<PAGE> 1
THE ARCH FUND(R), INC.
SUPPLEMENT DATED JANUARY 29, 1998 TO THE
PROSPECTUS DATED SEPTEMBER 2, 1997
(AS REVISED NOVEMBER 21, 1997)
GROWTH EQUITY PORTFOLIO
INVESTOR A AND INVESTOR B SHARES
THIS SUPPLEMENT PROVIDES NEW AND ADDITIONAL INFORMATION BEYOND THAT
CONTAINED IN THE PROSPECTUS AND SHOULD BE RETAINED AND READ IN CONJUNCTION WITH
THE PROSPECTUS.
------------------------
(1) The following information replaces the section entitled 'Expense
Summary for Investor A and Investor B Shares" on pages 4 and 5 of the
Prospectus:
EXPENSE SUMMARY FOR
INVESTOR A AND INVESTOR B SHARES
<TABLE>
<CAPTION>
GROWTH EQUITY PORTFOLIO
------------------------
INVESTOR A INVESTOR B
---------- ----------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Load Imposed on Purchases (as a percentage of
offering price)................................................... 4.5%(1) NONE
Deferred Sales Charge (as a percentage of offering price)............ NONE 5.0%(2)
ANNUAL PORTFOLIO OPERATING EXPENSES
(as a percentage of average net assets)
Investment Advisory Fees............................................. .75% .75%
12b-1 Fees, including distribution and service fees.................. .30% 1.00%
Other Expenses (including administration fees and other expenses)
(net of fee waivers and expense reimbursements)(3,4).............. .25% .25%
---------- ----------
TOTAL PORTFOLIO OPERATING EXPENSES
(net of fee waivers and expense reimbursements)...................... 1.30% 2.00%
======== ========
</TABLE>
- ---------------
(1) Reduced sales charge may be available. See "How to Purchase and Redeem
Shares --Reduced Sales Charges --Investor A Shares."
(2) This amount applies to redemptions during the first year. The deferred sales
charge decreases to 4.0%, 3.0%, 3.0%, 2.0% and 1.0% for redemptions made
during the second through sixth years, respectively. No deferred sales
charge is charged after the sixth year. See "How to Purchase and Redeem
Shares --Applicable Sales Charge --Investor B Shares."
(3) Without fee waivers, administration fees would be .20%.
(4) Without fee waivers and/or expense reimbursements, Other Expenses and Total
Portfolio Operating Expenses would be .35% and 1.40%, respectively, for
Investor A Shares and .35% and 2.10%, respectively, for Investor B Shares.
<PAGE> 2
EXAMPLE
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) a 5% annual return and (2)
redemption at the end of each period:
Growth Equity Portfolio
Investor A Shares(1).................................. $ 58 $84 $ 117 $202
Investor B Shares
Assuming complete redemption at end of period(2)... $ 70 $93 $ 131 $222
Assuming no redemption............................. $ 20 $63 $ 111 $222
</TABLE>
- ---------------
(1) Assumes deduction at time of purchase of maximum applicable front-end sales
charge.
(2) Assumes deduction of maximum applicable contingent deferred sales charge.
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
Predecessor Portfolio is contained in the financial statements included in the
Statement of Additional Information.
The purpose of the foregoing table is to assist in understanding the
various costs and expenses that an investor in the Portfolio's Investor A Shares
or Investor B Shares will bear directly or indirectly. The information contained
in the table with respect to Investor A Shares reflects the expenses which the
Predecessor Portfolio incurred during the last fiscal year restated to reflect
the expenses which the Portfolio expects to incur during the current fiscal year
on its Investor A Shares. The information contained in the table with respect to
Investor B Shares reflects the expenses which the Portfolio expects to incur
during the current fiscal year on its Investor B Shares. For more complete
descriptions of the various costs and expenses, see "Management of the Fund" in
this Prospectus and the Statement of Additional Information. The table and
example have not been audited by the Fund's independent auditors and do not
reflect any charges that may be imposed by financial institutions on their
customers.
Because of the payments for distribution services (12b-1 fees) under the
Distribution and Services Plans as shown in the above table, long-term
shareholders of Investor A Shares and Investor B Shares of the Portfolio may pay
more than the economic equivalent of the maximum front-end sales load permitted
by the National Association of Securities Dealers, Inc.
(2) The following Financial Highlights replace those included on page 6 of
the Prospectus:
FINANCIAL HIGHLIGHTS
The "Financial Highlights" in the following table supplements the
Predecessor Portfolio's financial statements which are included in the Statement
of Additional Information, and sets forth certain historical results for shares
of beneficial interest of the Predecessor Portfolio which were similar to
Investor A Shares of the Fund. The financial statements and the data reported in
the
2
<PAGE> 3
Financial Highlights for the fiscal years ended September 30, 1997, 1996, 1995
and 1994 and for the fiscal period ended September 30, 1993 were audited by KPMG
Peat Marwick LLP, independent accountants for the Predecessor Portfolio, whose
report thereon is included in the Statement of Additional Information.
GROWTH EQUITY FUND
(FOR A SHARE OUTSTANDING THROUGH EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------
1997 1996 1995 1994 1993(a)
----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period....... $ 15.06 $13.80 $ 9.74 $10.02 $10.00
Income from investment operations
Net investment income.................... 0.08 0.12 0.10 0.07 0.04
Net realized and unrealized gain (loss)
on investments......................... 4.75 1.32 4.05 (0.25) 0.02
------- ------- ------- ------- -------
Total from investment operations......... 4.83 1.44 4.15 (0.18) 0.06
======= ======= ======= ======= =======
Less distributions
Distributions from net investment
income................................. (0.09) (0.11) (0.09) (0.07) (0.04)
Distributions from net realized gain on
investments............................ (1.05) (0.07) -- (0.03) --
------- ------- ------- ------- -------
Total distributions...................... (1.14) (0.18) (0.09) (0.10) (0.04)
------- ------- ------- ------- -------
Net asset value, end of period............. $ 18.75 $15.06 $13.80 $ 9.74 $10.02
======= ======= ======= ======= =======
Total return(b)............................ 33.85% 10.48% 42.90% (1.84%) 0.60%
Ratios to average net assets
Expenses................................. 1.14% 1.17% 1.28% 1.36% 1.32%*
Net investment income.................... 0.44% 0.86% 0.90% 0.74% 0.62%*
Expense waiver/reimbursement(c).......... 0.25% 0.28% 0.30% 0.28% 0.30%*
Supplemental data
Net assets, end of period (000
omitted)............................... $68,965 $55,573 $43,708 $30,282 $31,159
Average commission rate paid(d).......... $0.0815 $0.0756 -- -- --
Portfolio turnover....................... 42% 45% 45% 127% 54%
</TABLE>
- ---------------
* Computed on an annualized basis.
(a) Reflects operations for the period from January 4, 1993 (date of initial
public investment) to September 30, 1993.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged. This
disclosure is required for fiscal years beginning on or after September 1,
1995.
3
<PAGE> 4
(3) The third paragraph of the section entitled "Taxes" on page 29 of the
Prospectus is replaced with the following:
Substantially all of the Portfolio's net realized long-term capital
gains, if any, will be distributed at least annually to its shareholders.
The Portfolio will generally have no tax liability with respect to such
gains and the distributions will be taxable to shareholders who are not
currently exempt from federal income taxes as long-term capital gains,
regardless of how long the shareholders have held the Shares and whether
such dividends 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.
(4) The sixth paragraph of the section entitled "Taxes on page 29 of the
Prospectus is replaced with the following:
The Portfolio may be required in certain cases to withhold and remit
to the U.S. Treasury 31% of taxable dividends or gross sale proceeds paid
to shareholders who have failed to provide a correct tax identification
number in the manner required, who are subject to backup withholding by the
Internal Revenue Service for prior failure to properly 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."
(5) The following replaces the section entitled "Management of the
Fund --Investment Adviser" on page 30 of the Prospectus:
INVESTMENT ADVISER
Mississippi Valley Advisors Inc. ("MVA") serves as the investment adviser
to the Portfolio. MVA's principal office is located at One Mercantile Center,
Seventh & Washington Streets, St. Louis, Missouri 63101. MVA is a wholly-owned
subsidiary of Mercantile. As of December 31, 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 to
each of the Fund's other portfolios.
Subject to the general supervision of the Fund's Board of Directors and in
accordance with the Fund's investment policies, MVA manages the Portfolio, makes
investment decisions with respect to and places orders for all purchases and
sales of the Portfolio's securities and other investments, and directs the
maintenance of the Portfolio's records relating to such purchases and sales.
For the services provided and expenses assumed pursuant to the investment
advisory agreement, MVA is entitled to receive fees, computed daily and payable
monthly, at the annual rate of .75% of the Portfolio's average daily net assets.
MVA may from time to time voluntarily reduce all or a portion of its
advisory fee to increase the net income of the Portfolio available for
distributions as dividends. The voluntary fee reduction will cause the return of
the Portfolio to be higher than it would otherwise be in the absence of such
reduction.
4
<PAGE> 5
THE ARCH FUND(R), INC.
SUPPLEMENT DATED JANUARY 29, 1998 TO THE
PROSPECTUS DATED SEPTEMBER 2, 1997
(AS REVISED NOVEMBER 21, 1997)
GROWTH EQUITY PORTFOLIO
INSTITUTIONAL SHARES
THIS SUPPLEMENT PROVIDES NEW AND ADDITIONAL INFORMATION BEYOND THAT
CONTAINED IN THE PROSPECTUS AND SHOULD BE RETAINED AND READ IN CONJUNCTION WITH
THE PROSPECTUS.
(1) The last sentence of the first paragraph of the cover page (page 1) of the
Prospectus is replaced with the following:
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.
(2) The following information replaces the section entitled "Expense Summary for
Institutional Shares" on page 4 of the Prospectus:
EXPENSE SUMMARY FOR INSTITUTIONAL SHARES
<TABLE>
<CAPTION>
GROWTH EQUITY
PORTFOLIO
-------------
<S> <C>
ANNUAL PORTFOLIO OPERATING EXPENSES
(as a percentage of average net assets)
Investment Advisory Fees................................................... .75%
12b-1 Fees................................................................. .00%
Other Expenses (including administration fees, administrative services fees
and other expenses) (net of fee waivers and expense
reimbursements)(1,2).................................................... .55%
----
TOTAL PORTFOLIO OPERATING EXPENSES (net of fee waivers and expense
reimbursements)(3)......................................................... 1.30%
====
</TABLE>
- ---------------
(1) Administrative services fees are payable at an annual rate not to exceed
.30%. Without fee waivers, administration fees would be .20%.
(2) Without fee waivers and expense reimbursements, Other Expenses would be .65%
and Total Portfolio Operating Expenses would be 1.40%.
EXAMPLE
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) a 5% annual return and (2)
redemption at the end of each period:
Growth Equity Portfolio.................................... $ 13 $41 $71 $157
</TABLE>
- ---------------
<PAGE> 6
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
Predecessor Portfolio is contained in the financial statements included in the
Statement of Additional Information.
The purpose of the foregoing table is to assist in understanding the
various costs and expenses that an investor in the Portfolio's Institutional
Shares will bear directly or indirectly. The table reflects the expenses which
the Portfolio expects to incur during the current fiscal year on 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 table and example have not been audited by the
Fund's independent auditors and do not reflect any charges that may be imposed
by financial institutions on their customers.
(3) The first sentence of the first paragraph of the section entitled "How
to Purchase and Redeem Shares -- Purchase of Shares" on Page 13 of the
Prospectus is deleted and replaced by the following:
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.
(4) The third paragraph of the section entitled "Taxes" on page 18 of the
Prospectus is replaced with the following:
Substantially all of the Portfolio's net realized long-term capital
gains, if any, will be distributed at least annually to its shareholders.
The Portfolio will generally have no tax liability with respect to such
gains and the distributions will be taxable to shareholders who are not
currently exempt from federal income taxes as long-term capital gains,
regardless of how long the shareholders have held the Shares and whether
such dividends 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.
(5) The sixth paragraph of the section entitled "Taxes on page 18 of the
Prospectus is replaced with the following:
The Portfolio may be required in certain cases to withhold and remit
to the U.S. Treasury 31% of taxable dividends or gross sale proceeds paid
to shareholders who have failed to provide a correct tax identification
number in the manner required, who are subject to backup withholding by the
Internal Revenue Service for prior failure to properly 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."
(6) The following replaces the section entitled "Management of the
Fund -- Investment Adviser" on pages 19-20 of the Prospectus:
2
<PAGE> 7
INVESTMENT ADVISER
Mississippi Valley Advisors Inc. ("MVA") serves as the investment adviser
to the Portfolio. MVA's principal office is located at One Mercantile Center,
Seventh & Washington Streets, St. Louis, Missouri 63101. MVA is a wholly-owned
subsidiary of Mercantile. As of December 31, 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 to
each of the Fund's other portfolios.
Subject to the general supervision of the Fund's Board of Directors and in
accordance with the Fund's investment policies, MVA manages the Portfolio, makes
investment decisions with respect to and places orders for all purchases and
sales of the Portfolio's securities and other investments, and directs the
maintenance of the Portfolio's records relating to such purchases and sales.
For the services provided and expenses assumed pursuant to the investment
advisory agreement, MVA is entitled to receive fees, computed daily and payable
monthly, at the annual rate of .75% of the Portfolio's average daily net assets.
MVA may from time to time voluntarily reduce all or a portion of its
advisory fee to increase the net income of the Portfolio available for
distributions as dividends. The voluntary fee reduction will cause the return of
the Portfolio to be higher than it would otherwise be in the absence of such
reduction.
The Predecessor Portfolio bore advisory fees during the fiscal year ended
September 30, 1997 pursuant to the investment advisory agreements then in effect
with MVA (or the predecessor adviser, Mark Twain Bank) at the effective annual
rate of .75% of its average daily net assets after fee waivers. Without fee
waivers, the Predecessor Portfolio would have borne advisory fees at the annual
rate of .75% of its average daily net assets.
The organizational arrangements of MVA require that all investment
decisions with respect to the Growth Equity Portfolio be made by MVA's Equity
Committee, and no one person is responsible for making recommendations to the
Committee.
(7) The fourth paragraph of the section entitled "Management of the
Fund --Administrator" on page 20 of the Prospectus is replaced with the
following:
The Predecessor Portfolio bore administrative fees during the fiscal
year ended September 30, 1997 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.
(8) The third sentence of the fourth paragraph of the section entitled
"Other Information Concerning the Fund and Its Shares --Description of Shares"
on page 23 of the Prospectus is replaced with the following:
Trust Shares, which are offered to financial institutions acting on
behalf of discretionary and non-discretionary accounts for which they may
receive account-level asset-based management fees, are sold without a sales
charge.
3
<PAGE> 8
(9) The first sentence of the second paragraph of the section entitled
"Other Information Concerning the Fund and Its Shares --Miscellaneous" on page
25 of the Prospectus is replaced with the following:
As of December 31, 1997, Mercantile and its affiliates possessed, of record
on behalf of their underlying customer accounts, voting or investment power with
respect to more than 25% of the Fund's outstanding Shares.
4
<PAGE> 9
THE ARCH FUND(R), INC.
SUPPLEMENT DATED JANUARY 29, 1998 TO THE
PROSPECTUS DATED SEPTEMBER 2, 1997
(AS REVISED NOVEMBER 21, 1997)
GROWTH EQUITY PORTFOLIO
INVESTOR A AND INVESTOR B SHARES
THIS SUPPLEMENT PROVIDES NEW AND ADDITIONAL INFORMATION BEYOND THAT
CONTAINED IN THE PROSPECTUS AND SHOULD BE RETAINED AND READ IN CONJUNCTION WITH
THE PROSPECTUS.
------------------------
(1) The following information replaces the section entitled 'Expense
Summary for Investor A and Investor B Shares" on pages 4 and 5 of the
Prospectus:
EXPENSE SUMMARY FOR
INVESTOR A AND INVESTOR B SHARES
<TABLE>
<CAPTION>
GROWTH EQUITY PORTFOLIO
------------------------
INVESTOR A INVESTOR B
---------- ----------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Front-End Sales Load Imposed on Purchases (as a percentage of
offering price)................................................... 4.5%(1) NONE
Deferred Sales Charge (as a percentage of offering price)............ NONE 5.0%(2)
ANNUAL PORTFOLIO OPERATING EXPENSES
(as a percentage of average net assets)
Investment Advisory Fees............................................. .75% .75%
12b-1 Fees, including distribution and service fees.................. .30% 1.00%
Other Expenses (including administration fees and other expenses)
(net of fee waivers and expense reimbursements)(3,4).............. .25% .25%
---------- ----------
TOTAL PORTFOLIO OPERATING EXPENSES
(net of fee waivers and expense reimbursements)...................... 1.30% 2.00%
======== ========
</TABLE>
- ---------------
(1) Reduced sales charge may be available. See "How to Purchase and Redeem
Shares --Reduced Sales Charges --Investor A Shares."
(2) This amount applies to redemptions during the first year. The deferred sales
charge decreases to 4.0%, 3.0%, 3.0%, 2.0% and 1.0% for redemptions made
during the second through sixth years, respectively. No deferred sales
charge is charged after the sixth year. See "How to Purchase and Redeem
Shares --Applicable Sales Charge --Investor B Shares."
(3) Without fee waivers, administration fees would be .20%.
(4) Without fee waivers and/or expense reimbursements, Other Expenses and Total
Portfolio Operating Expenses would be .35% and 1.40%, respectively, for
Investor A Shares and .35% and 2.10%, respectively, for Investor B Shares.
<PAGE> 10
EXAMPLE
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) a 5% annual return and (2)
redemption at the end of each period:
Growth Equity Portfolio
Investor A Shares(1).................................. $ 58 $84 $ 117 $202
Investor B Shares
Assuming complete redemption at end of period(2)... $ 70 $93 $ 131 $222
Assuming no redemption............................. $ 20 $63 $ 111 $222
</TABLE>
- ---------------
(1) Assumes deduction at time of purchase of maximum applicable front-end sales
charge.
(2) Assumes deduction of maximum applicable contingent deferred sales charge.
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
Predecessor Portfolio is contained in the financial statements included in the
Statement of Additional Information.
The purpose of the foregoing table is to assist in understanding the
various costs and expenses that an investor in the Portfolio's Investor A Shares
or Investor B Shares will bear directly or indirectly. The information contained
in the table with respect to Investor A Shares reflects the expenses which the
Predecessor Portfolio incurred during the last fiscal year restated to reflect
the expenses which the Portfolio expects to incur during the current fiscal year
on its Investor A Shares. The information contained in the table with respect to
Investor B Shares reflects the expenses which the Portfolio expects to incur
during the current fiscal year on its Investor B Shares. For more complete
descriptions of the various costs and expenses, see "Management of the Fund" in
this Prospectus and the Statement of Additional Information. The table and
example have not been audited by the Fund's independent auditors and do not
reflect any charges that may be imposed by financial institutions on their
customers.
Because of the payments for distribution services (12b-1 fees) under the
Distribution and Services Plans as shown in the above table, long-term
shareholders of Investor A Shares and Investor B Shares of the Portfolio may pay
more than the economic equivalent of the maximum front-end sales load permitted
by the National Association of Securities Dealers, Inc.
(2) The following Financial Highlights replace those included on page 6 of
the Prospectus:
FINANCIAL HIGHLIGHTS
The "Financial Highlights" in the following table supplements the
Predecessor Portfolio's financial statements which are included in the Statement
of Additional Information, and sets forth certain historical results for shares
of beneficial interest of the Predecessor Portfolio which were similar to
Investor A Shares of the Fund. The financial statements and the data reported in
the
2
<PAGE> 11
Financial Highlights for the fiscal years ended September 30, 1997, 1996, 1995
and 1994 and for the fiscal period ended September 30, 1993 were audited by KPMG
Peat Marwick LLP, independent accountants for the Predecessor Portfolio, whose
report thereon is included in the Statement of Additional Information.
GROWTH EQUITY FUND
(FOR A SHARE OUTSTANDING THROUGH EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------
1997 1996 1995 1994 1993(a)
----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period....... $ 15.06 $13.80 $ 9.74 $10.02 $10.00
Income from investment operations
Net investment income.................... 0.08 0.12 0.10 0.07 0.04
Net realized and unrealized gain (loss)
on investments......................... 4.75 1.32 4.05 (0.25) 0.02
------- ------- ------- ------- -------
Total from investment operations......... 4.83 1.44 4.15 (0.18) 0.06
======= ======= ======= ======= =======
Less distributions
Distributions from net investment
income................................. (0.09) (0.11) (0.09) (0.07) (0.04)
Distributions from net realized gain on
investments............................ (1.05) (0.07) -- (0.03) --
------- ------- ------- ------- -------
Total distributions...................... (1.14) (0.18) (0.09) (0.10) (0.04)
------- ------- ------- ------- -------
Net asset value, end of period............. $ 18.75 $15.06 $13.80 $ 9.74 $10.02
======= ======= ======= ======= =======
Total return(b)............................ 33.85% 10.48% 42.90% (1.84%) 0.60%
Ratios to average net assets
Expenses................................. 1.14% 1.17% 1.28% 1.36% 1.32%*
Net investment income.................... 0.44% 0.86% 0.90% 0.74% 0.62%*
Expense waiver/reimbursement(c).......... 0.25% 0.28% 0.30% 0.28% 0.30%*
Supplemental data
Net assets, end of period (000
omitted)............................... $68,965 $55,573 $43,708 $30,282 $31,159
Average commission rate paid(d).......... $0.0815 $0.0756 -- -- --
Portfolio turnover....................... 42% 45% 45% 127% 54%
</TABLE>
- ---------------
* Computed on an annualized basis.
(a) Reflects operations for the period from January 4, 1993 (date of initial
public investment) to September 30, 1993.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(d) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged. This
disclosure is required for fiscal years beginning on or after September 1,
1995.
3
<PAGE> 12
(3) The third paragraph of the section entitled "Taxes" on page 29 of the
Prospectus is replaced with the following:
Substantially all of the Portfolio's net realized long-term capital
gains, if any, will be distributed at least annually to its shareholders.
The Portfolio will generally have no tax liability with respect to such
gains and the distributions will be taxable to shareholders who are not
currently exempt from federal income taxes as long-term capital gains,
regardless of how long the shareholders have held the Shares and whether
such dividends 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.
(4) The sixth paragraph of the section entitled "Taxes on page 29 of the
Prospectus is replaced with the following:
The Portfolio may be required in certain cases to withhold and remit
to the U.S. Treasury 31% of taxable dividends or gross sale proceeds paid
to shareholders who have failed to provide a correct tax identification
number in the manner required, who are subject to backup withholding by the
Internal Revenue Service for prior failure to properly 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."
(5) The following replaces the section entitled "Management of the
Fund --Investment Adviser" on page 30 of the Prospectus:
INVESTMENT ADVISER
Mississippi Valley Advisors Inc. ("MVA") serves as the investment adviser
to the Portfolio. MVA's principal office is located at One Mercantile Center,
Seventh & Washington Streets, St. Louis, Missouri 63101. MVA is a wholly-owned
subsidiary of Mercantile. As of December 31, 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 to
each of the Fund's other portfolios.
Subject to the general supervision of the Fund's Board of Directors and in
accordance with the Fund's investment policies, MVA manages the Portfolio, makes
investment decisions with respect to and places orders for all purchases and
sales of the Portfolio's securities and other investments, and directs the
maintenance of the Portfolio's records relating to such purchases and sales.
For the services provided and expenses assumed pursuant to the investment
advisory agreement, MVA is entitled to receive fees, computed daily and payable
monthly, at the annual rate of .75% of the Portfolio's average daily net assets.
MVA may from time to time voluntarily reduce all or a portion of its
advisory fee to increase the net income of the Portfolio available for
distributions as dividends. The voluntary fee reduction will cause the return of
the Portfolio to be higher than it would otherwise be in the absence of such
reduction.
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<PAGE> 13
The Predecessor Portfolio bore advisory fees during the fiscal year
September 30, 1997 pursuant to the investment advisory agreements then in effect
with MVA (or the predecessor adviser, Mark Twain Bank) at the effective annual
rate of .75% of its average daily net assets after fee waivers. Without fee
waivers, the Predecessor Portfolio would have borne advisory fees at the annual
rate of .75% of its average daily net assets.
The organizational arrangements of MVA require that all investment
decisions with respect to the Growth Equity Portfolio be made by MVA's Equity
Committee, and no one person is responsible for making recommendations to the
Committee.
(6) The fourth paragraph of the section entitled "Management of the
Fund --Administrator" on page 31 of the Prospectus is replaced with the
following:
The Predecessor Portfolio bore administrative fees during the fiscal
year ended September 30, 1997 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.
(7) The third sentence of the fourth paragraph of the section entitled
"Other Information Concerning the Fund and Its Shares --Description of Shares"
is replaced with the following:
Trust Shares, which 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, and Institutional Shares, which are offered to financial institutions
acting on behalf of discretionary and nondiscretionary accounts for which
they do not receive account-level asset-based management fees, are sold
without a sales charge.
(8) The first sentence of the second paragraph of the section "Other
Information Concerning the Fund and Its Shares--Miscellaneous" on page 36 of the
Prospectus is replaced with the following:
As of December 31, 1997, Mercantile and its affiliates possessed, of
record on behalf of their underlying customer accounts, voting or
investment power with respect to more than 25% of the Fund's outstanding
Shares.
5
