<PAGE> 1
As filed with the Securities and Exchange Commission on January 30, 1998
Registration No. 2-79285/811-3567
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
POST-EFFECTIVE AMENDMENT NO. 43
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
AMENDMENT NO. 44
THE ARCH FUND, INC.
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road
Columbus, Ohio 43219
(Address of Principal Executive Offices)
Registrant's Telephone Number: (800) 551-3731
W. BRUCE MCCONNEL, III, Esq.
Drinker Biddle & Reath LLP
1100 Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
(Name and Address of Agent for Service)
Copy to:
Jon W. Bilstrom, Esq.
Mercantile Bank of St. Louis N.A.
One Mercantile Center
8th and Washington Streets
St. Louis, MO 63101
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/x/ 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Title of Securities Being Registered. . . . Shares of common stock
<PAGE> 2
CROSS REFERENCE SHEET
(Trust Shares)
The ARCH Treasury Money Market Portfolio
The ARCH Money Market Portfolio
The ARCH Tax-Exempt Money Market Portfolio
The ARCH U.S. Government Securities Portfolio
The ARCH Intermediate Corporate Bond Portfolio
The ARCH Bond Index Portfolio
The ARCH Government & Corporate Bond Portfolio
The ARCH Short-Intermediate Municipal Portfolio
The ARCH Missouri Tax-Exempt Bond Portfolio
The ARCH National Municipal Bond Portfolio
The ARCH Equity Income Portfolio
The ARCH Equity Index Portfolio
The ARCH Growth & Income Equity Portfolio
The ARCH Growth Equity Portfolio
The ARCH Small Cap Equity Portfolio
The ARCH Small Cap Equity Index Portfolio
The ARCH International Equity Portfolio
The ARCH Balanced Portfolio
<TABLE>
<CAPTION>
Form N-1A Part A Item Prospectus
- --------------------- ----------
Caption
-------
<S> <C>
1. Cover Page.................................................... Cover Page
2. Synopsis...................................................... Expense Summary
for Trust Shares
3. Condensed Financial
Information................................................. Certain Financial
Information;
Financial
Highlights; Yields
and Total
Returns
4. General Description
of Registrant............................................... Highlights;
Investment
Objectives, Policies
and Risk
Considerations;
Other Information
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Concerning
the Fund
and Its
Shares
5. Management of the Fund............................... Management of the
Fund
5A. Management's Discussion of
Fund Performance................................... Inapplicable
6. Capital Stock and
Other Securities................................... How to Purchase and
Redeem Shares;
Dividends
and Distributions;
Taxes; Other
Information
Concerning the Fund
and Its Shares
7. Purchase of Securities
Being Offered...................................... How to Purchase and
Redeem Shares
8. Redemption or Repurchase............................. How to Purchase and
Redeem Shares
9. Pending Legal Proceedings............................ Inapplicable
</TABLE>
<PAGE> 4
THE ARCH FAMILY
OF MUTUAL FUNDS
TRUST SHARES
MONEY MARKET PORTFOLIOS
TREASURY MONEY MARKET PORTFOLIO
MONEY MARKET PORTFOLIO
TAX-EXEMPT MONEY MARKET PORTFOLIO
TAXABLE BOND PORTFOLIOS
U.S. GOVERNMENT SECURITIES PORTFOLIO
INTERMEDIATE CORPORATE BOND PORTFOLIO
BOND INDEX PORTFOLIO
GOVERNMENT & CORPORATE BOND PORTFOLIO
TAX-EXEMPT BOND PORTFOLIOS
SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
MISSOURI TAX-EXEMPT BOND PORTFOLIO
NATIONAL MUNICIPAL BOND PORTFOLIO
EQUITY PORTFOLIOS
EQUITY INCOME PORTFOLIO
EQUITY INDEX PORTFOLIO
GROWTH & INCOME EQUITY PORTFOLIO
GROWTH EQUITY PORTFOLIO
SMALL CAP EQUITY PORTFOLIO
SMALL CAP EQUITY INDEX PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIO
BALANCED PORTFOLIO
PROSPECTUS DATED ________, 1998
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Highlights...................................................................
Certain Financial Information................................................
Expense Summary for Trust Shares.............................................
Financial Highlights.........................................................
Investment Objectives, Policies and Risk Considerations......................
Pricing of Shares............................................................
The Money Market Portfolios..............................................
The Equity and Bond Portfolios...........................................
How to Purchase and Redeem Shares............................................
Purchase of Shares .....................................................
Purchase of Shares -- The Money Market Portfolios........................
Purchase of Shares -- The Equity and Bond Portfolios.....................
Exchanges................................................................
Redemption of Shares.....................................................
Yields and Total Returns.....................................................
Dividends and Distributions..................................................
Taxes........................................................................
Management of the Fund.......................................................
Other Information Concerning the Fund and its Shares.........................
</TABLE>
<PAGE> 6
THE ARCH FUND(R), INC.
TRUST SHARES
________, 1998
The ARCH Fund, Inc. is an open-end, management investment company that
currently offers Shares in eighteen investment portfolios. This Prospectus
describes the Trust Shares in each of those portfolios. Trust Shares are offered
to financial institutions acting on their own behalf or on behalf of
discretionary and non-discretionary accounts for which they may receive
account-level asset-based management fees.
THE ARCH TREASURY MONEY MARKET PORTFOLIO'S investment objective is to
seek a high level of current income exempt from state income tax consistent with
liquidity and security of principal.
THE ARCH MONEY MARKET PORTFOLIO'S investment objective is to seek
current income with liquidity and stability of principal.
THE ARCH TAX-EXEMPT MONEY MARKET PORTFOLIO'S investment objective is to
seek as high a level of current interest income exempt from federal income tax
as is consistent with liquidity and stability of principal.
THE ARCH U.S. GOVERNMENT SECURITIES PORTFOLIO'S investment objective is
to seek a high rate of current income that is consistent with relative stability
of principal.
THE ARCH INTERMEDIATE CORPORATE BOND PORTFOLIO'S investment objective
is to seek as high a level of current income as is consistent with preservation
of capital.
THE ARCH BOND INDEX PORTFOLIO'S investment objective is to seek to
provide investment results that, before deduction of operating expenses,
approximate the price and yield performance of U.S. Government, mortgage-backed,
asset-backed and corporate debt securities, as represented by the Lehman
Brothers Aggregate Bond Index.
THE ARCH GOVERNMENT & CORPORATE BOND PORTFOLIO'S investment objective
is to seek the highest level of current income consistent with conservation of
capital.
THE ARCH SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO'S investment objective
is to seek as high a level of current income, exempt from regular federal income
tax, as is consistent with preservation of capital.
<PAGE> 7
THE ARCH MISSOURI TAX-EXEMPT BOND PORTFOLIO'S investment objective is
to seek as high a level of interest income exempt from federal income tax as is
consistent with conservation of capital. Under normal market conditions,
substantially all of the Portfolio's assets are expected to be invested in
municipal obligations that are also exempt from Missouri state income tax.
THE ARCH NATIONAL MUNICIPAL BOND PORTFOLIO'S investment objective is to
seek as high a level of current income exempt from regular federal income tax as
is consistent with conservation of capital.
THE ARCH EQUITY INCOME PORTFOLIO'S investment objective is to seek to
provide an above-average level of income consistent with long-term capital
appreciation.
THE ARCH EQUITY INDEX PORTFOLIO'S investment objective is to seek to
provide investment results that, before deduction of operating expenses,
approximate the price and yield performance of U.S. publicly traded common
stocks with large stock market capitalizations, as represented by the Standard &
Poor's 500 Composite Stock Price Index.
THE ARCH GROWTH & INCOME EQUITY PORTFOLIO'S investment objective is to
provide long-term capital growth, with income a secondary consideration.
THE ARCH GROWTH EQUITY PORTFOLIO'S investment objective is capital
appreciation.
THE ARCH SMALL CAP EQUITY PORTFOLIO'S investment objective is capital
appreciation. Current income is an incidental consideration in the selection of
portfolio securities.
THE ARCH SMALL CAP EQUITY INDEX PORTFOLIO'S investment objective is to
provide investment results that, before deduction of operating expenses,
approximate the price and yield performance of U.S. common stocks with smaller
stock market capitalizations, as represented by the Standard & Poor's SmallCap
600 Stock Price Index.
THE ARCH INTERNATIONAL EQUITY PORTFOLIO'S investment objective is to
provide capital growth consistent with reasonable investment risk by investing
primarily in foreign equity securities, most of which will be denominated in
foreign currencies.
THE ARCH BALANCED PORTFOLIO'S investment objective is to maximize total
return through a combination of growth of capital and current income consistent
with the preservation of capital.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Mississippi Valley Advisors Inc. ("MVA" or the "Adviser"), a
wholly-owned subsidiary of Mercantile Bank National Association ("Mercantile"),
acts as investment adviser for the Portfolios. Mercantile serves as custodian;
BISYS Fund Services Ohio, Inc. (the "Administrator") serves as administrator;
and BISYS Fund Services (the "Distributor") serves as sponsor and distributor.
In addition, Clay Finlay Inc. ("Clay Finlay" or the "Sub-Adviser") serves as
sub-adviser for the International Equity Portfolio.
This Prospectus sets forth concisely certain information about the
Portfolios that prospective investors should know before investing. Investors
should read this Prospectus and retain it for future reference. Additional
information about the Portfolios, contained in a Statement of Additional
Information dated __________, 1998, has been filed with the Securities and
Exchange Commission and is incorporated by reference in its entirety into this
Prospectus. An investor may obtain the Statement of Additional Information
without charge by writing the Fund at P.O. Box 78069, St. Louis, Missouri 63178
or by calling 1-800-452-4015.
AN INVESTMENT IN THE TREASURY MONEY MARKET PORTFOLIO, MONEY
MARKET PORTFOLIO OR TAX-EXEMPT MONEY MARKET PORTFOLIO IS NEITHER
INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THERE CAN BE NO
ASSURANCE THAT ANY OF THESE PORTFOLIOS WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
Portfolio Shares are not bank deposits, are not federally insured or
guaranteed by the U.S. Government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other governmental agency, and are not the
obligations of or guaranteed or otherwise supported by any bank. An investment
in the Portfolios involves investment risk, including the possible loss of
principal.
________, 1998
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<PAGE> 9
HIGHLIGHTS
The ARCH Fund, Inc. (the "Fund") is an open-end, management investment
company (commonly known as a mutual fund) registered under the Investment
Company Act of 1940, as amended. The Fund offers investment opportunities in
eighteen investment portfolios: the ARCH TREASURY MONEY MARKET, MONEY MARKET and
TAX-EXEMPT MONEY MARKET PORTFOLIOS (the "Money Market Portfolios") and the ARCH
U.S. GOVERNMENT SECURITIES, INTERMEDIATE CORPORATE BOND, BOND INDEX, GOVERNMENT
& CORPORATE BOND, SHORT-INTERMEDIATE MUNICIPAL, MISSOURI TAX-EXEMPT BOND,
NATIONAL MUNICIPAL BOND, EQUITY INCOME, EQUITY INDEX, GROWTH & INCOME EQUITY,
GROWTH EQUITY, SMALL CAP EQUITY, SMALL CAP EQUITY INDEX, INTERNATIONAL EQUITY
and BALANCED PORTFOLIOS (the "Equity and Bond Portfolios" and, together with the
Money Market Portfolios, the "Portfolios"). Each Portfolio represents a separate
pool of assets with different investment objectives and policies (as described
below under "Investment Objectives, Policies and Risk Considerations"). MVA
serves as adviser, Mercantile as custodian, BISYS Fund Services Ohio, Inc. as
administrator and BISYS Fund Services as sponsor and distributor. In addition,
Clay Finlay serves as sub-adviser for the International Equity Portfolio. For
information on expenses, fee waivers, and services, see "Certain Financial
Information," "Financial Highlights" and "Management of the Fund."
The following information generally describes the Portfolios and their
investment objectives. There can be no assurance that the Portfolios will be
able to achieve their respective investment objectives.
The Money Market Portfolios each seek to maintain a net asset value of
$1.00 per Share. Each Money Market Portfolio's assets are invested in
dollar-denominated debt securities with remaining maturities of 397 days (13
months) or less as defined by the Securities and Exchange Commission, and each
Money Market Portfolio's dollar-weighted average portfolio maturity will not
exceed 90 days. All securities acquired by the Money Market Portfolios will be
determined by MVA, under guidelines approved by the Fund's Board of Directors,
to present minimal credit risks and to be rated in the highest category (or
deemed comparable in quality) at the time of purchase. There can be no assurance
that the Money Market Portfolios will be able to achieve a stable net asset
value on a continuous basis.
The U.S. Government Securities and Government & Corporate Bond
Portfolios are designed for investors who seek higher current income than is
typically offered by money market funds and who are willing to accept a variable
Share value to achieve that objective.
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<PAGE> 10
The Intermediate Corporate Bond Portfolio is designed for investors who
seek higher current income than is typically offered by money market funds with
less principal volatility than is normally associated with a long-term bond
fund.
The Bond Index Portfolio is designed for investors who are willing to
accept the risks associated with an investment in fixed income securities, and
who seek investment results that, before deduction of operating expenses,
approximate the price and yield performance of U.S. Government, mortgage-backed,
asset-backed and corporate debt securities, as represented by the Lehman
Brothers Aggregate Bond Index.
The Short-Intermediate Municipal Portfolio is designed for investors
who seek a yield that is higher than a municipal money market fund with less
principal volatility than is normally associated with a long-term municipal bond
fund.
The Missouri Tax-Exempt Bond Portfolio is designed for investors who
seek a higher rate of return than that typically offered by tax-exempt money
market funds and who are willing to accept a variable Share value to achieve
that objective.
The National Municipal Bond Portfolio is designed for investors who
seek current income that is exempt from regular federal income tax and relative
stability of principal.
The Equity Income Portfolio is designed for investors who seek an
above-average level of income consistent with long-term capital appreciation,
and who are prepared to accept the risks associated with an investment in equity
securities.
The Equity Index Portfolio is designed for investors who are willing to
accept the risks associated with an investment in equity securities, and who
seek investment results that, before deduction of operating expenses,
approximate the price and yield performance of U.S. publicly traded common
stocks with large stock market capitalizations, as represented by the Standard &
Poor's 500 Composite Stock Price Index.
The Growth & Income Equity, Growth Equity, Small Cap Equity and
Balanced Portfolios are designed for investors who seek capital growth, and who
are prepared to accept the risks associated with equity securities.
The Small Cap Equity Index Portfolio is designed for investors who are
willing to accept the risks associated with an investment in small
capitalization equity securities, and who seek investment results that, before
deduction for operating expenses, approximate the price and yield performance of
U.S.
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<PAGE> 11
common stocks with smaller stock market capitalizations, as represented by the
Standard & Poor's SmallCap 600 Stock Price Index.
The International Equity Portfolio is designed for investors who seek
capital growth, wish to diversify their investments beyond the United States,
and are prepared to accept the risks entailed in such investments. These risks
may be greater than those associated with investments in the equity securities
of companies located in the United States.
The Tax-Exempt Money Market, Short-Intermediate Municipal, Missouri
Tax-Exempt Bond and National Municipal Bond Portfolios seek to provide income
exempt from federal tax. In addition, the Missouri Tax-Exempt Bond Portfolio
seeks to provide income that is also exempt from Missouri income tax.
Investors should note that one or more of the Portfolios may, subject
to their investment policies and limitations, purchase variable and floating
rate instruments, enter into repurchase agreements and reverse repurchase
agreements, make securities loans, invest in options, futures and index-based
depository receipts, and make limited investments in illiquid securities and
securities issued by other investment companies. These investment practices
involve investment risks of varying degrees. For example, the absence of a
secondary market for a particular variable or floating rate instrument could
make it difficult for a Portfolio to dispose of an instrument if the issuer were
to default on its payment obligation. Default by a counterparty to a repurchase
agreement or securities lending transaction could expose a Portfolio to loss
because of adverse market action or possible delay in disposing of the
underlying collateral. Reverse repurchase agreements are subject to the risk
that the market value of the securities sold by a Portfolio will decline below
the repurchase price which the Portfolio is obligated to pay. Purchasing options
is a specialized investment technique which entails a substantial risk of loss
of amounts paid as premiums to option writers. Investments in futures and
related options are subject to the ability of the Adviser to correctly predict
movements in the direction of the market and there is no assurance that a liquid
market will exist for a particular futures contract at any particular time.
The Equity and Bond Portfolios, other than the Bond Index, Equity Index
and Small Cap Equity Index Portfolios, may engage in short-term trading, which
may also involve greater risk and increase such Portfolios' expenses. The
International Equity Portfolio will invest principally in foreign equity
securities, most of which will be denominated in foreign currencies. The Growth
Equity Portfolio may invest to a limited extent in foreign equity securities.
The other Portfolios do not invest in
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<PAGE> 12
instruments denominated in foreign currencies (except that the Growth & Income
Equity, Small Cap Equity, and Balanced Portfolios may invest in certain Canadian
securities and the Intermediate Corporate Bond Portfolio may invest in debt
securities issued by foreign corporations and governments). Foreign securities
entail certain inherent risks, such as future political and economic
developments and the adoption of foreign government restrictions, that might
adversely affect payment of dividends or principal and interest.
The Tax-Exempt Money Market, Short-Intermediate Municipal, Missouri
Tax-Exempt Bond and National Municipal Bond Portfolios may, under certain
conditions, make limited investments in securities the income from which may be
subject to federal income tax. See "Investment Objectives, Policies and Risk
Considerations" below and the Statement of Additional Information under
"Investment Objectives and Policies."
The Fund offers investors the opportunity to invest in a variety of
professionally managed investments without having to become involved with
detailed management, accounting and safekeeping procedures normally related to
direct investments in securities. The Portfolios also offer the economic
advantages of block trading in securities and the availability of a family of
eighteen mutual funds should an investor's investment goals change.
For information on purchasing, exchanging or redeeming Trust Shares of
the Portfolios, please see "How to Purchase and Redeem Shares" below.
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CERTAIN FINANCIAL INFORMATION
Shares of the Money Market Portfolio have been classified into five
classes of Shares - Trust Shares, Institutional Shares, S Shares, Investor A
Shares and Investor B Shares. Shares of the U.S. Government Securities,
Government & Corporate Bond, Equity Income, Growth & Income Equity, Growth
Equity, Small Cap Equity, International Equity and Balanced Portfolios have been
classified into four classes of Shares -- Trust Shares, Institutional Shares,
Investor A Shares and Investor B Shares. Shares of the Treasury Money Market
Portfolio have been classified into four classes of Shares -- Trust Shares,
Institutional Shares, S Shares and Investor A Shares. Shares of the Intermediate
Corporate Bond, Bond Index, Equity Index and Small Cap Equity Index Portfolios
have been classified into three classes of Shares --Trust Shares, Institutional
Shares and Investor A Shares. Shares of the Tax-Exempt Money Market Portfolio
have been classified into three classes of Shares - Trust Shares, S Shares and
Investor A Shares. Shares of the Missouri Tax-Exempt Bond and National Municipal
Bond Portfolios have been classified into three classes of Shares -- Trust
Shares, Investor A Shares and Investor B Shares. Shares of the
Short-Intermediate Municipal Portfolio have been classified into two classes of
Shares --Trust Shares and Investor A Shares. Shares of each class in a Portfolio
represent equal, pro rata interests in the investments held by that Portfolio
and are identical in all respects, except that Shares of each class bear
separate distribution and/or shareholder administrative servicing fees and
certain other operating expenses, and enjoy certain exclusive voting rights on
matters relating to these fees. See "Other Information Concerning the Fund and
Its Shares," "Management of the Fund --Administrative Services Plan," and
"Management of the Fund --Custodian, Sub-Custodian and Transfer Agent" below. As
a result of payments for distribution and/or shareholder administrative
servicing fees and certain other operating expenses that may be made in
differing amounts, the net investment income of Trust Shares, Institutional
Shares, S Shares, Investor A Shares and Investor B Shares in a Portfolio can be
expected, at any given time, to be different.
The Tax-Exempt Money Market Portfolio and Missouri Tax-Exempt Bond
Portfolio commenced operations on July 10, 1986 and July 15, 1988, respectively,
as separate investment portfolios (the "Predecessor Tax-Exempt Money Market
Portfolio" and "Predecessor Missouri Tax-Exempt Bond Portfolio", respectively)
of The ARCH Tax-Exempt Trust (the "Trust"), which was organized as a
Massachusetts business trust. On October 2, 1995, the Predecessor Tax-Exempt
Money Market Portfolio and the Predecessor Missouri Tax-Exempt Bond Portfolio
were reorganized as new portfolios of the Fund. Prior to the reorganization,
these
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<PAGE> 14
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.
The Growth Equity Portfolio commenced operations on January 4, 1993 as
the Arrow Equity Portfolio, a separate investment portfolio (the "Predecessor
Growth Equity Portfolio") of Arrow Funds, which was organized as a Massachusetts
business trust. On November 21, 1997, the Predecessor Growth Equity Portfolio
was reorganized as a new portfolio, the Growth Equity Portfolio of the Fund.
Prior to the reorganization, the Predecessor Growth Equity Portfolio offered and
sold shares of beneficial interest that were similar to the Fund's Investor A
Shares.
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<PAGE> 15
EXPENSE SUMMARY FOR TRUST SHARES
<TABLE>
<CAPTION>
TREASURY TAX-EXEMPT U.S.
MONEY MONEY MONEY GOVERNMENT
MARKET MARKET MARKET SECURITIES
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING
EXPENSES
(as a percentage of average
net assets)
Investment Advisory Fees (net
of fee waivers)(1).............. .__% .__% .__% .__%
12b-1 Fees........................ .00% .00% .00% .00%
-- -- -- --
Other Expenses (including
administration fees,
administrative services fees
and other expenses)
(net of fee waivers and
expense reimbursements)(2,3).... .__% .__% .__% .__%
Total Portfolio Operating
Expenses (net of fee waivers
and expense reimbursements)(3).. .__% .__% .__% .__%
==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
INTERMEDIATE GOVERNMENT & SHORT-
CORPORATE CORPORATE INTERMEDIATE
BOND BOND INDEX BOND MUNICIPAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING
EXPENSES
(as a percentage of average
net assets)
Investment Advisory Fees (net
of fee waivers)(1).............. .__% .__% .__% .__%
12b-1 Fees........................ .00% .00% .00% .00%
-- -- -- --
Other Expenses (including
administration fees,
administrative services fees
and other expenses)
(net of fee waivers and
expense reimbursements)(2,3).... .__% .__% .__% .__%
Total Portfolio Operating
Expenses (net of fee waivers
and expense reimbursements)(3).. .__% .__% .__% .__%
==== ==== ==== ====
</TABLE>
(1) Without fee waivers, investment advisory fees would be .40%, .40%,
.40%, .45%, .55%, .30%, .45% and .55% for the Treasury Money Market,
Money Market, Tax-Exempt Money Market, U.S. Government Securities,
Intermediate Corporate Bond, Bond Index, Government & Corporate Bond
and Short-Intermediate Municipal Portfolios, respectively.
(2) Without fee waivers, administration fees would be .10% for the
Tax-Exempt Money Market Portfolio and .20% for each other Portfolio.
Administrative services fees are payable at an annual rate not to
exceed .25% for the Money Market Portfolios and .30% for the Equity and
Bond Portfolios.
(3) Without fee waivers and/or expense reimbursements, Other Expenses would
be .__%, .__%, .__%, .__%, .__%, .__%, .__% and .__% and Total
Portfolio Operating Expenses would be .___%, .___%, .__%, .___%, .___%,
.__%, .___% and .___% for the Treasury Money Market, Money Market,
Tax-Exempt Money Market, U.S. Government Securities, Intermediate
Corporate Bond, Bond Index, Government & Corporate Bond and
Short-Intermediate Municipal Portfolios, respectively.
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<PAGE> 16
<TABLE>
<CAPTION>
MISSOURI NATIONAL GROWTH &
TAX-EXEMPT MUNICIPAL EQUITY EQUITY INCOME
BOND BOND INCOME INDEX EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING
EXPENSES
(as a percentage of average
net assets)
Investment Advisory Fees (net
of fee waivers(1)............... .__% .__% .__% .__% .__%
12b-1 Fees........................ .00% .00% .00% .00% .00%
-- -- -- -- --
Other Expenses (including
administration fees,
administrative services fees and
other expenses) (net of fee waivers
and expense reimbursements)(2,3).....__% .__% .__% .__% .__%
Total Portfolio Operating
Expenses (net of fee waivers
and expense reimbursements)(3).. .__% .__% .__% .__% .__%
==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
SMALL CAP
GROWTH SMALL CAP EQUITY INTERNATIONAL
EQUITY EQUITY INDEX EQUITY BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING
EXPENSES
(as a percentage of average
net assets)
Investment Advisory Fees (net
of fee waivers(1)............... .__% .__% .__% .__% .__%
12b-1 Fees........................ .00% .00% .00% .00% .00%
-- -- -- -- --
Other Expenses (including
administration fees,
administrative services fees and
other expenses) (net of fee waivers
and expense reimbursements)(2,3)..... .__% .__% .__% .__% .__%
Total Portfolio Operating
Expenses (net of fee waivers
and expense reimbursements)(3).. ____% .__% .__% ____% .__%
==== ==== ==== ===== ====
</TABLE>
(1) Without fee waivers, investment advisory fees would be .45%, .55%,
.75%, .30%, .55%, .75%, .75%, .40%, 1.00% and .75% for the Missouri
Tax-Exempt Bond, National Municipal Bond, Equity Income, Equity Index,
Growth & Income Equity, Growth Equity, Small Cap Equity, Small Cap
Equity Index, International Equity and Balanced Portfolios,
respectively.
(2) Without fee waivers, administration fees would be .20% for each
Portfolio. Administrative services fees are payable at an annual rate
not to exceed .25% for the Money Market Portfolios and .30% for the
Equity and Bond Portfolios.
(3) Without fee waivers and/or expense reimbursements, Other Expenses would
be .__%. .__%, .__%, .__%, .__%, .__%, .__%, .__%, .__% and .__% and
Total Portfolio Operating Expenses would be .___%, .___%, .___%, .__%,
.___%, .___%, .___%, .___%, .___% and .___% for the Missouri Tax-Exempt
Bond, National Municipal Bond, Equity Income, Equity Index, Growth &
Income Equity, Growth Equity, Small Cap Equity, Small Cap Equity Index,
International Equity and Balanced Portfolios, respectively.
-11-
<PAGE> 17
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) a 5% annual return and
(2) redemption at the end of each period:
Treasury Money Market Portfolio..................................... $ $ $ $
Money Market Portfolio.............................................. $ $ $ $
Tax-Exempt Money Market Portfolio................................... $ $ $ $
U.S. Government Securities Portfolio................................ $ $ $ $
Intermediate Corporate Bond Portfolio............................... $ $ $ $
Bond Index Portfolio................................................ $ $ $ $
Government & Corporate Bond Portfolio............................... $ $ $ $
Short-Intermediate Municipal Portfolio.............................. $ $ $ $
Missouri Tax-Exempt Bond Portfolio.................................. $ $ $ $
National Municipal Bond Portfolio................................... $ $ $ $
Equity Income Portfolio............................................. $ $ $ $
Equity Index Portfolio.............................................. $ $ $ $
Growth & Income Equity Portfolio.................................... $ $ $ $
Growth Equity Portfolio............................................. $ $ $ $
Small Cap Equity Portfolio.......................................... $ $ $ $
Small Cap Equity Index Portfolio.................................... $ $ N/A N/A
International Equity Portfolio...................................... $ $ $ $
Balanced Portfolio.................................................. $ $ $ $
</TABLE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN. Information about the actual performance of all
of the Portfolios is contained in the Fund's Annual Report to Shareholders dated
November 30, 1997 which may be obtained without charge by contacting the Fund at
the address or telephone number provided on page 2 of this Prospectus.
The purpose of the foregoing tables is to assist in understanding the
various costs and expenses that an investor in a Portfolio's Trust Shares will
bear directly or indirectly. The information contained in such tables with
respect to the Treasury Money Market, Money Market, Tax-Exempt Money Market,
U.S. Government Securities, Government & Corporate Bond, Short-Intermediate
Municipal, Missouri Tax-Exempt Bond, National Municipal Bond Portfolio, Growth &
Income Equity, Small Cap Equity, International Equity and Balanced Portfolios is
based on expenses incurred by each of these Portfolios during the last fiscal
year with respect to its Trust Shares. Such information with respect to the
Intermediate Corporate Bond, Bond Index, Equity Income, Equity Index and Growth
Equity Portfolios is based on expenses incurred by each of these Portfolios
during the last fiscal year, restated to reflect the expenses that each such
Portfolio expects to incur during the current fiscal year with respect to its
Trust Shares. Such information with respect to the Small Cap Equity Index
Portfolio is based on expenses such Portfolio expects to incur during the
current fiscal year with respect to its Trust Shares. (For more
-12-
<PAGE> 18
complete descriptions of the various costs and expenses, see "Management of the
Fund" in this Prospectus and the Statement of Additional Information.) The
Tables and Examples have not been audited by the Fund's independent auditors and
do not reflect any charges that may be imposed by financial institutions on
their customers.
-13-
<PAGE> 19
FINANCIAL HIGHLIGHTS
The Financial Highlights in the following tables supplement the Fund's
financial statements, which are contained in the Fund's Annual Report to
Shareholders dated November 30, 1997 and [____________________________] into the
Statement of Additional Information. The Financial Highlights set forth certain
historic results for Trust Shares of each Portfolio other than the Small Cap
Equity Index Portfolio, which had not commenced investment operations as of
November 30, 1997. The data for the years ended November 30, 1989 through 1997,
and with respect to the Tax-Exempt Money Market and Missouri Tax-Exempt Bond
Portfolios (and their Predecessor Portfolios), for the years ended November 30,
1997 and 1996, the six-month period ended November 30, 1995 and each of the
years or periods ended May 31, 1990 through 1995, has been audited by
[___________________], independent auditors, whose unqualified report insofar as
it relates to each of the years or periods in the five-year period ended
November 30, 1997 (the years ended November 30, 1997 and 1996, the six-month
period ended November 30, 1995 and each of the years or periods in the
three-year period ended May 31, 1995 with respect to the Tax-Exempt Money Market
and Missouri Tax-Exempt Bond Portfolios (and their Predecessor Portfolios)) on
the financial statements containing such information is
[____________________________] into the Statement of Additional Information. The
data for the year ended November 30, 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 were derived from financial statements
audited by the Fund's and the Trust's prior auditors. Further information about
the performance of the Portfolios is available in the Fund's Annual Report. Both
the Statement of Additional Information and the Annual Report may be obtained
free of charge by contacting the Fund at the address or telephone number
provided on page __ of this Prospectus.
-14-
<PAGE> 20
Treasury Money Market Portfolio
(For a Share(b) outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
------------------------------------------------------------------------------- December 2, 1991
to November 30,
1997 1996 1995 1994 1993 1992(a)(b)
---- ---- ---- ---- ---- ----------------
Trust Shares Trust Shares Trust Shares Trust Shares Trust Shares Trust Shares
-------------------------------------------------------------------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period . . . . . . . $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Investment Activities
Net investment income . . . . . . 0.045 0.050 0.033 0.026 0.034
-------- -------- -------- -------- --------
Total from Investment Activities . . 0.045 0.050 0.033 0.026 0.034
-------- -------- -------- -------- --------
Distributions
Net investment income . . . . . . (0.045) (0.050) (0.033) (0.026) (0.034)
-------- -------- -------- -------- --------
Total Distributions . . . . . . . . (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
======== ======== ======== ======== ========
Total Return . . . . . . . . . . . . 4.64% 5.12% 3.38% 2.67% 3.16%(c)
--------
Ratios/Supplemental Data:
Net Assets at end of period (000) . . $131,322 $252,780 $242,099 $256,503 $229,288
Ratio of expenses to average net
assets (including waivers) . . . . 0.61% 0.60% 0.49% 0.41% 0.28%(d)
Ratio of net investment income to
average net assets (including
waivers) . . . . . . . . . . . . . 4.55% 5.01% 3.26% 2.64% 3.35%(d)
Ratio of expenses to average net
assets (before waivers)* . . . . . . 0.76% 0.75% 0.94% 0.85% 0.72%(d)
Ratio of net investment income to
average net assets (before
waivers)* . . . . . . . . . . . . . 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.
-15-
<PAGE> 21
Money Market Portfolio
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
- -----------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Trust Trust Trust Trust Trust
Shares Shares Shares Shares Shares
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period......... $1.00 $1.00 $1.00 $1.00
----- ----- ----- -----
Investment Activities
Net investment income....... 0.049 0.054 0.035 0.026
----- ----- ----- -----
Total from Investment
Activities................. 0.049 0.054 0.035 0.026
----- ----- ----- -----
Distributions
Net investment income....... (0.049) (0.054) (0.035) (0.026)
------ ------ ------ ------
Total Distributions........... (0.049) (0.054) (0.035) (0.026)
------ ------ ------ ------
Net Asset Value,
End of Period............... $1.00 $1.00 $1.00 $1.00
===== ===== ===== =====
Total Return.................. 4.99% 5.52% 3.55% 2.72%
Ratios/Supplemental Data:
Net Assets at end
of period (000) $717,265 $698,131 $544,952 $621,717
Ratio of expenses to
average net assets
(including waivers)......... 0.61% 0.59% 0.61% 0.59%
Ratio of net investment
income to average net
assets (including
waivers).................... 4.88% 5.38% 3.45% 2.70%
Ratio of expenses to
average net assets
(before waivers)*........... 0.76% 0.74% 0.93% 0.80%
Ratio of net investment
income to average net
assets (before
waivers)*................... 4.73% 5.23% 3.13% 2.49%
</TABLE>
<TABLE>
<CAPTION>
Year Ended November 30,
- -----------------------------------------------------------------------------------------------------------------------------------
1992 1991(a)
---- -------
Trust Trust
Shares Shares 1990 1989 1988
------ -------- ------ ----- -----
<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....... 0.034 0.058 0.078 0.088 0.071
----- ----- ----- ----- -----
Total from Investment
Activities................. 0.034 0.058 0.078 0.088 0.071
----- ----- ----- ----- -----
Distributions
Net investment income....... (0.034) (0.058) (0.078) (0.088) (0.071)
------ ------ ------ ------ ------
Total Distributions........... (0.034) (0.058) (0.078) (0.088) (0.071)
------ ------ ------ ------ ------
Net Asset Value,
End of Period............... $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== =====
Total Return.................. 3.44% 5.95% 8.08% 9.21% 7.33%(b)
Ratios/Supplemental Data:
Net Assets at end
of period (000) $574,941 $700,474 $896,903 $661,145 $289,764
Ratio of expenses to
average net assets
(including waivers)......... 0.57% 0.59% 0.55% 0.45% 0.45%
Ratio of net investment
income to average net
assets (including
waivers).................... 3.44% 5.81% 7.77% 8.82% 7.12%
Ratio of expenses to
average net assets
(before waivers)*........... 0.71% 0.67% 0.60% 0.60% 0.58%
Ratio of net investment
income to average net
assets (before
waivers)*................... 3.30% 5.73% 7.72% 8.67% 6.99%
</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.
-16-
<PAGE> 22
Tax-Exempt Money Market Portfolio(a)
(For a Share(b) outstanding throughout each period)
<TABLE>
<CAPTION>
Year Year Six Months
Ended Ended Ended Year Ended May 31,
November 30, November 30, November 30, ------------------
1997 1996 1995(e) 1995 1994
----------- ----------- ------------- ---- ----
Trust Trust Trust Trust Trust
Shares Shares Shares Shares Shares
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Investment Activities
Net investment income . 0.030 0.016 0.029 0.020
-------- -------- -------- --------
Total from Investment
Activities ............ 0.030 0.016 0.029 0.020
-------- -------- -------- --------
Distributions ........... (0.030) (0.016) (0.029) (0.020)
-------- -------- -------- --------
Net investment income
Total Distributions ... (0.030) (0.016) (0.029) (0.020)
-------- -------- -------- --------
Net Asset Value, End of
Period ................ $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total Return ............ 3.06% 1.57%(c) 2.93% 1.97%
Ratios/Supplemental Data:
Net Assets at end of
period (000) .......... $ 95,726 $ 78,031 $ 85,324 $112,594
Ratio of expenses to
average net assets
(including waivers) ... 0.53% 0.70%(d) 0.61% 0.52%
Ratio of net investment
income to average net
assets (including ..... 3.01% 3.10%(d) 2.87% 1.95%
waivers)
Ratio of expenses to
average net assets .... 0.58% 0.75%(d) 0.70% 0.86%
(before waivers)*
Ratio of net investment
income to average net
assets (before ........ 2.96% 3.05%(d) 2.78% 1.61%
waivers)*
</TABLE>
<TABLE>
<CAPTION>
Year Ended May 31,
---------------------------------------------------------------------------------
1993 1992 1991(b) 1990(b) 1989(b) 1988(b)
---- ---- ------- ------- -------- -------
Trust Trust Trust Trust Trust Trust
Shares Shares Shares Shares Shares Shares
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Investment Activities
Net investment income . 0.021 0.034 0.031 0.056 0.056 0.043
-------- -------- -------- -------- -------- --------
Total from Investment
Activities ............ 0.021 0.034 0.031 0.056 0.056 0.043
-------- -------- -------- -------- -------- --------
Distributions ........... (0.021) (0.034) (0.031) (0.056) (0.056) (0.043)
-------- -------- -------- -------- -------- --------
Net investment income
Total Distributions ... (0.021) (0.034) (0.031) (0.056) (0.056) (0.043)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period ................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total Return ............ 2.16% 3.44% 2.25% 5.71% 5.74% 4.35%
Ratios/Supplemental Data:
Net Assets at end of
period (000) .......... $137,602 $126,079 $137,847 $132,407 $ 70,153 $ 72,120
Ratio of expenses to
average net assets
(including waivers) ... 0.52% 0.59% 0.58% 0.51% 0.45% 0.45%
Ratio of net investment
income to average net
assets (including ..... 2.13% 3.38% 4.65% 5.57% 5.59% 4.27%
waivers)
Ratio of expenses to
average net assets .... 0.62% 0.69% 0.68% 0.61% 0.63% 0.60%
(before waivers)*
Ratio of net investment
income to average net
assets (before ........ 2.03% 3.28% 4.55% 5.47% 5.41% 4.12%
waivers)*
</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) Not Annualized.
(d) Annualized.
(e) Upon its reorganization as a portfolio of the Fund, the Portfolio
changed its fiscal year-end from May 31 to November 30.
-17-
<PAGE> 23
U.S. Government Securities Portfolio
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Trust Trust Trust Trust Trust
Shares Shares Shares Shares Shares
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period . $ 10.85 $ 10.05 $ 11.20 $ 10.80
------- ------- ------- -------
Investment Activities
Net investment income 0.66 0.67 0.66 0.62
Net realized and
unrealized gains
(losses) from
investments ......... (0.15) 0.80 (0.97) 0.47
------- ------- ------- -------
Total from Investment
Activities .......... 0.51 1.47 (0.31) 1.09
------- ------- ------- -------
Distributions
Net investment income (0.66) (0.67) (0.66) (0.62)
Net realized gains .. -- -- -- (0.07)
In excess of net
realized gains ..... (0.03) -- (0.18) --
------- ------- ------- -------
Total Distributions (0.69) (0.67) (0.84) (0.69)
------- ------- ------- -------
Net Asset Value,
End of Period ....... $ 10.67 $ 10.85 $ 10.05 $ 11.20
======= ======= ======= =======
Total Return .......... 4.88% 15.00% (2.85%) 10.36%
Ratios/Supplemental
Data:
Net Assets at end of
period (000) ........ $60,079 $45,513 $33,166 $35,121
Ratio of expenses to
average net assets .. 0.67% 0.67% 0.66% 0.67%
Ratio of net investment
income to average net
assets .............. 6.10% 6.36% 6.25% 5.57%
Ratio of expenses to
average net assets
(before waivers)* ... 0.77% 0.77% 1.06% 0.91%
Ratio of net investment
income to average
net assets (before
waivers)* ........... 6.00% 6.26% 5.85% 5.33%
Portfolio turnover .... 53.76% 93.76% 50% 24%
</TABLE>
<TABLE>
<CAPTION>
Year Ended November 30,
-----------------------------------------------------------------
June 2
1992 1991(a) 1988
---- ------- to
Trust Trust Nov. 30,
Shares Shares 1990 1989 1988(b)
------ ------ ---- ---- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period . $ 10.68 $ 10.42 $ 10.06 $ 9.94 $ 10.00
------- ------- ------- ------- -------
Investment Activities
Net investment income 0.66 0.64 0.76 0.85 0.36
Net realized and
unrealized gains
(losses) from
investments ......... 0.13 0.26 0.16 0.11 (0.06)
------- ------- ------- ------- -------
Total from Investment
Activities .......... 0.79 0.90 0.92 0.96 0.30
------- ------- ------- ------- -------
Distributions
Net investment income (0.66) (0.64) (0.77) (0.84) (0.36)
Net realized gains .. (0.01) -- -- -- --
In excess of net
realized gains ..... -- -- -- -- --
------- ------- ------- ------- -------
Total Distributions (0.67) (0.64) (0.77) (0.84) (0.36)
------- ------- ------- ------- -------
Net Asset Value,
End of Period ....... $ 10.80 $ 10.68 $ 10.21 $ 10.06 $ 9.94
======= ======= ======= ======= =======
Total Return .......... 7.52% 12.62% 9.66% 10.04% 3.05%(c),(d)
Ratios/Supplemental
Data:
Net Assets at end of
period (000) ........ $31,106 $21,484 $ 6,856 $ 5,954 $ 4,335
Ratio of expenses to
average net assets .. 0.65% 0.56% 0.73% 0.74% 0.79%(e)
Ratio of net investment
income to average net
assets .............. 6.02% 7.26% 7.80% 8.50% 7.26%(e)
Ratio of expenses to
average net assets
(before waivers)* ... 0.79% 1.11% 1.28% 1.29% 1.40%(e)
Ratio of net investment
income to average
net assets (before
waivers)* ........... 5.88% 6.71% 7.25% 7.95% 6.65%(e)
Portfolio turnover .... 74% 36% 53% 84% 215%
</TABLE>
- ----------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been
as indicated.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. In addition, on February 1, 1991, the
Portfolio issued a second series of Shares which were designated as
"Trust" Shares. The financial highlights presented for 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.
-18-
<PAGE> 24
Intermediate Corporate Bond Portfolio
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
February 10, 1997
to
November 30, 1997(a)
Trust
Shares
------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................................
Investment Activities
Net investment income............................................
Net realized and unrealized losses from investments..............
Total from Investment Activities...........................
Distributions
Net investment income............................................
Total Distributions........................................
NET ASSET VALUE, END OF PERIOD........................................
Total Return.......................................................... (b)***
RATIOS/SUPPLEMENTARY DATA:
Net assets at the end of period (000)............................
Ratio of expenses to average net assets.......................... (c)
Ratio of net investment income to average net assets............. (c)
Ratio of expenses to average net assets*......................... (c)
Ratio of net investment income to average net assets*............ (c)
Portfolio turnover**.............................................
</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.
*** Aggregate since inception.
(a) Period from commencement of operations.
(b) Not Annualized.
(c) Annualized.
-19-
<PAGE> 25
Bond Index Portfolio
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
February 10, 1997
to
November 30, 1997(a)
Trust
Shares
------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD...................................
Investment Activities
Net investment income.............................................
Net realized and unrealized losses from investments...............
Total from Investment Activities............................
Distributions
Net investment income.............................................
Total Distributions.........................................
NET ASSET VALUE, END OF PERIOD.........................................
Total Return........................................................... (b)***
RATIOS/SUPPLEMENTARY DATA:
Net assets at the end of period (000).............................
Ratio of expenses to average net assets........................... (c)
Ratio of net investment income to average net assets.............. (c)
Ratio of expenses to average net assets*.......................... (c)
Ratio of net investment income to average net assets*............. (c)
Portfolio turnover**..............................................
</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.
*** Aggregate since inception.
(a) Period from commencement of operations.
(b) Not Annualized.
(c) Annualized.
-20-
<PAGE> 26
Government & Corporate Bond Portfolio
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
--------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Trust Trust Trust Trust Trust
Shares Shares Shares Shares Shares
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ... $ 10.53 $ 9.64 $ 10.65 $ 10.26
-------- -------- -------- --------
Investment Activities
Net investment income . 0.67 0.64 0.63 0.68
Net realized and
unrealized gains
(losses) from
investments ........... (0.19) 0.89 (0.94) 0.39
-------- -------- -------- --------
Total from Investment
Activities ........... 0.48 1.53 (0.31) 1.07
-------- -------- -------- --------
Distributions
Net investment
income ............... (0.67) (0.64) (0.63) (0.68)
In excess of net
realized gains ....... -- -- (0.07) --
-------- -------- -------- --------
Total
Distributions ........ (0.67) (0.64) (0.70) (0.68)
-------- -------- -------- --------
Net Asset Value, End
of Period ............ $ 10.34 $ 10.53 $ 9.64 $ 10.65
======== ======== ======== ========
Total Return ............ 4.82% 16.31% (3.03)% 10.55%
Ratios/Supplemental Data:
Net Assets at end of
period (000) ........... $141,440 $127,741 $132,577 $149,674
Ratio of expenses to
average net assets
(including waivers) ... 0.65% 0.65% 0.65% 0.65%
Ratio of net investment
income to average net
assets (including
waivers) .............. 6.36% 6.32% 6.25% 6.32%
Ratio of expenses to
average net assets
(before waivers)* ..... 0.75% 0.75% 1.05% 0.88%
Ratio of net investment
income to average net
assets (before
waivers)* ............. 6.26% 6.22% 5.85% 6.09%
Portfolio turnover ...... 149.20% 59.32% 50% 31%
</TABLE>
<TABLE>
<CAPTION>
June 15
1988 to
November
30,
Year Ended November 30, 1988(b)
----------------------------------------------------- --------
1992 1991(a)
---- -------
Trust Trust
Shares Shares 1990 1989
------ ------ ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ... $ 10.15 $ 9.84 $ 10.12 $ 9.91 $ 10.00
-------- -------- -------- -------- --------
Investment Activities
Net investment income . 0.70 0.64 0.84 0.89 0.39
Net realized and
unrealized gains
(losses) from
investments ........... 0.11 0.31 (0.41) 0.22 (0.13)
-------- -------- -------- -------- --------
Total from Investment
Activities ........... 0.81 0.95 0.43 1.11 0.26
-------- -------- -------- -------- --------
tributions
Net investment
income ............... (0.70) (0.64) (0.84) (0.90) (0.35)
In excess of net
realized gains ....... -- -- -- --
-------- -------- -------- -------- --------
Total
Distributions ........ (0.70) (0.64) (0.84) (0.90) (0.35)
-------- -------- -------- -------- --------
Net Asset Value, End
of Period ............ $ 10.26 $ 10.15 $ 9.71 $ 10.12 $ 9.91
Total Return ............ 8.14% 13.04% 4.96% 11.79% 2.66%(c)(d)
Ratios/Supplemental Data:
Net Assets at end of
period (000) ........... $135,404 $ 89,975 $ 11,005 $ 10,327 $ 7,483
Ratio of expenses to
average net assets
(including waivers) ... 0.63% 0.36% 0.53% 0.44% 0.56%(e)
Ratio of net investment
income to average net
assets (including
waivers) .............. 6.73% 7.51% 8.69% 8.97% 8.47%(e)
Ratio of expenses to
average net assets
(before waivers)* ..... 0.76% 0.91% 1.08% 0.99% 1.17%(e)
Ratio of net investment
income to average net
assets (before
waivers)* ............. 6.60% 6.96% 8.14% 8.42% 7.86%(e)
Portfolio turnover ...... 52% 105% 75% 148% 22%
</TABLE>
- ----------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been
as indicated.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. In addition, on February 1, 1991, the
Portfolio issued a second series of Shares which were designated as
"Trust" Shares. The financial highlights presented for periods prior to
February 1, 1991 are 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.
-21-
<PAGE> 27
Short-Intermediate Municipal Portfolio
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
July 10, 1995 to
Year Ended Year Ended November 30,
November 30, 1997 November 30, 1996 1995(a)
Trust Shares Trust Shares Trust Shares
------------ ------------ ------------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period ............ $ 10.07 $ 10.00
------- -------
Investment Activities
Net investment income (loss) ... 0.41 0.14
Net realized and unrealized
gains (losses) from investments -- 0.07
------- -------
Total from Investment
Activities ..................... 0.41 0.21
------- -------
Distributions
Net investment income .......... (0.41) (0.14)
------- -------
Total Distributions ........... (0.41) (0.14)
------- -------
Net Asset Value,
End of Period .................. $ 10.07 $ 10.07
======= =======
Total Return ..................... 4.15% 2.15%(b)
Ratios/Supplemental Data:
Net Assets at end of
period (000) ................... $29,472 $23,754
Ratio of expenses to average net
assets (including waivers) ..... 0.31% 0.47%(c)
Ratio of net investment income to
average net assets (including
waivers) ....................... 4.07% 3.81%
Ratio of expenses to average net
assets (before waivers)* ....... 0.96% 1.12%(c)
Ratio of net investment income to
average net assets (before
waivers)* ...................... 3.42% 3.16%(c)
Portfolio turnover ............... 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.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
-22-
<PAGE> 28
Missouri Tax-Exempt Bond Portfolio(a)
(For a Share(b) outstanding throughout each period)
<TABLE>
<CAPTION>
Year Year Six Months
Ended Ended Ended
November 30, November 30, November 30, Year Ended May 31,
------------------------------
1997 1996 1995(c) 1995 1994
------------ ------------ ------------ ---- ----
Trust Trust Trust Trust Trust
Shares Shares Shares Shares Shares
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ........ $ 11.74 $ 11.52 $ 11.13 $ 11.54
------- ------- ------- -------
Investment Activities:
Net investment income ...... 0.57 0.28 0.57 0.58
Net realized and unrealized
gains (losses) on .......... (0.05) 0.22 0.40 (0.37)
------- ------- ------- -------
investments .................. 0.52 0.50 0.97 0.21
------- ------- ------- -------
Total from Investment
Activities ................ (0.57) (0.28) (0.57) (0.58)
Distributions ................ -- -- (0.01) (0.04)
------- ------- ------- -------
Net investment income ...... (0.57) (0.28) (0.58) (0.62)
------- ------- ------- -------
Net realized gains
Total Distributions ....... $ 11.69 $ 11.74 $ 11.52 $ 11.13
======= ======= ======= =======
Net Asset Value, End of
Period
Total Return ................. 4.62% 4.41%(d) 9.12% 1.73%
Ratios/Supplemental Data:
Net Assets at end of
period (000) ............... $55,905 $47,773 $44,336 $47,743
Ratio of expenses to
average net assets
(including waivers) .......... 0.65% 0.78%(e) 0.64% 0.45%
Ratio of net investment
income to average net
assets (including
waivers) ................... 4.95% 4.83%(e) 5.22% 4.96%
Ratio of expenses to average
net assets (before waivers)* 0.75% 0.88%(e) 1.16% 1.13%
Ratio of net investment income
to average net assets
(before waivers)* ............ 4.85% 4.73%(e) 4.70% 4.28%
Portfolio turnover rate ...... 3.66% 1.55% -- 20%
</TABLE>
<TABLE>
<CAPTION>
Period
Year Ended May 31, Ended
------------------------------------------------------------------ May 31,
1993 1992 1991(b) 1990(b) 1989(a)(b)
---- ---- ------- ------- ----------
Trust Trust Portfolio Portfolio Portfolio
Shares Shares Shares Shares Shares
------ ------ --------- --------- ------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ........ $ 10.97 $ 10.62 $ 10.50 $ 10.56 $ 10.00
------- ------- ------- ------- -------
Investment Activities:
Net investment income ...... 0.60 0.64 0.67 0.68 0.58
Net realized and unrealized
gains (losses) on .......... 0.64 0.43 0.24 (0.09) 0.58
------- ------- ------- ------- -------
investments .................. 1.24 1.07 0.91 0.59 1.16
------- ------- ------- ------- -------
Total from Investment
Activities ................ (0.60) (0.64) (0.70) (0.65) (0.60)
Distributions ................ (0.07) (0.08) (0.09) 0.00 0.00
------- ------- ------- ------- -------
Net investment income ...... (0.67) (0.72) (0.79) (0.65) 0.00
------- ------- ------- ------- -------
Net realized gains
Total Distributions ....... $ 11.54 $ 10.97 $ 10.62 $ 10.50 $ 10.56
======= ======= ======= ======= =======
Net Asset Value, End of
Period
Total Return ................. 11.70% 10.37% 9.08% 5.50% 12.08%(d)
Ratios/Supplemental Data:
Net Assets at end of
period (000) ............... $32,777 $ 6,609 $ 4,735 $ 4,568 $ 4,053
Ratio of expenses to
average net assets
(including waivers) .......... 0.43% 0.73% 0.70%(e) 0.70% 0.81%(e)
Ratio of net investment
income to average net
assets (including
waivers) ................... 5.30% 5.87% 6.37%(e) 6.38% 6.36%(e)
Ratio of expenses to average
net assets (before waivers)* 0.98% 1.38% 1.66% 1.70% 1.38%(e)
Ratio of net investment income
to average net assets
(before waivers)* ............ 4.75% 5.22% 5.41% 5.38% 5.79%(e)
Portfolio turnover rate ...... 15% 21% 71% 41% 73%
</TABLE>
- ----------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been
as indicated.
(a) The Portfolio (formerly, the Long-Term Tax-Exempt Portfolio) commenced
operations on July 15, 1988 as a portfolio of The ARCH Tax-Exempt
Trust. On October 2, 1995, it was reorganized as a new portfolio of the
Fund.
(b) The Portfolio had one class of Shares outstanding ("Portfolio Shares")
through September 27, 1990. As of September 28, 1990 the Portfolio
issued a second class of Shares and designated such Shares as "Trust"
Shares. The financial highlights presented for periods prior to
September 28, 1990 represent 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.
-23-
<PAGE> 29
National Municipal Bond Portfolio
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
November 18, 1996
Year Ended to
November 30, 1997 November 30, 1996(a)
Trust Shares Trust Shares
------------ --------------------
<S> <C> <C>
Net Asset Value,
Beginning of Period.................. $10.00
------
Investment Activities
Net Investment
income (loss)...................... 0.02
Net realized and
unrealized gains
(losses) from
investments........................ 0.05
-----
Total from Investment
Activities........................... 0.07
----
Distributions
Net investment income................ (0.02)
------
Total Distributions.................. (0.02)
------
Net Asset Value,
End of Period........................ $10.05
======
Total Return........................... 0.74%(b)
Ratios/Supplemental
Data:
Net Assets at end of
period (000)......................... $310,413
Ratio of expenses to
average net assets
(including waivers).................. 0.12%(c)
Ratio of net
investment income to
average net assets
(including waivers).................. 5.77%(c)
Ratio of expenses to
average net assets
(before waivers)*.................... 0.82%(c)
Ratio of net investment
income to average net
assets (before
waivers)*............................ 5.07%(c)
Portfolio turnover..................... 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.
(a) Period from commencement of operations.
(b) Not Annualized.
(c) Annualized.
-24-
<PAGE> 30
Equity Income Portfolio
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
March 7, 1997
to
November 30, 1997(a)
Trust
Shares
------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.......................................
Investment Activities
Net investment income.................................................
Net realized and unrealized gains from investments....................
Total from Investment Activities................................
Distributions
Net investment income.................................................
Total Distributions.............................................
NET ASSET VALUE, END OF PERIOD.............................................
Total Return ......................................................... (b)***
RATIOS/SUPPLEMENTARY DATA:
Net assets at the end of period (000).................................
Ratio of expenses to average net assets............................... (c)
Ratio of net investment income to average net assets.................. (c)
Ratio of expenses to average net assets*.............................. (c)
Ratio of net investment income to average net assets*................. (c)
Portfolio turnover**..................................................
Average commission rate paid(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.
** Portfolio turnover is calculated on the basis of the 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.
-25-
<PAGE> 31
Equity Index Portfolio
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
May 1, 1997
to
November 30, 1997(a)
Trust
Shares
------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......................................
Investment Activities
Net investment income..................................................
Net realized and unrealized gains from investments.....................
Total from Investment Activities.................................
Distributions
Net investment income..................................................
Total Distributions..............................................
NET ASSET VALUE, END OF PERIOD............................................
Total Return.............................................................. (b)***
RATIOS/SUPPLEMENTARY DATA:
Net assets at the end of period (000)..................................
Ratio of expenses to average net assets................................ (c)
Ratio of net investment income to average net assets................... (c)
Ratio of expenses to average net assets*............................... (c)
Ratio of net investment income to average net assets*.................. (c)
Portfolio turnover**...................................................
Average commission rate paid(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.
** Portfolio turnover is calculated on the basis of the fund 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.
-26-
<PAGE> 32
Growth & Income Equity Portfolio
(for a Share(a) Outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Trust Trust Trust Trust Trust
Shares Shares Shares Shares Shares
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period .......................... $ 16.32 $ 12.72 $ 14.74 $ 14.49
-------- -------- -------- --------
Investment Activities
Net investment income ........... 0.24 0.27 0.22 0.25
Net realized and unrealized gains
(losses) from investments ....... 3.34 3.74 (0.17) 1.06
-------- -------- -------- --------
Total from Investment Activities 3.58 4.01 0.05 1.31
-------- -------- -------- --------
Distributions
Net investment income ........... (0.24) (0.27) (0.21) (0.25)
In excess of net investment income (0.01) -- -- --
-------- -------- -------- --------
Net realized gains .............. (0.94) (0.14) (0.18) (0.81)
In excess of net realized gains . -- -- (1.68)
-------- -------- -------- --------
Total Distributions ............. (1.19) (0.41) (2.07) (1.06)
-------- -------- -------- --------
Net Asset Value,
End of Period ................... $ 18.71 $ 16.32 $ 12.72 $ 14.74
======== ======== ======== ========
Total Return ...................... 23.45% 32.27% 0.36% 9.65%
Ratios/Supplemental
Data:
Net Assets at end of period (000) . $348,183 $286,546 $235,955 $238,771
Ratio of expenses to average net
assets .......................... 0.75% 0.75% 0.75% 0.74%
Ratio of net investment income
to average net assets ........... 1.50% 1.89% 1.72% 1.74%
Ratio of expenses to average net
assets (before waivers)* ........ 0.85% 0.85% 1.15% 0.96%
Ratio of net investment income
to average net assets (before
waivers)* ....................... 1.40% 1.79% 1.32% 1.52%
Portfolio turnover ................ 63.90% 58.50% 65% 41%
Average commission rate paid (f) .. $ 0.0598 -- -- --
</TABLE>
<TABLE>
<CAPTION>
Year Ended November 30,
----------------------------------------------------
1992 1991(a)
---- ------- June 2, 1988
Trust Trust to
Shares Shares 1990 1989 November 30, 1988(b)
------ ------ ---- ---- --------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period .......................... $ 12.33 $ 12.24 $ 12.41 $ 10.25 $ 10.00
-------- -------- -------- -------- --------
Investment Activities
Net investment income ........... 0.24 0.22 0.39 0.41 0.28
Net realized and unrealized gains
(losses) from investments ....... 2.25 0.03 (0.56) 2.29 0.06
-------- -------- -------- -------- --------
Total from Investment Activities 2.49 0.25 (0.17) 2.70 0.34
-------- -------- -------- -------- --------
Distributions
Net investment income ........... (0.26) (0.16) (0.39) (0.51) (0.09)
In excess of net investment income -- -- -- -- --
-------- -------- -------- -------- --------
Net realized gains .............. (0.07) (0.63) (0.03)
In excess of net realized gains . -- -- -- -- --
-------- -------- -------- -------- --------
Total Distributions ............. (0.33) (0.16) (1.02) (0.54) (0.09)
-------- -------- -------- -------- --------
Net Asset Value,
End of Period ................... $ 14.49 $ 12.33 $ 11.22 $ 12.41 $ 10.25
======== ======== ======== ======== ========
Total Return ...................... 20.59% 17.39% (1.36)% 27.11% 3.45%(c),(d)
Ratios/Supplemental
Data:
Net Assets at end of period (000) . $232,967 $139,021 $ 20,116 $ 17,892 $ 10,890
Ratio of expenses to average net
assets .......................... 0.71% 0.27% 0.35% 0.42% 0.41%(e)
Ratio of net investment income
to average net assets ........... 1.94% 2.56% 3.42% 3.69% 5.62%(e)
Ratio of expenses to average net
assets (before waivers)* ........ 0.85% 0.91% 1.00% 1.07% 1.12%(e)
Ratio of net investment income
to average net assets (before
waivers)* ....................... 1.80% 1.92% 2.77% 3.04% 4.91%(e)
Portfolio turnover ................ 79% 78% 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.
(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.
-27-
<PAGE> 33
Growth Equity Portfolio
(for a Share outstanding throughout each period)
<TABLE>
<CAPTION>
November 24, 1997
to
November 30, 1997(a)
Trust
Shares
------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.......................................
Investment Activities
Net investment income...................................................
Net realized and unrealized gains from investments......................
Total from Investment Activities..................................
Distributions
Net investment income...................................................
Total Distributions...............................................
NET ASSET VALUE, END OF PERIOD.............................................
Total Return............................................................... (b)***
RATIOS/SUPPLEMENTARY DATA:
Net assets at the end of period (000)...................................
Ratio of expenses to average net assets................................. (c)
Ratio of net investment income to average net assets.................... (c)
Ratio of expenses to average net assets*................................ (c)
Ratio of net investment income to average net assets*................... (c)
Portfolio turnover**....................................................
Average commission rate paid(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.
** Portfolio turnover is calculated on the basis of the 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 the total number of Portfolio shares purchased
and sold for which commissions were charged.
-28-
<PAGE> 34
For a Share outstanding throughout each period
Small Cap Equity Portfolio(a)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
May 1,
Year Ended Year Ended Year Ended Year Ended Year Ended 1992
Nov. 30, Nov. 30, Nov. 30, Nov. 30, Nov. 30, to Nov. 30,
1997 Trust 1996 Trust 1995 Trust 1994 Trust 1993 Trust 1992(b)
Shares Shares Shares Shares Shares Trust Shares
------ ------ ------ ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period..................... $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.............. 1.05 2.36 0.89 2.14 1.21
---- ---- ----- ------ ------
Total from Investment
Activities............................. 1.07 2.39 0.88 2.17 1.25
---- ---- ----- ------ ------
Distributions
Net investment income................... (0.02) -- -- (0.05) (0.02)
Net realized gains...................... (1.05) (0.91) (1.78) (0.21) --
In excess of realized gains............. -- -- (0.23) -- --
----- ----- ------ ------ ------
Total Distributions.................... (1.07) (0.91) (2.01) (0.26) (0.02)
------ ------ ------ ------- -------
Net Asset Value, End of Period............ $13.49 $13.49 $12.01 $13.14 $11.23
====== ====== ====== ====== ======
Total Return.............................. 8.72% 21.70% 7.56% 19.75% 12.55%(c)
Ratios/Supplemental Data:
Net Assets at end of period (000)......... $171,295 $139,681 $77,690 $47,473 $26,829
Ratio of expenses to average net
assets (including waivers).............. 0.96% 0.96% 0.95% 0.61% 0.30%(d)
Ratio of net investment income to
average net assets (including
waivers)................................ 0.17% 0.18% (0.16)% 0.19% 0.78%(d)
Ratio of expenses to average net
assets (before waivers)*................ 1.06% 1.06% 1.36% 1.23% 1.12%(d)
Ratio of net investment income to
average net assets (before
waivers)*............................... 0.07% 0.08% (0.56)% (0.43)% (0.04)%(d)
Portfolio turnover........................ 65.85% 83.13% 85% 65% 56%
Average commission rate paid (e).......... $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.
(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.
-29-
<PAGE> 35
For a Share outstanding throughout each period
<TABLE>
<CAPTION>
International Equity Portfolio
--------------------------------------------------------------------
Year Ended Year Ended Year Ended April 4, 1994
Nov. 30, Nov. 30, Nov. 30, to Nov. 30,
1997 1996 1995 1994(a)
---- ---- ---- -------
Trust Shares Trust Shares Trust Shares Trust Shares
------------ ------------ ------------ ------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period ..... $ 10.79 $ 9.92 $ 10.00
------- ------- -------
Investment Activities
Net investment income (loss) ........... 0.06 0.03 0.01
Net realized and unrealized gains ------- ------- -------
(losses) from investments and
foreign currency ......................... 1.27 0.86 (0.09)
------- ------- -------
Total from Investment Activities ....... 1.33 (0.89) (0.08)
------- ------- -------
Distributions ............................ --
Net investment income .................. -- -- --
Net realized gains ..................... -- (0.01) --
------- -------
In excess of realized gains ............ -- (0.01) --
------- ------- -------
Total Distributions ................... -- (0.02) --
------- ------- -------
Net Asset Value, End of Period ........... $ 12.12 $ 10.79 $ 9.92
======= ======= =======
Total Return ............................. 12.33% 8.97% (0.80%)(b)
Ratios/Supplemental Data:
Net Assets at end of period (000) ........ $52,181 $36,096 $23,746
Ratio of expenses to average net assets
(including waivers) .................... 1.14% 1.16% 1.23%(c)
Ratio of net investment income to
average net assets (including waivers) .. 0.51% 0.39% 0.23%(c)
Ratio of expenses to average net assets
(before waivers)* ....................... 1.45% 1.46% 1.95%(c)
Ratio of net investment income to
average .................................. 0.20% 0.09% (0.49%)(c)
net assets (before waivers)*
77.63% 62.78% 21%
Portfolio turnover
Average commission rate paid (d) ......... $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.
(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.
-30-
<PAGE> 36
Balanced Portfolio
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended April 1, 1993
Nov. 30, 1997 Nov. 30, 1996 Nov. 30, 1995 Nov. 30, 1994 to Nov. 30, 1993(a)
Trust Shares Trust Shares Trust Shares Trust Shares Trust Shares
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period . $ 11.64 $ 9.62 $ 10.22 $ 10.00
------- ------- ------- -------
Investment Activities
Net Investment
income (loss) ..... 0.37 0.34 0.29 0.23
Net realized and
unrealized gains
(losses) from
investments ....... 1.34 2.02 (0.47) 0.15
------- ------- ------- -------
Total from Investment
Activities .......... 1.71 2.36 (0.18) 0.38
------- ------- ------- -------
Distributions
Net investment income (0.35) (0.34) (0.29) (0.16)
Net realized gains .. (0.42) -- -- --
In excess of realized
gains ............. -- -- (0.13) --
------- ------- ------- -------
Total Distributions . (0.77) (0.34) (0.42) (0.16)
------- ------- ------- -------
Net Asset Value,
End of Period ....... $ 12.58 $ 11.64 $ 9.62 $ 10.22
======= ======= ======= =======
Total Return .......... 15.56% 24.97% (1.81%) 3.86%(b)
Ratios/Supplemental
Data:
Net Assets at end of
period (000) ........ $61,821 $72,669 $65,288 $69,720
Ratio of expenses to
average net assets
(including waivers) . 0.97% 0.98% 0.97% 0.56%(c)
Ratio of net
investment income to
average net assets
(including waivers) . 3.08% 3.29% 3.04% 3.42%(c)
Ratio of expenses to
average net assets
(before waivers)* ... 1.07% 1.08% 1.39% 1.21%(c)
Ratio of net investment
income to average net
assets (before
waivers)* ........... 2.98% 3.19% 2.63% 2.77%(c)
Portfolio turnover .... 85.16% 58.16% 49% 26%
Average commission rate
paid (d) .............. $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.
(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.
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<PAGE> 37
INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS
Although management will use its best efforts to achieve the investment
objective of each Portfolio, there can be no assurance that it will be able to
do so. The investment objective of each Portfolio may be changed only with the
affirmative vote of a majority of the outstanding Shares of the Portfolio,
except that the investment objectives of the Bond Index, Equity Index and Small
Cap Equity Index Portfolios may be changed by the Fund's Board of Directors
without shareholder approval. Shareholders of the latter Portfolios will be
given at least 30 days' written notice before any such change occurs. The
Treasury Money Market, Money Market and Tax-Exempt Money Market Portfolios are
"money market" funds that invest in instruments with remaining maturities of 397
days or less (with certain exceptions) and with dollar-weighted average
portfolio maturities of 90 days or less, subject to the quality, diversification
and other requirements of Rule 2a-7 under the Investment Company Act of 1940, as
amended, (the "1940 Act") and other rules of the Securities and Exchange
Commission (the "SEC").
THE TREASURY MONEY MARKET PORTFOLIO
The Treasury Money Market Portfolio's investment objective is to seek a
high level of current income exempt from state income tax consistent with
liquidity and security of principal. In pursuing its investment objective, the
Portfolio invests in selected money market obligations issued by the U.S.
Government (or its agencies and instrumentalities) that are guaranteed as to
principal and interest by the U.S. Government, the interest on which is
generally exempt from state income tax. Securities that are generally eligible
for this exemption include those issued by the U.S. Treasury (bills,
certificates of indebtedness, notes and certain bonds) and certain U.S.
Government agencies and instrumentalities, including the General Services
Administration and Small Business Administration. Each investor should consult
his or her tax advisor to determine whether distributions from the Portfolio are
exempt from state income tax in the investor's home state. Under normal market
conditions, the Portfolio intends to invest substantially all (but not less than
65%) of its total assets in securities with the above characteristics and
(except to the extent discussed below) will not enter into repurchase agreements
or purchase any U.S. Government security that the Adviser believes is subject to
state income tax.
Under extraordinary circumstances, such as when appropriate exempt
securities are unavailable or pending investment, the Treasury Money Market
Portfolio may temporarily hold cash or invest in repurchase agreements
collateralized by U.S. Government securities, other U.S. Government agency or
instrumentality securities, securities of other investment companies that invest
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<PAGE> 38
in securities in which the Portfolio is permitted to invest, or
cash equivalents.
THE MONEY MARKET PORTFOLIO
The Money Market Portfolio's investment objective is to seek current
income with liquidity and stability of principal. In pursuing its investment
objective, the Portfolio invests substantially all of its assets in a broad
range of money market instruments. These instruments include obligations of the
U.S. Government, U.S. dollar-denominated foreign securities, obligations of U.S.
and foreign banks and savings and loan institutions and commercial obligations
that meet the applicable quality requirements described below.
The Money Market Portfolio will purchase only "First Tier Eligible
Securities" (as defined by the SEC) that present minimal credit risks as
determined by the Adviser pursuant to guidelines approved by the Fund's Board of
Directors. First Tier Eligible Securities consist of (i) securities that either
(a) have short-term debt ratings at the time of purchase in the highest rating
category by at least two unaffiliated nationally recognized statistical rating
organizations ("Rating Agencies") (or one Rating Agency if the security was
rated by only one Rating Agency), or (b) are issued by issuers with such
ratings, and (ii) certain securities that are unrated (including securities of
issuers that have long-term but not short-term ratings) but are of comparable
quality as determined in accordance with guidelines approved by the Board of
Directors. The applicable ratings by Rating Agencies are described in Appendix A
to the Statement of Additional Information. The following descriptions
illustrate the types of instruments in which the Portfolio invests.
BANKING OBLIGATIONS. The Money Market Portfolio may purchase
obligations of issuers in the banking industry, such as certificates of deposit,
letters of credit, bankers' acceptances and time deposits, including U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions having total assets at the time of
purchase in excess of $1 billion. The Portfolio may invest in obligations of
foreign banks or foreign branches of U.S. banks in amounts not in excess of 25%
of its assets where the Adviser deems the instrument to present minimal credit
risks. (See "Risk Factors -- Risks Associated with Foreign Securities and
Currencies" below.) The Portfolio may also make interest-bearing savings
deposits in commercial and savings banks in amounts not in excess of 5% of the
value of its total assets.
COMMERCIAL PAPER AND VARIABLE AND FLOATING RATE INSTRUMENTS. The
Portfolio may invest in commercial paper, including asset-backed commercial
paper representing interests in a pool
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<PAGE> 39
of corporate receivables, dollar-denominated obligations issued by domestic and
foreign bank holding companies, and corporate bonds that meet the quality and
maturity requirements described above. The Portfolio may also invest in variable
or floating rate notes that may have a stated maturity in excess of thirteen
months but will, in any event, permit the Portfolio to demand payment of the
principal of the instrument at least once every thirteen months upon no more
than 30 days' notice (unless the instrument is guaranteed by the U.S. Government
or an agency or instrumentality thereof). Such instruments may include variable
amount master demand notes, which are unsecured instruments that permit the
indebtedness thereunder to vary in addition to providing for periodic
adjustments in the interest rate. Unrated variable and floating rate instruments
will be determined by the Adviser (under the supervision of the Board of
Directors) to be of comparable quality at the time of purchase to First Tier
Eligible Securities. There may be no active secondary market in the instruments,
which could make it difficult for the Portfolio to dispose of an instrument in
the event the issuer were to default on its payment obligation or during periods
that the Portfolio could not exercise its demand rights. The Portfolio could,
for these or other reasons, suffer a loss with respect to such instruments.
Variable and floating rate instruments held by the Portfolio will be subject to
the Portfolio's 10% limitation on illiquid investments when the Portfolio may
not demand payment of the principal amount within seven days and a liquid
trading market is absent.
GOVERNMENT OBLIGATIONS. The Money Market Portfolio may invest in
obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities. In addition, the Portfolio may, when deemed appropriate by
the Adviser, invest in short-term obligations issued by state and local
governmental issuers that meet the quality requirements described above and, as
a result of the Tax Reform Act of 1986, carry yields that are competitive with
those of other types of money market instruments of comparable quality.
THE TAX-EXEMPT MONEY MARKET PORTFOLIO
The Tax-Exempt Money Market Portfolio's investment objective is to seek
as high a level of current interest income exempt from federal income tax as is
consistent with liquidity and stability of principal. The Portfolio seeks to
achieve its objective by investing substantially all of its assets in short-term
obligations issued by or on behalf of states, territories and possessions of the
United States, the District of Columbia and their respective political
subdivisions, agencies, instrumentalities and authorities the interest on which,
in the opinion of bond counsel or counsel to the issuer, is exempt from regular
federal income tax (collectively, "Municipal
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<PAGE> 40
Obligations"). The Portfolio my also hold tax-exempt derivative securities such
as tender option bonds, participations, beneficial interests in trusts and
partnership interests.
The Tax-Exempt Money Market Portfolio will purchase only "First Tier
Eligible Securities" (as defined by the SEC) that present minimal credit risks
as determined by the Adviser pursuant to guidelines approved by the Board of
Directors. See "The Money Market Portfolio" above for a description of "First
Tier Eligible Securities".
Dividends paid by the Tax-Exempt Money Market Portfolio that are
derived from interest attributable to tax-exempt obligations of a particular
state and its political subdivisions as well as of certain other governmental
issuers including Puerto Rico, Guam and the Virgin Islands may be exempt from
federal and state income tax. Dividends derived from interest on obligations of
other governmental issuers are exempt from federal income tax but may be subject
to state income tax.
As a matter of fundamental policy, under normal market conditions or
when the Adviser deems suitable tax-exempt Municipal Obligations to be
available, at least 80% of the Tax-Exempt Money Market Portfolio's total assets
will be invested in Municipal Obligations. The Portfolio may hold uninvested
cash reserves pending investment during temporary defensive periods or if, in
the opinion of the Adviser, suitable Municipal Obligations are unavailable.
There is no percentage limitation on the amount of assets which may be held
uninvested during temporary defensive periods.
In addition, during temporary defensive periods or if, in the opinion
of the Adviser, suitable Municipal Obligations are unavailable and subject to
the quality standards described above, the Tax-Exempt Money Market Portfolio may
invest up to 20% of its assets in money market instruments, the income from
which is subject to federal income tax. Such instruments may include obligations
of the U.S. Government, its agencies or instrumentalities; debt securities
(including commercial paper) of issuers having, at the time of purchase, a
quality rating within the highest rating category by a Rating Agency;
certificates of deposit or bankers' acceptances of domestic branches of U.S.
banks with total assets at the time of purchase of $1 billion or more; or
repurchase agreements with respect to such obligations.
THE U.S. GOVERNMENT SECURITIES PORTFOLIO
The U.S. Government Securities Portfolio's investment objective is to
seek a high rate of current income that is consistent with relative stability of
principal. In pursuing its
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<PAGE> 41
investment objective, the Portfolio invests in obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities normally having
remaining maturities of 1 to 30 years and repurchase agreements relating to such
obligations. (For further information, see "Other Applicable Policies -- U.S.
Government Obligations" below.)
Consistent with its investment policies, the U.S. Government Securities
Portfolio may invest in mortgage-backed securities, including those representing
an undivided ownership interest in a pool of mortgage loans, such as
certificates issued by the Government National Mortgage Association ("GNMA"),
the Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC") and collateralized mortgage obligations ("CMOs").
For further information regarding these instruments, see "Other Applicable
Policies -- Asset-Backed Securities" below.
THE INTERMEDIATE CORPORATE BOND PORTFOLIO
The Intermediate Corporate Bond Portfolio's investment objective is to
seek as high a level of current income as is consistent with preservation of
capital. In pursuing its investment objective, the Portfolio will invest, under
normal market and economic conditions, at least 65% of its total assets in
non-convertible corporate debt obligations, which shall mean obligations of (i)
domestic or foreign business corporations, or (ii) agencies, instrumentalities
or authorities which are organized in corporate form by one or more states or
political subdivisions in the United States or one or more foreign governments.
The Portfolio may also invest in obligations issued or guaranteed by the U.S. or
foreign governments, their agencies or instrumentalities, and asset-backed
securities, including various collateralized mortgage obligations and other
mortgage-related securities. For further information regarding these
instruments, see "Other Applicable Policies -- Asset-Backed Securities" below.
In making investment decisions, the Adviser will consider a number of factors
including current yield, maturity, yield to maturity, anticipated changes in
interest rates, and the overall quality of the investment. The Portfolio seeks
to provide a current yield greater than that generally available from money
market instruments.
The Portfolio may purchase debt securities which are rated at the time
of purchase in one of the four highest rating categories assigned by one or more
Rating Agencies or in unrated debt securities deemed by the Adviser to be of
comparable quality. Under normal market and economic conditions, however, the
Portfolio intends to invest at least 65% of its total assets in debt obligations
rated in one of the three highest rating categories assigned by one or more
Rating Agencies (or unrated
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<PAGE> 42
debt obligations determined to be of comparable quality). Securities that are
rated in the lowest of the four highest rating categories have speculative
characteristics, even though they are of investment grade quality, and such
securities will be purchased (and retained) only if the Adviser believes that
the issuers have an adequate capacity to pay interest and repay principal.
Unrated debt securities will be purchased only if they are considered by the
Adviser to be at least comparable in quality at the time of purchase to
instruments within the rating categories listed above. Debt securities purchased
by the Portfolio whose ratings are subsequently downgraded below the four
highest rating categories of a Rating Agency will be disposed of in an orderly
manner, normally within 30 to 60 days. The applicable ratings issued by the
Rating Agencies are described in the Appendix to the Statement of Additional
Information.
The Portfolio reserves the right to hold as a temporary defensive
measure up to 100% of its total assets in cash and short-term obligations
(having remaining maturities of 13 months or less) at such times and in such
proportions as, in the opinion of the Adviser, prevailing market or economic
conditions warrant. Short-term obligations in which the Portfolio may invest
include (i) money market instruments, such as commercial paper, including
variable and floating rate instruments, rated at the time of purchase in one of
the two highest rating categories assigned by a Rating Agency or, if unrated,
deemed to be of comparable quality by the Adviser at the time of purchase, and
bank obligations, including bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits of U.S. and foreign banks having total
assets at the time of purchase in excess of $1 billion, (ii) obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, and
(iii) repurchase agreements. For further information regarding variable and
floating rate instruments, see "The Money Market Portfolio -- Commercial Paper
and Variable and Floating Rate Instruments" above. Although the Portfolio will
invest in obligations of foreign banks or foreign branches of U.S. banks only
when the Adviser determines that the instrument presents minimal credit risks,
such investments nevertheless entail risks that are different from those of
investments in domestic obligations of U.S. banks. See "Risk Factors -- Risks
Associated with Foreign Securities and Currencies" below. Investments in the
obligations of foreign banks or foreign branches of U.S. banks will not exceed
25% of the Portfolio's total assets at the time of purchase.
The Portfolio's average weighted maturity will be between three and ten
years and will vary in light of current market and economic conditions, the
comparative yields on instruments with different maturities, and other factors.
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<PAGE> 43
THE BOND INDEX PORTFOLIO
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 debt securities as represented by the Lehman Brothers
Aggregate Bond Index (the "Lehman Aggregate").
The Portfolio is not managed in a traditional sense, that is, by making
discretionary judgments based on analysis of economic, financial and market
conditions. Instead, the Portfolio uses an investment strategy called "indexing"
whereby it seeks to approximate the investment performance of the market segment
comprised of U.S. Government, mortgage-backed, asset-backed and corporate debt
securities, as represented by the Lehman Aggregate, through the use of
sophisticated computer models to determine which securities should be purchased
or sold, while keeping transaction and administrative costs to a minimum. The
Portfolio will invest substantially all of its total assets in securities listed
in the Lehman Aggregate, including without limitation, asset-backed securities.
For further information regarding asset-backed securities see "Other Applicable
Policies -- Asset-Backed Securities" below. The Adviser generally selects
securities for the Portfolio on the basis of their weightings in the Lehman
Aggregate and will only purchase a security for the Portfolio that is included
in the Lehman Aggregate at the time of such purchase. The Portfolio should
exhibit price and yield volatility similar to that of the Lehman Aggregate. For
further information, see "Other Investment Policies -- The Indexing Approach"
below and the Statement of Additional Information under "Investment Objectives
and Policies -- The Indexing Approach."
With respect to the remaining portion of its total assets, the
Portfolio has the ability to hold temporary cash balances which may be invested
in U.S. Government obligations and money market instruments. See "The
Intermediate Corporate Bond Portfolio" above for a description of the types of
money market instruments in which the Portfolio may invest and the applicable
limitations with respect to such investments. If appropriate, the Portfolio may
use options, futures contracts and depository receipts to hedge its positions or
for other permissible purposes. The Portfolio also may enter into reverse
repurchase agreements and lend its portfolio securities.
The Lehman Aggregate. The Lehman Aggregate is composed of U.S.
Government, mortgage-backed, asset-backed and non-convertible corporate debt
securities that meet the following criteria: the securities have at least $100
million par amount outstanding; the securities are rated investment grade (at
least
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<PAGE> 44
Baa or BBB) by Moody's or Standard & Poor's Ratings Services ("S&P") (if not
rated by Moody's); have at least one year until maturity; and have coupons with
fixed rates. The Lehman Aggregate excludes collateralized mortgage obligations
("CMOs"), adjustable rate mortgages, manufactured homes, non-agency bonds,
buydowns, graduated equity mortgages, project loans and non-conforming (i.e.,
"jumbo") mortgages. As of December 31, 1997, over _____ issues were included in
the Lehman Aggregate, representing approximately $___ trillion in market value.
U.S. Treasury and agency securities represented approximately ____% of the total
market value, asset-backed and mortgage-backed securities represented
approximately ____% of the total market value, with corporate debt securities
representing the balance of approximately _____%. The average maturity of the
Lehman Aggregate was approximately _____ years. The Adviser believes that the
Lehman Aggregate is an appropriate benchmark for the Portfolio because it is
diversified, it is familiar to investors, and it is widely accepted as a
reference for bonds and other fixed income investments.
Because of the large number of issues included in the Lehman Aggregate,
the Portfolio cannot invest in all such issues. Instead, the Portfolio will hold
a representative sample of approximately 100 of the securities in the Lehman
Aggregate, selecting one or two issues to represent an entire "class" or type of
securities in the Lehman Aggregate. At a minimum, the Portfolio seeks to hold
securities which reflect the major asset classes in the Lehman Aggregate - U.S.
Treasury and agency issues, mortgage-backed securities, asset-backed securities
and non-convertible corporate debt securities. As the Portfolio's assets
increase, these classes will be further delineated along the lines of sector,
term-to-maturity, coupon and credit ratings. This sampling technique is expected
to be an effective means of substantially duplicating the price and performance
provided by the securities comprising the Lehman Aggregate.
Securities rated Baa by Moody's or BBB by S&P have speculative
characteristics even though they are of investment-grade quality, and changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with
higher-grade securities.
THE GOVERNMENT & CORPORATE BOND PORTFOLIO
The Government & Corporate Bond Portfolio's investment objective is to
seek the highest level of current income consistent with conservation of
capital. In pursuing its investment objective, the Portfolio intends to invest
at least 65% of its assets in fixed-income and related debt securities
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<PAGE> 45
rated in one of the three highest rating categories assigned by a Rating Agency
at the time of purchase or in unrated investments deemed by the Adviser to be of
comparable quality pursuant to guidelines approved by the Fund's Board of
Directors. Debt securities may include a broad range of fixed and variable rate
bonds, debentures, notes, and securities convertible into or exchangeable for
common stock; dollar-denominated debt obligations of foreign issuers, including
foreign corporations and governments; and first mortgage loans, income
participation loans, participation certificates in pools of mortgages, including
mortgages issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, CMOs and other mortgage-related securities, and other
asset-backed securities. For further information regarding asset-backed
securities, see "Other Applicable Policies -- Asset-Backed Securities" below.
The Portfolio may invest up to 10% of its total assets at the time of purchase
in dollar-denominated debt obligations of foreign issuers, either directly or
through American Depository Receipts ("ADRs") and European Depository Receipts
("EDRs"), and up to 25% of its total assets at the time of purchase in
non-mortgage asset-backed securities, respectively. See "Other Applicable
Policies -- Foreign Securities" below and the Statement of Additional
Information under "Investment Objectives and Policies -- ADRs and EDRs."
The Government & Corporate Bond Portfolio may purchase debt securities
which are rated at the time of purchase within the four highest rating
categories assigned by Rating Agencies or unrated debt securities (including
convertible securities) which the Adviser believes present attractive
opportunities and are of at least comparable quality to instruments so rated.
The Portfolio's dollar-weighted average portfolio quality is expected to be at
least "A" or higher. Securities rated in the lowest of the above four rating
categories have speculative characteristics, even though they are of
investment-grade quality, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade securities. Such
securities will be purchased (and retained) only when the Adviser believes the
issuers have an adequate capacity to pay interest and repay principal. (For a
description of the rating categories of Rating Agencies, see Appendix A to the
Statement of Additional Information.) In making investment decisions, the
Adviser will consider a number of factors including current yield, maturity,
yield to maturity, anticipated changes in interest rates, and the overall
quality of the investment. The Portfolio seeks to provide a current yield
greater than that generally available from money market instruments.
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<PAGE> 46
The Government & Corporate Bond Portfolio reserves the right to hold as
a temporary defensive measure up to 100% of its total assets in cash and
short-term obligations (having remaining maturities of 12 months or less) at
such times and in such proportions as, in the opinion of the Adviser, prevailing
market or economic conditions warrant. Short-term obligations include, but are
not limited to, commercial paper, bankers' acceptances, certificates of deposit,
demand and time deposits of domestic and foreign banks and savings and loan
associations, repurchase agreements and obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities.
THE SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
The Short-Intermediate Municipal Portfolio's investment objective is to
seek as high a level of current income, exempt from regular federal income tax,
as is consistent with preservation of capital. The Portfolio seeks to achieve
its objective by investing substantially all of its assets in investment grade
Municipal Obligations. As a matter of fundamental policy, under normal market
conditions at least 80% of the Portfolio's total assets will be invested in
Municipal Obligations, primarily bonds (at least 65% under normal market
conditions).
The Short-Intermediate Municipal Portfolio invests in Municipal
Obligations that are rated at the time of purchase within the four highest
rating categories assigned by a Rating Agency. The Portfolio may also invest in
short-term Municipal Obligations such as municipal notes, tax-exempt commercial
paper, and variable and floating rate demand obligations that are rated at the
time of purchase within the two highest rating categories assigned by a Rating
Agency. Municipal Obligations rated in the lowest of the four highest rating
categories for bonds are considered to have speculative characteristics, even
though they are of investment grade quality. Such bonds will be purchased only
if the Adviser believes they have an adequate capacity to pay interest and repay
principal. Unrated obligations will be purchased only if they are considered by
the Adviser to be at least comparable in quality at the time of purchase to
instruments within the rating categories listed above. Municipal Obligations
purchased by the Portfolio whose ratings are subsequently downgraded below the
four highest rating categories of a Rating Agency will be disposed of in an
orderly manner, normally within 30-60 days. The applicable ratings issued by the
Rating Agencies are described in the Appendix to the Statement of Additional
Information.
In addition, the Short-Intermediate Municipal Portfolio may from time
to time during temporary defensive periods, invest in taxable obligations in
such proportions as, in the opinion of the
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<PAGE> 47
Adviser, prevailing market or economic conditions warrant. Such instruments may
include obligations of the U.S. Government, its agencies or instrumentalities;
debt securities (including commercial paper) of issuers having, at the time of
purchase, a quality rating within the two highest rating categories assigned by
a Rating Agency; or repurchase agreements with respect to such obligations.
During temporary defensive periods or if, in the opinion of the
Adviser, suitable tax-exempt obligations are unavailable, the Short-Intermediate
Municipal Portfolio may also hold uninvested cash reserves which do not earn
income pending investment. There is no percentage limitation on the amount of
assets that may be held uninvested during these temporary defensive periods.
The Short-Intermediate Municipal Portfolio's average dollar-weighted
maturity will be between two and five years and will vary in light of current
market and economic conditions, the comparative yields on instruments with
different maturities, and other factors.
THE MISSOURI TAX-EXEMPT BOND PORTFOLIO
The Missouri Tax-Exempt Bond Portfolio's investment objective is to
seek as high a level of interest income exempt from federal income tax as is
consistent with conservation of capital. In pursuing its investment objective,
the Portfolio invests substantially all of its assets in investment-grade
Missouri Municipal Obligations (which, to the extent possible, are also exempt
from Missouri state income tax).
Dividends paid by the Missouri Tax-Exempt Bond Portfolio that are
derived from interest attributable to tax-exempt obligations of the State of
Missouri and its political subdivisions as well as of certain other governmental
issuers including Puerto Rico, Guam and the Virgin Islands ("Missouri Municipal
Obligations") are exempt from federal and Missouri income tax. Dividends derived
from interest on obligations of other governmental issuers are exempt from
federal income tax but may be subject to Missouri income tax.
As a matter of fundamental policy, under normal market conditions, at
least 65% of the Missouri Tax-Exempt Bond Portfolio's total assets will be
invested in Missouri Municipal Obligations. The Portfolio will seek to maximize
the proportion of its dividends which are exempt from both federal and Missouri
income tax and presently expects to invest substantially all of its total assets
in Missouri Municipal Obligations.
The Missouri Tax-Exempt Bond Portfolio invests in Municipal Obligations
that are rated at the time of purchase within the
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<PAGE> 48
four highest rating categories assigned by a Rating Agency. The Portfolio may
also invest in short-term Municipal Obligations such as municipal notes,
tax-exempt commercial paper and variable or floating rate demand obligations
that are rated at the time of purchase within the two highest rating categories
assigned by a Rating Agency. Municipal Obligations rated in the lowest of the
four highest rating categories for bonds are considered to have speculative
characteristics, even though they are of investment grade quality. Such bonds
will be purchased only if the Adviser believes the issuers have an adequate
capacity to pay interest and repay principal. Unrated obligations will be
purchased only if they are considered by the Adviser to be at least comparable
in quality at the time of purchase to instruments within the rating categories
listed above. The applicable Municipal Obligation ratings are described in the
Appendix to the Statement of Additional Information.
As a matter of fundamental policy, under normal market conditions or
when the Adviser deems suitable tax-exempt Municipal Obligations to be
available, at least 80% of the Missouri Tax-Exempt Bond Portfolio's total assets
will be invested in Municipal Obligations. The Portfolio may hold uninvested
cash reserves pending investment during temporary defensive periods or if, in
the opinion of the Adviser, suitable Municipal Obligations are unavailable.
There is no percentage limitation on the amount of assets which may be held
uninvested during temporary defensive periods.
In addition, during temporary defensive periods or if, in the opinion
of the Adviser, suitable Municipal Obligations are unavailable and subject to
the quality standards described above, the Missouri Tax-Exempt Bond Portfolio
may invest up to 20% of its assets in money market instruments, the income from
which is subject to federal income tax. See "The Tax-Exempt Money Market
Portfolio" above for a description of the types of taxable money market
instruments in which the Portfolio may invest.
The Missouri Tax-Exempt Bond Portfolio's average weighted maturity will
vary in light of market and economic conditions, the comparative yields on
instruments with different maturities, and other factors.
THE NATIONAL MUNICIPAL BOND PORTFOLIO
The National Municipal Bond Portfolio's investment objective is to seek
as high a level of current income exempt from regular federal income tax as is
consistent with conservation of capital. In pursuing its investment objective,
the Portfolio intends to invest, under normal market and economic conditions,
substantially all of its assets in investment grade Municipal Obligations. As a
matter of fundamental policy, under normal
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<PAGE> 49
market and economic conditions at least 80% of the Portfolio's total assets will
be invested in Municipal Obligations, primarily, bonds (at least 65% under
normal market conditions).
The Portfolio may purchase Municipal Obligations that are rated at the
time of purchase in one of the four highest rating categories assigned by one or
more Rating Agencies or in unrated Municipal Obligations deemed by the Adviser
to be of comparable quality. Under normal market and economic conditions,
however, the Portfolio intends to invest at least 65% of its assets in Municipal
Obligations rated at the time of purchase in one of the three highest rating
categories assigned by one or more Rating Agencies (or unrated Municipal
Obligations determined to be of comparable quality). Securities that are rated
in the lowest of the four highest rating categories are considered to have
speculative characteristics, even though they are of investment grade quality,
and will be purchased (and retained) only if the Adviser believes that the
issuers have an adequate capacity to pay interest and repay principal. Unrated
obligations will be purchased only if they are considered by the Adviser to be
at least comparable in quality at the time of purchase to instruments within the
rating categories listed above. Municipal Obligations purchased by the Portfolio
whose ratings are subsequently downgraded below the four highest rating
categories of a Rating Agency will be disposed of in an orderly manner, normally
within 30 to 60 days. The applicable ratings issued by the Rating Agencies are
described in the Appendix to the Statement of Additional Information.
In addition, the Portfolio may from time to time during temporary
defensive periods, invest in taxable obligations in such proportions as, in the
opinion of the Adviser, prevailing market or economic conditions warrant. Such
instruments may include obligations of the U.S. Government, its agencies or
instrumentalities and debt securities (including commercial paper) of issuers
having, at the time of purchase, a quality rating within the two highest rating
categories of a Rating Agency. The Portfolio does not intend to invest in
taxable obligations under normal market conditions.
During temporary defensive periods or if, in the opinion of the
Adviser, suitable tax-exempt obligations are unavailable, the Portfolio may also
hold uninvested cash reserves which do not earn income pending investment. There
is no percentage limitation on the amount of assets that may be held uninvested
during these temporary defensive periods. The Portfolio does not intend to hold
uninvested cash reserves under normal market conditions.
The Portfolio's average dollar-weighted maturity will vary in light of
current market and economic conditions, the
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comparative yields on instruments with different maturities, and other factors.
THE EQUITY INCOME PORTFOLIO
The Equity Income Portfolio's investment objective is to seek to
provide an above-average level of income consistent with long-term capital
appreciation. In pursuing its investment objective, the Portfolio intends to
invest, under normal market and economic conditions, substantially all of its
assets in common stock, preferred stock, rights, warrants, and securities
convertible into common stock. The Adviser will select stocks based on a number
of quantitative factors, including dividend yield, current and future earnings
potential compared to stock prices, total return potential and other measures of
value, such as cash flow, asset value or book value, if appropriate. Stocks
purchased for the Portfolio generally will be listed on a national securities
exchange or will be unlisted securities with an established over-the-counter
market. A convertible security may be purchased for the Portfolio when, in the
Adviser's opinion, the price and yield of the convertible security is favorable
as compared to the price and yield of the common stock. The stocks or securities
in which the Portfolio invests may be expected to produce an above average level
of income (as measured by the Standard & Poor's 500 Composite Stock Price
Index). Under normal market and economic conditions, at least 65% of the
Portfolio's total assets will be invested in income-producing equity securities.
The Portfolio may indirectly invest in foreign securities through the
purchase of ADRs and EDRs, but will not do so if, immediately after and as a
result of the purchase, the value of ADRs and EDRs would exceed 15% of the
Portfolio's total assets. For further information, see "Other Applicable
Policies --Foreign Securities" below and the Statement of Additional Information
under "Investment Objectives and Policies -- ADRs and EDRs".
The Portfolio reserves the right to hold as a temporary defensive
measure during abnormal market or economic conditions up to 100% of its total
assets in cash and short-term obligations (having remaining maturities of 13
months or less) at such times and in such proportions as, in the opinion of the
Adviser, such abnormal market or economic conditions warrant. See "The
Intermediate Corporate Bond Portfolio" above for a description of the types of
short-term obligations in which the Portfolio may invest and the applicable
limitations with respect to such investments.
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THE EQUITY INDEX PORTFOLIO
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").
Like the Bond Index Portfolio, the Equity Index Portfolio is not
managed in a traditional sense, that is, by making discretionary judgments based
on analysis of economic, financial and market conditions. Instead, the Portfolio
uses an investment strategy called "indexing" whereby it seeks to approximate
the investment performance of the market segment comprised of U.S. publicly
traded common stocks with large stock market capitalizations, as represented by
the S&P 500, through the use of sophisticated computer models to determine which
securities should be purchased or sold, while keeping transaction and
administrative costs to a minimum. The Portfolio will invest substantially all
of its total assets in securities listed in the S&P 500. The Adviser generally
selects securities for the Portfolio on the basis of their weightings in the S&P
500 and will only purchase a security for the Portfolio that is included in the
S&P 500 at the time of such purchase. The Portfolio should exhibit price
volatility similar to that of the S&P 500. For further information, see "Other
Investment Policies -- The Indexing Approach" below and the Statement of
Additional Information under "Investment Objectives and Policies -- The Indexing
Approach."
With respect to the remaining portion of its total assets, the
Portfolio has the ability to hold temporary cash balances which may be invested
in U.S. Government obligations and money market instruments. See "The
Intermediate Corporate Bond Portfolio" above for a description of the money
market instruments in which the Portfolio may invest and the applicable
limitations with respect to such investments. If appropriate, the Portfolio may
use options, futures contracts and depository receipts to hedge its positions or
for other permissible purposes. The Portfolio also may enter into reverse
repurchase agreements and lend its portfolio securities.
The S&P 500. The S&P 500 is composed of approximately 500 common
stocks, most of which are listed on the New York Stock Exchange. S&P chooses the
stocks for the S&P 500 on a statistical basis. As of December 31, 1997 the
stocks in the S&P 500 have an average market capitalization of $___ trillion and
account for approximately ___% of the total market value of all U.S. common
stocks. Normally, the Equity Index Portfolio will hold all 500 stocks in the S&P
500 and will
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hold each stock approximately the same percentage as that stock represents in
the S&P 500. Under certain circumstances, the Portfolio may not hold all 500
stocks in the S&P 500, for example because of changes in the S&P 500, or as a
result of shareholder activity in the Portfolio. The Portfolio will rebalance
its holdings monthly to reflect changes in the S&P 500. "Market capitalization"
for a company is the market price per share of stock multiplied by the number of
shares outstanding. The Adviser believes that the S&P 500 is an appropriate
benchmark for the Portfolio because it is diversified, it is familiar to many
investors and it is widely accepted as a reference for common stock investments.
THE GROWTH & INCOME EQUITY PORTFOLIO
The Growth & Income Equity Portfolio's investment objective is to
provide long-term capital growth, with income a secondary consideration. In
pursuing its investment objective, the Portfolio normally invests substantially
all of its assets in common stock, preferred stock, rights, warrants and
securities convertible into common stock. The Adviser selects stocks based on a
number of factors, including historical and projected earnings, growth and asset
value, earnings compared to stock prices generally (as measured by the S&P 500,
and consistency of earnings growth and earnings quality. Stocks purchased for
the Portfolio generally will be listed on a national securities exchange or will
be unlisted securities with an established over-the-counter market. A
convertible security may be purchased for the Portfolio when, in the Adviser's
opinion, the price and yield of the convertible security is favorable compared
to the price and yield of the common stock. The stocks or securities in which
the Portfolio invests may be expected to produce some income but income is not a
major criterion in their selection.
The Growth & Income Equity Portfolio may indirectly invest in foreign
securities through the purchase of ADRs and EDRs but will not do so if,
immediately after and as a result of the purchase, the value of ADRs and EDRs
would exceed 15% of the Portfolio's total assets. For further information, see
"Other Applicable Policies -- Foreign Securities" below and the Statement of
Additional Information under "Investment Objectives and Policies -- ADRs and
EDRs." The Portfolio may also invest in Canadian securities listed on a national
securities exchange.
The Growth & Income Equity Portfolio reserves the right to hold as a
temporary defensive measure up to 100% of its total assets in cash and
short-term obligations (having remaining maturities of 12 months or less) at
such times and in such proportions as, in the opinion of the Adviser, prevailing
market or economic conditions warrant. See "The Government & Corporate
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Bond Portfolio" above for a description of the types of short-term obligations
in which the Portfolio may invest.
THE GROWTH EQUITY PORTFOLIO
The Growth Equity Portfolio's investment objective is capital
appreciation. The Portfolio seeks to achieve this objective by investing
primarily in equity securities of companies selected on the basis of assessment
of earnings and the risk and volatility of each company's business. Other
factors, such as product position or market share, will also be considered by
the Adviser.
The Growth Equity Portfolio invests primarily in equity securities of
companies selected by the Adviser on the basis of traditional research
techniques. The equity securities in which the Portfolio invests are primarily
those of middle to large capitalization issuers whose shares are listed on the
New York and American Stock Exchanges and Nasdaq. Company earnings are the
primary consideration in selecting portfolio securities. The Portfolio may
invest in common stocks, preferred stocks, convertible securities, corporate
bonds, debentures, notes, warrants, and put and call options on stocks, although
normally it will invest at least 65% of its total assets in common stocks. Debt
obligations purchased by the Portfolio may include variable and floating rate
instruments, including variable rate master demand notes that permit the
indebtedness thereunder to vary in addition to providing for periodic
adjustments in the interest rate. See "The Money Market Portfolio" above for a
description of certain risks in investing in variable and floating rate
obligations. Debt obligations in which the Portfolio invests will be rated at
the time of purchase in one of the four highest rating categories assigned by
one or more Rating Agencies or, if unrated, will be deemed to be of comparable
quality by the Adviser. Securities that are rated in the lowest of the four
highest rating categories have speculative characteristics, even though they are
of investment grade quality, and changes in economic conditions or other
circumstances are more likely to lead to weakened capacity to make principal and
interest payments than higher rated securities. Downgrades will be evaluated on
a case by case basis by the Adviser. The Adviser will determine whether or not
the security continues to be an acceptable investment. If it is determined not
to be an acceptable investment, the security will be sold. The applicable
ratings categories of the Rating Agencies are described in Appendix A to the
Statement of Additional Information.
The Growth Equity Portfolio may invest in the securities of foreign
issuers which are freely traded on United States securities exchanges or in the
over-the-counter market in the form of depository receipts. Securities of a
foreign issuer may
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present greater risks in the form of nationalization, confiscation, domestic
marketability, or other national or international restrictions. As a matter of
practice, the Portfolio will not invest in the securities of a foreign issuer if
any such risk appears to the Adviser to be substantial. The Portfolio may not
invest more than 5% of its total assets in securities of foreign issuers. For
further information on the risks of foreign securities, see "Risk Factors--Risks
Associated with Foreign Securities and Currencies" below.
In such proportions as, in the judgment of the Adviser, prevailing
market conditions warrant, the Growth Equity Portfolio may, for temporary
defensive purposes, invest in short-term money market instruments, securities
issued and/or guaranteed as to payment of principal and interest by the U.S.
Government, its agencies or instrumentalities, and repurchase agreements. See
"The Intermediate Corporate Bond Portfolio" above for further information on
the types of short-term obligations in which the Portfolio may invest.
THE SMALL CAP EQUITY PORTFOLIO
The Small Cap Equity Portfolio's investment objective is capital
appreciation. Current income is an incidental consideration in the selection of
portfolio securities. In pursuing its investment objective, the Portfolio (which
was formerly known as the Emerging Growth Portfolio) normally invests at least
65% of its total assets in common stock of emerging or established small- to
medium-sized companies with above-average potential for price appreciation. The
market capitalization of the issuers of securities purchased by the Portfolio
will normally range from $100 million to $2 billion at the time of purchase. The
Portfolio may invest in preferred stock, rights, warrants, and securities
convertible into common stock. It may invest a portion of its assets in
established larger companies that, in the opinion of the Adviser, offer improved
growth possibilities because of rejuvenated management, product changes, or
other developments that might stimulate earnings or asset growth, or in
companies that seem undervalued relative to their underlying assets. The
Portfolio does not intend to invest more than 5% of the value of its total
assets in the securities of unseasoned companies, that is, companies (or their
predecessors) with less than three years' continuous operation.
The Small Cap Equity Portfolio may also invest a portion of its assets
in smaller companies that have limited specialized-product lines, markets or
financial resources, or are dependent upon one-person management. The securities
of such smaller companies may have limited marketability, may be subject to more
abrupt or erratic market movements than securities of larger companies or the
market averages in general, and may involve
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greater risk than is customarily associated with more established companies. To
qualify for investment by the Portfolio, however, a company will be expected to
have, in the opinion of the Adviser, above-average possibilities for capital
appreciation (when compared with the average appreciation of companies whose
securities are included in the S&P 500).
The Small Cap Equity Portfolio uses a research intensive approach and
valuation techniques that emphasize earnings and asset growth. The Adviser
selects stocks based on a number of factors, including historical and projected
earnings, asset value, potential for price appreciation and earnings growth, and
quality of products manufactured and/or services offered. Stocks purchased for
the Portfolio may be listed on a national securities exchange or may be unlisted
securities with or without an established over-the-counter market. The Portfolio
may also invest in initial public offerings of new companies that demonstrate
the potential for price appreciation. A convertible security may be purchased
for the Portfolio when, in the Adviser's opinion, the price of the convertible
security is favorable compared to the price of the common stock. In general, the
Portfolio's stocks and other securities will be diversified over a number of
industry groups in an effort to reduce the risks inherent in such investments.
The Small Cap Equity Portfolio may indirectly invest in foreign
securities through the purchase of such obligations as ADRs and EDRs but will
not do so if, immediately after and as a result of the purchase, the value of
ADRs and EDRs would exceed 25% of the Portfolio's total assets. For further
information, see "Other Applicable Policies -- Foreign Securities" below, and
the Statement of Additional Information under "Investment Objectives and
Policies -- ADRs and EDRs." The Portfolio may also invest in securities issued
by Canadian corporations and Canadian counterparts of U.S. corporations, which
may or may not be listed on a national securities exchange or traded in
over-the-counter markets.
The Small Cap Equity Portfolio reserves the right to hold as a
temporary defensive measure up to 100% of its total assets in cash and
short-term obligations (having remaining maturities of 12 months or less) at
such times and in such proportions as, in the opinion of the Adviser, prevailing
market or economic conditions warrant. See "The Government & Corporate Bond
Portfolio" above for a description of the types of short-term obligations in
which the Portfolio may invest.
THE SMALL CAP EQUITY INDEX PORTFOLIO
The investment objective of the Small Cap Equity Index Portfolio is to
seek to provide investment results that, before
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deduction of operating expenses, approximate the price and yield performance of
U.S. common stocks with smaller stock market capitalizations as represented by
the Standard & Poor's SmallCap 600 Stock Price Index (the "S&P SmallCap 600").
Like the Bond Index and Equity Index Portfolios, the Small Cap Equity
Index Portfolio is not managed in a traditional sense, that is, by making
discretionary judgments based on analysis of economic, financial and market
conditions. Instead, the Portfolio uses an investment strategy called
"indexing", whereby it seeks to approximate the investment performance of the
market segment comprised of U.S. common stocks with smaller stock market
capitalizations, as represented by the S&P SmallCap 600, through the use of
sophisticated computer models to determine which stocks should be purchased or
sold, while keeping transaction and administrative costs to a minimum. The
Portfolio will invest substantially all but no less than 80% of its total assets
in securities listed on the S&P SmallCap 600. The Adviser generally selects
securities for the Portfolio on the basis of their weightings in the S&P
SmallCap 600. The Portfolio will only purchase a common stock that is included
in the S&P SmallCap 600 at the time of such purchase. The Portfolio should
exhibit price volatility similar to that of the S&P SmallCap 600. For further
information, see "Other Investment Policies -- The Indexing Approach" below and
the Statement of Additional Information under "Investment Objectives and
Policies -- The Indexing Approach."
With respect to the remaining portion of its total assets, the
Portfolio has the ability to hold temporary cash balances which may be invested
in U.S. Government obligations and money market instruments, including variable
and floating rate instruments such as master demand notes. See "The Intermediate
Corporate Bond Portfolio" above for a description of the money market
instruments in which the Portfolio may invest and the applicable limitations
with respect to such instruments. See "The Money Market Portfolio" above for a
description of certain risks in investing in variable and floating rate
obligations. If appropriate, the Portfolio may use options, futures contracts
and depository receipts to hedge its positions or for other permissible
purposes. The Portfolio also may enter into repurchase and reverse repurchase
agreements and lend its portfolio securities.
The S&P SmallCap 600. The S&P SmallCap 600 is composed of approximately
600 common stocks. These companies are chosen to be a part of the S&P SmallCap
600 based upon their market size, liquidity and industry group representation.
As of December 31, 1997, stocks in the S&P SmallCap 600 had a market
capitalization of between $____ million and $___ billion. To be included in the
S&P SmallCap 600, stock selections are also screened by S&P for trading volume,
ownership concentration, share price and bid/ask
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spreads. Normally, the Portfolio will hold all 600 stocks in the S&P SmallCap
600 and will hold each stock in approximately the same percentage as that stock
represents in the S&P SmallCap 600. Under certain circumstances, the Portfolio
may not hold all 600 stocks in the S&P SmallCap 600, for example because of
changes in the S&P SmallCap 600, or as a result of shareholder activity in the
Portfolio. The Portfolio will rebalance its holdings periodically to reflect
changes in the S&P SmallCap 600. "Market capitalization" for a company is the
market price per share of stock multiplied by the number of shares outstanding.
The Adviser believes that the S&P SmallCap 600 is an appropriate benchmark for
the Portfolio because it represents a diversified array of small capitalization
companies, it is familiar to many investors and it is widely accepted as a
reference for small capitalization common stock investments.
The S&P SmallCap 600 Index has above-average risk and may fluctuate
more than S&P 500 Stock Price Index, which invests in stocks of larger, more
established companies. Small capitalization companies may be subject to more
abrupt or erratic price movements than the stocks of larger, established
companies or the stock market as a whole. Among the reasons for this greater
price volatility are the less than certain growth prospects of smaller
companies, the lower degree of liquidity in the markets for such stocks and the
greater exposure of small capitalization companies to changing economic
conditions. In addition, such companies often have limited product lines,
smaller markets or fewer financial resources. Because of the risks associated
with investing in the small companies that comprise the S&P SmallCap 600,
shareholders should consider an investment in the Portfolio to be long-term. The
Small Cap Equity Index Portfolio is not designed to provide investors with a
means to speculate on short-term movements in the stock market.
THE INTERNATIONAL EQUITY PORTFOLIO
The International Equity Portfolio's investment objective is to provide
capital growth consistent with reasonable investment risk. The Portfolio seeks
to achieve this objective by investing principally in foreign equity securities,
most of which will be denominated in foreign currencies. During normal market
conditions, the Portfolio will invest substantially all of its assets in
securities of companies which derive more than 50% of their gross revenues from,
or have more than 50% of their assets outside, the United States. Additionally,
under normal market conditions, the Portfolio will invest in equity securities
from at least three different countries (excluding the United States). However,
the Portfolio may invest all its assets in a single country during temporary
defensive periods.
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The International Equity Portfolio expects to invest at least half of
its assets in securities of companies located either in developed countries in
Western Europe or in Japan, although it may also purchase securities of
companies located in other developed countries and developing countries. For
further information, see "Risk Factors -- Risks Associated with Foreign
Securities and Currencies" below.
By investing in foreign securities, the International Equity Portfolio
will attempt to take advantage of differences between economic trends and the
performance of securities markets in various countries, regions and geographic
areas. The Portfolio will achieve diversification by investing in securities
from various countries and geographic areas that offer different investment
opportunities and are affected by different economic trends. The multinational
character of the Portfolio's investments should reduce the effect that events in
any one country or geographic area will have on its investment holdings. Of
course, negative movement by one of the Portfolio's investments in one foreign
market may offset gains from the Portfolio's investments in another market.
Equity securities in which the International Equity Portfolio may
invest include common stock, preferred stock, rights, warrants and securities
convertible into common stock. A convertible security may be purchased for the
Portfolio when, in the Adviser's or Sub-Adviser's opinion, the price and yield
of the convertible security is favorable compared to the price and yield of the
common stock.
During temporary defensive periods, when deemed necessary by the
Adviser or Sub-Adviser, the International Equity Portfolio may invest up to 100%
of its assets in U.S. Government obligations or debt obligations of companies
incorporated and having their principal business activities in the United
States. The Portfolio does not intend to invest in such securities for the
purpose of meeting its investment objective.
The International Equity Portfolio may also invest, without limitation,
in foreign securities through the purchase of ADRs and EDRs. For further
information, see "Risk Factors -- Risks Associated with Foreign Securities and
Currencies" below and the Statement of Additional Information under "Investment
Objectives and Policies -- ADRs and EDRs."
The International Equity Portfolio reserves the right to hold as a
temporary defensive measure up to 100% of its total assets in cash and
short-term obligations (having remaining maturities of 12 months or less) at
such times and in such proportions as, in the opinion of the Adviser or
Sub-Adviser, prevailing market or economic conditions warrant. See "The
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Government & Corporate Bond Portfolio" above for a description of the types of
short-term obligations in which the Portfolio may invest.
Although investing in any mutual fund has certain inherent risks, an
investment in the International Equity Portfolio may have even greater risks
than investments in most other types of mutual funds. The Portfolio is not a
complete investment program, and it may not be appropriate for investors who
cannot financially bear the loss of at least a significant portion of their
investment. The Portfolio's net asset value per Share is subject to rapid and
substantial changes because greater risk is assumed in seeking the Portfolio's
objective. See "Risk Factors -- Risks Associated with Foreign Securities and
Currencies" below.
THE BALANCED PORTFOLIO
The Balanced Portfolio's investment objective is to maximize total
return through a combination of growth of capital and current income consistent
with the preservation of capital. The Portfolio seeks to achieve its objective
by using a disciplined approach of allocating assets primarily among three major
asset groups, i.e. equity securities, fixed income securities and cash
equivalents. In pursuing the Portfolio's investment objective, the Adviser
allocates the Portfolio's assets based upon its evaluation of the relative
attractiveness of the major asset groups. In an effort to better quantify the
relative attractiveness of the major asset groups over a one- to three-year
period of time, the Adviser has incorporated into its asset allocation
decision-making process several dynamic computer models which it has created.
The purpose of these models is to show the statistical impact of the Adviser's
economic outlook upon the future returns of each asset group. The models are
especially sensitive to the forecasts for inflation, interest rates and
long-term corporate earnings growth. Investment returns are normally heavily
impacted by such variables and their expected changes over time. Therefore, the
Adviser's method attempts to take advantage of changing economic conditions by
increasing or decreasing the ratio of stocks to bonds in the Portfolio. For
example, if the Adviser expected more rapid economic growth leading to better
corporate earnings, it would increase the Portfolio's holdings of equity
securities and reduce its holdings of fixed income securities and cash
equivalents.
Under normal market conditions, the Balanced Portfolio's policy is
generally to invest at least 25% of the value of its total assets in fixed
income securities and no more than 75% in equity securities. The actual
percentage of assets invested in equity securities, fixed income securities and
cash equivalents will vary from time to time, depending on the judgment of the
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Adviser as to general market and economic conditions, trends and yields,
interest rates and fiscal and monetary developments.
The equity securities in which the Balanced Portfolio normally invests
include common stock, preferred stock, rights, warrants and securities
convertible into common or preferred stock. For further information regarding
these instruments, see "The Equity Income Portfolio" and "The Growth & Income
Equity Portfolio" above.
The fixed income securities in which the Balanced Portfolio invests
include U.S. Government securities or other fixed income and related debt
securities rated in one of the four highest rating categories assigned by a
Rating Agency at the time of purchase or in unrated investments deemed by the
Adviser to be of comparable quality pursuant to guidelines approved by the
Fund's Board of Directors. For further information regarding these instruments,
see "The Government & Corporate Bond Portfolio" above.
The Balanced Portfolio may purchase asset-backed securities. For
further information regarding these instruments, see "Other Applicable Policies
- -- Asset-Backed Securities" below.
The Balanced Portfolio reserves the right to hold as a temporary
defensive measure up to 100% of its total assets in cash and short-term
obligations (having remaining maturities of 12 months or less) at such times and
in such proportions as, in the opinion of the Adviser, prevailing market or
economic conditions warrant. See "The Government & Corporate Bond Portfolio"
above for a description of the types of short-term obligations in which the
Portfolio may invest.
RISK FACTORS
MARKET RISK. The Equity Income, Equity Index, Growth & Income Equity,
Growth Equity, Small Cap Equity, Small Cap Equity Index and International Equity
Portfolios invest primarily, and the Balanced Portfolio invests to a significant
degree, in equity securities. As with other mutual funds that invest primarily
or to a significant degree in equity securities, these Portfolios are subject to
market risks. That is, the possibility exists that common stocks will decline
over short or even extended periods of time and both the U.S. and certain
foreign equity markets tend to be cyclical, experiencing both periods when stock
prices generally increase and periods when stock prices generally decrease.
INTEREST RATE RISK. Generally, the market value of fixed income
securities, including Municipal Obligations, held by the Portfolios can be
expected to vary inversely to changes in
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prevailing interest rates. During periods of declining interest rates, the
market value of investment portfolios comprised primarily of fixed income
securities will tend to increase, and during periods of rising interest rates,
the market value will tend to decrease. Fixed income securities with longer
maturities, which tend to produce higher yields, are subject to potentially
greater capital appreciation and depreciation than obligations with shorter
maturities. Changes in the financial strength of an issuer or changes in the
ratings of any particular security may also offset the value of these
investments. Fluctuations in the market value of fixed income securities
subsequent to their acquisition will not offset cash income from such securities
but will be reflected in a Portfolio's net asset value.
RISKS ASSOCIATED WITH FOREIGN SECURITIES AND CURRENCIES. Investments in
securities of foreign issuers, whether made directly or indirectly, carry
certain risks not ordinarily associated with investments in securities of
domestic issuers. Such risks include future political and economic developments,
and the possible imposition of exchange controls or other foreign governmental
laws or restrictions. In addition, with respect to certain countries, there is
the possibility of expropriation of assets, confiscatory taxation, political or
social instability or diplomatic developments which could adversely affect
investments in those countries.
There may be less publicly available information about a foreign
company than about a U.S. company, and foreign companies may not be subject to
accounting, auditing and financial reporting standards and requirements
comparable to or as uniform as those of U.S.-based companies. Foreign securities
markets, while growing in volume, have, for the most part, substantially less
volume than U.S. markets, and securities of many foreign companies are less
liquid and their prices more volatile than securities of comparable U.S.-based
companies. There is generally less government supervision and regulation of
foreign exchanges, brokers and issuers than there is in the United States. In
the event of a default by the issuer of a foreign security, it may be more
difficult to obtain or enforce a judgment against such issuer than it would be
against a domestic issuer. In addition, foreign banks and foreign branches of
U.S. banks are subject to less stringent reserve requirements and to different
accounting, auditing, reporting, and recordkeeping standards than those
applicable to domestic branches of U.S. banks.
Certain of the risks associated with international investments are
heightened with respect to investments in developing countries. The risks of
expropriation, nationalization and social, political and economic instability
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are greater in those countries than in more developed capital markets. In
addition, developing countries may have economies based on only a few industries
and small securities markets with a low volume of trading. Certain countries may
also impose substantial restrictions on investments in their capital markets by
foreign entities, including restrictions on investments in issuers of industries
deemed sensitive to relevant national interests. These factors may limit the
investment opportunities available to the International Equity Portfolio and
result in a lack of liquidity and a high price volatility with respect to
securities of issuers from developing countries.
Certain countries may also impose restrictions on the International
Equity Portfolio's ability to repatriate investment income or capital. Even when
there is no outright restriction on repatriation of investment income or
capital, the mechanics of repatriation may affect certain aspects of the
operations of the International Equity Portfolio.
Governments of many developing countries exercise substantial influence
over many aspects of the private sector. In some countries, the government may
own or control many companies, including the largest company or companies. As
such, government actions in the future could have a significant effect on
economic conditions in these countries, affecting private sector companies, the
International Equity Portfolio and the value of its portfolio securities.
Since the International Equity Portfolio will invest substantially in
securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates will affect the value of securities
in the International Equity Portfolio and the unrealized appreciation or
depreciation of investments so far as U.S. investors are concerned. Foreign
currency exchange rates are determined by forces of supply and demand on the
foreign exchange markets and the regulatory control of the exchanges on which
the currencies trade. These forces are themselves affected by the international
balance of payments and other economic and financial conditions, government
intervention, speculation and other factors. Costs are incurred in connection
with conversions between various currencies.
The expense ratio of the International Equity Portfolio can be expected
to be higher than that of funds investing in domestic securities. The costs
attributable to investing abroad are usually higher for several reasons, such as
the higher cost of investment research, higher cost of custody of foreign
securities, higher commissions paid on comparable transactions on foreign
markets and additional costs arising from delays in settlements of transactions
involving foreign securities.
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Interest and dividends payable on the International Equity Portfolio's
foreign portfolio securities may be subject to foreign withholding taxes. To the
extent such taxes are not offset by credits or deductions allowed to investors
under U.S. federal income tax provisions, they may reduce the net return to the
Portfolio's shareholders. For further information, see "Taxes."
In addition to the International Equity Portfolio, other Portfolios may
be subject to certain of the risks described above in connection with investment
in foreign securities.
RISK ASSOCIATED WITH MUNICIPAL OBLIGATIONS. The ability of the
Tax-Exempt Money Market, Short-Intermediate Municipal, Missouri Tax-Exempt Bond
and National Municipal Bond Portfolios (collectively, the "Tax-Exempt
Portfolios") to achieve their respective investment objectives are dependent
upon the ability of issuers of Municipal Obligations to meet their continuing
obligations for the payment of principal and interest. There are additional
risks associated with investment in the Missouri Tax-Exempt Bond Portfolio
because it invests its assets predominantly in Missouri Municipal Obligations.
Investors in the Missouri Tax-Exempt Bond Portfolio should be aware that certain
provisions of, and amendments to, the Missouri Constitution limit tax increases
which could result in certain adverse consequences affecting Missouri Municipal
Obligations. Some of the significant financial considerations relating to the
Missouri Tax-Exempt Bond Portfolio's investments in Missouri Municipal
Obligations are summarized in the Statement of Additional Information.
ADDITIONAL RISKS AND OTHER CONSIDERATIONS. Although the Tax-Exempt
Money Market, Short-Intermediate Municipal and National Municipal Bond
Portfolios may invest 25% or more of their respective net assets in (i)
Municipal Obligations whose issuers are in the same state, (ii) Municipal
Obligations the interest on which is paid solely from revenues of similar
projects, and (iii) private activity bonds, no Portfolio presently intends to do
so unless in the opinion of the Adviser the investment is warranted. Although
the Missouri Tax-Exempt Bond Portfolio does not presently intend to do so on a
regular basis, it may invest more than 25% of its assets in industrial
development bonds issued before August 7, 1986, the interest on which is not
treated as a specific tax preference item under the federal alternative minimum
tax, and in Municipal Obligations, the interest on which is paid solely from
revenues of similar projects, if such investments are deemed necessary or
appropriate by the Adviser. To the extent that a Portfolio's assets are invested
in Municipal Obligations the issuers of which are in the same state or that are
payable from the revenues of similar projects or in private activity bonds, a
Portfolio will be
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subject to the peculiar risks presented by the laws and economic conditions
relating to such projects and bonds to a greater extent that it would be if its
assets were not so invested. See "Investment Objectives and Policies --
Municipal Obligations" in the Statement on Additional Information.
Each of the Tax-Exempt Money Market and Missouri Tax-Exempt Bond
Portfolios is classified as non-diversified under the 1940 Act. Investment
return on a non-diversified portfolio typically is dependent upon the
performance of a smaller number of securities relative to the number held in a
diversified portfolio. Consequently, the change in value of any one security may
affect the overall value of a non-diversified portfolio more than it would a
diversified portfolio. In addition, a non-diversified portfolio may be more
susceptible to economic, political, and regulatory developments than a
diversified investment portfolio with similar objectives. The value of a
Portfolio's securities can be expected to vary inversely with changes in
prevailing interest rates.
Investors in the Missouri Tax-Exempt Bond Portfolio should consider the
risk inherent in such Portfolio's concentrations in Missouri Municipal
Obligations versus the safety that comes with a less geographically concentrated
investment portfolio, and should compare the yields and tax-equivalent yields
available on portfolios of Missouri Municipal Obligations with the yields and
tax-equivalent yields of more diversified portfolios with securities of
comparable quality, including non-Missouri securities, before making an
investment decision.
Municipal Obligations purchased by the Tax-Exempt Portfolios may be
backed by letters of credit or guarantees issued by domestic or foreign banks
and other financial institutions which are not subject to federal deposit
insurance. Adverse developments affecting the banking industry generally or a
particular bank or financial institution that has provided its credit or a
guarantee with respect to a Municipal Obligation held by a Tax-Exempt Portfolio
could have an adverse effect on the Portfolio's investment portfolio and the
value of its shares. Foreign letters of credit and guarantees involve certain
risks in addition to those of domestic obligations, including less stringent
reserve requirements and different accounting, auditing and recordkeeping
requirements.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax (and, with respect to
Missouri Municipal Obligations, to the exemption from Missouri income tax) are
rendered by bond counsel to the respective issuers at the time of issuance, and
opinions relating to the validity and the tax-exempt status of payments received
by a Portfolio from tax-exempt derivative securities are
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rendered by counsel to the respective sponsors of such securities. The
Tax-Exempt Portfolios and their Adviser will rely on such opinions and will not
review independently the underlying proceedings relating to the issuance of
Municipal Obligations, the creation of any tax-exempt derivative security, or
the bases for such opinions.
OTHER APPLICABLE POLICIES
The investment policies described in this Prospectus are among those
which one or more of the Portfolios have the ability to utilize. Some of these
policies may be employed on a regular basis; others may not be used at all.
Accordingly, reference to any particular policy, method or technique carries no
implication that it will be utilized or, if it is, that it will be successful.
U.S. GOVERNMENT OBLIGATIONS. Securities issued or guaranteed by the
U.S. Government, its agencies and instrumentalities have historically involved
little risk of loss of principal if held to maturity. However, due to
fluctuations in interest rates, the market value of such securities may vary
during the period a shareholder owns Shares of a Portfolio. Certain U.S.
Government securities held by the Treasury Money Market, Money Market or
Tax-Exempt Money Market Portfolios may have remaining maturities exceeding
thirteen months if such securities provide for adjustments in their interest
rates no less frequently than every thirteen months. Examples of the types of
U.S. Government obligations that may be held by the Portfolios, subject to their
respective investment objectives and policies, include, in addition to U.S.
Treasury bonds, notes and bills, the obligations of Federal Home Loan Banks,
Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, GNMA, FNMA, FHLMC, General Services
Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Resolution Trust Corporation,
and Maritime Administration. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as those of GNMA, are supported
by the full faith and credit of the U.S. Treasury; others, such as the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of FNMA, are supported
by the discretionary authority of the U.S. Government to purchase the agency's
obligations; still others such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. There is
no assurance that the U.S. Government would provide financial support to U.S.
Government-sponsored instrumentalities if it is not obligated to do so by law.
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STRIPPED GOVERNMENT SECURITIES. To the extent consistent with their
respective investment policies, each Portfolio may invest in bills, notes and
bonds (including zero coupon bonds) issued by the U.S. Treasury. In addition,
each Portfolio (except the Tax-Exempt Money Market, Short-Intermediate
Municipal, Missouri Tax-Exempt Bond, Growth Equity, Equity Index and Small Cap
Equity Index Portfolios) may also invest in "stripped" U.S. Treasury obligations
offered under the Separate Trading of Registered Interest and Principal
Securities ("STRIPS") program or Coupon Under Bank-Entry Safekeeping ("CUBES")
program or other stripped securities issued directly by agencies or
instrumentalities of the U.S. Government (and, with respect to the Treasury
Money Market Portfolio only, that are also guaranteed as to principal and
interest by the U.S. Government). STRIPS and CUBES represent either future
interest or principal payments and are direct obligations of the U.S. Government
that clear through the Federal Reserve System. The Money Market, Intermediate
Corporate Bond, Bond Index, Government & Corporate Bond, Growth & Income Equity,
Small Cap Equity and Balanced Portfolios may also purchase U.S. Treasury and
agency securities that are stripped by brokerage firms and custodian banks and
sold under proprietary names. These stripped securities are resold in custodial
receipt programs with a number of different names (such as TIGRs and CATS) and
are not considered U.S. Government securities for purposes of the 1940 Act.
Stripped securities are issued at a discount to their "face value" and
may exhibit greater price volatility than ordinary debt securities because of
the manner in which their principal and interest are returned to investors. The
Adviser will consider the liquidity needs of a Portfolio when any investments in
zero coupon obligations or other principal-only obligations are made.
REPURCHASE AGREEMENTS. Under certain circumstances described above and
subject to their respective investment policies, each Portfolio (except the
National Municipal Bond Portfolio) may agree to purchase U.S. Government
securities from financial institutions such as banks and broker-dealers, subject
to the seller's agreement to repurchase them at a mutually agreed-upon date and
price ("repurchase agreements"). A Portfolio will enter into repurchase
agreements only with financial institutions such as banks and broker-dealers
that the Adviser or Sub-Adviser believes to be creditworthy. During the term of
any repurchase agreement, the Adviser or Sub-Adviser will continue to monitor
the creditworthiness of the seller and will require the seller to maintain the
value of the securities subject to the agreement at not less than 102% of the
repurchase price (including accrued interest). Default by a seller could expose
a Portfolio to possible loss because of adverse market action or possible delay
in disposing of the underlying
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obligations. Because of the seller's repurchase obligations, the securities
subject to repurchase agreements do not have maturity limitations. Although no
Portfolio presently intends to enter into repurchase agreements providing for
settlement in more than seven days, each Portfolio does have the authority to do
so subject to its limitation on the purchase of illiquid securities described
below. Repurchase agreements are considered to be loans under the 1940 Act. The
income on repurchase agreements is taxable. See "Taxes" below.
REVERSE REPURCHASE AGREEMENTS. Subject to their investment policies,
each Portfolio (except the Treasury Money Market Portfolio and the Tax-Exempt
Portfolios) may borrow funds for temporary purposes by entering into reverse
repurchase agreements in accordance with their respective investment limitations
below. Pursuant to such agreements, a Portfolio would sell portfolio securities
to financial institutions such as banks and broker-dealers and agree to
repurchase them at an agreed upon date and price. Reverse repurchase agreements
involve the risk that the market value of the securities sold by a Portfolio may
decline below the repurchase price which the Portfolio is obligated to pay.
Reverse repurchase agreements are considered to be borrowings by a Portfolio
under the 1940 Act.
SECURITIES LENDING. To increase return or offset expenses, each
Portfolio (except the Tax-Exempt Money Market and Missouri Tax-Exempt Bond
Portfolios) may, from time to time, lend its portfolio securities to
broker-dealers, banks or institutional borrowers pursuant to agreements
requiring that the loans be continuously secured by collateral equal at all
times in value to at least the market value of the securities loaned. Collateral
for such loans may include cash, securities of the U.S. Government, or its
agencies or instrumentalities, or an irrevocable letter of credit issued by a
bank that has at least $1.5 billion in total assets, or any combination thereof.
The collateral must be valued daily and, should the market value of the loaned
securities increase, the borrower must furnish additional collateral to the
lending Portfolio. By lending its securities, a Portfolio can increase its
income by continuing to receive interest on the loaned securities as well as by
either investing the cash collateral in short-term instruments or obtaining
yield in the form of interest paid by the borrower when U.S. Government
securities are used as collateral. In accordance with current SEC policies, each
Portfolio is currently limiting its securities lending to 33-1/3% of the value
of its total assets (including the value of the collateral for the loans) at the
time of the loan. Loans are subject to termination by a Portfolio or a borrower
at any time.
SECURITIES OF OTHER INVESTMENT COMPANIES. Under certain circumstances
described above and subject to their respective
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investment policies and limitations, each Portfolio may invest in securities
issued by other investment companies, limited with respect to each Portfolio
other than the Growth Equity Portfolio to investment companies which determine
their net asset value per Share based on the amortized cost or penny-rounding
method and which invest in securities in which the Portfolio is permitted to
invest. Each Portfolio may invest in securities of other investment companies
within the limits prescribed by the 1940 Act, which include, subject to certain
exceptions, a prohibition on a Portfolio investing more than 10% of the value of
its total assets in such securities. Investments in other investment companies
will cause a Portfolio (and, indirectly, the Portfolio's shareholders) to bear
proportionately the cost incurred in connection with the operations of such
other investment companies. In addition, investment companies in which a
Portfolio may invest may impose a sales or distribution charge in connection
with the purchase or redemption of their shares as well as other types of
commissions or charges (no sales charge will be paid by the Missouri Tax-Exempt
Bond Portfolio in connection with such investments). Such charges will be
payable by a Portfolio and, therefore, will be borne indirectly by its
shareholders. See the Statement of Additional Information under "Investment
Objectives and Policies -- Securities of Other Investment Companies." The income
on securities of other investment companies may be taxable to investors at the
state or local level. See "Taxes" below.
WHEN-ISSUED PURCHASES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS.
Each Portfolio may purchase securities on a "when-issued" basis and, except for
the Growth Equity Portfolio, may purchase or sell securities on a "forward
commitment" basis. These transactions involve a commitment by a Portfolio to
purchase or sell securities at a stated price and yield with settlement beyond
the normal settlement date. Such transactions permit a Portfolio to lock-in a
price or yield on a security, regardless of future changes in interest rates.
Additionally, the Short-Intermediate Municipal, National Municipal Bond and
Growth Equity Portfolios may purchase or sell securities on a "delayed
settlement" basis. This refers to a transaction in the secondary market that
will settle some time in the future. When issued purchases, forward commitments
and delayed settlement transactions involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date, or if the value
of the security to be sold increases prior to the settlement date. Each
Portfolio expects that these transactions will not exceed 25% of the value of
its total assets (at the time of purchase) under normal market conditions. No
Portfolio intends to engage in such transactions for speculative purposes but
only for the purpose of acquiring portfolio securities.
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OPTIONS. Each of the Equity and Bond Portfolios (except the
Short-Intermediate Municipal, Missouri Tax-Exempt Bond and National Municipal
Bond Portfolios) may purchase put options and each Portfolio (except the
Short-Intermediate Municipal, Missouri Tax-Exempt Bond, National Municipal Bond
and Growth Equity Portfolios) may purchase call options. Except as described
below with respect to the Growth Equity Portfolio, such options will be listed
on a national securities exchange and issued by the Options Clearing
Corporation. Each Portfolio other than the Growth Equity Portfolio will limit
the purchase of options to an amount not exceeding 10% of the value of its net
assets. Such options may relate to particular securities or, with respect to
each Portfolio other than the Growth Equity Portfolio, to various stock or bond
indices. Purchasing options is a specialized investment technique which entails
a substantial risk of a complete loss of the amounts paid as premiums to the
option writer. Such transactions will be entered into only as a hedge against
fluctuations in the value of securities which a Portfolio holds or intends to
purchase.
Each of the Equity and Bond Portfolios (except the Short-Intermediate
Municipal, Missouri Tax-Exempt Bond and National Municipal Bond Portfolios) may
also write covered call options. A covered call option is an option to acquire a
security that a Portfolio owns or has the right to acquire during the option
period. Except as described below with respect to the Growth Equity Portfolio,
such options will be listed on a national securities exchange and issued by the
Options Clearing Corporation.
The Growth Equity Portfolio may purchase and write over-the-counter
options on portfolio securities in negotiated transactions with the buyers or
writers of the options when options on the portfolio securities held by such
Portfolio are not traded on a national securities exchange. Over-the-counter
options are two-party contracts with price and terms negotiated between the
buyer and seller. In contrast, exchange-traded options are third party contracts
with standardized strike prices and expiration dates and are purchased from a
clearing corporation such as the Options Clearing Corporation. Exchange-traded
options have a continuous liquid market while over-the-counter options may not.
The International Equity Portfolio may write covered call options, buy
put options, buy call options and write secured put options for hedging (or
cross-hedging) purposes or for the purpose of earning additional income. Such
options may relate to particular securities, foreign or domestic stock or bond
indices, financial instruments or foreign currencies; may or may not be listed
on a domestic or foreign securities exchange; and may or may not be issued by
the Options Clearing Corporation. The International Equity Portfolio will invest
and trade in unlisted
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over-the-counter options only with firms deemed creditworthy by the Adviser or
Sub-Adviser. However, unlisted options are not subject to the protections
afforded purchasers of listed options by the Options Clearing Corporation, which
performs the obligations of its members which fail to perform them in connection
with the purchase or sale of options. The International Equity Portfolio will
not purchase put and call options in an amount that exceeds 10% of its net
assets at the time of purchase.
The aggregate value of the securities subject to covered call options
written by a Portfolio will not exceed 25% of the value of its net assets. In
order to close out an option position, a Portfolio may enter into a "closing
purchase transaction" -- the purchase of a covered call option on the same
security with the same exercise price and expiration date as the option which
the Portfolio previously wrote. By writing a covered call option, a Portfolio
forgoes the opportunity to profit from an increase in the market price of the
underlying security above the exercise price except insofar as the premium
represents such a profit and it is not able to sell the underlying security
until the option expires, is exercised, or the Portfolio effects a closing
purchase transaction by purchasing an option of the same series. The use of
covered call options will not be a primary investment technique of any
Portfolio. For additional information relating to option trading practices,
including particular risks, see the Statement of Additional Information and
Appendix B thereof.
FOREIGN CURRENCY PUT OPTIONS. The International Equity Portfolio may
purchase foreign currency put options on U.S. exchanges or U.S. over-the-counter
markets. A put option gives the Portfolio, upon payment of a premium, the right
to sell a currency at the exercise price until the expiration of the option and
serves to insure against adverse currency price movements in the underlying
portfolio assets denominated in that currency.
UNLISTED CURRENCY OPTIONS. The International Equity Portfolio may
purchase unlisted currency options. A number of major investment firms trade
unlisted options which are more flexible than exchange listed options with
respect to strike price and maturity date. These unlisted options generally are
available on a wider range of currencies. Unlisted foreign currency options are
generally less liquid than listed options and involve the credit risk associated
with the individual issuer. They will be deemed to be illiquid for purposes of
the limitation on investments in illiquid securities.
WRITING FOREIGN CURRENCY CALL OPTIONS. A call option written by the
International Equity Portfolio gives the purchaser, upon payment of a premium,
the right to purchase from
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the International Equity Fund a currency at the exercise price until the
expiration of the option.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the International
Equity Portfolio may buy and sell securities denominated in currencies other
than the U.S. dollar, and receive interest, dividends and sale proceeds in
currencies other than the U.S. dollar, the Portfolio may from time to time enter
into foreign currency exchange transactions to convert to and from different
foreign currencies and to convert foreign currencies to and from the U.S.
dollar. The Portfolio may enter into currency exchange transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or use forward currency contracts to purchase or sell foreign
currencies.
A forward foreign currency contract is an obligation by the
International Equity Portfolio to purchase or sell a specific currency at a
future date at a price set at the time of the contract. In this respect, forward
currency contracts are similar to foreign currency futures contracts described
below; however, unlike futures contracts, which are traded on recognized
commodities exchanges, forward currency contracts are traded in the interbank
market conducted directly between currency traders (usually large commercial
banks) and their customers. Also, forward currency contracts usually involve
delivery of the currency involved instead of cash payment as in the case of
futures contracts.
The International Equity Portfolio may use forward foreign currency
exchange contracts in order to protect against uncertainty in the level of
future foreign exchange rates. The use of such forward contracts is limited to
hedging against movements in the value of foreign currencies relative to the
U.S. dollar in connection with specific portfolio transactions or with respect
to portfolio positions. The purpose of transaction hedging is to "lock in" the
U.S. dollar equivalent price of such specific securities. Position hedging is
the sale of foreign currency with respect to portfolio security positions
denominated or quoted in that currency. The Portfolio will not speculate in
foreign currency exchange transactions. Transaction and position hedging will
not be limited to an overall percentage of the Portfolio's assets but will be
employed as necessary to correspond to particular transactions or positions. The
Portfolio may not hedge its currency positions to an extent greater than the
aggregate market value (at the time of entering into the forward contract) of
the securities held in its portfolio denominated in, quoted in, or currently
convertible into that particular currency. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of the
Portfolio's portfolio
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securities or in foreign exchange rates, or prevent loss if the prices of these
securities decline, but forward foreign currency exchange contracts do allow the
Portfolio to establish a rate of exchange for a future point in time.
FUTURES CONTRACTS AND RELATED OPTIONS. The U.S. Government Securities,
Intermediate Corporate Bond, Bond Index, Government & Corporate Bond, Equity
Income, Equity Index, Growth & Income Equity, Growth Equity, Small Cap Equity,
Small Cap Equity Index and Balanced Portfolios may invest in futures contracts
and options on futures contracts to the extent permitted by the Commodity
Futures Trading Commission ("CFTC") and the SEC. The International Equity
Portfolio may invest in interest rate futures contracts, options on futures
contracts and other types of financial futures contracts (such as foreign
currency contracts), as well as any index or foreign market futures which are
available in recognized exchanges or in other established financial markets to
the extent permitted by the CFTC and the SEC. Such transactions, including stock
or bond index futures contracts, or options thereon, act as a hedge to protect a
Portfolio from fluctuations in the value of its securities caused by anticipated
changes in interest rate or market conditions without necessarily buying or
selling the securities or, with respect to the Bond Index, Equity Index and
Small Cap Equity Index Portfolios, can be used to simulate full investment in
the Lehman Aggregate, S&P 500 or S&P Small Cap 600, respectively, while
retaining a cash balance for portfolio management purposes. Hedging is a
specialized investment technique that entails skills different from other
investment management. The Adviser (or Sub-Adviser) may also consider such
transactions to be economically appropriate for the reduction of risk inherent
in the ongoing management of a Portfolio. A stock or bond index futures contract
is an agreement in which one party agrees to take or make delivery of an amount
of cash equal to a specified dollar amount times the difference between the
index value (which assigns relative values to the common stock or bonds included
in the index) at the close of the last trading day of the contract and the price
at which the agreement is originally made. No physical delivery of the
underlying stock or bond in the index is contemplated. Similarly, it may be in
the best interest of a Portfolio to purchase or sell interest rate futures
contracts, or options thereon, which provide for the future delivery of
specified fixed income securities.
The purchase and sale of futures contracts or related options will not
be a primary investment technique of any Portfolio. None of the Portfolios will
purchase or sell futures contracts (or related options thereon) for hedging
purposes if, immediately after purchase, the aggregate initial margin deposits
and premiums paid by a Portfolio on its open futures and options positions
exceeds 5% of the liquidation value of the Portfolio,
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after taking into account any unrealized profits and unrealized losses on any
such futures or related options contracts into which it has entered. For a more
detailed description of futures contracts and related options, see the Statement
of Additional Information and Appendix B thereof.
ASSET-BACKED SECURITIES. The U.S. Government Securities, Intermediate
Corporate Bond, Bond Index, Government & Corporate Bond and Balanced Portfolios
may purchase asset-backed securities (i.e., securities backed by mortgages,
installment sale contracts, corporate receivables, credit card receivables or
other assets) that are issued by entities such as GNMA, FNMA and FHLMC and
private issuers such as commercial banks, financial companies, finance
subsidiaries of industrial companies, savings and loan associations, mortgage
banks, and investment banks. To the extent that a Portfolio invests in
asset-backed securities issued by companies that are investment companies under
the 1940 Act, such acquisitions will be subject to the percentage limitations
prescribed by the 1940 Act. See "Other Applicable Policies -- Securities of
Other Investment Companies" above.
Presently there are several types of mortgage-backed securities,
including guaranteed mortgage pass-through certificates, which provide the
holder with a pro rata interest in the underlying mortgages, and CMOs, which
provide the holder with a specified interest in the cash flow of a pool of
underlying mortgages or other mortgage-backed securities. CMOs are issued in
multiple classes, each with a specified fixed or floating interest rate and a
final distribution date. The relative payment rights of the various CMO classes
may be subject to greater volatility and interest-rate risk than other types of
mortgage-backed securities. The average life of asset-backed securities varies
with the underlying instruments or assets and market conditions, which in the
case of mortgages have maximum maturities of forty years. The average life of a
mortgage-backed instrument, in particular, is likely to be substantially less
than the original maturity of the mortgages underlying the securities as the
result of unscheduled principal payments and mortgage prepayments. The
relationship between mortgage prepayment and interest rates may give some
high-yielding mortgage-backed securities less potential for growth in value than
conventional bonds with comparable maturities. In addition, in periods of
falling interest rates, the rate of mortgage prepayments tends to increase.
During such periods, the reinvestment of prepayment proceeds by a Portfolio will
generally be at lower rates than the rates that were carried by the obligations
that have been prepaid. When interest rates rise, the value of an asset-backed
security generally will decline; however, when interest rates decline, the value
of an asset-backed security with prepayment features may not increase as much as
that of other fixed-income securities. Because of these and
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other reasons, an asset-backed security's total return may be difficult to
predict precisely.
In general, the collateral supporting non-mortgage asset-backed
securities is of shorter maturity than mortgage loans and is less likely to
experience substantial prepayments. Non-mortgage asset-backed securities involve
certain risks that are not presented by mortgage-backed securities arising
primarily from the nature of the underlying assets (i.e., credit card and
automobile loan receivables as opposed to real estate mortgages). For example,
credit card receivables are generally unsecured and the repossession of
automobiles and other personal property upon the default of the debtor may be
difficult or impracticable in some cases.
TYPES OF MUNICIPAL OBLIGATIONS. The two principal classifications of
Municipal Obligations that may be held by the Tax-Exempt Portfolios are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenues securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
revenue source such as the user of the facility being financed. Revenue
securities include private activity bonds which are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved. Municipal Obligations may also include
"moral obligation" bonds, which are normally issued by special purpose public
authorities. If the issuer of a moral obligation bond is unable to meet its debt
service obligations from current revenues, it may draw on a reserve fund, the
restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer.
Municipal Obligations include debt obligations issued by governmental
entities to obtain funds for various public purposes, including the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses and the extension of loans to public
institutions and facilities. Private activity bonds issued by or on behalf of
public authorities to finance various privately operated facilities are
considered Municipal Obligations. Interest on private activity bonds, although
free of regular federal income tax, may be an item of tax preference for
purposes of the federal alternative minimum tax.
Each of the Tax-Exempt Portfolios may acquire zero coupon obligations,
which may have greater price volatility than coupon
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obligations and which will not result in payment of interest until maturity.
Also included within the general category of Municipal Obligations are
participation certificates in leases, installment purchase contracts, or
conditional sales contracts ("lease obligations") entered into by state or
political subdivisions to finance the acquisition or construction of equipment,
land, or facilities. Although lease obligations do not constitute general
obligations of the issuer for which the lessee's unlimited taxing power is
pledged, certain lease obligations are backed by the lessee's covenant to
appropriate money to make the lease obligation payments. However, under certain
lease obligations, the lessee has no obligation to make these payments in future
years unless money is appropriated on a yearly basis. Although
"non-appropriation" lease obligations are secured by the leased property,
disposition of the property in the event of foreclosure might prove difficult.
These securities represent a relatively new type of financing and may not be as
marketable as more conventional securities. To the extent these securities are
illiquid, they are subject to each Portfolio's applicable limitation on illiquid
securities described below.
VARIABLE AND FLOATING RATE MUNICIPAL OBLIGATIONS. Municipal Obligations
purchased by the Tax-Exempt Portfolios may include rated or unrated variable and
floating rate instruments, including variable rate master demand notes that
permit the indebtedness thereunder to vary in addition to providing for periodic
adjustments in the interest rate. Unrated instruments purchased by a Portfolio
will be determined by the Adviser to be of comparable quality at the time of
purchase to rated instruments that may be purchased. The absence of an active
secondary market for a particular variable or floating rate instrument, however,
could make it difficult for a Portfolio to dispose of an instrument if the
issuer were to default on its payment obligation. A Portfolio could, for these
or other reasons, suffer a loss with respect to such instruments.
STAND-BY COMMITMENTS. Each of the Tax-Exempt Portfolios may acquire
"stand-by commitments" with respect to Municipal Obligations held by it. Under a
stand-by commitment, a dealer agrees to purchase, at a Portfolio's option,
specified Municipal Obligations at a specified price. The Portfolios will
acquire stand-by commitments solely to facilitate portfolio liquidity and do not
intend to exercise their rights thereunder for trading purposes. The Portfolios
expect that stand-by commitments will generally be available without the payment
of any direct or indirect consideration. However, if necessary or advisable, a
Portfolio may pay for a stand-by commitment either separately in cash or by
paying a higher price for portfolio securities which are acquired subject to the
commitment (thus reducing the yield otherwise available for the same
securities). Stand-by
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commitments acquired by a Portfolio will be valued at zero in determining the
Portfolio's net asset value.
TAX-EXEMPT DERIVATIVES. Each of the Tax-Exempt Portfolios may hold
tax-exempt derivatives which may be in the form of tender option bonds,
participations, beneficial interests in a trust, partnership interests or other
forms. The Adviser expects that less than 5% of each Tax-Exempt Portfolio's
assets will be invested in such securities during the current year. See the
Statement of Additional Information under "Investment Objectives and Policies -
Tax-Exempt Derivatives."
DEPOSITORY RECEIPTS. The Bond Index, Equity Index and Small Cap Equity
Index Portfolios may invest in receipts issued by banks or brokerage firms that
are created by depositing securities listed in each Portfolio's respective index
into a special account at a custodian bank. The custodian holds such securities
for the benefit of the registered owners of the certificates or receipts. The
custodian arranges for the issuance of the certificates or receipts evidencing
ownership and maintains the register. The Portfolios may invest in index-based
depository receipts in lieu of investment in the actual securities that are
listed in the respective indexes.
THE INDEXING APPROACH. The Bond Index, Equity Index and Small Cap
Equity Index Portfolios seek to approximate the investment performance of their
respective market segments, as represented by their respective indexes, i.e. the
Lehman Aggregate in the case of the Bond Index Portfolio, the S&P 500 in the
case of the Equity Index Portfolio and the S&P SmallCap 600 in the case of the
Small Cap Equity Index Portfolio. While there can be no guarantee that a
Portfolio's investment results will precisely match the results of its
corresponding index, the Adviser believes that, before deduction of operating
expenses, there will be a very high correlation between the returns generated by
the Portfolios and their respective indexes. Each Portfolio will attempt to
achieve a correlation between its performance and its respective index of at
least 0.95 before deduction of operating expenses. A correlation of 1.00 would
indicate a perfect correlation, which would be achieved when a Portfolio's net
asset value, including the value of its dividend and capital gains
distributions, increases or decreases in exact proportion to changes in its
respective index. Each Portfolio's ability to correlate its performance with its
respective index, however, may be affected by, among other things, transaction
costs, changes in securities markets, the manner in which S&P or Lehman
Brothers, Inc. ("Lehman") calculate their respective indexes, and the timing of
purchases and redemptions. The Adviser monitors the correlation of the
performance of the Portfolios in relation to their indexes under the supervision
of the Board of Directors. In the unlikely event that a high
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correlation is not achieved, the Board of Directors will take appropriate steps
to correct the reason for the lower correlation.
THE INCLUSION OF A SECURITY IN ANY OF THE PORTFOLIOS' INDEXES IN NO WAY
IMPLIES AN OPINION BY S&P OR LEHMAN AS TO ITS ATTRACTIVENESS AS AN INVESTMENT.
S&P AND LEHMAN ARE NOT SPONSORS OF, OR IN ANY WAY AFFILIATED WITH, THE
PORTFOLIOS.
The Adviser believes that the indexing approach should involve less
portfolio turnover, and thus lower brokerage costs, transfer taxes and operating
expenses, than in more traditionally managed funds, although there is no
assurance that this will be the case. Ordinarily, a Portfolio will buy or sell
securities only to reflect changes in an index (including mergers or changes in
the composition of an index) or to accommodate cash flows into and out of the
Portfolio. The costs and other expenses incurred in securities transactions,
apart from any difference between the investment results of a Portfolio and that
of its respective index, may cause the return of a Portfolio to be lower than
the return of its respective index. The Portfolios may invest in less than all
of the securities included in their respective indexes, which may result in a
return that does not correspond with that of the indexes, after taking expenses
into account.
ILLIQUID SECURITIES. A Portfolio will not invest more than 15% (10% for
each of the Money Market Portfolios) of the value of its net assets in illiquid
securities. Repurchase agreements that do not provide for settlement within
seven days, time deposits maturing in more than seven days, and securities that
are not registered under the Securities Act of 1933, as amended (the "1933 Act")
but that may be purchased by institutional buyers pursuant to SEC Rule 144A are
subject to the applicable limit (unless the Adviser or Sub-Adviser, pursuant to
guidelines established by the Board of Directors, determines that a liquid
market exists). Rule 144A establishes a "safe harbor" from the registration
requirements of the 1933 Act for the resale of certain securities to qualified
institutional buyers. The purchase of securities which can be sold under Rule
144A could have the effect of increasing the level of illiquidity in the
Portfolios to the extent that qualified institutional buyers
become, for a time, uninterested in purchasing these restricted
securities.
PORTFOLIO TURNOVER AND TRANSACTIONS. Although the Equity and Bond
Portfolios will not normally engage in short-term trading, each Portfolio
(except the Bond Index, Equity Index and Small Cap Equity Index Portfolios)
reserves the right to do so if the Adviser (or Sub-Adviser) believes that
selling a particular security is appropriate in light of the Portfolio's
investment objective. Investments may be sold for a variety of reasons,
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such as a more favorable investment opportunity or other circumstances bearing
on the desirability of continuing to hold such investments. A high rate of
portfolio turnover involves correspondingly greater brokerage commission
expenses and other transaction costs, which must be borne directly by the
Portfolio involved and ultimately by its shareholders. High portfolio turnover
may result in the realization of substantial net capital gains; distributions
derived from such gains may be treated as ordinary income for federal income tax
purposes. See "Taxes" in this Prospectus and the Statement of Additional
Information.
Although the Small Cap Equity Index Portfolio cannot accurately predict
its annual portfolio turnover rate, such rate is not expected to exceed ___%.
All orders for transactions in securities or options on behalf of the
Portfolios are placed by the Adviser (or Sub-Adviser) with broker-dealers that
it selects. To the extent permitted by the 1940 Act and guidelines adopted by
the Fund's Board of Directors, a Portfolio may utilize the Distributor or one or
more of its affiliates as a broker in connection with the purchase or sale of
securities when the Adviser believes the charge for the transaction does not
exceed the usual and customary broker's commission.
INVESTMENT LIMITATIONS
Except as otherwise noted, each Portfolio's investment policies
discussed above are not fundamental and may be changed by the Fund's Board of
Directors without shareholder approval. However, each Portfolio also has in
place certain fundamental investment limitations, some of which are set forth
below, which may be changed only by a vote of a majority of the outstanding
Shares of a Portfolio. Other investment limitations that also cannot be changed
without a vote of shareholders are contained in the Statement of Additional
Information under "Investment Objectives and Policies."
THE TREASURY MONEY MARKET AND MONEY MARKET PORTFOLIOS
A Portfolio may not:
1. Make loans, except that a Portfolio may purchase or hold
debt instruments in accordance with its investment objective and
policies, lend portfolio securities and enter into repurchase
agreements with respect to securities (together with any cash
collateral) that are consistent with the Portfolio's permitted
investments and that equal at all times at least 100% of the value of
the repurchase price.
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2. Borrow money or issue senior securities, except that a
Portfolio may borrow from banks and the Money Market Portfolio may
enter into reverse repurchase agreements, for temporary purposes in
amounts up to 10% of the value of its total assets at the time of such
borrowing; or mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of a
Portfolio's total assets at the time of such borrowing. A Portfolio
will not purchase securities while its borrowings (including reverse
repurchase agreements) are outstanding.
3. With respect to the Treasury Money Market Portfolio,
purchase securities other than obligations of the U.S. Government, its
agencies and instrumentalities, some of which may be subject to
repurchase agreements, except that the Portfolio may purchase
securities of other investment companies that seek to maintain a
constant net asset value per Share and that are permitted themselves
only to invest in securities which may be acquired by the Portfolio.
4. With respect to the Money Market Portfolio, purchase any
securities which would cause more than 25% or more of the value of the
Portfolio's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, domestic bank
certificates of deposit, bankers' acceptances and repurchase agreements
secured by domestic bank instruments or obligations of the U.S.
Government, its agencies or instrumentalities; (b) wholly-owned finance
companies will be considered to be in the industries of their parents
if their activities are primarily related to financing the activities
of the parents; and (c) utilities will be divided according to their
services, for example, gas, gas transmission, electric and gas,
electric and telephone will each be considered a separate industry.
In accordance with current regulations of the SEC, the Money Market
Portfolio intends to limit investments in the securities of any single issuer
(other than securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities) to not more than 5% of the Portfolio's total assets at the
time of purchase, provided that the Portfolio may invest up to 25% of its total
assets in the securities of any one issuer for a period of up to three business
days. This intention is not, however, a fundamental policy of the Money Market
Portfolio. The Portfolio would have the ability to invest more than five percent
of its assets in any one issuer in accordance with its fundamental
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policy only in the event that Rule 2a-7 of the 1940 Act is amended in the
future.
THE U.S. GOVERNMENT SECURITIES, INTERMEDIATE CORPORATE BOND, BOND
INDEX, GOVERNMENT & CORPORATE BOND, SHORT-INTERMEDIATE MUNICIPAL,
NATIONAL MUNICIPAL BOND, EQUITY INCOME, EQUITY INDEX, GROWTH &
INCOME EQUITY, SMALL CAP EQUITY, SMALL CAP EQUITY INDEX,
INTERNATIONAL EQUITY AND BALANCED PORTFOLIOS
A Portfolio may not:
1. Purchase securities of any one issuer (other than
obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities) if, immediately after and as a result of such
investments, more than 5% of the Portfolio's total assets would be
invested in the securities of such issuer, or more than 10% of the
issuer's outstanding voting securities would be owned by the Portfolio
or the Fund, except that up to 25% of the Portfolio's total assets may
be invested without regard to such limitations.
2. Purchase any securities which would cause 25% or more of
the Portfolio's total assets at the time of purchase to be invested in
the securities of one or more issuers conducting their principal
business activities in the same industry, provided however, that (a)
with respect to each Portfolio except the Short-Intermediate Municipal
and National Municipal Bond Portfolios, (i) there is no limitation with
respect to obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, and repurchase agreements secured by
obligations of the U.S. Government or its agencies or
instrumentalities; (ii) wholly-owned finance companies will be
considered to be in the industries of their parents if their activities
are primarily related to financing the activities of their parents; and
(iii) utilities will be divided according to their services (for
example, gas, gas transmission, electric and gas, electric, and
telephone will each be considered a separate industry); and (b) with
respect to the Short-Intermediate Municipal and National Municipal Bond
Portfolios, there is no limitation with respect to obligations issued
or guaranteed by the U.S. Government, any state, territory or
possession of the U.S. Government, the District of Columbia, or any of
their authorities, agencies, instrumentalities or political
subdivisions.
3. Borrow money or issue senior securities, except that each
Portfolio may borrow from banks and each Portfolio other than the
National Municipal Bond Portfolio may enter into reverse repurchase
agreements for temporary defensive purposes in amounts not in excess of
10% of the Portfolio's
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total assets at the time of such borrowing; or mortgage, pledge, or
hypothecate any assets, except in connection with any such borrowing
and in amounts not in excess of the lesser of the dollar amounts
borrowed or 10% of the Portfolio's total assets at the time of such
borrowing; or purchase securities while its borrowings exceed 5% of its
total assets. A Portfolio's transactions in futures and related options
(including the margin posted by a Portfolio in connection with such
transactions), and securities held in escrow or separate accounts in
connection with a Portfolio's investment practices described in this
Prospectus or the Statement of Additional Information are not subject
to this limitation.
4. Make loans, except that (a) each Portfolio may purchase or
hold debt instruments, lend portfolio securities and make other
investments in accordance with its investment objective and policies,
and (b) each Portfolio except the National Municipal Bond Portfolio may
enter into repurchase agreements.
5. Purchase securities on margin, make short sales of
securities or maintain a short position, except that (a) this
investment limitation shall not apply to a Portfolio's transactions in
options, and futures contracts and related options, and (b) a Portfolio
may obtain short-term credits as may be necessary for the clearance of
purchases and sales of portfolio securities.
THE GROWTH EQUITY PORTFOLIO
The Portfolio may not:
1. With respect to 75% of the value of its total assets,
purchase securities issued by any one issuer (other than cash, cash
items or securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities and repurchase agreements collateralized
by such securities), if as a result more than 5% of the value of its
total assets would be invested in the securities of that issuer. The
Portfolio will not acquire more than 10% of the outstanding voting
securities of any one issuer.
2. Invest 25% or more of the value of its total assets in any
one industry, provided, however, that the Portfolio may invest more
than 25% of the value of its total assets in cash or certain money
market instruments (including instruments issued by a U.S. branch of a
domestic bank or savings and loan association having capital, surplus
and undivided profits in excess of $100,000,000 at the time
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of investment), securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities and repurchase agreements
collateralized by such securities.
3. Issue senior securities, except that the Portfolio may
borrow money directly or indirectly through reverse repurchase
agreements in amounts up to one-third the value of its total assets,
including the amount borrowed, and except to the extent that the
Portfolio may enter into futures contracts. The Portfolio will not
borrow money or engage in reverse repurchase agreements for investment
leverage, but rather as a temporary, extraordinary, or emergency
measure to facilitate management of its portfolio by enabling the
Portfolio to, for example, meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Portfolio will not purchase any securities while
any borrowings in excess of 5% of its total assets are outstanding.
For purposes of Investment Limitation No. 2 above, money
market instruments shall include bankers' acceptances, negotiable
certificates of deposit and negotiable time deposits of U.S. or foreign
banks and savings and loan associations.
THE TAX-EXEMPT MONEY MARKET AND MISSOURI TAX-EXEMPT BOND PORTFOLIOS
A Portfolio may not:
1. Purchase securities of any one issuer if, immediately after
and as a result of such purchase, more than 5% of the Portfolio's total
assets would be invested in the securities of such issuer, except that
(a) up to 50% of the Portfolio's total assets may be invested without
regard to this 5% limitation provided that no more than 25% of the
Portfolio's total assets are invested in the securities of any one
issuer and (b) this 5% limitation does not apply to securities issued
or guaranteed by the U.S. Government, its agencies or
instrumentalities. For purposes of this limitation, a security is
considered to be issued by the governmental entity (or entities) whose
assets and revenues back the security, or, with respect to an
industrial development bond (in the case of the Tax-Exempt Money Market
Portfolio) or a private activity bond (in the case of the Missouri
Tax-Exempt Bond Portfolio) that is backed only by the assets and
revenues of a non-governmental user, a security is considered to be
issued by such non-governmental user. In certain circumstances, the
guarantor of a guaranteed security may also be considered to be an
issuer in connection with such guarantee, except that a guarantee
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of a security shall not be deemed to be a security issued by the
guarantor when the value of all securities issued and guaranteed by the
guarantor, and owned by the Portfolio, does not exceed 10% of the
Portfolio's total assets.
2. Borrow money or issue senior securities, except that each
Portfolio may borrow from banks, and the Missouri Tax-Exempt Bond
Portfolio may enter into reverse repurchase agreements, for temporary
defensive purposes in amounts not in excess of 10% of its total assets
at the time of such borrowing; or mortgage, pledge, or hypothecate any
assets except in connection with any such borrowing and in amounts not
in excess of the lesser of the dollar amounts borrowed or 10% of its
total assets at the time of such borrowing (including any reverse
repurchase agreements); or purchase securities while borrowings exceed
5% of Tax-Exempt Money Market Portfolio's net assets or 5% of the
Missouri Tax-Exempt Bond Portfolio's total assets. Securities held in
escrow or separate accounts in connection with the Portfolios'
investment practices described in this Prospectus or the Statement of
Additional Information are not subject to this limitation.
THE MISSOURI TAX-EXEMPT BOND PORTFOLIO
The Portfolio may not:
1. Purchase any securities, except securities issued (as
defined in Investment Limitation No. 1 above with respect to the
Tax-Exempt Money Market and Missouri Tax-Exempt Bond Portfolios) or
guaranteed by the United States, any state, territory or possession of
the United States, the District of Columbia or any of their
authorities, agencies, instrumentalities or political subdivisions,
which would cause 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.
2. Make loans except that the Portfolio may purchase and hold
debt instruments and enter into repurchase agreements in accordance
with its investment objective and policies.
In addition, under normal market conditions or when the Adviser deems
that suitable tax-exempt obligations are available, at least 80% of the
Tax-Exempt Money Market Portfolio's assets must be invested in obligations the
interest on which is exempt from federal income tax and stand-by commitments
with respect to such obligations.
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Notwithstanding the Investment Limitation in the preceding paragraph,
the Tax-Exempt Money Market Portfolio may invest in securities of other
investment companies that (a) invest in securities that are substantially
similar to those the Portfolio may acquire, and (b) distribute income that is
exempt from regular federal income tax.
The following additional investment policies with respect to the
Tax-Exempt Money Market and Missouri Tax-Exempt Bond Portfolio are not
fundamental and may be changed by the Board of
Directors without shareholder approval:
The Portfolios may not purchase securities which are not
readily marketable, enter into repurchase agreements providing for
settlement in more than seven days after notice, or purchase other
illiquid securities if, as a result of such purchase, illiquid
securities would exceed 15% (10% with respect to the Tax-Exempt Money
Market Portfolio) of the Portfolios' respective net assets.
The Tax-Exempt Money Market Portfolio has an operating policy to comply
with the requirements of Rule 2a-7 of the 1940 Act. To the extent that Rule 2a-7
is more restrictive than the Portfolio's fundamental limitations, the Portfolio
will operate in accordance with Rule 2a-7.
Except with respect to the Growth Equity Portfolio's policy on
borrowing money as set forth above in its Investment Limitation No. 3, if a
percentage limitation is satisfied at the time of investment, a later increase
or decrease in such percentage resulting from a change in value in the
Portfolio's securities will not constitute a violation of such limitation.
PRICING OF SHARES
THE MONEY MARKET PORTFOLIOS
The Money Market Portfolios' respective net asset values per Share are
determined by the Administrator as of 12:00 noon (Eastern time) and as of the
close of regular trading hours on the New York Stock Exchange (the "Exchange")
(currently, 4:00 p.m. Eastern time) on each weekday, with the exception of those
holidays on which the Exchange or the Federal Reserve Bank of St. Louis are
closed (a "Business Day"). Currently one or both of these institutions are
closed on the customary national business holidays of New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day (observed),
Independence Day (observed), Labor Day, Columbus Day, Veterans' Day,
Thanksgiving Day and Christmas Day (observed).
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Each Portfolio's assets are valued based upon the amortized cost
method. Although each Portfolio seeks to maintain its net asset value per Share
at $1.00, there can be no assurance that the net asset value per Share will not
vary. See the Statement of Additional Information under "Net Asset Value" for
further information.
THE EQUITY AND BOND PORTFOLIOS
The Equity and Bond Portfolios' respective net asset values per Share
are determined by the Administrator as of the close of regular trading hours on
the Exchange on each Business Day (currently 4:00 p.m. Eastern time).
Securities which are traded on a recognized stock exchange are valued
at the last sale price on the securities exchange on which such securities are
primarily traded or at the last sale price on the national securities market.
Securities traded on only over-the-counter markets are valued on the basis of
market values when available. Securities for which there are no transactions are
valued at the average of the current bid and asked prices. Other securities,
including restricted and other securities for which market quotations are not
readily available, and other assets are valued at fair value by the Adviser (or
Sub-Adviser) under the supervision of the Board of Directors. Investments in
debt securities with remaining maturities of 60 days or less may be valued based
upon the amortized cost method. For further information about valuation of
investments, see "Net Asset Value" in the Statement of Additional Information.
OTHER INFORMATION
The public offering price for each class of Shares of a Portfolio is
based upon net asset value per Share plus, in the case of Investor A Shares of
each Portfolio except the Money Market Portfolios, a front-end sales charge. A
class will calculate its net asset value per Share by adding the value of a
Portfolio's investments, cash and other assets attributable to the class,
subtracting the Portfolio's liabilities attributable to that class, and then
dividing the result by the total number of Shares in the class that are
outstanding. Because the operating expenses of Investor B Shares are higher than
those associated with the other classes of Shares, the net asset value per Share
of Investor B Shares of a Portfolio which declares its net investment income
quarterly will generally be lower than the net asset value per Share of Trust,
Institutional or Investor A Shares of the same Portfolio.
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HOW TO PURCHASE AND REDEEM SHARES
PURCHASE OF SHARES
Trust Shares are sold to financial institutions, such as banks, trust
companies, thrift institutions, mutual funds or other financial institutions
(collectively "financial institutions"), acting on their own behalf or on behalf
of discretionary and non-discretionary accounts for which they may receive
account-level asset-based management fees. Trust Shares are sold to qualified
purchasers without a sales charge imposed by the Fund or the Distributor.
Generally, investors purchase Trust Shares through a financial institution,
which is responsible for transmitting purchase orders directly to the Fund.
Purchases may be effected on Business Days when the Adviser,
Distributor and Mercantile (the Custodian) are open for business. The Fund
reserves the right to reject any purchase order, including purchases made with
foreign and third party drafts or checks.
Financial institutions placing orders directly or on behalf of their
customers should contact the Fund at 1-800-452-4015. Investors may also call the
Fund for information on how to purchase Shares.
All shareholders of record will receive confirmations of Share
purchases, exchanges, and redemptions in the mail. If Shares are held in the
name of banks or other financial institutions, such institution is responsible
for transmitting purchase, exchange, and redemption orders to the Fund on a
timely basis, recording all purchase, exchange, and redemption transactions, and
providing regular account statements which confirm such transactions to
beneficial owners. Payment for orders which are not received or accepted will be
returned after prompt inquiry to the transmitting financial institution.
PURCHASE OF SHARES -- THE MONEY MARKET PORTFOLIOS
A purchase order received and accepted by the Fund by 12:00 noon
(Eastern time) on a Business Day is effected at the net asset value per Share
next determined after receipt of the order in good form if the Fund's Custodian
has received payment in federal funds by 4:00 p.m. (Eastern time) that day. If
such funds are not available for investment by 4:00 p.m. (Eastern time), the
order will be cancelled. Purchase orders received after 12:00 noon (Eastern
time) will be placed the following business day.
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PURCHASE OF SHARES -- THE EQUITY AND BOND PORTFOLIOS
If purchase orders are received in good form and accepted by the Fund
prior to 4:00 p.m. (Eastern time) on any Business Day, Trust Shares will be
priced according to the net asset value per Share next determined on that day
after receipt of the order. Immediately available funds must be received by the
Custodian prior to 4:00 p.m. on the next Business Day following receipt of such
order. If funds are not received by such date, the order will be cancelled, and
notice thereof will be given to the financial institution placing the order.
EXCHANGES
The exchange privilege enables shareholders to exchange Trust Shares of
a Portfolio for Trust Shares of another Portfolio offered by the Fund. Exchanges
for Trust Shares in another Portfolio are effected without payment of any
exchange or sales charges. In addition, Trust Shares of a Portfolio may also be
exchanged for Investor A Shares of the same Portfolio in connection with the
distribution of assets held in a qualified trust, agency or custodian account
with the trust department of Mercantile or any of its affiliated or
correspondent banks. Such exchanges will also be effected without payment of any
exchange or sales charges. The exchange privilege may be exercised only in those
states where the class of shares of such other Portfolios may be legally sold.
The Fund reserves the right to reject any exchange request. The
exchange privilege may be modified or terminated at any time upon 60 days'
written notice to shareholders. An investor may telephone an exchange request by
calling his or her financial institution, which is responsible for transmitting
such request to the Distributor. See "Other Exchange or Redemption Information"
below. An investor should consult the financial institution or the Distributor
for further information regarding procedures for exchanging Shares.
REDEMPTION OF SHARES
Redemption orders should be placed with or through the same financial
institution that placed the original purchase order. Redemption orders are
effected at a Portfolio's net asset value per Share next determined after
receipt of the order by the Fund. The financial institution is responsible for
transmitting redemption orders to the Fund on a timely basis. No charge for
sending redemption payments electronically is currently imposed by the Fund,
although a charge may be imposed in the future. The Fund reserves the right to
send redemption proceeds electronically within seven days after receiving a
redemption
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order if, in the judgment of the Adviser, an earlier payment could adversely
affect a Portfolio.
A written redemption request must be accompanied by any Share
certificates which are properly endorsed for transfer. The Transfer Agent may
require a signature guarantee by an eligible guarantor institution. For purposes
of this policy, the term "eligible guarantor institution" shall include banks,
brokers, dealers, credit unions, securities exchanges and associations, clearing
agencies and savings associations as those terms are defined in Rule 17Ad-15
under the Securities Exchange Act of 1934. The Transfer Agent reserves the right
to reject any signature guarantee if (1) it has reason to believe that the
signature is not genuine, (2) it has reason to believe that the transaction
would otherwise be improper, or (3) the guarantor institution is a broker or
dealer that is neither a member of a clearing corporation nor maintains net
capital of at least $100,000. The signature guarantee requirement will be waived
if all of the following conditions apply: (1) the redemption check is payable to
the shareholder(s) of record and (2) the redemption check is mailed to the
shareholder(s) at the address of record or the proceeds are either mailed or
sent electronically to a commercial bank account previously designated on the
account application. An investor with questions or needing assistance should
contact the financial institution servicing his or her account or the
Distributor. Additional documentation may be required if the redemption is
requested by a corporation, partnership, trust, fiduciary, executor, or
administrator. If, due to temporary adverse conditions, investors are unable to
effect telephone transactions, investors are encouraged to follow the procedures
described in "Other Exchange or Redemption Information" below.
Neither the Fund nor its service providers will be liable for any loss,
damage, expense or cost arising out of any telephone redemption effected in
accordance with the Fund's telephone redemption procedures, upon instructions
reasonably believed to be genuine. The Fund will employ procedures designed to
provide reasonable assurance that instructions by telephone are genuine; if
these procedures are not followed, the Fund or its service providers may be
liable for any losses due to unauthorized or fraudulent instructions. If Share
certificates are outstanding with respect to an account, the telephone
redemption and exchange privilege is not available.
Proceeds from redemptions of Shares of the MONEY MARKET PORTFOLIOS with
respect to redemption orders received by the Fund before 12:00 noon (Eastern
time) on a Business Day normally are sent electronically the same day to the
financial institution that placed the redemption order in good form. Proceeds
for redemption orders that are received after 12:00 noon (Eastern
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time) or on a non-Business Day normally are wired to the financial institution
on the next Business Day.
Proceeds from redemptions of Shares of the EQUITY AND BOND PORTFOLIOS
with respect to redemption orders received by the Fund before 4:00 p.m. (Eastern
time) on a Business Day normally are sent electronically to the financial
institution that placed the redemption order the next Business Day after the
Distributor's receipt of the order in good form.
OTHER EXCHANGE OR REDEMPTION INFORMATION
During periods of substantial economic or market change or activity,
telephone redemptions or exchanges may be difficult to complete. In such event,
Shares may be redeemed or exchanged by mailing the request directly to the
financial institution through which the original Shares were purchased or
directly to the Fund at P.O. Box 78069, St. Louis, Missouri 63178.
At various times, the Fund may be requested to redeem Shares for which
it has not yet received good payment. In such circumstances, the Fund may delay
the forwarding of proceeds until payment has been collected for the purchase of
such Shares which may take up to 15 days or more. To avoid delay in payment upon
redemption shortly after purchasing Shares, investors should purchase Shares by
certified or bank check or by electronic transfer. The Fund intends to pay cash
for all Shares redeemed, but under abnormal conditions which make payment in
cash unwise, the Fund may make payment wholly or partly in portfolio securities
at their then market value equal to the redemption price. In such cases, an
investor may incur brokerage costs in converting such securities to cash.
A shareholder may be required to redeem Shares in a Portfolio upon 60
days' written notice if the balance in the shareholder's account drops below
$500. The Fund will not require a shareholder to redeem Portfolio Shares if the
value of the shareholder's account drops below $500 due to fluctuations in net
asset value. Share balances may also be redeemed pursuant to arrangements
between financial institutions and their investors.
YIELDS AND TOTAL RETURNS
Yield and total return quotations are computed separately for Trust
Shares, Institutional Shares, S Shares, Investor A Shares and Investor B Shares
of a Portfolio. TOTAL RETURN AND YIELD FIGURES WILL FLUCTUATE, ARE BASED ON
HISTORICAL EARNINGS, AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The
methods used to compute each Portfolio's yields and total
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returns are described below and in the Statement of Additional Information.
THE MONEY MARKET PORTFOLIOS
From time to time, performance information such as total return,
"yield" and "effective yield" for the Money Market Portfolios' Trust Shares may
be quoted in advertisements or in communications to shareholders. The "yield"
quoted in advertisements refers to the income generated by an investment in such
Shares of a Portfolio over a specified period (such as a seven-day period)
identified in connection with the particular yield quotation. This income is
then "annualized." That is, the amount of income generated by the investment
during that period is assumed to be generated for each such period over a
52-week or one-year period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly but, when annualized, the income
earned by an investment in such Shares of a Portfolio is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment.
In addition, the Treasury Money Market Portfolio's "state
tax-equivalent yield" may also be quoted. The "state tax-equivalent yield" shows
the level of taxable yield needed to produce an after-tax yield that is
equivalent to a particular state's tax-exempt yield achieved by the Portfolio.
The "state tax-equivalent yield" refers to the portion of income that is derived
from interest income on direct obligations of the U.S. Government, its agencies
or instrumentalities that qualifies for exemption from state income tax. The
yield calculation assumes that 100% of the interest income is exempt from state
income tax. The "state tax-equivalent yield" is computed by dividing the
tax-exempt portion of the Portfolio's yield by a denominator consisting of one
minus a stated income tax rate.
The Tax-Exempt Money Market Portfolio may also quote its
"tax-equivalent yield" and "tax-equivalent effective yield", which demonstrate
the level of taxable yield needed to produce an after-tax yield that is
equivalent to the Portfolio's yield and effective yield. Each are calculated by
increasing the Portfolio's yield and effective yield by the amount necessary to
reflect the payment of federal (and/or state) tax at a stated tax rate. The "tax
equivalent yield" and "tax-equivalent effective yield" will always be higher
than the Portfolio's yield and effective yield, respectively. The Tax-Exempt
Money Market Portfolio may also compute its "tax-equivalent yield" and
"tax-equivalent effective yield" with respect to certain states, which shows the
level of taxable yield and effective yield, respectively, needed to produce an
after-tax equivalent to the federal and state tax-exempt yield of the
Portfolio's particular
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class of Shares, assuming payment of federal income tax and state personal
income tax each at a stated rate and based upon a specified percentage of the
Portfolio's income which is exempt from state income tax as well as federal
income tax.
THE EQUITY AND BOND PORTFOLIOS
From time to time, performance information such as total return and
yield data for the Equity and Bond Portfolios' Trust Shares may be quoted in
advertisements or in communications to shareholders. The yield is computed based
on the net income of such Shares in the particular Portfolio during a 30-day (or
one-month) period identified in connection with the particular yield quotation.
More specifically, the yield is computed by dividing the Portfolio's net income
per Share during a 30-day (or one-month) period by the net asset value per Share
on the last day of the period and annualizing the result. The Short-Intermediate
Municipal, Missouri Tax-Exempt Bond and National Municipal Bond Portfolios' "tax
equivalent" yields, which show the level of taxable yield needed to produce an
after-tax equivalent to each Portfolio's tax-free yield may also be quoted from
time to time. This is done by increasing a Portfolio's yield (calculated as
above) by the amount necessary to reflect the payment of federal income tax at a
stated tax rate. The Missouri Tax-Exempt Bond Portfolio may also compute its
"Missouri tax-equivalent" yield which shows the level of taxable yield needed to
produce an after-tax equivalent to the federal and Missouri tax-exempt yield of
the Portfolio's Shares, assuming payment of federal income tax and Missouri
income tax each at a stated rate.
The Portfolios' total returns may be calculated on an average annual
total return basis, and may also be calculated on an aggregate total return
basis, for various periods. Average annual total returns with respect to Trust
Shares reflect the average annual percentage change in value of an investment in
such Shares of the particular Portfolio over the particular measuring period.
Aggregate total returns reflect the cumulative percentage change in value over
the measuring period. Both methods of calculating total returns assume that
dividends and capital gain distributions made by a Portfolio during the period
are reinvested in the Portfolio's Trust Shares. When considering average annual
total return figures for periods longer than one year, it is important to note
that a Portfolio's annual total return for any one year in the period might have
been more or less than the average for the entire period.
INFORMATION APPLICABLE TO ALL PORTFOLIOS
Performance data of the Portfolios' Trust Shares may be compared to the
performance of other mutual funds with comparable investment objectives and
policies through various mutual fund or
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market indices and data such as that provided by Lehman Brothers, Inc., or any
of its affiliates, Ibbotson Associates, Inc., Lipper Analytical Services, Inc.,
Mutual Fund Forecaster and IBC MONEY FUND REPORT(R) published by IBC/Donoghue.
References may also be made to indices or data published in Money Magazine,
Forbes, Barron's, The Wall Street Journal, The New York Times, Business Week,
American Banker, Institutional Investor, Pensions and Investments, U.S.A. Today,
Fortune, CDA/Weisenberger, Morningstar, Inc. and publications of a local or
regional nature. In addition to performance information, general information
about the Portfolios that appears in a publication such as those mentioned above
may be included in advertisements and in reports to shareholders.
Performance quotations of a class of Shares in a Portfolio represent
that Portfolio's past performance and should not be considered as representative
of future results. Any account fees charged by a bank or other financial
institution (as described in "Management of The Fund -- Service Organizations"
below) or other institutions will not be included in the calculations of a
Portfolio's yields and total returns. Such fees, if any, will reduce the
investor's net return on an investment in a Portfolio. Investors may call
1-800-452-4015 to obtain current yield and total return information.
DIVIDENDS AND DISTRIBUTIONS
THE TREASURY MONEY MARKET, MONEY MARKET, TAX-EXEMPT MONEY MARKET, U.S.
GOVERNMENT SECURITIES, INTERMEDIATE CORPORATE BOND, BOND INDEX, GOVERNMENT &
CORPORATE BOND, SHORT-INTERMEDIATE MUNICIPAL, MISSOURI TAX-EXEMPT BOND AND
NATIONAL MUNICIPAL BOND PORTFOLIOS
Dividends from net investment income of the Treasury Money Market,
Money Market, Tax-Exempt Money Market, U.S. Government Securities, Intermediate
Corporate Bond, Bond Index, Government & Corporate Bond, Short-Intermediate
Municipal, Missouri Tax-Exempt Bond and National Municipal Bond Portfolios are
declared daily and paid monthly not later than five Business Days after the end
of each month. Trust Shares of the Treasury Money Market, Money Market and
Tax-Exempt Money Market Portfolios earn dividends from the day the purchase
order is received by the Transfer Agent through the day before the redemption
order for such Shares is received. Trust Shares of the U.S. Government
Securities, Intermediate Corporate Bond, Bond Index, Government & Corporate
Bond, Short-Intermediate Municipal, Missouri Tax-Exempt Bond and National
Municipal Bond Portfolios earn dividends from the day after the purchase order
is received by the Transfer Agent through the day the redemption order for such
Shares is received. Dividends on each Share of such Portfolios are determined in
the same manner and are paid in the same amounts irrespective of
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class, except that a Portfolio's Trust Shares and Institutional Shares (other
than the Tax-Exempt Portfolios which do not offer Institutional Shares) bear all
expenses of the respective Administrative Services Plans adopted for such Shares
and a Portfolio's S Shares (other than the U.S. Government Securities,
Intermediate Corporate Bond, Bond Index, Government & Corporate Bond,
Short-Intermediate Municipal, Missouri Tax-Exempt Bond and National Municipal
Bond Portfolios which do not offer S Shares), Investor A Shares and Investor B
Shares (other than the Treasury Money Market, Tax-Exempt Money Market,
Intermediate Corporate Bond, Bond Index, Short-Intermediate Municipal, Equity
Index and Small Cap Equity Index Portfolios which do not offer Investor B
Shares) bear all expenses of the respective Distribution and Services Plans
adopted for such Shares. In addition, a Portfolio's Institutional Shares bear
the expense of certain sub-transfer agency fees. See "Management of the Fund
- --Administrative Services Plan" and "Other Information Concerning the Fund and
Its Shares" below.
THE EQUITY INCOME, EQUITY INDEX, GROWTH & INCOME EQUITY, GROWTH EQUITY AND
BALANCED PORTFOLIOS
Net investment income for the Equity Income, Equity Index, Growth &
Income Equity, Growth Equity and Balanced Portfolios is declared and paid
monthly as a dividend to shareholders of record. Dividends on each Share of each
of these Portfolios are determined in the same manner and are paid in the same
amount, irrespective of class, except that a Portfolio's Trust Shares and
Institutional Shares bear all expenses of the respective Administrative Services
Plans adopted for such Shares and a Portfolio's Investor A Shares and Investor B
Shares (other than the Equity Index Portfolio which does not offer Investor B
Shares) bear all expenses of the respective Distribution and Services Plans
adopted for such Shares. In addition, a Portfolio's Institutional Shares bear
the expense of certain sub-transfer agency fees. See "Management of the Fund
- --Administrative Services Plan" and "Other Information Concerning the Fund and
Its Shares" below.
THE SMALL CAP EQUITY, SMALL CAP EQUITY INDEX AND INTERNATIONAL EQUITY PORTFOLIOS
Net investment income for the Small Cap Equity, Small Cap Equity Index
and International Equity Portfolios is declared and paid quarterly as a dividend
to shareholders of record. Dividends on each Share of each of these Portfolios
are determined in the same manner and are paid in the same amount, irrespective
of class, except that a Portfolio's Trust Shares and Institutional Shares bear
all expenses of the respective Administrative Services Plans adopted for such
Shares and a Portfolio's Investor A Shares and Investor B Shares (other than
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the Small Cap Equity Index Portfolio which does not offer Investor B Shares)
bear all expenses of the respective Distribution and Services Plans adopted for
such Shares. In addition, a Portfolio's Institutional Shares bear the expense of
certain sub-transfer agency fees. See "Management of the Fund--Administrative
Services Plan" and "Other Information Concerning the Fund and Its Shares" below.
OTHER DIVIDEND AND DISTRIBUTION INFORMATION
The Money Market Portfolios do not expect to realize capital gains. Net
realized capital gains of a Portfolio, if any, are distributed at least
annually. All dividends and distributions paid on a Portfolio's Shares are
automatically reinvested in additional Shares of the same class unless the
investor has (i) otherwise indicated in the account application, or (ii)
redeemed all the Shares held in a Portfolio, in which case a distribution will
be paid in cash. Reinvested dividends and distributions will be taxed in the
same manner as those paid in cash.
TAXES
FEDERAL TAXES
Each Portfolio of the Fund intends to qualify as a "regulated
investment company" for the current taxable year. It is intended that each
Portfolio will continue to so qualify as long as such qualification is in the
best interests of shareholders. A regulated investment company is generally
exempt from federal income tax on amounts distributed to shareholders.
Qualification as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code"), for a taxable year requires,
among other things, that each Portfolio distribute to its shareholders an amount
equal to at least the sum of 90% of its investment company taxable income and
90% of its net exempt-interest income (if any). In general, a Portfolio's
investment company taxable income will be its taxable income, including
dividends, interest and short-term capital gains (the excess of net short-term
capital gain over net long-term capital loss), subject to certain adjustments
and excluding the excess of any net long-term capital gain over net short-term
capital loss, if any, for such taxable year. The Treasury Money Market, Money
Market, U.S. Government Securities, Intermediate Corporate Bond, Bond Index,
Government & Corporate Bond, Equity Income, Equity Index, Growth & Income
Equity, Growth Equity, Small Cap Equity, Small Cap Equity Index, International
Equity and Balanced Portfolios intend to distribute as dividends substantially
all of their respective investment company taxable income and any net tax-exempt
interest income each year. Such dividends will be taxable as ordinary income to
a Portfolio's
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shareholders who are not currently exempt from federal income taxes, whether
such income is received in cash or reinvested in additional Shares. (Federal
income taxes for distributions to an IRA are deferred under the Code.) In the
case of the Equity Income, Equity Index, Growth & Income Equity, Growth Equity,
Small Cap Equity, Small Cap Equity Index, International Equity and Balanced
Portfolios, such dividends will qualify for the dividends received deduction for
corporations to the extent of the total qualifying dividends received by the
Portfolios from domestic corporations for the taxable year. Because all of the
Treasury Money Market, Money Market, U.S. Government Securities, Intermediate
Corporate Bond, Bond Index and Government & Corporate Bond Portfolios' net
investment income is expected to be derived from earned interest, it is not
expected that any distributions from such Portfolios will be eligible for the
dividends received deduction.
It is the policy of each Tax-Exempt Portfolio to distribute as
dividends substantially all of its net tax-exempt interest income and any
investment company taxable income each year. Dividends derived from interest on
Municipal Obligations (known as exempt-interest dividends) may be treated by
shareholders as items of interest excludable from their gross income under
Section 103(a) of the Code, unless under the circumstances applicable to the
particular shareholder the exclusion would be disallowed. See the Statement of
Additional Information under "Additional Information Concerning Taxes."
Distributions of net income may be taxable to investors under state or local law
as dividend income even though a substantial portion of such distributions may
be derived from interest on tax-exempt obligations which, if realized directly,
would be exempt from such income tax.
If a Tax-Exempt Portfolio should hold certain private activity bonds
issued after August 7, 1986, shareholders must include, as an item of tax
preference, the portion of dividends paid by the Portfolio that is attributable
to interest on such bonds in their federal alternative minimum taxable income
for purposes of determining liability (if any) for the 26-28% alternative
minimum tax applicable to individuals and the 20% alternative minimum tax and
the environmental tax applicable to corporations. Corporate shareholders also
must take all exempt-interest dividends into account in determining certain
adjustments for federal alternative minimum and environmental tax purposes. The
environmental tax applicable to corporations is imposed at the rate of .12% on
the excess of the corporation's modified federal alternative minimum taxable
income over $2,000,000.
Substantially all of each Portfolio's net realized long-term capital
gains, if any, will be distributed at least annually to
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its shareholders. A Portfolio will generally have no tax liability with respect
to such gains and the distributions will be taxable to shareholders who are not
currently exempt from federal income taxes as long-term capital gains,
regardless of how long the shareholders have held the Shares and whether such
gains are received in cash or reinvested in additional Shares.
To the extent dividends paid to shareholders of a Tax-Exempt Portfolio
are derived from taxable income or from long-term or short-term capital gains,
such dividends will be subject to federal income tax, whether such dividends are
paid in the form of cash or additional Shares.
An investor considering purchasing Shares of a Money Market Portfolio
on or just before the record date of any capital gains distribution (or in the
case of the Equity and Bond Portfolios, the record date of any dividend or
capital gains distribution) should be aware that the amount of the forthcoming
distribution, although in effect a return of capital, will be taxable.
Dividends declared by a Portfolio in October, November, or December of
any year payable to shareholders of record on a specified date in such months
will be deemed to have been received by shareholders and paid by the Fund on
December 31 of such year, if such dividends are actually paid during January of
the following year.
Each Portfolio may be required in certain cases to withhold and remit
to the U.S. Treasury 31% of taxable dividends or gross sale proceeds paid to
shareholders who have failed to provide a correct tax identification number in
the manner required, who are subject to withholding by the Internal Revenue
Service for failure properly to include on their return payments of taxable
interest or dividends, or who have failed to certify to the Portfolio that they
are not subject to backup withholding when required to do so or that they are
"exempt recipients."
A taxable gain or loss may be realized by an investor upon redemption,
transfer or exchange of Shares of the Equity and Bond Portfolios, depending upon
the tax basis of such Shares and their price at the time of redemption, transfer
or exchange. If an investor holds Shares for six months or less and during that
time receives an exempt-interest dividend on those Shares, any loss realized on
the sale or exchange of those Shares will be disallowed to the extent of the
exempt-interest dividend.
Certain interest income and dividends earned by the International
Equity Portfolio from foreign securities is expected to be subject to foreign
withholding taxes or other taxes. So long as more than 50% of the value of the
Portfolio's total assets at the close of any taxable year consists of stock
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or securities of foreign corporations, the Portfolio may elect, for U.S. federal
income tax purposes, to treat certain foreign taxes paid by it, including
generally any withholding taxes and other foreign income taxes, as paid by its
shareholders. The Portfolio may make this election. As a consequence, the amount
of these foreign taxes paid by the Portfolio will be included in its
shareholders' taxable income pro rata (in addition to taxable distributions
actually received by them), and each shareholder may elect either (a) to credit
his proportionate amount of such taxes against his U.S. federal income tax
liabilities (subject to certain limitations), or (b) if he itemizes his
deductions, to deduct such proportionate amounts from his U.S. taxable income.
MISSOURI TAX CONSIDERATIONS. For each year in which a Portfolio
qualifies as a regulated investment company for federal income tax purposes,
shareholders of such Portfolio who are Missouri resident individuals, trusts or
estates resident in Missouri, or corporations subject to Missouri taxing
jurisdiction (collectively, "Missouri Taxpayers") will not be subject to
Missouri income taxation on dividends distributed to them to the extent that
such dividends (a) qualify as exempt-interest dividends of a regulated
investment company under Code section 852(b)(5), (b) are the subject of the
written notice to shareholders required by 12 C.S.R. section 10-2.155(2), (c)
are attributable to interest on (1) obligations issued by the State of Missouri
or any of its political subdivisions or authorities, or (2) certain obligations
of the United States, any territory or possession of the United States, or any
authority, commission, or instrumentality of the United Sates, to the extent
exempted from Missouri income tax under Federal Law, and (d) are properly
reported on the Missouri income tax returns of the shareholder in the respective
Portfolio. In connection with these exclusions from Missouri taxable income, the
State also denies any deduction for interest on debt incurred to carry the
obligations or securities and any expenses incurred in the production of the
excluded interest or dividend income.
To the extent possible, the Missouri Tax-Exempt Bond Portfolio intends
to invest in obligations which will permit distributions attributable to
interest to be excludable by Missouri Taxpayers. Despite this intention,
Missouri Taxpayers generally will be subject to Missouri income tax on other
types of distributions received from the Missouri Tax-Exempt Bond Portfolio,
including distributions of interest on obligations of other issuers and all
long-term and short-term capital gains.
Except as noted above with respect to Missouri income taxation,
distributions from a Portfolio may be taxable to shareholders under other state
and local laws imposing taxes on or measured by net income, even though such
distribution were derived, in whole or in part, from interest on obligations
which,
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if realized directly by the shareholder, or by a shareholder of another type,
would be nontaxable.
The foregoing discussion of Missouri law does not apply to shareholders
that are subject to the Missouri bank tax or other comparable forms of
specialized Missouri taxation.
All shareholders of the Portfolios should consult with their tax
advisors with respect to the state and local tax consequences of the purchase,
ownership, and disposition of Shares in the Portfolios, the receipt of
distributions from the Portfolios, and the proper method in which to report
Portfolio-related items on a shareholder's Missouri tax returns.
STATE AND LOCAL TAXES
Shareholders should note that dividends paid by a Portfolio may be
taxable to investors under state or local law as dividend income even though all
or a portion of such dividends may be derived from interest on obligations that,
if realized directly, would be exempt from such income taxes.
The Treasury Money Market Portfolio is structured to provide investors,
to the extent permissible by federal and state law, with income that is exempt
or excluded from taxation at the state and local level. Shareholders should note
that many, but not all, states permit all or a portion of a regulated investment
company's dividends which are derived from interest on U.S. Treasury obligations
(and obligations of certain U.S. Government agencies)("Treasury Obligations") to
be exempt or excluded from state and local taxation. In addition, only certain
states allow dividends of a regulated investment company that are derived from
dividends of other regulated investment companies investing directly in Treasury
Obligations to be exempt or excluded from state and local taxation. Some states
reduce a shareholder's allowable deductions by interest on debt incurred to
carry obligations producing state tax-exempt interest and by other expenses
related to such obligations. Income earned by the Portfolio from repurchase
agreements generally is not exempt from state or local income tax. Shareholders
should consult their own tax advisors about the status of distributions from the
Treasury Money Market Portfolio under state and local law.
MISCELLANEOUS
The foregoing summarizes some of the important federal and state tax
considerations generally affecting the Portfolios and their shareholders and is
not intended as a substitute for careful tax planning. Accordingly, potential
investors in the Portfolios should consult their tax advisers with specific
reference to their own tax situation. Shareholders will be
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advised at least annually as to the federal and, for the Treasury Money Market
Portfolio, the state income tax consequences, and for the Missouri Tax-Exempt
Bond Portfolio, the Missouri state income tax consequences, of distributions
made each year.
MANAGEMENT OF THE FUND
The Fund is managed under the direction of its Board of Directors. The
Statement of Additional Information contains the names of and general background
information concerning each director.
INVESTMENT ADVISER AND SUB-ADVISER
Mississippi Valley Advisors Inc. ("MVA") serves as the investment
adviser to each Portfolio. MVA's principal office is located at One Mercantile
Center, Seventh & Washington Streets, St. Louis, Missouri 63101. MVA is a
wholly-owned subsidiary of Mercantile. As of December 31, 1997, MVA had
approximately $9.4 billion in assets under investment management, including the
Funds' assets, which were approximately $3.9 billion.
Subject to the general supervision of the Fund's Board of Directors and
in accordance with the Fund's investment policies, MVA manages the Portfolios,
makes investment decisions with respect to and places orders for all purchases
and sales of the Portfolios' securities and other investments, and directs the
maintenance of each Portfolio's records relating to such purchases and sales.
For the services provided and expenses assumed pursuant to the
investment advisory agreement, MVA is entitled to receive fees, computed daily
and payable monthly, with respect to the Treasury Money Market and Money Market
Portfolios, at the annual rates of .40% of the first $1.5 billion of each such
Portfolio's average daily net assets, .35% of the next $1.0 billion of net
assets and .25% of net assets in excess of $2.5 billion, and with respect to the
Tax-Exempt Money Market, U.S. Government Securities, Intermediate Corporate
Bond, Bond Index, Government & Corporate Bond, Short-Intermediate Municipal,
Missouri Tax-Exempt Bond, National Municipal Bond, Equity Income, Equity Index,
Growth & Income Equity, Growth Equity, Small Cap Equity, Small Cap Equity Index,
International Equity and Balanced Portfolios, at the annual rates of .40%, .45%,
.55%, .30%, .45%, .55%, .45%, .55%, .75%, .30%, .55%, .75%, .75%, .40%, 1.00%
and .75%, respectively, of the average daily net assets of each Portfolio,
respectively. For the fiscal year or period ended November 30, 1997, MVA
received advisory fees (net of waivers) at the effective annual rates of .__%,
.__%, .__%, .__%, .__%, .__%, .__%, .__%, .__%, .__%, .__%, .__%, .__%, .__%,
.__%, ____%
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and .__% of the respective average daily net assets of the Treasury Money
Market, Money Market, Tax-Exempt Money Market, U.S. Government Securities,
Intermediate Corporate Bond, Bond Index, Government & Corporate Bond,
Short-Intermediate Municipal, Missouri Tax-Exempt Bond, National Municipal Bond,
Equity Income, Equity Index, Growth & Income Equity, Growth Equity, Small Cap
Equity, International Equity and Balanced Portfolios. The Small Cap Equity Index
Portfolio had not commenced operations as of November 30, 1997.
For the period October 1, 1996 through September 30, 1997, the
Predecessor Growth Equity Portfolio paid MVA (or its predecessor) advisory fees
at the effective annual rate of .75% of the Portfolio's average daily net
assets pursuant to the investment advisory agreements then in effect.
MVA may from time to time voluntarily reduce all or a portion of its
advisory fee to increase the net income of one or more Portfolios available for
distributions as dividends. The voluntary fee reduction will cause the return of
any such Portfolio to be higher than it would otherwise be in the absence of
such reduction.
David A. Bethke, CFA, is the person primarily responsible for the
day-to-day management of the U.S. Government Securities, Intermediate Corporate
Bond and Government & Corporate Bond Portfolios and has managed each of these
Portfolios since inception. Mr. Bethke, Senior Associate, joined MVA in 1987 and
has seven years of prior investment experience.
Peter Merzian, is the person primarily responsible for the day-to-day
management of the Short-Intermediate Municipal, Missouri Tax-Exempt Bond,
National Municipal Bond and Balanced Portfolios. Mr. Merzian, a Senior Associate
of MVA, has been with MVA since 1993 and prior thereto was employed as a
portfolio manager of another financial institution. Mr. Merzian has served as
portfolio manager of the Short-Intermediate Municipal and National Municipal
Bond Portfolios since their respective dates of inception and of the Balanced
Portfolio since May 1996. Mr. Merzian has served as portfolio manager of the
Missouri Tax-Exempt Bond Portfolio (including the Predecessor Missouri
Tax-Exempt Bond Portfolio) since 1993.
The organizational arrangements of MVA require that all investment
decisions with respect to the Equity Income, Growth & Income Equity and Growth
Equity Portfolios be made by MVA's Equity Committee, and no one person is
responsible for making recommendations to that Committee.
Robert J. Anthony is the person primarily responsible for the
day-to-day management of the Small Cap Equity Portfolio and
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has managed the Small Cap Equity Portfolio since inception. Mr. Anthony,
Senior Associate, has been with MVA for 25 years and has managed the Small Cap
Equity Portfolio since its inception.
MVA has entered into a sub-advisory agreement with Clay Finlay Inc.
Pursuant to the terms of such sub-investment advisory agreement, Clay Finlay has
been retained by MVA to manage the investment and reinvestment of the assets of
the International Equity Portfolio and to provide analytical and investment
research services to it, subject to the supervision of MVA and to the direction
and control of the Fund's Board of Directors.
Under this arrangement, Clay Finlay is responsible for the day-to-day
management of the International Equity Portfolio's assets. MVA reviews
investment performance policies and guidelines, maintains certain books and
records, is responsible for selecting and monitoring the performance of Clay
Finlay, and for reporting the activities of Clay Finlay in managing the
Portfolio to the Fund's Board of Directors.
Clay Finlay is registered as an investment adviser with the SEC and is
a wholly-owned subsidiary of United Asset Management Corporation, a financial
services holding company. Clay Finlay's principal office is located at 200 Park
Avenue, 56th Floor, New York, New York 10166. Clay Finlay, founded in 1982, has
extensive experience in international investments and as of December 31, 1997
had approximately $6 billion in assets under management.
Frances Dakers is the person primarily responsible for the day-to-day
management of the International Equity Portfolio's investments. Ms. Dakers, a
Principal and Senior Portfolio Manager of Clay Finlay, has been associated with
Clay Finlay since January, 1982 and has managed each of the International Equity
Portfolio since inception.
For the services provided and expenses assumed pursuant to its
sub-advisory agreement with MVA, Clay Finlay receives from MVA a fee, computed
daily and payable monthly, at the annual rate of .75% of the first $50 million
of the International Equity Portfolio's average daily net assets, plus .50% of
the next $50 million of average daily net assets, plus .25% of average daily net
assets in excess of $100 million. For the fiscal year ended November 30, 1997,
Clay Finlay received sub-advisory fees at the effective annual rate of .__% of
the International Equity Portfolio's average daily net assets. Clay Finlay bears
all expenses incurred by it in connection with its services under the
sub-advisory agreement.
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ADMINISTRATOR
BISYS Fund Services Ohio, Inc. located at 3435 Stelzer Road,
Columbus, Ohio 43219, acts as the Portfolios' Administrator.
The Administrator generally assists in all aspects of each Portfolio's
administration and operation and also monitors and performs other services
pertaining to the Fund's arrangements under the Administrative Services Plan
described below. For its services, the Administrator is entitled to receive a
fee, computed daily and payable monthly, at the annual rate of .20% (.10% for
the Tax-Exempt Money Market Portfolio) of each Portfolio's average daily net
assets. For the fiscal year or period ended November 30, 1997, the Administrator
received administration fees (net of waivers) at the effective annual rate
of .__% (.__% with respect to the National Municipal Bond Portfolio) of the
average daily net assets of each Portfolio other than the Small Cap Equity Index
Portfolio which had not commenced operations as of November 30, 1997. From time
to time, the Administrator may voluntarily waive all or a portion of the
administration fees otherwise payable by a Portfolio in order to increase the
net income available for distribution to shareholders.
For the period October 1, 1996 through September 30, 1997, the
Predecessor Growth Equity Portfolio bore administrative fees pursuant to the
administrative services agreement then in effect with Federated Administrative
Services, its former administrator, at the effective annual rate of .__% of its
average daily net assets.
DISTRIBUTOR
Trust Shares in each Portfolio are sold continuously by the
Distributor, BISYS Fund Services, an affiliate of the Administrator. The
Distributor is a registered broker-dealer with principal offices at 3435 Stelzer
Road, Columbus, Ohio 43219.
ADMINISTRATIVE SERVICES PLAN
The Fund has adopted an Administrative Services Plan with respect to
the Trust Shares of the Portfolios. Pursuant to the Administrative Services
Plan, Trust Shares are sold to banks and other financial institutions (which may
include Mercantile or its affiliated or correspondent banks) acting on behalf of
their qualified accounts (such financial institutions collectively, the "Service
Organizations") which agree to provide certain shareholder administrative
services for their clients or account holders (collectively, the "customers")
who are the beneficial owners of such Shares. The holders of Trust Shares bear
their
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pro rata portion of the fees which may be paid to Service Organizations for such
services at an annual rate of up to .25%, for the Money Market Portfolios, and
up to .30%, for the Equity and Bond Portfolios, respectively, of the average
daily net assets of a Portfolio's Trust Shares owned beneficially by a Service
Organization's customers.
SERVICE ORGANIZATIONS
The servicing agreements adopted under the Administrative Services Plan
(the "Servicing Agreements") require the Service Organizations receiving such
compensation (which may include Mercantile and its affiliates) to perform
certain services, including providing administrative services with respect to
the beneficial owners of Trust Shares of a Portfolio, such as establishing and
maintaining accounts and records for their customers who invest in such Shares,
assisting customers in processing purchase, exchange and redemption requests,
and responding to customer inquiries concerning their investments.
Under the Servicing Agreements and upon notice to the Fund, a Service
Organization may subcontract with one or more entities for the performance of
certain services provided under its Servicing Agreements with the Fund. Such
Service Organization shall be as fully responsible to the Fund for the acts or
omissions of any sub-contractor as it would be for its own acts or omissions.
The fees payable to any sub-contractor are paid by the Service Organization out
of the fees it receives from the Fund.
The Fund understands that Service Organizations providing such
administrative services may also charge fees to their customers beneficially
owning such Shares. These fees would be in addition to any amounts which may be
received by such Service Organization under its Servicing Agreement with the
Fund. The Fund's Servicing Agreements require a Service Organization to disclose
to its customers any compensation payable to the Service Organization by a
Portfolio and any other compensation payable by its customers in connection with
their investment in such Shares. Customers of such Service Organizations
receiving servicing fees should read this Prospectus in light of the terms
governing their accounts with their Service Organization.
CUSTODIAN, SUB-CUSTODIAN AND TRANSFER AGENT
Mercantile Bank National Association, an affiliate of the Fund and a
wholly-owned subsidiary of Mercantile Bancorporation, Inc., with principal
offices located at One Mercantile Center, 8th and Locust Streets, St. Louis,
Missouri 63101, serves as Custodian of each Portfolio's assets. In addition,
Bankers Trust Company of New York, with principal offices at 16 Wall Street,
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New York, New York 10005, serves as Sub-Custodian for the International Equity
Portfolio. BISYS Fund Services Ohio, Inc. also serves as the Fund's transfer
agent and dividend disbursing agent. Its address is 3435 Stelzer Road, Columbus,
Ohio 43219.
REGULATORY MATTERS
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any affiliate
thereof from sponsoring, organizing, or controlling the Shares of a registered,
open-end investment company continuously engaged in the issuance of its Shares,
and prohibit banks generally from issuing, underwriting, selling, or
distributing securities such as Shares of the Portfolios. Such banking laws and
regulations do not prohibit such a holding company or affiliate, or banks, from
acting as investment adviser, transfer agent, or custodian to such an investment
company, or from purchasing Shares of such a company as agent for and upon the
order of customers. Mercantile, MVA, Service Organizations that are banks or
bank affiliates, and broker-dealers that are bank affiliates are subject to such
laws and regulations, but believe they may perform the services for the
Portfolios contemplated by their respective agreements, this Prospectus and the
Statement of Additional Information without violating applicable banking laws
and regulations. In addition, state securities laws on this issue may differ
from the interpretation of federal laws expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
Should future legislative, judicial, or administrative action prohibit
or restrict the activities of such companies in connection with the provision of
services on behalf of the Portfolios and the shareholders, the Fund might be
required to alter materially or discontinue its arrangements with such companies
and change its method of operation. It is not expected that investors would
suffer any adverse financial consequences as a result of any of these
occurrences.
If current restrictions preventing a bank from legally sponsoring,
organizing, controlling, or distributing Shares of an investment company were
relaxed, Mercantile, or an affiliate of Mercantile, would consider the
possibility of offering to perform additional services for the Portfolios. It is
not possible, of course, to predict whether or in what form such legislation
might be enacted or the terms upon which Mercantile, or such an affiliate, might
offer to provide such services.
Conflict of interest restrictions may apply to the receipt of
compensation paid pursuant to a Servicing Agreement by the Portfolios to a
financial intermediary in connection with the
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investment of fiduciary funds in a Portfolio's Shares. Institutions, including
banks regulated by the Comptroller of the Currency and investment advisers and
other money managers subject to the jurisdiction of the SEC, the Department of
Labor or state securities commissions, should consult legal counsel before
entering into Servicing Agreements.
EXPENSES
Except as noted above and in the Statement of Additional Information
under "Investment Advisory and Administrative Contracts" and "Custodian and
Transfer Agent," the Fund's service contractors bear all expenses in connection
with the performance of their services, except that the Distributor is
compensated pursuant to the Distribution and Services Plans (as described below
under "Other Information Concerning the Fund and Its Shares"). Expenses are
deducted from the total income of each Portfolio before dividends and
distributions are paid. These expenses include, but are not limited to, fees
paid to the Adviser and Administrator, transfer agency fees, fees and expenses
of officers and directors who are not affiliated with the Adviser or the
Distributor, taxes, interest, legal fees, custodian fees, auditing fees, 12b-1
fees, servicing fees, certain fees and expenses in registering and qualifying a
Portfolio and its Shares for distribution under federal and state securities
laws, costs of preparing and printing prospectuses and statements of additional
information for regulatory purposes and for distribution to existing
shareholders, the expense of reports to shareholders, shareholders' meetings and
proxy solicitations, fidelity bond and directors and officers liability
insurance premiums, the expense of using independent pricing services and other
expenses which are not expressly assumed by the Adviser, Distributor or
Administrator under their respective agreements with the Fund. The Fund also
pays for brokerage fees, commissions and other transaction charges, if any, in
connection with the purchase and sale of portfolio securities. Any general
expenses of the Fund that are not readily identifiable as belonging to a
particular Portfolio will be allocated among all Portfolios by or under the
direction of the Board of Directors in a manner the Board determines to be fair
and equitable. Any expenses relating only to a particular class of Shares within
a Portfolio will be borne solely by such class. See "Certain Financial
Information" and "Management of the Fund" above for additional information
regarding expenses of each Portfolio.
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OTHER INFORMATION CONCERNING
THE FUND AND ITS SHARES
DESCRIPTION OF SHARES
The Fund was organized as a Maryland corporation on September 9, 1982
and is a mutual fund of the type known as an "open-end management investment
company". The Fund's principal office is located at 3435 Stelzer Road, Columbus,
Ohio 43219.
The Fund's Charter authorizes the Board of Directors to issue up to
twenty billion full and fractional shares of common stock, and to classify and
reclassify any unauthorized and unissued shares into one or more classes of
shares. The Board of Directors may similarly classify or reclassify any class of
shares into one or more series.
Pursuant to such authority, the Board of Directors has authorized the
issuance of the following series of shares representing interests in the
Portfolios, each of which (except the Tax-Exempt Money Market and Missouri
Tax-Exempt Bond Portfolios) is classified as a diversified company under the
1940 Act: 1 billion Trust Shares, 300 million Institutional Shares, 2 billion S
Shares and 100 million Investor A Shares, representing interests in the Treasury
Money Market Portfolio; 1.8 billion Trust Shares, 300 million Institutional
Shares, 2 billion S Shares, 550 million Investor A Shares and 50 million
Investor B Shares, representing interests in the Money Market Portfolio; 300
million Trust Shares, 2 billion S Shares and 50 million Investor A Shares,
representing interests in the Tax-Exempt Money Market Portfolio; 35 million
Trust Shares, 20 million Institutional Shares, 5 million Investor A Shares and
50 million Investor B Shares, representing interests in the U.S. Government
Securities Portfolio; 50 million Trust Shares, 25 million Institutional Shares
and 25 million Investor A Shares, representing interests in the Intermediate
Corporate Bond Portfolio; 25 million Trust Shares, 25 million Institutional
Shares and 25 million Investor A Shares representing interests in the Bond Index
Portfolio; 50 million Trust Shares, 20 million Institutional Shares, 5 million
Investor A Shares and 50 million Investor B Shares, representing interests in
the Government & Corporate Bond Portfolio; 25 million Trust Shares and 25
million Investor A Shares, representing interests in the Short-Intermediate
Municipal Portfolio; 25 million Trust Shares, 25 million Investor A Shares and
25 million Investor B Shares, representing interests in the Missouri Tax-Exempt
Bond Portfolio; 50 million Trust Shares, 25 million Investor A Shares and 25
million Investor B Shares representing interests in the National Municipal Bond
Portfolio; 50 million Trust Shares, 25 million Institutional Shares, 25 million
Investor A Shares and 25 million Investor B Shares representing interests in the
Equity Income Portfolio; 25 million
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Trust Shares, 25 million Institutional Shares and 25 million Investor A Shares
representing interests in the Equity Index Portfolio; 50 million Trust Shares,
20 million Institutional Shares, 5 million Investor A Shares and 50 million
Investor B Shares, representing interests in the Growth & Income Equity
Portfolio; 50 million Trust Shares, 25 million Institutional Shares, 25 million
Investor A Shares and 25 million Investor B Shares, representing interests in
the Growth Equity Portfolio; 35 million Trust Shares, 20 million Institutional
Shares, 5 million Investor A Shares and 50 million Investor B Shares,
representing interests in the Small Cap Equity Portfolio; 50 million Trust
Shares, 25 million Institutional Shares and 25 million Investor A Shares,
representing interests in the Small Cap Equity Index Portfolio; 10 million Trust
Shares, 10 million Institutional Shares, 10 million Investor A Shares and 50
million Investor B Shares, representing interests in the International Equity
Portfolio; and 15 million Trust Shares, 20 million Institutional Shares, 5
million Investor A Shares and 50 million Investor B Shares, representing
interests in the Balanced Portfolio. Institutional Shares, S Shares, Investor A
Shares and Investor B Shares of the Portfolios are described in separate
prospectuses which are available from the Distributor at the telephone number on
the cover of this Prospectus. Shares in the Fund's Portfolios will be issued
without Share certificates.
The Trust Shares of the Portfolios are described in this Prospectus.
The Portfolios also offer Investor A Shares and, in addition, each Portfolio
except the Tax-Exempt Portfolios offers Institutional Shares, each Money Market
Portfolio offers S Shares and each Portfolio except the Treasury Money Market,
Tax-Exempt Money Market, U.S. Government Securities, Bond Index,
Short-Intermediate Municipal, Equity Index and Small Cap Equity Index Portfolios
offers Investor B Shares. Institutional Shares are offered to financial
institutions acting on behalf of discretionary and non-discretionary accounts
for which they do not receive account-level asset-based management fees. S
Shares are offered to customers who purchase such Shares through cash management
services, such as a sweep account, offered by Mercantile, any of its banking
affiliates, and certain other financial service organizations, such as banks or
broker-dealers. Institutional Shares and S Shares are sold without a sales
charge. Investor A Shares (other than Investor A Shares of the Money Market
Portfolios which are sold without a sales charge) are sold with a maximum 4.5%
(2.5% with respect to the U.S. Government Securities, Bond Index,
Short-Intermediate Municipal, Equity Index and Small Cap Equity Index
Portfolios) front-end sales charge, and Investor B Shares are sold with a
maximum 5.0% contingent deferred sales charge. Investor A Shares and Investor B
Shares are sold through selected broker/dealers and other financial
intermediaries to individual or institutional customers. Trust Shares,
Institutional Shares, S Shares,
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Investor A Shares and Investor B Shares bear their pro rata portion of all
operating expenses paid by a Portfolio, except that Trust Shares and
Institutional Shares bear all payments under the Portfolio's respective
Administrative Services Plans adopted for such Shares and S Shares, Investor A
Shares and Investor B Shares bear all payments under the Portfolio's respective
Distribution and Services Plans adopted for such Shares. In addition,
Institutional Shares of a Portfolio bear the expense of certain sub-transfer
agency fees.
Payments under the Administrative Services Plans for Institutional
Shares are made to Service Organizations for administrative services provided to
the Service Organizations' clients or account holders who are the beneficial
owners of Institutional Shares. Payments under the Administrative Services Plans
may not exceed .25% (on an annual basis) of the average daily net asset value of
outstanding Institutional Shares of the Money Market Portfolios or .30% (on an
annual basis) of the average daily net asset value of outstanding Institutional
Shares of the Equity and Bond Portfolios.
Payments under the Distribution and Services Plans for S Shares,
Investor A Shares and Investor B Shares are made to (i) the Distributor or
another person for providing distribution assistance and assuming certain
related expenses, and (ii) Service Organizations for administrative services
provided to the Service Organizations' clients or account holders who are the
beneficial owners of S Shares, Investor A Shares or Investor B Shares. Payments
under the Distribution and Services Plan for S Shares may not exceed 1.00% (on
an annual basis) of the average daily net asset value of outstanding S Shares of
a Portfolio. Payments under the Distribution and Services Plan for Investor A
Shares may not exceed .25% (on an annual basis) of the average daily net asset
value of outstanding Investor A Shares of the Money Market Portfolios or .30%
(on an annual basis) of the average daily net asset value of Investor A Shares
of the Equity and Bond Portfolios. Payments under the Distribution and Services
Plan for Investor B Shares may not exceed 1.00% (on an annual basis) of the
average daily net asset value of outstanding Investor B Shares of a Portfolio.
Distribution payments made under the Distribution and Services Plans are subject
to the requirements of Rule 12b-1 under the 1940 Act.
The Fund offers various services and privileges in connection with
Investor A Shares and Investor B Shares of a Portfolio that are not offered in
connection with the Portfolio's Trust, Institutional or S Shares, including an
automatic investment program and an automatic withdrawal plan. Each class of
shares also offers different exchange privileges. Investor B Shares convert
automatically into Investor A Shares eight years
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after the beginning of the calendar month in which the Shares were purchased.
Shareholders are entitled to one vote for each full Share held and
proportionate fractional votes for fractional Shares held. Shares of all
Portfolios will vote together and not by class unless otherwise required by law
or permitted by the Board of Directors. All shareholders of a particular
Portfolio will vote together as a single class on matters relating to the
Portfolio's investment advisory (or sub-advisory) agreement and investment
objective and fundamental policies. Only holders of Trust Shares, however, will
vote on matters relating to the Administrative Services Plan for Trust Shares
and only holders of Institutional Shares will vote on matters pertaining to the
Administrative Services Plan for Institutional Shares. Similarly, only holders
of S Shares will vote on matters pertaining to the Distribution and Services
Plan for S Shares, only holders of Investor A Shares will vote on matters
pertaining to the Distribution and Services Plan for Investor A Shares and only
holders of Investor B Shares will vote on matters pertaining to the Distribution
and Services Plan for Investor B Shares.
The Fund is not required, and currently does not intend, to hold annual
meetings except as required by the 1940 Act or other applicable law. Upon the
written request of the holders of 10% or more of the outstanding Shares, the
Fund will call a special meeting to vote on the question of removal of a
director.
Shares of the Portfolios have noncumulative voting rights and,
accordingly, the holders of more than 50% of the Fund's outstanding Shares
(irrespective of Portfolio or class) may elect all of the Directors. Shares have
no preemptive rights and only such conversion and exchange rights as the Board
may grant in its discretion. When issued for payment as described in this
Prospectus, Shares will be fully paid and nonassessable.
MISCELLANEOUS
As used in this Prospectus, a "vote of a majority of the outstanding
Shares" of a Portfolio means, with respect to the approval of an investment
advisory or sub-advisory agreement or a change in an investment objective or
fundamental investment policy, the affirmative vote of the lesser of (a) more
than 50% of the outstanding Shares of such Portfolio (irrespective of class), or
(b) 67% or more of the Shares of such Portfolio (irrespective of class) present
at a meeting if more than 50% of the outstanding Shares of such Portfolio are
represented at the meeting in person or by proxy.
As of __________, 1998, Mercantile and its affiliates possessed, of
record on behalf of their underlying customer
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accounts, voting or investment power with respect to more than 25% of the Fund's
outstanding Shares. Therefore, Mercantile may be deemed to be a controlling
person of the Fund within the meaning of the 1940 Act.
Inquiries regarding the Portfolios may be directed to the Fund at
1-800-452-4015.
----------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE PORTFOLIOS'
STATEMENT OF ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN
CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE PORTFOLIOS, THE FUND, OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE PORTFOLIOS, THE FUND OR THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
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THE ARCH FUND(R), INC.
TRUST SHARES
[OLD LOGO]
PROSPECTUS
________, 1998
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<PAGE> 112
CROSS REFERENCE SHEET
(Trust Shares)
The ARCH Treasury Money Market Portfolio
The ARCH Money Market Portfolio
The ARCH Tax-Exempt Money Market Portfolio
<TABLE>
<CAPTION>
Form N-1A Part A Item
- ---------------------
Prospectus Caption
------------------
<C> <S> <C>
1. Cover Page.................................................... Cover Page
2. Synopsis...................................................... Expense Summary
for Trust Shares
3. Condensed Financial
Information................................................. Certain Financial
Information;
Financial
Highlights; Yields
and Total
Returns
4. General Description
of Registrant............................................... Highlights;
Investment
Objectives, Policies
and Risk
Considerations;
Other Information
Concerning the Fund
and Its Shares
5. Management of the Fund........................................ Management of the
Fund
5A. Management's Discussion of
Fund Performance............................................ Inapplicable
6. Capital Stock and
Other Securities............................................ How to Purchase and
Redeem Shares;
Dividends
and Distributions;
Taxes; Other
Information
Concerning the Fund
and Its Shares
7. Purchase of Securities
</TABLE>
<PAGE> 113
<TABLE>
<C> <S> <C>
Being Offered................................................. How to Purchase and
Redeem Shares
8. Redemption or Repurchase...................................... How to Purchase and
Redeem Shares
9. Pending Legal Proceedings..................................... Inapplicable
</TABLE>
<PAGE> 114
THE ARCH FUND(R), INC.
THE ARCH TREASURY MONEY MARKET PORTFOLIO
THE ARCH MONEY MARKET PORTFOLIO
THE ARCH TAX-EXEMPT MONEY MARKET PORTFOLIO
TRUST SHARES
The ARCH Fund, Inc. is an open-end, management investment company which
currently offers Shares in eighteen investment portfolios. This Prospectus
describes the Trust Shares of the ARCH TREASURY MONEY MARKET, MONEY MARKET and
TAX-EXEMPT MONEY MARKET PORTFOLIOS. Trust Shares are offered to financial
institutions acting on their own behalf or on behalf of discretionary and
non-discretionary accounts for which they may receive account-level asset-based
management fees.
THE ARCH TREASURY MONEY MARKET PORTFOLIO'S investment objective is to
seek a high level of current income exempt from state income tax consistent with
liquidity and security of principal.
THE ARCH MONEY MARKET PORTFOLIO'S investment objective is to seek
current income with liquidity and stability of principal.
THE ARCH TAX-EXEMPT MONEY MARKET PORTFOLIO'S investment objective is to
seek as high a level of current interest income exempt from federal income tax
as is consistent with liquidity and stability of principal.
Mississippi Valley Advisors Inc. ("MVA" or the "Adviser"), a
wholly-owned subsidiary of Mercantile Bank National Association ("Mercantile"),
acts as investment adviser for the Portfolios. Mercantile serves as custodian;
BISYS Fund Services Ohio, Inc. (the "Administrator") serves as administrator;
and BISYS Fund Services (the "Distributor") serves as sponsor and distributor.
This Prospectus sets forth concisely certain information about the
Portfolios that prospective investors should know before investing. Investors
should read this Prospectus and retain it for future reference. Additional
information about the Portfolios, contained in a Statement of Additional
Information dated ____________, 1998, has been filed with the Securities and
Exchange Commission and is incorporated by reference in its entirety into this
Prospectus. An investor may obtain the Statement of Additional Information
without charge by writing the Fund at P.O. Box 78069, St. Louis, Missouri 63178
or by calling 1-800-452-4015.
AN INVESTMENT IN THE PORTFOLIOS IS NEITHER INSURED NOR GUARANTEED BY
THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE
<PAGE> 115
THAT ANY PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00
PER SHARE.
Portfolio Shares are not bank deposits, are not federally insured or
guaranteed by the U.S. Government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other governmental agency, and are not the
obligations of or guaranteed or otherwise supported by any bank. An investment
in the Portfolios involves investment risk, including the possible loss of
principal.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
_____________, 1998
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<PAGE> 116
HIGHLIGHTS
The ARCH Fund, Inc. (the "Fund") is an open-end, management investment
company (commonly known as a mutual fund) registered under the Investment
Company Act of 1940, as amended. The Fund currently offers investment
opportunities in eighteen investment portfolios. This Prospectus relates to
three of those portfolios: the ARCH TREASURY MONEY MARKET, MONEY MARKET and
TAX-EXEMPT MONEY MARKET PORTFOLIOS (the "Portfolios"). In addition, the Fund
offers investment opportunities in the ARCH U.S. Government Securities,
Intermediate Corporate Bond, Bond Index, Government & Corporate Bond,
Short-Intermediate Municipal, Missouri Tax-Exempt Bond, National Municipal Bond,
Equity Income, Equity Index, Growth & Income Equity, Growth Equity, Small Cap
Equity, Small Cap Equity Index, International Equity and Balanced Portfolios,
which are described in separate prospectuses. Each Portfolio represents a
separate pool of assets with different investment objectives and policies (as
described below under "Investment Objectives, Policies and Risk
Considerations"). MVA serves as adviser, Mercantile as custodian, BISYS Fund
Services Ohio, Inc. as administrator and BISYS Fund Services as sponsor and
distributor. For information on expenses, fee waivers, and services, see
"Certain Financial Information," "Financial Highlights" and "Management of the
Fund."
The following information generally describes the Portfolios and their
investment objectives. There can be no assurance that the Portfolios will be
able to achieve their respective investment objectives.
Each Portfolio seeks to maintain a net asset value of $1.00 per Share.
Each Portfolio's assets are invested in dollar-denominated debt securities with
remaining maturities of 397 days (13 months) or less as defined by the
Securities and Exchange Commission, and each Portfolio's dollar-weighted average
portfolio maturity will not exceed 90 days. All securities acquired by the
Portfolios will be determined by MVA, under guidelines approved by the Fund's
Board of Directors, to present minimal credit risks and to be rated in the
highest category (or deemed comparable in quality) at the time of purchase.
There can be no assurance that the Portfolios will be able to achieve a stable
net asset value on a continuous basis.
Investors should note that one or more of the Portfolios may, subject
to their investment policies and limitations, purchase variable and floating
rate instruments, enter into repurchase agreements and reverse repurchase
agreements, lend securities, acquire certain U.S. dollar-denominated instruments
of foreign issuers, and make limited investments in illiquid securities and
securities issued by other investment companies. These investment practices
involve investment risks of varying
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<PAGE> 117
degrees. For example, the absence of a secondary market for a particular
variable or floating rate instrument could make it difficult for a Portfolio to
dispose of an instrument if the issuer were to default on its payment
obligation. Default by a counterparty to a repurchase agreement or securities
lending transaction could expose a Portfolio to loss because of adverse market
action or possible delay in disposing of the underlying collateral. Reverse
repurchase agreements are subject to the risk that the market value of the
securities sold by a Portfolio will decline below the repurchase price which the
Portfolio is obligated to pay. Foreign securities entail certain inherent risks,
such as future political and economic developments and the adoption of foreign
government restrictions, that might adversely affect payment of principal and
interest. The Tax-Exempt Money Market Portfolio may, under certain conditions,
make limited investments in securities the income from which may be subject to
federal income tax. See "Investment Objectives, Policies and Risk
Considerations" below and the Statement of Additional Information under
"Investment Objectives and Policies."
The Fund offers investors the opportunity to invest in a variety of
professionally managed investments without having to become involved with
detailed management, accounting and safekeeping procedures normally related to
direct investments in securities. The Portfolios also offer the economic
advantages of block trading in securities and the availability of a family of
eighteen mutual funds should an investor's investment goals change.
For information on purchasing, exchanging or redeeming Trust Shares of
the Portfolios, please see "How to Purchase and Redeem Shares" below.
-4-
<PAGE> 118
CERTAIN FINANCIAL INFORMATION
Shares of the Money Market Portfolio have been classified into five
classes of Shares -- Trust Shares, Institutional Shares, S Shares, Investor A
Shares and Investor B Shares. Shares of the Treasury Money Market Portfolio have
been classified into four classes of Shares -- Trust Shares, Institutional
Shares, S Shares and Investor A Shares. Shares of the Tax-Exempt Money Market
have been classified into three classes of Shares -- Trust Shares, S Shares and
Investor A Shares. Shares of each class in a Portfolio represent equal, pro rata
interests in the investments held by that Portfolio and are identical in all
respects, except that Shares of each class bear separate distribution and/or
shareholder administrative servicing fees and certain other operating expenses,
and enjoy certain exclusive voting rights on matters relating to these fees.
(See "Other Information Concerning the Fund and Its Shares," "Management of the
Fund --Administrative Services Plan," and "Management of the Fund --Custodian
and Transfer Agent" below.) As a result of payments for distribution and/or
shareholder administrative servicing fees and certain other operating expenses
that may be made in differing amounts, the net investment income of Trust
Shares, Institutional Shares, S Shares, Investor A Shares and Investor B Shares
in a Portfolio can be expected, at any given time, to be different.
The Tax-Exempt Money Market Portfolio commenced operations on July 10,
1986 as a separate investment portfolio (the "Predecessor Tax-Exempt Money
Market Portfolio") of The ARCH Tax-Exempt Trust (the "Trust"), which was
organized as a Massachusetts business trust. On October 2, 1995, the Predecessor
Tax-Exempt Money Market Portfolio was reorganized as a new portfolio of the
Fund. Prior to the reorganization, the Predecessor Tax-Exempt Money Market
Portfolio offered and sold shares of beneficial interest that were similar to
the Fund's Trust Shares and Investor A Shares.
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<PAGE> 119
EXPENSE SUMMARY FOR TRUST SHARES
<TABLE>
<CAPTION>
TREASURY TAX-EXEMPT
MONEY MONEY MONEY
MARKET MARKET MARKET
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
<S> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING
EXPENSES
(as a percentage of average
net assets)
Investment Advisory Fees (net
of fee waivers)1....................................... .__% .__% .__%
12b-1 Fees .............................................. .00% .00% .00%
Other Expenses (including
administration fees,
administrative services
fees and other expenses)
(net of fee waivers and
expense reimbursements)2,3............................. .__% .__% .__%
Total Portfolio Operating
Expenses (net of fee waivers
and expense reimbursements)3........................... .__% .__% .__%
==== === ===
</TABLE>
- ----------
1 Without fee waivers, investment advisory fees would be .40%, .40% and
.40% for the Treasury Money Market, Money Market and Tax-Exempt Money
Market Portfolios, respectively.
2 Without fee waivers, administration fees would be .10% for the
Tax-Exempt Money Market Portfolio and .20% for each other Portfolio.
Administrative services fees are payable at an annual rate not to
exceed .25% for each Portfolio.
3 Without fee waivers and/or expense reimbursements, Other Expenses would
be ___%, ___% and ___% and Total Portfolio Operating Expenses would be
___%, ___% and ___% for the Treasury Money Market, Money Market and
Tax-Exempt Money Market Portfolios, respectively.
-6-
<PAGE> 120
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following
expenses on a $1,000 investment,
assuming (1) a 5% annual return
and (2) redemption at the end of
each period:
Treasury Money Market Portfolio................................. $ $ $ $
Money Market Portfolio.......................................... $ $ $ $
Tax-Exempt Money Market Portfolio............................... $ $ $ $
</TABLE>
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY
BE MORE OR LESS THAN THOSE SHOWN. Information about the actual performance of
the Portfolios is contained in the Fund's Annual Report to Shareholders dated
November 30, 1997 which may be obtained without charge by contacting the Fund at
the address or telephone number provided on page __ of this Prospectus.
The purpose of the foregoing tables is to assist in understanding the
various costs and expenses that an investor in a Portfolio's Trust Shares will
bear directly or indirectly. The information contained in such tables is based
on expenses incurred by each Portfolio during the last fiscal year with respect
to its Trust Shares. For more complete descriptions of the various costs and
expenses, see "Management of the Fund" in this Prospectus and the Statement of
Additional Information. The Tables and Examples have not been audited by the
Fund's independent auditors and do not reflect any charges that may be imposed
by financial institutions on their customers.
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<PAGE> 121
FINANCIAL HIGHLIGHTS
The "Financial Highlights" in the following tables supplement the
Fund's financial statements, which are contained in the Fund's Annual Report to
Shareholders dated November 30, 1997 and [________________________] into the
Statement of Additional Information, and set forth certain historic results for
Trust Shares of the Portfolios. The data for the years ended November 30, 1989
through 1997, and with respect to the Tax-Exempt Money Market Portfolio (and its
Predecessor Portfolio), for the years ended November 30, 1997 and 1996, the
six-month period ended November 30, 1995 and each of the years or periods ended
May 31, 1990 through 1995, has been audited by [________ __________],
independent auditors, whose unqualified report insofar as it relates to each of
the years or periods in the five-year period ended November 30, 1997 (the years
ended November 30, 1997 and 1996, the six-month period ended November 30, 1995
and each of the years or periods in the three -year period ended May 31, 1995
with respect to the Tax-Exempt Money Market Portfolio (and its Predecessor
Portfolio)) on the financial statements containing such information is
[___________ ___________] into the Statement of Additional Information. The data
for the year ended November 30, 1988 and with respect to the Predecessor
Tax-Exempt Money Market Portfolio, for the years ended May 31, 1989 and 1988 ,
were derived from financial statements audited by the Fund's and the Trust's
prior auditors. Further information about the performance of the Portfolios is
available in the Fund's Annual Report. Both the Statement of Additional
Information and the Annual Report may be obtained free of charge by contacting
the Fund at the address or telephone number provided on the front cover page of
this Prospectus.
-8-
<PAGE> 122
Treasury Money Market Portfolio
(For a Share(b) outstanding throughout each period)
<TABLE>
<CAPTION>
December 2,
1991
Years Ended November 30, to
-------------------------------------------------------------- November 30,
1997 1996 1995 1994 1993 1992(a)(b)
------ ------ ------ ------ ----- ----------------
Trust Trust Trust Trust Trust Trust
Shares Shares Shares Shares Shares Shares
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period................... $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- -----
Investment Activities
Net investment income................. 0.045 0.050 0.033 0.026 0.034
------ ------ ------ ------ ------
Total from Investment Activities...... 0.045 0.050 0.033 0.026 0.034
------ ------ ------ ------ ------
Distributions
Net investment income................. (0.045) (0.050) (0.033) (0.026) (0.034)
------- ------- ------- -------- --------
Total Distributions................... (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
===== ===== ===== ===== =====
Total Return............................ 4.64% 5.12% 3 .38% 2.67% 3.16%(c)
Ratios/Supplemental Data:
Net Assets at end of period (000)....... $131,322 $252,780 $242,099 $256,503 $229,288
Ratio of expenses to average net
assets (including waivers)............ 0.61% 0.60% 0.49% 0.41% 0.28%(d)
Ratio of net investment income to
average net assets (including
waivers).............................. 4.55% 5.01% 3.26% 2.64% 3.35%(d)
Ratio of expenses to average net
assets (before waivers)*.............. 0.76% 0.75% 0.94% 0.85% 0.72%(d)
Ratio of net investment income to
average net assets (before
waivers)*............................. 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.
-9-
<PAGE> 123
Money Market Portfolio
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Trust Trust Trust Trust Trust
Shares Shares Shares Shares Shares
------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period......... $1.00 $1.00 $1.00 $1.00
----- ----- ----- -----
Investment Activities
Net investment income....... 0.049 0.054 0.035 0.026
------ ------ ------ ------
Total from Investment
Activities................ 0.049 0.054 0.035 0.026
------ ------ ------ ------
Distributions
Net investment income....... (0.049) (0.054) (0.035) (0.026)
------- ------- ------- -------
Total Distributions......... (0.049) (0.054) (0.035) (0.026)
------- ------- ------- -------
Net Asset Value,
End of Period............... $1.00 $1.00 $1.00 $1.00
===== ===== ===== =====
Total Return.................. 4.99% 5.52% 3.55% 2.72%
Ratios/Supplemental
Data:
Net Assets at end $717,265 $698,131 $544,952 $621,717
of period (000)
Ratio of expenses to
average net assets
(including waivers)......... 0.61% 0.59% 0.61% 0.59%
Ratio of net investment
income to average net
assets (including
waivers).................... 4.88% 5.38% 3.45% 2.70%
Ratio of expenses to
average net assets
(before waivers)*........... 0.76% 0.74% 0.93% 0.80%
Ratio of net investment
income to average net
assets (before
waivers)*................... 4.73% 5.23% 3.13% 2.49%
</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.
Money Market Portfolio
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
---------------------------------------------------------------------
1992 1991(a)
---- -------
Trust Trust
Shares Shares 1990 1989 1988
------- -------- ------ ------ ------
<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....... 0.034 0.058 0.078 0.088 0.071
------ ------ ------ ------ ------
Total from Investment
Activities................ 0.034 0.058 0.078 0.088 0.071
------ ------ ------ ------ ------
Distributions
Net investment income....... (0.034) (0.058) (0.078) (0.088) (0.071)
------- ------- ------- ------- ------
Total Distributions......... (0.034) (0.058) (0.078) (0.088) (0.071)
------ ------ ------ ------ ------
Net Asset Value,
End of Period............... $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ====
Total Return.................. 3.44% 5.95% 8.08% 9.21% 7.33%(b)
Ratios/Supplemental
Data:
Net Assets at end $574,941 $700,474 $896,903 $661,145 $289,764
of period (000)
Ratio of expenses to
average net assets
(including waivers)......... 0.57% 0.59% 0.55% 0.45% 0.45%
Ratio of net investment
income to average net
assets (including
waivers).................... 3.44% 5.81% 7.77% 8.82% 7.12%
Ratio of expenses to
average net assets
(before waivers)*........... 0.71% 0.67% 0.60% 0.60% 0.58%
Ratio of net investment
income to average net
assets (before
waivers)*................... 3.30% 5.73% 7.72% 8.67% 6.99%
</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.
-10-
<PAGE> 124
Tax-Exempt Money Market Portfolio(a)
(For a Share(b) outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended May 31
Year Ended Year Ended Nov. 30, ----------------------------------------
Nov. 30, Nov. 30, 1995(e) 1995 1994 1993
1997 1996 ------------ ---- ---- ----
Trust Trust Trust Trust Trust Trust
Shares Shares Shares Shares Shares Shares
------ ------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period........... $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- -----
Investment Activities
Net investment income......... 0.030 0.016 0.029 0.020 0.021
----- ------ ------ ------ ------
Total from Investment
Activities................... 0.030 0.016 0.029 0.020 0.021
----- ------ ------ ------ ------
Distributions
Net investment income......... (0.030) (0.016) (0.029) (0.020) (0.021)
------- ------- ------- ------- -------
Total Distributions........... (0.030) (0.016) (0.029) (0.020) (0.021)
------- ------- ------- -------- -------
Net Asset Value, End of
Period........................ $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== =====
Total Return.................... 3.06% 1.57%(c) 2.93% 1.97% 2.16%
Ratios/Supplemental Data:
Net Assets at end of
period (000).................. $95,726 $78,031 $85,324 $112,594 $137,602
Ratio of expenses to
average net asset
(including waivers)........... 0.53% 0.70%(d) 0.61% 0.52% 0.52%
Ratio of net investment
income to average net
assets (including 3.01% 3.10%(d) 2.87% 1.95% 2.13%
waivers)......................
Ratio of expenses to
average net assets 0.58% 0.75%(d) 0.70% 0.86% 0.62%
(before waivers)*.............
Ratio of net investment
income to average net
assets (before 2.96% 3.05%(d) 2.78% 1.61% 2.03%
waivers)*.....................
</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) Not Annualized.
(d) Annualized.
(e) Upon its reorganization as a portfolio of the Fund, the Portfolio changed
its fiscal year-end from May 31 to November 30.
Tax-Exempt Money Market Portfolio(a)
(For a Share(b) outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended May 31
-------------------------------------------------------------------
1992 1991(b) 1990(b) 1989(b) 1988(b)
---- ------- ------- ------- -------
Trust Trust Trust Trust Trust
Shares Shares Shares Shares Shares
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period........... $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----
Investment Activities
Net investment income......... 0.034 0.031 0.056 0.056 0.043
------ ------ ------ ------ ------
Total from Investment
Activities................... 0.034 0.031 0.056 0.056 0.043
------- ------- ------- ------- ------
Distributions
Net investment income......... (0.034) (0.031) (0.056) (0.056) (0.043)
------- ------- ------- ------- ------
Total Distributions........... (0.034)
-------
Net Asset Value, End of
Period........................ $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ====
Total Return.................... 3.44% 2.25% 5.71% 5.74% 4.35%
Ratios/Supplemental Data:
Net Assets at end of
period (000).................. $126,079 $137,847 $132,407 $70,153 $72,120
Ratio of expenses to
average net asset
(including waivers)........... 0.59% 0.58% 0.51% 0.45% 0.45%
Ratio of net investment
income to average net
assets (including 3.38% 4.65% 5.57% 5.59% 4.27%
waivers)......................
Ratio of expenses to
average net assets 0.69% 0.68% 0.61% 0.63% 0.60%
(before waivers)*.............
Ratio of net investment
income to average net
assets (before 3.28% 4.55% 5.47% 5.41% 4.12%
waivers)*.....................
</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) Not Annualized.
(d) Annualized.
(e) Upon its reorganization as a portfolio of the Fund, the Portfolio changed
its fiscal year-end from May 31 to November 30.
-11-
<PAGE> 125
INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS
Although management will use its best efforts to achieve the investment
objective of each Portfolio, there can be no assurance that it will be able to
do so. The investment objective of a Portfolio may not be changed without the
affirmative vote of a majority of the outstanding Shares of the Portfolio. The
Treasury Money Market, Money Market and Tax-Exempt Money Market Portfolios are
"money market" funds that invest in instruments with remaining maturities of 397
days or less (with certain exceptions) and with dollar-weighted average
portfolio maturities of 90 days or less, subject to the quality, diversification
and other requirements of Rule 2a-7 under the Investment Company Act of 1940, as
amended (the "1940 Act") and other rules of the Securities and Exchange
Commission (the "SEC").
THE TREASURY MONEY MARKET PORTFOLIO
The Treasury Money Market Portfolio's investment objective is to seek a
high level of current income exempt from state income tax consistent with
liquidity and security of principal. In pursuing its investment objective, the
Portfolio invests in selected money market obligations issued by the U.S.
Government (or its agencies and instrumentalities) that are guaranteed as to
principal and interest by the U.S. Government, the interest on which is
generally exempt from state income tax. Securities that are generally eligible
for this exemption include those issued by the U.S. Treasury (bills,
certificates of indebtedness, notes and certain bonds) and certain U.S.
Government agencies and instrumentalities, including the General Services
Administration and Small Business Administration. Each investor should consult
his or her tax advisor to determine whether distributions from the Portfolio are
exempt from state income tax in the investor's home state. Under normal market
conditions, the Portfolio intends to invest substantially all (but not less than
65%) of its total assets in securities with the above characteristics and
(except to the extent discussed below) will not enter into repurchase agreements
or purchase any U.S. Government security that the Adviser believes is subject to
state income tax.
Under extraordinary circumstances, such as when appropriate exempt
securities are unavailable or pending investment, the Treasury Money Market
Portfolio may temporarily hold cash or invest in repurchase agreements
collateralized by U.S. Government securities, other U.S. Government agency or
instrumentality securities, securities of other investment companies that invest
in securities in which the Portfolio is permitted to invest, or cash
equivalents.
-12-
<PAGE> 126
THE MONEY MARKET PORTFOLIO
The Money Market Portfolio's investment objective is to seek current
income with liquidity and stability of principal. In pursuing its investment
objective, the Portfolio invests substantially all of its assets in a broad
range of money market instruments. These instruments include obligations of the
U.S. Government, U.S. dollar-denominated foreign securities, obligations of U.S.
and foreign banks and savings and loan institutions and commercial obligations
that meet the applicable quality requirements described below.
The Money Market Portfolio will purchase only "First Tier Eligible
Securities" (as defined by the SEC) that present minimal credit risks as
determined by the Adviser pursuant to guidelines approved by the Fund's Board of
Directors. First Tier Eligible Securities consist of (i) securities that either
(a) have short-term debt ratings at the time of purchase in the highest rating
category by at least two unaffiliated nationally recognized statistical rating
organizations ("Rating Agencies") (or one Rating Agency if the security was
rated by only one Rating Agency), or (b) are issued by issuers with such
ratings, and (ii) certain securities that are unrated (including securities of
issuers that have long-term but not short-term ratings) but are of comparable
quality as determined in accordance with guidelines approved by the Board of
Directors. The applicable ratings by Rating Agencies are described in Appendix A
to the Statement of Additional Information. The following descriptions
illustrate the types of instruments in which the Portfolio invests.
BANKING OBLIGATIONS. The Money Market Portfolio may purchase
obligations of issuers in the banking industry, such as certificates of deposit,
letters of credit, bankers' acceptances and time deposits, including U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions having total assets at the time of
purchase in excess of $1 billion. The Portfolio may invest in obligations of
foreign banks or foreign branches of U.S. banks in amounts not in excess of 25%
of its assets where the Adviser deems the instrument to present minimal credit
risks. See "Risk Factors --Risks Associated with Foreign Securities" below. The
Portfolio may also make interest-bearing savings deposits in commercial and
savings banks in amounts not in excess of 5% of the value of its total assets.
COMMERCIAL PAPER AND VARIABLE AND FLOATING RATE INSTRUMENTS.
The Money Market Portfolio may invest in commercial paper,
including asset-backed commercial paper representing interests in a pool of
corporate receivables, dollar-denominated obligations issued by domestic and
foreign bank holding companies, and corporate bonds that meet the quality and
maturity requirements described above. The Portfolio may also invest in variable
or
-13-
<PAGE> 127
floating rate notes that may have a stated maturity in excess of thirteen months
but will, in any event, permit the Portfolio to demand payment of the principal
of the instrument at least once every thirteen months upon no more than 30 days'
notice (unless the instrument is guaranteed by the U.S. Government or an agency
or instrumentality thereof). Such instruments may include variable amount master
demand notes, which are unsecured instruments that permit the indebtedness
thereunder to vary in addition to providing for periodic adjustments in the
interest rate. Unrated variable and floating rate instruments will be determined
by the Adviser (under the supervision of the Board of Directors) to be of
comparable quality at the time of purchase to First Tier Eligible Securities.
There may be no active secondary market in the instruments, which could make it
difficult for the Portfolio to dispose of an instrument in the event the issuer
were to default on its payment obligation or during periods that the Portfolio
could not exercise its demand rights. The Portfolio could, for these or other
reasons, suffer a loss with respect to such instruments. Variable and floating
rate instruments held by the Portfolio will be subject to the Portfolio's 10%
limitation on illiquid investments when the Portfolio may not demand payment of
the principal amount within seven days and a liquid trading market is absent.
GOVERNMENT OBLIGATIONS. The Money Market Portfolio may invest in
obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities. In addition, the Portfolio may, when deemed appropriate by
the Adviser, invest in short-term obligations issued by state and local
governmental issuers that meet the quality requirements described above and, as
a result of the Tax Reform Act of 1986, carry yields that are competitive with
those of other types of money market instruments of comparable quality.
THE TAX-EXEMPT MONEY MARKET PORTFOLIO
The Tax-Exempt Money Market Portfolio's investment objective is to seek
as high a level of current interest income exempt from federal income tax as is
consistent with liquidity and stability of principal. The Portfolio seeks to
achieve its objective by investing substantially all of its assets in short-term
obligations issued by or on behalf of states, territories and possessions of the
United States, the District of Columbia and their respective political
subdivisions, agencies, instrumentalities and authorities the interest on which,
in the opinion of bond counsel or counsel to the issuer, is exempt from regular
federal income tax (collectively, "Municipal Obligations"). The Portfolio may
also hold tax-exempt derivative securities such as tender option bonds,
participations, beneficial interests in trusts and partnership interests.
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The Tax-Exempt Money Market Portfolio will purchase only "First Tier
Eligible Securities" (as defined by the SEC) that present minimal credit risks
as determined by the Adviser pursuant to guidelines approved by the Board of
Directors. See "The Money Market Portfolio" above for a description of "First
Tier Eligible Securities."
Dividends paid by the Tax-Exempt Money Market Portfolio that are
derived from interest attributable to tax-exempt obligations of a particular
state and its political subdivisions as well as of certain other governmental
issuers including Puerto Rico, Guam and the Virgin Islands may be exempt from
federal and state income tax. Dividends derived from interest on obligations of
other governmental issuers are exempt from federal income tax but may be subject
to state income tax.
As a matter of fundamental policy, under normal market conditions or
when the Adviser deems suitable tax-exempt Municipal Obligations to be
available, at least 80% of the Tax-Exempt Money Market Portfolio's total assets
will be invested in Municipal Obligations. The Portfolio may hold uninvested
cash reserves pending investment during temporary defensive periods or if, in
the opinion of the Adviser, suitable Municipal Obligations are unavailable.
There is no percentage limitation on the amount of assets which may be held
uninvested during temporary defensive periods.
In addition, during temporary defensive periods or if, in the opinion
of the Adviser, suitable Municipal Obligations are unavailable and subject to
the quality standards described above, the Tax-Exempt Money Market Portfolio may
invest up to 20% of its assets in money market instruments, the income from
which is subject to federal income tax. Such instruments may include obligations
of the U.S. Government, its agencies or instrumentalities; debt securities
(including commercial paper) of issuers having, at the time of purchase, a
quality rating within the highest rating category by a Rating Agency;
certificates of deposit or bankers' acceptances of domestic branches of U.S.
banks with total assets at the time of purchase of $1 billion or more; or
repurchase agreements with respect to such obligations.
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OTHER APPLICABLE POLICIES
The investment policies described in this Prospectus are among those
which one or more of the Portfolios have the ability to utilize. Some of these
policies may be employed on a regular basis; others may not be used at all.
Accordingly, reference to any particular policy, method or technique carries no
implication that it will be utilized or, if it is, that it will be successful.
U.S. GOVERNMENT OBLIGATIONS. Securities issued or guaranteed by the
U.S. Government, its agencies and instrumentalities have historically involved
little risk of loss of principal if held to maturity. However, due to
fluctuations in interest rates, the market value of such securities may vary
during the period a shareholder owns Shares of a Portfolio. Certain U.S.
Government securities held by the Portfolios may have remaining maturities
exceeding thirteen months if such securities provide for adjustments in their
interest rates no less frequently than every thirteen months. Examples of the
types of U.S. Government obligations that may be held by the Portfolios, subject
to their respective investment objectives and policies, include, in addition to
U.S. Treasury bonds, notes and bills, the obligations of Federal Home Loan
Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Government National Mortgage Association
("GNMA"), Federal National Mortgage Association ("FNMA"), Federal Home Loan
Mortgage Corporation, General Services Administration, Student Loan Marketing
Association, Central Bank for Cooperatives, Federal Intermediate Credit Banks,
Resolution Trust Corporation, and Maritime Administration. Obligations of
certain agencies and instrumentalities of the U.S. Government, such as those of
GNMA, are supported by the full faith and credit of the U.S. Treasury; others,
such as the Export-Import Bank of the United States, are supported by the right
of the issuer to borrow from the Treasury; others, such as those of FNMA, are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; still others such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. There is
no assurance that the U.S. Government would provide financial support to U.S.
Government-sponsored instrumentalities if it is not obligated to do so by law.
STRIPPED GOVERNMENT SECURITIES. To the extent consistent with their
respective investment policies, each Portfolio may invest in bills, notes and
bonds (including zero coupon bonds) issued by the U.S. Treasury. In addition,
the Treasury Money Market and Money Market Portfolios may also invest in
"stripped" U.S. Treasury obligations offered under the Separate Trading of
Registered Interest and Principal Securities ("STRIPS") program
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or Coupon Under Bank-Entry Safekeeping ("CUBES") program or other stripped
securities issued directly by agencies or instrumentalities of the U.S.
Government (and, with respect to the Treasury Money Market Portfolio only, that
are also guaranteed as to principal and interest by the U.S. Government). STRIPS
and CUBES represent either future interest or principal payments and are direct
obligations of the U.S. Government that clear through the Federal Reserve
System. The Money Market Portfolio may also purchase U.S. Treasury and agency
securities that are stripped by brokerage firms and custodian banks and sold
under proprietary names. These stripped securities are resold in custodial
receipt programs with a number of different names (such as TIGRs and CATS) and
are not considered U.S. Government securities for purposes of the 1940 Act.
Stripped securities are issued at a discount to their "face value" and
may exhibit greater price volatility than ordinary debt securities because of
the manner in which their principal and interest are returned to investors. The
Adviser will consider the liquidity needs of a Portfolio when any investments in
zero coupon obligations or other principal-only obligations are made.
SECURITIES LENDING. To increase return or offset expenses, the Treasury
Money Market and Money Market Portfolios may, from time to time, lend their
portfolio securities to broker-dealers, banks or institutional borrowers
pursuant to agreements requiring that the loans be continuously secured by
collateral equal at all times in value to at least the market value of the
securities loaned. Collateral for such loans may include cash, securities of the
U.S. Government, or its agencies or instrumentalities, or an irrevocable letter
of credit issued by a bank that has at least $1.5 billion in total assets, or
any combination thereof. The collateral must be valued daily and, should the
market value of the loaned securities increase, the borrower must furnish
additional collateral to the lending Portfolio. By lending its securities, a
Portfolio can increase its income by continuing to receive interest on the
loaned securities as well as by either investing the cash collateral in
short-term instruments or obtaining yield in the form of interest paid by the
borrower when U.S. Government securities are used as collateral. In accordance
with current SEC policies, each Portfolio is currently limiting its securities
lending to 33-1/3% of the value of its total assets (including the value of the
collateral for the loans) at the time of the loan. Loans are subject to
termination by a Portfolio or a borrower at any time.
REPURCHASE AGREEMENTS. Under certain circumstances described above and
subject to their respective investment policies, each Portfolio may agree to
purchase U.S. Government securities from financial institutions such as banks
and broker-dealers, subject to the seller's agreement to repurchase them at
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a mutually agreed-upon date and price ("repurchase agreements"). A Portfolio
will enter into repurchase agreements only with financial institutions such as
banks and broker-dealers that the Adviser believes to be creditworthy. During
the term of any repurchase agreement, the Adviser will continue to monitor the
creditworthiness of the seller and will require the seller to maintain the value
of the securities subject to the agreement at not less than 102% of the
repurchase price (including accrued interest). Default by a seller could expose
a Portfolio to possible loss because of adverse market action or possible delay
in disposing of the underlying obligations. Because of the seller's repurchase
obligations, the securities subject to repurchase agreements do not have
maturity limitations. Although no Portfolio presently intends to enter into
repurchase agreements providing for settlement in more than seven days, each
Portfolio does have the authority to do so subject to its limitation on the
purchase of illiquid securities described below. Repurchase agreements are
considered to be loans under the 1940 Act. The income on repurchase agreements
is taxable. See "Taxes" below.
REVERSE REPURCHASE AGREEMENTS. Subject to its investment policies, the
Money Market Portfolio may borrow funds for temporary purposes by entering into
reverse repurchase agreements in accordance with its investment limitations
below. Pursuant to such agreements, the Portfolio would sell portfolio
securities to financial institutions such as banks and broker-dealers and agree
to repurchase them at an agreed upon date and price. Reverse repurchase
agreements involve the risk that the market value of the securities sold by the
Portfolio may decline below the repurchase price which the Portfolio is
obligated to pay. Reverse repurchase agreements are considered to be borrowings
by the Portfolio under the 1940 Act.
SECURITIES OF OTHER INVESTMENT COMPANIES. Under certain circumstances
described above and subject to their respective investment policies and
limitations, each Portfolio may invest in securities issued by other investment
companies which invest in securities in which the Portfolio is permitted to
invest and which determine their net asset value per Share based on the
amortized cost or penny-rounding method. Each Portfolio may invest in securities
of other investment companies within the limits prescribed by the 1940 Act,
which include, subject to certain exceptions, a prohibition on a Portfolio
investing more than 10% of the value of its total assets in such securities.
Investments in other investment companies will cause a Portfolio (and,
indirectly, the Portfolio's shareholders) to bear proportionately the cost
incurred in connection with the operations of such other investment companies.
In addition, investment companies in which a Portfolio may invest may impose a
sales or distribution charge in connection with the purchase or redemption of
their shares as well as other types of commissions
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or charges (no sales charge will be paid by the Tax-Exempt Money Market
Portfolio in connection with such investments). Such charges will be payable by
a Portfolio and, therefore, will be borne indirectly by its shareholders. To the
extent that a Portfolio may invest in securities of other investment companies,
the Fund and the Adviser will ensure that there will be no duplication of
advisory fees. If necessary to accomplish this, the Adviser will rebate its
advisory fee to the Fund. See the Statement of Additional Information under
"Investment Objectives and Policies -- Securities of Other Investment
Companies." The income on securities of other investment companies may be
taxable to investors at the state or local level. See "Taxes" below.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. Each Portfolio may
purchase securities on a "when-issued" basis and may purchase or sell securities
on a "forward commitment" basis. These transactions involve a commitment by a
Portfolio to purchase or sell securities at a stated price and yield with
settlement beyond the normal settlement date. Such transactions permit a
Portfolio to lock-in a price or yield on a security, regardless of future
changes in interest rates. When-issued purchases and forward commitment
transactions involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date, or if the value of the security to be
sold increases prior to the settlement date. Each Portfolio expects that these
transactions will not exceed 25% of the value of its total assets (at the time
of purchase) under normal market conditions. No Portfolio intends to engage in
such transactions for speculative purposes but only for the purpose of acquiring
portfolio securities.
TYPES OF MUNICIPAL OBLIGATIONS. The two principal classifications of
Municipal Obligations that may be held by the Tax-Exempt Money Market Portfolio
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as the user of the facility being financed. Revenue
securities include private activity bonds which are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved. Municipal Obligations may also include
"moral obligation" bonds, which are normally issued by special purpose public
authorities. If the issuer of a moral obligation bond is unable to meet its debt
service obligations from current revenues, it may draw on a reserve fund, the
restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer.
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Municipal Obligations include debt obligations issued by governmental
entities to obtain funds for various public purposes, including the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses and the extension of loans to public
institutions and facilities. Private activity bonds issued by or on behalf of
public authorities to finance various privately operated facilities are
considered Municipal Obligations. Interest on private activity bonds, although
free of regular federal income tax, may be an item of tax preference for
purposes of the federal alternative minimum tax.
The Tax-Exempt Money Market Portfolio may acquire zero coupon
obligations, which may have greater price volatility than coupon obligations and
which will not result in payment of interest until maturity. Also included
within the general category of Municipal Obligations are participation
certificates in leases, installment purchase contracts, or conditional sales
contracts ("lease obligations") entered into by state or political subdivisions
to finance the acquisition or construction of equipment, land, or facilities.
Although lease obligations do not constitute general obligations of the issuer
for which the lessee's unlimited taxing power is pledged, certain lease
obligations are backed by the lessee's covenant to appropriate money to make the
lease obligation payments. However, under certain lease obligations, the lessee
has no obligation to make these payments in future years unless money is
appropriated on a yearly basis. Although "non-appropriation" lease obligations
are secured by the leased property, disposition of the property in the event of
foreclosure might prove difficult. These securities represent a relatively new
type of financing and may not be as marketable as more conventional securities.
To the extent these securities are illiquid, they are subject to the Portfolio's
applicable limitation on illiquid securities described below.
VARIABLE AND FLOATING RATE MUNICIPAL OBLIGATIONS. Municipal Obligations
purchased by the Tax-Exempt Money Market Portfolio may include rated or unrated
variable and floating rate instruments, including variable rate master demand
notes that permit the indebtedness thereunder to vary in addition to providing
for periodic adjustments in the interest rate. Unrated instruments purchased by
the Portfolio will be determined by the Adviser to be of comparable quality at
the time of purchase to rated instruments that may be purchased. The absence of
an active secondary market for a particular variable or floating rate
instrument, however, could make it difficult for the Portfolio to dispose of an
instrument if the issuer were to default on its payment obligation. The
Tax-Exempt Money Market Portfolio could, for these or other reasons, suffer a
loss with respect to such instruments.
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STAND-BY COMMITMENTS. The Tax-Exempt Money Market Portfolio may acquire
"stand-by commitments" with respect to Municipal Obligations held by it. Under a
stand-by commitment, a dealer agrees to purchase, at the Portfolio's option,
specified Municipal Obligations at a specified price. The Portfolio will acquire
stand-by commitments solely to facilitate portfolio liquidity and does not
intend to exercise its rights thereunder for trading purposes. The Portfolio
expects that stand-by commitments will generally be available without the
payment of any direct or indirect consideration. However, if necessary or
advisable, the Portfolio may pay for a stand-by commitment either separately in
cash or by paying a higher price for portfolio securities which are acquired
subject to the commitment (thus reducing the yield otherwise available for the
same securities). Stand-by commitments acquired by the Portfolio will be valued
at zero in determining the Portfolio's net asset value.
TAX-EXEMPT DERIVATIVES. The Tax-Exempt Money Market Portfolio may hold
tax-exempt derivatives which may be in the form of tender option bonds,
participations, beneficial interests in a trust or other forms. The Adviser
expects that less than 5% of the Portfolio's assets will be invested in such
securities during the current year. See the Statement of Additional Information
under "Investment Objectives and Policies - Tax-Exempt Derivatives."
FOREIGN SECURITIES. The Money Market Portfolio may acquire U.S.
dollar-denominated securities of foreign corporations and certain types of bank
instruments issued or supported by the credit of foreign banks or foreign
branches of domestic banks where the Adviser deems the investments to present
minimal credit risks. Investments made in foreign securities involve certain
inherent risks, such as future political and economic developments, the possible
imposition of foreign withholding tax on the interest income payable on such
instruments, the possible establishment of foreign controls, the possible
seizure or nationalization of foreign deposits or assets, or the adoption of
other foreign government restrictions that might adversely affect payment of
interest or principal. In addition, foreign banks and foreign branches of U.S.
banks are subject to less stringent reserve requirements and to different
accounting, auditing, reporting, and recordkeeping standards than those
applicable to domestic branches of U.S. banks.
ILLIQUID SECURITIES. A Portfolio will not invest more than 10% of the
value of its net assets in illiquid securities. Repurchase agreements that do
not provide for settlement within seven days, time deposits maturing in more
than seven days, and securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but that may be purchased by institutional
buyers pursuant to SEC Rule 144A are subject to the applicable limit (unless the
Adviser, pursuant to guidelines
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established by the Board of Directors, determines that a liquid market exists).
The purchase of securities which can be sold under Rule 144A could have the
effect of increasing the level of illiquidity in the Portfolios to the extent
that qualified institutional buyers become, for a time, uninterested in
purchasing these restricted securities.
RISK FACTORS AND OTHER CONSIDERATIONS. The Tax-Exempt Money Market
Portfolio's ability to achieve its investment objective is dependent upon the
ability of issuers of Municipal Obligations to meet their continuing obligations
for the payment of principal and interest. Although the Tax-Exempt Money Market
Portfolio may invest 25% more of its net assets in (i) Municipal Obligations
whose issuers are in the same state, (ii) Municipal Obligations the interest on
which is paid solely from revenues of similar projects, (iii) private activity
bonds, it does not presently intend to do so unless, in the opinion of the
Adviser, the investment is warranted. To the extent that the Portfolio's assets
are invested in Municipal Obligations whose issuers are in the same state or
that are payable from the revenues of similar projects or in private activity
bonds, the Portfolio will be subject to the peculiar risks presented by the laws
and economic conditions relating to such states, projects and bonds to a greater
extent than it would be if its assets were not so invested. See "Investment
Objectives and Policies - Municipal Obligations" in the Statement of Additional
Information.
The Tax-Exempt Money Market Portfolio is classified as non-diversified
under the 1940 Act. Investment return on a non-diversified portfolio typically
is dependent upon the performance of a smaller number of securities relative to
the number held in a diversified portfolio. Consequently, the change in value of
any one security may affect the overall value of a non-diversified portfolio
more than it would a diversified portfolio. In addition, a non-diversified
portfolio may be more susceptible to economic, political and regulatory
developments than a diversified investment portfolio with similar objectives.
The value of the Tax-Exempt Money Market Portfolio's securities can be expected
to vary inversely with changes in prevailing interest rates.
Municipal Obligations purchased by the Tax-Exempt Money Market
Portfolio may be backed by letters of credit or guarantees issued by domestic or
foreign banks and other financial institutions which are not subject to federal
deposit insurance. Adverse developments affecting the banking industry generally
or a particular bank or financial institution that has provided its credit or a
guarantee with respect to a Municipal Obligation held by the Portfolio could
have an adverse effect on the Portfolio's investment portfolio and the value of
its shares. Foreign letters of credit and guarantees involve certain risks in
addition to those of domestic obligations, including less
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stringent reserve requirements and different accounting, auditing and
recordkeeping requirements.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance, and opinions relating
to the validity and the tax-exempt status of payments received by the Portfolio
from tax-exempt derivatives are rendered by counsel to the respective sponsors
of such derivatives. The Portfolio and its Adviser will rely on such opinions
and will not review independently the underlying proceedings relating to the
issuance of Municipal Obligations, the creation of any tax-exempt derivative
securities, or the bases for such opinions.
INVESTMENT LIMITATIONS
Except as otherwise noted, each Portfolio's investment policies
discussed above are not fundamental and may be changed by the Fund's Board of
Directors without shareholder approval. However, each Portfolio also has in
place certain fundamental investment limitations, some of which are set forth
below, which may be changed only by a vote of a majority of the outstanding
Shares of a Portfolio. Other investment limitations that also cannot be changed
without a vote of shareholders are contained in the Statement of Additional
Information under "Investment Objectives and Policies."
THE TREASURY MONEY MARKET AND MONEY MARKET PORTFOLIOS
A Portfolio may not:
1. Make loans, except that a Portfolio may purchase or hold
debt instruments in accordance with its investment objective and
policies , lend portfolio securities and enter into repurchase
agreements with respect to securities (together with any cash
collateral) that are consistent with the Portfolio's permitted
investments and that equal at all times at least 100% of the value of
the repurchase price.
2. Borrow money or issue senior securities, except that a
Portfolio may borrow from banks and the Money Market Portfolio may
enter into reverse repurchase agreements for temporary purposes in
amounts up to 10% of the value of its total assets at the time of such
borrowing; or mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of a
Portfolio's total assets at the time of such borrowing. A Portfolio
will not purchase securities while its borrowings (including reverse
repurchase agreements) are outstanding.
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3. With respect to the Treasury Money Market Portfolio,
purchase securities other than obligations of the U.S. Government, its
agencies and instrumentalities, some of which may be subject to
repurchase agreements, except that the Portfolio may purchase
securities of other investment companies that seek to maintain a
constant net asset value per Share and that are permitted themselves
only to invest in securities which may be acquired by the Portfolio.
4. With respect to the Money Market Portfolio, purchase any
securities which would cause more than 25% of the value of the
Portfolio's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, domestic bank
certificates of deposit, bankers' acceptances and repurchase agreements
secured by domestic bank instruments or obligations of the U.S.
Government, its agencies or instrumentalities; (b) wholly-owned finance
companies will be considered to be in the industries of their parents
if their activities are primarily related to financing the activities
of the parents; and (c) utilities will be divided according to their
services, for example, gas, gas transmission, electric and gas,
electric and telephone will each be considered a separate industry.
In accordance with current regulations of the SEC, the Money Market
Portfolio intends to limit investments in the securities of any single issuer
(other than securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities) to not more than 5% of the Portfolio's total assets at the
time of purchase, provided that the Portfolio may invest up to 25% of its total
assets in the securities of any one issuer for a period of up to three business
days. This intention is not, however, a fundamental policy of the Money Market
Portfolio. The Portfolio would have the ability to invest more than five percent
of its assets in any one issuer in accordance with its fundamental policy only
in the event that Rule 2a-7 of the 1940 Act is amended in the future.
THE TAX-EXEMPT MONEY MARKET PORTFOLIO
The Portfolio may not:
1. Purchase securities of any one issuer if, immediately after
and as a result of such purchase, more than 5% of the Portfolio's total
assets would be invested in the securities of such issuer, except that
(a) up to 50% of the Portfolio's total assets may be invested without
regard to this 5% limitation provided that no more than 25% of the
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Portfolio's total assets are invested in the securities of any one
issuer and (b) this 5% limitation does not apply to securities issued
or guaranteed by the U.S. Government, its agencies or
instrumentalities. For purposes of this limitation, a security is
considered to be issued by the governmental entity (or entities) whose
assets and revenues back the security, or, with respect to an
industrial development bond that is backed only by the assets and
revenues of a non-governmental user, a security is considered to be
issued by such non-governmental user. In certain circumstances, the
guarantor of a guaranteed security may also be considered to be an
issuer in connection with such guarantee, except that a guarantee of a
security shall not be deemed to be a security issued by the guarantor
when the value of all securities issued and guaranteed by the
guarantor, and owned by the Portfolio, does not exceed 10% of the
Portfolio's total assets.
2. Borrow money or issue senior securities, except that the
Portfolio may borrow from banks for temporary defensive purposes in
amounts not in excess of 10% of its total assets at the time of such
borrowing; or mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of its total assets at the
time of such borrowing; or purchase securities while borrowings exceed
5% of the Portfolio's net assets. Securities held in escrow or separate
accounts in connection with the Portfolio's investment practices
described in this Prospectus or the Statement of Additional Information
are not subject to this limitation.
3. Under normal market conditions or when the Adviser deems
that suitable tax-exempt obligations are available, at least 80% of the
Portfolio's assets must be invested in obligations the interest on
which is exempt from federal income tax and stand-by commitments with
respect to such obligations.
Notwithstanding Investment Limitation No. 3, the Portfolio may invest
in securities of other investment companies that (a) invest in securities that
are substantially similar to those the Portfolio may acquire, and (b) distribute
income that is exempt from regular federal income tax.
The following additional investment policies with respect to the
Tax-Exempt Money Market Portfolio are not fundamental and may be changed by the
Board of Directors without shareholder approval:
The Portfolio may not purchase securities which are not
readily marketable, enter into repurchase agreements
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providing for settlement in more than seven days after notice, or
purchase other illiquid securities if, as a result of such purchase,
illiquid securities would exceed 10% of the Portfolio's respective net
assets.
The Tax-Exempt Money Market Portfolio has an operating policy to comply
with the requirements of Rule 2a-7 of the 1940 Act. To the extent that Rule 2a-7
is more restrictive than the Portfolio's fundamental limitations, the Portfolio
will operate in accordance with Rule 2a-7.
If a percentage limitation is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in value
in the Portfolio's securities will not constitute a violation of such
limitation.
PRICING OF SHARES
The Portfolios' respective net asset values per Share are determined by
the Administrator as of 12:00 noon (Eastern time) and as of the close of regular
trading hours on the New York Stock Exchange (the "Exchange") (currently, 4:00
p.m. Eastern time) on each weekday, with the exception of those holidays on
which the Exchange or the Federal Reserve Bank of St. Louis are closed (a
"Business Day"). Currently one or both of these institutions are closed on the
customary national business holidays of New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day
(observed), Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day and
Christmas Day (observed).
Each Portfolio's assets are valued based upon the amortized cost
method. Although each Portfolio seeks to maintain its net asset value per Share
at $1.00, there can be no assurance that the net asset value per Share will not
vary. See the Statement of Additional Information under "Net Asset Value" for
further information.
The public offering price for each class of Shares of a Portfolio is
based upon net asset value per Share. A class will calculate its net asset value
per Share by adding the value of a Portfolio's investments, cash and other
assets attributable to the class, subtracting the Portfolio's liabilities
attributable to that class, and then dividing the result by the total number of
Shares in the class that are outstanding.
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HOW TO PURCHASE AND REDEEM SHARES
PURCHASE OF SHARES
Trust Shares are sold to financial institutions, such as banks, trust
companies, thrift institutions, mutual funds or other financial institutions
(collectively "financial institutions"), acting on their own behalf or on behalf
of discretionary and non-discretionary accounts for which they may receive
account-level asset-based management fees. Trust Shares are sold to qualified
purchasers without a sales charge imposed by the Fund or the Distributor.
Generally, investors purchase Trust Shares through a financial institution,
which is responsible for transmitting purchase orders directly to the Fund.
Purchases may be effected on Business Days when the Adviser,
Distributor and Mercantile (the Custodian) are open for business. The Fund
reserves the right to reject any purchase order, including purchases made with
foreign and third party drafts or checks.
Financial institutions placing orders directly or on behalf of their
customers should contact the Fund at 1-800-452-4015. Investors may also call the
Fund for information on how to purchase Shares.
All shareholders of record will receive confirmations of Share
purchases, exchanges, and redemptions in the mail. If Shares are held in the
name of banks or other financial institutions, such institution is responsible
for transmitting purchase, exchange, and redemption orders to the Fund on a
timely basis, recording all purchase, exchange, and redemption transactions, and
providing regular account statements which confirm such transactions to
beneficial owners. Payment for orders which are not received or accepted will be
returned after prompt inquiry to the transmitting financial institution.
A purchase order received and accepted by the Fund by 12:00 noon
(Eastern time) on a Business Day is effected at the net asset value per Share
next determined after receipt of the order in good form if the Fund's Custodian
has received payment in federal funds by 4:00 p.m. (Eastern time) that day. If
such funds are not available for investment by 4:00 p.m. (Eastern time), the
order will be cancelled. Purchase orders received after 12:00 noon (Eastern
time) will be placed the following Business Day.
EXCHANGES
The exchange privilege enables shareholders to exchange Trust Shares of
a Portfolio for Trust Shares of another Portfolio or any other portfolio offered
by the Fund. Exchanges for Trust
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Shares in another portfolio are effected without payment of any exchange or
sales charges. In addition, Trust Shares of a Portfolio may also be exchanged
for Investor A Shares of the same Portfolio in connection with the distribution
of assets held in a qualified trust, agency or custodian account with the trust
department of Mercantile or any of its affiliated or correspondent banks. Such
exchanges will also be effected without payment of any exchange or sales
charges. The exchange privilege may be exercised only in those states where the
class of shares of such other portfolios may be legally sold.
The Fund reserves the right to reject any exchange request. The
exchange privilege may be modified or terminated at any time upon 60 days'
written notice to shareholders. An investor may telephone an exchange request by
calling his or her financial institution, which is responsible for transmitting
such request to the Distributor. See "Other Exchange or Redemption Information"
below. An investor should consult the financial institution or the Distributor
for further information regarding procedures for exchanging Shares.
REDEMPTION OF SHARES
Redemption orders should be placed with or through the same financial
institution that placed the original purchase order. Redemption orders are
effected at a Portfolio's net asset value per Share next determined after
receipt of the order by the Fund. The financial institution is responsible for
transmitting redemption orders to the Fund on a timely basis. No charge for
sending redemption payments electronically is currently imposed by the Fund,
although a charge may be imposed in the future. The Fund reserves the right to
send redemption proceeds electronically within seven days after receiving a
redemption order if, in the judgment of the Adviser, an earlier payment could
adversely affect a Portfolio.
A written redemption request must be accompanied by any Share
certificates which are properly endorsed for transfer. The Transfer Agent may
require a signature guarantee by an eligible guarantor institution. For purposes
of this policy, the term "eligible guarantor institution" shall include banks,
brokers, dealers, credit unions, securities exchanges and associations, clearing
agencies and savings associations as those terms are defined in Rule 17Ad-15
under the Securities Exchange Act of 1934. The Transfer Agent reserves the right
to reject any signature guarantee if (1) it has reason to believe that the
signature is not genuine, (2) it has reason to believe that the transaction
would otherwise be improper, or (3) the guarantor institution is a broker or
dealer that is neither a member of a clearing corporation nor maintains net
capital of at least $100,000. The signature guarantee requirement will be waived
if all of the following conditions apply: (1) the redemption check
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is payable to the shareholder(s) of record and (2) the redemption check is
mailed to the shareholder(s) at the address of record or the proceeds are either
mailed or sent electronically to a commercial bank account previously designated
on the account application. An investor with questions or needing assistance
should contact the financial institution servicing his or her account or the
Distributor. Additional documentation may be required if the redemption is
requested by a corporation, partnership, trust, fiduciary, executor, or
administrator. If, due to temporary adverse conditions, investors are unable to
effect telephone transactions, investors are encouraged to follow the procedures
described in "Other Exchange or Redemption Information" below.
Neither the Fund nor its service providers will be liable for any loss,
damage, expense or cost arising out of any telephone redemption effected in
accordance with the Fund's telephone redemption procedures, upon instructions
reasonably believed to be genuine. The Fund will employ procedures designed to
provide reasonable assurance that instructions by telephone are genuine; if
these procedures are not followed, the Fund or its service providers may be
liable for any losses due to unauthorized or fraudulent instructions. If Share
certificates are outstanding with respect to an account, the telephone
redemption and exchange privilege is not available.
Proceeds from redemptions of Shares with respect to redemption orders
received by the Fund before 12:00 noon (Eastern time) on a Business Day normally
are sent electronically the same day to the financial institution that placed
the redemption order in good form. Proceeds for redemption orders that are
received after 12:00 noon (Eastern time) or on a non-Business Day normally are
wired to the financial institution on the next Business Day.
OTHER EXCHANGE OR REDEMPTION INFORMATION
During periods of substantial economic or market change or activity,
telephone redemptions or exchanges may be difficult to complete. In such event,
Shares may be redeemed or exchanged by mailing the request directly to the
financial institution through which the original Shares were purchased or
directly to the Fund at P.O. Box 78069, St. Louis, Missouri 63178.
At various times, the Fund may be requested to redeem Shares for which
it has not yet received good payment. In such circumstances, the Fund may delay
the forwarding of proceeds until payment has been collected for the purchase of
such Shares which may take up to 15 days or more. To avoid delay in payment upon
redemption shortly after purchasing Shares, investors should purchase Shares by
certified or bank check or by electronic transfer. The Fund intends to pay cash
for all Shares redeemed, but under abnormal conditions which make payment in
cash unwise,
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the Fund may make payment wholly or partly in portfolio securities at their then
market value equal to the redemption price. In such cases, an investor may incur
brokerage costs in converting such securities to cash.
A shareholder may be required to redeem Shares in a Portfolio upon 60
days' written notice if the balance in the shareholder's account drops below
$500. The Fund will not require a shareholder to redeem Portfolio Shares if the
value of the shareholder's account drops below $500 due to fluctuations in net
asset value. Share balances may also be redeemed pursuant to arrangements
between financial institutions and their investors.
YIELDS
Yield quotations are computed separately for Trust Shares,
Institutional Shares, S Shares, Investor A Shares and Investor B Shares of a
Portfolio. TOTAL RETURN AND YIELD FIGURES WILL FLUCTUATE, ARE BASED ON
HISTORICAL EARNINGS, AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The
methods used to compute each Portfolio's yields are described below and in the
Statement of Additional Information.
From time to time, performance information such as "yield" and
"effective yield" for the Portfolios' Trust Shares may be quoted in
advertisements or in communications to shareholders. The "yield" quoted in
advertisements refers to the income generated by an investment in such Shares of
a Portfolio over a specified period (such as a seven-day period) identified in
connection with the particular yield quotation. This income is then
"annualized." That is, the amount of income generated by the investment during
that period is assumed to be generated for each such period over a 52-week or
one-year period and is shown as a percentage of the investment. The "effective
yield" is calculated similarly but, when annualized, the income earned by an
investment in such Shares of a Portfolio is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment.
In addition, the Treasury Money Market Portfolio's "state
tax-equivalent yield" may also be quoted. The "state tax-equivalent yield" shows
the level of taxable yield needed to produce an after-tax yield that is
equivalent to a particular state's tax-exempt yield achieved by the Portfolio.
The "state tax-equivalent yield" refers to the portion of income that is derived
from interest income on direct obligations of the U.S. Government, its agencies
or instrumentalities that qualifies for exemption from state income tax. The
yield calculation assumes that 100% of the interest income is exempt from state
income tax. The "state tax-equivalent yield" is computed by dividing the tax-
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exempt portion of the Portfolio's yield by a denominator consisting of one minus
a stated income tax rate.
The Tax-Exempt Money Market Portfolio may also quote its
"tax-equivalent yield" and "tax-equivalent effective yield", which demonstrate
the level of taxable yield needed to produce an after-tax yield that is
equivalent to the Portfolio's yield and effective yield. Each are calculated by
increasing the Portfolio's yield and effective yield by the amount necessary to
reflect the payment of federal (and/or state) tax at a stated tax rate. The "tax
equivalent yield" and "tax-equivalent effective yield" will always be higher
than the Portfolio's yield and effective yield, respectively. The Tax-Exempt
Money Market Portfolio may also compute its "tax-equivalent yield" and
"tax-equivalent effective yield" with respect to certain states, which shows the
level of taxable yield and effective yield, respectively, needed to produce an
after-tax equivalent to the federal and state tax-exempt yield of the
Portfolio's particular class of Shares, assuming payment of federal income tax
and state personal income tax each at a stated rate and based upon a specified
percentage of the Portfolio's income which is exempt from state income tax as
well as federal income tax.
Performance data for the Portfolios' Trust Shares may be compared to
the performance of other mutual funds with comparable investment objectives and
policies through various mutual fund or market indices and data such as that
provided by Lehman Brothers, Inc., or any of its affiliates, Ibbotson
Associates, Inc., Lipper Analytical Services, Inc., Mutual Fund Forecaster and
IBC/Donoghue's MONEY FUND REPORT(R) published by IBC/Donoghue. References may
also be made to indices or data published in Money Magazine, Forbes, Barron's,
The Wall Street Journal, The New York Times, Business Week, American Banker,
Institutional Investor, Pensions and Investments, U.S.A. Today, Fortune,
CDA/Weisenberger, Morningstar, Inc. and publications of a local or regional
nature. In addition to performance information, general information about the
Portfolios that appears in a publication such as those mentioned above may be
included in advertisements and in reports to shareholders.
Performance quotations of a class of Shares in a Portfolio represent
that Portfolio's past performance and should not be considered as representative
of future results. Any account fees charged by a bank or other financial
institution (as described in "Management of The Fund -- Service Organizations"
below) or other institutions will not be included in the calculations of a
Portfolio's yields. Such fees, if any, will reduce the investor's net return on
an investment in a Portfolio. Investors may call 1-800-452-4015 to obtain
current yield information.
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DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Portfolios are declared
daily and paid monthly not later than five Business Days after the end of each
month. Trust Shares earn dividends from the day the purchase order is received
by the Transfer Agent through the day before the redemption order for such
Shares is received. Dividends on each Share of the Portfolios are determined in
the same manner and are paid in the same amounts irrespective of class, except
that a Portfolio's Trust Shares and Institutional Shares (other than the
Tax-Exempt Money Market Portfolio which does not offer Institutional Shares)
bear all expenses of the respective Administrative Services Plans adopted for
such Shares and a Portfolio's S Shares, Investor A Shares and, in the case of
the Money Market Portfolio only, Investor B Shares bear all expenses of the
respective Distribution and Services Plans adopted for such Shares. In addition,
a Portfolio's Institutional Shares bear the expense of certain sub-transfer
agency fees. See "Management of the Fund --Administrative Services Plan" and
"Other Information Concerning the Fund and Its Shares" below.
The Portfolios do not expect to realize capital gains. Net realized
capital gains of a Portfolio, if any, are distributed at least annually. All
dividends and distributions paid on a Portfolio's Shares are automatically
reinvested in additional Shares of the same class unless the investor has (i)
otherwise indicated in the account application, or (ii) redeemed all the Shares
held in a Portfolio, in which case a distribution will be paid in cash.
Reinvested dividends and distributions will be taxed in the same manner as those
paid in cash.
TAXES
FEDERAL TAXES
Each Portfolio intends to qualify as a "regulated investment company"
for the current taxable year. It is intended that each Portfolio will continue
to so qualify as long as such qualification is in the best interests of
shareholders. A regulated investment company is generally exempt from federal
income tax on amounts distributed to shareholders.
Qualification as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code"), for a taxable year requires,
among other things, that each Portfolio distribute to its shareholders an amount
equal to at least the sum of 90% of its investment company taxable income and
90% of its net exempt-interest income (if any). In general, a Portfolio's
investment company taxable income will be its taxable income, including
dividends, interest and short-term capital
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gains (the excess of net short-term capital gain over net long-term capital
loss), subject to certain adjustments and excluding the excess of any net
long-term capital gain over net short-term capital loss, if any, for such
taxable year. The Treasury Money Market and Money Market Portfolios intend to
distribute as dividends substantially all of their respective investment company
taxable income and any net tax-exempt interest income each year. Such dividends
will be taxable as ordinary income to a Portfolio's shareholders who are not
currently exempt from federal income taxes, whether such income is received in
cash or reinvested in additional Shares. (Federal income taxes for distributions
to an IRA are deferred under the Code.) Because all of the Treasury Money Market
and Money Market Portfolios' net investment income is expected to be derived
from earned interest, it is not expected that any distributions from such
Portfolios will be eligible for the dividends received deduction.
It is the policy of the Tax-Exempt Money Market Portfolio to distribute
as dividends substantially all of its net tax-exempt interest income and any
investment company taxable income each year. Dividends derived from interest on
Municipal Obligations (known as exempt-interest dividends) may be treated by
shareholders as items of interest excludable from their gross income under
Section 103(a) of the Code, unless under the circumstances applicable to the
particular shareholder the exclusion would be disallowed. (See the Statement of
Additional Information under "Additional Information Concerning Taxes.")
Distributions of net income may be taxable to investors under state or local law
as dividend income even though a substantial portion of such distributions may
be derived from interest on tax-exempt obligations which, if realized directly,
would be exempt from such income tax.
If the Tax-Exempt Money Market Portfolio should hold certain private
activity bonds issued after August 7, 1986, shareholders must include, as an
item of tax preference, the portion of dividends paid by the Portfolio that is
attributable to interest on such bonds in their federal alternative minimum
taxable income for purposes of determining liability (if any) for the 26-28%
alternative minimum tax applicable to individuals and the 20% alternative
minimum tax and the environmental tax applicable to corporations. Corporate
shareholders also must take all exempt-interest dividends into account in
determining certain adjustments for federal alternative minimum and
environmental tax purposes. The environmental tax applicable to corporations is
imposed at the rate of .12% on the excess of the corporation's modified federal
alternative minimum taxable income over $2,000,000.
Substantially all of each Portfolio's net realized long-term capital
gains, if any, will be distributed at least annually to its shareholders. A
Portfolio will generally have no tax
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liability with respect to such gains and the distributions will be taxable to
shareholders who are not currently exempt from federal income taxes as long-term
capital gains, regardless of how long the shareholders have held the Shares and
whether such gains are received in cash or reinvested in additional Shares.
To the extent dividends paid to shareholders of the Tax-Exempt Money
Market Portfolio are derived from taxable income or from long-term or short-term
capital gains, such dividends will be subject to federal income tax, whether
such dividends are paid in the form of cash or additional Shares.
An investor considering purchasing Shares of a Portfolio on or just
before the record date of any capital gains distribution should be aware that
the amount of the forthcoming distribution, although in effect a return of
capital, will be taxable.
Dividends declared by a Portfolio in October, November, or December of
any year payable to shareholders of record on a specified date in such months
will be deemed to have been received by shareholders and paid by the Fund on
December 31 of such year, if such dividends are actually paid during January of
the following year.
Each Portfolio may be required in certain cases to withhold and remit
to the U.S. Treasury 31% of taxable dividends or gross sale proceeds paid to
shareholders who have failed to provide a correct tax identification number in
the manner required, who are subject to withholding by the Internal Revenue
Service for failure properly to include on their return payments of taxable
interest or dividends, or who have failed to certify to the Portfolio that they
are not subject to backup withholding when required to do so or that they are
"exempt recipients."
STATE AND LOCAL TAXES
Shareholders should note that dividends paid by a Portfolio may be
taxable to investors under state or local law as dividend income even though all
or a portion of such dividends may be derived from interest on obligations that,
if realized directly, would be exempt from such income taxes.
The Treasury Money Market Portfolio is structured to provide investors,
to the extent permissible by federal and state law, with income that is exempt
or excluded from taxation at the state and local level. Shareholders should note
that many, but not all, states permit all or a portion of a regulated investment
company's dividends which are derived from interest on U.S. Treasury obligations
(and obligations of certain U.S. Government agencies)("Treasury Obligations") to
be exempt or excluded from state and local taxation. In addition, only certain
states allow dividends of a regulated investment company that are derived from
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dividends of other regulated investment companies investing directly in Treasury
Obligations to be exempt or excluded from state and local taxation. Some states
reduce a shareholder's allowable deductions by interest on debt incurred to
carry obligations producing state tax-exempt interest and by other expenses
related to such obligations. Income earned by the Portfolio from repurchase
agreements generally is not exempt from state or local income tax. Shareholders
should consult their own tax advisors about the status of distributions from the
Treasury Money Market Portfolio under state and local law.
MISCELLANEOUS
The foregoing summarizes some of the important federal and state tax
considerations generally affecting the Portfolios and their shareholders and is
not intended as a substitute for careful tax planning. Accordingly, potential
investors in the Portfolios should consult their tax advisers with specific
reference to their own tax situation. Shareholders will be advised at least
annually as to the federal and, for the Treasury Money Market Portfolio, the
state income tax consequences.
MANAGEMENT OF THE FUND
The Fund is managed under the direction of its Board of Directors. The
Statement of Additional Information contains the names of and general background
information concerning each
director.
INVESTMENT ADVISER
Mississippi Valley Advisors Inc. ("MVA") serves as the investment
adviser to each Portfolio. MVA's principal office is located at One Mercantile
Center, Seventh & Washington Streets, St. Louis, Missouri 63101. MVA is a
wholly-owned subsidiary of Mercantile. As of December 31, 1997, MVA had
approximately $9.4 billion in assets under investment management, including the
Funds' assets, which were approximately $3.9 billion.
Subject to the general supervision of the Fund's Board of Directors and
in accordance with the Fund's investment policies, MVA manages the Portfolios,
makes investment decisions with respect to and places orders for all purchases
and sales of the Portfolios' securities and other investments, and directs the
maintenance of each Portfolio's records relating to such purchases and sales.
For the services provided and expenses assumed pursuant to the
investment advisory agreement, MVA is entitled to receive fees, computed daily
and payable monthly, with respect to the Treasury Money Market and Money Market
Portfolios, at the annual
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rates of .40% of the first $1.5 billion of each such Portfolio's average daily
net assets, .35% of the next $1.0 billion of net assets and .25% of net assets
in excess of $2.5 billion, and with respect to the Tax-Exempt Money Market
Portfolio, at the annual rate of .40% of the average daily net assets of the
Portfolio. For the fiscal year ended November 30, 1997, MVA received advisory
fees (net of waivers) at the effective annual rates of ___%, ___% and ___% of
the respective average daily net assets of the Treasury Money Market, Money
Market and Tax-Exempt Money Market Portfolios.
MVA may from time to time voluntarily reduce all or a portion of its
advisory fee to increase the net income of one or more Portfolios available for
distributions as dividends. The voluntary fee reduction will cause the return of
any such Portfolio to be higher than it would otherwise be in the absence of
such reduction.
ADMINISTRATOR
BISYS Fund Services Ohio, Inc. located at 3435 Stelzer Road,
Columbus, Ohio 43219, acts as the Portfolios' Administrator.
The Administrator generally assists in all aspects of each Portfolio's
administration and operation and also monitors and performs other services
pertaining to the Fund's arrangements under the Administrative Services Plan
described below. For its services, the Administrator is entitled to receive a
fee, computed daily and payable monthly, at the annual rate of .20% (.10% for
the Tax-Exempt Money Market Portfolio) of each Portfolio's average daily net
assets. For the fiscal year ended November 30, 1997, the Administrator received
administration fees (net of waivers) at the effective annual rate of .__% of the
average daily net assets of each Portfolio. From time to time, the Administrator
may voluntarily waive all or a portion of the administration fees otherwise
payable by a Portfolio in order to increase the net income available for
distribution to shareholders.
DISTRIBUTOR
Trust Shares in each Portfolio are sold continuously by the
Distributor, BISYS Fund Services, an affiliate of the Administrator. The
Distributor is a registered broker-dealer with principal offices at 3435 Stelzer
Road, Columbus, Ohio 43219.
ADMINISTRATIVE SERVICES PLAN
The Fund has adopted an Administrative Services Plan with respect to
the Trust Shares of the Portfolios. Pursuant to the Administrative Services
Plan, Trust Shares are sold to banks and
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other financial institutions (which may include Mercantile or its affiliated or
correspondent banks) acting on behalf of their qualified accounts (such
financial institutions collectively, the "Service Organizations") which agree to
provide certain shareholder administrative services for their clients or account
holders (collectively, the "customers") who are the beneficial owners of such
Shares. The holders of Trust Shares bear their pro rata portion of the fees
which may be paid to Service Organizations for such services at an annual rate
of up to .25%, for the Money Market Portfolios, of the average daily net assets
of a Portfolio's Trust Shares owned beneficially by a Service Organization's
customers.
SERVICE ORGANIZATIONS
The servicing agreements adopted under the Administrative Services Plan
(the "Servicing Agreements") require the Service Organizations receiving such
compensation (which may include Mercantile and its affiliates) to perform
certain services, including providing administrative services with respect to
the beneficial owners of Trust Shares of a Portfolio, such as establishing and
maintaining accounts and records for their customers who invest in such Shares,
assisting customers in processing purchase, exchange and redemption requests,
and responding to customer inquiries concerning their investments.
Under the Servicing Agreements and upon notice to the Fund, a Service
Organization may subcontract with one or more entities for the performance of
certain services provided under its Servicing Agreements with the Fund. Such
Service Organization shall be as fully responsible to the Fund for the acts or
omissions of any sub-contractor as it would be for its own acts or omissions.
The fees payable to any sub-contractor are paid by the Service Organization out
of the fees it receives from the Fund.
The Fund understands that Service Organizations providing such
administrative services may also charge fees to their customers beneficially
owning such Shares. These fees would be in addition to any amounts which may be
received by such Service Organization under its Servicing Agreement with the
Fund. The Fund's Servicing Agreements require a Service Organization to disclose
to its customers any compensation payable to the Service Organization by a
Portfolio and any other compensation payable by its customers in connection with
their investment in such Shares. Customers of such Service Organizations
receiving servicing fees should read this Prospectus in light of the terms
governing their accounts with their Service Organization.
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CUSTODIAN AND TRANSFER AGENT
Mercantile Bank National Association, an affiliate of the Fund and a
wholly-owned subsidiary of Mercantile Bancorporation, Inc., with principal
offices located at One Mercantile Center, 8th and Locust Streets, St. Louis,
Missouri 63101, serves as Custodian of each Portfolio's assets. BISYS Fund
Services Ohio, Inc. also serves as the Fund's transfer agent and dividend
disbursing agent. Its address is 3435 Stelzer Road, Columbus, Ohio 43219.
REGULATORY MATTERS
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any affiliate
thereof from sponsoring, organizing, or controlling the Shares of a registered,
open-end investment company continuously engaged in the issuance of its Shares,
and prohibit banks generally from issuing, underwriting, selling, or
distributing securities such as Shares of the Portfolios. Such banking laws and
regulations do not prohibit such a holding company or affiliate, or banks, from
acting as investment adviser, transfer agent, or custodian to such an investment
company, or from purchasing Shares of such a company as agent for and upon the
order of customers. Mercantile, MVA, Service Organizations that are banks or
bank affiliates, and broker-dealers that are bank affiliates are subject to such
laws and regulations, but believe they may perform the services for the
Portfolios contemplated by their respective agreements, this Prospectus and the
Statement of Additional Information without violating applicable banking laws
and regulations. In addition, state securities laws on this issue may differ
from the interpretation of federal laws expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
Should future legislative, judicial, or administrative action prohibit
or restrict the activities of such companies in connection with the provision of
services on behalf of the Portfolios and the shareholders, the Fund might be
required to alter materially or discontinue its arrangements with such companies
and change its method of operation. It is not expected that investors would
suffer any adverse financial consequences as a result of any of these
occurrences.
If current restrictions preventing a bank from legally sponsoring,
organizing, controlling, or distributing Shares of an investment company were
relaxed, Mercantile, or an affiliate of Mercantile, would consider the
possibility of offering to perform additional services for the Portfolios. It is
not possible, of course, to predict whether or in what form such legislation
might
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be enacted or the terms upon which Mercantile, or such an affiliate, might offer
to provide such services.
Conflict of interest restrictions may apply to the receipt of
compensation paid pursuant to a Servicing Agreement by the Portfolios to a
financial intermediary in connection with the investment of fiduciary funds in a
Portfolio's Shares. Institutions, including banks regulated by the Comptroller
of the Currency and investment advisers and other money managers subject to the
jurisdiction of the SEC, the Department of Labor or state securities
commissions, should consult legal counsel before entering into Servicing
Agreements.
EXPENSES
Except as noted above and in the Statement of Additional Information
under "Investment Advisory and Administrative Contracts" and "Custodian and
Transfer Agent," the Fund's service contractors bear all expenses in connection
with the performance of their services, except that the Distributor is
compensated pursuant to the Distribution and Services Plans (as described below
under "Other Information Concerning the Fund and Its Shares"). Expenses are
deducted from the total income of each Portfolio before dividends and
distributions are paid. These expenses include, but are not limited to, fees
paid to the Adviser and Administrator, transfer agency fees, fees and expenses
of officers and directors who are not affiliated with the Adviser or the
Distributor, taxes, interest, legal fees, custodian fees, auditing fees, 12b-1
fees, servicing fees, certain fees and expenses in registering and qualifying a
Portfolio and its Shares for distribution under federal and state securities
laws, costs of preparing and printing prospectuses and statements of additional
information for regulatory purposes and for distribution to existing
shareholders, the expense of reports to shareholders, shareholders' meetings and
proxy solicitations, fidelity bond and directors and officers liability
insurance premiums, the expense of using independent pricing services and other
expenses which are not expressly assumed by the Adviser, Distributor or
Administrator under their respective agreements with the Fund. The Fund also
pays for brokerage fees, commissions and other transaction charges, if any, in
connection with the purchase and sale of portfolio securities. Any general
expenses of the Fund that are not readily identifiable as belonging to a
particular Portfolio will be allocated among all Portfolios by or under the
direction of the Board of Directors in a manner the Board determines to be fair
and equitable. Any expenses relating only to a particular class of Shares within
a Portfolio will be borne solely by such class. See "Certain Financial
Information" and "Management of the Fund" above for additional information
regarding expenses of each Portfolio.
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OTHER INFORMATION CONCERNING
THE FUND AND ITS SHARES
DESCRIPTION OF SHARES
The Fund was organized as a Maryland corporation on September 9, 1982
and is a mutual fund of the type known as an "open-end management investment
company". The Fund's principal office is located at 3435 Stelzer Road, Columbus,
Ohio 43219.
The Fund's Charter authorizes the Board of Directors to issue up to
twenty billion full and fractional shares of common stock, and to classify and
reclassify any unauthorized and unissued shares into one or more classes of
shares. The Board of Directors may similarly classify or reclassify any class of
shares into one or more series.
Pursuant to such authority, the Board of Directors has authorized the
issuance of the following series of shares representing interests in the
Portfolios, each of which (except the Tax-Exempt Money Market Portfolio) is
classified as a diversified company under the 1940 Act: 1 billion Trust Shares,
300 million Institutional Shares, 2 billion S Shares and 100 million Investor A
Shares, representing interests in the Treasury Money Market Portfolio; 1.8
billion Trust Shares, 300 million Institutional Shares, 2 billion S Shares, 550
million Investor A Shares and 50 million Investor B Shares, representing
interests in the Money Market Portfolio; and 300 million Trust Shares, 2 billion
S Shares and 50 million Investor A Shares, representing interests in the
Tax-Exempt Money Market Portfolio. Institutional Shares, S Shares, Investor A
and/or Investor B Shares of the Portfolios are described in separate
prospectuses which are available from the Distributor at the telephone number on
the cover of this Prospectus. Shares in the Portfolios will be issued without
Share certificates.
The Trust Shares of the Portfolios are described in this Prospectus.
The Portfolios also offer S Shares and Investor A Shares and, in addition, each
Portfolio except the Tax-Exempt Money Market Portfolio offers Institutional
Shares and the Money Market Portfolio offers Investor B Shares. Institutional
Shares of the Portfolios are offered to financial institutions acting on behalf
of discretionary and non-discretionary accounts for which they do not receive
account-level asset-based management fees. S Shares are offered to customers who
purchase such Shares through cash management services, such as a sweep account,
offered by Mercantile, any of its banking affiliates, and certain other
financial service organizations, such as banks or broker-dealers. Institutional
Shares and S Shares are sold without a sales charge. Investor A Shares of the
Portfolios are sold without a sales charge through selected broker/dealers and
other financial intermediaries to individual or institutional customers.
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<PAGE> 154
Investor B Shares of the Money Market Portfolio, which are sold with a maximum
5.0% contingent deferred sales load, are available for purchase only by those
investors participating in the ARCH Asset Adviser Program. Otherwise, Investor B
Shares of the Money Market Portfolio are available only to the holders of
Investor B Shares of another portfolio offered by the Fund who wish to exchange
their Investor B Shares of such other portfolio for Investor B Shares of the
Money Market Portfolio. Trust Shares, Institutional Shares, S Shares, Investor A
Shares and Investor B Shares bear their pro rata portion of all operating
expenses paid by a Portfolio, except that Trust Shares and Institutional Shares
bear all payments under the Portfolio's respective Administrative Services Plans
adopted for such Shares and S Shares, Investor A Shares and Investor B Shares
bear all payments under the Portfolio's respective Distribution and Services
Plans adopted for such Shares. In addition, Institutional Shares of a Portfolio
bear the expense of certain sub-transfer agency fees.
Payments under the Administrative Services Plans for Institutional
Shares are made to Service Organizations for administrative services provided to
the Service Organizations' clients or account holders who are the beneficial
owners of Institutional Shares. Payments under the Administrative Services Plans
may not exceed .25% (on an annual basis) of the average daily net asset value of
outstanding Institutional Shares of the Money Market Portfolios.
Payments under the Distribution and Services Plans for S Shares,
Investor A Shares and Investor B Shares are made to (i) the Distributor or
another person for providing distribution assistance and assuming certain
related expenses, and (ii) Service Organizations for administrative services
provided to the Service Organizations' clients or account holders who are the
beneficial owners of Investor A Shares. Payments under the Distribution and
Services Plan for S Shares may not exceed 1.00% (on an annual basis) of the
average daily net asset value of the Portfolios' outstanding S Shares. Payments
under the Distribution and Services Plan for Investor A Shares may not exceed
.25% (on an annual basis) of the average daily net asset value of outstanding
Investor A Shares of the Portfolios. Payments under the Distribution and
Services Plan for Investor B Shares may not exceed 1.00% (on an annual basis) of
the average daily net asset value of the Money Market Portfolio's outstanding
Investor B Shares. Distribution payments made under the Distribution and
Services Plans are subject to the requirements of Rule 12b-1 under the 1940 Act.
The Fund offers various services and privileges in connection with
Investor A Shares and/or Investor B Shares of a Portfolio that are not offered
in connection with the Portfolio's Trust Shares, Institutional Shares or S
Shares, including an automatic investment program and an automatic withdrawal
plan.
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<PAGE> 155
Each class of Shares also offers different exchange privileges. Investor B
Shares convert automatically into Investor A Shares eight years after the
beginning of the calendar month in which the Shares were purchased.
Shareholders are entitled to one vote for each full Share held and
proportionate fractional votes for fractional Shares held. Shares of all
Portfolios will vote together and not by class unless otherwise required by law
or permitted by the Board of Directors. All shareholders of a particular
Portfolio will vote together as a single class on matters relating to the
Portfolio's investment advisory agreement and investment objective and
fundamental policies. Only holders of Trust Shares, however, will vote on
matters relating to the Administrative Services Plan for Trust Shares and only
holders of Institutional Shares will vote on matters pertaining to the
Administrative Services Plan for Institutional Shares. Similarly, only holders
of S Shares will vote on matters pertaining to the Distribution and Services
Plan for S Shares , only holders of Investor A Shares will vote on matters
pertaining to the Distribution and Services Plan for Investor A Shares and only
holders of Investor B Shares will vote on matters pertaining to the Distribution
and Services Plan for Investor B Shares, and
The Fund is not required, and currently does not intend, to hold annual
meetings except as required by the 1940 Act or other applicable law. Upon the
written request of the holders of 10% or more of the outstanding Shares, the
Fund will call a special meeting to vote on the question of removal of a
director.
Shares of the Portfolios have noncumulative voting rights and,
accordingly, the holders of more than 50% of the Fund's outstanding Shares
(irrespective of Portfolio or class) may elect all of the Directors. Shares have
no preemptive rights and only such conversion and exchange rights as the Board
may grant in its discretion. When issued for payment as described in this
Prospectus, Shares will be fully paid and nonassessable.
MISCELLANEOUS
As used in this Prospectus, a "vote of a majority of the outstanding
Shares" of a Portfolio means, with respect to the approval of an investment
advisory agreement or a change in an investment objective or fundamental
investment policy, the affirmative vote of the lesser of (a) more than 50% of
the outstanding Shares of such Portfolio (irrespective of class), or (b) 67% or
more of the Shares of such Portfolio (irrespective of class) present at a
meeting if more than 50% of the outstanding Shares of such Portfolio are
represented at the meeting in person or by proxy.
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<PAGE> 156
As of _________, 1998, Mercantile and its affiliates possessed, of
record on behalf of their underlying customer accounts, voting or investment
power with respect to more than 25% of the Fund's outstanding Shares. Therefore,
Mercantile may be deemed to be a controlling person of the Fund within the
meaning of the 1940 Act.
Inquiries regarding the Portfolios may be directed to the Fund at
1-800-452-4015.
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<PAGE> 157
NO PERSON HAS BEEN AUTHORIZED THE ARCH
TO GIVE ANY INFORMATION OR TO MAKE FUND(R), INC.
ANY REPRESENTATIONS NOT CONTAINED
IN THIS PROSPECTUS, OR IN THE TREASURY MONEY
PORTFOLIOS' STATEMENT OF ADDITIONAL MARKET PORTFOLIO
INFORMATION INCORPORATED HEREIN BY
REFERENCE, IN CONNECTION WITH THE MONEY MARKET
OFFERING MADE BY THIS PROSPECTUS AND, PORTFOLIO
IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED TAX-EXEMPT
UPON AS HAVING BEEN AUTHORIZED BY THE MONEY MARKET
PORTFOLIOS, THE FUND, OR THE PORTFOLIO
DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFERING BY THE
PORTFOLIOS, THE FUND OR THE DISTRIBUTOR
IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
-----------------
TRUST
TABLE OF CONTENTS SHARES
PAGE
----
Highlights...................................
Certain Financial Information................
Expense Summary for Trust Shares.............
Financial Highlights.........................
Investment Objectives, Policies
and Risk Considerations....................
Investment Limitations.......................
Pricing of Shares............................. [OLD LOGO]
How to Purchase and Redeem Shares............
Purchase of Shares..................
Exchanges...........................
Redemption of Shares................
Other Exchange or
Redemption Information............
Yields........................................ PROSPECTUS
Dividends and Distributions................... ___________, 1998
Taxes........................................
Management of the Fund.......................
Other Information Concerning
the Fund and Its Shares....................
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<PAGE> 158
Investment Adviser:
Mississippi Valley Advisors Inc.
a wholly-owned subsidiary of
Mercantile Bank National
Association
Distributor: BISYS Fund Services
-45-
<PAGE> 159
CROSS REFERENCE SHEET
(S Shares)
The ARCH Treasury Money Market Portfolio
The ARCH Money Market Portfolio
The ARCH Tax-Exempt Money Market Portfolio
<TABLE>
<CAPTION>
Form N-1A Part A Item
- ---------------------
Prospectus Caption
------------------
<C> <S> <C>
1. Cover Page.................................................... Cover Page
2. Synopsis...................................................... Expense Summary
for Trust Shares
3. Condensed Financial
Information................................................. Inapplicable
4. General Description
of Registrant............................................... Highlights;
Investment
Objectives, Policies
and Risk
Considerations;
Other Information
Concerning the Fund
and Its Shares
5. Management of the Fund........................................ Management of the
Fund
5A. Management's Discussion of
Fund Performance............................................ Inapplicable
6. Capital Stock and
Other Securities............................................ How to Purchase and
Redeem Shares;
Dividends
and Distributions;
Taxes; Other
Information
Concerning the Fund
and Its Shares
7. Purchase of Securities
Being Offered............................................... How to Purchase and
Redeem Shares
8. Redemption or Repurchase...................................... How to Purchase and
</TABLE>
<PAGE> 160
<TABLE>
<C> <S> <C>
Redeem Shares
9. Pending Legal Proceedings..................................... Inapplicable
</TABLE>
<PAGE> 161
THE ARCH FUND(R), INC.
THE ARCH TREASURY MONEY MARKET PORTFOLIO
THE ARCH MONEY MARKET PORTFOLIO
THE ARCH TAX-EXEMPT MONEY MARKET PORTFOLIO
S SHARES
The ARCH Fund, Inc. is an open-end, management investment company which
currently offers Shares in eighteen investment portfolios. This Prospectus
describes the S Shares of the ARCH TREASURY MONEY MARKET, MONEY MARKET and
TAX-EXEMPT MONEY MARKET PORTFOLIOS. S Shares are offered to customers who
purchase such shares through cash management services, such as a sweep account
("Sweep Account") offered by Mercantile Bank National Association ("Mercantile")
or any of its banking affiliates, and certain other financial service
organizations, such as banks or broker-dealers ("Service Organizations"). A
Sweep Account combines a deposit account (the "Transaction Account") with a
daily sweep of balances to or from the Treasury Money Market, Money Market or
Tax-Exempt Money Market Portfolios' S Shares. Mercantile or Service
Organizations, as applicable, are responsible for providing persons investing in
S Shares through a Sweep Account with Sweep Account materials (the "Sweep
Materials") describing the various features and operations of the Sweep Account.
The Sweep Materials should be reviewed in conjunction with this Prospectus.
THE ARCH TREASURY MONEY MARKET PORTFOLIO'S investment objective is to
seek a high level of current income exempt from state income tax consistent with
liquidity and security of principal.
THE ARCH MONEY MARKET PORTFOLIO'S investment objective is to seek
current income with liquidity and stability of principal.
THE ARCH TAX-EXEMPT MONEY MARKET PORTFOLIO'S investment objective is to
seek as high a level of current interest income exempt from federal income tax
as is consistent with liquidity and stability of principal.
Mississippi Valley Advisors Inc. ("MVA" or the "Adviser"), a
wholly-owned subsidiary of Mercantile, acts as investment adviser
for the Portfolios. Mercantile serves as custodian; BISYS Fund
Services Ohio, Inc. (the "Administrator") serves as
administrator; and BISYS Fund Services (the "Distributor") serves
as sponsor and distributor.
<PAGE> 162
This Prospectus sets forth concisely certain information about the
Portfolios that prospective investors should know before investing. Investors
should read this Prospectus and retain it for future reference. Additional
information about the Portfolios, contained in a Statement of Additional
Information dated ____________, 1998, has been filed with the Securities and
Exchange Commission and is incorporated by reference in its entirety into this
Prospectus. An investor may obtain the Statement of Additional Information
without charge by writing the Fund at P.O. Box 78069, St. Louis, Missouri 63178
or by calling 1-800-452-4015.
AN INVESTMENT IN THE PORTFOLIOS IS NEITHER INSURED NOR GUARANTEED BY
THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT ANY PORTFOLIO WILL BE ABLE
TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
Portfolio Shares are not bank deposits, are not federally insured or
guaranteed by the U.S. Government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other governmental agency, and are not the
obligations of or guaranteed or otherwise supported by any bank. An investment
in the Portfolios involves investment risk, including the possible loss of
principal.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
_____________, 1998
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<PAGE> 163
HIGHLIGHTS
The ARCH Fund, Inc. (the "Fund") is an open-end, management investment
company (commonly known as a mutual fund) registered under the Investment
Company Act of 1940, as amended. The Fund currently offers investment
opportunities in eighteen investment portfolios. This Prospectus relates to
three of those portfolios: the ARCH TREASURY MONEY MARKET, MONEY MARKET and
TAX-EXEMPT MONEY MARKET PORTFOLIOS (the "Portfolios"). In addition, the Fund
offers investment opportunities in the ARCH U.S. Government Securities,
Intermediate Corporate Bond, Bond Index, Government & Corporate Bond,
Short-Intermediate Municipal, Missouri Tax-Exempt Bond, National Municipal Bond,
Equity Income, Equity Index, Growth & Income Equity, Growth Equity, Small Cap
Equity, Small Cap Equity Index, International Equity and Balanced Portfolios,
which are described in separate prospectuses. Each Portfolio represents a
separate pool of assets with different investment objectives and policies (as
described below under "Investment Objectives, Policies and Risk
Considerations"). MVA serves as adviser, Mercantile as custodian, BISYS Fund
Services Ohio, Inc. as administrator and BISYS Fund Services as sponsor and
distributor. For information on expenses, fee waivers, and services, see
"Certain Financial Information" and "Management of the Fund."
The following information generally describes the Portfolios and their
investment objectives. There can be no assurance that the Portfolios will be
able to achieve their respective investment objectives.
Each Portfolio seeks to maintain a net asset value of $1.00 per Share.
Each Portfolio's assets are invested in dollar-denominated debt securities with
remaining maturities of 397 days (13 months) or less as defined by the
Securities and Exchange Commission, and each Portfolio's dollar-weighted average
portfolio maturity will not exceed 90 days. All securities acquired by the
Portfolios will be determined by MVA, under guidelines approved by the Fund's
Board of Directors, to present minimal credit risks and to be rated in the
highest category (or deemed comparable in quality) at the time of purchase.
There can be no assurance that the Portfolios will be able to achieve a stable
net asset value on a continuous basis.
Investors should note that one or more of the Portfolios may, subject
to their investment policies and limitations, purchase variable and floating
rate instruments, enter into repurchase agreements and reverse repurchase
agreements, lend securities, acquire certain U.S. dollar-denominated instruments
of foreign issuers, and make limited investments in illiquid securities and
securities issued by other investment companies. These investment practices
involve investment risks of varying
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<PAGE> 164
degrees. For example, the absence of a secondary market for a particular
variable or floating rate instrument could make it difficult for a Portfolio to
dispose of an instrument if the issuer were to default on its payment
obligation. Default by a counterparty to a repurchase agreement or securities
lending transaction could expose a Portfolio to loss because of adverse market
action or possible delay in disposing of the underlying collateral. Reverse
repurchase agreements are subject to the risk that the market value of the
securities sold by a Portfolio will decline below the repurchase price which the
Portfolio is obligated to pay. Foreign securities entail certain inherent risks,
such as future political and economic developments and the adoption of foreign
government restrictions, that might adversely affect payment of principal and
interest. The Tax-Exempt Money Market Portfolio may, under certain conditions,
make limited investments in securities the income from which may be subject to
federal income tax. See "Investment Objectives, Policies and Risk
Considerations" below and the Statement of Additional Information under
"Investment Objectives and Policies."
The Fund offers investors the opportunity to invest in a variety of
professionally managed investments without having to become involved with
detailed management, accounting and safekeeping procedures normally related to
direct investments in securities. The Portfolios also offer the economic
advantages of block trading in securities and the availability of a family of
eighteen mutual funds should an investor's investment goals change.
For information on purchasing or redeeming S Shares of the Portfolios,
please see "How to Purchase and Redeem Shares" below.
-4-
<PAGE> 165
CERTAIN FINANCIAL INFORMATION
Shares of the Money Market Portfolio have been classified into five
classes of Shares -- Trust Shares, Institutional Shares, S Shares, Investor A
Shares and Investor B Shares. Shares of the Treasury Money Market Portfolio have
been classified into four classes of Shares -- Trust Shares, Institutional
Shares, S Shares and Investor A Shares. Shares of the Tax-Exempt Money Market
have been classified into three classes of Shares -- Trust Shares, S Shares and
Investor A Shares. Shares of each class in a Portfolio represent equal, pro rata
interests in the investments held by that Portfolio and are identical in all
respects, except that Shares of each class bear separate distribution and/or
shareholder administrative servicing fees and certain other operating expenses,
and enjoy certain exclusive voting rights on matters relating to these fees.
(See "Other Information Concerning the Fund and Its Shares," "Management of the
Fund --Distribution and Services Plan," and "Management of the Fund --Custodian
and Transfer Agent" below.) As a result of payments for distribution and/or
shareholder administrative servicing fees and certain other operating expenses
that may be made in differing amounts, the net investment income of Trust
Shares, Institutional Shares, S Shares, Investor A Shares and Investor B Shares
in a Portfolio can be expected, at any given time, to be different.
The Tax-Exempt Money Market Portfolio commenced operations on July 10,
1986 as a separate investment portfolio (the "Predecessor Tax-Exempt Money
Market Portfolio") of The ARCH Tax-Exempt Trust (the "Trust"), which was
organized as a Massachusetts business trust. On October 2, 1995, the Predecessor
Tax-Exempt Money Market Portfolio was reorganized as a new portfolio of the
Fund. Prior to the reorganization, the Predecessor Tax-Exempt Money Market
Portfolio offered and sold shares of beneficial interest that were similar to
the Fund's Trust Shares and Investor A Shares.
-5-
<PAGE> 166
EXPENSE SUMMARY FOR S SHARES
<TABLE>
<CAPTION>
TREASURY TAX-EXEMPT
MONEY MONEY MONEY
MARKET MARKET MARKET
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
<S> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING
EXPENSES
(as a percentage of average
net assets)
Investment Advisory Fees (net
of fee waivers)(1)..................................... .__% .__% .__%
12b-1 Fees ..............................................
Other Expenses (including
administration fees
and other expenses)
(net of fee waivers and
expense reimbursements)(2,3)........................... .__% .__% .__%
Total Portfolio Operating
Expenses (net of fee waivers
and expense reimbursements)(3)......................... . % . % . %
=== === ===
</TABLE>
- ----------
1 Without fee waivers, investment advisory fees would be .40%, .40% and .40%
for the Treasury Money Market, Money Market and Tax-Exempt Money Market
Portfolios, respectively.
2 Without fee waivers, administration fees would be .10% for the
Tax-Exempt Money Market Portfolio and .20% for each other Portfolio.
3 Without fee waivers and/or expense reimbursements, Other Expenses would
be ___%, ___% and ___% and Total Portfolio Operating Expenses would be
___%, ___% and ___% for the Treasury Money Market, Money Market and
Tax-Exempt Money Market Portfolios, respectively.
-6-
<PAGE> 167
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming
(1) a 5% annual return and (2) redemption at the end of each period:
Treasury Money Market Portfolio................................. $ $ $ $
Money Market Portfolio.......................................... $ $ $ $
Tax-Exempt Money Market Portfolio............................... $ $ $ $
</TABLE>
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY
BE MORE OR LESS THAN THOSE SHOWN. Information about the actual performance of
the Portfolios is contained in the Fund's Annual Report to Shareholders dated
November 30, 1997 which may be obtained without charge by contacting the Fund at
the address or telephone number provided on page __ of this Prospectus.
The purpose of the foregoing tables is to assist in understanding the
various costs and expenses that an investor in a Portfolio's S Shares will bear
directly or indirectly. The table reflects the expenses which each Portfolio
expects to incur during the next twelve months on its S Shares. For more
complete descriptions of the various costs and expenses, see "Management of the
Fund" in this Prospectus and the Statement of Additional Information. The Tables
and Examples have not been audited by the Fund's independent auditors and do not
reflect any charges that may be imposed by financial institutions on their
customers.
INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS
Although management will use its best efforts to achieve the investment
objective of each Portfolio, there can be no assurance that it will be able to
do so. The investment objective of a Portfolio may not be changed without the
affirmative vote of a majority of the outstanding Shares of the Portfolio. The
Treasury Money Market, Money Market and Tax-Exempt Money Market Portfolios are
"money market" funds that invest in instruments with remaining maturities of 397
days or less (with certain exceptions) and with dollar-weighted average
portfolio maturities of 90 days or less, subject to the quality, diversification
and other requirements of Rule 2a-7 under the Investment Company Act of 1940, as
amended (the "1940 Act") and other rules of the Securities and Exchange
Commission (the "SEC").
THE TREASURY MONEY MARKET PORTFOLIO
The Treasury Money Market Portfolio's investment objective is to seek a
high level of current income exempt from state
-7-
<PAGE> 168
income tax consistent with liquidity and security of principal. In pursuing its
investment objective, the Portfolio invests in selected money market obligations
issued by the U.S. Government (or its agencies and instrumentalities) that are
guaranteed as to principal and interest by the U.S. Government, the interest on
which is generally exempt from state income tax. Securities that are generally
eligible for this exemption include those issued by the U.S. Treasury (bills,
certificates of indebtedness, notes and certain bonds) and certain U.S.
Government agencies and instrumentalities, including the General Services
Administration and Small Business Administration. Each investor should consult
his or her tax advisor to determine whether distributions from the Portfolio are
exempt from state income tax in the investor's home state. Under normal market
conditions, the Portfolio intends to invest substantially all (but not less than
65%) of its total assets in securities with the above characteristics and
(except to the extent discussed below) will not enter into repurchase agreements
or purchase any U.S. Government security that the Adviser believes is subject to
state income tax.
Under extraordinary circumstances, such as when appropriate exempt
securities are unavailable or pending investment, the Treasury Money Market
Portfolio may temporarily hold cash or invest in repurchase agreements
collateralized by U.S. Government securities, other U.S. Government agency or
instrumentality securities, securities of other investment companies that invest
in securities in which the Portfolio is permitted to invest, or cash
equivalents.
THE MONEY MARKET PORTFOLIO
The Money Market Portfolio's investment objective is to seek current
income with liquidity and stability of principal. In pursuing its investment
objective, the Portfolio invests substantially all of its assets in a broad
range of money market instruments. These instruments include obligations of the
U.S. Government, U.S. dollar-denominated foreign securities, obligations of U.S.
and foreign banks and savings and loan institutions and commercial obligations
that meet the applicable quality requirements described below.
The Money Market Portfolio will purchase only "First Tier Eligible
Securities" (as defined by the SEC) that present minimal credit risks as
determined by the Adviser pursuant to guidelines approved by the Fund's Board of
Directors. First Tier Eligible Securities consist of (i) securities that either
(a) have short-term debt ratings at the time of purchase in the highest rating
category by at least two unaffiliated nationally recognized statistical rating
organizations ("Rating Agencies") (or one Rating Agency if the security was
rated by only one Rating Agency), or (b) are issued by issuers with such
ratings, and (ii) certain securities that are unrated (including securities of
-8-
<PAGE> 169
issuers that have long-term but not short-term ratings) but are of comparable
quality as determined in accordance with guidelines approved by the Board of
Directors. The applicable ratings by Rating Agencies are described in Appendix A
to the Statement of Additional Information. The following descriptions
illustrate the types of instruments in which the Portfolio invests.
BANKING OBLIGATIONS. The Money Market Portfolio may purchase
obligations of issuers in the banking industry, such as certificates of deposit,
letters of credit, bankers' acceptances and time deposits, including U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions having total assets at the time of
purchase in excess of $1 billion. The Portfolio may invest in obligations of
foreign banks or foreign branches of U.S. banks in amounts not in excess of 25%
of its assets where the Adviser deems the instrument to present minimal credit
risks. See "Risk Factors --Risks Associated with Foreign Securities" below. The
Portfolio may also make interest-bearing savings deposits in commercial and
savings banks in amounts not in excess of 5% of the value of its total assets.
COMMERCIAL PAPER AND VARIABLE AND FLOATING RATE INSTRUMENTS. The Money
Market Portfolio may invest in commercial paper, including asset-backed
commercial paper representing interests in a pool of corporate receivables,
dollar-denominated obligations issued by domestic and foreign bank holding
companies, and corporate bonds that meet the quality and maturity requirements
described above. The Portfolio may also invest in variable or floating rate
notes that may have a stated maturity in excess of thirteen months but will, in
any event, permit the Portfolio to demand payment of the principal of the
instrument at least once every thirteen months upon no more than 30 days' notice
(unless the instrument is guaranteed by the U.S. Government or an agency or
instrumentality thereof). Such instruments may include variable amount master
demand notes, which are unsecured instruments that permit the indebtedness
thereunder to vary in addition to providing for periodic adjustments in the
interest rate. Unrated variable and floating rate instruments will be determined
by the Adviser (under the supervision of the Board of Directors) to be of
comparable quality at the time of purchase to First Tier Eligible Securities.
There may be no active secondary market in the instruments, which could make it
difficult for the Portfolio to dispose of an instrument in the event the issuer
were to default on its payment obligation or during periods that the Portfolio
could not exercise its demand rights. The Portfolio could, for these or other
reasons, suffer a loss with respect to such instruments. Variable and floating
rate instruments held by the Portfolio will be subject to the Portfolio's 10%
limitation on illiquid investments when the Portfolio may not demand payment of
the principal amount within seven days and a liquid trading market is absent.
-9-
<PAGE> 170
GOVERNMENT OBLIGATIONS. The Money Market Portfolio may invest in
obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities. In addition, the Portfolio may, when deemed appropriate by
the Adviser, invest in short-term obligations issued by state and local
governmental issuers that meet the quality requirements described above and, as
a result of the Tax Reform Act of 1986, carry yields that are competitive with
those of other types of money market instruments of comparable quality.
THE TAX-EXEMPT MONEY MARKET PORTFOLIO
The Tax-Exempt Money Market Portfolio's investment objective is to seek
as high a level of current interest income exempt from federal income tax as is
consistent with liquidity and stability of principal. The Portfolio seeks to
achieve its objective by investing substantially all of its assets in short-term
obligations issued by or on behalf of states, territories and possessions of the
United States, the District of Columbia and their respective political
subdivisions, agencies, instrumentalities and authorities the interest on which,
in the opinion of bond counsel or counsel to the issuer, is exempt from regular
federal income tax (collectively, "Municipal Obligations"). The Portfolio may
also hold tax-exempt derivative securities such as tender option bonds,
participations, beneficial interests in trusts and partnership interests.
The Tax-Exempt Money Market Portfolio will purchase only "First Tier
Eligible Securities" (as defined by the SEC) that present minimal credit risks
as determined by the Adviser pursuant to guidelines approved by the Board of
Directors. See "The Money Market Portfolio" above for a description of "First
Tier Eligible Securities."
Dividends paid by the Tax-Exempt Money Market Portfolio that are
derived from interest attributable to tax-exempt obligations of a particular
state and its political subdivisions as well as of certain other governmental
issuers including Puerto Rico, Guam and the Virgin Islands may be exempt from
federal and state income tax. Dividends derived from interest on obligations of
other governmental issuers are exempt from federal income tax but may be subject
to state income tax.
As a matter of fundamental policy, under normal market conditions or
when the Adviser deems suitable tax-exempt Municipal Obligations to be
available, at least 80% of the Tax-Exempt Money Market Portfolio's total assets
will be invested in Municipal Obligations. The Portfolio may hold uninvested
cash reserves pending investment during temporary defensive periods or if, in
the opinion of the Adviser, suitable Municipal Obligations are unavailable.
There is no percentage limitation on the amount
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of assets which may be held uninvested during temporary defensive
periods.
In addition, during temporary defensive periods or if, in the opinion
of the Adviser, suitable Municipal Obligations are unavailable and subject to
the quality standards described above, the Tax-Exempt Money Market Portfolio may
invest up to 20% of its assets in money market instruments, the income from
which is subject to federal income tax. Such instruments may include obligations
of the U.S. Government, its agencies or instrumentalities; debt securities
(including commercial paper) of issuers having, at the time of purchase, a
quality rating within the highest rating category by a Rating Agency;
certificates of deposit or bankers' acceptances of domestic branches of U.S.
banks with total assets at the time of purchase of $1 billion or more; or
repurchase agreements with respect to such obligations.
OTHER APPLICABLE POLICIES
The investment policies described in this Prospectus are among those
which one or more of the Portfolios have the ability to utilize. Some of these
policies may be employed on a regular basis; others may not be used at all.
Accordingly, reference to any particular policy, method or technique carries no
implication that it will be utilized or, if it is, that it will be successful.
U.S. GOVERNMENT OBLIGATIONS. Securities issued or guaranteed by the
U.S. Government, its agencies and instrumentalities have historically involved
little risk of loss of principal if held to maturity. However, due to
fluctuations in interest rates, the market value of such securities may vary
during the period a shareholder owns Shares of a Portfolio. Certain U.S.
Government securities held by the Portfolios may have remaining maturities
exceeding thirteen months if such securities provide for adjustments in their
interest rates no less frequently than every thirteen months. Examples of the
types of U.S. Government obligations that may be held by the Portfolios, subject
to their respective investment objectives and policies, include, in addition to
U.S. Treasury bonds, notes and bills, the obligations of Federal Home Loan
Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Government National Mortgage Association
("GNMA"), Federal National Mortgage Association ("FNMA"), Federal Home Loan
Mortgage Corporation, General Services Administration, Student Loan Marketing
Association, Central Bank for Cooperatives, Federal Intermediate Credit Banks,
Resolution Trust Corporation, and Maritime Administration. Obligations of
certain agencies and instrumentalities of the U.S. Government, such as those of
GNMA,
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are supported by the full faith and credit of the U.S. Treasury; others, such as
the Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of FNMA, are supported
by the discretionary authority of the U.S. Government to purchase the agency's
obligations; still others such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. There is
no assurance that the U.S. Government would provide financial support to U.S.
Government-sponsored instrumentalities if it is not obligated to do so by law.
STRIPPED GOVERNMENT SECURITIES. To the extent consistent with their
respective investment policies, each Portfolio may invest in bills, notes and
bonds (including zero coupon bonds) issued by the U.S. Treasury. In addition,
the Treasury Money Market and Money Market Portfolios may also invest in
"stripped" U.S. Treasury obligations offered under the Separate Trading of
Registered Interest and Principal Securities ("STRIPS") program or Coupon Under
Bank-Entry Safekeeping ("CUBES") program or other stripped securities issued
directly by agencies or instrumentalities of the U.S. Government (and, with
respect to the Treasury Money Market Portfolio only, that are also guaranteed as
to principal and interest by the U.S. Government). STRIPS and CUBES represent
either future interest or principal payments and are direct obligations of the
U.S. Government that clear through the Federal Reserve System. The Money Market
Portfolio may also purchase U.S. Treasury and agency securities that are
stripped by brokerage firms and custodian banks and sold under proprietary
names. These stripped securities are resold in custodial receipt programs with a
number of different names (such as TIGRs and CATS) and are not considered U.S.
Government securities for purposes of the 1940 Act.
Stripped securities are issued at a discount to their "face value" and
may exhibit greater price volatility than ordinary debt securities because of
the manner in which their principal and interest are returned to investors. The
Adviser will consider the liquidity needs of a Portfolio when any investments in
zero coupon obligations or other principal-only obligations are made.
SECURITIES LENDING. To increase return or offset expenses, the Treasury
Money Market and Money Market Portfolios may, from time to time, lend their
portfolio securities to broker-dealers, banks or institutional borrowers
pursuant to agreements requiring that the loans be continuously secured by
collateral equal at all times in value to at least the market value of the
securities loaned. Collateral for such loans may include cash, securities of the
U.S. Government, or its agencies or instrumentalities, or an irrevocable letter
of credit issued by a bank that has at least $1.5 billion in total assets, or
any combination thereof. The collateral must be valued daily and, should the
market value
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of the loaned securities increase, the borrower must furnish additional
collateral to the lending Portfolio. By lending its securities, a Portfolio can
increase its income by continuing to receive interest on the loaned securities
as well as by either investing the cash collateral in short-term instruments or
obtaining yield in the form of interest paid by the borrower when U.S.
Government securities are used as collateral. In accordance with current SEC
policies, each Portfolio is currently limiting its securities lending to 33-1/3%
of the value of its total assets (including the value of the collateral for the
loans) at the time of the loan. Loans are subject to termination by a Portfolio
or a borrower at any time.
REPURCHASE AGREEMENTS. Under certain circumstances described above and
subject to their respective investment policies, each Portfolio may agree to
purchase U.S. Government securities from financial institutions such as banks
and broker-dealers, subject to the seller's agreement to repurchase them at a
mutually agreed-upon date and price ("repurchase agreements"). A Portfolio will
enter into repurchase agreements only with financial institutions such as banks
and broker-dealers that the Adviser believes to be creditworthy. During the term
of any repurchase agreement, the Adviser will continue to monitor the
creditworthiness of the seller and will require the seller to maintain the value
of the securities subject to the agreement at not less than 102% of the
repurchase price (including accrued interest). Default by a seller could expose
a Portfolio to possible loss because of adverse market action or possible delay
in disposing of the underlying obligations. Because of the seller's repurchase
obligations, the securities subject to repurchase agreements do not have
maturity limitations. Although no Portfolio presently intends to enter into
repurchase agreements providing for settlement in more than seven days, each
Portfolio does have the authority to do so subject to its limitation on the
purchase of illiquid securities described below. Repurchase agreements are
considered to be loans under the 1940 Act. The income on repurchase agreements
is taxable. See "Taxes" below.
REVERSE REPURCHASE AGREEMENTS. Subject to its investment policies, the
Money Market Portfolio may borrow funds for temporary purposes by entering into
reverse repurchase agreements in accordance with its investment limitations
below. Pursuant to such agreements, the Portfolio would sell portfolio
securities to financial institutions such as banks and broker-dealers and agree
to repurchase them at an agreed upon date and price. Reverse repurchase
agreements involve the risk that the market value of the securities sold by the
Portfolio may decline below the repurchase price which the Portfolio is
obligated to pay. Reverse repurchase agreements are considered to be borrowings
by the Portfolio under the 1940 Act.
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SECURITIES OF OTHER INVESTMENT COMPANIES. Under certain circumstances
described above and subject to their respective investment policies and
limitations, each Portfolio may invest in securities issued by other investment
companies which invest in securities in which the Portfolio is permitted to
invest and which determine their net asset value per Share based on the
amortized cost or penny-rounding method. Each Portfolio may invest in securities
of other investment companies within the limits prescribed by the 1940 Act,
which include, subject to certain exceptions, a prohibition on a Portfolio
investing more than 10% of the value of its total assets in such securities.
Investments in other investment companies will cause a Portfolio (and,
indirectly, the Portfolio's shareholders) to bear proportionately the cost
incurred in connection with the operations of such other investment companies.
In addition, investment companies in which a Portfolio may invest may impose a
sales or distribution charge in connection with the purchase or redemption of
their shares as well as other types of commissions or charges (no sales charge
will be paid by the Tax-Exempt Money Market Portfolio in connection with such
investments). Such charges will be payable by a Portfolio and, therefore, will
be borne indirectly by its shareholders. To the extent that a Portfolio may
invest in securities of other investment companies, the Fund and the Adviser
will ensure that there will be no duplication of advisory fees. If necessary to
accomplish this, the Adviser will rebate its advisory fee to the Fund. See the
Statement of Additional Information under "Investment Objectives and Policies --
Securities of Other Investment Companies." The income on securities of other
investment companies may be taxable to investors at the state or local level.
See "Taxes" below.
WHEN-ISSUED PURCHASES AND FORWARD COMMITMENTS. Each Portfolio may
purchase securities on a "when-issued" basis and may purchase or sell securities
on a "forward commitment" basis. These transactions involve a commitment by a
Portfolio to purchase or sell securities at a stated price and yield with
settlement beyond the normal settlement date. Such transactions permit a
Portfolio to lock-in a price or yield on a security, regardless of future
changes in interest rates. When-issued purchases and forward commitment
transactions involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date, or if the value of the security to be
sold increases prior to the settlement date. Each Portfolio expects that these
transactions will not exceed 25% of the value of its total assets (at the time
of purchase) under normal market conditions. No Portfolio intends to engage in
such transactions for speculative purposes but only for the purpose of acquiring
portfolio securities.
TYPES OF MUNICIPAL OBLIGATIONS. The two principal classifications of
Municipal Obligations that may be held by the Tax-Exempt Money Market Portfolio
are "general obligation"
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securities and "revenue" securities. General obligation securities are secured
by the issuer's pledge of its full faith, credit and taxing power for the
payment of principal and interest. Revenue securities are payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise tax or other specific revenue
source such as the user of the facility being financed. Revenue securities
include private activity bonds which are not payable from the unrestricted
revenues of the issuer. Consequently, the credit quality of private activity
bonds is usually directly related to the credit standing of the corporate user
of the facility involved. Municipal Obligations may also include "moral
obligation" bonds, which are normally issued by special purpose public
authorities. If the issuer of a moral obligation bond is unable to meet its debt
service obligations from current revenues, it may draw on a reserve fund, the
restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer.
Municipal Obligations include debt obligations issued by governmental
entities to obtain funds for various public purposes, including the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses and the extension of loans to public
institutions and facilities. Private activity bonds issued by or on behalf of
public authorities to finance various privately operated facilities are
considered Municipal Obligations. Interest on private activity bonds, although
free of regular federal income tax, may be an item of tax preference for
purposes of the federal alternative minimum tax.
The Tax-Exempt Money Market Portfolio may acquire zero coupon
obligations, which may have greater price volatility than coupon obligations and
which will not result in payment of interest until maturity. Also included
within the general category of Municipal Obligations are participation
certificates in leases, installment purchase contracts, or conditional sales
contracts ("lease obligations") entered into by state or political subdivisions
to finance the acquisition or construction of equipment, land, or facilities.
Although lease obligations do not constitute general obligations of the issuer
for which the lessee's unlimited taxing power is pledged, certain lease
obligations are backed by the lessee's covenant to appropriate money to make the
lease obligation payments. However, under certain lease obligations, the lessee
has no obligation to make these payments in future years unless money is
appropriated on a yearly basis. Although "non-appropriation" lease obligations
are secured by the leased property, disposition of the property in the event of
foreclosure might prove difficult. These securities represent a relatively new
type of financing and may not be as marketable as more conventional securities.
To the extent these
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securities are illiquid, they are subject to the Portfolio's applicable
limitation on illiquid securities described below.
VARIABLE AND FLOATING RATE MUNICIPAL OBLIGATIONS. Municipal Obligations
purchased by the Tax-Exempt Money Market Portfolio may include rated or unrated
variable and floating rate instruments, including variable rate master demand
notes that permit the indebtedness thereunder to vary in addition to providing
for periodic adjustments in the interest rate. Unrated instruments purchased by
the Portfolio will be determined by the Adviser to be of comparable quality at
the time of purchase to rated instruments that may be purchased. The absence of
an active secondary market for a particular variable or floating rate
instrument, however, could make it difficult for the Portfolio to dispose of an
instrument if the issuer were to default on its payment obligation. The
Tax-Exempt Money Market Portfolio could, for these or other reasons, suffer a
loss with respect to such instruments.
STAND-BY COMMITMENTS. The Tax-Exempt Money Market Portfolio may acquire
"stand-by commitments" with respect to Municipal Obligations held by it. Under a
stand-by commitment, a dealer agrees to purchase, at the Portfolio's option,
specified Municipal Obligations at a specified price. The Portfolio will acquire
stand-by commitments solely to facilitate portfolio liquidity and does not
intend to exercise its rights thereunder for trading purposes. The Portfolio
expects that stand-by commitments will generally be available without the
payment of any direct or indirect consideration. However, if necessary or
advisable, the Portfolio may pay for a stand-by commitment either separately in
cash or by paying a higher price for portfolio securities which are acquired
subject to the commitment (thus reducing the yield otherwise available for the
same securities). Stand-by commitments acquired by the Portfolio will be valued
at zero in determining the Portfolio's net asset value.
TAX-EXEMPT DERIVATIVES. The Tax-Exempt Money Market Portfolio may hold
tax-exempt derivatives which may be in the form of tender option bonds,
participations, beneficial interests in a trust or other forms. The Adviser
expects that less than 5% of the Portfolio's assets will be invested in such
securities during the current year. See the Statement of Additional Information
under "Investment Objectives and Policies - Tax-Exempt Derivatives."
FOREIGN SECURITIES. The Money Market Portfolio may acquire U.S.
dollar-denominated securities of foreign corporations and certain types of bank
instruments issued or supported by the credit of foreign banks or foreign
branches of domestic banks where the Adviser deems the investments to present
minimal credit risks. Investments made in foreign securities involve certain
inherent risks, such as future political and economic
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developments, the possible imposition of foreign withholding tax on the interest
income payable on such instruments, the possible establishment of foreign
controls, the possible seizure or nationalization of foreign deposits or assets,
or the adoption of other foreign government restrictions that might adversely
affect payment of interest or principal. In addition, foreign banks and foreign
branches of U.S. banks are subject to less stringent reserve requirements and to
different accounting, auditing, reporting, and recordkeeping standards than
those applicable to domestic branches of U.S. banks.
ILLIQUID SECURITIES. A Portfolio will not invest more than 10% of the
value of its net assets in illiquid securities. Repurchase agreements that do
not provide for settlement within seven days, time deposits maturing in more
than seven days, and securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but that may be purchased by institutional
buyers pursuant to SEC Rule 144A are subject to the applicable limit (unless the
Adviser, pursuant to guidelines established by the Board of Directors,
determines that a liquid market exists). The purchase of securities which can be
sold under Rule 144A could have the effect of increasing the level of
illiquidity in the Portfolios to the extent that qualified institutional buyers
become, for a time, uninterested in purchasing these restricted securities.
RISK FACTORS AND OTHER CONSIDERATIONS. The Tax-Exempt Money Market
Portfolio's ability to achieve its investment objective is dependent upon the
ability of issuers of Municipal Obligations to meet their continuing obligations
for the payment of principal and interest. Although the Tax-Exempt Money Market
Portfolio may invest 25% more of its net assets in (i) Municipal Obligations
whose issuers are in the same state, (ii) Municipal Obligations the interest on
which is paid solely from revenues of similar projects, (iii) private activity
bonds, it does not presently intend to do so unless, in the opinion of the
Adviser, the investment is warranted. To the extent that the Portfolio's assets
are invested in Municipal Obligations whose issuers are in the same state or
that are payable from the revenues of similar projects or in private activity
bonds, the Portfolio will be subject to the peculiar risks presented by the laws
and economic conditions relating to such states, projects and bonds to a greater
extent than it would be if its assets were not so invested. See "Investment
Objectives and Policies - Municipal Obligations" in the Statement of Additional
Information.
The Tax-Exempt Money Market Portfolio is classified as non-diversified
under the 1940 Act. Investment return on a non-diversified portfolio typically
is dependent upon the performance of a smaller number of securities relative to
the number held in a diversified portfolio. Consequently, the change in value of
any one security may affect the overall value of a non-
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diversified portfolio more than it would a diversified portfolio. In addition, a
non-diversified portfolio may be more susceptible to economic, political and
regulatory developments than a diversified investment portfolio with similar
objectives. The value of the Tax-Exempt Money Market Portfolio's securities can
be expected to vary inversely with changes in prevailing interest rates.
Municipal Obligations purchased by the Tax-Exempt Money Market
Portfolio may be backed by letters of credit or guarantees issued by domestic or
foreign banks and other financial institutions which are not subject to federal
deposit insurance. Adverse developments affecting the banking industry generally
or a particular bank or financial institution that has provided its credit or a
guarantee with respect to a Municipal Obligation held by the Portfolio could
have an adverse effect on the Portfolio's investment portfolio and the value of
its shares. Foreign letters of credit and guarantees involve certain risks in
addition to those of domestic obligations, including less stringent reserve
requirements and different accounting, auditing and recordkeeping requirements.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance, and opinions relating
to the validity and the tax-exempt status of payments received by the Portfolio
from tax-exempt derivatives are rendered by counsel to the respective sponsors
of such derivatives. The Portfolio and its Adviser will rely on such opinions
and will not review independently the underlying proceedings relating to the
issuance of Municipal Obligations, the creation of any tax-exempt derivative
securities, or the bases for such opinions.
INVESTMENT LIMITATIONS
Except as otherwise noted, each Portfolio's investment policies
discussed above are not fundamental and may be changed by the Fund's Board of
Directors without shareholder approval. However, each Portfolio also has in
place certain fundamental investment limitations, some of which are set forth
below, which may be changed only by a vote of a majority of the outstanding
Shares of a Portfolio. Other investment limitations that also cannot be changed
without a vote of shareholders are contained in the Statement of Additional
Information under "Investment Objectives and Policies."
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THE TREASURY MONEY MARKET AND MONEY MARKET PORTFOLIOS
A Portfolio may not:
1. Make loans, except that a Portfolio may purchase or hold
debt instruments in accordance with its investment objective and
policies, lend portfolio securities and enter into repurchase
agreements with respect to securities (together with any cash
collateral) that are consistent with the Portfolio's permitted
investments and that equal at all times at least 100% of the value of
the repurchase price.
2. Borrow money or issue senior securities, except that a
Portfolio may borrow from banks and the Money Market Portfolio may
enter into reverse repurchase agreements for temporary purposes in
amounts up to 10% of the value of its total assets at the time of such
borrowing; or mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of a
Portfolio's total assets at the time of such borrowing. A Portfolio
will not purchase securities while its borrowings (including reverse
repurchase agreements) are outstanding.
3. With respect to the Treasury Money Market Portfolio,
purchase securities other than obligations of the U.S. Government, its
agencies and instrumentalities, some of which may be subject to
repurchase agreements, except that the Portfolio may purchase
securities of other investment companies that seek to maintain a
constant net asset value per Share and that are permitted themselves
only to invest in securities which may be acquired by the Portfolio.
4. With respect to the Money Market Portfolio, purchase any
securities which would cause more than 25% of the value of the
Portfolio's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, domestic bank
certificates of deposit, bankers' acceptances and repurchase agreements
secured by domestic bank instruments or obligations of the U.S.
Government, its agencies or instrumentalities; (b) wholly-owned finance
companies will be considered to be in the industries of their parents
if their activities are primarily related to financing the activities
of the parents; and (c) utilities will be divided according to their
services, for example, gas, gas transmission, electric and gas,
electric and telephone will each be considered a separate industry.
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In accordance with current regulations of the SEC, the Money Market
Portfolio intends to limit investments in the securities of any single issuer
(other than securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities) to not more than 5% of the Portfolio's total assets at the
time of purchase, provided that the Portfolio may invest up to 25% of its total
assets in the securities of any one issuer for a period of up to three business
days. This intention is not, however, a fundamental policy of the Money Market
Portfolio. The Portfolio would have the ability to invest more than five percent
of its assets in any one issuer in accordance with its fundamental policy only
in the event that Rule 2a-7 of the 1940 Act is amended in the future.
THE TAX-EXEMPT MONEY MARKET PORTFOLIO
The Portfolio may not:
1. Purchase securities of any one issuer if, immediately after
and as a result of such purchase, more than 5% of the Portfolio's total
assets would be invested in the securities of such issuer, except that
(a) up to 50% of the Portfolio's total assets may be invested without
regard to this 5% limitation provided that no more than 25% of the
Portfolio's total assets are invested in the securities of any one
issuer and (b) this 5% limitation does not apply to securities issued
or guaranteed by the U.S. Government, its agencies or
instrumentalities. For purposes of this limitation, a security is
considered to be issued by the governmental entity (or entities) whose
assets and revenues back the security, or, with respect to an
industrial development bond that is backed only by the assets and
revenues of a non-governmental user, a security is considered to be
issued by such non-governmental user. In certain circumstances, the
guarantor of a guaranteed security may also be considered to be an
issuer in connection with such guarantee, except that a guarantee of a
security shall not be deemed to be a security issued by the guarantor
when the value of all securities issued and guaranteed by the
guarantor, and owned by the Portfolio, does not exceed 10% of the
Portfolio's total assets.
2. Borrow money or issue senior securities, except that the
Portfolio may borrow from banks for temporary defensive purposes in
amounts not in excess of 10% of its total assets at the time of such
borrowing; or mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of its total assets at the
time of such borrowing; or purchase securities while borrowings exceed
5% of the Portfolio's net assets. Securities held in escrow or separate
accounts in connection
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with the Portfolio's investment practices described in this Prospectus
or the Statement of Additional Information are not subject to this
limitation.
3. Under normal market conditions or when the Adviser deems
that suitable tax-exempt obligations are available, at least 80% of the
Portfolio's assets must be invested in obligations the interest on
which is exempt from federal income tax and stand-by commitments with
respect to such obligations.
Notwithstanding Investment Limitation No. 3, the Portfolio may invest
in securities of other investment companies that (a) invest in securities that
are substantially similar to those the Portfolio may acquire, and (b) distribute
income that is exempt from regular federal income tax.
The following additional investment policies with respect to the
Tax-Exempt Money Market Portfolio are not fundamental and may be changed by the
Board of Directors without shareholder approval:
The Portfolio may not purchase securities which are not
readily marketable, enter into repurchase agreements providing for
settlement in more than seven days after notice, or purchase other
illiquid securities if, as a result of such purchase, illiquid
securities would exceed 10% of the Portfolio's respective net assets.
The Tax-Exempt Money Market Portfolio has an operating policy to comply
with the requirements of Rule 2a-7 of the 1940 Act. To the extent that Rule 2a-7
is more restrictive than the Portfolio's fundamental limitations, the Portfolio
will operate in accordance with Rule 2a-7.
If a percentage limitation is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in value
in the Portfolio's securities will not constitute a violation of such
limitation.
PRICING OF SHARES
The Portfolios' respective net asset values per Share are determined by
the Administrator as of 12:00 noon (Eastern time) and as of the close of regular
trading hours on the New York Stock Exchange (the "Exchange") (currently, 4:00
p.m. Eastern time) on each weekday, with the exception of those holidays on
which the Exchange or the Federal Reserve Bank of St. Louis are closed (a
"Business Day"). Currently one or both of these institutions are closed on the
customary national business holidays of New Year's Day, Martin Luther King, Jr.
Day,
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Presidents' Day, Good Friday, Memorial Day (observed), Independence Day
(observed), Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day and
Christmas Day (observed).
Each Portfolio's assets are valued based upon the amortized cost
method. Although each Portfolio seeks to maintain its net asset value per Share
at $1.00, there can be no assurance that the net asset value per Share will not
vary. See the Statement of Additional Information under "Net Asset Value" for
further information.
The public offering price for each class of Shares of a Portfolio is
based upon net asset value per Share. A class will calculate its net asset value
per Share by adding the value of a Portfolio's investments, cash and other
assets attributable to the class, subtracting the Portfolio's liabilities
attributable to that class, and then dividing the result by the total number of
Shares in the class that are outstanding.
HOW TO PURCHASE AND REDEEM SHARES
PURCHASE OF SHARES
S Shares of the Portfolios are offered to customers of Mercantile, any
of its banking affiliates or Service Organizations that establish cash
management services, such as a Sweep Account with Mercantile, any of its banking
affiliates or a Service Organization. Each Sweep Account combines a Transaction
Account with a periodic sweep of balances to or from the Portfolios. Investors
may open a Sweep Account by completing and signing the appropriate Sweep
Materials. The Sweep Materials contain important information about the various
features and operations of the Sweep Account and should be reviewed in
conjunction with this Prospectus.
S Shares may be purchased on any Business Day by making a deposit into
your Transaction Account. On each Business Day that Mercantile, any of its
banking affiliates and a Service Organization is open for business, Mercantile,
any of its banking affiliates or a Service Organization computes the net amount
of all deposits, withdrawals, charges and credits made to and from a Transaction
Account in accordance with their Sweep Account procedures (the "Net Sweep
Amount"). If deposits and credits exceed withdrawals and charges, you authorize
Mercantile, any of its banking affiliates or a Service Organization, on your
behalf, to transmit a purchase order to the Portfolio designated in your Sweep
Account in the amount of that day's Net Sweep Amount in accordance with the
Sweep Account procedures of Mercantile, any of its banking affiliates or a
Service Organization. Your purchase order will be made effective and full and
fractional S Shares will be purchased at the net asset value per Share next
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determined after receipt by the Fund. It is the responsibility of Mercantile,
any of its banking affiliates or a Service Organization to transmit orders for
the purchases of S Shares by its customers to the Transfer Agent and deliver
required funds on a timely basis, in accordance with the procedures stated
above. Share purchases and redemptions executed through Mercantile, any of its
banking affiliates or a Service Organization are executed only on Business Days
that Mercantile, any of its banking affiliates or a Service Organization,
respectively, is open for business. Contact Mercantile, any of its banking
affiliates or your Service Organization for additional information about
Mercantile's, any of its banking affiliates', or the Service Organizations'
Sweep Account procedures.
REDEMPTION OF SHARES
If, on any Business Day that Mercantile, any of its banking affiliates
and the particular Service Organization are open for business, withdrawals and
charges to your Sweep Account, including without limitation check transactions,
exceed deposits and credits, Mercantile, any of its banking affiliates or the
particular Service Organization, as applicable, will transmit a redemption order
on your behalf to the Portfolio in the dollar amount of that day's Net Sweep
Amount. If your Sweep Account with Mercantile, any of its banking affiliates or
the particular Service Organization, as applicable, is closed as described in
the Sweep Materials, Mercantile, any of its banking affiliates or the particular
Service Organization, as applicable, will normally transmit a redemption request
on your behalf to the Portfolio for the balance of the S Shares of the Portfolio
held through your Sweep Account. Redemptions are effected by the Fund on a
Business Day at the net asset value per share next determined after receipt of
the redemption order by the Fund. It is the responsibility of Mercantile, any of
its banking affiliates or the particular Service Organization to transmit the
redemption order and credit its customer's Transaction Account with the
redemption proceeds on a timely basis. Mercantile, any of its banking affiliates
or the Service Organization may withhold redemption proceeds pending check
collection or processing or for other reasons all as set forth more fully in the
Sweep Materials.
OTHER REDEMPTION INFORMATION
The Fund will make payment for all Shares redeemed after receipt of a
redemption request in proper form, except as provided by the rules of the
Securities and Exchange Commission. The Fund may suspend the right of redemption
or postpone the date of payment upon redemption (as well as suspend or postpone
the recordation of the transfer of Shares) for such periods as are permitted
under the 1940 Act. During the period prior to the time Shares are redeemed,
dividends on such Shares will accrue and be payable, and an investor will be
entitled to exercise all
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other rights of beneficial ownership. The Portfolios impose no charge when S
Shares are redeemed.
YIELDS
Yield quotations are computed separately for Trust Shares,
Institutional Shares, S Shares, Investor A Shares and Investor B Shares of a
Portfolio. TOTAL RETURN AND YIELD FIGURES WILL FLUCTUATE, ARE BASED ON
HISTORICAL EARNINGS, AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The
methods used to compute each Portfolio's yields are described below and in the
Statement of Additional Information.
From time to time, performance information such as "yield" and
"effective yield" for the Portfolios' S Shares may be quoted in advertisements
or in communications to shareholders. The "yield" quoted in advertisements
refers to the income generated by an investment in such Shares of a Portfolio
over a specified period (such as a seven-day period) identified in connection
with the particular yield quotation. This income is then "annualized." That is,
the amount of income generated by the investment during that period is assumed
to be generated for each such period over a 52-week or one-year period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in such
Shares of a Portfolio is assumed to be reinvested. The "effective yield" will be
slightly higher than the "yield" because of the compounding effect of this
assumed reinvestment.
In addition, the Treasury Money Market Portfolio's "state
tax-equivalent yield" may also be quoted. The "state tax-equivalent yield" shows
the level of taxable yield needed to produce an after-tax yield that is
equivalent to a particular state's tax-exempt yield achieved by the Portfolio.
The "state tax-equivalent yield" refers to the portion of income that is derived
from interest income on direct obligations of the U.S. Government, its agencies
or instrumentalities that qualifies for exemption from state income tax. The
yield calculation assumes that 100% of the interest income is exempt from state
income tax. The "state tax-equivalent yield" is computed by dividing the
tax-exempt portion of the Portfolio's yield by a denominator consisting of one
minus a stated income tax rate.
The Tax-Exempt Money Market Portfolio may also quote its
"tax-equivalent yield" and "tax-equivalent effective yield", which demonstrate
the level of taxable yield needed to produce an after-tax yield that is
equivalent to the Portfolio's yield and effective yield. Each are calculated by
increasing the Portfolio's yield and effective yield by the amount necessary to
reflect the payment of federal (and/or state) tax at a stated tax
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rate. The "tax equivalent yield" and "tax-equivalent effective yield" will
always be higher than the Portfolio's yield and effective yield, respectively.
The Tax-Exempt Money Market Portfolio may also compute its "tax-equivalent
yield" and "tax-equivalent effective yield" with respect to certain states,
which shows the level of taxable yield and effective yield, respectively, needed
to produce an after-tax equivalent to the federal and state tax-exempt yield of
the Portfolio's particular class of Shares, assuming payment of federal income
tax and state personal income tax each at a stated rate and based upon a
specified percentage of the Portfolio's income which is exempt from state income
tax as well as federal income tax.
Performance data for the Portfolios' S Shares may be compared to the
performance of other mutual funds with comparable investment objectives and
policies through various mutual fund or market indices and data such as that
provided by Lehman Brothers, Inc., or any of its affiliates, Ibbotson
Associates, Inc., Lipper Analytical Services, Inc., Mutual Fund Forecaster and
IBC/Donoghue's MONEY FUND REPORT(R) published by IBC/Donoghue. References may
also be made to indices or data published in Money Magazine, Forbes, Barron's,
The Wall Street Journal, The New York Times, Business Week, American Banker,
Institutional Investor, Pensions and Investments, U.S.A. Today, Fortune,
CDA/Weisenberger, Morningstar, Inc. and publications of a local or regional
nature. In addition to performance information, general information about the
Portfolios that appears in a publication such as those mentioned above may be
included in advertisements and in reports to shareholders.
Performance quotations of a class of Shares in a Portfolio represent
that Portfolio's past performance and should not be considered as representative
of future results. Any account fees charged by a bank or other financial
institution (as described in "Management of The Fund -- Service Organizations"
below) or other institutions will not be included in the calculations of a
Portfolio's yields. Such fees, if any, will reduce the investor's net return on
an investment in a Portfolio. Investors may call 1-800-452-4015 to obtain
current yield information.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Portfolios are declared
daily and paid monthly not later than five Business Days after the end of each
month. S Shares earn dividends from the day the purchase order is received by
the Transfer Agent through the day before the redemption order for such Shares
is received. Dividends on each Share of the Portfolios are determined in the
same manner and are paid in the same amounts irrespective of class, except that
a Portfolio's Trust Shares and Institutional Shares (other than the Tax-Exempt
Money Market Portfolio which
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does not offer Institutional Shares) bear all expenses of the respective
Administrative Services Plans adopted for such Shares and a Portfolio's S
Shares, Investor A Shares and, in the case of the Money Market Portfolio only,
Investor B Shares bear all expenses of the respective Distribution and Services
Plans adopted for such Shares. In addition, a Portfolio's Institutional Shares
bear the expense of certain sub-transfer agency fees. See "Management of the
Fund -- Distribution and Services Plan" and "Other Information Concerning the
Fund and Its Shares" below.
The Portfolios do not expect to realize capital gains. Net realized
capital gains of a Portfolio, if any, are distributed at least annually. All
dividends and distributions paid on a Portfolio's Shares are automatically
reinvested in additional Shares of the same class unless the investor has (i)
otherwise indicated in the account application, or (ii) redeemed all the Shares
held in a Portfolio, in which case a distribution will be paid in cash.
Reinvested dividends and distributions will be taxed in the same manner as those
paid in cash.
TAXES
FEDERAL TAXES
Each Portfolio intends to qualify as a "regulated investment company"
for the current taxable year. It is intended that each Portfolio will continue
to so qualify as long as such qualification is in the best interests of
shareholders. A regulated investment company is generally exempt from federal
income tax on amounts distributed to shareholders.
Qualification as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code"), for a taxable year requires,
among other things, that each Portfolio distribute to its shareholders an amount
equal to at least the sum of 90% of its investment company taxable income and
90% of its net exempt-interest income (if any). In general, a Portfolio's
investment company taxable income will be its taxable income, including
dividends, interest and short-term capital gains (the excess of net short-term
capital gain over net long-term capital loss), subject to certain adjustments
and excluding the excess of any net long-term capital gain over net short-term
capital loss, if any, for such taxable year. The Treasury Money Market and Money
Market Portfolios intend to distribute as dividends substantially all of their
respective investment company taxable income and any net tax-exempt interest
income each year. Such dividends will be taxable as ordinary income to a
Portfolio's shareholders who are not currently exempt from federal income taxes,
whether such income is received in cash or reinvested in additional Shares.
(Federal income taxes for
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distributions to an IRA are deferred under the Code.) Because all of the
Treasury Money Market and Money Market Portfolios' net investment income is
expected to be derived from earned interest, it is not expected that any
distributions from such Portfolios will be eligible for the dividends received
deduction.
It is the policy of the Tax-Exempt Money Market Portfolio to distribute
as dividends substantially all of its net tax-exempt interest income and any
investment company taxable income each year. Dividends derived from interest on
Municipal Obligations (known as exempt-interest dividends) may be treated by
shareholders as items of interest excludable from their gross income under
Section 103(a) of the Code, unless under the circumstances applicable to the
particular shareholder the exclusion would be disallowed. (See the Statement of
Additional Information under "Additional Information Concerning Taxes.")
Distributions of net income may be taxable to investors under state or local law
as dividend income even though a substantial portion of such distributions may
be derived from interest on tax-exempt obligations which, if realized directly,
would be exempt from such income tax.
If the Tax-Exempt Money Market Portfolio should hold certain private
activity bonds issued after August 7, 1986, shareholders must include, as an
item of tax preference, the portion of dividends paid by the Portfolio that is
attributable to interest on such bonds in their federal alternative minimum
taxable income for purposes of determining liability (if any) for the 26-28%
alternative minimum tax applicable to individuals and the 20% alternative
minimum tax and the environmental tax applicable to corporations. Corporate
shareholders also must take all exempt-interest dividends into account in
determining certain adjustments for federal alternative minimum and
environmental tax purposes. The environmental tax applicable to corporations is
imposed at the rate of .12% on the excess of the corporation's modified federal
alternative minimum taxable income over $2,000,000.
Substantially all of each Portfolio's net realized long-term capital
gains, if any, will be distributed at least annually to its shareholders. A
Portfolio will generally have no tax liability with respect to such gains and
the distributions will be taxable to shareholders who are not currently exempt
from federal income taxes as long-term capital gains, regardless of how long the
shareholders have held the Shares and whether such gains are received in cash or
reinvested in additional Shares.
To the extent dividends paid to shareholders of the Tax-Exempt Money
Market Portfolio are derived from taxable income or from long-term or short-term
capital gains, such dividends will be subject to federal income tax, whether
such dividends are paid in the form of cash or additional Shares.
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An investor considering purchasing Shares of a Portfolio on or just
before the record date of any capital gains distribution should be aware that
the amount of the forthcoming distribution, although in effect a return of
capital, will be taxable.
Dividends declared by a Portfolio in October, November, or December of
any year payable to shareholders of record on a specified date in such months
will be deemed to have been received by shareholders and paid by the Fund on
December 31 of such year, if such dividends are actually paid during January of
the following year.
Each Portfolio may be required in certain cases to withhold and remit
to the U.S. Treasury 31% of taxable dividends or gross sale proceeds paid to
shareholders who have failed to provide a correct tax identification number in
the manner required, who are subject to withholding by the Internal Revenue
Service for failure properly to include on their return payments of taxable
interest or dividends, or who have failed to certify to the Portfolio that they
are not subject to backup withholding when required to do so or that they are
"exempt recipients."
STATE AND LOCAL TAXES
Shareholders should note that dividends paid by a Portfolio may be
taxable to investors under state or local law as dividend income even though all
or a portion of such dividends may be derived from interest on obligations that,
if realized directly, would be exempt from such income taxes.
The Treasury Money Market Portfolio is structured to provide investors,
to the extent permissible by federal and state law, with income that is exempt
or excluded from taxation at the state and local level. Shareholders should note
that many, but not all, states permit all or a portion of a regulated investment
company's dividends which are derived from interest on U.S. Treasury obligations
(and obligations of certain U.S. Government agencies)("Treasury Obligations") to
be exempt or excluded from state and local taxation. In addition, only certain
states allow dividends of a regulated investment company that are derived from
dividends of other regulated investment companies investing directly in Treasury
Obligations to be exempt or excluded from state and local taxation. Some states
reduce a shareholder's allowable deductions by interest on debt incurred to
carry obligations producing state tax-exempt interest and by other expenses
related to such obligations. Income earned by the Portfolio from repurchase
agreements generally is not exempt from state or local income tax. Shareholders
should consult their own tax advisors about the status of distributions from the
Treasury Money Market Portfolio under state and local law.
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MISCELLANEOUS
The foregoing summarizes some of the important federal and state tax
considerations generally affecting the Portfolios and their shareholders and is
not intended as a substitute for careful tax planning. Accordingly, potential
investors in the Portfolios should consult their tax advisers with specific
reference to their own tax situation. Shareholders will be advised at least
annually as to the federal and, for the Treasury Money Market Portfolio, the
state income tax consequences.
MANAGEMENT OF THE FUND
The Fund is managed under the direction of its Board of Directors. The
Statement of Additional Information contains the names of and general background
information concerning each director.
INVESTMENT ADVISER
Mississippi Valley Advisors Inc. ("MVA") serves as the investment
adviser to each Portfolio. MVA's principal office is located at One Mercantile
Center, Seventh & Washington Streets, St. Louis, Missouri 63101. MVA is a
wholly-owned subsidiary of Mercantile. As of December 31, 1997, MVA had
approximately $9.4 billion in assets under investment management, including the
Funds' assets, which were approximately $3.9 billion.
Subject to the general supervision of the Fund's Board of Directors and
in accordance with the Fund's investment policies, MVA manages the Portfolios,
makes investment decisions with respect to and places orders for all purchases
and sales of the Portfolios' securities and other investments, and directs the
maintenance of each Portfolio's records relating to such purchases and sales.
For the services provided and expenses assumed pursuant to the
investment advisory agreement, MVA is entitled to receive fees, computed daily
and payable monthly, with respect to the Treasury Money Market and Money Market
Portfolios, at the annual rates of .40% of the first $1.5 billion of each such
Portfolio's average daily net assets, .35% of the next $1.0 billion of net
assets and .25% of net assets in excess of $2.5 billion, and with respect to the
Tax-Exempt Money Market Portfolio, at the annual rate of .40% of the average
daily net assets of the Portfolio. For the fiscal year ended November 30, 1997,
MVA received advisory fees (net of waivers) at the effective annual rates of
___%, ___% and ___% of the respective average daily net assets of the Treasury
Money Market, Money Market and Tax-Exempt Money Market Portfolios.
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MVA may from time to time voluntarily reduce all or a portion of its
advisory fee to increase the net income of one or more Portfolios available for
distributions as dividends. The voluntary fee reduction will cause the return of
any such Portfolio to be higher than it would otherwise be in the absence of
such reduction.
ADMINISTRATOR
BISYS Fund Services Ohio, Inc. located at 3435 Stelzer Road, Columbus,
Ohio 43219, acts as the Portfolios' Administrator.
The Administrator generally assists in all aspects of each Portfolio's
administration and operation and also monitors and performs other services
pertaining to the Fund's arrangements with Service Organizations. See "Service
Organizations" below. For its services, the Administrator is entitled to receive
a fee, computed daily and payable monthly, at the annual rate of .20% (.10% for
the Tax-Exempt Money Market Portfolio) of each Portfolio's average daily net
assets. For the fiscal year ended November 30, 1997, the Administrator received
administration fees (net of waivers) at the effective annual rate of .__% of the
average daily net assets of each Portfolio. From time to time, the Administrator
may voluntarily waive all or a portion of the administration fees otherwise
payable by a Portfolio in order to increase the net income available for
distribution to shareholders.
DISTRIBUTOR
S Shares in each Portfolio are sold continuously by the Distributor,
BISYS Fund Services, an affiliate of the Administrator. The Distributor also
monitors the Fund's arrangements under the Distribution and Services Plan
described below. The Distributor is a registered broker-dealer with principal
offices at 3435 Stelzer Road, Columbus, Ohio 43219.
DISTRIBUTION AND SERVICES PLAN
The Fund has adopted a Distribution and Services Plan pursuant to Rule
12b-1 under the 1940 Act with respect to S Shares of the Portfolios. Under the
Distribution and Services Plan, the Fund may pay (i) the Distributor or another
person for distribution services provided and expenses assumed and (ii) Service
Organizations for shareholder administrative services provided pursuant to
servicing agreements in connection with S Shares of a Portfolio. Payments to the
Distributor are to compensate it for distribution assistance and expenses
assumed and activities primarily intended to result in the sale of S Shares,
including compensating dealers and other sales personnel (which may include
affiliates of the Fund's Adviser), direct advertising and marketing expenses and
expenses incurred in
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connection with preparing, printing, mailing and distributing or publishing
advertisements and sales literature, for printing and mailing Prospectuses and
Statements of Additional Information (except those used for regulatory purposes
or for distribution to existing shareholders), and costs associated with
implementing and operating the Distribution and Services Plan. See "Management
of the Fund -- Service Organizations" below for a description of the servicing
agreements and the services provided by Service Organizations.
Under the Distribution and Services Plan for S Shares, payments by the
Fund for distribution expenses may not exceed .75% (annualized) of the average
daily net asset value of a Portfolio's outstanding S Shares and payments for
shareholder administrative servicing expenses may not exceed .25% (annualized)
of the average daily net asset value of a Portfolio's outstanding S Shares.
SERVICE ORGANIZATIONS
The servicing agreements adopted under the Distribution and Services
Plan (the "Servicing Agreements") require the Service Organizations receiving
such compensation (which may include Mercantile and its affiliates) to perform
certain services, including providing administrative services with respect to
the beneficial owners of S Shares of a Portfolio, such as establishing and
maintaining accounts and records for their customers who invest in such Shares,
assisting customers in processing purchase, exchange and redemption requests,
developing, maintaining and supporting systems necessary to support cash
management services, such as Sweep Accounts and/or in changing dividend options
and account descriptions and responding to customer inquiries concerning their
investments.
Under the Servicing Agreements and upon notice to the Fund, a Service
Organization may subcontract with one or more entities for the performance of
certain services provided under its Servicing Agreement with the Fund. Such
Service Organization shall be as fully responsible to the Fund for the acts or
omissions of any subcontractor as it would be for its own acts or omissions. The
fees payable to any sub-contractor are paid by the Service Organization out of
the fees it receives from the Fund.
The Fund understands that Service Organizations providing such
administrative services may also charge fees to their customers beneficially
owning S Shares. These fees would be in addition to any amounts which may be
received by such a Service Organization under its Servicing Agreement with the
Fund. The Fund's Servicing Agreements require a Service Organization to disclose
to its customers any compensation payable to the Service Organization by a
Portfolio and any other compensation payable by
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its customers in connection with their investment in such Shares. Customers of
such a Service Organization receiving servicing fees should read this Prospectus
and the Sweep Materials in light of the terms governing their accounts with
their Service Organization.
CUSTODIAN AND TRANSFER AGENT
Mercantile Bank National Association, an affiliate of the Fund and a
wholly-owned subsidiary of Mercantile Bancorporation, Inc., with principal
offices located at One Mercantile Center, 8th and Locust Streets, St. Louis,
Missouri 63101, serves as Custodian of each Portfolio's assets. BISYS Fund
Services Ohio, Inc. also serves as the Fund's transfer agent and dividend
disbursing agent. Its address is 3435 Stelzer Road, Columbus, Ohio 43219.
REGULATORY MATTERS
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any affiliate
thereof from sponsoring, organizing, or controlling the Shares of a registered,
open-end investment company continuously engaged in the issuance of its Shares,
and prohibit banks generally from issuing, underwriting, selling, or
distributing securities such as Shares of the Portfolios. Such banking laws and
regulations do not prohibit such a holding company or affiliate, or banks, from
acting as investment adviser, transfer agent, or custodian to such an investment
company, or from purchasing Shares of such a company as agent for and upon the
order of customers. Mercantile, MVA, Service Organizations that are banks or
bank affiliates, and broker-dealers that are bank affiliates are subject to such
laws and regulations, but believe they may perform the services for the
Portfolios contemplated by their respective agreements, this Prospectus and the
Statement of Additional Information without violating applicable banking laws
and regulations. In addition, state securities laws on this issue may differ
from the interpretation of federal laws expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
Should future legislative, judicial, or administrative action prohibit
or restrict the activities of such companies in connection with the provision of
services on behalf of the Portfolios and the shareholders, the Fund might be
required to alter materially or discontinue its arrangements with such companies
and change its method of operation. It is not expected that investors would
suffer any adverse financial consequences as a result of any of these
occurrences.
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If current restrictions preventing a bank from legally sponsoring,
organizing, controlling, or distributing Shares of an investment company were
relaxed, Mercantile, or an affiliate of Mercantile, would consider the
possibility of offering to perform additional services for the Portfolios. It is
not possible, of course, to predict whether or in what form such legislation
might be enacted or the terms upon which Mercantile, or such an affiliate, might
offer to provide such services.
Conflict of interest restrictions may apply to the receipt of
compensation paid pursuant to a Servicing Agreement by the Portfolios to a
financial intermediary in connection with the investment of fiduciary funds in a
Portfolio's Shares. Institutions, including banks regulated by the Comptroller
of the Currency and investment advisers and other money managers subject to the
jurisdiction of the SEC, the Department of Labor or state securities
commissions, should consult legal counsel before entering into Servicing
Agreements.
EXPENSES
Except as noted above and in the Statement of Additional Information
under "Investment Advisory and Administrative Contracts" and "Custodian and
Transfer Agent," the Fund's service contractors bear all expenses in connection
with the performance of their services, except that the Distributor is
compensated pursuant to the Distribution and Services Plan as described under
"Distribution and Services Plan" above. Expenses are deducted from the total
income of each Portfolio before dividends and distributions are paid. These
expenses include, but are not limited to, fees paid to the Adviser and
Administrator, transfer agency fees, fees and expenses of officers and directors
who are not affiliated with the Adviser or the Distributor, taxes, interest,
legal fees, custodian fees, auditing fees, 12b-1 fees, servicing fees, certain
fees and expenses in registering and qualifying a Portfolio and its Shares for
distribution under federal and state securities laws, costs of preparing and
printing prospectuses and statements of additional information for regulatory
purposes and for distribution to existing shareholders, the expense of reports
to shareholders, shareholders' meetings and proxy solicitations, fidelity bond
and directors and officers liability insurance premiums, the expense of using
independent pricing services and other expenses which are not expressly assumed
by the Adviser, Distributor or Administrator under their respective agreements
with the Fund. The Fund also pays for brokerage fees, commissions and other
transaction charges, if any, in connection with the purchase and sale of
portfolio securities. Any general expenses of the Fund that are not readily
identifiable as belonging to a particular Portfolio will be allocated among all
Portfolios by or under the direction of the Board of Directors in a manner the
Board determines to be fair and equitable. Any expenses relating only
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to a particular class of Shares within a Portfolio will be borne solely by such
class. See "Certain Financial Information" and "Management of the Fund" above
for additional information regarding expenses of each Portfolio.
OTHER INFORMATION CONCERNING
THE FUND AND ITS SHARES
DESCRIPTION OF SHARES
The Fund was organized as a Maryland corporation on September 9, 1982
and is a mutual fund of the type known as an "open-end management investment
company". The Fund's principal office is located at 3435 Stelzer Road, Columbus,
Ohio 43219.
The Fund's Charter authorizes the Board of Directors to issue up to
twenty billion full and fractional shares of common stock, and to classify and
reclassify any unauthorized and unissued shares into one or more classes of
shares. The Board of Directors may similarly classify or reclassify any class of
shares into one or more series.
Pursuant to such authority, the Board of Directors has authorized the
issuance of the following series of shares representing interests in the
Portfolios, each of which (except the Tax-Exempt Money Market Portfolio) is
classified as a diversified company under the 1940 Act: 1 billion Trust Shares,
300 million Institutional Shares, 2 billion S Shares and 100 million Investor A
Shares, representing interests in the Treasury Money Market Portfolio; 1.8
billion Trust Shares, 300 million Institutional Shares, 2 billion S Shares, 550
million Investor A Shares and 50 million Investor B Shares, representing
interests in the Money Market Portfolio; and 300 million Trust Shares, 2 billion
S Shares and 50 million Investor A Shares, representing interests in the
Tax-Exempt Money Market Portfolio. Trust Shares, Institutional Shares, S Shares,
Investor A Shares and/or Investor B Shares of the Portfolios are described in
separate prospectuses which are available from the Distributor at the telephone
number on the cover of this Prospectus. Shares in the Portfolios will be issued
without Share certificates.
The S Shares of the Portfolio are described in this Prospectus. The
Portfolios also offer Trust Shares and Investor A Shares and, in addition, each
Portfolio except the Tax-Exempt Money Market Portfolio offers Institutional
Shares and the Money Market Portfolio offers Investor B Shares. Trust Shares of
the Portfolios are offered to financial institutions acting on their own behalf
or on behalf of discretionary and non-discretionary accounts for which they may
receive account-level asset-based management fees. Institutional Shares of the
Portfolios are offered to financial institutions acting on behalf of
discretionary and non-discretionary accounts for which they do not
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receive account-level asset-based management fees. Trust Shares and
Institutional Shares are sold without a sales charge. Investor A Shares of the
Portfolios are sold without a sales charge through selected broker/dealers and
other financial intermediaries to individual or institutional customers.
Investor B Shares of the Money Market Portfolio, which are sold with a maximum
5.0% contingent deferred sales load, are available for purchase only by those
investors participating in the ARCH Asset Adviser Program. Otherwise, Investor B
Shares of the Money Market Portfolio are available only to the holders of
Investor B Shares of another portfolio offered by the Fund who wish to exchange
their Investor B Shares of such other portfolio for Investor B Shares of the
Money Market Portfolio. Trust Shares, Institutional Shares, S Shares, Investor A
Shares and Investor B Shares bear their pro rata portion of all operating
expenses paid by a Portfolio, except that Trust Shares and Institutional Shares
bear all payments under the Portfolio's respective Administrative Services Plans
adopted for such Shares, and S Shares, Investor A Shares and Investor B Shares
bear all payments under the Portfolio's respective Distribution and Services
Plans adopted for such Shares. In addition, Institutional Shares of a Portfolio
bear the expense of certain sub-transfer agency fees.
Payments under the Administrative Services Plans for Trust and
Institutional Shares are made to Service Organizations for administrative
services provided to the Service Organizations' clients or account holders who
are the beneficial owners of Institutional Shares. Payments under the
Administrative Services Plans may not exceed .25% (on an annual basis) of the
average daily net asset value of outstanding Trust and Institutional Shares of
the Money Market Portfolios.
Payments under the Distribution and Services Plans for Investor A
Shares and Investor B Shares are made to (i) the Distributor or another person
for providing distribution assistance and assuming certain related expenses, and
(ii) Service Organizations for administrative services provided to the Service
Organizations' clients or account holders who are the beneficial owners of
Investor A Shares. Payments under the Distribution and Services Plan for
Investor A Shares may not exceed .25% (on an annual basis) of the average daily
net asset value of outstanding Investor A Shares of the Portfolios. Payments
under the Distribution and Services Plan for Investor B Shares may not exceed
1.00% (on an annual basis) of the average daily net asset value of the Money
Market Portfolio's outstanding Investor B Shares. Distribution payments made
under the Distribution and Services Plans are subject to the requirements of
Rule 12b-1 under the 1940 Act.
The Fund offers various services and privileges in connection with
Investor A Shares and/or Investor B Shares of a Portfolio that are not offered
in connection with the Portfolio's
-35-
<PAGE> 196
Trust Shares, Institutional Shares or S Shares, including an automatic
investment program and an automatic withdrawal plan. Each class of Shares also
offers different exchange privileges. Investor B Shares convert automatically
into Investor A Shares eight years after the beginning of the calendar month in
which the Shares were purchased.
Shareholders are entitled to one vote for each full Share held and
proportionate fractional votes for fractional Shares held. Shares of all
Portfolios will vote together and not by class unless otherwise required by law
or permitted by the Board of Directors. All shareholders of a particular
Portfolio will vote together as a single class on matters relating to the
Portfolio's investment advisory agreement and investment objective and
fundamental policies. Only holders of Trust Shares, however, will vote on
matters relating to the Administrative Services Plan for Trust Shares and only
holders of Institutional Shares will vote on matters pertaining to the
Administrative Services Plan for Institutional Shares. Similarly, only holders
of S Shares will vote on matters pertaining to the Distribution and Services
Plan for S Shares, only holders of Investor A Shares will vote on matters
pertaining to the Distribution and Services Plan for Investor A Shares and only
holders of Investor B Shares will vote on matters pertaining to the Distribution
and Services Plan for Investor B Shares.
The Fund is not required, and currently does not intend, to hold annual
meetings except as required by the 1940 Act or other applicable law. Upon the
written request of the holders of 10% or more of the outstanding Shares, the
Fund will call a special meeting to vote on the question of removal of a
director.
Shares of the Portfolios have noncumulative voting rights and,
accordingly, the holders of more than 50% of the Fund's outstanding Shares
(irrespective of Portfolio or class) may elect all of the Directors. Shares have
no preemptive rights and only such conversion and exchange rights as the Board
may grant in its discretion. When issued for payment as described in this
Prospectus, Shares will be fully paid and nonassessable.
MISCELLANEOUS
As used in this Prospectus, a "vote of a majority of the outstanding
Shares" of a Portfolio means, with respect to the approval of an investment
advisory agreement or a change in an investment objective or fundamental
investment policy, the affirmative vote of the lesser of (a) more than 50% of
the outstanding Shares of such Portfolio (irrespective of class), or (b) 67% or
more of the Shares of such Portfolio (irrespective of class) present at a
meeting if more than 50% of the outstanding Shares of such Portfolio are
represented at the meeting in person or by proxy.
-36-
<PAGE> 197
As of _________, 1998, Mercantile and its affiliates possessed, of
record on behalf of their underlying customer accounts, voting or investment
power with respect to more than 25% of the Fund's outstanding Shares. Therefore,
Mercantile may be deemed to be a controlling person of the Fund within the
meaning of the 1940 Act.
Inquiries regarding the Portfolios may be directed to the Fund at
1-800-452-4015.
-37-
<PAGE> 198
NO PERSON HAS BEEN AUTHORIZED THE ARCH
TO GIVE ANY INFORMATION OR TO MAKE FUND(R), INC.
ANY REPRESENTATIONS NOT CONTAINED
IN THIS PROSPECTUS, OR IN THE TREASURY MONEY
PORTFOLIOS' STATEMENT OF ADDITIONAL MARKET PORTFOLIO
INFORMATION INCORPORATED HEREIN BY
REFERENCE, IN CONNECTION WITH THE MONEY MARKET
OFFERING MADE BY THIS PROSPECTUS AND, PORTFOLIO
IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED TAX-EXEMPT
UPON AS HAVING BEEN AUTHORIZED BY THE MONEY MARKET
PORTFOLIOS, THE FUND, OR THE PORTFOLIO
DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFERING BY THE
PORTFOLIOS, THE FUND OR THE DISTRIBUTOR
IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
------------
TABLE OF CONTENTS S SHARES
PAGE
----
Highlights..................................3
Certain Financial Information...............5
Expense Summary for S Shares................6
Financial Highlights........................8
Investment Objectives, Policies
and Risk Considerations..................12
Investment Limitations.....................23
Pricing of Shares..........................26 [OLD LOGO]
How to Purchase and Redeem Shares..........27
Purchase of Shares................27
Redemption of Shares..............28
Other Redemption Information......29
Yields.....................................30 PROSPECTUS
Dividends and Distributions................32 ___________, 1998
Taxes......................................32
Management of the Fund.....................35
Other Information Concerning
the Fund and Its Shares..................40
Investment Adviser:
Mississippi Valley Advisors Inc.
a wholly-owned subsidiary of
Mercantile Bank National
Association
Distributor: BISYS Fund Services
-38-
<PAGE> 199
CROSS REFERENCE SHEET
---------------------
(Institutional Shares)
The ARCH Treasury Money Market Portfolio
The ARCH Money Market Portfolio
The ARCH U.S. Government Securities Portfolio
The ARCH Intermediate Corporate Bond Portfolio
The ARCH Bond Index Portfolio
The ARCH Government & Corporate Bond Portfolio
The ARCH Equity Income Portfolio
The ARCH Equity Index Portfolio
The ARCH Growth & Income Equity Portfolio
The ARCH Growth Equity Portfolio
The ARCH Small Cap Equity Portfolio
The ARCH Small Cap Equity Index Portfolio
The ARCH International Equity Portfolio
The ARCH Balanced Portfolio
<TABLE>
<CAPTION>
Form N-1A Part A Item Prospectus Caption
- --------------------- ------------------
<S> <C>
1. Cover Page................................ Cover Page
2. Synopsis.................................. Expense Summary
for Institutional
Shares
3. Condensed Financial
Information............................. Certain Financial
Information;
Financial
Highlights; Yields
and Total
Returns
4. General Description
of Registrant........................... Highlights;
Investment
Objectives, Policies
and Risk
Considerations;
Other Information
Concerning the Fund
and Its Shares
5. Management of the Fund.................... Management of the
Fund
5A. Management's Discussion of
Fund Performance........................ Inapplicable
6. Capital Stock and
</TABLE>
<PAGE> 200
<TABLE>
<S> <C>
Other Securities........................ How to Purchase and
Redeem Shares;
Dividends
and Distributions;
Taxes; Other
Information
Concerning the Fund
and Its Shares
7. Purchase of Securities
Being Offered........................... How to Purchase and
Redeem Shares
8. Redemption or Repurchase.................. How to Purchase and
Redeem Shares
9. Pending Legal Proceedings................. Inapplicable
</TABLE>
<PAGE> 201
THE ARCH FAMILY
OF MUTUAL FUNDS
INSTITUTIONAL SHARES
MONEY MARKET PORTFOLIOS
-----------------------
TREASURY MONEY MARKET PORTFOLIO
MONEY MARKET PORTFOLIO
TAXABLE BOND PORTFOLIOS
-----------------------
U.S. GOVERNMENT SECURITIES PORTFOLIO
INTERMEDIATE CORPORATE BOND PORTFOLIO
BOND INDEX PORTFOLIO
GOVERNMENT & CORPORATE BOND PORTFOLIO
EQUITY PORTFOLIOS
-----------------
EQUITY INCOME PORTFOLIO
EQUITY INDEX PORTFOLIO
GROWTH & INCOME EQUITY PORTFOLIO
GROWTH EQUITY PORTFOLIO
SMALL CAP EQUITY PORTFOLIO
SMALL CAP EQUITY INDEX PORTFOLIO
INTERNATIONAL EQUITY PORTFOLIO
BALANCED PORTFOLIO
PROSPECTUS DATED _____________, 1998
<PAGE> 202
TABLE OF CONTENTS
PAGE
----
Highlights.............................................................4
Certain Financial Information..........................................7
Expense Summary for Institutional Shares...............................8
Financial Highlights..................................................11
Investment Objectives, Policies and
Risk Considerations................................................ 24
Pricing of Shares.................................................... 62
The Money Market Portfolios........................................ 62
The Equity and Bond Portfolios..................................... 62
How to Purchase and Redeem Shares.................................... 63
Purchase of Shares................................................ 63
Purchase of Shares -- The Money Market Portfolios................. 64
Purchase of Shares -- The Equity and Bond Portfolios.............. 64
Exchanges......................................................... 64
Redemption of Shares.............................................. 64
Other Exchange or Redemption Information.......................... 66
Yields and Total Returns............................................. 66
Dividends and Distributions.......................................... 68
Taxes................................................................ 70
Management of the Fund............................................... 73
Other Information Concerning the Fund and its Shares................. 80
<PAGE> 203
THE ARCH FUND(R), INC.
INSTITUTIONAL SHARES
--------------------
______________, 1998
The ARCH Fund, Inc. is an open-end, management investment company that
currently offers Shares in EIGHTEEN investment portfolios. This Prospectus
describes the Institutional Shares in FOURTEEN of those portfolios.
Institutional Shares are offered to financial institutions acting on behalf of
discretionary and non-discretionary accounts for which they do not receive
account-level asset-based management fees.
THE ARCH TREASURY MONEY MARKET PORTFOLIO'S investment objective is to
seek a high level of current income exempt from state income tax consistent with
liquidity and security of principal.
THE ARCH MONEY MARKET PORTFOLIO'S investment objective is to seek
current income with liquidity and stability of principal.
THE ARCH U.S. GOVERNMENT SECURITIES PORTFOLIO'S investment objective is
to seek a high rate of current income that is consistent with relative stability
of principal.
THE ARCH INTERMEDIATE CORPORATE BOND PORTFOLIO'S investment objective
is to seek as high a level of current income as is consistent with preservation
of capital.
THE ARCH BOND INDEX PORTFOLIO'S investment objective is to seek to
provide investment results that, before deduction of operating expenses,
approximate the price and yield performance of U.S. Government, mortgage-backed,
asset-backed and corporate debt securities, as represented by the Lehman
Brothers Aggregate Bond Index.
THE ARCH GOVERNMENT & CORPORATE BOND PORTFOLIO'S investment objective
is to seek the highest level of current income consistent with conservation of
capital.
THE ARCH EQUITY INCOME PORTFOLIO'S investment objective is to seek to
provide an above-average level of income consistent with long-term capital
appreciation.
THE ARCH EQUITY INDEX PORTFOLIO'S investment objective is to seek to
provide investment results that, before deduction of operating expenses,
approximate the price and yield performance
<PAGE> 204
of U.S. publicly traded common stocks with large stock market
capitalizations, as represented by the Standard & Poor's 500
Composite Stock Price Index.
THE ARCH GROWTH & INCOME EQUITY PORTFOLIO'S investment objective is to
provide long-term capital growth, with income a secondary consideration.
THE ARCH GROWTH EQUITY PORTFOLIO'S INVESTMENT OBJECTIVE IS
CAPITAL APPRECIATION.
THE ARCH SMALL CAP EQUITY PORTFOLIO'S investment objective is capital
appreciation. Current income is an incidental consideration in the selection of
portfolio securities.
The ARCH SMALL CAP EQUITY INDEX PORTFOLIO'S investment objective is to
provide investment results that, before deduction of operating expenses,
approximate the price and yield performance of U.S. common stocks with smaller
stock market capitalizations, as represented by the Standard & Poor's Smallcap
600 Stock Price Index.
THE ARCH INTERNATIONAL EQUITY PORTFOLIO'S investment objective is to
provide capital growth consistent with reasonable investment risk by investing
primarily in foreign equity securities, most of which will be denominated in
foreign currencies.
THE ARCH BALANCED PORTFOLIO'S investment objective is to maximize total
return through a combination of growth of capital and current income consistent
with the preservation of capital.
Mississippi Valley Advisors Inc. ("MVA" or the "Adviser"), a
wholly-owned subsidiary of Mercantile Bank National Association ("Mercantile"),
acts as investment adviser for the Portfolios; Mercantile serves as custodian;
BISYS Fund Services Ohio, Inc. (the "Administrator") serves as administrator;
and BISYS Fund Services (the "Distributor") serves as sponsor and distributor.
In addition, Clay Finlay Inc. ("Clay Finlay" or the "Sub- Adviser") serves as
sub-adviser for the International Equity Portfolio.
This Prospectus sets forth concisely certain information about the
Portfolios that prospective investors should know before investing. Investors
should read this Prospectus and retain it for future reference. Additional
information about the Portfolios, contained in a Statement of Additional
Information dated ______________, 1998, has been filed with the Securities and
Exchange Commission and is incorporated by reference in its entirety into this
Prospectus. An investor may obtain the Statement of Additional Information
without charge by writing the
-2-
<PAGE> 205
Fund at P.O. Box 78069, St. Louis, Missouri 63178 or by calling
1-800-452-4015.
An investment in the Treasury Money Market Portfolio or Money Market
Portfolio is neither insured nor guaranteed by the U.S. government. There can be
no assurance that either of these portfolios will be able to maintain a stable
net asset value of $1.00 per share.
Portfolio Shares are not bank deposits, are not federally insured or
guaranteed by the U.S. Government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other governmental agency, and are not the
obligations of or guaranteed or otherwise supported by any bank. An investment
in the Portfolios involves investment risk, including the possible loss of
principal.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
______________, 1998
-3-
<PAGE> 206
HIGHLIGHTS
The ARCH Fund, Inc. (the "Fund") is an open-end, management investment
company (commonly known as a mutual fund) registered under the Investment
Company Act of 1940, as amended. The Fund offers investment opportunities in
eighteen investment portfolios, fourteen of which are described in this
Prospectus: the ARCH Money Market and Treasury Money Market Portfolios (the
"Money Market Portfolios") and the ARCH U.S. Government Securities, Intermediate
Corporate Bond, Bond Index, Government & Corporate Bond, Equity Income, Equity
Index, Growth & Income Equity, Growth Equity, Small Cap Equity, Small Cap Equity
Index, International Equity and Balanced Portfolios (the "Equity and Bond
Portfolios" and, together with the Money Market Portfolios, the "Portfolios").
Each Portfolio represents a separate pool of assets with different investment
objectives and policies (as described below under "Investment Objectives,
Policies and Risk Considerations"). MVA serves as adviser, Mercantile as
custodian, BISYS Fund Services Ohio, Inc. as administrator, and BISYS Fund
Services as sponsor and distributor. In addition, Clay Finlay serves as
sub-adviser for the International Equity Portfolio. For information on expenses,
fee waivers, and services, see "Certain Financial Information" and "Management
of the Fund."
The following information describes the Portfolios and their
objectives. There can be no assurance that the Portfolios will be able to
achieve their respective investment objectives.
The Money Market Portfolios each seek to maintain a net asset value of
$1.00 per Share. Each Money Market Portfolio's assets are invested in
dollar-denominated debt securities with remaining maturities of 397 days (13
months) or less as defined by the Securities and Exchange Commission, and each
Money Market Portfolio's dollar-weighted average portfolio maturity will not
exceed 90 days. All securities acquired by the Money Market Portfolios will be
determined by MVA, under guidelines approved by the Fund's Board of Directors,
to present minimal credit risks and to be rated in the highest category (or
deemed comparable in quality) at the time of purchase. There can be no assurance
that the Money Market Portfolios will be able to achieve a stable net asset
value on a continuous basis.
The U.S. Government Securities and Government & Corporate Bond
Portfolios are designed for investors who seek higher current income than is
typically offered by money market funds and who are willing to accept a variable
Share value to achieve that objective.
The Intermediate Corporate Bond Portfolio is designed for investors who
seek higher current income than is typically
-4-
<PAGE> 207
offered by money market funds with less principal volatility than is normally
associated with a long-term bond fund.
The Bond Index Portfolio is designed for investors who are willing to
accept the risks associated with an investment in fixed income securities, and
who seek investment results that, before deduction of operating expenses,
approximate the price and yield performance of U.S. Government, mortgage-backed,
asset- backed and corporate debt securities, as represented by the Lehman
Brothers Aggregate Bond Index.
The Equity Income Portfolio is designed for investors who seek an
above-average level of income consistent with long-term capital appreciation,
and who are prepared to accept the risks associated with an investment in equity
securities.
The Equity Index Portfolio is designed for investors who are willing to
accept the risks associated with an investment in equity securities, and who
seek investment results that, before deduction of operating expenses,
approximate the price and yield performance of U.S. publicly traded common
stocks with large stock market capitalizations, as represented by the Standard &
Poor's 500 Composite Stock Price Index.
The Growth & Income Equity, Growth Equity, Small Cap Equity and
Balanced Portfolios are designed for investors who seek capital growth, and who
are prepared to accept the risks associated with equity securities.
The Small Cap Equity Index Portfolio is designed for investors who are
willing to accept the risks associated with an investment in small
capitalization equity securities, and who seek investment results that, before
deduction for operating expenses, approximate the price and yield performance of
U.S. common stocks with smaller stock market capitalizations, as represented by
the Standard & Poor's SmallCap 600 Stock Price Index.
The International Equity Portfolio is designed for investors who seek
capital growth, wish to diversify their investments beyond the United States,
and are prepared to accept the risks entailed in such investments. These risks
may be greater than those associated with equity securities of companies located
in the United States.
Investors should note that one or more of the Portfolios may, subject
to their investment policies and limitations, purchase variable and floating
rate instruments, enter into repurchase agreements and reverse repurchase
agreements, make securities loans, invest in options, futures and index-based
depository receipts, and make limited investments in illiquid securities and
securities issued by other investment companies.
-5-
<PAGE> 208
These investment practices involve investment risks of varying degrees. For
example, the absence of a secondary market for a particular variable or floating
rate instrument could make it difficult for a Portfolio to dispose of an
instrument if the issuer were to default on its payment obligation. Default by a
counterparty to a repurchase agreement or securities lending transaction could
expose a Portfolio to loss because of adverse market action or possible delay in
disposing of the underlying collateral. Reverse repurchase agreements are
subject to the risk that the market value of the securities sold by a Portfolio
will decline below the repurchase price which the Portfolio is obligated to pay.
Purchasing options is a specialized investment technique which entails a
substantial risk of loss of amounts paid as premiums to option writers.
Investments in futures and related options are subject to the ability of the
Adviser to correctly predict movements in the direction of the market and there
is no assurance that a liquid market will exist for a particular futures
contract at any particular time.
The Equity and Bond Portfolios, other than the Bond Index, Equity Index
and Small Cap Equity Index Portfolios, may engage in short-term trading, which
may also involve greater risk and increase such Portfolios' expenses. The
International Equity Portfolio will invest principally in foreign equity
securities, most of which will be denominated in foreign currencies. The Growth
Equity Portfolio may invest to a limited extent in foreign equity securities.
The other Portfolios do not invest in instruments denominated in foreign
currencies (except that the Growth & Income Equity, Small Cap Equity and
Balanced Portfolios may invest in certain Canadian securities and the
Intermediate Corporate Bond Portfolio may invest in debt securities issued by
foreign corporations and governments). Foreign securities entail certain
inherent risks, such as future political and economic developments and the
adoption of foreign government restrictions, that might adversely affect payment
of dividends or principal and interest. See "Investment Objectives, Policies and
Risk Considerations" below and the Statement of Additional Information under
"Investment Objectives and Policies."
The Fund offers investors the opportunity to invest in a variety of
professionally managed investments without having to become involved with
detailed management, accounting and safekeeping procedures normally related to
direct investments in securities. The Portfolios also offer the economic
advantages of block trading in securities and the availability of a family of
eighteen mutual funds should an investor's investment goals change.
For information on purchasing, exchanging or redeeming Institutional
Shares of the Portfolios, please see "How to Purchase and Redeem Shares" below.
-6-
<PAGE> 209
CERTAIN FINANCIAL INFORMATION
Shares of the Money Market Portfolio have been classified into five
classes of Shares - Trust Shares, Institutional Shares, S Shares, Investor A
Shares and Investor B Shares. Shares of the U.S. Government Securities,
Government & Corporate Bond, Equity Income, Growth & Income Equity, Growth
Equity, Small Cap Equity, International Equity and Balanced Portfolios have been
classified into four classes of Shares -- Trust Shares, Institutional Shares,
Investor A Shares and Investor B Shares. Shares of the Treasury Money Market
Portfolio have been classified into four classes of Shares -- Trust Shares,
Institutional Shares, S Shares and Investor A Shares. Shares of the Intermediate
Corporate Bond, Bond Index, Equity Index and Small Cap Equity Index Portfolios
have been classified into three classes of Shares -- Trust Shares, Institutional
Shares and Investor A Shares. Shares of each class in a Portfolio represent
equal, PRO RATA interests in the investments held by that Portfolio and are
identical in all respects, except that Shares of each class bear separate
distribution and/or shareholder administrative servicing fees and certain other
operating expenses, and enjoy certain exclusive voting rights on matters
relating to these fees. See "Other Information Concerning the Fund and Its
Shares," "Management of the Fund -- Administrative Services Plan," and
"Management of the Fund -- Custodian, Sub-Custodian and Transfer Agent" below.
As a result of payments for distribution and/or shareholder administrative
servicing fees and certain other operating expenses that may be made in
differing amounts, the net investment income of Trust Shares, Institutional
Shares, S shares, Investor A Shares and Investor B Shares in a Portfolio can be
expected, at any given time, to be different.
The Growth Equity Portfolio commenced operations on January 4, 1993 as
the Arrow Equity Portfolio, a separate investment portfolio (the "Predecessor
Growth Equity Portfolio") of Arrow Funds, which was organized as a Massachusetts
business trust. On November 21, 1997, the Predecessor Growth Equity Portfolio
was reorganized as a new portfolio, the Growth Equity Portfolio of the Fund.
Prior to the reorganization, the Predecessor Growth Equity Portfolio offered and
sold shares of beneficial interest that were similar to the Fund's Investor A
Shares.
-7-
<PAGE> 210
EXPENSE SUMMARY FOR INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
==================================================================================================================================
Treasury U.S. Intermediate Government &
Money Money Government Corporate Corporate
Market Market Securities Bond Bond Index Bond
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Annual Portfolio Operating
Expenses
(as a percentage of average
net assets)
Investment Advisory Fees (net
of fee waivers(1)............... .__% .__% .__% __% __% .__%
12b-1 Fees........................ .00% .00% .00% .00% .00% .00%
Other Expenses (including
administration fees,
administrative services
fees and other expenses)
(net of fee waivers and
expense reimbursements)(2),(3).. .__% .__% .__% .__% .__% .__%
Total Portfolio Operating
Expenses (net of fee waivers
and expense reimbursements)(3).. .__% .__% .__% .__% .__% .__%
=== === === === === ===
==================================================================================================================================
<FN>
1 Without fee waivers, investment advisory fees would be .40%, .40%,
.45%, .55%, .30% and .45% for the Treasury Money Market, Money Market,
U.S. Government Securities, Intermediate Corporate Bond, Bond Index and
Government & Corporate Bond Portfolios, respectively.
2 Without fee waivers, administration fees would be .20% for each
Portfolio. Administrative services fees are payable at an annual rate
not to exceed .25% for the Money Market Portfolios and .30% for the
Equity and Bond Portfolios.
3 Without fee waivers and/or expense reimbursements, Other Expenses would
be .__%, .__%, .__%, .__%, .__% and .__% and Total Portfolio Operating
Expenses would be .__%, .__%, .__%, .__%, .__% and .__% for the
Treasury Money Market, Money Market, U.S. Government Securities,
Intermediate Corporate Bond, Bond Index and Government & Corporate Bond
Portfolios, respectively.
</TABLE>
-8-
<PAGE> 211
<TABLE>
<CAPTION>
====================================================================================================================================
Growth & Small Cap
Equity Equity Income Growth Small Cap Equity International
Income Index Equity Equity Equity Index Equity Balanced
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- --------- --------- --------- --------- ---------
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Annual Portfolio Operating
Expenses
(as a percentage of average
net assets)
Investment Advisory Fees (net
of fee waivers)(1).............. .__% .__% .__% .__% .__% .__% .__% .__%
12b-1 Fees........................ .00% .00% .00% .00% .00% 0.00% .00% .00%
Other Expenses (including
administration fees,
administrative services
fees and other expenses)
(net of fee waivers and
expense reimbursements)(2),(3).. .__% .__% .__% .__% .__% .__% .__% .__%
Total Portfolio Operating
Expenses (net of fee waivers
and expense reimbursements)(3).. .__% .__% .__% .__% .__% .__% .__% .__%
=== === === === === === === ===
====================================================================================================================================
<FN>
1 Without fee waivers, investment advisory fees would be .75%, .30%,
.55%, .75%, .75%, .40%, 1.00% and .75% for the Equity Income, Equity
Index, Growth & Income Equity, Growth Equity, Small Cap Equity, Small
Cap Equity Index, International Equity and Balanced Portfolios,
respectively.
2 Without fee waivers, administration fees would be .20% for each
Portfolio. Administrative services fees are payable at an annual rate
not to exceed .25% for the Money Market Portfolios and .30% for the
Equity and Bond Portfolios.
3 Without fee waivers and/or expense reimbursements, Other Expenses would
be .__%, .__%, .__%, .__%, .__%, .__%, .__%, and .__% and Total
Portfolio Operating Expenses would be .__%, .__%, .__%, .__%, .__%,
.__%, .__% and .__% for the Equity Income, Equity Index, Growth &
Income Equity, Growth Equity, Small Cap Equity, Small Cap Equity Index,
International Equity and Balanced Portfolios, respectively.
</TABLE>
-9-
<PAGE> 212
<TABLE>
<CAPTION>
Example 1 Year 3 Years 5 Years 10 Years
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming (1) a 5%
annual return and (2) redemption at the end of each period:
Treasury Money Market Portfolio..................................... $ $ $ $
Money Market Portfolio.............................................. $ $ $ $
U.S. Government Securities Portfolio................................ $ $ $ $
Intermediate Corporate Bond Portfolio............................... $ $ $ $
Bond Index Portfolio................................................ $ $ $ $
Government & Corporate Bond Portfolio............................... $ $ $ $
Equity Income Portfolio............................................. $ $ $ $
Equity Index Portfolio.............................................. $ $ $ $
Growth & Income Equity Portfolio.................................... $ $ $ $
Growth Equity Portfolio............................................. $ $ $ $
Small Cap Equity Portfolio.......................................... $ $ $ $
Small Cap Equity Index Portfolio.................................... $ $ N/A N/A
International Equity Portfolio...................................... $ $ $ $
Balanced Portfolio.................................................. $ $ $ $
</TABLE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN. Information about the actual performance of all
of the Portfolios is contained in the Fund's Annual Report to Shareholders dated
November 30, 1997 which may be obtained without charge by contacting the Fund at
the address or telephone number provided on page 1 of this Prospectus.
The purpose of the foregoing tables is to assist in understanding the
various costs and expenses that an investor in a Portfolio's Institutional
Shares will bear directly or indirectly. The information contained in such
tables with respect to the Treasury Money Market, Money Market, U.S. Government
Securities, Government & Corporate Bond, Growth & Income Equity, Small Cap
Equity, International Equity and Balanced Portfolios is based on expenses
incurred by each of these Portfolios during the last fiscal year with respect to
its Institutional Shares. Such information with respect to the Intermediate
Corporate Bond, Bond Index, Equity Income, Equity Index and Growth Equity
Portfolios is based on expenses incurred by each of these Portfolios during the
last fiscal year restated to reflect the expenses that each such Portfolio
expects to incur during the current fiscal year with respect to its
Institutional Shares. Such information with respect to the Small Cap Equity
Index Portfolio is based on expenses such Portfolio expects to incur during the
current fiscal year with respect to its Institutional Shares. For more complete
descriptions of the various costs and expenses, see "Management of the Fund" in
this Prospectus and the Statement of Additional Information. The Tables and
Examples have not been audited by the Fund's independent auditors and do not
reflect any charges that may be imposed by financial institutions on their
customers.
-10-
<PAGE> 213
FINANCIAL HIGHLIGHTS
The "Financial Highlights" in the following tables supplement the
Fund's financial statements, which are contained in the Fund's Annual Report to
Shareholders dated November 30, 1997 and [_______________________] into the
Statement of Additional Information, and set forth certain historic investment
results for Institutional Shares of each Portfolio other than the Small Cap
Equity Index Portfolio which had not commenced investment operations as of
November 30, 1997. The data for the years November 30, 1989 through 1997 has
been audited by [____ ______________], independent auditors, whose unqualified
report insofar as it relates to each of the years or periods in the five-year
period ended November 30, 1997 on the financial statements containing such
information [__________ ________________] into the Statement of Additional
Information. The data for the year ended November 30, 1988 were derived from
financial statements audited by the Fund's prior auditors. Further information
about the performance of the Portfolios is available in the Fund's Annual
Report. Both the Statement of Additional Information and the Annual Report may
be obtained free of charge by contacting the Fund at the address or telephone
number provided on page __ of this Prospectus.
-11-
<PAGE> 214
Treasury Money Market Portfolio
(For a Share outstanding throughout the period)
<TABLE>
<CAPTION>
Year Ended Year Ended Jan. 26, 1995 to
November 30, November 30, November 30,
1997 1996 1995 (a),(b)
------------ ------------- -----------------
Institutional Institutional Institutional
Shares Shares Shares
<S> <C> <C>
Net Asset Value,
Beginning of Period............................... $1.00 $1.00
----- -----
Investment Activities
Net investment income............................. 0.044 0.042
------ ------
Total from Investment
Activities.................................... 0.044 0.042
------ ------
Distributions
Net investment income............................. (0.044) (0.042)
------- -------
Total Distributions............................. (0.044) (0.042)
------- -------
Net Asset Value, End of Period...................... $1.00 $1.00
===== =====
Total Return........................................ 4.46% 4.94%(c)
Ratios/Supplemental Data:
Net Assets at end of period (000)................... $299 $28
Ratio of expenses to average net
assets (including waivers)........................ 0.79% 0.92%(d)
Ratio of net investment income
to average net assets
(including waivers)............................... 4.39% 5.76%(d)
Ratio of expenses to average net
assets (before waivers)*.......................... 0.94% 1.07%(d)
Ratio of net investment income to
average net assets (before waivers)* 4.24% 5.61%(d)
<FN>
- --------------------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) On December 2, 1991 the Portfolio issued a series of shares which
were designated as "Trust" Shares. In addition, on April 20, 1992,
the Portfolio issued a second series of shares which were
designated as "Investor" Shares and on January 26, 1995, the
Portfolio issued a third series of shares which were designated as
"Institutional" Shares. On September 27, 1994 the Portfolio
redesignated the "Investor" shares as "Investor A" shares.
(c) Represents total return for Investor A Shares from December 1, 1994
to January 25, 1995 plus the total return for Institutional Shares
from January 26, 1995 to November 30, 1995.
(d) Annualized.
</TABLE>
-12-
<PAGE> 215
Money Market Portfolio
(For a Share(a) outstanding throughout each period)
Year Ended November 30,
<TABLE>
<CAPTION>
1997 1996 1995 1994(a) 1993
---- ---- ---- ------- ----
Institutional Institutional Institutional Institutional Investor
Shares Shares Shares Shares Shares
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period........... $1.00 $1.00 $1.00 $1.00
----- ----- ----- -----
Investment Activities
Net investment income......... 0.047 0.052 0.033 0.025
----- ----- ----- -----
Total from investment
Activities 0.047 0.052 0.033 0.025
----- ----- ----- -----
Distributions
Net investment income.......... (0.047) (0.052) (0.033) (0.025)
------- ------- ------- -------
Total Distributions (0.047) (0.052) (0.033) (0.025)
------- ------- ------- -------
Net Asset Value,
End of Period................. $1.00 $1.00 $1.00 $1.00
===== ===== ----- =====
Total Return.................... 4.81% 5.33% 3.34% 2.52%
Ratios/Supplemental Data:
Net Assets at end of
period (000).................. $15,921 $13,340 $10,295 $46,920
Ratio of expenses to
average net assets
(including waivers) 0.78% 0.77% 0.78% 0.79%
Ratio of net
investment income to
average net assets
(including waivers)........... 4.70% 5.20% 3.48% 2.50%
Ratio of expenses to
average net assets
(before waivers)*............. 0.93% 0.92% 0.95% 0.93%
Ratio of net
investment income to
average net assets
(before waivers)*............. 4.55% 5.05% 3.31% 2.36%
<CAPTION>
1992 1991
---- ----
Investor Investor
Shares Shares 1990 1989 1988
------ ------ ---- ---- ----
<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......... 0.032 0.056 0.078
----- ----- -----
0.088 0.071
----- -----
Total from investment
Activities 0.032 0.056 0.078 0.088 0.071
----- ----- ------- ----- -----
Distributions
Net investment income.......... (0.032) (0.056) (0.078)
------- ------- -------
(0.088) (0.071)
Total Distributions (0.032) (0.056) (0.078) (0.088) (0.071)
------- ------- ------- ------- -------
Net Asset Value,
End of Period................. $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== =====
Total Return.................... 3.21% 5.75% 8.08% 9.21% 7.33%(b)
Ratios/Supplemental Data:
Net Assets at end of
period (000).................. $52,224 $60,436 $896,903 $661,145 $289,764
Ratio of expenses to
average net assets
(including waivers) 0.80% 0.72% 0.55% 0.45% 0.45%
Ratio of net
investment income to
average net assets
(including waivers)........... 3.21% 5.69% 7.77% 8.82% 7.12%
Ratio of expenses to
average net assets
(before waivers)*............. 0.94% 0.80% 0.60% 0.60% 0.58%
Ratio of net
investment income to
average net assets
(before waivers)*............. 3.07% 5.61% 7.72% 8.67% 6.99%
- ----------------------------------------
<FN>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been
as indicated.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. In addition, on January 3, 1994, the
Portfolio issued a new series of Shares which were designated as
"Institutional" Shares. The financial highlights presented for periods
prior to January 3, 1994 represent the financial highlights applicable
to Investor Shares. On September 27, 1994, the Portfolio redesignated
the Investor Shares as "Investor A" Shares.
(b) Unaudited.
</TABLE>
-14-
<PAGE> 216
U.S. Government Securities Portfolio
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
---------------------------------------------------------------------------------------
1997 1996 1995 1994(a) 1993
---- ---- ---- ------- ----
Institutional Institutional Institutional Institutional Investor
Shares Shares Shares Shares Shares
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period................. $10.82 $10.02 $11.20 $10.80
------ ------ ------ -------
Investment Activities
Net investment income............... 0.62 0.63 0.61 0.59
Net realized and unrealized
gains (losses) from
investments........................ (0.15) 0.80 (1.00) 0.47
------ ----- ----- ------
Total from Investment
Activities......................... 0.47 1.43 (0.39) 1.06
----- ----- ----- ------
Distributions
Net investment income............... (0.62) (0.63) (0.61) (0.59)
Net realized gains.................. -- -- -- (0.07)
In excess of net realized
gains............................. (0.03) -- (0.18) --
------ ----- ------ ------
Total Distributions................. (0.65) (0.63) (0.79) (0.66)
------ ------ ----- ------
Net Asset Value, End of Period........ $10.64 $10.82 $10.02 $11.20
====== ====== ====== ======
Total Return.......................... 4.55% 14.69% (3.46%) 10.03%
Ratios/Supplemental Data:
Net Assets at end of period
(000)............................... $2,232 $667 $51 $9,567
Ratio of expenses to average net
assets (including waivers).......... 0.96% 0.97% 0.95% 0.97%
Ratio of net investment income
to average net assets
(including waivers)................. 5.75% 5.91% 6.54% 5.25%
Ratio of expenses to average net
assets (before waivers)*............ 1.06% 1.07% 1.16% 1.08%
Ratio of net investment income
to average net assets (before
waivers)*........................... 5.65% 5.81% 6.33% 5.14%
Portfolio turnover.................... 53.76% 93.76% 50% 24%
<CAPTION>
Year Ended November 30,
----------------------------------------------------------------------
June 2,
1992 1991 1988 to
---- ----
Investor Investor Nov. 30,
Shares Shares 1990 1989 1988(b)
------- -------- ----- ----- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period................. $10.68 $10.21 $10.06 $ 9.94 $ 10.00
------- ------- ------- ------- -------
Investment Activities
Net investment income............... 0.62 0.75 0.76 0.85 0.36
Net realized and unrealized
gains (losses) from
investments........................ 0.13 0.47 0.16 0.11
------ ------ ------ ------
(0.06)
Total from Investment
Activities......................... 0.75 1.22 0.92 0.96
------ ------ ------ ------
0.30
Distributions
Net investment income............... (0.62) (0.75) (0.77) (0.84) (0.36)
Net realized gains.................. (0.01) -- -- -- --
In excess of net realized
gains............................. -- -- -- -- --
------ ------ ------ ------ -------
Total Distributions................. (0.63) (0.75) (0.77) (0.84) (0.36)
------ ------ ------ ------ -------
Net Asset Value, End of Period........ $10.80 $10.68 $10.21 $10.06
====== ====== ====== ======
$ 9.94
Total Return.......................... 7.20% 12.36% 9.66% 10.04% 3.05%(c)
Ratios/Supplemental Data:
Net Assets at end of period
(000)............................... $7,499 $5,791 $6,856 $5,954 $4,335
Ratio of expenses to average net
assets (including waivers).......... 0.95% 0.82% 0.73% 0.74%
0.79%(d)
Ratio of net investment income
to average net assets
(including waivers)................. 5.72% 7.12% 7.80% 8.50%
7.26%(d)
Ratio of expenses to average net
assets (before waivers)*............
1.09% 1.36% 1.28% 1.29% 1.40%(d)
Ratio of net investment income
to average net assets (before
waivers)*........................... 5.58% 6.58% 7.25% 7.95%
6.65%(d)
Portfolio turnover.................... 74% 36% 53% 84%
215%
<FN>
- ---------------------------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been
as indicated.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. In addition, on 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.
</TABLE>
-15-
<PAGE> 217
Intermediate Corporate Bond Portfolio
(For a Share Outstanding Throughout Each Period)
<TABLE>
<CAPTION>
February 10, 1997
to
November 30, 1997(a)
--------------------
Institutional
Shares
--------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................................
Investment Activities
Net investment income..............................................
Net realized and unrealized losses from investments................
Total from Investment Activities.............................
Distributions
Net investment income..............................................
Total Distributions..........................................
NET ASSET VALUE, END OF PERIOD........................................
Total Return.......................................................... (b)***
RATIOS/SUPPLEMENTARY DATA:
Net assets at the end of period (000)..............................
Ratio of expenses to average net assets............................ (c)
Ratio of net investment income to average net assets............... (c)
Ratio of expenses to average net assets*........................... (c)
Ratio of net investment income to average net assets*.............. (c)
Portfolio turnover**...............................................
<FN>
- ---------------------------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been
as indicated.
** Portfolio turnover is calculated on the basis of the 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.
</TABLE>
-16-
<PAGE> 218
Bond Index Portfolio
(For a Share Outstanding Throughout Each Period)
<TABLE>
<CAPTION>
February 10, 1997
to
November 30, 1997(a)
--------------------
Institutional
Shares
--------------------
<S> <C>
Net Asset Value, Beginning of Period.............................................
Investment Activities
Net investment income.........................................................
Net realized and unrealized losses from investments...........................
Total from Investment Activities........................................
Distributions
Net investment income.........................................................
Total Distributions.....................................................
Net Asset Value, End of Period...................................................
Total Return..................................................................... (b)***
Ratios/Supplementary Data:
Net assets at the end of period (000).........................................
Ratio of expenses to average net assets....................................... (c)
Ratio of net investment income to average net assets.......................... (c)
Ratio of expenses to average net assets*...................................... (c)
Ratio of net investment income to average net assets*......................... (c)
Portfolio turnover**..........................................................
<FN>
- ----------------------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been
as indicated.
** Portfolio turnover is calculated on the basis of the 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.
</TABLE>
-17-
<PAGE> 219
Government & Corporate Bond Portfolio
(For a Share(a) Outstanding Throughout Each Period)
<TABLE>
<CAPTION>
Year ended November 30,
------------------------------------------------------------------------------------------------
1997 1996 1995 1994(a) 1993
---- ---- ---- ------- ----
Institutional Institutional Institutional Institutional Investor
Shares Shares Shares Shares Shares
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period........ $10.53 $9.64 $10.65 $10.26
------ ------ -------
Investment Activities
Net investment income...... 0.64 0.61 0.60 0.64
Net realized and
unrealized gains
(losses) from
investments.............. (0.19) 0.89 (0.94) 0.39
------ ----- ------ ------
Total from Investment
Activities............... 0.45 1.50 (0.34) 1.03
----- ----- ------ ------
Distributions
Net investment income...... (0.64) (0.61) (0.60) (0.64)
In excess of net
realized gains......... -- -- (0.07) --
----- ----- ------ ------
Total Distributions........ (0.64) (0.61) (0.67) (0.64)
------ ------ ------- ------
Net Asset Value, End of
Period..................... $10.34 $10.53 $ 9.64 $10.65
====== ====== ====== ======
Total Return................. 4.51% 15.98% (3.32)% 10.23%
Ratios/Supplemental
Data:
Net Assets at end of $14,875 $9,413 $5,965 $3,737
period (000)
Ratio of expenses to
average net assets
(including waivers).......... 0.95% 0.95% 0.96% 0.95%
Ratio of net investment
income to average net
assets (including
waivers).................... 6.06% 6.01% 6.03% 6.00%
Ratio of expenses to
average net assets
(before waivers)*............ 1.05% 1.05% 1.07% 1.05%
Ratio of net investment
income to average net
assets (before 5.96% 5.91% 5.92% 5.90%
waivers)*..................
149.20% 59.32% 50% 31%
Portfolio turnover...........
<CAPTION>
Year ended November 30,
------------------------------------------------------------------------
June 15,
1992 1991 1988 to
---- ---- November
Investor Investor 30,
Shares Shares 1990 1989 1988(b)
------- ------- ------ ------ --------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period........ $10.15 $ 9.71 $10.12 $ 9.91 $ 10.00
------- ------- ------- ------- -------
Investment Activities
Net investment income...... 0.66 0.75 0.84 0.89 0.39
Net realized and
unrealized gains
(losses) from
investments.............. 0.11 0.48 (0.41) 0.22 (0.13)
------ ------ ------ ------ -------
Total from Investment
Activities............... 0.77 1.23 0.43 1.11 0.26
------ ------ ------ ------ -------
Distributions
Net investment income...... (0.66) (0.79) (0.84) (0.90) (0.35)
In excess of net
realized gains......... -- -- -- -- --
------ ------ ------ ------ ------
Total Distributions........ (0.66) (0.79) (0.84) (0.90) (0.35)
------ ------ ------ ------ -------
Net Asset Value, End of
Period..................... $10.26 $10.15 $ 9.71 $10.12 $ 9.91
====== ====== ====== ====== =======
Total Return................. 7.81% 12.79% 4.96% 11.79% 2.66%(c)
Ratios/Supplemental
Data:
Net Assets at end of $2,490 $2,010 $11,005 $10,327 $7,483
period (000)
Ratio of expenses to
average net assets
(including waivers).......... 0.93% 0.59% 0.53% 0.44% 0.56%(d)
Ratio of net investment
income to average net
assets (including
waivers).................... 6.45% 7.77% 8.69% 8.97% 8.47%(d)
Ratio of expenses to
average net assets
(before waivers)*............ 1.06% 1.14% 1.08% 0.99% 1.17%(d)
Ratio of net investment
income to average net
assets (before 6.32% 7.22% 8.14% 8.42% 7.86%(d)
waivers)*..................
52% 105% 75% 148% 22%
Portfolio turnover...........
</TABLE>
-18-
<PAGE> 220
- ------------------------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been
as indicated.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. In addition, on January 3, 1994, the
Portfolio issued a new series of Shares which were designated as
"Institutional" Shares. The financial highlights presented for periods
prior to January 3, 1994 represent the financial highlights applicable
to Investor Shares. On September 27, 1994, the Portfolio redesignated
the Investor Shares as "Investor A" Shares.
(b) Period from commencement of operations.
(c) Not Annualized.
(d) Annualized.
-19-
<PAGE> 221
Equity Income Portfolio
(For a Share Outstanding Throughout Each Period)
<TABLE>
<CAPTION>
March 7, 1997
to
November 30, 1997(a)
--------------------
Institutional
Shares
--------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............................................
Investment Activities
Net investment income........................................................
Net realized and unrealized gains from investments...........................
Total from Investment Activities.......................................
Distributions
Net investment income........................................................
Total Distributions....................................................
NET ASSET VALUE, END OF PERIOD..................................................
Total Return.................................................................... (b)***
RATIOS/SUPPLEMENTARY DATA:
Net assets at the end of period (000)........................................
Ratio of expenses to average net assets...................................... (c)
Ratio of net investment income to average net assets......................... (c)
Ratio of expenses to average net assets*..................................... (c)
Ratio of net investment income to average net assets*........................ (c)
Portfolio turnover**.........................................................
Average commission rate paid(d)..............................................
<FN>
- -------------------------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been
as indicated.
** Portfolio turnover is calculated on the basis of the 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.
</TABLE>
-20-
<PAGE> 222
Equity Index Portfolio
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
May 1, 1997
to
November 30, 1997(a)
--------------------
Institutional
Shares
--------------------
<S> <C>
Net Asset Value, Beginning of Period.........................................
Investment Activities
Net investment income.....................................................
Net realized and unrealized gains from investments........................
Total from Investment Activities....................................
Distributions
Net investment income.....................................................
Total Distributions.................................................
Net Asset Value, End of Period...............................................
Total Return................................................................. (b)***
Ratios/Supplementary Data:
Net assets at the end of period (000).....................................
Ratio of expenses to average net assets................................... (c)
Ratio of net investment income to average net assets...................... (c)
Ratio of expenses to average net assets*.................................. (c)
Ratio of net investment income to average net assets*..................... (c)
Portfolio turnover**......................................................
Average commission rate paid(d)...........................................
<FN>
- -------------------------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been
as indicated.
** Portfolio turnover is calculated on the basis of the 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.
</TABLE>
-21-
<PAGE> 223
Growth & Income Equity Portfolio
(For a Share(a) outstanding throughout each period)
Year Ended November 30,
-----------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995 1994(a) 1993
---- ---- ---- ------- ----
Institutional Institutional Institutional Institutional Investor
Shares Shares Shares Shares Shares
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period........ $16.29 $12.70 $14.74 $14.49
------ ------ ------- -------
Investment Activities
Net investment income...... 0.20 0.23 0.20 0.25
Net realized and
unrealized gains
(losses) from 3.33 3.74 (0.17) 1.06
investments................
Total from Investment
Activities............... 3.53 3.97 0.03 1.31
Distributions
Net investment income...... (0.20) (0.24) (0.21) (0.25)
In excess of net
investment income.......... (0.01) -- -- --
Net realized gains......... (0.94) (0.14) (0.18) (0.81)
In excess of net
realized gains............. -- -- (1.68) --
----- ----- ------ ------
Total Distributions........ (1.15) (0.38) (2.07) (1.06)
------ ------ ----- ------
Net Asset Value, End of $18.67 $16.29 $12.70 $14.74
====== ====== ====== ======
Period.......................
Total Return................. 23.08% 31.88% 0.19% 9.65%
Ratios/Supplemental
Data:
Net Assets at end of $72,950 $40,228 $21,897 $11,157
period (000)
Ratio of expenses to
average net assets
(including waivers).......... 1.05% 1.05% 1.05% 0.74%
Ratio of net investment
income to average net
assets (including 1.19% 1.58% 1.41% 1.74%
waivers).....................
Ratio of expenses to
average net assets 1.15% 1.15% 1.16% 0.96%
(before waivers)*............
<CAPTION>
June 2,
1992 1991 1988
---- ---- to
Investor Investor Nov 30,
Shares Shares 1990 1989 1988(b)
------ ------ -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period........ $12.33 $11.22 $12.41 $10.25 $10.00
------- ------- ------- ------- ------
Investment Activities
Net investment income...... 0.25 0.39 0.39 0.41 0.28
Net realized and
unrealized gains
(losses) from 2.24 1.47 (0.56) 2.29 0.06
------ ------ ------ ------ ------
investments................
Total from Investment 2.49 1.86 (0.17) 2.70 0.34
------ ------ ------ ------ ------
Activities...............
Distributions
Net investment income...... (0.26) (0.39) (0.39) (0.51) (0.09)
In excess of net
investment income.......... -- -- -- -- --
Net realized gains......... (0.07) (0.36) (0.63) (0.03)
In excess of net
realized gains............. -- -- -- -- --
------ ------ ----- ------ ------
Total Distributions........ (0.33) (0.75) (1.02) (0.54) (0.09)
------ ------ ------ ------ -------
Net Asset Value, End of $14.49 $12.33 $11.22 $12.41 $10.25
====== ====== ====== ====== ======
Period.......................
Total Return................. 20.59% 17.39% (1.36)% 27.11% 3.46%(c),(d)
Ratios/Supplemental
Data:
Net Assets at end of $6,044 $3,254 $20,116 $17,892 $10,890
period (000)
Ratio of expenses to
average net assets
(including waivers).......... 0.71% 0.34% 0.35% 0.42% 0.41%(e)
Ratio of net investment
income to average net
assets (including 1.94% 3.50% 3.42% 3.69% 5.62%(e)
waivers).....................
Ratio of expenses to
average net assets 0.85% 1.05% 1.00% 1.07% 1.12%(e)
(before waivers)*............
</TABLE>
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<PAGE> 224
<TABLE>
<S> <C> <C> <C> <C>
Ratio of net investment
income to average net
assets (before 1.09% 1.48% 1.30% 1.52%
waivers)*..................
63.90% 58.50% 65% 41%
Portfolio turnover...........
Average commission rate
paid(f).................... $0.0598 -- -- --
<CAPTION>
<S> <C> <C> <C> <C> <C>
Ratio of net investment
income to average net
assets (before 1.80% 2.79% 2.77% 3.04% 4.91%(e)
waivers)*..................
79% 78% 227% 133% 30%
Portfolio turnover...........
Average commission rate
paid(f).................... -- -- -- -- --
<FN>
- ----------------------------------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been
as indicated.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. In addition, on January 3, 1994, the
Portfolio issued a new series of Shares which were designated as
"Institutional" Shares. The financial highlights presented for periods
prior to January 3, 1994 represent the financial highlights applicable
to Investor Shares. On September 27, 1994, the Portfolio redesignated
the Investor Shares as "Investor A" Shares.
(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.
</TABLE>
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<PAGE> 225
Growth Equity Portfolio
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
November 24, 1997
to
November 30, 1997(a)
--------------------
Institutional
Shares
--------------------
<S> <C>
Net Asset Value, Beginning of Period..........................................
Investment Activities
Net investment income......................................................
Net realized and unrealized gains from investments.........................
Total from Investment Activities.....................................
Distributions
Net investment income......................................................
Total Distributions..................................................
Net Asset Value, End of Period................................................
Total Return.................................................................. (b)***
Ratios/Supplementary Data:
Net assets at the end of period (000)......................................
Ratio of expenses to average net assets.................................... (c)
Ratio of net investment income to average net assets....................... (c)
Ratio of expenses to average net assets*................................... (c)
Ratio of net investment income to average net assets*...................... (c)
Portfolio turnover**.......................................................
Average commission rate paid(d)............................................
<FN>
- -------------------------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been
as indicated.
** Portfolio turnover is calculated on the basis of the 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 total dollar amount of commissions paid on Portfolio
transactions divided by total number of Portfolio shares purchased and
sold for which commissions were charged.
</TABLE>
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<PAGE> 226
Small Cap Equity Portfolio(a)
(For a Share(b) outstanding throughout each period)
<TABLE>
<CAPTION>
Year
Ended Year Ended Year Ended Year Ended Year Ended May 6, 1992
November 30, November 30, November 30, November 30, November 30, to November 30,
1997 1996 1995 1994(a) 1993 1992(c)
------ ------ ------ --------- ------ --------
Institutional Institutional Institutional Institutional Investor Investor
Shares Shares Shares Shares Shares Shares
------------- ------------- ------------ ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period......... $ 13.40 $ 11.96 $13.14 $11.23 $10.10
------- -------- ------ ------ ------
Investment Activities
Net investment income (0.01) (0.01) (0.03) 0.03 0.02
(loss)....................
Net realized and
unrealized gains from
investments............... 1.03 2.36 0.86 2.14 1.13
Total from Investment
Activities.................. 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.......... (0.05) (0.91) (1.78) (0.21) --
In excess of net -- -- (0.23) -- --
realized gains............
------- -------- ------ ------ ------
(1.06) (0.91) (2.01) (0.26) (0.02)
------- -------- ------ ------ ------
Total Distributions.........
Net Asset Value, End of
Period...................... $ 13.36 $ 13.40 $11.96 $13.14 $11.23
======= ======== ====== ====== ======
Total Return.................. 8.39% 21.43% 7.11% 19.75% 12.55%(d)
Ratios/Supplemental
Data:
Net Assets at end of $30,081 $17,620 $5,633 $4,559 $ 753
period (000)
Ratio of expenses to
average net assets 1.26% 1.26% 1.25% 0.61% 0.30%(e)
(including waivers).......
Ratio of net investment
income to average net
assets (including (0.13%) (0.11%) (0.41%) 0.19% 0.78%(e)
waivers)....................
Ratio of expenses to
average net assets 1.36% 1.36% 1.37% 1.23% 1.12%(e)
(before waivers)*.........
Ratio of net investment
income to average net
assets (before
waivers)*................. (0.23%) (0.21%) (0.53%) (0.43%) (0.04%)(e)
Portfolio turnover............ 65.85% 83.13% 85% 65% 56%
Average commission rate
paid(f)....................... $0.0582 -- -- -- --
</TABLE>
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<PAGE> 227
- ---------------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been
as indicated.
(a) The Emerging Growth Portfolio changed its name to Small Cap Equity
Portfolio on December 1, 1996.
(b) The Portfolio issued a series of Shares which were designated as
"Investor" Shares on May 6, 1992. In addition, on January 3, 1994, the
Portfolio issued a new series of Shares which were designated as
"Institutional" Shares. The financial highlights presented for periods
prior to January 3, 1994 represent the financial highlights applicable
to Investor Shares. On September 27, 1994, the Portfolio redesignated
the Investor Shares as "Investor A" Shares.
(c) Period from commencement of operations.
(d) Not Annualized.
(e) Annualized.
(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.
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<PAGE> 228
International Equity Portfolio
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
November 30, November 30, November 30, April 4, 1994 to
1997 1996 1995 November 30, 1994(a)
------------- ------------ -------------- --------------------
Institutional Institutional Institutional Institutional
Shares Shares Shares Shares
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period............................. $ 10.75 $ 9.90 $10.00
------- ------- ------
Investment Activities
Net investment income........................... 0.01 0.01 (0.01)
Net realized and unrealized gains
(losses) from investments and foreign
currency...................................... 1.27 0.86 (0.09)
------- ------- ------
Total from Investment Activities................ 1.28 0.87 (0.10)
------- ------- ------
Distributions
Net realized gain............................... -- (0.01) --
------- ------- ------
Tax return of capital........................... -- (0.01) --
------- ------- ------
Total Distributions............................. -- (0.02) --
------- ------- ------
Net Asset Value,
End of Period................................... $ 12.03 $ 10.75 $ 9.90
======= ======= ======
Total Return...................................... 11.91% 8.78% (1.00%)(b)
Ratios/Supplemental Data:
Net Assets at end of period (000) $ 6,059 $ 2,159 $197
Ratio of expenses to average net
assets (including waivers)...................... 1.44% 1.44% 1.70%(c)
Ratio of net investment income to average
net assets (including waivers).................. 0.16% 0.13% (0.48%)(c)
Ratio of expenses to average net assets
(before waivers)*............................... 1.76% 1.75% 2.17%(c)
Ratio of net investment income to
average net assets (before
waivers)*....................................... (0.16%) (0.18%) (0.94%)(c)
Portfolio turnover................................ 77.63% 62.78% 21%
Average commission rate paid (d).................. $0.0251 -- --
<FN>
- ----------------------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) On April 4, 1994, the Portfolio issued a series of Shares which were
designated as "Trust" Shares. In addition, on April 24, 1994, the
Portfolio issued an additional series of Shares which were designated as
"Institutional" Shares. The financial highlights presented for the period
April 4, 1994 to April 24, 1994 represent the financial highlights
applicable to Trust Shares.
(b) Not Annualized.
(c) Annualized.
(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.
</TABLE>
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<PAGE> 229
Balanced Portfolio
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended April 1, 1993
November 30, November 30, November 30, November 30, to November 30,
1997 1996 1995 1994(a) 1993(b)
------ ------ ------ --------- --------
Institutional Institutional Institutional Institutional Investor
Shares Shares Shares Shares Shares
------------- ------------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.............. $ 11.62 $ 9.60 $ 10.22 $10.00
------- ------- ------- ------
Investment Activities
Net investment income............ 0.32 0.31 0.28 0.23
Net realized and unrealized
gains from investments......... 1.34 2.02 (0.48) 0.15
------- ------- ------- ------
Total from Investment
Activities......................... 1.66 2.33 (0.20) 0.38
------- ------- ------- ------
Distributions
Net investment income............ (0.32) (0.31) (0.29) (0.16)
Net realized gains............... (0.42) -- -- --
In excess of net realized
gains.......................... -- -- (0.13) --
------- ------- ------- ------
Total Distributions................ (0.74) (0.31) (0.42) (0.16)
------- -------- ------- ------
Net Asset Value, End of
Period............................. $ 12.54 $ 11.62 $ 9.60 $10.22
======= ======= ======= ======
Total Return....................... 15.08% 24.67% (2.00)% 3.86%(c)
Ratios/Supplemental Data:
Net Assets at end of period
(000) $54,731 $36,827 $22,723 $1,978
Ratio of expenses to average
net assets (including 1.27% 1.27% 1.27% 0.56%(d)
waivers).......................
Ratio of net investment
income to average net assets
(including waivers)............ 2.78% 2.97% 2.77% 3.42%(d)
Ratio of expenses to average
net assets (before waivers)*... 1.37% 1.37% 1.40% 1.21%(d)
Ratio of net investment
income to average net assets
(before waivers)*.............. 2.68% 2.87% 2.64% 2.77%(d)
Portfolio turnover................. 85.16% 58.16% 49% 26%
Average commission rate $0.0599 -- -- --
paid(e)........................
<FN>
- ---------------------------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) The Portfolio 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.
</TABLE>
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<PAGE> 230
INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS
Although management will use its best efforts to achieve the investment
objective of each Portfolio, there can be no assurance that it will be able to
do so. The investment objective of each Portfolio may be changed only with the
affirmative vote of a majority of the outstanding Shares of the Portfolio,
except that the investment objectives of the Bond Index, Equity Index and Small
Cap Equity Index Portfolios may be changed by the Fund's Board of Directors
without shareholder approval. Shareholders of the latter Portfolios will be
given at least 30 days' written notice before any such change occurs. The
Treasury Money Market and Money Market Portfolios are "money market" funds that
invest in instruments with remaining maturities of 397 days or less (with
certain exceptions) and with dollar-weighted average portfolio maturities of 90
days or less, subject to the quality, diversification and other requirements of
Rule 2a-7 under the Investment Company Act of 1940, as amended, (the "1940 Act")
and other rules of the Securities and Exchange Commission (the "SEC").
THE TREASURY MONEY MARKET PORTFOLIO
The Treasury Money Market Portfolio's investment objective is to seek a
high level of current income exempt from state income tax consistent with
liquidity and security of principal. In pursuing its investment objective, the
Portfolio invests in selected money market obligations issued by the U.S.
Government (or its agencies and instrumentalities) that are guaranteed as to
principal and interest by the U.S. Government, the interest on which is
generally exempt from state income tax. Securities that are generally eligible
for this exemption include those issued by the U.S. Treasury (bills,
certificates of indebtedness, notes and certain bonds) and certain U.S.
Government agencies and instrumentalities, including the General Services
Administration and Small Business Administration. Each investor should consult
his or her tax advisor to determine whether distributions from the Portfolio are
exempt from state income tax in the investor's home state. Under normal market
conditions, the Portfolio intends to invest substantially all (but not less than
65%) of its total assets in securities with the above characteristics and
(except to the extent discussed below) will not enter into repurchase agreements
or purchase any U.S. Government security that the Adviser believes is subject to
state income tax.
Under extraordinary circumstances, such as when appropriate exempt
securities are unavailable or pending investment, the Treasury Money Market
Portfolio may temporarily hold cash or invest in repurchase agreements
collateralized by U.S. Government securities, other U.S. Government agency or
instrumentality securities, securities of other investment companies that invest
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<PAGE> 231
in securities in which the Portfolio is permitted to invest, or cash
equivalents.
THE MONEY MARKET PORTFOLIO
The Money Market Portfolio's investment objective is to seek current
income with liquidity and stability of principal. In pursuing its investment
objective, the Portfolio invests substantially all of its assets in a broad
range of money market instruments. These instruments include obligations of the
U.S. Government, U.S. dollar-denominated foreign securities, obligations of U.S.
and foreign banks and savings and loan institutions and commercial obligations
that meet the applicable quality requirements described below.
The Money Market Portfolio will purchase only "First Tier Eligible
Securities" (as defined by the SEC) that present minimal credit risks as
determined by the Adviser pursuant to guidelines approved by the Fund's Board of
Directors. First Tier Eligible Securities consist of (i) securities that either
(a) have short-term debt ratings at the time of purchase in the highest rating
category by at least two unaffiliated nationally recognized statistical rating
organizations ("Rating Agencies") (or one Rating Agency if the security was
rated by only one Rating Agency), or (b) are issued by issuers with such
ratings, and (ii) certain securities that are unrated (including securities of
issuers that have long-term but not short-term ratings) but are of comparable
quality as determined in accordance with guidelines approved by the Board of
Directors. The applicable ratings by Rating Agencies are described in Appendix A
to the Statement of Additional Information. The following descriptions
illustrate the types of instruments in which the Portfolio invests.
Banking Obligations. The Money Market Portfolio may purchase
obligations of issuers in the banking industry, such as certificates of deposit,
letters of credit, bankers' acceptances and time deposits, including U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions having total assets at the time of
purchase in excess of $1 billion. The Portfolio may invest in obligations of
foreign banks or foreign branches of U.S. banks in amounts not in excess of 25%
of its assets where the Adviser deems the instrument to present minimal credit
risks. (See "Risk Factors -- Risks Associated with Foreign Securities and
Currencies" below.) The Portfolio may also make interest-bearing savings
deposits in commercial and savings banks in amounts not in excess of 5% of the
value of its total assets.
Commercial Paper and Variable and Floating Rate Instruments. The
Portfolio may invest in commercial paper, including asset- backed commercial
paper representing interests in a pool of corporate receivables,
dollar-denominated obligations issued by
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<PAGE> 232
domestic and foreign bank holding companies, and corporate bonds that meet the
quality and maturity requirements described above. The Portfolio may also invest
in variable or floating rate notes that may have a stated maturity in excess of
thirteen months but will, in any event, permit the Portfolio to demand payment
of the principal of the instrument at least once every thirteen months upon no
more than 30 days' notice (unless the instrument is guaranteed by the U.S.
Government or an agency or instrumentality thereof). Such instruments may
include variable amount master demand notes, which are unsecured instruments
that permit the indebtedness thereunder to vary in addition to providing for
periodic adjustments in the interest rate. Unrated variable and floating rate
instruments will be determined by the Adviser (under the supervision of the
Board of Directors) to be of comparable quality at the time of purchase to First
Tier Eligible Securities. There may be no active secondary market in the
instruments, which could make it difficult for the Portfolio to dispose of an
instrument in the event the issuer were to default on its payment obligation or
during periods that the Portfolio could not exercise its demand rights. The
Portfolio could, for these or other reasons, suffer a loss with respect to such
instruments. Variable and floating rate instruments held by the Portfolio will
be subject to the Portfolio's 10% limitation on illiquid investments when the
Portfolio may not demand payment of the principal amount within seven days and a
liquid trading market is absent.
Government Obligations. The Money Market Portfolio may invest in
obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities. In addition, the Portfolio may, when deemed appropriate by
the Adviser, invest in short-term obligations issued by state and local
governmental issuers that meet the quality requirements described above and, as
a result of the Tax Reform Act of 1986, carry yields that are competitive with
those of other types of money market instruments of comparable quality.
THE U.S. GOVERNMENT SECURITIES PORTFOLIO
The U.S. Government Securities Portfolio's investment objective is to
seek a high rate of current income that is consistent with relative stability of
principal. In pursuing its investment objective, the Portfolio invests in
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities normally having remaining maturities of 1 to 30 years and
repurchase agreements relating to such obligations. (For further information,
see "Other Applicable Policies -- U.S. Government Obligations" below.)
Consistent with its investment policies, the U.S. Government Securities
Portfolio may invest in mortgage-backed securities, including those representing
an undivided ownership interest in a
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<PAGE> 233
pool of mortgage loans, such as certificates issued by the Government National
Mortgage Association ("GNMA"), the Federal National Mortgage Association
("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC") and
collateralized mortgage obligations ("CMOs"). For further information regarding
these instruments, see "Other Applicable Policies -- Asset-Backed Securities"
below.
THE INTERMEDIATE CORPORATE BOND PORTFOLIO
The Intermediate Corporate Bond Portfolio's investment objective is to
seek as high a level of current income as is consistent with preservation of
capital. In pursuing its investment objective, the Portfolio will invest, under
normal market and economic conditions, at least 65% of its total assets in
non-convertible corporate debt obligations, which shall mean obligations of (i)
domestic or foreign business corporations, or (ii) agencies, instrumentalities
or authorities which are organized in corporate form by one or more states or
political subdivisions in the United States or one or more foreign governments.
The Portfolio may also invest in obligations issued or guaranteed by the U.S. or
foreign governments, their agencies or instrumentalities, and asset-backed
securities, including various collateralized mortgage obligations and other
mortgage-related securities. For further information regarding these
instruments, see "Other Applicable Policies -- Asset-Backed Securities" below.
In making investment decisions, the Adviser will consider a number of factors
including current yield, maturity, yield to maturity, anticipated changes in
interest rates, and the overall quality of the investment. The Portfolio seeks
to provide a current yield greater than that generally available from money
market instruments.
The Portfolio may purchase debt securities which are rated at the time
of purchase in one of the four highest rating categories assigned by one or more
Rating Agencies or in unrated debt securities deemed by the Adviser to be of
comparable quality. Under normal market and economic conditions, however, the
Portfolio intends to invest at least 65% of its total assets in debt obligations
rated in one of the three highest rating categories assigned by one or more
Rating Agencies (or unrated debt obligations determined to be of comparable
quality). Securities that are rated in the lowest of the four highest rating
categories have speculative characteristics, even though they are of investment
grade quality, and such securities will be purchased (and retained) only if the
Adviser believes that the issuers have an adequate capacity to pay interest and
repay principal. Unrated debt securities will be purchased only if they are
considered by the Adviser to be at least comparable in quality at the time of
purchase to instruments within the rating categories listed above. Debt
securities purchased by the Portfolio whose ratings are subsequently downgraded
below the
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<PAGE> 234
four highest rating categories of a Rating Agency will be disposed of in an
orderly manner, normally within 30 to 60 days. The applicable ratings issued by
the Rating Agencies are described in the Appendix to the Statement of Additional
Information.
The Portfolio reserves the right to hold as a temporary defensive
measure up to 100% of its total assets in cash and short-term obligations
(having remaining maturities of 13 months or less) at such times and in such
proportions as, in the opinion of the Adviser, prevailing market or economic
conditions warrant. Short-term obligations in which the Portfolio may invest
include (i) money market instruments, such as commercial paper, including
variable and floating rate instruments, rated at the time of purchase in one of
the two highest rating categories assigned by a Rating Agency or, if unrated,
deemed to be of comparable quality by the Adviser at the time of purchase, and
bank obligations, including bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits of U.S. and foreign banks having total
assets at the time of purchase in excess of $1 billion, (ii) obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, and
(iii) repurchase agreements. For further information regarding variable and
floating rate instruments, see "The Money Market Portfolio -- Commercial Paper
and Variable and Floating Rate Instruments" above. Although the Portfolio will
invest in obligations of foreign banks or foreign branches of U.S. banks only
when the Adviser determines that the instrument presents minimal credit risks,
such investments nevertheless entail risks that are different from those of
investments in domestic obligations of U.S. banks. See "Risk Factors -- Risks
Associated with Foreign Securities and Currencies" below. Investments in the
obligations of foreign banks or foreign branches of U.S. banks will not exceed
25% of the Portfolio's total assets at the time of purchase.
The Portfolio's average weighted maturity will be between three and ten
years and will vary in light of current market and economic conditions, the
comparative yields on instruments with different maturities, and other factors.
THE BOND INDEX PORTFOLIO
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 debt securities as represented by the Lehman Brothers
Aggregate Bond Index (the "Lehman Aggregate").
The Portfolio is not managed in a traditional sense, that is, by making
discretionary judgments based on analysis of
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<PAGE> 235
economic, financial and market conditions. Instead, the Portfolio uses an
investment strategy called "indexing" whereby it seeks to approximate the
investment performance of the market segment comprised of U.S. Government,
mortgage-backed, asset-backed and corporate debt securities, as represented by
the Lehman Aggregate, through the use of sophisticated computer models to
determine which securities should be purchased or sold, while keeping
transaction and administrative costs to a minimum. The Portfolio will invest
substantially all of its total assets in securities listed in the Lehman
Aggregate, including without limitation, asset-backed securities. For further
information regarding asset-backed securities see "Other Applicable Policies --
Asset-Backed Securities" below. The Adviser generally selects securities for the
Portfolio on the basis of their weightings in the Lehman Aggregate and will only
purchase a security for the Portfolio that is included in the Lehman Aggregate
at the time of such purchase. The Portfolio should exhibit price and yield
volatility similar to that of the Lehman Aggregate. For further information, see
"Other Investment Policies -- The Indexing Approach" below and the Statement of
Additional Information under "Investment Objectives and Policies -- The Indexing
Approach."
With respect to the remaining portion of its total assets, the
Portfolio has the ability to hold temporary cash balances which may be invested
in U.S. Government obligations and money market instruments. See "The
Intermediate Corporate Bond Portfolio" above for a description of the types of
money market instruments in which the Portfolio may invest and the applicable
limitations with respect to such investments. If appropriate, the Portfolio may
use options, futures contracts and depository receipts to hedge its positions or
for other permissible purposes. The Portfolio also may enter into reverse
repurchase agreements and lend its portfolio securities.
The Lehman Aggregate. The Lehman Aggregate is composed of U.S.
Government, mortgage-backed, asset-backed and non-convertible corporate debt
securities that meet the following criteria: the securities have at least $100
million par amount outstanding; the securities are rated investment grade (at
least Baa or BBB) by Moody's or Standard & Poor's Ratings Services ("S&P") (if
not rated by Moody's); have at least one year until maturity; and have coupons
with fixed rates. The Lehman Aggregate excludes collateralized mortgage
obligations ("CMOs"), adjustable rate mortgages, manufactured homes, non-agency
bonds, buydowns, graduated equity mortgages, project loans and non-conforming
(i.e., "jumbo") mortgages. As of December 31, 1997, over _____ issues were
included in the Lehman Aggregate, representing approximately $___ trillion in
market value. U.S. Treasury and agency securities represented approximately
____% of the total market value, asset-backed and mortgage-backed securities
represented approximately ____% of the total market
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<PAGE> 236
value, with corporate debt securities representing the balance of approximately
_____%. The average maturity of the Lehman Aggregate was approximately _____
years. The Adviser believes that the Lehman Aggregate is an appropriate
benchmark for the Portfolio because it is diversified, it is familiar to
investors, and it is widely accepted as a reference for bonds and other fixed
income investments.
Because of the large number of issues included in the Lehman Aggregate,
the Portfolio cannot invest in all such issues. Instead, the Portfolio will hold
a representative sample of approximately 100 of the securities in the Lehman
Aggregate, selecting one or two issues to represent an entire "class" or type of
securities in the Lehman Aggregate. At a minimum, the Portfolio seeks to hold
securities which reflect the major asset classes in the Lehman Aggregate - U.S.
Treasury and agency issues, mortgage-backed securities, asset-backed securities
and non-convertible corporate debt securities. As the Portfolio's assets
increase, these classes will be further delineated along the lines of sector,
term-to-maturity, coupon and credit ratings. This sampling technique is expected
to be an effective means of substantially duplicating the price and performance
provided by the securities comprising the Lehman Aggregate.
Securities rated Baa by Moody's or BBB by S&P have speculative
characteristics even though they are of investment-grade quality, and changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case with
higher-grade securities.
THE GOVERNMENT & CORPORATE BOND PORTFOLIO
The Government & Corporate Bond Portfolio's investment objective is to
seek the highest level of current income consistent with conservation of
capital. In pursuing its investment objective, the Portfolio intends to invest
at least 65% of its assets in fixed-income and related debt securities rated in
one of the three highest rating categories assigned by a Rating Agency at the
time of purchase or in unrated investments deemed by the Adviser to be of
comparable quality pursuant to guidelines approved by the Fund's Board of
Directors. Debt securities may include a broad range of fixed and variable rate
bonds, debentures, notes, and securities convertible into or exchangeable for
common stock; dollar-denominated debt obligations of foreign issuers, including
foreign corporations and governments; and first mortgage loans, income
participation loans, participation certificates in pools of mortgages, including
mortgages issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, CMOs and other mortgage-related securities, and other
asset-backed securities. For further information regarding asset-backed
securities, see "Other
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Applicable Policies -- Asset-Backed Securities" below. The Portfolio may invest
up to 10% of its total assets at the time of purchase in dollar-denominated debt
obligations of foreign issuers, either directly or through American Depository
Receipts ("ADRs") and European Depository Receipts ("EDRs"), and up to 25% of
its total assets at the time of purchase in non-mortgage asset-backed
securities, respectively. See "Other Applicable Policies -- Foreign Securities"
below and the Statement of Additional Information under "Investment Objectives
and Policies -- ADRs and EDRs."
The Government & Corporate Bond Portfolio may purchase debt securities
which are rated at the time of purchase within the four highest rating
categories assigned by Rating Agencies or unrated debt securities (including
convertible securities) which the Adviser believes present attractive
opportunities and are of at least comparable quality to instruments so rated.
The Portfolio's dollar-weighted average portfolio quality is expected to be at
least "A" or higher. Securities rated in the lowest of the above four rating
categories have speculative characteristics, even though they are of
investment-grade quality, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade securities. Such
securities will be purchased (and retained) only when the Adviser believes the
issuers have an adequate capacity to pay interest and repay principal. (For a
description of the rating categories of Rating Agencies, see Appendix A to the
Statement of Additional Information.) In making investment decisions, the
Adviser will consider a number of factors including current yield, maturity,
yield to maturity, anticipated changes in interest rates, and the overall
quality of the investment. The Portfolio seeks to provide a current yield
greater than that generally available from money market instruments.
The Government & Corporate Bond Portfolio reserves the right to hold as
a temporary defensive measure up to 100% of its total assets in cash and
short-term obligations (having remaining maturities of 12 months or less) at
such times and in such proportions as, in the opinion of the Adviser, prevailing
market or economic conditions warrant. Short-term obligations include, but are
not limited to, commercial paper, bankers' acceptances, certificates of deposit,
demand and time deposits of domestic and foreign banks and savings and loan
associations, repurchase agreements and obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities.
THE EQUITY INCOME PORTFOLIO
The Equity Income Portfolio's investment objective is to seek to
provide an above-average level of income consistent with
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long-term capital appreciation. In pursuing its investment objective, the
Portfolio intends to invest, under normal market and economic conditions,
substantially all of its assets in common stock, preferred stock, rights,
warrants, and securities convertible into common stock. The Adviser will select
stocks based on a number of quantitative factors, including dividend yield,
current and future earnings potential compared to stock prices, total return
potential and other measures of value, such as cash flow, asset value or book
value, if appropriate. Stocks purchased for the Portfolio generally will be
listed on a national securities exchange or will be unlisted securities with an
established over-the-counter market. A convertible security may be purchased for
the Portfolio when, in the Adviser's opinion, the price and yield of the
convertible security is favorable as compared to the price and yield of the
common stock. The stocks or securities in which the Portfolio invests may be
expected to produce an above average level of income (as measured by the
Standard & Poor's 500 Composite Stock Price Index). Under normal market and
economic conditions, at least 65% of the Portfolio's total assets will be
invested in income-producing equity securities.
The Portfolio may indirectly invest in foreign securities through the
purchase of ADRs and EDRs, but will not do so if, immediately after and as a
result of the purchase, the value of ADRs and EDRs would exceed 15% of the
Portfolio's total assets. For further information, see "Other Applicable
Policies --Foreign Securities" below and the Statement of Additional Information
under "Investment Objectives and Policies -- ADRs and EDRs".
The Portfolio reserves the right to hold as a temporary defensive
measure during abnormal market or economic conditions up to 100% of its total
assets in cash and short-term obligations (having remaining maturities of 13
months or less) at such times and in such proportions as, in the opinion of the
Adviser, such abnormal market or economic conditions warrant. See "The
Intermediate Corporate Bond Portfolio" above for a description of the types of
short-term obligations in which the Portfolio may invest and the applicable
limitations with respect to such investments.
THE EQUITY INDEX PORTFOLIO
The 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").
Like the Bond Index Portfolio, the Equity Index Portfolio is not
managed in a traditional sense, that is, by making
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discretionary judgments based on analysis of economic, financial and market
conditions. Instead, the Portfolio uses an investment strategy called "indexing"
whereby it seeks to approximate the investment performance of the market segment
comprised of U.S. publicly traded common stocks with large stock market
capitalizations, as represented by the S&P 500, through the use of sophisticated
computer models to determine which securities should be purchased or sold, while
keeping transaction and administrative costs to a minimum. The Portfolio will
invest substantially all of its total assets in securities listed in the S&P
500. The Adviser generally selects securities for the Portfolio on the basis of
their weightings in the S&P 500 and will only purchase a security for the
Portfolio that is included in the S&P 500 at the time of such purchase. The
Portfolio should exhibit price volatility similar to that of the S&P 500. For
further information, see "Other Investment Policies -- The Indexing Approach"
below and the Statement of Additional Information under "Investment Objectives
and Policies -- The Indexing Approach."
With respect to the remaining portion of its total assets, the
Portfolio has the ability to hold temporary cash balances which may be invested
in U.S. Government obligations and money market instruments. See "The
Intermediate Corporate Bond Portfolio" above for a description of the money
market instruments in which the Portfolio may invest and the applicable
limitations with respect to such investments. If appropriate, the Portfolio may
use options, futures contracts and depository receipts to hedge its positions or
for other permissible purposes. The Portfolio also may enter into reverse
repurchase agreements and lend its portfolio securities.
The S&P 500. The S&P 500 is composed of approximately 500 common
stocks, most of which are listed on the New York Stock Exchange. S&P chooses the
stocks for the S&P 500 on a statistical basis. As of December 31, 1997 the
stocks in the S&P 500 have an average market capitalization of $___ trillion and
account for approximately ___% of the total market value of all U.S. common
stocks. Normally, the Equity Index Portfolio will hold all 500 stocks in the S&P
500 and will hold each stock approximately the same percentage as that stock
represents in the S&P 500. Under certain circumstances, the Portfolio may not
hold all 500 stocks in the S&P 500, for example because of changes in the S&P
500, or as a result of shareholder activity in the Portfolio. The Portfolio will
rebalance its holdings monthly to reflect changes in the S&P 500. "Market
capitalization" for a company is the market price per share of stock multiplied
by the number of shares outstanding. The Adviser believes that the S&P 500 is an
appropriate benchmark for the Portfolio because it is diversified, it is
familiar to many investors and it is widely accepted as a reference for common
stock investments.
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THE GROWTH & INCOME EQUITY PORTFOLIO
The Growth & Income Equity Portfolio's investment objective is to
provide long-term capital growth, with income a secondary consideration. In
pursuing its investment objective, the Portfolio normally invests substantially
all of its assets in common stock, preferred stock, rights, warrants and
securities convertible into common stock. The Adviser selects stocks based on a
number of factors, including historical and projected earnings, growth and asset
value, earnings compared to stock prices generally (as measured by the S&P 500,
and consistency of earnings growth and earnings quality. Stocks purchased for
the Portfolio generally will be listed on a national securities exchange or will
be unlisted securities with an established over-the-counter market. A
convertible security may be purchased for the Portfolio when, in the Adviser's
opinion, the price and yield of the convertible security is favorable compared
to the price and yield of the common stock. The stocks or securities in which
the Portfolio invests may be expected to produce some income but income is not a
major criterion in their selection.
The Growth & Income Equity Portfolio may indirectly invest in foreign
securities through the purchase of ADRs and EDRs but will not do so if,
immediately after and as a result of the purchase, the value of ADRs and EDRs
would exceed 15% of the Portfolio's total assets. For further information, see
"Other Applicable Policies -- Foreign Securities" below and the Statement of
Additional Information under "Investment Objectives and Policies -- ADRs and
EDRs." The Portfolio may also invest in Canadian securities listed on a national
securities exchange.
The Growth & Income Equity Portfolio reserves the right to hold as a
temporary defensive measure up to 100% of its total assets in cash and
short-term obligations (having remaining maturities of 12 months or less) at
such times and in such proportions as, in the opinion of the Adviser, prevailing
market or economic conditions warrant. See "The Government & Corporate Bond
Portfolio" above for a description of the types of short-term obligations in
which the Portfolio may invest.
The Growth Equity Portfolio
The Growth Equity Portfolio's investment objective is capital
appreciation. The Portfolio seeks to achieve this objective by investing
primarily in equity securities of companies selected on the basis of assessment
of earnings and the risk and volatility of each company's business. Other
factors, such as product position or market share, will also be considered by
the Adviser.
The Growth Equity Portfolio invests primarily in equity securities of
companies selected by the Adviser on the basis of
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traditional research techniques. The equity securities in which the Portfolio
invests are primarily those of middle to large capitalization issuers whose
shares are listed on the New York and American Stock Exchanges and Nasdaq.
Company earnings are the primary consideration in selecting portfolio
securities. The Portfolio may invest in common stocks, preferred stocks,
convertible securities, corporate bonds, debentures, notes, warrants, and put
and call options on stocks, although normally it will invest at least 65% of its
total assets in common stocks. Debt obligations purchased by the Portfolio may
include variable and floating rate instruments, including variable rate master
demand notes that permit the indebtedness thereunder to vary in addition to
providing for periodic adjustments in the interest rate. See "The Money Market
Portfolio" above for a description of certain risks in investing in variable and
floating rate obligations. Debt obligations in which the Portfolio invests will
be rated at the time of purchase in one of the four to highest rating categories
assigned by one or more Rating Agencies or, if unrated, will deemed to be of
comparable quality by the Adviser. Securities that are rated in the lowest of
the four highest rating categories have speculative characteristics, even though
they are of investment grade quality, and changes in economic conditions or
other circumstances are more likely to lead to weakened capacity to make
principal and interest payments than higher rated securities. Downgrades will be
evaluated on a case by case basis by the Adviser. The Adviser will determine
whether or not the security continues to be an acceptable investment. If it is
determined not to be an acceptable investment, the security will be sold. The
applicable ratings categories of the Rating Agencies are described in Appendix A
to the Statement of Additional Information.
The Growth Equity Portfolio may invest in the securities of foreign
issuers which are freely traded on United States securities exchanges or in the
over-the-counter market in the form of depository receipts. Securities of a
foreign issuer may present greater risks in the form of nationalization,
confiscation, domestic marketability, or other national or international
restrictions. As a matter of practice, the Portfolio will not invest in the
securities of a foreign issuer if any such risk appears to the Adviser to be
substantial. The Portfolio may not invest more than 5% of its total assets in
securities of foreign issuers. For further information on the risks of foreign
securities, see "Risk Factors -- Risks Associated with Foreign Securities and
Currencies" below.
In such proportions as, in the judgment of the Adviser, prevailing
market conditions warrant, the Growth Equity Portfolio may, for temporary
defensive purposes, invest in short-term money market instruments, securities
issued and/or guaranteed as to payment of principal and interest by the U.S.
Government, its agencies or instrumentalities, and repurchase agreements. See
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"The Intermediate Corporate Bond Portfolio" above for further information on the
types of short-term obligations in which the Portfolio may invest.
THE SMALL CAP EQUITY PORTFOLIO
The Small Cap Equity Portfolio's investment objective is capital
appreciation. Current income is an incidental consideration in the selection of
portfolio securities. In pursuing its investment objective, the Portfolio (which
was formerly known as the Emerging Growth Portfolio) normally invests at least
65% of its total assets in common stock of emerging or established small- to
medium-sized companies with above-average potential for price appreciation. The
market capitalization of the issuers of securities purchased by the Portfolio
will normally range from $100 million to $2 billion at the time of purchase. The
Portfolio may invest in preferred stock, rights, warrants, and securities
convertible into common stock. It may invest a portion of its assets in
established larger companies that, in the opinion of the Adviser, offer improved
growth possibilities because of rejuvenated management, product changes, or
other developments that might stimulate earnings or asset growth, or in
companies that seem undervalued relative to their underlying assets. The
Portfolio does not intend to invest more than 5% of the value of its total
assets in the securities of unseasoned companies, that is, companies (or their
predecessors) with less than three years' continuous operation.
The Small Cap Equity Portfolio may also invest a portion of its assets
in smaller companies that have limited specialized-product lines, markets or
financial resources, or are dependent upon one-person management. The securities
of such smaller companies may have limited marketability, may be subject to more
abrupt or erratic market movements than securities of larger companies or the
market averages in general, and may involve greater risk than is customarily
associated with more established companies. To qualify for investment by the
Portfolio, however, a company will be expected to have, in the opinion of the
Adviser, above-average possibilities for capital appreciation (when compared
with the average appreciation of companies whose securities are included in the
S&P 500).
The Small Cap Equity Portfolio uses a research intensive approach and
valuation techniques that emphasize earnings and asset growth. The Adviser
selects stocks based on a number of factors, including historical and projected
earnings, asset value, potential for price appreciation and earnings growth, and
quality of products manufactured and/or services offered. Stocks purchased for
the Portfolio may be listed on a national securities exchange or may be unlisted
securities with or without an established over-the-counter market. The Portfolio
may also invest in initial public offerings of new companies that
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demonstrate the potential for price appreciation. A convertible security may be
purchased for the Portfolio when, in the Adviser's opinion, the price of the
convertible security is favorable compared to the price of the common stock. In
general, the Portfolio's stocks and other securities will be diversified over a
number of industry groups in an effort to reduce the risks inherent in such
investments.
The Small Cap Equity Portfolio may indirectly invest in foreign
securities through the purchase of such obligations as ADRs and EDRs but will
not do so if, immediately after and as a result of the purchase, the value of
ADRs and EDRs would exceed 25% of the Portfolio's total assets. For further
information, see "Other Applicable Policies -- Foreign Securities" below, and
the Statement of Additional Information under "Investment Objectives and
Policies -- ADRs and EDRs." The Portfolio may also invest in securities issued
by Canadian corporations and Canadian counterparts of U.S. corporations, which
may or may not be listed on a national securities exchange or traded in
over-the-counter markets.
The Small Cap Equity Portfolio reserves the right to hold as a
temporary defensive measure up to 100% of its total assets in cash and
short-term obligations (having remaining maturities of 12 months or less) at
such times and in such proportions as, in the opinion of the Adviser, prevailing
market or economic conditions warrant. See "The Government & Corporate Bond
Portfolio" above for a description of the types of short-term obligations in
which the Portfolio may invest.
THE SMALL CAP EQUITY INDEX PORTFOLIO
The investment objective of the Small Cap 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. common stocks
with smaller stock market capitalizations as represented by the S&P SmallCap
600.
Like the Bond Index and Equity Index Portfolios, the Small Cap Equity
Index Portfolio is not managed in a traditional sense, that is, by making
discretionary judgments based on analysis of economic, financial and market
conditions. Instead, the Portfolio uses an investment strategy called
"indexing", whereby it seeks to approximate the investment performance of the
market segment comprised of U.S. common stocks with smaller stock market
capitalizations as represented by the S&P SmallCap 600, through the use of
sophisticated computer models to determine which stocks should be purchased or
sold, while keeping transaction and administrative costs to a minimum. The
Portfolio will invest substantially all but no less than 80% of its total assets
in securities listed on the S&P SmallCap 600. The Adviser generally selects
securities for the Portfolio on the basis of their
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weightings in the S&P SmallCap 600. The Portfolio will only purchase a common
stock that is included in the S&P SmallCap 600 at the time of such purchase. The
Portfolio should exhibit price volatility similar to that of the S&P SmallCap
600. For further information, see "Other Investment Policies -- The Indexing
Approach" below and the Statement of Additional Information under "Investment
Objectives and Policies -- The Indexing Approach."
With respect to the remaining portion of its total assets, the
Portfolio has the ability to hold temporary cash balances which may be invested
in U.S. Government obligations and money market instruments, including variable
and floating rate instruments such as master demand notes. See "The Intermediate
Corporate Bond Portfolio" above for a description of the money market
instruments in which the Portfolio may invest and the applicable limitations
with respect to such instruments. See "The Money Market Portfolio" above for a
description of certain risks in investing in variable and floating rate
obligations. If appropriate, the Portfolio may use options, futures contracts
and depository receipts to hedge its positions or for other permissible
purposes. The Portfolio also may enter into repurchase and reverse repurchase
agreements and lend its portfolio securities.
The S&P SmallCap 600. The S&P SmallCap 600 is composed of approximately
600 common stocks. These companies are chosen to be a part of the S&P SmallCap
600 based upon their market size, liquidity and industry group representation.
As of December 31, 1997, stocks in the S&P SmallCap 600 had a market
capitalization of between $____ million and $___ billion. To be included in the
S&P SmallCap 600, stock selections are also screened by S&P for trading volume,
ownership concentration, share price and bid/ask spreads. Normally, the
Portfolio will hold all 600 stocks in the S&P SmallCap 600 and will hold each
stock in approximately the same percentage as that stock represents in the S&P
SmallCap 600. Under certain circumstances, the Portfolio may not hold all 600
stocks in the S&P SmallCap 600, for example because of changes in the S&P
SmallCap 600, or as a result of shareholder activity in the Portfolio. The
Portfolio will rebalance its holdings periodically to reflect changes in the S&P
SmallCap 600. "Market capitalization" for a company is the market price per
share of stock multiplied by the number of shares outstanding. The Adviser
believes that the S&P SmallCap 600 is an appropriate benchmark for the Portfolio
because it represents a diversified array of small capitalization companies, it
is familiar to many investors and it is widely accepted as a reference for small
capitalization common stock investments.
The S&P SmallCap 600 Index has above-average risk and may fluctuate
more than S&P 500 Stock Price Index, which invests in stocks of larger, more
established companies. Small capitalization companies may be subject to more
abrupt or erratic
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price movements than the stocks of larger, established companies or the stock
market as a whole. Among the reasons for this greater price volatility are the
less than certain growth prospects of smaller companies, the lower degree of
liquidity in the markets for such stocks and the greater exposure of small
capitalization companies to changing economic conditions. In addition, such
companies often have limited product lines, smaller markets or fewer financial
resources. Because of the risks associated with investing in the small companies
that comprise the S&P SmallCap 600, shareholders should consider an investment
in the Small Cap Equity Index Portfolio to be long-term. The Portfolio is not
designed to provide investors with a means to speculate on short-term movements
in the stock market.
THE INTERNATIONAL EQUITY PORTFOLIO
The International Equity Portfolio's investment objective is to provide
capital growth consistent with reasonable investment risk. The Portfolio seeks
to achieve this objective by investing principally in foreign equity securities,
most of which will be denominated in foreign currencies. During normal market
conditions, the Portfolio will invest substantially all of its assets in
securities of companies which derive more than 50% of their gross revenues from,
or have more than 50% of their assets outside, the United States. Additionally,
under normal market conditions, the Portfolio will invest in equity securities
from at least three different countries (excluding the United States). However,
the Portfolio may invest all its assets in a single country during temporary
defensive periods.
The International Equity Portfolio expects to invest at least half of
its assets in securities of companies located either in developed countries in
Western Europe or in Japan, although it may also purchase securities of
companies located in other developed countries and developing countries. For
further information, see "Risk Factors -- Risks Associated with Foreign
Securities and Currencies" below.
By investing in foreign securities, the International Equity Portfolio
will attempt to take advantage of differences between economic trends and the
performance of securities markets in various countries, regions and geographic
areas. The Portfolio will achieve diversification by investing in securities
from various countries and geographic areas that offer different investment
opportunities and are affected by different economic trends. The multinational
character of the Portfolio's investments should reduce the effect that events in
any one country or geographic area will have on its investment holdings. Of
course, negative movement by one of the Portfolio's investments in one foreign
market may offset gains from the Portfolio's investments in another market.
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Equity securities in which the International Equity Portfolio may
invest include common stock, preferred stock, rights, warrants and securities
convertible into common stock. A convertible security may be purchased for the
Portfolio when, in the Adviser's or Sub-Adviser's opinion, the price and yield
of the convertible security is favorable compared to the price and yield of the
common stock.
During temporary defensive periods, when deemed necessary by the
Adviser or Sub-Adviser, the International Equity Portfolio may invest up to 100%
of its assets in U.S. Government obligations or debt obligations of companies
incorporated and having their principal business activities in the United
States. The Portfolio does not intend to invest in such securities for the
purpose of meeting its investment objective.
The International Equity Portfolio may also invest, without limitation,
in foreign securities through the purchase of ADRs and EDRs. For further
information, see "Risk Factors -- Risks Associated with Foreign Securities and
Currencies" below and the Statement of Additional Information under "Investment
Objectives and Policies -- ADRs and EDRs."
The International Equity Portfolio reserves the right to hold as a
temporary defensive measure up to 100% of its total assets in cash and
short-term obligations (having remaining maturities of 12 months or less) at
such times and in such proportions as, in the opinion of the Adviser or
Sub-Adviser, prevailing market or economic conditions warrant. See "The
Government & Corporate Bond Portfolio" above for a description of the types of
short-term obligations in which the Portfolio may invest.
Although investing in any mutual fund has certain inherent risks, an
investment in the International Equity Portfolio may have even greater risks
than investments in most other types of mutual funds. The Portfolio is not a
complete investment program, and it may not be appropriate for investors who
cannot financially bear the loss of at least a significant portion of their
investment. The Portfolio's net asset value per Share is subject to rapid and
substantial changes because greater risk is assumed in seeking the Portfolio's
objective. See "Risk Factors -- Risks Associated with Foreign Securities and
Currencies" below.
THE BALANCED PORTFOLIO
The Balanced Portfolio's investment objective is to maximize total
return through a combination of growth of capital and current income consistent
with the preservation of capital. The Portfolio seeks to achieve its objective
by using a disciplined approach of allocating assets primarily among three major
asset
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groups, i.e. equity securities, fixed income securities and cash equivalents. In
pursuing the Portfolio's investment objective, the Adviser allocates the
Portfolio's assets based upon its evaluation of the relative attractiveness of
the major asset groups. In an effort to better quantify the relative
attractiveness of the major asset groups over a one- to three-year period of
time, the Adviser has incorporated into its asset allocation decision-making
process several dynamic computer models which it has created. The purpose of
these models is to show the statistical impact of the Adviser's economic outlook
upon the future returns of each asset group. The models are especially sensitive
to the forecasts for inflation, interest rates and long-term corporate earnings
growth. Investment returns are normally heavily impacted by such variables and
their expected changes over time. Therefore, the Adviser's method attempts to
take advantage of changing economic conditions by increasing or decreasing the
ratio of stocks to bonds in the Portfolio. For example, if the Adviser expected
more rapid economic growth leading to better corporate earnings, it would
increase the Portfolio's holdings of equity securities and reduce its holdings
of fixed income securities and cash equivalents.
Under normal market conditions, the Balanced Portfolio's policy is
generally to invest at least 25% of the value of its total assets in fixed
income securities and no more than 75% in equity securities. The actual
percentage of assets invested in equity securities, fixed income securities and
cash equivalents will vary from time to time, depending on the judgment of the
Adviser as to general market and economic conditions, trends and yields,
interest rates and fiscal and monetary developments.
The equity securities in which the Balanced Portfolio normally invests
include common stock, preferred stock, rights, warrants and securities
convertible into common or preferred stock. For further information regarding
these instruments, see "The Equity Income Portfolio" and "The Growth & Income
Equity Portfolio" above.
The fixed income securities in which the Balanced Portfolio invests
include U.S. Government securities or other fixed income and related debt
securities rated in one of the four highest rating categories assigned by a
Rating Agency at the time of purchase or in unrated investments deemed by the
Adviser to be of comparable quality pursuant to guidelines approved by the
Fund's Board of Directors. For further information regarding these instruments,
see "The Government & Corporate Bond Portfolio" above.
The Balanced Portfolio may purchase asset-backed securities. For
further information regarding these instruments, see "Other Applicable Policies
- -- Asset-Backed Securities" below.
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The Balanced Portfolio reserves the right to hold as a temporary
defensive measure up to 100% of its total assets in cash and short-term
obligations (having remaining maturities of 12 months or less) at such times and
in such proportions as, in the opinion of the Adviser, prevailing market or
economic conditions warrant. See "The Government & Corporate Bond Portfolio"
above for a description of the types of short-term obligations in which the
Portfolio may invest.
RISK FACTORS
MARKET RISK. The Equity Income, Equity Index, Growth & Income Equity,
Growth Equity, Small Cap Equity, Small Cap Equity Index and International Equity
Portfolios invest primarily, and the Balanced Portfolio invests to a significant
degree, in equity securities. As with other mutual funds that invest primarily
or to a significant degree in equity securities, these Portfolios are subject to
market risks. That is, the possibility exists that common stocks will decline
over short or even extended periods of time and both the U.S. and certain
foreign equity markets tend to be cyclical, experiencing both periods when stock
prices generally increase and periods when stock prices generally decrease.
INTEREST RATE RISK. Generally, the market value of fixed income
securities held by the Portfolios can be expected to vary inversely to changes
in prevailing interest rates. During periods of declining interest rates, the
market value of investment portfolios comprised primarily of fixed income
securities will tend to increase, and during periods of rising interest rates,
the market value will tend to decrease. Fixed income securities with longer
maturities, which tend to produce higher yields, are subject to potentially
greater capital appreciation and depreciation than obligations with shorter
maturities. Changes in the financial strength of an issuer or changes in the
ratings of any particular security may also offset the value of these
investments. Fluctuations in the market value of fixed income securities
subsequent to their acquisition will not offset cash income from such securities
but will be reflected in a Portfolio's net asset value.
RISKS ASSOCIATED WITH FOREIGN SECURITIES AND CURRENCIES. Investments in
securities of foreign issuers, whether made directly or indirectly, carry
certain risks not ordinarily associated with investments in securities of
domestic issuers. Such risks include future political and economic developments,
and the possible imposition of exchange controls or other foreign governmental
laws or restrictions. In addition, with respect to certain countries, there is
the possibility of expropriation of assets, confiscatory taxation, political or
social instability or diplomatic developments which could adversely affect
investments in those countries.
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There may be less publicly available information about a foreign
company than about a U.S. company, and foreign companies may not be subject to
accounting, auditing and financial reporting standards and requirements
comparable to or as uniform as those of U.S.-based companies. Foreign securities
markets, while growing in volume, have, for the most part, substantially less
volume than U.S. markets, and securities of many foreign companies are less
liquid and their prices more volatile than securities of comparable U.S.-based
companies. There is generally less government supervision and regulation of
foreign exchanges, brokers and issuers than there is in the United States. In
the event of a default by the issuer of a foreign security, it may be more
difficult to obtain or enforce a judgment against such issuer than it would be
against a domestic issuer. In addition, foreign banks and foreign branches of
U.S. banks are subject to less stringent reserve requirements and to different
accounting, auditing, reporting, and recordkeeping standards than those
applicable to domestic branches of U.S. banks.
Certain of the risks associated with international investments are
heightened with respect to investments in developing countries. The risks of
expropriation, nationalization and social, political and economic instability
are greater in those countries than in more developed capital markets. In
addition, developing countries may have economies based on only a few industries
and small securities markets with a low volume of trading. Certain countries may
also impose substantial restrictions on investments in their capital markets by
foreign entities, including restrictions on investments in issuers of industries
deemed sensitive to relevant national interests. These factors may limit the
investment opportunities available to the International Equity Portfolio and
result in a lack of liquidity and a high price volatility with respect to
securities of issuers from developing countries.
Certain countries may also impose restrictions on the International
Equity Portfolio's ability to repatriate investment income or capital. Even when
there is no outright restriction on repatriation of investment income or
capital, the mechanics of repatriation may affect certain aspects of the
operations of the International Equity Portfolio.
Governments of many developing countries exercise substantial influence
over many aspects of the private sector. In some countries, the government may
own or control many companies, including the largest company or companies. As
such, government actions in the future could have a significant effect on
economic conditions in these countries, affecting private sector companies, the
International Equity Portfolio and the value of its portfolio securities.
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Since the International Equity Portfolio will invest substantially in
securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates will affect the value of securities
in the International Equity Portfolio and the unrealized appreciation or
depreciation of investments so far as U.S. investors are concerned. Foreign
currency exchange rates are determined by forces of supply and demand on the
foreign exchange markets and the regulatory control of the exchanges on which
the currencies trade. These forces are themselves affected by the international
balance of payments and other economic and financial conditions, government
intervention, speculation and other factors. Costs are incurred in connection
with conversions between various currencies.
The expense ratio of the International Equity Portfolio can be expected
to be higher than that of funds investing in domestic securities. The costs
attributable to investing abroad are usually higher for several reasons, such as
the higher cost of investment research, higher cost of custody of foreign
securities, higher commissions paid on comparable transactions on foreign
markets and additional costs arising from delays in settlements of transactions
involving foreign securities.
Interest and dividends payable on the International Equity Portfolio's
foreign portfolio securities may be subject to foreign withholding taxes. To the
extent such taxes are not offset by credits or deductions allowed to investors
under U.S. federal income tax provisions, they may reduce the net return to the
Portfolio's shareholders. For further information, see "Taxes."
In addition to the International Equity Portfolio, other Portfolios may
be subject to certain of the risks described above in connection with investment
in foreign securities.
OTHER APPLICABLE POLICIES
The investment policies described in this Prospectus are among those
which one or more of the Portfolios have the ability to utilize. Some of these
policies may be employed on a regular basis; others may not be used at all.
Accordingly, reference to any particular policy, method or technique carries no
implication that it will be utilized or, if it is, that it will be successful.
U.S. GOVERNMENT OBLIGATIONS. Securities issued or guaranteed by the
U.S. Government, its agencies and instrumentalities have historically involved
little risk of loss of principal if held to maturity. However, due to
fluctuations in interest rates, the market value of such securities may vary
during the period a shareholder owns Shares of a Portfolio. Certain U.S.
Government securities held by the Treasury Money
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Market or Money Market Portfolios may have remaining maturities exceeding
thirteen months if such securities provide for adjustments in their interest
rates no less frequently than every thirteen months. Examples of the types of
U.S. Government obligations that may be held by the Portfolios, subject to their
respective investment objectives and policies, include, in addition to U.S.
Treasury bonds, notes and bills, the obligations of Federal Home Loan Banks,
Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, GNMA, FNMA, FHLMC, General Services
Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Resolution Trust Corporation,
and Maritime Administration. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as those of GNMA, are supported
by the full faith and credit of the U.S. Treasury; others, such as the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of FNMA, are supported
by the discretionary authority of the U.S. Government to purchase the agency's
obligations; still others such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. There is
no assurance that the U.S. Government would provide financial support to U.S.
Government-sponsored instrumentalities if it is not obligated to do so by law.
STRIPPED GOVERNMENT SECURITIES. To the extent consistent with their
respective investment policies, each Portfolio may invest in bills, notes and
bonds (including zero coupon bonds) issued by the U.S. Treasury. In addition,
each Portfolio (except the Growth Equity, Equity Index and Small Cap Equity
Index Portfolios) may also invest in "stripped" U.S. Treasury obligations
offered under the Separate Trading of Registered Interest and Principal
Securities ("STRIPS") program or Coupon Under Bank-Entry Safekeeping ("CUBES")
program or other stripped securities issued directly by agencies or
instrumentalities of the U.S. Government (and, with respect to the Treasury
Money Market Portfolio only, that are also guaranteed as to principal and
interest by the U.S. Government). STRIPS and CUBES represent either future
interest or principal payments and are direct obligations of the U.S. Government
that clear through the Federal Reserve System. The Money Market, Intermediate
Corporate Bond, Bond Index, Government & Corporate Bond, Growth & Income Equity,
Small Cap Equity and Balanced Portfolios may also purchase U.S. Treasury and
agency securities that are stripped by brokerage firms and custodian banks and
sold under proprietary names. These stripped securities are resold in custodial
receipt programs with a number of different names (such as TIGRs and CATS) and
are not considered U.S. Government securities for purposes of the 1940 Act.
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Stripped securities are issued at a discount to their "face value" and
may exhibit greater price volatility than ordinary debt securities because of
the manner in which their principal and interest are returned to investors. The
Adviser will consider the liquidity needs of a Portfolio when any investments in
zero coupon obligations or other principal-only obligations are made.
REPURCHASE AGREEMENTS. Under certain circumstances described above and
subject to their respective investment policies, each Portfolio may agree to
purchase U.S. Government securities from financial institutions such as banks
and broker-dealers, subject to the seller's agreement to repurchase them at a
mutually agreed-upon date and price ("repurchase agreements"). A Portfolio will
enter into repurchase agreements only with financial institutions such as banks
and broker-dealers that the Adviser or Sub-Adviser believes to be creditworthy.
During the term of any repurchase agreement, the Adviser or Sub-Adviser will
continue to monitor the creditworthiness of the seller and will require the
seller to maintain the value of the securities subject to the agreement at not
less than 102% of the repurchase price (including accrued interest). Default by
a seller could expose a Portfolio to possible loss because of adverse market
action or possible delay in disposing of the underlying obligations. Because of
the seller's repurchase obligations, the securities subject to repurchase
agreements do not have maturity limitations. Although no Portfolio presently
intends to enter into repurchase agreements providing for settlement in more
than seven days, each Portfolio does have the authority to do so subject to its
limitation on the purchase of illiquid securities described below. Repurchase
agreements are considered to be loans under the 1940 Act. The income on
repurchase agreements is taxable. See "Taxes" below.
REVERSE REPURCHASE AGREEMENTS. Subject to their investment policies,
each Portfolio (except the Treasury Money Market Portfolio) may borrow funds for
temporary purposes by entering into reverse repurchase agreements in accordance
with their respective investment limitations below. Pursuant to such agreements,
a Portfolio would sell portfolio securities to financial institutions such as
banks and broker-dealers and agree to repurchase them at an agreed upon date and
price. Reverse repurchase agreements involve the risk that the market value of
the securities sold by a Portfolio may decline below the repurchase price which
the Portfolio is obligated to pay. Reverse repurchase agreements are considered
to be borrowings by a Portfolio under the 1940 Act.
SECURITIES LENDING. To increase return or offset expenses, each
Portfolio may, from time to time, lend its portfolio securities to
broker-dealers, banks or institutional borrowers pursuant to agreements
requiring that the loans be continuously
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secured by collateral equal at all times in value to at least the market value
of the securities loaned. Collateral for such loans may include cash, securities
of the U.S. Government, or its agencies or instrumentalities, or an irrevocable
letter of credit issued by a bank that has at least $1.5 billion in total
assets, or any combination thereof. The collateral must be valued daily and,
should the market value of the loaned securities increase, the borrower must
furnish additional collateral to the lending Portfolio. By lending its
securities, a Portfolio can increase its income by continuing to receive
interest on the loaned securities as well as by either investing the cash
collateral in short-term instruments or obtaining yield in the form of interest
paid by the borrower when U.S. Government securities are used as collateral. In
accordance with current SEC policies, each Portfolio is currently limiting its
securities lending to 33-1/3% of the value of its total assets (including the
value of the collateral for the loans) at the time of the loan. Loans are
subject to termination by a Portfolio or a borrower at any time.
SECURITIES OF OTHER INVESTMENT COMPANIES. Under certain circumstances
described above and subject to their respective investment policies and
limitations, each Portfolio may invest in securities issued by other investment
companies, limited with respect to each Portfolio other than the Growth Equity
Portfolio to investment companies which determine their net asset value per
Share based on the amortized cost or penny-rounding method and which invest in
securities in which the Portfolio is permitted to invest. Each Portfolio may
invest in securities of other investment companies within the limits prescribed
by the 1940 Act, which include, subject to certain exceptions, a prohibition on
a Portfolio investing more than 10% of the value of its total assets in such
securities. Investments in other investment companies will cause a Portfolio
(and, indirectly, the Portfolio's shareholders) to bear proportionately the cost
incurred in connection with the operations of such other investment companies.
In addition, investment companies in which a Portfolio may invest may impose a
sales or distribution charge in connection with the purchase or redemption of
their shares as well as other types of commissions or charges. Such charges will
be payable by a Portfolio and, therefore, will be borne indirectly by its
shareholders. See the Statement of Additional Information under "Investment
Objectives and Policies -- Securities of Other Investment Companies." The income
on securities of other investment companies may be taxable to investors at the
state or local level. See "Taxes" below.
WHEN-ISSUED PURCHASES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS.
Each Portfolio may purchase securities on a "when-issued" basis and, except for
the Growth Equity Portfolio, may purchase or sell securities on a "forward
commitment" basis. These transactions involve a commitment by a Portfolio to
purchase or sell securities at a stated price and yield with
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settlement beyond the normal settlement date. Such transactions permit a
Portfolio to lock-in a price or yield on a security, regardless of future
changes in interest rates. Additionally, the Growth Equity Portfolio may
purchase or sell securities on a "delayed settlement" basis. This refers to a
transaction in the secondary market that will settle some time in the future.
When issued purchases, forward commitments and delayed settlement transactions
involve a risk of loss if the value of the security to be purchased declines
prior to the settlement date, or if the value of the security to be sold
increases prior to the settlement date. Each Portfolio expects that these
transactions will not exceed 25% of the value of its total assets (at the time
of purchase) under normal market conditions. No Portfolio intends to engage in
such transactions for speculative purposes but only for the purpose of acquiring
portfolio securities.
OPTIONS. Each of the Equity and Bond Portfolios may purchase put
options and each Portfolio (except the Growth Equity Portfolio) may purchase
call options. Except as described below with respect to the Growth Equity
Portfolio, such options will be listed on a national securities exchange and
issued by the Options Clearing Corporation. Each Portfolio other than the
Growth Equity Portfolio will limit the purchase of options to an amount not
exceeding 10% of the value of its net assets. Such options may relate to
particular securities or, with respect to each Portfolio other than the Growth
Equity Portfolio, to various stock or bond indices. Purchasing options is a
specialized investment technique which entails a substantial risk of a complete
loss of the amounts paid as premiums to the option writer. Such transactions
will be entered into only as a hedge against fluctuations in the value of
securities which a Portfolio holds or intends to purchase.
Each of the Equity and Bond Portfolios may also write covered call
options. A covered call option is an option to acquire a security that a
Portfolio owns or has the right to acquire during the option period. Except as
described below with respect to the Growth Equity Portfolio, such options will
be listed on a national securities exchange and issued by the Options Clearing
Corporation.
The Growth Equity Portfolio may purchase and write over-the-counter
options on portfolio securities in negotiated transactions with the buyers or
writers of the options when options on the portfolio securities held by such
Portfolio are not traded on a National securities exchange. Over-the-counter
options are two-party contracts with price and terms negotiated between the
buyer and seller. In contrast, exchange-traded options are third party contracts
with standardized strike prices and expiration dates and are purchased from a
clearing corporation such as the Options Clearing Corporation. Exchange-traded
options have a continuous liquid market while over-the-counter options may not.
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The International Equity Portfolio may write covered call options, buy
put options, buy call options and write secured put options for hedging (or
cross-hedging) purposes or for the purpose of earning additional income. Such
options may relate to particular securities, foreign or domestic stock or bond
indices, financial instruments or foreign currencies; may or may not be listed
on a domestic or foreign securities exchange; and may or may not be issued by
the Options Clearing Corporation. The International Equity Portfolio will invest
and trade in unlisted over-the-counter options only with firms deemed
creditworthy by the Adviser or Sub-Adviser. However, unlisted options are not
subject to the protections afforded purchasers of listed options by the Options
Clearing Corporation, which performs the obligations of its members which fail
to perform them in connection with the purchase or sale of options. The
International Equity Portfolio will not purchase put and call options in an
amount that exceeds 10% of its net assets at the time of purchase.
The aggregate value of the securities subject to covered call options
written by a Portfolio will not exceed 25% of the value of its net assets. In
order to close out an option position, a Portfolio may enter into a "closing
purchase transaction" -- the purchase of a covered call option on the same
security with the same exercise price and expiration date as the option which
the Portfolio previously wrote. By writing a covered call option, a Portfolio
forgoes the opportunity to profit from an increase in the market price of the
underlying security above the exercise price except insofar as the premium
represents such a profit and it is not able to sell the underlying security
until the option expires, is exercised, or the Portfolio effects a closing
purchase transaction by purchasing an option of the same series. The use of
covered call options will not be a primary investment technique of any
Portfolio. For additional information relating to option trading practices,
including particular risks, see the Statement of Additional Information and
Appendix B thereof.
FOREIGN CURRENCY PUT OPTIONS. The International Equity Portfolio may
purchase foreign currency put options on U.S. exchanges or U.S. over-the-counter
markets. A put option gives the Portfolio, upon payment of a premium, the right
to sell a currency at the exercise price until the expiration of the option and
serves to insure against adverse currency price movements in the underlying
portfolio assets denominated in that currency.
UNLISTED CURRENCY OPTIONS. The International Equity Portfolio may
purchase unlisted currency options. A number of major investment firms trade
unlisted options which are more flexible than exchange listed options with
respect to strike price and maturity date. These unlisted options generally are
available on a wider range of currencies. Unlisted foreign
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currency options are generally less liquid than listed options and involve the
credit risk associated with the individual issuer. They will be deemed to be
illiquid for purposes of the limitation on investments in illiquid securities.
WRITING FOREIGN CURRENCY CALL OPTIONS. A call option written by the
International Equity Portfolio gives the purchaser, upon payment of a premium,
the right to purchase from the International Equity Fund a currency at the
exercise price until the expiration of the option.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the International
Equity Portfolio may buy and sell securities denominated in currencies other
than the U.S. dollar, and receive interest, dividends and sale proceeds in
currencies other than the U.S. dollar, the Portfolio may from time to time enter
into foreign currency exchange transactions to convert to and from different
foreign currencies and to convert foreign currencies to and from the U.S.
dollar. The Portfolio may enter into currency exchange transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or use forward currency contracts to purchase or sell foreign
currencies.
A forward foreign currency contract is an obligation by the
International Equity Portfolio to purchase or sell a specific currency at a
future date at a price set at the time of the contract. In this respect, forward
currency contracts are similar to foreign currency futures contracts described
below; however, unlike futures contracts, which are traded on recognized
commodities exchanges, forward currency contracts are traded in the interbank
market conducted directly between currency traders (usually large commercial
banks) and their customers. Also, forward currency contracts usually involve
delivery of the currency involved instead of cash payment as in the case of
futures contracts.
The International Equity Portfolio may use forward foreign currency
exchange contracts in order to protect against uncertainty in the level of
future foreign exchange rates. The use of such forward contracts is limited to
hedging against movements in the value of foreign currencies relative to the
U.S. dollar in connection with specific portfolio transactions or with respect
to portfolio positions. The purpose of transaction hedging is to "lock in" the
U.S. dollar equivalent price of such specific securities. Position hedging is
the sale of foreign currency with respect to portfolio security positions
denominated or quoted in that currency. The Portfolio will not speculate in
foreign currency exchange transactions. Transaction and position hedging will
not be limited to an overall percentage of the Portfolio's assets but will be
employed as necessary to correspond to particular transactions or positions. The
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Portfolio may not hedge its currency positions to an extent greater than the
aggregate market value (at the time of entering into the forward contract) of
the securities held in its portfolio denominated in, quoted in, or currently
convertible into that particular currency. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of the
Portfolio's portfolio securities or in foreign exchange rates, or prevent loss
if the prices of these securities decline, but forward foreign currency exchange
contracts do allow the Portfolio to establish a rate of exchange for a future
point in time.
FUTURES CONTRACTS AND RELATED OPTIONS. The U.S. Government Securities,
Intermediate Corporate Bond, Bond Index, Government & Corporate Bond, Equity
Income, Equity Index, Growth & Income Equity, Growth Equity, Small Cap Equity,
Small Cap Equity Index and Balanced Portfolios may invest in futures contracts
and options on futures contracts to the extent permitted by the Commodity
Futures Trading Commission ("CFTC") and the SEC. The International Equity
Portfolio may invest in interest rate futures contracts, options on futures
contracts and other types of financial futures contracts (such as foreign
currency contracts), as well as any index or foreign market futures which are
available in recognized exchanges or in other established financial markets to
the extent permitted by the CFTC and the SEC. Such transactions, including stock
or bond index futures contracts, or options thereon, act as a hedge to protect a
Portfolio from fluctuations in the value of its securities caused by anticipated
changes in interest rate or market conditions without necessarily buying or
selling the securities or, with respect to the Bond Index, Equity Index and
Small Cap Equity Index Portfolios, can be used to simulate full investment in
the Lehman Aggregate , S&P 500 or S&P Small Cap 600, respectively, while
retaining a cash balance for portfolio management purposes. Hedging is a
specialized investment technique that entails skills different from other
investment management. The Adviser (or Sub-Adviser) may also consider such
transactions to be economically appropriate for the reduction of risk inherent
in the ongoing management of a Portfolio. A stock or bond index futures contract
is an agreement in which one party agrees to take or make delivery of an amount
of cash equal to a specified dollar amount times the difference between the
index value (which assigns relative values to the common stock or bonds included
in the index) at the close of the last trading day of the contract and the price
at which the agreement is originally made. No physical delivery of the
underlying stock or bond in the index is contemplated. Similarly, it may be in
the best interest of a Portfolio to purchase or sell interest rate futures
contracts, or options thereon, which provide for the future delivery of
specified fixed income securities.
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The purchase and sale of futures contracts or related options will not
be a primary investment technique of any Portfolio. None of the Portfolios will
purchase or sell futures contracts (or related options thereon) for hedging
purposes if, immediately after purchase, the aggregate initial margin deposits
and premiums paid by a Portfolio on its open futures and options positions
exceeds 5% of the liquidation value of the Portfolio, after taking into account
any unrealized profits and unrealized losses on any such futures or related
options contracts into which it has entered. For a more detailed description of
futures contracts and related options, see the Statement of Additional
Information and Appendix B thereof.
ASSET-BACKED SECURITIES. The U.S. Government Securities, Intermediate
Corporate Bond, Bond Index, Government & Corporate Bond and Balanced Portfolios
may purchase asset-backed securities (i.e., securities backed by mortgages,
installment sale contracts, corporate receivables, credit card receivables or
other assets) that are issued by entities such as GNMA, FNMA and FHLMC and
private issuers such as commercial banks, financial companies, finance
subsidiaries of industrial companies, savings and loan associations, mortgage
banks, and investment banks. To the extent that a Portfolio invests in
asset-backed securities issued by companies that are investment companies under
the 1940 Act, such acquisitions will be subject to the percentage limitations
prescribed by the 1940 Act. See "Other Applicable Policies -- Securities of
Other Investment Companies" above.
Presently there are several types of mortgage-backed securities,
including guaranteed mortgage pass-through certificates, which provide the
holder with a pro rata interest in the underlying mortgages, and CMOs, which
provide the holder with a specified interest in the cash flow of a pool of
underlying mortgages or other mortgage-backed securities. CMOs are issued in
multiple classes, each with a specified fixed or floating interest rate and a
final distribution date. The relative payment rights of the various CMO classes
may be subject to greater volatility and interest-rate risk than other types of
mortgage-backed securities. The average life of asset-backed securities varies
with the underlying instruments or assets and market conditions, which in the
case of mortgages have maximum maturities of forty years. The average life of a
mortgage-backed instrument, in particular, is likely to be substantially less
than the original maturity of the mortgages underlying the securities as the
result of unscheduled principal payments and mortgage prepayments. The
relationship between mortgage prepayment and interest rates may give some
high-yielding mortgage-backed securities less potential for growth in value than
conventional bonds with comparable maturities. In addition, in periods of
falling interest rates, the rate of mortgage prepayments tends to increase.
During such periods, the reinvestment of prepayment proceeds by a Portfolio will
generally
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be at lower rates than the rates that were carried by the obligations that have
been prepaid. When interest rates rise, the value of an asset-backed security
generally will decline; however, when interest rates decline, the value of an
asset-backed security with prepayment features may not increase as much as that
of other fixed-income securities. Because of these and other reasons, an
asset-backed security's total return may be difficult to predict precisely.
In general, the collateral supporting non-mortgage asset-backed
securities is of shorter maturity than mortgage loans and is less likely to
experience substantial prepayments. Non-mortgage asset-backed securities
involve certain risks that are not presented by mortgage-backed securities
arising primarily from the nature of the underlying assets (i.e., credit card
and automobile loan receivables as opposed to real estate mortgages). For
example, credit card receivables are generally unsecured and the repossession of
automobiles and other personal property upon the default of the debtor may be
difficult or impracticable in some cases.
DEPOSITORY RECEIPTS. The Bond Index, Equity Index and Small Cap Equity
Index Portfolios may invest in receipts issued by banks or brokerage firms that
are created by depositing securities listed in each Portfolio's respective index
into a special account at a custodian bank. The custodian holds such securities
for the benefit of the registered owners of the certificates or receipts. The
custodian arranges for the issuance of the certificates or receipts evidencing
ownership and maintains the register. The Portfolios may invest in index-based
depository receipts in lieu of investment in the actual securities that are
listed in the respective indexes.
THE INDEXING APPROACH. The Bond Index, Equity Index and Small Cap
Equity Index Portfolios seek to approximate the investment performance of their
respective market segments, as represented by their respective indexes, i.e. the
Lehman Aggregate in the case of the Bond Index Portfolio , the S&P 500 in the
case of the Equity Index Portfolio and the S&P SmallCap 600 in the case of the
Small Cap Equity Index Portfolio. While there can be no guarantee that a
Portfolio's investment results will precisely match the results of its
corresponding index, the Adviser believes that, before deduction of operating
expenses, there will be a very high correlation between the returns generated by
the Portfolios and their respective indexes. Each Portfolio will attempt to
achieve a correlation between its performance and its respective index of at
least 0.95 before deduction of operating expenses. A correlation of 1.00 would
indicate a perfect correlation, which would be achieved when a Portfolio's net
asset value, including the value of its dividend and capital gains
distributions, increases or decreases in exact proportion to changes in its
respective index. Each Portfolio's
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ability to correlate its performance with its respective index, however, may be
affected by, among other things, transaction costs, changes in securities
markets, the manner in which S&P or Lehman Brothers, Inc. ("Lehman") calculate
their respective indexes, and the timing of purchases and redemptions. The
Adviser monitors the correlation of the performance of the Portfolios in
relation to their indexes under the supervision of the Board of Directors. In
the unlikely event that a high correlation is not achieved, the Board of
Directors will take appropriate steps to correct the reason for the lower
correlation.
The inclusion of a security in any of the Portfolios' indexes in no way
implies an opinion by S&P or Lehman as to its attractiveness as an investment.
S&P and Lehman are not sponsors of, or in any way affiliated with, the
Portfolios.
The Adviser believes that the indexing approach should involve less
portfolio turnover, and thus lower brokerage costs, transfer taxes and operating
expenses, than in more traditionally managed funds, although there is no
assurance that this will be the case. Ordinarily, a Portfolio will buy or sell
securities only to reflect changes in an index (including mergers or changes in
the composition of an index) or to accommodate cash flows into and out of the
Portfolio. The costs and other expenses incurred in securities transactions,
apart from any difference between the investment results of a Portfolio and that
of its respective index, may cause the return of a Portfolio to be lower than
the return of its respective index. The Portfolios may invest in less than all
of the securities included in their respective indexes, which may result in a
return that does not correspond with that of the indexes, after taking expenses
into account.
ILLIQUID SECURITIES. A Portfolio will not invest more than 15% (10% for
each of the Money Market Portfolios) of the value of its net assets in illiquid
securities. Repurchase agreements that do not provide for settlement within
seven days, time deposits maturing in more than seven days, and securities that
are not registered under the Securities Act of 1933, as amended (the "1933 Act")
but that may be purchased by institutional buyers pursuant to SEC Rule 144A are
subject to the applicable limit (unless the Adviser or Sub-Adviser, pursuant to
guidelines established by the Board of Directors, determines that a liquid
market exists). Rule 144A establishes a "safe harbor" from the registration
requirements of the 1933 Act for the resale of certain securities to qualified
institutional buyers. The purchase of securities which can be sold under Rule
144A could have the effect of increasing the level of illiquidity in the
Portfolios to the extent that qualified institutional buyers become, for a time,
uninterested in purchasing these restricted securities.
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PORTFOLIO TURNOVER AND TRANSACTIONS. Although the Equity and Bond
Portfolios will not normally engage in short-term trading, each Portfolio
(except the Bond Index, Equity Index and Small Cap Equity Index Portfolios)
reserves the right to do so if the Adviser (or Sub-Adviser) believes that
selling a particular security is appropriate in light of the Portfolio's
investment objective. Investments may be sold for a variety of reasons, such as
a more favorable investment opportunity or other circumstances bearing on the
desirability of continuing to hold such investments. A high rate of portfolio
turnover involves correspondingly greater brokerage commission expenses and
other transaction costs, which must be borne directly by the Portfolio involved
and ultimately by its shareholders. High portfolio turnover may result in the
realization of substantial net capital gains; distributions derived from such
gains may be treated as ordinary income for federal income tax purposes. See
"Taxes" in this Prospectus and the Statement of Additional Information.
Although the Intermediate Corporate Bond, Bond Index, Equity Income,
Equity Index and Small Cap Equity Index Portfolios cannot accurately predict
their respective annual portfolio turnover rates, such rates are not expected to
exceed 100%.
All orders for transactions in securities or options on behalf of the
Portfolios are placed by the Adviser (or Sub-Adviser) with broker-dealers that
it selects. To the extent permitted by the 1940 Act and guidelines adopted by
the Fund's Board of Directors, a Portfolio may utilize the Distributor or one or
more of its affiliates as a broker in connection with the purchase or sale of
securities when the Adviser believes the charge for the transaction does not
exceed the usual and customary broker's commission.
INVESTMENT LIMITATIONS
Except as otherwise noted, each Portfolio's investment policies
discussed above are not fundamental and may be changed by the Fund's Board of
Directors without shareholder approval. However, each Portfolio also has in
place certain fundamental investment limitations, some of which are set forth
below, which may be changed only by a vote of a majority of the outstanding
Shares of a Portfolio. Other investment limitations that also cannot be changed
without a vote of shareholders are contained in the Statement of Additional
Information under "Investment Objectives and Policies."
THE TREASURY MONEY MARKET AND MONEY MARKET PORTFOLIOS
A Portfolio may not:
1. Make loans, except that a Portfolio may purchase
or hold debt instruments in accordance with its investment
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objective and policies, lend portfolio securities and enter into
repurchase agreements with respect to securities (together with any
cash collateral) that are consistent with the Portfolio's permitted
investments and that equal at all times at least 100% of the value of
the repurchase price.
2. Borrow money or issue senior securities, except that a
Portfolio may borrow from banks and the Money Market Portfolio may
enter into reverse repurchase agreements, for temporary purposes in
amounts up to 10% of the value of its total assets at the time of such
borrowing; or mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of a
Portfolio's total assets at the time of such borrowing. A Portfolio
will not purchase securities while its borrowings (including reverse
repurchase agreements) are outstanding.
3. With respect to the Treasury Money Market Portfolio,
purchase securities other than obligations of the U.S. Government, its
agencies and instrumentalities, some of which may be subject to
repurchase agreements, except that the Portfolio may purchase
securities of other investment companies that seek to maintain a
constant net asset value per Share and that are permitted themselves
only to invest in securities which may be acquired by the Portfolio.
4. With respect to the Money Market Portfolio, purchase any
securities which would cause 25% or more of the value of the
Portfolio's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, domestic bank
certificates of deposit, bankers' acceptances and repurchase agreements
secured by domestic bank instruments or obligations of the U.S.
Government, its agencies or instrumentalities; (b) wholly-owned finance
companies will be considered to be in the industries of their parents
if their activities are primarily related to financing the activities
of the parents; and (c) utilities will be divided according to their
services, for example, gas, gas transmission, electric and gas,
electric and telephone will each be considered a separate industry.
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In accordance with current regulations of the SEC, the Money Market
Portfolio intends to limit investments in the securities of any single issuer
(other than securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities) to not more than 5% of the Portfolio's total assets at the
time of purchase, provided that the Portfolio may invest up to 25% of its total
assets in the securities of any one issuer for a period of up to three business
days. This intention is not, however, a fundamental policy of the Money Market
Portfolio. The Portfolio would have the ability to invest more than five percent
of its assets in any one issuer in accordance with its fundamental policy only
in the event that Rule 2a-7 of the 1940 Act is amended in the future.
The U.S. Government Securities, Intermediate Corporate Bond, Bond Index,
Government & Corporate Bond, Equity Income, Equity Index, Growth & Income
Equity, Small Cap Equity, Small Cap Equity Index, International Equity and
Balanced Portfolios
A Portfolio may not:
1. Purchase securities of any one issuer (other than
obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities), if, immediately after and as a result of such
investments, more than 5% of the Portfolio's total assets would be
invested in the securities of such issuer, or more than 10% of the
issuer's outstanding voting securities would be owned by the Portfolio
or the Fund, except that up to 25% of the Portfolio's total assets may
be invested without regard to such limitations.
2. Purchase any securities which would cause 25% or more of
the Portfolio's total assets at the time of purchase to be invested in
the securities of one or more issuers conducting their principal
business activities in the same industry, provided, however, that (a)
there is no limitation with respect to obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities, and
repurchase agreements secured by obligations of the U.S. Government or
its agencies or instrumentalities; (b) wholly-owned finance companies
will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their
parents; and (c) utilities will be divided according to their services
(for example, gas, gas transmission, electric and gas, electric, and
telephone will each be considered a separate industry).
3. Borrow money or issue senior securities, except that each
Portfolio may borrow from banks and enter into reverse repurchase
agreements for temporary defensive purposes in amounts not in excess of
10% of the Portfolio's
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total assets at the time of such borrowing; or mortgage, pledge, or
hypothecate any assets, except in connection with any such borrowing
and in amounts not in excess of the lesser of the dollar amounts
borrowed or 10% of the Portfolio's total assets at the time of such
borrowing; or purchase securities while its borrowings exceed 5% of its
total assets. A Portfolio's transactions in futures and related options
(including the margin posted by a Portfolio in connection with such
transactions), and securities held in escrow or separate accounts in
connection with a Portfolio's investment practices described in this
Prospectus or the Statement of Additional Information are not subject
to this limitation.
4. Make loans, except that each Portfolio may purchase or hold
debt instruments, lend portfolio securities, enter into repurchase
agreements and make other investments in accordance with its investment
objective and policies.
5. Purchase securities on margin, make short sales of
securities or maintain a short position, except that (a) this
investment limitation shall not apply to a Portfolio's transactions in
options, and futures contracts and related options, and (b) a Portfolio
may obtain short-term credits as may be necessary for the clearance of
purchases and sales of portfolio securities.
THE GROWTH EQUITY PORTFOLIO
The Portfolio may not:
1. With respect to 75% of the value of its total assets,
purchase securities issued by any one issuer (other than cash, cash
items or securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities and repurchase agreements collateralized
by such securities), if as a result more than 5% of the value of its
total assets would be invested in the securities of that issuer. The
Portfolio will not acquire more than 10% of the outstanding voting
securities of any one issuer.
2. Invest 25% or more of the value of its total assets in any
one industry, provided, however, that the Portfolio may invest more
than 25% of the value of its total assets in cash or certain money
market instruments (including instruments issued by a U.S. branch of a
domestic bank or savings and loan association having capital, surplus
and undivided profits in excess of $100,000,000 at the time of
investment), securities issued or guaranteed by the U.S.
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Government, its agencies or instrumentalities and repurchase
agreements collateralized by such securities.
3. Issue senior securities, except that the Portfolio may
borrow money directly or indirectly through reverse repurchase
agreements in amounts up to one-third the value of its total assets,
including the amount borrowed, and except to the extent that the
Portfolio may enter into futures contracts. The Portfolio will not
borrow money or engage in reverse repurchase agreements for investment
leverage, but rather as a temporary, extraordinary, or emergency
measure to facilitate management of its portfolio by enabling the
Portfolio to, for example, meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Portfolio will not purchase any securities while
any borrowings in excess of 5% of its total assets are outstanding.
For purposes of the Growth Equity Portfolio's Investment Limitation
No. 2 above, money market instruments shall include bankers' acceptances,
negotiable certificates of deposit and negotiable time deposits of U.S. or
foreign banks and savings and loan associations.
Except with respect to the Growth Equity Portfolio's policy on
borrowing money as set forth above in its Investment Limitation No. 3, if a
percentage limitation is satisfied at the time of investment, a later increase
or decrease in such percentage resulting solely from a change in the value of a
Portfolio's portfolio securities will not constitute a violation of such
limitation.
PRICING OF SHARES
THE MONEY MARKET PORTFOLIOS
The Money Market Portfolios' respective net asset values per Share are
determined by the Administrator as of 12:00 noon (Eastern time) and as of the
close of regular trading hours on the New York Stock Exchange (the "Exchange")
(currently 4:00 p.m. Eastern time) on each weekday, with the exception of those
holidays on which the Exchange or the Federal Reserve Bank of St. Louis are
closed (a "Business Day"). Currently one or both of these institutions are
closed on the customary national business holidays of New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day (observed),
Independence Day (observed), Labor Day, Columbus Day, Veterans' Day,
Thanksgiving Day and Christmas Day (observed).
Each Portfolio's assets are valued based upon the amortized
cost method. Although each Portfolio seeks to maintain its net
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asset value per Share at $1.00, there can be no assurance that the net asset
value per Share will not vary. See the Statement of Additional Information under
"Net Asset Value" for further information.
THE EQUITY AND BOND PORTFOLIOS
The Equity and Bond Portfolios' respective net asset values per Share
are determined by the Administrator as of the close of regular trading hours on
the Exchange on each Business Day (currently 4:00 p.m. Eastern time).
Securities which are traded on a recognized stock exchange are valued
at the last sale price on the securities exchange on which such securities are
primarily traded or at the last sale price on the national securities market.
Securities traded on only over-the-counter markets are valued on the basis of
market values when available. Securities for which there are no transactions are
valued at the average of the current bid and asked prices. Other securities,
including restricted and other securities for which market quotations are not
readily available, and other assets are valued at fair value by the Adviser (or
Sub-Adviser) under the supervision of the Board of Directors. Investments in
debt securities with remaining maturities of 60 days or less may be valued based
upon the amortized cost method. For further information about valuation of
investments, see "Net Asset Value" in the Statement of Additional Information.
OTHER INFORMATION
The public offering price for each class of Shares of a Portfolio is
based upon net asset value per Share plus, in the case of Investor A Shares of
each Portfolio except the Money Market Portfolios, a front-end sales charge. A
class will calculate its net asset value per Share by adding the value of a
Portfolio's investments, cash and other assets attributable to the class,
subtracting the Portfolio's liabilities attributable to that class, and then
dividing the result by the total number of Shares in the class that are
outstanding. Because the operating expenses of Investor B Shares are higher than
those associated with the other classes of Shares, the net asset value per Share
of Investor B Shares of a Portfolio which declares its net investment income
quarterly will generally be lower than the net asset value per Share of Trust,
Institutional , Investor A or S Shares of the same Portfolio.
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HOW TO PURCHASE AND REDEEM SHARES
PURCHASE OF SHARES
Institutional Shares are sold to financial institutions, such as banks,
trust companies, thrift institutions, mutual funds or other financial
institutions (collectively "financial institutions") acting on behalf of
discretionary and non-discretionary accounts for which they do not receive
account-level asset-based management fees. Institutional Shares are sold to
qualified purchasers without a sales charge imposed by the Fund or the
Distributor. Generally, investors purchase Institutional Shares through a
financial institution, which is responsible for transmitting purchase orders
directly to the Fund.
Purchases may be effected on Business Days when the Adviser,
Distributor and Mercantile (the Custodian) are open for business. The Fund
reserves the right to reject any purchase order, including purchases made with
foreign and third party drafts or checks.
Financial institutions placing orders directly or on behalf of their
clients should contact the Fund at 1-800-452-4015. Investors may also call the
Fund for information on how to purchase Shares.
All shareholders of record will receive confirmations of Share
purchases, exchanges and redemptions in the mail. An investor's Shares are held
in the name of a financial institution that has entered into a servicing
agreement with the Fund, and such financial institution is responsible for
transmitting purchase, exchange and redemption orders to the Fund on a timely
basis, recording all purchase, exchange and redemption transactions, and
providing regular account statements which confirm such transactions to
beneficial owners (or arranging for such services). Payment for orders which are
not received or accepted will be returned after prompt inquiry to the
transmitting financial institution.
PURCHASE OF SHARES -- THE MONEY MARKET PORTFOLIOS
A purchase order received and accepted by the Fund by 12:00 noon
(Eastern time) on a Business Day is effected at the net asset value per Share
next determined after receipt of the order in good form if the Fund's Custodian
has received payment in federal funds by 4:00 p.m. (Eastern time) that day. If
such funds are not available for investment by 4:00 p.m. (Eastern time), the
order will be cancelled. Purchase orders received after 12:00 noon (Eastern
time) will be placed the following Business Day.
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PURCHASE OF SHARES -- THE EQUITY AND BOND PORTFOLIOS
If purchase orders are received in good form and accepted by the Fund
prior to 4:00 p.m. (Eastern time) on any Business Day, Institutional Shares will
be priced according to the net asset value per Share next determined on that day
after receipt of the order. Immediately available funds must be received by the
Custodian prior to 4:00 p.m. on the next Business Day following receipt of such
order. If funds are not received by such date, the order will be cancelled, and
notice thereof will be given to the financial institution placing the order.
EXCHANGES
The exchange privilege enables shareholders to exchange Institutional
Shares of a Portfolio for Institutional Shares of another Portfolio offered by
the Fund. Exchanges for Institutional Shares in another Portfolio are effected
without payment of any exchange or sales charges. The exchange privilege may be
exercised only in those states where the class of Shares of such other
Portfolios may legally be sold.
The Fund reserves the right to reject any exchange request. The
exchange privilege may be modified or terminated at any time upon 60 days'
written notice to shareholders. An investor may telephone an exchange request by
calling his or her financial institution, which is responsible for transmitting
such request to the Distributor. See "Other Exchange or Redemption Information"
below. An investor should consult the financial institution or the Distributor
for further information regarding procedures for exchanging Shares.
REDEMPTION OF SHARES
Redemption orders should be placed with or through the same financial
institution that placed the original purchase order. Redemption orders are
effected at a Portfolio's net asset value per share next determined after
receipt of the order by the Fund. The financial institution is responsible for
transmitting redemption orders to the Fund on a timely basis. A charge for
sending redemption payments electronically may be imposed by the Fund. The Fund
reserves the right to send redemption proceeds electronically within seven days
after receiving a redemption order if, in the judgment of the Adviser, an
earlier payment could adversely affect a Portfolio.
A written request for redemption must be received by the Fund in order
to honor the request. The Transfer Agent may require a signature guarantee by an
eligible guarantor institution. For purposes of this policy, the term "eligible
guarantor institution" shall include banks, brokers, dealers, credit unions,
securities exchanges and associations, clearing
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agencies and savings associations as those terms are defined in Rule 17Ad-15
under the Securities Exchange Act of 1934. The Transfer Agent reserves the right
to reject any signature guarantee if (1) it has reason to believe that the
signature is not genuine, (2) it has reason to believe that the transaction
would otherwise be improper, or (3) the guarantor institution is a broker or
dealer that is neither a member of a clearing corporation nor maintains net
capital of at least $100,000. The signature guarantee requirement will be waived
if all of the following conditions apply: (1) the redemption check is payable to
the shareholder(s) of record and (2) the redemption check is mailed to the
shareholder(s) at the address of record or the proceeds are either mailed or
sent electronically to a commercial bank account previously designated on the
account application. An investor with questions or needing assistance should
contact the financial institution servicing his or her account or the
Distributor. Additional documentation may be required if the redemption is
requested by a corporation, partnership, trust, fiduciary, executor or
administrator. If, due to temporary adverse conditions, investors are unable to
effect telephone transactions, investors are encouraged to follow the procedures
described in "Other Exchange or Redemption Information" below.
Neither the Fund nor its service providers will be liable for any loss,
damages, expense or cost arising out of any telephone redemption effected in
accordance with the Fund's telephone redemption procedures, upon instructions
reasonably believed to be genuine. The Fund will employ procedures designed to
provide reasonable assurance that instructions by telephone are genuine; if
these procedures are not followed, the Fund or its service providers may be
liable for any losses due to unauthorized or fraudulent instructions. If Share
certificates are outstanding with respect to an account, the telephone
redemption and exchange privilege is not available.
Proceeds from redemptions of Shares of the Money Market Portfolios with
respect to redemption orders received by the Fund before 12:00 noon (Eastern
time) on a Business Day normally are sent electronically the same day to the
financial institution that placed the redemption order in good form. Proceeds
for redemption orders that are received after 12:00 noon (Eastern time) or on a
non-Business Day normally are sent electronically to the financial institution
on the next Business Day.
Proceeds from redemptions of Shares of the Equity and Bond Portfolios
with respect to redemption orders received by the Fund before 4:00 p.m. (Eastern
time) on a Business Day normally are sent electronically to the financial
institution that placed the redemption order the next Business Day after the
Distributor's receipt of the order.
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OTHER EXCHANGE OR REDEMPTION INFORMATION
During periods of substantial economic or market change or activity,
telephone redemptions or exchanges may be difficult to complete. In such event,
Shares may be redeemed or exchanged by mailing the request directly to the
financial institution through which the original Shares were purchased or
directly to the Fund at P.O. Box 78069, St. Louis, Missouri 63178.
At various times, the Fund may be requested to redeem Shares for which
it has not yet received good payment. In such circumstances, the Fund may delay
the forwarding of proceeds only until payment has been collected for the
purchase of such Shares which may take up to 15 days or more. To avoid delay in
payment upon redemption shortly after purchasing Shares, investors should
purchase Shares by certified or bank check or by electronic transfer. The Fund
intends to pay cash for all Shares redeemed, but under abnormal conditions which
make payment in cash unwise, the Fund may make payment wholly or partly in
portfolio securities at their then market value equal to the redemption price.
In such cases, an investor may incur brokerage costs in converting such
securities to cash.
A shareholder may be required to redeem Shares in a Portfolio upon 60
days' written notice if the balance in the shareholder's account drops below
$500. The Fund will not require a shareholder to redeem Shares if the value of
the shareholder's account drops below $500 due to fluctuations in net asset
value.
YIELDS AND TOTAL RETURNS
Yield and total return quotations are computed separately for Trust
Shares, Institutional Shares, S Shares, Investor A Shares and Investor B Shares
of a Portfolio. Total return and yield figures will fluctuate, are based on
historical earnings, and are not intended to indicate future performance. The
methods used to compute each Portfolio's yields and total returns are described
below and in the Statement of Additional Information.
THE MONEY MARKET PORTFOLIOS
From time to time, performance information such as total return,
"yield" and "effective yield" for the Money Market Portfolios' Institutional
Shares may be quoted in advertisements or in communications to shareholders. The
"yield" quoted in advertisements refers to the income generated by an investment
in such Shares of a Portfolio over a specified period (such as a seven-day
period) identified in connection with the particular yield quotation. This
income is then "annualized." That is, the amount of income generated by the
investment during that period
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is assumed to be generated for each such period over a 365-day or one-year
period and is shown as a percentage of the investment. The "effective yield" is
calculated similarly but, when annualized, the income earned by an investment in
such Shares of a Portfolio is assumed to be reinvested. The "effective yield"
will be slightly higher than the "yield" because of the compounding effect of
this assumed reinvestment.
In addition, the Treasury Money Market Portfolio's "state
tax-equivalent yield" may also be quoted. The "state tax-equivalent yield"
shows the level of taxable yield needed to produce an after-tax yield that is
equivalent to a particular state's tax-exempt yield achieved by the Portfolio.
The "state tax-equivalent yield" refers to the portion of income that is derived
from interest income on direct obligations of the U.S. Government, its agencies
or instrumentalities that qualifies for exemption from state income tax. The
yield calculation assumes that 100% of the interest income is exempt from state
income tax. The "state tax-equivalent yield" is computed by dividing the
tax-exempt portion of the Portfolio's yield by a denominator consisting of one
minus a stated income tax rate.
THE EQUITY AND BOND PORTFOLIOS
From time to time, performance information such as total return and
yield data for the Equity and Bond Portfolios' Institutional Shares may be
quoted in advertisements or in communications to shareholders. The yield is
computed based on the net income of such Shares in the particular Portfolio
during a 30-day (or one-month) period identified in connection with the
particular yield quotation. More specifically, the yield is computed by dividing
the Portfolio's net income per Share during a 30-day (or one-month) period by
the net asset value per Share on the last day of the period and annualizing the
result.
The Portfolios' total returns may be calculated on an average annual
total return basis, and may also be calculated on an aggregate total return
basis, for various periods. Average annual total returns with respect to
Institutional Shares reflect the average annual percentage change in value of an
investment in such Shares of the particular Portfolio over the particular
measuring period. Aggregate total returns reflect the cumulative percentage
change in value over the measuring period. Both methods of calculating total
returns assume that dividends and capital gain distributions made by a Portfolio
during the period are reinvested in the Portfolio's Institutional Shares. When
considering average annual total return figures for periods longer than one
year, it is important to note that a Portfolio's annual total return for any one
year in the period might have been more or less than the average for the entire
period.
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INFORMATION APPLICABLE TO ALL PORTFOLIOS
Performance data of the Portfolios' Institutional Shares may be
compared to the performance of other mutual funds with comparable investment
objectives and policies through various mutual fund or market indices and data
such as that provided by Lehman Brothers, Inc. or any of its affiliates,
Ibbotson Associates, Inc., Lipper Analytical Services, Inc., Mutual Fund
Forecaster and IBC MONEY FUND REPORT(R) published by IBC/Donoghue. References
may also be made to indices or data published in Money Magazine, Forbes,
Barron's, The Wall Street Journal, The New York Times, Business Week, American
Banker, Institutional Investor, Pensions and Investments, U.S.A. Today, Fortune,
CDA/Weisenberger, Morningstar, Inc. and publications of a local or regional
nature. In addition to performance information, general information about the
Portfolios that appears in a publication such as those mentioned above may be
included in advertisements and in reports to shareholders.
Performance quotations of a class of Shares in a Portfolio represent
that Portfolio's past performance and should not be considered as representative
of future results. Any account fees charged by Service Organizations (as
described under "Management of The Fund -- Service Organizations") or other
institutions will not be included in the calculations of a Portfolio's yields
and total returns. Such fees, if any, will reduce the investor's net return on
an investment in a Portfolio. Investors may call 1-800-452-4015 to obtain
current yield and total return information.
DIVIDENDS AND DISTRIBUTIONS
THE TREASURY MONEY MARKET, MONEY MARKET, U.S. GOVERNMENT
SECURITIES, INTERMEDIATE CORPORATE BOND, BOND INDEX AND
GOVERNMENT & CORPORATE BOND PORTFOLIOS
Dividends from net investment income of the Treasury Money Market,
Money Market, U.S. Government Securities, Intermediate Corporate Bond, Bond
Index and Government & Corporate Bond Portfolios are declared daily and paid
monthly not later than five Business Days after the end of each month.
Institutional Shares of the Treasury Money Market and Money Market Portfolios
earn dividends from the day the purchase order is received by the Transfer Agent
through the day before the redemption order for such Shares is received.
Institutional Shares of the U.S. Government Securities, Intermediate Corporate
Bond, Bond Index and Government & Corporate Bond Portfolios earn dividends from
the day after the purchase order is received by the Transfer Agent through the
day the redemption order for such Shares is received. Dividends on each Share of
such Portfolios are determined in the same manner and are paid in the same
amounts
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irrespective of class, except that a Portfolio's Trust Shares and Institutional
Shares bear all expenses of the respective Administrative Services Plans adopted
for such Shares and a Portfolio's S Shares (other than the U.S. Government
Securities, Intermediate Corporate Bond, Bond Index and Government & Corporate
Bond Portfolios which do not offer S Shares), Investor A Shares and Investor B
Shares (other than the Treasury Money Market, Intermediate Corporate Bond and
Bond Index Portfolios which do not offer Investor B Shares) bear all expenses of
the respective Distribution and Services Plans adopted for such Shares. In
addition, a Portfolio's Institutional Shares bear the expense of certain
sub-transfer agency fees. See "Management of the Fund" and "Other Information
Concerning the Fund and Its Shares" below.
The Equity Income, Equity Index, Growth & Income Equity, Growth
Equity and Balanced Portfolios
Net investment income for the Equity Income, Equity Index, Growth &
Income Equity, Growth Equity and Balanced Portfolios is declared and paid
monthly as a dividend to shareholders of record. Dividends on each Share of each
of these Portfolios are determined in the same manner and are paid in the same
amount, irrespective of class, except that a Portfolio's Trust Shares and
Institutional Shares bear all expenses of the respective Administrative Services
Plans adopted for such Shares and a Portfolio's Investor A Shares and Investor B
Shares (other than the Equity Index Portfolio which does not offer Investor B
Shares) bear all expenses of the respective Distribution and Services Plans
adopted for such Shares. In addition, a Portfolio's Institutional Shares bear
the expense of certain sub-transfer agency fees. See "Management of the Fund --
Administrative Services Plan" and "Other Information Concerning the Fund and Its
Shares" below.
The Small Cap Equity, Small Cap Equity Index and International
Equity Portfolios
Net investment income for the Small Cap Equity, Small Cap Equity Index
and International Equity Portfolios is declared and paid quarterly as a dividend
to shareholders of record. Dividends on each Share of each of these Portfolios
are determined in the same manner and paid in the same amount, irrespective of
class, except that a Portfolio's Trust Shares and Institutional Shares bear all
expenses of the respective Administrative Services Plans adopted for such Shares
and a Portfolio's Investor A Shares and Investor B Shares (other than the Small
Cap Equity Index Portfolio which does not offer Investor B Shares) bear all
expenses of the respective Distribution and Service Plans adopted for such
Shares. In addition, a Portfolio's Institutional Shares bear the expense of
certain sub-transfer agency fees. See "Management of the Fund --
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Administrative Services Plan" and "Other Information Concerning the Fund and
Its Shares" below.
OTHER DIVIDEND AND DISTRIBUTION INFORMATION
The Money Market Portfolios do not expect to realize capital gains. Net
realized capital gains of a Portfolio, if any, are distributed at least
annually. All dividends and distributions paid on a Portfolio's Shares are
automatically reinvested in additional Shares of the same class unless the
investor has (i) otherwise indicated in the account application, or (ii)
redeemed all the Shares held in a Portfolio, in which case a distribution will
be paid in cash. Reinvested dividends and distributions will be taxed in the
same manner as those paid in cash.
TAXES
FEDERAL TAXES
Each Portfolio of the Fund intends to qualify as a "regulated
investment company" for the current taxable year. It is intended that each
Portfolio will continue to so qualify as long as such qualification is in the
best interests of shareholders. A regulated investment company is generally
exempt from federal income tax on amounts distributed to shareholders.
Qualification as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code"), for a taxable year requires,
among other things, that each Portfolio distribute to its shareholders an amount
equal to at least the sum of 90% of its investment company taxable income and
90% of its net exempt-interest income (if any). In general, a Portfolio's
investment company taxable income will be its taxable income, including
dividends, interest and short-term capital gains (the excess of net short-term
capital gain over net long-term capital loss), subject to certain adjustments
and excluding the excess of any net long-term capital gain over net short-term
capital loss, if any, for such taxable year. Each Portfolio intends to
distribute as dividends substantially all of its investment company taxable
income and any net tax-exempt interest income each year. Such dividends will be
taxable as ordinary income to a Portfolio's shareholders who are not currently
exempt from federal income taxes, whether such income is received in cash or
reinvested in additional Shares. (Federal income taxes for distributions to an
IRA are deferred under the Code.) In the case of the Equity Income, Equity
Index, Growth & Income Equity, Growth Equity, Small Cap Equity, Small Cap Equity
Index, International Equity and Balanced Portfolios, such dividends will qualify
for the dividends received deduction for corporations to the extent of the total
qualifying dividends received by the Portfolios from domestic corporations for
the taxable year.
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Because all of the Treasury Money Market, Money Market, U.S. Government
Securities, Intermediate Corporate Bond, Bond Index and Government & Corporate
Bond Portfolios' net investment income is expected to be derived from earned
interest, it is not expected that any distributions from such Portfolios will be
eligible for the dividends received deduction.
Substantially all of each Portfolio's net realized long-term capital
gains, if any, will be distributed at least annually to its shareholders. A
Portfolio generally will have no tax liability with respect to such gains and
the distributions will be taxable to shareholders who are not currently exempt
from federal income taxes as long-term capital gains, regardless of how long the
shareholders have held the Shares and whether such gains are received in cash or
reinvested in additional Shares.
An investor considering purchasing Shares of a Money Market Portfolio
on or just before the record date of any capital gains distribution (or in the
case of the Equity and Bond Portfolios, the record date of any dividend or
capital gains distribution) should be aware that the amount of the forthcoming
distribution, although in effect a return of capital, will be taxable.
Dividends declared by a Portfolio in October, November, or December of
any year payable to shareholders of record on a specified date in such months
will be deemed to have been received by shareholders and paid by the Fund on
December 31 of such year, if such dividends are actually paid during January of
the following year.
Each Portfolio may be required in certain cases to withhold and remit
to the U.S. Treasury 31% of taxable dividends or gross sale proceeds paid to
shareholders who have failed to provide a correct tax identification number in
the manner required, who are subject to withholding by the Internal Revenue
Service for failure properly to include on their return payments of taxable
interest or dividends, or who have failed to certify to the Portfolio that they
are not subject to backup withholding when required to do so or that they are
"exempt recipients."
A taxable gain or loss may be realized by an investor upon redemption,
transfer or exchange of Shares of the Equity and Bond Portfolios, depending upon
the tax basis of such Shares and their price at the time of redemption, transfer
or exchange.
Certain interest income and dividends earned by the International
Equity Portfolio from foreign securities is expected to be subject to foreign
withholding taxes or other taxes. So long as more than 50% of the value of the
Portfolio's total assets at the close of any taxable year consists of stock or
securities of foreign corporations, the Portfolio may elect, for U.S. federal
income tax purposes, to treat certain foreign
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taxes paid by it, including generally any withholding taxes and other foreign
income taxes, as paid by its shareholders. The Portfolio may make this election.
As a consequence, the amount of these foreign taxes paid by the Portfolio will
be included in its shareholders' taxable income pro rata (in addition to taxable
distributions actually received by them), and each shareholder may elect either
(a) to credit his proportionate amount of such taxes against his U.S. federal
income tax liabilities (subject to certain limitations), or (b) if he itemizes
his deductions, to deduct such proportionate amounts from his U.S. taxable
income.
STATE AND LOCAL TAXES
Shareholders should note that dividends paid by a Portfolio may be
taxable to investors under state or local law as dividend income even though all
or a portion of such dividends may be derived from interest on obligations that,
if realized directly, would be exempt from such income taxes.
The Treasury Money Market Portfolio is structured to provide investors,
to the extent permissible by federal and state law, with income that is exempt
or excluded from taxation at the state and local level. Shareholders should note
that many, but not all, states permit all or a portion of a regulated investment
company's dividends which are derived from interest on U.S. Treasury obligations
(and obligations of certain U.S. Government agencies)("Treasury Obligations") to
be exempt or excluded from state and local taxation. In addition, only certain
states allow dividends of a regulated investment company that are derived from
dividends of other regulated investment companies investing directly in Treasury
Obligations to be exempt or excluded from state and local taxation. Some states
reduce a shareholder's allowable deductions by interest on debt incurred to
carry obligations producing state tax-exempt interest and by other expenses
related to such obligations. Income earned by the Portfolio from repurchase
agreements generally is not exempt from state or local income tax. Shareholders
should consult their own tax advisors about the status of distributions from the
Treasury Money Market Portfolio under state and local law.
MISCELLANEOUS
The foregoing summarizes some of the important federal and state tax
considerations generally affecting the Portfolios and their shareholders and is
not intended as a substitute for careful tax planning. Accordingly, potential
investors in the Portfolios should consult their tax advisers with specific
reference to their own tax situation. Shareholders will be advised at least
annually as to the federal and, for the Treasury Money Market Portfolio, the
state income tax consequences of distributions made each year.
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MANAGEMENT OF THE FUND
The Fund is managed under the direction of its Board of Directors. The
Statement of Additional Information contains the names of and general background
information concerning each
director.
INVESTMENT ADVISER AND SUB-ADVISER
Mississippi Valley Advisors Inc. ("MVA") serves as the investment
adviser to each Portfolio. MVA's principal office is located at One Mercantile
Center, Seventh & Washington Streets, St. Louis, Missouri 63101. MVA is a
wholly-owned subsidiary of Mercantile. As of December 31, 1997, MVA had
approximately $9.4 billion in assets under investment management, including the
Fund's assets, which were approximately $3.9 billion. MVA also serves as
investment adviser for the Fund's Tax-Exempt Money Market, Short-Intermediate
Municipal, Missouri Tax-Exempt Bond and National Municipal Bond Portfolios.
Subject to the general supervision of the Fund's Board of Directors and
in accordance with the Fund's investment policies, MVA manages the Portfolios,
makes investment decisions with respect to and places orders for all purchases
and sales of the Portfolios' securities and other investments, and directs the
maintenance of each Portfolio's records relating to such purchases and sales.
For the services provided and expenses assumed pursuant to the
investment advisory agreement, MVA is entitled to receive fees, computed daily
and payable monthly, with respect to the Treasury Money Market and Money Market
Portfolios, at the annual rates of .40% of the first $1.5 billion of each such
Portfolio's average daily net assets, .35% of the next $1.0 billion of net
assets and .25% of net assets in excess of $2.5 billion, and with respect to the
U.S. Government Securities, Intermediate Corporate Bond, Bond Index, Government
& Corporate Bond, Equity Income, Equity Index, Growth & Income Equity, Growth
Equity, Small Cap Equity, Small Cap Equity Index, International Equity and
Balanced Portfolios, at the annual rates of .45%, .58%, .30%, .45%, .75%, .30%,
.55%, .75%, .75%, .40%, 100% and .75%, respectively, of the average daily net
assets of each Portfolio, respectively. For the fiscal year or period ended
November 30, 1997, MVA received advisory fees (net of waivers) at the effective
annual rates of __%, __%, __%, __%, __%, __%, __%, __%, __%, __%, __%, __% and
__% of the respective average daily net assets of the Treasury Money Market,
Money Market, U.S. Government Securities, Intermediate Corporate Bond, Bond
Index, Government & Corporate Bond, Equity Income, Equity Index, Growth & Income
Equity, Growth Equity, Small Cap Equity, International Equity and Balanced
Portfolios. The Small Cap Equity Index Portfolio had not commenced operations as
of November 30, 1997.
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For the period October 1, 1996 through September 30, 1997, the
Predecessor Growth Equity Portfolio paid MVA (or its predecessor) advisory fees
at the effective annual rate of .75% of the Portfolio's average daily net
assets pursuant to the investment advisory agreements then in effect.
MVA may from time to time voluntarily reduce all or a portion of its
advisory fee to increase the net income of one or more Portfolios available for
distributions as dividends. The voluntary fee reduction will cause the return of
any such Portfolio to be higher than it would otherwise be in the absence of
such reduction.
David A. Bethke, CFA, is the person primarily responsible for the
day-to-day management of the U.S. Government Securities, Intermediate Corporate
Bond and Government & Corporate Bond Portfolios and has managed each of these
Portfolios since inception. Mr. Bethke, Senior Associate, joined MVA in 1987 and
has seven years of prior investment experience.
Peter Merzian, is the person primarily responsible for the day-to-day
management of the Balanced Portfolio. Mr. Merzian, a Senior Associate of MVA,
has been with MVA since 1993 and prior thereto was employed as a portfolio
manager of another financial institution. Mr. Merzian has served as portfolio
manager of the Balanced Portfolio since May 1996. Mr. Merzian also serves as
portfolio manager for the Fund's Short-Intermediate Municipal, Missouri
Tax-Exempt Bond and National Municipal Bond Portfolios.
The organizational arrangements of MVA require that all investment
decisions with respect to the Equity Income, Growth & Income Equity and Equity
Growth Portfolios be made by MVA's Equity Committee, and no one person is
responsible for making recommendations to that Committee.
Robert J. Anthony is the person primarily responsible for the
day-to-day management of the Small Cap Equity Portfolio. Mr. Anthony, Senior
Associate, has been with MVA for 21 years and has managed the Small Cap Equity
Portfolio since its inception.
MVA has entered into a sub-advisory agreement with Clay Finlay Inc.
Pursuant to the terms of such sub-investment advisory agreement, Clay Finlay has
been retained by MVA to manage the investment and reinvestment of the assets of
the International Equity Portfolio and to provide analytical and investment
research services to it, subject to the supervision of MVA and to the direction
and control of the Fund's Board of Directors.
Under this arrangement, Clay Finlay is responsible for the day-to-day
management of the International Equity Portfolio's assets. MVA reviews
investment performance policies and
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guidelines, maintains certain books and records, is responsible for selecting
and monitoring the performance of Clay Finlay, and for reporting the activities
of Clay Finlay in managing the Portfolio to the Fund's Board of Directors.
Clay Finlay is registered as an investment adviser with the SEC and is
a wholly-owned subsidiary of United Asset Management Corporation, a financial
services holding company. Clay Finlay's principal office is located at 200 Park
Avenue, 56th Floor, New York, New York 10166. Clay Finlay, founded in 1982, has
extensive experience in international investments and as of December 31, 1997
had approximately $6 billion in assets under management.
Frances Dakers is the person primarily responsible for the day-to-day
management of the International Equity Portfolio's investments. Ms. Dakers, a
Principal and Senior Portfolio Manager of Clay Finlay, has been associated with
Clay Finlay since January, 1982 and has managed the International Equity
Portfolio since its inception.
For the services provided and expenses assumed pursuant to its
sub-advisory agreement with MVA, Clay Finlay receives from MVA a fee, computed
daily and payable monthly, at the annual rate of .75% of the first $50 million
of the International Equity Portfolio's average daily net assets, plus .50% of
the next $50 million of average daily net assets, plus .25% of average daily net
assets in excess of $100 million. For the fiscal year ended November 30, 1997,
Clay Finlay received sub-advisory fees at the effective annual rate of .__% of
the International Equity Portfolio's average daily net assets. Clay Finlay bears
all expenses incurred by it in connection with its services under the
sub-advisory agreement.
ADMINISTRATOR
BISYS Fund Services Ohio, Inc. located at 3435 Stelzer Road, Columbus,
Ohio 43219, acts as the Portfolios' Administrator. The Administrator also acts
as administrator for the Fund's Tax-Exempt Money Market, Short-Intermediate
Municipal, Missouri Tax-Exempt Bond and National Municipal Bond Portfolios.
The Administrator generally assists in all aspects of each Portfolio's
administration and operation and also monitors and performs other services
pertaining to the Fund's arrangements under the Administrative Services Plan
described below. For its services, the Administrator is entitled to receive a
fee, computed daily and payable monthly, at the annual rate of .20% of each
Portfolio's average daily net assets. For the fiscal year or period ended
November 30, 1997, the Administrator received administration fees (net of
waivers) at the effective annual rates of .__% of the average daily net assets
of each Portfolio
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other than the Small Cap Equity Index Portfolio which had not commenced
operations as of November 30, 1997. From time to time, the Administrator may
voluntarily waive all or a portion of the administration fees otherwise payable
by a Portfolio in order to increase the net income available for distribution
to shareholders.
For the period October 31, 1996 through September 30, 1997, the
Predecessor Growth Equity Portfolio bore administrative fees pursuant to the
administrative services agreement then in effect with Federated Administrative
Services, its former administrator, at the effective annual rate of .__% of its
average daily net assets.
DISTRIBUTOR
Institutional Shares in each Portfolio are sold continuously by the
Distributor, BISYS Fund Services, an affiliate of the Administrator. BISYS is a
registered broker-dealer with principal offices at 3435 Stelzer Road, Columbus,
Ohio 43219. The Distributor also acts as distributor of the Fund's Tax-Exempt
Money Market, Short-Intermediate Municipal, Missouri Tax-Exempt Bond and
National Municipal Bond Portfolios.
ADMINISTRATIVE SERVICES PLAN
The Fund has adopted an Administrative Services Plan with respect to
Institutional Shares of the Portfolios. Pursuant to the Administrative Services
Plan, Institutional Shares are sold to banks and other financial institutions
(which may include Mercantile or its affiliated or correspondent banks) on
behalf of their qualified accounts (such financial institutions collectively,
the "Service Organizations"), which agree to provide certain shareholder
administrative services for their clients or account holders (collectively, the
"customers") who are the beneficial owners of such Shares. The holders of
Institutional Shares bear separately their pro rata portion of the fees which
may be paid to Service Organizations for such services at an annual rate of up
to .25%, for the Money Market Portfolios, and up to .30%, for the Equity and
Bond Portfolios, of the average daily net assets of a Portfolio's Institutional
Shares owned beneficially by a Service Organization's customers.
SERVICE ORGANIZATIONS
The servicing agreements adopted under the Administrative Services Plan
(the "Servicing Agreements") require the Service Organizations receiving such
compensation (which may include Mercantile and its affiliates) to perform
certain services, including providing administrative services with respect to
the beneficial owners of Institutional Shares of a Portfolio, such as
establishing and maintaining accounts and records for their
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customers who invest in such Shares and assisting customers in processing
purchase, exchange and redemption requests, and responding to customer inquiries
concerning their investments.
Under the Servicing Agreements and upon notice to the Fund, a Service
Organization may subcontract with one or more entities for the performance of
certain services provided under its Servicing Agreements with the Fund. Such
Service Organization shall be fully responsible to the Fund for the acts or
omissions of any sub-contractor as it would be for its own acts or omissions.
The fees payable to any sub-contractor are paid by the Service Organization out
of the fees it receives from the Fund.
The Fund understands that Service Organizations providing such
administrative services may also charge fees to their customers beneficially
owning such Shares. These fees would be in addition to any amounts which may be
received by such a Service Organization under its Servicing Agreement with the
Fund. The Fund's Servicing Agreements require a Service Organization to disclose
to its customers any compensation payable to the Service Organization by a
Portfolio and any other compensation payable by its customers in connection with
their investment in such Shares. Customers of such Service Organizations
receiving servicing fees should read this Prospectus in light of the terms
governing their accounts with their Service Organization.
CUSTODIAN, SUB-CUSTODIAN, TRANSFER AGENT AND SUB-TRANSFER AGENT
Mercantile Bank National Association, an affiliate of the Fund and a
wholly-owned subsidiary of Mercantile Bancorporation, Inc., with principal
offices located at One Mercantile Center, 8th and Locust Streets, St. Louis,
Missouri 63101, serves as Custodian of each Portfolio's assets. In addition,
Bankers Trust Company of New York, with principal offices located at 16 Wall
Street, New York, New York 10005, serves as Sub-Custodian for the International
Equity Portfolio. BISYS Fund Services Ohio, Inc. also serves as the Fund's
transfer agent and dividend disbursing agent. Its address is 3435 Stelzer Road,
Columbus, Ohio 43219.
Pursuant to an agreement with BISYS Fund Services Ohio, Inc. and in
connection with the Institutional Shares offered to its customers, a financial
institution (which may include Mercantile or its affiliated or correspondent
banks) serves as sub-transfer agent with respect to the underlying beneficial
owners of Institutional Shares. For the account maintenance services provided, a
sub-transfer agent is entitled to receive an annual fee of $30 with respect to
each beneficial owner's holdings in Institutional Shares (irrespective of the
number of Portfolios in which such Institutional Shares are held).
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REGULATORY MATTERS
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any affiliate
thereof from sponsoring, organizing, or controlling the shares of a registered,
open-end investment company continuously engaged in the issuance of its Shares,
and prohibit banks generally from issuing, underwriting, selling, or
distributing securities such as Shares of the Portfolios. Such banking laws and
regulations do not prohibit such a holding company or affiliate, or banks, from
acting as investment adviser, transfer agent or custodian to such an investment
company, or from purchasing Shares of such a company as agent for and upon the
order of customers. Mercantile, MVA, Service Organizations that are banks or
bank affiliates, and broker-dealers that are bank affiliates are subject to such
laws and regulations, but believe they may perform the services for the
Portfolios contemplated by their respective agreements, this Prospectus and the
Statement of Additional Information without violating applicable banking laws
and regulations.
Should future legislative, judicial or administrative action prohibit
or restrict the activities of such companies in connection with the provision of
services on behalf of the Portfolios and the shareholders, the Fund might be
required to alter materially or discontinue its arrangements with such companies
and change its method of operation. It is not expected that investors would
suffer any adverse financial consequences as a result of any of these
occurrences.
If current restrictions preventing a bank from legally sponsoring,
organizing, controlling or distributing Shares of an investment company were
relaxed, Mercantile, or an affiliate of Mercantile, would consider the
possibility of offering to perform additional services for the Portfolios. It is
not possible, of course, to predict whether or in what form such legislation
might be enacted or the terms upon which Mercantile, or such an affiliate, might
offer to provide such services.
Conflict of interest restrictions may apply to the receipt of
compensation paid pursuant to a Servicing Agreement by the Portfolios to a
financial intermediary in connection with the investment of fiduciary funds in a
Portfolio's Shares. Institutions, including banks regulated by the Comptroller
of the Currency and investment advisers and other money managers subject to the
jurisdiction of the SEC, the Department of Labor or state securities
commissions, should consult legal counsel before entering into Servicing
Agreements.
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EXPENSES
Except as noted above and in the Statement of Additional Information
under "Investment Advisory and Administrative Contracts" and "Custodian and
Transfer Agent," the Fund's service contractors bear all expenses in connection
with the performance of their services, except that the Distributor is
compensated pursuant to the Distribution and Services Plans (as described below
under "Other Information Concerning The Fund and Its Shares"). Expenses are
deducted from the total income of each Portfolio before dividends and
distributions are paid. These expenses include, but are not limited to, fees
paid to the Adviser and Administrator, transfer agency fees, fees and expenses
of officers and directors who are not affiliated with the Adviser or the
Distributor, taxes, interest, legal fees, custodian fees, auditing fees, 12b-1
fees, servicing fees, certain fees and expenses in registering and qualifying a
Portfolio and its Shares for distribution under federal and state securities
laws, costs of preparing and printing prospectuses and statements of additional
information for regulatory purposes and for distribution to existing
shareholders, the expense of reports to shareholders, shareholders' meetings and
proxy solicitations, fidelity bond and directors and officers liability
insurance premiums, the expense of using independent pricing services and other
expenses which are not expressly assumed by the Adviser, Distributor or
Administrator under their respective agreements with the Fund. The Fund also
pays for brokerage fees, commissions and other transaction charges, if any, in
connection with the purchase and sale of portfolio securities. Any general
expenses of the Fund that are not readily identifiable as belonging to a
particular Portfolio will be allocated among all Portfolios by or under the
direction of the Board of Directors in a manner the Board determines to be fair
and equitable. Any expenses relating only to a particular class of Shares within
a Portfolio will be borne solely by such class. See "Certain Financial
Information" and "Management of the Fund" above for additional information
regarding expenses of each Portfolio.
OTHER INFORMATION CONCERNING
THE FUND AND ITS SHARES
DESCRIPTION OF SHARES
The Fund was organized as a Maryland corporation on September 9, 1982
and is a mutual fund of the type known as an "open-end management investment
company". The Fund's principal office is located at 3435 Stelzer Road, Columbus,
Ohio 43219.
The Fund's Charter authorizes the Board of Directors to issue up to
twenty billion full and fractional shares of common stock, and to classify and
reclassify any unauthorized and
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unissued shares into one or more classes of shares. The Board of Directors may
similarly classify or reclassify any class of shares into one or more series.
Pursuant to such authority, the Board of Directors has authorized the
issuance of the following series of shares representing interests in the
Portfolios, each of which is classified as a diversified company under the 1940
Act: 1 billion Trust Shares, 300 million Institutional Shares, 2 billion S
Shares and 100 million Investor A Shares, representing interests in the Treasury
Money Market Portfolio; 1.8 billion Trust Shares, 300 million Institutional
Shares, 2 billion S Shares, 550 million Investor A Shares and 50 million
Investor B Shares, representing interests in the Money Market Portfolio; 15
million Trust Shares, 20 million Institutional Shares, 5 million Investor A
Shares and 50 million Investor B Shares, representing interests in the U.S.
Government Securities Portfolio; 50 million Trust Shares, 25 million
Institutional Shares and 25 million Investor A Shares, representing interests in
the Intermediate Corporate Bond Portfolio; 25 million Trust Shares, 25 million
Institutional Shares and 25 million Investor A Shares representing interests in
the Bond Index Portfolio; 50 million Trust Shares, 20 million Institutional
Shares, 5 million Investor A Shares and 50 million Investor B Shares,
representing interests in the Government & Corporate Bond Portfolio; 50 million
Trust Shares, 25 million Institutional Shares, 25 million Investor A Shares and
25 million Investor B Shares representing interests in the Equity Income
Portfolio; 25 million Trust Shares, 25 million Institutional Shares and 25
million Investor A Shares representing interests in the Equity Index Portfolio;
50 million Trust Shares, 20 million Institutional Shares, 5 million Investor A
Shares and 50 million Investor B Shares, representing interests in the Growth &
Income Equity Portfolio; 50 million Trust Shares, 25 million Institutional
Shares, 25 million Investor A Shares and 25 million Investor B Shares,
representing interests in the Growth Equity Portfolio; 35 million Trust Shares,
20 million Institutional Shares, 5 million Investor A Shares and 50 million
Investor B Shares , representing interests in the Small Cap Equity Portfolio; 50
million Trust Shares, 25 million Institutional Shares and 25 million Investor A
Shares, representing interests in the Small Cap Equity Index Portfolio; 10
million Trust Shares, 10 million Institutional Shares, 10 million Investor A
Shares and 50 million Investor B Shares, representing interests in the
International Equity Portfolio; and 15 million Trust Shares, 20 million
Institutional Shares, 5 million Investor A Shares and 50 million Investor B
Shares, representing interests in the Balanced Portfolio. Institutional Shares,
S Shares, Investor A Shares and Investor B Shares of the Portfolios are
described in separate prospectuses which are available from the Distributor at
the telephone number on the cover of this Prospectus. Shares in the Fund's
Portfolios will be issued without Share certificates.
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The Institutional Shares of the Portfolios are described in this
Prospectus. The Portfolios also offer Trust Shares and Investor A Shares and, in
addition, each Money Market Portfolio offers S Shares and each Portfolio except
the Treasury Money Market, U.S. Government Securities, Bond Index, Equity Index
and Small Cap Equity Index Portfolios offers Investor B Shares. Trust Shares are
offered to financial institutions acting on their on behalf or on behalf of
discretionary and non-discretionary accounts for which they may receive
account-level asset-based management fees. S Shares are offered to customers who
purchase such Shares through cash management services, such as a sweep account,
offered by Mercantile, any of its banking affiliates, and certain other
financial service organizations, such as banks or broker-dealers. Trust Shares
and S Shares are sold without a sales charge. Investor A Shares (other than
Investor A Shares of the Money Market Portfolios which are sold without a sales
charge) are sold with a maximum 4.5% (2.5% with respect to the U.S. Government
Securities, Bond Index, Equity Index and Small Cap Equity Index Portfolios)
front-end sales charge, and Investor B Shares are sold with a maximum 5.0%
contingent deferred sales charge. Investor A Shares and Investor B Shares are
sold through selected broker/dealers and other financial intermediaries to
individual or institutional customers. Trust Shares, Institutional Shares,
S Shares, Investor A Shares and Investor B Shares bear their pro rata portion of
all operating expenses paid by a Portfolio, except that Trust Shares and
Institutional Shares bear all payments under the Portfolio's respective
Administrative Services Plans adopted for such Shares and S Shares, Investor
A Shares and Investor B Shares bear all payments under the Portfolio's
respective Distribution and Services Plans adopted for such Shares. In addition,
Institutional Shares of a Portfolio bear the expense of certain sub-transfer
agency fees.
Payments under the Administrative Services Plans for Trust Shares are
made to Service Organizations for administrative services provided to the
Service Organizations' clients or account holders who are the beneficial owners
of Institutional Shares. Payments under the Administrative Services Plans may
not exceed .25% (on an annual basis) of the average daily net asset value of
outstanding Institutional Shares of the Money Market Portfolios or .30% (on an
annual basis) of the average daily net asset value of outstanding Institutional
Shares of the Equity and Bond Portfolios.
Payments under the Distribution and Services Plans for S Shares,
Investor A Shares and Investor B Shares are made to (i) the Distributor or
another person for providing distribution assistance and assuming certain
related expenses, and (ii) Service Organizations for administrative services
provided to the Service Organizations' clients or account holders who are the
beneficial owners of S Shares, Investor A Shares or Investor B Shares. Payments
under the Distribution and Services Plan for
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S Shares may not exceed 1.00% (on an annual basis) of the average daily net
asset value of outstanding S Shares of a Portfolio. Payments under the
Distribution and Services Plan for Investor A Shares may not exceed .25% (on an
annual basis) of the average daily net asset value of outstanding Investor A
Shares of the Money Market Portfolios or .30% (on an annual basis) of the
average daily net asset value of Investor A Shares of the Equity and Bond
Portfolios. Payments under the Distribution and Services Plan for Investor B
Shares may not exceed 1.00% (on an annual basis) of the average daily net asset
value of outstanding Investor B Shares of a Portfolio. Distribution payments
made under the Distribution and Services Plans are subject to the requirements
of Rule 12b-1 under the 1940 Act.
The Fund offers various services and privileges in connection with
Investor A Shares and Investor B Shares of a Portfolio that are not offered in
connection with the Portfolio's Trust Shares, Institutional Shares or S Shares,
including an automatic investment program and an automatic withdrawal plan. Each
class of shares also offers different exchange privileges. Investor B Shares
convert automatically into Investor A Shares eight years after the beginning of
the calendar month in which the Shares were purchased.
Shareholders are entitled to one vote for each full Share held and
proportionate fractional votes for fractional Shares held. Shares of all
Portfolios will vote together and not by class unless otherwise required by law
or permitted by the Board of Directors. All shareholders of a particular
Portfolio will vote together as a single class on matters relating to the
Portfolio's investment advisory (or sub-advisory) agreement and investment
objective and fundamental policies. Only holders of Trust Shares, however, will
vote on matters relating to the Administrative Services Plan for Trust Shares
and only holders of Institutional Shares will vote on matters pertaining to the
Administrative Services Plan for Institutional Shares. Similarly, only holders
of S Shares will vote on matters pertaining to the Distribution and Services
Plan for S Shares, only holders of Investor A Shares will vote on matters
pertaining to the Distribution and Services Plan for Investor A Shares and only
holders of Investor B Shares will vote on matters pertaining to the Distribution
and Services Plan for Investor B Shares.
The Fund is not required, and currently does not intend, to hold annual
meetings except as required by the 1940 Act or other applicable law. Upon the
written request of the holders of 10% or more of the outstanding Shares, the
Fund will call a special meeting to vote on the question of removal of a
director.
Shares of the Portfolios have noncumulative voting rights and,
accordingly, the holders of more than 50% of the Fund's outstanding Shares
(irrespective of Portfolio or class) may elect
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all of the Directors. Shares have no preemptive rights and only such conversion
and exchange rights as the Board may grant in its discretion. When issued for
payment as described in this Prospectus, Shares will be fully paid and
nonassessable.
MISCELLANEOUS
As used in this Prospectus, a "vote of a majority of the outstanding
Shares" of a Portfolio means, with respect to the approval of an investment
advisory or sub-advisory agreement or a change in an investment objective or
fundamental investment policy, the affirmative vote of the lesser of (a) more
than 50% of the outstanding Shares of such Portfolio (irrespective of class), or
(b) 67% or more of the Shares of such Portfolio (irrespective of class) present
at a meeting if more than 50% of the outstanding Shares of such Portfolio are
represented at the meeting in person or by proxy.
As of __________, 1998, Mercantile and its affiliates possessed, of
record on behalf of their underlying customer accounts, voting or investment
power with respect to more than 25% of the Fund's outstanding Shares. Therefore,
Mercantile may be deemed to be a controlling person of the Fund within the
meaning of the 1940 Act.
Inquiries regarding the Portfolios may be directed to the Fund at
1-800-452-4015.
---------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE PORTFOLIOS'
STATEMENT OF ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN
CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE PORTFOLIOS, THE FUND, OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE PORTFOLIOS, THE FUND OR THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
-86-
<PAGE> 288
THE ARCH FUND(R), INC.
INSTITUTIONAL SHARES
[OLD LOGO]
PROSPECTUS
____________, 1998
-87-
<PAGE> 289
CROSS REFERENCE SHEET
---------------------
(Investor A and B Shares)
The ARCH Treasury Money Market Portfolio
The ARCH Money Market Portfolio
The ARCH Tax-Exempt Money Market Portfolio
The ARCH U.S. Government Securities Portfolio
The ARCH Intermediate Corporate Bond Portfolio
The ARCH Bond Index Portfolio
The ARCH Government & Corporate Bond Portfolio
The ARCH Short-Intermediate Municipal Portfolio
The ARCH Missouri Tax-Exempt Bond Portfolio
The ARCH National Municipal Bond Portfolio
The ARCH Equity Income Portfolio
The ARCH Equity Index Portfolio
The ARCH Growth & Income Equity Portfolio
The ARCH Growth Equity Portfolio
The ARCH Small Cap Equity Portfolio
The ARCH Small Cap Equity Index Portfolio
The ARCH International Equity Portfolio
The ARCH Balanced Portfolio
<TABLE>
<CAPTION>
Form N-1A Part A Item Prospectus Caption
- --------------------- ------------------
<S> <C>
1. Cover Page.............................. Cover Page
2. Synopsis................................ Expense Summary
for Investor A
Shares
3. Condensed Financial
Information........................... Certain Financial
Information;
Financial
Highlights; Yields
and Total
Returns
4. General Description
of Registrant......................... Highlights;
Investment Objectives,
Policies and Risk
Considerations; Other
Information Concerning
the Fund and Its Shares
5. Management of the Fund.................. Management of the
Fund
</TABLE>
<PAGE> 290
5A. Management's Discussion of
Fund Performance........................... Inapplicable
6. Capital Stock and
Other Securities........................... How to Purchase and
Redeem Shares;
Dividends and
Distributions; Taxes;
Other Information
Concerning the Fund and
Its Shares
7. Purchase of Securities
Being Offered............................. How to Purchase and
Redeem Shares
8. Redemption or Repurchase.................... How to Purchase and
Redeem Shares
9. Pending Legal Proceedings................... Inapplicable
<PAGE> 291
THE ARCH FAMILY
OF MUTUAL FUNDS
INVESTOR A & INVESTOR B SHARES
MONEY MARKET PORTFOLIOS
-----------------------
Treasury Money Market Portfolio
Money Market Portfolio
Tax-Exempt Money Market Portfolio
TAXABLE BOND PORTFOLIOS
-----------------------
U.S. Government Securities Portfolio
Intermediate Corporate Bond Portfolio
Bond Index Portfolio
Government & Corporate Bond Portfolio
TAX-EXEMPT BOND PORTFOLIOS
--------------------------
Short-Intermediate Municipal Portfolio
Missouri Tax-Exempt Bond Portfolio
National Municipal Bond Portfolio
EQUITY PORTFOLIOS
-----------------
Equity Income Portfolio
Equity Index Portfolio
Growth & Income Equity Portfolio
Growth Equity Portfolio
Small Cap Equity Portfolio
Small Cap Equity Index Portfolio
International Equity Portfolio
Balanced Portfolio
Prospectus dated __________, 1998
<PAGE> 292
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
Highlights......................................................................4
Certain Financial Information.................................................. 8
Expense Summary for Investor A and Investor B Shares...........................10
Financial Highlights ..........................................................16
Investment Objectives, Policies and Risk Considerations........................40
Pricing of Shares..............................................................89
How to Purchase and Redeem Shares..............................................91
Purchase of Shares.......................................................91
Automatic Investment Program (AIP).......................................93
Applicable Sales Charges -- Investor A Shares
of the Equity and Bond Portfolios.....................................94
Reduced Sales Charges -- Investor A Shares
of the Equity and Bond Portfolios.....................................96
Applicable Sales Charges -- Investor B Shares of
the CDSC Portfolios...................................................98
Exchange Privileges.....................................................102
Redemption of Shares....................................................104
Redemption by Mail......................................................104
Redemption by Telephone.................................................105
Automatic Withdrawal Plan ..............................................106
Purchase of Investor A Shares at Net Asset Value........................106
Other Exchange or Redemption Information................................107
Yields and Total Returns......................................................108
Dividends and Distributions...................................................110
Taxes.........................................................................112
Management of the Fund........................................................117
Information Concerning the Fund and its Shares................................125
Description of Shares...................................................125
</TABLE>
<PAGE> 293
THE ARCH FUND(R), INC.
INVESTOR A SHARES AND INVESTOR B SHARES
The ARCH Fund, Inc. (the "Fund") is an open-end management investment
company that currently offers Shares in eighteen investment portfolios. This
Prospectus describes the Investor A Shares in each of those portfolios and the
Investor B Shares in eleven of those portfolios. Except as provided below,
Investor A Shares and Investor B Shares are sold through selected broker/dealers
and other financial intermediaries to individual or institutional customers.
Investor A Shares (with the exception of Investor A Shares in the money market
portfolios) are sold with a front-end sales charge. Investor B Shares are sold
with a contingent deferred sales charge.
THE ARCH TREASURY MONEY MARKET PORTFOLIO'S investment objective is to
seek a high level of current income exempt from state income tax consistent with
liquidity and security of principal.
THE ARCH MONEY MARKET PORTFOLIO'S investment objective is to seek
current income with liquidity and stability of principal.
THE ARCH TAX-EXEMPT MONEY MARKET Portfolio's investment objective is to
seek as high a level of current interest income exempt from federal income tax
as is consistent with liquidity and stability of principal.
THE ARCH U.S. GOVERNMENT SECURITIES PORTFOLIO'S investment objective is
to seek a high rate of current income that is consistent with relative stability
of principal.
THE ARCH INTERMEDIATE CORPORATE BOND PORTFOLIO'S investment objective
is to seek as high a level of current income as is consistent with preservation
of capital.
THE ARCH BOND INDEX PORTFOLIO'S investment objective is to seek to
provide investment results that, before deduction of operating expenses,
approximate the price and yield performance of U.S. Government, mortgage-backed,
asset-backed and corporate debt securities, as represented by the Lehman
Brothers Aggregate Bond Index.
THE ARCH GOVERNMENT & CORPORATE BOND PORTFOLIO'S investment objective
is to seek the highest level of current income consistent with conservation of
capital.
THE ARCH SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO'S investment objective
is to seek as high a level of current income, exempt
<PAGE> 294
from regular federal income tax, as is consistent with preservation of capital.
THE ARCH MISSOURI TAX-EXEMPT BOND PORTFOLIO'S investment objective is
to seek as high a level of interest income exempt from federal income tax as is
consistent with conservation of capital.
THE ARCH NATIONAL MUNICIPAL BOND PORTFOLIO'S investment objective is to
seek as high a level of current income exempt from regular federal income tax as
is consistent with conservation of capital.
THE ARCH EQUITY INCOME PORTFOLIO'S investment objective is to seek to
provide an above-average level of income consistent with long-term capital
appreciation.
THE ARCH EQUITY INDEX PORTFOLIO'S investment objective is to seek
investment results that, before deduction of operating expenses, approximate the
price and yield performance of U.S. publicly traded common stocks with large
stock market capitalizations, as represented by the Standard & Poor's 500
Composite Stock Price Index.
THE ARCH GROWTH & INCOME EQUITY PORTFOLIO'S investment objective is to
provide long-term capital growth, with income a secondary consideration.
THE ARCH GROWTH EQUITY PORTFOLIO'S investment objective is capital
appreciation.
THE ARCH SMALL CAP EQUITY PORTFOLIO'S investment objective is capital
appreciation. Current income is an incidental consideration in the selection of
portfolio securities.
THE ARCH SMALL CAP EQUITY INDEX PORTFOLIO'S investment objective is to
provide investment results that, before deduction of operating expenses,
approximate the price and yield performance of U.S. common stocks with smaller
stock market capitalizations, as represented by the Standard & Poor's SmallCap
600 Stock Price Index.
THE ARCH INTERNATIONAL EQUITY PORTFOLIO'S investment objective is to
provide capital growth consistent with reasonable investment risk by investing
principally in foreign equity securities, most of which will be denominated in
foreign currencies.
THE ARCH BALANCED PORTFOLIO'S investment objective is to maximize total
return through a combination of growth of capital and current income consistent
with the preservation of capital.
-2-
<PAGE> 295
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Mississippi Valley Advisors Inc. ("MVA" or the "Adviser"), a
wholly-owned subsidiary of Mercantile Bank National Association ("Mercantile"),
acts as investment adviser for the Portfolios; Mercantile serves as custodian;
BISYS Fund Services Ohio, Inc. (the "Administrator") serves as administrator;
and BISYS Fund Services (the "Distributor") serves as sponsor and distributor.
In addition, Clay Finlay Inc. ("Clay Finlay" or the "Sub-Adviser") serves as
sub-adviser for the International Equity Portfolio.
This Prospectus sets forth concisely certain information about the
Portfolios that prospective investors should know before investing. Investors
should read this Prospectus and retain it for future reference. Additional
information about the Portfolios, contained in a Statement of Additional
Information dated ________, 1998, has been filed with the Securities and
Exchange Commission and is incorporated by reference in its entirety into this
Prospectus. An investor may obtain the Statement of Additional Information
without charge by writing the Fund at P.O. Box 78069, St. Louis, Missouri 63178
or by calling 1-800-452-ARCH(2724).
An investment in the Treasury Money Market Portfolio, Money Market
Portfolio or Tax-Exempt Money Market Portfolio is neither insured nor guaranteed
by the U.S. Government. There can be no assurance that any of these Portfolios
will be able to maintain a stable net asset value of $1.00 per Share.
Portfolio Shares are not bank deposits, are not federally insured or
guaranteed by the U.S. Government, the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other governmental agency, and are not the
obligations of or guaranteed or otherwise supported by any bank. An investment
in the Portfolios involves investment risk, including possible loss of
principal.
-------------------------------------
________, 1998
-3-
PHTRANS:184491_3.WP5
<PAGE> 296
HIGHLIGHTS
The ARCH Fund, Inc. (the "Fund") is an open-end, management investment
company (commonly known as a mutual fund) registered under the Investment
Company Act of 1940, as amended. The Fund offers investment opportunities in
eighteen investment portfolios: the ARCH Treasury Money Market, Money Market and
Tax-Exempt Money Market Portfolios (the "Money Market Portfolios") and the ARCH
U.S. Government Securities, Intermediate Corporate Bond, Bond Index, Government
& Corporate Bond, Short-Intermediate Municipal, Missouri Tax-Exempt Bond,
National Municipal Bond, Equity Income, Equity Index, Growth & Income Equity,
Growth Equity, Small Cap Equity, Small Cap Equity Index, International Equity
and Balanced Portfolios (the "Equity and Bond Portfolios" and, together with the
Money Market Portfolios, the "Portfolios"). Each Portfolio represents a separate
pool of assets with different investment objectives and policies (as described
below under "Investment Objectives, Policies and Risk Considerations"). MVA
serves as adviser, Mercantile as custodian, BISYS Fund Services Ohio, Inc. as
administrator and BISYS Fund Services as sponsor and distributor. In addition,
Clay Finlay serves as sub-adviser for the International Equity Portfolio. For
information on expenses, fee waivers, and services, see "Certain Financial
Information," "Financial Highlights" and "Management of the Fund."
The following information generally describes the Portfolios and their
investment objectives. There can be no assurance that the Portfolios will be
able to achieve their respective investment objectives.
The Money Market Portfolios each seek to maintain a net asset value of
$1.00 per Share. Each Money Market Portfolio's assets are invested in
dollar-denominated debt securities with remaining maturities of 397 days (13
months) or less as defined by the Securities and Exchange Commission, and each
Money Market Portfolio's dollar-weighted average portfolio maturity will not
exceed 90 days. All securities acquired by the Money Market Portfolios will be
determined by MVA, under guidelines approved by the Fund's Board of Directors,
to present minimal credit risks and to be rated in the highest category (or
deemed comparable in quality) at the time of purchase. There can be no assurance
that the Money Market Portfolios will be able to achieve a stable net asset
value on a continuous basis.
The U.S. Government Securities and Government & Corporate Bond
Portfolios are designed for investors who seek higher current income than is
typically offered by money market funds and who are willing to accept a variable
Share value to achieve that objective.
-4-
<PAGE> 297
The Intermediate Corporate Bond Portfolio is designed for investors who
seek higher current income than is typically offered by money market funds with
less principal volatility than is normally associated with a long-term bond
fund.
The Bond Index Portfolio is designed for investors who are willing to
accept the risks associated with an investment in fixed income securities, and
who seek investment results that, before deduction of operating expenses,
approximate the price and yield performance of U.S. Government, mortgage-backed,
asset-backed and corporate debt securities, as represented by the Lehman
Brothers Aggregate Bond Index.
The Short-Intermediate Municipal Portfolio is designed for investors
who seek a yield that is higher than a municipal money market fund with less
principal volatility than is normally associated with a long-term municipal bond
fund.
The Missouri Tax-Exempt Bond Portfolio is designed for investors who
seek a higher rate of return than that typically offered by tax-exempt money
market funds and who are willing to accept a variable Share value to achieve
that objective.
The National Municipal Bond Portfolio is designed for investors who
seek current income that is exempt from regular federal income tax and relative
stability of principal.
The Equity Income Portfolio is designed for investors who seek an
above-average level of income consistent with long-term capital appreciation,
and who are prepared to accept the risks associated with an investment in equity
securities.
The Equity Index Portfolio is designed for investors who are willing to
accept the risks associated with an investment in equity securities, and who
seek investment results that, before deduction of operating expenses,
approximate the price and yield performance of U.S. publicly traded common
stocks with large stock market capitalizations, as represented by the Standard &
Poor's 500 Composite Stock Price Index.
The Growth & Income Equity, Growth Equity, Small Cap Equity and
Balanced Portfolios are designed for investors who seek capital growth, and who
are prepared to accept the risks associated with equity securities.
The Small Cap Equity Index Portfolio is designed for investors who are
willing to accept the risks associated with an investment in small
capitalization equity securities, and who seek investment results that, before
deduction for operating expenses, approximate the price and yield performance of
U.S.
-5-
<PAGE> 298
common stocks with smaller stock market capitalizations, as represented by the
Standard & Poor's SmallCap 600 Stock Price Index.
The International Equity Portfolio is designed for investors who seek
capital growth, wish to diversify their investments beyond the United States,
and are prepared to accept the risks entailed in such investments. These risks
may be greater than those associated with investments in the equity securities
of companies located in the United States.
The Tax-Exempt Money Market, Short-Intermediate Municipal, Missouri
Tax-Exempt Bond and National Municipal Bond Portfolios seek to provide income
exempt from federal tax. In addition, the Missouri Tax-Exempt Bond Portfolio
seeks to provide income that is also exempt from Missouri income tax.
Investors should note that one or more of the Portfolios may, subject
to their investment policies and limitations, purchase variable and floating
rate instruments, enter into repurchase agreements and reverse repurchase
agreements, make securities loans, invest in options, futures and index-based
depository receipts, and make limited investments in illiquid securities and
securities issued by other investment companies. These investment practices
involve investment risks of varying degrees. For example, the absence of a
secondary market for a particular variable or floating rate instrument could
make it difficult for a Portfolio to dispose of an instrument if the issuer were
to default on its payment obligation. Default by a counterparty to a repurchase
agreement or securities lending transaction could expose a Portfolio to loss
because of adverse market action or possible delay in disposing of the
underlying collateral. Reverse repurchase agreements are subject to the risk
that the market value of the securities sold by a Portfolio will decline below
the repurchase price which the Portfolio is obligated to pay. Purchasing options
is a specialized investment technique which entails a substantial risk of loss
of amounts paid as premiums to option writers. Investments in futures and
related options are subject to the ability of the Adviser to correctly predict
movements in the direction of the market and there is no assurance that a liquid
market will exist for a particular futures contract at any particular time.
The Equity and Bond Portfolios, other than the Bond Index, Equity Index
and Small Cap Equity Index Portfolios, may engage in short-term trading, which
may also involve greater risk and increase such Portfolios' expenses. The
International Equity Portfolio will invest principally in foreign equity
securities, most of which will be denominated in foreign currencies. The Growth
Equity Portfolio may invest to a limited extent in foreign equity securities.
The other Portfolios do not invest in
-6-
<PAGE> 299
instruments denominated in foreign currencies (except that the Growth & Income
Equity, Small Cap Equity, and Balanced Portfolios may invest in certain Canadian
securities and the Intermediate Corporate Bond Portfolio may invest in debt
securities issued by foreign corporations and governments). Foreign securities
entail certain inherent risks, such as future political and economic
developments and the adoption of foreign government restrictions, that might
adversely affect payment of dividends or principal and interest.
The Tax-Exempt Money Market, Short-Intermediate Municipal, Missouri
Tax-Exempt Bond and National Municipal Bond Portfolios may, under certain
conditions, make limited investments in securities the income from which may be
subject to federal income tax. See "Investment Objectives, Policies and Risk
Considerations" below and the Statement of Additional Information under
"Investment Objectives and Policies."
The Fund offers investors the opportunity to invest in a variety of
professionally managed investments without having to become involved with
detailed management, accounting and safekeeping procedures normally related to
direct investments in securities. The Portfolios also offer the economic
advantages of block trading in securities and the availability of a family of
eighteen mutual funds should an investor's investment goals change.
This Prospectus describes the Investor A Shares of each Portfolio and
the Investor B Shares of the Money Market, U.S. Government Securities,
Government & Corporate Bond, Missouri Tax-Exempt Bond, National Municipal Bond,
Equity Income, Growth & Income Equity, Growth Equity, Small Cap Equity,
International Equity and Balanced Portfolios (the "CDSC Portfolios"). Investor A
Shares of each Portfolio are sold with a front-end sales charge, except for
Investor A Shares of the Money Market Portfolios which are sold without a sales
charge. Investor B Shares of the CDSC Portfolios are sold with a contingent
deferred sales charge. For information on purchasing, exchanging or redeeming
Investor A Shares and/or Investor B Shares of the Portfolios, please see "How to
Purchase and Redeem Shares" below. For a discussion comparing Investor A Shares
and Investor B Shares, please see "Characteristics of Investor A Shares and
Investor B Shares," and "Factors to Consider When Selecting Investor A Shares or
Investor B Shares" on pages __ and __, respectively.
-7-
<PAGE> 300
CERTAIN FINANCIAL INFORMATION
Shares of the Money Market Portfolio have been classified into five
classes of Shares - Trust Shares, Institutional Shares, S Shares, Investor A
Shares and Investor B Shares. Shares of the U.S. Government Securities,
Government & Corporate Bond, Equity Income, Growth & Income Equity, Growth
Equity, Small Cap Equity, International Equity and Balanced Portfolios have been
classified into four classes of Shares -- Trust Shares, Institutional Shares,
Investor A Shares and Investor B Shares. Shares of the Treasury Money Market
Portfolio have been classified into four classes of Shares -- Trust Shares,
Institutional Shares, S Shares and Investor A Shares. Shares of the Intermediate
Corporate Bond, Bond Index, Equity Index and Small Cap Equity Index Portfolios
have been classified into three classes of Shares -- Trust Shares, Institutional
Shares and Investor A Shares. Shares of the Tax-Exempt Money Market Portfolio
have been classified into three classes of Shares - Trust Shares, S Shares and
Investor A Shares. Shares of the Missouri Tax-Exempt Bond and National Municipal
Bond Portfolios have been classified into three classes of Shares -- Trust
Shares, Investor A Shares and Investor B Shares. Shares of the
Short-Intermediate Municipal Portfolio have been classified into two classes of
Shares -- Trust Shares and Investor A Shares. Shares of each class in a
Portfolio represent equal, PRO RATA interests in the investments held by that
Portfolio and are identical in all respects, except that Shares of each class
bear separate distribution and/or shareholder administrative servicing fees and
certain other operating expenses, and enjoy certain exclusive voting rights on
matters relating to these fees. See "Other Information Concerning the Fund and
Its Shares," "Management of the Fund -- Administrative Services Plan," and
"Management of the Fund -- Custodian, Sub-Custodian and Transfer Agent" below.
As a result of payments for distribution and/or shareholder administrative
servicing fees and certain other operating expenses that may be made in
differing amounts, the net investment income of Trust Shares, Institutional
Shares, S Shares, Investor A Shares and Investor B Shares in a Portfolio can be
expected, at any given time, to be different.
The Tax-Exempt Money Market Portfolio and Missouri Tax-Exempt Bond
Portfolio commenced operations on July 10, 1986 and July 15, 1988, respectively,
as separate investment portfolios (the "Predecessor Tax-Exempt Money Market
Portfolio" and "Predecessor Missouri Tax-Exempt Bond Portfolio", respectively)
of The ARCH Tax-Exempt Trust (the "Trust"), which was organized as a
Massachusetts business trust. On October 2, 1995, the Predecessor Tax-Exempt
Money Market Portfolio and the Predecessor Missouri Tax-Exempt Bond Portfolio
were reorganized as new portfolios of the Fund. Prior to the reorganization,
these
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<PAGE> 301
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.
The Growth Equity Portfolio commenced operations on January 4, 1993 as
the Arrow Equity Portfolio, a separate investment portfolio (the "Predecessor
Growth Equity Portfolio") of Arrow Funds, which was organized as a Massachusetts
business trust. On November 21, 1997, the Predecessor Growth Equity Portfolio
was reorganized as a new portfolio, the Growth Equity Portfolio of the Fund.
Prior to the reorganization, the Predecessor Growth Equity Portfolio offered and
sold shares of beneficial interest that were similar to the Fund's Investor A
Shares.
-9-
<PAGE> 302
EXPENSE SUMMARY FOR
INVESTOR A AND INVESTOR B SHARES
<TABLE>
<CAPTION>
TREASURY
MONEY MONEY TAX-EXEMPT
MARKET MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO
---------- --------------------------- ------------
INVESTOR A INVESTOR A INVESTOR B INVESTOR A
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Load Imposed on
Purchases (as a percentage of
offering price)................... NONE NONE NONE NONE
Deferred Sales Charge
(as a percentage of offering
price)............................ NONE NONE 5.0%(2) NONE
ANNUAL PORTFOLIO OPERATING
EXPENSES
(as a percentage of average
net assets)
Investment Advisory Fees (net
of fee waivers(3)................. .__% .__% .__% .__%
12b-1 Fees, including distribution
and service fees (net of
waivers)(4)....................... .__% .__% .__% .__%
Other Expenses (including
administration fees
and other expenses)
(net of fee waivers and
expense reimbursements)(5),(6).... .__% .__% .__% .__%
Total Portfolio Operating
Expenses (net of fee waivers
and expense reimbursements)(6).... . % . % . % . %
=== === === ===
<CAPTION>
U.S. INTERMEDIATE
GOVERNMENT CORPORATE
SECURITIES BOND BOND INDEX
PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------- ----------- -----------
INVESTOR A INVESTOR B INVESTOR A INVESTOR A
---------- ---------- ---------- ----------
<S> <S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Load Imposed on
Purchases (as a percentage of
offering price)................... 2.5%(1) NONE 4.5%(1) 2.5%(1)
Deferred Sales Charge
(as a percentage of offering
price)............................ NONE 5.0%(2) NONE NONE
ANNUAL PORTFOLIO OPERATING
EXPENSES
(as a percentage of average
net assets)
Investment Advisory Fees (net
of fee waivers(3)................. .__% .__% .__% .__%
12b-1 Fees, including distribution
and service fees (net of
waivers)(4)....................... .__% .__% .__% .__%
Other Expenses (including
administration fees
and other expenses)
(net of fee waivers and
expense reimbursements)(5),(6).... .__% .__% .__% .__%
Total Portfolio Operating
Expenses (net of fee waivers
and expense reimbursements)(6).... . % . % . % . %
=== === === ===
<FN>
- ----------------------------------------
(1) Reduced sales charge may be available. See "How to Purchase and Redeem
Shares -- Reduced Sales Charges - Investor A Shares of the Equity and
Bond Portfolios".
(2) This amount applies to redemptions during the first year. The deferred
sales charge decreases to 4.0%, 3.0%, 3.0%, 2.0% and 1.0% for
redemptions made during the second through sixth years, respectively.
No deferred sales charge is charged after the sixth year. See "How to
Purchase and Redeem Shares -- Applicable Sales Charge - Investor B
Shares of the CDSC Portfolios."
(3) Without fee waivers, Investment Advisory Fees for the Treasury Money
Market, Money Market, Tax-Exempt Money Market, U.S. Government
Securities, Intermediate Corporate Bond and Bond Index Portfolios would
be .40%, .40%, .40%, .45%, .55% and .30%, respectively.
(4) Without waivers, 12b-1 fees would be .25% for Investor A Shares of the
Treasury Money Market, Money Market and Tax-Exempt Money Market
Portfolios.
(5) Without fee waivers, administration fees for a Portfolio would be .20%
(.10% for the Tax-Exempt Money Market Portfolio).
(6) Without fee waivers and/or expense reimbursements, Other Expenses would
be .__%, .__%, .__%, .__%, .__% and .__% for Investor A Shares of the
Treasury Money Market, Money Market, Tax-Exempt Money Market, U.S.
Government Securities, Intermediate Corporate Bond and Bond Index
Portfolios, respectively, and .__% and .__% for Investor B Shares of
the Money Market and U.S. Government Securities Portfolios,
respectively, and Total Portfolio Operating Expenses would be .__%,
.__%, .__%, .__%, .__% and .__% for Investor A Shares of the Treasury
Money Market, Money Market, Tax-Exempt Money Market, U.S. Government
Securities, Intermediate Corporate Bond and Bond Index Portfolios,
respectively, and .____% and .____% for Investor B Shares of the Money
Market and U.S. Government Securities Portfolios, respectively.
</TABLE>
-10-
<PAGE> 303
<TABLE>
<CAPTION>
MISSOURI
GOVERNMENT & SHORT INTERMEDIATE TAX-EXEMPT
CORPORATE BOND MUNICIPAL BOND
PORTFOLIO PORTFOLIO PORTFOLIO
----------------------------------- --------------------------
INVESTOR A INVESTOR B INVESTOR A INVESTOR A INVESTOR B
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Load Imposed on
Purchases (as a percentage of
offering price).................. 4.5%(1) NONE 2.5%(1) 4.5%(1) NONE
Deferred Sales Charge
(as a percentage of offering
price)........................... NONE 5.0%(2) NONE NONE 5.0%(2)
ANNUAL PORTFOLIO OPERATING
EXPENSES
(as a percentage of average
net assets)
Investment Advisory Fees (after
of fee waivers(3)................ . % . % . % . % . %
--- --- --- --- ---
12b-1 Fees, including distribution
and service fees (after waivers)(4) . % . % . % . % . %
--- --- --- --- ---
Other Expenses (including
administration fees
and other expenses)
(net of fee waivers and
expense reimbursements)(5),(6)... . % . % . % . % . %
--- --- --- --- ---
Total Portfolio Operating
Expenses (net of fee waivers
and expense reimbursements)(6)... . % . % . % . % . %
=== === === === ===
<CAPTION>
NATIONAL MUNICIPAL EQUITY EQUITY
BOND INCOME INDEX
PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------
INVESTOR A INVESTOR B INVESTOR A INVESTOR B INVESTOR A
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Load Imposed on
Purchases (as a percentage of
offering price).................. 4.5%(1) NONE 4.5%(1) NONE 2.5%(1)
Deferred Sales Charge
(as a percentage of offering
price)........................... NONE 5.0%(2) NONE 5.0%(2) NONE
ANNUAL PORTFOLIO OPERATING
EXPENSES
(as a percentage of average
net assets)
Investment Advisory Fees (after
of fee waivers(3)................ . % . % . % . % . %
--- --- --- --- ---
12b-1 Fees, including distribution
and service fees (after waivers)(4) . % . % . % . % . %
--- --- --- --- ---
Other Expenses (including
administration fees
and other expenses)
(net of fee waivers and
expense reimbursements)(5),(6)... . % . % . % . % . %
--- --- --- --- ---
Total Portfolio Operating
Expenses (net of fee waivers
and expense reimbursements)(6)... . % . % . % . % . %
=== === === === ===
<FN>
- ----------------------------
(1) Reduced sales charge may be available. See "How to Purchase and Redeem
Shares -- Reduced Sales Charges - Investor A Shares of the Equity and
Bond Portfolios".
(2) This amount applies to redemptions during the first year. The deferred
sales charge decreases to 4.0%, 3.0%, 3.0%, 2.0% and 1.0% for
redemptions made during the second through sixth years, respectively.
No deferred sales charge is charged after the sixth year. See "How to
Purchase and Redeem Shares -- Applicable Sales Charge - Investor B
Shares of the CDSC Portfolios."
(3) Without fee waivers, Investment Advisory Fees for the Government &
Corporate Bond, Short-Intermediate Municipal, Missouri Tax-Exempt Bond,
National Municipal Bond, Equity Income and Equity Index Portfolios
would be .45%, .55%, .45%, .55%, .75% and .30%, respectively.
(4) Without waivers, 12b-1 fees would be .30% for Investor A Shares of each
Portfolio.
(5) Without fee waivers, administration fees for a Portfolio would be .20%.
(6) Without fee waivers and/or expense reimbursements, Other Expenses would
be .__%, .__%, .__%, .__%, .__% and .__% for Investor A Shares of the
Government & Corporate Bond, Short-Intermediate Municipal, Missouri
Tax-Exempt Bond, National Municipal Bond, Equity Income and Equity
Index Portfolios, respectively, and Total Portfolio Operating Expenses
would be ____%, ____%, ____%, ____%, ____% and __% for Investor A
Shares of the Government & Corporate Bond, Short-Intermediate
Municipal, Missouri Tax-Exempt Bond, National Municipal Bond, Equity
Income and Equity Index Portfolios, respectively. Other Expenses would
be .__%, .__%, .__% and .__% for Investor B Shares of the Government &
Corporate Bond, Missouri Tax-Exempt Bond, National Municipal Bond and
Equity Income Portfolios, respectively, and Total Portfolio Operating
Expenses would be ____%, ____%, ____% and ____% for Investor B Shares
of the Government & Corporate Bond, Missouri Tax-Exempt Bond, National
Municipal Bond and Equity Income Portfolios, respectively.
</TABLE>
-11-
<PAGE> 304
<TABLE>
<CAPTION>
GROWTH & INCOME
EQUITY GROWTH EQUITY SMALL CAP EQUITY
PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------
INVESTOR A INVESTOR B INVESTOR A INVESTOR B INVESTOR A INVESTOR B
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Load Imposed on
Purchases (as a percentage of
offering price)................... 4.5%(1) NONE 4.5%(1) NONE 4.5%(1) NONE
Deferred Sales Charge
(as a percentage of offering
price)............................ NONE 5.0%(2) NONE 5.0%(2) NONE 5.0%(2)
ANNUAL PORTFOLIO OPERATING
EXPENSES
(as a percentage of average
net assets)
Investment Advisory Fees (net
of fee waivers(3)................ . % . % . % . % . % . %
--- --- --- --- --- ---
12b-1 Fees, including distribution
and service fees (after
waivers)(4)...................... . % . % . % . % . % . %
--- --- --- --- --- ---
Other Expenses (including
administration fees
and other expenses)
(net of fee waivers and
expense reimbursements)(5),(6).... . % . % . % . % . % . %
--- --- --- --- --- ---
Total Portfolio Operating
Expenses (net of fee waivers
and expense reimbursements)(6).... . % . % . % . % . % . %
=== === === === === ===
<CAPTION>
SMALL CAP EQUITY INTERNATIONAL
INDEX EQUITY BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------------------------- -------------------------
INVESTOR A INVESTOR A INVESTOR B INVESTOR A INVESTOR B
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Load Imposed on
Purchases (as a percentage of
offering price)................... 2.5%(1) 4.5%(1) NONE 4.5%(1) NONE
Deferred Sales Charge
(as a percentage of offering
price)............................ NONE% NONE 5.0%(2) NONE 5.0%(2)
ANNUAL PORTFOLIO OPERATING
EXPENSES
(as a percentage of average
net assets)
Investment Advisory Fees (net
of fee waivers(3)................ . % . % . % . % . %
--- --- --- --- ---
12b-1 Fees, including distribution
and service fees (after
waivers)(4)....................... . % . % . % . % . %
--- --- --- --- ---
Other Expenses (including
administration fees
and other expenses)
(net of fee waivers and
expense reimbursements)(5),(6).... . % . % . % . % . %
--- --- --- --- ---
Total Portfolio Operating
Expenses (net of fee waivers
and expense reimbursements)(6).... . % . % . % . % . %
=== === === === ===
<FN>
- ----------------------------------
(1) Reduced sales charge may be available. See "How to Purchase and Redeem
Shares -- Reduced Sales Charges - Investor A Shares of the Equity and
Bond Portfolios".
(2) This amount applies to redemptions during the first year. The deferred
sales charge decreases to 4.0%, 3.0%, 3.0%, 2.0% and 1.0% for
redemptions made during the second through sixth years, respectively.
No deferred sales charge is charged after the sixth year. See "How to
Purchase and Redeem Shares -- Applicable Sales Charge - Investor B
Shares of the CDSC Portfolios."
(3) Without fee waivers, Investment Advisory Fees for the Growth & Income
Equity, Growth Equity, Small Cap Equity, Small Cap Equity Index,
International Equity and Balanced Portfolios would be .75%, .75%,
1.00%, .40%, and .75%, respectively.
(4) Without waivers, 12b-1 fees would be .30% for Investor A Shares of each
Portfolio.
(5) Without fee waivers, administration fees for a Portfolio would be .20%.
(6) Without fee waivers and/or expense reimbursements, Other Expenses for
Investor A Shares would be .__%, .__%, .__%, .__%, .__% and .__% and
Total Portfolio Operating Expenses for Investor A Shares would be
____%, ____%, ____%, ____%, ____% and ____% of the Growth & Income
Equity, Growth Equity, Small Cap Equity, Small Cap Equity Index,
International Equity and Balanced Portfolios, respectively. Without fee
waivers and/or expense reimbursements, Other Expenses for Investor B
Shares would be __%, __%, __%, __% and __%, and Total Portfolio
Operating Expenses would be __%, __%, __%, __% and __% for the Growth &
Income Equity, Growth Equity, Small Cap Equity, International Equity
and Balanced Portfolios, respectively.
</TABLE>
-12-
<PAGE> 305
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following
expenses on a $1,000 investment,
assuming (1) a 5% annual return
and (2) redemption at the end of each period:
Treasury Money Market Portfolio
Investor A Shares................................. $ $ $ $
Money Market Portfolio
Investor A Shares................................. $ $ $ $
Investor B Shares
Assuming complete redemption
at end of period(1)............................. $ $ $ $
Assuming no redemption.......................... $ $ $ $
Tax-Exempt Money Market Portfolio
Investor A Shares................................. $ $ $ $
U.S. Government Securities Portfolio
Investor A Shares(2).............................. $ $ $ $
Investor B Shares
Assuming complete redemption at
end of period(1)................................ $ $ $ $
Assuming no redemption.......................... $ $ $ $
Intermediate Corporate Bond Portfolio
Investor A Shares(2).............................. $ $ $ $
Bond Index Portfolio
Investor A Shares(2).............................. $ $ $ $
Government & Corporate Bond Portfolio
Investor A Shares(2).............................. $ $ $ $
Investor B Shares................................. $ $ $ $
Assuming complete redemption
at end of period(1)............................. $ $ $ $
Assuming no redemption
Short-Intermediate Municipal Portfolio
Investor A Shares(2).............................. $ $ $ $
Missouri Tax-Exempt Bond Portfolio
Investor A Shares(2).............................. $ $ $ $
Investor B Shares
Assuming complete redemption at
end of period)(1)............................... $ $ $ $
Assuming no redemption.......................... $ $ $ $
National Municipal Bond Portfolio
Investor A Shares(2).............................. $ $ $ $
Investor B Shares
Assuming complete redemption at
end of period(1)................................ $ $ $ $
Assuming no Redemption.......................... $ $ $ $
</TABLE>
-13-
<PAGE> 306
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity Income Portfolio
Investor A Shares(2).............................. $ $ $ $
Investor B Shares
Assuming complete redemption at
end of period(1)................................ $ $ $ $
Assuming no redemption.......................... $ $ $ $
Equity Index Portfolio
Investor A Shares(2).............................. $ $ $ $
Growth & Income Equity Portfolio
Investor A Shares(2).............................. $ $ $ $
Investor B Shares
Assuming complete redemption at
end of period(1)................................ $ $ $ $
Assuming no redemption.......................... $ $ $ $
Growth Equity Portfolio
Investor A Shares(2).............................. $ $ $ $
Investor B Shares
Assuming complete redemption at
end of period(1)................................ $ $ $ $
Assuming no redemption.......................... $ $ $ $
Small Cap Equity Portfolio
Investor A Shares(2).............................. $ $ $ $
Investor B Shares
Assuming complete redemption at
end of period(1)................................ $ $ $ $
Assuming no redemption.......................... $ $ $ $
Small Cap Equity Index Portfolio
Investor A Shares(2).............................. $ $ $ $
International Equity Portfolio
Investor A Shares(2).............................. $ $ $ $
Investor B Shares
Assuming complete redemption at
end of period(1)................................ $ $ $ $
Assuming no redemption.......................... $ $ $ $
Balanced Portfolio
Investor A Shares(2).............................. $ $ $ $
Investor B Shares
Assuming complete redemption at
end of period(1)................................ $ $ $ $
Assuming no redemption.......................... $ $ $ $
<FN>
(1) Assumes deduction of maximum applicable contingent deferred sales
charge.
(2) Assumes deduction at time of purchase of maximum applicable front-end
sales charge.
(3) Based on conversion of Investor B Shares into Investor A Shares after
eight years.
</TABLE>
-14-
<PAGE> 307
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
MORE OR LESS THAN THOSE SHOWN. Information about the actual performance of all
of the Portfolios is contained in the Fund's Annual Report to Shareholders dated
November 30, 1997 which may be obtained without charge by contacting the Fund at
the address or telephone number provided on page __ of this Prospectus.
The purpose of the foregoing tables is to assist in understanding the
various costs and expenses that an investor in a Portfolio's Investor A Shares
or Investor B Shares will bear directly or indirectly. The information contained
in such tables with respect to the Treasury Money Market, Money Market, Tax-
Exempt Money Market, U.S. Government Securities, Government & Corporate Bond,
Short-Intermediate Municipal, Missouri Tax-Exempt Bond, National Municipal Bond
Portfolio, Growth & Income Equity, Small Cap Equity, International Equity and
Balanced Portfolios is based on expenses incurred by each of these Portfolios
during the last fiscal year with respect to its Investor A Shares or Investor B
Shares. Such information with respect to the Intermediate Corporate Bond, Bond
Index, Equity Income, Equity Index and Growth Equity Portfolios is based on
expenses incurred by each of these Portfolios during the last fiscal year,
restated to reflect the expenses that each such Portfolio expects to incur
during the current fiscal year with respect to its Investor A Shares or Investor
B Shares. Such information with respect to the Small Cap Equity Index Portfolio
is based on expenses such Portfolio expects to incur during the current fiscal
year with respect to its Investor A Shares. (For more complete descriptions of
the various costs and expenses, see "Management of the Fund" in this Prospectus
and the Statement of Additional Information.) The Tables and Examples have not
been audited by the Fund's independent auditors and do not reflect any charges
that may be imposed by financial institutions on their customers. Because of the
payments for distribution services (12b-1 fees) under the Distribution and
Services Plans as shown in the above table, long-term shareholders of Investor A
Shares of the Equity and Bond Portfolios and Investor B Shares of the CDSC
Portfolios may pay more than the economic equivalent of the maximum front-end
sales load permitted by the National Association of Securities Dealers, Inc.
-15-
<PAGE> 308
FINANCIAL HIGHLIGHTS
The "Financial Highlights" in the following tables supplement the
Fund's financial statements, which are contained in the Fund's Annual Report to
Shareholders dated November 30, 1997 and [_______________________] into the
Statement of Additional Information, and set forth certain historic results for
(i) Investor A Shares of each Portfolio other than the Small Cap Equity Index
Portfolio which had not commenced operations as of November 30, 1997, and (ii)
Investor B Shares of the Money Market, U.S. Government Securities, Government &
Corporate Bond, Missouri Tax-Exempt Bond, National Municipal Bond, Equity
Income, Growth & Income Equity, Growth Equity, Small Cap Equity, International
Equity and Balanced Portfolios. The data for the years or periods ended November
30, 1989 through 1997, and with respect to the Tax-Exempt Money Market and
Missouri Tax-Exempt Bond Portfolios (and their Predecessor Portfolios), for the
years ended November 30, 1997 and 1996, the six-month period ended November 30,
1995 and each of the years or periods ended May 31, 1990 through 1995, has been
audited by [___________________], independent auditors, whose unqualified report
insofar as it relates to each of the years or periods in the five-year period
ended November 30, 1997 (the years ended November 30, 1996 and 1997, the
six-month period ended November 30, 1995 and each of the years or periods in the
three-year period ended May 31, 1995 with respect to the Tax-Exempt Money Market
and Missouri Tax-Exempt Bond Portfolios (and their Predecessor Portfolios)) on
the financial statements containing such information is [___________
___________] into the Statement of Additional Information. The data for the year
ended November 30, 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 were derived from financial statements audited by the
Fund's and the Trust's prior auditors.
Further information about the performance of the Portfolios is
available in the Annual Report. Both the Statement of Additional Information and
the Annual Report may be obtained free of charge by contacting the Fund at the
address or telephone number on page __ of this Prospectus.
-16-
<PAGE> 309
<TABLE>
<CAPTION>
TREASURY MONEY MARKET PORTFOLIO
(FOR A SHARE(b) OUTSTANDING THROUGHOUT EACH PERIOD)
INVESTOR A SHARES
YEAR ENDED YEAR ENDED YEAR ENDED
NOV. 30, 1997 NOV. 30, 1996 NOV. 30, 1995
------------- ------------- -------------
INVESTOR A INVESTOR A INVESTOR A
SHARES SHARES SHARES
------ ------ ------
<S> <C> <C>
Net Asset Value, Beginning of Period .......... $ 1.00 $ 1.00
---------- ----------
Investment Activities
Net investment income ....................... 0.044 0.048
---------- ----------
Total from Investment Activities ............ 0.044 0.048
---------- ----------
Distributions
Net investment income ....................... (0.044) (0.048)
---------- ----------
Total Distributions ......................... (0.044) (0.048)
---------- ----------
Net Asset Value, End of Period ................ $ 1.00 $ 1.00
========== ==========
Total Return .................................. 4.46% 4.93%
Ratios/Supplemental Data:
Net Assets at end of period (000) ............. $ 7,667 $ 2,776
Ratio of expenses to average net assets
(including waivers) ......................... 0.81% 0.78%
Ratio of net investment income to average net
assets (including waivers) .................. 4.35% 4.84%
Ratio of expenses to average net assets
(before waivers)* ........................... 0.96% 0.93%
Ratio of net investment income to
average net assets (before waivers)* ........ 4.20% 4.69%
<CAPTION>
DEC. 2, 1991
YEAR ENDED YEAR ENDED TO NOV. 30,
NOV. 30, 1994(b) NOV. 30, 1993 1992(a)(b)
---------------- ------------- ----------
INVESTOR A INVESTOR INVESTOR
SHARES SHARES SHARES
------ ------ ------
<S> <C> <C>
Net Asset Value, Beginning of Period .......... $ 1.00 $ 1.00 $ 1.00
---------- ---------- ----------
Investment Activities
Net investment income ....................... 0.31 0.024 0.017
---------- ---------- ----------
Total from Investment Activities ............ 0.031 0.024 0.017
---------- ---------- ----------
Distributions
Net investment income ....................... (0.031) (0.024) (0.017)
---------- ---------- ----------
Total Distributions ......................... (0.031) (0.024) (0.017)
---------- ---------- ----------
Net Asset Value, End of Period ................ $ 1.00 $ 1.00 $ 1.00
========== ========== ==========
Total Return .................................. 3.16% 2.43% 1.79%(c)
Ratios/Supplemental Data:
Net Assets at end of period (000) ............. $ 1,713 $ 1,411 $ 3,257
Ratio of expenses to average net assets
(including waivers) ......................... 0.71% 0.64% 0.58%(d)
Ratio of net investment income to average net
assets (including waivers) .................. 3.14% 2.41% 2.88%(d)
Ratio of expenses to average net assets
(before waivers)* ........................... 0.94% 0.97% 1.02%(d)
Ratio of net investment income to
average net assets (before waivers)* ........ 2.90% 2.08% 2.44%(d)
<FN>
- ----------
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios
would have been as indicated.
(a) Period from commencement of operations.
(b) On December 2, 1991, the Portfolio issued a series of Shares which were designated as "Trust" Shares. In addition, on
April 20, 1992, the Portfolio issued a second series of Shares which were designated as "Investor" Shares. The financial
highlights presented for the period prior to April 20, 1992 represent the financial highlights applicable to Trust Shares.
On September 27, 1994 the Portfolio redesignated Investor Shares as "Investor A" Shares.
(c) Not Annualized.
(d) Annualized.
</TABLE>
-17-
<PAGE> 310
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
(FOR A SHARE(a) OUTSTANDING THROUGHOUT EACH PERIOD)
INVESTOR A SHARES
YEAR ENDED NOVEMBER 30,
1997 1996 1995 1994(a) 1993 1992 1991(a)
-------- -------- -------- --------- -------- -------- --------
INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR
A SHARES A SHARES A SHARES A SHARES SHARES SHARES SHARES
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- --------- --------- --------- --------- ---------
Investment Activities
Net investment income............. 0.047 0.052 0.033 0.025 0.032 0.056
------- -------- -------- -------- -------- --------
Total from Investment
Activities..................... 0.047 0.052 0.033 0.025 0.032 0.056
------- -------- -------- -------- -------- --------
Distributions
Net investment income............. (0.047) (0.052) (0.033) (0.025) (0.032) (0.056)
-------- -------- -------- -------- -------- --------
Total Distributions............. (0.047) (0.52) (0.033) (0.025) (0.032) (0.056)
-------- ------- -------- -------- -------- --------
Net Asset Value,
End of Period..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======== ======== ======== ========
Total Return........................ 4.81% 5.33% 3.37% 2.52% 3.21% 5.75%
Ratios/Supplemental Data:
Net Assets at end of
period (000)...................... $91,166 $64,865 $48,384 $46,920 $52,224 $60,436
Ratio of expenses to average
net assets (including
waivers).......................... 0.78% 0.77% 0.78% 0.79% 0.80% 0.72%
Ratio of net investment
income to average net
assets (including waivers)........ 4.70% 5.20% 3.35% 2.50% 3.21% 5.69%
Ratio of expenses to
average net assets
(before waivers)*................. 0.93% 0.92% 0.93% 0.93% 0.94% 0.80%
Ratio of net investment
income to average net
assets (before waivers)*.......... 4.55% 5.05% 3.20% 2.36% 3.07% 5.61%
<CAPTION>
JAN. 26, 1996
1997 TO
YEAR ENDED NOVEMBER 30, -------- NOV. 30, 1996(c)
----------------------- INVESTOR INVESTOR B
1990 1989 1988 B 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............. 0.078 0.088 0.071 0.033
------- -------- -------- --------
Total from Investment
Activities..................... 0.078 0.088 0.071 (0.0 33)
------- -------- -------- ---------
Distributions
Net investment income............. (0.078) (0.088) (0.071) (0.033)
-------- -------- -------- --------
Total Distributions............. (0.078) (0.088) (0.071) 0.033
-------- -------- -------- --------
Net Asset Value,
End of Period..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== =======
Total Return........................ 8.08% 9.21% 7.33%(b) 3.35%(b)
Ratios/Supplemental Data:
Net Assets at end of
period (000)...................... $896,903 $661,145 $289,764 $ 41
Ratio of expenses to average
net assets (including
waivers).......................... 0.55% 0.45% 0.45% 1.47%(c)
Ratio of net investment
income to average net
assets (including waivers)........ 7.77% 8.82% 7.12% 3.73%(c)
Ratio of expenses to
average net assets
(before waivers)*................. 0.60% 0.60% 0.58% 1.68%(c)
Ratio of net investment
income to average net
assets (before waivers)*.......... 7.72% 8.67% 6.99% 3.52%(c)
<FN>
- ----------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated. (a) As
of December 1, 1990, the Portfolio designated existing Shares as "Investor"
Shares. On September 27, 1994 the Portfolio redesignated Investor Shares as
"Investor A" Shares.
(b) Unaudited.
(c) Period from date of initial public offering.
</TABLE>
-18-
<PAGE> 311
<TABLE>
<CAPTION>
TAX-EXEMPT MONEY MARKET PORTFOLIO(a)
(FOR A SHARE(b) OUTSTANDING THROUGHOUT EACH PERIOD)
INVESTOR A SHARES
-------------------------------------------------------------------------------------------
SIX
YEAR YEAR MONTHS
ENDED ENDED ENDED YEAR ENDED
NOV. 30 NOV. 30 NOV. 30 MAY 31,
------------------------------------------------------
1997 1996 1995(f) 1995 1994(b) 1993 1992
---------- ---------- ----------- ---------- ------------ ---------- ----------
INVESTOR A INVESTOR A INVESTOR A INVESTOR A INVESTOR INVESTOR INVESTOR
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- -------- -------- -------- --------
Investment Activities
Net investment income...... 0.028 0.014 0.027 0.017 0.019 0.031
----- ------ -------- -------- -------- --------
Total from Investment
Activities............... 0.028 0.014 0.027 0.017 0.019 0.031
----- ------ -------- -------- -------- --------
Distributions
Net investment income...... (0.028) (0.014) (0.027) (0.017) (0.019) (0.031)
------ ------ -------- -------- -------- --------
Total Distributions........ (0.028) (0.014) (0.027) (0.017) (0.019) (0.031)
------ ------ -------- -------- -------- --------
Net Asset Value,
End of Period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======== ======== ======== ========
Total Return................. 2.83% 1.45%(c) 2.70% 1.73% 1.90% 3.16%
Ratios/Supplemental Data:
Net assets at end of period
(000)...................... $17,984 $5,403 $5,138 $8,631 $6,837 $10,956
Ratio of expenses to
average net assets
(including waivers)........ 0.75% 0.94%(d) 0.84% 0.76% 0.80% 0.87%
Ratio of net investment
income to average net
assets
(including waivers)......... 2.78% 2.87%(d) 2.63% 1.72% 1.88% 3.10%
Ratio of expenses to
average net assets
(before waivers)*.......... 0.80% 0.99%(d) 0.93% 0.86% 0.90% 0.97%
Ratio of net investment
income to average
net assets (before
waivers)*................. 2.73% 2.82%(d) 2.54% 1.62% 1.78% 3.00%
<CAPTION>
YEAR ENDED MAY 31,
--------------------------------------------------
1991 1990(b) 1989(b) 1988(b)
---------- ---------- ---------- --------
INVESTOR DOLLAR DOLLAR DOLLAR
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...... 0.047 0.041 0.042 0.025
-------- -------- -------- --------
Total from Investment
Activities............... 0.047 0.041 0.042 0.025
-------- -------- -------- --------
Distributions
Net investment income...... (0.047) (0.041) (0.042) (0.025)
-------- -------- -------- --------
Total Distributions........ (0.047) (0.041) (0.042) (0.025)
-------- -------- -------- --------
Net Asset Value,
End of Period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total Return................. 4.82% 5.73% 5.72% 1.81%
Ratios/Supplemental Data:
Net assets at end of period
(000)...................... $8,286 0 $3,083 0
Ratio of expenses to
average net assets
(including waivers)........ 0.58% 0.78% 0.65% 0.65%
Ratio of net investment
income to average net
assets
(including waivers)......... 5.09% 5.30% 5.38% 4.05%
Ratio of expenses to
average net assets
(before waivers)*.......... 0.68% 0.87% 0.83% 0.80%
Ratio of net investment
income to average
net assets (before
waivers)*................. 4.99% 5.21% 5.20% 3.90%
<FN>
- ------------------
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios
would have been as indicated.
(a) The Portfolio commenced operations on July 10, 1986 as an investment portfolio of The ARCH Tax-Exempt Trust. On
October 27, 1995, it was reorganized as a new portfolio of the Fund.
(b) "Investor A" Shares were originally issued as "Dollar" Shares in June of 1987. As of September 28, 1990, the Portfolio
redesignated its existing Shares as "Investor" Shares. On September 27, 1994 the Portfolio redesignated Investor Shares
as "Investor A" Shares.
(c) Includes waiver of sub-advisory fees for the period ended May 31, 1987.
(d) Not Annualized.
(e) Annualized.
(f) Upon its reorganization as a portfolio of the Fund, the Portfolio changed its fiscal year-end from May 31 to November 30.
</TABLE>
-19-
<PAGE> 312
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES PORTFOLIO
(FOR A SHARE(a) OUTSTANDING THROUGHOUT EACH PERIOD)
INVESTOR A SHARES
------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
------------------------------------------------------------------------------
1997 1996 1995 1994(a) 1993 1992 1991(a)
---- ---- ---- ------- ---- ---- -------
INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR
A SHARES A SHARES A SHARES SHARES SHARES SHARES SHARES
-------- -------- -------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period...................... $10.85 $10.05 $11.20 $10.80 $10.68 $10.21
------ ------ ------ ------ ------ ------
Investment Activities
Net investment income.................... 0.62 0.64 0.61 0.59 0.62 0.75
Net realized and unrealized gains
(losses) from investments............... (0.15) 0.80 1.00 0.47 0.13 0.47
------ ------ ------ ------ ------ ------
Total from Investment Activities......... 0.47 1.44 (0.39) 1.06 0.75 1.22
------ ------ ------ ------ ------ ------
Distributions
Net investment income.................... (0.62) (0.64) (0.61) (0.59) (0.62) (0.75)
Net realized gains....................... -- -- -- (0.07) (0.01)
In excess of net realized gains.......... (0.03) -- (0.18) -- -- --
------ ------ ------ ------ ------ ------
Total Distributions..................... (0.65) (0.64) (0.79) (0.66) (0.63) (0.75)
------ ------ ------ ------ ------ ------
Net Asset Value, End of Period............. $10.67 $10.85 $10.05 $11.20 $10.80 $10.68
====== ====== ====== ====== ====== ======
Total Return (excludes sales
charges)................................... 4.57% 14.66% (3.14)% 10.03% 7.20% 12.36%
Ratios/Supplemental Data:
Net Assets at end of period (000) $7,153 $8,179 $9,631 $9,567 $7,499 $5,791
Ratio of expenses to average net
assets (including waivers)............... 0.97% 0.97% 0.96% 0.97% 0.95% 0.82%
Ratio of net investment income to
average net assets (including
waivers)................................. 5.82% 6.05% 5.98% 5.25% 5.72% 7.12%
Ratio of expenses to average net
assets (before waivers)*................. 1.07% 1.07% 1.06% 1.08% 1.09% 1.36%
Ratio of net investment income to
average net assets (before
waivers)*................................ 5.72% 5.95% 5.88% 5.14% 5.58% 6.58%
Portfolio turnover......................... 53.76% 93.76% 50% 24% 74% 36%
<CAPTION>
INVESTOR A SHARES
----------------------
YEAR ENDED NOVEMBER 30,
-----------------------
JUNE 2,
1988 TO
NOV. 30,
1990 1989 1988(b)
------- ------ -------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period...................... $10.06 $ 9.94 $10.00
------- ------- ------
Investment Activities
Net investment income.................... 0.76 0.85 0.36
Net realized and unrealized gains
(losses) from investments............... 0.16 0.11 (0.06)
------- ------- -------
Total from Investment Activities......... 0.92 0.96 0.30
------- ------- ------
Distributions
Net investment income.................... (0.77) (0.84) (0.36)
Net realized gains.......................
In excess of net realized gains.......... -- -- --
-------- -------- --------
Total Distributions..................... (0.77) (0.84) (0.36)
-------- ------- -------
Net Asset Value, End of Period............. $10.21 $10.06 $ 9.94
====== ====== ======
Total Return (excludes sales
charges)................................... 9.66% 10.40% 3.05%(d),(f)
Ratios/Supplemental Data:
Net Assets at end of period (000) $6,856 $ 5,954 $ 4,335
Ratio of expenses to average net
assets (including waivers)............... 0.73% 0.74% 0.79%(g)
Ratio of net investment income to
average net assets (including
waivers)................................. 7.80% 8.50% 7.26%(g)
Ratio of expenses to average net
assets (before waivers)*................. 1.28% 1.29% 1.40%(g)
Ratio of net investment income to
average net assets (before
waivers)*................................ 7.25% 7.95% 6.65%(g)
Portfolio turnover......................... 53% 84% 215%
<FN>
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios
would have been as indicated.
(a) As of December 1, 1990, the Portfolio designated the existing series of Shares as "Investor" Shares. On September 27, 1994
the Portfolio redesignated Investor Shares as "Investor A" Shares and authorized the issuance of a series of Shares
designated as "Investor B" Shares.
(b) Period from commencement of operations.
(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.
</TABLE>
-20-
<PAGE> 313
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES PORTFOLIO
(FOR A SHARE(a) OUTSTANDING THROUGHOUT EACH PERIOD)
INVESTOR B SHARES
---------------------------------------------------
YEAR YEAR MARCH 1,
ENDED ENDED 1995 TO
NOV. 30, NOV. 30, NOV. 30,
1997 1996 1995(c)
-------- -------- --------
<S> <C> <C>
Net Asset Value,
Beginning of Period..................................... $10.84 $10.34
------ ------
Investment Activities
Net investment income................................... 0.55 0.31
Net realized and unrealized gains
(losses) from investments.............................. (0.15) 0.50
------- ------
Total from Investment Activities........................ 0.40 0.81
------ ------
Distributions
Net investment income................................... (0.55) (0.31)
Net realized gains......................................
In excess of net realized gains......................... (0.03) --
------- ------
Total Distributions.................................... (0.58) (0.31)
------- ------
Net Asset Value, End of Period............................ $10.66 $10.84
====== ======
Total Return (excludes sales charges)..................... 3.85% 12.85%(e)
Ratios/Supplemental Data:
Net Assets at end of period (000) $359 $41
Ratio of expenses to average net
assets (including waivers).............................. 1.66% 1.68%(g)
Ratio of net investment income to
average net assets (including
waivers)................................................ 5.06% 5.37%(g)
Ratio of expenses to average net
assets (before waivers)*................................ 1.76% 1.78%(g)
Ratio of net investment income to
average net assets (before
waivers)*............................................... 4.96% 5.27%(g)
Portfolio turnover........................................ 53.76% 93.76%
<FN>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. On September 27, 1994 the Portfolio
redesignated Investor Shares as "Investor A" Shares and authorized the
issuance of a series of Shares designated as "Investor B" Shares.
(b) Period from commencement of operations.
(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.
</TABLE>
-21-
<PAGE> 314
<TABLE>
<CAPTION>
INTERMEDIATE CORPORATE BOND PORTFOLIO
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
FEBRUARY 10, 1997
TO
NOVEMBER 30, 1997(a)
--------------------
INVESTOR A
SHARES
------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............................................
Investment Activities
Net investment income.......................................................
Net realized and unrealized losses from investments.........................
Total from Investment Activities.........................................
Distributions
Net investment income.......................................................
Total Distributions......................................................
NET ASSET VALUE, END OF PERIOD.................................................. (b)***
Total Return (excludes sales charges)...........................................
RATIOS/SUPPLEMENTARY DATA:
Net assets at the end of period (000).......................................
Ratio of expenses to average net assets..................................... (c)
Ratio of net investment income to average net assets (c)
Ratio of expenses to average net assets*.................................... (c)
Ratio of net investment income to average net assets* (c)
Portfolio turnover**........................................................
<FN>
- ----------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been
as indicated.
** Portfolio turnover is calculated on the basis of the 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.
</TABLE>
-22-
<PAGE> 315
<TABLE>
<Captin>
BOND INDEX PORTFOLIO
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
February 10, 1997
to
November 30, 1997(a)
--------------------
Investor A
Shares
------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............................................
Investment Activities
Net investment income.......................................................
Net realized and unrealized losses from investments.........................
Total from Investment Activities.........................................
Distributions
Net investment income.......................................................
Total Distributions......................................................
NET ASSET VALUE, END OF PERIOD..................................................
Total Return (excludes sales charges)........................................... (b)***
RATIOS/SUPPLEMENTARY DATA:
Net assets at the end of period (000)...........................................
Ratio of expenses to average net assets......................................... (c)
Ratio of net investment income to average net assets............................ (c)
Ratio of expenses to average net assets*........................................ (c)
Ratio of net investment income to average net assets*...........................
Portfolio turnover**............................................................
<FN>
- --------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been
as indicated.
** Portfolio turnover is calculated on the basis of the 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.
</TABLE>
-23-
<PAGE> 316
<TABLE>
<CAPTION>
GOVERNMENT & CORPORATE BOND PORTFOLIO
(FOR A SHARE(a) OUTSTANDING THROUGHOUT EACH PERIOD)
INVESTOR A SHARES
-----------------
YEAR ENDED NOVEMBER 30,
------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991(a)
---- ---- ---- ---- ---- ---- -------
INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR
A SHARES A SHARES SHARES SHARES SHARES SHARES SHARES
-------- -------- ------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period........................... $10.53 $ 9.64 $10.65 $10.26 $10.15 $ 9.71
------ ------ ------ ------ ------ ------
Investment Activities
Net investment income......................... 0.64 0.61 0.60 0.64 0.66 0.75
Net realized and unrealized gains
(losses) from investments.................... (0.19) 0.89 (0.94) 0.39 0.11 0.48
------ ------ ------- ------ ------ ------
Total from Investment Activities.............. 0.45 1.50 (0.34) 1.03 0.77 1.23
------ ------ ------- ------ ------ ------
Distributions
Net investment income......................... (0.64) (0.61) (0.60) (0.64) (0.66) (0.79)
In excess of net realized gains............... -- -- (0.07) -- -- --
------ ------- ------- ------ ------ ------
Total Distributions.......................... (0.64) (0.61) (0.67) (0.64) (0.66) (0.79)
------ ------- ------- ------ ------ ------
Net Asset Value, End of Period.................. $10.34 $10.53 $ 9.64 $10.65 $10.26 $10.15
====== ====== ====== ====== ====== ======
Total Return (excludes sales charges)...........
4.51% 15.98% (3.32)% 10.23% 7.81% 12.79%
Ratios/Supplemental Data:
Net Assets at end of period (000) $4,915 $5,496 $5,167 $3,737 $2,490 $2,010
Ratio of expenses to average net
assets (including waivers).................... 0.95% 0.95% 0.95% 0.95% 0.93% 0.59%
Ratio of net investment income to
average net assets (including
waivers)...................................... 6.06% 6.03% 6.00% 6.00% 6.45% 7.77%
Ratio of expenses to average net
assets (before waivers)*...................... 1.05% 1.05% 1.05% 1.05% 1.06% 1.14%
Ratio of net investment income to
average net assets (before
waivers)*..................................... 5.96% 5.93% 5.90% 5.90% 6.32% 7.22%
Portfolio turnover.............................. 149.20% 59.32% 50% 31% 52% 105%
<CAPTION>
INVESTOR A SHARES
-----------------
YEAR ENDED NOVEMBER 30,
-----------------------
JUNE 2,
1988 TO
NOV. 30,
1990 1989 1988(b)
------ ------ -------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period........................... $10.12 $ 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 (excludes sales charges)...........
(4.96)% 11.79% 2.66%(d),(f)
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%(g)
Ratio of net investment income to
average net assets (including
waivers)...................................... 8.69% 8.97% 8.47%(g)
Ratio of expenses to average net
assets (before waivers)*...................... 1.08% 0.99% 1.17%(g)
Ratio of net investment income to
average net assets (before
waivers)*..................................... 8.14% 8.42% 7.86%(g)
Portfolio turnover.............................. 75% 148% 22%
<FN>
- ------------------
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios
would have been as indicated.
(a) As of December 1, 1990, the Portfolio designated the existing series of Shares as "Investor" Shares. 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.
</TABLE>
-24-
<PAGE> 317
<TABLE>
<CAPTION>
GOVERNMENT & CORPORATE BOND PORTFOLIO
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
INVESTOR B SHARES
----------------------------------------------------------------
YEAR ENDED YEAR ENDED MARCH 10, 1995 TO
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1997 1996 1995(c)
---------- ------------ ----------------
<S> <C> <C>
Net Asset Value, Beginning of Period.......................... $ 10.53 $ 9.92
------- -------
Investment Activities
Net investment income....................................... 0.57 0.38
Net realized and unrealized gains
(losses) from investments................................. 0.19 0.61
------- -------
Total from Investment Activities.......................... 0.38 0.99
------- -------
Distributions
Net investment income....................................... (0.57) .38
------- -------
Total Distributions....................................... -- --
------- -------
Net Asset Value, End of Period................................ $ 10.34 $ 10.53
======= =======
Total Return (excludes sales charges)......................... 3.79% 15.27%(e)
Ratios/Supplemental Data:
Net assets at end of period (000)............................. $511 $106
Ratio of expenses to average net assets 1.65% 1.65%
(including waivers).........................................
Ratio of net investment income
to average net assets (including
waivers).................................................... 5.37% 5.19%(g)
Ratio of expenses to average net assets
(before waivers)*........................................... 1.75% 1.75%(g)
Ratio of net investment income
to average net assets (before
waivers)*................................................... 5.27% 5.09%(g)
Portfolio turnover............................................ 149.20% 53.32%
<FN>
- ----------------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have
been as indicated.
(a) As of December 1, 1990, the Portfolio designated the existing
series of Shares as "Investor" Shares. On September 27, 1994 the
Portfolio redesignated Investor Shares as "Investor A" Shares and
authorized the issuance of a series of Shares designated as
"Investor B" Shares.
(b) Period from commencement of operations.
(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.
</TABLE>
-25-
<PAGE> 318
<TABLE>
<CAPTION>
SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Year Ended Year Ended July 10, 1995 to
November 30, November 30, November 30,
1997 1996 1995(A)
---- ---- -------
Investor A Investor A Investor A
Shares Shares Shares
------ ------ ------
<S> <C> <C>
Net Asset Value, Beginning of Period.......................... $ 10.08 $ 10.00
------- -------
Investment Activities
Net investment income....................................... 0.40 --
Net realized and unrealized gains
(losses) from investments................................. -- 0.08
------- -------
Total from Investment Activities.......................... 0.40 0.08
------- -------
Distributions
Net investment income....................................... (0.40) --
------- -------
Total Distributions....................................... (0.40) --
------- -------
Net Asset Value, End of Period................................ $ 10.08 $ 10.08
======= =======
Total Return (excludes sales charges)......................... 4.02% 0.80%(b)
Ratios/Supplemental Data:
Net assets at end of period (000)............................. $51 --(c)
Ratio of expenses to average net assets (including waivers)... 0.56% 0.00%(d)
Ratio of net investment income
to average net assets (including
waivers).................................................... 3.83% 0.00%(d)
Ratio of expenses to average net assets
(before waivers)*........................................... 1.26% 0.00%(d)
Ratio of net investment income
to average net assets (before
waivers)*................................................... 3.13% 0.00%(d)
Portfolio turnover............................................ 0.00% 0.00%
- --------------------
<FN>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have
been as indicated.
(a) Period from commencement of operations.
(b) Not Annualized.
(c) Only one share, worth $10.08, was outstanding as of November 30, 1995.
(d) Annualized.
</TABLE>
-26-
<PAGE> 319
<TABLE>
<CAPTION>
MISSOURI TAX-EXEMPT BOND PORTFOLIO(a)
(FOR A SHARE(b) OUTSTANDING THROUGHOUT EACH PERIOD)
INVESTOR A SHARES
-------------------------------------------------------------------------------------
SIX
YEAR YEAR MONTHS
ENDED ENDED ENDED YEAR ENDED
NOV. 30, NOV. 30, NOV. 30 MAY 31,
1997 1996 1995(c) 1995(b) 1994 1993
---- ---- ------- ------- ---- ----
INVESTOR A INVESTOR A INVESTOR A INVESTOR A INVESTOR INVESTOR
SHARES SHARES SHARES SHARES SHARES SHARES
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.................. $11.74 $11.52 $11.13 $11.54 $10.97
------ ------ ------ ------ ------
Investment Activities
Net investment income................ 0.55 0.27 0.55 0.55 0.58
Net realized and unrealized
gains (losses) on
investments........................ (0.05) 0.22 0.40 (0.37) 0.64
------ ------ ------ ------- ------
Total from Investment
Activities......................... 0.50 0.49 0.95 0.18 1.22
------ ------ ------ ------ ------
Distributions
Net investment income................ (0.55) (0.27) (0.55) (0.55) (0.58)
Net realized gains................... -- -- (0.01) (0.04) (0.07)
------ ------ ------ ------ ------
Total Distributions................. (0.55) (0.27) (0.56) (0.59) (0.65)
------ ------ ------ ------ ------
Net Asset Value, End of Period......... $11.69 $11.74 $11.52 $11.13 $11.54
====== ====== ====== ====== ======
Total Return (excludes sales
charges)............................. 4.41% 4.32%(g) 8.91% 1.53% 11.47%
Ratios/Supplemental Data:
Net assets at end of period (000)...... $25,144 $24,726 $24,318 $27,919 $23,223
Ratio of expenses to average
net assets (including
waivers)............................. 0.85% 0.95%(h) 0.84% 0.65% 0.63%
Ratio of net investment income
to average net assets (including
waivers)............................. 4.75% 4.64%(h) 5.02% 4.75% 5.11%
Ratio of expenses to average
net assets (before waivers)*......... 1.05% 1.18%(h) 1.18% 1.12% 1.18%
Ratio of net investment income to
average net assets (before
waivers)*............................ 4.55% 4.44%(h) 4.68% 4.28% 4.56%
Portfolio turnover rate................ 3.66% 1.55% -- 20% 15%
<CAPTION>
PERIOD
ENDED
MAY 31,
1992 1991(b) 1992 1989(a),(b)
---- ------- ---- -----------
INVESTOR INVESTOR PORTFOLIO PORTFOLIO
SHARES SHARES SHARES SHARES
---------- ---------- --------- --------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.................. $10.62 $10.35 $10.56 $10.00
------ ------ ------ ------
Investment Activities
Net investment income................ 0.63 0.44 0.68 0.58
Net realized and unrealized
gains (losses) on
investments........................ 0.43 0.36 (0.09) 0.58
------ ------- ------- ------
Total from Investment
Activities......................... 1.06 0.80 0.59 1.16
------ ------- ------ ------
Distributions
Net investment income................ (0.63) (0.44) (0.65) (0.60)
Net realized gains................... (0.08) (0.09)
------ -------
Total Distributions................. (0.71) (0.53) (0.65) (0.60)
------ ------- ------ ------
Net Asset Value, End of Period......... $10.97 $10.62 $10.50 $10.56
====== ====== ====== ======
Total Return (excludes sales
charges)............................. 10.24% 8.72% 5.50% 12.08%(f)
Ratios/Supplemental Data:
Net assets at end of period (000)...... $12,635 $6,211 $4,572 $4,053
Ratio of expenses to average
net assets (including
waivers)............................. 0.85% 0.85% 0.70% 0.81%(h)
Ratio of net investment income
to average net assets (including
waivers)............................. 5.75% 6.12%(3) 6.38% 6.36%(h)
Ratio of expenses to average
net assets (before waivers)*......... 1.49% 1.63% 1.70% 1.38%(h)
Ratio of net investment income to
average net assets (before
waivers)*............................ 5.11% 5.34% 5.38% 5.79%(h)
Portfolio turnover rate................ 21% 71% 41% 73%*
<FN>
- -----------------------------
* During the period, certain fees were voluntary reduced. If such voluntary fee reductions had not occurred, the ratios would
have been as indicated.
(a) The Portfolio (formerly, the Long-Term Tax-Exempt Portfolio) commenced operations on July 15, 1988 as an investment portfolio
of The ARCH Tax-Exempt Trust. On
October 2, 1995, it was reorganized as a new portfolio of the Fund.
(b) The Portfolio had one series of Shares outstanding ("Portfolio Shares")
through September 27, 1990. On September 28, 1990, the Portfolio issued a
second series of Shares that were designated as "Investor" Shares. On
September 27, 1994, the Portfolio redesignated Investor Shares as "Investor
A" Shares and authorized the issuance of a series of Shares designated as
"Investor B" Shares.
(c) Upon its reorganization as a portfolio of the Fund, the Portfolio changed
its fiscal year-end from May 31 to November 30.
(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.
</TABLE>
-27-
<PAGE> 320
<TABLE>
<CAPTION>
MISSOURI TAX-EXEMPT BOND PORTFOLIO(a)
(FOR A SHARE(b) OUTSTANDING THROUGHOUT EACH PERIOD)
INVESTOR B SHARES
-----------------
YEAR YEAR SIX MONTHS
ENDED ENDED ENDED
NOV. 30, NOV. 30, NOV. 30, MARCH 1, 1995 TO
1997 1996 1995(c) MAY 31, 1995(d)
---- ---- ------- ---------------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period............................. $11.74 $11.52 $11.19
------ ------ ------
Investment Activities
Net investment income........................... 0.45 0.22 0.11
Net realized and unrealized
gains (losses) on
investments.................................. (0.06) 0.22 0.33
------ ------ ------
Total from Investment
Activities.................................... 0.39 0.44 0.44
------ ------ ------
Distributions
Net investment income........................... (0.45) (0.22) (0.11)
Net realized gains..............................
Total Distributions............................ (0.45) (0.22) (0.11)
------ ------ ------
Net Asset Value, End of Period................... $11.68 $11.74 $11.52
====== ====== ======
Total Return (excludes sales
charges)....................................... 3.48% 3.88%(g) 8.61%(e)
Ratios/Supplemental Data:
Net assets at end of period (000)................ $ 675 $ 433 $ 94
Ratio of expenses to average
net assets (including
waivers)....................................... 1.65% 1.77%(h) 1.76%(h)
Ratio of net investment income
to average net assets (including
waivers)....................................... 3.96% 3.82%(h) 4.00%(h)
Ratio of expenses to average
net assets (before waivers)*................... 1.75% 1.87%(h) 1.88%(h)
Ratio of net investment income to
average net assets (before
waivers)*...................................... 3.86% 3.72%(h) 3.89%(h)
Portfolio turnover rate.......................... 3.66% 1.55% --
- -----------------------------
<FN>
* During the period, certain fees were voluntary reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) The Portfolio (formerly, the Long-Term Tax-Exempt Portfolio) commenced
operations on July 15, 1988 as an investment portfolio of The ARCH
Tax-Exempt Trust. On October 2, 1995, it was reorganized as a new
portfolio of the Fund.
(b) The Portfolio had one series of Shares outstanding ("Portfolio Shares")
through September 27, 1990. On September 28, 1990, the Portfolio issued a
second series of Shares that were designated as "Investor" Shares. On
September 27, 1994, the Portfolio redesignated Investor Shares as
"Investor A" Shares and authorized the issuance of a series of Shares
designated as "Investor B" Shares.
(c) Upon its reorganization as a portfolio of the Fund, the Portfolio changed
its fiscal year-end from May 31 to November 30.
(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.
</TABLE>
-28-
<PAGE> 321
<TABLE>
<CAPTION>
NATIONAL MUNICIPAL BOND PORTFOLIO
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
NOV. 18, 1996 NOV. 18, 1996
YEAR ENDED THROUGH YEAR ENDED THROUGH
NOV. 30, NOV. 30, NOV. 30, NOV. 30,
1997 1996(a) 1997 1997(a)
---------- ------------- ---------- ---------
INVESTOR A INVESTOR A INVESTOR B INVESTOR B
---------- ---------- ---------- ----------
<S> <C> <C>
Net Asset Value,
Beginning of Period................................... $10.00 $10.00
------ ------
Investment Activities
Net investment income................................. 0.02 0.02
Net realized and unrealized gains
(losses) from investments............................ 0.05 0.05
------ ------
Total from Investment Activities.................... 0.07 0.07
------ ------
Distributions
Net investment income................................ (0.02) (0.02)
------ ------
Total Distributions................................. (0.02) (0.02)
------ ------
Net Asset Value, End of Period......................... $10.05 $10.05
------ ------
Total Return (excludes sales charge)................... 0.73%(b) 0.70%(b)
Ratios/Supplemental Data:
Net assets at end of period (000)...................... $ 1 $ 1
Ratio of expenses to average
net assets (including waivers)........................ 0.37%(c) 1.10%(c)
Ratio of net investment income
to average net assets (including
waivers).............................................. 9.08%(c) 8.35%(c)
Ratio of expenses to average
net assets (before waivers)*.......................... 1.07%(c) 1.80%(c)
Ratio of net investment income
to average net assets (before
waivers)*............................................. 8.38%(c) 7.65%(c)
Portfolio turnover..................................... 0.00% 0.00%
<FN>
- -----------------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been
as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
</TABLE>
-29-
<PAGE> 322
<TABLE>
<CAPTION>
EQUITY INCOME PORTFOLIO
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
March 7, 1997 March 7, 1997
to to
November 30, 1997(a) November 30, 1997(a)
-------------------- --------------------
Investor A Investor B
Shares Shares
------ ------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................
Investment Activities
Net investment income.....................................
Net realized and unrealized gains
from investments..........................................
Total from Investment Activities.......................
Distributions
Net investment income.......................................
Total Distributions.........................................
NET ASSET VALUE, END OF PERIOD..............................
Total Return (excludes sales charges)....................... (b)*** (b)***
RATIOS/SUPPLEMENTARY DATA:
Net assets at the end of period (000).......................
Ratio of expenses to average net
assets....................................................
Ratio of net investment income to
average net assets........................................ (c) (c)
Ratio of expenses to average net
assets*................................................... (c) (c)
Ratio of net investment income to
average net assets*....................................... (c) (c)
Portfolio turnover**........................................ (c) (c)
Average commission rate paid(d).............................
<FN>
- -------------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been
as indicated.
** Portfolio turnover is calculated on the basis of the 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.
</TABLE>
-30-
<PAGE> 323
<TABLE>
<CAPTION>
EQUITY INDEX PORTFOLIO
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
May 1, 1997
to
November 30, 1997(a)
Investor A
Shares
------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.....................................................
Investment Activities
Net investment income.................................................................
Net realized and unrealized gains from investments....................................
Total from Investment Activities................................................
Distributions
Net investment income.................................................................
Total Distributions.............................................................
NET ASSET VALUE, END OF PERIOD...........................................................
Total Return (excludes sales charges).................................................... (b)***
RATIOS/SUPPLEMENTARY DATA:
Net assets at the end of period (000).................................................
Ratio of expenses to average net assets............................................... (c)
Ratio of net investment income to average net assets.................................. (c)
Ratio of expenses to average net assets*.............................................. (c)
Ratio of net investment income to average net assets*................................. (c)
Portfolio turnover**..................................................................
Average commission rate paid(d).......................................................
<FN>
- ------------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been
as indicated.
** Portfolio turnover is calculated on the basis of the 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.
</TABLE>
-31-
<PAGE> 324
<TABLE>
<CAPTION>
GROWTH & INCOME EQUITY PORTFOLIO
(FOR A SHARE(a) OUTSTANDING THROUGHOUT EACH PERIOD)
---------------------------------------------------
INVESTOR A SHARES
--------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
--------------------------------------------------------------------------------
1997 1996 1995 1994(a) 1993 1992 1991(a)
------ ----- ---- ------- ---- ---- -------
INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR
A SHARES A SHARES A SHARES SHARES SHARES SHARES SHARES
-------- ----------- -------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period...................... $16.30 $12.70 $14.74 $14.49 $12.33 $11.22
------ ------ ------ ------ ------ ------
Investment Activities
Net investment income.................... 0.20 0.23 0.20 0.25 0.25 0.39
Net realized and unrealized gains
(losses) from investments............... 3.32 3.74 (0.17) 1.06 2.24 1.47
------ ------ ------- ------ ------ ------
Total from Investment Activities......... 3.52 3.97 0.03 1.31 2.49 1.86
------ ------ ------ ------ ------ ------
Distributions
Net investment income.................... (0.20) (0.23) (0.21) (0.25) (0.26) (0.39)
In excess of net investment income....... (0.01) -- -- -- -- --
Net realized gain........................ (0.94) (0.14) (0.18) (0.81) (0.07) (0.36)
In excess of net realized gains.......... -- -- (1.68) -- -- --
------- ------- ------- ------- ------- -------
Total Distributions..................... (1.15) (0.37) (2.07) (1.06) (0.33) (0.75)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period............. $18.67 $16.30 $12.70 $14.74 $14.49 $12.33
====== ====== ====== ====== ====== ======
Total Return (excludes sales
charges)................................... 22.99% 31.95% 0.20% 9.65% 20.59% 17.39%
Ratios/Supplemental Data:
Net Assets at end of period (000) $38,229 $25,082 $18,343 $11,157 $6,044 $3,254
Ratio of expenses to average net
assets (including waivers)............... 1.05% 1.05% 1.05% 0.74% 0.71% 0.34%
Ratio of net investment income to
average net assets (including
waivers)................................. 1.20% 1.59% 1.45% 1.74% 1.94% 3.50%
Ratio of expenses to average net
assets (before waivers)*................. 1.15% 1.15% 1.15% 0.96% 0.85% 1.05%
Ratio of net investment income to
average net assets (before
waivers)*................................ 1.10% 1.49% 1.35% 1.52% 1.80% 2.79%
Portfolio turnover......................... 63.90% 58.50% 65% 41% 79% 78%
Average commission rate paid (e)........... $ 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 gain........................ (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 (excludes sales
charges)................................... (1.36)% 27.11% 3.46%(d),(f)
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%(g)
Ratio of net investment income to
average net assets (including
waivers)................................. 3.42% 3.69% 5.62%(g)
Ratio of expenses to average net
assets (before waivers)*................. 1.00% 1.07% 1.12%(g)
Ratio of net investment income to
average net assets (before
waivers)*................................ 2.77% 3.04% 4.91%(g)
Portfolio turnover......................... 227% 133% 30%
Average commission rate paid (e)........... -- -- --
<FN>
- ----------------
* During the period, fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would
have been as indicated.
(a) As of December 1, 1990, the Portfolio designated the existing series of Shares as "Investor" Shares. On September 27,
1994 the Portfolio redesignated Investor Shares as "Investor A" Shares and authorized the issuance of a series of Shares
designated as "Investor B" Shares.
(b) Period from commencement of operations.
(c) Period from date of initial public offering.
(d) Unaudited.
(e) Represents total return for Investor A Shares from December 1, 1994 to February 28, 1995 plus total return for Investor
B Shares from March 1, 1995 to November 30, 1995.
(f) Not Annualized.
(g) Annualized.
(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.
</TABLE>
-32-
<PAGE> 325
<TABLE>
<CAPTION>
GROWTH & INCOME EQUITY PORTFOLIO
(FOR A SHARE(a) OUTSTANDING THROUGHOUT EACH PERIOD)
INVESTOR B SHARES
---------------------------------------------------
YEAR YEAR
ENDED ENDED MARCH 1, 1995
NOV. 30, NOV. 30, TO NOV. 30,
1997 1996 1995(c)
-------- -------- -----------
<S> <C> <C>
Net Asset Value,
Beginning of Period..................................... $ 16.23 $13.43
------- ------
Investment Activities
Net investment income................................... 0.11 0.14
Net realized and unrealized gains
(losses) from investments.............................. 3.30 2.81
------- ------
Total from Investment Activities........................ 3.41 2.95
------- ------
Distributions
Net investment income................................... (0.11) (0.15)
In excess of net investment income...................... -- --
Net realized gain....................................... (0.01) --
In excess of net realized gains......................... (0.94) --
-------- -----
Total Distributions.................................... (1.06) (0.15)
-------- -------
Net Asset Value, End of Period............................ $ 18.58 $16.23
======= ======
Total Return (excludes sales charges).....................
22.29% 31.20%(e)
Ratios/Supplemental Data:
Net Assets at end of period (000) $ 3,537 $ 781
Ratio of expenses to average net
assets (including waivers).............................. 1.75% 1.75%(g)
Ratio of net investment income to
average net assets (including
waivers)................................................ 0.49% 0.87%(g)
Ratio of expenses to average net
assets (before waivers)*................................ 1.85% 1.85%(g)
Ratio of net investment income to
average net assets (before
waivers)*............................................... 0.39% 0.77%(g)
Portfolio turnover........................................ 63.90% 58.50%(g)
Average commission rate paid (e).......................... $ 0.0598 --
<FN>
- ----------------------
* During the period, fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. On September 27, 1994 the Portfolio
redesignated Investor Shares as "Investor A" Shares and authorized the
issuance of a series of Shares designated as "Investor B" Shares.
(b) Period from commencement of operations.
(c) Period from date of initial public offering.
(d) Unaudited.
(e) Represents total return for Investor A Shares from December 1, 1994 to
February 28, 1995 plus total return for Investor B Shares from March 1,
1995 to November 30, 1995.
(f) Not Annualized.
(g) Annualized.
(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.
</TABLE>
-33-
<PAGE> 326
<TABLE>
<CAPTION>
GROWTH EQUITY PORTFOLIO(a)
(FOR A SHARE OUTSTANDING THROUGH EACH PERIOD)
October 1, 1997
through
November 30, 1997 Year Ended September 30,
----------------- ------------------------------------------------------
Investor A
Shares(f) 1997 1996 1995 1994 1993(b)
----------------- ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period............................. $15.06 $13.80 $9.74 $10.02 $10.00
Income from investment operations
Net investment income........................... 0.08 0.12 0.10 0.07 0.04
Net realized and unrealized
gain (loss) on investments.................... 4.75 1.32 4.05 (0.25) 0.02
------ ------ ----- ------ ------
Total from investment operations................ 4.83 1.44 4.15 (0.18) 0.06
------ ------ ----- ------ ------
Less distributions
Distributions from net
investment income............................. (0.09) (0.11) (0.09) (0.07) (0.04)
Distributions from net
realized gain on investments.................. (1.05) (0.07) -- (0.03) --
------ ------ ------ ----- ------
Total distributions............................. (1.14) (0.18) (0.09) (0.10) (0.04)
Net asset value,
end of period................................... $18.75 $15.06 $13.80 $9.74 $10.02
====== ====== ====== ===== ======
Total return (c).................................. 33.85% 10.48% 42.90% (1.84%) 0.60%
Ratios to average net assets
Expenses........................................ 1.14% 1.17% 1.28% 1.36% 1.32%*
Net investment income........................... 0.44% 0.86% 0.90% 0.74% 0.62%*
Expense waiver/reimbursement(d)................. 0.25% 0.28% 0.30% 0.28% 0.30%*
Supplemental data
Net assets, end of period
(000 omitted)................................. $68,965 $55,573 $43,708 $30,282 $31,159
Average commission rate paid(e)................. $0.0815 $0.0756 -- -- --
Portfolio turnover.............................. 42% 45% 45% 127% 54%
<FN>
- --------------------
* Computed on an annualized basis.
(a) The Portfolio commenced operations on January 4, 1993 as a portfolio of
Arrow Funds. On November 21, 1997, it was reorganized as a new
portfolio of the Fund.
(b) Reflects operations for the period from January 4, 1993 (date of
initial public investment) to September 30, 1993.
(c) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and
net investment income ratios shown above.
(e) Represents total commissions paid on Portfolio securities divided by
total Portfolio shares purchased or sold on which commissions were
charged.
(f) Upon it reorganization as portfolio of the Fund, the Portfolio changed
its fiscal year-end from September 30 to November 30.
</TABLE>
-34-
<PAGE> 327
<TABLE>
<CAPTION>
GROWTH EQUITY PORTFOLIO
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Period
November 21, 1997**
through
November 30, 1997
-----------------
Investor B
Shares
------
<S> <C>
Net asset value,
beginning of period.......................................
Income from investment operations
Net investment income.....................................
Net realized and unrealized
gain (loss) on investments..............................
Total from investment operations
Less distributions
Distributions from net
investment income.......................................
Distributions from net
realized gain on investments............................
Total distributions.......................................
Net asset value,
end of period.............................................
Total return (a)............................................
Ratios to average net assets
Expenses..................................................
Net investment income.....................................
Expense waiver/reimbursement(b)...........................
Supplemental data
Net assets, end of period
(000 omitted)...........................................
Average commission rate paid(c)...........................
Portfolio turnover........................................
<FN>
- --------------------------------
* Computed on an annualized basis.
** Date of initial public offering.
(a) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(b) This voluntary expense decrease is reflected in both the expense and
net investment income ratios shown above.
(c) Represents total commissions paid on Portfolio securities divided by
total Portfolio shares purchased or sold on which commissions were
charged.
</TABLE>
-35-
<PAGE> 328
<TABLE>
<CAPTION>
SMALL CAP EQUITY PORTFOLIO(a)
(FOR A SHARE(b) OUTSTANDING THROUGHOUT EACH PERIOD)
INVESTOR A SHARES
--------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
NOV. 30, NOV. 30, NOV. 30, NOV. 30,
1997 1996 1995 1994(b)
------ ------ ------ ---------
INVESTOR INVESTOR INVESTOR INVESTOR
A SHARES A SHARES A SHARES A SHARES
-------- -------- -------- --------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period..................... $13.44 $11.99 $13.14
------ ------ ------
Investment Activities
Net investment income (loss)............ (0.01) -- (0.03)
Net realized and unrealized
gains from investments................. 1.03 2.36 0.89
------ ------ ------
Total from Investment
Activities............................. 1.02 2.36 0.86
------ ------ ------
Distributions
Net investment income................... -- -- --
In excess of net investment
income................................ (0.01) -- --
Net realized gains...................... (1.05) (0.91) (1.78)
In excess of net
realized gains......................... -- -- (0.23)
------ ------ ------
Total Distributions.................... (1.06) (0.91) (2.01)
------ ------ ------
Net Asset Value, End of Period............ $13.40 $13.44 $11.99
====== ====== ======
Total Return (excludes
sales charges).......................... 8.36% 21.47% 7.38%
Ratios/Supplemental Data:
Net Assets at end of period (000) $13,889 $15,056 $10,899
Ratio of expenses to average net
assets (including waivers).............. 1.26% 1.26% 1.25%
Ratio of net investment income to
average net assets (including
waivers)................................ (0.13%) (0.12%) (0.44%)
Ratio of expenses to average net
assets (before waivers)*................ 1.36% 1.36% 1.36%
Ratio of net investment income to
average net assets (before
waivers)*............................... (0.23%) (0.22%) (0.55%)
Portfolio turnover........................ 65.85% 83.13% 85%
Average commission rate paid (h).......... $0.0582 -- --
<CAPTION>
INVESTOR A SHARES
------------------------------------------------------------
YEAR ENDED MAY 6, 1996
NOV. 30, TO NOV. 30,
1993 1992(b)
------ --------
INVESTOR INVESTOR
A SHARES A SHARES
-------- --------
<S> <C> <C>
Net Asset Value,
Beginning of Period................... $11.23 $10.10
------ ------
Investment Activities
Net investment income (loss).......... 0.03 0.02
Net realized and unrealized
gains from investments............... 2.14 1.13
------ ------
Total from Investment
Activities........................... 2.17 1.15
------ ------
Distributions
Net investment income................. (0.05) (0.02)
In excess of net investment
income.............................. -- --
Net realized gains.................... (0.21) --
In excess of net
realized gains....................... -- --
------ ------
Total Distributions.................. (0.26) (0.02)
------ ------
Net Asset Value, End of Period.......... $13.14 $11.23
====== ======
Total Return (excludes
sales charges)........................ 19.75% 12.55%(f)
Ratios/Supplemental Data:
Net Assets at end of period (000) $4,559 $753
Ratio of expenses to average net
assets (including waivers)............ 0.61% 0.30%(g)
Ratio of net investment income to
average net assets (including
waivers).............................. 0.19% 0.78%(g)
Ratio of expenses to average net
assets (before waivers)*.............. 1.23% 1.12%(g)
Ratio of net investment income to
average net assets (before
waivers)*............................. (0.43%) (0.04%)(g)
Portfolio turnover...................... 65% 56%
Average commission rate paid (h)........ -- --
<FN>
- ----------------
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios
would have been as indicated.
(a) The Emerging Growth Portfolio changed its name to Small Cap Equity Portfolio on December 1, 1996.
(b) 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.
</TABLE>
-36-
<PAGE> 329
<TABLE>
<CAPTION>
SMALL CAP EQUITY PORTFOLIO(a)
(FOR A SHARE(b) OUTSTANDING THROUGHOUT EACH PERIOD)
Investor B Shares
---------------------------------------------------------------------------------
Year Ended Year Ended March 1, 1995 To
Nov. 30, Nov. 30, Nov. 30,
1997 1996 1995(d)
------ ------ --------
Investor Investor Investor
B Shares B Shares B Shares
-------- -------- --------
<S> <C> <C>
Net Asset Value,
Beginning of Period.......................... $13.37 $11.83
------ ------
Investment Activities
Net investment income (loss)................. (0.07) (0.03)
Net realized and unrealized
gains from investments...................... 0.99 1.57
------ ------
Total from Investment
Activities.................................. 0.92 1.54
------ ------
Distributions
Net investment income........................ -- --
In excess of net investment
income..................................... -- --
Net realized gains........................... (1.05) --
In excess of net
realized gains.............................. -- --
------- ------
Total Distributions......................... (1.05) --
------- ------
Net Asset Value, End of Period................. $13.24 $13.37
======= ======
Total Return (excludes
sales charges)............................... 7.63% 20.83%(e)
Ratios/Supplemental Data:
Net Assets at end of period (000) $1,272 $603
Ratio of expenses to average net
assets (including waivers)................... 1.96% 1.96%(g)
Ratio of net investment income to
average net assets (including
waivers)..................................... (0.83%) (0.78%)(g)
Ratio of expenses to average net
assets (before waivers)*..................... 2.06% 2.06%(g)
Ratio of net investment income to
average net assets (before
waivers)*.................................... (0.93%) (0.88%)(g)
Portfolio turnover............................. 65.85% 83.13%
Average commission rate paid (h)............... $0.0582 --
<FN>
- --------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been
as indicated.
(a) The Emerging Growth Portfolio changed its name to Small Cap Equity Portfolio
on December 1, 1996.
(b) 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.
</TABLE>
-37-
<PAGE> 330
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY PORTFOLIO
(FOR A SHARE(a) OUTSTANDING THROUGHOUT EACH PERIOD)
INVESTOR A SHARES
------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED APRIL 4, 1993
NOV. 30, NOV. 30, NOV. 30, TO NOV. 30,
1997 1996 1995 1994(a)(b)(c)
---------- ---------- ---------- ----------------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period ........... $ 10.76 $ 9.90 $ 10.00
----------- --------- -------
Investment Activities
Net investment income (loss) .. 0.02 0.02 (0.01)
Net realized and unrealized
gains from investments and
foreign currency ............. 1.27 0.86 (0.09)
----------- --------- -------
Total from Investment
Activities ................... 1.29 0.88 (0.10)
----------- --------- -------
Distributions
Net investment income ......... -- (0.01) --
Tax return of capital ......... -- (0.01) --
----------- ---------- --------
Total Distributions .......... -- (0.02) --
----------- --------- --------
Net Asset Value, End of Period .. $ 12.05 $ 10.76 $ 9.90
=========== ========= =======
Total Return (excludes
sales charges) ................ 11.99% 8.89% (1.00%)(f)
Ratios/Supplemental Data:
Net Assets at end of period (000) $ 2,573 $ 1,568 $ 791
Ratio of expenses to average net
assets (including waivers) .... 1.44% 1.45% 1.55%(g)
Ratio of net investment income to
average net assets (including
waivers) ...................... 0.19% 0.07% (0.39%)(g)
Ratio of expenses to average net
assets (before waivers)* ...... 1.75% 1.76% 1.89%(g)
Ratio of net investment income to
average net assets (before
waivers)* ..................... (0.12)% (0.24)% (0.73%)(g)
Portfolio turnover .............. 77.63% 62.78% 21%
Average commission rate paid (h) $ 0.0251 -- --
<CAPTION>
INVESTOR B SHARES
-------------------------------------------------
YEAR ENDED YEAR ENDED MARCH 1, 1995 TO
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1997 1996 1995(d)
------------ ------------ -----------
<S> <C> <C>
Net Asset Value,
Beginning of Period ........... $ 10.71 $ 9.26
--------- -------
Investment Activities
Net investment income (loss) .. (0.04) (0.03)
Net realized and unrealized
gains from investments and
foreign currency ............. 1.23 1.48
--------- -------
Total from Investment
Activities ................... 1.19 1.45
--------- -------
Distributions
Net investment income ......... -- --
Tax return of capital ......... -- --
--------- -------
Total Distributions .......... -- --
--------- -------
Net Asset Value, End of Period .. $ 11.90 $ 10.71
========= =======
Total Return (excludes
sales charges) ................ 11.11% 8.38%(e)
Ratios/Supplemental Data:
Net Assets at end of period (000) $ 437 $ 102
Ratio of expenses to average net
assets (including waivers) .... 2.14% 2.02%(g)
Ratio of net investment income to
average net assets (including
waivers) ...................... (0.50)% (0.96%)(g)
Ratio of expenses to average net
assets (before waivers)* ...... 2.46% 2.44%(g)
Ratio of net investment income to
average net assets (before
waivers)* ..................... (0.82%) (1.38%)(g)
Portfolio turnover .............. 77.63% 62.78%
Average commission rate paid (h) $ 0.0251 --
<FN>
- -----------------
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios
would have been as indicated.
(a) Period from commencement of operations.
(b) On 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.
</TABLE>
-38-
<PAGE> 331
<TABLE>
<CAPTION>
BALANCED PORTFOLIO
(FOR A SHARE(a) OUTSTANDING THROUGHOUT EACH PERIOD)
INVESTOR A SHARES
----------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED APRIL 1, 1993
NOV. 30, NOV. 30, NOV. 30, NOV. 30, TO NOV. 30,
1997 1996 1995 1994 1993(b)
---- ---- ---- ---- -------
INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR
A SHARES A SHARES A SHARES A SHARES A SHARES
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period ............................ $ 11.65 $ 9.61 $ 10.22 $ 10.00
----------- --------- --------- ---------
Investment Activities
Net investment income .......................... 0.32 0.32 0.28 0.23
Net realized and unrealized
gains from investments ........................ 1.34 2.02 0.47 0.15
----------- --------- --------- ---------
Total from Investment
Activities .................................... 1.66 2.34 0.19 0.38
----------- --------- --------- ---------
Distributions
Net investment income .......................... (0.31) (0.30) (0.29) (0.16)
Net realized gains ............................. (0.42) -- -- --
In excess of net
realized gains ................................ -- -- (0.13) --
----------- --------- --------- ---------
Total Distributions ........................... (0.73) (0.30) (0.42) (0.16)
----------- --------- --------- ---------
Net Asset Value, End of Period ................... $ 12.58 $ 11.65 $ 9.61 $ 10.22
=========== ========= ========= =========
Total Return (excludes
sales charges) ................................. 15.10% 24.85% (1.91%) 3.86%(e)
Ratios/Supplemental Data:
Net Assets at end of period (000) ................ $ 9,328 $ 8,348 $ 7,321 $ 1,978
Ratio of expenses to average net
assets (including waivers) ..................... 1.27% 1.27% 1.27% 0.56%(f)
Ratio of net investment income to
average net assets (including
waivers) ....................................... 2.79% 2.98% 2.77% 3.42%(f)
Ratio of expenses to average net
assets (before waivers)* ....................... 1.37% 1.37% 1.39% 1.21%(f)
Ratio of net investment income to
average net assets (before
waivers)* ...................................... 2.69% 2.88% 2.65% 2.77%(f)
Portfolio turnover ............................... 85.16% 58.16% 49% 26%(f)
Average commission rate paid (g) ................. $ 0.0599 -- -- --
<CAPTION>
INVESTOR B
SHARES
---------------------------------------------------------
YEAR ENDED YEAR ENDED MARCH 1, 1995 TO
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1997 1996 1995(c)
---- ---- -------
<S> <C> <C>
Net Asset Value,
Beginning of Period............................. $11.59 $10.13
------ ------
Investment Activities
Net investment income........................... 0.25 0.22
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)
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%(f)
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 --
<FN>
- ----------------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) On 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.
</TABLE>
-39-
<PAGE> 332
INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS
Although management will use its best efforts to achieve the investment
objective of each Portfolio, there can be no assurance that it will be able to
do so. The investment objective of each Portfolio may be changed only with the
affirmative vote of a majority of the outstanding Shares of the Portfolio,
except that the investment objectives of the Bond Index, Equity Index and Small
Cap Equity Index Portfolios may be changed by the Fund's Board of Directors
without shareholder approval. Shareholders of the latter Portfolios will be
given at least 30 days' written notice before any such change occurs. The
Treasury Money Market, Money Market and Tax-Exempt Money Market Portfolios are
"money market" funds that invest in instruments with remaining maturities of 397
days or less (with certain exceptions) and with dollar-weighted average
portfolio maturities of 90 days or less, subject to the quality, diversification
and other requirements of Rule 2a-7 under the Investment Company Act of 1940, as
amended, (the "1940 Act") and other rules of the Securities and Exchange
Commission (the "SEC").
THE TREASURY MONEY MARKET PORTFOLIO
The Treasury Money Market Portfolio's investment objective is to seek a
high level of current income exempt from state income tax consistent with
liquidity and security of principal. In pursuing its investment objective, the
Portfolio invests in selected money market obligations issued by the U.S.
Government (or its agencies and instrumentalities) that are guaranteed as to
principal and interest by the U.S. Government, the interest on which is
generally exempt from state income tax. Securities that are generally eligible
for this exemption include those issued by the U.S. Treasury (bills,
certificates of indebtedness, notes and certain bonds) and certain U.S.
Government agencies and instrumentalities, including the General Services
Administration and Small Business Administration. Each investor should consult
his or her tax advisor to determine whether distributions from the Portfolio are
exempt from state income tax in the investor's home state. Under normal market
conditions, the Portfolio intends to invest substantially all (but not less than
65%) of its total assets in securities with the above characteristics and
(except to the extent discussed below) will not enter into repurchase agreements
or purchase any U.S. Government security that the Adviser believes is subject to
state income tax.
Under extraordinary circumstances, such as when appropriate exempt
securities are unavailable or pending investment, the Treasury Money Market
Portfolio may temporarily hold cash or invest in repurchase agreements
collateralized by U.S. Government securities, other U.S. Government agency or
instrumentality securities, securities of other investment companies that invest
in securities in which the Portfolio is permitted to invest, or cash
equivalents.
THE MONEY MARKET PORTFOLIO
The Money Market Portfolio's investment objective is to seek current
income with liquidity and stability of principal. In pursuing its investment
objective, the Portfolio invests substantially all of its assets in a broad
range of money market instruments. These instruments include obligations of the
U.S. Government, U.S. dollar-denominated foreign securities, obligations of U.S.
and foreign banks and savings and loan institutions and commercial obligations
that meet the applicable quality requirements described below.
The Money Market Portfolio will purchase only "First Tier Eligible
Securities" (as defined by the SEC) that present minimal credit risks as
determined by the Adviser pursuant to guidelines approved by the Fund's Board of
Directors. First Tier Eligible Securities consist of (i) securities that either
(a) have short-term debt ratings at the time of purchase in the highest rating
category by at least two unaffiliated nationally recognized statistical rating
organizations ("Rating Agencies") (or one Rating Agency if the security was
rated by only one Rating Agency), or (b) are issued by issuers with such
ratings, and (ii) certain securities that are unrated (including securities of
issuers that have long-term but not short-term ratings) but are of comparable
quality as determined in accordance with guidelines approved by the Board of
Directors. The applicable ratings by Rating Agencies are described in Appendix A
to the Statement of Additional Information. The following descriptions
illustrate the types of instruments in which the Portfolio invests.
BANKING OBLIGATIONS. The Money Market Portfolio may purchase
obligations of issuers in the banking industry, such as certificates of deposit,
letters of credit, bankers' acceptances and time deposits, including U.S.
dollar-denominated instruments issued or supported by the credit of U.S. or
foreign banks or savings institutions having total assets at the time of
purchase in excess of $1 billion. The Portfolio may invest in obligations of
foreign banks or foreign branches of U.S. banks in amounts not in excess of 25%
of its assets where the Adviser deems the instrument to present minimal credit
risks. (See "Risk Factors -- Risks Associated with Foreign Securities and
Currencies" below.) The Portfolio may also make interest-bearing savings
deposits in commercial and savings banks in amounts not in excess of 5% of the
value of its total assets.
COMMERCIAL PAPER AND VARIABLE AND FLOATING RATE INSTRUMENTS. The
Portfolio may invest in commercial paper, including asset- backed commercial
paper representing interests in a pool of corporate receivables,
dollar-denominated obligations issued by domestic and foreign bank holding
companies, and corporate bonds that meet the quality and maturity requirements
described above. The Portfolio may also invest in variable or floating rate
notes that may have a stated maturity in excess of thirteen months but will, in
any event, permit the Portfolio to demand payment of the principal of the
instrument at least once every thirteen months upon no more than 30 days' notice
(unless the instrument is guaranteed by the U.S. Government or an agency or
instrumentality thereof). Such instruments may include variable amount master
demand notes, which are unsecured instruments that permit the indebtedness
thereunder to vary in addition to providing for periodic adjustments in the
interest rate. Unrated variable and floating rate instruments will be determined
by the Adviser (under the supervision of the Board of Directors) to be of
comparable quality at the time of purchase to First Tier Eligible Securities.
There may be no active secondary market in the instruments, which could make it
difficult for the Portfolio to dispose of an instrument in the event the issuer
were to default on its payment obligation or during periods that the Portfolio
could not exercise its demand rights. The Portfolio could, for these or other
reasons, suffer a loss with respect to such instruments. Variable and floating
rate instruments held by the Portfolio will be subject to the Portfolio's 10%
limitation on illiquid investments when the Portfolio may not demand payment of
the principal amount within seven days and a liquid trading market is absent.
GOVERNMENT OBLIGATIONS. The Money Market Portfolio may invest in
obligations issued or guaranteed by the U.S. Government, its agencies and
instrumentalities. In addition, the Portfolio may, when deemed appropriate by
the Adviser, invest in short-term obligations issued by state and local
governmental issuers that meet the quality
40
<PAGE> 333
requirements described above and, as a result of the Tax Reform Act of 1986,
carry yields that are competitive with those of other types of money market
instruments of comparable quality.
THE TAX-EXEMPT MONEY MARKET PORTFOLIO
The Tax-Exempt Money Market Portfolio's investment objective is to seek
as high a level of current interest income exempt from federal income tax as is
consistent with liquidity and stability of principal. The Portfolio seeks to
achieve its objective by investing substantially all of its assets in short-term
obligations issued by or on behalf of states, territories and possessions of the
United States, the District of Columbia and their respective political
subdivisions, agencies, instrumentalities and authorities the interest on which,
in the opinion of bond counsel or counsel to the issuer, is exempt from regular
federal income tax (collectively, "Municipal Obligations"). The Portfolio my
also hold tax-exempt derivative securities such as tender option bonds,
participations, beneficial interests in trusts and partnership interests.
The Tax-Exempt Money Market Portfolio will purchase only "First Tier
Eligible Securities" (as defined by the SEC) that present minimal credit risks
as determined by the Adviser pursuant to guidelines approved by the Board of
Directors. See "The Money Market Portfolio" above for a description of "First
Tier Eligible Securities".
Dividends paid by the Tax-Exempt Money Market Portfolio that are
derived from interest attributable to tax-exempt obligations of a particular
state and its political subdivisions as well as of certain other governmental
issuers including Puerto Rico, Guam and the Virgin Islands may be exempt from
federal and state income tax. Dividends derived from interest on obligations of
other governmental issuers are exempt from federal income tax but may be subject
to state income tax.
As a matter of fundamental policy, under normal market conditions or
when the Adviser deems suitable tax-exempt Municipal Obligations to be
available, at least 80% of the Tax- Exempt Money Market Portfolio's total assets
will be invested in Municipal Obligations. The Portfolio may hold uninvested
cash reserves pending investment during temporary defensive periods or if, in
the opinion of the Adviser, suitable Municipal Obligations are unavailable.
There is no percentage limitation on the amount of assets which may be held
uninvested during temporary defensive periods.
In addition, during temporary defensive periods or if, in the opinion
of the Adviser, suitable Municipal Obligations are unavailable and subject to
the quality standards described above, the Tax-Exempt Money Market Portfolio may
invest up to 20% of its assets in money market instruments, the income from
which is subject to federal income tax. Such instruments may include obligations
of the U.S. Government, its agencies or instrumentalities; debt securities
(including commercial paper) of issuers having, at the time of purchase, a
quality rating within the highest rating category by a Rating Agency;
certificates of deposit or bankers' acceptances of domestic branches of U.S.
banks with total assets at the time of purchase of $1 billion or more; or
repurchase agreements with respect to such obligations.
THE U.S. GOVERNMENT SECURITIES PORTFOLIO
The U.S. Government Securities Portfolio's investment objective is to
seek a high rate of current income that is consistent with relative stability of
principal. In pursuing its investment objective, the Portfolio invests in
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities normally having remaining maturities of 1 to 30 years and
repurchase agreements relating to such obligations. (For further information,
see "Other Applicable Policies -- U.S.
Government Obligations" below.)
Consistent with its investment policies, the U.S. Government Securities
Portfolio may invest in mortgage-backed securities, including those representing
an undivided ownership interest in a pool of mortgage loans, such as
certificates issued by the Government National Mortgage Association ("GNMA"),
the Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC") and collateralized mortgage obligations ("CMOs").
For further information regarding these instruments, see "Other Applicable
Policies -- Asset-Backed Securities" below.
THE INTERMEDIATE CORPORATE BOND PORTFOLIO
The Intermediate Corporate Bond Portfolio's investment objective is to
seek as high a level of current income as is consistent with preservation of
capital. In pursuing its investment objective, the Portfolio will invest, under
normal market and economic conditions, at least 65% of its total assets in
non-convertible corporate debt obligations, which shall mean obligations of (i)
domestic or foreign business corporations, or (ii) agencies, instrumentalities
or authorities which are organized in corporate form by one or more states or
political subdivisions in the United States or one or more foreign governments.
The Portfolio may also invest in obligations issued or guaranteed by the U.S. or
foreign governments, their agencies or instrumentalities, and asset-backed
securities, including various collateralized mortgage obligations and other
mortgage-related securities. For further information regarding these
instruments, see "Other Applicable Policies -- Asset-Backed Securities" below.
In making investment decisions, the Adviser will consider a number of factors
including current yield, maturity, yield to maturity, anticipated changes in
interest rates, and the overall quality of the investment. The Portfolio seeks
to provide a current yield greater than that generally available from money
market instruments.
The Portfolio may purchase debt securities which are rated at the time
of purchase in one of the four highest rating categories assigned by one or more
Rating Agencies or in unrated debt securities deemed by the Adviser to be of
comparable quality. Under normal market and economic conditions, however, the
Portfolio intends to invest at least 65% of its total assets in debt obligations
rated in one of the three highest rating categories assigned by one or more
Rating Agencies (or unrated debt obligations determined to be of comparable
quality). Securities that are rated in the lowest of the four highest rating
categories have speculative characteristics, even though they are of investment
grade quality, and such securities will be purchased (and retained) only if the
Adviser believes that the issuers have an adequate capacity to pay interest and
repay principal. Unrated debt securities will be purchased only if they are
considered by the Adviser to be at least comparable in quality at the time of
purchase to instruments within the rating categories listed above. Debt
securities purchased by the Portfolio whose ratings are subsequently downgraded
below the four highest rating categories of a Rating Agency will be disposed of
in an orderly manner, normally within 30 to 60 days. The applicable ratings
issued by the Rating Agencies are described in the Appendix to the Statement of
Additional Information.
41
<PAGE> 334
The Portfolio reserves the right to hold as a temporary defensive
measure up to 100% of its total assets in cash and short-term obligations
(having remaining maturities of 13 months or less) at such times and in such
proportions as, in the opinion of the Adviser, prevailing market or economic
conditions warrant. Short-term obligations in which the Portfolio may invest
include (i) money market instruments, such as commercial paper, including
variable and floating rate instruments, rated at the time of purchase in one of
the two highest rating categories assigned by a Rating Agency or, if unrated,
deemed to be of comparable quality by the Adviser at the time of purchase, and
bank obligations, including bankers' acceptances, negotiable certificates of
deposit and non-negotiable time deposits of U.S. and foreign banks having total
assets at the time of purchase in excess of $1 billion, (ii) obligations issued
or guaranteed by the U.S. Government, its agencies or instrumentalities, and
(iii) repurchase agreements. For further information regarding variable and
floating rate instruments, see "The Money Market Portfolio -- Commercial Paper
and Variable and Floating Rate Instruments" above. Although the Portfolio will
invest in obligations of foreign banks or foreign branches of U.S. banks only
when the Adviser determines that the instrument presents minimal credit risks,
such investments nevertheless entail risks that are different from those of
investments in domestic obligations of U.S. banks. See "Risk Factors -- Risks
Associated with Foreign Securities and Currencies" below. Investments in the
obligations of foreign banks or foreign branches of U.S. banks will not exceed
25% of the Portfolio's total assets at the time of purchase.
The Portfolio's average weighted maturity will be between three and ten
years and will vary in light of current market and economic conditions, the
comparative yields on instruments with different maturities, and other factors.
THE BOND INDEX PORTFOLIO
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 debt securities as represented by the Lehman Brothers
Aggregate Bond Index (the "Lehman Aggregate").
The Portfolio is not managed in a traditional sense, that is, by making
discretionary judgments based on analysis of economic, financial and market
conditions. Instead, the Portfolio uses an investment strategy called "indexing"
whereby it seeks to approximate the investment performance of the market segment
comprised of U.S. Government, mortgage-backed, asset- backed and corporate debt
securities, as represented by the Lehman Aggregate, through the use of
sophisticated computer models to determine which securities should be purchased
or sold, while keeping transaction and administrative costs to a minimum. The
Portfolio will invest substantially all of its total assets in securities listed
in the Lehman Aggregate, including without limitation, asset-backed securities.
For further information regarding asset-backed securities see "Other Applicable
Policies -- Asset-Backed Securities" below. The Adviser generally selects
securities for the Portfolio on the basis of their weightings in the Lehman
Aggregate and will only purchase a security for the Portfolio that is included
in the Lehman Aggregate at the time of such purchase. The Portfolio should
exhibit price and yield volatility similar to that of the Lehman Aggregate. For
further information, see "Other Investment Policies -- The Indexing Approach"
below and the Statement of Additional Information under "Investment Objectives
and Policies -- The Indexing Approach."
With respect to the remaining portion of its total assets, the
Portfolio has the ability to hold temporary cash balances which may be invested
in U.S. Government obligations and money market instruments. See "The
Intermediate Corporate Bond Portfolio" above for a description of the types of
money market instruments in which the Portfolio may invest and the applicable
limitations with respect to such investments. If appropriate, the Portfolio may
use options, futures contracts and depository receipts to hedge its positions or
for other permissible purposes. The Portfolio also may enter into reverse
repurchase agreements and lend its portfolio securities.
THE LEHMAN AGGREGATE. The Lehman Aggregate is composed of U.S.
Government, mortgage-backed, asset-backed and non-convertible corporate debt
securities that meet the following criteria: the securities have at least $100
million par amount outstanding; the securities are rated investment grade (at
least Baa or BBB) by Moody's or Standard & Poor's Ratings Services ("S&P") (if
not rated by Moody's); have at least one year until maturity; and have coupons
with fixed rates. The Lehman Aggregate excludes collateralized mortgage
obligations ("CMOs"), adjustable rate mortgages, manufactured homes, non-agency
bonds, buydowns, graduated equity mortgages, project loans and non-conforming
(i.e., "jumbo") mortgages. As of December 31, 1997, over _____ issues were
included in the Lehman Aggregate, representing approximately $___ trillion in
market value. U.S. Treasury and agency securities represented approximately
____% of the total market value, asset-backed and mortgage-backed securities
represented approximately ____% of the total market value, with corporate debt
securities representing the balance of approximately _____%. The average
maturity of the Lehman Aggregate was approximately _____ years. The Adviser
believes that the Lehman Aggregate is an appropriate benchmark for the Portfolio
because it is diversified, it is familiar to investors, and it is widely
accepted as a reference for bonds and other fixed income investments.
Because of the large number of issues included in the Lehman Aggregate,
the Portfolio cannot invest in all such issues. Instead, the Portfolio will hold
a representative sample of approximately 100 of the securities in the Lehman
Aggregate, selecting one or two issues to represent an entire "class" or type of
securities in the Lehman Aggregate. At a minimum, the Portfolio seeks to hold
securities which reflect the major asset classes in the Lehman Aggregate - U.S.
Treasury and agency issues, mortgage-backed securities, asset-backed securities
and non-convertible corporate debt securities. As the Portfolio's assets
increase, these classes will be further delineated along the lines of sector,
term-to-maturity, coupon and credit ratings. This sampling technique is expected
to be an effective means of substantially duplicating the price and performance
provided by the securities comprising the Lehman Aggregate.
Securities rated Baa by Moody's or BBB by S&P have speculative
characteristics even though they are of investment- grade quality, and changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case with
higher-grade securities.
THE GOVERNMENT & CORPORATE BOND PORTFOLIO
The Government & Corporate Bond Portfolio's investment objective is to
seek the highest level of current income consistent with conservation of
capital. In pursuing its investment objective, the Portfolio intends to invest
at least 65% of its assets in fixed-income and related debt securities rated in
one of the three highest rating categories assigned by a Rating Agency at the
time of purchase or in unrated investments deemed by the Adviser to be of
comparable quality pursuant to guidelines approved by the Fund's Board of
Directors. Debt securities may include a broad range of fixed and variable rate
bonds, debentures, notes, and securities convertible into or exchangeable for
common stock; dollar-denominated debt obligations of foreign issuers, including
foreign corporations and governments; and first
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mortgage loans, income participation loans, participation certificates in pools
of mortgages, including mortgages issued or guaranteed by the U.S. Government,
its agencies or instrumentalities, CMOs and other mortgage-related securities,
and other asset-backed securities. For further information regarding
asset-backed securities, see "Other Applicable Policies -- Asset-Backed
Securities" below. The Portfolio may invest up to 10% of its total assets at the
time of purchase in dollar-denominated debt obligations of foreign issuers,
either directly or through American Depository Receipts ("ADRs") and European
Depository Receipts ("EDRs"), and up to 25% of its total assets at the time of
purchase in non-mortgage asset-backed securities, respectively. See "Other
Applicable Policies -- Foreign Securities" below and the Statement of Additional
Information under "Investment Objectives and Policies -- ADRs and EDRs."
The Government & Corporate Bond Portfolio may purchase debt securities
which are rated at the time of purchase within the four highest rating
categories assigned by Rating Agencies or unrated debt securities (including
convertible securities) which the Adviser believes present attractive
opportunities and are of at least comparable quality to instruments so rated.
The Portfolio's dollar-weighted average portfolio quality is expected to be at
least "A" or higher. Securities rated in the lowest of the above four rating
categories have speculative characteristics, even though they are of
investment-grade quality, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade securities. Such
securities will be purchased (and retained) only when the Adviser believes the
issuers have an adequate capacity to pay interest and repay principal. (For a
description of the rating categories of Rating Agencies, see Appendix A to the
Statement of Additional Information.) In making investment decisions, the
Adviser will consider a number of factors including current yield, maturity,
yield to maturity, anticipated changes in interest rates, and the overall
quality of the investment. The Portfolio seeks to provide a current yield
greater than that generally available from money market instruments.
The Government & Corporate Bond Portfolio reserves the right to hold as
a temporary defensive measure up to 100% of its total assets in cash and
short-term obligations (having remaining maturities of 12 months or less) at
such times and in such proportions as, in the opinion of the Adviser, prevailing
market or economic conditions warrant. Short-term obligations include, but are
not limited to, commercial paper, bankers' acceptances, certificates of deposit,
demand and time deposits of domestic and foreign banks and savings and loan
associations, repurchase agreements and obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities.
THE SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
The Short-Intermediate Municipal Portfolio's investment objective is to
seek as high a level of current income, exempt from regular federal income tax,
as is consistent with preservation of capital. The Portfolio seeks to achieve
its objective by investing substantially all of its assets in investment grade
Municipal Obligations. As a matter of fundamental policy, under normal market
conditions at least 80% of the Portfolio's total assets will be invested in
Municipal Obligations, primarily bonds (at least 65% under normal market
conditions).
The Short-Intermediate Municipal Portfolio invests in Municipal
Obligations that are rated at the time of purchase within the four highest
rating categories assigned by a Rating Agency. The Portfolio may also invest in
short-term Municipal Obligations such as municipal notes, tax-exempt commercial
paper, and variable and floating rate demand obligations that are rated at the
time of purchase within the two highest rating categories assigned by a Rating
Agency. Municipal Obligations rated in the lowest of the four highest rating
categories for bonds are considered to have speculative characteristics, even
though they are of investment grade quality. Such bonds will be purchased only
if the Adviser believes they have an adequate capacity to pay interest and repay
principal. Unrated obligations will be purchased only if they are considered by
the Adviser to be at least comparable in quality at the time of purchase to
instruments within the rating categories listed above. Municipal Obligations
purchased by the Portfolio whose ratings are subsequently downgraded below the
four highest rating categories of a Rating Agency will be disposed of in an
orderly manner, normally within 30-60 days. The applicable ratings issued by the
Rating Agencies are described in the Appendix to the Statement of Additional
Information.
In addition, the Short-Intermediate Municipal Portfolio may from time
to time during temporary defensive periods, invest in taxable obligations in
such proportions as, in the opinion of the Adviser, prevailing market or
economic conditions warrant. Such instruments may include obligations of the
U.S. Government, its agencies or instrumentalities; debt securities (including
commercial paper) of issuers having, at the time of purchase, a quality rating
within the two highest rating categories assigned by a Rating Agency; or
repurchase agreements with respect to such obligations.
During temporary defensive periods or if, in the opinion of the
Adviser, suitable tax-exempt obligations are unavailable, the Short-Intermediate
Municipal Portfolio may also hold uninvested cash reserves which do not earn
income pending investment. There is no percentage limitation on the amount of
assets that may be held uninvested during these temporary defensive periods.
The Short-Intermediate Municipal Portfolio's average dollar-weighted
maturity will be between two and five years and will vary in light of current
market and economic conditions, the comparative yields on instruments with
different maturities, and other factors.
THE MISSOURI TAX-EXEMPT BOND PORTFOLIO
The Missouri Tax-Exempt Bond Portfolio's investment objective is to
seek as high a level of interest income exempt from federal income tax as is
consistent with conservation of capital. In pursuing its investment objective,
the Portfolio invests substantially all of its assets in investment-grade
Missouri Municipal Obligations (which, to the extent possible, are also exempt
from Missouri state income tax).
Dividends paid by the Missouri Tax-Exempt Bond Portfolio that are
derived from interest attributable to tax-exempt obligations of the State of
Missouri and its political subdivisions as well as of certain other governmental
issuers including Puerto Rico, Guam and the Virgin Islands ("Missouri Municipal
Obligations") are exempt from federal and Missouri income tax. Dividends derived
from interest on obligations of other governmental issuers are exempt from
federal income tax but may be subject to Missouri income tax.
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As a matter of fundamental policy, under normal market conditions, at
least 65% of the Missouri Tax-Exempt Bond Portfolio's total assets will be
invested in Missouri Municipal Obligations. The Portfolio will seek to maximize
the proportion of its dividends which are exempt from both federal and Missouri
income tax and presently expects to invest substantially all of its total assets
in Missouri Municipal Obligations.
The Missouri Tax-Exempt Bond Portfolio invests in Municipal Obligations
that are rated at the time of purchase within the four highest rating categories
assigned by a Rating Agency. The Portfolio may also invest in short-term
Municipal Obligations such as municipal notes, tax-exempt commercial paper and
variable or floating rate demand obligations that are rated at the time of
purchase within the two highest rating categories assigned by a Rating Agency.
Municipal Obligations rated in the lowest of the four highest rating categories
for bonds are considered to have speculative characteristics, even though they
are of investment grade quality. Such bonds will be purchased only if the
Adviser believes the issuers have an adequate capacity to pay interest and repay
principal. Unrated obligations will be purchased only if they are considered by
the Adviser to be at least comparable in quality at the time of purchase to
instruments within the rating categories listed above. The applicable Municipal
Obligation ratings are described in the Appendix to the Statement of Additional
Information.
As a matter of fundamental policy, under normal market conditions or
when the Adviser deems suitable tax-exempt Municipal Obligations to be
available, at least 80% of the Missouri Tax-Exempt Bond Portfolio's total assets
will be invested in Municipal Obligations. The Portfolio may hold uninvested
cash reserves pending investment during temporary defensive periods or if, in
the opinion of the Adviser, suitable Municipal Obligations are unavailable.
There is no percentage limitation on the amount of assets which may be held
uninvested during temporary defensive periods.
In addition, during temporary defensive periods or if, in the opinion
of the Adviser, suitable Municipal Obligations are unavailable and subject to
the quality standards described above, the Missouri Tax-Exempt Bond Portfolio
may invest up to 20% of its assets in money market instruments, the income from
which is subject to federal income tax. See "The Tax-Exempt Money Market
Portfolio" above for a description of the types of taxable money market
instruments in which the Portfolio may invest.
The Missouri Tax-Exempt Bond Portfolio's average weighted maturity will
vary in light of market and economic conditions, the comparative yields on
instruments with different maturities, and other factors.
THE NATIONAL MUNICIPAL BOND PORTFOLIO
The National Municipal Bond Portfolio's investment objective is to seek
as high a level of current income exempt from regular federal income tax as is
consistent with conservation of capital. In pursuing its investment objective,
the Portfolio intends to invest, under normal market and economic conditions,
substantially all of its assets in investment grade Municipal Obligations. As a
matter of fundamental policy, under normal market and economic conditions at
least 80% of the Portfolio's total assets will be invested in Municipal
Obligations, primarily, bonds (at least 65% under normal market conditions).
The Portfolio may purchase Municipal Obligations that are rated at the
time of purchase in one of the four highest rating categories assigned by one or
more Rating Agencies or in unrated Municipal Obligations deemed by the Adviser
to be of comparable quality. Under normal market and economic conditions,
however, the Portfolio intends to invest at least 65% of its assets in Municipal
Obligations rated at the time of purchase in one of the three highest rating
categories assigned by one or more Rating Agencies (or unrated Municipal
Obligations determined to be of comparable quality). Securities that are rated
in the lowest of the four highest rating categories are considered to have
speculative characteristics, even though they are of investment grade quality,
and will be purchased (and retained) only if the Adviser believes that the
issuers have an adequate capacity to pay interest and repay principal. Unrated
obligations will be purchased only if they are considered by the Adviser to be
at least comparable in quality at the time of purchase to instruments within the
rating categories listed above. Municipal Obligations purchased by the Portfolio
whose ratings are subsequently downgraded below the four highest rating
categories of a Rating Agency will be disposed of in an orderly manner, normally
within 30 to 60 days. The applicable ratings issued by the Rating Agencies are
described in the Appendix to the Statement of Additional Information.
In addition, the Portfolio may from time to time during temporary
defensive periods, invest in taxable obligations in such proportions as, in the
opinion of the Adviser, prevailing market or economic conditions warrant. Such
instruments may include obligations of the U.S. Government, its agencies or
instrumentalities and debt securities (including commercial paper) of issuers
having, at the time of purchase, a quality rating within the two highest rating
categories of a Rating Agency. The Portfolio does not intend to invest in
taxable obligations under normal market conditions.
During temporary defensive periods or if, in the opinion of the
Adviser, suitable tax-exempt obligations are unavailable, the Portfolio may also
hold uninvested cash reserves which do not earn income pending investment. There
is no percentage limitation on the amount of assets that may be held uninvested
during these temporary defensive periods. The Portfolio does not intend to hold
uninvested cash reserves under normal market conditions.
The Portfolio's average dollar-weighted maturity will vary in light of
current market and economic conditions, the comparative yields on instruments
with different maturities, and other factors.
THE EQUITY INCOME PORTFOLIO
The Equity Income Portfolio's investment objective is to seek to
provide an above-average level of income consistent with long-term capital
appreciation. In pursuing its investment objective, the Portfolio intends to
invest, under normal market and economic conditions, substantially all of its
assets in common stock, preferred stock, rights, warrants, and securities
convertible into common stock. The Adviser will select stocks based on a number
of quantitative factors, including dividend yield, current and future earnings
potential compared to stock prices, total return potential and other measures of
value, such as cash flow, asset value or book value, if appropriate. Stocks
purchased for the Portfolio generally will be listed on a national securities
exchange or will be unlisted securities with an established over-the-counter
market. A convertible security may be purchased for the Portfolio when, in the
Adviser's opinion, the price and yield of the convertible security is favorable
as compared to the price and yield of the common stock. The stocks or securities
in which the Portfolio invests may be expected to produce an above average
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level of income (as measured by the Standard & Poor's 500 Composite Stock Price
Index). Under normal market and economic conditions, at least 65% of the
Portfolio's total assets will be invested in income-producing equity securities.
The Portfolio may indirectly invest in foreign securities through the
purchase of ADRs and EDRs, but will not do so if, immediately after and as a
result of the purchase, the value of ADRs and EDRs would exceed 15% of the
Portfolio's total assets. For further information, see "Other Applicable
Policies -- Foreign Securities" below and the Statement of Additional
Information under "Investment Objectives and Policies -- ADRs and EDRs".
The Portfolio reserves the right to hold as a temporary defensive
measure during abnormal market or economic conditions up to 100% of its total
assets in cash and short-term obligations (having remaining maturities of 13
months or less) at such times and in such proportions as, in the opinion of the
Adviser, such abnormal market or economic conditions warrant. See "The
Intermediate Corporate Bond Portfolio" above for a description of the types of
short-term obligations in which the Portfolio may invest and the applicable
limitations with respect to such investments.
THE EQUITY INDEX PORTFOLIO
The 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").
Like the Bond Index Portfolio, the Equity Index Portfolio is not
managed in a traditional sense, that is, by making discretionary judgments based
on analysis of economic, financial and market conditions. Instead, the Portfolio
uses an investment strategy called "indexing" whereby it seeks to approximate
the investment performance of the market segment comprised of U.S. publicly
traded common stocks with large stock market capitalizations, as represented by
the S&P 500, through the use of sophisticated computer models to determine which
securities should be purchased or sold, while keeping transaction and
administrative costs to a minimum. The Portfolio will invest substantially all
of its total assets in securities listed in the S&P 500. The Adviser generally
selects securities for the Portfolio on the basis of their weightings in the S&P
500 and will only purchase a security for the Portfolio that is included in the
S&P 500 at the time of such purchase. The Portfolio should exhibit price
volatility similar to that of the S&P 500. For further information, see "Other
Investment Policies -- The Indexing Approach" below and the Statement of
Additional Information under "Investment Objectives and Policies -- The Indexing
Approach."
With respect to the remaining portion of its total assets, the
Portfolio has the ability to hold temporary cash balances which may be invested
in U.S. Government obligations and money market instruments. See "The
Intermediate Corporate Bond Portfolio" above for a description of the money
market instruments in which the Portfolio may invest and the applicable
limitations with respect to such investments. If appropriate, the Portfolio may
use options, futures contracts and depository receipts to hedge its positions or
for other permissible purposes. The Portfolio also may enter into reverse
repurchase agreements and lend its portfolio securities.
THE S&P 500. The S&P 500 is composed of approximately 500 common
stocks, most of which are listed on the New York Stock Exchange. S&P chooses the
stocks for the S&P 500 on a statistical basis. As of December 31, 1997 the
stocks in the S&P 500 have an average market capitalization of $___ trillion and
account for approximately ___% of the total market value of all U.S. common
stocks. Normally, the Equity Index Portfolio will hold all 500 stocks in the S&P
500 and will hold each stock approximately the same percentage as that stock
represents in the S&P 500. Under certain circumstances, the Portfolio may not
hold all 500 stocks in the S&P 500, for example because of changes in the S&P
500, or as a result of shareholder activity in the Portfolio. The Portfolio will
rebalance its holdings monthly to reflect changes in the S&P 500. "Market
capitalization" for a company is the market price per share of stock multiplied
by the number of shares outstanding. The Adviser believes that the S&P 500 is an
appropriate benchmark for the Portfolio because it is diversified, it is
familiar to many investors and it is widely accepted as a reference for common
stock investments.
THE GROWTH & INCOME EQUITY PORTFOLIO
The Growth & Income Equity Portfolio's investment objective is to
provide long-term capital growth, with income a secondary consideration. In
pursuing its investment objective, the Portfolio normally invests substantially
all of its assets in common stock, preferred stock, rights, warrants and
securities convertible into common stock. The Adviser selects stocks based on a
number of factors, including historical and projected earnings, growth and asset
value, earnings compared to stock prices generally (as measured by the S&P 500,
and consistency of earnings growth and earnings quality. Stocks purchased for
the Portfolio generally will be listed on a national securities exchange or will
be unlisted securities with an established over-the-counter market. A
convertible security may be purchased for the Portfolio when, in the Adviser's
opinion, the price and yield of the convertible security is favorable compared
to the price and yield of the common stock. The stocks or securities in which
the Portfolio invests may be expected to produce some income but income is not a
major criterion in their selection.
The Growth & Income Equity Portfolio may indirectly invest in foreign
securities through the purchase of ADRs and EDRs but will not do so if,
immediately after and as a result of the purchase, the value of ADRs and EDRs
would exceed 15% of the Portfolio's total assets. For further information, see
"Other Applicable Policies -- Foreign Securities" below and the Statement of
Additional Information under "Investment Objectives and Policies -- ADRs and
EDRs." The Portfolio may also invest in Canadian securities listed on a national
securities exchange.
The Growth & Income Equity Portfolio reserves the right to hold as a
temporary defensive measure up to 100% of its total assets in cash and
short-term obligations (having remaining maturities of 12 months or less) at
such times and in such proportions as, in the opinion of the Adviser, prevailing
market or economic conditions warrant. See "The Government & Corporate Bond
Portfolio" above for a description of the types of short-term obligations in
which the Portfolio may invest.
THE GROWTH EQUITY PORTFOLIO
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The Growth Equity Portfolio's investment objective is capital
appreciation. The Portfolio seeks to achieve this objective by investing
primarily in equity securities of companies selected on the basis of assessment
of earnings and the risk and volatility of each company's business. Other
factors, such as product position or market share, will also be considered by
the Adviser.
The Growth Equity Portfolio invests primarily in equity securities of
companies selected by the Adviser on the basis of traditional research
techniques. The equity securities in which the Portfolio invests are primarily
those of middle to large capitalization issuers whose shares are listed on the
New York and American Stock Exchanges and Nasdaq. Company earnings are the
primary consideration in selecting portfolio securities. The Portfolio may
invest in common stocks, preferred stocks, convertible securities, corporate
bonds, debentures, notes, warrants, and put and call options on stocks, although
normally it will invest at least 65% of its total assets in common stocks. Debt
obligations purchased by the Portfolio may include variable and floating rate
instruments, including variable rate master demand notes that permit the
indebtedness thereunder to vary in addition to providing for periodic
adjustments in the interest rate. See "The Money Market Portfolio" above for a
description of certain risks in investing in variable and floating rate
obligations. Debt obligations in which the Portfolio invests will be rated at
the time of purchase in one of the four highest rating categories assigned by
one or more Rating Agencies or, if unrated, deemed to be of comparable quality
by the Adviser. Securities that are rated in the lowest of the four highest
rating categories have speculative characteristics, even though they are of
investment grade quality, and changes in economic conditions or other
circumstances are more likely to lead to weakened capacity to make principal and
interest payments than higher rated securities. Downgrades will be evaluated on
a case by case basis by the Adviser. The Adviser will determine whether or not
the security continues to be an acceptable investment. If it is determined not
to be an acceptable investment, the security will be sold. The applicable
ratings categories of the Rating Agencies are described in Appendix A to the
Statement of Additional Information.
The Growth Equity Portfolio may invest in the securities of foreign
issuers which are freely traded on United States securities exchanges or in the
over-the-counter market in the form of depository receipts. Securities of a
foreign issuer may present greater risks in the form of nationalization,
confiscation, domestic marketability, or other national or international
restrictions. As a matter of practice, the Portfolio will not invest in the
securities of a foreign issuer if any such risk appears to the Adviser to be
substantial. The Portfolio may not invest more than 5% of its total assets in
securities of foreign issuers. For further information on the risks of foreign
securities, see "Risk Factors -- Risks Associated with Foreign Securities and
Currencies below" below.
In such proportions as, in the judgment of the Adviser, prevailing
market conditions warrant, the Growth Equity Portfolio may, for temporary
defensive purposes, invest in short-term money market instruments, securities
issued and/or guaranteed as to payment of principal and interest by the U.S.
Government, its agencies or instrumentalities, and repurchase agreements. See
"The Intermediate Corporate Bond Portfolio" above for further information on the
types of short-term obligations in which the Portfolio may invest.
THE SMALL CAP EQUITY PORTFOLIO
The Small Cap Equity Portfolio's investment objective is capital
appreciation. Current income is an incidental consideration in the selection of
portfolio securities. In pursuing its investment objective, the Portfolio (which
was formerly known as the Emerging Growth Portfolio) normally invests at least
65% of its total assets in common stock of emerging or established small- to
medium-sized companies with above-average potential for price appreciation. The
market capitalization of the issuers of securities purchased by the Portfolio
will normally range from $100 million to $2 billion at the time of purchase. The
Portfolio may invest in preferred stock, rights, warrants, and securities
convertible into common stock. It may invest a portion of its assets in
established larger companies that, in the opinion of the Adviser, offer improved
growth possibilities because of rejuvenated management, product changes, or
other developments that might stimulate earnings or asset growth, or in
companies that seem undervalued relative to their underlying assets. The
Portfolio does not intend to invest more than 5% of the value of its total
assets in the securities of unseasoned companies, that is, companies (or their
predecessors) with less than three years' continuous operation.
The Small Cap Equity Portfolio may also invest a portion of its assets
in smaller companies that have limited specialized- product lines, markets or
financial resources, or are dependent upon one-person management. The securities
of such smaller companies may have limited marketability, may be subject to more
abrupt or erratic market movements than securities of larger companies or the
market averages in general, and may involve greater risk than is customarily
associated with more established companies. To qualify for investment by the
Portfolio, however, a company will be expected to have, in the opinion of the
Adviser, above-average possibilities for capital appreciation (when compared
with the average appreciation of companies whose securities are included in the
S&P 500).
The Small Cap Equity Portfolio uses a research intensive approach and
valuation techniques that emphasize earnings and asset growth. The Adviser
selects stocks based on a number of factors, including historical and projected
earnings, asset value, potential for price appreciation and earnings growth, and
quality of products manufactured and/or services offered. Stocks purchased for
the Portfolio may be listed on a national securities exchange or may be unlisted
securities with or without an established over-the-counter market. The Portfolio
may also invest in initial public offerings of new companies that demonstrate
the potential for price appreciation. A convertible security may be purchased
for the Portfolio when, in the Adviser's opinion, the price of the convertible
security is favorable compared to the price of the common stock. In general, the
Portfolio's stocks and other securities will be diversified over a number of
industry groups in an effort to reduce the risks inherent in such investments.
The Small Cap Equity Portfolio may indirectly invest in foreign
securities through the purchase of such obligations as ADRs and EDRs but will
not do so if, immediately after and as a result of the purchase, the value of
ADRs and EDRs would exceed 25% of the Portfolio's total assets. For further
information, see "Other Applicable Policies -- Foreign Securities" below, and
the Statement of Additional Information under "Investment Objectives and
Policies -- ADRs and EDRs." The Portfolio may also invest in securities issued
by Canadian corporations and Canadian counterparts of U.S. corporations, which
may or may not be listed on a national securities exchange or traded in
over-the-counter markets.
The Small Cap Equity Portfolio reserves the right to hold as a
temporary defensive measure up to 100% of its total assets in cash and
short-term obligations (having remaining maturities of 12 months or less) at
such times and in such proportions as, in the opinion of the Adviser, prevailing
market or economic conditions warrant. See "The Government & Corporate Bond
Portfolio" above for a description of the types of short-term obligations in
which the Portfolio may invest.
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THE SMALL CAP EQUITY INDEX PORTFOLIO
The investment objective of the Small Cap 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. common stocks with smaller
stock market capitalizations as represented by the Standard & Poor's SmallCap
600 Stock Price Index (the "S&P SmallCap 600")
Like the Bond Index and Equity Index Portfolios, the Small Cap Equity
Index Portfolio is not managed in a traditional sense, that is, by making
discretionay and non-discretionary judgments basxed on analysis of economic,
financial and market conditions. Instead, the Portfolio uses an investment
strategy called "indexing", whereby it seeks to approximate the investment
performance of the market segment comprised of U.S. common stocks with smaller
stock market capitalizations as represented by the S&P SmallCap 600, through the
use of sophisticated computer models to determine which stocks should be
purchased or sold, while keeping transaction and administrative costs to a
minimum. The Portfolio will invest substantially all but no less than 80% of its
total assets in securities listed on the S&P SmallCap 600. The Adviser generally
selects securities for the Portfolio on the basis of their weightings in the S&P
SmallCap 600. The Portfolio will only purchase a common stock that is included
in the S&P SmallCap 600 at the time of such purchase. The Portfolio should
exhibit price volatility similar to that of the S&P SmallCap 600. For further
information, see "Other Investment Policies -- The Indexing Approach" below and
the Statement of Additional Information under "Investment Objectives and
Policies -- The Indexing Approach."
With respect to the remaining portion of its total assets, the
Portfolio has the ability to hold temporary cash balances which may be invested
in U.S. Government obligations and money market instruments, including variable
and floating rate obligations such as variable rate master demand notes. See
"The Intermediate Corporate Bond Portfolio" above for a description of the money
market instruments in which the Portfolio may invest and the applicable
limitations with respect to such instruments. See "The Money Market Portfolio"
above for a description of certain risks in investing in variable and floating
rate instruments. If appropriate, the Portfolio may use options, futures
contracts and depository receipts to hedge its positions or for other
permissible purposes. The Portfolio also may enter into repurchase and reverse
repurchase agreements and lend its portfolio securities.
The S&P SmallCap 600. The S&P SmallCap 600 is composed of approximately
600 common stocks. These companies are chosen to be a part of the S&P SmallCap
600 based upon their market size, liquidity and industry group representation.
As of December 31, 1997, stocks in the S&P SmallCap 600 had a market
capitalization of between $____ million and $___ billion. To be included in the
S&P SmallCap 600, stock selections are also screened by S&P for trading volume,
ownership concentration, share price and bid/ask spreads. Normally, the
Portfolio will hold all 600 stocks in the S&P SmallCap 600 and will hold each
stock in approximately the same percentage as that stock represents in the S&P
SmallCap 600. Under certain circumstances, the Portfolio may not hold all 600
stocks in the S&P SmallCap 600, for example because of changes in the S&P
SmallCap 600, or as a result of shareholder activity in the Portfolio. The
Portfolio will rebalance its holdings periodically to reflect changes in the S&P
SmallCap 600. "Market capitalization" for a company is the market price per
share of stock multiplied by the number of shares outstanding. The Adviser
believes that the S&P SmallCap 600 is an appropriate benchmark for the Portfolio
because it represents a diversified array of small capitalization companies, it
is familiar to many investors and it is widely accepted as a reference for small
capitalization common stock investments.
The S&P SmallCap 600 Index has above-average risk and may fluctuate
more than S&P 500 Stock Price Index, which invests in stocks of larger, more
established companies. Small capitalization companies may be subject to more
abrupt or erratic price movements than the stocks of larger, established
companies or the stock market as a whole. Among the reasons for this greater
price volatility are the less than certain growth prospects of smaller
companies, the lower degree of liquidity in the markets for such stocks and the
greater exposure of small capitalization companies to changing economic
conditions. In addition, such companies often have limited product lines,
smaller markets or fewer financial resources. Because of the risks associated
with investing in the small companies that comprise the S&P SmallCap 600,
shareholders should consider an investment in the Small Cap Equity Index
Portfolio to be long-term. The Small Cap Equity Index Portfolio is not designed
to provide investors with a means to speculate on short-term movements in the
stock market.
THE INTERNATIONAL EQUITY PORTFOLIO
The International Equity Portfolio's investment objective is to provide
capital growth consistent with reasonable investment risk. The Portfolio seeks
to achieve this objective by investing principally in foreign equity securities,
most of which will be denominated in foreign currencies. During normal market
conditions, the Portfolio will invest substantially all of its assets in
securities of companies which derive more than 50% of their gross revenues from,
or have more than 50% of their assets outside, the United States. Additionally,
under normal market conditions, the Portfolio will invest in equity securities
from at least three different countries (excluding the United States). However,
the Portfolio may invest all its assets in a single country during temporary
defensive periods.
The International Equity Portfolio expects to invest at least half of
its assets in securities of companies located either in developed countries in
Western Europe or in Japan, although it may also purchase securities of
companies located in other developed countries and developing countries. For
further information, see "Risk Factors -- Risks Associated with Foreign
Securities and Currencies" below.
By investing in foreign securities, the International Equity Portfolio
will attempt to take advantage of differences between economic trends and the
performance of securities markets in various countries, regions and geographic
areas. The Portfolio will achieve diversification by investing in securities
from various countries and geographic areas that offer different investment
opportunities and are affected by different economic trends. The multinational
character of the Portfolio's investments should reduce the effect that events in
any one country or geographic area will have on its investment holdings. Of
course, negative movement by one of the Portfolio's investments in one foreign
market may offset gains from the Portfolio's investments in another market.
Equity securities in which the International Equity Portfolio may
invest include common stock, preferred stock, rights, warrants and securities
convertible into common stock. A convertible security may be purchased for the
Portfolio when, in the Adviser's or Sub-Adviser's opinion, the price and yield
of the convertible security is favorable compared to the price and yield of the
common stock.
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During temporary defensive periods, when deemed necessary by the
Adviser or Sub-Adviser, the International Equity Portfolio may invest up to 100%
of its assets in U.S. Government obligations or debt obligations of companies
incorporated and having their principal business activities in the United
States. The Portfolio does not intend to invest in such securities for the
purpose of meeting its investment objective.
The International Equity Portfolio may also invest, without limitation,
in foreign securities through the purchase of ADRs and EDRs. For further
information, see "Risk Factors -- Risks Associated with Foreign Securities and
Currencies" below and the Statement of Additional Information under "Investment
Objectives and Policies -- ADRs and EDRs."
The International Equity Portfolio reserves the right to hold as a
temporary defensive measure up to 100% of its total assets in cash and
short-term obligations (having remaining maturities of 12 months or less) at
such times and in such proportions as, in the opinion of the Adviser or
Sub-Adviser, prevailing market or economic conditions warrant. See "The
Government & Corporate Bond Portfolio" above for a description of the types of
short-term obligations in which the Portfolio may invest.
Although investing in any mutual fund has certain inherent risks, an
investment in the International Equity Portfolio may have even greater risks
than investments in most other types of mutual funds. The Portfolio is not a
complete investment program, and it may not be appropriate for investors who
cannot financially bear the loss of at least a significant portion of their
investment. The Portfolio's net asset value per Share is subject to rapid and
substantial changes because greater risk is assumed in seeking the Portfolio's
objective. See "Risk Factors -- Risks Associated with Foreign Securities and
Currencies" below.
THE BALANCED PORTFOLIO
The Balanced Portfolio's investment objective is to maximize total
return through a combination of growth of capital and current income consistent
with the preservation of capital. The Portfolio seeks to achieve its objective
by using a disciplined approach of allocating assets primarily among three major
asset groups, i.e. equity securities, fixed income securities and cash
equivalents. In pursuing the Portfolio's investment objective, the Adviser
allocates the Portfolio's assets based upon its evaluation of the relative
attractiveness of the major asset groups. In an effort to better quantify the
relative attractiveness of the major asset groups over a one- to three-year
period of time, the Adviser has incorporated into its asset allocation
decision-making process several dynamic computer models which it has created.
The purpose of these models is to show the statistical impact of the Adviser's
economic outlook upon the future returns of each asset group. The models are
especially sensitive to the forecasts for inflation, interest rates and
long-term corporate earnings growth. Investment returns are normally heavily
impacted by such variables and their expected changes over time. Therefore, the
Adviser's method attempts to take advantage of changing economic conditions by
increasing or decreasing the ratio of stocks to bonds in the Portfolio. For
example, if the Adviser expected more rapid economic growth leading to better
corporate earnings, it would increase the Portfolio's holdings of equity
securities and reduce its holdings of fixed income securities and cash
equivalents.
Under normal market conditions, the Balanced Portfolio's policy is
generally to invest at least 25% of the value of its total assets in fixed
income securities and no more than 75% in equity securities. The actual
percentage of assets invested in equity securities, fixed income securities and
cash equivalents will vary from time to time, depending on the judgment of the
Adviser as to general market and economic conditions, trends and yields,
interest rates and fiscal and monetary developments.
The equity securities in which the Balanced Portfolio normally invests
include common stock, preferred stock, rights, warrants and securities
convertible into common or preferred stock. For further information regarding
these instruments, see "The Equity Income Portfolio" and "The Growth & Income
Equity Portfolio" above.
The fixed income securities in which the Balanced Portfolio invests
include U.S. Government securities or other fixed income and related debt
securities rated in one of the four highest rating categories assigned by a
Rating Agency at the time of purchase or in unrated investments deemed by the
Adviser to be of comparable quality pursuant to guidelines approved by the
Fund's Board of Directors. For further information regarding these instruments,
see "The Government & Corporate Bond Portfolio" above.
The Balanced Portfolio may purchase asset-backed securities. For
further information regarding these instruments, see "Other Applicable Policies
- -- Asset-Backed Securities" below.
The Balanced Portfolio reserves the right to hold as a temporary
defensive measure up to 100% of its total assets in cash and short-term
obligations (having remaining maturities of 12 months or less) at such times and
in such proportions as, in the opinion of the Adviser, prevailing market or
economic conditions warrant. See "The Government & Corporate Bond Portfolio"
above for a description of the types of short-term obligations in which the
Portfolio may invest.
RISK FACTORS
MARKET RISK. The Equity Income, Equity Index, Growth & Income Equity,
Growth Equity, Small Cap Equity, Small Cap Equity Index and International Equity
Portfolios invest primarily, and the Balanced Portfolio invests to a significant
degree, in equity securities. As with other mutual funds that invest primarily
or to a significant degree in equity securities, these Portfolios are subject to
market risks. That is, the possibility exists that common stocks will decline
over short or even extended periods of time and both the U.S. and certain
foreign equity markets tend to be cyclical, experiencing both periods when stock
prices generally increase and periods when stock prices generally decrease.
INTEREST RATE RISK. Generally, the market value of fixed income
securities, including Municipal Obligations, held by the Portfolios can be
expected to vary inversely to changes in prevailing interest rates. During
periods of declining interest rates, the market value of investment portfolios
comprised primarily of fixed income securities will tend to increase, and during
periods of rising interest rates, the market value will tend to decrease. Fixed
income securities with longer maturities, which tend to produce higher yields,
are subject to potentially greater capital appreciation and depreciation than
obligations with shorter maturities. Changes in the financial strength of an
issuer or changes in the ratings of any particular security may also offset the
value of these investments. Fluctuations in the
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market value of fixed income securities subsequent to their acquisition will not
offset cash income from such securities but will be reflected in a Portfolio's
net asset value.
RISKS ASSOCIATED WITH FOREIGN SECURITIES AND CURRENCIES. Investments in
securities of foreign issuers, whether made directly or indirectly, carry
certain risks not ordinarily associated with investments in securities of
domestic issuers. Such risks include future political and economic developments,
and the possible imposition of exchange controls or other foreign governmental
laws or restrictions. In addition, with respect to certain countries, there is
the possibility of expropriation of assets, confiscatory taxation, political or
social instability or diplomatic developments which could adversely affect
investments in those countries.
There may be less publicly available information about a foreign
company than about a U.S. company, and foreign companies may not be subject to
accounting, auditing and financial reporting standards and requirements
comparable to or as uniform as those of U.S.-based companies. Foreign securities
markets, while growing in volume, have, for the most part, substantially less
volume than U.S. markets, and securities of many foreign companies are less
liquid and their prices more volatile than securities of comparable U.S.-based
companies. There is generally less government supervision and regulation of
foreign exchanges, brokers and issuers than there is in the United States. In
the event of a default by the issuer of a foreign security, it may be more
difficult to obtain or enforce a judgment against such issuer than it would be
against a domestic issuer. In addition, foreign banks and foreign branches of
U.S. banks are subject to less stringent reserve requirements and to different
accounting, auditing, reporting, and recordkeeping standards than those
applicable to domestic branches of U.S.
banks.
Certain of the risks associated with international investments are
heightened with respect to investments in developing countries. The risks of
expropriation, nationalization and social, political and economic instability
are greater in those countries than in more developed capital markets. In
addition, developing countries may have economies based on only a few industries
and small securities markets with a low volume of trading. Certain countries may
also impose substantial restrictions on investments in their capital markets by
foreign entities, including restrictions on investments in issuers of industries
deemed sensitive to relevant national interests. These factors may limit the
investment opportunities available to the International Equity Portfolio and
result in a lack of liquidity and a high price volatility with respect to
securities of issuers from developing countries.
Certain countries may also impose restrictions on the International
Equity Portfolio's ability to repatriate investment income or capital. Even when
there is no outright restriction on repatriation of investment income or
capital, the mechanics of repatriation may affect certain aspects of the
operations of the International Equity Portfolio.
Governments of many developing countries exercise substantial influence
over many aspects of the private sector. In some countries, the government may
own or control many companies, including the largest company or companies. As
such, government actions in the future could have a significant effect on
economic conditions in these countries, affecting private sector companies, the
International Equity Portfolio and the value of its portfolio securities.
Since the International Equity Portfolio will invest substantially in
securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates will affect the value of securities
in the International Equity Portfolio and the unrealized appreciation or
depreciation of investments so far as U.S. investors are concerned. Foreign
currency exchange rates are determined by forces of supply and demand on the
foreign exchange markets and the regulatory control of the exchanges on which
the currencies trade. These forces are themselves affected by the international
balance of payments and other economic and financial conditions, government
intervention, speculation and other factors. Costs are incurred in connection
with conversions between various currencies.
The expense ratio of the International Equity Portfolio can be expected
to be higher than that of funds investing in domestic securities. The costs
attributable to investing abroad are usually higher for several reasons, such as
the higher cost of investment research, higher cost of custody of foreign
securities, higher commissions paid on comparable transactions on foreign
markets and additional costs arising from delays in settlements of transactions
involving foreign securities.
Interest and dividends payable on the International Equity Portfolio's
foreign portfolio securities may be subject to foreign withholding taxes. To the
extent such taxes are not offset by credits or deductions allowed to investors
under U.S. federal income tax provisions, they may reduce the net return to the
Portfolio's shareholders. For further information, see "Taxes."
In addition to the International Equity Portfolio, other Portfolios may
be subject to certain of the risks described above in connection with investment
in foreign securities.
RISKS ASSOCIATED WITH MUNICIPAL OBLIGATIONS. The ability of the
Tax-Exempt Money Market, Short-Intermediate Municipal, Missouri Tax-Exempt Bond
and National Municipal Bond Portfolios (collectively, the "Tax-Exempt
Portfolios") to achieve their respective investment objectives are dependent
upon the ability of issuers of Municipal Obligations to meet their continuing
obligations for the payment of principal and interest. There are additional
risks associated with investment in the Missouri Tax- Exempt Bond Portfolio
because it invests its assets predominantly in Missouri Municipal Obligations.
Investors in the Missouri Tax-Exempt Bond Portfolio should be aware that certain
provisions of, and amendments to, the Missouri Constitution limit tax increases
which could result in certain adverse consequences affecting Missouri Municipal
Obligations. Some of the significant financial considerations relating to the
Missouri Tax-Exempt Bond Portfolio's investments in Missouri Municipal
Obligations are summarized in the Statement of Additional Information.
ADDITIONAL RISKS AND OTHER CONSIDERATIONS. Although the Tax-Exempt
Money Market, Short-Intermediate Municipal and National Municipal Bond
Portfolios may invest 25% or more of their respective net assets in (i)
Municipal Obligations whose issuers are in the same state, (ii) Municipal
Obligations the interest on which is paid solely from revenues of similar
projects, and (iii) private activity bonds, no Portfolio presently intends to do
so unless in the opinion of the Adviser the investment is warranted. Although
the Missouri Tax-Exempt Bond Portfolio does not presently intend to do so on a
regular basis, it may invest more than 25% of its assets in industrial
development bonds issued before August 7, 1986, the interest on which is not
treated as a specific tax preference item under the federal alternative minimum
tax, and in Municipal Obligations, the interest on which is paid solely from
revenues of similar projects, if such investments are deemed necessary or
appropriate by the Adviser. To the extent that a Portfolio's assets are invested
in Municipal Obligations the issuers of which are in the same state or that are
payable from the revenues of similar
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projects or in private activity bonds, a Portfolio will be subject to the
peculiar risks presented by the laws and economic conditions relating to such
projects and bonds to a greater extent that it would be if its assets were not
so invested. See "Investment Objectives and Policies -- Municipal Obligations"
in the Statement on Additional Information.
Each of the Tax-Exempt Money Market and Missouri Tax-Exempt Bond
Portfolios is classified as non-diversified under the 1940 Act. Investment
return on a non-diversified portfolio typically is dependent upon the
performance of a smaller number of securities relative to the number held in a
diversified portfolio. Consequently, the change in value of any one security may
affect the overall value of a non-diversified portfolio more than it would a
diversified portfolio. In addition, a non-diversified portfolio may be more
susceptible to economic, political, and regulatory developments than a
diversified investment portfolio with similar objectives. The value of a
Portfolio's securities can be expected to vary inversely with changes in
prevailing interest rates.
Investors in the Missouri Tax-Exempt Bond Portfolio should consider the
risk inherent in such Portfolio's concentrations in Missouri Municipal
Obligations versus the safety that comes with a less geographically concentrated
investment portfolio, and should compare the yields and tax-equivalent yields
available on portfolios of Missouri Municipal Obligations with the yields and
tax-equivalent yields of more diversified portfolios with securities of
comparable quality, including non-Missouri securities, before making an
investment decision.
Municipal Obligations purchased by the Tax-Exempt Portfolios may be
backed by letters of credit or guarantees issued by domestic or foreign banks
and other financial institutions which are not subject to federal deposit
insurance. Adverse developments affecting the banking industry generally or a
particular bank or financial institution that has provided its credit or a
guarantee with respect to a Municipal Obligation held by a Tax-Exempt Portfolio
could have an adverse effect on the Portfolio's investment portfolio and the
value of its shares. Foreign letters of credit and guarantees involve certain
risks in addition to those of domestic obligations, including less stringent
reserve requirements and different accounting, auditing and recordkeeping
requirements.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from federal income tax (and, with respect to
Missouri Municipal Obligations, to the exemption from Missouri income tax) are
rendered by bond counsel to the respective issuers at the time of issuance, and
opinions relating to the validity and the tax-exempt status of payments received
by a Portfolio from tax-exempt derivative securities are rendered by counsel to
the respective sponsors of such securities. The Tax-Exempt Portfolios and their
Adviser will rely on such opinions and will not review independently the
underlying proceedings relating to the issuance of Municipal Obligations, the
creation of any tax-exempt derivative security, or the bases for such opinions.
OTHER APPLICABLE POLICIES
The investment policies described in this Prospectus are among those
which one or more of the Portfolios have the ability to utilize. Some of these
policies may be employed on a regular basis; others may not be used at all.
Accordingly, reference to any particular policy, method or technique carries no
implication that it will be utilized or, if it is, that it will be successful.
U.S. GOVERNMENT OBLIGATIONS. Securities issued or guaranteed by the
U.S. Government, its agencies and instrumentalities have historically involved
little risk of loss of principal if held to maturity. However, due to
fluctuations in interest rates, the market value of such securities may vary
during the period a shareholder owns Shares of a Portfolio. Certain U.S.
Government securities held by the Treasury Money Market, Money Market or
Tax-Exempt Money Market Portfolios may have remaining maturities exceeding
thirteen months if such securities provide for adjustments in their interest
rates no less frequently than every thirteen months. Examples of the types of
U.S. Government obligations that may be held by the Portfolios, subject to their
respective investment objectives and policies, include, in addition to U.S.
Treasury bonds, notes and bills, the obligations of Federal Home Loan Banks,
Federal Farm Credit Banks, Federal Land Banks, the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, GNMA, FNMA, FHLMC, General Services
Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Intermediate Credit Banks, Resolution Trust Corporation,
and Maritime Administration. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as those of GNMA, are supported
by the full faith and credit of the U.S. Treasury; others, such as the
Export-Import Bank of the United States, are supported by the right of the
issuer to borrow from the Treasury; others, such as those of FNMA, are supported
by the discretionary authority of the U.S. Government to purchase the agency's
obligations; still others such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. There is
no assurance that the U.S. Government would provide financial support to U.S.
Government-sponsored instrumentalities if it is not obligated to do so by law.
STRIPPED GOVERNMENT SECURITIES. To the extent consistent with their
respective investment policies, each Portfolio may invest in bills, notes and
bonds (including zero coupon bonds) issued by the U.S. Treasury. In addition,
each Portfolio (except the Tax-Exempt Money Market, Short-Intermediate
Municipal, Missouri Tax-Exempt Bond, Growth Equity, Equity Index and Small Cap
Equity Index Portfolios) may also invest in "stripped" U.S. Treasury obligations
offered under the Separate Trading of Registered Interest and Principal
Securities ("STRIPS") program or Coupon Under Bank-Entry Safekeeping ("CUBES")
program or other stripped securities issued directly by agencies or
instrumentalities of the U.S. Government (and, with respect to the Treasury
Money Market Portfolio only, that are also guaranteed as to principal and
interest by the U.S. Government). STRIPS and CUBES represent either future
interest or principal payments and are direct obligations of the U.S. Government
that clear through the Federal Reserve System. The Money Market, Intermediate
Corporate Bond, Bond Index, Government & Corporate Bond, Growth & Income Equity,
Small Cap Equity and Balanced Portfolios may also purchase U.S. Treasury and
agency securities that are stripped by brokerage firms and custodian banks and
sold under proprietary names. These stripped securities are resold in custodial
receipt programs with a number of different names (such as TIGRs and CATS) and
are not considered U.S. Government securities for purposes of the 1940 Act.
Stripped securities are issued at a discount to their "face value" and
may exhibit greater price volatility than ordinary debt securities because of
the manner in which their principal and interest are returned to investors. The
Adviser will consider the liquidity needs of a Portfolio when any investments in
zero coupon obligations or other principal-only obligations are made.
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REPURCHASE AGREEMENTS. Under certain circumstances described above and
subject to their respective investment policies, each Portfolio (except the
National Municipal Bond Portfolio) may agree to purchase U.S. Government
securities from financial institutions such as banks and broker-dealers, subject
to the seller's agreement to repurchase them at a mutually agreed-upon date and
price ("repurchase agreements"). A Portfolio will enter into repurchase
agreements only with financial institutions such as banks and broker-dealers
that the Adviser or Sub-Adviser believes to be creditworthy. During the term of
any repurchase agreement, the Adviser or Sub-Adviser will continue to monitor
the creditworthiness of the seller and will require the seller to maintain the
value of the securities subject to the agreement at not less than 102% of the
repurchase price (including accrued interest). Default by a seller could expose
a Portfolio to possible loss because of adverse market action or possible delay
in disposing of the underlying obligations. Because of the seller's repurchase
obligations, the securities subject to repurchase agreements do not have
maturity limitations. Although no Portfolio presently intends to enter into
repurchase agreements providing for settlement in more than seven days, each
Portfolio does have the authority to do so subject to its limitation on the
purchase of illiquid securities described below. Repurchase agreements are
considered to be loans under the 1940 Act. The income on repurchase agreements
is taxable. See "Taxes" below.
REVERSE REPURCHASE AGREEMENTS. Subject to their investment policies,
each Portfolio (except the Treasury Money Market Portfolio and the Tax-Exempt
Portfolios) may borrow funds for temporary purposes by entering into reverse
repurchase agreements in accordance with their respective investment limitations
below. Pursuant to such agreements, a Portfolio would sell portfolio securities
to financial institutions such as banks and broker-dealers and agree to
repurchase them at an agreed upon date and price. Reverse repurchase agreements
involve the risk that the market value of the securities sold by a Portfolio may
decline below the repurchase price which the Portfolio is obligated to pay.
Reverse repurchase agreements are considered to be borrowings by a Portfolio
under the 1940 Act.
SECURITIES LENDING. To increase return or offset expenses, each
Portfolio (except the Tax-Exempt Money Market and Missouri Tax-Exempt Bond
Portfolios) may, from time to time, lend its portfolio securities to
broker-dealers, banks or institutional borrowers pursuant to agreements
requiring that the loans be continuously secured by collateral equal at all
times in value to at least the market value of the securities loaned. Collateral
for such loans may include cash, securities of the U.S. Government, or its
agencies or instrumentalities, or an irrevocable letter of credit issued by a
bank that has at least $1.5 billion in total assets, or any combination
thereof. The collateral must be valued daily and, should the market value of
the loaned securities increase, the borrower must furnish additional collateral
to the lending Portfolio. By lending its securities, a Portfolio can increase
its income by continuing to receive interest on the loaned securities as well
as by either investing the cash collateral in short-term instruments or
obtaining yield in the form of interest paid by the borrower when U.S.
Government securities are used as collateral. In accordance with current SEC
policies, each Portfolio is currently limiting its securities lending to
33-1/3% of the value of its total assets (including the value of the collateral
for the loans) at the time of the loan. Loans are subject to termination by a
Portfolio or a borrower at any time.
SECURITIES OF OTHER INVESTMENT COMPANIES. Under certain circumstances
described above and subject to their respective investment policies and
limitations, each Portfolio may invest in securities issued by other investment
companies, limited with respect to each Portfolio other than the Growth Equity
Portfolio to investment companies which determine their net asset value per
Share based on the amortized cost or penny-rounding method and which invest in
securities in which the Portfolio is permitted to invest. Each Portfolio may
invest in securities of other investment companies within the limits prescribed
by the 1940 Act, which include, subject to certain exceptions, a prohibition on
a Portfolio investing more than 10% of the value of its total assets in such
securities. Investments in other investment companies will cause a Portfolio
(and, indirectly, the Portfolio's shareholders) to bear proportionately the cost
incurred in connection with the operations of such other investment companies.
In addition, investment companies in which a Portfolio may invest may impose a
sales or distribution charge in connection with the purchase or redemption of
their shares as well as other types of commissions or charges (no sales charge
will be paid by the Missouri Tax-Exempt Bond Portfolio in connection with such
investments). Such charges will be payable by a Portfolio and, therefore, will
be borne indirectly by its shareholders. See the Statement of Additional
Information under "Investment Objectives and Policies -- Securities of Other
Investment Companies." The income on securities of other investment companies
may be taxable to investors at the state or local level. See "Taxes" below.
WHEN-ISSUED PURCHASES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS.
Each Portfolio may purchase securities on a "when- issued" basis and, except for
the Growth Equity Portfolio, may purchase or sell securities on a "forward
commitment" basis. These transactions involve a commitment by a Portfolio to
purchase or sell securities at a stated price and yield with settlement beyond
the normal settlement date. Such transactions permit a Portfolio to lock-in a
price or yield on a security, regardless of future changes in interest rates.
Additionally, the Short-Intermediate Municipal, National Municipal Bond and
Growth Equity Portfolios may purchase or sell securities on a "delayed
settlement" basis. This refers to a transaction in the secondary market that
will settle some time in the future. When issued purchases, forward commitments
and delayed settlement transactions involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date, or if the value
of the security to be sold increases prior to the settlement date. Each
Portfolio expects that these transactions will not exceed 25% of the value of
its total assets (at the time of purchase) under normal market conditions. No
Portfolio intends to engage in such transactions for speculative purposes but
only for the purpose of acquiring portfolio securities.
OPTIONS. Each of the Equity and Bond Portfolios (except the
Short-Intermediate Municipal, Missouri Tax-Exempt Bond and National Municipal
Bond Portfolios) may purchase put options and each Portfolio (except the
Short-Intermediate Municipal Bond, Missouri Tax-Exempt Bond, National Municipal
Bond and Growth Equity Portfolio) may purchase call options. Except as described
below with respect to the Growth Equity Portfolio, such options will be listed
on a national securities exchange and issued by the Options Clearing
Corporation. Each Portfolio other than the Growth Equity Portfolio will limit
the purchase of options to an amount not exceeding 10% of the value of its net
assets. Such options may relate to particular securities or, with respect to
each Portfolio other than the Growth Equity Portfolio, to various stock or bond
indices. Purchasing options is a specialized investment technique which entails
a substantial risk of a complete loss of the amounts paid as premiums to the
option writer. Such transactions will be entered into only as a hedge against
fluctuations in the value of securities which a Portfolio holds or intends to
purchase.
Each of the Equity and Bond Portfolios (except the Short- Intermediate
Municipal Bond, Missouri Tax-Exempt Bond and National Municipal Bond Portfolios)
may also write covered call options. A covered call option is an option to
acquire a security that a Portfolio owns or has the right to acquire during the
option period. Except as described below with respect to the Growth Equity
Portfolio, such options will be listed on a national securities exchange and
issued by the Options Clearing Corporation.
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The Growth Equity Portfolio may purchase and write over-the-counter
options on portfolio securities in negotiated transactions with the buyers or
writers of the options when options on the portfolio securities held by such
Portfolio are not traded on a National securities exchange. Over-the-counter
options are two-party contracts with price and terms negotiated between the
buyer and seller. In contrast, exchange-traded options are third party contracts
with standardized strike prices and expiration dates and are purchased from a
clearing corporation such as the Options Clearing Corporation. Exchange-traded
options have a continuous liquid market while over-the-counter options may not.
The International Equity Portfolio may write covered call options, buy
put options, buy call options and write secured put options for hedging (or
cross-hedging) purposes or for the purpose of earning additional income. Such
options may relate to particular securities, foreign or domestic stock or bond
indices, financial instruments or foreign currencies; may or may not be listed
on a domestic or foreign securities exchange; and may or may not be issued by
the Options Clearing Corporation. The International Equity Portfolio will invest
and trade in unlisted over-the-counter options only with firms deemed
creditworthy by the Adviser or Sub-Adviser. However, unlisted options are not
subject to the protections afforded purchasers of listed options by the Options
Clearing Corporation, which performs the obligations of its members which fail
to perform them in connection with the purchase or sale of options. The
International Equity Portfolio will not purchase put and call options in an
amount that exceeds 10% of its net assets at the time of purchase.
The aggregate value of the securities subject to covered call options
written by a Portfolio will not exceed 25% of the value of its net assets. In
order to close out an option position, a Portfolio may enter into a "closing
purchase transaction" -- the purchase of a covered call option on the same
security with the same exercise price and expiration date as the option which
the Portfolio previously wrote. By writing a covered call option, a Portfolio
forgoes the opportunity to profit from an increase in the market price of the
underlying security above the exercise price except insofar as the premium
represents such a profit and it is not able to sell the underlying security
until the option expires, is exercised, or the Portfolio effects a closing
purchase transaction by purchasing an option of the same series. The use of
covered call options will not be a primary investment technique of any
Portfolio. For additional information relating to option trading practices,
including particular risks, see the Statement of Additional Information and
Appendix B thereof.
FOREIGN CURRENCY PUT OPTIONS. The International Equity Portfolio may
purchase foreign currency put options on U.S. exchanges or U.S. over-the-counter
markets. A put option gives the Portfolio, upon payment of a premium, the right
to sell a currency at the exercise price until the expiration of the option and
serves to insure against adverse currency price movements in the underlying
portfolio assets denominated in that currency.
UNLISTED CURRENCY OPTIONS. The International Equity Portfolio may
purchase unlisted currency options. A number of major investment firms trade
unlisted options which are more flexible than exchange listed options with
respect to strike price and maturity date. These unlisted options generally are
available on a wider range of currencies. Unlisted foreign currency options are
generally less liquid than listed options and involve the credit risk associated
with the individual issuer. They will be deemed to be illiquid for purposes of
the limitation on investments in illiquid securities.
WRITING FOREIGN CURRENCY CALL OPTIONS. A call option written by the
International Equity Portfolio gives the purchaser, upon payment of a premium,
the right to purchase from the International Equity Fund a currency at the
exercise price until the expiration of the option.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the International
Equity Portfolio may buy and sell securities denominated in currencies other
than the U.S. dollar, and receive interest, dividends and sale proceeds in
currencies other than the U.S. dollar, the Portfolio may from time to time enter
into foreign currency exchange transactions to convert to and from different
foreign currencies and to convert foreign currencies to and from the U.S.
dollar. The Portfolio may enter into currency exchange transactions on a spot
(I.E., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or use forward currency contracts to purchase or sell foreign
currencies.
A forward foreign currency contract is an obligation by the
International Equity Portfolio to purchase or sell a specific currency at a
future date at a price set at the time of the contract. In this respect, forward
currency contracts are similar to foreign currency futures contracts described
below; however, unlike futures contracts, which are traded on recognized
commodities exchanges, forward currency contracts are traded in the interbank
market conducted directly between currency traders (usually large commercial
banks) and their customers. Also, forward currency contracts usually involve
delivery of the currency involved instead of cash payment as in the case of
futures contracts.
The International Equity Portfolio may use forward foreign currency
exchange contracts in order to protect against uncertainty in the level of
future foreign exchange rates. The use of such forward contracts is limited to
hedging against movements in the value of foreign currencies relative to the
U.S. dollar in connection with specific portfolio transactions or with respect
to portfolio positions. The purpose of transaction hedging is to "lock in" the
U.S. dollar equivalent price of such specific securities. Position hedging is
the sale of foreign currency with respect to portfolio security positions
denominated or quoted in that currency. The Portfolio will not speculate in
foreign currency exchange transactions. Transaction and position hedging will
not be limited to an overall percentage of the Portfolio's assets but will be
employed as necessary to correspond to particular transactions or positions. The
Portfolio may not hedge its currency positions to an extent greater than the
aggregate market value (at the time of entering into the forward contract) of
the securities held in its portfolio denominated in, quoted in, or currently
convertible into that particular currency. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of the
Portfolio's portfolio securities or in foreign exchange rates, or prevent loss
if the prices of these securities decline, but forward foreign currency exchange
contracts do allow the Portfolio to establish a rate of exchange for a future
point in time.
FUTURES CONTRACTS AND RELATED OPTIONS. The U.S. Government Securities,
Intermediate Corporate Bond, Bond Index, Government & Corporate Bond, Equity
Income, Equity Index, Growth & Income Equity, Growth Equity, Small Cap Equity,
Small Cap Equity Index and Balanced Portfolios may invest in futures contracts
and options on futures contracts to the extent permitted by the Commodity
Futures Trading Commission ("CFTC") and the SEC. The International Equity
Portfolio may invest in interest rate futures contracts, options on futures
contracts and other types of financial futures contracts (such as foreign
currency contracts), as well as any index or foreign market futures which are
available in recognized exchanges or in other established financial markets to
the extent permitted by the CFTC and the SEC. Such transactions, including stock
or bond index futures contracts, or options thereon, act as a hedge to protect a
Portfolio from fluctuations in the value of its securities caused by
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anticipated changes in interest rate or market conditions without necessarily
buying or selling the securities or, with respect to the Bond Index, Equity
Index and Small Cap Equity Index Portfolios, can be used to simulate full
investment in the Lehman Aggregate, S&P 500 or S&P Small Cap 600, respectively,
while retaining a cash balance for portfolio management purposes. Hedging is a
specialized investment technique that entails skills different from other
investment management. The Adviser (or Sub- Adviser) may also consider such
transactions to be economically appropriate for the reduction of risk inherent
in the ongoing management of a Portfolio. A stock or bond index futures contract
is an agreement in which one party agrees to take or make delivery of an amount
of cash equal to a specified dollar amount times the difference between the
index value (which assigns relative values to the common stock or bonds included
in the index) at the close of the last trading day of the contract and the price
at which the agreement is originally made. No physical delivery of the
underlying stock or bond in the index is contemplated. Similarly, it may be in
the best interest of a Portfolio to purchase or sell interest rate futures
contracts, or options thereon, which provide for the future delivery of
specified fixed income securities.
The purchase and sale of futures contracts or related options will not
be a primary investment technique of any Portfolio. None of the Portfolios will
purchase or sell futures contracts (or related options thereon) for hedging
purposes if, immediately after purchase, the aggregate initial margin deposits
and premiums paid by a Portfolio on its open futures and options positions
exceeds 5% of the liquidation value of the Portfolio, after taking into account
any unrealized profits and unrealized losses on any such futures or related
options contracts into which it has entered. For a more detailed description of
futures contracts and related options, see the Statement of Additional
Information and Appendix B thereof.
ASSET-BACKED SECURITIES. The U.S. Government Securities, Intermediate
Corporate Bond, Bond Index, Government & Corporate Bond and Balanced Portfolios
may purchase asset-backed securities (I.E., securities backed by mortgages,
installment sale contracts, corporate receivables, credit card receivables or
other assets) that are issued by entities such as GNMA, FNMA and FHLMC and
private issuers such as commercial banks, financial companies, finance
subsidiaries of industrial companies, savings and loan associations, mortgage
banks, and investment banks. To the extent that a Portfolio invests in
asset-backed securities issued by companies that are investment companies under
the 1940 Act, such acquisitions will be subject to the percentage limitations
prescribed by the 1940 Act. See "Other Applicable Policies -- Securities of
Other Investment Companies" above.
Presently there are several types of mortgage-backed securities,
including guaranteed mortgage pass-through certificates, which provide the
holder with a pro rata interest in the underlying mortgages, and CMOs, which
provide the holder with a specified interest in the cash flow of a pool of
underlying mortgages or other mortgage-backed securities. CMOs are issued in
multiple classes, each with a specified fixed or floating interest rate and a
final distribution date. The relative payment rights of the various CMO classes
may be subject to greater volatility and interest-rate risk than other types of
mortgage-backed securities. The average life of asset-backed securities varies
with the underlying instruments or assets and market conditions, which in the
case of mortgages have maximum maturities of forty years. The average life of a
mortgage-backed instrument, in particular, is likely to be substantially less
than the original maturity of the mortgages underlying the securities as the
result of unscheduled principal payments and mortgage prepayments. The
relationship between mortgage prepayment and interest rates may give some
high-yielding mortgage-backed securities less potential for growth in value than
conventional bonds with comparable maturities. In addition, in periods of
falling interest rates, the rate of mortgage prepayments tends to increase.
During such periods, the reinvestment of prepayment proceeds by a Portfolio will
generally be at lower rates than the rates that were carried by the obligations
that have been prepaid. When interest rates rise, the value of an asset-backed
security generally will decline; however, when interest rates decline, the value
of an asset- backed security with prepayment features may not increase as much
as that of other fixed-income securities. Because of these and other reasons, an
asset-backed security's total return may be difficult to predict precisely.
In general, the collateral supporting non-mortgage asset-backed
securities is of shorter maturity than mortgage loans and is less likely to
experience substantial prepayments. Non-mortgage asset-backed securities
involve certain risks that are not presented by mortgage-backed securities
arising primarily from the nature of the underlying assets (I.E., credit card
and automobile loan receivables as opposed to real estate mortgages). For
example, credit card receivables are generally unsecured and the repossession of
automobiles and other personal property upon the default of the debtor may be
difficult or impracticable in some cases.
TYPES OF MUNICIPAL OBLIGATIONS. The two principal classifications of
Municipal Obligations that may be held by the Tax-Exempt Portfolios are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenues securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
revenue source such as the user of the facility being financed. Revenue
securities include private activity bonds which are not payable from the
unrestricted revenues of the issuer. Consequently, the credit quality of private
activity bonds is usually directly related to the credit standing of the
corporate user of the facility involved. Municipal Obligations may also include
"moral obligation" bonds, which are normally issued by special purpose public
authorities. If the issuer of a moral obligation bond is unable to meet its debt
service obligations from current revenues, it may draw on a reserve fund, the
restoration of which is a moral commitment but not a legal obligation of the
state or municipality which created the issuer.
Municipal Obligations include debt obligations issued by governmental
entities to obtain funds for various public purposes, including the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses and the extension of loans to public
institutions and facilities. Private activity bonds issued by or on behalf of
public authorities to finance various privately operated facilities are
considered Municipal Obligations. Interest on private activity bonds, although
free of regular federal income tax, may be an item of tax preference for
purposes of the federal alternative minimum tax.
Each of the Tax-Exempt Portfolios may acquire zero coupon obligations,
which may have greater price volatility than coupon obligations and which will
not result in payment of interest until maturity. Also included within the
general category of Municipal Obligations are participation certificates in
leases, installment purchase contracts, or conditional sales contracts ("lease
obligations") entered into by state or political subdivisions to finance the
acquisition or construction of equipment, land, or facilities. Although lease
obligations do not constitute general obligations of the issuer for which the
lessee's unlimited taxing power is pledged, certain lease obligations are backed
by the lessee's covenant to appropriate money to make the lease obligation
payments. However, under certain lease obligations, the lessee has no obligation
to make these payments in future years unless money is appropriated on a yearly
basis. Although "non-appropriation" lease obligations are secured by the leased
property, disposition of the property in the event of foreclosure might prove
difficult. These securities represent a relatively new type of financing and may
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not be as marketable as more conventional securities. To the extent these
securities are illiquid, they are subject to each Portfolio's applicable
limitation on illiquid securities described below.
VARIABLE AND FLOATING RATE MUNICIPAL OBLIGATIONS. Municipal Obligations
purchased by the Tax-Exempt Portfolios may include rated or unrated variable and
floating rate instruments, including variable rate master demand notes that
permit the indebtedness thereunder to vary in addition to providing for periodic
adjustments in the interest rate. Unrated instruments purchased by a Portfolio
will be determined by the Adviser to be of comparable quality at the time of
purchase to rated instruments that may be purchased. The absence of an active
secondary market for a particular variable or floating rate instrument, however,
could make it difficult for a Portfolio to dispose of an instrument if the
issuer were to default on its payment obligation. A Portfolio could, for these
or other reasons, suffer a loss with respect to such instruments.
STAND-BY COMMITMENTS. Each of the Tax-Exempt Portfolios may acquire
"stand-by commitments" with respect to Municipal Obligations held by it. Under a
stand-by commitment, a dealer agrees to purchase, at a Portfolio's option,
specified Municipal Obligations at a specified price. The Portfolios will
acquire stand-by commitments solely to facilitate portfolio liquidity and do not
intend to exercise their rights thereunder for trading purposes. The Portfolios
expect that stand-by commitments will generally be available without the payment
of any direct or indirect consideration. However, if necessary or advisable, a
Portfolio may pay for a stand-by commitment either separately in cash or by
paying a higher price for portfolio securities which are acquired subject to the
commitment (thus reducing the yield otherwise available for the same
securities). Stand-by commitments acquired by a Portfolio will be valued at zero
in determining the Portfolio's net asset value.
TAX-EXEMPT DERIVATIVES. Each of the Tax-Exempt Portfolios may hold
tax-exempt derivatives which may be in the form of tender option bonds,
participations, beneficial interests in a trust, partnership interests or other
forms. The Adviser expects that less than 5% of each Tax-Exempt Portfolio's
assets will be invested in such securities during the current year. See the
Statement of Additional Information under "Investment Objectives and Policies -
Tax-Exempt Derivatives."
DEPOSITORY RECEIPTS. The Bond Index, Equity Index and Small Cap Equity
Index Portfolios may invest in receipts issued by banks or brokerage firms that
are created by depositing securities listed in each Portfolio's respective index
into a special account at a custodian bank. The custodian holds such securities
for the benefit of the registered owners of the certificates or receipts. The
custodian arranges for the issuance of the certificates or receipts evidencing
ownership and maintains the register. The Portfolios may invest in index-based
depository receipts in lieu of investment in the actual securities that are
listed in the respective indexes.
THE INDEXING APPROACH. The Bond Index, Equity Index and Small Cap
Equity Index Portfolios seek to approximate the investment performance of their
respective market segments, as represented by their respective indexes, i.e. the
Lehman Aggregate in the case of the Bond Index Portfolio, the S&P 500 in the
case of the Equity Index Portfolio and the S&P SmallCap 600 in the case of the
Small Cap Equity Index Portfolio. While there can be no guarantee that a
Portfolio's investment results will precisely match the results of its
corresponding index, the Adviser believes that, before deduction of operating
expenses, there will be a very high correlation between the returns generated by
the Portfolios and their respective indexes. Each Portfolio will attempt to
achieve a correlation between its performance and its respective index of at
least 0.95 before deduction of operating expenses. A correlation of 1.00 would
indicate a perfect correlation, which would be achieved when a Portfolio's net
asset value, including the value of its dividend and capital gains
distributions, increases or decreases in exact proportion to changes in its
respective index. Each Portfolio's ability to correlate its performance with its
respective index, however, may be affected by, among other things, transaction
costs, changes in securities markets, the manner in which S&P or Lehman
Brothers, Inc. ("Lehman") calculate their respective indexes, and the timing of
purchases and redemptions. The Adviser monitors the correlation of the
performance of the Portfolios in relation to their indexes under the supervision
of the Board of Directors. In the unlikely event that a high correlation is not
achieved, the Board of Directors will take appropriate steps to correct the
reason for the lower correlation.
The inclusion of a security in any of the Portfolios' indexes in no way
implies an opinion by S&P or Lehman as to its attractiveness as an investment.
S&P and Lehman are not sponsors of, or in any way affiliated with, the
Portfolios.
The Adviser believes that the indexing approach should involve less
portfolio turnover, and thus lower brokerage costs, transfer taxes and operating
expenses, than in more traditionally managed funds, although there is no
assurance that this will be the case. Ordinarily, a Portfolio will buy or sell
securities only to reflect changes in an index (including mergers or changes in
the composition of an index) or to accommodate cash flows into and out of the
Portfolio. The costs and other expenses incurred in securities transactions,
apart from any difference between the investment results of a Portfolio and that
of its respective index, may cause the return of a Portfolio to be lower than
the return of its respective index. The Portfolios may invest in less than all
of the securities included in their respective indexes, which may result in a
return that does not correspond with that of the indexes, after taking expenses
into account.
ILLIQUID SECURITIES. A Portfolio will not invest more than 15% (10% for
each of the Money Market Portfolios) of the value of its net assets in illiquid
securities. Repurchase agreements that do not provide for settlement within
seven days, time deposits maturing in more than seven days, and securities that
are not registered under the Securities Act of 1933, as amended (the "1933 Act")
but that may be purchased by institutional buyers pursuant to SEC Rule 144A are
subject to the applicable limit (unless the Adviser or Sub-Adviser, pursuant to
guidelines established by the Board of Directors, determines that a liquid
market exists). Rule 144A establishes a "safe harbor" from the registration
requirements of the 1933 Act for the resale of certain securities to qualified
institutional buyers. The purchase of securities which can be sold under Rule
144A could have the effect of increasing the level of illiquidity in the
Portfolios to the extent that qualified institutional buyers become, for a time,
uninterested in purchasing these restricted securities.
PORTFOLIO TURNOVER AND TRANSACTIONS. Although the Equity and Bond
Portfolios will not normally engage in short-term trading, each Portfolio
(except the Bond Index, Equity Index and Small Cap Equity Index Portfolios)
reserves the right to do so if the Adviser (or Sub-Adviser) believes that
selling a particular security is appropriate in light of the Portfolio's
investment objective. Investments may be sold for a variety of reasons, such as
a more favorable investment opportunity or other circumstances bearing on the
desirability of continuing to hold such investments. A high rate of portfolio
turnover involves correspondingly greater brokerage commission expenses and
other transaction costs, which must be borne directly by the Portfolio involved
and ultimately by its shareholders. High portfolio turnover may result in
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the realization of substantial net capital gains; distributions derived from
such gains may be treated as ordinary income for federal income tax purposes.
See "Taxes" in this Prospectus and the Statement of Additional Information.
Although the Intermediate Corporate Bond, Bond Index, Equity Income,
Equity Index and Small Cap Equity Index Portfolios cannot accurately predict
their respective annual portfolio turnover rates, such rates are not expected to
exceed 100%.
All orders for transactions in securities or options on behalf of the
Portfolios are placed by the Adviser (or Sub-Adviser) with broker-dealers that
it selects. To the extent permitted by the 1940 Act and guidelines adopted by
the Fund's Board of Directors, a Portfolio may utilize the Distributor or one or
more of its affiliates as a broker in connection with the purchase or sale of
securities when the Adviser believes the charge for the transaction does not
exceed the usual and customary broker's commission.
INVESTMENT LIMITATIONS
Except as otherwise noted, each Portfolio's investment policies
discussed above are not fundamental and may be changed by the Fund's Board of
Directors without shareholder approval. However, each Portfolio also has in
place certain fundamental investment limitations, some of which are set forth
below, which may be changed only by a vote of a majority of the outstanding
Shares of a Portfolio. Other investment limitations that also cannot be changed
without a vote of shareholders are contained in the Statement of Additional
Information under "Investment Objectives and Policies."
THE TREASURY MONEY MARKET AND MONEY MARKET PORTFOLIOS
A Portfolio may not:
1. Make loans, except that a Portfolio may purchase or hold
debt instruments in accordance with its investment objective and
policies, lend portfolio securities and enter into repurchase
agreements with respect to securities (together with any cash
collateral) that are consistent with the Portfolio's permitted
investments and that equal at all times at least 100% of the value of
the repurchase price.
2. Borrow money or issue senior securities, except that a
Portfolio may borrow from banks and the Money Market Portfolio may
enter into reverse repurchase agreements, for temporary purposes in
amounts up to 10% of the value of its total assets at the time of such
borrowing; or mortgage, pledge or hypothecate any assets, except in
connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of a
Portfolio's total assets at the time of such borrowing. A Portfolio
will not purchase securities while its borrowings (including reverse
repurchase agreements) are outstanding.
3. With respect to the Treasury Money Market Portfolio,
purchase securities other than obligations of the U.S. Government, its
agencies and instrumentalities, some of which may be subject to
repurchase agreements, except that the Portfolio may purchase
securities of other investment companies that seek to maintain a
constant net asset value per Share and that are permitted themselves
only to invest in securities which may be acquired by the Portfolio.
4. With respect to the Money Market Portfolio, purchase any
securities which would cause more than 25% or more of the value of the
Portfolio's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, domestic bank
certificates of deposit, bankers' acceptances and repurchase agreements
secured by domestic bank instruments or obligations of the U.S.
Government, its agencies or instrumentalities; (b) wholly-owned finance
companies will be considered to be in the industries of their parents
if their activities are primarily related to financing the activities
of the parents; and (c) utilities will be divided according to their
services, for example, gas, gas transmission, electric and gas,
electric and telephone will each be considered a separate industry.
In accordance with current regulations of the SEC, the Money Market
Portfolio intends to limit investments in the securities of any single issuer
(other than securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities) to not more than 5% of the Portfolio's total assets at the
time of purchase, provided that the Portfolio may invest up to 25% of its total
assets in the securities of any one issuer for a period of up to three business
days. This intention is not, however, a fundamental policy of the Money Market
Portfolio. The Portfolio would have the ability to invest more than five percent
of its assets in any one issuer in accordance with its fundamental policy only
in the event that Rule 2a-7 of the 1940 Act is amended in the future.
THE U.S. GOVERNMENT SECURITIES, INTERMEDIATE CORPORATE BOND, BOND
INDEX, GOVERNMENT & CORPORATE BOND, SHORT-INTERMEDIATE MUNICIPAL, NATIONAL
MUNICIPAL BOND, EQUITY INCOME, EQUITY INDEX, GROWTH & INCOME EQUITY, SMALL CAP
EQUITY, SMALL CAP EQUITY INDEX, INTERNATIONAL EQUITY AND BALANCED PORTFOLIOS
A Portfolio may not:
1. Purchase securities of any one issuer (other than
obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities) if, immediately after and as a result of such
investments, more than 5% of the Portfolio's total assets would be
invested in the securities of such issuer, or more than 10% of the
issuer's outstanding voting securities would be owned by the Portfolio
or the Fund, except that up to 25% of the Portfolio's total assets may
be invested without regard to such limitations.
2. Purchase any securities which would cause 25% or more of
the Portfolio's total assets at the time of purchase to be invested in
the securities of one or more issuers conducting their principal
business activities in the same industry, provided however, that (a)
with respect to each Portfolio except the Short-Intermediate Municipal
and National Municipal Bond Portfolios, (i) there is no limitation with
respect to obligations issued or guaranteed by the U.S.
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Government, its agencies or instrumentalities, and repurchase
agreements secured by obligations of the U.S. Government or its
agencies or instrumentalities; (ii) wholly-owned finance companies will
be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their
parents; and (iii) utilities will be divided according to their
services (for example, gas, gas transmission, electric and gas,
electric, and telephone will each be considered a separate industry);
and (b) with respect to the Short- Intermediate Municipal and National
Municipal Bond Portfolios, there is no limitation with respect to
obligations issued or guaranteed by the U.S. Government, any state,
territory or possession of the U.S. Government, the District of
Columbia, or any of their authorities, agencies, instrumentalities or
political subdivisions.
3. Borrow money or issue senior securities, except that each
Portfolio may borrow from banks and each Portfolio other than the
National Municipal Bond Portfolio may enter into reverse repurchase
agreements for temporary defensive purposes in amounts not in excess of
10% of the Portfolio's total assets at the time of such borrowing; or
mortgage, pledge, or hypothecate any assets, except in connection with
any such borrowing and in amounts not in excess of the lesser of the
dollar amounts borrowed or 10% of the Portfolio's total assets at the
time of such borrowing; or purchase securities while its borrowings
exceed 5% of its total assets. A Portfolio's transactions in futures
and related options (including the margin posted by a Portfolio in
connection with such transactions), and securities held in escrow or
separate accounts in connection with a Portfolio's investment practices
described in this Prospectus or the Statement of Additional Information
are not subject to this limitation.
4. Make loans, except that (a) each Portfolio may purchase or
hold debt instruments, lend portfolio securities and make other
investments in accordance with its investment objective and policies,
and (b) each Portfolio except the National Municipal Bond Portfolio may
enter into repurchase agreements.
5. Purchase securities on margin, make short sales of
securities or maintain a short position, except that (a) this
investment limitation shall not apply to a Portfolio's transactions in
options, and futures contracts and related options, and (b) a Portfolio
may obtain short-term credits as may be necessary for the clearance of
purchases and sales of portfolio securities.
THE GROWTH EQUITY PORTFOLIO
The Portfolio may not:
1. With respect to 75% of the value of its total assets,
purchase securities issued by any one issuer (other than cash, cash
items or securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities and repurchase agreements collateralized
by such securities), if as a result more than 5% of the value of its
total assets would be invested in the securities of that issuer. The
Portfolio will not acquire more than 10% of the outstanding voting
securities of any one issuer.
2. Invest 25% or more of the value of its total assets in any
one industry, provided, however, that the Portfolio may invest more
than 25% of the value of its total assets in cash or certain money
market instruments (including instruments issued by a U.S. branch of a
domestic bank or savings and loan association having capital, surplus
and undivided profits in excess of $100,000,000 at the time of
investment), securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities and repurchase agreements
collateralized by such securities.
3. Issue senior securities, except that the Portfolio may
borrow money directly or indirectly through reverse repurchase
agreements in amounts up to one-third the value of its total assets,
including the amount borrowed, and except to the extent that the
Portfolio may enter into futures contracts. The Portfolio will not
borrow money or engage in reverse repurchase agreements for investment
leverage, but rather as a temporary, extraordinary, or emergency
measure to facilitate management of its portfolio by enabling the
Portfolio to, for example, meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Portfolio will not purchase any securities while
any borrowings in excess of 5% of its total assets are outstanding.
For purposes of Investment Limitation No. 2 above, money market
instruments shall include bankers' acceptances, negotiable certificates of
deposit and negotiable time deposits of U.S. or foreign banks and savings and
loan associations.
THE TAX-EXEMPT MONEY MARKET AND MISSOURI TAX-EXEMPT BOND
PORTFOLIOS
A Portfolio may not:
1. Purchase securities of any one issuer if, immediately after
and as a result of such purchase, more than 5% of the Portfolio's total
assets would be invested in the securities of such issuer, except that
(a) up to 50% of the Portfolio's total assets may be invested without
regard to this 5% limitation provided that no more than 25% of the
Portfolio's total assets are invested in the securities of any one
issuer and (b) this 5% limitation does not apply to securities issued
or guaranteed by the U.S. Government, its agencies or
instrumentalities. For purposes of this limitation, a security is
considered to be issued by the governmental entity (or entities) whose
assets and revenues back the security, or, with respect to an
industrial development bond (in the case of the Tax-Exempt Money Market
Portfolio) or a private activity bond (in the case of the Missouri
Tax-Exempt Bond Portfolio) that is backed only by the assets and
revenues of a non-governmental user, a security is considered to be
issued by such non-governmental user. In certain circumstances, the
guarantor of a guaranteed security may also be considered to be an
issuer in connection with such guarantee, except that a guarantee of a
security shall not be deemed to be a security issued by the guarantor
when the value of all securities issued and guaranteed by the
guarantor, and owned by the Portfolio, does not exceed 10% of the
Portfolio's total assets.
2. Borrow money or issue senior securities, except that each
Portfolio may borrow from banks, and the Missouri Tax-Exempt Bond
Portfolio may enter into reverse repurchase agreements, for temporary
defensive purposes in amounts not in excess of 10% of its total assets
at the time of such borrowing; or mortgage,
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<PAGE> 349
pledge, or hypothecate any assets except in connection with any such
borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of its total assets at the time of such
borrowing (including any reverse repurchase agreements); or purchase
securities while borrowings exceed 5% of Tax-Exempt Money Market
Portfolio's net assets or 5% of the Missouri Tax- Exempt Bond
Portfolio's total assets. Securities held in escrow or separate
accounts in connection with the Portfolios' investment practices
described in this Prospectus or the Statement of Additional Information
are not subject to this limitation.
THE MISSOURI TAX-EXEMPT BOND PORTFOLIO
The Portfolio may not:
1. Purchase any securities, except securities issued (as
defined in Investment Limitation No. 1 above with respect to the
Tax-Exempt Money Market and Missouri Tax- Exempt Bond Portfolios) or
guaranteed by the United States, any state, territory or possession of
the United States, the District of Columbia or any of their
authorities, agencies, instrumentalities or political subdivisions,
which would cause 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.
2. Make loans except that the Portfolio may purchase and hold
debt instruments and enter into repurchase agreements in accordance
with its investment objective and policies.
In addition, under normal market conditions or when the Adviser deems
that suitable tax-exempt obligations are available, at least 80% of the
Tax-Exempt Money Market Portfolio's assets must be invested in obligations the
interest on which is exempt from federal income tax and stand-by commitments
with respect to such obligations.
Notwithstanding the Investment Limitation in the preceding paragraph,
the Tax-Exempt Money Market Portfolio may invest in securities of other
investment companies that (a) invest in securities that are substantially
similar to those the Portfolio may acquire, and (b) distribute income that is
exempt from regular federal income tax.
The following additional investment policies with respect to the
Tax-Exempt Money Market and Missouri Tax-Exempt Bond Portfolio are not
fundamental and may be changed by the Board of Directors without shareholder
approval:
The Portfolios may not purchase securities which are not
readily marketable, enter into repurchase agreements providing for
settlement in more than seven days after notice, or purchase other
illiquid securities if, as a result of such purchase, illiquid
securities would exceed 15% (10% with respect to the Tax-Exempt Money
Market Portfolio) of the Portfolios' respective net assets.
The Tax-Exempt Money Market Portfolio has an operating policy to comply
with the requirements of Rule 2a-7 of the 1940 Act. To the extent that Rule 2a-7
is more restrictive than the Portfolio's fundamental limitations, the Portfolio
will operate in accordance with Rule 2a-7.
Except with respect to the Growth Equity Portfolio's policy on
borrowing money set forth above in its Invesmtent Limitation No. 3, if a
percentage limitation is satisfied at the time of investment, a later increase
or decrease in such percentage resulting from a change in value in the
Portfolio's securities will not constitute a violation of such limitation.
PRICING OF SHARES
THE MONEY MARKET PORTFOLIOS
The Money Market Portfolios' respective net asset values per Share are
determined by the Administrator as of 12:00 noon (Eastern time) and as of the
close of regular trading hours on the New York Stock Exchange (the "Exchange")
(currently, 4:00 p.m. Eastern time) on each weekday, with the exception of those
holidays on which the Exchange or the Federal Reserve Bank of St. Louis are
closed (a "Business Day"). Currently one or both of these institutions are
closed on the customary national business holidays of New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day (observed),
Independence Day (observed), Labor Day, Columbus Day, Veterans' Day,
Thanksgiving Day and Christmas Day (observed).
Each Portfolio's assets are valued based upon the amortized cost
method. Although each Portfolio seeks to maintain its net asset value per Share
at $1.00, there can be no assurance that the net asset value per Share will not
vary. See the Statement of Additional Information under "Net Asset Value" for
further information.
THE EQUITY AND BOND PORTFOLIOS
The Equity and Bond Portfolios' respective net asset values per Share
are determined by the Administrator as of the close of regular trading hours on
the Exchange on each Business Day (currently 4:00 p.m. Eastern time).
Securities which are traded on a recognized stock exchange are valued
at the last sale price on the securities exchange on which such securities are
primarily traded or at the last sale price on the national securities market.
Securities traded on only over-the-counter markets are valued on the basis of
market values when available. Securities for which there are no transactions are
valued at the average of the current bid and asked prices. Other securities,
including restricted and other securities for which market quotations are not
readily available, and other assets are valued at fair value by the Adviser (or
Sub- Adviser) under the supervision of the Board of Directors. Investments in
debt securities with remaining maturities of 60 days or less may be valued based
upon the amortized cost method. For further information about valuation of
investments, see "Net Asset Value" in the Statement of Additional Information.
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<PAGE> 350
OTHER INFORMATION
The public offering price for each class of Shares of a Portfolio is
based upon net asset value per Share plus, in the case of Investor A Shares of
each Portfolio except the Money Market Portfolios, a front-end sales charge. A
class will calculate its net asset value per Share by adding the value of a
Portfolio's investments, cash and other assets attributable to the class,
subtracting the Portfolio's liabilities attributable to that class, and then
dividing the result by the total number of Shares in the class that are
outstanding. Because the operating expenses of Investor B Shares are higher than
those associated with the other classes of Shares, the net asset value per Share
of Investor B Shares of a Portfolio which declares its net investment income
quarterly will generally be lower than the net asset value per Share of Trust,
Institutional or Investor A Shares of the same Portfolio.
HOW TO PURCHASE AND REDEEM SHARES
PURCHASE OF SHARES
Investor A Shares of each Portfolio are sold subject to a front-end
sales charge, except for Investor A Shares of the Money Market Portfolios which
are sold without any sales charge. Investor B Shares of each Portfolio, except
for the Treasury Money Market, Tax-Exempt Money Market, Intermediate Corporate
Bond, Bond Index, Short-Intermediate Municipal, Equity Index and Small Cap
Equity Index Portfolios, which do not offer Investor B Shares, are sold subject
to a back-end sales charge. This back-end sales charge declines over time and is
known as a "contingent deferred sales charge." Before choosing between Investor
A Shares or Investor B Shares of a Portfolio, investors should read
"Characteristics of Investor A Shares and Investor B Shares" and "Factors to
Consider When Selecting Investor A Shares or Investor B Shares" below.
Except as provided below with respect to Investor B Shares of the Money
Market Portfolio, Investor A Shares and Investor B Shares are sold through
broker-dealers or other organizations acting on behalf of their customers.
Generally, investors purchase Investor A Shares or Investor B Shares through a
broker-dealer organization which has a sales agreement with the Distributor or
through an organization which has entered into a servicing agreement with the
Fund with respect to Investor A Shares and/or Investor B Shares. The
organization is responsible for transmitting purchase orders directly to the
Fund. Investors purchasing Shares of a Portfolio which offers both Investor A
and Investor B Shares must specify at the time of investment whether they are
purchasing Investor A Shares or Investor B Shares.
Investor B Shares of the Money Market Portfolio are available for
purchase only by those investors participating in the ARCH Asset Adviser
Program. Otherwise, Investor B Shares of the Money Market Portfolio are
available only to the holders of Investor B Shares of another Portfolio who wish
to exchange their Investor B Shares of such other Portfolio for Investor B
Shares of the Money Market Portfolio. For further information on the ARCH Asset
Adviser Program, investors should, contact their investment representatives or
the ARCH Funds' Service Center at 1-800-452-ARCH(2724).
The minimum initial investment in each Portfolio is $1,000 and the
minimum for each subsequent investment is $100, except for investments made
through (a) the Automatic Investment Program, in which case the initial minimum
and subsequent minimum investments are $50, (b) a sweep program available
through an investor's financial institution, in which case there are no minimum
investments, (c) a payroll deduction program, in which case there is no minimum
initial investment and minimum subsequent investments are $25 per month, or (d)
a wrap fee program, in which case there are no minimum investments. The minimum
initial investment to participate in the Automatic Exchange program is $5,000.
See "How to Purchase and Redeem Shares -- Exchange Privileges -- Automatic
Exchange Program" below for additional requirements.
Purchases may be effected on Business Days when the Adviser,
Distributor, and Mercantile (the Custodian) are open for business. The Fund
reserves the right to reject any purchase order, including purchases made with
foreign and third party drafts or checks. All orders for new IRAs or other
retirement plan accounts placed through the transfer agent must be accompanied
by an account application. Account applications may be obtained from your
investment representative or the Fund at 1-800-452-ARCH(2724).
Organizations placing orders directly or on behalf of their customers
should contact the Fund at 1-800-452-ARCH(2724). Investors may also call the
Fund for information on how to purchase Shares.
EFFECTIVE TIME OF PURCHASE. A purchase order for the Money Market
Portfolios received and accepted by the Fund by 12:00 noon (Eastern time) on a
Business Day, is effected at the net asset value per Share next determined after
receipt of the order in good form IF THE FUND'S CUSTODIAN HAS RECEIVED PAYMENT
IN FEDERAL FUNDS OR OTHER IMMEDIATELY AVAILABLE FUNDS BY 4:00 P.M. (EASTERN
TIME) ON THAT DAY. If such funds are not available for investment by 4:00 p.m.
(Eastern time), the order will be cancelled. Purchase orders received after
12:00 noon (Eastern time) will be placed the following Business Day.
If purchase orders for the Equity and Bond Portfolios are received in
good form and accepted by the Fund prior to 4:00 p.m. (Eastern time) on any
Business Day, Shares will be priced according to the net asset value per Share
next determined on that day after receipt of the order. Immediately available
funds must be received by the Custodian prior to 4:00 p.m. within three Business
Days following the receipt of such order. If funds are not received by such
date, the order will be cancelled, and notice thereof will be given to the
person or organization placing the order.
In the case of an order for the purchase of Shares placed through a
broker-dealer, it is the responsibility of the broker-dealer to promptly
transmit the order to the Distributor. If the broker-dealer fails to do so, the
investor's right to that day's closing price must be settled between the
investor and the broker-dealer. Payment for orders which are not received or
accepted will be returned after prompt inquiry to the transmitting organization.
PURCHASES BY MAIL. To purchase Shares of a Portfolio by mail, complete
an account application and send it to the Fund along with a check (or other
negotiable bank draft or money order) in at least the minimum initial purchase
amount, made payable to the appropriate Portfolio. Investors purchasing Shares
of a Portfolio which
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offers both Investor A Shares and Investor B Shares by mail must indicate
whether they wish to buy Investor A Shares or Investor B Shares. Subsequent
purchases of Shares of a Portfolio may be made at any time in at least the
minimum subsequent purchase amount by mailing a check payable to the Portfolio.
All shareholders of record will receive confirmations of Share
purchases, exchanges, and redemptions in the mail. If Shares are held in the
name of an organization, such organization is responsible for transmitting
purchase, exchange, and redemption orders to the Fund on a timely basis,
recording all purchase, exchange, and redemption transactions, and providing
regular account statements which confirm such transactions to beneficial owners
(or arranging for such services).
AUTOMATIC INVESTMENT PROGRAM (AIP)
Shareholders may open an account or add to their investment on a
monthly basis in a minimum amount of $50, on the 20th day (or the next Business
Day after the 20th) of each month. Under the AIP, funds may be automatically
withdrawn from the shareholder's checking account (as long as the shareholder's
bank is a member of the Automated Clearing House). Such funds are invested in
Investor A or Investor B Shares, as appropriate, at the net asset value plus any
applicable front-end sales charge next determined on the day an order is
effected by the transfer agent, BISYS Fund Services Ohio, Inc. (the "Transfer
Agent"). An investor may apply for participation in the AIP through the
organization servicing his or her Fund account and by completing the
supplementary AIP authorization form. The AIP may be modified or terminated by a
shareholder on 30 days' written notice to his or her investment representative
or to the Fund, or by the Fund at any time.
The AIP is one means by which investors may use "Dollar Cost Averaging"
in making investments. Dollar Cost Averaging can be useful in investing in
portfolios such as the Equity and Bond Portfolios whose price per Share
fluctuates. Instead of trying to time market performance, a fixed dollar amount
is invested in Portfolio Shares at predetermined intervals. This may help
investors to reduce their average cost per Share because the agreed upon fixed
investment amount allows more Shares to be purchased during periods of lower
Share prices and fewer Shares during periods of higher prices. In order to be
effective, Dollar Cost Averaging should usually be followed on a sustained,
consistent basis. Investors should be aware, however, that Shares bought using
Dollar Cost Averaging are made without regard to their price on the day of
investment or to market trends. In addition, while investors may find Dollar
Cost Averaging to be beneficial, it will not prevent a loss if an investor
ultimately redeems his or her Shares at a price which is lower than their
purchase price.
APPLICABLE SALES CHARGES - INVESTOR A SHARES OF THE EQUITY AND BOND PORTFOLIOS
The public offering price for Investor A Shares of the Equity and Bond
Portfolios is the sum of the net asset value of the Shares being purchased plus
any applicable sales charge. No sales charge is assessed on the reinvestment of
dividends and capital gain distributions. The sales charge is assessed as
follows:
<TABLE>
<CAPTION>
The ARCH Intermediate Corporate Bond, Government &
Corporate Bond, Missouri Tax-Exempt Bond, National Municipal Bond,
Equity Income, Growth & Income Equity, Growth Equity, Small Cap Equity,
International Equity And Balanced Portfolios
--------------------------------------------
AS A % AS A % DEALERS'
OF OF REALLOWANCE
OFFERING NET ASSET AS A % OF
PRICE VALUE OFFERING
AMOUNT OF TRANSACTION PER SHARE PER SHARE PRICE
- --------------------- --------- --------- -----
<S> <C> <C> <C>
Less than $50,000............................................. 4.50% 4.71% 4.00%
$50,000 but less than $100,000................................ 3.50 3.63 3.00
$100,000 but less than $250,000............................... 2.50 2.56 2.00
$250,000 but less than $500,000............................... 1.50 1.52 1.00
$500,000 but less than $1,000,000............................. 1.00 1.01 0.50
$1,000,000 and over........................................... .50 .50 .40
</TABLE>
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<TABLE>
<CAPTION>
The ARCH U.S. Government Securities, Bond Index, Short-Intermediate Municipal,
Equity Index And Small Cap Equity Index Portfolios
--------------------------------------------------
AS A % AS A % DEALERS'
OF OF REALLOWANCE
OFFERING NET ASSET AS A % OF
PRICE VALUE OFFERING
AMOUNT OF TRANSACTION PER SHARE PER SHARE PRICE
- --------------------- --------- --------- -----
<S> <C> <C> <C>
Less than $50,000............................................. 2.50% 2.56% 2.00%
$50,000 but less than $100,000................................ 1.50 1.52 1.30
$100,000 but less than $1,000,000............................. 1.00 1.01 .85
$1,000,000 and over........................................... .50 .50 .40
</TABLE>
The Distributor will pay the appropriate Dealers' Reallowance to broker-dealer
organizations which have entered into an agreement with the Distributor. The
Dealers' Reallowance may be changed from time to time. Upon notice to the Fund's
shareholders, the Distributor, at its sole discretion, may reallow up to the
full applicable sales charge as shown on the above schedule during periods
specified in such notice. Dealers who receive 90% or more of a sales load may be
deemed to be "underwriters" under the Securities Act of 1933, as amended.
No sales charge is assessed on purchases of Investor A Shares of the
Equity and Bond Portfolios by: (a) directors and officers of the Fund and the
immediate family members of such individuals; (b) directors, current and retired
employees and participants in employee benefit/retirement plans (future and
current annuitants) of Mercantile Bancorporation Inc. or any of its affiliates
or the Distributor or its affiliates and the immediate family members of such
individuals; (c) brokers, dealers, and agents who have a sales agreement with
the Distributor, and their employees (and the immediate family members of such
individuals); (d) customers who purchase pursuant to a wrap fee program offered
by any broker-dealer or other financial institution or financial planning
organization; (e) individuals who purchase Investor A Shares with the proceeds
of Trust Shares or Institutional Shares redeemed in connection with a rollover
of benefits paid by a qualified retirement or employee benefit plan or
distribution on behalf of any other qualified account administered by Mercantile
or its affiliates or correspondent banks, within 60 days of receipt of such
payment; (f) investors who purchase Investor A Shares through a payroll
deduction program; (g) employees of any sub-adviser to the Fund; (h) former
holders of Southwestern Bell Visa cards that had been issued by Mercantile Bank
of Illinois, N.A. and who participated in the Automatic Investment Program
(credit cards may not be used for the purchase of Fund Shares); (i) investors
exchanging Trust Shares of a Portfolio received from the distribution of assets
held in a qualified trust, agency or custodian account with the trust department
of Mercantile or any of its affiliated or correspondent banks; or (j) other
investment companies distributed by the Distributor or its affiliates. Investors
who believe that they may qualify under any of the exemptions listed above
should contact the Fund at 1-800-452-ARCH(2724) prior to making a purchase.
REDUCED SALES CHARGES - INVESTOR A SHARES OF THE EQUITY AND BOND PORTFOLIOS
The sales charge on purchases of Investor A Shares of the Equity and
Bond Portfolios may be reduced through:
- rights of accumulation
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<PAGE> 353
- quantity discounts
- letter of intent
- reinvestment privilege
To qualify for a reduced sales load, an investor must so notify his or her
investment representative, who in turn will notify the Distributor at the time
of purchase.
RIGHTS OF ACCUMULATION - INVESTOR A SHARES. An investor who has
previously purchased Investor A Shares of a Portfolio and has paid a sales
charge ("load") may be eligible for reduced sales charges when purchasing
additional Investor A Shares of a Portfolio with a sales charge. An investor's
aggregate investment in Shares of such load Portfolios is the total value (based
on the higher of current net asset value or the public offering price originally
paid) of: (a) current purchases, and (b) Shares that are already beneficially
owned by the investor on which a sales charge has already been paid. If, for
example, an investor beneficially owns Investor A Shares of a Portfolio with a
maximum 4.50% sales load having an aggregate current value of $240,000 and
subsequently purchases additional Investor A Shares of a Portfolio with a
maximum 4.50% sales load having a current value of $10,000, the sales charge
applicable to the subsequent purchase would be reduced to 1.50% of the offering
price.
QUANTITY DISCOUNTS - INVESTOR A SHARES. As shown in the table under
"Applicable Sales Charges - Investor A Shares of the Equity and Bond
Portfolios," larger purchases reduce the sales charge paid. The Fund will
combine purchases made in a load Portfolio on the same day by the investor and
immediate family members when calculating the applicable sales charge.
LETTER OF INTENT - INVESTOR A SHARES. By checking the Letter of Intent
box on the account application, a shareholder becomes eligible for reduced sales
charges applicable to the total amount invested in Investor A Shares in a load
Portfolio over a 13-month period (beginning up to 90 days prior to the date
indicated on the account application). The Transfer Agent will hold in escrow 5%
of the amount indicated for payment of a higher sales load if a shareholder does
not purchase the full amount indicated on the account application. Upon
completion of the total minimum investment specified on the account application,
the escrow will be released, and an adjustment will be made to reflect any
reduced sales charge applicable to Shares purchased during the 90-day period
prior to submission of the account application. Additionally, if total purchases
within the 13- month period exceed the amount specified, an adjustment will be
made to reflect further reduced sales charges applicable to such purchases. All
such adjustments will be made at the conclusion of the 13-month period and in
the form of additional Shares credited to the shareholder's account at the then
current public offering price applicable to a single purchase of the total
amount of the total purchases. If total purchases are less than the amount
specified, escrowed Shares may be involuntarily redeemed to pay the additional
sales charge. Checking a Letter of Intent box does not bind an investor to
purchase, or the Fund to sell, the full amount indicated at the sales load in
effect at the time of signing, but an investor must complete the intended
purchase to obtain the reduced sales load.
REINVESTMENT PRIVILEGE - INVESTOR A SHARES. Upon redemption of Investor
A Shares on which a sales charge was paid, a shareholder has a one-time right,
to be exercised within 60 days, to reinvest the redemption proceeds at the next
determined net asset value without paying any additional sales charge. The
shareholder must notify his or her investment representative or the Distributor
in
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writing of the reinvestment and provide a receipt or other evidence of the
redemption in order to eliminate a sales charge.
MISCELLANEOUS - INVESTOR A SHARES. Reduced sales charges may be
modified or terminated at any time and are subject to confirmation of an
investor's holdings. For more information about reduced sales charges, an
investor should contact his or her investment representative or the Distributor.
APPLICABLE SALES CHARGES - INVESTOR B SHARES OF THE CDSC PORTFOLIOS
Investor B Shares of the CDSC Portfolios are sold at their net asset
value next determined after a purchase order is received in good form by the
Fund's Distributor. Although investors pay no front-end sales charge on
purchases of Investor B Shares, such Shares are subject to a deferred sales
charge at the rates set forth in the chart below if they are redeemed within six
years of purchase. Service Organizations will receive commissions from the
Distributor in connection with sales of Investor B Shares. These commissions may
be different than the reallowances or placement fees, if any, paid to dealers in
connection with sales of Investor A Shares.
The deferred sales charge on Investor B Shares is based on the lesser
of the net asset value of the Shares on the redemption date or the original cost
of the Shares being redeemed. As a result, no sales charge is charged on any
increase in the principal value of an investor's Shares. In addition, a
contingent deferred sales charge will not be assessed on Investor B Shares
purchased through reinvestment of dividends or capital gains distributions.
The amount of any contingent deferred sales charge an investor must pay
on Investor B Shares depends on the number of years that elapse between the
purchase date and the date such Investor B Shares are redeemed. Solely for
purposes of determining the number of years from the time of payment for an
investor's Share purchase, all payments during a month will be aggregated and
deemed to have been made on the first day of the month.
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<PAGE> 355
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE (AS A
NUMBER OF YEARS PERCENTAGE OF DOLLAR AMOUNT
ELAPSED SINCE PURCHASE SUBJECT TO THE CHARGE)
- ---------------------- ----------------------
<S> <C>
One or less........................... 5.0%
More than one, but less
than two............................ 4.0%
Two, but less than three.............. 3.0%
Three, but less than four............. 3.0%
Four, but less than five.............. 2.0%
Five, and up to and
including six....................... 1.0%
After six years....................... None
</TABLE>
When an investor redeems his or her Investor B Shares, the redemption
order is processed to minimize the amount of the contingent deferred sales
charge that will be charged. Investor B Shares are redeemed first from those
Investor B Shares that are not subject to the deferred sales load (i.e.,
Investor B Shares that were acquired through reinvestment of dividends or
capital gain distributions) and after that from the Investor B Shares that have
been held the longest.
For example, assume an investor purchased 100 Investor B Shares at $10
a Share (for a total cost of $1,000), three years later the Shares have a net
asset value of $12 per Share and during that time the investor acquired 10
additional Shares through dividend reinvestment. If the investor then makes one
redemption of 50 Shares (resulting in proceeds of $600, 50 Shares x $12 per
share), the first 10 Shares redeemed will not be subject to the contingent
deferred sales charge because they were acquired through reinvestment of
dividends. With respect to the remaining 40 Shares redeemed, the contingent
deferred sales charge is charged at $10 per Share (because the original purchase
price of $10 per Share is lower than the current net asset value of $12 per
share). Therefore, only $400 of the $600 such investor received from selling his
or her Shares will be subject to the contingent deferred sales charge, at a rate
of 3.0% (the applicable rate in the third year after purchase). The proceeds
from the contingent deferred sales charge that the investor may pay upon
redemption go to the Distributor, which may use such amounts to defray the
expenses associated with the distribution- related services involved in selling
Investor B Shares. The contingent deferred sales charge, along with ongoing
distribution fees paid with respect to Investor B Shares, enables those Shares
to be purchased without the imposition of a front-end sales charge.
EXEMPTIONS FROM THE CONTINGENT DEFERRED SALES CHARGE. The following
types of redemptions qualify for an exemption from the contingent deferred sales
charge: (i) exchanges described under "Exchange Privileges" below; (ii)
redemptions in connection with
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required (or, in some cases, discretionary) distributions to participants or
beneficiaries of an employee pension, profit-sharing or other trust or qualified
retirement or Keogh plan, individual retirement account or custodial account
maintained pursuant to Section 403(b)(7) of the Internal Revenue Code due to
death, disability or the attainment of a specified age; (iii) redemptions
effected pursuant to a Portfolio's right to liquidate a shareholder's account if
the aggregate net asset value of Shares held in the account is less than the
minimum account size; (iv) redemptions in connection with the death or
disability of a shareholder; or (v) redemptions resulting from a tax-free return
of an excess contribution pursuant to Section 408(d)(4) or (5) of the Internal
Revenue Code.
CHARACTERISTICS OF INVESTOR A SHARES AND INVESTOR B SHARES
The primary difference between Investor A Shares and Investor B Shares
lies in their sales charge structures and distribution arrangements. An investor
should understand that the purpose and function of the sales charge structures
and distribution arrangements for both Investor A Shares and Investor B Shares
are the same.
Investor A Shares are sold at their net asset value plus, in the case
of the Equity and Bond Portfolios, a front-end sales charge of up to 4.50%
(2.50% with respect to the U.S. Government Securities, Bond Index,
Short-Intermediate Municipal, Equity Index and Small Cap Equity Index
Portfolios). This front-end sales charge may be reduced or waived in some cases.
See "Applicable Sales Charges - Investor A Shares of the Equity and Bond
Portfolios." Investor A Shares are subject to ongoing distribution and service
fees at an annual rate of up to 0.30% (0.25% with respect to the Money Market
Portfolios) of a Portfolio's average daily net assets attributable to its
Investor A Shares.
Investor B Shares are sold at net asset value without an initial sales
charge. Normally, however, a deferred sales charge is paid if the Shares are
redeemed within six years of investment. See "Applicable Sales Charges -
Investor B Shares of the CDSC Portfolios." Investor B Shares are subject to
ongoing distribution and service fees at an annual rate of up to 1.00% of a
Portfolio's average daily net assets attributable to its Investor B Shares.
These ongoing fees, which are higher than those charged on Investor A Shares,
will cause Investor B Shares to have a higher expense ratio and pay lower
dividends than Investor A Shares.
Eight years after purchase, Investor B Shares will convert
automatically to Investor A Shares. The purpose of the conversion is to relieve
a holder of Investor B Shares of the higher ongoing expenses charged to those
Shares, after enough time has passed to allow the Distributor to recover
approximately the amount it would have received if a front-end sales charge had
been charged. The conversion from Investor B Shares to Investor A Shares takes
place at net asset value, as a result of which an investor receives
dollar-for-dollar the same value of Investor A Shares as he or she had of
Investor B Shares. The conversion occurs eight years after the beginning of the
calendar month in which the Shares are purchased. As a result of the conversion,
the converted Shares are relieved of the distribution and service fees borne by
Investor B Shares, although they are subject to the distribution and service
fees borne by Investor A Shares.
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Investor B Shares acquired through a reinvestment of dividends or
distributions are also converted at the earlier of two dates - eight years after
the beginning of the calendar month in which the reinvestment occurred or the
date of conversion of the most recently purchased Investor B Shares that were
not acquired through reinvestment of dividends or distributions. For example, if
an investor makes a one-time purchase of Investor B Shares of a particular
Portfolio, and subsequently acquires additional Investor B Shares of that
Portfolio only through reinvestment of dividends and/or distributions, all of
such investor's Investor B Shares in that Portfolio, including those acquired
through reinvestment, will convert to Investor A Shares of that Portfolio on the
same date.
FACTORS TO CONSIDER WHEN SELECTING INVESTOR A SHARES OR INVESTOR B SHARES
Before purchasing Shares of a Portfolio which offers both Investor A
Shares and Investor B Shares, investors should consider whether, during the
anticipated life of their investment in the Portfolio, the accumulated
distribution fees and potential contingent deferred sales charges on Investor B
Shares prior to conversion would be less than the initial sales charge and
accumulated distribution fees on Investor A Shares purchased at the same time
(note that Investor A Shares of the Money Market Portfolio are sold without a
sales charge), and to what extent such differential would be offset by the
higher yield of Investor A Shares. In this regard, to the extent that there is
no sales charge for Investor A Shares, in the case of the Money Market
Portfolio, or the sales charge for Investor A Shares is waived or reduced by one
of the methods described above, in the case of the Equity and Bond Portfolios,
investments in Investor A Shares become more desirable. The Fund will refuse all
purchase orders for Investor B Shares of over $100,000.
Although Investor A Shares are subject to a distribution and service
fee, they are not subject to the higher distribution and service fee applicable
to Investor B Shares. For this reason, Investor A Shares can be expected to pay
correspondingly higher dividends per Share. However, because initial sales
charges are deducted at the time of purchase, purchasers of Investor A Shares of
the Equity and Bond Portfolios that do not qualify for waivers of or reductions
in the initial sales charge would have less of their purchase price initially
invested in a Portfolio than purchasers of Investor B Shares of the same
Portfolio.
As described above, purchasers of Investor B Shares of the Equity and
Bond Portfolios will have more of their initial purchase price invested. Any
positive investment return on this additional invested amount would partially or
wholly offset the expected higher annual expenses borne by Investor B Shares of
those Portfolios. Because the Portfolios' future returns cannot be predicted,
there can be no assurance that this will be the case. Holders of Investor B
Shares would, however, own Shares that are subject to higher annual expenses
and, for a six-year period, such Shares would be subject to a contingent
deferred sales charge of up to 5.00% upon redemption, depending upon the year of
redemption. Investors expecting to redeem during this six-year period should
compare the cost of the contingent deferred sales charge plus the aggregate
annual Investor B Shares' distribution and service fees to the cost of the
initial sales charge and distribution and service fees on the Investor A Shares
(note that Investor A Shares of the Money Market Portfolio are
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sold without a sales charge). Over time, the expense of the annual distribution
and service fees on the Investor B Shares may equal or exceed the initial sales
charge, if any, and annual distribution and service fees applicable to Investor
A Shares. For example, if net asset value remains constant, the aggregate
distribution and service fees with respect to Investor B Shares of the Equity
and Bond Portfolios would equal or exceed the initial sales charge and aggregate
distribution fees of Investor A Shares of those Portfolios approximately eight
years after the purchase. In order to reduce such fees of investors that hold
Investor B Shares for more than eight years, Investor B Shares will be
automatically converted to Investor A Shares as described above at the end of
such eight-year period.
EXCHANGE PRIVILEGES
The exchange privilege enables shareholders to exchange (i) Investor A
Shares of a Portfolio for Investor A Shares of another Portfolio offered by the
Fund or, under certain circumstances described below, for Trust Shares or
Institutional Shares of the same Portfolio, and (ii) Investor B Shares of a
Portfolio for Investor B Shares of another Portfolio offered by the Fund. The
exchange privilege may be exercised only in those states where the class of
shares of such other Portfolios may be legally sold.
EXCHANGES - INVESTOR A SHARES. Shareholders who have purchased Investor
A Shares of a Portfolio and who have paid any applicable sales charge ("load")
(including Shares acquired through reinvestment of dividends or distributions on
such Shares) may exchange those Shares for Investor A Shares of another load
Portfolio without paying an additional sales load. Shareholders who have
purchased Investor A Shares of a Portfolio (other than through a previous
exchange from another load Portfolio on which any applicable sales load has been
paid) with a lower sales load may be charged an additional sales load on
exchanges of Shares of such Portfolio for Shares of a Portfolio with a higher
sales load. Shareholders may also exchange Investor A Shares of a no-load
Portfolio for Investor A Shares of another no-load Portfolio without paying a
sales load. When Investor A Shares of a no-load Portfolio are exchanged for
Investor A Shares of a load Portfolio, the applicable sales load (if any) will
be assessed. However, shareholders exchanging Investor A Shares of a no-load
Portfolio that were acquired through a previous exchange involving Shares on
which a load was paid will not be required to pay an additional sales load upon
the reinvestment of the equivalent investment into a load Portfolio within a
twelve month period. Under such circumstances, the shareholder must notify the
Distributor that a sales load was originally paid and provide the Distributor
with sufficient information to permit confirmation of the shareholder's right
not to pay a sales load.
In addition, shareholders who have a qualified trust, agency or
custodian account with the trust department of Mercantile or any of its
affiliated or correspondent banks, and whose Shares are to be held in that
account, may also exchange Investor A Shares of a Portfolio for Trust Shares or
Institutional Shares in the same Portfolio.
EXCHANGES - INVESTOR B SHARES. Shareholders who have purchased Investor
B Shares of a Portfolio (including Shares acquired through reinvestment of
dividends or distributions
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on such Shares) may exchange those Shares for Investor B Shares of another
Portfolio without the payment of any contingent deferred sales charge at the
time the exchange is made. In determining the holding period for calculating the
contingent deferred sales charge payable on redemptions of Investor B Shares,
the holding period of the Investor B Shares originally held will be added to the
holding period of the Investor B Shares acquired through the exchange. No
exchange fee is imposed by the Fund.
OTHER INFORMATION CONCERNING EXCHANGES. The Shares exchanged must have
a current value at least equal to the minimum initial or subsequent investment
required by the particular Portfolio into which the exchange is being made. The
Fund reserves the right to reject any exchange request. The exchange privilege
may be modified or terminated at any time upon 60 days' written notice to
shareholders. An investor may telephone an exchange request by calling his or
her investment representative, which is responsible for transmitting such
exchange request to the Fund. See "Other Exchange or Redemption Information"
below. Investors who want to telephone an exchange request directly to the Fund,
and, have elected this privilege on the account application may follow the
procedures described below under "Redemption by Telephone." An investor should
consult his or her investment representative or the Fund for further information
regarding procedures for exchanging Shares.
AUTOMATIC EXCHANGE PROGRAM. The Automatic Exchange Program enables
shareholders to make regular, automatic withdrawals from an Investor A Share or
Investor B Share account in a Portfolio and use those proceeds to benefit from
Dollar Cost Averaging by automatically making purchases of the same class of
Shares in another Portfolio. With shareholder authorization, the Fund's Transfer
Agent will withdraw the amount specified (subject to the applicable minimums)
from the shareholder's account and will automatically invest that amount in
Shares of the Portfolio designated by the shareholder on the date of such
deduction.
In order to participate in the Automatic Exchange Program, shareholders
must make a minimum initial purchase of $5,000 and maintain a minimum account
balance of $1,000. Additionally, shareholders must complete the supplementary
authorization form which may be obtained from their investment representative or
the Fund. To change instructions with respect to the Automatic Exchange Program
or to discontinue this feature, shareholders must send a written request to
their investment representative or to the Fund. The Automatic Exchange Program
may be amended or terminated without notice at any time by the Fund.
REDEMPTION OF SHARES
Redemption orders should be placed with or through the same
broker-dealer organization that placed the original purchase order. Redemption
orders are effected at a Portfolio's net asset value per Share next determined
after receipt of the order by the Fund. Proceeds from the redemptions of
Investor B Shares will be reduced by the amount of any applicable contingent
deferred sales charge. The organization through which the investor placed the
order is responsible for transmitting redemption orders to the Fund on a timely
basis. No charge for sending redemption payments electronically is currently
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imposed by the Fund, although a charge may be imposed in the future. The Fund
reserves the right to send redemption proceeds electronically within seven days
after receiving a redemption order if, in the judgment of the Adviser, an
earlier payment could adversely affect a Portfolio.
REDEMPTION BY MAIL
A written redemption request must be accompanied by any Share
certificates which are properly endorsed for transfer. The Transfer Agent may
require a signature guarantee by an eligible guarantor institution. For purposes
of this policy, the term "eligible guarantor institution" shall include banks,
brokers, dealers, credit unions, securities exchanges and associations, clearing
agencies and savings associations as those terms are defined in Rule 17Ad-15
under the Securities Exchange Act of 1934. The Transfer Agent reserves the right
to reject any signature guarantee if (1) it has reason to believe that the
signature is not genuine, (2) it has reason to believe that the transaction
would otherwise be improper, or (3) the guarantor institution is a broker or
dealer that is neither a member of a clearing corporation nor maintains net
capital of at least $100,000. The signature guarantee requirement will be waived
if all of the following conditions apply: (1) the redemption check is payable to
the shareholder(s) of record and (2) the redemption check is mailed to the
shareholder(s) at the address of record or the proceeds are either mailed or
sent electronically to a commercial bank account previously designated on the
account application. An investor with questions or needing assistance should
contact his or her investment representative or the Fund. Additional
documentation may be required if the redemption is requested by a corporation,
partnership, trust, fiduciary, executor, or administrator.
REDEMPTION BY TELEPHONE
Shares may be redeemed by telephone if the shareholder selected that
option on the account application. The shareholder may have the proceeds mailed
to his or her address or mailed or sent electronically to a bank account
previously designated on the account application. It is not necessary for
shareholders to confirm telephone redemption requests in writing. If a
shareholder did not originally select the telephone redemption privilege, the
shareholder must provide written instructions to the Transfer Agent to add this
feature. Neither the Fund nor its service contractors will be liable for any
loss, damage, expense or cost arising out of any telephone redemption effected
in accordance with the Fund's telephone redemption procedures, acting upon
instructions reasonably believed to be genuine. The Fund will employ procedures
designed to provide reasonable assurance that instructions by telephone are
genuine; if these procedures are not followed the Fund or its service
contractors may be liable for any losses due to unauthorized or fraudulent
instructions. If Share certificates are outstanding with respect to an account,
the telephone redemption and telephone exchange privilege is not available. If,
due to temporary adverse conditions, investors are unable to effect telephone
transactions, investors are encouraged to follow the procedures described in
"Other Exchange or Redemption Information" below.
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Proceeds from redemptions of Investor A Shares and/or Investor B Shares
of the MONEY MARKET PORTFOLIOS with respect to redemption orders received by the
Fund before 12:00 noon (Eastern time) on a Business Day normally will be sent
electronically the same day (or mailed by check the next Business Day) to the
organization that placed the redemption order in good form. Proceeds for
redemption orders that are received after 12:00 noon (Eastern time) or on a
non-business Day normally will be sent electronically on the next Business Day
(or mailed by check on the second Business Day thereafter).
Proceeds from redemptions of Investor A Shares and/or Investor B Shares
of the EQUITY AND BOND PORTFOLIOS with respect to redemption orders received by
the Fund before 4:00 p.m. (Eastern time) on a Business Day normally are sent
electronically or mailed by check to the organization that placed the redemption
order within three Business Days after the Distributor's receipt of the order in
good form.
CHECKWRITING -- MONEY MARKET PORTFOLIOS
Checkwriting is available from certain institutions with respect to
each of the Money Market Portfolios. No charge for use of the checkwriting
privilege is currently imposed by the Fund, although a charge may be imposed in
the future. With this service, a shareholder may write up to six checks per
month in an amount per check of $250 or more. To obtain checks, a shareholder
must complete the signature card that accompanies the account application. To
establish this checkwriting service after opening an account in a Money Market
Portfolio, the shareholder must contact his or her investment representative by
telephone or mail to obtain an account application. A signature guarantee may be
required. A SHAREHOLDER WILL RECEIVE THE DAILY DIVIDENDS DECLARED ON THE SHARES
TO BE REDEEMED UP TO THE DAY THAT A CHECK IS PRESENTED TO THE CUSTODIAN FOR
PAYMENT. Upon 30 days' written notice to shareholders, the checkwriting
privilege may be modified or terminated. An investor cannot close an account in
a Money Market Portfolio by writing a check. The checkwriting privilege may be
disadvantageous for holders of Investor B Shares of the Money Market Portfolio
due to the effect of the contingent deferred sales charge.
AUTOMATIC WITHDRAWAL PLAN (AWP)
An Automatic Withdrawal Plan may be established by a new or existing
shareholder of any Portfolio if the value of his or her account (valued at the
net asset value at the time of the establishment of the AWP) equals $10,000 or
more. Shareholders who elect to establish an AWP may receive a monthly,
quarterly, semi-annual, or annual check in a stated amount of not less than $50
on or about the 25th day of the applicable month of withdrawal. Periodic
payments will be reduced by any applicable contingent deferred sales charge.
Portfolio Shares will be redeemed as necessary to meet withdrawal payments.
Withdrawals may reduce principal and eventually deplete the shareholder's
account. The maintenance of an AWP may be disadvantageous for holders of
Investor B Shares due to the effect of the contingent deferred sales charge. A
shareholder who desires to establish an AWP after opening an account should
complete the AWP form in the back of the Prospectus or contact his or her
investment representative or the Fund for an AWP application. A signature
guarantee will be required. An AWP may be terminated by a shareholder on 30
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days' written notice to his or her investment representative or to the Fund or
by the Fund at any time.
PURCHASE OF INVESTOR A SHARES AT NET ASSET VALUE
From time to time the Distributor may offer special concessions to
enable investors to purchase Investor A Shares of the Equity and Bond Portfolios
at net asset value without payment of a front-end sales charge. To qualify for a
net asset value purchase, the investor must pay for such purchase with the
proceeds from the redemption of shares of a non-affiliated mutual fund on which
a front-end sales charge was paid. A qualifying purchase of Investor A Shares
must occur within 30 days of the prior redemption and must be evidenced by a
confirmation of the redemption transaction. At the time of purchase, the
investment representative must notify the Fund that the purchase qualifies for a
purchase at net asset value. Proceeds from the redemption of Shares on which no
front-end sales charge was paid do not qualify for a purchase at net asset
value.
OTHER EXCHANGE OR REDEMPTION INFORMATION
WHEN REDEEMING SHARES IN A PORTFOLIO THAT OFFERS BOTH INVESTOR A SHARES
AND INVESTOR B SHARES, SHAREHOLDERS SHOULD INDICATE WHETHER THEY ARE REDEEMING
INVESTOR A SHARES OR INVESTOR B SHARES. In the event a redeeming shareholder
owns both Investor A Shares and Investor B Shares in a Portfolio, the Investor A
Shares will be redeemed first unless the shareholder indicates otherwise.
During periods of substantial economic or market change or activity,
telephone redemptions or exchanges may be difficult to complete. In such event,
Shares may be redeemed or exchanged by mailing the request directly to the
organization through which the original Shares were purchased or directly to the
Fund at P.O. Box 78069, St. Louis, Missouri 63178.
At various times, the Fund may be requested to redeem Shares for which
it has not yet received good payment. In such circumstances, the Fund may delay
the forwarding of proceeds until payment has been collected for the purchase of
such Shares which may take up to 15 days or more. To avoid delay in payment upon
redemption shortly after purchasing Shares, investors should purchase Shares by
certified or bank check or by electronic transfer. The Fund intends to pay cash
for all Shares redeemed, but under abnormal conditions which make payment in
cash unwise, the Fund may make payment wholly or partly in portfolio securities
at their then market value equal to the redemption price. In such cases, an
investor may incur brokerage costs in converting such securities to cash.
A shareholder may be required to redeem Shares in a Portfolio upon 60
days' written notice if the balance in the shareholder's account drops below
$500. The Fund will not require a shareholder to redeem Portfolio Shares if the
value of the shareholder's account drops below $500 due to fluctuations in net
asset value. Share balances may also be redeemed pursuant to arrangements
between broker-dealer organizations and their investors.
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YIELDS AND TOTAL RETURNS
Yield and total return quotations are computed separately for Trust
Shares, Institutional Shares, S Shares, Investor A Shares and Investor B Shares
of a Portfolio. Total return and yield figures will fluctuate, are based on
historical earnings, and are not intended to indicate future performance. The
methods used to compute each Portfolio's yields and total returns are described
below and in the Statement of Additional Information.
THE MONEY MARKET PORTFOLIOS
From time to time, performance information such as total return,
"yield," and "effective yield" for the Money Market Portfolios' Investor A
Shares and/or Investor B Shares may be quoted in advertisements or in
communications to shareholders. The "yield" quoted in advertisements refers to
the income generated by an investment in a particular class of Shares of a
Portfolio over a specified period (such as a seven-day period) identified in
connection with the particular yield quotation. This income is then
"annualized." That is, the amount of income generated by the investment during
that period is assumed to be generated for each such period over a 52-week or
one-year period and is shown as a percentage of the investment. The "effective
yield" is calculated similarly but, when annualized, the income earned by an
investment in a particular class of Shares of a Portfolio is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment.
In addition, the Treasury Money Market Portfolio's "state
tax-equivalent yield" may also be quoted. The "state tax-equivalent yield" shows
the level of taxable yield needed to produce an after-tax yield that is
equivalent to a particular state's tax-exempt yield achieved by the Portfolio.
The "state tax-equivalent yield" refers to the portion of income that is derived
from interest income on direct obligations of the U.S. Government, its agencies
or instrumentalities that qualifies for exemption from state income tax. The
yield calculation assumes that 100% of the interest income is exempt from state
income tax. The "state tax-equivalent yield" is computed by dividing the
tax-exempt portion of the Portfolio's yield by a denominator consisting of one
minus a stated income tax rate.
The Tax-Exempt Money Market Portfolio may also quote its
"tax-equivalent yield" and "tax-equivalent effective yield," which demonstrate
the level of taxable yield need to produce an after-tax yield that is equivalent
to the Portfolio's yield and effective yield. Each are calculated by increasing
the Portfolio's yield and effective yield by the amount necessary to reflect the
payment of federal (and/or state) tax at a stated tax rate. The "tax equivalent
yield" and "tax-equivalent effective yield" will always be higher than the
Portfolio's yield and effective yield, respectively. The Tax-Exempt Money Market
Portfolio may also compute its "tax-equivalent yield" and "tax-equivalent
effective yield" with respect to certain states, which shows the level of
taxable yield and effective yield, respectively, needed to produce an after-tax
equivalent to the federal and state tax-exempt yield of the Portfolio's
particular class of Shares, assuming payment of federal income tax and state
personal income tax each at a stated rate and based upon a
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specified percentage of the Portfolio's income which is exempt from state income
tax as well as federal income tax.
THE EQUITY AND BOND PORTFOLIOS
From time to time, performance information such as total return and
yield data for the Equity and Bond Portfolios' Investor A Shares and/or Investor
B Shares may be quoted in advertisements, sales literature or in communications
to shareholders. The yield is computed based on the net income of a particular
class of Shares in the particular Portfolio during a 30-day (or one-month)
period identified in connection with the particular yield quotation. More
specifically, the yield is computed by dividing the Portfolio's net income per
Share during a 30-day (or one-month) period by the maximum public offering price
per Share on the last day of the period and annualizing the result. The
Short-Intermediate Municipal, Missouri Tax-Exempt Bond and National Municipal
Bond Portfolios' "tax equivalent" yields, which show the level of taxable yield
needed to produce an after-tax equivalent to each Portfolio's tax-free yield,
may also be quoted from time to time. This is done by increasing a Portfolio's
yield (calculated as above) by the amount necessary to reflect the payment of
federal income tax at a stated tax rate. The Missouri Tax-Exempt Bond Portfolio
may also compute its "Missouri tax-equivalent" yield which shows the amount of
taxable yield needed to produce an after-tax equivalent to the federal and
Missouri tax-exempt yield of the Portfolio's Shares, assuming payment of federal
income tax and Missouri income tax each at a stated rate.
The Portfolios' total returns may be calculated on an average annual
total return basis, and may also be calculated on an aggregate total return
basis, for various periods. Average annual total returns with respect to a
particular class of Shares reflect the average annual percentage change in value
of an investment in such Shares of a Portfolio over the particular measuring
period. Aggregate total returns reflect the cumulative percentage change in
value over the measuring period. Both methods of calculating total returns
assume that dividends and capital gain distributions made by a Portfolio during
the period are reinvested in the same class of Shares of the Portfolio and that
the maximum sales load in effect during the period has been charged by the
Portfolio. The Portfolios' total return figures may also be calculated without
the deduction of the maximum sales charge in effect during the period. The
effect of not deducting the sales charge will be to increase the total return
reflected. When considering average annual total return figures for periods
longer than one year, it is important to note that a Portfolio's annual total
return for any one year in the period might have been more or less than the
average for the entire period.
INFORMATION APPLICABLE TO ALL PORTFOLIOS
Performance data of the Portfolios' Investor A Shares and/or Investor B
Shares may be compared to the performance of other mutual funds with comparable
investment objectives and policies through various mutual fund or market indices
and data such as that provided by Lehman Brothers, Inc. or any of its
affiliates, Ibbotson Associates, Inc., Lipper Analytical Services, Inc., Mutual
Fund Forecaster and IBC MONEY FUND REPORT(R) published by IBC/Donoghue.
References may also be made to indices or data published in Money
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Magazine, Forbes, Barron's, The Wall Street Journal, The New York Times,
Business Week, American Banker, Institutional Investor, Pensions and
Investments, U.S.A. Today, Fortune, CDA/Wiesenberger, Morningstar, Inc. and
publications of a local or regional nature. In addition to performance
information, general information about the Portfolios that appears in a
publication such as those mentioned above may be included in advertisements and
in reports to Shareholders.
Performance quotations of a class of Shares in a Portfolio represent
that Portfolio's past performance and should not be considered as representative
of future results. Any account fees charged by an investment representative will
not be included in the calculations of the Portfolios' yields and total returns.
Such fees, if any, will reduce the investor's net return on an investment in a
Portfolio. Investors may call 1-800-452-ARCH (2724) to obtain current yield and
total return information.
DIVIDENDS AND DISTRIBUTIONS
THE TREASURY MONEY MARKET, MONEY MARKET, TAX-EXEMPT MONEY MARKET, U.S.
GOVERNMENT SECURITIES, INTERMEDIATE CORPORATE BOND, BOND INDEX, GOVERNMENT &
CORPORATE BOND, SHORT-INTERMEDIATE MUNICIPAL, MISSOURI TAX-EXEMPT BOND AND
NATIONAL MUNICIPAL BOND PORTFOLIOS
Dividends from net investment income of the Treasury Money Market,
Money Market, Tax-Exempt Money Market, U.S. Government Securities, Intermediate
Corporate Bond, Bond Index, Government & Corporate Bond, Short-Intermediate
Municipal, Missouri Tax-Exempt Bond and National Municipal Bond Portfolios are
declared daily and paid monthly not later than five Business Days after the end
of each month. Investor A and/or Investor B Shares of the Treasury Money Market,
Money Market and Tax-Exempt Money Market Portfolios earn dividends from the day
the purchase order is received by the Transfer Agent through the day before the
redemption order for such Shares is received. Investor A and/or Investor B
Shares of the U.S. Government Securities, Intermediate Corporate Bond, Bond
Index, Government & Corporate Bond, Short-Intermediate Municipal, Missouri
Tax-Exempt Bond and National Municipal Bond Portfolios earn dividends from the
day after the purchase order is received by the Transfer Agent through the day
the redemption order for such Shares is received. Dividends on each Share of
such Portfolios are determined in the same manner and are paid in the same
amounts irrespective of class, except that a Portfolio's Trust Shares and
Institutional Shares (other than the Tax-Exempt Portfolios which do not offer
Institutional Shares) bear all expenses of the respective Administrative
Services Plans adopted for such Shares and a Portfolio's S Shares (other than
the U.S. Government Securities, Intermediate Corporate Bond, Bond Index,
Government & Corporate Bond, Short-Intermediate Municipal Missouri Tax-Exempt
Bond and National Municipal Bond Portfolios which do not offer S Shares),
Investor A Shares and Investor B Shares (other than the Treasury Money Market,
Tax-Exempt Money Market, Intermediate Corporate Bond, Bond Index,
Short-Intermediate Municipal, Equity Index and Small Cap Equity Index Portfolios
which do not offer Investor B Shares) bear all expenses of the respective
Distribution and Services Plans adopted for such Shares. In addition, a
Portfolio's Institutional Shares bear the expense of certain sub-transfer agency
fees. See "Management of the Fund --
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Administrative Services Plan" and "Other Information Concerning the Fund and Its
Shares" below.
THE EQUITY INCOME, EQUITY INDEX, GROWTH & INCOME EQUITY, GROWTH EQUITY AND
BALANCED PORTFOLIOS
Net investment income for the Equity Income, Equity Index, Growth &
Income Equity, Growth Equity and Balanced Portfolios is declared and paid
monthly as a dividend to shareholders of record. Dividends on each Share of each
of these Portfolios are determined in the same manner and are paid in the same
amount, irrespective of class, except that a Portfolio's Trust Shares and
Institutional Shares bear all expenses of the respective Administrative Services
Plans adopted for such Shares and a Portfolio's Investor A Shares and Investor B
Shares (other than the Equity Index Portfolio which does not offer Investor B
Shares) bear all expenses of the respective Distribution and Services Plans
adopted for such Shares. In addition, a Portfolio's Institutional Shares bear
the expense of certain sub- transfer agency fees. See "Management of the Fund --
Administrative Services Plan" and "Other Information Concerning the Fund and Its
Shares" below.
THE SMALL CAP EQUITY, SMALL CAP EQUITY INDEX AND INTERNATIONAL EQUITY PORTFOLIOS
Net investment income for the Small Cap Equity, Small Cap Equity Index
and International Equity Portfolios is declared and paid quarterly as a dividend
to shareholders of record. Dividends on each Share of each of these Portfolios
are determined in the same manner and are paid in the same amount, irrespective
of class, except that a Portfolio's Trust Shares and Institutional Shares bear
all expenses of the respective Administrative Services Plans adopted for such
Shares and a Portfolio's Investor A Shares and Investor B Shares (other than the
Small Cap Equity Index Portfolio which does not offer Investor B Shares) bear
all expenses of the respective Distribution and Services Plans adopted for such
Shares. In addition, a Portfolio's Institutional Shares bear the expense of
certain sub-transfer agency fees. See "Management of the Fund -- Administrative
Services Plan" and "Other Information Concerning the Fund and Its Shares" below.
OTHER DIVIDEND AND DISTRIBUTION INFORMATION
The Money Market Portfolios do not expect to realize capital gains. Net
realized capital gains of a Portfolio, if any, are distributed at least
annually. All dividends and distributions paid on a Portfolio's Shares are
automatically reinvested in additional Shares of the same class unless the
investor has (i) otherwise indicated in the account application, or (ii)
redeemed all the Shares held in a Portfolio, in which case a distribution will
be paid in cash. Reinvested dividends and distributions will be taxed in the
same manner as those paid in cash.
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TAXES
FEDERAL TAXES
Each Portfolio of the Fund intends to qualify as a "regulated
investment company" for the current taxable year. It is intended that each
Portfolio will continue to so qualify as long as such qualification is in the
best interests of shareholders. A regulated investment company is generally
exempt from federal income tax on amounts distributed to shareholders.
Qualification as a regulated investment company under the Internal
Revenue Code of 1986, as amended (the "Code"), for a taxable year requires,
among other things, that each Portfolio distribute to its shareholders an amount
equal to at least the sum of 90% of its investment company taxable income and
90% of its net exempt-interest income (IF ANY). In general, a Portfolio's
investment company taxable income will be its taxable income, including
dividends, interest and short-term capital gains (the excess of net short-term
capital gain over net long-term capital loss), subject to certain adjustments
and excluding the excess of any net long-term capital gain over net short-term
capital loss, if any, for such taxable year. The Treasury Money Market, Money
Market, U.S. Government Securities, Intermediate Corporate Bond, Bond Index,
Government & Corporate Bond, Equity Income, Equity Index, Growth & Income
Equity, Growth Equity, Small Cap Equity, Small Cap Equity Index, International
Equity and Balanced Portfolios intend to distribute as dividends substantially
all of their respective investment company taxable income and any net tax-exempt
interest income each year. Such dividends will be taxable as ordinary income to
a Portfolio's shareholders who are not currently exempt from federal income
taxes, whether such income is received in cash or reinvested in additional
Shares. (Federal income taxes for distributions to an IRA are deferred under the
Code.) In the case of the Equity Income, Equity Index, Growth & Income Equity,
Growth Equity, Small Cap Equity, Small Cap Equity Index, International Equity
and Balanced Portfolios, such dividends will qualify for the dividends received
deduction for corporations to the extent of the total qualifying dividends
received by the Portfolios from domestic corporations for the taxable year.
Because all of the Treasury Money Market, Money Market, U.S. Government
Securities, Intermediate Corporate Bond, Bond Index and Government & Corporate
Bond Portfolios' net investment income is expected to be derived from earned
interest, it is not expected that any distributions from such Portfolios will be
eligible for the dividends received deduction.
It is the policy of each Tax-Exempt Portfolio to distribute as
dividends substantially all of its net tax-exempt interest income and any
investment company taxable income each year. Dividends derived from interest on
Municipal Obligations (known as exempt-interest dividends) may be treated by
shareholders as items of interest excludable from their gross income under
Section 103(a) of the Code, unless under the circumstances applicable to the
particular shareholder the exclusion would be disallowed. See the Statement of
Additional Information under "Additional Information Concerning Taxes."
Distributions of net income may be taxable to investors under state or local law
as dividend income even though a substantial portion of such distributions may
be derived
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from interest on tax-exempt obligations which, if realized directly, would be
exempt from such income tax.
If a Tax-Exempt Portfolio should hold certain private activity bonds
issued after August 7, 1986, shareholders must include, as an item of tax
preference, the portion of dividends paid by the Portfolio that is attributable
to interest on such bonds in their federal alternative minimum taxable income
for purposes of determining liability (if any) for the 26-28% alternative
minimum tax applicable to individuals and the 20% alternative minimum tax and
the environmental tax applicable to corporations. Corporate shareholders also
must take all exempt-interest dividends into account in determining certain
adjustments for federal alternative minimum and environmental tax purposes. The
environmental tax applicable to corporations is imposed at the rate of .12% on
the excess of the corporation's modified federal alternative minimum taxable
income over $2,000,000.
Substantially all of each Portfolio's net realized long-term capital
gains, if any, will be distributed at least annually to its shareholders. A
Portfolio will generally have no tax liability with respect to such gains and
the distributions will be taxable to shareholders who are not currently exempt
from federal income taxes as long-term capital gains, regardless of how long the
shareholders have held the Shares and whether such gains are received in cash or
reinvested in additional Shares. Such long-term capital gain will be 20% or 28%
rate gain, depending upon the Portfolio's holding period for the assets the
sale of which generated the capital gain.
To the extent dividends paid to shareholders of a Tax-Exempt Portfolio
are derived from taxable income or from long-term or short-term capital gains,
such dividends will be subject to federal income tax, whether such dividends are
paid in the form of cash or additional Shares.
An investor considering purchasing Shares of a Money Market Portfolio
on or just before the record date of any capital gains distribution (or in the
case of the Equity and Bond Portfolios, the record date of any dividend or
capital gains distribution) should be aware that the amount of the forthcoming
distribution, although in effect a return of capital, will be taxable.
Dividends declared by a Portfolio in October, November, or December of
any year payable to shareholders of record on a specified date in such months
will be deemed to have been received by shareholders and paid by the Fund on
December 31 of such year, if such dividends are actually paid during January of
the following year.
Each Portfolio may be required in certain cases to withhold and remit
to the U.S. Treasury 31% of taxable dividends or gross sale proceeds paid to
shareholders who have failed to provide a correct tax identification number in
the manner required, who are subject to backup withholding by the Internal
Revenue Service for prior failure properly to include on their return payments
of taxable interest or dividends, or who have failed to certify to the Portfolio
that they are not subject to backup withholding when required to do so or that
they are "exempt recipients."
A taxable gain or loss may be realized by an investor upon redemption,
transfer or exchange of Shares of the Equity and Bond Portfolios, depending upon
the tax basis of such
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Shares and their price at the time of redemption, transfer or exchange. If an
investor holds Shares for six months or less and during that time receives an
exempt-interest dividend on those Shares, any loss realized on the sale or
exchange of those Shares will be disallowed to the extent of the exempt-interest
dividend.
Certain interest income and dividends earned by the International
Equity Portfolio from foreign securities is expected to be subject to foreign
withholding taxes or other taxes. So long as more than 50% of the value of the
Portfolio's total assets at the close of any taxable year consists of stock or
securities of foreign corporations, the Portfolio may elect, for U.S. federal
income tax purposes, to treat certain foreign taxes paid by it, including
generally any withholding taxes and other foreign income taxes, as paid by its
shareholders. The Portfolio may make this election. As a consequence, the amount
of these foreign taxes paid by the Portfolio will be included in its
shareholders' taxable income PRO RATA (in addition to taxable distributions
actually received by them), and each shareholder may elect either (a) to credit
his proportionate amount of such taxes against his U.S. federal income tax
liabilities (subject to certain limitations), or (b) if he itemizes his
deductions, to deduct such proportionate amounts from his U.S. taxable income.
MISSOURI TAX CONSIDERATIONS. For each year in which a Portfolio
qualifies as a regulated investment company for federal income tax purposes,
shareholders of such Portfolio who are Missouri resident individuals, trusts or
estates resident in Missouri, or corporations subject to Missouri taxing
jurisdiction (collectively, "Missouri Taxpayers") will not be subject to
Missouri income taxation on dividends distributed to them to the extent that
such dividends (a) qualify as exempt-interest dividends of a regulated
investment company under Code section 852(b)(5), (b) are the subject of the
written notice to shareholders required by 12 C.S.R. section 10-2.155(2), (c)
are attributable to interest on (1) obligations issued by the State of Missouri
or any of its political subdivisions or authorities, or (2) certain obligations
of the United States, any territory or possession of the United States, or any
authority, commission, or instrumentality of the United Sates, to the extent
exempted from Missouri income tax under Federal Law, and (d) are properly
reported on the Missouri income tax returns of the shareholder in the respective
Portfolio. In connection with these exclusions from Missouri taxable income, the
State also denies any deduction for interest on debt incurred to carry the
obligations or securities and any expenses incurred in the production of the
excluded interest or dividend income.
To the extent possible, the Missouri Tax-Exempt Bond Portfolio intends
to invest in obligations which will permit distributions attributable to
interest to be excludable by Missouri Taxpayers. Despite this intention,
Missouri Taxpayers generally will be subject to Missouri income tax on other
types of distributions received from the Missouri Tax-Exempt Bond Portfolio,
including distributions of interest on obligations of other issuers and all
long-term and short-term capital gains.
Except as noted above with respect to Missouri income taxation,
distributions from a Portfolio may be taxable to shareholders under other state
and local laws imposing taxes on or measured by net income, even though such
distribution were derived, in whole or in
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part, from interest on obligations which, if realized directly by the
shareholder, or by a shareholder of another type, would be nontaxable.
The foregoing discussion of Missouri law does not apply to shareholders
that are subject to the Missouri bank tax or other comparable forms of
specialized Missouri taxation.
All shareholders of the Portfolios should consult with their tax
advisors with respect to the state and local tax consequences of the purchase,
ownership, and disposition of Shares in the Portfolios, the receipt of
distributions from the Portfolios, and the proper method in which to report
Portfolio-related items on a shareholder's Missouri tax returns.
STATE AND LOCAL TAXES
Shareholders should note that dividends paid by a Portfolio may be
taxable to investors under state or local law as dividend income even though all
or a portion of such dividends may be derived from interest on obligations that,
if realized directly, would be exempt from such income taxes.
The Treasury Money Market Portfolio is structured to provide investors,
to the extent permissible by federal and state law, with income that is exempt
or excluded from taxation at the state and local level. Shareholders should note
that many, but not all, states permit all or a portion of a regulated investment
company's dividends which are derived from interest on U.S. Treasury obligations
(and obligations of certain U.S. Government agencies)("Treasury Obligations") to
be exempt or excluded from state and local taxation. In addition, only certain
states allow dividends of a regulated investment company that are derived from
dividends of other regulated investment companies investing directly in Treasury
Obligations to be exempt or excluded from state and local taxation. Some states
reduce a shareholder's allowable deductions by interest on debt incurred to
carry obligations producing state tax-exempt interest and by other expenses
related to such obligations. Income earned by the Portfolio from repurchase
agreements generally is not exempt from state or local income tax. Shareholders
should consult their own tax advisors about the status of distributions from the
Treasury Money Market Portfolio under state and local law.
MISCELLANEOUS
The foregoing summarizes some of the important federal and state tax
considerations generally affecting the Portfolios and their shareholders and is
not intended as a substitute for careful tax planning. Accordingly, potential
investors in the Portfolios should consult their tax advisers with specific
reference to their own tax situation. Shareholders will be advised at least
annually as to the federal and, for the Treasury Money Market Portfolio, the
state income tax consequences, and for the Missouri Tax-Exempt Bond Portfolio,
the Missouri state income tax consequences, of distributions made each year.
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MANAGEMENT OF THE FUND
The Fund is managed under the direction of its Board of Directors. The
Statement of Additional Information contains the names of and general background
information concerning each director.
INVESTMENT ADVISER AND SUB-ADVISER
Mississippi Valley Advisors Inc. ("MVA") serves as the investment
adviser to each Portfolio. MVA's principal office is located at One Mercantile
Center, Seventh & Washington Streets, St. Louis, Missouri 63101. MVA is a
wholly-owned subsidiary of Mercantile. As of December 31, 1997, MVA had
approximately $9.4 billion in assets under investment management, including the
Funds' assets, which were approximately $3.9 billion.
Subject to the general supervision of the Fund's Board of Directors and
in accordance with the Fund's investment policies, MVA manages the Portfolios,
makes investment decisions with respect to and places orders for all purchases
and sales of the Portfolios' securities and other investments, and directs the
maintenance of each Portfolio's records relating to such purchases and sales.
For the services provided and expenses assumed pursuant to the
investment advisory agreement, MVA is entitled to receive fees, computed daily
and payable monthly, with respect to the Treasury Money Market and Money Market
Portfolios, at the annual rates of .40% of the first $1.5 billion of each such
Portfolio's average daily net assets, .35% of the next $1.0 billion of net
assets and .25% of net assets in excess of $2.5 billion, and with respect to the
Tax-Exempt Money Market, U.S. Government Securities, Intermediate Corporate
Bond, Bond Index, Government & Corporate Bond, Short-Intermediate Municipal,
Missouri Tax-Exempt Bond, National Municipal Bond, Equity Income, Equity Index,
Growth & Income Equity, Growth Equity, Small Cap Equity, Small Cap Equity Index,
International Equity and Balanced Portfolios, at the annual rates of .40%, .45%,
.55%, .30%, .45%, .55%, .45%, .55%, .75%, .30%, .55%, .75%, .75%, .40%, 1.00%
and .75%, respectively, of the average daily net assets of each Portfolio,
respectively. For the fiscal year or period ended November 30, 1997, MVA
received advisory fees (net of waivers) at the effective annual rates of .__%,
.__%, .__%, .__%, .__%, .__%, .__%, .__%, .__%, .__, .__%, .__%, .__%, .__%,
.__%, ____% and .__% of the respective average daily net assets of the Treasury
Money Market, Money Market, Tax-Exempt Money Market, U.S. Government Securities,
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, Growth Equity, Small Cap
Equity, International Equity and Balanced Portfolios. The Small Cap Equity Index
Portfolio had not commenced operations as of November 30, 1997.
For the period October 1, 1996 through September 30, 1997, the
Predecessor Growth Equity Portfolio paid MVA (or its predecessor) advisory fees
at the effective annual rate of .75% of the Portfolio's average daily net
assets pursuant to the investment advisory agreements then in effect.
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MVA may from time to time voluntarily reduce all or a portion of its
advisory fee to increase the net income of one or more Portfolios available for
distributions as dividends. The voluntary fee reduction will cause the return of
any such Portfolio to be higher than it would otherwise be in the absence of
such reduction.
David A. Bethke, CFA, is the person primarily responsible for the
day-to-day management of the U.S. Government Securities, Intermediate Corporate
Bond and Government & Corporate Bond Portfolios and has managed each of these
Portfolios since inception. Mr. Bethke, Senior Associate, joined MVA in 1987 and
has seven years of prior investment experience.
Peter Merzian, is the person primarily responsible for the day-to-day
management of the Short-Intermediate Municipal, Missouri Tax-Exempt Bond,
National Municipal Bond and Balanced Portfolios. Mr. Merzian, a Senior Associate
of MVA, has been with MVA since 1993 and prior thereto was employed as a
portfolio manager of another financial institution. Mr. Merzian has served as
portfolio manager of the Short-Intermediate Municipal and National Municipal
Bond Portfolios since their respective dates of inception and of the Balanced
Portfolio since May 1996. Mr. Merzian has served as portfolio manager of the
Missouri Tax-Exempt Bond Portfolio (including the Predecessor Missouri Tax-
Exempt Bond Portfolio) since 1993.
The organizational arrangements of MVA require that all investment
decisions with respect to the Equity Income, Growth & Income Equity and Growth
Equity Portfolios be made by MVA's Equity Committee, and no one person is
responsible for making recommendations to that Committee.
Robert J. Anthony is the person primarily responsible for the
day-to-day management of the Small Cap Equity Portfolio and has managed each of
the Small Cap Equity Portfolio since inception. Mr. Anthony, Senior Associate,
has been with MVA for 21 years and has managed the Small Cap Equity Portfolio
since its inception.
MVA has entered into a sub-advisory agreement with Clay Finlay Inc.
Pursuant to the terms of such sub-investment advisory agreement, Clay Finlay has
been retained by MVA to manage the investment and reinvestment of the assets of
the International Equity Portfolio and to provide analytical and investment
research services to it, subject to the supervision of MVA and to the direction
and control of the Fund's Board of Directors.
Under this arrangement, Clay Finlay is responsible for the day-to-day
management of the International Equity Portfolio's assets. MVA reviews
investment performance policies and guidelines, maintains certain books and
records, is responsible for selecting and monitoring the performance of Clay
Finlay, and for reporting the activities of Clay Finlay in managing the
Portfolio to the Fund's Board of Directors.
Clay Finlay is registered as an investment adviser with the SEC and is
a wholly-owned subsidiary of United Asset Management Corporation, a financial
services holding company. Clay Finlay's principal office is located at 200 Park
Avenue, 56th Floor, New York, New York 10166. Clay Finlay, founded in 1982, has
extensive experience in international
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investments and as of December 31, 1997 had approximately $___ billion in assets
under management.
Frances Dakers is the person primarily responsible for the day-to-day
management of the International Equity Portfolio's investments. Ms. Dakers, a
Principal and Senior Portfolio Manager of Clay Finlay, has been associated with
Clay Finlay since January, 1982 and has managed each of the International Equity
Portfolio since inception.
For the services provided and expenses assumed pursuant to its
sub-advisory agreement with MVA, Clay Finlay receives from MVA a fee, computed
daily and payable monthly, at the annual rate of .75% of the first $50 million
of the International Equity Portfolio's average daily net assets, plus .50% of
the next $50 million of average daily net assets, plus .25% of average daily net
assets in excess of $100 million. For the fiscal year ended November 30, 1997,
Clay Finlay received sub-advisory fees at the effective annual rate of .__% of
the International Equity Portfolio's average daily net assets. Clay Finlay bears
all expenses incurred by it in connection with its services under the
sub-advisory agreement.
ADMINISTRATOR
BISYS Fund Services Ohio, Inc. located at 3435 Stelzer Road, Columbus,
Ohio 43219, acts as the Portfolios' Administrator.
The Administrator generally assists in all aspects of each Portfolio's
administration and operation and also monitors and performs other services
pertaining to the Fund's arrangements under the Administrative Services Plan
described below. For its services, the Administrator is entitled to receive a
fee, computed daily and payable monthly, at the annual rate of .20% (.10% for
the Tax-Exempt Money Market Portfolio) of each Portfolio's average daily net
assets. For the fiscal year or period ended Novemmber 30, 1997, the
Administrator received administration fees (net of waivers) at the effective
annual rate of .__% (.__% with respect to the National Municipal Bond Portfolio)
of the average daily net assets of each Portfolio other than the Small Cap
Equity Index Portfolio which had not commenced operations as of November 30,
1997. From time to time, the Administrator may voluntarily waive all or a
portion of the administration fees otherwise payable by a Portfolio in order to
increase the net income available for distribution to shareholders.
For the period October 1, 1996 through September 30, 1997, the
Predecessor Growth Equity Portfolio bore administrative fees pursuant to the
administrative services agreement then in effect with Federated Administrative
Services, its former administrator, at the effective annual rate of .__% of its
average daily net assets.
DISTRIBUTOR
Investor A Shares and/or Investor B Shares in each Portfolio are sold
continuously by the Distributor, BISYS Fund Services, an affiliate of the
Administrator. The Distributor also monitors the Fund's arrangements under the
Distribution and Services Plans described
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below. The Distributor is a registered broker-dealer with principal offices at
3435 Stelzer Road, Columbus, Ohio 43219.
The Distributor may, at its expense, provide compensation to dealers in
connection with sales of Shares of any of the Portfolios. Such compensation may
include financial assistance to dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising
campaigns regarding one or more of the Portfolios, and/or other dealer-sponsored
special events. In some instances, this compensation will be made available only
to certain dealers whose representatives have sold a significant amount of such
Shares. Compensation will include payment for travel expenses, including
lodging, incurred in connection with trips taken by invited registered
representatives and members of their families to locations within or outside of
the United States for meetings or seminars of a business nature. Compensation
will also include the following types of non-cash compensation offered through
sales contests: (1) business and vacation trips, including the provision of
travel arrangements and lodging at resorts, (2) tickets for entertainment events
(such as concerts, cruises and sporting events) and (3) merchandise (such as
clothing, trophies, clocks and pens). Dealers may not use sales of a Portfolio's
Shares to qualify for this compensation to the extent such may be prohibited by
the laws of any state or any self-regulatory agency, such as the National
Association of Securities Dealers, Inc. None of the aforementioned compensation
is paid for by the Portfolios or their shareholders.
DISTRIBUTION AND SERVICES PLANS
The Fund has adopted separate Distribution and Services Plans pursuant
to Rule 12b-1 under the 1940 Act with respect to Investor A Shares of the
Portfolios and Investor B Shares of the CDSC Portfolios. Under the Distribution
and Services Plans, the Fund may pay (i) the Distributor or another person for
distribution services provided and expenses assumed and (ii) Service
Organizations for shareholder administrative services provided pursuant to
servicing agreements in connection with Investor A Shares or Investor B Shares
of a Portfolio. Payments to the Distributor are to compensate it for
distribution assistance and expenses assumed and activities primarily intended
to result in the sale of Investor A Shares or Investor B Shares, including
compensating dealers and other sales personnel (which may include affiliates of
the Fund's Adviser), direct advertising and marketing expenses and expenses
incurred in connection with preparing, printing, mailing and distributing or
publishing advertisements and sales literature, for printing and mailing
Prospectuses and Statements of Additional Information (except those used for
regulatory purposes or for distribution to existing shareholders), and costs
associated with implementing and operating the Distribution and Services Plan.
In addition, payments under the Distribution and Services Plan for Investor B
Shares will be used to pay for or finance sales commissions and other fees
payable to Service Organizations and other broker-dealers who sell Investor B
Shares. See "Management of the Fund -- Service Organizations" below for a
description of the servicing agreements and the services provided by Service
Organizations.
Under the Distribution and Services Plan for Investor A Shares,
payments by the Fund for distribution expenses may not exceed .10% (annualized)
of the average daily net asset
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value of a Portfolio's outstanding Investor A Shares and payments for
shareholder administrative servicing expenses may not exceed .20% (.15% with
respect to the Money Market Portfolios) (annualized) of the average daily net
asset value of a Portfolio's outstanding Investor A Shares.
Under the Distribution and Services Plan for Investor B Shares,
payments by the Fund for distribution expenses may not exceed .75% (annualized)
of the average daily net asset value of a Portfolio's outstanding Investor B
Shares and payments for shareholder administrative servicing expenses may not
exceed .25% (annualized) of the average daily net asset value of a Portfolio's
outstanding Investor B Shares.
Actual distribution expenses paid by the Distributor with respect to
Investor B Shares for any given year may exceed the distribution fees and
contingent deferred sales charges received with respect to those Shares. These
excess expenses may be reimbursed by Investor B shareholders out of contingent
deferred sales charges and distribution payments in future years as long as the
Distribution and Services Plan for Investor B Shares is in effect.
SERVICE ORGANIZATIONS
The servicing agreements adopted under the Distribution and Services
Plans (the "Servicing Agreements") require the Service Organizations receiving
such compensation (which may include Mercantile and its affiliates) to perform
certain services, including providing administrative services with respect to
the beneficial owners of Investor A Shares or Investor B Shares of a Portfolio,
such as establishing and maintaining accounts and records for their customers
who invest in such Shares, assisting customers in processing purchase, exchange
and redemption requests, and responding to customer inquiries concerning their
investments.
Under the Servicing Agreements and upon notice to the Fund, a Service
Organization may subcontract with one or more entities for the performance of
certain services provided under its Servicing Agreement with the Fund. Such
Service Organization shall be as fully responsible to the Fund for the acts or
omissions of any subcontractor as it would be for its own acts or omissions. The
fees payable to any sub-contractor are paid by the Service Organization out of
the fees it receives from the Fund.
The Fund understands that Service Organizations providing such
administrative services may also charge fees to their customers beneficially
owning such Shares. These fees would be in addition to any amounts which may be
received by such a Service Organization under its Servicing Agreement with the
Fund. The Fund's Servicing Agreements require a Service Organization to disclose
to its customers any compensation payable to the Service Organization by a
Portfolio and any other compensation payable by its customers in connection with
their investment in such Shares. Customers of such a Service Organization
receiving servicing fees should read this Prospectus in light of the terms
governing their accounts with their Service Organization.
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CUSTODIAN, SUB-CUSTODIAN AND TRANSFER AGENT
Mercantile Bank National Association, an affiliate of the Fund and a
wholly-owned subsidiary of Mercantile Bancorporation, Inc., with principal
offices located at One Mercantile Center, 8th and Locust Streets, St. Louis,
Missouri 63101, serves as Custodian of each Portfolio's assets. In addition,
Bankers Trust Company of New York, with principal offices at 16 Wall Street, New
York, New York 10005, serves as the Sub-Custodian for the International Equity
Portfolio. BISYS Fund Services Ohio, Inc. also serves as the Fund's transfer
agent and dividend disbursing agent. Its address is 3435 Stelzer Road, Columbus,
Ohio 43219.
REGULATORY MATTERS
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any affiliate
thereof from sponsoring, organizing, or controlling the Shares of a registered,
open-end investment company continuously engaged in the issuance of its Shares,
and prohibit banks generally from issuing, underwriting, selling, or
distributing securities such as Shares of the Portfolios. Such banking laws and
regulations do not prohibit such a holding company or affiliate, or banks, from
acting as investment adviser, transfer agent, or custodian to such an investment
company, or from purchasing Shares of such a company as agent for and upon the
order of customers. Mercantile, MVA, Service Organizations that are banks or
bank affiliates, and broker-dealers that are bank affiliates are subject to such
laws and regulations, but believe they may perform the services for the
Portfolios contemplated by their respective agreements, this Prospectus and the
Statement of Additional Information without violating applicable banking laws
and regulations. In addition, state securities laws on this issue may differ
from the interpretation of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
Should future legislative, judicial, or administrative action prohibit
or restrict the activities of such companies in connection with the provision of
services on behalf of the Portfolios and the shareholders, the Fund might be
required to alter materially or discontinue its arrangements with such companies
and change its method of operation. It is not expected that investors would
suffer any adverse financial consequences as a result of any of these
occurrences.
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
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managers subject to the jurisdiction of the SEC, the Department of Labor or
state securities commissions, should consult legal counsel before entering into
Servicing Agreements.
EXPENSES
Except as noted above and in the Statement of Additional Information
under "Investment Advisory and Administrative Contracts" and "Custodian and
Transfer Agent," the Fund's service contractors bear all expenses in connection
with the performance of their services, except that the Distributor is
compensated pursuant to the Distribution and Services Plans as described under
"Distribution and Services Plans" above. Expenses are deducted from the total
income of each Portfolio before dividends and distributions are paid. These
expenses include, but are not limited to, fees paid to the Adviser and
Administrator, transfer agency fees, fees and expenses of officers and directors
who are not affiliated with the Adviser or the Distributor, taxes, interest,
legal fees, custodian fees, auditing fees, 12b-1 fees, servicing fees, certain
fees and expenses in registering and qualifying a Portfolio and its Shares for
distribution under Federal and state securities laws, costs of preparing and
printing prospectuses and statements of additional information for regulatory
purposes and for distribution to existing shareholders, the expense of reports
to shareholders, shareholders' meetings and proxy solicitations, fidelity bond
and directors and officers liability insurance premiums, the expense of using
independent pricing services and other expenses which are not expressly assumed
by the Adviser, Distributor or Administrator under their respective agreements
with the Fund. The Fund also pays for brokerage fees, commissions and other
transaction charges, if any, in connection with the purchase and sale of
portfolio securities. Any general expenses of the Fund that are not readily
identifiable as belonging to a particular Portfolio will be allocated among all
Portfolios by or under the direction of the Board of Directors in a manner the
Board determines to be fair and equitable. Any expenses relating only to a
particular class of Shares within a Portfolio will be borne solely by such
class. See "Certain Financial Information" and "Management of the Fund" above
for additional information regarding expenses of each Portfolio.
OTHER INFORMATION CONCERNING
THE FUND AND ITS SHARES
DESCRIPTION OF SHARES
The Fund was organized on September 9, 1982 as a Maryland corporation,
and is a mutual fund of the type known as an "open-end management investment
company." The Fund's principal office is located at 3435 Stelzer Road, Columbus,
Ohio 43219.
The Fund's Charter authorizes the Board of Directors to issue up to
twenty billion full and fractional Shares of common stock, and to classify and
reclassify any unauthorized and unissued Shares into one or more classes of
Shares. The Board of Directors may similarly classify or reclassify any class of
Shares into one or more series.
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<PAGE> 378
Pursuant to such authority, the Board of Directors has authorized the
issuance of the following series of shares representing interests in the
Portfolios, each of which (except the Tax-Exempt Money Market and Missouri
Tax-Exempt Bond Portfolios) is classified as a diversified company under the
1940 Act: 1 billion Trust Shares, 300 million Institutional Shares, 2 billion S
Shares and 100 million Investor A Shares, representing interests in the Treasury
Money Market Portfolio; 1.8 billion Trust Shares, 300 million Institutional
Shares, 2 billion S Shares, 550 million Investor A Shares and 50 million
Investor B Shares, representing interests in the Money Market Portfolio; 300
million Trust Shares, 2 billion S Shares and 50 million Investor A Shares,
representing interests in the Tax-Exempt Money Market Portfolio; 5 million
Investor A Shares and 50 million Investor B Shares, representing interests in
the U.S. Government Securities Portfolio; 50 million Trust Shares, 25 million
Institutional Shares and 25 million Investor A Shares, representing interests in
the Intermediate Corporate Bond Portfolio; 25 million Trust Shares, 25 million
Institutional Shares and 25 million Investor A Shares representing interests in
the Bond Index Portfolio; 50 million Trust Shares, 20 million Institutional
Shares, 5 million Investor A Shares and 50 million Investor B Shares,
representing interests in the Government & Corporate Bond Portfolio; 25 million
Trust Shares and 25 million Investor A Shares, representing interests in the
Short-Intermediate Municipal Portfolio; 25 million Trust Shares, 25 million
Investor A Shares and 25 million Investor B Shares, representing interests in
the Missouri Tax-Exempt Bond Portfolio; 50 million Trust Shares, 25 million
Investor A Shares and 25 million Investor B Shares representing interests in the
National Municipal Bond Portfolio; 50 million Trust Shares, 25 million
Institutional Shares, 25 million Investor A Shares and 25 million Investor B
Shares representing interests in the Equity Income Portfolio; 25 million Trust
Shares, 25 million Institutional Shares and 25 million Investor A Shares
representing interests in the Equity Index Portfolio; 50 million Trust Shares,
20 million Institutional Shares, 5 million Investor A Shares and 50 million
Investor B Shares, representing interests in the Growth & Income Equity
Portfolio; 50 million Trust Shares, 25 million Institutional Shares, 25 million
Investor A Shares and 25 million Investor B Shares, representing interests in
the Growth Equity Portfolio; 35 million Trust Shares, 20 million Institutional
Shares, 5 million Investor A Shares and 50 million Investor B Shares,
representing interests in the Small Cap Equity Portfolio; 50 million Trust
Shares, 25 million Institutional Shares, and 25 million Investor A Shares,
representing interests in the Small Cap Equity Index Portfolio; 10 million Trust
Shares, 10 million Institutional Shares, 10 million Investor A Shares and 50
million Investor B Shares, representing interests in the International Equity
Portfolio; and 15 million Trust Shares, 20 million Institutional Shares, 5
million Investor A Shares and 50 million Investor B Shares, representing
interests in the Balanced Portfolio. Trust Shares, Institutional Shares and S
Shares of the Portfolios are described in separate prospectuses which are
available from the Distributor at the telephone number on the cover of this
Prospectus. Shares in the Fund's Portfolios will be issued without Share
certificates.
The Investor A Shares and/or Investor B Shares of the Portfolios are
described in this Prospectus. The Portfolios also offer Trust Shares and, in
addition, each Portfolio except the Tax-Exempt Portfolios offers Institutional
Shares and each Money Market Portfolio offers S Shares. Trust Shares are offered
to financial institutions acting on their own behalf or on behalf of
discretionary and non-discretionary accounts for which they may receive
account-level asset-based management fee accounts. Institutional Shares are
offered to financial institutions acting on behalf of discretionary and
non-discretionary accounts for which
85
<PAGE> 379
they do not receive account-level asset-based management fees. S Shares
are offered to customers who purchase such Shares through cash management
services, such as a sweep account, offered by Mercantile, any of its banking
affiliates, and certain other financial service organizations, such as banks or
broker-dealers. Trust Shares, Institutional Shares and S Shares are sold without
a sales charge. Trust Shares, Institutional Shares, S Shares, Investor A Shares
and Investor B Shares bear their pro rata portion of all operating expenses paid
by a Portfolio, except that Trust Shares and Institutional Shares bear all
payments under the Portfolio's respective Administrative Services Plans adopted
for such Shares and S Shares, Investor A Shares and Investor B Shares bear all
payments under the Portfolio's respective Distribution and Services Plans
adopted for such Shares. In addition, Institutional Shares of a Portfolio bear
the expense of certain sub-transfer agency fees.
Payments under the Administrative Services Plans for Trust Shares and
Institutional Shares are made to Service Organizations for administrative
services provided to the Service Organizations' clients or account holders who
are the beneficial owners of Trust Shares or Institutional Shares. Payments
under the Administrative Services Plans may not exceed .25% (on an annual basis)
of the average daily net asset value of outstanding Trust or Institutional
Shares of the Money Market Portfolios or .30% (on an annual basis) of the
average daily net asset value of outstanding Trust or Institutional Shares of
the Equity and Bond Portfolios.
Payments under the Distribution and Services Plan for S Shares are made
to (i) the Distributor or another person for providing distribution assistance
and assuming certain related expenses, and (ii) Service Organizations for
administrative services provided to the Service Organizations' clients or
account holders who are the beneficial owners of S Shares. Payments under the
Distribution and Services Plan for S Shares may not exceed 1.00% (on an annual
basis) of the average daily net asset value of outstanding S Shares of a
Portfolio. Distribution payments made under the Distribution and Services Plan
are subject to the requirements of Rule 12b-1 under the 1940 Act.
The Fund offers various services and privileges in connection with
Investor A Shares and Investor B Shares of a Portfolio that are not offered in
connection with the Portfolio's Trust Shares, Institutional Shares or S Shares,
including an automatic investment program and an automatic withdrawal plan. Each
class of shares also offers different exchange privileges.
Shareholders are entitled to one vote for each full Share held and
proportionate fractional votes for fractional Shares held. Shares of all
Portfolios will vote together and not by class unless otherwise required by law
or permitted by the Board of Directors. All shareholders of a particular
Portfolio will vote together as a single class on matters relating to the
Portfolio's investment advisory (or sub-advisory) agreement and investment
objective and fundamental policies. Only holders of Trust Shares, however, will
vote on matters relating to the Administrative Services Plan for Trust Shares
and only holders of Institutional Shares will vote on matters pertaining to the
Administrative Services Plan
86
<PAGE> 380
for Institutional Shares. Similarly, only holders of S Shares will vote on
matters pertaining to the Distribution and Services Plan for S Shares, only
holders of Investor A Shares will vote on matters pertaining to the Distribution
and Services Plan for Investor A Shares and only holders of Investor B Shares
will vote on matters pertaining to the Distribution and Services Plan for
Investor B Shares and .
The Fund is not required, and currently does not intend, to hold annual
meetings except as required by the 1940 Act or other applicable law. Upon the
written request of the holders of 10% or more of the outstanding Shares, the
Fund will call a special meeting to vote on the question of removal of a
director.
Shares of the Portfolios have noncumulative voting rights and,
accordingly, the holders of more than 50% of the Fund's outstanding Shares
(irrespective of Portfolio or class) may elect all of the Directors. Shares have
no preemptive rights and only such conversion and exchange rights as the Board
may grant in its discretion. When issued for payment as described in this
Prospectus, Shares will be fully paid and nonassessable.
MISCELLANEOUS
As used in this Prospectus, a "vote of a majority of the outstanding
Shares" of a Portfolio means, with respect to the approval of an investment
advisory or sub-advisory agreement or a change in an investment objective or
fundamental investment policy, the affirmative vote of the lesser of (a) more
than 50% of the outstanding Shares of such Portfolio (irrespective of class), or
(b) 67% or more of the Shares of such Portfolio (irrespective of class) present
at a meeting if more than 50% of the outstanding Shares of such Portfolio are
represented at the meeting in person or by proxy.
As of __________, 1998, Mercantile and its affiliates possessed, of
record on behalf of their underlying customer accounts, voting or investment
power with respect to more than 25% of the Fund's outstanding Shares. Therefore,
Mercantile may be deemed to be a controlling person of the Fund within the
meaning of the 1940 Act.
Inquiries regarding the Portfolios may be directed to the Fund at
1-800-452-ARCH(2724).
-------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, OR IN THE PORTFOLIOS'
STATEMENT OF ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN
CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE PORTFOLIOS, THE FUND, OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY THE PORTFOLIOS, THE FUND OR THE DISTRIBUTOR IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
87
<PAGE> 381
THE ARCH FUND(R), INC.
INVESTOR A AND INVESTOR B SHARES
[OLD LOGO]
PROSPECTUS
________, 1998
<PAGE> 382
CROSS REFERENCE SHEET
---------------------
The ARCH Treasury Money Market Portfolio
The ARCH Money Market Portfolio
The ARCH Tax-Exempt Money Market Portfolio
The ARCH U.S. Government Securities Portfolio
The ARCH Intermediate Corporate Bond Portfolio
The ARCH Bond Index Portfolio
The ARCH Government & Corporate Bond Portfolio
The ARCH Short-Intermediate Municipal Portfolio
The ARCH Missouri Tax-Exempt Bond Portfolio
The ARCH National Municipal Bond Portfolio
The ARCH Equity Income Portfolio
The ARCH Equity Index Portfolio
The ARCH Growth & Income Equity Portfolio
The ARCH Growth Equity Portfolio
The ARCH Small Cap Equity Portfolio
The ARCH Small Cap Equity Index Portfolio
The ARCH International Equity Portfolio
The ARCH Balanced Portfolio
Heading in Statement of
Form N-1A Part B Item Additional Information
- --------------------- ----------------------
10. Cover Page..................................... Cover Page
11. Table of Contents.............................. Table of Contents
12. General Information and History................ The Fund
13. Investment Objective and Policies.............. Investment
Objectives and Policies
14. Management of the Fund......................... Management of the Fund
15. Control Persons and Principal.................. Miscellaneous
Holders of Securities
16. Investment Advisory and Other.................. Management of the Fund;
Services Independent Auditors;
Counsel
17. Brokerage Allocation and Other................. Investment Objectives
Practices and Policies
18. Capital Stock and Other........................ Description of Shares
Securities
19. Purchase, Redemption and Pricing............... Net Asset Value;
of Securities Being Offered Additional Purchase and
Redemption Information
20. Tax Status..................................... Additional Information
Concerning Taxes
<PAGE> 383
21. Underwriters................................... Management of the Fund
22. Calculation of Performance Data................ Additional Yield and
Total Return
Information; Net Asset
Value
23. Financial Statements........................... Financial Statements
<PAGE> 384
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 GROWTH EQUITY PORTFOLIO
THE ARCH SMALL CAP EQUITY PORTFOLIO
THE ARCH SMALL CAP EQUITY INDEX PORTFOLIO
THE ARCH INTERNATIONAL EQUITY PORTFOLIO
THE ARCH BALANCED PORTFOLIO
Statement of Additional Information
Part B
____________, 1998
<PAGE> 385
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 Growth Equity Portfolio
The ARCH Small Cap Equity Portfolio
The ARCH Small Cap Equity Index Portfolio
The ARCH International Equity Portfolio
The ARCH Balanced Portfolio
________, 1998
TABLE OF CONTENTS
-----------------
PAGE
----
THE FUND.................................................................. 1
INVESTMENT OBJECTIVES AND POLICIES........................................ 1
NET ASSET VALUE........................................................... 42
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION............................ 44
ADDITIONAL YIELD AND TOTAL RETURN INFORMATION............................. 47
DESCRIPTION OF SHARES..................................................... 63
ADDITIONAL INFORMATION CONCERNING TAXES................................... 65
MANAGEMENT OF THE FUND.................................................... 73
INDEPENDENT AUDITORS...................................................... 97
COUNSEL................................................................... 98
MISCELLANEOUS............................................................. 98
APPENDIX A................................................................ 1
APPENDIX B................................................................ 1
FINANCIAL STATEMENTS......................................................FS-1
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 _______________, 1998 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.
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<PAGE> 386
THE FUND
The ARCH Fund, Inc. (the "Fund") is an open-end investment
company currently offering sixty-one classes of shares in eighteen 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. The ARCH Growth Equity Portfolio commenced operations on January 4, 1993
as a separate investment portfolio (the "Predecessor Growth Equity Portfolio")
of Arrow Funds, which was organized as a Massachusetts business trust. On
November 21, 1997, the Predecessor Growth Equity Portfolio was reorganized as a
new portfolio of the Fund. Prior to the reorganization, the Predecessor Growth
Equity Portfolio offered and sold shares of beneficial interests that were
similar to the Fund's Investor A 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,
Growth Equity, Small Cap Equity, Small Cap Equity Index, 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
<PAGE> 387
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.
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-
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<PAGE> 388
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.
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, Equity Index
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<PAGE> 389
and Small Cap 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 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
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<PAGE> 390
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.)
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.
GROWTH EQUITY PORTFOLIO
As stated in the Prospectus, the Portfolio may invest in the
securities of foreign issuers which are freely traded on United States
securities exchanges or in the over-the-counter market in the form of depository
receipts. As a matter of practice, the Portfolio will not invest in the
securities of a foreign issuer if the risks of such investments appear to the
Adviser to be substantial. The Portfolio may not invest more than 5% of its
total assets in securities of foreign issuers.
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.
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<PAGE> 391
SMALL CAP EQUITY INDEX PORTFOLIO
As stated in the Prospectuses, the investment objective of the
Small Cap Equity Index Portfolio is to provide investment results that, before
deduction of operating expenses, approximate the price and yield performance of
U.S. common stocks with smaller stock market capitalizations as represented by
the Standard & Poor's Small Capitalization Stock Index (the "S&P SmallCap 600").
(See "Investment Objectives and Policies - Bond Index Portfolio" above for a
description of index investing.)
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.
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.
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<PAGE> 392
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 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
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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 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
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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 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.
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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 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.
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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 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
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securities are rated by Ratings Agencies and, if so, the ratings assigned. A
Portfolio will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stock when, in the Adviser's or
Sub-Adviser's opinion, the investment characterization of the underlying common
stock will assist the Portfolio in achieving its investment objective. Otherwise
a Portfolio may hold or trade convertible securities.
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, Growth Equity, Small Cap Equity,
Small Cap Equity Index, International Equity and Balanced Portfolios (the
"Equity Portfolios") may participate in rights offerings and purchase warrants,
which are privileges issued by corporations enabling the owners to subscribe to
and purchase a specified number of shares of the corporation at a specified
price during a specified period of time. Subscription rights normally have a
short life span to expiration. The purchase of rights or warrants involves the
risk that the Portfolios could lose the purchase value of a right or warrant if
the right to subscribe to additional shares is not exercised prior to the
rights' or warrants' expiration. Also, the purchase of rights or warrants
involves the risk that the effective price paid for the right or warrant added
to the subscription price of the related security may exceed the value of the
subscribed security's market price such as when there is no movement in the
level of the underlying security. The Portfolios will not invest more than 5% of
their respective net assets, taken at market value, in warrants, or more than 2%
of their respective net assets, taken at market value, in warrants
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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 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
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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 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.
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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, Equity Index and Small Cap Equity Index Portfolios,
may hold stripped U.S. Treasury securities, including (1) coupons that have been
stripped from U.S. Treasury bonds, which are held through the Federal Reserve
Bank's book-entry system called "Separate Trading of Registered Interest and
Principal of Securities" ("STRIPS") or (2) through a program entitled "Coupon
Under Book-Entry Safekeeping" ("CUBES"). Each Portfolio (except the Treasury
Money Market, Tax-Exempt Money Market, U.S. Government Securities,
Short-Intermediate Municipal, Missouri Tax-Exempt Bond, National Municipal Bond,
Equity Income, Equity Index, Small Cap 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
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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.
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
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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 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 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
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"passing through" monthly payments made by the individual borrowers on the
assets that underlie the securities, net of any fees paid to the issuer or
guarantor of the securities. The average life of asset-backed securities varies
with the maturities of the underlying instruments, and for this and other
reasons, an asset-backed security's stated maturity may be shortened, and the
security's total return may be difficult to predict precisely.
There are a number of important differences among the agencies
and instrumentalities of the U.S. Government that issue mortgage-backed
securities and among the securities that they issue. Mortgage-backed securities
guaranteed by GNMA include GNMA Mortgage Pass-Through Certificates (also known
as "Ginnie Maes") which are guaranteed as to the timely payment of principal and
interest by GNMA and such guarantee is backed by the full faith and credit of
the United States. GNMA is a wholly-owned U.S. Government corporation with the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-backed securities issued by the FNMA
include FNMA Guaranteed Mortgage Pass-through Certificates (also known as
"Fannie Maes") which are solely the obligations of the FNMA and are not backed
by or entitled to the full faith and credit of the United States, but are
supported by the right of the issuer to borrow from the Treasury. FNMA is a
government-sponsored organization owned entirely by private stockholders. Fannie
Maes are guaranteed as to timely payment of the principal and interest by FNMA.
Mortgage-backed securities issued by the FHLMC include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "PCs"). FHLMC is a
corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Bank. Freddie
Macs entitle the holder to timely payment of interest, which is guaranteed by
the FHLMC. FHLMC guarantees either ultimate collection or timely payment of all
principal payments on the underlying mortgage loans. When FHLMC does not
guarantee timely payment of principal, FHLMC may remit the amount due on account
of its guarantee of ultimate payment of principal at any time after default on
an underlying mortgage, but in no event later than one year after it becomes
payable.
Non-mortgage asset-backed securities involve certain risks
that are not presented by mortgage-backed securities. 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
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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, DELAYED DELIVERY TRANSACTIONS AND
FORWARD COMMITMENTS. When-issued, delayed delivery and forward commitment
transactions are made to secure what is considered to be an advantageous price
or yield for a Portfolio. When a Portfolio agrees to purchase or sell securities
on a when-issued, delayed delivery 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
delayed delivery and forward commitment transactions.
A Portfolio will make commitments to purchase securities on a
when-issued basis or to purchase or sell securities on a delayed delivery or
forward commitment basis only with the intention of completing the transaction
and actually purchasing or selling the securities. If deemed advisable as a
matter of investment strategy, however, a Portfolio may dispose of or
renegotiate a commitment after it is entered into and may sell securities it has
committed to purchase before those securities are delivered to the Portfolio on
the settlement date. In these cases, the Portfolio may realize a capital gain or
loss.
When a Portfolio engages in when-issued, delayed delivery 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.
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The value of the securities underlying such commitments to
purchase or sell 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 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
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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 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
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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 options
and each Portfolio (except the Short-Intermediate Municipal, Missouri Tax-
Exempt Bond, National Municipal Bond and Growth Equity Portfolios) may purchase
call options. Except as described below with respect to the Growth Equity
Portfolio, such options will be listed on a national securities exchange and
issued by the Options Clearing Corporation and, with respect to each Portfolio
other than the Growth Equity Portfolio, will be in an amount not exceeding 10%
of that Portfolio's net assets. The International Equity Portfolio will not
invest more than 5% of its total assets in initial margin deposits and premiums
(including without limitation, puts, calls, straddles and spreads) and any
combination thereof. Options trading is a specialized activity which entails
greater than ordinary investment risks. Regardless of how much the market price
of the underlying security or index increases or decreases, the option buyer's
risk is limited to the amount of the original investment for the purchase of the
option. However, options may be more volatile than the underlying securities,
and therefore, on a percentage basis, an investment in options may be subject to
greater fluctuation than an investment in the underlying securities. A listed
call option gives the purchaser of the option the right to buy from a clearing
corporation, and a writer has the obligation to sell to the clearing
corporation, the underlying security at the stated 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
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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.
The Growth Equity Portfolio may purchase and write
over-the-counter options or portfolio securities in negotiated transactions with
the buyers or writers of the options for those options on portfolio securities
held by the Portfolio that are not traded on an exchange.
When a Portfolio writes a covered call option, an amount equal
to the net premium (the premium less the commission) received by the Portfolio
is included in the liability section of the Portfolio's statement of assets and
liabilities as a deferred credit. The amount of the deferred credit is
subsequently marked-to-market to reflect the current value of the option
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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. Exchange-traded options have a continuous liquid market while
over-the-counter options may not.
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, Growth 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, 1997, 1996 and
1995, the Growth & Income Equity Portfolio paid $__________, $708,924 and
$461,078, respectively, in brokerage commissions. During the fiscal years ended
November 30, 1997, 1996 and 1995, the Small Cap Equity Portfolio paid
$__________, $352,745 and $307,607, respectively, in brokerage commissions.
During the fiscal years ended November 30, 1997, 1996 and 1995 the International
Equity Portfolio paid $__________, $235,230 and $129,568 respectively, in
brokerage commissions. During the fiscal years ended November 30, 1997, 1996 and
1995, the Balanced Portfolio paid $__________, $144,448 and $96,090 in brokerage
commissions. During the period October 1, 1997 through November 30, 1997 and for
the fiscal years ended September 30, 1997, 1996 and 1995, the Growth Equity
Portfolio paid brokerage commissions of $___________, $_____________, $71,770
and $42,563, respectively. No commissions were paid by the Fund to any
"affiliated" persons (as defined in the 1940 Act) of the Fund. The Small Cap
Equity Index Portfolio had not commenced operations as of November 30, 1997.
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.
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The Portfolios may participate, if and when practicable, in
bidding for the purchase of portfolio securities directly from an issuer in
order to take advantage of the lower purchase price available to members of a
bidding group. The Portfolios will engage in this practice, however, only when
the Adviser (or Sub-Adviser in the case of the International Equity Portfolio),
in its sole discretion, believes such practice to be otherwise in a Portfolio's
interests.
While the Adviser (or Sub-Adviser in the case of the
International Equity Portfolio) generally seeks competitive spreads or
commissions, it may not necessarily allocate each transaction to the underwriter
or dealer charging the lowest spread or commission available on the transaction.
Allocation of transactions, including their frequency, to various dealers is
determined by the Adviser or Sub-Adviser in its best judgment and in a manner
deemed fair and reasonable to shareholders. The primary consideration is prompt
execution of orders in an effective manner at the most favorable price.
Subject to this consideration, dealers who provide
supplemental investment research to the Adviser (or Sub-Adviser) may receive
orders for transactions by a Portfolio. Information so received is in addition
to and not in lieu of services required to be performed by the Adviser (or
Sub-Adviser) and does not reduce the advisory fees payable to it by a Portfolio.
Such information may be useful to the Adviser (or Sub-Adviser) in serving both
the Portfolios and other clients, and conversely, supplemental information
obtained by the placement of business of other clients may be useful to the
Adviser (or Sub-Adviser) in carrying out its obligations to the Portfolios.
Portfolio securities will not be purchased from or sold to the Adviser, the
Sub-Adviser, the Distributor, the Administrator or any "affiliated person" (as
such term is defined under the 1940 Act) or any of them acting as principal,
except to the extent permitted by the SEC. In addition, the Portfolios will not
give preference to the Adviser's correspondents with respect to such
transactions, securities, savings deposits, repurchase agreements and reverse
repurchase agreements.
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,
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this investment procedure may adversely affect the price paid or received by the
Portfolio or the size of the position obtained by the Portfolio. To the extent
permitted by law, the Adviser (or Sub-Adviser) may aggregate the securities to
be sold or purchased for the Portfolios with those to be sold or purchased for
other investment companies or accounts in order to obtain best execution.
SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN MISSOURI
OBLIGATIONS
The following highlights some of the more important economic
and financial trends and considerations and is based on information from
official statements, prospectuses and other publicly available documents
relating to securities offerings of the State of Missouri, its agencies and
instrumentalities, as available on the date of this Statement of Additional
Information. The Fund has not independently verified any of the information
contained in such statements or other documents.
Missouri's population was 5,117,073 according to the 1990
decennial census of the United States Bureau of Census, which represented an
increase of 4.1% from the 1980 decennial census of 4,916,686 inhabitants. Based
on July, 1992 U.S. Census Bureau estimates, St. Louis and the surrounding
metropolitan area constituted the 17th largest Metropolitan Statistical Area
("MSA") in the nation with approximately 2.52 million inhabitants, of which 1.92
million are Missouri residents. St. Louis is located on the eastern boundary of
the state on the Mississippi River and is a distribution center and an important
site for banking and manufacturing activity, Anchoring the western boundary is
Kansas City, which is Missouri's second largest metropolitan area. Based on
July, 1992 U.S. Census Bureau estimates, Kansas City was the 25th largest MSA
nationally with approximately 1.62 million inhabitants, nearly one million of
which were Missouri residents. Kansas City is a major 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
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income-generating activity has shifted from agriculture to the manufacturing and
services sectors. Earnings and employment are distributed among the
manufacturing, trade and service sectors in a close approximation of the average
national distribution, thus lessening the State's cyclical sensitivity to impact
by any single sector. In 1990, services represented the single most significant
economic activity, with wholesale and retail trade ranking second and
manufacturing ranking third. In 1990, these three economic sectors accounted for
66% of the State's nonagricultural employment. Manufacturing, which accounts for
approximately 15.4% of employment, is concentrated in defense, transportation
equipment and other durable goods.
Defense-related business plays an important role in Missouri's
economy. In addition to the large number of civilians employed at the various
military installations and training bases in the State, aircraft production and
defense related businesses receive sizeable annual defense contract awards. Over
the past decade, Missouri has annually ranked among the top six states in total
military contract awards. Although declining defense appropriations by the U.S.
Congress have had and will continue to have an impact on the State, Missouri's
defense related industries have rebounded and shown significant strength over
the past year. Nonetheless, McDonnell-Douglas remains the state's largest
employer with over 29,000 employees and analysts expect the long term effects of
federal downsizing in defense to be negligible. [Source: Missouri's Economic
Forecast: 1994; Mo. Dept. of Economic Development].
Limitations on State debt and bond issues are contained in
Article III, Section 37 of the Constitution of Missouri. Pursuant to this
section, the General Assembly may issue general obligation bonds solely (1) to
refund outstanding bonds (provided that the refunding bonds must mature within
25 years of issuance) or (2) upon the recommendation of the Governor, to incur a
temporary liability by reason of unforeseen emergency or of deficiency in
revenue, in an amount not to exceed $1,000,000 for any one year and to be paid
in not more than five years. When the liability exceeds $1,000,000, the General
Assembly, or the people by initiative, may submit the proposition to incur
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.
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In 1971, Missouri voters approved a constitutional amendment
providing for the issuance of $150,000,000 of general obligation bonds for the
protection of the environment through the control of water pollution. The bonds
were subsequently issued over a period of years. In 1979, voters approved a
constitutional amendment authorizing an additional $200,000,000 State Water
Pollution Control Bonds. In 1982 State voters approved a constitutional
amendment authorizing the issuance of $600,000,000 Third State Building Bonds.
Proceeds from the Third State Building Bonds are used to provide funds for
improvement of State buildings and property, including education, mental health,
parks, corrections and other State facilities, and for water, sewer,
transportation, soil conservation and other economic development projects. In
1988, Missouri voters approved a constitutional amendment authorizing the
issuance of bonds in the aggregate sum of $275,000,000 for controlling water
pollution and making improvements to drinking water systems.
Article III, Section 36 of the Constitution of Missouri
requires that the General Assembly appropriate the annual principal and interest
requirements for outstanding general obligation bonds before any other
appropriations are made. Such amounts must be transferred from the General
Revenue Fund to bond interest and sinking funds. Authorization for these
transfers, as well as the actual payments of principal and interest, are
provided in the first appropriation bill of each fiscal year.
In addition to general obligation bonds, the Missouri
legislature has established numerous entities as bodies corporate and politic
which are authorized to issue bonds to carry out their corporate purposes.
Article X, Sections 16-24 of the Constitution of Missouri (the
"Tax Limitation Amendment"), imposes a limit on the amount of taxes and other
revenue enhancement charges such as user fees which may be imposed by the State
or a political subdivision in any fiscal year. This limit is tied to total State
revenues for the fiscal year ended June 30, 1981, as defined in the Tax
Limitation Amendment, adjusted annually, in accordance with the formula set
forth in the amendment. Under 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.
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If the excess revenues collected are less than 1%, then they are not refunded
but are transferred to the General Revenue Fund. Since passage of the
legislation, no refund to taxpayers has ever occurred.
The details of the Tax Limitation Amendment are complex. The
revenue limit can be exceeded only if the General Assembly approves by a
two-thirds vote of each house an emergency declaration as requested by the
Governor. As previously noted, however, Article III, Section 36 of the
Constitution of Missouri requires the General Assembly to appropriate the annual
principal and interest requirements for outstanding general obligation bonds
before any other appropriations are made. The revenue limitation also does not
apply to taxes imposed for payment of principal and interest on bonds that have
been approved by the voters, as authorized by the Missouri Constitution. The Tax
Limitation Amendment could adversely affect the repayment capabilities of
certain non-general obligation issues if payment is dependent upon increases in
taxes or appropriations by the State's General Assembly.
In the spring of 1993, the Missouri legislature passed into
law a $310,000,000 tax increase, with most of the increase being allocated for
state-wide education needs. This tax increase was approved by the citizens of
the state in November, 1994.
Revenue collections for the fiscal year ended June 30, 1996
("Fiscal Year 1996") were $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
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vote of a majority of the outstanding shares of that Portfolio (as defined under
"Other Information Concerning the Fund and Its Shares -- Miscellaneous" in the
Portfolios' Prospectuses). These investment limitations supplement those that
appear in the Prospectuses.
THE TREASURY MONEY MARKET PORTFOLIO MAY NOT:
1. Acquire any other investment company or investment company
security except in connection with a merger, consolidation, reorganization or
acquisition of assets or where otherwise permitted by the 1940 Act.
2. Borrow money except from banks for temporary purposes and
then in an amount not exceeding 10% of the value of the Portfolio's total
assets, or mortgage, pledge or hypothecate its assets except in connection with
any such borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of the value of the Portfolio's total assets at the time
of such borrowing. (This borrowing provision is not for investment leverage, but
solely to facilitate management of the Portfolio by enabling the Fund to meet
redemption requests where the liquidation of portfolio securities is deemed to
be inconvenient or disadvantageous).
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, lend
portfolio securities, and, under the certain circumstances described in the
Prospectuses, 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
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in such issuer, except that up to 25% of the value of a Portfolio's total assets
may be invested without regard to such 5% limitation.
3. Buy common stocks or voting securities, or state, municipal
or industrial revenue bonds.
4. Purchase or sell real estate (the Portfolio may purchase
commercial paper issued by companies which invest in real estate or interests
therein).
5. Purchase securities on margin, make short sales of
securities or maintain a short position.
6. Underwrite the securities of other issuers.
7. Purchase or sell commodity contracts, or invest in oil, gas
or mineral exploration or development programs.
8. Write or purchase put or call options.
In accordance with Rule 2a-7 of the 1940 Act, the Money Market
Portfolio intends to invest no more than five percent of its total assets in the
securities of any one issuer; provided, however, that the Portfolio may invest
more than five percent of its total assets in the First Tier Eligible Securities
of a single issuer for a period of up to three business days after the purchase
thereof, provided, further that the Portfolio would not make more than one
investment in accordance with the foregoing provision at any time. This
intention is not, however, a fundamental policy of the Portfolio and may change
in the event Rule 2a-7 is amended in the future.
THE TAX-EXEMPT MONEY MARKET PORTFOLIO MAY NOT:
1. Make loans, except that the Portfolio may purchase or hold
debt instruments in accordance with its investment objective and policies.
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, SMALL CAP EQUITY INDEX, 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
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which invest in real estate or interests therein; provided further that, as
described in the Prospectuses, (a) the Government & Corporate Bond Portfolio may
invest in first mortgage loans, income participation loans and participation
certificates in pools of mortgages, including mortgages issued or guaranteed by
the U.S. Government, its agencies or its instrumentalities and CMOs; (b) the
U.S. Government Securities Portfolio may invest in certain mortgage-backed
securities, CMOs and certain other securities; (c) the Intermediate Corporate
Bond Portfolio may invest in first mortgage loans, income participation loans
and participation certificates in pools of mortgages, including mortgages issued
or guaranteed by the U.S. Government, its agencies or instrumentalities,
mortgage-backed securities or CMOs; and (d) the Bond Index Portfolio may invest
in first mortgage loans, income participation loans and participations in pools
of mortgages, including mortgages issued or guaranteed by the U.S. Government,
its agencies or instrumentalities, and mortgage-backed securities.
3. Act as an underwriter of securities within the meaning of
the Securities Act of 1933 except insofar as a Portfolio might be deemed to be
an underwriter upon disposition of portfolio securities acquired within the
limitation on purchases of restricted securities and except to the extent that
the purchase of obligations directly from the issuer thereof in accordance with
a Portfolio's investment objective, policies and limitations may be deemed to be
underwriting.
4. Purchase or sell commodity contracts, or invest in oil, gas
or mineral exploration or development programs, except that the Intermediate
Corporate Bond, Bond Index, National Municipal Bond, Equity Income, Equity
Index, Small Cap 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, Equity Income and Small Cap Equity Index 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 GROWTH EQUITY PORTFOLIO MAY NOT:
1. Sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as are necessary for clearance of
purchases and sales of securities. The deposit or payment by the Portfolio of
initial or variation margin in connection with financial futures contracts or
related options transactions is not considered the purchase of a security on
margin.
2. Purchase or sell commodities, commodity contracts, or
commodity futures contracts except to the extent that the Portfolio may engage
in transactions involving financial futures contracts or options on financial
futures contracts.
3. Purchase or sell real estate, including limited partnership
interests, although the Portfolio may invest in securities of issuers whose
business involves the purchase or sale of real estate or in securities which are
secured by real estate or which represent interests in real estate.
4. Underwrite any issue of securities, except as the Portfolio
may be deemed to be an underwriter under the Securities Act of 1933, as amended,
in connection with the sale of securities in accordance with its investment
objective, policies, and limitations.
The following limitations may be changed by the Fund's Board
of Directors without shareholder approval, although shareholders will be
notified before any material change in these limitations becomes effective:
5. The Portfolio will not mortgage, pledge, or hypothecate any
assets, except to secure permitted borrowings. In these cases, the Portfolio may
pledge assets having a market value not exceeding the lesser of the dollar
amounts borrowed or 15% of the value of its total assets at the time of the
pledge. The purchase of securities on a when-issued basis will not be deemed to
be a pledge of the Portfolio's assets. For purposes of this limitation the
following will not be deemed to be pledges of the Portfolio's assets: (a) the
deposit of assets in escrow in connection with the writing of covered put or
call options and, (b) collateral arrangements with respect to (i) the purchase
and sale of stock options (and options on stock indexes) and (ii) initial or
variation margin for futures contracts.
6. The Portfolio will not invest more than 15% of the value of
its net assets in illiquid securities, including repurchase agreements providing
for settlement more than seven days after notice, over-the-counter options,
certain restricted securities not determined by the Fund's Board of Directors to
be
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liquid, and non-negotiable time deposits with maturities over seven days.
7. The Portfolio will limit its investment in other investment
companies to no more than 3% of the total outstanding voting stock of any
investment company, invest no more than 5% of its total assets in any one
investment company, and invest no more than 10% of its total assets in
investment companies in general. The Portfolio will purchase securities of
closed-end investment companies only in open market transactions involving only
customary broker's commissions. However, these limitations are not applicable if
the securities are acquired in a merger, consolidation, reorganization, or
acquisition of assets. It should be noted that investment companies incur
certain expenses such as management fees and, therefore, any investment by the
Portfolio in shares of another investment company would be subject to such
duplicate expenses.
8. The Portfolio will not purchase put options on securities,
unless the securities are held in its portfolio and not more than 5% of the
value of the Portfolio's total assets would be invested in premiums on open put
option positions.
9. The Portfolio will not write call options on securities
unless the securities are held in its portfolio or unless the Portfolio is
entitled to them in deliverable form without further payment or after
segregating cash in the amount of any further payment.
10. The Portfolio will not purchase securities of a company for
the purpose of exercising control or management.
11. The Portfolio will not invest more than 5% of its net assets
in warrants. No more than 2% of the Portfolio's net assets, to be included
within the overall 5% limit on investments in warrants, may be warrants which
are not listed on the New York Stock Exchange or the American Stock Exchange.
For purposes of this investment restriction, warrants will be valued at the
lower of cost or market, except that warrants acquired by the Portfolio in units
with or attached to securities may be deemed to be without value.
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.
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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.
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,
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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
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
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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.
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
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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.
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. S Shares of the Money Market
Portfolios are sold without a sales charge to customers who purchase such Shares
through cash management services, such as a sweep account offered by Mercantile,
any of its banking affiliates, and certain other financial service
organizations, such as banks and broker-dealers. Investor A Shares of each
Portfolio (other than Investor A Shares of the Money Market Portfolios which are
sold
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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, Equity Index and Small Cap Equity Index Portfolios,
which do not offer Investor B Shares) are sold to retail customers at the net
asset value next determined after a purchase order is received, but are subject
to a contingent deferred sales charge which is payable on redemption of such
shares as described in the applicable Prospectuses.
The Fund may redeem shares involuntarily if the net income with
respect to a Portfolio's shares is negative or such redemption otherwise appears
appropriate in light of the Fund's responsibilities under the 1940 Act.
An illustration of the computation of the public offering price
per share of Investor A Shares of the Equity and Bond Portfolios, based on the
value of each Portfolio's net assets and the number of outstanding Investor A
Shares on November 30, 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, Equity Index and Small Cap Equity Index Portfolios) currently
applicable, is as follows: (the following illustration is hypothetical with
respect to Investor A Shares of the Small Cap Equity Index Portfolio and is
based on the projected value of such Portfolio's estimated net assets and
projected number of outstanding shares on the date its shares are first offered
for sale to public investors).
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<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
Outstanding Shares
Net Asset Value
Per Share
Sales Charge, 4.50%
of offering price
(4.70% of net asset
value per share)
Offering Price
to Public
</TABLE>
<TABLE>
<CAPTION>
Growth & Income Small Cap International
Equity Growth Equity Equity Equity Balanced
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Assets
Outstanding Shares
Net Asset Value
Per Share
Sales Charge, 4.50%
of offering price
(4.70% of net
asset value per
share)
Offering Price
to Public
</TABLE>
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<PAGE> 432
<TABLE>
<CAPTION>
U.S. Government Short-Intermediate Equity Small Cap
Securities Bond Index Municipal Index Equity Index
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Assets
Outstanding Shares
Net Asset Value
Per Share
Sales Charge, 2.50%
of offering price
(2.60% of net
asset value per
share)
Offering Price
to Public
</TABLE>
Under the 1940 Act, a Portfolio may suspend the right of
redemption or postpone the date of payment for shares during any period when (a)
trading on the Exchange is restricted by applicable rules and regulations of the
SEC; (b) the Exchange is closed for other than customary weekend and holiday
closing; (c) the SEC has by order permitted such suspension; or (d) an emergency
exists as determined by the SEC. A Portfolio may also suspend or postpone the
recordation of the transfer of its shares upon the occurrence of any of the
foregoing conditions.
In addition to the situations described in the Prospectuses
under "How to Purchase and Redeem Shares," the Portfolios may redeem shares
involuntarily to reimburse the Portfolios for any loss sustained by reason of
the failure of a shareholder to make full payment for shares purchased by the
shareholder or to collect any charge relating to a transaction effected for the
benefit of a shareholder which is applicable to Portfolio shares as provided in
the applicable Prospectuses from time to time.
ADDITIONAL YIELD AND TOTAL RETURN INFORMATION
THE MONEY MARKET PORTFOLIOS
A Money Market Portfolio's "yield" and "effective yield," as
described in the Prospectuses, are calculated
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<PAGE> 433
separately for Trust Shares, Institutional Shares, S Shares, Investor A Shares
and Investor B Shares of the Portfolios according to formulas prescribed by the
SEC. Standardized 7 day "yield" is computed by determining the net change,
exclusive of capital changes, in the value of a hypothetical pre-existing
account in a Portfolio having a balance of one share at the beginning of the
period, subtracting a hypothetical charge reflecting deductions from
shareholder accounts, dividing the difference by the value of the account at
the beginning of the base period to obtain the base period return, and then
multiplying the base period return by (365/7). The net change in the value of
an account includes the value of additional shares purchased with dividends
from the original share, and dividends declared on both the original share and
any such additional shares, net of all fees, other than nonrecurring account or
sales charges, that are charged by the Portfolio to all shareholder accounts in
proportion to the length of the base period and the Portfolio's mean (or
median) account size. The capital changes to be excluded from the calculation
of the net change in account value are realized gains and losses from the sale
of securities and unrealized appreciation and depreciation. "Effective yield"
is computed by compounding the unannualized base period return (calculated as
above) by adding one to the base period return, raising the sum to a power
equal to 365 divided by seven, and subtracting one from the result. Based upon
the same calculations, each Portfolio's 30 day yields and 30 day effective
yields may also be quoted. The Tax-Exempt Money Market Portfolio's
"tax-equivalent yield" is computed by dividing the tax-exempt portion of the
yield (calculated as above) by one minus a stated federal income tax rate and
adding the product to that portion, if any, of the yield that is not
tax-exempt. In addition, a "Missouri" tax-equivalent yield may be calculated by
dividing the portion of the Tax-Exempt Money Market Portfolio's yield
(calculated as above) that is exempt from federal tax and the portion that is
exempt from Missouri personal income tax by one minus a stated tax rate and
adding such figure to that portion, if any, of the Portfolio's yield that is
not exempt from federal or state income tax. Based on the foregoing
calculations, for the year ended November 30, 1997, the 7-day yields, 7-day
effective yields and the 30-day yields were as follows:
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<PAGE> 434
<TABLE>
<CAPTION>
7-Day Effective
Portfolio* 7-Day Yield Yield 30-Day Yield
--------- ----------- --------------- ------------
<S> <C> <C> <C> <C>
Treasury Money Market
Trust Shares
Institutional Shares
Investor A Shares
Money Market
Trust Shares
Institutional Shares
Investor A Shares
Investor B Shares
Tax-Exempt Money Market
Trust Shares
Investor A Shares
<FN>
- --------------------
* S Shares of the Money Market Portfolios were not offered as
of November 30, 1997.
</TABLE>
Based on the foregoing calculations, the tax-equivalent yields
and tax-equivalent effective yields of the Tax-Exempt Money Market Portfolio for
the same 7-day and 30-day periods were as follows (assuming payment of federal
income tax at a rate of 39.60%):
<TABLE>
<CAPTION>
7-DAY TAX- 30-DAY TAX-
7-DAY TAX- EQUIVALENT EQUIVALENT
PORTFOLIO EQUIVALENT YIELD EFFECTIVE YIELD YIELD
<S> <C> <C> <C>
Tax-Exempt Money Market
Trust Shares
Investor A Shares
</TABLE>
In addition, as described in the applicable Prospectuses, the
Treasury Money Market Portfolio may calculate a 7 day "state tax-exempt yield,"
which is computed by dividing the portion of the Portfolio's yield (calculated
as above) that is exempt from state income tax by one minus a state income tax
rate. Based upon the same calculations, the Portfolio's 30 day state tax-exempt
yield may also be quoted.
A Portfolio's quoted yield is not indicative of future yields
and depends upon factors such as portfolio maturity, the Portfolio's expenses,
and the types of instruments held by the Portfolio. Any account fees imposed by
financial institutions,
-49-
<PAGE> 435
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, 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 [(-------)(to the power of 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
-50-
<PAGE> 436
day of each 30 day period, or, with respect to obligations purchased during the
30 day period, the purchase price (plus actual accrued interest) and dividing
the result by 360 and multiplying the quotient by the market value of the
obligation (including actual accrued interest) in order to determine the
interest income on the obligation for each day of the subsequent 30 day period
that the obligation is in the portfolio. The maturity of an obligation with a
call provision is the next call date on which the obligation reasonably may be
expected to be called or, if none, the maturity date. With respect to debt
obligations purchased at a discount or premium, the formula generally calls for
amortization of the discount or premium. The amortization schedule will be
adjusted monthly to reflect changes in the market values of such debt
obligations.
Interest earned on Municipal Obligations of the Short-
Intermediate Municipal, Missouri Tax-Exempt Bond and 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,
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<PAGE> 437
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, if any, of the Portfolio's yield that is not
exempt from federal or state income tax.
The Fund currently calculates 30-day yields for its Bond
Portfolios but not for its Equity Portfolios. For the 30-day period ended
November 30, 1997, the yields on the Bond Portfolios were as follows:
<TABLE>
<CAPTION>
PORTFOLIO 30-DAY YIELD
--------- ------------
<S> <C>
U.S. Government Securities
Trust Shares
Institutional Shares
Investor A Shares
Investor B Shares
Intermediate Corporate Bond
Trust Shares
Institutional Shares
Investor A Shares
Bond Index
Trust Shares
Institutional Shares
Investor A Shares
Government & Corporate Bond
Trust Shares
Institutional Shares
Investor A Shares
Investor B Shares
Short-Intermediate Municipal
Trust Shares
Investor A Shares
Missouri Tax Exempt Bond
Trust Shares
Investor A Shares
Investor B Shares
National Municipal Bond
Trust Shares
Investor A Shares
Investor B Shares
</TABLE>
-52-
<PAGE> 438
Balanced
Trust Shares
Institutional Shares
Investor A Shares
Investor B Shares
For the same 30-day period, the Short-Intermediate Municipal,
Missouri Tax-Exempt Bond and National Municipal Bond Portfolios' tax-equivalent
yields (assuming payment of federal income taxes at a rate of 39.60%) and the
Missouri Tax-Exempt Bond Portfolio's Missouri tax-equivalent yield (assuming
Missouri state income taxes at a rate of 43.20%) were as follows:
<TABLE>
<CAPTION>
30-DAY TAX- 30-DAY MISSOURI
PORTFOLIO EQUIVALENT YIELD TAX-EQUIVALENT YIELD
<S> <C> <C>
Short-Intermediate Municipal
Trust Shares
Investor A Shares
Missouri Tax-Exempt Bond
Trust Shares
Investor A Shares
Investor B Shares
National Municipal Bond
Trust Shares
Investor A Shares
Investor B Shares
</TABLE>
A Portfolio computes its "average annual total return" for
each series of that Portfolio by determining the average annual compounded rate
of return during specified periods that would equate the initial amount invested
in a particular series to the ending redeemable value of such investment in the
series by dividing the ending redeemable value of a hypothetical $1,000 payment
by $1,000 (representing a hypothetical initial payment) and raising the quotient
to a power equal to one divided by the number of years (or fractional portion
thereof) covered by the computation and subtracting one from the result. This
calculation can be expressed as follows:
ERV 1/n
T = [(-------) - 1]
P
Where: T = average annual total return
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<PAGE> 439
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
1, 5 or 10 year (or other) periods at the end
of the 1, 5 or 10 year (or other) periods (or
a fractional portion thereof)
P = hypothetical initial payment of $1,000
n = period covered by the computation, expressed
in terms of years
A Portfolio computes its aggregate total returns separately
for each series by determining the aggregate compounded rates of return during
specified periods that likewise equate the initial amount invested in a
particular series to the ending redeemable value of such investment in the
series. The formula for calculating aggregate total return is as follows:
ERV
Aggregate Total Return = [(------)- 1]
P
The calculations of average annual total return and aggregate
total return assume reinvestment of all income dividends and capital gain
distributions on the reinvestment dates during the period and include all
recurring fees charged to all shareholder accounts, assuming an account size
equal to a Portfolio's mean or median account size for any fees that vary with
the size of the account. The ending redeemable value (variable "ERV" in each
quotation) is determined by assuming complete redemption of the hypothetical
investment and the deduction of all non-recurring charges at the end of the
period covered by the computation. In addition, a non-money market Portfolio's
average annual total return and aggregate total return quotations reflect the
deduction of the maximum front-end sales charge in connection with the purchase
of Investor A Shares and the deduction of any applicable contingent deferred
sales charge with respect to Investor B Shares.
Based on the foregoing calculations, the average annual total
returns for the year/period ended November 30, 1997, the average annual total
returns for the 5-year period ended November 30, 1997 (where applicable) and the
average annual total returns for the period from commencement of operations were
as follows:
AVERAGE ANNUAL TOTAL RETURN
---------------------------
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<PAGE> 440
<TABLE>
<CAPTION>
FOR THE 5 SINCE
FOR THE YEAR YEARS ENDED COMMENCEMENT
PORTFOLIO ENDED 11/30/97 11/30/97 OF OPERATIONS
--------- -------------- ----------- --------------
<S> <C> <C> <C>
U.S. Government Securities
Trust Shares(1)
Institutional Shares(7)
Investor A Shares(1)
Investor B Shares(4)
Intermediate Corporate Bond(23)
Trust Shares
Institutional Shares
Investor A Shares
Bond Index(23)
Trust Shares
Institutional Shares
Investor A Shares
Government & Corporate Bond
Trust Shares(5)
Institutional Shares(2)
Investor A Shares(5)
Investor B Shares(4)
Short-Intermediate Municipal
Trust Shares(17)
Investor A Shares(18)
Missouri Tax-Exempt Bond(19)
Trust Shares(20)
Investor A Shares(21)
Investor B Shares(4)
National Municipal Bond(22)
Trust Shares
Investor A Shares
Investor B Shares
Equity Income(24)
Trust Shares
Institutional Shares
Investor A Shares
Investor B Shares
Equity Index(25)
Trust Shares
Institutional Shares
Investor A Shares
Growth & Income Equity
Trust Shares(1)
Institutional Shares(2)
Investor A Shares(1)
Investor B Shares(4)
</TABLE>
-55-
<PAGE> 441
Growth Equity
Trust Shares(26)
Institutional Shares(26)
Investor A Shares(27)
Investor B Shares(26)
Small Cap Equity
Trust Shares(9)
Institutional Shares(2)
Investor A Shares(10)
Investor B Shares(4)
Small Cap Equity Index(28)
Trust Shares
Institutional Shares
Investor A Shares
International Equity
Trust Shares(14)
Institutional Shares(14)
Investor A Shares(15)
Investor B Shares(4)
Balanced
Trust Shares(12)
Institutional Shares(12)
Investor A Shares(12)
Investor B Shares(4)
- --------------------------------
(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.
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<PAGE> 442
(13) Reflects combined performance of Institutional Shares which were
initially offered to the public on January 4, 1994 and Investor A
Shares for the period April 1, 1993 through January 3, 1994.
(14) Commenced operations on April 4, 1994. (15) Initial public
offering commenced on May 2, 1994.
(16) Reflects combined performance of Institutional Shares which were
initially offered to the public on April 24, 1994 and Investor A
Shares for the period April 4, 1994 through April 23, 1994.
(17) Commenced operations on July 10, 1995.
(18) Commenced operations on July 10, 1995.
(19) Commenced operations on July 15, 1988 as a portfolio of The ARCH
Tax-Exempt Trust. On October 2, 1995, the Portfolio was
reorganized as a new Portfolio of the Fund.
(20) Commenced operations on July 15, 1988.
(21) Initial public offering commenced on September 28, 1990.
(22) Commenced operations on November 18, 1996.
(23) Commenced operations on February 10, 1997.
(24) Commenced operations on March 7, 1997.
(25) Commenced operations on May 1, 1997.
(26) Commenced Operations on November 21, 1997.
(27) Performance information includes that of Predecessor Growth Equity
Portfolio, which commenced operations on January 4, 1993.
(28) Portfolio had not commenced operations as of November 30, 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 November 30, 1997 (other than the Small Cap
Equity Index Portfolios which had not commenced operations as of November 30,
1997) were as follows:
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<PAGE> 443
<TABLE>
<CAPTION>
AGGREGATE TOTAL RETURN
PORTFOLIO SINCE COMMENCEMENT
--------- OF OPERATIONS
------------------------
<S> <C>
U.S. Government Securities
Trust Shares
Institutional Shares(1)
Investor A Shares
Investor B Shares(2)
Intermediate Corporate Bond
Trust Shares
Institutional Shares
Investor A Shares
Bond Index
Trust Shares
Institutional Shares
Investor A Shares
Government & Corporate Bond
Trust Shares
Institutional Shares(1)
Investor A Shares
Investor B Shares(2)
Short-Intermediate Municipal
Trust Shares
Investor A Shares
Missouri Tax-Exempt Bond
Trust Shares
Investor A Shares
Investor B Shares(2)
National Municipal Bond
Trust Shares
Investor A Shares
Investor B Shares
Equity Income
Trust Shares
Institutional Shares
Investor A Shares
Investor B Shares
Equity Index
Trust Shares
Institutional Shares
Investor A Shares
Growth & Income Equity
Trust Shares
Institutional Shares(1)
Investor A Shares
Investor B Shares(2)
Growth Equity
Trust Shares
Institutional Shares
Investor A Shares(3)
Investor B Shares
</TABLE>
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<PAGE> 444
<TABLE>
<CAPTION>
AGGREGATE TOTAL RETURN
PORTFOLIO SINCE COMMENCEMENT
--------- OF OPERATIONS
------------------------
<S> <C>
Small Cap Equity
Trust Shares
Institutional Shares(1)
Investor A Shares
Investor B Shares(2)
International Equity
Trust Shares
Institutional Shares(1)
Investor A Shares
Investor B Shares(2)
Balanced
Trust Shares
Institutional Shares(1)
Investor A Shares
Investor B Shares(2)
</TABLE>
(1) Reflects combined performance of Institutional Shares which were initially
offered to the public on January 4, 1994 and Investor A Shares for the period
prior to January 4, 1994.
(2) Investor B Shares were initially offered on March 1, 1995. The performance
figures for Investor B Shares for periods prior to such date represent the
performance for Investor A Shares of the Portfolio which has been restated to
reflect the contingent deferred sales charges payable by holders of Investor B
Shares that redeem within six years of the date of purchase. Investor B Shares
are also subject to distribution and services fees at a maximum annual rate of
1.00%. Had those distribution and services fees been reflected, performance
would have been reduced.
(3) Total return information includes that of Predecessor Growth Equity
Portfolio, which commenced operations on January 4, 1993.
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
-59-
<PAGE> 445
publications that monitor the performance of mutual funds. Such comparisons may
also be made by referring to data prepared by Lipper Analytical Services, Inc.,
(a widely recognized independent service which monitors the performance of
mutual funds) Indata, Frank Russell, CDA, and the Bank Rate Monitor (which
reports average yields for money market accounts offered by the 50 leading banks
and thrift institutions in the top five standard metropolitan statistical
areas). Other similar yield data, including comparisons to the performance of
Mercantile repurchase agreements, or the average yield data for similar asset
classes including but not limited to Treasury bills, notes and bonds, may also
be used for comparison purposes. Comparisons may also be made to indices or data
published in the following national financial publications: IBC/Donoghue's MONEY
FUND REPORT(R), MorningStar, CDA/Wiesenberger, Money Magazine, Forbes, Fortune,
Barron's, The Wall Street Journal, The New York Times, Business Week, American
Banker, Fortune, Institutional Investor, U.S.A. Today and publications of
Ibbotson Associates, Inc. and other publications of a local or regional nature.
In addition to performance information, general information about the Portfolios
that appears in a publication such as those mentioned above may be included in
advertisements, supplemental sales literature and in reports to Shareholders.
From time to time, the Fund may include the following types of
information in advertisements, supplemental sales 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
-60-
<PAGE> 446
or lower than those shown. The tax brackets shown below will be indexed for
inflation for years after 1998. Investors should consult their tax advisor
with specific reference to their own tax situation.
<TABLE>
<CAPTION>
APPROXIMATE YIELD TABLE: SHORT-INTERMEDIATE MUNICIPAL AND NATIONAL MUNICIPAL BOND PORTFOLIOS
SINGLE RETURN
Sample Taxable Federal
Income Marginal
(1998) Tax Rate --------Tax-Exempt Yields---------
<S> <C> <C> <C> <C> <C> <C>
4.50% 5.00% 5.50% 6.50% 7.00%
FROM
$0 TO
$24,000 15.00% 5.29% 5.88% 6.47% 7.65% 8.24%
FROM
$24,000 TO
$58,150 28.00% 6.25% 6.64% 7.64% 9.03% 9.72%
FROM
$58,150 TO
$121,300 31.00% 6.52% 7.25% 7.97% 9.42 10.41%
FROM
$121,300 TO
$263,750 36.00% 7.03% 7.81% 8.59% 10.16% 10.94%
OVER
$263,750 39.60% 7.45% 8.28% 9.11% 10.76% 11.59%
<CAPTION>
APPROXIMATE YIELD TABLE: SHORT-INTERMEDIATE MUNICIPAL AND NATIONAL MUNICIPAL BOND PORTFOLIOS
MARRIED FILING
JOINTLY
Sample Taxable Federal
Income Marginal
(1998) Tax Rate ----------Tax-Exempt Yields-----------
<S> <C> <C> <C> <C> <C> <C>
4.50% 5.00% 5.50% 6.50% 7.00%
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> 447
<TABLE>
<CAPTION>
APPROXIMATE YIELD TABLE: MISSOURI TAX-EXEMPT BOND PORTFOLIO
SINGLE RETURN Combined
Federal and ---------------Tax-Exempt Yields--------------
Sample Taxable Federal Missouri Missouri
Income Marginal Marginal Marginal Tax
(1998) Tax Rate Tax Rate Rate 4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
<S> <C> <C> <C> <C> <C> <C>
FROM
$0 TO
$24,000 15.00% 6.00% 20.10% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
FROM
$24,000 TO
$58,150 28.00% 6.00% 32.32% 6.65% 7.39% 8.13% 8.87% 9.60% 10.34%
FROM
$58,150 TO
$121,300 31.00% 6.00% 35.14% 6.94% 7.71% 8.48% 9.25% 10.02% 10.79%
FROM
$121,300 TO
$263,750 36.00% 6.00% 39.84% 7.48% 8.31% 9.14% 9.97% 10.80% 11.64%
OVER
$263,750 39.60% 6.00% 43.22% 7.93% 8.81% 9.69% 10.57% 11.45% 12.33%
</TABLE>
<TABLE>
<CAPTION>
APPROXIMATE YIELD TABLE: MISSOURI TAX-EXEMPT BOND PORTFOLIO
MARRIED FILING
JOINTLY Combined
Federal and ---------------Tax-Exempt Yields--------------
Sample Taxable Federal Missouri Missouri
Income Marginal Marginal Marginal Tax
(1998) 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.
-62-
<PAGE> 448
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, INSTITUTIONAL OR S SHARES - 1-800-452-4015.
DESCRIPTION OF SHARES
The Fund's Articles of Incorporation authorize the Board of Directors
to issue up to twenty 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 sixty-four classes of shares representing interests
in one of nineteen 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, Growth Equity, Small Cap Equity,
Small Cap Equity Index, International Equity and Balanced Portfolios. Trust
Shares, Institutional Shares, S Shares, Investor A Shares, and Investor B Shares
in each Portfolio (except the Treasury Money Market, Intermediate Corporate
Bond, Bond Index, Equity Index and Small Cap 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, the
Missouri Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios, which do not
offer Institutional Shares and the Equity and Bond Portfolios, which do not
offer S 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
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<PAGE> 449
below with respect to the Administrative Services Plans for Trust Shares and
Institutional Shares and the Distribution and Services Plans for S Shares,
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, S Shares of a particular Portfolio will be solely
responsible for that Portfolio's payments pursuant to the Distribution and
Services 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 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 S 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 S
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
-64-
<PAGE> 450
and only Investor B Shares of a Portfolio will be entitled to vote on matters
submitted to a vote of shareholders pertaining to such Portfolio's Distribution
and Services Plan for Investor B Shares. Further, shareholders of all of the
Portfolios, irrespective of class, will vote in the aggregate and not separately
on a Portfolio-by-Portfolio basis, except as otherwise required by law or when
the Board of Directors determines that the matter to be voted upon affects only
the interests of the shareholders of a particular Portfolio or class of shares.
Rule 18f-2 under the 1940 Act provides that any matter required to be submitted
to the holders of the outstanding voting securities of a "series" investment
company such as the Fund shall not be deemed to have been effectively acted upon
unless approved by the holders of a majority of the outstanding shares of each
series (Portfolio) affected by the matter. A Portfolio is considered to be
affected by a matter unless it is clear that the interests of each Portfolio in
the matter are identical or that the matter does not affect any interest of the
Portfolio. Under the Rule, the approval of an investment advisory agreement or
any change in 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
-65-
<PAGE> 451
satisfy, in addition to the distribution requirement described in the
Prospectuses, certain other requirements set forth below.
At least 90% of the gross income for a taxable year of each
Portfolio must be derived from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stock, securities
or foreign currencies, and other income (including, but not limited to, gains
from options, futures, or forward contracts) derived with respect to the
Portfolio's business of investing in such stock, securities or currencies (the
"Gross Income Requirement").
-66-
<PAGE> 452
Also, at the close of each quarter of its taxable year, at
least 50% of the value of a Portfolio's assets must consist of cash and cash
items, U.S. Government securities, securities of other regulated investment
companies, and securities of other issuers (as to which a Portfolio has not
invested more than 5% of the value of its total assets in securities of such
issuer and as to which that Portfolio does not hold more than 10% of the
outstanding voting securities of such issuer) and no more than 25% of the value
of such Portfolio's total assets may be invested in the securities of any one
issuer (other than U.S. government securities and securities of other 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. Such long-term capital gain will be 20% or 28% rate gain, depending
upon the Fund's holding period for the assets the sale of which generated the
capital gain. 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.
-67-
<PAGE> 453
If for any taxable year a Portfolio does not qualify for the
special federal income tax treatment afforded regulated investment companies,
all of its taxable income will be subject to federal income tax at regular
corporate rates (without any deduction for distributions to its shareholders).
In such event, dividend distributions would be taxable as ordinary income to
shareholders, to the extent of the Portfolio's current and accumulated earnings
and profits and would be eligible for the dividends received deduction allowed
to corporate shareholders.
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
-68-
<PAGE> 454
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 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, Growth Equity, Small Cap Equity,
Small Cap Equity Index, 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,
and on the income or gain qualifying under the 90% Gross Income test.
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
-69-
<PAGE> 455
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. 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 not 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
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<PAGE> 456
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 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.
-71-
<PAGE> 457
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.
-72-
<PAGE> 458
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: 54
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: 52
Joseph J. Hunt Director General Vice-President
Iron Workers District International Association of
Council Bridge, Structural and Orna-
3544 Watson Road mental Iron Workers (Interna-
St. Louis, MO 63139 tional Labor Union), January 1994
Age: 55 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: 52 Kellwood Company since May
1989.
<FN>
- ------------------------
* Mr. Woodham is an "interested person" of the Fund as defined in the 1940
Act.
</TABLE>
-73-
<PAGE> 459
<TABLE>
<CAPTION>
Principal Occupations
Position with During Past 5 Years
Name And Address The Fund And Other Affiliations
- ---------------- ------------- -----------------------
<S> <C> <C>
Donald E. Brandt Director Senior Vice President, Finance
Union Electric Company and Corporate Services, Union
P.O. Box 66149 Electric Company (electric
St. Louis, MO 63166 utility company); Director,
Age: 43 Huntco, Inc. (intermediate
steel processors).
Patrick J. Moore Director Vice President & Chief
Jefferson Smurfit Financial Officer since 1996
Corporation and Vice President & General
8182 Maryland Avenue Manager, 1994-1996, of
St. Louis, MO 63105 Industrial Packaging Division,
Age: 43 Corporate Vice President &
Treasurer, 1993-1994, and Treasurer,
1992-1993, Jefferson Smurfit Corporation
(paper, paperboard and packaging).
Ronald D. Winney* Director and Treasurer Treasurer, Ralston Purina
Ralston Purina Company Company Since 1985.
Checkerboard Square
St. Louis, MO 63164
Age: 55
W. Bruce McConnel, III* Secretary Partner of the law firm of
Suite 1100 Drinker Biddle & Reath LLP,
1345 Chestnut Street Philadelphia, Pennsylvania
Philadelphia, PA 19107 Since 1977.
Age: 55
Walter B. Grimm* Vice President and Employee of BISYS Fund
3435 Stelzer Road Assistant Treasurer Services.
Columbus, OH 43219
Age: 52
David Bunstine Assistant Secretary Employee of BISYS Fund
3435 Stelzer Road Services.
Columbus, OH 43219 Age: 32
<FN>
- ------------------------
* Messrs. Grimm, Winney, McConnel and Bunstine are "interested persons" of the Fund
as defined in the 1940 Act.
</TABLE>
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, 1997, the
Fund paid or accrued for the account of its directors as a group, for services
in all capacities, a total of $_________. Drinker Biddle & Reath LLP, of which
Mr. McConnel is a partner, receives legal
-74-
<PAGE> 460
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, 1997:
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT TOTAL
AGGREGATE BENEFITS ACCRUED COMPENSATION
COMPENSATION AS PART OF FUND FROM THE FUND AND
NAME OF DIRECTOR** FROM THE FUND EXPENSE FUND COMPLEX*
------------------ ------------- ------- -------------
<S> <C> <C> <C>
Jerry V. Woodham N/A
Robert M. Cox, Jr. N/A
Joseph J. Hunt N/A
James C. Jacobsen N/A
Donald E. Kiernan*** N/A
Lyle L. Meyer*** N/A
Ronald D. Winney N/A
</TABLE>
* The "Fund Complex" consists solely of the Fund.
** Messrs. Brandt and Moore were not directors of the Fund as of November
30, 1997.
*** Messrs. Kiernan and Meyer each resigned as directors of the Fund on
April 3, 1997 and September 17, 1997, respectively.
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
-75-
<PAGE> 461
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 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
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<PAGE> 462
shareholders. For the fiscal year or period ended November 30, 1997, MVA (and
with respect to the Growth Equity Portfolio, the predecessor adviser) 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
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(1)
The ARCH Bond Index Portfolio(1)
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(2)
The ARCH Equity Index Portfolio(3)
The ARCH Growth & Income Equity Portfolio
The ARCH Growth Equity Portfolio(4)
The ARCH Small Cap Equity Portfolio
The ARCH International Equity Portfolio
The ARCH Balanced Portfolio
</TABLE>
- ----------------------
1. For the period from commencement of operations (February 10, 1997)
through November 30, 1997.
2. For the period from commencement of operations (March 7, 1997) through
November 30, 1997.
3. For the period from commencement of operations (May 1, 1997) through
November 30, 1997.
4. For the period October 1, 1997 through November 30, 1997.
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<PAGE> 463
For the fiscal year or period ended November 30, 1996, 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 $882,177 $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 $147,782
The ARCH Missouri Tax-Exempt Bond
Portfolio $327,773 $0
The ARCH National Municipal Bond Portfolio(1) $0 $70,262
The ARCH Growth & Income Equity Portfolio $2,231,228 $0
The ARCH Small Cap Equity Portfolio $1,556,817 $62
The ARCH International Equity Portfolio $393,668 $140,840
The ARCH Balanced Portfolio $950,916 $0
- ----------------------
1. For period from commencement of operations (November 18, 1996) through
November 30, 1996.
</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
</TABLE>
-78-
<PAGE> 464
<TABLE>
<CAPTION>
FEES PAID
PORTFOLIOS (AFTER WAIVERS) WAIVERS
---------- --------------- -------
<S> <C> <C>
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
The ARCH Balanced Portfolio $775,992 $0
<FN>
- ------------------------
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.
</TABLE>
For the year ended May 31, 1995, 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 1995
---- ----
<S> <C> <C>
The Predecessor Tax-Exempt
Money Market Portfolio $327,584 $93,173
The Predecessor Missouri Tax-
Exempt Bond Portfolio $230,777 $91,762
</TABLE>
For the fiscal year ended September 30, 1997, MVA (and the
predecessor adviser, Mark Twain Bank) earned advisory fees of $_______ with
respect to the Predecessor Growth Equity Portfolio, of which $_______ was
waived. For the fiscal years ended September 30, 1996 and 1995, Mark Twain Bank
earned advisory fees of $368,254 and $253,371, respectively with respect to the
Predecessor Growth Equity Portfolio, of which $13,853 and $15,785, respectively,
were waived.
For the fiscal year or period ended November 30, 1997, the
Administrator (and with respect to the Growth Equity
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<PAGE> 465
Portfolio, the predecessor
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
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(1)
The ARCH Bond Index Portfolio(1)
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(1)
The ARCH Equity Income Portfolio(2)
The ARCH Equity Index Portfolio(3)
The ARCH Growth & Income Equity Portfolio
The ARCH Growth Equity Portfolio(4)
The ARCH Small Cap Equity Portfolio
The ARCH International Equity Portfolio
The ARCH Balanced Portfolio
<FN>
- ----------------------
1. For the period from commencement of operations (February 10, 1997)
through November 30, 1997.
2. For the period from commencement of operations (March 7, 1997) through
November 30, 1997.
3. For the period from commencement of operations (May 1, 1997) through
November 30, 1997.
4. For the period October 1, 1997 through November 30, 1997.
</TABLE>
For the fiscal year or period ended November 30, 1996, the
Administrator was paid administration fees, after waivers, as follows:
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<PAGE> 466
<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 $7,016 $18,530
Portfolio(1)
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
<FN>
- ----------------------
1. For period from commencement of operations (November 18, 1996) through
November 30, 1996.
</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 $629,331 $629,431
The ARCH Tax-Exempt Money Market
Portfolio(1) $46,188 $0
The ARCH U.S. Government Securities
Portfolio $46,262 $46,322
The ARCH Government & Corporate Bond
Portfolio $146,859 $147,087
The ARCH Short-Intermediate Municipal
Portfolio(2) $6,965 $6,914
</TABLE>
-81-
<PAGE> 467
<TABLE>
<CAPTION>
FEES PAID
PORTFOLIOS (AFTER WAIVERS) WAIVERS
---------- --------------- -------
<S> <C> <C>
The ARCH Missouri Tax-Exempt Bond
Portfolio(1) $34,689 $34,808
The ARCH Growth & Income Equity
Portfolio $315,754 $316,168
The ARCH Small Cap Equity Portfolio $128,398 $128,825
The ARCH International Equity Portfolio $47,635 $15,949
The ARCH Balanced Portfolio $103,465 $103,589
<FN>
- ---------------
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
</TABLE>
For the year ended May 31, 1995, 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
---------- --------------- -------
1995 1995
------ ----
<S> <C> <C>
The Predecessor Tax-Exempt Money
Market Portfolios $105,189 $0
The Predecessor Missouri Tax-
Exempt Bond Portfolio $143,351 $71,654
</TABLE>
For the fiscal years ended September 30, 1997, 1996 and 1995, Federated
Administrative Services, the former administrator of the Predecessor Growth
Equity Portfolio, earned administrative fees of $_______, $71,420 and $52,746,
respectively.
The Small Cap Equity Index Portfolio had not commenced operations as of
November 30, 1997.
CUSTODIAN AND TRANSFER AGENT
Mercantile is Custodian of the Portfolios' assets pursuant to
a Custodian Agreement. Under the Custodian
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<PAGE> 468
Agreement, Mercantile has agreed to (i) maintain a separate account or accounts
in the name of each Portfolio; (ii) receive and disburse money on behalf of each
Portfolio; (iii) collect and receive all income and other payments and
distributions on account of each Portfolio's portfolio securities; (iv) respond
to correspondence relating to its duties; and (v) make periodic reports to the
Fund's Board of Directors concerning the operations of each Portfolio.
Mercantile may, at its own expense, open and maintain a custody account or
accounts on behalf of each Portfolio with other banks or trust companies,
provided that Mercantile shall remain liable for the performance of all of its
custodial duties under the Custodian Agreement, notwithstanding any delegation.
Mercantile is authorized to select one or more banks or trust companies to serve
as sub-custodian on behalf of the Portfolios, provided that Mercantile shall
remain responsible for the performance of all of its duties under the Custodian
Agreement and shall hold the Fund harmless from the acts and omissions of any
bank or trust company servicing as sub-custodian.
In the opinion of the staff of the SEC, since the Custodian is
an affiliate of the investment adviser, the Fund and the Custodian are subject
to the requirements of Rule 17f-2 under the 1940 Act. Accordingly the Fund and
the Custodian intend to comply with the requirements of such rule.
Pursuant to the Custodian Agreement with the Fund, each
Portfolio pays Mercantile an annual fee. For each Money Market Portfolio this
fee is paid monthly and calculated daily at the rate of $.125 for each $1,000 of
each such Portfolio's average daily net assets plus, in the case of the
Tax-Exempt Money Market Portfolio only, $50 for each interest collection or
claim item. For the Equity and Bond Portfolios (except the International Equity
Portfolio), this fee, which is paid monthly, is calculated as the greater of
$6,000 or $.30. For the International Equity Portfolio, this fee, which is
calculated daily and paid monthly, is .17% of the Portfolio's average daily net
assets for the first $50 million; .155% of the Portfolio's average daily net
assets for the next $50 million; .13% of the Portfolio's average daily net
assets for the next $150 million; and .105% of the Portfolio's average daily net
assets thereafter. Each Equity and Bond Portfolio also pays $15.00 for each
purchase, sale or delivery of a security upon its maturity date, $50.00 for each
interest collection or claim item, $20.00 for each transaction involving GNMA,
tax-free or other non-depository registered items with monthly dividends or
interest, $30.00 for each purchase, sale or expiration of an option contract,
$50.00 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
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<PAGE> 469
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, 1997,
1996 and 1995, the Distributor received front-end sales charges in connection
with Investor A share purchases as follows: U.S. Government Securities Portfolio
- -- $__________, $823 and $6,238, respectively; Government & Corporate Bond
Portfolio -- $__________, $4,655 and $10,250, respectively; Missouri Tax-Exempt
Bond Portfolio -- $__________, $23,210 and $45,981, respectively; Growth &
Income Equity Portfolio -- $__________, $74,288 and $96,851, respectively; Small
Cap Equity Portfolio -- $__________, $18,763 and $60,626, respectively; and
Balanced Portfolio -- $__________, $2,705 and $7,442, respectively. For the
fiscal years ended November 30, 1997, 1996 and 1995, the Distributor received
front-end sales charges in connection with Investor A share purchases of the
International Equity Portfolio of $__________, $11,417 and $14,251. For the
fiscal years ended November 30, 1997, 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 and $0. For the fiscal
year ended
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<PAGE> 470
November 30, 1997 and 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 $__________ and $0, respectively. For the period
February 10, 1997 (commencement of operations) through November 30, 1997, the
Distributor received front-end sales charges in connection with Investor A
Shares of the Intermediate Corporate Bond Portfolio and Bond Index Portfolio of
$________ and $________, respectively. For the period March 7, 1997
(commencement of operations) through November 30, 1997, the Distributor received
front-end sales charges in connection with Investor A Shares of the Equity
Income Portfolio of $__________. For the period May 1, 1997 (commencement of
operations) through November 30, 1997, the Distributor received front-end sales
charges in connection with Investor A Shares of $___________. For the period
November 21, 1997 (date Predecessor Growth Equity Portfolio reorganized into the
Growth Equity Portfolio) through November 30, 1997, the Distributor received
front-end sales charges in connection with Investor A Shares of the Growth
Equity Portfolio of $____________. Of these amounts, the Distributor retained
$__________, $126 and $784, respectively, and MVA and affiliates retained
$__________, $385 and $2,101, respectively, with respect to the U.S. Government
Securities Portfolio; the Distributor retained $__________, and MVA and
affiliates retained $_________ with respect to the Intermediate Corporate Bond
Portfolio; the Distributor retained $__________, and MVA and affiliates retained
$__________ with respect to the Bond Index Portfolio; the Distributor retained
$__________, $0 and $1,354, respectively, and MVA and affiliates retained
$__________, $3,535 and $8,711, respectively, with respect to the Government &
Corporate Bond Portfolio; the Distributor retained $__________, $416 and $6,400,
respectively, and MVA and affiliates retained $__________, $5,850 and $9,735,
respectively, with respect to the Missouri Tax-Exempt Bond Portfolio; the
Distributor retained $__________, and MVA and affiliates retained $__________
with respect to the Equity Income Portfolio; the Distributor retained
$__________, and MVA and affiliates retained $__________ with respect to the
Equity Index Portfolio; the Distributor retained $__________, $1,850 and
$11,647, respectively, and MVA and affiliates retained $__________, $27,769 and
$27,761, respectively, with respect to the Growth & Income Equity Portfolio; the
Distributor retained $__________, and MVA and affiliates retained $__________
with respect to the Growth Equity Portfolio; the Distributor retained
$__________, $192 and $7,085, respectively, and MVA and affiliates retained
$__________, $10,277 and $15,259, respectively, with respect to the Small Cap
Equity Portfolio; the Distributor retained $__________, $92 and $871,
respectively, and MVA and affiliates retained $__________, $1,311 and $2,721,
respectively, with respect to the Balanced
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<PAGE> 471
Portfolio; the Distributor retained $__________, $1 and $1,626, respectively,
and MVA and affiliates retained $__________, $8,226 and $5,431, 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 $__________ and $0 and MVA and
affiliates retained $__________ and $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 years ended November 30, 1997 and 1996 and the period
from March 1, 1995 (date of their initial public offering) through November 30,
1995, the Distributor received contingent deferred sales charges in connection
with Investor B share redemptions as follows: Money Market Portfolio --
$__________, $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
- -- $__________, $5,763 and $0; and Balanced Portfolio -- $__________ and $1,216.
For the fiscal year ended November 30, 1997 and the period November 18, 1996
(commencement of operations) through November 30, 1996, the Distributor received
$__________ and $0 in contingent deferred sales charges in connection with
Investor B Share redemptions of the National Municipal Bond Portfolio. For the
period March 7, 1997 (commencement of operations) through November 30, 1997, the
Distributor received $__________ in contingent deferred sales charges in
connection with Investor B Share redemptions of the Equity Income Portfolio. For
the period November 21, 1997 (date Predecessor Growth Equity Portfolio
reorganized into the Growth Equity Portfolio) through November 30, 1997, the
Distributor received $__________ in contingent deferred sales charges in
connection with Investor B Share redemptions of the Growth Equity 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, 1997:
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<PAGE> 472
<TABLE>
<CAPTION>
Brokerage
Commissions in
Net Underwriting Compensation on Connection with
Discounts and Redemption and Portfolio Other
Portfolio(4) Commissions(1) Repurchase(2) Transactions Compensation(3)
- ------------ ---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Treasury Money
Market
Money Market
Tax-Exempt Money
Market
U.S. Government
Securities
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
Growth Equity
Small Cap Equity
International
Equity
Balanced
</TABLE>
-87-
<PAGE> 473
- --------------------------
(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 Small Cap Equity Index Portfolio had not commenced operations as of
November 30, 1997.
THE PLANS
DISTRIBUTION AND SERVICES PLANS. As described in the
Prospectuses, the Fund has adopted separate Distribution and Services Plans with
respect to S Shares, Investor A Shares 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 S Shares, 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 S Shares, Investor A Shares
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 S Shares,
Investor A Shares or Investor B Shares. Services provided pursuant to the
Servicing Agreements may include such services as providing information
periodically to customers showing their positions in S Shares, Investor A Shares
or Investor B Shares and monitoring services for their customers who have
invested in S Shares, Investor A Shares 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
-88-
<PAGE> 474
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, S 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, S 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, Investor B Shares or S 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; (xi)
with respect to S Shares, developing,
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<PAGE> 475
maintaining and operating systems necessary to support sweep accounts; or (xii)
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, Investor B Shares or S Shares, including the operation of telephone
lines for daily quotations of return information.
For the fiscal year or period ended November 30, 1997,
pursuant to the Distribution and Services Plan for Investor A Shares, the
Portfolios (other than the Small Cap Equity Index Portfolio, which had not
commenced operations as of November 30, 1997) 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
Treasury Money Market
Money Market
U.S. Government Securities
Intermediate Corporate Bond(1)
Bond Index(1)
Government & Corporate Bond
Short-Intermediate Municipal
Bond
Missouri Tax-Exempt Bond
National Municipal Bond
Equity Income(2)
Equity Index(3)
Growth & Income Equity
Growth Equity(4)
Small Cap Equity
International Equity
Balanced
</TABLE>
-90-
<PAGE> 476
- ----------------------
1. For the period from commencement of operations (February 10, 1997)
through November 30, 1997.
2. For the period from commencement of operations (March 7, 1997) through
November 30, 1997.
3. For the period from commencement of operations (May 1, 1997) through
November 30, 1997.
4. For the period October 1, 1997 through November 30, 1997.
For the fiscal year or period ended November 30, 1996,
pursuant to the Distribution and Services Plan for Investor A Shares, the
Portfolios were charged the following amounts:
DISTRIBUTION AND SERVICES PLAN - INVESTOR A SHARES
--------------------------------------------------
<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
U.S. Government Securities $22,999 $449 $0 $18,329
Government & Corporate Bond $15,982 $171 $0 $13,764
Short-Intermediate Municipal
Missouri Tax-Exempt Bond $49,325 $968 $0 $25,344
National Municipal Bond(1) $0 $0 $0 $0
Growth & Income Equity $93,577 $2,342 $0 $570,505
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
<FN>
- ----------------------
1. For period from commencement of operations (November 18, 1996) through
November 30, 1996.
</TABLE>
All amounts paid under the Distribution and Services Plan for
Investor A Shares for the fiscal years/period ended November 30, 1997 and 1996
were attributable to payments to broker-dealers. For the fiscal years ended
November 30, 1997 and 1996, no brokers of record waived fees.
For the fiscal year or period ended November 30, 1997,
pursuant to the Distribution and Services Plan for Investor B Shares of the CDSC
Portfolios, the CDSC Portfolios were charged the following amounts:
-91-
<PAGE> 477
DISTRIBUTION AND SERVICES PLAN - INVESTOR B SHARES
<TABLE>
<CAPTION>
AMOUNT PAID AMOUNT PAID
TO THE AMOUNT PAID TO AFFILIATES
PORTFOLIOS TOTAL CHARGED DISTRIBUTOR TO MVA OF MVA
- ---------- ------------- ----------- ------ ------
<S> <C> <C> <C> <C>
Treasury Money Market
Money Market
Tax-Exempt Money Market
U.S. Government Securities
Government & Corporate Bond
Missouri Tax-Exempt Bond
National Municipal Bond
Equity Income
Growth & Income Equity
Growth Equity
Small Cap Equity
International Equity
Balanced
</TABLE>
For the fiscal year or period ended November 30, 1996,
pursuant to the Distribution and Services Plan for Investor B Shares of the CDSC
Portfolios, the CDSC Portfolios were charged the following amounts:
DISTRIBUTION AND SERVICES PLAN - INVESTOR B SHARES
--------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT PAID AMOUNT PAID
TO THE AMOUNT PAID TO AFFILIATES
PORTFOLIOS TOTAL CHARGED DISTRIBUTOR TO MVA OF MVA
- ---------- ------------- ----------- ------ ------
<S> <C> <C> <C> <C>
TREASURY MONEY MARKET $2,321 $0 $0 $2,321
Money Market $928 $0 $0 $928
TAX-EXEMPT MONEY MARKET
U.S. Government Securities $0 $0 $0 $0
Government & Corporate Bond $3,184 $0 $0 $3,184
SHORT-INTERMEDIATE MUNICIPAL $0 $0 $0 $0
Missouri Tax-Exempt Bond $5,815 $0 $0 $5,815
</TABLE>
-92-
<PAGE> 478
<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>
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, 1997,
pursuant to the Administrative Services Plan for Trust Shares, the Portfolios
(other than the Small Cap Equity Index Portfolio which had not commenced
operations as of November 30, 1997) were charged the following amounts:
ADMINISTRATIVE SERVICES PLAN - TRUST SHARES
<TABLE>
<CAPTION>
AMOUNT PAID
AMOUNT PAID TO
TO THE AMOUNT PAID AFFILIATES
PORTFOLIOS TOTAL CHARGED ADMINISTRATOR TO MVA OF MVA
- ---------- ------------- ------------- ------ ------
<S> <C> <C> <C> <C>
Treasury Money Market
Money Market
Tax-Exempt Money Market
U.S. Government Securities
Intermediate Corporate Bond(1)
Bond Index(1)
Government & Corporate Bond
Short-Intermediate Municipal
Missouri Tax-Exempt Bond
National Municipal Bond
Equity Income(2)
Equity Index(3)
Growth & Income Equity
Growth Equity(4)
Small Cap Equity
International Equity
</TABLE>
- 93 -
<PAGE> 479
<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>
Balanced
</TABLE>
-94-
<PAGE> 480
- ----------------------
1. For the period from commencement of operations (February 10, 1997)
through November 30, 1997.
2. For the period from commencement of operations (March 7, 1997) through
November 30, 1997.
3. For the period from commencement of operations (May 1, 1997) through
November 30, 1997.
4. For the period October 1, 1997 through November 30, 1997.
For the fiscal year or period ended November 30, 1996,
pursuant to the Administrative Services Plan for Trust Shares, the Portfolios
were charged the following amounts:
ADMINISTRATIVE SERVICES PLAN - TRUST SHARES
<TABLE>
<CAPTION>
AMOUNT PAID
AMOUNT PAID TO
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
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 $546 $0 $0 $546
Small Cap Equity $0 $0 $0 $0
International Equity $0 $0 $0 $0
Balanced $40 $0 $0 $40
</TABLE>
For the fiscal year ended November 30, 1997, pursuant to the
Administrative Services Plan for Institutional shares, the Portfolios (other
than the Small Cap Equity Index Portfolio which had not commenced operations as
of November 30, 1997) paid the following amounts:
ADMINISTRATIVE SERVICES PLAN - INSTITUTIONAL SHARES
---------------------------------------------------
-95-
<PAGE> 481
<TABLE>
<CAPTION>
AMOUNT PAID
AMOUNT PAID TO
TO THE AMOUNT PAID AFFILIATES
PORTFOLIOS TOTAL CHARGED ADMINISTRATOR TO MVA OF MVA
- ---------- ------------- ------------- ------ ------
<S> <C> <C> <C> <C>
Treasury Money Market
Money Market
U.S. Government Securities
Intermediate Corporate Bond
Bond Index
Government & Corporate Bond
Equity Income
Equity Index
Growth & Income Equity
Growth Equity
Small Cap Equity
International Equity
Balanced
</TABLE>
For the fiscal year ended November 30, 1996, pursuant to the
Administrative Services Plan for Institutional shares, the Portfolios 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 $13,166 $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 $133,169 $0 $0 133,969
</TABLE>
-96-
<PAGE> 482
For the fiscal years ended November 30, 1997 and 1996, the
Administrator, MVA and/or various service organizations waived no fees with
respect to the Administrative Services Plans.
Shares of the Predecessor Growth Equity Portfolio were subject
to a Distribution Plan adopted pursuant to Rule 12b-1 under the 1940 Act. The
Plan provided for payment of fees to Federated Securities Corp., the former
distributor of the Predecessor Portfolio, at an annual rate of .25% of the
Predecessor Portfolio's average daily net assets, to finance activity which was
primarily intended to result in the sale of the Predecessor Portfolio's shares
subject to the Plan. Pursuant to the Plan, Federated Securities Corp. was
permitted to pay fees to brokers for distribution and administrative services
and to administrators (i.e. financial institutions) for administrative services
provided to the Predecessor Portfolio and its shareholders. For the fiscal years
ended September 30, 1997, 1996 and 1995, brokers and administrators earned fees
on behalf of the Predecessor Portfolio of $_______, $122,734 and $84,456,
respectively, all of which were voluntarily waived for each year.
OTHER PLAN INFORMATION. The Board of Directors has approved
each Plan and its respective arrangements with the Distributor, Service
Organizations and broker-dealer based on information provided by the Fund's
service contractors that there is a reasonable likelihood that these Plans and
arrangements will benefit the Portfolios and their shareholders. Pursuant to
each Plan, the Board of Directors reviews, at least quarterly, a written report
of the amounts of distribution fees and servicing fees expended pursuant to each
Plan and the Service Organizations and the purposes for which the expenditures
were made. So long as the Fund has one or more of the above described Plans in
effect, the selection and nomination of the members of the Board of Directors
who are not "interested persons" (as defined in the 1940 Act) of the Fund will
be committed to the discretion of such Disinterested Directors.
Depending upon the terms governing the particular customer
accounts, Service Organizations and other institutions may also charge their
customers directly for cash management and other services provided in connection
with the accounts, including, for example, account maintenance fees,
compensating balance requirements, or fees based upon account transactions,
assets, or income. An investor should therefore read the Prospectuses and this
Statement of Additional Information in light of the terms of his or her account
with a Service Organization, or other institution before purchasing shares of a
Portfolio.
REGULATORY MATTERS. Banking laws and regulations
currently prohibit a bank holding company registered under the
-97-
<PAGE> 483
Federal Bank Holding Company Act of 1956 or any affiliate thereof from
sponsoring, organizing, or controlling the shares of a registered, open-end
investment company continuously engaged in the issuance of its shares, and
prohibit banks generally from issuing, underwriting, selling, or distributing
securities such as Shares of the Portfolios. Such banking laws and regulations
do not prohibit such a holding company or affiliate, or banks, from acting as
investment adviser, transfer agent, or custodian to such an investment company,
or from purchasing shares of such a company as agent for and upon the order of
customers. Mercantile, MVA, Service Organizations that are banks or bank
affiliates, and broker-dealers that are bank affiliates are subject to such laws
and regulations, but believe they may perform the services for the Portfolios
contemplated by their respective agreements, this Prospectus and the Statement
of Additional Information without violating applicable banking laws and
regulations. In addition, State Securities laws on this issue may differ from
the interpretation of federal law expressed herein and banks and financial
institutions may be required to register as dealers pursuant to state law.
Should future legislative, judicial or administrative action prohibit
or restrict the activities of such companies in connection with the provision of
services on behalf of the Portfolios and their shareholders, the Fund might be
required to alter materially or discontinue its arrangements with such companies
and change its method of operation. It is not expected that investors would
suffer any adverse financial consequences as a result of any of these
occurrences.
If current restrictions preventing a bank from legally sponsoring,
organizing, controlling or distributing Shares of an investment company were
relaxed, Mercantile or an affiliate of Mercantile, would consider the
possibility of offering to perform additional services for the Portfolios. It is
not possible, of course, to predict whether or in what form such legislation
might be enacted or the terms upon which Mercantile, or such an affiliate, might
offer to provide such services.
Conflict of interest restrictions may apply to the receipt of
compensation paid pursuant to a Servicing Agreement by a Portfolio to a
financial intermediary in connection with the investment of fiduciary funds in a
Portfolio's Shares. 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.
-98-
<PAGE> 484
INDEPENDENT AUDITORS
For the fiscal year or period ended November 30, 1997, [ ],
certified public accountants, with offices at [ ] served as independent auditors
for the Fund. [ ] performs an annual audit of the Fund's financial statements.
Reports of its activities are provided to the Fund's Board of Directors. The
financial statements dated November 30, 1997, which [
] into this Statement of Additional Information, have been audited by [ ],
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.
MISCELLANEOUS
As of January 23, 1998, Mercantile held of record 99.994% and
59.118% of the outstanding Institutional and Trust shares, respectively, in the
Treasury Money Market Portfolio; 99.724% and 36.508% of the outstanding
Institutional and Trust shares, respectively, in the Money Market Portfolio;
85.962% of the outstanding Trust shares in the Tax-Exempt Money Market
Portfolio; 96.129% and 95.919% of the outstanding Institutional and Trust
shares, respectively, in the U.S. Government Securities Portfolio; 96.135% and
95.447% of the outstanding Institutional and Trust shares, respectively, in the
Intermediate Corporate Bond Portfolio; 99.466% and 99.787% of the outstanding
Institutional and Trust shares, respectively, in the Government & Corporate Bond
Portfolio; 99.679% and 98.342% of the outstanding Institutional and Trust
shares, respectively, in the Bond Index Portfolio; 96.944% of the outstanding
Trust shares in the Short-Intermediate Municipal Portfolio; 98.153% of the
outstanding Trust shares in the Missouri Tax-Exempt Bond Portfolio; 99.691% of
the outstanding Trust shares in the National Municipal Bond Portfolio; 99.181%
and 96.088% of the outstanding Institutional and Trust shares, respectively, in
the Growth & Income Equity Portfolio; 99.993% and 49.942% of the outstanding
Institutional and Trust shares, respectively, in the Small Cap Equity Portfolio;
95.527% and 93.081% of the outstanding Institutional and Trust shares,
respectively, in the International Equity Portfolio; 97.046% of the outstanding
Trust shares in the Equity Income Portfolio; 84.937 and 99.999%, of the
outstanding Institutional and Trust shares, respectively, in the Equity Index
Portfolio; 99.693% and 99.838% of the outstanding Institutional and Trust
shares, respectively, in the Balanced Portfolio, and 99.999% and 99.999% of the
outstanding Institutional and Trust shares, respectively, in the Growth Equity
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.
-99-
<PAGE> 485
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 - BISYS Fund
Services, FBO Mercantile EOD Sweep, Attn: Linda Zerbe, First and Market
Building, Suite 300, Pittsburgh, PA 15222 (24.240%); Mercantile Bank of
Arkansas, Custodian, Treasurer's Office, State of AR, Attn: Stephanie Noel, 220
State Capitol, Little Rock, AR 72201 (6.222%); Investor A Shares - National
Financial Services Corp., For the Benefit of Our Customers, 1 World Financial
Center, 200 Liberty Street, 5th Floor, New York, NY 10281 (59.788%); Mercantile
Bank of St. Louis, NA Custodian Richard E. Crippa, Rollover IRA, 2948 Castleford
Dr., Florissant, MO 63033-0000 (7.846%); St. Louis Regional Medical Center,
Attn: Sharon Edison, 5535 Delmar Blvd., St. Louis, MO 63112 (25.468%).
As of the same date, the following institutions also owned of
record 5% or more of the Money Market Portfolio's outstanding shares as
fiduciary or agent on behalf of their customers: Trust Shares - Hawaiian Trust
Company Ltd., 783 Funds Accounting, P.O. Box 3170, Honolulu, HI 96802-3170
(8.479%); BISYS Fund Services, FBO Mercantile EOD Sweep, Attn: Linda Zerbe,
First and Market Building, Suite 300, Pittsburgh, PA 15222 (34.892%); Investor A
Shares - National Financial Services Corp., For the Benefit of Our Customers, 1
World Financial Center, 200 Liberty Street, 5th Floor, New York, NY 10281
(91.361%); Investor B Shares - Mercantile Bank of St. Louis, NA Custodian Pheba
A. Steinmeyer, IRA, HC 3 Box 1266, Rocky Mt., MO 65072-9042 (7.085%); Alberta
Buenemann and Ernie W. Buenemann Trust, Alberta Buenemann Revocable Living Trust
DTD 08-30-91, 1649 Sand Run Road, Troy, MO 63379 (9.550%); Mercantile Bank of
St. Louis, NA Custodian Lois Arlene Klaser, IRA, RR 5 Box 510, Galena, MO 65656
(5.210%); Mercantile Bank of St. Louis, NA Custodian Edwin C. Hogrebe, IRA, 5537
Goethe, St. Louis, MO 63109 (6.229%); Homer R. Turner and Edna M. Turner Trust,
Edna M. Turner Trust DTD 04-17-90, 33409 E. Pink Hill Rd., Grain Valley, MO
64029 (10.147%).
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 - BISYS Fund
Services, FBO Mercantile EOD Sweep, Attn: Linda Zerbe, First and Market
Building, Suite 300, Pittsburgh, PA 15222 (8.922%); Investor A Shares - National
Financial Services Corp., For the Benefit of Our Customers, 1 World Financial
Center, 200 Liberty Street, 5th Floor, New York, NY 10281 (97.326%).
-100-
<PAGE> 486
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 (5.886%); Mercantile Bank of St. Louis, NA
Custodian William J. Gaffney, IRA Rollover, 1424 Bopp Road, St. Louis, MO 63131
(5.169%); Investor B Shares - NFSC FEBO M22-050270, NFSC FMTC IRA, FBO Patricia
J. Vander Haar, 4022 Ave. F, St. Louis, MO 63123 (5.240%); NFSC FEBO M26-044423,
NFSC FMTC IRA, FBO Wayne Brunk, 17825 Highway 71, St. Joseph, MO 64505
(18.860%); NFSC FEBO M26-945293, NFSC FMTC IRA Rollover, FBO Charlene V. Brunk,
17825 Hwy. 21, St. Joseph, MO 64505 (5.880%); NFSC FEBO M26-942529, Esther E.
Cantley TTEE, Esther E. Cantley Trust, U/A 4-21-97, Rt. 3 Box 692, Cobool, MO
65689 (6.514%).
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: Investor A Shares -
Gary E. Timmons, P.O. Box 3149, Laredo, TX 78044 (8.888%); Jill Larson, 27165
Punario, Mission Viejo, CA 92692-3204 (8.888%); George Gregory Timmons, 1332 E.
Desert Cv., Phoenix, AZ 85020 (8.888%); Betty Jane Eckhart, Trust Betty Jane
Eckhart Trust U/A DTD 04-19-82, 28265 Beach Rd., Sarcoxie, MO 64862 (30.988%);
Lynn C. Prescott, 4180 Rincon Circle, Palo Alto, CA 94306-3138 (17.628%); NFSC
FEBO M22-988855, Edwin N. Howald, 4747 Nebraska Ave. A, St. Louis, MO 63111
(11.236%).
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: Investor A Shares - Thomas Young Trust,
Beatrice Young Trust DTD 8-15-69 A/C M27-997382, 9204 Roger Lee Lane, St. Louis,
MO 63126 (14.993%); Thomas Young Trust, Henry Young Trust DTD 11-12-69, A/C
M27-997390, 9204 Roger Lee Lane, St. Louis, MO 63126 (8.487%); NFSC FEBO
M23-983284, Amy C. Gaut, Andrew W. Gaut, Michael Fleming, 8601 Juniper, Prairie
Village, KS 66207 (5.968%); Gerhard Radi, 2965 Berwick Ct., St. Charles, MO
63303 (19.397%); Lynn Ellen Mayorwitz Trust, Paul Mayorwitz Trust, For Mary K.
Anderson, 2895 Lesmer Ct., St. Louis, MO 63114 (25.507%); Gary C. Nelling and
Helen L. Nelling, JTWROS, 850 Warder Ave., St. Louis, MO 63130 (17.777%).
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 (5.809%); Investor B Shares - Mercantile Bank of
St. Louis, NA Custodian Gerald C. Pasch, IRA, 2817 Duncan, St. Joseph, MO 64507
(6.081%); NFSC FEBO M22-038792, Alvina Borgard, Michael A. Borgard, 1502 Topping
Road, Town and Country, MO 63131 (11.676%); NFSC FEBO M22-050563, Carl S.
Jackson, Steven J. Jackson, 3016 Sunset Drive, Apt. B, Carbondale, IL 62901
(6.491%); NFSC FEBO M26-040169, Lewis D. Kelly, Leola F. Kelly, 527 N. Ellsworth
Ave., Marshall, MO 65340 (5.514%); Homer R. Turner and Edna M. Turner Trust,
Edna M. Turner Trust DTD 04-17-90, 33409 E. Pink Hill Road, Grain Valley, MO
64029 (5.333%); Alberta Buenemann and Ernie W. Buenemann Trust, Alberta
Buenemann Revocable Living Trust DTD 08-30-91, 1649 Sand Run Road, Troy, MO
63379 (5.013%).
-101-
<PAGE> 487
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 - James Sutten,
P.O. Box 2465, Inverness, FL 34451-2465 (6.620%); Lane P. Baker
and Madelynn A. Baker, JTWROS, P.O. Box 979, Essex, CT 06426-0000
(93.313%).
As of the same date, the following institutions also owned of
record 5% or more of the Missouri Tax-Exempt Bond Portfolio's outstanding shares
as fiduciary or agent on behalf of their customers: Investor A Shares -
Boatmen's Trust Company Trust, Nancy J. Rogers Revocable Living Trust DTD
10-3-90, Attn: Securities Movements Dept., P.O. Box 500409, St. Louis, MO
63150-0409 (12.241%); Investor B Shares - NFSC FEBO M22-036374, Laura May Young,
Trustee of the Laura May Young Trust U/A 8-14-95, 427 Clifside Drive, St. Louis,
MO 63122 (6.939%); NFSC FEBO M22-465747, Mae B. Strain, TOD, 4200 Botanical, St.
Louis, MO 63110 (7.117%); NFSC FEBO M22-462144, Wilbur E. Huber, Theresa R.
Huber, 4169 Humphrey, St. Louis, MO 63116 (5.238%); NFSC FEBO M22-444065, Harold
G. Reitz, 70D, 3959 Potomac, St. Louis, MO 63116 (5.299%); NFSC FEBO M22-402761,
Kenneth Russell, Helen Russell, Trustee, Helen Russell Revocable Trust, 320 Lake
Apollo, Hannibal, MO 63401 (10.564%).
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 (5.382%); Gail
P. Ruga, Bin 7137-2175, 207 Aintree Road, Rolla, MO 65401- 3760 (12.206%); Kim
P. Wheeler, 1003 S. 19th, Rogers, AR 72758 (12.206%); NFSC FEBO M27-045063,
Eleanor R. Strain, Trustee of the Eleanor R. Strain Trust, U/A 11-16-84, 33 Log
Cabin Drive, St. Louis, MO 63124 (6.122%); NFSC FEBO M22-119300, Elisabeth M.
Goela, 5 Gerold Lane, Belleville, IL 62223 (8.246%); NFSC FEBO M27-947334,
William Oliver Shillington II, 2917 N. Kristopher Bend, St. Charles, MO 63303
(7.828%); NFSC FEBO M22-945560, Robert W. Saitz Revocable Trust, Robert W. Smith
U/A 12-12-97, 8618 Green Springs, St. Louis, MO 63123 (5.825%); Boatmen's Trust
Company Trust, Nancy Rogers CST Monaca Rogers UMTML DTD 10-23-95, Attn:
Securities Movements Dept., P.O. Box 500409, St. Louis, MO 63150-0409 (5.723%);
Investor B Shares - NFSC FEBO M22-988642, Ronald E. Ryan, Marian H. Ryan, 875
Glen Elm Drive, St. Louis, MO 63122 (9.479%); NFSC FEBO M22-967220, Casatta
Revocable Living Trust, Raymond H. Casatta U/A 10-06-87, 5658 Tholozan, St.
Louis, MO 65109 (13.596%); NFSC FEBO M22-961817, Gladine Coleman, Andrew B.
Coleman, 5945 Loughborough, St. Louis, MO 63109 (9.392%); NFSC FEBO M22-423394,
Nancy M. Prewitt, TOD, 16 Toussaint, O'Fallon, MO 63366 (7.981%); NFSC FEBO
M22-479039, Constance M. McManus, TOD, 4271 Wyoming, St. Louis, MO 63116
(16.157%); NFSC M22-473782, Roland Charles Oesterle, TOD, 2849 Missouri, St.
Louis, MO 63118 (6.756%); NFSC FEBO M22-559440, Wilma C. Mayer, TOD, 3812
Chippewa, St. Louis, MO 63116 (15.624%).
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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 Trust U/A DTD 04-19-82, 28265 Beech Road, Sarcoxie, MO 64862
(8.938%); Lynn C. Prescott, 4180 Rincon Circle, Palo Alto, CA 94306-3138
(7.119%); Thomas Young Trust, Beatrice Young Trust DTD 8-15-69 A/C M27-997382,
9204 Roger Lee Lane, St. Louis, MO 63126 (5.332%); NFSC Febo M27-947334 William
Oliver Shillington, II, 2917 N. Kristopher Bend, ST. Charles, MO 63126
(21.578%); Lynn Ellen Mayorwitz Trust, Paul Mayorwitz Trust, for Mary K.
Anderson, 2895 Lesher Court, St. Louis, MO 63114 (13.376%); Sandra Kungle Trust,
Sandra Kungle Trust, 139 Arrowhead Court, Boone, NC 28607 (13.577%); Investor B
Shares NFSC FEBO M22-979570, NFSC FMTC IRA Rollover FBO Kevin O. Webb, 1107
Wilshire, ST. Louis, MO 63130 (17.783%); NFSC FEBO M24- 988707, NFSC FMTC IRA
Rollover FBO Wayne L. Clough, 1176 Liberty Ave., Waterloo, IA 50702 (10.314%);
NFSC FEBO M23-999598, Randy R. Hamill, Carol K. Hammill, 9333 W. MacArthur,
Wichita, KS 67215 (6.343%); NFSC FEBO M23-031925, Anne Lloyd Oppenheimer, 31-Y
Street, Lake Lotwana, MO 64086 (58.874%).
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, Attn: Admin. & Regulatory Services, 3435 Stelzer Rd., Columbus,
OH 43219 (15.062%); Investor A Shares - NFSC FEBO M22-108910, Daniel J. Pierron,
1531 Washington 3F, St. Louis, MO 63103 (7.588%); NFSC FEBO M22-968145, Carl R.
Stock, TOD David Lee Stock, 4000 D. Brittany Circle, Bridgeton, MO 63044
(44.667%); NFSC FEBO M26- 952311, Robert E. Ellington, Catherine L. Ellington,
2655 E. Portland, Springfield, MO 65804 (5.727%); NFSC FEBO M22-940410, William
K. Haydon, 2343 Albion Place, St. Louis, MO 63104 (6.358%).
As of the same date, the following institutions also owned of
record 5% or more of the Small Cap Equity Portfolio's outstanding shares as
fiduciary or agent on behalf of their customers: Trust Shares - The Northern
Trust Co., Trust Carpenters Pension Trust Fund, A/C 26-43664, Attn: Mutual Fund,
P.O. Box 92956, Chicago, IL 60675-2956 (7.300%); American Bar Endowment, 750 N.
Lake Shore Dr., Chicago, IL 60611 (6.808%); Vanguard Fiduciary Trust Co., FBO
Pioneer Hi Bred Mix 3, Attn: Specialized Services Unit, P.O. Box 2600 VM A14,
Valley Forge, PA 19482 (5.685%); Vanguard Fiduciary Trust Co., FBO Pioneer Hi
Bred Mix 4, Attn: Specialized Services Unit, P.O. Box 2600 VM A14, Valley Forge,
PA 19482 (6.373%); Bankers' Trust Co., FBO Sheet Metal Local 36, Miss Van Arch
FD 191719, Attn: Mike Bloebaun, 648 Grassmere Park Road, Nashville, TN 37211
(5.877%).
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 (11.589%).
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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 (5.825%); Investor B Shares - Mercantile Bank of St. Louis, NA Custodian
Edmund Frances Codr, Rollover IRA, 2820 S. 42nd St., St. Joseph, MO 64503
(5.722%); Mercantile Bank of St. Louis, NA Custodian Richard Dell Woods, SEP
IRA, 3114 Pickett Rd., St. Joseph, MO 64503 (7.393%); Mercantile Bank of St.
Louis, NA Custodian Gerald C. Pasch, IRA, 2817 Duncan, St. Joseph, MO 64507
(6.046%); NFSC FEBO M22-030490, NFSC FMTC IRA, FBO Loren D, Salmons, 7 Ranchero
Drive, St. Charles, MO 63303 (5.696%); Primevest Financial Services Cust, Cust
David J. Neumann IRA U/A 09-29-97, 2330 Goff Ave., St. Joseph, MO 64505
(5.079%).
As of the same date, the following institutions also owned of
record 5% or more of the Growth Equity Portfolio's outstanding shares as
fiduciary or agent on behalf of their customers: Investor A Shares - NFSC FEBO
M22-540196, Tiger Limited Partnership, 903 Claymark, ST. Louis, MO 63131
(10.495%); NFSC FEBO M22-478237, Bernard B. Birger, Trustee, Bernard B. Birger
Revocable Living Trust U/A 5-25-76, 250 Hilltop, Collinsville, IL 62234
(5.965%); Investor B Shares - BISYS Fund Services, OH Inc., Attn: Admin. &
Regulatory Services, 3435 Stelzer Road, Columbus, OH 43219 (100.00%).
On the basis of information received from these institutions,
the Fund believes that substantially all of the shares owned of record were also
beneficially owned by these institutions because they possessed or shared voting
or investment power with respect to such shares on behalf of their underlying
accounts.
As of January 26, 1998, on the basis of information received
from these institutions, the Fund believes that substantially all of the Shares
owned of record were also beneficially owned by these institutions because they
possessed or shared voting or investment power with respect to such Shares on
behalf of their underlying accounts.
FINANCIAL STATEMENTS
The Fund's Annual Report to Shareholders for the fiscal year
or period ended November 30, 1997 has been filed with the Securities and
Exchange Commission. The financial statements in such Annual Report (the
"Financial Statements") are [
] this Statement of Additional Information. The Financial
Statements included in such Annual Report have been audited by the Fund's
independent accountants, [ ], whose report thereon also appears in such Annual
Report and is [ ]. The Financial Statements in such Annual Report have been [ ]
in reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
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APPENDIX A
----------
COMMERCIAL PAPER RATINGS
- ------------------------
A Standard & Poor's ("S&P") commercial paper rating is a
current assessment of the likelihood of timely payment of debt having an
original maturity of no more than 365 days. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category
indicating that the obligor's capacity to meet its financial commitment is
strong. Within this category, certain obligations are designated with a plus
sign (+). This indicates that the obligor's capacity to meet its financial
commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations rated "A-1". However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely
to lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation.
"B" - Obligations are regarded as having significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation; however, it faces major ongoing
uncertainties which could lead to the obligor's inadequate capacity to meet its
financial commitment on the obligation.
"C" - Obligations are currently vulnerable to nonpayment and
are dependent on favorable business, financial, and economic conditions for the
obligor to meet its financial obligation.
"D" - Obligations are in payment default. The "D" rating
category is used when payments on an obligation 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. The "D" rating will also be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
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Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually senior debt obligations not having an original
maturity in excess of one year, unless explicitly noted. The following
summarizes the rating categories used by Moody's for commercial paper:
"Prime-1" - Issuers (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources of
alternate liquidity.
"Prime-2" - Issuers (or supporting institutions) have a strong
ability for repayment of senior short-term debt 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, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
"Prime-3" - Issuers (or supporting institutions) have an
acceptable ability for repayment of senior short-term debt obligations. The
effect of industry characteristics and market compositions may be more
pronounced. Variability in earnings and profitability may result in changes in
the level of debt protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuers do 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 the 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.
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"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 issues as investment grade. Risk
factors are larger and subject to more variation. Nevertheless,
timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to insure 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 IBCA short-term ratings apply to debt obligations that
have time horizons of less than 12 months for most obligations, or up to three
years for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This
designation indicates a satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of
securities rated "F1".
"F3" - Securities possess fair credit quality. This
designation indicates that the capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.
"B" - Securities possess speculative credit quality.
this designation indicates minimal capacity for timely payment of
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financial commitments, plus vulnerability to near-term adverse changes in
financial and economic conditions.
"C" - Securities possess high default risk. This designation
indicates that the capacity for meeting financial commitments is solely reliant
upon a sustained, favorable business and economic environment.
"D" - Securities are in actual or imminent payment
default.
Thomson BankWatch short-term ratings assess the likelihood of
an untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest category and indicates a very high likelihood that principal and
interest will be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment 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 Thomson BankWatch's
lowest investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
"TBW-4" - This designation represents Thomson BankWatch's
lowest rating category and indicates that the obligation is regarded as
non-investment grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
- ----------------------------------------------
The following summarizes the ratings used by Standard & Poor's
for corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating
assigned by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is extremely strong.
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"AA" - An obligation rated "AA" differs from the highest rated
obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's capacity to meet
its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
"BB," "B," "CCC," "CC" and "C" - Debt is regarded as having
significant speculative characteristics. "BB" indicates the least degree of
speculation and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
"BB" - Debt is less vulnerable to non-payment than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the
obligation.
"B" - Debt is more vulnerable to non-payment than obligations
rated "BB", but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial or economic conditions
will likely impair the obligor's capacity or willingness to meet its financial
commitment on the obligation.
"CCC" - Debt is currently vulnerable to non-payment, and is
dependent upon favorable business, financial and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial or economic conditions, the obligor is not likely to
have the capacity to meet its financial commitment on the obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable
to non-payment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
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"D" - An obligation rated "D" is in payment default. This
rating is used when payments on an obligation are not made on the date due, even
if the applicable grace period has not expired, unless S & P believes that such
payments will be made during such grace period. "D" rating is also used upon the
filing of a bankruptcy petition or the taking of similar action if payments on
an obligation 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. The absence of an "r"
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
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 are considered as medium-grade
obligations, (i.e., they are neither highly protected nor poorly
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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 speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of 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 probable credit
stature upon completion of construction or elimination of basis of condition.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which
Moody's believes possess the strongest investment attributes are designated by
the symbols, Aa1, A1, Baa1, Ba1 and B1.
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.
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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 ratings used by Fitch IBCA for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. These ratings denote the lowest expectation of
investment risk and are assigned only in case of exceptionally strong capacity
for timely payment of financial commitments. This capacity is very unlikely to
be adversely affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. These ratings denote a very low expectation of investment
risk and indicate very strong capacity for timely payment of financial
commitments. This capacity is not significantly vulnerable to foreseeable
events.
"A" - Bonds considered to be investment grade and of high
credit quality. These ratings denote a low expectation of investment risk and
indicate strong capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to adverse changes in
circumstances or in economic conditions than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of good
credit quality. These ratings denote that there is currently a low expectation
of investment risk. The capacity for timely payment of financial commitments is
adequate, but adverse circumstances and in economic conditions are more likely
to impair this category.
"BB" - Bonds considered to be speculative. These ratings
indicate that there is a possibility of credit risk developing, particularly as
the result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. these
ratings indicate that significant credit risk is present, but a
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limited margin of safety remains. Financial commitments are currently being met;
however, capacity for continued payment is contingent upon a sustained,
favorable business and economic environment.
"CCC", "CC", "C" - Bonds have high default risk. Capacity for
meeting financial commitments is reliant upon sustained, favorable business or
economic developments. "CC" ratings indicate that default of some kind appears
probable, and "C" ratings signal imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities
are not meeting obligations and are extremely speculative. "DDD"
designates the highest potential for recovery on these
securities, and "D" represents the lowest potential for recovery.
To provide more detailed indications of credit quality, the
Fitch IBCA ratings from and including "AA" to "B" may be modified by the
addition of a plus (+) or minus (-) sign to show relative standing within these
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 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
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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 a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
"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 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" - This designation denotes 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" - This designation denotes high quality, with
margins of protection ample although not so large as in the preceding group.
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"MIG-3"/"VMIG-3" - This designation denotes 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" - This designation denotes adequate quality,
carrying specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
"SG" - This designation denotes speculative quality and lack
of margins of protection.
Fitch IBCA 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, Growth Equity, Small Cap Equity, Small Cap Equity Index,
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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FORM N-1A
---------
PART C. OTHER INFORMATION
-------------------------
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements:
(1) (a) To be filed by amendment.
(b) Exhibits:
(1) (a) Articles of Incorporation dated September 9,
1982.(3)
(b) Articles Supplementary to Registrant's Articles of
Incorporation dated October 28, 1982.(3)
(c) Articles Supplementary to Registrant's Articles of
Incorporation dated December 22, 1987.(3)
(d) Articles Supplementary to Registrant's Articles of
Incorporation dated as of October 30, 1990.(3)
(e) Articles Supplementary to Registrant's Articles of
Incorporation dated as of November 9, 1990.(3)
(f) Articles Supplementary to Registrant's Articles of
Incorporation dated as of March 19, 1991.(3)
(g) Certificate of Correction dated April 30, 1991 to
Articles Supplementary dated as of March 19, 1991.(3)
(h) Articles Supplementary to Registrant's Articles of
Incorporation dated as of June 25, 1991.(3)
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<PAGE> 507
(i) Articles Supplementary to Registrant's Articles of
Incorporation dated as of November 15, 1991.(3)
(j) Articles Supplementary to Registrant's Articles of
Incorporation dated as of January 26, 1993.(3)
(k) Articles Supplementary to Registrant's Articles of
Incorporation dated as of March 23, 1993.(3)
(l) Articles Supplementary to Registrant's Articles of
Incorporation dated as of March 7, 1994.(3)
(m) Certificate of Correction dated October 17, 1994 to
Articles Supplementary dated as of March 8, 1994 to
Registrant's Articles of Incorporation.(3)
(n) Articles Supplementary to Registrant's Articles of
Incorporation dated as of February 22, 1995.(3)
(o) Articles Supplementary to Registrant's Articles of
Incorporation dated as of April 17, 1995.(3)
(p) Articles Supplementary to Registrant's Articles of
Incorporation dated June 27, 1995.(3)
(q) Articles Supplementary to Registrant's Articles of
Incorporation dated September 18, 1995.(3)
(r) Articles Supplementary to Registrant's Articles of
Incorporation dated August 30, 1996.(5)
(s) Articles Supplementary to Registrant's Articles of
Incorporation dated February 3, 1997.(7)
(t) Articles Supplementary to Registrant's Articles of
Incorporation dated June 17, 1997.(10)
(u) Articles Supplementary to Registrant's Articles
of Incorporation.(12)
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<PAGE> 508
(v) Form of Articles Supplementary to Registrant's Articles
of Incorporation.
(2) Restated and Amended By-Laws as approved and adopted by
Registrant's Board of Directors.(6)
(3) None.
(4) None.
(5) (a) Amended and Restated Advisory Agreement between
Registrant and Mississippi Valley Advisors Inc. dated
April 1, 1991.(3)
(b) Addendum No. 1 to Amended and Restated Advisory
Agreement between Registrant and Mississippi Valley
Advisors Inc. with respect to the ARCH Treasury Money
Market Portfolio, dated September 27, 1991.(3)
(c) Addendum No. 2 to Amended and Restated Advisory
Agreement between Registrant and Mississippi Valley
Advisors, Inc. with respect to the ARCH Small Cap Equity
(formerly Emerging Growth Portfolio), dated April 1,
1992.(3)
(d) Addendum No. 3 to Amended and Restated Advisory
Agreement between Registrant and Mississippi Valley
Advisors Inc. with respect to the ARCH Balanced
Portfolio dated April 1, 1993.(3)
(e) Addendum No. 4 to Amended and Restated Advisory
Agreement between Registrant and Mississippi Valley
Advisors Inc. dated March 15, 1994.(3)
(f) Addendum No. 5 to Amended and Restated Advisory
Agreement between Registrant and Mississippi Valley
Advisors Inc. with respect to the Short-Intermediate
Municipal Portfolio dated July 10, 1995.(3)
(g) Addendum No. 6 to Amended and Restated Advisory
Agreement between Registrant and Mississippi Valley
Advisors Inc. with respect to the Tax-Exempt Money
Market, Missouri Tax- Exempt Bond and Kansas Tax-Exempt
Bond Portfolios dated September 29, 1995.(3)
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<PAGE> 509
(h) Addendum No. 7 to Amended and Restated Advisory
Agreement between Registrant and Mississippi Valley
Advisors Inc. with respect to the Equity Income,
National Municipal Bond and Intermediate Corporate Bond
(formerly Short-Intermediate Corporate Bond Portfolios)
dated November 15, 1996.(6)
(i) Addendum No. 8 to Amended and Restated Advisory
Agreement between Registrant and Mississippi Valley
Advisors Inc. with respect to the Equity Index and Bond
Index Portfolios dated February 14, 1997.(7)
(j) Addendum No. 9 to Amended and Restated Advisory
Agreement between Registrant and Mississippi Valley
Advisors Inc. with respect to the Growth Equity
Portfolio dated November 21, 1997 (12).
(k) Form of Addendum No. 10 to Amended and Restated Advisory
Agreement between Registrant and Mississippi Valley
Advisors Inc. with respect to the Small Cap Equity Index
Portfolio.(12)
(l) Sub-Advisory Agreement between Mississippi Valley
Advisors Inc. and Clay Finlay Inc. dated August 29,
1996.(5)
(6) (a) Distribution Agreement between Registrant and The
Winsbury Company Limited Partnership dated October 1,
1993 is incorporated herein by reference to Exhibit
(6)(a) of Post-Effective Amendment No. 25 to
Registrant's Registration Statement on Form N-1A, filed
November 8, 1994.
(b) Addendum No. 1 to Distribution Agreement between
Registrant and The Winsbury Company Limited Partnership
with respect to the ARCH International Equity Portfolio
dated March 15, 1994 is incorporated herein by reference
to Exhibit (6)(b) of Post-Effective Amendment No. 25 to
Registrant's Registration Statement on Form N-1A, filed
November 8, 1994.
(c) Addendum No. 2 to Distribution Agreement between
Registrant and The Winsbury Company Limited Partnership
with respect to Investor B Shares of the non-money
market Portfolios
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<PAGE> 510
dated March 1, 1995 is incorporated herein by reference
to Exhibit (6)(c) of Post-Effective Amendment No. 29 to
Registrant's Registration Statement on Form N-1A, filed
April 14, 1995.
(d) Addendum No. 3 to Distribution Agreement between
Registrant and The Winsbury Company Limited Partnership
with respect to the Short-Intermediate Municipal
Portfolio and Investor B Shares of the Money Market
Portfolio is incorporated herein by reference to Exhibit
(6)(d) of Post-Effective Amendment No. 31 to
Registrant's Registration Statement on Form N-1A, filed
September 20, 1995.
(e) Addendum No. 4 to Distribution Agreement between
Registrant and The Winsbury Company Limited Partnership
with respect to the Tax-Exempt Money Market, Missouri
Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios
dated September 29, 1995.(3)
(f) Addendum No. 5 to Distribution Agreement between
Registrant and BISYS Fund Services with respect to the
Equity Income, National Municipal Bond and Intermediate
Corporate Bond (formerly Short-Intermediate Corporate
Bond) Portfolios dated November 15, 1996.(6)
(g) Addendum No. 6 to Distribution Agreement between
Registrant and BISYS Fund Services with respect to the
Equity Index and Bond Index Portfolios dated February
14, 1997.(7)
(h) Addendum No. 7 to Distribution Agreement between
Registrant and BISYS Fund Services with respect to the
Growth Equity and Small Cap Equity Index Portfolios
dated November 21, 1997.(12)
(i) Form of Addendum No. 8 to Distribution Agreement between
Registrant and BISYS Fund Services with respect to S
Shares.
(j) Amendment No. 1 to Distribution Agreement between
Registrant and The Winsbury Company Limited Partnership
dated as of September 29, 1995.(1)
(7) None.
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<PAGE> 511
(8) (a) Custodian Agreement between Registrant and Mercantile
Bank of St. Louis, National Association dated as of
April 1, 1992 is incorporated herein by reference to
Exhibit (8)(a) of Post-Effective Amendment No. 17 to
Registrant's Registration Statement on Form N-1A, filed
March 31, 1992.
(b) Custody Fee Agreement between Registrant and Mercantile
Bank of St. Louis, National Association dated April 1,
1995 is incorporated herein by reference to Exhibit
(8)(b) of Post-Effective Amendment No. 29 to
Registrant's Registration Statement on Form N-1A, filed
April 14, 1995.
(c) Custody Fee Agreement between Registrant and Mercantile
Bank of St. Louis, National Association dated July 10,
1995 is incorporated herein by reference to Exhibit
(8)(c) of Post-Effective Amendment No. 31 to
Registrant's Registration Statement on Form N-1A, filed
September 20, 1995.
(d) Custody Fee Agreement between Registrant and Mercantile
Bank of St. Louis, National Association dated September
29, 1995.(3)
(e) Custody Fee Agreement between Registrant and Mercantile
Bank National Association dated November 15, 1996.(6)
(f) Custody Fee Agreement between Registrant and Mercantile
Bank National Association dated February 14, 1997.(7)
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<PAGE> 512
(g) Custody Fee Agreement between Registrant and Mercantile
Bank of St. Louis National Association dated November
21, 1997.(12)
(h) Global Sub-Custodian Agreement among Bankers Trust
Company of New York, Registrant and Mercantile Bank of
St. Louis, National Association dated as of April 1,
1994 is incorporated herein by reference to Exhibit
(8)(j) of Post-Effective Amendment No. 25 to
Registrant's Registration Statement on Form N-1A, filed
November 8, 1994.
(i) Securities Lending Amendment dated August 4, 1994 to
Custodian Agreement dated April 1, 1992 between
Registrant and Mercantile Bank of St. Louis, National
Association is incorporated herein by reference to
Exhibit (8)(k) of Post-Effective Amendment No. 25 to
Registrant's Registration Statement on Form N-1A, filed
November 8, 1994.
(9) (a) Administration Agreement between Registrant and The
Winsbury Service Corporation dated October 1, 1993 is
incorporated herein by reference to Exhibit (9)(a) of
Post-Effective Amendment No. 25 to Registrant's
Registration Statement on Form N-1A, filed November 8,
1994.
(b) Addendum No. 1 to Administration Agreement between
Registrant and The Winsbury Service Corporation with
respect to the ARCH International Equity Portfolio dated
March 15, 1994 is incorporated herein by reference to
Exhibit (9)(b) of Post-Effective Amendment No. 25 to
Registrant's Registration Statement on Form N-1A, filed
November 8, 1994.
(c) Addendum No. 2 to Administration Agreement between
Registrant and BISYS Fund Services Ohio, Inc. (formerly
known as The Winsbury Service Corporation) with respect
to Investor B Shares of the non-money market Portfolios
dated as of March 1, 1995 is incorporated herein by
reference to Exhibit (9)(c) of Post-Effective Amendment
No. 29 to Registrant's Registration Statement on Form
N-1A, filed April 14, 1995.
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<PAGE> 513
(d) Addendum No. 3 to Administration Agreement between
Registrant and BISYS Fund Services Ohio, Inc. with
respect to the Short-Intermediate Municipal Portfolio
and Investor B Shares of the Money Market Portfolio
dated July 10, 1995 is incorporated herein by reference
to Exhibit (9)(d) of Post-Effective Amendment No. 31 to
Registrant's Registration Statement on Form N-1A, filed
September 20, 1995.(3)
(e) Addendum No. 4 to Administration Agreement between
Registrant and BISYS Fund Services Ohio, Inc. with
respect to the Tax-Exempt Money Market, Missouri
Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios
dated September 29, 1995.(3)
(f) Addendum No. 5 to Administration Agreement between
Registrant and BISYS Fund Services Ohio, Inc. with
respect to the Equity Income, National Municipal Bond
and Intermediate Corporate bond (formerly
Short-Intermediate Corporate Bond) Portfolios dated
November 15, 1996.(6)
(g) Addendum No. 6 to Administration Agreement between
Registrant and BISYS Fund Services Ohio, Inc. with
respect to the Equity Index and Bond Index Portfolios
dated February 14, 1997.(7)
(h) Addendum No. 7 to Administration Agreement between
Registrant and BISYS Fund Services Ohio, Inc. with
respect to the Growth Equity and Small Cap Equity Index
Portfolios dated November 21, 1997.(12)
(i) Form of Addendum No. 8 to Administration Agreement
between Registrant and BISYS Fund Services Ohio, Inc.
with respect to S Shares.
(j) Transfer Agency Agreement between Registrant and The
Winsbury Service Corporation dated October 1, 1993 is
incorporated herein by reference to Exhibit (9)(c) of
Post-Effective Amendment No. 25 to Registrant's
Registration Statement on Form N-1A, filed November 8,
1994.
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<PAGE> 514
(k) Addendum No. 1 to Transfer Agency Agreement between
Registrant and The Winsbury Service Corporation with
respect to the ARCH International Equity Portfolio dated
March 15, 1994 is incorporated herein by reference to
Exhibit (9)(d) of Post-Effective Amendment No. 25 to
Registrant's Registration Statement on Form N-1A, filed
November 8, 1994.
(l) Addendum No. 2 to Transfer Agency Agreement between
Registrant and BISYS Fund Services Ohio, Inc. (formerly
known as The Winsbury Service Corporation) with respect
to Investor B Shares of the non-money market Portfolios
dated as of March 1, 1995 is incorporated herein by
reference to Exhibit (9)(g) of Post-Effective Amendment
No. 29 to Registrant's Registration Statement on Form
N-1A, filed April 14, 1995.
(m) Addendum No. 3 to Transfer Agency Agreement between
Registrant and BISYS Fund Services Ohio, Inc. with
respect to the Short-Intermediate Municipal Portfolio
and Investor B Shares of the Money Market Portfolio is
incorporated herein by reference to Exhibit (9)(i) of
Post-Effective Amendment No. 31 to Registrant's
Registration Statement on Form N-1A, filed September 20,
1995.
(n) Addendum No. 4 to Transfer Agency Agreement between
Registrant and BISYS Fund Services Ohio, Inc. with
respect to the Tax-Exempt Money Market, Missouri
Tax-Exempt Bond and Kansas Tax-Exempt Bond Portfolios
dated September 29, 1995.(3)
(o) Addendum No. 5 to Transfer Agency Agreement between
Registrant and BISYS Fund Services Ohio, Inc. with
respect to the Equity Income, National Municipal Bond
and Intermediate Corporate Bond (formerly
Short-Intermediate Corporate Bond) Portfolios dated
November 15, 1996.(6)
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<PAGE> 515
(p) Addendum No. 6 to Transfer Agency Agreement between
Registrant and BISYS Fund Services Ohio, Inc. with
respect to the Equity Index and Bond Index Portfolios
dated February 14, 1997.(7)
(q) Addendum No. 7 to Transfer Agency Agreement between
Registrant and BISYS Fund Services Ohio, Inc. with
respect to the Growth Equity and Small Cap Equity Index
Portfolios dated November 21, 1997.(12)
(r) Form of Addendum No. 8 to Transfer Agency Agreement
between Registrant and BISYS Fund Services Ohio, Inc.
with respect to S Shares.
(s) Amendment No. 1 to Transfer Agency Agreement between
Registrant and BISYS Fund Services Ohio, Inc. dated as
of September 29, 1995.(1)
(t) Amendment No. 2 to Transfer Agency Agreement between
Registrant and BISYS Fund Services Ohio, Inc. dated
October 1, 1995.(3)
(u) (1) Administrative Services Plan (Trust Shares) and Form
of Agreement.(9)
(2) Administrative Services Plan (Institutional
Shares) and Form of Agreement.(9)
(v) Agreement and Plan of Reorganization between Registrant
and Arrow Funds.(10)
(10) Opinion and consent of counsel.(2)
(11) (a) Consent of independent accountant.(2)
(b) Consent of Drinker Biddle & Reath LLP.
(12) None.
(13) (a) Purchase Agreement between Registrant and
Shearson/American Express Inc. dated November 23, 1982,
is incorporated herein by reference to Exhibit (13) of
Pre-Effective
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<PAGE> 516
Amendment No. 1 to Registrant's Registration Statement
on Form N-1, filed on November 24, 1982.
(b) Purchase Agreement between Registrant and The Winsbury
Service Corporation dated April 1, 1994 is incorporated
herein by reference to Exhibit (13)(b) of Post-Effective
Amendment No. 25 to Registrant's Registration Statement
on Form N-1A, filed November 8, 1994.
(c) Purchase Agreements between Registrant and BISYS Fund
Services Ohio, Inc. dated as of February 28, 1995 are
incorporated herein by reference to Exhibit (13)(c) of
Post-Effective Amendment No. 29 to Registrant's
Registration Statement on Form N-1A, filed April 14,
1995.
(d) Purchase Agreements between Registrant and BISYS Fund
Services Ohio, Inc. dated as of July 7, 1995 are
incorporated herein by reference to Exhibit (13)(d) of
Post-Effective Amendment No. 31 to Registrant's
Registration Statement on Form N-1A, filed September 20,
1995.
(e) Purchase Agreements between Registrant and BISYS Fund
Services Ohio, Inc. dated September 29, 1995.(3)
(f) Purchase Agreement between Registrant and BISYS Fund
Services Ohio, Inc. dated November 14, 1996.(6)
(g) Purchase Agreements between Registrant and BISYS Fund
Services Ohio, Inc. dated February 6, 1997.(7)
(h) Purchase Agreement between Registrant and BISYS Fund
Services Ohio, Inc. dated February 27, 1997.(7)
(i) Purchase Agreement between Registrant and BISYS Fund
Services Ohio, Inc. dated April 30, 1997.(8)
(j) Purchase Agreements between Registrant and BISYS Fund
Services Ohio, Inc. dated November 21, 1997.(12)
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<PAGE> 517
(14) None.
(15) (1) Distribution and Services Plan (Investor A Shares) under
Rule 12b-1 and Form of Agreement.(9)
(2) Distribution and Services Plan (Investor B Shares) under
Rule 12b-1 and Form of Agreement.(9)
(3) Distribution and Services Plan (S Shares) under Rule
12b-1 and Form of Agreement.
(16) (a) Schedule of Computation of Performance Calculations for
Investor A (formerly Investor) Shares and Trust Shares
of the Money Market, Treasury Money Market, Government &
Corporate Bond, Growth & Income Equity, U.S. Government
Securities, Emerging Growth and Balanced Portfolio are
incorporated herein by reference to Exhibit (16) of
Post-Effective Amendment No. 24 to Registrant's
Registration Statement on Form N-1A, filed on March 31,
1994.
(b) Schedule of Computation of Performance Calculations for
Investor A (formerly Investor), Trust and Institutional
Shares of the International Equity Portfolio is
incorporated herein by reference to Exhibit (16)(b) of
Post-Effective Amendment No. 25 to Registrant's
Registration Statement on Form N-1A, filed November 8,
1994.
(c) Schedule of Computation of Performance Calculations for
Institutional Shares of the Money Market, Treasury Money
Market, Government & Corporate Bond, Growth & Income
Equity, U.S. Government Securities, Emerging Growth,
Balanced and International Equity Portfolios is
incorporated herein by reference to Exhibit (16)(c) of
Post-Effective Amendment No. 29 to Registrant's
Registration Statement on Form N-1A, filed April 14,
1995.
(d) Schedule of Computation of Performance Calculations for
Investor B Shares of the Government & Corporate Bond,
Growth & Income Equity, U.S. Government Securities,
Emerging
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<PAGE> 518
Growth, Balanced and International Equity Portfolios is
incorporated herein by reference to Exhibit (16)(c) of
Post-Effective Amendment No. 29 to Registrant's
Registration Statement on Form N-1A, filed April 14,
1995.
(e) Schedule of Computation of Performance Calculations for
Trust Shares and Investor A Shares of the
Short-Intermediate Municipal Portfolio.(1)
(f) Schedule of Computation of Performance Calculations for
Trust and Investor A Shares of the Tax-Exempt Money
Market, Missouri Tax-Exempt Bond and Kansas Tax-Exempt
Bond Portfolios and for Investor B Shares of
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<PAGE> 519
the Missouri Tax-Exempt Bond and Kansas Tax-Exempt Bond
Portfolios.(3)
(g) Schedule of Computation of Performance Calculations for
Trust, Investor A and Investor B Shares of the National
Municipal Bond Portfolio.(6)
(h) Schedule of Computation of Performance Calculations for
Trust, Investor A and Investor B Shares of the National
Municipal Bond Portfolio.(8)
(i) Schedule of Computation of Performance Calculations for
Trust, Institutional and Investor A Shares of the
Intermediate Corporate Bond Portfolio. (11)
(j) Schedule of Computation of Performance Calculations for
Trust, Institutional and Investor A Shares of the Bond
Index Portfolio.(11)
(k) Schedule of Computation of Performance Calculations for
Trust, Institutional, Investor A and Investor B Shares
of the Equity Income Portfolio.(11)
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<PAGE> 520
(l) Schedule of Computation of Performance Calculations for
Trust, Institutional and Investor A Shares of the Equity
Index Portfolio.(11)
(18) Amended and Restated Plan Pursuant to Rule 18f-3 for Operation
of a Multi-Class System.
(27) To be filed by amendment.
- ---------------------------------
1. Filed electronically as an Exhibit and incorporated herein
by reference to Post-Effective Amendment No. 33 to
Registrant's Registration Statement on Form N-1A (File No.
2-79285) on January 2, 1996.
2. To be filed by amendment.
3. Filed electronically as an Exhibit and incorporated herein by reference
to Post-Effective Amendment No. 34 to Registrant's Registration
Statement on Form N-1A (File No. 2-79285) on February 28, 1996.
4. Filed electronically as an Exhibit and incorporated herein by reference
to Post-Effective Amendment No. 35 to Registrant's Registration
Statement on Form N-1A (File No. 2-79285) on March 28, 1996.
5. Filed electronically as an Exhibit and incorporated herein by reference
to Post-Effective Amendment No. 36 to Registrant's Registration
Statement on Form N-1A (File No. 2-79285) on October 8, 1996.
6. Filed electronically as an Exhibit and incorporated herein by reference
to Post-Effective Amendment No. 37 to Registrant's Registration
Statement on Form N-1A (File No. 2-79285) on January 30, 1997.
7. Filed electronically as an Exhibit and incorporated herein by reference
to Post-Effective Amendment No. 38 to Registrant's Registration
Statement on Form N-1A (File No. 2-79285) on March 31, 1997.
-15-
<PAGE> 521
8. Filed electronically as an Exhibit and incorporated herein by reference
to Post-Effective Amendment No. 39 to Registrant's Registration
Statement on Form N-1A (File No. 2-79285) on May 28, 1997.
9. Filed electronically as an Exhibit and incorporated herein by reference
to Post-Effective Amendment No. 40 to Registrant's Registration
Statement on Form N-1A (File No. 2-79285) on June 18, 1997.
10. Filed electronically as an Exhibit and incorporated herein by reference
to Registrant's Registration Statement on Form N-14 (File No. 333-33423)
on August 12, 1997.
11. Filed electronically as an Exhibit and incorporated herein by
reference to Post-Effective Amendment No. 41 to Registrant's Registration
Statement on Form N-1A (File No. 2-79285) on August 29, 1997.
12. Filed electronically as an Exhibit and incorporated herein by reference
to Post-Effective Amendment No. 42 to Registrant's Registration
Statement on Form N-1A (File No. 2-79285) on January 29, 1998.
Item 25. Persons Controlled By or Under Common Control with Registrant
-------------------------------------------------------------
Not Applicable.
-16-
<PAGE> 522
Item 26. Number of Holders of Securities
-------------------------------
As of December 31, 1997:
<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
-------------- --------------
<S> <C>
Class A Common Stock (The ARCH
Money Market Portfolio)............................................................... 171
Class A - Special Series 1 Common Stock
(The ARCH Money Market
Portfolio)............................................................................. 48
Class A - Special Series 2 Common Stock
(The ARCH Money Market Portfolio)...................................................... 4
Class A - Special Series 3 Common Stock
(The ARCH Money Market
Portfolio)............................................................................. 48
Class B Common Stock (The ARCH
(Treasury Money Market
Portfolio)............................................................................. 12
Class B - Special Series 1 Common Stock
(The ARCH Treasury Money Market
Portfolio)............................................................................. 26
Class B - Special Series 2 Common Stock
(The ARCH Treasury Money Market
Portfolio)............................................................................. 2
Class C Common Stock (The ARCH
Growth & Income Equity
Portfolio)............................................................................. 2649
Class C -Special Series 1 Common Stock
(The ARCH Growth & Income Equity
Portfolio)............................................................................. 16
Class C -Special Series 2 Common Stock
(The ARCH Growth & Income Equity
Portfolio)............................................................................. 7
Class C -Special Series 3 Common Stock
(The ARCH Growth & Income Equity
Portfolio)............................................................................. 672
Class D Common Stock (The ARCH
Government & Corporate Bond
Portfolio)............................................................................. 269
Class D - Special Series 1 Common Stock
(The ARCH Government & Corporate Bond
Portfolio)............................................................................. 7
Class D - Special Series 2 Common Stock
(The ARCH Government & Corporate Bond
Portfolio)............................................................................. 4
Class D - Special Series 3 Common Stock
(The ARCH Government & Corporate Bond
Portfolio)............................................................................. 58
Class E Common Stock (The ARCH
U.S. Government Securities
Portfolio)............................................................................. 229
Class E - Special Series 1 Common Stock
(The ARCH U.S. Government Securities
Portfolio)............................................................................. 6
Class E - Special Series 2 Common Stock
(The ARCH U.S. Government Securities
Portfolio)............................................................................. 4
</TABLE>
-17-
<PAGE> 523
<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
-------------- --------------
<S> <C>
Class E - Special Series 3 Common Stock
(The ARCH U.S. Government Securities
Portfolio)............................................................................. 60
Class F Common Stock (The ARCH Small
Cap Equity Portfolio).................................................................. 1546
Class F - Special Series 1 Common Stock
(The ARCH Small Cap Equity
Portfolio)............................................................................. 22
Class F - Special Series 2 Common Stock
(The ARCH Small Cap Equity
Portfolio)............................................................................. 4
Class F - Special Series 3 Common Stock
(The ARCH Small Cap Equity
Portfolio)............................................................................. 278
Class G Common Stock (The ARCH Balanced
Portfolio)............................................................................. 362
Class G - Special Series 1 Common Stock
Common Stock (The ARCH Balanced
Portfolio)............................................................................. 5
Class G - Special Series 2 Common Stock
Stock (The ARCH Balanced
Portfolio)............................................................................. 4
Class G Common Stock - Special Series 3
Common Stock (The ARCH Balanced
Portfolio)............................................................................. 66
Class H Common Stock (The ARCH
International Equity
Portfolio)............................................................................. 479
Class H - Special Series 1 Common
Stock - (The ARCH International Equity
Portfolio)............................................................................. 6
Class H - Special Series 2 Common Stock
(The ARCH International Equity
Portfolio)............................................................................. 3
Class H - Special Series 3 Common Stock
(The ARCH International Equity
Portfolio)............................................................................. 168
Class I Common Stock (The ARCH
Short-Intermediate Municipal
Portfolio)............................................................................. 3
Class I - Special Series 1 Common Stock
(The ARCH Short-Intermediate
Municipal Portfolio).................................................................. 4
Class J Common Stock (The ARCH Tax-Exempt
Money Market Portfolio)............................................................... 15
Class J - Special Series 1
Common Stock (The ARCH Tax-Exempt Money
Market Portfolio)...................................................................... 25
Class K Common Stock (The ARCH Missouri
Tax-Exempt Bond Portfolio)............................................................ 727
Class K - Special Series 1
Common Stock (The ARCH Missouri
Tax-Exempt Bond Portfolio)............................................................. 4
Class K - Special Series 2
Common Stock (The ARCH Missouri
Tax-Exempt Bond Portfolio)............................................................. 61
Class L Common Stock (The ARCH Kansas
</TABLE>
-18-
<PAGE> 524
<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
-------------- --------------
<S> <C>
Tax-Exempt Bond Portfolio)............................................................. 0
Class L - Special Series 1
Common Stock (The ARCH Kansas
Tax-Exempt Bond Portfolio)............................................................. 0
Class L - Special Series 2
Common Stock (The ARCH Kansas
Tax-Exempt Bond Portfolio)............................................................. 0
Class M - Common Stock (The ARCH Equity
Income Portfolio)...................................................................... 18
Class M - Special Series 1
Common Stock (The ARCH Equity Income Portfolio)........................................ 6
Class M - Special Series 2
Common Stock (The ARCH Equity Income Portfolio)........................................ 1
Class M - Special Series 3
Common Stock (The ARCH Equity Income Portfolio)........................................ 7
Class N - Common Stock (The ARCH National
Municipal Bond Portfolio).............................................................. 32
Class N - Special Series 1
Common Stock (The ARCH National
Municipal Bond Portfolio).............................................................. 10
Class N - Special Series 2
Common Stock (The ARCH National
Municipal Bond Portfolio).............................................................. 12
Class O - Common Stock (The ARCH Intermediate
Corporate Bond Portfolio).............................................................. 11
Class O - Special Series 1
Common Stock (The ARCH Intermediate
Corporate Bond Portfolio).............................................................. 3
Class O - Special Series 2
Common Stock (The ARCH Intermediate
Corporate Bond Portfolio).............................................................. 2
Class P - Common Stock (The ARCH Equity
Index Portfolio)....................................................................... 24
Class P - Special Series 1
Common Stock (The ARCH Equity Index
Portfolio)............................................................................. 3
Class P - Special Series 2
Common Stock (The ARCH Equity Index
Portfolio)............................................................................. 2
Class Q - Common Stock (The ARCH Bond Index
Portfolio)............................................................................. 10
Class Q - Special Series 1
Common Stock (The ARCH Bond Index Portfolio)........................................... 10
Class Q - Special Series 2
Common Stock (The ARCH Bond Index Portfolio)........................................... 2
Class R - Common Stock (The ARCH Small Cap Equity Index
Portfolio)............................................................................. 0
Class R - Special Series 1
(The ARCH Small Cap Equity Index Portfolio)............................................ 0
Class R - Special Series 2
(The ARCH Small Cap Equity Index Portfolio)............................................ 0
Class S - Common Stock (The ARCH Growth Equity
Portfolio)............................................................................. 129
Class S - Special Series 1
(The ARCH Growth Equity Portfolio)..................................................... 3
Class S - Special Series 2
(The ARCH Growth Equity Portfolio)..................................................... 2
</TABLE>
-19-
<PAGE> 525
<TABLE>
<CAPTION>
<S> <C>
Class S - Special Series 3
(The ARCH Growth Equity Portfolio)..................................................... 1
</TABLE>
Item 27. Indemnification
---------------
Indemnification of Registrant's principal underwriter, custodian and
transfer agent against certain losses is provided for, respectively, in Sections
1.11 and 1.12 of the Distribution Agreement, incorporated herein by reference as
Exhibit (6)(a), and Sections 24 and 18, respectively, of the Custody Agreement,
incorporated herein by reference as Exhibit (8)(a) and the Transfer Agency
Agreement incorporated herein by reference as Exhibit (9)(c). The Registrant has
obtained from a major insurance carrier a directors' and officers' liability
policy covering certain types of errors and omissions. In no event will the
Registrant indemnify any of its directors, officers, employees or agents against
any liability to which such person would otherwise be subject by reason of his
willful misfeasance, bad faith or gross negligence in the performance of his
duties, or by reason of his reckless disregard of the duties involved in the
conduct of his office or under his agreement with the Registrant. Registrant
will comply with Rule 484 under the Securities Act of 1933 and Release 11330
under the Investment Company Act of 1940 in connection with any indemnification.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a director, officer or controlling person of Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
A. Mercantile Bank National Association ("Mercantile") is a
full-service national bank located in St. Louis, Missouri. Mississippi Valley
Advisors Inc. is a wholly-owned subsidiary of
-20-
<PAGE> 526
Mercantile and is responsible for providing advisory services to each of
Registrant's investment portfolios.
B. The information required by this Item 28 with respect to each
Director and Officer of Mercantile and Mississippi Valley Advisors Inc. is
incorporated by reference to Form ADV and Schedules A and D filed by Mississippi
Valley Advisors Inc. with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934 (File No. 801-28897).
C. Clay Finlay Inc. is registered as an investment adviser with the
Securities and Exchange Commission and provides sub-advisory services to the
Registrant's International Equity Portfolio.
D. The information required by this Item 28 with respect to each
Director and Officer of Clay Finlay Inc. is included in Form ADV and Schedules A
and D filed by Clay Finlay Inc. with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934 (File No. 801-17316).
Item 29. Principal Underwriter
---------------------
A. BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services
(formerly The Winsbury Company Limited Partnership) acts as distributor
and its affiliate, BISYS Fund Services Ohio, Inc., acts as administrator
for the Registrant. BISYS Fund Services also distributes the securities of
American Performance Funds, AmSouth Mutual Funds, The BB&T Mutual Funds
Group, The Coventry Group, First Choice Funds Trust, Fountain Square
Funds, HSBC Family of Funds, The Infinity Mutual Funds, Inc., The Kent
Funds, MarketWatch Funds, MMA Praxis Mutual Funds, M.S.D. & T. Funds,
Inc., Pacific Capital Funds, Parkstone Group of Funds, The Parkstone
Advantage Funds, Pegasus Funds, The Republic Funds, The Riverfront Funds,
Inc., SBSF Funds, Inc. d/b/a Key Mutual Funds, The Sessions Group, Summit
Investment Trust and The Victory Portfolios, each of which is a
management investment company.
B. To the best of Registrant's knowledge, the partners of BISYS Fund
Services are as follows:
-21-
<PAGE> 527
<TABLE>
<CAPTION>
Positions and Offices
Name and Principal with BISYS Positions and Offices
Business Address Fund Services with Registrant
---------------- ----------------------- --------------------
<S> <C> <C>
BISYS Fund Services, Inc. Sole General Partner None
3435 Stelzer Road
Columbus, Ohio 43219-3035
WC Subsidiary Corporation Sole Limited Partner
3435 Stelzer Road None
Columbus, Ohio 43219-3035
</TABLE>
C. None.
Item 30. Location of Accounts and Records
--------------------------------
(1) Mercantile Bank National Association, One Mercantile Center, 8th and Locust
Streets, St. Louis, MO 63101 (records relating to its functions as
custodian).
(2) BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio 43219 (records
relating to its functions as distributor).
(3) Mississippi Valley Advisors Inc., 7th and Washington Streets, 21st Floor,
St. Louis, MO 63101 (records relating to its functions as investment
adviser).
(4) BISYS Fund Services Ohio, Inc., 3435 Stelzer Road, Columbus, Ohio 43219
(records relating to its function as administrator).
(5) BISYS Fund Services Ohio, Inc., 3435 Stelzer Road, Columbus, Ohio 43219
(records relating to its function as transfer agent and dividend disbursing
agent).
(6) Drinker Biddle & Reath LLP, Philadelphia National Bank Building, 1345
Chestnut Street, Philadelphia, PA 19107-3496 (Registrant's Articles of
Incorporation, By-Laws and Minute Books).
(7) Clay Finlay Inc. 200 Park Avenue, 56th Floor, New York, New York 10166
(records relating to its function as sub-adviser to the International
Equity Portfolio).
(8) Bankers Trust Company, 16 Wall Street, New York, New York 10005 (records
relating to its function as sub-custodian for the International Equity
Portfolio).
-22-
<PAGE> 528
Item 31. Management Services
-------------------
Inapplicable.
Item 32. Undertakings
------------
(a) Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered a copy of the Registrant's latest annual report to
shareholders upon request and without charge.
(b) Registrant hereby undertakes to file a post-effective amendment with
respect to the ARCH Small Cap Equity Index Portfolio, using financial statements
which need not be certified, within four to six months from the effective date
of the Registration Statement pertaining to such Portfolio.
-23-
<PAGE> 529
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 43 to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of St.
Louis and the State of Missouri, on the 30th day of January, 1998.
THE ARCH FUND, INC.
(Registrant)
/s/ Jerry V. Woodham
---------------------------
Jerry V. Woodham
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 43 to Registrant's Registration Statement on Form
N-1A has been signed below by the following persons in the capacities and on the
dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Jerry V. Woodham Chairman of the January 30, 1998
- -------------------- Board, Director and President
Jerry V. Woodham
/s/* James C. Jacobsen Director January 30, 1998
- ----------------------
James C. Jacobsen
/s/* Joseph J. Hunt Director January 30, 1998
- -------------------
Joseph J. Hunt
/s/* Robert M. Cox, Jr. Director January 30, 1998
- -----------------------
Robert M. Cox, Jr.
/s/* Ronald D. Winney Director & Treasurer January 30, 1998
- ---------------------
Ronald D. Winney
Director
- ---------------------
Donald E. Brandt
Director
- ---------------------
Patrick J. Moore
</TABLE>
*By: /s/ Jerry V. Woodham
--------------------
Jerry V. Woodham
Attorney-in-fact
<PAGE> 530
THE ARCH FUND(R), INC.
Power of Attorney
-----------------
Joseph J. Hunt, whose signature appears below, does hereby
constitute and appoint Jerry V. Woodham and W. Bruce McConnel, III, and either
of them, his true and lawful attorneys and agents, with full power of
substitution and resubstitution, to do any and all acts and things and execute
any and all instruments which said attorneys and agents, or either of them, may
deem necessary or advisable or which may be required to enable The ARCH Fund,
Inc. (the "Fund") to comply with the Investment Company Act of 1940, as amended,
and the Securities Act of 1933, as amended, and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of the Fund's Registration
Statement and of any and all amendments (including post-effective amendments) to
the Fund's Registration Statement on Form N-1A pursuant to said Acts, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign in the name and on behalf of the undersigned on behalf of
the Fund and/or as a director and/or officer of the Fund any and all amendments
filed with the Securities and Exchange Commission under said Acts, and any other
instruments or documents related thereto, and the undersigned does hereby ratify
and confirm all that said attorneys and agents, or either of them, shall do or
cause to be done by virtue hereof.
/s/Joseph J. Hunt
---------------------------
Joseph J. Hunt
Date: January 20, 1998
<PAGE> 531
THE ARCH FUND(R), INC.
Power of Attorney
-----------------
James C. Jacobsen, whose signature appears below, does hereby
constitute and appoint Jerry V. Woodham and W. Bruce McConnel, III, and either
of them, his true and lawful attorneys and agents, with full power of
substitution and resubstitution, to do any and all acts and things and execute
any and all instruments which said attorneys and agents, or either of them, may
deem necessary or advisable or which may be required to enable The ARCH Fund,
Inc. (the "Fund") to comply with the Investment Company Act of 1940, as amended,
and the Securities Act of 1933, as amended, and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of the Fund's Registration
Statement and of any and all amendments (including post-effective amendments) to
the Fund's Registration Statement on Form N-1A pursuant to said Acts, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign in the name and on behalf of the undersigned on behalf of
the Fund and/or as a director and/or officer of the Fund any and all amendments
filed with the Securities and Exchange Commission under said Acts, and any other
instruments or documents related thereto, and the undersigned does hereby ratify
and confirm all that said attorneys and agents, or either of them, shall do or
cause to be done by virtue hereof.
/s/James C. Jacobsen
---------------------------
James C. Jacobsen
Date: January 20, 1998
<PAGE> 532
THE ARCH FUND(R), INC.
Power of Attorney
-----------------
Ronald D. Winney, whose signature appears below, does hereby
constitute and appoint Jerry V. Woodham and W. Bruce McConnel, III, and either
of them, his true and lawful attorneys and agents, with full power of
substitution and resubstitution, to do any and all acts and things and execute
any and all instruments which said attorneys and agents, or either of them, may
deem necessary or advisable or which may be required to enable The ARCH Fund,
Inc. (the "Fund") to comply with the Investment Company Act of 1940, as amended,
and the Securities Act of 1933, as amended, and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of the Fund's Registration
Statement and of any and all amendments (including post-effective amendments) to
the Fund's Registration Statement on Form N-1A pursuant to said Acts, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign in the name and on behalf of the undersigned on behalf of
the Fund and/or as a director and/or officer of the Fund any and all amendments
filed with the Securities and Exchange Commission under said Acts, and any other
instruments or documents related thereto, and the undersigned does hereby ratify
and confirm all that said attorneys and agents, or either of them, shall do or
cause to be done by virtue hereof.
/s/Ronald D. Winney
---------------------------
Ronald D. Winney
Date: January 20, 1998
<PAGE> 533
THE ARCH FUND(R), INC.
Power of Attorney
-----------------
Robert M. Cox, Jr., whose signature appears below, does hereby
constitute and appoint Jerry V. Woodham and W. Bruce McConnel, III, and either
of them, his true and lawful attorneys and agents, with full power of
substitution and resubstitution, to do any and all acts and things and execute
any and all instruments which said attorneys and agents, or either of them, may
deem necessary or advisable or which may be required to enable The ARCH Fund,
Inc. (the "Fund") to comply with the Investment Company Act of 1940, as amended,
and the Securities Act of 1933, as amended, and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of the Fund's Registration
Statement and of any and all amendments (including post-effective amendments) to
the Fund's Registration Statement on Form N-1A pursuant to said Acts, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign in the name and on behalf of the undersigned on behalf of
the Fund and/or as a director and/or officer of the Fund any and all amendments
filed with the Securities and Exchange Commission under said Acts, and any other
instruments or documents related thereto, and the undersigned does hereby ratify
and confirm all that said attorneys and agents, or either of them, shall do or
cause to be done by virtue hereof.
/s/Robert M. Cox, Jr.
---------------------------
Robert M. Cox, Jr.
Date: January 28, 1998
<PAGE> 534
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<C> <S> <C>
1(v) Articles Supplementary.
6(i) Form of Addendum No. 8 to Distribution
Agreement.
9(i) Form of Addendum No. 8 to Administration
Agreement.
9(r) Form of Addendum No. 8 to Transfer Agency
Agreement.
11(b) Consent of Drinker Biddle and Reath LLP.
15(3) Distribution and Services Plan and Form of
Agreement with respect to S shares.
18 Amended and Restated Plan Pursuant to Rule
18f-3 for Operation of a Multi-Class System.
</TABLE>
<PAGE> 1
Exhibit 1(v)
THE ARCH FUND, INC.
ARTICLES SUPPLEMENTARY
THE ARCH FUND, INC., a Maryland corporation having its
principal office in Maryland in the City of Baltimore, Maryland (hereinafter
called the "Corporation"), hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: The total number of shares of capital stock
which the Corporation was heretofore authorized to issue was Seven
Billion (7,000,000,000) shares (of the par value of One Mill ($.001)
each) and of the aggregate par value of Seven Million Dollars
($7,000,000) of Common Stock
classified as follows:
<TABLE>
<CAPTION>
Number of Shares
Classification Authorized
-------------- ----------
<S> <C>
Class A 550,000,000
Class A-Special Series 1 1,800,000,000
Class A-Special Series 2 300,000,000
Class A-Special Series 3 50,000,000
Class B 100,000,000
Class B-Special Series 1 1,000,000,000
Class B-Special Series 2 300,000,000
Class C 5,000,000
Class C-Special Series 1 50,000,000
Class C-Special Series 2 20,000,000
Class C-Special Series 3 50,000,000
Class D 5,000,000
Class D-Special Series 1 50,000,000
Class D-Special Series 2 20,000,000
Class D-Special Series 3 50,000,000
Class E 5,000,000
Class E-Special Series 1 15,000,000
Class E-Special Series 2 20,000,000
Class E-Special Series 3 50,000,000
Class F 5,000,000
Class F-Special Series 1 35,000,000
Class F-Special Series 2 20,000,000
Class F-Special Series 3 50,000,000
Class G 5,000,000
Class G-Special Series 1 15,000,000
Class G-Special Series 2 20,000,000
Class G-Special Series 3 50,000,000
Class H 10,000,000
Class H-Special Series 1 10,000,000
Class H-Special Series 2 10,000,000
Class H-Special Series 3 50,000,000
Class I 25,000,000
Class I-Special Series 1 25,000,000
Class J 50,000,000
Class J-Special Series 1 300,000,000
Class K 25,000,000
Class K-Special Series 1 25,000,000
Class K-Special Series 2 10,000,000
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
Number of Shares
Classification Authorized
-------------- ----------
<S> <C>
Class L 25,000,000
Class L-Special Series 1 25,000,000
Class L-Special Series 2 10,000,000
Class M 25,000,000
Class M-Special Series 1 50,000,000
Class M-Special Series 2 25,000,000
Class M-Special Series 3 25,000,000
Class N 25,000,000
Class N-Special Series 1 50,000,000
Class N-Special Series 2 25,000,000
Class O 25,000,000
Class O-Special Series 1 50,000,000
Class O-Special Series 2 25,000,000
Class P 25,000,000
Class P-Special Series 1 50,000,000
Class P-Special Series 2 25,000,000
Class Q 25,000,000
Class Q-Special Series 1 50,000,000
Class Q-Special Series 2 25,000,000
Class R 25,000,000
Class R-Special Series 1 50,000,000
Class R-Special Series 2 25,000,000
Class S 25,000,000
Class S-Special Series 1 50,000,000
Class S-Special Series 2 25,000,000
Class S-Special Series 3 25,000,000
Unclassified 1,010,000,000
-------------
TOTAL 7,000,000,000
</TABLE>
SECOND: Pursuant to Article VI of the Corporation's
Articles of Incorporation (the "Charter") and Section 2-105(c) of the
Maryland General Corporation Law, the Board of Directors of the
Corporation has increased the total number of authorized shares of
capital stock of the Corporation to Twenty Billion (20,000,000,000)
shares of Common Stock of the par value of One Mill ($.001) each and of
the aggregate par value of Twenty Million Dollars ($20,000,000) and has
classified Two Billion (2,000,000,000) shares of the Corporation's
newly authorized, unclassified and unissued Common Stock as follows:
<TABLE>
<CAPTION>
Number of Shares
Classification Classified
-------------- ----------
<S> <C>
Class A-Special Series 4 2,000,000,000
Class B-Special Series 3 2,000,000,000
Class J-Special Series 2 2,000,000,000
</TABLE>
pursuant to resolutions unanimously adopted by the Board of Directors
of the Corporation on January 20, 1998.
THIRD: Pursuant to Article VI, Section (5) of
the Charter, the shares of Common Stock newly classified
-2-
<PAGE> 3
hereby shall have the following preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption:
1. ASSETS BELONGING TO A CLASS. All consideration received by
the Corporation for the issue and sale of such Class A - Special Series
4, Class B - Special Series 3 and Class J - Special Series 2 shares
(collectively, the "New Special Series" shares with respect to the
initial Class A, Class B or Class J shares; such Class A, Class B and
Class J shares formerly classified referred to herein collectively, as
the "Initial Class" shares of Common Stock and such Classes
collectively, the "Initial Classes")) shall be invested and reinvested
with the consideration received by the Corporation for the issue and
sale of all other shares now or hereafter classified as shares of
Initial Class A (including Class A - Special Series 1 shares, Class A
Special Series 2 shares and Class A - Special Series 3 shares), Initial
Class B (including Class B - Special Series 1 shares and Class B -
Special Series 2 shares) and Initial Class J (including Class J -
Special Series 1 shares) (such Class A - Special Series 1, Class B -
Special Series 1 and Class J - Special Series 1 shares formerly
classified collectively, the "Special Series 1" shares with respect to
such Initial Class shares, such Class A - Special Series 2 and Class B
- Special Series 2 shares formerly classified collectively, the
"Special Series 2" shares with respect to such Initial Class shares,
and such Class A - Special Series 3 shares formerly classified the
"Special Series 3" shares with respect to such Initial Class shares),
respectively, of Common Stock (irrespective of whether said shares have
been classified as a part of a series of said Class and, if so
classified as a part of a series, irrespective of the particular series
classification), together with all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale,
exchange, or liquidation thereof, and any funds or payments derived
from any reinvestment of such proceeds in whatever form the same may be
and any general assets of the Corporation allocated to an Initial Class
(including the respective Initial Class shares, Special Series 1
shares, Special Series 2 shares, if any, and Special Series 3 shares,
if any, formerly classified, the New Special Series shares herein
classified or such other shares with respect to such Class) by the
Board of Directors in accordance with the Corporation's Charter. All
income, earnings, profits, and proceeds, including any proceeds derived
from the sale, exchange or liquidation of such shares of an Initial
Class, and any assets derived from any reinvestment of such proceeds in
whatever form shall be allocated to the New Special Series shares in
the proportion that the net asset value of such
-3-
<PAGE> 4
New Special Series shares of such Initial Class bear to the total net
asset value of all shares of such Initial Class, respectively
(irrespective of whether said shares have been classified as a part of
a series of said Class and, if so classified as a part of a series,
irrespective of the particular series classification).
2. LIABILITIES BELONGING TO A CLASS. All the liabilities
(including expenses) of the Corporation in respect of an Initial Class
shall be allocated to the New Special Series shares of such Initial
Class hereby classified in the proportion that the net asset value of
such New Special Series shares of such Initial Class bears to the total
net asset value of all shares of such Initial Class (irrespective of
whether said shares have been classified as a part of a series of said
Class and, if so classified as a part of a series, irrespective of the
particular series classification), except that to the extent that the
Board of Directors may determine from time to time for such respective
New Special Series shares (or any other series of shares of such
Class):
(a) With respect to Initial Class A, Initial Class B
and Initial Class J to the extent that may be from
time to time determined by the Board of Directors to
allocate the following expenses to such respective
New Special Series shares:
(1) only the New Special Series shares of an
Initial Class of Common Stock shall bear: (i) the
expenses and liabilities of payments to institutions
under any agreements entered into by or on behalf of
the Corporation which provide for services by the
institutions exclusively for their customers who own
of record or beneficially such New Special Series
shares; and (ii) such other expenses and liabilities
as the Board of Directors may from time to time
determine are directly attributable to such shares
and which therefore should be borne solely by the New
Special Series shares of an Initial Class of Common
Stock; and
(2) No New Special Series shares of an
Initial Class of Common Stock shall bear (i) the
expenses and liabilities of payments to institutions
under any agreements entered into by or on behalf of
the Corporation which provide for services by the
institutions exclusively for their customers who own
of record or beneficially shares of an Initial Class
other than the New Special Series shares of such
Class; and (ii) such other expenses and liabilities
as the Board of Directors
-4-
<PAGE> 5
may from time to time determine are directly
attributable to shares of an Initial Class other than
the New Special Series shares of such Class and which
therefore should be borne solely by such other shares
of an Initial Class and not by the New Special Series
shares of such Class of Common Stock.
3. PREFERENCES, CONVERSION AND OTHER RIGHTS, VOTING POWERS,
RESTRICTIONS, LIMITATIONS AS TO DIVIDENDS, QUALIFICATIONS, AND TERMS
AND CONDITIONS OF REDEMPTION. Except as provided hereby, each New
Special Series share of an Initial Class of shares of Common Stock
shall have the same preferences, conversion, and other rights, voting
powers, restrictions, limitation as to dividends, qualifications, and
terms and conditions of redemption applicable to all other shares of
Common Stock as set forth in the Charter and shall also have the same
preferences, conversion, and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions
of redemption as each other share formerly, now or hereafter classified
as a share of an Initial Class of Common Stock (irrespective of whether
said share has been classified as a part of a series of said Class and,
if so classified as a part of a series, irrespective of the particular
series classification) except that: on any matter that pertains to the
agreements or expenses and liabilities described in Section 2, clause a
(1) (or to any plan or other document adopted by the Corporation
relating to said agreements, expenses, or liabilities) and is submitted
to a vote of shareholders of the Corporation, only the New Special
Series shares of an Initial Class of Common Stock (excluding the other
shares classified as a series of such Class other than the New Special
Series shares) shall be entitled to vote, except that:
(a) if said matter affects shares of capital stock in
the Corporation other than the New Special Series
shares of an Initial Class, such other affected
shares of capital stock in the Corporation shall also
be entitled to vote, and in such case, such New
Special Series shares of such Class of Common Stock
shall be voted in the aggregate together with such
other affected shares and not by class or series
except where otherwise required by law or permitted
by the Board of Directors of the Corporation; and
(b) if said matter does not affect the New Special
Series shares of an Initial Class of Common Stock,
such shares shall not be entitled to vote (except
where required by law or permitted by
-5-
<PAGE> 6
the Board of Directors) even though the matter is
submitted to a vote of the holders of shares of
capital stock in the Corporation other than said New
Special Series shares of such Class of Common Stock.
FOURTH: The total number of shares of capital stock
which the Corporation is presently authorized to issue is Twenty
Billion (20,000,000,000) shares (of the par value of One Mill ($.001)
each) of Common Stock classified as follows:
<TABLE>
<CAPTION>
Number of Shares
Classification Authorized
-------------- ----------
<S> <C>
Class A 550,000,000
Class A-Special Series 1 1,800,000,000
Class A-Special Series 2 300,000,000
Class A-Special Series 3 50,000,000
Class A-Special Series 4 2,000,000,000
Class B 100,000,000
Class B-Special Series 1 1,000,000,000
Class B-Special Series 2 300,000,000
Class B-Special Series 3 2,000,000,000
Class C 5,000,000
Class C-Special Series 1 50,000,000
Class C-Special Series 2 20,000,000
Class C-Special Series 3 50,000,000
Class D 5,000,000
Class D-Special Series 1 50,000,000
Class D-Special Series 2 20,000,000
Class D-Special Series 3 50,000,000
Class E 5,000,000
Class E-Special Series 1 15,000,000
Class E-Special Series 2 20,000,000
Class E-Special Series 3 50,000,000
Class F 5,000,000
Class F-Special Series 1 35,000,000
Class F-Special Series 2 20,000,000
Class F-Special Series 3 50,000,000
Class G 5,000,000
Class G-Special Series 1 15,000,000
Class G-Special Series 2 20,000,000
Class G-Special Series 3 50,000,000
Class H 10,000,000
Class H-Special Series 1 10,000,000
Class H-Special Series 2 10,000,000
Class H-Special Series 3 50,000,000
Class I 25,000,000
Class I-Special Series 1 25,000,000
Class J 50,000,000
Class J-Special Series 1 300,000,000
Class J-Special Series 2 2,000,000,000
Class K 25,000,000
Class K-Special Series 1 25,000,000
Class K-Special Series 2 10,000,000
Class L 25,000,000
Class L-Special Series 1 25,000,000
Class L-Special Series 2 10,000,000
</TABLE>
-6-
<PAGE> 7
<TABLE>
<CAPTION>
Number of Shares
Classification Authorized
-------------- ----------
<S> <C>
Class M 25,000,000
Class M-Special Series 1 50,000,000
Class M-Special Series 2 25,000,000
Class M-Special Series 3 25,000,000
Class N 25,000,000
Class N-Special Series 1 50,000,000
Class N-Special Series 2 25,000,000
Class O 25,000,000
Class O-Special Series 1 50,000,000
Class O-Special Series 2 25,000,000
Class P 25,000,000
Class P-Special Series 1 50,000,000
Class P-Special Series 2 25,000,000
Class Q 25,000,000
Class Q-Special Series 1 50,000,000
Class Q-Special Series 2 25,000,000
Class R 25,000,000
Class R-Special Series 1 50,000,000
Class R-Special Series 2 25,000,000
Class S 25,000,000
Class S-Special Series 1 50,000,000
Class S-Special Series 2 25,000,000
Class S-Special Series 3 25,000,000
Unclassified 8,010,000,000
-------------
TOTAL 20,000,000,000
</TABLE>
The aggregate par value of all shares having par value is Twenty
Million Dollars ($20,000,000).
FIFTH: The Corporation is registered as an open-end
company under the Investment Company Act of 1940.
IN WITNESS WHEREOF, The ARCH Fund, Inc. has caused these presents to be
signed in its name and on its behalf by its President and its corporate seal to
be hereunto affixed and attested to by its Secretary as of January __, 1998.
THE ARCH FUND, INC.
Attest:
By:
-----------------------------
Jerry V. Woodham, President
- ----------------------------
W. Bruce McConnel, III
Secretary
-7-
<PAGE> 8
CERTIFICATE
THE UNDERSIGNED, Chairman of the Board and President of THE ARCH FUND,
INC., who executed on behalf of said Corporation the attached Articles
Supplementary of said Corporation, of which this Certificate is made a part,
hereby acknowledges, in the name and on behalf of said Corporation, the attached
Articles Supplementary to be the corporate act of said Corporation, and
certifies that to the best of his knowledge, information and belief the matters
and facts set forth in the attached Articles Supplementary with respect to
authorization and approval are true in all material respects, under the
penalties for perjury.
--------------------------------
Jerry V. Woodham, President
Dated: January __, 1998
<PAGE> 1
Exhibit 6(i)
ADDENDUM NO. 8 TO DISTRIBUTION AGREEMENT
----------------------------------------
This Addendum, dated as of ___________, 1998, is entered into
between THE ARCH FUND, INC. (the "Fund"), a Maryland corporation, and BISYS FUND
SERVICES ("BISYS"), an Ohio limited partnership formerly known as The Winsbury
Company Limited Partnership.
WHEREAS, the Fund and BISYS have entered into a Distribution
Agreement dated as of October 1, 1993 as amended March 15, 1994, March 1, 1995,
July 10, 1995, September 29, 1995, November 15, 1996, February 14, 1997 and
November 21,1997 (the "Distribution Agreement"), pursuant to which the Fund
appointed BISYS to act as Distributor for the Fund's ARCH Money Market, Treasury
Money Market, Growth & Income Equity, Small Cap Equity (formerly Emerging
Growth), Government & Corporate Bond, U.S. Government Securities, Balanced,
International Equity, Short- Intermediate Municipal, Tax-Exempt Money Market,
Missouri Tax- Exempt Bond, Kansas Tax-Exempt Bond, Equity Income, National
Municipal Bond, Intermediate Corporate Bond (formerly Short- Intermediate
Corporate Bond), Equity Index, Bond Index, Small Cap Equity Index and Growth
Equity Portfolios;
WHEREAS, Section 9 of the Distribution Agreement provides that
no provision of the Agreement may be changed, discharged or terminated orally,
but only by an instrument in writing signed by the party against which
enforcement of the change, discharge or termination is sought; and
WHEREAS, the Fund has notified BISYS that it has established a
new class of shares, namely, Class A - Special Series 4, Class B - Special
Series 3 and Class J - Special Series 2 shares (collectively, "S Shares") in
each of the ARCH Money Market, Treasury Money Market and Tax-Exempt Money Market
Portfolios, respectively.
NOW THEREFORE, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Terms. From and after the date hereof, the term "shares" as
used in the Distribution Agreement shall be deemed to include the S Shares.
Capitalized terms used herein and not otherwise defined shall have the meanings
ascribed to them in the Distribution Agreement.
2. Appendix A. Appendix A to the Distribution Agreement is
hereby supplemented to read as set forth in Appendix A attached hereto.
<PAGE> 2
3. Miscellaneous. Except to the extent supplemented hereby,
the Distribution Agreement shall remain unchanged and in full force and effect
and is hereby ratified and confirmed in all respects as supplemented hereby.
IN WITNESS WHEREOF, the undersigned have executed this
Addendum as of the date and year first above written.
THE ARCH FUND, INC.
By:
--------------------------------
Jerry V. Woodham
President
BISYS FUND SERVICES
By:
--------------------------------
J. David Huber
Vice President
-2-
<PAGE> 3
APPENDIX A
to the
DISTRIBUTION AGREEMENT
between
THE ARCH FUND, INC.
and
BISYS FUND SERVICES
- ------------------------------------------------------------------------------
Money Market Portfolio (Trust shares, Investor A shares, Institutional shares,
Investor B shares and S shares)
Treasury Money Market Portfolio (Trust shares, Investor A shares, Institutional
shares and S shares)
Growth & Income Equity Portfolio (Trust shares, Investor A shares, Institutional
shares and Investor B shares)
Small Cap Equity Portfolio (Trust shares, Investor A shares,
Institutional shares and Investor B shares)
Government & Corporate Bond Portfolio (Trust shares, Investor A shares,
Institutional shares and Investor B shares)
U.S. Government Securities Portfolio (Trust shares, Investor A
shares, Institutional shares and Investor B shares)
Balanced Portfolio (Trust shares, Investor A shares, Institutional shares and
Investor B shares)
International Equity Portfolio (Trust shares, Investor A shares, Institutional
shares and Investor B shares)
Short-Intermediate Municipal Portfolio (Trust Shares and Investor
A shares)
Tax-Exempt Money Market Portfolio (Trust shares, Investor A shares and S shares)
Missouri Tax-Exempt Bond Portfolio (Trust shares, Investor A shares and Investor
B shares)
Kansas Tax-Exempt Bond Portfolio (Trust shares, Investor A shares and Investor B
shares)
Equity Income Portfolio (Trust shares, Investor A shares, Institutional shares
and Investor B shares)
<PAGE> 4
National Municipal Bond Portfolio (Trust shares, Investor A shares and Investor
B shares)
Intermediate Corporate Bond Portfolio (Trust shares, Investor A shares and
Institutional shares)
Equity Index Portfolio (Trust shares, Investor A shares and Institutional
shares)
Bond Index Portfolio (Trust shares, Investor A shares and Institutional shares)
Small Cap Equity Index Portfolio (Trust shares, Investor A shares and
Institutional shares)
Growth Equity Portfolio (Trust shares, Investor A shares, Institutional shares
and Investor B shares)
-2-
<PAGE> 1
Exhibit 9(i)
ADDENDUM NO. 8 TO ADMINISTRATION AGREEMENT
------------------------------------------
This Addendum, dated as of ___________, 1998, is entered into
between THE ARCH FUND, INC. (the "Fund"), a Maryland corporation, and BISYS FUND
SERVICES OHIO, INC. ("BISYS Ohio"), an Ohio corporation formerly known as The
Winsbury Service Corporation.
WHEREAS, the Fund and BISYS Ohio have entered into an
Administration Agreement dated as of October 1, 1993 as amended March 15, 1994,
March 1, 1995, July 10, 1995, September 29, 1995, November 15, 1996, February
14, 1997 and November 21, 1997 (the "Administration Agreement"), pursuant to
which the Fund appointed BISYS Ohio to act as Administrator for the Fund's ARCH
Money Market, Treasury Money Market, Growth & Income Equity, Small Cap Equity
(formerly Emerging Growth), Government & Corporate Bond, U.S. Government
Securities, Balanced, International Equity, Short-Intermediate Municipal,
Tax-Exempt Money Market, Missouri Tax-Exempt Bond, Kansas Tax-Exempt Bond,
Equity Income, National Municipal Bond, Intermediate Corporate Bond (formerly
Short- Intermediate Corporate Bond), Equity Index, Bond Index, Small Cap Equity
Index and Growth Equity Portfolios;
WHEREAS, Section 10 of the Administration Agreement provides
that no provision of the Agreement may be changed, discharged or terminated
orally, but only by an instrument in writing signed by the party against which
enforcement of the change, discharge or termination is sought; and
WHEREAS, the Fund has notified BISYS Ohio that it has
established a new class of shares, namely, Class A - Special Series 4, Class B -
Special Series 3 and Class J - Special Series 3 shares (collectively, "S
Shares") in each of the ARCH Money Market, Treasury Money Market and Tax-Exempt
Money Market Portfolios, respectively.
NOW THEREFORE, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. TERMS. From and after the date hereof, the term "shares" as used in
the Administration Agreement shall be deemed to include the S Shares.
Capitalized terms used herein and not otherwise defined shall have the meanings
ascribed to them in the Administration Agreement.
2. APPENDIX A. Appendix A to the Administration Agreement is hereby
supplemented to read as set forth in Appendix A attached hereto.
3. MISCELLANEOUS. Except to the extent supplemented hereby, the
Administration Agreement shall remain unchanged and
<PAGE> 2
in full force and effect and is hereby ratified and confirmed in
all respects as supplemented hereby.
IN WITNESS WHEREOF, the undersigned have executed this
Addendum as of the date and year first above written.
THE ARCH FUND, INC.
By:
--------------------------------
Jerry V. Woodham
President
BISYS FUND SERVICES OHIO, INC.
By:
--------------------------------
J. David Huber
Vice President
-2-
<PAGE> 3
APPENDIX A
to the
ADMINISTRATION AGREEMENT
between
THE ARCH FUND, INC.
and
BISYS FUND SERVICES OHIO, INC. (formerly
known as The Winsbury Service Corporation)
- ------------------------------------------------------------------------------
Money Market Portfolio (Trust Shares, Investor A Shares, Institutional Shares,
Investor B Shares and S Shares)
Treasury Money Market Portfolio (Trust Shares, Investor A Shares, Institutional
Shares and S Shares)
Growth & Income Equity Portfolio (Trust Shares, Investor A Shares, Institutional
and Investor B Shares)
Small Cap Equity Portfolio (Trust Shares, Investor A Shares, Institutional and
Investor B Shares)
Government & Corporate Bond Portfolio (Trust Shares, Investor A Shares,
Institutional and Investor B Shares)
U.S. Government Securities Portfolio (Trust Shares, Investor A Shares,
Institutional and Investor B Shares)
Balanced Portfolio (Trust Shares, Investor A Shares, Institutional and Investor
B Shares)
International Equity Portfolio (Trust Shares, Investor A Shares, Institutional
and Investor B Shares)
Short-Intermediate Municipal Portfolio (Trust Shares and Investor A Shares)
Tax-Exempt Money Market Portfolio (Trust Shares, Investor A Shares and S Shares)
Missouri Tax-Exempt Bond Portfolio (Trust Shares, Investor A Shares and Investor
B Shares)
Kansas Tax Exempt Bond Portfolio (Trust Shares, Investor A Shares and Investor B
Shares)
<PAGE> 4
Equity Income Portfolio (Trust Shares, Investor A Shares, Institutional Shares
and Investor B Shares)
National Municipal Bond Portfolio (Trust Shares, Investor A Shares and Investor
B Shares)
Intermediate Corporate Bond Portfolio (Trust Shares, Investor A Shares and
Institutional Shares)
Equity Index Portfolio (Trust Shares, Investor A Shares and Institutional
Shares)
Bond Index Portfolio (Trust Shares, Investor A Shares and Institutional Shares)
Small Cap Equity Index Portfolio (Trust Shares, Investor A Shares and
Institutional Shares)
Growth Equity Portfolio (Trust Shares, Investor A Shares, Institutional Shares
and Investor B Shares)
-2-
<PAGE> 1
Exhibit 9(r)
ADDENDUM NO. 8 TO TRANSFER AGENCY AGREEMENT
-------------------------------------------
This Addendum, dated as of ___________, 1998, is entered into
between THE ARCH FUND, INC. (the "Fund"), a Maryland corporation, and BISYS FUND
SERVICES OHIO, INC. ("BISYS Ohio"), an Ohio corporation formerly known as The
Winsbury Service Corporation.
WHEREAS, the Fund and BISYS Ohio have entered into a Transfer
Agency Agreement dated as of October 1, 1993 as amended March 15, 1994, March 1,
1995, July 10, 1995, September 29, 1995, October 1, 1995, November 15, 1996,
February 14, 1997 and November 21, 1997 (the "Transfer Agency Agreement"),
pursuant to which the Fund appointed BISYS Ohio to act as Transfer Agent for the
Fund's ARCH Money Market, Treasury Money Market, Growth & Income Equity, Small
Cap Equity (formerly Emerging Growth), Government & Corporate Bond, U.S.
Government Securities, Balanced, International Equity, Short-Intermediate
Municipal, Tax-Exempt Money Market, Missouri Tax-Exempt Bond, Kansas Tax-Exempt
Bond, Equity Income, National Municipal Bond, Intermediate Corporate Bond
(formerly Short-Intermediate Corporate Bond), Equity Index, Bond Index, Small
Cap Equity Index and Growth Equity Portfolios;
WHEREAS, Section 20 of the Transfer Agency Agreement provides
that no provision of the Agreement may be changed, discharged or terminated
orally, but only by an instrument in writing signed by the party against which
enforcement of the change, discharge or termination is sought; and
WHEREAS, the Fund has notified BISYS Ohio that it has
established a new class of shares, namely, Class A - Special Series 4, Class B -
Special Series 3 and Class J - Special Series 2 shares (collectively, "S
Shares") in each of the ARCH Money Market, Treasury Money Market and Tax-Exempt
Money Market Portfolios, respectively.
NOW THEREFORE, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. TERMS. From and after the date hereof, the term "shares" as
used in the Transfer Agency Agreement shall be deemed to include the S Shares.
Capitalized terms used herein and not otherwise defined shall have the meanings
ascribed to them in the Transfer Agency Agreement.
2. APPENDIX A. Appendix A to the Transfer Agency Agreement is
hereby supplemented to read as set forth in Appendix A attached hereto.
<PAGE> 2
3. Appendix C to the Transfer Agreement is hereby supplemented
to read as set forth in Appendix C attached hereto.
4. MISCELLANEOUS. Except to the extent supplemented hereby,
the Transfer Agency Agreement shall remain unchanged and in full force and
effect and is hereby ratified and confirmed in all respects as supplemented
hereby.
IN WITNESS WHEREOF, the undersigned have executed this
Addendum as of the date and year first above written.
THE ARCH FUND, INC.
By:
-----------------------------
Jerry V. Woodham
President
BISYS FUND SERVICES OHIO, INC.
By:
-----------------------------
J. David Huber
Vice President
-2-
<PAGE> 3
APPENDIX A
TO THE
TRANSFER AGENCY AGREEMENT
BETWEEN
THE ARCH FUND, INC.
AND
BISYS FUND SERVICES OHIO, INC. (FORMERLY
KNOWN AS THE WINSBURY SERVICE CORPORATION)
- -------------------------------------------------------------------------------
Money Market Portfolio (Trust shares, Investor A shares, Institutional shares,
Investor B shares and S shares)
Treasury Money Market Portfolio (Trust shares, Investor A shares, Institutional
shares and S shares)
Growth & Income Equity Portfolio (Trust shares, Investor A shares, Institutional
shares and Investor B shares)
Small Cap Equity Portfolio (Trust shares, Investor A shares,
Institutional shares and Investor B shares)
Government & Corporate Bond Portfolio (Trust shares, Investor A shares,
Institutional shares and Investor B shares)
U.S. Government Securities Portfolio (Trust shares, Investor A
shares, Institutional shares and Investor B shares)
Balanced Portfolio (Trust shares, Investor A shares, Institutional shares and
Investor B shares)
International Equity Portfolio (Trust shares, Investor A shares, Institutional
shares and Investor B shares)
Short-Intermediate Municipal Portfolio (Trust Shares and Investor
A shares)
Tax-Exempt Money Market Portfolio (Trust shares, Investor A
shares and S shares)
Missouri Tax-Exempt Bond Portfolio (Trust shares, Investor A
shares and Investor B shares)
Kansas Tax-Exempt Bond Portfolio (Trust shares, Investor A shares
and Investor B shares)
A-1
<PAGE> 4
Equity Income Portfolio (Trust shares, Investor A shares, Institutional shares
and Investor B shares)
National Municipal Bond Portfolio (Trust shares, Investor A shares and Investor
B shares)
Intermediate Corporate Bond Portfolio (Trust shares, Investor A shares and
Institutional shares)
Equity Index Portfolio (Trust shares, Investor A shares and Institutional
shares)
Bond Index Portfolio (Trust shares, Investor A shares and Institutional shares)
Small Cap Equity Index Portfolio (Trust shares, Investor A shares and
Institutional shares)
Growth Equity Portfolio (Trust shares, Investor A shares, Institutional shares
and Investor B shares)
A-2
<PAGE> 5
APPENDIX C
----------
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
THE ARCH FUND, INC. AND BISYS FUND SERVICES OHIO, INC.
------------------------------------------------------
(FORMERLY KNOWN AS THE WINSBURY SERVICE CORPORATION)
----------------------------------------------------
FEE SCHEDULE
------------
A. ANNUAL BASE FEE
1. Portfolios which have Investor A Shares shall pay an Annual
Base Fee of $10,000 plus $19 per shareholder per Portfolio.
2. Portfolios which have Investor B Shares shall pay an Annual
Base Fee of $10,000 plus $19 per shareholder per Portfolio.
3. Portfolios which have Trust Shares shall pay an Annual Base
Fee of $8,000 plus $15 per shareholder per Portfolio.
4. Portfolios which have Institutional Shares shall pay an
Annual Base Fee of $8,000 plus $15 per shareholder per
Portfolio.
5. Portfolios which have S Shares shall pay an Annual Base Fee
of $8,000 plus $15 per shareholder per Portfolio.
B. ANNUAL ADDITIONAL FEES. These fees are in addition to the Annual
Base Fees.
1. Portfolios participating in the Asset Advisor (asset
allocation) program shall pay an annual fee of $3,000 per
Portfolio
2. Out of pocket costs, including postage, Tymnet charges,
statement/confirm paper, forms, and microfiche will be added
to the Transfer Agency Fees.
C. ALLOCATION OF FEES. Transfer Agency fees paid under this
Agreement shall be treated as an expense of the Company and shall
be accrued and allocated pro rata each month to the Portfolios on
the basis of their respective net assets at the end of the
preceding month and paid monthly.
C-1
<PAGE> 1
Exhibit (11)(b)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the references to our
Firm under the caption "Counsel" in the Statement of Additional Information that
is included in Post- Effective Amendment No. 43 to the Registration Statement
(No. 2- 79285) on Form N-1A under the Securities Act of 1933, as amended, of The
Arch Fund, Inc. This consent does not constitute a consent under Section 7 of
the Securities Act of 1933, and in consenting to the use of our name and the
references to our Firm under such caption we have not certified any part of the
Registration Statement and do not otherwise come within the categories of
persons whose consent is required under Section 7 or the rules and regulations
of the Securities and Exchange Commission thereunder.
/s/ Drinker Biddle & Reath LLP
------------------------------
Drinker Biddle & Reath LLP
Philadelphia, Pennsylvania
January 30, 1998
<PAGE> 1
Exhibit 15(3)
Adopted January 20, 1998
THE ARCH FUND(R), INC.
DISTRIBUTION AND SERVICES PLAN
------------------------------
(S Shares)
This Distribution and Services Plan (the "Plan") has been
adopted by the Board of Directors of The ARCH Fund, Inc. (the "Company") in
connection with the Class A - Special Series 4, Class B - Special Series 3 and
Class J - Special Series 2 shares of the Money Market, Treasury Money Market and
Tax-Exempt Money Market Portfolios (such shares hereinafter called "S Shares"
and such portfolios the "Portfolios") in conformance with Rule 12b-1 under the
Investment Company Act of 1940, as amended (the "1940 Act").
Section 1. EXPENSES. The Company may incur expenses
under the Plan in an amount not to exceed 1.00% annually of the
average daily net assets of a Portfolio's outstanding S Shares.
Section 2. DISTRIBUTION PAYMENTS. The Company may pay the
Company's distributor (the "Distributor") (or any other person) a fee of up to
.75% annually of the average daily net assets of a Portfolio's outstanding S
Shares (a "Distribution Fee"). Such Distribution Fee shall be calculated and
accrued daily, paid monthly and shall be in consideration for distribution
services and the assumption of related expenses in conjunction with the offering
and sale of S Shares of the Company's Portfolios. In determining the amounts
payable on behalf of a Portfolio under the Plan, the net asset value of such S
Shares shall be computed in the manner specified in the Company's then current
Prospectuses and Statements of Additional Information describing such S Shares.
Section 3. DISTRIBUTION EXPENSES AND ACTIVITIES COVERED BY
PLAN. Payments to the Distributor under Section 2 shall be used by the
Distributor to cover expenses and activities primarily intended to result in the
sale of S Shares, including the payment of commissions and transaction fees.
Such expenses and activities may include but are not limited to: (a) direct
out-of-pocket promotional expenses incurred by the Distributor in advertising
and marketing S Shares; (b) expenses incurred in connection with preparing,
printing, mailing, and distributing or publishing advertisements and sales
literature; (c) expenses incurred in connection with printing and mailing
Prospectuses and Statements of Additional Information to other than current
shareholders; (d) periodic payments or commissions to one or more securities
dealers, brokers, financial institutions or other
<PAGE> 2
Section 4. For all purposes of this Agreement you will be deemed to be an
independent contractor, and will have no authority to act as agent for us in any
matter or in any respect. By your written acceptance of this Agreement, you
agree to and do release, indemnify and hold us harmless from and against any and
all direct or indirect liabilities or losses resulting from requests,
directions, actions or inactions of or by you or your officers, employees or
agents regarding your responsibilities hereunder or the purchase, redemption,
transfer or registration of the Shares by or on behalf of customers. You and
your employees will, upon request, be available during normal business hours to
consult with us or our designees concerning the performance of your
responsibilities under this Agreement.
Section 5. In consideration of the services and facilities provided by you
hereunder, we will pay to you, and you will accept as full payment therefore, a
fee at the annual rate of up to .25% of the average daily net assets of a
Portfolio's Shares owned of record or beneficially by your customers from time
to time for whom you are the dealer of record or holder of record or with whom
you have a servicing relationship. Said fee will be computed daily and payable
monthly. For purposes of determining the fees payable under this Section 5, the
average daily net asset value of the customers' Shares will be computed in the
manner specified in our then current Prospectus in connection with the
computation of the net asset value of a particular Portfolio's Shares for
purposes of purchases, exchanges, and redemptions. The fee rate stated above may
be prospectively increased or decreased by us, in our sole discretion, at any
time upon notice to you. Further, we may, in our discretion and without notice,
suspend or withdraw the sale of such Shares, including the sale of such shares
to you for the account of any customer(s).
Section 6. Any person authorized to direct the disposition of monies paid or
payable by us pursuant to this Agreement will provide to the Board of Directors,
and the Directors will review, at least quarterly, a written report of the
amounts so expended and the purposes for which such expenditures were made. In
addition, you will furnish us or our designees with such information as we or
they may reasonably request (including, without limitation, periodic
certifications confirming the provision to customers of some or all of the
services described herein), and will otherwise cooperate with us and our
designees (including, without limitation, any auditors designated by us), in
connection with the preparation of reports to our Board of Directors concerning
this Agreement and the monies paid or payable by us pursuant hereto, as well as
any other reports or filings that may be required by law.
Section 7. We may enter into other similar Servicing Agreements with any other
person or persons without your consent.
Section 8. By your written acceptance of this Agreement, you represent, warrant
and agree that: (i) in no event will any of the services provided by you
hereunder be primarily intended to result in the sale of any shares issued by
us; (ii) the compensation payable to you hereunder, together with any other
compensation you receive from customers for services contemplated by this
Agreement, will be fully disclosed to your customers, and will not be excessive
or unreasonable under the laws and instruments governing your relationships with
customers; (iii) if you are a member of the National Association of Securities
Dealers, Inc. (the "NASD")and subject to the rules and regulations of the NASD,
including its Rules of Fair Practice, you agree to act in accordance with such
rules and regulations; and (iv) if you are subject to the provisions of the
Glass-Steagall Act and other laws governing, among other things, the conduct of
activities by federally chartered and supervised banks and other affiliated
banking organizations, you will perform only those activities which are
consistent with your statutory and regulatory
- 2 -
<PAGE> 3
obligations and will act solely as agent for, upon the order of, and for the
account of, your customers.
Section 9. This Agreement will become effective on the date a fully executed
copy of this Agreement is received by us or our designee. Unless sooner
terminated, this Agreement will continue until January 31, 1999, and thereafter
will continue automatically for successive annual periods provided such
continuance is specifically approved at least annually by us in the manner
described in Section 12 hereof. This Agreement is terminable with respect to any
Portfolio, without penalty, at any time by us (which termination may be by vote
of a majority of our Disinterested Directors as defined in Section 12 hereof) or
by you upon notice to the other party hereto.
Section 10. All notices and other communications to either you or us will be
duly given if mailed, telegraphed, telexed or transmitted by similar
telecommunications device to the appropriate address shown above.
Section 11. This Agreement will be construed in accordance with the laws of the
State of Maryland and is non-assignable by the parties hereto.
Section 12. This Agreement has been approved by vote of a majority of (i) the
Company's Board of Directors and (ii) those Directors who are not "interested
persons" (as defined in the Investment Company Act of 1940) of the Company and
have no direct or indirect financial interest in the operation of the
Distribution and Services Plan adopted by us regarding the provision of
administrative support services to the beneficial owners of S shares or in any
agreements related thereto ("Disinterested Directors"), cast in person at a
meeting called for the purpose of voting on such approval.
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
- 3 -
<PAGE> 4
Form Approved January 20,1998
THE ARCH FUND(R), INC.
(the "Company")
3435 Stelzer Road
Columbus, Ohio 43219
SERVICING AGREEMENT
to
DISTRIBUTION AND SERVICES PLAN
(S Shares)
Ladies and Gentlemen:
We wish to enter into this Servicing Agreement with you concerning the provision
of administrative support services to your customers who may from time to time
be the record or beneficial owners of S shares (such shares referred to herein
as the "Shares") of one or more of the Company's investment portfolios
(individually, a "Portfolio" and collectively, the "Portfolios"), which are
listed on Appendix A.
The terms and conditions of this Servicing Agreement are as follows:
Section 1. You agree to provide administrative support services to your
customers who may from time to time own of record or beneficially a Portfolio's
Shares. Services provided may include some or all of the following: (i)
processing dividend and distribution payments from a Portfolio on behalf of your
customers; (ii) providing information periodically to your customers showing
their positions in the Shares; (iii) arranging for bank wires; (iv) responding
to routine customer inquiries concerning their investment in the Shares; (v)
providing sub-accounting with respect to the Shares beneficially owned by your
customers or the information necessary for sub-accounting; (vi) if required by
law, forwarding shareholder communications from a Portfolio (such as proxies,
shareholder reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to your customers; (vii) aggregating and
processing purchase, exchange, and redemption requests from customers and
placing net purchase, exchange, and redemption orders for your customers; (viii)
providing customers with a service that invests the assets of their accounts in
the Shares pursuant to specific or pre-authorized instructions; (ix)
establishing and maintaining accounts and records relating to your customers
that invest in the Shares; (x) assisting customers in changing dividend or
distribution options, account designations and addresses; (xi) developing,
maintaining and operating systems necessary to support sweep accounts; and (xii)
other similar services we may reasonably request to the extent you are permitted
to do so under applicable law.
Section 2. You will provide such office space and equipment, telephone and
personnel (which may be any part of the space, equipment and facilities
currently used in your business, or any personnel employed by you) as may be
reasonably necessary or beneficial in order to provide the aforementioned
services to customers.
Section 3. Neither you nor any of your officers, employees or agents are
authorized to make any representations concerning us, a Portfolio, or its Shares
except those contained in our then current prospectus for such shares, copies of
which will be supplied by us to you, or in such supplemental literature or
advertising as may be authorized by us in writing.
- 1 -
<PAGE> 5
Section 4. For all purposes of this Agreement you will be deemed to be an
independent contractor, and will have no authority to act as agent for us in any
matter or in any respect. By your written acceptance of this Agreement, you
agree to and do release, indemnify and hold us harmless from and against any and
all direct or indirect liabilities or losses resulting from requests,
directions, actions or inactions of or by you or your officers, employees or
agents regarding your responsibilities hereunder or the purchase, redemption,
transfer or registration of the Shares by or on behalf of customers. You and
your employees will, upon request, be available during normal business hours to
consult with us or our designees concerning the performance of your
responsibilities under this Agreement.
Section 5. In consideration of the services and facilities provided by you
hereunder, we will pay to you, and you will accept as full payment therefore, a
fee at the annual rate of up to .25% of the average daily net assets of a
Portfolio's Shares owned of record or beneficially by your customers from time
to time for whom you are the dealer of record or holder of record or with whom
you have a servicing relationship. Said fee will be computed daily and payable
monthly. For purposes of determining the fees payable under this Section 5, the
average daily net asset value of the customers' Shares will be computed in the
manner specified in our then current Prospectus in connection with the
computation of the net asset value of a particular Portfolio's Shares for
purposes of purchases, exchanges, and redemptions. The fee rate stated above may
be prospectively increased or decreased by us, in our sole discretion, at any
time upon notice to you. Further, we may, in our discretion and without notice,
suspend or withdraw the sale of such Shares, including the sale of such shares
to you for the account of any customer(s).
Section 6. Any person authorized to direct the disposition of monies paid or
payable by us pursuant to this Agreement will provide to the Board of Directors,
and the Directors will review, at least quarterly, a written report of the
amounts so expended and the purposes for which such expenditures were made. In
addition, you will furnish us or our designees with such information as we or
they may reasonably request (including, without limitation, periodic
certifications confirming the provision to customers of some or all of the
services described herein), and will otherwise cooperate with us and our
designees (including, without limitation, any auditors designated by us), in
connection with the preparation of reports to our Board of Directors concerning
this Agreement and the monies paid or payable by us pursuant hereto, as well as
any other reports or filings that may be required by law.
Section 7. We may enter into other similar Servicing Agreements with any other
person or persons without your consent.
Section 8. By your written acceptance of this Agreement, you represent, warrant
and agree that: (i) in no event will any of the services provided by you
hereunder be primarily intended to result in the sale of any shares issued by
us; (ii) the compensation payable to you hereunder, together with any other
compensation you receive from customers for services contemplated by this
Agreement, will be fully disclosed to your customers, and will not be excessive
or unreasonable under the laws and instruments governing your relationships with
customers; (iii) if you are a member of the National Association of Securities
Dealers, Inc. (the "NASD")and subject to the rules and regulations of the NASD,
including its Rules of Fair Practice, you agree to act in accordance with such
rules and regulations; and (iv) if you are subject to the provisions of the
Glass-Steagall Act and other laws governing, among other things, the conduct of
activities by federally chartered and supervised banks and other affiliated
banking organizations, you will perform only those activities which are
consistent with your statutory and regulatory
- 2 -
<PAGE> 6
obligations and will act solely as agent for, upon the order of, and for the
account of, your customers.
Section 9. This Agreement will become effective on the date a fully executed
copy of this Agreement is received by us or our designee. Unless sooner
terminated, this Agreement will continue until January 31, 1999, and thereafter
will continue automatically for successive annual periods provided such
continuance is specifically approved at least annually by us in the manner
described in Section 12 hereof. This Agreement is terminable with respect to any
Portfolio, without penalty, at any time by us (which termination may be by vote
of a majority of our Disinterested Directors as defined in Section 12 hereof) or
by you upon notice to the other party hereto.
Section 10. All notices and other communications to either you or us will be
duly given if mailed, telegraphed, telexed or transmitted by similar
telecommunications device to the appropriate address shown above.
Section 11. This Agreement will be construed in accordance with the laws of the
State of Maryland and is non-assignable by the parties hereto.
Section 12. This Agreement has been approved by vote of a majority of (i) the
Company's Board of Directors and (ii) those Directors who are not "interested
persons" (as defined in the Investment Company Act of 1940) of the Company and
have no direct or indirect financial interest in the operation of the
Distribution and Services Plan adopted by us regarding the provision of
administrative support services to the beneficial owners of S shares or in any
agreements related thereto ("Disinterested Directors"), cast in person at a
meeting called for the purpose of voting on such approval.
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
- 3 -
<PAGE> 7
to us, c/o BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio 43219,
Attention: Walter B. Grimm.
Very truly yours,
THE ARCH FUND, INC.
By:
------------------------------------------
Authorized Officer
Date:
----------------------------------------
Accepted and Agreed to:
By:
------------------------------------------
Authorized Officer, Name of Organization
Date:
----------------------------------------
- ---------------------------------------------
Taxpayer Identification Number
- ---------------------------------------------
Account Number
- ---------------------------------------------
Dealer Code
- 4 -
<PAGE> 8
APPENDIX A
Please check the appropriate boxes to indicate the Portfolios of the
Company for which you wish to act as a Service Organization with respect to the
Shares:
THE ARCH FUND, INC.
[ ] Money Market S Shares (Class A - Special Series 4)
[ ] Treasury Money Market S Shares (Class B - Special Series 3)
[ ] Tax-Exempt Money Market S Shares (Class J - Special Series 2)
Signed:
------------------------ -------------------------------
(Title) (Service Organization Name)
Dated:
-------------------------
A-1
<PAGE> 1
Exhibit 18
THE ARCH FUND, INC.
(the "Company")
AMENDED AND RESTATED
PLAN PURSUANT TO RULE 18f-3 FOR OPERATION OF
A MULTI-CLASS SYSTEM
--------------------------------------
I. INTRODUCTION
---------------
On February 23, 1995, the Securities and Exchange Commission
(the "Commission") promulgated Rule 18f-3 under the Investment Company Act of
1940, as amended (the "1940 Act"), which permits the creation and operation of a
multi-class distribution structure without the need to obtain an exemptive order
under Section 18 of the 1940 Act. Rule 18f-3, which became effective on April 3,
1995, requires an investment company to file with the Commission, a written plan
specifying all of the differences among the classes, including the various
services offered to shareholders, the different distribution arrangements for
each class, the methods for allocating expenses relating to those differences
and any conversion features or exchange privileges. On June 27, 1995, the Board
of Directors of the Company authorized the Company to operate its current
multi-class distribution structure in compliance with Rule 18f-3. On October 5,
1995, the Company filed a Plan pursuant to Rule 18f-3 for operation of a
multi-class system (the "1995 Plan"), which had been approved by the Board of
Directors of the Company on September 26, 1995, with the Commission. Prior to
the filing of the 1995 Plan, the Company operated a multi-class distribution
structure pursuant to an exemptive order granted by the Commission on April 20,
1994. On March 28, 1996, the Company filed an Amended and Restated Plan pursuant
to Rule 18f-3 for operation of a multi-class system (the "1996-1 Plan"), which
had been approved by the Board of Directors of the Company on March 19, 1996. On
October 8, 1996, the Company filed an Amended and Restated Plan pursuant to Rule
18f-3 for operation of a multi-class system (the "1996-2 Plan"), which had been
approved by the Board of Directors of the Company on September 17, 1996. On June
18, 1997, the Company filed an Amended and Restated Plan pursuant to Rule 18f-3
for operation of a multi-class distribution system (the "1997 Plan"), which had
been approved by the Board of Directors of the Company on March 15, 1997. The
Amended and Restated Plan pursuant to Rule 18f-3 for operation of a multi-class
distribution system presented herewith, which was approved by the Board of
Directors of the Company on January 20, 1998, shall become effective when it is
filed with the Commission and thereafter shall supersede the 1995 Plan, the
1996-1 Plan, the 1996-2 Plan and the 1997 Plan.
<PAGE> 2
II. ATTRIBUTES OF CLASSES
--------------------------
A. GENERALLY
MONEY MARKET PORTFOLIOS
The Company shall initially offer (i) five classes of shares
- -- Trust Shares, Institutional Shares, S Shares, Investor A Shares and Investor
B Shares -- in the Money Market Portfolio; (ii) four classes of shares -- Trust
Shares, Institutional Shares, S Shares and Investor A Shares -- in the Treasury
Money Market Portfolio; and (iii) three classes of shares -- Trust Shares, S
Shares and Investor A Shares -- in the Tax-Exempt Money Market Portfolio (each a
"Portfolio" and collectively, the "Money Market Portfolios").
EQUITY PORTFOLIOS
The Company shall initially offer (i) four classes of shares
- -- Trust Shares, Institutional Shares, Investor A Shares and Investor B Shares
- -- in the Growth & Income Equity Portfolio, Small Cap Equity Portfolio (formerly
the Emerging Growth Portfolio), Balanced Portfolio, International Equity
Portfolio, Equity Income Portfolio and Growth Equity Portfolio; and (ii) three
classes of shares -- Trust Shares, Institutional Shares and Investor A Shares --
in the Equity Index Portfolio and Small Cap Equity Index Portfolio (each a
"Portfolio" and collectively, the "Equity Portfolios").
BOND PORTFOLIOS
The Company shall initially offer (i) four classes of shares
- -- Trust Shares, Institutional Shares, Investor A Shares and Investor B Shares
- -- in the Government & Corporate Bond Portfolio and U.S. Government Securities
Portfolio; (ii) three classes of shares -- Trust Shares, Investor A Shares and
Investor B Shares -- in the Missouri Tax-Exempt Bond Portfolio, Kansas
Tax-Exempt Bond Portfolio and National Municipal Bond Portfolio; (iii) three
classes of shares -- Trust Shares, Institutional Shares and Investor A Shares --
in the Intermediate Corporate Bond Portfolio (formerly the Short-Intermediate
Corporate Bond Portfolio) and Bond Index Portfolio; and (iv) two classes of
shares -- Trust Shares and Investor A Shares -- in the Short- Intermediate
Municipal Portfolio (each a "Portfolio" and collectively, the "Bond
Portfolios").
In general, shares of each class shall be identical except for
different expense variables (which will result in different returns for each
class), certain related rights and certain shareholder services. More
particularly, the Trust Shares, Institutional Shares, S Shares, Investor A
Shares and/or Investor B Shares of each Portfolio shall represent interests in
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<PAGE> 3
the same portfolio of investments of the particular Portfolio, and shall be
identical in all respects, except for: (a) the impact of (i) expenses assessed
to a class pursuant to the Administrative Services Plan or the Distribution and
Services Plan adopted for the class; (ii) certain sub-transfer agency fees; and
(iii) any other incremental expenses identified from time to time that should be
properly allocated to one class so long as any changes in expense allocations
are reviewed and approved by a vote of the Board of Directors, including a
majority of the independent Directors; (b) the fact that (i) Trust Shares and
Institutional Shares shall vote separately, as a class, on any matter submitted
to holders of Trust Shares or Institutional Shares that pertains to the
Administrative Services Plan adopted for the class; (ii) S Shares, Investor A
Shares and Investor B Shares shall vote separately, as a class, on any matter
submitted to holders of S Shares, Investor A Shares or Investor B Shares that
pertains to the Distribution and Services Plan adopted for that class; and (iii)
each class shall vote separately on any matter submitted to shareholders that
pertains to the class expenses borne by the class; (c) the exchange privileges
of each class of shares; (d) the designation of each class of shares; and (e)
the different shareholder services relating to a class of shares.
B. DISTRIBUTION ARRANGEMENTS, EXPENSES AND SALES CHARGES
1. MONEY MARKET PORTFOLIOS
TRUST SHARES
Trust Shares of each Money Market Portfolio shall
be available for purchase by financial institutions, such as banks, trust
companies, thrift institutions, mutual funds or other financial institutions
acting on their own behalf or on behalf of their qualified fiduciary accounts,
employee benefit, retirement plan, or other such qualified accounts.
Trust Shares of each Money Market Portfolio shall
not be subject to a sales charge but shall be subject to a fee payable pursuant
to the Administrative Services Plan adopted for the class which shall not
initially exceed .25% (on an annual basis) of the average daily net asset value
of the Money Market Portfolio's outstanding Trust Shares owned of record or
beneficially by customers of securities dealers, brokers, financial institutions
and other industry professionals ("Service Organizations") that provide
administrative support services with respect to such customers' Trust Shares.
Administrative support services provided under the
Administrative Services Plan adopted for the class may include,
but are not limited to, (i) establishing and maintaining accounts
-3-
<PAGE> 4
and records for customers who invest in Trust Shares; (ii) assisting customers
in processing purchase, exchange and redemption requests; (iii) providing
sub-accounting with respect to Trust Shares beneficially owned by customers; and
(iv) responding to customer inquiries concerning their investments.
INSTITUTIONAL SHARES
Institutional Shares of a Money Market Portfolio
shall be available for purchase by financial institutions, such as banks, trust
companies, thrift institutions, mutual funds or other financial institutions
acting on behalf of their employee benefit, retirement plan or other such
qualified accounts for which they do not have investment discretion.
Institutional Shares of a Money Market Portfolio
shall not be subject to a sales charge but shall be subject to a fee payable
pursuant to an Administrative Services Plan which shall not initially exceed
.25% (on an annual basis) of the average daily net asset value of the Money
Market Portfolio's outstanding Institutional Shares owned of record or
beneficially by customers of Service Organizations that provide administrative
support services with respect to such customers' Institutional Shares.
Administrative support services provided under the
Administrative Services Plan adopted for the class may include, but are not
limited to, (i) establishing and maintaining accounts and records for customers
who invest in Institutional Shares; (ii) assisting customers in processing
purchase, exchange and redemption requests; (iii) providing sub-accounting with
respect to Institutional Shares beneficially owned by customers; and (iv)
responding to customer inquiries concerning their investments.
S SHARES
S Shares of each Money Market Portfolio shall be
available for purchase by customers who purchase such shares through cash
management services, such as a sweep account offered by Mercantile Bank National
Association, any of its banking affiliates and certain other financial service
organizations, such as banks or broker-dealers.
S Shares of each Money Market Portfolio shall not
be subject to a sales charge but shall be subject to a fee payable pursuant to a
Distribution and Services Plan for distribution expenses which shall not
initially exceed .30% (on an annual basis) of the average daily net asset value
of the Money Market Portfolio's outstanding S Shares and for shareholder
servicing expenses which shall not initially exceed .25% (on an annual basis) of
the average daily net asset value of the Money Market Portfolio's outstanding S
Shares owned of record or
-4-
<PAGE> 5
beneficially by customers of Service Organizations that provide administrative
support services with respect to such customers' S Shares.
Administrative support services provided under the
Distribution and Services Plan adopted for the class may include, but are not
limited to, (i) establishing and maintaining accounts and records for customers
who invest in S Shares; (ii) assisting clients in processing redemption and
exchange requests; (iii) developing, maintaining and supporting systems
necessary to support cash management services, such as sweep accounts and/or in
changing dividend options and account descriptions; and (iv) responding to
customer inquiries concerning their investments.
INVESTOR A SHARES
Investor A Shares of each Money Market Portfolio
shall be available for purchase through selected broker-dealers and other
financial intermediaries acting on behalf of their individual or institutional
customers.
Investor A Shares of each Money Market Portfolio
shall not be subject to a sales charge. Investor A Shares of each Money Market
Portfolio shall be subject to a fee payable pursuant to the Distribution and
Services Plan adopted for the class for distribution expenses which shall not
initially exceed .10% (on an annual basis) of the average daily net asset value
of the Money Market Portfolio's outstanding Investor A Shares and for
shareholder servicing expenses which shall not initially exceed .15% (on an
annual basis) of the average daily net asset value of the Money Market
Portfolio's outstanding Investor A Shares owned of record or beneficially by
customers of Service Organizations that provide administrative support services
with respect to such customers' Investor A Shares.
Administrative support services provided under the
Distribution and Services Plan adopted for the class may include, but are not
limited to, (i) establishing and maintaining accounts and records for customers
who invest in Investor A Shares; (ii) assisting customers in processing
purchase, exchange and redemption requests; and (iii) responding to customer
inquiries concerning their investments.
INVESTOR B SHARES
Investor B shares of the Money Market Portfolio
shall be available for purchase only by those investors participating in the
Arch Asset Adviser Program. Otherwise, Investor B Shares of the Money Market
Portfolio shall be available only to holders of Investor B Shares of an Equity
Portfolio or Bond Portfolio who wish to exchange such Investor B Shares for
Investor B Shares of the Money Market Portfolio.
-5-
<PAGE> 6
Investor B Shares of the Money Market Portfolio,
if redeemed within six years of purchase or, in the case of Investor B Shares of
the Money Market Portfolio acquired through an exchange of Investor B Shares of
an Equity Portfolio or Bond Portfolio, if redeemed within six years of purchase
of such exchanged Investor B Shares, shall be subject to a contingent deferred
sales charge which shall not initially exceed 5.0% of the original purchase
price of the Investor B Shares or exchanged Investor B Shares, as the case may
be, or redemption proceeds, whichever is lower. The Company shall not impose an
exchange or contingent deferred sales charge at the time Investor B Shares of an
Equity Portfolio or Bond Portfolio are exchanged for Investor B Shares of the
Money Market Portfolio. Investor B Shares of the Money Market Portfolio shall be
subject to a fee payable pursuant to the Distribution and Services Plan adopted
for the class for distribution expenses which shall not initially exceed .75%
(on an annual basis) of the average daily net asset value of the Money Market
Portfolio's outstanding Investor B Shares and for shareholder servicing expenses
which shall not initially exceed .25% (on an annual basis) of the average daily
net asset value of the Money Market Portfolio's outstanding Investor B Shares
owned of record or beneficially by customers of Service Organizations that
provide administrative support services with respect to such customers' Investor
B Shares.
2. EQUITY AND BOND PORTFOLIOS
TRUST SHARES
Trust Shares of each Equity Portfolio and Bond
Portfolio shall be available for purchase by financial institutions, such as
banks, trust companies, thrift institutions, mutual funds or other financial
institutions, acting on their own behalf or on behalf of their qualified
fiduciary accounts, employee benefit, retirement plan, or other such qualified
accounts.
Trust Shares of each Equity Portfolio and Bond
Portfolio shall not be subject to a sales charge but shall be subject to a fee
payable pursuant to the Administrative Services Plan adopted for the class which
shall not initially exceed .30% (on an annual basis) of the average daily net
asset value of the Equity Portfolio's or Bond Portfolio's outstanding Trust
Shares owned of record or beneficially by customers of Service Organizations
that provide administrative support services with respect to such customers'
Trust Shares.
Administrative support services provided under the
Administrative Services Plan adopted for the class may include, but are not
limited to, (i) establishing and maintaining accounts and records for customers
who invest in Trust Shares; (ii) assisting customers in processing purchase,
exchange and
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<PAGE> 7
redemption requests; (iii) providing sub-accounting with respect to Trust Shares
beneficially owned by customers; and (iv) responding to customer inquiries
concerning their investments.
INSTITUTIONAL SHARES
Institutional Shares of an Equity Portfolio or
Bond Portfolio shall be available for purchase by financial institutions, such
as banks, trust companies, thrift institutions, mutual funds or other financial
institutions acting on behalf of their employee benefit, retirement plan or
other such accounts for which they do not have investment discretion.
Institutional Shares of an Equity Portfolio or
Bond Portfolio shall not be subject to a sales charge but shall be subject to a
fee payable pursuant to the Administrative Services Plan adopted for the class
which shall not initially exceed .30% (on an annual basis) of the average daily
net asset value of the Equity Portfolio's or Bond Portfolio's outstanding
Institutional Shares owned or record or beneficially by customers of Service
Organizations that provide administrative support services with respect to such
customers' Institutional Shares.
Administrative support services provided under the
Administrative Services Plan adopted for the class may include, but are not
limited to, (i) establishing and maintaining accounts and records for customers
who invest in Institutional Shares; (ii) assisting customers in processing
purchase, exchange and redemption requests; (iii) providing sub-accounting with
respect to Institutional Shares beneficially owned by customers; and (iv)
responding to customer inquiries concerning their investments.
INVESTOR A SHARES
Investor A Shares of each Equity Portfolio and
Bond Portfolio shall be available for purchase through selected broker-dealers
and other organizations acting on behalf of their individual or institutional
customers.
Investor A Shares of each Equity Portfolio and
Bond Portfolio shall be subject to a front-end sales charge which shall not
initially exceed 4.5% (2.5% for the Short-Intermediate Municipal Portfolio,
Intermediate Corporate Bond Portfolio, Equity Index Portfolio, Bond Index
Portfolio and Small Cap Equity Index Portfolio) of the offering price. Investor
A Shares of each Equity Portfolio and Bond Portfolio shall be further subject to
a fee payable pursuant to the Distribution and Services Plan adopted for the
class for distribution expenses which shall not initially exceed .10% (on an
annual basis) of the average daily net asset value of the Equity Portfolio's or
Bond Portfolio's outstanding Investor A Shares and for shareholder servicing
expenses which shall not initially exceed .20% (on an annual
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basis) of the average daily net asset value of the Equity Portfolio's or Bond
Portfolio's outstanding Investor A Shares owned of record or beneficially by
customers of Service Organizations that provide administrative support services
with respect to such customers' Investor A Shares.
Administrative support services provided under the
Distribution and Services Plan adopted for the class may include, but are not
limited to, (i) establishing and maintaining accounts and records for customers
who invest in shares; (ii) assisting customers in processing purchase, exchange
and redemption requests and (iii) responding to customer inquiries concerning
their investments.
INVESTOR B SHARES
Investor B Shares of an Equity Portfolio or Bond
Portfolio shall be available for purchase through selected broker-dealers or
other organizations acting on behalf of their individual or institutional
customers.
Investor B Shares of an Equity Portfolio or Bond
Portfolio, if redeemed within six years of purchase, shall be subject to a
contingent deferred sales charge which shall not initially exceed 5.0% of the
original purchase price or redemption proceeds, whichever is lower. Investor B
Shares of an Equity Portfolio or Bond Portfolio shall be further subject to a
fee payable pursuant to the Distribution and Services Plan adopted for the class
for distribution expenses which shall not initially exceed .75% (on an annual
basis) of the average daily net asset value of the Equity Portfolio's or Bond
Portfolio's outstanding Investor B Shares and for shareholder servicing expenses
which shall not initially exceed .25% (on an annual basis) of the average daily
net asset value of the Equity Portfolio's or Bond Portfolio's outstanding
Investor B Shares owned of record or beneficially by customers of Service
Organizations that provide administrative support services with respect to such
customers' Investor B Shares.
Administrative support services provided under the
Distribution and Services Plan adopted for the class may include, but are not
limited to, (i) establishing and maintaining accounts and records for customers
who invest in Investor B Shares; (ii) assisting customers in processing
purchase, exchange and redemption requests; and (iii) responding to customer
inquiries concerning their investments.
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C. EXCHANGE PRIVILEGES
TRUST SHARES
Holders of Trust Shares generally shall be
permitted to exchange those shares for Trust Shares of another Portfolio offered
by the Company without paying any exchange fee or sales charge. In addition,
Trust Shares may also be exchanged for Investor A Shares of the same Portfolio
in connection with the distribution of assets held in a qualified trust, agency
or custodian account with the trust department of Mercantile or any of its
affiliated or correspondent banks without paying any exchange fee or sales
charge.
INSTITUTIONAL SHARES
Holders of Institutional Shares generally shall be
permitted to exchange those shares for Institutional Shares of another Portfolio
offered by the Company without paying any exchange fee or sales charge. In
addition, Institutional Shares may also be exchanged for Investor A Shares of
the same Portfolio in connection with the distribution of assets held in a
qualified trust, agency or custodian account with the trust department of
Mercantile or any of its affiliated or correspondent banks without paying any
exchange fee or sales charge.
S SHARES
The Company shall not initially offer an exchange
privilege to holders of S Shares.
INVESTOR A SHARES
Holders of Investor A Shares who paid a front-end
sales charge ("load") generally shall be permitted to exchange those shares for
Investor A Shares of another Portfolio offered by the Company without paying an
exchange fee or sales load on shares acquired through the exchange, PROVIDED,
HOWEVER, that holders of Investor A Shares of a Portfolio with a lower sales
load may be charged an additional sales load on exchanges of those shares for
Investor A Shares of a Portfolio with a higher sales load. Holders of Investor A
Shares of a no-load Portfolio generally shall be permitted to exchange those
shares for Investor A Shares of another no-load Portfolio offered by the Company
without paying a sales load. Holders of Investor A Shares of a no-load Portfolio
generally shall be permitted to exchange those shares for Investor A Shares of a
load Portfolio but shall be subject to the sales load applicable to the load
Portfolio. However, holders of Investor A Shares of a no-load Portfolio who
acquired those shares through a previous exchange involving shares on which a
load was paid, generally shall not be required to pay an additional sales load
upon the reinvestment of
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the equivalent investment into a load Portfolio. In addition, holders of
Investor A Shares who have a qualified trust, agency or custodian account with
the trust department of Mercantile or any of its affiliated or correspondent
banks, and whose Shares are to be held in that account, may exchange Investor A
Shares for Trust Shares or Institutional Shares of the same Portfolio without
paying any exchange fee or sales charge.
INVESTOR B SHARES
Holders of Investor B Shares generally shall be
permitted to exchange those shares for Investor B Shares of another Portfolio
offered by the Company without paying any exchange fee or contingent deferred
sales charge at the time the exchange is made.
D. CONVERSION FEATURES
TRUST SHARES
The Company shall not initially offer a conversion feature to
holders of Trust Shares.
INSTITUTIONAL SHARES
The Company shall not initially offer a conversion feature to
holders of Institutional Shares.
S SHARES
The Company shall not initially offer a conversion feature to
holders of S Shares.
INVESTOR A SHARES
The Company shall not initially offer a conversion feature to
holders of Investor A Shares.
INVESTOR B SHARES
Investor B Shares acquired by purchase generally shall convert
automatically to Investor A Shares, based on relative net asset value, eight
years after the beginning of the calendar month in which the Shares were
purchased. Investor B Shares of the Money Market Portfolio acquired through
exchange generally shall convert automatically to Investor A Shares, based on
relative net asset value, eight years after the date of purchase of the
exchanged Investor B Shares of an Equity Portfolio or Bond Portfolio.
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Investor B Shares acquired through a reinvestment of dividends
or distributions generally shall convert automatically to Investor A Shares,
based on relative net asset value, at the earlier of (i) eight years after the
beginning of the calendar month in which the reinvestment occurred or (ii) the
date of conversion of the most recently purchased Investor B Shares that were
not acquired through reinvestment of dividends or distributions.
E. SHAREHOLDER SERVICES
1. AUTOMATIC INVESTMENT PROGRAM
TRUST SHARES, INSTITUTIONAL SHARES AND S SHARES
The Company shall not initially offer an automatic
investment program to holders of Trust Shares, Institutional
Shares and S Shares.
INVESTOR A SHARES AND INVESTOR B SHARES
Holders of Investor A Shares and Investor B Shares
shall initially be offered an automatic investment program whereby, in general,
a shareholder's bank account will be debited in an amount specified by the
shareholder and shares in a Portfolio will be automatically purchased at regular
intervals.
2. AUTOMATIC WITHDRAWAL PLAN
TRUST SHARES, INSTITUTIONAL SHARES AND S SHARES
The Company shall not initially offer an automatic
withdrawal plan to holders of Trust Shares, Institutional Shares
and S Shares.
INVESTOR A SHARES AND INVESTOR B SHARES
Holders of Investor A Shares and Investor B Shares
shall initially be offered an automatic withdrawal plan which generally allows a
shareholder to request regular account withdrawals of a fixed sum of money.
3. CHECKWRITING PRIVILEGE
TRUST SHARES, INSTITUTIONAL SHARES AND S SHARES
The Company shall not initially offer a
checkwriting privilege to holders of Trust Shares, Institutional
Shares and Trust Shares.
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INVESTOR A SHARES AND INVESTOR B SHARES
Holders of Investor A Shares and Investor B Shares
of the Money Market Portfolios shall initially be offered a checkwriting
privilege whereby a shareholder may write checks against amounts in the
shareholder's Money Market Portfolio account. The Company shall not initially
offer a checkwriting privilege to holders of Investor A Shares and Investor B
Shares of the Equity Portfolios and Bond Portfolios.
4. AUTOMATIC EXCHANGE PROGRAM
TRUST SHARES, INSTITUTIONAL SHARES AND S SHARES
The Company shall not initially offer an automatic
exchange program to holders of Trust Shares, Institutional Shares
and S Shares.
INVESTOR A SHARES AND INVESTOR B SHARES
Holders of Investor A Shares and Investor B Shares
shall initially be offered an automatic exchange program whereby a shareholder
may make regular, automatic withdrawals from a Portfolio account and use the
proceeds to purchase Shares of the same class in another Portfolio.
F. METHODOLOGY FOR ALLOCATING EXPENSES BETWEEN CLASSES
Class-specific expenses of a Portfolio shall be allocated to
the specific class of shares of that Portfolio. Non-class-specific expenses of a
Portfolio shall be allocated in accordance with Rule 18f-3(c) under the 1940
Act.
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