental policy of the Money Market
Portfolio. The Portfolio would have the ability to invest more than five percent
of its assets in any one issuer in accordance with its fundamental policy only
in the event that Rule 2a-7 of the 1940 Act is amended in the future.
THE U.S. GOVERNMENT SECURITIES, INTERMEDIATE CORPORATE BOND, BOND
INDEX, GOVERNMENT & CORPORATE BOND, SHORT-INTERMEDIATE MUNICIPAL,
NATIONAL MUNICIPAL BOND, EQUITY INCOME, EQUITY INDEX, GROWTH &
INCOME EQUITY, SMALL CAP EQUITY, INTERNATIONAL EQUITY AND
BALANCED PORTFOLIOS
A Portfolio may not:
1. Purchase securities of any one issuer (other than
obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities)if, immediately after and as a result of such
investments, more than 5% of the Portfolio's total assets would be
invested in the securities of such issuer, or more than 10% of the
issuer's outstanding voting securities would be owned by the Portfolio
or the Fund, except that up to 25% of the Portfolio's total assets may
be invested without regard to such limitations.
2. Purchase any securities which would cause 25% or more of
the Portfolio's total assets at the time of purchase to be invested in
the securities of one or more issuers conducting their principal
business activities in the same
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industry, provided however, that (a) with respect to each Portfolio
except the Short-Intermediate Municipal and National Municipal Bond
Portfolios, (i) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements secured by obligations of
the U.S. Government or its agencies or instrumentalities; (ii)
wholly-owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related
to financing the activities of their parents; and (iii) utilities will
be divided according to their services (for example, gas, gas
transmission, electric and gas, electric, and telephone will each be
considered a separate industry); and (b) with respect to the
Short-Intermediate Municipal and National Municipal Bond Portfolios,
there is no limitation with respect to obligations issued or guaranteed
by the U.S. Government, any state, territory or possession of the U.S.
Government, the District of Columbia, or any of their authorities,
agencies, instrumentalities or political subdivisions.
3. Borrow money or issue senior securities, except that each
Portfolio may borrow from banks and each Portfolio other than the
National Municipal Bond Portfolio may enter into reverse repurchase
agreements for temporary defensive purposes in amounts not in excess of
10% of the Portfolio's total assets at the time of such borrowing; or
mortgage, pledge, or hypothecate any assets, except in connection with
any such borrowing and in amounts not in excess of the lesser of the
dollar amounts borrowed or 10% of the Portfolio's total assets at the
time of such borrowing; or purchase securities while its borrowings
exceed 5% of its total assets. A Portfolio's transactions in futures
and related options (including the margin posted by a Portfolio in
connection with such transactions), and securities held in escrow or
separate accounts in connection with a Portfolio's investment practices
described in this Prospectus or the Statement of Additional Information
are not subject to this limitation.
4. Make loans, except that (a) each Portfolio may purchase or
hold debt instruments, lend portfolio securities and make other
investments in accordance with its investment objective and policies,
and (b) each Portfolio except the National Municipal Bond Portfolio may
enter into repurchase agreements.
5. Purchase securities on margin, make short sales of
securities or maintain a short position, except that (a) this
investment limitation shall not apply to a Portfolio's transactions in
options, and futures contracts and related options, and (b) a Portfolio
may obtain short-term credits
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as may be necessary for the clearance of purchases and sales of
portfolio securities.
THE TAX-EXEMPT MONEY MARKET AND MISSOURI TAX-EXEMPT BOND
PORTFOLIOS
A Portfolio may not:
1. Purchase securities of any one issuer if, immediately after
and as a result of such purchase, more than 5% of the Portfolio's total
assets would be invested in the securities of such issuer, except that
(a) up to 50% of the Portfolio's total assets may be invested without
regard to this 5% limitation provided that no more than 25% of the
Portfolio's total assets are invested in the securities of any one
issuer and (b) this 5% limitation does not apply to securities issued
or guaranteed by the U.S. Government, its agencies or
instrumentalities. For purposes of this limitation, a security is
considered to be issued by the governmental entity (or entities) whose
assets and revenues back the security, or, with respect to an
industrial development bond (in the case of the Tax-Exempt Money Market
Portfolio) or a private activity bond (in the case of the Missouri
Tax-Exempt Bond Portfolio) that is backed only by the assets and
revenues of a non-governmental user, a security is considered to be
issued by such non-governmental user. In certain circumstances, the
guarantor of a guaranteed security may also be considered to be an
issuer in connection with such guarantee, except that a guarantee of a
security shall not be deemed to be a security issued by the guarantor
when the value of all securities issued and guaranteed by the
guarantor, and owned by the Portfolio, does not exceed 10% of the
Portfolio's total assets.
2. Borrow money or issue senior securities, except that each
Portfolio may borrow from banks, and the Missouri Tax-Exempt Bond
Portfolio may enter into reverse repurchase agreements, for temporary
defensive purposes in amounts not in excess of 10% of its total assets
at the time of such borrowing; or mortgage, pledge, or hypothecate any
assets except in connection with any such borrowing and in amounts not
in excess of the lesser of the dollar amounts borrowed or 10% of its
total assets at the time of such borrowing (including any reverse
repurchase agreements); or purchase securities while borrowings exceed
5% of Tax-Exempt Money Market Portfolio's net assets or 5% of the
Missouri Tax-Exempt Bond Portfolio's total assets. Securities held in
escrow or separate accounts in connection with the Portfolios'
investment practices described in this Prospectus or the Statement of
Additional Information are not subject to this limitation.
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THE MISSOURI TAX-EXEMPT BOND PORTFOLIO
The Portfolio may not:
1. Purchase any securities, except securities issued (as
defined in Investment Limitation No. 1 above with respect to the
Tax-Exempt Money Marketand Missouri Tax-Exempt Bond Portfolios) or
guaranteed by the United States, any state, territory or possession of
the United States, the District of Columbia or any of their
authorities, agencies, instrumentalities or political subdivisions,
which would cause more than 25% of the Portfolio's net assets at the
time of purchase to be invested in the securities of issuers conducting
their principal business activities in the same industry.
2. Make loans except that the Portfolio may purchase and hold
debt instruments and enter into repurchase agreements in accordance
with its investment objective and policies.
In addition, under normal market conditions or when the Adviser deems
that suitable tax-exempt obligations are available, at least 80% of the
Tax-Exempt Money Market Portfolio's assets must be invested in obligations the
interest on which is exempt from federal income tax and stand-by commitments
with respect to such obligations.
Notwithstanding the Investment Limitation in the preceding paragraph,
the Tax-Exempt Money Market Portfolio may invest in securities of other
investment companies that (a) invest in securities that are substantially
similar to those the Portfolio may acquire, and (b) distribute income that is
exempt from regular federal income tax.
The following additional investment policies with respect to the
Tax-Exempt Money Marketand Missouri Tax-Exempt Bond Portfolio are not
fundamental and may be changed by the Board of
Directors without shareholder approval:
The Portfolios may not purchase securities which are not
readily marketable, enter into repurchase agreements providing for
settlement in more than seven days after notice, or purchase other
illiquid securities if, as a result of such purchase, illiquid
securities would exceed 15% (10% with respect to the Tax-Exempt Money
Market Portfolio) of the Portfolios' respective total assets.
The Tax-Exempt Money Market Portfolio has an operating policy to comply
with the requirements of Rule 2a-7 of the 1940 Act. To the extent that Rule 2a-7
is more restrictive than the
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Portfolio's fundamental limitations, the Portfolio will operate in accordance
with Rule 2a-7.
If a percentage limitation is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in value
in the Portfolio's securities will not constitute a violation of such
limitation.
PRICING OF SHARES
THE MONEY MARKET PORTFOLIOS
The Money Market Portfolios' respective net asset values per Share are
determined by the Administrator as of 12:00 noon (Eastern Time) and as of the
close of regular trading hours on the New York Stock Exchange (the "Exchange")
(currently 4:00 p.m. Eastern Time) on each weekday, with the exception of those
holidays on which the New York Stock Exchange or the Federal Reserve Bank of St.
Louis are closed (a "Business Day"). Currently one or both of these institutions
are closed on the customary national business holidays of New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day (observed),
Independence Day (observed), Labor Day, Columbus Day, Veterans' Day,
Thanksgiving Day and Christmas Day (observed).
Each Portfolio's assets are valued based upon the amortized cost
method. Although each Portfolio seeks to maintain its net asset value per Share
at $1.00, there can be no assurance that the net asset value per Share will not
vary. See the Statement of Additional Information under "Net Asset Value" for
further information.
THE EQUITY AND BOND PORTFOLIOS
The Equity and Bond Portfolios' respective net asset values per Share
are determined by the Administrator as of the close of regular trading hours on
the Exchange on each Business Day (currently 4:00 p.m. Eastern Time).
Securities which are traded on a recognized stock exchange are valued
at the last sale price on the securities exchange on which such securities are
primarily traded or at the last sale price on the national securities market.
Securities traded on only over-the-counter markets are valued on the basis of
market values when available. Securities for which there are no transactions are
valued at the average of the current bid and asked prices. Other securities,
including restricted and other securities for which market quotations are not
readily available, and other assets are valued at fair value by the Adviser (or
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Sub-Adviser) under the supervision of the Board of Directors. Investments in
debt securities with remaining maturities of 60 days or less may be valued based
upon the amortized cost method. For further information about valuation of
investments, see "Net Asset Value" in the Statement of Additional Information.
OTHER INFORMATION
The public offering price for each class of Shares of a Portfolio is
based upon net asset value per Share plus, in the case of Investor A Shares of
each Portfolio except the Money Market Portfolios, a front-end sales charge. A
class will calculate its net asset value per Share by adding the value of a
Portfolio's investments, cash and other assets attributable to the class,
subtracting the Portfolio's liabilities attributable to that class, and then
dividing the result by the total number of Shares in the class that are
outstanding. Because the operating expenses of Investor B Shares are higher than
those associated with the other classes of Shares, the net asset value per Share
of Investor B Shares of a Portfolio which declares its net investment income
quarterly will generally be lower than the net asset value per Share of Trust,
Institutional or Investor A Shares of the same Portfolio.
HOW TO PURCHASE AND REDEEM SHARES
PURCHASE OF SHARES
Investor A Shares of each Portfolio are sold subject to a front-end
sales charge, except for Investor A Shares of the Money Market Portfolios which
are sold without any sales charge. Investor B Shares of each Portfolio except
for the Treasury Money Market, Tax-Exempt Money Market , Intermediate Corporate
Bond, Bond Index, Short-Intermediate Municipal and Equity Index Portfolios which
do not offer Investor B Shares, are sold subject to a back-end sales charge.
This back-end sales charge declines over time and is known as a "contingent
deferred sales charge." Before choosing between Investor A Shares or Investor B
Shares of a Portfolio, investors should read "Characteristics of Investor A
Shares and Investor B Shares" and "Factors to Consider When Selecting Investor A
Shares or Investor b Shares" below.
Except as provided below with respect to Investor B Shares of the Money
Market Portfolio, Investor A Shares and Investor B Shares are sold through
broker-dealers or other organizations acting on behalf of their customers.
Generally, investors purchase Investor A Shares or Investor B Shares through a
broker-dealer organization which has a sales agreement with the Distributor or
through an organization which has entered into a servicing agreement with the
Fund with respect to Investor A Shares and/or Investor B Shares. The
organization is responsible
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for transmitting purchase orders directly to the Fund. Investors purchasing
Shares of a Portfolio which offers both Investor A and Investor B Shares must
specify at the time of investment whether they are purchasing Investor A Shares
or Investor B Shares.
Investor B Shares of the Money Market Portfolio are available for
purchase only by those investors participating in the ARCH Asset Adviser
Program. Otherwise, Investor B Shares of the Money Market Portfolio are
available only to the holders of Investor B Shares of another Portfolio who wish
to exchange their Investor B Shares of such other Portfolio for Investor B
Shares of the Money Market Portfolio. For further information on the ARCH Asset
Adviser Program, investors should, contact their investment representatives or
the ARCH Funds' Service Center at 1-800-551-3731.
The minimum initial investment in each Portfolio is $1,000 and the
minimum for each subsequent investment is $100, except for investments made
through (a) the Automatic Investment Program, in which case the initial minimum
and subsequent minimum investments are $50, (b) a sweep program available
through an investor's financial institution, in which case there are no minimum
investments, (c) a payroll deduction program, in which case there is no minimum
initial investment and minimum subsequent investments are $25 per month, or (d)
a wrap fee program, in which case there are no minimum investments. The minimum
initial investment to participate in the Automatic Exchange program is $5,000.
See "How to Purchase and Redeem Shares -- Exchange Privileges -- Automatic
Exchange Program" below for additional requirements.
Purchases may be effected on Business Days when the Adviser,
Distributor, and Mercantile (the Custodian) are open for business. The Fund
reserves the right to reject any purchase order, including purchases made with
foreign and third party drafts or checks. All orders for new IRAs or other
retirement plan accounts placed through the transfer agent must be accompanied
by an account application. Account applications may be obtained from your
investment representative or the Fund at 1-800-551-3731.
Organizations placing orders directly or on behalf of their customers
should contact the Fund at 1-800-551-3731. Investors may also call the Fund for
information on how to purchase Shares.
EFFECTIVE TIME OF PURCHASE. A purchase order for the Money Market
Portfolios received and accepted by the Fund by 12:00 noon (Eastern time) on a
Business Day, is effected at the net asset value per Share next determined after
receipt of the order in good form if the Fund's Custodian has received payment
in federal funds or other immediately available funds by 4:00 p.m. (Eastern
time) on that day. If such funds are not available for
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investment by 4:00 p.m. (Eastern time), the order will be cancelled. Purchase
orders received after 12:00 noon (Eastern time) will be placed the following
Business Day.
If purchase orders for the Equity and Bond Portfolios are received in
good form and accepted by the Fund prior to 4:00 p.m. (Eastern time) on any
Business Day, Shares will be priced according to the net asset value per Share
next determined on that day after receipt of the order. Immediately available
funds must be received by the Custodian prior to 4:00 p.m. within three Business
Days following the receipt of such order. If funds are not received by such
date, the order will be cancelled, and notice thereof will be given to the
person or organization placing the order.
In the case of an order for the purchase of Shares placed through a
broker-dealer, it is the responsibility of the broker-dealer to promptly
transmit the order to the Distributor. If the broker-dealer fails to do so, the
investor's right to that day's closing price must be settled between the
investor and the broker-dealer. Payment for orders which are not received or
accepted will be returned after prompt inquiry to the transmitting organization.
PURCHASES BY MAIL. To purchase Shares of a Portfolio by mail, complete
an account application and send it to the Fund along with a check (or other
negotiable bank draft or money order) in at least the minimum initial purchase
amount, made payable to the appropriate Portfolio. Investors purchasing Shares
of a Portfolio which offers both Investor A Shares and Investor B Shares by mail
must indicate whether they wish to buy Investor A Shares or Investor B Shares.
Subsequent purchases of Shares of a Portfolio may be made at any time in at
least the minimum subsequent purchase amount by mailing a check payable to the
Portfolio.
All shareholders of record will receive confirmations of Share
purchases, exchanges, and redemptions in the mail. If Shares are held in the
name of an organization, such organization is responsible for transmitting
purchase, exchange, and redemption orders to the Fund on a timely basis,
recording all purchase, exchange, and redemption transactions, and providing
regular account statements which confirm such transactions to beneficial owners
(or arranging for such services).
AUTOMATIC INVESTMENT PROGRAM (AIP)
Shareholders may open an account or add to their investment on a
monthly basis in a minimum amount of $50, on the 20th day (or the next Business
Day after the 20th) of each month. Under the AIP, funds may be automatically
withdrawn from the shareholder's checking account (as long as the shareholder's
bank
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is a member of the Automated Clearing House). Such funds are invested in
Investor A or Investor B Shares, as appropriate, at the net asset value plus any
applicable front-end sales charge next determined on the day an order is
effected by the transfer agent, BISYS Fund Services Ohio, Inc. (the "Transfer
Agent"). An investor may apply for participation in the AIP through the
organization servicing his or her Fund account and by completing the
supplementary AIP authorization form. The AIP may be modified or terminated by a
shareholder on 30 days' written notice to his or her investment representative
or to the Fund, or by the Fund at any time.
The AIP is one means by which investors may use "Dollar Cost Averaging"
in making investments. Dollar Cost Averaging can be useful in investing in
portfolios such as the Equity and Bond Portfolios whose price per Share
fluctuates. Instead of trying to time market performance, a fixed dollar amount
is invested in Portfolio Shares at predetermined intervals. This may help
investors to reduce their average cost per Share because the agreed upon fixed
investment amount allows more Shares to be purchased during periods of lower
Share prices and fewer Shares during periods of higher prices. In order to be
effective, Dollar Cost Averaging should usually be followed on a sustained,
consistent basis. Investors should be aware, however, that Shares bought using
Dollar Cost Averaging are made without regard to their price on the day of
investment or to market trends. In addition, while investors may find Dollar
Cost Averaging to be beneficial, it will not prevent a loss if an investor
ultimately redeems his or her Shares at a price which is lower than their
purchase price.
APPLICABLE SALES CHARGES - INVESTOR A SHARES OF THE EQUITY AND
BOND PORTFOLIOS
The public offering price for Investor A Shares of the Equity and Bond
Portfolios is the sum of the net asset value of the Shares being purchased plus
any applicable sales charge. No sales charge is assessed on the reinvestment of
dividends and capital gain distributions. The sales charge is assessed as
follows:
The ARCH U.S. Government Securities, Government &
Corporate Bond, Missouri Tax-Exempt Bond,
Equity Income, Growth & Income Equity, Small Cap Equity,
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<TABLE>
INTERNATIONAL EQUITY AND BALANCED PORTFOLIOS
<CAPTION>
AS A % AS A % DEALERS'
OF OF REALLOWANCE
Offering NET ASSET AS A % OF
PRICE VALUE OFFERING
AMOUNT OF TRANSACTION PER SHARE PER SHARE PRICE
- --------------------- --------- --------- -----------
<S> <C> <C> <C>
Less than $50,000............................................. 4.50% 4.71% 4.00%
$50,000 but less than $100,000................................ 3.50 3.63 3.00
$100,000 but less than $250,000............................... 2.50 2.56 2.00
$250,000 but less than $500,000............................... 1.50 1.52 1.00
$500,000 but less than $1,000,000............................. 1.00 1.01 0.50
$1,000,000 and over........................................... .50 .50 .40
The ARCH Intermediate Corporate Bond, Bond Index,
Short-Intermediate Municipal and Equity Index Portfolios
--------------------------------------------------------
<CAPTION>
AS A % AS A % DEALERS'
OF OF REALLOWANCE
OFFERING NET ASSET AS A % OF
PRICE VALUE OFFERING
AMOUNT OF TRANSACTION PER SHARE PER SHARE PRICE
- --------------------- --------- --------- -----------
<S> <C> <C> <C>
Less than $250,000............................................ 2.50% 2.56% 2.00%
$50,000 but less than $500,000................................ 1.50 1.52 1.30
$100,000 but less than $1,000,000............................. 1.00 1.01 .85
$1,000,000 and over........................................... .50 .50 .40
</TABLE>
The Distributor will pay the appropriate Dealers' Reallowance to broker-dealer
organizations which have entered into an agreement with the Distributor. The
Dealers' Reallowance may be changed from time to time. Upon notice to the Fund's
shareholders, the Distributor, at its sole discretion, may reallow up to the
full applicable sales charge as shown on the above schedule during periods
specified in such notice. Dealers who receive 90% or more of a sales load may be
deemed to be "underwriters" under the Securities Act of 1933, as amended.
No sales charge is assessed on purchases of Investor A Shares of the
Equity and Bond Portfolios by: (a) directors and officers of the Fund and the
immediate family members of such individuals; (b) directors, current and retired
employees and participants in employee benefit/retirement plans (future and
current annuitants) of Mercantile Bancorporation Inc. or any of its affiliates
or the Distributor or its affiliates and the immediate family members of such
individuals; (c) brokers, dealers, and agents who have a sales agreement with
the Distributor, and their employees (and the immediate family members of such
individuals); (d) customers who purchase pursuant to a wrap fee program offered
by any broker-dealer or other financial institution or financial planning
organization; (e) individuals who purchase Investor A Shares with the proceeds
of Trust Shares or Institutional Shares redeemed in connection with a rollover
of benefits paid by a qualified retirement or employee
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benefit plan or distribution on behalf of any other qualified account
administered by Mercantile or its affiliates or correspondent banks, within 60
days of receipt of such payment; (f) investors who purchase Investor A Shares
through a payroll deduction program; (g) employees of any sub-adviser to the
Fund; (h) holders of Southwestern Bell Visa cards issued by Mercantile Bank of
Illinois, N.A. who participate in the Automatic Investment Program (credit cards
may not be used for the purchase of Fund Shares); (i) investors exchanging Trust
Shares of a Portfolio received from the distribution of assets held in a
qualified trust, agency or custodian account with the trust department of
Mercantile or any of its affiliated or correspondent banks; or (j) other
investment companies distributed by the Distributor or its affiliates. Investors
who believe that they may qualify under any of the exemptions listed above
should contact the Fund at 1-800-551-3731 prior to making a purchase.
REDUCED SALES CHARGES - INVESTOR A SHARES OF THE EQUITY AND BOND
PORTFOLIOS
The sales charge on purchases of Investor A Shares of the Equity and
Bond Portfolios may be reduced through:
- rights of accumulation
- quantity discounts
- letter of intent
- reinvestment privilege
To qualify for a reduced sales load, an investor must so notify his or her
investment representative, who in turn will notify the Distributor at the time
of purchase.
RIGHTS OF ACCUMULATION - INVESTOR A SHARES. An investor who has
previously purchased Investor A Shares of a Portfolio and has paid a sales
charge ("load") may be eligible for reduced sales charges when purchasing
additional Investor A Shares of a Portfolio with a sales charge. An investor's
aggregate investment in Shares of such load Portfolios is the total value (based
on the higher of current net asset value or the public offering price originally
paid) of: (a) current purchases, and (b) Shares that are already beneficially
owned by the investor on which a sales charge has already been paid. If, for
example, an investor beneficially owns Investor A Shares of a Portfolio with a
maximum 4.50% sales load having an aggregate current value of $240,000 and
subsequently purchases additional Investor A Shares of a Portfolio with a
maximum 4.50% sales load having a current value of $10,000, the sales charge
applicable to the subsequent purchase would be reduced to 1.50% of the offering
price.
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QUANTITY DISCOUNTS - INVESTOR A SHARES. As shown in the table under
"Applicable Sales Charges - Investor A Shares of the Equity and Bond
Portfolios," larger purchases reduce the sales charge paid. The Fund will
combine purchases made in a load Portfolio on the same day by the investor and
immediate family members when calculating the applicable sales charge.
LETTER OF INTENT - INVESTOR A SHARES. By checking the Letter of Intent
box on the account application, a shareholder becomes eligible for reduced sales
charges applicable to the total amount invested in Investor A Shares in a load
Portfolio over a 13-month period (beginning up to 90 days prior to the date
indicated on the account application). The Transfer Agent will hold in escrow 5%
of the amount indicated for payment of a higher sales load if a shareholder does
not purchase the full amount indicated on the account application. Upon
completion of the total minimum investment specified on the account application,
the escrow will be released, and an adjustment will be made to reflect any
reduced sales charge applicable to Shares purchased during the 90-day period
prior to submission of the account application. Additionally, if total purchases
within the 13- month period exceed the amount specified, an adjustment will be
made to reflect further reduced sales charges applicable to such purchases. All
such adjustments will be made at the conclusion of the 13-month period and in
the form of additional Shares credited to the shareholder's account at the then
current public offering price applicable to a single purchase of the total
amount of the total purchases. If total purchases are less than the amount
specified, escrowed Shares may be involuntarily redeemed to pay the additional
sales charge. Checking a Letter of Intent box does not bind an investor to
purchase, or the Fund to sell, the full amount indicated at the sales load in
effect at the time of signing, but an investor must complete the intended
purchase to obtain the reduced sales load.
REINVESTMENT PRIVILEGE - INVESTOR A SHARES. Upon redemption of Investor
A Shares on which a sales charge was paid, a shareholder has a one-time right,
to be exercised within 60 days, to reinvest the redemption proceeds at the next
determined net asset value without paying any additional sales charge. The
shareholder must notify his or her investment representative or the Distributor
in writing of the reinvestment and provide a receipt or other evidence of the
redemption in order to eliminate a sales charge.
MISCELLANEOUS - INVESTOR A SHARES. Reduced sales charges may be
modified or terminated at any time and are subject to confirmation of an
investor's holdings. For more information about reduced sales charges, an
investor should contact his or her investment representative or the Distributor.
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APPLICABLE SALES CHARGES - INVESTOR B SHARES OF THE CDSC
PORTFOLIOS
Investor B Shares of the CDSC Portfolios are sold at their net asset
value next determined after a purchase order is received in good form by the
Fund's Distributor. Although investors pay no front-end sales charge on
purchases of Investor B Shares, such Shares are subject to a deferred sales
charge at the rates set forth in the chart below if they are redeemed within six
years of purchase. Service Organizations will receive commissions from the
Distributor in connection with sales of Investor B Shares. These commissions may
be different than the reallowances or placement fees, if any, paid to dealers in
connection with sales of Investor A Shares.
The deferred sales charge on Investor B Shares is based on the lesser
of the net asset value of the Shares on the redemption date or the original cost
of the Shares being redeemed. As a result, no sales charge is charged on any
increase in the principal value of an investor's Shares. In addition, a
contingent deferred sales charge will not be assessed on Investor B Shares
purchased through reinvestment of dividends or capital gains distributions.
The amount of any contingent deferred sales charge an investor must pay
on Investor B Shares depends on the number of years that elapse between the
purchase date and the date such Investor B Shares are redeemed. Solely for
purposes of determining the number of years from the time of payment for an
investor's Share purchase, all payments during a month will be aggregated and
deemed to have been made on the first day of the month.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE (AS A
NUMBER OF YEARS PERCENTAGE OF DOLLAR AMOUNT
ELAPSED SINCE PURCHASE SUBJECT TO THE CHARGE)
- ---------------------- ----------------------
<S> <C>
One or less........................... 5.0%
More than one, but less
than two............................ 4.0%
Two, but less than three.............. 3.0%
Three, but less than four............. 3.0%
Four, but less than five.............. 2.0%
Five, and up to and
including six....................... 1.0%
After six years....................... None
</TABLE>
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When an investor redeems his or her Investor B Shares, the redemption
order is processed to minimize the amount of the contingent deferred sales
charge that will be charged. Investor B Shares are redeemed first from those
Investor B Shares that are not subject to the deferred sales load (i.e.,
Investor B Shares that were acquired through reinvestment of dividends or
capital gain distributions) and after that from the Investor B Shares that have
been held the longest.
For example, assume an investor purchased 100 Investor B Shares at $10
a Share (for a total cost of $1,000), three years later the Shares have a net
asset value of $12 per Share and during that time the investor acquired 10
additional Shares through dividend reinvestment. If the investor then makes one
redemption of 50 Shares (resulting in proceeds of $600, 50 Shares x $12 per
share), the first 10 Shares redeemed will not be subject to the contingent
deferred sales charge because they were acquired through reinvestment of
dividends. With respect to the remaining 40 Shares redeemed, the contingent
deferred sales charge is charged at $10 per Share (because the original purchase
price of $10 per Share is lower than the current net asset value of $12 per
share). Therefore, only $400 of the $600 such investor received from selling his
or her Shares will be subject to the contingent deferred sales charge, at a rate
of 3.0% (the applicable rate in the third year after purchase). The proceeds
from the contingent deferred sales charge that the investor may pay upon
redemption go to the Distributor, which may use such amounts to defray the
expenses associated with the distribution-related services involved in selling
Investor B Shares. The contingent deferred sales charge, along with ongoing
distribution fees paid with respect to Investor B Shares, enables those Shares
to be purchased without the imposition of a front-end sales charge.
EXEMPTIONS FROM THE CONTINGENT DEFERRED SALES CHARGE. The following
types of redemptions qualify for an exemption from the contingent deferred sales
charge: (i) exchanges described under "Exchange Privileges" below; (ii)
redemptions in connection with required (or, in some cases, discretionary)
distributions to participants or beneficiaries of an employee pension,
profit-sharing or other trust or qualified retirement or Keogh plan, individual
retirement account or custodial account maintained pursuant to Section 403(b)(7)
of the Internal Revenue Code due to death, disability or the attainment of a
specified age; (iii) redemptions effected pursuant to a Portfolio's right to
liquidate a shareholder's account if the aggregate net asset value of Shares
held in the account is less than the minimum account size; (iv) redemptions in
connection with the death or disability of a shareholder; or (v) redemptions
resulting from a tax-free return of an excess contribution pursuant to Section
408(d)(4) or (5) of the Internal Revenue Code.
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CHARACTERISTICS OF INVESTOR A SHARES AND INVESTOR B SHARES
The primary difference between Investor A Shares and Investor B Shares
lies in their sales charge structures and distribution arrangements. An investor
should understand that the purpose and function of the sales charge structures
and distribution arrangements for both Investor A Shares and Investor B Shares
are the same.
Investor A Shares are sold at their net asset value plus, in the case
of the Equity and Bond Portfolios, a front-end sales charge of up to 4.50%
(2.50% with respect to the Intermediate Corporate Bond, Bond Index,
Short-Intermediate Municipal and Equity Index Portfolios). This front-end sales
charge may be reduced or waived in some cases. See "Applicable Sales Charges
Investor A Shares of the Equity and Bond Portfolios." Investor A Shares are
subject to ongoing distribution and service fees at an annual rate of up to
0.30% (0.25% with respect to the Money Market Portfolios) of a Portfolio's
average daily net assets attributable to its Investor A Shares.
Investor B Shares are sold at net asset value without an initial sales
charge. Normally, however, a deferred sales charge is paid if the Shares are
redeemed within six years of investment. See "Applicable Sales Charges -
Investor B Shares of the CDSC Portfolios." Investor B Shares are subject to
ongoing distribution and service fees at an annual rate of up to 1.00% of a
Portfolio's average daily net assets attributable to its Investor B Shares.
These ongoing fees, which are higher than those charged on Investor A Shares,
will cause Investor B Shares to have a higher expense ratio and pay lower
dividends than Investor A Shares.
Eight years after purchase, Investor B Shares will convert
automatically to Investor A Shares. The purpose of the conversion is to relieve
a holder of Investor B Shares of the higher ongoing expenses charged to those
Shares, after enough time has passed to allow the Distributor to recover
approximately the amount it would have received if a front-end sales charge had
been charged. The conversion from Investor B Shares to Investor A Shares takes
place at net asset value, as a result of which an investor receives
dollar-for-dollar the same value of Investor A Shares as he or she had of
Investor B Shares. The conversion occurs eight years after the beginning of the
calendar month in which the Shares are purchased. As a result of the conversion,
the converted Shares are relieved of the distribution and service fees borne by
Investor B Shares, although they are subject to the distribution and service
fees borne by Investor A Shares.
Investor B Shares acquired through a reinvestment of dividends or
distributions are also converted at the earlier of two dates - eight years after
the beginning of the calendar month
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in which the reinvestment occurred or the date of conversion of the most
recently purchased Investor B Shares that were not acquired through reinvestment
of dividends or distributions. For example, if an investor makes a one-time
purchase of Investor B Shares of a particular Portfolio, and subsequently
acquires additional Investor B Shares of that Portfolio only through
reinvestment of dividends and/or distributions, all of such investor's Investor
B Shares in that Portfolio, including those acquired through reinvestment, will
convert to Investor A Shares of that Portfolio on the same date.
FACTORS TO CONSIDER WHEN SELECTING INVESTOR A SHARES OR INVESTOR
B SHARES
Before purchasing Shares of a Portfolio which offers both Investor A
Shares and Investor B Shares, investors should consider whether, during the
anticipated life of their investment in the Portfolio, the accumulated
distribution fees and potential contingent deferred sales charges on Investor B
Shares prior to conversion would be less than the initial sales charge and
accumulated distribution fees on Investor A Shares purchased at the same time
(note that Investor A Shares of the Money Market Portfolio are sold without a
sales charge), and to what extent such differential would be offset by the
higher yield of Investor A Shares. In this regard, to the extent that there is
no sales charge for Investor A Shares, in the case of the Money Market
Portfolio, or the sales charge for Investor A Shares is waived or reduced by one
of the methods described above, in the case of the Equity and Bond Portfolios,
investments in Investor A Shares become more desirable. The Fund will refuse all
purchase orders for Investor B Shares of over $100,000.
Although Investor A Shares are subject to a distribution and service
fee, they are not subject to the higher distribution and service fee applicable
to Investor B Shares. For this reason, Investor A Shares can be expected to pay
correspondingly higher dividends per Share. However, because initial sales
charges are deducted at the time of purchase, purchasers of Investor A Shares of
the Equity and Bond Portfolios that do not qualify for waivers of or reductions
in the initial sales charge would have less of their purchase price initially
invested in a Portfolio than purchasers of Investor B Shares of the same
Portfolio.
As described above, purchasers of Investor B Shares of the Equity and
Bond Portfolios will have more of their initial purchase price invested. Any
positive investment return on this additional invested amount would partially or
wholly offset the expected higher annual expenses borne by Investor B Shares of
those Portfolios. Because the Portfolios' future returns cannot be predicted,
there can be no assurance that this will be the case. Holders of Investor B
Shares would, however, own Shares that are subject to higher annual expenses
and, for a six-year
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period, such Shares would be subject to a contingent deferred sales charge of up
to 5.00% upon redemption, depending upon the year of redemption. Investors
expecting to redeem during this six-year period should compare the cost of the
contingent deferred sales charge plus the aggregate annual Investor B Shares'
distribution and service fees to the cost of the initial sales charge and
distribution and service fees on the Investor A Shares (note that Investor A
Shares of the Money Market Portfolio are sold without a sales charge). Over
time, the expense of the annual distribution and service fees on the Investor B
Shares may equal or exceed the initial sales charge, if any, and annual
distribution and service fees applicable to Investor A Shares. For example, if
net asset value remains constant, the aggregate distribution and service fees
with respect to Investor B Shares of the Equity and Bond Portfolios would equal
or exceed the initial sales charge and aggregate distribution fees of Investor A
Shares of those Portfolios approximately eight years after the purchase. In
order to reduce such fees of investors that hold Investor B Shares for more than
eight years, Investor B Shares will be automatically converted to Investor A
Shares as described above at the end of such eight-year period.
EXCHANGE PRIVILEGES
The exchange privilege enables shareholders to exchange (i) Investor A
Shares of a Portfolio for Investor A Shares of another Portfolio offered by the
Fund or, under certain circumstances described below, for Trust Shares or
Institutional Shares of the same Portfolio, and (ii) Investor B Shares of a
Portfolio for Investor B Shares of another Portfolio offered by the Fund. The
exchange privilege may be exercised only in those states where the class of
shares of such other Portfolios may be legally sold.
EXCHANGES - INVESTOR A SHARES. Shareholders who have purchased Investor
A Shares of a Portfolio and who have paid any applicable sales charge ("load")
(including Shares acquired through reinvestment of dividends or distributions on
such Shares) may exchange those Shares for Investor A Shares of another load
Portfolio without paying an additional sales load. Shareholders who have
purchased Investor A Shares of a Portfolio (other than through a previous
exchange from another load Portfolio on which any applicable sales load has been
paid) with a lower sales load may be charged an additional sales load on
exchanges of Shares of such Portfolio for Shares of a Portfolio with a higher
sales load. Shareholders may also exchange Investor A Shares of a no-load
Portfolio for Investor A Shares of another no-load Portfolio without paying a
sales load. When Investor A Shares of a no-load Portfolio are exchanged for
Investor A Shares of a load Portfolio, the applicable sales load (if any) will
be assessed. However, shareholders exchanging Investor A Shares of a no-load
Portfolio that were acquired through a previous exchange involving Shares on
which a load was
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paid will not be required to pay an additional sales load upon
the reinvestment of the equivalent investment into a load Portfolio within a
twelve month period. Under such circumstances, the shareholder must notify the
Distributor that a sales load was originally paid and provide the Distributor
with sufficient information to permit confirmation of the shareholder's right
not to pay a sales load.
In addition, shareholders who have a qualified trust, agency or
custodian account with the trust department of Mercantile or any of its
affiliated or correspondent banks, and whose Shares are to be held in that
account, may also exchange Investor A Shares of a Portfolio for Trust Shares or
Institutional Shares in the same Portfolio.
EXCHANGES - INVESTOR B SHARES. Shareholders who have purchased Investor
B Shares of a Portfolio (including Shares acquired through reinvestment of
dividends or distributions on such Shares) may exchange those Shares for
Investor B Shares of another Portfolio without the payment of any contingent
deferred sales charge at the time the exchange is made. In determining the
holding period for calculating the contingent deferred sales charge payable on
redemptions of Investor B Shares, the holding period of the Investor B Shares
originally held will be added to the holding period of the Investor B Shares
acquired through the exchange. No exchange fee is imposed by the Fund.
OTHER INFORMATION CONCERNING EXCHANGES. The Shares exchanged must have
a current value at least equal to the minimum initial or subsequent investment
required by the particular Portfolio into which the exchange is being made. The
Fund reserves the right to reject any exchange request. The exchange privilege
may be modified or terminated at any time upon 60 days' written notice to
shareholders. An investor may telephone an exchange request by calling his or
her investment representative, which is responsible for transmitting such
exchange request to the Fund. See "Other Exchange or Redemption Information"
below. Investors who want to telephone an exchange request directly to the Fund,
and, have elected this privilege on the account application may follow the
procedures described below under "Redemption by Telephone." An investor should
consult his or her investment representative or the Fund for further information
regarding procedures for exchanging Shares.
AUTOMATIC EXCHANGE PROGRAM. The Automatic Exchange Program enables
shareholders to make regular, automatic withdrawals from an Investor A Share or
Investor B Share account in a Portfolio and use those proceeds to benefit from
Dollar Cost Averaging by automatically making purchases of the same class of
Shares in another Portfolio. With shareholder authorization, the Fund's Transfer
Agent will withdraw the amount specified (subject to the applicable minimums)
from the shareholder's account and will
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automatically invest that amount in Shares of the Portfolio designated by the
shareholder on the date of such deduction.
In order to participate in the Automatic Exchange Program, shareholders
must make a minimum initial purchase of $5,000 and maintain a minimum account
balance of $1,000. Additionally, shareholders must complete the supplementary
authorization form which may be obtained from their investment representative or
the Fund. To change instructions with respect to the Automatic Exchange Program
or to discontinue this feature, shareholders must send a written request to
their investment representative or to the Fund. The Automatic Exchange Program
may be amended or terminated without notice at any time by the Fund.
REDEMPTION OF SHARES
Redemption orders should be placed with or through the same
broker-dealer organization that placed the original purchase order. Redemption
orders are effected at a Portfolio's net asset value per Share next determined
after receipt of the order by the Fund. Proceeds from the redemptions of
Investor B Shares will be reduced by the amount of any applicable contingent
deferred sales charge. The organization through which the investor placed the
order is responsible for transmitting redemption orders to the Fund on a timely
basis. No charge for sending redemption payments electronically is currently
imposed by the Fund, although a charge may be imposed in the future. The Fund
reserves the right to send redemption proceeds electronically within seven days
after receiving a redemption order if, in the judgment of the Adviser, an
earlier payment could adversely affect a Portfolio.
REDEMPTION BY MAIL
A written redemption request must be accompanied by any Share
certificates which are properly endorsed for transfer. The Transfer Agent may
require a signature guarantee by an eligible guarantor institution. For purposes
of this policy, the term "eligible guarantor institution" shall include banks,
brokers, dealers, credit unions, securities exchanges and associations, clearing
agencies and savings associations as those terms are defined in Rule 17Ad-15
under the Securities Exchange Act of 1934. The Transfer Agent reserves the right
to reject any signature guarantee if (1) it has reason to believe that the
signature is not genuine, (2) it has reason to believe that the transaction
would otherwise be improper, or (3) the guarantor institution is a broker or
dealer that is neither a member of a clearing corporation nor maintains net
capital of at least $100,000. The signature guarantee requirement will be waived
if all of the following conditions apply: (1) the redemption check is payable to
the shareholder(s) of record and (2) the redemption
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check is mailed to the shareholder(s) at the address of record or the proceeds
are either mailed or sent electronically to a commercial bank account previously
designated on the account application. An investor with questions or needing
assistance should contact his or her investment representative or the Fund.
Additional documentation may be required if the redemption is requested by a
corporation, partnership, trust, fiduciary, executor, or administrator.
REDEMPTION BY TELEPHONE
Shares may be redeemed by telephone if the shareholder selected that
option on the account application. The shareholder may have the proceeds mailed
to his or her address or mailed or sent electronically to a bank account
previously designated on the account application. It is not necessary for
shareholders to confirm telephone redemption requests in writing. If a
shareholder did not originally select the telephone redemption privilege, the
shareholder must provide written instructions to the Transfer Agent to add this
feature. Neither the Fund nor its service contractors will be liable for any
loss, damage, expense or cost arising out of any telephone redemption effected
in accordance with the Fund's telephone redemption procedures, acting upon
instructions reasonably believed to be genuine. The Fund will employ procedures
designed to provide reasonable assurance that instructions by telephone are
genuine; if these procedures are not followed the Fund or its service
contractors may be liable for any losses due to unauthorized or fraudulent
instructions. If Share certificates are outstanding with respect to an account,
the telephone redemption and telephone exchange privilege is not available. If,
due to temporary adverse conditions, investors are unable to effect telephone
transactions, investors are encouraged to follow the procedures described in
"Other Exchange or Redemption Information" below.
Proceeds from redemptions of Investor A Shares and/or Investor B Shares
of the MONEY MARKET PORTFOLIOS with respect to redemption orders received by the
Fund before 12:00 noon (Eastern time) on a Business Day normally will be sent
electronically the same day (or mailed by check the next Business Day) to the
organization that placed the redemption order in good form. Proceeds for
redemption orders that are received after 12:00 noon (Eastern time) or on a
non-business Day normally will be sent electronically on the next Business Day
(or mailed by check on the second Business Day thereafter).
Proceeds from redemptions of Investor A Shares and/or Investor B Shares
of the EQUITY AND BOND PORTFOLIOS with respect to redemption orders received by
the Fund before 4:00 p.m. (Eastern time) on a Business Day normally are sent
electronically or mailed by check to the organization that placed the redemption
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order within three Business Days after the Distributor's receipt of the order in
good form.
CHECKWRITING -- MONEY MARKET PORTFOLIOS
Checkwriting is available from certain institutions with respect to
each of the Money Market Portfolios. No charge for use of the checkwriting
privilege is currently imposed by the Fund, although a charge may be imposed in
the future. With this service, a shareholder may write up to six checks per
month in an amount per check of $250 or more. To obtain checks, a shareholder
must complete the signature card that accompanies the account application. To
establish this checkwriting service after opening an account in a Money Market
Portfolio, the shareholder must contact his or her investment representative by
telephone or mail to obtain an account application. A signature guarantee may be
required. A SHAREHOLDER WILL RECEIVE THE DAILY DIVIDENDS DECLARED ON THE SHARES
TO BE REDEEMED UP TO THE DAY THAT A CHECK IS PRESENTED TO THE CUSTODIAN FOR
PAYMENT. Upon 30 days' written notice to shareholders, the checkwriting
privilege may be modified or terminated. An investor cannot close an account in
a Money Market Portfolio by writing a check. The checkwriting privilege may be
disadvantageous for holders of Investor B Shares of the Money Market Portfolio
due to the effect of the contingent deferred sales charge.
AUTOMATIC WITHDRAWAL PLAN (AWP)
An Automatic Withdrawal Plan may be established by a new or existing
shareholder of any Portfolio if the value of his or her account (valued at the
net asset value at the time of the establishment of the AWP) equals $10,000 or
more. Shareholders who elect to establish an AWP may receive a monthly,
quarterly, semi-annual, or annual check in a stated amount of not less than $50
on or about the 25th day of the applicable month of withdrawal. Periodic
payments will be reduced by any applicable contingent deferred sales charge.
Portfolio Shares will be redeemed as necessary to meet withdrawal payments.
Withdrawals may reduce principal and eventually deplete the shareholder's
account. The maintenance of an AWP may be disadvantageous for holders of
Investor B Shares due to the effect of the contingent deferred sales charge. A
shareholder who desires to establish an AWP after opening an account should
complete the AWP form in the back of the Prospectus or contact his or her
investment representative or the Fund for an AWP application. A signature
guarantee will be required. An AWP may be terminated by a shareholder on 30
days' written notice to his or her investment representative or to the Fund or
by the Fund at any time.
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PURCHASE OF INVESTOR A SHARES AT NET ASSET VALUE
From time to time the Distributor may offer special concessions to
enable investors to purchase Investor A Shares of the Equity and Bond Portfolios
at net asset value without payment of a front-end sales charge. To qualify for a
net asset value purchase, the investor must pay for such purchase with the
proceeds from the redemption of shares of a non-affiliated mutual fund on which
a front-end sales charge was paid. A qualifying purchase of Investor A Shares
must occur within 30 days of the prior redemption and must be evidenced by a
confirmation of the redemption transaction. At the time of purchase, the
investment representative must notify the Fund that the purchase qualifies for
a purchase at net asset value. Proceeds from the redemption of Shares on which
no front-end sales charge was paid do not qualify for a purchase at net asset
value.
OTHER EXCHANGE OR REDEMPTION INFORMATION
WHEN REDEEMING SHARES IN A PORTFOLIO THAT OFFERS BOTH INVESTOR A SHARES
AND INVESTOR B SHARES, SHAREHOLDERS SHOULD INDICATE WHETHER THEY ARE REDEEMING
INVESTOR A SHARES OR INVESTOR B SHARES. In the event a redeeming shareholder
owns both Investor A Shares and Investor B Shares in a Portfolio, the Investor A
Shares will be redeemed first unless the shareholder indicates otherwise.
During periods of substantial economic or market change or activity,
telephone redemptions or exchanges may be difficult to complete. In such event,
Shares may be redeemed or exchanged by mailing the request directly to the
organization through which the original Shares were purchased or directly to the
Fund at P.O. Box 78069, St. Louis, Missouri 63178.
At various times, the Fund may be requested to redeem Shares for which
it has not yet received good payment. In such circumstances, the Fund may delay
the forwarding of proceeds until payment has been collected for the purchase of
such Shares which may take up to 15 days or more. To avoid delay in payment upon
redemption shortly after purchasing Shares, investors should purchase Shares by
certified or bank check or by electronic transfer. The Fund intends to pay cash
for all Shares redeemed, but under abnormal conditions which make payment in
cash unwise, the Fund may make payment wholly or partly in portfolio securities
at their then market value equal to the redemption price. In such cases, an
investor may incur brokerage costs in converting such securities to cash.
A shareholder may be required to redeem Shares in a Portfolio upon 60
days' written notice if the balance in the shareholder's account drops below
$500. The Fund will not require a shareholder to redeem Portfolio Shares if the
value of
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the shareholder's account drops below $500 due to fluctuations in net
asset value. Share balances may also be redeemed pursuant to arrangements
between broker-dealer organizations and their investors.
YIELDS AND TOTAL RETURNS
Yield and total return quotations are computed separately for Trust
Shares, Institutional Shares, Investor A Shares and/or Investor B Shares of a
Portfolio. TOTAL RETURN AND YIELD FIGURES WILL FLUCTUATE, ARE BASED ON
HISTORICAL EARNINGS, AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The
methods used to compute each Portfolio's yields and total returns are described
below and in the Statement of Additional Information.
THE MONEY MARKET PORTFOLIOS
From time to time, performance information such as total return,
"yield," and "effective yield" for the Money Market Portfolios' Investor A
Shares and/or Investor B Shares may be quoted in advertisements or in
communications to shareholders. The "yield" quoted in advertisements refers to
the income generated by an investment in a particular class of Shares of a
Portfolio over a specified period (such as a seven-day period) identified in
connection with the particular yield quotation. This income is then
"annualized." That is, the amount of income generated by the investment during
that period is assumed to be generated for each such period over a 52-week or
one-year period and is shown as a percentage of the investment. The "effective
yield" is calculated similarly but, when annualized, the income earned by an
investment in a particular class of Shares of a Portfolio is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment.
In addition, the Treasury Money Market Portfolio's "state
tax-equivalent yield" may also be quoted. The "state tax-equivalent yield" shows
the level of taxable yield needed to produce an after-tax yield that is
equivalent to a particular state's tax-exempt yield achieved by the Portfolio.
The "state tax-equivalent yield" refers to the portion of income that is derived
from interest income on direct obligations of the U.S. Government, its agencies
or instrumentalities that qualifies for exemption from state income tax. The
yield calculation assumes that 100% of the interest income is exempt from state
income tax. The "state tax-equivalent yield" is computed by dividing the
tax-exempt portion of the Portfolio's yield by a denominator consisting of one
minus a stated income tax rate.
The Tax-Exempt Money Market Portfolio may also quote its
"tax-equivalent yield" and "tax-equivalent effective yield,"
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which demonstrate the level of taxable yield need to produce an after-tax yield
that is equivalent to the Portfolio's yield and effective yield. Each are
calculated by increasing the Portfolio's yield and effective yield by the amount
necessary to reflect the payment of federal (and/or state) tax at a stated tax
rate. The "tax equivalent yield" and "tax-equivalent effective yield" will
always be higher than the Portfolio's yield and effective yield, respectively.
The Tax-Exempt Money Market Portfolio may also compute its "tax-equivalent
yield" and "tax-equivalent effective yield" with respect to certain states,
which shows the level of taxable yield and effective yield, respectively, needed
to produce an after-tax equivalent to the federal and state tax-exempt yield of
the Portfolio's particular class of Shares, assuming payment of federal income
tax and state personal income tax each at a stated rate and based upon a
specified percentage of the Portfolio's income which is exempt from state income
tax as well as federal income tax.
THE EQUITY AND BOND PORTFOLIOS
From time to time, performance information such as total return and
yield data for the Equity and Bond Portfolios' Investor A Shares and/or Investor
B Shares may be quoted in advertisements, sales literature or in communications
to shareholders. The yield is computed based on the net income of a particular
class of Shares in the particular Portfolio during a 30-day (or one-month)
period identified in connection with the particular yield quotation. More
specifically, the yield is computed by dividing the Portfolio's net income per
Share during a 30-day (or one-month) period by the maximum public offering price
per Share on the last day of the period and annualizing the result. The
Short-Intermediate Municipal, Missouri Tax-Exempt Bond and National Municipal
Bond Portfolios' "tax equivalent" yields, which show the level of taxable yield
needed to produce an after-tax equivalent to each Portfolio's tax-free yield,
may also be quoted from time to time. This is done by increasing a Portfolio's
yield (calculated as above) by the amount necessary to reflect the payment of
federal income tax at a stated tax rate. The Missouri Tax-Exempt Bond Portfolio
may also compute its "Missouri tax-equivalent" yield which shows the amount of
taxable yield needed to produce an after-tax equivalent to the federal and
Missouri tax-exempt yield of the Portfolio's Shares, assuming payment of federal
income tax and Missouri income tax each at a stated rate.
The Portfolios' total returns may be calculated on an average annual
total return basis, and may also be calculated on an aggregate total return
basis, for various periods. Average annual total returns with respect to a
particular class of Shares reflect the average annual percentage change in value
of an investment in such Shares of a Portfolio over the particular measuring
period. Aggregate total returns reflect the cumulative
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percentage change in value over the measuring period. Both methods of
calculating total returns assume that dividends and capital gain distributions
made by a Portfolio during the period are reinvested in the same class of Shares
of the Portfolio and that the maximum sales load in effect during the period has
been charged by the Portfolio. The Portfolios' total return figures may also be
calculated without the deduction of the maximum sales charge in effect during
the period. The effect of not deducting the sales charge will be to increase the
total return reflected. When considering average annual total return figures for
periods longer than one year, it is important to note that a Portfolio's annual
total return for any one year in the period might have been more or less than
the average for the entire period.
INFORMATION APPLICABLE TO ALL PORTFOLIOS
Performance data of the Portfolios' Investor A Shares and/or Investor B
Shares may be compared to the performance of other mutual funds with comparable
investment objectives and policies through various mutual fund or market indices
and data such as that provided by Lehman Brothers, Inc. or any of its
affiliates, Ibbotson Associates, Inc., Lipper Analytical Services, Inc., Mutual
Fund Forecaster and IBC/Donoghue's MONEY FUND REPORT(R) published by
IBC/Donoghue. References may also be made to indices or data published in Money
Magazine, Forbes, Barron's, The Wall Street Journal, The New York Times,
Business Week, American Banker, Institutional Investor, Pensions and
Investments, U.S.A. Today, Fortune, CDA/Wiesenberger, Morningstar, Inc. and
publications of a local or regional nature. In addition to performance
information, general information about the Portfolios that appears in a
publication such as those mentioned above may be included in advertisements and
in reports to Shareholders.
Performance quotations of a class of Shares in a Portfolio represent
that Portfolio's past performance and should not be considered as representative
of future results. Any account fees charged by an investment representative will
not be included in the calculations of the Portfolios' yields and total returns.
Such fees, if any, will reduce the investor's net return on an investment in a
Portfolio. Investors may call 1-800-452-ARCH to obtain current yield and total
return information.
DIVIDENDS AND DISTRIBUTIONS
THE TREASURY MONEY MARKET, MONEY MARKET, TAX-EXEMPT MONEY MARKET, U.S.
GOVERNMENT SECURITIES, INTERMEDIATE CORPORATE BOND, BOND INDEX, GOVERNMENT &
CORPORATE BOND, SHORT-INTERMEDIATE MUNICIPAL, MISSOURI TAX-EXEMPT BOND AND
NATIONAL MUNICIPAL BOND PORTFOLIOS
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Dividends from net investment income of the Treasury Money Market,
Money Market, Tax-Exempt Money Market, U.S. Government Securities, Intermediate
Corporate Bond, Bond Index, Government & Corporate Bond, Short-Intermediate
Municipal, Missouri Tax-Exempt Bond and National Municipal Bond Portfolios are
declared daily and paid monthly not later than five Business Days after the end
of each month. Investor A Shares and/or Investor B Shares of the Treasury Money
Market, Money Market and Tax-Exempt Money Market Portfolios earn dividends from
the day the purchase order is received by the Fund through the day before the
redemption order for such Shares is received. Investor A Shares and/or Investor
B Shares of the U.S. Government Securities, Intermediate Corporate Bond, Bond
Index, Government & Corporate Bond, Short-Intermediate Municipal, Missouri
Tax-Exempt Bond and National Municipal Bond Portfolios earn dividends from the
day after the purchase order is received by the Transfer Agent through the day
the redemption order for such Shares is received. Shares of a Portfolio
purchased by check begin earning dividends when payment for Shares purchased are
converted into federal funds and are available for investment. For purchases by
check, this normally will be the second Business Day following receipt of the
check.
Dividends on each Share of such Portfolios are determined in the same
manner and are paid in the same amounts, irrespective of class, except that a
Portfolio's Trust Shares and Institutional Shares (other than the Tax-Exempt
Portfolios which do not offer Institutional Shares) bear all expenses of the
respective Administrative Services Plans adopted for such Shares and a
Portfolio's Investor A Shares and Investor B Shares (other than the Treasury
Money Market, Tax-Exempt Money Market, Intermediate Corporate Bond, Bond Index
and Short-Intermediate Municipal Portfolios which do not offer Investor B
Shares) bear all expenses of the respective Distribution and Services Plans
adopted for such Shares. In addition, a Portfolio's Institutional Shares bear
the expense of certain sub-transfer agency fees. See "Management of the Fund"
and "Other Information Concerning the Fund and Its Shares" below.
THE EQUITY INCOME, EQUITY INDEX, GROWTH & INCOME EQUITY AND
BALANCED PORTFOLIOS
Net investment income for the Equity Income, Equity Index, Growth &
Income Equity and Balanced Portfolios is declared and paid monthly as a dividend
to shareholders of record. Dividends on each Share of each of these Portfolios
are determined in the same manner and are paid in the same amount, irrespective
of class, except that a Portfolio's Trust Shares and Institutional Shares bear
all expenses of the respective Administrative Services Plans adopted for such
Shares and a Portfolio's Investor A Shares and Investor B Shares (other than the
Equity Index Portfolio which does not offer Investor B Shares) bear all
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expenses of the respective Distribution and Services Plans adopted for such
Shares. In addition, a Portfolio's Institutional Shares bear the expense of
certain sub-transfer agency fees. See "Management of the Fund" and "Other
Information Concerning the Fund and Its Shares" below.
THE SMALL CAP EQUITY AND INTERNATIONAL EQUITY PORTFOLIOS
Net investment income for the Small Cap Equity and International Equity
Portfolios is declared and paid quarterly as a dividend to shareholders of
record. Dividends on each Share of each of these Portfolios are determined in
the same manner and are paid in the same amount, irrespective of class, except
that a Portfolio's Trust Shares and Institutional Shares bear all expenses of
the respective Administrative Services Plans adopted for such Shares and a
Portfolio's Investor A Shares and Investor B Shares bear all expenses of the
respective Distribution and Services Plans adopted for such Shares. In addition,
a Portfolio's Institutional Shares bear the expense of certain sub-transfer
agency fees. See "Management of the Fund" and "Other Information Concerning the
Fund and Its Shares."
OTHER DIVIDEND AND DISTRIBUTION INFORMATION
The Money Market Portfolios do not expect to realize capital gains. Net
realized capital gains of a Portfolio, if any, are distributed at least
annually. All dividends and distributions paid on a Portfolio's Shares are
automatically reinvested (without a sales load) in additional Shares of the same
class unless the investor has (i) otherwise indicated in the account
application, or (ii) redeemed all the Shares held in a Portfolio, in which case
a distribution will be paid in cash. Reinvested dividends and distributions will
be taxed in the same manner as those paid in cash.
TAXES
FEDERAL TAXES
Each Portfolio of the Fund intends to qualify as a "regulated
investment company" for the current taxable year. It is intended that each
Portfolio will continue to so qualify as long as such qualification is in the
best interests of shareholders. A regulated investment company is generally
exempt from federal income tax on amounts distributed to shareholders.
Qualification as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code"), for a taxable year requires,
among other things, that each Portfolio distribute to its shareholders an amount
equal to at least the sum of 90% of its investment company taxable income and
90% of
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its net exempt-interest income (if any). In general, a Portfolio's
investment company taxable income will be its taxable income, including
dividends, interest and short-term capital gains (the excess of net short-term
capital gain over net long-term capital loss), subject to certain adjustments
and excluding the excess of any net long-term capital gain over net short-term
capital loss, if any, for such taxable year. The Treasury Money Market, Money
Market, U.S. Government Securities, Intermediate Corporate Bond, Bond Index,
Government & Corporate Bond, Equity Income, Equity Index, Growth & Income
Equity, Small Cap Equity, International Equity and Balanced Portfolios intend to
distribute as dividends substantially all of their respective investment company
taxable income and any net tax-exempt interest income each year. Such dividends
will be taxable as ordinary income to a Portfolio's shareholders who are not
currently exempt from federal income taxes, whether such income is received in
cash or reinvested in additional Shares. (Federal income taxes for distributions
to an IRA are deferred under the Code.) In the case of the Equity Income, Equity
Index, Growth & Income Equity, Small Cap Equity, International Equity and
Balanced Portfolios, such dividends will qualify for the dividends received
deduction for corporations to the extent of the total qualifying dividends
received by the Portfolios from domestic corporations for the taxable year.
Because all of the Treasury Money Market, Money Market, U.S. Government
Securities, Intermediate Corporate Bond, Bond Index and Government & Corporate
Bond Portfolios' net investment income is expected to be derived from earned
interest, it is not expected that any distributions from such Portfolios will be
eligible for the dividends received deduction.
It is the policy of each Tax-Exempt Portfolio to distribute as
dividends substantially all of its net tax-exempt interest income and any
investment company taxable income each year. Dividends derived from interest on
Municipal Obligations (known as exempt-interest dividends) may be treated by
shareholders as items of interest excludable from their gross income under
Section 103(a) of the Code, unless under the circumstances applicable to the
particular shareholder the exclusion would be disallowed. See the Statement of
Additional Information under "Additional Information Concerning Taxes."
Distributions of net income may be taxable to investors under state or local law
as dividend income even though a substantial portion of such distributions may
be derived from interest on tax-exempt obligations which, if realized directly,
would be exempt from such income tax.
If a Tax-Exempt Portfolio should hold certain private activity bonds
issued after August 7, 1986, shareholders must include, as an item of tax
preference, the portion of dividends paid by the Portfolio that is attributable
to interest on such bonds in their federal alternative minimum taxable income
for purposes of determining liability (if any) for the 26-28%
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alternative minimum tax applicable to individuals and the 20% alternative
minimum tax and the environmental tax applicable to corporations. Corporate
shareholders also must take all exempt-interest dividends into account in
determining certain adjustments for federal alternative minimum and
environmental tax purposes. The environmental tax applicable to corporations is
imposed at the rate of .12% on the excess of the corporation's modified federal
alternative minimum taxable income over $2,000,000.
Substantially all of each Portfolio's net realized long-term capital
gains, if any, will be distributed at least annually to its shareholders. A
Portfolio will generally have no tax liability with respect to such gains and
the distributions will be taxable to shareholders who are not currently exempt
from federal income taxes as long-term capital gains, regardless of how long the
shareholders have held the Shares and whether such gains are received in cash or
reinvested in additional Shares.
To the extent dividends paid to shareholders of a Tax-Exempt Portfolio
are derived from taxable income or from long-term or short-term capital gains,
such dividends will be subject to federal income tax, whether such dividends are
paid in the form of cash or additional Shares.
An investor considering purchasing Shares of a Money Market Portfolio
on or just before the record date of any capital gains distribution (or in the
case of the Equity and Bond Portfolios, the record date of any dividend or
capital gains distribution) should be aware that the amount of the forthcoming
distribution, although in effect a return of capital, will be taxable.
Dividends declared by a Portfolio in October, November, or December of
any year payable to shareholders of record on a specified date in such months
will be deemed to have been received by shareholders and paid by the Fund on
December 31 of such year, if such dividends are actually paid during January of
the following year.
Each Portfolio may be required in certain cases to withhold and remit
to the U.S. Treasury 31% of taxable dividends or gross sale proceeds paid to
shareholders who have failed to provide a correct tax identification number in
the manner required, who are subject to withholding by the Internal Revenue
Service for failure properly to include on their return payments of taxable
interest or dividends, or who have failed to certify to the Portfolio that they
are not subject to backup withholding when required to do so or that they are
"exempt recipients."
A taxable gain or loss may be realized by an investor upon redemption,
transfer or exchange of Shares of the Equity and Bond Portfolios, depending upon
the tax basis of such Shares and
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their price at the time of redemption, transfer or exchange. If an investor
holds Shares for six months or less and during that time receives an
exempt-interest dividend on those Shares, any loss realized on the sale or
exchange of those Shares will be disallowed to the extent of the exempt-interest
dividend.
Certain interest income and dividends earned by the International
Equity Portfolio from foreign securities is expected to be subject to foreign
withholding taxes or other taxes. So long as more than 50% of the value of the
Portfolio's total assets at the close of any taxable year consists of stock or
securities of foreign corporations, the Portfolio may elect, for U.S. federal
income tax purposes, to treat certain foreign taxes paid by it, including
generally any withholding taxes and other foreign income taxes, as paid by its
shareholders. The Portfolio may make this election. As a consequence, the amount
of these foreign taxes paid by the Portfolio will be included in its
shareholders' taxable income PRO RATA (in addition to taxable distributions
actually received by them), and each shareholder may elect either (a) to credit
his or her proportionate amount of such taxes against his or her U.S. federal
income tax liabilities (subject to certain limitations), or (b) if he or she
itemizes his or her deductions, to deduct such proportionate amounts from his or
her U.S. taxable income.
MISSOURI TAX CONSIDERATIONS. For each year in which a Portfolio
qualifies as a regulated investment company for federal income tax purposes,
shareholders of such Portfolio who are Missouri resident individuals, trusts or
estates resident in Missouri, or corporations subject to Missouri taxing
jurisdiction (collectively, "Missouri Taxpayers") will not be subject to
Missouri income taxation on dividends distributed to them to the extent that
such dividends (a) qualify as exempt-interest dividends of a regulated
investment company under Code section 852(b)(5), (b) are the subject of the
written notice to shareholders required by 12 C.S.R. section 10-2.155(2), (c)
are attributable to interest on (1) obligations issued by the State of Missouri
or any of its political subdivisions or authorities, or (2) certain obligations
of the United States, any territory or possession of the United States, or any
authority, commission, or instrumentality of the United States, to the extent
exempted from Missouri income tax under Federal Law, and (d) are properly
reported on the Missouri income tax returns of the shareholder in the respective
Portfolio.
To the extent possible, the Missouri Tax-Exempt Bond Portfolio intends
to invest in obligations which will permit distributions attributable to
interest to be excludable by Missouri Taxpayers. Despite this intention,
Missouri Taxpayers generally will be subject to Missouri income tax on other
types of distributions received from the Missouri Tax-Exempt Bond
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Portfolio, including distributions of interest on obligations of other issuers
and all long-term and short-term capital gains.
Except as noted above with respect to Missouri income taxation,
distributions from a Portfolio may be taxable to shareholders under other state
and local laws imposing taxes on or measured by net income, even though such
distribution were derived, in whole or in part, from interest on obligations
which, if realized directly by the shareholder, or by a shareholder of another
type, would be nontaxable.
The foregoing discussion of Missouri law does not apply to shareholders
that are subject to the Missouri bank tax or other comparable forms of
specialized Missouri taxation.
All shareholders of the Portfolios should consult with their tax
advisors with respect to the state and local tax consequences of the purchase,
ownership, and disposition of Shares in the Portfolios, the receipt of
distributions from the Portfolios, and the proper method in which to report
Portfolio-related items on a shareholder's Missouri tax returns.
STATE AND LOCAL TAXES
Shareholders should note that dividends paid by a Portfolio may be
taxable to investors under state or local law as dividend income even though all
or a portion of such dividends may be derived from interest on obligations that,
if realized directly, would be exempt from such income taxes.
The Treasury Money Market Portfolio is structured to provide investors,
to the extent permissible by federal and state law, with income that is exempt
or excluded from taxation at the state and local level. Shareholders should note
that many, but not all, states permit all or a portion of a regulated investment
company's dividends which are derived from interest on U.S. Treasury obligations
(and obligations of certain U.S. Government agencies)("Treasury Obligations") to
be exempt or excluded from state and local taxation. In addition, only certain
states allow dividends of a regulated investment company that are derived from
dividends of other regulated investment companies investing directly in Treasury
Obligations to be exempt or excluded from state and local taxation. Some states
reduce a shareholder's allowable deductions by interest on debt incurred to
carry obligations producing state tax-exempt interest and by other expenses
related to such obligations. Income earned by the Portfolio from repurchase
agreements generally is not exempt from state or local income tax. Shareholders
should consult their own tax advisors about the status of distributions from the
Treasury Money Market Portfolio under state and local law.
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MISCELLANEOUS
The foregoing summarizes some of the important federal and state tax
considerations generally affecting the Portfolios and their shareholders and is
not intended as a substitute for careful tax planning. Accordingly, potential
investors in the Portfolios should consult their tax advisers with specific
reference to their own tax situation. Shareholders will be advised at least
annually as to the federal and, for the Treasury Money Market Portfolio, the
state income tax consequences, and for the Missouri Tax-Exempt Bond Portfolio,
the Missouri state income tax consequences, of distributions made each year.
MANAGEMENT OF THE FUND
The Fund is managed under the direction of its Board of Directors. The
Statement of Additional Information contains the names of and general background
information concerning each director.
INVESTMENT ADVISER AND SUB-ADVISER
Mississippi Valley Advisors Inc. ("MVA") serves as the investment
adviser to each Portfolio. MVA's principal office is located at One Mercantile
Center, Seventh & Washington Streets, St. Louis, Missouri 63101. MVA is a
wholly-owned subsidiary of Mercantile. As of December 31, 1996, MVA had
approximately $7.9 billion in assets under investment management, including the
assets of the Fund, which were approximately $___ billion.
Subject to the general supervision of the Fund's Board of Directors and
in accordance with the Fund's investment policies, MVA manages the Portfolios,
makes investment decisions with respect to and places orders for all purchases
and sales of the Portfolios' securities and other investments, and directs the
maintenance of each Portfolio's records relating to such purchases and sales.
For the services provided and expenses assumed pursuant to the
investment advisory agreement, MVA is entitled to receive fees, computed daily
and payable monthly, with respect to the Treasury Money Market and Money Market
Portfolios, at the annual rates of .40% of the first $1.5 billion of each such
Portfolio's average daily net assets, .35% of the next $1.0 billion of net
assets and .25% of net assets in excess of $2.5 billion, and with respect to the
Tax-Exempt Money Market, U.S. Government Securities, Intermediate Corporate
Bond, Bond Index, Government & Corporate Bond, Short-Intermediate Municipal,
Missouri Tax-Exempt Bond , National Municipal Bond, Equity Income, Equity Index,
Growth & Income Equity, Small Cap Equity, International Equity and Balanced
Portfolios, at the annual rates
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of .40%, .45%, .55%, .30%, .45%, .55%, .45%, .55%, .75%, .30%, .55%, .75%,
1.00%and .75%, respectively, of the average daily net assets of each Portfolio,
respectively. For the fiscal year ended November 30, 1996, MVA received advisory
fees (net of waivers) at the effective annual rates of .__%, .__%, .__%, .__%,
.__%, .__%, .__%, .__%, .__%, .__%, .__% and .__% of the respective average
daily net assets of the Treasury Money Market, Money Market, Tax-Exempt Money
Market, U.S. Government Securities, Government & Corporate Bond,
Short-Intermediate Municipal , Missouri Tax-Exempt Bond , National Municipal
Bond, Growth & Income Equity, Small Cap Equity, International Equity and
Balanced Portfolios. The Intermediate Corporate Bond, Bond Index, Equity Income
and Equity Index Portfolios had not commenced operations as of November 30,
1996.
MVA may from time to time voluntarily reduce all or a portion of its
advisory fee to increase the net income of one or more Portfolios available for
distributions as dividends. The voluntary fee reduction will cause the return of
any such Portfolio to be higher than it would otherwise be in the absence of
such reduction.
David A. Bethke, CFA, is the person primarily responsible
for the day-to-day management of the U.S. Government Securities,
Intermediate Corporate Bond and Government & Corporate Bond
Portfolios. Mr. Bethke, Senior Associate, joined MVA in 1987 and
has seven years of prior investment experience.
Peter Merzian, is the person primarily responsible for the day-to-day
management of the Short-Intermediate Municipal, Missouri Tax-Exempt Bond ,
National Municipal Bond and Balanced Portfolios. Mr. Merzian, a Senior Associate
of MVA, has been with MVA since 1993 and prior thereto was employed as a
portfolio manager of another financial institution. Mr. Merzian has served as
portfolio manager of the Short-Intermediate Municipal and National Municipal
Bond Portfolios since their respective dates of inception and of the Balanced
Portfolio since May 1996. Mr. Merzian has served as portfolio manager of the
Missouri Tax-Exempt Bond Portfolio (including the Predecessor Missouri
Tax-Exempt Bond Portfolio) since 1993.
Gregory A. Glidden is the person primarily responsible for the
day-to-day management of the Equity Income Portfolio. Mr. Glidden, Senior
Associate, has been with MVA since 1983. For the past 13 years, he has served as
a stock analyst and has managed several of Mercantile's common funds. Mr.
Glidden has managed the Equity Income Portfolio since its inception.
Timothy S. Engelbrecht, is the person primarily responsible
for the day-to-day management of the Growth & Income Equity
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Portfolio. Mr. Engelbrecht, a Senior Associate, has been employed by MVA for the
past sixteen years and has had portfolio management and other responsibilities
for MVA for the past fifteen years. Mr. Engelbrecht has managed the Growth &
Income Equity Portfolio since May 1996.
Robert J. Anthony is the person primarily responsible for the
day-to-day management of the Small Cap Equity Portfolio. Mr. Anthony, Senior
Associate, has been with MVA for 21 years.
MVA has entered into a sub-advisory agreement with Clay Finlay Inc.
Pursuant to the terms of such sub-investment advisory agreement, Clay Finlay has
been retained by MVA to manage the investment and reinvestment of the assets of
the International Equity Portfolio and to provide analytical and investment
research services to it, subject to the supervision of MVA and to the direction
and control of the Fund's Board of Directors.
Under this arrangement, Clay Finlay is responsible for the day-to-day
management of the International Equity Portfolio's assets. MVA reviews
investment performance policies and guidelines, maintains certain books and
records, is responsible for selecting and monitoring the performance of Clay
Finlay, and for reporting the activities of Clay Finlay in managing the
Portfolio to the Fund's Board of Directors.
Clay Finlay is registered as an investment adviser with the SEC and is
a wholly-owned subsidiary of United Asset Management Corporation, a financial
services holding company. Clay Finlay's principal office is located at 200 Park
Avenue, 56th Floor, New York, New York 10166. Clay Finlay, founded in 1982, has
extensive experience in international investments and as of December 31, 1996
had approximately $6.5 billion in assets under management.
Frances Dakers is the person primarily responsible for the
day-to-day management of the International Equity Portfolio's investments. Ms.
Dakers, a Principal and Senior Portfolio Manager of Clay Finlay, has been
associated with Clay Finlay since January, 1982.
For the services provided and expenses assumed pursuant to its
sub-advisory agreement with MVA, Clay Finlay receives from MVA a fee, computed
daily and payable monthly, at the annual rate of .75% of the first $50 million
of the International Equity Portfolio's average daily net assets, plus .50% of
the next $50 million of average daily net assets, plus .25% of average daily net
assets in excess of $100 million. Prior to August 29, 1996, Clay Finlay received
from MVA a fee, computed daily and paid monthly, at the annual rate of .75% of
the International Equity Portfolio's average daily net assets. For the fiscal
year ended
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November 30, 1996, Clay Finlay received sub-advisory fees at the effective
annual rate of ___% of the International Equity Portfolio's average daily net
assets. Clay Finlay bears all expenses incurred by it in connection with its
services under the sub-advisory agreement.
ADMINISTRATOR
BISYS Fund Services Ohio, Inc., located at 3435 Stelzer
Road, Columbus, Ohio 43219, acts as the Portfolios'
Administrator.
The Administrator generally assists in all aspects of each Portfolio's
administration and operation and also monitors and performs other services
pertaining to the Portfolios' arrangements with Service Organizations. See
"Service Organizations" below. For its services, the Administrator is entitled
to receive a fee, computed daily and payable monthly, at the annual rate of .20%
(.10% for the Tax-Exempt Money Market Portfolio) of each Portfolio's average
daily net assets. For the fiscal year ended November 30, 1996, the Administrator
received administration fees (net of waivers) at the effective annual rate of
.__% (.___% with respect to the International Equity Fund) of the average daily
net assets of each Portfolio other than the Intermediate Corporate Bond, Bond
Index, Equity Income and Equity Index Portfolios which had not commenced
operations as of November 30, 1996. From time to time, the Administrator may
voluntarily waive all or a portion of the administration fees otherwise payable
by a Portfolio in order to increase the net income available for distribution to
shareholders.
DISTRIBUTOR
Investor A Shares and/or Investor B Shares in each Portfolio are sold
continuously by the Distributor, BISYS Fund Services, an affiliate of the
Administrator. The Distributor also monitors the Fund's arrangements under the
Distribution and Services Plans described below. The Distributor is a registered
broker-dealer with principal offices at 3435 Stelzer Road, Columbus, Ohio 43219.
The Distributor may, at its expense, provide compensation to dealers in
connection with sales of Shares of any of the Portfolios. Such compensation may
include financial assistance to dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising
campaigns regarding one or more of the Portfolios, and/or other dealer-sponsored
special events. In some instances, this compensation will be made available only
to certain dealers whose representatives have sold a significant amount of such
Shares. Compensation will include payment for travel expenses, including
lodging, incurred in connection with trips taken by
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invited registered representatives and members of their families to locations
within or outside of the United States for meetings or seminars of a business
nature. Compensation will also include the following types of non-cash
compensation offered through sales contests: (1) business and vacation trips,
including the provision of travel arrangements and lodging at resorts, (2)
tickets for entertainment events (such as concerts, cruises and sporting events)
and (3) merchandise (such as clothing, trophies, clocks and pens). Dealers may
not use sales of a Portfolio's Shares to qualify for this compensation to the
extent such may be prohibited by the laws of any state or any self-regulatory
agency, such as the National Association of Securities Dealers, Inc. None of the
aforementioned compensation is paid for by the Portfolios or their shareholders.
DISTRIBUTION AND SERVICES PLANS
The Fund has adopted separate Distribution and Services Plans pursuant
to Rule 12b-1 under the 1940 Act with respect to Investor A Shares of the
Portfolios and Investor B Shares of the CDSC Portfolios. Under the Distribution
and Services Plans, the Fund may pay (i) the Distributor or another person for
distribution services provided and expenses assumed and (ii) Service
Organizations for shareholder administrative services provided pursuant to
servicing agreements in connection with Investor A Shares or Investor B Shares
of a Portfolio. Payments to the Distributor are to compensate it for
distribution assistance and expenses assumed and activities primarily intended
to result in the sale of Investor A Shares or Investor B Shares, including
compensating dealers and other sales personnel (which may include affiliates of
the Fund's Adviser), direct advertising and marketing expenses and expenses
incurred in connection with preparing, printing, mailing and distributing or
publishing advertisements and sales literature, for printing and mailing
Prospectuses and Statements of Additional Information (except those used for
regulatory purposes or for distribution to existing shareholders), and costs
associated with implementing and operating the Distribution and Services Plan.
In addition, payments under the Distribution and Services Plan for Investor B
Shares will be used to pay for or finance sales commissions and other fees
payable to Service Organizations and other broker-dealers who sell Investor B
Shares. See "Management of the Fund -- Service Organizations" below for a
description of the servicing agreements and the services provided by Service
Organizations.
Under the Distribution and Services Plan for Investor A Shares,
payments by the Fund for distribution expenses may not exceed .10% (annualized)
of the average daily net asset value of a Portfolio's outstanding Investor A
Shares and payments for shareholder administrative servicing expenses may not
exceed .20% (.15% with respect to the Money Market Portfolios) (annualized)
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of the average daily net asset value of a Portfolio's outstanding Investor A
Shares.
Under the Distribution and Services Plan for Investor B Shares,
payments by the Fund for distribution expenses may not exceed .75% (annualized)
of the average daily net asset value of a Portfolio's outstanding Investor B
Shares and payments for shareholder administrative servicing expenses may not
exceed .25% (annualized) of the average daily net asset value of a Portfolio's
outstanding Investor B Shares.
Actual distribution expenses paid by the Distributor with respect to
Investor B Shares for any given year may exceed the distribution fees and
contingent deferred sales charges received with respect to those Shares. These
excess expenses may be reimbursed by Investor B shareholders out of contingent
deferred sales charges and distribution payments in future years as long as the
Distribution and Services Plan for Investor B Shares is in effect.
SERVICE ORGANIZATIONS
The servicing agreements adopted under the Distribution and Services
Plans (the "Servicing Agreements") require the Service Organizations receiving
such compensation (which may include Mercantile and its affiliates) to perform
certain services, including providing administrative services with respect to
the beneficial owners of Investor A Shares or Investor B Shares of a Portfolio,
such as establishing and maintaining accounts and records for their customers
who invest in such Shares, assisting customers in processing purchase, exchange
and redemption requests, and responding to customer inquiries concerning their
investments.
Under the Servicing Agreements and upon notice to the Fund, a Service
Organization may subcontract with one or more entities for the performance of
certain services provided under its Servicing Agreement with the Fund. Such
Service Organization shall be as fully responsible to the Fund for the acts or
omissions of any subcontractor as it would be for its own acts or omissions. The
fees payable to any sub-contractor are paid by the Service Organization out of
the fees it receives from the Fund.
The Fund understands that Service Organizations providing such
administrative services may also charge fees to their customers beneficially
owning such Shares. These fees would be in addition to any amounts which may be
received by such a Service Organization under its Servicing Agreement with the
Fund. The Fund's Servicing Agreements require a Service Organization to disclose
to its customers any compensation payable to the Service Organization by a
Portfolio and any other compensation payable by
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its customers in connection with their investment in such Shares. Customers of
such a Service Organization receiving servicing fees should read this Prospectus
in light of the terms governing their accounts with their Service Organization.
CUSTODIAN, SUB-CUSTODIAN AND TRANSFER AGENT
Mercantile Bank National Association, an affiliate of the Fund and a
wholly-owned subsidiary of Mercantile Bancorporation, Inc., with principal
offices located at One Mercantile Center, 8th and Locust Streets, St. Louis,
Missouri 63101, serves as Custodian of each Portfolio's assets. In addition,
Bankers Trust Company of New York, with principal offices at 16 Wall Street, New
York, New York 10005, serves as the Sub-Custodian for the International Equity
Portfolio. BISYS Fund Services Ohio, Inc. also serves as the Fund's transfer
agent and dividend disbursing agent. Its address is 3435 Stelzer Road, Columbus,
Ohio 43219.
REGULATORY MATTERS
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any affiliate
thereof from sponsoring, organizing, or controlling the Shares of a registered,
open-end investment company continuously engaged in the issuance of its Shares,
and prohibit banks generally from issuing, underwriting, selling, or
distributing securities such as Shares of the Portfolios. Such banking laws and
regulations do not prohibit such a holding company or affiliate, or banks, from
acting as investment adviser, transfer agent, or custodian to such an investment
company, or from purchasing Shares of such a company as agent for and upon the
order of customers. Mercantile, MVA, Service Organizations that are banks or
bank affiliates, and broker-dealers that are bank affiliates are subject to such
laws and regulations, but believe they may perform the services for the
Portfolios contemplated by their respective agreements, this Prospectus and the
Statement of Additional Information without violating applicable banking laws
and regulations. In addition, state securities laws on this issue may differ
from the interpretation of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
Should future legislative, judicial, or administrative action prohibit
or restrict the activities of such companies in connection with the provision of
services on behalf of the Portfolios and the shareholders, the Fund might be
required to alter materially or discontinue its arrangements with such companies
and change its method of operation. It is not expected that investors would
suffer any adverse financial consequences as a result of any of these
occurrences.
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If current restrictions preventing a bank from legally sponsoring,
organizing, controlling, or distributing Shares of an investment company were
relaxed, Mercantile, or an affiliate of Mercantile, would consider the
possibility of offering to perform additional services for the Portfolios. It is
not possible, of course, to predict whether or in what form such legislation
might be enacted or the terms upon which Mercantile, or such an affiliate, might
offer to provide such services.
Conflict of interest restrictions may apply to the receipt of
compensation paid pursuant to a Servicing Agreement by a Portfolio to a
financial intermediary in connection with the investment of fiduciary funds in a
Portfolio's Shares. Institutions, including banks regulated by the Comptroller
of the Currency and investment advisers and other money managers subject to the
jurisdiction of the SEC, the Department of Labor or state securities
commissions, should consult legal counsel before entering into Servicing
Agreements.
EXPENSES
Except as noted above and in the Statement of Additional Information
under "Investment Advisory and Administrative Contracts" and "Custodian and
Transfer Agent," the Fund's service contractors bear all expenses in connection
with the performance of their services, except that the Distributor is
compensated pursuant to the Distribution and Services Plans as described under
"Distribution and Services Plans" above. Expenses are deducted from the total
income of each Portfolio before dividends and distributions are paid. These
expenses include, but are not limited to, fees paid to the Adviser and
Administrator, transfer agency fees, fees and expenses of officers and directors
who are not affiliated with the Adviser or the Distributor, taxes, interest,
legal fees, custodian fees, auditing fees, 12b-1 fees, servicing fees, certain
fees and expenses in registering and qualifying a Portfolio and its Shares for
distribution under Federal and state securities laws, costs of preparing and
printing prospectuses and statements of additional information for regulatory
purposes and for distribution to existing shareholders, the expense of reports
to shareholders, shareholders' meetings and proxy solicitations, fidelity bond
and directors and officers liability insurance premiums, the expense of using
independent pricing services and other expenses which are not expressly assumed
by the Adviser, Distributor or Administrator under their respective agreements
with the Fund. The Fund also pays for brokerage fees, commissions and other
transaction charges, if any, in connection with the purchase and sale of
portfolio securities. Any general expenses of the Fund that are not readily
identifiable as belonging to a particular Portfolio will be allocated among all
Portfolios by or under the direction of the Board of Directors in a manner the
Board determines to be fair and equitable. Any expenses relating only
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to a particular class of Shares within a Portfolio will be borne solely by such
class. See "Certain Financial Information" and "Management of the Fund" above
for additional information regarding expenses of each Portfolio.
OTHER INFORMATION CONCERNING
THE FUND AND ITS SHARES
DESCRIPTION OF SHARES
The Fund was organized on September 9, 1982 as a Maryland corporation,
and is a mutual fund of the type known as an "open-end management investment
company." The Fund's principal office is located at 3435 Stelzer Road, Columbus,
Ohio 43219.
The Fund's Charter authorizes the Board of Directors to issue up to
seven billion full and fractional Shares of common stock, and to classify and
reclassify any unauthorized and unissued Shares into one or more classes of
Shares. The Board of Directors may similarly classify or reclassify any class of
Shares into one or more series.
Pursuant to such authority, the Board of Directors has authorized the
issuance of the following series of shares representing interests in the
Portfolios, each of which (except the Tax-Exempt Money Marketand Missouri
Tax-Exempt Bond Portfolios) is classified as a diversified company under the
1940 Act: 1 billion Trust Shares, 300 million Institutional Shares and 100
million Investor A Shares, representing interests in the Treasury Money Market
Portfolio; 1.8 billion Trust Shares, 300 million Institutional Shares, 550
million Investor A Shares and 50 million Investor B Shares, representing
interests in the Money Market Portfolio;300 million Trust Shares and 50 million
Investor A Shares, representing interests in the Tax-Exempt Money Market
Portfolio; 15 million Trust Shares, 20 million Institutional Shares, 5 million
Investor A Shares and 50 million Investor B Shares, representing interests in
the U.S. Government Securities Portfolio; 50 million Trust Shares, 25 million
Institutional Shares and 25 million Investor A Shares, representing interests in
the Intermediate Corporate Bond Portfolio; 25 million Trust Shares, 25 million
Institutional Shares and 25 million Investor A Shares representing interests in
the Bond Index Portfolio; 50 million Trust Shares, 20 million Institutional
Shares, 5 million Investor A Shares and 50 million Investor B Shares,
representing interests in the Government & Corporate Bond Portfolio; 25 million
Trust Shares and 25 million Investor A Shares, representing interests in the
Short-Intermediate Municipal Portfolio; 25 million Trust Shares, 25 million
Investor A Shares and 25 million Investor B Shares, representing interests in
the Missouri Tax-Exempt Bond Portfolio; 50 million Trust Shares, 25 million
Investor A Shares and 25
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million Investor B Shares representing interests in the
National Municipal Bond Portfolio; 50 million Trust Shares, 25 million
Institutional Shares, 25 million Investor A Shares and 25 million Investor B
Shares representing interests in the Equity Income Portfolio; 25 million Trust
Shares, 25 million Institutional Shares and 25 million Investor A Shares
representing interests in the Equity Index Portfolio; 50 million Trust Shares,
20 million Institutional Shares, 5 million Investor A Shares and 50 million
Investor B Shares, representing interests in the Growth & Income Equity
Portfolio; 15 million Trust Shares, 20 million Institutional Shares, 5 million
Investor A Shares and 50 million Investor B Shares and 50 million Investor B
Shares, representing interests in the Small Cap Equity Portfolio; 10 million
Trust Shares, 10 million Institutional Shares, 10 million Investor A Shares and
50 million Investor B Shares, representing interests in the International Equity
Portfolio; and 15 million Trust Shares , 20 million Institutional Shares, 5
million Investor A Shares and 50 million Investor B Shares, representing
interests in the Balanced Portfolio. Trust and Institutional Shares of the
Portfolios are described in separate prospectuses which are available from the
Distributor at the telephone number on the cover of this Prospectus. Shares in
the Fund's Portfolios will be issued without Share certificates.
The Investor A Shares and/or Investor B Shares of the Portfolios are
described in this Prospectus. The Portfolios also offer Trust Shares and, in
addition, each Portfolio except the Tax-Exempt Portfolios offers Institutional
Shares. Institutional Shares, which are offered to financial institutions acting
on behalf of accounts for which they do not exercise investment discretion, and
Trust Shares, which are offered to financial institutions acting on their own
behalf or on behalf of certain qualified accounts, are sold without a sales
charge. Trust, Institutional, Investor A and/or Investor B Shares bear their pro
rata portion of all operating expenses paid by a Portfolio, except that Trust
Shares and Institutional Shares bear all payments under the Portfolio's
respective Administrative Services Plans adopted for such Shares and Investor A
Shares and Investor B Shares bear all payments under the Portfolio's respective
Distribution and Services Plans adopted for such Shares. In addition,
Institutional Shares of a Portfolio bear the expense of certain sub-transfer
agency fees.
Payments under the Administrative Services Plans for Trust Shares and
Institutional Shares are made to Service Organizations for administrative
services provided to the Service Organizations' clients or account holders who
are the beneficial owners of Trust Shares or Institutional Shares. Payments
under the Administrative Services Plans may not exceed .25% (on an annual basis)
of the average daily net asset value of outstanding Trust or Institutional
Shares of the Money Market Portfolios or .30% (on an annual basis) of the
average daily net asset value of
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<PAGE> 383
outstanding Trust or Institutional Shares of the Equity and Bond Portfolios.
The Fund offers various services and privileges in connection with its
Investor A Shares and Investor B Shares that are not offered in connection with
its Trust or Institutional Shares, including an automatic investment program and
automatic withdrawal plan. In addition, each class of Shares offers different
exchange privileges.
Shareholders are entitled to one vote for each full Share held and
proportionate fractional votes for fractional Shares held. Shares of all
Portfolios will vote together and not by class unless otherwise required by law
or permitted by the Board of Directors. All shareholders of a particular
Portfolio will vote together as a single class on matters relating to the
Portfolio's investment advisory (or sub-advisory) agreement and investment
objective and fundamental policies. Only holders of Trust Shares, however, will
vote on matters relating to the Administrative Services Plan for Trust Shares
and only holders of Institutional Shares will vote on matters pertaining to the
Administrative Services Plan for Institutional Shares. Similarly, only holders
of Investor A Shares will vote on matters pertaining to the Distribution and
Services Plan for Investor A Shares and only holders of Investor B Shares will
vote on matters pertaining to the Distribution and Services Plan for Investor B
Shares.
The Fund is not required, and currently does not intend, to hold annual
meetings except as required by the 1940 Act or other applicable law. Upon the
written request of the holders of 10% or more of the outstanding Shares, the
Fund will call a special meeting to vote on the question of removal of a
director.
Shares of the Portfolios have noncumulative voting rights and,
accordingly, the holders of more than 50% of the Fund's outstanding Shares
(irrespective of Portfolio or class) may elect all of the Directors. Shares have
no preemptive rights and only such conversion and exchange rights as the Board
may grant in its discretion. When issued for payment as described in this
Prospectus, Shares will be fully paid and nonassessable.
MISCELLANEOUS
As used in this Prospectus, a "vote of a majority of the outstanding
Shares" of a Portfolio or a particular class of Shares means, with respect to
the approval of an investment advisory agreement or distribution plan or a
change in an investment objective or fundamental investment policy, the
affirmative vote of the lesser of (a) more than 50% of the outstanding Shares of
such Portfolio or class of Shares, or (b) 67% or more of the Shares of such
Portfolio or class of Shares
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<PAGE> 384
present at a meeting if more than 50% of the
outstanding Shares of such Portfolio or class of Shares are represented at the
meeting in person or by proxy.
As of January 1, 1997, Mercantile and its affiliates possessed, of
record on behalf of their underlying customer accounts, voting or investment
power with respect to more than 25% of the Fund's outstanding Shares. Therefore,
Mercantile may be deemed to be a controlling person of the Fund within the
meaning of the 1940 Act.
Inquiries regarding the Portfolios may be directed to the Fund at
1-800-551-3731.
-------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE PORTFOLIOS'
STATEMENT OF ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN
CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE PORTFOLIOS, THE FUND, OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE PORTFOLIOS, THE FUND OR THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
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<PAGE> 385
THE ARCH FUND(R), INC.
INVESTOR SHARES
[OLD LOGO]
PROSPECTUS
________, 1997
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<PAGE> 386
CROSS REFERENCE SHEET
---------------------
(Investor A and B Shares)
The ARCH Kansas Tax-Exempt Bond Portfolio
FORM N-1A PART A ITEM PROSPECTUS CAPTION
- --------------------- ------------------
1. Cover Page............................. Cover Page
2. Synopsis............................... Expense Summary
for Investor A Shares
3. Condensed Financial
Information.......................... Certain Financial
Information; Yields and
Total Returns
4. General Description
of Registrant........................ Highlights; Investment
Objective, Policies and
Risk Considerations; Other
Information Concerning
the Fund and Its Shares
5. Management of the Fund................. Management of the Fund
5A. Management's Discussion of
Fund Performance..................... Inapplicable
6. Capital Stock and
Other Securities..................... How to Purchase and
Redeem Shares; Dividends
and Distributions;
Taxes; Other Information
Concerning the Fund
and Its Shares
7. Purchase of Securities
Being Offered........................ How to Purchase and
Redeem Shares
8. Redemption or Repurchase............... How to Purchase and
Redeem Shares
9. Pending Legal Proceedings.............. Inapplicable
<PAGE> 387
THE ARCH FAMILY
OF MUTUAL FUNDS
INVESTOR SHARES
KANSAS TAX-EXEMPT BOND PORTFOLIO
PROSPECTUS DATED _______, 1997
<PAGE> 388
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Highlights..................................................................
Certain Financial
Information...............................................................
Expense Summary for
Investor Shares...........................................................
Financial Highlights
Investment Objectives,
Policies and Risk
Considerations............................................................
Pricing of Shares...........................................................
How to Purchase and
Redeem Shares.............................................................
Purchase of Shares.................................................
Automatic Investment
Program (AIP)....................................................
Applicable Sales Charges
-- Investor A Shares.............................................
Reduced Sales Charges
-- Investor A Shares
Applicable Sales Charges
-- Investor B Shares.............................................
Exchange Privileges................................................
Redemption of Shares...............................................
Redemption by Mail.................................................
Redemption by Telephone............................................
Automatic Withdrawal
Plan (AWP).......................................................
Purchase of Shares at
Net Asset Value..................................................
Other Exchange or
Redemption
Information......................................................
Yields and Total Returns....................................................
Dividends and Distributions.................................................
Taxes.......................................................................
Management of the Fund......................................................
Other Information
Concerning the Fund
and its Shares............................................................
Miscellaneous......................................................
</TABLE>
For information, write: Or call your investment
P.O. Box 78069 representative or The ARCH Fund's
St. Louis, Missouri 63178 Service Center at 1-800-551-3731
<PAGE> 389
THE ARCH FUND(R), INC.
INVESTOR A SHARES AND INVESTOR B SHARES
The ARCH Fund, Inc. (the "Fund") is an open-end management investment
company that currently offers Shares in seventeen investment portfolios. This
Prospectus describes the Investor A Shares and the Investor B Shares in the
Kansas Tax-Exempt Bond Portfolio (the "Portfolio"). Investor A Shares and
Investor B Shares are sold through selected broker/dealers and other financial
intermediaries to individual or institutional customers. Investor A Shares are
sold with a front-end sales charge. Investor B Shares are sold with a contingent
deferred sales charge.
THE ARCH KANSAS TAX-EXEMPT BOND PORTFOLIO'S investment objective is to
seek as high a level of current income exempt from federal income tax as is
consistent with conservation of capital. Features of the Portfolio include:
- INTEREST INCOME EXEMPT FROM FEDERAL INCOME TAX AND
KANSAS INCOME TAX AND LOCAL INTANGIBLES TAX
- OBJECTIVE OF CONSERVATION OF CAPITAL
Mississippi Valley Advisors Inc. ("MVA" or the "Adviser"), a
wholly-owned subsidiary of Mercantile Bank 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 BISYS Fund Services (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 _______, 1997, has been filed with the Securities and Exchange
Commission and is incorporated by reference in its entirety into this
Prospectus. An investor may obtain the Statement of Additional Information
without charge by writing the Fund at P.O. Box 78069, St. Louis, Missouri 63178
or by calling 1-800-551-3731.
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
<PAGE> 390
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.
_______, 1997
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<PAGE> 391
HIGHLIGHTS
The Fund is an open-end, management investment company (commonly known
as a mutual fund) registered under the Investment Company Act of 1940, as
amended. The Fund offers investment opportunities in seventeen investment
portfolios. This Prospectus concerns one of those Portfolios, the KANSAS
TAX-EXEMPT BOND PORTFOLIO. In addition, the Fund offers investment opportunities
in the ARCH Treasury Money Market, Money Market and Tax-Exempt Money Market,
U.S. Government Securities, Intermediate Corporate Bond, Bond Index, Government
& Corporate Bond, Short-Intermediate Municipal, Missouri Tax-Exempt Bond,
National Municipal Bond, Equity Income, Equity Index, Growth & Income Equity,
Small Cap Equity, International Equity and Balanced Portfolios. The Portfolio
represents a separate pool of assets with a different investment objective and
different policies than the Fund's other portfolios (as described below under
"Investment Objective, Policies and Risk Considerations"). MVA serves as
adviser, Mercantile as custodian, BISYS Fund Services Ohio, Inc. as
administrator and BISYS Fund Services as sponsor and distributor. For
information on expenses, fee waivers, and services, see "Certain Financial
Information," "Financial Highlights" and "Management of the Fund."
The following information generally describes the Portfolio and its
investment objective. There can be no assurance that the Portfolio will be able
to achieve its investment objective.
The Kansas Tax-Exempt Bond Portfolio is designed for investors who seek
a higher rate of return than that typically offered by tax-exempt money market
funds and who are willing to accept a variable Share value to achieve that
objective. The Portfolio seeks to provide income exempt from federal tax. In
addition, the Portfolio seeks to provide income that is also exempt from Kansas
income tax and the local intangibles tax.
Investors should note that the Portfolio may, subject to its
investment policies and limitations, purchase variable and floating rate
instruments, enter into repurchase agreements, and make limited investments in
illiquid securities and securities issued by other investment companies. These
investment practices involve investment risks of varying degrees. For example,
the absence of a secondary market for a particular variable or floating rate
instrument could make it difficult for the Portfolio to dispose of an instrument
if the issuer were to default on its payment obligation. Default by a
counterparty to a repurchase agreement could expose a Portfolio to loss because
of adverse market action or possible delay in disposing of the
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<PAGE> 392
underlying collateral. The Portfolio may engage in short-term trading, which may
also involve greater risk and increase the Portfolio's expenses. The Portfolio
may, under certain conditions, make limited investments in securities the income
from which may be subject to federal income tax. See "Investment Objective,
Policies and Risk Considerations" below and the Statement of Additional
Information under "Investment Objectives and Policies."
The Fund offers investors the opportunity to invest in a variety of
professionally managed investments without having to become involved with
detailed management, accounting and safekeeping procedures normally related to
direct investments in securities. The Portfolio also offers the economic
advantages of block trading in securities and the availability of a family of
seventeen mutual funds should an investor's investment goals change.
This Prospectus describes the Investor A Shares and the Investor B
Shares of the Portfolio. Investor A Shares of the Portfolio are sold with a
front-end sales charge. Investor B Shares are sold with a contingent deferred
sales charge. For information on purchasing, exchanging or redeeming Investor A
Shares and Investor B Shares of the Portfolio, please see "How to Purchase
and Redeem Shares" below. For a discussion comparing Investor A Shares and
Investor B Shares, please see "Characteristics of Investor A Shares and Investor
B Shares," and "Factors to Consider When Selecting Investor A Shares or Investor
B Shares" on pages __ and __, respectively.
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<PAGE> 393
CERTAIN FINANCIAL INFORMATION
Shares of the Portfolio have been classified into three classes of
Shares -- Trust Shares, Investor A Shares and Investor B 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 certain other operating expenses, and enjoy certain exclusive
voting rights on matters relating to these fees. See "Other Information
Concerning the Fund and Its Shares," "Management of the Fund -- Distribution and
Services Plan," and "Management of the Fund -- Custodian and Transfer Agent"
below. As a result of payments for distribution and/or shareholder
administrative servicing fees and certain other operating expenses that may be
made in differing amounts, the net investment income of Trust Shares, Investor A
Shares and Investor B Shares in the Portfolio can be expected, at any given
time, to be different.
-5-
<PAGE> 394
EXPENSE SUMMARY FOR
INVESTOR A AND INVESTOR B SHARES
<TABLE>
<CAPTION>
KANSAS
TAX-EXEMPT BOND
PORTFOLIO
---------------------------------------
INVESTOR A INVESTOR B
---------- ----------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Load Imposed on
Purchases (as a percentage of
offering price)..................................................... 4.5%(1) NONE
Deferred Sales Charge
(as a percentage of offering
price).............................................................. NONE 5.0%(2)
ANNUAL PORTFOLIO OPERATING
EXPENSES
(as a percentage of average
net assets)
Investment Advisory Fees (net
of fee waivers 3..................................................... .00% .00%
12b-1 Fees, including distribution
and service fees (net of
waivers) 4.......................................................... .20% 1.00%
Other Expenses (including
administration fees
and other expenses)
(net of fee waivers and
expense reimbursements) 5,6.......................................... .43% .43%
Total Portfolio Operating
Expenses (net of fee waivers
and expense reimbursements) 6........................................ .63% 1.43%
==== =====
</TABLE>
- -------------------------------------------------
(1) Reduced sales charge may be available. See "How to Purchase and
Redeem Shares -- Reduced Sales Charges -- Investor A Shares."
(2) This amount applies to redemptions during the first year. The deferred
sales charge decreases to 4.0%, 3.0%, 3.0%, 2.0% and 1.0% for
redemptions made during the second through sixth years, respectively.
No deferred sales charge is charged after the sixth year. See "How to
Purchase and Redeem Shares -- Applicable Sales Charge -- Investor B
Shares."
(3) Without fee waivers, investment advisory fees would be .45%.
(4) Without fee waivers, 12b-1 fees would be .30% for Investor A Shares.
(5) Without fee waivers, administration fees would be .20%.
(6) Without fee waivers and/or expense reimbursements, Other Expenses and
Total Portfolio Operating Expenses would be .53% and 1.28%,
respectively, for Investor A Shares and .53% and 1.98%, respectively,
for Investor B Shares.
-6-
<PAGE> 395
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- ------- ------ -------
<S> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) a 5% annual return and (2)
redemption at the end of each period:
Kansas Tax-Exempt Bond Portfolio
Investor A Shares(2).............................................. $ 51 $ 64
Investor B Shares
Assuming complete redemption at
end of period(1)................................................ $ 65 $ 75
Assuming no redemption.......................................... $ 15 $ 45
</TABLE>
- -------------------------------------
(1) Assumes deduction of maximum applicable contingent deferred
sales charge.
(2) Assumes deduction at time of purchase of maximum applicable
front-end sales charge.
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN. Information about the actual performance of all
of the Portfolios is contained in the Fund's future Annual Reports to
Shareholders. The Fund's Annual Report to Shareholders dated November 30, 1996
may be obtained without charge by contacting the Fund at the address or
telephone number provided on page ____ of this Prospectus.
The purpose of the foregoing tables is to assist in understanding the
various costs and expenses that an investor in a Portfolio's Investor A Shares
or Investor B Shares will bear directly or indirectly. The information contained
in the table is based on expenses the Portfolio expects to incur during the
current year with respect to its Investor A and Investor B Shares. For more
complete descriptions of the various costs and expenses, see "Management of the
Fund" in this Prospectus and the Statement of Additional Information. The Table
and Example have not been audited by the Fund's independent auditors and do not
reflect any charges that may be imposed by financial institutions on their
customers.
Because of the payments for distribution services (12b-1 fees) under
the Distribution and Services Plans as shown in the above table, long-term
shareholders of Investor A Shares and Investor B Shares of the Portfolio may pay
more than the economic equivalent of the maximum front-end sales load permitted
by the National Association of Securities Dealers, Inc.
-7-
<PAGE> 396
INVESTMENT OBJECTIVE, POLICIES AND RISK CONSIDERATIONS
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.
The Portfolio's investment objective is to seek as high a level of
current income exempt from federal income tax as is consistent with conservation
of capital. In pursuing its investment objective, the Portfolio invests
substantially all of its assets in investment-grade Kansas municipal obligations
(which, to the extent possible, are also exempt from Kansas income tax and the
local intangibles tax).
Dividends paid by the Portfolio that are derived from interest
attributable to tax-exempt obligations issued after December 31, 1987 by the
State of Kansas or its political subdivisions, or on certain specific
obligations issued before January 1, 1988 by such entities, as well as certain
tax-exempt obligations of any authority, commission or instrumentality of the
United States or its possessions ("Kansas Municipal Obligations") are exempt
from federal and Kansas income tax and are not subject to the local intangibles
tax imposed by various counties, cities and townships in Kansas. Dividends
derived from interest on obligations of other governmental issuers are exempt
from federal income tax but may be subject to Kansas income tax and the local
intangibles tax. The foregoing exemption from Kansas income tax does not apply
to banks or certain other individuals or entities who are in the banking
business.
As a matter of fundamental policy, under normal market conditions, at
least 65% of the Portfolio's total assets will be invested in Kansas Municipal
Obligations. The Portfolio will seek to maximize the proportion of its dividends
which are exempt from both federal and Kansas income tax and presently expects
to invest substantially all of its total assets in Kansas Municipal Obligations.
The Portfolio invests in municipal obligations that are rated at the
time of purchase within the four highest rating categories assigned by a Rating
Agency. The Portfolio may also invest in short-term municipal obligations such
as municipal notes, tax-exempt commercial paper and variable or floating rate
demand obligations that are rated at the time of purchase within the two highest
rating categories assigned by a Rating Agency. Municipal obligations rated in
the lowest of the four highest rating categories for bonds are considered to
have speculative characteristics, even though they are of investment grade
quality. Such bonds will be purchased only if the Adviser believes the issuers
have an adequate capacity to pay interest
-8-
<PAGE> 397
and repay principal. Unrated obligations will be purchased only if they are
considered by the Adviser to be at least comparable in quality at the time of
purchase to instruments within the rating categories listed above. The
applicable municipal obligation ratings are described in the Appendix to the
Statement of Additional Information.
As a matter of fundamental policy, under normal market conditions or
when the Adviser deems suitable tax-exempt municipal obligations to be
available, at least 80% of the Portfolio's total assets will be invested in
municipal obligations. The Portfolio may hold uninvested cash reserves pending
investment during temporary defensive periods or if, in the opinion of the
Adviser, suitable municipal obligations are unavailable. There is no percentage
imitation on the amount of assets which may be held uninvested during temporary
defensive periods.
In addition, during temporary defensive periods or if, in the opinion
of the Adviser, suitable municipal obligations are unavailable and subject to
its quality standards described above, the Portfolio may invest up to 20% of its
assets in money market instruments, the income from which is subject to federal
income tax. Such instruments may include obligations of the U.S. Government, its
agencies or instrumentalities; debt securities (including commercial paper) of
issuers having, at the time of purchase, a quality rating within the two highest
rating categories by a Rating Agency; certificates of deposit or bankers'
acceptances of domestic branches of U.S. banks with total assets at the time of
purchase of $1 billion or more; or repurchase agreements with respect to such
obligations.
The Portfolio's average weighted maturity will vary in light of market
and economic conditions, the comparative yields on instruments with different
maturities, and other factors.
RISK FACTORS
INTEREST RATE RISK. Generally, the market value of fixed income
securities, including municipal obligations, held by 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 will tend to increase, and during
periods of rising interest rates, the market value will tend to decrease. Fixed
income securities with longer maturities, which tend to produce higher yields,
are subject to potentially greater capital appreciation and depreciation than
obligations with shorter maturities. Changes in the financial strength of an
issuer or changes in the ratings of any particular security may also offset the
value of these investments. Fluctuations in the market value of fixed income
securities
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<PAGE> 398
subsequent to their acquisition will not offset cash income from such securities
but will be reflected in the Portfolio's net asset value.
MUNICIPAL OBLIGATIONS. The ability of the Portfolio to achieve its
investment objectives is dependent upon the ability of issuers of municipal
obligations to meet their continuing obligations for the payment of principal
and interest. There are additional risks associated with investment in the
Portfolio because it invests its assets predominantly in Kansas Municipal
Obligations. Investors in the Portfolio should be aware that certain provisions
of, and amendments to, the Kansas Constitution limit tax increases which could
result in certain adverse consequences affecting Kansas Municipal Obligations.
Some of the significant financial considerations relating to the Portfolio's
investments in Kansas Municipal Obligations are summarized in the Statement of
Additional Information.
ADDITIONAL RISKS AND OTHER CONSIDERATIONS. Although the Portfolio does
not presently intend to do so on a regular basis, it may invest more than 25% of
its assets in industrial development bonds issued before August 7, 1986, the
interest on which is not treated as a specific tax preference item under the
federal alternative minimum tax, and in municipal obligations, the interest on
which is paid solely from revenues of similar projects, if such investments are
deemed necessary or appropriate by the Adviser. To the extent that the
Portfolio's assets are invested in municipal obligations the issuers of which
are in the same state or that are payable from the revenues of similar projects
or in private activity bonds, the Portfolio will be subject to the peculiar
risks presented by the laws and economic conditions relating to such projects
and bonds to a greater extent that it would be if its assets were not so
invested. See "Investment Objectives and Policies -- Municipal Obligations" in
the Statement on Additional Information.
The Portfolio is classified as non-diversified under the 1940 Act.
Investment return on a non-diversified portfolio typically is dependent upon the
performance of a smaller number of securities relative to the number held in a
diversified portfolio. Consequently, the change in value of any one security may
affect the overall value of a non-diversified portfolio more than it would a
diversified portfolio. In addition, a non-diversified portfolio may be more
susceptible to economic, political, and regulatory developments than a
diversified investment portfolio with similar objectives. The value of the
Portfolio's securities can be expected to vary inversely with changes in
prevailing interest rates.
Investors in the Portfolio should consider the risk inherent in such
Portfolio's concentrations in Kansas Municipal Obligations versus the safety
that comes with a less
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<PAGE> 399
geographically concentrated investment portfolio, and should compare the yields
and tax-equivalent yields available on portfolios of Kansas Municipal
Obligations with the yields and tax-equivalent yields of more diversified
portfolios having securities of comparable quality, including non-Kansas
securities, before making an investment decision.
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.
Opinions relating to the validity of municipal obligations and to the
exemption of interest thereon from federal income tax (and, with respect to
Kansas Municipal Obligations, to the exemption from Kansas 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.
OTHER APPLICABLE POLICIES
The investment policies described in this Prospectus are among those
which the Portfolio has the ability to utilize. Some of these policies may be
employed on a regular basis; others may not be used at all. Accordingly,
reference to any particular policy, method or technique carries no implication
that it will be utilized or, if it is, that it will be successful.
U.S. GOVERNMENT OBLIGATIONS. Securities issued or guaranteed by the
U.S. Government, its agencies and instrumentalities have historically involved
little risk of loss of principal if held to maturity. However, due to
fluctuations in interest rates, the market value of such securities may vary
during the period a shareholder owns Shares of the Portfolio. Examples of the
types of U.S. Government obligations that may be held by the Portfolio, subject
to its investment objective and
-11-
<PAGE> 400
policies, include, in addition to U.S. Treasury bonds, notes and bills, the
obligations of Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land
Banks, the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration,
Government National Mortgage Association ("GNMA"), Federal National Mortgage
Association ("FNMA"), Federal Home Loan Mortgage Corporation, General Services
Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Resolution Trust Corporation,
and Maritime Administration. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as those of GNMA, are supported
by the full faith and credit of the U.S. Treasury; others, such as the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of FNMA, are supported
by the discretionary authority of the U.S. Government to purchase the agency's
obligations; still others such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. There is
no assurance that the U.S. Government would provide financial support to U.S.
Government-sponsored instrumentalities if it is not obligated to do so by law.
REPURCHASE AGREEMENTS. Under certain circumstances described above and
subject to its investment policies, the Portfolio may agree to purchase U.S.
Government securities from financial institutions such as banks and
broker-dealers, subject to the seller's agreement to repurchase them at a
mutually agreed-upon date and price ("repurchase agreements"). The Portfolio
will enter into repurchase agreements only with financial institutions such as
banks and broker-dealers that the Adviser believes to be creditworthy. During
the term of any repurchase agreement, the Adviser will continue to monitor the
creditworthiness of the seller and will require the seller to maintain the value
of the securities subject to the agreement at not less than 102% of the
repurchase price (including accrued interest). Default by a seller could expose
the Portfolio to possible loss because of adverse market action or possible
delay in disposing of the underlying obligations. Because of the seller's
repurchase obligations, the securities subject to repurchase agreements do not
have maturity limitations. Although the Portfolio presently does not intend to
enter into repurchase agreements providing for settlement in more than seven
days, the Portfolio does have the authority to do so subject to its limitation
on the purchase of illiquid securities described below. Repurchase agreements
are considered to be loans under the 1940 Act. The income on repurchase
agreements is taxable. See "Taxes" below.
SECURITIES OF OTHER INVESTMENT COMPANIES. Under certain circumstances
described above and subject to its investment policies and limitations, the
Portfolio may invest in securities issued by other investment companies which
determine their net asset value per Share based on the amortized cost or penny-
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rounding method and which invest in securities in which the Portfolio is
permitted to invest. 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. Investments in other
investment companies will cause the Portfolio (and, indirectly, the Portfolio's
shareholders) to bear proportionately the cost incurred in connection with the
operations of such other investment companies. In addition, 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. See the Statement
of Additional Information under "Investment Objectives and Policies --
Securities of Other Investment Companies." The income on securities of other
investment companies may be taxable to investors at the state or local level.
See "Taxes" below.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. The Portfolio may
purchase securities on a "when-issued" basis and may purchase or sell securities
on a "forward commitment" basis. These transactions involve a commitment by 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. When issued purchases and forward commitments 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.
TYPES OF MUNICIPAL OBLIGATIONS. The two principal classifications of
municipal obligations that may be held by the Portfolio are "general obligation"
securities and "revenue" securities. General obligation securities are secured
by the issuer's pledge of its full faith, credit and taxing power for the
payment of principal and interest. Revenues securities are payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise tax or other specific revenue
source such as the user of the facility being financed. Revenue securities
include private activity bonds which are not payable from the unrestricted
revenues of the issuer. Consequently, the credit quality of private activity
bonds is usually directly related to the credit standing of the corporate user
of the facility
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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.
VARIABLE AND FLOATING RATE MUNICIPAL OBLIGATIONS. 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
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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.
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 their 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 Objectives 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 the applicable
limit (unless the Adviser pursuant to guidelines established by the Board of
Directors, determines that a liquid market exists).
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
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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 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
Except as otherwise noted, the Portfolio's investment policies
discussed above are not fundamental and may be changed by the Fund's Board of
Directors without shareholder approval. However, the Portfolio also has in place
certain fundamental investment limitations, some of which are set forth below,
which 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 Objectives and Policies."
The Portfolio may not:
1. Purchase securities of any one issuer if, immediately after
and as a result of such purchase, more than 5% of the Portfolio's total
assets would be invested in the securities of such issuer, except that
(a) up to 50% of the Portfolio's total assets may be invested without
regard to this 5% limitation provided that no more than 25% of the
Portfolio's total assets are invested in the securities of any one
issuer and (b) this 5% limitation does not apply to securities issued
or guaranteed by the U.S. Government, its agencies or
instrumentalities. For purposes of this limitation, a security is
considered to be issued by the governmental entity (or entities) whose
assets and revenues back the security, or, with respect to a private
activity bond that is backed only by the assets and revenues of a
non-governmental user, a security is considered to be issued by such
non-governmental user. In certain circumstances, the guarantor of a
guaranteed security may also be considered to be an issuer in
connection with such guarantee, except that a guarantee of a security
shall not be deemed to be a security issued by the guarantor when the
value of all securities issued and guaranteed by the
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guarantor, and owned by the Portfolio, does not exceed 10%
of the Portfolio's total assets.
2. Borrow money or issue senior securities, except that the
Portfolio may borrow from banks, and may enter into reverse repurchase
agreements, for temporary defensive purposes in amounts not in excess
of 10% of its total assets at the time of such borrowing; or mortgage,
pledge, or hypothecate any assets except in connection with any such
borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of its total assets at the time of such
borrowing (including any reverse repurchase agreements); or purchase
securities while borrowings exceed 5% of the Portfolio's 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.
3. Purchase any securities, except securities issued (as
defined in Investment Limitation No. 1 above) or guaranteed by the
United States, any state, territory or possession of the United States,
the District of Columbia or any of their authorities, agencies,
instrumentalities or political subdivisions, which would cause more
than 25% of the Portfolio's net assets at the time of purchase to be
invested in the securities of issuers conducting their principal
business activities in the same industry.
4. Make loans except that the Portfolio may purchase and hold
debt instruments and enter into repurchase agreements in accordance
with its investment objective and policies.
The following additional investment policies are not fundamental and
may be changed by the Board of Directors without shareholder approval:
The Portfolio may not purchase securities which are not
readily marketable, enter into repurchase agreements providing for
settlement in more than seven days after notice, or purchase other
illiquid securities if, as a result of such purchase, illiquid
securities would exceed 15% of the Portfolio's respective total assets.
If a percentage limitation is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in value
in the Portfolio's securities will not constitute a violation of such
limitation.
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PRICING OF SHARES
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 (the "Exchange") (currently 4:30 p.m. Eastern Time) on each
weekday with the exception of those holidays on which the Exchange or the
Federal Reserve Bank of St. Louis are closed (a "Business Day"). Currently one
or both of these institutions are closed on the customary national business
holidays of New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day (observed), Independence Day (observed), Labor Day,
Columbus Day, Veterans' Day, Thanksgiving Day and Christmas Day (observed).
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.
OTHER INFORMATION
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 of
the Portfolio, a front-end sales charge. A class will calculate its 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.
HOW TO PURCHASE AND REDEEM SHARES
PURCHASE OF SHARES
Investor A Shares of the Portfolio are sold subject to a front-end
sales charge. Investor B Shares of the Portfolio are sold subject to a back-end
sales charge. This back-end sales charge declines over time and is known as a
"contingent deferred sales charge." Before choosing between Investor A Shares or
Investor B Shares of the Portfolio, investors should read "Characteristics of
Investor A Shares and Investor B Shares" and "Factors to Consider When Selecting
Investor A Shares or Investor B Shares" below.
Investor A Shares and Investor B Shares are sold through broker-dealers
or other organizations acting on behalf of their
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customers. Generally, investors purchase Investor A Shares or Investor B Shares
through a broker-dealer organization which has a sales agreement with the
Distributor or through an organization which has entered into a servicing
agreement with the Fund with respect to Investor A Shares and/or Investor B
Shares. The organization is responsible for transmitting purchase orders
directly to the Fund. Investors purchasing Shares of the Portfolio must
specify at the time of investment whether they are purchasing Investor A
Shares or Investor B Shares.
The minimum initial investment in the Portfolio is $1,000 and the
minimum for each subsequent investment is $100, except for investments made
through (a) the Automatic Investment Program, in which case the initial minimum
and subsequent minimum investments are $50, (b) a sweep program available
through an investor's financial institution, in which case there are no minimum
investments, (c) a payroll deduction program, in which case there is no minimum
initial investment and minimum subsequent investments are $25 per month, or (d)
a wrap fee program, in which case there are no minimum investments. The minimum
initial investment to participate in the Automatic Exchange program is $5,000.
See "How to Purchase and Redeem Shares -- Exchange Privileges -- Automatic
Exchange Program" below for additional requirements.
Purchases may be effected on Business Days when the Adviser,
Distributor, and Mercantile (the Custodian) are open for business. The Fund
reserves the right to reject any purchase order, including purchases made with
foreign and third party drafts or checks. All orders for new IRAs or other
retirement plan accounts placed through the transfer agent must be accompanied
by an account application. Account applications may be obtained from your
investment representative or the Fund at 1-800-551-3731.
Organizations placing orders directly or on behalf of their customers
should contact the Fund at 1-800-551-3731. Investors may also call the Fund for
information on how to purchase Shares.
EFFECTIVE TIME OF PURCHASE. If purchase orders for the Portfolio are
received in good form and accepted by the Fund prior to 4:00 p.m. (Eastern time)
on any Business Day, Shares will be priced according to the net asset value per
Share next determined on that day after receipt of the order. Immediately
available funds must be received by the Custodian prior to 4:00 p.m. within
three Business Days following the receipt of such order. If funds are not
received by such date, the order will be cancelled, and notice thereof will be
given to the person or organization placing the order.
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In the case of an order for the purchase of Shares placed through a
broker-dealer, it is the responsibility of the broker-dealer to promptly
transmit the order to the Distributor. If the broker-dealer fails to do so, the
investor's right to that day's closing price must be settled between the
investor and the broker-dealer. Payment for orders which are not received or
accepted will be returned after prompt inquiry to the transmitting organization.
PURCHASES BY MAIL. To purchase Shares of the Portfolio by mail,
complete an account application and send it to the Fund along with a check (or
other negotiable bank draft or money order) in at least the minimum initial
purchase amount, made payable to the Portfolio. Investors purchasing
Shares of the Portfolio by mail must indicate whether they wish to buy Investor
A Shares or Investor B Shares. Subsequent purchases of Shares of the Portfolio
may be made at any time in at least the minimum subsequent purchase amount by
mailing a check payable to the Portfolio.
All shareholders of record will receive confirmations of Share
purchases, exchanges, and redemptions in the mail. If Shares are held in the
name of an organization, such organization is responsible for transmitting
purchase, exchange, and redemption orders to the Fund on a timely basis,
recording all purchase, exchange, and redemption transactions, and providing
regular account statements which confirm such transactions to beneficial owners
(or arranging for such services).
AUTOMATIC INVESTMENT PROGRAM (AIP)
Shareholders may open an account or add to their investment on a
monthly basis in a minimum amount of $50, on the 20th day (or the next Business
Day after the 20th) of each month. Under the AIP, funds may be automatically
withdrawn from the shareholder's checking account (as long as the shareholder's
bank is a member of the Automated Clearing House). Such funds are invested in
Investor A or Investor B Shares, as appropriate, at the net asset value plus any
applicable front-end sales charge next determined on the day an order is
effected by the transfer agent, BISYS Fund Services Ohio, Inc. (the "Transfer
Agent"). An investor may apply for participation in the AIP through the
organization servicing his or her Fund account and by completing the
supplementary AIP authorization form. The AIP may be modified or terminated by a
shareholder on 30 days' written notice to his or her investment representative
or to the Fund, or by the Fund at any time.
The AIP is one means by which investors may use "Dollar Cost Averaging"
in making investments. Dollar Cost Averaging can be useful in investing in
portfolios such as the Portfolio whose
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price per Share fluctuates. Instead of trying to time market performance, a
fixed dollar amount is invested in Portfolio Shares at predetermined intervals.
This may help investors to reduce their average cost per Share because the
agreed upon fixed investment amount allows more Shares to be purchased during
periods of lower Share prices and fewer Shares during periods of higher prices.
In order to be effective, Dollar Cost Averaging should usually be followed on a
sustained, consistent basis. Investors should be aware, however, that Shares
bought using Dollar Cost Averaging are made without regard to their price on the
day of investment or to market trends. In addition, while investors may find
Dollar Cost Averaging to be beneficial, it will not prevent a loss if an
investor ultimately redeems his or her Shares at a price which is lower than
their purchase price.
APPLICABLE SALES CHARGES - INVESTOR A SHARES
The public offering price for Investor A Shares of the Portfolio is the
sum of the net asset value of the Shares being purchased plus any applicable
sales charge. No sales charge is assessed on the reinvestment of dividends and
capital gain distributions. The sales charge is assessed as follows:
<TABLE>
<CAPTION>
AS A % AS A % DEALERS'
OF OF REALLOWANCE
OFFERING NET ASSET AS A % OF
PRICE VALUE OFFERING
AMOUNT OF TRANSACTION PER SHARE PER SHARE PRICE
- --------------------- --------- --------- -----
<S> <C> <C> <C>
Less than $50,000............................................. 4.50% 4.71% 4.00%
$50,000 but less than $100,000................................ 3.50 3.63 3.00
$100,000 but less than $250,000............................... 2.50 2.56 2.00
$250,000 but less than $500,000............................... 1.50 1.52 1.00
$500,000 but less than $1,000,000............................. 1.00 1.01 0.50
$1,000,000 and over........................................... .50 .50 .40
</TABLE>
The Distributor will pay the appropriate Dealers' Reallowance to broker-dealer
organizations which have entered into an agreement with the Distributor. The
Dealers' Reallowance may be changed from time to time. Upon notice to the Fund's
shareholders, the Distributor, at its sole discretion, may reallow up to the
full applicable sales charge as shown on the above schedule during periods
specified in such notice. Dealers who receive 90% or more of a sales load may be
deemed to be "underwriters" under the Securities Act of 1933, as amended.
No sales charge is assessed on purchases of Investor A Shares of the
Portfolio by: (a) directors and officers of the Fund and the immediate family
members of such individuals; (b) directors, current and retired employees and
participants in employee benefit/retirement plans (future and current
annuitants) of Mercantile Bancorporation Inc. or any of its affiliates or the
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Distributor or its affiliates and the immediate family members of such
individuals; (c) brokers, dealers, and agents who have a sales agreement with
the Distributor, and their employees (and the immediate family members of such
individuals); (d) customers who purchase pursuant to a wrap fee program offered
by any broker-dealer or other financial institution or financial planning
organization; (e) individuals who purchase Investor A Shares with the proceeds
of Trust Shares or Institutional Shares redeemed in connection with a rollover
of benefits paid by a qualified retirement or employee benefit plan or
distribution on behalf of any other qualified account administered by Mercantile
or its affiliates or correspondent banks, within 60 days of receipt of such
payment; (f) investors who purchase Investor A Shares through a payroll
deduction program; (g) employees of any sub-adviser to the Fund; (h) holders of
Southwestern Bell Visa cards issued by Mercantile Bank of Illinois, N.A. who
participate in the Automatic Investment Program (credit cards may not be used
for the purchase of Fund Shares); (i) investors exchanging Trust Shares of a
Portfolio received from the distribution of assets held in a qualified trust,
agency or custodian account with the trust department of Mercantile or any of
its affiliated or correspondent banks; or (j) other investment companies
distributed by the Distributor or its affiliates. Investors who believe that
they may qualify under any of the exemptions listed above should contact the
Fund at 1-800-551-3731 prior to making a purchase.
REDUCED SALES CHARGES - INVESTOR A SHARES
The sales charge on purchases of Investor A Shares of the Portfolio may
be reduced through:
- rights of accumulation
- quantity discounts
- letter of intent
- reinvestment privilege
To qualify for a reduced sales load, an investor must so notify his or her
investment representative, who in turn will notify the Distributor at the time
of purchase.
RIGHTS OF ACCUMULATION - INVESTOR A SHARES. An investor who has
previously purchased Investor A Shares of the Portfolio and has paid a sales
charge ("load") may be eligible for reduced sales charges when purchasing
additional Investor A Shares of any Portfolio of the Fund with a sales charge.
An investor's aggregate investment in Shares of such load Portfolios is the
total value (based on the higher of current net asset value or the public
offering price originally paid) of: (a) current purchases, and (b) Shares that
are already beneficially owned by the investor on which a sales charge has
already been paid. If, for example, an investor beneficially owns Investor A
Shares of a Portfolio with
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a maximum 4.50% sales load having an aggregate current value of $240,000 and
subsequently purchases additional Investor A Shares of a Portfolio with a
maximum 4.50% sales load having a current value of $10,000, the sales charge
applicable to the subsequent purchase would be reduced to 1.50% of the offering
price.
QUANTITY DISCOUNTS - INVESTOR A SHARES. As shown in the table under
"Applicable Sales Charges - Investor A Shares," larger purchases reduce the
sales charge paid. The Fund will combine purchases made in a load Portfolio on
the same day by the investor and immediate family members when calculating the
applicable sales charge.
LETTER OF INTENT - INVESTOR A SHARES. By checking the Letter of Intent
box on the account application, a shareholder becomes eligible for reduced sales
charges applicable to the total amount invested in Investor A Shares in a load
Portfolio over a 13-month period (beginning up to 90 days prior to the date
indicated on the account application). The Transfer Agent will hold in escrow 5%
of the amount indicated for payment of a higher sales load if a shareholder does
not purchase the full amount indicated on the account application. Upon
completion of the total minimum investment specified on the account application,
the escrow will be released, and an adjustment will be made to reflect any
reduced sales charge applicable to Shares purchased during the 90-day period
prior to submission of the account application. Additionally, if total purchases
within the 13- month period exceed the amount specified, an adjustment will be
made to reflect further reduced sales charges applicable to such purchases. All
such adjustments will be made at the conclusion of the 13-month period and in
the form of additional Shares credited to the shareholder's account at the then
current public offering price applicable to a single purchase of the total
amount of the total purchases. If total purchases are less than the amount
specified, escrowed Shares may be involuntarily redeemed to pay the additional
sales charge. Checking a Letter of Intent box does not bind an investor to
purchase, or the Fund to sell, the full amount indicated at the sales load in
effect at the time of signing, but an investor must complete the intended
purchase to obtain the reduced sales load.
REINVESTMENT PRIVILEGE - INVESTOR A SHARES. Upon redemption of Investor
A Shares on which a sales charge was paid, a shareholder has a one-time right,
to be exercised within 60 days, to reinvest the redemption proceeds at the next
determined net asset value without paying any additional sales charge. The
shareholder must notify his or her investment representative or the Distributor
in writing of the reinvestment and provide a receipt or other evidence of the
redemption in order to eliminate a sales charge.
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MISCELLANEOUS - INVESTOR A SHARES. Reduced sales charges may be
modified or terminated at any time and are subject to confirmation of an
investor's holdings. For more information about reduced sales charges, an
investor should contact his or her investment representative or the Distributor.
APPLICABLE SALES CHARGES - INVESTOR B SHARES
Investor B Shares of the Portfolio are sold at their net asset value
next determined after a purchase order is received in good form by the Fund's
Distributor. Although investors pay no front-end sales charge on purchases of
Investor B Shares, such Shares are subject to a deferred sales charge at the
rates set forth in the chart below if they are redeemed within six years of
purchase. Service Organizations will receive commissions from the Distributor in
connection with sales of Investor B Shares. These commissions may be different
than the reallowances or placement fees, if any, paid to dealers in connection
with sales of Investor A Shares.
The deferred sales charge on Investor B Shares is based on the lesser
of the net asset value of the Shares on the redemption date or the original cost
of the Shares being redeemed. As a result, no sales charge is charged on any
increase in the principal value of an investor's Shares. In addition, a
contingent deferred sales charge will not be assessed on Investor B Shares
purchased through reinvestment of dividends or capital gains distributions.
The amount of any contingent deferred sales charge an investor must pay
on Investor B Shares depends on the number of years that elapse between the
purchase date and the date such Investor B Shares are redeemed. Solely for
purposes of determining the number of years from the time of payment for an
investor's Share purchase, all payments during a month will be aggregated and
deemed to have been made on the first day of the month.
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE (AS A
NUMBER OF YEARS PERCENTAGE OF DOLLAR AMOUNT
ELAPSED SINCE PURCHASE SUBJECT TO THE CHARGE)
- ---------------------- ----------------------
<S> <C>
One or less........................... 5.0%
More than one, but less
than two............................ 4.0%
Two, but less than three.............. 3.0%
Three, but less than four............. 3.0%
Four, but less than five.............. 2.0%
Five, and up to and
including six....................... 1.0%
After six years....................... None
</TABLE>
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When an investor redeems his or her Investor B Shares, the redemption
order is processed to minimize the amount of the contingent deferred sales
charge that will be charged. Investor B Shares are redeemed first from those
Investor B Shares that are not subject to the deferred sales load (i.e.,
Investor B Shares that were acquired through reinvestment of dividends or
capital gain distributions) and after that from the Investor B Shares that have
been held the longest.
For example, assume an investor purchased 100 Investor B Shares at $10
a Share (for a total cost of $1,000), three years later the Shares have a net
asset value of $12 per Share and during that time the investor acquired 10
additional Shares through dividend reinvestment. If the investor then makes one
redemption of 50 Shares (resulting in proceeds of $600, 50 Shares x $12 per
share), the first 10 Shares redeemed will not be subject to the contingent
deferred sales charge because they were acquired through reinvestment of
dividends. With respect to the remaining 40 Shares redeemed, the contingent
deferred sales charge is charged at $10 per Share (because the original purchase
price of $10 per Share is lower than the current net asset value of $12 per
share). Therefore, only $400 of the $600 such investor received from selling his
or her Shares will be subject to the contingent deferred sales charge, at a rate
of 3.0% (the applicable rate in the third year after purchase). The proceeds
from the contingent deferred sales charge that the investor may pay upon
redemption go to the Distributor, which may use such amounts to defray the
expenses associated with the distribution-related services involved in selling
Investor B Shares. The contingent deferred sales charge, along with ongoing
distribution fees paid with respect to Investor B Shares, enables those Shares
to be purchased without the imposition of a front-end sales charge.
EXEMPTIONS FROM THE CONTINGENT DEFERRED SALES CHARGE. The following
types of redemptions qualify for an exemption from the contingent deferred sales
charge: (i) exchanges described under "Exchange Privileges" below; (ii)
redemptions in connection with required (or, in some cases, discretionary)
distributions to participants or beneficiaries of an employee pension,
profit-sharing or other trust or qualified retirement or Keogh plan, individual
retirement account or custodial account maintained pursuant to Section 403(b)(7)
of the Internal Revenue Code due to death, disability or the attainment of a
specified age; (iii) redemptions effected pursuant to a Portfolio's right to
liquidate a shareholder's account if the aggregate net asset value of Shares
held in the account is less than the minimum account size; (iv) redemptions in
connection with the death or disability of a shareholder; or (v) redemptions
resulting from a tax-free return of an excess contribution pursuant to Section
408(d)(4) or (5) of the Internal Revenue Code.
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CHARACTERISTICS OF INVESTOR A SHARES AND INVESTOR B SHARES
The primary difference between Investor A Shares and Investor B Shares
lies in their sales charge structures and distribution arrangements. An investor
should understand that the purpose and function of the sales charge structures
and distribution arrangements for both Investor A Shares and Investor B Shares
are the same.
Investor A Shares are sold at their net asset value plus a front-end
sales charge of up to 4.50%. This front-end sales charge may be reduced or
waived in some cases. See "Applicable Sales Charges - Investor A Shares."
Investor A Shares are subject to ongoing distribution and service fees at an
annual rate of up to 0.30% of the Portfolio's average daily net assets
attributable to its Investor A Shares.
Investor B Shares are sold at net asset value without an initial sales
charge. Normally, however, a deferred sales charge is paid if the Shares are
redeemed within six years of investment. See "Applicable Sales Charges -
Investor B Shares." Investor B Shares are subject to ongoing distribution and
service fees at an annual rate of up to 1.00% of the Portfolio's average daily
net assets attributable to its Investor B Shares. These ongoing fees, which are
higher than those charged on Investor A Shares, will cause Investor B Shares to
have a higher expense ratio and pay lower dividends than Investor A Shares.
Eight years after purchase, Investor B Shares will convert
automatically to Investor A Shares. The purpose of the conversion is to relieve
a holder of Investor B Shares of the higher ongoing expenses charged to those
Shares, after enough time has passed to allow the Distributor to recover
approximately the amount it would have received if a front-end sales charge had
been charged. The conversion from Investor B Shares to Investor A Shares takes
place at net asset value, as a result of which an investor receives
dollar-for-dollar the same value of Investor A Shares as he or she had of
Investor B Shares. The conversion occurs eight years after the beginning of the
calendar month in which the Shares are purchased. As a result of the conversion,
the converted Shares are relieved of the distribution and service fees borne by
Investor B Shares, although they are subject to the distribution and service
fees borne by Investor A Shares.
Investor B Shares acquired through a reinvestment of dividends or
distributions are also converted at the earlier of two dates - eight years after
the beginning of the calendar month in which the reinvestment occurred or the
date of conversion of the most recently purchased Investor B Shares that were
not acquired through reinvestment of dividends or distributions. For example, if
an investor makes a one-time purchase of Investor B Shares of the Portfolio,
and subsequently acquires
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additional Investor B Shares of the Portfolio only through reinvestment of
dividends and/or distributions, all of such investor's Investor B Shares in the
Portfolio, including those acquired through reinvestment, will convert to
Investor A Shares of the Portfolio on the same date.
FACTORS TO CONSIDER WHEN SELECTING INVESTOR A SHARES OR INVESTOR B SHARES
Before purchasing Shares of the Portfolio, investors should consider
whether, during the anticipated life of their investment in the Portfolio, the
accumulated distribution fees and potential contingent deferred sales charges on
Investor B Shares prior to conversion would be less than the initial sales
charge and accumulated distribution fees on Investor A Shares purchased at the
same time, and to what extent such differential would be offset by the higher
yield of Investor A Shares. In this regard, to the extent that the sales charge
for Investor A Shares is waived or reduced by one of the methods described
above, investments in Investor A Shares become more desirable. The Fund will
refuse all purchase orders for Investor B Shares of over $100,000.
Although Investor A Shares are subject to a distribution and service
fee, they are not subject to the higher distribution and service fee applicable
to Investor B Shares. For this reason, Investor A Shares can be expected to pay
correspondingly higher dividends per Share. However, because initial sales
charges are deducted at the time of purchase, purchasers of Investor A Shares
that do not qualify for waivers of or reductions in the initial sales charge
would have less of their purchase price initially invested in the Portfolio than
purchasers of Investor B Shares of the Portfolio.
As described above, purchasers of Investor B Shares will have more of
their initial purchase price invested. Any positive investment return on this
additional invested amount would partially or wholly offset the expected higher
annual expenses borne by Investor B Shares. Because the Portfolio's future
returns cannot be predicted, there can be no assurance that this will be the
case. Holders of Investor B Shares would, however, own Shares that are subject
to higher annual expenses and, for a six-year period, such Shares would be
subject to a contingent deferred sales charge of up to 5.00% upon redemption,
depending upon the year of redemption. Investors expecting to redeem during this
six-year period should compare the cost of the contingent deferred sales charge
plus the aggregate annual Investor B Shares' distribution and service fees to
the cost of the initial sales charge and distribution and service fees on the
Investor A Shares. Over time, the expense of the annual distribution and service
fees on the Investor B Shares may equal or exceed the initial sales charge, if
any, and annual
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<PAGE> 416
distribution and service fees applicable to Investor A Shares. For example, if
net asset value remains constant, the aggregate distribution and service fees
with respect to Investor B Shares of the Portfolio would equal or exceed the
initial sales charge and aggregate distribution fees of Investor A Shares of the
Portfolio approximately eight years after the purchase. In order to reduce such
fees of investors that hold Investor B Shares for more than eight years,
Investor B Shares will be automatically converted to Investor A Shares as
described above at the end of such eight-year period.
EXCHANGE PRIVILEGES
The exchange privilege enables shareholders to exchange (i) Investor A
Shares of the Portfolio for Investor A Shares of another Portfolio offered by
the Fund or, under certain circumstances described below, for Trust Shares of
the Portfolio, and (ii) Investor B Shares of the Portfolio for Investor B
Shares of another Portfolio offered by the Fund. The exchange privilege may be
exercised only in those states where the class of shares of such other
Portfolios may be legally sold.
EXCHANGES - INVESTOR A SHARES. Shareholders who have purchased Investor
A Shares of the Portfolio and who have paid any applicable sales charge ("load")
(including Shares acquired through reinvestment of dividends or distributions on
such Shares) may exchange those Shares for Investor A Shares of another
Portfolio without paying an additional sales load.
In addition, shareholders who have a qualified trust, agency or
custodian account with the trust department of Mercantile or any of its
affiliated or correspondent banks, and whose Shares
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<PAGE> 417
are to be held in that account, may also exchange Investor A Shares of the
Portfolio for Trust Shares in the Portfolio.
EXCHANGES - INVESTOR B SHARES. Shareholders who have purchased Investor
B Shares of the Portfolio (including Shares acquired through reinvestment of
dividends or distributions on such Shares) may exchange those Shares for
Investor B Shares of another Portfolio without the payment of any contingent
deferred sales charge at the time the exchange is made. In determining the
holding period for calculating the contingent deferred sales charge payable on
redemptions of Investor B Shares, the holding period of the Investor B Shares
originally held will be added to the holding period of the Investor B Shares
acquired through the exchange. No exchange fee is imposed by the Fund.
OTHER INFORMATION CONCERNING EXCHANGES. The Shares exchanged must have
a current value at least equal to the minimum initial or subsequent investment
required by the particular Portfolio into which the exchange is being made. The
Fund reserves the right to reject any exchange request. The exchange privilege
may be modified or terminated at any time upon 60 days' written notice to
shareholders. An investor may telephone an exchange request by calling his or
her investment representative, which is responsible for transmitting such
exchange request to the Fund. (See "Other Exchange or Redemption Information"
below.) Investors who want to telephone an exchange request directly to the
Fund, and, have elected this privilege on the account application may follow the
procedures described below under "Redemption by Telephone." An investor should
consult his or her investment representative or the Fund for further information
regarding procedures for exchanging Shares.
AUTOMATIC EXCHANGE PROGRAM. The Automatic Exchange Program enables
shareholders to make regular, automatic withdrawals from an Investor A Share or
Investor B Share account in the Portfolio and use those proceeds to benefit from
Dollar Cost Averaging by automatically making purchases of the same class of
Shares in another Portfolio. With shareholder authorization, the Fund's Transfer
Agent will withdraw the amount specified (subject to the applicable minimums)
from the shareholder's account and will automatically invest that amount in
Shares of the Portfolio designated by the shareholder on the date of such
deduction.
In order to participate in the Automatic Exchange Program, shareholders
must make a minimum initial purchase of $5,000 and maintain a minimum account
balance of $1,000. Additionally, shareholders must complete the supplementary
authorization form which may be obtained from their investment representatives
or the Distributor. To change instructions with respect to the Automatic
Exchange Program or to discontinue this feature, shareholders must send a
written request to their investment
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<PAGE> 418
representative or to the Fund. The Automatic Exchange Program may be amended or
terminated without notice at any time by the Distributor.
REDEMPTION OF SHARES
Redemption orders should be placed with or through the same
broker-dealer organization that placed the original purchase order. Redemption
orders are effected at the Portfolio's net asset value per Share next determined
after receipt of the order by the Fund. Proceeds from the redemptions of
Investor B Shares will be reduced by the amount of any applicable contingent
deferred sales charge. The organization through which the investor placed the
order is responsible for transmitting redemption orders to the Fund on a timely
basis. No charge for sending redemption payments electronically is currently
imposed by the Fund, although a charge may be imposed in the future. The Fund
reserves the right to send redemption proceeds electronically within seven days
after receiving a redemption order if, in the judgment of the Adviser, an
earlier payment could adversely affect the Portfolio.
REDEMPTION BY MAIL
A written redemption request must be accompanied by any Share
certificates which are properly endorsed for transfer. The Transfer Agent may
require a signature guarantee by an eligible guarantor institution. For purposes
of this policy, the term "eligible guarantor institution" shall include banks,
brokers, dealers, credit unions, securities exchanges and associations, clearing
agencies and savings associations as those terms are defined in Rule 17Ad-15
under the Securities Exchange Act of 1934. The Transfer Agent reserves the right
to reject any signature guarantee if (1) it has reason to believe that the
signature is not genuine, (2) it has reason to believe that the transaction
would otherwise be improper, or (3) the guarantor institution is a broker or
dealer that is neither a member of a clearing corporation nor maintains net
capital of at least $100,000. The signature guarantee requirement will be waived
if all of the following conditions apply: (1) the redemption check is payable to
the shareholder(s) of record and (2) the redemption check is mailed to the
shareholder(s) at the address of record or the proceeds are either mailed or
sent electronically to a commercial bank account previously designated on the
account application. An investor with questions or needing assistance should
contact his or her investment representative or the Fund. Additional
documentation may be required if the redemption is requested by a corporation,
partnership, trust, fiduciary, executor, or administrator.
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<PAGE> 419
REDEMPTION BY TELEPHONE
Shares may be redeemed by telephone if the shareholder selected that
option on the account application. The shareholder may have the proceeds mailed
to his or her address or mailed or sent electronically to a bank account
previously designated on the account application. It is not necessary for
shareholders to confirm telephone redemption requests in writing. If a
shareholder did not originally select the telephone redemption privilege, the
shareholder must provide written instructions to the Transfer Agent to add this
feature. Neither the Fund nor its service contractors will be liable for any
loss, damage, expense or cost arising out of any telephone redemption effected
in accordance with the Fund's telephone redemption procedures, acting upon
instructions reasonably believed to be genuine. The Fund will employ procedures
designed to provide reasonable assurance that instructions by telephone are
genuine; if these procedures are not followed the Fund or its service
contractors may be liable for any losses due to unauthorized or fraudulent
instructions. If Share certificates are outstanding with respect to an account,
the telephone redemption and telephone exchange privilege is not available. If,
due to temporary adverse conditions, investors are unable to effect telephone
transactions, investors are encouraged to follow the procedures described in
"Other Exchange or Redemption Information" below.
Proceeds from redemptions of Investor A Shares and/or Investor B Shares
with respect to redemption orders received by the Fund before 4:00 p.m. (Eastern
time) on a Business Day normally are sent electronically or mailed by check to
the organization that placed the redemption order within three Business Days
after the Distributor's receipt of the order in good form.
AUTOMATIC WITHDRAWAL PLAN (AWP)
An Automatic Withdrawal Plan may be established by a new or existing
shareholder of the Portfolio if the value of his or her account (valued at the
net asset value at the time of the establishment of the AWP) equals $10,000 or
more. Shareholders who elect to establish an AWP may receive a monthly,
quarterly, semi-annual, or annual check in a stated amount of not less than $50
on or about the 25th day of the applicable month of withdrawal. Periodic
payments will be reduced by any applicable contingent deferred sales charge.
Portfolio Shares will be redeemed as necessary to meet withdrawal payments.
Withdrawals may reduce principal and eventually deplete the shareholder's
account. The maintenance of an AWP may be disadvantageous for holders of
Investor B Shares due to the effect of the contingent deferred sales charge. A
shareholder who desires to establish an AWP after opening an account should
complete the AWP form in the back of the Prospectus or contact his or her
investment
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representative or the Distributor for an AWP application. A signature guarantee
will be required. An AWP may be terminated by a shareholder on 30 days' written
notice to his or her investment representative or to the Fund or by the Fund at
any time.
PURCHASE OF INVESTOR A SHARES AT NET ASSET VALUE
From time to time the Distributor may offer special concessions to
enable investors to purchase Investor A Shares of the Portfolio at net asset
value without payment of a front-end sales charge. To qualify for a net asset
value purchase, the investor must pay for such purchase with the proceeds from
the redemption of shares of a non-affiliated mutual fund on which a front-end
sales charge was paid. A qualifying purchase of Investor A Shares must occur
within 30 days of the prior redemption and must be evidenced by a confirmation
of the redemption transaction. At the time of purchase, the investment
representative must notify the Distributor that the purchase qualifies for a
purchase at net asset value. Proceeds from the redemption of Shares on which no
front-end sales charge was paid do not qualify for a purchase at net asset
value.
OTHER EXCHANGE OR REDEMPTION INFORMATION
WHEN REDEEMING SHARES IN THE PORTFOLIO, SHAREHOLDERS SHOULD INDICATE
WHETHER THEY ARE REDEEMING INVESTOR A SHARES OR INVESTOR B SHARES. In the event
a redeeming shareholder owns both Investor A Shares and Investor B Shares in the
Portfolio, the Investor A Shares will be redeemed first unless the shareholder
indicates otherwise.
During periods of substantial economic or market change or activity,
telephone redemptions or exchanges may be difficult to complete. In such event,
Shares may be redeemed or exchanged by mailing the request directly to the
organization through which the original Shares were purchased or directly to the
Fund at P.O. Box 78069, St. Louis, Missouri 63178.
At various times, the Fund may be requested to redeem Shares for which
it has not yet received good payment. In such circumstances, the Fund may delay
the forwarding of proceeds until payment has been collected for the purchase of
such Shares which may take up to 15 days or more. To avoid delay in payment upon
redemption shortly after purchasing Shares, investors should purchase Shares by
certified or bank check or by electronic transfer. The Fund intends to pay cash
for all Shares redeemed, but under abnormal conditions which make payment in
cash unwise, the Fund may make payment wholly or partly in portfolio securities
at their then market value equal to the redemption price. In such cases, an
investor may incur brokerage costs in converting such securities to cash.
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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 broker-dealer organizations and their investors.
YIELDS AND TOTAL RETURNS
Yield and total return quotations are computed separately for Trust
Shares, Investor A Shares and Investor B 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 Investor A Shares and Investor B Shares may be
quoted in advertisements, sales literature or in communications to shareholders.
The yield is computed based on the net income of a particular class of Shares in
the Portfolio during a 30-day (or one-month) period identified in connection
with the particular yield quotation. More specifically, the yield is computed by
dividing the Portfolio's net income per Share during a 30-day (or one-month)
period by the maximum public offering price per Share on the last day of the
period and annualizing the result. The 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 may also compute its "Kansas tax-equivalent" yield which shows the
amount of taxable yield needed to produce an after-tax equivalent to the federal
and Kansas tax-exempt yield of the Portfolio's Shares, assuming payment of
federal income tax and Kansas income tax each at a stated rate.
The Portfolio's total return may be calculated on an average annual
total return basis, and may also be calculated on an aggregate total return
basis, for various periods. Average annual total returns with respect to a
particular class of Shares reflect the average annual percentage change in value
of an investment in such Shares of 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
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capital gain distributions made by the Portfolio during the period are
reinvested in the same class of Shares of the Portfolio and that the maximum
sales load in effect during the period has been charged by the Portfolio. The
Portfolio's total return figures may also be calculated without the deduction of
the maximum sales charge in effect during the period. The effect of not
deducting the sales charge will be to increase the total return reflected. When
considering average annual total return figures for periods longer than one
year, it is important to note that 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.
Performance data of the Portfolio's Investor A Shares and Investor B
Shares may be compared to the performance of other mutual funds with comparable
investment objectives and policies through various mutual fund or market indices
and data such as that provided by Lehman Brothers, Inc. or any of its
affiliates, Ibbotson Associates, Inc., Lipper Analytical Services, Inc., Mutual
Fund Forecaster and IBC/Donoghue's MONEY FUND REPORT(R). References may also be
made to indices or data published in Money Magazine, Forbes, Barron's, The Wall
Street Journal, The New York Times, Business Week, American Banker,
Institutional Investor, Pensions and Investments, U.S.A. Today, Fortune,
CDA/Wiesenberger, Morningstar, Inc. and publications of a local or regional
nature. In addition to performance information, general information about the
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
the Portfolio's past performance and should not be considered as representative
of future results. Any account fees charged by an investment representative will
not be included in the calculations of the 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 1-800-452-ARCH to obtain current yield and total
return information.
DIVIDENDS AND DISTRIBUTIONS
Dividends from investment income of the Portfolio are declared daily
and paid monthly not later than five Business Days after the end of each month.
Investor A Shares and Investor B Shares earn dividends from the day after the
purchase order is received by the Transfer Agent through the day the redemption
order for such Shares is received. Shares of the Portfolio purchased by check
begin earning dividends when payment for Shares purchased are converted into
federal funds and are available for investment. For purchases by check, this
normally will be the second Business Day following receipt of the check.
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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 and Investor B
Shares bear all expenses of the respective Distribution and Services Plans
adopted for such Shares. See "Management of the Fund" and "Other Information
Concerning the Fund and Its Shares" below.
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 (without a sales load) in additional Shares of the
same class unless the investor has (i) otherwise indicated in the account
application, or (ii) redeemed all the Shares held in 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
The Portfolio intends to qualify as a "regulated investment company"
for the current taxable year. 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 is generally exempt from federal
income tax on amounts distributed to shareholders.
Qualification as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code"), for a taxable year requires,
among other things, that the Portfolio distribute to its shareholders an amount
equal to at least the sum of 90% of its net exempt interest income and 90% of
its investment company taxable income (if any).
It is the policy of the Portfolio to distribute as dividends
substantially all of its net tax-exempt interest income and any investment
company taxable income each year. Dividends derived from interest on Municipal
Obligations (known as exempt-interest dividends) may be treated by shareholders
as items of interest excludable from their gross income under Section 103(a) of
the Code, unless under the circumstances applicable to the particular
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shareholder the exclusion would be disallowed. See the Statement of Additional
Information under "Additional Information Concerning Taxes." Distributions of
net income may be taxable to investors under state or local law as dividend
income even though a substantial portion of such distributions may be derived
from interest on tax-exempt obligations which, if realized directly, would be
exempt from such income tax.
If 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.
Substantially all of the Portfolio's net realized long-term capital
gains, if any, will be distributed at least annually to its shareholders. The
Portfolio will generally have no tax liability with respect to such gains and
the distributions will be taxable to shareholders who are not currently exempt
from federal income taxes as long-term capital gains, regardless of how long the
shareholders have held the Shares and whether such gains are received in cash or
reinvested in additional Shares.
To the extent dividends paid to shareholders of the Portfolio are
derived from taxable income or from long-term or short-term capital gains, such
dividends will be subject to federal income tax, whether such dividends are paid
in the form of cash or additional Shares.
An investor considering purchasing Shares of the Portfolio on or just
before the record date of any dividend or capital gains distribution should be
aware that the amount of the forthcoming distribution, although in effect a
return of capital, will be taxable.
Dividends declared by the Portfolio in October, November, or December
of any year payable to shareholders of record on a specified date in such months
will be deemed to have been received by shareholders and paid by the Fund on
December 31 of such year, if such dividends are actually paid during January of
the following year.
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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."
A taxable gain or loss may be realized by an investor upon redemption,
transfer or exchange of Shares of the Portfolio, depending upon the tax basis of
such Shares and their price at the time of redemption, transfer or exchange. If
an investor holds Shares for six months or less and during that time receives an
exempt-interest dividend on those Shares, any loss realized on the sale or
exchange of those Shares will be disallowed to the extent of the exempt-interest
dividend.
KANSAS TAX CONSIDERATIONS. In each year that the Portfolio qualifies as
a regulated investment company for federal income tax purposes, dividends
distributed to shareholders of the Portfolio who are Kansas resident
individuals, or estates or trusts resident in Kansas, will be excluded from the
computation of Kansas adjusted gross income to the extent that such dividends
(a) (i) qualify as exempt-interest dividends of a regulated investment company
under section 852(b)(5) of the Code and (ii) are attributable to interest on
obligations issued after December 31, 1987 by the State of Kansas or its
political subdivisions or on certain specific obligations issued before January
1, 1988 by such entities, or (b) are derived from interest on certain
obligations of any authority, commission or instrumentality of the United States
or its possessions, to the extent exempted from state income taxes under Federal
law. The Portfolio intends to invest only in obligations which will permit
distributions attributable to interest to be excludable from Kansas adjusted
gross income on resident individuals, estates and trusts. Resident individuals,
estates and trusts will generally be subject to Kansas income tax on other types
of distributions received from the Portfolio, including distributions
attributable to interest on certain obligations issued before January 1, 1988,
by the State of Kansas or its political subdivisions, to interest on obligations
of other issuers and to all long-term and short-term capital gains, if any, to
the extent such capital gains distributions are included in federal taxable
income. Corporations within Kansas' tax jurisdiction are subject to the same
rules as Kansas individuals in computing such corporation's net income before
apportionment.
The foregoing discussion of Kansas law does not apply to shareholders
which are banks or to certain other individuals or entities who are in the
banking business. Banks and others in
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the banking business are subject to the Kansas privilege tax or net income for
which distributions from the Portfolio are not exempt.
Except as noted above with respect to Kansas income taxation,
distributions from the Portfolio may be taxable to investors under other state
and local laws imposing taxes on or measured by net income, even though all or a
portion of such distributions are derived from tax-exempt obligations which, if
realized directly by the investor, would be nontaxable. The Portfolio will
notify its shareholders within 60 days after the close of each year as to the
amount of exempt interest dividends from Kansas obligations which is exempt from
Kansas individual income taxation.
Earnings derived from the Portfolio will not be subject to the local
intangibles tax imposed by various counties, cities and townships in Kansas.
Shareholders of the Portfolio should consult their tax advisors with
respect to the state and local tax consequences of the purchase, ownership and
disposition of Shares in the Portfolio.
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 and Kansas state income tax consequences of
distributions made each year.
MANAGEMENT OF THE FUND
The Fund is managed under the direction of its Board of Directors. The
Statement of Additional Information contains the names of and general background
information concerning each director.
INVESTMENT ADVISER
Mississippi Valley Advisors Inc. ("MVA") serves as the investment
adviser to each Portfolio. MVA's principal office is located at One Mercantile
Center, Seventh & Washington Streets, St. Louis, Missouri 63101. MVA is a
wholly-owned subsidiary of Mercantile. As of December 31, 1996, MVA had
approximately $_ billion in assets under investment management, including the
assets of the Fund, which were approximately $___ billion.
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Subject to the general supervision of the Fund's Board of Directors and
in accordance with the Fund's investment policies, MVA manages the Portfolios,
makes investment decisions with respect to and places orders for all purchases
and sales of the Portfolios' securities and other investments, and directs the
maintenance of each Portfolio's records relating to such purchases and sales.
For the services provided and expenses assumed pursuant to the
investment advisory agreement, MVA is entitled to receive fees, computed daily
and payable monthly, at the annual rate of .45% 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 one or more Portfolios available for
distributions as dividends. The voluntary fee reduction will cause the return of
any such Portfolio to be higher than it would otherwise be in the absence of
such reduction.
Peter Merzian is the person primarily responsible for the day-to-day
management of the Portfolio. Mr. Merzian, a Senior Associate of MVA, has been
with MVA since 1993 and prior thereto was employed as a portfolio manager of
another financial institution.
ADMINISTRATOR
BISYS Fund Services Ohio, Inc., located at 3435 Stelzer Road,
Columbus, Ohio 43219, acts as the Portfolios' Administrator.
The Administrator generally assists in all aspects of each Portfolio's
administration and operation and also monitors and performs other services
pertaining to the Portfolios' arrangements with Service Organizations. See
"Service Organizations" below. For its services, the Administrator is entitled
to receive a fee, computed daily and payable monthly, at the annual rate of .20%
of the Portfolio's average daily net assets. From time to time, the
Administrator may voluntarily waive all or a portion of the administration fees
otherwise payable by a Portfolio in order to increase the net income available
for distribution to shareholders. The Administrator has advised the Fund that,
upon commencement of operations of the Portfolio, it intends to waive .10% of
the administration fee payable to it by the Portfolio through the Fund's 1997
fiscal year.
DISTRIBUTOR
Investor A Shares and Investor B Shares in the Portfolio are sold
continuously by the Distributor, BISYS Fund Services, an
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affiliate of the Administrator. The Distributor also monitors the Fund's
arrangements under the Distribution and Services Plans described below. The
Distributor is a registered broker-dealer with principal offices at 3435 Stelzer
Road, Columbus, Ohio 43219.
The Distributor may, at its expense, provide compensation to dealers in
connection with sales of Shares of the Portfolio. Such compensation may
include financial assistance to dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising
campaigns regarding one or more of the Portfolios, and/or other dealer-sponsored
special events. In some instances, this compensation will be made available only
to certain dealers whose representatives have sold a significant amount of such
Shares. Compensation will include payment for travel expenses, including
lodging, incurred in connection with trips taken by invited registered
representatives and members of their families to locations within or outside of
the United States for meetings or seminars of a business nature. Compensation
will also include the following types of non-cash compensation offered through
sales contests: (1) business and vacation trips, including the provision of
travel arrangements and lodging at resorts, (2) tickets for entertainment events
(such as concerts, cruises and sporting events) and (3) merchandise (such as
clothing, trophies, clocks and pens). Dealers may not use sales of the
Portfolio's Shares to qualify for this compensation to the extent such may be
prohibited by the laws of any state or any self-regulatory agency, such as the
National Association of Securities Dealers, Inc. None of the aforementioned
compensation is paid for by the Portfolio or its shareholders.
DISTRIBUTION AND SERVICES PLANS
The Fund has adopted separate Distribution and Services Plans pursuant
to Rule 12b-1 under the 1940 Act with respect to Investor A Shares and Investor
B Shares of the Portfolio. Under the Distribution and Services Plans, the Fund
may pay (i) the Distributor or another person for distribution services provided
and expenses assumed and (ii) Service Organizations for shareholder
administrative services provided pursuant to servicing agreements in connection
with Investor A Shares or Investor B Shares of the Portfolio. Payments to the
Distributor are to compensate it for distribution assistance and expenses
assumed and activities primarily intended to result in the sale of Investor A
Shares or Investor B Shares, including compensating dealers and other sales
personnel (which may include affiliates of the Fund's Adviser), direct
advertising and marketing expenses and expenses incurred in connection with
preparing, printing, mailing and distributing or publishing advertisements and
sales literature, for printing and mailing Prospectuses and Statements of
Additional Information (except those used for regulatory
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purposes or for distribution to existing shareholders), and costs associated
with implementing and operating the Distribution and Services Plan. In addition,
payments under the Distribution and Services Plan for Investor B Shares will be
used to pay for or finance sales commissions and other fees payable to Service
Organizations and other broker-dealers who sell Investor B Shares. See
"Management of the Fund -- Service Organizations" below for a description of the
servicing agreements and the services provided by Service Organizations.
Under the Distribution and Services Plan for Investor A Shares,
payments by the Fund for distribution expenses may not exceed .10% (annualized)
of the average daily net asset value of the Portfolio's outstanding Investor A
Shares and payments for shareholder administrative servicing expenses may not
exceed .20% (annualized) of the average daily net asset value of the Portfolio's
outstanding Investor A Shares.
Under the Distribution and Services Plan for Investor B Shares,
payments by the Fund for distribution expenses may not exceed .75% (annualized)
of the average daily net asset value of the Portfolio's outstanding Investor B
Shares and payments for shareholder administrative servicing expenses may not
exceed .25% (annualized) of the average daily net asset value of the Portfolio's
outstanding Investor B Shares.
Actual distribution expenses paid by the Distributor with respect to
Investor B Shares for any given year may exceed the distribution fees and
contingent deferred sales charges received with respect to those Shares. These
excess expenses may be reimbursed by Investor B shareholders out of contingent
deferred sales charges and distribution payments in future years as long as the
Distribution and Services Plan for Investor B Shares is in effect.
SERVICE ORGANIZATIONS
The servicing agreements adopted under the Distribution and Services
Plans (the "Servicing Agreements") require the Service Organizations receiving
such compensation (which may include Mercantile and its affiliates) to perform
certain services, including providing administrative services with respect to
the beneficial owners of Investor A Shares or Investor B Shares of 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.
Under the Servicing Agreements and upon notice to the Fund, a Service
Organization may subcontract with one or more entities for the performance of
certain services provided under its
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Servicing Agreement with the Fund. Such Service Organization shall be as fully
responsible to the Fund for the acts or omissions of any subcontractor as it
would be for its own acts or omissions. The fees payable to any sub-contractor
are paid by the Service Organization out of the fees it receives from the Fund.
The Fund understands that Service Organizations providing such
administrative services may also charge fees to their customers beneficially
owning such Shares. These fees would be in addition to any amounts which may be
received by such a Service Organization under its Servicing Agreement with the
Fund. The Fund's Servicing Agreements require a Service Organization to disclose
to its customers any compensation payable to the Service Organization by a
Portfolio and any other compensation payable by its customers in connection with
their investment in such Shares. Customers of such a Service Organization
receiving servicing fees should read this Prospectus in light of the terms
governing their accounts with their Service Organization.
CUSTODIAN AND TRANSFER AGENT
Mercantile Bank National Association, an affiliate of the Fund and a
wholly-owned subsidiary of Mercantile Bancorporation, Inc., with principal
offices located at One Mercantile Center, 8th and Locust Streets, St. Louis,
Missouri 63101, serves as Custodian of each Portfolio's assets. BISYS Fund
Services Ohio, Inc. also serves as the Fund's transfer agent and dividend
disbursing agent. Its address is 3435 Stelzer Road, Columbus, Ohio 43219.
REGULATORY MATTERS
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any affiliate
thereof from sponsoring, organizing, or controlling the Shares of a registered,
open-end investment company continuously engaged in the issuance of its Shares,
and prohibit banks generally from issuing, underwriting, selling, or
distributing securities such as Shares of the Portfolios. Such banking laws and
regulations do not prohibit such a holding company or affiliate, or banks, from
acting as investment adviser, transfer agent, or custodian to such an investment
company, or from purchasing Shares of such a company as agent for and upon the
order of customers. Mercantile, MVA, Service Organizations that are banks or
bank affiliates, and broker-dealers that are bank affiliates are subject to such
laws and regulations, but believe they may perform the services for the
Portfolios contemplated by their respective agreements, this Prospectus and the
Statement of Additional Information without violating applicable banking laws
and regulations. In addition, state securities laws on this issue may differ
from the
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interpretation of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
Should future legislative, judicial, or administrative action prohibit
or restrict the activities of such companies in connection with the provision of
services on behalf of the Portfolios and the shareholders, the Fund might be
required to alter materially or discontinue its arrangements with such companies
and change its method of operation. It is not expected that investors would
suffer any adverse financial consequences as a result of any of these
occurrences.
If current restrictions preventing a bank from legally sponsoring,
organizing, controlling, or distributing Shares of an investment company were
relaxed, Mercantile, or an affiliate of Mercantile, would consider the
possibility of offering to perform additional services for the 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 a Portfolio to a
financial intermediary in connection with the investment of fiduciary funds in a
Portfolio's Shares. Institutions, including banks regulated by the Comptroller
of the Currency and investment advisers and other money managers subject to the
jurisdiction of the SEC, the Department of Labor or state securities
commissions, should consult legal counsel before entering into Servicing
Agreements.
EXPENSES
Except as noted above and in the Statement of Additional Information
under "Investment Advisory and Administrative Contracts" and "Custodian and
Transfer Agent," the Fund's service contractors bear all expenses in connection
with the performance of their services, except that the Distributor is
compensated pursuant to the Distribution and Services Plans as described under
"Distribution and Services Plans" above. Expenses are deducted from the total
income of the 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
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shareholders, the expense of reports to shareholders, shareholders' meetings and
proxy solicitations, fidelity bond and directors and officers liability
insurance premiums, the expense of using independent pricing services and other
expenses which are not expressly assumed by the Adviser, Distributor or
Administrator under their respective agreements with the Fund. The Fund also
pays for brokerage fees, commissions and other transaction charges, if any, in
connection with the purchase and sale of portfolio securities. Any general
expenses of the Fund that are not readily identifiable as belonging to a
particular Portfolio will be allocated among all Portfolios by or under the
direction of the Board of Directors in a manner the Board determines to be fair
and equitable. Any expenses relating only to a particular class of Shares within
a Portfolio will be borne solely by such class. See "Certain Financial
Information" and "Management of the Fund" above for additional information
regarding expenses of each Portfolio.
OTHER INFORMATION CONCERNING
THE FUND AND ITS SHARES
DESCRIPTION OF SHARES
The Fund was organized on September 9, 1982 as a Maryland corporation,
and is a mutual fund of the type known as an "open-end management investment
company." The Fund's principal office is located at 3435 Stelzer Road, Columbus,
Ohio 43219.
The Fund's Charter authorizes the Board of Directors to issue up to
seven billion full and fractional Shares of common stock, and to classify and
reclassify any unauthorized and unissued Shares into one or more classes of
Shares. The Board of Directors may similarly classify or reclassify any class of
Shares into one or more series.
Pursuant to such authority, the Board of Directors has authorized the
issuance of the following series of shares representing interests in the
Portfolio, which is classified as a non-diversified company under the 1940 Act:
25 million Trust Shares, 25 million Investor A Shares and 10 million Investor B
Shares.
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Trust Shares of the Portfolio are described in a separate prospectus which is
available from the Distributor at the telephone number on the cover of this
Prospectus. Shares in the Portfolio will be issued without Share certificates.
The Investor A Shares and Investor B Shares of the Portfolio are
described in this Prospectus. The Portfolio also offers Trust Shares. Trust
Shares, which are offered to financial institutions acting on their own behalf
or on behalf of certain qualified accounts, are sold without a sales charge.
Trust, Investor A and Investor B 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 adopted for such
Shares and Investor A Shares and Investor B Shares bear all payments under the
Portfolio's respective Distribution and Services Plans adopted for such Shares.
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Payments under the Administrative Services Plans for Trust Shares are
made to Service Organizations for administrative services provided to the
Service Organizations' clients or account holders who are the beneficial owners
of Trust Shares. Payments under the Administrative Services Plans may not exceed
.30% (on an annual basis) of the average daily net asset value of outstanding
Trust Shares of the Portfolio.
The Fund offers various services and privileges in connection with its
Investor A Shares and Investor B Shares that are not offered in connection with
its Trust Shares, including an automatic investment program and automatic
withdrawal plan. In addition, each class of Shares offers different exchange
privileges.
Shareholders are entitled to one vote for each full Share held and
proportionate fractional votes for fractional Shares held. Shares of all
Portfolios will vote together and not by class unless otherwise required by law
or permitted by the Board of Directors. All shareholders of 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 and only holders of Investor B Shares will
vote on matters pertaining to the Distribution and Services Plan for Investor B
Shares.
The Fund is not required, and currently does not intend, to hold annual
meetings except as required by the 1940 Act or other applicable law. Upon the
written request of the holders of 10% or more of the outstanding Shares, the
Fund will call a special meeting to vote on the question of removal of a
director.
Shares of the Portfolio 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 or a particular class of Shares means, with respect to
the approval of an investment advisory agreement or distribution plan or a
change in an investment objective or fundamental investment policy, the
affirmative vote of the lesser of (a) more than 50% of the
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outstanding Shares of such Portfolio or class of Shares, or (b) 67% or more of
the Shares of such Portfolio or class of Shares present at a meeting if more
than 50% of the outstanding Shares of such Portfolio or class of Shares are
represented at the meeting in person or by proxy.
As of January 1, 1997, Mercantile and its affiliates possessed, of
record on behalf of their underlying customer accounts, voting or investment
power with respect to more than 25% of the Fund's outstanding Shares. Therefore,
Mercantile may be deemed to be a controlling person of the Fund within the
meaning of the 1940 Act.
Inquiries regarding the Portfolios may be directed to the Fund at
1-800-551-3731.
-------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS 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 PORTFOLIO, THE FUND, OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE PORTFOLIO, THE FUND OR THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
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<PAGE> 436
THE ARCH
FUND(R), INC.
KANSAS TAX-EXEMPT
INVESTOR A SHARES BOND PORTFOLIO
AND
INVESTOR B SHARES
PROSPECTUS
__________, 1997
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<PAGE> 437
CROSS REFERENCE SHEET
---------------------
The ARCH Treasury Money Market Portfolio
The ARCH Money Market Portfolio
The ARCH Tax-Exempt Money Market Portfolio
The ARCH U.S. Government Securities Portfolio
The ARCH Intermediate Corporate Bond Portfolio
The ARCH Bond Index Portfolio
The ARCH Government & Corporate Bond Portfolio
The ARCH Short-Intermediate Municipal Portfolio
The ARCH Missouri Tax-Exempt Bond Portfolio
The ARCH National Municipal Bond Portfolio
The ARCH Equity Income Portfolio
The ARCH Equity Index Portfolio
The ARCH Growth & Income Equity Portfolio
The ARCH Small Cap Equity Portfolio
The ARCH International Equity Portfolio
The ARCH Balanced Portfolio
Heading in Statement of
Form N-1A Part B Item Additional Information
- --------------------- ----------------------
10. Cover Page...................................... Cover Page
11. Table of Contents............................... Table of Contents
12. General Information and History................. The Fund
13. Investment Objective and Policies............... Investment
Objectives and Policies
14. Management of the Fund.......................... Management of the Fund
15. Control Persons and Principal................... Miscellaneous
Holders of Securities
16. Investment Advisory and Other................... Management of the Fund;
Services Independent Auditors;
Counsel
17. Brokerage Allocation and Other.................. Investment Objectives
Practices and Policies
18. Capital Stock and Other......................... Description of Shares
Securities
19. Purchase, Redemption and Pricing................ Net Asset Value;
of Securities Being Offered Additional Purchase and
Redemption Information
20. Tax Status...................................... Additional Information
Concerning Taxes
21. Underwriters.................................... Management of the Fund
22. Calculation of Performance Data................. Additional Yield and
Total Return
Information; Net Asset
Value
23. Financial Statements............................ Not Applicable
<PAGE> 438
THE ARCH FUND(R), INC.
THE ARCH TREASURY MONEY MARKET PORTFOLIO
THE ARCH MONEY MARKET PORTFOLIO
THE ARCH TAX-EXEMPT MONEY MARKET PORTFOLIO
THE ARCH U.S. GOVERNMENT SECURITIES PORTFOLIO
THE ARCH INTERMEDIATE CORPORATE BOND PORTFOLIO
THE ARCH BOND INDEX PORTFOLIO
THE ARCH GOVERNMENT & CORPORATE BOND PORTFOLIO
THE ARCH SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
THE ARCH MISSOURI TAX-EXEMPT BOND PORTFOLIO
THE ARCH NATIONAL MUNICIPAL BOND PORTFOLIO
THE ARCH EQUITY INCOME PORTFOLIO
THE ARCH EQUITY INDEX PORTFOLIO
THE ARCH GROWTH & INCOME EQUITY PORTFOLIO
THE ARCH SMALL CAP EQUITY PORTFOLIO
THE ARCH INTERNATIONAL EQUITY PORTFOLIO
THE ARCH BALANCED PORTFOLIO
Statement of Additional Information
Part B
________, 1997
<PAGE> 439
THE ARCH FUND, INC.
Statement of Additional Information
for
The ARCH Treasury Money Market Portfolio
The ARCH Money Market Portfolio
The ARCH Tax-Exempt Money Market Portfolio
The ARCH U.S. Government Securities Portfolio
The ARCH Intermediate Corporate Bond Portfolio
The ARCH Bond Index Portfolio
The ARCH Government & Corporate Bond Portfolio
The ARCH Short-Intermediate Municipal Portfolio
The ARCH Missouri Tax-Exempt Bond Portfolio
The ARCH National Municipal Bond Portfolio
The ARCH Equity Income Portfolio
The ARCH Equity Index Portfolio
The ARCH Growth & Income Equity Portfolio
The ARCH Small Cap Equity Portfolio
The ARCH International Equity Portfolio
The ARCH Balanced Portfolio
________, 1997
TABLE OF CONTENTS
Page
Investment Objectives and Policies.......................
Net Asset Value..........................................
Additional Purchase and Redemption Information...........
Additional Yield and Total Return Information............
Description of Shares....................................
Additional Information Concerning Taxes..................
Management of the Fund...................................
Independent Auditors.....................................
Counsel..................................................
Miscellaneous............................................
Appendix A............................................... A-1
Appendix B............................................... B-1
Financial Statements.....................................
This Statement of Additional Information, which provides supplemental
information applicable to the above-listed Portfolios of The ARCH Fund, Inc.
(the "Portfolios"), is not a prospectus. It should be read only in conjunction
with the Portfolios' Prospectuses dated ________, 1997 and is incorporated by
reference in its entirety into the Prospectuses. No investment in shares of any
Portfolio should be made without reading the applicable Prospectus. A copy of
the applicable Prospectus may be obtained by writing the Fund at P.O. Box 78069,
St. Louis Missouri 63178 or by calling 1-800-551-3731. Capitalized terms used
but not defined herein have the same meanings as in each Prospectus.
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<PAGE> 440
THE FUND
The ARCH Fund, Inc. (the "Fund") is an open-end investment
company currently offering fifty-four classes of shares in sixteen investment
portfolios.
The Fund was organized on September 9, 1982 as a Maryland
corporation. The ARCH Tax-Exempt Money Market Portfolio (the "Predecessor
Tax-Exempt Money Market Portfolio") and the ARCH Missouri Tax Exempt Bond
Portfolio (the "Predecessor Missouri Tax-Exempt Bond Portfolio") commenced
operations on July 10, 1986 and July 15, 1988, respectively, as separate
investment portfolios of The ARCH Tax-Exempt Trust, which was organized as a
Massachusetts business trust. On October 2, 1995, the Predecessor Tax-Exempt
Money Market Portfolio and the Predecessor Missouri Tax-Exempt Bond Portfolio
were reorganized as new portfolios of the Fund. Prior to the reorganization,
these Predecessor Portfolios offered and sold shares of beneficial interest that
were similar to the Fund's Trust Shares, Investor A Shares and Investor B
Shares.
INVESTMENT OBJECTIVES AND POLICIES
The following policies supplement the description of the
investment objectives and policies of the Treasury Money Market, Money Market
and Tax-Exempt Money Market Portfolios (the "Money Market Portfolios") and the
U.S. Government Securities, Intermediate Corporate Bond, Bond Index, Government
& Corporate Bond, Short-Intermediate Municipal, Missouri Tax-Exempt Bond,
National Municipal Bond, Equity Income, Equity Index, Growth & Income Equity,
Small Cap Equity (formerly Emerging Growth), International Equity and Balanced
Portfolios (the "Bond and Equity Portfolios") described in the Prospectuses.
TREASURY MONEY MARKET PORTFOLIO
The Adviser makes investment decisions with respect to the
Treasury Money Market Portfolio in accordance with the SEC's rules and
regulations for money market funds.
STATE EXEMPTIONS AND U.S. GOVERNMENT OBLIGATIONS. As stated in
the Prospectuses, the Treasury Money Market Portfolio invests primarily in
selected U.S. Government (and certain agency and instrumentality) obligations,
the income from which is generally exempt from state income tax. In addition,
investments in certain of these obligations are, or may be, exempt from your
state's income tax. For a current list of the types of investments that are and
are not exempt from your state's income tax, please consult your tax adviser or
write to your state's Department of Revenue.
<PAGE> 441
MONEY MARKET PORTFOLIO
The Adviser makes investment decisions with respect to the
Money Market Portfolio in accordance with the SEC's rules and regulations for
money market funds.
COMMERCIAL PAPER, BANKERS' ACCEPTANCES, CERTIFICATES OF
DEPOSIT AND TIME DEPOSITS. Commercial paper represents short-term unsecured
promissory notes issued in bearer form by banks or bank holding companies,
corporations and finance companies. Certificates of deposit are negotiable
certificates issued against funds deposited in a commercial bank for a definite
period of time and earning a specified return. Bankers' acceptances are
negotiable drafts or bills of exchange, normally drawn by an importer or
exporter to pay for specific merchandise, which are "accepted" by a bank,
meaning, in effect, that the bank unconditionally agrees to pay the face value
of the instrument on maturity. Fixed time deposits are bank obligations payable
at a stated maturity date and bearing interest at a fixed rate. Fixed time
deposits may be withdrawn on demand by the investor but may be subject to early
withdrawal penalties that vary depending upon market conditions and the
remaining maturity of the obligation. There are no contractual restrictions on
the right to transfer a beneficial interest in a fixed time deposit to a third
party, although there is no market for such deposits.
As stated in the Prospectuses, the Money Market Portfolio may
invest a portion of its assets in the obligations of foreign banks and foreign
branches of domestic banks. Such obligations may include Eurodollar Certificates
of Deposit ("ECDs") which are U.S. dollar-denominated certificates of deposit
issued by offices of foreign and domestic banks located outside the United
States; Eurodollar Time Deposits ("ETDs") which are U.S. dollar-denominated
deposits in a foreign branch of a U.S. bank or a foreign bank; Canadian Time
Deposits ("CTDs") which are essentially the same as ETDs except they are issued
by Canadian offices of major Canadian banks; Schedule Bs, which are obligations
issued by Canadian branches of foreign or domestic banks; Yankee Certificates of
Deposit ("Yankee CDs") which are U.S. dollar-denominated certificates of deposit
issued by a U.S. branch of a foreign bank and held in the United States; and
Yankee Bankers' Acceptances ("Yankee BAs") which are U.S. dollar-denominated
bankers' acceptances issued by a U.S. branch of a foreign bank and held in the
United States.
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TAX-EXEMPT MONEY MARKET PORTFOLIO
The Adviser makes investment decisions with respect to the
Tax-Exempt Money Market Portfolio in accordance with the SEC's rules and
regulations for money market funds.
U.S. GOVERNMENT SECURITIES PORTFOLIO
The U.S. Government Securities Portfolio may invest in
certificates issued by government-backed trusts. Such certificates represent an
undivided fractional interest in the respective government-backed trust's
assets. The assets of each government-backed trust consist of (i) a promissory
note issued by a foreign government (the "Note"), (ii) a guaranty by the U.S.
Government, acting through the Defense Security Assistance Agency of the
Department of Defense, of the due and punctual payment of 90% of all principal
and interest due on such Note, and (iii) a beneficial interest in a government
securities trust holding U.S. Treasury bills, notes and other direct obligations
of the U.S. Treasury sufficient to provide the Portfolio with funds in an amount
equal to at least 10% of all principal and interest payments due on the Note.
INTERMEDIATE CORPORATE BOND PORTFOLIO
An increase in interest rates will generally reduce the value
of the investments in the Intermediate Corporate Bond Portfolio, and a decline
in interest rates will generally increase the value of those investments.
Depending upon the prevailing market conditions, the Adviser may purchase debt
securities at a discount from face value, which produces a yield greater than
the coupon rate. Conversely, if debt securities are purchased at a premium over
face value, the yield will be lower than the coupon rate. In response to
changing conditions in fixed-income markets, the Portfolio may make modest
shifts in terms of anticipated interest rate and sector spread changes.
BOND INDEX PORTFOLIO
As stated in the Prospectuses, the investment objective of the
Bond Index Portfolio is to seek to provide investment results that, before
deduction of operating expenses, approximate the price and yield performance of
U.S. Government, mortgage-backed, asset-backed, and corporate securities, as
represented by the Lehman Brothers Aggregate Bond Index.
THE INDEXING APPROACH. In using sophisticated computer models
to select securities, each of the Bond Index and Equity Index Portfolios will
only purchase a security that is included in its respective index at the time of
such purchase. Each Portfolio may, however, temporarily continue to hold a
security
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that has been deleted from its respective index pending the rebalancing of the
Portfolio's holdings.
The value of the fixed income investments of the Bond Index
Portfolio is generally sensitive to changes in interest rates. (See "Investment
Objectives and Policies -- Intermediate Corporate Bond Portfolio" above for a
discussion of the effects of interest rate changes).
GOVERNMENT & CORPORATE BOND PORTFOLIO
The value of the fixed income investments of the Government
and Corporate Bond Portfolio is generally sensitive to changes in interest
rates. (See "Investment Objectives and Policies -- Intermediate Corporate Bond
Portfolio" above for a discussion of the effects of interest rate changes).
SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
The Municipal Obligations in which the Short-Intermediate
Municipal Portfolio may invest are rated "investment grade" (e.g., fixed income
securities rated at the time of purchase in the four highest categories by
Rating Agencies or deemed comparable). The value of the Municipal Obligations
held by the Portfolio is generally sensitive to changes in interest rates. (See
"Investment Objectives and Policies -- Intermediate Corporate Bond Portfolio"
above for a discussion of the effects of interest rate changes.)
MISSOURI TAX-EXEMPT BOND PORTFOLIO
The Municipal Obligations in which the Missouri Tax-Exempt
Bond Portfolio may invest are rated "investment grade." (See "Investment
Objectives and Policies -- Short-Intermediate Municipal Portfolio" above for a
description of investment grade securities.) The value of the Municipal
Obligations held by the Portfolio is generally sensitive to changes in interest
rates. (See "Investment Objectives and Policies -- Intermediate Corporate Bond
Portfolio" above for a discussion of the effects of interest rate changes.)
NATIONAL MUNICIPAL BOND PORTFOLIO
The Municipal Obligations in which the National Municipal Bond
Portfolio may invest are rated "investment grade. " (See "Investment Objectives
and Policies - Short-Intermediate Municipal Portfolio" above for a description
of investment grade securities.) The value of the Portfolio's securities is
generally sensitive to changes in interest rates. (See "Investment Objectives
and Policies - Intermediate
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Corporate Bond Portfolio" above for a discussion of the effects of interest rate
changes.)
EQUITY INCOME PORTFOLIO
The Equity Income Portfolio will not normally invest in
securities of issuers having a record, together with their predecessors, of less
than three years of continuous operations.
EQUITY INDEX PORTFOLIO
As stated in the Prospectuses, the investment objective of the
Equity Index Portfolio is to seek to provide investment results that, before
deduction of operating expenses, approximate the price and yield performance of
U.S. publicly traded common stocks with large stock market capitalizations as
represented by the Standard & Poor's 500 Composite Stock Price Index (the "S&P
500"). (See "Investment Objectives and Policies - Bond Index Portfolio" above
for a description of index investing.)
GROWTH & INCOME EQUITY PORTFOLIO
The Growth & Income Equity Portfolio will not normally invest
in securities of issuers having a record, together with their predecessors, of
less than three years of continuous operations.
As stated in the Prospectuses, the Portfolio may participate
in rights offerings and purchase warrants. The Portfolio will not invest more
than 5% of its total assets, taken at market value, in warrants.
SMALL CAP EQUITY PORTFOLIO
As stated in the Prospectuses, the Small Cap Equity Portfolio
may participate in rights offerings and purchase warrants. The Portfolio will
not invest more than 5% of its total assets, taken at market value, in warrants.
INTERNATIONAL EQUITY PORTFOLIO
The International Equity Portfolio will not normally invest in
securities of issuers having a record, together with their predecessors, of less
than three years of continuous operations.
As stated in the Prospectuses, the Portfolio may participate
in rights offerings and purchase warrants. The Portfolio will not invest more
than 5% of its total assets, taken at market value, in warrants. Warrants
acquired by the Portfolio
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in units or attached to other securities are not subject to this restriction.
BALANCED PORTFOLIO
The fixed-income securities in which the Balanced Portfolio
may invest are rated "investment grade" (see "Investment Objectives and Policies
- - Short-Intermediate Municipal Portfolio above for a description of investment
grade securities). The Portfolio will not normally invest in securities of
issuers having a record, together with their predecessors, of less than three
years of continuous operations.
The value of the fixed income investments of the Balanced
Portfolio is generally sensitive to changes in interest rates. (See "Investment
Objectives and Policies -- Intermediate Corporate Bond Portfolio" above for a
discussion of the effects of interest rate changes). The Portfolio may also
participate in rights offerings and purchase warrants.
* * *
The following policies supplement the description of the
Portfolios' investment objectives and policies in the Prospectuses.
OTHER APPLICABLE INVESTMENT POLICIES
MUNICIPAL OBLIGATIONS. As described in their Prospectuses and
subject to their respective investment limitations, the Tax-Exempt Money Market,
Short-Intermediate Municipal, Missouri Tax-Exempt Bond and National Municipal
Bond Portfolios (the "Tax-Exempt Portfolios") may invest in Municipal
Obligations. Municipal Obligations include debt obligations issued by
governmental entities which obtain funds for various 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 Tax-Exempt Portfolios may purchase "moral
obligation" issues, which are normally issued by special purpose authorities.
There are, of course, variations in the quality of Municipal Obligations both
within a particular classification and between classifications, and the yields
on Municipal Obligations depend upon a variety of factors, including general
conditions of the money market and/or the municipal bond market, the financial
condition of the issuer,
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the size of a particular offering, the maturity of the obligation and the rating
of the issue. The ratings of Rating Agencies, such as Moody's Investors Service,
Inc. ("Moody's") and Standard & Poor's Ratings Group ("S&P"), represent their
opinions as to the quality of Municipal Obligations. It should be emphasized,
however, that ratings are general and are not absolute standards of quality, and
Municipal Obligations with the same maturity, interest rate and rating may have
different yields while Municipal Obligations of the same maturity and interest
rate with different ratings may have the same yield.
The Tax-Exempt Portfolios may also purchase Municipal
Obligations in the form of certificates of participation which represent
undivided interests in lease payments by a governmental or nonprofit entity. A
lease may provide that the certificate trustee cannot accelerate lease
obligations upon default. The trustee would only be able to enforce lease
payments as they become due. In the event of a default or failure of
appropriation, it is unlikely that the trustee would be able to obtain an
acceptable substitute source of payment. In addition, certificates of
participation are less liquid than other bonds because there is a limited
secondary trading market for such obligations. To alleviate potential liquidity
problems with respect to these investments, a Portfolio may enter into
remarketing agreements which may provide that the seller or a third party will
repurchase the obligation within seven days after demand by the Portfolio and
upon certain conditions such as the Portfolio's payment of a fee.
The payment of principal and interest on most securities
purchased by a Tax-Exempt Portfolio will depend upon 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."
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Each Tax-Exempt Portfolio may also purchase general obligation
notes, tax anticipation notes, bond anticipation notes, revenue anticipation
notes, tax-exempt commercial paper, construction loan notes and other tax-exempt
loans. Such instruments are issued in anticipation of the receipt of tax funds,
the proceeds of bond placements, or other revenues.
Certain types of Municipal Obligations (private activity
bonds) have been or are issued to obtain funds to provide, among other things,
privately operated housing facilities, pollution control facilities, convention
or trade show facilities, mass transit, airport, port or parking facilities and
certain local facilities for water supply, gas, electricity or sewage or solid
waste disposal. Private activity bonds are also issued to privately held or
publicly owned corporations in the financing of commercial or industrial
facilities. State and local governments are authorized in most states to issue
private activity bonds for such purposes in order to encourage corporations to
locate within their communities. The principal and interest on these obligations
may be payable from the general revenues of the users of such facilities.
Furthermore, payment of principal and interest on Municipal Obligations of
certain projects may be secured by mortgages or deeds of trust. In the event of
a default, enforcement of the mortgages or deeds of trust will be subject to
statutory enforcement procedures and limitations, including rights of redemption
and limitations on obtaining deficiency judgments. In the event of a
foreclosure, collection of the proceeds of the foreclosure may be delayed, and
the amount of proceeds from the foreclosure may not be sufficient to pay the
principal of and accrued interest on the defaulted Municipal Obligations.
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
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investor's federal alternative minimum taxable income, and corporate investors
must include all tax-exempt interest in their federal alternative minimum
taxable income. (See the applicable Prospectus under "Taxes - Federal Taxes.")
Moreover, with respect to Missouri Obligations, the Fund cannot predict what
legislation, if any, may be proposed in the Missouri Legislature relating to the
status of the Missouri income tax on interest on such obligations, or which
proposals, if any, might be enacted. Such proposals, while pending or if
enacted, might adversely affect the availability of Municipal Obligations
generally, or Missouri Obligations specifically, for investment by a Portfolio
and the liquidity and value of a Portfolio's assets. In such an event, each
Portfolio would reevaluate its investment objective and policies and consider
possible changes in its structure or possible dissolution.
As stated in the Prospectuses and subject to its investment
policies, the Money Market Portfolio may also invest in Municipal Obligations.
Dividends paid by the Money Market Portfolio that are derived from interest on
Municipal Obligations would be taxable to its shareholders for federal income
tax purposes.
VARIABLE AND FLOATING RATE INSTRUMENTS. Subject to their
respective investment limitations, each Portfolio may purchase variable and
floating rate obligations as described in the Prospectuses. The Adviser will
consider the earning power, cash flows and other liquidity ratios of the issuers
and guarantors of such obligations and, for obligations subject to a demand
feature, will monitor their financial status to meet payment on demand. The
Money Market Portfolios and the International Equity Portfolio will invest in
such instruments only when the Adviser believes that any risk of loss due to
issuer default is minimal. In determining average weighted portfolio maturity, a
variable or floating rate instrument issued or guaranteed by the U.S.
Government, its agencies and instrumentalities, or a variable or floating rate
instrument scheduled on its face to be paid in 397 days or less, will be deemed
to have a maturity equal to the period remaining until the obligation's next
interest rate adjustment. Other variable or floating rate notes will be deemed
to have a maturity equal to the longer of the period remaining to the next
interest rate adjustment or the time the Portfolio can recover payment of
principal as specified in the instrument.
Variable or floating rate obligations held by the Money Market
Portfolios may have maturities of more than 397 days provided that: (i) the
Portfolio is entitled to payment of principal at any time upon not more than 30
days' notice or at specified intervals not exceeding 397 days (upon not more
than 30 days' notice); (ii) the rate of interest on a variable rate
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instrument is adjusted automatically on set dates not exceeding 397 days, and
the instrument, upon adjustment, can reasonably be expected to have a market
value that approximates its par value; and (iii) the rate of interest on a
floating rate instrument is adjusted automatically whenever a specified interest
rate changes and the instrument, at any time, can reasonably be expected to have
a market value that approximates its par value.
The variable and floating rate demand instruments that the
Tax-Exempt Portfolios may purchase include participations in Municipal
Obligations purchased from and owned by financial institutions, primarily banks.
Participation interests provide a Portfolio with a specified undivided interest
(up to 100%) in the underlying obligation and the right to demand payment of the
unpaid principal balance plus accrued interest on the participation interest
from the institution upon a specified number of days' notice, not to exceed
thirty days. Each participation interest is backed by an irrevocable letter of
credit or guarantee of a bank that the Adviser has determined meets the
prescribed quality standards for the Portfolio. The bank typically retains fees
out of the interest paid on the obligation for servicing the obligation,
providing the letter of credit and issuing the repurchase commitment.
RESTRICTED SECURITIES. The SEC has adopted Rule 144A which
allows for a broader institutional trading market for securities otherwise
subject to restrictions on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the Securities Act of 1933
for the resale of certain securities to qualified institutional buyers. The
purchase of securities which can be sold under Rule 144A could have the effect
of increasing the level of illiquidity in the Portfolios to the extent that
qualified institutional buyers become, for a time, uninterested in purchasing
these restricted securities. The International Equity Portfolio will not invest
more than 10% of its total assets in the securities of issuers which are
restricted as to disposition, other than restricted securities eligible for
resale pursuant to Rule 144A.
The Adviser or Sub-Adviser monitors the liquidity of
restricted securities in the Fund's Portfolios under the supervision of the
Board of Directors. In reaching liquidity decisions, the Adviser and Sub-Adviser
may consider the following factors, although such factors may not necessarily be
determinative: (1) the unregistered nature of a security; (2) the frequency of
trades and quotes for the security; (3) the number of dealers willing to
purchase or sell the security and the number of other potential purchasers; (4)
the trading markets for the security; (5) dealer undertakings to make a market
in the security; and (6) the nature of the security and the nature of the
marketplace trades (including the time needed to dispose of
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the security, methods of soliciting offers, and mechanics of transfer).
CONVERTIBLE SECURITIES. As stated in their Prospectuses and
subject to their respective investment limitations, the Equity and Bond
Portfolios (other than the Short-Intermediate Municipal, Missouri Tax-Exempt
Bond and National Municipal Bond Portfolios) may purchase convertible
securities. Convertible securities entitle the holder to receive interest paid
or accrued on debt until the convertible securities mature or are redeemed,
converted or exchanged. Prior to conversion, convertible securities have
characteristics similar to ordinary debt securities in that they normally
provide a stable stream of income with generally higher yields than those of
common stock of the same or similar issuers. Convertible securities rank senior
to common stock in a corporation's capital structure and therefore generally
entail less risk than the corporation's common stock, although the extent to
which such risk is reduced depends in large measure upon the degree to which the
convertible security sells above its value as a fixed income security.
In selecting convertible securities for a Portfolio, the
Adviser (or Sub-Adviser) will consider, among other factors, its evaluation of
the creditworthiness of the issuers of the securities; the interest or dividend
income generated by the securities; the potential for capital appreciation of
the securities and the underlying stocks; the prices of the securities relative
to other comparable securities and to the benefits of sinking funds or other
protective conditions; diversification of the Portfolio as to issuers; and
whether the securities are rated by Ratings Agencies and, if so, the ratings
assigned.
The value of convertible securities is a function of their
investment value (determined by yield in comparison with the yields of other
securities of comparable maturity and quality that do not have a conversion
privilege) and their conversion value (their worth, at market value, if
converted into the underlying stock). The investment value of convertible
securities is influenced by changes in interest rates, with investment value
declining as interest rates increase and increasing as interest rates decline,
and by the credit standing of the issuer and other factors. The conversion value
of convertible securities is determined by the market price of the underlying
stock. If the conversion value is low relative to the investment value, the
price of the convertible securities is governed principally by their investment
value. To the extent the market price of the underlying stock approaches or
exceeds the conversion price, the price of the convertible securities will be
increasingly influenced by their conversion value. In
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addition, convertible securities generally sell at a premium over their
conversion value determined by the extent to which investors place value on the
right to acquire the underlying stock while holding fixed income securities.
RIGHTS AND WARRANTS. As stated in the Prospectuses, the Equity
Income, Equity Index, Growth & Income Equity, Small Cap Equity, International
Equity and Balanced Portfolios (the "Equity Portfolios") may participate in
rights offerings and purchase warrants, which are privileges issued by
corporations enabling the owners to subscribe to and purchase a specified number
of shares of the corporation at a specified price during a specified period of
time. Subscription rights normally have a short life span to expiration. The
purchase of rights or warrants involves the risk that the Portfolios could lose
the purchase value of a right or warrant if the right to subscribe to additional
shares is not exercised prior to the rights' or warrants' expiration. Also, the
purchase of rights or warrants involves the risk that the effective price paid
for the right or warrant added to the subscription price of the related security
may exceed the value of the subscribed security's market price such as when
there is no movement in the level of the underlying security. The Portfolios
will not invest more than 5% of their respective net assets, taken at market
value, in warrants, or more than 2% of their respective net assets, taken at
market value, in warrants not listed on the New York, American or Canadian Stock
Exchanges. Warrants acquired by the Portfolios in units or attached to other
securities are not subject to this restriction.
STAND-BY COMMITMENTS. As described in their Prospectuses and
subject to their respective investment limitations, the Tax-Exempt Portfolios
may acquire "stand-by commitments" with respect to Municipal Obligations held by
a Portfolio. Under a stand-by commitment, a dealer or bank agrees to purchase
from a Portfolio, at the Portfolio's option, specified Municipal Obligations at
their amortized cost value to the Portfolio plus accrued interest, if any.
Standby commitments acquired by a Portfolio must meet the quality standards
described in the Prospectuses (be rated in the two highest categories as
determined by a Rating Agency, or, if not rated, must be of comparable quality
as determined by the Adviser pursuant to guidelines approved by the Fund's Board
of Directors). Stand-by commitments are exercisable by a Portfolio at any time
before the maturity of the underlying Municipal Obligations and may be sold,
transferred or assigned by the Portfolio only with the underlying instruments.
The Missouri Tax-Exempt Bond Portfolio expects that its investments in stand-by
commitments will not exceed 5% of the value of its total assets under normal
market conditions.
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The Fund expects that stand-by commitments will generally be
available without the payment of any direct or indirect consideration. However,
if necessary or advisable, a Tax-Exempt Portfolio may pay for a stand-by
commitment either separately in cash or by paying a higher price for portfolio
securities which are acquired subject to the commitment (thus reducing the yield
to maturity otherwise available for the same securities).
The Tax-Exempt Portfolios intend to enter into stand-by
commitments only with dealers, banks and broker-dealers which, in the Adviser's
opinion, present minimal credit risks. A Portfolio's reliance upon the credit of
these dealers, banks and broker-dealers will be secured by the value of the
underlying Municipal Obligations that are subject to the commitment. In
evaluating the creditworthiness of the issuer of a stand-by commitment, the
Adviser will review periodically the issuer's assets, liabilities, contingent
claims and other relevant financial information.
Each Tax-Exempt Portfolio will acquire stand-by commitments
solely to facilitate portfolio liquidity and does not intend to exercise its
rights thereunder for trading purposes. Stand-by commitments acquired by a
Portfolio would be valued at zero in determining net asset value. The
acquisition of a "stand-by commitment" by the Tax-Exempt Money Market Portfolio
would thus not affect the valuation or assumed maturity of the underlying
Municipal Obligations, which would continue to be valued in accordance with the
amortized cost method. Where a Portfolio paid any consideration directly or
indirectly for a stand-by commitment, its cost would be reflected as unrealized
depreciation for the period during which the commitment was held by the
Portfolio. If a stand-by commitment is exercised, its cost will reduce the
amount realized on the sale of the Municipal Obligations for purposes of
determining the amount of gain or loss. If a stand-by commitment expires
unexercised, its cost is added to the basis of the security to which it relates
in those instances where the stand-by commitment was acquired on the same day as
the bond, and in other cases will be treated as a capital loss at the time of
expiration. Stand-by commitments would not affect the average weighted maturity
of a Portfolio.
TAX-EXEMPT DERIVATIVES. As described in their Prospectuses and
subject to their respective investment limitations, the Tax-Exempt Portfolios
may hold tax-exempt derivatives which may be in the form of tender option bonds,
participations, beneficial interests in a trust, partnership interests or other
forms. A number of different structures have been used. For example, interests
in long-term fixed-rate Municipal Obligations, held by a bank as trustee or
custodian, are coupled with tender option, demand and other features when
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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 Obligation at its face value to the
sponsor (usually a bank or broker dealer or other financial institution), which
is paid periodic fees equal to the difference between the bond's fixed coupon
rate and the rate that would cause the bond, coupled with the tender option, to
trade at par on the date of a rate adjustment. The Portfolios may hold
tax-exempt derivatives, such as participation interests and custodial receipts,
for Municipal Obligations which give the holder the right to receive payment of
principal subject to the conditions described above. The Internal Revenue
Service has not ruled on whether the interest received on tax-exempt derivatives
in the form of participation interests or custodial receipts is tax-exempt, and
accordingly, purchases of any such interests or receipts are based on the
opinion of counsel to the sponsors of such derivative securities. Neither the
Fund nor the Adviser will review the proceedings related to the creation of any
tax-exempt derivatives or the basis for such opinions.
U.S. GOVERNMENT OBLIGATIONS. Examples of the types of U.S.
Government obligations that may be held by the Portfolios, subject to their
respective investment policies, include, in addition to U.S. Treasury bills, the
obligations of Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land
Banks, the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration,
Government National Mortgage Association, General Services Administration,
Central Bank for Cooperatives, Federal Home Loan Mortgage Corporation, Federal
Intermediate Credit Banks, Maritime Administration, Resolution Trust
Corporation, and International Bank for Reconstruction and Development.
Obligations of certain agencies and instrumentalities of the
U.S. Government, such as the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Export-Import Bank of the United States, are supported by the right
of the issuer to borrow from the Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still others, such as
those of the Student Loan Marketing Association, are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
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Government would provide financial support to U.S. Government-sponsored
instrumentalities if it is not obligated to do so by law.
STRIPPED U.S. GOVERNMENT OBLIGATIONS. As described in the
Prospectuses and subject to their respective investment policies, each
Portfolio, except the Tax-Exempt Money Market, Short-Intermediate Municipal,
Missouri Tax-Exempt Bond and Equity Index Portfolios, may hold stripped U.S.
Treasury securities, including (1) coupons that have been stripped from U.S.
Treasury bonds, which are held through the Federal Reserve Bank's book-entry
system called "Separate Trading of Registered Interest and Principal of
Securities" ("STRIPS") or (2) through a program entitled "Coupon Under
Book-Entry Safekeeping" ("CUBES"). Each Portfolio (except the Treasury Money
Market , Tax-Exempt Money Market, U.S. Government Securities, Short-Intermediate
Municipal, Missouri Tax-Exempt Bond, National Municipal Bond, Equity Income,
Equity Index and International Equity Portfolios) may also acquire U.S.
Government obligations and their unmatured interest coupons that have been
stripped by a custodian bank or investment brokerage firm. Having separated the
interest coupons from the underlying principal of the U.S. Government
obligations, the holder will resell the stripped securities in custodial receipt
programs with a number of different names, including "Treasury Income Growth
Receipts" ("TIGRS") and "Certificates of Accrual on Treasury Securities"
("CATS"). Such securities may not be as liquid as STRIPS and CUBES and are not
viewed by the staff of the SEC as U.S. Government securities for purposes of the
1940 Act.
The stripped coupons are sold separately from the underlying
principal, which is sold at a deep discount because the buyer receives only the
right to receive a future fixed payment on the security and does not receive any
rights to periodic interest (cash) payments. Purchasers of stripped
principal-only securities acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury
Department sells itself. In the case of bearer securities (i.e., unregistered
securities which are owned ostensibly by the bearer or holder), the underlying
U.S. Treasury bonds and notes themselves are held in trust on behalf of the
owners. Counsel to the underwriters of these certificates or other evidences of
ownership of the U.S. Treasury securities have stated that, in their opinion,
purchasers of the stripped securities, such as the Portfolios, most likely will
be deemed the beneficial holders of the underlying U.S. Government obligations
for federal tax and security purposes.
The U.S. Government does not issue stripped Treasury
securities directly. The STRIPS program, which is ongoing, is designed to
facilitate the secondary market in the stripping of selected U.S. Treasury notes
and bonds into separate interest and
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principal components. Under the program, the U.S. Treasury continues to sell its
notes and bonds through its customary auction process. A purchaser of those
specified notes and bonds who has access to a book-entry account at a Federal
Reserve bank, however, may separate the Treasury notes and bonds into interest
and principal components. The selected Treasury securities thereafter may be
maintained in the book-entry system operated by the Federal Reserve in a manner
that permits the separate trading and ownership of the interest and principal
payments.
For custodial receipts, the underlying debt obligations are
held separate from the general assets of the custodian and nominal holder of
such securities, and are not subject to any right, charge, security interest,
lien or claim of any kind in favor of or against the custodian or any person
claiming through the custodian. The custodian is also responsible for applying
all payments received on those underlying debt obligations to the related
receipts or certificates without making any deductions other than applicable tax
withholding. The custodian is required to maintain insurance for the protection
of holders of receipts or certificates in customary amounts against losses
resulting from the custody arrangement due to dishonest or fraudulent action by
the custodian's employees. The holders of receipts or certificates, as the real
parties in interest, are entitled to the rights and privileges of the underlying
debt obligations, including the right, in the event of default in payment of
principal or interest, to proceed individually against the issuer without acting
in concert with other holders of those receipts or certificates or the
custodian.
SECURITIES LENDING. As described in the Prospectuses, each
Portfolio (except the Treasury Money Market, Money Market, Tax-Exempt Money
Market and Missouri Tax-Exempt Bond Portfolios) may lend its portfolio
securities to broker-dealers, banks or institutional borrowers. While these
Portfolios would not have the right to vote securities on loan, each Portfolio
intends to terminate the loan and regain the right to vote should this be
considered important with respect to the investment. When the Portfolios lend
their securities, they continue to receive interest or dividends on the
securities loaned and may simultaneously earn interest on the investment of the
cash collateral which will be invested in readily marketable, high quality,
short-term obligations. Although voting rights, or rights to consent, attendant
to securities on loan pass to the borrower, such loans may be called at any time
and will be called so that the securities may be voted by a Portfolio if a
material event affecting the investment is to occur.
Securities lending arrangements with broker/dealers require
that the loans be secured by the collateral equal in value to at least the
market value of the securities loaned.
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During the term of such arrangements, the Portfolios will maintain such value by
the daily marking-to-market of the collateral.
SECURITIES OF OTHER INVESTMENT COMPANIES. As described in the
applicable Prospectuses, the Portfolios intend to limit investments in
securities issued by other investment companies within the limits prescribed by
the 1940 Act. Each Portfolio currently intends to limit its investments so that,
as determined immediately after a securities purchase is made: (a) not more than
5% of the value of its total assets will be invested in the securities of any
one investment company; (b) not more than 10% of the value of its total assets
will be invested in the aggregate in securities of investment companies as a
group; (c) not more than 3% of the outstanding voting stock of any one
investment company will be owned by the Portfolio; and (d) not more than 10% of
the outstanding voting stock of any one investment company will be owned in the
aggregate by the Portfolios and other investment companies advised by the
Adviser.
ASSET-BACKED SECURITIES. Subject to their respective
investment policies, the U.S. Government Securities, Intermediate Corporate
Bond, Bond Index, Government & Corporate Bond and Balanced Portfolios may
purchase asset-backed securities, as described in the Prospectuses. Asset-backed
securities represent interests in "pools" of assets in which payments of both
interest and principal on the securities are made monthly, thus in effect
"passing through" monthly payments made by the individual borrowers on the
assets that underlie the securities, net of any fees paid to the issuer or
guarantor of the securities. The average life of asset-backed securities varies
with the maturities of the underlying instruments, and for this and other
reasons, an asset-backed security's stated maturity may be shortened, and the
security's total return may be difficult to predict precisely.
There are a number of important differences among the agencies
and instrumentalities of the U.S. Government that issue mortgage-backed
securities and among the securities that they issue. Mortgage-backed securities
guaranteed by GNMA include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed as to the timely payment of principal and
interest by GNMA and such guarantee is backed by the full faith and credit of
the United States. GNMA is a wholly-owned U.S. Government corporation with the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-backed securities issued by the FNMA
include FNMA Guaranteed Mortgage Pass-through Certificates (also known as
"Fannie Maes") which are solely the obligations of the FNMA and are not backed
by or entitled to the
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full faith and credit of the United States, but are supported by the right of
the issuer to borrow from the Treasury. FNMA is a government-sponsored
organization owned entirely by private stockholders. Fannie Maes are guaranteed
as to timely payment of the principal and interest by FNMA. Mortgage-backed
securities issued by the FHLMC include FHLMC Mortgage Participation Certificates
(also known as "Freddie Macs" or "PCs"). FHLMC is a corporate instrumentality of
the United States, created pursuant to an Act of Congress, which is owned
entirely by Federal Home Loan Banks. Freddie Macs are not guaranteed by the
United States or by any Federal Home Loan Bank. Freddie Macs entitle the holder
to timely payment of interest, which is guaranteed by the FHLMC. FHLMC
guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. When FHLMC does not guarantee timely
payment of principal, FHLMC may remit the amount due on account of its guarantee
of ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
Non-mortgage asset-backed securities involve certain risks
that are not presented by mortgage-backed securities. Primarily, these
securities do not have the benefit of the same security interest in the
underlying collateral. Credit card receivables are generally unsecured, and the
debtors are entitled to the protection of a number of state and federal consumer
credit laws, many of which have given debtors the right to set off certain
amounts owed on the credit cards, thereby reducing the balance due. Most issuers
of automobile receivables permit the servicers to retain possession of the
underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related automobile receivables. In
addition, because of the large number of vehicles involved in a typical issuance
and technical requirements under state laws, the trustee for the holders of the
automobile receivables may not have an effective security interest in all of the
obligations backing such receivables. Therefore, there is a possibility that
recoveries on repossessed collateral may not, in some cases, be able to support
payments on these securities.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. When a
Portfolio agrees to purchase securities on a when-issued or forward commitment
basis, the Custodian (or sub-custodian) will maintain in a segregated account
cash, U.S. Government securities, liquid portfolio securities or other
high-grade debt obligations having a value (determined daily) at least equal to
the amount of the Portfolio's commitments. In the case of a forward commitment
to sell portfolio securities, the Custodian (or sub-custodian) will hold the
portfolio securities themselves
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in a segregated account while the commitment is outstanding. These procedures
are designed to ensure that a Portfolio will maintain sufficient assets at all
times to cover is obligations under when-issued purchases and forward
commitments.
A Portfolio will make commitments to purchase securities on a
when-issued basis or to purchase or sell securities on a forward commitment
basis only with the intention of completing the transaction and actually
purchasing or selling the securities. If deemed advisable as a matter of
investment strategy, however, a Portfolio may dispose of or renegotiate a
commitment after it is entered into and may sell securities it has committed to
purchase before those securities are delivered to the Portfolio on the
settlement date. In these cases, the Portfolio may realize a capital gain or
loss.
When a Portfolio engages in when-issued and forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such party to do so may result in the Portfolio's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
The value of the securities underlying a when-issued purchase
or a forward commitment to purchase securities, and any subsequent fluctuations
in their value, is taken into account when determining a Portfolio's net asset
value starting on the day the Portfolio agrees to purchase the securities. The
Portfolio does not earn interest on the securities it has committed to purchase
until they are paid for and delivered on the settlement date. When a Portfolio
makes a forward commitment to sell securities it owns, the proceeds to be
received upon settlement are included in the Portfolio's assets, and
fluctuations in the value of the underlying securities are not reflected in the
Portfolio's net asset value as long as the commitment remains in effect.
Because the Portfolios will each set aside cash or liquid
assets to satisfy its purchase commitments in the manner described, a
Portfolio's liquidity and ability to manage its portfolio might be affected in
the event its commitments to purchase securities on a when-issued or forward
commitment basis ever exceeded 25% of the value of its total assets. The
National Municipal Bond Portfolio expects that commitments to purchase
when-issued securities will not exceed 5% of its total assets under normal
market conditions.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The International
Equity Portfolio is authorized to enter into forward foreign currency exchange
contracts. These contracts involve an obligation to purchase or sell a specified
currency at a future date at a price set at the time of the contract.
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Forward currency contracts do not eliminate fluctuations in the values of
portfolio securities but rather allow the Portfolio to establish a rate of
exchange for a future point in time. The Portfolio may enter into forward
foreign currency exchange contracts when deemed advisable by their investment
adviser under two circumstances.
When entering into a contract for the purchase or sale of a
security, the International Equity Portfolio may enter into a forward foreign
currency exchange contract for the amount of the purchase or sale price to
protect against variations in the value of the foreign currency relative to the
U.S. dollar or other foreign currency between the date the security is purchased
or sold and the date on which payment is made or received.
When the Sub-Adviser anticipates that a particular foreign
currency may decline substantially relative to the U.S. dollar or other leading
currencies, in order to reduce risk, the International Equity Portfolio may
enter into a forward contract to sell, for a fixed amount, the amount of foreign
currency approximating the value of some or all of the Portfolio's securities
denominated in such foreign currency. The Portfolio does not intend to enter
into forward contracts under this second circumstance on a regular or continuing
basis. The Portfolio will not enter into such forward contracts or maintain a
net exposure to such contracts where the consummation of the contracts would
obligate the Portfolio to deliver an amount of foreign currency in excess of the
value of its portfolio securities or other assets denominated in that currency.
While forward contracts may offer protection from losses resulting from declines
in the value of a particular foreign currency, they also limit potential gains
which might result from increases in the value of such currency. Furthermore,
forward foreign currency exchange contracts do not eliminate fluctuations in the
underlying prices of securities. In addition, the Portfolio will incur costs in
connection with forward foreign currency exchange contracts and conversions of
foreign currencies and U.S. dollars.
The Fund's Custodian will place in a separate account of the
International Equity Portfolio cash or liquid securities in an amount equal to
the value of the Portfolio's assets that could be required to consummate forward
contracts entered into under the second circumstance, as set forth above. For
the purpose of determining the adequacy of the securities in the account, the
deposited securities will be valued at market or fair value. If the market or
fair value of such securities declines, additional cash or securities will be
placed in the account daily so that the value of the account will equal the
amount of such commitments by the Portfolio.
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At the maturity of a forward contract, the International
Equity Portfolio may either sell the portfolio security and make delivery of the
foreign currency, or it may retain the security and terminate its contractual
obligation to deliver the foreign currency by purchasing an "offsetting"
contract with the same currency trader obligating it to purchase, on the same
maturity date, the same amount of the foreign currency.
It is impossible to forecast with absolute precision the
market value of portfolio securities at the expiration of the contract.
Accordingly, it may be necessary for the International Equity Portfolio to
purchase additional foreign currency on the spot market (and bear the expense of
such purchase) if the market value of the security is less than the amount of
foreign currency the Portfolio is obligated to deliver and if a decision is made
to sell the security and make delivery of the foreign currency. Conversely, it
may be necessary to sell on the spot market some of the foreign currency
received upon the sale of the portfolio security if its market value exceeds the
amount of foreign currency the Portfolio is obligated to deliver.
If the International Equity Portfolio retains the portfolio
security and engages in an offsetting transaction, it will incur a gain or a
loss (as described below) to the extent that there has been movement in forward
contract prices. If the Portfolio engages in an offsetting transaction, it may
subsequently enter into a new forward contract to sell the foreign currency.
Should forward prices decline between the date the Fund enters into a forward
contract for the sale of a foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, it will realize a
gain to the extent the price of the currency it has agreed to sell exceeds the
price of the currency it has agreed to purchase. Should forward prices increase,
the Portfolio will suffer a loss to the extent the price of the currency it has
agreed to purchase exceeds the price of the currency it has agreed to sell. For
a discussion of the Federal tax treatment of forward contracts, see "Additional
Information Concerning Taxes -- Taxation of Certain Financial Instruments."
OPTIONS TRADING. As described in the Prospectuses, each of the
Equity and Bond Portfolios (except the Short-Intermediate Municipal, Missouri
Tax-Exempt Bond and National Municipal Bond Portfolios) may purchase put and
call options listed on a national securities exchange and issued by the Options
Clearing Corporation in an amount not exceeding 10% of that Portfolio's net
assets. The International Equity Portfolio will not invest more than 5% of its
total assets in initial margin deposits and premiums (including without
limitation, puts, calls, straddles and spreads) and any combination thereof.
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Options trading is a specialized activity which entails greater than ordinary
investment risks. Regardless of how much the market price of the underlying
security or index increases or decreases, the option buyer's risk is limited to
the amount of the original investment for the purchase of the option. However,
options may be more volatile than the underlying securities, and therefore, on a
percentage basis, an investment in options may be subject to greater fluctuation
than an investment in the underlying securities. A listed call option gives the
purchaser of the option the right to buy from a clearing corporation, and a
writer has the obligation to sell to the clearing corporation, the underlying
security at the stated exercise price at any time prior to the expiration of the
option, regardless of the market price of the security. The premium paid to the
writer is in consideration for undertaking the obligations under the option
contract. A listed put option gives the purchaser the right to sell to a
clearing corporation the underlying security at the stated exercise price at any
time prior to the expiration date of the option, regardless of the market price
of the security. In contrast to an option on a particular security, an option on
a stock or bond index provides the holder with the right to make or receive a
cash settlement upon the exercise of the option. The amount of this settlement
will be equal to the difference between the closing price of the index at the
time of exercise and the exercise price of the option expressed in dollars,
times a specified multiple.
A Portfolio's obligation to sell a security subject to a
covered call option written by it may be terminated prior to the expiration date
of the option by the Portfolio's executing a closing purchase transaction, which
is effected by purchasing on an exchange an option of the same series (i.e.,
same underlying security, exercise price and expiration date) as the option
previously written. Such a purchase does not result in the ownership of an
option. A closing purchase transaction will ordinarily be effected to realize a
profit on an outstanding option, to prevent an underlying security from being
called, to permit the sale of the underlying security or to permit the writing
of a new option containing different terms on such underlying security. The cost
of such a liquidation purchase plus transaction costs may be greater than the
premium received upon the original option, in which event the Portfolio will
have incurred a loss in the transaction. An option position may be closed out
only on an exchange which provides a secondary market for an option of the same
series. There is no assurance that a liquid secondary market on an exchange will
exist for any particular option. A covered call option writer, unable to effect
a closing purchase transaction, would not be able to sell the underlying
security until the option expires or the underlying security is delivered upon
exercise with the result that the writer in such circumstances will be subject
to the risk
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of market decline in the underlying security during such period. A Portfolio
will write an option on a particular security only if the Adviser or Sub-Adviser
believes that a liquid secondary market will exist on an exchange for options of
the same series which will permit the Portfolio to make a closing purchase
transaction in order to close out its position.
When a Portfolio writes a covered call option, an amount equal
to the net premium (the premium less the commission) received by the Portfolio
is included in the liability section of the Portfolio's statement of assets and
liabilities as a deferred credit. The amount of the deferred credit is
subsequently marked-to-market to reflect the current value of the option
written. The current value of the traded option is the last sale price or, in
the absence of a sale, the average of the closing bid and asked prices. If an
option expires on the stipulated expiration date or if the Portfolio enters into
a closing purchase transaction, it will realize a gain (or loss if the cost of a
closing purchase transaction exceeds the net premium received when the option is
sold) and the deferred credit related to such option will be eliminated. Any
gain on a covered call option may be offset by a decline in the market price of
the underlying security during the option period. If a covered call option is
exercised, the Portfolio may deliver the underlying security held by it or
purchase the underlying security in the open market. In either event, the
proceeds of the sale will be increased by the net premium originally received,
and the Portfolio will realize a gain or loss. Premiums from expired options
written by a Portfolio and net gains from closing purchase transactions are
treated as short-term capital gains for federal income tax purposes, and losses
on closing purchase transactions are short-term capital losses.
As noted previously, there are several risks associated with
transactions in options on securities and indices. For example, there are
significant differences between the securities and options markets that could
result in an imperfect correlation between these markets, causing a given
transaction not to achieve its objectives. In addition, a liquid secondary
market for particular options, even when traded on a national securities
exchange ("Exchange"), may be absent for reasons which include the following:
there may be insufficient trading interest in certain options; restrictions may
be imposed by an Exchange on opening transactions or closing transactions or
both; trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of options or underlying securities;
unusual or unforeseen circumstances may interrupt normal operations on an
Exchange; the facilities of an Exchange or the Options Clearing Corporation may
not at all times be adequate to handle current trading volume; or one or more
Exchanges could, for economic or other reasons, decide or be
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compelled at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that Exchange (or in that class or series of options) would cease to exist,
although outstanding options that had been issued by the Options Clearing
Corporation as a result of trades on that Exchange would continue to be
exercisable in accordance with their terms.
A decision as to whether, when and how to use options involves
the exercise of skill and judgment, and even a well-conceived transaction may
be unsuccessful to some degree because of market behavior or unexpected events.
FOREIGN CURRENCY PUT AND CALL OPTIONS. The International
Equity Portfolio may purchase foreign currency put options on U.S. exchanges or
U.S. over-the-counter markets. (See "Other Applicable Investment Policies --
Options Trading" above for a discussion of options trading). A put option gives
the Portfolio, upon payment of a premium, the right to sell a currency at the
exercise price until the expiration of the option and serves to insure against
adverse currency price movements in the underlying portfolio assets denominated
in that currency. Exchange listed options markets in the United States include
seven major currencies, and trading may be thin and illiquid. The seven major
currencies are Australian dollars, British pounds, Canadian dollars, German
marks, French francs, Japanese yen and Swiss francs.
FUTURES CONTRACTS. As discussed in the Prospectuses, the
Equity Portfolios and the U.S. Government Securities, Intermediate Corporate
Bond, Bond Index and Government & Corporate Bond Portfolios may invest in
futures contracts (and with respect to the International Equity Portfolio --
interest rate, foreign currency and other types of financial futures contracts)
and options thereon (stock or bond index futures contracts or interest rate
futures or options) to hedge or manage risks associated with a Portfolio's
securities investments.
To enter into a futures contract, an amount of cash and cash
equivalents, equal to the market value of the futures contracts, is deposited in
a segregated account with the Fund's Custodian and/or in a margin account with a
broker to collateralize the position and thereby insure that the use of such
futures is unleveraged. Positions in futures contracts may be closed out only on
an exchange which provides a secondary market for such futures. However, there
can be no assurance that a liquid secondary market will exist for any particular
futures contract at any specific time. Thus, it may not be possible to close a
futures position. In the event of adverse price movements, a Portfolio would
continue to be required to make daily cash payments to maintain its required
margin. In such situations, if
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a Portfolio had insufficient cash, it might have to sell portfolio securities to
meet daily margin requirements at a time when it would be disadvantageous to do
so. In addition, a Portfolio might be required to make delivery of the
instruments underlying futures contracts that it holds. The inability to close
options and futures positions also could have an adverse impact on a Portfolio's
ability to hedge effectively.
Successful use of futures by a Portfolio is also subject to
the Adviser's or Sub-Adviser's ability to predict movements correctly in the
direction of the market. There is an imperfect correlation between movements in
the price of futures and movements in the price of the securities which are the
subject of the hedge. In addition, the price of futures may not correlate
perfectly with movement in the cash market due to certain market distortions.
Due to the possibility of price distortion in the futures market and because of
the imperfect correlation between the movements in the cash market and movements
in the price of futures, a correct forecast of general market trends or interest
rate movements by the Adviser or Sub- Adviser may still not result in a
successful hedging transaction over a short time frame.
The risk of loss in trading futures contracts in some
strategies can be substantial, due both to the low margin deposits required, and
the extremely high degree of leverage involved in futures pricing. As a result,
a relatively small price movement in a futures contract may result in immediate
and substantial loss (or gain) to the investor. For example, if at the time of
purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit, before any deduction for the
transaction costs, if the contract were closed out. Thus, a purchase or sale of
a futures contract may result in losses in excess of the amount invested in the
contract.
Utilization of futures transactions by a Portfolio involves
the risk of loss by the Portfolio of margin deposits in the event of bankruptcy
of a broker with whom the Fund has an open position in a futures contract or
related option.
Most futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily
limit establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
contract, no trades may be made on that day at a price beyond the limit. The
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daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
The trading of futures contracts is also subject to the risk
of trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
ADRS AND EDRS. The Intermediate Corporate Bond, Government &
Corporate Bond, Equity Income, Growth & Income Equity, Small Cap Equity,
International Equity and Balanced Portfolios may invest their assets in
securities such as ADRs and EDRs, which are receipts issued by a U.S. bank or
trust company evidencing ownership of underlying securities issued by a foreign
issuer. ADRs and EDRs may be listed on a national securities exchange or may
trade in the over-the-counter market. ADR and EDR prices are denominated in U.S.
dollars, even though the underlying security may be denominated in a foreign
currency. The underlying security may be subject to foreign government taxes
which would reduce the yield on such securities. Investments in such instruments
involve risks similar to those of investing directly in foreign securities. Such
risks include political or economic instability of the issuer or the country of
issue, the difficulty of predicting international trade patterns and the
possibility of imposition of exchange controls. Such securities may also be
subject to greater fluctuations in price than securities of domestic
corporations. In addition, there may be less publicly available information
about a foreign company than about a domestic company. Foreign companies
generally are not subject to uniform accounting, auditing and financial
reporting standards comparable to those applicable to domestic companies. With
respect to certain foreign countries, there is a possibility of expropriation or
confiscatory taxation, or diplomatic developments which could affect investment
in those countries.
MONEY MARKET INSTRUMENTS. As stated in the Prospectuses and
subject to their respective investment policies, the Equity and Bond Portfolios
may invest in the following taxable investments for temporary defensive or other
purposes: commercial paper, bankers' acceptances, certificates of deposit, time
deposits and floating rate notes. (See "Investment
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Objectives and Policies -- Money Market Portfolio" above for a discussion of
cash equivalents and "Investment Objectives and Policies -- Other Applicable
Investment Policies -- Variable and Floating Rate Instruments" above for a
discussion of variable and floating rate instruments.)
The International Equity Portfolio may invest a portion of its
assets in the obligations of foreign banks and foreign branches of domestic
banks. Such obligations may include ECDs; ETDs; CTDs; Schedule Bs, which are
obligations issued by Canadian branches of foreign or domestic banks; Yankee
CDs; and Yankee BAs. (See "Investment Objectives and Policies -- Money Market
Portfolio" above for a description of certain of these obligations.)
REPURCHASE AGREEMENTS. Under the terms of a repurchase
agreement, a Portfolio purchases securities from financial institutions such as
banks and broker-dealers that are deemed to be creditworthy by the Adviser under
guidelines approved by the Board of Directors, subject to the seller's agreement
to repurchase them at a mutually agreed-upon date and price. Securities subject
to repurchase agreements are held by the Portfolios' Custodian or in the Federal
Reserve/Treasury book-entry system. During the term of any repurchase agreement,
the Adviser will continue to monitor the creditworthiness of the seller. The
repurchase price generally equals 102% of the price paid by the Portfolio plus
interest negotiated on the basis of current short-term rates (which may be more
or less than the rate on the underlying portfolio securities). Under a
repurchase agreement, the seller is required to maintain the value of the
securities subject to the agreement at not less than the repurchase price, and
securities subject to repurchase agreements are maintained by the Portfolios'
Custodian in segregated accounts in accordance with the 1940 Act. Default by the
seller could, however, expose the Portfolio to possible loss because of adverse
market action or delay in connection with the disposition of the underlying
securities. Repurchase agreements are considered to be loans by the Portfolio
under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS. As described in the
Prospectuses, the Portfolios (except the Treasury Money Market and the
Tax-Exempt Portfolios) may enter into reverse repurchase agreements. At the time
a Portfolio enters into such an arrangement, it will place, in a segregated
custodial account, liquid assets having a value at least equal to the repurchase
price (including accrued interest) and will subsequently monitor the account to
ensure that such equivalent value is maintained.
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Reverse repurchase agreements involve the risk that the market
value of the securities sold by the Portfolio may decline below the price of the
securities that it is obligated to repurchase. Reverse repurchase agreements are
considered to be borrowings under the 1940 Act. Each Portfolio intends to limit
its borrowings (including reverse repurchase agreements) during the current
fiscal year to not more than 5% of its net assets.
PORTFOLIO TURNOVER AND TRANSACTIONS
Subject to the general control of the Fund's Board of
Directors, the Adviser (and with respect to the International Equity Portfolio,
the Sub-Adviser) is responsible for, makes decisions with respect to, and places
orders for all purchases and sales of portfolio securities for the Portfolios.
In the case of the Equity and Bond Portfolios, portfolio
turnover may vary greatly from year to year as well as within a particular year.
Portfolio turnover may also be affected by cash requirements for redemptions of
shares and by requirements which enable a Portfolio to receive certain favorable
tax treatment. Portfolio turnover will not be a limiting factor in making
investment decisions.
The Fund is required to identify any securities of its
"regular brokers or dealers" or their parents which the Fund acquired during its
most recent fiscal year. [ ].
Transactions on United States stock exchanges involve the
payment of negotiated brokerage commissions. On the exchanges on which
commissions are negotiated, the cost of the transactions may vary among
different brokers. During the fiscal years ended November 30, 1996, 1995 and
1994 , the Growth & Income Equity Portfolio paid $_______, $461,078 and $504,330
, respectively, in brokerage commissions. During the fiscal years ended November
30, 1996, 1995 and 1994, the Small Cap Equity Portfolio paid $_______, $307,607
and $174,206 , respectively, in brokerage commissions. During the fiscal years
ended November 30, 1996 and 1995 and the period April 4, 1994 (commencement of
operations) through November 30, 1994, the International Equity Portfolio paid
$______, $129,568 and $98,911 respectively, in brokerage commissions. During the
fiscal years ended November 30, 1996, 1995 and 1994, the Balanced Portfolio paid
$_______, $96,090 and $115,913 in brokerage commissions. No commissions were
paid by the Fund to any "affiliated" persons (as defined in the 1940 Act) of the
Fund. The Equity Income and Equity Index Portfolios had not commenced operations
as of November 30, 1996.
Securities purchased and sold by the Portfolios which are
traded in the over-the-counter market are generally done so
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on a net basis (i.e., without commission) through dealers, or otherwise involve
transactions directly with the issuer of an instrument. There is generally no
stated commission in the case of securities traded in the over-the-counter
markets, but the price of those securities includes an undisclosed commission or
mark-up. The cost of securities purchased from underwriters includes an
underwriter's commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.
The Portfolios may participate, if and when practicable, in
bidding for the purchase of portfolio securities directly from an issuer in
order to take advantage of the lower purchase price available to members of a
bidding group. The Portfolios will engage in this practice, however, only when
the Adviser (or Sub-Adviser in the case of the International Equity Portfolio),
in its sole discretion, believes such practice to be otherwise in a Portfolio's
interests.
While the Adviser (or Sub-Adviser in the case of the
International Equity Portfolio) generally seeks competitive spreads or
commissions, it may not necessarily allocate each transaction to the underwriter
or dealer charging the lowest spread or commission available on the transaction.
Allocation of transactions, including their frequency, to various dealers is
determined by the Adviser or Sub-Adviser in its best judgment and in a manner
deemed fair and reasonable to shareholders. The primary consideration is prompt
execution of orders in an effective manner at the most favorable price.
Subject to this consideration, dealers who provide
supplemental investment research to the Adviser (or Sub-Adviser) may receive
orders for transactions by a Portfolio. Information so received is in addition
to and not in lieu of services required to be performed by the Adviser (or
Sub-Adviser) and does not reduce the advisory fees payable to it by a Portfolio.
Such information may be useful to the Adviser (or Sub-Adviser) in serving both
the Portfolios and other clients, and conversely, supplemental information
obtained by the placement of business of other clients may be useful to the
Adviser (or Sub-Adviser) in carrying out its obligations to the Portfolios.
Portfolio securities will not be purchased from or sold to the Adviser, the
Sub-Adviser, the Distributor, the Administrator or any "affiliated person" (as
such term is defined under the 1940 Act) or any of them acting as principal,
except to the extent permitted by the SEC. In addition, the Portfolios will not
give preference to the Adviser's correspondents with respect to such
transactions, securities, savings deposits, repurchase agreements and reverse
repurchase agreements.
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Investment decisions for the Portfolios are made independently
from those for other investment companies and accounts advised or managed by the
Adviser (or Sub-Adviser). Such other investment companies and accounts may also
invest in the same securities as the Portfolios. When a purchase or sale of the
same security is made at substantially the same time on behalf of a Portfolio
and another investment company or account, the transaction will be averaged as
to price, and available investments allocated as to amount, in a manner which
the Adviser (or Sub-Adviser) believes to be equitable to the Portfolio and such
other investment company or account. In some instances, this investment
procedure may adversely affect the price paid or received by the Portfolio or
the size of the position obtained by the Portfolio. To the extent permitted by
law, the Adviser (or Sub-Adviser) may aggregate the securities to be sold or
purchased for the Portfolios with those to be sold or purchased for other
investment companies or accounts in order to obtain best execution.
SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN MISSOURI OBLIGATIONS
The following highlights some of the more important economic
and financial trends and considerations and is based on information from
official statements, prospectuses and other publicly available documents
relating to securities offerings of the State of Missouri, its agencies and
instrumentalities, as available on the date of this Statement of Additional
Information. The Fund has not independently verified any of the information
contained in such statements or other documents.
Missouri's population was 5,117,073 according to the 1990
decennial census of the United States Bureau of Census, which represented an
increase of 4.1% from the 1980 decennial census of 4,916,686 inhabitants. Based
on July, 1992 U.S. Census Bureau estimates, St. Louis and the surrounding
metropolitan area constituted the 17th largest Metropolitan Statistical Area
("MSA") in the nation with approximately 2.52 million inhabitants, of which 1.92
million are Missouri residents. St. Louis is located on the eastern boundary of
the state on the Mississippi River and is a distribution center and an important
site for banking and manufacturing activity, Anchoring the western boundary is
Kansas City, which is Missouri's second largest metropolitan area. Based on
July, 1992 U.S. Census Bureau estimates, Kansas City was the 25th largest MSA
nationally with approximately 1.62 million inhabitants, nearly one million of
which were Missouri residents. Kansas City is a major agribusiness center for
the United States and is an important center for finance and industry.
Springfield, St. Joseph, Joplin and Columbia are also important population and
industrial centers in the State. [Source: U.S. Department of Commerce, Bureau of
the
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Census.] Per capita personal income in Missouri grew 3.1% between 1992 and 1993
while during the same period per capita personal income nationally grew 3.2%.
[Source: U.S. Department of Commerce, Bureau of Economic Analysis.]
The major sectors of the State's economy include agriculture,
manufacturing, trade, government and services. Farming has traditionally played
a dominant role in the State's economy contributing between $15 billion and $17
billion annually. Although the concentration in farming remains above the
national average, with increasing urbanization, significant income-generating
activity has shifted from agriculture to the manufacturing and services sectors.
Earnings and employment are distributed among the manufacturing, trade and
service sectors in a close approximation of the average national distribution,
thus lessening the State's cyclical sensitivity to impact by any single sector.
In 1990, services represented the single most significant economic activity,
with wholesale and retail trade ranking second and manufacturing ranking third.
In 1990, these three economic sectors accounted for 66% of the State's
nonagricultural employment. Manufacturing, which accounts for approximately
15.4% of employment, is concentrated in defense, transportation equipment and
other durable goods.
Defense-related business plays an important role in Missouri's
economy. In addition to the large number of civilians employed at the various
military installations and training bases in the State, aircraft production and
defense related businesses receive sizeable annual defense contract awards. Over
the past decade, Missouri has annually ranked among the top six states in total
military contract awards. Although declining defense appropriations by the U.S.
Congress have had and will continue to have an impact on the State, Missouri's
defense related industries have rebounded and shown significant strength over
the past year. Nonetheless, McDonnell-Douglas remains the state's largest
employer with over 29,000 employees and analysts expect the long term effects of
federal downsizing in defense to be negligible. [Source: Missouri's Economic
Forecast: 1994; Mo. Dept. of Economic Development].
Limitations on State debt and bond issues are contained in
Article III, Section 37 of the Constitution of Missouri. Pursuant to this
section, the General Assembly may issue general obligation bonds solely (1) to
refund outstanding bonds (provided that the refunding bonds must mature within
25 years of issuance) or (2) upon the recommendation of the Governor, to incur a
temporary liability by reason of unforeseen emergency or of deficiency in
revenue, in an amount not to exceed $1,000,000 for any one year and to be paid
in not more than five years. When the liability exceeds $1,000,000, the General
Assembly, or the people by initiative, may submit the proposition to incur
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indebtedness to the voters of the State, and the bonds may be issued if approved
by a majority of those voting. Such bonds must be retired serially and by
installment within 25 years of issuance. Before any bonds which are so
authorized are issued, the General Assembly must make provisions for the payment
of principal and interest and may provide for an annual tax on all taxable
property in an amount sufficient for that purpose. Certain water pollution bonds
and state building bonds are also authorized pursuant to Sections 37(b)-(e),
inclusive, of Article III.
In 1971, Missouri voters approved a constitutional amendment
providing for the issuance of $150,000,000 of general obligation bonds for the
protection of the environment through the control of water pollution. The bonds
were subsequently issued over a period of years. In 1979, voters approved a
constitutional amendment authorizing an additional $200,000,000 State Water
Pollution Control Bonds. In 1982 State voters approved a constitutional
amendment authorizing the issuance of $600,000,000 Third State Building Bonds.
Proceeds from the Third State Building Bonds are used to provide funds for
improvement of State buildings and property, including education, mental health,
parks, corrections and other State facilities, and for water, sewer,
transportation, soil conservation and other economic development projects. In
1988, Missouri voters approved a constitutional amendment authorizing the
issuance of bonds in the aggregate sum of $275,000,000 for controlling water
pollution and making improvements to drinking water systems.
Article III, Section 36 of the Constitution of Missouri
requires that the General Assembly appropriate the annual principal and interest
requirements for outstanding general obligation bonds before any other
appropriations are made. Such amounts must be transferred from the General
Revenue Fund to bond interest and sinking funds. Authorization for these
transfers, as well as the actual payments of principal and interest, are
provided in the first appropriation bill of each fiscal year.
In addition to general obligation bonds, the Missouri
legislature has established numerous entities as bodies corporate and politic
which are authorized to issue bonds to carry out their corporate purposes.
Article X, Sections 16-24 of the Constitution of Missouri (the
"Tax Limitation Amendment"), imposes a limit on the amount of taxes and other
revenue enhancement charges such as user fees which may be imposed by the State
or a political subdivision in any fiscal year. This limit is tied to total State
revenues for the fiscal year ended June 30, 1981, as defined in the Tax
Limitation Amendment, adjusted annually, in accordance with the formula set
forth in the amendment. Under
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that formula, the revenue limit for any fiscal year equals the product of the
ratio of total state revenues in fiscal year 1980- 1981 divided by the aggregate
personal income received by persons in Missouri from all sources ("Personal
Income of Missouri") in calendar year 1979 multiplied by the Personal Income of
Missouri in either the calendar year prior to the calendar year in which
appropriations for the fiscal year for which the calculation is being made, or
the average of Personal Income of Missouri in the previous three calendar years,
whichever is greater. If the revenue limit is exceeded by 1% or more in any
fiscal year, a refund of the excess revenues collected by the State is required.
If the excess revenues collected are less than 1%, then they are not refunded
but are transferred to the General Revenue Fund. Since passage of the
legislation, no refund to taxpayers has ever occurred.
The details of the Tax Limitation Amendment are complex. The
revenue limit can be exceeded only if the General Assembly approves by a
two-thirds vote of each house an emergency declaration as requested by the
Governor. As previously noted, however, Article III, Section 36 of the
Constitution of Missouri requires the General Assembly to appropriate the annual
principal and interest requirements for outstanding general obligation bonds
before any other appropriations are made. The revenue limitation also does not
apply to taxes imposed for payment of principal and interest on bonds that have
been approved by the voters, as authorized by the Missouri Constitution. The Tax
Limitation Amendment could adversely affect the repayment capabilities of
certain non-general obligation issues if payment is dependent upon increases in
taxes or appropriations by the State's General Assembly.
In the spring of 1993, the Missouri legislature passed into
law a $310,000,000 tax increase, with most of the increase being allocated for
state-wide education needs. This tax increase was approved by the citizens of
the state in November, 1994.
Revenue collections for the fiscal year ended June 30, 1996
("Fiscal Year 1996") were $_______ million, excluding $__ million from the state
lottery and other transfers, representing an increase of ____ percent over
revenue collections from the fiscal year ended June 30, 1995. [These revenues
supplement a carry-over balance from the previous year of $_____ million.]
Expenditures for Fiscal Year 1996 are estimated at $_______ million including
$_____ million and $_____ million, respectively, for the St. Louis and Kansas
City school desegregation cases.
For the fiscal year ending June 30, 1997 ("Fiscal Year 1997")
revenues are projected to be $_______ million. [
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This projection does not include an estimated $____ million in proceeds from
other transfers or a carry-over balance of approximately $_____ million.]
Expenditures are projected at $_____ million, including $_____ million and
$_____ million respectively for the St. Louis and Kansas City desegregation
cases. Projected expenditures also include $____ million for supplemental
appropriations for Fiscal Year 1997.
INVESTMENT LIMITATIONS
The following investment limitations may be changed with
respect to a particular Portfolio only by an affirmative vote of a majority of
the outstanding shares of that Portfolio (as defined under "Other Information
Concerning the Fund and Its Shares -- Miscellaneous" in the Portfolios'
Prospectuses). These investment limitations supplement those that appear in the
Prospectuses.
THE TREASURY MONEY MARKET PORTFOLIO MAY NOT:
1. Acquire any other investment company or investment company
security except in connection with a merger, consolidation, reorganization or
acquisition of assets or where otherwise permitted by the 1940 Act.
2. Borrow money except from banks for temporary purposes and
then in an amount not exceeding 10% of the value of the Portfolio's total
assets, or mortgage, pledge or hypothecate its assets except in connection with
any such borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of the value of the Portfolio's total assets at the time
of such borrowing. (This borrowing provision is not for investment leverage, but
solely to facilitate management of the Portfolio by enabling the Fund to meet
redemption requests where the liquidation of portfolio securities is deemed to
be inconvenient or disadvantageous). Borrowing may take the form of a sale of
portfolio securities accompanied by a simultaneous agreement as to their
repurchase. Interest paid on borrowed funds will not be available for
investment.
3. Underwrite the securities of other issuers.
4. Make loans except that the Portfolio may purchase or hold
debt obligations in accordance with its investment objective and policies and,
under the certain circumstances described in the Prospectuses, may enter into
repurchase agreements for U.S. Treasury securities.
THE MONEY MARKET PORTFOLIO MAY NOT:
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1. Acquire any other investment company or investment company
security except in connection with a merger, consolidation, reorganization or
acquisition of assets, or where otherwise permitted by the 1940 Act.
2. Purchase securities of any one issuer, other than
obligations of the U.S. Government, its agencies or instrumentalities, if
immediately after such purchase more than 5% of the value of the Portfolio's
total assets would be invested in such issuer, except that up to 25% of the
value of a Portfolio's total assets may be invested without regard to such 5%
limitation.
3. Buy common stocks or voting securities, or state, municipal
or industrial revenue bonds.
4. Purchase or sell real estate (the Portfolio may purchase
commercial paper issued by companies which invest in real estate or interests
therein).
5. Purchase securities on margin, make short sales of
securities or maintain a short position.
6. Underwrite the securities of other issuers.
7. Purchase or sell commodity contracts, or invest in oil, gas
or mineral exploration or development programs.
8. Write or purchase put or call options.
In accordance with Rule 2a-7 of the 1940 Act, the Money Market
Portfolio intends to invest no more than five percent of its total assets in the
securities of any one issuer ; provided, however, that the Portfolio may invest
more than five percent of its total assets in the First Tier Eligible Securities
of a single issuer for a period of up to three business days after the purchase
thereof, provided, further that the Portfolio would not make more than one
investment in accordance with the foregoing provision at any time. This
intention is not, however, a fundamental policy of the Portfolio and may change
in the event Rule 2a-7 is amended in the future.
THE TAX-EXEMPT MONEY MARKET PORTFOLIO MAY NOT:
1. Make loans, except that the Portfolio may purchase or hold
debt instruments in accordance with its investment objective and policies.
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2. Purchase securities of other investment companies except in
connection with a merger, consolidation, acquisition or reorganization or where
otherwise permitted by the 1940 Act.
3. Purchase securities on margin, make short sales of
securities, or maintain a short position.
4. Act as an underwriter of securities within the meaning of
the Securities Act of 1933, except insofar as the Portfolio might be deemed to
be an underwriter upon purchase of certain portfolio securities acquired subject
to the investment limitation pertaining to purchases of restricted securities.
5. Purchase or sell real estate, except that the Portfolio may
invest in Municipal Obligations which are secured by real estate or interests
therein.
6. Purchase or sell commodities or commodity contracts or
invest in oil, gas, or other mineral exploration or development programs.
7. Invest in or sell put options (except as described above
under "Investment Objectives and Policies -- Stand-by Commitments"), call
options, straddles, spreads, or any combination thereof.
8. Purchase foreign securities.
9. Invest in industrial development bonds where the payment of
principal and interest are the responsibility of a company (including its
predecessors) with less than three years of continuous operation, or buy common
stock or voting securities.
With respect to investment limitation no. 1 pertaining to the
Tax-Exempt Money Market Portfolio in the Prospectuses, the Fund intends that
guarantees will only be treated as separate securities for diversification
purposes to the extent required by Rule 5b-2 under the 1940 Act. Letters of
credit will not be treated as separate securities with regard to diversification
as the Fund does not consider the latter instruments to be securities.
THE U.S. GOVERNMENT SECURITIES, INTERMEDIATE CORPORATE BOND,
BOND INDEX, GOVERNMENT & CORPORATE BOND, NATIONAL MUNICIPAL BOND, EQUITY INCOME,
EQUITY INDEX, GROWTH & INCOME EQUITY, SMALL CAP EQUITY AND BALANCED PORTFOLIOS
MAY NOT:
1. Make investments for the purpose of exercising control or
management.
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<PAGE> 476
2. Purchase or sell real estate, provided that each Portfolio
may invest in securities secured by real estate or interests therein or issued
by companies or investment trusts which invest in real estate or interests
therein; provided further that, as described in the Prospectuses, (a) the
Government & Corporate Bond Portfolio may invest in first mortgage loans, income
participation loans and participation certificates in pools of mortgages,
including mortgages issued or guaranteed by the U.S. Government, its agencies or
its instrumentalities and CMOs; (b) the U.S. Government Securities Portfolio may
invest in certain mortgage-backed securities, CMOs and certain other securities;
(c) the Intermediate Corporate Bond Portfolio may invest in first mortgage
loans, income participation loans and participation certificates in pools of
mortgages, including mortgages issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, mortgage-backed securities or CMOs; and (d) the
Bond Index Portfolio may invest in first mortgage loans, income participation
loans and participations in pools of mortgages, including mortgages issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, and
mortgage-backed securities.
3. Act as an underwriter of securities within the meaning of
the Securities Act of 1933 except insofar as a Portfolio might be deemed to be
an underwriter upon disposition of portfolio securities acquired within the
limitation on purchases of restricted securities and except to the extent that
the purchase of obligations directly from the issuer thereof in accordance with
a Portfolio's investment objective, policies and limitations may be deemed to be
underwriting.
4. Purchase or sell commodity contracts, or invest in oil, gas
or mineral exploration or development programs, except that the Intermediate
Corporate Bond, Bond Index, National Municipal Bond, Equity Income, Equity Index
and Balanced Portfolios may, to the extent appropriate to their respective
investment objectives, purchase publicly traded securities of companies engaging
in whole or in part in such activities ; and provided further, that (a) the Bond
Index, Equity Index and Balanced Portfolios may enter into futures contracts and
related options, and (b) the Intermediate Corporate Bond and Equity Income
Portfolios may invest in futures contracts and related options in accordance
with their respective investment obligations and policies.
5. Purchase securities on margin, make short sales of
securities or maintain a short position, except that (a), with the exception of
the National Municipal Bond Portfolio, this investment limitation shall not
apply to a Portfolio's transactions in options, and futures contracts and
related options, and (b) a Portfolio may obtain short-term credits as may
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be necessary for the clearance of purchases and sales of portfolio securities.
THE INTERNATIONAL EQUITY PORTFOLIO MAY NOT:
1. Make investments for the purpose of exercising control or
management.
2. Purchase or sell real estate, provided that the Portfolio
may invest in securities secured by real estate or interests therein or issued
by companies or investment trusts which invest in real estate or interests
therein.
3. Act as an underwriter of securities within the meaning of
the Securities Act of 1933 except insofar as the Portfolio might be deemed to be
an underwriter upon disposition of portfolio securities acquired within the
limitation on purchases of restricted securities and except to the extent that
the purchase of obligations directly from the issuer thereof in accordance with
the Portfolio's investment objective, policies and limitations may be deemed to
be underwriting.
4. Purchase or sell commodity contracts, or invest in oil, gas
or mineral exploration or development programs, except that: (a) it may, to the
extent appropriate to its investment objective, invest in securities issued by
companies which purchase or sell commodities or commodity contracts or which
invest in such programs; and (b) it may purchase and sell futures contracts and
options on futures contracts.
THE SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO MAY NOT:
1. Make investments for the purpose of exercising
control or management.
2. Purchase or sell real estate, except that the Portfolio may
invest in Municipal Obligations which are secured by real estate or interests
therein.
3. Act as an underwriter of securities within the meaning of
the Securities Act of 1933 except insofar as the Portfolio might be deemed to be
an underwriter upon disposition of portfolio securities acquired within the
limitation on purchases of restricted securities and except to the extent that
the purchase of obligations directly from the issuer thereof in accordance with
the Portfolio's investment objective, policies and limitations may be deemed to
be underwriting.
4. Purchase or sell commodity contracts, or invest in oil, gas
or mineral exploration or development programs.
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THE MISSOURI TAX-EXEMPT BOND PORTFOLIO MAY NOT:
1. Purchase or sell real estate, except that the Portfolio may
purchase securities of issuers which deal in real estate and may purchase
securities which are secured by interests in real estate.
2. Purchase securities of companies for the purpose of
exercising control.
3. Acquire any other investment company or investment company
security except in connection with a merger, consolidation, reorganization or
acquisition of assets or as otherwise permitted by the 1940 Act.
4. Act as an underwriter of securities within the meaning of
the Securities Act of 1933 except insofar as it might be deemed to be an
underwriter upon disposition of portfolio securities acquired within the
limitation on purchases of restricted securities and except to the extent that
the purchase of obligations directly from the issuer thereof in accordance with
the Portfolio's investment objective, policies and limitations may be deemed to
be underwriting.
5. Purchase securities on margin, make short sales of
securities or maintain a short position, except that the Portfolio may obtain
short-term credit as may be necessary for the clearance of purchases and sales
of portfolio securities.
6. Purchase or sell commodity contracts, or invest in oil, gas
or mineral exploration or development programs, except that the Portfolio may,
to the extent appropriate to its investment objective, purchase publicly traded
securities of companies engaging in whole or in part in such activities.
7. Write or sell put options, call options, straddles,
spreads, or any combination thereof.
NET ASSET VALUE
As stated in the applicable Prospectuses, the net asset value
per share of each class of shares of a Portfolio is calculated separately by
adding the value of all of the portfolio securities and other assets belonging
to a Portfolio that are attributable to such class, subtracting the liabilities
of the Fund that are attributable to such class, and dividing the result by the
number of outstanding shares of such class. Assets attributable to a particular
class of shares of a Portfolio are charged with any direct liabilities that the
Board of Directors has allocated to such class pursuant to the Fund's Plan for
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Operation of a Multi-Class System adopted pursuant to Rule 18f-3 under the 1940
Act. The determinations by the Board of Directors as to the direct and allocable
liabilities, and the allocable portion of general assets, with respect to a
particular Portfolio or class are conclusive.
THE MONEY MARKET PORTFOLIOS
The assets in the Money Market Portfolios are valued according
to the amortized cost method of valuation. Pursuant to this method, an
instrument is valued at its cost initially and, thereafter, a constant
amortization to maturity of any discount or premium is assumed, regardless of
the impact of fluctuating interest rates on the market value of the instrument.
This method may result in periods during which value, as determined by amortized
cost, is higher or lower than the market price a Portfolio would receive if it
sold the instrument. The value of securities in the Portfolios can be expected
to vary inversely with changes in prevailing interest rates.
Each Portfolio invests only in instruments that present
minimal credit risks and meet the ratings criteria described in the
Prospectuses. In addition, each Portfolio maintains a dollar-weighted average
portfolio maturity appropriate to its objective of maintaining a stable net
asset value per share, provided that no Portfolio will purchase any security
with a remaining maturity of more than thirteen months (397 days) (securities
subject to repurchase agreements and certain other securities may bear longer
maturities) nor maintain a dollar-weighted average portfolio maturity that
exceeds 90 days. The Fund's Board of Directors has approved procedures that are
intended to stabilize the Portfolios' net asset value per share at $1.00 for
purposes of pricing sales and redemptions. These procedures include the
determination, at such intervals as the Board deems appropriate, of the extent,
if any, to which the net asset value per share of a Portfolio calculated by
using available market quotations deviates from $1.00 per share. In the event
such deviation exceeds one-half of one percent, the Board will promptly consider
what action, if any, should be initiated. If the Board believes that the extent
of any deviation from a Portfolio's $1.00 amortized cost price per share may
result in material dilution or other unfair results to new or existing
investors, it will take such steps as it considers appropriate to eliminate or
reduce to the extent reasonably practicable any such dilution or unfair results.
These steps may include, but are not limited to, selling portfolio instruments
prior to maturity; shortening the average portfolio maturity; withholding or
reducing dividends; redeeming shares in kind; or utilizing a net asset value per
share determined by using available market quotations.
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THE EQUITY AND BOND PORTFOLIOS
Securities which are traded on a recognized stock exchange are
valued at the last sale price on the securities exchange on which such
securities are primarily traded or at the last sale price on the national
securities market. Securities traded on only over-the-counter markets are valued
on the basis of closing over-the-counter bid prices. Securities for which there
were no transactions are valued at the average of the current bid and asked
prices. Restricted securities and other assets for which market quotations are
not readily available are valued at fair value as determined in accordance with
guidelines approved by the Fund's Board of Directors. In computing net asset
value, the current value of a Portfolio's open futures contracts and related
options will be "marked-to-market." Short- term securities are valued at
amortized cost, which approximates fair market value.
Among the factors that ordinarily will be considered in
valuing portfolio securities are the existence of restrictions upon the sale of
the security by the Portfolio, the existence and extent of a market for the
security, the extent of any discount in acquiring the security, the estimated
time during which the security will not be freely marketable, the expenses of
registering or otherwise qualifying the security for public sale, underwriting
commissions if underwriting would be required to effect a sale, the current
yields on comparable securities for debt obligations traded independently of any
equity equivalent, changes in the financial condition and prospects of the
issuer, and any other factors affecting fair value. In making valuations,
opinions of counsel to the issuer may be relied upon as to whether or not
securities are restricted securities and as to the legal requirements for public
sale.
The Administrator may use a pricing service to value certain
portfolio securities where the prices provided are believed to reflect the fair
market value of such securities. The methods of valuation used by the pricing
service will be reviewed by the Administrator under the general supervision of
the Fund's Board of Directors. Several pricing services are available, one or
more of which may be used by the Administrator from time to time. In valuing a
Portfolio's securities, the pricing service would normally take into
consideration such factors as yield, risk, quality, maturity, type of issue,
trading characteristics, special circumstances, and other factors which are
deemed relevant in determining valuations for normal institutionalized trading
units of debt securities and would not rely exclusively on quoted prices.
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ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares in each Portfolio are sold on a continuous basis by the
Distributor. As described in the applicable Prospectuses, Trust shares and
Institutional shares of each Portfolio are sold to certain qualified customers
at their net asset value without a sales charge. Investor A Shares of each
Portfolio (other than Investor A Shares of the Money Market Portfolios which are
sold at their net asset value without a sales charge) are sold to retail
customers at the public offering price based on a Portfolio's net asset value
plus a front-end load or sales charge as described in the applicable
Prospectuses. Investor B Shares of each Portfolio (other than the Treasury Money
Market, Tax-Exempt Money Market, Intermediate Corporate Bond, Bond Index,
Short- Intermediate Municipal and Equity Index Portfolios, which do not offer
Investor B Shares) are sold to retail customers at the net asset value next
determined after a purchase order is received, but are subject to a contingent
deferred sales charge which is payable on redemption of such shares as described
in the applicable Prospectuses.
The Fund may redeem shares involuntarily if the net income
with respect to a Portfolio's shares is negative or such redemption otherwise
appears appropriate in light of the Fund's responsibilities under the 1940 Act.
An illustration of the computation of the public offering
price per share of Investor A Shares of the Equity and Bond Portfolios, based on
the value of each Portfolio's net assets and the number of outstanding Investor
A Shares on November 30, 1996 and the maximum front-end sales charge of 4.5%
(2.5% with respect to the Intermediate Corporate Bond, Bond Index,
Short-Intermediate Municipal and Equity Index Portfolios) currently applicable,
is as follows:
-42-
<PAGE> 482
<TABLE>
<CAPTION>
U.S. Missouri National
Government Government & Tax-Exempt Municipal Equity
Securities Corporate Bond Bond Bond Income
Portfolio Portfolio Portfolio Portfolio Portfolio
---------- -------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Assets
Outstanding Shares
Net Asset Value
Per Share
Sales Charge,
4.50%
of offering price
(4.70% of net
asset value per
share)
Offering Price
to Public
</TABLE>
<TABLE>
<CAPTION>
Growth & Income Small Cap International
Equity Equity Equity Balanced
Portfolio Portfolio Portfolio Portfolio
--------------- --------- ------------- ----------
<S> <C> <C> <C> <C>
Net Assets
Outstanding Shares
Net Asset Value
Per Share
Sales Charge,
4.50%
of offering price
(4.70% of net
asset value per
share)
Offering Price
to Public
</TABLE>
-43-
<PAGE> 483
<TABLE>
<CAPTION>
Intermediate Short-Intermediate Equity
Corporate Bond Bond Index Municipal Index
Portfolio Portfolio Portfolio Portfolio
-------------- ---------- ------------------ ---------
<S> <C> <C> <C> <C>
Net Assets
Outstanding Shares
Net Asset Value
Per Share
Sales Charge, 2.50%
of offering price
(2.60% of net
asset value per
share)
Offering Price
to Public
</TABLE>
Under the 1940 Act, a Portfolio may suspend the right of
redemption or postpone the date of payment for shares during any period when (a)
trading on the Exchange is restricted by applicable rules and regulations of the
SEC; (b) the Exchange is closed for other than customary weekend and holiday
closing; (c) the SEC has by order permitted such suspension; or (d) an emergency
exists as determined by the SEC. A Portfolio may also suspend or postpone the
recordation of the transfer of its shares upon the occurrence of any of the
foregoing conditions.
In addition to the situations described in the Prospectuses
under "How to Purchase and Redeem Shares," the Portfolios may redeem shares
involuntarily to reimburse the Portfolios for any loss sustained by reason of
the failure of a shareholder to make full payment for shares purchased by the
shareholder or to collect any charge relating to a transaction effected for the
benefit of a shareholder which is applicable to Portfolio shares as provided in
the applicable Prospectuses from time to time.
ADDITIONAL YIELD AND TOTAL RETURN INFORMATION
THE MONEY MARKET PORTFOLIOS
A Money Market Portfolio's "yield" and "effective yield," as
described in the Prospectuses, are calculated
-44-
<PAGE> 484
separately for Trust Shares, Institutional Shares, Investor A Shares and/or
Investor B Shares of the Portfolios according to formulas prescribed by the SEC.
Standardized 7 day "yield" is computed by determining the net change, exclusive
of capital changes, in the value of a hypothetical pre-existing account in a
Portfolio having a balance of one share at the beginning of the period,
subtracting a hypothetical charge reflecting deductions from shareholder
accounts, dividing the difference by the value of the account at the beginning
of the base period to obtain the base period return, and then multiplying the
base period return by (365/7). The net change in the value of an account
includes the value of additional shares purchased with dividends from the
original share, and dividends declared on both the original share and any such
additional shares, net of all fees, other than nonrecurring account or sales
charges, that are charged by the Portfolio to all shareholder accounts in
proportion to the length of the base period and the Portfolio's mean (or median)
account size. The capital changes to be excluded from the calculation of the net
change in account value are realized gains and losses from the sale of
securities and unrealized appreciation and depreciation. "Effective yield" is
computed by compounding the unannualized base period return (calculated as
above) by adding one to the base period return, raising the sum to a power equal
to 365 divided by seven, and subtracting one from the result. Based upon the
same calculations, each Portfolio's 30 day yields and 30 day effective yields
may also be quoted. The Tax-Exempt Money Market Portfolio's "tax-equivalent
yield" is computed by dividing the tax-exempt portion of the yield (calculated
as above) by one minus a stated federal income tax rate and adding the product
to that portion, if any, of the yield that is not tax-exempt. In addition, a
"Missouri" tax-equivalent yield may be calculated by dividing the portion of the
Tax-Exempt Money Market Portfolio's yield (calculated as above) that is exempt
from federal tax and the portion that is exempt from Missouri personal income
tax by one minus a stated tax rate and adding such figure to that portion, if
any, of the Portfolio's yield that is not exempt from federal or state income
tax. Based on the foregoing calculations, for the year ended November 30, 1996,
the 7-day yields, 7-day effective yields and the 30-day yields were as follows:
-45-
<PAGE> 485
<TABLE>
<CAPTION>
7-Day Effective
PORTFOLIO 7-Day Yield Yield 30-Day Yield
--------- ----------- --------------- ------------
<S> <C> <C> <C>
Treasury Money Market
Trust Shares
Institutional Shares
Investor A Shares
Money Market
Trust Shares
Institutional Shares
Investor A Shares
Investor B Shares
Tax-Exempt Money Market
Trust Shares
Investor A Shares
</TABLE>
Based on the foregoing calculations, the tax-equivalent yields
and tax-equivalent effective yields of the Tax-Exempt Money Market Portfolio for
the same 7-day and 30-day periods were as follows (assuming payment of federal
income tax at a rate of 39.60%):
<TABLE>
<CAPTION>
7-DAY TAX- 30-DAY TAX-
7-DAY TAX- EQUIVALENT EQUIVALENT
PORTFOLIO EQUIVALENT YIELD EFFECTIVE YIELD YIELD
--------- ---------------- --------------- ----------
<S> <C> <C> <C>
Tax-Exempt Money Market
Trust Shares
Investor A Shares
</TABLE>
In addition, as described in the applicable Prospectuses, the
Treasury Money Market Portfolio may calculate a 7 day "state tax-exempt yield,"
which is computed by dividing the portion of the Portfolio's yield (calculated
as above) that is exempt from state income tax by one minus a state income tax
rate. Based upon the same calculations, the Portfolio's 30 day state tax-exempt
yield may also be quoted.
A Portfolio's quoted yield is not indicative of future yields
and depends upon factors such as portfolio maturity, the Portfolio's expenses,
and the types of instruments held by the Portfolio. Any account fees imposed by
financial institutions, Service Organizations, or broker-dealers would reduce a
Portfolio's effective yield.
-46-
<PAGE> 486
THE EQUITY AND BOND PORTFOLIOS
An Equity and Bond Portfolio's 30 day "yield" described in the
Prospectuses is calculated separately for Trust Shares, Institutional Shares,
Investor A Shares and/or Investor B Shares of a Portfolio by dividing the
Portfolio's net investment income per share earned during a 30-day period by the
maximum offering price per share (the "maximum offering price") with respect to
Investor A Shares and the net asset value per share with respect to Trust
shares, Institutional shares and Investor B Shares on the last day of the period
and annualizing the result on a semi-annual basis by adding one to the quotient,
raising the sum to the power of six, subtracting one from the result and then
doubling the difference. A Portfolio's net investment income per share
(irrespective of series) earned during the period is based on the average daily
number of shares outstanding during the period entitled to receive dividends and
includes income dividends and interest earned during the period minus expenses
accrued for the period, net of reimbursements. This calculation can be expressed
as follows:
a-b 6
Yield = 2 [(------- + 1) - 1]
cd
Where: a = dividends and interest earned
during the period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding
that were entitled to receive dividends.
d = maximum offering price per share on the
last day of the period.
For the purpose of determining interest earned during the
period (variable "a" in the formula), dividend income on equity securities held
by a Portfolio is recognized by accruing 1/360 of the stated dividend rate of
the security each day that the security is in that Portfolio. A Portfolio
calculates interest earned on any debt obligation held in its portfolio by
computing the yield to maturity of each obligation held by it based on the
market value of the obligation (including actual accrued interest) at the close
of business on the last business day of each 30 day period, or, with respect to
obligations purchased during the 30 day period, the purchase price (plus actual
accrued interest) and dividing the result by 360 and
-47-
<PAGE> 487
multiplying the quotient by the market value of the obligation (including actual
accrued interest) in order to determine the interest income on the obligation
for each day of the subsequent 30 day period that the obligation is in the
portfolio. The maturity of an obligation with a call provision is the next call
date on which the obligation reasonably may be expected to be called or, if
none, the maturity date. With respect to debt obligations purchased at a
discount or premium, the formula generally calls for amortization of the
discount or premium. The amortization schedule will be adjusted monthly to
reflect changes in the market values of such debt obligations.
Interest earned on Municipal Obligations of the Short-
Intermediate Municipal, Missouri Tax-Exempt Bond and National Municipal Bond
Portfolios that are issued without original issue discount and have a current
market discount is calculated by using the coupon rate of interest instead of
the yield to maturity. In the case of Municipal Obligations that are issued with
original issue discount but which have discounts based on current market value
that exceed the then-remaining portion of the original issue discount (market
discount), the yield to maturity is the imputed rate based on the original issue
discount calculation. On the other hand, in the case of Municipal Obligations
that are issued with original issue discount but which have discounts based on
current market value that are less than the then-remaining portion of the
original issue discount (market premium), the yield to maturity is based on the
market value.
Expenses accrued for the period (variable "b" in the formula)
include all recurring fees charged by a Portfolio to all shareholder accounts in
proportion to the length of the base period and the Portfolio's mean (or median)
account size. Investor A Shares, Investor B Shares, Institutional Shares and
Trust Shares each bear separate fees applicable to the particular class of
shares. Undeclared earned income will not be subtracted from the maximum
offering price per share (variable "d" in the formula). Undeclared earned income
is net investment income which, at the end of the base period, has not been
declared and paid as a dividend, but is reasonably expected to be and is
declared and paid as a dividend shortly thereafter.
The Short-Intermediate Municipal, Missouri Tax-Exempt Bond and
National Municipal Bond Portfolios' "tax-equivalent" yield for each class of
shares is computed by dividing the portion of a Portfolio's yield (calculated as
above) that is exempt from federal income tax by one minus a stated federal
income tax rate and adding that figure to that portion, if any, of the
Portfolio's yield that is not exempt from federal income tax. Similarly, the
Missouri Tax-Exempt Bond Portfolio's "Missouri tax-equivalent" yields for each
class of shares is
-48-
<PAGE> 488
calculated by dividing the portion of a Portfolio's yield (calculated as above)
that is exempt from federal tax and the portion that is exempt from Missouri
personal income tax by one minus a stated tax rate and adding such figure to
that portion, if any, of the Portfolio's yield that is not exempt from federal
or state income tax.
The Fund currently calculates 30-day yields for its Bond
Portfolios but not for its Equity Portfolios. For the 30- day period ended
November 30, 1996, the yields on the Bond Portfolios (other than the
Intermediate Corporate Bond and Bond Index Portfolios which had not commenced
operations as of November 30, 1996) were as follows:
<TABLE>
<CAPTION>
PORTFOLIO 30-DAY YIELD
--------- ------------
<S> <C>
U.S. Government Securities
Trust Shares
Institutional Shares
Investor A Shares
Investor B Shares
Government & Corporate Bond
Trust Shares
Institutional Shares
Investor A Shares
Investor B Shares
Short-Intermediate Municipal
Trust Shares
Investor A Shares
Missouri Tax Exempt Bond
Trust Shares
Investor A Shares
Investor B Shares
National Municipal Bond
Trust Shares
Investor A Shares
Investor B Shares
Balanced
Trust Shares
Institutional Shares
Investor A Shares
Investor B Shares
</TABLE>
For the same 30-day period, the Short-Intermediate Municipal,
Missouri Tax-Exempt Bond and National Municipal Bond Portfolios' tax-equivalent
yields (assuming payment of federal income taxes at a rate of 39.60%) and the
Missouri Tax-Exempt Bond Portfolio's Missouri tax-equivalent yield (assuming
Missouri state income taxes at a rate of 43.20%) were as follows:
-49-
<PAGE> 489
<TABLE>
<CAPTION>
30-DAY TAX- 30-DAY MISSOURI
PORTFOLIO EQUIVALENT YIELD TAX-EQUIVALENT YIELD
--------- ---------------- --------------------
<S> <C> <C>
Short-Intermediate Municipal
Trust Shares
Investor A Shares
Missouri Tax-Exempt Bond
Trust Shares
Investor A Shares
Investor B Shares
National Municipal Bond
Trust Shares
Investor A Shares
Investor B Shares
</TABLE>
A Portfolio computes its "average annual total return" for
each series of that Portfolio by determining the average annual compounded rate
of return during specified periods that would equate the initial amount invested
in a particular series to the ending redeemable value of such investment in the
series by dividing the ending redeemable value of a hypothetical $1,000 payment
by $1,000 (representing a hypothetical initial payment) and raising the quotient
to a power equal to one divided by the number of years (or fractional portion
thereof) covered by the computation and subtracting one from the result. This
calculation can be expressed as follows:
ERV 1/n
T = [(-------) - 1]
P
Where: T = average annual total return
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
1, 5 or 10 year (or other) periods at the end
of the 1, 5 or 10 year (or other) periods (or
a fractional portion thereof)
P = hypothetical initial payment of $1,000
n = period covered by the computation, expressed
in terms of years
A Portfolio computes its aggregate total returns separately
for each series by determining the aggregate compounded rates of return during
specified periods that likewise equate the initial amount invested in a
particular series to the
-50-
<PAGE> 490
ending redeemable value of such investment in the series. The formula for
calculating aggregate total return is as follows:
ERV
Aggregate Total Return = [(------)- 1]
P
The calculations of average annual total return and aggregate
total return assume reinvestment of all income dividends and capital gain
distributions on the reinvestment dates during the period and include all
recurring fees charged to all shareholder accounts, assuming an account size
equal to a Portfolio's mean or median account size for any fees that vary with
the size of the account. The ending redeemable value (variable "ERV" in each
quotation) is determined by assuming complete redemption of the hypothetical
investment and the deduction of all non-recurring charges at the end of the
period covered by the computation. In addition, a non-money market Portfolio's
average annual total return and aggregate total return quotations reflect the
deduction of the maximum front-end sales charge in connection with the purchase
of Investor A Shares and the deduction of any applicable contingent deferred
sales charge with respect to Investor B Shares.
Based on the foregoing calculations, the average annual total
returns for the year/period ended November 30, 1996, the average annual total
returns for the 5-year period ended November 30, 1996 (where applicable) and the
average annual total returns for the period from commencement of operations were
as follows:
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------
FOR THE 5 SINCE
FOR THE YEAR YEARS ENDED COMMENCEMENT
PORTFOLIO ENDED 11/30/96 OF OPERATIONS
--------- 11/30/96 ----------- -------------
------------
<S> <C> <C> <C>
U.S. Government Securities
Trust Shares(1)
Institutional Shares(7)
Investor A Shares(1)
Investor B Shares(4)
Government & Corporate Bond
Trust Shares(5)
Institutional Shares(2)
Investor A Shares(5)
Investor B Shares(4)
Short-Intermediate Municipal
Trust Shares(17)
Investor A Shares(18)
</TABLE>
-51-
<PAGE> 491
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------
FOR THE YEAR FOR THE 5 SINCE
ENDED YEARS ENDED COMMENCEMENT
PORTFOLIO 11/30/96 11/30/96 OF OPERATIONS
--------- ------------- ------------- --------------
<S> <C> <C> <C>
Missouri Tax-Exempt Bond(19)
Trust Shares(20)
Investor A Shares(21)
Investor B Shares(4)
National Municipal Bond(22)
Trust Shares
Investor A Shares
Investor B Shares
Growth & Income Equity
Trust Shares(1)
Institutional Shares(2)
Investor A Shares(1)
Investor B Shares(4)
Small Cap Equity
Trust Shares(9)
Institutional Shares(2)
Investor A Shares(10)
Investor B Shares(4)
International Equity
Trust Shares(14)
Institutional Shares(14)
Investor A Shares(15)
Investor B Shares(4)
Balanced
Trust Shares(12)
Institutional Shares(12)
Investor A Shares(12)
Investor B Shares(4)
</TABLE>
- ---------
(1) Commenced operations on June 2, 1988.
(2) Initial public offering commenced on January 4, 1994.
(3) Reflects combined performance of Institutional Shares which
were initially offered to the public on January 4, 1994 and
Investor A Shares for the period prior to January 4, 1994.
(4) Investor B Shares were initially offered on March 1, 1995. The
performance figures for Investor B Shares for periods prior to
such date represent the performance for Investor A Shares of
the Portfolio which has been restated to reflect the
contingent deferred sales charges payable by holders of
Investor B Shares that redeem within six years of the date of
purchase. Investor B Shares are also subject to distribution
and services fees at a maximum annual rate of 1.00%. Had those
distribution and services fees been reflected, performance
would have been reduced.
(5) Commenced operations on June 15, 1988.
-52-
<PAGE> 492
(6) Reflects combined performance of Institutional Shares which
were initially offered to the public on January 4, 1994 and
Investor A Shares for the period prior to January 4, 1994.
(7) Commenced operations on June 7, 1994.
(8) Reflects combined performance of Institutional Shares which
were initially offered to the public on June 7, 1994 and
Investor A Shares for the period prior to January 4, 1994.
(9) Commenced operations on May 1, 1992.
(10) Initial public offering commenced on May 6, 1992.
(11) Reflects combined performance of Institutional Shares which
were initially offered to the public on January 4, 1994 and
Investor A Shares for the period May 1, 1992 through January
3, 1994.
(12) Commenced operations on April 1, 1993.
(13) Reflects combined performance of Institutional Shares which
were initially offered to the public on January 4, 1994 and
Investor A Shares for the period April 1, 1993 through January
3, 1994.
(14) Commenced operations on April 4, 1994.
(15) Initial public offering commenced on May 2, 1994.
(16) Reflects combined performance of Institutional Shares which
were initially offered to the public on April 24, 1994 and
Investor A Shares for the period April 4, 1994 through April
23, 1994.
(17) Commenced operations on July 10, 1995.
(18) Commenced operations on July 10, 1995.
(19) Commenced operations on July 15, 1988 as a portfolio of The
ARCH Tax-Exempt Trust. On October 2, 1995, the Portfolio was
reorganized as a new Portfolio of the Fund.
(20) Commenced operations on July 15, 1988.
(21) Initial public offering commenced on September 28, 1990.
(22) Portfolio had not commenced operations as of November 30,
1996.
(23) Commenced operations on November 18, 1996.
Based on the foregoing calculations, the aggregate total
returns for the Equity and Bond Portfolios from their respective dates of
commencement of operations through November 30, 1996 (other than the
Intermediate Corporate Bond, Bond Index, Equity Income and Equity Index
Portfolios which had not commenced operations as of November 30, 1996) were as
follows:
-53-
<PAGE> 493
<TABLE>
<CAPTION>
AGGREGATE TOTAL RETURN
SINCE COMMENCEMENT
PORTFOLIO OF OPERATIONS
--------- -----------------------
<S> <C>
U.S. Government Securities
Trust Shares
Institutional Shares(1)
Investor A Shares
Investor B Shares(2)
Government & Corporate Bond
Trust Shares
Institutional Shares(1)
Investor A Shares
Investor B Shares(2)
Short-Intermediate Municipal
Trust Shares
Investor A Shares
Missouri Tax-Exempt Bond
Trust Shares
Investor A Shares
Investor B Shares(2)
National Municipal Bond(3)
Trust Shares
Investor A Shares
Investor B Shares
Growth & Income Equity
Trust Shares
Institutional Shares(1)
Investor A Shares
Investor B Shares(2)
Small Cap Equity
Trust Shares
Institutional Shares(1)
Investor A Shares
Investor B Shares(2)
International Equity
Trust Shares
Institutional Shares(1)
Investor A Shares
Investor B Shares(2)
Balanced
Trust Shares
Institutional Shares(1)
Investor A Shares
Investor B Shares(2)
</TABLE>
- -------------------
(1) Reflects combined performance of Institutional Shares which were
initially offered to the public on January 4, 1994 and Investor A
Shares for the period prior to January 4, 1994.
(2) Investor B Shares were initially offered on March 1, 1995.
The performance figures for Investor B Shares for periods prior to such
date represent the performance for Investor A Shares of the Portfolio.
-55-
<PAGE> 494
which has been restated to reflect the contingent deferred sales
charges payable by holders of Investor B Shares that redeem within
six years of the date of purchase. Investor B Shares are also subject
to distribution and services fees at a maximum annual rate of 1.00%.
Had those distribution and services fees been reflected, performance
would have been reduced.
(2) Commenced operations on November 18, 1996.
As stated in the Prospectuses relating to Investor A Shares and
Investor B Shares, a Portfolio may also calculate total return figures for that
Portfolio without deducting the maximum sales charge imposed on purchases or
redemptions. The effect of not deducting the sales charge will be to increase
the total return reflected.
Investors may judge the performance of the Portfolios by
comparing them to the performance of other mutual funds or mutual fund
portfolios with comparable investment objectives and policies. Such comparisons
may be made by referring to market indices such as those prepared by Dow Jones &
Co., Inc., Russell, Salomon Brothers, Inc., Lehman Brothers or Standard & Poor's
Ratings Group or any of their affiliates, the Consumer Price Index, the EAFE
Index, the NASDAQ Composite, or to rankings prepared by independent services or
other financial or industry publications that monitor the performance of mutual
funds. Such comparisons may also be made by referring to data prepared by Lipper
Analytical Services, Inc., (a widely recognized independent service which
monitors the performance of mutual funds) Indata, Frank Russell, CDA, and the
Bank Rate Monitor (which reports average yields for money market accounts
offered by the 50 leading banks and thrift institutions in the top five standard
metropolitan statistical areas). Other similar yield data, including comparisons
to the performance of Mercantile repurchase agreements, or the average yield
data for similar asset classes including but not limited to Treasury bills,
notes and bonds, may also be used for comparison purposes. Comparisons may also
be made to indices or data published in the following national financial
publications: IBC/Donoghue's Money Fund Report(R), MorningStar,
CDA/Wiesenberger, Money Magazine, Forbes, Fortune, Barron's, The Wall Street
Journal, The New York Times, Business Week, American Banker, Fortune,
Institutional Investor, U.S.A. Today and publications of Ibbotson Associates,
Inc. and other publications of a local or regional nature. In addition to
performance information, general information about the Portfolios that appears
in a publication such as those mentioned above may be included in
advertisements, supplemental sales literature and in reports to Shareholders.
-56-
<PAGE> 495
From time to time, the Fund may include the following types of
information in advertisements, supplemental sales literature and reports to
Shareholders: (1) discussions of general economic or financial principles (such
as the effects of inflation, the power of compounding and the benefits of
dollar-cost averaging); (2) discussions of general economic trends; (3)
presentations of statistical data to supplement such discussions; (4)
descriptions of past or anticipated portfolio holdings for one or more of the
Portfolios within the Fund; (5) descriptions of investment strategies for one or
more of such Portfolios; (6) descriptions or comparisons of various investment
products, which may or may not include the Portfolios; (7) comparisons of
investment products (including the Portfolios) with relevant market or industry
indices or other appropriate benchmarks; and (8) discussions of rankings or
ratings by recognized rating organizations.
In addition, with respect to the Short-Intermediate Municipal, Missouri
Tax-Exempt Bond and National Municipal Bond Portfolios the benefits of tax-free
investments may be communicated in advertisements or communications to
shareholders. For example, the tables below present the approximate yield that a
taxable investment must earn at various income brackets to produce after-tax
yields equivalent to those of tax-exempt investments yielding from 4.50% to
7.00%. The yields below are for illustration purposes only and are not intended
to represent current or future yields for the Portfolios, which may be higher or
lower than those shown. The tax brackets shown below will be indexed for
inflation for years after 1997. Investors should
-56-
<PAGE> 496
consult their tax advisor with specific reference to their own tax situation.
<TABLE>
<CAPTION>
APPROXIMATE YIELD TABLE: SHORT-INTERMEDIATE MUNICIPAL AND NATIONAL MUNICIPAL BOND PORTFOLIOS
SINGLE RETURN
Sample Taxable Federal --------Tax-Exempt Yields---------
Income Marginal
(1997) Tax Rate 4.50% 5.00% 5.50% 6.50% 7 .00%
<S> <C> <C> <C> <C> <C> <C>
FROM
$0 TO
$24,000 15.00% 5.29% 5.88% 6.47% 7.65% 8.24%
FROM
$24,000 TO
$58,150 28.00% 6.25% 6.64% 7.64% 9.03% 9.72%
FROM
$58,150 TO
$121,300 31.00% 6.52% 7.25% 7.97% 9.42 10.41%
FROM
$121,300 TO
$263,750 36.00% 7.03% 7.81% 8.59% 10.16% 10.94%
OVER
$263,750 39.60% 7.45% 8.28% 9.11% 10.76% 11.59%
</TABLE>
-57-
<PAGE> 497
<TABLE>
<CAPTION>
APPROXIMATE YIELD TABLE: SHORT-INTERMEDIATE MUNICIPAL AND NATIONAL MUNICIPAL BOND PORTFOLIOS
MARRIED FILING
JOINTLY
Sample Taxable Federal ----------Tax-Exempt Yields-----------
Income Marginal
(1997) Tax Rate 4.50% 5.00% 5.50% 6.50% 7.00%
<S> <C> <C> <C> <C> <C> <C>
FROM
$0 TO
$40,000 15.00% 5.29% 5.88% 6.47% 7.65% 8.24%
FROM
$40,000 TO
$96,900 28.00% 6.25% 6.94% 7.64% 9.03% 9.72%
FROM
$96,900 TO
$147,700 31.00% 6.52% 7.25% 7.97% 9.42% 10.14%
FROM
$147,700 TO
$263,750 36.00% 7.03% 7.81% 8.59% 10.16% 10.94%
OVER
$263,750 39.60% 7.45% 8.28% 9.11% 10.76% 11.59%
</TABLE>
-58-
<PAGE> 498
<TABLE>
<CAPTION>
APPROXIMATE YIELD TABLE: MISSOURI TAX-EXEMPT BOND PORTFOLIO
SINGLE RETURN Combined
Federal and ---------------Tax-Exempt Yields-------------------------
Sample Taxable Federal Missouri Missouri
Income Marginal Marginal Marginal Tax
(1997) Tax Rate Tax Rate Rate 4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM
$0 TO
$24,000 15.00% 6.00% 20.10% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
FROM
$24,000 TO
$58,150 28.00% 6.00% 32.32% 6.65% 7.39% 8.13% 8.87% 9.60% 10.34%
FROM
$58,150 TO
$121,300 31.00% 6.00% 35.14% 6.94% 7.71% 8.48% 9.25% 10.02% 10.79%
FROM
$121,300 TO
$263,750 36.00% 6.00% 39.84% 7.48% 8.31% 9.14% 9.97% 10.80% 11.64%
OVER
$263,750 39.60% 6.00% 43.22% 7.93% 8.81% 9.69% 10.57% 11.45% 12.33%
</TABLE>
<TABLE>
<CAPTION>
APPROXIMATE YIELD TABLE: MISSOURI TAX-EXEMPT BOND PORTFOLIO
MARRIED FILING
JOINTLY Combined
Federal and ---------------Tax-Exempt Yields--------------
Sample Taxable Federal Missouri Missouri
Income Marginal Marginal Marginal Tax
(1997) Tax Rate Tax Rate Rate 4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM
$0 TO
$40,000 15.00% 6.00% 20.10% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
FROM
$40,000 TO
$96,900 28.00% 6.00% 32.32% 6.65% 7.39% 8.13% 8.87% 9.60% 10.34%
FROM
$96,900 TO
$147,700 31.00% 6.00% 35.14% 6.94% 7.71% 8.48% 9.25% 10.02% 10.79%
FROM
$147,700 TO
$263,750 36.00% 6.00% 39.84% 7.48% 8.31% 9.14% 9.97% 10.80% 11.64%
OVER
$263,750 39.60% 6.00% 43.22% 7.93% 8.81% 9.69% 10.57% 11.45% 12.33%
</TABLE>
Such data are for illustrative purposes only and are not intended to indicate
past or future performance results of a Portfolio. Actual performance of the
Portfolios' may be more or less than that noted in the hypothetical
illustrations.
-59-
<PAGE> 499
Since performance will fluctuate, performance data for the Portfolios
cannot necessarily be used to compare an investment in the Portfolios' shares
with bank deposits, savings accounts, and similar investment alternatives which
often provide an agreed or guaranteed fixed yield for a stated period of time.
Shareholders should remember that performance is generally a function of the
kind and quality of the instruments held in a portfolio, portfolio maturity,
operating expenses, and market conditions. The current yield and performance of
the Portfolios may be obtained by calling the Fund at: INVESTOR A OR INVESTOR B
SHARES - 1-800-452-ARCH; OR TRUST OR INSTITUTIONAL SHARES - 1-800-452-401K.
DESCRIPTION OF SHARES
The Fund's Articles of Incorporation authorize the Board of Directors
to issue up to seven billion full and fractional shares of capital stock, and to
classify or reclassify any unissued shares of the Fund into one or more
additional classes or by setting or changing in any one or more respects, their
respective preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption. Pursuant to such authority the Fund's Board of Directors has
authorized the issuance of fifty-seven classes of shares representing interests
in one of seventeen investment Portfolios: the Treasury Money Market, Money
Market, Tax-Exempt Money Market, U.S. Government Securities, Intermediate
Corporate Bond, Bond Index, Government & Corporate Bond, Short-Intermediate
Municipal, Missouri Tax-Exempt Bond , Kansas Tax-Exempt Bond (not described in
this Statement of Additional Information), National Municipal Bond, Equity
Income, Equity Index, Growth & Income Equity, Small Cap Equity, International
Equity and Balanced Portfolios. Trust Shares, Institutional Shares, Investor A
Shares and Investor B Shares in each Portfolio (except the Treasury Money
Market, Intermediate Corporate Bond, Bond Index and Equity Index Portfolios,
which do not offer Investor B Shares, the Tax-Exempt Money Market and
Short-Intermediate Municipal Portfolios, which do not offer Institutional or
Investor B Shares and the Missouri Tax-Exempt Bond and Kansas Tax-Exempt Bond
Portfolios, which do not offer Institutional Shares) are offered through
separate prospectuses to different categories of investors. Portfolio shares
have no preemptive rights and only such conversion or exchange rights as the
Board may grant in its discretion. When issued for payment as described in the
Prospectuses, the shares will be fully paid and nonassessable.
Except as noted in the Prospectuses with respect to certain
sub-transfer agency expenses borne by Institutional Shares and below with
respect to the Administrative Services Plans for Trust Shares and Institutional
Shares and the Distribution and
-60-
<PAGE> 500
Services Plans for Investor A Shares and Investor B Shares, shares of the
Portfolios bear the same types of ongoing expenses with respect to the Portfolio
to which they belong. In addition, Investor A Shares (other than Investor A
Shares of the Money Market Portfolios) are subject to a front-end sales charge
and Investor B Shares are subject to a contingent deferred sales charge as
described in the Prospectuses. The classes also have different exchange
privileges, and Investor B Shares are subject to conversion as described in the
Prospectus for those shares.
In the event of a liquidation or dissolution of the Fund, shares of a
Portfolio are entitled to receive the assets available for distribution
belonging to that Portfolio, and a proportionate distribution, based upon the
relative asset values of the respective Portfolios, of any general assets not
belonging to any particular Portfolio which are available for distribution.
Shareholders of a Portfolio are entitled to participate equally in the net
distributable assets of the particular Portfolio involved on liquidation, except
that Trust Shares of a particular Portfolio will be solely responsible for that
Portfolio's payments pursuant to the Administrative Services Plan for those
shares, Institutional Shares of a particular Portfolio will be solely
responsible for that Portfolio's payments pursuant to the Administrative Service
Plan for those shares, Investor A Shares of a particular Portfolio will be
solely responsible for that Portfolio's payments pursuant to the Distribution
and Services Plan for those shares and Investor B Shares of a particular
Portfolio will be solely responsible for that Portfolio's payments pursuant to
the Distribution and Services Plan for those shares. In addition, Institutional
Shares will be solely responsible for the payment of certain sub-transfer
agency fees attributable to those shares.
Holders of all outstanding shares of a particular Portfolio
will vote together in the aggregate and not by class, except that only Trust
Shares of a Portfolio will be entitled to vote on matters submitted to a vote of
shareholders pertaining to a Portfolio's Administrative Services Plan for Trust
Shares, only Institutional Shares of a Portfolio's will be entitled to vote on
matters submitted to a vote of shareholders pertaining to such Portfolio's
Administrative Services Plan for Institutional Shares, only Investor A Shares of
a Portfolio will be entitled to vote on matters submitted to a vote of
shareholders pertaining to such Portfolio's Distribution and Services Plan for
Investor A Shares and only Investor B Shares of a Portfolio will be entitled to
vote on matters submitted to a vote of shareholders pertaining to such
Portfolio's Distribution and Services Plan for Investor B Shares. Further,
shareholders of all of the Portfolios, irrespective of class, will vote in the
aggregate and not separately on a Portfolio-by-Portfolio basis, except as
otherwise required by law or when the Board of Directors determines that
-61-
<PAGE> 501
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 a fundamental
investment objective or 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 Portfolio or
class.
Shares in the Fund's Portfolios will be issued without
certificates.
ADDITIONAL INFORMATION CONCERNING TAXES
IN GENERAL
The following summarizes certain additional tax
considerations generally affecting the Portfolios and their shareholders that
are not described in the Prospectuses. No attempt is made to present a detailed
explanation of the tax treatment of the Portfolios or their shareholders, and
the discussion here and in the Prospectuses are not intended as a substitute for
careful tax planning. Potential investors should consult their tax advisors with
specific reference to their own tax situations.
Each Portfolio of the Fund is treated as a separate corporate
entity under the Code. Each Portfolio intends to qualify each year as a
regulated investment company. In order to so qualify for a taxable year under
the Code, each Portfolio must satisfy, in addition to the distribution
requirement described in the Prospectuses, certain other requirements set forth
below.
At least 90% of the gross income for a taxable year of each
Portfolio must be derived from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stock, securities
or foreign currencies, and other
-62-
<PAGE> 502
income (including, but not limited to, gains from options, futures, or forward
contracts) derived with respect to the Portfolio's business of investing in such
stock, securities or currencies (the "90% gross income test").
A Portfolio also must derive less than 30% of its gross
income for a taxable year from gains realized on the sale or other disposition
of securities and certain other investments held for less than three months (the
"30% test"). Interest (including original issue discount and accrued market
discount) received by a Portfolio upon maturity or disposition of a security
held for less than three months will not be treated as gross income derived from
the sale or other disposition of such security within the meaning of this
requirement. However, any income that is attributable to real market
appreciation will be treated as gross income from the sale or other disposition
of securities for this purpose. With respect to covered call options, if the
call is exercised by the holder, the premium and the price received on exercise
constitute the proceeds of sale, and the difference between the proceeds and the
cost of the securities subject to the call is capital gain or loss. Premiums
from expired call options written by a Portfolio and net gains from closing
purchase transactions are treated as short-term capital gains for federal income
tax purposes, and losses on closing purchase transactions are short-term capital
losses. With respect to forward contracts, futures contracts, options on futures
contracts, and other financial instruments subject to the mark-to-market rules
described below under "Taxation of Certain Financial Instruments," the Internal
Revenue Service has ruled in private letter rulings that a gain realized from
such a contract, option or financial instrument will be treated as being derived
from a security held for three months or more (regardless of the actual period
for which the contract, option or instrument is held) if the gain arises as a
result of a constructive sale under the mark-to-market rules, and will be
treated as being derived from a security held for less than three months only if
the contract, option or instrument is terminated (or transferred) during the
taxable year (other than by reason of mark-to-market) and less than three months
have elapsed between the date the contract, option or instrument is acquired and
the termination date. Increases and decreases in the value of a Portfolio's
forward contracts, futures contracts, options on futures contracts and other
investments that qualify as part of a "designated hedge," as defined in Section
851(g) of the Code, may be netted for purposes of determining whether the 30%
test is met.
Finally, at the close of each quarter of its taxable year, at
least 50% of the value of a Portfolio's assets must consist of cash and cash
items, U.S. Government securities, securities of other regulated investment
companies, and
-63-
<PAGE> 503
securities of other issuers (as to which a Portfolio has not invested more than
5% of the value of its total assets in securities of such issuer and as to which
that Portfolio does not hold more than 10% of the outstanding voting securities
of such issuer) and no more than 25% of the value of such Portfolio's total
assets may be invested in the securities of any one issuer (other than U.S.
government securities and securities of other regulated investment companies),
or in two or more issuers which the Portfolio controls and which are engaged in
the same or similar trades or businesses.
Each Portfolio will designate any distribution of the excess
of net long-term capital gain over net short-term capital loss as a capital gain
dividend in a written notice mailed to shareholders within 60 days after the
close of the Portfolio's taxable year. Such distributions, if any, will be
taxable to shareholders who are not currently exempt from federal income tax as
long-term capital gains, no matter how long the shareholder has held these
shares. Shareholders should note that, upon the sale or exchange of Portfolio
shares, if the shareholder has not held such shares for more than six months,
any loss on the sale or exchange of those shares will be treated as long-term
capital loss to the extent of the capital gain dividends received with respect
to the shares.
Ordinary income to individuals is taxable at a maximum
nominal rate of 39.6%, but because of limitations on itemized deductions
otherwise allowable and the phase-out of personal exemptions, the maximum
effective marginal rate of tax for some taxpayers may be higher. An individual's
long-term capital gains are taxable at a maximum rate of 28%. For corporations,
long-term capital gains and ordinary income are both taxable at a maximum
nominal rate of 35% (or at a maximum marginal rate of 39% in the case of
corporations having taxable income between $100,000 and $335,000).
A 4% nondeductible excise tax is imposed on regulated
investment companies that fail to currently distribute specified percentages of
their ordinary taxable income and capital gain net income (excess of capital
gains over capital losses). Each Portfolio intends to make sufficient
distributions or deemed distributions of its ordinary taxable income and any
capital gain net income each year to avoid liability for this excise tax.
If for any taxable year a Portfolio does not qualify for the
special federal income tax treatment afforded regulated investment companies,
all of its taxable income will be subject to federal income tax at regular
corporate rates (without any deduction for distributions to its shareholders).
In such event, dividend distributions would be taxable as ordinary income to
-64-
<PAGE> 504
shareholders, to the extent of the Portfolio's current and accumulated earnings
and profits and would be eligible for the dividends received deduction allowed
to corporations.
THE TAX-EXEMPT PORTFOLIOS
The policy of each Tax-Exempt Portfolio is to pay to its
shareholders each year as exempt-interest dividends substantially all of its
Municipal Obligation interest income net of certain deductions. In order for a
Tax-Exempt Portfolio to pay exempt-interest dividends for any taxable year, at
the close of each quarter of its taxable year at least 50% of the aggregate
value of the Portfolio's assets must consist of exempt-interest obligations.
Exempt-interest dividends may be treated by the shareholders as items of
interest excludable from their gross income under Section 103(a) of the Code. An
exempt-interest dividend is any dividend or part thereof (other than a capital
gain dividend) paid by a Tax-Exempt Portfolio and designated as an
exempt-interest dividend in a written notice mailed to shareholders not later
than forty-five days (with respect to Missouri income tax) and sixty days (with
respect to federal income tax) after the close of the Portfolio's taxable year.
However, the aggregate amount of dividends so designated by the Portfolio cannot
exceed the excess of the amount of interest exempt from tax under Section 103 of
the Code received by the Portfolio during the taxable year over any amounts
disallowed as deductions under Sections 265 and 171(a)(2) of the Code. The
percentage of total dividends paid for any taxable year which qualifies as
exempt-interest dividends will be the same for all shareholders receiving
dividends from the Portfolio during such year, regardless of the period for
which the Shares were held.
Shareholders who might be treated as a "substantial user" or
a "related person" to such user with respect to facilities financed through any
of the tax-exempt obligations held by a Tax-Exempt Portfolio, are advised to
consult their tax advisors with respect to whether exempt-interest dividends
retain the exclusion under Section 103(a). A "substantial user" is defined under
U.S. Treasury Regulations to include a non-exempt person (i) who regularly uses
a part of such facilities in his trade or business and (ii)(A) whose gross
revenues derived with respect to the facilities financed by the issuance of
bonds are more than 5% of the total revenues derived by all users of such
facilities, (B) who occupies more than 5% of the usable area of such facilities
or (C) for whom such facilities or a part thereof were specifically constructed,
reconstructed or acquired. "Related persons" include certain related natural
persons, affiliated corporations, partnerships and its partners, and S
corporations and their shareholders.
-65-
<PAGE> 505
Interest on indebtedness incurred by a shareholder to
purchase or carry shares of the Tax-Exempt Portfolios 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.
TAXATION OF CERTAIN FINANCIAL INSTRUMENTS
Special rules govern the federal income tax treatment of
financial instruments that may be held by the U.S. Government Securities,
Intermediate Corporate Bond, Bond Index, Government & Corporate Bond, Equity
Income, Equity Index, Growth & Income Equity, Small Cap Equity, International
Equity or Balanced Portfolios. These rules may have a particular impact on the
amount of income or gain that a Portfolio must distribute to shareholders to
comply with the distribution requirement, on the income or gain qualifying under
the 90% gross income test, and on a Portfolio's ability to comply with the 30%
test described above.
Generally, futures contracts and options on futures contracts
held by a Portfolio at the close of its taxable year are treated for federal
income tax purposes as sold for their fair market value on the last business day
of such year, a process known as "mark-to-market." Forty percent of any gain or
loss resulting from such constructive sales are treated as short-term capital
gain or loss and 60% of such gain or loss are treated as long-term capital gain
or loss without regard to the period the Portfolio holds the futures contract or
related option (the "40%-60% rule"). The amount of any capital gain or loss
actually realized by a Portfolio in a subsequent sale or other disposition of
those futures contracts and related options is adjusted to reflect any capital
gain or loss taken into account by a Portfolio in a prior year as a result of
the constructive sale of the contracts and options. Losses with respect to
futures contracts to sell and related options, which are regarded as parts of a
"mixed straddle" because their values fluctuate inversely to the values of
specific securities held by a Portfolio, are subject to certain loss deferral
rules which limit the amount of loss currently deductible on either part of the
straddle to the amount thereof which exceeds the unrecognized gain (if any) with
respect to the other part of the straddle, and
-66-
<PAGE> 506
to certain wash sales regulations. Under short sales rules, which are also
applicable, the holding period of the securities forming part of the straddle
will (if they have not been held for the long-term holding period) be deemed not
to begin prior to termination of the straddle. With respect to certain futures
contracts and related options, deductions for interest and carrying charges may
not be allowed. Notwithstanding the rules described above, with respect to
futures contracts to sell and related options which are properly identified as
such, a Portfolio may make an election which will exempt (in whole or in part)
those identified futures contracts and options from being treated for federal
income tax purposes as sold on the last business day of the Portfolio's taxable
year, but gains and losses will be subject to such short sales, wash sales and
loss deferral rules and the requirement to capitalize interest and carrying
charges. Under Temporary Regulations, a Portfolio would be allowed (in lieu of
the foregoing) to elect either (1) to offset gains or losses from positions
which are part of a mixed straddle by separately identifying each mixed straddle
to which such treatment applies, or (2) to establish a mixed straddle account
for which gains and losses would be recognized and offset on a periodic basis
during the taxable year. Under either election, the 40%-60% rule will apply to
the net gain or loss attributable to the futures contracts and options, but in
the case of a mixed straddle account election, not more than 50% of any net gain
may be treated as long-term and no more than 40% of any net loss may be treated
as short-term.
Certain foreign currency contracts (including forward foreign
currency exchange contracts) entered into by the International Equity Portfolio
may be subject to the mark-to-market rules described above. To receive such
treatment, a foreign currency contract must meet the following conditions: (1)
the contract must require delivery of a foreign currency of a type in which
regulated futures contracts are traded or upon which the settlement value of the
contract depends; (2) the contract must be entered into at arm's length at a
price determined by reference to the price in the interbank market; and (3) the
contract must be traded in the interbank market. The Treasury Department has
broad authority to issue regulations under these provisions. As of the date of
this Statement of Additional Information, the Treasury Department had not issued
any such regulations. Other foreign currency contracts entered into by the
Portfolio may result in the creation of one or more straddles for federal income
tax purposes, in which case certain loss deferral, short sales, and wash sales
rules and the requirement to capitalize interest and carrying charges may apply.
Some of the non-U.S. dollar denominated investments that
certain of the taxable Portfolios may make, such as
-67-
<PAGE> 507
non-U.S. dollar-denominated debt securities and obligations and preferred stock,
as well as some of the foreign currency contracts the International Equity
Portfolio may enter into, may be subject to the provisions of Subpart J of the
Code, which govern the federal income tax treatment of certain transactions
denominated in terms of a currency other than the U.S. dollar or determined by
reference to the value of one or more currencies other than the U.S. dollar. The
types of transactions covered by these provisions include the following: (1) the
acquisition of, or becoming the obligor under, a bond or other debt instrument
(including, to the extent provided in Treasury regulations, preferred stock);
(2) the accruing of certain trade receivables and payables; and (3) the entering
into or acquisition of any forward contract, futures contract, option and
similar financial instrument. The disposition of a currency other than the U.S.
dollar by a U.S. taxpayer also is treated as a transaction subject to the
special currency rules. However, foreign currency-related regulated futures
contracts and nonequity options generally are not subject to the special
currency rules if they are or would be treated as sold for their fair market
value at year-end under the mark-to-market rules, unless an election is made to
have such currency rules apply. With respect to transactions covered by the
special rules, foreign currency gain or loss is calculated separately from any
gain or loss on the underlying transaction and normally is taxable as ordinary
gain or loss. A Portfolio may elect to treat as capital gain or loss foreign
currency gain or loss arising from certain identified forward contracts, futures
contracts and options that are capital assets in the hands of the Portfolio and
which are not part of a straddle. In accordance with Treasury Regulations,
certain transactions subject to the special currency rules that are part of a
"Section 988 hedging transaction" (as defined in the Code and Treasury
regulations) will be integrated and treated as a single transaction or otherwise
treated consistently for purposes of the Code. "Section 988 hedging
transactions" are not subject to the mark-to-market or loss deferral rules under
the Code. Gain or loss attributable to the foreign currency component of
transactions engaged in by a Portfolio which are not subject to the special
currency rules (such as foreign equity investments other than certain preferred
stocks) is treated as capital gain or loss and is not segregated from the gain
or loss on the underlying transaction.
CONCLUSIONS
The foregoing discussion is based on federal tax laws and
regulations which are in effect on the date of this Statement of Additional
Information; such laws and regulations may be changed by legislative or
administrative action. Shareholders are advised to consult their tax advisors
concerning the application of state and local taxes.
-68-
<PAGE> 508
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their
addresses, ages, principal occupations during the past five years, and other
affiliations are as follows:
Principal Occupations
Position with During Past 5 years
Name and Address the Fund and other affiliations
- ---------------- ------------- ----------------------
Jerry V. Woodham* Chairman of Treasurer, St. Louis
745 Stump Road The Board; University, August 1996
St. Louis, MO 63131 President and to present; Treasurer,
Age: 53 Director Washington University,
1981 to 1995
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.
St. Louis, MO 63136-8506
Age: 51
Joseph J. Hunt Director General Vice-President
Iron Workers District International Association of
Council Bridge, Structural and
3544 Watson Road Ornamental Iron Workers
St. Louis, MO 63139 (International Labor Union),
Age: 54 January 1994 to present;
General Organizer,
International Association of
Bridge, Structural and
Ornamental Iron Workers,
September 1983 to December
1993.
James C. Jacobsen Director Director, Kellwood Company,
Kellwood Company (manufacturer of wearing
600 Kellwood Parkway apparel and camping softgoods)
Chesterfield, MO 63017 since 1975; Vice Chairman,
Age: 61 Kellwood Company since May
1989.
- ------------------------
* Mr. Woodham is an "interested person" of the Fund as defined in the 1940
Act.
-69-
<PAGE> 509
Principal Occupations
Position with During Past 5 years
Name and Address the Fund and other affiliations
- ---------------- ------------- ----------------------
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.
Room 7-A-50
San Antonio, TX 78299
Age: 56
Lyle L. Meyer Director Vice President, The Jefferson
Jefferson Smurfit Smurfit Corporation (manu-
Corporation facturer of paperboard and
8182 Maryland Avenue packaging materials), April
St. Louis, MO 63105 1989 to present; President,
Age: 60 Smurfit Pension & Insurance
Services Company, November 1982
to December 1992.
Ronald D. Winney* Director and Treasurer, Ralston
Ralston Purina Company Treasurer Purina Company
Checkerboard Square Since 1985.
St. Louis, MO 63164
Age: 54
W. Bruce McConnel, III Secretary Partner of the law
Suite 1100 firm of Drinker Biddle
1345 Chestnut Street & Reath, Philadelphia,
Philadelphia, PA 19107 Pennsylvania Since 1977.
Age: 54
Walter B. Grimm* Assistant From June, 1992 to present,
3435 Stelzer Road Secretary employee of BISYS Fund
Columbus, OH 43219 Services; From 1989 to June, 1992
Age: 51 President of Leigh
Investments Consulting/
Investments (investment
firm).
Stephen G. Mintos* Vice President From April, 1987 to present,
3435 Stelzer Road and Assistant employee of BISYS Fund
Columbus, OH 43219 Treasurer Services.
Age: 43
- ------------------------
* Messrs. Grimm, Winney, and Mintos are "interested persons" of the Fund as
defined in the 1940 Act.
Each Director receives an annual fee of $10,000 plus
reimbursement of expenses incurred as a Director. The Chairman of the Board and
President of the Fund receives an additional annual fee of $5,000 for his
services in these capacities. For
-70-
<PAGE> 510
the fiscal year ended November 30, 1996, the Fund paid or accrued for the
account of its directors as a group, for services in all capacities, a total of
$______. Drinker Biddle & Reath, of which Mr. McConnel is a partner, receives
legal fees as counsel to the Fund. As of the date of this Statement of
Additional Information, the directors and officers of the Fund, as a group,
owned less than 1% of the outstanding shares of the Fund.
The following chart provides certain information about the
fees received by the Fund's directors for their services as members of the Board
of Directors and committees thereof for the fiscal year ended November 30, 1996:
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL
AGGREGATE BENEFITS ACCRUED COMPENSATION
COMPENSATION AS PART OF FUND FROM THE FUND AND
NAME OF DIRECTOR FROM THE FUND EXPENSE FUND COMPLEX*
---------------- ------------- ------- ------------
<S> <C> <C> <C>
Jerry V. Woodham N/A
Robert M. Cox, Jr. N/A
Joseph J. Hunt N/A
James C. Jacobsen N/A
Donald E. Kiernan N/A
Lyle L. Meyer N/A
Ronald D. Winney N/A
</TABLE>
* The "Fund Complex" consists solely of the Fund.
INVESTMENT ADVISORY, SUB-ADVISORY AND ADMINISTRATION AGREEMENTS
MVA serves as investment adviser to each Portfolio. In
addition, Clay Finlay serves as sub-adviser to the International Equity
Portfolio. Pursuant to the advisory and sub-advisory agreements, MVA and Clay
Finlay have agreed to provide investment advisory and sub-investment advisory
services, respectively, as described in the Portfolios' Prospectuses. MVA and
Clay Finlay have agreed to pay all expenses incurred by them in connection with
their activities under their respective agreements other than the cost of
securities, including brokerage commissions, if any, purchased for the
Portfolios.
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<PAGE> 511
The investment advisory agreement (and sub-advisory agreement
for the International Equity Portfolio) provide that MVA and Clay Finlay,
respectively, shall not be liable for any error of judgment or mistake of law or
for any loss suffered in connection with the performance of their respective
agreements, except a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence in the performance of their duties or
from reckless disregard by them of their duties and obligations thereunder.
Under its administration agreement with the Fund, BISYS Fund
Services Ohio, Inc. (the "Administrator") serves as administrator. The
Administrator has agreed to maintain office facilities for the Portfolios,
furnish the Portfolios with statistical and research data, clerical, accounting,
and certain bookkeeping services, stationery and office supplies, and certain
other services required by the Portfolios, and to compute the net asset value
and net income of the Portfolios. The Administrator prepares annual and
semi-annual reports to the SEC on Form N-SAR, compiles data for and prepares
federal and state tax returns and required tax filings other than those required
to be made by the Fund's custodian and transfer agent, prepares the Fund's
compliance filings with state securities commissions, maintains the registration
or qualification of shares for sale under the securities laws of any state in
which the Fund's shares shall be registered, assists in the preparation of
annual and semi-annual reports to shareholders of record, participates in the
periodic updating of the Fund's Registration Statement, prepares and assists in
the timely filing of notices to the SEC required pursuant to Rule 24f-2 under
the 1940 Act, arranges for and bears the cost of processing share purchase,
exchange and redemption orders, keeps and maintains the Portfolios' financial
accounts and records including calculation of daily expense accruals, monitors
compliance procedures for each of the classes of the Fund's Portfolios with each
Portfolio's investment objective, policies and limitations, tax matters, and
applicable laws and regulations, and generally assists in all aspects of the
Portfolios' operations. The Administrator bears all expenses in connection with
the performance of its services, except that a Portfolio bears any expenses
incurred in connection with any use of a pricing service to value portfolio
securities. (See "Net Asset Value -- Equity and Bond Portfolios" above).
From time to time, MVA and the Administrator may voluntarily
waive a portion or all of their respective fees otherwise payable to them with
respect to the Fund's Portfolios in order to increase the net income available
for distribution to shareholders. For the fiscal year or period ended November
30, 1996, MVA was paid advisory fees, after waivers, as follows:
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<PAGE> 512
<TABLE>
<CAPTION>
FEES PAID
PORTFOLIOS (AFTER WAIVERS) WAIVERS
---------- --------------- -------
<S> <C> <C>
The ARCH Treasury Money Market
Portfolio
The ARCH Money Market Portfolio
The ARCH Tax-Exempt Money Market
Portfolio
The ARCH U.S. Government Securities
Portfolio
The ARCH Government & Corporate Bond
Portfolio
The ARCH Short-Intermediate Municipal
Portfolio
The ARCH Missouri Tax-Exempt Bond
Portfolio
The ARCH National Municipal Bond Portfolio
The ARCH Growth & Income Equity Portfolio
The ARCH Small Cap Equity Portfolio
The ARCH International Equity Portfolio
The ARCH Balanced Portfolio
</TABLE>
For the fiscal year or period ended November 30, 1995, MVA was
paid advisory fees, after waivers, as follows:
<TABLE>
<CAPTION>
FEES PAID
PORTFOLIOS (AFTER WAIVERS) WAIVERS
---------- --------------- -------
<S> <C> <C>
The ARCH Treasury Money Market $ 795,911 $ 124,279
Portfolio
The ARCH Money Market Portfolio $2,202,658 $ 314,865
The ARCH Tax-Exempt Money Market $ 161,659 $ 23,094
Portfolio(1)
The ARCH U.S. Government Securities $ 208,179 $ 0
Portfolio
The ARCH Government & Corporate Bond $ 660,877 $ 0
Portfolio
The ARCH Short-Intermediate Municipal $ 0 $ 38,167
Portfolio(2)
The ARCH Missouri Tax-Exempt Bond(1) $ 156,100 $ 0
Portfolio
</TABLE>
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<PAGE> 513
<TABLE>
<CAPTION>
FEES PAID
PORTFOLIOS (AFTER WAIVERS) WAIVERS
---------- --------------- -------
<S> <C> <C>
The ARCH Growth & Income Equity Portfolio $1,736,792 $ 0
The ARCH Small Cap Equity Portfolio $ 962,984 $ 0
The ARCH International Equity Portfolio $ 239,167 $ 78,752
The ARCH Balanced Portfolio $ 775,992 $ 0
</TABLE>
- ------------------------
(1) For the six-month period ended November 30, 1995.
(2) For the period from commencement of operations (July 10, 1995) through
November 30, 1995.
For the fiscal year or period ended November 30, 1994, MVA
was paid advisory fees, after waivers, as follows:
<TABLE>
<CAPTION>
FEES PAID
PORTFOLIOS (AFTER WAIVERS) WAIVERS
---------- --------------- -------
<S> <C> <C>
The ARCH Treasury Money Market $ 676,057 $ 353,812
Portfolio
The ARCH Money Market Portfolio $2,158,091 $ 311,198
The ARCH U.S. Government Securities $ 200,493 $ 209
Portfolio
The ARCH Government & Corporate Bond $ 668,999 $ 2,128
Portfolio
The ARCH Growth & Income Equity Portfolio $1,441,612 $ 9,612
The ARCH Small Cap Equity Portfolio $ 577,534 $ 2,815
The ARCH International Equity Portfolio(1) $ 73,083 $ 42,943
The ARCH Balanced Portfolio $ 685,226 $ 14,157
The ARCH Missouri Tax-Exempt Bond $ 230,777 $ 91,762
Portfolio
</TABLE>
(1) For the period from commencement of operations (April 4, 1994) through
November 30, 1994.
For the years ended May 31, 1995 and 1994, the Predecessor
Tax-Exempt Money Market and Predecessor Missouri Tax-Exempt Bond Portfolios
paid MVA advisory fees, after waivers, as follows:
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<PAGE> 514
<TABLE>
<CAPTION>
FEES PAID
PORTFOLIOS (AFTER WAIVERS) WAIVERS
---------- --------------- -------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
The Predecessor Tax-Exempt
Money Market Portfolio $327,584 $440,267 $ 93,173 $146,756
The Predecessor Missouri Tax-
Exempt Bond Portfolio $230,777 $123,192 $ 91,762 $193,555
</TABLE>
For the fiscal year or period ended November 30, 1996, the
Administrator was paid administration fees, after waivers, as follows:
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<PAGE> 515
FEES PAID
PORTFOLIOS (AFTER WAIVERS) WAIVERS
---------- --------------- -------
The ARCH Treasury Money Market
Portfolio
The ARCH Money Market Portfolio
The ARCH Tax-Exempt Money Market
Portfolio
The ARCH U.S. Government Securities
Portfolio
The ARCH Government & Corporate Bond
Portfolio
The ARCH Short-Intermediate Municipal
Portfolio
The ARCH Missouri Tax-Exempt Bond
Portfolio
The ARCH National Municipal Bond Portfolio
The ARCH Growth & Income Equity Portfolio
The ARCH Small Cap Equity Portfolio
The ARCH International Equity Portfolio
The ARCH Balanced Portfolio
For the fiscal year or period ended November 30, 1995, the
Administrator was paid administration fees, after waivers, as follows:
<TABLE>
<CAPTION>
FEES PAID
PORTFOLIOS (AFTER WAIVERS) WAIVERS
---------- --------------- -------
<S> <C> <C>
The ARCH Treasury Money Market
Portfolio $230,049 $230,045
The ARCH Money Market Portfolio $629,331 $629,431
The ARCH Tax-Exempt Money Market
Portfolio(1) $ 46,188 $ 0
The ARCH U.S. Government Securities
Portfolio $ 46,262 $ 46,322
The ARCH Government & Corporate Bond
Portfolio $146,859 $147,087
The ARCH Short-Intermediate Municipal
Portfolio(2) $ 6,965 $ 6,914
</TABLE>
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<PAGE> 516
<TABLE>
<CAPTION>
FEES PAID
PORTFOLIOS (AFTER WAIVERS) WAIVERS
---------- --------------- -------
<S> <C> <C>
The ARCH Missouri Tax-Exempt Bond
Portfolio(1) $ 34,689 $ 34,808
The ARCH Growth & Income Equity
Portfolio $315,754 $316,168
The ARCH Small Cap Equity Portfolio $128,398 $128,825
The ARCH International Equity Portfolio $ 47,635 $ 15,949
The ARCH Balanced Portfolio $103,465 $103,589
</TABLE>
- ---------------
(1) For the six-month period ended November 30, 1995.
(2) For the period from commencement of operations (July 10, 1995) through
November 30, 1995
For the fiscal year or period ended November 30, 1994, the
Administrator was paid administration fees, after waivers, as follows:
<TABLE>
<CAPTION>
FEES PAID
PORTFOLIOS (AFTER WAIVERS) WAIVERS
---------- --------------- -------
<S> <C> <C>
The ARCH Treasury Money Market
Portfolio $257,468 $257,467
The ARCH Money Market Portfolio $616,597 $618,047
The ARCH U.S. Government Securities
Portfolio $ 44,554 $ 44,647
The ARCH Government & Corporate Bond
Portfolio $148,667 $149,612
The ARCH Growth & Income Equity
Portfolio $262,112 $265,606
The ARCH Small Cap Equity Portfolio $ 77,005 $ 77,755
The ARCH International Equity
Portfolio(1) $ 17,350 $ 5,855
The ARCH Balanced Portfolio $ 91,363 $ 95,139
</TABLE>
- ------------------------
(1) Commenced operations April 4, 1994.
For the years ended May 31, 1995 and 1994, the Predecessor Tax-Exempt
Money Market and Predecessor Missouri Tax-Exempt Bond Portfolios paid the
Administrator administration fees, after waivers, as follows:
-77-
<PAGE> 517
<TABLE>
<CAPTION>
FEES PAID
PORTFOLIOS (AFTER WAIVERS) WAIVERS
---------- --------------- -------
<S> <C> <C> <C> <C>
1995 1994 1995 1994
-------- -------- -------- --------
The Predecessor Tax-Exempt Money
Market Portfolios $105,189 $146,756 $ 0 $ 0
The Predecessor Missouri Tax-
Exempt Bond Portfolio $143,351 $ 70,367 $ 71,654 $ 70,449
</TABLE>
The Intermediate Corporate Bond, Bond Index, Equity Income and Equity
Index Portfolios had not commenced operations as of November 30, 1996.
CUSTODIAN AND TRANSFER AGENT
Mercantile is Custodian of the Portfolios' assets pursuant to
a Custodian Agreement. Under the Custodian Agreement, Mercantile has agreed to
(i) maintain a separate account or accounts in the name of each Portfolio; (ii)
receive and disburse money on behalf of each Portfolio; (iii) collect and
receive all income and other payments and distributions on account of each
Portfolio's portfolio securities; (iv) respond to correspondence relating to its
duties; and (v) make periodic reports to the Fund's Board of Directors
concerning the operations of each Portfolio. Mercantile may, at its own expense,
open and maintain a custody account or accounts on behalf of each Portfolio with
other banks or trust companies, provided that Mercantile shall remain liable for
the performance of all of its custodial duties under the Custodian Agreement,
notwithstanding any delegation. Mercantile is authorized to select one or more
banks or trust companies to serve as sub-custodian on behalf of the Portfolios,
provided that Mercantile shall remain responsible for the performance of all of
its duties under the Custodian Agreement and shall hold the Fund harmless from
the acts and omissions of any bank or trust company servicing as sub-custodian.
In the opinion of the staff of the SEC, since the Custodian is
an affiliate of the investment adviser, the Fund and the Custodian are subject
to the requirements of Rule 17f-2 under the 1940 Act. Accordingly the Fund and
the Custodian intend to comply with the requirements of such rule.
Pursuant to the Custodian Agreement with the Fund, each
Portfolio pays Mercantile an annual fee. For each Money Market Portfolio this
fee is paid monthly and calculated daily at the rate of $.125 for each $1,000 of
each such Portfolio's average daily net assets plus, in the case of the
Tax-Exempt Money Market Portfolio only, $50 for each interest collection or
claim item. For the Equity and Bond Portfolios (except the International
-78-
<PAGE> 518
Equity Portfolio), this fee, which is paid monthly, is calculated as the greater
of $6,000 or $.30. For the International Equity Portfolio, this fee, which is
calculated daily and paid monthly, is .17% of the Portfolio's average daily net
assets for the first $50 million; .155% of the Portfolio's average daily net
assets for the next $50 million; .13% of the Portfolio's average daily net
assets for the next $150 million; and .105% of the Portfolio's average daily net
assets thereafter. Each Equity and Bond Portfolio also pays $15.00 for each
purchase, sale or delivery of a security upon its maturity date, $50.00 for each
interest collection or claim item, $20.00 for each transaction involving GNMA,
tax-free or other non-depository registered items with monthly dividends or
interest, $30.00 for each purchase, sale or expiration of an option contract,
$50.00 for each purchase, sale or expiration of a futures contract, and $15.00
for each repurchase trade with an institution other than Mercantile. In
addition, each Portfolio pays Mercantile's incremental costs in providing
foreign custody services for any foreign-denominated and foreign-held securities
and reimburses Mercantile for out-of-pocket expenses related to such services.
BISYS Fund Services Ohio, Inc. also serves as the Fund's
transfer agent and dividend disbursing agent (in those capacities, the "Transfer
Agent") pursuant to a Transfer Agency Agreement. Under the Agreement, the
Transfer Agent has agreed to (i) process shareholder purchase and redemption
orders; (ii) maintain shareholder records for each of the Portfolios'
shareholders; (iii) process transfers and exchanges of shares of the Portfolios;
(iv) issue periodic statements for each of the Portfolios' shareholders; (v)
process dividend payments and reinvestments; (vi) assist in the mailing of
shareholder reports and proxy solicitation materials; and (vii) make periodic
reports to the Fund's Board of Directors concerning the operations of each
Portfolio.
DISTRIBUTION AND SERVICE ORGANIZATIONS
BISYS Fund Services (the "Distributor"), an affiliate of the
Administrator, serves as the Distributor of the Portfolios' shares pursuant to a
Distribution Agreement. Under the Distribution Agreement, the Distributor, as
agent, sells shares of the Portfolios on a continuous basis. The Distributor has
agreed to use appropriate efforts to solicit orders for the sale of shares. With
respect to each Portfolio's Trust Shares and Institutional Shares, no
compensation is payable by the Fund to the Distributor for distribution
services. The Distributor is entitled to the payment of a front-end sales charge
on the sale of Investor A Shares of the Equity and Bond Portfolios as described
in the Prospectus for such shares. For the fiscal years ended November 30, 1996,
1995 and 1994, the Distributor received front-end sales charges in connection
with
-79-
<PAGE> 519
Investor A share purchases as follows: U.S. Government Securities Portfolio --
$_____, $6,238 and $26,300, respectively; Government & Corporate Bond Portfolio
- -- $______, $10,250 and $12,979 , respectively; Missouri Tax-Exempt Bond
Portfolio, $______, $45,981 and $96,782, respectively; Growth & Income Equity
Portfolio -- $____, $96,851 and $95,623, respectively; Small Cap Equity
Portfolio $____, $60,626 and $87,769, respectively; and Balanced Portfolio --
$_____, $7,442 and $24,483, respectively. For the fiscal years ended November
30, 1996 and 1995 and the period May 2, 1994 (commencement of operations)
through November 30, 1994, the Distributor received front-end sales charges in
connection with Investor A share purchases of the International Equity Portfolio
of $_________, $14,251 and $11,880. For the fiscal year ended November 30, 1996
and the period July 10, 1995 (commencement of operations) through November 30,
1995, the Distributor received front-end sales charges in connection with
Investor A Share purchases of the Short-Intermediate Municipal Portfolio of
$________ and $________. For the period November 18, 1996 (commencement of
operations) through November 30, 1996, the Distributor received front-end sales
charges in connection with Investor A Share purchases of $________. Of these
amounts, the Distributor retained $______, $784 and $3,318, respectively, and
MVA and affiliates retained $______, $2,101 and $10,456, respectively, with
respect to the U.S. Government Securities Portfolio; the Distributor retained
$_____, $1,354 and $1,720 , respectively, and MVA and affiliates retained
$______, $8,711 and $5,834, respectively, with respect to the Government &
Corporate Bond Portfolio; the Distributor retained $_____, $6,400 and $13,608,
respectively, and MVA and affiliates retained $_____, $9,735 and $8,954,
respectively, with respect to the Missouri Tax-Exempt Bond Portfolio; the
Distributor retained $_____, $11,647 and $11,846, respectively, and MVA and
affiliates retained $_____, $27,761 and $21,021, respectively, with respect to
the Growth & Income Equity Portfolio; the Distributor retained $_____, $7,085
and $10,476 respectively, and MVA and affiliates retained $_____, $15,259 and
$22,854 with respect to Small Cap Equity Portfolio; the Distributor retained
$____, $871 and $3,466, respectively, and MVA and affiliates retained $_____,
$2,721 and $8,755, respectively, with respect to the Balanced Portfolio; the
Distributor retained $____, $1,626 and $1,441, respectively, and MVA and
affiliates retained $_____, $5,431 and $1,952, respectively, with respect to the
International Equity Portfolio; the Distributor retained $______ and $______,
respectively, and MVA and affiliates retained $______ and $______, respectively,
with respect to the Short-Intermediate Municipal Portfolio; and the Distributor
retained $______ and MVA and affiliates retained $______ with respect to the
National Municipal Bond Portfolio.
-80-
<PAGE> 520
The Distributor is also entitled to the payment of contingent
deferred sales charges upon the redemption of Investor B Shares of the
Portfolios. For the fiscal year ended November 30, 1996 and the period from
March 1, 1995 (date of their initial public offering) through November 30, 1995,
the Distributor received contingent deferred sales charges in connection with
Investor B share redemptions as follows: Money Market Portfolio -- $_____ and
$0; U.S. Government Securities Portfolio -- $_____ and $135; Government and
Corporate Bond Portfolio -- $_____ and $1,246; Missouri Tax-Exempt Bond
Portfolio -- $_____ and $7; Growth and Income Equity Portfolio --$_____ and
$209; Small Cap Equity Portfolio -- $______ and $253; International Equity
Portfolio -- $_____ and $0; and Balanced Portfolio -- $_____ and $____. For the
period November 18, 1996 (commencement of operations) through November 30, 1996,
the Distributor received $______ in contingent deferred sales charges in
connection with Investor B Share Redemption of the National Municipal Bond
Portfolio. All such amounts were assigned to MVA pursuant to the financing
arrangement between the Distributor and MVA described below under "The Plans --
Distribution and Services Plans."
The following table shows all sales charges, commissions and
other compensation received by the Distributor directly or indirectly from the
Fund's Portfolios during the fiscal year ended November 30, 1996:
<TABLE>
<CAPTION>
Brokerage
Commissions in
Net Underwriting Compensation on Connection with
Discounts and Redemption and Portfolio Other
Portfolio Commissions(1) Repurchase(2) Transactions Compensation(3)
- --------- ---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Treasury Money
Market
Money Market
Tax-Exempt Money
Market
U.S. Government
Securities
Government &
Corporate Bond
Short-Intermediate
Municipal
</TABLE>
-81-
<PAGE> 521
<TABLE>
<CAPTION>
Brokerage
Commissions in
Net Underwriting Compensation on Connection with
Discounts and Redemption and Portfolio Other
Portfolio Commissions(1) Repurchase(2) Transactions Compensation(3)
- --------- ---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Missouri Tax-
Exempt Bond
National Municipal
Bond
Growth & Income
Income Equity
Small Cap Equity
International
Equity
Balanced
</TABLE>
(1) Represents amounts received from front-end sales charges on Investor A
Shares and commissions received in connection with sales of Investor B
Shares.
(2) Represents amounts received from contingent deferred sales charges on
Investor B Shares. The basis on which such sales charges are paid is
described in the Prospectus relating to Investor B Shares. All such
amounts were assigned to MVA pursuant to the financing arrangements
between the Distributor and MVA described below.
(3) Represents payments made under the Administrative Services Plans and
Distribution and Services Plans that have been adopted by the Fund (see
discussion below).
(4) The Intermediate Corporate Bond, Bond Index, Equity Income and Equity
Index Portfolios had not commenced operations as of November 30, 1996.
THE PLANS
DISTRIBUTION AND SERVICES PLANS. As described in the
Prospectuses, the Fund has adopted separate Distribution and Services Plans with
respect to Investor A and Investor B Shares of the Portfolios pursuant to the
1940 Act and Rule 12b-1 thereunder. Any material amendment to either of these
Plans or arrangements with the Distributor or Service Organizations (which may
include affiliates of the Fund's Adviser) must be approved by a majority of the
Board of Directors, including a majority of the directors who are not
"interested persons" of the Fund as defined in the 1940 Act and have no direct
or indirect financial interest in such arrangements (the "Disinterested
Directors") and by a majority of the Investor A Shares or Investor B Shares,
respectively, of the Portfolio. Pursuant to the Plans, the Fund
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<PAGE> 522
may enter into Servicing Agreements with broker-dealers and other organizations
("Servicing Agreements") that purchase Investor A or Investor B Shares of a
Portfolio. The Servicing Agreements provide that the Servicing Organizations
will render certain shareholder administrative support services to their
customers who are the record or beneficial owners of Investor A or Investor B
Shares. Services provided pursuant to the Servicing Agreements may include such
services as providing information periodically to customers showing their
positions in Investor A or Investor B Shares and monitoring services for their
customers who have invested in Investor A or Investor B Shares, including the
operation of telephone lines for daily quotations of return information.
Service Organizations and other broker/dealers receive
commissions from the Distributor for selling Investor B Shares, which are paid
at the time of the sale. These commissions approximate the commissions payable
with respect to sales of Investor A Shares. The distribution fees payable under
the Distribution and Services Plan for Investor B Shares (at an annual rate of
.75%) are intended to cover the expense to the Distributor of paying such
up-front commissions, and the contingent deferred sales charge is calculated to
charge the investor with any shortfall that would occur if Investor B Shares are
redeemed prior to the expiration of the eight year period, after which Investor
B Shares automatically convert to Investor A Shares. To provide funds for the
payment of up-front sales commissions, the Distributor has entered into an
agreement with MVA pursuant to which MVA provides funds for the payment of
commissions and other fees payable to Service Organizations and broker/dealers
who sell Investor B Shares. Under the terms of that agreement, the Distributor
has assigned to MVA the fees which may be payable from time to time to the
Distributor under the Distribution and Services Plan for Investor B Shares and
the contingent deferred sales charges payable to the Distributor with respect to
Investor B Shares.
ADMINISTRATIVE SERVICES PLANS. As stated in the applicable
Prospectuses, separate Administrative Services Plans have been adopted with
respect to Trust shares and Institutional shares of the Portfolios. Pursuant to
each Plan and the Distribution and Services Plans described above, the Fund may
enter into Servicing Agreements with banks, trust departments, and other
financial institutions ("Trust Servicing Agreements") and with broker-dealers
and other organizations ("Servicing Agreements") that purchase Trust shares,
Institutional shares, Investor A Shares or Investor B Shares of a Portfolio,
respectively. The Servicing Agreements provide that the Service Organizations
will render certain shareholder administrative support services to their
customers who are the record or beneficial owners of Trust Shares, Institutional
shares, Investor
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<PAGE> 523
A Shares or Investor B Shares, respectively. Services provided pursuant to the
Servicing Agreements may include some or all of the following services: (i)
processing dividend and distribution payments from the Portfolios on behalf of
customers; (ii) providing information periodically to customers showing their
positions in Trust, Institutional, Investor A Shares or Investor B Shares; (iii)
arranging for bank wires; (iv) responding to routine customer inquiries relating
to services performed by the particular Service Organization; (v) providing
sub-accounting with respect to shares owned of record or beneficially by
customers or the information necessary for sub-accounting; (vi) as required by
law, forwarding shareholder communications (such as proxies, shareholder
reports, annual and semi-annual financial statements and dividend, distribution
and tax notices) to customers; (vii) forwarding to customers proxy statements
and proxies containing any proposals regarding Servicing Agreements or the
related Plan; (viii) aggregating and processing purchase, redemption, and
exchange requests from customers and placing net purchase and redemption orders
with the Fund's Distributor; (ix) providing customers with a service that
invests the assets of their accounts in shares pursuant to specific or
pre-authorized instructions; (x) maintaining records relating to each customer's
share transactions; or (xi) other similar services if requested by the Fund and
permitted by law. In addition, Service Organizations may also provide dedicated
facilities and equipment in various local locations to serve the needs of
investors, including walk-in facilities, 800 numbers, and communication systems
to handle shareholder inquiries, and in connection with such facilities, provide
on-site management personnel and monitoring services for their customers who
have invested in Investor A or Investor B Shares, including the operation of
telephone lines for daily quotations of return information.
For the fiscal year or period ended November 30, 1996,
pursuant to the Distribution and Services Plan for Investor A Shares, the
Portfolios (other than the Intermediate Corporate Bond, Bond Index, Equity
Income and Equity Index Portfolios, which had not commenced operations as of
November 30, 1996) were charged the following amounts:
DISTRIBUTION AND SERVICES PLAN - INVESTOR A SHARES
--------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT PAID AMOUNT PAID
TO THE AMOUNT PAID TO AFFILIATES
PORTFOLIOS TOTAL CHARGED DISTRIBUTOR TO MVA OF MVA
---------- ------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Treasury Money Market
Money Market
Tax-Exempt Money Market
</TABLE>
-84-
<PAGE> 524
<TABLE>
<CAPTION>
AMOUNT PAID AMOUNT PAID
TO THE AMOUNT PAID TO AFFILIATES
PORTFOLIOS TOTAL CHARGED DISTRIBUTOR TO MVA OF MVA
---------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
U.S. Government Securities
Government & Corporate Bond
Short-Intermediate
Municipal
Missouri Tax-Exempt Bond
National Municipal Bond
Growth & Income Equity
Small Cap Equity
International Equity
Balanced
</TABLE>
All amounts paid under the Distribution and Services Plan for
Investor A Shares for the fiscal year/period ended November 30, 1996 were
attributable to payments to broker-dealers. For the fiscal year ended November
30, 1996, no brokers of record waived fees.
For the fiscal year ended November 30, 1996, pursuant to the
Distribution and Services Plan for Investor B Shares of the CDSC Portfolios, the
CDSC Portfolios (other than the Equity Income Portfolio, which had not commenced
operations as of November 30, 1996) were charged the following amounts:
-85-
<PAGE> 525
DISTRIBUTION AND SERVICES PLAN - INVESTOR B SHARES
--------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT PAID AMOUNT PAID
TO THE AMOUNT PAID TO AFFILIATES
PORTFOLIOS TOTAL CHARGED DISTRIBUTOR TO MVA OF MVA
- ---------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Money Market
U.S. Government Securities
Government & Corporate Bond
Missouri Tax-Exempt Bond
National Municipal Bond
Growth & Income Equity
Small Cap Equity
International Equity
Balanced
</TABLE>
For the fiscal year or period ended November 30, 1996,
pursuant to the Administrative Services Plan for Trust Shares, the Portfolios
(other than the Intermediate Corporate Bond, Bond Index, Equity Income and
Equity Index Portfolios which had not commenced operations as of November 30,
1996) were charged the following amounts:
ADMINISTRATIVE SERVICES PLAN - TRUST SHARES
-------------------------------------------
<TABLE>
<CAPTION>
AMOUNT PAID
AMOUNT PAID TO
TO THE AMOUNT PAID AFFILIATES
PORTFOLIOS TOTAL CHARGED ADMINISTRATOR TO MVA OF MVA
- ---------- ------------- ------------- ------ ------
<S> <C> <C> <C> <C>
Treasury Money Market
Money Market
Tax-Exempt Money Market
U.S. Government Securities
Government & Corporate Bond
Short-Intermediate
Municipal
Missouri Tax-Exempt Bond
National Municipal Bond
</TABLE>
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<PAGE> 526
<TABLE>
<CAPTION>
AMOUNT PAID
AMOUNT PAID TO
TO THE AMOUNT PAID AFFILIATES
PORTFOLIOS TOTAL CHARGED ADMINISTRATOR TO MVA OF MVA
- ---------- ------------- ------------- ------ ------
<S> <C> <C> <C> <C>
Growth & Income Equity
Small Cap Equity
International Equity
Balanced
</TABLE>
For the fiscal year ended November 30, 1996, pursuant to the
Administrative Services Plan for Institutional shares, the Portfolios (other
than the Intermediate Corporate Bond, Bond Index, Equity Income and Equity Index
Portfolios which had not commenced operations as of November 30, 1996) paid the
following amounts:
ADMINISTRATIVE SERVICES PLAN - INSTITUTIONAL SHARES
---------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT PAID
AMOUNT PAID TO
TO THE AMOUNT PAID AFFILIATES
PORTFOLIOS TOTAL CHARGED ADMINISTRATOR TO MVA OF MVA
- ---------- ------------- ------------- ------ ------
<S> <C> <C> <C> <C>
Treasury Money Market
Money Market
U.S. Government Securities
Government & Corporate Bond
Growth & Income Equity
Small Cap Equity
International Equity
Balanced
</TABLE>
For the fiscal year ended November 30, 1996, the
Administrator, MVA and/or various service organizations waived no fees with
respect to the Administrative Services Plans.
OTHER PLAN INFORMATION. The Board of Directors has approved
each Plan and its respective arrangements with the Distributor, Service
Organizations and broker-dealer based on information provided by the Fund's
service contractors that there
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<PAGE> 527
is a reasonable likelihood that these Plans and arrangements will benefit the
Portfolios and their shareholders. Pursuant to each Plan, the Board of Directors
reviews, at least quarterly, a written report of the amounts of distribution
fees and servicing fees expended pursuant to each Plan and the Service
Organizations and the purposes for which the expenditures were made. So long as
the Fund has one or more of the above described Plans in effect, the selection
and nomination of the members of the Board of Directors who are not "interested
persons" (as defined in the 1940 Act) of the Fund will be committed to the
discretion of such Disinterested Directors.
Depending upon the terms governing the particular customer
accounts, Service Organizations and other institutions may also charge their
customers directly for cash management and other services provided in connection
with the accounts, including, for example, account maintenance fees,
compensating balance requirements, or fees based upon account transactions,
assets, or income. An investor should therefore read the Prospectuses and this
Statement of Additional Information in light of the terms of his or her account
with a Service Organization, or other institution before purchasing shares of a
Portfolio.
REGULATORY MATTERS. Banking laws and regulations currently
prohibit a bank holding company registered under the Federal Bank Holding
Company Act of 1956 or any affiliate thereof from sponsoring, organizing, or
controlling the shares of a registered, open-end investment company continuously
engaged in the issuance of its shares, and prohibit banks generally from
issuing, underwriting, selling, or distributing securities such as Shares of the
Portfolios. Such banking laws and regulations do not prohibit such a holding
company or affiliate, or banks, from acting as investment adviser, transfer
agent, or custodian to such an investment company, or from purchasing shares of
such a company as agent for and upon the order of customers. Mercantile, MVA,
Service Organizations that are banks or bank affiliates, and broker-dealers that
are bank affiliates are subject to such laws and regulations, but believe they
may perform the services for the Portfolios contemplated by their respective
agreements, this Prospectus and the Statement of Additional Information without
violating applicable banking laws and regulations. In addition, State Securities
laws on this issue may differ from the interpretation of federal law expressed
herein and banks and financial institutions may be required to register as
dealers pursuant to state law.
Should future legislative, judicial or administrative action prohibit
or restrict the activities of such companies in connection with the provision of
services on behalf of the Portfolios and their shareholders, the Fund might be
required to
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<PAGE> 528
alter materially or discontinue its arrangements with such companies and change
its method of operation. It is not expected that investors would suffer any
adverse financial consequences as a result of any of these occurrences.
If current restrictions preventing a bank from legally sponsoring,
organizing, controlling or distributing Shares of an investment company were
relaxed, Mercantile or an affiliate of Mercantile, would consider the
possibility of offering to perform additional services for the Portfolios. It is
not possible, of course, to predict whether or in what form such legislation
might be enacted or the terms upon which Mercantile, or such an affiliate, might
offer to provide such services.
Conflict of interest restrictions may apply to the receipt of
compensation paid pursuant to a Servicing Agreement by a Portfolio to a
financial intermediary in connection with the investment of fiduciary funds in a
Portfolio's Shares. Institutions, including banks regulated by the Comptroller
of the Currency and investment advisers and other money managers subject to the
jurisdiction of the SEC, the Department of Labor or state securities
commissions, should consult legal counsel before entering into Servicing
Agreements.
INDEPENDENT AUDITORS
For the fiscal year or period ended November 30,
1996, [__________________________] certified public accountants,
with offices at [_________________________________________]
served as independent auditors for the Fund. [___________________] performs an
annual audit of the Fund's financial statements. Reports of its activities are
provided to the Fund's Board of Directors. The financial statements dated
November 30, 1996, which are [_______________________] into this Statement of
Additional Information, have been audited by [___________________], whose report
thereon is
[__________________________].
COUNSEL
Drinker Biddle & Reath (of which W. Bruce McConnel, III,
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.
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<PAGE> 529
MISCELLANEOUS
As of March __, 1997, Mercantile held of record ______% and
______% of the outstanding Institutional and Trust shares, respectively, in the
Treasury Money Market Portfolio; ______% and ______% of the outstanding
Institutional and Trust shares, respectively, in the Money Market Portfolio;
______% and ______% of the outstanding Institutional and Trust shares,
respectively, in the Tax-Exempt Money Market Portfolio; ______% and ______% of
the outstanding Institutional and Trust shares, respectively, in the U.S.
Government Securities Portfolio; ______% and ______% of the outstanding
Institutional and Trust shares, respectively, in the Intermediate Corporate Bond
Portfolio; ______% and ______% of the outstanding Institutional and Trust
shares, respectively, in the Bond Index Portfolio; ______% and ______% of the
outstanding Institutional and Trust shares, respectively, in the Government &
Corporate Bond Portfolio; ______% of the outstanding Trust shares in the Short-
Intermediate Municipal Portfolio; ______% of the outstanding Trust shares in the
Missouri Tax-Exempt Bond Portfolio; _____% of the outstanding Trust shares in
the National Municipal Bond Portfolio; ______% and ______% of the outstanding
Institutional and Trust shares, respectively, in the Equity Income Portfolio;
______% and ______% of the outstanding Institutional and Trust shares,
respectively, in the Equity Index Portfolio; ______% and ______% of the
outstanding Institutional and Trust shares, respectively, in the Growth & Income
Equity Portfolio; ______% and ______% of the outstanding Institutional and Trust
shares, respectively, in the Small Cap Equity Portfolio; ______% and ______% of
the outstanding Institutional and Trust shares, respectively, in the
International Equity Portfolio; and ______% and ______% of the outstanding
Institutional and Trust shares, respectively, in the Balanced 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 Treasury Money Market Portfolio's outstanding shares as
fiduciary or agent on behalf of their customers:
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:
As of the same date, the following institutions also owned of
record 5% or more of the Tax-Exempt Money Market
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<PAGE> 530
Portfolio's outstanding shares as fiduciary or agent on behalf of their
customers:
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:
As of the same date, the following institutions also owned of
record 5% or more of the Intermediate Corporate Bond Portfolio's outstanding
shares as fiduciary or agent on behalf of their customers:
As of the same date, the following institutions also owned of
record 5% or more of the Bond Index Portfolio's outstanding shares as fiduciary
or agent on behalf of their customers:
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:
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:
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:
As of the same date, the following institutions also owned of
record 5% or more of the National Municipal Bond Portfolio's outstanding shares
as fiduciary or agent on behalf of their customers:
As of the same date, the following institutions also owned of
record 5% or more of the Equity Income Portfolio's outstanding shares as
fiduciary or agent on behalf of their customers:
As of the same date, the following institutions also owned of
record 5% or more of the Equity Index Portfolio's outstanding shares as
fiduciary or agent on behalf of their customers:
As of the same date, the following institutions also owned of
record 5% or more of the Growth & Income Equity
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<PAGE> 531
Portfolio's outstanding shares as fiduciary or agent on behalf of their
customers:
As of the same date, the following institutions also owned of
record 5% or more of the Small Cap Equity Portfolio's outstanding shares as
fiduciary or agent on behalf of their customers:
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:
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:
On the basis of information received from these institutions,
the Fund believes that substantially all of the shares owned of record were also
beneficially owned by these institutions because they possessed or shared voting
or investment power with respect to such shares on behalf of their underlying
accounts.
FINANCIAL STATEMENTS
The Fund's Annual Report to Shareholders for the fiscal year
or period ended November 30, 1996 has been filed with the Securities and
Exchange Commission. The financial statements in such Annual Report (the
"Financial Statements") are [__________] into this Statement of Additional
Information . The Financial Statements included in such Annual Report have been
audited by the Fund's independent accountants, [___________________], whose
report thereon also appears in such Annual Report and is
[______________________________]. The Financial Statements in such Annual Report
have been [_________________] in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
-93-
<PAGE> 532
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market. The following summarizes the rating categories used by
Standard and Poor's for commercial paper:
"A-1" - Issue's degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory.
However, the relative degree of safety is not as high as for issues designated
"A-1."
"A-3" - Issue has an adequate capacity for timely payment. It
is, however, somewhat more vulnerable to the adverse effects of changes and
circumstances than an obligation carrying a higher designation.
"B" - Issue has only a speculative capacity for timely
payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are
considered to have a superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment capacity will normally be evidenced by the
following characteristics: leading market positions in well established
industries; high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protection; broad
margins in earning coverage of fixed financial charges and high internal cash
generation; and well established access to a range of financial markets and
assured sources of alternate liquidity.
A-1
<PAGE> 533
"Prime-2" - Issuer or related supporting institutions are
considered to have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics
cited above but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions.
Ample alternative liquidity is maintained.
"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the Prime
rating categories.
The three rating categories of Duff & Phelps for investment
grade commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D-1+," "D-1" and "D-1-," within the highest
rating category. The following summarizes the rating categories used by Duff &
Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
"D-3" - Debt possesses satisfactory liquidity, and
other protection factors qualify issue as investment grade. Risk
A-2
<PAGE> 534
factors are larger and subject to more variation. Nevertheless, timely payment
is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch short-term ratings apply to debt obligations that are
payable on demand or have original maturities of up to three years. The
following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues
assigned this rating have a satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as the "F-1+" and "F-1" categories.
"F-3" - Securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues
assigned this rating have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
"D" - Securities are in actual or imminent payment
default.
Fitch may also use the symbol "LOC" with its short-term
ratings to indicate that the rating is based upon a letter of credit issued by a
commercial bank.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely or incomplete payment of principal or
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<PAGE> 535
interest of unsubordinated instruments having a maturity of one year or less
which is issued by United States commercial banks, thrifts and non-bank banks;
non-United States banks; and broker-dealers. The following summarizes the
ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest rating category and indicates a very high degree of likelihood that
principal and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of
safety regarding timely payment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment
grade category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
"TBW-4" - This designation indicates that the debt is regarded
as non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1+" - Obligations supported by the highest capacity
for timely repayment.
"A1" - Obligations are supported by a strong capacity
for timely repayment.
"A2" - Obligations are supported by a satisfactory capacity
for timely repayment, although such capacity may be susceptible to adverse
changes in business, economic or financial conditions.
"A3" - Obligations are supported by a satisfactory capacity
for timely repayment. Such capacity is more susceptible to adverse changes in
business, economic or financial conditions than for obligations in higher
categories.
A-4
<PAGE> 536
"B" - Obligations for which the capacity for timely repayment
is susceptible to adverse changes in business, economic or financial conditions.
"C" - Obligations for which there is an inadequate capacity to
ensure timely repayment.
"D" - Obligations which have a high risk of default or which
are currently in default.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - This designation represents the highest rating
assigned by Standard & Poor's to a debt obligation and indicates an extremely
strong capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to
pay interest and repay principal and differs from AAA issues only in small
degree.
"A" - Debt is considered to have a strong capacity to pay
interest and repay principal although such issues are somewhat more susceptible
to the adverse effects of changes in circumstances and economic conditions than
debt in higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The "BB"
rating
A-5
<PAGE> 537
category is also used for debt subordinated to senior debt that is assigned an
actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
"CCC" - Debt has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The "CCC" rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied "B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated
to senior debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied "CCC-" debt rating. The "C"
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no
interest is being paid.
"D" - Debt is in payment default. This rating is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S & P believes such payments
will be made during such grace period. "D" rating is also used upon the filing
of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high volatility
or high variability in expected returns due to non-credit risks. Examples of
such obligations are: securities whose principal or interest return is indexed
to equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities.
A-6
<PAGE> 538
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in
default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes
A-7
<PAGE> 539
probable credit stature upon completion of construction or elimination of basis
of condition.
Moody's applies numerical modifiers 1, 2 and 3 in each generic
classification from "Aa" to "B" in its bond rating system. The modifier 1
indicates that the issuer ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issuer ranks at the lower end of its generic rating category.
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when due.
Debt rated "B" possesses the risk that obligations will not be met when due.
Debt rated "CCC" is well below investment grade and has considerable uncertainty
as to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by
Fitch for corporate and municipal bonds:
A-8
<PAGE> 540
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1+."
"A" - Bonds considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" - Bonds
that possess one of these ratings are considered by Fitch to be speculative
investments. The ratings "BB" to "C" represent Fitch's assessment of the
likelihood of timely payment of principal and interest in accordance with the
terms of obligation for bond issues not in default. For defaulted bonds, the
rating "DDD" to "D" is an assessment of the ultimate recovery value through
reorganization or liquidation.
To provide more detailed indications of credit quality, the
Fitch ratings from and including "AA" to "C" may be modified by the addition of
a plus (+) or minus (-) sign to show relative standing within these major rating
categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation
of investment risk. Capacity for timely repayment of
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<PAGE> 541
principal and interest is substantial such that adverse changes in business,
economic or financial conditions are unlikely to increase investment risk
substantially.
"AA" - Obligations for which there is a very low expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk albeit not very significantly.
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial conditions
may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk than
for obligations in higher categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one
of these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating
to denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation represents the highest category
assigned by Thomson BankWatch to long-term debt and indicates that the ability
to repay principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to
repay principal and interest on a timely basis with limited
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<PAGE> 542
incremental risk compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term
debt is in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit very
strong or strong capacity to pay principal and interest. Those issues determined
to possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable
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<PAGE> 543
Moody's Investment Grade ("VMIG"). Such ratings recognize the differences
between short-term credit risk and long-term risk. The following summarizes the
ratings by Moody's Investors Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the
best quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high
quality, with margins of protection ample although not so large as in the
preceding group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of
favorable quality, with all security elements accounted for but lacking the
undeniable strength of the preceding grades. Liquidity and cash flow protection
may be narrow and market access for refinancing is likely to be less well
established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of
adequate quality, carrying specific risk but having protection commonly regarded
as required of an investment security and not distinctly or predominantly
speculative.
"SG" - Loans bearing this designation are of speculative
quality and lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
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<PAGE> 544
APPENDIX B
The U.S. Government Securities, Intermediate Corporate Bond,
Bond Index, Government & Corporate Bond, Equity Income, Equity Index, Growth &
Income Equity, Small Cap Equity, International Equity and Balanced Portfolios
may enter into futures contracts and options for hedging purposes in furtherance
of their respective investment objectives as stated in the Prospectuses. Such
transactions are described further in this Appendix.
I. Interest Rate Futures Contracts.
Use of Interest Rate Futures Contracts. Bond prices are
established in both the cash market and the futures market. In the cash market,
bonds are purchased and sold with payment for the full purchase price of the
bond being made in cash, generally within five business days after the trade. In
the futures market, only a contract is made to purchase or sell a bond in the
future for a set price on a certain date. Historically, the prices for bonds
established in the futures markets have tended to move generally in the
aggregate in concert with the cash market prices and have maintained fairly
predictable relationships. Accordingly, each Portfolio may use interest rate
futures as a defense, or hedge, against anticipated interest rate changes and
not for speculation. As described below, this would include the use of futures
contract sales to protect against expected increases in interest rates and
futures contract purchases to offset the impact of interest rate declines.
Each Portfolio presently could accomplish a similar result to
that which it hopes to achieve through the use of futures contracts by selling
bonds with long maturities and investing in bonds with short maturities when
interest rates are expected to increase, or conversely, selling short-term bonds
and investing in long-term bonds when interest rates are expected to decline.
However, because of the liquidity that is often available in the futures market,
the protection is more likely to be achieved, perhaps at a lower cost and
without changing the rate of interest being earned by the Portfolio, through
using futures contracts. A Portfolio would engage in an interest rate futures
contract sale to maintain the income advantage from continued holding of a
long-term bond while endeavoring to avoid part or all of the loss in market
value that would otherwise accompany a decline in long-term securities prices. A
Portfolio would engage in an interest rate futures contract purchase when it is
not fully invested in long-term bonds but wishes to defer for a time the
purchase of long-term bonds in light of the availability of advantageous interim
investments, for example,
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<PAGE> 545
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 a specified price. A futures contract
purchase would create an obligation by the Portfolio, as purchaser, to take
delivery of the specific type of financial instrument at a specific future time
at a specific price. The specific securities delivered or taken, respectively,
at settlement date, would not be determined until at or near that date. The
determination would be in accordance with the rules of the exchange on which the
futures contract sale or purchase was made.
Although interest rate futures contracts by their terms call
for actual delivery or acceptance of securities, in most cases the contracts are
closed out before the settlement date without the making or taking of delivery
of securities. Closing out a futures contract sale is effected by the
Portfolio's entering into a futures contract purchase for the same aggregate
amount of the specific type of financial instrument and the same delivery date.
If the price in the sale exceeds the price in the offsetting purchase, the
Portfolio is paid the difference and thus realizes a gain. If the offsetting
purchase price exceeds the sale price, the Portfolio pays the difference and
realizes a loss. Similarly, the closing out of a futures contract purchase is
effected by the Portfolio's entering into a futures contract sale. If the
offsetting sale price exceeds the purchase price, the Portfolio realizes a gain,
and if the purchase price exceeds the offsetting sale price, the Portfolio
realizes a loss.
Interest rate futures contracts are traded in an auction
environment on the floors of several exchanges - principally, the Chicago
Board of Trade and the Chicago Mercantile Exchange. A Portfolio would deal only
in standardized contracts on recognized exchanges. Each exchange guarantees
performance under contract provisions through a clearing corporation, a
nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering
various financial instruments including long-term United States Treasury Bonds
and Notes; Government National Mortgage Association (GNMA) modified pass-through
mortgage-backed securities; three-month United States Treasury Bills; and
ninety-day commercial paper. The Portfolios may trade in any futures contract
for which there exists a public market, including, without limitation, the
foregoing instruments.
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<PAGE> 546
II. Stock Index Futures Contracts.
A stock index assigns relative values to the stocks included
in the index and the index fluctuates with changes in the market values of the
stocks included. Some stock index futures contracts are based on broad market
indexes, such as the Standard & Poor's 500 or the New York Stock Exchange
Composite Index. In contrast, certain exchanges offer futures contracts on
narrower market indexes, such as the Standard & Poor's 100 or indexes based on
an industry or market segment, such as oil and gas stocks. Futures contracts are
traded on organized exchanges regulated by the Commodity Futures Trading
Commission. Transactions on such exchanges are cleared through a clearing
corporation, which guarantees the performance of the parties to each contract.
A Portfolio will sell stock index futures contracts in order
to offset a decrease in market value of its portfolio securities that might
otherwise result from a market decline. The Portfolio may do so either to hedge
the value of its portfolio as a whole, or to protect against declines, occurring
prior to sales of securities, in the value of the securities to be sold.
Conversely, the Portfolio will purchase stock index futures contracts in
anticipation of purchases of securities. In a substantial majority of these
transactions, the Portfolio will purchase such securities upon termination of
the long futures position, but a long futures position may be terminated without
a corresponding purchase of securities.
In addition, the Portfolio may utilize stock index futures
contracts in anticipation of changes in the composition of its portfolio
holdings. For example, in the event that the Portfolio expects to narrow the
range of industry groups represented in its holdings it may, prior to making
purchases of the actual securities, establish a long futures position based on a
more restricted index, such as an index comprised of securities of a particular
industry group. The Portfolio may also sell futures contracts in connection with
this strategy, in order to protect against the possibility that the value of the
securities to be sold as part of the restructuring of the portfolio will decline
prior to the time of sale.
III. Futures Contracts on Foreign Currencies.
A futures contract on foreign currency creates a binding
obligation on one party to deliver, and a corresponding obligation on another
party to accept delivery of, a stated quantity of a foreign currency, for an
amount fixed in U.S. dollars. Foreign currency futures may be used by a
Portfolio to hedge against exposure to fluctuations in exchange
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<PAGE> 547
rates between the U.S. dollar and other currencies arising from multi-national
transactions.
IV. Margin Payments.
Unlike when a Portfolio purchases or sells a security, no
price is paid or received by the Portfolio upon the purchase or sale of a
futures contract. Initially, the Portfolio will be required to deposit with the
broker or in a segregated account with the Fund's custodian an amount of cash or
cash equivalents, the value of which may vary but is generally equal to 10% or
less of the value of the contract. This amount is known as initial margin. The
nature of initial margin in futures transactions is different from that of
margin in security transactions in that futures contract margin does not involve
the borrowing of funds by the customer to finance the transactions. Rather, the
initial margin is in the nature of a performance bond or good faith deposit on
the contract which is returned to the Portfolio upon termination of the futures
contract assuming all contractual obligations have been satisfied. Subsequent
payments, called variation margin, to and from the broker, will be made on a
daily basis as the price of the underlying instruments fluctuates making the
long and short positions in the futures contract more or less valuable, a
process known as marking-to-market. For example, when a Portfolio has purchased
a futures contract and the price of the contract has risen in response to a rise
in the underlying instruments, that position will have increased in value and
the Portfolio will be entitled to receive from the broker a variation margin
payment equal to that increase in value. Conversely, where a Portfolio has
purchased a futures contract and the price of the future contract has declined
in response to a decrease in the underlying instruments, the position would be
less valuable and the Portfolio would be required to make a variation margin
payment to the broker. At any time prior to expiration of the futures contract,
the adviser may elect to close the position by taking an opposite position,
subject to the availability of a secondary market, which will operate to
terminate the Portfolio's position in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid by or released to the Portfolio, and the Portfolio realizes a loss or
gain.
V. Other Hedging Transactions.
Although noted above, none of the Portfolios presently intend
to use interest rate futures contracts and stock index and foreign currency
futures contracts (and related options) in connection with their hedging
activities. Nevertheless, each of these Portfolios is authorized to enter into
hedging transactions in any other futures or options
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<PAGE> 548
contracts which are currently traded or which may subsequently become available
for trading. Such instruments may be employed in connection with the Portfolios'
hedging strategies if, in the judgment of the adviser, transactions therein are
necessary or advisable.
VI. Accounting Treatment.
Accounting for futures contracts and options will be in
accordance with generally accepted accounting principles.
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<PAGE> 549
CROSS REFERENCE SHEET
---------------------
The ARCH Kansas Tax-Exempt Bond Portfolio
Heading in Statement of
Form N-1A Part B Item Additional Information
- --------------------- -----------------------
10. Cover Page...................................... Cover Page
11. Table of Contents............................... Table of Contents
12. General Information and History................. The Fund
13. Investment Objective and Policies............... Investment
Objective and Policies
14. Management of the Fund.......................... Management of the Fund
15. Control Persons and Principal................... Miscellaneous
Holders of Securities
16. Investment Advisory and Other................... Management of the Fund;
Services Independent Auditors;
Counsel
17. Brokerage Allocation and Other.................. Investment Objectives
Practices and Policies
18. Capital Stock and Other......................... Description of Shares
Securities
19. Purchase, Redemption and Pricing................ Net Asset Value;
of Securities Being Offered Additional Purchase and
Redemption Information
20. Tax Status...................................... Additional Information
Concerning Taxes
21. Underwriters.................................... Management of the Fund
22. Calculation of Performance Data................. Additional Yield and
Total Return
Information; Net Asset
Value
23. Financial Statements............................ Not Applicable
<PAGE> 550
THE ARCH FUND(R), INC.
THE ARCH KANSAS TAX-EXEMPT BOND PORTFOLIO
Statement of Additional Information
Part B
________, 1997
<PAGE> 551
THE ARCH FUND, INC.
Statement of Additional Information
for
The ARCH Kansas Tax-Exempt Bond Portfolio
________, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Objectives and Policies................................
Net Asset Value...................................................
Additional Purchase and Redemption Information....................
Additional Yield and Total Return Information.....................
Description of Shares.............................................
Additional Information Concerning Taxes...........................
Management of the Fund............................................
Independent Auditors..............................................
Counsel...........................................................
Miscellaneous.....................................................
Appendix A........................................................ A-1
Appendix B........................................................ B-1
Financial Statements..............................................
</TABLE>
This Statement of Additional Information, which provides supplemental
information applicable to the above-listed Portfolio of the ARCH Fund, Inc. (the
"Portfolio"), is not a prospectus. It should be read only in conjunction with
the Portfolio's Prospectuses dated ________, 1997 and is incorporated by
reference in its entirety into the Prospectuses. No investment in shares of any
Portfolio should be made without reading the applicable Prospectus. A copy of
the applicable Prospectus may be obtained by writing the Fund at P.O. Box 78069,
St. Louis Missouri 63178 or by calling 1-800-551-3731. Capitalized terms used
but not defined herein have the same meanings as in each Prospectus.
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<PAGE> 552
THE FUND
The ARCH Fund, Inc. (the "Fund") is an open-end investment
company currently offering fifty-seven classes of shares in seventeen investment
portfolios.
The Fund was organized on September 9, 1982 as a Maryland
corporation. This Statement of Additional Information relates to the Kansas Tax-
Exempt Bond Portfolio (the "Portfolio"). As of the date of this Statement of
Additional Information, the Portfolio had not commenced operations.
INVESTMENT OBJECTIVE AND POLICIES
The following policies supplement the description of the
investment objective and policies of the Portfolio described in the
Prospectuses.
The municipal obligations in which the Portfolio may invest
are rated "investment grade" (e.g., rated at the time of purchase in the four
highest categories assigned by Rating Agencies or deemed comparable). The value
of the municipal obligations held by the Portfolio is generally sensitive to
change in interest rates. An increase in interest rates will generally reduce
the value of the investments in the Portfolio, and a decline in interest rates
will generally increase the value of those investments. Depending upon the
prevailing market conditions, the Adviser may purchase debt securities at a
discount from face value, which produces a yield greater than the coupon rate.
Conversely, if debt securities are purchased at a premium over face value, the
yield will be lower than the coupon rate. In response to changing conditions in
fixed-income markets, the Portfolio may make modest shifts in terms of
anticipated interest rate and sector spread changes.
OTHER APPLICABLE INVESTMENT POLICIES
MUNICIPAL OBLIGATIONS. As described in its Prospectuses and
subject to its investment limitations, the Portfolio may invest in 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
<PAGE> 553
the quality of municipal obligations both within a particular classification and
between classifications, and the yields on municipal obligations depend upon a
variety of factors, including general conditions of the money market and/or the
municipal bond market, the financial condition of the issuer, the size of a
particular offering, the maturity of the obligation and the rating of the issue.
The ratings of Rating Agencies, such as Moody's Investors Service, Inc.
("Moody's") and Standard & Poor's Ratings Group ("S&P"), represent their
opinions as to the quality of municipal obligations. It should be emphasized,
however, that ratings are general and are not absolute standards of quality, and
municipal obligations with the same maturity, interest rate and rating may have
different yields while municipal obligations of the same maturity and interest
rate with different ratings may have the same yield. Subsequent to its purchase
by 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.
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
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<PAGE> 554
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
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
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<PAGE> 555
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.
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.
RESTRICTED SECURITIES. The SEC has adopted Rule 144A which
allows for a broader institutional trading market for securities otherwise
subject to restrictions on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the Securities Act of 1933
for the resale of certain securities to qualified institutional buyers. The
purchase of securities which can be sold under Rule 144A 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.
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<PAGE> 556
The Adviser monitors the liquidity of restricted securities in
the Portfolio under the supervision of the Board of Directors. In reaching
liquidity decisions, the Adviser may consider the following factors, although
such factors may not necessarily be determinative: (1) the unregistered nature
of a security; (2) the frequency of trades and quotes for the security; (3) the
number of dealers willing to purchase or sell the security and the number of
other potential purchasers; (4) the trading markets for the security; (5) dealer
undertakings to make a market in the security; and (6) the nature of the
security and the nature of the marketplace trades (including the time needed to
dispose of the security, methods of soliciting offers, and mechanics of
transfer).
STAND-BY COMMITMENTS. As described in the Prospectuses, the
Portfolio may acquire "stand-by commitments" with respect to municipal
obligations held by the Portfolio. Under a stand-by commitment, a dealer or bank
agrees to purchase from a Portfolio, at the Portfolio's option, specified
Municipal Obligations at their amortized cost value to the Portfolio plus
accrued interest, if any. Standby commitments acquired by 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).
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.
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<PAGE> 557
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 the 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.
TAX-EXEMPT DERIVATIVES. As described in the Prospectuses and
subject to its investment limitations, 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 obligation at its face value to the sponsor (usually a bank
or broker dealer or other financial institution), which is paid periodic fees
equal to the difference between the bond's fixed coupon rate and the rate that
would cause the bond, coupled with the tender option, to trade at par on the
date of a rate adjustment. The Portfolio may hold tax-exempt derivatives, such
as participation interests and custodial receipts, for municipal obligations
which give the holder the right to receive payment of principal subject to the
conditions described above. The Internal Revenue Service has not ruled on
whether the interest received on tax-exempt derivatives in the form of
participation interests or custodial receipts is tax-exempt, and accordingly,
purchases of any such interests or receipts are based on the opinion of counsel
to the sponsors of such derivative securities. Neither the Fund nor its
investment
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adviser will review the proceedings related to the creation of any tax-exempt
derivatives or the basis for such opinions.
U.S. GOVERNMENT OBLIGATIONS. Examples of the types of U.S.
Government obligations that may be held by the Portfolio, subject to its
investment policies, include, in addition to U.S. Treasury bills, the
obligations of Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land
Banks, the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration,
Government National Mortgage Association, General Services Administration,
Central Bank for Cooperatives, Federal Home Loan Mortgage Corporation, Federal
Intermediate Credit Banks, Maritime Administration, Resolution Trust
Corporation, and International Bank for Reconstruction and Development.
Obligations of certain agencies and instrumentalities of the
U.S. Government, such as the Government National Mortgage Association, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Export-Import Bank of the United States, are supported by the right
of the issuer to borrow from the Treasury; others, such as those of the Federal
National Mortgage Association, are supported by the discretionary authority of
the U.S. Government to purchase the agency's obligations; still others, such as
those of the Student Loan Marketing Association, are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored
instrumentalities if it is not obligated to do so by law.
SECURITIES OF OTHER INVESTMENT COMPANIES. As described in the
Prospectuses, the Portfolio intends to limit investments in securities issued by
other investment companies within the limits prescribed by the 1940 Act. The
Portfolio currently intends to limit its investments so that, as determined
immediately after a securities purchase is made: (a) not more than 5% of the
value of its total assets will be invested in the securities of any one
investment company; (b) not more than 10% of the value of its total assets will
be invested in the aggregate in securities of investment companies as a group;
(c) not more than 3% of the outstanding voting stock of any one investment
company will be owned by the Portfolio; and (d) not more than 10% of the
outstanding voting stock of any one investment company will be owned in the
aggregate by the Portfolio and other investment companies advised by the
Adviser.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. When the
Portfolio agrees to purchase securities on a when-issued or forward commitment
basis, the Custodian (or sub-custodian) will maintain in a segregated account
cash, U.S. Government
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securities, liquid portfolio securities or other high-grade debt obligations
having a value (determined daily) at least equal to the amount of the
Portfolio's commitments. In the case of a forward commitment to sell portfolio
securities, the Custodian (or sub-custodian) will hold the portfolio securities
themselves in a segregated account while the commitment is outstanding. These
procedures are designed to ensure that the Portfolio will maintain sufficient
assets at all times to cover its obligations under when-issued purchases and
forward commitments.
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 capital gain or
loss.
When the Portfolio engages in when-issued and forward
commitment transactions, it relies on the other party to consummate the trade.
Failure of such party to do so may result in the Portfolio's incurring a loss or
missing an opportunity to obtain a price considered to be advantageous.
The value of the securities underlying a when-issued purchase
or a forward commitment to purchase securities, and any subsequent fluctuations
in their value, is taken into account when determining 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.
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.
MONEY MARKET INSTRUMENTS. As stated in the Prospectuses, the
Portfolio may invest in the following taxable investments for temporary
defensive or other purposes:
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commercial paper, bankers' acceptances, certificates of deposit, time deposits
and floating rate notes. (See "Investment Objective and Policies -- Other
Applicable Investment Policies -- Variable and Floating Rate Instruments" above
for a discussion of variable and floating rate instruments.)
Commercial paper represents short-term unsecured promissory
notes issued in bearer form by banks or bank holding companies, corporations and
finance companies. Certificates of deposit are negotiable certificates issued
against funds deposited in a commercial bank for a definite period of time and
earning a specified return. Bankers' acceptances are negotiable drafts or bills
of exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Fixed time deposits are bank obligations payable at a stated maturity date and
bearing interest at a fixed rate. Fixed time deposits may be withdrawn on demand
by the investor but may be subject to early withdrawal penalties that vary
depending upon market conditions and the remaining maturity of the obligation.
There are no contractual restrictions on the right to transfer a beneficial
interest in a fixed time deposit to a third party, although there is no market
for such deposits.
REPURCHASE AGREEMENTS. 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.
Securities subject to repurchase agreements are held by the Portfolio's
Custodian or in the Federal Reserve/Treasury book-entry system. During the term
of any repurchase agreement, the Adviser will continue to monitor the
creditworthiness of the seller. The repurchase price generally equals 102% of
the price paid by the Portfolio plus interest negotiated on the basis of current
short-term rates (which may be more or less than the rate on the underlying
portfolio securities). Under a repurchase agreement, the seller is required to
maintain the value of the securities subject to the agreement at not less than
the repurchase price, and securities subject to repurchase agreements are
maintained by the Portfolio's Custodian in segregated accounts in accordance
with the 1940 Act. Default by the seller could, however, expose the Portfolio to
possible loss because of adverse market action or delay in connection with the
disposition of the underlying securities. Repurchase agreements are considered
to be loans by the Portfolio under the 1940 Act.
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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.
Portfolio turnover may vary greatly from year to year as well
as within a particular year. Portfolio turnover may also be affected by cash
requirements for redemptions of shares and by requirements which enable 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 which are
traded in the over-the-counter market are generally done so on a net basis
(i.e., without commission) through dealers, or otherwise involve transactions
directly with the issuer of an instrument. There is generally no stated
commission in the case of securities traded in the over-the-counter markets, but
the price of those securities includes an undisclosed commission or mark-up. The
cost of securities purchased from underwriters includes an underwriter's
commission or concession, and the prices at which securities are purchased from
and sold to dealers include a dealer's mark-up or mark-down.
The Portfolio may participate, if and when practicable, in
bidding for the purchase of portfolio securities directly from an issuer in
order to take advantage of the lower purchase price available to members of a
bidding group. The 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
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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 and repurchase agreements.
Investment decisions for the Portfolio are made independently
from those for other investment companies, portfolios and accounts advised or
managed by the Adviser. Such other investment companies, portfolios 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, portfolio 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 portfolio or account. In some instances, this
investment procedure may adversely affect the price paid or received by the
Portfolio or the size of the position obtained by the Portfolio. To the extent
permitted by law, the Adviser may aggregate the securities to be sold or
purchased for the Portfolio with those to be sold or purchased for other
investment companies, Portfolios or accounts in order to obtain best execution.
SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN KANSAS OBLIGATIONS
The following highlights some of the more important economic
and financial trends and considerations relating to the State of Kansas and is
based on information contained in publicly available documents prepared by
agencies of the federal government and the State of Kansas and in official
statements relating to securities offerings of political subdivisions of the
State of Kansas. The Fund has not independently verified any of the information
contained in such documents or official statements.
According to revised data released by the United States Bureau
of the Census during 1994, the population of Kansas increased from 2,478,099 in
1990 to 2,515,320 in 1992. The population growth rate from 1990 to 1992 was
1.5%, while the national population growth rate was 2.6% for the same period.
The population growth rate from 1980 to 1990 was 4.8%, while the national
population growth rate was 9.8% for the same period. The majority of Kansas
counties lost population during that decade. Johnson County, which is adjacent
to Kansas City,
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Missouri and is included in the Kansas City Standard Metropolitan Statistical
Area, experienced the most dramatic growth during that decade, with an increase
in population of approximately 85,000 representing a growth rate in excess of
31%. The population of Sedgwick County, which includes the City of Wichita, the
largest city in the State, increased 10% to 403,662. By 1994, the populations of
Johnson and Sedgwick Counties were 375,147 and 416,690, respectively.
Employment growth in Kansas, as measured by household survey
data, did not exceed the national rate in 1993. National employment based on
household survey data increased 1.4 percent in 1993. As measured by
place-of-residence data, Kansas employment increased from 1,270,000 to
1,275,000, or 0.4 percent in 1993. [Source: Kansas Department of Human
Resources, Labor Market Information Services.] The weakly growing economy
contributed to the reduction in manufacturing employment in Kansas in 1993 of
2,500 workers, or 1.4 percent. Nationally manufacturing employment fell 1.8
percent. Retail trade employed 2.7 percent more persons, and wholesale trade
added 1.9 percent to its employment base in Kansas in 1993. Nationally,
employment in wholesale and retail trade rose 0.9 percent for the same year.
Employment increases in Kansas were concentrated in service industries, with an
increase in 1993 of 7,100 service sector jobs, or 22.0 percent. The most
important service industries in Kansas, in terms of employment, are health
services and business services. Nationally, service sector employment rose at a
slower rate 2.9 percent for this same period. Since 1987, the Kansas
unemployment rate has been 4.9 percent or below, in contrast to the national
unemployment rate of 7.4 percent in 1992. The Kansas unemployment rate was 4.0
percent in 1992, and rose to 4.9 percent in 1993 but was still below the
national average. According to The Governor's Economic and Demographic Report,
1994-1995 the growth of Kansas personal income was improved in 1994 with an
estimated growth rate of 5.3% compared with 4.0% in 1993. The 1995 forecast for
personal income growth in Kansas is 5.2%, slightly below an anticipated U.S.
growth rate of 5.4%.
The issuance of general obligation debt by the State of Kansas
is significantly limited by Article II of the Constitution of the State of
Kansas. As of the date of this Statement of Additional Information, the State
has no such debt outstanding. Statutory authority exists to issue revenue bonds
(generally payable from user fees) for academic and hospital facilities, parking
facilities and other facilities at state universities, for highway construction,
for sewage disposal facilities and certain other revenue producing facilities.
The Kansas Development Finance Authority also issues conduit revenue debt on
behalf of state agencies and other entities. Limitations on bond issues of
Kansas cities and counties are contained in Article 3 of Chapter 10 of the
Kansas Statutes Annotated. In general, the
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bonded indebtedness of a city may not exceed 30% (35% for the City of Olathe) of
the assessed value of all taxable tangible property in such city, and the bonded
indebtedness of a county may not exceed 3% (30% for Wyandotte County) of the
assessed value of all taxable tangible property in such county. In connection
with a state-wide property reappraisal of taxable tangible property in Kansas
mandated by the legislature in 1988, the statutory debt limitations of Kansas
cities and counties stated in Article 3, Chapter 10 of the Kansas Statutes were
suspended. The currently applicable limitation is calculated by taking the
maximum legal debt available to such city or county under the applicable
limitations in 1988 and dividing that amount by the 1989 assessed valuation of
the city or county. The resulting percentage factor is applied against
subsequent years assessed valuations to determine each city or county limit. The
percentage factor which limits each city's or county's general obligation debt
is unique to each city or county. Revenue bonds are not included in computing
the total bonded indebtedness of a city or county for the purpose of determining
such limitations. In addition, certain other bonds (e.g., bonds issued for a
county hospital, courthouse or jail or for a city sewer system or utility) are
not included in such computation. The majority of general obligation debt issued
by Kansas counties is exempt from such limitation.
The Constitution of the State of Kansas has no provision that
limits the amount of taxes and other similar charges that may be imposed by the
State or its political subdivisions. Tax levies on tangible property by cities,
counties and certain other taxing subdivisions in Kansas are subject to the
restrictions of the "Tax Lid Law" of Kansas. Although those restrictions affect
most operating funds of such taxing subdivisions, including the general fund,
they do not apply to or limit the levy of taxes for the payment of principal and
interest on bonds and certain other indebtedness. Kansas cities and counties may
utilize their home rule powers to exempt them from the Tax Lid Law. Such action
is subject to protest by voters.
Since 1992, the Kansas school finance law (K.S.A. 72- 6405 to
K.S.A. 72-6440, inclusive) has placed the majority of responsibility for funding
of Kansas public education on the State and equalized the per pupil spending the
public education across the State. A school district's authority to issue
general obligation bonds and to levy unlimited ad valorem taxes to pay such
bonds was not amended by the 1992 legislation.
In conjunction with the November, 1986 general election,
Kansas voters approved a proposition to modify the Kansas Constitution with
respect to classification of property for ad valorem taxation. In 1985, the
Kansas legislature passed
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a bill requiring county assessors to reassess property for tax purposes, with an
effective date of January 1, 1989. The 1985 legislation also made provision for
a new limitation on taxing authority effective January 1, 1989. Legislation
adopted in 1992 continued this limitation. Although the limitation affects most
operating funds of Kansas municipalities, it does not affect their ability to
levy unlimited taxes to make principal and interest payment on indebtedness.
On November 3, 1992, Kansas voters approved a proposition to
amend the Kansas Constitution with regard to property classification and
assessment rates for ad valorem tax purposes. Under such amendment, assessment
rates for certain classes of property were increased and assessment rates for
certain other classes of property were decreased. The ability of Kansas
municipalities to levy unlimited taxes to make principal and interest payments
on general obligation indebtedness was not affected by the 1992 constitutional
amendment.
INVESTMENT LIMITATIONS
The following investment limitations may be changed with
respect to 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. Purchase or sell real estate, except that the Portfolio may
purchase securities of issuers which deal in real estate and may purchase
securities which are secured by interests in real estate.
2. Purchase securities of companies for the purpose of
exercising control.
3. Acquire any other investment company or investment company
security except in connection with a merger, consolidation, reorganization or
acquisition of assets or as otherwise permitted by the 1940 Act.
4. Act as an underwriter of securities within the meaning of
the Securities Act of 1933 except insofar as it might be deemed to be an
underwriter upon disposition of portfolio securities acquired within the
limitation on purchases of restricted securities and except to the extent that
the purchase of obligations directly from the issuer thereof in accordance
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with the Portfolio's investment objective, policies and limitations may be
deemed to be underwriting.
5. Purchase securities on margin, make short sales of
securities or maintain a short position, except that the Portfolio may obtain
short-term credit as may be necessary for the clearance of purchases and sales
of portfolio securities.
6. Purchase or sell commodity contracts, or invest in oil, gas
or mineral exploration or development programs, except that the Portfolio may,
to the extent appropriate to its investment objective, purchase publicly traded
securities of companies engaging in whole or in part in such activities.
7. Write or sell put options, call options, straddles,
spreads, or any combination thereof.
NET ASSET VALUE
As stated in the Prospectuses, the net asset value per share
of each class of shares of the Portfolio is calculated separately by adding the
value of all of the portfolio securities and other assets belonging to the
Portfolio that are attributable to such class, subtracting the liabilities of
the Fund that are attributable to such class, and dividing the result by the
number of outstanding shares of such class. Assets attributable to a particular
class of shares of the Portfolio are charged with any direct liabilities that
the Board of Directors has allocated to such class pursuant to the Fund's Plan
for Operation of a Multi-Class System adopted pursuant to Rule 18f-3 under the
1940 Act. The determinations by the Board of Directors as to the direct and
allocable liabilities, and the allocable portion of general assets, with respect
to the Portfolio or class 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 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. Short-term securities are
valued at amortized cost, which approximates fair market value.
Among the factors that ordinarily will be considered in
valuing portfolio securities are the existence of restrictions upon the sale of
the security by the Portfolio, the existence and extent of a market for the
security, the extent of any discount in acquiring the security, the estimated
time during which the
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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.
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.
Investor B Shares of the Portfolio are sold to retail customers at the net asset
value next determined after a purchase order is received, but are subject to a
contingent deferred sales charge which is payable on redemption of such shares
as described in the applicable Prospectus.
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 projected
value of the Portfolio's estimated net assets and projected number of
outstanding shares on the date its
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shares are first offered for sale to public investors, and the maximum front-end
sales charge of 4.5% currently applicable, is as follows:
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TABLE
Net Assets $100.00
Outstanding
Shares 10
Net Asset
Value
Per Share $ 10.00
Sales Charge,
4.50%
of offering
price
(4.70% of
net $ .47
asset value
per
share)
Offering
Price
to Public $ 10.47
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 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.
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ADDITIONAL YIELD AND TOTAL RETURN INFORMATION
The Portfolio's 30 day "yield" described in the Prospectuses
is calculated separately for Trust Shares, Investor A Shares and Investor B
Shares of the Portfolio by dividing the Portfolio's net investment income per
share earned during a 30-day period by the maximum offering price per share (the
"maximum offering price") with respect to Investor A Shares and the net asset
value per share with respect to Trust Shares and Investor B Shares on the last
day of the period and annualizing the result on a semi-annual basis by adding
one to the quotient, raising the sum to the power of six, subtracting one from
the result and then doubling the difference. 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 expenses accrued for the period, net of reimbursements. This
calculation can be expressed as follows:
a-b
Yield = 2 [(------- + 1)6 - 1]
cd
Where: a = dividends and interest earned
during the period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding
that were entitled to receive dividends.
d = maximum offering price per share on the
last day of the period.
For the purpose of determining interest earned during the
period (variable "a" in the formula), dividend income on equity securities held
by the Portfolio is recognized by accruing 1/360 of the stated dividend rate of
the security each day that the security is in the Portfolio. The Portfolio
calculates interest earned on any debt obligation held in its portfolio by
computing the yield to maturity of each obligation held by it based on the
market value of the obligation (including actual accrued interest) at the close
of business on the last business day of each 30 day period, or, with respect to
obligations purchased during the 30 day period, the purchase price (plus actual
accrued interest) and dividing the result by 360 and
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multiplying the quotient by the market value of the obligation (including actual
accrued interest) in order to determine the interest income on the obligation
for each day of the subsequent 30 day period that the obligation is in the
portfolio. The maturity of an obligation with a call provision is the next call
date on which the obligation reasonably may be expected to be called or, if
none, the maturity date. With respect to debt obligations purchased at a
discount or premium, the formula generally calls for amortization of the
discount or premium. The amortization schedule will be adjusted monthly to
reflect changes in the market values of such debt obligations.
Interest earned on municipal obligations of the Portfolio that
are issued without original issue discount and have a current market discount is
calculated by using the coupon rate of interest instead of the yield to
maturity. In the case of municipal obligations that are issued with original
issue discount but which have discounts based on current market value that
exceed the then-remaining portion of the original issue discount (market
discount), the yield to maturity is the imputed rate based on the original issue
discount calculation. On the other hand, in the case of municipal obligations
that are issued with original issue discount but which have discounts based on
current market value that are less than the then-remaining portion of the
original issue discount (market premium), the yield to maturity is based on the
market value.
Expenses accrued for the period (variable "b" in the formula)
include all recurring fees charged by a Portfolio to all shareholder accounts in
proportion to the length of the base period and the Portfolio's mean (or median)
account size. Investor A Shares, Investor B Shares and Trust Shares each bear
separate fees applicable to the particular class of shares. Undeclared earned
income will not be subtracted from the maximum offering price per share
(variable "d" in the formula). Undeclared earned income is net investment income
which, at the end of the base period, has not been declared and paid as a
dividend, but is reasonably expected to be and is declared and paid as a
dividend shortly thereafter.
The 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. Similarly, the
Portfolio's "Kansas tax-equivalent" yield for each class of shares is calculated
by dividing the portion of the Portfolio's yield (calculated as above) that is
exempt from federal tax and the portion that is exempt from Kansas personal
income tax by one minus a stated tax rate and adding such figure to that
portion,
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if any, of the Portfolio's yield that is not exempt from federal or state income
tax.
The Portfolio computes its "average annual total return" for
each class by determining the average annual compounded rate of return during
specified periods that would equate the initial amount invested in a particular
series to the ending redeemable value of such investment in the series by
dividing the ending redeemable value of a hypothetical $1,000 payment by $1,000
(representing a hypothetical initial payment) and raising the quotient to a
power equal to one divided by the number of years (or fractional portion
thereof) covered by the computation and subtracting one from the result. This
calculation can be expressed as follows:
ERV 1/n
T =[(-------) - 1]
P
Where: T = average annual total return
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
1, 5 or 10 year (or other) periods at the end
of the 1, 5 or 10 year (or other) periods (or
a fractional portion thereof)
P = hypothetical initial payment of $1,000
n = period covered by the computation, expressed
in terms of years
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 income dividends and capital gain
distributions on the reinvestment dates during the period and include all
recurring fees charged to all shareholder accounts, assuming an account size
equal to the Portfolio's mean or median account size for any fees that vary with
the size of the account. The ending redeemable value (variable "ERV" in each
quotation) is determined by assuming
-21-
<PAGE> 573
complete redemption of the hypothetical investment and the deduction of all
non-recurring charges at the end of the period covered by the computation. In
addition, the Portfolio's average annual total return and aggregate total return
quotations reflect the deduction of the maximum front-end sales charge in
connection with the purchase of Investor A Shares and the deduction of any
applicable contingent deferred sales charge with respect to Investor B Shares.
As stated in the Prospectus relating to Investor A Shares and Investor
B Shares, the Portfolio may also calculate total return figures without
deducting the maximum sales charge imposed on purchases or redemptions. The
effect of not deducting the sales charge will be to increase the total return
reflected.
Investors may judge the performance of the Portfolio by
comparing it to the performance of other mutual funds or mutual fund portfolios
with comparable investment objectives and policies. Such comparisons may be made
by referring to market indices such as those prepared by Dow Jones & Co., Inc.,
Russell, Salomon Brothers, Inc., Lehman Brothers or Standard & Poor's Ratings
Group or any of their affiliates, the Consumer Price Index, the EAFE Index, the
NASDAQ Composite, or to rankings prepared by independent services or other
financial or industry publications that monitor the performance of mutual funds.
Such comparisons may also be made by referring to data prepared by Lipper
Analytical Services, Inc., (a widely recognized independent service which
monitors the performance of mutual funds) Indata, Frank Russell, CDA, and the
Bank Rate Monitor (which reports average yields for money market accounts
offered by the 50 leading banks and thrift institutions in the top five standard
metropolitan statistical areas). Other similar yield data, including comparisons
to the performance of Mercantile repurchase agreements, or the average yield
data for similar asset classes including but not limited to Treasury bills,
notes and bonds, may also be used for comparison purposes. Comparisons may also
be made to indices or data published in the following national financial
publications: IBC/Donoghue's Money Fund Report(R), MorningStar,
CDA/Wiesenberger, Money Magazine, Forbes, Fortune, Barron's, The Wall Street
Journal, The New York Times, Business Week, American Banker, Fortune,
Institutional Investor, U.S.A. Today and publications of Ibbotson Associates,
Inc. and other publications of a local or regional nature. In addition to
performance information, general information about the Portfolios that appears
in a publication such as those mentioned above may be included in
advertisements, supplemental sales literature and in reports to Shareholders.
From time to time, the Fund may include the following types of
information in advertisements, supplemental sales
-22-
<PAGE> 574
literature and reports to shareholders: (1) discussions of general economic or
financial principles (such as the effects of inflation, the power of compounding
and the benefits of dollar-cost averaging); (2) discussions of general economic
trends; (3) presentations of statistical data to supplement such discussions;
(4) descriptions of past or anticipated portfolio holdings for one or more of
the Portfolios within the Fund; (5) descriptions of investment strategies for
one or more of such Portfolios; (6) descriptions or comparisons of various
investment products, which may or may not include the Portfolios; (7)
comparisons of investment products (including the Portfolios) with relevant
market or industry indices or other appropriate benchmarks; and (8) discussions
of rankings or ratings by recognized rating organizations.
In addition, the benefits of tax-free investments may be communicated
in advertisements or communications to shareholders. For example, the tables
below present the approximate yield that a taxable investment must earn at
various income brackets to produce after-tax yields equivalent to those of
tax-exempt investments yielding from 4.50% to 7.00%. The yields below are for
illustration purposes only and are not intended to represent current or future
yields for the Portfolio, which may be higher or lower than those shown. The tax
brackets shown below will be indexed for inflation for years after 1997.
Investors should consult their tax advisor with specific reference to their own
tax situation.
-23-
<PAGE> 575
APPROXIMATE YIELD TABLE: KANSAS TAX-EXEMPT BOND PORTFOLIO
<TABLE>
<CAPTION>
SINGLE RETURN Combined
Federal and
Sample Taxable Federal Kansas Kansas
Income Marginal Marginal Marginal Tax
(1996) Tax Rate Tax Rate Rate -------------------Tax-Exempt Yields------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
FROM
$0 TO
$20,000 15.00% 4.40% 18.74% 5.54% 6.15% 6.77% 7.38% 8.00% 8.61%
FROM
$20,000 TO
$24,000 15.00% 7.50% 21.38% 5.72% 6.36% 7.00% 7.63% 8.27% 8.90%
FROM
$24,000 TO
$30,000 28.00% 7.50% 33.40% 6.76% 7.51% 8.26% 9.01% 9.76% 10.51%
FROM
$30,000 TO
$58,150 28.00% 7.75% 34.59% 6.88% 7.64% 8.41% 9.17% 9.94% 10.70%
FROM
$58,150 TO
$121,300 31.00% 7.75% 37.59% 7.21% 8.01% 8.81% 9.61% 10.41% 11.22%
FROM
$121,300 TO
$263,750 36.00% 7.75% 40.96% 7.62% 8.47% 9.32% 10.16% 11.01% 11.86%
OVER
$263,750 39.60% 7.75% 44.28% 8.08% 8.97% 9.87% 10.77% 11.67% 12.56%
</TABLE>
APPROXIMATE YIELD TABLE: KANSAS TAX-EXEMPT BOND PORTFOLIO
<TABLE>
<CAPTION>
MARRIED FILING
JOINTLY Combined
Federal and
Sample Taxable Federal Kansas Kansas
Income Marginal Marginal Marginal Tax
(1996) Tax Rate Tax Rate Rate -----------------Tax-Exempt Yields--------------------
4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM
$0 TO
$30,000 15.00% 3.50% 17.98% 5.49% 6.10% 6.71% 7.31% 7.92% 8.53%
FROM
$30,000 TO
$40,100 15.00% 6.25% 20.31% 5.65% 6.27% 6.90% 7.53% 8.16% 8.78%
FROM
$40,100 TO
$60,000 28.00% 6.25% 32.50% 6.67% 7.41% 8.15% 8.89% 9.63% 10.37%
FROM
$60,000 TO
$96,900 28.00% 6.45% 32.64% 6.68% 7.42% 8.17% 8.91% 9.65% 10.39%
FROM
$96,900 TO
$147,700 31.00% 6.45% 35.45% 6.97% 7.75% 8.52% 9.30% 10.07% 10.84%
FROM
$147,700 TO
$263,750 36.00% 6.45% 40.13% 7.52% 8.35% 9.19% 10.02% 10.86% 11.69%
OVER
$263,750 39.60% 6.45% 43.50% 7.96% 8.85% 9.73% 10.62% 11.50% 12.39%
</TABLE>
Such data are for illustrative purposes only and are not intended to indicate
past or future performance results of the Portfolio.
-24-
<PAGE> 576
Actual performance of the Portfolio may be more or less than that noted in the
hypothetical illustrations.
Since performance will fluctuate, performance data for the Portfolio
cannot necessarily be used to compare an investment in the Portfolio's shares
with bank deposits, savings accounts, and similar investment alternatives which
often provide an agreed or guaranteed fixed yield for a stated period of time.
Shareholders should remember that performance is generally a function of the
kind and quality of the instruments held in a portfolio, portfolio maturity,
operating expenses, and market conditions. The current yield and performance of
the Portfolio may be obtained by calling the Fund at: INVESTOR A OR INVESTOR B
SHARES - 1-800-452-ARCH; OR TRUST SHARES - 1-800-452-401K.
DESCRIPTION OF SHARES
The Fund's Articles of Incorporation authorize the Board of Directors
to issue up to seven billion full and fractional shares of capital stock, and to
classify or reclassify any unissued shares of the Fund into one or more
additional classes or by setting or changing in any one or more respects, their
respective preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption. Pursuant to such authority the Fund's Board of Directors has
authorized the issuance of three classes of shares representing interests in the
Portfolio. The Fund's Board of Directors has also authorized the issuance of
additional classes of shares representing interests in other investment
portfolios: the Treasury Money Market, Money Market, Tax-Exempt Money Market,
U.S. Government Securities, Intermediate Corporate Bond, Bond Index, Government
and Corporate Bond, Short-Intermediate Municipal, Missouri Tax-Exempt Bond,
National Municipal Bond, Equity Income, Equity Index, Growth and Income Equity,
Small Cap Equity, International Equity and Balanced Portfolios. Trust Shares,
Investor A Shares and Investor B Shares in the 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 below with respect to the Administrative Services
Plan for Trust
-25-
<PAGE> 577
Shares and the Distribution and Services Plans for Investor A Shares
and Investor B Shares, shares of the Portfolio bear the same types of ongoing
expenses with respect to the Portfolio to which they belong. In addition,
Investor A Shares are subject to a front-end sales charge and Investor B Shares
are subject to a contingent deferred sales charge as described in the applicable
Prospectus. The classes also have different exchange privileges, and Investor B
Shares are subject to conversion as described in the Prospectus for those
shares.
In the event of a liquidation or dissolution of the Fund, shares of the
Portfolio are entitled to receive the assets available for distribution
belonging to the Portfolio, and a proportionate distribution, based upon the
relative asset values of the Fund's respective Portfolios, of any general assets
not belonging to any particular Portfolio which are available for distribution.
Shareholders of the Portfolio are entitled to participate equally in the net
distributable assets of the Portfolio involved on liquidation, except that Trust
shares of the Portfolio will be solely responsible for the Portfolio's payments
pursuant to the Administrative Services Plan for those shares, Investor A Shares
of the Portfolio will be solely responsible for the Portfolio's payments
pursuant to the Distribution and Services Plan for those shares and Investor B
Shares of the Portfolio will be solely responsible for the Portfolio's payments
pursuant to the Distribution and Services Plan for those shares.
Holders of all outstanding shares of the Portfolio will vote
together in the aggregate and not by class, except that only Trust shares of the
Portfolio will be entitled to vote on matters submitted to a vote of
shareholders pertaining to the Portfolio's Administrative Services Plan for
Trust shares, only Investor A Shares of the Portfolio will be entitled to vote
on matters submitted to a vote of shareholders pertaining to the Portfolio's
Distribution and Services Plan for Investor A Shares and only Investor B Shares
of the Portfolio will be entitled to vote on matters submitted to a vote of
shareholders pertaining to the Portfolio's Distribution and Services Plan for
Investor B Shares. Further, shareholders of all of the Fund's 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
-26-
<PAGE> 578
(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 Portfolio 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 treatment of the Portfolio or its shareholders, and
the discussion here and in the Prospectuses are not intended as a substitute for
careful tax planning. Potential investors should consult their tax advisors with
specific reference to their own tax situations.
The Portfolio is treated as a separate corporate entity under
the Code. The Portfolio intends to qualify each year as a regulated investment
company. In order to so qualify for a taxable year under the Code, the Portfolio
must satisfy, in addition to the distribution requirement described in the
Prospectuses, certain other requirements set forth below.
At least 90% of the gross income for a taxable year of the
Portfolio must be derived from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stock, securities
or foreign currencies, and other income (including, but not limited to, gains
from options, futures, or forward contracts) derived with respect to the
Portfolio's business of investing in such stock, securities or currencies (the
"90% gross income test").
The Portfolio also must derive less than 30% of its gross
income for a taxable year from gains realized on the sale or other disposition
of securities and certain other investments held for less than three months (the
"30% test"). Interest
-27-
<PAGE> 579
(including original issue discount and accrued market discount) received by a
Portfolio upon maturity or disposition of a security held for less than three
months will not be treated as gross income derived from the sale or other
disposition of such security within the meaning of this requirement. However,
any income that is attributable to real market appreciation will be treated as
gross income from the sale or other disposition of securities for this purpose.
Finally, at the close of each quarter of its taxable year, at
least 50% of the value of the Portfolio's assets must consist of cash and cash
items, U.S. government securities, securities of other regulated investment
companies, and securities of other issuers (as to which the Portfolio has not
invested more than 5% of the value of its total assets in securities of such
issuer and as to which the Portfolio does not hold more than 10% of the
outstanding voting securities of such issuer) and no more than 25% of the value
of such Portfolio's total assets may be invested in the securities of any one
issuer (other than U.S. government securities and securities of other regulated
investment companies), or in two or more issuers which
-28-
<PAGE> 580
the Portfolio controls and which are engaged in the same or similar trades or
businesses.
The Portfolio will designate any distribution of the excess
of net long-term capital gain over net short-term capital loss as a capital gain
dividend in a written notice mailed to shareholders within 60 days after the
close of the Portfolio's taxable year. Such distributions, if any, will be
taxable to shareholders who are not currently exempt from federal income tax as
long-term capital gains, no matter how long the shareholder has held these
shares. Shareholders should note that, upon the sale or exchange of Portfolio
shares, if the shareholder has not held such shares for more than six months,
any loss on the sale or exchange of those shares will be treated as long-term
capital loss to the extent of the capital gain dividends received with respect
to the shares.
Ordinary income to individuals is taxable at a maximum
nominal rate of 39.6%, but because of limitations on itemized deductions
otherwise allowable and the phase-out of personal exemptions, the maximum
effective marginal rate of tax for some taxpayers may be higher. An individual's
long-term capital gains are taxable at a maximum rate of 28%. For corporations,
long-term capital gains and ordinary income are both taxable at a maximum
nominal rate of 35% (or at a maximum marginal rate of 39% in the case of
corporations having taxable income between $100,000 and $335,000).
A 4% nondeductible excise tax is imposed on regulated
investment companies that fail to currently distribute specified percentages of
their ordinary taxable income and capital gain net income (excess of capital
gains over capital losses). The Portfolio intends to make sufficient
distributions or deemed distributions of its ordinary taxable income and any
capital gain net income each year to avoid liability for this excise tax.
If for any taxable year the Portfolio does not qualify for
the special federal income tax treatment afforded regulated investment
companies, all of its taxable income will be subject to federal income tax at
regular corporate rates (without any deduction for distributions to its
shareholders). In such event, dividend distributions would be taxable as
ordinary income to shareholders, to the extent of the Portfolio's current and
accumulated earnings and profits and would be eligible for the dividends
received deduction allowed to corporations.
-29-
<PAGE> 581
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 sixty days (with respect to federal
income tax) after the close of the Portfolio's taxable year. However, the
aggregate amount of dividends so designated by the Portfolio cannot exceed the
excess of the amount of interest exempt from tax under Section 103 of the Code
received by the Portfolio during the taxable year over any amounts disallowed as
deductions under Sections 265 and 171(a)(2) of the Code. The percentage of total
dividends paid for any taxable year which qualifies as exempt-interest dividends
will be the same for all shareholders receiving dividends from the Portfolio
during such year, regardless of the period for which the Shares were held.
Shareholders who might be treated as a "substantial user" or
a "related person" to such user with respect to facilities financed through any
of the tax-exempt obligations held by the Portfolio, are advised to consult
their tax advisors with respect to whether exempt-interest dividends retain the
exclusion under Section 103(a). A "substantial user" is defined under U.S.
Treasury Regulations to include a non-exempt person (i) who regularly uses a
part of such facilities in his trade or business and (ii)(A) whose gross
revenues derived with respect to the facilities financed by the issuance of
bonds are more than 5% of the total revenues derived by all users of such
facilities, (B) who occupies more than 5% of the usable area of such facilities
or (C) for whom such facilities or a part thereof were specifically constructed,
reconstructed or acquired. "Related persons" include certain related natural
persons, affiliated corporations, partnerships and its partners, and S
corporations and their shareholders.
Interest on indebtedness incurred by a shareholder to
purchase or carry shares of the Portfolio 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
-30-
<PAGE> 582
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.
The foregoing discussion is based on federal tax laws and
regulations which are in effect on the date of this Statement of Additional
Information; such laws and regulations may be changed by legislative or
administrative action. Shareholders are advised to consult their tax advisors
concerning the application of state and local taxes.
-31-
<PAGE> 583
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their
addresses, ages, principal occupations during the past five years, and other
affiliations are as follows:
<TABLE>
<CAPTION>
Principal Occupations
Position with During Past 5 years
Name and Address the Fund and other affiliations
- ---------------- -------- ----------------------
<S> <C> <C>
Jerry V. Woodham(1) Chairman of Treasurer, St. Louis
745 Stump Road The Board; University, August 1996
St. Louis, MO 63131 President and to present; Treasurer,
Age: 53 Director Washington University,
1981 to 1995
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.
St. Louis, MO 63136-8506
Age: 51
Joseph J. Hunt Director General Vice-President
Iron Workers District International Association of
Council Bridge, Structural and Orna-
3544 Watson Road mental Iron Workers (Interna-
St. Louis, MO 63139 tional Labor Union), January 1994
Age: 54 to present; General Organizer,
International Association of Bridge,
Structural and Ornamental Iron Workers,
September 1983 to December 1993.
James C. Jacobsen Director Director, Kellwood Company,
Kellwood Company (manufacturer of wearing apparel
600 Kellwood Parkway and camping softgoods), since 1975;
Chesterfield, MO 63017 Vice Chairman Kellwood Company since
Age: 61 May 1989.
</TABLE>
- ------------------------
* Mr. Woodham is an "interested person" of the Fund as defined in the 1940
Act.
-32-
<PAGE> 584
<TABLE>
<CAPTION>
Principal Occupations
Position with During Past 5 years
Name and Address the Fund and other affiliations
- ---------------- -------- ----------------------
<S> <C> <C>
Donald E. Kiernan Director Senior Vice President -
Southwestern Bell Finance and Treasurer,
Corporation Southwestern Bell
175 E. Houston St. Corporation since
P.O. Box 2933 December 1990.
Room 7-A-50
San Antonio, TX 78299
Age: 56
Lyle L. Meyer Director Vice President, The Jefferson
Jefferson Smurfit Smurfit Corporation (manufacturer
Corporation of paperboard and packing materials),
8182 Maryland Avenue April 1989 to present; President,
St. Louis, MO 63105 Smurfit Pension & Insurance Services
Age: 60 Company, November 1982 to December
1992.
Ronald D. Winney* Director and Treasurer, Ralston
Ralston Purina Company Treasurer Purina Company
Checkerboard Square Since 1985.
St. Louis, MO 63164
Age: 54
W. Bruce McConnel, III Secretary Partner of the law
Suite 1100 firm of Drinker Biddle
1345 Chestnut Street & Reath, Philadelphia,
Philadelphia, PA 19107 Pennsylvania Since 1977.
Age: 54
Walter B. Grimm* Assistant From June, 1992 to present,
3435 Stelzer Road Secretary employee of BISYS Fund
Columbus, OH 43219 Services; From 1989 to June, 1992
Age: 51 President of Leigh
Investments Consulting/
Investments (investment
firm).
Stephen G. Mintos* Vice President From April, 1987 to present,
3435 Stelzer Road and Assistant employee of BISYS Fund
Columbus, OH 43219 Treasurer Services.
Age: 43
</TABLE>
- ------------------------
* Messrs. Grimm, Winney, and Mintos are "interested persons" of the Fund as
defined in the 1940 Act.
Each Director receives an annual fee of $10,000 plus reimbursement of
expenses incurred as a Director. The Chairman of the Board and President of the
Fund receives an additional annual fee of $5,000 for his services in these
capacities. For the fiscal year ended November 30, 1996, the Fund paid or
accrued for the account of its directors as a group, for services in all
capacities, a total of $______. Drinker Biddle & Reath, of which Mr. McConnel
is a partner, receives legal fees as counsel to the Fund. As of the date of
this Statement of Additional Information, the directors and officers of the
Fund, as a group, owned less than 1% of the outstanding shares of the Fund.
The following chart provides certain information about the fees
received by the Fund's directors for their services as members of the Board of
Directors and committees thereof for the fiscal year ended November 30, 1996:
-33-
<PAGE> 585
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL
AGGREGATE BENEFITS ACCRUED COMPENSATION
COMPENSATION AS PART OF FUND FROM THE FUND
NAME OF DIRECTOR FROM THE FUND EXPENSE AND FUND COMPLETED
<S> <C> <C> <C>
Jerry V. Woodham $_________ N/A $_________
Robert M. Cox, Jr. $________ N/A $_________
Joseph J. Hunt $________ N/A $_________
James C. Jacobsen $________ N/A $_________
Donald E. Kiernan $________ N/A $_________
Lyle L. Meyer $________ N/A $_________
Ronald D. Winney $________ N/A $_________
</TABLE>
* The "Fund Complex" consists solely of 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
as described in the Portfolio's Prospectuses. MVA has agreed to pay all expenses
incurred by it in connection with its activities under its respective agreement
other than the cost of securities, including brokerage commissions, if any,
purchased for the Portfolio.
The investment advisory agreement provide that MVA shall not be
liable for any error of judgment or mistake of law or for any loss suffered in
connection with the performance of its agreement, except a loss resulting from a
breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or gross
negligence in the performance of its duties or from reckless disregard by it of
its duties and obligations thereunder.
Under its administration agreement with the Fund, BISYS Fund
Services Ohio, Inc. (the "Administrator") serves as administrator. The
Administrator has agreed to maintain office facilities for the Portfolio,
furnish the Portfolio with statistical and research data, clerical, accounting,
and certain bookkeeping services, 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,
-34-
<PAGE> 586
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 Portfolios 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 Portfolio in order to increase the net income available for
distribution to shareholders.
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 each Portfolio; (iii) collect and
receive all income and other payments and distributions on account of each
Portfolio's portfolio securities; (iv) respond to correspondence relating to its
duties; and (v) make periodic reports to the Fund's Board of Directors
concerning the operations of 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. Mercantile is authorized to select one or more
banks or trust companies to serve as sub-custodian on behalf of the Portfolio,
provided that Mercantile shall remain responsible for the performance of all of
its duties under the Custodian Agreement and shall hold the Fund harmless
-35-
<PAGE> 587
from the acts and omissions of any bank or trust company servicing as
sub-custodian.
In the opinion of the staff of the SEC, since the Custodian is
an affiliate of the investment adviser, the Fund and the Custodian are subject
to the requirements of Rule 17f-2 under the 1940 Act. Accordingly the Fund and
the Custodian intend to comply with the requirements of such rule.
Pursuant to the Custodian Agreement with the Fund, the
Portfolio pays Mercantile an annual fee. This fee, which is paid monthly, is
calculated as the greater of $6,000 or $.30, 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 the Portfolio's
shareholders; (iii) process transfers and exchanges of shares of the Portfolio;
(iv) issue periodic statements for 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.
DISTRIBUTION AND SERVICE ORGANIZATIONS
BISYS Fund Services (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. The Distributor is entitled to the
payment of a front-end sales charge on the sale of Investor A
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<PAGE> 588
Shares of the Portfolio as described in the Prospectus for such shares. The
Distributor is also entitled to the payment of contingent deferred sales charges
upon the redemption of Investor B Shares of the Portfolio.
THE PLANS
DISTRIBUTION AND SERVICES PLANS. As described in the
Prospectuses, the Fund has adopted separate Distribution and Services Plans with
respect to Investor A and Investor B Shares of the Portfolio pursuant to the
1940 Act and Rule 12b-1 thereunder. Any material amendment to either of these
Plans or arrangements with the Distributor or Service Organizations (which may
include affiliates of the Fund's Adviser) must be approved by a majority of the
Board of Directors, including a majority of the directors who are not
"interested persons" of the Fund as defined in the 1940 Act and have no direct
or indirect financial interest in such arrangements (the "Disinterested
Directors") and by a majority of the Investor A Shares or Investor B Shares,
respectively, of the Portfolio. Pursuant to the Plans, the Fund may enter into
Servicing Agreements with broker-dealers and other organizations ("Servicing
Agreements") that purchase Investor A or Investor B Shares of 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 or Investor B Shares. Services
provided pursuant to the Servicing Agreements may include such services as
providing information periodically to customers showing their positions in
Investor A or Investor B Shares and monitoring services for their customers who
have invested in Investor A or Investor B Shares, including the operation of
telephone lines for daily quotations of return information.
Service Organizations and other broker/dealers receive
commissions from the Distributor for selling Investor B Shares, which are paid
at the time of the sale. These commissions approximate the commissions payable
with respect to sales of Investor A Shares. The distribution fees payable under
the Distribution and Services Plan for Investor B Shares (at an annual rate of
.75%) are intended to cover the expense to the Distributor of paying such
up-front commissions, and the contingent deferred sales charge is calculated to
charge the investor with any shortfall that would occur if Investor B Shares are
redeemed prior to the expiration of the eight year period, after which Investor
B Shares automatically convert to Investor A Shares. To provide funds for the
payment of up-front sales commissions, the Distributor has entered into an
agreement with MVA pursuant to which MVA provides funds for the payment of
commissions and other fees payable to Service Organizations and broker/dealers
who sell Investor B Shares. Under the terms of
-37-
<PAGE> 589
that agreement, the Distributor has assigned to MVA the fees which may be
payable from time to time to the Distributor under the Distribution and Services
Plan for Investor B Shares and the contingent deferred sales charges payable to
the Distributor with respect to Investor B Shares.
ADMINISTRATIVE SERVICES PLAN. As stated in the applicable
Prospectus, an Administrative Services Plan has been adopted with respect to
Trust Shares of the Portfolio. Pursuant to such Plan and the Distribution and
Services Plans described above, the Fund may enter into Servicing Agreements
with banks, trust departments, and other financial institutions ("Trust
Servicing Agreements") and with broker-dealers and other organizations
("Servicing Agreements") that purchase Trust shares, Investor A Shares or
Investor B 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, Investor A Shares or Investor B Shares,
respectively. Services provided pursuant to the Servicing Agreements may include
some or all of the following services: (i) processing dividend and distribution
payments from the Portfolio on behalf of customers; (ii) providing information
periodically to customers showing their positions in Trust, Investor A Shares or
Investor B Shares; (iii) arranging for bank wires; (iv) responding to routine
customer inquiries relating to services performed by the particular Service
Organization; (v) providing sub-accounting with respect to shares owned of
record or beneficially by customers or the information necessary for
sub-accounting; (vi) as required by law, forwarding shareholder communications
(such as proxies, shareholder reports, annual and semi-annual financial
statements and dividend, distribution and tax notices) to customers; (vii)
forwarding to customers proxy statements and proxies containing any proposals
regarding Servicing Agreements or the related Plan; (viii) aggregating and
processing purchase, redemption, and exchange requests from customers and
placing net purchase and redemption orders with the Fund's Distributor; (ix)
providing customers with a service that invests the assets of their accounts in
shares pursuant to specific or pre-authorized instructions; (x) maintaining
records relating to each customer's share transactions; or (xi) other similar
services if requested by the Fund and permitted by law. In addition, Service
Organizations may also provide dedicated facilities and equipment in various
local locations to serve the needs of investors, including walk-in facilities,
800 numbers, and communication systems to handle shareholder inquiries, and in
connection with such facilities, provide on-site management personnel and
monitoring services for their customers who have invested in
-38-
<PAGE> 590
Investor A or Investor B Shares, including the operation of telephone lines for
daily quotations of return information.
OTHER PLAN INFORMATION. The Board of Directors has approved
each Plan and its respective arrangements with the Distributor, Service
Organizations and broker-dealer based on information provided by the Fund's
service contractors that there is a reasonable likelihood that these Plans and
arrangements will benefit the Portfolios and their shareholders. Pursuant to
each Plan, the Board of Directors reviews, at least quarterly, a written report
of the amounts of distribution fees and servicing fees expended pursuant to each
Plan and the Service Organizations and the purposes for which the expenditures
were made. So long as the Fund has one or more of the above described Plans in
effect, the selection and nomination of the members of the Board of Directors
who are not "interested persons" (as defined in the 1940 Act) of the Fund will
be committed to the discretion of such Disinterested Directors.
Depending upon the terms governing the particular customer
accounts, Service Organizations and other institutions may also charge their
customers directly for cash management and other services provided in connection
with the accounts, including, for example, account maintenance fees,
compensating balance requirements, or fees based upon account transactions,
assets, or income. An investor should therefore read the Prospectuses and this
Statement of Additional Information in light of the terms of his or her account
with a Service Organization, or other institution before purchasing shares of
the Portfolio.
REGULATORY MATTERS. Banking laws and regulations currently
prohibit a bank holding company registered under the Federal Bank Holding
Company Act of 1956 or any affiliate thereof from sponsoring, organizing, or
controlling the shares of a registered, open-end investment company continuously
engaged in the issuance of its shares, and prohibit banks generally from
issuing, underwriting, selling, or distributing securities such as Shares of the
Portfolios. Such banking laws and regulations do not prohibit such a holding
company or affiliate, or banks, from acting as investment adviser, transfer
agent, or custodian to such an investment company, or from purchasing shares of
such a company as agent for and upon the order of customers. Mercantile, MVA,
Service Organizations that are banks or bank affiliates, and broker-dealers that
are bank affiliates are subject to such laws and regulations, but believe they
may perform the services for the Portfolio contemplated by their respective
agreements, the Prospectuses and this Statement of Additional Information
without violating applicable banking laws and regulations. In addition, state
securities laws on this
-39-
<PAGE> 591
issue may differ from the interpretation of federal law expressed herein and
banks and financial institutions may be required to register as dealers pursuant
to state law.
Should future legislative, judicial or administrative action prohibit
or restrict the activities of such companies in connection with the provision of
services on behalf of the Portfolios and their shareholders, the Fund might be
required to alter materially or discontinue its arrangements with such companies
and change its method of operation. It is not expected that investors would
suffer any adverse financial consequences as a result of any of these
occurrences.
If current restrictions preventing a bank from legally sponsoring,
organizing, controlling or distributing Shares of an investment company were
relaxed, Mercantile or an affiliate of Mercantile, would consider the
possibility of offering to perform additional services for the 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 a
Portfolio's Shares. Institutions, including banks regulated by the Comptroller
of the Currency and investment advisers and other money managers subject to the
jurisdiction of the SEC, the Department of Labor or state securities
commissions, should consult legal counsel before entering into Servicing
Agreements.
INDEPENDENT AUDITORS
[__________________________], certified public accountants, with
offices at [_________________________________________] serves as independent
auditors for the Portfolio. [___________________] will perform an annual audit
of the Portfolio's financial statements. Reports of its activities will be
provided to the Fund's Board of Directors.
-40-
<PAGE> 592
COUNSEL
Drinker Biddle & Reath (of which W. Bruce McConnel, III,
Secretary of the Fund, is a partner), Suite 1100, 1345 Chestnut Street,
Philadelphia, Pennsylvania 19107-3496, is counsel to the Fund and will pass upon
certain legal matters on its behalf.
MISCELLANEOUS
As of March __, 1997, Mercantile held of record ______% and
______% of the outstanding Institutional and Trust shares, respectively, in the
Treasury Money Market Portfolio; ______% and ______% of the outstanding
Institutional and Trust shares, respectively, in the Money Market Portfolio;
______% and ______% of the outstanding Institutional and Trust shares,
respectively, in the Tax-Exempt Money Market Portfolio; ______% and ______% of
the outstanding Institutional and Trust shares, respectively, in the U.S.
Government Securities Portfolio; ______% and ______% of the outstanding
Institutional and Trust shares, respectively, in the Intermediate Corporate Bond
Portfolio; ______% and ______% of the outstanding Institutional and Trust
shares, respectively, in the Bond Index Portfolio; ______% and ______% of the
outstanding Institutional and Trust shares, respectively, in the Government &
Corporate Bond Portfolio; ______% of the outstanding Trust shares in the
Short-Intermediate Municipal Portfolio; ______% of the outstanding Trust shares
in the Missouri Tax-Exempt Bond Portfolio; ____% of the outstanding Trust Shares
in the Kansas Tax-Exempt Bond Portfolio; _____% of the outstanding Trust shares
in the National Municipal Bond Portfolio; ______% and ______% of the outstanding
Institutional and Trust shares, respectively, in the Equity Income Portfolio;
______% and ______% of the outstanding Institutional and Trust shares,
respectively, in the Equity Index Portfolio; ______% and ______% of the
outstanding Institutional and Trust shares, respectively, in the Growth & Income
Equity Portfolio; ______% and ______% of the outstanding Institutional and Trust
shares, respectively, in the Small Cap Equity Portfolio; ______% and ______% of
the outstanding Institutional and Trust shares, respectively, in the
International Equity Portfolio; and ______% and ______% of the outstanding
Institutional and Trust shares, respectively, in the Balanced 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 Treasury Money Market Portfolio's outstanding shares as
fiduciary or agent on behalf of their customers:
-41-
<PAGE> 593
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:
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:
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:
As of the same date, the following institutions also owned of
record 5% or more of the Intermediate Corporate Bond Portfolio's outstanding
shares as fiduciary or agent on behalf of their customers:
As of the same date, the following institutions also owned of
record 5% or more of the Bond Index Portfolio's outstanding shares as fiduciary
or agent on behalf of their customers:
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:
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:
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:
As of the same date, the following institutions also owned of
record 5% or more of the Kansas Tax-Exempt Bond Portfolio's outstanding shares
as fiduciary or agent on behalf of their customers:
As of the same date, the following institutions also owned of
record 5% or more of the National Municipal Bond Portfolio's outstanding shares
as fiduciary or agent on behalf of their customers:
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<PAGE> 594
As of the same date, the following institutions also owned of
record 5% or more of the Equity Income Portfolio's outstanding shares as
fiduciary or agent on behalf of their customers:
As of the same date, the following institutions also owned of
record 5% or more of the Equity Index Portfolio's outstanding shares as
fiduciary or agent on behalf of their customers:
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:
As of the same date, the following institutions also owned of
record 5% or more of the Small Cap Equity Portfolio's outstanding shares as
fiduciary or agent on behalf of their customers:
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:
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:
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.
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<PAGE> 595
report given upon the authority of such firm as experts in accounting and
auditing.
-44-
<PAGE> 596
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term in
the relevant market. The following summarizes the rating categories used by
Standard and Poor's for commercial paper:
"A-1" - Issue's degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory.
However, the relative degree of safety is not as high as for issues designated
"A-1."
"A-3" - Issue has an adequate capacity for timely payment. It
is, however, somewhat more vulnerable to the adverse effects of changes and
circumstances than an obligation carrying a higher designation.
"B" - Issue has only a speculative capacity for timely
payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the rating categories
used by Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are
considered to have a superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment capacity will normally be evidenced by the
following characteristics: leading market positions in well established
industries; high rates of return on funds employed; conservative capitalization
structures with moderate reliance on debt and ample asset protection; broad
margins in earning coverage of fixed financial charges and high internal cash
generation; and well established access to a range of financial markets and
assured sources of alternate liquidity.
A-1
<PAGE> 597
"Prime-2" - Issuer or related supporting institutions are
considered to have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics
cited above but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternative liquidity is maintained.
"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the Prime
rating categories.
The three rating categories of Duff & Phelps for investment
grade commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D- 1+," "D-1" and "D-1-," within the highest
rating category. The following summarizes the rating categories used by Duff &
Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
"D-3" - Debt possesses satisfactory liquidity, and other
protection factors qualify issue as investment grade. Risk
A-2
<PAGE> 598
factors are larger and subject to more variation. Nevertheless, timely payment
is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch short-term ratings apply to debt obligations that are
payable on demand or have original maturities of up to three years. The
following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues
assigned this rating have a satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as the "F-1+" and "F-1" categories.
"F-3" - Securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues
assigned this rating have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term
ratings to indicate that the rating is based upon a letter of credit issued by a
commercial bank.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely or incomplete payment of principal or
A-3
<PAGE> 599
interest of unsubordinated instruments having a maturity of one year or less
which is issued by United States commercial banks, thrifts and non-bank banks;
non-United States banks; and broker-dealers. The following summarizes the
ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest rating category and indicates a very high degree of likelihood that
principal and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of
safety regarding timely payment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment
grade category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
"TBW-4" - This designation indicates that the debt is regarded
as non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1+" - Obligations supported by the highest capacity for
timely repayment.
"A1" - Obligations are supported by a strong capacity for
timely repayment.
"A2" - Obligations are supported by a satisfactory capacity
for timely repayment, although such capacity may be susceptible to adverse
changes in business, economic or financial conditions.
"A3" - Obligations are supported by a satisfactory capacity
for timely repayment. Such capacity is more susceptible to adverse changes in
business, economic or financial conditions than for obligations in higher
categories.
A-4
<PAGE> 600
"B" - Obligations for which the capacity for timely repayment
is susceptible to adverse changes in business, economic or financial conditions.
"C" - Obligations for which there is an inadequate capacity to
ensure timely repayment.
"D" - Obligations which have a high risk of default or which
are currently in default.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - This designation represents the highest rating
assigned by Standard & Poor's to a debt obligation and indicates an extremely
strong capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to
pay interest and repay principal and differs from AAA issues only in small
degree.
"A" - Debt is considered to have a strong capacity to pay
interest and repay principal although such issues are somewhat more susceptible
to the adverse effects of changes in circumstances and economic conditions than
debt in higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The "BB"
rating
A-5
<PAGE> 601
category is also used for debt subordinated to senior debt that is assigned an
actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
"CCC" - Debt has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The "CCC" rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied "B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated
to senior debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied "CCC-" debt rating. The "C"
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no
interest is being paid.
"D" - Debt is in payment default. This rating is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S & P believes such payments
will be made during such grace period. "D" rating is also used upon the filing
of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high volatility
or high variability in expected returns due to non-credit risks. Examples of
such obligations are: securities whose principal or interest return is indexed
to equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities.
A-6
<PAGE> 602
The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in
default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes
A-7
<PAGE> 603
probable credit stature upon completion of construction or elimination of basis
of condition.
Moody's applies numerical modifiers 1, 2 and 3 in each generic
classification from "Aa" to "B" in its bond rating system. The modifier 1
indicates that the issuer ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issuer ranks at the lower end of its generic rating category.
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when due.
Debt rated "B" possesses the risk that obligations will not be met when due.
Debt rated "CCC" is well below investment grade and has considerable uncertainty
as to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by
Fitch for corporate and municipal bonds:
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<PAGE> 604
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1+."
"A" - Bonds considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" Bonds that
possess one of these ratings are considered by Fitch to be speculative
investments. The ratings "BB" to "C" represent Fitch's assessment of the
likelihood of timely payment of principal and interest in accordance with the
terms of obligation for bond issues not in default. For defaulted bonds, the
rating "DDD" to "D" is an assessment of the ultimate recovery value through
reorganization or liquidation.
To provide more detailed indications of credit quality, the
Fitch ratings from and including "AA" to "C" may be modified by the addition of
a plus (+) or minus (-) sign to show relative standing within these major rating
categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation
of investment risk. Capacity for timely repayment of
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<PAGE> 605
principal and interest is substantial such that adverse changes in business,
economic or financial conditions are unlikely to increase investment risk
substantially.
"AA" - Obligations for which there is a very low expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk albeit not very significantly.
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial conditions
may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk than
for obligations in higher categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one
of these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating
to denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
"AAA" - This designation represents the highest category
assigned by Thomson BankWatch to long-term debt and indicates that the ability
to repay principal and interest on a timely basis is extremely high.
"AA" - This designation indicates a very strong ability to
repay principal and interest on a timely basis with limited
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<PAGE> 606
incremental risk compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term
debt is in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit very
strong or strong capacity to pay principal and interest. Those issues determined
to possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable
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<PAGE> 607
Moody's Investment Grade ("VMIG"). Such ratings recognize the differences
between short-term credit risk and long-term risk. The following summarizes the
ratings by Moody's Investors Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the
best quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high
quality, with margins of protection ample although not so large as in the
preceding group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of
favorable quality, with all security elements accounted for but lacking the
undeniable strength of the preceding grades. Liquidity and cash flow protection
may be narrow and market access for refinancing is likely to be less well
established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of
adequate quality, carrying specific risk but having protection commonly regarded
as required of an investment security and not distinctly or predominantly
speculative.
"SG" - Loans bearing this designation are of speculative
quality and lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
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<PAGE> 608
FORM N-1A
---------
PART C. OTHER INFORMATION
-------------------------
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements:
---------------------
(1) To be filed by Amendment.
(b) Exhibits:
(1) (a) Articles of Incorporation dated September 9,
1982.(3)
(b) Articles Supplementary to Registrant's
Articles of Incorporation dated October 28,
1982.(3)
(c) Articles Supplementary to Registrant's
Articles of Incorporation dated December 22,
1987.(3)
(d) Articles Supplementary to Registrant's
Articles of Incorporation dated as of
October 30, 1990.(3)
(e) Articles Supplementary to Registrant's
Articles of Incorporation dated as of
November 9, 1990.(3)
(f) Articles Supplementary to Registrant's
Articles of Incorporation dated as of
March 19, 1991.(3)
(g) Certificate of Correction dated April 30,
1991 to Articles Supplementary dated as of
March 19, 1991.(3)
(h) Articles Supplementary to Registrant's
Articles of Incorporation dated as of
June 25, 1991.(3)
(i) Articles Supplementary to Registrant's
Articles of Incorporation dated as of
November 15, 1991.(3)
(j) Articles Supplementary to Registrant's
Articles of Incorporation dated as of
January 26, 1993.(3)
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<PAGE> 609
(k) Articles Supplementary to Registrant's
Articles of Incorporation dated as of
March 23, 1993.(3)
(l) Articles Supplementary to Registrant's
Articles of Incorporation dated as of
March 7, 1994.(3)
(m) Certificate of Correction dated October 17,
1994 to Articles Supplementary dated as of
March 8, 1994 to Registrant's Articles of
Incorporation.(3)
(n) Articles Supplementary to Registrant's
Articles of Incorporation dated as of
February 22, 1995.(3)
(o) Articles Supplementary to Registrant's
Articles of Incorporation dated as of April
17, 1995.(3)
(p) Articles Supplementary to Registrant's
Articles of Incorporation dated June 27,
1995.(3)
(q) Articles Supplementary to Registrant's
Articles of Incorporation dated September 18,
1995.(3)
(r) Articles Supplementary to Registrant's
Articles of Incorporation dated August 30,
1996.(5)
(s) Form of Articles Supplementary to
Registrant's Articles of Incorporation.(5)
(2) Restated and Amended By-Laws as approved and
adopted by Registrant's Board of Directors.
(3) None.
(4) None.
(5) (a) Amended and Restated Advisory Agreement
between Registrant and Mississippi Valley
Advisors Inc. dated April 1, 1991.(3)
(b) Addendum No. 1 to Amended and Restated
Advisory Agreement between Registrant and
Mississippi Valley Advisors Inc. with respect
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<PAGE> 610
to the ARCH Treasury Money Market Portfolio,
dated September 27, 1991.(3)
(c) Addendum No. 2 to Amended and Restated
Advisory Agreement between Registrant and
Mississippi Valley Advisors, Inc. with
respect to the ARCH Small Cap Equity
(formerly Emerging Growth Portfolio), dated
April 1, 1992.(3)
(d) Addendum No. 3 to Amended and Restated
Advisory Agreement between Registrant and
Mississippi Valley Advisors Inc. with respect
to the ARCH Balanced Portfolio dated April 1,
1993.(3)
(e) Addendum No. 4 to Amended and Restated
Advisory Agreement between Registrant and
Mississippi Valley Advisors Inc. dated March
15, 1994.(3)
(f) Addendum No. 5 to Amended and Restated
Advisory Agreement between Registrant and
Mississippi Valley Advisors Inc. with respect
to the Short-Intermediate Municipal Portfolio
dated July 10, 1995.(3)
(g) Addendum No. 6 to Amended and Restated
Advisory Agreement between Registrant and
Mississippi Valley Advisors Inc. with respect
to the Tax-Exempt Money Market, Missouri Tax-
Exempt Bond and Kansas Tax-Exempt Bond
Portfolios dated September 29, 1995.(3)
(h) Addendum No. 7 to Amended and Restated
Advisory Agreement between Registrant and
Mississippi Valley Advisors Inc. with respect
to the Equity Income, National Municipal Bond
and Intermediate Corporate Bond (formerly
Short-Intermediate Corporate Bond Portfolios)
dated November 15, 1996.
(i) Form of Addendum No. 8 to Amended and
Restated Advisory Agreement between
Registrant and Mississippi Valley Advisors
Inc. with respect to the Equity Index and
Bond Index Portfolios.(5)
(j) Sub-Advisory Agreement between Mississippi
Valley Advisors Inc. and Clay Finlay Inc.
dated August 29, 1996.(5)
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<PAGE> 611
(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 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 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 Registrant and The Winsbury Company
Limited Partnership with respect to the
Short-Intermediate Municipal Portfolio and
Investor B Shares of the Money Market
Portfolio is incorporated herein by reference
to Exhibit (6)(d) of Post-Effective Amendment
No. 31 to Registrant's Registration Statement
on Form N-1A, filed September 20, 1995.
(e) Addendum No. 4 to Distribution Agreement
between Registrant and The Winsbury Company
Limited Partnership with respect to the Tax-
Exempt Money Market, Missouri Tax-Exempt Bond
and Kansas Tax-Exempt Bond Portfolios dated
September 29, 1995.(3)
(f) Addendum No. 5 to Distribution Agreement
between Registrant and BISYS Fund Services
with respect to the Equity Income, National
Municipal Bond and Intermediate Corporate
Bond (formerly Short-Intermediate Corporate
Bond) Portfolios dated November 15, 1996.
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<PAGE> 612
(g) Form of Addendum No. 6 to Distribution
Agreement between Registrant and BISYS Fund
Services with respect to the Equity Index and
Bond Index Portfolios.(5)
(h) Amendment No. 1 to Distribution Agreement
between Registrant and The Winsbury Company
Limited Partnership dated as of September 29,
1995.(1)
(7) None.
(8) (a) Custodian Agreement between Registrant and
Mercantile Bank of St. Louis, National
Association dated as of April 1, 1992 is
incorporated herein by reference to Exhibit
(8)(a) of Post-Effective Amendment No. 17 to
Registrant's Registration Statement on Form
N-1A, filed March 31, 1992.
(b) Custody Fee Agreement between Registrant and
Mercantile Bank of St. Louis, National Association
dated April 1, 1995 is incorporated herein by
reference to Exhibit (8)(b) of Post-Effective
Amendment No. 29 to Registrant's Registration
Statement on Form N-1A, filed April 14, 1995.
(c) Custody Fee Agreement between Registrant and
Mercantile Bank of St. Louis, National Association
dated July 10, 1995 is incorporated herein by
reference to Exhibit (8)(c) of Post-Effective
Amendment No. 31 to Registrant's Registration
Statement on Form N-1A, filed September 20, 1995.
(d) Custody Fee Agreement between Registrant and
Mercantile Bank of St. Louis, National
Association dated September 29, 1995.(3)
(e) Custody Fee Agreement between
Registrant and Mercantile Bank of St. Louis,
National Association dated November 15, 1996.
(f) Form of Custody Fee Agreement between
Registrant and Mercantile Bank of St. Louis
National Association.(5)
(g) Global Sub-Custodian Agreement among Bankers
Trust Company of New York, Registrant and
Mercantile Bank of St. Louis, National
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<PAGE> 613
Association dated as of April 1, 1994 is
incorporated herein by reference to Exhibit (8)(j)
of Post-Effective Amendment No. 25 to Registrant's
Registration Statement on Form N-1A, filed
November 8, 1994.
(h) Securities Lending Amendment dated August 4,
1994 to Custodian Agreement dated April 1,
1992 between Registrant and Mercantile Bank
of St. Louis, National Association is
incorporated herein by reference to Exhibit
(8)(k) of Post-Effective Amendment No. 25 to
Registrant's Registration Statement on Form
N-1A, filed November 8, 1994.
(9) (a) Administration Agreement between Registrant
and The Winsbury Service Corporation dated
October 1, 1993 is incorporated herein by
reference to Exhibit (9)(a) of Post-Effective
Amendment No. 25 to Registrant's Registration
Statement on Form N-1A, filed November 8,
1994.
(b) Addendum No. 1 to Administration Agreement
between Registrant and The Winsbury Service
Corporation with respect to the ARCH
International Equity Portfolio dated March
15, 1994 is incorporated herein by reference
to Exhibit (9)(b) of Post-Effective Amendment
No. 25 to Registrant's Registration Statement
on Form N-1A, filed November 8, 1994.
(c) Addendum No. 2 to Administration Agreement
between Registrant and BISYS Fund Services
Ohio, Inc. (formerly known as The Winsbury
Service Corporation) with respect to Investor
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 dated
July 10, 1995 is incorporated herein by
reference to Exhibit (9)(d) of Post-Effective
Amendment No. 31 to Registrant's Registration
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<PAGE> 614
Statement on Form N-1A, filed September 20,
1995.(3)
(e) Addendum No. 4 to Administration Agreement
between Registrant and BISYS Fund Services
Ohio, Inc. with respect to the Tax-Exempt
Money Market, Missouri Tax-Exempt Bond and
Kansas Tax-Exempt Bond Portfolios dated
September 29, 1995.(3)
(f) Addendum No. 5 to Administration Agreement
between Registrant and BISYS Fund Services
Ohio, Inc. with respect to the Equity Income,
National Municipal Bond and Intermediate
Corporate bond (formerly Short-Intermediate
Corporate Bond) Portfolios dated November 15,
1996.
(g) Form of Addendum No. 6 to Administration
Agreement between Registrant and BISYS Fund
Services Ohio, Inc. with respect to the
Equity Index and Bond Index Portfolios.(5)
(h) Transfer Agency Agreement between Registrant and
The Winsbury Service Corporation dated October 1,
1993 is incorporated herein by reference to Exhibit
(9)(c) of Post-Effective Amendment No. 25 to
Registrant's Registration Statement on Form N-1A,
filed November 8, 1994.
(i) Addendum No. 1 to Transfer Agency Agreement
between Registrant and The Winsbury Service
Corporation with respect to the ARCH
International Equity Portfolio dated March
15, 1994 is incorporated herein by reference
to Exhibit (9)(d) of Post-Effective Amendment
No. 25 to Registrant's Registration Statement
on Form N-1A, filed November 8, 1994.
(j) Addendum No. 2 to Transfer Agency Agreement
between Registrant and BISYS Fund Services
Ohio, Inc. (formerly known as The Winsbury
Service Corporation) with respect to Investor
B Shares of the non-money market Portfolios
dated as of March 1, 1995 is incorporated
herein by reference to Exhibit (9)(g) of
Post-Effective Amendment No. 29 to
Registrant's Registration Statement on Form
N-1A, filed April 14, 1995.
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<PAGE> 615
(k) Addendum No. 3 to Transfer Agency Agreement
between Registrant and BISYS Fund Services
Ohio, Inc. with respect to the Short-
Intermediate Municipal Portfolio and Investor
B Shares of the Money Market Portfolio is
incorporated herein by reference to Exhibit
(9)(i) of Post-Effective Amendment No. 31 to
Registrant's Registration Statement on Form
N-1A, filed September 20, 1995.
(l) Addendum No. 4 to Transfer Agency Agreement
between Registrant and BISYS Fund Services
Ohio, Inc. with respect to the Tax-Exempt
Money Market, Missouri Tax-Exempt Bond and
Kansas Tax-Exempt Bond Portfolios dated
September 29, 1995.(3)
(m) Addendum No. 5 to Transfer Agency Agreement
between Registrant and BISYS Fund Services
Ohio, Inc. with respect to the Equity Income,
National Municipal Bond and Intermediate
Corporate Bond (formerly Short-Intermediate
Corporate Bond) Portfolios dated November 15,
1996.
(n) Form of Addendum No. 6 to Transfer Agency
Agreement between Registrant and BISYS Fund
Services Ohio, Inc. with respect to the
Equity Index and Bond Index Portfolios.(5)
(o) Amendment No. 1 to Transfer Agency Agreement
between Registrant and BISYS Fund Services
Ohio, Inc. dated as of September 29, 1995.(1)
(p) Amendment No. 2 to Transfer Agency Agreement
between Registrant and BISYS Fund Services
Ohio, Inc. dated October 1, 1995.(3)
(q) (1) Distribution and Services Plan (Investor
A Shares) under Rule 12b-1 and Form of
Agreement.(5)
(2) Distribution and Services Plan (Investor
B Shares) under Rule 12b-1 and Form of
Agreement.(4)
(3) Administrative Services Plan (Trust
Shares) and Form of Agreement.(5)
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<PAGE> 616
(4) Administrative Services Plan
(Institutional Shares) and Form of
Agreement.(5)
(10) Opinion and consent of counsel.(2)
(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
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) Purchase Agreements between Registrant and
BISYS Fund Services Ohio, Inc. dated
September 29, 1995.(3)
(f) (1) Purchase Agreement between Registrant
and BISYS Fund Services Ohio, Inc. with
respect to the National Municipal Bond
Portfolio dated November 14, 1996.
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<PAGE> 617
(2) Form of Purchase Agreements between
Registrant and BISYS Fund Services Ohio,
Inc. with respect to the Equity Income
and Intermediate Corporate Bond
(formerly Short-Intermediate Corporate
Bond) Portfolio.(3)
(g) Form of Purchase Agreements between
Registrant and BISYS Fund Services Ohio,
Inc.(5)
(14) None.
(15) None.
(16) (a) Schedule of Computation of Performance
Calculations for Investor A (formerly
Investor) Shares and Trust Shares of the
Money Market, Treasury Money Market,
Government & Corporate Bond, Growth & Income
Equity, U.S. Government Securities, Emerging
Growth and Balanced Portfolio are
incorporated herein by reference to Exhibit
(16) of Post-Effective Amendment No. 24 to
Registrant's Registration Statement on Form
N-1A, filed on March 31, 1994.
(b) Schedule of Computation of Performance
Calculations for Investor A (formerly
Investor), Trust and Institutional Shares of
the International Equity Portfolio is
incorporated herein by reference to Exhibit
(16)(b) of Post-Effective Amendment No. 25 to
Registrant's Registration Statement on Form
N-1A, filed November 8, 1994.
(c) Schedule of Computation of Performance
Calculations for Institutional Shares of the
Money Market, Treasury Money Market,
Government & Corporate Bond, Growth & Income
Equity, U.S. Government Securities, Emerging
Growth, Balanced and International Equity
Portfolios is incorporated herein by
reference to Exhibit (16)(c) of Post-
Effective Amendment No. 29 to Registrant's
Registration Statement on Form N-1A, filed
April 14, 1995.
(d) Schedule of Computation of Performance
Calculations for Investor B Shares of the
Government & Corporate Bond, Growth & Income
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<PAGE> 618
Equity, U.S. Government Securities, Emerging
Growth, Balanced and International Equity
Portfolios is incorporated herein by
reference to Exhibit (16)(c) of Post-
Effective Amendment No. 29 to Registrant's
Registration Statement on Form N-1A, filed
April 14, 1995.
(e) Schedule of Computation of Performance
Calculations for Trust Shares and Investor A
Shares of the Short-Intermediate Municipal
Portfolio.(1)
(f) Schedule of Computation of Performance Calculations
for Trust and Investor A Shares of the Tax-Exempt
Money Market, Missouri Tax-Exempt Bond and Kansas
Tax-Exempt Bond Portfolios and for Investor B
Shares of the Missouri Tax-Exempt Bond and Kansas
Tax- Exempt Bond Portfolios.(3)
(g) Schedule of Computation of Performance
Calculations for Trust, Investor A and
Investor B Shares of the National Municipal
Bond Portfolios.
(17) Not Applicable.
(18) Amended and Restated Plan Pursuant to Rule
18f-3 for Operation of a Multi-Class System.(5)
(27) Financial Data Schedules as of November 30, 1996.
- ----------
1. Filed electronically as an Exhibit and incorporated herein
by reference to Post-Effective Amendment No. 33 to
Registrant's Registration Statement on Form N-1A (File No.
2-79285) on January 2, 1996.
2. Filed under Rule 24f-2 as part of Registrant's Rule 24f-2
Notice on January 28, 1997.
3. Filed electronically as an Exhibit and incorporated herein
by reference to Post-Effective Amendment No. 34 to
Registrant's Registration Statement on Form N-1A (File No.
2-79285) on February 28, 1996.
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<PAGE> 619
4. Filed electronically as an Exhibit and incorporated herein
by reference to Post-Effective Amendment No. 35 to
Registrant's Registration Statement on Form N-1A (File No.
2-79285) on March 28, 1996.
5. Filed electronically as an Exhibit and incorporated herein
by reference to Post-Effective Amendment No. 36 to
Registrant's Registration Statement on Form N-1A (File No.
2-79285) on October 8, 1996.
Item 25. Persons Controlled By or Under Common Control with Registrant
-------------------------------------------------------------
Not Applicable.
Item 26. Number of Holders of Securities
As of December 31, 1996:
Number of
Title of Class Record Holders
-------------- --------------
Class A Common Stock (The ARCH
Money Market Portfolio)........................................ 183
Class A - Special Series 1 Common Stock
(The ARCH Money Market
Portfolio)..................................................... 25
Class A - Special Series 2 Common Stock
(The ARCH Money Market Portfolio).............................. 3
Class A - Special Series 3 Common Stock
(The ARCH Money Market
Portfolio)..................................................... 48
Class B Common Stock (The ARCH
(Treasury Money Market
Portfolio)..................................................... 12
Class B - Special Series 1 Common Stock
(The ARCH Treasury Money Market
Portfolio)..................................................... 6
Class B - Special Series 2 Common Stock
(The ARCH Treasury Money Market
Portfolio)..................................................... 3
Class C Common Stock (The ARCH
Growth & Income Equity
Portfolio)..................................................... 1,300
Class C -Special Series 1 Common Stock
(The ARCH Growth & Income Equity
Portfolio)..................................................... 15
Class C -Special Series 2 Common Stock
(The ARCH Growth & Income Equity
Portfolio)..................................................... 4
Class C -Special Series 3 Common Stock
(The ARCH Growth & Income Equity
Portfolio)..................................................... 486
Class D Common Stock (The ARCH
Government & Corporate Bond
Portfolio)..................................................... 222
-12-
<PAGE> 620
Number of
Title of Class Record Holders
-------------- --------------
Class D - Special Series 1 Common Stock
(The ARCH Government & Corporate Bond
Portfolio)..................................................... 6
Class D - Special Series 2 Common Stock
(The ARCH Government & Corporate Bond
Portfolio)..................................................... 4
Class D - Special Series 3 Common Stock
(The ARCH Government & Corporate Bond
Portfolio)..................................................... 56
Class E Common Stock (The ARCH
U.S. Government Securities
Portfolio)..................................................... 212
Class E - Special Series 1 Common Stock
(The ARCH U.S. Government Securities
Portfolio)..................................................... 5
Class E - Special Series 2 Common Stock
(The ARCH U.S. Government Securities
Portfolio)..................................................... 3
Class E - Special Series 3 Common Stock
(The ARCH U.S. Government Securities
Portfolio)..................................................... 57
Class F Common Stock (The ARCH Small
Cap Equity Portfolio).......................................... 884
Class F - Special Series 1 Common Stock
(The ARCH Small Cap Equity
Portfolio)..................................................... 21
Class F - Special Series 2 Common Stock
(The ARCH Small Cap Equity
Portfolio)..................................................... 4
Class F - Special Series 3 Common Stock
(The ARCH Small Cap Equity
Portfolio)..................................................... 263
Class G Common Stock (The ARCH Balanced
Portfolio)..................................................... 242
Class G - Special Series 1 Common Stock
Common Stock (The ARCH Balanced
Portfolio)..................................................... 4
Class G - Special Series 2 Common Stock
Stock (The ARCH Balanced
Portfolio)..................................................... 4
Class G Common Stock - Special Series 3
Common Stock (The ARCH Balanced
Portfolio)..................................................... 52
Class H Common Stock (The ARCH
International Equity
Portfolio)..................................................... 239
Class H - Special Series 1 Common
Stock - (The ARCH International Equity
Portfolio)..................................................... 5
Class H - Special Series 2 Common Stock
(The ARCH International Equity
Portfolio)..................................................... 4
Class H - Special Series 3 Common Stock
(The ARCH International Equity
Portfolio)..................................................... 138
Class I Common Stock (The ARCH
Short-Intermediate Municipal
Portfolio)..................................................... 3
-13-
<PAGE> 621
Number of
Title of Class Record Holders
-------------- --------------
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)............................................ 18
Class J - Special Series 1
Common Stock (The ARCH Tax-Exempt Money
Market Portfolio)................................................... 6
Class K Common Stock (The ARCH Missouri
Tax-Exempt Bond Portfolio)......................................... 511
Class K - Special Series 1
Common Stock (The ARCH Missouri
Tax-Exempt Bond Portfolio).......................................... 4
Class K - Special Series 2
Common Stock (The ARCH Missouri
Tax-Exempt Bond Portfolio).......................................... 41
Class L Common Stock (The ARCH Kansas
Tax-Exempt Bond Portfolio).......................................... 0
Class L - Special Series 1
Common Stock (The ARCH Kansas
Tax-Exempt Bond Portfolio).......................................... 0
Class L - Special Series 2
Common Stock (The ARCH Kansas
Tax-Exempt Bond Portfolio).......................................... 0
Class M - Common Stock (The ARCH Equity
Income Portfolio)................................................... 0
Class M - Special Series 1
Common Stock (The ARCH Equity Income Portfolio)..................... 0
Class M - Special Series 2
Common Stock (The ARCH Equity Income Portfolio)..................... 0
Class M - Special Series 3
Common Stock (The ARCH Equity Income Portfolio)..................... 0
Class N - Common Stock (The ARCH National
Municipal Bond Portfolio)........................................... 1
Class N - Special Series 1
Common Stock (The ARCH National
Municipal Bond Portfolio)........................................... 3
Class N - Special Series 2
Common Stock (The ARCH National
Municipal Bond Portfolio)........................................... 1
Class O - Common Stock (The ARCH Intermediate
Corporate Bond Portfolio)........................................... 0
Class O - Special Series 1
Common Stock (The ARCH Intermediate
Corporate Bond Portfolio)........................................... 0
Class O - Special Series 2
Common Stock (The ARCH Intermediate
Corporate Bond Portfolio)........................................... 0
Class P - Common Stock (The ARCH Equity
Index Portfolio).................................................... 0
Class P - Special Series 1
Common Stock (The ARCH Equity Index
Portfolio).......................................................... 0
Class P - Special Series 2
Common Stock (The ARCH Equity Index
Portfolio).......................................................... 0
Class Q - Common Stock (The ARCH Bond Index
Portfolio).......................................................... 0
-14-
<PAGE> 622
Class Q - Special Series 1
Common Stock (The ARCH Bond Index Portfolio)........................... 0
Class Q - Special Series 2
Common Stock (The ARCH Bond Index Portfolio)........................... 0
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 National Association ("Mercantile") is
a full-service national bank located in St. Louis, Missouri.
Mississippi Valley Advisors Inc. is a wholly-owned subsidiary of
-15-
<PAGE> 623
Mercantile and is responsible for providing advisory services to each of
Registrant's investment portfolios.
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-
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 Fund Services Ohio, Inc., acts as
administrator for the Registrant. BISYS Fund Services also distributes
the securities of American Performance Funds, AmSouth Mutual Funds, The
BB&T Mutual Funds Group, The Coventry Group, First Choice Funds Trust,
Fountain Square Funds, HSBC Family of Funds, The Highmark Group, The
Infinity Mutual Funds, Inc., The Kent Funds, MarketWatch Funds, MMA
Praxis Mutual Funds, M.S.D. & T. Funds, Inc., Pacific Capital Funds,
Parkstone Group of Funds, The Parkstone Advantage Funds, Pegasus Funds,
Qualivest Funds, The Republic Funds, The Riverfront Funds, Inc., SBSF
Funds, Inc. d/b/a Key Mutual Funds, The Sessions Group, Summit
Investment Trust, The Time Horizon Funds and The Victory Portfolios,
each of which is a management investment company.
B. To the best of Registrant's knowledge, the partners of
BISYS Fund Services are as follows:
-16-
<PAGE> 624
Positions and Offices
Name and Principal with BISYS Positions and Offices
Business Address Fund Services with Registrant
------------------ ---------------------- ---------------------
BISYS Fund Services, Inc. Sole General Partner None
3435 Stelzer Road
Columbus, Ohio 43219-3035
WC Subsidiary Corporation Sole Limited Partner
3435 Stelzer Road None
Columbus, Ohio 43219-3035
C. None.
Item 30. Location of Accounts and Records
--------------------------------
(1) Mercantile Bank 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).
(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-adviser
to the International Equity Portfolio).
(8) Bankers Trust Company, 16 Wall Street, New York, New York 10005 (records
relating to its function as sub-custodian for the International Equity
Portfolio).
Item 31. Management Services
-------------------
Inapplicable.
-17-
<PAGE> 625
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.
(b) Registrant hereby undertakes to file a post-effective amendment with
respect to the ARCH Equity Income, National Municipal Bond and Intermediate
Corporate Bond (formerly Short-Intermediate Corporate Bond) Portfolios, using
financial statements that need not be certified, within four to six months from
the effective date of the Registration Statement pertaining to such Portfolios.
(c) Registrant hereby undertakes to file a post-effective amendment with
respect to the ARCH Equity Index and Bond Index Portfolios, using financial
statements that need not be certified, within four to six months from the
effective date of the Registration Statement pertaining to such Portfolios.
-18-
<PAGE> 626
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly caused
this Post-Effective Amendment No. 37 to its Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of St.
Louis and the State of Missouri, on the 30th day of January, 1997.
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. 37 to its Registration Statement has
been signed below by the following persons in the capacities and on the dates
indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Jerry V. Woodham Chairman of the January 30, 1997
- -------------------- Board and President
Jerry V. Woodham
/s/* James C. Jacobsen Director January 30, 1997
- ----------------------
James C. Jacobsen
/s/* Joseph J. Hunt Director January 30, 1997
- -------------------
Joseph J. Hunt
/s/* Donald E. Kiernan Director January 30, 1997
- ----------------------
Donald E. Kiernan
/s/* Robert M. Cox, Jr. Director January 30, 1997
- -----------------------
Robert M. Cox, Jr.
/s/* Lyle L. Meyer Director January 30, 1997
- ------------------
Lyle L. Meyer
/s/* Ronald D. Winney Director & Treasurer January 30, 1997
- ---------------------
Ronald D. Winney
*By: /s/ Jerry V. Woodham
---------------------
Jerry V. Woodham
Attorney-in-fact
<PAGE> 627
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> 628
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> 629
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> 630
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> 631
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> 632
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> 633
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> 634
EXHIBIT INDEX
Exhibit No. Description Page No.
(2) Restated and Amended By-Laws as approved
and adopted by Registrant's Board of
Directors
(5)(h) Addendum No. 7 to Amended and Restated
Advisory Agreement between Registrant
and Mississippi Valley Advisors Inc.
with respect to the Equity Income,
National Municipal Bond and Intermediate
Corporate Bond (formerly Short-
Intermediate Corporate Bond) Portfolios
dated November 15, 1996.
(6)(f) Addendum No. 5 to Distribution Agreement
between Registrant and BISYS Fund
Services with respect to the Equity
Income, National Municipal Bond and
Intermediate Corporate Bond (formerly
Short-Intermediate Corporate Bond)
Portfolios dated November 15, 1996.
(8)(e) Custody Fee Agreement between Registrant
and Mercantile Bank of St. Louis,
National Association dated November 15,
1996.
(9)(f) Addendum No. 5 to the Administration
Agreement between Registrant and BISYS
Fund Services Ohio, Inc. with respect to
the Equity Income, National Municipal
Bond and Intermediate Corporate Bond
(formerly Short-Intermediate Corporate
Bond) Portfolios dated November 15,
1996.
(9)(m) Addendum No. 5 to Transfer Agency
Agreement between Registrant and BISYS
Fund Services ohio,Inc. with respect to
the Equity Income, National Municipal
Bond and Intermediate Corporate Bond
(formerly Short-Intermediate Corporate
Bond) portfolios as dated November 15,
1996.
(11) Consent of Drinker Biddle & Reath.
-20-
<PAGE> 635
(13)(f)(1) Purchase Agreement between Registrant
and BISYS Fund Services Ohio, Inc. with
respect to the National Municipal Bond
Portfolio dated November 14, 1996.
(16)(g) Schedule of Performance Calculations for
Trust, Investor A and Investor B Shares
of the National Municipal Bond
Portfolios.
(27) Financial Data Schedules as of November
30, 1996.
-21-
<PAGE> 1
Exhibit (2)
THE ARCH FUND, INC.
RESTATED AND AMENDED BY-LAWS
ARTICLE I
STOCKHOLDERS
SECTION 1. Annual Meetings. The annual meeting of the
stockholders of the Corporation shall be held at the registered office of the
Corporation, or at such other place, within or without the State of Maryland, as
may be determined by the Board of Directors and as shall be designated in the
notice of said meeting, on such day and at such time as shall be specified by
the Board of Directors for the purpose of electing directors and for the
transaction of such other business as may properly be brought before the
meeting.
SECTION 2. Special Meetings. Special meetings of the
stockholders for any purpose or purposes, unless otherwise prescribed by statute
or by the Charter, may be held at any place, within or without the State of
Maryland, and may be called at any time by the Board of Directors or by the
President, and shall be called by the President or Secretary at the request in
writing of a majority of the Board or at the request in writing of stockholders
entitled to cast at least twenty-five (25) percent of all the votes entitled to
be cast at such meeting. Such request shall state the purpose or purposes of the
proposed meeting and the matters proposed to be acted on at it; provided,
however, that unless requested by stockholders entitled to cast a majority of
all the votes entitled to be cast at the meeting, a special meeting need not be
called to consider any matter which is substantially the same as a matter voted
on at any special meeting of the stockholders held during the preceding twelve
(12) months.
SECTION 3. Notice of Meetings and Shareholder List. Written or
printed notice of the purpose or purposes and of the time and place of every
meeting of the stockholders shall be given by the Secretary of the Corporation
to each stockholder of record entitled to vote at the meeting and each other
stockholder entitled to notice of the meeting, by placing such notice in the
mail at least ten (10) days, but not more than ninety (90) days, and in any
event within the period prescribed by law, prior to the date named for the
meeting addressed to each stockholder at his address appearing on the books of
the Corporation or supplied by him to the Corporation for the purpose of notice.
The notice of every meeting of stockholders may be accompanied by a form of
proxy approved by the Board of Directors in favor of such actions or persons as
the Board of Directors may select.
<PAGE> 2
At least five (5) days prior to each meeting of stockholders,
the officer or agent having charge of the share transfer books of the
Corporation shall make a complete list of stockholders entitled to vote at such
meeting, in alphabetical order with the address of and the number of shares held
by each stockholder.
SECTION 4. Record Date. The Board of Directors may fix a date
not more than ninety (90) days preceding the date of any meeting of
stockholders, or the date fixed for the payment of any dividend, or the date of
the allotment of rights or the date when any change or conversion or exchange of
shares shall go into effect, as a record date for the determination of
stockholders entitled to notice of, or to vote at, any such meeting (or any
adjournment thereof) or entitled to receive payment of any dividend, or to
receive such allotment of rights, or to exercise such rights, as the case may
be. In such case, only stockholders of record at the close of business on the
date so fixed shall be entitled to vote, to receive notice, or receive dividends
or rights, or to exercise rights, notwithstanding any subsequent transfer on the
books of the Corporation. The Board of Directors shall not close the books of
the Corporation against transfers of shares during the whole or any part of such
period. In the case of a meeting of stockholders, the record date shall be fixed
not less than ten (10) days prior to the date of the meeting.
SECTION 5. Quorum and Shareholder Action. Except as otherwise
provided by statute or by the Charter, the presence in person or by proxy of
stockholders of all the Corporation entitled to cast at least a majority of all
the votes to be cast at the meeting shall constitute a quorum and a majority of
all the votes cast at a meeting at which a quorum is present shall be sufficient
to approve any matter which properly comes before the meeting. In the absence of
a quorum, the stockholders present in person or by proxy, by majority vote and
without notice other than by announcement, may adjourn the meeting from time to
time as provided in Section 7 of this Article I until a quorum shall attend. The
stockholders present at any duly organized meeting may continue to do business
until adjournment, notwithstanding the withdrawal of enough stockholders to
leave less than a quorum.
SECTION 6. Organization. At every meeting of the stockholders,
the Chairman of the Board, if one has been selected and is present or, if not,
the President, or in the absence of the Chairman of the Board and the President,
a Vice President, or in the absence of the Chairman of the Board, the President
and all the Vice Presidents, a chairman chosen by the stockholders, shall act as
chairman; and the Secretary, or in his absence, an Assistant Secretary, or in
the absence of the Secretary and all the Assistant Secretaries, a person
appointed by the chairman, shall act as secretary.
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<PAGE> 3
SECTION 7. Adjournment. Any meeting of the stockholders may be
adjourned from time to time, without notice other than by announcement at the
meeting at which such adjournment is taken, and at any such adjourned meeting at
which a quorum shall be present any action may be taken that could have been
taken at the meeting originally called; provided, that the meeting may not be
adjourned to a date more than the number of days after the original record date
for the meeting permitted by law, and if after the adjournment a new record date
is fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the adjourned meeting.
SECTION 8. No Annual Meeting Required. No annual meeting of
stockholders of the Corporation shall be held unless required by applicable law
or otherwise determined by the Board of Directors.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. Election and Powers. The number of directors shall
be fixed from time to time by resolution of the Board of Directors adopted by a
majority of the directors then in office; provided, however, that the number of
directors shall in no event be less than three (3) nor more than fifteen (15).
The business, affairs and property of the Corporation shall be managed by the
Board of Directors, which may exercise all such powers of the Corporation and do
all such lawful acts and things as are not by statute, the Charter or these
By-Laws required to be exercised or done by the stockholders. Subject to the
provisions of ARTICLE I, Section 8, the members of the Board of Directors shall
be elected by the stockholders at their annual meeting and each Director shall
hold office until the annual meeting next after his election and until his
successor shall have been duly elected and qualified, until he shall have
resigned, or until he shall have been removed as provided in Section 11 of this
Article II.
SECTION 2. Regular Meetings. Regular meetings of the Board of
Directors may be held without notice on such dates as the Board may from time to
time determine.
SECTION 3. Special Meetings. Special meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board, President
or by a majority of the directors either in writing or by vote at a meeting.
SECTION 4. Notice of Special Meetings. Notice of the place,
day and hour of every special meeting shall be delivered personally to each
director or mailed, telegraphed or cabled to
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<PAGE> 4
his address on the books of the Corporation at least one (1) day before the
meeting. It shall not be requisite to the validity of any meeting of the Board
of Directors that notice thereof shall have been given to any director who is
present thereat, or, if absent, waives notice thereof in writing filed with the
records of the meeting either before or after the holding thereof.
SECTION 5. Place of Meetings. The Board of Directors may hold
its regular and special meetings at such place or places within or without the
State of Maryland as the Board may from time to time determine.
SECTION 6. Quorum and Board Action. Except as otherwise
provided by statute or by the Charter: (a) one-third (1/3) of the entire Board
of Directors, but in no case less than two (2) directors, shall be necessary to
constitute a quorum for the transaction of business at each meeting of the
Board; (b) the action of a majority of the directors present at a meeting at
which a quorum is present shall be the action of the Board; and (c) if at any
meeting there be less than a quorum present, a majority of those directors
present may adjourn the meeting from time to time, but not for a period greater
than thirty (30) days at any one time, without notice other than by announcement
at the meeting until a quorum shall attend. At any such adjourned meeting at
which a quorum shall be present, any business may be transacted which might have
been transacted at the meeting as originally scheduled.
SECTION 7. Chairman. The Board of Directors may at any time
appoint one of its members as Chairman of the Board, who shall serve at the
pleasure of the Board and who shall perform and execute such duties and powers
as may be conferred upon or assigned to him by the Board or these By-Laws, but
who shall not by reason of performing and executing these duties and powers be
deemed an officer or employee of the Corporation.
SECTION 8. Organization. At every meeting of the Board of
Directors, the Chairman of the Board, if one has been selected and is present,
and, if not, the President, or in the absence of the Chairman of the Board and
the President, a Vice President, or in the absence of the Chairman of the Board,
the President and all the Vice Presidents, a chairman chosen by a majority of
the directors present, shall preside; and the Secretary, or in his absence, an
Assistant Secretary, or in the absence of the Secretary and all the Assistant
Secretaries, a person appointed by the chairman, shall act as secretary.
SECTION 9. Vacancies. Any vacancy on the Board of Directors
occurring by reason of any increase in the number of directors may be filled by
a majority of the entire Board of Directors. Any vacancy on the Board of
Directors occurring for any other cause may be filled by a majority of the
remaining
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<PAGE> 5
members of the Board of Directors, whether or not these members constitute a
quorum under Section 7 of this Article II. Any director so chosen to fill a
vacancy shall hold office until the next annual meeting of stockholders and
until his successor shall have been duly elected and qualified.
SECTION 10. Removal. At any meeting of the stockholders called
for that purpose, the stockholders of the Corporation may remove from office any
director, with or without cause, by the affirmative vote of a majority of the
votes entitled to be cast for the election of directors, and another director
may be elected in the place of the director so removed to serve for the
remainder of the term of the removed director.
SECTION 11. Resignations. Any director may resign at any time
by giving written notice to the Board of Directors, the President or the
Secretary. Any such resignation shall take effect at the time of the receipt of
such notice or at any later time specified therein; and unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
SECTION 12. Committees. The Board of Directors may appoint
from among its members an executive and other committees of the Board composed
of two (2) or more directors. To the extent permitted by law, the Board of
Directors may delegate to any such committee or committees any of the powers of
the Board of Directors in the management of the business, affairs and property
of the Corporation and may authorize the seal of the Corporation to be affixed
to all papers which may require it. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required. The
members of a committee present at any meeting, whether or not they constitute a
quorum, may appoint a director to act in the place of an absent member.
SECTION 13. Telephone Conference. Members of the Board of
Directors or any committee thereof may participate in a meeting of the Board or
such committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other at the same time and participation by such means shall constitute
presence in person at the meeting.
SECTION 14. Compensation of Directors. Any director, whether
or not he is a salaried officer, employee or agent of the Corporation, may be
compensated for his services as director or as a member of a committee, or as
Chairman of the Board or chairman of a committee, and in addition may be
reimbursed for
-5-
<PAGE> 6
transportation and other expenses, all in such manner and amounts as the
directors may from time to time determine.
ARTICLE III
OFFICERS
SECTION 1. Number. The officers of the Corporation shall be a
President, a Secretary and a Treasurer, and may include one or more Vice
Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers,
and such other officers as the Board of Directors may from time to time
determine. Any officer may hold more than one office in the Corporation, except
that an officer may not serve concurrently as both the President and a Vice
President.
SECTION 2. Election and Term of Office. The officers of the
Corporation shall be elected by the Board of Directors and, subject to earlier
termination of office, each officer shall hold office for one year and until his
successor shall have been elected and qualified.
SECTION 3. Resignations. Any officer may resign at any time by
giving written notice to the Board of Directors or to the President, or the
Secretary of the Corporation. Any such resignation shall take effect at the date
of the receipt of such notice or at any later time specified therein; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
SECTION 4. Removal. If the Board of Directors in its judgment
finds that the best interests of the Corporation will be served, the Board may
remove any officer of the Corporation at any time.
SECTION 5. President. The President shall be the chief
executive officer of the Corporation and shall have general supervision over the
business and operations of the Corporation, subject, however, to the control of
the Board of Directors. He, or such persons as he shall designate, shall sign,
execute, acknowledge, verify, deliver and accept, in the name of the
Corporation, deeds, mortgages, bonds, contracts and other instruments authorized
by the Board of Directors, except in the case where the signing, execution,
acknowledgement, verification, delivery or acceptance thereof shall be delegated
by the Board to some other officer or agent of the Corporation; and, in general,
he shall have general executive powers as well as other powers and duties as
from time to time may be conferred upon or assigned to him by the Board.
SECTION 6. The Vice Presidents. In the absence or disability
of the President, or when so directed by the
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<PAGE> 7
President, any Vice President designated by the Board of Directors may perform
any or all of the duties of the President, and, when so acting, shall have all
the powers of, and be subject to all the restrictions upon, the President;
provided, however, that no Vice President shall act as a member of or as
chairman of any committee of which the President is a member or chairman by
designation of ex-officio, except when designated by the Board. Each Vice
President shall perform such other duties as from time to time may be conferred
upon or assigned to him by the Board or the President.
SECTION 7. The Secretary. The Secretary shall record all the
votes of the stockholders and of the directors and the minutes of the meetings
of the stockholders and of the Board of Directors in a book or books to be kept
for that purpose; he shall see that notices of meetings of the stockholders and
the Board of Directors are given and that all records and reports are properly
kept and filed by the Corporation as required by law; he shall be the custodian
of the seal of the Corporation and shall see that it is affixed to all documents
to be executed on behalf of the Corporation under its seal, provided that in
lieu of affixing the corporate seal to any document, it shall be sufficient to
meet the requirements of any law, rule or regulation relating to a corporate
seal to affix the word "(SEAL)" adjacent to the signature of the authorized
officer of the Corporation; and, in general, he shall perform all duties
incident to the office of Secretary, and such other duties as from time to time
may be conferred upon or assigned to him by the Board or the President.
SECTION 8. Assistant Secretaries. In the absence or disability
of the Secretary, or when so directed by the Secretary, any Assistant Secretary
may perform any or all of the duties of the Secretary, and, when so acting,
shall have all the powers of, and be subject to all restrictions upon, the
Secretary. Each Assistant Secretary shall perform such other duties as from time
to time may be conferred upon or assigned to him by the Board of Directors, the
President or the Secretary.
SECTION 9. The Treasurer. Subject to the provisions of any
contract which may be entered into with any custodian pursuant to authority
granted by the Board of Directors, the Treasurer shall have charge of all
receipts and disbursements of the Corporation and shall have or provide for the
custody of its funds and securities; he shall have full authority to receive and
give receipts for all money due and payable to the Corporation, and to endorse
checks, drafts and warrants, in its name and on its behalf, and to give full
discharge for the same; he shall deposit all funds of the Corporation, except
such as may be required for current use, in such banks or other places of
deposit as the Board of Directors may from time to time designate; and, in
general, he shall perform all duties incident
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<PAGE> 8
to the office of Treasurer and such other duties as from time to time may be
conferred upon or assigned to him by the Board or the President.
SECTION 10. Assistant Treasurers. In the absence or disability
of the Treasurer, or when so directed by the Treasurer, any Assistant Treasurer
may perform any or all of the duties of the Treasurer, and, when so acting,
shall have all the powers of, and be subject to all the restrictions upon, the
Treasurer. Each Assistant Treasurer shall perform all such other duties as from
time to time may be conferred upon or assigned to him by the Board of Directors,
the President or the Treasurer.
SECTION 11. Compensation of Officers. The compensation of all
officers shall be fixed from time to time by the Board of Directors, or any
committee or officer authorized by the Board so to do. No officer shall be
precluded from receiving such compensation by reason of the fact that he is also
a director of the Corporation.
ARTICLE IV
STOCK
SECTION 1. Ownership of Shares. The ownership of Shares shall
be recorded on the Corporation's record books. No stock certificates will be
issued. The Corporation's transfer agent shall agree to comply in full with the
requirements of Section 8-408 of the Maryland Commercial Law, or such other
applicable statute, with respect to the issuance of securities without
certificates, as such law may be amended from time to time. The Corporation's
record books shall be conclusive as to the identity of record holders and as to
the number of Shares held by such Shareholder.
SECTION 2. Transfer of Shares. Transfers of shares shall be
made on the books of the Corporation at the direction of the person named on the
Corporation's books, or by his attorney lawfully constituted in writing,
together with a proper request for redemption, to the Corporation's Transfer
Agent, with such evidence of the authenticity of such transfer, authorization
and such other matters as the Corporation or its agents may reasonably require,
and subject to such other reasonable terms and conditions as may be required by
the Corporation or its agents; or, if the Board of Directors shall by resolution
so provide, transfer of shares may be made in any other manner provided by law.
SECTION 3. Transfer Agents and Registrars. The Corporation may
have one or more Transfer Agents and one or more Registrars of its stock, whose
respective duties the Board of
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<PAGE> 9
Directors may, from time to time, define. The duties of the Transfer Agent and
Registrar may be combined.
SECTION 4. Stock Ledgers. The Corporation shall not be
required to keep original or duplicate stock ledgers at its principal office in
the City of Baltimore, Maryland, but stock ledgers shall be kept at the
respective offices of the Transfer Agents of the Corporation's capital stock.
ARTICLE V
SEAL
The seal of the Corporation shall be in such form as the Board
of Directors shall prescribe.
ARTICLE VI
SUNDRY PROVISIONS
SECTION 1. Amendments. (a) By Stockholders. By-Laws may be
adopted, altered, amended or repealed in the manner provided in Section 5 of
Article I hereof at any annual or special meeting of the stockholders.
(b) By Directors. By-Laws may be adopted,
altered, amended or repealed in the manner provided in Section 6 of Article II
hereof by the Board of Directors at any regular or special meeting of the Board.
SECTION 2. Indemnification of Directors and Officers. (a)
Indemnification. Any person who was or is a party or is threatened to be made a
party in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that such person is a current or former director or officer of the Corporation,
or is or was serving while a director or officer of the Corporation at the
request of the Corporation as a director, officer, partner, trustee, employee,
agent or fiduciary of another corporation, partnership, joint venture, trust,
enterprise or employee benefit plan, shall be indemnified by the Corporation
against judgments, penalties, fines, excise taxes, settlements and reasonable
expenses (including attorney's fees) actually incurred by such person in
connection with such action, suit or proceeding to the full extent permissible
under the General Laws of the State of Maryland, the Securities Act of 1933 and
the Investment Company Act of 1940, as such statutes are now or hereafter in
force, except that such indemnity shall not protect any such person against any
liability to the Corporation or any stockholder thereof to which such person
would otherwise be subject by reason of willful misfeasance, bad faith, gross
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<PAGE> 10
negligence or reckless disregard of the duties involved in the conduct of his
office.
(b) Advances. Any current or former director or
officer of the Corporation claiming indemnification within the scope of this
Section 2 shall be entitled to advances from the Corporation for payment of the
reasonable expenses incurred by him in connection with proceedings to which he
is a party in the manner and to the full extent permissible under the General
Laws of the State of Maryland, the Securities Act of 1933 and the Investment
Company Act of 1940, as such statutes are now or hereafter in force.
(c) Procedure. On the request of any current or
former director or officer requesting indemnification or an advance under this
Section 2, the Board of Directors shall determine, or cause to be determined, in
a manner consistent with the General Laws of the State of Maryland, the
Securities Act of 1933 and the Investment Company Act of 1940, as such statutes
are now or hereafter in force, whether the standards required by this Section 2
have been met.
(d) Other Rights. The indemnification provided by
this Section 2 shall not be deemed exclusive of any other right, in respect of
indemnification or otherwise, to which those seeking such indemnification may be
entitled under any insurance or other agreement, vote of stockholders or
disinterested directors or otherwise, both as to action by a director or officer
of the Corporation in his official capacity and as to action by such person in
another capacity while holding such office or position, and shall continue as to
a person who has ceased to be a director or officer and shall inure to the
benefit of the heirs, executors and administrators of such a person.
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<PAGE> 1
Exhibit (5)(h)
ADDENDUM NO. 7 TO AMENDED AND RESTATED ADVISORY AGREEMENT
This Addendum, dated as of November 15, 1996, is entered into
between THE ARCH FUND, INC., a Maryland corporation (the "Fund"), and
MISSISSIPPI VALLEY ADVISORS INC., a Missouri corporation ("MVA").
WHEREAS, the Fund and MVA have entered into an Amended and
Restated Advisory Agreement dated as of April 1, 1991, which was extended to
additional investment portfolios of the Fund (pursuant to Section 1(b) of the
Agreement) by Addenda dated September 27, 1991, April 1, 1992, April 1, 1993,
March 15, 1994, July 10, 1995 and September 29, 1995 (the "Advisory Agreement"),
pursuant to which the Fund appointed MVA to act as investment adviser to the
Fund for the ARCH Money Market, Treasury Money Market, Growth & Income Equity,
Emerging Growth, Government & Corporate Bond, U.S. Government Securities,
Balanced, International Equity, Short-Intermediate Municipal, Tax-Exempt Money
Market, Missouri Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios;
WHEREAS, Section 1(b) of the Advisory Agreement provides that
in the event the Fund establishes one or more additional investment portfolios
with respect to which it desires to retain MVA to act as the investment adviser
under the Advisory Agreement, the Fund shall so notify MVA in writing, and if
MVA is willing to render such services it shall notify the Fund in writing, and
the compensation to be paid to MVA shall be that which is agreed to in writing
by the Fund and MVA; and
WHEREAS, the Fund has notified MVA that it has established
three new portfolios, namely, the ARCH Equity Income, National Municipal Bond
and Short-Intermediate Corporate Bond Portfolios (collectively, the "New
Portfolios"), and that it desires to retain MVA to act as the investment adviser
therefor, and MVA has notified the Fund that it is willing to serve as
investment adviser for the New Portfolios;
NOW THEREFORE, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. APPOINTMENT. The Fund hereby appoints MVA to act as
investment adviser to the Fund for the New Portfolios for the period and on the
terms set forth in the Advisory Agreement. MVA hereby accepts such appointment
and agrees to render the services set forth in the Advisory Agreement, for the
compensation herein provided.
2. COMPENSATION. For the services provided and expenses
assumed pursuant to the Advisory Agreement with respect
<PAGE> 2
to the New Portfolios, the Fund will pay MVA from the assets belonging to the
respective Portfolios, and MVA will accept as full compensation therefor a fee,
computed daily and payable monthly (in arrears), at the annual rates of .75%,
.55% and .55%, of the average daily net assets of the ARCH Equity Income,
National Municipal Bond and Short-Intermediate Corporate Bond Portfolios,
respectively.
The fee attributable to each of the ARCH Equity Income,
National Municipal Bond and Short-Intermediate Corporate Bond Portfolios shall
be the obligation of that respective Portfolio and not of any other Portfolio
of the Fund.
3. CAPITALIZED TERMS. From and after the date hereof, the term
"Portfolios" as used in the Advisory Agreement shall be deemed to include the
New Portfolios. Capitalized terms used herein and not otherwise defined shall
have the meanings ascribed to them in the Advisory Agreement.
4. MISCELLANEOUS. Except to the extent supplemented hereby, the
Advisory Agreement shall remain unchanged and in full force and effect and is
hereby ratified and confirmed in all respects as supplemented hereby.
IN WITNESS WHEREOF, the undersigned have executed this
Addendum as of the date and year first above written.
THE ARCH FUND, INC.
By: /s/ Jerry V. Woodham
-----------------------
Jerry V. Woodham
President
MISSISSIPPI VALLEY ADVISORS INC.
By: /s/ John H. Blixen
-----------------------
John H. Blixen
President
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<PAGE> 1
Exhibit (6)(f)
ADDENDUM NO. 5 TO DISTRIBUTION AGREEMENT
This Addendum, dated as of November 15, 1996, is entered into
between THE ARCH FUND, INC. (the "Fund"), a Maryland corporation, and BISYS FUND
SERVICES ("BISYS"), an Ohio limited partnership formerly known as The Winsbury
Company Limited Partnership.
WHEREAS, the Fund and BISYS have entered into a Distribution
Agreement dated as of October 1, 1993 as amended March 15, 1994, March 1, 1995,
July 10, 1995 and September 29, 1995 (the "Distribution Agreement"), pursuant to
which the Fund appointed BISYS to act as Distributor for the Fund's ARCH Money
Market, Treasury Money Market, Growth & Income Equity, Emerging Growth,
Government & Corporate Bond, U.S. Government Securities, Balanced, International
Equity, Short-Intermediate Municipal, Tax-Exempt Money Market, Missouri
Tax-Exempt Bond and Kansas Tax- Exempt Bond Portfolios;
WHEREAS, Section 9 of the Distribution Agreement provides that
no provision of the Agreement may be changed, discharged or terminated orally,
but only by an instrument in writing signed by the party against which
enforcement of the change, discharge or termination is sought; and
WHEREAS, the Fund has notified BISYS that it has established
three new portfolios, namely, the ARCH Equity Income, National Municipal Bond
and Short-Intermediate Corporate Bond Portfolios (collectively, the "New
Portfolios"), and that it desires to retain BISYS to act as the Distributor
therefor, and BISYS has notified the Fund that it is willing to serve as
Distributor for the New Portfolios.
NOW THEREFORE, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. APPOINTMENT. The Fund hereby appoints BISYS to act as
Distributor to the Fund for the New Portfolios for the period and on the terms
set forth in the Distribution Agreement. BISYS hereby accepts such appointment
and agrees to render the services set forth in the Distribution Agreement.
2. TERMS. From and after the date hereof, the term
"Portfolios" as used in the Distribution Agreement shall be deemed to include
the New Portfolios. Capitalized terms used herein and not otherwise defined
shall have the meanings ascribed to them in the Distribution Agreement.
<PAGE> 2
3. APPENDIX A. Appendix A to the Distribution Agreement is
hereby supplemented to read as set forth in Appendix A attached hereto.
4. MISCELLANEOUS. Except to the extent supplemented hereby,
the Distribution Agreement shall remain unchanged and in full force and effect
and is hereby ratified and confirmed in all respects as supplemented hereby.
IN WITNESS WHEREOF, the undersigned have executed this
Addendum as of the date and year first above written.
THE ARCH FUND, INC.
By: /s/ Jerry V. Woodham
------------------------
Jerry V. Woodham
President
BISYS FUND SERVICES, INC.
By: /s/ Stephen G. Mintos
------------------------
Stephen G. Mintos
Executive Vice President
<PAGE> 3
APPENDIX A
to the
DISTRIBUTION AGREEMENT
between
THE ARCH FUND, INC.
and
BISYS FUND SERVICES, INC.
-----------------------------------------------------------------
Money Market Portfolio (Trust shares, Investor A shares, Institutional shares
and Investor B shares)
Treasury Money Market Portfolio (Trust shares, Investor A shares and
Institutional shares)
Growth & Income Equity Portfolio (Trust shares, Investor A shares, Institutional
shares and Investor B shares)
Emerging Growth Portfolio (Trust shares, Investor A shares, Institutional shares
and Investor B shares)
Government & Corporate Bond Portfolio (Trust shares, Investor A shares,
Institutional shares and Investor B shares)
U.S. Government Securities Portfolio (Trust shares, Investor A shares,
Institutional shares and Investor B shares)
Balanced Portfolio (Trust shares, Investor A shares, Institutional shares and
Investor B shares)
International Equity Portfolio (Trust shares, Investor A shares, Institutional
shares and Investor B shares)
Short-Intermediate Municipal Portfolio (Trust Shares and Investor A shares)
Tax-Exempt Money Market Portfolio (Trust shares and Investor A shares)
Missouri Tax-Exempt Bond Portfolio (Trust shares, Investor A shares and Investor
B shares)
Kansas Tax-Exempt Bond Portfolio (Trust shares, Investor A shares and Investor B
shares)
Equity Income Portfolio (Trust shares, Investor A shares, Institutional shares
and Investor B shares)
<PAGE> 4
National Municipal Bond Portfolio (Trust shares, Investor A shares and Investor
B shares)
Short-Intermediate Corporate Bond Portfolio (Trust shares, Investor A shares and
Institutional shares)
<PAGE> 1
Exhibit (8)(e)
November 15, 1996
Mercantile Bank National Association
One Mercantile Center
St. Louis, Missouri 63101
RE: Custody Fees for the ARCH Equity Income, National
Municipal Bond and Short-Intermediate Corporate
Bond Portfolios
-----------------------------------------------------
Gentlemen:
This letter constitutes our agreement with respect to
compensation to be paid to Mercantile Bank National Association ("Mercantile")
with respect to The ARCH Equity Income Portfolio (comprised of Class M, Class M
- - Special Series 1, Class M Special Series 2 and Class M - Special Series 3
shares), The ARCH National Municipal Bond Portfolio (comprised of Class N, Class
N - Special Series 1 and Class N - Special Series 2 shares) and The ARCH
Short-Intermediate Corporate Bond Portfolio (comprised of Class O, Class O -
Special Series 1 and Class O - Special Series 2 shares) (each class a "Series")
under the terms of the Custodian Agreement dated as of April 1, 1992 (the
"Custodian Agreement") between The ARCH Fund, Inc. (the "Fund") and Mercantile.
Pursuant to Paragraph 23 of the Custodian Agreement, and in consideration of the
services to be provided by you, we will pay Mercantile the following:
1. An annual custody fee (exclusive of any transaction charges),
which shall be calculated daily and paid monthly (in arrears) for each Series
as follows:
- The ARCH Equity Income Portfolio - the greater of
$6,000.00 or $.30 for each $1,000.00 of the Series'
average daily net assets;
- The ARCH National Municipal Bond Portfolio - the greater of
$6,000.00 or $.30 for each $1,000.00 of the Series' average
daily net assets; and
- The ARCH Short-Intermediate Corporate Bond Portfolio the
greater of $6,000.00 or $.30 for each $1,000.00 of the Series'
average daily net assets.
<PAGE> 2
Mercantile Bank National Association
November 15, 1996
Page Two
2. A transaction charge of $15.00 for each purchase, sale or delivery
of a security upon its maturity date, $50.00 for each interest collection or
claim item, $20.00 for each transaction involving GNMA, tax-free or other
non-depository registered items with monthly dividends or interest, $30.00 for
each purchase, sale or expiration of an option contract, $50.00 for each
purchase, sale or expiration of a futures contract, and $15.00 for each
repurchase trade with an institution other than Mercantile;
3. Mercantile's incremental costs in providing foreign custody services
for foreign denominated and held securities; and
4. Mercantile's out-of-pocket expenses, including but not limited to
postage, telephone, telex, Federal Express and Federal Reserve wire fees, on
behalf of the Series.
The fee and expenses attributable to each Series shall be the
obligation of that Series and not of any other portfolio of the Fund. The fee
for the period from the day of the year this agreement is entered into until the
end of that fiscal year of the Series, or for any portion of a fiscal year
immediately prior to its termination, shall be pro-rated according to the
proportion which such period bears to the full annual period.
If the foregoing accurately sets forth our agreement and you
intend to be legally bound thereby, please execute a copy of this letter and
return it to us.
Very truly yours,
THE ARCH FUND, INC.
By:/s/ Jerry V. Woodham
---------------------------
Jerry V. Woodham, President
ACCEPTED: MERCANTILE BANK NATIONAL ASSOCIATION
By: /s/ Timothy Driscoll
----------------------
Senior Vice President
Dated as of: November 15, 1996
<PAGE> 1
Exhibit (9)(f)
ADDENDUM NO. 5 TO ADMINISTRATION AGREEMENT
This Addendum, dated as of November 15, 1996, is entered into
between THE ARCH FUND, INC. (the "Fund"), a Maryland corporation, and BISYS FUND
SERVICES OHIO, INC. ("BISYS Ohio"), an Ohio corporation formerly known as The
Winsbury Service Corporation.
WHEREAS, the Fund and BISYS Ohio have entered into an
Administration Agreement dated as of October 1, 1993 as amended March 15, 1994,
March 1, 1995, July 10, 1995 and September 29, 1995 (the "Administration
Agreement"), pursuant to which the Fund appointed BISYS Ohio to act as
Administrator for the Fund's ARCH Money Market, Treasury Money Market, Growth &
Income Equity, Emerging Growth, Government & Corporate Bond, U.S. Government
Securities, Balanced, International Equity, Short-Intermediate Municipal,
Tax-Exempt Money Market, Missouri Tax-Exempt Bond and Kansas Tax-Exempt Bond
Portfolios;
WHEREAS, Section 10 of the Administration Agreement provides
that no provision of the Agreement may be changed, discharged or terminated
orally, but only by an instrument in writing signed by the party against which
enforcement of the change, discharge or termination is sought; and
WHEREAS, the Fund has notified BISYS Ohio that it has
established three new portfolios, namely, the ARCH Equity Income, National
Municipal Bond and Short-Intermediate Corporate Bond Portfolios (collectively,
the "New Portfolios"), and that it desires to retain BISYS Ohio to act as the
Administrator therefor, and BISYS Ohio has notified the Fund that it is willing
to serve as Administrator for the New Portfolios.
NOW THEREFORE, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. APPOINTMENT. The Fund hereby appoints BISYS Ohio to act as
Administrator to the Fund for the New Portfolios for the period and on the terms
set forth in the Administration Agreement. BISYS Ohio hereby accepts such
appointment and agrees to render the services set forth in the Administration
Agreement, for the compensation herein provided.
2. COMPENSATION. For the services provided and expenses
assumed pursuant to the Administration Agreement with respect to the Portfolios,
the Fund will pay BISYS Ohio, as agent for itself, a monthly fee (in arrears) on
the first business day of each month at the annual rates of .20%, .20% and .20%
of the average daily net assets of the ARCH Equity Income, National
<PAGE> 2
Municipal Bond and Short-Intermediate Corporate Bond Portfolios, respectively.
The fee attributable to each of The ARCH Equity Income,
National Municipal Bond and Short-Intermediate Corporate Bond Portfolios shall
be the obligation of that respective Portfolio and not of any other Portfolio
of the Fund.
3. TERMS. From and after the date hereof, the term "Portfolios" as used
in the Administration Agreement shall be deemed to include the New Portfolios.
Capitalized terms used herein and not otherwise defined shall have the meanings
ascribed to them in the Administration Agreement.
4. APPENDIX A. Appendix A to the Administration Agreement is hereby
supplemented to read as set forth in Appendix A attached hereto.
5. MISCELLANEOUS. Except to the extent supplemented hereby, the
Administration Agreement shall remain unchanged and in full force and effect and
is hereby ratified and confirmed in all respects as supplemented hereby.
IN WITNESS WHEREOF, the undersigned have executed this
Addendum as of the date and year first above written.
THE ARCH FUND, INC.
By: /s/ Jerry V. Woodham
------------------------
Jerry V. Woodham
President
BISYS FUND SERVICES OHIO, INC.
By: /s/ Stephen G. Mintos
----------------------------
Stephen G. Mintos
Executive Vice President
<PAGE> 3
APPENDIX A
to the
ADMINISTRATION AGREEMENT
between
THE ARCH FUND, INC.
and
BISYS FUND SERVICES OHIO, INC. (formerly
known as The Winsbury Service Corporation)
-----------------------------------------------------------------
Money Market Portfolio (Trust Shares, Investor A Shares,
Institutional Shares and Investor B Shares)
Treasury Money Market Portfolio (Trust Shares, Investor A Shares
and Institutional Shares)
Growth & Income Equity Portfolio (Trust Shares, Investor A
Shares, Institutional and Investor B Shares)
Emerging Growth Portfolio (Trust Shares, Investor A Shares,
Institutional and Investor B Shares)
Government & Corporate Bond Portfolio (Trust Shares, Investor A
Shares, Institutional and Investor B Shares)
U.S. Government Securities Portfolio (Trust Shares, Investor A
Shares, Institutional and Investor B Shares)
Balanced Portfolio (Trust Shares, Investor A Shares,
Institutional and Investor B Shares)
International Equity Portfolio (Trust Shares, Investor A Shares,
Institutional and Investor B Shares)
Short-Intermediate Municipal Portfolio (Trust Shares and Investor
A Shares)
Tax-Exempt Money Market Portfolio (Trust Shares and Investor A
Shares)
Missouri Tax-Exempt Bond Portfolio (Trust Shares, Investor A
Shares and Investor B Shares)
Kansas Tax Exempt Bond Portfolio (Trust Shares, Investor A Shares
and Investor B Shares)
<PAGE> 4
Equity Income Portfolio (Trust Shares, Investor A Shares,
Institutional Shares and Investor B Shares)
National Municipal Bond Portfolio (Trust Shares, Investor A
Shares and Investor B Shares)
Short-Intermediate Corporate Bond (Trust Shares, Investor A
Shares and Institutional Shares)
<PAGE> 1
Exhibit (9)(m)
ADDENDUM NO. 5 TO TRANSFER AGENCY AGREEMENT
This Addendum, dated as of November 15, 1996, is entered into
between THE ARCH FUND, INC. (the "Fund"), a Maryland corporation, and BISYS FUND
SERVICES OHIO, INC. ("BISYS Ohio"), an Ohio corporation formerly known as The
Winsbury Service Corporation.
WHEREAS, the Fund and BISYS Ohio have entered into a Transfer
Agency Agreement dated as of October 1, 1993 as amended March 15, 1994, March 1,
1995, July 10, 1995 and September 29, 1995 (the "Transfer Agency Agreement"),
pursuant to which the Fund appointed BISYS Ohio to act as Transfer Agent for the
Fund's ARCH Money Market, Treasury Money Market, Growth & Income Equity,
Emerging Growth, Government & Corporate Bond, U.S. Government Securities,
Balanced, International Equity, Short-Intermediate Municipal, Tax-Exempt Money
Market, Missouri Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios;
WHEREAS, Section 20 of the Transfer Agency Agreement provides
that no provision of the Agreement may be changed, discharged or terminated
orally, but only by an instrument in writing signed by the party against which
enforcement of the change, discharge or termination is sought; and
WHEREAS, the Fund has notified BISYS Ohio that it has
established three new portfolios, namely, the ARCH Equity Income, National
Municipal Bond and Short-Intermediate Corporate Bond Portfolios (collectively,
the "New Portfolios"), and that it desires to retain BISYS Ohio to act as the
Transfer Agent therefor, and BISYS Ohio has notified the Fund that it is willing
to serve as Transfer Agent for the New Portfolios.
NOW THEREFORE, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. APPOINTMENT. The Fund hereby appoints BISYS Ohio to act as
Transfer Agent to the Fund for the New Portfolios for the period and on the
terms set forth in the Transfer Agency Agreement. BISYS Ohio hereby accepts such
appointment and agrees to render the services set forth in the Transfer Agency
Agreement, for the compensation herein provided.
2. FEES. For the services provided and expenses assumed
pursuant to the Transfer Agency Agreement with respect to the New Portfolios,
the Fund will pay BISYS Ohio in accordance with, and in the manner set forth in,
Appendix C hereto. Fees for any additional services to be provided by the
Transfer Agent pursuant to an amendment to Appendix B hereto shall be subject to
mutual agreement at the time such amendment to Appendix B is proposed.
<PAGE> 2
3. TERMS. From and after the date hereof, the term "Portfolios" as used
in the Transfer Agency Agreement shall be deemed to include the New Portfolios.
Capitalized terms used herein and not otherwise defined shall have the meanings
ascribed to them in the Transfer Agency Agreement.
4. APPENDIX A. Appendix A to the Administration Agreement is hereby
supplemented to read as set forth in Appendix A attached hereto.
5. MISCELLANEOUS. Except to the extent supplemented hereby, the
Transfer Agency Agreement shall remain unchanged and in full force and effect
and is hereby ratified and confirmed in all respects as supplemented hereby.
IN WITNESS WHEREOF, the undersigned have executed this
Addendum as of the date and year first above written.
THE ARCH FUND, INC.
By: /s/ Jerry V. Woodham
----------------------
Jerry V. Woodham
President
BISYS FUND SERVICES OHIO, INC.
By: /s/ Stephen G. Mintos
-----------------------
Stephen G. Mintos
Executive Vice President
<PAGE> 3
APPENDIX A
TO THE
TRANSFER AGENCY AGREEMENT
BETWEEN
THE ARCH FUND, INC.
AND
BISYS FUND SERVICES OHIO, INC. (FORMERLY
KNOWN AS THE WINSBURY SERVICE CORPORATION)
-----------------------------------------------------------------
Money Market Portfolio (Trust shares, Investor A shares, Institutional shares
and Investor B shares)
Treasury Money Market Portfolio (Trust shares, Investor A shares
and Institutional shares)
Growth & Income Equity Portfolio (Trust shares, Investor A shares, Institutional
shares and Investor B shares)
Emerging Growth Portfolio (Trust shares, Investor A shares, Institutional shares
and Investor B shares)
Government & Corporate Bond Portfolio (Trust shares, Investor A shares,
Institutional shares and Investor B shares)
U.S. Government Securities Portfolio (Trust shares, Investor A
shares, Institutional shares and Investor B shares)
Balanced Portfolio (Trust shares, Investor A shares, Institutional shares and
Investor B shares)
International Equity Portfolio (Trust shares, Investor A shares, Institutional
shares and Investor B shares)
Short-Intermediate Municipal Portfolio (Trust Shares and Investor
A shares)
Tax-Exempt Money Market Portfolio (Trust shares and Investor A
shares)
Missouri Tax-Exempt Bond Portfolio (Trust shares, Investor A
shares and Investor B shares)
Kansas Tax-Exempt Bond Portfolio (Trust shares, Investor A shares
and Investor B shares)
<PAGE> 4
Equity Income Portfolio (Trust shares, Investor A shares, Institutional shares
and Investor B shares)
National Municipal Bond Portfolio (Trust shares, Investor A
shares and Investor B shares)
Short-Intermediate Corporate Bond Portfolio (Trust shares,
Investor A shares and Institutional shares)
<PAGE> 5
APPENDIX B
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
THE ARCH FUND, INC. AND BISYS FUND SERVICES OHIO, INC.
(FORMERLY KNOWN AS THE WINSBURY SERVICE CORPORATION)
TRANSFER AGENCY SERVICES
1. SHAREHOLDER TRANSACTIONS
a. Process shareholder purchase and redemption orders.
b. Set up account information, including address, dividend
option, taxpayer identification numbers and wire instructions.
c. Issue confirmations in compliance with Rule 10 under the
Securities Exchange Act of 1934, as amended, and in accordance
with Section 8-408 of the Maryland Commercial Law Article, as
amended.
d. Issue periodic statements for shareholders.
e. Process transfers and exchanges.
f. Process dividend payments, including the purchase of new
shares through dividend reinvestment.
2. SHAREHOLDER INFORMATION SERVICES
a. Make information available to shareholder servicing unit and
other remote access units regarding trade date, share price,
current holdings, yields, and dividend information.
b. Produce detailed history of transactions through duplicate or
special order statements upon request.
c. Provide mailing labels for distribution of financial reports,
prospectuses, proxy statements, or marketing material to
current shareholders.
3. COMPLIANCE REPORTING
a. Provide reports to the Securities and Exchange Commission, the
National Association of Securities Dealers and the States in
which the Fund is registered.
<PAGE> 6
b. Prepare and distribute appropriate Internal Revenue Service
forms for corresponding Portfolio and shareholder income and
capital gains.
c. Issue tax withholding reports to the Internal Revenue Service.
4. DEALER/LOAD PROCESSING
a. Provide reports for tracking rights of accumulation and
purchases made under a Letter of Intent.
b. Account for separation of shareholder investments from
transaction sale charges for purchases of Portfolio shares.
c. Calculate fees due under 12b-1 plans for distribution and
marketing expenses.
d. Track sales and commission statistics by dealer and provide
for payment of commissions on direct shareholder purchases in
a load Portfolio.
5. SHAREHOLDER ACCOUNT MAINTENANCE
a. Maintain all shareholder records for each account in the
Company.
b. Issue customer statements on scheduled cycle, providing
duplicate second and third party copies if required.
c. Record shareholder account information changes.
d. Maintain account documentation files for each shareholder.
e. Provide sub-accounting services for a record holder upon
request of such record holder.
<PAGE> 7
APPENDIX C
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
THE ARCH FUND, INC. AND BISYS FUND SERVICES OHIO, INC.
(FORMERLY KNOWN AS THE WINSBURY SERVICE CORPORATION)
FEE SCHEDULE
A. ANNUAL BASE FEE
1. Portfolios which have Investor A Shares shall pay an Annual
Base Fee of $10,000 plus $19 per shareholder per Portfolio.
2. Portfolios which have Investor B Shares shall pay an Annual
Base Fee of $10,000 plus $19 per shareholder per Portfolio.
3. Portfolios which have Trust Shares shall pay an Annual Base
Fee of $8,000 plus $15 per shareholder per Portfolio.
4. Portfolios which have Institutional Shares shall pay an Annual
Base Fee of $8,000 plus $15 per shareholder per Portfolio.
B. ANNUAL ADDITIONAL FEES. These fees are in addition to the
Annual Base Fees.
1. Portfolios participating in the Asset Advisor (asset
allocation) program shall pay an annual fee of $3,000 per
Portfolio
2. Out of pocket costs, including postage, Tymnet charges,
statement/confirm paper, forms, and microfiche will be added
to the Transfer Agency Fees.
C. ALLOCATION OF FEES. Transfer Agency fees paid under this
Agreement shall be treated as an expense of the Company and
shall be accrued and allocated pro rata each month to the
Portfolios on the basis of their respective net assets at
the end of the preceding month and paid monthly.
C-1
<PAGE> 8
APPENDIX D
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
THE ARCH FUND, INC. AND BISYS FUND SERVICES OHIO, INC.
(FORMERLY KNOWN AS THE WINSBURY SERVICE CORPORATION)
REPORTS
I. Daily Shareholder Activity Journal
II. Daily Portfolio Activity Summary Report
A. Beginning Balance
B. Dealer Transactions
C. Shareholder Transactions
D. Reinvested Dividends
E. Exchanges
F. Adjustments
G. Ending Balance
III. Daily Wire and Check Registers
IV. Monthly Dealer Processing Reports
V. Monthly Dividend Reports
VI. Sales Data Reports for Blue Sky Registration
VII. Annual report by independent auditors concerning the Transfer
Agent's shareholder system and internal accounting control systems to be filed
with the Securities and Exchange Commission pursuant to Rule 17Ad-13 of the
Securities Exchange Act of 1934, as amended.
D-1
<PAGE> 1
Exhibit (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. 37 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
January 30, 1997
<PAGE> 1
Exhibit (13)(f)(1)
PURCHASE AGREEMENT
The ARCH Fund, Inc. (the "Fund"), a Maryland corporation with
transferable shares, and BISYS Fund Services Ohio, Inc. ("BISYS Ohio"), an Ohio
corporation, hereby agree with each other as follows:
1. The Fund hereby offers BISYS Ohio and BISYS Ohio hereby
purchases 1 Class N share(s) of common stock, 1 Class N-Special Series 1
share(s) of common stock and 1 Class N-Special Series 2 share(s) of common
stock, each such share representing an interest in the ARCH National Municipal
Bond Portfolio (the "Portfolio") at a price of $10 per share for Class N common
stock, $10 per share for Class N-Special Series 1 common stock and $10 per share
for Class N-Special Series 2 common stock (such shares of common stock in the
Portfolio being hereinafter known as the "Shares"). BISYS Ohio hereby
acknowledges the purchase of the Shares and the Fund hereby acknowledges receipt
from BISYS Ohio of funds in the aggregate amount of $30 in full payment for the
Shares.
2. BISYS Ohio represents and warrants to the Fund that the
Shares are being acquired for investment purposes and not with a view to the
distribution thereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the 14th day of November, 1996.
THE ARCH FUND, INC.
By: /s/ Jerry V. Woodham
--------------------------
Title: President
BISYS FUND SERVICES OHIO, INC.
By: /s/ Stephen G. Mintos
---------------------------
Title: Executive Vice President
<PAGE> 1
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INVESTOR A SHARES
NO LOAD CALCULATIONS
NATIONAL MUNICIPAL BOND 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: ( 11/18/96 TO 11/30/96):
( 1,009.3/1,000)-1 = 0.93%
YEAR TO DATE: ( 11/18/96 TO 11/30/96):
( 1,009.3/1,000)-1 = 0.93%
MONTHLY: ( 11/18/96 TO 11/30/96):
( 1,009.3/1,000)-1 = 0.93%
<PAGE> 2
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INVESTOR A SHARES
LOAD CALCULATIONS
NATION MUNICIPAL BOND PORTFOLIO
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 4.50%
- ---------------------------
T = (ERV/P) - 1
WHERE: TO = 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: ( 11/18/96 TO 11/30/96):
( 962.0/1,000)-1 = -3.80%
YEAR TO DATE: ( 11/18/96 TO 11/30/96):
( 962.0/1,000)-1 = -3.80%
MONTHLY: ( 11/18/96 TO 11/30/96):
( 962.0/1,000)-1 = -3.80%
<PAGE> 3
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INVESTOR B SHARES
CDSC CALCULATIONS
NATIONAL MUNICIPAL BOND PORTFOLIO
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 5.00%
- ---------------------------
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 INVESTMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 11/18/96 TO 11/30/96):
( 959.0/1,000)-1 = -4.10%
YEAR TO DATE: ( 11/18/96 TO 11/30/96):
( 959.0/1,000)-1 = -4.10%
MONTHLY: ( 11/18/96 TO 11/30/96):
( 959.0/1,000)-1 = -4.10%
<PAGE> 4
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INVESTOR A SHARES
NO CDSC CALCULATIONS
NATIONAL MUNICIPAL BOND 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: ( 11/18/96 TO 11/30/96):
( 1,009.0/1,000)-1 = 0.90%
YEAR TO DATE: ( 11/18/96 TO 11/30/96):
( 1,009.0/1,000)-1 = 0.90%
MONTHLY: ( 11/18/96 TO 11/30/96):
( 1,009.0/1,000)-1 = 0.90%
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<PER-SHARE-NII> .047<F1>
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<AVG-DEBT-OUTSTANDING> 0
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<PER-SHARE-NII> .033<F1>
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<TABLE> <S> <C>
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<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 013
<NAME> THE ARCH MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 845516579
<INVESTMENTS-AT-VALUE> 845516579
<RECEIVABLES> 2790092
<ASSETS-OTHER> 2373
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 848309404
<PAYABLE-FOR-SECURITIES> 20000000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3916485
<TOTAL-LIABILITIES> 23916485
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 824391646
<SHARES-COMMON-STOCK> 717264622<F1>
<SHARES-COMMON-PRIOR> 698125944<F1>
<ACCUMULATED-NII-CURRENT> 7451
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 6538
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 824392559
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 46863199
<OTHER-INCOME> 0
<EXPENSES-NET> 5385612
<NET-INVESTMENT-INCOME> 41477587
<REALIZED-GAINS-CURRENT> 234
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 41477821
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 37166284<F1>
<DISTRIBUTIONS-OF-GAINS> 4265<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 2117336443<F1>
<NUMBER-OF-SHARES-REDEEMED> 2109752319<F1>
<SHARES-REINVESTED> 11554554<F1>
<NET-CHANGE-IN-ASSETS> 48056869
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 5412
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3415218
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6665670
<AVERAGE-NET-ASSETS> 762069317<F1>
<PER-SHARE-NAV-BEGIN> 1.000<F1>
<PER-SHARE-NII> .049<F1>
<PER-SHARE-GAIN-APPREC> .000<F1>
<PER-SHARE-DIVIDEND> .049<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 1.000<F1>
<EXPENSE-RATIO> .610<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>TRUST SHARES
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 014
<NAME> THE ARCH MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 845516579
<INVESTMENTS-AT-VALUE> 845516579
<RECEIVABLES> 2790092
<ASSETS-OTHER> 2373
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 848309404
<PAYABLE-FOR-SECURITIES> 20000000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3916485
<TOTAL-LIABILITIES> 23916485
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 824391646
<SHARES-COMMON-STOCK> 15920616<F1>
<SHARES-COMMON-PRIOR> 13339494<F1>
<ACCUMULATED-NII-CURRENT> 7451
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 6538
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 824392559
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 46863199
<OTHER-INCOME> 0
<EXPENSES-NET> 5385612
<NET-INVESTMENT-INCOME> 41477587
<REALIZED-GAINS-CURRENT> 234
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 41477821
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 932147<F1>
<DISTRIBUTIONS-OF-GAINS> 79<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 77856028<F1>
<NUMBER-OF-SHARES-REDEEMED> 75283110<F1>
<SHARES-REINVESTED> 8204<F1>
<NET-CHANGE-IN-ASSETS> 48056869
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 5412
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3415218
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6665670
<AVERAGE-NET-ASSETS> 19826975<F1>
<PER-SHARE-NAV-BEGIN> 1.000<F1>
<PER-SHARE-NII> .047<F1>
<PER-SHARE-GAIN-APPREC> .000<F1>
<PER-SHARE-DIVIDEND> .047<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 1.000<F1>
<EXPENSE-RATIO> .780<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>INSTITUTIONAL SHARES
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 021
<NAME> THE ARCH GROWTH & INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 361437050
<INVESTMENTS-AT-VALUE> 466947587
<RECEIVABLES> 820638
<ASSETS-OTHER> 578
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 467768803
<PAYABLE-FOR-SECURITIES> 4518189
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 351535
<TOTAL-LIABILITIES> 4869724
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 321702631
<SHARES-COMMON-STOCK> 2047651<F1>
<SHARES-COMMON-PRIOR> 1538629<F1>
<ACCUMULATED-NII-CURRENT> 857888
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 34828023
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 105510537
<NET-ASSETS> 462899079
<DIVIDEND-INCOME> 7947551
<INTEREST-INCOME> 1162795
<OTHER-INCOME> 30149
<EXPENSES-NET> 3321761
<NET-INVESTMENT-INCOME> 5818734
<REALIZED-GAINS-CURRENT> 36039992
<APPREC-INCREASE-CURRENT> 45449749
<NET-CHANGE-FROM-OPS> 87308475
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 377552<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 1443632<F1>
<NUMBER-OF-SHARES-SOLD> 598426<F1>
<NUMBER-OF-SHARES-REDEEMED> 204520<F1>
<SHARES-REINVESTED> 115115<F1>
<NET-CHANGE-IN-ASSETS> 110262552
<ACCUMULATED-NII-PRIOR> 1006
<ACCUMULATED-GAINS-PRIOR> 19160435
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2231228
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3727620
<AVERAGE-NET-ASSETS> 31287410<F1>
<PER-SHARE-NAV-BEGIN> 16.30<F1>
<PER-SHARE-NII> .200<F1>
<PER-SHARE-GAIN-APPREC> 3.320<F1>
<PER-SHARE-DIVIDEND> .210<F1>
<PER-SHARE-DISTRIBUTIONS> .940<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 18.67<F1>
<EXPENSE-RATIO> 1.050<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>CLASS A SHARES
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 022
<NAME> THE ARCH GROWTH & INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 361437050
<INVESTMENTS-AT-VALUE> 466947587
<RECEIVABLES> 820638
<ASSETS-OTHER> 578
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 467768803
<PAYABLE-FOR-SECURITIES> 4518189
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 351535
<TOTAL-LIABILITIES> 4869724
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 321702631
<SHARES-COMMON-STOCK> 190397<F1>
<SHARES-COMMON-PRIOR> 48088<F1>
<ACCUMULATED-NII-CURRENT> 857888
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 34828023
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 105510537
<NET-ASSETS> 462899079
<DIVIDEND-INCOME> 7947551
<INTEREST-INCOME> 1162795
<OTHER-INCOME> 30149
<EXPENSES-NET> 3321761
<NET-INVESTMENT-INCOME> 5818734
<REALIZED-GAINS-CURRENT> 36039992
<APPREC-INCREASE-CURRENT> 45449749
<NET-CHANGE-FROM-OPS> 87308475
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 13771<F1>
<DISTRIBUTIONS-OF-GAINS> 49605<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 146675<F1>
<NUMBER-OF-SHARES-REDEEMED> 8326<F1>
<SHARES-REINVESTED> 3961<F1>
<NET-CHANGE-IN-ASSETS> 110262552
<ACCUMULATED-NII-PRIOR> 1006
<ACCUMULATED-GAINS-PRIOR> 19160435
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2231228
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3727620
<AVERAGE-NET-ASSETS> 2251048<F1>
<PER-SHARE-NAV-BEGIN> 16.23<F1>
<PER-SHARE-NII> .110<F1>
<PER-SHARE-GAIN-APPREC> 3.300<F1>
<PER-SHARE-DIVIDEND> .120<F1>
<PER-SHARE-DISTRIBUTIONS> .940<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 18.58<F1>
<EXPENSE-RATIO> 1.750<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>CLASS B SHARES
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 023
<NAME> THE ARCH GROWTH & INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 361437050
<INVESTMENTS-AT-VALUE> 466947587
<RECEIVABLES> 820638
<ASSETS-OTHER> 578
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 467768803
<PAYABLE-FOR-SECURITIES> 4518189
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 351535
<TOTAL-LIABILITIES> 4869724
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 321702631
<SHARES-COMMON-STOCK> 18610126<F1>
<SHARES-COMMON-PRIOR> 17561122<F1>
<ACCUMULATED-NII-CURRENT> 857888
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 34828023
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 105510537
<NET-ASSETS> 462899079
<DIVIDEND-INCOME> 7947551
<INTEREST-INCOME> 1162795
<OTHER-INCOME> 30149
<EXPENSES-NET> 3321761
<NET-INVESTMENT-INCOME> 5818734
<REALIZED-GAINS-CURRENT> 36039992
<APPREC-INCREASE-CURRENT> 45449749
<NET-CHANGE-FROM-OPS> 87308475
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4844606<F1>
<DISTRIBUTIONS-OF-GAINS> 16436950<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 3359483<F1>
<NUMBER-OF-SHARES-REDEEMED> 3405972<F1>
<SHARES-REINVESTED> 1095493<F1>
<NET-CHANGE-IN-ASSETS> 110262552
<ACCUMULATED-NII-PRIOR> 1006
<ACCUMULATED-GAINS-PRIOR> 19160435
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2231228
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3727620
<AVERAGE-NET-ASSETS> 318882130<F1>
<PER-SHARE-NAV-BEGIN> 16.32<F1>
<PER-SHARE-NII> .240<F1>
<PER-SHARE-GAIN-APPREC> 3.340<F1>
<PER-SHARE-DIVIDEND> .250<F1>
<PER-SHARE-DISTRIBUTIONS> .940<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 18.71<F1>
<EXPENSE-RATIO> .750<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>TRUST SHARES
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 024
<NAME> THE ARCH GROWTH & INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 361437050
<INVESTMENTS-AT-VALUE> 466947587
<RECEIVABLES> 820638
<ASSETS-OTHER> 578
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 467768803
<PAYABLE-FOR-SECURITIES> 4518189
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 351535
<TOTAL-LIABILITIES> 4869724
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 321702631
<SHARES-COMMON-STOCK> 3907610<F1>
<SHARES-COMMON-PRIOR> 2470228<F1>
<ACCUMULATED-NII-CURRENT> 857888
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 34828023
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 105510537
<NET-ASSETS> 462899079
<DIVIDEND-INCOME> 7947551
<INTEREST-INCOME> 1162795
<OTHER-INCOME> 30149
<EXPENSES-NET> 3321761
<NET-INVESTMENT-INCOME> 5818734
<REALIZED-GAINS-CURRENT> 36039992
<APPREC-INCREASE-CURRENT> 45449749
<NET-CHANGE-FROM-OPS> 87308475
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 637682<F1>
<DISTRIBUTIONS-OF-GAINS> 2330241<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 1473440<F1>
<NUMBER-OF-SHARES-REDEEMED> 225116<F1>
<SHARES-REINVESTED> 189057<F1>
<NET-CHANGE-IN-ASSETS> 110262552
<ACCUMULATED-NII-PRIOR> 1006
<ACCUMULATED-GAINS-PRIOR> 19160435
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2231228
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3727620
<AVERAGE-NET-ASSETS> 53253008<F1>
<PER-SHARE-NAV-BEGIN> 16.29<F1>
<PER-SHARE-NII> .200<F1>
<PER-SHARE-GAIN-APPREC> 3.330<F1>
<PER-SHARE-DIVIDEND> .210<F1>
<PER-SHARE-DISTRIBUTIONS> .940<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 18.67<F1>
<EXPENSE-RATIO> 1.050<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Institutional Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 031
<NAME> THE ARCH GOVERNMENT & CORPORATE BOND PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 156326416
<INVESTMENTS-AT-VALUE> 160448070
<RECEIVABLES> 1858877
<ASSETS-OTHER> 350634
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 162657581
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 916680
<TOTAL-LIABILITIES> 916680
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 158972815
<SHARES-COMMON-STOCK> 475410<F1>
<SHARES-COMMON-PRIOR> 521953<F1>
<ACCUMULATED-NII-CURRENT> 2351
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1355919
<ACCUM-APPREC-OR-DEPREC> 4121654
<NET-ASSETS> 161740901
<DIVIDEND-INCOME> 32006
<INTEREST-INCOME> 10425354
<OTHER-INCOME> 60038
<EXPENSES-NET> 1035669
<NET-INVESTMENT-INCOME> 9481729
<REALIZED-GAINS-CURRENT> 1012372
<APPREC-INCREASE-CURRENT> (2852662)
<NET-CHANGE-FROM-OPS> 7641439
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 325323<F1>
<DISTRIBUTIONS-OF-GAINS> 10112<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 105753<F1>
<NUMBER-OF-SHARES-REDEEMED> 180569<F1>
<SHARES-REINVESTED> 28274<F1>
<NET-CHANGE-IN-ASSETS> 18984875
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 2056933
<GROSS-ADVISORY-FEES> 674595
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1185585
<AVERAGE-NET-ASSETS> 5369146<F1>
<PER-SHARE-NAV-BEGIN> 10.53<F1>
<PER-SHARE-NII> .640<F1>
<PER-SHARE-GAIN-APPREC> (.190)<F1>
<PER-SHARE-DIVIDEND> .640<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 10.34<F1>
<EXPENSE-RATIO> .950<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 032
<NAME> THE ARCH GOVERNMENT & CORPORATE BOND PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 156326416
<INVESTMENTS-AT-VALUE> 160448070
<RECEIVABLES> 1858877
<ASSETS-OTHER> 350634
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 162657581
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 916680
<TOTAL-LIABILITIES> 916680
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 158972815
<SHARES-COMMON-STOCK> 49403<F1>
<SHARES-COMMON-PRIOR> 10112<F1>
<ACCUMULATED-NII-CURRENT> 2351
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1355919
<ACCUM-APPREC-OR-DEPREC> 4121654
<NET-ASSETS> 161740901
<DIVIDEND-INCOME> 32006
<INTEREST-INCOME> 10425354
<OTHER-INCOME> 60038
<EXPENSES-NET> 1035669
<NET-INVESTMENT-INCOME> 9481729
<REALIZED-GAINS-CURRENT> 1012372
<APPREC-INCREASE-CURRENT> (2852662)
<NET-CHANGE-FROM-OPS> 7641439
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 18810<F1>
<DISTRIBUTIONS-OF-GAINS> 207<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 42182<F1>
<NUMBER-OF-SHARES-REDEEMED> 4176<F1>
<SHARES-REINVESTED> 1284<F1>
<NET-CHANGE-IN-ASSETS> 18984875
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 2056933
<GROSS-ADVISORY-FEES> 674595
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1185585
<AVERAGE-NET-ASSETS> 350041<F1>
<PER-SHARE-NAV-BEGIN> 10.53<F1>
<PER-SHARE-NII> .570<F1>
<PER-SHARE-GAIN-APPREC> (.190)<F1>
<PER-SHARE-DIVIDEND> .570<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 10.34<F1>
<EXPENSE-RATIO> 1.650<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class B Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 033
<NAME> THE ARCH GOVERNMENT & CORPORATE BOND PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 156326416
<INVESTMENTS-AT-VALUE> 160448070
<RECEIVABLES> 1858877
<ASSETS-OTHER> 350634
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 162657581
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 916680
<TOTAL-LIABILITIES> 916680
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 158972815
<SHARES-COMMON-STOCK> 13681482<F1>
<SHARES-COMMON-PRIOR> 12130932<F1>
<ACCUMULATED-NII-CURRENT> 2351
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1355919
<ACCUM-APPREC-OR-DEPREC> 4121654
<NET-ASSETS> 161740901
<DIVIDEND-INCOME> 32006
<INTEREST-INCOME> 10425354
<OTHER-INCOME> 60038
<EXPENSES-NET> 1035669
<NET-INVESTMENT-INCOME> 9481729
<REALIZED-GAINS-CURRENT> 1012372
<APPREC-INCREASE-CURRENT> (2852662)
<NET-CHANGE-FROM-OPS> 7641439
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8420741<F1>
<DISTRIBUTIONS-OF-GAINS> 232344<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 3312003<F1>
<NUMBER-OF-SHARES-REDEEMED> 2242645<F1>
<SHARES-REINVESTED> 481194<F1>
<NET-CHANGE-IN-ASSETS> 18984875
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 2056933
<GROSS-ADVISORY-FEES> 674595
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1185585
<AVERAGE-NET-ASSETS> 132346217<F1>
<PER-SHARE-NAV-BEGIN> 10.53<F1>
<PER-SHARE-NII> .670<F1>
<PER-SHARE-GAIN-APPREC> (.190)<F1>
<PER-SHARE-DIVIDEND> .670<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 10.34<F1>
<EXPENSE-RATIO> .650<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Trust Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 034
<NAME> THE ARCH GOVERNMENT & CORPORATE BOND PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 156326416
<INVESTMENTS-AT-VALUE> 160448070
<RECEIVABLES> 1858877
<ASSETS-OTHER> 350634
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 162657581
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 916680
<TOTAL-LIABILITIES> 916680
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 158972815
<SHARES-COMMON-STOCK> 1438805<F1>
<SHARES-COMMON-PRIOR> 893870<F1>
<ACCUMULATED-NII-CURRENT> 2351
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1355919
<ACCUM-APPREC-OR-DEPREC> 4121654
<NET-ASSETS> 161740901
<DIVIDEND-INCOME> 32006
<INTEREST-INCOME> 10425354
<OTHER-INCOME> 60038
<EXPENSES-NET> 1035669
<NET-INVESTMENT-INCOME> 9481729
<REALIZED-GAINS-CURRENT> 1012372
<APPREC-INCREASE-CURRENT> (2852662)
<NET-CHANGE-FROM-OPS> 7641439
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 716855<F1>
<DISTRIBUTIONS-OF-GAINS> 17276<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 737749<F1>
<NUMBER-OF-SHARES-REDEEMED> 262357<F1>
<SHARES-REINVESTED> 69542<F1>
<NET-CHANGE-IN-ASSETS> 18984875
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 2056933
<GROSS-ADVISORY-FEES> 674595
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1185585
<AVERAGE-NET-ASSETS> 11824159<F1>
<PER-SHARE-NAV-BEGIN> 10.53<F1>
<PER-SHARE-NII> .640<F1>
<PER-SHARE-GAIN-APPREC> (.190)<F1>
<PER-SHARE-DIVIDEND> .640<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 10.34<F1>
<EXPENSE-RATIO> .950<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Institutional Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 041
<NAME> THE ARCH U.S. GOVERNMENT SECURITIES PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 68860209
<INVESTMENTS-AT-VALUE> 69511112
<RECEIVABLES> 691871
<ASSETS-OTHER> 2460
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 70205443
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 381783
<TOTAL-LIABILITIES> 381783
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 69317216
<SHARES-COMMON-STOCK> 670520<F1>
<SHARES-COMMON-PRIOR> 753697<F1>
<ACCUMULATED-NII-CURRENT> 218765
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 363224
<ACCUM-APPREC-OR-DEPREC> 650903
<NET-ASSETS> 69823660
<DIVIDEND-INCOME> 38485
<INTEREST-INCOME> 4152872
<OTHER-INCOME> 27498
<EXPENSES-NET> 444725
<NET-INVESTMENT-INCOME> 3774130
<REALIZED-GAINS-CURRENT> (408957)
<APPREC-INCREASE-CURRENT> (197452)
<NET-CHANGE-FROM-OPS> 3167721
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 445187<F1>
<DISTRIBUTIONS-OF-GAINS> 27732<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 30791<F1>
<NUMBER-OF-SHARES-REDEEMED> 157854<F1>
<SHARES-REINVESTED> 43886<F1>
<NET-CHANGE-IN-ASSETS> 15423407
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 183478
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 280649
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 507123
<AVERAGE-NET-ASSETS> 7651931<F1>
<PER-SHARE-NAV-BEGIN> 10.85<F1>
<PER-SHARE-NII> .620<F1>
<PER-SHARE-GAIN-APPREC> (.150)<F1>
<PER-SHARE-DIVIDEND> .620<F1>
<PER-SHARE-DISTRIBUTIONS> .030<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 10.67<F1>
<EXPENSE-RATIO> .970<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 042
<NAME> THE ARCH U.S. GOVERNMENT SECURITIES PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 68860209
<INVESTMENTS-AT-VALUE> 69511112
<RECEIVABLES> 691871
<ASSETS-OTHER> 2460
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 70205443
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 381783
<TOTAL-LIABILITIES> 381783
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 69317216
<SHARES-COMMON-STOCK> 33698<F1>
<SHARES-COMMON-PRIOR> 3817<F1>
<ACCUMULATED-NII-CURRENT> 218765
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 363224
<ACCUM-APPREC-OR-DEPREC> 650903
<NET-ASSETS> 69823660
<DIVIDEND-INCOME> 38485
<INTEREST-INCOME> 4152872
<OTHER-INCOME> 27498
<EXPENSES-NET> 444725
<NET-INVESTMENT-INCOME> 3774130
<REALIZED-GAINS-CURRENT> (408957)
<APPREC-INCREASE-CURRENT> (197452)
<NET-CHANGE-FROM-OPS> 3167721
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 12608<F1>
<DISTRIBUTIONS-OF-GAINS> 165<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 29636<F1>
<NUMBER-OF-SHARES-REDEEMED> 835<F1>
<SHARES-REINVESTED> 1081<F1>
<NET-CHANGE-IN-ASSETS> 15423407
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 183478
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 280649
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 507123
<AVERAGE-NET-ASSETS> 248925<F1>
<PER-SHARE-NAV-BEGIN> 10.84<F1>
<PER-SHARE-NII> .550<F1>
<PER-SHARE-GAIN-APPREC> (.150)<F1>
<PER-SHARE-DIVIDEND> .550<F1>
<PER-SHARE-DISTRIBUTIONS> .030<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 10.66<F1>
<EXPENSE-RATIO> 1.660<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class B Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 043
<NAME> THE ARCH U.S. GOVERNMENT SECURITIES PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 68860209
<INVESTMENTS-AT-VALUE> 69511112
<RECEIVABLES> 691871
<ASSETS-OTHER> 2460
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 70205443
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 381783
<TOTAL-LIABILITIES> 381783
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 69317216
<SHARES-COMMON-STOCK> 5631203<F1>
<SHARES-COMMON-PRIOR> 4194338<F1>
<ACCUMULATED-NII-CURRENT> 218765
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 363224
<ACCUM-APPREC-OR-DEPREC> 650903
<NET-ASSETS> 69823660
<DIVIDEND-INCOME> 38485
<INTEREST-INCOME> 4152872
<OTHER-INCOME> 27498
<EXPENSES-NET> 444725
<NET-INVESTMENT-INCOME> 3774130
<REALIZED-GAINS-CURRENT> (408957)
<APPREC-INCREASE-CURRENT> (197452)
<NET-CHANGE-FROM-OPS> 3167721
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3231785<F1>
<DISTRIBUTIONS-OF-GAINS> 154648<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 1690682<F1>
<NUMBER-OF-SHARES-REDEEMED> 438058<F1>
<SHARES-REINVESTED> 184241<F1>
<NET-CHANGE-IN-ASSETS> 15423407
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 183478
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 280649
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 507123
<AVERAGE-NET-ASSETS> 52994308<F1>
<PER-SHARE-NAV-BEGIN> 10.85<F1>
<PER-SHARE-NII> .660<F1>
<PER-SHARE-GAIN-APPREC> (.150)<F1>
<PER-SHARE-DIVIDEND> .660<F1>
<PER-SHARE-DISTRIBUTIONS> .030<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 10.67<F1>
<EXPENSE-RATIO> .670<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Trust Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 044
<NAME> THE ARCH U.S. GOVERNMENT SECURITIES PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 68860209
<INVESTMENTS-AT-VALUE> 69511112
<RECEIVABLES> 691871
<ASSETS-OTHER> 2460
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 70205443
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 381783
<TOTAL-LIABILITIES> 381783
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 69317216
<SHARES-COMMON-STOCK> 209842<F1>
<SHARES-COMMON-PRIOR> 61693<F1>
<ACCUMULATED-NII-CURRENT> 218765
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 363224
<ACCUM-APPREC-OR-DEPREC> 650903
<NET-ASSETS> 69823660
<DIVIDEND-INCOME> 38485
<INTEREST-INCOME> 4152872
<OTHER-INCOME> 27498
<EXPENSES-NET> 444725
<NET-INVESTMENT-INCOME> 3774130
<REALIZED-GAINS-CURRENT> (408957)
<APPREC-INCREASE-CURRENT> (197452)
<NET-CHANGE-FROM-OPS> 3167721
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 84549<F1>
<DISTRIBUTIONS-OF-GAINS> 2281<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 171123<F1>
<NUMBER-OF-SHARES-REDEEMED> 30913<F1>
<SHARES-REINVESTED> 7639<F1>
<NET-CHANGE-IN-ASSETS> 15423407
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 183478
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 280649
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 507123
<AVERAGE-NET-ASSETS> 1470519<F1>
<PER-SHARE-NAV-BEGIN> 10.82<F1>
<PER-SHARE-NII> .660<F1>
<PER-SHARE-GAIN-APPREC> (.150)<F1>
<PER-SHARE-DIVIDEND> .620<F1>
<PER-SHARE-DISTRIBUTIONS> .030<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 10.68<F1>
<EXPENSE-RATIO> .960<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Institutional Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 051
<NAME> THE ARCH TREASURY MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 139866134
<INVESTMENTS-AT-VALUE> 139866134
<RECEIVABLES> 1349
<ASSETS-OTHER> 2972
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 139870455
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 582495
<TOTAL-LIABILITIES> 582495
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 139273374
<SHARES-COMMON-STOCK> 7666856<F1>
<SHARES-COMMON-PRIOR> 2776148<F1>
<ACCUMULATED-NII-CURRENT> 5719
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8867
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 139287960
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 12925790
<OTHER-INCOME> 0
<EXPENSES-NET> 1541628
<NET-INVESTMENT-INCOME> 11384162
<REALIZED-GAINS-CURRENT> 11653
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 11395815
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 214227<F1>
<DISTRIBUTIONS-OF-GAINS> 132<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 14064613<F1>
<NUMBER-OF-SHARES-REDEEMED> 9372706<F1>
<SHARES-REINVESTED> 198801<F1>
<NET-CHANGE-IN-ASSETS> (116297030)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 12697
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1001477
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1917072
<AVERAGE-NET-ASSETS> 4921491<F1>
<PER-SHARE-NAV-BEGIN> 1.000<F1>
<PER-SHARE-NII> .044<F1>
<PER-SHARE-GAIN-APPREC> .000<F1>
<PER-SHARE-DIVIDEND> .044<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 1.000<F1>
<EXPENSE-RATIO> .810<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 053
<NAME> THE ARCH TREASURY MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 139866134
<INVESTMENTS-AT-VALUE> 139866134
<RECEIVABLES> 1349
<ASSETS-OTHER> 2972
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 139870455
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 582495
<TOTAL-LIABILITIES> 582495
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 139273374
<SHARES-COMMON-STOCK> 131310132<F1>
<SHARES-COMMON-PRIOR> 252767808<F1>
<ACCUMULATED-NII-CURRENT> 5719
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8867
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 139287960
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 12925790
<OTHER-INCOME> 0
<EXPENSES-NET> 1541628
<NET-INVESTMENT-INCOME> 11384162
<REALIZED-GAINS-CURRENT> 11653
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 11395815
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 11150557<F1>
<DISTRIBUTIONS-OF-GAINS> 12046<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 899161996<F1>
<NUMBER-OF-SHARES-REDEEMED> 1023961242<F1>
<SHARES-REINVESTED> 3311570<F1>
<NET-CHANGE-IN-ASSETS> (116297030)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 12697
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1001477
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1917072
<AVERAGE-NET-ASSETS> 245004044<F1>
<PER-SHARE-NAV-BEGIN> 1.000<F1>
<PER-SHARE-NII> .045<F1>
<PER-SHARE-GAIN-APPREC> .000<F1>
<PER-SHARE-DIVIDEND> .045<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 1.000<F1>
<EXPENSE-RATIO> .610<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Trust Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 054
<NAME> THE ARCH TREASURY MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 139866134
<INVESTMENTS-AT-VALUE> 139866134
<RECEIVABLES> 1349
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<PAID-IN-CAPITAL-COMMON> 139273374
<SHARES-COMMON-STOCK> 298802<F1>
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<NET-INVESTMENT-INCOME> 11384162
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<DISTRIBUTIONS-OF-INCOME> 19381<F1>
<DISTRIBUTIONS-OF-GAINS> 2<F1>
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<NUMBER-OF-SHARES-SOLD> 5811068<F1>
<NUMBER-OF-SHARES-REDEEMED> 5541015<F1>
<SHARES-REINVESTED> 412<F1>
<NET-CHANGE-IN-ASSETS> (116297030)
<ACCUMULATED-NII-PRIOR> 0
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<GROSS-EXPENSE> 1917072
<AVERAGE-NET-ASSETS> 441158<F1>
<PER-SHARE-NAV-BEGIN> 1.000<F1>
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<PER-SHARE-GAIN-APPREC> .000<F1>
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<PER-SHARE-DISTRIBUTIONS> .000<F1>
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<PER-SHARE-NAV-END> 1.000<F1>
<EXPENSE-RATIO> .790<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Institutional Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 061
<NAME> THE ARCH SMALL CAP EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 204903389
<INVESTMENTS-AT-VALUE> 216552529
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<SHARES-COMMON-STOCK> 1036243<F1>
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<ACCUMULATED-NET-GAINS> 13244511
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<ACCUM-APPREC-OR-DEPREC> 11649140
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<DISTRIBUTIONS-OF-INCOME> 6160<F1>
<DISTRIBUTIONS-OF-GAINS> 1177710<F1>
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<NUMBER-OF-SHARES-SOLD> 652412<F1>
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<SHARES-REINVESTED> 96278<F1>
<NET-CHANGE-IN-ASSETS> 43577390
<ACCUMULATED-NII-PRIOR> 163419
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2317851
<AVERAGE-NET-ASSETS> 13804984<F1>
<PER-SHARE-NAV-BEGIN> 13.44<F1>
<PER-SHARE-NII> (.010)<F1>
<PER-SHARE-GAIN-APPREC> 1.030<F1>
<PER-SHARE-DIVIDEND> .000<F1>
<PER-SHARE-DISTRIBUTIONS> 1.060<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 13.40<F1>
<EXPENSE-RATIO> 1.260<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 062
<NAME> THE ARCH SMALL CAP EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 204903389
<INVESTMENTS-AT-VALUE> 216552529
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<ACCUMULATED-NET-GAINS> 13244511
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<ACCUM-APPREC-OR-DEPREC> 11649140
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<DISTRIBUTIONS-OF-INCOME> 0<F1>
<DISTRIBUTIONS-OF-GAINS> 51148<F1>
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<SHARES-REINVESTED> 4217<F1>
<NET-CHANGE-IN-ASSETS> 43577390
<ACCUMULATED-NII-PRIOR> 163419
<ACCUMULATED-GAINS-PRIOR> 13410972
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<GROSS-ADVISORY-FEES> 1556817
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2317851
<AVERAGE-NET-ASSETS> 1020182<F1>
<PER-SHARE-NAV-BEGIN> 13.37<F1>
<PER-SHARE-NII> (.070)<F1>
<PER-SHARE-GAIN-APPREC> .990<F1>
<PER-SHARE-DIVIDEND> .000<F1>
<PER-SHARE-DISTRIBUTIONS> 1.050<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 13.24<F1>
<EXPENSE-RATIO> 1.960<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class B Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 063
<NAME> THE ARCH SMALL CAP EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 204903389
<INVESTMENTS-AT-VALUE> 216552529
<RECEIVABLES> 161094
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<TOTAL-ASSETS> 216724832
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<SHARES-COMMON-PRIOR> 10353157<F1>
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<DISTRIBUTIONS-OF-INCOME> 214557<F1>
<DISTRIBUTIONS-OF-GAINS> 11321459<F1>
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<NUMBER-OF-SHARES-REDEEMED> 2922899<F1>
<SHARES-REINVESTED> 796399<F1>
<NET-CHANGE-IN-ASSETS> 43577390
<ACCUMULATED-NII-PRIOR> 163419
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<GROSS-EXPENSE> 2317851
<AVERAGE-NET-ASSETS> 169667566<F1>
<PER-SHARE-NAV-BEGIN> 13.49<F1>
<PER-SHARE-NII> .020<F1>
<PER-SHARE-GAIN-APPREC> 1.050<F1>
<PER-SHARE-DIVIDEND> .020<F1>
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<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 13.49<F1>
<EXPENSE-RATIO> .960<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Trust Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 064
<NAME> THE ARCH SMALL CAP EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 204903389
<INVESTMENTS-AT-VALUE> 216552529
<RECEIVABLES> 161094
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<DIVIDEND-INCOME> 1503495
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<DISTRIBUTIONS-OF-INCOME> 13982<F1>
<DISTRIBUTIONS-OF-GAINS> 1397709<F1>
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<NET-CHANGE-IN-ASSETS> 43577390
<ACCUMULATED-NII-PRIOR> 163419
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<GROSS-EXPENSE> 2317851
<AVERAGE-NET-ASSETS> 23089166<F1>
<PER-SHARE-NAV-BEGIN> 13.40<F1>
<PER-SHARE-NII> (.010)<F1>
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<PER-SHARE-NAV-END> 13.36<F1>
<EXPENSE-RATIO> 1.260<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Institutional Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 071
<NAME> THE ARCH BALANCED PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 107233813
<INVESTMENTS-AT-VALUE> 125526146
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<TOTAL-ASSETS> 126326409
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<OTHER-ITEMS-LIABILITIES> 125240
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<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100403539
<SHARES-COMMON-STOCK> 741573<F1>
<SHARES-COMMON-PRIOR> 716840<F1>
<ACCUMULATED-NII-CURRENT> 808152
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<ACCUMULATED-NET-GAINS> 6697145
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<INTEREST-INCOME> 3560594
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<DISTRIBUTIONS-OF-GAINS> 306345<F1>
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<SHARES-REINVESTED> 47412<F1>
<NET-CHANGE-IN-ASSETS> 8321493
<ACCUMULATED-NII-PRIOR> 714226
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<GROSS-EXPENSE> 1516192
<AVERAGE-NET-ASSETS> 8855103<F1>
<PER-SHARE-NAV-BEGIN> 11.65<F1>
<PER-SHARE-NII> .320<F1>
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<PER-SHARE-DIVIDEND> .310<F1>
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<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 12.58<F1>
<EXPENSE-RATIO> 1.270<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 072
<NAME> THE ARCH BALANCED PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 107233813
<INVESTMENTS-AT-VALUE> 125526146
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 126326409
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<OTHER-ITEMS-LIABILITIES> 125240
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<PAID-IN-CAPITAL-COMMON> 100403539
<SHARES-COMMON-STOCK> 25723<F1>
<SHARES-COMMON-PRIOR> 3139<F1>
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<ACCUMULATED-NET-GAINS> 6697145
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 18292333
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<DISTRIBUTIONS-OF-INCOME> 4068<F1>
<DISTRIBUTIONS-OF-GAINS> 1338<F1>
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<NUMBER-OF-SHARES-REDEEMED> 249<F1>
<SHARES-REINVESTED> 447<F1>
<NET-CHANGE-IN-ASSETS> 8321493
<ACCUMULATED-NII-PRIOR> 714226
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<GROSS-ADVISORY-FEES> 950915
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<GROSS-EXPENSE> 1516192
<AVERAGE-NET-ASSETS> 214902<F1>
<PER-SHARE-NAV-BEGIN> 11.59<F1>
<PER-SHARE-NII> .250<F1>
<PER-SHARE-GAIN-APPREC> 1.330<F1>
<PER-SHARE-DIVIDEND> .260<F1>
<PER-SHARE-DISTRIBUTIONS> .420<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 12.49<F1>
<EXPENSE-RATIO> 1.960<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>CLASS B SHARES
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 073
<NAME> THE ARCH BALANCED PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 107233813
<INVESTMENTS-AT-VALUE> 125526146
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<TOTAL-ASSETS> 126326409
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<OTHER-ITEMS-LIABILITIES> 125240
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<SENIOR-EQUITY> 0
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<SHARES-COMMON-PRIOR> 6240356<F1>
<ACCUMULATED-NII-CURRENT> 808152
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<ACCUMULATED-NET-GAINS> 6697145
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 18292333
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<DIVIDEND-INCOME> 1542941
<INTEREST-INCOME> 3560594
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<EXPENSES-NET> 1389408
<NET-INVESTMENT-INCOME> 3743265
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2248807<F1>
<DISTRIBUTIONS-OF-GAINS> 2656748<F1>
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<NUMBER-OF-SHARES-SOLD> 732718<F1>
<NUMBER-OF-SHARES-REDEEMED> 2470952<F1>
<SHARES-REINVESTED> 413590<F1>
<NET-CHANGE-IN-ASSETS> 8321493
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<OVERDIST-NET-GAINS-PRIOR> 0
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<GROSS-EXPENSE> 1516192
<AVERAGE-NET-ASSETS> 72898090<F1>
<PER-SHARE-NAV-BEGIN> 11.64<F1>
<PER-SHARE-NII> .370<F1>
<PER-SHARE-GAIN-APPREC> 1.340<F1>
<PER-SHARE-DIVIDEND> .350<F1>
<PER-SHARE-DISTRIBUTIONS> .420<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 12.58<F1>
<EXPENSE-RATIO> .970<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>TRUST SHARES
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 074
<NAME> THE ARCH BALANCED PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
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<FN>
<F1>Institutional Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 081
<NAME> THE ARCH INTERNATIONAL EQUITY PORTFOLIO
<S> <C>
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<FN>
<F1>Class A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 082
<NAME> THE ARCH INTERNATIONAL EQUITY PORTFOLIO
<S> <C>
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<FN>
<F1>Class B Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 083
<NAME> THE ARCH INTERNATIONAL EQUITY PORTFOLIO
<S> <C>
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<FN>
<F1>Trust Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 084
<NAME> THE ARCH INTERNATIONAL EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
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<FN>
<F1>Institutional Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 091
<NAME> THE ARCH TAX-EXEMPT MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
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<FN>
<F1>Class A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 093
<NAME> THE ARCH TAX-EXEMPT MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
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<FN>
<F1>Trust Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 101
<NAME> THE ARCH MISSOURI TAX-EXEMPT BOND PORTFOLIO
<S> <C>
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<FN>
<F1>Class A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 102
<NAME> THE ARCH MISSOURI TAX-EXEMPT BOND PORTFOLIO
<S> <C>
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<F1>Class B Shares
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<NAME> THE ARCH FUND, INC
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<NAME> THE ARCH MISSOURI TAX-EXEMPT BOND PORTFOLIO
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<F1>Trust Shares
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<TABLE> <S> <C>
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<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
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<NUMBER> 111
<NAME> THE ARCH SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
<S> <C>
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<F1>Class A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
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<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 113
<NAME> THE ARCH SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
<S> <C>
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<F1>Trust Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC
<SERIES>
<NUMBER> 121
<NAME> THE ARCH NATIONAL MUNICIPAL BOND PORTFOLIO
<S> <C>
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<F1>Class A Shares
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC
<SERIES>
<NUMBER> 122
<NAME> THE ARCH NATIONAL MUNICIPAL BOND PORTFOLIO
<S> <C>
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<F1>Class B Shares
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC
<SERIES>
<NUMBER> 123
<NAME> THE ARCH NATIONAL MUNICIPAL BOND PORTFOLIO
<S> <C>
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<FN>
<F1>Trust Shares
<F2>Commencement of operations
</FN>
</TABLE>
