<PAGE> 1
As filed with the Securities and Exchange Commission on March 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. 44
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 45
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)
[X] on March 31, 1998 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Title of Securities Being Registered. . . . Shares of common stock
The purpose of this post-effective amendment is to update
financial and certain other information concerning Registrant and its
portfolios.
The Prospectuses for Trust Shares and Investors A and Investor
B Shares and Statement of Additional Information for the Kansas Tax-Exempt Bond
Portfolio dated March 31, 1997 are incorporated herein by reference to
Registrant's Post-Effective Amendment No. 38, filed on March 31, 1997.
<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
Form N-1A Part A Item Prospectus Caption
- --------------------- ------------------
1. Cover Page..................................... Cover Page
2. Synopsis....................................... Expense Summary
for Trust Shares
3. Condensed Financial
Information.................................. Certain Financial
Information;
Financial
Highlights; Yields
and Total
Returns
4. General Description
of Registrant................................ Highlights;
Investment
Objectives, Policies
and Risk
Considerations;
Other Information
Concerning the Fund
and Its Shares
5. Management of the Fund......................... Management of the
Fund
5A. Management's Discussion of
Fund Performance............................. Inapplicable
6. Capital Stock and
Other Securities............................. How to Purchase and
Redeem Shares;
Dividends
and Distributions;
Taxes; Other
Information
Concerning the Fund
and Its Shares
7. Purchase of Securities
Being Offered................................ How to Purchase and
Redeem Shares
8. Redemption or Repurchase....................... How to Purchase and
Redeem Shares
9. Pending Legal Proceedings...................... Inapplicable
<PAGE> 3
Trust Shares
THE ARCH FUND(R), INC.
Prospectus
March 31, 1998
Money Market Portfolios
Treasury Money Market Portfolio
Money Market Portfolio
Tax-Exempt Money Market Portfolio
Taxable Board 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
Stock 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
ARCH MUTUAL FUNDS [LOGO]
The ARCH Funds
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Highlights.................................................. 3
Certain Financial Information............................... 6
Expense Summary for Trust Shares............................ 7
Financial Highlights........................................ 11
Investment Objectives, Policies and Risk Considerations..... 29
Pricing of Shares........................................... 57
The Money Market Portfolios............................... 57
The Equity and Bond Portfolios............................ 57
How to Purchase and Redeem Shares........................... 58
Purchase of Shares........................................ 58
Purchase of Shares -- The Money Market Portfolios......... 58
Purchase of Shares -- The Equity and Bond Portfolios...... 58
Exchanges................................................. 59
Redemption of Shares...................................... 59
Other Purchase, Exchange and Redemption Information....... 60
Yields and Total Returns.................................... 60
Dividends and Distributions................................. 62
Taxes....................................................... 63
Management of the Fund...................................... 66
Other Information Concerning the Fund and its Shares........ 70
</TABLE>
<PAGE> 5
THE ARCH FUND(R), INC.
TRUST SHARES
The ARCH Fund, Inc. is an open-end, management investment company that
currently offers Shares in 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 Fund, Inc. consists of the following portfolios:
<TABLE>
<S> <C>
MONEY MARKET PORTFOLIOS TAXABLE BOND PORTFOLIOS
Treasury Money Market Portfolio U.S. Government Securities Portfolio
Money Market Portfolio Intermediate Corporate Bond Portfolio
Tax-Exempt Money Market Portfolio Bond Index Portfolio
Government & Corporate Bond Portfolio
STOCK PORTFOLIOS TAX-EXEMPT BOND PORTFOLIOS
Equity Income Portfolio Short-Intermediate Municipal Portfolio
Equity Index Portfolio Missouri Tax-Exempt Bond Portfolio
Growth & Income Equity Portfolio National Municipal Bond Portfolio
Growth Equity Portfolio
Small Cap Equity Portfolio
Small Cap Equity Index Portfolio
International Equity Portfolio
Balanced Portfolio
</TABLE>
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 March 31, 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.
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.
MARCH 31, 1998
<PAGE> 6
Mississippi Valley Advisors Inc. ("MVA" or the "Adviser"), an indirect
wholly-owned subsidiary of Mercantile Bancorporation Inc. ("Mercantile"), acts
as investment adviser for the Portfolios. Mercantile Bank National Association
("Mercantile Bank"), an affiliate of the Adviser, 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.
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.
2
<PAGE> 7
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 MARKETand
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 Bank 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 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 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 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 Portfolio is 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 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 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 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 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 selected debt securities, as represented by the
Lehman Brothers Aggregate Bond Index.
3
<PAGE> 8
THE ARCH GOVERNMENT & CORPORATE BOND PORTFOLIO'S investment objective is to
seek the highest level of current income consistent with conservation of
capital. The Portfolio is 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 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. The 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 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
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 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 Portfolio is designed for
investors who seek current income that is exempt from regular federal income tax
and relative stability of principal.
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 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 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 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 selected large
capitalization common stocks, 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
Portfolio is designed for investors who seek capital growth, and who are willing
to accept the risks associated with equity securities.
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 Portfolio is designed for investors who seek capital
growth, and who are willing to accept the risks associated with equity
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 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 selected small
capitalization common stocks, 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
4
<PAGE> 9
which will be denominated in foreign currencies. The 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 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. The Portfolio is designed for investors who
seek capital growth, and who are prepared to accept the risks associated with
equity securities.
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 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.
5
<PAGE> 10
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. As of the date of this Prospectus, the Fund has not commenced its
offering of S Shares.
The Tax-Exempt Money Market Portfolio and Missouri Tax-Exempt Bond
Portfolio commenced operations on July 10, 1986 and July 15, 1988, respectively,
as separate investment portfolios (the "Predecessor Tax-Exempt Money Market
Portfolio" and "Predecessor Missouri Tax-Exempt Bond Portfolio", respectively)
of The ARCH Tax-Exempt Trust (the "Trust"), which was organized as a
Massachusetts business trust. On October 2, 1995, the Predecessor Tax-Exempt
Money Market Portfolio and the Predecessor Missouri Tax-Exempt Bond Portfolio
were reorganized as new portfolios of the Fund. Prior to the reorganization,
these Predecessor Portfolios offered and sold shares of beneficial interest that
were similar to the Fund's Trust Shares, Investor A Shares and Investor B
Shares.
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 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.
6
<PAGE> 11
EXPENSE SUMMARY FOR TRUST SHARES
<TABLE>
<CAPTION>
TREASURY TAX-EXEMPT U.S. INTERMEDIATE
MONEY MONEY MONEY GOVERNMENT CORPORATE BOND
MARKET MARKET MARKET SECURITIES BOND INDEX
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).................................. .35% .35% .35% .45% .55% .30%
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)......................... .26% .29% .22% .22% .28% .22%
--- --- --- --- --- ---
Total Portfolio Operating Expenses (net of fee
waivers and expense reimbursements)(3)....... .61% .64% .57% .67% .83% .52%
=== === === === === ===
</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 the
Money Market Portfolios and .30% for the Equity and Bond Portfolios.
(3) Without fee waivers and/or expense reimbursements, Other Expenses would
be .53%, .52%, .42%, .62%, .68% and .62% and Total Portfolio Operating
Expenses would be .93%, .92%, .82%, 1.07%, 1.23% and .92% for the
Treasury Money Market, Money Market, Tax-Exempt Money Market, U.S.
Government Securities, Intermediate Corporate Bond and Bond Index
Portfolios, respectively.
7
<PAGE> 12
<TABLE>
<CAPTION>
GOVERNMENT
& SHORT- MISSOURI NATIONAL
CORPORATE INTERMEDIATE TAX-EXEMPT MUNICIPAL EQUITY EQUITY
BOND MUNICIPAL BOND BOND INCOME INDEX
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..... .45% .55% .45% .55% .75% 30%
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)(1,2)....... .21% .38% .21% .21% .22% .37%
--- --- --- --- ---- ---
Total Portfolio Operating
Expenses (net of fee
waivers and expense
reimbursements)(2)......... .66% .93% .66% .76% .97% .67%
=== === === === ==== ===
</TABLE>
- ------------
(1) Without fee waivers, administration fees would be .20% for each
Portfolio. Administrative services fees are payable at an annual rate not
to exceed .30% for the Equity and Bond Portfolios.
(2) Without fee waivers and/or expense reimbursements, Other Expenses would
be .31%, .78%, .61%, .61%, .62%, and .77% and Total Portfolio Operating
Expenses would be 1.06%, 1.33%, 1.06%, 1.16%, 1.37%, and 1.07% for the
Government & Corporate Bond, Short-Intermediate Municipal, Missouri
Tax-Exempt Bond, National Municipal Bond, Equity Income and Equity Index
Portfolios, respectively.
8
<PAGE> 13
<TABLE>
<CAPTION>
GROWTH SMALL
& SMALL CAP
INCOME GROWTH CAP EQUITY INTERNATIONAL
EQUITY EQUITY EQUITY INDEX EQUITY BALANCED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING EXPENSES
(as a percentage of average net
assets)
Investment Advisory Fees,
(net of waivers)(1)............ .55% .75% .75% .00% 1.00% .75%
12b-1 Fees....................... .00% .00% .00% .00% .00% .00%
Other Expenses (including
administration fees,
administrative services fees
and other expenses) (net of fee
waivers and expense
reimbursements)(2,3)........... .19% .23% .20% .37% .28% .22%
---- ---- ---- ---- ---- ----
Total Portfolio Operating
Expenses (net of fee waivers
and expense
reimbursements)(3)............. .74% .98% .95% .37% 1.28% .97%
==== ==== ==== ==== ==== ====
</TABLE>
- ------------
(1) Without fee waivers, Investment Advisory fees would be .40% for the Small
Cap Equity Index Portfolio.
(2) Without fee waivers, administration fees would be .20% for each
Portfolio. Administrative services fees are payable at an annual rate not
to exceed .30% for the Equity and Bond Portfolios.
(3) Without fee waivers and/or expense reimbursements, Other Expenses would
be .59%, .63%, .60%, .80%, .75%, and .62% and Total Portfolio Operating
Expenses would be 1.14%, 1.38%, 1.35%, 1.20%, 1.75%, and 1.37% for the
Growth & Income Equity, Growth Equity, Small Cap Equity, Small Cap Equity
Index, International Equity and Balanced Portfolios.
9
<PAGE> 14
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
EXAMPLE ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) a 5% annual return and (2)
redemption at the end of each period:
Treasury Money Market Portfolio.......................... $ 6 $20 $34 $ 76
Money Market Portfolio................................... $ 7 $20 $36 $ 80
Tax-Exempt Money Market Portfolio........................ $ 6 $18 $32 $ 71
U.S. Government Securities Portfolio..................... $ 7 $21 $37 $ 83
Intermediate Corporate Bond Portfolio.................... $ 8 $26 $46 $102
Bond Index Portfolio..................................... $ 5 $17 $29 $ 65
Government & Corporate Bond Portfolio.................... $ 7 $21 $37 $ 82
Short-Intermediate Municipal Portfolio................... $ 9 $30 $51 $114
Missouri Tax-Exempt Bond Portfolio....................... $ 7 $21 $37 $ 82
National Municipal Bond Portfolio........................ $ 8 $24 $42 $ 94
Equity Income Portfolio.................................. $10 $31 $54 $119
Equity Index Portfolio................................... $ 7 $21 $37 $ 83
Growth & Income Equity Portfolio......................... $ 8 $24 $41 $ 92
Growth Equity Portfolio.................................. $10 $31 $54 $120
Small Cap Equity Portfolio............................... $10 $30 $53 $117
Small Cap Equity Index Portfolio......................... $ 4 $12 N/A N/A
International Equity Portfolio........................... $13 $41 $70 $155
Balanced Portfolio....................................... $10 $31 $54 $119
</TABLE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN. Information about the actual performance of all of the
Portfolios is contained in the Fund's Annual Report to Shareholders dated
November 30, 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 Trust 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,
Missouri Tax-Exempt Bond, Growth & Income Equity, Small Cap 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 Tax-Exempt Money Market, Intermediate Corporate Bond, Bond Index,
Government & Corporate Bond, Short-Intermediate Municipal, National Municipal
Bond, Equity Income, Equity Index Growth Equity and International 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 the expenses that such Portfolio expects to incur during the current
fiscal year with respect to its Trust Shares. (For more complete descriptions of
the various costs and expenses, see "Management of the Fund" in this Prospectus
and the Statement of Additional Information.) The Tables and Examples have not
been audited by the Fund's independent auditors and do not reflect any charges
that may be imposed by financial institutions on their customers.
10
<PAGE> 15
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 incorporated by reference 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 KPMG Peat
Marwick LLP, independent auditors, whose unqualified report insofar as it
relates to each of the years or periods in the five-year period ended November
30, 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 incorporated by reference 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 1 of this
Prospectus.
11
<PAGE> 16
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 $ 1.00
-------- -------- -------- -------- -------- --------
Investment Activities
Net investment income..... 0.046 0.045 0.050 0.033 0.026 0.034
-------- -------- -------- -------- -------- --------
Total from Investment
Activities.............. 0.046 0.045 0.050 0.033 0.026 0.034
-------- -------- -------- -------- -------- --------
Distributions
Net investment income..... (0.046) (0.045) (0.050) (0.033) (0.026) (0.034)
-------- -------- -------- -------- -------- --------
Total Distributions....... (0.046) (0.045) (0.050) (0.033) (0.026) (0.034)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total Return.............. 4.70% 4.64% 5.12% 3.38% 2.67% 3.16%(c)
Ratios/Supplemental Data:
Net Assets at end of
period (000)............ $283,653 $131,322 $252,780 $242,099 $256,503 $229,288
Ratio of expenses to
average net assets
(including waivers)..... 0.61% 0.61% 0.60% 0.49% 0.41% 0.28%(d)
Ratio of net investment
income to average net
assets (including
waivers)................ 4.60% 4.55% 5.01% 3.26% 2.64% 3.35%(d)
Ratio of expenses to
average net assets
(before waivers)*....... 0.92% 0.76% 0.75% 0.94% 0.85% 0.72%(d)
Ratio of net investment
income to average net
assets (before
waivers)*............... 4.28% 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.
12
<PAGE> 17
MONEY MARKET PORTFOLIO
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991(a)
---------- -------- -------- -------- -------- -------- ---------
TRUST TRUST TRUST TRUST TRUST TRUST TRUST
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
---------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- -------- -------- -------- -------- -------- --------
Investment Activities
Net investment income....................... 0.050 0.049 0.054 0.035 0.026 0.034 0.058
---------- -------- -------- -------- -------- -------- --------
Total from Investment Activities............ 0.050 0.049 0.054 0.035 0.026 0.034 0.058
---------- -------- -------- -------- -------- -------- --------
Distributions
Net investment income....................... (0.050) (0.049) (0.054) (0.035) (0.026) (0.034) (0.058)
---------- -------- -------- -------- -------- -------- --------
Total Distributions......................... (0.050) (0.049) (0.054) (0.035) (0.026) (0.034) (0.058)
---------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of Period................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ======== ======== ======== ======== ======== ========
Total Return.................................. 5.06% 4.99% 5.52% 3.55% 2.72% 3.44% 5.95%
Ratios/Supplemental Data:
Net Assets at end of period (000)............. $1,042,151 $717,265 $698,131 $544,952 $621,717 $574,941 $700,474
Ratio of expenses to average net assets
(including waivers)......................... 0.64% 0.61% 0.59% 0.61% 0.59% 0.57% 0.59%
Ratio of net investment income to average net
assets (including waivers).................. 4.96% 4.88% 5.38% 3.45% 2.70% 3.44% 5.81%
Ratio of expenses to average net assets
(before waivers)*........................... 0.92% 0.76% 0.74% 0.93% 0.80% 0.71% 0.67%
Ratio of net investment income to average net
assets (before waivers)*.................... 4.68% 4.73% 5.23% 3.13% 2.49% 3.30% 5.73%
<CAPTION>
YEAR ENDED NOVEMBER 30,
------------------------------
1990 1989 1988
-------- -------- --------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period.......... $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Investment Activities
Net investment income....................... 0.078 0.088 0.071
-------- -------- --------
Total from Investment Activities............ 0.078 0.088 0.071
-------- -------- --------
Distributions
Net investment income....................... (0.078) (0.088) (0.071)
-------- -------- --------
Total Distributions......................... (0.078) (0.088) (0.071)
-------- -------- --------
Net Asset Value, End of Period................ $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total Return.................................. 8.08% 9.21% 7.33%(b)
Ratios/Supplemental Data:
Net Assets at end of period (000)............. $896,903 $661,145 $289,764
Ratio of expenses to average net assets
(including waivers)......................... 0.55% 0.45% 0.45%
Ratio of net investment income to average net
assets (including waivers).................. 7.77% 8.82% 7.12%
Ratio of expenses to average net assets
(before waivers)*........................... 0.60% 0.60% 0.58%
Ratio of net investment income to average net
assets (before waivers)*.................... 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.
13
<PAGE> 18
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 1993 1992
------------ ------------ ------------ ------- -------- -------- --------
TRUST TRUST TRUST TRUST TRUST TRUST TRUST
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
-------- ------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period.......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------- ------- ------- -------- -------- --------
Investment Activities
Net investment income........... 0.030 0.030 0.016 0.029 0.020 0.021 0.034
-------- ------- ------- ------- -------- -------- --------
Total from Investment
Activities.................... 0.030 0.030 0.016 0.029 0.020 0.021 0.034
-------- ------- ------- ------- -------- -------- --------
Distributions
Net investment income........... (0.030) (0.030) (0.016) (0.029) (0.020) (0.021) (0.034)
-------- ------- ------- ------- -------- -------- --------
Total Distributions............. (0.030) (0.030) (0.016) (0.029) (0.020) (0.021) (0.034)
-------- ------- ------- ------- -------- -------- --------
Net Asset Value, End of Period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------- ------- ------- -------- -------- --------
Total Return...................... 3.08% 3.06% 1.57%(c) 2.93% 1.97% 2.16% 3.44%
Ratios/Supplemental Data:
Net Assets at end of period
(000)......................... $143,517 $95,726 $78,031 $85,324 $112,594 $137,602 $126,079
Ratio of expenses to average net
assets (including waivers).... 0.58% 0.53% 0.70%(d) 0.61% 0.52% 0.52% 0.59%
Ratio of net investment income
to average net assets
(including waivers)........... 3.04% 3.01% 3.10%(d) 2.87% 1.95% 2.13% 3.38%
Ratio of expenses to average net
assets (before waivers)*...... 0.83% 0.58% 0.75%(d) 0.70% 0.86% 0.62% 0.69%
Ratio of net investment income
to average net assets (before
waivers)*..................... 2.79% 2.96% 3.05%(d) 2.78% 1.61% 2.03% 3.28%
<CAPTION>
YEAR ENDED MAY 31,
---------------------------------------------
1991(b) 1990(b) 1989(b) 1988(b)
--------- --------- --------- ---------
TRUST MONEY MONEY MONEY
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....... 0.031 0.056 0.056 0.043
-------- -------- ------- -------
Total from Investment
Activities................ 0.031 0.056 0.056 0.043
-------- -------- ------- -------
Distributions
Net investment income....... (0.031) (0.056) (0.056) (0.043)
-------- -------- ------- -------
Total Distributions......... (0.031) (0.056) (0.056) (0.043)
-------- -------- ------- -------
Net Asset Value, End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- ------- -------
Total Return.................. 2.25% 5.71% 5.74% 4.35%
Ratios/Supplemental Data:
Net Assets at end of period
(000)..................... $137,847 $132,407 $70,153 $72,120
Ratio of expenses to average
assets (including waivers) 0.58% 0.51% 0.45% 0.45%
Ratio of net investment income
to average net assets
(including waivers)....... 4.65% 5.57% 5.59% 4.27%
Ratio of expenses to average
assets (before waivers)*.. 0.68% 0.61% 0.63% 0.60%
Ratio of net investment income
to average net assets (before
waivers)*................. 4.55% 5.47% 5.41% 4.12%
</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.
14
<PAGE> 19
U.S. GOVERNMENT SECURITIES PORTFOLIO
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991(a) 1990 1989
------- ------- ------- ------- ------- ------- --------- ------- -------
TRUST TRUST TRUST TRUST TRUST TRUST TRUST
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.............. $ 10.67 $ 10.85 $ 10.05 $ 11.20 $ 10.80 $ 10.68 $ 10.42 $ 10.06 $ 9.94
------- ------- ------- ------- ------- ------- ------- ------- ------
Investment Activities
Net investment income............ 0.61 0.66 0.67 0.66 0.62 0.66 0.64 0.76 0.85
Net realized and unrealized gains
(losses) from investments...... (0.05) (0.15) 0.80 (0.97) 0.47 0.13 0.26 0.16 0.11
------- ------- ------- ------- ------- ------- ------- ------- ------
Total from Investment
Activities..................... 0.56 0.51 1.47 (0.31) 1.09 0.79 0.90 0.92 0.96
------- ------- ------- ------- ------- ------- ------- ------- ------
Distributions
Net investment income............ (0.61) (0.66) (0.67) (0.66) (0.62) (0.66) (0.64) (0.77) (0.84)
Net realized gains............... -- -- -- -- (0.07) (0.01) -- -- --
In excess of net realized
gains.......................... -- (0.03) -- 0.18) -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------
Total Distributions.............. (0.61) (0.69) (0.67) (0.84) (0.69) (0.67) (0.64) (0.77) (0.84)
------- ------- ------- ------- ------- ------- ------- ------- ------
Net Asset Value, End of Period..... $ 10.62 $ 10.67 $ 10.85 $ 10.05 $ 11.20 $ 10.80 $ 10.68 $ 10.21 $10.06
------- ------- ------- ------- ------- ------- ------- ------- ------
Total Return....................... 5.51% 4.88% 15.00% (2.85%) 10.36% 7.52% 12.62% 9.66% 10.04%
Ratios/Supplemental Data:
Net Assets at end of period
(000)............................ $72,753 $60,079 $45,513 $33,166 $35,121 $31,106 $21,484 $ 6,856 $5,954
Ratio of expenses to average net
assets........................... 0.67% 0.67% 0.67% 0.66% 0.67% 0.65% 0.56% 0.73% 0.74%
Ratio of net investment income to
average net assets............... 5.84% 6.10% 6.36% 6.25% 5.57% 6.02% 7.26% 7.80% 8.50%
Ratio of expenses to average net
assets (before waivers)*......... 1.07% 0.77% 0.77% 1.06% 0.91% 0.79% 1.11% 1.28% 1.29%
Ratio of net investment income to
average net assets (before
waivers)*........................ 5.44% 6.00% 6.26% 5.85% 5.33% 5.88% 6.71% 7.25% 7.95%
Portfolio turnover**............... 100.33% 53.76% 93.76% 50% 24% 74% 36% 53% 84%
<CAPTION>
JUNE 2,
1988
TO
NOV. 30,
1988(b)
--------
<S> <C>
Net Asset Value,
Beginning of Period.......... $10.00
------
Investment Activities
Net investment income........ 0.36
Net realized and unrealized gains
(losses) from investments.. (0.06)
------
Total from Investment
Activities................. 0.30
------
Distributions
Net investment income........ (0.36)
Net realized gains........... --
In excess of net realized
gains...................... --
------
Total Distributions.......... (0.36)
------
Net Asset Value, End of Period. $ 9.94
------
Total Return................... 3.05%(c),(d)
Ratios/Supplemental Data:
Net Assets at end of period
(000)........................ $4,335
Ratio of expenses to average net
assets....................... 0.79%(e)
Ratio of net investment income
average net assets........... 7.26%(e)
Ratio of expenses to average net
assets (before waivers)*..... 1.40%(e)
Ratio of net investment income
average net assets (before
waivers)*.................... 6.65%(e)
Portfolio turnover**........... 215%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If
such voluntary fee reductions had not occurred, the ratios
would have been as indicated.
** Portfolio turnover is calculated on the basis of the
Portfolio as a whole, without distinguishing between the
classes of shares issued.
(a) As of December 1, 1990, the Portfolio designated the
existing series of Shares as "Investor" Shares. In addition,
on February 1, 1991, the Portfolio issued a second series of
Shares which were designated as "Trust" Shares. The
financial highlights presented for the periods prior to
February 1, 1991 are the financial highlights applicable to
Investor Shares. On September 27, 1994, the Portfolio
redesignated the Investor Shares as "Investor A" Shares.
(b) Period from commencement of operations.
(c) Unaudited.
(d) Not Annualized.
(e) Annualized.
15
<PAGE> 20
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........................ $ 10.00
Investment Activities
Net investment income..................................... 0.53
Net realized and unrealized gains (losses) from
investments............................................ 0.11
-------
Total from Investment Activities.......................... 0.64
-------
Distributions
Net investment income..................................... (0.53)
-------
Total Distributions....................................... (0.53)
-------
Net Asset Value, End of Period.............................. $ 10.11
=======
Total Return................................................ 6.65%(b)
Ratios/Supplementary Data:
Net assets at the end of period (000)..................... $44,443
Ratio of expenses to average net assets................... 0.29%(c)
Ratio of net investment income to average net assets...... 6.90%(c)
Ratio of expenses to average net assets*.................. 1.32%(c)
Ratio of net investment income to average net assets*..... 5.87%(c)
Portfolio turnover**...................................... 61.98%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If
such voluntary fee reductions had not occurred, the ratios
would have been as indicated.
** Portfolio turnover is calculated on the basis of the
Portfolio as a whole without distinguishing between the
classes of shares issued.
(a) Period from commencement of operations.
(b) Not Annualized.
(c) Annualized.
16
<PAGE> 21
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........................ $ 10.00
--------
Investment Activities
Net investment income..................................... 0.53
Net realized and unrealized gains (losses) from
investments............................................ 0.16
--------
Total from Investment Activities.......................... 0.69
--------
Distributions
Net investment income..................................... (0.53)
--------
Total Distributions....................................... (0.53)
--------
Net Asset Value, End of Period.............................. $ 10.16
========
Total Return................................................ 7.15%(b)
Ratios/Supplementary Data:
Net assets at the end of period (000)..................... $138,319
Ratio of expenses to average net assets................... 0.23%(c)
Ratio of net investment income to average net assets...... 6.92%(c)
Ratio of expenses to average net assets*.................. 0.94%(c)
Ratio of net investment income to average net assets*..... 6.21%(c)
Portfolio turnover**...................................... 46.16%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If
such voluntary fee reductions had not occurred, the ratios
would have been as indicated.
** Portfolio turnover is calculated on the basis of the
Portfolio as a whole without distinguishing between the
classes of shares issued.
(a) Period from commencement of operations.
(b) Not Annualized.
(c) Annualized.
17
<PAGE> 22
GOVERNMENT & CORPORATE BOND PORTFOLIO
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991(a) 1990 1989
-------- -------- -------- -------- -------- -------- --------- ------- -------
TRUST TRUST TRUST TRUST TRUST TRUST TRUST
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
-------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period........................... $ 10.34 $ 10.53 $ 9.64 $ 10.65 $ 10.26 $ 10.15 $ 9.84 $ 10.12 $ 9.91
-------- -------- -------- -------- -------- -------- ------- ------- -------
Investment Activities
Net investment income............ 0.59 0.67 0.64 0.63 0.68 0.70 0.64 0.84 0.89
Net realized and unrealized gains
(losses) from investments...... 0.03 (0.19) 0.89 (0.94) 0.39 0.11 0.31 (0.41) 0.22
-------- -------- -------- -------- -------- -------- ------- ------- -------
Total from Investment
Activities..................... 0.62 0.48 1.53 (0.31) 1.07 0.81 0.95 0.43 1.11
-------- -------- -------- -------- -------- -------- ------- ------- -------
Distributions
Net investment income............ (0.59) (0.67) (0.64) (0.63) (0.68) (0.70) (0.64) (0.84) (0.90)
In excess of net realized
gains.......................... -- -- -- (0.07) -- -- -- -- --
-------- -------- -------- -------- -------- -------- ------- ------- -------
Total Distributions.............. (0.59) (0.67) (0.64) (0.70) (0.68) (0.70) (0.64) (0.84) (0.90)
-------- -------- -------- -------- -------- -------- ------- ------- -------
Net Asset Value, End of Period.... $ 10.37 $ 10.34 $ 10.53 $ 9.64 $ 10.65 $ 10.26 $ 10.15 $ 9.71 $ 10.12
======== ======== ======== ======== ======== ======== ======= ======= =======
Total Return...................... 6.32% 4.82% 16.31% (3.03)% 10.55% 8.14% 13.04% 4.96% 11.79%
Ratios/Supplemental Data:
Net Assets at end of period
(000).......................... $172,637 $141,440 $127,741 $132,577 $149,674 $135,404 $89,975 $11,005 $10,327
Ratio of expenses to average net
assets (including waivers)..... 0.65% 0.65% 0.65% 0.65% 0.65% 0.63% 0.36% 0.53% 0.44%
Ratio of net investment income to
average net assets (including
waivers)....................... 5.85% 6.36% 6.32% 6.25% 6.32% 6.73% 7.51% 8.69% 8.97%
Ratio of expenses to average net
assets (before waivers)*....... 1.05% 0.75% 0.75% 1.05% 0.88% 0.76% 0.91% 1.08% 0.99%
Ratio of net investment income to
average net assets (before
waivers)*...................... 5.45% 6.26% 6.22% 5.85% 6.09% 6.60% 6.96% 8.14% 8.42%
Portfolio turnover**.............. 140.72% 149.20% 59.32% 50% 31% 52% 105% 75% 148%
<CAPTION>
JUNE 15
1988 TO
NOV. 30,
1988(b)
--------
<S> <C>
Net Asset Value, Beginning of
Period........................... $10.00
------
Investment Activities
Net investment income............ 0.39
Net realized and unrealized gains
(losses) from investments...... (0.13)
------
Total from Investment
Activities..................... 0.26
------
Distributions
Net investment income............ (0.35)
In excess of net realized
gains.......................... --
------
Total Distributions.............. (0.35)
------
Net Asset Value, End of Period.... $ 9.91
======
Total Return...................... 2.66%(c)(d)
Ratios/Supplemental Data:
Net Assets at end of period
(000).......................... $7,483
Ratio of expenses to average net
assets (including waivers)..... 0.56%(e)
Ratio of net investment income to
average net assets (including
waivers)....................... 8.47%(e)
Ratio of expenses to average net
assets (before waivers)*....... 1.17%(e)
Ratio of net investment income to
average net assets (before
waivers)*...................... 7.86%(e)
Portfolio turnover**.............. 22%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole,
without distinguishing between the classes of shares issued.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. In addition, on February 1, 1991, the Portfolio
issued a second series of Shares which were designated as "Trust" Shares.
The financial highlights presented for periods prior to February 1, 1991 are
the financial highlights applicable to Investor Shares. On September 27,
1994 the Portfolio redesignated the Investor Shares as "Investor A" Shares.
(b) Period from commencement of operations.
(c) Unaudited.
(d) Not Annualized.
(e) Annualized.
18
<PAGE> 23
SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
JULY 10,
YEAR ENDED YEAR ENDED 1995 TO
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1997 1996 1995(a)
------------ ------------ ------------
TRUST SHARES TRUST SHARES TRUST SHARES
------------ ------------ ------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period................. $ 10.07 $ 10.07 $ 10.00
------- ------- -------
Investment Activities
Net investment income (loss)....................... 0.40 0.41 0.14
Net realized and unrealized gains (losses) from
investments..................................... 0.03 -- 0.07
------- ------- -------
Total from Investment Activities................ 0.43 0.41 0.21
------- ------- -------
Distributions
Net investment income.............................. (0.40) (0.41) (0.14)
------- ------- -------
Total Distributions............................. (0.40) (0.41) (0.14)
Net Asset Value, End of Period....................... $ 10.10 $ 10.07 $ 10.07
======= ======= =======
Total Return......................................... 4.39% 4.15% 2.15%(b)
Ratios/Supplemental Data:
Net Assets at end of period (000).................... $30,454 $29,472 $23,754
Ratio of expenses to average net assets (including
waivers)........................................... 0.38% 0.31% 0.47%(c)
Ratio of net investment income to average net assets
(including waivers)................................ 4.00% 4.07% 3.81%(c)
Ratio of expenses to average net assets (before
waivers)*.......................................... 1.33% 0.96% 1.12%(c)
Ratio of net investment income to average net assets
(before waivers)*.................................. 3.05% 3.42% 3.16%(c)
Portfolio turnover**................................. 0.00% 0.00% 0.00%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
19
<PAGE> 24
MISSOURI TAX-EXEMPT BOND PORTFOLIO(a)
(For a Share(b) outstanding throughout each period)
<TABLE>
<CAPTION>
YEAR YEAR SIX MONTHS
ENDED ENDED ENDED YEAR ENDED MAY 31,
NOV. 30, NOV. 30, NOV. 30, -------------------------------------
1997 1996 1995(c) 1995 1994 1993 1992
-------- -------- ---------- ------- ------- ------- -------
TRUST TRUST TRUST TRUST TRUST TRUST TRUST
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period............................. $ 11.69 $ 11.74 $ 11.52 $ 11.13 $ 11.54 $ 10.97 $ 10.62
------- ------- ------- ------- ------- ------- -------
Investment Activities:
Net investment income.............. 0.56 0.57 0.28 0.57 0.58 0.60 0.64
Net realized and unrealized gains
(losses) on investments.......... 0.18 (0.05) 0.22 0.40 (0.37) 0.64 0.43
------- ------- ------- ------- ------- ------- -------
Total from Investment
Activities..................... 0.74 0.52 0.50 0.97 0.21 1.24 1.07
------- ------- ------- ------- ------- ------- -------
Distributions
Net investment income.............. (0.56) (0.57) (0.28) (0.57) (0.58) (0.60) (0.64)
Net realized gains................. -- -- -- (0.01) (0.04) (0.07) (0.08)
------- ------- ------- ------- ------- ------- -------
Total Distributions.............. (0.56) (0.57) (0.28) (0.58) (0.62) (0.67) (0.72)
------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of Period...... $ 11.87 $ 11.69 $ 11.74 $ 11.52 $ 11.13 $ 11.54 $ 10.97
======= ======= ======= ======= ======= ======= =======
Total Return........................ 6.48% 4.62% 4.41%(d) 9.12% 1.73% 11.70% 10.37%
Ratios/Supplemental Data:
Net Assets at end of period(000).... $75,431 $55,905 $47,773 $44,336 $47,743 $32,777 $ 6,609
Ratio of expenses to average net
assets (including waivers)......... 0.66% 0.65% 0.78%(e) 0.64% 0.45% 0.43% 0.73%
Ratio of net investment income to
average net assets (including
waivers)........................... 4.76% 4.95% 4.83%(e) 5.22% 4.96% 5.30% 5.87%
Ratio of expenses to average net
assets (before waivers)*........... 1.06% 0.75% 0.88%(e) 1.16% 1.13% 0.98% 1.38%
Ratio of net investment income to
average net assets (before
waivers)*.......................... 4.36% 4.85% 4.73%(e) 4.70% 4.28% 4.75% 5.22%
Portfolio turnover rate**........... 3.50% 3.66% 1.55% -- 20% 15% 21%
<CAPTION>
PERIOD
YEAR ENDED MAY 31, ENDED
--------------------- MAY 31,
1991(b) 1990(b) 1989(a)(b)
--------- --------- ------------
PORTFOLIO PORTFOLIO PORTFOLIO
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period............................. $ 10.50 $ 10.56 $ 10.00
------- ------- -------
Investment Activities:
Net investment income.............. 0.67 0.68 0.58
Net realized and unrealized gains
(losses) on investments.......... 0.24 (0.09) 0.58
------- ------- -------
Total from Investment
Activities..................... 0.91 0.59 1.16
------- ------- -------
Distributions
Net investment income.............. (0.70) (0.65) (0.60)
Net realized gains................. (0.09) 0.00 0.00
------- ------- -------
Total Distributions.............. (0.79) (0.65) 0.00
------- ------- -------
Net Asset Value, End of Period...... $ 10.62 $ 10.50 $ 10.56
======= ======= =======
Total Return........................ 9.08% 5.50% 12.08%(d)
Ratios/Supplemental Data:
Net Assets at end of period(000).... $ 4,735 $ 4,568 $ 4,053
Ratio of expenses to average net
assets (including waivers)......... 0.70%(e) 0.70% 0.81%(e)
Ratio of net investment income to
average net assets (including
waivers)........................... 6.37%(e) 6.38% 6.36%(e)
Ratio of expenses to average net
assets (before waivers)*........... 1.66% 1.70% 1.38%(e)
Ratio of net investment income to
average net assets (before
waivers)*.......................... 5.41% 5.38% 5.79%(e)
Portfolio turnover rate**........... 71% 41% 73%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) The Portfolio (formerly, the Long-Term Tax-Exempt Portfolio) commenced
operations on July 15, 1988 as a portfolio of The ARCH Tax-Exempt Trust. On
October 2, 1995, it was reorganized as a new portfolio of the Fund.
(b) The Portfolio had one class of Shares outstanding ("Portfolio Shares")
through September 27, 1990. As of September 28, 1990 the Portfolio issued a
second class of Shares and designated such Shares as "Trust" Shares. The
financial highlights presented for periods prior to September 28, 1990
represent the financial highlights applicable to Portfolio Shares.
(c) Upon its reorganization as a portfolio of the Fund, the Portfolio changed
its fiscal-year end from May 31 to November 30.
(d) Not Annualized.
(e) Annualized.
20
<PAGE> 25
NATIONAL MUNICIPAL BOND PORTFOLIO
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
NOVEMBER 18, 1996
YEAR ENDED TO
NOVEMBER 30, NOVEMBER 30,
1997 1996(a)
------------ -------------------
TRUST SHARES TRUST SHARES
------------ -------------------
<S> <C> <C>
Net Asset Value, Beginning of Period........................ $ 10.05 $ 10.00
-------- --------
Investment Activities
Net Investment income (loss).............................. 0.54 0.02
Net realized and unrealized gains (losses) from
investments............................................ 0.23 0.05
-------- --------
Total from Investment Activities....................... 0.77 0.07
-------- --------
Distributions
Net investment income..................................... (0.54) (0.02)
-------- --------
Total Distributions....................................... (0.54) (0.02)
Net Asset Value, End of Period.............................. $ 10.28 $ 10.05
======== ========
Total Return................................................ 7.97% 0.74%(b)
Ratios/Supplemental Data:
Net Assets at end of period (000)........................... $366,889 $310,413
Ratio of expenses to average net assets (including
waivers).................................................. 0.14% 0.12%(c)
Ratio of net investment income to average net assets
(including waivers)....................................... 5.38% 5.77%(c)
Ratio of expenses to average net assets (before waivers)*... 1.17% 0.82%(c)
Ratio of net investment income to average net assets (before
waivers)*................................................. 4.35% 5.07%(c)
Portfolio turnover**........................................ 83.94% 0.0%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) Period from commencement of operations.
(b) Not Annualized.
(c) Annualized.
21
<PAGE> 26
EQUITY INCOME PORTFOLIO
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
FEBRUARY 27, 1997
TO
November 30, 1997(a)
TRUST SHARES
----------------------
<S> <C>
Net Asset Value, Beginning of Period........................ $ 10.00
--------
Investment Activities
Net investment income..................................... 0.20
Net realized and unrealized gains from investments........ 1.55
--------
Total from Investment Activities..................... 1.75
========
Distributions
Net investment income....................................... (0.19)
--------
Total Distributions......................................... (0.19)
--------
Net Asset Value, End of Period.............................. $ 11.56
========
Total Return................................................ 17.64%(b)
Ratios/Supplementary Data:
Net assets at the end of period (000)....................... $131,919
Ratio of expenses to average net assets..................... 0.15%(c)
Ratio of net investment income to average net assets........ 2.51%(c)
Ratio of expenses to average net assets*.................... 1.38%(c)
Ratio of net investment income to average net assets*....... 1.28%(c)
Portfolio turnover**........................................ 48.33%
Average commission rate paid(d)............................. $ 0.0566
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) Period from commencement of operations.
(b) Not Annualized.
(c) Annualized.
(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.
22
<PAGE> 27
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........................ $ 10.00
-------
Investment Activities
Net investment income..................................... 0.10
Net realized and unrealized gains from investments........ 1.94
-------
Total from Investment Activities.......................... 2.04
-------
Distributions
Net investment income..................................... (0.10)
-------
Total Distributions....................................... (0.10)
-------
Net Asset Value, End of Period.............................. $ 11.94
=======
Total Return................................................ 20.40%(b)
Ratios/Supplementary Data:
Net assets at the end of period (000)..................... $31,787
Ratio of expenses to average net assets................... 0.39%(c)
Ratio of net investment income to average net assets...... 1.48%(c)
Ratio of expenses to average net assets*.................. 1.12%(c)
Ratio of net investment income to average net assets*..... 0.75%(c)
Portfolio turnover**...................................... 1.66%
Average commission rate paid(d)........................... $0.0206
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) Period from commencement of operations.
(b) Not Annualized.
(c) Annualized.
(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.
23
<PAGE> 28
GROWTH & INCOME EQUITY PORTFOLIO
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991(a) 1990 1989
-------- -------- -------- -------- -------- -------- --------- -------- --------
TRUST TRUST TRUST TRUST TRUST TRUST TRUST
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period.................. $ 18.71 $ 16.32 $ 12.72 $ 14.74 $ 14.49 $ 12.33 $ 12.24 $ 12.41 $ 10.25
-------- -------- -------- -------- -------- -------- -------- -------- --------
Investment Activities
Net investment income...... 0.23 0.24 0.27 0.22 0.25 0.24 0.22 0.39 0.41
Net realized and unrealized
gains (losses) from
investments.............. 3.96 3.34 3.74 (0.17) 1.06 2.25 0.03 (0.56) 2.29
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total from Investment
Activities............... 4.19 3.58 4.01 0.05 1.31 2.49 0.25 (0.17) 2.70
-------- -------- -------- -------- -------- -------- -------- -------- --------
Distributions
Net investment income...... (0.25) (0.24) (0.27) (0.21) (0.25) (0.26) (0.16) (0.39) (0.51)
In excess of net investment
income................... -- (0.01) -- -- -- -- -- -- --
Net realized gains......... (1.46) (0.94) (0.14) (0.18) (0.81) (0.07) -- (0.63) (0.03)
In excess of net realized
gains.................... -- -- -- (1.68) -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total Distributions........ (1.71) (1.19) (0.41) (2.07) (1.06) (0.33) (0.16) (1.02) (0.54)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period..................... $ 21.19 $ 18.71 $ 16.32 $ 12.72 $ 14.74 $ 14.49 $ 12.33 $ 11.22 $ 12.41
======== ======== ======== ======== ======== ======== ======== ======== ========
Total Return................ 24.55% 23.45% 32.27% 0.36% 9.65% 20.59% 17.39% (1.36)% 27.11%
Ratios/Supplemental Data:
Net Assets at end of period
(000).................... $322,304 $348,183 $286,546 $235,955 $238,771 $232,967 $139,021 $ 20,116 $ 17,892
Ratio of expenses to
average net assets....... 0.74% 0.75% 0.75% 0.75% 0.74% 0.71% 0.27% 0.35% 0.42%
Ratio of net investment
income to average net
assets................... 0.91% 1.50% 1.89% 1.72% 1.74% 1.94% 2.56% 3.42% 3.69%
Ratio of expenses to
average net assets
(before waivers)*........ 1.14% 0.85% 0.85% 1.15% 0.96% 0.85% 0.91% 1.00% 1.07%
Ratio of net investment
income to average net
assets (before
waivers)*................ 0.51% 1.40% 1.79% 1.32% 1.52% 1.80% 1.92% 2.77% 3.04%
Portfolio turnover**....... 57.11% 63.90% 58.50% 65% 41% 79% 78% 227% 133%
Average commission rate
paid(f).................. $ 0.0451 $ 0.0598 -- -- -- -- -- -- --
<CAPTION>
JUNE 2,
1988 TO
NOV.
30,
1998(b)
---------
<S> <C>
Net Asset Value, Beginning
of Period.................. $ 10.00
-------
Investment Activities
Net investment income...... 0.28
Net realized and unrealized
gains (losses) from
investments.............. 0.06
-------
Total from Investment
Activities............... 0.34
-------
Distributions
Net investment income...... (0.09)
In excess of net investment
income................... --
Net realized gains.........
In excess of net realized
gains.................... --
-------
Total Distributions........ (0.09)
-------
Net Asset Value, End of
Period..................... $ 10.25
=======
Total Return................ 3.45%(c),(d)
Ratios/Supplemental Data:
Net Assets at end of period
(000).................... $10,890
Ratio of expenses to
average net assets....... 0.41%(e)
Ratio of net investment
income to average net
assets................... 5.62%(e)
Ratio of expenses to
average net assets
(before waivers)*........ 1.12%(e)
Ratio of net investment
income to average net
assets (before
waivers)*................ 4.91%(e)
Portfolio turnover**....... 30%
Average commission rate
paid(f).................. --
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole,
without distinguishing between the classes of shares issued.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. In addition, on April 1, 1991, the Portfolio
issued a second series of Shares which were designated as "Trust" Shares.
The financial highlights presented for the periods prior to December 1, 1990
are the financial highlights applicable to Investor Shares. On September 27,
1994, the Portfolio redesignated the Investor Shares as "Investor A" Shares.
(b) Period from commencement of operations.
(c) Unaudited.
(d) Not Annualized.
(e) Annualized.
(f) Represents the total dollar amount of commissions paid on Portfolio
transactions divided by total number of Portfolio shares purchased and sold
for which commissions were charged.
24
<PAGE> 29
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........................ $ 16.44
-------
Investment Activities
Net investment income..................................... (0.01)
Net realized and unrealized gains (losses) from
investments............................................ (0.17)
-------
Total from Investment Activities.......................... (0.18)
-------
Distributions
Net investment income..................................... --
-------
Total Distributions....................................... --
-------
Net Asset Value, End of Period.............................. $ 16.26
=======
Total Return................................................ (1.09)%(b)
Ratios/Supplementary Data:
Net assets at the end of period (000)..................... $63,786
Ratio of expenses to average net assets................... 1.24% (c)
Ratio of net investment income to average net assets...... (0.15)%(c)
Ratio of expenses to average net assets*.................. 1.34% (c)
Ratio of net investment income to average net assets*..... (0.25)%(c)
Portfolio turnover**...................................... 0.00%
Average commission rate paid(d)........................... $0.0525
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) Period from commencement of operations.
(b) Not Annualized.
(c) Annualized.
(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.
25
<PAGE> 30
SMALL CAP EQUITY PORTFOLIO(a)
(For a Share outstanding throughout each period)
<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 1996 1995 1994 1993 1992(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.......... $ 13.49 $ 13.49 $ 12.01 $ 13.14 $ 11.23 $ 10.00
-------- -------- -------- ------- ------- -------
Investment Activities
Net investment income
(loss)..................... 0.01 0.02 0.03 (0.01) 0.03 0.04
Net realized and unrealized
gains (losses) from
investments................ 2.50 1.05 2.36 0.89 2.14 1.21
-------- -------- -------- ------- ------- -------
Total from Investment
Activities................. 2.51 1.07 2.39 0.88 2.17 1.25
-------- -------- -------- ------- ------- -------
Distributions
Net investment income........ (0.01) (0.02) -- -- (0.05) (0.02)
Net realized gains........... (0.82) (1.05) (0.91) (1.78) (0.21) --
In excess of realized
gains...................... -- -- -- (0.23) -- --
-------- -------- -------- ------- ------- -------
Total Distributions.......... (0.83) (1.07) (0.91) (2.01) (0.26) (0.02)
-------- -------- -------- ------- ------- -------
Net Asset Value, End of
Period....................... $ 15.17 $ 13.49 $ 13.49 $ 12.01 $ 13.14 $ 11.23
======== ======== ======== ======= ======= =======
Total Return................... 19.77% 8.72% 21.70% 7.56% 19.75% 12.55%(c)
Ratios/Supplemental Data:
Net Assets at end of period
(000)...................... $211,643 $171,295 $139,681 $77,690 $47,473 $26,829
Ratio of expenses to average
net assets
(including waivers)........ 0.95% 0.96% 0.96% 0.95% 0.61% 0.30%(d)
Ratio of net investment
income (loss) to average
net assets
(including waivers)........ 0.01% 0.17% 0.18% (0.16)% 0.19% 0.78%(d)
Ratio of expenses to average
net assets
(before waivers)*.......... 1.35% 1.06% 1.06% 1.36% 1.23% 1.12%(d)
Ratio of net investment
income (loss) to average
net assets (before
waivers)*.................. (0.39)% 0.07% 0.08% (0.56)% (0.43)% (0.04)%(d)
Portfolio turnover**......... 80.23% 65.85% 83.13% 85% 65% 56%
Average commission
rate paid(e)............... $ 0.0515 $ 0.0582 -- -- -- --
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) The Emerging Growth Portfolio changed its name to Small Cap Equity Portfolio
on December 1, 1996.
(b) 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.
26
<PAGE> 31
INTERNATIONAL EQUITY PORTFOLIO
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30, APRIL 4, 1994
----------------------------- TO NOV. 30,
1997 1996 1995 1994(a)
------- ------- ------- -------------
TRUST TRUST TRUST TRUST
SHARES SHARES SHARES SHARES
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.............. $ 12.12 $ 10.79 $ 9.92 $ 10.00
------- ------- ------- -------
Investment Activities
Net investment income (loss).................... 0.01 0.06 0.03 0.01
Net realized and unrealized gains (losses) from
investments and foreign currency.............. 0.33 1.27 0.86 (0.09)
------- ------- ------- -------
Total from Investment Activities................ 0.34 1.33 (0.89) (0.08)
------- ------- ------- -------
Distributions
Net investment income........................... (0.04) -- -- --
In excess of net investment income.............. (0.02) -- -- --
Net realized gains.............................. (0.31) -- (0.01) --
Tax return of capital........................... (--) -- (0.01)
------- ------- ------- -------
Total Distributions............................. (0.37) -- (0.02)
------- ------- ------- -------
Net Asset Value, End of Period.................... $ 12.09 $ 12.12 $ 10.79 $ 9.92
======= ======= ======= =======
Total Return...................................... 2.91% 12.33% 8.97% (0.80%)(b)
Ratios/Supplemental Data:
Net Assets at end of period (000)............... $55,038 $52,181 $36,096 $23,746
Ratio of expenses to average net assets
(including waivers)........................... 1.29% 1.14% 1.16% 1.23%(c)
Ratio of net investment income (loss) to average
net assets (including waivers)................ 0.09% 0.51% 0.39% 0.23%(c)
Ratio of expenses to average net assets (before
waivers)*..................................... 1.75% 1.45% 1.46% 1.95%(c)
Ratio of net investment income (loss) to average
net assets (before waivers)*.................. (0.37%) 0.20% 0.09% (0.49%)(c)
Portfolio turnover**............................ 75.18% 77.63% 62.78% 21%
Average commission rate paid(d)................. $0.0229 $0.0251 -- --
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) Period from commencement of operations.
(b) 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.
27
<PAGE> 32
BALANCED PORTFOLIO
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30, APRIL 1, 1993
------------------------------------- TO NOV. 30,
1997 1996 1995 1994 1993(a)
------- ------- ------- ------- -------------
TRUST TRUST TRUST TRUST TRUST
SHARES SHARES SHARES SHARES SHARES
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period....... $ 12.58 $ 11.64 $ 9.62 $ 10.22 $ 10.00
------- ------- ------- ------- -------
Investment Activities
Net Investment income (loss)............. 0.38 0.37 0.34 0.29 0.23
Net realized and unrealized gains
(losses) from investments.............. 1.45 1.34 2.02 (0.47) 0.15
------- ------- ------- ------- -------
Total from Investment Activities......... 1.83 1.71 2.36 (0.18) 0.38
------- ------- ------- ------- -------
Distributions
Net investment income.................... (0.43) (0.35) (0.34) (0.29) (0.16)
Net realized gains....................... (0.71) (0.42) -- -- --
In excess of realized gains.............. -- -- -- (0.13) --
------- ------- ------- ------- -------
Total Distributions...................... (1.14) (0.77) (0.34) (0.42) (0.16)
------- ------- ------- ------- -------
Net Asset Value, End of Period............. $ 13.27 $ 12.58 $ 11.64 $ 9.62 $ 10.22
======= ======= ======= ======= =======
Total Return............................... 15.81% 15.56% 24.97% (1.81%) (3.86%)(b)
Ratios/Supplemental Data:
Net Assets at end of period (000).......... $54,299 $61,821 $72,669 $65,288 $69,720
Ratio of expenses to average net assets
(including waivers)...................... 0.97% 0.97% 0.98% 0.97% 0.56%(c)
Ratio of net investment income to average
net assets (including waivers)........... 2.87% 3.08% 3.29% 3.04% 3.42%(c)
Ratio of expenses to average net assets
(before waivers)*........................ 1.37% 1.07% 1.08% 1.39% 1.21%(c)
Ratio of net investment income to average
net assets (before waivers)*............. 2.47% 2.98% 3.19% 2.63% 2.77%(c)
Portfolio turnover**....................... 43.60% 85.16% 58.16% 49% 26%
Average commission rate paid(d)............ $0.0503 $0.0599 -- -- --
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) 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.
28
<PAGE> 33
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 issued 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.
29
<PAGE> 34
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 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
30
<PAGE> 35
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 CMOs 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
31
<PAGE> 36
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 issued by a Rating Agency will be disposed of in an
orderly manner, normally within 30 to 60 days. The applicable ratings issued by
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 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."
32
<PAGE> 37
With respect to the remaining portion of its total assets, the Portfolio
has the ability to hold temporary cash balances which may be invested in U.S.
Government obligations and money market instruments. See "The Intermediate
Corporate Bond Portfolio" above for a description of the types of money market
instruments in which the Portfolio may invest and the applicable limitations
with respect to such investments. If appropriate, the Portfolio may use options,
futures contracts and depository receipts to hedge its positions or for other
permissible purposes. The Portfolio also may enter into reverse repurchase
agreements and lend its portfolio securities.
The Lehman Aggregate. The Lehman Aggregate is composed of U.S. Government,
mortgage-backed, asset-backed and non-convertible corporate debt securities that
meet the following criteria: the securities have at least $100 million par
amount outstanding; the securities are rated investment grade (at least Baa or
BBB) by Moody's Investors Services, Inc. ("Moody's") or Standard & Poor's
Ratings Group ("S&P") (if not rated by Moody's); have at least one year until
maturity; and have coupons with fixed rates. The Lehman Aggregate excludes CMOs,
adjustable rate mortgages, manufactured homes, non-agency bonds, buydowns,
graduated equity mortgages, project loans and nonconforming (i.e., "jumbo")
mortgages. As of December 31, 1997, over 6,333 issues were included in the
Lehman Aggregate, representing approximately $4.98 trillion in market value.
U.S. Treasury and agency securities represented approximately 49.5% of the total
market value, asset-backed and mortgage-backed securities represented
approximately 31.2% of the total market value, with corporate debt securities
representing the balance of approximately 19.3%. The average maturity of the
Lehman Aggregate was approximately 8.7 years. The Adviser believes that the
Lehman Aggregate is an appropriate benchmark for the Portfolio because it is
diversified, it is familiar to investors, and it is widely accepted as a
reference for bonds and other fixed income investments.
Because of the large number of issues included in the Lehman Aggregate, the
Portfolio cannot invest in all such issues. Instead, the Portfolio will hold a
representative sample of approximately 100 of the securities in the Lehman
Aggregate, selecting one or two issues to represent an entire "class" or type of
securities in the Lehman Aggregate. At a minimum, the Portfolio seeks to hold
securities which reflect the major asset classes in the Lehman Aggregate -- U.S.
Treasury and agency issues, mortgage-backed securities, asset-backed securities
and non-convertible corporate debt securities. As the Portfolio's assets
increase, these classes will be further delineated along the lines of sector,
term-to-maturity, coupon and credit ratings. This sampling technique is expected
to be an effective means of substantially duplicating the price and performance
provided by the securities comprising the Lehman Aggregate.
Securities rated Baa by Moody's or BBB by S&P have speculative
characteristics even though they are of investment-grade quality, and changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with
higher-grade securities.
THE GOVERNMENT & CORPORATE BOND PORTFOLIO
The Government & Corporate Bond Portfolio's investment objective is to seek
the highest level of current income consistent with conservation of capital. In
pursuing its investment objective, the Portfolio intends to invest at least 65%
of its assets in fixed-income and related debt securities rated in one of the
three highest rating categories assigned by a Rating Agency at the time of
purchase or in unrated investments deemed by the Adviser to be of comparable
quality pursuant to guidelines approved by the Fund's Board of Directors. Debt
securities may include a broad range of fixed and variable rate bonds,
debentures, notes, and securities convertible into or exchangeable for common
stock; dollar-denominated debt obligations of foreign issuers, including foreign
corporations and governments; and first mortgage loans, income participation
loans, participation certificates in pools of mortgages, including mortgages
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
CMOs and other mortgage-related securities, and other asset-backed securities.
For further information regarding asset-backed securities, see "Other Applicable
Policies -- Asset-Backed Securities" below. The Portfolio may invest up to 10%
of its total assets at the time of purchase in dollar-denominated debt
33
<PAGE> 38
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 "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 Government & Corporate Bond Portfolio may purchase debt securities
which are rated at the time of purchase within the four highest rating
categories assigned by one or more Rating Agencies or unrated debt securities
(including convertible securities) which the Adviser believes present attractive
opportunities and are of at least comparable quality to instruments so rated.
The Portfolio's dollar-weighted average portfolio quality is expected to be at
least "A" or higher. Securities rated in the lowest of the above four rating
categories have speculative characteristics, even though they are of investment-
grade quality, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade securities. Such securities will be
purchased (and retained) only when the Adviser believes the issuers have an
adequate capacity to pay interest and repay principal. (For a description of the
rating categories of Rating Agencies, see Appendix A to the Statement of
Additional Information.) In making investment decisions, the Adviser will
consider a number of factors including current yield, maturity, yield to
maturity, anticipated changes in interest rates, and the overall quality of the
investment. The Portfolio seeks to provide a current yield greater than that
generally available from money market instruments.
The Government & Corporate Bond Portfolio reserves the right to hold as a
temporary defensive measure up to 100% of its total assets in cash and
short-term obligations (having remaining maturities of 13 months or less) at
such times and in such proportions as, in the opinion of the Adviser, prevailing
market or economic conditions warrant. Short-term obligations include, but are
not limited to, commercial paper, bankers' acceptances, certificates of deposit,
demand and time deposits of domestic and foreign banks and savings and loan
associations, repurchase agreements and obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities.
THE 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 one or more Rating Agencies. 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 assigned by a Rating Agency will be disposed of
in an orderly manner, normally within 30-60 days. The applicable ratings issued
by 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.
34
<PAGE> 39
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 four highest rating categories
assigned by one or more Rating Agencies. 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 ratings issued by Rating Agencies 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.
35
<PAGE> 40
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
assigned by a Rating Agency will be disposed of in an orderly manner, normally
within 30 to 60 days. The applicable ratings issued by 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 assigned by one or more Rating Agencies. 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
36
<PAGE> 41
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 invest indirectly 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 "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 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 $7.784 trillion and account
for approximately 70% of the total market value of all U.S. common stocks.
Normally, the Equity Index Portfolio will hold all 500 stocks in the S&P 500 and
will hold each stock in approximately the same percentage as that stock
represents in the S&P 500. 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
37
<PAGE> 42
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 invest indirectly 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
"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 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 13 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 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 equity securities,
including 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
38
<PAGE> 43
applicable ratings categories of 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, such as ADRs.
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 and the Statement of Additional Information on
the "Investment Objectives and Policies -- ADRs and EDRs."
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
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.
39
<PAGE> 44
The Small Cap Equity Portfolio may invest indirectly 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
"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 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 13 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 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
$1.985 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
40
<PAGE> 45
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 the 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 of its assets in a single country during temporary
defensive periods.
The International Equity Portfolio expects to invest at least 50% 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 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 as 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
41
<PAGE> 46
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 13 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 one or more
Rating Agencies at the time of purchase or in unrated securities 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.
42
<PAGE> 47
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 13 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. As
of the date of this Prospectus, U.S. stock market were trading at or close to
record high levels and there can be no guarantee that such levels will continue.
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 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
43
<PAGE> 48
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.
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. The Missouri
Constitution imposes a limit on the amount of taxes that may be imposed by the
General Assembly during any fiscal year. No assurances can be given that the
amount of revenue derived from taxes will remain at its current level or that
the amount of federal grants previously provided to the State will continue. The
State of Missouri is barred by its constitution from issuing debt instruments to
fund government operations, although it is authorized to issue bonds to finance
or refinance the cost of capital projects upon approval by the voters. In the
past, the State has issued two types of bonds to raise capital -- general
obligation bonds and revenue bonds. Payments on general obligation bonds are
made from the General Revenue Fund. Therefore, if the State is unable to
increase its tax revenues, the State's ability to make the payments on the
existing obligations may be adversely affected. The State also is authorized to
issue revenue bonds, which generally provide funds for a specific project, and
repayments are generally limited to the revenues from that project. The State
may, however, enact a tax specifically to repay the State's revenue bonds.
Therefore, a reduction of revenues on a project financed by revenue bonds may
adversely affect the State's ability to make payments on such bonds. No
assurances can be given that the State will receive sufficient revenues from the
44
<PAGE> 49
projects, or that the State will enact and collect a tax to be used to make the
required payments on such bonds. The information contained herein is not
intended to be a complete discussion of all relevant risk factors for the
Missouri Tax-Exempt Bond Portfolio, and there may be other factors not discussed
herein that may adversely affect the value of and the payment of interest and
principal on the debt obligations of the State of Missouri and its local
governmental entities. See the Statement of Additional Information for
additional risks in connection with the Portfolio's investments in Missouri
Municipal Obligations.
ADDITIONAL RISKS AND OTHER CONSIDERATIONS. Although the Tax-Exempt Money
Market, Short-Intermediate Municipal and National Municipal Bond Portfolios may
invest 25% or more of their respective net assets in (i) Municipal Obligations
whose issuers are in the same state, (ii) Municipal Obligations the interest on
which is paid solely from revenues of similar projects, and (iii) private
activity bonds, no Portfolio presently intends to do so unless in the opinion of
the Adviser the investment is warranted. Although the Missouri Tax-Exempt Bond
Portfolio does not presently intend to do so on a regular basis, it may invest
more than 25% of its assets in industrial development bonds issued before August
7, 1986, the interest on which is not treated as a specific tax preference item
under the federal alternative minimum tax, and in Municipal Obligations, the
interest on which is paid solely from revenues of similar projects, if such
investments are deemed necessary or appropriate by the Adviser. To the extent
that a Portfolio's assets are invested in Municipal Obligations the issuers of
which are in the same state or that are payable from the revenues of similar
projects or in private activity bonds, a Portfolio will be subject to the
peculiar risks presented by the laws and economic conditions relating to such
projects and bonds to a greater extent than it would be if its assets were not
so invested. See "Investment Objectives and Policies -- Municipal Obligations"
in the Statement of 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.
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.
45
<PAGE> 50
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.
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
46
<PAGE> 51
("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
47
<PAGE> 52
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, 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 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
48
<PAGE> 53
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
49
<PAGE> 54
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 SmallCap 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.
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
50
<PAGE> 55
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
51
<PAGE> 56
relatively new type of financing and may not be as marketable as more
conventional securities. To the extent these securities are illiquid, they are
subject to each Portfolio's applicable limitation on illiquid securities
described below.
VARIABLE AND FLOATING RATE MUNICIPAL OBLIGATIONS. Municipal Obligations
purchased by the Tax-Exempt Portfolios may include rated or unrated variable and
floating rate instruments, including variable rate master demand notes that
permit the indebtedness thereunder to vary in addition to providing for periodic
adjustments in the interest rate. Unrated instruments purchased by a Portfolio
will be determined by the Adviser to be of comparable quality at the time of
purchase to rated instruments that may be purchased. The absence of an active
secondary market for a particular variable or floating rate instrument, however,
could make it difficult for a Portfolio to dispose of an instrument if the
issuer were to default on its payment obligation. A Portfolio could, for these
or other reasons, suffer a loss with respect to such instruments.
STAND-BY COMMITMENTS. Each of the Tax-Exempt Portfolios may acquire
"stand-by commitments" with respect to Municipal Obligations held by it. Under a
stand-by commitment, a dealer agrees to purchase, at a Portfolio's option,
specified Municipal Obligations at a specified price. The Portfolios will
acquire stand-by commitments solely to facilitate portfolio liquidity and do not
intend to exercise their rights thereunder for trading purposes. The Portfolios
expect that stand-by commitments will generally be available without the payment
of any direct or indirect consideration. However, if necessary or advisable, a
Portfolio may pay for a stand-by commitment either separately in cash or by
paying a higher price for portfolio securities which are acquired subject to the
commitment (thus reducing the yield otherwise available for the same
securities). Stand-by commitments acquired by a Portfolio will be valued at zero
in determining the Portfolio's net asset value.
TAX-EXEMPT DERIVATIVES. Each of the Tax-Exempt Portfolios may hold
tax-exempt derivatives which may be in the form of tender option bonds,
participations, beneficial interests in a trust, partnership interests or other
forms. The Adviser expects that less than 5% of each Tax-Exempt Portfolio's
assets will be invested in such securities during the current year. See the
Statement of Additional Information under "Investment Objectives and
Policies -- Tax-Exempt Derivatives."
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.
52
<PAGE> 57
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 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 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
53
<PAGE> 58
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 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
54
<PAGE> 59
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 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.
55
<PAGE> 60
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, 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.
56
<PAGE> 61
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 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).
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
57
<PAGE> 62
with remaining maturities of 60 days or less may be valued based upon the
amortized cost method. For further information about valuation of investments,
see "Net Asset Value" in the Statement of Additional Information.
OTHER INFORMATION
The public offering price for each class of Shares of a Portfolio is based
upon net asset value per Share plus, in the case of Investor A Shares of each
Portfolio except the Money Market Portfolios, a front-end sales charge. A class
will calculate its net asset value per Share by adding the value of a
Portfolio's investments, cash and other assets attributable to the class,
subtracting the Portfolio's liabilities attributable to that class, and then
dividing the result by the total number of Shares in the class that are
outstanding. Because the operating expenses of Investor B Shares are higher than
those associated with the other classes of Shares, the net asset value per Share
of Investor B Shares of a Portfolio which declares its net investment income
quarterly will generally be lower than the net asset value per Share of Trust,
Institutional or Investor A Shares of the same Portfolio.
HOW TO PURCHASE AND REDEEM SHARES
PURCHASE OF SHARES
Trust Shares are sold to financial institutions, such as banks, trust
companies, thrift institutions, mutual funds or other financial institutions
(collectively "financial institutions"), acting on their own behalf or on behalf
of 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 Bank (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.
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.
58
<PAGE> 63
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 Bank 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 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
59
<PAGE> 64
electronically the same day to the financial institution that placed the
redemption order in good form. Proceeds for redemption orders that are received
after 12:00 noon (Eastern time) or on a non-Business Day normally are wired to
the financial institution on the next Business Day.
Proceeds from redemptions of Shares of the EQUITY AND BOND PORTFOLIOS with
respect to redemption orders received by the Fund before 4:00 p.m. (Eastern
time) on a Business Day normally are sent electronically to the financial
institution that placed the redemption order the next Business Day after the
Distributor's receipt of the order in good form.
OTHER PURCHASE EXCHANGE AND REDEMPTION INFORMATION
On a Business Day when the Exchange closes early due to a partial holiday
or otherwise, the Fund reserves the right to advance the times at which purchase
and redemption orders must be received in order to be processed on that Business
Day.
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 returns are described
below and in the Statement of Additional Information.
THE MONEY MARKET PORTFOLIOS
From time to time, performance information such as "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-
60
<PAGE> 65
equivalent yield" refers to the portion of income that is derived from interest
income on direct obligations of the U.S. Government, its agencies or
instrumentalities that qualifies for exemption from state income tax. The yield
calculation assumes that 100% of the interest income is exempt from state income
tax. The "state tax-equivalent yield" is computed by dividing the tax-exempt
portion of the Portfolio's yield by a denominator consisting of one minus a
stated income tax rate.
The Tax-Exempt Money Market Portfolio may also quote its "tax-equivalent
yield" and "tax-equivalent effective yield", which demonstrate the level of
taxable yield needed to produce an after-tax yield that is equivalent to the
Portfolio's yield and effective yield. Each are calculated by increasing the
Portfolio's yield and effective yield by the amount necessary to reflect the
payment of federal (and/or state) tax at a stated tax rate. The "tax equivalent
yield" and "tax-equivalent effective yield" will always be higher than the
Portfolio's yield and effective yield, respectively. The Tax-Exempt Money Market
Portfolio may also compute its "tax-equivalent yield" and "tax-equivalent
effective yield" with respect to certain states, which shows the level of
taxable yield and effective yield, respectively, needed to produce an after-tax
equivalent to the federal and state tax-exempt yield of the Portfolio's
particular class of Shares, assuming payment of federal income tax and state
personal income tax each at a stated rate and based upon a specified percentage
of the Portfolio's income which is exempt from state income tax as well as
federal income tax.
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 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. 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,
61
<PAGE> 66
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 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
62
<PAGE> 67
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.
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
63
<PAGE> 68
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 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.
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 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 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
64
<PAGE> 69
(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 the obligations described in paragraph(c)(2) above, the amount
of State income tax exempt-interest dividends shall be reduced by the amount of
(a) the federal corporate dividend received deduction attributable to such
dividends, and (b) interest paid or expense incurred to produce such dividends,
to the extent that the interest paid or expense incurred exceeds five hundred
dollars.
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, 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 advisers
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 advisers about the status of distributions from the
Treasury Money Market Portfolio under state and local law.
65
<PAGE> 70
MISCELLANEOUS
The foregoing summarizes some of the important federal and state tax
considerations generally affecting the Portfolios and their shareholders and is
not intended as a substitute for careful tax planning. Accordingly, potential
investors in the Portfolios should consult their tax advisers with specific
reference to their own tax situation. Shareholders will be advised at least
annually as to the federal and, for the Treasury Money Market Portfolio, the
state income tax consequences, and for the Missouri Tax-Exempt Bond Portfolio,
the Missouri state income tax consequences, of distributions made each year.
MANAGEMENT OF THE FUND
The Fund is managed under the direction of its Board of Directors. The
Statement of Additional Information contains the names of and general background
information concerning each director.
INVESTMENT ADVISER AND SUB-ADVISER
Mississippi Valley Advisors Inc. ("MVA") serves as the investment adviser
to each Portfolio. MVA's principal office is located at One Mercantile Center,
Seventh & Washington Streets, St. Louis, Missouri 63101. MVA is an indirect
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 .32%,
.33%, .35%, .45%, .00%, .00%, .45%, .00%, .45%, .00%, .00%, .00%, .55%, .75%,
.75%, .92% and .75% 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 and Intermediate
Corporate Bond Portfolios and has managed each of
66
<PAGE> 71
these Portfolios since inception. Mr. Bethke, Senior Associate, joined MVA in
1987 and has seven years of prior investment experience.
George J. Schupp, CFA, is the person primarily responsible for the day-to
day management of the Government & Corporate Bond Portfolio and has managed such
Portfolio since February 1998. Mr. Schupp, Group Manager -- Fixed Income, joined
MVA in 1983 and has 22 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 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 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 .75% 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.
67
<PAGE> 72
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 rates of
.13%, .12%, .05%, .06%, .06%, and .12% of the average daily net assets of the
Treasury Money Market, Money Market, Intermediate Corporate Bond, National
Municipal Bond, Equity Income, and International Equity Portfolios respectively,
and .10% of the average daily net assets of each of the other Portfolios 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 .15% 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 Bank or its affiliated or correspondent banks) acting on
behalf of their qualified accounts (such financial institutions collectively,
the "Service Organizations") which agree to provide certain shareholder
administrative services for their clients or account holders (collectively, the
"customers") who are the beneficial owners of such Shares. The holders of Trust
Shares bear their pro rata portion of the fees which may be paid to Service
Organizations for such services at an annual rate of up to .25%, for the Money
Market Portfolios, and up to .30%, for the Equity and Bond Portfolios,
respectively, of the average daily net assets of a Portfolio's Trust Shares
owned beneficially by a Service Organization's customers.
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 Bank 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
68
<PAGE> 73
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, an affiliate of the Fund and a wholly-owned subsidiary of
Mercantile, with principal offices located at One Mercantile Center, 8th and
Locust Streets, St. Louis, Missouri 63101, serves as Custodian of each
Portfolio's assets. In addition, Bankers Trust Company of New York, with
principal offices at 16 Wall Street, New York, New York 10005, serves as
Sub-Custodian for the International Equity Portfolio. BISYS Fund Services Ohio,
Inc. also serves as the Fund's transfer agent and dividend disbursing agent. Its
address is 3435 Stelzer Road, Columbus, Ohio 43219.
REGULATORY MATTERS
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 Bank, 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 Bank, or an affiliate of Mercantile Bank, 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 Bank, 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.
69
<PAGE> 74
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 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; 50 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
70
<PAGE> 75
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; 50
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. As of the date of this Prospectus, the Fund has
not commenced its offering of S Shares. 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 Bank, 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, 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,
71
<PAGE> 76
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 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, if fundamental, 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, if
fundamental, 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 March 5, 1998, Mercantile Bank 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 Bank 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.
72
<PAGE> 77
------------------------------------------------------
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.
73
<PAGE> 78
CROSS REFERENCE SHEET
(Trust Shares)
The ARCH Treasury Money Market Portfolio
The ARCH Money Market Portfolio
The ARCH Tax-Exempt Money Market Portfolio
Form N-1A Part A Item Prospectus Caption
- --------------------- ------------------
1. Cover Page..................................... Cover Page
2. Synopsis....................................... Expense Summary
for Trust Shares
3. Condensed Financial
Information.................................. Certain Financial
Information;
Financial
Highlights; Yields
and Total
Returns
4. General Description
of Registrant................................ Highlights;
Investment
Objectives, Policies
and Risk
Considerations;
Other Information
Concerning the Fund
and Its Shares
5. Management of the Fund......................... Management of the
Fund
5A. Management's Discussion of
Fund Performance............................. Inapplicable
6. Capital Stock and
Other Securities............................. How to Purchase and
Redeem Shares;
Dividends and
Distributions;
Taxes; Other
Information
Concerning the Fund
and Its Shares
7. Purchase of Securities
Being Offered................................ How to Purchase and
Redeem Shares
8. Redemption or Repurchase....................... How to Purchase and
Redeem Shares
9. Pending Legal Proceedings...................... Inapplicable
<PAGE> 79
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"), an indirect
wholly-owned subsidiary of Mercantile Bancorporation Inc. ("Mercantile"), acts
as investment adviser for the Portfolios. Mercantile Bank National Association
("Mercantile Bank"), an affiliate of the Adviser, 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 March 31, 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.
MARCH 31, 1998
<PAGE> 80
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 Bank 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 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."
2
<PAGE> 81
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.
3
<PAGE> 82
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. As of the
date of this Prospectus, the Fund has not commenced its offering of S Shares.
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.
4
<PAGE> 83
EXPENSE SUMMARY FOR TRUST SHARES
<TABLE>
<CAPTION>
TREASURY TAX-EXEMPT
MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------
<S> <C> <C> <C>
ANNUAL PORTFOLIO OPERATING EXPENSES
(as a percentage of average net assets)
Investment Advisory Fees (net of fee
waivers)(1)................................ .35% .35% .35%
12b-1 Fees................................. .00% .00% .00%
Other Expenses (including administration
fees, administrative services fees and
other expenses) (net of fee waivers and
expense reimbursements)(2,3)............. .26% .29% .22%
--- --- ---
Total Portfolio Operating Expenses (net of
fee waivers and expense
reimbursements)(3)....................... .61% .64% .57%
=== === ===
</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
.53%, .52% and .42% and Total Portfolio Operating Expenses would be .93%,
.92% and .82% for the Treasury Money Market, Money Market and Tax-Exempt
Money Market Portfolios, respectively.
5
<PAGE> 84
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
EXAMPLE ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) a 5% annual return and
(2) redemption at the end of each period:
Treasury Money Market Portfolio................. $6 $20 $34 $76
Money Market Portfolio.......................... $7 $20 $36 $80
Tax-Exempt Money Market Portfolio............... $6 $18 $32 $71
</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 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 Trust Shares will
bear directly or indirectly. The information contained in such tables is based
on the expenses incurred by the Treasury Money Market and Money Market
Portfolios during the last fiscal year with respect to its Trust Shares. Such
information with respect to the Tax-Exempt Money Market Portfolio is based on
expenses that the Portfolio incurred during the last fiscal year restated to
reflect the expenses that such Portfolio expects to incur during the current
fiscal year with respect to its Trust Shares. For more complete descriptions of
the various costs and expenses, see "Management of the Fund" in this Prospectus
and the Statement of Additional Information. The Tables and Examples have not
been audited by the Fund's independent auditors and do not reflect any charges
that may be imposed by financial institutions on their customers.
6
<PAGE> 85
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 incorporated by reference 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 KPMG Peat Marwick LLP,
independent auditors, whose unqualified report insofar as it relates to each of
the years or periods in the five-year period ended November 30, 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
incorporated by reference 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.
7
<PAGE> 86
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 $ 1.00
-------- -------- -------- -------- -------- --------
Investment Activities
Net investment income........ 0.046 0.045 0.050 0.033 0.026 0.034
-------- -------- -------- -------- -------- --------
Total from Investment
Activities................. 0.046 0.045 0.050 0.033 0.026 0.034
-------- -------- -------- -------- -------- --------
Distributions
Net investment income........ (0.046) (0.045) (0.050) (0.033) (0.026) (0.034)
-------- -------- -------- -------- -------- --------
Total Distributions.......... (0.046) (0.045) (0.050) (0.033) (0.026) (0.034)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total Return................... 4.70% 4.64% 5.12% 3.38% 2.67% 3.16%(c)
Ratios/Supplemental Data:
Net Assets at end of
period (000)................. $283,653 $131,322 $252,780 $242,099 $256,503 $229,288
Ratio of expenses to average
net assets (including
waivers) .................. 0.61% 0.61% 0.60% 0.49% 0.41% 0.28%(d)
Ratio of net investment
income to average net
assets (including
waivers)................... 4.60% 4.55% 5.01% 3.26% 2.64% 3.35%(d)
Ratio of expenses to average
net assets (before
waivers)*.................. 0.92% 0.76% 0.75% 0.94% 0.85% 0.72%(d)
Ratio of net investment
income to average net
assets (before waivers)*... 4.28% 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.
8
<PAGE> 87
MONEY MARKET PORTFOLIO
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
----------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991(A)
---------- -------- -------- -------- -------- -------- --------
TRUST TRUST TRUST TRUST TRUST TRUST TRUST
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
---------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- -------- -------- -------- -------- -------- --------
Investment Activities
Net investment income...... 0.050 0.049 0.054 0.035 0.026 0.034 0.058
---------- -------- -------- -------- -------- -------- --------
Total from Investment
Activities............... 0.050 0.049 0.054 0.035 0.026 0.034 0.058
---------- -------- -------- -------- -------- -------- --------
Distributions
Net investment income...... (0.050) (0.049) (0.054) (0.035) (0.026) (0.034) (0.058)
---------- -------- -------- -------- -------- -------- --------
Total Distributions........ (0.050) (0.049) (0.054) (0.035) (0.026) (0.034) (0.058)
---------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of
Period..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ======== ======== ======== ======== ======== ========
Total Return................. 5.06% 4.99% 5.52% 3.55% 2.72% 3.44% 5.95%
Ratios/Supplemental Data:
Net Assets at end of period
(000).................... $1,042,151 $717,265 $698,131 $544,952 $621,717 $574,941 $700,474
Ratio of expenses to
average net assets
(including waivers)...... 0.64% 0.61% 0.59% 0.61% 0.59% 0.57% 0.59%
Ratio of net investment
income to average net
assets (including
waivers)................. 4.96% 4.88% 5.38% 3.45% 2.70% 3.44% 5.81%
Ratio of expenses to
average net assets
(before waivers)*........ 0.92% 0.76% 0.74% 0.93% 0.80% 0.71% 0.67%
Ratio of net investment
income to average net
assets (before
waivers)*................ 4.68% 4.73% 5.23% 3.13% 2.49% 3.30% 5.73%
<CAPTION>
YEAR ENDED NOVEMBER 30,
------------------------------
1990 1989 1988
-------- -------- --------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period..................... $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Investment Activities
Net investment income...... 0.078 0.088 0.071
-------- -------- --------
Total from Investment
Activities............... 0.078 0.088 0.071
-------- -------- --------
Distributions
Net investment income...... (0.078) (0.088) (0.071)
-------- -------- --------
Total Distributions........ (0.078) (0.088) (0.071)
-------- -------- --------
Net Asset Value, End of
Period..................... $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total Return................. 8.08% 9.21% 7.33%(b)
Ratios/Supplemental Data:
Net Assets at end of period
(000).................... $896,903 $661,145 $289,764
Ratio of expenses to
average net assets
(including waivers)...... 0.55% 0.45% 0.45%
Ratio of net investment
income to average net
assets (including
waivers)................. 7.77% 8.82% 7.12%
Ratio of expenses to
average net assets
(before waivers)*........ 0.60% 0.60% 0.58%
Ratio of net investment
income to average net
assets (before
waivers)*................ 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.
9
<PAGE> 88
TAX-EXEMPT MONEY MARKET PORTFOLIO(A)
(For a Share(b)outstanding throughout each period)
<TABLE>
<CAPTION>
SIX
YEAR YEAR MONTHS
ENDED ENDED ENDED YEAR ENDED MAY 31,
NOV. 30, NOV. 30, NOV. 30, ---------------------------------------------------
1997 1996 1995(E) 1995 1994 1993 1992 1991(B)
-------- -------- -------- ------- -------- -------- -------- --------
TRUST TRUST TRUST TRUST TRUST TRUST TRUST TRUST
SHARES SHARES SHARES SHARES SHARES SHARES SHARES SHARES
-------- ------- ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period... 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------- ------- ------- -------- -------- -------- --------
Investment Activities
Net investment
income.............. 0.030 0.030 0.016 0.029 0.020 0.021 0.034 0.031
-------- ------- ------- ------- -------- -------- -------- --------
Total from Investment
Activities.......... 0.030 0.030 0.016 0.029 0.020 0.021 0.034 0.031
-------- ------- ------- ------- -------- -------- -------- --------
Distributions
Net investment
income.............. (0.030) (0.030) (0.016) (0.029) (0.020) (0.021) (0.034) (0.031)
-------- ------- ------- ------- -------- -------- -------- --------
Total Distributions... (0.030) (0.030) (0.016) (0.029) (0.020) (0.021) (0.034) (0.031)
-------- ------- ------- ------- -------- -------- -------- --------
Net Asset Value, End of
Period................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======= ======= ======= ======== ======== ======== ========
Total Return............ 3.08% 3.06% 1.57%(c) 2.93% 1.97% 2.16% 3.44% 2.25%
Ratios/Supplemental Data:
Net Assets at end of
period (000)........ $143,517 $95,726 $78,031 $85,324 $112,594 $137,602 $126,079 $137,847
Ratio of expenses to
average net asset
(including
waivers)............ 0.58% 0.53% 0.70%(d) 0.61% 0.52% 0.52% 0.59% 0.58%
Ratio of net
investment income to
average net assets
(including
waivers)............ 3.04% 3.01% 3.10%(d) 2.87% 1.95% 2.13% 3.38% 4.65%
Ratio of expenses to
average net assets
(before waivers)*... 0.83% 0.58% 0.75%(d) 0.70% 0.86% 0.62% 0.69% 0.68%
Ratio of net
investment income to
average net assets
(before waivers)*... 2.79% 2.96% 3.05%(d) 2.78% 1.61% 2.03% 3.28% 4.55%
<CAPTION>
YEAR ENDED MAY 31,
----------------------------
1990(B) 1989(B) 1988(b)
-------- ------- -------
MONEY MONEY MONEY
SHARES SHARES SHARES
-------- ------- -------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period... $ 1.00 $ 1.00 $ 1.00
-------- ------- -------
Investment Activities
Net investment
income.............. 0.056 0.056 0.043
-------- ------- -------
Total from Investment
Activities.......... 0.056 0.056 0.043
-------- ------- -------
Distributions
Net investment
income.............. (0.056) (0.056) (0.043)
-------- ------- -------
Total Distributions... (0.056) (0.056) (0.043)
-------- ------- -------
Net Asset Value, End of
Period................ $ 1.00 $ 1.00 $ 1.00
======== ======= =======
Total Return............ 5.71% 5.74% 4.35%
Ratios/Supplemental Data
Net Assets at end of
period (000)........ $132,407 $70,153 $72,120
Ratio of expenses to
average net asset
(including
waivers)............ 0.51% 0.45% 0.45%
Ratio of net
investment income to
average net assets
(including
waivers)............ 5.57% 5.59% 4.27%
Ratio of expenses to
average net assets
(before waivers)*... 0.61% 0.63% 0.60%
Ratio of net
investment income to
average net assets
(before waivers)*... 5.47% 5.41% 4.12%
</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.
10
<PAGE> 89
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.
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
11
<PAGE> 90
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 issued 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.
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.
12
<PAGE> 91
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 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.
13
<PAGE> 92
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 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
14
<PAGE> 93
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 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
15
<PAGE> 94
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" 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
16
<PAGE> 95
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.
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
17
<PAGE> 96
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-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
18
<PAGE> 97
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.
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,
19
<PAGE> 98
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 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.
20
<PAGE> 99
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, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day
(observed), Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day and
Christmas Day (observed).
Each Portfolio's assets are valued based upon the amortized cost method.
Although each Portfolio seeks to maintain its net asset value per Share at
$1.00, there can be no assurance that the net asset value per Share will not
vary. See the Statement of Additional Information under "Net Asset Value" for
further information.
The public offering price for each class of Shares of a Portfolio is based
upon net asset value per Share. A class will calculate its net asset value per
Share by adding the value of a Portfolio's investments, cash and other assets
attributable to the class, subtracting the Portfolio's liabilities attributable
to that class, and then dividing the result by the total number of Shares in the
class that are outstanding.
HOW TO PURCHASE AND REDEEM SHARES
PURCHASE OF SHARES
Trust Shares are sold to financial institutions, such as banks, trust
companies, thrift institutions, mutual funds or other financial institutions
(collectively "financial institutions"), acting on their own behalf or on behalf
of 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
21
<PAGE> 100
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 Bank (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 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 Bank 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
22
<PAGE> 101
Fund reserves the right to send redemption proceeds electronically within seven
days after receiving a redemption order if, in the judgment of the Adviser, an
earlier payment could adversely affect a Portfolio.
A written redemption request must be accompanied by any Share certificates
which are properly endorsed for transfer. The Transfer Agent may require a
signature guarantee by an eligible guarantor institution. For purposes of this
policy, the term "eligible guarantor institution" shall include banks, brokers,
dealers, credit unions, securities exchanges and associations, clearing agencies
and savings associations as those terms are defined in Rule 17Ad-15 under the
Securities Exchange Act of 1934. The Transfer Agent reserves the right to reject
any signature guarantee if (1) it has reason to believe that the signature is
not genuine, (2) it has reason to believe that the transaction would otherwise
be improper, or (3) the guarantor institution is a broker or dealer that is
neither a member of a clearing corporation nor maintains net capital of at least
$100,000. The signature guarantee requirement will be waived if all of the
following conditions apply: (1) the redemption check is payable to the
shareholder(s) of record and (2) the redemption check is mailed to the
shareholder(s) at the address of record or the proceeds are either mailed or
sent electronically to a commercial bank account previously designated on the
account application. An investor with questions or needing assistance should
contact the financial institution servicing his or her account or the
Distributor. Additional documentation may be required if the redemption is
requested by a corporation, partnership, trust, fiduciary, executor, or
administrator. If, due to temporary adverse conditions, investors are unable to
effect telephone transactions, investors are encouraged to follow the procedures
described in "Other Exchange or Redemption Information" below.
Neither the Fund nor its service providers will be liable for any loss,
damage, expense or cost arising out of any telephone redemption effected in
accordance with the Fund's telephone redemption procedures, upon instructions
reasonably believed to be genuine. The Fund will employ procedures designed to
provide reasonable assurance that instructions by telephone are genuine; if
these procedures are not followed, the Fund or its service providers may be
liable for any losses due to unauthorized or fraudulent instructions. If Share
certificates are outstanding with respect to an account, the telephone
redemption and exchange privilege is not available.
Proceeds from redemptions of Shares with respect to redemption orders
received by the Fund before 12:00 noon (Eastern 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 PURCHASE, EXCHANGE AND REDEMPTION INFORMATION
On a Business Day when the Exchange closes early due to a partial holiday
or otherwise, the Fund reserves the right to advance the times at which purchase
and redemption orders must be received in order to be processed on that Business
Day.
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.
23
<PAGE> 102
At various times, the Fund may be requested to redeem Shares for which it
has not yet received good payment. In such circumstances, the Fund may delay the
forwarding of proceeds until payment has been collected for the purchase of such
Shares which may take up to 15 days or more. To avoid delay in payment upon
redemption shortly after purchasing Shares, investors should purchase Shares by
certified or bank check or by electronic transfer. The Fund intends to pay cash
for all Shares redeemed, but under abnormal conditions which make payment in
cash unwise, the Fund may make payment wholly or partly in portfolio securities
at their then market value equal to the redemption price. In such cases, an
investor may incur brokerage costs in converting such securities to cash.
A shareholder may be required to redeem Shares in a Portfolio upon 60 days'
written notice if the balance in the shareholder's account drops below $500. The
Fund will not require a shareholder to redeem Portfolio Shares if the value of
the shareholder's account drops below $500 due to fluctuations in net asset
value. Share balances may also be redeemed pursuant to arrangements between
financial institutions and their investors.
YIELDS
Yield quotations are computed separately for Trust Shares, Institutional
Shares, 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-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
24
<PAGE> 103
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 MONEY FUND REPORT(R) published by IBC. 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, Morningstar,
Inc. and publications of a local or regional nature. In addition to performance
information, general information about the Portfolios that appears in a
publication such as those mentioned above may be included in advertisements and
in reports to shareholders.
Performance quotations of a class of Shares in a Portfolio represent that
Portfolio's past performance and should not be considered as representative of
future results. Any account fees charged by a bank or other financial
institution (as described in "Management of The Fund--Service Organizations"
below) or other institutions will not be included in the calculations of a
Portfolio's yields. Such fees, if any, will reduce the investor's net return on
an investment in a Portfolio. Investors may call 1-800-452-4015 to obtain
current yield information.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income of the Portfolios are declared daily
and paid monthly not later than five Business Days after the end of each month.
Trust Shares earn dividends from the day the purchase order is received by the
Transfer Agent through the day before the redemption order for such Shares is
received. Dividends on each Share of the Portfolios are determined in the same
manner and are paid in the same amounts irrespective of class, except that a
Portfolio's Trust Shares and Institutional Shares (other than the Tax-Exempt
Money Market Portfolio which does not offer Institutional Shares) bear all
expenses of the respective Administrative Services Plans adopted for such Shares
and a Portfolio's 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
25
<PAGE> 104
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
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 applicable to corporations. Corporate shareholders also must take
all exempt-interest dividends into account in determining certain adjustments
for federal alternative minimum tax purposes.
26
<PAGE> 105
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 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 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."
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.
27
<PAGE> 106
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 .32%,
.33% and .35% 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
28
<PAGE> 107
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 rates of .13%, .12% and .10% of the average daily net assets of
the Treasury Money Market, Money Market and Tax-Exempt Money Market Portfolios,
respectively. From time to time, the Administrator may voluntarily waive all or
a portion of the administration fees otherwise payable by a Portfolio in order
to increase the net income available for distribution to shareholders.
DISTRIBUTOR
Trust Shares in each Portfolio are sold continuously by the Distributor,
BISYS Fund Services, an affiliate of the Administrator. The Distributor is a
registered broker-dealer with principal offices at 3435 Stelzer Road, Columbus,
Ohio 43219.
ADMINISTRATIVE SERVICES PLAN
The Fund has adopted an Administrative Services Plan with respect to the
Trust Shares of the Portfolios. Pursuant to the Administrative Services Plan,
Trust Shares are sold to banks and other financial institutions (which may
include Mercantile Bank 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 Bank 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
29
<PAGE> 108
Fund. The Fund's Servicing Agreements require a Service Organization to disclose
to its customers any compensation payable to the Service Organization by a
Portfolio and any other compensation payable by its customers in connection with
their investment in such Shares. Customers of such Service Organizations
receiving servicing fees should read this Prospectus in light of the terms
governing their accounts with their Service Organization.
CUSTODIAN AND TRANSFER AGENT
Mercantile Bank, an affiliate of the Fund and a wholly-owned subsidiary of
Mercantile, 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 Bank, 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 Bank, or an affiliate of Mercantile Bank, 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 Bank, 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
30
<PAGE> 109
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.
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
31
<PAGE> 110
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. As
of the date of this Prospectus, the Fund has not commenced its offering of S
Shares. 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 Bank, 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.
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
32
<PAGE> 111
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. 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.
As of March 5, 1998, Mercantile Bank 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 Bank 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.
33
<PAGE> 112
(This page intentionally left blank)
<PAGE> 113
(This page intentionally left blank)
<PAGE> 114
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.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Highlights................................ 2
Certain Financial Information............. 4
Expense Summary for Trust Shares.......... 5
Financial Highlights...................... 7
Investment Objectives, Policies and Risk
Considerations.......................... 11
Investment Limitations.................... 19
Pricing of Shares......................... 21
How to Purchase and Redeem Shares......... 21
Purchase of Shares...................... 21
Exchanges............................... 22
Redemption of Shares.................... 22
Other Purchase, Exchange and Redemption
Information........................... 23
Yields.................................... 24
Dividends and Distributions............... 25
Taxes..................................... 26
Management of the Fund.................... 28
Other Information Concerning the Fund
and Its Shares.......................... 31
</TABLE>
Investment Adviser:
Mississippi Valley Advisors Inc.
an indirect wholly-owned subsidiary of
Mercantile Bancorporation Inc.
Distributor:
BISYS Fund Services
THE ARCH FUND(R), INC.
TREASURY MONEY MARKET PORTFOLIO
MONEY MARKET PORTFOLIO
TAX-EXEMPT MONEY MARKET PORTFOLIO
TRUST SHARES
LOGO
PROSPECTUS
MARCH 31, 1998
<PAGE> 115
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
Form N-1A Part A Item Prospectus Caption
- --------------------- ------------------
1. Cover Page..................................... Cover Page
2. Synopsis....................................... Expense Summary
for Institutional
Shares
3. Condensed Financial
Information.................................. Certain Financial
Information;
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
Being Offered................................ How to Purchase and
Redeem Shares
8. Redemption or Repurchase....................... How to Purchase and
Redeem Shares
9. Pending Legal Proceedings...................... Inapplicable
<PAGE> 116
INSTITUTIONAL SHARES
THE ARCH FUND(R), INC.
PROSPECTUS
MARCH 31, 1998
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
Stock Portfolio
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
ARCH MUTUAL FUNDS [LOGO]
The Arch Funds
<PAGE> 117
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Highlights.................................................. 2
Certain Financial Information............................... 5
Expense Summary for Institutional Shares.................... 6
Financial Highlights........................................ 8
Investment Objectives, Policies and Risk Considerations..... 20
Pricing of Shares........................................... 42
The Money Market Portfolios............................... 42
The Equity and Bond Portfolios............................ 42
Other Information......................................... 42
How to Purchase and Redeem Shares........................... 43
Purchase of Shares........................................ 43
Purchase of Shares -- The Money Market Portfolios......... 43
Purchase of Shares -- The Equity and Bond Portfolios...... 43
Exchanges................................................. 43
Redemption of Shares...................................... 44
Other Purchase, Exchange and Redemption Information....... 44
Yields and Total Returns.................................... 45
Dividends and Distributions................................. 46
Taxes....................................................... 47
Management of the Fund...................................... 49
Other Information Concerning the Fund and its Shares........ 54
</TABLE>
<PAGE> 118
THE ARCH FUND(R), INC.
INSTITUTIONAL SHARES
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 Fund, Inc. consists of the following portfolios:
<TABLE>
<S> <C>
MONEY MARKET PORTFOLIOS TAXABLE BOND PORTFOLIOS
Treasury Money Market U. S. Government Securities
Portfolio Portfolio
Money Market Portfolio Intermediate Corporate Bond
Portfolio
Bond Index Portfolio
Government & Corporate Bond
Portfolio
STOCK 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
</TABLE>
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 March 31, 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 or 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.
Mississippi Valley Advisors Inc. ("MVA" or the "Adviser"), an indirect
wholly-owned subsidiary of Mercantile Bancorporation Inc. ("Mercantile"), acts
as investment adviser for the Portfolios. Mercantile Bank National Association
("Mercantile Bank"), an affiliate of the Adviser, 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.
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.
MARCH 31, 1998
<PAGE> 119
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: the ARCH
TREASURY MONEY MARKET MONEY MARKET and 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 Bank 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 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 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 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 Portfolio is 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 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 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 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 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 selected 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 Portfolio is 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.
2
<PAGE> 120
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 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 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 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 selected large
capitalization common stocks, 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
Portfolio is designed for investors who seek capital growth, and who are willing
to accept the risks associated with equity securities.
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 Portfolio is designed for investors who seek capital
growth, and who are willing to accept the risks associated with equity
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 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 selected small
capitalization common stocks, 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 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 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. The Portfolio is designed for investors who
seek capital growth, and who are prepared to accept the risks associated with
equity securities.
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
3
<PAGE> 121
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.
4
<PAGE> 122
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. As of the date of this Prospectus, the Fund has not commenced its
offering of S 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 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.
5
<PAGE> 123
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)....................... .35% .35% .45% .55% .30% .45%
12b-1 Fees.......................... .00% .00% .00% .00% .00% .00%
Other Expenses (including
administration fees,
administrative services fees and
other expenses) (net of fee
waivers and expense
reimbursements)(2,3).............. .42% .42% .52% .58% .52% .51%
--- --- --- ---- --- ---
Total Portfolio Operating Expenses
(net of fee waivers and expense
reimbursements)(3)................ .78% .77% .97% 1.13% .82% .96
=== === === ==== === ===
</TABLE>
- ------------
(1) Without fee waivers, Investment Advisory Fees would be .40% and .40% for the
Treasury Money Market and Money Market 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
.53%, .52%, .62%, .68%, .62% and .61% and Total Portfolio Operating Expenses
would be .93%, .92%, 1.07%, 1.23%, .92% and 1.06% for the Treasury Money
Market, Money Market, U.S. Government Securities, Intermediate Corporate
Bond, Bond Index and Government & Corporate Bond Portfolios, respectively.
<TABLE>
<CAPTION>
GROWTH SMALL
& SMALL CAP
EQUITY EQUITY INCOME GROWTH 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)......... .75% .30% .55% .75% .75% .00% 1.00% .75%
12b-1 Fees................... .00% .00% .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)....... .52% .67% .49% .53% .50% .67% .58% .52%
---- --- ---- ---- ---- --- ---- ----
Total Portfolio Operating
Expenses (net of fee
waivers and expense
reimbursements)(3)......... 1.27% .97% 1.04% 1.28% 1.25% .67% 1.58% 1.27%
==== === ==== ==== ==== === ==== ====
</TABLE>
- ------------
(1) Without fee waivers, Investment Advisory Fees would be .40% for the Small
Cap Equity Index Portfolio.
(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
.62%, .77%, .59%, .63%, .60%, .80%, .75%, and .62% and Total Portfolio
Operating Expenses would be 1.37%, 1.07%, 1.14%, 1.38%, 1.35%, 1.20%, 1.75%
and 1.37% for the Equity Income, Equity Index, Growth & Income Equity,
Growth Equity, Small Cap Equity, Small Cap Equity Index, International
Equity and Balanced Portfolios, respectively.
6
<PAGE> 124
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
EXAMPLE ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) a 5% annual return and (2)
redemption at the end of each period:
Treasury Money Market Portfolio.......................... $ 8 $25 $43 $ 97
Money Market Portfolio................................... $ 8 $25 $43 $ 95
U.S. Government Securities Portfolio..................... $10 $31 $54 $119
Intermediate Corporate Bond Portfolio.................... $12 $36 $62 $137
Bond Index Portfolio..................................... $ 8 $26 $46 $101
Government & Corporate Bond Portfolio.................... $10 $31 $53 $118
Equity Income Portfolio.................................. $13 $40 $70 $153
Equity Index Portfolio................................... $10 $31 $54 $119
Growth & Income Equity Portfolio......................... $11 $33 $57 $127
Growth Equity Portfolio.................................. $13 $41 $70 $155
Small Cap Equity Portfolio............................... $13 $40 $69 $151
Small Cap Equity Index Portfolio......................... $ 7 $21 N/A N/A
International Equity Portfolio........................... $16 $50 $86 $188
Balanced Portfolio....................................... $13 $40 $70 $153
</TABLE>
THE FOREGOING SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR RATES OF RETURN. ACTUAL EXPENSES AND RATES OF RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN. Information about the actual performance of all of the
Portfolios is contained in the Fund's Annual Report to Shareholders dated
November 30, 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 Money Market, U.S. Government Securities, Growth &
Income Equity, Small Cap 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 Treasury Money
Market, Intermediate Corporate Bond, Bond Index, Government & Corporate Bond,
Equity Income, Equity Index, and International 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 Growth Equity and Small Cap Equity Index
Portfolio is based on the expenses that 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.
7
<PAGE> 125
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 incorporated by reference 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 Fund had not commenced its offering of Investor B Shares
of the Growth Equity Portfolio as of November 30, 1997. The data for the years
November 30, 1989 through 1997 has been audited by KPMG Peat Marwick LLP,
independent auditors, whose unqualified report insofar as it relates to each of
the years or periods in the five-year period ended November 30, 1997 on the
financial statements containing such information is incorporated by reference
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 1 of this
Prospectus.
TREASURY MONEY MARKET PORTFOLIO
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED JANUARY 26, 1995 TO
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1997 1996 1995(a),(b)
------------- ------------- -------------------
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
SHARES SHARES SHARES
------------- ------------- -------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period................... $ 1.00 $ 1.00 $ 1.00
------- ------- -------
Investment Activities
Net investment income................................ 0.044 0.044 0.042
------- ------- -------
Total from Investment Activities................... 0.044 0.044 0.042
------- ------- -------
Distributions
Net investment income................................ (0.044) (0.044) (0.042)
------- ------- -------
Total Distributions................................ (0.044) (0.044) (0.042)
------- ------- -------
Net Asset Value, End of Period......................... $ 1.00 $ 1.00 $ 1.00
======= ======= =======
Total Return........................................... 4.53% 4.46% 4.94%(c)
Ratios/Supplemental Data:
Net Assets at end of period (000).................... $ 233 $ 299 $ 28
Ratio of expenses to average net assets (including
waivers)........................................... 0.77% 0.79% 0.92%(d)
Ratio of net investment income to average net assets
(including waivers)................................ 4.44% 4.39% 5.76%(d)
Ratio of expenses to average net assets (before
waivers)*.......................................... 0.92% 0.94% 1.07%(d)
Ratio of net investment income to average net assets
(before waivers)*.................................. 4.29% 4.24% 5.61%(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
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.
8
<PAGE> 126
MONEY MARKET PORTFOLIO
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
----------------------------------------------------------------------------------------------
1997 1996 1995 1994(A) 1993 1992 1991
------------- ------------- ------------- ------------- -------- -------- --------
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INVESTOR INVESTOR INVESTOR
SHARES SHARES SHARES SHARES SHARES SHARES SHARES
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- -------
Investment Activities
Net investment income......... 0.048 0.047 0.052 0.033 0.025 0.032 0.056
------- ------- ------- ------- ------- ------- -------
Total from investment
Activities.................. 0.048 0.047 0.052 0.033 0.025 0.032 0.056
------- ------- ------- ------- ------- ------- -------
Distributions
Net investment income......... (0.048) (0.047) (0.052) (0.033) (0.025) (0.032) (0.056)
------- ------- ------- ------- ------- ------- -------
Total Distributions........... (0.048) (0.047) (0.052) (0.033) (0.025) (0.032) (0.056)
------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= ======= =======
Total Return.................... 4.93% 4.81% 5.33% 3.34% 2.52% 3.21% 5.75%
Ratios/Supplemental Data:
Net Assets at end of period
(000)....................... $22,022 $15,921 $13,340 $10,295 $46,920 $52,224 $60,436
Ratio of expenses to average
net assets (including
waivers).................... 0.77% 0.78% 0.77% 0.78% 0.79% 0.80% 0.72%
Ratio of net investment income
to average net assets
(including waivers)......... 4.83% 4.70% 5.20% 3.48% 2.50% 3.21% 5.69%
Ratio of expenses to average
net assets (before
waivers)*................... 0.92% 0.93% 0.92% 0.95% 0.93% 0.94% 0.80%
Ratio of net investment income
to average net assets
(before waivers)*........... 4.68% 4.55% 5.05% 3.31% 2.36% 3.07% 5.61%
<CAPTION>
YEAR ENDED NOVEMBER 30,
------------------------------
1990 1989 1988
-------- -------- --------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period........................ $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Investment Activities
Net investment income......... 0.078 0.088 0.071
-------- -------- --------
Total from investment
Activities.................. 0.078 0.088 0.071
-------- -------- --------
Distributions
Net investment income......... (0.078) (0.088) (0.071)
-------- -------- --------
Total Distributions........... (0.078) (0.088) (0.071)
-------- -------- --------
Net Asset Value, End of
Period........................ $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total Return.................... 8.08% 9.21% 7.33%(b)
Ratios/Supplemental Data:
Net Assets at end of period
(000)....................... $896,903 $661,145 $289,764
Ratio of expenses to average
net assets (including
waivers).................... 0.55% 0.45% 0.45%
Ratio of net investment income
to average net assets
(including waivers)......... 7.77% 8.82% 7.12%
Ratio of expenses to average
net assets (before
waivers)*................... 0.60% 0.60% 0.58%
Ratio of net investment income
to average net assets
(before waivers)*........... 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 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.
9
<PAGE> 127
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 1992
------------- ------------- ------------- ------------- -------- --------
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INVESTOR INVESTOR
SHARES SHARES SHARES SHARES SHARES SHARES
------ ------ ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period... $10.64 $10.82 $ 10.02 $ 11.20 $10.80 $10.68
------ ------ ------- ------- ------ ------
Investment Activities
Net investment income................ 0.56 0.62 0.63 0.61 0.59 0.62
Net realized and unrealized gains
(losses) from investments.......... (0.04) (0.15) 0.80 (1.00) 0.47 0.13
------ ------ ------- ------- ------ ------
Total from Investment
Activities......................... 0.52 0.47 1.43 (0.39) 1.06 0.75
------ ------ ------- ------- ------ ------
Distributions
Net investment income................ (0.58) (0.62) (0.63) (0.61) (0.59) (0.62)
Net realized gains................... -- -- -- -- (0.07) (0.01)
In excess of net investment income... -- -- -- (0.18) -- --
In excess of net realized gains...... -- (0.03) -- -- -- --
------ ------ ------- ------- ------ ------
Total Distributions.................. (0.58) (0.65) (0.63) (0.79) (0.66) (0.63)
------ ------ ------- ------- ------ ------
Net Asset Value, End of Period......... $10.58 $10.64 $ 10.82 $ 10.02 $11.20 $10.80
====== ====== ======= ======= ====== ======
Total Return........................... 5.10% 4.55% 14.69% (3.46%) 10.03% 7.20%
Ratios/Supplemental Data:
Net Assets at end of period (000).... $7,049 $2,232 $ 667 $ 51 $9,567 $7,499
Ratio of expenses to average net
assets (including waivers)......... 0.97% 0.96% 0.97% 0.95% 0.97% 0.95%
Ratio of net investment income to
average net assets (including
waivers)........................... 5.52% 5.75% 5.91% 6.54% 5.25% 5.72%
Ratio of expenses to average net
assets (before waivers)*........... 1.07% 1.06% 1.07% 1.16% 1.08% 1.09%
Ratio of net investment income to
average net assets (before
waivers)*.......................... 5.42% 5.65% 5.81% 6.33% 5.14% 5.58%
Portfolio turnover**................. 100.33% 53.76% 93.76% 50% 24% 74%
<CAPTION>
JUNE 2,
YEAR ENDED NOVEMBER 30, 1988 TO
-------------------------- NOV. 30,
1991 1990 1989 1988(b)
-------- ------ ------ --------
INVESTOR
SHARES
------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period... $10.21 $10.06 $ 9.94 $10.00
------ ------ ------ ------
Investment Activities
Net investment income................ 0.75 0.76 0.85 0.36
Net realized and unrealized gains
(losses) from investments.......... 0.47 0.16 0.11 (0.06)
------ ------ ------ ------
Total from Investment
Activities......................... 1.22 0.92 0.96 0.30
------ ------ ------ ------
Distributions
Net investment income................ (0.75) (0.77) (0.84) (0.36)
Net realized gains................... -- -- -- --
In excess of net investment income... -- -- -- --
In excess of net realized gains...... -- -- -- --
------ ------ ------ ------
Total Distributions.................. (0.75) (0.77) (0.84) (0.36)
------ ------ ------ ------
Net Asset Value, End of Period......... $10.68 $10.21 $10.06 $ 9.94
====== ====== ====== ======
Total Return........................... 12.36% 9.66% 10.04% 3.05%(c)
Ratios/Supplemental Data:
Net Assets at end of period (000).... $5,791 $6,856 $5,954 $4,335
Ratio of expenses to average net
assets (including waivers)......... 0.82% 0.73% 0.74% 0.79%(d)
Ratio of net investment income to
average net assets (including
waivers)........................... 7.12% 7.80% 8.50% 7.26%(d)
Ratio of expenses to average net
assets (before waivers)*........... 1.36% 1.28% 1.29% 1.40%(d)
Ratio of net investment income to
average net assets (before
waivers)*.......................... 6.58% 7.25% 7.95% 6.65%(d)
Portfolio turnover**................. 36% 53% 84% 215%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. In addition, on June 7, 1994, the Portfolio
issued an additional series of Shares which were designated as
"Institutional" Shares. The financial highlights presented for periods prior
to June 7, 1994 represent the financial highlights applicable to Investor
Shares. On September 27, 1994, the Portfolio redesignated the Investor
Shares as "Investor A" Shares.
(b) Period from commencement of operations.
(c) Not Annualized.
(d) Annualized.
10
<PAGE> 128
INTERMEDIATE CORPORATE BOND PORTFOLIO
(For a Share outstanding throughout the period)
<TABLE>
<CAPTION>
FEBRUARY 10, 1997
TO
NOVEMBER 30, 1997(A)
-----------------------
INSTITUTIONAL
SHARES
-----------------------
<S> <C>
Net Asset Value, Beginning of Period........................ $10.00
------
Investment Activities
Net investment income..................................... 0.53
Net realized and unrealized losses from investments....... 0.11
------
Total from Investment Activities....................... 0.64
------
Distributions
Net investment income..................................... (0.53)
------
Total Distributions.................................... (0.53)
------
Net Asset Value, End of Period.............................. $10.11
======
Total Return................................................ 6.60%(b)
Ratios/Supplementary Data:
Net assets at the end of period (000)..................... $ 27
Ratio of expenses to average net assets................... 0.29%(c)
Ratio of net investment income to average net assets...... 7.06%(c)
Ratio of expenses to average net assets*.................. 1.31%(c)
Ratio of net investment income to average net assets*..... 6.04%(c)
Portfolio turnover**...................................... 61.98%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) Period from commencement of operations.
(b) Not Annualized.
(c) Annualized.
11
<PAGE> 129
BOND INDEX PORTFOLIO
(For a Share outstanding throughout the period)
<TABLE>
<CAPTION>
FEBRUARY 10, 1997
TO
NOVEMBER 30, 1997(A)
-----------------------
INSTITUTIONAL
SHARES
-----------------------
<S> <C>
Net Asset Value, Beginning of Period........................ $10.00
------
Investment Activities
Net investment income..................................... 0.53
Net realized and unrealized losses from investments....... 0.17
------
Total from Investment Activities....................... 0.70
------
Distributions
Net investment income..................................... (0.53)
------
Total Distributions.................................... (0.53)
------
Net Asset Value, End of Period.............................. $10.17
======
Total Return................................................ 7.20%(b)
Ratios/Supplementary Data:
Net assets at the end of period (000)..................... $ 27
Ratio of expenses to average net assets................... 0.24%(c)
Ratio of net investment income to average net assets...... 7.09%(c)
Ratio of expenses to average net assets*.................. 0.95%(c)
Ratio of net investment income to average net assets*..... 6.38%(c)
Portfolio turnover**...................................... 46.16%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) Period from commencement of operations.
(b) Not Annualized.
(c) Annualized.
12
<PAGE> 130
GOVERNMENT & CORPORATE BOND PORTFOLIO
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------------------------------------------------------------------
1997 1996 1995 1994(A) 1993 1992
------------- ------------- ------------- ------------- -------- --------
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INVESTOR INVESTOR
SHARES SHARES SHARES SHARES SHARES SHARES
------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period............ $ 10.34 $ 10.53 $ 9.64 $10.65 $10.26 $10.15
------- ------- ------ ------ ------ ------
Investment Activities
Net investment income.......... 0.56 0.64 0.61 0.60 0.64 0.66
Net realized and unrealized
gains (losses) from
investments.................. 0.03 (0.19) 0.89 (0.94) 0.39 0.11
------- ------- ------ ------ ------ ------
Total from Investment
Activities................... 0.59 0.45 1.50 (0.34) 1.03 0.77
------- ------- ------ ------ ------ ------
Distributions
Net investment income.......... (0.56) (0.64) (0.61) (0.60) (0.64) (0.66)
In excess of net realized
gains........................ -- -- -- (0.07) -- --
------- ------- ------ ------ ------ ------
Total Distributions............ (0.56) (0.64) (0.61) (0.67) (0.64) (0.66)
------- ------- ------ ------ ------ ------
Net Asset Value, End of Period... $ 10.37 $ 10.34 $10.53 $ 9.64 $10.65 $10.26
======= ======= ====== ====== ====== ======
Total Return..................... 6.00% 4.51% 15.98% (3.32)% 10.23% 7.81%
Ratios/Supplemental Data:
Net Assets at end of period
(000)........................ $16,954 $14,875 $9,413 $5,965 $3,737 $2,490
Ratio of expenses to average
net assets (including
waivers)..................... 0.95% 0.95% 0.95% 0.96% 0.95% 0.93%
Ratio of net investment income
to average net assets
(including waivers).......... 5.55% 6.06% 6.01% 6.03% 6.00% 6.45%
Ratio of expenses to average
net assets (before
waivers)*.................... 1.05% 1.05% 1.05% 1.07% 1.05% 1.06%
Ratio of net investment income
to average net assets (before
waivers)*.................... 5.45% 5.96% 5.91% 5.92% 5.90% 6.32%
Portfolio turnover**........... 140.72% 149.20% 59.32% 50% 31% 52%
<CAPTION>
JUNE 15,
YEAR ENDED NOVEMBER 30, 1988 TO
---------------------------- NOVEMBER 30,
1991 1990 1989 1988(b)
-------- ------- ------- ------------
INVESTOR
SHARES
------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period............ $ 9.71 $ 10.12 $ 9.91 $10.00
------ ------- ------- ------
Investment Activities
Net investment income.......... 0.75 0.84 0.89 0.39
Net realized and unrealized
gains (losses) from
investments.................. 0.48 (0.41) 0.22 (0.13)
------ ------- ------- ------
Total from Investment
Activities................... 1.23 0.43 1.11 0.26
------ ------- ------- ------
Distributions
Net investment income.......... (0.79) (0.84) (0.90) (0.35)
In excess of net realized
gains........................ -- -- -- --
------ ------- ------- ------
Total Distributions............ (0.79) (0.84) (0.90) (0.35)
------ ------- ------- ------
Net Asset Value, End of Period... $10.15 $ 9.71 $ 10.12 $ 9.91
====== ======= ======= ======
Total Return..................... 12.79% 4.96% 11.79% 2.66%(c)
Ratios/Supplemental Data:
Net Assets at end of period
(000)........................ $2,010 $11,005 $10,327 $7,483
Ratio of expenses to average
net assets (including
waivers)..................... 0.59% 0.53% 0.44% 0.56%(d)
Ratio of net investment income
to average net assets
(including waivers).......... 7.77% 8.69% 8.97% 8.47%(d)
Ratio of expenses to average
net assets (before
waivers)*.................... 1.14% 1.08% 0.99% 1.17%(d)
Ratio of net investment income
to average net assets (before
waivers)*.................... 7.22% 8.14% 8.42% 7.86%(d)
Portfolio turnover**........... 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.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. In addition, on January 3, 1994, the Portfolio
issued a new series of Shares which were designated as "Institutional"
Shares. The financial highlights presented for periods prior to January 3,
1994 represent the financial highlights applicable to Investor Shares. On
September 27, 1994, the Portfolio redesignated the Investor Shares as
"Investor A" Shares.
(b) Period from commencement of operations.
(c) Not Annualized.
(d) Annualized.
13
<PAGE> 131
EQUITY INCOME PORTFOLIO
(For a Share outstanding throughout the period)
<TABLE>
<CAPTION>
FEBRUARY 27, 1997
TO
November 30, 1997(a)
--------------------
INSTITUTIONAL
SHARES
-------
<S> <C>
Net Asset Value, Beginning of Period........................ $ 10.00
-------
Investment Activities
Net investment income..................................... 0.19
Net realized and unrealized gains from investments........ 1.56
-------
Total from Investment Activities....................... 1.75
-------
Distributions
Net investment income..................................... (0.19)
-------
Total Distributions.................................... (0.19)
-------
Net Asset Value, End of Period.............................. $ 11.56
=======
Total Return................................................ 17.64%(b)
Ratios/Supplementary Data:
Net assets at the end of period (000)..................... $ 1
Ratio of expenses to average net assets................... 0.37%(c)
Ratio of net investment income to average net assets...... 2.34%(c)
Ratio of expenses to average net assets*.................. 1.60%(c)
Ratio of net investment income to average net assets*..... 1.11%(c)
Portfolio turnover**...................................... 48.33%
Average commission rate paid(d)........................... $0.0566
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) Period from commencement of operations.
(b) Not Annualized.
(c) Annualized.
(d) Represents the total dollar amount of commissions paid on Portfolio
transactions divided by total number of Portfolio shares purchased and sold
for which commissions were charged.
14
<PAGE> 132
EQUITY INDEX PORTFOLIO
(For a Share outstanding throughout the period)
<TABLE>
<CAPTION>
MAY 1, 1997
TO
November 30, 1997(a)
--------------------
INSTITUTIONAL
SHARES
-------
<S> <C>
Net Asset Value, Beginning of Period........................ $ 10.00
-------
Investment Activities
Net investment income..................................... 0.10
Net realized and unrealized gains from investments........ 1.94
-------
Total from Investment Activities....................... 2.04
-------
Distributions
Net investment income..................................... (0.10)
-------
Total Distributions.................................... (0.10)
-------
Net Asset Value, End of Period.............................. $ 11.94
=======
Total Return................................................ 20.40%(b)
Ratios/Supplementary Data:
Net assets at the end of period (000)..................... $ 8
Ratio of expenses to average net assets................... 0.46%(c)
Ratio of net investment income to average net assets...... 1.30%(c)
Ratio of expenses to average net assets*.................. 1.19%(c)
Ratio of net investment income to average net assets*..... 0.57%(c)
Portfolio turnover**...................................... 1.66%
Average commission rate paid(d)........................... $0.0206
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) Period from commencement of operations.
(b) Not Annualized.
(c) Annualized.
(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.
15
<PAGE> 133
GROWTH & INCOME EQUITY PORTFOLIO
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------------------------------------------------------------------
1997 1996 1995 1994(A) 1993 1992
------------- ------------- ------------- ------------- -------- --------
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INVESTOR INVESTOR
SHARES SHARES SHARES SHARES SHARES SHARES
------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period.............................. $ 18.67 $ 16.29 $ 12.70 $ 14.74 $ 14.49 $12.33
------- ------- ------- ------- ------- ------
Investment Activities
Net investment income............... 0.12 0.20 0.23 0.20 0.25 0.25
Net realized and unrealized gains
(losses) from investments......... 3.95 3.33 3.74 (0.17) 1.06 2.24
------- ------- ------- ------- ------- ------
Total from Investment Activities.... 4.07 3.53 3.97 0.03 1.31 2.49
------- ------- ------- ------- ------- ------
Distributions
Net investment income............... (0.13) (0.20) (0.24) (0.21) (0.25) (0.26)
In excess of net investment
income............................ (0.03) (0.01) -- -- -- --
Net realized gains.................. (1.46) (0.94) (0.14) (0.18) (0.81) (0.07)
In excess of net realized gains..... -- -- -- (1.68) -- --
------- ------- ------- ------- ------- ------
Total Distributions................. (1.62) (1.15) (0.38) (2.07) (1.06) (0.33)
------- ------- ------- ------- ------- ------
Net Asset Value, End of Period........ $ 21.12 $ 18.67 $ 16.29 $ 12.70 $ 14.74 $14.49
======= ======= ======= ======= ======= ======
Total Return.......................... 23.90% 23.08% 31.88% 0.19% 9.65% 20.59%
Ratios/Supplemental Data:
Net Assets at end of period (000)... $92,515 $72,950 $40,228 $21,897 $11,157 $6,044
Ratio of expenses to average net
assets (including waivers)........ 1.04% 1.05% 1.05% 1.05% 0.74% 0.71%
Ratio of net investment income to
average net assets (including
waivers).......................... 0.60% 1.19% 1.58% 1.41% 1.74% 1.94%
Ratio of expenses to average net
assets (before waivers)*.......... 1.14% 1.15% 1.15% 1.16% 0.96% 0.85%
Ratio of net investment income to
average net assets (before
waivers)*......................... 0.50% 1.09% 1.48% 1.30% 1.52% 1.80%
Portfolio turnover**................ 57.11% 63.90% 58.50% 65% 41% 79%
Average commission rate paid(f)..... $0.0451 $0.0598 -- -- -- --
<CAPTION>
JUNE 2,
YEAR ENDED NOVEMBER 30, 1988 TO
---------------------------- NOV 30,
1991 1990 1989 1988(b)
-------- ------- ------- -------
INVESTOR
SHARES
------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period.............................. $11.22 $ 12.41 $ 10.25 $ 10.00
------ ------- ------- -------
Investment Activities
Net investment income............... 0.39 0.39 0.41 0.28
Net realized and unrealized gains
(losses) from investments......... 1.47 (0.56) 2.29 0.06
------ ------- ------- -------
Total from Investment Activities.... 1.86 (0.17) 2.70 0.34
------ ------- ------- -------
Distributions
Net investment income............... (0.39) (0.39) (0.51) (0.09)
In excess of net investment
income............................ -- -- -- --
Net realized gains.................. (0.36) (0.63) (0.03)
In excess of net realized gains..... -- -- -- --
------ ------- ------- -------
Total Distributions................. (0.75) (1.02) (0.54) (0.09)
------ ------- ------- -------
Net Asset Value, End of Period........ $12.33 $ 11.22 $ 12.41 $ 10.25
====== ======= ======= =======
Total Return.......................... 17.39% (1.36)% 27.11% 3.46%(c),(d)
Ratios/Supplemental Data:
Net Assets at end of period (000)... $3,254 $20,116 $17,892 $10,890
Ratio of expenses to average net
assets (including waivers)........ 0.34% 0.35% 0.42% 0.41%(e)
Ratio of net investment income to
average net assets (including
waivers).......................... 3.50% 3.42% 3.69% 5.62%(e)
Ratio of expenses to average net
assets (before waivers)*.......... 1.05% 1.00% 1.07% 1.12%(e)
Ratio of net investment income to
average net assets (before
waivers)*......................... 2.79% 2.77% 3.04% 4.91%(e)
Portfolio turnover**................ 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.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. In addition, on January 3, 1994, the Portfolio
issued a new series of Shares which were designated as "Institutional"
Shares. The financial highlights presented for periods prior to January 3,
1994 represent the financial highlights applicable to Investor Shares. On
September 27, 1994, the Portfolio redesignated the Investor Shares as
"Investor A" Shares.
(b) Period from commencement of operations.
(c) Unaudited.
(d) Not Annualized.
(e) Annualized.
(f) Represents total dollar amount of commissions paid on Portfolio transactions
divided by total number of Portfolio shares purchased and sold for which
commissions were charged.
16
<PAGE> 134
SMALL CAP EQUITY PORTFOLIO(a)
(For a Share(b) outstanding throughout each period)
<TABLE>
<CAPTION>
MAY 6, 1992
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED TO
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, 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> <C>
Net Asset Value,
Beginning of Period..... $ 13.36 $ 13.40 $ 11.96 $13.14 $11.23 $ 10.10
------- ------- ------- ------ ------ -------
Investment Activities Net
investment income
(loss).................. (0.04) (0.01) (0.01) (0.03) 0.03 0.02
Net realized and
unrealized gains from
investments........... 2.48 1.03 2.36 0.86 2.14 1.13
------- ------- ------- ------ ------ -------
Total from Investment
Activities............ 2.44 1.02 2.35 0.83 2.17 1.15
------- ------- ------- ------ ------ -------
Distributions
Net investment income... -- -- -- -- (0.05) (0.02)
In excess of net
investment income..... -- (0.01) -- -- -- --
Net realized gains...... (0.82) (1.05) (0.91) (1.78) (0.21) --
In excess of net
realized gains........ -- -- -- (0.23) -- --
------- ------- ------- ------ ------ -------
Total Distributions..... (0.82) (1.06) (0.91) (2.01) (0.26) (0.02)
------- ------- ------- ------ ------ -------
Net Asset Value, End of
Period.................. $ 14.98 $ 13.36 $ 13.40 $11.96 $13.14 $ 11.23
======= ======= ======= ====== ====== =======
Total Return.............. 19.41% 8.39% 21.43% 7.11% 19.75% 12.55%(d)
Ratios/Supplemental Data:
Net Assets at end of
period (000).......... $34,395 $30,081 $17,620 $5,633 $4,559 $ 753
Ratio of expenses to
average net assets
(including waivers)... 1.25% 1.26% 1.26% 1.25% 0.61% 0.30%(e)
Ratio of net investment
income to average net
assets (including
waivers)................ (0.29%) (0.13%) (0.11%) (0.41%) 0.19% 0.78%(e)
Ratio of expenses to
average net assets
(before waivers)*..... 1.35% 1.36% 1.36% 1.37% 1.23% 1.12%(e)
Ratio of net investment
income to average net
assets (before
waivers)*............. (0.39%) (0.23%) (0.21%) (0.53%) (0.43%) (0.04%)(e)
Portfolio turnover**.... 80.23% 65.85% 83.13% 85% 65% 56%
Average commission rate
paid(f)............... $0.0515 $0.0582 -- -- -- --
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a)The Emerging Growth Portfolio changed its name to Small Cap Equity Portfolio
on December 1, 1996.
(b)The Portfolio issued a series of Shares which were designated as "Investor"
Shares on May 6, 1992. In addition, on January 3, 1994, the Portfolio issued
a new series of Shares which were designated as "Institutional" Shares. The
financial highlights presented for periods prior to January 3, 1994 represent
the financial highlights applicable to Investor Shares. On September 27,
1994, the Portfolio redesignated the Investor Shares as "Investor A" Shares.
(c)Period from commencement of operations.
(d)Not Annualized.
(e)Annualized.
(f)Represents the total dollar amount of commissions paid on Portfolio
transactions divided by total number of Portfolio shares purchased and sold
for which commissions were charged.
17
<PAGE> 135
INTERNATIONAL EQUITY PORTFOLIO
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
APRIL 4, 1994
YEAR ENDED YEAR ENDED YEAR ENDED TO
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1997 1996 1995 1994(a)
------------- ------------- ------------- -------------
INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL
SHARES SHARES SHARES SHARES
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period.............................. $ 12.03 $ 10.75 $ 9.90 $10.00
------- ------- ------- ------
Investment Activities
Net investment income............... (0.03) 0.01 0.01 (0.01)
Net realized and unrealized gains
(losses) from investments and
foreign currency................. 0.33 1.27 0.86 (0.09)
------- ------- ------- ------
Total from Investment Activities.... 0.30 1.28 0.87 (0.10)
------- ------- ------- ------
Distributions
In excess of net investment
income........................... (0.05) -- -- --
Net realized gain................... (0.31) -- (0.01) --
Tax return of capital............... -- -- (0.01) --
------- ------- ------- ------
Total Distributions................. (0.36) -- (0.02) --
------- ------- ------- ------
Net Asset Value, End of Period........ $ 11.97 $ 12.03 $ 10.75 $ 9.90
======= ======= ======= ======
Total Return.......................... 2.59% 11.91% 8.78% (1.00%)(b)
Ratios/Supplemental Data:
Net Assets at end of period (000)..... $ 6,798 $ 6,059 $ 2,159 $ 197
Ratio of expenses to average net
assets (including waivers).......... 1.59% 1.44% 1.44% 1.70%(c)
Ratio of net investment income (loss)
to average net assets (including
waivers)............................ (0.21%) 0.16% 0.13% (0.48%)(c)
Ratio of expenses to average net
assets (before waivers)*............ 1.75% 1.76% 1.75% 2.17%(c)
Ratio of net investment income (loss)
to average net assets (before
waivers)*........................... (0.37%) (0.16%) (0.18%) (0.94%)(c)
Portfolio turnover**.................. 75.18% 77.63% 62.78% 21%
Average commission rate paid(d)....... $0.0229 $0.0251 -- --
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) On April 4, 1994, the Portfolio issued a series of Shares which were
designated as "Trust" Shares. In addition, on April 24, 1994, the Portfolio
issued an additional series of Shares which were designated as
"Institutional" Shares. The financial highlights presented for the period
April 4, 1994 to April 24, 1994 represent the financial highlights
applicable to Trust Shares.
(b) Not Annualized.
(c) Annualized.
(d) Represents the total dollar amount of commissions paid on Portfolio
transactions divided by total number of Portfolio shares purchased and sold
for which commissions were charged.
18
<PAGE> 136
BALANCED PORTFOLIO
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
APRIL 1,
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 1993 TO
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, 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............................ $ 12.54 $ 11.62 $ 9.60 $ 10.22 $10.00
------- ------- ------- ------- ------
Investment Activities
Net investment income............. 0.31 0.32 0.31 0.28 0.23
Net realized and unrealized gains
from investments................ 1.49 1.34 2.02 (0.48) 0.15
------- ------- ------- ------- ------
Total from Investment
Activities...................... 1.80 1.66 2.33 (0.20) 0.38
------- ------- ------- ------- ------
Distributions
Net investment income............. (0.37) (0.32) (0.31) (0.29) (0.16)
In excess of net investment
income.......................... (0.03) -- -- -- --
Net realized gains................ (0.71) (0.42) -- -- --
In excess of net realized gains... -- -- -- (0.13) --
------- ------- ------- ------- ------
Total Distributions................. (1.11) (0.74) (0.31) (0.42) (0.16)
------- ------- ------- ------- ------
Net Asset Value, End of Period...... $ 13.23 $ 12.54 $ 11.62 $ 9.60 $10.22
======= ======= ======= ======= ======
Total Return........................ 15.52% 15.08% 24.67% (2.00)% 3.86%(c)
Ratios/Supplemental Data:
Net Assets at end of period
(000)........................... $61,655 $54,731 $36,827 $22,723 $1,978
Ratio of expenses to average net
assets (including waivers)...... 1.27% 1.27% 1.27% 1.27% 0.56%(d)
Ratio of net investment income to
average net assets (including
waivers)........................ 2.56% 2.78% 2.97% 2.77% 3.42%(d)
Ratio of expenses to average net
assets (before waivers)*........ 1.37% 1.37% 1.37% 1.40% 1.21%(d)
Ratio of net investment income to
average net assets (before
waivers)*....................... 2.46% 2.68% 2.87% 2.64% 2.77%(d)
Portfolio turnover**.............. 43.60% 85.16% 58.16% 49% 26%
Average commission rate paid(e)... $0.0503 $0.0599 -- -- --
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) 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.
19
<PAGE> 137
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
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 issued by Rating Agencies are described in
Appendix A to the
20
<PAGE> 138
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 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 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.
21
<PAGE> 139
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 CMOs 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 assigned by a Rating Agency will be
disposed of in an orderly manner, normally within 30 to 60 days. The applicable
ratings issued by 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.
22
<PAGE> 140
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 Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings
Group ("S&P") (if not rated by Moody's); have at least one year until maturity;
and have coupons with fixed rates. The Lehman Aggregate excludes 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 6,333 issues were included in the
Lehman Aggregate, representing approximately $4.98 trillion in market value.
U.S. Treasury and agency securities represented approximately 49.5% of the total
market value, asset-backed and mortgage-backed securities represented
approximately 31.2% of the total market value, with corporate debt securities
representing the balance of approximately 19.3%. The average maturity of the
Lehman Aggregate was approximately 8.7 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
23
<PAGE> 141
substantially duplicating the price and performance provided by the securities
comprising the Lehman Aggregate.
Securities rated Baa by Moody's or BBB by S&P have speculative
characteristics even though they are of investment-grade quality, and changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with
higher-grade securities.
THE GOVERNMENT & CORPORATE BOND PORTFOLIO
The Government & Corporate Bond Portfolio's investment objective is to seek
the highest level of current income consistent with conservation of capital. In
pursuing its investment objective, the Portfolio intends to invest at least 65%
of its assets in fixed-income and related debt securities rated in one of the
three highest rating categories assigned by a Rating Agency at the time of
purchase or in unrated investments deemed by the Adviser to be of comparable
quality pursuant to guidelines approved by the Fund's Board of Directors. Debt
securities may include a broad range of fixed and variable rate bonds,
debentures, notes, and securities convertible into or exchangeable for common
stock; dollar-denominated debt obligations of foreign issuers, including foreign
corporations and governments; and first mortgage loans, income participation
loans, participation certificates in pools of mortgages, including mortgages
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
CMOs and other mortgage-related securities, and other asset-backed securities.
For further information regarding asset-backed securities, see "Other Applicable
Policies -- Asset-Backed Securities" below. The Portfolio may invest up to 10%
of its total assets at the time of 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 "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 Government & Corporate Bond Portfolio may purchase debt securities
which are rated at the time of purchase within the four highest rating
categories assigned by one or more Rating Agencies or unrated debt securities
(including convertible securities) which the Adviser believes present attractive
opportunities and are of at least comparable quality to instruments so rated.
The Portfolio's dollar-weighted average portfolio quality is expected to be at
least "A" or higher. Securities rated in the lowest of the above four rating
categories have speculative characteristics, even though they are of investment-
grade quality, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade securities. Such securities will be
purchased (and retained) only when the Adviser believes the issuers have an
adequate capacity to pay interest and repay principal. (For a description of the
rating categories of Rating Agencies, see Appendix A to the Statement of
Additional Information.) In making investment decisions, the Adviser will
consider a number of factors including current yield, maturity, yield to
maturity, anticipated changes in interest rates, and the overall quality of the
investment. The Portfolio seeks to provide a current yield greater than that
generally available from money market instruments.
The Government & Corporate Bond Portfolio reserves the right to hold as a
temporary defensive measure up to 100% of its total assets in cash and
short-term obligations (having remaining maturities of 13 months or less) at
such times and in such proportions as, in the opinion of the Adviser, prevailing
market or economic conditions warrant. Short-term obligations include, but are
not limited to, commercial paper, bankers' acceptances, certificates of deposit,
demand and time deposits of domestic and foreign banks and savings and loan
associations, repurchase agreements and obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities.
24
<PAGE> 142
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 invest indirectly 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 "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 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
25
<PAGE> 143
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 $7.784 trillion and account
for approximately 70% of the total market value of all U.S. common stocks.
Normally, the Equity Index Portfolio will hold all 500 stocks in the S&P 500 and
will hold each stock in approximately the same percentage as that stock
represents in the S&P 500. 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 invest indirectly 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
"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 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 13 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 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
26
<PAGE> 144
normally it will invest at least 65% of its total assets in equity securities,
including 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 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, such as ADRs.
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 and the Statement of Additional Information
under "Investment Objectives and Policies -- ADRs and EDRs."
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
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).
27
<PAGE> 145
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 invest indirectly 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
"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 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 13 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 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
28
<PAGE> 146
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
$1.985 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 the 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 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 of its assets in a single country during temporary
defensive periods.
The International Equity Portfolio expects to invest at least 50% 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,
29
<PAGE> 147
negative movement by 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 as 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 13 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
30
<PAGE> 148
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 one or more
Rating Agencies at the time of purchase or in unrated securities 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 13 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. As
of the date of this Prospectus, U.S. stock markets were trading at or close to
record high levels and there can be no guarantee that such levels will continue.
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.
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
31
<PAGE> 149
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.
32
<PAGE> 150
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 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.
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
33
<PAGE> 151
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 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
34
<PAGE> 152
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 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.
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
35
<PAGE> 153
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.
36
<PAGE> 154
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
SmallCap 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.
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
37
<PAGE> 155
interest rates, the rate of mortgage prepayments tends to increase. During such
periods, the reinvestment of prepayment proceeds by a Portfolio will generally
be at lower rates than the rates that were carried by the obligations that have
been prepaid. When interest rates rise, the value of an asset-backed security
generally will decline; however, when interest rates decline, the value of an
asset-backed security with prepayment features may not increase as much as that
of other fixed-income securities. Because of these and other reasons, an
asset-backed security's total return may be difficult to predict precisely.
In general, the collateral supporting non-mortgage asset-backed securities
is of shorter maturity than mortgage loans and is less likely to experience
substantial prepayments. Non-mortgage asset-backed securities involve certain
risks that are not presented by mortgage-backed securities arising primarily
from the nature of the underlying assets (i.e., credit card and automobile loan
receivables as opposed to real estate mortgages). For example, credit card
receivables are generally unsecured and the repossession of automobiles and
other personal property upon the default of the debtor may be difficult or
impracticable in some cases.
DEPOSITORY RECEIPTS. The Bond Index, 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
38
<PAGE> 156
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 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.
39
<PAGE> 157
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.
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
40
<PAGE> 158
parents; and (c) utilities will be divided according to their services (for
example, gas, gas transmission, electric and gas, electric, and telephone
will each be considered a separate industry).
3. Borrow money or issue senior securities, except that each Portfolio
may borrow from banks and enter into reverse repurchase agreements for
temporary defensive purposes in amounts not in excess of 10% of the
Portfolio's total assets at the time of such borrowing; or mortgage,
pledge, or hypothecate any assets, except in connection with any such
borrowing and in amounts not in excess of the lesser of the dollar amounts
borrowed or 10% of the Portfolio's total assets at the time of such
borrowing; or purchase securities while its borrowings exceed 5% of its
total assets. A Portfolio's transactions in futures and related options
(including the margin posted by a Portfolio in connection with such
transactions), and securities held in escrow or separate accounts in
connection with a Portfolio's investment practices described in this
Prospectus or the Statement of Additional Information are not subject to
this limitation.
4. Make loans, except that each Portfolio may purchase or hold debt
instruments, lend portfolio securities, enter into repurchase agreements
and make other investments in accordance with its investment objective and
policies.
5. Purchase securities on margin, make short sales of securities or
maintain a short position, except that (a) this investment limitation shall
not apply to a Portfolio's transactions in options, and futures contracts
and related options, and (b) a Portfolio may obtain short-term credits as
may be necessary for the clearance of purchases and sales of portfolio
securities.
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 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
41
<PAGE> 159
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 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.
42
<PAGE> 160
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 Bank (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.
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.
43
<PAGE> 161
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 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.
OTHER PURCHASE, EXCHANGE AND REDEMPTION INFORMATION
On a Business Day when the Exchange closes early due to a partial holiday
or otherwise, the Fund reserves the right to advance the times at which purchase
and redemption orders must be received in order to be processed on that Business
Day.
44
<PAGE> 162
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 "yield" and "effective
yield" for the Money Market Portfolios' Institutional Shares may be quoted in
advertisements or in communications to shareholders. The "yield" quoted in
advertisements refers to the income generated by an investment in such Shares of
a Portfolio over a specified period (such as a seven-day period) identified in
connection with the particular yield quotation. This income is then
"annualized." That is, the amount of income generated by the investment during
that period is assumed to be generated for each such period over a 365-day or
one-year period and is shown as a percentage of the investment. The "effective
yield" is calculated similarly but, when annualized, the income earned by an
investment in such Shares of a Portfolio is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment.
In addition, the Treasury Money Market Portfolio's "state tax-equivalent
yield" may also be quoted. The "state tax-equivalent yield" shows the level of
taxable yield needed to produce an after-tax yield that is equivalent to a
particular state's tax-exempt yield achieved by the Portfolio. The "state tax-
equivalent yield" refers to the portion of income that is derived from interest
income on direct obligations of the U.S. Government, its agencies or
instrumentalities that qualifies for exemption from state income tax. The yield
calculation assumes that 100% of the interest income is exempt from state income
tax. The "state tax-equivalent yield" is computed by dividing the tax-exempt
portion of the Portfolio's yield by a denominator consisting of one minus a
stated income tax rate.
THE EQUITY AND BOND PORTFOLIOS
From time to time, performance information such as total return and yield
data for the Equity and Bond Portfolios' Institutional Shares may be quoted in
advertisements or in communications to shareholders. The yield is computed based
on the net income of such Shares in the particular Portfolio during a 30-day (or
one-month) period identified in connection with the particular yield quotation.
More
45
<PAGE> 163
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.
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. 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 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,
46
<PAGE> 164
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 -- 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
47
<PAGE> 165
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. 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. Such long-term capital gain will be 20% or 28%
rate gain, depending upon the Portfolio's holding period for the assets the rate
gain of which generated the capital gain.
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 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 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.
48
<PAGE> 166
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.
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 an indirect
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
49
<PAGE> 167
Balanced Portfolios, at the annual rates of .45%, .55%, .30%, .45%, .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 .32%, .33%, .45%, .00%, .00%, .45%, .00%, .00%, .55%, .75%,
.75%, .92% and .75% 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.
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.
George J. Schupp, CFA, is the person primarily responsible for the day-to
day management of the Government & Corporate Bond Portfolio and has managed such
Portfolio since February 1998. Mr. Schupp, Group Manager -- Fixed Income, joined
MVA in 1983 and has 22 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 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
50
<PAGE> 168
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 .75% 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 .13%, .12%, .05%, .06% and .12% of the
average daily net assets of the Treasury Money Market, Money Market,
Intermediate Corporate Bond, Equity Income and International Equity Portfolios,
respectively, and .10% of the average daily net assets of each of the other
Portfolios 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 .15% 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 Bank or its affiliated or correspondent banks) on
51
<PAGE> 169
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 Bank and its affiliates) to perform
certain services, including providing administrative services with respect to
the beneficial owners of Institutional Shares of a Portfolio, such as
establishing and maintaining accounts and records for their customers who invest
in such Shares and assisting customers in processing purchase, exchange and
redemption requests, and responding to customer inquiries concerning their
investments.
Under the Servicing Agreements and upon notice to the Fund, a Service
Organization may subcontract with one or more entities for the performance of
certain services provided under its Servicing Agreements with the Fund. Such
Service Organization shall be fully responsible to the Fund for the acts or
omissions of any sub-contractor as it would be for its own acts or omissions.
The fees payable to any sub-contractor are paid by the Service Organization out
of the fees it receives from the Fund.
The Fund understands that Service Organizations providing such
administrative services may also charge fees to their customers beneficially
owning such Shares. These fees would be in addition to any amounts which may be
received by such a Service Organization under its Servicing Agreement with the
Fund. The Fund's Servicing Agreements require a Service Organization to disclose
to its customers any compensation payable to the Service Organization by a
Portfolio and any other compensation payable by its customers in connection with
their investment in such Shares. Customers of such Service Organizations
receiving servicing fees should read this Prospectus in light of the terms
governing their accounts with their Service Organization.
CUSTODIAN, SUB-CUSTODIAN, TRANSFER AGENT AND SUB-TRANSFER AGENT
Mercantile Bank, an affiliate of the Fund and a wholly-owned subsidiary of
Mercantile, 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).
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
52
<PAGE> 170
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 Bank, 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 Bank, or an affiliate of Mercantile Bank, 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 Bank, 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.
53
<PAGE> 171
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 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; 50 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; 50 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. As of the date of this
Prospectus, the Fund has not commenced its offering of S Shares. Shares in the
Fund's Portfolios will be issued without Share certificates.
The Institutional Shares of the Portfolios are described in this
Prospectus. The Portfolios also offer Trust Shares and 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 Bank, 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
54
<PAGE> 172
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 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, if fundamental, 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.
55
<PAGE> 173
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, if
fundamental, 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 March 5, 1998, Mercantile Bank 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 Bank 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.
56
<PAGE> 174
INVESTMENT ADVISER
Mississippi Valley Advisors Inc.
One Mercantile Center
Seventh & Washington Streets
St. Louis, Missouri 63101
DISTRIBUTOR
BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219-3035
LEGAL COUNSEL
Drinker Biddle & Reath LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, Ohio 43215
TRANSFER AGENT
BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, OH 43219-3035
<PAGE> 175
CROSS REFERENCE SHEET
(S Shares)
The ARCH Treasury Money Market Portfolio
The ARCH Money Market Portfolio
The ARCH Tax-Exempt Money Market Portfolio
Form N-1A Part A Item Prospectus Caption
- --------------------- ------------------
1. Cover Page..................................... Cover Page
2. Synopsis....................................... Expense Summary
for Trust Shares
3. Condensed Financial
Information.................................. 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
Redeem Shares
9. Pending Legal Proceedings...................... Inapplicable
<PAGE> 176
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
Bank") 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 Bank 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"), an
indirectly wholly-owned subsidiary of Mercantile Bancorporation Inc.
("Mercantile"), acts as investment adviser for the Portfolios. Mercantile Bank,
an affiliate of the Adviser, 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> 177
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 March 31, 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.
MARCH 31, 1998
-2-
<PAGE> 178
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 Bank 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
-3-
<PAGE> 179
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> 180
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> 181
EXPENSE SUMMARY FOR S SHARES
<TABLE>
<CAPTION>
TREASURY TAX-EXEMPT
MONEY MONEY MONEY
MARKET MARKET MARKET
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
ANNUAL PORTFOLIO OPERATING
EXPENSES
<S> <C> <C> <C>
(as a percentage of average
net assets)
Investment Advisory Fees (net of fee waivers)(1) ........ .35% .35% .35%
12b-1 Fees .............................................. .75% .75% .75%
Other Expenses (including
administration fees
and other expenses)
(net of fee waivers and
expense reimbursements)2,3............................. .48% .47% .47%
Total Portfolio Operating
Expenses (net of fee waivers
and expense reimbursements)3........................... 1.58% 1.57% 1.57%
==== ==== ====
- ----------------------
</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 .58%, .57% and .47% and Total Portfolio Operating Expenses would be
1.73%, 1.72% and 1.62% for the Treasury Money Market, Money Market and
Tax-Exempt Money Market Portfolios, respectively.
-6-
<PAGE> 182
<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................................. $16 $50 $86 $188
Money Market Portfolio.......................................... $16 $50 $86 $187
Tax-Exempt Money Market Portfolio............................... $16 $50 $86 $187
</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 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 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> 183
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> 184
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 issued 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> 185
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
-10-
<PAGE> 186
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,
-11-
<PAGE> 187
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
-12-
<PAGE> 188
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.
-13-
<PAGE> 189
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"
-14-
<PAGE> 190
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
-15-
<PAGE> 191
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
-16-
<PAGE> 192
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-
-17-
<PAGE> 193
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."
-18-
<PAGE> 194
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.
-19-
<PAGE> 195
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
-20-
<PAGE> 196
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 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,
-21-
<PAGE> 197
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 Bank,
any of its banking affiliates or Service Organizations that establish cash
management services, such as a Sweep Account with Mercantile Bank, 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 Bank, any of its
banking affiliates and a Service Organization is open for business, Mercantile
Bank, 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 Bank, 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 Bank, 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
-22-
<PAGE> 198
value per Share next determined after receipt by the Fund. It is the
responsibility of Mercantile Bank, 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 Bank, any of its banking affiliates or a Service
Organization are executed only on Business Days that Mercantile Bank, any of its
banking affiliates or a Service Organization, respectively, is open for
business. Contact Mercantile Bank, any of its banking affiliates or your Service
Organization for additional information about Mercantile Bank's, any of its
banking affiliates', or the Service Organizations' Sweep Account procedures.
REDEMPTION OF SHARES
If, on any Business Day that Mercantile Bank, 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 Bank, 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 Bank, any
of its banking affiliates or the particular Service Organization, as applicable,
is closed as described in the Sweep Materials, Mercantile Bank, 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 Bank, 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 Bank, 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
-23-
<PAGE> 199
time Shares are redeemed, dividends on such Shares will accrue and be payable,
and an investor will be entitled to exercise all 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
-24-
<PAGE> 200
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' 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. 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
-25-
<PAGE> 201
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 -- 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
-26-
<PAGE> 202
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 applicable to corporations. Corporate shareholders also must take
all exempt-interest dividends into account in determining certain adjustments
for federal alternative minimum tax purposes.
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.
-27-
<PAGE> 203
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.
-28-
<PAGE> 204
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 an
indirectly 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
.32%, .33% and .35% of the respective average daily net assets of the Treasury
Money Market, Money Market and Tax-Exempt Money Market Portfolios.
-29-
<PAGE> 205
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 rates of .13%, .12%
and .10% of the average daily net assets of the Treasury Money Market, Money
Market and Tax-Exempt Money Market Portfolios, respectively. 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
-30-
<PAGE> 206
advertising and marketing expenses and expenses incurred in connection with
preparing, printing, mailing and distributing or publishing advertisements and
sales literature, for printing and mailing Prospectuses and Statements of
Additional Information (except those used for regulatory purposes or for
distribution to existing shareholders), and costs associated with implementing
and operating the Distribution and Services Plan. See "Management of the Fund --
Service Organizations" below for a description of the servicing agreements and
the services provided by Service Organizations.
Under the Distribution and Services Plan for 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 Bank 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
-31-
<PAGE> 207
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 and the Sweep
Materials in light of the terms governing their accounts with their Service
Organization.
CUSTODIAN AND TRANSFER AGENT
Mercantile Bank, an affiliate of the Fund and a wholly-owned subsidiary
of Mercantile, 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 Bank, 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.
-32-
<PAGE> 208
If current restrictions preventing a bank from legally sponsoring,
organizing, controlling, or distributing Shares of an investment company were
relaxed, Mercantile Bank, or an affiliate of Mercantile Bank, 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 Bank, 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
-33-
<PAGE> 209
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
-34-
<PAGE> 210
discretionary and non-discretionary accounts for which they do not 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
-35-
<PAGE> 211
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 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
-36-
<PAGE> 212
Shares of such Portfolio are
represented at the meeting in person or by proxy.
As of March 5, 1998, Mercantile Bank 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 Bank 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> 213
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>
<CAPTION>
TABLE OF CONTENTS S SHARES
PAGE
<S> <C> <C>
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 MARCH 31, 1998
Taxes ..........................................................32
Management of the Fund.............................................35
Other Information Concerning
the Fund and Its Shares..........................................40
</TABLE>
Investment Adviser:
Mississippi Valley Advisors Inc.
an indirect wholly-owned subsidiary
of Mercantile Bancorporation Inc.
Distributor: BISYS Fund Services
-38-
<PAGE> 214
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
Form N-1A Part A Item Prospectus Caption
- --------------------- ------------------
1. Cover Page..................................... Cover Page
2. Synopsis....................................... Expense Summary
for Investor A
Shares
3. Condensed Financial
Information.................................. Certain Financial
Information;
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
Being Offered................................ How to Purchase and
Redeem Shares
8. Redemption or Repurchase....................... How to Purchase and
Redeem Shares
9. Pending Legal Proceedings...................... Inapplicable
<PAGE> 215
INVESTOR SHARES
THE ARCH FUND(R), INC.
PROSPECTUS
MARCH 31, 1998
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
Stock 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
<PAGE> 216
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Highlights.................................................. 3
Certain Financial Information............................... 7
Expense Summary for Investor A and Investor B Shares........ 8
Financial Highlights........................................ 14
Investment Objectives, Policies and Risk Considerations..... 37
Pricing of Shares........................................... 64
How to Purchase and Redeem Shares........................... 64
Purchase of Shares........................................ 64
Automatic Investment Program (AIP)........................ 66
Applicable Sales Charges -- Investor A Shares of the
Equity and Bond Portfolios............................. 66
Reduced Sales Charges -- Investor A Shares of the Equity
and Bond Portfolios.................................... 67
Applicable Sales Charges -- Investor B Shares of the CDSC
Portfolios............................................. 68
Characteristics Of Investor A Shares and Investor B
Shares................................................. 69
Exchange Privileges....................................... 71
Redemption of Shares...................................... 72
Redemption by Mail........................................ 72
Redemption by Telephone................................... 72
Automatic Withdrawal Plan................................. 73
Purchase of Investor A Shares at Net Asset Value.......... 73
Other Purchase, Exchange and Redemption Information....... 74
Yields and Total Returns.................................... 74
Dividends and Distributions................................. 76
Taxes....................................................... 77
Management of the Fund...................................... 80
Other Information Concerning the Fund and its Shares........ 84
Description of Shares..................................... 84
</TABLE>
<PAGE> 217
THE ARCH FUND(R), INC.
INVESTOR A SHARES AND INVESTOR B SHARES
The ARCH Fund, Inc. 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 Fund, Inc. consists of the following portfolios:
<TABLE>
<S> <C>
MONEY MARKET PORTFOLIOS TAXABLE BOND PORTFOLIOS
Treasury Money Market Portfolio U.S. Government Securities Portfolio
Money Market Portfolio Intermediate Corporate Bond Portfolio
Tax-Exempt Money Market Portfolio Bond Index Portfolio
Government & Corporate Bond Portfolio
STOCK PORTFOLIOS
Equity Income Portfolio TAX-EXEMPT BOND PORTFOLIOS
Equity Index Portfolio Short-Intermediate Municipal Portfolio
Growth & Income Equity Portfolio Missouri Tax-Exempt Bond Portfolio
Growth Equity Portfolio National Municipal Bond Portfolio
Small Cap Equity Portfolio
Small Cap Equity Index Portfolio
International Equity Portfolio
Balanced Portfolio
</TABLE>
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 March 31, 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.
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.
MARCH 31, 1998
<PAGE> 218
Mississippi Valley Advisors Inc. ("MVA" or the "Adviser"), an indirect
wholly-owned subsidiary of Mercantile Bancorporation Inc. ("Mercantile"), acts
as investment adviser for the Portfolios. Mercantile Bank National Association
("Mercantile Bank"), an affiliate of the Adviser, 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.
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.
2
<PAGE> 219
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 MARKETand
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 Bank 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 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 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 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 Portfolio is 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 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 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 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 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 selected debt securities, as represented by the
Lehman Brothers Aggregate Bond Index.
3
<PAGE> 220
THE ARCH GOVERNMENT & CORPORATE BOND PORTFOLIO'S investment objective is to
seek the highest level of current income consistent with conservation of
capital. The Portfolio is 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 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. The 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 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
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 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 Portfolio is designed for
investors who seek current income that is exempt from regular federal income tax
and relative stability of principal.
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 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 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 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 selected large
capitalization common stocks, 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
Portfolio is designed for investors who seek capital growth, and who are willing
to accept the risks associated with equity securities.
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 Portfolio is designed for investors who seek capital
growth, and who are willing to accept the risks associated with equity
securities.
THE ARCH SMALL CAP EQUITY INDEX PORTFOLIO'Sinvestment 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 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 selected small
capitalization common stocks, 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
4
<PAGE> 221
which will be denominated in foreign currencies. The 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 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. The Portfolio is designed for investors who
seek capital growth, and who are prepared to accept the risks associated with
equity securities.
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 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
5
<PAGE> 222
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. 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 67 and
68, respectively.
6
<PAGE> 223
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. As of the date of this Prospectus, the Fund has not commenced its
offering of S Shares.
The Tax-Exempt Money Market Portfolio and Missouri Tax-Exempt Bond
Portfolio commenced operations on July 10, 1986 and July 15, 1988, respectively,
as separate investment portfolios (the "Predecessor Tax-Exempt Money Market
Portfolio" and "Predecessor Missouri Tax-Exempt Bond Portfolio", respectively)
of The ARCH Tax-Exempt Trust (the "Trust"), which was organized as a
Massachusetts business trust. On October 2, 1995, the Predecessor Tax-Exempt
Money Market Portfolio and the Predecessor Missouri Tax-Exempt Bond Portfolio
were reorganized as new portfolios of the Fund. Prior to the reorganization,
these Predecessor Portfolios offered and sold shares of beneficial interest that
were similar to the Fund's Trust Shares, Investor A Shares and Investor B
Shares.
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 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> 224
EXPENSE SUMMARY FOR INVESTOR A AND INVESTOR B SHARES
<TABLE>
<CAPTION>
TAX-
TREASURY EXEMPT U.S. INTERMEDIATE
MONEY MONEY MONEY GOVERNMENT CORPORATE BOND
MARKET MARKET MARKET SECURITIES BOND INDEX
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------- ----------------------- ---------- ----------------------- ------------ ----------
INVESTOR A INVESTOR A INVESTOR B INVESTOR A INVESTOR A INVESTOR B INVESTOR A INVESTOR A
---------- ---------- ---------- ---------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Front-End Sales Load
Imposed on Purchases
(as a percentage of
offering price)....... NONE NONE NONE NONE 2.5%(1) NONE 4.5%(1) 2.5%(1)
Deferred Sales Charge
(as a percentage of
offering price)....... NONE NONE 5.0%(2) NONE 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)........... .35% .35% .35% .35% .45% .45% .55% .30%
12b-1 Fees, including
distribution and
service fees (net of
waivers)(4)........... .25% .25% 1.00% .25% .30% 1.00% .30% .30%
Other Expenses
(including
administration fees
and other expenses)
(net of fee waivers
and expense
reimbursements)(5,6)... .18% .17% .17% .17% .22% .22% .28% .22%
---- ---- ---- ---- ---- ---- ---- ----
Total Portfolio
Operating Expenses
(net of fee waivers
and expense
reimbursements)(6).... .78% .77% 1.52% .77% .97% 1.67% 1.13% .82%
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
- ------------
(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 waivers, Investment Advisory Fees would be .40%, .40% and .40% for
the Treasury Money Market, Money Market and Tax-Exempt Money Market
Portfolios, 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
.27%, .27%, .17%, .32%, .38% and .32% 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 .27% and .32% for Investor B Shares of the Money Market
and U.S. Government Securities Portfolios, respectively, and Total Portfolio
Operating Expenses would be .93%, .92%, .82%, 1.07%, 1.23% and .92% for
Investor A Shares of the Treasury Money Market, Money Market, Tax-Exempt
Money Market, U.S. Government Securities, Intermediate Corporate Bond and
Bond Index Portfolios, respectively, and 1.67% and 1.77% for Investor B
Shares of the Money Market and U.S. Government Securities Portfolios,
respectively.
8
<PAGE> 225
<TABLE>
<CAPTION>
SHORT MISSOURI
GOVERNMENT & INTERMEDIATE TAX-EXEMPT NATIONAL MUNICIPAL
CORPORATE BOND MUNICIPAL BOND BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------------------- ------------ ----------------------- -----------------------
INVESTOR A INVESTOR B INVESTOR A INVESTOR A INVESTOR B INVESTOR A INVESTOR B
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Load Imposed on
Purchases
(as a percentage of offering
price)............................ 4.5%(1) NONE 2.5%(1) 4.5%(1) NONE 4.5%(1) NONE
Deferred Sales Charge (as a
percentage of offering price)..... NONE 5.0%(2) NONE NONE 5.0%(2) NONE 5.0%(2)
ANNUAL PORTFOLIO OPERATING EXPENSES
(as a percentage of average net
assets)
Investment Advisory Fees........... .45% .45% .55% .45% .45% .55% .55%
12b-1 Fees, including distribution
and service fees (after
waivers)(3)....................... .30% 1.00% .25% .20% 1.00% .20% 1.00%
Other Expenses (including
administration fees and other
expenses) (net of fee waivers and
expense reimbursements)(4,5)...... .21% .21% .38% .21% .21% .21% .21%
Total Portfolio Operating Expenses
(net of fee waivers and expense
reimbursements)(5)................ .96% 1.66% 1.18% .86% 1.66% .96% 1.76%
=== ==== ==== === ==== === ====
<CAPTION>
EQUITY EQUITY
INCOME INDEX
PORTFOLIO PORTFOLIO
----------------------- ----------
INVESTOR A INVESTOR B INVESTOR A
---------- ---------- ----------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Load Imposed on
Purchases
(as a percentage of offering
price)............................ 4.5%(1) NONE 2.5%(1)
Deferred Sales Charge (as a
percentage of offering price)..... NONE 5.0%(2) NONE
ANNUAL PORTFOLIO OPERATING EXPENSES
(as a percentage of average net
assets)
Investment Advisory Fees........... .75% .75% .30%
12b-1 Fees, including distribution
and service fees (after
waivers)(3)....................... .30% 1.00% .30%
Other Expenses (including
administration fees and other
expenses) (net of fee waivers and
expense reimbursements)(4,5)...... .22% .22% .37%
Total Portfolio Operating Expenses
(net of fee waivers and expense
reimbursements)(5)................ 1.27% 1.97% .97%
==== ==== ===
</TABLE>
- ------------
(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 waivers, 12b-1 fees would be .30% for Investor A Shares of each
Portfolio.
(4) Without fee waivers, administration fees for a Portfolio would be .20%.
(5) Without fee waivers and/or expense reimbursements, Other Expenses would
be .31%, .48%, .31%, .31%, .32% and .47% for Investor A Shares of the
Government & Corporate Bond, Short-Intermediate Municipal, Missouri
Tax-Exempt Bond, National Municipal Bond, Equity Income and Equity Index
Portfolios, respectively, and Total Portfolio Operating Expenses would be
1.06%, 1.33%, 1.06%, 1.16%, 1.37% and 1.07% 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 .31%, .31%, .31% and
.32% 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 1.76%,
1.76%, 1.86% and 2.07% for Investor B Shares of the Government &
Corporate Bond, Missouri Tax-Exempt Bond, National Municipal Bond and
Equity Income Portfolios, respectively.
9
<PAGE> 226
<TABLE>
<CAPTION>
SMALL
CAP
GROWTH & INCOME EQUITY
EQUITY GROWTH EQUITY SMALL CAP EQUITY INDEX
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------------------- ----------------------- ----------------------- ----------
INVESTOR A INVESTOR B INVESTOR A INVESTOR B INVESTOR A INVESTOR B INVESTOR A
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Load Imposed on
Purchases (as a percentage of
offering price)................. 4.5%(1) NONE 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 5.0%(2) NONE
ANNUAL PORTFOLIO OPERATING
EXPENSES
(as a percentage of average net
assets)
Investment Advisory Fees (net of
waivers)(3)..................... .55% .55% .75% .75% .75% .75% .00%
12b-1 Fees, including
distribution and service fees
(after waivers)(4).............. .30% 1.00% .30% 1.00 .30% 1.00% .30%
Other Expenses (including
administration fees and other
expenses)(net of fee waivers and
expense reimbursements)(5,6).... .19% .19% .23% .23% .20% .20% .37%
--- --- --- --- --- --- ---
Total Portfolio Operating
Expenses (net of fee waivers and
expense reimbursements)(6)...... 1.04% 1.74% 1.28% 1.98% 1.25% 1.95% .67%
==== ==== ==== ==== ==== ==== ===
<CAPTION>
INTERNATIONAL
EQUITY BALANCED
PORTFOLIO PORTFOLIO
----------------------- -----------------------
INVESTOR A INVESTOR B INVESTOR A INVESTOR B
---------- ---------- ---------- ----------
<S> <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
Deferred Sales Charge (as a
percentage of offering price)... NONE 5.0%(2) NONE 5.0%(2)
ANNUAL PORTFOLIO OPERATING
EXPENSES
(as a percentage of average net
assets)
Investment Advisory Fees (net of
waivers)(3)..................... 1.00% 1.00% .75% .75%
12b-1 Fees, including
distribution and service fees
(after waivers)(4).............. .30% 1.00% .30% 1.00%
Other Expenses (including
administration fees and other
expenses)(net of fee waivers and
expense reimbursements)(5,6).... .28% .28% .22% .22%
--- --- --- ---
Total Portfolio Operating
Expenses (net of fee waivers and
expense reimbursements)(6)...... 1.58% 2.28% 1.27% 1.97%
==== ==== ==== ====
</TABLE>
- ------------
(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 would be .40% for the Small
Cap Equity Index Portfolio.
(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 .29%, .33%, .30%, .50%, .45% and .32% and Total
Portfolio Operating Expenses for Investor A Shares would be 1.14%, 1.38%,
1.35%, 1.20%, 1.75% and 1.37% 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 .29%, .33%, .30%, .45% and
.32%, and Total Portfolio Operating Expenses would be 1.84%, 2.08%, 2.05%,
2.45% and 2.07% for the Growth & Income Equity, Growth Equity, Small Cap
Equity, International Equity and Balanced Portfolios, respectively.
10
<PAGE> 227
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
EXAMPLE ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) a 5% annual return and (2)
redemption at the end of each period:
Treasury Money Market Portfolio
Investor A Shares........................................ $ 8 $ 25 $ 43 $ 97
Money Market Portfolio
Investor A Shares........................................ $ 8 $ 25 $ 43 $ 95
Investor B Shares
Assuming complete redemption at end of period(1)...... $65 $ 78 $103 $161
Assuming no redemption................................ $15 $ 48 $ 83 $161
Tax-Exempt Money Market Portfolio
Investor A Shares........................................ $ 8 $ 25 $ 43 $ 95
U.S. Government Securities Portfolio
Investor A Shares(2)..................................... $35 $ 55 $ 77 $141
Investor B Shares
Assuming complete redemption at end of period(1)...... $67 $ 83 $111 $179
Assuming no redemption................................ $17 $ 53 $ 91 $179
Intermediate Corporate Bond Portfolio
Investor A Shares(2)..................................... $56 $ 79 $104 $176
Bond Index Portfolio
Investor A Shares(2)..................................... $33 $ 51 $ 69 $124
Government & Corporate Bond Portfolio
Investor A Shares(2)..................................... $54 $ 74 $ 96 $158
Investor B Shares
Assuming complete redemption at end of period(1)...... $67 $ 82 $110 $178
Assuming no redemption................................ $17 $ 52 $ 90 $178
Short-Intermediate Municipal Portfolio
Investor A Shares(2)..................................... $37 $ 62 $ 88 $165
Missouri Tax-Exempt Bond Portfolio
Investor A Shares(2)..................................... $53 $ 71 $ 91 $146
Investor B Shares
Assuming complete redemption at end of period(1)...... $67 $ 82 $110 $175
Assuming no redemption................................ $17 $ 52 $ 90 $175
National Municipal Bond Portfolio
Investor A Shares(2)..................................... $54 $ 74 $ 96 $158
Investor B Shares
Assuming complete redemption at end of period(1)...... $68 $ 85 $115 $186
Assuming no redemption................................ $18 $ 55 $ 95 $186
Equity Income Portfolio
Investor A Shares(2)..................................... $57 $ 83 $112 $191
Investor B Shares
Assuming complete redemption at end of period(1)...... $70 $ 92 $126 $211
Assuming no redemption................................ $20 $ 62 $106 $211
Equity Index Portfolio
Investor A Shares(2)..................................... $35 $ 55 $ 77 $141
</TABLE>
11
<PAGE> 228
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
EXAMPLE ------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth & Income Equity Portfolio
Investor A Shares(2)..................................... $55 $ 77 $100 $166
Investor B Shares
Assuming complete redemption at end of period(1)...... $68 $ 85 $114 $187
Assuming no redemption................................ $18 $ 55 $ 94 $187
Growth Equity Portfolio
Investor A Shares(2)..................................... $57 $ 84 $112 $193
Investor B Shares
Assuming complete redemption at end of period(1)...... $70 $ 92 $127 $213
Assuming no redemption................................ $20 $ 62 $107 $213
Small Cap Equity Portfolio
Investor A Shares(2)..................................... $57 $ 83 $111 $189
Investor B Shares
Assuming complete redemption at end of period(1)...... $70 $ 91 $125 $209
Assuming no redemption................................ $20 $ 61 $105 $209
Small Cap Equity Index Portfolio
Investor A Shares(2)..................................... $32 $ 46 N/A N/A
International Equity Portfolio
Investor A Shares(2)..................................... $60 $ 93 $127 $224
Investor B Shares
Assuming complete redemption at end of period(1)...... $73 $101 $142 $244
Assuming no redemption................................ $23 $ 71 $122 $244
Balanced Portfolio
Investor A Shares(2)..................................... $57 $ 83 $112 $191
Investor B Shares
Assuming complete redemption at end of period(1)...... $70 $ 92 $126 $211
Assuming no redemption................................ $20 $ 62 $106 $211
</TABLE>
- ---------------
(1) Assumes deduction of maximum applicable contingent deferred sales charge.
(2) Assumes deduction at time of purchase of maximum applicable front-end sales
charge.
(3) Based on conversion of Investor B Shares into Investor A Shares after eight
years.
12
<PAGE> 229
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 Investor A Shares
or Investor B Shares will bear directly or indirectly. The information contained
in such tables with respect to the Money Market, Tax-Exempt Money Market, U.S.
Government Securities, Missouri Tax-Exempt Bond, Growth & Income Equity (A
Shares), Small Cap Equity and Balanced (A Shares) 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 Treasury Money Market, Intermediate Corporate Bond, Bond Index,
Government & Corporated Bond, Short-Intermediate Municipal, National Municipal
Bond, Equity Income, Equity Index, Growth Equity(A Shares) and International
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
Growth Equity (B Shares) and Small Cap Equity Index Portfolios is based on the
expenses that 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.
13
<PAGE> 230
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 incorporated by reference 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, Small Cap Equity, International Equity and
Balanced Portfolios. The Fund had not commenced its offering of Investor B
Shares of the Growth Equity Portfolio, as of November 30, 1997. The data for the
years or periods ended November 30, 1989 through 1997, and with respect to (a)
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, (b) the Growth Equity Portfolio (and its Predecessor
Portfolio) for the two-month period ended November 30, 1997 and each of the
years or periods end September 30, 1993 through 1997, has been audited by KPMG
Peat Marwick LLP, independent auditors, whose unqualified report insofar as it
relates to each of the years or periods in the five-year period ended November
30, 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) and the two-month
period ended November 30, 1997 and each of the years or periods in the four-year
period ended September 30, 1997 with respect to the Growth Equity Portfolio (and
its Predecessor Portfolio)) on the financial statements containing such
information is incorporated by reference into the Statement of Additional
Information. The data for the 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 1 of this Prospectus.
14
<PAGE> 231
TREASURY MONEY MARKET PORTFOLIO
(For a Share(b) outstanding throughout each period)
<TABLE>
<CAPTION>
DECEMBER 2,
YEAR ENDED NOVEMBER 30, 1991 TO
---------------------------------------------------- NOVEMBER 30,
1997 1996 1995 1994(B) 1993 1992(a)(b)
-------- -------- -------- -------- -------- ------------
INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR
A SHARES A SHARES A SHARES A 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................................... 0.044 0.044 0.048 0.031 0.024 0.017
------- ------- ------- ------- ------- -------
Total from investment activities........................ 0.044 0.044 0.048 0.031 0.024 0.017
------- ------- ------- ------- ------- -------
Distributions
Net investment income................................... (0.044) (0.044) (0.048) (0.031) (0.024) (0.017)
------- ------- ------- ------- ------- -------
Total distributions..................................... (0.044) (0.044) (0.048) (0.031) (0.024) (0.017)
------- ------- ------- ------- ------- -------
Net asset value, end of period............................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= =======
Total return............................................ 4.53% 4.46% 4.93% 3.16% 2.43% 1.79%(c)
Ratios/Supplemental Data:
Net assets at end of period (000)....................... $ 8,409 $ 7,667 $ 2,776 $ 1,713 $ 1,411 $ 3,257
Ratio of expenses to average net assets (including
waivers).............................................. 0.77% 0.81% 0.78% 0.71% 0.64% 0.58%(d)
Ratio of net investment income to average net assets
(including waivers)................................... 4.43% 4.35% 4.84% 3.14% 2.41% 2.88%(d)
Ratio of expenses to average net assets (before
waivers)*............................................. 0.92% 0.96% 0.93% 0.94% 0.97% 1.02%(d)
Ratio of net investment income to average net assets
(before waivers)*..................................... 4.28% 4.20% 4.69% 2.90% 2.08% 2.44%(d)
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) On December 2, 1991, the Portfolio issued a series of Shares which were
designated as "Trust" Shares. In addition, on April 20, 1992, the Portfolio
issued a second series of Shares which were designated as "Investor" Shares.
The financial highlights presented for the period prior to April 20, 1992
represent the financial highlights applicable to Trust Shares. On September
27, 1994, the Portfolio redesignated Investor Shares as "Investor A" Shares.
(c) Not Annualized.
(d) Annualized.
15
<PAGE> 232
MONEY MARKET PORTFOLIO
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------------------------------------------------------------------
1997 1996 1995 1994(A) 1993 1992 1991(A) 1990
-------- -------- -------- -------- -------- -------- -------- --------
INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR
A SHARES A SHARES A SHARES SHARES SHARES SHARES
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------- ------- ------- ------- ------- ------- --------
Investment activities
Net investment income............. 0.048 0.047 0.052 0.033 0.025 0.032 0.056 0.078
-------- ------- ------- ------- ------- ------- ------- --------
Total from investment
activities...................... 0.048 0.047 0.052 0.033 0.025 0.032 0.056 0.078
-------- ------- ------- ------- ------- ------- ------- --------
Distributions
Net investment income............. (0.048) (0.047) (0.052) (0.033) (0.025) (0.032) (0.056) (0.078)
-------- ------- ------- ------- ------- ------- ------- --------
Total distributions............... (0.048) (0.047) (0.052) (0.033) (0.025) (0.032) (0.056) (0.078)
-------- ------- ------- ------- ------- ------- ------- --------
Net asset value, end of period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======= ======= ======= ======= ======= ======= ========
Total return....................... 4.93% 4.81% 5.33% 3.37% 2.52% 3.21% 5.75% 8.08%
Ratios/Supplemental Data:
Net assets at end of period
(000)............................. $164,777 $91,166 $64,865 $48,384 $46,920 $52,224 $60,436 $896,903
Ratio of expenses to average net
assets (including waivers)........ 0.77% 0.78% 0.77% 0.78% 0.79% 0.80% 0.72% 0.55%
Ratio of net investment income to
average net assets (including
waivers).......................... 4.84% 4.70% 5.20% 3.35% 2.50% 3.21% 5.69% 7.77%
Ratio of expenses to average net
assets (before waivers)*.......... 0.92% 0.93% 0.92% 0.93% 0.93% 0.94% 0.80% 0.60%
Ratio of net investment income to
average net assets (before
waivers)*......................... 4.69% 4.55% 5.05% 3.20% 2.36% 3.07% 5.61% 7.72%
<CAPTION>
JAN. 26,
YEAR ENDED NOVEMBER 30, 1996 TO
------------------------------ NOV. 30,
1989 1988 1997 1996(c)
-------- -------- -------- --------
INVESTOR INVESTOR
B SHARES B 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......... 0.088 0.071 0.041 0.033
-------- -------- ------- -------
Total from investment
activities.................. 0.088 0.071 0.041 0.033
-------- -------- ------- -------
Distributions
Net investment income......... (0.088) (0.071) (0.041) (0.033)
-------- -------- ------- -------
Total distributions........... (0.088) (0.071) (0.041) (0.033)
-------- -------- ------- -------
Net asset value, end of period. $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======= =======
Total return................... 9.21% 7.33%(b) 4.15% 3.35%(b)
Ratios/Supplemental Data:
Net assets at end of period
(000)......................... $661,145 $289,764 $ 73 $ 41
Ratio of expenses to average
net assets including waivers). 0.45% 0.45% 1.52% 1.47%(d)
Ratio of net investment income
to average net assets
(including waivers)........... 8.82% 7.12% 4.10% 3.73%(d)
Ratio of expenses to average
net assets (before waivers)*.. 0.60% 0.58% 1.67% 1.68%(d)
Ratio of net investment income
to average net assets (before
waivers)*..................... 8.67% 6.99% 3.95% 3.52%(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) 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) Not Annualized.
(c) Period from date of initial public offering.
(d) Annualized.
16
<PAGE> 233
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,
NOV. 30 NOV. 30 NOV. 30 ----------------------------------------------------
1997 1996 1995(E) 1995(B) 1994 1993 1992 1991
-------- -------- ---------- -------- -------- -------- -------- --------
INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR
A SHARES A SHARES A SHARES A SHARES SHARES SHARES SHARES SHARES
-------- -------- ---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period........................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------ ------- ------ ------ ------- ------
Investment activities
Net investment income............ 0.028 0.028 0.014 0.027 0.017 0.019 0.031 0.047
------- ------- ------ ------- ------ ------ ------- ------
Total from investment
activities..................... 0.028 0.028 0.014 0.027 0.017 0.019 0.031 0.047
------- ------- ------ ------- ------ ------ ------- ------
Distributions
Net investment income............ (0.028) (0.028) (0.014) (0.027) (0.017) (0.019) (0.031) (0.047)
------- ------- ------ ------- ------ ------ ------- ------
Total distributions.............. (0.028) (0.028) (0.014) (0.027) (0.017) (0.019) (0.031) (0.047)
------- ------- ------ ------- ------ ------ ------- ------
Net asset value, end of period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ====== ======= ====== ====== ======= ======
Total return....................... 2.88% 2.83% 1.45%(c) 2.70% 1.73% 1.90% 3.16% 4.82%
Ratios/Supplemental Data:
Net assets at end of period
(000).......................... $15,789 $17,984 $5,403 $ 5,138 $8,631 $6,837 $10,956 $8,286
Ratio of expenses to average net
assets
(including waivers)............ 0.77% 0.75% 0.94%(d) 0.84% 0.76% 0.80% 0.87% 0.58%
Ratio of net investment income to
average net assets (including
waivers)....................... 2.82% 2.78% 2.87%(d) 2.63% 1.72% 1.88% 3.10% 5.09%
Ratio of expenses to average net
assets (before waivers)*....... 0.82% 0.80% 0.99%(d) 0.93% 0.86% 0.90% 0.97% 0.68%
Ratio of net investment income to
average net assets (before
waivers)*...................... 2.77% 2.73% 2.82%(d) 2.54% 1.62% 1.78% 3.00% 4.99%
<CAPTION>
YEAR ENDED MAY 31,
---------------------------
1990(B) 1989(B) 1988(b)
------- ------- -------
DOLLAR DOLLAR DOLLAR
SHARES SHARES SHARES
------- ------- -------
<S> <C> <C> <C>
Net asset value, beginning of
period....................... $ 1.00 $ 1.00 $ 1.00
------ ------ ------
Investment activities
Net investment income........ 0.041 0.042 0.025
------ ------ ------
Total from investment
activities................. 0.041 0.042 0.025
------ ------ ------
Distributions
Net investment income........ (0.041) (0.042) (0.025)
------ ------ ------
Total distributions.......... (0.041) (0.042) (0.025)
------ ------ ------
Net asset value, end of period. $ 1.00 $ 1.00 $ 1.00
====== ====== ======
Total return................... 5.73% 5.72% 1.81%
Ratios/Supplemental Data:
Net assets at end of period
(000)...................... 0 $3,083 0
Ratio of expenses to average
assets
(including waivers)........ 0.78% 0.65% 0.65%
Ratio of net investment incom
average net assets (includi
waivers)................... 5.30% 5.38% 4.05%
Ratio of expenses to average
assets (before waivers)*... 0.87% 0.83% 0.80%
Ratio of net investment incom
average net assets (before
waivers)*.................. 5.21% 5.20% 3.90%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) The Portfolio commenced operations on July 10, 1986 as an investment
portfolio of The ARCH Tax-Exempt Trust. On October 27, 1995, it was
reorganized as a new portfolio of the Fund.
(b) "Investor A" Shares were originally issued as "Dollar" Shares in June of
1987. As of September 28, 1990, the Portfolio redesignated its existing
Shares as "Investor" Shares. On September 27, 1994, the Portfolio
redesignated Investor Shares as "Investor A" Shares.
(c) 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> 234
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 1992
-------- -------- -------- -------- -------- --------
INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR
A SHARES A SHARES A SHARES A SHARES SHARES SHARES
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.............. $ 10.67 $ 10.85 $ 10.05 $ 11.20 $ 10.80 $ 10.68
------- ------- ------- ------- ------- -------
Investment activities
Net investment income............ 0.60 0.62 0.64 0.61 0.59 0.62
Net realized and unrealized gains
(losses) from investments...... (0.07) (0.15) 0.80 (1.00) 0.47 0.13
------- ------- ------- ------- ------- -------
Total from investment
activities..................... 0.53 0.47 1.44 (0.39) 1.06 0.75
------- ------- ------- ------- ------- -------
Distributions
Net investment income............ (0.58) (0.62) (0.64) (0.61) (0.59) (0.62)
In excess of net investment
income......................... -- (0.03) -- -- -- --
Net realized gains............... -- -- -- -- (0.07) (0.01)
In excess of net realized
gains.......................... -- -- -- (0.18) -- --
------- ------- ------- ------- ------- -------
Total distributions.............. (0.58) (0.65) (0.64) (0.79) (0.66) (0.63)
------- ------- ------- ------- ------- -------
Net asset value, end of period..... $ 10.62 $ 10.67 $ 10.85 $ 10.05 $ 11.20 $ 10.80
======= ======= ======= ======= ======= =======
Total return (excludes sales
charges)......................... 5.20% 4.57% 14.66% (3.14)% 10.03% 7.20%
Ratios/Supplemental Data:
Net Assets at end of period
(000)............................ $ 5,181 $ 7,153 $ 8,179 $ 9,631 $ 9,567 $ 7,499
Ratio of expenses to average net
assets (including waivers)....... 0.97% 0.97% 0.97% 0.96% 0.97% 0.95%
Ratio of net investment income to
average net assets (including
waivers)......................... 5.56% 5.82% 6.05% 5.98% 5.25% 5.72%
Ratio of expenses to average net
assets (before waivers)*......... 1.07% 1.07% 1.07% 1.06% 1.08% 1.09%
Ratio of net investment income to
average net assets
(before waivers)*................ 5.46% 5.72% 5.95% 5.88% 5.14% 5.58%
Portfolio turnover**............... 100.33% 53.76% 93.76% 50% 24% 74%
<CAPTION>
JUNE 2,
YEAR ENDED NOVEMBER 30, 1988 TO
---------------------------- NOV. 30,
1991(A) 1990 1989 1988(b)
-------- ------- ------- --------
INVESTOR
SHARES
-------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period.......... $ 10.21 $ 10.06 $ 9.94 $ 10.00
------- ------- ------- -------
Investment activities
Net investment income........ 0.75 0.76 0.85 0.36
Net realized and unrealized
gains (losses) from
investments................ 0.47 0.16 0.11 (0.06)
------- ------- ------- -------
Total from investment
activities................. 1.22 0.92 0.96 0.30
------- ------- ------- -------
Distributions
Net investment income........ (0.75) (0.77) (0.84) (0.36)
In excess of net investment
income..................... -- -- -- --
Net realized gains........... -- -- -- --
In excess of net realized
gains...................... -- -- -- --
------- ------- ------- -------
Total distributions.......... (0.75) (0.77) (0.84) (0.36)
------- ------- ------- -------
Net asset value, end of period. $ 10.68 $ 10.21 $ 10.06 $ 9.94
======= ======= ======= =======
Total return (excludes sales
charges)..................... 12.36% 9.66% 10.40% 3.05%(c)(d)
Ratios/Supplemental Data:
Net Assets at end of period
(000)........................ $ 5,791 $ 6,856 $ 5,954 $ 4,335
Ratio of expenses to average
net assets (including
waivers)..................... 0.82% 0.73% 0.74% 0.79%(e)
Ratio of net investment income
to average net assets
(including waivers).......... 7.12% 7.80% 8.50% 7.26%(e)
Ratio of expenses to average
net assets (before waivers)*. 1.36% 1.28% 1.29% 1.40%(e)
Ratio of net investment income
to average net assets
(before waivers)*............ 6.58% 7.25% 7.95% 6.65%(e)
Portfolio turnover**........... 36% 53% 84% 215%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. 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) Unaudited
(d) Not Annualized.
(e) Annualized.
18
<PAGE> 235
U.S. GOVERNMENT SECURITIES PORTFOLIO
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
INVESTOR B SHARES
--------------------------------
YEAR YEAR MARCH 1,
ENDED ENDED 1995 TO
NOV. 30, NOV. 30, NOV. 30,
1997 1996 1995(B)
-------- -------- --------
<S> <C> <C> <C>
Net asset value,
beginning of period.................................... $ 10.66 $10.84 $10.34
------- ------ ------
Investment activities
Net investment income.................................. 0.51 0.55 0.31
Net realized and unrealized gains (losses) from
investments......................................... (0.05) (0.15) 0.50
------- ------ ------
Total from investment activities....................... 0.46 0.40 0.81
------- ------ ------
Distributions
Net investment income.................................. (0.51) (0.55) (0.31)
Net realized gains..................................... -- -- --
In excess of realized gains............................ -- (0.03) --
------- ------ ------
Total distributions.................................... (0.51) (0.58) (0.31)
------- ------ ------
Net asset value, end of period........................... $ 10.61 $10.66 $10.84
======= ====== ======
Total return (excludes sales charges).................... 4.47% 3.85% 12.85%(c)
Ratios/Supplemental Data:
Net assets at end of period (000)...................... $ 466 $ 359 $ 41
Ratio of expenses to average net assets (including
waivers)............................................ 1.67% 1.66% 1.68%(d)
Ratio of net investment income to average net assets
(including waivers)................................. 4.84% 5.06% 5.37%(d)
Ratio of expenses to average net assets (before
waivers)*........................................... 1.77% 1.76% 1.78%(d)
Ratio of net investment income to average net assets
(before waivers)*................................... 4.74% 4.96% 5.27%(d)
Portfolio turnover**................................... 100.33% 53.76% 93.76%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. On September 27, 1994, the Portfolio
redesignated Investor Shares as "Investor A" Shares and authorized the
issuance of a series of Shares designated as "Investor B" Shares.
(b) Period from date of initial public offering.
(c) 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.
(d) Annualized.
19
<PAGE> 236
INTERMEDIATE CORPORATE BOND PORTFOLIO
(For a Share outstanding throughout the period)
<TABLE>
<CAPTION>
FEBRUARY 10, 1997
TO
NOVEMBER 30, 1997(A)
--------------------
INVESTOR A
SHARES
--------------------
<S> <C>
Net asset value, beginning of period........................ $ 10.00
-------
Investment activities
Net investment income..................................... 0.52
Net realized and unrealized gains (losses) from
investments............................................ 0.11
-------
Total from investment activities.......................... 0.63
-------
Distributions
Net investment income..................................... (0.52)
-------
Total distributions....................................... (0.52)
-------
Net asset value, end of period.............................. $ 10.11
=======
Total return (excludes sales charges)....................... 6.48%(b)
Ratios/Supplementary Data:
Net assets at the end of period (000)..................... $ 277
Ratio of expenses to average net assets................... 0.58%(c)
Ratio of net investment income to average net assets...... 6.52%(c)
Ratio of expenses to average net assets*.................. 1.31%(c)
Ratio of net investment income to average net assets*..... 5.79%(c)
Portfolio turnover**...................................... 61.98%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) Period from commencement of operations.
(b) Not Annualized.
(c) Annualized.
20
<PAGE> 237
BOND INDEX PORTFOLIO
(For a Share outstanding throughout the period)
<TABLE>
<CAPTION>
FEBRUARY 10, 1997
TO
NOVEMBER 30, 1997(A)
--------------------
INVESTOR A
SHARES
--------------------
<S> <C>
Net asset value, beginning of period........................ $ 10.00
-------
Investment activities
Net investment income..................................... 0.50
Net realized and unrealized gains (losses) from
investments............................................ 0.17
-------
Total from investment activities.......................... 0.67
-------
Distributions
Net investment income..................................... (0.50)
-------
Total distributions....................................... (0.50)
-------
Net asset value, end of period.............................. $ 10.17
=======
Total return (excludes sales charges)....................... 6.93%(b)
Ratios/Supplementary Data:
Net assets at the end of period (000)..................... $ 55
Ratio of expenses to average net assets................... 0.54%(c)
Ratio of net investment income to average net assets...... 6.71%(c)
Ratio of expenses to average net assets*.................. 0.95%(c)
Ratio of net investment income to average net assets*..... 6.30%(c)
Portfolio turnover**...................................... 46.16%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) Period from commencement of operations.
(b) Not Annualized.
(c) Annualized.
21
<PAGE> 238
GOVERNMENT & CORPORATE BOND PORTFOLIO
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
---------------------------------------------------------------
1997 1996 1995 1994(A) 1993 1992
-------- -------- -------- -------- -------- --------
INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR
A SHARES A SHARES A SHARES A SHARES SHARES SHARES
------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period............... $ 10.34 $ 10.53 $ 9.64 $10.65 $10.26 $10.15
------- ------- ------ ------ ------ ------
Investment activities
Net investment income............................ 0.56 0.64 0.61 0.60 0.64 0.66
Net realized and unrealized gains (losses) from
investments.................................... 0.01 (0.19) 0.89 (0.94) 0.39 0.11
------- ------- ------ ------ ------ ------
Total from investment activities................. 0.57 0.45 1.50 (0.34) 1.03 0.77
------- ------- ------ ------ ------ ------
Distributions
Net investment income............................ (0.56) (0.64) (0.61) (0.60) (0.64) (0.66)
In excess of net realized gains.................. -- -- -- (0.07) -- --
------- ------- ------ ------ ------ ------
Total distributions.............................. (0.56) (0.64) (0.61) (0.67) (0.64) (0.66)
------- ------- ------ ------ ------ ------
Net asset value, end of period..................... $ 10.35 $ 10.34 $10.53 $ 9.64 $10.65 $10.26
======= ======= ====== ====== ====== ======
Total return (excludes sales charges).............. 5.78% 4.51% 15.98%(d) (3.32)% 10.23% 7.81%
Ratios/Supplemental Data:
Net assets at end of period (000)................ $ 4,774 $ 4,915 $5,496 $5,167 $3,737 $2,490
Ratio of expenses to average net assets
(including waivers)............................ 0.95% 0.95% 0.95% 0.95%(f) 0.95% 0.93%
Ratio of net investment income to average net
assets (including waivers)..................... 5.46% 6.06% 6.03% 6.00% 6.00% 6.45%(f)
Ratio of expenses to average net assets
(before waivers)*.............................. 1.05% 1.05% 1.05% 1.05% 1.05% 1.06%
Ratio of net investment income to average net
assets (before waivers)*....................... 5.36% 5.96% 5.93% 5.90% 5.90% 6.32%
Portfolio turnover**............................. 140.72% 149.20% 59.32% 50% 31% 52%
<CAPTION>
JUNE 2,
YEAR ENDED NOVEMBER 30, 1988 TO
---------------------------- NOV. 30,
1991(A) 1990 1989 1988(b)
-------- ------- ------- --------
INVESTOR
SHARES
------
<S> <C> <C> <C> <C>
Net asset value, beginning of period............... $ 9.71 $ 10.12 $ 9.91 $10.00
------ ------- ------- ------
Investment activities
Net investment income............................ 0.75 0.84 0.89 0.39
Net realized and unrealized gains (losses) from
investments.................................... 0.48 (0.41) 0.22 (0.13)
------ ------- ------- ------
Total from investment activities................. 1.23 0.43 1.11 0.26
------ ------- ------- ------
Distributions
Net investment income............................ (0.79) (0.84) (0.90) (0.35)
In excess of net realized gains.................. -- -- -- --
------ ------- ------- ------
Total distributions.............................. (0.79) (0.84) (0.90) (0.35)
------ ------- ------- ------
Net asset value, end of period..................... $10.15 $ 9.71 $ 10.12 $ 9.91
====== ======= ======= ======
Total return (excludes sales charges).............. 12.79% (4.96)% 11.79% 2.66%(c)(e)
Ratios/Supplemental Data:
Net assets at end of period (000)................ $2,010 $11,005 $10,327 $7,483
Ratio of expenses to average net assets
(including waivers)............................ 0.59% 0.53% 0.44% 0.56%(f)
Ratio of net investment income to average net
assets (including waivers)..................... 7.77% 8.69% 8.97% 8.47%(f)
Ratio of expenses to average net assets
(before waivers)*.............................. 1.14% 1.08% 0.99% 1.17%(f)
Ratio of net investment income to average net
assets (before waivers)*....................... 7.22% 8.14% 8.42% 7.86%(f)
Portfolio turnover**............................. 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.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. On September 27, 1994 the Portfolio
redesignated Investor Shares as "Investor A" Shares and authorized the
issuance of a series of Shares designated as "Investor B" Shares.
(b) Period from commencement of operations.
(c) Unaudited.
(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 to November 30, 1995.
(e) Not Annualized.
(f) Annualized.
22
<PAGE> 239
GOVERNMENT & CORPORATE BOND PORTFOLIO
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
INVESTOR B SHARES
---------------------------------
YEAR YEAR MARCH 1,
ENDED ENDED 1995 TO
NOV. 30, NOV. 30, NOV. 30,
1997 1996 1995(b)
-------- -------- ---------
<S> <C> <C> <C>
Net asset value, beginning of period..................... $ 10.34 $10.53 $ 9.92
------- ------ ------
Investment activities
Net investment income.................................. 0.49 0.57 0.38
Net realized and unrealized gains (losses) from
investments......................................... 0.03 0.19 0.61
------- ------ ------
Total from investment activities....................... 0.52 0.38 0.99
------- ------ ------
Distributions
Net investment income.................................. (0.49) (0.57) (0.38)
------- ------ ------
Total distributions.................................... (0.49) (0.57) (0.38)
------- ------ ------
Net asset value, end of period........................... $ 10.37 $10.34 $10.53
======= ====== ======
Total return (excludes sales charges).................... 5.26% 3.79% 15.27%(c)
Ratios/Supplemental Data:
Net assets at end of period (000)...................... $ 545 $ 511 $ 106
Ratio of expenses to average net assets (including
waivers)............................................ 1.65% 1.65% 1.65%(d)
Ratio of net investment income to average net assets
(including waivers)................................. 4.84% 5.37% 5.19%(d)
Ratio of expenses to average net assets (before
waivers)*........................................... 1.75% 1.75% 1.75%(d)
Ratio of net investment income to average net assets
(before waivers)*................................... 4.74% 5.27% 5.09%(d)
Portfolio turnover**................................... 140.72% 149.20% 59.32%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. On September 27, 1994, the Portfolio
redesignated Investor Shares as "Investor A" Shares and authorized the
issuance of a series of Shares designated as "Investor B" Shares.
(b) Period from date of initial public offering.
(c) 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.
(d) Annualized.
23
<PAGE> 240
SHORT-INTERMEDIATE MUNICIPAL PORTFOLIO
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
JULY 10,
YEAR ENDED YEAR ENDED 1995 TO
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1997 1996 1995(A)
------------ ------------ ------------
INVESTOR A INVESTOR A INVESTOR A
SHARES SHARES SHARES
------ ------ ------
<S> <C> <C> <C>
Net asset value, beginning of period............... $10.08 $10.08 $10.00
------ ------ ------
Investment activities
Net investment income............................ 0.37 0.40 --
Net realized and unrealized gains (losses) from
investments................................... 0.03 -- 0.08
------ ------ ------
Total from investment activities.............. 0.40 0.40 0.08
------ ------ ------
Distributions
Net investment income............................ (0.37) (0.40) --
------ ------ ------
Total distributions........................... (0.37) (0.40) --
------ ------ ------
Net asset value, end of period..................... $10.11 $10.08 $10.08
====== ====== ======
Total return (excludes sales charges).............. 4.12% 4.02% 0.80%(b)
Ratios/Supplemental Data:
Net assets at end of period (000).................. $ 16 $ 51 --(c)
Ratio of expenses to average net assets (including
waivers)......................................... 0.62% 0.56% 0.00%(d)
Ratio of net investment income to average net
assets (including waivers)....................... 3.78% 3.83% 0.00%(d)
Ratio of expenses to average net assets (before
waivers)*........................................ 1.32% 1.26% 0.00%(d)
Ratio of net investment income to average net
assets (before waivers)*......................... 3.08% 3.13% 0.00%(d)
Portfolio turnover**............................... 0.00% 0.00% 0.00%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) Period from commencement of operations.
(b) Not Annualized.
(c) Only one share, worth $10.08, was outstanding as of November 30, 1995.
(d) Annualized.
24
<PAGE> 241
MISSOURI TAX-EXEMPT BOND PORTFOLIO(A)
(For a Share(b) outstanding throughout each period)
<TABLE>
<CAPTION>
SIX
YEAR YEAR MONTHS YEAR
ENDED ENDED ENDED ENDED
NOV. 30, NOV. 30, NOV. 30 MAY 31,
1997 1996 1995(C) 1995(B) 1994 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> <C>
Net asset value, beginning of
period........................... $ 11.69 $ 11.74 $ 11.52 $ 11.13 $ 11.54 $ 10.97 $ 10.62
------- ------- ------- ------- ------- ------- -------
Investment activities
Net investment income............ 0.53 0.55 0.27 0.55 0.55 0.58 0.63
Net realized and unrealized gains
(losses) on investments........ 0.18 (0.05) 0.22 0.40 (0.37) 0.64 0.43
------- ------- ------- ------- ------- ------- -------
Total from investment
activities................... 0.71 0.50 0.49 0.95 0.18 1.22 1.06
------- ------- ------- ------- ------- ------- -------
Distributions
Net investment income............ (0.53) (0.55) (0.27) (0.55) (0.55) (0.58) (0.63)
Net realized gains............... -- -- -- (0.01) (0.04) (0.07) (0.08)
------- ------- ------- ------- ------- ------- -------
Total distributions............ (0.53) (0.55) (0.27) (0.56) (0.59) (0.65) (0.71)
------- ------- ------- ------- ------- ------- -------
Net asset value, end of period..... $ 11.87 $ 11.69 $ 11.74 $ 11.52 $ 11.13 $ 11.54 $ 10.97
======= ======= ======= ======= ======= ======= =======
Total return (excludes sales
charges)....................... 6.27% 4.41% 4.32%(d) 8.91% 1.53% 11.47% 10.24%
Ratios/Supplemental Data:
Net assets at end of period
(000)............................ $23,722 $25,144 $24,726 $24,318 $27,919 $23,223 $12,635
Ratio of expenses to average net
assets (including waivers)....... 0.86% 0.85% 0.95%(e) 0.84% 0.65% 0.63% 0.85%
Ratio of net investment income to
average net assets (including
waivers)......................... 4.57% 4.75% 4.64%(e) 5.02% 4.75% 5.11% 5.75%
Ratio of expenses to average net
assets (before waivers)*......... 1.06% 1.05% 1.18%(e) 1.18% 1.12% 1.18% 1.49%
Ratio of net investment income to
average net assets (before
waivers)*........................ 4.37% 4.55% 4.44%(e) 4.68% 4.28% 4.56% 5.11%
Portfolio turnover rate**.......... 3.50% 3.66% 1.55% -- 20% 15% 21%
<CAPTION>
PERIOD
ENDED
MAY 31,
1991(B) 1990 1989(A),(B)
-------- --------- -----------
INVESTOR PORTFOLIO PORTFOLIO
SHARES SHARES SHARES
------ ------ ------
<S> <C> <C> <C>
Net asset value, beginning of
period....................... $10.35 $10.56 $10.00
------ ------ ------
Investment activities
Net investment income........ 0.44 0.68 0.58
Net realized and unrealized g
(losses) on investments.... 0.36 (0.09) 0.58
------ ------ ------
Total from investment
activities............... 0.80 0.59 1.16
------ ------ ------
Distributions
Net investment income........ (0.44) (0.65) (0.60)
Net realized gains........... (0.09)
------ ------ ------
Total distributions........ (0.53) (0.65) (0.60)
------ ------ ------
Net asset value, end of period. $10.62 $10.50 $10.56
====== ====== ======
Total return (excludes sales
charges)................... 8.72% 5.50% 12.08%(d)
Ratios/Supplemental Data:
Net assets at end of period
(000)........................ $6,211 $4,572 $4,053
Ratio of expenses to average ne
assets (including waivers)... 0.85% 0.70% 0.81%(e)
Ratio of net investment income
average net assets (including
waivers)..................... 6.12% 6.38% 6.36%(e)
Ratio of expenses to average ne
assets (before waivers)*..... 1.63% 1.70% 1.38%(e)
Ratio of net investment income
average net assets (before
waivers)*.................... 5.34% 5.38% 5.79%(e)
Portfolio turnover rate**...... 71% 41% 73%
</TABLE>
- ------------
* During the period, certain fees were voluntary reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) The Portfolio (formerly, the Long-Term Tax-Exempt Portfolio) commenced
operations on July 15, 1988 as an investment portfolio of The ARCH
Tax-Exempt Trust. On October 2, 1995, it was reorganized as a new
portfolio of the Fund.
(b) The Portfolio had one series of Shares outstanding ("Portfolio Shares")
through September 27, 1990. On September 28, 1990, the Portfolio issued
a second series of Shares that were designated as "Investor" Shares. On
September 27, 1994, the Portfolio redesignated Investor Shares as
"Investor A" Shares and authorized the issuance of a series of Shares
designated as "Investor B" Shares.
(c) Upon its reorganization as a portfolio of the Fund, the Portfolio
changed its fiscal year-end from May 31 to November 30.
(d) Not Annualized.
(e) Annualized.
25
<PAGE> 242
MISSOURI TAX-EXEMPT BOND PORTFOLIO(a)
(For a Share(b) outstanding throughout each period)
<TABLE>
<CAPTION>
INVESTOR B SHARES
-------------------------------------------------------------
SIX MONTHS MARCH 1,
YEAR ENDED YEAR ENDED ENDED 1995 TO
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, MAY 31,
1997 1996 1995(C) 1995(d)
------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period........................... $11.68 $11.74 $11.52 $11.19
------ ------ ------ ------
Investment activities
Net investment income............ 0.44 0.45 0.22 0.11
Net realized and unrealized gains
(losses) on investments....... 0.18 (0.06) 0.22 0.33
------ ------ ------ ------
Total from investment
activities.................. 0.62 0.39 0.44 0.44
------ ------ ------ ------
Distributions
Net investment income............ (0.44) (0.45) (0.22) (0.11)
Net realized gains............... -- -- -- --
------ ------ ------ ------
Total distributions........... (0.44) (0.45) (0.22) (0.11)
------ ------ ------ ------
Net asset value, end of period..... $11.86 $11.68 $11.74 $11.52
====== ====== ====== ======
Total return (excludes sales
charges)......................... 5.43% 3.48% 3.88%(f) 8.61%(e)
Ratios/Supplemental Data:
Net assets at end of period
(000)............................ $1,398 $ 675 $ 433 $ 94
Ratio of expenses to average net
assets (including waivers)....... 1.66% 1.65% 1.77%(g) 1.76%(g)
Ratio of net investment income to
average net assets (including
waivers)......................... 3.76% 3.96% 3.82%(g) 4.00%(g)
Ratio of expenses to average net
assets (before waivers)*......... 1.76% 1.75% 1.87%(g) 1.88%(g)
Ratio of net investment income to
average net assets (before
waivers)*........................ 3.66% 3.86% 3.72%(g) 3.89%(g)
Portfolio turnover rate**.......... 3.50% 3.66% 1.55% --
</TABLE>
- ------------
* During the period, certain fees were voluntary reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) The Portfolio (formerly, the Long-Term Tax-Exempt Portfolio) commenced
operations on July 15, 1988 as an investment portfolio of The ARCH
Tax-Exempt Trust. On October 2, 1995, it was reorganized as a new portfolio
of the Fund.
(b) The Portfolio had one series of Shares outstanding ("Portfolio Shares")
through September 27, 1990. On September 28, 1990, the Portfolio issued a
second series of Shares that were designated as "Investor" Shares. On
September 27, 1994, the Portfolio redesignated Investor Shares as "Investor
A" Shares and authorized the issuance of a series of Shares designated as
"Investor B" Shares.
(c) Upon its reorganization as a portfolio of the Fund, the Portfolio changed
its fiscal year-end from May 31 to November 30.
(d) For period from date of initial public offering.
(e) Represents total return for Investor A Shares from June 1, 1994 to February
28, 1995 plus total return for Investor B Shares from March 1, 1995 to May
31, 1995.
(f) Not Annualized.
(g) Annualized.
26
<PAGE> 243
NATIONAL MUNICIPAL BOND PORTFOLIO
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
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 INVESTOR INVESTOR INVESTOR
SHARES A SHARES A SHARES B SHARES B
---------- ------------- ---------- --------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period............................. $10.05 $ 10.00 $ 10.05 $10.00
------ ------- ------- ------
Investment activities
Net investment income.............. 0.52 0.02 0.44 0.02
Net realized and unrealized gains
(losses) from investments....... 0.22 0.05 0.24 0.05
------ ------- ------- ------
Total from investment
activities.................... 0.74 0.07 0.68 0.07
------ ------- ------- ------
Distributions
Net investment income........... (0.52) (0.02) (0.44) (0.02)
------ ------- ------- ------
Total distributions............. (0.52) (0.02) (0.44) (0.02)
------ ------- ------- ------
Net asset value, end of period....... $10.27 $ 10.05 $ 10.29 $10.05
====== ======= ======= ======
Total return (excludes sales
charge)............................ 7.61% 0.73%(b) 7.01% 0.70%(b)
Ratios/Supplemental Data:
Net assets at end of period (000).... $ 717 $ 1 $ 408 $ 1
Ratio of expenses to average net
assets (including waivers)......... 0.35% 0.37%(c) 1.17% 1.10%(c)
Ratio of net investment income to
average net assets (including
waivers)........................... 4.71% 9.08%(c) 4.08% 8.35%(c)
Ratio of expenses to average net
assets (before waivers)*........... 1.17% 1.07%(c) 1.89% 1.80%(c)
Ratio of net investment income to
average net assets (before
waivers)*.......................... 3.89% 8.38%(c) 3.36% 7.65%(c)
Portfolio turnover**................. 83.94% 0.00% 83.94% 0.00%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
27
<PAGE> 244
EQUITY INCOME PORTFOLIO
(For a Share outstanding throughout the period)
<TABLE>
<CAPTION>
FEBRUARY 27, 1997 FEBRUARY 27, 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................ $ 10.00 $ 10.00
------- -------
Investment activities
Net investment income............................. 0.16 0.10
Net realized and unrealized gains from
investments.................................... 1.57 1.57
------- -------
Total from investment activities............... 1.73 1.67
------- -------
Distributions
Net investment income............................... (0.16) (0.10)
In excess of net investment income.................. (0.01) (0.02)
------- -------
Total distributions................................. (0.17) (0.12)
------- -------
Net asset value, end of period...................... $ 11.56 $ 11.55
======= =======
Total Return (excludes sales charges)............... 17.42%(b) 16.75%(b)
Ratios/Supplementary Data:
Net assets at the end of period (000)............... $ 173 $ 131
Ratio of expenses to average net assets............. 0.45%(c) 1.14%(c)
Ratio of net investment income to average net
assets............................................ 2.29%(c) 1.53%(c)
Ratio of expenses to average net assets*............ 1.38%(c) 2.07%(c)
Ratio of net investment income to average net
assets*........................................... 1.36%(c) 0.60%(c)
Portfolio turnover**................................ 48.33% 48.33%
Average commission rate paid(d)..................... $0.0566 $0.0566
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) Period from commencement of operations.
(b) Not Annualized.
(c) Annualized.
(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.
28
<PAGE> 245
EQUITY INDEX PORTFOLIO
(For a Share outstanding throughout the period)
<TABLE>
<CAPTION>
MAY 1, 1997
TO
November 30, 1997(a)
--------------------
INVESTOR A
SHARES
-------
<S> <C>
Net asset value, beginning of period........................ $ 10.00
-------
Investment activities
Net investment income..................................... 0.07
Net realized and unrealized gains from investments........ 1.94
-------
Total from investment activities.......................... 2.01
-------
Distributions
Net investment income..................................... (0.07)
In excess of net investment income........................ (0.01)
-------
Total distributions....................................... (0.08)
-------
Net asset value, end of period.............................. $ 11.93
=======
Total return (excludes sales charges)....................... 20.14%(b)
Ratios/Supplementary Data:
Net assets at the end of period (000)..................... $ 206
Ratio of expenses to average net assets................... 0.78%(c)
Ratio of net investment income to average net assets...... 1.02%(c)
Ratio of expenses to average net assets*.................. 1.21%(c)
Ratio of net investment income to average net assets*..... 0.59%(c)
Portfolio turnover**...................................... 1.66%
Average commission rate paid(d)........................... $0.0206
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) Period from commencement of operations.
(b) Not Annualized.
(c) Annualized.
(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.
29
<PAGE> 246
GROWTH & INCOME EQUITY PORTFOLIO
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
---------------------------------------------------------------
1997 1996 1995 1994(A) 1993 1992
-------- -------- -------- -------- -------- --------
INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR
A SHARES A SHARES A SHARES A SHARES SHARES SHARES
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period........................... $ 18.67 $ 16.30 $ 12.70 $ 14.74 $ 14.49 $ 12.33
------- ------- ------- ------- ------- -------
Investment activities
Net investment income............ 0.11 0.20 0.23 0.20 0.25 0.25
Net realized and unrealized gains
(losses) from investments...... 3.96 3.32 3.74 (0.17) 1.06 2.24
------- ------- ------- ------- ------- -------
Total from investment
activities..................... 4.07 3.52 3.97 0.03 1.31 2.49
------- ------- ------- ------- ------- -------
Distributions
Net investment income............ (0.13) (0.20) (0.23) (0.21) (0.25) (0.26)
In excess of net investment
income......................... (0.03) (0.01) -- -- -- --
Net realized gain................ (1.46) (0.94) (0.14) (0.18) (0.81) (0.07)
In excess of net realized
gains.......................... -- -- -- (1.68) -- --
------- ------- ------- ------- ------- -------
Total distributions.............. (1.62) (1.15) (0.37) (2.07) (1.06) (0.33)
------- ------- ------- ------- ------- -------
Net asset value, end of period..... $ 21.12 $ 18.67 $ 16.30 $ 12.70 $ 14.74 $ 14.49
======= ======= ======= ======= ======= =======
Total return (excludes sales
charges)......................... 23.90% 22.99% 31.95% 0.20% 9.65% 20.59%
Ratios/Supplemental Data:
Net assets at end of period
(000)............................ $46,372 $38,229 $25,082 $18,343 $11,157 $ 6,044
Ratio of expenses to average net
assets (including waivers)..... 1.04% 1.05% 1.05% 1.05% 0.74% 0.71%
Ratio of net investment income to
average net assets (including
waivers)....................... 0.60% 1.20% 1.59% 1.45% 1.74% 1.94%
Ratio of expenses to average net
assets (before waivers)*....... 1.14% 1.15% 1.15% 1.15% 0.96% 0.85%
Ratio of net investment income to
average net assets (before
waivers)*...................... 0.50% 1.10% 1.49% 1.35% 1.52% 1.80%
Portfolio turnover**............. 57.11% 63.90% 58.50% 65% 41% 79%
Average commission rate
paid(f)........................ $0.0451 $0.0598 -- -- -- --
<CAPTION>
JUNE 2,
YEAR ENDED NOVEMBER 30, 1988 TO
---------------------------- NOV. 30,
1991(A) 1990 1989 1988(b)
-------- ------- ------- --------
INVESTOR
SHARES
-------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period....................... $ 11.22 $ 12.41 $ 10.25 $ 10.00
------- ------- ------- -------
Investment activities
Net investment income........ 0.39 0.39 0.41 0.28
Net realized and unrealized
gains (losses) from
investments................ 1.47 (0.56) 2.29 0.06
------- ------- ------- -------
Total from investment
activities................. 1.86 (0.17) 2.70 0.34
------- ------- ------- -------
Distributions
Net investment income........ (0.39) (0.39) (0.51) (0.09)
In excess of net investment
income..................... -- -- -- --
Net realized gain............ (0.36) (0.63) (0.03) --
In excess of net realized
gains...................... -- -- -- --
------- ------- ------- -------
Total distributions.......... (0.75) (1.02) (0.54) (0.09
------- ------- ------- -------
Net asset value, end of period. $ 12.33 $ 11.22 $ 12.41 $ 10.25
======= ======= ======= =======
Total return (excludes sales
charges)..................... 17.39% (1.36)% 27.11% 3.46%(c),(d)
Ratios/Supplemental Data:
Net assets at end of period
(000)........................ $ 3,254 $20,116 $17,892 $10,890
Ratio of expenses to average
net assets (including
waivers)................... 0.34% 0.35% 0.42% 0.41%(e)
Ratio of net investment
income to average net
assets including waivers).. 3.50% 3.42% 3.69% 5.62%(e)
Ratio of expenses to average
net assets (before
waivers)*.................. 1.05% 1.00% 1.07% 1.12%(e)
Ratio of net investment
income to average net
assets (before waivers)*... 2.79% 2.77% 3.04% 4.91%(e)
Portfolio turnover**......... 78% 227% 133% 30%
Average commission rate
paid(f).................... -- -- -- --
</TABLE>
- ------------
* During the period, fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. On September 27, 1994 the Portfolio
redesignated Investor Shares as "Investor A" Shares and authorized the
issuance of a series of Shares designated as "Investor B" Shares.
(b) Period from commencement of operations.
(c) 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.
30
<PAGE> 247
GROWTH & INCOME EQUITY PORTFOLIO
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
INVESTOR B SHARES
--------------------------------
YEAR YEAR MARCH 1,
ENDED ENDED 1995 TO
NOV. 30, NOV. 30, NOV. 30,
1997 1996 1995(b)
-------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of period................... $ 18.58 $ 16.23 $13.43
------- ------- ------
Investment activities
Net investment income................................ (0.02) 0.11 0.14
Net realized and unrealized gains (losses) from
investments....................................... 3.93 3.30 2.81
------- ------- ------
Total from investment activities..................... 3.91 3.41 2.95
------- ------- ------
Distributions
Net investment income................................ -- (0.11) (0.15)
In excess of net investment income................... (0.09) (0.01) --
Net realized gains................................... (1.46) (0.94) --
In excess of net realized gains...................... -- -- --
------- ------- ------
Total distributions.................................. (1.55) (1.06) (0.15)
------- ------- ------
Net asset value, end of period......................... $ 20.94 $ 18.58 $16.23
======= ======= ======
Total return (excludes sales charges).................. 23.04% 22.29% 31.20%(c)
Ratios/Supplemental Data:
Net Assets at end of period (000).................... $ 6,349 $ 3,537 $ 781
Ratio of expenses to average net assets (including
waivers).......................................... 1.73% 1.75% 1.75%(d)
Ratio of net investment income (loss) to average net
assets (including waivers)........................ (0.11)% 0.49% 0.87%(d)
Ratio of expenses to average net assets (before
waivers)*......................................... 1.83% 1.85% 1.85%(d)
Ratio of net investment income (loss) to average net
assets (before waivers)*.......................... (0.21)% 0.39% 0.77%(d)
Portfolio turnover**................................. 57.11% 63.90% 58.50%(d)
Average commission rate paid(e)...................... $0.0451 $0.0598 --
</TABLE>
- ------------
* During the period, fees were voluntarily reduced. If such voluntary fee
reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) As of December 1, 1990, the Portfolio designated the existing series of
Shares as "Investor" Shares. On September 27, 1994, the Portfolio
redesignated Investor Shares as "Investor A" Shares and authorized the
issuance of a series of Shares designated as "Investor B" Shares.
(b) Period from date of initial public offering.
(c) 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.
(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.
31
<PAGE> 248
GROWTH EQUITY PORTFOLIO(a)
(For a share outstanding through each period)
<TABLE>
<CAPTION>
OCTOBER 1, 1997
THROUGH
NOVEMBER 30, 1997 YEAR ENDED SEPTEMBER 30,
----------------- -----------------------------------------------
INVESTOR A
SHARES(E) 1997 1996 1995 1994 1993(B)
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.................... $ 18.75 $ 15.06 $ 13.80 $ 9.74 $ 10.02 $ 10.00
------- ------- ------- ------- ------- -------
Income from investment operations
Net investment income................................. (0.01) 0.08 0.12 0.10 0.07 0.04
Net realized and unrealized gain (loss) on
investments......................................... (0.24) 4.75 1.32 4.05 (0.25) 0.02
------- ------- ------- ------- ------- -------
Total from investment operations...................... (0.25) 4.83 1.44 4.15 (0.18) 0.06
------- ------- ------- ------- ------- -------
Distributions
Net investment income................................. -- (0.09) (0.11) (0.09) (0.07) (0.04)
Net realized gain on investments...................... (2.24) (1.05) (0.07) -- (0.03) --
------- ------- ------- ------- ------- -------
Total distributions................................... (2.24) (1.14) (0.18) (0.09) (0.10) (0.04)
------- ------- ------- ------- ------- -------
Net asset value, end of period.......................... $ 16.26 $ 18.75 $ 15.06 $ 13.80 $ 9.74 $ 10.02
======= ======= ======= ======= ======= =======
Total return(c)......................................... (1.25)%(b) 33.85% 10.48% 42.90% (1.84)% 0.60%
Ratios/Supplemental Data
Net assets, end of period (000)....................... $ 3,467 $68,965 $55,573 $43,708 $30,282 $31,159
Ratio of expenses to average net assets............... 1.17%(c) 1.14% 1.17% 1.28% 1.36% 1.32%*
Ratio of net investment income to average net
assets.............................................. (0.27)%(c) 0.44% 0.86% 0.90% 0.74% 0.62%*
Ratio of expenses to average net assets*.............. 1.42%(c) 1.39% 1.45% 1.58% 1.64% 1.62%
Ratio of net investment income to average net
assets*............................................. (0.52)%(c) 0.19% 0.58% 0.60% 0.46% 0.32%
Portfolio turnover**.................................. 24.45% 42% 45% 45% 127% 54%
Average commission rate paid(d)....................... $0.0525 $0.0815 $0.0756 -- -- --
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) The Portfolio 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
commencement of operations) 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) Represents total commissions paid on Portfolio securities divided by
total Portfolio shares purchased or sold on which commissions were
charged.
(e) Upon its reorganization as portfolio of the Fund, the Portfolio changed
its fiscal year-end from September 30 to November 30.
32
<PAGE> 249
SMALL CAP EQUITY PORTFOLIO(a)
(For a Share(b) outstanding throughout each period)
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR MAY 6,
ENDED ENDED ENDED ENDED ENDED 1992 TO
NOV. 30, NOV. 30, NOV. 30, NOV. 30, NOV. 30, NOV. 30,
1997 1996 1995 1994(B) 1993 1992(b), (c)
-------- -------- -------- -------- -------- ------------
INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR INVESTOR
A SHARES A SHARES A SHARES A SHARES A SHARES A SHARES
-------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period....... $ 13.40 $ 13.44 $ 11.99 $ 13.14 $11.23 $ 10.10
------- ------- ------- ------- ------ -------
Investment activities
Net investment income (loss)............. (0.05) (0.01) -- (0.03) 0.03 0.02
Net realized and unrealized gains from
investments............................ 2.50 1.03 2.36 0.89 2.14 1.13
------- ------- ------- ------- ------ -------
Total from investment activities......... 2.45 1.02 2.36 0.86 2.17 1.15
------- ------- ------- ------- ------ -------
Distributions
Net investment income.................... -- -- -- -- (0.05) (0.02)
In excess of net investment income....... -- (0.01) -- -- -- --
Net realized gains....................... (0.82) (1.05) (0.91) (1.78) (0.21) --
------- ------- ------- ------- ------ -------
In excess of net realized gains.......... -- -- -- (0.23) -- --
------- ------- ------- ------- ------ -------
Total distributions...................... (0.82) (1.06) (0.91) (2.01) (0.26) (0.02)
------- ------- ------- ------- ------ -------
Net asset value, end of period............. $ 15.03 $ 13.40 $ 13.44 $ 11.99 $13.14 $ 11.23
======= ======= ======= ======= ====== =======
Total return (excludes sales charges)...... 19.45% 8.36% 21.47% 7.38% 19.75% 12.55%(d)
Ratios/Supplemental Data:
Net Assets at end of period (000)........ $14,213 $13,889 $15,056 $10,899 $4,559 $ 753
Ratio of expenses to average net assets
(including waivers).................... 1.25% 1.26% 1.26% 1.25% 0.61% 0.30%(e)
Ratio of net investment income (loss) to
average net assets (including
waivers)............................... (0.29)% (0.13)% (0.12)% (0.44)% 0.19% 0.78%(e)
Ratio of expenses to average net assets
(before waivers)*...................... 1.35% 1.36% 1.36% 1.36% 1.23% 1.12%(e)
Ratio of net investment income (loss) to
average net assets (before waivers)*... (0.39)% (0.23)% (0.22)% (0.55)% (0.43)% (0.04)%(e)
Portfolio turnover**..................... 80.23% 65.85% 83.13% 85% 65% 56%
Average commission rate paid(f).......... $0.0515 $0.0582 -- -- -- --
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) The Emerging Growth Portfolio changed its name to Small Cap Equity Portfolio
on December 1, 1996.
(b) On May 6, 1992, the Portfolio issued a series of Shares which were
designated as "Investor" Shares. On September 27, 1994 the Portfolio
redesignated Investor Shares as "Investor A" Shares and authorized the
issuance of a series of Shares designated as "Investor B" Shares.
(c) Period from commencement of operations.
(d) 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.
33
<PAGE> 250
SMALL CAP EQUITY PORTFOLIO(A)
(For a Share(b) outstanding throughout each period)
<TABLE>
<CAPTION>
INVESTOR B SHARES
--------------------------------------------
MARCH 1,
YEAR ENDED YEAR ENDED 1995 TO
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1997 1996 1995(C)
------------ ------------ ------------
<S> <C> <C> <C>
Net asset value, beginning of period........... $ 13.24 $ 13.37 $ 11.83
------- ------- -------
Investment activities
Net investment income (loss)................. (0.13) (0.07) (0.03)
Net realized and unrealized gains from
investments............................... 2.45 0.99 1.57
------- ------- -------
Total from investment activities............. 2.32 0.92 1.54
------- ------- -------
Distributions
Net investment income........................ -- -- --
In excess of net investment income........... -- -- --
Net realized gains........................... (0.82) (1.05) --
In excess of net realized gains.............. -- -- --
------- ------- -------
Total distributions.......................... (0.82) (1.05) --
------- ------- -------
Net asset value, end of period................. $ 14.74 $ 13.24 $ 13.37
======= ======= =======
Total return (excludes sales charges).......... 18.62% 7.63% 20.83%(d)
Ratios/Supplemental Data:
Net assets at end of period (000).............. $ 1,503 $ 1,272 $ 603
Ratio of expenses to average net assets
(including waivers)....................... 1.95% 1.96% 1.96%(e)
Ratio of net investment income (loss) to
average net assets (including waivers).... (0.99)% (0.83)% (0.78)%(e)
Ratio of expenses to average net assets
(before waivers)*......................... 2.05% 2.06% 2.06%(e)
Ratio of net investment income (loss) to
average net assets (before waivers)*...... (1.09)% (0.93)% (0.88)%(e)
Portfolio turnover**......................... 80.23% 65.85% 83.13%
Average commission rate paid(f).............. $0.0515 $0.0582 --
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) The Emerging Growth Portfolio changed its name to Small Cap Equity Portfolio
on December 1, 1996.
(b) On May 6, 1992, the Portfolio issued a series of Shares which were
designated as "Investor" Shares. On September 27, 1994, the Portfolio
redesignated Investor Shares as "Investor A" Shares and authorized the
issuance of a series of Shares designated as "Investor B" Shares.
(c) Period from 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) 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.
34
<PAGE> 251
INTERNATIONAL EQUITY PORTFOLIO
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
INVESTOR A SHARES
----------------------------------------------------------
APRIL 4,
YEAR ENDED YEAR ENDED YEAR ENDED 1993 TO
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1997 1996 1995 1994(A)(B)(C)
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period........... $ 12.05 $ 10.76 $ 9.90 $ 10.00
------- ------- ------- -------
Investment activities
Net investment income
(loss)...................... (0.02) 0.02 0.02 (0.01)
Net realized and unrealized
gains from investments and
foreign currency............ 0.32 1.27 0.86 (0.09)
------- ------- ------- -------
Total from investment
activities.................. 0.30 1.29 0.88 (0.10)
------- ------- ------- -------
Distributions
In excess of net investment
income...................... (0.05) -- -- --
Net realized gains............ (0.31) -- (0.01) --
Tax return of capital......... -- -- (0.01) --
------- ------- ------- -------
Total distributions........... (0.36) -- (0.02) --
------- ------- ------- -------
Net asset value, end of
period........................ $ 11.99 $ 12.05 $ 10.76 $ 9.90
======= ======= ======= =======
Total return (excludes sales
charges)...................... 2.58% 11.99% 8.89% (1.00)%(f)
Ratios/Supplemental Data:
Net assets at end of period
(000)....................... $ 2,854 $ 2,573 $ 1,568 $ 791
Ratio of expenses to average
net assets (including
waivers).................... 1.59% 1.44% 1.45% 1.55%(f)
Ratio of net investment income
(loss) to average net assets
(including waivers)......... (0.20)% 0.19% 0.07% (0.39)%(f)
Ratio of expenses to average
net assets (before
waivers)*................... 1.75% 1.75% 1.76% 1.89%(f)
Ratio of net investment income
(loss) to average net assets
(before waivers)*........... (0.36)% (0.12)% (0.24)% (0.73)%(f)
Portfolio turnover**.......... 75.18% 77.63% 62.78% 21%
Average commission rate
paid(g)..................... $0.0229 $0.0251 -- --
<CAPTION>
INVESTOR B SHARES
------------------------------------------
MARCH 1,
YEAR ENDED YEAR ENDED 1995 TO
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1997 1996 1995(D)
------------ ------------ ------------
<S> <C> <C> <C>
Net asset value,
beginning of period........... $ 11.90 $ 10.71 $ 9.26
------- ------- -------
Investment activities
Net investment income
(loss)...................... (0.09) (0.04) (0.03)
Net realized and unrealized
gains from investments and
foreign currency............ 0.30 1.23 1.48
------- ------- -------
Total from investment
activities.................. (0.21) 1.19 1.45
------- ------- -------
Distributions
In excess of net investment
income...................... (0.03) -- --
Net realized gains............ (0.31) -- --
Tax return of capital......... -- -- --
------- ------- -------
Total distributions........... (0.34) -- --
------- ------- -------
Net asset value, end of
period........................ $ 11.77 $ 11.90 $ 10.71
======= ======= =======
Total return (excludes sales
charges)...................... 1.82% 11.11 % 8.38%(e)
Ratios/Supplemental Data:
Net assets at end of period
(000)....................... $ 562 $ 437 $ 102
Ratio of expenses to average
net assets (including
waivers).................... 2.29% 2.14 % 2.02%(f)
Ratio of net investment income
(loss) to average net assets
(including waivers)......... (0.91)% (0.50)% (0.96)%(f)
Ratio of expenses to average
net assets (before
waivers)*................... 2.45 % 2.46 % 2.44%(f)
Ratio of net investment income
(loss) to average net assets
(before waivers)*........... (1.07)% (0.82)% (1.38)%(f)
Portfolio turnover**.......... 75.18 % 77.63 % 62.78 %
Average commission rate
paid(g)..................... $0.0229 $0.0251 --
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) Period from commencement of operations.
(b) On April 4, 1994, the Portfolio issued a series of Shares which were
designated as "Trust" Shares. In addition, on May 2, 1994, the Portfolio
issued a new series of Shares which were designated as "Investor" Shares.
The financial highlights presented for April 4, 1994 to May 2, 1994
represent financial highlights applicable to Trust Shares.
(c) On September 27, 1994, the Portfolio redesignated Investor Shares as
"Investor A" Shares and authorized the issuance of a series of Shares
designated as "Investor B" Shares.
(d) Period from date of initial public offering.
(e) Represents total return for Investor A Shares from December 1, 1994 to
February 28, 1995 plus total return for Investor B Shares from March 1, 1995
through November 30, 1995.
(f) 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.
35
<PAGE> 252
BALANCED PORTFOLIO
(For a Share(a) outstanding throughout each period)
<TABLE>
<CAPTION>
INVESTOR A SHARES
------------------------------------------------------------------------
APRIL 1,
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 1993 TO
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1997 1996 1995 1994 1993(B)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period............................ $ 12.58 $ 11.65 $ 9.61 $ 10.22 $ 10.00
------- ------- ------- ------- -------
Investment Activities
Net investment income............. 0.32 0.32 0.32 0.28 0.23
Net realized and unrealized gains
from investments................. 1.47 1.34 2.02 (0.47) 0.15
------- ------- ------- ------- -------
Total from Investment
Activities....................... 1.79 1.66 2.34 (0.19) 0.38
------- ------- ------- ------- -------
Distributions
Net investment income............. (0.40) (0.31) (0.30) (0.29) (0.16)
Net realized gains................ (0.71) (0.42) -- -- --
In excess of net investment
income........................... -- -- (0.13) --
------- ------- ------- ------- -------
Total Distributions............... (1.11) (0.73) (0.30) (0.42) (0.16)
------- ------- ------- ------- -------
Net Asset Value, End of Period..... $ 13.26 $ 12.58 $ 11.65 $ 9.61 $ 10.22
======= ======= ======= ======= =======
Total Return (excludes sales
charges).......................... 15.38% 15.10% 24.85% (1.91)% 3.86%(d)
Ratios/Supplemental Data:
Net Assets at end of period
(000)............................. $ 9,923 $ 9,328 $ 8,348 $ 7,321 $ 1,978
Ratio of expenses to average net
assets (including waivers)........ 1.27% 1.27% 1.27% 1.27% 0.56%(e)
Ratio of net investment income to
average net assets (including
waivers).......................... 2.57% 2.79% 2.98% 2.77% 3.42%(e)
Ratio of expenses to average net
assets (before waivers)*.......... 1.37% 1.37% 1.37% 1.39% 1.21%(e)
Ratio of net investment income to
average net assets (before
waivers)*......................... 2.47% 2.69% 2.88% 2.65% 2.77%(e)
Portfolio turnover**............... 43.60% 85.16% 58.16% 49% 26%(e)
Average commission rate paid(f).... $0.0503 $0.0599 -- -- --
<CAPTION>
INVESTOR B SHARES
------------------------------------------
MARCH 1,
YEAR ENDED YEAR ENDED 1995 TO
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1997 1996 1995(C)
------------ ------------ ------------
<S> <C> <C> <C>
Net Asset Value, Beginning of
Period........................ $ 12.49 $ 11.59 $ 10.13
------- ------- -------
Investment Activities
Net investment income......... 0.25 0.25 0.22
Net realized and unrealized
gains from investments....... 1.43 1.33 1.44
------- ------- -------
Total from Investment
Activities................... 1.68 1.58 1.66
------- ------- -------
Distributions
Net investment income......... (0.26) (0.26) (0.20)
Net realized gains............ (0.71) (0.42) --
In excess of net investment
income....................... (0.05) -- --
------- ------- -------
Total Distributions........... (1.02) (0.68) (0.20)
------- ------- -------
Net Asset Value, End of Period. $ 13.15 $ 12.49 $ 11.59
======= ======= =======
Total Return (excludes sales
charges)...................... 14.57% 14.35% 23.92%(c)
Ratios/Supplemental Data:
Net Assets at end of period
(000)......................... $ 522 $ 321 $ 36
Ratio of expenses to average
net assets (including
waivers)...................... 1.96% 1.96% 1.93%(e)
Ratio of net investment income
to average net assets
(including waivers)........... 1.85% 2.09% 2.28%(e)
Ratio of expenses to average
net assets (before waivers)*.. 2.06% 2.06% 2.03%(e)
Ratio of net investment income
to average net assets (before
waivers)*..................... 1.75% 1.99% 2.18%(e)
Portfolio turnover**........... 43.60% 85.16% 58.16%
Average commission rate paid(f) $0.0503 $0.0599 --
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) On September 27, 1994, the Portfolio redesigned 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) 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.
(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 are charged.
36
<PAGE> 253
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 shortterm 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 issued 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-
37
<PAGE> 254
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 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
38
<PAGE> 255
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 CMOs 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 assigned by a Rating Agency will be disposed of in
an
39
<PAGE> 256
orderly manner, normally within 30 to 60 days. The applicable ratings issued by
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 economic, financial and market
conditions. Instead, the Portfolio uses an investment strategy called "indexing"
whereby it seeks to approximate the investment performance of the market segment
comprised of U.S. Government, mortgage-backed, asset-backed and corporate debt
securities, as represented by the Lehman Aggregate, through the use of
sophisticated computer models to determine which securities should be purchased
or sold, while keeping transaction and administrative costs to a minimum. The
Portfolio will invest substantially all of its total assets in securities listed
in the Lehman Aggregate, including without limitation, asset-backed securities.
For further information regarding asset-backed securities see "Other Applicable
Policies -- Asset-Backed Securities" below. The Adviser generally selects
securities for the Portfolio on the basis of their weightings in the Lehman
Aggregate and will only purchase a security for the Portfolio that is included
in the Lehman Aggregate at the time of such purchase. The Portfolio should
exhibit price and yield volatility similar to that of the Lehman Aggregate. For
further information, see "Other Investment Policies -- The Indexing Approach"
below and the Statement of Additional Information under "Investment Objectives
and Policies -- The Indexing Approach."
With respect to the remaining portion of its total assets, the Portfolio
has the ability to hold temporary cash balances which may be invested in U.S.
Government obligations and money market instruments. See "The Intermediate
Corporate Bond Portfolio" above for a description of the types of money market
instruments in which the Portfolio may invest and the applicable limitations
with respect to such investments. If appropriate, the Portfolio may use options,
futures contracts and depository receipts to hedge its positions or for other
permissible purposes. The Portfolio also may enter into reverse repurchase
agreements and lend its portfolio securities.
The Lehman Aggregate. The Lehman Aggregate is composed of U.S. Government,
mortgage-backed, asset-backed and non-convertible corporate debt securities that
meet the following criteria: the securities have at least $100 million par
amount outstanding; the securities are rated investment grade (at least Baa or
BBB) by Moody's Investors Services, Inc. ("Moody's") or Standard & Poor's
Ratings Group ("S&P") (if not rated by Moody's); have at
40
<PAGE> 257
least one year until maturity; and have coupons with fixed rates. The Lehman
Aggregate excludes CMOs, adjustable rate mortgages, manufactured homes,
non-agency bonds, buydowns, graduated equity mortgages, project loans and
nonconforming (i.e., "jumbo") mortgages. As of December 31, 1997, over 6,333
issues were included in the Lehman Aggregate, representing approximately $4.98
trillion in market value. U.S. Treasury and agency securities represented
approximately 49.5% of the total market value, asset-backed and mortgage-backed
securities represented approximately 31.2% of the total market value, with
corporate debt securities representing the balance of approximately 19.3%. The
average maturity of the Lehman Aggregate was approximately 8.7 years. The
Adviser believes that the Lehman Aggregate is an appropriate benchmark for the
Portfolio because it is diversified, it is familiar to investors, and it is
widely accepted as a reference for bonds and other fixed income investments.
Because of the large number of issues included in the Lehman Aggregate, the
Portfolio cannot invest in all such issues. Instead, the Portfolio will hold a
representative sample of approximately 100 of the securities in the Lehman
Aggregate, selecting one or two issues to represent an entire "class" or type of
securities in the Lehman Aggregate. At a minimum, the Portfolio seeks to hold
securities which reflect the major asset classes in the Lehman Aggregate -- U.S.
Treasury and agency issues, mortgage-backed securities, asset-backed securities
and non-convertible corporate debt securities. As the Portfolio's assets
increase, these classes will be further delineated along the lines of sector,
term-to-maturity, coupon and credit ratings. This sampling technique is expected
to be an effective means of substantially duplicating the price and performance
provided by the securities comprising the Lehman Aggregate.
Securities rated Baa by Moody's or BBB by S&P have speculative
characteristics even though they are of investment-grade quality, and changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with
higher-grade securities.
THE GOVERNMENT & CORPORATE BOND PORTFOLIO
The Government & Corporate Bond Portfolio's investment objective is to seek
the highest level of current income consistent with conservation of capital. In
pursuing its investment objective, the Portfolio intends to invest at least 65%
of its assets in fixed-income and related debt securities rated in one of the
three highest rating categories assigned by a Rating Agency at the time of
purchase or in unrated investments deemed by the Adviser to be of comparable
quality pursuant to guidelines approved by the Fund's Board of Directors. Debt
securities may include a broad range of fixed and variable rate bonds,
debentures, notes, and securities convertible into or exchangeable for common
stock; dollar-denominated debt obligations of foreign issuers, including foreign
corporations and governments; and first mortgage loans, income participation
loans, participation certificates in pools of mortgages, including mortgages
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
CMOs and other mortgage-related securities, and other asset-backed securities.
For further information regarding asset-backed securities, see "Other Applicable
Policies -- Asset-Backed Securities" below. The Portfolio may invest up to 10%
of its total assets at the time of 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 "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 Government & Corporate Bond Portfolio may purchase debt securities
which are rated at the time of purchase within the four highest rating
categories assigned by one or more 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
41
<PAGE> 258
maturity, anticipated changes in interest rates, and the overall quality of the
investment. The Portfolio seeks to provide a current yield greater than that
generally available from money market instruments.
The Government & Corporate Bond Portfolio reserves the right to hold as a
temporary defensive measure up to 100% of its total assets in cash and
short-term obligations (having remaining maturities of 13 months or less) at
such times and in such proportions as, in the opinion of the Adviser, prevailing
market or economic conditions warrant. Short-term obligations include, but are
not limited to, commercial paper, bankers' acceptances, certificates of deposit,
demand and time deposits of domestic and foreign banks and savings and loan
associations, repurchase agreements and obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities.
THE 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 one or more Rating Agencies. 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 assigned by a Rating Agency will be disposed of
in an orderly manner, normally within 30-60 days. The applicable ratings issued
by 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).
42
<PAGE> 259
Dividends paid by the Missouri Tax-Exempt Bond Portfolio that are derived
from interest attributable to tax-exempt obligations of the State of Missouri
and its political subdivisions as well as of certain other governmental issuers
including Puerto Rico, Guam and the Virgin Islands ("Missouri Municipal
Obligations") are exempt from federal and Missouri income tax. Dividends derived
from interest on obligations of other governmental issuers are exempt from
federal income tax but may be subject to Missouri income tax.
As a matter of fundamental policy, under normal market conditions, at least
65% of the Missouri Tax-Exempt Bond Portfolio's total assets will be invested in
Missouri Municipal Obligations. The Portfolio will seek to maximize the
proportion of its dividends which are exempt from both federal and Missouri
income tax and presently expects to invest substantially all of its total assets
in Missouri Municipal Obligations.
The Missouri Tax-Exempt Bond Portfolio invests in Municipal Obligations
that are rated at the time of purchase within the four highest rating categories
assigned by one or more Rating Agencies. 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 ratings issued by Rating Agencies 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
43
<PAGE> 260
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
assigned by a Rating Agency will be disposed of in an orderly manner, normally
within 30 to 60 days. The applicable ratings issued by 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 assigned by one or more Rating Agencies. 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 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 invest indirectly 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 "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 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").
44
<PAGE> 261
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 statistical basis. As of December 31, 1997 the stocks in the
S&P 500 have a market capitalization of $7.784 trillion and account for
approximately 70% of the total market value of all U.S. common stocks. Normally,
the Equity Index Portfolio will hold all 500 stocks in the S&P 500 and will hold
each stock in approximately the same percentage as that stock represents in the
S&P 500. 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 invest indirectly 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
"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 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 13 months or less) at
such times and in such proportions as, in the opinion of the Adviser, prevailing
market or economic conditions
45
<PAGE> 262
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 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 equity securities,
including 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 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, such as ADRs
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 and the Statement of Additional
Information under "Investment Objectives and Policies -- ADRs and EPRs".
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
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
46
<PAGE> 263
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 invest indirectly 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
"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 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 13 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 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 and non-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
47
<PAGE> 264
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
$1.985 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 the 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 of its assets in a single country during temporary
defensive periods.
The International Equity Portfolio expects to invest at least 50% 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
48
<PAGE> 265
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 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 13 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.
49
<PAGE> 266
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 one or more
Rating Agencies at the time of purchase or in unrated securities 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 13 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. As
of the date of this Prospectus, U.S. stock markets were trading at or close to
record high levels and there can be no guarantee that such levels will continue.
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 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
50
<PAGE> 267
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. The Missouri
Constitution imposes a limit on the amount of taxes that may be imposed by the
General Assembly during any fiscal year. No assurances can be given that the
amount of revenue derived from taxes will remain at its current level or that
the amount of federal grants previously provided to the State will continue. The
State of Missouri is barred by its constitution from issuing debt instruments to
fund government operations, although it is authorized to issue bonds to finance
or refinance the cost of capital projects
51
<PAGE> 268
upon approval by the voters. In the past, the State has issued two types of
bonds to raise capital -- general obligation bonds and revenue bonds. Payments
on general obligation bonds are made from the General Revenue Fund. Therefore,
if the State is unable to increase its tax revenues, the State's ability to make
the payments on the existing obligations may be adversely affected. The State
also is authorized to issue revenue bonds, which generally provide funds for a
specific project, and repayments are generally limited to the revenue from that
project. The State may, however, enact a tax specifically to repay the State's
revenue bonds. Therefore, a reduction of revenues on a project financed by
revenue bonds may adversely affect the State's ability to make payments on such
bonds. No assurances can be given that the State will receive sufficient
revenues from the projects, or that the State will enact and collect a tax to be
used to make the required payments on such bonds. The information contained
herein is not intended to be a complete discussion of all relevant risk factors
for the Missouri Tax-Exempt Bond Portfolio, and there may be other factors not
discussed herein that may adversely affect the value of and the payment of
interest and principal on the debt obligations of the State of Missouri and its
local governmental entities. See the Statement of Additional Information for
additional risks in connection with the Portfolio's investments in Missouri
Municipal Obligations.
ADDITIONAL RISKS AND OTHER CONSIDERATIONS. Although the Tax-Exempt Money
Market, Short-Intermediate Municipal and National Municipal Bond Portfolios may
invest 25% or more of their respective net assets in (i) Municipal Obligations
whose issuers are in the same state, (ii) Municipal Obligations the interest on
which is paid solely from revenues of similar projects, and (iii) private
activity bonds, no Portfolio presently intends to do so unless in the opinion of
the Adviser the investment is warranted. Although the Missouri Tax-Exempt Bond
Portfolio does not presently intend to do so on a regular basis, it may invest
more than 25% of its assets in industrial development bonds issued before August
7, 1986, the interest on which is not treated as a specific tax preference item
under the federal alternative minimum tax, and in Municipal Obligations, the
interest on which is paid solely from revenues of similar projects, if such
investments are deemed necessary or appropriate by the Adviser. To the extent
that a Portfolio's assets are invested in Municipal Obligations the issuers of
which are in the same state or that are payable from the revenues of similar
projects or in private activity bonds, a Portfolio will be subject to the
peculiar risks presented by the laws and economic conditions relating to such
projects and bonds to a greater extent than it would be if its assets were not
so invested. See "Investment Objectives and Policies -- Municipal Obligations"
in the Statement of 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.
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
52
<PAGE> 269
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.
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
53
<PAGE> 270
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.
54
<PAGE> 271
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.
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
55
<PAGE> 272
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.
56
<PAGE> 273
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 SmallCap 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.
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
57
<PAGE> 274
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
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
58
<PAGE> 275
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
59
<PAGE> 276
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 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
60
<PAGE> 277
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.
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. 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
61
<PAGE> 278
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
62
<PAGE> 279
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.
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 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.
63
<PAGE> 280
PRICING OF SHARES
THE MONEY MARKET PORTFOLIOS
The Money Market Portfolios' respective net asset values per Share are
determined by the Administrator as of 12:00 noon (Eastern time) and as of the
close of regular trading hours on the New York Stock Exchange (the "Exchange")
(currently, 4:00 p.m. Eastern time) on each weekday, with the exception of those
holidays on which the Exchange or the Federal Reserve Bank of St. Louis are
closed (a "Business Day"). Currently one or both of these institutions are
closed on the customary national business holidays of New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day (observed),
Independence Day (observed), Labor Day, Columbus Day, Veterans' Day,
Thanksgiving Day and Christmas Day (observed).
Each Portfolio's assets are valued based upon the amortized cost method.
Although each Portfolio seeks to maintain its net asset value per Share at
$1.00, there can be no assurance that the net asset value per Share will not
vary. See the Statement of Additional Information under "Net Asset Value" for
further information.
THE EQUITY AND BOND PORTFOLIOS
The Equity and Bond Portfolios' respective net asset values per Share are
determined by the Administrator as of the close of regular trading hours on the
Exchange on each Business Day (currently 4:00 p.m. Eastern time).
Securities which are traded on a recognized stock exchange are valued at
the last sale price on the securities exchange on which such securities are
primarily traded or at the last sale price on the national securities market.
Securities traded on only over-the-counter markets are valued on the basis of
market values when available. Securities for which there are no transactions are
valued at the average of the current bid and asked prices. Other securities,
including restricted and other securities for which market quotations are not
readily available, and other assets are valued at fair value by the Adviser (or
Sub-Adviser) under the supervision of the Board of Directors. Investments in
debt securities with remaining maturities of 60 days or less may be valued based
upon the amortized cost method. For further information about valuation of
investments, see "Net Asset Value" in the Statement of Additional Information.
OTHER INFORMATION
The public offering price for each class of Shares of a Portfolio is based
upon net asset value per Share plus, in the case of Investor A Shares of each
Portfolio except the Money 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.
64
<PAGE> 281
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 Bank (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
65
<PAGE> 282
payable to the appropriate Portfolio. Investors purchasing Shares of a Portfolio
which offers both Investor A Shares and Investor B Shares by mail must indicate
whether they wish to buy Investor A Shares or Investor B Shares. Subsequent
purchases of Shares of a Portfolio may be made at any time in at least the
minimum subsequent purchase amount by mailing a check payable to the Portfolio.
All shareholders of record will receive confirmations of Share purchases,
exchanges, and redemptions in the mail. If Shares are held in the name of an
organization, such organization is responsible for transmitting purchase,
exchange, and redemption orders to the Fund on a timely basis, recording all
purchase, exchange, and redemption transactions, and providing regular account
statements which confirm such transactions to beneficial owners (or arranging
for such services).
AUTOMATIC INVESTMENT PROGRAM (AIP)
Shareholders may open an account or add to their investment on a monthly
basis in a minimum amount of $50, on the 20th day (or the next Business Day
after the 20th) of each month. Under the AIP, funds may be automatically
withdrawn from the shareholder's checking account (as long as the shareholder's
bank is a member of the Automated Clearing House). Such funds are invested in
Investor A or Investor B Shares, as appropriate, at the net asset value plus any
applicable front-end sales charge next determined on the day an order is
effected by the transfer agent, BISYS Fund Services Ohio, Inc. (the "Transfer
Agent"). An investor may apply for participation in the AIP through the
organization servicing his or her Fund account and by completing the
supplementary AIP authorization form. The AIP may be modified or terminated by a
shareholder on 30 days' written notice to his or her investment representative
or to the Fund, or by the Fund at any time.
The AIP is one means by which investors may use "Dollar Cost Averaging" in
making investments. Dollar Cost Averaging can be useful in investing in
portfolios such as the Equity and Bond Portfolios whose price per Share
fluctuates. Instead of trying to time market performance, a fixed dollar amount
is invested in Portfolio Shares at predetermined intervals. This may help
investors to reduce their average cost per Share because the agreed upon fixed
investment amount allows more Shares to be purchased during periods of lower
Share prices and fewer Shares during periods of higher prices. In order to be
effective, Dollar Cost Averaging should usually be followed on a sustained,
consistent basis. Investors should be aware, however, that Shares bought using
Dollar Cost Averaging are made without regard to their price on the day of
investment or to market trends. In addition, while investors may find Dollar
Cost Averaging to be beneficial, it will not prevent a loss if an investor
ultimately redeems his or her Shares at a price which is lower than their
purchase price.
APPLICABLE SALES CHARGES -- INVESTOR A SHARES OF THE EQUITY AND BOND PORTFOLIOS
The public offering price for Investor A Shares of the Equity and Bond
Portfolios is the sum of the net asset value of the Shares being purchased plus
any applicable sales charge. No sales charge is assessed on the reinvestment of
dividends and capital gain distributions. The sales charge is assessed as
follows:
The ARCH 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
<TABLE>
<CAPTION>
AS A % AS A % DEALERS'
OF OF NET REALLOWANCE
OFFERING ASSET AS A % OF
PRICE VALUE PER OFFERING
AMOUNT OF TRANSACTION PER SHARE 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>
66
<PAGE> 283
The ARCH U.S. Government Securities, Bond Index, Short-Intermediate Municipal,
Equity Index and Small Cap Equity Index Portfolios
<TABLE>
<CAPTION>
AS A % AS A % DEALERS'
OF OF NET REALLOWANCE
OFFERING ASSET AS A % OF
PRICE VALUE PER OFFERING
AMOUNT OF TRANSACTION PER SHARE 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 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 Bank 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 Bank 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
- 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
67
<PAGE> 284
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 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.
68
<PAGE> 285
<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 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.
69
<PAGE> 286
Investor B Shares are sold at net asset value without an initial sales
charge. Normally, however, a deferred sales charge is paid if the Shares are
redeemed within six years of investment. See "Applicable Sales Charges --
Investor B Shares of the CDSC Portfolios." Investor B Shares are subject to
ongoing distribution and service fees at an annual rate of up to 1.00% of a
Portfolio's average daily net assets attributable to its Investor B Shares.
These ongoing fees, which are higher than those charged on Investor A Shares,
will cause Investor B Shares to have a higher expense ratio and pay lower
dividends than Investor A Shares.
Eight years after purchase, Investor B Shares will convert automatically to
Investor A Shares. The purpose of the conversion is to relieve a holder of
Investor B Shares of the higher ongoing expenses charged to those Shares, after
enough time has passed to allow the Distributor to recover approximately the
amount it would have received if a front-end sales charge had been charged. The
conversion from Investor B Shares to Investor A Shares takes place at net asset
value, as a result of which an investor receives dollar-for-dollar the same
value of Investor A Shares as he or she had of Investor B Shares. The conversion
occurs eight years after the beginning of the calendar month in which the Shares
are purchased. As a result of the conversion, the converted Shares are relieved
of the distribution and service fees borne by Investor B Shares, although they
are subject to the distribution and service fees borne by Investor A Shares.
Investor B Shares acquired through a reinvestment of dividends or
distributions are also converted at the earlier of two dates -- eight years
after the beginning of the calendar month 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 sold without a sales charge). Over
time, the expense of
70
<PAGE> 287
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 Bank or any of its affiliated or
correspondent banks, and whose Shares are to be held in that account, may also
exchange Investor A Shares of a Portfolio for Trust Shares or Institutional
Shares in the same Portfolio.
EXCHANGES -- INVESTOR B SHARES. Shareholders who have purchased Investor B
Shares of a Portfolio (including Shares acquired through reinvestment of
dividends or distributions on such Shares) may exchange those Shares for
Investor B Shares of another Portfolio without the payment of any contingent
deferred sales charge at the time the exchange is made. In determining the
holding period for calculating the contingent deferred sales charge payable on
redemptions of Investor B Shares, the holding period of the Investor B Shares
originally held will be added to the holding period of the Investor B Shares
acquired through the exchange. No exchange fee is imposed by the Fund.
OTHER INFORMATION CONCERNING EXCHANGES. The Shares exchanged must have a
current value at least equal to the minimum initial or subsequent investment
required by the particular Portfolio into which the exchange is being made. The
Fund reserves the right to reject any exchange request. The exchange privilege
may be modified or terminated at any time upon 60 days' written notice to
shareholders. An investor may telephone an exchange request by calling his or
her investment representative, which is responsible for transmitting such
exchange request to the Fund. See "Other Exchange or Redemption Information"
below. Investors who want to telephone an exchange request directly to the Fund,
and, have elected this privilege on the account application, may follow the
procedures described below under "Redemption by Telephone." An investor should
consult his or her investment representative or the Fund for further information
regarding procedures for exchanging Shares.
AUTOMATIC EXCHANGE PROGRAM. The Automatic Exchange Program enables
shareholders to make regular, automatic withdrawals from an Investor A Share or
Investor B Share account in a Portfolio and use those proceeds
71
<PAGE> 288
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 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.
72
<PAGE> 289
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
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.
73
<PAGE> 290
OTHER PURCHASE, EXCHANGE AND REDEMPTION INFORMATION
On a Business Day when the Exchange closes early due to a partial holiday
or otherwise, the Fund reserves the right to advance the times at which purchase
and redemption orders must be received in order to be processed on that Business
Day.
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.
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 "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
74
<PAGE> 291
interest income is exempt from state income tax. The "state tax-equivalent
yield" is computed by dividing the tax-exempt portion of the Portfolio's yield
by a denominator consisting of one minus a stated income tax rate.
The Tax-Exempt Money Market Portfolio may also quote its "tax-equivalent
yield" and "tax-equivalent effective yield," which demonstrate the level of
taxable yield needed to produce an after-tax yield that is equivalent to the
Portfolio's yield and effective yield. Each are calculated by increasing the
Portfolio's yield and effective yield by the amount necessary to reflect the
payment of federal (and/or state) tax at a stated tax rate. The "tax equivalent
yield" and "tax-equivalent effective yield" will always be higher than the
Portfolio's yield and effective yield, respectively. The Tax-Exempt Money Market
Portfolio may also compute its "tax-equivalent yield" and "tax-equivalent
effective yield" with respect to certain states, which shows the level of
taxable yield and effective yield, respectively, needed to produce an after-tax
equivalent to the federal and state tax-exempt yield of the Portfolio's
particular class of Shares, assuming payment of federal income tax and state
personal income tax each at a stated rate and based upon a specified percentage
of the Portfolio's income which is exempt from state income tax as well as
federal income tax.
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. References may
also be made to indices or data published in Money Magazine, Forbes, Barron's,
The Wall Street Journal, The New York Times, Business Week, American Banker,
Institutional Investor, Pensions and Investments, U.S.A. Today, Fortune,
CDA/Wiesenberger, Morningstar, Inc. and publications of a local or regional
nature. In addition to performance information, general information about the
Portfolios that
75
<PAGE> 292
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 -- 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
76
<PAGE> 293
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.
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
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
77
<PAGE> 294
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 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.
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 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
78
<PAGE> 295
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 the
obligations described in paragraph (c)(2) above the amount of State income tax
exempt-interest dividends shall be reduced by the amount of (a) the federal
corporate dividend received deduction attributable to such dividends, and (b)
interest paid or expense incurred to produce such dividends, to the extent that
the interest paid or expense incurred exceeds five hundred dollars.
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, 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 advisers
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 advisers 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.
79
<PAGE> 296
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 an indirect
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 .32%,
.33%, .35%, .45%, .00%, .00%, .45%, .00%, .45%, .00, .00%, .00%, .55%, .75%,
.75%, .92% and .75% 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.
George J. Schupp, CFA, is the person primarily responsible for the day-to
day management of the Government & Corporate Bond Portfolio and has managed such
Portfolio since February 1998. Mr. Schupp, Group Manager -- Fixed Income, joined
MVA in 1983 and has 22 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
80
<PAGE> 297
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 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 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 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 .75% 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 November 30, 1997, the Administrator
received administration fees (net of waivers) at the effective annual rates of
.13%, .12%, .05%, 0.6%, 0.6% and .12% of the average daily net assets of the
Treasury Money Market, Money Market, Intermediate Corporate Bond, National
Municipal Bond, Equity Income and International Equity Portfolios, respectively,
and .10% of the average daily net assets of each of the other Portfolios 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.
81
<PAGE> 298
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 .15% 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 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 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.
82
<PAGE> 299
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 Bank 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.
CUSTODIAN, SUB-CUSTODIAN AND TRANSFER AGENT
Mercantile Bank, an affiliate of the Fund and a wholly-owned subsidiary of
Mercantile, 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 Bank, 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
83
<PAGE> 300
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 Bank, or an affiliate of Mercantile Bank, 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 Bank, or such an affiliate,
might offer to provide such services.
Conflict of interest restrictions may apply to the receipt of compensation
paid pursuant to a Servicing Agreement by a Portfolio to a financial
intermediary in connection with the investment of fiduciary funds in a
Portfolio's Shares. Institutions, including banks regulated by the Comptroller
of the Currency and investment advisers and other money managers subject to the
jurisdiction of the SEC, the Department of Labor or state securities
commissions, should consult legal counsel before entering into Servicing
Agreements.
EXPENSES
Except as noted above and in the Statement of Additional Information under
"Investment Advisory and Administrative Contracts" and "Custodian and Transfer
Agent," the Fund's service contractors bear all expenses in connection with the
performance of their services, except that the Distributor is compensated
pursuant to the Distribution and Services Plans as described under "Distribution
and Services Plans" above. Expenses are deducted from the total income of each
Portfolio before dividends and distributions are paid. These expenses include,
but are not limited to, fees paid to the Adviser and Administrator, transfer
agency fees, fees and expenses of officers and directors who are not affiliated
with the Adviser or the Distributor, taxes, interest, legal fees, custodian
fees, auditing fees, 12b-1 fees, servicing fees, certain fees and expenses in
registering and qualifying a Portfolio and its Shares for distribution under
Federal and state securities laws, costs of preparing and printing prospectuses
and statements of additional information for regulatory purposes and for
distribution to existing shareholders, the expense of reports to shareholders,
shareholders' meetings and proxy solicitations, fidelity bond and directors and
officers liability insurance premiums, the expense of using independent pricing
services and other expenses which are not expressly assumed by the Adviser,
Distributor or Administrator under their respective agreements with the Fund.
The Fund also pays for brokerage fees, commissions and other transaction
charges, if any, in connection with the purchase and sale of portfolio
securities. Any general expenses of the Fund that are not readily identifiable
as belonging to a particular Portfolio will be allocated among all Portfolios by
or under the direction of the Board of Directors in a manner the Board
determines to be fair and equitable. Any expenses relating only 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 "openend 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,
84
<PAGE> 301
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; 50 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; 50 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. As of the date of this Prospectus, the
Fund has not commenced its offering of S Shares. 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 fees. 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 Bank, 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
85
<PAGE> 302
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, if fundamental, 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, if
fundamental, 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 March 5, 1998, Mercantile Bank 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 Bank 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.
86
<PAGE> 303
LOGO ACCOUNT APPLICATION
<TABLE>
<S> <C>
Please mail Application to:
The ARCH Mutual Funds
P.O. Box 78069 (Tram 41-6)
St. Louis, MO 63178
[ ] New Account
[ ] New Account--Employee
[ ] Additional Investment
[ ] Change of Account Information
<CAPTION>
<S> <C>
Please mail Application to: Class of Shares
The ARCH Mutual Funds (Please check one)
P.O. Box 78069 (Tram 41-6) [ ] Investor A-Shares
St. Louis, MO 63178 [ ] Investor B-Shares
[ ] New Account If a share class is not
[ ] New Account--Employee indicated, registrant will be
[ ] Additional Investment placed in Investor A.
[ ] Change of Account Information
</TABLE>
1 ACCOUNT INFORMATION (Please Print or Type)
Existing ARCH Mutual Funds Account Number, if any
- --------------------------------------------------------------------------------
Account Name
- --------------------------------------------------------------------------------
Social Security or Taxpayer ID Number Date of Birth
- --------------------------------------------------------------------------------
[ ] Joint Tenant Name
[ ] Minor Name
- --------------------------------------------------------------------------------
Social Security or Taxpayer ID Number Date of Birth
- --------------------------------------------------------------------------------
Mailing Address
- --------------------------------------------------------------------------------
Permanent Residence if Different (P.O. Box is not sufficient)
- --------------------------------------------------------------------------------
Home Phone ( ) Office Phone ( )
- --------------------------------------------------------------------------------
Please contact me at [ ] Home [ ] Office [ ] Other ( )
- --------------------------------------------------------------------------------
2 PERSONAL INFORMATION Joint Tenant
Employed By Occupation Employed
By Occupation
- --------------------------------------------------------------------------------
Business Address Business Address
- --------------------------------------------------------------------------------
Shareholder Co-Shareholder
Citizenship (Check One) [ ] U.S. [ ] Resident
Alien Citizenship (Check One) [ ] U.S. [ ] Resident Alien
[ ] Non-Resident Alien Other (Please Specify) [ ] Non-Resident Alien Other
(Please Specify)
If spouse or minor child is an investor in the ARCH Mutual Funds, please
indicate account number(s).
Is either party or immediate family member affiliated with or employed by any
securities firm? [ ] Yes [ ] No
If yes, what firm & position?
Is either party or immediate family member a director, a 10% or greater
shareholder or policy making executive officer of a publicly traded company?
[ ] Yes [ ] No
If yes, what company and position? __________
- --------------------------------------------------------------------------------
3 ACCOUNT INSTRUCTIONS Type of Registration (Check One)
<TABLE>
<S> <C> <C>
[ ] Individual [ ] Custodian for Minor [ ] Trust (attach Trust document)
[ ] Joint Tenants with Right of [ ] Partnership (attach Partnership [ ] Estate*
Survivorship Agreement) [ ] Other (Specify)*
[ ] Transfer on Death (TOD Form [ ] Corporation (attach Corporate *Additional forms required, please
required) Resolution) call 1-800-452-2724
</TABLE>
- --------------------------------------------------------------------------------
4 INITIAL INVESTMENT INFORMATION Minimum initial investment in any Portfolio is
$1,000 (except as otherwise noted in the prospectus)
Select one of the following payment methods:
[ ] By check: Make check payable to ARCH Mutual Funds.
[ ] By wire: Complete this form and call 1-800-452-2724 for wire instructions.
<TABLE>
<S> <C>
ARCH Money Market Portfolio $ ---------
ARCH Treasury Money Market Portfolio $ ---------
ARCH Tax-Exempt Money Market Portfolio $ ---------
ARCH Growth & Income Equity Portfolio $ ---------
ARCH Small Cap Equity Portfolio $ ---------
ARCH Government & Corporate Bond Portfolio $ ---------
ARCH U.S. Government Securities Portfolio $ ---------
ARCH National Municipal Bond Portfolio $ ---------
ARCH Equity Income Portfolio $ ---------
ARCH Intermediate Corporate Bond Portfolio $ ---------
ARCH Balanced Portfolio $ ---------
ARCH International Equity Portfolio $ ---------
ARCH Short-Intermediate Municipal Portfolio $ ---------
ARCH Missouri Tax-Exempt Bond Portfolio $ ---------
ARCH Bond Index Portfolio $ ---------
ARCH Equity Index Portfolio $ ---------
ARCH Growth Equity Portfolio $ ---------
ARCH Small Cap Equity Index Portfolio $ ---------
</TABLE>
- --------------------------------------------------------------------------------
5 DIVIDEND & CAPITAL GAIN DISTRIBUTION OPTIONS Check one. If none checked,
Option A will be assigned.
[ ] A. All dividends and capital gains reinvested in the same Portfolio.
[ ] B. All dividends and capital gains paid in cash.
[ ] C. All dividends paid in cash; capital gains reinvested in the same
Portfolio.
[ ] D. All dividends reinvested in same Portfolio; Capital gains paid in cash.
This is not part of prospectus
<PAGE> 304
- --------------------------------------------------------------------------------
6 BANK ADDRESS AND ELECTRONIC FUNDS TRANSFER INFORMATION* Attach a Voided Check
for Verification.
[ ] Check if telephone and written redemption proceeds are to be sent
electronically as indicated below unless otherwise specified at the time of the
request.
[ ] Check if cash dividends are to be sent electronically.
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------
Name(s) on Bank Account
- ---------------------------------------------------------------------------------------------
Bank Name Branch Office (if applicable) Bank
Telephone Number
- ---------------------------------------------------------------------------------------------
Bank Street Address (DO NOT use P.O.
Box) City State Zip
[
] Checking [ ] Savings
- ---------------------------------------------------------------------------------------------
Bank ABA (Routing) Number (if unknown, call your bank) Bank Account Number
*To add or change bank account information, the request must be in writing and accompanied by
a signature guarantee.
</TABLE>
- --------------------------------------------------------------------------------
7 LETTER OF INTENT (Investor A Shares only.)
I understand that through accumulated investments I can reduce my sales charges.
I plan to invest over a 13-month period in shares of one or more of the
Portfolios in the ARCH Mutual Funds sold with a sales charge in an aggregate
amount of at least:
[ ] $50,000 [ ] $100,000 [ ] $250,000 [ ] $500,000 [ ] $1,000,000
If the amount indicated is not invested within 13 months, reduced sales charges
do not apply.
[ ] Begin the 13-month period with my purchase on the following date
- ---------------------------
- --------------------------------------------------------------------------------
8 RIGHT OF ACCUMULATION (Investor A Shares only. See the prospectus for
qualifications.)
[ ] I own shares of more than one fund in the Arch Mutual Funds Group, which may
entitle me to a reduced sales charge. My shareholder account numbers are:
<TABLE>
<S> <C>
Fund Name Fund Name
- -------------------------- --------------------------
Account # Account #
- --------------------------- ---------------------------
<CAPTION>
<S> <C>
Fund Name Fund Name
- -------------------------- --------------------------
0A!
- --------------------------- ---------------------------
</TABLE>
- --------------------------------------------------------------------------------
9 ELECTION OF TELEPHONE REDEMPTION AND EXCHANGE PRIVILEGES
I elect the telephone redemption privilege as described in the prospectus. [
] Yes [ ]No If nothing is selected, Yes will be assumed.
I elect the telephone exchange privilege as described in the prospectus. [
] Yes [ ] No
- --------------------------------------------------------------------------------
10 AIP/AWP
[ ] Enroll me in the AIP/AWP--MY AIP/AWP APPLICATION IS ALSO ENCLOSED.
If you have any questions about this Application or any of our services, please
feel free to call Monday through Friday 1-800-452-2724 from 7:00 a.m. to 8:00
p.m. (Central Time), and one of our representatives will gladly assist you.
- --------------------------------------------------------------------------------
11 CHECKWRITING *Checkwriting signature card must accompany form.
[ ] I elect to have checkwriting privileges for my ARCH money market account
(Investor A Only)
- --------------------------------------------------------------------------------
12 YOUR SIGNATURE All registered shareholders must sign.
I have received and read the current prospectus of the Fund(s) selected and this
Account Application Form and agree to be bound by their terms. I also authorize
the instructions in this application.
I CERTIFY, UNDER PENALTIES OF PERJURY:
A. THAT THE SOCIAL SECURITY OR TAXPAYER IDENTIFICATION NUMBER SHOWN IN SECTION 1
IS CORRECT AND
B. UNLESS I HAVE CHECKED THE APPROPRIATE BOX BELOW, THAT (1) THE IRS HAS NEVER
NOTIFIED ME THAT I AM SUBJECT TO BACKUP WITHHOLDING OR (2) HAS NOTIFIED ME THAT
I AM NO LONGER SUBJECT TO BACKUP WITHHOLDING.
[ ] The IRS has notified me that I am subject to backup withholding.
Non-resident aliens may be subject to a separate IRS withholding of 30%.
The signature(s) below certifies that I (we) have read the Customer Agreement on
page iv and agree to the terms therein.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF
THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP
WITHHOLDING.
<TABLE>
<S> <C> <C> <C>
X X
- --------------------------------------- ---------------- --------------------------------------- ----------------
Signature of shareholder Date Signature of co-shareholder (if any) Date
------------------------------------------------------
Capacity of signator
</TABLE>
- --------------------------------------------------------------------------------
FOR DAILY PRICE AND YIELD UPDATES CALL 1-800-452-ARCH.
For Broker/Dealer purposes only:
<TABLE>
<S> <C>
Rep. Rep.
Name: ------------------------------------------------------ No. ---------------------------------------------------
Rep.
Signature: ------------------------------------------------- Date: -------------------------------------------------
Phone
Broker/Dealer: --------------------------------------------- No.: --------------------------------------------------
Location/Branch
Location/Branch: ------------------------------------------- No.: --------------------------------------------------
Approved by
Principal: ------------------------------------------------- Date: -------------------------------------------------
Name &
Number: ----------------------------------------------------
</TABLE>
This is not part of prospectus
<PAGE> 305
AUTOMATIC INVESTMENT/WITHDRAWAL PLAN APPLICATION
<TABLE>
<S> <C> <C>
For assistance in A R C H M U T U A L F U N D S Send completed application
completing this ------------------------------------------ to:
Application, call the This form must be accompanied by The ARCH Mutual Funds
ARCH Mutual Funds an ARCH Account Application P.O. Box 78069 (Tram 41-6)
(800) 452-2724 St. Louis, MO 63178
</TABLE>
SAUTOMATIC INVESTMENT PLAN--Investment Minimum--$50
- --------------------------------------------------------------------------------
This plan permits you to regularly purchase shares automatically* (processed on
or about the 20th of the month) by electronically transferring a specified
dollar amount from your regular checking account to your ARCH Mutual Fund
account. If you use this Plan to purchase shares in your ARCH Mutual Funds IRA,
the participation will be for the current year only.
*Frequency: [ ] Monthly [ ] Quarterly [ ] Semi-Annually [ ] Annually Share
class: [ ] Investor A [ ] Investor B
<TABLE>
<CAPTION>
AMOUNT
-----------
<S> <C>
ARCH Money Market Portfolio $
-----------
ARCH Treasury Money Market Portfolio $
-----------
ARCH Tax-Exempt Money Market Portfolio $
-----------
ARCH Growth & Income Equity Portfolio $
-----------
ARCH Small Cap Equity Portfolio $
-----------
ARCH Government & Corporate Bond
Portfolio $
-----------
ARCH U.S. Government Securities
Portfolio $
-----------
ARCH National Municipal Bond Portfolio $
-----------
ARCH Equity Income Portfolio $
-----------
</TABLE>
<TABLE>
<CAPTION>
AMOUNT
-----------
<S> <C>
ARCH Intermediate Corporate Bond
Portfolio $
-----------
ARCH Balanced Portfolio $
-----------
ARCH International Equity Portfolio $
-----------
ARCH Short-Intermediate Portfolio $
-----------
ARCH Missouri Tax-Exempt Bond Portfolio $
-----------
ARCH Bond Index Portfolio $
-----------
ARCH Equity Index Portfolio $
-----------
ARCH Growth Equity Portfolio $
-----------
ARCH Small Cap Equity Index Portfolio $
-----------
</TABLE>
[ ] Please check if investments will be made into an existing account.
S Please attach a blank check marked "VOID."
S Please include a check for a minimum of $50 if you are establishing a new
account.
S Please allow approximately thirty (30) days from the date we receive before it
is effective.
S You must verify that your bank participates in the Automated Clearing House
system before you enroll. Most banks are ACH participants. We will not be
responsible if a transaction is rejected because your bank is not an ACH
participant. Your bank may charge a service fee for those transactions.
S The ACH service options may only be established between your ARCH Mutual Fund
account and one bank account.
SAUTOMATIC WITHDRAWAL PLAN--Withdrawal Minimum--$50
- --------------------------------------------------------------------------------
To elect this option you must have a minimum $10,000 balance in the Portfolio
from which you wish to withdraw. Payments are made by redeeming shares*
(processed on or about the 25th of the month).
*Frequency: [ ] Monthly [ ] Quarterly [ ] Semi-Annually [ ] Annually
<TABLE>
<CAPTION>
AMOUNT
-----------
<S> <C>
ARCH Money Market Portfolio $
-----------
ARCH Treasury Money Market Portfolio $
-----------
ARCH Tax-Exempt Money Market Portfolio $
-----------
ARCH Growth & Income Equity Portfolio $
-----------
ARCH Small Cap Equity Portfolio $
-----------
ARCH Government & Corporate Bond
Portfolio $
-----------
ARCH U.S. Government Securities
Portfolio $
-----------
ARCH National Municipal Bond Portfolio $
-----------
ARCH Equity Income Portfolio $
-----------
</TABLE>
<TABLE>
<CAPTION>
AMOUNT
-----------
<S> <C>
ARCH Intermediate Corporate Bond
Portfolio $
-----------
ARCH Balanced Portfolio $
-----------
ARCH International Equity Portfolio $
-----------
ARCH Short-Intermediate Portfolio $
-----------
ARCH Missouri Tax-Exempt Bond Portfolio $
-----------
ARCH Bond Index Portfolio $
-----------
ARCH Equity Index Portfolio $
-----------
ARCH Growth Equity Portfolio $
-----------
ARCH Small Cap Equity Index Portfolio $
-----------
</TABLE>
S Please provide the following information if (1) you prefer your withdrawals
sent to your bank, AND/OR (2) your Portfolio and bank registration do not
match exactly, AND/OR (3) this form is not completed when the account is
established you must obtain a signature guarantee from a bank.
- --------------------------------------------------------------------------------
Name(s) on Bank Account
- --------------------------------------------------------------------------------
Bank Name Branch Office (if applicable) Bank
Telephone Number
- --------------------------------------------------------------------------------
Bank Street Address (DO NOT use P.O.
Box) City State Zip
[
] Checking [ ] Savings
- --------------------------------------------------------------------------------
Bank ABA (Routing) Number (if unknown, call your bank) Bank Account
Number
To add or change bank account information, the request must be in writing and
accompanied by a signature guarantee.
- --------------------------------------------------------------------------------
This is not part of prospectus
<PAGE> 306
SAUTO EXCHANGE (From one ARCH Fund to another ARCH Fund.)
- --------------------------------------------------------------------------------
You may make regular, automatic withdrawals from an ARCH Fund to benefit from
dollar-cost-averaging by automatically making purchases into another ARCH Mutual
Fund. You must have a minimum initial purchase of $5,000 or a minimum of $5,000
available in your existing ARCH Fund. The Auto Exchange feature is only
available within the same Class of Shares.
Please select how often you would like to have the amount(s) shown below
withdrawn from your ARCH Fund and invested into the selected Fund(s).
[ ] Once each month on the 20th
[ ] Once each quarter on the 20th beginning in
- ------------ (Jan/Apr/Jul/Oct).
FROM: Fund Name
- --------------- Account Number (or New)
- --------------- Amount ($50.00 min.)
- ---------------
TO: Fund Name
- --------------- Account Number (or New)
- --------------- Amount ($50.00 min.)
- ---------------
TO: Fund Name
- --------------- Account Number (or New)
- --------------- Amount ($50.00 min.)
- ---------------
BY MAKING THE ABOVE SELECTION, I AUTHORIZE THE ARCH MUTUAL FUNDS' TRANSFER AGENT
AND BISYS FUND SERVICES, TO REDEEM FROM THE AFOREMENTIONED ARCH FUND AND
PURCHASE THE MONIES INTO THE ARCH MUTUAL FUNDS CHOSEN ON THE ABOVE STATED
DATE(S). Please allow fifteen business days after written receipt of the request
to add, change or discontinue the Auto Exchange feature. Please complete an
appropriate Letter of Intent (if applicable).
- --------------------------------------------------------------------------------
SSIGNATURES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Signature of
Registrant: ------------------------------------------------ Date: -------------------
Signature of Joint
Registrant: ------------------------------------------------ Date: -------------------
Guarantor: -----------------------------------------------------------------------------------
* If you do not indicate the frequency, the program will be implemented on a monthly basis.
</TABLE>
SACCOUNT INFORMATION
- --------------------------------------------------------------------------------
Name:
- --------------------------------------------------------------- Account No.:
Address:
Street City State Zip Code
Daytime Telephone: ( ) Social
Security No.:
CUSTOMER AGREEMENT
- --------------------------------------------------------------------------------
I (we) have full right, power, authority and legal capacity, and am (are) of
legal age in my (our) state of residence to purchase shares of the Portfolio(s).
I (we) affirm that I (we) have received and read the current prospectus of the
Portfolio(s) selected and agree to be bound by its terms.
a. Representations. I understand that the Funds, BISYS Fund Services (the
Distributor) or BISYS Fund Services Ohio, Inc. (the Transfer Agent) provide no
investment, tax or legal advice and I have not relied on their judgment with
respect to the suitability or potential value of any security or order.
b. Force Majeure. You shall not be liable for loss or delay caused directly or
indirectly by war, natural disaster, government restrictions, exchange or market
rulings or other conditions beyond the control of the Distributor and the
Transfer Agent.
c. Governing Laws. The Agreement shall be governed by the laws of the State of
Ohio as applicable.
d. Reliance on Representations. I understand that the Distributor and the
Transfer Agent shall rely on the information which I have set forth in this
Agreement until the Distributor or the Transfer Agent receive changes to it by
subsequent written notice. Any changes made to Sections 1 & 5 must be made in
writing to the Distributor and accompanied by a Signature guarantee from an
eligible guarantor institution as outlined in the Funds prospectus.
e. Indemnification. As additional consideration for the services of the
Distributor and the Transfer Agent with regard to this Account, I agree to
indemnify and hold the Distributor and the Transfer Agent, its officers,
directors, employees and agents harmless from and against any and all losses,
liabilities, demands, claims, actions, expenses, and attorney's fees arising out
of or in connection with this Agreement, which are not caused by the negligence
or willful misconduct of the Distributor and the Transfer Agent. The provisions
of this Section shall survive termination of this Agreement. The provisions of
this Section shall be binding on my successors and assigns.
f. It is agreed that any controversy between me and all or any of the Portfolios
and its service providers, arising out of this Agreement or my business with
you, shall be settled by arbitration conducted in accordance with the rules of
the National Association of Securities Dealers, Inc. or the American Arbitration
Association, as I may elect. Failure to notify you of such election in writing
within five (5) days after receipt from you of a request for arbitration shall
be deemed to be authorization to make such election on my behalf. Judgment upon
the award of the arbitrators may be entered by any court having jurisdiction. No
person shall bring a putative or certified class action to arbitration, nor seek
to enforce any pre-dispute arbitration agreement against any person who has
initiated in court a putative class action; or who is a member of a putative
class who has not opted out of the class with respect to any claims encompassed
by the putative class action until; (i) the class certification is denied; (ii)
the class is decertified; or (iii) the person against whom the arbitration
agreement would be enforced is excluded from the class by the court. Such
forbearance to enforce an agreement to arbitrate shall not constitute a waiver
of any rights under this agreement except to the extent stated herein.
g. I understand that mutual fund shares are not bank deposits, are not insured
by the FDIC, are not obligations of ARCH Mutual Funds or the U.S. Government and
are not endorsed or guaranteed in any way by ARCH Mutual Funds or any bank or
financial institution.
h. Neither the Distributor nor the Fund 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 contractors may be liable
for any losses due to unauthorized or fraudulent instructions. These procedures
include recording all phone conversations, sending confirmations to shareholders
within 48 hours of the telephone transactions, verification of account name and
account number or tax identification number, and sending redemption proceeds
only to the address of record or to a previously authorized bank account.
This is not part of prospectus
<PAGE> 307
(This page intentionally left blank)
<PAGE> 308
(This page intentionally left blank)
<PAGE> 309
INVESTMENT ADVISER
Mississippi Valley Advisors Inc.
One Mercantile Center
Seventh & Washington Streets
St. Louis, Missouri 63101
DISTRIBUTOR
BISYS Fund Services
3435 Stelzer road
Columbus, OH 43219-3035
LEGAL COUNSEL
Drinker Biddle & Reath LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, Ohio 43215
TRANSFER AGENT
BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, OH 43219-3035
<PAGE> 310
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
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> 311
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
March 31, 1998
<PAGE> 312
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
March 31, 1998
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
----
<S> <C>
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................................................................................. 71
INDEPENDENT AUDITORS................................................................................... 96
COUNSEL................................................................................................ 96
MISCELLANEOUS.......................................................................................... 96
APPENDIX A............................................................................................. 1
APPENDIX B............................................................................................. 1
FINANCIAL STATEMENTS..................................................................................FS-1
</TABLE>
This Statement of Additional Information, which provides supplemental
information applicable to the above-listed Portfolios of The ARCH Fund, Inc.
(the "Portfolios"), is not a prospectus. It should be read only in conjunction
with the Portfolios' Prospectuses dated March 31, 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.
<PAGE> 313
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 invests primarily in
selected U.S. Government (and certain agency
<PAGE> 314
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-
-2-
<PAGE> 315
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
-3-
<PAGE> 316
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
-4-
<PAGE> 317
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.
-5-
<PAGE> 318
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.
-6-
<PAGE> 319
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
-7-
<PAGE> 320
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
-8-
<PAGE> 321
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.
-9-
<PAGE> 322
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.
-10-
<PAGE> 323
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
-11-
<PAGE> 324
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
-12-
<PAGE> 325
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
-13-
<PAGE> 326
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.
-14-
<PAGE> 327
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
-15-
<PAGE> 328
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
-16-
<PAGE> 329
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
-17-
<PAGE> 330
"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
-18-
<PAGE> 331
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 whenissued, 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.
-19-
<PAGE> 332
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
-20-
<PAGE> 333
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
-21-
<PAGE> 334
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
-22-
<PAGE> 335
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
-23-
<PAGE> 336
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-
-24-
<PAGE> 337
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 movements correctly in the
direction of the market. There is an
-25-
<PAGE> 338
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.
The trading of futures contracts is also subject to the risk
of trading halts, suspensions, exchange or clearing house
-26-
<PAGE> 339
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; ETDs; CTDs; Schedule Bs, which are
obligations issued by Canadian branches of foreign or domestic banks; Yankee
CDs; and Yankee
-27-
<PAGE> 340
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 Equity Portfolio,
the Sub-Adviser) is responsible for, makes
-28-
<PAGE> 341
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 $858,757, $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 $428,191, $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
$248,564, $235,230 and $129,568 respectively, in brokerage commissions. During
the fiscal years ended November 30, 1997, 1996 and 1995, the Balanced Portfolio
paid $120,705, $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 $95,470, $71,770, and $42,563, respectively. During the fiscal
year ended November 30, 1997, the Equity Income Portfolio paid $151,046 in
brokerage commissions. During the fiscal year ended November 30, 1997, the
Equity Index Portfolio paid $10,259 in brokerage commissions. 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
-29-
<PAGE> 342
prices at which securities are purchased from and sold to dealers include a
dealer's mark-up or mark-down.
The Portfolios may participate, if and when practicable, in
bidding for the purchase of portfolio securities directly from an issuer in
order to take advantage of the lower purchase price available to members of a
bidding group. The Portfolios will engage in this practice, however, only when
the Adviser (or Sub-Adviser in the case of the International Equity Portfolio),
in its sole discretion, believes such practice to be otherwise in a Portfolio's
interests.
While the Adviser (or Sub-Adviser in the case of the
International Equity Portfolio) generally seeks competitive spreads or
commissions, it may not necessarily allocate each transaction to the underwriter
or dealer charging the lowest spread or commission available on the transaction.
Allocation of transactions, including their frequency, to various dealers is
determined by the Adviser or Sub-Adviser in its best judgment and in a manner
deemed fair and reasonable to shareholders. The primary consideration is prompt
execution of orders in an effective manner at the most favorable price.
Subject to this consideration, dealers who provide
supplemental investment research to the Adviser (or Sub-Adviser) may receive
orders for transactions by a Portfolio. Information so received is in addition
to and not in lieu of services required to be performed by the Adviser (or
Sub-Adviser) and does not reduce the advisory fees payable to it by a Portfolio.
Such information may be useful to the Adviser (or Sub-Adviser) in serving both
the Portfolios and other clients, and conversely, supplemental information
obtained by the placement of business of other clients may be useful to the
Adviser (or Sub-Adviser) in carrying out its obligations to the Portfolios.
Portfolio securities will not be purchased from or sold to the Adviser, the
Sub-Adviser, the Distributor, the Administrator or any "affiliated person" (as
such term is defined under the 1940 Act) or any of them acting as principal,
except to the extent permitted by the SEC. In addition, the Portfolios will not
give preference to the Adviser's correspondents with respect to such
transactions, securities, savings deposits, repurchase agreements and reverse
repurchase agreements.
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
-30-
<PAGE> 343
investments allocated as to amount, in a manner which the Adviser (or
Sub-Adviser) believes to be equitable to the Portfolio and such other investment
company or account. In some instances, this investment procedure may adversely
affect the price paid or received by the Portfolio or the size of the position
obtained by the Portfolio. To the extent permitted by law, the Adviser (or
Sub-Adviser) may aggregate the securities to be sold or purchased for the
Portfolios with those to be sold or purchased for other investment companies or
accounts in order to obtain best execution.
SPECIAL CONSIDERATIONS REGARDING INVESTMENT IN MISSOURI OBLIGATIONS
The following highlights some of the more important economic
and financial trends and considerations and is based on information from
official statements, prospectuses and other publicly available documents
relating to securities offerings of the State of Missouri, its agencies and
instrumentalities, as available on the date of this Statement of Additional
Information. The Fund has not independently verified any of the information
contained in such statements or other documents.
Missouri's population was approximately 5.4 million in 1996,
which represents a 4.7% increase from the 1990 decennial census of the U.S.
Census Bureau. Based on 1996 U.S. Census Bureau estimates, Missouri constituted
the 16th most populous state and its two largest cities, St. Louis and Kansas
City and their surrounding metropolitan areas, constituted the 17th and 26th
largest metropolitan areas in the nation, respectively. St. Louis is a
distribution center and an important site for banking and manufacturing
activity. Kansas City is a major agri-business center for the United States and
an important center for finance and industry. [Source: U.S. Department of
Commerce, Bureau of the Census.]
The major sectors of the State's economy include agriculture,
manufacturing, trade, government and services. Farming traditionally has played
a dominant role in the State's economy, although farming and agricultural
services contributed only approximately $1.25 billion to the State's economy in
1996, or approximately 1% of the State's revenues. With increasing urbanization,
significant income-generating activity has shifted from agriculture to the
manufacturing and services sectors. Earnings and employment are distributed
among the manufacturing, trade and service sectors in a close approximation of
the average national distribution, thus lessening the State's cyclical
sensitivity to impact by any single activity. Per capita income in Missouri grew
4.9% between 1995 and 1996 while per capita income nationally grew 4.6% during
that period. In 1996,
-31-
<PAGE> 344
services represented the single most important economic activity, followed by
wholesale and retail trade. Manufacturing, which accounts for approximately 17%
of employment, is concentrated in defense, transportation and other durable
goods. [Source: U.S. Census Bureau, Bureau of Economic Analysis.]
Defense-related business plays an important role in Missouri's
economy. In addition to the large number of civilians in the State, aircraft
production and defense-related businesses receive sizable annual defense
contract awards. Over the past decade, Missouri has annually ranked among the
top six states in total military contract awards. Declining defense
appropriations and federal downsizing may continue to have an impact on the
State. [Source: Missouri Dept. of Economic Development.] The Boeing Company is
the State's largest employer, with 22,800 employees as of January 1998.
Revenue collections for the fiscal year ended June 30, 1997
("Fiscal Year 1997") were $6,119 million, excluding $72.9 million from other
transfers, representing an increase of 7.3 percent over revenue collections from
the fiscal year ended June 30, 1996. These revenues supplement a carry-over
balance from the previous year of $335.4 million. Expenditures for Fiscal Year
1997 are estimated at $6,426 million including $147.6 million and $110.3
million, respectively, for the St. Louis and Kansas City school desegregation
cases.
For the fiscal year ending June 30, 1998 ("Fiscal Year 1998")
revenues are projected to be $6,412.8 million. This projection does not include
an estimated $86.1 million in proceeds from other transfers or a carry-over
balance of approximately $132.8 million. Expenditures are projected at $6,500.9
million, including $158.8 million and $105.2 million, respectively, for the St.
Louis and Kansas City desegregation cases. Projected expenditures also include
$80 million for supplemental appropriations for Fiscal Year 1998.
INVESTMENT LIMITATIONS
The following investment limitations may be
changed with respect to a particular Portfolio only by an affirmative vote of a
majority of the outstanding shares of that Portfolio (as defined under "Other
Information Concerning the Fund and Its Shares -- Miscellaneous" in the
Portfolios' Prospectuses). These investment limitations supplement those that
appear in the Prospectuses.
-32-
<PAGE> 345
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 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.
-33-
<PAGE> 346
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
-34-
<PAGE> 347
acquired subject to the investment limitation pertaining to purchases of
restricted securities.
5. Purchase or sell real estate, except that the
Portfolio may invest in Municipal Obligations which are secured by real estate
or interests therein.
6. Purchase or sell commodities or commodity
contracts or invest in oil, gas, or other mineral exploration or development
programs.
7. Invest in or sell put options (except as described
above under "Investment Objectives and Policies -Stand-by Commitments"), call
options, straddles, spreads, or any combination thereof.
8. Purchase foreign securities.
9. Invest in industrial development bonds where the
payment of principal and interest are the responsibility of a company (including
its predecessors) with less than three years of continuous operation, or buy
common stock or voting securities.
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.
-35-
<PAGE> 348
2. Purchase or sell real estate, provided that each
Portfolio may invest in securities secured by real estate or interests therein
or issued by companies or investment trusts which invest in real estate or
interests therein; provided further that, as described in the Prospectuses, (a)
the Government & Corporate Bond Portfolio may invest in first mortgage loans,
income participation loans and participation certificates in pools of mortgages,
including mortgages issued or guaranteed by the U.S. Government, its agencies or
its instrumentalities and CMOs; (b) the U.S. Government Securities Portfolio may
invest in certain mortgage-backed securities, CMOs and certain other securities;
(c) the Intermediate Corporate Bond Portfolio may invest in first mortgage
loans, income participation loans and participation certificates in pools of
mortgages, including mortgages issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, mortgage-backed securities or CMOs; and (d) the
Bond Index Portfolio may invest in first mortgage loans, income participation
loans and participations in pools of mortgages, including mortgages issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, and
mortgage-backed securities.
3. Act as an underwriter of securities within the
meaning of the Securities Act of 1933 except insofar as a Portfolio might be
deemed to be an underwriter upon disposition of portfolio securities acquired
within the limitation on purchases of restricted securities and except to the
extent that the purchase of obligations directly from the issuer thereof in
accordance with a Portfolio's investment objective, policies and limitations may
be deemed to be underwriting.
4. Purchase or sell commodity contracts, or invest in
oil, gas or mineral exploration or development programs, except that the
Intermediate Corporate Bond, Bond Index, National Municipal Bond, Equity Income,
Equity Index, 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.
-36-
<PAGE> 349
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.
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
-37-
<PAGE> 350
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 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%
-38-
<PAGE> 351
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.
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
-39-
<PAGE> 352
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, 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.
-40-
<PAGE> 353
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 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
-41-
<PAGE> 354
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 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
-42-
<PAGE> 355
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 any banking
affiliate of Mercantile Bank, 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 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
-43-
<PAGE> 356
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).
-44-
<PAGE> 357
<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 $ 276,844 $ 4,773,548 $ 23,721,870 $ 716,757 $ 173,410
Outstanding Shares 27,384 461,121 1,998,194 69,821 15,004
Net Asset Value $ 10.11 $ 10.35 $ 11.87 $ 10.27 $ 11.56
Per Share
Sales Charge, 4.50% $ 0.48 $ 0.49 $ 0.56 $ 0.48 $ 0.54
of offering price
(4.70% of net asset
value per share)
Offering Price $ 10.59 $ 10.84 $ 12.43 $ 10.75 $ 12.10
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 $ 46,371,949 $ 3,467,455 $ 14,213,142 $ 2,853,914 $ 9,922,872
Outstanding Shares 2,195,391 213,232 945,598 238,052 748,059
Net Asset Value $ 21.12 $ 16.26 $ 15.03 $ 11.99 $ 13.26
Per Share
Sales Charge, 4.50% $ 1.00 $ 0.77 $ 0.71 $ 0.56 $ 0.62
of offering price
(4.70% of net
asset value per
share)
Offering Price $ 22.12 $ 17.03 $ 15.74 $ 12.55 $ 13.88
to Public
</TABLE>
-45-
<PAGE> 358
<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 $ 5,180,865 $ 54,696 $ 16,337 $ 205,851 $ 10
Outstanding Shares 488,002 5,377 1,617 17,248 1
Net Asset Value $ 10.62 $ 10.17 $ 10.11 $ 11.93 $ 10.00
Per Share
Sales Charge, 2.50% $ 0.27 $ 0.26 $ 0.26 $ 0.31 $ 0.26
of offering price
(2.60% of net
asset value per
share)
Offering Price $ 10.89 $ 10.43 $ 10.37 $ 12.24 $ 10.26
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 separately for Trust Shares,
Institutional Shares, S Shares,
-46-
<PAGE> 359
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:
-47-
<PAGE> 360
<TABLE>
<CAPTION>
7-Day Effective
PORTFOLIO* 7-Day Yield Yield 30-Day Yield
---------- ----------- -------------- ------------
<S> <C> <C> <C>
Treasury Money Market
Trust Shares 4.58% 4.68% 4.53%
Institutional Shares 4.41% 4.50% 4.36%
Investor A Shares 4.41% 4.50% 4.36%
Money Market
Trust Shares 5.04% 5.17% 5.02%
Institutional Shares 4.91% 5.03% 4.89%
Investor A Shares 4.91% 5.03% 4.89%
Investor B Shares 4.16% 4.25% 4.14%
Tax-Exempt Money Market
Trust Shares 3.21% 3.26% 3.20%
Investor A Shares 3.01% 3.06% 3.00%
</TABLE>
- --------------------
* S Shares of the Money Market Portfolios were not offered as
of November 30, 1997.
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 2.98% 3.03% 2.97%
Investor A Shares 2.97% 3.02% 2.96%
</TABLE>
In addition, as described in the applicable Prospectuses, the
Treasury Money Market Portfolio may calculate a 7 day "state tax-exempt yield,"
which is computed by dividing the portion of the Portfolio's yield (calculated
as above) that is exempt from state income tax by one minus a state income tax
rate. Based upon the same calculations, the Portfolio's 30 day state tax-exempt
yield may also be quoted.
A Portfolio's quoted yield is not indicative of future yields
and depends upon factors such as portfolio maturity, the Portfolio's expenses,
and the types of instruments held by the Portfolio. Any account fees imposed by
financial institutions, Service Organizations, or broker-dealers would reduce a
Portfolio's effective yield.
-48-
<PAGE> 361
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 sixth power - 1]
cd + 1
Where: a = dividends and interest earned
during the period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding
that were entitled to receive dividends.
d = maximum offering price per share on the last
day of the period.
For the purpose of determining interest earned during the
period (variable "a" in the formula), dividend income on equity securities held
by a Portfolio is recognized by accruing 1/360 of the stated dividend rate of
the security each day that the security is in that Portfolio. A Portfolio
calculates interest earned on any debt obligation held in its portfolio by
computing the yield to maturity of each obligation held by it based on the
market value of the obligation (including actual accrued interest) at the close
of business on the last business day of each 30 day period, or, with respect to
obligations purchased during the 30 day period, the purchase price (plus actual
accrued interest) and dividing the result by 360 and
-49-
<PAGE> 362
multiplying the quotient by the market value of the obligation (including actual
accrued interest) in order to determine the interest income on the obligation
for each day of the subsequent 30 day period that the obligation is in the
portfolio. The maturity of an obligation with a call provision is the next call
date on which the obligation reasonably may be expected to be called or, if
none, the maturity date. With respect to debt obligations purchased at a
discount or premium, the formula generally calls for amortization of the
discount or premium. The amortization schedule will be adjusted monthly to
reflect changes in the market values of such debt obligations.
Interest earned on Municipal Obligations of the
Short-Intermediate Municipal, Missouri Tax-Exempt Bond and National Municipal
Bond Portfolios that are issued without original issue discount and have a
current market discount is calculated by using the coupon rate of interest
instead of the yield to maturity. In the case of Municipal Obligations that are
issued with original issue discount but which have discounts based on current
market value that exceed the then-remaining portion of the original issue
discount (market discount), the yield to maturity is the imputed rate based on
the original issue discount calculation. On the other hand, in the case of
Municipal Obligations that are issued with original issue discount but which
have discounts based on current market value that are less than the
then-remaining portion of the original issue discount (market premium), the
yield to maturity is based on the market value.
Expenses accrued for the period (variable "b" in the formula)
include all recurring fees charged by a Portfolio to all shareholder accounts in
proportion to the length of the base period and the Portfolio's mean (or median)
account size. Investor A Shares, Investor B Shares, Institutional Shares and
Trust Shares each bear separate fees applicable to the particular class of
shares. Undeclared earned income will not be subtracted from the maximum
offering price per share (variable "d" in the formula). Undeclared earned income
is net investment income which, at the end of the base period, has not been
declared and paid as a dividend, but is reasonably expected to be and is
declared and paid as a dividend shortly thereafter.
The Short-Intermediate Municipal, Missouri Tax-Exempt Bond and
National Municipal Bond Portfolios' "tax-equivalent" yield for each class of
shares is computed by dividing the portion of a Portfolio's yield (calculated as
above) that is exempt from federal income tax by one minus a stated federal
income tax rate and adding that figure to that portion, if any, of the
Portfolio's yield that is not exempt from federal income tax. Similarly, the
Missouri Tax-Exempt Bond Portfolio's "Missouri tax-equivalent" yields for each
class of shares is
-50-
<PAGE> 363
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 5.31%
Institutional Shares 5.01%
Investor A Shares 5.01%
Investor B Shares 4.31%
Intermediate Corporate Bond
Trust Shares 6.18%
Institutional Shares 6.19%
Investor A Shares 5.88%
Bond Index
Trust Shares 5.89%
Institutional Shares 5.88%
Investor A Shares 5.59%
Government & Corporate Bond
Trust Shares 5.62%
Institutional Shares 5.32%
Investor A Shares 4.54%
Investor B Shares 4.61%
Short-Intermediate Municipal
Trust Shares 3.66%
Investor A Shares 3.40%
Missouri Tax Exempt Bond
Trust Shares 4.26%
Investor A Shares 4.06%
Investor B Shares 3.26%
National Municipal Bond
Trust Shares 4.92%
Investor A Shares 3.23%
Investor B Shares 3.92%
Balanced
Trust Shares 2.58%
Institutional Shares 2.29%
Investor A Shares 2.29%
Investor B Shares 1.59%
</TABLE>
-51-
<PAGE> 364
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 6.06% 6.44%
Investor A Shares 5.63% 5.99%
Missouri Tax-Exempt Bond
Trust Shares 7.05% 7.50%
Investor A Shares 6.72% 7.15%
Investor B Shares 5.40% 5.74%
National Municipal Bond
Trust Shares 8.15% 8.66%
Investor A Shares 5.35% 5.69%
Investor B Shares 6.49% 6.90%
</TABLE>
A Portfolio computes its "average annual total return" for
each series of that Portfolio by determining the average annual compounded rate
of return during specified periods that would equate the initial amount invested
in a particular series to the ending redeemable value of such investment in the
series by dividing the ending redeemable value of a hypothetical $1,000 payment
by $1,000 (representing a hypothetical initial payment) and raising the quotient
to a power equal to one divided by the number of years (or fractional portion
thereof) covered by the computation and subtracting one from the result. This
calculation can be expressed as follows:
ERV 1/n
T = [(-------) - 1]
P
Where: T = average annual total return
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
1, 5 or 10 year (or other) periods at the end
of the 1, 5 or 10 year (or other) periods (or
a fractional portion thereof)
P = hypothetical initial payment of $1,000
n = period covered by the computation, expressed
in terms of years
-52-
<PAGE> 365
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:
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------
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) 5.51% 6.41% 7.87%
Institutional Shares(7) 5.10% 6.01% 7.59%
Investor A Shares(1) 2.60% 5.55% 7.35%
Investor B Shares(4) 0.49% 5.30% 7.30%
Intermediate Corporate Bond(23)
Trust Shares N/A N/A 6.65%
Institutional Shares N/A N/A 6.60%
Investor A Shares N/A N/A 1.70%
</TABLE>
-53-
<PAGE> 366
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------
FOR THE 5 SINCE
FOR THE YEAR YEARS ENDED COMMENCEMENT
PORTFOLIO ENDED 11/30/97 11/30/97 OF OPERATIONS
--------- -------------- ----------- -------------
<S> <C> <C> <C>
Bond Index(23)
Trust Shares N/A N/A 7.15%
Institutional Shares N/A N/A 7.20%
Investor A Shares N/A N/A 4.22%
Government & Corporate Bond
Trust Shares(5) 6.32% 6.80% 7.85%
Institutional Shares(2) 6.00% 6.49% 7.63%
Investor A Shares(5) 0.99% 5.47% 7.08%
Investor B Shares(4) 1.26% 5.90% 7.40%
Short-Intermediate Municipal
Trust Shares(17) 4.39% N/A 4.47%
Investor A Shares(18) 1.51% N/A 2.63%
Missouri Tax-Exempt Bond(19)
Trust Shares(20) 6.48% 6.60% 7.97%
Investor A Shares(21) 1.49% 5.41% 7.26%
Investor B Shares(4) 1.43% 5.73% 7.46%
National Municipal Bond(22)
Trust Shares 7.97% N/A 8.76%
Investor A Shares 2.80% N/A 3.40%
Investor B Shares 3.01% N/A 2.65%
Equity Income(24)
Trust Shares N/A N/A 17.64%
Institutional Shares N/A N/A 17.64%
Investor A Shares N/A N/A 12.15%
Investor B Shares N/A N/A 11.75%
Equity Index(25)
Trust Shares N/A N/A 20.40%
Institutional Shares N/A N/A 20.40%
Investor A Shares N/A N/A 17.10%
Growth & Income Equity
Trust Shares(1) 24.55% 17.48% 16.03%
Institutional Shares(2) 23.90% 17.18% 15.88%
Investor A Shares(1) 18.32% 16.11% 15.32%
Investor B Shares(4) 19.04% 16.64% 15.65%
Growth Equity
Trust Shares(26) 19.63% N/A 1.09%
Institutional Shares(26) N/A N/A N/A
Investor A Shares(27) 14.28% N/A 14.80%
Investor B Shares(26) N/A N/A N/A
Small Cap Equity
Trust Shares(9) 19.77% 15.34% 16.09%
Institutional Shares(2) 19.41% 15.05% 15.83%
Investor A Shares(10) 14.09% 14.06% 14.94%
Investor B Shares(4) 14.62% 14.57% 15.40%
</TABLE>
-54-
<PAGE> 367
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------
FOR THE 5 SINCE
FOR THE YEAR YEARS ENDED COMMENCEMENT
PORTFOLIO ENDED 11/30/97 11/30/97 OF OPERATIONS
--------- -------------- ----------- -------------
<S> <C> <C> <C>
Small Cap Equity Index(28)
Trust Shares N/A N/A N/A
Institutional Shares N/A N/A N/A
Investor A Shares N/A N/A N/A
International Equity
Trust Shares(14) 2.91% N/A 6.27%
Institutional Shares(14) 2.59% N/A 5.96%
Investor A Shares(15) (2.05%) N/A 4.69%
Investor B Shares(4) (2.14%) N/A 4.71%
Balanced
Trust Shares(12) 15.81% N/A 12.11%
Institutional Shares(12) 15.52% N/A 11.84%
Investor A Shares(12) 10.21% N/A 10.78%
Investor B Shares(4) 10.57% N/A 11.08%
</TABLE>
- ----------
(1) Commenced operations on June 2, 1988.
(2) Initial public offering commenced on January 4, 1994.
(3) Reflects combined performance of Institutional Shares which were
initially offered to the public on January 4, 1994 and Investor A
Shares for the period prior to January 4, 1994.
(4) Investor B Shares were initially offered on March 1, 1995. The
performance figures for Investor B Shares for periods prior to such
date represent the performance for Investor A Shares of the Portfolio
which has been restated to reflect the contingent deferred sales
charges payable by holders of Investor B Shares that redeem within six
years of the date of purchase. Investor B Shares are also subject to
distribution and services fees at a maximum annual rate of 1.00%. Had
those distribution and services fees been reflected, performance would
have been reduced.
(5) Commenced operations on June 15, 1988.
(6) Reflects combined performance of Institutional Shares which were
initially offered to the public on January 4, 1994 and Investor A
Shares for the period prior to January 4, 1994.
(7) Commenced operations on June 7, 1994.
(8) Reflects combined performance of Institutional Shares which were
initially offered to the public on June 7, 1994 and Investor A Shares
for the period prior to January 4, 1994.
(9) Commenced operations on May 1, 1992.
(10) Initial public offering commenced on May 6, 1992.
(11) Reflects combined performance of Institutional Shares which were
initially offered to the public on January 4, 1994 and Investor A
Shares for the period May 1, 1992 through January 3, 1994.
(12) Commenced operations on April 1, 1993.
(13) Reflects combined performance of Institutional Shares which were
initially offered to the public on January 4, 1994 and Investor A
Shares for the period April 1, 1993 through January 3, 1994.
(14) Commenced operations on April 4, 1994.
(15) Initial public offering commenced on May 2, 1994.
-55-
<PAGE> 368
(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:
-56-
<PAGE> 369
<TABLE>
<CAPTION>
AGGREGATE TOTAL RETURN
PORTFOLIO SINCE COMMENCEMENT
--------- OF OPERATIONS
----------------------
<S> <C>
U.S. Government Securities
Trust Shares 105.43%
Institutional Shares(1) 100.50%
Investor A Shares 96.23%
Investor B Shares(2) 95.41%
Intermediate Corporate Bond
Trust Shares 6.65%
Institutional Shares 6.60%
Investor A Shares 1.70%
Bond Index
Trust Shares 7.15%
Institutional Shares 7.20%
Investor A Shares 4.22%
Government & Corporate Bond
Trust Shares 104.60%
Institutional Shares(1) 100.55%
Investor A Shares 91.17%
Investor B Shares(2) 96.58%
Short-Intermediate Municipal
Trust Shares 11.03%
Investor A Shares 6.41%
Missouri Tax-Exempt Bond
Trust Shares 105.31%
Investor A Shares 93.09%
Investor B Shares(2) 96.45%
National Municipal Bond
Trust Shares 8.76%
Investor A Shares 3.52%
Investor B Shares 2.75%
Equity Income
Trust Shares 17.63%
Institutional Shares 17.63%
Investor A Shares 12.14%
Investor B Shares 11.75%
Equity Index
Trust Shares 20.40%
Institutional Shares 20.40%
Investor A Shares 17.09%
Growth & Income Equity
Trust Shares 310.93%
Institutional Shares(1) 305.71%
Investor A Shares 287.48%
Investor B Shares(2) 298.29%
Growth Equity
Trust Shares 106.10%
Institutional Shares N/A
Investor A Shares(3) 96.85%
Investor B Shares N/A
</TABLE>
-57-
<PAGE> 370
<TABLE>
<CAPTION>
AGGREGATE TOTAL RETURN
PORTFOLIO SINCE COMMENCEMENT
--------- OF OPERATIONS
----------------------
<S> <C>
Small Cap Equity
Trust Shares 129.73%
Institutional Shares(1) 126.91%
Investor A Shares 117.33%
Investor B Shares(2) 122.26%
International Equity
Trust Shares 24.95%
Institutional Shares(1) 23.64%
Investor A Shares 18.28%
Investor B Shares(2) 18.38%
Balanced
Trust Shares 70.54%
Institutional Shares(1) 68.67%
Investor A Shares 61.34%
Investor B Shares(2) 63.37%
</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 publications that monitor the performance of mutual
funds. Such
-58-
<PAGE> 371
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 Trust 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/MONEY FUND REPORT(R), MorningStar, CDA/Wiesenberger, Money
Magazine, Forbes, Fortune, Barron's, The Wall Street Journal, The New York
Times, Business Week, American Banker, Fortune, Institutional Investor, U.S.A.
Today and publications of Ibbotson Associates, Inc. and other publications of a
local or regional nature. In addition to performance information, general
information about the Portfolios that appears in a publication such as those
mentioned above may be included in advertisements, supplemental sales literature
and in reports to Shareholders.
From time to time, the Fund may include the following types of
information in advertisements, supplemental sales literature and reports to
Shareholders: (1) discussions of general economic or financial principles (such
as the effects of inflation, the power of compounding and the benefits of
dollar-cost averaging); (2) discussions of general economic trends; (3)
presentations of statistical data to supplement such discussions; (4)
descriptions of past or anticipated portfolio holdings for one or more of the
Portfolios within the Fund; (5) descriptions of investment strategies for one or
more of such Portfolios; (6) descriptions or comparisons of various investment
products, which may or may not include the Portfolios; (7) comparisons of
investment products (including the Portfolios) with relevant market or industry
indices or other appropriate benchmarks; and (8) discussions of rankings or
ratings by recognized rating organizations.
In addition, with respect to the Short-Intermediate Municipal, Missouri
Tax-Exempt Bond and National Municipal Bond Portfolios the benefits of tax-free
investments may be communicated in advertisements or communications to
shareholders. For example, the tables below present the approximate yield that a
taxable investment must earn at various income brackets to produce after-tax
yields equivalent to those of tax-exempt investments yielding from 4.50% to
7.00%. The yields below are for illustration purposes only and are not intended
to represent current or future yields for the Portfolios, which may be higher or
lower than those shown. The tax brackets shown below will be
-59-
<PAGE> 372
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%
</TABLE>
<TABLE>
<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>
-60-
<PAGE> 373
<TABLE>
<CAPTION>
APPROXIMATE YIELD TABLE: MISSOURI TAX-EXEMPT BOND PORTFOLIO
SINGLE RETURN Combined
Federal and
Sample Taxable Federal Missouri Missouri
Income Marginal Marginal Marginal Tax
(1998) Tax Rate Tax Rate Rate ------------------Tax-Exempt Yields-------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
FROM
$0 TO
$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
Sample Taxable Federal Missouri Missouri
Income Marginal Marginal Marginal Tax
(1998) Tax Rate Tax Rate Rate ----------------------Tax-Exempt Yields--------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
FROM
$0 TO
$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.
Since performance will fluctuate, performance data for the Portfolios
cannot necessarily be used to compare an investment in
-61-
<PAGE> 374
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. As of the date of this Statement of Additional
Information, the Fund has not commenced offering S Shares.
Except as noted in the Prospectuses with respect to certain
sub-transfer agency expenses borne by Institutional Shares and
-62-
<PAGE> 375
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
-63-
<PAGE> 376
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 advisers 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
-64-
<PAGE> 377
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").
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, regardless of how long the shareholder has held these
shares. Such long-term capital gain will be 20% of 28% rate gain, depending upon
the Fund's holding period for the assets the sale of which generated the 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 20% (for gains on
capital assets held more than 18 months) or 28% (for gains on capital assets
held more than 12 months, but not more than 18 months). For corporations, long-
-65-
<PAGE> 378
term capital gains and ordinary income are both taxable at a maximum nominal
rate of 35%.
A 4% nondeductible excise tax is imposed on regulated
investment companies that fail to currently distribute specified percentages of
their ordinary taxable income and capital gain net income (excess of capital
gains over capital losses). Each Portfolio intends to make sufficient
distributions or deemed distributions of its ordinary taxable income and any
capital gain net income each year to avoid liability for this excise tax.
If for any taxable year a Portfolio does not qualify for the
special federal income tax treatment afforded regulated investment companies,
all of its taxable income will be subject to federal income tax at regular
corporate rates (without any deduction for distributions to its shareholders).
In such event, dividend distributions would be taxable as ordinary income to
shareholders, to the extent of the Portfolio's current and 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
-66-
<PAGE> 379
facilities financed through any of the tax-exempt obligations held by a
Tax-Exempt Portfolio, are advised to consult their tax advisors with respect to
whether exempt-interest dividends retain the exclusion under Section 103(a). A
"substantial user" is defined under U.S. Treasury Regulations to include a
non-exempt person (i) who regularly uses a part of such facilities in his trade
or business and (ii)(A) whose gross revenues derived with respect to the
facilities financed by the issuance of bonds are more than 5% of the total
revenues derived by all users of such facilities, (B) who occupies more than 5%
of the usable area of such facilities or (C) for whom such facilities or a part
thereof were specifically constructed, reconstructed or acquired. "Related
persons" include certain related natural persons, affiliated corporations,
partnerships and its partners, and S corporations and their shareholders.
Interest on indebtedness incurred by a shareholder to purchase
or carry shares of the Tax-Exempt Portfolios generally 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 Gross Income, 90% 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
-67-
<PAGE> 380
treated as long-term capital gain or loss without regard to the period the
Portfolio holds the futures contract or related option (the "40-60 rule"). The
amount of any capital gain or loss actually realized by a Portfolio in a
subsequent sale or other disposition of those futures contracts and related
options is adjusted to reflect any capital gain or loss taken into account by a
Portfolio in a prior year as a result of the constructive sale of the contracts
and options. Losses with respect to futures contracts to sell and related
options, which are regarded as parts of a "mixed straddle" because their values
fluctuate inversely to the values of specific securities held by a Portfolio,
are subject to certain loss deferral rules which limit the amount of loss
currently deductible on either part of the straddle to the amount thereof which
exceeds the unrecognized gain, if any, with respect to the other part of the
straddle, and to certain wash sales regulations. 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 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 a Portfolio may be subject to the
mark-to-market process, but gain or loss will be treated as 100% ordinary gain
or loss. To receive such treatment, a foreign currency contract must meet the
following conditions: (1) the contract must require delivery of, or settlement
by reference to the value of, a foreign currency of a type in which regulated
futures contracts are traded; (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
-68-
<PAGE> 381
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, and wash sales rules and the requirement to capitalize
interest and carrying charges may apply.
Some of the non-U.S. dollar denominated investments that
certain of the taxable Portfolios may make, such as non-U.S. dollar-denominated
debt securities and obligations and preferred stock, as well as some of the
foreign currency contracts the 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
-69-
<PAGE> 382
capital gain or loss and is not segregated from the gain or loss
on the underlying transaction.
CONCLUSIONS
The foregoing discussion is based on federal tax laws and
regulations which are in effect on the date of this Statement of Additional
Information; such laws and regulations may be changed by legislative or
administrative action. Shareholders are advised to consult their tax advisors
concerning the application of state and local taxes.
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
3544 Watson Road Ornamental Iron Workers
St. Louis, MO 63139 (International Labor Union),
Age: 55 January 1994 to present; General
Organizer, International
Association of Bridge, Structural
and Ornamental Iron Workers,
September 1983 to December 1993.
James C. Jacobsen Director Director, Kellwood Company,
Kellwood Company (manufacturer of wearing
600 Kellwood Parkway apparel and camping softgoods)
Chesterfield, MO 63017 since 1975; Vice Chairman,
Age: 52 Kellwood Company since May
1989.
</TABLE>
-70-
<PAGE> 383
- ------------------------
* Mr. Woodham is an "interested person" of the Fund as defined in the 1940
Act.
-71-
<PAGE> 384
<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
</TABLE>
- ------------------------
* Messrs. Grimm, Winney, McConnel and Bunstine are "interested persons" of
the Fund as defined in the 1940 Act.
Each Director receives an annual fee of $10,000 plus
reimbursement of expenses incurred as a Director. The Chairman of the Board and
President of the Fund receives an additional annual fee of $5,000 for his
services in these capacities. For the fiscal year ended November 30, 1997, the
Fund paid or accrued for the account of its directors as a group, for services
in all capacities, a total of $65,000. Drinker Biddle & Reath LLP, of which Mr.
McConnel is a partner, receives legal fees as counsel to the Fund. As of the
date of this Statement of Additional
-72-
<PAGE> 385
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 $15,000 N/A $15,000
Robert M. Cox, Jr. $10,000 N/A $10,000
Joseph J. Hunt $10,000 N/A $10,000
James C. Jacobsen $10,000 N/A $10,000
Donald E. Kiernan*** $5,000 N/A $5,000
Lyle L. Meyer*** $5,000 N/A $5,000
Ronald D. Winney $10,000 N/A $10,000
</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 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
-73-
<PAGE> 386
error of judgment or mistake of law or for any loss suffered in connection with
the performance of their respective agreements, except a loss resulting from a
breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or gross
negligence in the performance of their duties or from reckless disregard by them
of their duties and obligations thereunder.
Under its administration agreement with the Fund, BISYS Fund
Services Ohio, Inc. (the "Administrator") serves as administrator. The
Administrator has agreed to maintain office facilities for the Portfolios,
furnish the Portfolios with statistical and research data, clerical, accounting,
and certain bookkeeping services, stationery and office supplies, and certain
other services required by the Portfolios, and to compute the net asset value
and net income of the Portfolios. The Administrator prepares annual and
semi-annual reports to the SEC on Form N-SAR, compiles data for and prepares
federal and state tax returns and required tax filings other than those required
to be made by the Fund's custodian and transfer agent, prepares the Fund's
compliance filings with state securities commissions, maintains the registration
or qualification of shares for sale under the securities laws of any state in
which the Fund's shares shall be registered, assists in the preparation of
annual and semi-annual reports to shareholders of record, participates in the
periodic updating of the Fund's Registration Statement, prepares and assists in
the timely filing of notices to the SEC required pursuant to Rule 24f-2 under
the 1940 Act, arranges for and bears the cost of processing share purchase,
exchange and redemption orders, keeps and maintains the Portfolios' financial
accounts and records including calculation of daily expense accruals, monitors
compliance procedures for each of the classes of the Fund's Portfolios with each
Portfolio's investment objective, policies and limitations, tax matters, and
applicable laws and regulations, and generally assists in all aspects of the
Portfolios' operations. The Administrator bears all expenses in connection with
the performance of its services, except that a Portfolio bears any expenses
incurred in connection with any use of a pricing service to value portfolio
securities. (See "Net Asset Value -- Equity and Bond Portfolios" above).
From time to time, MVA and the Administrator may voluntarily
waive a portion or all of their respective fees otherwise payable to them with
respect to the Fund's Portfolios in order to increase the net income available
for distribution to shareholders. For the fiscal year or period ended November
30, 1997, MVA (and with respect to the Growth Equity Portfolio, the predecessor
adviser) was paid advisory fees, after waivers, as follows:
-74-
<PAGE> 387
<TABLE>
<CAPTION>
FEES PAID
PORTFOLIOS (AFTER WAIVERS) WAIVERS
---------- --------------- ---------
<S> <C> <C>
The ARCH Treasury Money Market Portfolio $ 544,658 $ 132,471
The ARCH Money Market Portfolio $3,205,706 $ 734,416
The ARCH Tax-Exempt Money Market Portfolio $ 518,456 $ 74,067
The ARCH U.S. Government Securities $ 357,824 $ 0
Portfolio
The ARCH Intermediate Corporate Bond $ 0 $ 175,432
Portfolio(1)
The ARCH Bond Index Portfolio(1) $ 0 $ 312,722
The ARCH Government & Corporate Bond $ 743,332 $ 0
Portfolio
The ARCH Short-Intermediate Municipal $ 0 $ 160,035
Portfolio
The ARCH Missouri Tax-Exempt Bond $ 414,195 $ 0
Portfolio
The ARCH National Municipal Bond Portfolio $ 0 $1,812,782
The ARCH Equity Income Portfolio(2) $ 0 $ 681,294
The ARCH Equity Index Portfolio(3) $ 0 $ 51,115
The ARCH Growth & Income Equity Portfolio $2,392,991 $ 0
The ARCH Growth Equity Portfolio(4) $ 86,057 $ 0
The ARCH Small Cap Equity Portfolio $1,783,322 $ 0
The ARCH International Equity Portfolio $ 590,822 $ 50,950
The ARCH Balanced Portfolio $ 885,481 $ 0
</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.
For the fiscal year or period ended November 30, 1996, MVA was
paid advisory fees, after waivers, as follows:
-75-
<PAGE> 388
<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
</TABLE>
- ----------------------
1. For period from commencement of operations (November 18, 1996) through
November 30, 1996.
For the fiscal year or period ended November 30, 1995, MVA was
paid advisory fees, after waivers, as follows:
<TABLE>
<CAPTION>
FEES PAID
PORTFOLIOS (AFTER WAIVERS) WAIVERS
---------- --------------- -------
<S> <C> <C>
The ARCH Treasury Money Market Portfolio $ 795,911 $124,279
The ARCH Money Market Portfolio $2,202,658 $314,865
The ARCH Tax-Exempt Money Market Portfolio(1) $ 161,659 $ 23,094
The ARCH U.S. Government Securities $ 208,179 $ 0
Portfolio
The ARCH Government & Corporate Bond $ 660,877 $ 0
Portfolio
The ARCH Short-Intermediate Municipal $ 0 $ 38,167
Portfolio(2)
The ARCH Missouri Tax-Exempt Bond(1) $ 156,100 $ 0
Portfolio
</TABLE>
-76-
<PAGE> 389
<TABLE>
<CAPTION>
FEES PAID
PORTFOLIOS (AFTER WAIVERS) WAIVERS
---------- --------------- -------
<S> <C> <C>
The ARCH Growth & Income Equity Portfolio $1,736,792 $ 0
The ARCH Small Cap Equity Portfolio $ 962,984 $ 0
The ARCH International Equity Portfolio $ 239,167 $78,752
The ARCH Balanced Portfolio $ 775,992 $ 0
</TABLE>
- ------------------------
1 For the six-month period ended November 30, 1995.
2 For the period from commencement of operations (July 10, 1995) through
November 30, 1995.
For the 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 $468,080 with
respect to the Predecessor Growth Equity Portfolio, of which $0 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 Portfolio, the predecessor
administrator) was paid administration fees, after waivers, as follows:
-77-
<PAGE> 390
<TABLE>
<CAPTION>
FEES PAID
PORTFOLIOS (AFTER WAIVERS) WAIVERS
---------- --------------- -------
<S> <C> <C>
The ARCH Treasury Money Market Portfolio $ 217,115 $121,453
The ARCH Money Market Portfolio $1,226,946 $743,132
The ARCH Tax-Exempt Money Market Portfolio $ 148,129 $ 0
The ARCH U.S. Government Securities $ 79,519 $ 79,515
Portfolio
The ARCH Intermediate Corporate Bond $ 17,544 $ 46,250
Portfolio(1)
The ARCH Bond Index Portfolio(1) $ 104,243 $104,239
The ARCH Government & Corporate Bond $ 165,196 $165,189
Portfolio
The ARCH Short-Intermediate Municipal $ 29,098 $ 29,097
Portfolio
The ARCH Missouri Tax-Exempt Bond $ 92,046 $ 92,042
Portfolio
The ARCH National Municipal Bond Portfolio(1) $ 181,277 $478,060
The ARCH Equity Income Portfolio(2) $ 49,963 $131,717
The ARCH Equity Index Portfolio(3) $ 17,039 $ 17,038
The ARCH Growth & Income Equity Portfolio $ 435,186 $435,169
The ARCH Growth Equity Portfolio(4) $ 16,610 $ 1,287
The ARCH Small Cap Equity Portfolio $ 237,783 $237,775
The ARCH International Equity Portfolio $ 75,322 $ 54,941
The ARCH Balanced Portfolio $ 118,068 $118,063
</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.
For the fiscal year or period ended November 30, 1996, the
Administrator was paid administration fees, after waivers, as follows:
-78-
<PAGE> 391
<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
</TABLE>
- ----------------------
1. For period from commencement of operations (November 18, 1996) through
November 30, 1996.
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>
-79-
<PAGE> 392
<TABLE>
<CAPTION>
FEES PAID
PORTFOLIOS (AFTER WAIVERS) WAIVERS
---------- --------------- -------
<S> <C> <C>
The ARCH Missouri Tax-Exempt Bond
Portfolio(1) $ 34,689 $ 34,808
The ARCH Growth & Income Equity
Portfolio $315,754 $316,168
The ARCH Small Cap Equity Portfolio $128,398 $128,825
The ARCH International Equity Portfolio $ 47,635 $ 15,949
The ARCH Balanced Portfolio $103,465 $103,589
</TABLE>
- ---------------
1 For the six-month period ended November 30, 1995.
2 For the period from commencement of operations (July 10, 1995) through
November 30, 1995
For the year ended May 31, 1995, the Predecessor TaxExempt
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 $90,965, $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 Bank is Custodian of the Portfolios' assets
pursuant to a Custodian Agreement. Under the Custodian Agreement, Mercantile
Bank 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
-80-
<PAGE> 393
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 Bank 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
Bank shall remain liable for the performance of all of its custodial duties
under the Custodian Agreement, notwithstanding any delegation. Mercantile Bank
is authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Portfolios, provided that Mercantile Bank 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 Bank 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 Bank. In
addition, each Portfolio pays Mercantile Bank's incremental costs in providing
foreign custody services for any foreign-denominated and foreign-held securities
and reimburses Mercantile Bank for out-of-pocket expenses related to such
services.
-81-
<PAGE> 394
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
- -- $2,052, $823 and $6,238, respectively; Government & Corporate Bond Portfolio
- -- $9,635, $4,655 and $10,250, respectively; Missouri Tax-Exempt Bond Portfolio
- -- $46,690, $23,210 and $45,981, respectively; Growth & Income Equity Portfolio
- -- $167,110, $74,288 and $96,851, respectively; Small Cap Equity Portfolio --
$33,777, $18,763 and $60,626, respectively; and Balanced Portfolio -- $20,227,
$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
$18,258, $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,
$0 and $0. For the fiscal year ended 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
-82-
<PAGE> 395
Portfolio of $4,340 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 $1,114 and $13,
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 $829. 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 the Equity Index Portfolio of $3,003. 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
$0. Of these amounts, the Distributor retained $0, $126 and $784, respectively,
and MVA and affiliates retained $310, $385 and $2,101, respectively, with
respect to the U.S. Government Securities Portfolio; the Distributor retained
$0, and MVA and affiliates retained $0 with respect to the Intermediate
Corporate Bond Portfolio; the Distributor retained $0, and MVA and affiliates
retained $0 with respect to the Bond Index Portfolio; the Distributor retained
$0, $0 and $1,354, respectively, and MVA and affiliates retained $6,721, $3,535
and $8,711, respectively, with respect to the Government & Corporate Bond
Portfolio; the Distributor retained $23, $416 and $6,400, respectively, and MVA
and affiliates retained $4,700, $5,850 and $9,735, respectively, with respect to
the Missouri Tax-Exempt Bond Portfolio; the Distributor retained $45, and MVA
and affiliates retained $466 with respect to the Equity Income Portfolio; the
Distributor retained $0, and MVA and affiliates retained $25 with respect to the
Equity Index Portfolio; the Distributor retained $2,387, $1,850 and $11,647,
respectively, and MVA and affiliates retained $56,664, $27,769 and $27,761,
respectively, with respect to the Growth & Income Equity Portfolio; the
Distributor retained $0, and MVA and affiliates retained $0 with respect to the
Growth Equity Portfolio; the Distributor retained $184, $192 and $7,085,
respectively, and MVA and affiliates retained $9,915, $10,277 and $15,259,
respectively, with respect to the Small Cap Equity Portfolio; the Distributor
retained $67, $92 and $871, respectively, and MVA and affiliates retained
$9,419, $1,311 and $2,721, respectively, with respect to the Balanced Portfolio;
the Distributor retained $0, $1 and $1,626, respectively, and MVA and affiliates
retained $7,433, $8,226 and $5,431, respectively, with respect to the
International Equity Portfolio; the Distributor retained $0, $0 and $0,
respectively, and MVA and affiliates retained $0, $0 and $0, respectively, with
respect to the Short-Intermediate Municipal Portfolio; and the Distributor
retained $0 and $0 and
-83-
<PAGE> 396
MVA and affiliates retained $0 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, $0
and $0; U.S. Government Securities Portfolio -- $8,968, $3,640 and $135;
Government and Corporate Bond Portfolio -- $4,075, $4,258 and $1,246; Missouri
Tax-Exempt Bond Portfolio -- $61,906, $1,763 and $7; Growth and Income Equity
Portfolio -- $121,999, $30,345 and $209; Small Cap Equity Portfolio -- $12,870,
$7,267 and $253; International Equity Portfolio -- $8,191 $5,763 and $0; and
Balanced Portfolio -- $9,311 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 $34,256 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 $10,382 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 $0 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:
-84-
<PAGE> 397
<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 $ 0 $ 0 $0 $ 227,021
Market
Money Market $ 0 $ 0 $0 $1,348,039
Tax-Exempt Money $ 0 $ 0 $0 $ 80,133
Market
U.S. Government $ 1,102 $ 8,968 $0 $ 37,818
Securities
Intermediate Corporate $ 1,114 $ 0 $0 $ 0
Bond
Bond Index $ 13 $ 0 $0 $ 59
Government & $ 13,710 $ 4,075 $0 $ 66,619
Corporate Bond
Short-Intermediate $ 0 $ 0 $0 $ 136
Municipal
Missouri Tax- $108,596 $ 61,906 $0 $ 57,835
Exempt Bond
National Municipal $ 38,596 $ 34,256 $0 $ 1,390
Bond
Equity Income $ 11,211 $ 10,382 $0 $ 384
Equity Index $ 0 $ 0 $0 $ 0
Growth & Income $289,109 $121,999 $0 $ 419,026
Equity
Growth Equity $ 0 $ 0 $0 $ 1,749
Small Cap Equity $ 46,674 $ 12,897 $0 $ 152,069
International $ 26,449 $ 8,191 $0 $ 33,617
Equity
Balanced $ 29,538 $ 9,311 $0 $ 210,155
</TABLE>
(1) Represents amounts received from front-end sales charges on Investor A
Shares and commissions received in connection with sales of Investor B
Shares.
-85-
<PAGE> 398
(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 are
redeemed prior to the expiration of the eight year period,
-86-
<PAGE> 399
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, maintaining and operating systems
necessary to support sweep
-87-
<PAGE> 400
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:
<TABLE>
<CAPTION>
DISTRIBUTION AND SERVICES PLAN - INVESTOR A SHARES
--------------------------------------------------
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 $ 42,059 $ 0 $0 $84,646
Treasury Money Market $ 8,179 $ 0 $0 $ 1,619
Money Market $273,753 $ 0 $0 $16,137
U.S. Government Securities $ 17,371 $ 539 $0 $13,712
Intermediate Corporate Bond(1) $ 238 $ 119 $0 $ 0
Bond Index(1) $ 41 $ 23 $0 $ 18
Government & Corporate Bond $ 14,162 $ 997 $0 $11,390
Short-Intermediate Municipal $ 136 $ 113 $0 $ 23
Bond
Missouri Tax-Exempt Bond $ 47,923 $1,260 $0 $22,777
National Municipal Bond $ 1,035 $ 527 $0 $ 48
Equity Income(2) $ 207 $ 94 $0 $ 61
Equity Index(3) $ 102 $ 2 $0 $ 0
Growth & Income Equity $123,042 $1,918 $0 $70,945
Growth Equity(4) $ 26,716 $1,586 $0 $ 0
Small Cap Equity $ 40,825 $1,187 $0 $21,467
International Equity $ 8,493 $1,252 $0 $ 3,434
Balanced $ 30,314 $ 356 $0 $23,870
</TABLE>
- ----------------------
1. For the period from commencement of operations (February 10, 1997) through
November 30, 1997.
-88-
<PAGE> 401
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:
<TABLE>
<CAPTION>
DISTRIBUTION AND SERVICES PLAN - INVESTOR A SHARES
--------------------------------------------------
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
</TABLE>
- ----------------------
1. For period from commencement of operations (November 18, 1996) through
November 30, 1996.
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:
-89-
<PAGE> 402
<TABLE>
<CAPTION>
DISTRIBUTION AND SERVICES PLAN - INVESTOR B SHARES
--------------------------------------------------
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 $ 0 $0 $ 0 $0
Money Market $ 701 $0 $ 701 $0
Tax-Exempt Money Market $ 0 $0 $ 0 $0
U.S. Government Securities $ 4,527 $0 $ 4,527 $0
Government & Corporate Bond $ 5,575 $0 $ 5,575 $0
Missouri Tax-Exempt Bond $ 9,912 $0 $ 9,912 $0
National Municipal Bond $ 355 $0 $ 355 $0
Equity Income $ 177 $0 $ 177 $0
Growth & Income Equity $50,649 $0 $50,649 $0
Growth Equity $ 0 $0 $ 0 $0
Small Cap Equity $14,130 $0 $14,130 $0
International Equity $ 5,251 $0 $ 5,251 $0
Balanced $ 4,370 $0 $ 4,370 $0
</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:
<TABLE>
<CAPTION>
DISTRIBUTION AND SERVICES PLAN - INVESTOR B SHARES
--------------------------------------------------
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
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
National Municipal Bond $ 0 $0 $0 $ 0
Growth & Income Equity $20,870 $0 $0 $20,870
</TABLE>
-90-
<PAGE> 403
<TABLE>
<CAPTION>
AMOUNT PAID AMOUNT PAID
TO THE AMOUNT PAID TO AFFILIATES
PORTFOLIOS TOTAL CHARGED DISTRIBUTOR TO MVA OF MVA
- ---------- ------------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Small Cap Equity $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:
<TABLE>
<CAPTION>
ADMINISTRATIVE SERVICES PLAN - TRUST SHARES
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 $ 133,813 $0 $0 $ 208,394
Money Market $1,019,403 $0 $0 $1,006,433
Tax-Exempt Money Market $ 38,074 $0 $0 $ 38,074
U.S. Government Securities $ 0 $0 $0 $ 0
Intermediate Corporate Bond(1) $ 0 $0 $0 $ 0
Bond Index(1) $ 0 $0 $0 $ 0
Government & Corporate Bond $ 155 $0 $0 $ 155
Short-Intermediate Municipal $ 0 $0 $0 $ 0
Missouri Tax-Exempt Bond $ 0 $0 $0 $ 0
National Municipal Bond $ 0 $0 $0 $ 0
Equity Income(2) $ 0 $0 $0 $ 0
Equity Index(3) $ 0 $0 $0 $ 0
Growth & Income Equity $ 850 $0 $0 $ 850
Growth Equity(4) $ 0 $0 $0 $ 0
Small Cap Equity $ 0 $0 $0 $ 0
International Equity $ 0 $0 $0 $ 0
Balanced $ 47 $0 $0 $ 47
</TABLE>
-91-
<PAGE> 404
- ----------------------
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:
<TABLE>
<CAPTION>
ADMINISTRATIVE SERVICES PLAN - TRUST SHARES
-------------------------------------------
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:
-92-
<PAGE> 405
<TABLE>
<CAPTION>
ADMINISTRATIVE SERVICES PLAN - INSTITUTIONAL SHARES
---------------------------------------------------
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 $ 871 $0 $0 $ 10,448
Money Market $ 54,182 $0 $0 $ 54,182
U.S. Government Securities $ 15,920 $0 $0 $ 15,920
Intermediate Corporate Bond $ 0 $0 $0 $ 0
Bond Index $ 18 $0 $0 $ 18
Government & Corporate Bond $ 46,727 $0 $0 $ 46,727
Equity Income $ 0 $0 $0 $ 0
Equity Index $ 0 $0 $0 $ 0
Growth & Income Equity $244,485 $0 $0 $244,485
Growth Equity $ 0 $0 $0 $ 0
Small Cap Equity $ 97,114 $0 $0 $ 97,114
International Equity $ 19,873 $0 $0 $ 19,873
Balanced $175,424 $0 $0 $175,424
</TABLE>
For the fiscal year ended November 30, 1996, pursuant to the
Administrative Services Plan for Institutional shares, the Portfolios paid the
following amounts:
<TABLE>
<CAPTION>
ADMINISTRATIVE SERVICES PLAN - INSTITUTIONAL SHARES
---------------------------------------------------
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 $133,169
</TABLE>
-93-
<PAGE> 406
For the fiscal years ended November 30, 1996, MVA and/or
various service organizations waived no fees with respect to the Administrative
Services Plans.
For the fiscal year ended November 30, 1997, the
Administrator waived all fees with respect to the Intermediate Corporate Bond,
Bond Index, Equity Income and Equity Index Portfolios.
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 $156,027, $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
-94-
<PAGE> 407
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 Bank, 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 Bank or an affiliate of Mercantile Bank, 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 Bank, 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.
-95-
<PAGE> 408
INDEPENDENT AUDITORS
For the fiscal year or period ended November 30, 1997, KPMG
Peat Marwick LLP, certified public accountants, with offices at Two Nationwide
Plaza, Columbus, Ohio 43215, served as independent auditors for the Fund. KPMG
Peat Marwick LLP performs an annual audit of the Fund's financial statements.
Reports of its activities are provided to the Fund's Board of Directors. The
financial statements dated November 30, 1997, which are incorporated by
reference into this Statement of Additional Information, have been audited by
KPMG Peat Marwick, 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 March 5, 1998, Mercantile held of record 100.092% and
65.777% of the outstanding Institutional and Trust shares, respectively, in the
Treasury Money Market Portfolio; 89.943% and 40.037% of the outstanding
Institutional and Trust shares, respectively, in the Money Market Portfolio;
86.371% of the outstanding Trust shares in the Tax-Exempt Money Market
Portfolio; 95.299% and 96.121% of the outstanding Institutional and Trust
shares, respectively, in the U.S. Government Securities Portfolio; 96.135% and
100.032% of the outstanding Institutional and Trust shares, respectively, in the
Intermediate Corporate Bond Portfolio; 99.500% and 99.579% of the outstanding
Institutional and Trust shares, respectively, in the Government & Corporate Bond
Portfolio; 99.681% and 98.456% of the outstanding Institutional and Trust
shares, respectively, in the Bond Index Portfolio; 97.117% of the outstanding
Trust shares in the Short-Intermediate Municipal Portfolio; 98.206% of the
outstanding Trust shares in the Missouri Tax-Exempt Bond Portfolio; 99.657% of
the outstanding Trust shares in the National Municipal Bond Portfolio; 98.859%
and 96.177% of the outstanding Institutional and Trust shares, respectively, in
the Growth & Income Equity Portfolio; 99.999% and 49.616% of the outstanding
Institutional and Trust shares, respectively, in the Small Cap Equity Portfolio;
95.648% and 93.119% of the outstanding Institutional and Trust shares,
respectively, in the International Equity Portfolio; 97.059% of the outstanding
Trust shares in the Equity Income Portfolio; 91.147 and 99.998%, of the
outstanding Institutional and Trust shares, respectively, in the Equity Index
Portfolio; 99.540% and 99.874% of the outstanding Institutional and Trust
shares, respectively, in the Balanced Portfolio, and 99.999% and 98.757% 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.
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: Mike Bryan, 3435 Stelzer Road,
Columbus, OH 43219 (25.486%); 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 (51.767%); Mercantile Bank of St. Louis,
NA Custodian Richard E. Crippa, Rollover IRA, 2948 Castleford Dr., Florissant,
MO 63033-0000 (9.202%); St. Louis Regional Medical Center, Attn: Sharon Edison,
5535 Delmar Blvd., St. Louis, MO 63112 (29.867%); St. Louis Regional Medical
Center Foundation, 5535 Delmar Blvd., St. Louis, MO 63112, (5.660%);
Institutional Shares - Mercantile
-96-
<PAGE> 409
Bank of St. Louis, N.A., Attn: Trust Securities Unit 17-1, P.O. Box 387, St.
Louis, MO 63166-0000, (100.092%).
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 - Pacific Century
Trust, 783 Funds Accounting, P.O. Box 3170, Honolulu, HI 96802-3170 (6.135%);
BISYS Fund Services, FBO Mercantile EOD Sweep, Attn: Mike Bryan, 3435 Stelzer
Road, Columbus, OH 43219 (38.139%); Mercantile Bank, N.A. Trust, Trust
Securities Unit 17-1, Attn: Dede Clark, P.O. Box 387 Main Post Office, St.
Louis, MO 631666-0000 (40.037%); 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 (95.007%); Investor B Shares - Mercantile
Bank of St. Louis, NA Custodian Pheba A. Steinmeyer, IRA, HC 3 Box 1266, Rocky
Mt., MO 65072-9042 (6.696%); Alberta Buenemann and Ernie W. Buenemann Trust,
Alberta Buenemann Revocable Living Trust DTD 08-30-91, 1649 Sand Run Road, Troy,
MO 63379 (9.025%); Mercantile Bank of St. Louis, NA Custodian Edwin C. Hogrebe,
IRA, 5537 Goethe, St. Louis, MO 63109 (5.832%); 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 (15.129%); Institutional Shares - Mercantile Bank of St. Louis,
N.A., Attn: Trust Securities Unit 17-1, P.O. Box 387, St. Louis, MO 63166-0000
(89.943%).
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: Mike Bryan, 3435 Stelzer Road,
Columbus, OH 43219 (7.419%); Mercantile Bank N.A. Trust, Trust Securities Unit
17-1, Attn: Dede Clark, P.O. Box 387 Main Post Office, St. Louis, MO 63166-0000
(86.371%); 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 (95.421%).
As of the same date, the following institutions also owned of
record 5% or more of the U.S. Government Securities Portfolio's outstanding
shares as fiduciary or agent on behalf of their customers: Trust Shares - Locust
& Company, Mercantile Bank, St. Louis, N.A., Trust Securities Unit 17-1, P.O.
Box 387, St. Louis, MO 63166-0387 (39.228%); Olive & Company, Mercantile Bank of
St. Louis, N.A., Trust Securities Unit 17-1, P.O. Box 387, St. Louis, MO
63166-0387 (56.893%); Investor A Shares - Mercantile Bank of St. Louis, NA
Custodian Edmund C. Albrecht, Jr., IRA, 236 Carlyle Lake Dr., St. Louis, MO
63141 (6.134%); Mercantile Bank of St. Louis, NA Custodian William J. Gaffney,
IRA Rollover, 1424 Bopp Road, St. Louis, MO 63131 (5.348%); Investor B Shares -
NFSC FEBO M22-050270, NFSC FMTC IRA, FBO
-97-
<PAGE> 410
Patricia J. Vander Haar, 4022 Ave. F, St. Louis, MO 63123 (5.366%); NFSC FEBO
M26-044423, NFSC FMTC IRA, FBO Wayne Brunk, 17825 Highway 71, St. Joseph, MO
64505 (19.167%); NFSC FEBO M26-945293, NFSC FMTC IRA Rollover, FBO Charlene V.
Brunk, 17825 Hwy. 21, St. Joseph, MO 64505 (6.022%); NFSC FEBO M26-942529,
Esther E. Cantley TTEE, Esther E. Cantley Trust, U/A 4-21-97, Rt. 3 Box 692,
Cobool, MO 65689 (6.620%); Institutional Shares - Locust & Company, Mercantile
Bank of St. Louis, N.A., Attn: Trust Securities Unit 17-1, P.O. Box 387, St.
Louis, MO 63166- 0000 (95.299%).
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: Trust Shares - Locust
& Company, Mercantile Bank, St. Louis, N.A., Trust Securities Unit 17-1, P.O.
Box 387, St. Louis, MO 63166-0387 (5.512%); Olive & Company, Mercantile Bank,
St. Louis, N.A., Trust Securities Unit 17-1, P.O. Box 387, St. Louis, MO
63166-0387 (94.520%); Investor A Shares - Gary E. Timmons, P.O. Box 3149,
Laredo, TX 78044 (8.845%); Jill Larson, 27165 Punario, Mission Viejo, CA
92692-3204 (8.845%); George Gregory Timmons, 1332 E. Desert Cv., Phoenix, AZ
85020 (8.845%); Betty Jane Eckhart, Trust Betty Jane Eckhart Trust U/A DTD
04-19- 82, 28265 Beach Rd., Sarcoxie, MO 64862 (31.162%); Lynn C. Prescott, 4180
Rincon Circle, Palo Alto, CA 94306-3138 (17.581%); NFSC FEBO M22-988855, Edwin
N. Howald, 4747 Nebraska Ave. A, St. Louis, MO 63111 (11.182%); Institutional
Shares - Locust & Company, Mercantile Bank, St. Louis, N.A., Trust Securities
Unit 17-1, P.O. Box 387, St. Louis, MO 63166-0387 (96.135%).
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: Trust Shares - Olive & Company,
Mercantile Bank of St. Louis, N.A., Trust Securities Unit 17-1, P.O. Box 387,
St. Louis, MO 63166-0387 (98.456%); 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 (12.986%); Thomas Young Trust, Henry Young Trust DTD 11-12-69, A/C
M27-997390, 9204 Roger Lee Lane, St. Louis, MO 63126 (7.350%); NFSC FEBO
M23-983284, Amy C. Gaut, Andrew W. Gaut, Michael Fleming, 8601 Juniper, Prairie
Village, KS 66207 (5.223%); Gerhard Radi, 2965 Berwick Ct., St. Charles, MO
63303 (16.800%); Lynn Ellen Mayorwitz Trust, Paul Mayorwitz Trust, For Mary K.
Anderson, 2895 Lesmer Ct., St. Louis, MO 63114 (9.346%); Gary C. Nelling and
Helen L. Nelling, JTWROS, 850 Warder Ave., St. Louis, MO 63130 (15.397%); Mary
K. Anderson, Trust Paul Mayorwitz Trust, for Lynn Ellen Mayorwitz, 7347 Laveta,
St. Louis, MO 63117 (12.683%); Florence M. Rhodes, 924 Tuxedo Blvd., St. Louis,
MO 63119 (6.679%); Soside & Co., P.O. Box 2653, St. Louis, MO 63116 (6.679%);
Institutional Shares - Locust & Company, Mercantile Bank of St. Louis, N.A.,
Trust
-98-
<PAGE> 411
Securities Units 17-1, P.O. Box 387, St. Louis, MO 63166-0387 (99.681%).
As of the same date, the following institutions also owned of
record 5% or more of the Government & Corporate Bond Portfolio's outstanding
shares as fiduciary or agent on behalf of their customers: Trust Shares - Locust
& Company, Mercantile Bank of St. Louis, N.A., Trust Securities Unit 17-1, P.O.
Box 387, St. Louis, MO 63166-0387 (41.465%); Olive & Company, Mercantile Bank of
St. Louis, N.A., Trust Securities Unit 17-1, P.O. Box 387, St. Louis, MO
63166-0387 (58.114%); Investor A Shares - Mercantile Bank of St. Louis, NA
Custodian Eugene F. Tucker, IRA Rollover, 70 Berkshire, St. Louis, MO 63117
(5.756%); Investor B Shares - Mercantile Bank of St. Louis, NA Custodian Gerald
C. Pasch, IRA, 2817 Duncan, St. Joseph, MO 64507 (6.628%); NFSC FEBO M22-050563,
Carl S. Jackson, Steven J. Jackson, 3016 Sunset Drive, Apt. B, Carbondale, IL
62901 (7.152%); NFSC FEBO M26-040169, Lewis D. Kelly, Leola F. Kelly, 527 N.
Ellsworth Ave., Marshall, MO 65340 (6.029%); 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 (9.114%); Alberta Buenemann and Ernie W. Buenemann Trust, Alberta
Buenemann Revocable Living Trust DTD 08-30-91, 1649 Sand Run Road, Troy, MO
63379 (5.523%); Institutional Shares - Locust & Company, Mercantile Bank of St.
Louis, N.A., Attn: Trust Securities Unit 17-1, P.O. Box 387, St. Louis, MO
63166-0000 (91.045%); Mercantile Bank, Expediter Daily Valuation Account, Attn:
Institutional Retirement Tram 16-2, P.O. Box 387, St. Louis, MO 63166 (8.455%).
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: Trust
Shares - Olive & Company, Attn: Trust Securities Unit 17-1, P.O. Box 387, St.
Louis, MO 63166- 0387 (97.117%); Investor A Shares - James Sutten, P.O. Box
2465, Inverness, FL 34451-2465 (6.657%); Lane P. Baker and Madelynn A. Baker,
JTWROS, P.O. Box 979, Essex, CT 06426-0000 (93.275%).
As of the same date, the following institutions also owned of
record 5% or more of the Missouri Tax-Exempt Bond Portfolio's outstanding shares
as fiduciary or agent on behalf of their customers: Trust Shares - Locust &
Company, Mercantile Bank of St. Louis, N.A., Trust Securities Unit 17-1, P.O.
Box 387, St. Louis, MO 63166-0387 (8.784%); Olive & Company, Mercantile Bank of
St. Louis, N.A., Trust Securities Unit 17-1, P.O. Box 387, St. Louis, MO
63166-0387 (89.422%); 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 (6.284%); NFSC FEBO M22-465747, Mae B. Strain, TOD, 4200 Botanical, St.
Louis, MO 63110 (6.445%); NFSC FEBO M22-402761, Kenneth Russell, Helen Russell,
Trustee, Helen Russell Revocable Trust, 320 Lake Apollo, Hannibal, MO 63401
(9.566%).
-99-
<PAGE> 412
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: Trust Shares - Olive &
Company, Mercantile Bank of St. Louis, N.A., Trust Securities Unit 17-1, P.O.
Box 387, St. Louis, MO 63166-0387 (99.657%); Investor A Shares - Lane P. Baker
and Madelynn A. Baker, P.O. Box 979, Essex, CT 06426-0000 (5.323%); Gail P.
Ruga, Bin 7137-2175, 207 Aintree Road, Rolla, MO 65401-3760 (12.071%); Kim P.
Wheeler, 1003 S. 19th, Rogers, AR 72758 (12.071%); 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 (6.054%); NFSC FEBO M22-947725, Elisabeth M. Goelz,
TTEE Elisabeth M. Goelz, Self Declaration of Trust, U A 8 29 97, 5 Gerold Lane,
Belleville, IL 62223 (9.253%); NFSC FEBO M22-949140, William Oliver Shillington
II, 2917 N. Kristopher Bend, St. Charles, MO 63303 (7.741%); NFSC FEBO
M22-945560, Robert W. Saitz Revocable Trust, Robert W. Smith U/A 12-12-97, 8618
Green Springs, St. Louis, MO 63123 (5.761%); Investor B Shares - NFSC FEBO
M22-988642, Ronald E. Ryan, Marian H. Ryan, 875 Glen Elm Drive, St. Louis, MO
63122 (10.680%); NFSC FEBO M22-967220, Casatta Revocable Living Trust, Raymond
H. Casatta U/A 10-06-87, 5658 Tholozan, St. Louis, MO 65109 (15.317%); NFSC FEBO
M22-961817, Gladine Coleman, Andrew B. Coleman, 5945 Loughborough, St. Louis, MO
63109 (10.581%); NFSC FEBO M22-423394, Nancy M. Prewitt, TOD, 16 Toussaint,
O'Fallon, MO 63366 (8.991%); NFSC FEBO M22-479039, Constance M. McManus, TOD,
4271 Wyoming, St. Louis, MO 63116 (18.203%); NFSC M22-473782, Roland Charles
Oesterle, TOD, 2849 Missouri, St. Louis, MO 63118 (7.611%); NFSC FEBO
M22-473499, Rudolf A. Reiner, TOD, 1722 Wild Goose Run, St. Charles, MO 63033
(5.323%); NFSC FEBO M22-370029, Ned W. Picard, Adrienne R. Picard, 3951 Wenzlick
Ave., St. Louis, MO 63109 (5.064%).
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: Trust Shares - Olive & Company,
Mercantile Bank of St. Louis, N.A., Trust Securities Unit 17-1, P.O. Box 387,
St. Louis, MO 63166-0387 (97.059%); Institutional Shares - BISYS Fund Services
OH Inc., Attn: Admin. & Regulatory Services, 3435 Stelzer Rd., Columbus, OH
43219 (86.739%); CoreLink Financial Inc., P.O. Box 4054, Concord, CA 94524
(13.260%); Investor A Shares - Betty Jane Eckhart, Trust Betty Jane Eckhart
Trust U/A DTD 04-19-82, 28265 Beech Road, Sarcoxie, MO 64862 (7.833%); Lynn C.
Prescott, 4180 Rincon Circle, Palo Alto, CA 94306-3138 (6.217%); NFSC Febo
M22-949140 William Oliver Shillington, II, 2917 N. Kristopher Bend, St. Charles,
MO 63126 (18.843%); Lynn Ellen Mayorwitz Trust, Paul Mayorwitz Trust, for Mary
K. Anderson, 2895 Lesher Court, St. Louis, MO 63114 (7.164%); Sandra Kungle
Trust, Sandra Kungle Trust, 139 Arrowhead Court, Boone, NC 28607 (27.574%);
Mercantile Bank of St. Louis, Custodian, Thomas L. Reid, Rollover IRA, 1900
Oakton St., Elk Grove Village, IL
-100-
<PAGE> 413
60007 (8.090%); Investor B Shares - NFSC FEBO M22-979570, NFSC FMTC IRA Rollover
FBO Kevin O. Webb, 1107 Wilshire, St. Louis, MO 63130 (17.011%); NFSC FEBO
M24-988707, NFSC FMTC IRA Rollover FBO Wayne L. Clough, 1176 Liberty Ave.,
Waterloo, IA 50702 (9.867%); NFSC FEBO M23-999598, Randy R. Hamill, Carol K.
Hammill, 9333 W. MacArthur, Wichita, KS 67215 (6.068%); NFSC FEBO M23-031925,
Anne Lloyd Oppenheimer, 31-Y Street, Lake Lotwana, MO 64086 (56.178%).
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: Trust Shares - Olive & Company,
Mercantile Bank of St. Louis, N.A., Trust Securities Unit 17-1, P.O. Box 387,
St. Louis, MO 63166-0387 (5.318%); Locust & Company, Mercantile Bank of St.
Louis, N.A., Trust Securities Unit 17-1, P.O. Box 387, St. Louis, MO 63166-0387
(94.680%); Institutional Shares - BISYS Fund Services, Attn: Admin. & Regulatory
Services, 3435 Stelzer Rd., Columbus, OH 43219 (8.852%); Locust & Company,
Mercantile Bank of St. Louis, N.A., Trust Securities Unit 17-1, P.O. Box 387,
St. Louis, MO, 63166-0387 (91.147%); Investor A Shares - NFSC FEBO M22-968030,
NFSC FMTC IRA Rollover, FBO Carl R. Stock, 4000 D Brittany Circle, Bridgeton, MO
63044 (39.495%); NFSC FEBO M27- 975478, NFSC FMTC IRA Rollover, FBO Christopher
Gregory Vahlka, 7200 Waterman, St. Louis, MO 63130 (5.214%); NFSC FEBO M22-
968145, Carl R. Stock, TOD David Lee Stock, 4000 D. Brittany Circle, Bridgeton,
MO 63044 (20.072%).
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 (7.340%); American Bar Endowment, 750 N.
Lake Shore Dr., Chicago, IL 60611 (6.845%); Vanguard Fiduciary Trust Co., FBO
Pioneer Hi Bred Mix 3, Attn: Specialized Services Unit, P.O. Box 2600 VM A14,
Valley Forge, PA 19482 (5.720%); Olive & Company, Mercantile Bank of St. Louis,
N.A., Trust Securities Unit 17-1, P.O. Box 387, St. Louis, MO 63166-0387
(12.871%); Locust & Company, Mercantile Bank of St. Louis, N.A., Trust
Securities Unit 17-1, P.O. Box 387, St. Louis, MO 63166-0387 (36.745%); Vanguard
Fiduciary Trust Co., FBO Pioneer Hi Bred Mix 4, Attn: Specialized Services Unit,
P.O. Box 2600 VM A14, Valley Forge, PA 19482 (6.381%); Bankers' Trust Co., FBO
Sheet Metal Local 36, Miss Van Arch FD 191719, Attn: Mike Bloebaun, 648
Grassmere Park Road, Nashville, TN 37211 (5.909%); Investor A Shares - Koch
Industries, Inc., c/o W A M, 1299 Ocean Ave., Suite 700, Santa Monica, CA 90401
(7.627%); Institutional Shares - Locust & Company, Mercantile Bank of St. Louis,
N.A., Attn: Trust Securities Unit 17-1, P.O. Box 387, St. Louis, MO 63166-0000
(93.099%); Mercantile Bank, Expediter Daily Valuation Account, Attn:
Institutional Retirement Tram 16-2, P.O. Box 387, St. Louis, MO 63166 (6.900%).
-101-
<PAGE> 414
As of the same date, the following institutions also owned of
record 5% or more of the International Equity Portfolio's outstanding shares as
fiduciary or agent on behalf of their customers: Trust Shares - Locust and
Company, Attn: Trust Securities Unit 17-1, P.O. Box 387, St. Louis, MO
63166-0000 (46.656%); Olive & Company, Attn: Trust Securities Unit 17-1, P. O.
Box 387, St. Louis, MO 63166-0387 (46.463%); Investor A Shares - Frances Dakers,
200 E. 89th St. 28D, New York, NY 10128 (12.338%); Institutional Shares - Locust
& Company, Attn: Trust Securities Unit 17-1, P.O. Box 387, St. Louis, MO
63166-0000 (95.648%).
As of the same date, the following institutions also owned of
record 5% or more of the Balanced Portfolio's outstanding share as fiduciary or
agent on behalf of their customers: Trust Shares - Locust & Company, Mercantile
Bank of St. Louis, N.A., Trust Securities Unit 17-1, P.O. Box 387, St. Louis, MO
63166-0387 (94.874%); Investor A Shares - Mercantile Bank of St. Louis, NA
Custodian Robert W. Davis, Rollover IRA, 818 Broadway, Elsberry, MO 63343
(5.900%); Investor B Shares - Mercantile Bank of St. Louis, NA Custodian Edmund
Frances Codr, Rollover IRA, 2820 S. 42nd St., St. Joseph, MO 64503 (5.066%);
Mercantile Bank of St. Louis, NA Custodian Richard Dell Woods, SEP IRA, 3114
Pickett Rd., St. Joseph, MO 64503 (6.585%); Mercantile Bank of St. Louis, NA
Custodian Gerald C. Pasch, IRA, 2817 Duncan, St. Joseph, MO 64507 (5.364%); NFSC
FEBO M22-030490, NFSC FMTC IRA, FBO Loren D, Salmons, 7 Ranchero Drive, St.
Charles, MO 63303 (5.063%); Institutional Shares - Locust & Company, Mercantile
Bank of St. Louis, N.A., Attn: Trust Securities Unit 17-1, P.O. Box 387, St.
Louis, MO 63166-0000 (83.405%); Mercantile Bank, Expediter Daily Valuation
Account, Attn: Institutional Retirement Tram 16-2, P.O. Box 387, St. Louis, MO
63166 (16.135%).
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: Trust Shares - Olive & Company,
Mercantile Bank of St. Louis, N.A., Trust Securities Unit 17-1, P.O. Box 387,
St. Louis, MO 63166-0387 (89.157%); Locust & Company, Mercantile Bank of St.
Louis, N.A., Trust Securities Unit 17-1, P.O. Box 387, St. Louis, MO 63166-0387
(9.580%); Investor A Shares - NFSC FEBO M22- 540196, Tiger Limited Partnership,
903 Claymark, St. Louis, MO 63131 (11.108%); NFSC FEBO M22-478237, Bernard B.
Birger, Trustee, Bernard B. Birger Revocable Living Trust U/A 5-25-76, 250
Hilltop, Collinsville, IL 62234 (6.313%); Investor B Shares -NFSC FEBO
M22-934640, Dan McGowen, Lynn McGowen, 404 Lea Harbor Ct., Wildwood, MO 63040
(99.890%); Institutional Shares - Locust & Company, Mercantile Bank of St.
Louis, N.A., Trust Securities Unit 17-1, P.O. Box 387, St. Louis, MO 63166-0387
(99.999%).
-102-
<PAGE> 415
As of the same date, the following Institutions also owned of
record 5% or more of the Growth & Income Equity Portfolio's outstanding shares
as fiduciary or agent on behalf of their customers: Trust Shares - Locust &
Company, Mercantile Bank of St. Louis, N.A., Trust Securities Unit 17-1, P.O.
387, St. Louis, MO 63166-0387 (54.901%); Olive & Company, Mercantile Bank of St.
Louis, N.A., Trust Securities Unit 17-1, P.O. Box 387, St. Louis, MO 63166-0387
(41.276%); Institutional Shares - Locust & Company, Mercantile Bank of St.
Louis, N.A., Attn: Trust Securities Unit 17-1, P.O. Box 387, St. Louis, MO
63166- 0000 (92.022%); Mercantile Bank, Expediter Daily Valuation Account, Attn:
Institutional Retirement Tram 16-2, P.O. Box 387, St. Louis, MO 63166 (6.837%).
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.
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 incorporated by reference into this Statement of
Additional Information. The Financial Statements included in such Annual Report
have been audited by the Fund's independent accountants, KPMG Peat Marwick LLP,
whose report thereon also appears in such Annual Report and is incorporated
herein by reference. The Financial Statements in such Annual Report have been
incorporated herein in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
-103-
<PAGE> 416
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.
-1-
<PAGE> 417
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.
-2-
<PAGE> 418
"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
-3-
<PAGE> 419
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.
-4-
<PAGE> 420
"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.
-5-
<PAGE> 421
"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.
-6-
<PAGE> 422
"Baa" - Bonds are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"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.
-7-
<PAGE> 423
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of
these ratings is considered to be below investment grade. Although below
investment grade, debt rated "BB" is deemed likely to meet obligations when due.
Debt rated "B" possesses the risk that obligations will not be met when due.
Debt rated "CCC" is well below investment grade and has considerable uncertainty
as to timely payment of principal, interest or preferred dividends. Debt rated
"DD" is a defaulted debt obligation, and the rating "DP" represents preferred
stock with dividend arrearages.
To provide more detailed indications of credit quality, the
"AA," "A," "BBB," "BB" and "B" ratings may be modified by the addition of a plus
(+) or minus (-) sign to show relative standing within these major categories.
The following summarizes the 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.
-8-
<PAGE> 424
"B" - Bonds are considered highly speculative. these ratings
indicate that significant credit risk is present, but a 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.
-9-
<PAGE> 425
"BB," "B," "CCC," and "CC," - These designations are assigned
by Thomson BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term
debt is in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC"
may include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
- ----------------------
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group for
municipal notes:
"SP-1" - The issuers of these municipal notes exhibit 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.
-10-
<PAGE> 426
"MIG-2"/"VMIG-2" - This designation denotes high quality, with
margins of protection ample although not so large as in the preceding group.
"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.
-11-
<PAGE> 427
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,
-1-
<PAGE> 428
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.
-2-
<PAGE> 429
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
-3-
<PAGE> 430
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
-4-
<PAGE> 431
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.
-5-
<PAGE> 432
FORM N-1A
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements:
--------------------
(1) (a) Included in Part A: Financial Highlights for
Registrant's (i) Treasury Money Market
Portfolio for the period December 2, 1991
(commencement of operations) through
November 30, 1992, the fiscal years ended
November 30, 1993 through November 30, 1997
(Investor A Shares and Trust Shares) and the
period January 26, 1995 through November 30,
1995 and the fiscal years ended November 30,
1996 through November 30, 1997
(Institutional Shares); (ii) Money Market
Portfolio for the fiscal years ended
November 30, 1986 through November 30, 1997
(Investor A Shares and Trust Shares), the
fiscal years ended November 30, 1994 through
November 30, 1997 (Institutional Shares) and
the period January 26, 1996 through November
30, 1996 and the fiscal year ended November
30, 1997 (Investor B Shares); (iii)
Tax-Exempt Money Market Portfolio for the
period July 10, 1986 (commencement of
operations) through May 31, 1987, the fiscal
years ended May 31, 1988 through May 31,
1995, the six-month period ended November
30, 1995 and the fiscal years ended November
30, 1996 through November 30, 1997 (Trust
Shares and Investor A Shares); (iv) U.S.
Government Securities Portfolio for the
period June 2, 1988 (commencement of
operations) through November 30, 1988 and
the fiscal years ended November 30, 1989
through November 30, 1997 (Trust Shares and
Investor A Shares), the fiscal years ended
November 30, 1994 through November 30, 1997
(Institutional Shares) and the period March
1, 1995 through November 30, 1995 and the
fiscal years ended November 30, 1996 through
November 30, 1997 (Investor B Shares); (v)
Intermediate Corporate Bond Portfolio for
the period February 10, 1997 (commencement
of operations) through November 30, 1997
(Investor A Shares, Trust Shares and
Institutional Shares); (vi) Bond
-1-
<PAGE> 433
Index Portfolio for the period February 10, 1997
(commencement of operations) through November 30, 1997
(Investor A Shares, Trust Shares and Institutional
Shares); (vii) Government & Corporate Bond Portfolio for
the period June 15, 1988 (commencement of operations)
through November 30, 1988 and the fiscal years ended
November 30, 1989 through November 30, 1997 (Trust
Shares and Investor A Shares), the fiscal years ended
November 30, 1994 through November 30, 1997
(Institutional Shares) and the period March 1, 1995
through November 30, 1995 and the fiscal years ended
November 30, 1996 through November 30, 1997 (Investor B
Shares); (viii) Short-Intermediate Municipal Portfolio
for the period July 11, 1995 (commencement of
operations) through November 30, 1995 and the fiscal
years ended November 30, 1996 through November 30, 1997
(Trust Shares and Investor A Shares); (ix) Missouri
Tax-Exempt Bond Portfolio for the period July 15, 1988
(commencement of operations) through May 31, 1989, the
fiscal years ended May 31, 1990 through May 31, 1995,
the six-month period ended November 30, 1995 and the
fiscal years ended November 30, 1996 through November
30, 1997 (Trust Shares and Investor A Shares) and the
period March 1, 1995 through May 31, 1995, the six-month
period ended November 30, 1995 and the fiscal years
ended November 30, 1996 through November 30, 1997
(Investor B Shares); (x) National Municipal Bond
Portfolio for the period November 18, 1996 (commencement
of operations) through November 30, 1996 and the fiscal
year ended November 30, 1997 (Trust Shares, Investor A
Shares and Investor B Shares); (xi) Equity Income
Portfolio for the period March 7, 1997 (commencement of
operations) through November 30, 1997 (Investor A
Shares, Trust Shares, Institutional Shares and Investor
B Shares); (xii) Equity Index Portfolio for the period
May 1, 1997 (commencement of operations) through
November 30, 1997 (Investor A Shares, Trust Shares and
Institutional Shares); (xiii) Growth & Income Equity
Portfolio for the period June 2, 1988 (commencement of
operations) through November 30, 1988 and the fiscal
years ended November 30, 1989 through November 30, 1997
(Trust Shares and Investor
-2-
<PAGE> 434
A Shares), the fiscal years ended November
30, 1994 through November 30, 1997
(Institutional Shares) and the period March
1, 1995 through November 30, 1995 and the
fiscal years ended November 30, 1996 through
November 30, 1997 (Investor B Shares); (xiv)
Growth Equity Portfolio for the period
January 4, 1993 (commencement of operations)
through September 30, 1993, the fiscal years
ended September 30, 1994 through September
30, 1997 and the period ended November 30,
1997 (Investor A Shares) and the period
November 21, 1997 through November 30, 1997
(Trust Shares); (xv) Small Cap Equity
(formerly Emerging Growth) Portfolio for the
period May 1, 1992 (commencement of
operations) through November 30, 1992 and
the fiscal years ended November 30, 1993
through November 30, 1997 (Trust Shares),
the period May 6, 1992 (date of initial
public offering) through November 30, 1992
and the fiscal years ended November 30, 1994
through November 30, 1997 (Investor A
Shares), the fiscal years ended November 30,
1994 through November 30, 1997
(Institutional Shares) and the period March
1, 1995 through November 30, 1995 and the
fiscal years ended November 30, 1996 through
November 30, 1997 (Investor B Shares); (xvi)
International Equity Portfolio for the
period April 4, 1994 (commencement of
operations) through November 30, 1994 and
the fiscal years ended November 30, 1995
through November 30, 1997 (Investor A
Shares, Trust Shares and Institutional
Shares) and the period March 1, 1995 through
November 30, 1995 and the fiscal years ended
November 30, 1996 through November 30, 1997
(Investor B Shares); (xvii) Balanced
Portfolio for the period April 1, 1993
(commencement of operations) through
November 30, 1993 and the fiscal years ended
November 30, 1994 through November 30, 1997
(Trust Shares and Investor A Shares), the
fiscal years ended November 30, 1994 through
November 30, 1997 (Institutional Shares) and
the period March 1, 1995 through November
30, 1995 and the fiscal years ended November
30, 1996 through November 30, 1997 (Investor
B Shares).
(b) Included in Part B: The financial statements
in the Registrant's November 30, 1997 Annual
-3-
<PAGE> 435
Report to Shareholders, as filed with the
Commission, are incorporated herein by
reference.
(2) All required financial statements are included in, or
incorporated by reference into, Part A and Part B
hereof. All other financial statements and schedules
are inapplicable.
(b) Exhibits:
(1) (a) Articles of Incorporation dated September 9,
1982.(2)
(b) Articles Supplementary to Registrant's
Articles of Incorporation dated October 28,
1982.(2)
(c) Articles Supplementary to Registrant's
Articles of Incorporation dated December 22,
1987.(2)
(d) Articles Supplementary to Registrant's
Articles of Incorporation dated as of
October 30, 1990.(2)
(e) Articles Supplementary to Registrant's
Articles of Incorporation dated as of
November 9, 1990.(2)
(f) Articles Supplementary to Registrant's
Articles of Incorporation dated as of
March 19, 1991.(2)
(g) Certificate of Correction dated April 30,
1991 to Articles Supplementary dated as of
March 19, 1991.(2)
(h) Articles Supplementary to Registrant's
Articles of Incorporation dated as of
June 25, 1991.(2)
(i) Articles Supplementary to Registrant's
Articles of Incorporation dated as of
November 15, 1991.(2)
(j) Articles Supplementary to Registrant's
Articles of Incorporation dated as of
January 26, 1993.(2)
-4-
<PAGE> 436
(k) Articles Supplementary to Registrant's
Articles of Incorporation dated as of
March 23, 1993.(2)
(l) Articles Supplementary to Registrant's
Articles of Incorporation dated as of
March 7, 1994.(2)
(m) Certificate of Correction dated October 17,
1994 to Articles Supplementary dated as of
March 8, 1994 to Registrant's Articles of
Incorporation.(2)
(n) Articles Supplementary to Registrant's
Articles of Incorporation dated as of
February 22, 1995.(2)
(o) Articles Supplementary to Registrant's
Articles of Incorporation dated as of
April 17, 1995.(2)
(p) Articles Supplementary to Registrant's
Articles of Incorporation dated June 27,
1995.(2)
(q) Articles Supplementary to Registrant's
Articles of Incorporation dated
September 18, 1995.(2)
(r) Articles Supplementary to Registrant's
Articles of Incorporation dated August 30,
1996.(4)
(s) Articles Supplementary to Registrant's
Articles of Incorporation dated February 3,
1997.(6)
(t) Articles Supplementary to Registrant's
Articles of Incorporation dated June 17,
1997.(9)
(u) Articles Supplementary to Registrant's
Articles of Incorporation dated October 29,
1997.(11)
(v) Form of Articles Supplementary to
Registrant's Articles of Incorporation.(12)
(2) Restated and Amended By-Laws as approved and adopted
by Registrant's Board of Directors.(5)
-5-
<PAGE> 437
(3) None.
(4) None.
(5) (a) Amended and Restated Advisory Agreement
between Registrant and Mississippi Valley
Advisors Inc. dated April 1, 1991.(2)
(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.(2)
(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.(2)
(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.(2)
(e) Addendum No. 4 to Amended and Restated Advisory
Agreement between Registrant and Mississippi
Valley Advisors Inc. dated March 15, 1994.(2)
(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.(2)
(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.(2)
(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
-6-
<PAGE> 438
Short-Intermediate Corporate Bond Portfolios)
dated November 15, 1996.(5)
(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.(6)
(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.(11)
(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.(11)
(l) Sub-Advisory Agreement between Mississippi
Valley Advisors Inc. and Clay Finlay Inc. dated
August 29, 1996.(4)
(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.(13)
(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.(13)
(c) Addendum No. 2 to Distribution Agreement between
Registrant and The Winsbury Company Limited
Partnership with respect to Investor B Shares of
the non-money market Portfolios dated March 1,
1995 is incorporated herein by reference to
Exhibit (6)(c) of Post-Effective Amendment No.
29 to Registrant's Registration Statement on
Form N-1A, filed April 14, 1995.(13)
-7-
<PAGE> 439
(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.(13)
(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.(2)
(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.(5)
(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.(6)
(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.(11)
(i) Form of Addendum No. 8 to Distribution
Agreement between Registrant and BISYS Fund
Services with respect to S Shares.(12)
(j) Amendment No. 1 to Distribution Agreement
between Registrant and The Winsbury Company
Limited Partnership dated as of September
29, 1995.(1)
(7) None.
(8) (a) Custodian Agreement between Registrant and
Mercantile Bank of St. Louis, National
Association dated as of April 1, 1992 is
incorporated herein by reference to Exhibit
(8)(a) of Post-Effective Amendment No. 17 to
-8-
<PAGE> 440
Registrant's Registration Statement on Form
N-1A, filed March 31, 1992.(13)
(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.(13)
(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.(13)
(d) Custody Fee Agreement between Registrant and
Mercantile Bank of St. Louis, National
Association dated September 29, 1995.(2)
(e) Custody Fee Agreement between Registrant and
Mercantile Bank National Association dated
November 15, 1996.(5)
(f) Custody Fee Agreement between Registrant and
Mercantile Bank National Association dated
February 14, 1997.(6)
(g) Custody Fee Agreement between Registrant and
Mercantile Bank of St. Louis National
Association dated November 21, 1997.(11)
(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.(13)
(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
-9-
<PAGE> 441
Registrant's Registration Statement on Form
N-1A, filed November 8, 1994.(13)
(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.(13)
(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.(13)
(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.(13)
(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.(2)
(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.(2)
(f) Addendum No. 5 to Administration Agreement
between Registrant and BISYS Fund Services
-10-
<PAGE> 442
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.(5)
(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.(6)
(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.(11)
(i) Form of Addendum No. 8 to Administration
Agreement between Registrant and BISYS Fund
Services Ohio, Inc. with respect to S
Shares.(12)
(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.(13)
(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.(13)
(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.(13)
-11-
<PAGE> 443
(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.(13)
(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.(2)
(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.(5)
(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.(6)
(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.(10)
(r) Form of Addendum No. 8 to Transfer Agency
Agreement between Registrant and BISYS Fund
Services Ohio, Inc. with respect to S
shares.(12)
(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.(2)
-12-
<PAGE> 444
(u) (1) Administrative Services Plan (Trust
Shares) and Form of Agreement.(8)
(2) Administrative Services Plan
(Institutional Shares) and Form of
Agreement.(8)
(v) Agreement and Plan of Reorganization between
Registrant and Arrow Funds.(9)
(10) Opinion and consent of counsel.
(11) (a) Consent of independent accountant.
(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
Amendment No. 1 to Registrant's Registration
Statement on Form N-1, filed on November 24,
1982.(13)
(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.(13)
(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.(13)
(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.(13)
-13-
<PAGE> 445
- ----------------------------------------------
1. Filed electronically as an Exhibit and incorporated herein
by reference to Post-Effective Amendment No. 33 to
Registrant's Registration Statement on Form N-1A (File No.
2-79285) on January 2, 1996.
2. Filed 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.
3. 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.
4. 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.
-16-
<PAGE> 446
5. 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.
6. 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.
7. 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.
8. 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.
9. 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.
10. 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.
11. 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.
12. Filed electronically as an Exhibit and incorporated herein by reference
to Post-Effective Amendment No. 43 to Registrant's Registration
Statement on Form N-1A (File No.
2-79285) on January 30, 1998.
13. A copy of such Exhibit is filed electronically herein.
Item 25. Persons Controlled By or Under Common Control with Registrant
-------------------------------------------------------------
Not Applicable.
-17-
<PAGE> 447
<TABLE>
<CAPTION>
Item 26. Number of Holders of Securities
--------------------------------
As of March 5, 1998:
Number of
Title of Class Record Holders
-------------- --------------
<S> <C>
Class A Common Stock (The ARCH
Money Market Portfolio)............................................................... 166
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)............................................................................. 50
Class B Common Stock (The ARCH
(Treasury Money Market
Portfolio)............................................................................. 12
Class B - Special Series 1 Common Stock
(The ARCH Treasury Money Market
Portfolio)............................................................................. 25
Class B - Special Series 2 Common Stock
(The ARCH Treasury Money Market
Portfolio)............................................................................. 2
Class C Common Stock (The ARCH
Growth & Income Equity
Portfolio)............................................................................. 2681
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)............................................................................. 731
Class D Common Stock (The ARCH
Government & Corporate Bond
Portfolio)............................................................................. 261
Class D - Special Series 1 Common Stock
(The ARCH Government & Corporate Bond
Portfolio)............................................................................. 8
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)............................................................................. 57
Class E Common Stock (The ARCH
U.S. Government Securities
Portfolio)............................................................................. 220
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>
-18-
<PAGE> 448
<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).................................................................. 1528
Class F - Special Series 1 Common Stock
(The ARCH Small Cap Equity
Portfolio)............................................................................. 23
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)............................................................................. 287
Class G Common Stock (The ARCH Balanced
Portfolio)............................................................................. 363
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)............................................................................. 72
Class H Common Stock (The ARCH
International Equity
Portfolio)............................................................................. 472
Class H - Special Series 1 Common
Stock - (The ARCH International Equity
Portfolio)............................................................................. 8
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)............................................................................. 171
Class I Common Stock (The ARCH
Short-Intermediate Municipal
Portfolio)............................................................................. 3
Class I - Special Series 1 Common Stock
(The ARCH Short-Intermediate
Municipal Portfolio).................................................................. 3
Class J Common Stock (The ARCH Tax-Exempt
Money Market Portfolio)............................................................... 15
Class J - Special Series 1
Common Stock (The ARCH Tax-Exempt Money
Market Portfolio)...................................................................... 25
Class K Common Stock (The ARCH Missouri
Tax-Exempt Bond Portfolio)............................................................ 712
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)............................................................. 67
Class L Common Stock (The ARCH Kansas
Tax-Exempt Bond Portfolio)............................................................. --
</TABLE>
-19-
<PAGE> 449
<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
-------------- --------------
<S> <C>
Class L - Special Series 1
Common Stock (The ARCH Kansas
Tax-Exempt Bond Portfolio)............................................................. --
Class L - Special Series 2
Common Stock (The ARCH Kansas
Tax-Exempt Bond Portfolio)............................................................. --
Class M - Common Stock (The ARCH Equity
Income Portfolio)...................................................................... 25
Class M - Special Series 1
Common Stock (The ARCH Equity Income Portfolio)........................................ 4
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)........................................ 9
Class N - Common Stock (The ARCH National
Municipal Bond Portfolio).............................................................. 31
Class N - Special Series 1
Common Stock (The ARCH National
Municipal Bond Portfolio).............................................................. 9
Class N - Special Series 2
Common Stock (The ARCH National
Municipal Bond Portfolio).............................................................. 14
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)....................................................................... 36
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)............................................................................. 11
Class Q - Special Series 1
Common Stock (The ARCH Bond Index Portfolio)........................................... 9
Class Q - Special Series 2
Common Stock (The ARCH Bond Index Portfolio)........................................... 2
Class R - Common Stock (The ARCH Small Cap Equity Index
Portfolio)............................................................................. --
Class R - Special Series 1
(The ARCH Small Cap Equity Index Portfolio)............................................ --
Class R - Special Series 2
(The ARCH Small Cap Equity Index Portfolio)............................................ --
Class S - Common Stock (The ARCH Growth Equity
Portfolio)............................................................................. 136
Class S - Special Series 1
(The ARCH Growth Equity Portfolio)..................................................... 4
Class S - Special Series 2
(The ARCH Growth Equity Portfolio)..................................................... 2
Class S - Special Series 3
(The ARCH Growth Equity Portfolio)..................................................... 2
</TABLE>
-20-
<PAGE> 450
Item 27. Indemnification
---------------
Indemnification of Registrant's principal underwriter, custodian and
transfer agent against certain losses is provided for, respectively, in Section
7 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
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
-21-
<PAGE> 451
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:
<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
C. None.
</TABLE>
-22-
<PAGE> 452
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).
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 that need not be certified, within four to six months from the
effective date of the Registration Statement pertaining to such Portfolio.
-23-
<PAGE> 453
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment No. 44 to
its Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933 and has duly caused this Post-Effective Amendment No. 44 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 March, 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. 44 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:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Jerry V. Woodham Chairman of the Board, March 30, 1998
- -------------------- Director and President
Jerry V. Woodham
/s/* James C. Jacobsen Director March 30, 1998
- ----------------------
James C. Jacobsen
/s/* Joseph J. Hunt Director March 30, 1998
- -------------------
Joseph J. Hunt
/s/* Robert M. Cox, Jr. Director March 30, 1998
- -----------------------
Robert M. Cox, Jr.
/s/* Ronald D. Winney Director & Treasurer March 30, 1998
- ---------------------
Ronald D. Winney
/s/* Donald E. Brandt Director March 30, 1998
- ---------------------
Donald E. Brandt
/s/* Patrick J. Moore Director March 30, 1998
- ---------------------
Patrick J. Moore
*By: /s/ Jerry V. Woodham
-----------------------------
Jerry V. Woodham
Attorney-in-fact
</TABLE>
<PAGE> 454
THE ARCH FUND(R), INC.
Power of Attorney
Donald E. Brandt, whose signature appears below, does hereby
constitute and appoint Jerry V. Woodham and W. Bruce McConnel, III, and either
of them, his true and lawful attorneys and agents, with full power of
substitution and resubstitution, to do any and all acts and things and execute
any and all instruments which said attorneys and agents, or either of them, may
deem necessary or advisable or which may be required to enable The ARCH Fund,
Inc. (the "Fund") to comply with the Investment Company Act of 1940, as amended,
and the Securities Act of 1933, as amended, and any rules, regulations, or
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the filing and effectiveness of the Fund's Registration
Statement and of any and all amendments (including post-effective amendments) to
the Fund's Registration Statement on Form N-1A pursuant to said Acts, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign in the name and on behalf of the undersigned on behalf of
the Fund and/or as a director and/or officer of the Fund any and all amendments
filed with the Securities and Exchange Commission under said Acts, and any other
instruments or documents related thereto, and the undersigned does hereby ratify
and confirm all that said attorneys and agents, or either of them, shall do or
cause to be done by virtue hereof.
/s/ DONALD E. BRANDT
---------------------------
Donald E. Brandt
Date: January 30, 1998
<PAGE> 455
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> 456
THE ARCH FUND(R), INC.
Power of Attorney
Patrick J. Moore, 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/ PATRICK J. MOORE
---------------------------
Patrick J. Moore
Date: January 30, 1998
<PAGE> 457
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> 458
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> 459
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> 460
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
(6)(a) Distribution Agreement between Registrant and
the Winsbury Company Limited Partnership
dated October 1, 1993.
(6)(b) Addendum No. 1 to Distribution Agreement between
the Registrant and the Winsbury Company Partnership
with respect to the ARCH International Equity
Porfolio dated March 15, 1994.
(6)(c) Addendum No. 2 to Distribution Agreement between
Registrant and the Winsbury Company Partnership
with respect to Investor B shares of the non-
money market Portfolios dated March 1, 1995.
(6)(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.
(8)(a) Custodial Agreement between Registrant and
Mercantile Bank of St, Louis, National Association
Dated as of April 1, 1992.
(8)(b) Custody Fee Agreement between Registrant and
Mercantile Bank of St. Louis, National Association
dated April 1, 1995.
(8)(c) Custody fee Agreement between Registrant and
Mercantile Bank of St. louis, National Association
dated July 10, 1995.
(8)(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.
(8)(i) Securities Lending Agreement dated August 4, 1994
to Custodian Agreement dated April 1, 1992 between
Registrant and Mercantile Bank of St. Louis, National
Association.
(9)(a) Administration Agreement between Registrant and the
Winsbury Service Corporation dated October 1, 1993.
<PAGE> 461
(9)(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.
(9)(c) Addendum No. 2 to Administration Agreement between
Registrant and BYSIS Fund Services Ohio, Inc.
(formerly known as The Winsbury Services Corporation)
with respect to Investor B Shares of the non-money
market Portfolios dated as of March 1, 1995.
(9)(j) Transfer Agency Agreement between Registrant and The
Winsbury Corporation dated October 1, 1993.
(9)(k) Addendum No. 1 to Transfer Agency Agreement between
Registrant and The Winsbury Services Corporation with
respect to the ARCH International Equity Portfolio
dated March 15, 1994.
(9)(l) Addendum No. 2 to Transfer Agency Agreement between
Registrant and BYSIS fund Services Ohio, Inc.
(formerly known as The Winsbury Services Corproation)
with respect to Investor B Shares of the non-money
marketPorfolios dated as of March 1, 1995.
(9)(m) Addendum No. 3 to Transfer Agency Agreement between
Registrant and BYSIS Fund Services Ohio, Inc. with
respect to the Short-Intermediate Municipal Portfolio
and Investor B Shares of the Money Market Portfolio.
(10) Opinion and consent of counsel.
(11)(a) Consent of independent accountant.
(11)(b) Consent of Drinker Biddle & Reath LLP.
(13)(a) Purchase Agreement between Registrant and Shearson/
American Express Inc. dated November 23, 1982.
(13)(b) Purchase Agreement between Registrant and The
Winsbury Service Corporation dated April 1, 1994.
(13)(c) Purchase Agreements between Registrant and BYSIS
Fund Services Ohio, Inc. dated as of February 28,
1995.
(13)(d) Purchase Agreements between Registrant and BYSIS
Fund Services Ohio, Inc. dated as of July 7, 1995.
<PAGE> 462
(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
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.
(m) Schedule of Computation of Performance
Calculations for Trust and Investor A Shares
of the Growth Equity Portfolio.
(n) Schedule of Computation of Performance
Calculations for Investor B Shares of the
International Equity Portfolio.
(o) Schedule of Computation of Performance
Calculations for Investor B Shares of the
Money Market Portfolio.
(27) Financial Data Schedules.
<PAGE> 1
Exhibit (6)(a)
THE ARCH FUND(R), INC.
DISTRIBUTION AGREEMENT
Agreement dated October 1, 1993 between THE ARCH FUND, INC., a
Maryland corporation (the "Company") and The Winsbury Company Limited
Partnership, a limited partnership organized under the laws of Ohio (the
"Distributor").
WHEREAS, the Company is an open-end, diversified management
investment company and is so registered under the Investment Company Act of
1940, as amended (the "1940 Act"); and
WHEREAS, the Company desires to retain the Distributor as its
distributor to provide for the sale and distribution of each class of shares of
common stock ("shares") in each of the Company's investment portfolios
(individually, a "Portfolio," collectively, the "Portfolios") as listed on
Appendix A (as such Appendix may, from time to time, be supplemented (or
amended)), and the Distributor is willing to render such services;
NOW, THEREFORE, in consideration of the premises and mutual
covenants set forth and intending to be legally bound, the parties hereto agree
as follows:
1. APPOINTMENT OF DISTRIBUTOR. The Company hereby appoints the
Distributor as distributor of each class of shares in each of the Company's
Portfolios on the terms and for the period set forth in this Agreement. The
Distributor hereby accepts such appointment and agrees to render the services
and duties set forth in Section 3 below. In the event that the Company
establishes additional classes or investment portfolios other than the
Portfolios listed on Appendix A with respect to which it desires to retain the
Distributor to act as distributor hereunder, the Company shall notify the
Distributor, whereupon such Appendix A shall be supplemented (or amended) and
such portfolio shall become a Portfolio hereunder and shall be subject to the
provisions of this Agreement to the same extent as the Portfolios (except to the
extent that said provisions may be modified in writing by the Company and
Distributor at the time).
2. DELIVERY OF DOCUMENTS. The Company has furnished the
Distributor with copies, properly certified or authenticated, of each of the
following documents and will deliver to it all future amendments and
supplements, if any:
a. The Company's Articles of Incorporation, filed with the
Secretary of State of the State of Maryland on September 9, 1982, as amended and
supplemented (the "Charter");
<PAGE> 2
b. The Company's By-Laws, as amended ("By- Laws");
c. Resolutions of the Company's Board of Directors authorizing
the execution and delivery of this Agreement;
d. The Company's most recent amendment to its Registration
Statement under the Securities Act of 1933, as amended (the "1933 Act"), and the
1940 Act on Form N-1A as filed with the Securities and Exchange Commission (the
"Commission") on April 30, 1993, relating to its Portfolios (the Registration
Statement, as presently in effect and as amended or supplemented from time to
time, is herein called the "Registration Statement");
e. The Company's most recent Prospectuses and Statements of
Additional Information and all amendments and supplements thereto (such
Prospectuses and Statements of Additional Information and supplements thereto,
as presently in effect and as from time to time amended and supplemented, are
herein called the "Prospectuses");
f. The Company's Amended and Restated Administrative Services
Plans for Trust shares, Institutional shares or Investor shares, respectively
(non 12b-1 Plans), and related forms of Servicing Agreements and the
Distribution and Services Plan for Investor shares (Rule 12b-1 Plan) and related
Servicing Agreements;
g. The following agreements of the Company: the Amended and
Restated Advisory Agreement with Mississippi Valley Advisors Inc. dated April 1,
1991, as amended as of September 27, 1991, as of April 1, 1992, and as of April
1, 1993 (the "Advisory Agreement"); the Administration Agreement with The
Winsbury Service Corporation dated October 1, 1993; and the Transfer Agency
Agreement with The Winsbury Service Corporation dated October 1, 1993; and the
Custodian Agreement with Mercantile Bank of St. Louis National Association dated
as of April 1, 1992, as amended as of April 1, 1993; and
h. Before entering into a transaction regulated by the
Commodity Futures Trading Commission ("CFTC"), a copy of either (i) a filed
notice of eligibility to claim the exclusion from the definition of "commodity
pool operator" contained in Section 2(s)(1)(A) of the Commodity Exchange Act
("CEA") that is provided in Rule 4.5 under the CEA, together with all
supplements as are required by the CFTC, or (ii) a letter which has been granted
the Company by the CFTC which states that the Company will not be treated as a
"pool" as defined in Section 4.10(d) of the CFTC's General Regulations, or (iii)
a letter which has been granted the Company by the CFTC which states that the
CFTC will
-2-
<PAGE> 3
not take any enforcement action if the Company does not register as a "commodity
pool operator."
3. SERVICES AND DUTIES. The Distributor enters into the following
covenants with respect to its services and duties:
a. The Distributor agrees to sell, as agent, from time to time
during the term of this Agreement, shares upon the terms and at the current
offering price as described in the Prospectuses. The Distributor will act only
on its own behalf as principal in making agreements with selected dealers. No
broker-dealer or other person which enters into a selling or Distribution
Services Agreement (under the Distribution and Services Plan) with the
Distributor shall be authorized to act as agent for the Company or its
Portfolios in connection with the offering or sale of shares to the public or
otherwise. The Distributor shall use its best efforts to sell shares of each
class of each of the Portfolios but shall not be obligated to sell any certain
number of shares.
b. The Distributor shall prepare or review (with the review
and advice of counsel to the Company), provide advice with respect to, and file
with the federal and state agencies or other organization as required by
federal, state, and other applicable laws and regulations, all sales literature
(advertisements, brochures and shareholder communications) for each of the
Portfolios and any class of shares thereof.
c. In performing all of its services and duties as
Distributor, the Distributor will act in conformity with the Charter, By-Laws,
Prospectuses and resolutions and other instructions of the Company's Board of
Directors and will comply with the requirements of the 1933 Act, the Securities
Exchange Act of 1934, the 1940 Act and all other applicable federal or state
law.
d. The Distributor will bear the cost of (i) printing and
distributing any Prospectuses (including any supplement thereto) to persons who
are not shareholders, and (ii) preparing, printing and distributing any
literature, advertisement or material which is primarily intended to result in
the sale of shares; PROVIDED, HOWEVER, that the Distributor shall not be
obligated to bear the expenses incurred by the Company in connection with the
preparation and printing of any amendment to any Registration Statement or
Prospectuses necessary for the continued effective registration of the shares
under the 1933 Act and state securities laws and the distribution of any such
document to existing shareholders of the Company's Portfolios.
e. The Company shall have the right to suspend the sale of
shares at any time in response to conditions in the
-3-
<PAGE> 4
securities markets or otherwise, and to suspend the redemption of shares of any
Portfolio at any time permitted by the 1940 Act or the rules and regulations of
the Commission ("Rules").
f. The Company reserves the right to reject any order for
shares but will not do so arbitrarily or without reasonable cause.
4. FORFEITURE OF SALES CHARGES. If any shares sold by the
Distributor under the terms of this Agreement are redeemed or repurchased by the
Portfolio or by the Distributor as agent or are tendered for redemption within
seven business days after the date of confirmation of the original purchase of
said shares, the Distributor shall forfeit the amount above the net asset value
received by it in respect of such shares, provided that the portion, if any, of
such amount re-allowed by the Distributor to broker-dealers or other persons
shall be repayable to the Company only to the extent recovered by the
Distributor from the broker-dealer or other person concerned. The Distributor
shall include in the form of agreement with such broker-dealers and other
persons a corresponding provision for the forfeiture by them of their concession
with respect to shares sold by them or their principals and redeemed or
repurchased by the Company or by the Distributor as agent (or tendered for
redemption) within seven business days after the date of confirmation of such
initial purchases.
5. LIMITATIONS OF LIABILITY. The Distributor shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Company in connection with the matters to which this Agreement relates, except a
loss resulting from willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement.
6. PROPRIETARY AND CONFIDENTIAL INFORMATION. The Distributor
agrees on behalf of itself and its partners and employees to treat
confidentially and as proprietary information of the Company all records and
other information relative to the Company and its Portfolios and prior, present
or potential shareholders, and not to use such records and information for any
purpose other than performance of its responsibilities and duties hereunder,
except after prior notification to and approval in writing by the Company, which
approval shall not be unreasonably withheld and may not be withheld where the
Distributor may be exposed to civil or criminal contempt proceedings for failure
to comply, when requested to divulge such information by duly constituted
authorities, or when so requested by the Company.
-4-
<PAGE> 5
7. INDEMNIFICATION.
a. The Company represents and warrants to the Distributor that
the Registration Statement contains, and that the Prospectuses at all times will
contain, all statements required by the 1933 Act and the Rules of the
Commission, will in all material respects conform to the applicable requirements
of the 1933 Act and the Rules and will not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, except that no representation or warranty
in this Section 7 shall apply to statements or omissions made in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of the Distributor, the Company's administrator or the Company's transfer
agent expressly for use in the Registration Statement or Prospectuses.
b. The Company on behalf of each Portfolio agrees that each
Portfolio will indemnify, defend and hold harmless the Distributor, its several
partners and any person who controls the Distributor within the meaning of
Section 15 of the 1933 Act, from and against any losses, claims, damages or
liabilities, joint or several, to which the Distributor, its several partners
and any person who controls the Distributor within the meaning of Section 15 of
the 1933 Act, may become subject under the 1933 Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of, or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement, the
Prospectuses or in any application or other document executed by or on behalf of
the Company with respect to such Portfolio or are based upon information
furnished by or on behalf of the Company with respect to such Portfolio filed in
any state in order to qualify the shares under the securities or blue sky laws
thereof ("Blue Sky application") or arise out of, or are based upon, the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse the Distributor, its several partners and any person who controls
the Distributor within the meaning of Section 15 of the 1933 Act, for any legal
or other expenses reasonably incurred by the Distributor, its several partners
and any person who controls the Distributor within the meaning of Section 15 of
the 1933 Act, in investigating, defending or preparing to defend any such
action, proceeding or claim; PROVIDED, HOWEVER, that the Company shall not be
liable in any case to the extent that such loss, claim, damage or liability
arises out of, or is based upon, any untrue statement, alleged untrue statement,
or omission or alleged omission made in the Registration Statement, the
Prospectuses or any Blue Sky application with respect to such Portfolio in
reliance upon and
-5-
<PAGE> 6
in conformity with written information furnished to the Company by or on behalf
of the Distributor, the Company's administrator or the Company's transfer agent
specifically for inclusion therein or arising out of the failure of the
Distributor to deliver a current Prospectus.
c. The Company on behalf of each Portfolio shall not indemnify
any person pursuant to this Section 7 unless the court or other body before
which the proceeding was brought has rendered a final decision on the merits
that such person was not liable by reason of his or her willful misfeasance, bad
faith or gross negligence in the performance of his or her duties, or his or her
reckless disregard of any obligations and duties, under this Agreement
("disabling conduct") or, in the absence of such a decision, a reasonable
determination (based upon a review of the facts) that such person was not liable
by reason of disabling conduct has been made by the vote of a majority of a
quorum of the directors of the Company who are neither "interested parties" (as
defined in the 1940 Act) nor parties to the proceeding, or by independent legal
counsel in a written opinion.
d. The Distributor will indemnify and hold harmless the
Company and each of its Portfolios and its several officers and directors, and
any person who controls the Company within the meaning of Section 15 of the 1933
Act, from and against any losses, claims, damages or liabilities, joint or
several, to which any of them may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of, or are based upon, any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, the Prospectuses or any Blue Sky application, or arise
out of, or are based upon, the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, which statement or omission was made in reliance upon
and in conformity with information furnished in writing to the Company or any of
its several officers and directors by or on behalf of the Distributor, the
Company's administrator or the Company's transfer agent specifically for
inclusion therein, and will reimburse the Company and its several officers,
directors and such controlling persons for any legal or other expenses
reasonably incurred by any of them in investigating, defending or preparing to
defend any such action, proceeding or claim.
e. The obligations of each Portfolio under this Section 7
shall be the several (and not the joint or joint and several) obligation of each
Portfolio.
8. DURATION AND TERMINATION. This Agreement shall become
effective upon its execution as of the date first written
-6-
<PAGE> 7
above and, unless sooner terminated as provided herein, shall continue until
March 31, 1995. Thereafter, if not terminated, this Agreement shall continue
automatically for successive terms of one year, provided that such continuance
is specifically approved at least annually (a) by a vote of a majority of those
members of the Company's Board of Directors who are not parties to this
Agreement or "interested persons" of any such party, cast in person at a meeting
called for the purpose of voting on such approval, and (b) by the Company's
Board of Directors or by vote of a "majority of the outstanding voting
securities" of the Company, PROVIDED, HOWEVER, that this Agreement may be
terminated by the Company at any time, without the payment of any penalty, by
vote of a majority of the entire Board of Directors or by a vote of a "majority
of the outstanding voting securities" of the Company on 60 days' written notice
to the Distributor, or by the Distributor at any time, without the payment of
any penalty, on 60 days' written notice to the Company. This Agreement will
automatically and immediately terminate in the event of its "assignment." (As
used in this Agreement, the terms "majority of the outstanding voting
securities," "interested person" and assignment shall have the same meanings as
such terms have in the 1940 Act.)
9. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement
may be changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which an enforcement of the
change, waiver, discharge or termination is sought.
10. NOTICES. Notices of any kind to be given to the Company
hereunder by the Distributor shall be in writing and shall be duly given if
mailed or delivered to the Company c/o Jerry V. Woodham, President, Washington
University, 1130 Hampton Avenue, St. Louis, Missouri 63139, Treasurer, with a
copy to Philadelphia National Bank Building, 1345 Chestnut Street, Philadelphia,
Pennsylvania 19107-3496, Attention: W. Bruce McConnel, III, Secretary, or at
such other address or to such individual as shall be so specified by the Company
to the Distributor. Notices of any kind to be given to the Distributor hereunder
by the Company shall be in writing and shall be duly given if mailed or
delivered to 1900 E. Dublin-Granville Road, Columbus, Ohio 43229, Attention:
Walter B. Grimm, or at such other address or to such other individual as shall
be so specified by the Distributor to the Company.
11. MISCELLANEOUS. The captions in this Agreement are included
for convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall
-7-
<PAGE> 8
be held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby. This Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors.
12. COUNTERPARTS. This Agreement may be executed in counterparts,
all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day and
year first above written.
THE ARCH FUND, INC.
(SEAL) By /s/ Jerry V. Woodham
--------------------------
Jerry V. Woodham, President
THE WINSBURY COMPANY LIMITED
PARTNERSHIP
By: The WINSBURY Corporation,
General Partner
By/s/ signature illegible
-----------------------
-8-
<PAGE> 9
APPENDIX A
to the
DISTRIBUTION AGREEMENT
between
The ARCH Fund, Inc.
and
The Winsbury Company Limited Partnership
- --------------------------------------------------------------------------------
Money Market Portfolio (Trust Shares, Investor Shares and
Institutional Shares)
Treasury Money Market Portfolio (Trust Shares, Investor Shares
and Institutional Shares)
Growth & Income Equity Portfolio (Trust Shares, Investor Shares
and Institutional Shares)
Emerging Growth Portfolio (Trust Shares, Investor Shares and
Institutional Shares)
Government & Corporate Bond Portfolio (Trust Shares, Investor
Shares and Institutional Shares)
U.S. Government Securities Portfolio (Trust Shares, Investor
Shares and Institutional Shares)
Balanced Portfolio (Trust Shares, Investor Shares and
Institutional Shares)
A-1
<PAGE> 1
Exhibit (6)(b)
ADDENDUM NO. 1 TO DISTRIBUTION AGREEMENT
This Addendum, dated as of March 15, l994, is entered into
between THE ARCH FUND, INC. (the "Fund"), a Maryland corporation, and THE
WINSBURY COMPANY LIMITED PARTNERSHIP ("Winsbury"), an Ohio corporation.
WHEREAS, the Fund and Winsbury have entered into an
Distribution Agreement dated as of October 1, 1993 (the "Distribution
Agreement"), pursuant to which the Fund appointed Winsbury to act as Distributor
for the Fund for The ARCH Money Market, Treasury Money Market, Capital
Appreciation (now, by change of name, "Growth & Income Equity"), Emerging
Growth, Diversified Fixed Income (now, by change of name, "Government &
Corporate Bond"), U.S. Government Securities and Balanced Portfolios;
WHEREAS, Section 19 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 Winsbury that it has
established The ARCH International Equity Portfolio (the "International Equity"
Portfolio), and that it desires to retain Winsbury to act as the Distributor
therefor, and Winsbury has notified the Fund that it is willing to serve as
Distributor for the International Equity Portfolio.
NOW THEREFORE, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. APPOINTMENT. The Fund hereby appoints Winsbury to act as
Distributor to the Fund for the International Equity Portfolio for the period
and on the terms set forth in the Distribution Agreement. Winsbury hereby
accepts such appointment and agrees to render the services set forth in the
Distribution Agreement, for the compensation herein provided.
2. CAPITALIZED TERMS. From and after the date hereof, the term
"Portfolios" as used in the Distribution Agreement shall be deemed to include
the International Equity Portfolio. Capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to them in the Distribution
Agreement.
3. MISCELLANEOUS. Except to the extent supplemented
hereby, the Distribution Agreement shall remain unchanged and in
<PAGE> 2
full force and effect and is hereby ratified and confirmed in all
respects as supplemented hereby.
IN WITNESS WHEREOF, the undersigned have executed this
Addendum as of the date and year first above written.
THE ARCH FUND, INC.
By: /s/ Jerry V. Woodham
---------------------------------
Jerry V. Woodham
President
THE WINSBURY COMPANY LIMITED
PARTNERSHIP
By: THE WINSBURY CORPORATION,
General Partner
By: /s/ Kenneth B. Quintenz
--------------------------------
Kenneth B. Quintenz
Senior Vice President
<PAGE> 1
Exhibit (6)(c)
ADDENDUM NO. 2 TO DISTRIBUTION AGREEMENT
This Addendum, dated as of March 1, l995, is entered into
between THE ARCH FUND, INC. (the "Fund"), a Maryland corporation, and THE
WINSBURY COMPANY LIMITED PARTNERSHIP ("Winsbury"), a limited partnership
organized under the laws of Ohio.
WHEREAS, the Fund and Winsbury have entered into an
Distribution Agreement dated as of October 1, 1993 as amended March 15, 1994
(the "Distribution Agreement"), pursuant to which the Fund appointed Winsbury to
act as Distributor for the Fund's ARCH Money Market, Treasury Money Market,
Growth & Income Equity, Emerging Growth, Government & Corporate Bond, U.S.
Government Securities, Balanced and International 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 Winsbury that it has
established a new class of shares, namely, Class C - Special Series 3, Class D
Special Series 3, Class E - Special Series 3, Class F - Special Series 3, Class
G - Special Series 3, and Class H - Special Series 3 shares (collectively,
"Investor B shares") in each of the ARCH Growth & Income Equity, Emerging
Growth, Government & Corporate Bond, U.S. Government Securities, Balanced and
International Equity 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 Investor B
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.
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.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned have executed this
Addendum as of the date and year first above written.
THE ARCH FUND, INC.
By: /s/ Jerry V. Woodham
---------------------------------
Jerry V. Woodham
President
THE WINSBURY COMPANY LIMITED PARTNERSHIP
By: BISYS FUND SERVICES OHIO, INC.,
General Partner
By: /s/ Stephen G. Mintos
---------------------------------
Stephen G. Mintos
Executive Vice President
<PAGE> 3
APPENDIX A
to the
DISTRIBUTION AGREEMENT
between
THE ARCH FUND, INC.
and
THE WINSBURY COMPANY LIMITED PARTNERSHIP
-----------------------------------------------------------------
Money Market Portfolio (Trust shares, Investor A shares and
Institutional shares)
Treasury Money Market Portfolio (Trust shares, Investor A shares
and Institutional shares)
Growth & Income Equity Portfolio (Trust shares, Investor A shares, Institutional
shares and Investor B shares)
Emerging Growth Portfolio (Trust shares, Investor A shares, Institutional shares
and Investor B shares)
Government & Corporate Bond Portfolio (Trust shares, Investor A shares,
Institutional shares and Investor B shares)
U.S. Government Securities Portfolio (Trust shares, Investor A
shares, Institutional shares and Investor B shares)
Balanced Portfolio (Trust shares, Investor A shares, Institutional shares and
Investor B shares)
International Equity Portfolio (Trust shares, Investor A shares, Institutional
shares and Investor B shares)
<PAGE> 1
Exhibit (6)(d)
ADDENDUM NO. 3 TO DISTRIBUTION AGREEMENT
This Addendum, dated as of July 10, l995, is entered into
between THE ARCH FUND, INC. (the "Fund"), a Maryland corporation, and THE
WINSBURY COMPANY LIMITED PARTNERSHIP ("Winsbury"), a limited partnership
organized under the laws of Ohio.
WHEREAS, the Fund and Winsbury have entered into a
Distribution Agreement dated as of October 1, 1993 as amended March 15, 1994 and
March 1, 1995 (the "Distribution Agreement"), pursuant to which the Fund
appointed Winsbury to act as Distributor for the Fund's ARCH Money Market,
Treasury Money Market, Growth & Income Equity, Emerging Growth, Government &
Corporate Bond, U.S. Government Securities, Balanced and International 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 Winsbury that it has
established a new class of shares, namely, Class A - Special Series 3 shares
("Investor B shares") in the ARCH Money Market Portfolio (the "Money Market
Portfolio") and a new portfolio, namely, the ARCH Short-Intermediate Municipal
Portfolio (the "Short-Intermediate Municipal Portfolio"), and that it desires to
retain Winsbury to act as the Distributor therefor, and Winsbury has notified
the Fund that it is willing to serve as Distributor for Investor B shares of the
Money Market Portfolio and for the Short-Intermediate Municipal Portfolio;
NOW THEREFORE, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. APPOINTMENT. The Fund hereby appoints Winsbury to act as
Distributor to the Fund for Investor B shares of the Money Market Portfolio and
for the Short-Intermediate Municipal Portfolio for the period and on the terms
set forth in the Distribution Agreement. Winsbury hereby accepts such
appointment and agrees to render the services set forth in the Distribution
Agreement.
2. TERMS. From and after the date hereof, the term
"Portfolios" as used in the Distribution Agreement shall be deemed to include
the Short-Intermediate Municipal Portfolio. Capitalized terms used herein and
not otherwise defined shall have the meanings ascribed to them in the
Distribution Agreement.
<PAGE> 2
3. APPENDIX A. Appendix A to the Distribution Agreement is
hereby supplemented to read as set forth in Appendix A attached hereto.
4. MISCELLANEOUS. Except to the extent supplemented hereby,
the Distribution Agreement shall remain unchanged and in full force and effect
and is hereby ratified and confirmed in all respects as supplemented hereby.
IN WITNESS WHEREOF, the undersigned have executed this
Addendum as of the date and year first above written.
THE ARCH FUND, INC.
By: /s/ Jerry V. Woodham
-------------------------------
Jerry V. Woodham
President
THE WINSBURY COMPANY LIMITED PARTNERSHIP
By: BISYS FUND SERVICES OHIO, INC.,
General Partner
By: /s/ Stephen G. Mintos
-------------------------------
Stephen G. Mintos
Executive Vice President
<PAGE> 3
APPENDIX A
to the
DISTRIBUTION AGREEMENT
between
THE ARCH FUND, INC.
and
THE WINSBURY COMPANY LIMITED PARTNERSHIP
- --------------------------------------------------------------------------------
Money Market Portfolio (Trust shares, Investor A shares, Institutional shares
and Investor B shares)
Treasury Money Market Portfolio (Trust shares, Investor A shares
and Institutional shares)
Growth & Income Equity Portfolio (Trust shares, Investor A shares, Institutional
shares and Investor B shares)
Emerging Growth Portfolio (Trust shares, Investor A shares, Institutional shares
and Investor B shares)
Government & Corporate Bond Portfolio (Trust shares, Investor A shares,
Institutional shares and Investor B shares)
U.S. Government Securities Portfolio (Trust shares, Investor A
shares, Institutional shares and Investor B shares)
Balanced Portfolio (Trust shares, Investor A shares, Institutional shares and
Investor B shares)
International Equity Portfolio (Trust shares, Investor A shares, Institutional
shares and Investor B shares)
Short-Intermediate Municipal Portfolio (Trust shares and Investor
A shares)
<PAGE> 1
Exhibit (8)(a)
CUSTODIAN AGREEMENT
-------------------
THIS AGREEMENT is made as of this 1st day of April, 1992 by and
between THE ARCH FUND, INC., a Maryland corporation (the "Fund"), and MERCANTILE
BANK OF ST. LOUIS NATIONAL ASSOCIATION, located in St. Louis Missouri, a
national bank ("Mercantile" or the "Bank").
W I T N E S S E T H :
WHEREAS, the Fund is registered as an open-end, diversified,
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), currently offers shares of Common Stock classified in
five separate investment portfolios (each a "Portfolio") and classes or
subclasses of shares in each such Portfolio (such shares, of all classes and
subclasses, are herein called the "Shares");
WHEREAS, the Fund wishes to appoint Mercantile to serve as
custodian of the Fund's current and future Portfolios, and Mercantile is willing
to furnish such services to such existing and future Portfolios; and
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, the Fund and Mercantile, intending to be legally
bound hereby, agree as follows:
1. APPOINTMENT. The Fund hereby appoints Mercantile to act as
custodian of the portfolio securities, cash and other property of the Fund for
the period and on the terms set forth in this Agreement. Mercantile accepts such
appointment and agrees to furnish the services herein set forth in return for
the compensation as provided in Paragraph 23 of this Agreement. The Fund may
from time to time issue additional Portfolios or classes and sub-classes or
classify and reclassify Shares of such current or future Portfolios or classes
and sub-classes. Mercantile shall identify to each such Portfolio property
belonging to such Portfolio and, in such reports, confirmations and notices to
the Fund called for under this Agreement shall identify the Portfolio to which
such report, confirmation or notice pertains. Mercantile agrees to comply with
all relevant provisions of the 1940 Act and applicable rules and regulations
thereunder.
2. DELIVERY OF DOCUMENTS. The Fund has furnished Mercantile
with copies properly certified or authenticated of each of the following:
(a) Resolutions of the Fund's Board of Directors authorizing
the appointment of Mercantile as custodian of the portfolio securities, cash and
other property of the Fund and approving this Agreement;
<PAGE> 2
(b) Board Resolutions and signature certificates identifying
and containing the signatures of the Fund's officers and/or other persons
authorized to issue Oral Instructions, transmit Electronic Instructions, and
sign Written Instructions, as hereinafter defined, on behalf of the Fund;
(c) The Fund's Articles of Incorporation filed with the
Department of Assessments and Taxation of the State of Maryland on September 9,
1982 and all Articles of Amendment and Articles Supplementary thereto (such
Articles of Incorporation, as currently in effect and as they shall from time to
time be amended, are herein called the "Articles");
(d) The Fund's By-Laws and all amendments thereto (such
By-Laws, as currently in effect and as it shall from time to time be amended,
are herein called the "By-Laws");
(e) The Amended and Restated Advisory Agreement between
Mississippi Valley Advisors Inc. (the "Adviser") and the Fund dated as of April
1, 1991 (such Advisory Agreement as presently in effect and with any future
addenda is herein called the "Advisory Agreement");
(f) The following agreements, each of which is dated as of
April 1, 1988: the Administration Agreement between The Boston Company Advisors,
Inc. (the "Administrator") and the Fund (such Administration Agreement as
presently in effect and with any future addenda is herein called the
"Administration Agreement"); the Amended and Restated Distribution Agreement
between TBC Funds Distributor, Inc. (the "Distributor") and the Fund (such
Distribution Agreement as presently in effect and with any future addenda is
herein called the "Distribution Agreement"); and the Amended and Restated
Transfer Agency Agreement between Provident Financial Processing Corporation
(the "Transfer Agent") and the Fund (such Transfer Agency Agreement as presently
in effect and with any future addenda is herein called the "Transfer Agency
Agreement");
(g) Each Servicing Agreement between a Service Organization
(as defined in the Prospectuses, including any affiliates of the Adviser or
Mercantile or its affiliate banks) and the Fund (collectively, the "Servicing
Agreements");
(h) The Fund's current Registration Statement on Form N-1A
under the 1940 Act and the Securities Act of 1933, as amended (the "1933 Act"),
as filed with the SEC on March 25, 1991 (File No. 2-79285) relating to the
Shares, and all amendments thereto;
(i) The Fund's most recent prospectus or prospectuses (such
prospectus or prospectuses as currently in
-2-
<PAGE> 3
effect and all amendments and supplements thereto are herein called the
"Prospectus"); and
(j) Before entering into a transaction regulated by the
Commodity Futures Trading Commission ("CFTC"), a copy of either (i) a filed
notice of eligibility to claim the exclusion from the definition of "commodity
pool operator" contained in Section 2(a)(1)(A) of the Commodity Exchange Act
("CEA") that is provided in Rule 4.5 under the CEA, together with all
supplements as are required by the CFTC, or (ii) a letter which has been granted
the Fund by the CFTC which states that the Fund will not be treated as a "pool"
as defined in Section 4.10(d) of the CFTC's General Regulations, or (iii) a
letter which has been granted the Fund by the CFTC which states that the CFTC
will not take any enforcement action if the Fund does not register as a
"commodity pool operator."
The Fund will furnish Mercantile from time to time with copies of
all amendments of or supplements to the foregoing, if any, as may be requested
by the Bank in the performance of its duties hereunder.
3. DEFINITIONS.
(a) "AUTHORIZED PERSONS." As used in this Agreement, the term
"Authorized Person" means the Fund's President, Treasurer, and any other person,
whether or not any such person is an officer or employee of the Fund, duly
authorized by the Board of Directors of the Fund to give Oral, Electronic and
Written Instructions on behalf of the Fund and listed on the Certificate annexed
hereto as Appendix A or such other Certificate listing persons duly authorized
to give such Oral, Electronic and Written Instructions on behalf of the Fund as
may be received by Mercantile from time to time.
(b) "BOOK-ENTRY SYSTEM." As used in this Agreement, the term
"Book-Entry System" means the Federal Reserve/Treasury book-entry system for
United States and federal agency securities its successor or successors and its
nominee or nominees, any book-entry system maintained by a clearing agency or
transfer agent registered with the SEC pursuant to Section 17A of the Securities
Exchange Act of 1934 and any other securities depository organized to facilitate
clearance and settlement of certain exempt-securities transactions, use of which
has been approved by resolutions adopted by the Fund's Board of Directors as
specified in Paragraph 7.
(c) "ELECTRONIC INSTRUCTIONS." As used in this Agreement, the
term "Electronic Instructions" means instructions with respect to orders in
connection with the purchase or sale of securities and other investments or
other securities-related transactions for the account of the Fund transmitted
through
-3-
<PAGE> 4
electronic data processing or computer facilities, PROVIDED that such Electronic
Instructions indicate the identity of the Authorized Person transmitting such
orders, and received by Mercantile from an Authorized Person or from a person
reasonably believed by Mercantile to be an Authorized Person. Such Electronic
Instruction shall be promptly reduced to printed form or retained in electronic
form that can be reduced to printed form and maintained pursuant to requirements
in the 1940 Act and the rules thereunder.
(d) "ORAL INSTRUCTIONS." As used in this Agreement, the term
"Oral Instructions" means oral instructions actually received by Mercantile from
an Authorized Person or from a person reasonably believed by Mercantile to be an
Authorized Person. The Fund agrees to deliver to Mercantile Written Instructions
confirming Oral Instructions (except where such Oral Instructions are given by
an Authorized Person employed by the Adviser or an affiliate in which case the
Adviser or its affiliate shall forward such Written Instructions), at the time
and in the manner specified in Paragraph 8(b) of this Agreement.
(e) "PROPERTY." The term "Property," as used in this
Agreement, means:
(i) any and all securities and other property which the
Fund may from time to time deposit, or cause to be deposited, with Mercantile or
which Mercantile may from time to time hold for the Fund;
(ii) all income in respect of any of such securities or
other property;
(iii) all proceeds of the sale of any of such securities
or other property; and
(iv) all proceeds of the sale of securities
issued by the Fund, which are received by Mercantile from time to time from or
on behalf of the Fund.
(f) "WRITTEN INSTRUCTIONS." As used in this Agreement, the
term "Written Instructions" means written instructions delivered by hand, mail,
or facsimile sending device, and received by Mercantile and signed by the
requisite Authorized Person(s).
4. DELIVERY AND REGISTRATION OF THE PROPERTY. The Fund will
deliver or cause to be delivered to Mercantile all securities and all moneys
owned by it, including cash received for the issuance of Shares, at any time
during the period of this Agreement. Mercantile will not be responsible for such
securities and such moneys until actually received by it. All securities
delivered to Mercantile (other than in bearer form)
-4-
<PAGE> 5
shall be registered in the name of the Fund or in the name of a nominee of the
Fund or in the name of Mercantile or any nominee of Mercantile, or in the name
of any sub-custodian or any nominee of any such sub-custodian appointed pursuant
to Paragraph 6 hereof, or shall be properly endorsed and in form for transfer
satisfactory to Mercantile.
5. RECEIPT AND DISBURSEMENT OF MONEY.
(a) Mercantile shall open and maintain a separate custodial
account or accounts in the name of the Fund, subject only to draft or order by
Mercantile acting pursuant to the terms of this Agreement and shall hold in such
account or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Fund. Mercantile shall make payments of cash to
or for the account of such Portfolio from such cash only (i) for the purchase of
securities as provided in Paragraph 13 hereof; (ii) for the redemption of Shares
as provided in subparagraph (b) of Paragraph 9 hereof; (iii) upon receipt of
Written Instructions, for the payments of interest, dividends, taxes, or
custodial, transfer agency, administration, distribution or advisory fees or
expenses which are to be borne by the Fund under the terms of this Agreement,
the Transfer Agency Agreement the Advisory Agreement, the Administration
Agreement, the Service Agreements and the Distribution Agreement, (iv) upon
receipt of Written Instructions, for payments in connection with the conversion,
exchange or surrender of securities owned or subscribed to by a Portfolio and
held by or to be delivered to Mercantile; (v) to a sub-custodian pursuant to
Paragraph 6 hereof; or (vi) upon receipt of Written Instructions, for other
proper Fund purposes. No payment pursuant to (i) above shall be made unless
Mercantile has received a copy of the broker's or dealer's confirmation or the
payee's invoice, as appropriate.
(b) Mercantile is hereby authorized to endorse and collect all
checks, drafts or other orders for the payment of money received as custodian
for the account of the Fund.
6. RECEIPT AND WITHDRAWAL OF SECURITIES.
(a) Except as provided by Paragraph 7 hereof, Mercantile shall
hold and physically segregate in a separate account identifiable at all times
from those of any other persons, firms, or corporations, all securities and
non-cash property received by it for the account of the Fund. All such
securities and non-cash property are to be held or disposed of by Mercantile for
the Fund pursuant to the terms of this Agreement. Mercantile shall maintain
records of all receipts, deliveries and locations of such securities, together
with a current inventory thereof. Mercantile shall conduct periodic physical
inspections of certificated securities (including sampling counts and two
-5-
<PAGE> 6
semi-annual complete physical counts per year to be conducted and certified to
the Fund by Mercantile's Chief Internal Audit officer) and surveys of securities
held in Book-Entry Systems and maintain controls of cash, securities and other
investments entrusted to it under this Agreement in such manner as Mercantile
shall determine from time to time to be advisable in order to verify the
accuracy of such inventory, PROVIDED, however, that Mercantile may, at its own
expense, enter into sub-custodian agreements with other banks or trust companies
for the receipt of certain securities and cash to be held by Mercantile for the
account of the Fund pursuant to this Agreement; PROVIDED that each such
sub-custodian arrangement has been approved by Board resolution for book-entry
use in accordance with Paragraph 3(b) and FURTHER PROVIDED that such bank or
trust company agrees with Mercantile to comply with all relevant provisions of
the 1940 Act and applicable rules and regulations thereunder. Under such
sub-custodian agreements as applicable, Mercantile may deposit the securities of
the Fund in the Book-Entry System, under an arrangement which complies with the
provisions of Rule 17f-4 or Rule 17f-5 under the 1940 Act pursuant to Paragraph
7 hereof. With respect to securities or cash held by any sub-custodian appointed
pursuant to Rule 17f-5 under the 1940 Act, Mercantile may rely upon certificates
from such sub-custodian as to the holdings of such sub-custodian, it being
understood that such reliance in no way relieves Mercantile of its
responsibilities under this Agreement. Mercantile will promptly report to the
Fund the results of the Bank's inspections, indicating any shortages or
discrepancies uncovered thereby, and take appropriate action to remedy any such
shortages or discrepancies. No delivery of securities subject to a sale as
provided in Paragraph 14 hereof shall be made unless Mercantile has received a
copy of the broker's or dealer's confirmation or other invoice as appropriate.
In the absence of Electronic or Written Instructions accompanied by a certified
resolution of the Fund's Board of Directors authorizing the specific
transaction, Mercantile shall have no power or authority to withdraw, deliver,
assign, hypothecate, pledge or otherwise dispose of any such securities and
investments except in accordance with the express terms provided for in this
Agreement. In no case may any director, officers employee or agent of the Fund
withdraw any securities. Mercantile shall remain responsible for the performance
of all of its duties under this Agreement and shall hold the Fund harmless from
any losses related to or arising out of the acts and omissions of any
sub-custodian that it might choose pursuant to this Paragraph 6 except that
Mercantile shall not be liable for any loss resulting from or caused by
direction of the Fund to maintain custody of any Property in a foreign country,
including but not limited to losses resulting from nationalization,
expropriation, currency restrictions or acts of war or terrorism.
-6-
<PAGE> 7
(b) Where securities are transferred to an account of the Fund
established pursuant to Paragraph 7 hereof, Mercantile shall also, by book-entry
or otherwise, identify as belonging to the appropriate Portfolio of the Fund the
quantity of securities in a fungible bulk of securities registered in the name
of Mercantile (or its nominee) or shown in Mercantile's accounts on the books of
the Book-Entry System. At least monthly and from time to time, Mercantile shall
furnish the Fund's accountant with a detailed statement of the Property held for
each Portfolio of the Fund under this Agreement as well as a list of all
security transactions that remain unsettled at such time and notification of any
security transactions that fail to settle on contracted settlement dates.
7. USE OF BOOK-ENTRY SYSTEM. The Fund shall deliver to Mercantile
certified resolutions of the Board of Directors of the Fund approving,
authorizing and instructing Mercantile on a continuous and on-going basis until
instructed to the contrary by Oral or Written instructions actually received by
Mercantile (i) to deposit in the Book-Entry System all securities of the Fund
eligible for deposit therein and (ii) to utilize the Book-Entry System to the
extent possible in connection with settlements of purchases and sales of
securities by the Fund, and deliveries and returns of securities collateral in
connection with borrowings. Without limiting the generality of such use, it is
agreed that the following provisions shall apply thereto:
(a) Securities and any cash of the Fund deposited in the
Book-Entry System will at all times be segregated from any assets and cash
controlled by Mercantile in other than a fiduciary or custodian capacity but may
be commingled with other assets held in such capacities. Mercantile and its
sub-custodian(s), if any, will pay out money only upon receipt of securities and
will deliver securities only upon the receipt of money.
(b) All books and records maintained by Mercantile which
relate to the Fund's participation in the Book-Entry System will at all times
during Mercantile's regular business hours be open to the inspection of the
Fund's duly authorized employees or agents and the Fund will be furnished with
all information in respect of the services rendered to it as it may require.
(c) Mercantile will provide the Fund with copies of any report
obtained by Mercantile on the system of internal accounting control of the
Book-Entry System within ten days after receipt of such a report by Mercantile.
Mercantile will also provide the Fund with such reports on its own system of
internal control at least annually and as the Fund may reasonably request from
time to time pursuant to Paragraph 6 hereunder.
-7-
<PAGE> 8
8. INSTRUCTIONS CONSISTENT WITH ARTICLES AND BY-LAWS.
(a) Unless otherwise provided in this Agreement, Mercantile
shall act only upon Oral and Written Instructions, PROVIDED that with respect to
the purchase or sale of securities on behalf of the Fund, Mercantile shall be
entitled to act upon Electronic Instructions. Although Mercantile may know of
the provisions of the Fund's Articles and By-Laws, Mercantile may assume that
any Oral, Written or Electronic Instructions received hereunder are not in any
way inconsistent with any provisions of such Articles or By-Laws or any vote,
resolution or proceeding of the Shareholders, or of the Board of Directors, or
of any committee thereof.
(b) Mercantile shall be entitled to rely upon any Oral,
Written, or Electronic Instructions actually received by Mercantile pursuant to
this Agreement. The Fund agrees to forward to Mercantile Written Instructions
confirming Oral Instructions (except where such Oral Instructions are given by
an Authorized Person who is an employee of the Adviser or its affiliates wherein
the Adviser or its affiliate shall forward such Written Instructions) in such
manner that the Written Instructions are received by Mercantile by the close of
business of the same day that such Oral Instructions are given to Mercantile.
The Fund agrees that the fact that such confirming Written Instructions are not
received by Mercantile shall in no way affect the validity of the transactions
or enforceability of the transactions authorized by the Fund by giving Oral
Instructions. The Fund agrees that Mercantile shall incur no liability to the
Fund in acting upon Oral Instructions given to Mercantile hereunder concerning
such transactions, PROVIDED such instructions reasonably appear to have been
received from an Authorized Person.
(c) Mercantile shall be entitled to rely upon Electronic
Instructions actually received by Mercantile pursuant to this Agreement with
respect to orders for the purchase and sale of securities or other
securities-related transactions for the Fund's account, PROVIDED that such
Electronic Instructions as received by Mercantile are promptly reduced to
printed form or retained in electronic form that can be reduced to printed form
as required above in Paragraph 3. The Fund agrees that Mercantile shall incur no
liability to the Fund in acting upon Electronic Instructions given to Mercantile
hereunder concerning such transactions, PROVIDED that Mercantile reasonably
believes such instructions have been received from an Authorized Person.
9. TRANSACTIONS NOT REQUIRING INSTRUCTIONS. Mercantile is
authorized to take the following action without Oral or Written Instructions:
-8-
<PAGE> 9
(a) DEPOSITS OF PROCEEDS OF ISSUANCE OF SHARES. Mercantile
shall collect and receive for the account of the appropriate Portfolio of the
Fund all payments received in payment for Shares issued by the Fund.
(b) REDEMPTIONS. Upon receipt of notice by the Fund's Transfer
Agent stating that such Transfer Agent is required to redeem Shares and
specifying the number and Portfolio class or sub-class of Shares which such
Transfer Agent is required to redeem and the date and time the request or
requests for redemption were received by the Distributor, Mercantile shall
either (i) pay to such Transfer Agent, for distribution to the redeeming
Shareholder, the amount payable to such Shareholder upon the redemption of such
Shares as determined in the manner described in the then current Prospectus, or
(ii) arrange for the direct payment of such redemption proceeds by Mercantile to
the redeeming Shareholder in accordance with such procedures and controls as are
mutually agreed upon from time to time by and among Mercantile, the Fund and the
Fund's Transfer Agent.
(c) COLLECTION OF INCOME AND OTHER PAYMENTS. Mercantile shall:
(i) collect and receive for the account of the Fund, all
income and other payments and distributions, including (without
limitation) stock dividends, rights, warrants and similar items,
included or to be included in the Property, and shall promptly advise
the Fund of such receipt and shall credit such income, as collected,
to the Fund's custodian account or accounts on behalf of the
appropriate Portfolio;
(ii) endorse and deposit for collection, in the name of
the Fund, checks, drafts, or other orders for the payment of money on
the same day as received;
(iii) receive and hold for the account of the Fund on
behalf of the appropriate Portfolio all securities received as a
distribution on the portfolio securities of the Fund as a result of a
stock dividend, share split-up or reorganization, recapitalization,
readjustment or other rearrangement or distribution of rights or
similar securities issued with respect to any portfolio securities of
the Fund held by Mercantile hereunder;
(iv) present for payment and collect the amount payable
upon all securities which may mature or be called, redeemed, or
retired, or otherwise become payable on the date such securities
become payable; and
-9-
<PAGE> 10
(v) take any action which may be necessary and proper in
connection with the collection and receipt of such income, payments
and other Property and the endorsement for collection of checks,
drafts, and other negotiable instruments.
(d) MISCELLANEOUS TRANSACTIONS. Mercantile is authorized to
deliver or cause to be delivered Property against payment or other consideration
or written receipt therefor in the following cases:
(i) for the exchange of interim receipts of temporary
securities for definitive securities; and
(ii) for transfer of securities into the name of the Fund
or Mercantile or a nominee of either, or for exchange of securities
for a different number of bonds, certificates, or other evidence,
representing the same aggregate face amount or number of units
bearing the same interest rate, maturity date and call provisions, if
any; PROVIDED that, in any such case, the new securities are to be
delivered to Mercantile.
10. TRANSACTIONS REQUIRING INSTRUCTIONS. Upon receipt of Oral,
Electronic or Written Instructions as specified below and not otherwise,
Mercantile shall:
(a) consistent with the requirements of Paragraph 13
hereunder, upon the receipt of Oral, Written, or Electronic Instructions, be
authorized to deliver or cause to be delivered securities and other investments
against payment or other consideration or written receipt therefor for
examination by a broker selling for the account of the Company in accordance
with street delivery custom; and consistent with the requirements of Paragraph
14 hereunder, be authorized to pay for securities upon receipt;
(b) execute and deliver to such persons as may be designated
in Oral or Written Instructions, proxies, consents, authorizations, and other
instruments whereby the authority of the Fund as owner of any securities may be
exercised;
(c) deliver any securities held for the Fund to such persons
as may be designated in Oral or Written Instructions in exchange for other
securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation, recapitalization or sale of
assets of any corporation, or the exercise of any conversion privilege;
(d) deliver any securities held for the Fund to any protective
committee, reorganization committee or other person as may be designated in Oral
or Written Instructions in
-10-
<PAGE> 11
connection with the liquidation, reorganization, refinancing, merger,
consolidation, recapitalization or sale of assets of any corporation, and
receive and hold under the terms of this Agreement such certificates of deposit,
interim receipts or other instruments or documents as may be issued to it to
evidence such delivery;
(e) make such transfers or exchanges of the assets of the Fund
and take such other steps as shall be stated in said Written Instructions to be
for the purpose of effectuating any duly authorized plan of liquidation,
reorganization, merger, consolidation, recapitalization or sale of the Fund;
(f) release securities belonging to the Fund to any bank or
trust company as may be designated in Written Instructions, for the purpose of
pledge or hypothecation to secure any loan incurred by the Fund, PROVIDED,
however, that securities shall be released only upon payment to Mercantile of
the moneys borrowed, except that in cases where additional collateral is
required to secure a borrowing already made, subject to proper prior
authorization, further securities may be released for that purpose; and pay such
loan upon redelivery to it of the securities pledged or hypothecated therefor
and upon surrender of the note or notes evidencing the loan; and
(g) under Oral, Electronic or Written Instructions, pay out
moneys of the Fund in connection with any repurchase agreement entered into on
behalf of the Fund, but only upon the delivery of the securities; and release
and deliver securities held by the Fund in connection with such repurchase
agreement, but only upon receipt of payment therefor.
11. SEGREGATED ACCOUNTS.
(a) Mercantile shall, upon receipt of Written or Oral
Instructions, establish and maintain a segregated account or accounts on its
records for and on behalf of the Fund, into which account or accounts may be
transferred cash and/or securities, including securities in the Book-Entry
System (i) for the purposes of compliance by the Fund with the procedures
required by a securities or options exchange, PROVIDED such procedures comply
with the 1940 Act and Release No. 40-10666 or any subsequent release or releases
of the SEC relating to the maintenance of segregated accounts by registered
investment companies, and (ii) for other proper corporate purposes, but only, in
the case of clause (ii), upon receipt of Written Instructions.
(b) Mercantile may enter into separate sub-custodial
agreements with various futures commission merchants ("FCMs") that the Fund uses
(each an "FCM Procedural Agreement"),
-11-
<PAGE> 12
pursuant to which the Fund's margin deposits in any transactions involving
futures contracts and options on futures contracts will be held by Mercantile in
accounts (each an "FCM Account") subject to the disposition by the FCM involved
in such contracts in accordance with the customer contract between FCM and the
Fund, SEC rules governing such segregated accounts, CFTC rules and the rules of
the applicable commodities exchange. Such FCM Procedural Agreements shall only
be entered into upon receipt of Written Instructions from the Fund which state
that (i) a customer agreement between the FCM and the Fund has been entered
into; and (ii) the Fund is in compliance with all the rules and regulations of
the CFTC. Transfers of initial margin shall be made into an FCM Account only
upon Written Instructions; transfers of premium and variation margin may be made
into an FCM Account pursuant to Electronic or Oral Instructions. Transfers of
funds from an FCM Account to the FCM for which Mercantile holds such an account
may only occur upon certification by the FCM to Mercantile that pursuant to the
FCM Agreement and the contract between the Fund and the FCM, all conditions
precedent to its right to give Mercantile such instruction have been satisfied.
12. DIVIDENDS AND DISTRIBUTIONS. The Fund shall furnish
Mercantile with appropriate evidence of action by the Fund's Board of Directors
declaring and authorizing the payment of any dividends and distributions to the
Shareholders. Upon receipt by Mercantile of Written Instructions with respect to
dividends and distributions declared by the Fund's Board of Directors and
payable to the Shareholders who have elected in the proper manner to receive
their distributions and/or dividends in cash, and in conforming with procedures
mutually agreed upon by Mercantile, the Fund, and the Fund's Transfer Agent,
Mercantile shall pay to the Fund's Transfer Agent, as agent for the
Shareholders, an amount equal to the amount indicated in said Written
Instructions as payable by the Fund to such Shareholders for distribution in
cash by the Transfer Agent to such Shareholders. In lieu of paying the Fund's
Transfer Agent cash dividends and distributions, Mercantile may arrange for the
direct payment of cash dividends and distributions to Shareholders by Mercantile
in accordance with such procedures and controls as are mutually agreed upon from
time to time by and among the Fund, Mercantile and the Fund's Transfer Agent.
13. PURCHASES OF SECURITIES. Promptly after each decision by the
Adviser to purchase securities on behalf of a Portfolio, the Fund, through the
Adviser, shall deliver to Mercantile, Oral or Electronic Instructions specifying
with respect to each such purchase: (a) the name of the issuer and the title of
the securities; (b) the number of shares or the principal amounts purchased and
accrued interest, if any; (c) the date of purchase and settlement; (d) the
purchase price per unit; (e) the total amount payable upon such purchase; (f)
the
-12-
<PAGE> 13
Portfolio of the Fund for which the purchase was made; and (g) the name of the
person from whom or the broker through whom the purchase was made. Mercantile
shall, upon receipt of securities purchased by or for the Fund, pay out of the
moneys held for the account of the appropriate Portfolio of the Fund the total
amount payable to the person from whom or the broker through whom the purchase
was made, PROVIDED that the same conforms to the total amount payable and the
Portfolio as set forth in such Oral or Electronic Instructions. The Fund agrees
that Mercantile shall incur no liability to the Fund in acting upon such
purchase transactions without the broker's or dealer's confirmation or payee's
invoice in those cases where settlement occurs on the same or next business day
and is thereby prior to the receipt of such confirmation or invoice, PROVIDED
that such confirmation or invoice as the case may be is promptly transmitted to
the Fund's accountant responsible to review and reconcile the Fund's records
with the records of the Custodian.
14. SALES OF SECURITIES. Promptly after each decision by the
Adviser to sell securities or exercise an option written by the Fund on behalf
of a Portfolio, the Fund, through the Adviser, shall deliver to Mercantile, Oral
or Electronic Instructions specifying with respect to each such sale: (a) the
name of the issuer and the title of the security; (b) the number of shares or
principal amount sold, and accrued interest, if any; (c) the date of sale; (d)
the sale price per unit; (e) the total amount payable to the Fund upon such
sale; (f) the Portfolio of the Fund selling such securities; and (g) the name of
the broker through whom or the person to whom the sale was made. Mercantile
shall deliver the securities upon receipt of the total amount payable to the
Fund upon such sale, PROVIDED that the same conforms to the total amount payable
and the Portfolio as set forth in such Oral or Electronic Instructions. Subject
to the foregoing, Mercantile may accept payment in such form as shall be
satisfactory to it and may deliver securities and arrange for payment in
accordance with the customs prevailing among dealers in securities. The Fund
agrees that Mercantile shall incur no liability to the Fund in acting upon such
sale transactions without the broker's or dealer's confirmation or payee's
invoice in those cases where settlement occurs on the same or next business day
and is thereby prior to the receipt of such confirmation or invoice, PROVIDED
that such confirmation or invoice as the case may be is promptly transmitted to
the Fund's accountant responsible to review and reconcile the Fund's records
with the records of the Custodian.
15. CORRESPONDENCE. Mercantile shall answer correspondence from
securities brokers and others relating to its duties hereunder and such other
correspondence as may from time to time be mutually agreed upon between
Mercantile and the Fund.
-13-
<PAGE> 14
16. RECORDS. Mercantile shall keep and maintain appropriate
financial books and records with respect to its duties hereunder for the Fund.
The books and records pertaining to the Fund which are in the possession of
Mercantile shall be the property of the Fund. Such books and records shall be
prepared and maintained as required by the 1940 Act and other applicable
securities laws and rules and regulations. The Fund or the Fund's authorized
representatives shall have access to such books and records at all times during
Mercantile's normal business hours. Upon the reasonable request of the Fund,
copies of any such books and records shall be provided by Mercantile to the Fund
or the Fund's authorized representative at the Fund's expense.
17. REPORTS. Mercantile shall furnish the Fund the following
reports with respect to each Portfolio of the Fund:
(a) to the Fund's accountant, weekly transaction notations
that include the information specified in (a) through (g) of Paragraph 13 (with
respect to securities, purchases) and (a) through (g) of Paragraph 14 (with
respect to securities' sales);
(b) a monthly statement summarizing all transactions and
entries for the account of the Fund, listing the portfolio securities belonging
to the Portfolio with the adjusted average cost of each issue and the market
value at the end of such month, and stating the cash account of the Portfolio
showing disbursements; and
(c) such periodic and special reports as the Fund may
reasonably request and such other information as may be agreed upon from time to
time between the Fund and Mercantile.
18. COOPERATION WITH ACCOUNTANTS. Mercantile shall cooperate with
the Fund's independent auditors and shall take all reasonable action in the
performance of its obligations under this Agreement to assure that the necessary
information is made available to such auditors for the expression of their
opinion as such may be required from time to time by the Fund.
19. CONFIDENTIALITY. Mercantile agrees on behalf of itself and
its employees to treat confidentially and as the proprietary information of the
Fund all records and other information relative to the Fund and its prior,
present or potential Shareholders and relative to the Distributor and its prior,
present or potential customers, and not to use such records and information for
any purpose other than performance of its responsibilities and duties hereunder,
except after prior notification to and approval in writing by the Fund, which
approval shall not unreasonably be withheld and may not be withheld where
Mercantile may be exposed to civil or criminal
-14-
<PAGE> 15
contempt proceedings for failure to comply, when requested to divulge this
information by duly constituted authorities or when so requested by the Fund.
20. EQUIPMENT FAILURES. In the event of equipment failures beyond
Mercantile's control, Mercantile shall, at no additional expense to the Fund,
take reasonable steps to minimize service interruptions but shall have no
liability with respect thereto. Mercantile shall enter into and shall maintain
in effect with appropriate parties one or more agreements making reasonable
provision for emergency use of electronic data processing equipment to the
extent appropriate equipment is available.
21. RIGHT TO RECEIVE ADVICE.
(a) ADVICE OF FUND. If Mercantile shall be in doubt as to any
action to be taken or omitted by it, the Bank may request, and shall receive,
from the Fund directions or advice, including Oral, Written or Electronic
Instructions where appropriate.
(b) ADVICE OF COUNSEL. If Mercantile shall be in doubt as to
any question of law involved in any action to be taken or omitted by Mercantile,
the Bank may request advice at its own cost from counsel of its own choosing
(who may be counsel for the Adviser Administrator, Distributor, Transfer Agent,
a Service Organization, the Fund, or Mercantile, at the option of Mercantile).
(c) CONFLICTING ADVICE. In case of conflict between directions
or advice (including Oral, Written or Electronic Instructions) received by
Mercantile pursuant to subparagraph (a) of this paragraph and advice received by
Mercantile pursuant to subparagraph (b) of this paragraph, Mercantile shall be
entitled to rely on and follow the advice received pursuant to the latter
provisions alone.
(d) PROTECTION OF MERCANTILE. Mercantile shall be protected in
any action or inaction which it takes in reliance on any directions or advice
(including Oral, Written or Electronic Instructions) received pursuant to
subparagraphs (a) or (b) of this paragraph which Mercantile, after receipt of
such directions or advice, reasonably and in good faith believes to be
consistent with such directions or advice, as the case may be. However, nothing
in this paragraph shall be construed as imposing upon Mercantile any obligation
(i) to seek such directions or advice (including Oral, Written or Electronic
Instructions), or (ii) to act in accordance with such directions or advice when
received, unless under the terms of another provision of this Agreement, the
same is a condition to Mercantile's properly taking or omitting to take such
action. Nothing in this
-15-
<PAGE> 16
subsection shall excuse Mercantile when an action or omission on the part of
Mercantile constitutes willful misfeasance, bad faith, negligence or reckless
disregard by Mercantile of its duties under this Agreement.
22. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS. The Fund
assumes full responsibility for insuring that the contents of the Prospectus
comply with all applicable requirements of the 1933 Act, the 1940 Act, the CEA
and any laws, rules and regulations of governmental authorities having
jurisdiction.
23. COMPENSATION. As sole compensation for the services rendered
by Mercantile during the term of this Agreement, the Fund will pay to Mercantile
such monthly fees as the parties may agree upon from time to time in writing for
each Portfolio of the Fund.
24. INDEMNIFICATION. The Fund as sole owner of the Property,
agrees to indemnify and hold harmless Mercantile and its nominees from all
taxes, charges, expenses, assessments, claims and liabilities (including,
without limitation, liabilities arising under the 1940 Act, the Securities
Exchange Act of 1934, the 1940 Act, the CEA, and any state and foreign
securities and blue sky laws, all as or as to be amended from time to time) and
expenses, including (without limitation) attorneys' fees and disbursements,
arising directly or indirectly (a) from the fact that securities included in the
Property are registered in the name of any such nominee or (b) without limiting
the generality of the foregoing clause (a) from any action or thing which
Mercantile takes or does or omits to take or do (i) at the request or on the
direction of or in reliance on the advice of the Fund or (ii) upon Oral, Written
or Electronic Instructions, PROVIDED that neither Mercantile nor any of its
nominees shall be indemnified against any liability to the Fund or to its
Shareholders (or any expenses incident to such liability) arising out of
Mercantile's or such nominee's own willful misfeasance, bad faith, negligence or
reckless disregard of its duties or responsibilities under this Agreement. In
the event of any advance of cash for any purpose made by Mercantile resulting
from Oral, Written or Electronic Instructions of the Fund, or in the event that
Mercantile or its nominee shall incur or be assessed an, taxes, charges,
expenses, assessments, claims or liabilities in connection with the performance
of this Agreement, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any Property
at any time held for the account of the Fund shall be security therefor.
25. RESPONSIBILITY OF MERCANTILE. Mercantile shall be under no
duty to take any action on behalf of the Fund except as specifically set forth
herein or as may be specifically agreed to
-16-
<PAGE> 17
by Mercantile in writing. Mercantile shall have no liability for any action or
inaction of a prior custodian in connection with its duties and responsibilities
under a prior custodian agreement. In the performance of its duties hereunder,
Mercantile shall be obligated to exercise care and diligence and to act in good
faith and to use its best efforts within reasonable limits to insure the
accuracy of all services performed under this Agreement. Mercantile shall be
responsible for its own negligent failure to perform its duties under this
Agreement, but to the extent that duties, obligations and responsibilities are
not specifically set forth in this Agreement, Mercantile shall not be liable for
any act or omission which does not constitute willful misfeasance, bad faith or
gross negligence on the part of Mercantile or reckless disregard by Mercantile
of such duties, obligations and responsibilities. Without limiting the
generality of the foregoing or of any other provision of this Agreement,
Mercantile in connection with its duties under this Agreement shall not be under
any duty or obligation to enquire into and shall not be liable for or in respect
of (a) the validity or invalidity or authority or lack thereof of any Oral,
Written or Electronic Instruction, notice or other instrument which conforms to
the applicable requirements of this Agreement, if any, and which Mercantile
reasonably believes to be genuine; (b) the validity or invalidity of the
issuance of any securities included or to be included in the Property, the
legality or illegality of the purchase of such securities, or the propriety or
impropriety of the amount paid therefor; (c) the legality or illegality of the
sale (or exchange) of any Property or the propriety or impropriety of the amount
for which such Property is sold or exchanged); or (d) delays or errors or loss
of data occurring by reason of circumstances beyond Mercantile's control,
including acts of civil or military authority, national emergencies, labor
difficulties, fire, mechanical breakdown except as provided in Paragraph 20
hereof, flood or catastrophe, acts of God, insurrection, war, riots or failure
of the mails, transportation, communication or power supply, nor shall
Mercantile be under any duty or obligation to ascertain whether any Property at
any time delivered to or held by Mercantile may properly be held by or for the
Fund.
26. COLLECTIONS. All collections of moneys or other property in
respect, or which are to become part, of the Property (but not the safekeeping
thereof upon receipt by Mercantile) shall be at the sole risk of the Fund. In
any case in which Mercantile does not receive any payment due the Fund within a
reasonable time after Mercantile has made proper demands for the same, it shall
so notify the Fund in writing, including copies of all demand letters, any
written responses thereto, and memoranda of all oral responses thereto and to
telephonic demands, and await instructions from the Fund. Mercantile shall not
be obliged to take legal action for collection unless and until reasonably
indemnified to its satisfaction. Mercantile shall
-17-
<PAGE> 18
also notify the Fund pursuant to Paragraph 6(b) whenever income due on
securities is not collected in due course.
27. DURATION AND TERMINATION. This Agreement shall continue until
termination by the Fund or Mercantile on sixty (60) days' written notice. Upon
any termination of this Agreement, the Fund shall pay to Mercantile such fees,
compensation, costs and expenses as may be due subject to Paragraph 23 hereof as
of the date of such termination and any such reasonable costs, expenses and
disbursements as may be incurred by the Bank in connection with such
termination.
(a) If a successor custodian is appointed by the Fund's Board
of Directors in accordance with its Articles or By-Laws, upon Written
Instructions Mercantile shall no later than the termination date deliver to such
successor custodian at the Bank's office, duly endorsed and in form for
transfer, all securities then held hereunder and all cash or other Property of
the Fund deposited with or held by Mercantile hereunder.
(b) Pending appointment of a successor to Mercantile or vote
of the Shareholders' to dissolve or to function without a custodian of its cash,
securities or other Property, Mercantile shall not deliver cash, securities or
other Property of the Fund to the Fund, but may deliver them to a bank or trust
company of its own selection, having an aggregate capital, surplus and undivided
profits, as shown by its last published report of not less than twenty million
dollars ($20,000,000) as a custodian for the Fund to be held under terms similar
to those of this Agreement; PROVIDED, however, that Mercantile shall not be
required to make any such delivery or payment until full payment shall have been
made by the Fund of all liabilities constituting a charge on or against the
Properties of the Fund then held by Mercantile or on or against Mercantile and
until full payment shall have been made to Mercantile of all of its fees,
compensation, costs and expenses, subject to the provisions of Paragraph 23 of
this Agreement.
28. NOTICES. All notices and other communications, including
Written Instructions (collectively referred to as "Notice" or "Notices" in this
paragraph), hereunder shall be in writing or by confirming telegram, facsimile
or electronic sending device. Notices shall be addressed (a) if to Mercantile at
its address, 7th and Washington Streets, St. Louis, Missouri 63601, marked for
the attention of the Custodian Services Department (or its successor); (b) it to
the Fund, at the address of the Fund; or (c) if to neither of the foregoing, at
such other address as to which the sender of any such Notice or other
communication shall have been notified. If the location of the sender of a
Notice and the address of the addressee thereof are, at the time of sending,
more than 100 miles apart, the Notice may be sent by first-class mail, in which
case it shall be deemed to
-18-
<PAGE> 19
have been given three days after it is sent, or if sent by confirming telegram,
facsimile or electronic sending device, it shall be deemed to have been given
immediately, and, if the location of the sender of a Notice and the address of
the addressee thereof are, at the time of sending, not more than 100 miles
apart, the Notice may be sent by first-class mail, in which case it shall be
deemed to have been given two days after it is sent, or if sent by messenger, it
shall be deemed to have been given on the day it is delivered, or if sent by
confirming telegram, facsimile or electronic sending device, it shall be deemed
to have been given immediately. All postage, telegram, facsimile or electronic
sending device or other similar charges arising from the sending of a Notice
hereunder shall be paid by the sender.
29. FURTHER ACTIONS. Each party agrees to perform such further
acts and execute such further documents as are necessary to effectuate the
purposes hereof.
30. AMENDMENTS. This Agreement or any part hereof may be changed
or waived only by an instrument in writing signed by the party against which
enforcement of such change or waiver is sought.
31. DELEGATION. On thirty (30) days, prior written notice to the
Fund, Mercantile may assign its rights and delegate its duties hereunder to any
bank having the qualifications provided in Section 17(f) of the 1940 Act,
PROVIDED that Mercantile and its delegate shall promptly provide such
information as the Fund may request and respond to such questions as the Fund
may ask relative to the delegation, including (without limitation) the
capabilities of the delegate. Mercantile shall remain liable to the Fund for
performance of its duties to the Fund notwithstanding any delegation.
32. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
33. MISCELLANEOUS. This Agreement embodies the entire agreement
and understanding between the parties hereto, and supersedes any and all prior
agreements and understandings relating to the subject matter hereof, PROVIDED
that the parties hereto may embody in one or more separate documents their
agreement, if any, with respect to delegated and/or Oral, Written or Electronic
Instructions. The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement shall be deemed to
be a contract made in Missouri and governed by Missouri law. If any provision of
this Agreement shall be held or made invalid by a
-19-
<PAGE> 20
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. This Agreement shall be binding and shall inure
to the benefit of the parties hereto and their respective successors.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their officers designated below as of the day and year first
above written.
[SEAL] THE ARCH FUND, INC.
Attest: By/s/ Jerry Woodham
----------------------- ------------------------
(Name and Title)
[SEAL] MERCANTILE BANK OF ST. LOUIS
NATIONAL ASSOCIATION
Attest: By/s/ Doug Foxx
----------------------- -------------------------
(Name and Title)
-20-
<PAGE> 1
Exhibit (8)(b)
April 1, 1995
Mercantile Bank of St. Louis National Association
One Mercantile Center
St. Louis, Missouri 63101
Re: Custody Fees for The ARCH Money Market, Treasury
Money Market, Growth & Income Equity, Government &
Corporate Bond, U.S. Government Securities,
Emerging Growth, Balanced and International Equity
Portfolios
Gentlemen:
This letter constitutes our agreement with respect to
compensation to be paid to Mercantile Bank of St. Louis National Association
("Mercantile") with respect to The ARCH Money Market Portfolio (comprised of
Class A, Class A - Special Series 1 and Class A - Special Series 2 shares), The
ARCH Treasury Money Market Portfolio (comprised of Class B, Class B - Special
Series 1 and Class B - Special Series 2 shares), The ARCH Growth & Income Equity
Portfolio (comprised of Class C, Class C - Special Series 1, Class C - Special
Series 2 and Class C - Special Series 3 shares), The ARCH Emerging Growth
Portfolio (comprised of Class D, Class D - Special Series 1, Class D - Special
Series 2 and Class D - Special Series 3 shares), The ARCH Government & Corporate
Bond Portfolio (comprised of Class E, Class E - Special Series 1, Class E -
Special Series 2 and Class E - Special Series 3 shares), The ARCH U.S.
Government Securities Portfolio (comprised of Class F, Class F - Special Series
1, Class F Special Series 2 and Class F - Special Series 3 shares), The ARCH
Balanced Portfolio (comprised of Class G, Class G - Special Series 1, Class G -
Special Series 2 and Class G - Special Series 3 shares), and The ARCH
International Equity Portfolio (comprised of Class H, Class H - Special Series
1, Class H - Special Series 2 and Class H - Special Series 3 shares) (each class
a "Series") under the terms of the Custodian Agreement dated as of April 1, 1992
(the "Custodian Agreement") between The ARCH Fund, Inc. (the "Fund") and
Mercantile. Pursuant to Paragraph 23 of the Custodian Agreement, and in
consideration of the services to be provided by you, we will pay Mercantile the
following:
<PAGE> 2
Mercantile Bank of St. Louis, N.A.
April 1, 1995
Page 2
1. An annual custody fee (exclusive of any transaction charges for the
non-money market portfolios), which shall be calculated daily and paid monthly
(in arrears) for each Series as follows:
- The ARCH Money Market Portfolio - $.125 for each $1000
of the Series' average daily net assets;
- The ARCH Treasury Money Market Portfolio - $.125 for
each $1000 of the Series' average daily net assets;
- The ARCH Growth & Income Equity Portfolio - the greater of
$6,000 or $.30 for each $1000 of the Series' average daily net
assets;
- The ARCH Emerging Growth Portfolio - the greater of
$6000 or $.30 for each $1000 of the Series' average
daily net assets;
- The ARCH Government & Corporate Bond Portfolio - the greater
of $6000 or $.30 for each $1000 of the Series' average daily
net assets;
- The ARCH U.S. Government Securities Portfolio - the
greater of $6000 or $.30 for each $1000 of the Series'
average daily net assets;
- The ARCH Balanced Portfolio - the greater of $6000 or
$.30 for each $1000 of the Series' average daily net
assets; and
- The ARCH International Equity Portfolio - .17% of the Series'
average daily net assets for the first $50 million in assets;
.155% of the Series' average daily net assets for the next $50
million; .13% of the Series average daily net assets for the
next $150 million; and .105% of the Series' average daily net
assets thereafter.
2. For the non-money market portfolios, a transaction charge of $15.00
for each purchase, sale or delivery of a security upon its maturity date, $50.00
for each interest collection or claim item, $20.00 for each transaction
involving GNMA, tax-free or other non-depository registered items with
<PAGE> 3
Mercantile Bank of St. Louis, N.A.
April 1, 1995
Page 3
monthly dividends or interest, $30.00 for each purchase, sale or expiration of
an option contract, $50.00 for each purchase, sale or expiration of a futures
contract, and $15.00 for each repurchase trade with an institution other than
Mercantile;
3. Mercantile's incremental costs in providing foreign custody services
for foreign denominated and held securities; and
4. Mercantile's out-of-pocket expenses, including but not limited to
postage, telephone, telex, Federal Express and Federal Reserve wire fees, on
behalf of the Series.
The fee and expenses attributable to each Series shall be the
obligation of that Series and not of any other portfolio of the Fund. The fee
for the period from the day of the year this agreement is entered into until the
end of that fiscal year of the Series, or for any portion of a fiscal year
immediately prior to its termination, shall be pro-rated according to the
proportion which such period bears to the full annual period.
If the foregoing accurately sets forth our agreement and you
intend to be legally bound thereby, please execute a copy of this letter and
return it to us.
Very truly yours,
THE ARCH FUND, INC.
By:/s/ Jerry V. Woodham
-----------------------
Jerry V. Woodham, President
ACCEPTED: MERCANTILE BANK OF ST. LOUIS NATIONAL ASSOCIATION
By:/s/ Donald A. Salama
------------------------------------------
Donald A. Salama, Senior Vice President
Dated as of: April 1, 1995
<PAGE> 1
Exhibit (8)(c)
July 10, 1995
Mercantile Bank of St. Louis National Association
One Mercantile Center
St. Louis, Missouri 63101
Re: Custody Fees for The ARCH Short-Intermediate
Municipal Portfolio
--------------------------------------------
Gentlemen:
This letter constitutes our agreement with respect to
compensation to be paid to Mercantile Bank of St. Louis National Association
("Mercantile") with respect to The ARCH Short- Intermediate Municipal Portfolio
(comprised of Class I and Class I - Special Series 1 shares) (each class a
"Series") under the terms of the Custodian Agreement dated as of April 1, 1992
(the "Custodian Agreement") between The ARCH Fund, Inc. (the "Fund") and
Mercantile. Pursuant to Paragraph 23 of the Custodian Agreement, and in
consideration of the services to be provided by you, we will pay Mercantile the
following:
1. An annual custody fee (exclusive of any transaction charges for the
non-money market portfolios), which shall be calculated daily and paid monthly
(in arrears) for each Series as follows:
- The ARCH Short-Intermediate Municipal Portfolio - the greater
of $6,000 or $.30 for each $1,000 of the Series' average daily
net assets.
2. A transaction charge of $15.00 for each purchase, sale or delivery
of a security upon its maturity date, $50.00 for each interest collection or
claim item, $20.00 for each transaction involving GAMA, 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;
<PAGE> 2
Mercantile Bank of St. Louis, N.A.
July 10, 1995
Page 2
4. Mercantile's incremental costs in providing foreign custody services
for foreign denominated and held securities; and
5. Mercantile's out-of-pocket expenses, including but not limited to
postage, telephone, telex, Federal Express and Federal Reserve wire fees, on
behalf of the Series.
The fee and expenses attributable to each Series shall be the
obligation of that Series and not of any other portfolio of the Fund. The fee
for the period from the day of the year this agreement is entered into until the
end of that fiscal year of the Series, or for any portion of a fiscal year
immediately prior to its termination, shall be pro-rated according to the
proportion which such period bears to the full annual period.
If the foregoing accurately sets forth our agreement and you
intend to be legally bound thereby, please execute a copy of this letter and
return it to us.
Very truly yours,
THE ARCH FUND, INC.
By:/s/ Jerry V. Woodham
-----------------------
Jerry V. Woodham, President
ACCEPTED: MERCANTILE BANK OF ST. LOUIS NATIONAL ASSOCIATION
By:/s/ Donald A. Salama
--------------------------------------
Donald A. Salama, Senior Vice President
Dated as of: July 10, 1995
<PAGE> 1
Exhibit (8)(h)
GLOBAL SUB-CUSTODIAN AGREEMENT
------------------------------
AGREEMENT dated as of April 1, 1994 among BANKERS TRUST COMPANY (the "Bank"),
The ARCH Fund, Inc. (the "Fund") and Mercantile Bank of St. Louis National
Association (the "Custodian").
WITNESSETH:
WHEREAS, the Fund is registered as an open-end diversified,
management investment company under the Investment Company Act of 1940, as
amended ("1940 Act");
WHEREAS, the Fund may, from time to time organize one or more
series of shares, in addition to the series set forth in Exhibit A attached
hereto, each of which shall represent an interest in a separate portfolio of
Securities and Cash (each as hereinafter defined) (all such existing and
additional series now or hereafter listed on Exhibit A being hereafter referred
to individually as a "Portfolio" and collectively, as the "Portfolios"); and
WHEREAS, Custodian has entered into a Custodian Agreement with
the Fund to provide certain custody services to the Portfolios; and
WHEREAS, the Custodian and the Fund wish to retain the Bank to
provide certain global sub custodian services to the Custodian and the Fund, for
the benefit of the Portfolios, and the Bank is willing to provide such services;
NOW, THEREFORE, in consideration of the promises and mutual
covenants herein contained, it is agreed among the parties hereto as follows:
1. Employment of Bank. The Custodian and the Fund, on behalf
of each Portfolio, hereby employ the Bank as global subcustodian of all assets
of each Portfolio that are delivered to and accepted by the Bank or any of its
Subcustodians (as that term is defined in Section 6) anywhere in the world (the
"Property") pursuant to the terms and conditions set forth herein. Without
limitation, such Property shall include stocks and other equity interests of
every type, evidences of indebtedness, other instruments representing same or
rights or obligations to receive, purchase, deliver or sell same and other
non-cash investment property of a Portfolio ("Securities") and cash from
whatever source and in whatever currency ("Cash"). The Bank shall not be
responsible for any property of a Portfolio held or received by the Fund or
others and not delivered to the Bank or any of its Subcustodians.
<PAGE> 2
2. Custody Account. The Bank agrees to establish and maintain
one or more separate custody accounts each in the name of the Custodian, on
behalf of the Fund for each Portfolio (individually, an "Account" and
collectively, the "Accounts") for any and all Property from time to time
received and accepted by the Bank or any of its Subcustodians for the account of
such Portfolio. Upon delivery by the Fund or the Custodian to the Bank of any
Property belonging to a Portfolio, the Fund or the Custodian, as the case may
be, shall specifically indicate which Portfolio such Property belongs or if such
Property belongs to more than one Portfolio shall allocate such Property to the
appropriate Portfolio(s) all in accordance with Instructions (as defined in
Section 13). The Custodian and the Fund, on behalf of the Portfolios, each
acknowledge its responsibility as a principal for all of its obligations to the
Bank arising under or in connection with this Agreement, notwithstanding in the
case of the Custodian, that it may be acting on behalf of other persons and
warrants its authority to deposit in the Accounts any Property received therefor
by the Bank or its Subcustodian and to give, and authorize others to give,
instructions relative thereto. The Bank may deliver securities of the same class
in place of those deposited in the Account. The Fund, on behalf of the
Portfolios, and the Custodian agree that the Bank shall not be subject to, nor
shall its rights and obligations under this Agreement or with respect to the
Accounts be affected by, any agreement between the Fund or the Custodian and any
other person, except as otherwise provided herein.
The Bank shall hold, keep safe and protect as global
subcustodian all Property in the Account. All transactions, including, but not
limited to, foreign exchange transactions, involving the Property shall be
executed or settled solely in accordance with Instructions (as defined in
Section 13), except that until the Bank, or its Subcustodian, receives
Instructions to the contrary, the Bank will:
(a) collect all interest and dividends and all other
income and payments, whether paid in cash or in kind,
on the Property, as the same become payable and
credit the same to the Account;
(b) present for payment all Securities held in the
Account which are called, redeemed or retired or
otherwise become payable and all coupons and other
income items which call for payment upon
presentation to the extent that the Bank or its
Subcustodian is actually aware of such
opportunities and hold the cash received in the
Account pursuant to this Agreement;
(c) exchange Securities where the exchange is purely
ministerial (including, without limitation, the
-2-
<PAGE> 3
exchange of warrants, or other documents of
entitlement to securities, for the Securities
themselves);
(d) whenever notification of a rights entitlement or a
fractional interest resulting from a rights issue,
stock dividend or stock split is received for the
Account and such rights entitlement or fractional
interest bears an expiration date, endeavor to
receive Instructions, provided that if such
Instructions are not received in time for the Bank
to take timely action, sell in the discretion of
the Bank, or its Subcustodian (which sale the
Fund, on behalf of the Portfolios, and the
Custodian hereby authorize the Bank to make), such
rights entitlement or fractional interest and
credit the Account with the net proceeds of such
sale;
(e) execute in the Custodian's or Fund's name for the
Account, whenever the Bank, or its Subcustodian,
deems it appropriate, such ownership and other
certificates as may be required to obtain the payment
of income from Property; and
(f) pay for the Account, any and all taxes and levies
in the nature of taxes imposed on income on the
Property by any governmental authority. In the
event there is insufficient Cash available in the
Account to pay such taxes and levies, the Bank, or
its Subcustodian, shall notify the Custodian of
the amount of the shortfall and the Custodian may,
or may cause the Fund to, at its option, deposit
additional Cash in the Account or take steps to
have sufficient Cash available. The Custodian and
the Fund, on behalf of the Portfolios agree, when
and if requested by the Bank and required in
connection with the payment of any such taxes to
cooperate with the Bank, or its Subcustodian, in
furnishing information, executing documents or
otherwise; and
(g) appoint brokers and agents for any transaction
involving the Securities, including, without
limitation, affiliates of the Bank or any
Subcustodian.
Except as otherwise may be agreed upon by the parties hereto,
the Bank shall not be required to comply with any Instructions to settle the
purchase of any Securities for an Account unless there is sufficient Cash in
that Account at the time or to settle the sale of any Securities in an Account
unless
-3-
<PAGE> 4
such Securities are in deliverable form. Notwithstanding the foregoing, if the
purchase price of such Securities exceeds the amount of Cash in an Account at
the time of such purchase, the Bank may, in its sole discretion, advance the
amount of the difference in order to settle the purchase of such Securities. The
amount of any such advance shall be deemed a loan from the Bank to the
applicable Account payable on demand and bearing interest accruing from the date
such loan is made to, but not including, the date such loan is repaid at a rate
per annum customarily charged by the Bank on similar loans.
3. Records, Ownership of Property and Statements. The
ownership of the Property whether Securities, Cash and/or other property, and
whether held by the Bank or a Subcustodian or in a Securities System as
authorized herein, shall be clearly recorded on the Bank's books as belonging to
the Custodian, on behalf of the appropriate Portfolio and not for the
Custodian's or the Bank's own interest. The Bank shall keep accurate and
detailed transactions for each Account. All accounts, books and records of the
Bank relating thereto shall be open to inspection and audit at all reasonable
times during normal business hours by any person designated by the Bank. The
Bank will supply to the Fund and the Custodian from time to time, as mutually
agreed upon, a statement in respect to any Property in the Accounts held by the
Bank or by a Subcustodian. In the absence of the filing in writing with the Bank
by the Fund or the Custodian of exceptions or objections to any such statement
within sixty (60) days of the mailing thereof, the Fund shall be deemed to have
approved such statement; and in such case or upon written approval of the Fund
or the Custodian of any such statement, such statement shall be presumed to be
correct with respect to all information set forth therein absent manifest error
or omissions.
The Fund and the Custodian may elect to participate in any of
the electronic on-line service and communications systems offered by the Bank
which can provide the Fund and the Custodian, on a daily basis, with the ability
to view on-line or to print on hard copy various reports of Account activity and
of Securities and/or Cash being held in any Account. To the extent that such
service shall include market values of Securities in an Account, the Fund and
the Custodian hereby acknowledge that the Bank now obtains and may in the future
obtain information on such values from outside sources that the Bank considers
to be reliable and the Fund and the Custodian agree that the Bank (i) does not
verify nor represent or warrant either the reliability of such service nor the
accuracy or completeness of any such information furnished or obtained by or
through such service and (ii) shall be without liability in selecting and
utilizing such service or furnishing any information derived therefrom.
3. Maintenance of Property at Bank and Subcustodian
Locations. Pursuant to Instructions, the Fund, on behalf of the
-4-
<PAGE> 5
Portfolios, shall, or shall cause the Custodian to, direct the Bank to (a)
settle Securities transactions in the country or other jurisdiction in which the
principal trading market for such Securities is located, where such Securities
are to be presented for payment or where such Securities are acquired and (b)
hold Cash and cash equivalents in such countries where Cash may be legally
deposited, where it is the legal currency for payment of public or private
debts, and in amounts reasonably necessary to effect the Portfolios'
transactions in such Securities. Instructions to settle Securities transactions
in any country shall be deemed to authorize the holding of such Securities and
Cash in that country.
4. Subcustodians and Securities Systems. The Fund and the
Custodian authorize and instruct the Bank to hold the Property in the Account(s)
in custody accounts which have been established by the Bank with (a) one of its
U.S. branches or another U.S. bank or trust company or branch thereof located in
the U.S. which is itself qualified under the 1940 Act to act as custodian
(individually, a "U.S. Subcustodian"), or a U.S. securities depository or
clearing agency in which the Bank or a U.S. Subcustodian participates
(individually, a "U.S. Securities System") or (b) one of its non-U.S. branches
or subsidiaries, a non-U.S. branch or majority-owned subsidiary of a U.S. bank
or a non-U.S. bank or trust company, acting as custodian (individually, a
"non-U.S. Subcustodian"; U.S. Subcustodians and non-U.S. Subcustodians,
collectively, "Subcustodians"), or a non- U.S. depository or clearing system in
which the Bank or any Subcustodian participates (individually, a "non-U.S.
Securities System"; U.S. and non-U.S. Securities Systems, collectively,
"Securities Systems"), PROVIDED that in each case in which a U.S. Subcustodian
or U.S. Securities System is employed, such Subcustodian or Securities System
shall have been approved by Instructions; PROVIDED FURTHER that in each case in
which a non- U.S. Subcustodian or non-U.S. Securities System is employed,
(a) such Subcustodian or Securities System either is (1) a qualified
U.S. bank as defined by Rule 17f-5 under the 1940 Act ("Rule 17f-5") or (2) an
"eligible foreign custodian" within the meaning of Rule 17f-5 or such
Subcustodian or Securities System is the subject of an order granted by the U.S.
Securities and Exchange Commission ("SEC") exempting such agent or the
subcustody arrangements thereto from all or part of the provisions of Rule
17f-5,
(b) the agreement between the Bank and such non-U.S. Subcustodian has
been approved by Instructions; it being understood that the Bank shall have no
liability or responsibility for determining whether the approval of any
Subcustodian or Securities System has been proper under the 1940 Act or any rule
or regulation thereunder, and
-5-
<PAGE> 6
(c) the Bank shall promptly notify the Fund and the Custodian if, in
the normal course of its custodial activities, the Bank has reason to believe
that any non-U.S. Subcustodian or non-U.S. Securities System has ceased to
comply with the requirements of subparagraph (a) of this FURTHER PROVISO.
Upon receipt of Instructions, the Bank agrees, as soon as
reasonably possible, to cease the employment of any Subcustodian or Securities
System with respect to the applicable Account, and if desirable and practicable,
appoint a replacement subcustodian or securities system in accordance with the
provisions of this Section 6. In addition, the Bank may, at any time in its
discretion, upon written notification to the Custodian or the Fund, terminate
the employment of any Subcustodian or Securities System.
Upon request of the Custodian, the Bank shall deliver to the
Custodian no less frequently than annually a certificate stating: (i) the
identity of each non-U.S. Subcustodian and non- U.S. Securities System then
acting on behalf of the Bank and the name and address of the governmental agency
or other regulatory authority that supervises or regulates such non-U.S.
Subcustodian and Securities System; (ii) the countries in which each non-U.S.
Subcustodian or non-U.S. Securities System is located; and (iii) so long as Rule
17f-5 requires the Fund's Board of Directors to directly approve its foreign
custody arrangements, such other information relating to such non-U.S.
Subcustodians and non-U.S. Securities Systems as may reasonably be requested by
the Custodian to ensure compliance with Rule 17f-5. So long as Rule 17f-5
requires the Fund's Board of Directors to directly approve its foreign custody
arrangements, the Bank also shall furnish no less frequently than annually to
the Custodian information concerning such non-U.S. Subcustodians and non-U.S.
Securities Systems similar in kind and scope as that furnished to the Custodian
in connection with the initial approval of this Agreement.
5. Use of Sub-Custodians. With respect to Property
in the Account maintained by the Bank in the custody of a
Subcustodian employed pursuant to Section 6:
(a) The Bank will identify on its books as belonging
to the Fund, on behalf of a Portfolio, any Property held by such Subcustodian.
(b) Any Property in the Account(s) held by a
Subcustodian will be subject only to the instructions of the Bank or its agents.
(c) Property deposited with a Subcustodian will be
maintained in an account holding only assets for customers of the Bank.
-6-
<PAGE> 7
(d) Any agreement the Bank shall enter into with
a non-U.S. Subcustodian with respect to the holding of Property shall require
that (i) the Property will be adequately indemnified or its losses adequately
insured; (ii) the Property is not subject to any right, charge, security
interest, lien or claim of any kind in favor of such Subcustodian or its
creditors except for a claim of payment in accordance with such agreement for
their safe custody or administration and expenses related thereto, (iii)
beneficial ownership of such Securities be freely transferable without the
payment of money or value other than for safe custody or administration and
expenses related thereto, (iv) adequate records will be maintained identifying
the Property held pursuant to such Agreement as belonging to the Bank, on behalf
of its customers, and (v) to the extent permitted by applicable law, officers of
or auditors employed by, or other representatives of or designated by, the Bank,
including the independent public accountants of or designated by, the Custodian
or the Fund be given access to the books and records of such Subcustodian
relating to its actions under its agreement pertaining to any Property held by
it thereunder or confirmation of or pertinent information contained in such
books and records be furnished to such persons designated by the Bank.
6. Use of Securities System. With respect to Property in the
Account maintained by the Custodian or any Subcustodian in the custody of a
Securities System employed pursuant to Section 6:
(a) The Bank will, and the Subcustodian will be required
by its agreement with the Bank to, identify on its
books such Property as being held for the account of
the Bank or Subcustodian for its customers.
(b) Any Property held in a Securities System for the
account of the Bank or a Subcustodian will be subject
only to the instructions of the Bank or such
Subcustodian, as the case may be.
(c) Property deposited with a Securities System will be
maintained in an account holding only assets for
customers of the Bank or Subcustodian, as the case
may be.
(d) The Bank will provide the Custodian with any report
obtained by the Bank on the Securities System's
accounting system, internal accounting control and
procedures for safeguarding securities deposited in
the Securities System.
-7-
<PAGE> 8
7. Agents. The Bank may at any time or times in its sole
discretion appoint (or remove) any other U.S. bank or trust company which is
itself qualified under the 1940 Act to act as custodian, as its agent to carry
out such of the provisions of this Agreement as the Bank may from time to time
direct; PROVIDED, however, that the appointment of any agent shall not relieve
the Bank of its responsibilities or liabilities hereunder.
8. Holding of Securities, Nominees, etc. Securities in an
Account that are held by the Bank or any Subcustodian may be held by such entity
in the name of the Fund, on behalf of a Portfolio, in its own name, in the name
of its nominee or in bearer form. Securities that are hold with a Subcustodian
or are eligible for deposit in a securities system as provided above may be
maintained with the Subcustodian or securities system, as the case may be, in an
account for the Bank's or Subcustodian's customers. The Bank or Subcustodian, as
the case may be, may combine certificates representing Securities held in an
Account with certificates of the same issue held by it as fiduciary or as a
custodian. In the event that any Securities in the name of the Bank or its
nominee or held by one of its Subcustodians and registered in the name of such
Subcustodian or its nominee are called for partial redemption by the issuer of
such Security, the Bank may, subject to the rules or regulations pertaining to
allocation of any securities depository in which such Securities have been
deposited, allot, or cause to be allotted, the called portion of the respective
beneficial holders of such class of security in any manner the Bank deems to be
fair and equitable.
9. Proxies, Notices and Reports. With respect to any proxies,
notices, reports or other communications relative to any of the Securities in
the Account(s), the Bank shall perform such services and only such services
relative thereto as are (i) set forth in Section 2 of this Agreement, (ii)
described in Exhibit B attached hereto (as such service therein described may be
in effect from time to time) (the "Proxy Service") and (iii) as otherwise agreed
upon between the Bank, the Custodian and the Fund. The liability and
responsibility of the Bank in connection with the Proxy Service referred to in
(ii) of the immediately preceding sentence and in connection with any additional
services that the Bank, the Custodian and the Fund may agree upon as provided in
(iii) of the immediately preceding sentence shall be as set forth in the
description of the Proxy Service and as may be agreed upon by the Bank, the
Custodian and the Fund in connection with the furnishing of any such additional
service and shall not be affected by any other term of this Agreement. Neither
the Bank nor its nominees or agents shall vote upon or in respect of any of the
Securities in the Accounts, execute any form of proxy to vote thereon, or give
any consent or take any action (except as provided in Section 2) with respect
thereto except upon the receipt of Instructions relative thereto.
-8-
<PAGE> 9
10. Settlement Procedures. Settlement and payment for
Securities received for an Account and delivery of Securities maintained for an
Account may be effected in accordance with the customary or established
securities trading or securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs, including, without
limitation, delivering Securities to the purchaser thereof or to a dealer
therefor (or an agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such Securities from such purchaser
or dealer, as such practices and procedures may be modified or supplemented in
accordance with the standard operating procedures of the Bank in effect from
time to time for that jurisdiction or market.
11. Instructions. The term "Instructions" means instructions
from the Custodian or the Fund in respect of any of the Bank's duties hereunder
which have been received by the Bank at its address set forth in Section 21
below in writing or by tested telex signed or given by such one or more person
or persons as the Custodian or the Fund shall have from time to time authorized
to give the particular class of Instructions in question and whose name and (if
applicable) signature and office address have been filed with the Bank, or which
have been transmitted electronically through an electronic on-line service and
communications system offered by the Bank or other electronic instruction system
acceptable to the Bank, or upon receipt of such other form of instructions as
the Fund or the Custodian may from time to time authorize in writing and which
the Bank agrees to accept. A list of those persons initially authorized to act
on behalf of the Custodian and the Fund is set forth in Exhibit C hereto. The
Bank shall have the right to assume in the absence of notice to the contrary
from the Fund or the Custodian that any person whose name is set forth in
Exhibit C hereto or subsequently placed on file with the Bank pursuant to this
Section has been authorized by the Fund or the Custodian to give the
Instructions in question and that such authorization has not been revoked. The
Bank may act upon and conclusively rely on, without any liability to the Fund,
the Custodian or any other person or entity for any losses resulting therefrom,
any Instructions reasonably believed by it to be furnished by the proper person
or persons as provided above.
12. Standard of Care. The Bank shall be responsible for the
performance of only such duties as are set forth herein or contained in
Instructions given to the Bank that are not contrary to the provisions of this
Agreement. The Bank will use reasonable care with respect to the safekeeping of
Securities in each Account and, except as otherwise expressly provided herein,
in carrying out its obligations under this Agreement. So long as and to the
extent that it has exercised reasonable care, the Bank shall not be responsible
for the title, validity or genuineness of any Property or other property or
evidence of title thereto
-9-
<PAGE> 10
received by it or delivered by it pursuant to this Agreement and shall be held
harmless in acting upon, and may conclusively rely on, without liability for any
loss resulting therefrom, any notice, request, consent, certificate or other
instrument reasonably believed by it to be genuine and to be signed or furnished
by the proper party or parties, including, without limitation, Instructions, and
shall be indemnified by the Fund and the Custodian for any losses, damages,
costs and expenses (including the fees and expenses of counsel) incurred by the
Bank and arising out of action taken or omitted with reasonable care by the Bank
hereunder or under any Instructions. The Bank shall be liable to the Fund or the
Custodian for any act or omission to act of any Subcustodian to the same extent
as if it committed such act itself. With respect to a Securities System, the
Bank shall only be responsible or liable for losses arising from the employment
of such Securities System caused by the Bank's own failure to exercise
reasonable care. In the event of any loss to the Fund or the Custodian by reason
of the failure of the Bank or its Subcustodian to utilize reasonable care, the
Bank shall be liable to the Fund or the Custodian to the extent of the Fund's or
Custodian's actual damages at the time such loss was discovered without
reference to any special conditions or circumstances. In no event shall the Bank
be liable for any consequential or special damages. The Bank shall be entitled
to rely, and may act, on advice of counsel (who may be counsel for the Fund or
the Custodian) on all matters and shall be without liability for any action
reasonable taken or omitted pursuant to such advice.
In the event the Fund or the Custodian subscribes to an
electronic on-line service and communications system offered by the Bank, the
Fund and the Custodian shall be fully responsible for the security of each such
party's connecting terminal, access thereto and the proper and authorized use
thereof and the initiation and application of continuing effective safeguards
with respect thereto and agree to defend and indemnify the Bank and hold the
Bank harmless from and against any and all losses, damages, costs and expenses
(including the fees and expenses of counsel) incurred by the Bank as a result of
any improper or unauthorized use of such terminal by the Fund, the Custodian or
by any others.
All collections of funds or other property paid or distributed
in respect of Securities in an Account, including funds involved in third-party
foreign exchange transactions, shall be made at the risk of the Fund. Subject to
the exercise of reasonable care, the Bank shall have no liability for any loss
occasioned by delay in the actual receipt of notice by the Bank or by its
Subcustodian of any payment, redemption or other transaction regarding
Securities in an Account in respect of which the Bank has agreed to take action
as provided in Section 2 hereof. The Bank shall not be liable for any loss
resulting
-10-
<PAGE> 11
from, or caused by, or resulting from acts of governmental authorities (whether
DE JURE or DE FACTO), including, without limitation, nationalization,
expropriation, and the imposition of currency restrictions; devaluations of or
fluctuations in the value of currencies; changes in laws and regulations
applicable to the banking or securities industry; market conditions that prevent
the orderly execution of securities transactions or affect the value of
Property; acts of war, terrorism, insurrection or revolution; strikes or work
stoppages; the inability of a local clearing and settlement system to settle
transactions for reasons beyond the control of the Bank; hurricane, cyclone,
earthquake, volcanic eruption, nuclear fusion, fission, radioactivity or other
acts of God.
The provisions of this Section shall survive termination of
this Agreement.
13. Liability for Past Records. The Bank shall have no
liability in respect of any loss, damage or expense suffered by the Fund or the
Custodian, insofar as such loss, damage or expense arises from the performance
of the Bank's duties hereunder by reason of the Bank's reliance upon records
that were maintained for the Fund by entities other than the Bank prior to the
Bank's employment hereunder.
14. Investment Limitations and Legal or Contractual
Restrictions or Regulations. Provided that the Bank exercises reasonable care to
comply with Instructions, particularly in connection with the purchase, sale or
exchange of Securities made by or for a Portfolio in any country, the Bank shall
not be liable to the Custodian or the Fund or a Portfolio and the Custodian and
the Fund, on behalf of the applicable Portfolio. The Custodian and the Fund each
agree to indemnify the Bank and its nominees, for any loss, damage or expense
suffered or incurred by the Bank or its nominees arising out of any violation of
any investment restriction or other restriction or limitation applicable to the
Fund or any Portfolio pursuant to any contract or any law or regulation. The
provisions of this Section shall survive termination of this Agreement.
15. Fees and Expenses. The Custodian agrees to pay to the Bank
such compensation for its services pursuant to this Agreement, including if
elected by the Custodian or the Fund fees for an electronic on-line service and
communications system offered by the Bank, as may be mutually agreed upon in
writing from time to time and the Bank's out-of-pocket or incidental expenses in
connection with the performance of this Agreement, including but without
limitation, reasonable legal fees. The initial fee schedule is set forth in
Exhibit D attached hereto. The Custodian and the Fund hereby agree to hold the
Bank harmless from any liability or loss resulting from any taxes or other
governmental charges, and any expenses related thereto, that may
-11-
<PAGE> 12
be imposed, or assessed with respect to any Property in the Account(s) and also
agree to hold the Bank, its Subcustodians, and their respective nominees
harmless from any liability as a record holder of Property in the Account. The
Bank is authorized to charge the applicable Account for such items and the Bank
shall have a lien on the Property in the Agreement, including but not limited to
amounts payable pursuant to the last paragraph of Section 2 and pursuant to
indemnifies granted by the Fund under this Agreement. The provisions of this
Section shall survive the termination of this Agreement.
16. Amendment, Modifications, Etc. No provisions of this
Agreement may be amended, modified or waived except in a writing signed by the
parties hereto.
17. Tax Reclaims. With respect to withholding taxes deducted
and which may be deducted from any income received from any Property in an
Account, the Custodian shall perform such services with respect thereto as are
described in Exhibit E attached hereto and shall in connection therewith be
subject to the standard of care set forth in such Exhibit E. Such standard of
care shall not be affected by any other term of this Agreement.
18. Termination. This Agreement may be terminated (in its
entirety or with respect to one or more but less than all Portfolios) by the
Fund, the Custodian or the Bank by sixty (60) days' written notice to the
others; provided that notice of termination by the Fund or the Custodian shall
be authorized by a resolution of the Board of Directors of the Fund, a certified
copy of which shall accompany such notice of termination, and provided further,
that such resolution shall specify the names of persons to whom the Bank has
been authorized by the Fund to deliver the Securities in each applicable Account
and to whom the Cash in such Account shall be paid. Termination as to one or
more Portfolios shall be effected by delivery by the Fund, of an amended Exhibit
A deleting such Portfolios, to the Custodian and the Bank. If notice of
termination is given by the Bank, the Fund shall, within sixty (60) days
following the giving of such notice, deliver to the Bank a certified copy of a
resolution of the Board of Directors of the Fund specifying the names of the
persons to whom the Bank shall deliver the Securities in each applicable Account
and to whom the Cash in the Account shall be paid. In addition, the Bank may in
its discretion withhold from such delivery such Cash and Securities as may be
necessary to settle transactions pending at the time of such delivery. If within
sixty (60) days following the giving of a notice of termination by the Bank, the
Bank does not receive from the Fund or the Custodian a certified resolution
specifying the names of the persons to whom the Bank has been authorized by the
Fund to deliver the Securities in the applicable Accounts and to whom the Cash
in such Accounts shall be paid, the Bank, at its election,
-12-
<PAGE> 13
may deliver such Securities and pay such Cash to a bank or trust company doing
business in the State of New York and meeting the requirements of Section 17(f)
of the 1940 Act to be held and disposed of pursuant to the provisions of this
Agreement, or may continue to hold such Securities and Cash until a certified
resolution as aforesaid is delivered to the Bank, in which case the Bank shall
be entitled to reasonable compensation in connection with its continuing
obligations under this Agreement.
This Agreement shall terminate automatically upon the
termination of the custody agreement between the Custodian and the Fund. The
Custodian or the Fund shall notify the Bank of the termination of the custody
agreement between the Custodian and the Fund simultaneously with the Custodian's
or Fund's notice of termination provided to each other pursuant to the custody
agreement.
19. Notices. Except as otherwise provided in this Agreement,
all requests, demands or other communications between the parties or notices in
connection herewith (a) shall be in writing, hand delivered or sent by telex,
telegram, facsimile, cable or other means of electronic communication agreed
upon by the parties hereto, addressed to such party at its address set forth on
the signature page hereof or to such other address as shall have been furnished
to the receiving party pursuant to the provisions hereof and (b) shall be deemed
effective when received.
20. Governing Law and Successors and Assigns. This Agreement
shall be governed by the law of the State of New York and shall not be
assignable by any party, but shall bind the successors in interest of the Fund,
the Custodian and the Bank.
21. Publicity. The Fund and the Custodian shall furnish to the
Bank at its office referred to in Section 21 above, prior to any distribution
thereof, copies of any material prepared for distribution to any persons who are
not parties hereto that refer in any way to the Bank. Neither the Fund nor the
Custodian shall distribute or permit the distribution of such materials if the
Bank reasonably objects in writing within ten (10) business days (or such other
time as may be mutually agreed) after receipt thereof. The provisions of this
Section shall survive the termination of this Agreement.
22. Submission to Jurisdiction. To the extent, if any, to
which the Custodian, the Fund or any of each such party's respective properties
may be deemed to have or hereafter to acquire immunity, on the ground of
sovereignty or otherwise, from any judicial process or proceeding to enforce
this Agreement or to collect amounts due hereunder (including, without
limitation, attachment proceedings prior to judgment or in aid of execution) in
any jurisdiction, the Custodian and the Fund hereby waive such
-13-
<PAGE> 14
immunity and agree not to claim the same. Any suit, action or proceeding arising
out of this Agreement may be instituted in any State or Federal court sitting in
the city of New York, State of New York, United States of America, and the
Custodian and the Fund irrevocably submit to the non-exclusive jurisdiction of
any such court in any such suit, action or proceeding and waives, to the fullest
extent permitted by law, any objection which it may now or hereafter have to the
laying of venue of any such suit, action or proceeding brought in such a court
and any claim that such suit, action or proceeding was brought in an
inconvenient forum. The Custodian and the Fund each hereby irrevocably
designates, appoints and empowers CT Corporation System, 1633 Broadway, New
York, New York 10019 as its authorized agent to receive, for and on its own
behalf and its property service of process in the State of new York when and as
such legal actions or proceedings may be brought in any of the aforementioned
counts, and such service of process shall be deemed complete upon the date of
delivery thereof to such agent whether or not such agent gives notice thereof to
the Custodian or the Fund, as the case may be, or upon the earliest of any other
date permitted by applicable law. The Custodian and the Fund each further
irrevocably consent to the service of process out of any of the aforementioned
courts in any such action or proceeding by the mailing of copies thereof by
certified air mail, postage prepaid, to it at its address set forth below or in
any other manner permitted by law, such service to become effective upon the
earlier of (i) the date fifteen (15) days after such mailing or (ii) any earlier
date permitted by applicable law. Each of the Custodian and the Fund agrees that
it will at all times continuously maintain an agent to receive service of
process in the City and State of New York on behalf of itself and its properties
with respect to this Agreement and in the event that, for any reason, the agent
named above or its successor shall no longer serve as agent of the Custodian or
the Fund, as the case may be, to receive service of process in the City and
State of New York on its behalf, the custodian or the Fund, as the case may be,
shall promptly appoint a successor to so serve and shall advise the Bank
thereof.
23. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered by
each of the parties hereto.
24. Headings. The headings of the paragraphs hereof
are included for convenience of reference only and do not form a
part of this Agreement.
-14-
<PAGE> 15
25. Confidentiality. The parties hereto agree that each shall
treat confidentially the terms and conditions of this Agreement and all
information provided by each party to the other regarding its business and
operations. All confidential information provided by a party hereto shall be
used by any other party hereto solely for the purpose of rendering services
pursuant to this Agreement and, except as may be required in carrying out this
Agreement, shall not be disclosed to any third party without the prior consent
of such providing party. The foregoing shall not be applicable to any
information that is publicly available when provided or thereafter becomes
publicly available other than through an reach of this Agreement, or that is
required to be disclosed by any bank examiner of the Bank, Custodian or any
Subcustodian, any auditor of the parties hereto, by judicial or administrative
process or otherwise by applicable law or regulation.
[This space intentionally left blank.]
-15-
<PAGE> 16
IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be executed in its name and behalf of the day and year first above
written.
MERCANTILE BANK OF ST. LOUIS
NATIONAL ASSOCIATION
By: /s/ Linda P. Jones
-------------------
Name: Linda P. Jones
Title: Vice President
Address for record:
One Mercantile Center
Eighth and Locust Streets
St. Louis, MO 63101
Attn:
BANKERS TRUST COMPANY
By: /s/ Joseph J. Geronimo
----------------------
Name: Joseph J. Geronimo
Title: Managing Director
Address for record:
Bankers Trust Company
16 Wall Street
New York, New York 10005
Attn: Lynne Sussman
THE ARCH FUND(R), INC.
By: /s/ W. Bruce McConnel, III
--------------------------
Name: W. Bruce McConnel, III
Title: Secretary
Address for record:
1345 Chestnut Street, Suite 1100
Philadelphia, PA 19107
Attn: W. Bruce McConnel, III, Esq.
-16-
<PAGE> 17
EXHIBIT A
To Global Sub-Custodian Agreement dated as of April 1, 1994
among Bankers Trust Company, The ARCH Fund, Inc. and Mercantile Bank of St.
Louis National Association.
LIST OF PORTFOLIOS
The following is a list of Portfolios referred to in the
second WHEREAS clause of the above-referred to Global Sub-Custodian Agreement.
Terms used herein as defined terms unless otherwise defined shall have the
meanings ascribed to them in the above-referred to Global Sub-Custodian
Agreement. The Fund may add or delete Portfolios upon delivery of an amended
Exhibit A to the Bank and the Custodian. Upon delivery of such amended Exhibit A
and, if such amended Exhibit A adds Portfolios, the acceptance thereof by the
Bank and the Custodian, this Exhibit A shall be deemed to be amended in
accordance therewith as of the date of such delivery or delivery and acceptance
by the Bank and the Custodian, as the case may be.
The ARCH International Equity Portfolio
Dated as of April 1, 1994
/s/ L.J. /s/ W.B.M. /s/ J.G.
- --------------- --------------- ----------------
Bank Fund Custodian
-17-
<PAGE> 18
EXHIBIT B
To Global Sub-Custodian Agreement dated as of April 1,
1994 among Bankers Trust Company, The ARCH Fund, Inc. and Mercantile Bank of St.
Louis National Association.
PROXY SERVICE
-------------
The following is a description of the Proxy Service referred
to in Section 11 of the above referred to Global Sub-Custodian Agreement. Terms
used herein as defined terms shall have the meanings ascribed to them therein
unless otherwise defined below.
The Bank provides a service, described below, for the
transition of corporate communications in connection with shareholder meetings
relating to Securities held in Australia, Canada, Denmark, Finland, France,
Germany, Hong Kong, Indonesia, Ireland, Japan, Malaysia, Mexico, New Zealand,
Singapore, Spain, Sweden, United Kingdom, United States and Venezuela. For the
United States and Canada, the term "corporate communications" means the proxy
statements or meeting agenda, proxy cards, annual reports and any other meeting
materials received by the Bank. For countries other than the United Stated and
Canada, the term "corporate communications" means the meeting agenda only and
does not include any meeting circulars, proxy statements or any other corporate
communications furnished by the issuer in connection with such meeting.
Non-meeting related corporate communications are not included in the
transmission service to be provided by the Bank except upon request as provided
below.
The Bank's process for transmitting and translating meeting
agendas will be as follows:
1) If the meeting agenda is not provided by the issuer
in the English language, and if the language of such
agenda is in the official language of the country in
which the related security is held, the Bank will as
soon as practicable after receipt of the original
meeting agenda by the Bank's Subcustodian provide to
the Custodian and English translation prepared by our
Subcustodian.
2) If an English translation of the meeting agenda is
furnished, the local language agenda will not be
furnished unless requested.
Translations will be free translations and neither the Bank
nor any of its Subcustodians will be liable or held responsible for the accuracy
thereof or any direct or indirect consequences arising therefrom, including
without limitation,
-18-
<PAGE> 19
arising out of any action taken or omitted to be taken based thereon.
If requested, the Bank will, on a best efforts basis, endeavor
to obtain any additional corporate communication such as annual or interim
reports, proxy statements, meeting circulars, or local language agendas, and
provide them to the Custodian in the form obtained.
Timing in the voting process is important and, in that regard,
upon receipt by the Bank of notice from its Subcustodian, the Bank will provide
a notice to the Custodian indicating the deadline for receipt of its
instructions to enable the voting process to take place effectively and
efficiently. As voting procedures will vary from market to market, attention to
any required procedures will be very important. Upon timely receipt of voting
instructions, the Bank will promptly forward such instructions to the applicable
Subcustodian. If voting instructions are not timely received, the Bank shall
have no liability or obligations to take any action.
For Securities held in other markets, the Bank will not
furnish the material described above or seek voting instructions. However, if
requested to exercise voting rights at a specific meeting, the Bank will
endeavor to do so on a best efforts basis without any assurance that such rights
will be so exercised at such meeting.
If the Bank or any Subcustodian incurs extraordinary expenses
in exercising voting rights related to any Securities pursuant to appropriate
instructions or direction (e.g., by way of illustration only and not by way of
limitation, physical presence is required at a meeting and/or travel expenses
are incurred), such expenses will be reimbursed out of the applicable Accounts
containing such Securities unless other arrangements have been made for such
reimbursements.
It is the intent of the Bank to expand the Proxy Service to
include jurisdictions which are not currently included as set forth in the
second paragraph hereof. The Bank will notify the Custodian as to the inclusion
of additional countries or deletion of existing countries after their inclusion
or deletion and this Exhibit B will be deemed to be automatically amended to
include or delete such countries as the case may be.
Dated as of April 1, 1994
/s/ L.J. /s/ W.B.M. /s/ J.G.
- -------------- ----------------- ----------------
Bank Fund Custodian
-19-
<PAGE> 20
EXHIBIT C
To Global Sub-Custodian Agreement dated as of April 1, 1994
among Bankers Trust Company, The ARCH Fund, Inc. and Mercantile Bank of St.
Louis National Association.
AUTHORIZED PERSONS
------------------
Pursuant to Section 13 of the above referred to Global
Sub-Custodian Agreement, the following persons are authorized to act on behalf
of [Winsbury]"
Charles L. Booth Ray J. Cook
Jody G. Dzuranin Walter B. Grimm
Bryan Haft G. Ronald Henderson
Lisa K. Householder J. David Huber
Stephen G. Mintos James G. Osborne
Kenneth B. Quintez Roy E. Rogers
William J. Tomko
Pursuant to Section 13 of the above referred to Global
Sub-Custodian Agreement, Mercantile Bank of St. Louis National Association
("Custodian") names the following persons of Mississippi Valley Advisors, Inc.
who are authorized to act on the Custodian's behalf:
Robert J. Anthony David A. Bethke
Jo Ann M. Dotson Gene E. Gillespie
Gregory A. Glidden Gary Hurlbat
Caroly A. Klemp Peter C. Merzian
Pamela S. Shoults Pamela Yehling
Dated as of April 1, 1994
/s/ L.J. /s/ W.B.M. /s/ J.G.
- -------------- ---------------- -------------------
Bank Fund Custodian
-20-
<PAGE> 21
EXHIBIT D
To Global Sub-Custodian Agreement dated as of April 1, 1994
among Bankers Trust Company, The ARCH Fund, Inc. and Mercantile Bank of St.
Louis National Association.
CUSTODY FEE SCHEDULE
--------------------
Pursuant to Section 17 of the above referred to Global
Sub-Custodian Agreement, the Custodian shall pay the following fees and
expenses:
Annual Charge on Assets
- -----------------------
First $50 million 14 Basis Points
Next $50 million 12.5 Basis Points
Next $150 million 10 Basis Points
Excess over $250 million 7.5 Basis Points
Dated as of April 1, 1994
/s/ L.J. /s/ W.B.M. /s/ J.G.
- ---------------- ----------------- -------------------
Bank Fund Custodian
This Exhibit D shall be amended upon delivery by the Bank of a new Exhibit D to
the Custodian and acceptance thereof by the Custodian and shall be effective as
of the date of acceptance by the Custodian or a date agreed upon between the
Bank and the Custodian.
-21-
<PAGE> 22
EXHIBIT E
To Global Sub-Custodian Agreement dated as of April 1, 1994
among Bankers Trust Company, The ARCH Fund, Inc. and Mercantile Bank of St.
Louis National Association.
TAX RECLAIMS
------------
Pursuant to Section 19 of the above referred to Global
Sub-Custodian Agreement, the Bank shall perform the following services with
respect to withholding taxes imposed or which may be imposed on income from
Property in the Account. Terms used herein as defined terms shall unless
otherwise defined have the meanings ascribed to them in the above referred to
Sub-Custodian Agreement.
When withholding tax has been deducted with respect to income
from any Property in an Account, the Bank will actively pursue on a best efforts
basis the reclaim process and will provide fully detailed advices/vouchers to
support reclaims submitted to the local authorities by the Bank or its designee.
In all cases of withholding, the Bank will provide full details to the
Custodian. If exemption from withholdings at the source can be obtained in the
future, the Bank will notify the Custodian and advise what documentation, if
any, is required to obtain the exemption. Upon receipt of such documentation
from the Custodian, the Bank will file for exemption on the Custodian's behalf
and notify the Custodian when it has been obtained.
In connection with providing the foregoing service, the Bank
may rely on professional tax services published by a major international
accounting firm and/or advice received from Subcustodians in the jurisdictions
in question. In addition, the Bank may seek the advice of counsel or other
professional tax advisers in such jurisdictions. The Bank is entitled to rely,
and may act, on information set forth in such services and on advice received
from its Subcustodians, counsel or other professional tax advisers and shall be
without liability to the Customer for any action reasonably taken or omitted
pursuant to information contained in such services or such advice.
Dated as of April 1, 1994
/s/ L.J. /s/ W.B.M. /s/ J.G.
- ----------------- --------------- ------------------
Bank Fund Custodian
-22-
<PAGE> 1
Exhibit (8)(i)
SECURITIES LENDING AMENDMENT TO CUSTODY AGREEMENT
-------------------------------------------------
This Securities Lending Amendment (the "Amendment") refers to the
Custodian Agreement, dated April 1, 1992 (the "Custody Agreement") between The
Arch Fund, Inc. (the "Principal") and Mercantile Bank of St. Louis N.A. (the
"Agent") which governs Mercantile Bank of St. Louis N.A.'s safekeeping of
securities deposited by the Principal in its custodian account under the Custody
Agreement (the "Custodian Account"). This Amendment authorizes Mercantile Bank
of St. Louis N.A. to act in accordance with the conditions of this Amendment as
agent for the Principal on a disclosed basis with respect to loans of securities
held in the Custodian Account. This Amendment further authorizes the Agent to
appoint a subagent (the "Subagent") to carry out the security lending
transactions on behalf of the Custodian Account. In that connection, the
Principal and the Agent agree as follows:
1. DEFINITIONS.
For purposes of this Amendment:
"AVAILABLE SECURITIES" shall mean all Government Securities and
Corporate Securities which may, from time to time, be held by the Subagent in
the Custodian Account except Government Securities and Corporate Securities that
the Agent notifies the Subagent are unavailable for Loans.
"BORROWED SECURITIES" shall mean any Available Securities which are the
subject of a Loan under a Securities Borrowing Agreement, except that if any new
or different securities shall be exchanged for any Borrowed Securities by reason
of recapitalization, merger, consolidation or other corporate action, these new
or different securities shall, effective upon such exchange, be deemed to be
Borrowed Securities which have been substituted for the Borrowed Securities for
which such exchange was made.
"BORROWER" shall mean a borrower under a Securities Borrowing
Agreement.
"BUSINESS DAY" shall mean any day, from Monday through Friday, when a
bank organized under the laws of the State of New York is open to transact
business.
"CASH COLLATERAL" shall mean Collateral in the form of cash and
evidenced by a certified check, bank cashier's check or, if the Borrowed
Securities are delivered through a Depository, funds delivered through such
Depository, including all accounts or instruments in which any such check or
funds are deposited or invested, any proceeds of the foregoing, and any
increases or decreases to Cash Collateral resulting from marking to market
adjustments prescribed by Section 6 hereof.
<PAGE> 2
"CASH COLLATERAL INVESTMENTS" shall mean the instruments in which Cash
Collateral is invested in accordance with Section 8 hereof.
"COLLATERAL" shall mean the Cash Collateral, the Securities Collateral,
or any combination thereof received from time to time by the Subagent from
Borrowers pursuant to Securities Borrowing Agreements.
"COLLATERAL REQUIREMENT" shall mean with respect to each Loan an amount
equal to at least 102% of the then current Market Value of the Borrowed
Securities which are the subject of that Loan as of the close of trading on the
preceding Business Day.
"CORPORATE SECURITIES" shall mean equity securities and corporate
bonds, debentures, notes and other evidences of indebtedness.
"DEFAULT" shall mean an "Event of Default" as defined in a Securities
Borrowing Agreement.
"DEPOSITORY" shall mean The Depository Trust Company, a Federal Reserve
Bank which maintains a book-entry system or, if agreed to by the parties to a
Securities Borrowing Agreement, such other central depository system at which
the Borrower and the Subagent maintain accounts.
"EQUIVALENT SECURITIES" shall mean the identical number of securities
of the same issuer and of the same class as the Borrowed Securities.
"GOVERNMENT SECURITIES" shall mean securities issued, or guaranteed as
to principal and interest, by the United States Government, its agencies or
instrumentalities.
"LOAN" shall mean the lending of Available Securities by the Subagent
to a Borrower pursuant to the terms of a Securities Borrowing Agreement.
"MARKET VALUE" shall mean with respect to Government Securities the
price of such securities as quoted by a recognized pricing service at the time
the determination of Market Value is made, or such other amount as shall be
agreed upon by the Subagent and the Borrower, plus interest, if any, accrued but
not yet due and owing at the time such determination is made, and shall mean
with respect to Corporate Securities, the price of such securities as quoted by
a recognized pricing service at the time such determination is made, plus
interest, if any, accrued but not yet due and owing at the time such
determination is made.
"PREMIUM" shall mean the loan premium based an the then current Market
Value of the Borrowed Securities, for Corporate
-2-
<PAGE> 3
Securities, and on the par value of the Borrowed Securities, for Government
Securities, which the Borrower is obligated to deliver to the Subagent in
consideration of a Loan made against Securities Collateral.
"SECURITIES BORROWING AGREEMENTS" shall mean the agreements between the
Subagent and the Borrowers setting forth the terms and conditions applicable to
Loans of Available Securities.
"SECURITIES COLLATERAL" shall mean Collateral consisting of Government
Securities, together with all present and future proceeds therefrom, including
all accrued and unpaid interest, and any and all distributions made by the
issuers on or with respect thereto, and including any increases or decreases
thereto by reason of marking to market adjustments described by Section 6
hereof.
"VALUE" shall mean with respect to Cash Collateral the amount of such
Cash Collateral and with respect to Securities Collateral the Market Value of
such Securities Collateral.
"YIELD" shall mean the income earned on Cash Collateral Investments.
"PORTFOLIO" shall mean the investment portfolios of the Principal.
Terms defined herein which import the singular number shall include the
plural and vice versa.
2. CAPACITY; LISTS OF BORROWER AND LENDERS.
The Principal authorizes the Agent through the Subagent, for all
purposes hereunder, to act as its agent on a disclosed basis. Attached hereto as
Schedule C is an initial list of potential Borrowers, which list shall be
updated from time to time by the Agent through the Subagent to add additional
potential Borrowers and to delete entities which have ceased to be potential
Borrowers. The Subagent shall provide the Agent, and the Agent shall provide the
Principal with a notice of each addition of a potential Borrower to such list.
If the Agent notifies the Subagent in writing within five Business Days from the
date hereof or the date any such notice is sent to the Agent, as the case may
be, that it or the Principal objects to any potential Borrower named either on
such list or in such notice, no Loans of Available Securities shall be made to
such potential Borrower. If the Agent does not so object within such five
Business Day period, each potential Borrower named either on such list or in
such notice, as the case may be, shall be deemed acceptable to the Principal.
The Agent through the Subagent shall also from time to time provide each
Borrower with a list of potential lenders, including the Principal, for whom the
Subagent is authorized as agent to make Loans of
-3-
<PAGE> 4
securities pursuant to the terms and conditions substantially the same as the
terms and conditions hereof.
The Agent shall provide to Principal a list of the approved borrowers.
Whenever possible, the Agent shall provide a Standard & Poor's Corporation,
Moody's Investors Service, Inc., or similar credit ratings if available and
allow the Principal access to the Agent's credit files if needed.
The Agent shall also provide Principal on a monthly basis with a
listing of lending activity broken down by Portfolio, and should keep the
Subagent informed as to the maximum to be lent out at any one time by each
Portfolio, and provide a breakdown of total revenues generated by each Portfolio
and showing the exact amount of fees paid to each Portfolio.
3. SECURITIES BORROWING AGREEMENTS.
The Agent hereby authorizes the Subagent to enter into, on behalf of
the Principal and with respect to up to a maximum of 33-1/3% (1/3) of each
Portfolio's assets at any one given time, Securities Borrowing Agreements with
each of the Borrowers named on the list or in a notice referred to in Section 2
hereof, subject to the Principal's right of objection in Section 2 hereof. Upon
request, the Subagent shall furnish its standard form of Securities Borrowing
Agreement to the Agent. Subject to the provisions of Section 26 hereof, the
Subagent shall have the right to make or decline to make any Loans under any
Securities Borrowing Agreement in its discretion and without prior notice to the
Agent or Principal. The Subagent shall give prompt notice to the Agent if, other
than pursuant to the Agent's or Principal's request, the Subagent gives or
receives notice of termination of any Securities Borrowing Agreement.
4. DELIVERY OF THE BORROWED SECURITIES.
The Principal authorizes the Agent through the Subagent to deliver
Borrowed Securities from time to time to each of the Borrowers. The Subagent
shall notify the Agent of activity in respect of Loans of the Available
Securities by mailing to the Agent an advice for each such Loan.
5. RECEIPT OF COLLATERAL.
The Principal authorizes the Agent through the Subagent to receive
Collateral from each of the Borrowers, which Collateral may consist of (a) Cash
Collateral, (b) Securities Collateral or (c) any combination thereof, with an
aggregate Value at least equal to the Collateral Requirement. The Subagent and
Agent acknowledge that they are each a "fiduciary" as defined in the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") with
-4-
<PAGE> 5
respect to the investment of Cash Collateral, to the extent such Cash Collateral
is deemed a plan asset under ERISA.
6. MARKING TO MARKET.
With respect to each Loan, if the aggregate Value of the Collateral
held by the Subagent on behalf of the Principal at the close of trading on any
Business Day is less than the then current Market Value of all of the Borrowed
Securities which are the subject of such Loan, the Borrower, upon notice thereof
by the Subagent on behalf of the Principal, shall provide additional Collateral,
which shall be delivered by the close of trading on the next Business Day. Such
additional Collateral, together with the Collateral then held by the Subagent on
behalf of the Principal for such Loan, shall equal no less than the Collateral
Requirement for such Loan.
With respect to each Loan, if the aggregate Value of the Collateral
held by the Subagent on behalf of the Principal at the close of trading on any
Business Day exceeds the Collateral Requirement for all of the Borrowed
Securities which are subject of such Loan, the Borrower, by notice to the Agent
through the Subagent, may require the Agent through the Subagent, on behalf of
the Principal, to return, and the Principal hereby authorizes the Agent through
the Subagent to return, to the Borrower the excess of such Collateral over the
Collateral Requirement.
7. SUBSTITUTION.
With respect to each Loan, the Principal authorizes the Agent through
the Subagent without the Principal's prior consent to accept substitute
Securities Collateral therefor and release the Securities Collateral for which
the same is substituted. Such substituted Securities Collateral, together with
all Collateral then held by the Subagent on behalf of the Principal for such
Loan, shall equal no less than the Collateral Requirement for such Loan.
8. INVESTMENT OF CASH COLLATERAL.
(a) The Principal hereby authorizes the Agent to direct the
Subagent to invest Cash Collateral for the Principal's account and risk in the
following:
(i) Securities issued by the United States
Treasury and federal agencies;
(ii) Repurchase agreements, which are fully
collateralized at not less than 102% of the
repurchase price (including accrued
interest) by United States Treasury,
federal agency or mortgage-backed
securities, with (a) primary or reporting
dealers as designated by the
-5-
<PAGE> 6
Federal Reserve Bank of New York, (b)
government securities dealers who have a
minimum net worth of $50 million, or (c)
member banks of the Federal Reserve System.
(b) The Subagent shall limit its investment in the securities
of any one issuer, to (i) 15% of the market value of the Cash Collateral, or
(ii) $250,000, whichever is greater, except that this restriction shall not
apply to investments in repurchase agreements.
(c) The Subagent shall only invest in United States dollar
denominated investments.
(d) The maximum maturity of any single security the Subagent
invests in shall be 90 days. The Subagent shall not invest in any security which
will cause the maximum weighted average maturity of the Cash Collateral to be
greater than 45 days.
(e) The Subagent shall comply with the investment restrictions
set forth in this Section 8 solely at the time of the initial investment of any
Cash Collateral.
(f) To the extent that the Subagent invests Cash Collateral in
deposit instruments outside of the United States as provided in this Section 8,
Principal understands that such investments are subject to the sovereignty of
the local government and are not covered by Federal Deposit Insurance
Corporation insurance. Subagent shall not maintain the indicia of ownership of
any Cash Collateral investment outside of the United States.
(g) The Subagent shall not invest any Cash Collateral in the
obligations of, or conduct business with, Subagent or any affiliate or
subsidiary thereof, provided however that any Subagent may invest in (i) common
or collective trust funds or pooled investment funds maintained by Subagent, and
(ii) time deposits maintained with Subagent.
9. POSSESSION OF COLLATERAL.
The Agent shall leave the Collateral and the Cash Collateral
Investments exclusively in the Subagent's possession and control (subject to the
removal of Cash Collateral from such possession and control in connection with
the making of Cash Collateral Investments).
10. ALLOTMENT OF LOANS.
The Subagent in no way represents that any of the Available Securities
will in fact be the subject of Loans. All requests for Loans from Borrowers may
be allotted in the Subagent's sole
-6-
<PAGE> 7
discretion among its custodian account customers in any manner deemed in its
judgment to be fair and equitable.
11. LOAN OF SUBAGENT'S SECURITIES.
Where the Subagent's own portfolio contains Government Securities which
may be utilized for loans to Borrowers or potential Borrowers, Subagent may lend
its own securities prior to making a Loan to any of such Borrowers or potential
Borrowers as the Subagent hereunder.
12. SUBAGENT'S STATUS AS A CREDITOR.
The Subagent may, through its commercial, trust or other departments,
be a creditor for its own account of, or represent in a fiduciary or any other
capacity, any Borrower or potential Borrower, any broker-dealer or any other
creditors or customers of any of the foregoing, even though any of such
interests may potentially or in fact be in conflict with those of the Principal.
13. YIELD AND PREMIUM.
In regard to any Loan made against Cash Collateral, the Yield (net of
(a) the Agent's and any of its Subagent's compensation under Section 14 hereof
and (b) a negotiated percentage of the Yield which shall be paid to the
Borrower) attributable to such Loan shall be paid monthly to the Principal by a
deposit to the Custodian Account. The Subagent shall make such deposits (i)
bi-monthly by the tenth Business Day of each month and the tenth Business Day
following the fourteenth day of each month in regard to Loans of Government
Securities; and (ii) monthly by the tenth Business Day of each month in regard
to Loans of Corporate Securities.
The Principal authorizes the Agent through the Subagent to pay on the
Principal's behalf any amounts due to the Borrower in regard to a Loan,
including a negotiated percentage of the Yield.
In regard to any Loan made against Securities Collateral, the Premium
(net of the Agent's and Subagent's compensation under Section 14 hereof)
attributable to such Loan shall be paid to the Principal by a deposit to the
Custodian Account. Subagent shall make such deposits (i) bi-monthly by the tenth
Business Day of each month and the tenth Business Day following the fourteenth
day of each month in regard to Loans of Government Securities; and (ii) monthly
by the tenth Business Day of each month in regard to Loans of Corporate
Securities.
Any such Yield or Premium may vary depending upon market conditions.
-7-
<PAGE> 8
14. AGENT'S AND SUBAGENT'S COMPENSATION.
The compensation of the Agent and any of its Subagents for services
rendered under this Agreement shall be based upon rates which they shall
determine and set from time to time subject to the Principal's approval. The
Agent's and Subagent's current compensation schedules are annexed hereto as
Schedule A and Schedule B.
15. STATEMENTS TO PRINCIPAL.
Except as otherwise specifically provided herein or otherwise mutually
agreed upon in writing, notification of any income due to the Principal pursuant
to this Amendment will be made by mailing to the Principal a monthly statement
with respect to Corporate Securities that are the subject of a Loan and a
bimonthly statement with respect to Government Securities that are the subject
of a Loan.
16. DISTRIBUTIONS ON AND VOTING RIGHTS OF THE BORROWED SECURITIES.
The Principal represents and warrants that it is entitled to receive
all distributions made by the issuer in respect of the Borrowed Securities on
the date on which such sums are payable, including without limitation cash
dividends and interest. Whether or not the Borrower under any Securities
Borrowing Agreement pays and delivers to the Subagent all such distributions as
provided in such Securities Borrowing Agreement, the Subagent will deposit to
the Custodian Account all such distributions or an amount equivalent thereto on
the date on which such distributions are payable to the full extent it would
deposit such distributions if the Borrowed Securities had not been lent to the
Borrower. The Principal shall not retain voting rights of the Borrowed
Securities.
Pursuant to the Securities Borrowing Agreements, upon the payment of
any distribution made by the issuer in respect of the Borrowed Securities to any
person other than the Subagent, (a) in the case of a cash distribution, the
Borrower shall pay an equal amount to the Subagent on the date of such
distribution, and (b) in the case of a non-cash distribution, the amount of the
distributed securities shall be added to the Loan on the date for such
distribution and shall become Borrowed Securities unless otherwise agreed.
17. TERMINATION OF LOANS.
Loans shall be terminated with respect to each of the Borrowed
Securities no later than one (1) business day prior to the date on which voting
rights are determined with respect to the next scheduled or special meeting of
shareholders of such Borrowed
-8-
<PAGE> 9
Securities (hereinafter referred as the "Return Date"). The Subagent shall use
its best efforts to ensure the return of Borrowed Securities on or before the
Return Date.
Loans shall be terminable by the Principal at will and in no case shall
such termination exceed five (5) Business Days after notice by the Agent on
behalf of the Principal to the Subagent. The Principal through the Agent shall
immediately notify the Subagent of its intention to terminate a Loan. If the
Borrowed Securities which are the subject of a Loan being terminated by the
Agent are being sold by the Agent, such notice shall in no event be given later
than the trade date established by the Agent for the sale of such Borrowed
Securities. The Principal understands and agrees that the Subagent shall not be
liable to the Principal for fails occurring on the settlement date for such a
sale if timely notice is not given by the Principal in the manner provided in
this Section 17.
The Principal authorizes the Subagent, in its sole discretion, to
terminate any Loan at any time without prior notice to the Principal or Agent.
18. TERMINATION OF AMENDMENT.
This Amendment may be terminated by either party hereto on five
Business Day's written notice to the other party, provided that any outstanding
obligations of the parties hereto shall remain subject to the terms of this
Amendment.
19. RETURN OF BORROWED SECURITIES AND COLLATERAL.
(a) In the event of any Default by the Borrower in returning
Borrowed Securities or tendering Equivalent Securities, the Subagent shall
return the Borrowed Securities or deposit Equivalent Securities in replacement
of unreturned Borrowed Securities to the Custodian Account as soon as
practicable. In that case, in addition to the Subagent's rights under Section 22
hereof, all of the Principal's rights to the Borrowed Securities shall be deemed
assigned to the Subagent, and the Subagent shall be entitled to take any legal
or other action against the Borrower which the Subagent deems necessary or
appropriate to recover from the Borrower any losses incurred by the Subagent as
a result of its performance of its aforementioned obligation to return the
Borrowed Securities or deposit Equivalent Securities to the Custodian Account.
However, in the event of any such Default by the Borrower, if the Value of the
Collateral at such time is less than that which is required to purchase
Equivalent Securities to replace the unreturned Borrowed Securities as a result
of a decrease in the Value of the Cash Collateral Investments, the Subagent will
return the Borrowed Securities or deposit Equivalent Securities to the Custodian
Account only to the extent of and in an amount equal to the Value of the
Collateral at the time of the Default. To the
-9-
<PAGE> 10
extent that the Value of the Cash Collateral is insufficient as a result of an
increase in the Market Value of the Borrowed Securities the Subagent shall be
responsible for the difference, at the time of the Default, between the Value of
the Cash Collateral and the Market Value of the Borrowed Securities.
(b) In the event that at the time the Collateral is to be
returned to the Borrower the amount of Cash Collateral is less than that which
is required to be returned to the Borrower as a result of a decrease in the
Value of the Cash Collateral Investments, the Principal shall pay to the
Subagent promptly upon its demand an amount in cash equal to the deficiency in
order to provide for the return of the total amount of the Collateral to the
Borrower.
(c) Agent will identify to the Principal, the Portfolio or
Portfolios affected by a Borrower's Default as soon as practicable after such
Default.
20. LIMITATION ON PRINCIPAL'S ACTIONS AND WAIVERS.
The Principal shall not take any action, or permit any action to be
taken except by the Subagent, with respect to any Borrowed Securities. Without
the Subagent's written consent, the Principal shall not change or waive any of
its rights under or with respect to a Securities Borrowing Agreement or
terminate any Securities Borrowing Agreement (except as provided in Section 17
hereof with respect to termination of Loans by the Subagent at the request of
the Principal). The Principal or Agent shall promptly notify the Subagent of any
notice or property received directly by the Principal or Agent pursuant to any
Securities Borrowing Agreement.
21. ADVANCES BY THE SUBAGENT.
The Subagent may at its option advance its own funds to make any
restoration of the Cash Collateral due from the Principal under Section 19(b)
hereof and to pay any fees due to the Borrower as provided in Section 13 hereof.
If the Subagent makes any such advance, or if the Principal fails to make any
such payment required by Sections 19(b) or 13 hereof or any payment of the
Agent's and Subagent's compensation under Section 14 hereof, the Principal shall
be liable to the Agent or the Subagent for the amount of such advance or
payment, from the date of the Subagent's demand for the amount of such payment
or advance (or, in the case of the Agent's and Subagent's compensation, from the
date due) until payment by the Principal of such liability. As security for such
liability, the Principal hereby pledges, assigns and grants to the Subagent a
continuing security interest in, and a lien on, the Principal's property and the
proceeds thereof in the Custodian Account or otherwise in the possession or
under the control of the Subagent, and the Subagent shall have with respect
thereto all of
-10-
<PAGE> 11
the rights and remedies of a secured party under the New York Uniform Commercial
Code.
22. SUBROGATION OF THE SUBAGENT.
(a) If the Subagent makes any deposit to the Custodian Account
pursuant to Section 16 hereof, the Principal agrees that the Subagent is and
shall be subrogated to (i) all rights of the Principal in and to any
distributions made by an issuer in respect of the Borrowed Securities, or the
equivalent thereof, on account of which such deposit is made, and (ii) all
rights of the Principal (A) in and to the Collateral under the pertinent
Securities Borrowing Agreement and (B) against any person, corporation or other
entity with respect to any such distributions or the equivalent thereof, and the
Principal hereby assigns to the Subagent all such rights.
(b) If the Subagent makes any deposit to the Custodian Account
pursuant, to Section 19(a) hereof, the Principal agrees that the Subagent is and
will be subrogated to all rights of the Principal (i) in and to the Collateral
under the pertinent Securities Borrowing Agreement and (ii) against any person,
corporation or entity with respect to the Default specified in Section 19 (a),
and the Principal hereby assigns to the Subagent all such rights.
(c) The Principal agrees to execute and deliver all such
assignments and other documents, and to do whatever else is reasonably necessary
from time to time, to give effect to any assignments and rights of subrogation
referred to in Section 19(a) hereof and this Section 22.
23. PRINCIPAL'S REPRESENTATIONS AND WARRANTIES.
The Principal represents and warrants that: (i) it has the legal right,
power and authority to execute, deliver and perform this Amendment and to carry
out all of the transactions contemplated hereby; (ii) it has obtained all
necessary authorizations, including those from any persons that may have an
interest in the Available Securities; (iii) the execution, delivery and
performance of this Amendment and the carrying out of any of the transactions
contemplated hereby will not be in conflict with, result in a breach of or
constitutes a default under any agreement or other instrument to which the
Principal is a party or which is otherwise known to the Principal; (iv) it does
not require the consent or approval of any governmental agency or
instrumentality, except any such consents and approvals which the Principal has
obtained; (v) the execution and delivery of this Amendment by the Principal will
not violate any law, regulation, charter, by-law, order of any court or other
government agency or judgment applicable to the Principal; (vi) it has no
present intention to sell the Borrowed Securities; and (vii) all persons
executing this
-11-
<PAGE> 12
Amendment on behalf of the Principal and carrying out the transactions
contemplated hereby on behalf of the Principal are duly authorized to do so.
24. AGENT'S REPRESENTATIONS AND WARRANTIES.
The Agent represents and warrants that: (i) it has the legal right,
power and authority to execute, deliver and perform this Amendment and to carry
out all of the transactions contemplated hereby; (ii) the execution, delivery
and performance of this Amendment and the carrying out of any of the
transactions contemplated hereby will not be in conflict with, result in a
breach of or constitute a default under any agreement or other instrument to
which the Agent is a party or which is otherwise known to the Agent; (iii) it
does not require the consent or approval of any governmental agency or
instrumentality, except any such consents and approvals which the Agent has
obtained; (iv) the execution and delivery of this Amendment by the Agent will
not violate any law, regulation, charter, by-law, order of any court or other
government agency or judgment applicable to the Agent; and (v) all persons
executing this Amendment on behalf of the Agent carrying out the transactions
contemplated hereby on behalf of the Agent are duly authorized to do.
25. GENERAL.
The Principal agrees that the Agent shall have no responsibilities or
duties with respect to the subject matter of this amendment other than those
expressly set forth herein and in the Letter of Agreement attached hereto. The
Principal also agrees to execute such documents as the Agent may reasonably
request to assist the Agent in carrying out its responsibilities and duties
hereunder.
26. ERISA.
The Principal has informed the Agent that the Custodian Account is not
subject to the requirements of ERISA and the rules and regulations thereunder
("ERISA").
27. SEVERABILITY.
In case any one or more of the provisions contained in this Amendment
should be or become invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall in no way be affected, prejudiced or disturbed thereby.
28. GOVERNING LAW.
The provisions of and the validity and construction of this Amendment
shall be governed by and construed in accordance with the
-12-
<PAGE> 13
laws of the State of New York, despite the fact that the Custody Agreement
between Principal and Agent is governed by the laws of the State of Missouri.
IN WITNESS WHEREOF, the parties hereto, each intending to be bound
hereby, have caused this instrument to be executed by their duly authorized
representatives as of the dates written below.
Mercantile Bank of St. Louis N.A.
By:/S/ Linda P. Jone
---------------
Title:Vice President
--------------
Date:August 4, 1994
--------------
The ARCH Fund, Inc.
By:/S/ E.F. Smith
--------------
Title:Treasurer
---------
Date:August 4, 1994
--------------
-13-
<PAGE> 14
SCHEDULE A
SECURITIES LENDING PROGRAM COMPENSATION SCHEDULE - AGENT
A. CORPORATE AND GOVERNMENT SECURITIES LOANS VS. CASH COLLATERAL: 5% of
the remaining interest income earned on cash collateral invested after rebate.
B. CORPORATE AND GOVERNMENT SECURITIES LOANS VS. GOVERNMENT SECURITIES
COLLATERAL: 5% of the loan premium paid by the broker/dealer (Borrower).
There are no transaction fees associated with our Securities Lending Program
other than the fees outlined above.
On Loans vs. Cash Collateral in which the Subagent invests the funds and on
Loans in which a Premium is received, we will not earn a greater return than you
on any individual loan transaction.
<PAGE> 15
SCHEDULE B
SECURITIES LENDING PROGRAM COMPENSATION SCHEDULE - Subagent
A. CORPORATE AND GOVERNMENT SECURITIES LOANS VS. CASH COLLATERAL: 45%
of the remaining interest income earned on cash collateral invested after
rebate.
B. CORPORATE AND GOVERNMENT SECURITIES LOANS VS. GOVERNMENT SECURITIES
COLLATERAL: 45% of the loan premium paid by the broker/dealer (Borrower).
There are no transaction fees associated with the Subagent's Securities Lending
Program other than the fees outlined above.
On Loans vs. Cash Collateral in which the Subagent invests the funds and on
Loans in which a Premium is received, the Subagent will not earn a greater
return than the Principal on any individual loan transaction.
<PAGE> 1
Exhibit (9)(a)
THE ARCH FUND(R), INC.
ADMINISTRATION AGREEMENT
------------------------
AGREEMENT dated October 1, 1993 between THE ARCH FUND, INC., a
Maryland corporation (the "Company") and The Winsbury Service Corporation, an
Ohio corporation (the "Administrator").
WHEREAS, the Company is registered as an open-end, diversified
management investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Company desires to retain the Administrator to
provide certain administration and certain accounting services for each class of
shares of common stock ("shares") in each of the Company's investment portfolios
(individually, a "Portfolio," collectively, the "Portfolios") as listed on
Appendix A (as such Appendix A may, from time to time, be supplemented or
amended) and the Administrator is willing to furnish such administration and
such accounting services;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained and intending to be legally bound, it is agreed
between the parties hereto as follows:
1. APPOINTMENT OF ADMINISTRATOR. The Company hereby appoints the
Administrator to provide administration and accounting services, for each class
of shares in each of the Company's Portfolios on the terms and for the period
set forth in this Agreement. The Administrator accepts such respective
appointments and agrees to perform the services and duties set forth in Section
3 below in return for the compensation provided in Section 5 below. In the event
that the Company establishes additional classes or investment portfolios other
than those listed on Appendix A with respect to which it desires to retain the
Administrator to act as administrator and fund accountant hereunder, the Company
shall notify the Administrator, whereupon such Appendix A shall be supplemented
(or amended) and such portfolio shall become a Portfolio hereunder and shall be
subject to the provisions of this Agreement to the same extent as the Portfolios
(except to the extent that said provisions, including the compensation payable
on behalf of such new Portfolio, may be modified in wreathing by the Company and
Administrator at the time).
2. DELIVERY OF DOCUMENTS. The Company has furnished the
Administrator with copies, properly certified or authenticated, of each of the
following documents and will deliver to it all future amendments and
supplements, if any:
<PAGE> 2
a. The Company's Articles of Incorporation, filed with the
Secretary of State of the State of Maryland on September 9, 1982, as amended and
supplemented (the "Charter");
b. The Company's By-Laws, as amended ("By- Laws");
c. Resolutions of the Company's Board of Directors authorizing
the execution and delivery of this Agreement;
d. The Company's most recent amendment to its Registration
Statement under the Securities Act of 1933, as amended, and under the 1940 Act
on Form N-1A as filed with the Securities and Exchange Commission (the
"Commission") on April 30, 1993 relating to its Portfolios (the Registration
Statement, as presently in effect and as amended or supplemented from time to
time, is herein called the "Registration Statement");
e. The Company's most recent Prospectuses and Statements of
Additional Information and all amendments and supplements thereto (such
Prospectuses and Statements of Additional Information and supplements thereto,
as presently in effect and as from time to time amended and supplemented, are
herein called the "Prospectuses");
f. The Company's Amended and Restated Administrative Services
Plans for Trust shares, Institutional shares or Investor shares, respectively
(non 12b-1 Plans), and related forms of Servicing Agreements and the
Distribution and Services Plan for Investor shares (Rule 12b-1 Plan) and related
Servicing Agreements;
g. The following agreements of the Company: the Amended and
Restated Advisory Agreement with Mississippi Valley Advisors Inc. dated April 1,
1991, as amended as of September 27, 1991, as of April 1, 1992, and as of April
1, 1993 (the "Advisory Agreement"); the Transfer Agency Agreement with The
Winsbury Service Corporation dated October ___, 1993; the Distribution Agreement
with The Winsbury Company Limited Partnership dated October ___, 1993; and the
Custodian Agreement with Mercantile Bank of St. Louis National Association dated
as of April 1, 1992, as amended as of April 1, 1993;
h. The Company agrees to provide (i) a copy of the Company's
current Articles Supplementary to its Charter as filed with the State Department
of Assessments and Taxation of Maryland on May 25, 1993 as to the number of
shares authorized in each Portfolio and any class (Special Series) thereto, and
(ii) a certificate as to the number of issued and outstanding shares of each
such Portfolio and class thereto, such certificate to be
-2-
<PAGE> 3
certified by the Company's former transfer agent (PFPC Inc.) as
of the close of business on May 31, 1993; and
i. Before entering into a transaction regulated by the
Commodity Futures Trading Commission ("CFTC"), a copy of either (i) a filed
notice of eligibility to claim the exclusion from the definition of "commodity
pool operator" contained in Section 2(s)(1)(A) of the Commodity Exchange Act
("CEA") that is provided in Rule 4.5 under the CEA, together with all
supplements as are required by the CFTC, or (ii) a letter which has been granted
the Company by the CFTC which states that the Company will not be treated as a
"pool" as defined in Section 4.10(d) of the CFTC's General Regulations, or (iii)
a letter which has been granted the Company by the CFTC which states that the
CFTC will not take any enforcement action if the Company does not register as a
"commodity pool operator."
3. SERVICES AND DUTIES. The Administrator enters into the
following covenants with respect to its administration and accounting services
and duties:
a. Subject to the supervision and control of the Company's
Board of Directors, the Administrator shall assist in supervising all aspects of
the Portfolios' operations, other than those services performed by the Company's
investment adviser pursuant to the Advisory Agreement, the custodian pursuant to
the Company's Custodian Agreement, the distributor pursuant to the Company's
Distribution Agreement and the transfer agent pursuant to the Company's Transfer
Agency Agreement, each as amended from time to time. In this regard, the
Administrator's responsibilities include:
(1) Providing personnel and supervising an office facility
(which may be in the offices of the Administrator or an affiliate
but shall be in such location as the Company shall reasonably
determine) to receive purchase, exchange and redemption orders via the
Company's toll-free telephone lines (pursuant to the Administrator's
procedures which the Administrator represents are designed to provide
reasonable assurance that instructions by telephone are genuine and to
prevent losses due to unauthorized or fraudulent telephone
instructions) and transmitting such requests to the Company's transfer
agent as promptly as is practicable;
(2) Providing information and distributing written
communications concerning the Portfolios to their shareholders of
record, and assisting in handling shareholder problems and calls:
(3) Supervising the services of individuals ("shareholder
representatives") provided by the
-3-
<PAGE> 4
Administrator whose principal responsibility and function shall be to
preserve and strengthen the Company's relationships with its
shareholders;
(4) Monitoring the Company's arrangements with respect to
services provided by certain institutional shareholders ("Service
Organizations") under its Amended and Restated Administrative Services
Plans for Trust shares, Institutional shares or Investor shares,
respectively, and its Distribution and Services Plan for Investor
shares, including monitoring and reviewing the services rendered by
Service Organizations to their customers who are the record or
beneficial owners of such shares, pursuant to agreements between the
Company and such Service Organizations ("Servicing Agreements");
monitoring the distributor's operations under the Distribution and
Services Plan and related distribution services agreements between the
distributor and broker-dealers which provide services primarily
intended to result in the sale of Investor shares pursuant to the
Distribution and Services Plan (the "Distribution Services
Agreements"); reviewing the qualifications of Service Organizations or
broker-dealer organizations wishing to enter into Servicing Agreements
with the Company or Distribution Services Agreements with the
distributor; assisting in the execution and delivery of Servicing
Agreements and Distribution Services Agreements; reporting to the
Company's Board of Directors with respect to the amounts paid or
payable by the Company from time to time under the Plans and the
nature of the services pursuant to the Services Agreements or
Distribution Services Agreement and maintaining appropriate records in
connection with such duties; and
(5) Mailing all communications by the Company to its
shareholders or to their authorized representatives, including
(but not limited to) reports to shareholders, dividend and
distribution notices, and proxy material for its meetings of
shareholders. The Administrator will receive and tabulate the proxy
cards for the meetings of shareholders.
b. The Administrator shall furnish statistical and research data,
clerical and certain bookkeeping services and stationery and office supplies;
participate to the extent requested by the Company and its counsel in the
periodic updating of the Company's Registration Statement; compile data for and
prepare for execution and filing by the Company all of the Company's federal and
state tax returns and required tax filings other than those required to be made
by the Company's custodian or transfer agent; prepare the Company's compliance
filings pursuant to state securities laws and reports to shareholders of record
and the Commission with the assistance of counsel to the
-4-
<PAGE> 5
Company (e.g., Annual and Semi-Annual Reports to Shareholders and Annual and
Semi-Annual Reports on Form N-SAR or any replacement form therefor), it being
understood that the preparation of timely Notices pursuant to Rule 24f-2 shall
be performed with the assistance and advice of the Company's counsel and filed
with the Commission by the Company's Secretary; file with the Commission and
other federal and state agencies, reports and documents including, without
limitation, Annual and Semi-Annual Reports to Shareholders, Annual and
Semi-Annual Reports on Form N-SAR, and federal and state tax returns and
required tax filings other than those required to be filed by the Company's
custodian or transfer agent; and generally assist in all aspects of the
operations of the Portfolios.
c. The Administrator, after consultation with the distributor
and counsel for the Company, shall determine the jurisdictions in which the
Company's shares shall be registered or qualified for sale. The Administrator
shall be responsible for maintaining the registration or qualification of shares
for sale under the securities laws of any state and for preparing compliance
filings pursuant to state securities laws with the advice of the Company's
counsel. Payment of share registration fees and any fees for qualifying or
continuing the qualification of the Company or any Portfolio as a dealer or
broker shall be made by the Company or Portfolio involved.
d. The Administrator shall monitor, and assist in developing
compliance procedures for each of the classes of the Company's Portfolios, which
will include without limitation, procedures to monitor compliance with each
Portfolio's investment objective, policies and limitations, tax matters, and
applicable laws and regulations.
e. The Administrator shall assist in monitoring of regulatory
and legislative developments which may affect the Company; assist in counseling
the Company with respect to regulatory examinations or investigations of the
Company; and work with the Company's counsel in connection with regulatory
matters or litigation.
f. The Administrator agrees to keep and maintain the financial
accounts and records, journals, ledgers and schedules for each Portfolio (other
than those maintained by the Company's custodian and its transfer agent),
including calculation of daily expense accruals; to perform the fund accounting
duties as listed on Appendix B (as such Appendix may be, from time to time,
amended or supplemented); and to install and maintain a system of internal
controls appropriate for entities of the size and complexity of each Portfolio,
and to provide reports, financial statements and other statistical data as
requested from time to time by the Company. The Administrator shall, together
with the Company's Treasurer or Assistant
-5-
<PAGE> 6
Treasurer, act as liaison with the Company's independent auditors and shall
provide account analyses, fiscal-year summaries and other audit related
schedules. The Administrator shall take all reasonable action in the performance
of its obligations under this Agreement to assure that the necessary information
is made available to such auditors for the expression of their opinion, as such
may be required by the Company from time to time.
g. In compliance with the requirements of Rule 31a-3 under the
1940 Act, the Administrator agrees that all records which it maintains for the
Company are the property of the Company and further agrees to surrender promptly
to the Company any of such records upon the Company's request. The Administrator
further agrees to preserve for the periods prescribed by Rule 31a-2 under the
1940 Act the records required to be maintained by Rule 31a-1 under said Act.
h. If the expenses borne by any Portfolio in any fiscal year
exceed the applicable expense limitations imposed by the securities regulations
of any state in which the Portfolio's shares are registered or qualified for
sale to the public, the Administrator agrees to reimburse such Portfolio for a
portion of any such excess expense in an amount equal to the proportion that the
administration fees otherwise payable by the Portfolio to the Administrator
bears to the total amount of the investment advisory and administration fees
otherwise payable by the Portfolio. The expense reimbursement obligation of the
Administrator is limited to the amount of its fees hereunder for such fiscal
year, PROVIDED, HOWEVER, that notwithstanding the foregoing, the Administrator
shall reimburse such Portfolio for a portion of any such excess expenses in an
amount equal to the proportion that the fees otherwise payable to the
Administrator bear to the total amount of investment advisory and administration
fees otherwise payable by the Portfolio regardless of the amount of fees paid to
the Administrator during such fiscal year to the extent that the securities
regulations of any state having jurisdiction over the Portfolio so require. Such
expense reimbursement, if any, will be estimated, reconciled and paid on a
monthly basis.
i. In the event of equipment failures beyond the
Administrator's control, the Administrator shall, at no additional expense to
the Company and its Portfolios, take reasonable steps to minimize service
interruptions but shall have no liability with respect thereto. The
Administrator shall enter into and shall maintain in effect with appropriate
parties one or more agreements making reasonable provision for emergency use of
electronic data processing equipment to the extent appropriate equipment is
available.
j. In performing all of its services and duties as
administrator, the Administrator will act in conformity with
-6-
<PAGE> 7
the Charter, By-Laws, Prospectuses and resolutions and other instructions of the
Company's Board of Directors and will comply with the requirements of the 1940
Act and other applicable federal or state law.
k. The Administrator may, at its expense, subcontract with any
entity or person concerning the provision of the services contemplated
hereunder; provided, however, that the Administrator shall not be relieved of
any of its obligations under this Agreement by the appointment of such
subcontractor, and provided further, that the Administrator shall be responsible
to the extent provided in Section 7 below, for all acts of such subcontractor as
is such acts were its own.
l. Communication with Shareholders.
(a) COMMUNICATIONS TO SHAREHOLDERS. The Administrator agrees
to address and mail all communications by the Company to shareholders or their
authorized representatives, including reports to shareholders, dividend and
distribution notices and proxy material for its meetings of Shareholders. The
Administrator agrees to receive and tabulate the proxy cards for the meetings of
the shareholders.
(b) CORRESPONDENCE. The Administrator agrees to answer such
correspondence from shareholders, securities brokers and others relating to its
duties hereunder or those duties of the Company's transfer agent and such other
correspondence as may from time to time be mutually agreed upon between the
Administrator and the Company.
4. REPORTS. The Administrator will furnish to the Company and to
its properly authorized auditors, investment advisers, custodians, examiners,
distributors, dealers, underwriters, salesmen, insurance companies and others
designated by the Company in writing, such reports described in Section 3,
paragraph f above and at such times as are prescribed pursuant to the terms and
the conditions of this Agreement to be provided or completed by the
Administrator, or as subsequently agreed upon by the parties pursuant to an
amendment hereto. The Company agrees to examine each such report or copy
promptly and will report or cause to be reported any errors or discrepancies
therein no later than 60 days from the receipt of audited financial statements
thereof. In the event that errors or discrepancies in the Company's financial
records, except such errors and discrepancies as may not reasonably be expected
to be discovered by the recipient within such 60-day period, are not so reported
within the aforesaid period of time, a report will for all purposes be accepted
by and binding upon the Company and any other recipient, and Winsbury shall have
no liability for errors or discrepancies therein and shall have no further
responsibility with respect to such report except to perform reasonable
corrections of such
-7-
<PAGE> 8
errors and discrepancies within a reasonable time after requested to do so by
the Company. Subject to the foregoing, the investment adviser to the Company
(the "Adviser") will promptly review the report identified in Section 2(h)(ii)
of Appendix B to this Agreement and to report any errors or discrepancies
therein within a reasonable time after the receipt of such report, to the
Administrator. The Administrator will perform reasonable corrections of any
errors or discrepancies that are identified by the Adviser within a reasonable
time following its receipt of such information from the Adviser or the Company.
5. EXPENSES ASSUMED AS ADMINISTRATOR. The Administrator will bear
all expenses incurred by it in performing its services and duties as
administrator, except as otherwise expressly provided herein. Other expenses to
be incurred in the operation of the Portfolios, including taxes, interest,
brokerage fees and commissions, if any, salaries and fees of officers and
directors who are not officers, directors, shareholders or employees of the
Administrator, or the Company's investment adviser or distributor for the
Portfolios, Commission fees and state Blue Sky qualification and renewal fees,
advisory and administration fees, costs and related out-of-pocket expenses
incurred in connection with obtaining pricing information, charges of
custodians, transfer and dividend disbursing agents' fees, certain insurance
premiums, outside auditing and legal expenses, costs of maintaining corporate
existence, typesetting and printing of prospectuses for regulatory purposes and
for distribution to current shareholders of the Portfolios, costs of
shareholders' reports and corporate meetings and any extraordinary expenses,
will be borne by the Company, PROVIDED, HOWEVER, that the Company will not bear,
directly or indirectly the cost of any activity which is primarily intended to
result in the sale of shares of the Portfolios otherwise than pursuant to its
Distribution and Services Plan.
6. COMPENSATION.
a. For the services provided and the expenses assumed as
Administrator pursuant to Section 4 above, the Company will pay to the
Administrator, as agent for itself, a monthly fee (in arrears) on the first
business day of each month at the annual rate of .20% of the average daily net
assets of each Portfolio. Net asset value shall be computed at least every
business day. The fee for the period from the day of the month in which this
Agreement becomes effective until the end of that month shall be prorated
according to the proposition which such period bears to the full monthly period.
Upon any termination of this Agreement with respect to any Portfolio before the
end of any month, the fee payable for such part of a month shall be prorated
according to the proportion which such period bears to the full monthly period
and shall be payable upon the effective date of such termination. The fee
attributable to each Portfolio
-8-
<PAGE> 9
shall be the several (and not joint or joint and several) obligation of each
Portfolio.
b. For the purpose of determining fees payable to the
Administrator for administration and accounting services, the value of each
Portfolio's net assets shall be computed as required by its Prospectuses,
generally accepted accounting principles and resolutions of the Company's Board
of Directors.
c. The Administrator will from time to time employ or
associate with itself such person or persons as it may believe to be fitted to
assist it in the performance of this Agreement. Such person or persons may be
officers and employees who are employed by both the Company and the
Administrator. The compensation of such person or persons shall be paid by the
Administrator, and no obligation shall be incurred on behalf of the Company in
such respect.
7. PROPRIETARY AND CONFIDENTIAL INFORMATION. The Administrator
agrees on behalf of itself and its employees to treat confidentially and as
proprietary information of the Company all records and other information
relative to the Company and its Portfolios and prior, present or potential
shareholders, and not to use such records and information for any purpose other
than performance of their responsibilities and duties hereunder, except after
prior notification to and approval in writing by the Company, which approval
shall not be unreasonably withheld and may not be withheld where the
Administrator may be exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Company.
8. LIMITATIONS OF LIABILITY. The Administrator shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Company in connection with the matters to which this Agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on its part in the performance of its duties or from reckless disregard by it of
its obligations and duties under this Agreement. Any person, even though also an
officer, director, employee or agent of the Administrator, who may be or become
an officer, employee or agent of the Company, shall be deemed, when rendering
services to the Company or acting on any business of the Company (other than
services or business in connection with the Administrator's duties as
administrator hereunder) to be rendering such services to or acting solely for
the Company and not as an officer, director, employee or agent or one under the
control or direction of the Administrator even though paid by it.
-9-
<PAGE> 10
9. DURATION AND TERMINATION. This Agreement shall become
effective upon its execution as of the date first written above and, unless
sooner terminated as provided herein, shall continue until March 31, 1995.
Thereafter, if not terminated, this Agreement shall continue automatically for
successive terms of one year, provided that such continuance is specifically
approved at least annually (a) by a vote of a majority of those members of the
Company's Board of Directors who are not parties to this Agreement or
"interested persons" of any such party, cast in person at a meeting called for
the purpose of voting on such approval, and (b) by the Company's Board of
Directors or by vote of a "majority of the outstanding voting securities" of the
Company; PROVIDED, however, that this Agreement may be terminated by the Company
at any time, without the payment of any penalty, by vote of a majority of the
entire Board of Directors or a vote of a "majority of the outstanding voting
securities" of the Company, on 60-days' written notice to the Administrator, or
by the Administrator at any time, without the payment of any penalty, on
60-days' written notice to the Company. This Agreement will automatically and
immediately terminate in the event of its assignment. (As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"interested person" and "assignment" shall have the same meaning as such terms
have in the 1940 Act.)
10. AMENDMENT OF THIS AGREEMENT. No provision of this 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.
11. NOTICES. Notices of any kind to be given to the Company
hereunder by the Administrator shall be in writing and shall be duly given if
mailed or delivered to the Company c/o Jerry V. Woodham, President, Washington
University, 1130 Hampton Avenue, St. Louis, Missouri 63139, with a copy to
Philadelphia National Bank Building, 1345 Chestnut Street, Philadelphia
Pennsylvania 19107-3496, Attention: W. Bruce McConnel, III, Secretary, or at
such other address or to such individual as shall be so specified by the Company
to the Administrator. Notices of any kind to be given to the Administrator
hereunder by the Company shall be in writing and shall be duly given if mailed
or delivered to 1900 E. Dublin-Granville Road, Columbus, Ohio 43229, Attention:
Walter B. Grimm, or at such other address or to such other individual as shall
be so specified by an Administrator to the Company.
12. MISCELLANEOUS. The captions in this Agreement are included
for convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their
-10-
<PAGE> 11
construction or effect. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors.
13. COUNTERPARTS. This Agreement may be executed in counterparts,
all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day and
year first above written.
THE ARCH FUND, INC.
(SEAL)
By:/s/ Jerry V. Woodham
-----------------------
Jerry V. Woodham, President
THE WINSBURY SERVICE CORPORATION
By:/S/ signature illegible
--------------------------
-11-
<PAGE> 12
APPENDIX A
to the
ADMINISTRATION AGREEMENT
between
The ARCH Fund, Inc.
and
The Winsbury Service Corporation
Money Market Portfolio (Trust Shares, Investor Shares and Institutional Shares)
Treasury Money Market Portfolio (Trust Shares, Investor Shares and Institutional
Shares)
Growth & Income Equity Portfolio (Trust Shares, Investor Shares and
Institutional Shares)
Emerging Growth Portfolio (Trust Shares, Investor Shares and Institutional
Shares)
Government & Corporate Bond Portfolio (Trust Shares, Investor Shares and
Institutional Shares)
U.S. Government Securities Portfolio (Trust Shares, Investor Shares and
Institutional Shares)
Balanced Portfolio (Trust Shares, Investor Shares and Institutional Shares)
-12-
<PAGE> 13
APPENDIX B
to the
ADMINISTRATION AGREEMENT
between
The ARCH Fund, Inc.
and
The Winsbury Service Corporation
1. GENERAL SERVICES AS THE COMPANY'S ACCOUNTANT. Winsbury will
keep and maintain the following books and records of each Portfolio of the
Company pursuant to Rule 31a-1 under the 1940 Act (the "Rule") :
(a) Journals containing an itemized daily record in
detail of all purchases and sales of securities, all
receipts and disbursements of cash and all other
debits and credits, as required by subsection (b)(1)
of the Rule;
(b) General and auxiliary ledgers reflecting all asset,
liability, reserve, capital, income and expense
accounts, including interest accrued and interest
received, as required by subsection (b) (2)(i) of the
Rule;
(c) Separate ledger accounts required by subsection
(b)(2)(ii) and (iii) of the Rule; and
(d) A monthly trial balance of all ledger accounts
(except shareholder accounts) as required by
subsection (b)(8) of the Rule.
2. DAILY ACCOUNTING SERVICES. In addition to the maintenance
of the books and records specified above, Winsbury shall perform the following
accounting services daily for each Portfolio:
(a) Calculate the net asset value per Share;
(b) Calculate, for each money market Portfolio, the
amount of the deviation (if any) of the current
market-based net asset value per share and the
amortized cost price per share;
(c) Calculate the dividend and capital gain distribution,
if any:
-13-
<PAGE> 14
(d) Calculate the yield;
(e) Reconcile cash movements with the Company's
custodian;
(f) Affirm to the Company's custodian all portfolio
trades and cash movements;
(g) Verify and reconcile with the Company's custodian
all daily trade activity;
(h) Calculate fees due under the Administrative Services
Plans for shareholder support services.
(i) Provide the following reports:
(i) A current security position report;
(ii) A summary report of transactions and
pending maturities (including the
principal, cost, and accrued
interest on each portfolio security
in maturity date order); and
(iii) A current cash position report
(including cash available from
portfolio sales and maturities and
sales of a Portfolio's Shares less
cash needed for redemptions and
settlement of portfolio purchases);
(j) Such other similar services with respect to a Portfolio as
may be reasonably requested by the Company.
3. OTHER ACCOUNTING SERVICES. Winsbury shall perform the
following accounting services for each Portfolio:
(a) Obtain at least daily for variable net asset value
Portfolios, and daily (or some other period no
less frequently than weekly upon the mutual
agreement of the Company and Winsbury) for money
market portfolios, actual dealer quotations,
prices from a pricing service, or matrix prices on
all portfolio securities (including those with
less than 60 days to maturity) in order to mark
the entire portfolio to the market; and
(b) Prepare an interim balance sheet, statement of income
and expense, and statement of changes in net assets
for the Company's Portfolios as of each month-end.
-14-
<PAGE> 1
Exhibit (9)(b)
ADDENDUM NO. 1 TO ADMINISTRATION AGREEMENT
------------------------------------------
This Addendum, dated as of March 15, 1994, is entered into
between THE ARCH FUND, INC. (the "Fund"), a Maryland corporation, and THE
WINSBURY SERVICE CORPORATION ("Winsbury"), an Ohio corporation.
WHEREAS, the Fund and Winsbury have entered into an
Administration Agreement dated as of October 1, 1993 (the "Administration
Agreement"), pursuant to which the Fund appointed Winsbury to act as
Administrator to the Fund for The ARCH Money Market, Treasury Money Market,
Capital Appreciation (now, by change of name, "Growth & Income Equity"),
Emerging Growth, Diversified Fixed Income (now, by change of name, "Government &
Corporate Bond"), U.S. Government Securities and Balanced 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 Winsbury that it has
established The ARCH International Equity Portfolio (the "International Equity"
Portfolio), and that it desires to retain Winsbury to act as the Administrator
therefor, and Winsbury has notified the Fund that it is willing to serve as
Administrator for the International Equity Portfolio.
NOW THEREFORE, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. APPOINTMENT. The Fund hereby appoints Winsbury to act as
Administrator to the Fund for the International Equity Portfolio for the period
and on the terms set forth in the Administration Agreement. Winsbury hereby
accepts such appointment and agrees to render the services set forth in the
Administration Agreement, for the compensation herein provided.
2. COMPENSATION. For the services provided and expenses
assumed pursuant to the Administration Agreement with respect to the
International Equity Portfolio, the Fund will pay Winsbury, as agent for itself,
a monthly fee (in arrears) on the first business day of each month at the annual
rate of .20% of the average daily net assets of each Portfolio, including the
International Equity Portfolio.
The fee attributable to the International Equity Portfolio
shall be the obligation of that Portfolio and not of any other Portfolio of the
Fund.
<PAGE> 2
3. CAPITALIZED TERMS. From and after the date hereof, the term
"Portfolios" as used in the Administration Agreement shall be deemed to include
the International Equity Portfolio. Capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to them in the Administration
Agreement.
4. MISCELLANEOUS. Except to the extent supplemented hereby,
the Administration Agreement shall remain unchanged and in full force and effect
and is hereby ratified and confirmed in all respects as supplemented hereby.
IN WITNESS WHEREOF, the undersigned have executed this
Addendum as of the date and year first above written.
THE ARCH FUND, INC.
By:/s/ Jerry V. Woodham
--------------------
Jerry V. Woodham
President
THE WINSBURY SERVICE CORPORATION
By:/s/ Kenneth B. Quintenz
-----------------------
Kenneth B. Quintenz
Senior Vice President
-2-
<PAGE> 1
Exhibit (9)(c)
ADDENDUM NO. 2 TO ADMINISTRATION AGREEMENT
------------------------------------------
This Addendum, dated as of March 1, 1995, is entered into
between THE ARCH FUND, INC. (the "Fund"), a Maryland corporation, and BISYS FUND
SERVICES OHIO, INC. ("BISYS"), an Ohio corporation formerly known as The
Winsbury Service Corporation.
WHEREAS, the Fund and BISYS have entered into an
Administration Agreement dated as of October 1, 1993 as amended March 15, 1994
(the "Administration Agreement"), pursuant to which the Fund appointed BISYS to
act as Administrator for the Fund's ARCH Money Market, Treasury Money Market,
Growth & Income Equity, Emerging Growth, Government & Corporate Bond, U.S.
Government Securities, Balanced and International 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 that it has established a
new class of shares, namely, Class C - Special Series 3, Class D - Special
Series 3, Class E - Special Series 3, Class F - Special Series 3, Class G -
Special Series 3, and Class H - Special Series 3 shares (collectively, "Investor
B shares") in each of the ARCH Growth & Income Equity, Emerging Growth,
Government & Corporate Bond, U.S. Government Securities, Balanced and
International Equity 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 Investor B
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 in full force and
effect and is hereby ratified and confirmed in all respects as supplemented
hereby.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned have executed this
Addendum as of the date and year first above written.
THE ARCH FUND, INC.
By:/s/ Jerry V. Woodham
-------------------------
Jerry V. Woodham
President
BISYS FUND SERVICES OHIO, INC.
By: /s/ Stephen G. Mintos
------------------------
Stephen G. Mintos
Executive Vice President
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 and
Institutional Shares)
Treasury Money Market Portfolio (Trust Shares, Investor A Shares
and Institutional Shares)
Growth & Income Equity Portfolio (Trust Shares, Investor A
Shares, Institutional and Investor B Shares)
Emerging Growth Portfolio (Trust Shares, Investor A Shares,
Institutional and Investor B Shares)
Government & Corporate Bond Portfolio (Trust Shares, Investor A
Shares, Institutional and Investor B Shares)
U.S. Government Securities Portfolio (Trust Shares, Investor A
Shares, Institutional and Investor B Shares)
Balanced Portfolio (Trust Shares, Investor A Shares,
Institutional and Investor B Shares)
International Equity Portfolio (Trust Shares, Investor A Shares,
Institutional and Investor B Shares)
4
<PAGE> 1
Exhibit (9)(j)
THE ARCH FUND(R), INC.
TRANSFER AGENCY AGREEMENT
Agreement dated October 1, 1993 between THE ARCH FUND, INC., a
Maryland corporation (the "Company"), and THE WINSBURY SERVICE CORPORATION, an
Ohio corporation (the "Transfer Agent").
WHEREAS, the Company is registered as an open-end,
diversified, management investment company under the Investment Company Act of
1940, as amended ("the 1940 Act"); and
WHEREAS, the Company desires to retain the Transfer Agent to
serve as transfer agent, registrar and dividend disbursing agent for each class
of shares of common stock ("shares") in the Company's investment portfolios
(individually, a "Portfolio," collectively, the "Portfolios") as listed on
Appendix A (as such Appendix may, from time to time, be supplemented (or
amended) and the Transfer Agent is willing to furnish such transfer agency,
registrar, and dividend disbursing agency services;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained and intending to be legally bound, it is agreed
between the parties hereto as follows:
1. APPOINTMENT. The Company hereby appoints the Transfer Agent
to serve as transfer agent, registrar and dividend disbursing agent for the
Company, for each class of shares in each of the Company's Portfolios on the
terms and for the period set forth in this Agreement. The Transfer Agent accepts
such respective appointments and agrees to perform the services and duties set
forth in Section 4 below in return for the compensation provided in Section 5
below. In the event that the Company establishes additional classes or
investment portfolios other than those listed on Appendix A with respect to
which it desires to retain the Transfer Agent to serve as transfer agent,
registrar, and dividend disbursing agent hereunder, the Company shall notify the
Transfer Agent, whereupon such Appendix A shall be supplemented (or amended) and
such portfolio shall become a Portfolio hereunder and shall be subject to the
provisions of this Agreement to the same extent as the Portfolios (except to the
extent that said provisions, including the compensation payable on behalf of
such new Portfolio, may be modified in writing by the Company and Transfer Agent
at the time).
2. DELIVERY OF DOCUMENTS. The Company has furnished the
Transfer Agent with copies, properly certified or authenticated, of each of the
following documents and will deliver to it all future amendments and
supplements, if any:
<PAGE> 2
a. The Company's Articles of Incorporation, filed with the
Secretary of State of the State of Maryland on September 9, 1982, as amended and
supplemented (the "Charter");
b. The Company's By-Laws, as amended ("By-Laws");
c. Resolutions of the Company's Board of Directors authorizing
the execution and delivery of this Agreement;
d. The Company's most recent amendment to its Registration
Statement under the Securities Act of 1933, as amended, and under the 1940 Act
on Form N-1A as filed with the Securities and Exchange Commission (the
"Commission") on April 30, 1993 relating to its Portfolios (the Registration
Statement, as presently in effect and as amended or supplemented from time to
time, is herein called the "Registration Statement");
e. Two copies of the Company's most recent Prospectuses and
Statements of Additional Information and all amendments and supplements thereto
(such Prospectuses and Statements of Additional Information and supplements
thereto, as presently in effect and as from time to time amended and
supplemented, are herein called the "Prospectuses");
f. The Company's Amended and Restated Administrative Services
Plans for Trust shares, Institutional shares, or Investor shares, respectively
(non 12b-1 Plans), and related forms of Servicing Agreements and the
Distribution and Services Plan for Investor shares (Rule 12b-1 Plan) and related
Servicing Agreements;
g. The following agreements of the Company: the Amended and
Restated Advisory Agreement with Mississippi Valley Advisors Inc. dated April 1,
1991, as amended as of September 27, 1991, as of April 1, 1992, and as of April
1, 1993 (the "Advisory Agreement"); the Administration Agreement with The
Winsbury Service Corporation dated October 1, 1993; the Distribution Agreement
with The Winsbury Company Limited Partnership dated October 1, 1993; and the
Custodian Agreement with Mercantile Bank of St. Louis National Association dated
as of April 1, 1992, as amended as of April 1, 1993; and
h. The Company agrees to provide (i) a copy of the Company's
most recent Articles Supplementary to its Charter as filed with the State
Department of Assessments and Taxation of Maryland on or about May 28, 1993 as
to the number of shares authorized in each Portfolio and any class (Special
Series) thereto, and (ii) a certificate as to the number of issued and
outstanding shares of each such Portfolio and class thereto, such
2
<PAGE> 3
certificate to be certified by the Company's former transfer agent (PFPC Inc.)
as of the close of business on May 31, 1993;
i. Before entering into a transaction regulated by the
Commodity Futures Trading Commission ("CFTC"), a copy of either (i) a filed
notice of eligibility to claim the exclusion from the definition of "commodity
pool operator" contained in Section 2(s)(1)(A) of the Commodity Exchange Act
("CEA") that is provided in Rule 4.5 under the CEA, together with all
supplements as are required by the CFTC, or (ii) a letter which has been granted
the Company by the CFTC which states that the Company will not be treated as a
"pool" as defined in Section 4.10(d) of the CFTC's General Regulations, or (iii)
a letter which has been granted the Company by the CFTC which states that the
CFTC will not take any enforcement action if the Company does not register as a
"commodity pool operator";
j. Resolutions identifying all officers of the Company who are
authorized to instruct the Transfer Agent in all matters; and
k. A list of shareholders in each Portfolio holding share
Certificates as of the close of business on May 31, 1993 provided by the
Company's former transfer agent. No share Certificates will be issued on or
after June 1, 1993.
3. AUTHORIZED SHARES.
a. The Company is authorized to issue five billion
(5,000,000,000) shares of Common Stock, par value $.001 per share. The Transfer
Agent shall record issues of all shares and shall notify the Company in case any
proposed issue of shares by the Company shall result in an over-issue as defined
by Section 8-104(2) of Article 8 of the Maryland Commercial Law Article. In case
any issue of shares would result in such an over-issue, the Transfer Agent shall
refuse to issue said shares and shall not countersign and issue certificates (if
any) for such shares.
b. In connection with redemptions by a shareholder identified
as holding a share Certificate (as indicated under Section 2, paragraph k
above), the Transfer Agent agrees to follow the procedures specified in the
Company's Prospectuses under "Redemption of Shares" to obtain possession of such
Certificate prior to effecting such redemption.
4. SERVICES.
a. The Transfer Agent shall perform for the Company the
services set forth in Appendix B hereto.
3
<PAGE> 4
b. The Transfer Agent also agrees to perform for the Company
such special services incidental to the performance of the services enumerated
herein as agreed to by the parties from time to time. The Transfer Agent shall
perform such additional services as are provided on an amendment to Appendix B
hereof, in consideration of such fees as the parties hereto may agree.
c. The Transfer Agent may, in its discretion, appoint in
writing other parties qualified to perform transfer agency services reasonably
acceptable to the Company (a "Sub- transfer Agent") to carry out some or all of
its responsibilities under this Agreement with respect to a Portfolio; PROVIDED,
HOWEVER, that the Sub-transfer Agent shall be the agent of the Transfer Agent
and not the agent of the Company or such Portfolio, and that the Transfer Agent
shall be fully responsible for the acts of such Sub-transfer Agent and shall not
be relieved of any of its responsibilities hereunder by the appointment of such
Sub-transfer Agent.
5. FEES. The Company shall pay the Transfer Agent for the
services to be provided by the Transfer Agent under this Agreement in accordance
with, and in the manner set forth in, Appendix C hereto. Fees for any additional
services to be provided by the Transfer Agent pursuant to an amendment to
Appendix B hereto shall be subject to mutual agreement at the time such
amendment to Appendix B is proposed.
6. REIMBURSEMENT OF EXPENSES. In addition to paying the Transfer
Agent described in Section 5 hereof, the Company agrees to reimburse the
Transfer Agent for its out-of-pocket expenses in providing services hereunder,
including without limitation, the following:
a. All freight and other delivery and bonding charges incurred
by the Transfer Agent in delivering materials to and from the Company and in
delivering all materials to shareholders;
b. All direct telephone, telephone transmission and telecopy
or other electronic transmission expenses incurred by the Transfer Agent in
communication with the Company's dealers, shareholders or others as required for
the Transfer Agent to perform the services to be provided hereunder;
c. Costs of postage, couriers, stock computer paper,
statements, labels, envelopes, checks, reports, letters, tax forms, proxies,
notices or other form of printed material which shall be required by the
Transfer Agent for the performance of the services to be provided hereunder;
4
<PAGE> 5
d. The cost of microfilm or microfiche of records or other
materials; and
e. Any expenses the Transfer Agent shall incur at the written
direction of the President, Treasurer or Secretary of the Company thereunto duly
authorized.
7. INSTRUCTIONS.
a. Whenever the Transfer Agent is requested or authorized to
take action hereunder pursuant to instructions from a shareholder, or a properly
authorized agent of a shareholder ("shareholder's agent"), concerning an account
in a Portfolio, the Transfer Agent shall be entitled to rely upon instructions
by certificate, letter, telephone or other instrument or communication, PROVIDED
the Transfer Agent has followed its procedures which were designed to provide
reasonable assurance that the instructions are genuine and were properly made,
signed or authorized by an officer or other authorized agent of the Company or
by the shareholder or shareholder's agent, as the case may be, and shall be
entitled to receive as conclusive proof of any fact or matter required to be
ascertained by it hereunder a certificate signed by an officer of the Company or
any other person authorized by the Company's Board of Directors or by the
shareholder or shareholder's agent, as the case may be.
b. As to the services to be provided hereunder, the Transfer
Agent may rely conclusively upon the terms of the Prospectuses and Statement of
Additional Information of the Company relating to the Portfolios to the extent
that such services are described therein unless the Transfer Agent receives
written instructions to the contrary in a timely manner from the Company.
8. RECORDS.
a. The Transfer Agent shall keep and maintain on behalf of the
Company all books and records which the Company or the Transfer Agent is, or may
be, required to keep and maintain pursuant to any applicable statutes, rules and
regulations, including without limitation Rules 31a-1 and 31a-2 under the 1940
Act, relating to the maintenance of books and records in connection with the
services to be provided hereunder. The Transfer Agent further agrees that all
such books and records shall be the property of the Company or its authorized
representative and to make such books and records available for inspection by
the Company or its authorized representative or by the Commission at reasonable
times and otherwise to keep confidential all books and records and other
information relative to the Company and its shareholders, except when requested
to divulge such information by duly-constituted authorities or court
5
<PAGE> 6
process, or requested by a shareholder or shareholder's agent with respect to
information concerning an account as to which such shareholder has either a
legal or beneficial interest or when requested by the Company or its authorized
representative, the shareholder, or shareholder's agent, or the dealer of record
as to such account.
b. The Transfer Agent may upon agreement of the parties hereto
at any time, and agrees to surrender promptly upon the Company's demand books,
records and files maintained pursuant to this Agreement (or copies thereof of
any such books, records and files needed by the Transfer Agent in the
performance of its duties or for its legal protection). Upon the reasonable
request of the Company, copies of any such books and records shall be provided
by the Transfer Agent to the Company or the Company's authorized representative
at the Company's expense.
9. RIGHTS. The Transfer Agent will furnish to the Company (and
its counsel upon request) and to its properly authorized auditors, investment
advisers, custodians, examiners, distributors, dealers, underwriters, salesmen,
insurance companies and others designated by the Company in writing, such
reports at such times as are prescribed in Appendix D attached hereto, or as
subsequently agreed upon by the parties pursuant to an amendment to Appendix D.
10. RIGHTS OF OWNERSHIP. All computer programs and procedures
developed to perform services required to be provided by the Transfer Agent
under this Agreement are the property of the Transfer Agent. All records and
other data except such computer programs and procedures are the exclusive
property of the Company, and all such other records and data will be furnished
to the Company in appropriate form as soon as practicable after termination of
this Agreement for any reason.
11. COOPERATION WITH AUDITORS. The Transfer Agent shall cooperate
with the Company's independent auditors and shall take all reasonable action in
the performance of its obligations under this Agreement to assure that the
necessary information is made available to such accountants for the expression
of their opinion as such may be required from time to time by the Company.
12. CONFIDENTIALITY. The Transfer Agent agrees on behalf of
itself and its employees to treat confidentially and as the proprietary
information of the Company all records and other information relative to the
Company and is prior, present or potential shareholders and relative to the
distributor and its prior, present or potential customers, and not to use such
records and information for any purpose other than performance of its
responsibilities and duties hereunder, except after prior notification to and
approval in writing by the Company, which
6
<PAGE> 7
approval shall not be unreasonably withheld any may not be withheld where the
Transfer Agent may be exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Company.
13. EQUIPMENT FAILURES. In the event of equipment failures beyond
the Transfer Agent's control, the Transfer Agent shall, at no additional expense
to the Company, take reasonable steps to minimize service interruptions but
shall have no liability with respect thereto. The Transfer Agent shall enter
into and shall maintain in effect with appropriate parties one or more
agreements making reasonable provision for emergency use of electronic data
processing equipment to the extent appropriate equipment is available.
14. RIGHT TO RECEIVE ADVICE.
a. ADVICE OF COMPANY. If the Transfer Agent shall be in doubt
as to any action to be taken or omitted by it, it may request, and shall
receive, from the Company and its counsel directions or advice.
b. ADVICE OF COUNSEL. If the Transfer Agent shall be in doubt
as to any question of law involved in any action to be taken or omitted by the
Transfer Agent, it may request advice at its own cost from counsel of its own
choosing (who may be counsel for the adviser, the custodian, the distributor, a
Service Organization, the Company or the Transfer Agent, at the option of the
Transfer Agent).
c. CONFLICTING ADVICE. In case of conflict between directions
or advice received by the Transfer Agent pursuant to subparagraph (a) of this
paragraph and advice received by the Transfer Agent pursuant to subparagraph (b)
of this paragraph, the Transfer Agent shall be entitled to rely on and follow
the advice received pursuant to the latter provision alone.
d. PROTECTION OF TRANSFER AGENT. The Transfer Agent shall be
protected in any action or inaction which it takes in reliance on any directions
or advice received pursuant to subparagraphs (a) or (b) of this paragraph which
the Transfer Agent, after receipt of any such directions or advice, reasonably
and in good faith believes to be consistent with such directions or advice.
However, nothing in this paragraph shall be construed as imposing upon the
Transfer Agent any obligation (i) to seek such directions or advice when
received, unless, under the terms of another provision of this Agreement, the
same is a condition to the Transfer Agent's properly taking or omitting to take
such action. Nothing in this subparagraph shall excuse the Transfer
7
<PAGE> 8
Agent when an action or omission on the part of the Transfer Agent constitutes
willful misfeasance, bad faith, gross negligence or reckless disregard by the
Transfer Agent of its duties under this Agreement.
15. COMPLIANCE WITH GOVERNMENTAL RULE AND REGULATIONS. The
Company assumes full responsibility for insuring that the contents of the
Prospectus comply with all applicable requirements of the 1933 Act, the 1940
Act, the CEA and any laws, rules and regulations of governmental authorities
having jurisdiction, except to the extent that the contents were based upon
information provided by the Transfer Agent, administrator or distributor to the
Company.
16. INDEMNIFICATION. The Company agrees to indemnify and hold the
Transfer Agent harmless from all taxes, charges, expenses, assessments, claims
and liabilities (including, without limitation, liabilities arising under the
1933 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act"), the
1940 Act, the CEA, and any state and foreign securities and blue sky laws, all
as or as to be amended from time to time) and expenses, including (without
limitation) attorneys' fees and disbursements, arising directly or indirectly
from any action or thing which the Transfer Agent takes or does or omits to take
or do at the request or on the direction of or in reliance on the advice of the
Company, provided that Transfer Agent shall not be indemnified against any
lability to the Company or to its shareholders (or any expenses incident to such
liability) arising out of the Transfer Agent's negligent failure to perform its
duties under this Agreement.
17. RESPONSIBILITY OF TRANSFER AGENT. The Transfer Agent shall be
under no duty to take any action on behalf of the Company except as specifically
set forth herein or as may be specifically agreed to by the Transfer Agent in
writing. In the performance of its duties hereunder, the Transfer Agent shall be
obligated to exercise care and diligence and to act in good faith and to use its
best efforts within reasonable limits to insure the accuracy of all services
performed under this Agreement. The Transfer Agent shall be responsible for its
own negligent failure to perform its duties under this Agreement, but to the
extent that duties, obligations and responsibilities are not expressly set forth
in this Agreement, the Transfer Agent shall not be liable for any act or
omission which does not constitute willful misfeasance, bad faith or gross
negligence on the part of the Transfer Agent or reckless disregard of such
duties, obligations and responsibilities. Without limiting the generality of the
foregoing or of any other provision of this Agreement, the Transfer Agent in
connection with its duties under this Agreement shall not be under any duty or
obligation to inquire into and shall not be liable for or in respect of (a) the
validity or
8
<PAGE> 9
invalidity or authority or lack thereof of any advice, direction, notice or
other instrument which conforms to the applicable requirements of this
Agreement, if any, and which the Transfer Agent reasonably believes to be
genuine, or (b) delays or errors or loss of data occurring by reason of
circumstances beyond the Transfer Agent's control, including acts of civil or
military authority, national emergencies, labor difficulties, fire, mechanical
breakdown (except as provided in paragraph 13), flood or catastrophe, acts of
God, insurrection, war, riots or failure of the mails, transportation,
communication or power supply.
18. REPRESENTATIONS OF THE TRANSFER AGENT. The Transfer Agent
represents and warrants that: (i) The Transfer Agent has been in, and shall
continue to be in, substantial compliance with all provisions of law, including
Section 17A(c) of the 1934 Act, required in connection with the performance of
its duties under this Agreement; and (ii) the various procedures and systems
which the Transfer Agent has implemented with regard to safeguarding from loss
or damage attributable to fire, theft, or any other cause of the blank checks,
records, and other data of the Company and the Transfer Agent's records, data,
equipment, facilities and other property used in the performance of its
obligations hereunder are adequate and that it will make such changes therein
from time to time as are required for the secure performance of its obligations
hereunder. Should the Transfer Agent fail to be registered pursuant to Section
17A of the 1934 Act as a transfer agent at any time during this Agreement, the
Company may (notwithstanding Paragraph 19 hereof), on written notice to the
Transfer Agent, immediately terminate this Agreement.
19. DURATION AND TERMINATION. This Agreement shall become
effective upon its execution as of the date first written above and, unless
sooner terminated as provided herein, shall continue until May 31, 1994.
Thereafter, if not terminated, this Agreement shall continue automatically for
successive terms of one year; PROVIDED, HOWEVER, that this Agreement may be
terminated by the Company at any time, without the payment of any penalty, by
vote of a majority of the entire Board of Directors or a vote of a "majority of
the outstanding voting securities" of the Company, on 60-days' written notice to
the Transfer Agent, or by the Transfer Agent at any time, without the payment of
any penalty, on 60-days' written notice to the Company. This Agreement will
automatically and immediately terminate in the event of its assignment. (As used
in this Agreement, the terms "majority of the outstanding voting securities,"
"interested person" and "assignment" shall have the same meaning as such terms
have in the 1940 Act.)
20. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement
may be changed, discharged or terminated orally, but
9
<PAGE> 10
only by an instrument in writing signed by the party against which enforcement
of the change, discharge or termination is sought.
21. NOTICES. Notices of any kind to be given to the Company
hereunder by the Transfer Agent shall be in writing and shall be duly given if
mailed or delivered to the Company c/o Jerry V. Woodham, President, Washington
University, 1130 Hampton Avenue, St. Louis, Missouri 63139, with a copy to
Philadelphia National Bank Building, 1345 Chestnut Street, Philadelphia,
Pennsylvania 19107-3496, Attention: W. Bruce McConnel, III, Secretary, or at
such other address or to such individual as shall be so specified by the Company
to the Transfer Agent. Notices of any kind to be given to the Transfer Agent
hereunder by the Company shall be in writing and shall be duly given if mailed
or delivered to 1900 E. Dublin-Granville Road, Columbus, Ohio 43229, Attention:
Walter B. Grimm, or at such other address or to such other individual as shall
be so specified by the Transfer Agent to the Company.
22. FURTHER ACTIONS. Each party agrees to perform such further
acts and execute such further documents as are necessary to effectuate the
purposes hereof.
23. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
24. MISCELLANEOUS. This Agreement embodies the entire agreement
and understanding between the parties hereto, and supersedes all prior
agreements and understandings relating to the subject matter hereof. The
captions in this Agreement are included for convenience of reference only and in
no way define or delimit any of the provisions hereof or otherwise affect their
construction or effect. This Agreement shall be governed by Delaware law. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding and shall inure to the benefit
of the parties hereto and their respective successors.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their officers designated below as of the day and year first
above written.
THE ARCH FUND, INC.
(SEAL)
By:/s/ Jerry Woodham
-------------------------
Jerry V. Woodham, President
THE WINSBURY SERVICE CORPORATION
By:/s/ Kenneth B. Quintenz
-----------------------
Kenneth B. Quintenz
Senior Vice President
11
<PAGE> 12
APPENDIX A
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
THE ARCH FUND, INC. AND THE WINSBURY SERVICE CORPORATION
PORTFOLIOS
----------
Money Market Portfolio (Trust Shares, Investor Shares and
Institutional Shares)
Treasury Money Market Portfolio (Trust Shares, Investor Shares
and Institutional Shares)
Growth & Income Equity Portfolio (Trust Shares, Investor Shares
and Institutional Shares)
Emerging Growth Portfolio (Trust Shares, Investor Shares and
Institutional Shares)
Government & Corporate Bond Portfolio (Trust Shares, Investor
Shares and Institutional Shares)
U.S. Government Securities Portfolio (Trust Shares, Investor
Shares and Institutional Shares)
Balanced Portfolio (Trust Shares, Investor Shares and
Institutional Shares)
A-1
<PAGE> 13
APPENDIX B
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
THE ARCH FUND, INC. AND THE WINSBURY SERVICE CORPORATION
1. SHAREHOLDER TRANSACTIONS
a. Process shareholder purchase and redemption orders.
b. Set up account information, including address, dividend
option, taxpayer identification numbers and wire instructions.
c. Issue confirmations in compliance with Rule 10 under the
Securities Exchange Act of 1934, as amended, and in accordance
with Section 8-408 of the Maryland Commercial Law Article, as
amended.
d. Issue periodic statements for shareholders.
e. Process transfers and exchanges.
f. Process dividend payments, including the purchase of new
shares through dividend reinvestment.
2. SHAREHOLDER INFORMATION SERVICES
a. Make information available to shareholder servicing unit and
other remote access units regarding trade date, share price,
current holdings, yields, and dividend information.
b. Produce detailed history of transactions through duplicate or
special order statements upon request.
c. Provide mailing labels for distribution of financial reports,
prospectuses, proxy statements, or marketing material to
current shareholders.
3. COMPLIANCE REPORTING
a. Provide reports to the Securities and Exchange
Commission, the National Association of Securities
Dealers and the States in which the Fund is
registered.
B-1
<PAGE> 14
b. Prepare and distribute appropriate Internal Revenue Service
forms for corresponding Portfolio and shareholder income and
capital gains.
c. Issue tax withholding reports to the Internal Revenue Service.
4. DEALER/LOAD PROCESSING
a. Provide reports for tracking rights of accumulation and
purchases made under a Letter of Intent.
b. Account for separation of shareholder investments from
transaction sale charges for purchases of Portfolio shares.
c. Calculate fees due under 12b-1 plans for distribution and
marketing expenses.
d. Track sales and commission statistics by dealer and provide
for payment of commissions on direct shareholder purchases in
a load Portfolio.
5. SHAREHOLDER ACCOUNT MAINTENANCE
a. Maintain all shareholder records for each account in
the Company.
b. Issue customer statements on scheduled cycle, providing
duplicate second and third party copies if required.
c. Record shareholder account information changes.
d. Maintain account documentation files for each shareholder.
e. Provide sub-accounting services for a record holder upon
request of such record holder.
B-2
<PAGE> 15
APPENDIX C
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
THE ARCH FUND, INC. AND THE WINSBURY SERVICE CORPORATION
FEE SCHEDULE
A. ANNUAL BASE FEE
1. Each Portfolio with daily dividends shall pay an Annual Base
Fee of $15 per shareholder, and each Portfolio without daily
dividends shall pay an Annual Base Fee of $12 per shareholder,
subject to minimum fees in paragraph A.2.
2. The Annual Base Fee shall not be less than:
$6,000 for a Portfolio with less than 100 shareholders;
$12,000 for a Portfolio with 100 or more shareholders
but less than 500 shareholders; and $24,000 for a
Portfolio with 500 or more shareholders.
B. ANNUAL ADDITIONAL FEES. These fees are in addition to the
Annual Base Fees.
1. Each class in a Portfolio subject to a sales load shall pay an
Annual Additional Fee of $1 per shareholder in such class, but
not less than $500 per year.
2. Each class in a Portfolio subject to a 12b-1 Plan shall pay an
Annual Additional Fee of $1 per shareholder in such class, but
not less than $500 per year.
3. Each class in a Portfolio with check writing shall pay an
Annual Additional Fee of $1 per shareholder in such class
(including shareholders who do not utilize this service), but
not less than $500 per year.
4. Each class in a Portfolio with ACH in connection with the
Automatic investment Plan and Automatic Withdrawal Plan or
other file transfer system shall pay an Annual Additional Fee
of $1 per shareholder in such class (including shareholders
who do not utilize this service), but not less than $1,000.
5. Each Portfolio that utilizes Fund/SERV (a central clearing
house for settlement of purchases and
C-1
<PAGE> 16
redemptions of shares) shall pay an annual Additional
Fee of $1,000.
6. Each Portfolio that has share certificates outstanding shall
pay an annual fee of $1000 plus an additional fee of $25 for
each certificate that is redeposited with the Transfer Agent.
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 proceeding month and paid monthly.
C-2
<PAGE> 17
APPENDIX D
TO THE TRANSFER AGENCY AGREEMENT
BETWEEN
THE ARCH FUND, INC. AND THE WINSBURY SERVICE CORPORATION
REPORTS
I. Daily Shareholder Activity Journal
II. Daily Portfolio Activity Summary Report
A. Beginning Balance
B. Dealer Transactions
C. Shareholder Transactions
D. Reinvested Dividends
E. Exchanges
F. Adjustments
G. Ending Balance
III. Daily Wire and Check Registers
IV. Monthly Dealer Processing Reports
V. Monthly Dividend Reports
VI. Sales Data Reports for Blue Sky Registration
VII. Annual report by independent auditors concerning the Transfer Agent's
shareholder system and internal accounting control systems to be filed
with the Securities and Exchange Commission pursuant to Rule 17Ad-13 of
the Securities Exchange Act of 1934, as amended.
D-1
<PAGE> 1
Exhibit (9)(k)
ADDENDUM NO. 1 TO TRANSFER AGENCY AGREEMENT
-------------------------------------------
This Addendum, dated as of March 15, 1994, is entered into
between THE ARCH FUND, INC. (the "Fund"), a Maryland corporation, and THE
WINSBURY SERVICE CORPORATION ("Winsbury"), an Ohio corporation.
WHEREAS, the Fund and Winsbury have entered into a Transfer
Agency Agreement dated as of October 1, 1993 (the "Transfer Agency Agreement"),
pursuant to which the Fund appointed Winsbury to act as Transfer Agent to the
Fund for The ARCH Money Market, Treasury Money Market, Capital Appreciation
(now, by change of name, "Growth & Income Equity"), Emerging Growth, Diversified
Fixed Income (now, by change of name, "Government & Corporate Bond"), U.S.
Government Securities and Balanced 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 Winsbury that it has
established The ARCH International Equity Portfolio (the "International Equity"
Portfolio), and that it desires to retain Winsbury to act as the Transfer Agent
therefor, and Winsbury has notified the Fund that it is willing to serve as
Transfer Agent for the International Equity Portfolio.
NOW THEREFORE, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. APPOINTMENT. The Fund hereby appoints Winsbury to act as
Transfer Agent to the Fund for the International Equity Portfolio for the period
and on the terms set forth in the Transfer Agency Agreement. Winsbury hereby
accepts such appointment and agrees to render the services set forth in the
Transfer Agency Agreement, for the compensation herein provided.
2. FEES. For the services provided and expenses assumed
pursuant to the Transfer Agency Agreement with respect to the International
Equity Portfolio, the Fund will pay Winsbury in accordance with, and in the
manner set forth in, Appendix C hereto. Fees for any additional services to be
provided by the Transfer Agent pursuant to an amendment to Appendix B hereto
shall be subject to mutual agreement at the time such amendment to Appendix B is
proposed.
3. CAPITALIZED TERMS. From and after the date
hereof, the term "Portfolios" as used in the Transfer Agency
<PAGE> 2
Agreement shall be deemed to include the International Equity Portfolio.
Capitalized terms used herein and not otherwise defined shall have the meanings
ascribed to them in the Transfer Agency Agreement.
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:/s/ The Arch Fund, Inc.
-----------------------
Jerry V. Woodham
President
THE WINSBURY SERVICE CORPORATION
By:/s/ The Winsbury Service Corp.
-----------------------------
Kenneth B. Quintenz
Senior Vice President
2
<PAGE> 1
Exhibit (9)(l)
ADDENDUM NO. 2 TO TRANSFER AGENCY AGREEMENT
-------------------------------------------
This Addendum, dated as of March 1, 1995, is entered into
between THE ARCH FUND, INC. (the "Fund"), a Maryland corporation, and BISYS FUND
SERVICES OHIO, INC. ("BISYS"), an Ohio corporation formerly known as The
Winsbury Service Corporation.
WHEREAS, the Fund and BISYS have entered into a Transfer
Agency Agreement dated as of October 1, 1993 as amended March 15, 1994 (the
"Transfer Agency Agreement"), pursuant to which the Fund appointed BISYS to act
as Transfer Agent for the Fund's ARCH Money Market, Treasury Money Market,
Growth & Income Equity, Emerging Growth, Government & Corporate Bond, U.S.
Government Securities, Balanced and International 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 that it has established a
new class of shares, namely, Class C - Special Series 3, Class D - Special
Series 3, Class E - Special Series 3, Class F - Special Series 3, Class G -
Special Series 3 and Class H - Special Series 3 shares (collectively, "Investor
B shares") in each of the ARCH Growth & Income Equity, Emerging Growth,
Government & Corporate Bond, U.S. Government Securities, Balanced and
International Equity 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 Investor B
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. 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 WHEREAS, the undersigned have executed this
Addendum as of the date and year first above written.
THE ARCH FUND, INC.
By:/s/ Jerry V. Woodham
-----------------------
Jerry V. Woodham
President
BISYS FUND SERVICES OHIO, INC.
By:/s/ Stephen G. Mintos
---------------------------------
Stephen G. Mintos
Executive Vice President
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 and
Institutional shares)
Treasury Money Market Portfolio (Trust shares, Investor A shares
and Institutional shares)
Growth & Income Equity Portfolio (Trust shares, Investor A shares, Institutional
shares and Investor B shares)
Emerging Growth Portfolio (Trust shares, Investor A shares, Institutional shares
and Investor B shares)
Government & Corporate Bond Portfolio (Trust shares, Investor A shares,
Institutional shares and Investor B shares)
U.S. Government Securities Portfolio (Trust shares, Investor A
shares, Institutional shares and Investor B shares)
Balanced Portfolio (Trust shares, Investor A shares, Institutional shares and
Investor B shares)
International Equity Portfolio (Trust shares, Investor A shares, Institutional
shares and Investor B shares)
4
<PAGE> 1
Exhibit (9)(m)
ADDENDUM NO. 3 TO TRANSFER AGENCY AGREEMENT
-------------------------------------------
This Addendum, dated as of July 10, 1995, is entered into
between THE ARCH FUND, INC. (the "Fund"), a Maryland corporation, and BISYS FUND
SERVICES OHIO, INC. ("BISYS"), an Ohio corporation formerly known as The
Winsbury Service Corporation.
WHEREAS, the Fund and BISYS have entered into a Transfer
Agency Agreement dated as of October 1, 1993 as amended March 15, 1994 and March
1, 1995 (the "Transfer Agency Agreement"), pursuant to which the Fund appointed
BISYS to act as Transfer Agent for the Fund's ARCH Money Market, Treasury Money
Market, Growth & Income Equity, Emerging Growth, Government & Corporate Bond,
U.S. Government Securities, Balanced and International 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 that it has established a
new class of shares, namely, Class A - Special Series 3 shares ("Investor B
shares") in the ARCH Money Market Portfolio (the "Money Market Portfolio") and a
new portfolio, namely, the ARCH Short-Intermediate Municipal Portfolio (the
"Short-Intermediate Municipal Portfolio"), and that it desires to retain BISYS
to act as the Transfer Agent therefor, and BISYS has notified the Fund that it
is willing to serve as Transfer Agent for Investor B shares of the Money Market
Portfolio and for the Short-Intermediate Municipal Portfolio;
NOW THEREFORE, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. APPOINTMENT. The Fund hereby appoints BISYS to act as
Transfer Agent to the Fund for Investor B shares of the Money Market Portfolio
and for the Short-Intermediate Municipal Portfolio for the period and on the
terms set forth in the Transfer Agency Agreement. BISYS hereby accepts such
appointment and agrees to render the services set forth in the Transfer Agency
Agreement, for the compensation herein provided.
2. FEES. For the services provided and expenses assumed
pursuant to the Transfer Agency Agreement with respect to the Short-Intermediate
Municipal Portfolio, the Fund will pay
<PAGE> 2
BISYS in accordance with, and in the manner set forth in, Appendix C to the
Transfer Agency Agreement. Fees for any additional services to be provided by
the Transfer Agent pursuant to an amendment to Appendix B to the Transfer Agency
Agreement shall be subject to mutual agreement at the time such amendment to
such Appendix B is proposed.
3. TERMS. From and after the date hereof, the term
"Portfolios" as used in the Transfer Agency Agreement shall be deemed to include
the Short-Intermediate Municipal Portfolio. Capitalized terms used herein and
not otherwise defined shall have the meanings ascribed to them in the Transfer
Agency Agreement.
4. APPENDIX A. Appendix A to the Transfer Agency Agreement is
hereby supplemented to read as set forth in Appendix A attached hereto.
5. MISCELLANEOUS. Except to the extent supplemented hereby,
the Transfer Agency Agreement shall remain unchanged and in full force and
effect and is hereby ratified and confirmed in all respects as supplemented
hereby.
IN WITNESS WHEREOF, the undersigned have executed this
Addendum as of the date and year first above written.
THE ARCH FUND, INC.
By: /S/ JERRY V. WOODHAM
---------------------
Jerry V. Woodham
President
BISYS FUND SERVICES OHIO, INC.
By: /S/ STEPHEN G. MINTOS
--------------------------
Stephen G. Mintos
Executive Vice President
<PAGE> 3
APPENDIX A
to the
TRANSFER AGENCY AGREEMENT
between
The ARCH FUND, INC.
and
BISYS FUND SERVICES OHIO, INC. (formerly
known as The Winsbury Service Corporation)
-----------------------------------------------------------------
Money Market Portfolio (Trust shares, Investor A shares, Institutional shares
and Investor B shares)
Treasury Money Market Portfolio (Trust shares, Investor A shares
and Institutional shares)
Growth & Income Equity Portfolio (Trust shares, Investor A shares, Institutional
shares and Investor B shares)
Emerging Growth Portfolio (Trust shares, Investor A shares, Institutional shares
and Investor B shares)
Government & Corporate Bond Portfolio (Trust shares, Investor A shares,
Institutional shares and Investor B shares)
U.S. Government Securities Portfolio (Trust shares, Investor A
shares, Institutional shares and Investor B shares)
Balanced Portfolio (Trust shares, Investor A shares, Institutional shares and
Investor B shares)
International Equity Portfolio (Trust shares, Investor A shares, Institutional
shares and Investor B shares)
Short-Intermediate Municipal Portfolio (Trust shares and Investor
A shares)
<PAGE> 1
Exhibit 10
Law Offices
DRINKER BIDDLE & REATH LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
Telephone: (215) 988-2700
Facsimile: (215) 988-2757
March 27, 1998
The ARCH Fund, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
Re: The ARCH Fund, Inc. - Shares of Common Stock
--------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to The ARCH Fund, Inc., a Maryland corporation
(the "Fund"), in connection with the registration by the Fund of its shares of
common stock, par value $.001 per share, under the Securities Act of 1933, as
amended.
The Articles of Incorporation of the Fund authorize the issuance of
twenty billion (20,000,000,000) shares of common stock. The Board of Directors
of the Fund has the power to classify or reclassify any authorized shares of
common stock into one or more classes of shares and to divide and classify
shares of any class into one or more series of such class. Pursuant to such
authority, the Board of Directors (i) has previously classified eleven billion
nine hundred ninety million (11,900,000,000) of such authorized shares into
nineteen classes (the "Classes"), each Class representing interests in a
separate portfolio of investments (the "Portfolios"), and (ii) has classified
each Class of shares into one or more of five series of shares, known as Trust
Shares, Institutional Shares, S Shares, Investor A Shares and Investor B Shares
(the "Series"). The Classes and Series are referred to herein as the "Shares".
The Board has previously authorized the issuance of Shares to the public.
Currently, the Fund is authorized to issue Shares of the following Classes and
Series:
<PAGE> 2
The ARCH Fund, Inc.
March 27, 1998
Page 2
Portfolio Authorized Shares
--------- -----------------
Treasury Money Market
Trust Shares........................ 1,000,000,000
Institutional Shares ............... 300,000,000
S Shares ........................... 2,000,000,000
Investor A Shares .................. 100,000,000
Money Market
Trust Shares ....................... 1,800,000,000
Institutional Shares ............... 300,000,000
S Shares ........................... 2,000,000,000
Investor A Shares .................. 550,000,000
Investor B Shares .................. 50,000,000
Tax-Exempt Money Market
Trust Shares ....................... 300,000,000
S Shares ........................... 2,000,000,000
Investor A Shares .................. 50,000,000
U.S. Government Securities
Trust Shares ....................... 15,000,000
Institutional Shares ............... 20,000,000
Investor A Shares .................. 5,000,000
Investor B Shares .................. 50,000,000
Intermediate Corporate Bond
Trust Shares ....................... 50,000,000
Institutional Shares ............... 25,000,000
Investor A Shares .................. 25,000,000
Bond Index
Trust Shares ....................... 50,000,000
Institutional Shares ............... 25,000,000
Investor A Shares .................. 25,000,000
Government & Corporate Bond
Trust Shares ....................... 50,000,000
Institutional Shares ............... 20,000,000
Investor A Shares .................. 5,000,000
Investor B Shares .................. 50,000,000
Short-Intermediate Municipal
Trust Shares ....................... 25,000,000
Investor A Shares .................. 25,000,000
Missouri Tax-Exempt Bond
Trust Shares ....................... 25,000,000
Investor A Shares .................. 25,000,000
Investor B Shares .................. 10,000,000
<PAGE> 3
The ARCH Fund, Inc.
March 27, 1998
Page 3
Portfolio Authorized Shares
--------- -----------------
Kansas Tax-Exempt Bond
Trust Shares ....................... 25,000,000
Investor A Shares .................. 25,000,000
Investor B Shares .................. 10,000,000
National Municipal Bond
Trust Shares ....................... 50,000,000
Investor A Shares .................. 25,000,000
Investor B Shares .................. 25,000,000
Equity Income
Trust Shares ....................... 50,000,000
Institutional Shares ............... 25,000,000
Investor A Shares .................. 25,000,000
Investor B Shares .................. 25,000,000
Equity Index
Trust Shares ....................... 50,000,000
Institutional Shares ............... 25,000,000
Investor A Shares .................. 25,000,000
Growth & Income Equity
Trust Shares ....................... 50,000,000
Institutional Shares ............... 20,000,000
Investor A Shares .................. 5,000,000
Investor B Shares .................. 50,000,000
Growth Equity
Trust Shares ....................... 50,000,000
Institutional Shares ............... 25,000,000
Investor A Shares .................. 25,000,000
Investor B Shares .................. 25,000,000
Small Cap Equity
Trust Shares ....................... 35,000,000
Institutional Shares ............... 20,000,000
Investor A Shares .................. 5,000,000
Investor B Shares .................. 50,000,000
Small Cap Equity Index
Trust Shares ....................... 50,000,000
Institutional Shares ............... 25,000,000
Investor A Shares .................. 25,000,000
International Equity
Trust Shares ....................... 10,000,000
Institutional Shares ............... 10,000,000
Investor A Shares .................. 10,000,000
Investor B Shares .................. 50,000,000
<PAGE> 4
The ARCH Fund, Inc.
March 27, 1998
Page 4
Portfolio Authorized Shares
--------- -----------------
Balanced
Trust Shares ....................... 15,000,000
Institutional Shares ............... 20,000,000
Investor A Shares .................. 5,000,000
Investor B Shares .................. 50,000,000
Unclassified Shares ......................... 8,010,000,000
--------------
Total .............................. 20,000,000,000
We have reviewed the Fund's Articles of Incorporation, as amended and
supplemented (the "Articles of Incorporation"), Restated and Amended By-Laws
(the "By-Laws"), resolutions of its Board of Directors and shareholders, and
such other legal and factual matters as we have deemed appropriate.
This opinion is based exclusively on the Maryland General Corporation
Law and the federal law of the United States of America.
We have also assumed the following for this opinion:
1. The Shares have been, and will continue to be, issued in accordance
with the Fund's Articles of Incorporation and By-Laws and resolutions of the
Fund's Board of Directors and shareholders relating to the creation,
authorization and issuance of the Shares.
2. The Shares have been, or will be, issued against consideration
therefor as described in the Fund's prospectuses relating thereto, and such
consideration was, or will have been, in each case at least equal to the
applicable net asset value and the applicable par value.
3. The number of outstanding Shares has not and will not exceed the
number of Shares authorized for the particular Class or Series.
On the basis of the foregoing, it is our opinion that (i) the Shares
outstanding on the date hereof have been validly and legally issued and are
fully paid and non-assessable by the Fund and (ii) any Shares issued and sold
after the date hereof will be validly and legally issued, fully paid and
non-assessable by the Fund.
<PAGE> 5
The ARCH Fund, Inc.
March 27, 1998
Page 5
We hereby consent to the filing of this opinion as an exhibit
to Post-Effective Amendment No. 44 to the Fund's Registration
Statement on Form N-1A.
Very truly yours,
/s/ Drinker Biddle & Reath LLP
------------------------------
DRINKER BIDDLE & REATH LLP
<PAGE> 1
EXHIBIT (11)(a)
INDEPENDENT AUDITORS' CONSENT
The Board of Directors of
The ARCH Fund, Inc.:
We consent to the use of our report incorporated by reference dated January 23,
1998 for The ARCH Fund, Inc. as of November 30, 1997 and for the periods
indicated therein and to the references to our firm under the headings
"Financial Highlights" in the Prospectuses and "Independent Auditors" and
"Financial Statements" in the Statements of Additional Information.
/s/ KPMG Peat Marwick LLP
Columbus, Ohio
March 26, 1998
<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. 44 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
March 30, 1998
<PAGE> 1
Exhibit (13)(a)
PURCHASE AGREEMENT
------------------
The Arch Fund, Inc. (the "Fund"), a Maryland
corporation, and Shearson/American Express Inc. ("Shearson"), a
Delaware corporation, hereby agree with each other as follows:
1. The Fund hereby offers Shearson and Shearson hereby
purchases 50,000 shares of Class A Common Stock (par value $.001 per share) and
50,000 shares of Class B Common Stock (par value $.001 per share) of the Fund
(such shares hereinafter sometimes collectively known as "Shares") at a price of
$1.00 per Share. Shearson hereby acknowledges receipt of one certificate
representing 50,000 shares of the Fund Class A Common Stock and one certificate
representing 50,000 shares of the Fund's Class B Common Stock, and the Fund
hereby acknowledges receipt from Shearson of funds in the amount of $100,000 in
full payment for the Shares.
2. Shearson represents and warrants to the Fund that the
Shares are being acquired for investment purposes and not with a view to the
distribution thereof.
3. Shearson agrees that if it or any direct or indirect
transferee of any of the Shares redeems any of the Shares prior to the fifth
anniversary of the date the Fund begins its investment activities, Shearson will
pay to the Fund an amount equal to the number resulting from multiplying the
Fund's total unamortized organizational expenses by a fraction, the numerator of
which is equal to the number of Shares redeemed by Shearson or such transferee
and the denominator of which is equal to the number of Shares outstanding as of
the date of such redemption, as long as the administrative position of the staff
of the Securities and Exchange Commission requires such reimbursement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the 23rd day of November, 1982.
(SEAL) THE ARCH FUND, INC.
ATTEST:
- --------------------------- By:/s/A.J. Seewoester
----------------------
A.J. Seewoester, President
(SEAL)
ATTEST: SHEARSON/AMERICAN EXPRESS INC.
- --------------------------- By:/s/ Jeffrey B. Lane
------------------------
<PAGE> 1
Exhibit (13)(b)
PURCHASE AGREEMENT
The ARCH Fund, Inc. (the "Fund), a Maryland corporation with
transferrable shares, and Winsbury Service Corporation ("WSC"), an Ohio
corporation, hereby agree with each other as follows:
1. The Fund hereby offers WSC and WSC hereby purchases one
share of each of the Trust and Institutional Shares of the ARCH International
Equity Portfolio (the "Portfolio") at a price of $10.00 per share, aggregating
two shares of common stock in the Portfolio (such shares of common stock in the
Portfolio being hereinafter collectively known as "Shares"). WSC hereby
acknowledges the purchase of the Shares and the Fund hereby acknowledges receipt
from WSC of funds in the amount of $20 in full payment for the Shares.
2. WSC represents and warrants to the Fund that the Shares are
being acquired for investment purposes and not with a view to the distribution
thereof.
3. Costs incurred by the Portfolio in connection with the
organization, registration and the initial public offering of the Portfolio have
been deferred and will be amortized over a period of 60 months from commencement
of operations. In the event that any of the initial Shares purchased by WSC
hereunder are redeemed by any holder thereof during the period that the costs
incurred by the Portfolio in connection with the organization, registration and
initial public offering are amortized by the Portfolio the Portfolio is
authorized to reduce the redemption proceeds to cover any unamortized expenses
in the same proportion as the number of initial Shares being redeemed bears to
the number of initial Shares outstanding at the time of redemption. If, for any
reason, said reduction of redemption proceeds is not in fact made by the
Portfolio in the event of such a redemption, WSC agrees to reimburse the
Portfolio immediately for any unamortized expenses in the proportion stated
above.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the 1st day of April, 1994.
THE ARCH FUNDS, INC.
By:/s/ Walter Grimm
---------------------
Title:__________________
WINSBURY SERVICE CORPORATION
By:/s/ Steven Mintos
---------------------
Title:__________________
<PAGE> 1
Exhibit (13)(c)
PURCHASE AGREEMENT
------------------
The ARCH Fund, Inc. (the "Fund"), a Maryland corporation
with transferable shares, and BISYS Fund Services Ohio, Inc.
("BISYS"), an Ohio corporation, hereby agree with each other as
follows:
1. The Fund hereby offers BISYS and BISYS hereby purchases one Class C
- - Special Series 3 share of common stock representing an interest in the ARCH
Growth & Income Equity Portfolio (the "Portfolio") at a price of $13.43 (such
share of common stock in the Portfolio being hereinafter known as the "Share").
BISYS hereby acknowledges the purchase of the Share and the Fund hereby
acknowledges receipt from BISYS of funds in the amount of $13.43 in full payment
for the Share.
2. BISYS represents and warrants to the Fund that the Share is being
acquired for investment purposes and not with a view to the distribution
thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the 28th day of February, 1995.
THE ARCH FUND, INC.
By: /S/ JERRY WOODHAM
-----------------
Title: PRESIDENT
---------
BYSIS FUND SERVICES OHIO, INC.
By: /S/ STEPHEN MINTOS
------------------
Title: EXECUTIVE VICE PRESIDENT
------------------------
<PAGE> 2
Exhibit (13)(c)
PURCHASE AGREEMENT
------------------
The ARCH Fund, Inc. (the "Fund"), a Maryland corporation
with transferable shares, and BISYS Fund Services Ohio, Inc.
("BISYS"), an Ohio corporation, hereby agree with each other as
follows:
1. The Fund hereby offers BISYS and BISYS hereby purchases one Class D
- - Special Series 3 share of common stock representing an interest in the ARCH
Emerging Growth Portfolio (the "Portfolio") at a price of $11.83 (such share of
common stock in the Portfolio being hereinafter known as the "Share"). BISYS
hereby acknowledges the purchase of the Share and the Fund hereby acknowledges
receipt from BISYS of funds in the amount of $11.83 in full payment for the
Share.
2. BISYS represents and warrants to the Fund that the Share is being
acquired for investment purposes and not with a view to the distribution
thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the 28th day of February, 1995.
THE ARCH FUND, INC.
By: /S/ JERRY WOODHAM
-----------------
Title: PRESIDENT
---------
BYSIS FUND SERVICES OHIO, INC.
By: /S/ STEPHEN MINTOS
------------------
Title: EXECUTIVE VICE PRESIDENT
------------------------
<PAGE> 3
Exhibit (13)(c)
PURCHASE AGREEMENT
------------------
The ARCH Fund, Inc. (the "Fund"), a Maryland corporation
with transferable shares, and BISYS Fund Services Ohio, Inc.
("BISYS"), an Ohio corporation, hereby agree with each other as
follows:
1. The Fund hereby offers BISYS and BISYS hereby purchases one Class E
- - Special Series 3 share of common stock representing an interest in the ARCH
Government & Corporate Bond Portfolio (the "Portfolio") at a price of $9.92
(such share of common stock in the Portfolio being hereinafter known as the
"Share"). BISYS hereby acknowledges the purchase of the Share and the Fund
hereby acknowledges receipt from BISYS of funds in the amount of $9.92 in full
payment for the Share.
2. BISYS represents and warrants to the Fund that the Share is being
acquired for investment purposes and not with a view to the distribution
thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the 28th day of February, 1995.
THE ARCH FUND, INC.
By: /S/ JERRY WOODHAM
-----------------
Title: PRESIDENT
---------
BYSIS FUND SERVICES OHIO, INC.
By: /S/ STEPHEN MINTOS
------------------
Title: EXECUTIVE VICE PRESIDENT
-------------------------
<PAGE> 4
Exhibit (13)(c)
PURCHASE AGREEMENT
------------------
The ARCH Fund, Inc. (the "Fund"), a Maryland corporation
with transferable shares, and BISYS Fund Services Ohio, Inc.
("BISYS"), an Ohio corporation, hereby agree with each other as
follows:
1. The Fund hereby offers BISYS and BISYS hereby purchases one Class F
- - Special Series 3 share of common stock representing an interest in the ARCH
U.S. Government Securities Portfolio (the "Portfolio") at a price of $10.34
(such share of common stock in the Portfolio being hereinafter known as the
"Share"). BISYS hereby acknowledges the purchase of the Share and the Fund
hereby acknowledges receipt from BISYS of funds in the amount of $10.34 in full
payment for the Share.
2. BISYS represents and warrants to the Fund that the Share is being
acquired for investment purposes and not with a view to the distribution
thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the 28th day of February, 1995.
THE ARCH FUND, INC.
By: /s/ Jerry Woodham
-----------------
Title: President
---------
BYSIS FUND SERVICES OHIO, INC.
By: /s/ Stephen Mintos
------------------
Title: Executive Vice President
------------------------
<PAGE> 5
Exhibit (13)(c)
PURCHASE AGREEMENT
------------------
The ARCH Fund, Inc. (the "Fund"), a Maryland corporation
with transferable shares, and BISYS Fund Services Ohio, Inc.
("BISYS"), an Ohio corporation, hereby agree with each other as
follows:
1. The Fund hereby offers BISYS and BISYS hereby purchases one Class G
- - Special Series 3 share of common stock representing an interest in the ARCH
Balanced Portfolio (the "Portfolio") at a price of $10.13 (such share of common
stock in the Portfolio being hereinafter known as the "Share"). BISYS hereby
acknowledges the purchase of the Share and the Fund hereby acknowledges receipt
from BISYS of funds in the amount of $10.13 in full payment for the Share.
2. BISYS represents and warrants to the Fund that the Share is being
acquired for investment purposes and not with a view to the distribution
thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the 28th day of February, 1995.
THE ARCH FUND, INC.
By: /s/ Jerry Woodham
-----------------
Title: President
---------
BYSIS FUND SERVICES OHIO, INC.
By: /s/ Stephen Mintos
------------------
Title: Executive Vice President
------------------------
<PAGE> 6
Exhibit (13)(c)
PURCHASE AGREEMENT
------------------
The ARCH Fund, Inc. (the "Fund"), a Maryland corporation
with transferable shares, and BISYS Fund Services Ohio, Inc.
("BISYS"), an Ohio corporation, hereby agree with each other as
follows:
1. The Fund hereby offers BISYS and BISYS hereby purchases one Class H
- - Special Series 3 share of common stock representing an interest in the ARCH
International Portfolio (the "Portfolio") at a price of $9.26 (such share of
common stock in the Portfolio being hereinafter known as the "Share"). BISYS
hereby acknowledges the purchase of the Share and the Fund hereby acknowledges
receipt from BISYS of funds in the amount of $9.26 in full payment for the
Share.
2. BISYS represents and warrants to the Fund that the Share is being
acquired for investment purposes and not with a view to the distribution
thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the 28th day of February, 1995.
THE ARCH FUND, INC.
By: /s/ Jerry Woodham
-----------------
Title: President
---------
BYSIS FUND SERVICES OHIO, INC.
By: /s/ Stephen Mintos
------------------
Title: Executive Vice President
------------------------
<PAGE> 1
Exhibit (13)(d)
PURCHASE AGREEMENT
------------------
The ARCH Fund, Inc. (the "Fund"), a Maryland corporation with
transferable shares, and BISYS Fund Services Ohio, Inc. ("BISYS"), an Ohio
corporation, hereby agree with each other as follows:
1. The Fund hereby offers BISYS and BISYS hereby purchases ten
Class A Special Series 3 shares of common stock representing interests in the
ARCH Money Market Portfolio (the "Portfolio") at a price of $1.00 per share
(such shares of common stock in the Portfolio being hereinafter known as the
"Shares"). BISYS hereby acknowledges the purchase of the Shares and the Fund
hereby acknowledges receipt from BISYS of funds in the amount of $10.00 in full
payment for the Shares.
2. BISYS represents and warrants to the Fund that the Shares are
being acquired for investment purposes and not with a view to the distribution
thereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the 7th day of July, 1995.
THE ARCH FUND, INC.
By: /s/ Jerry V. Woodham
--------------------
Title: President
---------
BISYS FUND SERVICES OHIO, INC.
By: /s/ Stephen Mintos
------------------
Title: Executive Vice President
------------------------
<PAGE> 2
Exhibit (13)(d)
PURCHASE AGREEMENT
------------------
The ARCH Fund, Inc. (the "Fund"), a Maryland corporation with
transferable shares, and BISYS Fund Services Ohio, Inc. ("BISYS"), an Ohio
corporation, hereby agree with each other as follows:
1. The Fund hereby offers BISYS and BISYS hereby purchases one
Class I share of common stock and one Class I - Special Series 1 share of common
stock, representing interests in the ARCH Short-Intermediate Municipal Portfolio
(the "Portfolio") at a price of $10.00 per share (such shares of common stock in
the Portfolio being hereinafter known as the "Shares"). BISYS hereby
acknowledges the purchase of the Shares and the Fund hereby acknowledges receipt
from BISYS of funds in the amount of $20.00 in full payment for the Shares.
2. BISYS represents and warrants to the Fund that the Shares
are being acquired for investment purposes and not with a view to the
distribution thereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the 7th day of July, 1995.
THE ARCH FUND, INC.
By: /s/ Jerry V. Woodham
--------------------
Title: President
---------
BISYS FUND SERVICES OHIO, INC.
By: /s/ Stephen Mintos
------------------
Title: Executive Vice President
------------------------
<PAGE> 1
Exhibit (16)(a)
THE ARCH FUND, INC.
EXHIBIT 16
TRUST SHARES
YIELD COMPUTATION SCHEDULE
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
7 DAY YIELD CALCULATION 30 DAY YIELD CALCULATION
----------------------- ------------------------
<S> <C> <C>
Base period 7 Days 30 Days
Beginning Account Balance - 1 share at $1.00 1.000000000 1.000000000
Dividend Declaration ----------- -----------
NOVEMBER 1 0.000072711
NOVEMBER 2 0.000072503
NOVEMBER 3 0.000072223
NOVEMBER 4 0.000072577
NOVEMBER 5 0.000071963
NOVEMBER 6 0.000071963
NOVEMBER 7 0.000071963
NOVEMBER 8 0.000072352
NOVEMBER 9 0.000072356
NOVEMBER 10 0.000072203
NOVEMBER 11 0.000072203
NOVEMBER 12 0.000071961
NOVEMBER 13 0.000071961
NOVEMBER 14 0.000071961
NOVEMBER 15 0.000073064
NOVEMBER 16 0.000072556
NOVEMBER 17 0.000071822
NOVEMBER 18 0.000072802
NOVEMBER 19 0.000072743
NOVEMBER 20 0.000072743
NOVEMBER 21 0.000072743
NOVEMBER 22 0.000072448
NOVEMBER 23 0.000072480
NOVEMBER 24 0.000072375 0.000072375
NOVEMBER 25 0.000072375 0.000072375
NOVEMBER 26 0.000072584 0.000072584
NOVEMBER 27 0.000072584 0.000072584
NOVEMBER 28 0.000072584 0.000072584
NOVEMBER 29 0.000073029 0.000073029
NOVEMBER 30 0.000073436 0.000073436
Less: Deductions from Shareholders Accounts 0.000000000 0.000000000
----------- -----------
Base period return 0.000508967 0.002173268
----------- -----------
Ending Account Balance 1.000508967 1.002173268
Less: Beginning Account Balance 1.000000000 1.000000000
----------- -----------
Difference 0.000508967 0.002173268
Base Period Return
(Difference/Beginning Account Balance) 0.000508967 0.002173268
Yield Quotation
(Base Period Return * 365/Base Period) 2.65% 2.64%
Effective Yield Quotation
[(Base Period Return + 1)exp365/Base Period] - 1 2.69% 2.68%
The quotations were computed based on the seven and thirty days ending November
30, 1993.
</TABLE>
<PAGE> 2
THE ARCH FUND, INC.
EXHIBIT 16
INVESTOR SHARES
YIELD COMPUTATION SCHEDULE
MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
7 DAY YIELD CALCULATION 30 DAY YIELD CALCULATION
----------------------- ------------------------
<S> <C> <C>
Base period 7 Days 30 Days
Beginning Account Balance - 1 share at $1.00 1.000000000 1.000000000
Dividend Declaration ----------- ------------
NOVEMBER 1 0.000068601
NOVEMBER 2 0.000068394
NOVEMBER 3 0.000068114
NOVEMBER 4 0.000068467
NOVEMBER 5 0.000067853
NOVEMBER 6 0.000067854
NOVEMBER 7 0.000067854
NOVEMBER 8 0.000068242
NOVEMBER 9 0.000068247
NOVEMBER 10 0.000068094
NOVEMBER 11 0.000068094
NOVEMBER 12 0.000067851
NOVEMBER 13 0.000067851
NOVEMBER 14 0.000067851
NOVEMBER 15 0.000068954
NOVEMBER 16 0.000068446
NOVEMBER 17 0.000067712
NOVEMBER 18 0.000068693
NOVEMBER 19 0.000068633
NOVEMBER 20 0.000068633
NOVEMBER 21 0.000068633
NOVEMBER 22 0.000068338
NOVEMBER 23 0.000068370
NOVEMBER 24 0.000068265 0.000068265
NOVEMBER 25 0.000068265 0.000068265
NOVEMBER 26 0.000068474 0.000068474
NOVEMBER 27 0.000068474 0.000068474
NOVEMBER 28 0.000068474 0.000068474
NOVEMBER 29 0.000068919 0.000068919
NOVEMBER 30 0.000069326 0.000069326
Less: Deductions from Shareholders Accounts 0.000000000 0.000000000
----------- -----------
Base period return 0.000480197 0.002049976
----------- -----------
Ending Account Balance 1.000480197 1.002049976
Less: Beginning Account Balance 1.000000000 1.000000000
----------- -----------
Difference 0.000480197 0.002049976
Base Period Return
(Difference/Beginning Account Balance) 0.000480197 0.002049976
Yield Quotation
(Base Period Return * 365/Base Period) 2.50% 2.49%
Effective Yield Quotation
[(Base Period Return + 1)exp365/Base Period] - 1 2.53% 2.52%
*Quotations were computed based on the seven and thirty days ending November 30,
1993.
</TABLE>
-2-
<PAGE> 3
THE ARCH FUND, INC.
EXHIBIT 16
TRUST SHARES
YIELD COMPUTATION SCHEDULE
TREASURY MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
7 DAY YIELD CALCULATION 30 DAY YIELD CALCULATION
----------------------- ------------------------
<S> <C> <C>
Base period 7 Days 30 Days
Beginning Account Balance - 1 share at $1.00 1.000000000 1.000000000
Dividend Declaration ----------- ------------
NOVEMBER 1 0.000073745
NOVEMBER 2 0.000073757
NOVEMBER 3 0.000073739
NOVEMBER 4 0.000073976
NOVEMBER 5 0.000073699
NOVEMBER 6 0.000073699
NOVEMBER 7 0.000073698
NOVEMBER 8 0.000073693
NOVEMBER 9 0.000073709
NOVEMBER 10 0.000073734
NOVEMBER 11 0.000073734
NOVEMBER 12 0.000074424
NOVEMBER 13 0.000074424
NOVEMBER 14 0.000074424
NOVEMBER 15 0.000074481
NOVEMBER 16 0.000074468
NOVEMBER 17 0.000074475
NOVEMBER 18 0.000074601
NOVEMBER 19 0.000074582
NOVEMBER 20 0.000074582
NOVEMBER 21 0.000074582
NOVEMBER 22 0.000074626
NOVEMBER 23 0.000074636
NOVEMBER 24 0.000074627 0.000074627
NOVEMBER 25 0.000074627 0.000074627
NOVEMBER 26 0.000074634 0.000074634
NOVEMBER 27 0.000074634 0.000074634
NOVEMBER 28 0.000074634 0.000074634
NOVEMBER 29 0.000074776 0.000074776
NOVEMBER 30 0.000074770 0.000074770
Less: Deductions from Shareholders Accounts 0.000000000 0.000000000
----------- -----------
Base period return 0.000522702 0.002228190
----------- -----------
Ending Account Balance 1.000522702 1.002228190
Less: Beginning Account Balance 1.000000000 1.000000000
----------- -----------
Difference 0.000522702 0.002228190
Base Period Return
(Difference/Beginning Account Balance) 0.000522702 0.002228190
Yield Quotation
(Base Period Return * 365/Base Period) 2.73% 2.71%
Effective Yield Quotation
[(Base Period Return + 1)exp365/Base Period] - 1 2.76% 2.74%
*Quotations were computed based on the seven and thirty days ending November 30,
1993.
</TABLE>
-3-
<PAGE> 4
THE ARCH FUND, INC.
EXHIBIT 16
INVESTOR SHARES
YIELD COMPUTATION SCHEDULE
TREASURY MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
7 DAY YIELD CALCULATION 30 DAY YIELD CALCULATION
----------------------- ------------------------
<S> <C> <C>
Base period 7 Days 30 Days
Beginning Account Balance - 1 share at $1.00 1.000000000 1.000000000
Dividend Declaration ----------- -----------
NOVEMBER 1 0.000066895
NOVEMBER 2 0.000066909
NOVEMBER 3 0.000066889
NOVEMBER 4 0.000067127
NOVEMBER 5 0.000066845
NOVEMBER 6 0.000066845
NOVEMBER 7 0.000066845
NOVEMBER 8 0.000066844
NOVEMBER 9 0.000066858
NOVEMBER 10 0.000066880
NOVEMBER 11 0.000066880
NOVEMBER 12 0.000067568
NOVEMBER 13 0.000067568
NOVEMBER 14 0.000067568
NOVEMBER 15 0.000067632
NOVEMBER 16 0.000067618
NOVEMBER 17 0.000067630
NOVEMBER 18 0.000067752
NOVEMBER 19 0.000067731
NOVEMBER 20 0.000067731
NOVEMBER 21 0.000067731
NOVEMBER 22 0.000067774
NOVEMBER 23 0.000067788
NOVEMBER 24 0.000067774 0.000067774
NOVEMBER 25 0.000067774 0.000067774
NOVEMBER 26 0.000067781 0.000067781
NOVEMBER 27 0.000067781 0.000067781
NOVEMBER 28 0.000067781 0.000067781
NOVEMBER 29 0.000067923 0.000067923
NOVEMBER 30 0.000067926 0.000067926
Less: Deductions from Shareholders Accounts 0.000000000 0.000000000
----------- -----------
Base period return 0.000474740 0.002022648
----------- -----------
Ending Account Balance 1.000474740 1.002022648
Less: Beginning Account Balance 1.000000000 1.000000000
----------- -----------
Difference 0.000474740 0.002022648
Base Period Return
(Difference/Beginning Account Balance) 0.000474740 0.002022648
Yield Quotation
(Base Period Return * 365/Base Period) 2.48% 2.46%
Effective Yield Quotation
[(Base Period Return + 1)exp365/Base Period] - 1 2.51% 2.49%
*Quotations were computed based on the seven and thirty days ending November 30,
1993.
</TABLE>
-4-
<PAGE> 5
THE ARCH FUND, INC.
INVESTOR SHARES
DISTRIBUTION RATES
EXHIBIT 16
DISTRIBUTION RATE (INCLUDING CAPITAL GAINS)
DISTRIBUTION RATE = D/P
WHERE: D= Distributions per share over a 12 month period
(Income and capital gain distributions)
P= Share price at end of 12 month period
<TABLE>
<CAPTION>
EXAMPLES ( 12/01/92 TO 11/30/93 )
LOAD 4.50%
<S> <C> <C>
GOVERNMENT & CORPORATE BOND 0.6401 / 11.15= 5.74%
GROWTH & INCOME EQUITY 1.0603 / 15.43= 6.87%
U.S. GOVERNMENT SECURITIES 0.6599 / 11.73= 5.63%
EMERGING GROWTH 0.2625 / 13.76= 1.91%
</TABLE>
DISTRIBUTION RATE (EXCLUDING CAPITAL GAINS)
DISTRIBUTION RATE = D/P
WHERE: D= Distributions per share over a 12 month period
(income distributions only)
P= Share price at end of 12 month period
<TABLE>
<CAPTION>
EXAMPLES ( 12/01/92 TO 11/30/93 )
<S> <C> <C>
GOVERNMENT & CORPORATE BOND 0.6401 / 11.15= 5.74%
GROWTH & INCOME EQUITY 0.2483 / 15.43= 1.61%
U.S. GOVERNMENT SECURITIES 0.5899 / 11.73= 5.03%
EMERGING GROWTH 0.0545 / 13.76= 0.40%
</TABLE>
DISTRIBUTION RATE (INCLUDING CAPITAL GAINS)(NO LOAD)
DISTRIBUTION RATE = D/P
WHERE: D= Distributions per share over a 12 month period
(income and capital gain distributions)
P= Net Asset Value at end of 12 month period
<TABLE>
<CAPTION>
EXAMPLES ( 12/01/92 TO 11/30/93 )
<S> <C> <C>
GOVERNMENT & CORPORATE BOND 0.6401 / 10.65= 6.01%
GROWTH & INCOME EQUITY 1.0603 / 14.74= 7.19%
U.S. GOVERNMENT SECURITIES 0.6599 / 11.20= 5.89%
EMERGING GROWTH 0.2625 / 13.14= 2.00%
</TABLE>
DISTRIBUTION RATE (EXCLUDING CAPITAL GAINS)(NO LOAD)
DISTRIBUTION RATE = D/P
WHERE: D= Distributions per share over a 12 month period
(income distributions only)
P= Net Asset Value at end of 12 month period
<TABLE>
<CAPTION>
EXAMPLES ( 12/01/92 TO 11/30/93 )
<S> <C> <C>
GOVERNMENT & CORPORATE BOND 0.6401 / 10.65= 6.01%
GROWTH & INCOME EQUITY 0.2483 / 14.74= 1.68%
U.S. GOVERNMENT SECURITIES 0.5899 / 11.20= 5.27%
EMERGING GROWTH 0.0545 / 13.14= 0.41%
</TABLE>
-5-
<PAGE> 6
THE ARCH FUND, INC.
TRUST SHARES
DISTRIBUTION RATES
EXHIBIT 16
DISTRIBUTION RATE (INCLUDING CAPITAL GAINS)(NO LOAD)
DISTRIBUTION RATE = D/P
WHERE: D= Distributions per share over a 12 month period
(income and capital gain distributions)
P= Net Asset Value at end of 12 month period
<TABLE>
<CAPTION>
EXAMPLES ( 12/01/92 TO 11/30/93 )
<S> <C> <C>
GOVERNMENT & CORPORATE BOND 0.6720 / 10.65= 6.31%
GROWTH & INCOME EQUITY 1.0603 / 14.74= 7.19%
U.S. GOVERNMENT SECURITIES 0.6934 / 11.20= 6.19%
EMERGING GROWTH 0.2625 / 13.14= 2.00%
</TABLE>
DISTRIBUTION RATE (EXCLUDING CAPITAL GAINS)(NO LOAD)
DISTRIBUTION RATE = D/P
WHERE: D= Distributions per share over a 12 month period
(income distributions only)
P= Net Asset Value at end of 12 month period
<TABLE>
<CAPTION>
EXAMPLES ( 12/01/92 TO 11/30/93 )
<S> <C> <C>
GOVERNMENT & CORPORATE BOND 0.6720 / 10.65= 6.31%
GROWTH & INCOME EQUITY 0.2483 / 14.74= 1.68%
U.S. GOVERNMENT SECURITIES 0.6234 / 11.20= 5.57%
EMERGING GROWTH 0.0545 / 13.14= 0.41%
</TABLE>
-6-
<PAGE> 7
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INVESTOR SHARES
MONEY MARKET FUNDS
MONEY MARKET PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
T=(ERV/P)exp1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF YEARS
<TABLE>
<CAPTION>
EXAMPLE:*
<S> <C> <C> <C>
ONE YEAR: ( 12/01/92 TO 11/30/93 ):
( 1,025.2 /1000exp(1/( 364 /365))-1)= 2.52%
TWO YEAR: ( 12/01/91 TO 11/30/93 ):
( 1,058.1 /1000exp(1/( 730 /365))-1)= 2.86%
THREE YEAR: ( 12/01/90 TO 11/30/93 ):
( 1,118.9 /1000exp(1/( 1095 /365))-1)= 3.81%
FOUR YEAR: ( 12/01/89 TO 11/30/93 ):
( 1,209.3 /1000exp(1/( 1460 /365))-1)= 4.87%
FIVE YEAR: ( 12/01/88 TO 11/30/93):
( 1,320.7 /1000exp(1/( 1825 /365))-1)= 5.72%
*Dividend history begins 1/1/88; data not available from previous administrator.
</TABLE>
AGGREGATE TOTAL RETURN
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING
OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
<TABLE>
<CAPTION>
EXAMPLE:
<S> <C> <C>
YEAR TO DATE: ( 01/01/92 TO 11/30/93 ):
( 1,022.9 /1,000)-1= 2.29%
QUARTERLY: ( 08/31/93 TO 11/30/93 ):
( 1,006.2 /1,000)-1= 0.62%
MONTHLY: ( 11/01/93 TO 11/30/93 ):
( 1,002.1 /1,000)-1= 0.20%
</TABLE>
-7-
<PAGE> 8
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
TRUST SHARES
MONEY MARKET FUNDS
MONEY MARKET PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
T=(ERV/P)exp1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF YEARS
<TABLE>
<CAPTION>
EXAMPLE:
<S> <C> <C> <C>
SINCE INCEPTION: ( 12/01/90 TO 11/30/93 ):
( 1,125.7 /1000exp(1/( 1096 /365))-1)= 4.02%
ONE YEAR: ( 12/01/92 TO 11/30/93 ):
( 1,027.2 /1000exp(1/( 364 /365))-1)= 2.72%
TWO YEAR: ( 12/01/91 TO 11/30/93 ):
( 1,062.6 /1000exp(1/( 730 /365))-1)= 3.08%
THREE YEAR: ( 12/01/90 TO 11/30/93 ):
( 1,125.7 /1000exp(1/( 1095 /365))-1)= 4.03%
</TABLE>
AGGREGATE TOTAL RETURN
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING
OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
<TABLE>
<CAPTION>
EXAMPLE:
<S> <C> <C>
YEAR TO DATE: ( 01/01/92 TO 11/30/93 ):
( 1,024.8 /1,000)-1= 2.48%
QUARTERLY: ( 08/31/93 TO 11/30/93 ):
( 1,006.6 /1,000)-1= 0.66%
MONTHLY: ( 11/01/93 TO 11/30/93 ):
( 1,002.2 /1,000)-1= 0.22%
</TABLE>
-8-
<PAGE> 9
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INVESTOR SHARES
MONEY MARKET FUNDS
TREASURY MONEY MARKET PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
T=(ERV/P)exp1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF YEARS
<TABLE>
<CAPTION>
EXAMPLE:
<S> <C> <C> <C>
SINCE INCEPTION: ( 04/20/92 TO 11/30/93 ):
( 1,042.7 /1000exp(1/( 590 /365))-1)= 2.62%
ONE YEAR: ( 12/01/92 TO 11/30/93 ):
( 1,024.3 /1000exp(1/( 364 /365))-1)= 2.43%
</TABLE>
AGGREGATE TOTAL RETURN
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING
OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
<TABLE>
<CAPTION>
EXAMPLE:
<S> <C> <C>
YEAR TO DATE: ( 01/01/92 TO 11/30/93 ):
( 1,022.2 /1,000)-1= 2.22%
QUARTERLY: ( 09/01/93 TO 11/30/93 ):
( 1,006.1 /1,000)-1= 0.61%
MONTHLY: ( 11/01/93 TO 11/30/93 ):
( 1,002.0 /1,000)-1= 0.20%
</TABLE>
-9-
<PAGE> 10
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
TRUST SHARES
MONEY MARKET FUNDS
TREASURY MONEY MARKET PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
T=(ERV/P)exp1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF YEARS
<TABLE>
<CAPTION>
EXAMPLE:
<S> <C> <C> <C>
SINCE INCEPTION: ( 12/02/91 TO 11/30/93 ):
( 1,059.2 /1000exp(1/( 730 /365))-1)= 2.92%
ONE YEAR: ( 12/01/92 TO 11/30/93 ):
( 1,026.7 /1000exp(1/( 364 /365))-1)= 2.67%
TWO YEAR: ( 12/01/91 TO 11/30/93 ):
( 1,059.2 /1000exp(1/( 730 /365))-1)= 2.92%
</TABLE>
AGGREGATE TOTAL RETURN
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING
OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
<TABLE>
<CAPTION>
EXAMPLE:
<S> <C> <C>
YEAR TO DATE: ( 01/01/92 TO 11/30/93 ):
( 1,024.4 /1,000)-1= 2.44%
QUARTERLY: ( 09/01/93 TO 11/30/93 ):
( 1,006.7 /1,000)-1= 0.67%
MONTHLY: ( 11/01/93 TO 11/30/93 ):
( 1,002.2 /1,000)-1= 0.22%
</TABLE>
-10-
<PAGE> 11
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INVESTOR SHARES
LOAD CALCULATIONS
GOVT. & CORPORATE BOND PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
WITH SALES LOAD OF: 4.50%
T=(ERV/P)exp1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING
OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF YEARS
<TABLE>
<CAPTION>
EXAMPLE:
<S> <C> <C> <C>
SINCE INCEPTION: ( 06/15/88 TO 11/30/93 ):
( 1,542.0 /1000exp(1/( 1995 /365))-1)= 8.25%
ONE YEAR: ( 12/01/92 TO 11/30/93 ):
( 1,053.0 /1000exp(1/( 365 /365))-1)= 5.30%
TWO YEAR: ( 12/01/91 TO 11/30/93 ):
( 1,134.7 /1000exp(1/( 730 /365))-1)= 6.52%
THREE YEAR: ( 12/01/90 TO 11/30/93 ):
( 1,279.7 /1000exp(1/( 1095 /365))-1)= 8.57%
FOUR YEAR: ( 12/01/89 TO 11/30/93 ):
( 1,343.1 /1000exp(1/( 1460 /365))-1)= 7.65%
FIVE YEAR: ( 12/01/88 TO 11/30/93 ):
( 1,501.5 /1000exp(1/( 1825 /365))-1)= 8.47%
</TABLE>
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 4.50%
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING
OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
<TABLE>
<CAPTION>
EXAMPLE:
<S> <C> <C>
YEAR TO DATE: ( 01/01/93 TO 11/30/93 ):
( 1,037.8 /1,000)-1= 3.78%
QUARTERLY: ( 09/01/93 TO 11/30/93 ):
( 950.7 /1,000)-1= -4.93%
MONTHLY: ( 11/01/93 TO 11/30/93 ):
( 945.2 /1,000)-1= -5.48%
</TABLE>
-11-
<PAGE> 12
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INVESTOR SHARES
NO LOAD CALCULATIONS
GOVT. & CORPORATE BOND PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
WITH SALES LOAD OF: 0.00%
T=(ERV/P)exp1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF YEARS
<TABLE>
<CAPTION>
EXAMPLE:
<S> <C> <C> <C>
SINCE INCEPTION: ( 06/15/88 TO 11/30/93 ):
( 1,614.5 /1000exp(1/( 1995 /365))-1)= 9.16%
ONE YEAR: ( 12/01/92 TO 11/30/93 ):
( 1,102.3 /1000exp(1/( 365 /365))-1)= 10.23%
TWO YEAR: ( 12/01/91 TO 11/30/93 ):
( 1,188.4 /1000exp(1/( 730 /365))-1)= 9.01%
THREE YEAR: ( 12/01/90 TO 11/30/93 ):
( 1,340.4 /1000exp(1/( 1095 /365))-1)= 10.26%
FOUR YEAR: ( 12/01/89 TO 11/30/93 ):
( 1,406.9 /1000exp(1/( 1460 /365))-1)= 8.91%
FIVE YEAR: ( 12/01/88 TO 11/30/93 ):
( 1,572.7 /1000exp(1/( 1825 /365))-1)= 9.48%
</TABLE>
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING
OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
<TABLE>
<CAPTION>
EXAMPLE:
<S> <C> <C>
YEAR TO DATE: ( 01/01/93 TO 11/30/93 ):
( 1,087.0 /1,000)-1= 6.70%
QUARTERLY: ( 09/01/93 TO 11/30/93 ):
( 995.4 /1,000)-1= -0.46%
MONTHLY: ( 11/01/93 TO 11/30/93 ):
( 989.8 /1,000)-1= -1.02%
</TABLE>
-12-
<PAGE> 13
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
TRUST SHARES
NO LOAD CALCULATIONS
GOVT. & CORPORATE BOND PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
WITH SALES LOAD OF: 0.00%
T=(ERV/P)exp1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF YEARS
<TABLE>
<CAPTION>
EXAMPLE:
<S> <C> <C> <C>
SINCE INCEPTION: ( 06/15/88 TO 11/30/93 ):
( 1,627.8 /1000exp(1/( 1995 /365))-1)= 9.32%
ONE YEAR: ( 12/01/92 TO 11/30/93 ):
( 1,105.5 /1000exp(1/( 365 /365))-1)= 10.55%
TWO YEAR: ( 12/01/91 TO 11/30/93 ):
( 1,195.5 /1000exp(1/( 730 /365))-1)= 9.34%
THREE YEAR: ( 12/01/90 TO 11/30/93 ):
( 1,351.4 /1000exp(1/( 1095 /365))-1)= 10.56%
FOUR YEAR: ( 12/01/89 TO 11/30/93 ):
( 1,418.5 /1000exp(1/( 1460 /365))-1)= 9.13%
FIVE YEAR: ( 12/01/88 TO 11/30/93 ):
( 1,585.7 /1000exp(1/( 1825 /365))-1)= 9.66%
</TABLE>
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING
OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
<TABLE>
<CAPTION>
EXAMPLE:
<S> <C> <C>
YEAR TO DATE: ( 01/01/93 TO 11/30/93 ):
( 1,089.9 /1,000)-1= 8.99%
QUARTERLY: ( 09/01/93 TO 11/30/93 ):
( 996.2 /1,000)-1= -0.38%
MONTHLY: ( 11/01/93 TO 11/30/93 ):
( 990.0 /1,000)-1= -1.00%
</TABLE>
-13-
<PAGE> 14
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INVESTOR SHARES
LOAD CALCULATIONS
GROWTH & INCOME EQUITY PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
WITH SALES LOAD OF: 0.00%
T=(ERV/P)exp1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF YEARS
<TABLE>
<CAPTION>
EXAMPLE:
<S> <C> <C> <C>
SINCE INCEPTION: ( 06/02/88 TO 11/30/93 ):
( 1,923.2 /1000exp(1/( 2008 /365))-1)= 12.62%
ONE YEAR: ( 12/01/92 TO 11/30/93 ):
( 1,047.3 /1000exp(1/( 365 /365))-1)= 4.73%
TWO YEAR: ( 12/01/91 TO 11/30/93 ):
( 1,262.8 /1000exp(1/( 730 /365))-1)= 12.38%
THREE YEAR: ( 12/01/90 TO 11/30/93 ):
( 1,482.1 /1000exp(1/( 1095 /365))-1)= 14.01%
FOUR YEAR: ( 12/01/89 TO 11/30/93 ):
( 1,462.7 /1000exp(1/( 1460 /365))-1)= 9.97%
FIVE YEAR: ( 12/01/88 TO 11/30/93 ):
( 1,859.1 /1000exp(1/( 1825 /365))-1)= 13.20%
</TABLE>
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING
OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
<TABLE>
<CAPTION>
EXAMPLE:
<S> <C> <C>
YEAR TO DATE: ( 01/01/93 TO 11/30/93 ):
( 1,035.6 /1,000)-1= 3.56%
QUARTERLY: ( 09/01/93 TO 11/30/93 ):
( 951.7 /1,000)-1= -4.83%
MONTHLY: ( 11/01/93 TO 11/30/93 ):
( 946.7 /1,000)-1= -5.33%
</TABLE>
-14-
<PAGE> 15
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INVESTOR SHARES
NO LOAD CALCULATIONS
GROWTH & INCOME EQUITY PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
WITH SALES LOAD OF: 0.00%
T=(ERV/P)exp1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF YEARS
<TABLE>
<CAPTION>
EXAMPLE:
<S> <C> <C> <C>
SINCE INCEPTION: ( 06/02/88 TO 11/30/93 ):
( 2,013.5 /1000exp(1/( 2008 /365))-1)= 13.57%
ONE YEAR: ( 12/01/92 TO 11/30/93 ):
( 1,096.5 /1000exp(1/( 365 /365))-1)= 9.65%
TWO YEAR: ( 12/01/91 TO 11/30/93 ):
( 1,322.2 /1000exp(1/( 730 /365))-1)= 14.99%
THREE YEAR: ( 12/01/90 TO 11/30/93 ):
( 1,552.1 /1000exp(1/( 1095 /365))-1)= 15.78%
FOUR YEAR: ( 12/01/89 TO 11/30/93 ):
( 1,531.0 /1000exp(1/( 1460 /365))-1)= 11.24%
FIVE YEAR: ( 12/01/88 TO 11/30/93 ):
( 1,946.2 /1000exp(1/( 1825 /365))-1)= 14.24%
</TABLE>
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING
OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
<TABLE>
<CAPTION>
EXAMPLE:
<S> <C> <C>
YEAR TO DATE: ( 01/01/93 TO 11/30/93 ):
( 1,084.5 /1,000)-1= 8.45%
QUARTERLY: ( 09/01/93 TO 11/30/93 ):
( 996.6 /1,000)-1= -0.34%
MONTHLY: ( 11/01/93 TO 11/30/93 ):
( 991.3 /1,000)-1= -1.87%
</TABLE>
-15-
<PAGE> 16
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
TRUST SHARES
NO LOAD CALCULATIONS
GROWTH & INCOME EQUITY PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
WITH SALES LOAD OF: 0.00%
T=(ERV/P)exp1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF YEARS
<TABLE>
<CAPTION>
EXAMPLE:
<S> <C> <C> <C>
SINCE INCEPTION: ( 06/02/88 TO 11/30/93 ):
( 2,013.4 /1000exp(1/( 2008 /365))-1)= 13.56%
ONE YEAR: ( 12/01/92 TO 11/30/93 ):
( 1,096.5 /1000exp(1/( 365 /365))-1)= 9.65%
TWO YEAR: ( 12/01/91 TO 11/30/93 ):
( 1,322.2 /1000exp(1/( 730 /365))-1)= 14.99%
THREE YEAR: ( 12/01/90 TO 11/30/93 ):
( 1,552.1 /1000exp(1/( 1095 /365))-1)= 15.78%
FOUR YEAR: ( 12/01/89 TO 11/30/93 ):
( 1,531.0 /1000exp(1/( 1460 /365))-1)= 11.24%
FIVE YEAR: ( 12/01/88 TO 11/30/93 ):
( 1,946.2 /1000exp(1/( 1825 /365))-1)= 14.25%
</TABLE>
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING
OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
<TABLE>
<CAPTION>
EXAMPLE:
<S> <C> <C>
YEAR TO DATE: ( 01/01/93 TO 11/30/93 ):
( 1,084.5 /1,000)-1= 8.45%
QUARTERLY: ( 09/01/93 TO 11/30/93 ):
( 996.6 /1,000)-1= -0.34%
MONTHLY: ( 11/01/93 TO 11/30/93 ):
( 991.3 /1,000)-1= -1.87%
</TABLE>
-16-
<PAGE> 17
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INVESTOR SHARES
LOAD CALCULATIONS
U.S. GOVERNMENT SECURITIES PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
WITH SALES LOAD OF: 4.50%
T=(ERV/P)exp1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF YEARS
<TABLE>
<CAPTION>
EXAMPLE:
<S> <C> <C> <C>
SINCE INCEPTION: ( 06/02/88 TO 11/30/93 ):
( 1,574.0 /1000exp(1/( 2008 /365))-1)= 8.59%
ONE YEAR: ( 12/01/92 TO 11/30/93 ):
( 1,050.7 /1000exp(1/( 365 /365))-1)= 5.07%
TWO YEAR: ( 12/01/91 TO 11/30/93 ):
( 1,126.7 /1000exp(1/( 730 /365))-1)= 6.15%
THREE YEAR: ( 12/01/90 TO 11/30/93 ):
( 1,265.8 /1000exp(1/( 1095 /365))-1)= 8.17%
FOUR YEAR: ( 12/01/89 TO 11/30/93 ):
( 1,388.5 /1000exp(1/( 1460 /365))-1)= 8.55%
FIVE YEAR: ( 12/01/88 TO 11/30/93 ):
( 1,527.0 /1000exp(1/( 1825 /365))-1)= 8.83%
</TABLE>
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 4.50%
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING
OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
<TABLE>
<CAPTION>
EXAMPLE:
<S> <C> <C>
YEAR TO DATE: ( 01/01/93 TO 11/30/93 ):
( 1,035.4 /1,000)-1= 3.54%
QUARTERLY: ( 09/01/93 TO 11/30/93 ):
( 949.6 /1,000)-1= -5.04%
MONTHLY: ( 11/01/93 TO 11/30/93 ):
( 944.2 /1,000)-1= -5.58%
</TABLE>
-17-
<PAGE> 18
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INVESTOR SHARES
NO LOAD CALCULATIONS
U.S. GOVERNMENT SECURITIES PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
WITH SALES LOAD OF: 0.00%
- ---------------------------
T=(ERV/P)exp1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF YEARS
<TABLE>
<CAPTION>
EXAMPLE:
<S> <C> <C> <C>
SINCE INCEPTION: ( 06/02/88 TO 11/30/93 ):
( 1,648.0 /1000exp(1/( 2008 /365))-1)= 9.51%
ONE YEAR: ( 12/01/92 TO 11/30/93 ):
( 1,100.3 /1000exp(1/( 365 /365))-1)= 10.03%
TWO YEAR: ( 12/01/91 TO 11/30/93 ):
( 1,179.5 /1000exp(1/( 730 /365))-1)= 8.60%
THREE YEAR: ( 12/01/90 TO 11/30/93 ):
( 1,325.3 /1000exp(1/( 1095 /365))-1)= 9.84%
FOUR YEAR: ( 12/01/89 TO 11/30/93 ):
( 1,453.3 /1000exp(1/( 1460 /365))-1)= 9.80%
FIVE YEAR: ( 12/01/88 TO 11/30/93 ):
( 1,599.2 /1000exp(1/( 1825 /365))-1)= 9.85%
</TABLE>
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
- -----------------------------
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING
OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/93 TO 11/30/93 ):
( 1,084.1 /1,000)-1= 8.41%
QUARTERLY: ( 09/01/93 TO 11/30/93 ):
( 994.6 /1,000)-1= -0.54%
MONTHLY: ( 11/01/93 TO 11/30/93 ):
( 989.0 /1,000)-1= -1.10%
-18-
<PAGE> 19
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
TRUST SHARES
NO LOAD CALCULATIONS
U.S. GOVERNMENT SECURITIES PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
WITH SALES LOAD OF: 0.00%
- ----------------------------
T=(ERV/P)exp1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF YEARS
<TABLE>
<CAPTION>
EXAMPLE:
<S> <C> <C> <C>
SINCE INCEPTION: ( 06/02/88 TO 11/30/93 ):
( 1,661.6 /1000exp(1/( 2008 /365))-1)= 9.67%
ONE YEAR: ( 12/01/92 TO 11/30/93 ):
( 1,103.6 /1000exp(1/( 365 /365))-1)= 10.36%
TWO YEAR: ( 12/01/91 TO 11/30/93 ):
( 1,186.5 /1000exp(1/( 730 /365))-1)= 8.93%
THREE YEAR: ( 12/01/90 TO 11/30/93 ):
( 1,336.3 /1000exp(1/( 1095 /365))-1)= 10.14%
FOUR YEAR: ( 12/01/89 TO 11/30/93 ):
( 1,465.3 /1000exp(1/( 1460 /365))-1)= 10.02%
FIVE YEAR: ( 12/01/88 TO 11/30/93 ):
( 1,612.4 /1000exp(1/( 1825 /365))-1)= 10.03%
</TABLE>
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
- ----------------------------
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING
OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/93 TO 11/30/93 ):
( 1,087.1 /1,000)-1= 8.71%
QUARTERLY: ( 09/01/93 TO 11/30/93 ):
( 995.3 /1,000)-1= -0.47%
MONTHLY: ( 11/01/93 TO 11/30/93 ):
( 989.3 /1,000)-1= -1.07%
-19-
<PAGE> 20
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INVESTOR SHARES
LOAD CALCULATIONS
EMERGING GROWTH PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
WITH SALES LOAD OF: 4.50%
- ----------------------------
T=(ERV/P)exp1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF YEARS
<TABLE>
<CAPTION>
EXAMPLE:
<S> <C> <C> <C>
SINCE INCEPTION: ( 05/06/92 TO 11/30/93 ):
( 1,287.3 /1000exp(1/( 574 /365))-1)= 17.42%
ONE YEAR: ( 12/01/92 TO 11/30/93 ):
( 1,143.6 /1000exp(1/( 365 /365))-1)= 14.36%
</TABLE>
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 4.50%
- --------------------------
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING
OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/93 TO 11/30/93 ):
( 1,106.2 /1,000)-1= 10.62%
QUARTERLY: ( 09/01/93 TO 11/30/93 ):
( 972.6 /1,000)-1= -2.74%
MONTHLY: ( 11/01/93 TO 11/30/93 ):
( 934.6 /1,000)-1= -6.54%
-20-
<PAGE> 21
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INVESTOR SHARES
NO LOAD CALCULATIONS
EMERGING GROWTH PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
WITH SALES LOAD OF: 0.00%
- ---------------------------
T=(ERV/P)exp1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF YEARS
EXAMPLE:
<TABLE>
<S> <C> <C> <C>
SINCE INCEPTION: ( 05/06/92 TO 11/30/93 ):
( 1,347.8 /1000exp(1/( 574 /365))-1)= 20.90%
ONE YEAR: ( 12/01/92 TO 11/30/93 ):
( 1,197.5 /1000exp(1/( 365 /365))-1)= 19.75%
</TABLE>
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
- ----------------------------
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING
OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/93 TO 11/30/93 ):
( 1,158.7 /1,000)-1= 15.87%
QUARTERLY: ( 09/01/93 TO 11/30/93 ):
( 1,018.6 /1,000)-1= 1.86%
MONTHLY: ( 11/01/93 TO 11/30/93 ):
( 978.4 /1,000)-1= -2.16%
-21-
<PAGE> 22
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
TRUST SHARES
NO LOAD CALCULATIONS
EMERGING GROWTH PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
WITH SALES LOAD OF: 0.00%
- ---------------------------
T=(ERV/P)exp1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF YEARS
<TABLE>
<CAPTION>
EXAMPLE:
<S> <C> <C> <C>
SINCE INCEPTION: ( 05/06/92 TO 11/30/93 ):
( 1,347.8 /1000exp(1/( 574 /365))-1)= 20.90%
ONE YEAR: ( 12/01/92 TO 11/30/93 ):
( 1,197.5 /1000exp(1/( 365 /365))-1)= 19.75%
</TABLE>
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
- ---------------------------
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING
OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/93 TO 11/30/93 ):
( 1,158.7 /1,000)-1= 15.87%
QUARTERLY: ( 09/01/93 TO 11/30/93 ):
( 1,018.6 /1,000)-1= 1.86%
MONTHLY: ( 11/01/93 TO 11/30/93 ):
( 978.4 /1,000)-1= -2.16%
-22-
<PAGE> 23
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INVESTOR SHARES
LOAD CALCULATIONS
BALANCED PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
WITH SALES LOAD OF: 4.50%
- ----------------------------
T=(ERV/P)exp1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF YEARS
EXAMPLE:
SINCE INCEPTION: ( 04/01/93 TO 11/30/93 ):
( 992.0 /1,000)-1= -0.80%
QUARTERLY: ( 09/01/93 TO 11/30/93 ):
( 949.6 /1,000)-1= -5.04%
MONTHLY: ( 11/01/93 TO 11/30/93 ):
( 946.3 /1,000)-1= -5.37%
-23-
<PAGE> 24
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INVESTOR SHARES
NO LOAD CALCULATIONS
BALANCED PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
WITH SALES LOAD OF: 0.00%
- ------------------------------
T=(ERV/P)exp1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF YEARS
EXAMPLE:
SINCE INCEPTION: ( 04/01/93 TO 11/30/93 ):
( 1,038.6 /1,000)-1= 3.86%
QUARTERLY: ( 09/01/93 TO 11/30/93 ):
( 994.5 /1,000)-1= -0.55%
MONTHLY: ( 11/01/93 TO 11/30/93 ):
( 991.3 /1,000)-1= -0.87%
-24-
<PAGE> 25
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
TRUST SHARES
NO LOAD CALCULATIONS
BALANCED PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
WITH SALES LOAD OF: 0.00%
- ----------------------------
T=(ERV/P)exp1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF YEARS
EXAMPLE:
SINCE INCEPTION: ( 04/01/93 TO 11/30/93 ):
( 1,038.7 /1,000)-1= 3.87%
QUARTERLY: ( 09/01/93 TO 11/30/93 ):
( 994.5 /1,000)-1= -0.55%
MONTHLY: ( 11/01/93 TO 11/30/93 ):
( 991.3 /1,000)-1= -0.87%
-25-
<PAGE> 26
THE ARCH FUND, INC.
EXHIBIT 16
INVESTOR SHARES
30-DAY S.E.C. YIELD CALCULATIONS
GOVT. & CORPORATE BOND PORTFOLIO
(a-b)
---------------------
30-Day S.E.C. Yield Equation = 2*{[( (cd) +1)exp6]-1} =
WHERE a= Dividends and interest earned during the period
b= Expenses accrued for the period (net of reimbursements)
c= The average daily number of shares outstanding during
the period that were entitled to receive dividends
d= The maximum offering price (NAV for No Load) per
share on the last day of the period
WITH 4.50% LOAD:
( 17,108.54 - 2,904.97 )
----------------------------
= 2 *{[( +1)exp6]-1} = 4.34%
( 355,039.042 * 11.15 )
WITHOUT 4.50% LOAD:
( 17,108.54 - 2,904.97 )
----------------------------
= 2 *{[( +1)exp6]-1} = 4.55%
( 355,039.042 * 10.65 )
The performance was computed based on the thirty day period ending November 30,
1993.
-26-
<PAGE> 27
THE ARCH FUND, INC.
EXHIBIT 16
TRUST SHARES
30-DAY S.E.C. YIELD CALCULATIONS
GOVT. & CORPORATE BOND PORTFOLIO
(a-b)
-----------------
30-Day S.E.C. Yield Equation = 2*{[( (cd) +1)exp6]-1} =
WHERE a= Dividends and interest earned during the period
b= Expenses accrued for the period (net of reimbursements)
c= The average daily number of shares outstanding during
the period that were entitled to receive dividends
d= The maximum offering price (NAV for No Load) per
share on the last day of the period
WITHOUT 0.00% LOAD:
( 670,101.35 - 77,135.98 )
---------------------------------
= 2 *{[( +1)exp6]-1} = 4.85%
( 13,906,045.649 * 10.65 )
The performance was computed based on the thirty day period ending November 30,
1993.
-27-
<PAGE> 28
THE ARCH FUND, INC.
EXHIBIT 16
INVESTOR SHARES
30-DAY S.E.C. YIELD CALCULATIONS
U.S. GOVERNMENT SECURITIES PORTFOLIO
(a-b)
---------------------------
30-Day S.E.C. Yield Equation = 2*{[( (cd) +1)exp6]-1} =
WHERE a= Dividends and interest earned during the period
b= Expenses accrued for the period (net of reimbursements)
c= The average daily number of shares outstanding during
the period that were entitled to receive dividends
d= The maximum offering price (NAV for No Load) per
share on the last day of the period
WITH 4.50% LOAD:
( 48,712.14 - 8,733.88 )
----------------------------
= 2 *{[( +1)exp6]-1} = 4.34%
( 950,104.482 * 11.73 )
WITHOUT 4.50% LOAD:
( 48,712.14 - 8,733.88 )
----------------------------
= 2 *{[( +1)exp6]-1} = 4.55%
( 950,104.482 * 11.20 )
The performance was computed based on the thirty day period ending November 30,
1993.
-28-
<PAGE> 29
THE ARCH FUND, INC.
EXHIBIT 16
TRUST SHARES
30-DAY S.E.C. YIELD CALCULATIONS
U.S. GOVERNMENT SECURITIES PORTFOLIO
(a-b)
---------------------
30-Day S.E.C. Yield Equation = 2*{[( (cd) +1)exp6]-1} =
WHERE a= Dividends and interest earned during the period
b= Expenses accrued for the period (net of reimbursements)
c= The average daily number of shares outstanding during
the period that were entitled to receive dividends
d= The maximum offering price (NAV for No Load) per
share on the last day of the period
WITHOUT 0.00% LOAD:
( 163,590.76 - 20,488.18 )
-------------------------------
= 2 *{[( +1)exp6]-1} = 4.85%
( 3,190,750.953 * 11.20 )
The performance was computed based on the thirty day period ending November 30,
1993.
-29-
<PAGE> 30
THE ARCH FUND, INC.
EXHIBIT 16
INVESTOR SHARES
30-DAY S.E.C. YIELD CALCULATIONS
BALANCED PORTFOLIO
(a-b)
--------------------------------
30-Day S.E.C. Yield Equation = 2*{[( (cd) +1)exp6]-1} =
WHERE a= Dividends and interest earned during the period
b= Expenses accrued for the period (net of reimbursements)
c= The average daily number of shares outstanding during
the period that were entitled to receive dividends
d= The maximum offering price (NAV for No Load) per
share on the last day of the period
WITH 4.50% LOAD:
( 5,847.18 - 1,533.12 )
----------------------------
= 2 *{[( +1)exp6]-1} = 2.60%
( 186,980.720 * 10.70 )
WITHOUT 4.50% LOAD:
( 5,847.18 - 1,533.12 )
----------------------------
= 2 *{[( +1)exp6]-1} = 2.72%
( 186,980.720 * 10.22 )
The performance was computed based on the thirty day period ending November 30,
1993.
-30-
<PAGE> 31
THE ARCH FUND, INC.
EXHIBIT 16
TRUST SHARES
30-DAY S.E.C. YIELD CALCULATIONS
BALANCED PORTFOLIO
(a-b)
------------------
30-Day S.E.C. Yield Equation = 2*{[( (cd) +1)exp6]-1} =
WHERE a= Dividends and interest earned during the period
b= Expenses accrued for the period (net of reimbursements)
c= The average daily number of shares outstanding during
the period that were entitled to receive dividends
d= The maximum offering price (NAV for No Load) per
share on the last day of the period
WITHOUT 0.00% LOAD:
( 212,687.41 - 55,766.35 )
-----------------------------------
= 2 *{[( +1)exp6]-1} = 2.72%
( 6,801,298.773 * 10.22 )
The performance was computed based on the thirty day period ending November 30,
1993.
-31-
<PAGE> 1
Exhibit 16 (b)
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INVESTOR SHARES
LOAD CALCULATIONS
INTERNATIONAL EQUITY PORTFOLIO
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 4.50%
- ----------------------------
T=(ERV/P) -1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 04/04/94 TO 08/31/94 ):
( 999.1 /1,000)-1= -0.09%
YEAR TO DATE: ( 04/04/94 TO 08/31/94 ):
( 999.0 /1,000)-1= -0.10%
QUARTERLY: ( 06/01/94 TO 08/31/94 ):
( 996.2 /1,000)-1= -0.38%
MONTHLY: ( 08/01/94 TO 08/31/94 ):
( 975.8 /1,000)-1= -2.43%
<PAGE> 2
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INVESTOR SHARES
NO LOAD CALCULATIONS
INTERNATIONAL EQUITY PORTFOLIO
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
- ----------------------------
T=(ERV/P) -1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 04/04/94 TO 08/31/94 ):
( 1,046.0 /1,000)-1= 4.60%
YEAR TO DATE: ( 04/04/94 TO 08/31/94 ):
( 1,046.0 /1,000)-1= 4.60%
QUARTERLY: ( 06/01/94 TO 08/31/94 ):
( 1,042.9 /1,000)-1= 4.29%
MONTHLY: ( 08/01/94 TO 08/31/94 ):
( 1,021.5 /1,000)-1= 2.15%
<PAGE> 3
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
TRUST SHARES
NO LOAD CALCULATIONS
INTERNATIONAL EQUITY PORTFOLIO
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
- ----------------------------
T=(ERV/P) -1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 04/04/94 TO 08/31/94 ):
( 1,047.0 /1,000)-1= 4.70%
YEAR TO DATE: ( 04/04/94 TO 08/31/94 ):
( 1,047.0 /1,000)-1= 4.70%
QUARTERLY: ( 06/01/94 TO 08/31/94 ):
( 1,043.9 /1,000)-1= 4.39%
MONTHLY: ( 08/01/94 TO 08/31/94 ):
( 1,021.5 /1,000)-1= 2.15%
<PAGE> 4
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INSTITUTIONAL SHARES
NO LOAD CALCULATIONS
INTERNATIONAL EQUITY PORTFOLIO
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
- ----------------------------
T=(ERV/P) -1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 04/04/94 TO 08/31/94 ):
( 1,046.0 /1,000)-1= 4.60%
YEAR TO DATE: ( 04/04/94 TO 08/31/94 ):
( 1,046.0 /1,000)-1= 4.60%
QUARTERLY: ( 06/01/94 TO 08/31/94 ):
( 1,042.9 /1,000)-1= 4.29%
MONTHLY: ( 08/01/94 TO 08/31/94 ):
( 1,021.5 /1,000)-1= 2.15%
<PAGE> 1
Exhibit 16(c)
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INSTITUTIONAL SHARES
NO LOAD CALCULATIONS
MONEY MARKET PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
WITH SALES LOAD OF: 0.00%
- ----------------------------
T = (ERV/P)EXP.1/N - 1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 03/24/83 TO 11/30/94 ):
( NA /1000exp.(1/( 4270/365))-1)= NA*
ONE YEAR: ( 12/01/93 TO 11/30/94 ):
( 1,033.5 /1000exp.( 365 /365))-1)= 3.35%
TWO YEAR: ( 12/01/92 TO 11/30/94 ):
( 1,059.5 /1000exp.(1/( 729/365))-1)= 2.94%
THREE YEAR: ( 12/01/91 TO 11/30/94 ):
( 1,093.5 /1000-(I/( 1095 /365))-1)= 3.02%
FIVE YEAR: ( 12/01/89 TO 11/30/94 ):
( 1,249.8 /1000exp.(1/( 1825 /365))-1)= 4.56%
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
- -----------------------------
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/93 TO 11/30/94 ):
( 1,031.2 /1,000) - 1 = 3.12%
QUARTERLY: ( 09/01/94 TO 11/30/94 ):
( 1,010.5 /1,000) - 1 = 1.05%
MONTHLY: ( 11/01/94 TO 11/30/94 ):
( 1,0037 /1,000) - 1 = 0.37%
<PAGE> 2
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INSTITUTIONAL SHARES
NO LOAD CALCULATIONS
TREASURY MONEY MARKET PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
WITH SALES LOAD OF: 0.00%
- ----------------------------
T = (ERV/P)EXP.1/N - 1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 12/02/91 TO 11/30/94 ):
( 1,088.4 /1000exp.( 1095 /365))-1)= 2.86%
ONE YEAR: ( 12/01/93 TO 11/30/94 ):
( 1,031.6 /1000exp.( 365 /365))-1)= 3.16%
TWO YEAR: ( 12/01/92 TO 11/30/94 ):
( 1,056.7 /1000exp.( 729 /365))-1)= 2.80%
THREE YEAR: ( 12/01/91 TO 11/30194 ):
( 1,088.4 /1000exp.(1/( 1095/365))-1)= 2.86%
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
- -----------------------------
T =(ERV/P) - 1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/93 TO 11/30/94 ):
( 1,029.5 /1,000) - 1 = 2.95%
QUARTERLY: ( 09/01/94 TO 11/30/94 ):
( 1,009.8 /1,000) - 1 = 0.98%
MONTHLY: ( 11/01/94 TO 11/30/94 ):
( 1,003.4 /1,000) - 1 = 0.34%
<PAGE> 3
THE ARCH FUND, INC.
EXHIBIT 18
TOTAL RETURN
INSTITUTIONAL SHARES
NO LOAD CALCULATIONS
GOVERNMENT & CORPORATE BOND PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
WITH SALES LOAD OF: 0.00%
- ------------------------------
T=(ERV/P)EXP.1/N - 1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 06/15/88 TO 11/30/94 ):
( 1,360.2 /1000exp.( 2360 /365))-1)= 4.87%
ONE YEAR: ( 12/01/93 TO 11/30/94 ):
966.8 /1000exp.(1/( 365 /365))-1)= -3.32%
TWO YEAR: ( 12/01/92 TO 11/30/94 ):
( 1,065.7 /1000exp.(1/( 729/365))-1)= 3.24%
THREE YEAR: ( 12/01/91 TO 11/30/94 ):
( 1,148.9 /1000exp.(1/( 1095/365))-1)= 4.74%
FIVE YEAR: ( 12/01/89 TO 11/30/94 ):
( 1,360.2 /1000exp.(1/( 1825/365))-1)= 6.35%
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
- ---------------------------
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/93 TO 11/30/94 ):
( 963.4 /1,000) - 1 = -3.66%
QUARTERLY: ( 09/01/94 TO 11/30/94 ):
( 985.7 /1,000) - 1 = -1.43%
MONTHLY: ( 11/01/94 TO 11/30/94 ):
( 1,001.3 /1,000) -1 = 0.13%
<PAGE> 4
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INSTITUTIONAL SHARES
NO LOAD CALCULATIONS
GROWTH & INCOME EQUITY PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
WITH SALES LOAD OF: 0.00%
- ---------------------------
T=(ERV/P)EXP.1/N - 1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 06/02/88 TO 11/30/94 ):
( 2,017.3 /1000exp.(1/( 2373/365))-1)= 11.40%
ONE YEAR: ( 12/01/93 TO 11/30/94 ):
( 1,001.9 /1000exp.(1/( 365/365))-1)= 0.19%
TWO YEAR: ( 12/01/92 TO 11/30/94 ):
( 1,098.5 /1000exp.(1/( 729/365))-1)= 4.82%
THREE YEAR: ( 12/01/91 TO 11/30/94 ):
( 1,324.7 /1000exp.(1/( 1095/365))-1)= 9.83%
FIVE YEAR: ( 12/01/89 TO 11/30/94 ):
( 1,533.9 /1000exp. (1/( 1825 /365))-1)= 8.93%
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
- ---------------------------
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/93 TO 11/30/94 ):
( 991.1 /1000) - 1 = -0.89%
QUARTERLY: ( 09/01/94 TO 11/30/94 ):
( 956.5 /1,000) - 1 = -4.35%
MONTHLY: ( 11/01/94 TO 11/30/94 ):
( 967.2 /1,000) - 1 = -3,28%
<PAGE> 5
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INSTITUTIONAL SHARES
NO LOAD CALCULATIONS
U.S. GOVERNMENT SECURITIES PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
WITH SALES LOAD OF: 0.00%
- ----------------------------
T=(ERV/P)EXP.1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 06/02/88 TO 11/30/94 ):
1,403.0 /1000exp.(1/( 2373/365))-1)= 5.35%
ONE YEAR: ( 12/01/93 TO 11/30/94 ):
( 965.4 /1000exp.(1/( 365/365))-1)= -3.46%
TWO YEAR: ( 12/01/92 TO 11/30/94 ):
( 1,082.2 /1000exp.(1/( 729/365))-1)= 3.07%
THREE YEAR: ( 12/01/91 TO 11/30/94 ):
( 1,138.7 /1000exp.(1/( 1096/365))-1)= 4.42%
FIVE YEAR: ( 12/01/89 TO 11/30/94 ):
( 1,403.0 /1000exp.(1/( 1825/365))-1)= 7.01%
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
- ---------------------------
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/93 TO 11/30/94 ):
( 982.0 /1,000) - 1 = -3.80%
QUARTERLY: ( 09/01/94 TO 11/30/94 ):
( 983.9 /1,000) - 1 = -1.61%
MONTHLY: ( 11/01/94 TO 11/30/94 ):
( 1,000.5 /1,000) - 1 = 0.05%
<PAGE> 6
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INSTITUTIONAL SHARES
NO LOAD CALCULATIONS
EMERGING GROWTH PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
WITH SALES LOAD OF: 0.00%
T=(ERV/P)EXP.1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 05/06/92 TO 11/30/94 ):
( 1,443.6 /1000exp.(1/( 939/365))-1)= 15.34%
ONE YEAR: ( 12/01/93 TO 11/30/94 ):
( 1,071.1 /1000exp.(1/( 365/365))-1)= 7.11%
TWO YEAR: ( 12/01/92 TO 11/30/94 ):
( 1,282.7 /1000exp.(1/( 729/365))-1)= 13.28%
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/94 TO 11/30/94 ):
( 1,004.2 /1,000) - 1 = 0.42%
QUARTERLY: ( 09/01/94 TO 11/30/94 ):
( 977.9 /1,000) - 1 = -2.21%
MONTHLY: ( 11/01/94 TO 11/30/94 ):
( 962.2 /1,000) - 1 = -3.78%
<PAGE> 7
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INSTITUTIONAL SHARES
NO LOAD CALCULATIONS
BALANCED PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
WITH SALES LOAD OF: 0.00%
- ----------------------------
T=(ERV/P)EXP.1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 40/01/93 TO 11/30/94 ):
( 1,017.9 /1000exp.(1/( 609/365))-1)= 1.07%
ONE YEAR: ( 12/01/93 TO 11/30/94 ):
( 979.9 /1000exp.(1/( 365/365))-1)= -2.01%
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
- ---------------------------
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/94 TO 11/30/94 ):
( 973.2 /1,000) - 1 = -2.68%
QUARTERLY: ( 09/01/94 TO 11/30/94 ):
( 966.1 /1,000) - 1 = -3.40%
MONTHLY: ( 11/01/94 TO 11/30/94 ):
( 978.6 /1,000) - 1 = -2.14%
<PAGE> 8
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INSTITUTIONAL SHARES
NO LOAD CALCULATIONS
INTERNATIONAL PORTFOLIO
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
- ---------------------------
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 04/04/94 TO 11/30/94 ):
( 990.0 /1,000)-1)= -1.00%
YEAR TO DATE: ( 04/04/94 TO 11/30/94 ):
( 990.0 /1,000)-1)= -1.00%
QUARTERLY: ( 09/01/94 TO 11/30/94 ):
( 946.5 /1,000)-1)= -5.35%
MONTHLY: ( 11/01/94 TO 11/30/94 ):
( 933.1 /1,000)-1)= -6.69%
<PAGE> 1
Exhibit 16(d)
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INVESTOR (B) SHARES
CDSC CALCULATIONS
GOVERNMENT & CORPORATE BOND PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
WITH CDSC OF: 5.00%
- ----------------------------
T=(ERV/P)EXP.1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 06/15/88 TO 11/30/94 ):
( 1,560.9 /1000exp.(1/( 2360/365))-1)= 7.13%
ONE YEAR: ( 12/01/93 TO 11/30/94 ):
( 921.6 /1000exp.(1/( 365/365))-1)= -7.84%
TWO YEAR: ( 12/01/92 TO 11/30/94 ):
( 1,028.1 /1000exp.(1/( 729/365))-1)= 1.40%
THREE YEAR: ( 12/01/91 TO 11/30/94 ):
( 1,120.4 /1000exp.(1/
( 1095 /365))-1)= 3.86%
FIVE YEAR: ( 12/01/89 TO 11/30/94 ):
( 1,341.2 /1000exp.(1/
( 1825 /365))-1)= 6.05%
AGGREGATE TOTAL RETURN
WITH CDSC OF: 5.00%
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/93 TO 11/30/94 ):
( 917.8 /1,000) - 1 = -8.22%
QUARTERLY: ( 09/01/94 TO 11/30/94 ):
( 937.2 /1,000) - 1 = -6.28%
MONTHLY: ( 11/01/94 TO 11/30/94 ):
( 951.5 /1,000) - 1 = -4.85%
<PAGE> 2
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INVESTOR (B) SHARES
CDSC CALCULATIONS
GOVERNMENT & CORPORATE BOND PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
WITH CDSC OF: 0.00%
- -----------------------------
T=(ERV/P)EXP.1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 06/15/88 TO 11/30/94 ):
( 1,560.9 /1000exp.(1/( 2360/365))-1)= 7.13%
ONE YEAR: ( 12/01/93 TO 11/30/94 ):
( 966.8 /1000exp.(1/( 365/365))-1)= -3.32%
TWO YEAR: ( 12/01/92 TO 11/30/94 ):
( 1,065.7 /1000exp.(1/( 729/365))-1)= 3.24%
THREE YEAR: ( 12/01/91 TO 11/30/94 ):
( 1,148.9 /1000exp.(1/( 1095 /365))-1)= 4.74%
FIVE YEAR: ( 12/01/89 TO 11/30/94 ):
( 1,360.2 /1000exp.(1/( 1825 /365))-1)= 6.35%
AGGREGATE TOTAL RETURN
WITH CDSC OF: 0.00%
- ----------------------
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/93 TO 11/30/94 ):
( 963.4 /1,000) - 1 = -3.66%
QUARTERLY: ( 09/01/94 TO 11/30/94 ):
( 985.7 /1,000) - 1 = -1.43%
MONTHLY: ( 11/01/94 TO 11/30/94 ):
( 1,001.3/1,000) - 1 = 0.13%
<PAGE> 3
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INVESTOR (B) SHARES
CDSC CALCULATIONS
GROWTH & INCOME EQUITY PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
WITH CDSC OF: 5.00%
- -----------------------------
T=(ERV/P)EXP.1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 06/02/88 TO 11/30/94 ):
( 2,017.2 /1000exp.(1/( 2373/365))-1)= 11.40%
ONE YEAR: ( 12/01/93 TO 11/30/94 ):
( 958.9 /1000exp.(1/( 365/365))-1)= -4.11%
TWO YEAR: ( 12/01/92 TO 11/30/94 ):
( 1,063.6 /1000exp.(1/( 729/365))-1)= 3.14%
THREE YEAR: ( 12/01/91 TO 11/30/94 ):
( 1,294.9 /1000exp.(1/( 1095 /365))-1)= 9.00%
FIVE YEAR: ( 12/01/89 TO 11/30/94 ):
( 1,514.2 /1000exp.(1/( 1825 /365))-1)= 8.65%
AGGREGATE TOTAL RETURN
WITH CDSC OF: 5.00%
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/93 TO 11/30/94 ):
( 942.3 /1,000) - 1 = -5.77%
QUARTERLY: ( 09/01/94 TO 11/30/94 ):
( 908.1 /1,000) - 1 = -9.19%
MONTHLY: ( 11/01/94 TO 11/30/94 ):
( 918.2/1,000) - 1 = -8.18%
<PAGE> 4
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INVESTOR (B) SHARES
CDSC CALCULATIONS
GROWTH & INCOME EQUITY PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
WITH CDSC OF: 0.00%
T=(ERV/P)EXP.1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 06/02/88 TO 11/30/94 ):
( 2,017.6 /1000exp.(1/( 2373/365))-1)= 11.40%
ONE YEAR: ( 12/01/93 TO 11/30/94 ):
( 1,002.0 /1000exp.(1/( 365/365))-1)= 0.20%
TWO YEAR: ( 12/01/92 TO 11/30/94 ):
( 1,098.7 /1000exp.(1/( 729/365))-1)= 4.83%
THREE YEAR: ( 12/01/91 TO 11/30/94 ):
( 1,324.9 /1000exp.(1/( 1095 /365))-1)= 9.83%
FIVE YEAR: ( 12/01/89 TO 11/30/94 ):
( 1,534.2 /1000exp.(1/( 1825 /365))-1)= 8.94%
AGGREGATE TOTAL RETURN
WITH CDSC OF: 0.00%
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/93 TO 11/30/94 ):
( 991.3 /1,000) - 1 = -0.87%
QUARTERLY: ( 09/01/94 TO 11/30/94 ):
( 955.7 /1,000) - 1 = -4.43%
MONTHLY: ( 11/01/94 TO 11/30/94 ):
( 966.5/1,000) - 1 = -3.35%
<PAGE> 5
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INVESTOR (B) SHARES
CDSC CALCULATIONS
US GOVERNMENT SECURITIES PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
WITH CDSC OF: 5.00%
T=(ERV/P)EXP.1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 06/02/88 TO 11/30/94 ):
( 1,596.2 /1000exp.(1/( 2373/365))-1)= 7.46%
ONE YEAR: ( 12/01/93 TO 11/30/94 ):
( 923.7 /1000exp.(1/( 365/365))-1)= -7.63%
TWO YEAR: ( 12/01/92 TO 11/30/94 ):
( 1,028.4 /1000exp.(1/( 729/365))-1)= 1.41%
THREE YEAR: ( 12/01/91 TO 11/30/94 ):
( 1,114.2 /1000exp.(1/( 1095 /365))-1)= 3.67%
FIVE YEAR: ( 12/01/89 TO 11/30/94 ):
( 1,387.7 /1000exp.(1/( 1825 /365))-1)= 6.77%
AGGREGATE TOTAL RETURN
WITH CDSC OF: 5.00%
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/93 TO 11/30/94 ):
( 919.5 /1,000) - 1 = -8.05%
QUARTERLY: ( 09/01/94 TO 11/30/94 ):
( 938.7 /1,000) - 1 = -6.13%
MONTHLY: ( 11/01/94 TO 11/30/94 ):
( 950.8/1,000) - 1 = -4.92%
<PAGE> 6
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INVESTOR (B) SHARES
CDSC CALCULATIONS
US GOVERNMENT SECURITIES PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
WITH CDSC OF: 0.00%
- --------------------------
T=(ERV/P)EXP.1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 06/02/88 TO 11/30/94 ):
( 1,596.2 /1000exp.(1/( 2373/365))-1)= 7.46%
ONE YEAR: ( 12/01/93 TO 11/30/94 ):
( 968.6 /1000exp.(1/( 365/365))-1)= -3.14%
TWO YEAR: ( 12/01/92 TO 11/30/94 ):
( 1,065.7 /1000exp.(1/( 729/365))-1)= 3.24%
THREE YEAR: ( 12/01/91 TO 11/30/94 ):
( 1,142.4 /1000exp.(1/( 1095 /365))-1)= 4.54%
FIVE YEAR: ( 12/01/89 TO 11/30/94 ):
( 1,407.7 /1000exp.(1/( 1825 /365))-1)= 7.08%
AGGREGATE TOTAL RETURN
WITH CDSC OF: 0.00%
- -----------------------
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/93 TO 11/30/94 ):
( 965.2 /1,000) - 1 = -3.48%
QUARTERLY: ( 09/01/94 TO 11/30/94 ):
( 987.2 /1,000) - 1 = -1.28%
MONTHLY: ( 11/01/94 TO 11/30/94 ):
( 1,000.5 /1,000) - 1 = 0.05%
<PAGE> 7
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INVESTOR (B) SHARES
CDSC CALCULATIONS
EMERGING GROWTH PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
WITH CDSC OF: 5.00%
- ----------------------------
T=(ERV/P)EXP.1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 05/31/92 TO 11/30/94 ):
( 1,417.2 /1000exp.(1/( 914 /365))-1)= 14.94%
ONE YEAR: ( 12/01/93 TO 11/30/94 ):
( 1,028.1 /1000exp.(1/( 365/365))-1)= 2.81%
TWO YEAR: ( 12/01/92 TO 11/30/94 ):
( 1,245.8 /1000exp.(1/( 729/365))-1)= 11.63%
AGGREGATE TOTAL RETURN
WITH CDSC OF: 5.00%
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/94 TO 11/30/94 ):
( 956.7 /1,000) - 1 = -4.33%
QUARTERLY: ( 09/01/94 TO 11/30/94 ):
( 929.1 /1,000) - 1 = -7.09%
MONTHLY: ( 11/01/94 TO 11/30/94 ):
( 914.2/1,000) - 1 = -8.58%
<PAGE> 8
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INVESTOR (B) SHARES
CDSC CALCULATIONS
EMERGING GROWTH PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
WITH CDSC OF: 0.00%
- ----------------------------
T=(ERV/P)EXP.1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 05/31/92 TO 11/30/94 ):
( 1,447.2 /1000exp.(1/( 914/365))-1)= 15.91%
ONE YEAR: ( 12/01/93 TO 11/30/94 ):
( 1,073.8 /1000exp.(1/( 365/365))-1)= 7.38%
TWO YEAR: ( 12/01/92 TO 11/30/94 ):
( 1,285.8 /1000exp.(1/( 729/365))-1)= 13.41%
AGGREGATE TOTAL RETURN
WITH CDSC OF: 0.00%
- -------------------------
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/94 TO 11/30/94 ):
( 1,006.7 /1,000) - 1 = 0.67%
QUARTERLY: ( 09/01/94 TO 11/30/94 ):
( 978.0 /1,000) - 1 = -2.20%
MONTHLY: ( 11/01/94 TO 11/30/94 ):
( 962.3/1,000) - 1 = -3.77%
<PAGE> 9
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INVESTOR (B) SHARES
CDSC CALCULATIONS
BALANCED PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
WITH CDSC OF: 5.00%
- -----------------------------
T=(ERV/P)EXP.1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 04/01/93 TO 11/30/94 ):
( 995.0 /1000exp.(1/( 609 /365))-1)= -0.30%
ONE YEAR: ( 12/01/93 TO 11/30/94 ):
( 921.2 /1000exp.(1/( 365/365))-1)= -7.88%
AGGREGATE TOTAL RETURN
WITH CDSC OF: 5.00%
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/94 TO 11/30/94 ):
( 926.5 /1,000) - 1 = -7.35%
QUARTERLY: ( 09/01/94 TO 11/30/94 ):
( 919.0 /1,000) - 1 = -8.10%
MONTHLY: ( 11/01/94 TO 11/30/94 ):
( 930.6/1,000) - 1 = -6.94%
<PAGE> 10
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INVESTOR (B) SHARES
CDSC CALCULATIONS
BALANCED PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
WITH CDSC OF: 0.00%
- -----------------------------
T=(ERV/P)EXP.1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N= NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 04/01/93 TO 11/30/94 ):
( 1,033.5 /1000exp.(1/( 609 /365))-1)= 1.99%
ONE YEAR: ( 12/01/93 TO 11/30/94 ):
( 968.3 /1000exp.(1/( 365 /365))-1)= -3.18%
AGGREGATE TOTAL RETURN
WITH CDSC OF: 0.00%
- ---------------------
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/94 TO 11/30/94 ):
( 974.2 /1,000) - 1 = -2.58%
QUARTERLY: ( 09/01/94 TO 11/30/94 ):
( 967.0 /1,000) - 1 = -3.30%
MONTHLY: ( 11/01/94 TO 11/30/94 ):
( 979.6/1,000) - 1 = -2.04%
<PAGE> 1
Exhibit (16)(m)
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INVESTOR A SHARES
NO LOAD CALCULATIONS
GROWTH EQUITY PORTFOLIO
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
- ---------------------------
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000
EXAMPLE:
SINCE INCEPTION: ( 01/04/93 TO 11/30/97 ):
( 2,044.0 /1,000)-1 = 104.40%
YEAR TO DATE: ( 12/31/96 TO 11/30/97 ):
( 1,242.0 /1,000)-1 = 24.20%
QUARTERLY: ( 08/31/97 TO 11/30/97 ):
( 1,042.3 /1,000)-1 = 4.23%
MONTHLY: ( 10/31/97 TO 11/30/97 ):
( 1,020.1 /1,000)-1 = 2.01%
<PAGE> 2
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INVESTOR A SHARES
NO LOAD CALCULATIONS
GROWTH EQUITY PORTFOLIO
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
- ---------------------------
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000
EXAMPLE:
SINCE INCEPTION: ( 01/04/93 TO 11/30/97 ):
( 2,044.0 /1,000)-1 = 104.40%
YEAR TO DATE: ( 12/31/96 TO 11/30/97 ):
( 1,242.0 /1,000)-1 = 24.20%
QUARTERLY: ( 08/31/97 TO 11/30/97 ):
( 1,042.3 /1,000)-1 = 4.23%
MONTHLY: ( 10/31/97 TO 11/30/97 ):
( 1,020.1 /1,000)-1 = 2.01%
<PAGE> 3
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
TRUST SHARES
NO LOAD CALCULATIONS
GROWTH EQUITY PORTFOLIO
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 0.00%
- ---------------------------
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000
EXAMPLE:
SINCE INCEPTION: ( 01/04/93 TO 11/30/97 ):
(2,061.0 /1,000)-1= 106.10%
YEAR TO DATE: ( 01/04/93 TO 11/30/97 ):
( 1,242.0 /1,000)-1= 24.20%
QUARTERLY: ( 08/31/97 TO 11/30/97):
( 1,042.3 /1,000)-1= 4.23%
MONTHLY: ( 10/31/97 TO 11/30/97):
( 1,020.1 /1,000)-1= 2.01%
<PAGE> 1
Exhibit (16)(n)
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INVESTOR (B) SHARES
CDSC CALCULATIONS
DATE AS OF: 11/30/97
DATE AS OF: 11/30/97
===============================================================================
INTERNATIONAL EQUITY PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
WITH CDSC OF: 5.00%
- ---------------------------
T=(ERV/P)-1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000
N= NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 04/04/94 TO 11/30/97 ):
( 1,183.8 /1,000-(1/( 1337 /365))-1)= 4.71%
ONE YEAR: ( 12/01/96 TO 11/30/97 ):
( 968.7 /1,000-(1/( 365 /365))-1)= -3.13%
AGGREGATE TOTAL RETURN
WITH CDSC OF: 5.00%
- ---------------------------
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 11/30/97):
( 970.7 /1,000)-1= -2.93%
QUARTERLY: ( 09/01/97 TO 11/30/97):
( 916.5 /1,000)-1= -8.35%
MONTHLY: ( 11/01/97 TO 11/30/97):
( 927.9 /1,000)-1= -7.21%
<PAGE> 2
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INVESTOR (B) SHARES
CDSC CALCULATIONS (NO LOAD)
INTERNATIONAL EQUITY PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
WITH CDSC OF: 0.00%
- ---------------------------
T=(ERV/P)-1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000
N= NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 04/04/94 TO 11/30/97 ):
( 1,213.8 /1,000-(1/( 1337 /365))-1)= 5.43%
ONE YEAR: ( 12/01/96 TO 11/30/97 ):
( 1,018.2 /1,000-(1/( 365 /365))-1)= 1.82%
AGGREGATE TOTAL RETURN
WITH CDSC OF: 0.00%
- ---------------------------
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000
EXAMPLE:
YEAR TO DATE: ( 01/01/96 TO 11/30/97):
( 1,020.7 /1,000)-1= 2.07%
QUARTERLY: ( 09/01/97 TO 11/30/97):
( 964.8 /1,000)-1= -3.52%
MONTHLY: ( 11/01/97 TO 11/30/97):
( 976.8 /1,000)-1= -2.32%
<PAGE> 1
Exhibit (16)(o)
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INVESTOR (B) SHARES
CDSC CALCULATIONS
MONEY MARKET PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
WITH CDSC OF: 5.00%
- ---------------------------
T=(ERV/P)-1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000
N= NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 01/26/96 TO 11/30/97):
( 1,036.4 /1,000-(1/( 675 /365))-1)= 1.95%
ONE YEAR: ( 12/01/96 TO 11/30/97 ):
( 991.5 /1,000-(1/( 365 /365))-1)= -0.85%
AGGREGATE TOTAL RETURN
WITH CDSC OF: 5.00%
- ---------------------------
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 11/30/97):
( 988.1 /1,000)-1= -1.19%
QUARTERLY: ( 09/01/97 TO 11/30/97):
( 960.4 /1,000)-1= -3.96%
MONTHLY: ( 11/01/97 TO 11/30/97):
( 953.4 /1,000)-1= -4.66%
<PAGE> 2
THE ARCH FUND, INC.
EXHIBIT 16
TOTAL RETURN
INVESTOR (B) SHARES
CDSC CALCULATIONS (NO LOAD)
MONEY MARKET PORTFOLIO
AVERAGE ANNUAL TOTAL RETURN
WITH CDSC OF: 0.00%
- ---------------------------
T=(ERV/P)-1/N-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000
N= NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 01/26/96 TO 11/30/97 ):
( 1,076.4 /1,000-(1/( 675 /365))-1)= 4.06%
ONE YEAR: ( 12/01/96 TO 11/30/97 ):
( 1,076.4 /1,000-(1/( 365 /365))-1)= 7.64%
AGGREGATE TOTAL RETURN
WITH CDSC OF: 0.00%
- ---------------------------
T=(ERV/P)-1
WHERE: T= TOTAL RETURN
ERV= ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P= A HYPOTHETICAL INITIAL PAYMENT OF $1,000
EXAMPLE:
YEAR TO DATE: ( 01/26/96 TO 11/30/97):
( 1,038.1 /1,000)-1= 3.81%
QUARTERLY: ( 09/01/97 TO 11/30/97):
( 1,010.4 /1,000)-1= 1.04%
MONTHLY: ( 11/01/97 TO 11/30/97):
( 1,003.4 /1,000)-1= 0.34%
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 011
<NAME> THE ARCH MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 1,237,715,387
<INVESTMENTS-AT-VALUE> 1,237,715,387
<RECEIVABLES> 6,687,518
<ASSETS-OTHER> 27,358
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,244,430,263
<PAYABLE-FOR-SECURITIES> 10,000,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,407,084
<TOTAL-LIABILITIES> 15,407,084
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,229,020,635
<SHARES-COMMON-STOCK> 164,776,758<F1>
<SHARES-COMMON-PRIOR> 91,165,477<F1>
<ACCUMULATED-NII-CURRENT> 7,451
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 4,907
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,229,023,179
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 55,194,674
<OTHER-INCOME> 0
<EXPENSES-NET> 6,515,939
<NET-INVESTMENT-INCOME> 48,679,735
<REALIZED-GAINS-CURRENT> 1,631
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 48,681,366
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,589,497<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 309,755,097<F1>
<NUMBER-OF-SHARES-REDEEMED> 241,289,100<F1>
<SHARES-REINVESTED> 5,145,284<F1>
<NET-CHANGE-IN-ASSETS> 404,630,620
<ACCUMULATED-NII-PRIOR> 7,451
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 6,538
<GROSS-ADVISORY-FEES> 3,940,122
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9,062,183
<AVERAGE-NET-ASSETS> 115,456,068<F1>
<PER-SHARE-NAV-BEGIN> 1.000<F1>
<PER-SHARE-NII> .048<F1>
<PER-SHARE-GAIN-APPREC> .000<F1>
<PER-SHARE-DIVIDEND> .048<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 1.000<F1>
<EXPENSE-RATIO> .770<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 012
<NAME> THE ARCH MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 1,237,715,387
<INVESTMENTS-AT-VALUE> 1,237,715,387
<RECEIVABLES> 6,687,518
<ASSETS-OTHER> 27,358
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,244,430,263
<PAYABLE-FOR-SECURITIES> 10,000,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,407,084
<TOTAL-LIABILITIES> 15,407,084
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,229,020,635
<SHARES-COMMON-STOCK> 1,042,148,999<F1>
<SHARES-COMMON-PRIOR> 717,264,622<F1>
<ACCUMULATED-NII-CURRENT> 7,451
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 4,907
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,229,023,179
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 55,194,674
<OTHER-INCOME> 0
<EXPENSES-NET> 6,515,939
<NET-INVESTMENT-INCOME> 48,679,735
<REALIZED-GAINS-CURRENT> 1,631
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 48,681,366
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,036,602<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 4,112,502,623<F1>
<NUMBER-OF-SHARES-REDEEMED> 3,802,997,659<F1>
<SHARES-REINVESTED> 15,379,413<F1>
<NET-CHANGE-IN-ASSETS> 404,630,620
<ACCUMULATED-NII-PRIOR> 7,451
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 6,538
<GROSS-ADVISORY-FEES> 3,940,122
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9,062,183
<AVERAGE-NET-ASSETS> 847,928,836<F1>
<PER-SHARE-NAV-BEGIN> 1.000<F1>
<PER-SHARE-NII> .050<F1>
<PER-SHARE-GAIN-APPREC> .000<F1>
<PER-SHARE-DIVIDEND> .050<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 1.000<F1>
<EXPENSE-RATIO> .640<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Trust Class Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 013
<NAME> THE ARCH MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 1,237,715,387
<INVESTMENTS-AT-VALUE> 1,237,715,387
<RECEIVABLES> 6,687,518
<ASSETS-OTHER> 27,358
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,244,430,263
<PAYABLE-FOR-SECURITIES> 10,000,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,407,084
<TOTAL-LIABILITIES> 15,407,084
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,229,020,635
<SHARES-COMMON-STOCK> 22,022,182<F1>
<SHARES-COMMON-PRIOR> 15,920,616<F1>
<ACCUMULATED-NII-CURRENT> 7,451
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 4,907
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,229,023,179
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 55,194,674
<OTHER-INCOME> 0
<EXPENSES-NET> 6,515,939
<NET-INVESTMENT-INCOME> 48,679,735
<REALIZED-GAINS-CURRENT> 1,631
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 48,681,366
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,050,694<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 70,987,898<F1>
<NUMBER-OF-SHARES-REDEEMED> 64,931,657<F1>
<SHARES-REINVESTED> 45,325<F1>
<NET-CHANGE-IN-ASSETS> 404,630,620
<ACCUMULATED-NII-PRIOR> 7,451
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 6,538
<GROSS-ADVISORY-FEES> 3,940,122
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9,062,183
<AVERAGE-NET-ASSETS> 21,767,589<F1>
<PER-SHARE-NAV-BEGIN> 1.000<F1>
<PER-SHARE-NII> .048<F1>
<PER-SHARE-GAIN-APPREC> .000<F1>
<PER-SHARE-DIVIDEND> .048<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 1.000<F1>
<EXPENSE-RATIO> .770<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Institutional Class Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 014
<NAME> THE ARCH MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 1,237,715,387
<INVESTMENTS-AT-VALUE> 1,237,715,387
<RECEIVABLES> 6,687,518
<ASSETS-OTHER> 27,358
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,244,430,263
<PAYABLE-FOR-SECURITIES> 10,000,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,407,084
<TOTAL-LIABILITIES> 15,407,084
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,229,020,635
<SHARES-COMMON-STOCK> 72,696<F1>
<SHARES-COMMON-PRIOR> 40,931<F1>
<ACCUMULATED-NII-CURRENT> 7,451
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 4,907
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,229,023,179
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 55,194,674
<OTHER-INCOME> 0
<EXPENSES-NET> 6,515,939
<NET-INVESTMENT-INCOME> 48,679,735
<REALIZED-GAINS-CURRENT> 1,631
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 48,681,366
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,942<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 46,996<F1>
<NUMBER-OF-SHARES-REDEEMED> 18,022<F1>
<SHARES-REINVESTED> 2,791<F1>
<NET-CHANGE-IN-ASSETS> 404,630,620
<ACCUMULATED-NII-PRIOR> 7,451
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 6,538
<GROSS-ADVISORY-FEES> 3,940,122
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9,062,183
<AVERAGE-NET-ASSETS> 71,804<F1>
<PER-SHARE-NAV-BEGIN> 1.000<F1>
<PER-SHARE-NII> .045<F1>
<PER-SHARE-GAIN-APPREC> .000<F1>
<PER-SHARE-DIVIDEND> .045<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 1.000<F1>
<EXPENSE-RATIO> 1.520<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class B Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 021
<NAME> THE ARCH GROWTH & INCOME EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 341,113,405
<INVESTMENTS-AT-VALUE> 467,321,522
<RECEIVABLES> 771,186
<ASSETS-OTHER> 19,460
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 468,112,168
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 572,280
<TOTAL-LIABILITIES> 572,280
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 263,643,901
<SHARES-COMMON-STOCK> 2,195,391<F1>
<SHARES-COMMON-PRIOR> 2,047,651<F1>
<ACCUMULATED-NII-CURRENT> 63,954
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 77,623,916
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 126,208,117
<NET-ASSETS> 467,539,888
<DIVIDEND-INCOME> 6,437,875
<INTEREST-INCOME> 629,528
<OTHER-INCOME> 69,842
<EXPENSES-NET> 3,623,021
<NET-INVESTMENT-INCOME> 3,514,224
<REALIZED-GAINS-CURRENT> 78,993,806
<APPREC-INCREASE-CURRENT> 9,568,676
<NET-CHANGE-FROM-OPS> 92,076,706
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 352,163<F1>
<DISTRIBUTIONS-OF-GAINS> 2,994,148<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 358,479<F1>
<NUMBER-OF-SHARES-REDEEMED> 402,496<F1>
<SHARES-REINVESTED> 191,757<F1>
<NET-CHANGE-IN-ASSETS> 4,640,809
<ACCUMULATED-NII-PRIOR> 857,888
<ACCUMULATED-GAINS-PRIOR> 34,828,023
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,392,991
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,978,006
<AVERAGE-NET-ASSETS> 41,958,280<F1>
<PER-SHARE-NAV-BEGIN> 18.67<F1>
<PER-SHARE-NII> 0.11<F1>
<PER-SHARE-GAIN-APPREC> 3.96<F1>
<PER-SHARE-DIVIDEND> .16<F1>
<PER-SHARE-DISTRIBUTIONS> 1.46<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 21.12<F1>
<EXPENSE-RATIO> 1.04<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 022
<NAME> THE ARCH GROWTH & INCOME EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 341,113,405
<INVESTMENTS-AT-VALUE> 467,321,522
<RECEIVABLES> 771,186
<ASSETS-OTHER> 19,460
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 468,112,168
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 572,280
<TOTAL-LIABILITIES> 572,280
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 263,643,901
<SHARES-COMMON-STOCK> 15,211,749<F1>
<SHARES-COMMON-PRIOR> 18,610,126<F1>
<ACCUMULATED-NII-CURRENT> 63,954
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 77,623,916
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 126,208,117
<NET-ASSETS> 467,539,888
<DIVIDEND-INCOME> 6,437,875
<INTEREST-INCOME> 629,528
<OTHER-INCOME> 69,842
<EXPENSES-NET> 3,623,021
<NET-INVESTMENT-INCOME> 3,514,224
<REALIZED-GAINS-CURRENT> 78,993,806
<APPREC-INCREASE-CURRENT> 9,568,676
<NET-CHANGE-FROM-OPS> 92,076,706
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,247,480<F1>
<DISTRIBUTIONS-OF-GAINS> 27,210,627<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 3,808,036<F1>
<NUMBER-OF-SHARES-REDEEMED> 8,530,932<F1>
<SHARES-REINVESTED> 1,324,519<F1>
<NET-CHANGE-IN-ASSETS> 4,640,809
<ACCUMULATED-NII-PRIOR> 857,888
<ACCUMULATED-GAINS-PRIOR> 34,828,023
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,392,991
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,978,006
<AVERAGE-NET-ASSETS> 306,534,420<F1>
<PER-SHARE-NAV-BEGIN> 18.71<F1>
<PER-SHARE-NII> 0.23<F1>
<PER-SHARE-GAIN-APPREC> 3.96<F1>
<PER-SHARE-DIVIDEND> .25<F1>
<PER-SHARE-DISTRIBUTIONS> 1.46<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 21.19<F1>
<EXPENSE-RATIO> .74<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Trust Class Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 023
<NAME> THE ARCH GROWTH & INCOME EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 3,411,13,405
<INVESTMENTS-AT-VALUE> 467,321,522
<RECEIVABLES> 771,186
<ASSETS-OTHER> 19,460
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 468,112,168
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 572,280
<TOTAL-LIABILITIES> 572,280
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 263,643,901
<SHARES-COMMON-STOCK> 4,379,638<F1>
<SHARES-COMMON-PRIOR> 3,907,610<F1>
<ACCUMULATED-NII-CURRENT> 63,954
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 77,623,916
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 126,208,117
<NET-ASSETS> 467,539,888
<DIVIDEND-INCOME> 6,437,875
<INTEREST-INCOME> 629,528
<OTHER-INCOME> 69,842
<EXPENSES-NET> 3,623,021
<NET-INVESTMENT-INCOME> 3,514,224
<REALIZED-GAINS-CURRENT> 78,993,806
<APPREC-INCREASE-CURRENT> 9,568,676
<NET-CHANGE-FROM-OPS> 92,076,706
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 688,883<F1>
<DISTRIBUTIONS-OF-GAINS> 5,714,817<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 845,760<F1>
<NUMBER-OF-SHARES-REDEEMED> 744,988<F1>
<SHARES-REINVESTED> 371,256<F1>
<NET-CHANGE-IN-ASSETS> 4,640,809
<ACCUMULATED-NII-PRIOR> 857,888
<ACCUMULATED-GAINS-PRIOR> 34,828,023
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,392,991
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,978,006
<AVERAGE-NET-ASSETS> 81,836,181<F1>
<PER-SHARE-NAV-BEGIN> 18.67<F1>
<PER-SHARE-NII> 0.12<F1>
<PER-SHARE-GAIN-APPREC> 3.95<F1>
<PER-SHARE-DIVIDEND> .16<F1>
<PER-SHARE-DISTRIBUTIONS> 1.46<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 21.12<F1>
<EXPENSE-RATIO> 1.04<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Institutional Class Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 024
<NAME> THE ARCH GROWTH & INCOME EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 341,113,405
<INVESTMENTS-AT-VALUE> 467,321,522
<RECEIVABLES> 771,186
<ASSETS-OTHER> 19,460
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 468,112,168
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 572,280
<TOTAL-LIABILITIES> 572,280
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 263,643,901
<SHARES-COMMON-STOCK> 303,265<F1>
<SHARES-COMMON-PRIOR> 190,397<F1>
<ACCUMULATED-NII-CURRENT> 63,954
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 77,623,916
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 126,208,117
<NET-ASSETS> 467,539,888
<DIVIDEND-INCOME> 6,437,875
<INTEREST-INCOME> 629,528
<OTHER-INCOME> 69,842
<EXPENSES-NET> 3,623,021
<NET-INVESTMENT-INCOME> 3,514,224
<REALIZED-GAINS-CURRENT> 78,993,806
<APPREC-INCREASE-CURRENT> 9,568,676
<NET-CHANGE-FROM-OPS> 92,076,706
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 19,623<F1>
<DISTRIBUTIONS-OF-GAINS> 278,321<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 116,804<F1>
<NUMBER-OF-SHARES-REDEEMED> 21,377<F1>
<SHARES-REINVESTED> 17,441<F1>
<NET-CHANGE-IN-ASSETS> 4,640,809
<ACCUMULATED-NII-PRIOR> 857,888
<ACCUMULATED-GAINS-PRIOR> 34,828,023
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,392,991
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,978,006
<AVERAGE-NET-ASSETS> 4,945,531<F1>
<PER-SHARE-NAV-BEGIN> 18.58<F1>
<PER-SHARE-NII> (.02)<F1>
<PER-SHARE-GAIN-APPREC> 3.93<F1>
<PER-SHARE-DIVIDEND> .09<F1>
<PER-SHARE-DISTRIBUTIONS> 1.46<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 20.94<F1>
<EXPENSE-RATIO> 1.73<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class B Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 031
<NAME> THE ARCH GOVERNMENT & CORPORATE BOND PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 188,285,105
<INVESTMENTS-AT-VALUE> 193,799,372
<RECEIVABLES> 2,057,059
<ASSETS-OTHER> 6,253
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 195,862,684
<PAYABLE-FOR-SECURITIES> 2,137
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 950,671
<TOTAL-LIABILITIES> 952,808
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 190,767,939
<SHARES-COMMON-STOCK> 461,121<F1>
<SHARES-COMMON-PRIOR> 475,410<F1>
<ACCUMULATED-NII-CURRENT> 75,019
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,447,349)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,514,267
<NET-ASSETS> 194,909,876
<DIVIDEND-INCOME> 79,691
<INTEREST-INCOME> 10,578,072
<OTHER-INCOME> 77,095
<EXPENSES-NET> 1,137,199
<NET-INVESTMENT-INCOME> 9,597,659
<REALIZED-GAINS-CURRENT> (18,762)
<APPREC-INCREASE-CURRENT> 653,623
<NET-CHANGE-FROM-OPS> 10,232,520
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 259,040<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 2,622,237<F1>
<NUMBER-OF-SHARES-REDEEMED> 2,657,122<F1>
<SHARES-REINVESTED> 20,596<F1>
<NET-CHANGE-IN-ASSETS> 33,168,975
<ACCUMULATED-NII-PRIOR> 2,351
<ACCUMULATED-GAINS-PRIOR> (1,355,919)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 743,332
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,735,199
<AVERAGE-NET-ASSETS> 4,741,507<F1>
<PER-SHARE-NAV-BEGIN> 10.34<F1>
<PER-SHARE-NII> .56<F1>
<PER-SHARE-GAIN-APPREC> .01<F1>
<PER-SHARE-DIVIDEND> .56<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 10.35<F1>
<EXPENSE-RATIO> 0.95<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 032
<NAME> THE ARCH GOVERNMENT & CORPORATE BOND PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 188,285,105
<INVESTMENTS-AT-VALUE> 193,799,372
<RECEIVABLES> 2,057,059
<ASSETS-OTHER> 6,253
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 195,862,684
<PAYABLE-FOR-SECURITIES> 2,137
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 950,671
<TOTAL-LIABILITIES> 952,808
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 190,767,939
<SHARES-COMMON-STOCK> 16,650,349<F1>
<SHARES-COMMON-PRIOR> 13,681,482<F1>
<ACCUMULATED-NII-CURRENT> 75,019
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,447,349)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,514,267
<NET-ASSETS> 194,909,876
<DIVIDEND-INCOME> 79,691
<INTEREST-INCOME> 10,578,072
<OTHER-INCOME> 77,095
<EXPENSES-NET> 1,137,199
<NET-INVESTMENT-INCOME> 9,597,659
<REALIZED-GAINS-CURRENT> (18,762)
<APPREC-INCREASE-CURRENT> 653,623
<NET-CHANGE-FROM-OPS> 10,232,520
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,442,748<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 4,998,391<F1>
<NUMBER-OF-SHARES-REDEEMED> 2,438,301<F1>
<SHARES-REINVESTED> 408,777<F1>
<NET-CHANGE-IN-ASSETS> 33,168,975
<ACCUMULATED-NII-PRIOR> 2,351
<ACCUMULATED-GAINS-PRIOR> (1,355,919)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 743,332
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,735,199
<AVERAGE-NET-ASSETS> 144,355,726<F1>
<PER-SHARE-NAV-BEGIN> 10.34<F1>
<PER-SHARE-NII> .59<F1>
<PER-SHARE-GAIN-APPREC> .03<F1>
<PER-SHARE-DIVIDEND> .59<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 10.37<F1>
<EXPENSE-RATIO> 0.65<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Trust Class Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 033
<NAME> THE ARCH GOVERNMENT & CORPORATE BOND PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 188,285,105
<INVESTMENTS-AT-VALUE> 193,799,372
<RECEIVABLES> 2,057,059
<ASSETS-OTHER> 6,253
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 195,862,684
<PAYABLE-FOR-SECURITIES> 2,137
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 950,671
<TOTAL-LIABILITIES> 952,808
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 190,767,939
<SHARES-COMMON-STOCK> 1,635,202<F1>
<SHARES-COMMON-PRIOR> 1,438,805<F1>
<ACCUMULATED-NII-CURRENT> 75,019
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,447,349)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,514,267
<NET-ASSETS> 194,909,876
<DIVIDEND-INCOME> 79,691
<INTEREST-INCOME> 10,578,072
<OTHER-INCOME> 77,095
<EXPENSES-NET> 1,137,199
<NET-INVESTMENT-INCOME> 9,597,659
<REALIZED-GAINS-CURRENT> (18,762)
<APPREC-INCREASE-CURRENT> 653,623
<NET-CHANGE-FROM-OPS> 10,232,520
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 868,878<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 388,441<F1>
<NUMBER-OF-SHARES-REDEEMED> 277,121<F1>
<SHARES-REINVESTED> 85,077<F1>
<NET-CHANGE-IN-ASSETS> 33,168,975
<ACCUMULATED-NII-PRIOR> 2,351
<ACCUMULATED-GAINS-PRIOR> (1,355,919)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 743,332
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,735,199
<AVERAGE-NET-ASSETS> 15,664,609<F1>
<PER-SHARE-NAV-BEGIN> 10.34<F1>
<PER-SHARE-NII> .56<F1>
<PER-SHARE-GAIN-APPREC> .03<F1>
<PER-SHARE-DIVIDEND> .56<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 10.37<F1>
<EXPENSE-RATIO> 0.95<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Institutional Class Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 034
<NAME> THE ARCH GOVERNMENT & CORPORATE BOND PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 188,285,105
<INVESTMENTS-AT-VALUE> 193,799,372
<RECEIVABLES> 2,057,059
<ASSETS-OTHER> 6,253
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 195,862,684
<PAYABLE-FOR-SECURITIES> 2,137
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 950,671
<TOTAL-LIABILITIES> 952,808
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 190,767,939
<SHARES-COMMON-STOCK> 52,581<F1>
<SHARES-COMMON-PRIOR> 49,403<F1>
<ACCUMULATED-NII-CURRENT> 75,019
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,447,340)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,514,267
<NET-ASSETS> 194,909,876
<DIVIDEND-INCOME> 79,691
<INTEREST-INCOME> 10,578,072
<OTHER-INCOME> 77,095
<EXPENSES-NET> 1,137,199
<NET-INVESTMENT-INCOME> 9,597,659
<REALIZED-GAINS-CURRENT> (18,762)
<APPREC-INCREASE-CURRENT> 653,623
<NET-CHANGE-FROM-OPS> 10,232,520
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 26,993<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 8,280<F1>
<NUMBER-OF-SHARES-REDEEMED> 7,198<F1>
<SHARES-REINVESTED> 2,096<F1>
<NET-CHANGE-IN-ASSETS> 33,168,975
<ACCUMULATED-NII-PRIOR> 2,351
<ACCUMULATED-GAINS-PRIOR> (1,355,919)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 743,332
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,735,199
<AVERAGE-NET-ASSETS> 557,475<F1>
<PER-SHARE-NAV-BEGIN> 10.34<F1>
<PER-SHARE-NII> .49<F1>
<PER-SHARE-GAIN-APPREC> .03<F1>
<PER-SHARE-DIVIDEND> .49<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 10.37<F1>
<EXPENSE-RATIO> 1.65<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class B Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 041
<NAME> THE ARCH U.S. GOVERNMENT SECURITIES PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 84,305,561
<INVESTMENTS-AT-VALUE> 84,973,584
<RECEIVABLES> 915,871
<ASSETS-OTHER> 3,864
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 85,893,319
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 444,682
<TOTAL-LIABILITIES> 444,682
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 85,127,376
<SHARES-COMMON-STOCK> 488,002<F1>
<SHARES-COMMON-PRIOR> 670,520<F1>
<ACCUMULATED-NII-CURRENT> 258,001
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (604,763)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 668,023
<NET-ASSETS> 85,448,637
<DIVIDEND-INCOME> 51,851
<INTEREST-INCOME> 5,098,539
<OTHER-INCOME> 28,078
<EXPENSES-NET> 567,619
<NET-INVESTMENT-INCOME> 4,610,849
<REALIZED-GAINS-CURRENT> (202,303)
<APPREC-INCREASE-CURRENT> 17,120
<NET-CHANGE-FROM-OPS> 4,425,666
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 323,804<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 15,979<F1>
<NUMBER-OF-SHARES-REDEEMED> 225,337<F1>
<SHARES-REINVESTED> 26,840<F1>
<NET-CHANGE-IN-ASSETS> 15,624,977
<ACCUMULATED-NII-PRIOR> 218,765
<ACCUMULATED-GAINS-PRIOR> (363,224)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 357,824
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 851,058
<AVERAGE-NET-ASSETS> 5,823,876<F1>
<PER-SHARE-NAV-BEGIN> 10.67<F1>
<PER-SHARE-NII> .60<F1>
<PER-SHARE-GAIN-APPREC> (.07)<F1>
<PER-SHARE-DIVIDEND> 0.58<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 10.62<F1>
<EXPENSE-RATIO> 0.97<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 042
<NAME> THE ARCH U.S. GOVERNMENT SECURITIES PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 84,305,561
<INVESTMENTS-AT-VALUE> 84,973,584
<RECEIVABLES> 915,871
<ASSETS-OTHER> 3,864
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 85,893,319
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 444,682
<TOTAL-LIABILITIES> 444,682
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 85,127,376
<SHARES-COMMON-STOCK> 6,852,567<F1>
<SHARES-COMMON-PRIOR> 5,631,203<F1>
<ACCUMULATED-NII-CURRENT> 258,001
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (604,763)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 668,023
<NET-ASSETS> 85,448,637
<DIVIDEND-INCOME> 51,851
<INTEREST-INCOME> 5,098,539
<OTHER-INCOME> 28,078
<EXPENSES-NET> 567,619
<NET-INVESTMENT-INCOME> 4,610,849
<REALIZED-GAINS-CURRENT> (202,303)
<APPREC-INCREASE-CURRENT> 17,120
<NET-CHANGE-FROM-OPS> 4,425,666
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,973,203<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 2,196,909<F1>
<NUMBER-OF-SHARES-REDEEMED> 1,166,692<F1>
<SHARES-REINVESTED> 191,147<F1>
<NET-CHANGE-IN-ASSETS> 15,624,977
<ACCUMULATED-NII-PRIOR> 218,765
<ACCUMULATED-GAINS-PRIOR> (363,224)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 357,824
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 851,058
<AVERAGE-NET-ASSETS> 68,009,380<F1>
<PER-SHARE-NAV-BEGIN> 10.67<F1>
<PER-SHARE-NII> .61<F1>
<PER-SHARE-GAIN-APPREC> (.05)<F1>
<PER-SHARE-DIVIDEND> 0.61<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 10.62<F1>
<EXPENSE-RATIO> 0.67<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Trust Class Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 043
<NAME> THE ARCH U.S. GOVERNMENT SECURITIES PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 84,305,561
<INVESTMENTS-AT-VALUE> 84,973,584
<RECEIVABLES> 915,871
<ASSETS-OTHER> 3,864
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 85,893,319
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 444,682
<TOTAL-LIABILITIES> 444,682
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 85,127,376
<SHARES-COMMON-STOCK> 666,200<F1>
<SHARES-COMMON-PRIOR> 209,842<F1>
<ACCUMULATED-NII-CURRENT> 258,001
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (604,763)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 668,023
<NET-ASSETS> 85,448,637
<DIVIDEND-INCOME> 51,851
<INTEREST-INCOME> 5,098,539
<OTHER-INCOME> 28,078
<EXPENSES-NET> 56,7619
<NET-INVESTMENT-INCOME> 4,610,849
<REALIZED-GAINS-CURRENT> (202,303)
<APPREC-INCREASE-CURRENT> 17,120
<NET-CHANGE-FROM-OPS> 4,425,666
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 292,762<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 599,173<F1>
<NUMBER-OF-SHARES-REDEEMED> 168,592<F1>
<SHARES-REINVESTED> 25,777<F1>
<NET-CHANGE-IN-ASSETS> 15,624,977
<ACCUMULATED-NII-PRIOR> 258,001
<ACCUMULATED-GAINS-PRIOR> (604,763)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 357,824
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 851,058
<AVERAGE-NET-ASSETS> 5,306,747<F1>
<PER-SHARE-NAV-BEGIN> 10.64<F1>
<PER-SHARE-NII> .56<F1>
<PER-SHARE-GAIN-APPREC> (.04)<F1>
<PER-SHARE-DIVIDEND> 0.58<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 10.58<F1>
<EXPENSE-RATIO> 0.97<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Institutional Class Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 044
<NAME> THE ARCH U.S. GOVERNMENT SECURITIES PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 84,305,561
<INVESTMENTS-AT-VALUE> 84,973,584
<RECEIVABLES> 915,871
<ASSETS-OTHER> 3,864
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 85,893,319
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 444,682
<TOTAL-LIABILITIES> 444,682
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 85,127,376
<SHARES-COMMON-STOCK> 43,923<F1>
<SHARES-COMMON-PRIOR> 33,698<F1>
<ACCUMULATED-NII-CURRENT> 258,001
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (604,763)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 668,023
<NET-ASSETS> 85,448,637
<DIVIDEND-INCOME> 51,851
<INTEREST-INCOME> 5,098,539
<OTHER-INCOME> 28,078
<EXPENSES-NET> 567,619
<NET-INVESTMENT-INCOME> 4,610,849
<REALIZED-GAINS-CURRENT> (202,303)
<APPREC-INCREASE-CURRENT> 17,120
<NET-CHANGE-FROM-OPS> 4,425,666
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 21,080<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 12,926<F1>
<NUMBER-OF-SHARES-REDEEMED> 4,364<F1>
<SHARES-REINVESTED> 1,663<F1>
<NET-CHANGE-IN-ASSETS> 15,624,977
<ACCUMULATED-NII-PRIOR> 218,765
<ACCUMULATED-GAINS-PRIOR> (363,224)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 357,824
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 851,058
<AVERAGE-NET-ASSETS> 435,308<F1>
<PER-SHARE-NAV-BEGIN> 10.66<F1>
<PER-SHARE-NII> .51<F1>
<PER-SHARE-GAIN-APPREC> (.05)<F1>
<PER-SHARE-DIVIDEND> 0.51<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 10.61<F1>
<EXPENSE-RATIO> 1.67<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class B Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 051
<NAME> THE ARCH TREASURY MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 292,336,676
<INVESTMENTS-AT-VALUE> 292,336,676
<RECEIVABLES> 1,048,286
<ASSETS-OTHER> 28,661
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 293,413,623
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,118,879
<TOTAL-LIABILITIES> 1,118,879
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 292,274,278
<SHARES-COMMON-STOCK> 8,408,569<F1>
<SHARES-COMMON-PRIOR> 7,666,856<F1>
<ACCUMULATED-NII-CURRENT> 6,076
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 14,930
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 292,294,744
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8,808,910
<OTHER-INCOME> 0
<EXPENSES-NET> 1,037,426
<NET-INVESTMENT-INCOME> 7,771,484
<REALIZED-GAINS-CURRENT> 14,390
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 7,785,874
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 282,566<F1>
<DISTRIBUTIONS-OF-GAINS> 469<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 18,452,906<F1>
<NUMBER-OF-SHARES-REDEEMED> 17,987,741<F1>
<SHARES-REINVESTED> 276,548<F1>
<NET-CHANGE-IN-ASSETS> 153,000,904
<ACCUMULATED-NII-PRIOR> 5,719
<ACCUMULATED-GAINS-PRIOR> 8,867
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 677,129
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,563,925
<AVERAGE-NET-ASSETS> 6,380,102<F1>
<PER-SHARE-NAV-BEGIN> 1.000<F1>
<PER-SHARE-NII> .044<F1>
<PER-SHARE-GAIN-APPREC> .000<F1>
<PER-SHARE-DIVIDEND> .044<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 1.000<F1>
<EXPENSE-RATIO> .770<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 052
<NAME> THE ARCH TREASURY MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 292,336,676
<INVESTMENTS-AT-VALUE> 292,336,676
<RECEIVABLES> 1,048,286
<ASSETS-OTHER> 28,661
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 293,413,623
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,118,879
<TOTAL-LIABILITIES> 1,118,879
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 292,274,278
<SHARES-COMMON-STOCK> 283,635,416<F1>
<SHARES-COMMON-PRIOR> 131,310,132<F1>
<ACCUMULATED-NII-CURRENT> 6,076
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 14,930
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 292,294,744
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8,808,910
<OTHER-INCOME> 0
<EXPENSES-NET> 1,037,426
<NET-INVESTMENT-INCOME> 7,771,484
<REALIZED-GAINS-CURRENT> 14,390
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 7,785,874
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7,473,431<F1>
<DISTRIBUTIONS-OF-GAINS> 8,023<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 974,965,195<F1>
<NUMBER-OF-SHARES-REDEEMED> 825,860,764<F1>
<SHARES-REINVESTED> 3,220,851<F1>
<NET-CHANGE-IN-ASSETS> 153,000,904
<ACCUMULATED-NII-PRIOR> 5,719
<ACCUMULATED-GAINS-PRIOR> 8,867
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 677,129
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,563,925
<AVERAGE-NET-ASSETS> 162,593,389<F1>
<PER-SHARE-NAV-BEGIN> 1.000<F1>
<PER-SHARE-NII> .046<F1>
<PER-SHARE-GAIN-APPREC> .000<F1>
<PER-SHARE-DIVIDEND> .046<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 1.000<F1>
<EXPENSE-RATIO> .610<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Trust Class Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 053
<NAME> THE ARCH TREASURY MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 292,336,676
<INVESTMENTS-AT-VALUE> 292,336,676
<RECEIVABLES> 1,048,286
<ASSETS-OTHER> 28,661
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 293,413,623
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,118,879
<TOTAL-LIABILITIES> 1,118,879
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 292,274,278
<SHARES-COMMON-STOCK> 232,716<F1>
<SHARES-COMMON-PRIOR> 298,802<F1>
<ACCUMULATED-NII-CURRENT> 6,076
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 14,390
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 292,294,744
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8,808,910
<OTHER-INCOME> 0
<EXPENSES-NET> 1,037,426
<NET-INVESTMENT-INCOME> 7,771,484
<REALIZED-GAINS-CURRENT> 14,390
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 7,785,874
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 15,487<F1>
<DISTRIBUTIONS-OF-GAINS> 18<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 714,908<F1>
<NUMBER-OF-SHARES-REDEEMED> 781,277<F1>
<SHARES-REINVESTED> 276<F1>
<NET-CHANGE-IN-ASSETS> 153,000,904
<ACCUMULATED-NII-PRIOR> 5,719
<ACCUMULATED-GAINS-PRIOR> 8,867
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 677,129
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,563,925
<AVERAGE-NET-ASSETS> 348,465<F1>
<PER-SHARE-NAV-BEGIN> 1.000<F1>
<PER-SHARE-NII> .044<F1>
<PER-SHARE-GAIN-APPREC> .000<F1>
<PER-SHARE-DIVIDEND> .044<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 1.000<F1>
<EXPENSE-RATIO> .770<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Institutional Class Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 061
<NAME> THE ARCH SMALL CAP EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 229,123,387
<INVESTMENTS-AT-VALUE> 261,841,715
<RECEIVABLES> 131,548
<ASSETS-OTHER> 11,296
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 261,984,559
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 230,662
<TOTAL-LIABILITIES> 230,662
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 208,276,335
<SHARES-COMMON-STOCK> 945,598<F1>
<SHARES-COMMON-PRIOR> 1,036,243<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 20,759,234
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 32,718,328
<NET-ASSETS> 261,753,897
<DIVIDEND-INCOME> 1,548,239
<INTEREST-INCOME> 584,420
<OTHER-INCOME> 151,231
<EXPENSES-NET> 2,415,815
<NET-INVESTMENT-INCOME> (131,925)
<REALIZED-GAINS-CURRENT> 20,891,156
<APPREC-INCREASE-CURRENT> 21,069,188
<NET-CHANGE-FROM-OPS> 41,828,419
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,444<F1>
<DISTRIBUTIONS-OF-GAINS> 848,322<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 562,627<F1>
<NUMBER-OF-SHARES-REDEEMED> 719,822<F1>
<SHARES-REINVESTED> 66,550<F1>
<NET-CHANGE-IN-ASSETS> 45,216,361
<ACCUMULATED-NII-PRIOR> 161,024
<ACCUMULATED-GAINS-PRIOR> 13,244,511
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,783,332
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,223,253
<AVERAGE-NET-ASSETS> 13,914,805<F1>
<PER-SHARE-NAV-BEGIN> 13.40<F1>
<PER-SHARE-NII> (0.05)<F1>
<PER-SHARE-GAIN-APPREC> 2.50<F1>
<PER-SHARE-DIVIDEND> .000<F1>
<PER-SHARE-DISTRIBUTIONS> 0.82<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 15.03<F1>
<EXPENSE-RATIO> 1.25<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 062
<NAME> THE ARCH SMALL CAP EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 229,123,387
<INVESTMENTS-AT-VALUE> 261,841,715
<RECEIVABLES> 131,548
<ASSETS-OTHER> 11,296
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 261,984,559
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 230,662
<TOTAL-LIABILITIES> 230,662
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 208,276,335
<SHARES-COMMON-STOCK> 13,949,792<F1>
<SHARES-COMMON-PRIOR> 12,702,144<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 20,759,234
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 32,718,328
<NET-ASSETS> 261,753,897
<DIVIDEND-INCOME> 1,548,239
<INTEREST-INCOME> 584,420
<OTHER-INCOME> 151,231
<EXPENSES-NET> 2,415,815
<NET-INVESTMENT-INCOME> (131,925)
<REALIZED-GAINS-CURRENT> 20,891,156
<APPREC-INCREASE-CURRENT> 21,069,188
<NET-CHANGE-FROM-OPS> 41,828,419
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 128,362<F1>
<DISTRIBUTIONS-OF-GAINS> 10,472,317<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 2,220,381<F1>
<NUMBER-OF-SHARES-REDEEMED> 1,691,027<F1>
<SHARES-REINVESTED> 718,294<F1>
<NET-CHANGE-IN-ASSETS> 45,216,361
<ACCUMULATED-NII-PRIOR> 161,024
<ACCUMULATED-GAINS-PRIOR> 13,244,511
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,783,332
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,223,253
<AVERAGE-NET-ASSETS> 189,998,337<F1>
<PER-SHARE-NAV-BEGIN> 13.49<F1>
<PER-SHARE-NII> .01<F1>
<PER-SHARE-GAIN-APPREC> 2.50<F1>
<PER-SHARE-DIVIDEND> .010<F1>
<PER-SHARE-DISTRIBUTIONS> 0.82<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 15.17<F1>
<EXPENSE-RATIO> .95<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Trust Class Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 063
<NAME> THE ARCH SMALL CAP EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 229,123,387
<INVESTMENTS-AT-VALUE> 261,841,715
<RECEIVABLES> 131,548
<ASSETS-OTHER> 11,296
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 261,984,559
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 230,662
<TOTAL-LIABILITIES> 230,662
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 208,276,335
<SHARES-COMMON-STOCK> 2,295,362<F1>
<SHARES-COMMON-PRIOR> 2,252,184<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 20,759,234
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 32,718,328
<NET-ASSETS> 261,753,897
<DIVIDEND-INCOME> 1,548,239
<INTEREST-INCOME> 584,420
<OTHER-INCOME> 151,231
<EXPENSES-NET> 2,415,815
<NET-INVESTMENT-INCOME> (131,925)
<REALIZED-GAINS-CURRENT> 20,891,156
<APPREC-INCREASE-CURRENT> 21,069,188
<NET-CHANGE-FROM-OPS> 41,828,419
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,874<F1>
<DISTRIBUTIONS-OF-GAINS> 1,844,024<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 517,342<F1>
<NUMBER-OF-SHARES-REDEEMED> 620,536<F1>
<SHARES-REINVESTED> 146,372<F1>
<NET-CHANGE-IN-ASSETS> 45,216,361
<ACCUMULATED-NII-PRIOR> 161,024
<ACCUMULATED-GAINS-PRIOR> 13,244,511
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,783,332
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,223,253
<AVERAGE-NET-ASSETS> 32,649,674<F1>
<PER-SHARE-NAV-BEGIN> 13.36<F1>
<PER-SHARE-NII> (0.04)<F1>
<PER-SHARE-GAIN-APPREC> 2.48<F1>
<PER-SHARE-DIVIDEND> .000<F1>
<PER-SHARE-DISTRIBUTIONS> 0.82<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 14.98<F1>
<EXPENSE-RATIO> 1.25<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Institutional Class Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 064
<NAME> THE ARCH SMALL CAP EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 229,123,387
<INVESTMENTS-AT-VALUE> 261,841,715
<RECEIVABLES> 131,548
<ASSETS-OTHER> 11,296
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 261,984,559
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 230,662
<TOTAL-LIABILITIES> 230,662
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 208,276,335
<SHARES-COMMON-STOCK> 101,938<F1>
<SHARES-COMMON-PRIOR> 96,074<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 20,759,234
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 32,718,328
<NET-ASSETS> 261,753,897
<DIVIDEND-INCOME> 1,548,239
<INTEREST-INCOME> 584,420
<OTHER-INCOME> 151,231
<EXPENSES-NET> 2,415,815
<NET-INVESTMENT-INCOME> (131,925)
<REALIZED-GAINS-CURRENT> 20,891,156
<APPREC-INCREASE-CURRENT> 21,069,188
<NET-CHANGE-FROM-OPS> 41,828,419
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0<F1>
<DISTRIBUTIONS-OF-GAINS> 78,682<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 21,436<F1>
<NUMBER-OF-SHARES-REDEEMED> 21,821<F1>
<SHARES-REINVESTED> 6,249<F1>
<NET-CHANGE-IN-ASSETS> 45,216,361
<ACCUMULATED-NII-PRIOR> 161,024
<ACCUMULATED-GAINS-PRIOR> 13,244,511
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,783,332
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,223,253
<AVERAGE-NET-ASSETS> 1,387,176
<PER-SHARE-NAV-BEGIN> 13.24<F1>
<PER-SHARE-NII> (0.13)<F1>
<PER-SHARE-GAIN-APPREC> 2.45<F1>
<PER-SHARE-DIVIDEND> .000<F1>
<PER-SHARE-DISTRIBUTIONS> 0.82<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 14.74<F1>
<EXPENSE-RATIO> 1.95<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class B Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 071
<NAME> THE ARCH BALANCED PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 108,707,400
<INVESTMENTS-AT-VALUE> 127,236,430
<RECEIVABLES> 665,015
<ASSETS-OTHER> 3,261
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 127,904,706
<PAYABLE-FOR-SECURITIES> 1,152,826
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 352,503
<TOTAL-LIABILITIES> 1,505,329
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 93,867,682
<SHARES-COMMON-STOCK> 784,059<F1>
<SHARES-COMMON-PRIOR> 741,573<F1>
<ACCUMULATED-NII-CURRENT> 52,975
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 13,949,690
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 18,529,030
<NET-ASSETS> 126,399,377
<DIVIDEND-INCOME> 1,027,528
<INTEREST-INCOME> 3,463,618
<OTHER-INCOME> 31,285
<EXPENSES-NET> 1,349,163
<NET-INVESTMENT-INCOME> 3,173,268
<REALIZED-GAINS-CURRENT> 14,346,475
<APPREC-INCREASE-CURRENT> (420,214)
<NET-CHANGE-FROM-OPS> 17,099,529
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 304,897<F1>
<DISTRIBUTIONS-OF-GAINS> 528,296<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 126,661<F1>
<NUMBER-OF-SHARES-REDEEMED> 187,760<F1>
<SHARES-REINVESTED> 67,585<F1>
<NET-CHANGE-IN-ASSETS> 198,208
<ACCUMULATED-NII-PRIOR> 808,152
<ACCUMULATED-GAINS-PRIOR> 6,697,145
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 885,481
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,615,645
<AVERAGE-NET-ASSETS> 9,581,063<F1>
<PER-SHARE-NAV-BEGIN> 12.58<F1>
<PER-SHARE-NII> 0.32<F1>
<PER-SHARE-GAIN-APPREC> 1.47<F1>
<PER-SHARE-DIVIDEND> 0.40<F1>
<PER-SHARE-DISTRIBUTIONS> 0.71<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 13.26<F1>
<EXPENSE-RATIO> 1.27<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 072
<NAME> THE ARCH BALANCED PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 108,707,400
<INVESTMENTS-AT-VALUE> 127,236,430
<RECEIVABLES> 665,015
<ASSETS-OTHER> 3,261
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 127,904,706
<PAYABLE-FOR-SECURITIES> 1,152,826
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 352,503
<TOTAL-LIABILITIES> 1,505,329
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 93,867,682
<SHARES-COMMON-STOCK> 4,092,138<F1>
<SHARES-COMMON-PRIOR> 4,915,712<F1>
<ACCUMULATED-NII-CURRENT> 52,975
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 13,949,690
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 18,529,030
<NET-ASSETS> 126,399,377
<DIVIDEND-INCOME> 1,027,528
<INTEREST-INCOME> 3,463,618
<OTHER-INCOME> 31,285
<EXPENSES-NET> 1,349,163
<NET-INVESTMENT-INCOME> 3,173,268
<REALIZED-GAINS-CURRENT> 14,346,475
<APPREC-INCREASE-CURRENT> (420,214)
<NET-CHANGE-FROM-OPS> 17,099,529
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,722,814<F1>
<DISTRIBUTIONS-OF-GAINS> 3,475,261<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 881,762<F1>
<NUMBER-OF-SHARES-REDEEMED> 2,111,332<F1>
<SHARES-REINVESTED> 405,996<F1>
<NET-CHANGE-IN-ASSETS> 198,208
<ACCUMULATED-NII-PRIOR> 808,152
<ACCUMULATED-GAINS-PRIOR> 6,697,145
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 885,481
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,615,645
<AVERAGE-NET-ASSETS> 49,452,520<F1>
<PER-SHARE-NAV-BEGIN> 12.58<F1>
<PER-SHARE-NII> 0.38<F1>
<PER-SHARE-GAIN-APPREC> 1.45<F1>
<PER-SHARE-DIVIDEND> 0.43<F1>
<PER-SHARE-DISTRIBUTIONS> 0.71<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 13.27<F1>
<EXPENSE-RATIO> 0.97<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Trust Class Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 073
<NAME> THE ARCH BALANCED PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 108,707,400
<INVESTMENTS-AT-VALUE> 127,236,430
<RECEIVABLES> 665,015
<ASSETS-OTHER> 3,261
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 127,904,706
<PAYABLE-FOR-SECURITIES> 1,152,826
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 352,503
<TOTAL-LIABILITIES> 1,505,329
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 93,867,682
<SHARES-COMMON-STOCK> 4,660,917<F1>
<SHARES-COMMON-PRIOR> 4,363,483<F1>
<ACCUMULATED-NII-CURRENT> 52,975
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 13,949,690
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 18,529,030
<NET-ASSETS> 126,399,377
<DIVIDEND-INCOME> 1,027,528
<INTEREST-INCOME> 3,463,618
<OTHER-INCOME> 31,285
<EXPENSES-NET> 1,349,163
<NET-INVESTMENT-INCOME> 3,173,268
<REALIZED-GAINS-CURRENT> 14,346,475
<APPREC-INCREASE-CURRENT> (420,214)
<NET-CHANGE-FROM-OPS> 17,099,529
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,876,251<F1>
<DISTRIBUTIONS-OF-GAINS> 3,086,347<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 1,083,548<F1>
<NUMBER-OF-SHARES-REDEEMED> 1,193,788<F1>
<SHARES-REINVESTED> 407,674<F1>
<NET-CHANGE-IN-ASSETS> 198,208
<ACCUMULATED-NII-PRIOR> 808,152
<ACCUMULATED-GAINS-PRIOR> 6,697,145
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 885,481
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,615,645
<AVERAGE-NET-ASSETS> 58,625,996<F1>
<PER-SHARE-NAV-BEGIN> 12.54<F1>
<PER-SHARE-NII> 0.31<F1>
<PER-SHARE-GAIN-APPREC> 1.49<F1>
<PER-SHARE-DIVIDEND> 0.40<F1>
<PER-SHARE-DISTRIBUTIONS> 0.71<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 13.23<F1>
<EXPENSE-RATIO> 1.27<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Institutional Class Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 074
<NAME> THE ARCH BALANCED PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 108,707,400
<INVESTMENTS-AT-VALUE> 127,236,430
<RECEIVABLES> 665,015
<ASSETS-OTHER> 3,261
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 127,904,706
<PAYABLE-FOR-SECURITIES> 1,152,826
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 352,503
<TOTAL-LIABILITIES> 1,505,329
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 93,867,682
<SHARES-COMMON-STOCK> 39,698<F1>
<SHARES-COMMON-PRIOR> 25,723<F1>
<ACCUMULATED-NII-CURRENT> 52,975
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 13,949,690
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 18,529,030
<NET-ASSETS> 126,399,377
<DIVIDEND-INCOME> 1,027,528
<INTEREST-INCOME> 3,463,618
<OTHER-INCOME> 31,285
<EXPENSES-NET> 1,349,163
<NET-INVESTMENT-INCOME> 3,173,268
<REALIZED-GAINS-CURRENT> 14,346,475
<APPREC-INCREASE-CURRENT> (420,214)
<NET-CHANGE-FROM-OPS> 17,099,529
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10,327<F1>
<DISTRIBUTIONS-OF-GAINS> 18,182<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 15,906<F1>
<NUMBER-OF-SHARES-REDEEMED> 4,025<F1>
<SHARES-REINVESTED> 2,094<F1>
<NET-CHANGE-IN-ASSETS> 198,208
<ACCUMULATED-NII-PRIOR> 808,152
<ACCUMULATED-GAINS-PRIOR> 6,697,145
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 885,481
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,615,645
<AVERAGE-NET-ASSETS> 431,484<F1>
<PER-SHARE-NAV-BEGIN> 12.49<F1>
<PER-SHARE-NII> 0.25<F1>
<PER-SHARE-GAIN-APPREC> 1.43<F1>
<PER-SHARE-DIVIDEND> 0.31<F1>
<PER-SHARE-DISTRIBUTIONS> 0.71<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 13.15<F1>
<EXPENSE-RATIO> 1.96<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class B Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 081
<NAME> THE ARCH INTERNATIONAL EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 56,404,049
<INVESTMENTS-AT-VALUE> 62,450,160
<RECEIVABLES> 722,381
<ASSETS-OTHER> 2,486,318
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 65,658,859
<PAYABLE-FOR-SECURITIES> 287,424
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 119,079
<TOTAL-LIABILITIES> 406,503
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 56,800,419
<SHARES-COMMON-STOCK> 238,056<F1>
<SHARES-COMMON-PRIOR> 213,589<F1>
<ACCUMULATED-NII-CURRENT> 113,227
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,332,697
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,006,013
<NET-ASSETS> 65,252,356
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 937,516
<OTHER-INCOME> (39,832)
<EXPENSES-NET> 873,088
<NET-INVESTMENT-INCOME> 24,596
<REALIZED-GAINS-CURRENT> 2,616,208
<APPREC-INCREASE-CURRENT> (1,063,329)
<NET-CHANGE-FROM-OPS> 1,577,475
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 11,517<F1>
<DISTRIBUTIONS-OF-GAINS> 67,022<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 59,032<F1>
<NUMBER-OF-SHARES-REDEEMED> 41,200<F1>
<SHARES-REINVESTED> 6,635<F1>
<NET-CHANGE-IN-ASSETS> 4,002,296
<ACCUMULATED-NII-PRIOR> 119,518
<ACCUMULATED-GAINS-PRIOR> 1,555,754
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 641,772
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,146,054
<AVERAGE-NET-ASSETS> 2,867,369<F1>
<PER-SHARE-NAV-BEGIN> 12,050<F1>
<PER-SHARE-NII> (.020)<F1>
<PER-SHARE-GAIN-APPREC> .320<F1>
<PER-SHARE-DIVIDEND> .050<F1>
<PER-SHARE-DISTRIBUTIONS> .310<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 11.990<F1>
<EXPENSE-RATIO> 1.59<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 082
<NAME> THE ARCH INTERNATIONAL EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 56,404,049
<INVESTMENTS-AT-VALUE> 62,450,160
<RECEIVABLES> 722,381
<ASSETS-OTHER> 2,486,318
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 65,658,859
<PAYABLE-FOR-SECURITIES> 287,424
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 119,079
<TOTAL-LIABILITIES> 406,503
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 56,800,419
<SHARES-COMMON-STOCK> 4,552,299<F1>
<SHARES-COMMON-PRIOR> 4,305,174<F1>
<ACCUMULATED-NII-CURRENT> 113,227
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,332,697
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,006,013
<NET-ASSETS> 65,252,356
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 937,516
<OTHER-INCOME> (39,832)
<EXPENSES-NET> 873,088
<NET-INVESTMENT-INCOME> 24,596
<REALIZED-GAINS-CURRENT> 2,616,208
<APPREC-INCREASE-CURRENT> (1,063,329)
<NET-CHANGE-FROM-OPS> 1,577,475
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 266,619<F1>
<DISTRIBUTIONS-OF-GAINS> 1,335,713<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 687,342<F1>
<NUMBER-OF-SHARES-REDEEMED> 510,626<F1>
<SHARES-REINVESTED> 70,409<F1>
<NET-CHANGE-IN-ASSETS> 4,002,296
<ACCUMULATED-NII-PRIOR> 119,518
<ACCUMULATED-GAINS-PRIOR> 1,555,754
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 641,772
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,146,054
<AVERAGE-NET-ASSETS> 55,153,883<F1>
<PER-SHARE-NAV-BEGIN> 12.120<F1>
<PER-SHARE-NII> .010<F1>
<PER-SHARE-GAIN-APPREC> .330<F1>
<PER-SHARE-DIVIDEND> .060<F1>
<PER-SHARE-DISTRIBUTIONS> .310<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 12.090<F1>
<EXPENSE-RATIO> 1.29<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Trust Class Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 083
<NAME> THE ARCH INTERNATIONAL EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 56,404,049
<INVESTMENTS-AT-VALUE> 62,450,160
<RECEIVABLES> 722,381
<ASSETS-OTHER> 2,486,318
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 65,658,859
<PAYABLE-FOR-SECURITIES> 287,424
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 119,079
<TOTAL-LIABILITIES> 406,503
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 56,800,419
<SHARES-COMMON-STOCK> 567,936<F1>
<SHARES-COMMON-PRIOR> 503,707<F1>
<ACCUMULATED-NII-CURRENT> 113,227
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,332,697
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,006,013
<NET-ASSETS> 65,252,356
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 937,516
<OTHER-INCOME> (39,832)
<EXPENSES-NET> 873,088
<NET-INVESTMENT-INCOME> 24,596
<REALIZED-GAINS-CURRENT> 2,616,208
<APPREC-INCREASE-CURRENT> (1,063,329)
<NET-CHANGE-FROM-OPS> 1,577,475
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 26,541<F1>
<DISTRIBUTIONS-OF-GAINS> 156,272<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 171,752<F1>
<NUMBER-OF-SHARES-REDEEMED> 123,206<F1>
<SHARES-REINVESTED> 15,683<F1>
<NET-CHANGE-IN-ASSETS> 4,002,296
<ACCUMULATED-NII-PRIOR> 119,518
<ACCUMULATED-GAINS-PRIOR> 1,555,754
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 641,772
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,146,054
<AVERAGE-NET-ASSETS> 3,318,136<F1>
<PER-SHARE-NAV-BEGIN> 12.030<F1>
<PER-SHARE-NII> (.030)<F1>
<PER-SHARE-GAIN-APPREC> .330<F1>
<PER-SHARE-DIVIDEND> .050<F1>
<PER-SHARE-DISTRIBUTIONS> .310<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 11.970<F1>
<EXPENSE-RATIO> 1.59<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Institutional Class Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 084
<NAME> THE ARCH INTERNATIONAL EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 56,404,049
<INVESTMENTS-AT-VALUE> 62,450,160
<RECEIVABLES> 722,381
<ASSETS-OTHER> 2,486,318
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 65,658,859
<PAYABLE-FOR-SECURITIES> 287,424
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 119,079
<TOTAL-LIABILITIES> 406,503
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 56,800,419
<SHARES-COMMON-STOCK> 47,740<F1>
<SHARES-COMMON-PRIOR> 36,691<F1>
<ACCUMULATED-NII-CURRENT> 113,227
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,332,697
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,006,013
<NET-ASSETS> 65,252,356
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 937,516
<OTHER-INCOME> (39,832)
<EXPENSES-NET> 873,088
<NET-INVESTMENT-INCOME> 24,596
<REALIZED-GAINS-CURRENT> 2,616,208
<APPREC-INCREASE-CURRENT> (1,063,329)
<NET-CHANGE-FROM-OPS> 1,577,475
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,047<F1>
<DISTRIBUTIONS-OF-GAINS> 11,381<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 16,938<F1>
<NUMBER-OF-SHARES-REDEEMED> 6,957<F1>
<SHARES-REINVESTED> 1,068<F1>
<NET-CHANGE-IN-ASSETS> 4,002,296
<ACCUMULATED-NII-PRIOR> 119,518
<ACCUMULATED-GAINS-PRIOR> 1,555,754
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 641,772
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,146,054
<AVERAGE-NET-ASSETS> 516,515<F1>
<PER-SHARE-NAV-BEGIN> 11.900<F1>
<PER-SHARE-NII> (.090)<F1>
<PER-SHARE-GAIN-APPREC> .300<F1>
<PER-SHARE-DIVIDEND> .030<F1>
<PER-SHARE-DISTRIBUTIONS> .310<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 11.770<F1>
<EXPENSE-RATIO> 2.29<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class B Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 091
<NAME> THE ARCH TAX EXEMPT MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 158,971,414
<INVESTMENTS-AT-VALUE> 158,971,414
<RECEIVABLES> 816,622
<ASSETS-OTHER> 6,610
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 159,794,646
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 488,573
<TOTAL-LIABILITIES> 488,573
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 159,293,913
<SHARES-COMMON-STOCK> 15,788,672<F1>
<SHARES-COMMON-PRIOR> 17,984,067<F1>
<ACCUMULATED-NII-CURRENT> 12,160
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 159,306,073
<DIVIDEND-INCOME> 42,442
<INTEREST-INCOME> 5,312,741
<OTHER-INCOME> 0
<EXPENSES-NET> 892,526
<NET-INVESTMENT-INCOME> 4,462,657
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 4,462,657
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 476,137<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 42,324,801<F1>
<NUMBER-OF-SHARES-REDEEMED> 44,984,145<F1>
<SHARES-REINVESTED> 463,949<F1>
<NET-CHANGE-IN-ASSETS> 45,596,094
<ACCUMULATED-NII-PRIOR> 12,160
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 592,523
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,223,410
<AVERAGE-NET-ASSETS> 16,868,394<F1>
<PER-SHARE-NAV-BEGIN> 1.000<F1>
<PER-SHARE-NII> .028<F1>
<PER-SHARE-GAIN-APPREC> .000<F1>
<PER-SHARE-DIVIDEND> .028<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 1.000<F1>
<EXPENSE-RATIO> .770<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 092
<NAME> THE ARCH TAX EXEMPT MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 158,971,414
<INVESTMENTS-AT-VALUE> 158,971,414
<RECEIVABLES> 816,622
<ASSETS-OTHER> 6,610
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 159,794,646
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 488,573
<TOTAL-LIABILITIES> 488,573
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 159,293,913
<SHARES-COMMON-STOCK> 143,517,330<F1>
<SHARES-COMMON-PRIOR> 95,725,841<F1>
<ACCUMULATED-NII-CURRENT> 12,160
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 159,306,073
<DIVIDEND-INCOME> 42,442
<INTEREST-INCOME> 5,312,741
<OTHER-INCOME> 0
<EXPENSES-NET> 892,526
<NET-INVESTMENT-INCOME> 4,462,657
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 4,462,657
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,986,520<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 335,656,279<F1>
<NUMBER-OF-SHARES-REDEEMED> 288,242,067<F1>
<SHARES-REINVESTED> 377,277<F1>
<NET-CHANGE-IN-ASSETS> 45,596,094
<ACCUMULATED-NII-PRIOR> 12,160
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 592,523
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,223,410
<AVERAGE-NET-ASSETS> 131,290,621<F1>
<PER-SHARE-NAV-BEGIN> 1.000<F1>
<PER-SHARE-NII> .030<F1>
<PER-SHARE-GAIN-APPREC> .000<F1>
<PER-SHARE-DIVIDEND> .030<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 1.000<F1>
<EXPENSE-RATIO> .580<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Trust Class Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 101
<NAME> THE ARCH MISSOURI TAX-EXEMPT BOND PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 95,215,701
<INVESTMENTS-AT-VALUE> 99,516,311
<RECEIVABLES> 1,465,217
<ASSETS-OTHER> 3,948
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 100,985,476
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 435,101
<TOTAL-LIABILITIES> 435,101
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 96,368,338
<SHARES-COMMON-STOCK> 1,998,194<F1>
<SHARES-COMMON-PRIOR> 2,151,158<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (118,573)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,300,610
<NET-ASSETS> 100,550,375
<DIVIDEND-INCOME> 136,991
<INTEREST-INCOME> 4,858,572
<OTHER-INCOME> 0
<EXPENSES-NET> 664,667
<NET-INVESTMENT-INCOME> 4,330,896
<REALIZED-GAINS-CURRENT> (31)
<APPREC-INCREASE-CURRENT> 1,604,104
<NET-CHANGE-FROM-OPS> 5,934,969
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,104,237<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 128,988<F1>
<NUMBER-OF-SHARES-REDEEMED> 349,719<F1>
<SHARES-REINVESTED> 67,767<F1>
<NET-CHANGE-IN-ASSETS> 18,826,650
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (118,542)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 414,195
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 981,623
<AVERAGE-NET-ASSETS> 24,177,256<F1>
<PER-SHARE-NAV-BEGIN> 11.690<F1>
<PER-SHARE-NII> .530<F1>
<PER-SHARE-GAIN-APPREC> .180<F1>
<PER-SHARE-DIVIDEND> .530<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 11.870<F1>
<EXPENSE-RATIO> .860<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 102
<NAME> THE ARCH MISSOURI TAX-EXEMPT BOND PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 95,215,701
<INVESTMENTS-AT-VALUE> 99,516,311
<RECEIVABLES> 1,465,217
<ASSETS-OTHER> 3,948
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 100,985,476
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 435,101
<TOTAL-LIABILITIES> 435,101
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 96,368,338
<SHARES-COMMON-STOCK> 6,353,207<F1>
<SHARES-COMMON-PRIOR> 4,782,605<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (118,573)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,300,610
<NET-ASSETS> 100,550,375
<DIVIDEND-INCOME> 136,991
<INTEREST-INCOME> 4,858,572
<OTHER-INCOME> 0
<EXPENSES-NET> 664,667
<NET-INVESTMENT-INCOME> 4,330,896
<REALIZED-GAINS-CURRENT> (31)
<APPREC-INCREASE-CURRENT> 1,604,104
<NET-CHANGE-FROM-OPS> 5,934,969
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,189,996<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 2,053,156<F1>
<NUMBER-OF-SHARES-REDEEMED> 510,882<F1>
<SHARES-REINVESTED> 28,328<F1>
<NET-CHANGE-IN-ASSETS> 18,826,650
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (118,542)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 414,195
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 981,623
<AVERAGE-NET-ASSETS> 66,960,937<F1>
<PER-SHARE-NAV-BEGIN> 11.690<F1>
<PER-SHARE-NII> .560<F1>
<PER-SHARE-GAIN-APPREC> .180<F1>
<PER-SHARE-DIVIDEND> .560<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 11.870<F1>
<EXPENSE-RATIO> .660<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Trust Class Shares
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 103
<NAME> THE ARCH MISSOURI TAX-EXEMPT BOND PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 95,215,701
<INVESTMENTS-AT-VALUE> 99,516,311
<RECEIVABLES> 1,465,217
<ASSETS-OTHER> 3,948
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 100,985,476
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 435,101
<TOTAL-LIABILITIES> 435,101
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 96,368,338
<SHARES-COMMON-STOCK> 117,871<F1>
<SHARES-COMMON-PRIOR> 57,799<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (118,573)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,300,610
<NET-ASSETS> 100,550,375
<DIVIDEND-INCOME> 136,991
<INTEREST-INCOME> 4,858,572
<OTHER-INCOME> 0
<EXPENSES-NET> 664,667
<NET-INVESTMENT-INCOME> 4,330,896
<REALIZED-GAINS-CURRENT> (31)
<APPREC-INCREASE-CURRENT> 1,604,104
<NET-CHANGE-FROM-OPS> 5,934,969
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 36,663<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 67,907<F1>
<NUMBER-OF-SHARES-REDEEMED> 9,625<F1>
<SHARES-REINVESTED> 1,790<F1>
<NET-CHANGE-IN-ASSETS> 18,826,650
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (118,542)
<OVERDISTRIB-NII-PRIOR> 0
<GROSS-ADVISORY-FEES> 414,195
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 981,623
<AVERAGE-NET-ASSETS> 975,812<F1>
<PER-SHARE-NAV-BEGIN> 11.680<F1>
<PER-SHARE-NII> .440<F1>
<PER-SHARE-GAIN-APPREC> .180<F1>
<PER-SHARE-DIVIDEND> .440<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 11.860<F1>
<EXPENSE-RATIO> 1.660<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class B Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 111
<NAME> THE ARCH SHORT INTERMEDIATE MUNICIPAL PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 29,899,826
<INVESTMENTS-AT-VALUE> 30,172,193
<RECEIVABLES> 409,448
<ASSETS-OTHER> 868
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 30,582,509
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 112,362
<TOTAL-LIABILITIES> 112,362
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 30,197,780
<SHARES-COMMON-STOCK> 1,617<F1>
<SHARES-COMMON-PRIOR> 5,103<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 272,367
<NET-ASSETS> 30,470,147
<DIVIDEND-INCOME> 27,476
<INTEREST-INCOME> 1,249,165
<OTHER-INCOME> 0
<EXPENSES-NET> 111,385
<NET-INVESTMENT-INCOME> 1,165,256
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 64,888
<NET-CHANGE-FROM-OPS> 1,230,144
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,039<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 20,507<F1>
<NUMBER-OF-SHARES-REDEEMED> 24,107<F1>
<SHARES-REINVESTED> 114<F1>
<NET-CHANGE-IN-ASSETS> 947,062
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 160,035
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 387,695
<AVERAGE-NET-ASSETS> 53,892<F1>
<PER-SHARE-NAV-BEGIN> 10.080<F1>
<PER-SHARE-NII> .370<F1>
<PER-SHARE-GAIN-APPREC> .030<F1>
<PER-SHARE-DIVIDEND> .370<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 10.110<F1>
<EXPENSE-RATIO> .620<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 112
<NAME> THE ARCH SHORT INTERMEDIATE MUNICIPAL PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 29,899,826
<INVESTMENTS-AT-VALUE> 30,172,193
<RECEIVABLES> 409,448
<ASSETS-OTHER> 868
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 30,582,509
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 112,362
<TOTAL-LIABILITIES> 112,362
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 30,197,780
<SHARES-COMMON-STOCK> 3,015,862<F1>
<SHARES-COMMON-PRIOR> 2,926,403<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 272,367
<NET-ASSETS> 30,470,147
<DIVIDEND-INCOME> 27,476
<INTEREST-INCOME> 1,249,165
<OTHER-INCOME> 0
<EXPENSES-NET> 111,385
<NET-INVESTMENT-INCOME> 1,165,256
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 64,888
<NET-CHANGE-FROM-OPS> 1,230,144
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,163,217<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 521,384<F1>
<NUMBER-OF-SHARES-REDEEMED> 436,228<F1>
<SHARES-REINVESTED> 4,303<F1>
<NET-CHANGE-IN-ASSETS> 947,062
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 160,035
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 387,695
<AVERAGE-NET-ASSETS> 26,052,293<F1>
<PER-SHARE-NAV-BEGIN> 10.070<F1>
<PER-SHARE-NII> .400<F1>
<PER-SHARE-GAIN-APPREC> .030<F1>
<PER-SHARE-DIVIDEND> .400<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 10.100<F1>
<EXPENSE-RATIO> .380<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Trust Class Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 121
<NAME> THE ARCH NATIONAL MUNICIPAL BOND PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 362,674,799
<INVESTMENTS-AT-VALUE> 374,468,781
<RECEIVABLES> 5,903,070
<ASSETS-OTHER> 49,199
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 380,421,050
<PAYABLE-FOR-SECURITIES> 10,874,790
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,532,174
<TOTAL-LIABILITIES> 12,406,964
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 343,664,623
<SHARES-COMMON-STOCK> 69,821<F1>
<SHARES-COMMON-PRIOR> 100<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 12,555,481
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,793,982
<NET-ASSETS> 368,014,086
<DIVIDEND-INCOME> 123,440
<INTEREST-INCOME> 18,070,484
<OTHER-INCOME> 0
<EXPENSES-NET> 468,915
<NET-INVESTMENT-INCOME> 17,725,009
<REALIZED-GAINS-CURRENT> 12,555,443
<APPREC-INCREASE-CURRENT> (4,335,052)
<NET-CHANGE-FROM-OPS> 25,945,400
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 22,941<F1>
<DISTRIBUTIONS-OF-GAINS> 183<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 1,349,188<F1>
<NUMBER-OF-SHARES-REDEEMED> 1,279,833<F1>
<SHARES-REINVESTED> 366<F1>
<NET-CHANGE-IN-ASSETS> 57,599,443
<ACCUMULATED-NII-PRIOR> 8
<ACCUMULATED-GAINS-PRIOR> 115,325
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,812,782
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,846,496
<AVERAGE-NET-ASSETS> 487,442<F1>
<PER-SHARE-NAV-BEGIN> 10.050<F1>
<PER-SHARE-NII> .520<F1>
<PER-SHARE-GAIN-APPREC> .220<F1>
<PER-SHARE-DIVIDEND> .520<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 10.270<F1>
<EXPENSE-RATIO> .350<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 122
<NAME> THE ARCH NATIONAL MUNICIPAL BOND PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 362,674,799
<INVESTMENTS-AT-VALUE> 374,468,781
<RECEIVABLES> 5,903,070
<ASSETS-OTHER> 49,199
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 380,421,050
<PAYABLE-FOR-SECURITIES> 10,874,790
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,532,174
<TOTAL-LIABILITIES> 12,406,964
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 343,664,623
<SHARES-COMMON-STOCK> 35,691,518<F1>
<SHARES-COMMON-PRIOR> 30,901,906<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 12,555,481
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,793,982
<NET-ASSETS> 368,014,086
<DIVIDEND-INCOME> 123,440
<INTEREST-INCOME> 18,070,484
<OTHER-INCOME> 0
<EXPENSES-NET> 468,915
<NET-INVESTMENT-INCOME> 17,725,009
<REALIZED-GAINS-CURRENT> 12,555,443
<APPREC-INCREASE-CURRENT> (4,335,052)
<NET-CHANGE-FROM-OPS> 25,945,400
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 17,699,373<F1>
<DISTRIBUTIONS-OF-GAINS> 115,079<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 6,018,490<F1>
<NUMBER-OF-SHARES-REDEEMED> 1,229,913<F1>
<SHARES-REINVESTED> 1,035<F1>
<NET-CHANGE-IN-ASSETS> 57,599,443
<ACCUMULATED-NII-PRIOR> 8
<ACCUMULATED-GAINS-PRIOR> 115,325
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,812,782
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,846,496
<AVERAGE-NET-ASSETS> 329,272,519<F1>
<PER-SHARE-NAV-BEGIN> 10.050<F1>
<PER-SHARE-NII> .540<F1>
<PER-SHARE-GAIN-APPREC> .230<F1>
<PER-SHARE-DIVIDEND> .540<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 10.280<F1>
<EXPENSE-RATIO> .140<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Trust Class Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 123
<NAME> THE ARCH NATIONAL MUNICIPAL BOND PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 362674799
<INVESTMENTS-AT-VALUE> 374468781
<RECEIVABLES> 5903070
<ASSETS-OTHER> 49199
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 380421050
<PAYABLE-FOR-SECURITIES> 10874790
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1532174
<TOTAL-LIABILITIES> 12406964
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 343664623
<SHARES-COMMON-STOCK> 39675<F1>
<SHARES-COMMON-PRIOR> 100<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 12555481
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11793982
<NET-ASSETS> 368014086
<DIVIDEND-INCOME> 123440
<INTEREST-INCOME> 18070484
<OTHER-INCOME> 0
<EXPENSES-NET> 468915
<NET-INVESTMENT-INCOME> 17725009
<REALIZED-GAINS-CURRENT> 12555443
<APPREC-INCREASE-CURRENT> (4335052)
<NET-CHANGE-FROM-OPS> 25945400
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2703<F1>
<DISTRIBUTIONS-OF-GAINS> 25<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 40048<F1>
<NUMBER-OF-SHARES-REDEEMED> 617<F1>
<SHARES-REINVESTED> 144<F1>
<NET-CHANGE-IN-ASSETS> 57599443
<ACCUMULATED-NII-PRIOR> 8
<ACCUMULATED-GAINS-PRIOR> 115325
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1812782
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3846496
<AVERAGE-NET-ASSETS> 66238<F1>
<PER-SHARE-NAV-BEGIN> 10.050<F1>
<PER-SHARE-NII> .440<F1>
<PER-SHARE-GAIN-APPREC> .240<F1>
<PER-SHARE-DIVIDEND> .440<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 10.290<F1>
<EXPENSE-RATIO> 1.170<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class B Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 131
<NAME> THE ARCH BOND INDEX PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> FEB-10-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 133,282,321
<INVESTMENTS-AT-VALUE> 137,808,197
<RECEIVABLES> 1,365,058
<ASSETS-OTHER> 23,308
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 139,196,563
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 795,492
<TOTAL-LIABILITIES> 795,492
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 133,587,174
<SHARES-COMMON-STOCK> 5,377<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> (184,726)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 472,747
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,525,876
<NET-ASSETS> 138,401,071
<DIVIDEND-INCOME> 43,106
<INTEREST-INCOME> 7,328,295
<OTHER-INCOME> 25,824
<EXPENSES-NET> 233,651
<NET-INVESTMENT-INCOME> 7,163,574
<REALIZED-GAINS-CURRENT> 279,085
<APPREC-INCREASE-CURRENT> 1,574,992
<NET-CHANGE-FROM-OPS> 9,017,651
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,698<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 25,427<F1>
<NUMBER-OF-SHARES-REDEEMED> 20,139<F1>
<SHARES-REINVESTED> 89<F1>
<NET-CHANGE-IN-ASSETS> 138,401,071
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 312,722
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 973,433
<AVERAGE-NET-ASSETS> 31,756<F1>
<PER-SHARE-NAV-BEGIN> 10.000<F1>
<PER-SHARE-NII> .500<F1>
<PER-SHARE-GAIN-APPREC> .170<F1>
<PER-SHARE-DIVIDEND> .500<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 10.170<F1>
<EXPENSE-RATIO> .540<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 132
<NAME> THE ARCH BOND INDEX PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> FEB-10-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 133,282,321
<INVESTMENTS-AT-VALUE> 137,808,197
<RECEIVABLES> 1,365,058
<ASSETS-OTHER> 23,308
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 139,196,563
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 795,492
<TOTAL-LIABILITIES> 795,492
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 133,587,174
<SHARES-COMMON-STOCK> 13,614,389<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> (184,726)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 472,747
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,525,876
<NET-ASSETS> 138,401,071
<DIVIDEND-INCOME> 43,106
<INTEREST-INCOME> 7,328,295
<OTHER-INCOME> 25,824
<EXPENSES-NET> 233,651
<NET-INVESTMENT-INCOME> 7,163,574
<REALIZED-GAINS-CURRENT> 279,085
<APPREC-INCREASE-CURRENT> 1,574,992
<NET-CHANGE-FROM-OPS> 9,017,651
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7,161,244<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 14,163,934<F1>
<NUMBER-OF-SHARES-REDEEMED> 556,016<F1>
<SHARES-REINVESTED> 6,471<F1>
<NET-CHANGE-IN-ASSETS> 138,401,071
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 312,722
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 973,433
<AVERAGE-NET-ASSETS> 129,841,761<F1>
<PER-SHARE-NAV-BEGIN> 10.000<F1>
<PER-SHARE-NII> .530<F1>
<PER-SHARE-GAIN-APPREC> .160<F1>
<PER-SHARE-DIVIDEND> .530<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 10.160<F1>
<EXPENSE-RATIO> .230<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Trust Class Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 133
<NAME> THE ARCH BOND INDEX PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> FEB-10-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 133,282,321
<INVESTMENTS-AT-VALUE> 137,808,197
<RECEIVABLES> 1,365,058
<ASSETS-OTHER> 23,308
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 139,196,563
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 795,492
<TOTAL-LIABILITIES> 795,492
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 133,587,114
<SHARES-COMMON-STOCK> 2,703<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> (184,726)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 472,747
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,525,876
<NET-ASSETS> 138,401,071
<DIVIDEND-INCOME> 43,106
<INTEREST-INCOME> 7,328,295
<OTHER-INCOME> 25,824
<EXPENSES-NET> 233,651
<NET-INVESTMENT-INCOME> 7,163,574
<REALIZED-GAINS-CURRENT> 279,085
<APPREC-INCREASE-CURRENT> 1,574,992
<NET-CHANGE-FROM-OPS> 9,017,651
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 632<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 3,679<F1>
<NUMBER-OF-SHARES-REDEEMED> 1,021<F1>
<SHARES-REINVESTED> 45<F1>
<NET-CHANGE-IN-ASSETS> 138,401,071
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 312,722
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 973,433
<AVERAGE-NET-ASSETS> 11,166<F1>
<PER-SHARE-NAV-BEGIN> 10.000<F1>
<PER-SHARE-NII> .530<F1>
<PER-SHARE-GAIN-APPREC> .170<F1>
<PER-SHARE-DIVIDEND> .530<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 10.170<F1>
<EXPENSE-RATIO> .240<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Institutional Class Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 141
<NAME> THE ARCH INTERMEDIATE CORPORATE BOND PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> FEB-10-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 43,752,063
<INVESTMENTS-AT-VALUE> 44,901,302
<RECEIVABLES> 651,548
<ASSETS-OTHER> 18,434
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 45,571,284
<PAYABLE-FOR-SECURITIES> 540,265
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 283,798
<TOTAL-LIABILITIES> 824,063
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 43,089,915
<SHARES-COMMON-STOCK> 27,384<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 500,668
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,149,239
<NET-ASSETS> 44,747,221
<DIVIDEND-INCOME> 27,650
<INTEREST-INCOME> 2,245,472
<OTHER-INCOME> 5,025
<EXPENSES-NET> 92,830
<NET-INVESTMENT-INCOME> 2,185,317
<REALIZED-GAINS-CURRENT> 502,907
<APPREC-INCREASE-CURRENT> (131,490)
<NET-CHANGE-FROM-OPS> 2,556,734
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7,181<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 27,183<F1>
<NUMBER-OF-SHARES-REDEEMED> 0<F1>
<SHARES-REINVESTED> 201<F1>
<NET-CHANGE-IN-ASSETS> 44,747,221
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 175,432
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 419,473
<AVERAGE-NET-ASSETS> 138,185<F1>
<PER-SHARE-NAV-BEGIN> 10.000<F1>
<PER-SHARE-NII> .520<F1>
<PER-SHARE-GAIN-APPREC> .110<F1>
<PER-SHARE-DIVIDEND> .520<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 10.110<F1>
<EXPENSE-RATIO> .580<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 142
<NAME> THE ARCH INTERMEDIATE CORPORATE BOND PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> FEB-10-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 43,752,063
<INVESTMENTS-AT-VALUE> 44,901,302
<RECEIVABLES> 651,548
<ASSETS-OTHER> 18,434
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 45,571,284
<PAYABLE-FOR-SECURITIES> 540,265
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 283,798
<TOTAL-LIABILITIES> 824,063
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 43,089,915
<SHARES-COMMON-STOCK> 4,398,020<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 500,668
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,149,239
<NET-ASSETS> 44,747,221
<DIVIDEND-INCOME> 27,650
<INTEREST-INCOME> 2,245,472
<OTHER-INCOME> 5,025
<EXPENSES-NET> 92,830
<NET-INVESTMENT-INCOME> 2,185,317
<REALIZED-GAINS-CURRENT> 502,907
<APPREC-INCREASE-CURRENT> (131,490)
<NET-CHANGE-FROM-OPS> 2,556,734
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,177,609<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 4,752,205<F1>
<NUMBER-OF-SHARES-REDEEMED> 363,897<F1>
<SHARES-REINVESTED> 9,712<F1>
<NET-CHANGE-IN-ASSETS> 44,747,221
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 175,432
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 419,473
<AVERAGE-NET-ASSETS> 39,604,262<F1>
<PER-SHARE-NAV-BEGIN> 10.000<F1>
<PER-SHARE-NII> .530<F1>
<PER-SHARE-GAIN-APPREC> .110<F1>
<PER-SHARE-DIVIDEND> .530<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 10.110<F1>
<EXPENSE-RATIO> .290<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Trust Class Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 143
<NAME> THE ARCH INTERMEDIATE CORPORATE BOND PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> FEB-10-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 43,752,063
<INVESTMENTS-AT-VALUE> 44,901,302
<RECEIVABLES> 651,548
<ASSETS-OTHER> 18,434
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 45,571,284
<PAYABLE-FOR-SECURITIES> 540,265
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 283,798
<TOTAL-LIABILITIES> 824,063
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 43,089,915
<SHARES-COMMON-STOCK> 2,713<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 500,668
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,149,239
<NET-ASSETS> 44,747,221
<DIVIDEND-INCOME> 27,650
<INTEREST-INCOME> 2,245,472
<OTHER-INCOME> 5,025
<EXPENSES-NET> 92,830
<NET-INVESTMENT-INCOME> 2,185,317
<REALIZED-GAINS-CURRENT> 502,907
<APPREC-INCREASE-CURRENT> (131,490)
<NET-CHANGE-FROM-OPS> 2,556,734
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 527<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 2,678<F1>
<NUMBER-OF-SHARES-REDEEMED> 0<F1>
<SHARES-REINVESTED> 35<F1>
<NET-CHANGE-IN-ASSETS> 44,747,221
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 175,432
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 419,473
<AVERAGE-NET-ASSETS> 9,358<F1>
<PER-SHARE-NAV-BEGIN> 10.000<F1>
<PER-SHARE-NII> .530<F1>
<PER-SHARE-GAIN-APPREC> .110<F1>
<PER-SHARE-DIVIDEND> .530<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 10.110<F1>
<EXPENSE-RATIO> .290<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Institutional Class Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 151
<NAME> THE ARCH EQUITY INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> FEB-27-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 91,177,252
<INVESTMENTS-AT-VALUE> 132,214,090
<RECEIVABLES> 287,631
<ASSETS-OTHER> 32,805
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 132,534,526
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 309,839
<TOTAL-LIABILITIES> 309,839
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 64,928,315
<SHARES-COMMON-STOCK> 15,004<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 87,616
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 26,171,918
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 41,036,838
<NET-ASSETS> 132,224,687
<DIVIDEND-INCOME> 2,148,185
<INTEREST-INCOME> 266,612
<OTHER-INCOME> 12,047
<EXPENSES-NET> 138,708
<NET-INVESTMENT-INCOME> 2,288,136
<REALIZED-GAINS-CURRENT> 26,171,918
<APPREC-INCREASE-CURRENT> (7,875,618)
<NET-CHANGE-FROM-OPS> 20,584,436
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,763<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 18,368<F1>
<NUMBER-OF-SHARES-REDEEMED> 3,415<F1>
<SHARES-REINVESTED> 51<F1>
<NET-CHANGE-IN-ASSETS> 132,224,687
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 681,294
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,251,315
<AVERAGE-NET-ASSETS> 97,578<F1>
<PER-SHARE-NAV-BEGIN> 10.000<F1>
<PER-SHARE-NII> .160<F1>
<PER-SHARE-GAIN-APPREC> 1.570<F1>
<PER-SHARE-DIVIDEND> .170<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 11.560<F1>
<EXPENSE-RATIO> .450<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 152
<NAME> THE ARCH EQUITY INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> FEB-27-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 91,177,252
<INVESTMENTS-AT-VALUE> 132,214,090
<RECEIVABLES> 287,631
<ASSETS-OTHER> 32,805
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 132,534,526
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 309,839
<TOTAL-LIABILITIES> 309,839
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 64,928,315
<SHARES-COMMON-STOCK> 11,410,190<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 87,616
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 26,171,918
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 41,036,838
<NET-ASSETS> 132,224,687
<DIVIDEND-INCOME> 2,148,185
<INTEREST-INCOME> 266,612
<OTHER-INCOME> 12,047
<EXPENSES-NET> 138,708
<NET-INVESTMENT-INCOME> 2,288,136
<REALIZED-GAINS-CURRENT> 26,171,918
<APPREC-INCREASE-CURRENT> (7,875,618)
<NET-CHANGE-FROM-OPS> 20,584,436
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,205,201<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 12,516,793<F1>
<NUMBER-OF-SHARES-REDEEMED> 1,110,408<F1>
<SHARES-REINVESTED> 3,805<F1>
<NET-CHANGE-IN-ASSETS> 132,224,687
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 681,294
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,251,315
<AVERAGE-NET-ASSETS> 120,050,244<F1>
<PER-SHARE-NAV-BEGIN> 10.000<F1>
<PER-SHARE-NII> .200<F1>
<PER-SHARE-GAIN-APPREC> 1.550<F1>
<PER-SHARE-DIVIDEND> .190<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 11.560<F1>
<EXPENSE-RATIO> .150<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Trust Class Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 153
<NAME> THE ARCH EQUITY INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> FEB-26-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 91,177,252
<INVESTMENTS-AT-VALUE> 132,214,090
<RECEIVABLES> 287,631
<ASSETS-OTHER> 32,805
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 132,534,526
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 309,839
<TOTAL-LIABILITIES> 309,839
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 64,928,315
<SHARES-COMMON-STOCK> 102<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 87,616
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 26,171,918
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 41,036,838
<NET-ASSETS> 132,224,687
<DIVIDEND-INCOME> 2,148,185
<INTEREST-INCOME> 266,612
<OTHER-INCOME> 12,047
<EXPENSES-NET> 138,708
<NET-INVESTMENT-INCOME> 2,288,136
<REALIZED-GAINS-CURRENT> 26,171,918
<APPREC-INCREASE-CURRENT> (7,875,618)
<NET-CHANGE-FROM-OPS> 20,584,436
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 19<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 100<F1>
<NUMBER-OF-SHARES-REDEEMED> 0<F1>
<SHARES-REINVESTED> 2<F1>
<NET-CHANGE-IN-ASSETS> 132,224,687
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 681,294
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,251,315
<AVERAGE-NET-ASSETS> 1,071<F1>
<PER-SHARE-NAV-BEGIN> 10.000<F1>
<PER-SHARE-NII> .190<F1>
<PER-SHARE-GAIN-APPREC> 1.560<F1>
<PER-SHARE-DIVIDEND> .190<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 11.560<F1>
<EXPENSE-RATIO> .370<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Institutional Class Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 154
<NAME> THE ARCH EQUITY INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> FEB-27-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 91,177,252
<INVESTMENTS-AT-VALUE> 132,214,090
<RECEIVABLES> 287,631
<ASSETS-OTHER> 32,805
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 132,534,526
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 309,839
<TOTAL-LIABILITIES> 309,839
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 64,928,315
<SHARES-COMMON-STOCK> 11,383<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 87,616
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 26,171,918
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 41,036,838
<NET-ASSETS> 132,224,687
<DIVIDEND-INCOME> 2,148,185
<INTEREST-INCOME> 266,612
<OTHER-INCOME> 12,047
<EXPENSES-NET> 138,708
<NET-INVESTMENT-INCOME> 2,288,136
<REALIZED-GAINS-CURRENT> 26,171,918
<APPREC-INCREASE-CURRENT> (7,875,618)
<NET-CHANGE-FROM-OPS> 20,584,436
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 467<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 1,1596<F1>
<NUMBER-OF-SHARES-REDEEMED> 232<F1>
<SHARES-REINVESTED> 19<F1>
<NET-CHANGE-IN-ASSETS> 132,224,687
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 681,294
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,251,315
<AVERAGE-NET-ASSETS> 22,934<F1>
<PER-SHARE-NAV-BEGIN> 10.000<F1>
<PER-SHARE-NII> .100<F1>
<PER-SHARE-GAIN-APPREC> 1.570<F1>
<PER-SHARE-DIVIDEND> .020<F1>
<PER-SHARE-DISTRIBUTIONS> .100<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 11.550<F1>
<EXPENSE-RATIO> 1.140<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class B Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 161
<NAME> THE ARCH EQUITY INDEX PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> MAY-01-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 27,126,890
<INVESTMENTS-AT-VALUE> 31,972,943
<RECEIVABLES> 57,733
<ASSETS-OTHER> 24,791
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 32,055,467
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 54,919
<TOTAL-LIABILITIES> 54,919
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 27,085,850
<SHARES-COMMON-STOCK> 205,851<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 11,748
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 56,897
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,846,053
<NET-ASSETS> 32,000,548
<DIVIDEND-INCOME> 300,983
<INTEREST-INCOME> 18,949
<OTHER-INCOME> (1,006)
<EXPENSES-NET> 66,802
<NET-INVESTMENT-INCOME> 252,124
<REALIZED-GAINS-CURRENT> 56,897
<APPREC-INCREASE-CURRENT> 4,846,053
<NET-CHANGE-FROM-OPS> 5,155,074
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 459<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 17,532<F1>
<NUMBER-OF-SHARES-REDEEMED> 294<F1>
<SHARES-REINVESTED> 10<F1>
<NET-CHANGE-IN-ASSETS> 32,000,548
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 51,115
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 192,250
<AVERAGE-NET-ASSETS> 63,429<F1>
<PER-SHARE-NAV-BEGIN> 10.000<F1>
<PER-SHARE-NII> .070<F1>
<PER-SHARE-GAIN-APPREC> 1.940<F1>
<PER-SHARE-DIVIDEND> .080<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 11.930<F1>
<EXPENSE-RATIO> .780<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 162
<NAME> THE ARCH EQUITY INDEX PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> MAY-01-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 27,126,890
<INVESTMENTS-AT-VALUE> 31,972,943
<RECEIVABLES> 57,733
<ASSETS-OTHER> 24,791
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 32,055,467
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 54,919
<TOTAL-LIABILITIES> 54,919
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 27,085,850
<SHARES-COMMON-STOCK> 2,662,668<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 11,748
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 56,897
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,846,053
<NET-ASSETS> 32,000,548
<DIVIDEND-INCOME> 300,983
<INTEREST-INCOME> 18,949
<OTHER-INCOME> (1,006)
<EXPENSES-NET> 66,802
<NET-INVESTMENT-INCOME> 252,124
<REALIZED-GAINS-CURRENT> 56,897
<APPREC-INCREASE-CURRENT> 4,846,053
<NET-CHANGE-FROM-OPS> 5,155,074
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 243,890<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 2,648,917<F1>
<NUMBER-OF-SHARES-REDEEMED> 4,260<F1>
<SHARES-REINVESTED> 18,011<F1>
<NET-CHANGE-IN-ASSETS> 32,000,548
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 51,115
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 192,250
<AVERAGE-NET-ASSETS> 29,161,053<F1>
<PER-SHARE-NAV-BEGIN> 10.000<F1>
<PER-SHARE-NII> .100<F1>
<PER-SHARE-GAIN-APPREC> 1.940<F1>
<PER-SHARE-DIVIDEND> .100<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 11.940<F1>
<EXPENSE-RATIO> .390<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Trust Class Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 163
<NAME> THE ARCH EQUITY INDEX PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> MAY-01-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 27,126,890
<INVESTMENTS-AT-VALUE> 31,972,943
<RECEIVABLES> 57,733
<ASSETS-OTHER> 24,791
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 32,055,467
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 54,919
<TOTAL-LIABILITIES> 54,919
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 27,085,850
<SHARES-COMMON-STOCK> 669<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 11,748
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 56,897
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,846,053
<NET-ASSETS> 32,000,548
<DIVIDEND-INCOME> 300,983
<INTEREST-INCOME> 18,949
<OTHER-INCOME> (1,006)
<EXPENSES-NET> 66,802
<NET-INVESTMENT-INCOME> 252,124
<REALIZED-GAINS-CURRENT> 56,897
<APPREC-INCREASE-CURRENT> 4,846,053
<NET-CHANGE-FROM-OPS> 5,155,074
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 31<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 667<F1>
<NUMBER-OF-SHARES-REDEEMED> 0<F1>
<SHARES-REINVESTED> 2<F1>
<NET-CHANGE-IN-ASSETS> 32,000,548
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 51,115
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 192,250
<AVERAGE-NET-ASSETS> 4,090<F1>
<PER-SHARE-NAV-BEGIN> 10.000<F1>
<PER-SHARE-NII> .100<F1>
<PER-SHARE-GAIN-APPREC> 1.940<F1>
<PER-SHARE-DIVIDEND> .100<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 11.940<F1>
<EXPENSE-RATIO> .460<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Institutional Class Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 171
<NAME> THE ARCH GROWTH EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> NOV-21-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 45,927,466
<INVESTMENTS-AT-VALUE> 67,211,688
<RECEIVABLES> 57,747
<ASSETS-OTHER> 202
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 67,269,637
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 16,628
<TOTAL-LIABILITIES> 16,628
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 45,968,787
<SHARES-COMMON-STOCK> 213,232<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21,284,222
<NET-ASSETS> 67,253,009
<DIVIDEND-INCOME> 102,217
<INTEREST-INCOME> 3,395
<OTHER-INCOME> 0
<EXPENSES-NET> 135,865
<NET-INVESTMENT-INCOME> (30,253)
<REALIZED-GAINS-CURRENT> 3,407,020
<APPREC-INCREASE-CURRENT> (4,228,882)
<NET-CHANGE-FROM-OPS> (852,055)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 8,120,294<F1>
<NUMBER-OF-SHARES-SOLD> 53,783<F1>
<NUMBER-OF-SHARES-REDEEMED> 4,021,603<F1>
<SHARES-REINVESTED> 502,805<F1>
<NET-CHANGE-IN-ASSETS> (1,712,108)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 86,057
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 162,620
<AVERAGE-NET-ASSETS> 12,484,035<F1>
<PER-SHARE-NAV-BEGIN> 18.750<F1>
<PER-SHARE-NII> .010<F1>
<PER-SHARE-GAIN-APPREC> .240<F1>
<PER-SHARE-DIVIDEND> .000<F1>
<PER-SHARE-DISTRIBUTIONS> 2.240<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 16.260<F1>
<EXPENSE-RATIO> 1.170<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Class A Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000706366
<NAME> THE ARCH FUND, INC.
<SERIES>
<NUMBER> 172
<NAME> THE ARCH GROWTH EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> NOV-24-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 45,927,466
<INVESTMENTS-AT-VALUE> 67,211,688
<RECEIVABLES> 57,747
<ASSETS-OTHER> 202
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 67,269,637
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 16,628
<TOTAL-LIABILITIES> 16,628
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 45,968,787
<SHARES-COMMON-STOCK> 3,922,003<F1>
<SHARES-COMMON-PRIOR> 0<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21,284,222
<NET-ASSETS> 67,253,009
<DIVIDEND-INCOME> 102,217
<INTEREST-INCOME> 3,395
<OTHER-INCOME> 3,407,020
<EXPENSES-NET> 135,865
<NET-INVESTMENT-INCOME> (30,253)
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> (4,228,882)
<NET-CHANGE-FROM-OPS> (852,055)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 2,648,917<F1>
<NUMBER-OF-SHARES-REDEEMED> 4,260<F1>
<SHARES-REINVESTED> 18,011<F1>
<NET-CHANGE-IN-ASSETS> (1,712,108)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 86,057
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 162,620
<AVERAGE-NET-ASSETS> 54,546,617<F1>
<PER-SHARE-NAV-BEGIN> 16.440<F1>
<PER-SHARE-NII> .090<F1>
<PER-SHARE-GAIN-APPREC> .270<F1>
<PER-SHARE-DIVIDEND> .000<F1>
<PER-SHARE-DISTRIBUTIONS> .000<F1>
<RETURNS-OF-CAPITAL> .000<F1>
<PER-SHARE-NAV-END> 16.260<F1>
<EXPENSE-RATIO> 1.240<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Trust Class Shares
</FN>
</TABLE>
