<PAGE> 1
THE ARCH FUND(R), INC.
(THE "FUND")
TRUST SHARES OF 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
SUPPLEMENT DATED AUGUST 29, 1997
TO PROSPECTUS DATED MARCH 31, 1997
The following Financial Highlights replace those included in the Prospectus
on pages 8 through 18:
FINANCIAL HIGHLIGHTS
The Financial Highlights in the following tables supplement the Fund's
financial statements, which are contained in the Fund's Annual and Semi-Annual
Reports to Shareholders dated November 30, 1996 and May 31, 1997, respectively,
and incorporated by reference into the Statement of Additional Information. The
Financial Highlights set forth certain historic results for Trust Shares of each
Portfolio. The data for the period ended May 31, 1997 for each Portfolio is
unaudited. 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 KPMG Peat Marwick LLP,
independent auditors, whose unqualified report insofar as it relates to each of
the years or periods in the five-year period ended November 30, 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 incorporated by reference 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 and Semi-Annual Reports.
Both the Statement of Additional Information and the Annual and Semi-Annual
Reports may be obtained free of charge by contacting the Fund at the address or
telephone number provided on page 2 of this Prospectus.
<PAGE> 2
TREASURY MONEY MARKET PORTFOLIO
(For a Share(b) outstanding throughout each period)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED NOVEMBER 30,
MAY 31, ----------------------------------------- DECEMBER 2, 1991
1997 1996 1995 1994 1993 TO NOVEMBER 30,
------------- -------- -------- -------- -------- 1992(a,b)
TRUST TRUST TRUST TRUST TRUST -----------------
SHARES SHARES SHARES SHARES SHARES TRUST SHARES
------------- -------- -------- -------- -------- -----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Investment activities
Net investment
income................. 0.023 0.045 0.050 0.033 0.026 0.034
-------- -------- -------- -------- -------- --------
Total from investment
activities........... 0.023 0.045 0.050 0.033 0.026 0.034
-------- -------- -------- -------- -------- --------
Distributions
Net investment income.... (0.023) (0.045) (0.050) (0.033) (0.026) (0.034)
-------- -------- -------- -------- -------- --------
Total distributions.... (0.023) (0.045) (0.050) (0.033) (0.026) (0.034)
-------- -------- -------- -------- -------- --------
Net asset value, end
of period................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total return............... 2.31%(c) 4.64% 5.12% 3.38% 2.67% 3.16%(c)
Ratios/Supplemental Data:
Net assets at end of period
(000).................... $ 162,313 $131,322 $252,780 $242,099 $256,503 $ 229,288
Ratio of expenses to
average net assets
(including waivers)...... 0.61%(d) 0.61% 0.60% 0.49% 0.41% 0.28%(d)
Ratio of net investment
income to average net
assets (including
waivers)................. 4.58%(d) 4.55% 5.01% 3.26% 2.64% 3.35%(d)
Ratio of expenses to
average net assets
(before waivers)*........ 0.76%(d) 0.76% 0.75% 0.94% 0.85% 0.72%(d)
Ratio of net investment
income to average net
assets (before
waivers)*................ 4.43%(d) 4.40% 4.86% 2.82% 2.21% 2.91%(d)
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) On December 2, 1991, the Portfolio issued a series of Shares which were
designated as "Trust" Shares. In addition, on April 20, 1992, the Portfolio
issued a second series of Shares which were designated as "Investor" Shares.
On September 27, 1994, the Portfolio redesignated Investor Shares as
"Investor A" Shares.
(c) Not annualized.
(d) Annualized.
2
<PAGE> 3
MONEY MARKET PORTFOLIO
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED YEAR ENDED NOVEMBER 30,
MAY 31, ---------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991(a)
------- -------- -------- -------- -------- -------- --------
TRUST TRUST TRUST TRUST TRUST TRUST TRUST
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<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................. 0.024 0.049 0.054 0.035 0.026 0.034 0.058
-------- -------- -------- -------- -------- -------- --------
Total from investment
activities............ 0.024 0.049 0.054 0.035 0.026 0.034 0.058
-------- -------- -------- -------- -------- -------- --------
Distributions Net
investment income........ (0.024) (0.049) (0.054) (0.035) (0.026) (0.034) (0.058)
-------- -------- -------- -------- -------- -------- --------
Total distributions.... (0.024) (0.049) (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 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======== ========
Total return.............. 2.45%(c) 4.99% 5.52% 3.55% 2.72% 3.44% 5.95%(b)
Ratios/Supplemental Data:
Net assets at end of
period (000)............. $806,187 $717,265 $698,131 $544,952 $621,717 $574,941 $700,474
Ratio of expenses to
average net assets
(including waivers)...... 0.65%(d) 0.61% 0.59% 0.61% 0.59% 0.57% 0.59%
Ratio of net investment
income to average net
assets (including
waivers)................. 4.87%(d) 4.88% 5.38% 3.45% 2.70% 3.44% 5.81%
Ratio of expenses to
average net assets
(before waivers)*........ 0.80%(d) 0.76% 0.74% 0.93% 0.80% 0.71% 0.67%
Ratio of net investment
income to average net
assets (before
waivers)*................ 4.72%(d) 4.73% 5.23% 3.13% 2.49% 3.30% 5.73%
<CAPTION>
YEAR ENDED NOVEMBER 30,
--------------------------------------
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
-------- -------- -------- --------
Total from investment
activities............ 0.078 0.088 0.071 0.062
-------- -------- -------- --------
Distributions Net
investment income........ (0.078) (0.088) (0.071) (0.062)
-------- -------- -------- --------
Total distributions.... (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% 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%
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) As of December 1, 1990, the Portfolio designated existing Shares as
"Investor" Shares. In addition, on December 1, 1990, the Portfolio issued a
second series of Shares which were designated as "Trust" Shares. The
financial highlights presented for periods prior to December 1, 1990 are
the financial highlights applicable to Investor Shares. On September 27,
1994 the Portfolio redesignated the Investor Shares as "Investor A" Shares.
(b) Unaudited.
(c) Not annualized.
(d) Annualized.
3
<PAGE> 4
TAX-EXEMPT MONEY MARKET PORTFOLIO(A)
(For a Share(b) outstanding throughout each period)
<TABLE>
<CAPTION>
SIX SIX
MONTHS YEAR MONTHS
ENDED ENDED ENDED
MAY 31, NOV. 30, NOV. 30, YEAR ENDED MAY 31,
-------- ----- ----- -----------------------------------------------------------
1997 1996 1995(f) 1995 1994 1993 1992 1991(b)
-------- ----- ----- ----- ------ ------ ------ ------
TRUST TRUST TRUST TRUST TRUST TRUST TRUST TRUST
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
----------- -------- -------- ------- -------- -------- -------- --------
(UNAUDITED)
-----------
<S> <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
-------- ------- ------- ------- -------- -------- -------- --------
Investment activities
Net investment income.... 0.015 0.030 0.016 0.029 0.020 0.021 0.034 0.031
-------- ------- ------- ------- -------- -------- -------- --------
Total from investment
activities............ 0.015 0.030 0.016 0.029 0.020 0.021 0.034 0.031
-------- ------- ------- ------- -------- -------- -------- --------
Distributions
Net investment income.... (0.015) (0.030) (0.016) (0.029) (0.020) (0.021) (0.034) (0.031)
-------- ------- ------- ------- -------- -------- -------- --------
Total distributions.... (0.015) (0.030) (0.016) (0.029) (0.020) (0.021) (0.034) (0.031)
-------- ------- ------- ------- -------- -------- -------- --------
Net asset value, end of
period................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======= ======= ======= ======== ======== ======== ========
Total return.............. 1.48%(d) 3.06% 1.57%(d) 2.93% 1.97% 2.16% 3.44% 2.25%
Ratios/Supplemental Data:
Net assets at end of
period (000)............. $ 123,512 $ 95,726 $ 78,031 $85,324 $112,594 $137,602 $126,079 $137,847
Ratio of expenses to
average net assets
(including waivers)...... 0.58%(d) 0.53% 0.70%(e) 0.61% 0.52% 0.52% 0.59% 0.58%
Ratio of net investment
income to average net
assets (including
waivers)................. 2.93%(d) 3.01% 3.10%(e) 2.87% 1.95% 2.13% 3.38% 4.65%
Ratio of expenses to
average net assets
(before waivers)*........ 0.63%(d) 0.58% 0.75%(e) 0.70% 0.86% 0.62% 0.69% 0.68%
Ratio of net investment
income to average net
assets (before
waivers)*................ 2.88%(d) 2.96% 3.05%(e) 2.78% 1.61% 2.03% 3.28% 4.55%
<CAPTION>
PERIOD
ENDED
YEAR ENDED MAY 31, MAY 31,
-------------------------------- ------
1990(b) 1989(b) 1988(b) 1987(a),(b)
------ ----- ----- ------
TRUST TRUST TRUST PORTFOLIO
SHARES SHARES SHARES SHARES
-------- ------- ------- ---------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period................ $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------- ------- --------
Investment activities
Net investment income.... 0.056 0.056 0.043 0.036
-------- ------- ------- --------
Total from investment
activities............ 0.056 0.056 0.043 0.036
-------- ------- ------- --------
Distributions
Net investment income.... (0.056) (0.056) (0.043) (0.036)
-------- ------- ------- --------
Total distributions.... (0.056) (0.056) (0.043) (0.036)
-------- ------- ------- --------
Net asset value, end of
period................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======= ======= ========
Total return.............. 5.71% 5.74% 4.35% 3.80%(d)
Ratios/Supplemental Data:
Net assets at end of
period (000)............. $132,407 $70,153 $72,120 $ 147,799
Ratio of expenses to
average net assets
(including waivers)...... 0.51% 0.45% 0.45% 0.37%(c),(e)
Ratio of net investment
income to average net
assets (including
waivers)................. 5.57% 5.59% 4.27% 4.02%(c),(e)
Ratio of expenses to
average net assets
(before waivers)*........ 0.61% 0.63% 0.60% 0.62%(c),(e)
Ratio of net investment
income to average net
assets (before
waivers)*................ 5.47% 5.41% 4.12% 3.77%(c),(e)
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) The Portfolio commenced operations on July 10, 1986 as a portfolio of
The ARCH Tax-Exempt Trust. On October 2, 1995, it was reorganized
as a new portfolio of the Fund.
(b) "Trust" Shares were originally issued as "Money" Shares. As of
September 28, 1990, the Portfolio issued a second series of Shares
which were designated as "Trust" Shares. The financial highlights
presented for periods prior to September 28, 1990 are 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.
4
<PAGE> 5
U.S. GOVERNMENT SECURITIES PORTFOLIO
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
SIX
MONTHS YEAR ENDED NOVEMBER 30, JUNE 2,
MAY 31, ------------------------------------------------------------------------- 1988
1997 1996 1995 1994 1993 1992 1991(a) YEAR TO
------- ------- ------- ------- ------- ------- ------- ENDED NOV.
TRUST TRUST TRUST TRUST TRUST TRUST TRUST NOV. 30, 30,
SHARES SHARES SHARES SHARES SHARES SHARES SHARES 1990 1989 1988(b)
------- ------- ------- ------- ------- ------- ------- ------ -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $10.67 $ 10.85 $ 10.05 $ 11.20 $ 10.80 $ 10.68 $ 10.42 $10.06 $ 9.94 $10.00
------- ------- ------- ------- ------- ------- ------- ------ ------ ------
Investment activities
Net investment income... 0.31 0.66 0.67 0.66 0.62 0.66 0.64 0.76 0.85 0.36
Net realized and
unrealized gains
(losses) from
investments........... (0.18) (0.15) 0.80 (0.97) 0.47 0.13 0.26 0.16 0.11 (0.06)
------- ------- ------- ------- ------- ------- ------- ------ ------ ------
Total from investment
activities.......... 0.13 0.51 1.47 (0.31) 1.09 0.79 0.90 0.92 0.96 0.30
------- ------- ------- ------- ------- ------- ------- ------ ------ ------
Distributions
Net investment income... (0.31) (0.66) (0.67) (0.66) (0.62) (0.66) (0.64) (0.77) (0.84) (0.36)
Net realized gains...... -- -- -- -- (0.07) (0.01) -- -- -- --
In excess of net
realized gains........ -- (0.03) -- (0.18) -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------ ------ ------
Total distributions... (0.31) (0.69) (0.67) (0.84) (0.69) (0.67) (0.64) (0.77) (0.84) (0.36)
------- ------- ------- ------- ------- ------- ------- ------ ------ ------
Net asset value, end of
period.................. $10.49 $ 10.67 $ 10.85 $ 10.05 $ 11.20 $ 10.80 $ 10.68 $10.21 $10.06 $ 9.94
======= ======= ======= ======= ======= ======= ======= ====== ====== ======
Total return............. 1.26%(d) 4.88% 15.00% (2.85)% 10.36% 7.52% 12.62% 9.66% 10.04% 3.05%(c),(d)
Ratios/Supplemental Data:
Net assets at end of
period (000)............$69,406 $60,079 $45,513 $33,166 $35,121 $31,106 $21,484 $6,856 $5,954 $4,335
Ratio of expenses to
average net assets...... 0.66%(e) 0.67% 0.67% 0.66% 0.67% 0.65% 0.56% 0.73% 0.74% 0.79%(e)
Ratio of net investment
income to average net
assets.................. 5.91%(e) 6.10% 6.36% 6.25% 5.57% 6.02% 7.26% 7.80% 8.50% 7.26%(e)
Ratio of expenses to
average net assets
(before waivers)*....... 0.76%(e) 0.77% 0.77% 1.06% 0.91% 0.79% 1.11% 1.28% 1.29% 1.40%(e)
Ratio of net investment
income to average net
assets (before
waivers)*............... 5.81%(e) 6.00% 6.26% 5.85% 5.33% 5.88% 6.71% 7.25% 7.95% 6.65%(e)
Portfolio turnover**..... 78.33% 53.76% 93.76% 50% 24% 74% 36% 53% 84% 215%
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(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.
5
<PAGE> 6
For a Share outstanding throughout each period
<TABLE>
<CAPTION>
INTERMEDIATE CORPORATE BOND INDEX
BOND PORTFOLIO PORTFOLIO
FEBRUARY 10, 1997 FEBRUARY 10, 1997
TO TO
MAY 31, 1997(a) MAY 31, 1997(a)
---------------------- -----------------
TRUST TRUST
SHARES SHARES
---------------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net asset value, beginning of period.............. $ 10.00 $ 10.00
Investment activities
Net investment income (loss).................... 0.19 0.19
Net realized and unrealized (losses) from
investments.................................. (0.18) (0.14)
------- --------
Total from investment activities............. 0.01 0.05
------- --------
Distributions
Net investment income........................... (0.19) (0.19)
------- --------
Total distributions.......................... (0.19) (0.19)
------- --------
Net asset value, end of period.................... $ 9.82 $ 9.86
======= ========
Total return...................................... 0.17%(b)*** 0.54%(b)***
Ratios/Supplemental Data:
Net assets at end of period (000)................. $ 38,954 $ 129,939
Ratio of expenses to average net assets (including
waivers)........................................ 0.30%(c) 0.22%(c)
Ratio of net investment income to average net
assets (including waivers)...................... 13.95%(c) 15.79%(c)
Ratio of expenses to average net assets (before
waivers)*....................................... 0.68%(c) 0.31%(c)
Ratio of net investment income to average net
assets (before waivers)*........................ 13.57%(c) 15.70%(c)
Portfolio turnover**.............................. 66.10% 40.66%
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of each Portfolio as a whole
without distinguishing between the classes of shares.
*** Aggregate since inception.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
6
<PAGE> 7
GOVERNMENT & CORPORATE BOND PORTFOLIO
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED NOVEMBER 30,
MAY 31, ------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991(a)
------- ------- ------- ------- ------- ------- ------
TRUST TRUST TRUST TRUST TRUST TRUST TRUST
SHARES SHARES SHARES SHARES SHARES SHARES SHARES 1990
---------- -------- -------- -------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period............ $ 10.34 $ 10.53 $ 9.64 $ 10.65 $ 10.26 $ 10.15 $ 9.84 $ 10.12
-------- -------- -------- -------- -------- -------- ------- -------
Investment activities
Net investment
income........... 0.30 0.67 0.64 0.63 0.68 0.70 0.64 0.84
Net realized and
unrealized gains
(losses) from
investments...... (0.30) (0.19) 0.89 (0.94) 0.39 0.11 0.31 (0.41)
-------- -------- -------- -------- -------- -------- ------- -------
Total from
investment
activities...... (--) 0.48 1.53 (0.31) 1.07 0.81 0.95 0.43
-------- -------- -------- -------- -------- -------- ------- -------
Distributions
Net investment
income........... (0.30) (0.67) (0.64) (0.63) (0.68) (0.70) (0.64) (0.84)
In excess of
net realized
gains............ -- (--) -- (0.07) -- -- -- --
-------- -------- -------- -------- -------- -------- ------- -------
Total
distributions... (0.30) (0.67) (0.64) (0.70) (0.68) (0.70) (0.64) (0.84)
-------- -------- -------- -------- -------- -------- ------- -------
Net asset value,
end of period.... $ 10.04 $ 10.34 $ 10.53 $ 9.64 $ 10.65 $ 10.26 $ 10.15 $ 9.71
======== ======== ======== ======== ======== ======== ======= =======
Total return....... 0.01%(d) 4.82% 16.31% (3.03%) 10.55% 8.14% 13.04% 4.96%
Ratios/Supplemental
Data:
Net Assets at end
of period (000)... $141,221 $141,440 $127,741 $132,577 $149,674 $135,404 $89,975 $11,005
Ratio of expenses
to average net
assets (including
waivers).......... 0.65%(e) 0.65% 0.65% 0.65% 0.65% 0.63% 0.36% 0.53%
Ratio of net
investment income
to average net
assets (including
waivers).......... 5.93%(e) 6.36% 6.32% 6.25% 6.32% 6.73% 7.51% 8.69%
Ratio of expenses
to average net
assets (before
waivers)*......... 0.75%(e) 0.75% 0.75% 1.05% 0.88% 0.76% 0.91% 1.08%
Ratio of net
investment income
to average net
assets (before
waivers)*......... 5.83%(e) 6.26% 6.22% 5.85% 6.09% 6.60% 6.96% 8.14%
Portfolio
turnover**........ 76.99% 149.20% 59.32% 50% 31% 52% 105% 75%
</TABLE>
<TABLE>
<CAPTION>
YEAR
ENDED JUNE 15,
NOV. 1988 TO
30, NOV. 30,
1989 1988(b)
------- --------
<S> <C> <C>
Net asset value,
beginning of
period............ $ 9.91 $10.00
------- ------
Investment activities
Net investment
income........... 0.89 0.39
Net realized and
unrealized gains
(losses) from
investments...... 0.22 (0.13)
------- ------
Total from
investment
activities...... 1.11 0.26
------- ------
Distributions
Net investment
income........... (0.90) (0.35)
In excess of
net realized
gains............ -- --
------- ------
Total
distributions... (0.90) (0.35)
------- ------
Net asset value,
end of period.... $ 10.12 $ 9.91
======= ======
Total return.......
Ratios/Supplemental 11.79% 2.66%(c),(d)
Data:
Net Assets at end
of period (000)... $10,327 $7,483
Ratio of expenses
to average net
assets (including
waivers).......... 0.44% 0.56%(e)
Ratio of net
investment income
to average net
assets (including
waivers).......... 8.97% 8.47%(e)
Ratio of expenses
to average net
assets (before
waivers)*......... 0.99% 1.17%(e)
Ratio of net
investment income
to average net
assets (before
waivers)*......... 8.42% 7.86%(e)
Portfolio
turnover**........ 148% 22%
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as
a whole without distinguishing between the classes of shares issued.
(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.
7
<PAGE> 8
SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED JULY 10, 1995
ENDED NOVEMBER 30, TO NOVEMBER 30,
MAY 31, 1997 1996 1995(a)
------------ ------------ ----------------
TRUST SHARES TRUST SHARES TRUST SHARES
------------ ------------ ----------------
(UNAUDITED)
<S> <C> <C> <C>
Net asset value, beginning of period................. $ 10.07 $ 10.07 $ 10.00
------- ------- -------
Investment activities
Net investment income (loss)....................... 0.20 0.41 0.14
Net realized and unrealized gains (losses)
from investments................................ (0.07) -- 0.07
------- ------- -------
Total from investment activities................ 0.13 0.41 0.21
------- ------- -------
Distributions
Net investment income.............................. (0.20) (0.41) (0.14)
------- ------- -------
Total distributions............................. (0.20) (0.41) (0.14)
------- ------- -------
Net asset value, end of period....................... $ 10.00 $ 10.07 $ 10.07
======= ======= =======
Total return......................................... 1.32%(b) 4.15% 2.15%(b)
Ratios/Supplemental Data:
Net assets at end of period (000).................... $ 28,067 $ 29,472 $ 23,754
Ratio of expenses to average net assets
(including waivers)................................ 0.36%(c) 0.31% 0.47%(c)
Ratio of net investment income to average net assets
(including waivers)................................ 4.04%(c) 4.07% 3.81%
Ratio of expenses to average net assets
(before waivers)*.................................. 1.01%(c) 0.96% 1.12%(c)
Ratio of net investment income to average net assets
(before waivers)*.................................. 3.39%(c) 3.42% 3.16%(c)
Portfolio turnover**................................. 0.00% 0.00% 0.00%
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
8
<PAGE> 9
MISSOURI TAX-EXEMPT BOND PORTFOLIO(A)
(For a Share(b) outstanding throughout each period)
<TABLE>
<CAPTION>
SIX SIX
MONTHS YEAR MONTHS
ENDED ENDED ENDED YEAR ENDED MAY 31,
MAY 31, NOVEMBER 30, NOVEMBER 30, -----------------------------
1997 1996 1995(c) 1995 1994 1993
----- --------- --------- ----- ----- -----
TRUST TRUST TRUST TRUST TRUST TRUST
SHARES SHARES SHARES SHARES SHARES SHARES
----------- ------------ ------------ ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period............ $ 11.69 $ 11.74 $ 11.52 $ 11.13 $ 11.54 $ 10.97
------- ------- ------- ------- ------- -------
Investment activities:
Net investment income.......................... 0.28 0.57 0.28 0.57 0.58 0.60
Net realized and unrealized gains (losses) on
investments.................................. (0.10) (0.05) 0.22 0.40 (0.37) 0.64
------- ------- ------- ------- ------- -------
Total from investment activities............. 0.18 0.52 0.50 0.97 0.21 1.24
------- ------- ------- ------- ------- -------
Distributions
Net investment income.......................... (0.28) (0.57) (0.28) (0.57) (0.58) (0.60)
Net realized gains............................. -- -- -- (0.01) (0.04) (0.07)
------- ------- ------- ------- ------- -------
Total distributions.......................... (0.28) (0.57) (0.28) (0.58) (0.62) (0.67)
------- ------- ------- ------- ------- -------
Net asset value, end of period.................. $ 11.59 $ 11.69 $ 11.74 $ 11.52 $ 11.13 $ 11.54
======= ======= ======= ======= ======= =======
Total return.................................... 1.55%(d) 4.62% 4.41%(d) 9.12% 1.73% 11.70%
Ratios/Supplemental Data:
Net assets at end of period (000)............... $66,763 $ 55,905 $ 47,773 $44,336 $47,743 $32,777
Ratio of expenses to average net assets
(including waivers)............................ 0.66%(e) 0.65% 0.78%(e) 0.64% 0.45% 0.43%
Ratio of net investment income to average net
assets (including waivers)..................... 4.82%(e) 4.95% 4.83%(e) 5.22% 4.96% 5.30%
Ratio of expenses to average net assets (before
waivers)*...................................... 0.76%(e) 0.75% 0.88%(e) 1.16% 1.13% 0.98%
Ratio of net investment income to average net
assets (before waivers)*....................... 4.72%(e) 4.85% 4.73%(e) 4.70% 4.28% 4.75%
Portfolio turnover rate**....................... 3.77% 3.66% 1.55% -- 20% 15%
<CAPTION>
PERIOD
YEAR ENDED MAY 31, ENDED
--------------------------------- MAY 31,
1992 1991(b) 1990(b) 1989(a),(b)
---- ----- ----- ------
TRUST PORTFOLIO PORTFOLIO PORTFOLIO
SHARES SHARES SHARES SHARES
------ --------- --------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period............ $10.62 $ 10.50 $ 10.56 $10.00
------ ------ ------ ------
Investment activities:
Net investment income.......................... 0.64 0.67 0.68 0.58
Net realized and unrealized gains (losses) on
investments.................................. 0.43 0.24 (0.09) 0.58
------ ------ ------ ------
Total from investment activities............. 1.07 0.91 0.59 1.16
------ ------ ------ ------
Distributions
Net investment income.......................... (0.64) (0.70) (0.65) (0.60)
Net realized gains............................. (0.08) (0.09) 0.00 0.00
------ ------ ------ ------
Total distributions.......................... (0.72) (0.79) (0.65) 0.00
------ ------ ------ ------
Net asset value, end of period.................. $10.97 $ 10.62 $ 10.50 $10.56
====== ====== ====== ======
Total return.................................... 10.37% 9.08% 5.50% 12.08%(d)
Ratios/Supplemental Data:
Net assets at end of period (000)............... $6,609 $ 4,735 $ 4,568 $4,053
Ratio of expenses to average net assets
(including waivers)............................ 0.73% 0.70%(e) 0.70% 0.81%(e)
Ratio of net investment income to average net
assets (including waivers)..................... 5.87% 6.37%(e) 6.38% 6.36%(e)
Ratio of expenses to average net assets (before
waivers)*...................................... 1.38% 1.66% 1.70% 1.38%(e)
Ratio of net investment income to average net
assets (before waivers)*....................... 5.22% 5.41% 5.38% 5.79%(e)
Portfolio turnover rate**....................... 21% 71% 41% 73%
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(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.
9
<PAGE> 10
NATIONAL MUNICIPAL BOND PORTFOLIO
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
NOVEMBER 18, 1996
SIX MONTHS ENDED TO
MAY 31, 1997 NOVEMBER 30, 1996(a)
TRUST SHARES TRUST SHARES
---------------- --------------------
(UNAUDITED)
<S> <C> <C>
Net asset value, beginning of period.................... $ 10.05 $ 10.00
-------- --------
Investment activities
Net investment income................................. 0.28 0.02
Net realized and unrealized gains (losses) from
investments........................................ (0.09) 0.05
-------- --------
Total from investment activities................. 0.19 0.07
-------- --------
Distributions
Net investment income................................. (0.28) (0.02)
-------- --------
Total distributions.............................. (0.28) (0.02)
-------- --------
Net asset value, end of period.......................... $ 9.96 $ 10.05
======== ========
Total return............................................ 1.91%(b) 0.74%(b)
Ratios/Supplemental Data:
Net assets at end of period (000)....................... $325,884 $310,413
Ratio of expenses to average net assets (including
waivers).............................................. 0.13%(c) 0.12%(c)
Ratio of net investment income to average net assets
(including waivers)................................... 5.61%(c) 5.77%(c)
Ratio of expenses to average net assets (before
waivers)*............................................. 0.73%(c) 0.82%(c)
Ratio of net investment income to average net assets
(before waivers)*..................................... 5.01%(c) 5.07%(c)
Portfolio turnover**.................................... 50.81% 0.0%
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
10
<PAGE> 11
For a Share outstanding throughout each period
<TABLE>
<CAPTION>
EQUITY INCOME EQUITY INDEX
PORTFOLIO PORTFOLIO
MARCH 7, 1997 MAY 1, 1997
TO TO
MAY 31, 1997(a) MAY 31, 1997(a)
--------------- ---------------
TRUST TRUST
SHARES SHARES
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net asset value, beginning of period........................... $ 10.00 $ 10.00
-------- -------
Investment activities
Net investment income........................................ 0.05 0.02
Net realized and unrealized gains from investments........... 0.11 0.59
-------- -------
Total from investment activities........................ 0.16 0.61
-------- -------
Distributions
Net investment income........................................ (0.05) (0.02)
-------- -------
Total distributions..................................... (0.05) (0.02)
-------- -------
Net asset value, end of period................................. $ 10.11 $ 10.59
======== =======
Total return................................................... 1.61%(b)*** 6.10%(b)***
Ratios/Supplemental Data:
Net assets at end of period (000).............................. $ 119,885 $26,637
Ratio of expenses to average net assets (including waivers).... 0.14%(c) 0.33%(c)
Ratio of net investment income to average net assets (including
waivers)..................................................... 2.20%(c) 2.77%(c)
Ratio of expenses to average net assets (before waivers)*...... 0.67%(c) 0.43%(c)
Ratio of net investment income to average net assets (before
waivers)*.................................................... 1.67%(c) 2.67%(c)
Portfolio turnover**........................................... 26.29% 0.20%
Average commission rate paid(d)................................ $ 0.0600 $0.0200
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of each Portfolio as a whole
without distinguishing between the classes of shares issued.
*** Aggregate since inception.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and sold
for which commissions were charged.
11
<PAGE> 12
GROWTH & INCOME EQUITY PORTFOLIO
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED NOVEMBER 30,
MAY 31, -------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991(a)
-------- ------- ------- ------- ------- ------- -------
TRUST TRUST TRUST TRUST TRUST TRUST TRUST
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
----------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period.............................. $ 18.71 $ 16.32 $ 12.72 $ 14.74 $ 14.49 $ 12.33 $ 12.24
-------- -------- -------- -------- -------- -------- --------
Investment activities
Net investment income.............. 0.10 0.24 0.27 0.22 0.25 0.24 0.22
Net realized and unrealized gains
(losses) from investments........ 1.72 3.34 3.74 (0.17) 1.06 2.25 0.03
-------- -------- -------- -------- -------- -------- --------
Total from investment
activities..................... 1.82 3.58 4.01 0.05 1.31 2.49 0.25
-------- -------- -------- -------- -------- -------- --------
Distributions
Net investment income.............. (0.10) (0.24) (0.27) (0.21) (0.25) (0.26) (0.16)
In excess of net investment
income........................... (0.02) (0.01) -- -- -- -- --
Net realized gains................. (1.46) (0.94) (0.14) (0.18) (0.81) (0.07) --
In excess of net realized gains.... -- -- -- (1.68) -- -- --
-------- -------- -------- -------- -------- -------- --------
Total Distributions.............. (1.58) (1.19) (0.41) (2.07) (1.06) (0.33) (0.16)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of period...... $ 18.95 $ 18.71 $ 16.32 $ 12.72 $ 14.74 $ 14.49 $ 12.33
======== ======== ======== ======== ======== ======== ========
Total return........................ 10.71%(d) 23.45% 32.27% 0.36% 9.65% 20.59% 17.39%
Ratios/Supplemental Data:
Net assets at end of period (000)... $ 305,342 $348,183 $286,546 $235,955 $238,771 $232,967 $139,021
Ratio of expenses to average net
assets............................. 0.74%(e) 0.75% 0.75% 0.75% 0.74% 0.71% 0.27%
Ratio of net investment income to
average net assets................. 1.01%(e) 1.50% 1.89% 1.72% 1.74% 1.94% 2.56%
Ratio of expenses to average net
assets (before waivers)*........... 0.84%(e) 0.85% 0.85% 1.15% 0.96% 0.85% 0.91%
Ratio of net investment income to
average net assets (before
waivers)*.......................... 0.91%(e) 1.40% 1.79% 1.32% 1.52% 1.80% 1.92%
Portfolio turnover**................ 32.33% 63.90% 58.50% 65% 41% 79% 78%
Average commission rate paid(f)..... $ 0.0600 $ 0.0598 -- -- -- -- --
<CAPTION>
JUNE 2,
YEAR ENDED 1988
NOVEMBER 30, TO
----------------- NOV. 30,
1990 1989 1988(b)
------- ------- --------
<S> <C> <C> <C>
Net asset value, beginning of
period.............................. $ 12.41 $ 10.25 $ 10.00
------- ------- -------
Investment activities
Net investment income.............. 0.39 0.41 0.28
Net realized and unrealized gains
(losses) from investments........ (0.56) 2.29 0.06
------- ------- -------
Total from investment
activities..................... (0.17) 2.70 0.34
------- ------- -------
Distributions
Net investment income.............. (0.39) (0.51) (0.09)
In excess of net investment
income........................... -- -- --
Net realized gains................. (0.63) (0.03) --
In excess of net realized gains.... -- -- --
------- ------- -------
Total Distributions.............. (1.02) (0.54) (0.09)
------- ------- -------
Net asset value, end of period...... $ 11.22 $ 12.41 $ 10.25
======= ======= =======
Total return........................ (1.36)% 27.11% 3.45%(c),(d)
Ratios/Supplemental Data:
Net assets at end of period (000)... $20,116 $17,892 $ 10,890
Ratio of expenses to average net
assets............................. 0.35% 0.42% 0.41%(e)
Ratio of net investment income to
average net assets................. 3.42% 3.69% 5.62%(e)
Ratio of expenses to average net
assets (before waivers)*........... 1.00% 1.07% 1.12%(e)
Ratio of net investment income to
average net assets (before
waivers)*.......................... 2.77% 3.04% 4.91%(e)
Portfolio turnover**................ 227% 133% 30%
Average commission rate paid(f)..... -- -- --
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as
a whole without distinguishing between the classes of shares issued.
(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.
(f) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and
sold for which commissions were charged.
12
<PAGE> 13
For a Share outstanding throughout each period
<TABLE>
<CAPTION>
SMALL CAP EQUITY PORTFOLIO(a)
----------------------------------------------------------------------------
SIX MAY 1,
MONTHS YEAR YEAR YEAR YEAR 1992
ENDED ENDED ENDED ENDED ENDED TO
MAY 31, NOV. 30, NOV. 30, NOV. 30, NOV. 30, NOV. 30,
1997 1996 1995 1994 1993 1992(b)
-------- ------ ------ ----- ----- -----
TRUST TRUST TRUST TRUST TRUST TRUST
SHARES SHARES SHARES SHARES SHARES SHARES
----------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period............. $ 13.49 $ 13.49 $ 12.01 $ 13.14 $ 11.23 $ 10.00
-------- -------- -------- ------- ------- -------
Investment activities
Net investment income (loss).................... -- 0.02 0.03 (0.01) 0.03 0.04
Net realized and unrealized gains (losses) from
investments and foreign currency.............. 0.98 1.05 2.36 0.89 2.14 1.21
-------- -------- -------- ------- ------- -------
Total from investment activities.............. 0.98 1.07 2.39 0.88 2.17 1.25
-------- -------- -------- ------- ------- -------
Distributions
Net investment income........................... -- (0.02) -- -- (0.05) (0.02)
In excess of net investment income.............. (0.01) -- -- -- -- --
Net realized gains.............................. (0.82) (1.05) (0.91) (1.78) (0.21) --
In excess of realized gains..................... -- -- -- (0.23) -- --
-------- -------- -------- ------- ------- -------
Total distributions........................... (0.83) (1.07) (0.91) (2.01) (0.26) (0.02)
-------- -------- -------- ------- ------- -------
Net asset value, end of period................... $ 13.64 $ 13.49 $ 13.49 $ 12.01 $ 13.14 $ 11.23
======== ======== ======== ======= ======= =======
Total return..................................... 7.68%(c) 8.72% 21.70% 7.56% 19.75% 12.55%(c)
Ratios/Supplemental Data:
Net assets at end of period (000)................ $ 181,715 $171,295 $139,681 $ 77,690 $ 47,473 $ 26,829
Ratio of expenses to average net assets
(including waivers)............................. 0.95%(d) 0.96% 0.96% 0.95% 0.61% 0.30%(d)
Ratio of net investment income to average net
assets (including waivers)...................... (0.02)%(d) 0.17% 0.18% (0.16)% 0.19% 0.78%(d)
Ratio of expenses to average net assets (before
waivers)*....................................... 1.05%(d) 1.06% 1.06% 1.36% 1.23% 1.12%(d)
Ratio of net investment income to average net
assets (before waivers)*........................ (0.12)%(d) 0.07% 0.08% (0.56)% (0.43)% (0.04)%(d)
Portfolio turnover**............................. 40.00% 65.85% 83.13% 85% 65% 56%
Average commission rate paid(e).................. $ 0.0599 $ 0.0582 -- -- -- --
<CAPTION>
INTERNATIONAL EQUITY PORTFOLIO
--------------------------------------------------
SIX APRIL 4,
MONTHS YEAR YEAR 1994
ENDED ENDED ENDED TO
MAY 31, NOV. 30, NOV. 30, NOV. 30,
1997 1996 1995 1994(b)
-------- ----- ----- -----
TRUST TRUST TRUST TRUST
SHARES SHARES SHARES SHARES
----------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net asset value, beginning of period............. $ 12.12 $ 10.79 $ 9.92 $ 10.00
------- ------- ------- -------
Investment activities
Net investment income (loss).................... 0.02 0.06 0.03 0.01
Net realized and unrealized gains (losses) from
investments and foreign currency.............. 0.75 1.27 0.86 (0.09)
------- ------- ------- -------
Total from investment activities.............. 0.77 1.33 0.89 (0.08)
------- ------- ------- -------
Distributions
Net investment income........................... (0.02) -- -- --
In excess of net investment income.............. -- -- -- --
Net realized gains.............................. (0.31) -- (0.01) --
In excess of realized gains..................... -- -- (0.01) --
------- ------- ------- -------
Total distributions........................... (0.33) -- (0.02) --
------- ------- ------- -------
Net asset value, end of period................... $ 12.56 $ 12.12 $ 10.79 $ 9.92
======= ======= ======= =======
Total return..................................... 6.59%(c) 12.33% 8.97% (0.80)%(c)
Ratios/Supplemental Data:
Net assets at end of period (000)................ $54,908 $ 52,181 $ 36,096 $ 23,746
Ratio of expenses to average net assets
(including waivers)............................. 1.20%(d) 1.14% 1.16% 1.23%(d)
Ratio of net investment income to average net
assets (including waivers)...................... 0.41%(d) 0.51% 0.39% 0.23%(d)
Ratio of expenses to average net assets (before
waivers)*....................................... 1.46%(d) 1.45% 1.46% 1.95%(d)
Ratio of net investment income to average net
assets (before waivers)*........................ 0.15%(d) 0.20% 0.09% (0.49)%(d)
Portfolio turnover**............................. 39.39% 77.63% 62.78% 21%
Average commission rate paid(e).................. $0.0187 $ 0.0251 -- --
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
** Portfolio turnover is calculated on the basis of each Portfolio as a whole
without distinguishing between the classes of shares issued.
(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.
(e) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased
and sold for which commissions were charged.
13
<PAGE> 14
BALANCED PORTFOLIO
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
APRIL 1, 1993
SIX MONTHS TO
ENDED YEAR ENDED YEAR ENDED YEAR ENDED NOV. 30,
MAY 31, 1997 NOV. 30, 1996 NOV. 30, 1995 NOV. 30, 1994 1993(a)
----------- ----------- ----------- ------------- ------------
TRUST SHARES TRUST SHARES TRUST SHARES TRUST SHARES TRUST SHARES
------------ ------------- ------------- ---------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period............ $ 12.58 $ 11.64 $ 9.62 $ 10.22 $ 10.00
------- ------- ------- ------- -------
Investment activities
Net investment income (loss)................... 0.21 0.37 0.34 0.29 0.23
Net realized and unrealized gains (losses) from
investments.................................. 0.46 1.34 2.02 (0.47) 0.15
------- ------- ------- ------- -------
Total from investment activities......... 0.67 1.71 2.36 (0.18) 0.38
------- ------- ------- ------- -------
Distributions
Net investment income.......................... (0.21) (0.35) (0.34) (0.29) (0.16)
In excess of net investment income............. (0.05) -- -- -- --
Net realized gains............................. (0.46) (0.42) -- -- --
In excess of realized gains.................... (0.25) -- -- (0.13) --
------- ------- ------- ------- -------
Total distributions...................... (0.97) (0.77) (0.34) (0.42) (0.16)
------- ------- ------- ------- -------
Net asset value, end of period.................. $ 12.28 $ 12.58 $ 11.64 $ 9.62 $ 10.22
======= ======= ======= ======= =======
Total return.................................... 5.74%(b) 15.56% 24.97% (1.81)% (3.86)%(b)
Ratios/Supplemental Data:
Net assets at end of period (000).............. $ 46,138 $61,821 $72,669 $ 65,288 $ 69,720
Ratio of expenses to average net assets
(including waivers).......................... 0.97%(c) 0.97% 0.98% 0.97% 0.56%(c)
Ratio of net investment income to average net
assets (including waivers)................... 3.03%(c) 3.08% 3.29% 3.04% 3.42%(c)
Ratio of expenses to average net assets (before
waivers)*.................................... 1.07%(c) 1.07% 1.08% 1.39% 1.21%(c)
Ratio of net investment income to average net
assets (before waivers)*..................... 2.93%(c) 2.98% 3.19% 2.63% 2.77%(c)
Portfolio turnover**........................... 28.56% 85.16% 58.16% 49% 26%
Average commission rate paid(d)................ $ 0.0600 $0.0599 -- -- --
</TABLE>
- ------------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and sold
for which commissions were charged.
14
<PAGE> 15
THE ARCH FUND(R), INC.
(THE "FUND")
TRUST SHARES OF THE
ARCH TREASURY MONEY MARKET, MONEY MARKET AND
TAX-EXEMPT MONEY MARKET PORTFOLIOS
SUPPLEMENT DATED AUGUST 29, 1997
TO PROSPECTUS DATED MARCH 31, 1997
The following Financial Highlights replace those included in the Prospectus
on pages 7 through 10:
FINANCIAL HIGHLIGHTS
The "Financial Highlights" in the following tables supplement the Fund's
financial statements, which are contained in the Fund's Annual and Semi-Annual
Reports to Shareholders dated November 30, 1996 and May 31, 1997, respectively,
and incorporated by reference into the Statement of Additional Information. The
Financial Highlights set forth certain historic results for Trust Shares of each
Portfolio. The data for the period ended May 31, 1997 for each Portfolio is
unaudited. 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 KPMG Peat Marwick LLP, independent auditors, whose
unqualified report insofar as it relates to each of the years or periods in the
five-year period ended November 30, 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 incorporated by reference 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 and Semi-Annual Reports. Both the Statement of
Additional Information and the Annual and Semi-Annual Reports 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.
<PAGE> 16
TREASURY MONEY MARKET PORTFOLIO
(For a Share(b) outstanding throughout each period)
<TABLE>
<CAPTION>
SIX
MONTHS YEAR ENDED NOVEMBER 30, DEC. 2, 1991
ENDED --------------------------------------------------------- TO
MAY 31, NOV. 30,
1997 1996 1995 1994 1993 1992(a),(b)
------------ ------------ ------------ ------------ ------------ ----------------
TRUST SHARES TRUST SHARES TRUST SHARES TRUST SHARES TRUST SHARES TRUST SHARES
------------ ------------ ------------ ------------ ------------ ----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Investment activities
Net investment
income............. 0.023 0.045 0.050 0.033 0.026 0.034
-------- -------- -------- -------- -------- --------
Total from investment
activities......... 0.023 0.045 0.050 0.033 0.026 0.034
-------- -------- -------- -------- -------- --------
Distributions
Net investment
income............. (0.023) (0.045) (0.050) (0.033) (0.026) (0.034)
-------- -------- -------- -------- -------- --------
Total
distributions...... (0.023) (0.045) (0.050) (0.033) (0.026) (0.034)
-------- -------- -------- -------- -------- --------
Net asset value, end of
period............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total return........... 2.31%(c) 4.64% 5.12% 3.38% 2.67% 3.16%(c)
Ratios/Supplemental
Data:
Net assets at end of
period (000)......... $162,313 $131,322 $252,780 $242,099 $256,503 $229,288
Ratio of expenses to
average net assets
(including
waivers)............. 0.61%(d) 0.61% 0.60% 0.49% 0.41% 0.28%(d)
Ratio of net investment
income to average net
assets (including
waivers)............. 4.58%(d) 4.55% 5.01% 3.26% 2.64% 3.35%(d)
Ratio of expenses to
average net assets
(before waivers)*.... 0.76%(d) 0.76% 0.75% 0.94% 0.85% 0.72%(d)
Ratio of net investment
income to average net
assets (before
waivers)*............ 4.43%(d) 4.40% 4.86% 2.82% 2.21% 2.91%(d)
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) On December 2, 1991, the Portfolio issued a series of Shares which were
designated as "Trust" Shares. In addition, on April 20, 1992, the Portfolio
issued a second series of Shares which were designated as "Investor"
Shares. On September 27, 1994, the Portfolio redesignated Investor Shares
as "Investor A" Shares.
(c) Not annualized.
(d) Annualized.
2
<PAGE> 17
MONEY MARKET PORTFOLIO
(For a Share(a)outstanding throughout each period)
<TABLE>
<CAPTION>
SIX
MONTHS YEAR ENDED NOVEMBER 30,
ENDED ----------------------------------------------------------------------------------------------------
MAY 31,
1997 1996 1995 1994 1993 1992 1991(a)
----------- -------- -------- -------- -------- -------- --------
TRUST TRUST TRUST TRUST TRUST TRUST TRUST
SHARES SHARES SHARES SHARES SHARES SHARES SHARES 1990 1989 1988 1987
----------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <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 $1.00
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Investment
activities
Net investment
income....... 0.024 0.049 0.054 0.035 0.026 0.034 0.058 0.078 0.088 0.071 0.062
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from
investment
activities.. 0.024 0.049 0.054 0.035 0.026 0.034 0.058 0.078 0.088 0.071 0.062
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Distributions
Net
investment
income....... (0.024) (0.049) (0.054) (0.035) (0.026) (0.034) (0.058) (0.078) (0.088) (0.071) (0.062)
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total
distributions (0.024) (0.049) (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 $1.00 $1.00
======== ======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Total
return....... 2.45%(c) 4.99% 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 of period
(000)........ $806,187 $717,265 $698,131 $544,952 $621,717 $574,941 $700,474 $896,903 $661,145 $289,764 $220,944
Ratio of
expenses to
average net
assets
(including
waivers)..... 0.65%(d) 0.61% 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)..... 4.87%(d) 4.88% 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)*.... 0.80%(d) 0.76% 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)*.... 4.72%(d) 4.73% 5.23% 3.13% 2.49% 3.30% 5.73% 7.72% 8.67% 6.99% 5.99%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) As of December 1, 1990, the Portfolio designated existing Shares as
"Investor" Shares. In addition, on December 1, 1990, the Portfolio issued a
second series of Shares which were designated as "Trust" Shares. The
financial highlights presented for periods prior to December 1, 1990 are
the financial highlights applicable to Investor Shares. On September 27,
1994 the Portfolio redesignated the Investor Shares as "Investor A" Shares.
(b) Unaudited.
(c) Not annualized.
(d) Annualized.
3
<PAGE> 18
TAX-EXEMPT MONEY MARKET PORTFOLIO(a)
(For a Share(b)outstanding throughout each period)
<TABLE>
<CAPTION>
SIX SIX
MONTHS YEAR MONTHS
ENDED ENDED ENDED
MAY 31, NOV. 30, NOV. 30, YEAR ENDED MAY 31,
----------- -------- -------- -----------------------------------------------------------
1997 1996 1995(f) 1995 1994 1993 1992 1991(b) 1990(b)
----------- -------- -------- ------- -------- -------- -------- -------- --------
TRUST TRUST TRUST TRUST TRUST TRUST TRUST TRUST TRUST
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
----------- -------- -------- ------- -------- -------- -------- -------- --------
<S> <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.............. 0.015 0.030 0.016 0.029 0.020 0.021 0.034 0.031 0.056
-------- ------- ------- ------- -------- -------- -------- -------- --------
Total from investment
activities..................... 0.015 0.030 0.016 0.029 0.020 0.021 0.034 0.031 0.056
-------- ------- ------- ------- -------- -------- -------- -------- --------
Distributions Net investment
income......................... (0.015) (0.030) (0.016) (0.029) (0.020) (0.021) (0.034) (0.031) (0.056)
-------- ------- ------- ------- -------- -------- -------- -------- --------
Total distributions............ (0.015) (0.030) (0.016) (0.029) (0.020) (0.021) (0.034) (0.031) (0.056)
-------- ------- ------- ------- -------- -------- -------- -------- --------
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.................... 1.48%(d) 3.06% 1.57(d) 2.93% 1.97% 2.16% 3.44% 2.25% 5.71%
Ratios/Supplemental Data:
Net assets at end of period
(000).......................... $ 123,512 $95,726 $78,031 $85,324 $112,594 $137,602 $126,079 $137,847 $132,407
Ratio of expenses to average net
assets (including waivers)..... 0.58%(d) 0.53% 0.70(e) 0.61% 0.52% 0.52% 0.59% 0.58% 0.51%
Ratio of net investment income
to average net assets (including
waivers)........................ 2.93%(d) 3.01% 3.10(e) 2.87% 1.95% 2.13% 3.38% 4.65% 5.57%
Ratio of expenses to average
net assets (before waivers)* ... 0.63%(d) 0.58% 0.75(e) 0.70% 0.86% 0.62% 0.69% 0.68% 0.61%
Ratio of net investment
income to average net assets
(before waivers)* .............. 2.88%(d) 2.96% 3.05(e) 2.78% 1.61% 2.03% 3.28% 4.55% 5.47%
<CAPTION>
YEAR
YEAR ENDED ENDED MAY
MAY 31, 31,
----------------- ---------
1989(b) 1988(b) 1987(a),(b)
-------- ------- ---------
TRUST TRUST 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.............. 0.056 0.043 0.036
------- ------- --------
Total from investment
activities..................... 0.056 0.043 0.036
------- ------- --------
Distributions Net investment
income......................... (0.056) (0.043) (0.036)
------- ------- --------
Total distributions............ (0.056) (0.043) (0.036)
------- ------- --------
Net asset value, end of
period......................... $ 1.00 $ 1.00 $ 1.00
======= ======= ========
Total return.................... 5.74% 4.35% 3.80%(d)
Ratios/Supplemental Data:
Net assets at end of period
(000).......................... $70,153 $72,120 $ 147,799
Ratio of expenses to average net
assets (including waivers)..... 0.45% 0.45% 0.37%(c),(e)
Ratio of net investment income
to average net assets (including
waivers)........................ 5.59% 4.27% 4.02%(c),(e)
Ratio of expenses to average
net assets (before waivers)* ... 0.63% 0.60% 0.62%(c),(e)
Ratio of net investment
income to average net assets
(before waivers)* .............. 5.41% 4.12% 3.77%(c),(e)
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) The Portfolio commenced operations on July 10, 1986 as a portfolio of The
ARCH Tax-Exempt Trust. On October 2, 1995, it was reorganized as a new
portfolio of the Fund.
(b) "Trust" Shares were originally issued as "Money" Shares. As of September
28, 1990, the Portfolio issued a second series of Shares which were
designated as "Trust" Shares. The financial highlights presented for
periods prior to September 28, 1990 are 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.
4
<PAGE> 19
THE ARCH FUND(R), INC.
(THE "FUND")
INSTITUTIONAL SHARES OF THE
ARCH MONEY MARKET, TREASURY 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
SUPPLEMENT DATED AUGUST 29, 1997
TO PROSPECTUS DATED MARCH 31, 1997
The following Financial Highlights replace those included in the Prospectus
on pages 7 through 14:
FINANCIAL HIGHLIGHTS
The "Financial Highlights" in the following tables supplement the Fund's
financial statements, which are contained in the Fund's Annual and Semi-Annual
Reports to Shareholders dated November 30, 1996 and May 31, 1997, respectively,
and incorporated by reference into the Statement of Additional Information, and
set forth certain historic investment results for Institutional Shares of each
Portfolio. The data for the period ended May 31, 1997 for each Portfolio is
unaudited. The data for the years November 30, 1989 through 1996 has been
audited by KPMG Peat Marwick LLP, independent auditors, whose unqualified report
insofar as it relates to each of the years or periods in the five-year period
ended November 30, 1996 on the financial statements containing such information
is incorporated by reference into the Statement of Additional Information. The
data for the years ended November 30, 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 and Semi-Annual
Reports. Both the Statement of Additional Information and the Annual and
Semi-Annual Reports may be obtained free of charge by contacting the Fund at the
address or telephone number provided on page 1 of this Prospectus.
<PAGE> 20
TREASURY MONEY MARKET PORTFOLIO
(For a Share outstanding throughout the period)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED JANUARY 26, 1995
ENDED NOVEMBER 30, TO NOVEMBER 30,
MAY 31, 1997 1996 1995(a),(b)
---------------- ------------------ ----------------
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
SHARES SHARES SHARES
---------------- ------------------ ----------------
(UNAUDITED)
<S> <C> <C> <C>
Net asset value, beginning of period....... $ 1.00 $ 1.00 $ 1.00
------ ------ ------
Investment activities
Net investment income.................... 0.022 0.044 0.042
------ ------ ------
Total from investment activities......... 0.022 0.044 0.042
------ ------ ------
Distributions
Net investment income.................... (0.022) (0.044) (0.042)
------ ------ ------
Total distributions...................... (0.022) (0.044) (0.042)
------ ------ ------
Net asset value, end of period............. $ 1.00 $ 1.00 $ 1.00
====== ====== ======
Total return............................... 2.23%(d) 4.46% 4.94%(c)
Ratios/Supplemental Data:
Net assets at end of period (000).......... $ 433 $ 299 $ 28
Ratio of expenses to average net assets
(including waivers)...................... 0.77%(e) 0.79% 0.92%(e)
Ratio of net investment income to average
net assets (including waivers)........... 4.42%(e) 4.39% 5.76%(e)
Ratio of expenses to average net assets
(before waivers)*........................ 0.92%(e) 0.94% 1.07%(e)
Ratio of net investment income to average
net assets (before waivers)*............. 4.27%(e) 4.24% 5.61%(e)
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) 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) Not annualized.
(e) Annualized.
2
<PAGE> 21
MONEY MARKET PORTFOLIO
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED NOVEMBER 30,
ENDED -----------------------------------------------------------------------------------------
MAY 31, 1997 1996 1995 1994(a) 1993 1992 1991
------------ ------------- ------------- ------------- -------- -------- --------
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INVESTOR INVESTOR INVESTOR
SHARES SHARES SHARES SHARES SHARES SHARES SHARES 1990
------------ ------------- ------------- ------------- -------- -------- -------- --------
(UNAUDITED)
<S> <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
------- ------- ------- ------- ------- ------- ------- --------
Investment activities
Net investment income.. 0.024 0.047 0.052 0.033 0.025 0.032 0.056 0.078
------- ------- ------- ------- ------- ------- ------- --------
Total from investment
activities.......... 0.024 0.047 0.052 0.033 0.025 0.032 0.056 0.078
------- ------- ------- ------- ------- ------- ------- --------
Distributions
Net investment income.. (0.024) (0.047) (0.052) (0.033) (0.025) (0.032) (0.056) (0.078)
------- ------- ------- ------- ------- ------- ------- --------
Total
distributions....... (0.024) (0.047) (0.052) (0.033) (0.025) (0.032) (0.056) (0.078)
------- ------- ------- ------- ------- ------- ------- --------
Net asset value, end of
period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= ======= ======= ========
Total return............ 2.39%(c) 4.81% 5.33% 3.34% 2.52% 3.21% 5.75% 8.08%
Ratios/Supplemental
Data:
Net assets at end of
period (000)........... $ 23,040 $15,921 $13,340 $10,295 $46,920 $52,224 $60,436 $896,903
Ratio of expenses to
average net assets
(including waivers).... 0.77%(d) 0.78% 0.77% 0.78% 0.79% 0.80% 0.72% 0.55%
Ratio of net investment
income to average net
assets (including
waivers)............... 4.75%(d) 4.70% 5.20% 3.48% 2.50% 3.21% 5.69% 7.77%
Ratio of expenses to
average net assets
(before waivers)*...... 0.92%(d) 0.93% 0.92% 0.95% 0.93% 0.94% 0.80% 0.60%
Ratio of net investment
income to average net
assets (before
waivers)*.............. 4.60%(d) 4.55% 5.05% 3.31% 2.36% 3.07% 5.61% 7.72%
<CAPTION>
YEAR ENDED NOVEMBER 30,
--------------------------------
1989 1988 1987
-------- -------- --------
<S> <C> <C> <C>
Net asset value,
beginning of period.... $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Investment activities
Net investment income.. 0.088 0.071 0.062
-------- -------- --------
Total from investment
activities.......... 0.088 0.071 0.062
-------- -------- --------
Distributions
Net investment income.. (0.088) (0.071) (0.062)
-------- -------- --------
Total
distributions....... (0.088) (0.071) (0.062)
-------- -------- --------
Net asset value, end of
period................. $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total return............ 9.21% 7.33%(b) 6.40%(b)
Ratios/Supplemental
Data:
Net assets at end of
period (000)........... $661,145 $289,764 $220,944
Ratio of expenses to
average net assets
(including waivers).... 0.45% 0.45% 0.45%
Ratio of net investment
income to average net
assets (including
waivers)............... 8.82% 7.12% 6.22%
Ratio of expenses to
average net assets
(before waivers)*...... 0.60% 0.58% 0.68%
Ratio of net investment
income to average net
assets (before
waivers)*.............. 8.67% 6.99% 5.99%
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. In addition, on 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) Unaudited.
(c) Not annualized.
(d) Annualized.
3
<PAGE> 22
U.S. GOVERNMENT SECURITIES PORTFOLIO
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
SIX MONTHS -----------------------------------------------------------------------------
ENDED
MAY 31, 1997 1996 1995 1994(a) 1993 1992
------------- ------------- ------------- ------------- ------------- -------------
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INVESTOR INVESTOR
SHARES SHARES SHARES SHARES SHARES SHARES
------------- ------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period....................... $ 10.64 $ 10.82 $ 10.02 $ 11.20 $ 10.80 $ 10.68
------ ------ ------ ------ ------ ------
Investment activities
Net investment income........ 0.27 0.62 0.63 0.61 0.59 0.62
Net realized and unrealized
gains (losses) from
investments................ (0.17) (0.15) 0.80 (1.00) 0.47 0.13
------ ------ ------ ------ ------ ------
Total from investment
activities................. 0.10 0.47 1.43 (0.39) 1.06 0.75
------ ------ ------ ------ ------ ------
Distributions
Net investment income........ (0.27) (0.62) (0.63) (0.61) (0.59) (0.62)
In excess of net investment
income..................... (0.02) -- -- -- -- --
Net realized gains........... -- -- -- -- (0.07) (0.01)
In excess of net realized
gains...................... -- (0.03) -- (0.18) -- --
------ ------ ------ ------ ------ ------
Total distributions.......... (0.29) (0.65) (0.63) (0.79) (0.66) (0.63)
------ ------ ------ ------ ------ ------
Net asset value, end of
period....................... $ 10.45 $ 10.64 $ 10.82 $ 10.02 $ 11.20 $ 10.80
====== ====== ====== ====== ====== ======
Total return.................. 1.01%(c) 4.55% 14.69% (3.46%) 10.03% 7.20%
Ratios/Supplemental Data:
Net assets at end of period
(000)........................ $ 6,766 $ 2,232 $ 667 $ 51 $ 9,567 $ 7,499
Ratio of expenses to average
net assets (including
waivers)..................... 0.96%(d) 0.96% 0.97% 0.95% 0.97% 0.95%
Ratio of net investment income
to average net assets
(including waivers).......... 5.59%(d) 5.75% 5.91% 6.54% 5.25% 5.72%
Ratio of expenses to average
net assets (before
waivers)*.................... 1.06%(d) 1.06% 1.07% 1.16% 1.08% 1.09%
Ratio of net investment income
to average net assets (before
waivers)*.................... 5.49%(d) 5.65% 5.81% 6.33% 5.14% 5.58%
Portfolio turnover**.......... 78.33% 53.76% 93.76% 50% 24% 74%
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------------------
1991 JUNE 2,
-------- 1988 TO
INVESTOR NOV. 30,
SHARES 1990 1989 1988(b)
-------- ------ ------ --------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period....................... $10.21 $10.06 $ 9.94 $10.00
------ ------ ------ ------
Investment activities
Net investment income........ 0.75 0.76 0.85 0.36
Net realized and unrealized
gains (losses) from
investments................ 0.47 0.16 0.11 (0.06)
------ ------ ------ ------
Total from investment
activities................. 1.22 0.92 0.96 0.30
------ ------ ------ ------
Distributions
Net investment income........ (0.75) (0.77) (0.84) (0.36)
In excess of net investment
income..................... -- -- -- --
Net realized gains........... -- -- -- --
In excess of net realized
gains...................... -- -- -- --
------ ------ ------ ------
Total distributions.......... (0.75) (0.77) (0.84) (0.36)
------ ------ ------ ------
Net asset value, end of
period....................... $10.68 $10.21 $10.06 $ 9.94
====== ====== ====== ======
Total return.................. 12.36% 9.66% 10.04% 3.05%(c)
Ratios/Supplemental Data:
Net assets at end of period
(000)........................ $5,791 $6,856 $5,954 $4,335
Ratio of expenses to average
net assets (including
waivers)..................... 0.82% 0.73% 0.74% 0.79%(d)
Ratio of net investment income
to average net assets
(including waivers).......... 7.12% 7.80% 8.50% 7.26%(d)
Ratio of expenses to average
net assets (before
waivers)*.................... 1.36% 1.28% 1.29% 1.40%(d)
Ratio of net investment income
to average net assets (before
waivers)*.................... 6.58% 7.25% 7.95% 6.65%(d)
Portfolio turnover**.......... 36% 53% 84% 215%
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(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.
4
<PAGE> 23
For a Share outstanding throughout each period
<TABLE>
<CAPTION>
INTERMEDIATE CORPORATE
BOND PORTFOLIO BOND INDEX PORTFOLIO
FEBRUARY 10, 1997 FEBRUARY 10, 1997
TO MAY 31, 1997(a) TO MAY 31, 1997(a)
---------------------- --------------------
INSTITUTIONAL INSTITUTIONAL
SHARES SHARES
---------------------- --------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net asset value, beginning of period................ $10.00 $10.00
------ ------
Investment activities
Net investment income............................. 0.19 0.19
Net realized and unrealized (losses) from
investments.................................... (0.17) (0.13)
------ ------
Total from investment activities.................. 0.02 0.06
------ ------
Distributions
Net investment income............................. (0.19) (0.19)
------ ------
Total distributions............................... (0.19) (0.19)
------ ------
Net asset value, end of period...................... $ 9.83 $ 9.87
====== ======
Total return........................................ 0.24%(b)*** 0.58%(b)***
Ratios/Supplemental Data:
Net assets at end of period (000)................... $ 1 $ 1
Ratio of expenses to average net assets (including
waivers).......................................... 0.69%(c) 0.75%(c)
Ratio of net investment income to average net assets
(including waivers)............................... 14.04%(c) 15.59%(c)
Ratio of expenses to average net assets (before
waivers)*......................................... 1.78%(c) 1.14%(c)
Ratio of net investment income to average net assets
(before waivers)*................................. 12.95%(c) 15.21%(c)
Portfolio turnover**................................ 66.10% 40.66%
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of each Portfolio as a whole
without distinguishing between the classes of shares issued.
*** Aggregate since inception.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
5
<PAGE> 24
GOVERNMENT & CORPORATE BOND PORTFOLIO
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED NOVEMBER 30,
ENDED ------------------------------------------------------------------------------
MAY 31, 1997 1996 1995 1994(a) 1993 1992 1991
-------- -------- -------- -------- ----- ----- -----
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INVESTOR INVESTOR INVESTOR
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------------- ------------- ------------- ------------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period........................ $ 10.34 $ 10.53 $ 9.64 $ 10.65 $10.26 $10.15 $ 9.71
------- ------- ------ ------ ------ ------ ------
Investment activities
Net investment income......... 0.28 0.64 0.61 0.60 0.64 0.66 0.75
Net realized and unrealized
gains (losses) from
investments................. (0.30) (0.19) 0.89 (0.94) 0.39 0.11 0.48
------- ------- ------ ------ ------ ------ ------
Total from investment
activities................ (0.02) 0.45 1.50 (0.34) 1.03 0.77 1.23
------- ------- ------ ------ ------ ------ ------
Distributions
Net investment income......... (0.28) (0.64) (0.61) (0.60) (0.64) (0.66) (0.79)
In excess of net realized
gains....................... -- -- -- (0.07) -- -- --
------- ------- ------ ------ ------ ------ ------
Total distributions......... (0.28) (0.64) (0.61) (0.67) (0.64) (0.66) (0.79)
------- ------- ------ ------ ------ ------ ------
Net asset value, end of
period........................ $ 10.04 $ 10.34 $ 10.53 $ 9.64 $10.65 $10.26 $10.15
======= ======= ====== ====== ====== ====== ======
Total return................... (0.14)%(c) 4.51% 15.98% (3.32)% 10.23% 7.81% 12.79%
Ratios/Supplemental Data:
Net assets at end of period
(000)......................... $15,608 $14,875 $ 9,413 $ 5,965 $3,737 $2,490 $2,010
Ratio of expenses to average
net assets (including
waivers)...................... 0.95%(d) 0.95% 0.95% 0.96% 0.95% 0.93% 0.59%
Ratio of net investment income
to average net assets
(including waivers)........... 5.63%(d) 6.06% 6.01% 6.03% 6.00% 6.45% 7.77%
Ratio of expenses to average
net assets (before waivers)*.. 1.05%(d) 1.05% 1.05% 1.07% 1.05% 1.06% 1.14%
Ratio of net investment income
to average net assets (before
waivers)*..................... 5.53%(d) 5.96% 5.91% 5.92% 5.90% 6.32% 7.22%
Portfolio turnover**........... 76.99% 149.20% 59.32% 50% 31% 52% 105%
<CAPTION>
YEAR ENDED NOVEMBER 30,
----------------------------
JUNE 15,
1988 TO
NOV. 30,
1990 1989 1988(b)
------- ------- --------
<S> <C> <C> <C>
Net asset value, beginning of
period........................ $ 10.12 $ 9.91 10.00
------- ------- ------
Investment activities
Net investment income......... 0.84 0.89 0.39
Net realized and unrealized
gains (losses) from
investments................. (0.41) 0.22 (0.13)
------- ------- ------
Total from investment
activities................ 0.43 1.11 0.26
------- ------- ------
Distributions
Net investment income......... (0.84) (0.90) (0.35)
In excess of net realized
gains....................... -- -- --
------- ------- ------
Total distributions......... (0.84) (0.90) (0.35)
------- ------- ------
Net asset value, end of
period........................ $ 9.71 $ 10.12 $ 9.91
======= ======= ======
Total return................... 4.96% 11.79% 2.66%(c)
Ratios/Supplemental Data:
Net assets at end of period
(000)......................... $11,005 $10,327 $7,483
Ratio of expenses to average
net assets (including
waivers)...................... 0.53% 0.44% 0.56%(d)
Ratio of net investment income
to average net assets
(including waivers)........... 8.69% 8.97% 8.47%(d)
Ratio of expenses to average
net assets (before waivers)*.. 1.08% 0.99% 1.17%(d)
Ratio of net investment income
to average net assets (before
waivers)*..................... 8.14% 8.42% 7.86%(d)
Portfolio turnover**........... 75% 148% 22%
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(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.
6
<PAGE> 25
For a Share outstanding throughout each period
<TABLE>
<CAPTION>
EQUITY INCOME PORTFOLIO EQUITY INDEX PORTFOLIO
MARCH 7, 1997 MAY 1, 1997
TO TO
MAY 31, 1997(a) MAY 31, 1997(a)
---------------------- --------------------
INSTITUTIONAL INSTITUTIONAL
SHARES SHARE
---------------------- --------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net asset value, beginning of period............... $ 10.00 $ 10.00
------ ------
Investment activities
Net investment income............................ 0.04 0.02
Net realized and unrealized gains from
investments................................... 0.12 0.59
------ ------
Total from investment activities................. 0.16 0.61
------ ------
Distributions
Net investment income............................ (0.04) (0.02)
In excess of net investment income............... (0.01) --
------ ------
Total distributions.............................. (0.05) (0.02)
------ ------
Net asset value, end of period..................... $ 10.11 $ 10.59
====== ======
Total return....................................... 1.61%(b)*** 6.10%(b)***
Ratios/Supplemental Data:
Net assets at end of period (000).................. $ 1 $ 1
Ratio of expenses to average net assets (including
waivers)......................................... 1.05%(c) 0.35%(c)
Ratio of net investment income to average net
assets (including waivers)....................... 1.76%(c) 2.75%(c)
Ratio of expenses to average net assets (before
waivers)*........................................ 1.50%(c) 1.05%(c)
Ratio of net investment income to average net
assets (before waivers)*......................... 1.31%(c) 2.05%(c)
Portfolio turnover**............................... 26.29% 0.20%
Average commission rate paid(d).................... $0.0600 $ 0.0200
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of each Portfolio as a whole
without distinguishing between the classes of shares issued.
*** Aggregate since inception.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and sold
for which commissions were charged.
7
<PAGE> 26
GROWTH & INCOME EQUITY PORTFOLIO
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
SIX MONTHS ------------------------------------------------------------------------------
ENDED
MAY 31, 1997 1996 1995 1994(a) 1993 1992 1991
------------- ------------- ------------- ------------- -------- -------- --------
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INVESTOR INVESTOR INVESTOR
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------------- ------------- ------------- ------------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period................ $ 18.67 $ 16.29 $ 12.70 $ 14.74 $ 14.49 $12.33 $11.22
------- ------- ------- ------- ------- ------ ------
Investment activities
Net investment income.............. 0.06 0.20 0.23 0.20 0.25 0.25 0.39
Net realized and unrealized gains
(losses) from investments........ 1.73 3.33 3.74 (0.17) 1.06 2.24 1.47
------- ------- ------- ------- ------- ------ ------
Total from investment activities... 1.79 3.53 3.97 0.03 1.31 2.49 1.86
------- ------- ------- ------- ------- ------ ------
Distributions
Net investment income.............. (0.06) (0.20) (0.24) (0.21) (0.25) (0.26) (0.39)
In excess of net investment
income........................... (0.04) (0.01) -- -- -- -- --
Net realized gains................. (1.46) (0.94) (0.14) (0.18) (0.81) (0.07) (0.36)
In excess of net realized gains.... -- -- -- (1.68) -- -- --
------- ------- ------- ------- ------- ------ ------
Total distributions................ (1.56) (1.15) (0.38) (2.07) (1.06) (0.33) (0.75)
------- ------- ------- ------- ------- ------ ------
Net asset value, end of period...... $ 18.90 $ 18.67 $ 16.29 $ 12.70 $ 14.74 $14.49 $12.33
======= ======= ======= ======= ======= ====== ======
Total return........................ 10.58%(d) 23.08% 31.88% 0.19% 9.65% 20.59% 17.39%
Ratios/Supplemental Data:
Net assets at end of period (000)... $82,825 $72,950 $40,228 $21,897 $11,157 $6,044 $3,254
Ratio of expenses to average net
assets (including waivers)......... 1.04%(e) 1.05% 1.05% 1.05% 0.74% 0.71% 0.34%
Ratio of net investment income to
average net assets (including
waivers)........................... 0.71%(e) 1.19% 1.58% 1.41% 1.74% 1.94% 3.50%
Ratio of expenses to average net
assets (before waivers)*........... 1.14%(e) 1.15% 1.15% 1.16% 0.96% 0.85% 1.05%
Ratio of net investment income to
average net assets (before
waivers)*.......................... 0.61%(e) 1.09% 1.48% 1.30% 1.52% 1.80% 2.79%
Portfolio turnover**................ 32.33% 63.90% 58.50% 65% 41% 79% 78%
Average commission rate paid(f)..... $0.0600 $0.0598 -- -- -- -- --
<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................ $ 12.41 $ 10.25 $ 10.00
------- ------- -------
Investment activities
Net investment income.............. 0.39 0.41 0.28
Net realized and unrealized gains
(losses) from investments........ (0.56) 2.29 0.06
------- ------- -------
Total from investment activities... (0.17) 2.70 0.34
------- ------- -------
Distributions
Net investment income.............. (0.39) (0.51) (0.09)
In excess of net investment
income........................... -- -- --
Net realized gains................. (0.63) (0.03)
In excess of net realized gains.... -- -- --
------- ------- -------
Total distributions................ (1.02) (0.54) (0.09)
------- ------- -------
Net asset value, end of period...... $ 11.22 $ 12.41 $ 10.25
======= ======= =======
Total return........................ (1.36)% 27.11% 3.46%(c),(d)
Ratios/Supplemental Data:
Net assets at end of period (000)... $20,116 $17,892 $10,890
Ratio of expenses to average net
assets (including waivers)......... 0.35% 0.42% 0.41%(e)
Ratio of net investment income to
average net assets (including
waivers)........................... 3.42% 3.69% 5.62%(e)
Ratio of expenses to average net
assets (before waivers)*........... 1.00% 1.07% 1.12%(e)
Ratio of net investment income to
average net assets (before
waivers)*.......................... 2.77% 3.04% 4.91%(e)
Portfolio turnover**................ 227% 133% 30%
Average commission rate paid(f)..... -- -- --
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(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.
(f) Represents total dollar amount of commissions paid on portfolio transactions
divided by total number of portfolio shares purchased and sold for which
commissions were charged.
8
<PAGE> 27
SMALL CAP EQUITY PORTFOLIO(a)
(For a Share(b) outstanding throughout each period)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED MAY 6, 1992 TO
ENDED NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
MAY 31, 1997 1996 1995 1994(a) 1993 1992(c)
------------ ------------ ------------ ------------ ------------ --------------
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INVESTOR INVESTOR
SHARES SHARES SHARES SHARES SHARES SHARES
------------ ------------ ------------ ------------ ------------ --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................ $ 13.36 $ 13.40 $ 11.96 $ 13.14 $ 11.23 $ 10.10
------- ------ ------ ------ ------ ------
Investment activities Net
investment income (loss).......... (0.02) (0.01) (0.01) (0.03) 0.03 0.02
Net realized and unrealized gains
from investments................ 0.97 1.03 2.36 0.86 2.14 1.13
------- ------ ------ ------ ------ ------
Total from investment
activities...................... 0.95 1.02 2.35 0.83 2.17 1.15
------- ------ ------ ------ ------ ------
Distributions
Net investment income............. -- -- -- -- (0.05) (0.02)
In excess of net investment
income.......................... -- (0.01) -- -- -- --
Net realized gains................ (0.82) (1.05) (0.91) (1.78) (0.21) --
In excess of net realized gains... -- -- -- (0.23) -- --
------- ------ ------ ------ ------ ------
Total distributions............... (0.82) (1.06) (0.91) (2.01) (0.26) (0.02)
------- ------ ------ ------ ------ ------
Net asset value, end of period..... $ 13.49 $ 13.36 $ 13.40 $ 11.96 $ 13.14 $ 11.23
======= ====== ====== ====== ====== ======
Total return....................... 7.54%(d) 8.39% 21.43% 7.11% 19.75% 12.55%(d)
Ratios/Supplemental Data:
Net assets at end of period
(000)............................. $ 33,046 $ 30,081 $ 17,620 $ 5,633 $ 4,559 $ 753
Ratio of expenses to average net
assets (including waivers)........ 1.25%(e) 1.26% 1.26% 1.25% 0.61% 0.30%(e)
Ratio of net investment income to
average net assets (including
waivers).......................... (0.31)%(e) (0.13)% (0.11)% (0.41)% 0.19% 0.78%(e)
Ratio of expenses to average net
assets (before waivers)*.......... 1.35% 1.36% 1.36% 1.37% 1.23% 1.12%(e)
Ratio of net investment income to
average net assets (before
waivers)*......................... (0.41)%(c) (0.23)% (0.21)% (0.53)% (0.43)% (0.04)%(e)
Portfolio turnover**............... 40.00% 65.85% 83.13% 85% 65% 56%
Average commission rate paid(f).... $ 0.0599 $ 0.0582 -- -- -- --
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(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.
(f) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and sold
for which commissions were charged.
9
<PAGE> 28
INTERNATIONAL EQUITY PORTFOLIO
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED YEAR ENDED APRIL 4, 1994 TO
ENDED NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
MAY 31, 1997 1996 1995 1994(a)
------------- ------------ ------------ -----------------
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
SHARES SHARES SHARES SHARES
------------- ------------ ------------ -----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net asset value, beginning of period....................... $ 12.03 $ 10.75 $ 9.90 $ 10.00
------- ------- ------ ------
Investment activities
Net investment income..................................... 0.01 0.01 0.01 (0.01)
Net realized and unrealized gains (losses) from
investments and
foreign currency........................................ 0.73 1.27 0.86 (0.09)
------- ------- ------ ------
Total from investment activities.......................... 0.74 1.28 0.87 (0.10)
------- ------- ------ ------
Distributions
Net investment income..................................... (0.01) -- -- --
In excess of net investment income........................ (0.01) -- -- --
Net realized gain......................................... (0.31) -- (0.01) --
Tax return of capital..................................... -- -- (0.01) --
In excess of net realized gains........................... -- -- -- --
------- ------- ------ ------
Total distributions....................................... (0.33) -- (0.02) --
------- ------- ------ ------
Net asset value, end of period............................. $ 12.44 $ 12.03 $10.75 $ 9.90
======= ======= ====== ======
Total Return............................................... 6.37%(b) 11.91% 8.78% (1.00)%(b)
Ratios/Supplemental Data:
Net assets at end of period (000).......................... $ 6,619 $ 6,059 $2,159 $ 197
Ratio of expenses to average net assets (including
waivers).................................................. 1.50%(c) 1.44% 1.44% 1.70%(c)
Ratio of net investment income to average net assets
(including waivers)....................................... 0.12%(c) 0.16% 0.13% (0.48)(c)
Ratio of expenses to average net assets (before
waivers)*................................................. 1.76%(c) 1.76% 1.75% 2.17%(c)
Ratio of net investment income to average net assets
(before waivers)*......................................... (0.14)%(c) (0.16)% (0.18)% (0.94)%(c)
Portfolio turnover**....................................... 39.36% 77.63% 62.78% 21%
Average commission rate paid (d)........................... $0.0187 $ 0.0251 -- --
</TABLE>
- ------------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(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.
(d) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and sold
for which commissions were charged.
10
<PAGE> 29
BALANCED PORTFOLIO
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED YEAR ENDED YEAR ENDED APRIL 1, 1993
ENDED NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, TO NOVEMBER 30,
MAY 31, 1997 1996 1995 1994(a) 1993(b)
------------- ------------ ------------ ------------ ---------------
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INVESTOR
SHARES SHARES SHARES SHARES SHARES
------------- ------------ ------------ ------------ ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period............ $ 12.54 $ 11.62 $ 9.60 $ 10.22 $ 10.00
------- ------- ------- ------- ------
Investment activities
Net investment income.......................... 0.16 0.32 0.31 0.28 0.23
Net realized and unrealized gains from
investments.................................. 0.50 1.34 2.02 (0.48) 0.15
------- ------- ------- ------- ------
Total from investment activities............... 0.66 1.66 2.33 (0.20) 0.38
------- ------- ------- ------- ------
Distributions
Net investment income.......................... (0.16) (0.32) (0.31) (0.29) (0.16)
In excess of net investment income............. (0.08) -- -- -- --
Net realized gains............................. (0.50) (0.42) -- -- --
In excess of net realized gains................ (0.21) -- -- (0.13) --
------- ------- ------- ------- ------
Total distributions............................ (0.95) (0.74) (0.31) (0.42) (0.16)
------- ------- ------- ------- ------
Net asset value, end of period.................. $ 12.25 $ 12.54 $ 11.62 $ 9.60 $ 10.22
======= ======= ======= ======= ======
Total return.................................... 5.70%(c) 15.08% 24.67% (2.00)% 3.86%(c)
Ratios/Supplemental Data:
Net assets at end of period (000).............. $60,643 $ 54,731 $ 36,827 $ 22,723 $ 1,978
Ratio of expenses to average net assets
(including waivers).......................... 1.27%(d) 1.27% 1.27% 1.27% 0.56%(d)
Ratio of net investment income to average net
assets (including waivers)................... 2.71%(d) 2.78% 2.97% 2.77% 3.42%(d)
Ratio of expenses to average net assets (before
waivers)*.................................... 1.37%(d) 1.37% 1.37% 1.40% 1.21%(d)
Ratio of net investment income to average net
assets (before waivers)*..................... 2.61%(d) 2.68% 2.87% 2.64% 2.77%(d)
Portfolio turnover**........................... 28.56% 85.16% 58.16% 49% 26%
Average commission rate paid(e)................ $0.0600 $ 0.0599 -- -- --
</TABLE>
- ------------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the fund as a whole without
distinguishing between the classes of shares issued.
(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.
(e) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and sold
for which commissions were charged.
11
<PAGE> 30
THE ARCH FUND(R), INC.
(THE "FUND")
INVESTOR A SHARES AND INVESTOR B SHARES OF THE
ARCH MONEY MARKET, TREASURY 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
SUPPLEMENT DATED AUGUST 29, 1997
TO PROSPECTUS DATED MARCH 31, 1997
The following Financial Highlights replace those included in the Prospectus
on pages 12 through 24:
FINANCIAL HIGHLIGHTS
The "Financial Highlights" in the following tables supplement the Fund's
financial statements, which are contained in the Fund's Annual and Semi-Annual
Reports to Shareholders dated November 30, 1996 and March 31, 1997 and
incorporated by reference into the Statement of Additional Information, and set
forth certain historic results for (i) Investor A Shares of each Portfolio, and
(ii) Investor B Shares of the Money Market, U.S. Government Securities,
Government & Corporate Bond, Missouri Tax-Exempt Bond, National Municipal Bond,
Equity Growth, Growth & Income Equity, Small Cap Equity, International Equity
and Balanced Portfolios. The data for the period ended May 31, 1997 for each
Portfolio is unaudited. 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
KPMG Peat Marwick LLP, independent auditors, whose unqualified report insofar as
it relates to each of the years or periods in the five-year period ended
November 30, 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 incorporated by reference 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 and Semi-Annual Reports. Both the Statement of Additional Information
and the Annual and Semi-Annual Reports may be obtained free of charge by
contacting the Fund at the address or telephone number on page 2 of this
Prospectus.
<PAGE> 31
TREASURY MONEY MARKET PORTFOLIO
(For a Share(b) outstanding throughout each period)
<TABLE>
<CAPTION>
INVESTOR A SHARES
------------------------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED DEC. 2, 1991
ENDED YEAR ENDED YEAR ENDED NOV. 30, YEAR ENDED TO NOV. 30,
MAY 31, 1997 NOV. 30, 1996 NOV. 30, 1995 1994(b) NOV. 30, 1993 1992(a)(b)
------------- -------------- -------------- --------------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- -------- -------- ------- ------- --------
Investment activities
Net investment income...... 0.022 0.044 0.048 0.031 0.024 0.017
------- -------- -------- ------- ------- -------
Total from investment
activities............... 0.022 0.044 0.048 0.031 0.024 0.017
------- -------- -------- ------- ------- -------
Distributions
Net investment income...... (0.022) (0.044) (0.048) (0.031) (0.024) (0.017)
------- ------- ------- ------- ------- -------
Total distributions........ (0.022) (0.044) (0.048) (0.031) (0.024) (0.017)
------- -------- ------- ------- ------- -------
Net asset value, end of
period..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======== ======== ======= ======= ========
Total return................. 2.23%(c) 4.46% 4.93% 3.16% 2.43% 1.79%(c)
Ratios/Supplemental Data:
Net assets at end of period
(000)...................... $ 5,993 $ 7,667 $ 2,776 $ 1,713 $ 1,411 $ 3,257
Ratio of expenses to average
net assets (including
waivers)................... 0.77%(d) 0.81% 0.78% 0.71% 0.64% 0.58%(d)
Ratio of net investment
income to average net
assets (including
waivers)................... 4.42%(d) 4.35% 4.84% 3.14% 2.41% 2.88%(d)
Ratio of expenses to average
net assets (before
waivers)*.................. 0.92%(d) 0.96% 0.93% 0.94% 0.97% 1.02%(d)
Ratio of net investment
income to average net
assets (before waivers)*... 4.27%(d) 4.20% 4.69% 2.90% 2.08% 2.44%(d)
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) On December 2, 1991, the Portfolio issued a series of Shares which were
designated as "Trust" Shares. In addition, on April 20, 1992, the Portfolio
issued a second series of Shares which were designated as "Investor" Shares.
The financial highlights presented for the period prior to April 20, 1992
represent 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.
2
<PAGE> 32
MONEY MARKET PORTFOLIO
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
--------------------------------------------------------------------------------
SIX MONTHS INVESTOR A SHARES
ENDED --------------------------------------------------------------------------------
MAY 31, 1997 1996 1995 1994(a) 1993 1992 1991(a)
------- ------ ------ ------ ---- ---- ----
INVESTOR A INVESTOR A INVESTOR A INVESTOR A INVESTOR INVESTOR INVESTOR
SHARES SHARES SHARES SHARES SHARES SHARES SHARES 1990
------------ ---------- ---------- ---------- -------- -------- -------- --------
(UNAUDITED)
<S> <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
------- ------- ------- ------- ------- ------- ------- --------
Investment activities
Net investment income........... 0.024 0.047 0.052 0.033 0.025 0.032 0.056 0.078
------- ------- ------- ------- ------- ------- ------- --------
Total from investment
activities.................... 0.024 0.047 0.052 0.033 0.025 0.032 0.056 0.078
------- ------- ------- ------- ------- ------- ------- --------
Distributions
Net investment income........... (0.024) (0.047) (0.052) (0.033) (0.025) (0.032) (0.056) (0.078)
------- ------- ------- ------- ------- ------- ------- --------
Total distributions............ (0.024) (0.047) (0.052) (0.033) (0.025) (0.032) (0.056) (0.078)
------- ------- ------- ------- ------- ------- ------- --------
Net asset value, end of period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= ======= ======= ========
Total return..................... 2.39%(d) 4.81% 5.33% 3.37% 2.52% 3.21% 5.75% 8.08%
Ratios/Supplemental Data:
Net assets at end of period
(000)........................... $ 86,591 $ 91,166 $ 64,865 $ 48,384 $46,920 $52,224 $60,436 $896,903
Ratio of expenses to average net
assets (including waivers)...... 0.77%(e) 0.78% 0.77% 0.78% 0.79% 0.80% 0.72% 0.55%
Ratio of net investment income to
average net assets (including
waivers)........................ 4.75%(e) 4.70% 5.20% 3.35% 2.50% 3.21% 5.69% 7.77%
Ratio of expenses to average net
assets (before waivers)*........ 0.92%(e) 0.93% 0.92% 0.93% 0.93% 0.94% 0.80% 0.60%
Ratio of net investment income to
average net assets (before
waivers)*....................... 4.60%(e) 4.55% 5.05% 3.20% 2.36% 3.07% 5.61% 7.72%
<CAPTION>
YEAR ENDED NOVEMBER 30, INVESTOR B SHARES
----------------------- -------------------------------
INVESTOR A SHARES SIX MONTHS JAN. 26, 1996
----------------------- ENDED TO
1989 1988 1987 MAY 31, 1997 NOV. 30, 1996(c)
-------- -------- -------- ------------ ----------------
(UNAUDITED)
<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........... 0.088 0.071 0.062 0.020 0.033
-------- -------- -------- ------- -------
Total from investment
activities.................... 0.088 0.071 0.062 0.020 0.033
-------- -------- -------- ------- -------
Distributions
Net investment income........... (0.088) (0.071) (0.062) (0.020) (0.033)
-------- -------- -------- ------- -------
Total distributions............ (0.088) (0.071) (0.062) (0.020) (0.033)
-------- -------- -------- ------- -------
Net asset value, end of period... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======= =======
Total return..................... 9.21% 7.33%(b) 6.40%(b) 2.01%(d) 3.35%(d)
Ratios/Supplemental Data:
Net assets at end of period
(000)........................... $661,145 $289,764 $220,944 $ 85 $ 41
Ratio of expenses to average net
assets (including waivers)...... 0.45% 0.45% 0.45% 1.52%(e) 1.47%(e)
Ratio of net investment income to
average net assets (including
waivers)........................ 8.82% 7.12% 6.22% 4.03%(e) 3.73%(e)
Ratio of expenses to average net
assets (before waivers)*........ 0.60% 0.58% 0.68% 1.67%(e) 1.68%(e)
Ratio of net investment income to
average net assets (before
waivers)*....................... 8.67% 6.99% 5.99% 3.88%(e) 3.52%(e)
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) 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 date of initial public offering.
(d) Not annualized.
(e) Annualized.
3
<PAGE> 33
TAX-EXEMPT MONEY MARKET PORTFOLIO(a)
(For a Share(b) outstanding throughout each period)
<TABLE>
<CAPTION>
INVESTOR A SHARES
-------------------------------------------------------------------------------------------------
SIX MONTHS YEAR SIX MONTHS
ENDED ENDED ENDED
MAY 31, NOV. 30, NOV. 30, YEAR ENDED MAY 31,
---------- ---------- ---------- -------------------------------------------------------------
1997 1996 1995(f) 1995 1994(b) 1993 1992 1991 1990(b)
---------- ---------- ---------- ---------- ---------- -------- -------- -------- -------
INVESTOR A INVESTOR A INVESTOR A INVESTOR A INVESTOR A INVESTOR INVESTOR INVESTOR DOLLAR
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
---------- ---------- ---------- ---------- ---------- -------- -------- -------- -------
(UNAUDITED)
<S> <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............ 0.014 0.028 0.014 0.027 0.017 0.019 0.031 0.047 0.041
------- ------- ------ ------ ------ ------ ------- ------ -------
Total from investment
activities..................... 0.014 0.028 0.014 0.027 0.017 0.019 0.031 0.047 0.041
------- ------- ------ ------ ------ ------ ------- ------ -------
Distributions
Net investment income............ (0.014) (0.028) (0.014) (0.027) (0.017) (0.019) (0.031) (0.047) (0.041)
------- ------- ------ ------ ------ ------ ------- ------ -------
Total distributions.............. (0.014) (0.028) (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 $ 1.00 $ 1.00
======= ======= ====== ====== ====== ====== ======= ====== =======
Total return...................... 1.38%(d) 2.83% 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)............................ $ 13,386 $ 17,984 $ 5,403 $ 5,138 $ 8,631 $ 6,837 $10,956 $ 8,286 0
Ratio of expenses to average net
assets (including waivers)....... 0.77%(e) 0.75% 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)......................... 2.72%(e) 2.78% 2.87%(e) 2.63% 1.72% 1.88% 3.10% 5.09% 5.30%
Ratio of expenses to average net
assets (before waivers)*......... 0.82%(e) 0.80% 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)*........................ 2.67%(e) 2.73% 2.82%(e) 2.54% 1.62% 1.78% 3.00% 4.99% 5.21%
<CAPTION>
INVESTOR A SHARES
------------------------------
PERIOD
ENDED
YEAR 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 0.025 0.036
------ ------- --------
Total from investment
activities..................... 0.042 0.025 0.036
------ ------- --------
Distributions
Net investment income............ (0.042) (0.025) (0.036)
------ ------- --------
Total distributions.............. (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)
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) The Portfolio commenced operations on July 10, 1986 as an investment
portfolio of The ARCH Tax-Exempt Trust. On October 27, 1995, it was
reorganized as a new portfolio of the Fund.
(b) "Investor A" Shares were originally issued as "Dollar" Shares in June of
1987. As of September 28, 1990, the Portfolio redesignated its existing
Shares as "Investor" Shares. On September 27, 1994 the Portfolio
redesignated Investor Shares as "Investor A" Shares.
(c) Includes waiver of sub-advisory fees for the period ended May 31, 1987.
(d) Not annualized.
(e) Annualized.
(f) Upon its reorganization as a portfolio of the Fund, the Portfolio changed
its fiscal year-end from May 31 to November 30.
4
<PAGE> 34
U.S. GOVERNMENT SECURITIES PORTFOLIO
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
Investor A Shares
--------------------------------------------------------------------------------------------------------
SIX MONTHS Year Ended November 30,
ENDED ---------------------------------------------------------------------------------------
MAY 31, 1997 1996 1995 1994(a) 1993 1992 1991(a)
-------------- ----------- ----------- -------- -------- -------- --------
INVESTOR A INVESTOR A INVESTOR A INVESTOR INVESTOR INVESTOR INVESTOR
SHARES SHARES SHARES SHARES SHARES SHARES SHARES 1990 1989
-------------- ----------- ----------- -------- -------- -------- -------- ------ ------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period................ $10.67 $ 10.85 $ 10.05 $11.20 $10.80 $10.68 $10.21 $10.06 $ 9.94
------ ------ ------ ------ ------ ------ ------ ------ ------
Investment activities
Net investment income..... 0.30 0.62 0.64 0.61 0.59 0.62 0.75 0.76 0.85
Net realized and
unrealized gains (losses)
from investments......... (0.19) (0.15) 0.80 (1.00) 0.47 0.13 0.47 0.16 0.11
------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
activities............... 0.11 0.47 1.44 (0.39) 1.06 0.75 1.22 0.92 0.96
------ ------ ------ ------ ------ ------ ------ ------ ------
Distributions
Net investment income..... (0.29) (0.62) (0.64) (0.61) (0.59) (0.62) (0.75) (0.77) (0.84)
In excess of net
investment income........ -- -- -- -- -- -- -- -- --
Net realized gains........ -- -- -- -- (0.07) (0.01) -- -- --
In excess of net realized
gains.................... -- (0.03) -- (0.18) -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions....... (0.29) (0.65) (0.64) (0.79) (0.66) (0.63) (0.75) (0.77) (0.84)
------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of
period................... $10.49 $ 10.67 $ 10.85 $10.05 $11.20 $10.80 $10.68 $10.21 $10.06
====== ====== ====== ====== ====== ====== ====== ====== ======
Total return (excludes
sales charges)........... 1.11%(f) 4.57% 14.66% (3.14)% 10.03% 7.20% 12.36% 9.66% 10.40%
Ratios/Supplemental Data:
Net assets at end of
period (000)............. $5,349 $ 7,153 $ 8,179 $9,631 $9,567 $7,499 $5,791 $6,856 $5,954
Ratio of expenses to
average net assets
(including waivers)...... 0.96%(g) 0.97% 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)................. 5.63%(g) 5.82% 6.05% 5.98% 5.25% 5.72% 7.12% 7.80% 8.50%
Ratio of expenses to
average net assets
(before waivers)*........ 1.06%(g) 1.07% 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)*................ 5.53%(g) 5.72% 5.95% 5.88% 5.14% 5.58% 6.58% 7.25% 7.95%
Portfolio turnover**...... 78.33% 53.76% 93.76% 50% 24% 74% 36% 53% 84%
<CAPTION>
Investor A Shares Investor B Shares
----------------- ----------------------------------
JUNE 2, YEAR MARCH 1,
1988 TO SIX MONTHS ENDED 1995 TO
NOV. 30, ENDED NOV. 30, NOV. 30,
1988(b) MAY 31, 1997 1996 1995(c)
---------- ------------ -------- --------
(unaudited)
<S> <C> <C> <C> <C>
Net asset value, beginning
of period................ $10.00 $10.66 $10.84 $10.34
------ ------ ------ ------
Investment activities
Net investment income..... 0.36 0.26 0.55 0.31
Net realized and
unrealized gains (losses)
from investments......... (0.06) (0.18) (0.15) 0.50
------ ------ ------ ------
Total from investment
activities............... 0.30 0.08 0.40 0.81
------ ------ ------ ------
Distributions
Net investment income..... (0.36) (0.26) (0.55) (0.31)
In excess of net
investment income........ -- -- -- --
Net realized gains........ -- -- -- --
In excess of net realized
gains.................... -- -- (0.03) --
------ ------ ------ ------
Total distributions....... (0.36) (0.26) (0.58) (0.31)
------ ------ ------ ------
Net asset value, end of
period................... $ 9.94 $10.48 $10.66 $10.84
====== ====== ====== ======
Total return (excludes
sales charges)........... 3.05%(d)(f) 0.75%(f) 3.85% 12.85%(e)
Ratios/Supplemental Data:
Net assets at end of
period (000)............. $4,335 $ 413 $ 359 $ 41
Ratio of expenses to
average net assets
(including waivers)...... 0.79%(d) 1.66%(g) 1.66% 1.68%(g)
Ratio of net investment
income to average net
assets (including
waivers)................. 7.26%(g) 4.92%(g) 5.06% 5.37%(g)
Ratio of expenses to
average net assets
(before waivers)*........ 1.40% 1.76%(g) 1.76% 1.78%(g)
Ratio of net investment
income to average net
assets (before
waivers)*................ 6.65%(g) 4.82%(g) 4.96% 5.27%(g)
Portfolio turnover**...... 215% 78.33% 53.76% 93.76%
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(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.
5
<PAGE> 35
For a Share outstanding throughout each period
<TABLE>
<CAPTION>
INTERMEDIATE
CORPORATE BOND INDEX
BOND PORTFOLIO PORTFOLIO
----------------- -----------------
FEBRUARY 10, 1997 FEBRUARY 10, 1997
TO MAY 31, TO
1997(a) MAY 31, 1997(a)
----------------- -----------------
INVESTOR A INVESTOR A
SHARES SHARES
----------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net asset value, beginning of period.................... $ 10.00 $ 10.00
------ ------
Investment activities
Net investment income................................. 0.19 0.18
Net realized and unrealized (losses) from
investments........................................ (0.17) (0.13)
------ ------
Total from investment activities................. 0.02 0.05
------ ------
Distributions
Net investment income................................. (0.19) (0.18)
------ ------
total distributions................................ (0.19) (0.18)
------ ------
Net asset value, end of period.......................... $ 9.83 $ 9.87
====== ======
Total return (excludes sales charge).................... 0.25%(b)*** 0.49%(b)***
Ratios/Supplemental Data:
Net assets at end of period (000)....................... $ 66 $ 46
Ratio of expenses to average net assets (including
waivers).............................................. 0.60%(c) 0.52%(c)
Ratio of net investment income to average net assets
(including waivers)................................... 9.77%(c) 6.72%(c)
Ratio of expenses to average net assets (before
waivers)*............................................. 0.99%(c) 0.93%(c)
Ratio of net investment income to average net assets
(before waivers)*..................................... 9.38%(c) 6.31%(c)
Portfolio turnover**.................................... 66.10% 40.66%
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of each Portfolio as a whole
without distinguishing between the classes of shares issued.
*** Aggregate since inception.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
6
<PAGE> 36
GOVERNMENT & CORPORATE BOND PORTFOLIO
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
INVESTOR A SHARES
---------------------------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED NOVEMBER 30,
ENDED -----------------------------------------------------------------------------------
MAY 31, 1997 1996 1995 1994(a) 1993 1992 1991(a)
------------ ---------- ---------- -------- -------- -------- --------
INVESTOR A INVESTOR A INVESTOR A INVESTOR INVESTOR INVESTOR INVESTOR
SHARES SHARES SHARES SHARES SHARES SHARES SHARES 1990
------------ ---------- ---------- -------- -------- -------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period.................. $10.34 $10.53 $ 9.64 $10.65 $10.26 $10.15 $ 9.71 $ 10.12
------ ------ ------ ------ ------ ------ ------ -------
Investment activities
Net investment income...... 0.28 0.64 0.61 0.60 0.64 0.66 0.75 0.84
Net realized and unrealized
gains (losses) from
investments............... (0.30) (0.19) 0.89 (0.94) 0.39 0.11 0.48 (0.41)
------ ------ ------ ------ ------ ------ ------ -------
Total from investment
activities............... (0.02) 0.45 1.50 (0.34) 1.03 0.77 1.23 0.43
------ ------ ------ ------ ------ ------ ------ -------
Distributions
Net investment income...... (0.28) (0.64) (0.61) (0.60) (0.64) (0.66) (0.79) (0.84)
In excess of net investment
income.................... -- -- -- (0.07) -- -- -- --
------ ------ ------ ------ ------ ------ ------ -------
Total distributions....... (0.28) (0.64) (0.61) (0.67) (0.64) (0.66) (0.79) (0.84)
------ ------ ------ ------ ------ ------ ------ -------
Net asset value, end of
period..................... $10.04 $10.34 $10.53 $ 9.64 $10.65 $10.26 $10.15 $ 9.71
====== ====== ====== ====== ====== ====== ====== =======
Total return (excludes sales
charges)................... (0.14)%(f) 4.51% 15.98% (3.32)% 10.23% 7.81% 12.79% (4.96)%
Ratios/Supplemental Data:
Net assets at end of period
(000)...................... $4,607 $4,915 $5,496 $5,167 $3,737 $2,490 $2,010 $11,005
Ratio of expenses to average
net assets (including
waivers)................... 0.95%(g) 0.95% 0.95% 0.95% 0.95% 0.93% 0.59% 0.53%
Ratio of net investment
income to average net
assets (including
waivers)................... 5.64%(g) 6.06% 6.03% 6.00% 6.00% 6.45% 7.77% 8.69%
Ratio of expenses to average
net assets (before
waivers)*.................. 1.05%(g) 1.05% 1.05% 1.05% 1.05% 1.06% 1.14% 1.08%
Ratio of net investment
income to average net
assets (before waivers)*... 5.54%(g) 5.96% 5.93% 5.90% 5.90% 6.32% 7.22% 8.14%
Portfolio turnover**........ 76.99% 149.20% 59.32% 50% 31% 52% 105% 75%
<CAPTION>
INVESTOR A SHARES
-----------------------
YEAR ENDED NOVEMBER 30,
----------------------- INVESTOR B SHARES
JUNE 2, -------------------------------------------
1988 TO SIX MONTHS YEAR ENDED MARCH 1, 1995
NOV. 30, ENDED NOV. 30, TO NOV. 30,
1989 1988(b) MAY 31, 1997 1996 1995(c)
------- -------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning
of period.................. $ 9.91 $10.00 $10.34 $ 10.53 $ 9.92
------- ------ ------ ------ ------
Investment activities
Net investment income...... 0.89 0.39 0.25 0.57 0.38
Net realized and unrealized
gains (losses) from
investments............... 0.22 (0.13) (0.29) (0.19) 0.61
------- ------ ------ ------ ------
Total from investment
activities............... 1.11 0.26 (0.04) 0.38 0.99
------- ------ ------ ------ ------
Distributions
Net investment income...... (0.90) (0.35) (0.25) (0.57) (0.38)
In excess of net investment
income.................... -- -- -- -- --
------- ------ ------ ------ ------
Total distributions....... (0.90) (0.35) (0.25) (0.57) (0.38)
------- ------ ------ ------ ------
Net asset value, end of
period..................... $ 10.12 $ 9.91 $10.05 $ 10.34 $ 10.53
======= ====== ====== ====== ======
Total return (excludes sales
charges)................... 11.79% 2.66%(d),(f) (0.38)%(f) 3.79% 15.27%(f)
Ratios/Supplemental Data:
Net assets at end of period
(000)...................... $10,327 $7,483 $ 576 $ 511 $ 106
Ratio of expenses to average
net assets (including
waivers)................... 0.44% 0.56%(g) 1.65%(g) 1.65% 1.65%(g)
Ratio of net investment
income to average net
assets (including
waivers)................... 8.97% 8.47%(g) 4.92%(g) 5.37% 5.19%(g)
Ratio of expenses to average
net assets (before
waivers)*.................. 0.99% 1.17%(g) 1.75%(g) 1.75% 1.75%(g)
Ratio of net investment
income to average net
assets (before waivers)*... 8.42% 7.86%(g) 4.82%(g) 5.27% 5.09%(g)
Portfolio turnover**........ 148% 22% 76.99% 149.20% 59.32%(g)
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(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.
7
<PAGE> 37
SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
(For a Share outstanding throughout the period)
<TABLE>
<CAPTION>
JULY 10,
1995
SIX MONTHS YEAR ENDED TO
ENDED NOVEMBER 30, NOVEMBER 30
MAY 31, 1997 1996 1995(a)
------------ ------------ ------------
INVESTOR A INVESTOR A INVESTOR A
SHARES SHARES SHARES
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Net asset value, beginning of period............... $10.08 $10.08 $10.00
------ ------ ------
Investment activities
Net investment income............................ 0.19 0.40 --
Net realized and unrealized gains (losses) from
investments................................... (0.07) -- 0.08
------ ------ ------
Total from investment activities............ 0.12 0.40 0.08
------ ------ ------
Distributions
Net investment income............................ (0.19) (0.40) --
------ ------ ------
Total distributions........................... (0.19) (0.40) --
------ ------ ------
Net asset value, end of period..................... $10.01 $10.08 $10.08
====== ====== ======
Total return....................................... 1.20%(b) 4.02% 0.80%(b)
Ratios/Supplemental Data:
Net assets at end of period (000).................. $ 31 $ 51 --(c)
Ratio of expenses to average net assets (including
waivers)......................................... 0.61%(d) 0.56% 0.00%(d)
Ratio of net investment income to average net
assets (including waivers)....................... 3.80%(d) 3.83% 0.00%(d)
Ratio of expenses to average net assets (before
waivers)*........................................ 1.21%(d) 1.26% 0.00%(d)
Ratio of net investment income to average net
assets (before waivers)*......................... 3.20%(d) 3.13% 0.00%(d)
Portfolio turnover**............................... 0.00% 0.00% 0.00%
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(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.
8
<PAGE> 38
MISSOURI TAX-EXEMPT BOND PORTFOLIO(a)
(For a Share(b) outstanding throughout each period)
<TABLE>
<CAPTION>
INVESTOR A SHARES
------------------------------------------------------------------------------------------------------------
SIX SIX
MONTHS YEAR MONTHS
ENDED ENDED ENDED YEAR ENDED MAY 31,
MAY 31, NOV. 30, NOV. 30, --------------------------------------------------------------
1997 1996 1995(c) 1995(b) 1994 1993 1992 1991(b)
------- ------ ------ ------ ----- ----- ----- ----
INVESTOR A INVESTOR A INVESTOR A INVESTOR A INVESTOR INVESTOR INVESTOR INVESTOR
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
----------- ---------- ---------- ---------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.. $ 11.69 $ 11.74 $ 11.52 $ 11.13 $ 11.54 $ 10.97 $ 10.62 $10.35
------- ------- ------- ------- ------- ------- ------- ------
Investment activities
Net investment
income.............. 0.27 0.55 0.27 0.55 0.55 0.58 0.63 0.44
Net realized and
unrealized gains
(losses) on
investments......... (0.10) (0.05) 0.22 0.40 (0.37) 0.64 0.43 0.36
------- ------- ------- ------- ------- ------- ------- ------
Total from investment
activities.......... 0.17 0.50 0.49 0.95 0.18 1.22 1.06 0.80
------- ------- ------- ------- ------- ------- ------- ------
Distributions
Net investment
income.............. (0.27) (0.55) (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) (0.55) (0.27) (0.56) (0.59) (0.65) (0.71) (0.53)
------- ------- ------- ------- ------- ------- ------- ------
Net asset value, end
of period............ $ 11.59 $ 11.69 $ 11.74 $ 11.52 $ 11.13 $ 11.54 $ 10.97 $10.62
======= ======= ======= ======= ======= ======= ======= ======
Total return (excludes
sales charges)....... 1.45%(g) 4.41% 4.32%(g) 8.91% 1.53% 11.47% 10.24% 8.72%
Ratios/Supplemental
Data:
Net assets at end of
period (000)......... $23,565 $ 25,144 $ 24,726 $ 24,318 $ 27,919 $ 23,223 $ 12,635 $6,211
Ratio of expenses to
average net assets
(including waivers).. 0.86%(h) 0.85% 0.95%(h) 0.84% 0.65% 0.63% 0.85% 0.85%
Ratio of net
investment income to
average net assets
(including
waivers)............. 4.61%(h) 4.75% 4.64%(h) 5.02% 4.75% 5.11% 5.75% 6.12%
Ratio of expenses to
average net assets
(before waivers)*.... 0.96%(h) 1.05% 1.18%(h) 1.18% 1.12% 1.18% 1.49% 1.63%
Ratio of net
investment income to
average net assets
(before waivers)*.... 4.51%(h) 4.55% 4.44%(h) 4.68% 4.28% 4.56% 5.11% 5.34%
Portfolio
turnover**........... 3.77% 3.66% 1.55% -- 20% 15% 21% 71%
<CAPTION>
INVESTOR A SHARES
------------------------
YEAR ENDED PERIOD INVESTOR B SHARES
MAY 31, ENDED ------------------------------------------------
------- MAY 31, SIX SIX
1990 1989(a),(b) MONTHS YEAR MONTHS MARCH 1,
---- ------- ENDED ENDED ENDED 1995 TO
PORTFOLIO PORTFOLIO MAY 31, NOV. 30, NOV. 30, MAY 31,
SHARES SHARES 1997 1996 1995(c) 1995(d)
--------- ----------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.. $ 10.56 $ 10.00 $11.68 $ 11.74 $11.52 $11.19
------ ------ ------ ------ ------ ------
Investment activities
Net investment
income.............. 0.68 0.58 0.22 0.45 0.22 0.11
Net realized and
unrealized gains
(losses) on
investments......... (0.09) 0.58 (0.10) (0.06) 0.22 0.33
------ ------ ------ ------ ------ ------
Total from investment
activities.......... 0.59 1.16 0.12 0.39 0.44 0.44
------ ------ ------ ------ ------ ------
Distributions
Net investment
income.............. (0.65) (0.60) (0.22) (0.45) (0.22) (0.11)
Net realized gains... -- -- -- -- -- --
------ ------ ------ ------ ------ ------
Total
distributions..... (0.65) (0.60) (0.22) (0.45) (0.22) (0.11)
------ ------ ------ ------ ------ ------
Net asset value, end
of period............ $ 10.50 $ 10.56 $11.58 $ 11.68 $11.74 $11.52
====== ====== ====== ====== ====== ======
Total return (excludes
sales charges)....... 5.50% 12.08%(g) 1.04%(g) 3.48% 3.88%(g) 8.61%(e)
Ratios/Supplemental
Data:
Net assets at end of
period (000)......... $ 4,572 $ 4,053 $ 924 $ 675 $ 433 $ 94
Ratio of expenses to
average net assets
(including waivers).. 0.70% 0.81%(h) 1.65%(h) 1.65% 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) 3.96% 3.82%(h) 4.00% (h)
Ratio of expenses to
average net assets
(before waivers)*.... 1.70% 1.38%(h) 1.75%(h) 1.75% 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) 3.86% 3.72%(h) 3.89%(h)
Portfolio
turnover**........... 41% 73% 3.77% 3.66% 1.55% --
</TABLE>
- ---------------
* During the period, certain fees were voluntary reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(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.
(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.
9
<PAGE> 39
NATIONAL MUNICIPAL BOND PORTFOLIO
(For a Share outstanding throughout the period)
<TABLE>
<CAPTION>
SIX MONTHS NOV. 18, 1996 SIX MONTHS NOV. 18, 1996
ENDED THROUGH ENDED THROUGH
MAY 31, 1997 NOV. 30, 1996(a) MAY 31, 1997 NOV. 30, 1996(a)
------------ ---------------- ------------ ----------------
INVESTOR INVESTOR INVESTOR INVESTOR
A SHARES A SHARES B SHARES B SHARES
------------ ---------------- ------------ ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net asset value, beginning of
period............................. $10.05 $10.00 $ 10.05 $10.00
------ ------ ------ ------
Investment activities
Net investment income.............. 0.27 0.02 0.23 0.02
Net realized and unrealized gains
(losses) from investments....... (0.10) 0.05 (0.09) 0.05
------ ------ ------ ------
Total from investment activities..... 0.17 0.07 0.14 0.07
------ ------ ------ ------
Distributions
Net investment income.............. (0.27) (0.02) (0.23) (0.02)
------ ------ ------ ------
Total distributions............. (0.27) (0.02) (0.23) (0.02)
------ ------ ------ ------
Net asset value, end of period....... $ 9.95 $10.05 $ 9.96 $10.05
====== ====== ====== ======
Total return (excludes sales
charge)............................ 1.69%(b) 0.73%(b) 1.41%(b) 0.70%(b)
Ratios/Supplemental Data:
Net assets at end of period (000).... $ 543 $ 1 $ 1 $ 1
Ratio of expenses to average net
assets (including waivers)......... 0.33%(c) 0.37%(c) 1.09%(c) 1.10%(c)
Ratio of net investment income to
average net assets (including
waivers)........................... 5.34%(c) 9.08%(c) 4.62%(c) 8.35%(c)
Ratio of expenses to average net
assets (before waivers)*........... 0.82%(c) 1.07%(c) 1.09%(c) 1.80%(c)
Ratio of net investment income to
average net assets (before
waivers)*.......................... 4.85%(c) 8.38%(c) 4.62%(c) 7.65%(c)
Portfolio turnover**................. 50.81% 0.00% 50.81% 0.00%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
10
<PAGE> 40
For a Share outstanding throughout each period
<TABLE>
<CAPTION>
EQUITY INDEX
PORTFOLIO
EQUITY INCOME PORTFOLIO --------------
------------------------------------ MAY 1, 1997
MARCH 7, 1997 MARCH 7, 1997 TO
TO TO MAY 31,
MAY 31, 1997(a) MAY 31, 1997(a) 1997(a)
--------------- --------------- --------------
INVESTOR INVESTOR INVESTOR
A SHARES B SHARES A SHARES
--------------- --------------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Net asset value, beginning of period.... $ 10.00 $ 10.00 $ 10.00
-------- -------- --------
Investment activities
Net investment income................. 0.04 0.03 0.02
Net realized and unrealized gains from
investments........................ 0.12 0.11 0.59
-------- -------- --------
Total from investment
activities.................. 0.16 0.14 0.61
-------- -------- --------
Distributions
Net investment income................. (0.04) (0.02) (0.02)
In excess of net investment income.... (0.01) -- --
-------- -------- --------
Total distributions........... (0.05) (0.02) (0.02)
-------- -------- --------
Net asset value, end of period.......... $ 10.11 $ 10.12 $ 10.59
======== ======== ========
Total return (excludes sales charges)... 1.58%(b)*** 1.43%(b)*** 6.08%(b)***
Ratios/Supplemental Data:
Net assets at end of period (000)....... $ 41 $ 7 $ 2
Ratio of expenses to average net assets
(including waivers)................... 0.44%(c) 1.04%(c) 0.69%(c)
Ratio of net investment income to
average net assets (including
waivers).............................. 2.32%(c) 1.21%(c) 2.39%(c)
Ratio of expenses to average net assets
(before waivers)*..................... 1.26%(c) 1.92%(c) 1.22%(c)
Ratio of net investment income to
average net assets (before waivers)*.. 1.50%(c) 0.34%(c) 1.86%(c)
Portfolio turnover**.................... 26.29% 26.29% 0.20%
Average commission rate paid(d)......... $0.0600 $0.0600 $ 0.0200
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
** Portfolio turnover is calculated on the basis of each Portfolio as a whole
without distinguishing between the classes of shares issued.
*** Aggregate since inception.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and
sold for which commissions were paid.
11
<PAGE> 41
GROWTH & INCOME EQUITY PORTFOLIO
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
INVESTOR A SHARES
--------------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
--------------------------------------------------------------------------------------
SIX MONTHS
ENDED
MAY 31,
1997 1996 1995 1994(a) 1993 1992 1991(a)
---------- ---------- ---------- -------- -------- -------- --------
INVESTOR A INVESTOR A INVESTOR A INVESTOR INVESTOR INVESTOR INVESTOR
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
---------- ---------- ---------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..................... $ 18.67 $ 16.30 $ 12.70 $ 14.74 $ 14.49 $12.33 $11.22
------ ------ ------ ------ ------ ------ ------
Investment activities
Net investment income.................. 0.06 0.20 0.23 0.20 0.25 0.25 0.39
Net realized and unrealized gains
(losses) from investments............. 1.72 3.32 3.74 (0.17) 1.06 2.24 1.47
------ ------ ------ ------ ------ ------ ------
Total from investment activities........ 1.78 3.52 3.97 0.03 1.31 2.49 1.86
------ ------ ------ ------ ------ ------ ------
Distributions
Net investment income.................. (0.06) (0.20) (0.23) (0.21) (0.25) (0.26) (0.39)
In excess of net investment income..... (0.04) (0.01) -- -- -- -- --
Net realized gain...................... (1.46) (0.94) (0.14) (0.18) (0.81) (0.07) (0.36)
In excess of net realized gains........ -- -- -- (1.68) -- -- --
------ ------ ------ ------ ------ ------ ------
Total distributions................... (1.56) (1.15) (0.37) (2.07) (1.06) (0.33) (0.75)
------ ------ ------ ------ ------ ------ ------
Net asset value, end of period.......... $ 18.89 $ 18.67 $ 16.30 $ 12.70 $ 14.74 $14.49 $12.33
====== ====== ====== ====== ====== ====== ======
Total return (excludes sales charges)... 10.52%(f) 22.99% 31.95% 0.20% 9.65% 20.59% 17.39%
Ratios/Supplemental Data:
Net assets at end of period (000)....... $ 41,437 $ 38,229 $ 25,082 $18,343 $11,157 $6,044 $3,254
Ratio of expenses to average net assets
(including waivers).................... 1.04%(g) 1.05% 1.05% 1.05% 0.74% 0.71% 0.34%
Ratio of net investment income to
average net assets (including
waivers)............................... 0.71%(g) 1.20% 1.59% 1.45% 1.74% 1.94% 3.50%
Ratio of expenses to average net assets
(before waivers)*...................... 1.14%(g) 1.15% 1.15% 1.15% 0.96% 0.85% 1.05%
Ratio of net investment income to
average net assets (before waivers)*... 0.61%(g) 1.10% 1.49% 1.35% 1.52% 1.80% 2.79%
Portfolio turnover**.................... 32.33% 63.90% 58.50% 65% 41% 79% 78%
Average commission rate paid(h)......... $ 0.0600 $ 0.0598 -- -- -- -- --
<CAPTION>
INVESTOR A SHARES
--------------------
INVESTOR A SHARES
------------------ INVESTOR B SHARES
YEAR ENDED ------------------------------------
NOVEMBER 30, JUNE 2, SIX YEAR MARCH 1,
------------- 1988 TO MONTHS ENDED 1995 TO
NOV. 30 ENDED NOV. 30, NOV. 30,
1990 1989 1988(b) MAY 31, 1996 1995(c)
------- ------- -------- ----------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..................... $ 12.41 $ 10.25 $ 10.00 $ 18.58 $ 16.23 $ 13.43
------ ------ ------ ------ ------ ------
Investment activities
Net investment income.................. 0.39 0.41 0.28 0.02 0.11 0.14
Net realized and unrealized gains
(losses) from investments............. (0.56) 2.29 0.06 1.70 3.30 2.81
------ ------ ------ ------ ------ ------
Total from investment activities........ (0.17) 2.70 0.34 1.72 3.41 2.95
------ ------ ------ ------ ------ ------
Distributions
Net investment income.................. (0.39) (0.51) (0.09) (0.02) (0.11) (0.15)
In excess of net investment income..... -- -- -- (0.06) (0.01) --
Net realized gain...................... (0.63) (0.03) -- (1.46) -- --
In excess of net realized gains........ -- -- -- -- (0.94) --
------ ------ ------ ------ ------ ------
Total distributions................... (1.02) (0.54) (0.09) (1.54) (1.06) (0.15)
------ ------ ------ ------ ------ ------
Net asset value, end of period.......... $ 11.22 $ 12.41 $ 10.25 $ 18.76 $ 18.58 $ 16.23
====== ====== ====== ====== ====== ======
Total return (excludes sales charges)... (1.36)% 27.11% 3.46% 10.17%(f) 22.29% 31.20%(d)
Ratios/Supplemental Data:
Net assets at end of period (000)....... $20,116 $17,892 $10,890 $ 4,926 $ 3,537 $ 781
Ratio of expenses to average net assets
(including waivers).................... 0.35% 0.42% 0.41% (g) 1.74%(g) 1.75% 1.75%(g)
Ratio of net investment income to
average net assets (including
waivers)............................... 3.42% 3.69% 5.62% (g) 0.01%(g) 0.49% (g) 0.87%(g)
Ratio of expenses to average net assets
(before waivers)*...................... 1.00% 1.07% 1.24% (g) 1.84%(g) 1.85% 1.85%(g)
Ratio of net investment income to
average net assets (before waivers)*... 2.77% 3.04% 4.91% (g) (0.09)%(g) 0.39% 0.77%(g)
Portfolio turnover**.................... 227% 133% 30% 32.33% 63.90% 58.50%(g)
Average commission rate paid(h)......... -- -- -- $0.0600 $0.0598 --
</TABLE>
- ---------------
* During the period, fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(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.
(h) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and sold
for which commissions were charged.
12
<PAGE> 42
SMALL CAP EQUITY PORTFOLIO(a)
(For a Share(b) outstanding throughout each period)
<TABLE>
<CAPTION>
INVESTOR A SHARES
--------------------------------------
SIX MONTHS YEAR ENDED YEAR ENDED
ENDED NOV. 30, NOV. 30,
MAY 31, 1997 1996 1995
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Net asset value, beginning of period.... $ 13.40 $ 13.44 $ 11.99
------- ------- -------
Investment activities
Net investment income (loss)........... (0.03) (0.01) --
Net realized and unrealized gains from
investments.......................... 0.98 1.03 2.36
------- ------- -------
Total from investment activities....... 0.95 1.02 2.36
------- ------- -------
Distributions
Net investment income.................. -- -- --
In excess of net investment income..... -- (0.01) --
Net realized gains..................... (0.82) (1.05) (0.91)
In excess of net realized gains........ -- -- --
------- ------- -------
Total distributions.................... (0.82) (1.06) (0.91)
------- ------- -------
Net asset value, end of period.......... $ 13.53 $ 13.40 $ 13.44
======= ======= =======
Total return (excludes sales charges)... 7.53%(f) 8.36% 21.47%
Ratios/Supplemental Data:
Net assets at end of period (000)....... $ 13,336 $ 13,889 $ 15,056
Ratio of expenses to average net assets
(including waivers).................... 1.25%(g) 1.26% 1.26%
Ratio of net investment income to
average net assets (including
waivers)............................... (0.32)%(g) (0.13)% (0.12)%
Ratio of expenses to average net assets
(before waivers)*...................... 1.35%(g) 1.36% 1.36%
Ratio of net investment income to
average net assets (before waivers)*... (0.42)%(g) (0.23)% (0.22)%
Portfolio turnover**.................... 40.00% 65.85% 83.13%
Average commission rate paid(h)......... $ 0.0599 $ 0.0582 --
</TABLE>
<TABLE>
<CAPTION>
YEAR
ENDED YEAR ENDED MAY 6, 1992
NOV. 30, NOV. 30, TO NOV. 30,
1994(b) 1993 1992(b)
-------- ---------- -----------
<S> <C> <C> <C>
Net asset value, beginning of period.... $ 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.......................... 0.89 2.14 1.13
------- ------- -------
Total from investment activities....... 0.86 2.17 1.15
------- ------- -------
Distributions
Net investment income.................. -- (0.05) (0.02)
In excess of net investment income..... -- -- --
Net realized gains..................... (1.78) (0.21) --
In excess of net realized gains........ (0.23) -- --
------- ------- -------
Total distributions.................... (2.01) (0.26) (0.02)
------- ------- -------
Net asset value, end of period.......... $ 11.99 $ 13.14 $ 11.23
======= ======= =======
Total return (excludes sales charges)... 7.38% 19.75% 12.55%(f)
Ratios/Supplemental Data:
Net assets at end of period (000)....... $10,899 $ 4,559 $ 753
Ratio of expenses to average net assets
(including waivers).................... 1.25% 0.61% 0.30%(g)
Ratio of net investment income to
average net assets (including
waivers)............................... (0.44)% 0.19% 0.78%(g)
Ratio of expenses to average net assets
(before waivers)*...................... 1.36% 1.23% 1.12%(g)
Ratio of net investment income to
average net assets (before waivers)*... (0.55)% (0.43)% (0.04)%(g)
Portfolio turnover**.................... 85% 65% 56%
Average commission rate paid(h)......... -- -- --
</TABLE>
[CAPTION]
<TABLE>
INVESTOR B SHARES
--------------------------------------
SIX
MONTHS
ENDED
MAY YEAR ENDED MARCH 1, 1995
31, NOV. 30, TO NOV. 30,
1997 1996 1995(D)
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Net asset value, beginning of period.... $ 13.24 $ 13.37 $ 11.83
Investment activities
Net investment income (loss)........... (0.06) (0.07) (0.03)
Net realized and unrealized gains from
investments.......................... 0.96 0.99 1.57
Total from investment activities....... 0.90 0.92 1.54
Distributions
Net investment income.................. -- -- --
In excess of net investment income..... -- -- --
Net realized gains..................... (0.82) (1.05) --
In excess of net realized gains........ -- -- --
Total distributions.................... (0.82) (1.05) --
Net asset value, end of period.......... $ 13.32 $ 13.24 $ 13.37
Total return (excludes sales charges)... 7.19%(f) 7.63% 20.83%(e)
Ratios/Supplemental Data:
Net assets at end of period (000)....... $ 1,370 $ 1,272 $ 603
Ratio of expenses to average net assets
(including waivers).................... 1.95% 1.96% 1.96%(g)
Ratio of net investment income to
average net assets (including
waivers)............................... (1.02)%(g) (0.83)% (0.78)%(g)
Ratio of expenses to average net assets
(before waivers)*...................... 2.05%(g) 2.06% 2.06%(g)
Ratio of net investment income to
average net assets (before waivers)*... (1.12)%(g) (0.93)% (0.88)%(g)
Portfolio turnover**.................... 40.00% 65.85% 83.13%
Average commission rate paid(h)......... $0.0599 $ 0.0582 --
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would
have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(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.
(h) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and
sold for which commissions were charged.
13
<PAGE> 43
INTERNATIONAL EQUITY PORTFOLIO
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
INVESTOR A SHARES
--------------------------------------------------
APRIL 4,
SIX MONTHS YEAR ENDED YEAR ENDED 1993 INVESTOR B SHARES
ENDED MAY NOV. 30, NOV. 30, TO NOV. 30, ----------------------------------------
31, 1997 1996 1995 1994(a)(b)(c) SIX MONTHS MARCH 1,
---------- ---------- ---------- ----------- ENDED YEAR ENDED 1995 TO
INVESTOR INVESTOR INVESTOR INVESTOR MAY 31, NOVEMBER 30, NOVEMBER 30,
A SHARES A SHARES A SHARES A SHARES 1997 1996 1995(d)
---------- ---------- ---------- ----------- ---------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................. $ 12.05 $ 10.76 $ 9.90 $ 10.00 $ 11.90 $ 10.71 $ 9.26
------- ------- ------ ------ ------- ------- ------
Investment activities
Net investment income (loss)....... 0.01 0.02 0.02 (0.01) (0.02) (0.04) (0.03)
Net realized and unrealized gains
from investments and foreign
currency......................... 0.73 1.27 0.86 (0.09) 0.70 1.23 1.48
------- ------- ------ ------ ------- ------- ------
Total from investment activities... 0.74 1.29 0.88 (0.10) 0.68 1.19 1.45
------- ------- ------ ------ ------- ------- ------
Distributions
Net investment income.............. (0.01) -- -- -- -- -- --
In excess of net investment
income........................... (0.01) -- -- -- (0.02) -- --
Net realized gains................. (0.31) -- (0.01) -- (0.31) -- --
Tax return of capital.............. -- -- (0.01) -- -- -- --
------- ------- ------ ------ ------- ------- ------
Total distributions................ (0.33) -- (0.02) -- (0.33) -- --
------- ------- ------ ------ ------- ------- ------
Net asset value, end of period...... $ 12.46 $ 12.05 $10.76 $ 9.90 $ 12.25 $ 11.90 $10.71
======= ======= ====== ====== ======= ======= ======
Total return (excludes sales
charges)........................... 6.36%(f) 11.99% 8.89% (1.00)(f) 5.88%(f) 11.11% 8.38%(e)
Ratios/Supplemental Data:
Net assets at end of period (000)... $ 2,991 $ 2,573 $1,568 $ 791 $ 521 $ 437 $ 102
Ratio of expenses to average net
assets (including waivers)......... 1.50%(g) 1.44% 1.45% 1.55%(g) 2.20%(g) 2.14% 2.02%
Ratio of net investment income to
average net assets (including
waivers)........................... 0.14%(g) 0.19% 0.07% (0.39)%(g) (0.54)%(g) (0.50)% (0.96)%(g)
Ratio of expenses to average net
assets (before waivers)*........... 1.77%(g) 1.75% 1.76% 1.89%(g) 2.47%(g) 2.46% 2.44%
Ratio of net investment income to
average net assets (before
waivers)*.......................... (0.13)%(g) (0.12)% (0.24)% (0.73)%(g) (0.81)%(g) (0.82)% (1.38)%(g)
Portfolio turnover**................ 39.39% 77.63% 62.78% 21% 39.39% 77.63% 62.78%
Average commission rate paid (h).... $ 0.0187 $ 0.0251 -- -- $ 0.0187 $ 0.0251 --
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) Period from commencement of operations.
(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.
(h) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and sold
for which commissions were charged.
14
<PAGE> 44
BALANCED PORTFOLIO
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
INVESTOR A SHARES
-------------------------------------------------------------
SIX MONTHS APRIL 1, INVESTOR B
ENDED YEAR ENDED YEAR ENDED YEAR ENDED 1993 TO SHARES
MAY 31, NOV. 30, NOV. 30, NOV. 30, NOV. 30, -----------
1997 1996 1995 1994 1993(b) SIX MONTHS
---------- ----------- ----------- ----------- ---------- ENDED
INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR MAY 31,
A SHARES A SHARES A SHARES A SHARES A SHARES 1997
---------- ----------- ----------- ----------- ---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $ 12.58 $ 11.65 $ 9.61 $ 10.22 $ 10.00 $ 12.49
------- ------- ------ ------ ------ ------
Investment activities
Net investment income............................ 0.16 0.32 0.32 0.32 0.23 0.13
Net realized and unrealized gains from
investments.................................... 0.49 1.34 2.02 (0.47) 0.15 0.47
------- ------- ------ ------ ------ ------
Total from investment activities................. 0.65 1.66 2.34 (0.19) 0.38 0.60
------- ------- ------ ------ ------ ------
Distributions
Net investment income............................ (0.16) (0.31) (0.30) (0.29) (0.16) (0.13)
In excess of net investment income............... (0.08) -- -- -- -- (0.07)
Net realized gains............................... (0.49) (0.42) -- -- -- (0.47)
In excess of net realized gains.................. (0.22) -- -- (0.13) -- (0.24)
------- ------- ------ ------ ------ ------
Total distributions.............................. (0.95) (0.73) (0.30) (0.42) (0.16) (0.91)
------- ------- ------ ------ ------ ------
Net asset value, end of period.................... $ 12.28 $ 12.58 $ 11.65 $ 9.61 $ 10.22 $ 12.18
======= ======= ====== ====== ====== ======
Total return (excludes sales charges)............. 5.59%(e) 15.10% 24.85% (1.91%) 3.86%(d) 5.21%(e)
Ratios/Supplemental Data:
Net assets at end of period (000)................ $ 9,707 $ 9,328 $ 8,348 $ 7,321 $ 1,978 $ 450
Ratio of expenses to average net assets
(including waivers)............................ 1.27%(f) 1.27% 1.27% 1.27% 0.56%(f) 1.97%
Ratio of net investment income to average net
assets (including waivers)..................... 2.72%(f) 2.79% 2.98% 2.77% 3.42(f) 2.02%(f)
Ratio of expenses to average net assets (before
waivers)*...................................... 1.37%(f) 1.37% 1.37% 1.39% 1.21%(d) 2.07%(f)
Ratio of net investment income to average net
assets (before waivers)*....................... 2.62%(f) 2.69% 2.88% 2.65% 2.77%(f) 1.92%(f)
Portfolio turnover**............................. 28.56% 85.16% 58.16% 49% 26%(f) 28.56%
Average commission rate paid(g).................. $ 0.0600 $0.0599 -- -- -- $0.0600
<CAPTION>
INVESTOR B SHARES
------------------------------------
YEAR ENDED MARCH 1, 1995 TO
NOVEMBER 30, NOVEMBER 30,
1996 1995(c)
------------ -----------------
<S> <C> <C>
Net asset value, beginning of period.............. $ 11.59 $10.13
------ ------
Investment activities
Net investment income............................ 0.13 0.25
Net realized and unrealized gains from
investments.................................... 1.33 1.44
------ ------
Total from investment activities................. 1.58 1.66
------ ------
Distributions
Net investment income............................ (0.26) (0.20)
In excess of net investment income............... -- --
Net realized gains............................... (0.42) --
In excess of net realized gains.................. -- --
------ ------
Total distributions.............................. (0.68) (0.20)
------ ------
Net asset value, end of period.................... $ 12.49 $11.59
====== ======
Total return (excludes sales charges)............. 14.35% 23.92%(d)
Ratios/Supplemental Data:
Net assets at end of period (000)................ $ 321 $ 36
Ratio of expenses to average net assets
(including waivers)............................ 1.96% 1.93%(f)
Ratio of net investment income to average net
assets (including waivers)..................... 2.09% 2.28%()
Ratio of expenses to average net assets (before
waivers)*...................................... 2.06% 2.03%(f)
Ratio of net investment income to average net
assets (before waivers)*....................... 1.99% 2.18%(f)
Portfolio turnover**............................. 85.16% 58.16%
Average commission rate paid(g).................. $ 0.0599 --
</TABLE>
- ------------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(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.
(g) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and sold
for which commissions were charged.
15
<PAGE> 45
APPLICABLE SALES CHARGE -- INVESTOR A SHARES
The tables on page 55 of the Prospectus under the heading "Applicable Sales
Charge -- Investor A Shares of the Equity and Bond Portfolios" are amended and
restated as follows:
THE ARCH INTERMEDIATE CORPORATE BOND, GOVERNMENT &
CORPORATE BOND, MISSOURI TAX-EXEMPT BOND, NATIONAL MUNICIPAL BOND,
EQUITY INCOME, GROWTH & INCOME EQUITY, SMALL CAP EQUITY,
INTERNATIONAL EQUITY AND BALANCED PORTFOLIOS
<TABLE>
<CAPTION>
AS A % OF DEALERS'
OFFERING AS A % OF REALLOWANCE
PRICE NET ASSET VALUE AS A % OF
AMOUNT OF TRANSACTION PER SHARE PER SHARE OFFERING PRICE
----------------------------------------------- --------- --------------- --------------
<S> <C> <C> <C>
Less than $50,000.............................. 4.50% 4.71% 4.00%
$50,000 but less than $100,000................. 3.50 3.63 3.00
$100,000 but less than $250,000................ 2.50 2.56 2.00
$250,000 but less than $500,000................ 1.50 1.52 1.00
$500,000 but less than $1,000,000.............. 1.00 1.01 0.50
$1,000,000 and over............................ .50 .50 .40
</TABLE>
THE ARCH U.S. GOVERNMENT SECURITIES, BOND INDEX,
SHORT-INTERMEDIATE MUNICIPAL AND EQUITY INDEX PORTFOLIOS
<TABLE>
<CAPTION>
AS A % OF DEALERS'
OFFERING AS A % OF REALLOWANCE
PRICE NET ASSET VALUE AS A % OF
AMOUNT OF TRANSACTION PER SHARE PER SHARE OFFERING PRICE
----------------------------------------------- --------- --------------- --------------
<S> <C> <C> <C>
Less than $250,000............................. 2.50% 2.56% 2.00%
$250,000 but less than $500,000................ 1.50 1.52 1.30
$500,000 but less than $1,000,000.............. 1.00 1.01 .85
$1,000,000 and over............................ .50 .50 .40
</TABLE>
16
<PAGE> 46
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
March 31, 1997
(as revised August 29, 1997)
<PAGE> 47
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
March 31, 1997
(as revised August 29, 1997)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
THE FUND..................................................... 1
INVESTMENT OBJECTIVES AND POLICIES........................... 1
NET ASSET VALUE.............................................. 39
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION............... 42
ADDITIONAL YIELD AND TOTAL RETURN INFORMATION................ 44
DESCRIPTION OF SHARES........................................ 60
ADDITIONAL INFORMATION CONCERNING TAXES...................... 62
MANAGEMENT OF THE FUND....................................... 69
INDEPENDENT AUDITORS......................................... 88
COUNSEL...................................................... 88
MISCELLANEOUS................................................ 89
APPENDIX A................................................... A-1
APPENDIX B................................................... B-1
FINANCIAL STATEMENTS......................................... FS-1
</TABLE>
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 March 31, 1997 (as supplemented August
29, 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 1-800-452-ARCH(2724). Capitalized terms used but not defined herein have
the same meanings as in each Prospectus.
-i-
<PAGE> 48
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> 49
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.
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.
-2-
<PAGE> 50
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 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
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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 Corporate Bond Portfolio" above for a discussion of
the effects of interest rate changes.)
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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 net 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 net 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 net assets, taken at market value, in warrants. Warrants acquired
by the Portfolio in units or attached to other securities are not subject to
this restriction.
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<PAGE> 53
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, 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
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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."
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
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<PAGE> 55
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 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
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<PAGE> 56
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 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
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<PAGE> 57
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. The International
Equity Portfolio will not invest more than 10% of its total assets in the
securities of issuers which are restricted as to disposition, other than
restricted securities eligible for resale pursuant to Rule 144A.
The Adviser or Sub-Adviser monitors the liquidity of
restricted securities in the Fund's Portfolios under the supervision of the
Board of Directors. In reaching liquidity decisions, the Adviser and Sub-Adviser
may consider the following factors, although such factors may not necessarily be
determinative: (1) the unregistered nature of a security; (2) the frequency of
trades and quotes for the security; (3) the number of dealers willing to
purchase or sell the security and the number of other potential purchasers; (4)
the trading markets for the security; (5) dealer undertakings to make a market
in the security; and (6) the nature of the security and the nature of the
marketplace trades (including the time needed to dispose of the security,
methods of soliciting offers, and mechanics of transfer).
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
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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 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
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<PAGE> 59
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.
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
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the Adviser's opinion, present minimal credit risks. A Portfolio's reliance upon
the credit of these dealers, banks and broker-dealers will be secured by the
value of the underlying Municipal Obligations that are subject to the
commitment. In evaluating the creditworthiness of the issuer of a stand-by
commitment, the Adviser will review periodically the issuer's assets,
liabilities, contingent claims and other relevant financial information.
Each Tax-Exempt Portfolio will acquire stand-by commitments
solely to facilitate portfolio liquidity and does not intend to exercise its
rights thereunder for trading purposes. Stand-by commitments acquired by a
Portfolio would be valued at zero in determining net asset value. The
acquisition of a "stand-by commitment" by the Tax-Exempt Money Market Portfolio
would thus not affect the valuation or assumed maturity of the underlying
Municipal Obligations, which would continue to be valued in accordance with the
amortized cost method. Where a Portfolio paid any consideration directly or
indirectly for a stand-by commitment, its cost would be reflected as unrealized
depreciation for the period during which the commitment was held by the
Portfolio. If a stand-by commitment is exercised, its cost will reduce the
amount realized on the sale of the Municipal Obligations for purposes of
determining the amount of gain or loss. If a stand-by commitment expires
unexercised, its cost is added to the basis of the security to which it relates
in those instances where the stand-by commitment was acquired on the same day as
the bond, and in other cases will be treated as a capital loss at the time of
expiration. Stand-by commitments would not affect the average weighted maturity
of a Portfolio.
TAX-EXEMPT DERIVATIVES. As described in their Prospectuses and
subject to their respective investment limitations, the Tax-Exempt Portfolios
may hold tax-exempt derivatives which may be in the form of tender option bonds,
participations, beneficial interests in a trust, partnership interests or other
forms. A number of different structures have been used. For example, interests
in long-term fixed-rate Municipal Obligations, held by a bank as trustee or
custodian, are coupled with tender option, demand and other features when the
tax-exempt derivatives are created. Together, these features entitle the holder
of the interest to tender (or put), the underlying Municipal Obligation to a
third party at periodic intervals and to receive the principal amount thereof.
In some cases, Municipal Obligations are represented by custodial receipts
evidencing rights to receive specific future interest 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
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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.
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-
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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 principal components. Under the program,
the U.S. Treasury continues to sell its notes and bonds through its customary
auction process. A purchaser of those specified notes and bonds who has access
to a book-entry account at a Federal Reserve bank, however, may separate the
Treasury notes and bonds into interest and principal components. The selected
Treasury securities thereafter may be maintained in the book-entry system
operated by the Federal Reserve in a manner that permits the separate trading
and ownership of the interest and principal payments.
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For custodial receipts, the underlying debt obligations are
held separate from the general assets of the custodian and nominal holder of
such securities, and are not subject to any right, charge, security interest,
lien or claim of any kind in favor of or against the custodian or any person
claiming through the custodian. The custodian is also responsible for applying
all payments received on those underlying debt obligations to the related
receipts or certificates without making any deductions other than applicable tax
withholding. The custodian is required to maintain insurance for the protection
of holders of receipts or certificates in customary amounts against losses
resulting from the custody arrangement due to dishonest or fraudulent action by
the custodian's employees. The holders of receipts or certificates, as the real
parties in interest, are entitled to the rights and privileges of the underlying
debt obligations, including the right, in the event of default in payment of
principal or interest, to proceed individually against the issuer without acting
in concert with other holders of those receipts or certificates or the
custodian.
SECURITIES LENDING. As described in the Prospectuses, each
Portfolio (except the 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. 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
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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 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
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or by any Federal Home Loan Bank. Freddie Macs entitle the holder to timely
payment of interest, which is guaranteed by the FHLMC. FHLMC guarantees either
ultimate collection or timely payment of all principal payments on the
underlying mortgage loans. When FHLMC does not guarantee timely payment of
principal, FHLMC may remit the amount due on account of its guarantee of
ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
Non-mortgage asset-backed securities involve certain risks
that are not presented by mortgage-backed securities. Primarily, these
securities do not have the benefit of the same security interest in the
underlying collateral. Credit card receivables are generally unsecured, and the
debtors are entitled to the protection of a number of state and federal consumer
credit laws, many of which have given debtors the right to set off certain
amounts owed on the credit cards, thereby reducing the balance due. Most issuers
of automobile receivables permit the servicers to retain possession of the
underlying obligations. If the servicer were to sell these obligations to
another party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related automobile receivables. In
addition, because of the large number of vehicles involved in a typical issuance
and technical requirements under state laws, the trustee for the holders of the
automobile receivables may not have an effective security interest in all of the
obligations backing such receivables. Therefore, there is a possibility that
recoveries on repossessed collateral may not, in some cases, be able to support
payments on these securities.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. When a
Portfolio agrees to purchase securities on a when-issued or forward commitment
basis, the Custodian (or sub-custodian) will maintain in a segregated account
cash, U.S. Government securities, liquid portfolio securities or other
high-grade debt obligations having a value (determined daily) at least equal to
the amount of the Portfolio's commitments. In the case of a forward commitment
to sell portfolio securities, the Custodian (or sub-custodian) will hold the
portfolio securities themselves in a segregated account while the commitment is
outstanding. These procedures are designed to ensure that a Portfolio will
maintain sufficient assets at all times to cover is obligations under
when-issued purchases and forward commitments.
A Portfolio will make commitments to purchase securities on a
when-issued basis or to purchase or sell securities on a forward commitment
basis only with the intention of completing the transaction and actually
purchasing or selling the securities. If deemed advisable as a matter of
investment
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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. 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
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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.
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
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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.
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,
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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 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
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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 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-
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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 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
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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
daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses, because the limit may prevent the
liquidation of unfavorable positions. Futures contract prices have occasionally
moved to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of futures positions and
subjecting some futures traders to substantial losses.
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The trading of futures contracts is also subject to the risk
of trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
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 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;
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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.
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
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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 did not acquire any securities of its "regular
brokers or dealers" or their parents 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 $708,924, $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 $352,745, $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
$235,230, $129,568 and $98,911 respectively, in brokerage commissions. During
the fiscal years ended November 30, 1996, 1995 and 1994, the Balanced Portfolio
paid $144,448, $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 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
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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.
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
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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 agri- business center for
the United States and is an important center for finance and industry.
Springfield, St. Joseph, Joplin and Columbia are also important population and
industrial centers in the State. [Source: U.S. Department of Commerce, Bureau of
the Census.] Per capita personal income in Missouri grew 3.1% between 1992 and
1993 while during the same period per capita personal income nationally grew
3.2%. [Source: U.S. Department of Commerce, Bureau of Economic Analysis.]
The major sectors of the State's economy include agriculture,
manufacturing, trade, government and services. Farming has traditionally played
a dominant role in the State's economy contributing between $15 billion and $17
billion annually. Although the concentration in farming remains above the
national average, with increasing urbanization, significant income-generating
activity has shifted from agriculture to the manufacturing and services sectors.
Earnings and employment are distributed among the manufacturing, trade and
service sectors in
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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
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
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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 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.
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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 $5,778 million, excluding $33.6 million from the state
lottery and other transfers, representing an increase of 7.2 percent over
revenue collections from the fiscal year ended June 30, 1995. These revenues
supplement a carry-over balance from the previous year of $383.4 million.
Expenditures for Fiscal Year 1996 are estimated at $5,822 million including
$153.7 million and $140.5 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 $6,000.3 million. This projection does not include
an estimated $98.3 million in proceeds from other transfers or a carry-over
balance of approximately $328.8 million. Expenditures are projected at $6,263.9
million, including $151.7 million and $110.3 million respectively for the St.
Louis and Kansas City desegregation cases. Projected expenditures also include
$80 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
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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).
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 that equal at all times at
least 100% of the value of the repurchase price.
5. Purchase or sell real estate.
6. Purchase or sell commodities or commodity contracts or
invest in oil, gas, or other mineral exploration programs.
THE MONEY MARKET PORTFOLIO MAY NOT:
1. Acquire any other investment company or investment company
security except in connection with a merger, consolidation, reorganization or
acquisition of assets, or where otherwise permitted by the 1940 Act.
2. Purchase securities of any one issuer, other than
obligations of the U.S. Government, its agencies or instrumentalities, if
immediately after such purchase more than 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
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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.
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.
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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.
10. Purchase any securities, except securities issued 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 25% or more 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.
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.
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
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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 be
necessary for the clearance of purchases and sales of portfolio securities.
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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 attributable to Investor A Shares and
the number of outstanding Investor A Shares on May 31, 1997 and the maximum
front-end sales charge of 4.5% (2.5% with respect to the U.S. Government
Securities, Bond Index, Short-Intermediate Municipal and Equity Index
Portfolios) currently applicable, is as follows:
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<PAGE> 90
<TABLE>
<CAPTION>
Missouri National
Intermediate Government & Tax-Exempt Municipal
Corporate Bond Corporate Bond Bond Bond Equity Income
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Assets $ 65,587 $ 4,606,807 $ 23,564,899 $ 542,574 $ 41,053
Outstanding Shares 6,674 458,760 2,032,871 54,515 4,061
Net Asset Value
Per Share $ 9.83 $ 10.04 $ 11.59 $ 9.95 $ 10.11
Sales Charge, 4.50%
of offering price
(4.70% of net asset
value per share) $ .46 $ .47 $ .55 $ .47 $ .48
-------------- -------------- -------------- -------------- --------------
Offering Price
to Public $ 10.29 $ 10.51 $ 12.14 $ 10.42 $ 10.59
============== ============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Growth & Income Small Cap International
Equity Equity Equity Balanced
Portfolio Portfolio Portfolio Portfolio
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Assets $ 41,436,697 $ 13,336,491 $ 2,990,598 $ 9,706,620
Outstanding Shares 2,192,999 985,531 240,025 790,401
Net Asset Value
Per Share $ 18.89 $ 13.53 $ 12.46 $ 12.28
Sales Charge, 4.50%
of offering price
(4.70% of net
asset value per
share) $ .89 $ .64 $ .59 $ .58
------------ ------------ ------------ ------------
Offering Price
to Public $ 19.78 $ 14.17 $ 13.05 $ 12.86
============ ============ ============ ============
</TABLE>
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<PAGE> 91
<TABLE>
<CAPTION>
U.S. Government Short-Intermediate Equity
Securities Bond Index Municipal Index
Portfolio Portfolio Portfolio Portfolio
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Assets $ 5,349,197 $ 45,985 $ 31,280 $ 2,118
Outstanding Shares 510,176 4,658 3,126 200
Net Asset Value $ 10.49 $ 9.87 $ 10.01 $ 10.59
Per Share
Sales Charge, 2.50%
of offering price
(2.60% of net
asset value per
share) $ .27 $ .25 $ .26 $ .27
----------- ----------- ----------- -----------
Offering Price
to Public $ 10.76 $ 10.12 $ 10.27 $ 10.86
=========== =========== =========== ===========
</TABLE>
Under the 1940 Act, a Portfolio may suspend the right of
redemption or postpone the date of payment for shares during any period when (a)
trading on the Exchange is restricted by applicable rules and regulations of the
SEC; (b) the Exchange is closed for other than customary weekend and holiday
closing; (c) the SEC has by order permitted such suspension; or (d) an emergency
exists as determined by the SEC. A Portfolio may also suspend or postpone the
recordation of the transfer of its shares upon the occurrence of any of the
foregoing conditions.
In addition to the situations described in the Prospectuses
under "How to Purchase and Redeem Shares," the Portfolios may redeem shares
involuntarily to reimburse the Portfolios for any loss sustained by reason of
the failure of a shareholder to make full payment for shares purchased by the
shareholder or to collect any charge relating to a transaction effected for the
benefit of a shareholder which is applicable to Portfolio shares as provided in
the applicable Prospectuses from time to time.
ADDITIONAL YIELD AND TOTAL RETURN INFORMATION
THE MONEY MARKET PORTFOLIOS
A Money Market Portfolio's "yield" and "effective yield," as
described in the Prospectuses, are calculated
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<PAGE> 92
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 period ended May 31, 1997 ,
the 7-day yields, 7-day effective yields and the 30-day yields were as follows:
-45-
<PAGE> 93
<TABLE>
<CAPTION>
7-DAY EFFECTIVE
PORTFOLIO 7-DAY YIELD YIELD 30-DAY YIELD
--------- ----------- ----- ------------
<S> <C> <C> <C>
Treasury Money Market
Trust Shares 3.41% 3.47% 3.34%
Institutional Shares 4.47% 4.57% 4.50%
Investor A Shares 4.47% 4.57% 4.50%
Money Market
Trust Shares 5.02% 5.15% 5.01%
Institutional Shares 4.89% 5.01% 4.88%
Investor A Shares 4.89% 5.01% 4.88%
Investor B Shares 4.14% 4.22% 4.12%
Tax-Exempt Money Market
Trust Shares 4.64% 4.74% 4.67%
Investor A Shares 3.21% 3.27% 3.14%
</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 5.65% 5.75% 5.53%
Investor A Shares 5.31% 5.41% 5.20%
</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.
THE EQUITY AND BOND PORTFOLIOS
An Equity and Bond Portfolio's 30 day "yield" described in the
Prospectuses is calculated separately for Trust Shares,
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<PAGE> 94
Institutional Shares, Investor A Shares and/or Investor B Shares of a Portfolio
by dividing the Portfolio's net investment income per share earned during a
30-day period by the maximum offering price per share (the "maximum offering
price") with respect to Investor A Shares and the net asset value per share with
respect to Trust shares, Institutional shares and Investor B Shares on the last
day of the period and annualizing the result on a semi-annual basis by adding
one to the quotient, raising the sum to the power of six, subtracting one from
the result and then doubling the difference. A Portfolio's net investment income
per share (irrespective of series) earned during the period is based on the
average daily number of shares outstanding during the period entitled to receive
dividends and includes income dividends and interest earned during the period
minus expenses accrued for the period, net of reimbursements. This calculation
can be expressed as follows:
a-b
Yield = 2 [(-------)(6) - 1]
cd + 1
Where: a = dividends and interest earned
during the period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares
outstanding that were entitled to receive dividends.
d = maximum offering price per share on the
last day of the period.
For the purpose of determining interest earned during the
period (variable "a" in the formula), dividend income on equity securities held
by a Portfolio is recognized by accruing 1/360 of the stated dividend rate of
the security each day that the security is in that Portfolio. A Portfolio
calculates interest earned on any debt obligation held in its portfolio by
computing the yield to maturity of each obligation held by it based on the
market value of the obligation (including actual accrued interest) at the close
of business on the last business day of each 30 day period, or, with respect to
obligations purchased during the 30 day period, the purchase price (plus actual
accrued interest) and dividing the result by 360 and multiplying the quotient by
the market value of the obligation (including actual accrued interest) in order
to determine the interest income on the obligation for each day of the
subsequent 30 day period that the obligation is in the portfolio. The
-47-
<PAGE> 95
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 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,
-48-
<PAGE> 96
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 May
31, 1997, the yields on the Bond Portfolios were as follows:
<TABLE>
<CAPTION>
PORTFOLIO 30-DAY YIELD
--------- ------------
<S> <C>
U.S. Government Securities
Trust Shares 5.74%
Institutional Shares 5.44%
Investor A Shares 5.44%
Investor B Shares 4.74%
Intermediate Corporate Bond
Trust Shares 6.64%
Institutional Shares 6.43%
Investor A Shares 6.49%
Bond Index
Trust Shares 6.56%
Institutional Shares 6.46%
Investor A Shares 6.25%
Government & Corporate Bond
Trust Shares 5.96%
Institutional Shares 5.66%
Investor A Shares 5.66%
Investor B Shares 4.95%
Short-Intermediate Municipal
Trust Shares 6.90%
Investor A Shares 3.90%
Missouri Tax Exempt Bond
Trust Shares 6.64%
Investor A Shares 3.81%
Investor B Shares 3.02%
National Municipal Bond
Trust Shares 8.36%
Investor A Shares 4.85%
Investor B Shares 3.94%
Balanced
Trust Shares 2.86%
Institutional Shares 2.56%
Investor A Shares 2.56%
Investor B Shares 1.87%
</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
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<PAGE> 97
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:
<TABLE>
<CAPTION>
30-DAY TAX- 30-DAY MISSOURI
PORTFOLIO EQUIVALENT YIELD TAX-EQUIVALENT YIELD
--------- ---------------- --------------------
<S> <C> <C>
Short-Intermediate Municipal
Trust Shares 6.90% 7.34%
Investor A Shares 6.46% 6.87%
Missouri Tax-Exempt Bond
Trust Shares 6.64% 7.06%
Investor A Shares 6.31% 6.41%
Investor B Shares 5.00% 5.32%
National Municipal Bond
Trust Shares 8.36% 8.89%
Investor A Shares 8.03% 8.54%
Investor B Shares 6.52% 6.94%
</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
-50-
<PAGE> 98
A Portfolio computes its aggregate total returns separately
for each series by determining the aggregate compounded rates of return during
specified periods that likewise equate the initial amount invested in a
particular series to the ending redeemable value of such investment in the
series. The formula for calculating aggregate total return is as follows:
ERV
Aggregate Total Return = [(------)- 1]
P
The calculations of average annual total return and aggregate
total return assume reinvestment of all income dividends and capital gain
distributions on the reinvestment dates during the period and include all
recurring fees charged to all shareholder accounts, assuming an account size
equal to a Portfolio's mean or median account size for any fees that vary with
the size of the account. The ending redeemable value (variable "ERV" in each
quotation) is determined by assuming complete redemption of the hypothetical
investment and the deduction of all non-recurring charges at the end of the
period covered by the computation. In addition, a 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 one-year period ended May 31, 1997 (where applicable), the
average annual total returns for the 5-year period ended May 31, 1997 (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 1 FOR THE 5 SINCE
YEAR YEARS ENDED COMMENCEMENT
PORTFOLIO ENDED 5/31/97 OF OPERATIONS
--------- ----- ------- -------------
5/31/97
-------
<S> <C> <C> <C>
U.S. Government Securities
Trust Shares(1) 6.52% 6.30% 7.83%
Institutional Shares(7) 6.10% 5.89% 7.56%
Investor A Shares(1) 1.45% 5.00% 7.06%
Investor B Shares(4) 1.47% 5.26% 7.29%
Intermediate Corporate Bond(24)
Trust Shares N/A N/A 0.17%
Institutional Shares N/A N/A 0.24%
Investor A Shares N/A N/A 0.25%
</TABLE>
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<PAGE> 99
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------
FOR THE 1 FOR THE 5 SINCE
YEAR YEARS ENDED COMMENCEMENT
PORTFOLIO ENDED 5/31/97 OF OPERATIONS
--------- ----- ------- -------------
5/31/97
-------
<S> <C> <C> <C>
Bond Index(24)
Trust Shares N/A N/A 0.54%
Institutional Shares N/A N/A 0.58%
Investor A Shares N/A N/A (2.05%)
Government & Corporate Bond
Trust Shares(5) 7.06% 6.33% 7.57%
Institutional Shares(2) 6.74% 6.02% 7.35%
Investor A Shares(5) 1.93% 5.05% 6.80%
Investor B Shares(4) 2.11% 5.53% 7.17%
Short-Intermediate Municipal
Trust Shares(17) 5.37% N/A 4.03%
Investor A Shares(18) 2.52% N/A 1.79%
Missouri Tax-Exempt Bond(19)
Trust Shares(20) 7.37% 6.58% 7.86%
Investor A Shares(21) 2.37% 5.39% 7.13%
Investor B Shares(4) 2.20% 5.79% 7.38%
National Municipal Bond(23)
Trust Shares N/A N/A 2.66%
Investor A Shares N/A N/A (2.17%)
Investor B Shares N/A N/A (2.87%)
Equity Income(25)
Trust Shares N/A N/A 1.61%
Institutional Shares N/A N/A 1.61%
Investor A Shares N/A N/A (2.98%)
Investor B Shares N/A N/A (3.57%)
Equity Index(26)
Trust Shares N/A N/A 6.10%
Institutional Shares N/A N/A 6.10%
Investor A Shares N/A N/A 3.39%
Growth & Income Equity
Trust Shares(1) 23.33% 16.06% 15.48%
Institutional Shares(2) 23.05% 15.85% 15.36%
Investor A Shares(1) 17.41% 14.78% 14.77%
Investor B Shares(4) 18.16% 15.39% 15.17%
Small Cap Equity
Trust Shares(9)
Institutional Shares(2) 8.49% 15.23% 15.12%
Investor A Shares(10) 3.49% 14.23% 14.14%
Investor B Shares(4) 3.68% 14.82% 14.72%
International Equity
Trust Shares(14) 10.70% N/A 8.50%
Institutional Shares(14) 10.31% N/A 8.17%
Investor A Shares(15) 5.31% N/A 6.67%
Investor B Shares(4) 5.47% N/A 6.83%
</TABLE>
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<PAGE> 100
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------
FOR THE 1 FOR THE 5 SINCE
YEAR YEARS ENDED COMMENCEMENT
PORTFOLIO ENDED 5/31/97 OF OPERATIONS
--------- ----- ------- -------------
5/31/97
-------
<S> <C> <C> <C>
Balanced
Trust Shares(12) 15.69% N/A 11.21%
Institutional Shares(12) 15.41% N/A 10.97%
Investor A Shares(12) 10.16% N/A 9.80%
Investor B Shares(4) 10.55% N/A 10.19%
</TABLE>
- ------------------------------
(1) Commenced operations on June 2, 1988.
(2) Initial public offering commenced on January 4, 1994.
(3) Reflects combined performance of Institutional Shares which
were initially offered to the public on January 4, 1994 and
Investor A Shares for the period prior to January 4, 1994.
(4) Investor B Shares were initially offered on March 1, 1995. The
performance figures for Investor B Shares for periods prior to
such date represent the performance for Investor A Shares of
the Portfolio which has been restated to reflect the
contingent deferred sales charges payable by holders of
Investor B Shares that redeem within six years of the date of
purchase. Investor B Shares are also subject to distribution
and services fees at a maximum annual rate of 1.00%. Had those
distribution and services fees been reflected, performance
would have been reduced.
(5) Commenced operations on June 15, 1988.
(6) Reflects combined performance of Institutional Shares which
were initially offered to the public on January 4, 1994 and
Investor A Shares for the period prior to January 4, 1994.
(7) Commenced operations on June 7, 1994.
(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.
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<PAGE> 101
(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.
(24) Commenced operations on February 10, 1997.
(25) Commenced operations on March 7, 1997.
(26) Commenced operations on May 1, 1997.
Based on the foregoing calculations, the aggregate total
returns for the Equity and Bond Portfolios from their respective dates of
commencement of operations through May 31, 1997 were as follows:
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<PAGE> 102
<TABLE>
<CAPTION>
AGGREGATE TOTAL RETURN
PORTFOLIO SINCE COMMENCEMENT
--------- OF OPERATIONS
----------------------
<S> <C>
U.S. Government Securities
Trust Shares 97.14%
Institutional Shares(1) 92.69%
Investor A Shares (3.02%)
Investor B Shares(2) 7.29%
Intermediate Corporate Bond
Trust Shares 0.17%
Institutional Shares 0.24%
Investor A Shares (2.29%)
Bond Index
Trust Shares 0.54%
Institutional Shares 0.58%
Investor A Shares (2.05%)
Government & Corporate Bond
Trust Shares 92.47%
Institutional Shares(1) 88.94%
Investor A Shares (3.53%)
Investor B Shares(2) (4.11%)
Short-Intermediate Municipal
Trust Shares 7.77%
Investor A Shares (1.28%)
Missouri Tax-Exempt Bond
Trust Shares 95.80%
Investor A Shares (2.77%)
Investor B Shares(2) 7.38%
National Municipal Bond
Trust Shares 2.66%
Investor A Shares (2.56%)
Investor B Shares (2.87%)
Equity Income
Trust Shares 1.61%
Institutional Shares 1.61%
Investor A Shares (2.98%)
Investor B Shares (3.57%)
Equity Index
Trust Shares 6.10%
Institutional Shares 6.10%
Investor A Shares 3.33%
Growth & Income Equity
Trust Shares 265.28%
Institutional Shares(1) 262.09%
Investor A Shares 6.93%
Investor B Shares(2) 6.74%
Small Cap Equity
Trust Shares 106.54%
Institutional Shares(1) 104.34%
Investor A Shares 2.81%
Investor B Shares(2) 2.33%
</TABLE>
-55-
<PAGE> 103
<TABLE>
<CAPTION>
AGGREGATE TOTAL RETURN
PORTFOLIO SINCE COMMENCEMENT
--------- OF OPERATIONS
----------------------
<S> <C>
International Equity
Trust Shares 28.42%
Institutional Shares(1) 28.20%
Investor A Shares 2.00%
Investor B Shares(2) 1.15%
Balanced
Trust Shares 55.73%
Institutional Shares(1) 54.33%
Investor A Shares 1.80%
Investor B Shares(2) 1.48%
</TABLE>
- ------------------------------
(1) Reflects combined performance of Institutional Shares which were initially
offered to the public on January 4, 1994 and Investor A Shares for the period
prior to January 4, 1994.
(2) Investor B Shares were initially offered on March 1, 1995. The performance
figures for Investor B Shares for periods prior to such date represent the
performance for Investor A Shares of the Portfolio which has been restated to
reflect the contingent deferred sales charges payable by holders of Investor B
Shares that redeem within six years of the date of purchase. Investor B Shares
are also subject to distribution and services fees at a maximum annual rate of
1.00%. Had those distribution and services fees been reflected, performance
would have been reduced.
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
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<PAGE> 104
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 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 consult their tax advisor with
specific reference to their own tax situation.
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<PAGE> 105
APPROXIMATE YIELD TABLE: SHORT-INTERMEDIATE MUNICIPAL AND NATIONAL MUNICIPAL
BOND PORTFOLIOS
<TABLE>
<CAPTION>
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% 6.94% 7.64% 9.03% 9.72%
FROM
$58,150 TO
$121,300 31.00% 6.52% 7.25% 7.97% 9.42% 10.14%
FROM
$121,300 TO
$263,750 36.00% 7.03% 7.81% 8.59% 10.16% 10.94%
OVER
$263,750 39.60% 7.45% 8.28% 9.11% 10.76% 11.59%
</TABLE>
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<PAGE> 106
APPROXIMATE YIELD TABLE: SHORT-INTERMEDIATE MUNICIPAL AND NATIONAL MUNICIPAL
BOND PORTFOLIOS
<TABLE>
<CAPTION>
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>
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<PAGE> 107
APPROXIMATE YIELD TABLE: MISSOURI TAX-EXEMPT BOND PORTFOLIO
<TABLE>
<CAPTION>
SINGLE RETURN Combined
Federal and
Sample Taxable Federal Missouri Missouri ---------------Tax-Exempt Yields--------------
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>
APPROXIMATE YIELD TABLE: MISSOURI TAX-EXEMPT BOND PORTFOLIO
<TABLE>
<CAPTION>
MARRIED FILING
JOINTLY Combined
Federal and
Sample Taxable Federal Missouri Missouri ---------------Tax-Exempt Yields--------------
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.
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<PAGE> 108
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 - 1-800-452-4015.
DESCRIPTION OF SHARES
The Fund's Articles of Incorporation authorize the Board of Directors
to issue up to seven billion full and fractional shares of capital stock, and to
classify or reclassify any unissued shares of the Fund into one or more
additional classes or by setting or changing in any one or more respects, their
respective preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption. Pursuant to such authority the Fund's Board of Directors has
authorized the issuance of fifty-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 Services
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<PAGE> 109
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
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<PAGE> 110
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
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<PAGE> 111
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 "Gross Income Requirement").
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
"Short-Short Gain 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
Short-Short Gain 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
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<PAGE> 112
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
marginal 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%.
A 4% nondeductible excise tax is imposed on regulated
investment companies that fail to currently distribute specified percentages of
their ordinary taxable income and capital gain net income (excess of capital
gains over capital losses). Each Portfolio intends to make sufficient
distributions or deemed distributions of its ordinary taxable income and any
capital gain net income each year to avoid liability for this excise tax.
If for any taxable year a Portfolio does not qualify for the
special federal income tax treatment afforded regulated investment companies,
all of its taxable income will be subject to federal income tax at regular
corporate rates (without any deduction for distributions to its shareholders).
In such event, dividend distributions would be taxable as ordinary income to
shareholders, to the extent of the Portfolio's current and
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<PAGE> 113
accumulated earnings and profits and would be eligible for the dividends
received deduction allowed to corporations.
THE TAX-EXEMPT PORTFOLIOS
The policy of each Tax-Exempt Portfolio is to pay to its
shareholders each year as exempt-interest dividends substantially all of its
Municipal Obligation interest income net of certain deductions. In order for a
Tax-Exempt Portfolio to pay exempt-interest dividends for any taxable year, at
the close of each quarter of its taxable year at least 50% of the aggregate
value of the Portfolio's assets must consist of exempt-interest obligations.
Exempt-interest dividends may be treated by the shareholders as items of
interest excludable from their gross income under Section 103(a) of the Code. An
exempt-interest dividend is any dividend or part thereof (other than a capital
gain dividend) paid by a Tax-Exempt Portfolio and designated as an
exempt-interest dividend in a written notice mailed to shareholders not later
than forty-five days (with respect to Missouri income tax) and sixty days (with
respect to federal income tax) after the close of the Portfolio's taxable year.
However, the aggregate amount of dividends so designated by the Portfolio cannot
exceed the excess of the amount of interest exempt from tax under Section 103 of
the Code received by the Portfolio during the taxable year over any amounts
disallowed as deductions under Sections 265 and 171(a)(2) of the Code. The
percentage of total dividends paid for any taxable year which qualifies as
exempt-interest dividends will be the same for all shareholders receiving
dividends from the Portfolio during such year, regardless of the period for
which the Shares were held.
Shareholders who might be treated as a "substantial user" or a
"related person" to such user with respect to facilities financed through any of
the tax-exempt obligations held by a Tax-Exempt Portfolio, are advised to
consult their tax advisors with respect to whether exempt-interest dividends
retain the exclusion under Section 103(a). A "substantial user" is defined under
U.S. Treasury Regulations to include a non-exempt person (i) who regularly uses
a part of such facilities in his trade or business and (ii)(A) whose gross
revenues derived with respect to the facilities financed by the issuance of
bonds are more than 5% of the total revenues derived by all users of such
facilities, (B) who occupies more than 5% of the usable area of such facilities
or (C) for whom such facilities or a part thereof were specifically constructed,
reconstructed or acquired. "Related persons" include certain related natural
persons, affiliated corporations, partnerships and its partners, and S
corporations and their shareholders.
Interest on indebtedness incurred by a shareholder to
purchase or carry shares of the Tax-Exempt Portfolios generally
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<PAGE> 114
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 Gross Income Requirement, and on a Portfolio's ability to comply with the
Short-Short Gain Test described above.
Generally, futures contracts and options on futures contracts
held by a Portfolio at the close of its taxable year are treated for federal
income tax purposes as sold for their fair market value on the last business day
of such year, a process known as "mark-to-market." Forty percent of any gain or
loss resulting from such constructive sales are treated as short-term capital
gain or loss and 60% of such gain or loss are treated as long-term capital gain
or loss without regard to the period the Portfolio holds the futures contract or
related option (the "40-60 rule"). The amount of any capital gain or loss
actually realized by a Portfolio in a subsequent sale or other disposition of
those futures contracts and related options is adjusted to reflect any capital
gain or loss taken into account by a Portfolio in a prior year as a result of
the constructive sale of the contracts and options. Losses with respect to
futures contracts to sell and related options, which are regarded as parts of a
"mixed straddle" because their values fluctuate inversely to the values of
specific securities held by a Portfolio, are subject to certain loss deferral
rules which limit the amount of loss currently deductible on either part of the
straddle to the amount thereof which exceeds the unrecognized gain, if any, with
respect to the other part of the straddle, and to certain wash sales
regulations. Under short sales rules, which are also applicable, the holding
period of the securities
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<PAGE> 115
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 non-U.S. dollar-denominated
debt securities and obligations and preferred stock, as well as some of the
foreign currency contracts the
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<PAGE> 116
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.
-69-
<PAGE> 117
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* Chairman of Treasurer, St. Louis
St. Louis University The Board; University, August 1996
3500 Lindell President and to present; Treasurer,
Fitzgerald Hall Director Washington University,
St. Louis, MO 63131 1981 to 1995
Age: 53
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
Council of 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.
</TABLE>
- ------------------------
* Mr. Woodham is an "interested person" of the Fund as defined in the 1940
Act.
-70-
<PAGE> 118
<TABLE>
<CAPTION>
Principal Occupations
Position with During Past 5 years
Name and Address the Fund and other affiliations
- ---------------- -------- ----------------------
<S> <C> <C>
Lyle L. Meyer Director Vice President, The Jefferson
Jefferson Smurfit Smurfit Corporation
Corporation (manufacturer 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 LLP, Philadelphia,
Philadelphia, PA 19107 Pennsylvania Since 1977.
Age: 54
Walter B. Grimm* Vice President From June, 1992 to present,
** 1 3435 Stelzer Road and Assistant employee of BISYS Fund
* 2 moved from here; text not shown
Columbus, OH 43219 Treasurer Services; From 1989 to June, 1992
Age: 51 President of Leigh
Investments Consulting/
Investments (investment
firm).
David Bunstine* Assistant From December, 1987 to present,
* 1 moved from here; text not shown
** 2 3435 Stelzer Road Secretary employee of BISYS Fund
Columbus, OH 43219 Services.
Age: 31
</TABLE>
- ------------------------
* Messrs. Grimm, Winney, McConnel and Bunstine 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 $76,082.90. Drinker Biddle & Reath LLP,
-71-
<PAGE> 119
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 $15,000.00 N/A $15,000.00
Robert M. Cox, Jr. $10,166.35 N/A $10,166.35
Joseph J. Hunt $10,000.00 N/A $10,000.00
James C. Jacobsen $10,266.60 N/A $10,266.60
Donald E. Kiernan** $10,101.55 N/A $10,101.55
Lyle L. Meyer $10,287.60 N/A $10,287.60
Ronald D. Winney $10,260.60 N/A $10,260.60
</TABLE>
* The "Fund Complex" consists solely of the Fund.
** Mr. Kiernan resigned as a director of the Fund on April 3, 1997.
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.
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
-72-
<PAGE> 120
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:
-73-
<PAGE> 121
<TABLE>
<CAPTION>
FEES PAID
PORTFOLIOS (AFTER WAIVERS) WAIVERS
---------- --------------- -------
<S> <C> <C>
The ARCH Treasury Money Market Portfolio $ 822,177 $179,300
The ARCH Money Market Portfolio $2,787,213 $628,005
The ARCH Tax-Exempt Money Market Portfolio $ 334,446 $ 47,714
The ARCH U.S. Government Securities
Portfolio $ 280,649 $ 0
The ARCH Government & Corporate Bond
Portfolio $ 674,595 $ 0
The ARCH Short-Intermediate Municipal
Portfolio $ 0(19) $147,782
The ARCH Missouri Tax-Exempt Bond
Portfolio $ 327,773 $ 0
The ARCH National Municipal Bond Portfolio $ 0(7) $ 70,262
The ARCH Growth & Income Equity Portfolio $2,231,228 $ 0
The ARCH Small Cap Equity Portfolio $1,556,817 $ 0
The ARCH International Equity Portfolio $ 393,668 $140,840
The ARCH Balanced Portfolio $ 950,916 $ 0
</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 Portfolio $ 795,911 $124,279
The ARCH Money Market Portfolio $2,202,658 $314,865
The ARCH Tax-Exempt Money Market Portfolio(1) $ 161,659 $ 23,094
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
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
</TABLE>
-74-
<PAGE> 122
<TABLE>
<CAPTION>
FEES PAID
PORTFOLIOS (AFTER WAIVERS) WAIVERS
---------- --------------- -------
<S> <C> <C>
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 Portfolio $ 676,057 $353,812
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:
<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>
-75-
<PAGE> 123
For the fiscal year or period ended November 30, 1996, the
Administrator was paid administration fees, after waivers, as follows:
-76-
<PAGE> 124
<TABLE>
<CAPTION>
FEES PAID
PORTFOLIOS (AFTER WAIVERS) WAIVERS
---------- --------------- -------
<S> <C> <C>
The ARCH Treasury Money Market Portfolio $ 304,595 $196,144
The ARCH Money Market Portfolio $1,055,556 $652,053
The ARCH Tax-Exempt Money Market Portfolio $ 95,540 $ 0
The ARCH U.S. Government Securities
Portfolio $ 62,335 $ 62,398
The ARCH Government & Corporate Bond
Portfolio $ 149,866 $149,916
The ARCH Short-Intermediate Municipal
Portfolio $ 26,854 $ 26,878
The ARCH Missouri Tax-Exempt Bond
Portfolio $ 72,831 $ 72,846
The ARCH National Municipal Bond Portfolio $ 7,016 $ 18,530
The ARCH Growth & Income Equity Portfolio $ 405,497 $405,859
The ARCH Small Cap Equity Portfolio $ 207,502 $207,666
The ARCH International Equity Portfolio $ 80,098 $ 26,804
The ARCH Balanced Portfolio $ 126,789 $126,784
</TABLE>
For the fiscal year or period ended November 30, 1995, the
Administrator was paid administration fees, after waivers, as follows:
<TABLE>
<CAPTION>
FEES PAID
PORTFOLIOS (AFTER WAIVERS) WAIVERS
---------- --------------- -------
<S> <C> <C>
The ARCH Treasury Money Market
Portfolio $230,049 $230,045
The ARCH Money Market Portfolio $629,330 $629,432
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
The ARCH Missouri Tax-Exempt Bond
Portfolio(1) $ 34,688 $ 34,808
</TABLE>
-77-
<PAGE> 125
<TABLE>
<CAPTION>
FEES PAID
PORTFOLIOS (AFTER WAIVERS) WAIVERS
---------- --------------- -------
<S> <C> <C>
The ARCH Growth & Income Equity
Portfolio $315,753 $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:
<TABLE>
<CAPTION>
FEES PAID
PORTFOLIOS (AFTER WAIVERS) WAIVERS
---------- --------------- -------
<S> <C> <C>
</TABLE>
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<PAGE> 126
<TABLE>
<CAPTION>
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
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 Equity
Portfolio), this fee, which is paid monthly, is calculated as the greater of
$6,000 or $.30. For the International Equity
-79-
<PAGE> 127
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 Investor A share purchases as follows: U.S. Government Securities Portfolio
- -- $823, $6,238 and $26,300, respectively; Government &
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<PAGE> 128
Corporate Bond Portfolio -- $4655, $10,250 and $12,979, respectively; Missouri
Tax-Exempt Bond Portfolio, $23,210, $45,981 and $96,782, respectively; Growth &
Income Equity Portfolio -- $74,288, $96,851 and $95,623, respectively; Small Cap
Equity Portfolio $18,763, $60,626 and $87,769, respectively; and Balanced
Portfolio -- $2,705, $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 $11,417, $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 $0. 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 the National Municipal Bond
Portfolio of $0. Of these amounts, the Distributor retained $126, $784 and
$3,318, respectively, and MVA and affiliates retained $385, $2,101 and $10,456,
respectively, with respect to the U.S. Government Securities Portfolio; the
Distributor retained $0, $1,354 and $1,720, respectively, and MVA and affiliates
retained $3535, $8,711 and $5,834, respectively, with respect to the Government
& Corporate Bond Portfolio; the Distributor retained $416, $6,400 and $13,608,
respectively, and MVA and affiliates retained $5850, $9,735 and $8,954,
respectively, with respect to the Missouri Tax-Exempt Bond Portfolio; the
Distributor retained $1850, $11,647 and $11,846, respectively, and MVA and
affiliates retained $27,769, $27,761 and $21,021, respectively, with respect to
the Growth & Income Equity Portfolio; the Distributor retained $192, $7,085 and
$10,476 respectively, and MVA and affiliates retained $10,277, $15,259 and
$22,854 with respect to Small Cap Equity Portfolio; the Distributor retained
$92, $871 and $3,466, respectively, and MVA and affiliates retained $1,311,
$2,721 and $8,755, respectively, with respect to the Balanced Portfolio; the
Distributor retained $1, $1,626 and $1,441, respectively, and MVA and affiliates
retained $8226, $5,431 and $1,952, respectively, with respect to the
International Equity Portfolio; the Distributor retained $0 and $0,
respectively, and MVA and affiliates retained $0 and $0, respectively, with
respect to the Short-Intermediate Municipal Portfolio; and the Distributor
retained $0 and MVA and affiliates retained $0 with respect to the National
Municipal Bond Portfolio.
The Distributor is also entitled to the payment of contingent
deferred sales charges upon the redemption of Investor B Shares of the
Portfolios. For the fiscal year ended November 30, 1996 and the period from
March 1, 1995 (date of
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<PAGE> 129
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 -- $0 and $0; U.S. Government
Securities Portfolio -- $3,640 and $135; Government and Corporate Bond Portfolio
- -- $4,258 and $1,246; Missouri Tax-Exempt Bond Portfolio -- $1,763 and $7;
Growth and Income Equity Portfolio -- $30,345 and $209; Small Cap Equity
Portfolio -- $7,267 and $253; International Equity Portfolio -- $5763 and $0;
and Balanced Portfolio -- $1,216. For the period November 18, 1996 (commencement
of operations) through November 30, 1996, the Distributor received $0 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 $ 0.00 $ 0.00 $ 0.00 $ 0.00
Market
Money Market $ 0.00 $416.00 $ 0.00 $ 0.00
Tax-Exempt Money $ 0.00 $ 0.00 $ 0.00 $ 0.00
Market
U.S. Government $125.99 $ 0.00 $125.99 $ 0.00
Securities
Government & $ 0.00 $ 10.78 $ 0.00 $171.00
Corporate Bond
Short-Intermediate $ 0.00 $ 0.00 $ 0.00 $ 0.00
Municipal
Missouri Tax- $416.00 $ 0.00 $416.00 $968.00
Exempt Bond
National Municipal $ 0.00 $ 0.00 $ 0.00 $ 0.00
Bond
</TABLE>
-82-
<PAGE> 130
<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>
Growth & Income $1850.34 $729.33 $1,850.34 $2,343.00
Income Equity
Small Cap Equity $ 192.00 $ 73.77 $ 192.00 $1,453.00
International $ 1.00 $ 3.92 $ 1.00 $1,105.00
Equity
Balanced $ 92.00 $ 21.56 $ 92.00 $ 235.00
</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 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
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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 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
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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>
Tax-Exempt Money Market $ 24,086 $ 0 $0 $ 1,266
Treasury Money Market $ 9,337 $ 0 $0 $ 1,627
Money Market $177,403 $ 0 $0 $ 15,254
Government & Corporate Bond $ 15,982 $ 171 $0 $ 13,764
Missouri Tax-Exempt Bond $ 49,325 $ 968 $0 $ 25,344
National Municipal Bond $ 0 $ 0 $0 $ 0
Growth & Income Equity $ 93,577 $2,342 $0 $ 57,505
</TABLE>
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<PAGE> 133
<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>
Small Cap Equity $40,775 $1,453 $0 $21,908
International Equity $ 6,144 $1,105 $0 $ 2,047
Balanced $24,704 $ 235 $0 $19,050
U.S. Government Securities $22,999 $ 449 $0 $18,329
</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:
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<PAGE> 134
DISTRIBUTION AND SERVICES PLAN - INVESTOR B SHARES
<TABLE>
<CAPTION>
AMOUNT PAID AMOUNT PAID
TOTAL TO THE AMOUNT PAID TO AFFILIATES
PORTFOLIOS CHARGED DISTRIBUTOR TO MVA OF MVA
- ---------- ------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Treasury Money Market $ 0 $0 $0 $ 0
Money Market $ 928 $0 $0 $ 928
Tax-Exempt Money Market $ 0 $0 $0 $ 0
U.S. Government $ 2,321 $0 $0 $ 2,321
Securities
Government & Corporate $ 3,184 $0 $0 $ 3,184
Bond
Short-Intermediate $ 0 $0 $0 $ 0
Municipal
Missouri Tax-Exempt Bond $ 5,815 $0 $0 $ 5,815
National Municipal Bond $ 0 $0 $0 $ 0
Growth & Income Equity $20,870 $0 $0 $20,870
Small Cap Equity $ 9,440 $0 $0 $ 9,440
International Equity $ 2,543 $0 $0 $ 2,543
Balanced $ 1,988 $0 $0 $ 1,988
</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 $151,479 $0 $0 $151,479
Money Market $565,091 $0 $0 $517,174
Tax-Exempt Money Market $ 19,823 $0 $0 $ 19,823
U.S. Government Securities $ 0 $0 $0 $ 0
Government & Corporate Bond $ 157 $0 $0 $ 157
</TABLE>
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<PAGE> 135
<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>
Short-Intermediate Municipal $ 0 $0 $0 $ 0
Missouri Tax-Exempt Bond $ 0 $0 $0 $ 0
National Municipal Bond $ 0 $0 $0 $ 0
Growth & Income Equity $ 0 $0 $0 $ 0
Small Cap Equity $ 0 $0 $0 $ 0
International Equity $ 0 $0 $0 $ 0
Balanced $ 0 $0 $0 $ 40
</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 $ 1,103 $0 $0 $ 13,166
Money Market $ 49,165 $0 $0 $ 49,165
U.S. Government Securities $ 4,441 $0 $0 $ 4,441
Government & Corporate Bond $ 34,976 $0 $0 $ 34,976
Growth & Income Equity $157,199 $0 $0 $157,199
Small Cap Equity $ 66,514 $0 $0 $ 66,514
International Equity $ 11,858 $0 $0 $ 11,858
Balanced $133,969 $0 $0 133,969
</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
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<PAGE> 136
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 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
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connection with the provision of services on behalf of the Portfolios and their
shareholders, the Fund might be required to alter materially or discontinue its
arrangements with such companies and change its method of operation. It is not
expected that investors would suffer any adverse financial consequences as a
result of any of these occurrences.
If current restrictions preventing a bank from legally sponsoring,
organizing, controlling or distributing Shares of an investment company were
relaxed, Mercantile or an affiliate of Mercantile, would consider the
possibility of offering to perform additional services for the Portfolios. It is
not possible, of course, to predict whether or in what form such legislation
might be enacted or the terms upon which Mercantile, or such an affiliate, might
offer to provide such services.
Conflict of interest restrictions may apply to the receipt of
compensation paid pursuant to a Servicing Agreement by a Portfolio to a
financial intermediary in connection with the investment of fiduciary funds in a
Portfolio's Shares. 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, KPMG
Peat Marwick, LLP, certified public accountants, with offices at Two Nationwide
Plaza, Columbus, Ohio 43215-2577 served as independent auditors for the Fund.
KPMG Peat Marwick LLP performs an annual audit of the Fund's financial
statements. Reports of its activities are provided to the Fund's Board of
Directors. The financial statements dated November 30, 1996, which are
incorporated by reference into this Statement of Additional Information, have
been audited by KPMG Peat Marwick LLP, whose report thereon is incorporated
herein by reference.
COUNSEL
Drinker Biddle & Reath LLP (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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MISCELLANEOUS
As of August 2, 1997, Mercantile held of record 99.997% and
35.798% of the outstanding Institutional and Trust shares, respectively, in the
Treasury Money Market Portfolio; 99.999% and 35.408% of the outstanding
Institutional and Trust shares, respectively, in the Money Market Portfolio;
77.446% of the outstanding Trust shares in the Tax-Exempt Money Market
Portfolio; 96.518% and 94.911% of the outstanding Institutional and Trust
shares, respectively, in the U.S. Government Securities Portfolio; 95.031% of
the outstanding Trust shares in the Intermediate Corporate Bond Portfolio;
99.999% and 98.899% of the outstanding Institutional and Trust shares,
respectively, in the Government & Corporate Bond Portfolio; 96.475% of the
outstanding Trust shares in the Short-Intermediate Municipal Portfolio; 97.841%
of the outstanding Trust shares in the Missouri Tax-Exempt Bond Portfolio;
99.882% of the outstanding Trust shares in the National Municipal Bond
Portfolio; 99.999% and 96.039% of the outstanding Institutional and Trust
shares, respectively, in the Growth & Income Equity Portfolio; 99.999% and
48.640% of the outstanding Institutional and Trust shares, respectively, in the
Small Cap Equity Portfolio; 96.429% and 99.799% of the outstanding Institutional
and Trust shares, respectively, in the International Equity Portfolio; 98.071%
of the outstanding Trust shares in the Equity Income Portfolio; 98.863% of the
outstanding Trust shares in the Bond Index Portfolio; 99.544% of the outstanding
Trust shares in the Equity Index Portfolio and 99.999% and 99.844% 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: Trust Shares - Hawaiian Trust
Company Ltd., 783 Funds Accounting, P.O. Box 3170, Honolulu, HI 96802-3170
(7.831%); BISYS Fund Services, Att: Linda Zerbe, First and Market Building,
Suite 300, Pittsburgh, PA 15222 (45.159%); Investor A Shares - National
Financial Services Corp., 1 World Financial Center, 200 Liberty St., 5th Floor,
New York, NY 10281 (61.519%); Mercantile Bank of St. Louis, NA Custodian Richard
E. Crippa, Rollover IRA, 2948 Castleford Dr., Florissant, MO 63033- 0000
(7.536%); St. Louis Regional Medical Center, Attn: Sharon Edison, 5535 Delmar
Blvd., St. Louis, MO 63112 (24.461%).
As of the same date, the following institutions also owned of
record 5% or more of the Money Market Portfolio's
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outstanding shares as fiduciary or agent on behalf of their customers: Trust
Shares - Hawaiian Trust Company Ltd., 783 Funds Accounting, P.O. Box 3170,
Honolulu, HI 96802-3170 (9.943%); BISYS Fund Services, Att: Linda Zerbe, First
and Market Building, Suite 300, Pittsburgh, PA 15222 (32.181%); Investor A
Shares - National Financial Services Corp., 1 World Financial Center, 200
Liberty St., 5th Floor, New York, NY 10281 (93.148%); Investor B Shares -
Mercantile Bank of St. Louis, NA Custodian Pheba A. Steinmeyer, IRA, HC 3 Box
1266, Rocky Mt., MO 65072-9042 (5.626%); Alberta Buenemann and Ernie W.
Buenemann Trust, Alberta Buenemann Revocable Living Trust, 1649 Sand Run Road,
Troy, MO 63379 (7.560%); Mercantile Bank of St. Louis, NA Custodian Wayne D.
Matheis, Rollover IRA, RR 2 Box 142, Russellville, MO 65074 (12.275%); Merlin R.
Burke and Mary Alice Burke, 2516 Highland, Sedalia, MO 65301 (5.267%);
Mercantile Bank of St. Louis, NA Custodian Edwin C. Hogrebe, IRA, 5537 Goethe,
St. Louis, MO 63109 (5.066%); Homer R. Turner and Edna M. Turner Trust, Edna M.
Turner Trust, 33409 E. Pink Hill Rd., Grain Valley, MO 64029 (8.033%).
As of the same date, the following institutions also owned of
record 5% or more of the Tax-Exempt Money Market Portfolio's outstanding shares
as fiduciary or agent on behalf of their customers: Trust Shares - Mark Twain
Bank, Trust Operations, P.O. Box 14259 A, St. Louis, MO 63178 (5.737%); BISYS
Fund Services, Att: Linda Zerbe, First and Market Building, Suite 300,
Pittsburgh, PA 15222 (8.411%); Investor A Shares - National Financial Services
Corp., 1 World Financial Center, 200 Liberty St., 5th Floor, New York, NY 10281
(98.114%).
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: Investor A Shares -
Mercantile Bank of St. Louis, NA Custodian Edmund C. Albrecht, Jr., IRA, 236
Carlyle Lake Dr., St. Louis, MO 63141 (6.212%); Mercantile Bank of St. Louis, NA
Custodian William J. Gaffney, IRA Rollover, 1424 Bopp Rd., St. Louis, MO 63131
(5.172%); Investor B Shares - BHC Securities Inc., FAO 24269197, Attn: Mutual
Funds Dept., 1 Commerce Square, 2005 Market St., Suite 1200, Philadelphia, PA
19103 (12.597%); NFSC, FEBO M22-050270, IRA, Patricia J. Vonder, 4022 Ave. F.,
St. Louis, MO 63123 (5.584%); NFSC, FEBO M22-109274, Esther E. Cantley, Rt. 3,
Box 692, Cabool, MO 65689 (6.943%); NFSC, FEBO M26-042811, Glenda Kay Atkins,
508 Grand Ave., Forest City, MO 64451 (10.790%).
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: Institutional Shares
- - BISYS Fund Services OH
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Inc., Attn: Admin. & Regulatory Services, 3435 Stelzer Rd., Columbus, OH 43219
(100.00%); Investor A Shares - Gary E. Timmons, P.O. Box 3149, Laredo, TX 78044
(9.775%); Jill Larson, 27165 Pinario, Mission Viejo, CA 92692-3204 (9.775%);
George Gregory Timmons, 1332 E. Desert Ct., Phoenix, AZ 85020 (9.775%); Betty
Jane Eckhart, Trust Betty Jane Eckhart, 28265 Beech Rd., Sarcoxie, MO 64862
(32.809%); Lynn C. Prescott, c/o Paine Webber Inc., 102 S. Tejon Ste. 900,
Colorado Springs, CO 80903 (32.574%).
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: Institutional Shares - BISYS Fund
Services OH Inc., Attn: Admin. & Regulatory Services, 3435 Stelzer Rd.,
Columbus, OH 43219 (100.00%); Investor A Shares - Mary Helen Schaeffer, 5801
Quantrell Ave., No. L3, Alexandria, VA 22312 (12.815%); Thomas Young, Trust
Beatrice Young, 9204 Roger Lee Ln., St. Louis, MO 63126 (53.328%); Thomas Young,
Trust Henry Young, 9204 Roger Lee Ln., St. Louis, MO 63126 (30.186%).
As of the same date, the following institutions also owned of
record 5% or more of the Government & Corporate Bond Portfolio's outstanding
shares as fiduciary or agent on behalf of their customers: Investor A Shares -
Mercantile Bank of St. Louis, NA Custodian Eugene F. Tucker, IRA Rollover, 70
Berkshire, St. Louis, MO 63117 (6.072%); Investor B Shares - Mercantile Bank of
St. Louis, NA Custodian Gerald C. Pasch, IRA, 2817 Duncan, St. Joseph, MO 64507
(5.580%); Mercantile Bank of St. Louis, NA Custodian Wayne D. Matheis, Rollover
IRA, RR 2 Box 142, Russelville, MO 65074 (7.180%); NFSC, FEBO M22-038792, Alvia
Borgard, Michael A. Borgard, 1502 Tapping Rd., Town and Country, MO 63131
(10.632%); NFSC, FEBO M22-050563, Carl S. Jackson, Steven J. Jackson, 3016
Sunset Dr., Apt. B, Carbondale, IL 62901 (5.819%); NFSC, FEBO M26-040169, Lewis
D. Kelly, Leola F. Kelly, 527 N. Ellsworth Ave., Marshall, MO 65340 (5.021%).
As of the same date, the following institutions also owned of
record 5% or more of the Short-Intermediate Municipal Bond Portfolio's
outstanding shares as fiduciary or agent on behalf of their customers: Investor
A Shares - Lane P. Baker and Madelynn A. Baker, P.O. Box 979, Essex, CT
06426-0000 (93.409%); James Sutten, P.O. Box 2465, Inverness, FL 34451 (6.525%).
As of the same date, the following institutions also owned of
record 5% or more of the Missouri Tax-Exempt Bond Portfolio's outstanding shares
as fiduciary or agent on behalf of their customers: Investor B Shares - Corelink
Financial, Inc., P.O. Box 4054, Concord, CA 94524 (45.133%); NFSC, FEBO
M22-036374, Laura May Young, 427 Cliffside Dr., St. Louis, MO
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<PAGE> 141
63122 (8.793%); NFSC, FEBO M22-093050, Susan J. Wells, Robert S. Souza, 7820
Gannon Ave., St. Louis, MO 63130 (5.289%).
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: Investor A Shares - Lane P.
Baker and Madelynn A. Baker, P.O. Box 979, Essex, CT 06426-0000 (8.675%); Gail
P. Ruga, 207 Aintree Rd., Rolla, MO 65401 (19.674%); Kim P. Wheeler, Stifel
Nicolaus & Co., Inc., 500 North Broadway, St. Louis, MO 63102 (19.674%); Merrill
Lynch Pierce, Fenner & Smith, James M. Jenkins, Att: Stock Powers, 4800 Deer
Lake Dr. East, 2nd Floor, Jacksonville, FL 32246 (18.802%); NFSC FEBO
M27-045063, Eleanor R. Strain, 33 Log Cabin Dr., St. Louis, MO 63124 (9.529%);
NFSC, FEBO M22-119300, Elisabeth M. Goelz, 5 Gerald Ln., Belleville, MO 63223
(13.123%); Investor B Shares - Corelink Financial Inc., P.O. Box 4054, Concord,
CA 94524 (45.072%); NFSC, FEBO M22-988642, Ronald E. Ryan, Marian H. Ryan, 875
Glen Elm Dr., St. Louis, MO (53.506%).
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: Institutional Shares - BISYS
Fund Services OH Inc., Attn: Admin. & Regulatory Services, 3435 Stelzer Rd.,
Columbus, OH 43219 (100.00%); Investor A Shares - Betty Jane Eckhart, Trust
Betty Jane Eckhart, 28265 Beech Rd., Sarcoxie, MO 64862 (28.236%); Lynn C.
Prescott, c/o Paine Webber, Inc., 102 S. Tejon Ste. 900, Colorado Springs, CO
80903 (28.200%); Thomas Young, Trust Beatrice Young, 9204 Roger Lee Ln., St.
Louis, MO 63126 (21.081%); Thomas Young, Trust Thomas Young, 9204 Roger Lee Ln.,
St. Louis, MO 63126 (13.012%); Investor B Shares - BISYS Fund Services OH, Inc.,
Attn: Admin. & Regulatory Services, 3435 Stelzer Rd., Columbus, OH 43219
(14.751%); Corelink Financial Inc., P.O. Box 4054, Concord, CA 94524 (85.248%).
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: Institutional Shares - BISYS
Fund Services, Att: Admin. & Regulatory Services, 3435 Stelzer Rd., Columbus, OH
43219 (100.000%); Investor A Shares - NFSC, FEBO M22-108910, Daniel J. Pierron,
1531 Washington 3F, St. Louis, MO 63013 (49.620%); NFSC, FEBO M22-026204, Robert
L. Nussbaumer, IRA, 9021 Rock Forest Dr., St. Louis, MO 63123 (20.836%); NFSC,
FEBO M23-999598, Randy R. Hamill, Carol K. Hamill, 9333 W. MacArthur, Wichita,
KS 67215 (7.126%); NFSC, FEBO M22-042951, Louis P. Vetere, 6317 Southwood 3W,
St. Louis, MO 63105 (15.905%).
As of the same date, the following institutions also owned of
record 5% or more of the Small Cap Equity Portfolio's
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outstanding shares as fiduciary or agent on behalf of their customers: Trust
Shares - State Street Bank & Trust Co., Trust Pioneer Hi-Bred International
Savings Plan Trust, 1 Enterprise Dr., Mail Stop D13, North Quincy, MA 02171
(17.518%); American Bar Endowment, 750 N. Lake Shore Dr., Chicago, IL 60611
(7.043%); The Northern Trust Co., Trust Carpenters Pension Trust Fund, Att:
Mutual Fund, P.O. Box 92956, Chicago, IL 60675 (7.552%).
As of the same date, the following institutions also owned of
record 5% or more of the International Equity Portfolio's outstanding shares as
fiduciary or agent on behalf of their customers: Investor A Shares - Frances
Dakers, 200 E. 89th St. 28D, New York, NY 10128 (12.314%).
As of the same date, the following institutions also owned of
record 5% or more of the Balanced Portfolio's outstanding share as fiduciary or
agent on behalf of their customers: Investor A Shares - Mercantile Bank of St.
Louis, NA Custodian Robert W. Davis, Rollover IRA, 818 Broadway, Elsberry, MO
63343 (5.602%); Investor B Shares - Mercantile Bank of St. Louis, NA Custodian
Edmund Frances Codr, Rollover IRA, 2820 S. 42nd St., St. Joseph, MO 64503
(5.582%); Mercantile Bank of St. Louis, NA Custodian Richard Dell Woods, SEP
IRA, 3114 Pickett Rd., St. Joseph, MO 64503 (7.099%); Mercantile Bank of St.
Louis, NA Custodian Gerald C. Pasch, IRA, 2817 Duncan, St. Joseph, MO 64507
(5.868%); NFSC, FEBO M22-030490, Loren D. Salmons, 7 Ranchero Dr., St. Charles,
MO 63303 (6.203%); NFSC, FEBO M24-023507, Louis Stortenbecker Sr., RR 3, Box
158, Council Bluffs, IA 51503 (10.496%).
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 Semi-Annual Report to Shareholders for the period
ended May 31, 1997 has been filed with the Securities and Exchange Commission.
The financial statements in such Semi-Annual Report, which are unaudited, are
incorporated herein by reference.
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 incorporated by reference into this Statement of
Additional Information. The
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Financial Statements included in such Annual Report have been audited by the
Fund's independent accountants, KPMG Peat Marwick LLP, whose report thereon also
appears in such Annual Report and is incorporated herein by reference. The
Financial Statements in such Annual Report have been incorporated herein in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
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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.
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"Prime-2" - Issuer or related supporting institutions are
considered to have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics
cited above but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternative liquidity is maintained.
"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and the requirement for relatively
high financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the Prime
rating categories.
The three rating categories of Duff & Phelps for investment
grade commercial paper and short-term debt are "D-1," "D-2" and "D-3." Duff &
Phelps employs three designations, "D-1+," "D-1" and "D-1-," within the highest
rating category. The following summarizes the rating categories used by Duff &
Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment.
Liquidity factors are strong and supported by good fundamental protection
factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing funding
needs may enlarge total financing requirements, access to capital markets is
good. Risk factors are small.
"D-3" - Debt possesses satisfactory liquidity, and other
protection factors qualify issue as investment grade. Risk
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factors are larger and subject to more variation. Nevertheless, timely payment
is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch short-term ratings apply to debt obligations that are
payable on demand or have original maturities of up to three years. The
following summarizes the rating categories used by Fitch for short-term
obligations:
"F-1+" - Securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly less
in degree than issues rated "F-1+."
"F-2" - Securities possess good credit quality. Issues
assigned this rating have a satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as the "F-1+" and "F-1" categories.
"F-3" - Securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
"F-S" - Securities possess weak credit quality. Issues
assigned this rating have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
"D" - Securities are in actual or imminent payment default.
Fitch may also use the symbol "LOC" with its short-term
ratings to indicate that the rating is based upon a letter of credit issued by a
commercial bank.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely or incomplete payment of principal or
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interest of unsubordinated instruments having a maturity of one year or less
which is issued by United States commercial banks, thrifts and non-bank banks;
non-United States banks; and broker-dealers. The following summarizes the
ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest rating category and indicates a very high degree of likelihood that
principal and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of
safety regarding timely payment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment
grade category and indicates that while the debt is more susceptible to adverse
developments (both internal and external) than obligations with higher ratings,
capacity to service principal and interest in a timely fashion is considered
adequate.
"TBW-4" - This designation indicates that the debt is regarded
as non-investment grade and therefore speculative.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1+" - Obligations supported by the highest capacity for
timely repayment.
"A1" - Obligations are supported by a strong capacity for
timely repayment.
"A2" - Obligations are supported by a satisfactory capacity
for timely repayment, although such capacity may be susceptible to adverse
changes in business, economic or financial conditions.
"A3" - Obligations are supported by a satisfactory capacity
for timely repayment. Such capacity is more susceptible to adverse changes in
business, economic or financial conditions than for obligations in higher
categories.
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"B" - Obligations for which the capacity for timely repayment
is susceptible to adverse changes in business, economic or financial conditions.
"C" - Obligations for which there is an inadequate capacity to
ensure timely repayment.
"D" - Obligations which have a high risk of default or which
are currently in default.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - This designation represents the highest rating
assigned by Standard & Poor's to a debt obligation and indicates an extremely
strong capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to
pay interest and repay principal and differs from AAA issues only in small
degree.
"A" - Debt is considered to have a strong capacity to pay
interest and repay principal although such issues are somewhat more susceptible
to the adverse effects of changes in circumstances and economic conditions than
debt in higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
"BB" - Debt has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The "BB"
rating
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category is also used for debt subordinated to senior debt that is assigned an
actual or implied "BBB-" rating.
"B" - Debt has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
"CCC" - Debt has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial or economic conditions, it is not likely to
have the capacity to pay interest and repay principal. The "CCC" rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied "B" or "B-" rating.
"CC" - This rating is typically applied to debt subordinated
to senior debt that is assigned an actual or implied "CCC" rating.
"C" - This rating is typically applied to debt subordinated to
senior debt which is assigned an actual or implied "CCC-" debt rating. The "C"
rating may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
"CI" - This rating is reserved for income bonds on which no
interest is being paid.
"D" - Debt is in payment default. This rating is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S & P believes such payments
will be made during such grace period. "D" rating is also used upon the filing
of a bankruptcy petition if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC"
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
"r" - This rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high volatility
or high variability in expected returns due to non-credit risks. Examples of
such obligations are: securities whose principal or interest return is indexed
to equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities.
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The following summarizes the ratings used by Moody's for corporate and
municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Aa" - Bonds are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of
these ratings provide questionable protection of interest and principal ("Ba"
indicates some speculative elements; "B" indicates a general lack of
characteristics of desirable investment; "Caa" represents a poor standing; "Ca"
represents obligations which are speculative in a high degree; and "C"
represents the lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in
default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience, (c)
rentals which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes
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probable credit stature upon completion of construction or elimination of basis
of condition.
Moody's applies numerical modifiers 1, 2 and 3 in each generic
classification from "Aa" to "B" in its bond rating system. The modifier 1
indicates that the issuer ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issuer ranks at the lower end of its generic rating category.
The following summarizes the long-term debt ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but
such protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when due.
Debt rated "B" possesses the risk that obligations will not be met when due.
Debt rated "CCC" is well below investment grade and has considerable uncertainty
as to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by
Fitch for corporate and municipal bonds:
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"AAA" - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated "F-1+."
"A" - Bonds considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
"BB," "B," "CCC," "CC," "C," "DDD," "DD," and "D" Bonds that
possess one of these ratings are considered by Fitch to be speculative
investments. The ratings "BB" to "C" represent Fitch's assessment of the
likelihood of timely payment of principal and interest in accordance with the
terms of obligation for bond issues not in default. For defaulted bonds, the
rating "DDD" to "D" is an assessment of the ultimate recovery value through
reorganization or liquidation.
To provide more detailed indications of credit quality, the
Fitch ratings from and including "AA" to "C" may be modified by the addition of
a plus (+) or minus (-) sign to show relative standing within these major rating
categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation
of investment risk. Capacity for timely repayment of
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principal and interest is substantial such that adverse changes in business,
economic or financial conditions are unlikely to increase investment risk
substantially.
"AA" - Obligations for which there is a very low expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions may
increase investment risk albeit not very significantly.
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial conditions
may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk than
for obligations in higher categories.
"BB," "B," "CCC," "CC," and "C" - Obligations are assigned one
of these ratings where it is considered that speculative characteristics are
present. "BB" represents the lowest degree of speculation and indicates a
possibility of investment risk developing. "C" represents the highest degree of
speculation and indicates that the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating
to denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term debt
and preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; 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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incremental risk compared to issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BBB" - This designation represents Thomson BankWatch's lowest
investment grade category and indicates an acceptable capacity to repay
principal and interest. Issues rated "BBB" are, however, more vulnerable to
adverse developments (both internal and external) than obligations with higher
ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit very
strong or strong capacity to pay principal and interest. Those issues determined
to possess overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable
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Moody's Investment Grade ("VMIG"). Such ratings recognize the differences
between short-term credit risk and long-term risk. The following summarizes the
ratings by Moody's Investors Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the
best quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high
quality, with margins of protection ample although not so large as in the
preceding group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of
favorable quality, with all security elements accounted for but lacking the
undeniable strength of the preceding grades. Liquidity and cash flow protection
may be narrow and market access for refinancing is likely to be less well
established.
"MIG-4"/"VMIG-4" - Loans bearing this designation are of
adequate quality, carrying specific risk but having protection commonly regarded
as required of an investment security and not distinctly or predominantly
speculative.
"SG" - Loans bearing this designation are of speculative
quality and lack margins of protection.
Fitch and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
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APPENDIX B
The 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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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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II. Stock Index Futures Contracts.
A stock index assigns relative values to the stocks included
in the index and the index fluctuates with changes in the market values of the
stocks included. Some stock index futures contracts are based on broad market
indexes, such as the Standard & Poor's 500 or the New York Stock Exchange
Composite Index. In contrast, certain exchanges offer futures contracts on
narrower market indexes, such as the Standard & Poor's 100 or indexes based on
an industry or market segment, such as oil and gas stocks. Futures contracts are
traded on organized exchanges regulated by the Commodity Futures Trading
Commission. Transactions on such exchanges are cleared through a clearing
corporation, which guarantees the performance of the parties to each contract.
A Portfolio will sell stock index futures contracts in order
to offset a decrease in market value of its portfolio securities that might
otherwise result from a market decline. The Portfolio may do so either to hedge
the value of its portfolio as a whole, or to protect against declines, occurring
prior to sales of securities, in the value of the securities to be sold.
Conversely, the Portfolio will purchase stock index futures contracts in
anticipation of purchases of securities. In a substantial majority of these
transactions, the Portfolio will purchase such securities upon termination of
the long futures position, but a long futures position may be terminated without
a corresponding purchase of securities.
In addition, the Portfolio may utilize stock index futures
contracts in anticipation of changes in the composition of its portfolio
holdings. For example, in the event that the Portfolio expects to narrow the
range of industry groups represented in its holdings it may, prior to making
purchases of the actual securities, establish a long futures position based on a
more restricted index, such as an index comprised of securities of a particular
industry group. The Portfolio may also sell futures contracts in connection with
this strategy, in order to protect against the possibility that the value of the
securities to be sold as part of the restructuring of the portfolio will decline
prior to the time of sale.
III. Futures Contracts on Foreign Currencies.
A futures contract on foreign currency creates a binding
obligation on one party to deliver, and a corresponding obligation on another
party to accept delivery of, a stated quantity of a foreign currency, for an
amount fixed in U.S. dollars. Foreign currency futures may be used by a
Portfolio to hedge against exposure to fluctuations in exchange
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rates between the U.S. dollar and other currencies arising from multi-national
transactions.
IV. Margin Payments.
Unlike when a Portfolio purchases or sells a security, no
price is paid or received by the Portfolio upon the purchase or sale of a
futures contract. Initially, the Portfolio will be required to deposit with the
broker or in a segregated account with the Fund's custodian an amount of cash or
cash equivalents, the value of which may vary but is generally equal to 10% or
less of the value of the contract. This amount is known as initial margin. The
nature of initial margin in futures transactions is different from that of
margin in security transactions in that futures contract margin does not involve
the borrowing of funds by the customer to finance the transactions. Rather, the
initial margin is in the nature of a performance bond or good faith deposit on
the contract which is returned to the Portfolio upon termination of the futures
contract assuming all contractual obligations have been satisfied. Subsequent
payments, called variation margin, to and from the broker, will be made on a
daily basis as the price of the underlying instruments fluctuates making the
long and short positions in the futures contract more or less valuable, a
process known as marking-to-market. For example, when a Portfolio has purchased
a futures contract and the price of the contract has risen in response to a rise
in the underlying instruments, that position will have increased in value and
the Portfolio will be entitled to receive from the broker a variation margin
payment equal to that increase in value. Conversely, where a Portfolio has
purchased a futures contract and the price of the future contract has declined
in response to a decrease in the underlying instruments, the position would be
less valuable and the Portfolio would be required to make a variation margin
payment to the broker. At any time prior to expiration of the futures contract,
the adviser may elect to close the position by taking an opposite position,
subject to the availability of a secondary market, which will operate to
terminate the Portfolio's position in the futures contract. A final
determination of variation margin is then made, additional cash is required to
be paid by or released to the Portfolio, and the Portfolio realizes a loss or
gain.
V. Other Hedging Transactions.
Although noted above, none of the Portfolios presently intend
to use interest rate futures contracts and stock index and foreign currency
futures contracts (and related options) in connection with their hedging
activities. Nevertheless, each of these Portfolios is authorized to enter into
hedging transactions in any other futures or options
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contracts which are currently traded or which may subsequently become available
for trading. Such instruments may be employed in connection with the Portfolios'
hedging strategies if, in the judgment of the adviser, transactions therein are
necessary or advisable.
VI. Accounting Treatment.
Accounting for futures contracts and options will be in
accordance with generally accepted accounting principles.
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