<PAGE>
As filed with the Securities and Exchange Commission on January 31, 2000
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. 50 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 51 [X]
MERCANTILE MUTUAL FUNDS, 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
One Logan Square
18/th/ and Cherry Streets
Philadelphia, Pennsylvania 19103-6996
(Name and Address of Agent for Service)
Copy to:
Jon W. Bilstrom, Esq.
Mercantile Bank of St. Louis N.A.
One Mercantile Center
8th and Washington Streets
St. Louis, MO 63101
It is proposed that this filing will become effective (check appropriate box)
[_] immediately upon filing pursuant to paragraph (b)
[_] on (date) pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities being registered: Shares of Beneficial Interest.
<PAGE>
Mercantile Mutual Funds, Inc.
Prospectus
Trust Shares and Trust II Shares
, 2000
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
Balanced 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
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Portfolios or determined if this
prospectus is truthful or complete. Anyone who tells you otherwise is committing
a criminal offense.
<PAGE>
Contents
Risk/Return Summary
3 Overview
5 Treasury Money Market Portfolio
8 Money Market Portfolio
11 Tax-Exempt Money Market Portfolio
15 U.S. Government Securities Portfolio
19 Intermediate Corporate Bond Portfolio
23 Bond Index Portfolio
26 Government & Corporate Bond Portfolio
30 Short-Intermediate Municipal Portfolio
35 Missouri Tax-Exempt Bond Portfolio
39 National Municipal Bond Portfolio
43 Balanced Portfolio
47 Equity Income Portfolio
50 Equity Index Portfolio
53 Growth & Income Equity Portfolio
56 Growth Equity Portfolio
59 Small Cap Equity Portfolio
62 Small Cap Equity Index Portfolio
65 International Equity Portfolio
68 Additional Information on Risk
Your Account
69 Explanation of Sales Price
70 How to Buy Shares
70 How to Sell Shares
71 How to Exchange Shares
72 Administrative Services Fees
73 General Transaction Policies
Distributions and Taxes
73 Dividends and Distributions
74 Taxation
Management of the Fund
76 The Adviser
77 The Sub-Adviser
Financial Highlights
78 Introduction
79 Financial Highlights
-2-
<PAGE>
Risk/Return Summary
Overview
This prospectus describes Trust Shares and Trust II Shares of eighteen
investment portfolios (the "Portfolios") offered by Mercantile Mutual Funds,
Inc. (the "Fund"). On the following pages, you will find important information
about each Portfolio, including:
. A description of the Portfolio's investment objective (sometimes referred
to as its goal);
. The Portfolio's principal investment strategies (the steps it takes to try
to meet its goal);
. The principal risks associated with the Portfolio (factors that may prevent
it from meeting its goal);
. The Portfolio's past performance (how successful it's been in meeting its
goal); and
. The fees and expenses you pay as an investor in the Portfolio.
Who May Want to Invest in the Portfolios?
The Treasury Money Market Portfolio may be appropriate for investors who want a
way to earn money market returns from U.S. Treasury obligations that are
generally exempt from state and local taxes. The Money Market Portfolio may be
appropriate for investors who want a flexible and convenient way to manage cash
while earning money market returns. The Tax-Exempt Money Market Portfolio may
be appropriate for investors who want a way to earn money market returns that
are generally exempt from federal income tax.
The Taxable Bond Portfolios may be appropriate for investors who seek current
income from their investments greater than that normally available from a money
market fund and can accept fluctuations in price and yield. The Portfolios may
not be appropriate for investors who are investing for long-term capital
appreciation.
The Tax-Exempt Bond Portfolios may be appropriate for investors who are looking
for income that is exempt from federal income tax and who can accept
fluctuations in price and yield. The Missouri Tax-Exempt Bond Portfolio is best
suited to Missouri residents who are also looking for income that is exempt from
Missouri state income tax. The Portfolios, as well as the Tax-Exempt Money
Market Portfolio, are not appropriate investments for tax-deferred retirement
accounts, such as IRAs, because their returns before taxes are generally lower
than those of taxable funds.
The Stock Portfolios may be appropriate for investors who seek capital growth
over the long term and are comfortable with the risks of stock markets. The
Portfolios may not be appropriate for investors who are investing for short-term
goals or are mainly seeking current income.
Before investing in a Portfolio, you should carefully consider:
. Your own investment goals
. The amount of time you are willing to leave your money invested
-3-
<PAGE>
. How much risk you are willing to take.
The Investment Adviser
Firstar Investment Research and Management Company, LLC ("FIRMCO" or the
"Adviser") serves as the investment adviser to each Portfolio as a result of the
merger of the Portfolios' former adviser, Mississippi Valley Advisors Inc.
("MVA") into FIRMCO on March 1, 2000. FIRMCO is a subsidiary of Firstar
Corporation, a banking and financial services organization, and has its main
office at Firstar Center, 777 East Wisconsin Avenue, 8th Floor, Milwaukee,
Wisconsin. FIRMCO has been providing advisory services since 1986 and as of
December 31, 1999, FIRMCO had approximately $35.3 billion in assets under
management.
An investment in the Portfolios is not a Firstar Bank deposit and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although each of the Money Market Portfolios seeks to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in the Portfolios. You could also lose money by investing in
one of the Taxable Bond, Tax-Exempt Bond or Stock Portfolios.
-4-
<PAGE>
Treasury Money Market Portfolio
Investment Objective
The 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.
Principal Investment Strategies
The Portfolio invests substantially all (but not less than 65%) of its total
assets in money market instruments issued by the U.S. Treasury and certain U.S.
Government agencies and instrumentalities that provide income that is generally
not subject to state income tax.
(sidebar)
Money Market Instruments are short-term obligations issued by banks,
corporations, the U.S. Government and state and local governments. Money market
instruments purchased by the Money Market Portfolios must meet strict
requirements as to investment quality, maturity and diversification. The Money
Market Portfolios generally do not invest in securities with maturities of more
than 397 days and the average maturity of all securities held by a particular
Money Market Portfolio must be 90 days or less. Prior to purchasing a money
market instrument for one of the Money Market Portfolios, the Adviser must
determine that the instrument carries very little credit risk.
Principal Risk Considerations
The yield paid by the Portfolio will vary with changes in interest rates.
Although U.S. Government securities, particularly U.S. Treasury obligations,
have historically involved little risk, if an issuer fails to pay interest or
repay principal, the value of your investment could decline.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
There's no guarantee the Portfolio will be able to preserve the value of your
investment at $1.00 per share.
-5-
<PAGE>
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Trust Shares has varied from year to year. The table shows the Portfolio's
average annual returns for one year, five years and since inception. Both the
bar chart and table assume reinvestment of all dividends and distributions. The
Portfolio's past performance does not necessarily indicate how it will perform
in the future.
Trust Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998 1999
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
3.40% 2.67% 3.55% 5.15% 4.61% 4.71% 4.49% ____%
- ---------------------------------------------------------------------------------------------------
</TABLE>
The returns for Trust II Shares would have differed from the returns shown in
the bar chart because the two classes bear different expenses.
Best quarter: _____% for the quarter ending _______________
Worst quarter: _____% for the quarter ending _______________
Average Annual Total Returns for the periods ended December 31, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Since
1 Year 5 Years Inception*
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares _____% _____% _____%
- ------------------------------------------------------------------------------------
Trust II Shares** _____% N/A _____%
- ------------------------------------------------------------------------------------
</TABLE>
* December 2, 1991 for Trust Shares.
** Trust II Shares of the Portfolio commenced operations on November 13, 1998.
To obtain the Portfolio's current 7-day yield, please call 1-800-452-4015.
-6-
<PAGE>
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Trust Shares or Trust II Shares of the Treasury Money Market Portfolio.
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Total Annual
Portfolio
Distribution Operating
Management Fees (12b-1) Fees Other Expenses Expenses
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares .40%/1/ None _____%/1/ _____%/1/
- ------------------------------------------------------------------------------------------------------
Trust II Shares .40%/1/ None _____%/1/ _____%/1/
- ------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Management Fees, Other Expenses and Total Annual Portfolio Operating
Expenses for the Portfolio's Trust Shares and Trust II Shares for the current
fiscal year are estimated to be less than the amounts shown above because
certain of the Portfolio's service providers are voluntarily waiving a portion
of their fees and/or reimbursing the Portfolio for certain other expenses. These
fee waivers and/or reimbursements are being made in order to keep the annual
fees and expenses for the Portfolio's Trust Shares and Trust II Shares at a
certain level. Management Fees, Other Expenses and Total Annual Portfolio
Operating Expenses, after taking these fee waivers and expense reimbursements
into account, are estimated to be .__%, .__% and .__%, respectively, for Trust
Shares, and .__%, .__% and .__%, respectively, for Trust II Shares. These fee
waivers and expense reimbursements may be revised or cancelled at any time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $______ $______ $______ $______
- ------------------------------------------------------------------------------------------------------
Trust II Shares $______ $______ $______ $______
- ------------------------------------------------------------------------------------------------------
</TABLE>
-7-
<PAGE>
Money Market Portfolio
Investment Objective
The Portfolio's investment objective is to seek current income with liquidity
and stability of principal.
Principal Investment Strategies
The Portfolio invests substantially all (but not less than 80%) of its total
assets in a broad range of money market instruments, including commercial paper,
notes and bonds issued by U.S. and foreign corporations, obligations issued by
the U.S. Government and its agencies and instrumentalities, and obligations
issued by U.S. and foreign banks, such as certificates of deposit, letters of
credit, bankers' acceptances and time deposits.
The Portfolio will only buy a money market instrument if it has the highest
short-term rating from at least two nationally recognized statistical rating
organizations, such as Standard and Poor's Ratings Group or Moody's Investors
Service, Inc., or only one such rating if only one organization has rated the
instrument. If the money market instrument is not rated, the Adviser must
determine that it is of comparable quality to eligible rated instruments.
Principal Risk Considerations
The yield paid by the Portfolio will vary with short-term interest rates.
Although credit risk is very low because the Portfolio only invests in high
quality obligations, if an issuer fails to pay interest or repay principal, the
value of your investment could decline.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
There's no guarantee the Portfolio will be able to preserve the value of your
investment at $1.00 per share.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Trust Shares has varied from year to year. The table shows the Portfolio's
average annual returns for one year, five years and since inception. Both the
bar chart and table assume reinvestment of all dividends and distributions. The
Portfolio's past performance does not necessarily indicate how it will perform
in the future.
-8-
<PAGE>
Trust Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997 1998 1999
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5.67% 3.30% 2.71% 3.76% 5.55% 4.95% 5.09% 5.02% ____%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The returns for Trust II Shares would have differed from the returns shown in
the bar chart because the two classes bear different expenses.
Best quarter: _____% for the quarter ending _______________
Worst quarter: _____% for the quarter ending _______________
Average Annual Total Returns for the periods ended December 31, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Since
1 Year 5 Years Inception*
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares _____% _____% _____%
- ------------------------------------------------------------------------------------
Trust II Shares** _____% N/A _____%
- ------------------------------------------------------------------------------------
</TABLE>
* December 1, 1990 for Trust Shares.
** Trust II Shares of the Portfolio commenced operations on November 10,
1998.
To obtain the Portfolio's current 7-day yield, please call 1-800-452-4015.
-9-
<PAGE>
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Trust Shares or Trust II Shares of the Money Market Portfolio.
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Total Annual
Portfolio
Management Distribution Operating
Fees (12b-1) Fees Other Expenses Expenses
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares .40%/1/ None _____%/1/ _____%/1/
- ---------------------------------------------------------------------------------------------
Trust II Shares .40%/1/ None _____%/1/ _____%/1/
- ---------------------------------------------------------------------------------------------
</TABLE>
/1/ Management Fees, Other Expenses and Total Annual Portfolio Operating
Expenses for the Portfolio's Trust Shares and Trust II Shares for the current
fiscal year are expected to be less than the amounts shown above because certain
of the Portfolio's service providers are voluntarily waiving a portion of their
fees and/or reimbursing the Portfolio for certain other expenses. These fee
waivers and/or reimbursements are being made in order to keep the annual fees
and expenses for the Portfolio's Trust Shares and Trust II Shares at a certain
level. Management Fees, Other Expenses and Total Annual Portfolio Operating
Expenses, after taking these fee waivers and expense reimbursements into
account, are estimated to be .__%, .__% and .__%, respectively, for Trust Shares
and .__%, .__% and .__%, respectively, for Trust II Shares. These fee waivers
and expense reimbursements may be revised or cancelled at any time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
-10-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $______ $______ $______ $______
- ------------------------------------------------------------------------------------------------------
Trust II Shares $______ $______ $______ $______
- ------------------------------------------------------------------------------------------------------
</TABLE>
-11-
<PAGE>
Tax-Exempt Money Market Portfolio
Investment Objective
The 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.
Principal Investment Strategies
The Portfolio normally invests at least 80% of its total assets in short-term
municipal securities that pay interest which is exempt from federal income tax.
Municipal securities purchased by the Portfolio may include general obligation
securities, revenue securities and private activity bonds. General obligation
securities are secured by the issuer's full faith, credit and taxing power.
Revenue securities are usually payable only from revenues derived from specific
facilities or revenue sources. Private activity bonds are usually revenue
obligations since they are typically payable by the private user of the
facilities financed by the bonds. The interest on private activity bonds may be
subject to the federal alternative minimum tax. Investments in private activity
bonds will not be treated as investments in municipal securities for purposes of
the 80% requirement stated above.
(sidebar)
What Are Municipal Securities?
State and local governments issue municipal securities to raise money to finance
public works, to repay outstanding obligations, to raise funds for general
operating expenses and to make loans to other public institutions. Some
municipal securities, known as private activity bonds, are backed by private
entities and are used to finance various non-public projects. Municipal
securities, which can be issued as bonds, notes or commercial paper, usually
have fixed interest rates, although some have interest rates that change from
time to time.
The Portfolio will only buy a municipal security if it has the highest short-
term rating from at least two nationally recognized statistical rating
organizations, such as Standard & Poor's Ratings Group or Moody's Investor
Service, Inc., or one such rating if only one organization has rated the
security. If the security is not rated, it must be determined by the Adviser to
be of comparable quality.
Principal Risk Considerations
The yield paid by the Portfolio will vary with changes in interest rates.
Although credit risk is very low because the Portfolio only invests in high
quality obligations, if an issuer fails to pay interest or repay principal, the
value of your investment could decline. The ability of a state or local
government issuer to make payments can be affected by many factors, including
economic
-12-
<PAGE>
conditions, the flow of tax revenues and changes in the level of federal, state
or local aid. Some municipal securities are payable only from limited revenue
sources or by private entities.
The Portfolio is not diversified, which means that it can invest a large
percentage of its assets in a small number of issuers. As a result, a change in
the value of any one investment held by the Portfolio may affect the overall
value of the Portfolio more than it would affect a diversified portfolio.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
There's no guarantee the Portfolio will be able to preserve the value of your
investment at $1.00 per share.
Return History+
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio The bar chart shows how the performance of the Portfolio's
Trust Shares has varied from year to year. The table shows the Portfolio's
average annual returns for one year, five years and since inception. Both the
bar chart and table assume reinvestment of all dividends and distributions. The
Portfolio's past performance does not necessarily indicate how it will perform
in the future.
Trust Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
- --------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997 1998 1999
- --------------------------------------------------------------------------------
4.05% 2.51% 1.98% 2.37% 3.27% 3.00% 3.09% 2.86% ____%
- --------------------------------------------------------------------------------
The returns for Trust II Shares would have differed from the returns shown in
the bar chart because the two classes bear different expenses.
Best quarter: _____% for the quarter ending _______________
Worst quarter: _____% for the quarter ending _______________
-13-
<PAGE>
Average Annual Total Returns for the periods ended December 31, 1999
- --------------------------------------------------------------------------------
1 Year 5 Years Since
Inception*
- --------------------------------------------------------------------------------
Trust Shares _____% _____% _____%
- --------------------------------------------------------------------------------
Trust II Shares** _____% N/A _____%
- --------------------------------------------------------------------------------
+ The Portfolio commenced operations on July 10, 1986 as a separate
investment portfolio (the "Predecessor Portfolio") of The ARCH Tax-Exempt Trust.
On October 2, 1995, the Predecessor Portfolio was reorganized as a new portfolio
of the Fund. Prior to the reorganization, the Predecessor Portfolio offered and
sold shares that were similar to the Fund's Trust Shares. Total returns for
periods prior to October 2, 1995 reflect the performance of the Predecessor
Portfolio.
* September 28, 1990 for Investors A Shares.
** Trust II Shares of the Portfolio commenced operations on November 16, 1998.
To obtain the Portfolio's current 7-day yield, please call 1-800-452-4015.
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Trust Shares or Trust II Shares of the Tax-Exempt Money Market Portfolio.
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
Total Annual
Portfolio
Management Fees Distribution Operating
(12b-1) Fees Other Expenses Expenses
- --------------------------------------------------------------------------------
Trust Shares _____%/1/ None _____% _____%/1/
- --------------------------------------------------------------------------------
Trust II Shares _____%/1/ None _____%/1/ _____%/1/
- --------------------------------------------------------------------------------
1 Management Fees and Total Annual Portfolio Operating Expenses for the
Portfolio's Trust Shares and Management Fees, Other Expenses and Total Annual
Portfolio Operating Expenses for the Portfolio's Trust II Shares for the current
fiscal year are expected to be less than the amounts shown above because certain
of the Portfolio's service providers are voluntarily waiving a portion of their
fees and/or reimbursing the Portfolio for certain other expenses. These fee
waivers and/or reimbursements are being made in order to keep the annual fees
and expenses for the Portfolio's Trust Shares and Trust II Shares at a certain
level. Management Fees and Total Annual Portfolio Operating Expenses, after
taking these fee waivers and expense reimbursements into account, are expected
to be .__% and .__%, respectively, for Trust Shares. Management Fees, Other
Expenses and Total Annual Portfolio Operating Expenses, after taking these fee
waivers and expense reimbursements into account, are
-14-
<PAGE>
expected to be .__%, .__% and .__%, respectively, for Trust II shares. These fee
waivers and expense reimbursements may be revised or cancelled at any time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
Trust Shares $______ $______ $______ $______
- --------------------------------------------------------------------------------
Trust II Shares $______ $______ $______ $______
- --------------------------------------------------------------------------------
-15-
<PAGE>
U.S. Government Securities Portfolio
Investment Objective
The Portfolio's investment objective is to seek a high rate of current income
that is consistent with relative stability of principal.
Principal Investment Strategies
The Portfolio normally invests at least 65% of its total assets in debt
obligations issued or guaranteed by the U.S. Government and its agencies,
including U.S. Treasury bonds, notes and bills, as well as in repurchase
agreements backed by such obligations. The Portfolio also invests in mortgage-
backed securities issued by U.S. Government-sponsored entities such as Ginnie
Maes, Fannie Maes and Freddie Macs. The remaining maturity (i.e., length of time
until an obligation must be repaid) of the obligations held by the Portfolio
will vary from one to 30 years.
(sidebar)
Repurchase agreements are transactions in which a Portfolio buys securities from
a seller (usually a bank or broker-dealer) who agrees to buy them back from the
Portfolio on a certain date and at a certain price.
(sidebar)
Mortgage-backed securities are certificates representing ownership interests in
a pool of mortgage loans, and include those issued by the Government National
Mortgage Association ("Ginnie Maes"), the Federal National Mortgage Association
("Fannie Maes") and the Federal Home Loan Mortgage Corporation ("Freddie Macs").
Principal Risk Considerations
The prices of debt securities tend to move in the opposite direction to interest
rates. When rates are rising, the prices of debt securities tend to fall. When
rates are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt security
is to interest rate changes. Changes in interest rates may also cause certain
debt securities held by the Portfolio, including mortgage-backed securities, to
be paid off much sooner or later than expected. In the event that a security is
paid off sooner than expected because of a decline in interest rates, the
Portfolio may be unable to recoup all of its initial investment and may also
suffer from having to reinvest in lower-yielding securities. In the event of a
later than expected payment because of a rise in interest rates, the value of
the obligation will decrease, and the Portfolio may suffer from the inability to
invest in higher-yielding securities.
-16-
<PAGE>
The value of debt securities also depends on the ability of issuers to make
principal and interest payments. If an issuer can't meet its payment
obligations, the value of its debt securities will fall. Securities issued or
guaranteed by the U.S. Government and its agencies have historically involved
little risk of loss of principal if held to maturity. Certain U.S. Government
securities, such as Ginnie Maes, are supported by the full faith and credit of
the U.S. Treasury. Others, such as Freddie Macs, are supported by the right of
the issuer to borrow from the U.S. Treasury. Other securities, such as Fannie
Maes, are supported by the discretionary authority of the U.S. Government to
purchase certain obligations of the issuer, and still others are supported by
the issuer's own credit.
Repurchase agreements carry the risk that the other party may not fulfill its
obligations under the agreement.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
(sidebar)
Portfolio Manager
David A. Bethke is the person primarily responsible for the day-to-day
management of the Portfolio. Mr. Bethke, Senior Associate, joined FIRMCO and its
predecessors in 1987 and has eight years of prior investment experience. He has
managed the Portfolio since it commenced operations in 1988.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Trust Shares has varied from year to year. The table shows how the Portfolio's
average annual returns for one year, five years and since inception compare to
those of a broad-based market index. Both the bar chart and table assume
reinvestment of all dividends and distributions. The Portfolio's past
performance does not necessarily indicate how it will perform in the future.
-17-
<PAGE>
Trust Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
- --------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998 1999
- --------------------------------------------------------------------------------
14.27% 9.10% -2.44% 15.29% 3.32% 6.68% 6.75% ____%
- --------------------------------------------------------------------------------
Best quarter: _____% for the quarter ending _______________
Worst quarter: _____% for the quarter ending _______________
Average Annual Total Returns for the periods ended December 31, 1999
- --------------------------------------------------------------------------------
Since
1 Year 5 Years Inception*
- --------------------------------------------------------------------------------
Trust Shares _____% _____% _____%
- --------------------------------------------------------------------------------
Lehman Brothers Intermediate
Government Bond Index _____% _____% _____%
- --------------------------------------------------------------------------------
* February 1, 1991 for Trust Shares; January 31, 1991 for the Lehman Brothers
Intermediate Government Bond Index
(sidebar)
Know your index
The Lehman Brothers Intermediate Government Bond Index is an unmanaged index
which tracks the performance of intermediate-term U.S. Government bonds.
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Trust Shares of the U.S. Government Securities Portfolio.
-18-
<PAGE>
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
- --------------------------------------------------------------------------------
Total Annual
Portfolio
Management Fees Distribution Operating
(12b-1) Fees Other Expenses Expenses
- --------------------------------------------------------------------------------
Trust Shares .45% None _____%/1/ _____%/1/
- --------------------------------------------------------------------------------
/1/ Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Trust Shares for the current fiscal year are expected to be less
than the amounts shown above because certain of the Portfolio's service
providers are voluntarily waiving a portion of their fees and/or reimbursing the
Portfolio for certain other expenses. These fee waivers and/or reimbursements
are being made in order to keep the annual fees and expenses for the Portfolio's
Trust Shares at a certain level. Other Expenses and Total Annual Portfolio
Operating Expenses, after taking these fee waivers and expense reimbursements
into account, are estimated to be .__% and .__%, respectively, for Trust Shares.
These fee waivers and expense reimbursements may be revised or cancelled at any
time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
- --------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
Trust Shares $______ $______ $______ $______
- --------------------------------------------------------------------------------
-19-
<PAGE>
Intermediate Corporate Bond Portfolio
Investment Objective
The Portfolio's investment objective is to seek as high a level of current
income as is consistent with preservation of capital.
Principal Investment Strategies
The Portfolio normally invests at least 65% of its total assets in corporate
debt obligations. These include obligations that are issued by U.S. and foreign
business corporations and obligations issued by agencies, instrumentalities or
authorities that are organized as corporations by the U.S., by states or
political subdivisions of the U.S., or by foreign governments or political
subdivisions. The Portfolio also invests in obligations issued or guaranteed by
U.S. or foreign governments, their agencies and instrumentalities and in
mortgage-backed securities, including Ginnie Maes, Fannie Maes and Freddie Macs.
The Portfolio may only purchase investment grade debt obligations. Under normal
market 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. Unrated debt obligations will be purchased only if they are
determined by the Adviser to be at least comparable in quality at the time of
purchase to eligible rated securities. Occasionally, the rating of a security
held by the Portfolio may be downgraded below investment grade. If that
happens, the Portfolio does not have to sell the security unless the Adviser
determines that under the circumstances the security is no longer an appropriate
investment for the Portfolio.
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's
average weighted maturity will generally be between three and ten years.
(sidebar)
Investment grade debt securities are those of medium credit quality or better as
determined by a national rating agency, such as Standard & Poor's Ratings Group
(debt securities rated in the four highest rating categories, i.e. BBB or
better) and Moody's Investors Service, Inc. (debt securities rated in the four
highest rating categories, i.e. Baa or higher). The higher the credit rating,
the less likely it is that the issuer of the securities will default on its
principal and interest payments.
(sidebar)
Average weighted maturity gives you the average time until all debt securities
in a Portfolio come due or mature. It is calculated by averaging the time to
maturity of all debt securities held by a Portfolio with each maturity
"weighted" according to the percentage of assets it represents.
-20-
<PAGE>
Principal Risk Considerations
The prices of debt securities tend to move in the opposite direction to interest
rates. When rates are rising, the prices of debt securities tend to fall. When
rates are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt security
is to interest rate changes. Changes in interest rates also may cause certain
debt securities held by the Portfolio, including callable securities and
mortgage-backed securities, to be paid off much sooner or later than expected.
In the event that a security is paid off sooner than expected because of a
decline in interest rates, the Portfolio may be unable to recoup all of its
initial investment and may also suffer from the having to reinvest in lower-
yielding securities. In the event of a later than expected payment because of a
rise in interest rates, the value of the obligation will decrease, and the
Portfolio may suffer from the inability to invest in higher-yielding securities.
The value of debt securities also depends on the ability of issuers to make
principal and interest payments. If an issuer can't meet its payment
obligations or if its credit rating is lowered, the value of its debt securities
will fall.
Foreign investments may be riskier than U.S. investments because of currency
exchange rate volatility, government restrictions, different accounting
standards and political instability.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
(sidebar)
Portfolio Manager
David A. Bethke is the person primarily responsible for the day-to-day
management of the Portfolio. Mr. Bethke, Senior Associate, joined FIRMCO and its
predecessors in 1987 and has eight years of prior investment experience. He has
managed the Portfolio since it commenced operations in 1997.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Trust Shares has varied from year to year. The table shows how the Portfolio's
average annual returns for one year and since inception compare to those of a
broad-based market index. Both the bar chart and table assume reinvestment of
all dividends and distributions. The Portfolio's past performance does not
necessarily indicate how it will perform in the future.
-21-
<PAGE>
Trust Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
- ---------------------------
1998 1999
- ---------------------------
9.01% ____%
- ---------------------------
Best quarter: _____% for the quarter ending _______________
Worst quarter: _____% for the quarter ending _______________
Average Annual Total Returns for the periods ended December 31, 1999
- -------------------------------------------------------------------
Since
1 Year Inception*
- -------------------------------------------------------------------
Trust Shares _____% _____%
- -------------------------------------------------------------------
Lehman Brothers Intermediate
Corporate Bond Index _____% _____%
- -------------------------------------------------------------------
* February 10, 1997 for Trust Shares; January 31, 1997 for the Lehman Brothers
Intermediate Corporate Bond Index.
(sidebar)
Know your index
The Lehman Brothers Intermediate Corporate Bond Index is an unmanaged index
which tracks the performance of intermediate-term U.S. corporate bonds.
-22-
<PAGE>
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Trust Shares of the Intermediate Corporate Bond Portfolio.
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
- --------------------------------------------------------------------------------
Total Annual
Portfolio
Management Fees Distribution Operating
(12b-1) Fees Other Expenses Expenses
- --------------------------------------------------------------------------------
Trust Shares .55% None _____%/1/ _____%/1/
- --------------------------------------------------------------------------------
/1/ Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Trust Shares for the current fiscal year are expected to be less
than the amounts shown above because certain of the Portfolio's service
providers are voluntarily waiving a portion of their fees and/or reimbursing the
Portfolio for certain other expenses. These fee waivers and/or reimbursements
are being made in order to keep the annual fees and expenses for the Portfolio's
Trust Shares at a certain level. Other Expenses and Total Annual Portfolio
Operating Expenses, after taking these fee waivers and expense reimbursements
into account, are expected to be .__% and .__%, respectively, for Trust Shares.
These fee waivers and expense reimbursements may be revised or cancelled at any
time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
- --------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
Trust Shares $______ $______ $______ $______
- --------------------------------------------------------------------------------
-23-
<PAGE>
Bond Index Portfolio
Investment Objective
The 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
"Lehman Aggregate").
The Portfolio's investment objective can be changed by the Fund's Board of
Directors without shareholder approval. Shareholders will be given at least 30
days' written notice before any such change occurs.
Principal Investment Strategies
The Portfolio uses an "indexing" strategy through the use of computer models to
approximate the investment performance of the Lehman Aggregate. 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. Because of the
large number of securities listed in the Lehman Aggregate, the Portfolio cannot
invest in all of them. Instead, the Portfolio holds a representative sample of
approximately 100 of the securities in the Lehman Aggregate, selecting one or
two securities to represent an entire "class" or type of security in the Lehman
Aggregate. The Portfolio will invest substantially all (but not less than 80%)
of its total assets in securities listed in the Lehman Aggregate.
(sidebar)
Indexing is a strategy whereby a Portfolio attempts to weight its securities to
match those of a broadly-based securities index in an attempt to approximate the
index's performance.
Principal Risk Considerations
The prices of debt securities tend to move in the opposite direction to interest
rates. When rates are rising, the prices of debt securities tend to fall. When
rates are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt security
is to interest rate changes. Changes in interest rates also may cause certain
debt securities held by the Portfolio, including callable securities and
mortgage-backed securities, to be paid off much sooner or later than expected.
In the event that a security is paid off sooner than expected because of a
decline in interest rates, the Portfolio may be unable to recoup all of its
initial investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise in
interest rates, the value of the obligation will decrease, and the Portfolio may
suffer from the inability to invest in higher-yielding securities.
-24-
<PAGE>
The value of debt securities also depends on the ability of issuers to make
principal and interest payments. If an issuer can't meet its payment obligations
or if its credit rating is lowered, the value of its debt securities will fall.
There is the additional risk that the Portfolio will fail to match the
investment results of the Lehman Aggregate.
(sidebar)
The Lehman Brothers Aggregate Bond Index is an unmanaged index made up of Lehman
Brothers' Government/Corporate Bond Index, its Mortgage Backed Securities Index
and its Asset Backed Securities Index.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Trust Shares has varied from year to year. The table shows how the Portfolio's
average annual returns for one year and since inception compare to those of the
Lehman Aggregate. Both the bar chart and table assume reinvestment of all
dividends and distributions. The Portfolio's past performance does not
necessarily indicate how it will perform in the future.
Trust Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
- ---------------------
1998 1999
- ---------------------
8.93% ____%
- ---------------------
Best quarter: _____% for the quarter ending _______________
Worst quarter: _____% for the quarter ending _______________
Average Annual Total Returns for the periods ended December 31, 1999
- --------------------------------------------------------------------
Since
1 Year Inception*
- --------------------------------------------------------------------
Trust Shares _____% _____%
- --------------------------------------------------------------------
Lehman Aggregate _____% _____%
- --------------------------------------------------------------------
* February 10, 1997 for Trust Shares; January 31, 1997 for the Lehman
Aggregate.
-25-
<PAGE>
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Trust Shares of the Bond Index Portfolio.
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
- --------------------------------------------------------------------------------
Total Annual
Portfolio
Management Distribution Operating
Fees (12b-1) Fees Other Expenses Expenses
- --------------------------------------------------------------------------------
Trust Shares .30% None _____%/1/ _____%/1/
- --------------------------------------------------------------------------------
/1/ Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Trust Shares for the current fiscal year are expected to be less
than the amounts shown above because certain of the Portfolio's service
providers are voluntarily waiving a portion of their fees and/or reimbursing the
Portfolio for certain other expenses. These fee waivers and/or reimbursements
are being made in order to keep the annual fees and expenses for the Portfolio's
Trust Shares at a certain level. Other Expenses and Total Annual Portfolio
Operating Expenses, after taking these fee waivers and expense reimbursements
into account, are estimated to be .__% and .__%, respectively, for Trust Shares.
These fee waivers and expense reimbursements may be revised or cancelled at any
time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
- --------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
Trust Shares $______ $______ $______ $______
- --------------------------------------------------------------------------------
-26-
<PAGE>
Government & Corporate Bond Portfolio
Investment Objective
The Portfolio's investment objective is to seek the highest level of current
income consistent with conservation of capital.
Principal Investment Strategies
The Portfolio invests substantially all of its total assets in a broad range of
debt obligations, including corporate obligations and U.S. Government
obligations. Corporate obligations may include bonds, notes and debentures. U.S.
Government obligations may include U.S. Treasury obligations and obligations of
certain U.S. Government agencies. The Portfolio also invests in mortgage-backed
securities, including Ginnie Maes, Fannie Maes and Freddie Macs. Although the
Portfolio invests primarily in the debt obligations of U.S. issuers, it may from
time to time invest in U.S. dollar-denominated debt obligations of foreign
corporations and governments.
The Portfolio may only purchase investment grade debt obligations, which are
those rated in one of the four highest rating categories by one or more national
rating agencies, such as Standard & Poor's Ratings Group or Moody's Investors
Service, Inc. Under normal market 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. Unrated debt obligations will be purchased only
if they are determined by the Adviser to be at least comparable in quality at
the time of purchase to eligible rated securities. Occasionally, the rating of a
security held by the Portfolio may be downgraded below investment grade. If that
happens, the Portfolio does not have to sell the security unless the Adviser
determines that under the circumstances the security is no longer an appropriate
investment for the Portfolio.
In making investment decisions, the Adviser considers a number of factors
including credit quality, the price of the security relative to that of other
securities in its sector, current yield, maturity, yield to maturity,
anticipated changes in interest rates and other economic factors, liquidity and
the overall quality of the investment. The Portfolio's average weighted maturity
will vary from time to time depending on current market and economic conditions
and the Adviser's assessment of probable changes in interest rates.
Principal Risk Considerations
The prices of debt securities tend to move in the opposite direction to interest
rates. When rates are rising, the prices of debt securities tend to fall. When
rates are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt security
is to interest rate changes. Changes in interest rates also may cause certain
debt securities held by the Portfolio, including callable securities and
mortgage-backed securities, to be paid off much sooner or later than expected.
In the event that a security is paid off sooner than expected because of a
decline in interest rates, the Portfolio may be unable to recoup all of its
initial investment, and may also suffer from the having to reinvest in lower-
-27-
<PAGE>
yielding securities. In the event of a later than expected payment because of a
rise in interest rates, the value of the obligation will decrease, and the
Portfolio may suffer from the inability to invest in higher-yielding securities.
The value of debt securities also depends on the ability of issuers to make
principal and interest payments. If an issuer can't meet its payment obligations
or if its credit rating is lowered, the value of its debt securities will fall.
Foreign investments may be riskier than U.S. investments because of currency
exchange rate volatility, government restrictions, different accounting
standards and political instability.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
(sidebar)
Portfolio Manager
George J. Schupp is the person primarily responsible for the day-to-day
management of the Portfolio. Mr. Schupp, FIRMCO's Director of Fixed Income
Management, joined FIRMCO and its predecessors in 1983 and has 7 years of prior
investment experience. He has managed the Portfolio since February 1998.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Trust Shares has varied from year to year. The table shows how the Portfolio's
average annual returns for one year, five years and since inception compare to
those of a broad-based market index. Both the bar chart and table assume
reinvestment of all dividends and distributions. The Portfolio's past
performance does not necessarily indicate how it will perform in the future.
Trust Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
- --------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998 1999
- --------------------------------------------------------------------------------
6.10% 9.39% -2.52% 16.93% 2.14% 8.56% 8.99% ____%
- --------------------------------------------------------------------------------
Best quarter: _____% for the quarter ending _______________
Worst quarter: _____% for the quarter ending _______________
-28-
<PAGE>
Average Annual Total Returns for the periods ended December 31, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Since
1 Year 5 Years Inception*
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares _____% _____% _____%
- ------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index _____% _____% _____%
- ------------------------------------------------------------------------------------
</TABLE>
* February 1, 1991 for Trust Shares; January 31, 1991 for the Lehman Brothers
Aggregate Bond Index.
(sidebar)
Know your index
The Lehman Brothers Aggregate Bond Index is an unmanaged index made up of Lehman
Brothers' Government/Corporate Bond Index, its Mortgage Backed Securities Index
and its Asset Backed Securities Index.
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Trust Shares of the Government & Corporate Bond Portfolio.
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
- --------------------------------------------------------------------------------
Total Annual
Portfolio
Management Distribution Operating
Fees (12b-1) Fees Other Expenses Expenses
- --------------------------------------------------------------------------------
Trust Shares .45% None _____%/1/ _____%/1/
- --------------------------------------------------------------------------------
/1/ Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Trust Shares for the current fiscal year are expected to be less
than the amounts shown above because certain of the Portfolio's service
providers are voluntarily waiving a portion of their fees and/or reimbursing the
Portfolio for certain other expenses. These fee waivers and/or reimbursements
are being made in order to keep the annual fees and expenses for the Portfolio's
Trust Shares at a certain level. Other Expenses and Total Annual Portfolio
Operating Expenses, after taking these fee waivers and expense reimbursements
into account, are expected to be .__% and .__%, respectively, for Trust Shares.
These fee waivers and expense reimbursements may be revised or cancelled at any
time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time
-29-
<PAGE>
periods shown and then sell all of your shares at the end of those periods. The
example also assumes that your investment has a 5% return each year and the
Portfolio's operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
- --------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
Trust Shares $______ $______ $______ $______
- --------------------------------------------------------------------------------
-30-
<PAGE>
Short-Intermediate Municipal Portfolio
Investment Objective
The 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.
Principal Investment Strategies
The Portfolio normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from federal income tax. Municipal
securities purchased by the Portfolio may include general obligation securities,
revenue securities and private activity bonds. General obligation securities are
secured by the issuer's full faith, credit and taxing power. Revenue securities
are usually payable only from revenues derived from specific facilities or
revenue sources. Private activity bonds are usually revenue obligations since
they are typically payable by the private user of the facilities financed by the
bonds. The interest on private activity bonds may be subject to the federal
alternative minimum tax. Investments in private activity bonds will not be
treated as investments in municipal securities for purposes of the 80%
requirement stated above.
In selecting municipal securities for the Portfolio, the Adviser favors those
sectors of the municipal market that offer the most favorable returns. The
Adviser emphasizes municipal securities that offer both a high credit quality
rating and a high degree of liquidity. The Adviser also attempts to maintain a
broad geographic diversification for the Portfolio, with emphasis on no
particular state.
The Portfolio will invest only in investment grade municipal securities. These
are securities which have one of the four highest ratings assigned by a national
rating agency, such as Standard & Poor's Ratings Group or Moody's Investors
Service, Inc., or are unrated securities determined by the Adviser to be of
comparable quality. Short-term municipal securities purchased by the Portfolio,
such as municipal notes and tax-exempt commercial paper, will have one of the
two highest ratings assigned by a national rating agency or will be unrated
securities that the Adviser has determined to be of comparable quality.
Occasionally, the rating of a security held by the Portfolio may be downgraded
below the minimum required rating. If that happens, the Portfolio does not have
to sell the security unless the Adviser determines that under the circumstances
the security is no longer an appropriate investment for the Portfolio.
The Portfolio's average weighted maturity will generally be between two and five
years.
(sidebar)
What Are Municipal Securities?
State and local governments issue municipal securities to raise money to finance
public works, to repay outstanding obligations, to raise funds for general
operating expenses and to make loans to other public institutions. Some
municipal securities, known as private activity bonds, are backed
-31-
<PAGE>
by private entities and are used to finance various non-public projects.
Municipal securities, which can be issued as bonds, notes or commercial paper,
usually have fixed interest rates, although some have interest rates that change
from time to time.
(sidebar)
Average weighted maturity gives you the average time until all debt obligations,
including municipal securities, in a Portfolio come due or mature. It is
calculated by averaging the time to maturity of all debt obligations held by a
Portfolio with each maturity "weighted" according to the percentage of assets
which it represents.
Principal Risk Considerations
The prices of debt securities, including municipal securities, tend to move in
the opposite direction to interest rates. When rates are rising, the prices of
debt securities tend to fall. When rates are falling, the prices of debt
securities tend to rise. Generally, the longer the time until maturity, the more
sensitive the price of a debt security is to interest rate changes. Changes in
interest rates may cause certain municipal securities held by the Portfolio to
be paid off much sooner or later than expected. In the event that a security is
paid off sooner than expected because of a decline in interest rates, the
Portfolio may be unable to recoup all of its initial investment and may also
suffer from having to reinvest in lower-yielding securities. In the event of a
later than expected payment because of a rise in interest rates, the value of
the obligation will decrease, and the Portfolio may suffer from the inability to
invest in higher-yielding securities.
The value of debt securities also depends on the ability of issuers to make
principal and interest payments. If an issuer can't meet its payment obligations
or if its credit rating is lowered, the value of its debt securities will fall.
The ability of a state or local government issuer to make payments can be
affected by many factors, including economic conditions, the flow of tax
revenues and changes in the level of federal, state or local aid. Some municipal
securities are payable only from limited revenue sources or by private entities.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
(sidebar)
Portfolio Manager
Peter Merzian is the person primarily responsible for the day-to-day management
of the Portfolio. Mr. Merzian, a Senior Associate, has been with FIRMCO and its
predecessors since 1993 and has served as portfolio manager of the Portfolio
since it commenced operations in 1995.
-32-
<PAGE>
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Trust Shares has varied from year to year. The table shows how the Portfolio's
average annual returns for one year and since inception compare to those of a
broad-based market index. Both the bar chart and table assume reinvestment of
all dividends and distributions. The Portfolio's past performance does not
necessarily indicate how it will perform in the future.
Trust Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
- -------------------------------------------------------
1996 1997 1998 1999
- -------------------------------------------------------
3.62% 5.22% 4.85% ____%
- -------------------------------------------------------
Best quarter: _____% for the quarter ending ____________
Worst quarter: _____% for the quarter ending ____________
Average Annual Total Returns for the periods ended December 31, 1999
- -------------------------------------------------------------------
1 Year Since
Inception*
- -------------------------------------------------------------------
Trust Shares _____% _____%
- -------------------------------------------------------------------
Lehman Brothers Municipal Bond _____% _____%
Index--3 Year
- -------------------------------------------------------------------
* July 10, 1995 for Trust Shares; June 30, 1995 for the Lehman Brothers
Municipal Bond Index- 3 Year.
(sidebar)
Know your index
The Lehman Brothers Municipal Bond Index--3 Year is an unmanaged index that
tracks the performance of municipal bonds with remaining maturities of three
years or less.
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Trust Shares of the Short-Intermediate Municipal Portfolio.
-33-
<PAGE>
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
- --------------------------------------------------------------------------------
Total Annual
Portfolio
Management Distribution Operating
Fees (12b-1) Fees Other Expenses Expenses
- --------------------------------------------------------------------------------
Trust Shares .55% None _____%/1/ ____%/1/
- --------------------------------------------------------------------------------
/1/ Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Trust Shares for the current fiscal year are expected to be less
than the amounts shown above because certain of the Portfolio's service
providers are voluntarily waiving a portion of their fees and/or reimbursing the
Portfolio for certain other expenses. These fee waivers and/or reimbursements
are being made in order to keep the annual fees and expenses for the Portfolio's
Trust Shares at a certain level. Other Expenses and Total Annual Portfolio
Operating Expenses, after taking these fee waivers and expense reimbursements
into account, are expected to be .__% and .__%, respectively, for Trust Shares.
These fee waivers and expense reimbursements may be revised or cancelled at any
time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
Trust Shares $______ $______ $______ $______
- --------------------------------------------------------------------------------
-34-
<PAGE>
Missouri Tax-Exempt Bond Portfolio
Investment Objective
The 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.
Principal Investment Strategies
The Portfolio normally invests at least 80% of its total assets in municipal
securities that pay interest that is exempt from federal income tax, and at
least 65% of its total assets in Missouri municipal securities, which are
securities issued by the State of Missouri and other government issuers and that
pay interest which is exempt from both federal income tax and Missouri state
income tax.
Municipal securities purchased by the Portfolio may include general obligation
securities, revenue securities and private activity bonds. General obligation
securities are secured by the issuer's full faith, credit and taxing power.
Revenue securities are usually payable only from revenues derived from specific
facilities or revenue sources. Private activity bonds are usually revenue
obligations since they are typically payable by the private user of the
facilities financed by the bonds. The interest on private activity bonds may be
subject to the federal alternative minimum tax. Investments in private activity
bonds will not be treated as investments in municipal securities for purposes of
the 80% requirement stated above.
In selecting municipal securities for the Portfolio, the Adviser favors those
sectors of the municipal market that offer the most favorable returns. The
Adviser emphasizes municipal securities that offer both a high credit quality
rating and a high degree of liquidity.
The Portfolio will invest only in investment grade municipal securities. These
are securities which have one of the four highest ratings assigned by a national
rating agency, such as Standard & Poor's Ratings Group or Moody's Investors
Service, Inc., or are unrated securities determined by the Adviser to be of
comparable quality. Short-term municipal securities purchased by the Portfolio,
such as municipal notes and tax-exempt commercial paper, will have one of the
two highest ratings assigned by a national rating agency or will be unrated
securities that the Adviser has determined to be of comparable quality.
Occasionally, the rating of a security held by the Portfolio may be downgraded
below the minimum required rating. If that happens, the Portfolio does not have
to sell the security unless the Adviser determines that under the circumstances
the security is no longer an appropriate investment for the Portfolio.
The Portfolio's average weighted maturity will vary from time to time depending
on current economic and market conditions and the Adviser's assessment of
probable changes in interest rates.
-35-
<PAGE>
(sidebar)
What Are Municipal Securities?
State and local governments issue municipal securities to raise money to finance
public works, to repay outstanding obligations, to raise funds for general
operating expenses and to make loans to other public institutions. Some
municipal securities, known as private activity bonds, are backed by private
entities and are used to finance various non-public projects. Municipal
securities, which can be issued as bonds, notes or commercial paper, usually
have fixed interest rates, although some have interest rates that change from
time to time.
(sidebar)
Average weighted maturity gives you the average time until all debt obligations,
including municipal securities, in a Portfolio come due or mature. It is
calculated by averaging the time to maturity of all debt obligations held by a
Portfolio with each maturity "weighted" according to the percentage of assets
which it represents.
Principal Risk Considerations
The prices of debt securities, including municipal securities, tend to move in
the opposite direction to interest rates. When rates are rising, the prices of
debt securities tend to fall. When rates are falling, the prices of debt
securities tend to rise. Generally, the longer the time until maturity, the more
sensitive the price of a debt security is to interest rate changes. Changes in
interest rates also may cause certain municipal securities held by the Portfolio
to be paid off much sooner or later than expected. In the event that a security
is paid off sooner than expected because of a decline in interest rates, the
Portfolio may be unable to recoup all of its initial investment and may also
suffer from having to reinvest in lower-yielding securities. In the event of a
later than expected payment because of a rise in interest rates, the value of
the obligation will decrease, and the Portfolio may suffer from the inability to
invest in higher-yielding securities.
The value of debt securities also depends on the ability of issuers to make
principal and interest payments. If an issuer can't meet its payment obligations
or if its credit rating is lowered, the value of its debt securities will fall.
The ability of a state or local government issuer to make payments can be
affected by many factors, including economic conditions, the flow of tax
revenues and changes in the level of federal, state or local aid. Some municipal
securities are payable only from limited revenue sources or by private entities.
The Portfolio is not diversified, which means that it can invest a large
percentage of its assets in a small number of issuers. As a result, a change in
the value of any one investment held by the Portfolio may affect the overall
value of the Portfolio more than it would affect a diversified portfolio that
holds more investments. Because the Portfolio invests primarily in Missouri
municipal securities, it also is likely to be especially susceptible to
economic, political and regulatory events that affect Missouri.
-36-
<PAGE>
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
(sidebar)
Portfolio Manager
Peter Merzian is the person primarily responsible for the day-to-day management
of the Portfolio. Mr. Merzian, a Senior Associate, has been with FIRMCO and its
predecessors since 1993 and has managed the Portfolio since that time.
Return History+
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Trust Shares has varied from year to year. The table shows how the Portfolio's
average annual returns for one year, five years, ten years and since inception
compare to those of a broad-based market index. Both the bar chart and table
assume reinvestment of all dividends and distributions. The Portfolio's past
performance does not necessarily indicate how it will perform in the future.
Trust Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5.94% 11.66% 8.93% 11.86% -5.59% 17.01% 3.19% 8.29% 5.41% ____%
- ---------------------------------------------------------------------------
</TABLE>
Best quarter: _____% for the quarter ending ____________
Worst quarter: _____% for the quarter ending ___________
Average Annual Total Returns for the periods ended December 31, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Since
1 Year 5 Years 10 Years Inception*
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares _____% _____% _____% _____%
- ----------------------------------------------------------------------------------------------
Lehman Brothers Municipal Bond Index _____% _____% _____% _____%
- ----------------------------------------------------------------------------------------------
</TABLE>
-37-
<PAGE>
+ The Portfolio commenced operations on July 15, 1988 as a separate investment
portfolio (the "Predecessor Portfolio") of The ARCH Tax-Exempt Trust. On October
2, 1995, the Predecessor Portfolio was reorganized as a new portfolio of the
Fund. Prior to the reorganization, the Predecessor Portfolio offered and sold
shares that were similar to the Fund's Trust Shares. Total returns for periods
prior to October 2, 1995 reflect the performance of the Predecessor Portfolio.
* July 15, 1988 for Trust Shares; June 30, 1988 for the Lehman Brothers
Municipal Bond Index.
(sidebar)
Know your index
The Lehman Brothers Municipal Bond Index is an unmanaged index that tracks the
performance of municipal bonds.
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Trust Shares of the Missouri Tax-Exempt Bond Portfolio.
Annual portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Total Annual
Portfolio
Management Distribution Operating Expenses
Fees (12b-1) Fees Other Expenses
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares .45% None _____%/1/ _____%/1/
- -------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Trust Shares for the current fiscal year are expected to be less
than the amounts shown above because certain of the Portfolio's service
providers are voluntarily waiving a portion of their fees and/or reimbursing the
Portfolio for certain other expenses. These fee waivers and/or reimbursements
are being made in order to keep the annual fees and expenses for the Portfolio's
Trust Shares at a certain level. Other Expenses and Total Annual Portfolio
Operating Expenses, after taking these fee waivers and expense reimbursements
into account, are expected to be .__% and .__%, respectively, for Trust Shares.
These fee waivers and expense reimbursements may be revised or cancelled at any
time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
- ------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------
-38-
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $______ $______ $______ $______
- ------------------------------------------------------------------------------------------------------
</TABLE>
-39-
<PAGE>
National Municipal Bond Portfolio
Investment Objective
The 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.
(sidebar)
What Are Municipal Securities?
State and local governments issue municipal securities to raise money to finance
public works, to repay outstanding obligations, to raise funds for general
operating expenses and to make loans to other public institutions. Some
municipal securities, known as private activity bonds, are backed by private
entities and are used to finance various non-public projects. Municipal
securities, which can be issued as bonds, notes or commercial paper, usually
have fixed interest rates, although some have interest rates that change from
time to time.
Principal Investment Strategies
The Portfolio normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from federal income tax. Municipal
securities purchased by the Portfolio may include general obligation securities,
revenue securities and private activity bonds. General obligation securities
are secured by the issuer's full faith, credit and taxing power. Revenue
securities are usually payable only from revenues derived from specific
facilities or revenue sources. Private activity bonds are usually revenue
obligations since they are typically payable by the private user of the
facilities financed by the bonds. The interest on private activity bonds may be
subject to the federal alternative minimum tax. Investments in private activity
bonds will not be treated as investments in municipal securities for purposes of
the 80% requirement stated above.
In selecting municipal securities for the Portfolio, the Adviser favors those
sectors of the municipal market that offer the most favorable returns. The
Adviser emphasizes municipal securities that offer both a high credit quality
rating and a high degree of liquidity. The Adviser also attempts to maintain a
broad geographic diversification for the Portfolio, with emphasis on no
particular state.
The Portfolio will invest only in investment grade municipal securities. These
are securities which have one of the four highest ratings assigned by a national
rating agency, such as Standard & Poor's Ratings Group or Moody's Investors
Service, Inc. or are unrated securities determined by the Adviser to be of
comparable quality. Short-term municipal securities purchased by the Portfolio,
such as municipal notes and tax-exempt commercial paper, will have one of the
two highest ratings assigned by a national rating agency or will be unrated
securities that the Adviser has determined to be of comparable quality.
Occasionally, the rating of a security held by the Portfolio may be downgraded
below the minimum required rating. If that
-40-
<PAGE>
happens, the Portfolio does not have to sell the security unless the Adviser
determines that under the circumstances the security is no longer an appropriate
investment for the Portfolio.
The Portfolio's average weighted maturity will vary from time to time depending
on current economic and market conditions and the Adviser's assessment of
probable changes in interest rates. The Portfolio's average weighted maturity
generally will be longer (10 years or less) than that of the Short-Intermediate
Municipal Portfolio.
Principal Risk Considerations
The prices of debt securities, including municipal securities, tend to move in
the opposite direction to interest rates. When rates are rising, the prices of
debt securities tend to fall. When rates are falling, the prices of debt
securities tend to rise. Generally, the longer the time until maturity, the more
sensitive the price of a debt security is to interest rate changes. Changes in
interest rates also may cause certain municipal securities held by the Portfolio
to be paid off much sooner or later than expected. In the event that a security
is paid off sooner than expected because of a decline in interest rates, the
Portfolio may be unable to recoup all of its initial investment and may also
suffer from the having to reinvest in lower-yielding securities. In the event
of a later than expected payment because of a rise in interest rates, the value
of the obligation will decrease, and the Portfolio may suffer from the inability
to invest in higher-yielding securities.
The value of debt securities also depends on the ability of issuers to make
principal and interest payments. If an issuer can't meet its payment obligations
or if its credit rating is lowered, the value of its debt securities will fall.
The ability of a state or local government issuer to make payments can be
affected by many factors, including economic conditions, the flow of tax
revenues and changes in the level of federal, state or local aid. Some
municipal securities are payable only from limited revenue sources or by private
entities.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
(sidebar)
Portfolio Manager
Peter Merzian is the person primarily responsible for the day-to-day management
of the Portfolio. Mr. Merzian, a Senior Associate, has been with FIRMCO and its
predecessors since 1993 and has served as portfolio manager of the Portfolio
since it commenced operations in 1996.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar
-41-
<PAGE>
chart shows how the performance of the Portfolio's Trust Shares has varied from
year to year. The table shows how the Portfolio's average annual returns for one
year and since inception compare to those of a broad-based market index. Both
the bar chart and table assume reinvestment of all dividends and distributions.
The Portfolio's past performance does not necessarily indicate how it will
perform in the future.
Trust Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
<TABLE>
<CAPTION>
- ----------------------------------
1997 1998 1999
- ----------------------------------
<S> <C> <C>
10.29% 6.15% ____%
- ----------------------------------
</TABLE>
Best quarter: _____% for the quarter ending ____________
Worst quarter: _____% for the quarter ending ____________
Average Annual Total Returns for the periods ended December 31, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
1 Year Since
Inception*
- --------------------------------------------------------------------
<S> <C> <C>
Trust Shares _____% _____%
- -------------------------------------------------------------------
Lehman Brothers Municipal Bond
Index--10 Year _____% _____%
- -------------------------------------------------------------------
</TABLE>
* November 18, 1996 for Trust Shares; November 30, 1997 for the Lehman Brothers
Municipal Bond Index-10 Year.
(sidebar)
Know your index
The Lehman Brothers Municipal Bond Index--10 Year is an unmanaged index that
tracks the performance of municipal bonds with remaining maturities of 10 years
or less.
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Trust Shares of the National Municipal Bond Portfolio.
-42-
<PAGE>
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Total Annual
Portfolio
Management Distribution Operating
Fees (12b-1) Fees Other Expenses Expenses
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares .55% None _____%/1/ _____%/1/
- -------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Trust Shares for the current fiscal year are expected to be less
than the amounts shown above because certain of the Portfolio's service
providers are voluntarily waiving a portion of their fees and/or reimbursing the
Portfolio for certain other expenses. These fee waivers and/or reimbursements
are being made in order to keep the annual fees and expenses for the Portfolio's
Trust Shares at a certain level. Other Expenses and Total Annual Portfolio
Operating Expenses, after taking these fee waivers and expense reimbursements
into account, are expected to be .__% and .__%, respectively, for Trust Shares.
These fee waivers and expense reimbursements may be revised or cancelled at any
time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $______ $______ $______ $______
- ------------------------------------------------------------------------------------------------------
</TABLE>
-43-
<PAGE>
Balanced Portfolio
Investment Objective
The 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.
(sidebar)
Total return consists of net income (dividend and/or interest income from
Portfolio securities, less expenses of the Portfolio) and capital gains and
losses, both realized and unrealized, from Portfolio securities.
Investment grade bonds are those of medium credit quality or better, as
determined by a national rating agency such as Standard & Poor's Ratings Group
(bonds rated BBB or higher) and Moody's Investors Service, Inc. (bonds rated Baa
or higher). The higher the credit rating, the less likely it is that the bond
issuer will default on its principal and interest payments.
Principal Investment Strategies
The Portfolio invests in a combination of equity securities (such as stocks),
fixed-income securities (such as bonds) and money market instruments in
weightings the Adviser believes will offer attractive total returns over time.
In making asset allocation decisions, the Adviser evaluates forecasts for
inflation, interest rates and long-term corporate earnings growth. The Adviser
then examines the potential effect of these factors on each asset group over a
one- to three-year time period using its own dynamic computer models. These
models show the statistical impact of the Adviser's economic outlook upon the
future returns of each asset group. The Adviser periodically will increase or
decrease the Portfolio's allocations to equities and fixed-income securities
based on which class appears relatively more attractive than the other. For
example, if the Adviser expects more rapid economic growth leading to better
corporate earnings, it will increase the Portfolio's holdings of equity
securities and reduce its holdings of fixed-income securities and money market
instruments.
In selecting equity securities, the Adviser considers historical and projected
earnings, the price/earnings relationship and company growth and asset value.
In selecting fixed-income securities, the Adviser seeks those issues
representing the best value among various sectors, and also considers credit
quality, prevailing interest rates and liquidity.
Under normal market conditions, the Portfolio invests at least 25% of its total
assets in fixed-income securities and no more than 75% of its total assets in
equity securities. The actual percentages will vary from time to time based on
the Adviser's economic and market outlooks. The Portfolio's equity securities
will consist mainly of common stocks, and its fixed-income
-44-
<PAGE>
securities will consist mainly of investment grade bonds, including U.S.
Government securities. Occasionally, the rating of a security held by the
Portfolio may be downgraded below investment grade. If that happens, the
Portfolio doesn't have to sell the security unless the Adviser determines that
under the circumstances the security is no longer an appropriate investment for
the Portfolio.
Principal Risk Considerations
The Portfolio invests in stocks and other equity securities, which may decline
in value over short or extended periods of time. Equity markets tend to be
cyclical; there are times when stock prices generally increase, and other times
when they generally decrease. This could cause the value of your investment in
the Portfolio to fluctuate.
The Portfolio also invests in fixed-income securities, which lose value when
interest rates increase (but increase in value when interest rates decline).
Longer-term fixed-income securities are more susceptible to these fluctuations
in interest rates than short-term fixed-income securities. Changes in interest
rates may cause certain fixed-income securities such as callable securities and
mortgage-backed securities, to be paid off much sooner or later than expected.
In the event that a security is paid off sooner than expected because of a
decline in interest rates, the Portfolio may be unable to recoup all of its
initial investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise in
interest rates, the value of the obligation will decrease, and the Portfolio may
suffer from the inability to invest in higher-yielding securities. Fixed-income
securities are subject to other risks, including the risk that the issuer will
be unable to make payments of principal and interest.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
(sidebar)
Portfolio Manager
Peter Merzian, a senior associate of FIRMCO, is responsible for the day-to-day
management of the Portfolio. He has been with FIRMCO and its predecessors since
1993 and has managed the Portfolio since May 1996. He also manages the Fund's
three municipal bond portfolios.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Trust Shares has varied from year to year. The table shows how the Portfolio's
average annual returns for one year, five years and since inception compare to
those of broad-based market indexes. Both the bar chart and table assume
-45-
<PAGE>
reinvestment of all dividends and distributions. The Portfolio's past
performance does not necessarily indicate how it will perform in the future.
Trust Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
-1.25% 26.28% 12.29% 18.47% 11.44% ____%
- -------------------------------------------------------------------------
</TABLE>
Best quarter: _____% for the quarter ending ____________
Worst quarter: _____% for the quarter ending ____________
Average Annual Total Returns for the periods ended December 31, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
1 Year 5 Years Since
Inception*
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares _____% _____% _____%
- ------------------------------------------------------------------------------------
S&P 500 Index _____% _____% _____%
- ------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index _____% _____% _____%
- ------------------------------------------------------------------------------------
</TABLE>
* April 1, 1993 for Trust Shares; March 31, 1993 for the S&P 500 Index and the
Lehman Brothers Aggregate Bond Index.
(sidebar)
Know your index
The S&P 500 Index is an unmanaged index comprised of 500 widely held common
stocks listed on the New York Stock Exchange, the American Stock Exchange and
NASDAQ.
The Lehman Brothers Aggregate Bond Index is an unmanaged index made up of Lehman
Brothers' Government/Corporate Bond Index, its Mortgage Backed Securities Index
and its Asset Backed Securities Index.
-46-
<PAGE>
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Trust Shares of the Balanced Portfolio.
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Total Annual
Portfolio
Management Distribution Operating
Fees (12b-1) Fees Other Expenses Expenses
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares .75% None _____%/1/ _____%/1/
- -------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Trust Shares for the current fiscal year are expected to be less
than the amounts shown above because certain of the Portfolio's service
providers are voluntarily waiving a portion of their fees and/or reimbursing the
Portfolio for certain other expenses. These fee waivers and/or reimbursements
are being made in order to keep the annual fees and expenses for the Portfolio's
Trust Shares at a certain level. Other Expenses and Total Annual Portfolio
Operating Expenses, after taking these fee waivers and expense reimbursements
into account, are expected to be .__% and .__%, respectively, for Trust Shares.
These fee waivers and expense reimbursements may be revised or cancelled at any
time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $______ $______ $______ $______
- ------------------------------------------------------------------------------------------------------
</TABLE>
-47-
<PAGE>
Equity Income Portfolio
Investment Objective
The Portfolio's investment objective is to seek to provide an above-average
level of income consistent with long-term capital appreciation.
Principal Investment Strategies
The Portfolio invests primarily in the common stocks of value companies with
large market capitalizations (generally, $5 billion or higher). In selecting
these stocks, the Adviser evaluates a number of quantitative factors, including
dividend yield, current and future earnings potential compared to stock prices
and total return potential. The Adviser also examines other measures of
valuation, including cash flow, asset value and book value.
Under normal market conditions, the Portfolio invests at least 65% of its total
assets in income-producing (dividend-paying) equity securities, primarily common
stocks. These stocks generally will be listed on a national stock exchange or
will be unlisted stocks with established over-the-counter markets. Many such
stocks may offer above-average levels of income as compared to the S&P 500
Index.
(sidebar)
Market capitalization is a common measure of the size of a company. It is the
market price of a share of the company's stock multiplied by the number of
outstanding shares.
(sidebar)
Value stocks are those that appear to be underpriced based on valuation
measures, such as lower price-to-earnings and price-to-book value ratios.
Principal Risk Considerations
The Portfolio invests in stocks and other equity securities, which may decline
in value over short or extended periods of time. Equity markets tend to be
cyclical; there are times when stock prices generally increase, and other times
when they generally decrease. This could cause the value of your investment in
the Portfolio to fluctuate. In addition, the Portfolio is subject to the
additional risk that the value stocks it typically holds may not perform as well
as other types of stocks, such as growth stocks.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
-48-
<PAGE>
(sidebar)
Portfolio Manager
FIRMCO'S Equity Committee is responsible for the day-to-day management of the
Portfolio. The Committee has managed the Portfolio since 1998.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Trust Shares has varied from year to year. The table shows how the Portfolio's
average annual returns for one year and since inception compare to those of a
broad-based market index. Both the bar chart and table assume reinvestment of
all dividends and distributions. The Portfolio's past performance does not
necessarily indicate how it will perform in the future.
Trust Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
- ----------------------
1998 1999
- ----------------------
10.39% ____%
- ----------------------
Best quarter: _____% for the quarter ending ____________
Worst quarter: _____% for the quarter ending ___________
Average Annual Total Returns for the periods ended December 31, 1999
- --------------------------------------------------------------
Since
1 Year Inception*
- --------------------------------------------------------------
Trust Shares _____% _____%
- --------------------------------------------------------------
Russell 1000 Value Index _____% _____%
- --------------------------------------------------------------
* February 27, 1997, for Trust Shares; February 28, 1997 for the Russell 1000
Value Index.
-49-
<PAGE>
(sidebar)
Know your index
The Russell 1000 Value Index is an unmanaged index that measures the performance
of the stocks in the Russell 1000 Index with less than average growth
orientation. Companies in this Index generally have low price to book and
price/earnings ratios, higher dividend yields and lower forecasted growth
values. The Russell 1000 Index consists of the 1,000 largest U.S. companies as
ranked by total market capitalization.
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Trust Shares of the Equity Income Portfolio.
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Total Annual
Portfolio
Management Distribution Operating
Fees (12b-1) Fees Other Expenses Expenses
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares .75% None _____%/1/ _____%/1/
- ----------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Trust Shares for the current fiscal year are expected to be less
than the amounts shown above because certain of the Portfolio's service
providers are voluntarily waiving a portion of their fees and/or reimbursing the
Portfolio for certain other expenses. These fee waivers and/or reimbursements
are being made in order to keep the annual fees and expenses for the Portfolio's
Trust Shares at a certain level. Other Expenses and Total Annual Portfolio
Operating Expenses, after taking these fee waivers and expense reimbursements
into account, are expected to be .__% and .__%, respectively, for Trust Shares.
These fee waivers and expense reimbursements may be revised or cancelled at any
time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $______ $______ $______ $______
- ------------------------------------------------------------------------------------------------------
</TABLE>
-50-
<PAGE>
Equity Index Portfolio
Investment Objective
The Portfolio's investment objective is to seek to provide investment results
that, before the 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 Index (the "S&P 500
Index").
The Portfolio's investment objective can be changed by the Fund's Board of
Directors without shareholder approval. Shareholders will be given at least 30
days' written notice before any such change occurs.
Principal Investment Strategies
The Portfolio uses an "indexing" strategy through the use of sophisticated
computer models to approximate the investment performance of the S&P 500 Index.
The Portfolio invests substantially all (at least 80%) of its total assets in
securities listed in the S&P 500 Index and typically will hold all 500 stocks
represented in the Index. In general, each stock's percentage weighting in the
Portfolio is based on its weighting in the Index. When stocks are removed from
or added to the Index, those changes are reflected in the Portfolio. The
Portfolio periodically "rebalances" its holdings as dictated by changes in
shareholder purchase and redemption activity and in the composition of the S&P
500 Index.
(sidebar)
Indexing is a strategy whereby a Portfolio attempts to weight its securities to
match those of a broadly-based securities index in an attempt to approximate the
index's performance.
(sidebar)
The S&P 500 Index is an unmanaged index comprised of 500 widely held common
stocks listed on the New York Stock Exchange, the American Stock Exchange and
NASDAQ.
Principal Risk Considerations
The Portfolio invests in stocks and other equity securities, which may decline
in value over short or extended periods of time. Equity markets tend to be
cyclical; there are times when stock prices generally increase, and other times
when they generally decrease. This could cause the value of your investment in
the Portfolio to fluctuate. In addition, the Portfolio is subject to the
additional risk that the large-capitalization stocks it typically holds may not
perform as well as other types of stocks, such as small-capitalization stocks.
-51-
<PAGE>
There is the additional risk that the Portfolio's investment results will fail
to match those of the S&P 500 Index.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Trust Shares has varied from year to year. The table shows how the Portfolio's
average annual returns for one year and since inception compare to those of the
S&P 500 Index. Both the bar chart and table assume reinvestment of all
dividends and distributions. The Portfolio's past performance does not
necessarily indicate how it will perform in the future.
Trust Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
<TABLE>
<CAPTION>
- ----------------------
1998 1999
- ----------------------
<S> <C>
28.20% ____%
- ----------------------
</TABLE>
Best quarter: _____% for the quarter ending ____________
Worst quarter: _____% for the quarter ending ____________
Average Annual Total Returns for the periods ended December 31, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------
Since
1 Year Inception*
- ------------------------------------------------------
<S> <C> <C>
Trust Shares _____% _____%
- ------------------------------------------------------
S&P 500 Index _____% _____%
- ------------------------------------------------------
</TABLE>
* May 1, 1997 for Trust Shares; April 30, 1997 for the S&P 500 Index.
-52-
<PAGE>
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Trust Shares of the Equity Index Portfolio.
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Total Annual
Portfolio
Management Distribution Operating
Fees (12b-1) Fees Other Expenses Expenses
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares .30% None _____%(1) _____%(1)
- -------------------------------------------------------------------------------------------------------
</TABLE>
1 Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Trust Shares for the current fiscal year are expected to be less
than the amounts shown above because certain of the Portfolio's service
providers are voluntarily waiving a portion of their fees and/or reimbursing the
Portfolio for certain other expenses. These fee waivers and/or reimbursements
are being made in order to keep the annual fees and expenses for the Portfolio's
Trust Shares at a certain level. Other Expenses and Total Annual Portfolio
Operating Expenses, after taking these fee waivers and expense reimbursements
into account, are expected to be .__% and .__%, respectively, for Trust Shares.
These fee waivers and expense reimbursements may be revised or cancelled at any
time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $______ $______ $______ $______
- ------------------------------------------------------------------------------------------------------
</TABLE>
-53-
<PAGE>
Growth & Income Equity Portfolio
Investment Objective
The Portfolio's investment objective is to provide long-term capital growth,
with income a secondary consideration.
Principal Investment Strategies
The Portfolio invests primarily in common stocks. The Adviser selects stocks
based on a number of factors related to historical and projected earnings and
the price/earnings relationship as well as company growth and asset value,
consistency of earnings growth and earnings quality.
Stocks purchased for the Portfolio generally will be listed on a national stock
exchange or will be unlisted securities with an established over-the-counter
market. These stocks tend to pay dividends, so many of the Portfolio's
investments may produce some income. Nevertheless, income is not a major factor
in the stock selection process.
Principal Risk Considerations
The Portfolio invests in stocks and other equity securities, which may decline
in value over short or extended periods of time. Equity markets tend to be
cyclical; there are times when stock prices generally increase, and other times
when they generally decrease. This could cause the value of your investment in
the Portfolio to fluctuate.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
(sidebar)
Portfolio Manager
FIRMCO'S Equity Committee is responsible for the day-to-day management of the
Portfolio. The Committee has managed the Portfolio since 1998.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Trust Shares has varied from year to year. The table shows how the Portfolio's
average annual returns for one year, five years and since inception compare to
those of a broad-based market index. Both the bar chart and table assume
reinvestment of all dividends and distributions. The Portfolio's past
performance does not necessarily indicate how it will perform in the future.
-54-
<PAGE>
(sidebar)
Know your index
The S&P 500 Index is an unmanaged index comprised of 500 widely held common
stocks listed on the New York Stock Exchange, the American Stock Exchange and
NASDAQ.
Trust Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998 1999
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
10.61% 9.61% -0.26% 34.38% 19.40% 27.80% 13.12% ____%
- ----------------------------------------------------------------------------------------------------
</TABLE>
Best quarter: _____% for the quarter ending ____________
Worst quarter: _____% for the quarter ending ____________
Average Annual Total Returns for periods ended December 31, 1999
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
Since
1 Year 5 Years Inception*
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares _____% _____% _____%
- --------------------------------------------------------------------------
S&P 500 Index _____% _____% _____%
- --------------------------------------------------------------------------
</TABLE>
* April 1, 1991 for Trust Shares; March 31, 1991 for the S&P 500 Index.
-55-
<PAGE>
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Trust Shares of the Growth & Income Equity Portfolio.
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Total Annual
Portfolio
Management Distribution Operating
Fees (12b-1) Fees Other Expenses Expenses
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares .55% None _____%/1/ _____%/1/
- -------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Trust Shares for the current fiscal year are expected to be less
than the amounts shown above because certain of the Portfolio's service
providers are voluntarily waiving a portion of their fees and/or reimbursing the
Portfolio for certain other expenses. These fee waivers and/or reimbursements
are being made in order to keep the annual fees and expenses for the Portfolio's
Trust Shares at a certain level. Other Expenses and Total Annual Portfolio
Operating Expenses, after taking these fee waivers and expense reimbursements
into account, are expected to be .__% and .__%, respectively, for Trust Shares.
These fee waivers and expense reimbursements may be revised or cancelled at any
time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $______ $______ $______ $______
- ------------------------------------------------------------------------------------------------------
</TABLE>
-56-
<PAGE>
Growth Equity Portfolio
Investment Objective
The Portfolio's investment objective is capital appreciation.
Principal Investment Strategies
The Portfolio invests primarily in the common stocks of growth companies. In
selecting securities for the Portfolio, the Adviser evaluates a company's
earnings history and the risk and volatility of the company's business. The
Adviser also considers other factors, such as product position and the ability
to increase market share, but the ability to increase company earnings is the
primary consideration.
Under normal market conditions, the Portfolio invests at least 65% of its total
assets in common stocks or other equity securities, such as preferred stocks,
rights and warrants Typically, the Portfolio's stocks are those of large- and
medium-capitalization companies that are listed on the New York Stock Exchange,
the American Stock Exchange or NASDAQ.
(sidebar)
Growth stocks offer strong revenue and earnings potential and accompanying
capital growth, with less dividend income than value stocks.
Principal Risk Considerations
The Portfolio invests in stocks and other equity securities, which may decline
in value over short or extended periods of time. Equity markets tend to be
cyclical; there are times when stock prices generally increase, and other times
when they generally decrease. This could cause the value of your investment in
the Portfolio to fluctuate. In addition, the Portfolio is subject to the
additional risk that the growth stocks it typically holds may not perform as
well as other types of stocks, such as value stocks.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
(sidebar)
Portfolio Manager
FIRMCO'S Equity Committee is responsible for the day-to-day management of the
Portfolio. The Committee has managed the Portfolio since 1998.
-57-
<PAGE>
Return History+
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Trust Shares has varied from year to year. The table shows how the Portfolio's
average annual returns for one year and since inception compare to those of a
broad-based market index. Both the bar chart and table assume reinvestment of
dividends and distributions. The Portfolio's past performance does not
necessarily indicate how it will perform in the future.
(sidebar)
Know your index
The S&P 500 Index is an unmanaged index comprised of 500 widely held common
stocks listed on the New York Stock Exchange, the American Stock Exchange and
NASDAQ.
Trust Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
<TABLE>
<CAPTION>
- ----------------------
1998 1999
- ----------------------
<S> <C>
29.88% ____%
- ----------------------
</TABLE>
Best quarter: _____% for the quarter ending ____________
Worst quarter: _____% for the quarter ending ____________
Average Annual Total Returns for the periods ended December 31, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------
Since
1 Year Inception*
- ---------------------------------------------------
<S> <C> <C>
Trust Shares _____% _____%
- ---------------------------------------------------
S&P 500 Index _____% _____%
- ---------------------------------------------------
</TABLE>
+ The Portfolio commenced operations on January 4, 1993 as the Arrow Equity
Portfolio, a separate investment portfolio (the "Predecessor Portfolio") of
Arrow Funds. On November 21, 1997, the Predecessor Portfolio was reorganized as
a new portfolio of the Fund. Prior to the reorganization, the Predecessor
Portfolio offered and sold shares that were similar to the Fund's Investor A
Shares.
* November 24, 1997 for Trust Shares; November 30, 1997 for the S&P 500
Index.
-58-
<PAGE>
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Trust Shares of the Growth Equity Portfolio.
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Total Annual
Portfolio
Management Distribution Operating
Fees (12b-1) Fees Other Expenses Expenses
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares .75% None _____%/1/ _____%/1/
- -------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Trust Shares for the current fiscal year are expected to be less
than the amounts shown above because certain of the Portfolio's service
providers are voluntarily waiving a portion of their fees and/or reimbursing the
Portfolio for certain other expenses. These fee waivers and/or reimbursements
are being made in order to keep the annual fees and expenses for the Portfolio's
Trust Shares at a certain level. Other Expenses and Total Annual Portfolio
Operating Expenses, after taking these fee waivers and expense reimbursements
into account, are expected to be .__% and .__%, respectively, for Trust Shares.
These fee waivers and expense reimbursements may be revised or cancelled at any
time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $______ $______ $______ $______
- ------------------------------------------------------------------------------------------------------
</TABLE>
-59-
<PAGE>
Small Cap Equity Portfolio
Investment Objective
The Portfolio's investment objective is capital appreciation.
Principal Investment Strategies
Under normal conditions, the Portfolio invests at least 65% of its total assets
in small- to medium-sized companies with market capitalizations from $100
million to $2 billion at the time of purchase and which the Adviser believes
have above-average prospects for capital appreciation. Stocks purchased by 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 also may invest a portion of its assets in larger companies that
the Adviser believes offer improved growth possibilities because of rejuvenated
management, product changes or other developments likely to stimulate earnings
or asset growth. The Portfolio also may invest in stocks the Adviser believes
are undervalued or in initial public offerings (IPOs) of new companies that
demonstrate the potential for price appreciation. 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 the
products manufactured or services offered.
Principal Risk Considerations
The Portfolio invests in stocks and other equity securities, which may decline
in value over short or extended periods of time. Equity markets tend to be
cyclical; there are times when stock prices generally increase, and other times
when they generally decrease. This could cause the value of your investment in
the Portfolio to fluctuate.
Compared to larger-capitalization stocks, small-capitalization stocks tend to
carry greater risk and exhibit greater price volatility because their businesses
may not be well-established. In addition, some smaller companies may have
specialized or limited product lines, markets or financial resources and may be
dependent on one-person management. All of these factors increase risk and may
result in more significant losses than the other Mercantile Stock Portfolios.
In an effort to reduce the risks inherent in smaller-company stocks, the
Portfolio's holdings are diversified over a number of companies and industry
groups.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
-60-
<PAGE>
(sidebar)
Portfolio Manager
Robert J. Anthony, Senior Associate at FIRMCO, is responsible for the day-to-day
management of the Portfolio. He has been with FIRMCO and its predecessors for 27
years and has managed the Portfolio since its inception in 1992.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Trust Shares has varied from year to year. The table shows how the Portfolio's
average annual returns for one year, five years and since inception compare to
those of a broad-based market index. Both the bar chart and the table assume
reinvestment of all dividends and distributions. The Portfolio's past
performance does not necessarily indicate how it will perform in the future.
Trust Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
23.59% 2.52% 17.24% 10.98% 20.79% -7.80% ____%
- ---------------------------------------------------------------------------------------
</TABLE>
Best quarter: _____% for the quarter ending ____________
Worst quarter: _____% for the quarter ending ___________
Average Annual Total Returns for the periods ended December 31, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Since
1 Year 5 Years inception*
- --------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares _____% _____% _____%
- --------------------------------------------------------------------
Russell 2000 Index _____% _____% _____%
- --------------------------------------------------------------------
</TABLE>
* May 6, 1992 for Trust Shares; April 30, 1992 for the Russell 2000 Index.
-61-
<PAGE>
(sidebar)
Know your index
The Russell 2000 Index is an unmanaged index comprised of the 2,000 smallest
companies of the 3,000 largest U.S. companies based on market capitalization.
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Trust Shares of the Small Cap Equity Portfolio.
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Total Annual
Portfolio
Management Distribution Operating
Fees (12b-1) Fees Other Expenses Expenses
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares .75% None _____%/1/ _____%/1/
- -------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Trust Shares for the current fiscal year are expected to be less
than the amounts shown above because certain of the Portfolio's service
providers are voluntarily waiving a portion of their fees and/or reimbursing the
Portfolio for certain other expenses. These fee waivers and/or reimbursements
are being made in order to keep the annual fees and expenses for the Portfolio's
Trust Shares at a certain level. Other Expenses and Total Annual Portfolio
Operating Expenses, after taking these fee waivers and expense reimbursements
into account, are expected to be .__% and .__%, respectively, for Trust Shares.
These fee waivers and expense reimbursements may be revised or cancelled at any
time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $______ $______ $______ $______
- ------------------------------------------------------------------------------------------------------
</TABLE>
-62-
<PAGE>
Small Cap Equity Index Portfolio
Investment Objective
The 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 S&P SmallCap 600 Index.
The Portfolio's investment objective can be changed by the Fund's Board of
Directors without shareholder approval. Shareholders will be given at least 30
days' written notice before any such change occurs.
Principal Investment Strategies
The Portfolio uses an "indexing" strategy through the use of sophisticated
computer models to approximate the investment performance of the S&P SmallCap
600 Index. The Portfolio will invest at least 80% of its total assets in
securities listed in the S&P SmallCap 600 Index and typically will hold all 600
stocks represented in the Index. Under certain circumstances, however, the
Portfolio may not hold all 600 stocks in the Index because of shareholder
activity or changes in the Index. In general, each stock's percentage weighting
in the Portfolio is based on its weighting in the S&P SmallCap 600 Index. When
stocks are removed from or added to the Index, those changes are reflected in
the Portfolio. The Portfolio periodically "rebalances" its holdings as dictated
by changes in shareholder purchase and redemption activity and in the
composition of the S&P SmallCap 600 Index.
(sidebar)
Indexing is a strategy whereby a Portfolio attempts to weight its securities to
match those of a broadly-based securities index in an attempt to approximate the
index's performance.
(sidebar)
The S&P SmallCap 600 Index is an unmanaged index that tracks the performance of
600 domestic companies traded on the New York Stock Exchange, the American Stock
Exchange and NASDAQ. The S&P SmallCap 600 Index is heavily weighted with the
stocks of small companies.
Principal Risk Considerations
The Portfolio invests in stocks and other equity securities, which may decline
in value over short or extended periods of time. Equity markets tend to be
cyclical; there are times when stock prices generally increase, and other times
when they generally decrease. This could cause the value of your investment in
the Portfolio to fluctuate.
In addition, the Portfolio is subject to the additional risk that the small-
capitalization stocks that it holds may not perform as well as other types of
stocks. Compared to larger-capitalization
-63-
<PAGE>
stocks, small-capitalization stocks tend to carry greater risk and exhibit
greater price volatility because their businesses may not be well-established.
In addition, some smaller companies may have specialized or limited product
lines, markets or financial resources and may be dependent on one-person
management. All of these factors increase risk and may result in more
significant losses than the other Mercantile Stock Portfolios. By typically
investing in all 600 stocks in the Index, the Portfolio remains broadly
diversified, which may reduce some of this risk.
There is the additional risk that the Portfolio's investment results may fail to
match those of the S&P SmallCap 600 Index.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows the performance of the Portfolio's Trust
Shares during the last calendar year. The table shows how the Portfolio's
average annual returns for one year and since inception compare to those of the
S&P SmallCap 600 Index. Both the bar chart and table assume reinvestment of all
dividends and distributions. The Portfolio's past performance does not
necessarily indicate how it will perform in the future.
Trust Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
1999
- ---------
____%
- ---------
Best quarter: _____% for the quarter ending ____________
Worst quarter: _____% for the quarter ending ___________
-64-
<PAGE>
Average Annual Total Returns for the periods ended December 31, 1999
- ----------------------------------------------------------
Since
1 Year inception*
- ----------------------------------------------------------
Trust Shares _____% _____%
- ----------------------------------------------------------
S&P SmallCap 600 Index _____% _____%
- ----------------------------------------------------------
*December 30, 1998 for Trust Shares; December 31, 1998 for the S&P SmallCap 600
Index.
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Trust Shares of the Small Cap Equity Index Portfolio.
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Total Annual
Portfolio
Management Distribution Operating
Fees (12b-1) Fees Other Expenses Expenses
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares .40% None _____%/1/ _____%/1/
- -------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Trust Shares for the current fiscal year are expected to be less
than the amounts shown above because certain of the Portfolio's service
providers are voluntarily waiving a portion of their fees and/or reimbursing the
Portfolio for certain other expenses. These fee waivers and/or reimbursements
are being made in order to keep the annual fees and expenses for the Portfolio's
Trust Shares at a certain level. Other Expenses and Total Annual Portfolio
Operating Expenses, after taking these fee waivers and expense reimbursements
into account, are expected to be .__% and .__%, respectively, for Trust Shares.
These fee waivers and expense reimbursements may be revised or cancelled at any
time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
-65-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $______ $______ $______ $______
- ---------------------------------------------------------------------------------------------------
</TABLE>
-66-
<PAGE>
International Equity Portfolio
Investment Objective
The Portfolio's investment objective is to provide capital growth consistent
with reasonable investment risk.
Principal Investment Strategies
The Portfolio invests primarily in foreign common stocks, most of which will be
denominated in foreign currencies. During normal market conditions, the
Portfolio will invest substantially all at least 80%) of its total assets in the
securities of companies that derive more than 50% of their gross revenues
outside the United States or have more than 50% of their assets outside the
United States. Under normal market conditions, the Portfolio invests in equity
securities from at least three foreign countries. Generally, at least 50% of the
Portfolio's total assets will be invested in securities of companies located
either in the developed countries of Western Europe or in Japan. The Portfolio
also may invest in other developed countries and in countries with emerging
markets or economies.
By investing in various foreign stocks, the Portfolio attempts to achieve broad
diversification and to take advantage of differences between economic trends and
the performance of securities markets in different countries, regions and
geographic areas. In selecting stocks, the Sub-Adviser uses a screening tool to
determine which companies represent the best values relative to their long-term
growth prospects and local markets. The Sub-Adviser also uses fundamental
analysis by evaluating balance sheets, market share and strength of management.
Principal Risk Considerations
Investing in foreign companies involves different risks than investing in U.S.
companies due to such factors as currency exchange rate volatility, government
restrictions, different accounting standards and political instability. The
multinational character of the Portfolio's investments should reduce the effect
that events in any one country or geographic area will have on overall
performance. However, negative results from one foreign market may offset gains
from another market or may negatively affect other foreign markets. The risks
associated with foreign investments are heightened when investing in emerging
markets. The governments and economies of emerging market countries feature
greater instability than those of more developed countries. Such investments
tend to fluctuate in price more widely and to be less liquid than other foreign
investments. As with U.S. equity markets, foreign markets tend to be cyclical.
There are times when stock prices generally increase, and other times when they
generally decrease.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
-67-
<PAGE>
(sidebar)
Sub-Adviser/Portfolio Manager
FIRMCO has appointed Clay Finlay Inc. ("Clay Finlay" or the "Sub-Adviser") as
sub-adviser to assist in the day-to-day management of the Portfolio. Frances
Dakers, a principal and senior portfolio manager of Clay Finlay, is responsible
for the management of the Portfolio. Ms. Dakers has been with Clay Finlay since
January 1982 and has managed the Portfolio since it began operations in
1994.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of risk of investing in
the Portfolio. The bar chart shows how the performance of the Portfolio's Trust
Shares has varied from year to year. The table shows how the Portfolio's
average annual returns for one year, five years and since inception compare to
those of a broad-based market index. Both the bar chart and table assume
reinvestment of all dividends and distributions. The Portfolio's past
performance does not necessarily indicate how it will perform in the future.
Trust Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
<TABLE>
<CAPTION>
- -------------------------------------------------------------
1995 1996 1997 1998 1999
- -------------------------------------------------------------
<S> <C> <C> <C> <C>
9.56% 10.36% 4.88% 17.85% ____%
- -------------------------------------------------------------
</TABLE>
Best quarter: _____% for the quarter ending ____________
Worst quarter: _____% for the quarter ending ____________
Average Annual Total Returns for the Periods Ending December 31, 1999
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Since
1 Year 5 Years Inception*
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares _____% _____% _____%
- -----------------------------------------------------------------------------------------
EAFE Index _____% _____% _____%
- -----------------------------------------------------------------------------------------
</TABLE>
* April 4, 1994 for Trust Shares; March 31, 1994 for the EAFE Index.
-68-
<PAGE>
(sidebar)
Know your index
The Morgan Stanley Capital International Europe, Australasia and Far East Index,
or EAFE Index, is an unmanaged index consisting of companies in Australia, New
Zealand, Europe and the Far East.
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Trust Shares of the International Equity Portfolio.
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Total Annual
Portfolio
Management Distribution Operating
Fees (12b-1) Fees Other Expenses Expenses
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares 1.00% None _____%/1/ _____%/1/
- ---------------------------------------------------------------------------------------------------
</TABLE>
/1/ Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Trust Shares for the current fiscal year are expected to be less
than the amounts shown above because certain of the Portfolio's service
providers are voluntarily waiving a portion of their fees and/or reimbursing the
Portfolio for certain other expenses. These fee waivers and/or reimbursements
are being made in order to keep the annual fees and expenses for the Portfolio's
Trust Shares at a certain level. Other Expenses and Total Annual Portfolio
Operating Expenses, after taking these fee waivers and expense reimbursements
into account, are expected to be .___% and .___% respectively, for Trust Shares.
These fee waivers and expense reimbursements may be revised or cancelled at any
time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $______ $______ $______ $______
- ------------------------------------------------------------------------------------------------------
</TABLE>
-69-
<PAGE>
Additional Information on Risk
The principal risks of investing in each Portfolio are described on the previous
pages. The following supplements that discussion.
Securities Lending
To obtain interest income, each Portfolio (except the Tax-Exempt Money Market
and Missouri Tax-Exempt Bond Portfolios) may lend their 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. There is the risk that when
lending portfolio securities, the securities may not be available to the
Portfolio on a timely basis. Therefore, the Portfolio may lose the opportunity
to sell the securities at a desirable price. Additionally, in the event that a
borrower of securities would file for bankruptcy or become insolvent,
disposition of the securities may be delayed pending court action.
Temporary Defensive Positions
Each Portfolio may temporarily hold investments that are not part of its main
investment strategy to try to avoid losses during unfavorable market conditions.
These investments may include cash (which will not earn any income). In
addition, the Tax-Exempt Money Market Portfolio may hold short-term taxable
money market investments not to exceed 20% of the Portfolio's assets, each of
the Taxable Bond, Tax-Exempt Bond and Stock Portfolios may hold money market
instruments, including short-term debt securities issued or guaranteed by the
U.S. Government or its agencies, and the International Equity Portfolio may hold
debt obligations of U.S. companies having their principal business activities in
the U.S. This strategy could prevent a Portfolio from achieving its investment
objective and, if utilized by a Stock Portfolio, could reduce the Portfolio's
return and affect its performance during a market upswing.
Other Types of Investments
This prospectus describes each Portfolio's principal investment strategies and
the particular types of securities in which each Portfolio principally invests.
Each Portfolio may, from time to time, make other types of investments and
pursue other investment strategies in support of its overall investment goal.
These supplemental investment strategies--and the risks involved--are described
in detail in the Statement of Additional Information ("SAI"), which is referred
to on the back cover of this prospectus.
Year 2000 Risks
-70-
<PAGE>
Over the past several years, the Adviser and the Portfolios' other major service
providers expended considerable time and money in addressing the computer and
technology problems associated with the transition to the Year 2000. As a result
of those efforts, the Portfolios did not experience any material disruptions in
their operations as a result of the transition to the 21/st/ century. The
Adviser and the Portfolios' other major service providers are continuing to
monitor the Year 2000 or Y2K problem, however, and there can be no assurances
that there will be no adverse impact to the Portfolios as a result of future
computer-related Y2K difficulties.
-71-
<PAGE>
Your Account
Explanation of Sales Price
Trust Shares and Trust II Shares of a Portfolio are sold at their net asset
value (NAV). The NAV for each class of shares of a Money Market Portfolio is
determined as of 12:00 noon (Eastern time) and as of the close of regular
trading on the New York Stock Exchange (currently 4:00 p.m., Eastern time) on
every business day. The NAV for each class of shares of a Taxable Bond, Tax-
Exempt Bond or Stock Portfolio is determined as of the close of regular trading
on the New York Stock Exchange (currently 4:00 p.m., Eastern time) on every
business day.
The NAV for a class of shares is determined by adding the value of a Portfolio's
investments, cash and other assets attributable to a particular share class,
subtracting the Portfolio's liabilities attributable that class and then
dividing the result by the total number of shares in the class that are
outstanding.
(sidebar)
Business days defined
A business day is any day that both the New York Stock Exchange and the Federal
Reserve Bank of St. Louis are open for business. Currently, the Fund observes
the following holidays: 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 and Christmas.
. The investments of each of the Money Market Portfolios are valued at
amortized cost, which is approximately equal to market value.
. The investments of each of the Taxable Bond, Tax-Exempt Bond and Stock
Portfolios are valued according to market value. When a market quote is not
readily available, the security's value is based on "fair value" as
determined by FIRMCO (or Clay Finlay, with respect to the International
Equity Portfolio) under the supervision of the Fund's Board of Directors.
Foreign securities acquired by the International Equity Portfolio may be
valued in foreign markets on days when the Portfolio's NAV is not
calculated. In such cases, the NAV of the Portfolio's shares may be
significantly affected on days when investors cannot buy and sell Portfolio
shares.
. A properly placed purchase order (see page __) that is delivered to the
Fund by 12:00 noon (Eastern time) on any business day with respect to the
Treasury Money Market Portfolio and Tax-Exempt Money Market Portfolio or by
3:00 p.m. (Eastern time) on any business day with respect to the Money
Market Portfolio receives the share price next determined if the Fund
receives payment in federal funds or other immediately available funds by
4:00 p.m. (Eastern time) that day. If payment is not received by that time,
the order will be cancelled. A properly placed purchase order that is
delivered to the Fund
-72-
<PAGE>
after 12:00 noon (Eastern time) with respect to the Treasury Money Market
Portfolio and Tax-Exempt Money Market Portfolio or after 3:00 p.m. (Eastern
time) with respect to the Money Market Portfolio will be placed the
following business day.
. A properly placed purchase order (see page __) for one of the Taxable Bond,
Tax-Exempt Bond or Stock Portfolios that is delivered to the Fund before
4:00 p.m. (Eastern time) on any business day receives the share price
determined as of 4:00 p.m. that day. If the order is received after 4:00
p.m., it will receive the price determined on the next business day. Your
financial institution must forward your payment to the Fund no later than
4:00 p.m. the next business day after placing the order, or the order will
be cancelled.
How to Buy Shares
Trust Shares of the Portfolios are sold to financial institutions, such as
banks, trust companies, thrift institutions and mutual funds, that are
purchasing shares 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 also sold to financial institutions that are
purchasing shares on behalf of accounts for which they provide cash management
services.
Trust II Shares of the Money Market Portfolios are sold to financial
institutions that are purchasing shares on their own behalf or on behalf of
certain qualified accounts. Contact your financial institution for information
as to which types of accounts are eligible to purchase Trust II Shares.
If you are purchasing Trust Shares or Trust II Shares through a financial
institution, you must follow the procedures established by your institution.
Your financial institution is responsible for sending your purchase order to the
Fund's distributor and wiring payment to the Fund's custodian. Your financial
institution holds the shares in your name and receives all confirmations of
purchases and sales. Financial institutions placing orders for themselves or on
behalf of their customers should call the Fund at 1-800-452-2724.
The Fund does not have any minimum investment requirement for Trust Shares or
Trust II Shares, but your financial institution may do so. They may also charge
transaction fees and require you to maintain a minimum account balance.
How to Sell Shares
Orders to sell or "redeem" Trust Shares or Trust II Shares should be placed with
the same financial institution that placed the original purchase order in
accordance with the procedures established by that institution. Your financial
institution is responsible for sending your order to the Fund's distributor and
for crediting your account with the proceeds. The Fund does not currently
charge for wiring the proceeds, but your financial institution may do so.
-73-
<PAGE>
If the shares being sold are represented by share certificates, then the order
to sell must be made in writing and mailed to: Mercantile Mutual Funds, Inc.,
615 East Michigan Street, P.O. Box 3011, Milwaukee, Wisconsin 53201-3011. The
order must be accompanied by the share certificates, properly endorsed for
transfer. Additional documents may be required for certain types of
shareholders, such as corporations, partnerships, executors, trustees,
administrators or guardians.
The Fund's transfer agent may require a signature guarantee unless the
redemption proceeds are payable to the shareholder of record and the proceeds
are either mailed to the shareholder's address of record or electronically
transferred to the account designated on the original account application. A
signature guarantee helps prevent fraud, and you may obtain one from most banks
and broker/dealers. Contact the Fund for more information on signature
guarantees.
Trust Shares and Trust II Shares will be sold at the NAV next determined after
the Fund accepts an order (see above). If the order to sell is received and
accepted by the Fund before 12:00 noon (Eastern time) on a business day with
respect to the Treasury Money Market Portfolio and Tax-Exempt Money Market
Portfolio or before 3:00 p.m. (Eastern time) on a business day with respect to
the Money Market Portfolio, the proceeds are sent electronically the same day to
the financial institution that placed the order. If the order to sell is
received and accepted by the Fund after 12:00 noon (Eastern time) on a business
day with respect to the Treasury Money Market Portfolio and Tax-Exempt Money
Market Portfolio or after 3:00 p.m. (Eastern time) on a business day with
respect to the Money Market Portfolio, or on a non-business day, the proceeds
normally are sent electronically to the financial institution on the next
business day.
Proceeds from redemptions from the Taxable Bond, Tax-Exempt Bond and Stock
Portfolios ordinarily are sent electronically to your financial institution the
next business day as long as the Fund receives your order by 4:00 p.m. (Eastern
time) on a business day.
How to Exchange Shares
The exchange privilege enables shareholders to exchange Trust Shares of one
Portfolio for Trust Shares of another Portfolio, and Trust II Shares of one
Money Market Portfolio for Trust II Shares of another Money Market Portfolio.
In addition, you may be able to exchange Trust Shares of a Portfolio for
Investor A Shares of the same Portfolio if it involves the distribution of
assets from certain types of accounts held at Mercantile Trust Company National
Association or any of its affiliates. Contact your financial institution or the
Fund's distributor for additional information on the exchange privilege. The
exchange privilege may be exercised only in those states where Trust Shares or
Trust II Shares, as applicable, of the Portfolio being acquired may be legally
sold.
Administrative Services Fees
Trust Shares of the Portfolios pay administrative services fees at an annual
rate of up to 0.25% of each Money Market Portfolio's and up to 0.30% of each
Taxable Bond, Tax-Exempt Bond and
-74-
<PAGE>
Stock Portfolio's Trust Share assets. These fees are paid to financial
institutions that provide certain administrative services to their customers who
own Trust Shares. No administrative services fees are payable with respect to
Trust II Shares of the Money Market Portfolios.
General Transaction Policies
The Fund reserves the right to:
. Refuse any order to buy shares.
. Reject any exchange request.
. Redeem all shares in an account if the balance falls below $500. If, within
60 days of the Fund's written request, the account balance has not been
increased, a shareholder may be required to redeem all shares. The Fund will
not require a shareholder to redeem shares if the value of the account drops
below $500 due to fluctuations in net asset value.
. Send redemption proceeds within seven days after receiving a request, if an
earlier payment could adversely affect a Portfolio.
. Modify or terminate the exchange privilege after 60 days' written notice to
shareholders.
. Make a "redemption in kind." Under abnormal conditions that may make payment
in cash unwise, the Fund may offer partial or complete payment in portfolio
securities rather than cash at such securities' then-market-value equal to
the redemption price. In such cases, a shareholder may incur brokerage costs
in converting these securities to cash.
Shareholders may be responsible for any fraudulent telephone orders as long as
the Fund has taken reasonable precautions to verify the shareholder's identity.
Shareholders who experience difficulty getting through to the Fund by telephone
because of unusual market conditions should consider selling or exchanging their
shares by mail.
-75-
<PAGE>
Distributions and Taxes
Dividends and Distributions
. Money Market Portfolios
Each Money Market Portfolio declares dividends from net investment income
daily and pays them monthly. Although the Portfolios do not expect to realize
net long-term capital gains, any capital gains realized would be distributed
at least annually.
. Taxable Bond and Tax-Exempt Bond Portfolios
Each Taxable Bond and Tax-Exempt Bond Portfolio declares dividends from net
investment income daily and pays them monthly. Capital gains, if any, are
distributed at least once a year. It's expected that each Portfolio's annual
distribution will be primarily income dividends.
. Stock Portfolios
The Balanced, Equity Income, Equity Index, Growth & Income Equity and Growth
Equity Portfolios declare and pay dividends from net investment income
monthly. The Small Cap Equity, Small Cap Equity Index and International
Equity Portfolios declare and pay dividends from net investment income
quarterly. Capital gains for all of the Portfolios are distributed at least
once a year. It's expected that each Portfolio's annual distributions will
normally - but not always - consist primarily of capital gains and not
ordinary income.
. All Portfolios
Dividends on each share class of a Portfolio are determined in the same
manner and are paid in the same amount. However, each share class bears all
expenses associated with that particular class.
All of your dividends and capital gains distributions with respect to a
particular Portfolio will be reinvested in additional shares of the same
class unless you or your financial institution instruct otherwise on your
account application or have redeemed all shares you held in the Portfolio. In
such cases, dividends and distributions will be paid in cash.
Taxation
As with any investment, you should consider the tax implications of an
investment in the Portfolios. The following is only a brief summary of some of
the important tax considerations generally affecting the Portfolios and their
shareholders under current law, which may be subject
-76-
<PAGE>
to change in the future. Consult your tax adviser with specific reference to
your own tax situation.
. Treasury Money Market, Money Market, Taxable Bond and Stock Portfolios
It is expected that all, or substantially all, of the Portfolios'
distributions will consist of ordinary income. You will be subject to
income tax on these distributions whether they are paid in cash or
reinvested in additional shares.
Except in the case of a Money Market Portfolio, if you purchase shares just
prior to a distribution, the purchase price will reflect the amount of the
upcoming distribution, but you will be taxed on the entire amount of the
distribution received even though, as an economic matter, the distribution
simply constitutes a return of capital. This is known as "buying into a
dividend."
Except in the case of a Money Market Portfolio, you will recognize a
taxable gain or loss on a sale, exchange or redemption of your shares,
including an exchange for shares of another Portfolio, based on the
difference between your tax basis in the shares and the amount you receive
for them. Generally, this gain or loss will be long-term or short-term
depending on whether your holding period for the shares exceeds 12 months,
except that any loss realized on shares held for six months or less will be
treated as a long-term capital loss to the extent that any capital gains
distributions were received on the shares.
A Portfolio's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends the Portfolio receives from U.S.
domestic corporations may be eligible, in the hands of the corporate
shareholders, for the corporate dividends-received deduction, subject to
certain holding period requirements and debt financing limitations .
Distributions on, and sales, exchanges and redemptions of, shares held in
an IRA or other tax-qualified plan will not be currently taxable.
The International Equity Portfolio is expected to be subject to foreign
withholding taxes with respect to dividends or interest received from
sources in foreign countries. The International Equity Portfolio may make
an election to treat a proportionate amount of such taxes as a distribution
to each shareholder. This would allow each shareholder to either (1) credit
such proportionate amount of taxes against U.S. federal income tax
liability, or (2) take such amount as an itemized deduction.
. Tax-Exempt Money Market and Tax-Exempt Bond Portfolios
It is expected that the Tax-Exempt Money Market, Short-Intermediate
Municipal, Missouri Tax-Exempt Bond and National Municipal Bond Portfolios
will distribute dividends derived from interest earned on exempt
securities, and these "exempt-interest dividends" will be exempt income for
shareholders for federal income tax purposes. However, distributions, if
any, derived from net capital gains of each Portfolio will generally be
taxable to you as capital gains. Dividends, if any, derived from short-
term capital gain or taxable interest income will be taxable to you as
ordinary income.
The Tax-Exempt Portfolios, other than the Tax-Exempt Money Market
Portfolio, are likely from time to time to make taxable distributions.
Distributions derived from net long-term capital gains will generally be
taxable to you as long-term capital gains. Dividends derived from short-
term capital gains and income attributable to "market-discount" on bonds
acquired by the Portfolios will be taxable to you as ordinary income.
If you receive an exempt-interest dividend with respect to any share and
the share is held by you for six months or less, any loss on the sale or
exchange of the share will be disallowed to the extent of such dividend
amount.
-77-
<PAGE>
You should note that a portion of the exempt-interest dividends paid by
each Portfolio may constitute an item of tax preference for purposes of
determining federal alternative minimum tax liability. Exempt-interest
dividends will also be considered along with other adjusted gross income in
determining whether any Social Security or railroad retirement payments
received by you are subject to federal income taxes.
. State and Local Taxes
The Missouri Tax-Exempt Bond Portfolio anticipates that the dividends that
it pays that are attributable to interest earned by the Portfolio will also
be exempt from Missouri state income taxes. Dividends paid by the Tax-
Exempt Money Market, Short-Intermediate Municipal and National Municipal
Bond Portfolios that are attributable to interest earned by the Portfolios
may be taxable to shareholders under state or local law.
The Treasury Money Market Portfolio is designed to provide shareholders, to
the extent permitted by federal law, with income that is exempt or excluded
from taxation at the state or local level.
Shareholders may also be subject to state and local taxes on distributions and
redemptions. State income taxes may not apply however, to the portions of each
Portfolio's distributions, if any, that are attributable to interest on federal
securities.
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. Shareholders who are nonresident
aliens, foreign trusts or estates, or foreign corporations or partnerships, may
be subject to different United States federal income tax treatment. For more
information regarding the taxation of the Portfolios, consult the SAI under the
heading "Additional Information Concerning Taxes." You should also consult your
tax adviser for further information regarding federal, state, local and/or
foreign tax consequences relevant to your specific situation.
(sidebar)
You will be advised at least annually regarding the federal income tax treatment
and, if you own shares of the Missouri Tax-Exempt Bond Portfolio, the Missouri
state income tax treatment, of dividends and distributions made to you. You
should save your account statements because they contain information you will
need to calculate your capital gains or losses, if any, upon your ultimate sale
or exchange of shares in the Portfolios.
-78-
<PAGE>
Management of the Fund
The Adviser
FIRMCO, subject to the general supervision of the Fund's Board of Directors, is
responsible for the day-to-day management of the Portfolios in accordance with
each Portfolio's respective investment objective and policies. This includes
making investment decisions, buying and selling securities and overseeing the
administration and recordkeeping for each Portfolio.
In exchange for these services, FIRMCO receives an investment advisory fee,
which is calculated daily and paid monthly, according to the average daily net
assets of each Portfolio. On March 1, 2000, MVA, the Portfolios' former adviser,
merged into FIRMCO. For the fiscal year ended November 30, 1999, the Portfolios
paid MVA advisory fees as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
Investment advisory fees
Portfolio as a % of net assets
- --------------------------------------------------------------
<S> <C>
Treasury Money Market Portfolio _____%
- --------------------------------------------------------------
Money Market Portfolio _____%
- --------------------------------------------------------------
Tax-Exempt Money Market Portfolio
_____%
- --------------------------------------------------------------
U.S. Government Securities
Portfolio _____%
- --------------------------------------------------------------
Intermediate Corporate Bond
Portfolio _____%
- --------------------------------------------------------------
Bond Index Portfolio _____%
- --------------------------------------------------------------
Government & Corporate Bond
Portfolio _____%
- --------------------------------------------------------------
Short-Intermediate Municipal
Portfolio _____%
- --------------------------------------------------------------
Missouri Tax-Exempt Bond
Portfolio _____%
- --------------------------------------------------------------
National Municipal Bond
Portfolio _____%
- --------------------------------------------------------------
Balanced Portfolio _____%
- --------------------------------------------------------------
Equity Index Portfolio _____%
- --------------------------------------------------------------
Equity Income Portfolio _____%
- --------------------------------------------------------------
Growth & Income Equity
Portfolio _____%
- --------------------------------------------------------------
</TABLE>
-79-
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------
Investment advisory fees
Portfolio as a % of net assets
- --------------------------------------------------------------
<S> <C>
Growth Equity Portfolio _____%
- --------------------------------------------------------------
Small Cap Equity Portfolio _____%
- --------------------------------------------------------------
Small Cap Equity Index Portfolio _____%
- --------------------------------------------------------------
International Equity Portfolio _____%
- --------------------------------------------------------------
</TABLE>
The Sub-Adviser
Clay Finlay Inc., an experienced international investment manager, serves as
sub-adviser to the International Equity Portfolio and is responsible for the
management of the Portfolio's assets. Clay Finlay manages the Portfolio under
the guidance and direction of FIRMCO and according to its sub-advisory agreement
with FIRMCO. For its services, Clay Finlay receives from FIRMCO a monthly fee
based on a percentage of the Portfolio's average daily net assets.
Founded in 1982, Clay Finlay is a registered investment adviser and a subsidiary
of United Asset Management Corporation, a financial services holding company.
Clay Finlay's principal office is located at 200 Park Avenue, 56/th/ Floor, New
York, NY 10166.
-80-
<PAGE>
Financial Highlights
Introduction
The financial highlights tables presented below are intended to help you
understand the financial performance of each Portfolio's Trust Shares and/or
Trust II Shares for the past five years (or, if shorter, the period since the
Portfolio began operations or the particular shares were first offered). Certain
information reflects financial results for a single Trust Share or Trust II
Share in each Portfolio. The total returns in the tables represent the rate
that an investor would have earned (or lost) on an investment in Trust Shares or
Trust II Shares, assuming reinvestment of all dividends and distributions. This
information has been audited by _______________, independent accountants, whose
report, along with the Portfolios' financial statements, are included in the
Fund's Annual Report to Shareholders, and are incorporated by reference into the
SAI.
-81-
<PAGE>
Treasury Money Market Portfolio
Trust Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Investment Activities
Net investment income.................. 0.045 0.046 0.045 0.050
-------- -------- -------- --------
Total from Investment
Activities............................. 0.045 0.046 0.045 0.050
-------- -------- -------- --------
Distributions
Net investment income.................. (0.045) (0.046) (0.045) (0.050)
-------- -------- -------- --------
Total Distributions......................... (0.045) (0.046) (0.045) (0.050)
-------- -------- -------- --------
Net Asset Value, End of
Period................................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total Return................................ 4.56% 4.70% 4.64% 5.12%
Ratios/Supplementary Data:
Net Assets at end of period
(000)................................. $245,959 $283,653 $131,322 $ 252,780
Ratio of expenses to average
net assets............................. 0.65% 0.61% 0.61% 0.60%
Ratio of net investment
income to average net
assets................................. 4.45% 4.60% 4.55% 5.01%
Ratio of expenses to average net
assets*................................ 0.96% 0.92% 0.76% 0.75%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as
indicated.
-82-
<PAGE>
Treasury Money Market Portfolio
Trust II Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
November 13, 1998
Year Ended To
November 30, 1999 November 30, 1998/(a)/
----------------- -----------------
<S> <C> <C>
Net Asset Value, Beginning of Period $ 1.00
-------
Investment Activities
Net investment income.................. 0.002
-------
Total from Investment Activities.... 0.002
-------
Distributions
Net investment income.................. (0.002)
Total Distributions.................... (0.002)
-------
Net Asset Value, End of Period........... $ 1.00
=======
Total Return............................. 0.20%(b)
Ratios/Supplementary Data:
Net assets at the end of period (000).... $76,995
Ratio of expenses to average net
assets.................................
0.55%(c)
Ratio of net investment income to
average net assets..................... 4.09%(c)
Ratio of expenses to average net
assets*................................. 0.70%(c)
</TABLE>
_______________
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
-83-
<PAGE>
Money Market Portfolio
Trust Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period............................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ---------- -------- --------
Investment Activities
Net investment income............................. 0.050 0.050 0.049 0.054
-------- ---------- -------- --------
Total from Investment
Activities........................................ 0.050 0.050 0.049 0.054
-------- ---------- -------- --------
Distributions
Net investment income............................. (0.050) (0.050) (0.049) (0.054)
-------- ---------- -------- --------
Total Distributions................................... (0.050) (0.050) (0.049) (0.054)
-------- ---------- -------- --------
Net Asset Value, End of
Period............................................ $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ========== ======== ========
Total Return.......................................... 5.08% 5.06% 4.99% 5.52%
Ratios/Supplementary Data:
Net Assets at end of period
(000)............................................. $820,923 $1,042,151 $717,265 $698,131
Ratio of expenses to average
net assets........................................ 0.66% 0.64% 0.61% 0.59%
Ratio of net investment
income to average net
assets............................................ 4.97% 4.96% 4.88% 5.38%
Ratio of expenses to average
net assets*........................................ 0.93% 0.92% 0.76% 0.74%
</TABLE>
____________
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
-84-
<PAGE>
Money Market Portfolio
Trust II Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
November 10, 1998
Year Ended to
November 30, 1999 November 30, 1998/(a)/
----------------- ----------------------
<S> <C> <C>
Net Asset Value, Beginning of Period $ 1.00
--------
Investment Activities
Net investment income.................. 0.003
--------
Total from Investment Activities.... 0.003
--------
Distributions
Net investment income................ (0.003)
Total Distributions.................. (0.003)
--------
Net Asset Value, End of Period........... $ 1.00
========
Total Return............................. 0.27%/(b)/
--------
Ratios/Supplementary Data:
Net assets at the end of period (000).... $490,020
Ratio of expenses to average net
assets................................. 0.56%/(c)/
Ratio of net investment income to
average net assets..................... 4.76%/(c)/
Ratio of expenses to average net
assets*................................ 0.71%/(c)/
</TABLE>
____________
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
-85-
<PAGE>
Tax-Exempt Money Market Portfolio
Trust Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Year Ended November 30, November 30, May 31,
-------------------------------------------------- ------------ -------
1999 1998 1997 1996 1995/(c)/ 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- -------- ------- ------- -------
Investment Activities
Net investment income..................... 0.029 0.030 0.030 0.016 0.029
------- -------- ------- ------- -------
Total from Investment
Activities................................ 0.029 0.030 0.030 0.016 0.029
------- -------- ------- ------- -------
Distributions
Net investment income..................... (0.029) (0.030) (0.030) (0.016) (0.029)
Total Distributions.......................... (0.029) (0.030) (0.030) (0.016) (0.029)
------- -------- ------- ------- -------
Net Asset Value, End of
Period.................................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======== ======= ======= =======
Total Return................................. 2.92% 3.08% 3.06% 1.57%/(a)/ 2.93%
Ratios/Supplementary Data:
Net Assets at end of period
(000)...................................... $37,541 $143,517 $95,726 $78,031 $85,324
Ratio of expenses to average
net assets................................ 0.59% 0.58% 0.53% 0.70%/(b)/ 0.61%
Ratio of net investment
income to average net
assets.................................... 2.88% 3.04% 3.01% 3.01%/(b)/ 2.87%
Ratio of expenses to average
net assets*.............................. 0.84% 0.83% 0.58% 0.75%/(b)/ 0.70%
</TABLE>
____________
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
(a) Not annualized.
(b) Annualized.
(c) Upon reorganizing as a portfolio of the Fund on October 2, 1995, the Tax-
Exempt Money Market Portfolio changed its fiscal year-end from May 31 to
November 30.
-86-
<PAGE>
Tax-Exempt Money Market Portfolio
Trust II Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
November 16, 1998
Year Ended to
November 30, 1999 November 30, 1998(a)
----------------- --------------------
<S> <C> <C>
Net Asset Value, Beginning of Period $ 1.00
--------
Investment Activities
Net investment income.................. 0.001
--------
Total from Investment Activities....... 0.001
--------
Distributions
Net investment income.................. (0.001)
--------
Total Distributions.................... (0.001)
--------
Net Asset Value, End of Period............ $ 1.00
========
Total Return.............................. 0.11%(b)
--------
Ratios/Supplementary Data:
Net assets at the end of period (000)..... $122,110
Ratio of expenses to average net
assets................................. 0.57%(c)
Ratio of net investment income to
average net assets..................... 2.69%(c)
Ratio of expenses to average net
assets*................................ 0.62%(c)
</TABLE>
_______________
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
-87-
<PAGE>
U.S. Government Securities Portfolio
Trust Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30
---------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.................. $ 10.62 $ 10.67 $ 10.85 $ 10.05
-------- -------- -------- --------
Investment Activities
Net investment income................ 0.60 0.61 0.66 0.67
Net realized and unrealized
gains (losses) from investments........ 0.12 (0.05) (0.15) 0.80
-------- -------- -------- --------
Total from Investment Activities........ 0.72 0.56 0.51 1.47
-------- -------- -------- --------
Distributions
Net investment income................ (0.60) (0.61) (0.66) (0.67)
In excess of net realized gains...... -- -- (0.03) --
Total Distributions.................. -------- -------- -------- --------
(0.60) (0.61) (0.69) (0.67)
-------- -------- -------- --------
Net Asset Value,
End of Period........................ $ 10.74 $ 10.62 $ 10.67 $ 10.85
======== ======== ======== ========
Total Return............................ 6.98% 5.51% 4.88% 15.00%
Ratios/Supplementary Data:
Net Assets at end of period (000).... $ 93,683 $ 72,753 $ 60,079 $ 45,513
Ratio of expenses to average
net assets........................... 0.67% 0.67% 0.67% 0.67%
Ratio of net investment
income to average net assets......... 5.64% 5.84% 6.10% 6.36%
Ratio of expenses to average
net assets*.......................... 1.07% 1.07% 0.77% 0.77%
Portfolio turnover**.................... 54.57% 100.33% 53.76% 93.76%
</TABLE>
____________
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio 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.
-88-
<PAGE>
Intermediate Corporate Bond Portfolio
Trust Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30 February 10, 1997
----------------------- to
1999 1998 November 30, 1997(a)
-------- -------- --------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period...... $ 10.11 $ 10.00
-------- --------
Investment Activities
Net investment income................. 0.63 0.53
Net realized and unrealized gains from
investments........................... 0.29 0.11
-------- --------
Total from Investment Activities.......... 0.92 0.64
-------- --------
Distributions
Net investment income................. (0.63) (0.53)
Net Realized Gains.................... (0.11) --
-------- --------
Total Distributions....................... (0.74) (0.53)
-------- --------
Net Asset Value, End of Period............ $ 10.29 $ 10.11
======== ========
Total Return.............................. 9.53% 6.65%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000)......... $ 55,337 $ 44,443
Ratio of expenses to average
net assets............................ 0.60% 0.29%(c)
Ratio of net investment income to average
net assets............................ 6.23% 6.90%(c)
Ratio of expenses to average net assets*.. 1.19% 1.32%(c)
Portfolio turnover**...................... 9.65% 61.98%
</TABLE>
____________
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio 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.
-89-
<PAGE>
Bond Index Portfolio
Trust Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30, 1999 February 10, 1997
---------------------------- to
1999 1998 November 30, 1997/(a)/
-------- -------- --------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period......... $ 10.16 $ 10.00
-------- --------
Investment Activities
Net investment income..................... 0.65 0.53
Net realized and unrealized gains from
investments............................... 0.30 0.16
-------- --------
Total from Investment Activities............. 0.95 0.69
-------- --------
Distributions
Net investment income........................ (0.64) (0.53)
Net realized gains........................... (0.03) --
--------
Total Distributions.......................... (0.67) (0.53)
-------- --------
Net Asset Value, End of Period.................. $ 10.44 $ 10.16
======== ========
Total Return.................................... 9.69% 7.15%/(b)/
Ratios/Supplementary Data:
Net Assets at end of period (000)............... $169,388 $138,319
Ratio of expenses to average
net assets................................... 0.42% 0.23%/(c)/
Ratio of net investment income to average
net assets................................... 6.20% 6.92%/(c)/
Ratio of expenses to average net assets*........ 0.93% 0.94%/(c)/
Portfolio turnover**............................ 33.37% 46.16%
</TABLE>
____________
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio 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.
-90-
<PAGE>
Government & Corporate Bond Portfolio
Trust Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
------------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period........................ $ 10.37 $ 10.34 $ 10.53 $ 9.64
-------- -------- -------- --------
Investment Activities
Net investment income...................... 0.60 0.59 0.67 0.64
Net realized and unrealized
gains (losses) from investments............ 0.37 0.03 (0.19) 0.89
-------- -------- -------- --------
Total from Investment Activities.............. 0.97 0.62 0.48 1.53
-------- -------- -------- --------
Distributions
Net investment income...................... (0.60) (0.59) (0.67) (0.64)
-------- -------- -------- --------
In excess of net realized gains............... -- -- -- --
-------- -------- -------- --------
Total Distributions........................... (0.60) (0.59) (0.67) (0.64)
-------- -------- -------- --------
Net Asset Value, End of Period................ $ 10.74 $ 10.37 $ 10.34 $ 10.53
======== ======== ======== ========
Total Return.................................. 9.63% 6.32% 4.82% 16.31%
Ratios/Supplementary Data:
Net Assets at end of period (000)............. $178,868 $172,637 $141,440 $127,741
Ratio of expenses to average
net assets................................. 0.66% 0.65% 0.65% 0.65%
Ratio of net investment
income to average net assets............... 5.71% 5.85% 6.36% 6.32%
Ratio of expenses to average
net assets*................................ 1.06% 1.05% 0.75% 0.75%
Portfolio turnover**.......................... 91.14% 140.72% 149.20% 59.32%
</TABLE>
____________
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio 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.
-91-
<PAGE>
Short - Intermediate Municipal Portfolio
Trust Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
--------------------------------------------------- July 10, 1995 to
1999 1998 1997 1996 November 30, 1995(a)
-------- -------- -------- -------- --------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.......................... $ 10.10 $ 10.07 $ 10.07 $ 10.00
-------- -------- -------- --------
Investment Activities
Net investment income...................... 0.38 0.40 0.41 0.14
Net realized and unrealized gains
from Investments........................... 0.15 0.03 -- 0.07
-------- -------- -------- --------
Total from Investment
Activities................................. 0.53 0.43 0.41 0.21
-------- -------- -------- --------
Distributions
Net investment income...................... (0.38) (0.40) (0.41) (0.14)
-------- -------- -------- --------
Total Distributions............................ (0.38) (0.40) (0.41) (0.14)
-------- -------- -------- --------
Net Asset Value, End of Period................. $ 10.25 $ 10.10 $ 10.07 $ 10.07
======== ======== ======== ========
Total Return................................... 5.36% 4.39% 4.15% 2.15%/(b)/
Ratios/Supplementary Data:
Net Assets at end of period (000).......... $ 42,862 $ 30,454 $ 29,472 $ 23,754
Ratio of expenses to average
net assets................................. 0.64% 0.38% 0.31% 0.47%/(c)/
Ratio of net investment
income to average net assets............... 3.75% 4.00% 4.07% 3.81%/(c)/
Ratio of expenses to average
net assets*................................ 1.20% 1.33% 0.96% 1.12%/(c)/
Portfolio turnover**........................... 18.58% 0.00% 0.00% 0.00%
</TABLE>
____________
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between classes of shares issued.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
-92-
<PAGE>
Missouri Tax-Exempt Bond Portfolio
Trust Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30, Six Months Ended Year Ended
---------------------------------------------------- November 30, May 31,
1999 1998 1997 1996 1995(c) 1995
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period...................... $ 11.87 $ 11.69 $ 11.74 $ 11.52 $ 11.13
-------- -------- -------- -------- --------
Investment Activities
Net investment income.................... 0.55 0.56 0.57 0.28 0.57
Net realized and unrealized gains on
investments.............................. 0.21 0.18 (0.05) 0.22 0.40
-------- -------- -------- -------- --------
Total from Investment
Activities............................... 0.76 0.74 0.52 0.50 0.97
-------- -------- -------- -------- --------
Distributions
Net investment income.................... (0.55) (0.56) (0.57) (0.28) (0.57)
-------- -------- -------- -------- --------
Net realized gains....................... -- -- -- -- (0.01)
-------- -------- -------- -------- --------
Total Distributions...................... (0.55) (0.56) (0.57) (0.28) (0.58)
-------- -------- -------- -------- --------
Net Asset Value, End of Period............... $ 12.08 $ 11.87 $ 11.69 $ 11.74 $ 11.52
======== ======== ======== ======== ========
Total Return................................. 6.52% 6.48% 4.62% 4.41%(a) 9.12%
Ratios/Supplementary Data:
Net Assets at end of period (000)........ $ 94,402 $ 75,431 $ 55,905 $ 47,773 $ 44,336
Ratio of expenses to average
net assets............................... 0.66% 0.66% 0.65% 0.78%(b) 0.64%
Ratio of net investment
income to average net assets............. 4.57% 4.76% 4.95% 4.83%(b) 5.22%
Ratio of expenses to average
net assets*.............................. 1.06% 1.06% 0.75% 0.88%(b) 1.16%
Portfolio Turnover Rate**.................... 6.14% 3.50% 3.66% 1.55% --
</TABLE>
_____________
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between classes of shares issued.
(a) Not annualized.
(b) Annualized.
(c) Upon reorganizing as a portfolio of the Fund on October 2, 1995, the
Missouri Tax-Exempt Bond Portfolio changed its fiscal year-end from May 31
to November 30.
-93-
<PAGE>
National Municipal Bond Portfolio
Trust Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30, November 18, 1996
------------------------------------ to
1999 1998 1997 November 30, 1996/(a)/
-------- -------- -------- ----------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.28 $ 10.05 $ 10.00
-------- -------- --------
Investment Activities
Net investment income 0.46 0.54 0.02
Net realized and unrealized gains from
investments 0.30 0.23 0.05
-------- -------- --------
Total from Investment Activities 0.76 0.77 0.07
-------- -------- --------
Distributions
Net investment income (0.46) (0.54) (0.02)
Net Realized Gains (0.35) -- --
-------- -------- --------
Total Distributions (0.81) (0.54) (0.02)
-------- -------- --------
Net Asset Value, End of Period $ 10.23 $ 10.28 $ 10.05
======== ======== ========
Total Return 7.76% 7.97% 0.74%/(b)/
Ratios/Supplementary Data:
Net Assets at end of period (000) $384,518 $366,889 $310,413
Ratio of expenses to average
net assets 0.56% 0.14% 0.12%/(c)/
Ratio of net investment income to
average net assets 4.52% 5.38% 5.77%/(c)/
Ratio of expenses to average net assets* 1.16% 1.17% 0.82%/(c)/
Portfolio turnover** 18.30% 83.94% 0.00%
</TABLE>
____________
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio 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.
-94-
<PAGE>
Balanced Portfolio
Trust Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
--------------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period................. $ 13.27 $ 12.58 $ 11.64 $ 9.62
-------- -------- -------- --------
Investment Activities
Net investment income............... 0.32 0.38 0.37 0.34
Net realized and unrealized gains
(losses) from investments........... 0.84 1.45 1.34 2.02
-------- -------- -------- --------
Total from Investment Activities....... 1.16 1.83 1.71 2.36
-------- -------- -------- --------
Distributions
Net investment income............... (0.32) (0.43) (0.35) (0.34)
Net realized gains.................. (1.47) (0.71) (0.42) --
In excess of realized gains......... -- -- -- --
-------- -------- -------- --------
Total distributions................... (1.79) (1.14) (0.77) (0.34)
-------- -------- -------- --------
Net Asset Value,
End of Period....................... $ 12.64 $ 13.27 $ 12.58 $ 11.64
======== ======== ======== ========
Total Return........................... 9.75% 15.81% 15.56% 24.97%
Ratios/Supplementary Data:
Net Assets at end of period (000)...... $ 43,776 $ 54,299 $ 61,821 $ 72,669
Ratio of expenses to average net
assets.............................. 0.96% 0.97% 0.97% 0.98%
Ratio of net investment income to
average net assets.................. 2.53% 2.87% 3.08% 3.29%
Ratio of expenses to average net
assets*............................. 1.36% 1.37% 1.07% 1.08%
Portfolio turnover**................... 47.79% 43.60% 85.16% 58.16%
</TABLE>
____________
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio 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.
-95-
<PAGE>
Equity Income Portfolio
Trust Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
February 27, 1997
Year Ended November 30, to
--------------------------------------------------
1999 1998 November 30, 1997/(a)/
---- ---- ---------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period...... $ 11.56 $ 10.00
-------- --------
Investment Activities
Net investment income.................. 0.19 0.20
Net realized and unrealized gains from
investments............................ 0.98 1.55
-------- --------
Total from Investment Activities.......... 1.17 1.75
-------- --------
Distributions
Net investment income.................. (0.20) (0.19)
Net realized gains..................... (2.29) --
-------- --------
Total Distributions.................... (2.49) (0.19)
-------- --------
Net Asset Value, End of Period............ $ 10.24 $ 11.56
======== ========
Total Return.............................. 12.00% 17.64%/(b)/
Ratios/Supplementary Data:
Net Assets at end of period (000)......... $111,866 $131,919
Ratio of expenses to average
net assets............................. 0.71% 0.15%/(c)/
Ratio of net investment income to average
net assets............................... 1.94% 2.51%/(c)/
Ratio of expenses to average net assets*.. 1.37% 1.38%/(c)/
Portfolio turnover**...................... 98.32% 48.33%
</TABLE>
____________
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio 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.
-96-
<PAGE>
Equity Index Portfolio
Trust Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
May 1, 1997
Year Ended November 30 to
----------------------------------------------- November 30, 1997/(a)/
1999 1998 ----------------------
---- ----
<S> <C> <C> <C>
Net Asset Value, Beginning of Period...... $ 11.94 $ 10.00
------- -------
Investment Activities
Net investment income.................. 0.13 0.10
Net realized and unrealized gains from
investments........................... 2.64 1.94
------- -------
Total from Investment Activities.......... 2.77 2.04
------- -------
Distributions
Net investment income.................. (0.14) (0.10)
Net realized gains...................... (0.02) --
------- -------
Total Distributions..................... (0.16) (0.10)
------- -------
Net Asset Value, End of Period............ $ 14.55 $ 11.94
======= =======
Total Return.............................. 23.34% 20.40%/(b)/
Ratios/Supplementary Data:
Net Assets at end of period (000)......... $50,232 $31,787
Ratio of expenses to average
net assets............................. 0.54% 0.39%/(c)/
Ratio of net investment income to average
net assets............................... 1.02% 1.48%/(c)/
Ratio of expenses to average net assets*.. 1.03% 1.12%/(c)/
Portfolio turnover**...................... 14.83% 1.66%
</TABLE>
____________
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio 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.
-97-
<PAGE>
Growth & Income Equity Portfolio
Trust Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period...................... $ 21.19 $ 18.71 $ 16.32 $ 12.72
-------- -------- -------- --------
Investment Activities
Net investment income.................... 0.17 0.23 0.24 0.27
Net realized and unrealized
gains (losses) from
investments 1.59 3.96 3.34 3.74
-------- -------- -------- --------
Total from Investment Activities............ 1.76 4.19 3.58 4.01
-------- -------- -------- --------
Distributions
Net investment income.................... (0.17) (0.25) (0.24) (0.27)
In excess of
net investment income............. -- --
(0.01) --
Net realized gains (3.57) (1.46) (0.94) (0.14)
In excess of net realized gains...... -- -- -- --
-------- -------- -------- --------
Total Distributions.................. (3.74) (1.71) (1.19) (0.41)
-------- -------- -------- --------
Net Asset Value,
End of Period.......................... $ 19.21 $ 21.19 $ 18.71 $ 16.32
======== ======== ======== ========
Total Return................................ 9.67% 24.55% 23.45% 32.27%
Ratios/Supplementary Data:
Net Assets at end of period (000)........... $299,188 $322,304 $348,183 $286,546
Ratio of expenses to average net
assets.................................. 0.74% 0.74% 0.75% 0.75%
Ratio of net investment income to
average net assets......................... 0.90% 0.91% 1.50% 1.89%
Ratio of expenses to average net assets*.... 1.14% 1.14% 0.85% 0.85%
Portfolio turnover**........................ 91.23% 57.11% 63.90% 58.50%
</TABLE>
____________
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio 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.
-98-
<PAGE>
Growth Equity Portfolio
Trust Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
November 24,1997
Year Ended November 30, to
-------------------------- November 30, 1997(a)
1999 1998 --------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period............ $ 16.26 $ 16.44
------- -------
Investment Activities
Net investment income........................ 0.01 (0.01)
Net realized and unrealized gains
(losses) from investments.................... 3.72 (0.17)
------- -------
Total from Investment Activities................ 3.73 (0.18)
------- -------
Distributions
Net investment income........................ (0.01) --
------- -------
Total Distributions.......................... (0.01) --
------- -------
Net Asset Value, End of Period.................. $ 19.98 $ 16.26
======= =======
Total Return.................................... 22.94% (1.09)% /(b)/
Ratios/Supplementary Data:
Net Assets at end of period (000)............... $80,830 $63,786
Ratio of expenses to average
net assets................................... 1.04% 1.24 % /(c)/
Ratio of net investment income (losses)
to average net assets.......................... 0.05% (0.15)% /(c)/
Ratio of expenses to average net assets*........ 1.44% 1.34 % /(c)/
Portfolio turnover**............................ 54.33% 0.00 %
</TABLE>
____________
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio 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.
-99-
<PAGE>
Small Cap Equity Portfolio
Trust Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
-----------------------------------------------------------
1999 1998 1997 1996 1995
-------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.......................... $ 15.17 $ 13.49 $ 13.49 $ 12.01
--------- ---------- -------- --------
Investment Activities
Net investment income (loss)................. (0.02) 0.01 0.02 0.03
Net realized and unrealized gains
(losses) from Investments.................... (1.91) 2. 50 1.05 2.36
--------- ---------- -------- --------
Total from Investment
Activities.................................. (1.93) 2. 51 1.07 2.39
--------- ---------- -------- --------
Distributions
Net investment income........................ -- (0.01) (0.02) --
Net realized gains........................... (1.19) (0.82) (1.05) (0.91)
--------- ---------- -------- --------
In excess of realized gains.................. (0.03) -- -- --
--------- ---------- -------- --------
Total Distributions............................ (1.22) (0.83) (1.07) (0.91)
--------- ---------- -------- --------
Net Asset Value, End of Period................. $ 12.02 $ 15.17 $ 13.49 $ 13.49
========= ========== ======== ========
Total Return................................... (13.90)% 19.77% 8.72% 21.70%
Ratios/Supplementary Data:
Net Assets at end of period (000).............. $ 129,591 $ 211,643 $171,295 $139,681
Ratio of expenses to average net assets......... 0.95% 0.95% 0.96% 0.96%
Ratio of net investment
income (loss) to average net assets.......... (0.16)% 0.01% 0.17% 0.18%
Ratio of expenses to average net assets*........ 1.35% 1.35% 1.06% 1.06%
Portfolio turnover**............................ 69.72% 80.23% 65.85% 83.13%
</TABLE>
____________
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between classes of shares issued.
-100-
<PAGE>
Small Cap Equity Index Portfolio
Trust Shares
(For a Share outstanding throughout the period)
<TABLE>
<CAPTION>
December 30, 1998 to
November 30,1999/a/
---------------------
<S> <C>
Net Asset Value, Beginning of Period.............
Investment Activities
Net investment income...........................
Net realized and unrealized gains
(losses) from investments and
foreign currency................................
Total from Investment Activities.................
Distributions
Net investment income...........................
In excess of net investment income..............
Net realized gains..............................
Tax Return of Capital...........................
Total distributions.............................
Net Asset Value, End of Period...................
Total Return.....................................
Ratios/Supplementary Data:
Net Assets at end of period (000)................
Ratio of expenses to average net assets.........
Ratio of net investment income to
average net assets..............................
Ratio of expenses to average net assets *.......
Portfolio turnover**.............................
</TABLE>
____________
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between classes of shares issued.
/a/ Period from commencement of operations.
-101-
<PAGE>
International Equity Portfolio
Trust Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
---------------------------------------------
1999 1998 1997 1996 1995
---- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............. $ 12.09 $ 12.12 $ 10.79 $ 9.92
------- ------- ------- -------
Investment Activities
Net investment income........................... 0.04 0.01 0.06 0.03
Net realized and unrealized gains
(losses) from investments and
foreign currency................................ 1.80 0.33 1.27 0.86
------- ------- ------- -------
Total from Investment Activities................. 1.84 0.34 1.33 (0.89)
------- ------- ------- -------
Distributions
Net investment income........................... (0.07) (0.04) -- --
In excess of net investment income.............. (0.03) (0.02) -- --
Net realized gains.............................. (0.43) (0.31) -- (0.01)
Tax Return of Capital........................... -- -- -- (0.01)
------- ------- ------- -------
Total distributions............................. (0.53) (0.37) -- (0.02)
------- ------- ------- -------
Net Asset Value, End of Period................... $ 13.40 $ 12.09 $ 12.12 $ 10.79
======= ======= ======= =======
Total Return..................................... 15.73% 2.91% 12.33% 8.97%
Ratios/Supplementary Data:
Net Assets at end of period (000)................ $60,647 $55,038 $52,181 $36,096
Ratio of expenses to average net assets......... 1.28% 1.29% 1.14% 1.16%
Ratio of net investment income to
average net assets.............................. 0.34% 0.09% 0.51% 0.39%
Ratio of expenses to average net assets *....... 1.75% 1.75% 1.45% 1.46%
Portfolio turnover**............................. 88.95% 75.18% 77.63% 62.78%
</TABLE>
____________
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between classes of shares issued.
-102-
<PAGE>
[Back Cover Page]
Where to find more information
You'll find more information about the Portfolios in the following documents:
Annual and semi-annual reports
The Fund's annual and semi-annual reports contain information about each
Portfolio and a discussion about the market conditions and investment strategies
that had a significant effect on each Portfolio's performance during the last
fiscal year.
Statement of Additional Information (SAI)
The SAI contains detailed information about the Portfolios and their policies.
By law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Portfolios and make shareholder inquiries by calling the Fund at 1-800-452-2724
or by writing to:
Mercantile Mutual Funds, Inc.
615 East Michigan Street
P.O. Box 3011
Milwaukee, WI 53201-3011
If you buy your shares through a broker-dealer or other financial institution,
you may contact your institution for more information.
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Portfolios, including the
SAI. They'll charge you a fee for this service. You can also visit the SEC
Public Reference Room and copy the documents while you're there. For information
about the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC
Washington, DC 20549-0102
1-202-942-8090
Reports and other information about the Portfolios are also available on the
EDGAR database SEC's website at http://www.sec.gov. Copies of this information
may also be obtained, after paying a duplicating fee, by electronic request to
the SEC's e-mail address at [email protected].
The Fund's Investment Company Act File No. is 811-3567
<PAGE>
Mercantile Mutual Funds
Prospectus
Trust Shares
______________, 2000
Money Market Portfolios
Treasury Money Market Portfolio
Money Market Portfolio
Tax-Exempt Money Market Portfolio
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Portfolios or determined if this
prospectus is truthful or complete. Anyone who tells you otherwise is
committing a criminal offense.
<PAGE>
Contents
Risk/Return Summary
1 Overview
2 Treasury Money Market Portfolio
6 Money Market Portfolio
9 Tax-Exempt Money Market Portfolio
12 Additional Information on Risk
Your Account
13 Explanation of Sales Price
13 How to Buy Shares
14 How to Sell Shares
15 How to Exchange Shares
15 Administrative Services Fees
15 General Transaction Policies
Distributions and Taxes
17 Dividends and Distributions
17 Taxation
Management of the Fund
17 The Adviser
Financial Highlights
20 Introduction
21 Treasury Money Market Portfolio
22 Money Market Portfolio
23 Tax-Exempt Money Market Portfolio
<PAGE>
Risk/Return Summary
Overview
This prospectus describes the Money Market Portfolios of Mercantile Mutual
Funds, Inc. (the "Fund"). On the following pages, you will find important
information about each Portfolio, including:
. A description of the Portfolio's investment objective (sometimes referred
to as its goal);
. The Portfolio's principal investment strategies (the steps it takes to try
to meet its goal);
. The principal risks associated with the Portfolio (factors that may prevent
it from meeting its goal);
. The Portfolio's past performance (how successful it's been in meeting its
goal); and
. The fees and expenses you pay as an investor in the Portfolio.
Who May Want to Invest in the Mercantile Money Market Portfolios?
The Treasury Money Market Portfolio may be appropriate for investors who want a
way to earn money market returns from U.S. Treasury obligations that are
generally exempt from state and local taxes. The Money Market Portfolio may be
appropriate for investors who want a flexible and convenient way to manage cash
while earning money market returns. The Tax-Exempt Money Market Portfolio may
be appropriate for investors who want a way to earn money market returns that
are generally exempt from federal income tax; however, the Portfolio is not an
appropriate investment for tax-deferred retirement accounts, such as IRAs,
because its return before tax is generally lower than that of a taxable fund.
Before investing in a Portfolio, you should carefully consider:
. Your own investment goals
. The amount of time you are willing to leave your money invested
. How much risk you are willing to take.
The Investment Adviser
Firstar Investment Research and Management Company, LLC ("FIRMCO" or the
"Adviser") serves as the investment adviser to each Portfolio as a result of the
merger of the Portfolios' former adviser, Mississippi Valley Advisors Inc.
("MVA") into FIRMCO on March 1, 2000. FIRMCO is a subsidiary of Firstar
Corporation, a banking and financial services organization, and has its main
office at Firstar Center, 777 East Wisconsin Avenue, 8th Floor, Milwaukee,
Wisconsin. FIRMCO has been providing advisory services since 1986 and as of
December 31, 1999, FIRMCO had approximately $35.3 billion in assets under
management.
<PAGE>
An investment in the Portfolios is not a Firstar Bank deposit and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Money Market Portfolios seek to preserve the
value of your investment at $1.00 per share, it is possible to lose money by
investing in the Portfolios.
-2-
<PAGE>
Treasury Money Market Portfolio
Investment Objective
The 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.
Principal Investment Strategies
The Portfolio invests substantially all (but not less than 65%) of its total
assets in money market instruments issued by the U.S. Treasury and certain U.S.
Government agencies and instrumentalities that provide income that is generally
not subject to state income tax.
(sidebar)
Money Market Instruments are short-term obligations issued by banks,
corporations, the U.S. Government and state and local governments. Money market
instruments purchased by the Portfolios must meet strict requirements as to
investment quality, maturity and diversification. The Portfolios generally do
not invest in securities with maturities of more than 397 days and the average
maturity of all securities held by a particular Portfolio must be 90 days or
less. Prior to purchasing a money market instrument for one of the Portfolios,
the Adviser must determine that the instrument carries very little credit risk.
Principal Risk Considerations
The yield paid by the Portfolio will vary with changes in interest rates.
Although U.S. Government securities, particularly U.S. Treasury obligations,
have historically involved little risk, if an issuer fails to pay interest or
repay principal, the value of your investment could decline.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
There's no guarantee the Portfolio will be able to preserve the value of your
investment at $1.00 per share.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Trust Shares has varied from year to year. The table shows the Portfolio's
average annual returns for one year, five years and since
-3-
<PAGE>
inception. Both the bar chart and table assume reinvestment of all dividends and
distributions. The Portfolio's past performance does not necessarily indicate
how it will perform in the future.
Trust Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
3.40% 2.67% 3.55% 5.15% 4.61% 4.71% 4.49% ____%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Best quarter: ____% for the quarter ending _______________.
Worst quarter: ____% for the quarter ending _______________.
Average Annual Total Returns for the periods ended December 31, 1999
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
1 Year 5 Years Since
Inception*
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares _____% _____% _____%
- ----------------------------------------------------------------------------------------------------
</TABLE>
* December 2, 1991.
To obtain the Portfolio's current 7-day yield, please call 1-800-452-4015.
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Trust Shares of the Treasury Money Market Portfolio.
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Total Annual
Portfolio
Management Distribution Operating
Fees (12b-1) Fees Other Expenses Expenses
<S> <C> <C> <C> <C>
.40%/1/ None ____%/1/ ____%/1/
</TABLE>
-4-
<PAGE>
/1/ Management Fees, Other Expenses and Total Annual Portfolio Operating
Expenses for the Portfolio's Trust Shares for the current fiscal year are
expected to be less than the amounts shown above because certain of the
Portfolio's service providers are voluntarily waiving a portion of their fees
and/or reimbursing the Portfolio for certain other expenses. These fee waivers
and/or reimbursements are being made in order to keep the annual fees and
expenses for the Portfolio's Trust Shares at a certain level. Management Fees,
Other Expenses and Total Annual Portfolio Operating Expenses, after taking these
fee waivers and expense reimbursements into account, are expected to be ___%,
___% and ___%, respectively, for Trust Shares. These fee waivers and expense
reimbursements may be revised or cancelled at any time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you
invest $10,000 for the time periods shown and then sell all of your shares at
the end of those periods. The example also assumes that your investment has a
5% return each year and the Portfolio's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $____ $_____ $____ $____
- ------------------------------------------------------------------------------------------------------
</TABLE>
-5-
<PAGE>
Money Market Portfolio
Investment Objective
The Portfolio's investment objective is to seek current income with liquidity
and stability of principal.
Principal Investment Strategies
The Portfolio invests substantially all (but not less than 80%) of its total
assets in a broad range of money market instruments, including commercial paper,
notes and bonds issued by U.S. and foreign corporations, obligations issued by
the U.S. Government and its agencies and instrumentalities, and obligations
issued by U.S. and foreign banks, such as certificates of deposit, letters of
credit, bankers' acceptances and time deposits.
The Portfolio will only buy a money market instrument if it has the highest
short-term rating from at least two nationally recognized statistical rating
organizations, such as Standard & Poor's Ratings Group or Moody's Investors
Service, Inc., or only one such rating if only one organization has rated the
instrument. If the money market instrument is not rated, the Adviser must
determine that it is of comparable quality to eligible rated instruments.
Principal Risk Considerations
The yield paid by the Portfolio will vary with short-term interest rates.
Although credit risk is very low because the Portfolio only invests in high
quality obligations, if an issuer fails to pay interest or repay principal, the
value of your investment could decline.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
There's no guarantee the Portfolio will be able to preserve the value of your
investment at $1.00 per share.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Trust Shares has varied from year to year. The table shows the Portfolio's
average annual returns for one year, five years and since inception. Both the
bar chart and table assume reinvestment of all dividends and distributions. The
Portfolio's past performance does not necessarily indicate how it will perform
in the future.
-6-
<PAGE>
Trust Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997 1998 1999
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5.67% 3.30% 2.71% 3.76% 5.55% 4.95% 5.09% 5.02% ____%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Best quarter: ____% for the quarter ending _______________.
Worst quarter: ____% for the quarter ending _______________.
Average Annual Total Returns for the periods ended December 31, 1999
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Since
1 Year 5 Years Inception*
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares ____% ____% ____%
- ----------------------------------------------------------------------------------------------------
</TABLE>
*December 1, 1990.
To obtain the Portfolio's current 7-day yield, please call 1-800-452-4015.
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Trust Shares of the Money Market Portfolio.
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Total Annual
Portfolio
Management Distribution Operating
Fees (12b-1) Fees Other Expenses Expenses
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares .40%/1/ None ____%/1/ ____%/1/
- ---------------------------------------------------------------------------------------------------------
</TABLE>
-7-
<PAGE>
/1/ Management Fees, Other Expenses and Total Annual Portfolio Operating
Expenses for the Portfolio's Trust Shares for the current fiscal year are
expected to be less than the amounts shown above because certain of the
Portfolio's service providers are voluntarily waiving a portion of their fees
and/or reimbursing the Portfolio for certain other expenses. These fee waivers
and/or reimbursements are being made in order to keep the annual fees and
expenses for the Portfolio's Trust Shares at a certain level. Management Fees,
Other Expenses and Total Annual Portfolio Operating Expenses, after taking these
fee waivers and expense reimbursements into account, are expected to be ____%,
____% and ____%, respectively, for Trust Shares. These fee waivers and expense
reimbursements may be revised or cancelled at any time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you
invest $10,000 for the time periods shown and then sell all of your shares at
the end of those periods. The example also assumes that your investment has a
5% return each year and the Portfolio's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $_____ $_____ $_____ $______
- ------------------------------------------------------------------------------------------------------
</TABLE>
-8-
<PAGE>
Tax-Exempt Money Market Portfolio
Investment Objective
The 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.
Principal Investment Strategies
The Portfolio normally invests at least 80% of its total assets in short-term
municipal securities that pay interest which is exempt from federal income tax.
Municipal securities purchased by the Portfolio may include general obligation
securities, revenue securities and private activity bonds. General obligation
securities are secured by the issuer's full faith, credit and taxing power.
Revenue obligation securities are usually payable only from revenues derived
from specific facilities or revenue sources. Private activity bonds are usually
revenue obligations since they are typically payable by the private user of the
facilities financed by the bonds. The interest on private activity bonds may be
subject to the federal alternative minimum tax. Investments in private activity
bonds will not be treated as investments in municipal securities for purposes of
the 80% requirement stated above.
(sidebar)
What are Municipal Securities?
State and local governments issue municipal securities to raise money to finance
public works, to repay outstanding obligations, to raise funds for general
operating expenses and to make loans to other public institutions. Some
municipal securities, known as private activity bonds, are backed by private
entities and are used to finance various non-public projects. Municipal
securities, which can be issued as bonds, notes or commercial paper, usually
have fixed interest rates, although some have interest rates that change from
time to time.
The Portfolio will only buy a municipal security if it has the highest short-
term rating from at least two nationally recognized statistical rating
organizations, such as Standard & Poor's Ratings Group or Moody's Investors
Service, Inc., or one such rating if only one organization has rated the
security. If the security is not rated, the Adviser must determine that it is
of comparable quality to eligible rated securities.
Principal Risk Considerations
The yield paid by the Portfolio will vary with changes in interest rates.
Although credit risk is very low because the Portfolio only invests in high
quality obligations, if an issuer fails to pay interest or repay principal, the
value of your investment could decline. The ability of a state or local
government issuer to make payments can be affected by many factors, including
economic conditions, the flow of tax revenues and changes in the level of
federal, state
-9-
<PAGE>
or local aid. Some municipal securities are payable only from limited revenue
sources or by private entities.
The Portfolio is not diversified, which means that it can invest a large
percentage of its assets in a small number of issuers. As a result, a change in
the value of any one investment held by the Portfolio may affect the overall
value of the Portfolio more than it would affect a diversified portfolio.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
There's no guarantee the Portfolio will be able to preserve the value of your
investment at $1.00 per share.
Return History+
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Trust Shares has varied from year to year. The table shows the Portfolio's
average annual returns for one year, five years and since inception. Both the
bar chart and table assume reinvestment of all dividends and distributions. The
Portfolio's past performance does not necessarily indicate how it will perform
in the future.
Trust Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997 1998 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
4.05% 2.51% 1.98% 2.37% 3.27% 3.00% 3.09% 2.86% ____%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Best quarter: ____% for the quarter ending __________________
Worst quarter: _____% for the quarter ending _________________
Average Annual Total Returns for the periods ended December 31, 1999
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Since
1 Year 5 Years Inception*
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Trust Shares _____% _____% _____%
- ----------------------------------------------------------------------------------------------------
</TABLE>
-10-
<PAGE>
+ The Portfolio commenced operations on July 15, 1988 as a separate investment
portfolio (the "Predecessor Portfolio") of The ARCH Tax-Exempt Trust. On
October 2, 1995, the Predecessor Portfolio was reorganized as a new portfolio of
the Fund. Prior to the reorganization, the Predecessor Portfolio offered and
sold shares that were similar to the Fund's Trust Shares. Annual returns for
periods prior to October 2, 1995 reflect the performance of the Predecessor
Portfolio.
* September 28, 1990.
To obtain the Portfolio's current 7-day yield, please call 1-800-452-4015.
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Trust Shares of the Tax-Exempt Money Market Portfolio.
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Total Annual
Portfolio
Management Distribution Operating
Fees (12b-1) Fees Other Expenses Expenses
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares .40%/1/ None ____% ____%/1/
- ----------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Management Fees and Total Annual Portfolio Operating Expenses for the
Portfolio's Trust Shares for the current fiscal year are expected to be less
than the amounts shown above because the Adviser is voluntarily waiving a
portion of its advisory fee. This fee waiver is being made in order to keep the
annual fees and expenses for the Portfolio's Trust Shares at a certain level.
Management Fees and Total Annual Portfolio Operating Expenses, after taking this
fee waiver into account, were ___% and .___%, respectively, for Trust Shares.
This fee waiver may be revised or cancelled at any time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you
invest $10,000 for the time periods shown and then sell all of your shares at
the end of those periods. The example also assumes that your investment has a
5% return each year and the Portfolio's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Shares $____ $____ $____ $____
- ------------------------------------------------------------------------------------------------------
</TABLE>
-11-
<PAGE>
Additional Information on Risk
The principal risks of investing in each Portfolio are described on the previous
pages. The following supplements that discussion.
Securities Lending
To obtain interest income, the Treasury Money Market Portfolio and Money Market
Portfolio may lend their 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. There is the risk that when lending portfolio
securities, the securities may not be available to the Portfolio on a timely
basis. Therefore, the Portfolio may lose the opportunity to sell the securities
at a desirable price. Additionally, in the event that a borrower of securities
would file for bankruptcy or become insolvent, disposition of the securities may
be delayed pending court action.
Temporary Defensive Positions
Each Portfolio may temporarily hold investments that are not part of its main
investment strategy during unfavorable market conditions. These investments may
include cash (which will not earn any income) and, in the case of the Tax-Exempt
Money Market Portfolio, short-term taxable money market investments not to
exceed 20% of the Portfolio's total assets. This strategy could prevent a
Portfolio from achieving its investment objective.
Other Types of Investments
This prospectus describes each Portfolio's principal investment strategies and
the particular types of securities in which each Portfolio principally invests.
Each Portfolio may, from time to time, make other types of investments and
pursue other investment strategies in support of its overall investment goal.
These supplemental investment strategies--and the risks involved--are described
in detail in the Statement of Additional Information ("SAI"), which is referred
to on the back cover of this prospectus.
Year 2000 Risks
Over the past several years, the Adviser and the Portfolios' other major
service providers expended considerable time and money in addressing the
computer and technology problems associated with the transition to the Year
2000. As a result of those efforts, the Portfolios did not experience any
material disruptions in their operations as a result of the transition to the
21/st/ century. The Adviser and the Portfolios' other major service providers
are continuing to monitor the Year 2000 or Y2K problem, however, and there can
be no assurances that there will be no adverse impact to the Portfolios as a
result of future computer-related Y2K difficulties.
-12-
<PAGE>
Your Account
Explanation of Sales Price
Trust Shares of each Portfolio are sold at their net asset value (NAV). The NAV
for each class of shares of a Portfolio is determined as of 12:00 noon (Eastern
time) and as of the close of regular trading on the New York Stock Exchange
(currently 4:00 p.m. Eastern time) on every business day. The NAV for a class
of shares is determined by adding the value of a Portfolio's investments, cash
and other assets attributable to a particular share 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.
(sidebar)
Business days defined
A business day is any day that both the New York Stock Exchange and the Federal
Reserve Bank of St. Louis are open for business. Currently, the Fund observes
the following holidays: 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 and Christmas.
. Each Portfolio's investments are valued at amortized cost, which is
approximately equal to market value.
. A properly placed purchase order (see "How to Buy Shares" below) that is
delivered to the Fund by 12:00 noon (Eastern time) on any business day with
respect to the Treasury Money Market Portfolio and Tax-Exempt Money Market
Portfolio or by 3:00 p.m. (Eastern time) on any business day with respect to
the Money Market Portfolio receives the share price next determined if the
Fund receives payment in federal funds or other immediately available funds
by 4:00 p.m. (Eastern time) that day. If payment is not received by that
time, the order will be cancelled. A properly placed purchase order that is
delivered to the Fund after 12:00 noon (Eastern time) with respect to the
Treasury Money Market Portfolio and Tax-Exempt Money Market Portfolio or
after 3:00 p.m. (Eastern time) with respect to the Money Market Portfolio
will be placed the following business day.
How to Buy Shares
Trust Shares of the Portfolios are sold to financial institutions, such as
banks, trust companies, thrift institutions and mutual funds, that are
purchasing shares on their own behalf or on behalf of discretionary and non-
discretionary accounts for which they receive account-level asset-based
management fees. Trust Shares are also sold to financial institutions that are
purchasing shares on behalf of accounts for which they provide cash management
services.
-13-
<PAGE>
If you are purchasing Trust Shares through a financial institution, you must
follow the procedures established by your institution. Your financial
institution is responsible for sending your purchase order to the Fund's
distributor and wiring payment to the Fund's custodian. Your financial
institution holds the shares in your name and receives all confirmations of
purchases and sales. Financial institutions placing orders for themselves or on
behalf of their customers should call the Fund at 1-800-452-2724.
The Fund does not have any minimum investment requirements for Trust Shares but
your financial institution may do so. They may also charge transaction fees and
require you to maintain a minimum account balance.
How to Sell Shares
Orders to sell or "redeem" Trust Shares should be placed with the same financial
institution that placed the original purchase order in accordance with the
procedures established by that institution. Your financial institution is
responsible for sending your order to the Fund's distributor and for crediting
your account with the proceeds. The Fund does not currently charge for wiring
the proceeds, but your financial institution may do so.
If the shares being sold are represented by share certificates, then the order
to sell must be made in writing and mailed to: Mercantile Mutual Funds, Inc.,
615 East Michigan Street, P.O. Box 3011, Milwaukee, Wisconsin 53201-3011. The
order must be accompanied by the share certificates, properly endorsed for
transfer. Additional documents may be required for certain types of
shareholders, such as corporations, partnerships, executors, trustees,
administrators or guardians.
The Fund's transfer agent may require a signature guarantee unless the
redemption proceeds are payable to the shareholder of record and the proceeds
are either mailed to the shareholder's address of record or electronically
transferred to the account designated on the original account application. A
signature guarantee helps prevent fraud, and you may obtain one from most banks
and broker/dealers. Contact the Fund for more information on signature
guarantees.
Trust Shares will be sold at the NAV next determined after the Fund accepts an
order (see above). If the order to sell is received and accepted by the Fund
before 12:00 noon (Eastern time) on a business day with respect to the Treasury
Money Market Portfolio and Tax-Exempt Money Market Portfolio or before 3:00 p.m.
(Eastern time) on a business day with respect to the Money Market Portfolio, the
proceeds are sent electronically the same day to the financial institution that
placed the order. If the order to sell is received and accepted by the Fund
after 12:00 noon (Eastern time) on a business day with respect to the Treasury
Money Market Portfolio and Tax-Exempt Money Market Portfolio or after 3:00 p.m.
(Eastern time) on a business day, with respect to the Money Market Portfolio, or
on a non-business day, the proceeds normally are sent electronically to the
financial institution on the next business day.
-14-
<PAGE>
How to Exchange Shares
The exchange privilege enables shareholders to exchange Trust Shares of one
Portfolio for Trust Shares of another Portfolio. 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 from certain types of accounts held
at Mercantile Trust Company National Association or any of its affiliates.
Contact your financial institution or the Fund's distributor for additional
information on the exchange privilege. The exchange privilege may be exercised
only in those states where Trust Shares of the Portfolio being acquired may be
legally sold.
Administrative Services Fees
Trust Shares of the Portfolios pay administrative services fees at an annual
rate of up to 0.25% of each Portfolio's Trust Share assets. These fees are paid
to financial institutions that provide certain administrative services to their
customers who own Trust Shares.
General Transaction Policies
The Fund reserves the right to:
. Refuse any order to buy shares.
. Reject any exchange request.
. Redeem all shares in an account if the balance falls below $500. If,
within 60 days of the Fund's written request, the account balance has not
been increased, a shareholder may be required to redeem all shares. The
Fund will not require you to redeem shares if the value of the account
drops below $500 due to fluctuations in net asset value.
. Send redemption proceeds within seven days after receiving a request, if
an earlier payment could adversely affect a Portfolio.
. Modify or terminate the exchange privilege after 60 days' written notice
to shareholders.
. Make a "redemption in kind." Under abnormal conditions that may make
payment in cash unwise, the Fund may offer partial or complete payment in
portfolio securities rather than cash at such securities' then-market-
value equal to the redemption price. In such cases, a shareholder may
incur brokerage costs in converting these securities to cash.
Shareholders may be responsible for any fraudulent telephone orders as long as
the Fund has taken reasonable precautions to verify the shareholder's identity.
Shareholders who experience difficulty getting through to the Fund by telephone
because of unusual market conditions should consider selling or exchanging their
shares by mail.
-15-
<PAGE>
Distributions and Taxes
Dividends and Distributions
Each Portfolio declares dividends from net investment income daily and pays them
monthly. Although the Portfolios do not expect to realize net long-term capital
gains, any capital gains realized would be distributed at least annually.
Dividends on each share class of the Portfolios are determined in the same
manner and are paid in the same amount. However, each share class bears all
expenses associated with that particular class.
All of your dividends and capital gains distribution with respect to a
particular Portfolio will be reinvested in additional shares of the same class
unless you instruct otherwise on your account application or have redeemed all
shares you held in the Portfolio. In such cases, dividends and distributions
will be paid in cash.
Taxation
As with any investment, you should consider the tax implications of an
investment in the Portfolios. The following is only a brief summary of some of
the important tax considerations generally affecting the Portfolios and their
shareholders under current law, which may be subject to change in the future.
Consult your tax adviser with specific reference to your own tax situation.
. Treasury Money Market and Money Market Portfolios
Distributions from these Portfolios will generally be taxable to
shareholders. It is expected that all or substantially all of these
distributions will consist of ordinary income and not capital gains. You
will be subject to income tax on these distributions regardless of whether
they are paid in cash or reinvested in additional shares. The one major
exception to these tax principles is that distributions on shares held in
an IRA (or other tax-qualified plan) will not be currently taxable.
. Tax-Exempt Money Market Portfolio
The Portfolio anticipates that substantially all of its income dividends
will be "exempt interest dividends," which are exempt from federal income
taxes. However, some dividends may be taxable, such as dividends that are
derived from occasional taxable investments, and distributions of short
and long-term capital gains.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Portfolio generally will not be deductible for federal
income tax purposes.
You should note that a portion of the exempt-interest dividends paid by
the Portfolio may constitute an item of tax preference for purposes of
determining federal alternative minimum tax liability. Exempt-interest
dividends will also be considered along with other adjusted gross income
in determining whether any Social Security or railroad retirement
payments received by you are subject to federal income taxes.
-16-
<PAGE>
. State and Local Taxes
Shareholders may also be subject to state and local taxes on distributions
and redemptions. State income taxes may not apply however, to the portions
of each Portfolio's distributions, if any, that are attributable to
interest on federal securities or interest on securities of the particular
state or localities within the state.
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 which, if realized directly,
would be exempt from such taxes.
The Treasury Money Market Portfolio is designed to provide shareholders, to
the extent permitted by federal law, with income that is exempt or excluded
from taxation at the state or local level.
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. Shareholders who are nonresident
aliens, foreign trusts or estates, or foreign corporations or partnerships, may
be subject to different United States federal income tax treatment. For more
information regarding the taxation of the Portfolios, consult the SAI, under the
heading "Additional Information Concerning Taxes." You should also consult your
tax adviser for further information regarding federal, state, local and/or
foreign tax consequences relevant to your specific situation.
(sidebar)
You will be advised at least annually regarding the federal income tax treatment
of dividends and distributions made to you. You should save your account
statements because they contain information you will need to calculate your
capital gains or losses, if any, upon your ultimate sale or exchange of shares
in the Portfolios.
-17-
<PAGE>
Management of the Fund
The Adviser
FIRMCO, subject to the general supervision of the Fund's Board of Directors, is
responsible for the day-to-day management of the Portfolios in accordance with
each Portfolio's respective investment objective and policies. This includes
making investment decisions, buying and selling securities and overseeing the
administration and recordkeeping for each Portfolio.
In exchange for these services, FIRMCO receives an investment advisory fee,
which is calculated daily and paid monthly, according to the average daily net
assets of each Portfolio. On March 1, 2000, MVA, the Portfolios' former adviser
merged into FIRMCO. For the fiscal year ended November 30, 1999, the Money
Market Portfolios paid MVA advisory fees as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
Investment advisory fees as
Portfolio a % of net assets
- -----------------------------------------------------------------
<S> <C>
Treasury Money Market Portfolio ____%
- -----------------------------------------------------------------
Money Market Portfolio ____%
- -----------------------------------------------------------------
Tax-Exempt Money Market Portfolio
____%
- -----------------------------------------------------------------
</TABLE>
-18-
<PAGE>
Financial Highlights
Introduction
The financial highlights tables presented below are intended to help you
understand the financial performance of each Portfolio's Trust Shares for the
past five years. Certain information reflects financial results for a single
Trust Share in each Portfolio. The total returns in the tables represent the
rate that an investor would have earned (or lost) on an investment in Trust
Shares assuming reinvestment of all dividends and distributions. This
information has been audited by ________________________, independent auditors,
whose report, along with the Portfolios' financial statements, is included in
the Fund's Annual Report to Shareholders, and are incorporated by reference into
the SAI.
-19-
<PAGE>
Treasury Money Market Portfolio
Trust Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Investment Activities
Net investment income........................ 0.045 0.046 0.045 0.050
-------- -------- -------- --------
Total from Investment Activities............. 0.045 0.046 0.045 0.050
-------- -------- -------- --------
Distributions
Net investment income........................ (0.045) (0.046) (0.045) (0.050)
-------- -------- -------- --------
Total Distributions.......................... (0.045) (0.046) (0.045) (0.050)
-------- -------- -------- --------
Net Asset Value, End of Period............... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total Return................................. 4.56% 4.70% 4.64% 5.12%
Ratios/Supplementary Data:
Net assets at end of period (000)............ $245,959 $283,653 $131,322 $252,780
Ratio of expenses to average net assets...... 0.65% 0.61% 0.61% 0.60%
Ratio of net investment income to average
net assets.................................. 4.45% 4.60% 4.55% 5.01%
Ratio of expenses to average net assets*..... 0.96% 0.92% 0.76% 0.75%
</TABLE>
________________________
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio would have been as
indicated.
-20-
<PAGE>
Money Market Portfolio
Trust Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ---------- -------- --------
Investment Activities
Net investment income........................ 0.050 0.050 0.049 0.054
-------- ---------- -------- --------
Total from Investment Activities............. 0.050 0.050 0.049 0.054
-------- ---------- -------- --------
Distributions
Net investment income........................ (0.050) (0.050) (0.049) (0.054)
-------- ---------- -------- --------
Total Distributions.......................... (0.050) (0.050) (0.049) (0.054)
-------- ---------- -------- --------
Net Asset Value, End of Period............... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ========== ======== ========
Total Return................................. 5.08% 5.06% 4.99% 5.52%
Ratios/Supplementary Data:
Net assets at end of period (000)............ $820,923 $1,042,151 $717,265 $698,131
Ratio of expenses to average net assets...... 0.66% 0.64% 0.61% 0.59%
Ratio of net investment income to average
net assets)................................. 4.97% 4.96% 4.88% 5.38%
Ratio of expenses to average net assets*..... 0.93% 0.92% 0.76% 0.74%
</TABLE>
________________________
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio would have been as
indicated.
-21-
<PAGE>
Tax-Exempt Money Market Portfolio
Trust Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
Year Ended November 30, November 30, May 31,
1999 1998 1997 1996 1995(a) 1995
---- ---- ---- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- -------- ------- ------- -------
Investment Activities
Net investment income....................... 0.029 0.030 0.030 0.016 0.029
------- -------- ------- ------- -------
Total from Investment Activities............ 0.029 0.030 0.030 0.016 0.029
------- -------- ------- ------- -------
Distributions
Net investment income....................... (0.029) (0.030) (0.030) (0.016) (0.029)
------- -------- ------- ------- -------
Total Distributions......................... (0.029) (0.030) (0.030) (0.016) (0.029)
------- -------- ------- ------- -------
Net Asset Value, End of Period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======== ======= ======= =======
Total Return................................ 2.92% 3.08% 3.06% 1.57%(b) 2.93%
Ratios/Supplementary Data:
Net assets at end of period (000)........... $37,541 $143,517 $95,726 $78,031 $85,324
Ratio of expenses to average net assets..... 0.59% 0.58% 0.53% 0.70%(c) 0.61%
Ratio of net investment income to average
net assets................................. 2.88% 3.04% 3.01% 3.01%(c) 2.87%
Ratio of expenses to average net assets*.... 0.84% 0.83% 0.58% 0.75%(c) 0.70%
</TABLE>
________________________
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio would have been as
indicated.
(a) Upon its reorganization as a portfolio of the Fund on October 2, 1995, the
Tax-Exempt Money Market Portfolio changed its fiscal year-end from May 31
to November 30.
(b) Not Annualized.
(c) Annualized.
-22-
<PAGE>
[Back Cover Page]
Where to find more information
You'll find more information about the Portfolios in the following documents:
Annual and semi-annual reports
The Fund's annual and semi-annual reports contain information about each
Portfolio and a discussion about the market conditions and investment strategies
that had a significant effect on each Portfolio's performance during the last
fiscal year.
Statement of Additional Information (SAI)
The SAI contains detailed information about the Portfolios and their policies.
By law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Portfolios and make shareholder inquiries by calling the Fund at 1-800-452-2724
or by writing to:
Mercantile Mutual Funds, Inc.
615 East Michigan Street
P.O. Box 3011
Milwaukee, Wisconsin 53201-3011
If you buy your shares through a broker-dealer or other financial institution,
you may contact your institution for more information.
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Portfolios, including the
SAI. They'll charge you a fee for this service. You can also visit the SEC
Public Reference Room and copy the documents while you're there. For
information about the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC
Washington, DC 20549-0102
1-202-942-8090
Reports and other information about the Portfolios are also available on the
EDGAR database on the SEC's website at http://www.sec.gov. Copies of this
information may also be obtained, after paying a duplicating fee, by electronic
request to the SEC's e-mail address at [email protected].
The Fund's Investment Company Act File No. is 811-3569
<PAGE>
Mercantile Mutual Funds
Prospectus
Institutional Shares
____________, 2000
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 Portfolios
Balanced 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
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Portfolios or determined if this
prospectus is truthful or complete. Anyone who tells you otherwise is committing
a criminal offense.
<PAGE>
CONTENTS
Risk/Return Summary
3 Overview
5 Treasury Money Market Portfolio
8 Money Market Portfolio
11 U.S. Government Securities Portfolio
14 Intermediate Corporate Bond Portfolio
18 Bond Index Portfolio
21 Government & Corporate Bond Portfolio
25 Balanced Portfolio
29 Equity Income Portfolio
32 Equity Index Portfolio
35 Growth & Income Equity Portfolio
38 Growth Equity Portfolio
41 Small Cap Equity Portfolio
44 Small Cap Equity Index Portfolio
47 International Equity Portfolio
50 Additional Information on Risk
Your Account
51 Explanation of Sales Price
52 How to Buy Shares
52 How to Sell Shares
53 How to Exchange Shares
53 Administrative Services Fees
54 General Transaction Policies
Distributions and Taxes
55 Dividends and Distributions
-2-
<PAGE>
55 Taxation
Management of the Fund
57 The Adviser
57 The Sub-Adviser
Financial Highlights
59 Introduction
60 Financial Highlights
-3-
<PAGE>
Risk/Return Summary
Overview
This prospectus describes the Institutional Shares of fourteen investment
portfolios (the "Portfolios") offered by Mercantile Mutual Funds, Inc. (the
"Fund"). On the following pages, you will find important information about each
Portfolio, including:
. A description of the Portfolio's investment objective (sometimes referred to
as its goal);
. The Portfolio's principal investment strategies (the steps it takes to try to
meet its goal);
. The principal risks associated with the Portfolio (factors that may prevent
it from meeting its goal);
. The Portfolio's past performance (how successful it's been in meeting its
goal); and
. The fees and expenses you pay as an investor in the Portfolio.
Who may want to invest in the Portfolios?
The Treasury Money Market Portfolio may be appropriate for investors who want a
way to earn money market returns from U.S. Treasury obligations that are
generally exempt from state and local taxes. The Money Market Portfolio may be
appropriate for investors who want a flexible and convenient way to manage cash
while earning money market returns.
The Taxable Bond Portfolios may be appropriate for investors who seek current
income from their investments greater than that normally available from a money
market fund and can accept fluctuations in price and yield. The Portfolios may
not be appropriate for investors who are investing for long-term capital
appreciation.
The Stock Portfolios may be appropriate for investors who seek capital growth
over the long term and are comfortable with the risks of stock markets. The
Portfolios may not be appropriate for investors who are investing for short-term
goals or are mainly seeking current income.
Before investing in a Portfolio, you should carefully consider:
. Your own investment goals
. The amount of time you are willing to leave your money invested
. How much risk you are willing to take.
-4-
<PAGE>
The Investment Adviser
Firstar Investment Research and Management Company, LLC ("FIRMCO" or the
"Adviser") serves as the investment adviser to each Portfolio as a result of the
merger of the Portfolios, former adviser, Mississippi Valley Advisors Inc.
("MVA") into FIRMCO on March 1, 2000. FIRMCO is a subsidiary of Firstar
Corporation, a banking and financial services organization, and has its main
office at Firstar Center, 777 East Wisconsin Avenue, 8th Floor, Milwaukee,
Wisconsin. FIRMCO has been providing advisory services since 1986 and as of
December 31, 1999, FIRMCO had approximately $35.3 billion in assets under
management.
An investment in the Portfolios is not a Firstar Bank deposit and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although each of the Money Market Portfolios seeks to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in the Portfolios. You could also lose money by investing in
one of the Taxable Bond or Stock Portfolios.
-5-
<PAGE>
Treasury Money Market Portfolio
Investment Objective
The 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.
Principal Investment Strategies
The Portfolio invests substantially all (but not less than 65%) of its total
assets in money market instruments issued by the U.S. Treasury and certain U.S.
Government agencies and instrumentalities that provide income that is generally
not subject to state income tax.
(sidebar)
Money Market Instruments are short-term obligations issued by banks,
corporations, the U.S. Government and state and local governments. Money market
instruments purchased by the Money Market Portfolios must meet strict
requirements as to investment quality, maturity and diversification. The Money
Market Portfolios generally do not invest in securities with maturities of more
than 397 days and the average maturity of all securities held by a particular
Money Market Portfolio must be 90 days or less. Prior to purchasing a money
market instrument for one of the Money Market Portfolios, the Adviser must
determine that the instrument carries very little risk.
Principal Risk Considerations
The yield paid by the Portfolio will vary with changes in interest rates.
Although U.S. Government securities, particularly U.S Treasury obligations, have
historically involved little risk, if an issuer fails to pay interest or repay
principal, the value of your investment could decline.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
There's no guarantee the Portfolio will be able to preserve the value of your
investment at $1.00 per share.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Institutional Shares has varied from year to year. The table shows the
Portfolio's average annual returns for one year, five years and since inception.
Both the bar chart and table assume reinvestment of all dividends and
distributions. The Portfolio's past performance does not necessarily indicate
how it will perform in the future.
-6-
<PAGE>
Institutional Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
<TABLE>
- ------------------------------------------
1996 1997 1998 1999
- ------------------------------------------
<S> <C> <C> <C>
4.43% 4.54% 4.34% ____%
- ------------------------------------------
</TABLE>
Best quarter: ____% for the quarter ending _____________
Worst quarter: ____% for the quarter ending ____________
Average Annual Total Returns for the periods ended December 31, 1999
- ------------------------------------------------------------------
Since
1 Year Inception*
- ------------------------------------------------------------------
Institutional Shares* ____% ____%
- ------------------------------------------------------------------
* Institutional Shares of the Portfolio commenced operations on January 26,
1995.
To obtain the Portfolio's current 7-day yield, please call 1-800-452-4015.
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Institutional Shares of the Treasury Money Market Portfolio.
<TABLE>
<CAPTION>
Annual Portfolio Operating Expenses (expenses that are deducted from the Portfolio's assets)
- --------------------------------------------------------------------------------------------------------------
Total Annual
Portfolio
Management Fees Distribution Operating
(12b-1) Fees Other Expenses Expenses
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional
Shares .40%/1/ None ____%/1/ ____%/1/
- --------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Management Fees, Other Expenses and Total Annual Portfolio Operating
Expenses for the Portfolio's Institutional Shares for the current fiscal
year are expected to be less than the amounts shown above because certain
of the Portfolio's service providers are voluntarily waiving a portion of
their fees and/or reimbursing the Portfolio for certain other expenses.
These fee waivers and/or reimbursements are being made in order to keep
the annual fees and expenses for the Portfolio's
-7-
<PAGE>
Institutional Shares at a certain level. Management Fees, Other Expenses
and Total Annual Portfolio Operating Expenses, after taking these fee
waivers and expense reimbursements into account, are expected to be ____%,
____% and ____%, respectively, for Institutional Shares. These fee waivers
and expense reimbursements may be revised or cancelled at any time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown, and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional
Shares $____ $____ $____ $____
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
-8-
<PAGE>
Money Market Portfolio
Investment Objective
The Portfolio's investment objective is to seek current income with liquidity
and stability of principal.
Principal Investment Strategies
The Portfolio invests substantially all (but not less than 80%) of its total
assets in a broad range of money market instruments, including commercial paper,
notes and bonds issued by U.S. and foreign corporations, obligations issued by
the U.S. Government and its agencies and instrumentalities, and obligations
issued by U.S. and foreign banks, such as certificates of deposit, letters of
credit, bankers' acceptances and time deposits.
The Portfolio will only buy a money market instrument if it has the highest
short-term rating from at least two nationally recognized statistical rating
organizations, such as Standard & Poor's Ratings Group or Moody's Investors
Service, Inc. or only one such rating if only one organization has rated the
instrument. If the money market instrument is not rated, the Adviser must
determine that it is of comparable quality to eligible rated instruments.
Principal Risk Considerations
The yield paid by the Portfolio will vary with short-term interest rates.
Although credit risk is very low because the Portfolio only invests in high
quality obligations, if an issuer fails to pay interest or repay principal, the
value of your investment could decline.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
There's no guarantee the Portfolio will be able to preserve the value of your
investment at $1.00 per share.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Institutional Shares has varied from year to year. The table shows the
Portfolio's average annual returns for one year, five years, ten years and since
inception. Both the bar chart and table assume reinvestment of all dividends and
distributions. The Portfolio's past performance does not necessarily indicate
how it will perform in the future.
Institutional Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
<TABLE>
- -------------------------------------------------------
1995 1996 1997 1998 1999
- -------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
-9-
<PAGE>
<TABLE>
- -------------------------------------------------------
5.36% 4.77% 4.96% 4.90% ____%
- -------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
Best quarter: ____% for the quarter ending _____________
Worst quarter: ____% for the quarter ending ____________
Average Annual Total Returns for the periods ended December 31, 1999
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
Since
1 Year 5 Years inception*
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Institutional Shares* ____% ____% ____%
- ------------------------------------------------------------------------
</TABLE>
* Institutional Shares of the Portfolio commenced operations on January 3,
1994.
To obtain the Portfolio's current 7-day yield, please call 1-800-452-4015.
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Institutional Shares of the Money Market Portfolio.
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Total Annual
Portfolio
Management Distribution Operating
Fees (12b-1) Fees Other Expenses Expenses
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional
Shares .40%/1/ None ____%/1/ ____%/1/
- ------------------------------------------------------------------------------------------------
</TABLE>
/1/ Management Fees, Other Expenses and Total Annual Portfolio Operating
Expenses for the Portfolio's Institutional Shares for the current fiscal
year are expected to be less than the amounts shown above because certain
of the Portfolio's service providers are voluntarily waiving a portion of
their fees and/or reimbursing the Portfolio for certain other expenses.
These fee waivers and/or reimbursements are being made in order to keep
the annual fees and expenses for the Portfolio's Institutional Shares at a
certain level. Management Fees, Other Expenses and Total Annual Portfolio
Operating Expenses, after taking these fee waivers and expense
reimbursements into account, are expected to be ____%, ____% and ____%,
respectively, for Institutional Shares. These fee waivers and expense
reimbursements may be revised or cancelled at any time.
-10-
<PAGE>
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional
Shares $____ $____ $____ $----
- --------------------------------------------------------------------------------------------------------------
</TABLE>
-11-
<PAGE>
U.S. Government Securities Portfolio
Investment Objective
The Portfolio's investment objective is to seek a high rate of current income
that is consistent with relative stability of principal.
Principal Investment Strategies
The Portfolio normally invests at least 65% of its total assets in debt
obligations issued or guaranteed by the U.S. Government and its agencies,
including U.S. Treasury bonds, notes and bills, as well as in repurchase
agreements backed by such obligations. The Portfolio also invests in
mortgage-backed securities issued by U.S. Government-sponsored entities such as
Ginnie Maes, Fannie Maes and Freddie Macs. The remaining maturity (i.e., length
of time until an obligation must be repaid) of the obligations held by the
Portfolio will vary from 1 to 30 years.
(sidebar)
Repurchase agreements are transactions in which a Portfolio buys securities from
a seller (usually a bank or broker-dealer) who agrees to buy them back from the
Portfolio on a certain date and at a certain price.
(sidebar)
Mortgage-backed securities are certificates representing ownership interests in
a pool of mortgage loans, and include those issued by the Government National
Mortgage Association ("Ginnie Maes"), the Federal National Mortgage Association
("Fannie Maes") and the Federal Home Loan Mortgage Corporation ("Freddie Macs").
Principal Risk Considerations
The prices of debt securities tend to move in the opposite direction to interest
rates. When rates are rising, the prices of debt securities tend to fall. When
rates are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt security
is to interest rate changes. Changes in interest rates may also cause certain
debt securities held by the Portfolio, including mortgage-backed securities, to
be paid off much sooner or later than expected. In the event that a security is
paid off sooner than expected because of a decline in interest rates, the
Portfolio may be unable to recoup all of its initial investment and may also
suffer from having to reinvest in lower-yielding securities. In the event of a
later than expected payment because of a rise in interest rates, the value of
the obligation will decrease, and the Portfolio may suffer from the inability to
invest in higher-yielding securities.
The value of debt securities also depends on the ability of issuers to make
principal and interest payments. If an issuer can't meet its payment
obligations, the value of its debt securities will fall. Securities issued or
guaranteed by the U.S. Government and its agencies have historically involved
little risk of loss of principal if held to maturity. Certain U.S. Government
securities, such as Ginnie Maes, are supported by the full faith and credit of
the U.S. Treasury. Others, such as Freddie Macs, are supported by the right of
the issuer to borrow from the U.S. Treasury. Other securities, such as Fannie
Maes, are supported by the discretionary authority of
-12-
<PAGE>
the U.S. Government to purchase certain obligations of the issuers, and still
others are supported by the issuer's own credit.
Repurchase agreements carry the risk that the other party may not fulfill its
obligations under the agreement.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
(sidebar)
Portfolio Manager
David A. Bethke is the person primarily responsible for the day-to-day
management of the Portfolio. Mr. Bethke, Senior Associate, joined FIRMCO and its
predecessors in 1987 and has eight years of prior investment experience. He has
managed the Portfolio since it commenced operations in 1988.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Institutional Shares has varied from year to year. The table shows how the
Portfolio's average annual returns for one year, five years, ten years and since
inception compare to those of a broad-based market index. Both the bar chart and
table assume reinvestment of all dividends and distributions. The Portfolio's
past performance does not necessarily indicate how it will perform in the
future.
Institutional Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
<TABLE>
<CAPTION>
- ------------------------------------------------------
1995 1996 1997 1998 1999
- ------------------------------------------------------
<S> <C> <C> <C> <C>
14.87% 3.09% 6.27% 6.44% ____%
- ------------------------------------------------------
</TABLE>
Best quarter: ____% for the quarter ending _______________
Worst quarter: ____% for the quarter ending ______________
Average Annual Total Returns for the periods ended December 31, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Since
1 Year 5 Years Inception*
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Institutional Shares ____% ____% ____%
- ---------------------------------------------------------------------------------------------
Lehman Brothers Intermediate
Government Bond Index ____% ____% ____%
- ---------------------------------------------- ----------------- -------------- -------------
</TABLE>
-13-
<PAGE>
* Institutional Shares of the Portfolio commenced operations on June 7,
1994; May 31, 1988 for the Lehman Brothers Intermediate Government Bond
Index.
** June 2, 1988 for Investor A Shares
(sidebar)
Know your index
The Lehman Brothers Intermediate Government Bond Index is an unmanaged index
which tracks the performance of intermediate-term U.S. Government bonds.
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Institutional Shares of the U.S. Government Securities Portfolio.
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Total Annual
Portfolio
Management Distribution Operating
Fees (12b-1) Fees Other Expenses Expenses
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional .45% None __%/1/ __%/1/
Shares
- ---------------------------------------------------------------------------------------------------
</TABLE>
/1/ Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Institutional Shares for the current fiscal year are expected
to be less than the amounts shown above because certain of the Portfolio's
service providers are voluntarily waiving a portion of their fees and/or
reimbursing the Portfolio for certain other expenses. These fee waivers
and/or reimbursements are being made in order to keep the annual fees and
expenses for the Portfolio's Institutional Shares at a certain level. Other
Expenses and Total Annual Portfolio Operating Expenses, after taking these
fee waivers and expense reimbursements into account, are expected to be
____% and ____%, respectively, for Institutional Shares. These fee waivers
and expenses reimbursements may be revised or cancelled at any time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
- ---------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ---------------------------------------------------------------------------
-14-
<PAGE>
- ---------------------------------------------------------------------------
Institutional
Shares $____ $____ $____ $____
- ---------------------------------------------------------------------------
-15-
<PAGE>
Intermediate Corporate Bond Portfolio
Investment Objective
The Portfolio's investment objective is to seek as high a level of current
income as is consistent with preservation of capital.
Principal Investment Strategies
The Portfolio normally invests at least 65% of its total assets in corporate
debt obligations. These include obligations that are issued by U.S. and foreign
business corporations and obligations issued by agencies, instrumentalities or
authorities that are organized as corporations by the U.S., by states or
political subdivisions of the U.S., or by foreign governments or political
subdivisions. The Portfolio also invests in obligations issued or guaranteed by
U.S. or foreign governments, their agencies and instrumentalities and in
mortgage-backed securities, including Ginnie Maes, Fannie Maes and Freddie Macs.
The Portfolio may only purchase investment grade debt obligations. Under normal
market 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. Unrated debt obligations will be purchased only if they are
determined by the Adviser to be at least comparable in quality at the time of
purchase to eligible rated securities. Occasionally, the rating of a security
held by the Portfolio may be downgraded below investment grade. If that happens,
the Portfolio does not have to sell the security unless the Adviser determines
that under the circumstances the security is no longer an appropriate investment
for the Portfolio.
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's
average weighted maturity will generally be between three and ten years.
(sidebar)
Investment grade debt securities are those of medium credit quality or better as
determined by a national rating agency, such as Standard & Poor's Ratings Group
(debt securities rated in the four highest rating categories, i.e. BBB or
higher) and Moody's Investors Service, Inc. (debt securities rated in the four
highest rating categories, i.e. Baa or higher). The higher the credit rating,
the less likely it is that the issuer of the securities will default on its
principal and interest payments.
(sidebar)
Average weighted maturity gives you the average time until all debt securities
in a Portfolio come due or mature. It is calculated by averaging the time to
maturity of all debt securities held by a Portfolio with each maturity
"weighted" according to the percentage of assets it represents.
-16-
<PAGE>
Principal Risk Considerations
The prices of debt securities tend to move in the opposite direction to interest
rates. When rates are rising, the prices of debt securities tend to fall. When
rates are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt security
is to interest rate changes. Changes in interest rates also may cause certain
debt securities held by the Portfolio, including callable securities and
mortgage-backed securities, to be paid off much sooner or later than expected.
In the event that a security is paid off sooner than expected because of a
decline in interest rates, the Portfolio may be unable to recoup all of its
initial investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise in
interest rates, the value of the obligation will decrease, and the Portfolio may
suffer from the inability to invest in higher-yielding securities.
The value of debt securities also depends on the ability of issuers to make
principal and interest payments. If an issuer can't meet its payment obligations
or if its credit rating is lowered, the value of its debt securities will fall.
Foreign investments may be riskier than U.S. investments because of currency
exchange rate volatility, government restrictions, different accounting
standards and political instability.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
(sidebar)
Portfolio Manager
David A. Bethke is the person primarily responsible for the day-to-day
management of the Portfolio. Mr. Bethke, Senior Associate, joined FIRMCO and its
predecessors in 1987 and has eight years of prior investment experience. He has
managed the Portfolio since it commenced operations in 1997.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Institutional Shares has varied from year to year. The table shows how the
Portfolio's average annual returns for one year and since inception compare to
those of a broad-based market index. Both the bar chart and table assume
reinvestment of all dividends and distributions. The Portfolio's past
performance does not necessarily indicate how it will perform in the future.
(insert bar chart)
Institutional Shares Year-by-Year Total Returns
(as of December 31 each year)
-17-
<PAGE>
- --------------------------------
1998 1999
- --------------------------------
8.77% ____%
- --------------------------------
(insert bar chart)
Best quarter: ____% for the quarter ending _________________
Worst quarter: ____% for the quarter ending ________________
Average Annual Total Returns for the periods ended December 31, 1999
- -------------------------------------------------------------------------------
Since
1 Year Inception*
- -------------------------------------------------------------------------------
Institutional Shares ____% ____%
- -------------------------------------------------------------------------------
Lehman Brothers Intermediate Corporate Bond
Index ____% ____%
- -------------------------------------------------------------------------------
* February 10, 1997 for Institutional Shares; January 31, 1997 for the Lehman
Brothers Intermediate Corporate Bond Index.
(sidebar)
Know your index
The Lehman Brothers Intermediate Corporate Bond Index is an unmanaged index
which tracks the performance of intermediate-term U.S. corporate bonds.
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Institutional Shares of the Intermediate Corporate Bond Portfolio.
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Total Annual
Management Distribution Portfolio Operating
Fees (12b-1) Fees Other Expenses Expenses
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional Shares .55% None ____%/1/ ____%/1/
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Institutional Shares for the current fiscal year are expected to be
less than the amounts shown above because certain of the Portfolio's service
providers are voluntarily waiving a portion of their fees and/or reimbursing the
Portfolio for certain other expenses. These fee waivers and/or reimbursements
are being made in order to keep the annual fees and expenses for the Portfolio's
Institutional Shares at a certain level. Other Expenses and Total
-18-
<PAGE>
Annual Portfolio Operating Expenses, after taking these fee waivers and expense
reimbursements into account, are expected to be ____% and ____%, respectively,
for Institutional Shares. These fee waivers and expense reimbursements may be
revised or cancelled at any time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional Shares $____ $____ $____ $____
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
-19-
<PAGE>
Bond Index Portfolio
Investment Objective
The 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
"Lehman Aggregate").
The Portfolio's investment objective can be changed by the Fund's Board of
Directors without shareholder approval. Shareholders will be given at least 30
days' written notice before any such change occurs.
Principal Investment Strategies
The Portfolio uses an "indexing" strategy through the use of computer models to
approximate the investment performance of the Lehman Aggregate. 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. Because of the
large number of securities listed in the Lehman Aggregate, the Portfolio cannot
invest in all of them. Instead, the Portfolio holds a representative sample of
approximately 100 of the securities in the Lehman Aggregate, selecting one or
two securities to represent an entire "class" or type of security in the Lehman
Aggregate. The Portfolio will invest substantially all (but not less than 80%)
of its total assets in securities listed in the Lehman Aggregate.
(sidebar)
Indexing is a strategy whereby a Portfolio attempts to weight its securities to
match those of a broadly-based securities index in an attempt to approximate the
index's performance.
(sidebar)
The Lehman Brothers Aggregate Bond Index is an unmanaged index made up of Lehman
Brothers' Government/Corporate Bond Index, its Mortgage Backed Securities Index
and its Asset Backed Securities Index.
Principal Risk Considerations
The prices of debt securities tend to move in the opposite direction to interest
rates. When rates are rising, the prices of debt securities tend to fall. When
rates are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt security
is to interest rate changes. Changes in interest rates also may cause certain
debt securities held by the Portfolio, including callable securities and
mortgage-backed securities, to be paid off much sooner or later than expected.
In the event that a security is paid off sooner than expected because of a
decline in interest rates, the Portfolio may be unable to recoup all of its
initial investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise in
interest rates, the value of the obligation will decrease, and the Portfolio may
suffer from the inability to invest in higher-yielding securities.
-20-
<PAGE>
The value of debt securities also depends on the ability of issuers to make
principal and interest payments. If an issuer can't meet its payment obligations
or if its credit rating is lowered, the value of its debt securities will fall.
There is the additional risk that the Portfolio will fail to match the
investment results of the Lehman Aggregate.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Institutional Shares has varied from year to year. The table shows how the
Portfolio's average annual returns for one year and since inception compare to
those of the Lehman Aggregate. Both the bar chart and table assume reinvestment
of all dividends and distributions. The Portfolio's past performance does not
necessarily indicate how it will perform in the future.
Institutional Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
- --------------------------------
1998 1999
- --------------------------------
8.68% ____%
- --------------------------------
Best quarter: ____% for the quarter ending _________________
Worst quarter: ____% for the quarter ending ________________
Average Annual Total Returns for the periods ended December 31, 1999
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Since
1 Year Inception*
- -------------------------------------------------------------------------------
<S> <C> <C>
Institutional Shares ____% ____%
- -------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index ____% ____%
- -------------------------------------------------------------------------------
</TABLE>
* February 10, 1997 for Institutional Shares; January 31, 1997 for the Lehman
Brothers Aggregate Bond Index.
-21-
<PAGE>
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Institutional Shares of the Bond Index Portfolio.
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Total Annual
Management Distribution Portfolio Operating
Fees (12b-1) Fees Other Expenses Expenses
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional Shares .30% None ____%/1/ ____%/1/
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Institutional Shares for the current fiscal year are expected to be
less than the amounts shown above because certain of the Portfolio's service
providers are voluntarily waiving a portion of their fees and/or reimbursing the
Portfolio for certain other expenses. These fee waivers and/or reimbursements
are being made in order to keep the annual fees and expenses for the Portfolio's
Institutional Shares at a certain level. Other Expenses and Total Annual
Portfolio Operating Expenses, after taking these fee waivers and expense
reimbursements into account, are expected to be ____% and ____%, respectively,
for Institutional Shares. These fee waivers and expense reimbursements may be
revised or cancelled at any time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional Shares $____ $____ $____ $____
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
-22-
<PAGE>
Government & Corporate Bond Portfolio
Investment Objective
The Portfolio's investment objective is to seek the highest level of current
income consistent with conservation of capital.
Principal Investment Strategies
The Portfolio invests substantially all of its assets in a broad range of debt
obligations, including corporate obligations and U.S. Government obligations.
Corporate obligations may include bonds, notes and debentures. U.S. Government
obligations may include U.S. Treasury obligations and obligations of certain
U.S. Government agencies. The Portfolio also invests in mortgage-backed
securities, including Ginnie Maes, Fannie Maes and Freddie Macs. Although the
Portfolio invests primarily in the debt obligations of U.S. issuers, it may from
time to time invest in U.S. dollar-denominated debt obligations of foreign
corporations and governments.
The Portfolio may only purchase investment grade debt obligations, which are
those rated in one of the four highest rating categories by one or more national
rating agencies, such as Standard & Poor's Ratings Group or Moody's Investors
Service Inc. Under normal market 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. Unrated debt obligations will be purchased only
if they are determined by the Adviser to be at least comparable in quality at
the time of purchase to eligible rated securities. Occasionally, the rating of a
security held by the Portfolio may be downgraded below investment grade. If that
happens, the Portfolio does not have to sell the security unless the Adviser
determines that under the circumstances the security is no longer an appropriate
investment for the Portfolio.
In making investment decisions, the Adviser considers a number of factors
including credit quality, the price of the security relative to that of other
securities in its sector, current yield, maturity, yield to maturity,
anticipated changes in interest rates and other economic factors, liquidity, and
the overall quality of the investment. The Portfolio's average weighted maturity
will vary from time to time depending on current market and economic conditions
and the Adviser's assessment of probable changes in interest rates.
Principal Risk Considerations
The prices of debt securities tend to move in the opposite direction to interest
rates. When rates are rising, the prices of debt securities tend to fall. When
rates are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt security
is to interest rate changes. Changes in interest rates also may cause certain
debt securities held by the Portfolio, including callable securities and
mortgage-backed securities, to be paid off much sooner or later than expected.
In the event that a security is paid off sooner than expected because of a
decline in interest rates, the Portfolio may be unable to recoup all of its
initial investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise in
interest rates, the value of the obligation will decrease, and the Portfolio may
suffer from the inability to invest in higher-yielding securities.
-23-
<PAGE>
The value of debt securities also depends on the ability of issuers to make
principal and interest payments. If an issuer can't meet its payment obligations
or if its credit rating is lowered, the value of its debt securities will fall.
Foreign investments may be riskier than U.S. investments because of currency
rate volatility, government restrictions, different accounting standards and
political instability.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
(sidebar)
Portfolio Manager
George J. Schupp is the person primarily responsible for the day-to-day
management of the Portfolio. Mr. Schupp, FIRMCO's Director of Fixed-Income
Management, joined FIRMCO and its predecessors in 1983 and has 7 years of prior
investment experience. He has managed the Portfolio since February 1998.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Institutional Shares has varied from year to year. The table shows how the
Portfolio's average annual returns for one year, five years, ten years and since
inception compare to those of a broad-based market index. Both the bar chart and
table assume reinvestment of all dividends and distributions. The Portfolio's
past performance does not necessarily indicate how it will perform in the
future.
(sidebar)
Know your index
The Lehman Brother Aggregate Bond Index is an unmanaged index made up of Lehman
Brothers' Government/Corporate Bond Index, its Mortgage Backed Securities Index
and its Asset Backed Securities Index.
Institutional Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
<TABLE>
<CAPTION>
- -------------------------------------------------------
1995 1996 1997 1998 1999
- -------------------------------------------------------
<S> <C> <C> <C> <C>
16.61% 1.83% 8.24% 8.67% ____%
- -------------------------------------------------------
</TABLE>
Best quarter: ____% for the quarter ending _______________
Worst quarter: ____% for the quarter ending ______________
-24-
<PAGE>
Average Annual Total Returns for the periods ended December 31, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Since
1 Year 5 Years Inception**
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Institutional Shares* ____% ____% ____%
- --------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index ____% ____% ____%
- --------------------------------------------------------------------------------------------
</TABLE>
* Institutional Shares of the Portfolio commenced operations on January 3,
1994; May 31, 1988 for the Lehman Brothers Aggregate Bond Index.
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Institutional Shares of the Government & Corporate Bond Portfolio.
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Total Annual
Management Distribution (12b-1) Portfolio Operating
Fees Fees Other Expenses Expenses
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional Shares .45% None ____%/1/ ____%/1/
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Institutional Shares for the current fiscal year are expected
to be less than the amounts shown above because certain of the Portfolio's
service providers are voluntarily waiving a portion of their fees and/or
reimbursing the Portfolio for certain other expenses. These fee waivers
and/or reimbursements are being made in order to keep the annual fees and
expenses for the Portfolio's Institutional Shares at a certain level. Other
Expenses and Total Annual Portfolio Operating Expenses, after taking these
fee waivers and expense reimbursements into account, are expected to be
____% and ____%, respectively, for Institutional Shares. These fee waivers
and expense reimbursements may be revised or cancelled at any time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
-25-
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional Shares $____ $____ $____ $____
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
-26-
<PAGE>
Balanced Portfolio
Investment Objective
The 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.
(sidebar)
Total return consists of net income (dividend and/or interest income from
Portfolio securities, less expenses of the Portfolio) and capital gains and
losses, both realized and unrealized, from Portfolio securities.
Principal Investment Strategies
The Portfolio invests in a combination of equity securities (such as stocks),
fixed-income securities (such as bonds) and money market instruments in
weightings the Adviser believes will offer attractive total returns over time.
In making asset allocation decisions, the Adviser evaluates forecasts for
inflation, interest rates and long-term corporate earnings growth. The Adviser
then examines the potential effect of these factors on each asset group over a
one- to three-year time period using its own dynamic computer models. These
models show the statistical impact of the Adviser's economic outlook upon the
future returns of each asset group. The Adviser periodically will increase or
decrease the Portfolio's allocations to equities and fixed-income securities
based on which class appears relatively more attractive than the other. For
example, if the Adviser expects more rapid economic growth leading to better
corporate earnings, it will increase the Portfolio's holdings of equity
securities and reduce its holdings of fixed-income securities and money market
instruments.
In selecting equity securities, the Adviser considers historical and projected
earnings, the price/earnings relationship and company growth and asset value. In
selecting fixed income securities, the Adviser seeks those issues representing
the best value among various sectors, and also considers credit quality,
prevailing interest rates and liquidity.
Under normal market conditions, the Portfolio invests at least 25% of its total
assets in fixed-income securities and no more than 75% of its total assets in
equity securities. The actual percentages will vary from time to time based on
the Adviser's economic and market outlooks. The Portfolio's equity securities
will consist mainly of common stocks, and its fixed-income securities will
consist mainly of investment grade bonds, including U.S. Government securities.
Occasionally, the rating of a fixed-income security held by the Portfolio may be
downgraded below investment grade. If that happens, the Portfolio does not have
to sell the security unless the Adviser determines that under the circumstances
the security is no longer an appropriate investment for the Portfolio.
(sidebar)
Investment grade bonds are those of medium credit quality or better as
determined by a national rating agency, such as Standard & Poor's Ratings Group
(bonds rated BBB or higher) and Moody's Investors
-27-
<PAGE>
Service, Inc. (bonds rated Baa or higher). The higher the credit rating, the
less likely it is that the bond issuer will default on its principal and
interest payments.
Principal Risk Considerations
The Portfolio invests in stocks and other equity securities, which may decline
in value over short or extended periods of time. Equity markets tend to be
cyclical; there are times when stock prices generally increase, and other times
when they generally decrease. This could cause the value of your investment in
the Portfolio to fluctuate.
The Portfolio also invests in fixed-income securities, which lose value when
interest rates increase (but increase in value when interest rates decline).
Longer-term fixed-income securities are more susceptible to these fluctuations
in interest rates than short-term fixed-income securities. Changes in interest
rates may cause certain fixed-income securities, such as callable securities and
mortgage-backed securities, to be paid off much sooner or later than expected.
In the event that a security is paid off sooner than expected because of a
decline in interest rates, the Portfolio may be unable to recoup all of its
initial investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise in
interest rates, the value of the obligation will decrease, and the Portfolio may
suffer from the inability to invest in higher-yielding securities. Fixed-income
securities are subject to other risks, including the risk that the issuer will
be unable to make payments of principal and interest.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
(sidebar)
Portfolio Manager
Peter Merzian, a senior associate of FIRMCO, is responsible for the day-to-day
management of the Portfolio. He has been with FIRMCO and its predecessors since
1993 and has managed the Portfolio since May 1996. He also manages the Fund's
three municipal bond portfolios.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Institutional Shares has varied from year to year. The table shows how the
Portfolio's average annual returns for one year, five years and since inception
compare to those of broad-based market indexes. Both the bar chart and table
assume reinvestment of all dividends and distributions. The Portfolio's past
performance does not necessarily indicate how it will perform in the future.
-28-
<PAGE>
Institutional Shares* Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
1995 1996 1997 1998 1999
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
25.99% 11.99% 18.68% 11.06% ____%
- ------------------------------------------------------------------------------
</TABLE>
Best quarter: ____% for the quarter ending __________________
Worst quarter: ____% for the quarter ending _________________
Average Annual Total Returns for the periods ended December 31, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Since
1 Year 5 Years Inception**
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Institutional Shares* ____% ____% ____%
- ---------------------------------------------------------------------------------------------
S&P 500 Index ____% ____% ____%
- ---------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index ____% ____% ____%
- ---------------------------------------------------------------------------------------------
</TABLE>
* Institutional Shares of the Portfolio commenced operations on January 3,
1994; May 31, 1993 for the S&P 500 Index and the Lehman Brothers Aggregate
Bond Index.
(sidebar)
Know your index
. The S&P 500 Index is an unmanaged index comprised of 500 widely held common
stocks listed on the New York Stock Exchange, the American Stock Exchange
and NASDAQ.
.
. The Lehman Brothers Aggregate Bond Index is an unmanaged index made up of
Lehman Brothers' Government/Corporate Bond Index, its Mortgage Backed
Securities Index and its Asset Backed Securities Index.
-29-
<PAGE>
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Institutional Shares of the Balanced Portfolio.
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Total Annual
Portfolio
Management Distribution (12b-1) Operating
Fees Fees Other Expenses Expenses
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional Shares .75% None .____%/1/ ____%/1/
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Institutional Shares for the current fiscal year are expected
to be less than the amounts shown above because certain of the Portfolio's
service providers are voluntarily waiving a portion of their fees and/or
reimbursing the Portfolio for certain other expenses. These fee waivers
and/or reimbursements are being made in order to keep the annual fees and
expenses for the Portfolio's Institutional Shares at a certain level. Other
Expenses and Total Annual Portfolio Operating Expenses, after taking these
fee waivers and expense reimbursements into account, are expected to be
____% and ____%, respectively, for Institutional Shares. These fee waivers
and expense reimbursements may be revised or cancelled at any time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional Shares $____ $____ $____ $____
- -----------------------------------------------------------------------------------------
</TABLE>
-30-
<PAGE>
Equity Income Portfolio
Investment Objective
The Portfolio's investment objective is to seek to provide an above-average
level of income consistent with long-term capital appreciation.
Principal Investment Strategies
The Portfolio invests primarily in the common stocks of value companies with
large market capitalizations (generally, $5 billion or higher). In selecting
these stocks, the Adviser evaluates a number of quantitative factors, including
dividend yield, current and future earnings potential compared to stock prices
and total return potential. The Adviser also examines other measures of
valuation, including cash flow, asset value and book value.
Under normal market conditions, the Portfolio invests at least 65% of its total
assets in income-producing (dividend-paying) equity securities, primarily common
stocks. These stocks generally will be listed on a national stock exchange or
will be unlisted stocks with established over-the-counter markets. Many such
stocks may offer above-average levels of income as compared to the S&P 500
Index.
(sidebar)
Market capitalization is a common measure of the size of a company. It is the
market price of a share of the company's stock multiplied by the number of
outstanding shares.
(sidebar)
Value stocks are those that appear to be underpriced based on valuation
measures, such as lower price-to-earnings and price-to-book value ratios.
Principal Risk Considerations
The Portfolio invests in stocks and other equity securities, which may decline
in value over short or extended periods of time. Equity markets tend to be
cyclical; there are times when stock prices generally increase, and other times
when they generally decrease. This could cause the value of your investment in
the Portfolio to fluctuate. In addition, the Portfolio is subject to the
additional risk that the value stocks it typically holds may not perform as well
as other types of stocks, such as growth stocks.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
-31-
<PAGE>
(sidebar)
Portfolio Manager
FIRMCO's Equity Committee is responsible for the day-to-day management of the
Portfolio. The Committee has managed the Portfolio since 1998.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Institutional Shares has varied from year to year. The table shows how the
Portfolio's average annual returns for one year and since inception compare to
those of a broad-based market index. Both the bar chart and table assume
reinvestment of all dividends and distributions. The Portfolio's past
performance does not necessarily indicate how it will perform in the
future.
Institutional Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
<TABLE>
<CAPTION>
- ------------------
1998 1999
- ------------------
<S> <C>
10.06% ____%
- ------------------
</TABLE>
Best quarter: ____% for the quarter ending ________
Worst quarter: ____% for the quarter ending ________
Average Annual Total Returns for the periods ended December 31, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------
Since
1 Year Inception*
- ------------------------------------------------
<S> <C> <C>
Institutional Shares _____% _____%
- ------------------------------------------------
Russell 1000 Value Index _____% _____%
- ------------------------------------------------
</TABLE>
* February 27, 1997 for Institutional Shares; February 28, 1997 for the Russell
1000 Value Index.
(sidebar)
Know your index
The Russell 1000 Value Index is an unmanaged index that measures the performance
of the stocks in the Russell 1000 Index with less than average growth
orientation. Companies in this Index generally have low price to book and
price/earnings ratios, higher dividend yields and lower forecasted growth
values. The Russell 1000 Index consists of the 1,000 largest U.S. companies as
ranked by total market capitalization.
-32-
<PAGE>
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Institutional Shares of the Equity Income Portfolio.
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Total Annual
Portfolio
Management Distribution (12b-1) Operating
Fees Fees Other Expenses Expenses
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional Shares .75% None ____%/1/ ____%/1/
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Institutional Shares for the current fiscal year are expected
to be less than the amounts shown above because certain of the Portfolio's
service providers are voluntarily waiving a portion of their fees and/or
reimbursing the Portfolio for certain other expenses. These fee waivers
and/or reimbursements are being made in order to keep the annual fees and
expenses for the Portfolio's Institutional Shares at a certain level. Other
Expenses and Total Annual Portfolio Operating Expenses, after taking these
fee waivers and expense reimbursements into account, are expected to be
____% and ____% respectively, for Institutional Shares. These fee waivers
and expense reimbursements may be revised or cancelled at any time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional Shares $____ $____ $____ $____
- ---------------------------------------------------------------------------------------------------
</TABLE>
-33-
<PAGE>
Equity Index Portfolio
Investment Objective
The Portfolio's investment objective is to seek to provide investment results
that, before the 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 Index (the "S&P 500
Index").
The Portfolio's investment objective can be changed by the Fund's Board of
Directors without shareholder approval. Shareholders will be given at least 30
days' written notice before any such change occurs.
Principal Investment Strategies
The Portfolio uses an "indexing" strategy through the use of computer models to
approximate the investment performance of the S&P 500 Index. The Portfolio
invests substantially all (at least 80%) of its total assets in securities
listed in the S&P 500 Index and typically will hold all 500 stocks represented
in the Index. In general, each stock's percentage weighting in the Portfolio is
based on its weighting in the Index. When stocks are removed from or added to
the Index, those changes are reflected in the Portfolio. The Portfolio
periodically "rebalances" its holdings as dictated by changes in shareholder
purchase and redemption activity and in the composition of the S&P 500 Index.
(sidebar)
Indexing is a strategy whereby a Portfolio attempts to weight its securities to
match those of a broadly-based securities index in an attempt to approximate the
index's performance.
(sidebar)
The S&P 500 Index is an unmanaged index comprised of 500 widely held common
stocks listed on the New York Stock Exchange, the American Stock Exchange and
NASDAQ.
Principal Risk Considerations
The Portfolio invests in stocks and other equity securities, which may decline
in value over short or extended periods of time. Equity markets tend to be
cyclical; there are times when stock prices generally increase, and other times
when they generally decrease. This could cause the value of your investment in
the Portfolio to fluctuate. In addition, the Portfolio is subject to the
additional risk that the large-capitalization stocks it typically holds may not
perform as well as other types of stocks, such as small-capitalization stocks.
There is the additional risk that the Portfolio's investment results may fail to
match those of the S&P 500 Index.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the
-34-
<PAGE>
Portfolio's Institutional Shares has varied from year to year. The table shows
how the Portfolio's average annual returns for one year and since inception
compare to those of the S&P 500 Index. Both the bar chart and table assume
reinvestment of all dividends and distributions. The Portfolio's past
performance does not necessarily indicate how it will perform in the
future.
Institutional Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
<TABLE>
<CAPTION>
- -----------------------
1998 1999
- -----------------------
<S> <C>
27.92% ____%
- -----------------------
</TABLE>
Best quarter: ____% for the quarter ending _________
Worst quarter: ____% for the quarter ending ___________
Average Annual Total Returns for the periods ended December 31, 1999
<TABLE>
<CAPTION>
- -----------------------------------------------------
Since
1 Year Inception*
- -----------------------------------------------------
<S> <C> <C>
Institutional Shares ______% ______%
- -----------------------------------------------------
S&P 500 Index ______% ______%
- -----------------------------------------------------
</TABLE>
* May 1, 1997 for Institutional Shares; April 30, 1997 for the S&P 500 Index.
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Institutional Shares of the Equity Index Portfolio.
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Total Annual
Portfolio
Management Distribution Operating
Fees (12b-1) Fees Other Expenses Expenses
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional
Shares .30% None _____%/1/ _____%/1/
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
-35-
<PAGE>
/1/ Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Institutional Shares for the current fiscal year are
expected to be less than the amounts shown above because certain of the
Portfolio's service providers are voluntarily waiving a portion of
their fees and/or reimbursing the Portfolio for certain other expenses.
These fee waivers and/or reimbursements are being made in order to keep
the annual fees and expenses for the Portfolio's Institutional Shares
at a certain level. Other Expenses and Total Annual Portfolio Operating
Expenses, after taking these fee waivers and expense reimbursements
into account, are expected to be _____% and _____%, respectively, for
Institutional Shares. These fee waivers and expense reimbursements may
be revised or cancelled at any time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional Shares $___ $___ $___ $___
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
-36-
<PAGE>
Growth & Income Equity Portfolio
Investment Objective
The Portfolio's investment objective is to provide long-term capital growth,
with income a secondary consideration.
Principal Investment Strategies
The Portfolio invests primarily in common stocks. The Adviser selects stocks
based on a number of factors related to historical and projected earnings and
the price/earnings relationship as well as company growth and asset value,
consistency of earnings growth and earnings quality.
Stocks purchased for the Portfolio generally will be listed on a national stock
exchange or will be unlisted securities with an established over-the-counter
market. These stocks tend to pay dividends, so many of the Portfolio's
investments may produce some income. Nevertheless, income is not a primary
factor in the stock selection process.
Principal Risk Considerations
The Portfolio invests in stocks and other equity securities, which may decline
in value over short or extended periods of time. Equity markets tend to be
cyclical; there are times when stock prices generally increase, and other times
when they generally decrease. This could cause the value of your investment in
the Portfolio to fluctuate.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
(sidebar)
Portfolio Manager
FIRMCO's Equity Committee is responsible for the day-to-day management of the
Portfolio. The Committee has managed the Portfolio since 1998.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Institutional Shares has varied from year to year. The table shows how the
Portfolio's average annual returns for one year, five years, ten years and since
inception compare to those of a broad-based market index. Both the bar chart and
table assume reinvestment of all dividends and distributions. The Portfolio's
past performance does not necessarily indicate how it will perform in the
future.
-37-
<PAGE>
Institutional Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
<TABLE>
<CAPTION>
--------------------------------------------------------
1995 1996 1997 1998 1999
--------------------------------------------------------
<S> <C> <C> <C> <C>
33.98% 19.04% 27.22% 12.74% ____%
--------------------------------------------------------
</TABLE>
Best quarter: ___% for the quarter ending _________.
Worst quarter: ___% for the quarter ending ___________.
Average Annual Total Returns for periods ended December 31, 1999
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Since
1 Year 5 Years Inception**
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Institutional Shares ___% ___% ___%
- -----------------------------------------------------------------------------------------
S&P 500 Index ___% ___% ___%
- -----------------------------------------------------------------------------------------
</TABLE>
* Institutional Shares of the Portfolio commenced operations on January 3,
1994; May 31, 1988 for the S&P 500 Index.
(sidebar)
Know your index
The S&P 500 Index is an unmanaged index comprised of 500 widely held common
stocks listed on the New York Stock Exchange, the American Stock Exchange and
NASDAQ.
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Institutional Shares of the Growth & Income Equity Portfolio.
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Total Annual
Portfolio
Management Distribution Operating
Fees (12b-1) Fees Other Expenses Expenses
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional Shares .55% None ___%/1/ ___%/1/
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
-38-
<PAGE>
/1/ Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Institutional Shares for the current fiscal year are
expected to be less than the amounts shown above because certain of the
Portfolio's service providers are voluntarily waiving a portion of
their fees and/or reimbursing the Portfolio for certain other expenses.
These fee waivers and/or reimbursements are being made in order to keep
the annual fees and expenses for the Portfolio's Institutional Shares
at a certain level. Other Expenses and Total Annual Portfolio Operating
Expenses, after taking these fee waivers and expense reimbursements
into account, are expected to be ____% and ____%, respectively, for
Institutional Shares. These fee waivers and expense reimbursements may
be revised or cancelled at any time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional
Shares $___ $___ $___ $____
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
-39-
<PAGE>
Growth Equity Portfolio
Investment Objective
The Portfolio's investment objective is capital appreciation.
Principal Investment Strategies
The Portfolio invests primarily in the common stocks of growth companies. In
selecting securities for the Portfolio, the Adviser evaluates a company's
earnings history and the risk and volatility of the company's business. The
Adviser also considers other factors, such as product position and the ability
to increase market share, but the ability to increase company earnings is the
primary consideration.
Under normal market conditions, the Portfolio invests at least 65% of its total
assets in common stocks or other equity securities, such as preferred stocks,
convertible securities and warrants. Typically, the Portfolio's stocks are those
of large- and medium-capitalization companies that are listed on the New York
Stock Exchange, the American Stock Exchange or NASDAQ.
(sidebar)
Growth stocks offer strong revenue and earnings potential and accompanying
capital growth, with less dividend income than value stocks.
Principal Risk Considerations
The Portfolio invests in stocks and other equity securities, which may decline
in value over short or extended periods of time. Equity markets tend to be
cyclical; there are times when stock prices generally increase, and other times
when they generally decrease. This could cause the value of your investment in
the Portfolio to fluctuate. In addition, the Portfolio is subject to the
additional risk that the growth stocks it typically holds may not perform as
well as other types of stocks, such as value stocks.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
(sidebar)
Portfolio Manager
FIRMCO's Equity Committee is responsible for the day-to-day management of the
Portfolio. The Committee has managed the Portfolio since 1998.
-40-
<PAGE>
Return History+
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Institutional Shares has varied from year to year. The table shows how the
Portfolio's average annual returns for one year, five years and since inception
compare to those of a broad-based market index. Both the bar chart and table
assume reinvestment of dividends and distributions. The Portfolio's past
performance does not necessarily indicate how it will perform in the future.
Institutional Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
<TABLE>
<CAPTION>
- -----------------------
1998 1999
- -----------------------
<S> <C>
29.46% ____%
- -----------------------
</TABLE>
Best quarter: _____% for the quarter ending _____________
Worst quarter: ____%for the quarter ending ______________
Average Annual Total Returns for the periods ended December 31, 1999
- --------------------------------------------------------------------------
Since
1 Year Inception**
- ----------------------------------------------------------
Institutional Shares _____% _____%
- ----------------------------------------------------------
S&P 500 Index _____% _____%
- ----------------------------------------------------------
+ The Portfolio commenced operations on January 4, 1993 as the Arrow Equity
Portfolio, a separate investment portfolio (the "Predecessor Portfolio") of
Arrow Funds. On November 21, 1997, the Predecessor Portfolio was
reorganized as a new portfolio of the Fund. Prior to the reorganization,
the Predecessor Portfolio offered and sold shares that were similar to the
Fund's Investor A Shares.
* Institutional Shares of the Portfolio commenced operations on December 2,
1997; December 31, 1992 for the S&P 500 Index.
(sidebar)
Know your index
The S&P 500 Index is an unmanaged index comprised of 500 widely held common
stocks listed on the New York Stock Exchange, the American Stock Exchange and
NASDAQ.
-41-
<PAGE>
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Institutional Shares of the Growth Equity Portfolio.
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Total Annual
Portfolio
Management Distribution Operating
Fees (12b-1) Fees Other Expenses Expenses
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional Shares .75% None ___%/1/ ____%/1/
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Institutional Shares for the current fiscal year are expected
to be less than the amounts shown above because certain of the Portfolio's
service providers are voluntarily waiving a portion of their fees and/or
reimbursing the Portfolio for certain other expenses. These fee waivers
and/or reimbursements are being made in order to keep the annual fees and
expenses for the Portfolio's Institutional Shares at a certain level. Other
Expenses and Total Annual Portfolio Operating Expenses, after taking these
fee waivers and expense reimbursements into account, are expected to be
____% and ____%, respectively, for Institutional Shares. These fee waivers
and expense reimbursements may be revised or cancelled at any time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional Shares $___ $___ $___ $____
- -------------------------------------------------------------------------------------------------
</TABLE>
-42-
<PAGE>
Small Cap Equity Portfolio
Investment Objective
The Portfolio's investment objective is capital appreciation.
Principal Investment Strategies
Under normal conditions, the Portfolio invests at least 65% of its total assets
in common stocks of small- to medium-sized companies with market capitalizations
from $100 million to $2 billion at the time of purchase and which the Adviser
believes have above-average prospects for capital appreciation. Stocks purchased
by 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 also may invest a portion of its assets in larger companies that
the Adviser believes offer improved growth possibilities because of rejuvenated
management, product changes or other developments likely to stimulate earnings
or asset growth. The Portfolio also may invest in stocks the Adviser believes
are undervalued or in initial public offerings (IPOs) of new companies that
demonstrate the potential for price appreciation. 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 the
products manufactured or services offered.
Principal Risk Considerations
The Portfolio invests in stocks and other equity securities, which may decline
in value over short or extended periods of time. Equity markets tend to be
cyclical; there are times when stock prices generally increase, and other times
when they generally decrease. This could cause the value of your investment in
the Portfolio to fluctuate.
Compared to larger-capitalization stocks, small-capitalization stocks tend to
carry greater risk and exhibit greater price volatility because their businesses
may not be well-established. In addition, some smaller companies may have
specialized or limited product lines, markets or financial resources and may be
dependent on one-person management. All of these factors increase risk and may
result in more significant losses than the other Mercantile Stock Portfolios. In
an effort to reduce the risks inherent in smaller-company stocks, the
Portfolio's holdings are diversified over a number of companies and industry
groups.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
(sidebar)
Portfolio Manager
Robert J. Anthony, senior associate at FIRMCO, is responsible for the day-to-day
management of the Portfolio. He has been with FIRMCO and its predecessors for 27
years and has managed the Portfolio since its inception in 1992.
-43-
<PAGE>
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Institutional Shares has varied from year to year. The table shows how the
Portfolio's average annual returns for one year, five years and since inception
compare to those of a broad-based market index. Both the bar chart and the table
assume reinvestment of all dividends and distributions. The Portfolio's past
performance does not necessarily indicate how it will perform in the future.
Institutional Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
<TABLE>
<CAPTION>
- ----------------------------------------------------
1995 1996 1997 1998 1999
- ----------------------------------------------------
<S> <C> <C> <C> <C>
16.90% 10.61% 25.56% -8.05% ____%
- ----------------------------------------------------
</TABLE>
Best quarter: ____% for the quarter ending _____________
Worst quarter: ____% for the quarter ending ___________
Average Annual Total Returns for the periods ended December 31, 1999
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
Since
1 Year 5 Years Inception**
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Institutional Shares ____% ____% _____%
- -----------------------------------------------------------------------------
Russell 2000 Index ____% ____% _____%
- -----------------------------------------------------------------------------
</TABLE>
* Institutional Shares of the Portfolio commenced operations on January 3,
1994; April 30, 1992 for the Russell 2000 Index.
(sidebar)
Know your index
The Russell 2000 Index is an unmanaged index comprised of the 2,000 smallest of
the 3,000 largest U.S. companies based on market capitalization.
-44-
<PAGE>
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Institutional Shares of the Small Cap Equity Portfolio.
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Total Annual
Portfolio
Management Distribution Operating
Fees (12b-1) Fees Other Expenses Expenses
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional Shares .75% None ____%/1/ ____%/1/
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Institutional Shares for the current fiscal year are
expected to be less than the amounts shown above because certain of the
Portfolio's service providers are voluntarily waiving a portion of
their fees and/or reimbursing the Portfolio for certain other expenses.
These fee waivers and/or reimbursements are being made in order to keep
the annual fees and expenses for the Portfolio's Institutional Shares
at a certain level. Other Expenses and Total Annual Portfolio Operating
Expenses, after taking these fee waivers and expense reimbursements
into account, are expected to be ____% and ____%, respectively, for
Institutional Shares. These fee waivers and expense reimbursements may
be revised or cancelled at any time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional Shares $____ $____ $____ $____
- ------------------------------------------------------------------------------------------------
</TABLE>
-45-
<PAGE>
Small Cap Equity Index Portfolio
Investment Objective
The 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 S&P SmallCap 600 Index.
The Portfolio's investment objective can be changed by the Fund's Board of
Directors without shareholder approval. Shareholders will be given at least 30
days' written notice before any such change occurs.
Principal Investment Strategies
The Portfolio uses an "indexing" strategy through the use of computer models to
approximate the investment performance of the S&P SmallCap 600 Index. The
Portfolio will invest at least 80% of its total assets in securities listed in
the S&P SmallCap 600 Index and typically will hold all 600 stocks represented in
the Index. Under certain circumstances, however, the Portfolio may not hold all
600 stocks in the Index because of shareholder activity or changes in the Index.
In general, each stock's percentage weighting in the Portfolio is based on its
weighting in the S&P SmallCap 600 Index. When stocks are removed from or added
to the Index, those changes are reflected in the Portfolio. The Portfolio
periodically "rebalances" its holdings as dictated by changes in shareholder
purchase and redemption activity, and in the composition of the S&P SmallCap 600
Index.
Principal Risk Considerations
The Portfolio invests in stocks and other equity securities, which may decline
in value over short or extended periods of time. Equity markets tend to be
cyclical; there are times when stock prices generally increase, and other times
when they generally decrease. This could cause the value of your investment in
the Portfolio to fluctuate.
In addition, the Portfolio is subject to the additional risk that the
small-capitalization stocks that it holds may not perform as well as other types
of stocks. Compared to larger-capitalization stocks, small-capitalization stocks
tend to carry greater risk and exhibit greater price volatility because their
businesses may not be well-established. In addition, some smaller companies may
have specialized or limited product lines, markets or financial resources and
may be dependent on one-person management. All of these factors increase risk
and may result in more significant losses than the other Mercantile Stock
Portfolios. By typically investing in all 600 stocks in the Index, the Portfolio
remains broadly diversified, which may reduce some of this risk.
There is the additional risk that the Portfolio's investment results may fail to
match those of the S&P SmallCap 600 Index.
(sidebar)
Indexing is a strategy whereby a Portfolio attempts to weight its securities to
match those of a broadly-based securities index in an attempt to approximate the
index's performance.
-46-
<PAGE>
(sidebar)
The S&P SmallCap 600 Index is an unmanaged index that tracks the performance of
600 domestic companies traded on the New York Stock Exchange, American Stock
Exchange and NASDAQ. The S&P SmallCap 600 Index is heavily weighted with the
stocks of small companies.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows the performance of the Portfolio's
Institutional Shares during the last calendar year. The table shows how the
Portfolio's average annual returns for one year and since inception compare to
those of the S&P Small Cap 600 Index. Both the bar chart and the table assume
reinvestment of all dividends and distributions. The Portfolio's past
performance does not necessarily indicate how it will perform in the
future.
Institutional Shares Year-by-Year Total Returns
(as of December 31 each year)
(Insert bar chart)
-------------
1999
-------------
____%
-------------
Best quarter: ____% for the quarter ending ___________
Worst quarter: ____% for the quarter ending __________
Average Annual Total Returns for the periods ended December 31, 1999
- -----------------------------------------------------------------
Since
1 Year Inception*
- -----------------------------------------------------------------
Institutional Shares ____% _____%
- -----------------------------------------------------------------
S&P Small Cap 600 Index ____% _____%
- -----------------------------------------------------------------
* December 30, 1998 for Institutional Shares; December 31, 1998 for the S&P
Small Cap 600 Index.
-47-
<PAGE>
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Institutional Shares of the Small Cap Equity Index Portfolio.
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Total Annual
Distribution Portfolio
Management (12b-1) Operating
Fees Fees Other Expenses Expenses
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional Shares 0.40% None ____%/1/ ____%/1/
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Institutional Shares for the current fiscal year are expected
to be less than the amounts shown above because certain of the Portfolio's
service providers are voluntarily waiving a portion of their fees and/or
reimbursing the Portfolio for certain other expenses. These fee waivers
and/or reimbursements are being made in order to keep the annual fees and
expenses for the Portfolio's Institutional Shares at a certain level. Other
Expenses and Total Annual Portfolio Operating Expenses, after taking these
fee waivers and expense reimbursements into account, are expected to be
____% and ____%, respectively, for Institutional Shares. These fee waivers
and expense reimbursements may be revised or cancelled at any time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional
Shares $___ $___ $___ $____/3/
- ------------------------------------------------------------------------------------------------
</TABLE>
-48-
<PAGE>
International Equity Portfolio
Investment Objective
The Portfolio's investment objective is to provide capital growth consistent
with reasonable investment risk.
Principal Investment Strategies
The Portfolio invests primarily in foreign common stocks, most of which will be
denominated in foreign currencies. During normal market conditions, the
Portfolio will invest substantially all (at least 80%) of its total assets in
the securities of companies that derive more than 50% of their gross revenues
outside the United States or have more than 50% of their assets outside the
United States. Under normal market conditions, the Portfolio invests in equity
securities from at least three foreign countries. Generally, at least 50% of the
Portfolio's total assets will be invested in securities of companies located
either in the developed countries of Western Europe or in Japan. The Portfolio
also may invest in other developed countries and in countries with emerging
markets or economies.
By investing in various foreign stocks, the Portfolio attempts to achieve broad
diversification and to take advantage of differences between economic trends and
the performance of securities markets in different countries, regions and
geographic areas. In selecting stocks, the Sub-Adviser uses a screening tool to
determine which companies represent the best values relative to their long-term
growth prospects and local markets. The Sub-Adviser also uses fundamental
analysis by evaluating balance sheets, market share and strength of management.
Principal Risk Considerations
Investing in foreign companies involves different risks than investing in U.S.
companies due to such factors as currency exchange rate volatility, government
restrictions, different accounting standards and political instability. The
multinational character of the Portfolio's investments should reduce the effect
that events in any one country or geographic area will have on overall
performance. However, negative results from one foreign market may offset gains
from another market or may negatively affect other foreign markets. The risks
associated with foreign investments are heightened when investing in emerging
markets. The governments and economies of emerging market countries feature
greater instability than those of more developed countries. Such investments
tend to fluctuate in price more widely and to be less liquid than other foreign
investments. As with U.S. equity markets, foreign markets tend to be cyclical.
There are times when stock prices generally increase, and other times when they
generally decrease.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
(sidebar)
Sub-Adviser/Portfolio Manager
FIRMCO has appointed Clay Finlay Inc. ("Clay Finlay" or the "Sub-Adviser") as
sub-adviser to assist in the day-to-day management of the Portfolio. Frances
Dakers, a principal and senior portfolio manager of Clay Finlay, is
-49-
<PAGE>
responsible for the management of the Portfolio. Ms. Dakers has been with Clay
Finlay since January 1982 and has managed the Portfolio since it began
operations in 1994.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Institutional Shares has varied from year to year. The table shows how the
Portfolio's average annual returns for one year, five years and since inception
compare to those of a broad-based market index. Both the bar chart and table
assume reinvestment of all dividends and distributions. The Portfolio's past
performance does not necessarily indicate how it will perform in the
future.
Institutional Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
- -----------------------------------------------------------------------
1995 1996 1997 1998 1999
- -----------------------------------------------------------------------
9.21%% 10.00% 4.70% 17.39% ____%
- -----------------------------------------------------------------------
Best quarter: _____% for the quarter ending __________
Worst quarter: _____% for the quarter ending ____________
Average Annual Total Returns for the periods ended December 31, 1999
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Since
1 Year 5 Years Inception*
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Institutional Shares ______% ______% ______%
- ----------------------------------------------------------------------------------------
EAFE Index ______% ______% ______%
- ----------------------------------------------------------------------------------------
</TABLE>
* April 4, 1994 for Institutional Shares; March 31, 1994 for the EAFE
Index.
(sidebar)
Know your index
- ---------------
The Morgan Stanley Capital International Europe, Australasia and Far East Index,
or EAFE Index, is an unmanaged index consisting of companies in Australia, New
Zealand, Europe and the Far East.
-50-
<PAGE>
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Institutional Shares of the International Equity Portfolio.
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Total Annual
Portfolio
Management Distribution Operating
Fees (12b-1) Fees Other Expenses Expenses
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional
Shares 1.00% None ____%/1/ ____%/1/
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Institutional Shares for the current year are expected to
be less than the amounts shown above because certain of the Portfolio's
service providers are voluntarily waiving a portion of their fees
and/or reimbursing the Portfolio for certain other expenses. These fee
waivers and/or reimbursements are being made in order to keep the
annual fees and expenses for the Portfolio's Institutional Shares at a
certain level. Other Expenses and Total Annual Portfolio Operating
Expenses, after taking these fee waivers and expense reimbursements
into account, are expected to be ____% and ____% respectively, for
Institutional Shares. These fee waivers and expense reimbursements may
be revised or cancelled at any time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Institutional Shares $____ $___ $___ $____
- ---------------------------------------------------------------------------------------------
</TABLE>
-51-
<PAGE>
Additional Information on Risk
The principal risks of investing in each Portfolio are described on the previous
pages. The following supplements that discussion.
Securities Lending
To obtain interest income, each Portfolio may lend its 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. There is
the risk that, when lending portfolio securities, the securities may not be
available to the Portfolio on a timely basis. Therefore, the Portfolio may lose
the opportunity to sell the securities at a desirable price. Additionally, in
the event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
Temporary Defensive Positions
Each Portfolio may temporarily hold investments that are not part of its main
investment strategy to try to avoid losses during unfavorable market conditions.
These investments may include cash (which will not earn any income). In
addition, each of the Taxable Bond and Stock Portfolios may hold money market
instruments, including debt securities issued or guaranteed by the U.S.
Government or its agencies, and the International Equity Portfolio may hold debt
obligations of U.S. companies having their principal business activities in the
U.S. This strategy could prevent a Portfolio from achieving its investment
objective and, if utilized by a Stock Portfolio, could reduce the Portfolio's
return and affect its performance during a market upswing.
Other Types of Investments
This prospectus describes each Portfolio's principal investment strategies and
the particular types of securities in which each Portfolio principally invests.
Each Portfolio may, from time to time, make other types of investments and
pursue other investment strategies in support of its overall investment goal.
These supplemental investment strategies--and the risks involved--are described
in detail in the Statement of Additional Information ("SAI"), which is referred
to on the back cover of this prospectus.
Year 2000 Risks
Over the past several years, the Adviser and the Portfolios' other major service
providers expended considerable time and money in addressing the computer and
technology problems associated with the transition to the Year 2000. As a result
of those efforts, the Portfolios did not experience any material disruptions in
their operations as a result of the transition to the 21/st/ century. The
Adviser and the Portfolios' other major service providers are continuing to
monitor the Year 2000 or Y2K problem, however, and there can be no assurances
that there will be no adverse impact to the Portfolios as a result of future
computer-related Y2K difficulties.
-52-
<PAGE>
Your Account
Explanation of Sales Price
Institutional Shares of the Portfolios are sold at their net asset value (NAV).
The NAV for each class of shares of a Money Market Portfolio is determined as of
12:00 noon (Eastern time) and as of the close of regular trading on the New York
Stock Exchange (currently 4:00 p.m., Eastern time) on every business day. The
NAV for each class of shares of a Taxable Bond or Stock Portfolio is determined
as of the close of regular trading on the New York Stock Exchange (currently
4:00 p.m., Eastern time) on every business day.
The NAV for a class of shares is determined by adding the value of a Portfolio's
investments, cash and other assets attributable to a particular share class,
subtracting the Portfolio's liabilities attributable that class and then
dividing the result by the total number of shares in the class that are
outstanding.
(sidebar)
Business days defined
A business day is any day that both the New York Stock Exchange and the Federal
Reserve Bank of St. Louis are open for business. Currently, the Fund observes
the following holidays: 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 and Christmas.
. The investments of each of the Money Market Portfolios are valued at
amortized cost, which is approximately equal to market value.
. The investments of each of the Taxable Bond and Stock Portfolios are valued
according to market value. When a market quote is not readily available,
the security's value is based on "fair value" as determined by FIRMCO (or
Clay Finlay, with respect to the International Equity Portfolio) under the
supervision of the Fund's Board of Directors. Foreign securities acquired
by the International Equity Fund may be valued in foreign markets on days
when the Portfolio's NAV is not calculated. In such cases, the NAV of the
Portfolio's shares may be significantly affected on days when investors
cannot buy and sell Portfolio shares.
. A properly placed purchase order (see "How to Buy Shares" on page __) that
is delivered to the Fund by 12:00 noon (Eastern time) on any business day
with respect to the Treasury Money Market Portfolio or by 3:00 p.m.
(Eastern time) on any business day with respect to the Money Market
Portfolio receives the share price next determined if the Fund receives
payment in federal funds or other immediately available funds by 4:00 p.m.
(Eastern time) that day. If payment is not received by that time, the order
will be cancelled. A properly placed purchase order that is delivered to
the Fund after 12:00 noon (Eastern time) with respect to the Treasury Money
Market Portfolio or after 3:00 p.m. (Eastern time) with respect to the
Money Market Portfolio will be placed the following business day.
. A properly placed purchase order (see "How to Buy Shares" on page __) for
one of the Taxable Bond or Stock Portfolios that is delivered to the Fund
before 4:00 p.m. (Eastern time) on any business day receives the share
price determined as of 4:00 p.m. that day. If the order is received after
4:00 p.m., it will receive the price determined on the next business day.
Your financial institution must forward your payment
-53-
<PAGE>
to the Fund no later than 4:00 p.m. the next business day after placing the
order, or the order will be cancelled.
How to Buy Shares
Institutional Shares of the Portfolios are sold to financial institutions, such
as banks, trust companies and thrift institutions, that are purchasing shares on
behalf of discretionary and non-discretionary accounts for which they do not
receive account level asset-based management fees.
If you are purchasing Institutional Shares through a financial institution, you
must follow the procedures established by your institution. Your financial
institution is responsible for sending your purchase order to the Fund's
distributor and wiring payment to the Fund's custodian. Your financial
institution holds the shares in your name and receives all confirmations of
purchases and sales. Financial institutions placing orders for themselves or on
behalf of their customers should call the Fund at 1-800-452-4015.
The Fund does not have any minimum investment requirement for Institutional
Shares, but your financial institution may do so. They may also charge
transaction fees and require you to maintain a minimum account balance.
How to Sell Shares
Orders to sell or "redeem" Institutional Shares should be placed with the same
financial institution that placed the original purchase order in accordance with
the procedures established by that institution. Your financial institution is
responsible for sending your order to the Fund's distributor and for crediting
your account with the proceeds. The Fund does not currently charge for wiring
the proceeds, but your financial institution may do so.
If the shares being sold are represented by share certificates, then the order
to sell must be made in writing and mailed to: Mercantile Mutual Funds, Inc.,
615 East Michigan Street, P.O. Box 3011, Milwaukee, Wisconsin 53201-3011. The
order must be accompanied by the share certificates, properly endorsed for
transfer. Additional documents may be required for certain types of
shareholders, such as corporations, partnerships, executors, trustees,
administrators or guardians.
The Fund's transfer agent may require a signature guarantee unless the
redemption proceeds are payable to the shareholder of record and the proceeds
are either mailed to the shareholder's address of record or electronically
transferred to the account designated on the original account application. A
signature guarantee helps prevent fraud, and you may obtain one from most banks
and broker/dealers. Contact the Fund for more information on signature
guarantees.
Institutional Shares will be sold at the NAV next determined after the Fund
accepts an order (see above). If the order to sell is received and accepted by
the Fund before 12:00 noon (Eastern time) on a business day with respect to the
Treasury Money Market Portfolio or before 3:00 p.m. (Eastern time) on a business
day with respect to the Money Market Portfolio, the proceeds are sent
electronically the same day to the financial institution that placed the order.
If the order to sell is received and accepted by the Fund after 12:00 noon
(Eastern time) on a business day with respect to the Treasury Money Market
Portfolio or after 3:00 p.m. (Eastern time) on a business day with respect to
the Money Market Portfolio, or on a non-business day, the proceeds normally are
sent electronically to the financial institution on the next business day.
-54-
<PAGE>
Proceeds from redemptions from the Taxable Bond and Stock Portfolios ordinarily
are sent electronically to your financial institution the next business day as
long as the Fund receives your order by 4:00 p.m. (Eastern time) on a business
day.
How to Exchange Shares
The exchange privilege enables shareholders to exchange Institutional Shares of
one Portfolio for Institutional Shares of another Portfolio. Contact your
financial institution or the Fund's distributor for additional information on
the exchange privilege. The exchange privilege may be exercised only in those
states where Institutional Shares of the Portfolio being acquired may be legally
sold.
Administrative Services Fees
Institutional Shares of the Portfolios pay administrative services fees at an
annual rate of up to 0.25% of each Money Market Portfolio's and up to 0.30% of
each Taxable Bond and Stock Portfolio's Institutional Share assets. These fees
are paid to financial institutions that provide certain administrative services
to their customers who own Institutional Shares.
-55-
<PAGE>
General Transaction Policies
The Fund reserves the right to:
. Refuse any order to buy shares.
. Reject any exchange request.
. Redeem all shares in an account if the balance falls below $500. If, within
60 days of the Fund's written request, the account balance has not been
increased, a shareholder may be required to redeem all shares. The Fund
will not require a shareholder to redeem shares if the value of the account
drops below $500 due to fluctuations in net asset value.
. Send redemption proceeds within seven days after receiving a request, if an
earlier payment could adversely affect a Portfolio.
. Modify or terminate the exchange privilege after 60 days' written notice to
shareholders.
. Make a "redemption in kind." Under abnormal conditions that may make
payment in cash unwise, the Fund may offer partial or complete payment in
portfolio securities rather than cash at such securities' then-market-value
equal to the redemption price. In such cases, a shareholder may incur
brokerage costs in converting these securities to cash.
Shareholders may be responsible for any fraudulent telephone orders as long as
the Fund has taken reasonable precautions to verify the shareholder's identity.
Shareholders who experience difficulty getting through to the Fund by telephone
because of unusual market conditions should consider selling or exchanging their
shares by mail.
-56-
<PAGE>
Distributions and Taxes
Dividends and Distributions
. Money Market Portfolios
Each Money Market Portfolio declares dividends from net investment income
daily and pays them monthly. Although the Portfolios do not expect to
realize net long-term capital gains, any capital gains realized would be
distributed at least annually.
. Taxable Bond Portfolios
Each Taxable Bond Portfolio declares dividends from net investment income
daily and pays them monthly. Capital gains, if any, are distributed at
least once a year. It's expected that each Portfolio's annual distributions
will be primarily income dividends.
. Stock Portfolios
The Balanced, Equity Income, Equity Index, Growth & Income Equity and
Growth Equity Portfolios declare and pay dividends from net investment
income monthly. The Small Cap Equity, Small Cap Equity Index and
International Equity Portfolios declare and pay dividends from net
investment income quarterly. Capital gains, if any, for all of the
Portfolios are distributed at least once a year. It's expected that each
Portfolio's annual distributions will normally - but not always - consist
primarily of capital gains and not ordinary income.
. All Portfolios
Dividends on each share class of a Portfolio are determined in the same
manner and are paid in the same amount. However, each share class bears all
expenses associated with that particular class.
All of your dividends and capital gains distributions with respect to a
particular Portfolio will be reinvested in additional shares of the same
class unless you or your financial institution instruct otherwise on your
account application or have redeemed all shares you held in the Portfolio.
In such cases, dividends and distributions will be paid in cash.
Taxation
As with any investment, you should consider the tax implications of an
investment in the Portfolios. The following is only a brief summary of some of
the important tax considerations generally affecting the Portfolios and their
shareholders under current law, which may be subject to change in the future.
Consult your tax adviser with specific reference to your own tax situation.
-57-
<PAGE>
Each Portfolio contemplates declaring as dividends each year all or
substantially all of its taxable income, including its net capital gains (the
excess of long-term capital gain over short-term capital loss). Distributions
attributable to the net capital gain of a Portfolio will be taxable to you as
long-term capital gain, regardless of how long you will have held your shares.
Other Portfolio distributions will generally be taxable as ordinary income. You
will be subject to income tax on distributions regardless whether they are paid
in cash or reinvested in additional shares.
Except in the case of a Money Market Portfolio, if you purchase shares just
prior to a distribution, the purchase price will reflect the amount of the
upcoming distribution, but you will be taxed on the entire amount of the
distribution received even though, as an economic matter, the distribution
simply constitutes a return of capital. This is known as "buying into a
dividend."
Except in the case of a Money Market Portfolio, you will recognize a taxable
gain or loss on a sale, exchange or redemption of your shares, including an
exchange for shares of another Portfolio, based on the difference between your
tax basis in the shares and the amount you receive for them. Generally, this
gain or loss will be long-term or short-term depending on whether your holding
period for the shares exceeds 12 months, except that any loss realized on shares
held for six months or less will be treated as a long-term capital loss to the
extent that any capital gains distributions were received on the shares.
Distributions on, and sales, exchanges and redemptions of, shares held in an IRA
or other tax-qualified plan will not be currently taxable.
The International Equity Portfolio is expected to be subject to foreign
withholding taxes with respect to dividends or interest received from sources in
foreign countries. The Portfolio may make an election to treat a proportionate
amount of these taxes as a distribution to each shareholder. This will allow
each shareholder to either (1) credit such proportionate amount of taxes against
U.S. federal income tax liability, or (2) take such amount as an itemized
deduction.
A Portfolio's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends the Portfolio receives from U.S. domestic
corporations may be eligible, in the hands of the corporate shareholders, for
the corporate dividends-received deduction, subject to certain holding period
requirements and debt financing limitations.
The Treasury Money Market Portfolio is designed to provide shareholders, to the
extent permitted by federal law, with income that is exempt or excluded from
taxation at the state or local level.
Shareholders may also be subject to state and local taxes on distributions and
redemptions. State income taxes may not apply however, to the portions of each
Portfolio's distributions, if any, that are attributable to interest on federal
securities or interest on securities of the particular state or localities
within the state.
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. Shareholders who are nonresident
aliens, foreign trusts or estates, or foreign corporations or partnerships, may
be subject to different United States federal income tax treatment. For more
information regarding the taxation of the Portfolios, consult the SAI under the
heading "Additional Information Concerning Taxes." You should also consult your
tax adviser for further information regarding federal, state, local and/or
foreign tax consequences relevant to your specific situation.
(sidebar)
You will be advised at least annually regarding the federal income tax treatment
of dividends and distributions made to you. You should save your account
statements because they contain information you will need to calculate your
capital gains or losses, if any, upon your ultimate sale or exchange of shares
in the Portfolios.
-58-
<PAGE>
Management of the Fund
The Adviser
FIRMCO, subject to the general supervision of the Fund's Board of Directors, is
responsible for the day-to-day management of the Portfolios in accordance with
each Portfolio's respective investment objective and policies. This includes
making investment decisions, buying and selling securities and overseeing the
administration and recordkeeping for each Portfolio.
In exchange for these services, FIRMCO receives an investment advisory fee,
which is calculated daily and paid monthly, according to the average daily net
assets of each Portfolio. On March 1, 2000, MVA, the Portfolios' former adviser,
merged into FIRMCO. For the fiscal year ended November 30, 1999, the Portfolios
paid MVA advisory fees as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Investment advisory fees as a
Portfolio % of net assets
- ----------------------------------------------------------------------------
<S> <C>
Treasury Money Market Portfolio ___%
- ----------------------------------------------------------------------------
Money Market Portfolio ___%
- ----------------------------------------------------------------------------
U.S. Government Securities Portfolio ___%
- ----------------------------------------------------------------------------
Intermediate Corporate Bond Portfolio ___%
- ----------------------------------------------------------------------------
Bond Index Portfolio ___%
- ----------------------------------------------------------------------------
Government & Corporate Bond Portfolio ___%
- ----------------------------------------------------------------------------
Balanced 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 ___%
- ----------------------------------------------------------------------------
</TABLE>
The Sub-Adviser
-59-
<PAGE>
Clay Finlay Inc., an experienced international investment manager, serves as
sub-adviser to the International Equity Portfolio and is responsible for the
management of the Portfolio's assets. Clay Finlay manages the Portfolio under
the guidance and direction of FIRMCO and according to its sub-advisory agreement
with FIRMCO. For its services, Clay Finlay receives from FIRMCO a monthly fee
based on a percentage of the Portfolio's average daily net assets.
Founded in 1982, Clay Finlay is a registered investment adviser and a 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, NY 10166.
-60-
<PAGE>
Financial Highlights
Introduction
The financial highlights tables presented below are intended to help you
understand the financial performance of each Portfolio's Institutional Shares
for the past five years (or, if shorter, the period since the Portfolio began
operations or the particular shares were first offered). Certain information
reflects financial results for a single Institutional Share in each Portfolio.
The total returns in the tables represent the rate that an investor would have
earned (or lost) on an investment in Institutional Shares, assuming reinvestment
of all dividends and distributions. This information has been audited by
______________, independent auditors, whose report, along with the Portfolios'
financial statements, are included in the Fund's Annual Report to Shareholders,
and are incorporated by reference into the SAI.
-61-
<PAGE>
Treasury Money Market Portfolio
Institutional Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
January 26, 1995
to November 30,
1999 1998 1997 1996 1995/(a)/
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period............ $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- -------
Investment Activities
Net investment income......... 0.043 0.044 0.044 0.042
Total from Investment
Activities................. 0.043 0.044 0.044 0.042
------- ------- ------- -------
Distributions
Net investment income......... (0.043) (0.044) (0.044) (0.042)
Total Distributions......... (0.043) (0.044) (0.044) (0.042)
------- ------- ------- -------
Net Asset Value,
End of Period................ $ 1.00 1.00 $ 1.00 $ 1.00
======= ======= ======= =======
Total Return................... 4.40% 4.53% 4.46% 4.94%/(b)/
Ratio/Supplementary Data:
Net Assets at end of
Period (000)...............
$ 236 $ 233 $ 299 $ 28
Ratio of expenses to
average net assets......... 0.81% 0.77% 0.79% 0.92%/(c)/
Ratio of net investment
income to average net
assets..................... 4.30% 4.44% 4.39% 5.76%/(c)/
Ratio of expenses to average net
assets*.................... 0.96% 0.92% 0.94% 1.07%/(c)/
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio would have been as
indicated.
/(a)/ Period from commencement of operations.
/(b)/ 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.
/(c)/ Annualized.
-62-
<PAGE>
Money Market Portfolio
Institutional Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- -------
Investment Activities
Net investment income............... 0.048 0.048 0.047 0.052
Total from Investment
Activities....................... 0.048 0.048 0.047 0.052
------- ------- ------- -------
Distributions
Net investment income............... (0.048) (0.048) (0.047) (0.052)
Total Distributions............... (0.048) (0.048) (0.047) (0.052)
------- ------- ------- -------
Net Asset Value,
End of Period...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= =======
Total Return......................... 4.95% 4.93% 4.81% 5.33%
Ratio/Supplementary Data:
Net Assets at end of
period (000)..................... $28,536 $22,022 $15,921 $13,340
Ratio of expenses to
average net assets............... 0.78% 0.77% 0.78% 0.77%
Ratio of net investment
income to average net assets........ 4.84% 4.83% 4.70% 5.20%
Ratio of expenses
to average net
assets*.......................... 0.93% 0.92% 0.93% 0.92%
</TABLE>
- --------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio would have been
as indicated.
-63-
<PAGE>
U.S. Government Securities Portfolio
Institutional Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period............. $10.58 $10.64 $10.82 $10.02
------ ------ ------ ------
Investment Activities
Net investment income.......... 0.57 0.56 0.62 0.63
Net realized and unrealized
Gains (losses) from investments 0.12 (0.04) (0.15) 0.80
------ ------ ------ ------
Total from Investment Activities 0.69 0.52 0.47 1.43
------ ------ ------ ------
Distributions
Net investment income......... (0.57) (0.58) (0.62) (0.63)
In excess of net realized gains -- --- (0.03) --
------ ------ ------ ------
Total Distributions.......... (0.57) (0.58) (0.65) (0.63)
------ ------ ------ ------
Net Asset Value,
End of Period................. $10.70 $10.58 $10.64 $10.82
====== ====== ====== ======
Total Return.................... 6.67% 5.10% 4.55% 14.69%
Ratio/Supplementary Data:
Net Assets at end of
Period (000)................. $6,140 $7,049 $2,232 $ 667
Ratio of expenses to
average net assets........... 0.97% 0.97% 0.96% 0.97%
Ratio of net investment
income to average net
assets*...................... 5.34% 5.52% 5.75% 5.91%
Ratio of expenses to
average net assets........... 1.07% 1.07% 1.06% 1.07%
Portfolio Turnover**.......... 54.57% 100.33% 53.76% 93.76%
</TABLE>
- --------------------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio 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.
-64-
<PAGE>
Intermediate Corporate Bond Portfolio
Institutional Shares
(For a Share outstanding throughout the period)
<TABLE>
<CAPTION>
Year Ended November 30,
February 10, 1997
to
1999 1998 November 30, 1997/(a)/
<S> <C> <C> <C>
Net Asset Value, Beginning of Period.......................... $10.11 $10.00
------ ------
Investment Activities
Net investment income...................................... 0.61 0.53
Net realized and unrealized gains
from investments........................................ 0.29 0.11
---- -----
Total from Investment Activities........................... 0.90 0.64
---- -----
Distributions
Net investment income...................................... (0.61) (0.53)
Net realized gains......................................... (0.11) --
-----
Total Distributions........................................ (0.72) (0.53)
----- ------
Net Asset Value, End of Period................................ $10.29 $10.11
====== ======
Total Return.................................................. 9.32% 6.60%/(b)/
Ratios/Supplementary Data:
Net assets at the end of period (000)...................... $1,124 $27
Ratio of expenses to average net assets.................... 1.07% 0.29%/(c)/
Ratio of net investment income to average net assets....... 5.72% 7.06%/(c)/
Ratio of expenses to average net assets*................... 1.18% 1.31%/(c)/
Portfolio Turnover**....................................... 9.65% 61.98%
</TABLE>
- --------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio 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.
-65-
<PAGE>
Bond Index Portfolio
Institutional Shares
(For a Share outstanding throughout the period)
<TABLE>
<CAPTION>
Year Ended November 30,
February 10, 1997
to
1999 1998 November 30, 1997(a)
<S> <C> <C> <C>
Net Asset Value, Beginning of Period....................... $10.17 $10.00
------ ------
Investment Activities
Net investment income...................................... 0.62 0.53
Net realized and unrealized gains
from investments........................................ 0.31 0.17
------ ------
Total from Investment Activities........................... 0.93 0.70
------ ------
Distributions
Net investment income...................................... (0.62) (0.53)
------ ------
Net realized gains......................................... (0.03) --
------
Total Distributions........................................ (0.65) (0.53)
------ ------
Net Asset Value, End of Period................................ $10.45 $10.17
====== ======
Total Return.................................................. 9.47% 7.20%(b)
Ratios/Supplementary Data:
Net assets at the end of period (000)...................... $7,034 $ 27
Ratio of expenses to average net assets.................... 0.79% 0.24%(c)
Ratio of net investment income to average net assets....... 5.77% 7.09%(c)
Ratio of expenses to average net assets*................... 0.91% 0.95%(c)
Portfolio Turnover**....................................... 33.37% 46.16%
</TABLE>
________________
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio 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.
-66-
<PAGE>
Government & Corporate Bond Portfolio
Institutional Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.......................... $ 10.37 $ 10.34 $ 10.53 $ 9.64
======= ======= ======= ======
Investment Activities
Net investment income...................................... 0.57 0.56 0.64 0.61
Net realized and unrealized gains (losses) from
investments.............................................. 0.37 0.03 (0.19) 0.89
------- ------- ------- ------
Total from Investment Activities........................... 0.94 0.59 0.45 1.50
------- ------- ------- ------
Distributions
Net investment income...................................... (0.57) (0.56) (0.64) (0.61)
In excess of net realized gains............................ -- -- -- --
------- ------- ------- ------
Total Distributions........................................ (0.57) (0.56) (0.64) (0.61)
------- ------- ------- ------
Net Asset Value, End of Period............................. $ 10.74 $10.37 $ 10.34 $10.53
======= ======= ======= ======
Total Return............................................... 9.30% 6.00% 4.51% 15.98%
Ratios/Supplementary Data:
Net Assets at end of period (000).......................... $20,835 $16,954 $14,875 $9,413
Ratio of expenses to average net assets.................... 0.96% 0.95% 0.95% 0.95%
Ratio of net investment income to average net
assets................................................... 5.41% 5.55% 6.06% 6.01%
Ratio of expenses to average net assets.................... 1.06% 1.05% 1.05% 1.05%
Portfolio Turnover**....................................... 91.14% 140.72% 149.20% 59.32%
</TABLE>
_________________________
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio would have been as
indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a
whole without distinguishing between classes of shares issued.
-67-
<PAGE>
Balanced Portfolio
Institutional Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............................. $ 13.23 $ 12.54 $ 11.62 $ 9.60
------- ------- ------- --------
Investment Activities
Net investment income......................................... 0.28 0.31 0.32 0.31
Net realized and unrealized gains (losses) from investments... 0.83 1.49 1.34 2.02
------- ------- ------- --------
Total from Investment Activities.............................. 1.11 1.80 1.66 2.33
------- ------- ------- --------
Distributions
Net investment income......................................... (0.28) (0.37) (0.32) (0.31)
In excess of net investment income............................ -- (0.03) -- --
Net realized gains............................................ (1.47) (0.71) (0.42) --
------- ------- ------- --------
In excess of net realized gains............................... -- -- -- --
------- ------- ------- --------
Total Distributions........................................... (1.75) (1.11) (0.74) (0.31)
------- ------- ------- --------
Net Asset Value, End of Period................................ $ 12.59 $ 13.23 $ 12.54 $ 11.62
======= ======= ======= ========
Total Return.................................................. 9.38% 15.52% 15.08% 24.67%
Ratios/Supplementary Data:
Net Assets at end of period (000)............................. $70,962 $61,655 $54,731 $36,827
Ratio of expenses to average net assets...................... 1.26% 1.27% 1.27% 1.27%
Ratio of net investment income to average net
assets...................................................... 2.23% 2.56% 2.78% 2.97%
Ratio of expenses to average net assets*..................... 1.36% 1.37% 1.37% 1.37%
Portfolio Turnover**......................................... 47.79% 43.60% 85.16% 58.16%
</TABLE>
- ----------------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio 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.
-68-
<PAGE>
Equity Income Portfolio
Institutional Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30, March 7, 1997
to
1999 1998 November 30, 1997(a)
<S> <C> <C> <C>
Net Asset Value, Beginning of Period.......................... $11.56 $10.00
------ ------
Investment Activities
Net investment income...................................... 0.18 0.19
Net realized and unrealized gains
from investments........................................ 0.98 1.56
------ ------
Total from Investment Activities........................... 1.16 1.75
------ ------
Distributions
Net investment income...................................... (0.19) (0.19)
------ ------
Net realized gains......................................... (2.29) --
------
Total Distributions........................................ (2.48) (0.19)
------ ------
Net Asset Value, End of Period................................ $10.24 $11.56
====== ======
Total Return.................................................. 11.82% 17.64%/(b)/
Ratios/Supplementary Data:
Net assets at the end of period (000)...................... $ 35 $ 1
Ratio of expenses to average net assets.................... 1.23% 0.37%/(c)/
Ratio of net investment income to average net assets....... 1.40% 2.34%/(c)/
Ratio of expenses to average net assets*................... 1.32% 1.60%/(c)/
Portfolio Turnover**....................................... 98.32% 48.33%
</TABLE>
- ---------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio 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.
-69-
<PAGE>
Equity Index Portfolio
Institutional Shares
(For a Share outstanding throughout the period)
<TABLE>
<CAPTION>
Year Ended November 30, May 1, 1997
to
1998 1998 November 30, 1997/(a)/
<S> <C> <C> <C>
Net Asset Value, Beginning of Period.......................... $ 11.94 $10.00
------- ------
Investment Activities
Net investment income...................................... 0.10 0.10
Net realized and unrealized gains
from investments........................................ 2.63 1.94
------- ------
Total from Investment Activities........................... 2.73 2.04
------- ------
Distributions
Net investment income...................................... (0.11) (0.10)
------- ------
Net realized gains......................................... (0.02) --
-------
Total Distributions........................................ (0.13) (0.10)
------- ------
Net Asset Value, End of Period................................ $ 14.54 $11.94
======= ======
Total Return.................................................. 23.01% 20.40%/(b)/
Ratios/Supplementary Data:
Net assets at the end of period (000)...................... $10,944 $ 8
Ratio of expenses to average net assets.................... 0.91% 0.46%/(c)/
Ratio of net investment income to average net assets....... 0.63% 1.30%/(c)/
Ratio of expenses to average net assets*................... 1.03% 1.19%/(c)/
Portfolio Turnover**....................................... 14.83% 1.66%
</TABLE>
__________________
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio 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.
-70-
<PAGE>
Growth & Income Equity Portfolio
Institutional Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period...................... $ 21.12 $ 18.67 $ 16.29 $ 12.70
-------- ------- ------- -------
Investment Activities
Net investment income.................................. 0.12 0.12 0.20 0.23
Net realized and unrealized gains (losses) from
investments.......................................... 1.58 3.95 3.33 3.74
-------- ------- ------- -------
Total from Investment Activities....................... 1.70 4.07 3.53 3.97
-------- ------- ------- -------
Distributions
Net investment income.................................. (0.11) (0.13) (0.20) (0.24)
In excess of net investment income..................... (0.01) (0.03) (0.01) --
Net realized gains..................................... (3.57) (1.46) (0.94) (0.14)
-------- ------- ------- -------
In excess of net realized gains........................ -- -- -- --
-------- ------- ------- -------
Total Distributions.................................... (3.69) (1.62) (1.15) (0.38)
-------- ------- ------- -------
Net Asset Value, End of Period............................ $ 19.13 $ 21.12 $ 18.67 $ 16.29
======== ======= ======= =======
Total Return.............................................. 9.36% 23.90% 23.08% 31.88%
Ratios/Supplementary Data:
Net Assets at end of period (000)......................... $107,133 $92,515 $72,950 $40,228
Ratio of expenses to average net assets................ 1.04% 1.04% 1.05% 1.05%
Ratio of net investment income to average net
assets............................................... 0.60% 0.60% 1.19% 1.58%
Ratio of expenses to average net assets*............... 1.14% 1.14% 1.15% 1.15%
Portfolio Turnover**................................... 91.23% 57.11% 63.90% 58.50%
</TABLE>
______________________
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio 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.
-71-
<PAGE>
Growth Equity Portfolio
Institutional Shares
(For a Share outstanding throughout the period)
<TABLE>
<CAPTION>
December 1, 1998 December 2, 1997
to November 30, to November 30,
1999 1998(a)
---- -------
<S> <C> <C>
Net Asset Value, Beginning of Period............................ $16.27
------
Investment Activities
Net investment loss.......................................... (0.04)
Net realized and unrealized gains from
investments................................................ 3.70
------
Total from Investment Activities............................. 3.66
------
Distributions
In excess of net investment income........................... (0.01)
Total Distributions.......................................... (0.01)
------
Net Asset Value, End of Period.................................. $19.92
======
Total Return.................................................... 19.56% (b)
Ratios/Supplementary Data:
Net Assets at end of period (000)............................ $7,720
Ratio of expenses to average net assets...................... 1.36% (c)
Ratio of net investment income to average net assets......... (0.28)%(c)
Ratio of expenses to average net assets*..................... 1.46% (c)
Portfolio Turnover**......................................... 54.33%
</TABLE>
______________________
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio 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 initial public investment.
(b) Not annualized.
(c) Annualized.
-72-
<PAGE>
Small Cap Equity Portfolio
Institutional Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.......................... $ 14.98 $ 13.36 $ 13.40 $ 11.96
------- ------- ------- -------
Investment Activities
Net investment loss........................................ (0.07) (0.04) (0.01) (0.01)
Net realized and unrealized gains (losses) from
Investments.............................................. (1.87) 2.48 1.03 2.36
------- ------- ------- -------
Total from Investment Activities........................... (1.94) 2.44 1.02 2.35
------- ------- ------- -------
Distributions
In excess of net investment income......................... -- -- (0.01) --
Net realized gains......................................... (1.19) (0.82) (1.05) (0.91)
In excess of net realized gains............................ (0.03) -- -- --
Total Distributions........................................ (1.22) (0.82) (1.06) (0.91)
------- ------- ------- -------
Net Asset Value, End of Period............................. $ 11.82 $ 14.98 $ 13.36 $ 13.40
======= ======= ======= =======
Total Return............................................... (14.17)% 19.41 % 8.39 % 21.43 %
Ratios/Supplementary Data:
Net Assets at end of period (000).......................... $25,037 $34,395 $30,081 $17,620
Ratio of expenses to average net assets.................... 1.25 % 1.25 % 1.26 % 1.26 %
Ratio of net investment loss to average net
assets................................................... (0.45)% (0.29)% (0.13)% (0.11)%
Ratio of expenses to average net assets*................... 1.35 % 1.35 % 1.36 % 1.36 %
Portfolio Turnover**....................................... 69.72 % 80.23 % 65.85 % 83.13 %
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio 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.
-73-
<PAGE>
Small Cap Equity Index Portfolio
Institutional Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
December 30, 1998(a)
to November 30, 1999
<S> <C>
Net Asset Value, Beginning of Period..........................
Investment Activities
Net investment gain (loss).................................
Net realized and unrealized gains (losses) from
investments..............................................
Total from Investment Activities...........................
Distributions
In excess of net investment income.........................
Net realized gains.........................................
In excess of net realized gains............................
Total Distributions........................................
Net Asset Value, End of Period.............................
Total Return...............................................
Ratios/Supplemental Data:
Net Assets at end of period (000)..........................
Ratio of expenses to average net assets....................
Ratio of net investment loss to average net
assets...................................................
Ratio of expenses to average net assets*...................
Portfolio Turnover**.......................................
</TABLE>
_______________
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
** Portfolio turnover is calculated on the basis of the Portfolio as a whole
without distinguishing between the classes of shares issued.
(a) Period from commencement of operations.
-74-
<PAGE>
International Equity Portfolio
Institutional Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year ended November 30,
-----------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period...................... $11.97 $12.03 $10.75 $ 9.90
------ ------ ------ ------
Investment Activities
Net investment income (loss)........................... -- (0.03) 0.01 0.01
Net realized and unrealized gains (losses) from
investments and foreign currency..................... 1.78 0.33 1.27 0.86
------ ------ ------ ------
Total from Investment Activities....................... 1.78 0.30 1.28 0.87
------ ------ ------ ------
Distributions
Net Investment income.................................. (0.01) -- -- --
In excess of net investment income..................... (0.06) (0.05) -- --
Net realized gains..................................... (0.43) (0.31) -- (0.01)
------ ------ ------ ------
Tax return of capital.................................. -- -- -- (0.01)
------ ------ ------ ------
Total Distributions.................................... (0.50) (0.36) -- (0.02)
------ ------ ------ ------
Net Asset Value, End of Period............................ $13.25 $11.97 $12.03 $10.75
====== ====== ====== ======
Total Return.............................................. 15.37% 2.59% 11.91% 8.78%
Ratios/Supplementary Data:
Net Assets at end of period (000)...................... $8,058 $6,798 $6,059 $2,159
Ratio of expenses to average net assets................ 1.58% 1.59% 1.44% 1.44%
Ratio of net investment income (loss) to average net
assets 0.01% (0.21%) 0.16% 0.13%
Ratio of expenses to average net assets*............... 1.75% 1.75% 1.76% 1.75%
Portfolio Turnover**................................... 88.95% 75.18% 77.63% 62.78%
</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.
-75-
<PAGE>
[Back Cover Page]
Where to find more information
You'll find more information about the Portfolios in the following documents:
Annual and semi-annual reports
The Fund's annual and semi-annual reports contain information about each
Portfolio and a discussion about the market conditions and investment strategies
that had a significant effect on each Portfolio's performance during the last
fiscal year.
Statement of Additional Information (SAI)
The SAI contains detailed information about the Portfolios and their policies.
By law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Portfolios and make shareholder inquiries by calling the Fund at 1-800-452-2724
or by writing to:
Mercantile Mutual Funds, Inc.
615 East Michigan Street
P.O. Box 3011
Milwaukee, Wisconsin 53201-3011
If you buy your shares through a broker-dealer or other financial institution,
you may contact your institution for more information.
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Portfolios, including the
SAI. They'll charge you a fee for this service. You can also visit the SEC
Public Reference Room and copy the documents while you're there. For information
about the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC
Washington, DC 20549-0102
1-202-942-8090
Reports and other information about the Portfolios are also available on the
EDGAR Database on the SEC's website at http://www.sec.gov. Copies of this
information may also be obtained, after paying a duplicating fee, by electronic
request to the SEC's e-mail address at [email protected].
The Fund's Investment Company Act File No. is 811-3569
<PAGE>
Mercantile Mutual Funds
Prospectus
Investor Shares
__________, 2000
Money Market Portfolios
Treasury Money Market Portfolio
Money Market Portfolio
Tax-Exempt Money Market Portfolio
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Portfolios or determined if this
prospectus is truthful or complete. Anyone who tells you otherwise is
committing a criminal offense.
<PAGE>
Contents
Risk/Return Summary
1 Overview
2 Treasury Money Market Portfolio
5 Money Market Portfolio
9 Tax-Exempt Money Market Portfolio
12 Additional Information on Risk
Your Account
13 Distribution Arrangements/Sales Charges
15 Explanation of Sales Price
15 How to Buy Shares
16 How to Sell Shares
18 Investor Programs
20 General Transaction Policies
Distributions and Taxes
21 Dividends and Distributions
21 Taxation
Management of the Fund
23 The Adviser
Financial Highlights
24 Introduction
25 Treasury Money Market Portfolio
26 Money Market Portfolio
28 Tax-Exempt Money Market Portfolio
<PAGE>
Risk/Return Summary
Overview
This prospectus describes the Mercantile Money Market Portfolios, three
investment portfolios offered by Mercantile Mutual Funds, Inc. (the "Fund"). On
the following pages, you will find important information about each Portfolio,
including:
. A description of the Portfolio's investment objective (sometimes referred to
as its goal);
. The Portfolio's principal investment strategies (the steps it takes to try to
meet its goal);
. The principal risks associated with the Portfolio (factors that may prevent
it from meeting its goal);
. The Portfolio's past performance (how successful it's been in meeting its
goal); and
. The fees and expenses (including sales charges) you pay as an investor in the
Portfolio.
Who May Want to Invest in the Mercantile Money Market Portfolios?
The Treasury Money Market Portfolio may be appropriate for investors who want a
way to earn money market returns from U.S. Treasury obligations that are
generally exempt from state and local taxes. The Money Market Portfolio may be
appropriate for investors who want a flexible and convenient way to manage cash
while earning money market returns. The Tax-Exempt Money Market Portfolio may be
appropriate for investors who want a way to earn money market returns that are
generally exempt from federal income tax; however, the Portfolio is not an
appropriate investment for tax-deferred retirement accounts, such as IRAs,
because its return before taxes is generally lower than that of a taxable fund.
Before investing in a Portfolio, you should carefully consider:
. Your own investment goals
. The amount of time you are willing to leave your money invested
. How much risk you are willing to take.
The Investment Adviser
Firstar Investment Research and Management Company, LLC ("FIRMCO" or the
"Adviser") serves as the investment adviser to each Portfolio as a result of the
merger of the Portfolios' former adviser, Mississippi Valley Advisors Inc.
("MVA") into FIRMCO on March 1, 2000. FIRMCO is a subsidiary of Firstar
Corporation, a banking and financial services organization, and has its main
office at Firstar Center, 777 East Wisconsin Avenue, 8th Floor, Milwaukee,
Wisconsin. FIRMCO has been providing advisory services since 1986 and as of
December 31, 1999, FIRMCO had approximately $35.3 billion in assets under
management.
An investment in the Portfolios is not a Firstar Bank deposit and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Portfolios seek to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
Portfolios.
-1-
<PAGE>
Treasury Money Market Portfolio
Investment Objective
The 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.
Principal Investment Strategies
The Portfolio invests substantially all (but not less than 65%) of its total
assets in money market instruments issued by the U.S. Treasury and certain U.S.
Government agencies and instrumentalities that provide income that is generally
not subject to state income tax.
(sidebar)
Money Market Instruments are short-term obligations issued by banks,
corporations, the U.S. Government and state and local governments. Money market
instruments purchased by the Portfolios must meet strict requirements as to
investment quality, maturity and diversification. The Portfolios generally do
not invest in securities with maturities of more than 397 days and the average
maturity of all securities held by a particular Portfolio must be 90 days or
less. Prior to purchasing a money market instrument for one of the Portfolios,
the Adviser must determine that the instrument carries very little credit risk.
Principal Risk Considerations
The yield paid by the Portfolio will vary with changes in interest rates.
Although U.S. Government securities, particularly U.S. Treasury obligations,
have historically involved little risk, if an issuer fails to pay interest or
repay principal, the value of your investment could decline.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
There's no guarantee the Portfolio will be able to preserve the value of your
investment at $1.00 per share.
-2-
<PAGE>
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Investor A Shares has varied from year to year. The table shows the Portfolio's
average annual returns for one year, five years and since inception. Both the
bar chart and table assume reinvestment of all dividends and distributions. The
Portfolio's past performance does not necessarily indicate how it will perform
in the future.
Investor A Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
2.43% 3.33% 4.96% 4.43% 4.54% 4.34% ____%
- ------------------------------------------------------------------------------------------------
</TABLE>
Best quarter: ____% for the quarter ending _____________
Worst quarter: ____% for the quarter ending _____________
<TABLE>
<CAPTION>
Average Annual Total Returns for the periods ended December 31, 1999
- ---------------------------------------------------------------------------------------
1 Year 5 Years Since
Inception*
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investor A Shares ____% ____% ____%
- ---------------------------------------------------------------------------------------
</TABLE>
*April 20, 1992.
To obtain the Portfolio's current 7-day yield, please call 1-800-452-2724.
-3-
<PAGE>
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Investor A Shares of the Treasury Money Market Portfolio. There are no
sales charges when you buy or sell Investor A Shares of the Portfolio.
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Total Annual
Distribution Portfolio
Management (12b-1) and Operating
Fees Service Fees Other Expenses Expenses
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investor A Shares .40%/1/ .25% ___%/1/ ____%/1/
- -------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Management Fees, Other Expenses and Total Annual Portfolio Operating
Expenses for the Portfolio's Investor A Shares for the current fiscal year are
expected to be less than the amounts shown above because certain of the
Portfolio's service providers are voluntarily waiving a portion of their fees
and/or reimbursing the Portfolio for certain other expenses. These fee waivers
and/or reimbursements are being made in order to keep the annual fees and
expenses for the Portfolio's Investor A Shares at a certain level. Management
Fees, Other Expenses and Total Annual Portfolio Operating Expenses, after taking
these fee waivers and expense reimbursements into account, are expected to be
_____%, _____% and _____%, respectively, for Investor A Shares. These fee
waivers and expense reimbursements may be revised or cancelled at any time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investor A Shares $_______ $_______ $_______ $_______
- ------------------------------------------------------------------------------------------------------
</TABLE>
-4-
<PAGE>
Money Market Portfolio
Investment Objective
The Portfolio's investment objective is to seek current income with liquidity
and stability of principal.
Principal Investment Strategies
The Portfolio invests substantially all (but not less than 80%) of its total
assets in a broad range of money market instruments, including commercial paper,
notes and bonds issued by U.S. and foreign corporations, obligations issued by
the U.S. Government and its agencies and instrumentalities, and obligations
issued by U.S. and foreign banks, such as certificates of deposit, letters of
credit, bankers' acceptances and time deposits.
The Portfolio will only buy a money market instrument if it has the highest
short-term rating from at least two nationally recognized statistical rating
organizations, such as Standard & Poor's Ratings Group or Moody's Investors
Service, Inc., or only one such rating if only one organization has rated the
instrument. If the money market instrument is not rated, the Adviser must
determine that it is of comparable quality to eligible rated instruments.
Principal Risk Considerations
The yield paid by the Portfolio will vary with short-term interest rates.
Although credit risk is very low because the Portfolio only invests in high
quality obligations, if an issuer fails to pay interest or repay principal, the
value of your investment could decline.
The Adviser evaluate the rewards and risks presented by all securities purchased
by the Portfolio and how they may advance the Portfolio's investment objective.
It is possible, however, that these evaluations will prove to be inaccurate.
There's no guarantee the Portfolio will be able to preserve the value of your
investment at $1.00 per share.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Investor A Shares has varied from year to year. The table shows the Portfolio's
average annual returns for one year, five years, ten years and since inception.
Both the bar chart and table assume reinvestment of all dividends and
distributions. The Portfolio's past performance does not necessarily indicate
how it will perform in the future.
-5-
<PAGE>
Investor A Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8.03% 5.45% 3.06% 2.51% 3.58% 5.36% 4.78% 4.96% 4.90% ____%
- -----------------------------------------------------------------------
</TABLE>
The returns for Investor B Shares differed from the returns shown in the bar
chart because the two classes bear different expenses.
Best quarter: ____% for the quarter ending _____________
Worst quarter: ____% for the quarter ending ____________
Average Annual Total Returns for the periods ended December 31, 1999
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Since
1 Year 5 Years 10 Years Inception*
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investor A Shares ____% ____% ____% ____%
- -------------------------------------------------------------------------------------------------------
Investor B Shares** (with
applicable contingent deferred
sales charge) _____% N/A N/A ____%
- -------------------------------------------------------------------------------------------------------
</TABLE>
* March 24, 1983.
** Investor B Shares of the Portfolio commenced operations on January 26,
1996.
To obtain the Portfolio's current 7-day yield, please call 1-800-452-2724.
-6-
<PAGE>
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Investor A Shares or Investor B Shares of the Money Market Portfolio.
Shareholder Fees (fees you pay directly)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Maximum deferred sales charge
Maximum sales charge (load) (load) shown as a % of the
to buy shares, shown as a % of offering price or sale price,
the offering price whichever is less
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Investor A Shares None None
- ------------------------------------------------------------------------------------------------
Investor B Shares None 5.00%/1/
- ------------------------------------------------------------------------------------------------
</TABLE>
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Total Annual
Distribution Portfolio
Management (12b-1) and Operating
Fees Service Fees Other Expenses Expenses
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investor A
Shares .40%/2/ .25% ____%/2/ _____%/2/
- ------------------------------------------------------------------------------------------------------
Investor B
Shares .40%/2/ 1.00% ____%/2/ _____%/2/
- ------------------------------------------------------------------------------------------------------
</TABLE>
/1/ This amount applies if you sell your shares in the first year after
purchase and gradually declines until it is eliminated after six years. After
eight years, Investor B Shares will automatically convert to Investor A Shares.
See "Distribution Arrangements/Sales Charges" below.
/2/ Management Fees, Other Expenses and Total Annual Portfolio Operating
Expenses for the Portfolio's Investor A Shares and Investor B Shares for the
current fiscal year are expected to be less than the amounts shown above because
certain of the Portfolio's service providers are voluntarily waiving a portion
of their fees and/or reimbursing the Portfolio for certain other expenses. These
fee waivers and/or reimbursements are being made in order to keep the annual
fees and expenses for the Portfolio's Investor A Shares and Investor B Shares at
certain levels. Management Fees, Other Expenses and Total Annual Portfolio
Operating Expenses, after taking these fee waivers and expense reimbursements
into account, are expected to be ___%, ____% and ___%, respectively, for
Investor A Shares and ___%, ___% and ____%, respectively, for Investor B Shares.
These fee waivers and expense reimbursements may be revised or cancelled at any
time.
-7-
<PAGE>
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you
invest $10,000 for the time periods shown and then sell all of your shares at
the end of those periods. The example also assumes that your investment has a
5% return each year, the Portfolio's operating expenses remain the same and your
Investor B Shares automatically convert to Investor A Shares after eight years.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investor A Shares $____ $___ $______ $_____
- ------------------------------------------------------------------------------------------------------
Investor B Shares $___ $___ $_____ $_____
- ------------------------------------------------------------------------------------------------------
If you hold Investor B Shares, you would pay the following expenses if you did not sell your shares:
- ------------------------------------------------------------------------------------------------------
$___ $____ $______ $_____
- ------------------------------------------------------------------------------------------------------
</TABLE>
-8-
<PAGE>
Tax-Exempt Money Market Portfolio
Investment Objective
The 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.
Principal Investment Strategies
The Portfolio normally invests at least 80% of its total assets in short-term
municipal securities that pay interest which is exempt from federal income tax.
Municipal securities purchased by the Portfolio may include general obligation
securities, revenue securities and private activity bonds. General obligation
securities are secured by the issuer's full faith, credit and taxing power.
Revenue securities are usually payable only from revenues derived from specific
facilities or revenue sources. Private activity bonds are usually revenue
obligations since they are typically payable by the private user of the
facilities financed by the bonds. The interest on private activity bonds may be
subject to the federal alternative minimum tax. Investments in private activity
bonds will not be treated as investments in municipal securities for purposes of
the 80% requirement stated above.
The Portfolio will only buy a municipal security if it has the highest short-
term rating from at least two nationally recognized statistical rating
organizations, such as Standard & Poor's Ratings Group or Moody's Investors
Service, Inc., or one such rating if only one organization has rated the
security. If the security is not rated, the Adviser must determine that it is
of comparable quality to eligible rated securities.
(sidebar)
What Are Municipal Securities?
State and local governments issue municipal securities to raise money to finance
public works, to repay outstanding obligations, to raise funds for general
operating expenses and to make loans to other public institutions. Some
municipal securities, known as private activity bonds, are backed by private
entities and are used to finance various non-public projects. Municipal
securities, which can be issued as bonds, notes or commercial paper, usually
have fixed interest rates, although some have interest rates that change from
time to time.
Principal Risk Considerations
The yield paid by the Portfolio will vary with changes in interest rates.
Although credit risk is very low because the Portfolio only invests in high
quality obligations, if an issuer fails to pay interest or repay principal, the
value of your investment could decline. The ability of a state or local
government issuer to make payments can be affected by many factors, including
economic conditions, the flow of tax revenues and changes in the level of
federal, state or local aid. Some municipal securities are payable only from
limited revenue sources or by private entities.
The Portfolio is not diversified, which means that it can invest a large
percentage of its assets in a small number of issuers. As a result, a change in
the value of any one investment held by the Portfolio may affect the overall
value of the Portfolio more than it would affect a diversified portfolio.
-9-
<PAGE>
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
There's no guarantee the Portfolio will be able to preserve the value of your
investment at $1.00 per share.
Return History/+/
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Investor A Shares has varied from year to year. The table shows the Portfolio's
average annual returns for one year, five years, ten years and since inception.
Both the bar chart and table assume reinvestment of all dividends and
distributions. The Portfolio's past performance does not necessarily indicate
how it will perform in the future.
Investor A Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
<TABLE>
- -----------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5.50% 3.73% 2.24% 1.72% 2.13% 3.04% 2.77% 2.89% 2.68% ____%
- -----------------------------------------------------------------------
</TABLE>
Best quarter: _____% for the quarter ending _____________
Worst quarter: _____% for the quarter ending ______________
Average Annual Total Returns for the periods ended December 31, 1999
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Since
1 Year 5 Years 10 Years Inception*
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investor A Shares ____% ____% ____% ____%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
+The Portfolio commenced operations on July 10, 1986 as a separate investment
portfolio (the "Predecessor Portfolio") of The ARCH Tax-Exempt Trust. On
October 2, 1995, the Predecessor Portfolio was reorganized as a new portfolio of
the Fund. Prior to the reorganization, the Predecessor Portfolio offered and
sold shares that were similar to the Fund's Investor A Shares. Total returns
for periods prior to October 2, 1995 reflect the performance of the Predecessor
Portfolio.
*July 10, 1986.
To obtain the Portfolio's current 7-day yield, please call 1-800-452-2724.
-10-
<PAGE>
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Investor A Shares of the Tax-Exempt Money Market Portfolio. There are no
sales charges when you buy or sell Investor A Shares of the Portfolio.
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Total Annual
Distribution Portfolio
Management (12b-1) and Operating
Fees Service Fees Other Expenses Expenses
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investor A Shares .40%/1/ .25% _____% _____%/1/
- --------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Management Fees and Total Annual Portfolio Operating Expenses for the
Portfolio's Investor A Shares for the current fiscal year are expected to be
less than the amounts shown above because the Advisor is voluntarily waiving a
portion of its advisory fee. This fee waiver is being made in order to keep the
annual fees and expenses for the Portfolio's Investor A Shares at a certain
level. Management Fees and Total Annual Portfolio Operating Expenses, after
taking this fee waiver into account, are expected to be ___%, and ___%,
respectively, for Investor A Shares. This fee waiver may be revised or
cancelled at any time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you
invest $10,000 for the time periods shown and then sell all of your shares at
the end of those periods. The example also assumes that your investment has a
5% return each year and the Portfolio's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investor A Shares $_____ $_____ $_____ $_____
- ------------------------------------------------------------------------------------------------------
</TABLE>
-11-
<PAGE>
Additional Information on Risk
The principal risks of investing in each Portfolio are described on the previous
pages. The following supplements that discussion.
Securities Lending
To obtain interest income, the Treasury Money Market Portfolio and Money Market
Portfolio may lend their 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. There is the risk that, when lending portfolio
securities, the securities may not be available to the Portfolio on a timely
basis. Therefore, the Portfolio may lose the opportunity to sell the securities
at a desirable price. Additionally, in the event that a borrower of securities
would file for bankruptcy or become insolvent, disposition of the securities may
be delayed pending court action.
Temporary Defensive Positions
Each Portfolio may temporarily hold investments that are not part of its main
investment strategy during unfavorable market conditions. These investments may
include cash (which will not earn any income) and, in the case of the Tax-Exempt
Money Market Portfolio, short-term taxable money market instruments not to
exceed 20% of the Portfolio's assets. This strategy could prevent a Portfolio
from achieving its investment objective.
Other Types of Investments
This prospectus describes each Portfolio's principal investment strategies and
the particular types of securities in which each Portfolio principally invests.
Each Portfolio may, from time to time, make other types of investments and
pursue other investment strategies in support of its overall investment goal.
These supplemental investment strategies--and the risks involved--are described
in detail in the Statement of Additional Information ("SAI"), which is referred
to on the back cover of this prospectus.
Year 2000 Risks
Over the past several years, the Adviser and the Portfolios' other major service
providers expended considerable time and money in addressing the computer and
technology problems associated with the transition to the Year 2000. As a result
of those efforts, the Portfolios did not experience any material disruptions in
their operations as a result of the transition to the 21/st/ century. The
Adviser and the Portfolios' other major service providers are continuing to
monitor the Year 2000 or Y2K problem, however, and there can be no assurances
that there will be no adverse impact to the Portfolios as a result of future
computer-related Y2K difficulties.
-12-
<PAGE>
Your Account
Distribution Arrangements/Sales Charges
Share Classes
Each Portfolio offers Investor A Shares. The Money Market Portfolio also offers
Investor B Shares. The primary difference between the share classes is the
sales charge structure and distribution/service fee arrangement.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Types of Charges Investor A Shares Investor B Shares
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Sales Charge (Load) None. A contingent deferred sales
charge (CDSC) is assessed on
shares redeemed within six
years of purchase. Investor B
Shares automatically convert
to Investor A Shares eight
years after purchase.
- ----------------------------------------------------------------------------------------------
Distribution (12b-1) and Subject to annual distribution Subject to annual distribution
Service Fees and shareholder servicing fees and shareholder servicing fees
of up to 0.25% of a of up to 1.00% of a
Portfolio's average daily net Portfolio's average daily net
assets attributable to its assets attributable to its
Investor A Shares. Investor B Shares.
- ----------------------------------------------------------------------------------------------
</TABLE>
-13-
<PAGE>
Calculation of Sales Charges
Investor B Shares
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Number of Years Since Purchase CDSC as a % of Dollar Amount Subject to the Charge
- ------------------------------------------------------------------------------------------------
<S> <C>
1 or less 5.0%
- ------------------------------------------------------------------------------------------------
1-2 4.0%
- ------------------------------------------------------------------------------------------------
2-3 3.0%
- ------------------------------------------------------------------------------------------------
3-4 3.0%
- ------------------------------------------------------------------------------------------------
4-5 2.0%
- ------------------------------------------------------------------------------------------------
5-6 1.0%
- ------------------------------------------------------------------------------------------------
More than 6 None
- ------------------------------------------------------------------------------------------------
</TABLE>
For purposes of calculating the CDSC, all purchases made during a calendar month
are considered to be made on the first day of that month. The CDSC is based on
the value of the Investor B Shares on the date that they are sold or the
original cost of the shares, whichever is lower. To keep your CDSC as low as
possible each time you sell shares, the Fund will first sell any shares in your
account that are not subject to a CDSC. If there are not enough of these, the
Fund will sell the shares that have the lowest CDSC.
No CDSC is assessed on redemptions of Investor B Shares if:
. The shares were purchased with reinvested dividends or capital gains
distributions.
. The shares were purchased through an exchange of Investor B Shares of
another Portfolio.
. The redemption represents a distribution from a qualified retirement plan
under Section 403(b)(7) of the Internal Revenue Code, due to death,
disability or the attainment of a specified age.
. The redemption is in connection with the death or disability of the
shareholder.
. You participate in the Automatic Withdrawal Plan and your annual
withdrawals do not exceed 12% of your account's value.
. Your account falls below the Portfolio's minimum account size, and the Fund
liquidates your account (see page __).
. The redemption results from a tax-free return of an excess contribution,
pursuant to Section 408(d)(4) or (5) of the Internal Revenue Code.
Distribution and Service Fees
Investor A Shares of the Portfolios pay distribution (12b-1) and shareholder
service fees at an annual rate of up to 0.25% of each Portfolio's Investor A
Share assets. Investor B Shares of the Money Market Portfolio pay distribution
(12b-1) and shareholder service fees at an annual rate of up to 1.00% of the
Portfolio's Investor B Share assets. The Fund has adopted separate distribution
and service plans under Rule 12b-1 that allow each Portfolio to pay fees from
its Investor A Share and/or Investor B Share assets for selling and distributing
Investor A Shares or Investor B Shares, as the case may be, and for services
provided to shareholders. Because 12b-1 fees are paid on an ongoing basis, over
time they increase the cost of your investment and may cost more than other
sales charges.
-14-
<PAGE>
Converting Investor B Shares to Investor A Shares
Eight years after you buy Investor B Shares of the Money Market Portfolio, they
will automatically convert to Investor A Shares of the Portfolio. This allows
you to benefit from the lower annual expenses of Investor A Shares.
Explanation of Sales Price
Shares of each class in a Portfolio are sold at their net asset value (NAV).
The NAV for each class of shares of a Portfolio is determined as of 12:00 noon
(Eastern time) and as of the close of regular trading on the New York Stock
Exchange (currently 4:00 p.m., Eastern time) on every business day. The NAV for
a class of shares is determined by adding the value of the Portfolio's
investments, cash and other assets attributable to a particular share 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.
. Each Portfolio's investments are valued at amortized cost, which is
approximately equal to market value.
. If you properly place a purchase order (see "How to Buy Shares" on page
______) that is delivered to the Fund by 12:00 noon (Eastern time) on any
business day with respect to the Treasury Money Market Portfolio and Tax-
Exempt Money Market Portfolio or by 3:00 p.m. (Eastern time) on any
business day with respect to the Money Market Portfolio, the order receives
the share price next determined if the Fund receives payment in federal
funds or other immediately available funds by 4:00 p.m. (Eastern time) that
day. If payment is not received by that time, your order will be cancelled.
A properly placed purchase order that is delivered to the Fund after 12:00
noon (Eastern time) with respect to the Treasury Money Market Portfolio and
Tax-Exempt Money Market Portfolio or after 3:00 p.m. (Eastern time) with
respect to the Money Market Portfolio will be placed the following business
day.
(sidebar)
Business days defined
A business day is any day that both the New York Stock Exchange and the Federal
Reserve Bank of St. Louis are open for business. Currently, the Fund observes
the following holidays: 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 and Christmas.
How to Buy Shares
Investing in the Mercantile Money Market Portfolios is quick and convenient.
You can purchase Investor A Shares in any of the following ways:
. Through a broker-dealer organization. You can purchase shares through any
broker-dealer organization that has a sales agreement with the Fund's
distributor. The broker-dealer organization is responsible for sending your
purchase order to the Fund.
-15-
<PAGE>
. Through a financial organization. You can purchase shares through any
financial organization that has entered into a servicing agreement with the
Fund. The financial organization is responsible for sending your purchase
order to the Fund.
. Directly from the Fund by mail. Just complete an account application and
send it, along with a check for at least the minimum purchase amount, to:
Mercantile Mutual Funds, Inc., 615 East Michigan Street, P.O. Box 3011,
Milwaukee, Wisconsin 53201-3011. To make additional investments once you've
opened your account, send your check to the address above together with the
detachable form that's included with your Fund statement or confirmation of
a prior transaction or a letter stating the amount of your investment, the
name of the Portfolio you want to invest in and your account number.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
Minimum Investments To Open To Add to
Your Account Your Account
----------------------------------------------------------------------------------
<S> <C> <C>
Regular accounts $ 1,000 $ 50
----------------------------------------------------------------------------------
Sweep program through your
financial institution None None
----------------------------------------------------------------------------------
Wrap fee program through
your financial institution None None
----------------------------------------------------------------------------------
Payroll Deduction Program* None $ 25
----------------------------------------------------------------------------------
Automatic Exchange $ 5,000 $ 1,000 minimum
Program* account balance
--------------------------------------------------------------------------------
Automatic Investment $ 50 $ 50
Program*
--------------------------------------------------------------------------------
</TABLE>
* See Investor Programs below.
Investor B Shares of the Money Market Portfolio are available only to holders of
Investor B Shares of another of the Fund's portfolios who wish to exchange such
shares for Investor B Shares of the Money Market Portfolio. See "Investor
Programs" below for more information on the Fund's exchange privilege.
In addition, you may call the Fund at 1-800-452-2724 for more information on how
to buy shares.
How to Sell Shares
You can arrange to get money out of your account by selling some or all of your
shares. This is known as "redeeming" your shares. You can redeem your shares
in the following ways:
. Through a broker-dealer or other financial organization. If you purchased
your shares through a broker-dealer or other financial organization, your
redemption order should be placed through the same organization. The
organization is responsible for sending your redemption order to the Fund
on a timely basis.
-16-
<PAGE>
. By mail. Send your written redemption request to: Mercantile Mutual Funds,
615 East Michigan Street, P.O. Box 3011, Milwaukee, Wisconsin 53201-3011.
Your request must include the name of the Portfolio, the number of shares
or the dollar amount you want to sell, your account number, your social
security or tax identification number and the signature of each registered
owner of the account. Your request also must be accompanied by any share
certificates that are properly endorsed for transfer. Additional documents
may be required for certain types of shareholders, such as corporations,
partnerships, executors, trustees, administrators or guardians.
The Fund's transfer agent may require a signature guarantee unless the
redemption proceeds are payable to the shareholder of record and the
redemption is either mailed to the shareholder's address of record or
electronically transferred to the account designated on the original
account application. A signature guarantee helps prevent fraud, and you may
obtain one from most banks and broker-dealers. Contact your broker-dealer
or other financial organization or the Fund for more information on
signature guarantees.
. By telephone. You may redeem your shares by telephone if you have selected
that option on your account application and if there has been no change of
address by telephone within the preceding 15 days. Call the Fund at 1-800-
452-2724 with your request. You may have your proceeds mailed to your
address or transferred electronically to the bank account designated on
your account application. If you have not previously selected the telephone
privilege, you may add this feature by providing written instructions to
the Fund's transfer agent. If you have difficulty getting through to the
Fund because of unusual market conditions, consider selling your shares by
mail.
(sidebar)
Selling recently purchased shares
If you attempt to sell shares you recently purchased with a personal check, the
Fund may delay processing your request until it collects payment for those
shares. This process may take up to 15 days, so if you plan to sell shares
shortly after purchasing them, you may want to consider purchasing shares with a
certified or bank check or via electronic transfer to avoid delays.
You may sell your Portfolio shares at any time. Your shares will be sold at the
NAV next determined after the Fund accepts your order (see page ___). The
proceeds of the sale of Investor B Shares of the Money Market Portfolio will be
reduced by the applicable CDSC. If your order to sell is received and accepted
by the Fund before 12:00 noon (Eastern time) on a business day with respect to
the Treasury Money Market Portfolio and Tax-Exempt Money Market Portfolio or
before 3:00 p.m. (Eastern time) on a business day with respect to the Money
Market Portfolio, your proceeds normally will be sent electronically the same
day or mailed by check the next business day. If your order to sell is received
and accepted by the Fund after 12:00 noon (Eastern time) on a business day with
respect to the Treasury Money Market Portfolio and Tax-Exempt Money Market
Portfolio or after 3:00 p.m. (Eastern time) on a business day with respect to
the Money Market Portfolio, or on a non-business day, your proceeds will
normally be sent electronically the next business day (or mailed by check the
second business day thereafter). If your account holds both Investor A Shares
and Investor B Shares, be sure to specify which shares you are selling.
Otherwise, Investor A Shares will be sold first.
Investor Programs
It's also easy to buy or sell shares of the Portfolios by using one of the
programs described below.
Automatic Investment Program
-17-
<PAGE>
You may open an account or make additional investments to an existing account
for as little as $50 a month with the Fund's Automatic Investment Program (AIP).
Under the AIP, you specify the dollar amount to be automatically withdrawn each
month from your bank checking account and invested in your Portfolio account.
Purchases of Investor A Shares or Investor B Shares will occur on the day of the
month designated by you (or the next business day after the designated day) of
each month at the net asset value next determined on the day the order is
effected. To take advantage of the AIP, complete the AIP authorization form
included with your account application or contact your broker-dealer or other
financial organization.
Exchanges
The exchange privilege enables you to exchange Investor A Shares of one
Portfolio for Investor A Shares (or in certain limited circumstances as
described in the SAI, Trust or Institutional Shares) of another Portfolio and to
exchange Investor B Shares of the Money Market Portfolio for Investor B Shares
of another Portfolio. Just sign up for the exchange privilege on your account
application and contact your broker-dealer or other financial organization when
you want to exchange shares. You also may exchange shares by telephoning the
Fund directly (call 1-800-452-2724) if you have elected this privilege on your
account application. The exchange privilege may be exercised only in those
states where the class of shares of the Portfolio being acquired may be legally
sold.
Unless you qualify for a waiver, you will have to pay a sales charge when you
exchange Investor A Shares of a Portfolio for Investor A Shares of another
Portfolio that imposes a sales charge on purchases.
You may exchange Investor B Shares of the Money Market Portfolio without paying
a CDSC on the exchange. The holding period of the shares originally held and
redeemed will be added to the holding period of the new shares acquired through
the exchange.
Automatic Exchange Program
This program lets you automatically exchange shares of one Portfolio for shares
of another Portfolio on a regular basis, as long as the shares are of the same
class.
To participate, you must make a minimum initial purchase of $5,000 and maintain
a minimum account balance of $1,000. In addition, you must complete the
authorization form included with your account application or available from your
broker-dealer or other financial organization. In order to change instructions
with respect to the Automatic Exchange Program or to discontinue the program,
you must send written instructions to your broker-dealer or other financial
organization or to the Fund.
Automatic Withdrawal Plan
If the net asset value of your account equals $10,000 or more, you may take
advantage of the Fund's Automatic Withdrawal Plan (AWP). With the AWP, you can
have monthly, quarterly, semi-annual or annual redemptions of at least $50 from
your Portfolio account sent to you via check or to your bank account
electronically on the day designated by you (or the next business day after the
designated day) of the applicable month of withdrawal.
-18-
<PAGE>
No CDSC will be charged on withdrawals of Investor B Shares of the Money Market
Portfolio made through the AWP that don't annually exceed 12% of your account's
value.
To participate in the AWP, complete the AWP application included with your
account application or contact your broker-dealer or other financial
organization. A signature guarantee will be required. You may terminate your
participation in the AWP upon 30 days' notice to your broker-dealer or other
financial organization or to the Fund.
Checkwriting Privilege
You can sign up for the Fund's checkwriting privilege by completing the
signature card that accompanies the account application or by calling your
broker-dealer or other financial organization to obtain a signature card. You
may write up to six checks per month in an amount per check of $250 or more.
The Fund may charge a fee for use of the checkwriting privilege. Please note
that you can't write a check to close your account.
Payroll Deduction Program
You can make regular investments from your paycheck. The minimum investment is
$25 per pay period. Call the Fund at 1-800-452-2724 for an application and
further information. The Fund may terminate the program at any time.
Internet Transactions
You generally can request purchases, exchanges and redemptions of Investor A
Shares and Investor B Shares of the Portfolios on line via the Internet after an
account is opened. Redemption requests of up to $25,000 will be accepted through
the Internet. Payment for Shares purchased online must be made by electronic
funds transfer from your banking institution. To authorize this service, call
the Fund's transfer agent at 1-800-452-2724.
The Fund and its agents will not be responsible for any losses resulting from
unauthorized on-line transactions when procedures are followed which are
designed to confirm that the on-line transaction request is genuine. Statements
of accounts shall be conclusive if not objected to in writing within 10 days
after transmitted by mail. During periods of significant economic or market
change, it may be difficult to reach the Portfolios on line. If this happens,
you may initiate transactions in your share accounts by mail or otherwise as
described above.
-19-
<PAGE>
General Transaction Policies
The Fund reserves the right to:
. Vary or waive any minimum investment requirement.
. Refuse any order to buy shares.
. Reject any exchange request.
. Change or cancel the procedures for selling or exchanging shares by
telephone at any time.
. Redeem all shares in your account if your balance falls below $500. If,
within 60 days of the Fund's written request, you have not increased your
account balance, you may be required to redeem your shares. The Fund will
not require you to redeem shares if the value of your account drops below
$500 due to fluctuations in net asset value.
. Send redemption proceeds within seven days after receiving a request, if an
earlier payment could adversely affect a Portfolio.
. Modify or terminate the Automatic Exchange, Automatic Investment and
Automatic Withdrawal programs at any time.
. Modify or terminate the exchange privilege after 60 days' written notice to
shareholders.
. Modify or terminate the checkwriting privilege after 30 days' written
notice to shareholders.
. Make a "redemption in kind." Under abnormal conditions that may make
payment in cash unwise, the Fund may offer partial or complete payment in
portfolio securities rather than cash at such securities' then-market-value
equal to the redemption price. In such cases, you may incur brokerage costs
in converting these securities to cash.
If you elect telephone privileges on the account application or in a letter to
the Fund, you may be responsible for any fraudulent telephone orders as long as
the Fund has taken reasonable precautions to verify your identity.
Also, your broker-dealer or other financial organization may establish policies
that differ from those of the Funds. For example, the organization may charge
transaction fees, set higher minimum investments, or impose certain limitations
on purchasing or redeeming shares in addition to those identified in this
prospectus. Contact your broker-dealer or other financial organization for
details.
-20-
<PAGE>
Distributions and Taxes
Dividends and Distributions
Each Portfolio declares dividends from net investment income daily and pays them
monthly. Although the Portfolios do not expect to realize net long-term capital
gains, any capital gains realized will be distributed at least annually.
Dividends on each share class of the Portfolios are determined in the same
manner and are paid in the same amount. However, each share class bears all
expenses associated with that particular class. So, because Investor B Shares
have higher distribution and service fees than Investor A Shares, the dividends
paid to Investor B shareholders will be lower than those paid to Investor A
shareholders.
All of your dividends and capital gains distributions, with respect to a
particular Portfolio will be reinvested in additional shares of the same class
unless you instruct otherwise on your account application or have redeemed all
shares you held in the Portfolio. In such cases, dividends and distributions
will be paid in cash.
Taxation
As with any investment, you should consider the tax implications of an
investment in the Portfolios. The following is only a brief summary of some of
the important tax considerations generally affecting the Portfolios and their
shareholders under current law, which may be subject to change in the future.
Consult your tax adviser with specific reference to your own tax situation.
. Treasury Money Market and Money Market Portfolios
Distributions from these Portfolios will generally be taxable to
shareholders. It is expected that all or substantially all of these
distributions will consist of ordinary income and not capital gains. You
will be subject to income tax on these distributions regardless of whether
they are paid in cash or reinvested in additional shares. The one major
exception to these tax principles is that distributions on shares held in
an IRA (or other tax-qualified plan) will not be currently taxable.
. Tax-Exempt Money Market Portfolio
The Portfolio anticipates that substantially all of its income dividends
will be "exempt interest dividends," which are exempt from federal income
taxes. However, some dividends may be taxable, such as dividends that are
derived from occasional taxable investments, and distributions of short and
long-term capital gains.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Portfolio generally will not be deductible for federal income
tax purposes.
You should note that a portion of the exempt-interest dividends paid by the
Portfolio may constitute an item of tax preference for purposes of
determining federal alternative minimum tax liability. Exempt-interest
dividends will also be considered along with other adjusted gross income in
determining whether any Social Security or railroad retirement payments
received by you are subject to federal income taxes.
. State and Local Taxes
Shareholders may also be subject to state and local taxes on distributions
and redemptions. State income taxes may not apply however, to the portions
of each Portfolio's distributions, if any, that are attributable to
interest on federal securities or interest on securities of the particular
state or localities within the state.
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 which, if realized directly,
would be exempt from such taxes.
-21-
<PAGE>
The Treasury Money Market Portfolio is designed to provide shareholders, to
the extent permitted by federal law, with income that is exempt or excluded
from taxation at the state or local level. Please consult with a tax
adviser as to the status of distributions by the Portfolio in your state.
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. Shareholders who are nonresident
aliens, foreign trusts or estates, or foreign corporations or partnerships, may
be subject to different United States federal income tax treatment. For more
information regarding the taxation of the Portfolios, consult the SAI under the
heading "Additional Information Concerning Taxes." You should also consult your
tax adviser for further information regarding federal, state, local and/or
foreign tax consequences relevant to your specific situation.
(sidebar)
You will be advised at least annually regarding the federal income tax treatment
of dividends and distributions made to you. You should save your account
statements because they contain information you will need to calculate your
capital gains or losses, if any, upon your ultimate sale or exchange of shares
in the Portfolios.
-22-
<PAGE>
Management of the Fund
The Adviser
FIRMCO, subject to the general supervision of the Fund's Board of Directors, is
responsible for the day-to-day management of the Portfolios in accordance with
each Portfolio's respective investment objective and policies. This includes
making investment decisions, buying and selling securities and overseeing the
administration and recordkeeping for each Portfolio.
In exchange for these services, FIRMCO receives an investment advisory fee,
which is calculated daily and paid monthly, according to the average daily net
assets of each Portfolio. On March 1, 2000, MVA, the Portfolios' former adviser,
merged into FIRMCO. For the fiscal year ended November 30, 1999, the Portfolios
paid MVA advisory fees as follows:
- ---------------------------------------------------------------------
Portfolio Investment advisory fees
as a % of net assets
- ---------------------------------------------------------------------
Treasury Money Market Portfolio ___%
- ---------------------------------------------------------------------
Money Market Portfolio ___%
- ---------------------------------------------------------------------
Tax-Exempt Money Market Portfolio ___%
- ---------------------------------------------------------------------
-23-
<PAGE>
Financial Highlights
Introduction
The financial highlights tables presented below are intended to help you
understand the financial performance of each Portfolio's Investor A Shares
and/or Investor B Shares for the past five years (or, if shorter, the period
since the Portfolio began operations or the particular shares were first
offered). Certain information reflects financial results for a single Investor
A Share or Investor B Share in each Portfolio. The total returns in the tables
represent the rate that an investor would have earned (or lost) on an investment
in either Investor A Shares or Investor B Shares, assuming reinvestment of all
dividends and distributions. This information has been audited by
__________________, independent auditors, whose report, along with the
Portfolios' financial statements, are included in the Fund's Annual Report to
Shareholders, and are incorporated by reference into the SAI.
-24-
<PAGE>
Treasury Money Market Portfolio
Investor A Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------ ------
Investment Activities
Net investment income........................... 0.043 0.044 0.044 0.048
Total from Investment Activities................ 0.043 0.044 0.044 0.048
------- ------- ------ ------
Distributions
Net investment income........................... (0.043) (0.044) (0.044) (0.048)
Total Distributions............................. (0.043) (0.044) (0.044) (0.48)
------- ------- ------ ------
Net Asset Value, End of Period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ====== ======
Total Return...................................... 4.40% 4.53% 4.46% 4.93%
Ratios/Supplementary Data:
Net assets at end of period (000)................. $25,665 $ 8,409 $7,667 $2,776
Ratio of expenses to average net assets........... 0.81% 0.77% 0.81% 0.78%
Ratio of net investment income to average
net assets...................................... 4.22% 4.43% 4.35% 4.84%
Ratio of expenses to average net assets*.......... 0.96% 0.92% 0.96% 0.93%
</TABLE>
-25-
<PAGE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been as
indicated.
-26-
<PAGE>
Money Market Portfolio
Investor A Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- ------- -------
Investment Activities
Net investment income........................ 0.048 0.048 0.047 0.052
Total from Investment Activities............. 0.048 0.048 0.047 0.052
-------- -------- ------- -------
Distributions
Net investment income........................ (0.048) (0.048) (0.047) (0.052)
Total Distributions.......................... (0.048) (0.048) (0.047) (0.052)
-------- -------- ------- -------
Net Asset Value, End of Period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======= =======
Total Return................................... 4.95% 4.93% 4.81% 5.33%
Ratios/Supplementary Data:
Net assets at end of period (000).............. $203,583 $164,777 $91,166 $64,865
Ratio of expenses to average net assets........ 0.78% 0.77% 0.78% 0.77%
Ration of net investment income to
average net assets............................. 4.83% 4.84% 4.70% 5.20%
Ratio of expenses to average net assets*....... 0.93% 0.92% 0.93% 0.92%
</TABLE>
________________________
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio would have been indicated.
-27-
<PAGE>
Money Market Portfolio
Investor B Shares
(For a Share outstanding throughout each period)
Year Ended November 30,
<TABLE>
<CAPTION>
Jan 26, 1996
To
1999 1998 1997 Nov. 30, 1996/(a)/
---- ---- ---- ------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........... $ 1.00 $ 1.00 $ 1.00
------- ------- -------
Investment Activities
Net investment income........................ 0.041 0.041 0.033
Total from Investment Activities............. 0.041 0.041 0.033
------- ------- -------
Distributions
Net investment income........................ (0.041) (0.041) (0.033)
Total Distributions.......................... (0.041) (0.041) (0.033)
------- ------- -------
Net Asset Value, End of Period................. $ 1.00 $ 1.00 $ 1.00
======= ======= =======
Total Return................................... 4.17% 4.15% 3.35%/(b)/
Ratios/Supplementary Data:
Net assets at end of period (000).............. $ 84 $ 73 $ 41
Ratio of expenses to average net assets........ 1.53% 1.52% 1.47%/(c)/
Ration of net investment income to
average net assets............................. 4.09% 4.10% 3.73%/(c)/
Ratio of expenses to average net assets*....... 1.68% 1.67% 1.68%/(c)/
</TABLE>
__________________________________
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio would have been
indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
-28-
<PAGE>
Tax-Exempt Money Market Portfolio
(For a Share outstanding throughout each period)
Investor A Shares
<TABLE>
<CAPTION> Six Months
Ended Year Ended
Year Ended November 30, Nov. 30, May 31,
----------------------------------- ---------- ---------
1999 1998 1997 1996 1995/(a)/ 1995
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- -------- -------
Investment Activities
Net Investment income.................. 0.027 0.028 0.028 0.014 0.027
Total from Investment
Activities............................. 0.027 0.028 0.028 0.014 0.027
------- ------- ------- ------- -------
Distributions
Net investment income.................. (0.027) (0.028) (0.028) (0.014) (0.027)
Total Distributions.................... (0.027) (0.028) (0.028) (0.014) (0.027)
------- ------- ------- ------- -------
Net Asset Value,
End of Period.......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total Return............................. 2.72% 2.88% 2.83% 1.45%/(b)/ 2.70%
Ratios/Supplementary Data: $13,980 $15,789 $17,984 $ 5,403 $ 5,138
Net assets at end of period (000)........
Ratio of expenses to average net assets.. 0.79% 0.77% 0.75% 0.94%/(c)/ 0.84%
Ratio of net investment income to
average net assets..................... 2.68% 2.82% 2.78% 2.87%/(c)/ 2.63%
Ratio of expenses to average
net assets*............................ 0.84% 0.82% 0.80% 0.99%/(c)/ 0.93%
</TABLE>
___________________
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio would have been as
indicated.
(a) Upon reorganizing as a portfolio of the Fund on October 2,
1995, the Tax-Exempt Money Market Portfolio changed its fiscal year-end
from May 31 to November 30.
(b) Not annualized.
(c) Annualized.
-29-
<PAGE>
[Back Cover Page]
Where to find more information:
You'll find more information about the Portfolios in the following documents:
Annual and semi-annual reports
The Fund's annual and semi-annual reports contain information about each
Portfolio and a discussion about the market conditions and investment strategies
that had a significant effect on each Portfolio's performance during the last
fiscal year.
Statement of Additional Information (SAI)
The SAI contains detailed information about the Portfolios and their policies.
By law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Portfolios and make shareholder inquiries by calling the Fund at 1-800-452-2724
or by writing to:
Mercantile Mutual Funds, Inc.
615 East Michigan Street
P.O. Box 3011
Milwaukee, Wisconsin 53201-3011
If you buy your shares through a broker-dealer or other financial institution,
you may contact your institution for more information.
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Portfolios, including the
SAI. They'll charge you a fee for this service. You can also visit the SEC
Public Reference Room and copy the documents while you're there. For
information about the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC
Washington, DC 20549-0102
1-202-942-8090
Reports and other information about the Portfolios are also available on the
EDGAR database on the SEC's website at http://www.sec.gov. Copies of this
information may also be obtained, after paying a duplicating fee, by electronic
request to the SEC's e-mail address at [email protected].
The Fund's Investment Company Act File No. is 811-3567
<PAGE>
Mercantile Mutual Funds
Prospectus
Investor Shares
__________________, 2000
Taxable Bond Portfolios
U.S. Government Securities Portfolio
Intermediate Corporate Bond Portfolio
Bond Index Portfolio
Government & Corporate Bond Portfolio
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Portfolios or determined if this
prospectus is truthful or complete. Anyone who tells you otherwise is committing
a criminal offense.
<PAGE>
Contents
Risk/Return Summary
1 Overview
2 U.S. Government Securities Portfolio
6 Intermediate Corporate Bond Portfolio
10 Bond Index Portfolio
13 Government & Corporate Bond Portfolio
17 Additional Information on Risk
Your Account
18 Distribution Arrangements/Sales Charges
23 Explanation of Sales Price
24 How to Buy Shares
25 How to Sell Shares
26 Investor Programs
28 General Transaction Policies
Distributions and Taxes
30 Dividends and Distributions
30 Taxation
Management of the Fund
32 The Adviser
Financial Highlights
33 Introduction
34 U.S. Government Securities Portfolio
36 Intermediate Corporate Bond Portfolio
37 Bond Index Portfolio
38 Government & Corporate Bond Portfolio
<PAGE>
Risk/Return Summary
Overview
This prospectus describes the Mercantile Taxable Bond Portfolios, four
investment portfolios offered by Mercantile Mutual Funds, Inc. (the "Fund"). On
the following pages, you will find important information about each Portfolio,
including:
. A description of the Portfolio's investment objective (sometimes referred
to as its goal);
. The Portfolio's principal investment strategies (the steps it takes to try
to meet its goal);
. The principal risks associated with the Portfolio (factors that may prevent
it from meeting its goal);
. The Portfolio's past performance (how successful it's been in meeting its
goal); and
. The fees and expenses (including sales charges) you pay as an investor in
the Portfolio.
Who may want to invest in the Mercantile Taxable Bond Portfolios?
The Mercantile Taxable Bond Portfolios may be appropriate for investors who seek
current income from their investments greater than that normally available from
a money market fund and can accept fluctuations in price and yield. The
Portfolios may not be appropriate for investors who are investing for long-term
capital appreciation.
Before investing in a Portfolio, you should carefully consider:
. Your own investment goals
. The amount of time you are willing to leave your money invested
. How much risk you are willing to take.
The Investment Adviser
Firstar Investment Research and Management Company, LLC ("FIRMCO" or the
"Adviser") serves as the investment adviser to each Portfolio as a result of the
merger of the Portfolios' former adviser, Mississippi Valley Advisors Inc.
("MVA") into FIRMCO on March 1, 2000. FIRMCO is a subsidiary of Firstar
Corporation, a banking and financial services organization, and has its main
office at Firstar Center, 777 East Wisconsin Avenue, 8th Floor, Milwaukee,
Wisconsin. FIRMCO has been providing advisory services since 1986 and as of
December 31, 1999, FIRMCO had approximately $35.3 billion in assets under
management.
(sidebar)
An investment in the Portfolios is not a Firstar Bank deposit and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. You could lose money by investing in the Portfolios.
-1-
<PAGE>
U.S. Government Securities Portfolio
Investment Objective
The Portfolio's investment objective is to seek a high rate of current income
that is consistent with relative stability of principal.
Principal Investment Strategies
The Portfolio normally invests at least 65% of its total net assets in debt
obligations issued or guaranteed by the U.S. Government and its agencies,
including U.S. Treasury bonds, notes and bills, as well as in repurchase
agreements backed by such obligations. The Portfolio also invests in mortgage-
backed securities issued by U.S. Government-sponsored entities such as Ginnie
Maes, Fannie Maes, and Freddie Macs. The remaining maturity (i.e., length of
time until an obligation must be repaid) of the obligations held by the
Portfolio will vary from 1 to 30 years.
(sidebar)
Repurchase agreements are transactions in which a Portfolio buys securities from
a seller (usually a bank or broker-dealer) who agrees to buy them back from the
Portfolio on a certain date and at a certain price.
(sidebar)
Mortgage-backed securities are certificates representing ownership interests in
a pool of mortgage loans, and include those issued by the Government National
Mortgage Association ("Ginnie Maes"), the Federal National Mortgage Association
("Fannie Maes") and the Federal Home Loan Mortgage Corporation ("Freddie Macs").
Principal Risk Considerations
The prices of debt securities tend to move in the opposite direction to interest
rates. When rates are rising, the prices of debt securities tend to fall. When
rates are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt security
is to interest rate changes. Changes in interest rates may also cause certain
debt securities held by the Portfolio, including mortgage-backed securities, to
be paid off much sooner or later than expected. In the event that a security is
paid off sooner than expected because of a decline in interest rates, the
Portfolio may be unable to recoup all of its initial investment and may also
suffer from having to reinvest in lower-yielding securities. In the event of a
later than expected payment because of a rise in interest rates, the value of
the obligation will decrease, and the Portfolio may suffer from the inability to
invest in higher-yielding securities.
The value of debt securities also depends on the ability of issuers to make
principal and interest payments. If an issuer can't meet its payment
obligations, the value of its debt securities will fall. Securities issued or
guaranteed by the U.S. Government and its agencies have historically
-2-
<PAGE>
involved little risk of loss of principal if held to maturity. Certain U.S.
Government securities, such as Ginnie Maes, are supported by the full faith and
credit of the U.S. Treasury. Others, such as Freddie Macs, are supported by the
right of the issuer to borrow from the U.S. Treasury. Other securities, such as
Fannie Maes, are supported by the discretionary authority of the U.S. Government
to purchase certain obligations of the issuer, and still others are supported by
the issuer's own credit.
Repurchase agreements carry the risk that the other party may not fulfill its
obligations under the agreement.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
(sidebar)
Portfolio Manager
David A. Bethke is the person primarily responsible for the day-to-day
management of the Portfolio. Mr. Bethke, Senior Associate, joined FIRMCO and its
predecessors in 1987 and has eight years of prior investment experience. He has
managed the Portfolio since it commenced operations in 1988.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Investor A Shares has varied from year to year. The table shows how the
Portfolio's average annual returns for one year, five years, ten years and since
inception compare to those of a broad-based market index. Both the bar chart and
table assume reinvestment of all dividends and distributions. The Portfolio's
past performance does not necessarily indicate how it will perform in the
future.
Investor A Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
- --------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- --------------------------------------------------------------------------
11.04% 13.98% 5.48% 8.77% -2.74% 14.95% 3.02% 6.37% 6.43% ____%
- --------------------------------------------------------------------------
The returns for Investor B Shares differed from the returns shown in the bar
chart because the two classes bear different expenses. The bar chart does not
reflect any sales charges on purchases of the Portfolio's Investor A Shares. If
sales charges were included, returns would be lower than those shown.
Best quarter: ____% for the quarter ending __________________
Worst quarter: _____% for the quarter ending __________________
-3-
<PAGE>
Average Annual Total Returns for the periods ended December 31, 1999
- --------------------------------------------------------------------------------
Since
1 Year 5 Years 10 Years Inception*
- --------------------------------------------------------------------------------
Investor A Shares
(with 2.50% sales charge) ____% ____% ____% ____%
- --------------------------------------------------------------------------------
Investor B Shares**
(with applicable contingent
deferred sales charge) ____% N/A N/A ____%
- --------------------------------------------------------------------------------
Lehman Brothers Intermediate
Government Bond Index ____% ____% ____% ____%
- --------------------------------------------------------------------------------
* June 2, 1988 for Investor A Shares; May 31, 1988 for the Lehman Brothers
Intermediate Government Bond Index.
** Investor B Shares of the Portfolio commenced operations on March 1,
1995.
(sidebar)
Know your index
The Lehman Brothers Intermediate Government Bond Index is an unmanaged index
which tracks the performance of intermediate-term U.S. Government bonds.
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Investor A Shares or Investor B Shares of the U.S. Government Securities
Portfolio.
Shareholder Fees (fees you pay directly)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Maximum deferred sales
Maximum sales charge (load) to charge (load) shown as
buy shares, shown as a % of a % of the offering price or
the offering price sale price, whichever is less
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Investor A Shares 2.50%/1/ None
- ------------------------------------------------------------------------------------------------
Investor B Shares None 5.00%/2/
- ------------------------------------------------------------------------------------------------
</TABLE>
-4-
<PAGE>
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Total Annual
Distribution Portfolio
Management Fees (12b-1) and Operating
Service Fees Other Expenses Expenses
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investor A Shares
.45% .30% ___%/3/ ___%/3/
- ----------------------------------------------------------------------------------------------------
Investor B Shares
.45% 1.00% ___%/3/ ___%/3/
- ----------------------------------------------------------------------------------------------------
</TABLE>
/1/ Reduced sales charges may be available. See "Distribution
Arrangements/Sales Charges" below.
/2/ This amount applies if you sell your shares in the first year after
purchase and gradually declines until it is eliminated after six years.
After eight years, your Investor B Shares will automatically convert to
Investor A Shares. See "Distribution Arrangements/Sales Charges" below.
/3/ Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Investor A Shares and Investor B Shares for the current
fiscal year are expected to be less than the amounts shown above because
certain of the Portfolio's service providers are voluntarily waiving a
portion of their fees and/or reimbursing the Portfolio for certain other
expenses. These fee waivers and/or reimbursements are being made in order
to keep the annual fees and expenses for the Portfolio's Investor A
Shares and Investor B Shares at certain levels. Other Expenses and Total
Annual Portfolio Operating Expenses, after taking these fee waivers and
expense reimbursements into account, are expected to be ___% and ___%,
respectively, for Investor A Shares and ___% and ___%, respectively, for
Investor B Shares. These fee waivers and expense reimbursements may be
revised or cancelled at any time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year, the Portfolio's operating expenses remain the same and your Investor
B Shares automatically convert to Investor A Shares after eight years. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investor A Shares
$____ $____ $____ $____
- ------------------------------------------------------------------------------------------------------
Investor B Shares
$____ $____ $____ $____
- ------------------------------------------------------------------------------------------------------
If you hold Investor B Shares, you would pay the following expenses if you did not sell your shares:
- ------------------------------------------------------------------------------------------------------
$____ $____ $____ $____
- ------------------------------------------------------------------------------------------------------
</TABLE>
-5-
<PAGE>
Intermediate Corporate Bond Portfolio
Investment Objective
The Portfolio's investment objective is to seek as high a level of current
income as is consistent with preservation of capital.
Principal Investment Strategies
The Portfolio normally invests at least 65% of its total assets in corporate
debt obligations. These include obligations that are issued by U.S. and foreign
business corporations and obligations issued by agencies, instrumentalities or
authorities that are organized as corporations by the U.S., by states or
political subdivisions of the U.S., or by foreign governments or political
subdivisions. The Portfolio also invests in obligations issued or guaranteed by
U.S. or foreign governments, their agencies and instrumentalities and in
mortgage-backed securities, including Ginnie Maes, Fannie Maes and Freddie Macs.
The Portfolio may only purchase investment grade debt obligations. Under normal
market 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. Unrated debt obligations will be purchased only if they are
determined by the Adviser to be at least comparable in quality at the time of
purchase to eligible rated securities. Occasionally, the rating of a security
held by the Portfolio may be downgraded below investment grade. If that happens,
the Portfolio does not have to sell the security unless the Adviser determines
that under the circumstances the security is no longer an appropriate investment
for the Portfolio.
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's
average weighted maturity will generally be between three and ten years.
(sidebar)
Investment grade debt securities are those of medium credit quality or better as
determined by a national rating agency, such as Standard & Poor's Ratings Group
(debt securities rated in the four highest rating categories, i.e. BBB or
higher) and Moody's Investors Service, Inc. (debt securities rated in the four
highest rating categories, i.e. Baa or better). The higher the credit rating,
the less likely it is that the issuer of the securities will default on its
principal and interest payments.
(sidebar)
Average weighted maturity gives you the average time until all debt securities
in a Portfolio come due or mature. It is calculated by averaging the time to
maturity of all debt securities held by a Portfolio with each maturity
"weighted" according to the percentage of assets it represents.
-6-
<PAGE>
Principal Risk Considerations
The prices of debt securities tend to move in the opposite direction to interest
rates. When rates are rising, the prices of debt securities tend to fall. When
rates are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt security
is to interest rate changes. Changes in interest rates also may cause certain
debt securities held by the Portfolio, including callable securities and
mortgage-backed securities, to be paid off much sooner or later than expected.
In the event that a security is paid off sooner than expected because of a
decline in interest rates, the Portfolio may be unable to recoup all of its
initial investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise in
interest rates, the value of the obligation will decrease, and the Portfolio may
suffer from the inability to invest in higher-yielding securities.
The value of debt securities also depends on the ability of issuers to make
principal and interest payments. If an issuer can't meet its payment obligations
or if its credit rating is lowered, the value of its debt securities will fall.
Foreign investments may be riskier than U.S. investments because of currency
exchange rate volatility, government restrictions, different accounting
standards and political instability.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
(sidebar)
Portfolio Manager
David A. Bethke is the person primarily responsible for the day-to-day
management of the Portfolio. Mr. Bethke, Senior Associate, joined FIRMCO and its
predecessors in 1987 and has eight years of prior investment experience. He has
managed the Portfolio since it commenced operations in 1997.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Investor A Shares has varied from year to year. The table shows how the
Portfolio's average annual returns for one year and since inception compare to
those of a broad-based market index. Both the bar chart and table assume
reinvestment of all dividends and distributions. The Portfolio's past
performance does not necessarily indicate how it will perform in the
future.
-7-
<PAGE>
Investor A Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
- ---------------------------
1998 1999
- ---------------------------
8.79% ____%
- ---------------------------
The bar chart does not reflect any sales charges on purchases of the Portfolio's
Investor A Shares. If sales charges were included, returns would be lower than
those shown.
Best quarter: ____% for the quarter ending __________________
Worst quarter: _____% for the quarter ending _________________
Average Annual Total Returns for the periods ended December 31, 1999
- -------------------------------------------------------------------
Since
1 Year Inception*
- -------------------------------------------------------------------
Investor A Shares (with 4.75% sales ____% ____%
charge)
- -------------------------------------------------------------------
Lehman Brothers Intermediate Corporate
Bond Index ____% ____%
- -------------------------------------------------------------------
* February 10, 1997 for Investor A Shares; January 31, 1997 for the Lehman
Brothers Intermediate Corporate Bond Index.
(sidebar)
Know your index
The Lehman Brothers Intermediate Corporate Bond Index is an unmanaged index
which tracks the performance of intermediate-term U.S. corporate bonds.
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Investor A Shares of the Intermediate Corporate Bond Portfolio.
-8-
<PAGE>
Shareholder Fees (fees you pay directly)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Maximum deferred sales charge
Maximum sales charge (load) to (load) shown as a % of the
buy shares, shown as a % of offering price or sale price,
the offering price whichever is less
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Investor A Shares 4.75%/1/ None
- ---------------------------------------------------------------------------------------------------
</TABLE>
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Total Annual
Distribution Portfolio
(12b-1) and Operating
Management Fees Service Fees Other Expenses Expenses
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investor A
Shares .55% .30%
___%/2/ ___%/2/
- ---------------------------------------------------------------------------------------------------
</TABLE>
/1/ Reduced sales charges may be available. See "Distribution
Arrangements/Sales Charges" below.
/2/ Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Investor A Shares for the current fiscal year are expected to
be less than the amounts shown above because certain of the Portfolio's
service providers are voluntarily waiving a portion of their fees and/or
reimbursing the Portfolio for certain other expenses. These fee waivers
and/or reimbursements are being made in order to keep the annual fees and
expenses for the Portfolio's Investor A Shares at a certain level. Other
Expenses and Total Annual Portfolio Operating Expenses, after taking
these fee waivers and expense reimbursements into account, are expected
to be ___% and ____%, respectively, for Investor A Shares. These fee
waivers and expense reimbursements may be revised or cancelled at any
time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
- --------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
Investor A
Shares
$___ $___ $____ $____
- --------------------------------------------------------------------------------
-9-
<PAGE>
Bond Index Portfolio
Investment Objective
The 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
"Lehman Aggregate").
The Portfolio's investment objective can be changed by the Fund's Board of
Directors without shareholder approval. Shareholders will be given at least 30
days' written notice before any such change occurs.
Principal Investment Strategies
The Portfolio uses an "indexing" strategy through the use of computer models to
approximate the investment performance of the Lehman Aggregate. 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. Because of the
large number of securities listed in the Lehman Aggregate, the Portfolio cannot
invest in all of them. Instead, the Portfolio holds a representative sample of
approximately 100 of the securities in the Lehman Aggregate, selecting one or
two securities to represent an entire "class" or type of security in the Lehman
Aggregate. The Portfolio will invest substantially all (but not less than 80%)
of its total assets in securities listed in the Lehman Aggregate.
(sidebar)
Indexing is a strategy whereby a Portfolio attempts to weight its securities to
match those of a broadly-based securities index in an attempt to approximate the
index's performance.
(sidebar)
The Lehman Brothers Aggregate Bond Index is an unmanaged index made up of Lehman
Brothers' Government/Corporate Bond Index, its Mortgage Backed Securities Index
and its Asset Backed Securities Index.
Principal Risk Considerations
The prices of debt securities tend to move in the opposite direction to interest
rates. When rates are rising, the prices of debt securities tend to fall. When
rates are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt security
is to interest rate changes. Changes in interest rates also may cause certain
debt securities held by the Portfolio, including callable securities and
mortgage-backed securities, to be paid off much sooner or later than expected.
In the event that a security is paid off sooner than expected because of a
decline in interest rates, the Portfolio may be unable to
-10-
<PAGE>
recoup all of its initial investment and may also suffer from having to reinvest
in lower-yielding securities. In the event of a later than expected payment
because of a rise in interest rates, the value of the obligation will decrease,
and the Portfolio may suffer from the inability to invest in higher-yielding
securities.
The value of debt securities also depends on the ability of issuers to make
principal and interest payments. If an issuer can't meet its payment obligations
or if its credit rating is lowered, the value of its debt securities will fall.
There is the additional risk that the Portfolio will fail to match the
investment results of the Lehman Aggregate.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance thereby giving some indication of the risk of investing in
the Portfolio. The bar chart shows how the performance of the Portfolio's
Investor A Shares has varied from year to year. The table shows how the
Portfolio's average annual returns for one year and since inception compare to
those of the Lehman Aggregate. Both the bar chart and table assume reinvestment
of all dividends and distributions. The Portfolio's past performance does not
necessarily indicate how it will perform in the future.
Investor A Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
<TABLE>
<CAPTION>
- ---------------------------
1998 1999
- ---------------------------
<S> <C>
8.60% ____%
-------------
- ---------------------------
</TABLE>
The bar chart does not reflect any sales charges on purchases of the Portfolio's
Investor A Shares. If sales charges were included, returns would be lower than
those shown.
Best quarter: ____% for the quarter ending __________________
Worst quarter: ____% for the quarter ending _________________
Average Annual Total Returns for the periods ended December 31, 1999
- -------------------------------------------------------------------
Since
1 Year Inception*
- -------------------------------------------------------------------
Investor A Shares (with 4.75% sales ____% ____%
charge)
- -------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index ____% ____%
- -------------------------------------------------------------------
-11-
<PAGE>
* February 10, 1997 for Investor A Shares; January 31, 1997 for the Lehman
Brothers Aggregate Bond Index.
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Investor A Shares of the Bond Index Portfolio.
Shareholder Fees (fees you pay directly)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Maximum deferred sales charge
Maximum sales charge (load) to (load) shown as a % of the
buy shares, shown as a % of offering price or sale price,
the offering price whichever is less
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Investor A Shares 4.75%/1/ None
- ------------------------------------------------------------------------------------------------
</TABLE>
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Total Annual
Distribution Portfolio
Management Fees (12b-1) and Service Operating Expenses
Fees Other Expenses
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investor A Shares
.30% .30% ___%/2/ ___%/2/
- --------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Reduced sales charges may be available. See "Distribution
Arrangements/Sales Charges" below.
/2/ Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Investor A Shares for the current fiscal year are expected to
be less than the amounts shown above because certain of the Portfolio's
service providers are voluntarily waiving a portion of their fees and/or
reimbursing the Portfolio for certain other expenses. These fee waivers
and/or reimbursements are being made in order to keep the annual fees and
expenses for the Portfolio's Investor A Shares at a certain level. Other
Expenses and Total Annual Portfolio Operating Expenses, after taking these
fee waivers and expense reimbursements into account, are expected to be
___% and ___%, respectively, for Investor A Shares. These fee waivers and
expense reimbursements may be revised or cancelled at any time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
-12-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investor A Shares
$___ $___ $___ $____
- ------------------------------------------------------------------------------------------------------
</TABLE>
-13-
<PAGE>
Government & Corporate Bond Portfolio
Investment Objective
The Portfolio's investment objective is to seek the highest level of current
income consistent with conservation of capital.
Principal Investment Strategies
The Portfolio invests substantially all of its assets in a broad range of debt
obligations, including corporate obligations and U.S. Government obligations.
Corporate obligations may include bonds, notes, and debentures. U.S. Government
obligations may include U.S. Treasury obligations and obligations of certain
U.S. Government agencies. The Portfolio also invests in mortgage-backed
securities, including Ginnie Maes, Fannie Maes and Freddie Macs. Although the
Portfolio invests primarily in the debt obligations of U.S. issuers, it may from
time to time invest in U.S. dollar-denominated debt obligations of foreign
corporations and governments.
The Portfolio may only purchase investment grade debt obligations, which are
those rated in one of the four highest rating categories by one or more national
rating agencies such as Standard & Poor's Ratings Group or Moody's Investors
Service, Inc. Under normal market 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. Unrated debt obligations will be purchased only
if they are determined by the Adviser to be at least comparable in quality at
the time of purchase to eligible rated securities. Occasionally, the rating of a
security held by the Portfolio may be downgraded below investment grade. If that
happens, the Portfolio does not have to sell the security unless the Adviser
determines that under the circumstances the security is no longer an appropriate
investment for the Portfolio.
In making investment decisions, the Adviser considers a number of factors
including credit quality, the price of the security relative to that of other
securities in its sector, current yield, maturity, yield to maturity,
anticipated changes in interest rates and other economic factors, liquidity and
the overall quality of the investment. The Portfolio's average weighted maturity
will vary from time to time depending on current market and economic conditions
and the Adviser's assessment of probable changes in interest rates.
Principal Risk Considerations
The prices of debt securities tend to move in the opposite direction to interest
rates. When rates are rising, the prices of debt securities tend to fall. When
rates are falling, the prices of debt securities tend to rise. Generally, the
longer the time until maturity, the more sensitive the price of a debt security
is to interest rate changes. Changes in interest rates also may cause certain
debt securities held by the Portfolio, including callable securities and
mortgage-backed securities, to be paid off much sooner or later than expected.
In the event that a security is paid off sooner than expected because of a
decline in interest rates, the Portfolio may be unable to recoup all of its
initial investment and may also suffer from having to reinvest in lower-yielding
securities. In the event of a later than expected payment because of a rise in
interest rates, the
-14-
<PAGE>
value of the obligation will decrease, and the Portfolio may suffer from the
inability to invest in higher-yielding securities.
The value of debt securities also depends on the ability of issuers to make
principal and interest payments. If an issuer can't meet its payment obligations
or if its credit rating is lowered, the value of its debt securities will fall.
Foreign investments may be riskier than U.S. investments because of current
exchange rate volatility, government restrictions, different accounting
standards and political instability.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
(sidebar)
Portfolio Manager
George J. Schupp is the person primarily responsible for the day-to-day
management of the Portfolio. Mr. Schupp, FIRMCO's Director of Fixed Income
Management, joined FIRMCO and its predecessors in 1983 and has 7 years of prior
investment experience. He has managed the Portfolio since February 1998.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Investor A Shares has varied from year to year. The table shows how the
Portfolio's average annual returns for one year, five years, ten years and since
inception compare to those of a broad-based market index. Both the bar chart and
table assume reinvestment of all dividends and distributions. The Portfolio's
past performance does not necessarily indicate how it will perform in the
future.
Investor A Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
- --------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- --------------------------------------------------------------------------
6.46% 15.23% 5.78% 9.07% -2.92% 16.73% 1.83% 8.03% 8.68% ____%
- --------------------------------------------------------------------------
The returns for Investor B Shares differed from the returns shown in the bar
chart because the two classes bear different expenses. The bar chart does not
reflect any sales charges on purchases of the Portfolio's Investor A Shares. If
sales charges were included, returns would be lower than those shown.
-15-
<PAGE>
Best quarter: ____% for the quarter ending _____________
Worst quarter: _____% for the quarter ending ______________
Average Annual Total Returns for the periods ended December 31, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Since
1 Year 5 Years 10 Years Inception*
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investor A Shares (with 4.75% sales ____% ____% ____% ____%
charge)
- ---------------------------------------------------------------------------------------------------
Investor B Shares** (with applicable ____% N/A N/A ____%
contingent deferred sales charge)
- ---------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index ____% ____% ____% ____%
- ---------------------------------------------------------------------------------------------------
</TABLE>
* June 15, 1988 for Investor A Shares; May 31, 1988 for the Lehman Brothers
Aggregate Bond Index.
** Investor B Shares of the Portfolio commenced operations on March 1, 1995.
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Investor A Shares or Investor B Shares of the Government & Corporate Bond
Portfolio.
Shareholder Fees (fees you pay directly)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Maximum deferred sales charge
Maximum sales charge (load) to (load) shown as a % of the
buy shares, shown as a % of offering price or sale price,
the offering price whichever is less
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Investor A Shares 4.75%/1/ None
- ------------------------------------------------------------------------------------------------
Investor B Shares None 5.00%/2/
- ------------------------------------------------------------------------------------------------
</TABLE>
-16-
<PAGE>
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Total Annual
Distribution Portfolio
Management Fees (12b-1) and Service Operating Expenses
Fees Other Expenses
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investor A Shares .45% .30%
___%/3/ ____%/3/
- --------------------------------------------------------------------------------------------------------
Investor B Shares .45% 1.00%
___%/3/ ____%/3/
- --------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Reduced sales charges may be available. See "Distribution
Arrangements/Sales Charges" below.
/2/ This amount applies if you sell your shares in the first year after
purchase and gradually declines until it is eliminated after six years.
After eight years, your Investor B Shares will automatically convert to
Investor A Shares. See "Distribution Arrangements/Sales Charges" below.
/3/ Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Investor A Shares and Investor B Shares for the current fiscal
year are expected to be less than the amounts shown above because certain
of the Portfolio's service providers are voluntarily waiving a portion of
their fees and/or reimbursing the Portfolio for certain other expenses.
These fee waivers or reimbursements are being made in order to keep the
annual fees and expenses for the Portfolio's Investor A Shares and Investor
B Shares at a certain level. Other Expenses and Total Annual Portfolio
Operating Expenses, after taking these fee waivers and expense
reimbursements into account, are expected to be ___% and ___%,
respectively, for Investor A Shares and ___% and ____%, respectively, for
Investor B shares. These fee waivers and expense reimbursements may be
revised or cancelled at any time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year, the Portfolio's operating expenses remain the same and your Investor
B Shares automatically convert to Investor A Shares after eight years. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investor A Shares
$___ $___ $____ $____
- ------------------------------------------------------------------------------------------------------
Investor B Shares
$___ $___ $____ $____
- ------------------------------------------------------------------------------------------------------
If you hold Investor B Shares, you would pay the following expenses if you did not sell your shares:
- ------------------------------------------------------------------------------------------------------
$___ $___ $____ $____
- ------------------------------------------------------------------------------------------------------
</TABLE>
-17-
<PAGE>
Additional Information on Risk
The principal risks of investing in each Portfolio are described on the previous
pages. The following supplements that discussion.
Securities Lending
To obtain interest income, the Portfolios may lend their 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. There is the risk that, when
lending portfolio securities, the securities may not be available to the
Portfolio on a timely basis. Therefore, the Portfolio may lose the opportunity
to sell the securities at a desirable price. Additionally, in the event that a
borrower of securities would file for bankruptcy or become insolvent,
disposition of the securities may be delayed pending court action.
Temporary Defensive Positions
Each Portfolio may temporarily hold investments that are not part of its main
investment strategy to try to avoid losses during unfavorable market conditions.
These investments may include cash (which will not earn any income), money
market instruments and short-term debt securities issued or guaranteed by the
U.S. Government or its agencies. This strategy could prevent a Portfolio from
achieving its investment objective.
Other Types of Investments
This prospectus describes each Portfolio's principal investment strategies and
the particular types of securities in which each Portfolio principally invests.
Each Portfolio may, from time to time, make other types of investments and
pursue other investment strategies in support of its overall investment goal.
These supplemental investment strategies--and the risks involved--are described
in detail in the Statement of Additional Information ("SAI"), which is referred
to on the back cover of this prospectus.
Year 2000 Risks
Over the past several years, the Adviser and the Portfolios' other major service
providers expended considerable time and money in addressing the computer and
technology problems associated with the transition to the Year 2000. As a result
of those efforts, the Portfolios did not experience any material disruptions in
their operations as a result of the transition to the 21/st/ century. The
Adviser and the Portfolios' other major service providers are continuing to
monitor the Year 2000 or Y2K problem, however, and there can be no assurances
that there will be no adverse impact to the Portfolios as a result of future
computer-related Y2K difficulties.
-18-
<PAGE>
Your Account
Distribution Arrangements/Sales Charges
Share Classes
Each Portfolio offers Investor A Shares and each Portfolio except the
Intermediate Corporate Bond Portfolio and Bond Index Portfolio offers Investor B
Shares. The primary difference between the share classes is the sales charge
structure and distribution/service fee arrangement.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Types of Charges Investor A Shares Investor B Shares
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales Charge (Load) A front-end sales charge is A contingent deferred sales
assessed at the time of your charge (CDSC) is assessed on
purchase. shares redeemed within six
years of purchase. Investor B
Shares automatically convert
to Investor A Shares eight
years after purchase.
- ------------------------------------------------------------------------------------------------
Distribution (12b-1) and Subject to annual distribution Subject to annual distribution
Service Fees and shareholder servicing fees and shareholder servicing fees
of up to 0.30% of a of up to 1.00% of a
Portfolio's average daily net Portfolio's average daily net
assets attributable to its assets attributable to its
Investor A Shares. Investor B Shares.
- ------------------------------------------------------------------------------------------------
</TABLE>
-19-
<PAGE>
Calculation of Sales Charges
Investor A Shares
<TABLE>
<CAPTION>
Intermediate Corporate Bond, Bond Index and Government & Corporate Bond Portfolios
- -----------------------------------------------------------------------------------------------
Amount of Transaction Sales Charge as a % of Sales Charge as a % of Dealers' Reallowance
the Offering Price Per Net Asset Value Per as a % of Offering
Share Share Price
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 4.75% 4.99% 4.25%
- -----------------------------------------------------------------------------------------------
$50,000 but less
than $100,000 4.50% 4.71% 4.00%
- -----------------------------------------------------------------------------------------------
$100,000 but less
than $250,000 3.50% 3.63% 3.00%
- -----------------------------------------------------------------------------------------------
$250,000 but less
than $500,000 2.50% 2.56% 2.00%
- -----------------------------------------------------------------------------------------------
$500,000 but less
than $1 million 2.00% 2.04% 1.50%
- -----------------------------------------------------------------------------------------------
$1 million or more 0.50% 0.50% 0.40%
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
U.S. Government Securities Portfolio
- -----------------------------------------------------------------------------------------------
Amount of Transaction Sales Charge as a % of Sales Charge as a % of Dealers' Reallowance
the Offering Price Per Net Asset Value Per as a % of Offering
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 million 1.00% 1.01% 0.85%
- -----------------------------------------------------------------------------------------------
$1 million or more 0.50% 0.50% 0.40%
- -----------------------------------------------------------------------------------------------
</TABLE>
-20-
<PAGE>
The Fund's distributor reserves the right to pay the entire sales charges on
purchases of Investor A Shares to dealers. In addition, the Fund's distributor
may from time to time implement programs under which a broker-dealer's sales
force may be eligible to win nominal awards for certain sales efforts. If any
such program is made available to any broker-dealer, it will be made available
to all broker-dealers on the same terms. Payments made under such programs are
made by the Fund's distributor out of its own assets and not out of the assets
of the Portfolios. These programs will not change the price of Investor A Shares
or the amount that the Portfolios will receive from such sales.
Calculation of Sales Charges
Investor B Shares
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Number of Years Since Purchase CDSC as a % of Dollar Amount Subject to the Charge
- --------------------------------------------------------------------------------------------
<S> <C>
1 or less 5.0%
- --------------------------------------------------------------------------------------------
1-2 4.0%
- --------------------------------------------------------------------------------------------
2-3 3.0%
- --------------------------------------------------------------------------------------------
3-4 3.0%
- --------------------------------------------------------------------------------------------
4-5 2.0%
- --------------------------------------------------------------------------------------------
5-6 1.0%
- --------------------------------------------------------------------------------------------
More than 6 None
- --------------------------------------------------------------------------------------------
</TABLE>
For purposes of calculating the CDSC, all purchases made during a calendar month
are considered to be made on the first day of that month. The CDSC is based on
the value of the Investor B Shares on the date that they are sold or the
original cost of the shares, whichever is lower. To keep your CDSC as low as
possible each time you sell shares, the Fund will first sell any shares in your
account that are not subject to a CDSC. If there are not enough of these, the
Fund will sell the shares that have the lowest CDSC.
Sales Charge Reductions
Investor A Shares
Additional purchases of Investor A Shares by existing Investor A shareholder
accounts at March 31, 1999 in the Intermediate Corporate Bond, Bond Index and
Government & Corporate Bond Portfolios are eligible for reduced sales charges.
See the SAI or call the Fund's distributor at 1-800-452-2724 for further
information.
You may also reduce the sales charge on Investor A Shares through:
. Rights of Accumulation. You can add the value of the Investor A Shares that
you already own in any Portfolio of the Fund that charges a sales load, as
well as the value of any existing Class A Shares of any other fund in the
Firstar Family of Funds, to your next investment in Investor A Shares for
purposes of calculating the sales charge.
. Quantity Discounts. As the dollar amount of your purchase increases, your
sales charge may decrease (see the tables on page __). In addition, the
Fund will combine purchases made on
-21-
<PAGE>
the same day by you and your immediate family members when calculating
applicable sales charges.
. Letter of Intent. You can purchase Investor A Shares of any Portfolio of
the Fund that charges a sales load over a 13-month period and pay the same
sales charge you would have paid if all shares were purchased at once. The
Fund's transfer agent will hold in escrow 5% of your total investment (for
payment of a higher sales load in case you do not purchase the full amount
indicated on the application) until the full amount is received. To
participate, complete the "Letter of Intent" section on your account
application.
. Reinvestment Privilege. You can reinvest some or all of the money that you
receive when you sell Investor A Shares of a Portfolio, or shares of any
other fund in the Firstar Family of Funds, in Investor A Shares of any
Portfolio of the Fund within 60 days without paying a sales charge. You
must notify the Fund's transfer agent at the time of your reinvestment that
you qualify for this privilege.
Sales Charge Waivers
Investor A Shares
In addition, there's no sales charge when you buy Investor A Shares if:
. You buy shares by reinvesting your dividends and capital gains
distributions.
. You're an officer or director of the Fund (or an immediate family member of
any such individual).
. You're a director, a current or retired employee or a participant in an
employee benefit or retirement plan of Firstar Corporation or the Fund's
distributor or any of their affiliates (or an immediate family member of
any such individual).
. You're a broker, dealer or agent who has a sales agreement with the Fund's
distributor (or an employee or immediate family member of any such
individual).
. You buy shares pursuant to a wrap-free program offered by a broker-dealer
or other financial institution.
. You buy shares with the proceeds of Trust Shares or Institutional Shares of
a Portfolio redeemed in connection with a rollover of benefits paid by a
qualified retirement or employee benefit plan or a distribution on behalf
of any other qualified account administered by Firstar Bank or its
affiliates or correspondents within 60 days of receipt of such
payment.
. You buy shares through a payroll deduction program.
. You're an employee of any sub-adviser to the Fund.
. You were a holder of a Southwestern Bell VISA card formerly issued by
Mercantile Bank of Southern Illinois, N.A. and you participated in the
Fund's Automatic Investment Program.
. You're exchanging Trust Shares of a Portfolio received from the
distribution of assets held in a qualified trust, agency or custodian
account with Firstar Bank or any of its affiliates or correspondents.
. You're another investment company distributed by the Fund's distributor or
its affiliates.
If you think you qualify for any of these waivers, please call the Fund at 1-
800-452-2724 before buying any shares.
-22-
<PAGE>
(sidebar)
Purchase of Investor A Shares at Net Asset Value
From time to time, the Fund's distributor may offer investors the option to
purchase Investor A Shares at net asset value without payment of a front-end
sales charge. To qualify, you must pay for the shares with the redemption
proceeds from a non-affiliated mutual fund. In addition, you must have paid a
front-end sales charge on the shares you redeem. The purchase of Investor A
Shares must occur within 30 days of the prior redemption, and you must show
evidence of the redemption transaction. At the time of purchase, your broker-
dealer or other financial institution must notify the Fund that your transaction
qualifies for a purchase at net asset value.
Your Account
Sales Charge Waivers
Investor B Shares
No CDSC is assessed on redemptions of Investor B Shares if:
. The shares were purchased with reinvested dividends or capital gains
distributions.
. The shares were purchased through an exchange of Investor B Shares of
another Portfolio.
. The redemption represents a distribution from a qualified retirement plan
under Section 403(b)(7) of the Internal Revenue Code, due to death,
disability or the attainment of a specified age.
. The redemption is in connection with the death or disability of the
shareholder.
. You participate in the Automatic Withdrawal Plan and your annual
withdrawals do not exceed 12% of your account's value.
. Your account falls below the Portfolio's minimum account size, and the Fund
liquidates your account (see page __).
. The redemption results from a tax-free return of an excess contribution,
pursuant to Section 408(d)(4) or (5) of the Internal Revenue Code.
Distribution and Service Fees
Investor A Shares of the Portfolios pay distribution (12b-1) and shareholder
service fees at an annual rate of up to 0.30% of each Portfolio's Investor A
Share assets. Investor B Shares of the U.S. Government Securities and Government
& Corporate Bond Portfolios pay distribution (12b-1) and shareholder service
fees at an annual rate of up to 1.00% of each Portfolio's Investor B Share
assets. The Fund has adopted separate distribution and service plans under Rule
12b-1 that allow each Portfolio to pay fees from its Investor A Share or
Investor B Share assets for selling and distributing Investor A Shares or
Investor B Shares, as the case may be, and for services provided to
shareholders. Because 12b-1 fees are paid on an ongoing basis, over time they
increase the cost of your investment and may cost more than other sales charges.
-23-
<PAGE>
Converting Investor B Shares to Investor A Shares
Eight years after you buy Investor B Shares of a Portfolio, they will
automatically convert to Investor A Shares of the Portfolio. This allows you to
benefit from the lower annual expenses of Investor A Shares.
Choosing Between Investor A Shares and Investor B Shares
In deciding whether to buy Investor A Shares or Investor B Shares, you should
consider how long you plan to hold the shares. Over time, the higher fees on
Investor B Shares may equal or exceed the initial sales charge and fees for
Investor A Shares. Investor A Shares may be a better choice if you qualify to
have the sales charges reduced or eliminated, or if you plan to sell your shares
within one or two years. Consult your financial adviser for help in choosing the
appropriate share class.
Explanation of Sales Price
Shares of each class in a Portfolio are sold at their net asset value (NAV)
plus, in the case of Investor A Shares, a front-end sales charge, if applicable.
This is commonly referred to as the "public offering price."
The NAV for each class of shares of a Portfolio is determined as of the close of
regular trading on the New York Stock Exchange (currently 4:00 p.m., Eastern
time) on every business day. The NAV for a class of shares is determined by
adding the value of the Portfolio's investments, cash and other assets
attributable to a particular share 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.
(sidebar)
Business days defined
A business day is any day that both the New York Stock Exchange and the Federal
Reserve Bank of St. Louis are open for business. Currently, the Fund observes
the following holidays: 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 and Christmas.
. Each Portfolio's investments are valued according to market value. When a
market quote is not readily available, the security's value is based on "fair
value" as determined by FIRMCO under the supervision of the Fund's Board of
Directors.
. If you properly place a purchase order (see "How to Buy Shares"on page __)
that is delivered to the Fund before 4:00 p.m. (Eastern time) on any business
day, the order receives the share price determined for your share class as of
4:00 p.m. that day. If the order is received after
-24-
<PAGE>
4:00 p.m., it will receive the price determined on the next business day. You
must pay for your shares no later than 4:00 p.m. three business days after
placing the order, or the order will be cancelled.
How to Buy Shares
Investing in the Mercantile Taxable Bond Portfolios is quick and convenient.
You can purchase Investor A Shares or Investor B Shares in any of the following
ways:
. Through a broker-dealer organization. You can purchase shares through any
broker-dealer organization that has a sales agreement with the Fund's
distributor. The broker-dealer organization is responsible for sending your
purchase order to the Fund.
. Through a financial organization. You can purchase shares through any
financial organization that has entered into a servicing agreement with the
Fund. The financial organization is responsible for sending your purchase
order to the Fund.
. Directly from the Fund by mail. Just complete an account application and
send it, along with a check for at least the minimum purchase amount, to:
Mercantile Mutual Funds, Inc. 615 East Michigan Street, P.O. Box 3011,
Milwaukee, Wisconsin 53201-3011. Remember to specify whether you're buying
Investor A Shares or Investor B Shares. To make additional investments once
you've opened your account, send your check to the address above together
with the detachable form that's included with your Fund statement or
confirmation of a prior transaction or a letter stating the amount of your
investment, the name of the Portfolio you want to invest in and your
account number.
In addition, you may call the Fund at 1-800-452-2724 for more information on how
to buy shares.
-25-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Minimum Investments To Open Your Account To Add to Your Account
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Regular accounts $1,000 $50
- ------------------------------------------------------------------------------------------
Sweep program through your
financial institution None None
- ------------------------------------------------------------------------------------------
Wrap fee program through
your financial institution None None
- ------------------------------------------------------------------------------------------
Payroll Deduction Program*
None $25
- ------------------------------------------------------------------------------------------
Automatic Exchange $1,000 minimum account
Program* $5,000 balance
- ------------------------------------------------------------------------------------------
Automatic Investment
Program* $50 $50
- ------------------------------------------------------------------------------------------
</TABLE>
* See Investor Programs below.
How to Sell Shares
You can arrange to get money out of your account by selling some or all of your
shares. This is known as "redeeming" your shares. You can redeem your shares in
the following ways:
Through a broker-dealer or other financial organization.
If you purchased your shares through a broker-dealer or other financial
organization, your redemption order should be placed through the same
organization. The organization is responsible for sending your redemption order
to the Fund on a timely basis.
By mail.
Send your written redemption request to: Mercantile Mutual Funds, Inc. 615 East
Michigan Street, P.O. Box 3011, Milwaukee, Wisconsin 53201-3011. Your request
must include the name of the Portfolio, the number of shares or the dollar
amount you want to sell, your account number, your social security or tax
identification number and the signature of each registered owner of the account.
Your request also must be accompanied by any share certificates that are
properly endorsed for transfer. Additional documents may be required for certain
types of shareholders, such as corporations, partnerships, executors, trustees,
administrators or guardians.
The Fund's transfer agent may require a signature guarantee unless the
redemption proceeds are payable to the shareholder of record and the redemption
is either mailed to the shareholder's address of record or electronically
transferred to the account designated on the original account
-26-
<PAGE>
application. A signature guarantee helps prevent fraud, and you may obtain one
from most banks and broker-dealers. Contact your broker-dealer or other
financial organization or the Fund for more information on signature guarantees.
By telephone.
You may redeem your shares by telephone if you have selected that option on your
account application and if there has been no change of address by telephone
within the preceding 15 days. Call the Fund at 1-800-452-2724 with your request.
You may have your proceeds mailed to your address or transferred electronically
to the bank account designated on your account application. If you have not
previously selected the telephone privilege, you may add this feature by
providing written instructions to the Fund's transfer agent. If you have
difficulty getting through to the Fund because of unusual market conditions,
consider selling your shares by mail.
You may sell your Portfolio shares at any time. Your shares will be sold at the
NAV next determined after the Fund accepts your order (see above). The proceeds
of the sale of Investor B Shares will be reduced by the applicable CDSC. Your
proceeds ordinarily are sent electronically or mailed by check within three
business days. If your account holds both Investor A Shares and Investor B
Shares, be sure to specify which shares you are selling. Otherwise, Investor A
Shares will be sold first.
(sidebar)
Selling recently purchased shares
If you attempt to sell shares you recently purchased with a personal check, the
Fund may delay processing your request until it collects payment for those
shares. This process may take up to 15 days, so if you plan to sell shares
shortly after purchasing them, you may want to consider purchasing shares with a
certified or bank check or via electronic transfer to avoid delays.
Investor Programs
It's also easy to buy or sell shares of the Portfolios by using one of the
programs described below.
-27-
<PAGE>
Automatic Investment Program
You may open an account or make additional investments to an existing account
for as little as $50 a month with the Fund's Automatic Investment Program (AIP).
Under the AIP, you specify the dollar amount to be automatically withdrawn each
month from your bank checking account and invested in your Portfolio account.
Purchases of Investor A Shares or Investor B Shares will occur on the day of the
month designated by you (or the next business day after the designated day) of
each month at the net asset value plus any front-end sales charge, if
applicable, next determined on the day the order is effected. To take advantage
of the AIP, complete the AIP authorization form included with your account
application or contact your broker-dealer or other financial organization.
AIP lets you take advantage of "dollar cost averaging," a long-term investment
technique designed to help investors reduce their average cost per share over
time. Instead of trying to time the market, you can invest a fixed dollar amount
each month. So, you buy fewer Portfolio shares when prices are high and more
when prices are low. Because dollar cost averaging involves regular investing
over time, regardless of share price, it may not be appropriate for all
investors.
In addition, dollar cost averaging does not guarantee a profit or protect
against loss in a steadily declining market. To be effective, dollar cost
averaging usually should be followed on a sustained, consistent basis. Even
then, however, there can be no guarantee of the success of this technique, and
it will not prevent a loss if an investor ultimately redeems his or her shares
at a price that is lower than the original purchase price.
Exchanges
The exchange privilege enables you to exchange Investor A Shares of one
Portfolio for Investor A Shares (or in certain limited circumstances described
in the SAI, Trust or Institutional Shares) of another Portfolio and to exchange
Investor B Shares of one Portfolio for Investor B Shares of another Portfolio.
Just sign up for the exchange privilege on your account application and contact
your broker-dealer or other financial organization when you want to exchange
shares. You also may exchange shares by telephoning the Fund directly (call 1-
800-452-2724) if you have elected this privilege on your account application.
The exchange privilege may be exercised only in those states where the class of
shares of the Portfolio being acquired may be legally sold.
When exchanging Investor A Shares of a Portfolio that has no sales charge or a
lower sales charge for Investor A Shares of a Portfolio with a higher sales
charge, you will pay the difference.
You may exchange Investor B Shares without paying a CDSC on the exchange. The
holding period of the shares originally held and redeemed will be added to the
holding period of the new shares acquired through the exchange.
-28-
<PAGE>
Automatic Exchange Program
This program lets you automatically exchange shares of one Portfolio for shares
of another Portfolio on a regular basis, as long as the shares are of the same
class. Because you're making regular purchases, the Automatic Exchange Program
enables you to take advantage of dollar cost averaging. (See "Automatic
Investment Program" on page __.)
To participate, you must make a minimum initial purchase of $5,000 and maintain
a minimum account balance of $1,000. In addition, you must complete the
authorization form included with your account application or available from your
broker-dealer or other financial organization. In order to change instructions
with respect to the Automatic Exchange Program or to discontinue the program,
you must send written instructions to your broker-dealer or other financial
organization or to the Fund.
Automatic Withdrawal Plan
If the net asset value of your account equals $10,000 or more, you may take
advantage of the Fund's Automatic Withdrawal Plan (AWP). With the AWP, you can
have monthly, quarterly, semi-annual or annual redemptions of at least $50 from
your Portfolio account sent to you via check or to your bank account
electronically on the day designated by you (or the next business day after the
designated day) of the applicable month of withdrawal. No CDSC will be charged
on withdrawals of Investor B Shares made through the AWP that don't annually
exceed 12% of your account's value.
To participate in the AWP, complete the AWP application included with your
account application or contact your broker-dealer or other financial
organization. A signature guarantee will be required. You may terminate your
participation in the AWP upon 30 days' notice to your broker-dealer or other
financial organization or to the Fund.
Payroll Deduction Program
You can make regular investments from your paycheck. The minimum investment is
$25 per pay period. Call the Fund at 1-800-452-2724 for an application and
further information. The Fund may terminate the program at any time.
Internet Transactions
You generally can request purchases, exchanges and redemptions of Investor A
Shares and Investor B Shares of the Portfolios on line via the Internet after an
account is opened. Redemption requests of up to $25,000 will be accepted
through the Internet. Payment for Shares purchased online must be made by
electronic funds transfer from your banking institution. To authorize this
service, call the Fund's transfer agent at 1-800-452-2724.
The Fund and its agents will not be responsible for any losses resulting from
unauthorized on-line transactions when procedures are followed which are
designed to confirm that the on-line transaction request is genuine. Statements
of accounts shall be conclusive if not objected to in writing within 10 days
after transmitted by mail. During periods of significant economic or market
change, it may be difficult to reach the Portfolios on line. If this happens,
you may initiate transactions in your share accounts by mail or otherwise as
described above.
General Transaction Policies
The Fund reserves the right to:
. Vary or waive any minimum investment requirement.
. Refuse any order to buy shares.
-29-
<PAGE>
. Reject any exchange request.
. Change or cancel the procedures for selling or exchanging shares by
telephone at any time.
. Redeem all shares in your account if your balance falls below $500. If,
within 60 days of the Fund's written request, you have not increased your
account balance, you may be required to redeem your shares. The Fund will
not require you to redeem shares if the value of your account drops below
$500 due to fluctuations in net asset value.
. Send redemption proceeds within seven days after receiving a request, if an
earlier payment could adversely affect a Portfolio.
. Modify or terminate the Automatic Exchange, Automatic Investment and
Automatic Withdrawal programs at any time.
. Modify or terminate the exchange privilege after 60 days' written notice to
shareholders.
. Make a "redemption in kind." Under abnormal conditions that may make
payment in cash unwise, the Fund may offer partial or complete payment in
portfolio securities rather than cash at such securities' then-market-value
equal to the redemption price. In such cases, you may incur brokerage costs
in converting these securities to cash.
If you elect telephone privileges on the account application or in a letter to
the Fund, you may be responsible for any fraudulent telephone orders as long as
the Fund has taken reasonable precautions to verify your identity.
Also, your broker-dealer or other financial organization may establish policies
that differ from those of the Fund. For example, the organization may charge
transaction fees, set higher minimum investments, or impose certain limitations
on purchasing or redeeming shares in addition to those identified in this
prospectus. Contact your broker-dealer or other financial organization for
details.
-30-
<PAGE>
Distributions and Taxes
Dividends and Distributions
The Portfolios pay their shareholders dividends from the Portfolios' respective
net investment income and distribute any net capital gains the Portfolios have
realized.
Dividends are declared daily and paid monthly. Shares of the Portfolios earn
dividends from the day after the Fund's transfer agent receives a purchase order
through the day the transfer agent receives a redemption order for those shares.
Capital gains, if any, are distributed for all of the Portfolios at least once a
year. It's expected that each Portfolio's annual distributions will normally -
but not always - consist primarily of ordinary income rather than capital gains.
Dividends on each share class of the Portfolios are determined in the same
manner and are paid in the same amount. However, each share class bears all
expenses associated with that particular class. So, because Investor B Shares
have higher distribution and service fees than Investor A Shares, the dividends
paid to Investor B shareholders will be lower than those paid to Investor A
shareholders.
All of your dividends and capital gains distributions with respect to a
particular Portfolio will be reinvested in additional shares of the same class
unless you instruct otherwise on your account application or have redeemed all
shares you held in the Portfolio. In such cases, dividends and distributions
will be paid in cash.
Taxation
As with any investment, you should consider the tax implications of an
investment in the Portfolios. The following is only a brief summary of some of
the important tax considerations generally affecting the Portfolios and their
shareholders under current law, which may be subject to change in the future.
Consult your tax adviser with specific reference to your own tax situation.
. Each Portfolio contemplates declaring as dividends each year all or
substantially all of its taxable income, including its net capital gain
(the excess of long-term capital gain over short-term capital loss).
Distributions attributable to the net capital gain of a Portfolio will be
taxable to you as long-term capital gain, regardless of how long you have
held your shares. Other Portfolio distributions (other than exempt-interest
dividends, discussed below) will generally be taxable as ordinary income.
You will be subject to income tax on these distributions whether they are
paid in cash or reinvested in additional shares.
. If you purchase shares just prior to a distribution, the purchase price
will reflect the amount of the upcoming distribution, but you will be taxed
on the entire amount of the distribution received even though, as an
economic matter, the distribution simply constitutes a return of capital.
This is known as "buying into a dividend."
. You will recognize a taxable gain or loss on a sale, exchange or redemption
of your shares, including an exchange for shares of another Portfolio,
based on the difference between your tax basis in the shares and the amount
you receive for them. Generally, this gain or loss will be long-term or
short-term depending on whether your holding period for the shares exceeds
12 months except that any loss realized on shares held for six months or
less will be treated as a long-term capital loss to the extent that any
long-term capital gains distributions were received with respect to the
shares.
-31-
<PAGE>
. Distributions on, and sales, exchanges and redemptions of, shares held in an
IRA or other tax-qualified plan will not be currently taxable.
. Shareholders may also be subject to state and local taxes on distributions
and redemptions. State income taxes may not apply however, to the portions of
each Portfolio's distributions, if any, that are attributable to interest on
federal securities or interest on securities of the particular state or
localities within the state.
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. Shareholders who are nonresident
aliens, foreign trusts or estates, or foreign corporations or partnerships, may
be subject to different United States federal income tax treatment. For more
information regarding the taxation of the Portfolios, consult the SAI under the
heading "Additional Information Concerning Taxes." You should also consult your
tax adviser for further information regarding federal, state, local and/or
foreign tax consequences relevant to your specific situation.
(sidebar)
You will be advised at least annually regarding the federal income tax treatment
of dividends and distributions made to you. You should save your account
statements because they contain information you will need to calculate your
capital gains or losses, if any, upon your ultimate sale or exchange of shares
in the Portfolios.
-32-
<PAGE>
Management of the Fund
The Adviser
FIRMCO, subject to the general supervision of the Fund's Board of Directors, is
responsible for the day-to-day management of the Portfolios in accordance with
each Portfolio's respective investment objective and policies. This includes
making investment decisions, buying and selling securities and overseeing the
administration and recordkeeping for each Portfolio.
In exchange for these services, FIRMCO receives an investment advisory fee,
which is calculated daily and paid monthly, according to the average daily net
assets of each Portfolio. On March 1, 2000, MVA, the Portfolios' former adviser,
merged into FIRMCO. For the fiscal year ended November 30, 1999, the Portfolios
paid MVA advisory fees as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Investment advisory fees
Portfolio as a % of net assets
- --------------------------------------------------------------------------
<S> <C>
U.S. Government Securities Portfolio ___%
- --------------------------------------------------------------------------
Intermediate Corporate Bond Portfolio ___%
- --------------------------------------------------------------------------
Bond Index Portfolio ___%
- --------------------------------------------------------------------------
Government & Corporate Bond Portfolio ___%
- --------------------------------------------------------------------------
</TABLE>
-33-
<PAGE>
Financial Highlights
Introduction
The financial highlights tables presented below are intended to help you
understand the financial performance of each Portfolio's Investor A Shares
and/or Investor B Shares for the past five years (or, if shorter, the period
since the Portfolio began operations or the particular shares were first
offered). Certain information reflects the financial results for a single
Investor A Share or Investor B Share in each Portfolio. The total returns in
the tables represent the rate that an investor would have earned (or lost) on an
investment in either Investor A Shares or Investor B Shares, assuming
reinvestment of all dividends and distributions. This information has been
audited by ________, independent auditors, whose report, along with the
Portfolios' financial statements, are included in the Fund's Annual Report to
Shareholders, and are incorporated by reference into the SAI.
-34-
<PAGE>
U.S. Government Securities Portfolio
Investor A Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
-------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............. $10.62 $10.67 $10.85 $10.05
------ ------ ------ ------
Investment Activities
Net investment income.......................... 0.57 0.60 0.62 0.64
Net realized and unrealized gains
(losses) from investments..................... 0.12 (0.07) (0.15) 0.80
------ ------- ------ ------
Total from Investment Activities............... 0.69 0.53 0.47 1.44
------ ------- ------ ------
Distributions
Net investment income........................... (0.57) (0.58) (0.62) (0.64)
In excess of net realized gains................ -- -- (0.03) --
Total Distributions........................... (0.57) (0.58) (0.65) (0.64)
------ ------- ------ ------
Net Asset Value, End of Period................... $10.74 $ 10.62 $10.67 $10.85
====== ======= ====== ======
Total Return (excludes sales charges)........... 6.66% 5.20% 4.57% 14.66%
Ratios/Supplementary Data:
Net Assets at end of period (000).............. $4,664 $ 5,181 $7,153 $8,179
Ratio of expenses to average net
assets...................................... 0.97% 0.97% 0.97% 0.97%
Ratio of net investment income to
average net assets.......................... 5.35% 5.56% 5.82% 6.05%
Ratio of expenses to average net
assets *.................................... 1.07% 1.07% 1.07% 1.07%
Portfolio turnover**.......................... 54.57% 100.33% 53.76% 93.76%
</TABLE>
- --------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio 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.
-35-
<PAGE>
U.S. Government Securities Portfolio
Investor B Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
------------------------------------------------------
March 1,
1995 to
Nov. 30,
1999 1998 1997 1996 1995(a)
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.................... $10.61 $ 10.66 $10.84 $10.34
------ ------- ------ ------
Investment Activities
Net investment income................................. 0.50 (d) 0.51 0.55 0.31
Net realized and unrealized gains
(losses) from investments............................ 0.13 (0.05) (0.15) 0.50
------ ------- ------ ------
Total from Investment Activities...................... 0.63 0.46 0.40 0.81
------ ------- ------ ------
Distributions
Net investment income................................. (0.50) (0.51) (0.55) (0.31)
In excess of net realized gains....................... -- -- (0.03) --
------ ------- ------ ------
Total Distributions.................................. (0.50) (0.51) (0.58) (0.31)
------ ------- ------ ------
Net Asset Value, End of Period.......................... $10.74 $ 10.61 $10.66 $10.84
====== ======= ====== ======
Total Return (excludes sales charges)................... 6.02% 4.47% 3.85% 12.85%/(b)/
Ratios/Supplementary Data:
Net Assets at end of period (000) $ 149 $ 466 $ 359 $ 41
Ratio of expenses to average net
assets.............................................. 1.67% 1.67% 1.66% 1.68%/(c)/
Ratio of net investment income to
average net assets.................................. 4.67% 4.84% 5.06% 5.37%/(c)/
Ratio of expenses to average net
assets *............................................ 1.77% 1.77% 1.76% 1.78%/(c)/
Portfolio turnover**.................................. 54.57% 100.33% 53.76% 93.76%
</TABLE>
- -------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio 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) 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.
(c) Annualized.
(d) Per share net investment income has been calculated using the daily average
share method.
-36-
<PAGE>
Intermediate Corporate Bond Portfolio
Investor A Shares
(For a Share outstanding throughout the period)
<TABLE>
<CAPTION>
Year Ended November 30, February 10, 1997
1999 1998 to
November 30, 1997/(a)/
<S> <C> <C> <C>
Net Asset Value, Beginning of Period.................... $10.11 $10.00
------ ------
Investment Activities
Net investment income.................................. 0.60 0.52
Net realized and unrealized gains
from investments..................................... 0.30 0.11
------ ------
Total from Investment Activities....................... 0.90 0.63
------ ------
Distributions
Net investment income.................................. (0.60) (0.52)
------ ------
Net realized gains..................................... (0.11) --
------ ------
Total Distributions.................................... (0.71) (0.52)
------ ------
Net Asset Value, End of Period.......................... $10.30 $10.11
====== ======
Total Return (excludes sales charges)................... 9.32% 6.48%/(b)/
Ratios/Supplementary Data:
Net assets at the end of period (000).................. $ 284 $ 277
Ratio of expenses to average net assets................ 0.89% 0.58%/(c)/
Ratio of net investment income to average net assets... 5.92% 6.52%/(c)/
Ratio of expenses to average net assets*............... 1.19% 1.31%/(c)/
Portfolio turnover**................................... 9.65% 61.98%
</TABLE>
- --------------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio 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.
-37-
<PAGE>
Bond Index Portfolio
Investor A Shares
(For a Share outstanding throughout the period)
<TABLE>
<CAPTION> February 10, 1997
Year Ended November 30, to
1999 1998 November 30, 1997/(a)/
--------------------------------------------- ----------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period............ $10.17 $10.00
------ ------
Investment Activities
Net investment income......................... 0.61 0.50
Net realized and unrealized gains............. 0.31 0.17
from investments........................... ------ ------
Total from Investment Activities.............. 0.92 0.67
------ ------
Distributions
Net investment income......................... (0.61) (0.50)
Net realized gains............................ (0.03) --
------ ------
Total Distributions........................... (0.64) (0.50)
------ ------
Net Asset Value, End of Period.................. $10.45 $10.17
====== ======
Total Return (excludes sales charges)........... 9.36% 6.93%/(b)/
Ratios/Supplementary Data:
Net assets at the end of period (000)......... $ 364 $ 55
Ratio of expenses to average net assets....... 0.77% 0.54%/(c)/
Ratio of net investment income to
average net assets.......................... 5.81% 6.71%/(c)/
Ratio of expenses to average net assets*...... 0.93% 0.95%/(c)/
Portfolio turnover**.......................... 33.37% 46.16%
</TABLE>
___________________________
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio 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.
-38-
<PAGE>
Government & Corporate Bond Portfolio
Investor A Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30
------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net Asset Value, $10.35 $ 10.34 $ 10.53 $ 9.64
Beginning of Period......................... ------ ------- ------- ------
Investment Activities
Net investment income....................... 0.57 0.56 0.64 0.61
Net realized and unrealized gains 0.37 0.01 (0.19) 0.89
(losses) from investments............... ------ ------- ------- ------
Total from Investment Activities............ 0.94 0.57 0.45 1.50
------ ------- ------- ------
Distributions
Net investment income....................... (0.57) (0.56) (0.64) (0.61)
In excess of net realized gains............. -- -- -- --
------ ------- ------- ------
Total Distributions......................... (0.57) (0.56) (0.64) (0.61)
------ ------- ------- ------
Net Asset Value, End of Period................ $10.72 $ 10.35 $ 10.34 $10.53
====== ======= ======= =======
Total Return (excludes sales charges)......... 9.31% 5.78% 4.51% 15.98%
Ratios/Supplementary Data:
Net Assets at end of period (000).......... $4,927 $ 4,774 $ 4,915 $5,496
Ratio of expenses to average net
assets................................... 0.96% 0.95% 0.95% 0.95%
Ratio of net investment income to
average net assets....................... 5.41% 5.46% 6.06% 6.03%
Ratio of expenses to average net
assets*.................................. 1.06% 1.05% 1.05% 1.05%
Portfolio turnover**....................... 91.14% 140.72% 149.20% 59.32%
</TABLE>
___________________________________
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio 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.
-39-
<PAGE>
Government & Corporate Bond Portfolio
Investor B Shares
(For a Share/(a)/ outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
---------------------------------------------------------
March 1, 1995 to
November 30,
1999 1998 1997 1996 1995(a)
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of $10.37 $ 10.34 $ 10.53 $ 9.92
Period..................................... ------ ------- ------- ------
Investment Activities
Net investment income..................... 0.50 0.49 0.57 0.38
Net realized and unrealized
gains (losses) from
investments.......................... 0.38 0.03 (0.19) 0.61
------ ------- ------- ------
Total from Investment Activities.......... 0.88 0.52 0.38 0.99
------ ------- ------- ------
Distributions Net investment income......... (0.50) (0.49) (0.57) (0.38)
------ ------- ------- ------
Total Distributions....................... (0.50) (0.49) (0.57) (0.38)
------ ------- ------- ------
Net Asset Value, End of Period.............. $10.75 $ 10.37 $ 10.34 $10.53
====== ======= ======= ======
Total Return (excludes sales charges)....... 8.65% 5.26% 3.79% 15.27%/(b)/
Ratios/Supplementary Data:
Net assets at end of period (000)......... $ 662 $ 545 $ 511 $ 106
Ratio of expenses to average
net assets............................... 1.66% 1.65% 1.65% 1.65%/(c)/
Ratio of net investment income
to average net assets.................. 4.70% 4.84% 5.37% 5.19%/(c)/
Ratio of expenses to average
net assets*.............................. 1.76% 1.75% 1.75% 1.75%/(c)/
Portfolio turnover**...................... 91.14% 140.72% 149.20% 59.32%
</TABLE>
_________________________
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio would have been as
indicated.
** Portfolio 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) 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.
(c) Annualized.
-40-
<PAGE>
[Back Cover Page]
Where to find more information
You'll find more information about the Portfolios in the following documents:
Annual and semi-annual reports
The Fund's annual and semi-annual reports contain information about each
Portfolio and a discussion about the market conditions and investment strategies
that had a significant effect on each Portfolio's performance during the last
fiscal year.
Statement of Additional Information (SAI)
The SAI contains detailed information about the Portfolios and their policies.
By law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Portfolios and make shareholder inquiries by calling the Fund at 1-800-452-2724
or by writing to:
Mercantile Mutual Funds, Inc.
615 East Michigan Street
P.O. Box 3011
Milwaukee, Wisconsin 53201-3011
If you buy your shares through a broker-dealer or other financial institution,
you may contact your institution for more information.
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Portfolios, including the
SAI. They'll charge you a fee for this service. You can also visit the SEC
Public Reference Room and copy the documents while you're there. For information
about the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC
Washington, DC 20549-0102
1-202-942-8090
Reports and other information about the Portfolios are also available on the
EDGAR database on the SEC's website at http://www.sec.gov. Copies of this
information may also be obtained, after paying a duplicating fee, by electronic
request to the SEC's e-mail address at [email protected].
The Fund's Investment Company Act File No. is 811-3567
<PAGE>
Mercantile Mutual Funds
Prospectus
Investor Shares
________________, 2000
Tax-Exempt Bond Portfolios
Short-Intermediate Municipal Portfolio
Missouri Tax-Exempt Bond Portfolio
National Municipal Bond Portfolio
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Portfolios or determined if this
prospectus is truthful or complete. Anyone who tells you otherwise is committing
a criminal offense.
<PAGE>
Contents
Risk/Return Summary
1 Overview
2 Short-Intermediate Municipal Portfolio
6 Missouri Tax-Exempt Bond Portfolio
11 National Municipal Bond Portfolio
16 Additional Information on Risk
Your Account
17 Distribution Arrangements/Sales Charges
22 Explanation of Sales Price
23 How to Buy Shares
23 How to Sell Shares
25 Investor Programs
26 General Transaction Policies
Distributions and Taxes
28 Dividends and Distributions
28 Taxation
Management of the Fund
30 The Adviser
Financial Highlights
31 Introduction
32 Short-Intermediate Municipal Portfolio
33 Missouri Tax-Exempt Bond Portfolio
35 National Municipal Bond Portfolio
<PAGE>
Risk/Return Summary
Overview
This prospectus describes the Mercantile Tax-Exempt Bond Portfolios, three
investment portfolios offered by Mercantile Mutual Funds, Inc. (the "Fund"). On
the following pages, you will find important information about each Portfolio,
including:
. A description of the Portfolio's investment objective (sometimes referred
to as its goal);
. The Portfolio's principal investment strategies (the steps it takes to try
to meet its goal);
. The principal risks associated with the Portfolio (factors that may prevent
it from meeting its goal);
. The Portfolio's past performance (how successful it's been in meeting its
goal); and
. The fees and expenses (including sales charges) you pay as an investor in
the Portfolio.
Who may want to invest in the Mercantile Tax-Exempt Bond Portfolios?
The Mercantile Tax-Exempt Bond Portfolios may be appropriate for investors who
are looking for income that is exempt from federal income tax and who can accept
fluctuations in price and yield. The Missouri Tax-Exempt Bond Portfolio is best
suited to Missouri residents who are also looking for income that is exempt from
Missouri state income tax. The Portfolios are not appropriate investments for
tax-deferred retirement accounts, such as IRAs, because their returns before
taxes are generally lower than those of taxable funds.
Before investing in a Mercantile Tax-Exempt Bond Portfolio, you should carefully
consider:
. Your own investment goals
. The amount of time you are willing to leave your money invested
. How much risk you are willing to take.
The Investment Adviser
Firstar Investment Research and Management Company, LLC ("FIRMCO" or the
"Adviser") serves as the investment adviser to each Portfolio as a result of the
merger of the Portfolios' former adviser, Mississippi Valley Advisors Inc.
("MVA") into FIRMCO on March 1, 2000. FIRMCO is a subsidiary of Firstar
Corporation, a banking and financial services organization, and has its main
office at Firstar Center, 777 East Wisconsin Avenue, 8th Floor, Milwaukee,
Wisconsin. FIRMCO has been providing advisory services since 1986 and as of
December 31, 1999, FIRMCO had approximately $35.3 billion in assets under
management.
An investment in the Portfolios is not a Firstar Bank deposit and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. You could lose money by investing in the Portfolios.
-1-
<PAGE>
Short-Intermediate Municipal Portfolio
Investment Objective
The 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.
Principal Investment Strategies
The Portfolio normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from federal income tax. Municipal
securities purchased by the Portfolio may include general obligation securities,
revenue securities and private activity bonds. General obligation securities are
secured by the issuer's full faith, credit and taxing power. Revenue securities
are usually payable only from revenues derived from specific facilities or
revenue sources. Private activity bonds are usually revenue obligations since
they are typically payable by the private user of the facilities financed by the
bonds. The interest on private activity bonds may be subject to the federal
alternative minimum tax. Investments in private activity bonds will not be
treated as investments in municipal securities for purposes of the 80%
requirement stated above.
In selecting municipal securities for the Portfolio, the Adviser favors those
sectors of the municipal market that offer the most favorable returns. The
Adviser emphasizes municipal securities that offer both a high credit quality
rating and a high degree of liquidity. The Adviser also attempts to maintain a
broad geographic diversification for the Portfolio, with emphasis on no
particular state.
The Portfolio will invest only in investment grade municipal securities. These
are securities which have one of the four highest ratings assigned by a national
rating agency, such as Standard & Poor's Ratings Group or Moody's Investors
Service, Inc., or are unrated securities determined by the Adviser to be of
comparable quality. Short-term municipal securities purchased by the Portfolio,
such as municipal notes and tax-exempt commercial paper, will have one of the
two highest ratings assigned by a national rating agency or will be unrated
securities that the Adviser has determined to be of comparable quality.
Occasionally, the rating of a security held by the Portfolio may be downgraded
below the minimum required rating. If that happens, the Portfolio does not have
to sell the security unless the Adviser determines that under the circumstances
the security is no longer an appropriate investment for the Portfolio.
The Portfolio's average weighted maturity will generally be between two and five
years.
-2-
<PAGE>
(sidebar)
What Are Municipal Securities?
State and local governments issue municipal securities to raise money to finance
public works, to repay outstanding obligations, to raise funds for general
operating expenses and to make loans to other public institutions. Some
municipal securities, known as private activity bonds, are backed by private
entities and are used to finance various non-public projects. Municipal
securities, which can be issued as bonds, notes or commercial paper, usually
have fixed interest rates, although some have interest rates that change from
time to time.
(sidebar)
Average weighted maturity gives you the average time until all debt obligations,
including municipal securities, in a Portfolio come due or mature. It is
calculated by averaging the time to maturity of all debt obligations held by a
Portfolio with each maturity "weighted" according to the percentage of assets
which it represents.
Principal Risk Considerations
The prices of debt securities, including municipal securities, tend to move in
the opposite direction to interest rates. When rates are rising, the prices of
debt securities tend to fall. When rates are falling, the prices of debt
securities tend to rise. Generally, the longer the time until maturity, the more
sensitive the price of a debt security is to interest rate changes. Changes in
interest rates may cause certain municipal securities held by the Portfolio to
be paid off much sooner or later than expected. In the event that a security is
paid off sooner than expected because of a decline in interest rates, the
Portfolio may be unable to recoup all of its initial investment and may also
suffer from having to reinvest in lower-yielding securities. In the event of a
later than expected payment because of a rise in interest rates, the value of
the obligation will decrease, and the Portfolio may also suffer from the
inability to invest in higher-yielding securities.
The value of debt securities also depends on the ability of issuers to make
principal and interest payments. If an issuer can't meet its payment obligations
or if its credit rating is lowered, the value of its debt securities will fall.
The ability of a state or local government issuer to make payments can be
affected by many factors, including economic conditions, the flow of tax
revenues and changes in the level of federal, state or local aid. Some municipal
securities are payable only from limited revenue sources or by private entities.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
-3-
<PAGE>
(sidebar)
Portfolio Manager
Peter Merzian is the person primarily responsible for the day-to-day management
of the Portfolio. Mr. Merzian, a Senior Associate, has been with FIRMCO and its
predecessors since 1993 and has served as portfolio manager of the Portfolio
since it commenced operations in 1995.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Investor A Shares has varied from year to year. The table shows how the
Portfolio's average annual returns for one year and since inception compare to
those of a broad-based market index. Both the bar chart and table assume
reinvestment of all dividends and distributions. The Portfolio's past
performance does not necessarily indicate how it will perform in the future.
Investor A Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
- -----------------------------------------------
1996 1997 1998 1999
- -----------------------------------------------
3.51% 4.96% 4.65% ____%
- -----------------------------------------------
The bar chart does not reflect any sales charges on purchases of the Portfolio's
Investor A Shares. If sales charges were included, returns would be lower than
those shown.
Best quarter: ____% for the quarter ending __________________
Worst quarter: _____% for the quarter ending _________________
Average Annual Total Returns for the periods ended December 31, 1999
- -------------------------------------------------------------------
1 Year Since
Inception*
- -------------------------------------------------------------------
Investor A Shares (with 2.50% sales ____% ____%
charge)
- -------------------------------------------------------------------
Lehman Brothers Municipal Bond ____% ____%
Index--3 Year
- -------------------------------------------------------------------
* July 10, 1995 for Investor A shares; June 30, 1995 for the Lehman Brothers
Municipal Bond Index - 3 year.
-4-
<PAGE>
(sidebar)
Know your index
The Lehman Brothers Municipal Bond Index--3 Year is an unmanaged index that
tracks the performance of municipal bonds with remaining maturities of three
years or less.
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Investor A Shares of the Short-Intermediate Municipal Portfolio.
Shareholder Fees (fees you pay directly)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Maximum deferred sales charge
Maximum sales charge (load) to (load) shown as a % of the
buy shares, shown as a % of offering price or sale price,
the offering price whichever is less
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Investor A Shares 2.50%/1/ None
- ------------------------------------------------------------------------------------------------
</TABLE>
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Distribution Total Annual
Management (12b-1) and Portfolio
Fees Service Fees Other Expenses Operating Expenses
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investor A
Shares .55% .30%/2/ ____%/2/ ____%/2/
- -------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Reduced sales charges may be available. See "Distribution Arrangements/Sales
Charges" below.
/2/ Distribution (12b-1) and Service Fees, Other Expenses and Total Annual
Portfolio Operating Expenses for the Portfolio's Investor A Shares for the
current fiscal year are expected to be less than the amounts shown above
because certain of the Portfolio's service providers are voluntarily waiving
a portion of their fees and/or reimbursing the Portfolio for certain other
expenses. These fee waivers and/or reimbursements are being made in order to
keep the annual fees and expenses for the Portfolio's Investor A Shares at a
certain level. Distribution (12b-1) and Service Fees, Other Expenses and
Total Annual Portfolio Operating Expenses, after taking these fee waivers
and expense reimbursements into account, are expected to be _____%, _____%
and _____%, respectively for Investor A Shares. These fee waivers and
expense reimbursements may be revised or cancelled at any time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
-5-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investor A
Shares $_____ $_____ $_____ $_____
- ------------------------------------------------------------------------------------------------------
</TABLE>
-6-
<PAGE>
Missouri Tax-Exempt Bond Portfolio
Investment Objective
The 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.
(sidebar)
What Are Municipal Securities?
State and local governments issue municipal securities to raise money to finance
public works, to repay outstanding obligations, to raise funds for general
operating expenses and to make loans to other public institutions. Some
municipal securities, known as private activity bonds, are backed by private
entities and are used to finance various non-public projects. Municipal
securities, which can be issued as bonds, notes or commercial paper, usually
have fixed interest rates, although some have interest rates that change from
time to time.
Principal Investment Strategies
The Portfolio normally invests at least 80% of its total assets in municipal
securities that pay interest that is exempt from federal income tax, and at
least 65% of its total assets in Missouri municipal securities, which are
securities issued by the State of Missouri and other government issuers and that
pay interest which is exempt from both federal income tax and Missouri state
income tax.
Municipal securities purchased by the Portfolio may include general obligation
securities, revenue securities and private activity bonds. General obligation
securities are secured by the issuer's full faith, credit and taxing power.
Revenue securities are usually payable only from revenues derived from specific
facilities or revenue sources. Private activity bonds are usually revenue
obligations since they are typically payable by the private user of the
facilities financed by the bonds. The interest on private activity bonds may be
subject to the federal alternative minimum tax. Investments in private activity
bonds will not be treated as investments in municipal securities for purposes of
the 80% requirement stated above.
In selecting municipal securities for the Portfolio, the Adviser favors those
sectors of the municipal market that offer the most favorable returns. The
Adviser emphasizes municipal securities that offer both a high credit quality
rating and a high degree of liquidity.
The Portfolio will invest only in investment grade municipal securities. These
are securities which have one of the four highest ratings assigned by a national
rating agency, such as Standard & Poor's Ratings Group or Moody's Investors
Service, Inc., or are unrated securities determined by the Adviser to be of
comparable quality. Short-term municipal securities purchased by the Portfolio,
such as municipal notes and tax-exempt commercial paper, will have one of the
two highest ratings assigned by a national rating agency or will be unrated
securities that the Adviser has determined to be of comparable quality.
Occasionally, the rating of a
-7-
<PAGE>
security held by the Portfolio may be downgraded below the minimum required
rating. If that happens, the Portfolio does not have to sell the security unless
the Adviser determines that under the circumstances the security is no longer an
appropriate investment for the Portfolio.
The Portfolio's average weighted maturity will vary from time to time depending
on current economic and market conditions and the Adviser's assessment of
probable changes in interest rates.
Principal Risk Considerations
The prices of debt securities, including municipal securities, tend to move in
the opposite direction to interest rates. When rates are rising, the prices of
debt securities tend to fall. When rates are falling, the prices of debt
securities tend to rise. Generally, the longer the time until maturity, the more
sensitive the price of a debt security is to interest rate changes. Changes in
interest rates also may cause certain municipal securities held by the Portfolio
to be paid off much sooner or later than expected. In the event that a security
is paid off sooner than expected because of a decline in interest rates, the
Portfolio may be unable to recoup all of its initial investment and may also
suffer from having to reinvest in lower-yielding securities. In the event of a
later than expected payment because of a rise in interest rates, the value of
the obligation will decrease, and the Portfolio may also suffer from the
inability to invest in higher-yielding securities.
The value of debt securities also depends on the ability of issuers to make
principal and interest payments. If an issuer can't meet its payment obligations
or if its credit rating is lowered, the value of its debt securities will fall.
The ability of a state or local government issuer to make payments can be
affected by many factors, including economic conditions, the flow of tax
revenues and changes in the level of federal, state or local aid. Some municipal
securities are payable only from limited revenue sources or by private entities.
The Portfolio is not diversified, which means that it can invest a large
percentage of its assets in a small number of issuers. As a result, a change in
the value of any one investment held by the Portfolio may affect the overall
value of the Portfolio more than it would affect a diversified portfolio that
holds more investments. Because the Portfolio invests primarily in Missouri
municipal securities, it also is likely to be especially susceptible to
economic, political and regulatory events that affect Missouri.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
-8-
<PAGE>
(sidebar)
Portfolio Manager
Peter Merzian is the person primarily responsible for the day-to-day management
of the Portfolio. Mr. Merzian, a Senior Associate, has been with FIRMCO and its
predecessors since 1993 and has managed the Portfolio since that time.
Return History/+/
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Investor A Shares has varied from year to year. The table shows how the
Portfolio's average annual returns for one year, five years and since inception
compare to those of a broad-based market index. Both the bar chart and table
assume reinvestment of all dividends and distributions. The Portfolio's past
performance does not necessarily indicate how it will perform in the
future.
Investor A Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997 1998 1999
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
11.52% 8.75% 11.63% -5.78% 16.89% 2.90% 8.08% 5.11% ____%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The returns for Investor B Shares differed from the returns shown in the bar
chart, because the two classes bear different expenses. The bar chart does not
reflect any sales charges on purchases of the Portfolio's Investor A Shares. If
sales charges were included, returns would be lower than those shown.
Best quarter: ____% for the quarter ending ________________
Worst quarter: ____% for the quarter ending _______________
Average Annual Total Returns for the periods ended December 31, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
1 Year 5 Years Since
Inception*
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investor A Shares (with 4.75% sales
charge) ____% ____% ____%
- ------------------------------------------------------------------------------------
Investor B Shares**(with applicable
contingent deferred sales charge) ____% N/A ____%
- ------------------------------------------------------------------------------------
Lehman Brothers Municipal Bond Index ____% ____% ____%
- ------------------------------------------------------------------------------------
</TABLE>
-9-
<PAGE>
+ The Portfolio commenced operations on July 15, 1988 as a separate
investment portfolio (the "Predecessor Portfolio") of the ARCH Tax-Exempt
Trust. On October 2, 1995, the Predecessor Portfolio was reorganized as a
new portfolio of the Fund. Prior to the reorganization, the Predecessor
Portfolio offered and sold shares that were similar to the Fund's Investor
A Shares and Investor B Shares. Annual returns for periods prior to October
2, 1995 reflect the performance of the Predecessor Portfolio.
* September 28, 1990 for Investor A Shares; September 30, 1990 for the Lehman
Brothers Municipal Bond Index.
** Investor B Shares of the Portfolio commenced operations on March 1, 1995 as
Investor B Shares of the Predecessor Portfolio.
(sidebar)
Know your index
The Lehman Brothers Municipal Bond Index is an unmanaged index that tracks the
performance of municipal bonds.
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Investor A Shares or Investor B Shares of the Missouri Tax-Exempt Bond
Portfolio.
Shareholder Fees (fees you pay directly)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Maximum deferred sales charge
Maximum sales charge (load) to (load) shown as a % of the
buy shares, shown as a % of offering price or sale price,
the offering price whichever is less
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Investor A Shares 4.75%/1/ None
- -----------------------------------------------------------------------------------------------------
Investor B Shares None 5.00%/2/
- -----------------------------------------------------------------------------------------------------
</TABLE>
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Distribution Total Annual
Management (12b-1) and Service Portfolio
Fees Fees Other Expenses Operating Expenses
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investor A Shares .45% .30%/3/ ____%/3/ ____%/3/
- ---------------------------------------------------------------------------------------------------------------
Investor B Shares .45% 1.00% ____%/3/ ____%/3/
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
-10-
<PAGE>
/1/ Reduced sales charges may be available. See "Distribution Arrangements/Sales
Charges" below.
/2/ This amount applies if you sell your shares in the first year after purchase
and gradually declines until it is eliminated after six years. After eight
years, your Investor B Shares will automatically convert to Investor A
Shares. See "Distribution Arrangements/Sales Charges" below.
/3/ Distribution (12b-1) and Service Fees for the Portfolio's Investor A Shares
and Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Investor A Shares and Investor B Shares for the current fiscal
year are expected to be less than the amounts shown above because certain of
the Portfolio's service providers are voluntarily waiving a portion of their
fees and/or reimbursing the Portfolio for certain other expenses. These fee
waivers and/or reimbursements are being made in order to keep the annual
fees and expenses for the Portfolio's Investor A Shares and Investor B
Shares at certain levels. Distribution (12b-1) and Service Fees, after
taking these fee waivers and expense reimbursements into account, are
expected to be _____% for Investor A Shares, and Other Expenses and Total
Annual Portfolio Operating Expenses, after taking these fee waivers and
expense reimbursements into account, are expected to be ____% and ____%,
respectively for Investor A Shares and ____% and ____%, respectively, for
Investor B Shares. These fee waivers and expense reimbursements may be
revised or cancelled at any time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year, the Portfolio's operating expenses remain the same and your Investor
B Shares automatically convert to Investor A Shares after eight years. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
- --------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
Investor A
Shares
_____ _____ _____ _____
- --------------------------------------------------------------------------------
Investor B
Shares
_____ _____ _____ _____
- --------------------------------------------------------------------------------
If you hold Investor B Shares, you would pay the following expenses if you did
not sell your shares:
- --------------------------------------------------------------------------------
$____ $____ $____ $____
- --------------------------------------------------------------------------------
-11-
<PAGE>
National Municipal Bond Portfolio
Investment Objective
The 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.
(sidebar)
What Are Municipal Securities?
State and local governments issue municipal securities to raise money to finance
public works, to repay outstanding obligations, to raise funds for general
operating expenses and to make loans to other public institutions. Some
municipal securities, known as private activity bonds, are backed by private
entities and are used to finance various non-public projects. Municipal
securities, which can be issued as bonds, notes or commercial paper, usually
have fixed interest rates, although some have interest rates that change from
time to time.
Principal Investment Strategies
The Portfolio normally invests at least 80% of its total assets in municipal
securities that pay interest which is exempt from federal income tax. Municipal
securities purchased by the Portfolio may include general obligation securities,
revenue securities and private activity bonds. General obligation securities
are secured by the issuer's full faith, credit and taxing power. Revenue
securities are usually payable only from revenues derived from specific
facilities or revenue sources. Private activity bonds are usually revenue
obligations since they are typically payable by the private user of the
facilities financed by the bonds. The interest on private activity bonds may be
subject to the federal alternative minimum tax. Investments in private activity
bonds will not be treated as investments in municipal securities for purposes of
the 80% requirement stated above.
In selecting municipal securities for the Portfolio, the Adviser favors those
sectors of the municipal market that offer the most favorable returns. The
Adviser emphasizes municipal securities that offer both a high credit quality
rating and a high degree of liquidity. The Adviser also attempts to maintain a
broad geographic diversification for the Portfolio, with emphasis on no
particular state.
The Portfolio will invest only in investment grade municipal securities. These
are securities which have one of the four highest ratings assigned by a national
rating agency, such as Standard & Poor's Ratings Group or Moody's Investors
Service, Inc., or are unrated securities determined by the Adviser to be of
comparable quality. Short-term municipal securities purchased by the Portfolio,
such as municipal notes and tax-exempt commercial paper, will have one of the
two highest ratings assigned by a national rating agency or will be unrated
securities that the Adviser has determined to be of comparable quality.
Occasionally, the rating of a security held by the Portfolio may be downgraded
below the minimum required rating. If that happens, the Portfolio
-12-
<PAGE>
does not have to sell the security unless the Adviser determines that under the
circumstances the security is no longer an appropriate investment for the
Portfolio.
The Portfolio's average weighted maturity will vary from time to time depending
on current economic and market conditions and the Adviser's assessment of
probable changes in interest rates. The Portfolio's average weighted maturity
generally will be longer (10 years or less) than that for the Short-Intermediate
Municipal Portfolio.
Principal Risk Considerations
The prices of debt securities, including municipal securities, tend to move in
the opposite direction to interest rates. When rates are rising, the prices of
debt securities tend to fall. When rates are falling, the prices of debt
securities tend to rise. Generally, the longer the time until maturity, the more
sensitive the price of a debt security is to interest rate changes. Changes in
interest rates also may cause certain municipal securities held by the Portfolio
to be paid off much sooner or later than expected. In the event that a security
is paid off sooner than expected because of a decline in interest rates, the
Portfolio may be unable to recoup all of its initial investment and may also
suffer from having to reinvest in lower-yielding securities. In the event of a
later than expected payment because of a rise in interest rates, the value of
the obligation will decrease, and the Portfolio may also suffer from the
inability to invest in higher-yielding securities.
The value of debt securities also depends on the ability of issuers to make
principal and interest payments. If an issuer can't meet its payment obligations
or if its credit rating is lowered, the value of its debt securities will fall.
The ability of a state or local government issuer to make payments can be
affected by many factors, including economic conditions, the flow of tax
revenues and changes in the level of federal, state or local aid. Some
municipal securities are payable only from limited revenue sources or by private
entities.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
(sidebar)
Portfolio Manager
Peter Merzian is the person primarily responsible for the day-to-day management
of the Portfolio. Mr. Merzian, a Senior Associate, has been with FIRMCO and its
predecessors since 1993 and has served as portfolio manager of the Portfolio
since it commenced operations in 1996.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Investor A Shares has varied from year to year. The table shows how the
Portfolio's average annual returns for one year and since inception compare to
those of a broad-based market index. Both the bar chart and table assume
-13-
<PAGE>
reinvestment of all dividends and distributions. The Portfolio's past
performance does not necessarily indicate how it will perform in the future.
Investor A Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
- ----------------------------------
1997 1998 1999
- ----------------------------------
9.94% 5.94% ____%
- ----------------------------------
The returns for Investor B Shares differed from the returns shown in the bar
chart because the two classes bear different expenses. The bar chart does not
reflect any sales charges on purchases of the Portfolio's Investor A Shares. If
sales charges were included, returns would be lower than those shown.
Best quarter: ____% for the quarter ending ________________
Worst quarter: ____% for the quarter ending _______________
Average Annual Total Returns for the periods ended December 31, 1999
- -------------------------------------------------------------------
1 Year Since
Inception*
- -------------------------------------------------------------------
Investor A Shares (with 4.75% sales ____% ____%
charge)
- -------------------------------------------------------------------
Investor B Shares (with applicable
contingent deferred sales charge) ____% ____%
- -------------------------------------------------------------------
Lehman Brothers Municipal Bond ____% ____%
Index--10 Year
- -------------------------------------------------------------------
* November 18, 1996 for Investor A Shares and Investor B Shares; November 30,
1996 for the Lehman Brothers Municipal Bond Index - 10 Year.
(sidebar)
Know your index
The Lehman Brothers Municipal Bond Index--10 Year is an unmanaged index that
tracks the performance of municipal bonds with remaining maturities of 10 years
or less.
-14-
<PAGE>
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Investor A Shares or Investor B Shares of the National Municipal Bond
Portfolio.
Shareholder Fees (fees you pay directly)
- --------------------------------------------------------------------------------
Maximum deferred sales
Maximum sales charge (load) charge (load) shown as a %
to buy shares, shown as a % of the offering price or
of the offering price sale price,whichever is less
- --------------------------------------------------------------------------------
Investor A Shares 4.75%/1/ None
- --------------------------------------------------------------------------------
Investor B Shares None 5.00%/2/
- --------------------------------------------------------------------------------
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
- --------------------------------------------------------------------------------
Total Annual
Distribution Portfolio
Management (12b-1) and Operating
Fees Service Fees Other Expenses Expenses
- --------------------------------------------------------------------------------
Investor A
Shares .55% .30%/3/ .___%/3/ ___%/3/
- --------------------------------------------------------------------------------
Investor B
Shares .55% 1.00% .___%/3/ ___%/3/
- --------------------------------------------------------------------------------
/1/ Reduced sales charges may be available. See "Distribution Arrangements/Sales
Charges" below.
/2/ This amount applies if you sell your shares in the first year after purchase
and gradually declines until it is eliminated after six years. After eight
years, your Investor B Shares will automatically convert to Investor A
Shares. See "Distribution Arrangements/Sales Charges" below.
/3/ Distribution (12b-1) and Service Fees for the Portfolio's Investor A Shares
and Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Investor A Shares and Investor B Shares for the current fiscal
year are expected to be less than the amounts shown above because certain of
the Portfolio's service providers are voluntarily waiving a portion of their
fees and/or reimbursing the Portfolio for certain other expenses. These fee
waivers and/or reimbursements are being made in order to keep the annual
fees and expenses for the Portfolio's Investor A Shares and Investor B
Shares at certain levels. Distribution (12b-1) and Service Fees, after
taking these fee waivers and expense reimbursements into account, are
expected to be ____% for Investor A Shares, and Other Expenses and Total
Annual Portfolio Operating Expenses, after taking these fee waivers and
expense reimbursements into account, are expected to be ____% and ____%,
respectively, for Investor A Shares and ____% and ____%, respectively, for
Investor B Shares. These fee waivers and expense reimbursements may be
revised or cancelled at any time.
-15-
<PAGE>
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year, the Portfolio's operating expenses remain the same and your Investor
B Shares automatically convert to Investor A Shares after eight years. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
- --------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- --------------------------------------------------------------------------------
Investor A
Shares _____ _____ _____ _____
- --------------------------------------------------------------------------------
Investor B
Shares _____ _____ _____ _____
- --------------------------------------------------------------------------------
If you hold Investor B Shares, you would pay the following expenses if you did
not sell your shares:
- --------------------------------------------------------------------------------
$____ $____ $____ $____
- --------------------------------------------------------------------------------
-16-
<PAGE>
Additional Information on Risk
The principal risks of investing in each Portfolio are described on the previous
pages. The following supplements that discussion.
Temporary Defensive Positions
Each Portfolio may temporarily hold investments that are not part of its main
investment strategy to try to avoid losses during unfavorable market conditions.
These investments may include cash (which will not earn any income) and taxable
obligations, including money market instruments and debt securities issued or
guaranteed by the U.S. Government or its agencies. This strategy could prevent
a Portfolio from achieving its investment objective.
Other Types of Investments
This prospectus describes each Portfolio's principal investment strategies and
the particular types of securities in which each Portfolio principally invests.
Each Portfolio may, from time to time, make other types of investments and
pursue other investment strategies in support of its overall investment goal.
These supplemental investment strategies--and the risks involved--are described
in detail in the Statement of Additional Information ("SAI"), which is referred
to on the back cover of this prospectus.
Year 2000 Risks
Over the past several years, the Adviser and the Portfolios' other major service
providers expended considerable time and money in addressing the computer and
technology problems associated with the transition to the Year 2000. As a result
of those efforts, the Portfolios did not experience any material disruptions in
their operations as a result of the transition to the 21/st/ century. The
Adviser and the Portfolios' other major service providers are continuing to
monitor the Year 2000 or Y2K problem, however, and there can be no assurances
that there will be no adverse impact to the Portfolios as a result of future
computer-related Y2K difficulties.
-17-
<PAGE>
Your Account
Distribution Arrangements/Sales Charges
Share Classes
Each Portfolio offers Investor A Shares and each Portfolio except the Short-
Intermediate Municipal Portfolio offers Investor B Shares. The primary
difference between the share classes is the sales charge structure and
distribution/service fee arrangement.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Types of Charges Investor A Shares Investor B Shares
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales Charge (Load) A front-end sales charge is A contingent deferred sales
assessed at the time of your charge (CDSC) is assessed on
purchase. shares redeemed within six
years of purchase. Investor B
Shares automatically convert
to Investor A Shares eight
years after purchase.
- ------------------------------------------------------------------------------------------------
Distribution (12b-1) and Subject to annual distribution Subject to annual distribution
Service Fees and shareholder servicing fees and shareholder servicing fees
of up to 0.30% of a of up to 1.00% of a
Portfolio's average daily net Portfolio's average daily net
assets attributable to its assets attributable to its
Investor A Shares. Investor B Shares.
- ------------------------------------------------------------------------------------------------
</TABLE>
-18-
<PAGE>
Calculation of Sales Charges
Investor A Shares
Missouri Tax-Exempt Bond and National Municipal Bond Portfolios
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Amount of Transaction Sales Charge as a % of Sales Charge as a % of Dealers' Reallowance
the Offering Price Per Net Asset Value Per as a % of Offering
Share Share Price
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 4.75% 4.99% 4.25%
- ------------------------------------------------------------------------------------------------------------
$50,000 but less
than $100,000 4.50% 4.71% 4.00%
- ------------------------------------------------------------------------------------------------------------
$100,000 but less
than $250,000 3.50% 3.63% 3.00%
- ------------------------------------------------------------------------------------------------------------
$250,000 but less
than $500,000 2.50% 2.56% 2.00%
- ------------------------------------------------------------------------------------------------------------
$500,000 but less
than $1 million 2.00% 2.04% 1.50%
- ------------------------------------------------------------------------------------------------------------
$1 million or more 0.50% 0.50% 0.40%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Short-Intermediate Municipal Portfolio
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Amount of Transaction Sales Charge as a % of Sales Charge as a % of Dealers' Reallowance
the Offering Price Per Net Asset Value Per as a % of Offering
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 million 1.00% 1.01% 0.85%
- ---------------------------------------------------------------------------------------------------------------
$1 million or more 0.50% 0.50% 0.40%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The Fund's distributor reserves the right to pay the entire sales charge on
purchases of Investor A Shares to dealers. In addition, the Fund's
distributor may from time to time implement programs under which a broker-
dealer's sales force may be eligible to win nominal awards for certain sales
efforts. If any such program is made available to any broker-dealer, it will
be made available to all broker-dealers on the same terms. Payments made
under such programs are made by the Fund's distributor out of its own assets
and not out of the assets of the Portfolios. These programs will not change
the price of Investor A Shares or the amount that the Portfolios will receive
from such sales.
-19-
<PAGE>
Calculation of Sales Charges
Investor B Shares
- --------------------------------------------------------------------------------
Years Since Purchase CDSC as a % of Dollar Amount Subject to Charge
- --------------------------------------------------------------------------------
0-1 5.0%
- --------------------------------------------------------------------------------
1-2 4.0%
- --------------------------------------------------------------------------------
2-3 3.0%
- --------------------------------------------------------------------------------
3-4 3.0%
- --------------------------------------------------------------------------------
4-5 2.0%
- --------------------------------------------------------------------------------
5-6 1.0%
- --------------------------------------------------------------------------------
more than 6 None
- --------------------------------------------------------------------------------
For purposes of calculating the CDSC, all purchases made during a calendar month
are considered to be made on the first day of that month. The CDSC is based on
the value of the Investor B Shares on the date that they are sold or the
original cost of the shares, whichever is lower. To keep your CDSC as low as
possible each time you sell shares, the Fund will first sell any shares in your
account that are not subject to a CDSC. If there are not enough of these, the
Fund will sell the shares that have the lowest CDSC.
Sales Charge Reductions
Investor A Shares
Additional purchases of Investor A Shares by existing Investor A shareholder
accounts at March 31, 1999 in the Missouri Tax-Exempt Bond and National
Municipal Bond Portfolios are eligible for reduced sales charges. See the SAI
or call the Fund's distributor at 1-800-452-2724 for further information.
You may also reduce the sales charge on Investor A Shares through:
. Rights of Accumulation. You can add the value of the Investor A Shares that
you already own in any Portfolio of the Fund that charges a sales load, as
well as the value of any existing Class A shares of any other fund in the
Firstar Family of Funds, to your next investment in Investor A Shares for
purposes of calculating the sales charge.
. Quantity Discounts. As the dollar amount of your purchase increases, your
sales charge may decrease (see the tables on page ___). In addition, the
Fund will combine purchases made on the same day by you and your immediate
family members when calculating applicable sales charges.
. Letter of Intent. You can purchase Investor A Shares of any Portfolio of
the Fund that charges a sales load over a 13-month period and pay the same
sales charge you would have paid if all shares were purchased at once. The
Fund's transfer agent will hold in escrow 5% of your total investment (for
payment of a higher sales load in case you do not purchase the full amount
indicated on the application) until the full amount is received. To
participate, complete the "Letter of Intent" section on your account
application.
-20-
<PAGE>
. Reinvestment Privilege. You can reinvest some or all of the money that you
receive when you sell Investor A Shares of a Portfolio, or shares of any
other fund in the Firstar Family of Funds, in Investor A Shares of any
Portfolio of the Fund within 60 days without paying a sales charge. You must
notify the Fund's transfer agent at the time of your reinvestment that you
qualify for this privilege.
Sales Charge Waivers
Investor A Shares
In addition, there's no sales charge when you buy Investor A Shares if:
. You buy shares by reinvesting your dividends and capital gains
distributions.
. You're an officer or director of the Fund (or an immediate family member of
any such individual).
. You're a director, a current or retired employee or a participant in an
employee benefit or retirement plan of Firstar Corporation or the Fund's
distributor or any of their affiliates (or an immediate family member of any
such individual).
. You're a broker, dealer or agent who has a sales agreement with the Fund's
distributor (or an employee or immediate family member of any such
individual).
. You buy shares pursuant to a wrap-free program offered by a broker-dealer or
other financial institution.
. You buy shares with the proceeds of Trust Shares or Institutional Shares of
a Portfolio 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 Firstar Bank or its affiliates
or correspondents within 60 days of receipt of such payment.
. You buy shares through a payroll deduction program.
. You're an employee of any sub-adviser to the Fund.
. You were a holder of a Southwestern Bell VISA card formerly issued by
Mercantile Bank of Southern Illinois, N.A. and you participated in the
Fund's Automatic Investment Program.
. You're exchanging Trust Shares of a Portfolio received from the distribution
of assets held in a qualified trust, agency or custodian account with
Firstar Bank or any of its affiliates or correspondents.
. You're another investment company distributed by the Fund's distributor or
its affiliates.
If you think you qualify for any these waivers, please call the Fund at 1-800-
452-2724 before buying any shares.
(sidebar)
Purchase of Investor A Shares at Net Asset Value
From time to time, the Fund's distributor may offer investors the option to
purchase Investor A Shares at net asset value without payment of a front-end
sales charge. To qualify, you must pay for the shares with the redemption
proceeds from a non-affiliated mutual fund. In addition, you must have paid a
front-end sales charge on the shares you redeem. The purchase of Investor A
Shares must occur within 30 days of the prior redemption, and you must show
evidence of the
-21-
<PAGE>
redemption transaction. At the time of purchase, your broker-dealer or other
financial institution must notify the Fund that your transaction qualifies for a
purchase at net asset value.
Sales Charge Waivers
Investor B Shares
No CDSC is assessed on redemptions of Investor B Shares if:
. The shares were purchased with reinvested dividends or capital gains
distributions.
. The shares were purchased through an exchange of Investor B Shares of another
Portfolio.
. The redemption represents a distribution from a qualified retirement plan
under Section 403(b)(7) of the Internal Revenue Code, due to death,
disability or the attainment of a specified age.
. The redemption is in connection with the death or disability of the
shareholder.
. You participate in the Automatic Withdrawal Plan and your annual withdrawals
do not exceed 12% of your account's value.
. Your account falls below the Portfolio's minimum account size, and the Fund
liquidates your account (see page __).
. The redemption results from a tax-free return of an excess contribution,
pursuant to Section 408(d)(4) or (5) of the Internal Revenue Code.
Distribution and Service Fees
Investor A Shares of the Portfolios pay distribution (12b-1) and shareholder
service fees at an annual rate of up to 0.30% of each Portfolio's Investor A
Share assets. Investor B Shares of the Missouri Tax-Exempt Bond and National
Municipal Bond Portfolios pay distribution (12b-1) and shareholder service fees
at an annual rate of up to 1.00% of each Portfolio's Investor B Share assets.
The Fund has adopted separate distribution and service plans under Rule 12b-1
that allow each Portfolio to pay fees from its Investor A Share or Investor B
Share assets for selling and distributing Investor A Shares or Investor B
Shares, as the case may be, and for services provided to shareholders. Because
12b-1 fees are paid on an ongoing basis, over time they increase the cost of
your investment and may cost more than other sales charges.
Converting Investor B Shares to Investor A Shares
Eight years after you buy Investor B Shares of a Portfolio, they will
automatically convert to Investor A Shares of the Portfolio. This allows you to
benefit from the lower annual expenses of Investor A Shares.
Choosing Between Investor A Shares and Investor B Shares
In deciding whether to buy Investor A Shares or Investor B Shares, you should
consider how long you plan to hold the shares. Over time, the higher fees on
Investor B Shares may equal or
-22-
<PAGE>
exceed the initial sales charge and fees for Investor A Shares. Investor A
Shares may be a better choice if you qualify to have the sales charges reduced
or eliminated, or if you plan to sell your shares within one or two years.
Consult your financial adviser for help in choosing the appropriate share class.
Explanation of Sales Price
Shares of each class in a Portfolio are sold at their net asset value (NAV)
plus, in the case of Investor A Shares, a front-end sales charge, if applicable.
This is commonly referred to as the "public offering price."
The NAV for each class of shares of a Portfolio is determined as of the close of
regular trading on the New York Stock Exchange (currently 4:00 p.m., Eastern
time) on every business day. The NAV for a class of shares is determined by
adding the value of the Portfolio's investments, cash and other assets
attributable to a particular share 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.
(sidebar)
Business days defined
A business day is any day that both the New York Stock Exchange and the Federal
Reserve Bank of St. Louis are open for business. Currently, the Fund observes
the following holidays: 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 and Christmas.
. Each Portfolio's investments are valued according to market value. When a
market quote is not readily available, the security's value is based on "fair
value" as determined by FIRMCO under the supervision of the Fund's Board of
Directors.
. If you properly place a purchase order (see "How to Buy Shares" on page __)
that is delivered to the Fund before 4:00 p.m. (Eastern time) on any business
day, the order receives the share price determined for your share class as of
4:00 p.m. that day. If the order is received after 4:00 p.m., it will receive
the price determined on the next business day. You must pay for your shares
no later than 4:00 p.m. three business days after placing the order, or the
order will be cancelled.
How to Buy Shares
Investing in the Mercantile Tax-Exempt Bond Portfolios is quick and convenient.
You can purchase Investor A Shares or Investor B Shares in any of the following
ways:
-23-
<PAGE>
. Through a broker-dealer organization. You can purchase shares through any
broker-dealer organization that has a sales agreement with the Fund's
distributor. The broker-dealer organization is responsible for sending your
purchase order to the Fund.
. Through a financial organization. You can purchase shares through any
financial organization that has entered into a servicing agreement with the
Fund. The financial organization is responsible for sending your purchase
order to the Fund.
. Directly from the Fund by mail. Just complete an account application and send
it, along with a check for at least the minimum purchase amount, to:
Mercantile Mutual Funds, Inc. 615 East Michigan Street, P.O. Box 3011,
Milwaukee, Wisconsin 53201-3011. Remember to specify whether you're buying
Investor A Shares or Investor B Shares. To make additional investments once
you've opened your account, send your check to the address above together
with the detachable form that's included with your Fund statement or
confirmation of a prior transaction or a letter stating the amount of your
investment, the name of the Portfolio you want to invest in and your account
number.
In addition, you may call the Fund at 1-800-452-2724 for more information on how
to buy shares.
Minimum Investments
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
To Open Your Account To Add to Your Account
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Regular accounts $1,000 $ 50
- ------------------------------------------------------------------------------------------
Sweep program through your
financial institution None None
- ------------------------------------------------------------------------------------------
Wrap fee program through
your financial institution None None
- ------------------------------------------------------------------------------------------
Payroll Deduction Program* None $ 25
- ------------------------------------------------------------------------------------------
Automatic Exchange $1,000 minimum account
Program* $5,000 balance
- ------------------------------------------------------------------------------------------
Automatic Investment
Program* $ 50 $ 50
- ------------------------------------------------------------------------------------------
</TABLE>
* See Investor Programs below.
How to Sell Shares
You can arrange to get money out of your account by selling some or all of your
shares. This is known as "redeeming" your shares. You can redeem your shares
in the following ways:
Through a broker-dealer or other financial organization
-24-
<PAGE>
If you purchased your shares through a broker-dealer or other financial
organization, your redemption order should be placed through the same
organization. The organization is responsible for sending your redemption order
to the Fund on a timely basis.
By mail
Send your written redemption request to: Mercantile Mutual Funds, Inc., 615 East
Michigan Street, P.O. Box 3011, Milwaukee, Wisconsin 53201-3011. Your request
must include the name of the Portfolio, the number of shares or the dollar
amount you want to sell, your account number, your social security or tax
identification number and the signature of each registered owner of the account.
Your request also must be accompanied by any share certificates that are
properly endorsed for transfer. Additional documents may be required for certain
types of shareholders, such as corporations, partnerships, executors, trustees,
administrators or guardians.
The Fund's transfer agent may require a signature guarantee unless the
redemption proceeds are payable to the shareholder of record and the redemption
is either mailed to the shareholder's address of record or electronically
transferred to the account designated on the original account application. A
signature guarantee helps prevent fraud, and you may obtain one from most banks
and broker-dealers. Contact your broker-dealer or other financial organization
or the Fund for more information on signature guarantees.
By telephone
You may redeem your shares by telephone if you have selected that option on your
account application and if there has been no change of address by telephone
within the preceding 15 days. Call the Fund at 1-800-452-2724 with your request.
You may have your proceeds mailed to your address or transferred electronically
to the bank account designated on your account application. If you have not
previously selected the telephone privilege, you may add this feature by
providing written instructions to the Fund's transfer agent. If you have
difficulty getting through to the Fund because of unusual market conditions,
consider selling your shares by mail.
You may sell your Portfolio shares at any time. Your shares will be sold at the
NAV next determined after the Fund accepts your order (see above). The proceeds
of the sale of Investor B Shares will be reduced by the applicable CDSC. Your
proceeds ordinarily are sent electronically or mailed by check within three
business days. If your account holds both Investor A Shares and Investor B
Shares, be sure to specify which shares you are selling. Otherwise, Investor A
Shares will be sold first.
(sidebar)
Selling recently purchased shares
If you attempt to sell shares you recently purchased with a personal check, the
Fund may delay processing your request until it collects payment for those
shares. This process may take up to 15
-25-
<PAGE>
days, so if you plan to sell shares shortly after purchasing them, you may want
to consider purchasing shares with a certified or bank check or via electronic
transfer to avoid delays.
Investor Programs
It's also easy to buy or sell shares of the Portfolios by using one of the
programs described below.
Automatic Investment Program
You may open an account or make additional investments in an existing account
for as little as $50 a month with the Fund's Automatic Investment Program (AIP).
Under the AIP, you specify the dollar amount to be automatically withdrawn each
month from your bank checking account and invested in your Portfolio account.
Purchases of Investor A Shares or Investor B Shares will occur on the day of the
month designated by you (or the next business day after the designated day) of
each month at the net asset value plus any front-end sales charge, if
applicable, next determined on the day the order is effected. To take advantage
of the AIP, complete the AIP authorization form included with your account
application or contact your broker-dealer or other financial organization.
AIP lets you take advantage of "dollar cost averaging", a long-term investment
technique designed to help investors reduce their average cost per share over
time. Instead of trying to time the market, you can invest a fixed dollar amount
each month. So, you buy fewer Portfolio shares when prices are high and more
when prices are low. Because dollar cost averaging involves regular investing
over time, regardless of share price, it may not be appropriate for all
investors.
In addition, dollar cost averaging does not guarantee a profit or protect
against loss in a steadily declining market. To be effective, dollar cost
averaging usually should be followed on a sustained, consistent basis. Even
then, however, there can be no guarantee of the success of this technique, and
it will not prevent a loss if an investor ultimately redeems his or her shares
at a price that is lower than the original purchase price.
Exchanges
The exchange privilege enables you to exchange Investor A Shares of one
Portfolio for Investor A Shares (or in certain limited circumstances described
in the SAI, Trust or Institutional Shares) of another Portfolio and to exchange
Investor B Shares of one Portfolio for Investor B Shares of another Portfolio.
Just sign up for the exchange privilege on your account application and contact
your broker-dealer or other financial organization when you want to exchange
shares. You also may exchange shares by telephoning the Fund directly (call 1-
800-452-2724) if you have elected this privilege on your account application.
The exchange privilege may be exercised only in those states where the class of
shares of the Portfolio being acquired may be legally sold.
When exchanging Investor A Shares of a Portfolio that has no sales charge or a
lower sales charge for Investor A Shares of a Portfolio with a higher sales
charge, you will pay the difference.
-26-
<PAGE>
You may exchange Investor B Shares without paying a CDSC on the exchange. The
holding period of the shares originally held and redeemed will be added to the
holding period of the new shares acquired through the exchange.
Automatic Exchange Program
This program lets you automatically exchange shares of one Portfolio for shares
of another Portfolio on a regular basis, as long as the shares are of the same
class. Because you're making regular purchases, the Automatic Exchange Program
enables you to take advantage of dollar cost averaging. (See "Automatic
Investment Program" on page __.)
To participate, you must make a minimum initial purchase of $5,000 and maintain
a minimum account balance of $1,000. In addition, you must complete the
authorization form included with your account application or available from your
broker-dealer or other financial organization. In order to change instructions
with respect to the Automatic Exchange Program or to discontinue the program,
you must send written instructions to your broker-dealer or other financial
organization or to the Fund.
Automatic Withdrawal Plan
If the net asset value of your account equals $10,000 or more, you may take
advantage of the Fund's Automatic Withdrawal Plan (AWP). With the AWP, you can
have monthly, quarterly, semi-annual or annual redemptions of at least $50 from
your Portfolio account sent to you via check or to your bank account
electronically on the day designated by you (or the next business day after the
designated day) of the applicable month of withdrawal. No CDSC will be charged
on withdrawals of Investor B Shares made through the AWP that don't annually
exceed 12% of your account's value.
To participate in the AWP, complete the AWP application included with your
account application or contact your broker-dealer or other financial
organization. A signature guarantee will be required. You may terminate your
participation in the AWP upon 30 days' notice to your broker-dealer or other
financial organization or to the Fund.
Payroll Deduction Program
You can make regular investments from your paycheck. The minimum investment is
$25 per pay period. Call the Fund at 1-800-452-2724 for an application and
further information. The Fund may terminate the program at any time.
Internet Transactions
You generally can request purchases, exchanges and redemptions of Investor A
Shares and Investor B Shares of the Portfolios on line via the Internet after an
account is opened. Redemption requests of up to $25,000 will be accepted through
the Internet. Payment for Shares purchased online must be made by electronic
funds transfer from your banking institution. To authorize this service, call
the Fund's transfer agent at 1-800-452-2724.
The Fund and its agents will not be responsible for any losses resulting from
unauthorized on-line transactions when procedures are followed which are
designed to confirm that the on-line transaction request is genuine. Statements
of accounts shall be conclusive if not objected to in writing within 10 days
after transmitted by mail. During periods of significant economic or market
change, it may be difficult to reach the Portfolios on line. If this happens,
you may initiate transactions in your share accounts by mail or otherwise as
described above.
General Transaction Policies
The Fund reserves the right to:
-27-
<PAGE>
. Vary or waive any minimum investment requirement.
. Refuse any order to buy shares.
. Reject any exchange request.
. Change or cancel the procedures for selling or exchanging shares by telephone
at any time.
. Redeem all shares in your account if your balance falls below $500. If,
within 60 days of the Fund's written request, you have not increased your
account balance, you may be required to redeem your shares. The Fund will not
require you to redeem shares if the value of your account drops below $500
due to fluctuations in net asset value.
. Send redemption proceeds within seven days after receiving a request, if an
earlier payment could adversely affect a Portfolio.
. Modify or terminate the Automatic Exchange, Automatic Investment and
Automatic Withdrawal programs at any time.
. Modify or terminate the exchange privilege after 60 days' written notice to
shareholders.
. Make a "redemption in kind." Under abnormal conditions that may make payment
in cash unwise, the Fund may offer partial or complete payment in portfolio
securities rather than cash at such securities' then-market-value equal to
the redemption price. In such cases, you may incur brokerage costs in
converting these securities to cash.
If you elect telephone privileges on the account application or in a letter to
the Fund, you may be responsible for any fraudulent telephone orders as long as
the Fund has taken reasonable precautions to verify your identity.
Also, your broker-dealer or other financial organization may establish policies
that differ from those of the Fund. For example, the organization may charge
transaction fees, set higher minimum investments, or impose certain limitations
on purchasing or redeeming shares in addition to those identified in this
prospectus. Contact your broker-dealer or other financial organization for
details.
-28-
<PAGE>
Distributions and Taxes
Dividends and Distributions
The Portfolios pay their shareholders dividends from the Portfolios' respective
net investment income and distribute any net capital gains the Portfolios have
realized.
Dividends are declared daily and paid monthly. Capital gains, if any, are
distributed once a year. It's expected that each Portfolio's annual
distributions will be primarily income dividends.
Dividends on each share class of the Portfolios are determined in the same
manner and are paid in the same amount. However, each share class bears all
expenses associated with that particular class. So, because Investor B Shares
have higher distribution and service fees than Investor A Shares, the dividends
paid to Investor B shareholders will be lower than those paid to Investor A
shareholders.
All of your dividends and capital gains distributions with respect to a
particular Portfolio will be reinvested in additional shares of the same class
unless you instruct otherwise on your account application or have redeemed all
shares you held in the Portfolio. In such cases, dividends and distributions
will be paid in cash.
Taxation
As with any investment, you should consider the tax implications of an
investment in the Portfolios. The following is only a brief summary of some of
the important tax considerations generally affecting the Portfolios and their
shareholders under current law, which may be subject to change in the future.
Consult your tax adviser with specific reference to your own tax situation.
. It is expected that the Portfolios will distribute dividends derived from
interest earned on exempt securities, and these "exempt-interest dividends"
will be exempt income for shareholders for federal income tax purposes.
However, the Portfolios are likely from time to time to make taxable
distributions. Distributions derived from net long-term capital gains will
generally be taxable to you as long-term capital gains. Dividends derived
from short-term capital gains and income attributable to "market discount" on
bonds acquired by the Portfolios will be taxable to you as ordinary
income.
. You should note that if you purchase shares just prior to a capital gain
distribution, the purchase price will reflect the amount of the upcoming
distribution, but you will be taxed on the entire amount of the distribution
received, even though, as an economic matter, the distribution simply
constitutes a return of capital. This is known as "buying into a dividend."
. You will recognize taxable gain or loss on a sale, exchange or redemption of
your shares, including an exchange for shares of another Portfolio, based on
the difference between your tax basis in the shares and the amount you
receive for them. Generally, this gain or loss will be long-term or short-
term depending on whether your holding period for the shares exceeds 12
months, except that any loss realized on shares held for six months or less
will be treated as a long-term capital loss to the extent that any long-term
capital gain distributions were received with respect to the shares. If you
receive an exempt-interest dividend with respect to any share and the share
is held by you for six months or less, any loss on the sale or exchange of
the share will be disallowed to the extent of such dividend amount.
-29-
<PAGE>
. You should note that a portion of the exempt-interest dividends paid by each
Portfolio may constitute an item of tax preference for purposes of
determining federal alternative minimum tax liability. Exempt-interest
dividends will also be considered along with other adjusted gross income in
determining whether any Social Security or railroad retirement payments
received by you are subject to federal income taxes.
. The Missouri Tax-Exempt Bond Portfolio anticipates that the dividends that it
pays that are attributable to interest earned by the Portfolio will also be
exempt from Missouri state income taxes. Dividends paid by the Short-
Intermediate Municipal and National Municipal Bond Portfolios that are
attributable to interest earned by the Portfolios may be taxable to
shareholders under state or local law.
Shareholders may also be subject to state and local taxes on distributions and
redemptions. State income taxes may not apply however, to the portions of each
Portfolio's distributions, if any, that are attributable to interest on federal
securities or interest on securities of the particular state or localities
within the state.
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. Shareholders who are nonresident
aliens, foreign trusts or estates, or foreign corporations or partnerships, may
be subject to different United States federal income tax treatment. For more
information regarding the taxation of the Portfolios, consult the SAI under the
heading "Additional Information Concerning Taxes." You should also consult your
tax adviser for further information regarding federal, state, local and/or
foreign tax consequences relevant to your specific situation.
(sidebar)
You will be advised at least annually regarding the federal income tax treatment
and, if you own shares of the Missouri Tax-Exempt Bond Portfolio, the Missouri
state income tax treatment, of dividends and distributions made to you. You
should save your account statements because they contain information you will
need to calculate your capital gains or losses, if any, upon your ultimate sale
or exchange of shares in the Portfolios.
-30-
<PAGE>
Management of the Fund
The Adviser
FIRMCO, subject to the general supervision of the Fund's Board of Directors, is
responsible for the day-to-day management of the Portfolios in accordance with
each Portfolio's respective investment objective and policies. This includes
making investment decisions, buying and selling securities and overseeing the
administration and recordkeeping for each Portfolio.
In exchange for these services, FIRMCO receives an investment advisory fee,
which is calculated daily and paid monthly, according to the average daily net
assets of each Portfolio. On March 1, 2000, MVA, the Portfolios' former adviser,
merged into FIRMCO. For the fiscal year ended November 30, 1999, the Portfolios
paid MVA advisory fees as follows:
- --------------------------------------------------------------
Investment advisory fees
Portfolio as a % of net assets
- --------------------------------------------------------------
Short-Intermediate Municipal ___%
Portfolio
- --------------------------------------------------------------
Missouri Tax-Exempt Bond Portfolio ___%
- --------------------------------------------------------------
National Municipal Bond Portfolio ___%
- --------------------------------------------------------------
-31-
<PAGE>
Financial Highlights
Introduction
The financial highlights tables presented below are intended to help you
understand the financial performance of each Portfolio's Investor A Shares
and/or Investor B Shares for the past five years (or, if shorter, the period
since the Portfolio began operations or the particular shares were first
offered). Certain information reflects financial results for a single Investor A
Share or Investor B Share in each Portfolio. The total returns in the tables
represent the rate that an investor would have earned (or lost) on an investment
in either Investor A Shares or Investor B Shares, assuming reinvestment of all
dividends and distributions. This information has been audited by __________,
independent auditors, whose report, along with the Portfolios' financial
statements, are included in the Fund's Annual Report to Shareholders, and are
incorporated by reference into the SAI.
-32-
<PAGE>
Short-Intermediate Municipal Portfolio
Investor A Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
July 10, 1995 to
For the years ended November 30, November 30,
1999 1998 1997 1996 1995/(a)/
-------- ------- ------ ------ ---------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $10.11 $10.08 $10.08 $10.00
------ ------ ------ --------
Investment Activities
Net investment income................... 0.35 0.37 0.40 --
Net realized and unrealized gains
from investments.................... 0.15 0.03 -- 0.08
------ ------ ------ --------
Total from Investment Activities........ 0.50 0.40 0.40 0.08
------ ------ ------ --------
Distributions
Net investment income.................. (0.35) (0.37) (0.40) --
------ ------ ------
Total Distributions..................... (0.35) (0.37) (0.40) --
------ ------ ------ --------
Net Asset Value, End of Period.......... $10.26 $10.11 $10.08 $10.08
====== ====== ====== ========
Total Return (excludes sales charges)... 5.16% 4.12% 4.02% 0.80%/(b)/
Ratio/Supplementary Data:
Net assets at end of period (000)...... $ 32 $ 16 $ 51 $ -- /(c)/
Ratio of expenses to average net
assets.............................. 0.89% 0.62% 0.56% 0.00%/(d)/
Ratio of net investment income to
average net assets.................. 3.54% 3.78% 3.83% 0.00%/(d)/
Ratio of expenses to average
net assets*......................... 1.21% 1.32% 1.26% 0.00%/(d)/
Portfolio turnover**................... 18.58% 0.00% 0.00% 0.00%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio 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 Investor A Share, worth $10.08, was outstanding as of November
30, 1995.
(d) Annualized.
-33-
<PAGE>
Missouri Tax-Exempt Bond Portfolio
Investor A Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
For the
Six Months Ended For the year ended
For the years ended November 30, November 30, May 31,
---------------------------------------------- ---------------- ------------------
1999 1998 1997 1996 1995/(c)/ 1995
---------- ---------- -------- -------- ---------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.... $ 11.87 $ 11.69 $ 11.74 $ 11.52 $ 11.13
---------- -------- -------- ---------- ----------
Investment Activities
Net investment income.................. 0.52 0.53 0.55 0.27 0.55
Net realized and unrealized gains
(losses) from investments........... 0.21 0.18 (0.05) 0.22 0.40
---------- -------- -------- ---------- ----------
Total from Investment Activities....... 0.73 0.71 0.50 0.49 0.95
---------- -------- -------- ---------- ----------
Distributions
Net investment income.................. (0.52) (0.53) (0.55) (0.27) (0.55)
--------- -------- -------- ---------- ----------
Net realized gains..................... -- -- -- -- (0.01)
--------- -------- -------- ---------- ----------
Total Distributions..................... (0.52) (0.53) (0.55) (0.27) (0.56)
--------- -------- -------- ---------- ----------
Net Asset Value, End of Period.......... $ 12.08 $ 11.87 $ 11.69 $ 11.74 $ 11.52
========= ======== ======== ========== ==========
Total Return (excludes sales charges)... 6.31% 6.27% 4.41% 4.32%/(a)/ 8.91%
Ratio/Supplementary Data:
Net assets at end of period (000)...... $23,611 $23,722 $25,144 $ 24,726 $24,318
Ratio of expenses to average net
assets.............................. 0.86% 0.86% 0.85% 0.95%/(b)/ 0.84%
Ratio of net investment income to
average net assets.................. 4.38% 4.57% 4.75% 4.64%/(b)/ 5.02%
Ratio of expenses to average net
assets*............................. 1.06% 1.06% 1.05% 1.18%/(b)/ 1.18%
Portfolio turnover** 6.14% 3.50% 3.66% 1.55% --
</TABLE>
___________________________________
-34-
<PAGE>
* During the period, certain fees were voluntary reduced. If such voluntary
fee reductions had not occurred, the ratio 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)/ Not annualized.
/(b)/ Annualized.
/(c)/ Upon reorganizing as a Portfolio of the Fund on October 2, 1995, the
Missouri Tax-Exempt Bond Portfolio changed its fiscal year-end from May
31 to November 30.
-35-
<PAGE>
Missouri Tax-Exempt Bond Portfolio
Investor B Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
For the
For year ended November 30, Six Months Ended
----------------------------------------------- November 30, March 1, 1995
1999 1998 1997 1996 1995/(d)/ to May 31, 1995
-------- -------- -------- -------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period............................ $ 11.86 $ 11.68 $ 11.74 $ 11.52 $ 11.19
------- ------- ------- ------- -------
Investment Activities
Net Investment Income............ 0.43 0.44 0.45 0.22 0.11
------- ------- ------- ------- -------
Net realized and unrealized
gains (losses) on investments.. 0.21 0.18 (0.06) 0.22 (0.33)
------- ------- ------- ------- -------
Total from Investment Activities 0.64 0.62 0.39 0.44 0.44
------- ------- ------- ------- -------
Distributions
Net investment income............ (0.43) (0.44) (0.45) (0.22) (0.11)
------- ------- ------- ------- -------
Total Distributions............. (0.43) (0.44) (0.45) (0.22) (0.11)
------- ------- ------- ------- -------
Net Asset Value, End of Period..... $ 12.07 $ 11.86 $ 11.68 $ 11.74 $ 11.52
======= ======= ======= ======= =======
Total Return (excludes sales
charges).......................... 5.47% 5.43% 3.48% 3.88%/(a)/ 8.61%/(b)/
Ratio/Supplementary Data:
Net Assets at end of period (000) $ 2,496 $ 1,398 $ 675 $ 433 $ 94
Ratio of expenses to average
net assets..................... 1.66% 1.66% 1.65% 1.77%/(c)/ 1.76/(c)/
Ratio of net investment
income to average net assets.. 3.57% 3.76% 3.96% 3.82%/(c)/ 4.00%/(c)/
Ratio of expenses to average
net assets*.................... 1.76% 1.76% 1.75% 1.87%/(c)/ 1.88%/(c)/
Portfolio turnover rate**....... 6.14% 3.50% 3.66% 1.55% --
</TABLE>
_____________________________
* During the period, certain fees were voluntary reduced. If such
voluntary fee reductions had not occurred, the ratio 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)/ Not annualized.
/(b)/ Represents total return for the Investor A Shares from June 1, 1994 to
February 28, 1995, plus the total return for the Investor B Shares for
the period from March 1, 1995 to May 31, 1995.
/(c)/ Annualized.
/(d)/ Upon reorganizing as a Portfolio of the Fund on October 2, 1995., the
Missouri Tax-Exempt Bond Portfolio changed its fiscal year-end from
May 31 to November 30.
-36-
<PAGE>
National Municipal Bond Portfolio
Investor A Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
For the years ended November 18,
November 30, 1996 to
---------------------------------- November 30,
1999 1998 1997 1996/(a)/
---- ------ ------ ------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period............. $10.27 $10.05 $10.00
------ ------ ------
Investment Activities
Net Investment Income.......... 0.44 0.52 0.02
Net realized and unrealized
gains from investments..... 0.30 0.22 0.05
------ ------ ------
Total from Investment
Activities.................. 0.74 0.74 0.07
------ ------ ------
Distributions
Net investment income.......... (0.44) (0.52) (0.02)
Net realized gains............. (0.35) -- --
------ ------ ------
Total Distributions.......... (0.79) (0.52) (0.02)
------ ------ ------
Net Asset Value, End of
Period.......................... $10.22 $10.27 $10.05
====== ====== ======
Total Return (excludes sales
charge)........................ 7.56% 7.61% 0.73%/(b)/
Ratios/Supplementary Data:
Net Assets at end of
period (000).............. $1,162 $ 717 $ 1
Ratio of expenses to
average net assets........ 0.85% 0.35% 0.37%/(c)/
Ratio of net investment
income to average net 4.18% 4.71% 9.08%/(c)/
assets....................
Ratio of expenses to average
net assets*................. 1.16% 1.17% 1.07%/(c)/
Portfolio turnover**............ 18.30% 83.94% --
</TABLE>
- -------------------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio 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.
-37-
<PAGE>
National Municipal Bond Portfolio
Investor B Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
November 18
For the years ended 1996 to
November 30, November 30,
-------------------------------- ------------
1999 1998 1997 1996/(a)/
------ ------ ------ ----------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period............. $10.29 $10.05 $10.00
------ ------ ------
Investment Activities
Net Investment Income.......... 0.36 0.44 0.02
Net realized and unrealized
gains from investments...... 0.30 0.24 0.05
------ ------ ------
Total from Investment
Activities.................. 0.66 0.68 0.07
------ ------ ------
Distributions
Net investment income.......... (0.36) (0.44) (0.02)
Net realized gains............. (0.35) -- --
------ ------ ------
Total Distributions.......... (0.71) (0.44) (0.02)
------ ------ ------
Net Asset Value, End of
Period.......................... $10.24 $10.29 $10.05
====== ====== ======
Total Return (excludes sales
charge)........................ 6.69% 7.01% 0.70%/(b)/
Ratios/Supplementary Data:
Net Assets at end of
period (000)............... $ 503 $ 408 $ 1
Ratio of expenses to
average net assets......... 1.56% 1.17% 1.10%/(c)/
Ratio of net investment
income to average net
assets..................... 3.51% 4.08% 8.35%/(c)/
Ratio of expenses to
average net assets*.......... 1.86% 1.89% 1.80%/(c)/
Portfolio turnover**............ 18.30% 83.94% --
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio 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.
-38-
<PAGE>
[Back Cover Page]
Where to find more information
You'll find more information about the Portfolios in the following documents:
Annual and semi-annual reports
The Fund's annual and semi-annual reports contain information about each
Portfolio and a discussion about the market conditions and investment strategies
that had a significant effect on each Portfolio's performance during the last
fiscal year.
Statement of Additional Information (SAI)
The SAI contains detailed information about the Portfolios and their policies.
By law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Portfolios and make shareholder inquiries by calling the Fund at 1-800-452-2724
or by writing to:
Mercantile Mutual Funds, Inc.
615 East Michigan Street
P.O. Box 3011
Milwaukee, Wisconsin 53201-3011
If you buy your shares through a broker-dealer or other financial institution,
you may contact your institution for more information.
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Portfolios, including the
SAI. They'll charge you a fee for this service. You can also visit the SEC
Public Reference Room and copy the documents while you're there. For information
about the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC
Washington, DC 20549-0102
1-202-942-8090
Reports and other information about the Portfolios are also available on the
EDGAR database on the SEC's website at http://www.sec.gov. Copies of this
information may also be obtained, after paying a duplicating fee, by electronic
request to the SEC's e-mail address at [email protected].
The Fund's Investment Company Act File No. is 811-3567
<PAGE>
Mercantile Mutual Funds
Prospectus
Investor Shares
______________, 2000
Stock Portfolios
Balanced 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
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved any shares of these Portfolios as an investment or
determined if this prospectus is truthful or complete. Anyone who tells you
otherwise is committing a criminal offense.
<PAGE>
Contents
Risk/Return Summary
1 Overview
2 Balanced Portfolio
7 Equity Income Portfolio
11 Equity Index Portfolio
14 Growth & Income Equity Portfolio
18 Growth Equity Portfolio
22 Small Cap Equity Portfolio
26 Small Cap Equity Index Portfolio
29 International Equity Portfolio
33 Additional Information on Risk
Your Account
34 Distribution Arrangements/Sales Charges
38 Explanation of Sales Price
39 How to Buy Shares
40 How to Sell Shares
41 Investor Programs
44 General Transaction Policies
Distributions and Taxes
44 Dividends and Distributions
44 Taxation
Management of the Fund
46 The Adviser
46 The Sub-Adviser
Financial Highlights
47 Introduction
48 Balanced Portfolio
<PAGE>
50 Equity Income Portfolio
52 Equity Index Portfolio
53 Growth & Income Equity Portfolio
55 Growth Equity Portfolio
57 Small Cap Equity Portfolio
59 Small Cap Equity Index Portfolio
60 International Equity Portfolio
<PAGE>
Risk/Return Summary
Overview
This prospectus describes the Mercantile Stock Portfolios, eight investment
portfolios offered by Mercantile Mutual Funds, Inc. (the "Fund"). On the
following pages, you will find important information about each Portfolio,
including:
. A description of the Portfolio's investment objective (sometimes referred to
as its goal);
. The Portfolio's principal investment strategies (the steps it takes to try to
meet its goal);
. The principal risks associated with the Portfolio (factors that may prevent
it from meeting its goal);
. The Portfolio's past performance (how successful it's been in meeting its
goal); and
. The fees and expenses (including sales charges) you pay as an investor in the
Portfolio.
Who may want to invest in the Mercantile Stock Portfolios?
The Mercantile Stock Portfolios may be appropriate for investors who seek
capital growth over the long term and are comfortable with the risks of stock
markets. The Portfolios may not be appropriate for investors who are investing
for short-term goals or are mainly seeking current income.
Before investing in a Portfolio, you should carefully consider:
. Your own investment goals
. The amount of time you are willing to leave your money invested
. How much risk you are willing to take.
The Investment Adviser
Firstar Investment Research and Management Company, LLC ("FIRMCO" or the
"Adviser") serves as the investment adviser to each Portfolio as a result of the
merger of the Portfolios' former adviser, Mississippi Valley Advisors Inc.
("MVA") into FIRMCO on March 1, 2000. FIRMCO is a subsidiary of Firstar
Corporation, a banking and financial services organization, and has its main
office at Firstar Center, 777 East Wisconsin Avenue, 8th Floor, Milwaukee,
Wisconsin. FIRMCO has been providing advisory services since 1986 and as of
December 31, 1999, FIRMCO had approximately $35.3 billion in assets under
management.
An investment in the Portfolios is not a Firstar Bank deposit and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. You could lose money by investing in the Portfolios.
-1-
<PAGE>
Balanced Portfolio
Investment Objective
The 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.
(sidebar)
Total return consists of net income (dividend and/or interest income from
Portfolio securities, less expenses of the Portfolio) and capital gains and
losses, both realized and unrealized, from Portfolio securities.
Principal Investment Strategies
The Portfolio invests in a combination of equity securities (such as stocks),
fixed-income securities (such as bonds) and money market instruments in
weightings the Adviser believes will offer attractive total returns over time.
In making asset allocation decisions, the Adviser evaluates forecasts for
inflation, interest rates and long-term corporate earnings growth. The Adviser
then examines the potential effect of these factors on each asset group over a
one- to three-year time period using its own dynamic computer models. These
models show the statistical impact of the Adviser's economic outlook upon the
future returns of each asset group. The Adviser periodically will increase or
decrease the Portfolio's allocations to equities and fixed-income securities
based on which class appears relatively more attractive than the other. For
example, if the Adviser expects more rapid economic growth leading to better
corporate earnings, it will increase the Portfolio's holdings of equity
securities and reduce its holdings of fixed-income securities and money market
instruments.
In selecting equity securities, the Adviser considers historical and projected
earnings, the price/earnings relationship and company growth and asset value.
In selecting fixed-income securities, the Adviser seeks those issues
representing the best value among various sectors, and also considers credit
quality, prevailing interest rates and liquidity.
Under normal market conditions, the Portfolio invests at least 25% of its total
assets in fixed-income securities and no more than 75% of its total assets in
equity securities. The actual percentages will vary from time to time based on
the Adviser's economic and market outlooks. The Portfolio's equity securities
will consist mainly of common stocks, and its fixed-income securities will
consist mainly of investment grade bonds, including U.S. Government securities.
Occasionally, the rating of a fixed-income security held by the Portfolio may be
downgraded. If that happens, the Portfolio does not have to sell the security
unless the Adviser determines that under the circumstances the security is no
longer an appropriate investment for the Portfolio.
(sidebar)
Investment grade bonds are those of medium credit quality or better as
determined by a national rating agency, such as Standard & Poor's Ratings Group
(bonds rated BBB or better) and Moody's Investors Service,
-2-
<PAGE>
Inc. (bonds rated Baa or higher). The higher the credit rating, the less likely
it is that the bond issuer will default on its principal and interest payments.
(sidebar)
Portfolio Manager
Peter Merzian, a senior associate of FIRMCO, is responsible for the day-to-day
management of the Portfolio. He has been with FIRMCO and its predecessors since
1993 and has managed the Portfolio since May 1996. He also manages the Fund's
three municipal bond portfolios.
Principal Risk Considerations
The Portfolio invests in stocks and other equity securities, which may decline
in value over short or extended periods of time. Equity markets tend to be
cyclical; there are times when stock prices generally increase, and other times
when they generally decrease. This could cause the value of your investment in
the Portfolio to fluctuate.
The Portfolio also invests in fixed-income securities, which lose value when
interest rates increase (but increase in value when interest rates decline).
Longer-term fixed-income securities are more susceptible to these fluctuations
in interest rates than short-term fixed-income securities. Changes in interest
rates may cause certain fixed-income securities, such as callable securities and
mortgage-backed securities, to be paid off much sooner or later than expected.
In the event that a security is paid off sooner than expected because of a
decline in interest rates, the Portfolio may be unable to recoup all of its
initial investment and will also suffer from having to reinvest in lower-
yielding securities. In the event of a later than expected payment because of a
rise in interest rates, the value of the obligation will decrease, and the
Portfolio will suffer from the inability to invest in higher-yielding
securities. Fixed-income securities are subject to other risks, including the
risk that the issuer will be unable to make payments of principal and interest.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Investor A Shares has varied from year to year. The table shows how the
Portfolio's average annual returns for one year, five years and since inception
compare to those of broad-based market indexes. Both the bar chart and table
assume reinvestment of all dividends and distributions. The Portfolio's past
performance does not necessarily indicate how it will perform in the future.
-3-
<PAGE>
Investor A Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
-2.11% 26.30% 11.93% 18.02% 11.11% ____%
- -----------------------------------------------------------------------------------
</TABLE>
The returns for Investor B Shares differed from the returns shown in the bar
chart because the two classes bear different expenses. The bar chart does not
reflect any sales charges on purchases of the Portfolio's Investor A Shares. If
sales charges were included, returns would be lower than those shown.
Best quarter: _____% for the quarter ending _________________
Worst quarter: _____% for the quarter ending _________________
Average Annual Total Returns for the periods ended December 31, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
1 Year 5 Years Since
Inception*
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investor A Shares (with 5.50% sales
charge) ____% _____% _____%
- ---------------------------------------------------------------------------------------------
Investor B Shares**(with applicable
contingent deferred sales charge) ____% N/A _____%
- ---------------------------------------------------------------------------------------------
S&P 500 Index _____% _____% _____%
- ---------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index ____% ____% ____%
- ---------------------------------------------------------------------------------------------
</TABLE>
* April 1, 1993 for Investor A Shares; March 31, 1993 for the S&P 500 Index and
the Lehman Brothers Aggregate Bond Index.
** Investor B Shares of the Portfolio commenced operations on March 1, 1995.
(sidebar)
Know your index
. The S&P 500 Index is an unmanaged index comprised of 500 widely held common
stocks listed on the New York Stock Exchange, the American Stock Exchange and
NASDAQ.
. The Lehman Brothers Aggregate Bond Index is an unmanaged index made up of
Lehman Brothers' Government/Corporate Bond Index, its Mortgage Backed
Securities Index and its Asset Backed Securities Index.
-4-
<PAGE>
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Investor A Shares or Investor B Shares of the Balanced Portfolio.
Shareholder Fees (fees you pay directly)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Maximum deferred sales charge
Maximum sales charge (load) to (load) shown as a % of the
buy shares, shown as a % of offering price or sale price,
the offering price whichever is less
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Investor A Shares 5.50%/1/ None
- ------------------------------------------------------------------------------------------------
Investor B Shares None 5.00%/2/
- ------------------------------------------------------------------------------------------------
</TABLE>
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Total Annual
Distribution Portfolio
Managements (12b-1) and Service Operating Expenses
Fee Fees Other Expenses
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investor A Shares .75% .30% _____%/3/ _____%/3/
- -------------------------------------------------------------------------------------------------------------
Investor B Shares .75% 1.00% _____%/3/ _____%/3/
- -------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Reduced sales charges may be available. See "Distribution
Arrangements/Sales Charges" below.
/2/ This amount applies if you sell your shares in the first year after
purchase and gradually declines until it is eliminated after six years. After
eight years, your Investor B Shares will automatically convert to Investor A
Shares. See "Distribution Arrangements/Sales Charges" below.
/3/ Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Investor A Shares and Investor B Shares for the current fiscal year
are expected to be less than the amounts shown above because certain of the
Portfolio's service providers are voluntarily waiving a portion of their fees
and/or reimbursing the Portfolio for certain other expenses. These fee waivers
and/or reimbursements are being made in order to keep the annual fees and
expenses for the Portfolio's Investor A Shares and Investor B Shares at certain
levels. Other Expenses and Total Annual Portfolio Operating Expenses, after
taking these fee waivers and expense reimbursements into account, are expected
to be _____% and _____%, respectively, for Investor A Shares and _____% and
_____%, respectively, for Investor B Shares. These fee waivers and expense
reimbursements may be revised or cancelled at any time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year, the Portfolio's operating expenses remain the same and your Investor
B Shares automatically convert to
-5-
<PAGE>
Investor A Shares after eight years. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investor A Shares
$_____ $_____ $_____ $_____
- ------------------------------------------------------------------------------------------------------
Investor B Shares
$_____ $_____ $_____ $_____
- ------------------------------------------------------------------------------------------------------
If you hold Investor B Shares, you would pay the following expenses if you did not sell your shares:
- ------------------------------------------------------------------------------------------------------
$_____ $_____ $_____ $_____
- ------------------------------------------------------------------------------------------------------
</TABLE>
-6-
<PAGE>
Equity Income Portfolio
Investment Objective
The Portfolio's investment objective is to seek to provide an above-average
level of income consistent with long-term capital appreciation.
Principal Investment Strategies
The Portfolio invests primarily in the common stocks of value companies with
large market capitalizations (generally, $5 billion or higher). In selecting
these stocks, the Adviser evaluates a number of quantitative factors, including
dividend yield, current and future earnings potential compared to stock prices
and total return potential. The Adviser also examines other measures of
valuation, including cash flow, asset value and book value.
Under normal market conditions, the Portfolio invests at least 65% of its total
assets in income-producing (dividend-paying) equity securities, primarily common
stocks. These stocks generally will be listed on a national stock exchange or
will be unlisted stocks with established over-the-counter markets. Many such
stocks may offer above-average levels of income as compared to the S&P 500
Index.
(sidebar)
Market capitalization is a common measure of the size of a company. It is the
market price of a share of the company's stock multiplied by the number of
outstanding shares.
(sidebar)
Value stocks are those that appear to be underpriced based on valuation
measures, such as lower price-to-earnings and price-to-book value ratios.
Principal Risk Considerations
The Portfolio invests in stocks and other equity securities, which may decline
in value over short or extended periods of time. Equity markets tend to be
cyclical; there are times when stock prices generally increase, and other times
when they generally decrease. This could cause the value of your investment in
the Portfolio to fluctuate. In addition, the Portfolio is subject to the
additional risk that the value stocks it typically holds may not perform as well
as other types of stocks, such as growth stocks.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
-7-
<PAGE>
(sidebar)
Portfolio Manager
FIRMCO's Equity Committee is responsible for the day-to-day management of the
Portfolio. The Committee has managed the Portfolio since 1998.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Investor A Shares has varied from year to year. The table shows how the
Portfolio's average annual returns for one year and since inception compare to
those of a broad-based market index. Both the bar chart and table assume
reinvestment of all dividends and distributions. The Portfolio's past
performance does not necessarily indicate how it will perform in the
future.
Investor A Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
<TABLE>
<CAPTION>
- ---------------------------------
1998 1999
- ---------------------------------
<S> <C>
10.09% ____%
- ---------------------------------
</TABLE>
The returns for Investor B Shares differed from the returns shown in the bar
chart, because the two classes bear different expenses. The bar chart does not
reflect any sales charges on purchases of the Portfolio's Investor A Shares. If
these sales charges were included, returns would be lower than those shown.
Best quarter: _____% for the quarter ending ________________
Worst quarter: _____% for the quarter ending __________________
-8-
<PAGE>
Average Annual Total Returns for the periods ended December 31, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------
Since
1 Year Inception*
- --------------------------------------------------------------
<S> <C> <C>
Investor A Shares (with
5.50% sales charge) ____% _____%
- --------------------------------------------------------------
Investor B Shares**
(with applicable deferred
sales charge) ____% _____%
- --------------------------------------------------------------
Russell 1000 Value Index _____% _____%
- --------------------------------------------------------------
</TABLE>
* February 27, 1997 for Investor A Shares and Investor B Shares; February 28,
1997 for the Russell 1000 Value Index.
(sidebar)
Know your index
The Russell 1000 Value Index is an unmanaged index that measures the performance
of the stocks in the Russell 1000 Index with less than average growth
orientation. Companies in this Index generally have low price to book and
price/earnings ratios, higher dividend yields and lower forecasted growth
values. The Russell 1000 Index consists of the 1,000 largest U.S. companies as
ranked by total market capitalization.
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Investor A Shares or Investor B Shares of the Equity Income Portfolio.
Shareholder Fees (fees you pay directly)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Maximum deferred sales charge
Maximum sales charge (load) to (load) shown as a % of the
buy shares, shown as a % of offering price or sale price,
the offering price whichever is less
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Investor A Shares 5.50%/1/ None
- ------------------------------------------------------------------------------------------------
Investor B Shares None 5.00%/2/
- ------------------------------------------------------------------------------------------------
</TABLE>
-9-
<PAGE>
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Distribution Total Annual
(12b-1) and Service Portfolio
Management Fees Fees Other Expenses Operating Expenses
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investor A Shares .75% .30% ____%/3/ ____%/3/
- --------------------------------------------------------------------------------------------------------
Investor B Shares .75% 1.00% ____%/3/ ____%/3/
- --------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Reduced sales charges may be available. See "Distribution
Arrangements/Sales Charges" below.
/2/ This amount applies if you sell your shares in the first year after
purchase and gradually declines until it is eliminated after six years. After
eight years, your Investor B Shares will automatically convert to Investor A
Shares. See "Distribution Arrangements/Sales Charges" below.
/3/ Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Investor A Shares and Investor B Shares for the current fiscal year
are expected to be less than the amounts shown above because certain of the
Portfolio's service providers are voluntarily waiving a portion of their fees
and/or reimbursing the Portfolio for certain other expenses. These fee waivers
and/or reimbursements are made in order to keep the annual fees and expenses for
the Portfolio's Investor A Shares and Investor B Shares at certain levels. Other
Expenses and Total Annual Portfolio Operating Expenses, after taking these fee
waivers and expense reimbursements into account, are expected to be _____% and
______%, respectively, for Investor A Shares, and _____% and ____%,
respectively, for Investor B Shares. These fee waivers and expense
reimbursements may be revised or cancelled at any time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year, the Portfolio's operating expenses remain the same and your Investor
B Shares automatically convert to Investor A Shares after eight years. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investor A Shares $_____ $_____ $_____ $_____
- ------------------------------------------------------------------------------------------------------
Investor B Shares $_____ $_____ $_____ $_____
- ------------------------------------------------------------------------------------------------------
If you hold Investor B Shares, you would pay the following expenses if you did not sell your shares:
- ------------------------------------------------------------------------------------------------------
$_____ $_____ $_____ $_____
- ------------------------------------------------------------------------------------------------------
</TABLE>
-10-
<PAGE>
Equity Index Portfolio
Investment Objective
The Portfolio's investment objective is to seek to provide investment results
that, before the 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 Index (the "S&P 500
Index").
The Portfolio's investment objective can be changed by the Fund's Board of
Directors without shareholder approval. Shareholders will be given at least 30
days' written notice before any such change occurs.
Principal Investment Strategies
The Portfolio uses an "indexing" strategy through the use of computer models to
approximate the investment performance of the S&P 500 Index. The Portfolio
invests substantially all (at least 80%) of its assets in securities listed in
the S&P 500 Index and typically will hold all 500 stocks represented in the
Index. In general, each stock's percentage weighting in the Portfolio is based
on its weighting in the Index. When stocks are removed from or added to the
Index, those changes are reflected in the Portfolio. The Portfolio periodically
"rebalances" its holdings as dictated by changes in cash flow and in the
composition of the S&P 500 Index.
(sidebar)
Indexing is a strategy whereby a Portfolio attempts to weight its securities to
match those of a broadly-based securities index in an attempt to approximate the
index's performance.
(sidebar)
The S&P 500 Index is an unmanaged index comprised of 500 widely held common
stocks listed on the New York Stock Exchange, the American Stock Exchange, and
NASDAQ.
Principal Risk Considerations
The Portfolio invests in stocks and other equity securities, which may decline
in value over short or extended periods of time. Equity markets tend to be
cyclical; there are times when stock prices generally increase, and other times
when they generally decrease. This could cause the value of your investment in
the Portfolio to fluctuate. In addition, the Portfolio is subject to the
additional risk that the large-capitalization stocks it typically holds may not
perform as well as other types of stocks, such as small-capitalization stocks.
There is the additional risk that the Portfolio's investment results may fail to
match those of the S&P 500 Index.
Return History
-11-
<PAGE>
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Investor A Shares has varied from year to year. The table shows how the
Portfolio's average annual returns for one year and since inception compare to
those of the S&P 500 Index. Both the bar chart and table assume reinvestment of
all dividends and distributions. The Portfolio's past performance does not
necessarily indicate how it will perform in the future.
Investor A Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
<TABLE>
<CAPTION>
- ---------------------------------
1998 1999
- ---------------------------------
<S> <C>
27.76% ____%
- ---------------------------------
</TABLE>
The bar chart does not reflect any sales charges on purchases of the Portfolio's
Investor A Shares. If these sales charges were included, the returns would be
lower than those shown.
Best quarter: _____% for the quarter ending _________________
Worst quarter: ______% for the quarter ending __________________
Average Annual Total Returns for the periods ended December 31, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Since
1 Year Inception*
- ---------------------------------------------------------
<S> <C> <C>
Investor A Shares _____% _____%
(with 5.50% sales
charge)
- ---------------------------------------------------------
S&P 500 Index _____% _____%
- ---------------------------------------------------------
</TABLE>
* May 1, 1997 for Investor A Shares; April 30, 1997 for the S&P 500 Index
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Investor A Shares of the Equity Index Portfolio.
Shareholder Fees (fees you pay directly)
-12-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Maximum deferred sales charge
Maximum sales charge (load) to (load) shown as a % of the
buy shares, shown as a % of offering price or sale price,
the offering price whichever is less
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Investor A Shares 5.50%/1/ None
- ------------------------------------------------------------------------------------------------
</TABLE>
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Distribution Total Annual
(12b-1) and Service Portfolio
Management Fees Fees Other Expenses Operating Expenses
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investor A Shares .30% .30% _____%/2/ _____%/2/
- --------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Reduced sales charges may be available. See "Distribution
Arrangements/Sales Charges" below.
/2/ Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Investor A Shares for the current fiscal year are expected to be
less than the amounts shown above because certain of the Portfolio's service
providers are voluntarily waiving a portion of their fees and/or reimbursing the
Portfolio for certain other expenses. These fee waivers and/or reimbursements
are being made in order to keep the annual fees and expenses for the Portfolio's
Investor A Shares at a certain level. Other Expenses and Total Annual Portfolio
Operating Expenses, after taking these fee waivers and expense reimbursements
into account, are expected to be ____% and _____%, respectively, for Investor A
Shares. These fee waivers and expense reimbursements may be revised or cancelled
at any time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investor A Shares $____ $____ $_____ $_____
- ------------------------------------------------------------------------------------------------------
</TABLE>
-13-
<PAGE>
Growth & Income Equity Portfolio
Investment Objective
The Portfolio's investment objective is to provide long-term capital growth,
with income a secondary consideration.
Principal Investment Strategies
The Portfolio invests primarily in common stocks. The Adviser selects stocks
based on a number of factors related to historical and projected earnings and
the price/earnings relationship as well as company growth and asset value,
consistency of earnings growth and earnings quality.
Stocks purchased for the Portfolio generally will be listed on a national stock
exchange or will be unlisted securities with an established over-the-counter
market. These stocks tend to pay dividends, so many of the Portfolio's
investments may produce some income. Nevertheless, income is not a major factor
in the stock selection process.
Principal Risk Considerations
The Portfolio invests in stocks and other equity securities, which may decline
in value over short or extended periods of time. Equity markets tend to be
cyclical; there are times when stock prices generally increase, and other times
when they generally decrease. This could cause the value of your investment in
the Portfolio to fluctuate.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
(sidebar)
Portfolio Manager
FIRMCO's Equity Committee is responsible for the day-to-day management of the
Portfolio. The Committee has managed the Portfolio since 1998.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Investor A Shares has varied from year to year. The table shows how the
Portfolio's average annual returns for one year, five years, ten years and since
inception compare to those of a broad-based market index. Both the bar chart and
table assume reinvestment of all dividends and distributions. The Portfolio's
past performance does not necessarily indicate how it will perform in the
future.
-14-
<PAGE>
Investor A Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-1.40% 26.66% 10.61% 9.61% -0.42% 34.12% 18.88% 27.21% 12.73% ____%
- -------------------------------------------------------------------------------
</TABLE>
The returns for Investor B Shares differed from the returns shown in the bar
chart, because the two classes bear different expenses. The bar chart does not
reflect any sales charges on purchases of the Portfolio's Investor A Shares. If
these sales charges were included, returns would be lower than those shown.
Best quarter: _____% for the quarter ending _________________
Worst quarter: _____% for the quarter ending __________________
Average Annual Total Returns for periods ended December 31, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Since
1 Year 5 Years 10 Years Inception*
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investor A Shares (with 5.50% _____% _____% _____% _____%
sales charge)
- ------------------------------------------------------------------------------------------
Investor B Shares** (with _____% N/A N/A _____%
applicable contingent deferred
sales charge)
- ------------------------------------------------------------------------------------------
S&P 500 Index _____% _____% _____% _____%
- ------------------------------------------------------------------------------------------
</TABLE>
* June 2, 1988 for Investor A Shares; May 31, 1988 for the S&P 500 Index.
** Investor B Shares of the Portfolio commenced operations on March 1, 1995.
(sidebar)
Know your index
The S&P 500 Index is an unmanaged index comprised of 500 widely held common
stocks listed on the New York Stock Exchange, the American Stock Exchange, and
NASDAQ.
-15-
<PAGE>
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Investor A Shares or Investor B Shares of the Growth & Income Equity
Portfolio.
Shareholder Fees (fees you pay directly)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Maximum sales charge (load) to Maximum deferred sales charge
buy shares, shown as a % of (load) shown as a % of the
the offering price offering price or sale price,
whichever is less
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Investor A Shares 5.50%/1/ None
- ------------------------------------------------------------------------------------------------
Investor B Shares None 5.00%/2/
- ------------------------------------------------------------------------------------------------
</TABLE>
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Distribution Total Annual
(12b-1) and Service Portfolio
Management Fees Fees Other Expenses Operating Expenses
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investor A Shares .55% .30% _____%/3/ ____%/3/
- --------------------------------------------------------------------------------------------------------
Investor B Shares .55% 1.00% _____%/3/ ____%/3/
- --------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Reduced sales charges may be available. See "Distribution
Arrangements/Sales Charges" below.
/2/ This amount applies if you sell your shares in the first year after
purchase and gradually declines until it is eliminated after six years. After
eight years, your Investor B Shares will automatically convert to Investor A
Shares. See "Distribution Arrangements/Sales Charges" below.
3 Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Investor A Shares and Investor B Shares for the current fiscal year
are expected to be less than the amounts shown above because certain of the
Portfolio's service providers are voluntarily waiving a portion of their fees
and/or reimbursing the Portfolio for certain other expenses. These fee waivers
and/or reimbursements are being made in order to keep the annual fees and
expenses for the Portfolio's Investor A Shares and Investor B Shares at certain
level. Other Expenses and Total Annual Portfolio Operating Expenses, after
taking these fee waivers and expense reimbursements into account, are expected
to be ___% and ____%, respectively, for Investor A Shares and ___% and ____%,
respectively, for Investor B Shares. These fee waivers and expense
reimbursements may be revised or cancelled at any time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year, the Portfolio's operating expenses remain the same and your Investor
B Shares automatically convert to Investor A Shares after eight years. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
-16-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investor A Shares $____ $_____ $_____ $_____
- ------------------------------------------------------------------------------------------------------
Investor B Shares $____ $_____ $_____ $_____
- ------------------------------------------------------------------------------------------------------
If you hold Investor B Shares, you would pay the following expenses if you did not sell your shares:
- ------------------------------------------------------------------------------------------------------
$____ $_____ $_____ $_____
- ------------------------------------------------------------------------------------------------------
</TABLE>
-17-
<PAGE>
Growth Equity Portfolio
Investment Objective
The Portfolio's investment objective is capital appreciation.
Principal Investment Strategies
The Portfolio invests primarily in the common stocks of growth companies. In
selecting securities for the Portfolio, the Adviser evaluates a company's
earnings history and the risk and volatility of the company's business. The
Adviser also considers other factors, such as product position and the ability
to increase market share, but the ability to increase company earnings is the
primary consideration.
Under normal market conditions, the Portfolio invests at least 65% of its total
assets in stocks or other equity securities, such as preferred stocks, rights,
and warrants. Typically, the Portfolio's stocks are those of large- and medium-
capitalization companies that are listed on the New York Stock Exchange, the
American Stock Exchange or NASDAQ.
(sidebar)
Growth stocks offer strong revenue and earnings potential and accompanying
capital growth, with less dividend income than value stocks.
Principal Risk Considerations
The Portfolio invests in stocks and other equity securities, which may decline
in value over short or extended periods of time. Equity markets tend to be
cyclical; there are times when stock prices generally increase, and other times
when they generally decrease. This could cause the value of your investment in
the Portfolio to fluctuate. In addition, the Portfolio is subject to the
additional risk that the growth stocks it typically holds may not perform as
well as other types of stocks, such as value stocks.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
(sidebar)
Portfolio Manager
FIRMCO's Equity Committee is responsible for the day-to-day management of the
Portfolio. The Committee has managed the Portfolio since 1998.
-18-
<PAGE>
Return History+
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Investor A Shares has varied from year to year. The table shows how the
Portfolio's average annual returns for one year, five years and since inception
compare to those of a broad-based market index. Both the bar chart and table
assume reinvestment of all dividends and distributions. The Portfolio's past
performance does not necessarily indicate how it will perform in the
future.
Investor A Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
-2.06% 44.17% 17.49% 26.98% 29.44% ____%
- -----------------------------------------------------------------------------------
</TABLE>
The returns for Investor B Shares differed from the returns shown in the bar
chart, because the two classes bear different expenses. The bar chart does not
reflect any sales charges on purchases of the Portfolio's Investor A Shares. If
these sales charges were included, returns would be lower than those shown.
Best quarter: ______% for the quarter ending _________________
Worst quarter: ______% for the quarter ending __________________
(sidebar)
Know your index
The S&P 500 Index is an unmanaged index comprised of 500 widely held common
stocks listed on the New York Stock Exchange, the American Stock Exchange, and
NASDAQ.
Average Annual Total Returns for the periods ended December 31, 1999
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
1 Year 5 Years Since Inception*
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Investor A Shares _____% _____% _____%
- ----------------------------------------------------------------------------
Investor B Shares**
(with applicable
contingent deferred
sales charge) _____% N/A _____%
- ----------------------------------------------------------------------------
</TABLE>
-19-
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
S&P 500 Index _____% _____% _____%
- ----------------------------------------------------------------------------
</TABLE>
+ The Portfolio commenced operations on January 4, 1993 as the Arrow Equity
Portfolio, a separate investment portfolio (the "Predecessor Portfolio") of
Arrow Funds. On November 21, 1997, the Predecessor Portfolio was reorganized as
a new portfolio of the Fund. Prior to the reorganization, the Predecessor
Portfolio offered and sold shares that were similar to the Fund's Investor A
Shares. Annual returns for periods prior to November 21, 1997 reflect the
performance of the Predecessor Portfolio.
* January 4, 1993 for Investor A Shares; December 31, 1992 for the S&P 500
Index.
** Investor B Shares of the Portfolio commenced operations on February 23, 1998.
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Investor A Shares or Investor B Shares of the Growth Equity Portfolio.
Shareholder Fees (fees you pay directly)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Maximum sales charge (load) to Maximum deferred sales charge
buy shares, shown as a % of (load) shown as a % of the
the offering price offering price or sale price,
whichever is less
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Investor A Shares 5.50%/1/ None
- ------------------------------------------------------------------------------------------------
Investor B Shares None 5.00%/2/
- ------------------------------------------------------------------------------------------------
</TABLE>
-20-
<PAGE>
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Distribution Total Annual
(12b-1) and Service Portfolio
Management Fees Fees Other Expenses Operating Expenses
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investor A Shares .75% .30% ____%/3/ ____%/3/
- --------------------------------------------------------------------------------------------------------
Investor B Shares .75% 1.00% ____%/3/ ____%/3/
- --------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Reduced sales charges may be available. See "Distribution
Arrangements/Sales Charges" below.
/2/ This amount applies if you sell your shares in the first year after
purchase and gradually declines until it is eliminated after six years. After
eight years, your Investor B Shares will automatically convert to Investor A
Shares. See "Distribution Arrangements/Sales Charges" below.
3 Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Investor A Shares and Investor B Shares for the current fiscal year
are expected to be less than the amounts shown above because certain of the
Portfolio's service providers are voluntarily waiving a portion of their fees
and/or reimbursing the Portfolio for certain other expenses. These fee waivers
and/or reimbursements are being made in order to keep the annual fees and
expenses for the Portfolio's Investor A Shares and Investor B Shares at certain
levels. Other Expenses and Total Annual Portfolio Operating Expenses, after
taking these fee waivers and expense reimbursements into account, are expected
to be ___% and ____%, respectively, for Investor A Shares and ___% and ____%,
respectively, for Investor B Shares. These fee waivers and expense
reimbursements may be revised or cancelled at any time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year, the Portfolio's operating expenses remain the same and your Investor
B Shares automatically convert to Investor A Shares after eight years. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investor A Shares $_____ $_____ $_____ $_____
- ------------------------------------------------------------------------------------------------------
Investor B Shares $_____ $_____ $_____ $_____
- ------------------------------------------------------------------------------------------------------
If you hold Investor B Shares, you would pay the following expenses if you did not sell your shares:
- ------------------------------------------------------------------------------------------------------
$_____ $_____ $_____ $_____
- ------------------------------------------------------------------------------------------------------
</TABLE>
-21-
<PAGE>
Small Cap Equity Portfolio
Investment Objective
The Portfolio's investment objective is capital appreciation.
Principal Investment Strategies
Under normal conditions, the Portfolio invests at least 65% of its total assets
in small- to medium-sized companies with market capitalizations from $100
million to $2 billion at the time of purchase and which the Adviser believes
have above-average prospects for capital appreciation. Stocks purchased by 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 also may invest a portion of its assets in larger companies that
the Adviser believes offer improved growth possibilities because of rejuvenated
management, product changes or other developments likely to stimulate earnings
or asset growth. The Portfolio also may invest in stocks the Adviser believes
are undervalued or in initial public offerings (IPOs) of new companies that
demonstrate the potential for price appreciation. 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 the
products manufactured or services offered.
Principal Risk Considerations
The Portfolio invests in stocks and other equity securities, which may decline
in value over short or extended periods of time. Equity markets tend to be
cyclical; there are times when stock prices generally increase, and other times
when they generally decrease. This could cause the value of your investment in
the Portfolio to fluctuate.
Compared to larger-capitalization stocks, small-capitalization stocks tend to
carry greater risk and exhibit greater price volatility because their businesses
may not be well-established. In addition, some smaller companies may have
specialized or limited product lines, markets or financial resources and may be
dependent on one-person management. All of these factors increase risk and may
result in more significant losses than the other Mercantile Stock Portfolios. In
an effort to reduce the risks inherent in smaller-company stocks, the
Portfolio's holdings are diversified over a number of companies and industry
groups.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
(sidebar)
Portfolio Manager
Robert J. Anthony, Senior Associate at FIRMCO, is responsible for the day-to-day
management of this Portfolio. He has been with FIRMCO and its predecessors for
27 years and has managed the Portfolio since its inception in 1992.
-22-
<PAGE>
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Investor A Shares has varied from year to year. The table shows how the
Portfolio's average annual returns for one year, five years and since inception
compare to those of a broad-based market index. Both the bar chart and the table
assume reinvestment of all dividends and distributions. The Portfolio's past
performance does not necessarily indicate how it will perform in the future.
Investor A Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
23.58% 2.26% 17.14% 10.50% 20.51% -8.09% ____%
- -------------------------------------------------------------------------------------------------
</TABLE>
The returns for Investor B Shares differed from the returns shown in the bar
chart, because the two classes bear different expenses. The bar chart does not
reflect any sales charges on purchases of the Portfolio's Investor A Shares. If
these sales charges were included, returns would be lower than those shown.
Best quarter: _____% for the quarter ending _________________
Worst quarter: ______% for the quarter ending __________________
Average Annual Total Returns for the periods ended December 31, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
Since
1 Year 5 Years inception*
- --------------------------------------------------------------------
<S> <C> <C> <C>
Investor A Shares _______% _____% _____%
- --------------------------------------------------------------------
Investor B Shares _______% N/A _____%
- --------------------------------------------------------------------
Russell 2000 Index _______% _____% _____%
- --------------------------------------------------------------------
</TABLE>
* May 6, 1992 for Investor A Shares; April 30, 1992 for the Russell 2000
Index.
** Investor B Shares of the Portfolio commenced operations on March 1, 1995.
-23-
<PAGE>
(sidebar)
Know your index
The Russell 2000 Index is an unmanaged index comprised of the 2,000 smallest of
the 3,000 largest U.S. companies based on market capitalization.
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Investor A Shares or Investor B Shares of the Small Cap Equity Portfolio.
Shareholder Fees (fees you pay directly)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Maximum deferred sales charge
Maximum sales charge (load) to (load) shown as a % of the
buy shares, shown as a % of offering price or sale price,
the offering price whichever is less
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Investor A Shares 5.50%/1/ None
- -------------------------------------------------------------------------------------------------
Investor B Shares None 5.00%/2/
- -------------------------------------------------------------------------------------------------
</TABLE>
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Total Annual
Distribution Portfolio
Management Fees (12b-1) and Operating Expenses
Service Fees Other Expenses
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investor A
Shares .75% .30% ____ %/3/ ____ %/3/
- ----------------------------------------------------------------------------------------------------
Investor B
Shares .75% 1.00% ____ %/3/ ____ %/3/
- ----------------------------------------------------------------------------------------------------
</TABLE>
/1/ Reduced sales charges may be available. See "Distribution
Arrangements/Sales Charges" below.
/2/ This amount applies if you sell your shares in the first year after
purchase and gradually declines until it is eliminated after six years. After
eight years, your Investor B Shares will automatically convert to Investor A
Shares. See "Distribution Arrangements/Sales Charges" below.
/3/ Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Investor A Shares and Investor B Shares for the current fiscal year
are expected to be less than the amounts shown above because certain of the
Portfolio's service providers are voluntarily waiving a portion of their fees
and/or reimbursing the Portfolio for certain other expenses. These fee waivers
and/or reimbursements are being made in order to keep the annual fees and
expenses for the Portfolio's Investor A Shares and Investor B Shares at certain
levels. Other Expenses and Total Annual Portfolio Operating Expenses, after
taking these fee waivers and expense reimbursements into account, are expected
to be ____% and ____%, respectively, for Investor A Shares and ___% and ____%,
respectively, for Investor B Shares. These fee waivers and expense
reimbursements may be revised of cancelled at any time.
Example
-24-
<PAGE>
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year, the Portfolio's operating expenses remain the same and your Investor
B Shares automatically convert to Investor A Shares after eight years. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investor A
Shares $____ $____ $_____ $_____
- -----------------------------------------------------------------------------------------
Investor B
Shares $____ $____ $_____ $_____
- -----------------------------------------------------------------------------------------
If you hold Investor B Shares, you would pay the following expenses if you did not sell
your shares:
- -----------------------------------------------------------------------------------------
$____ $____ $_____ $_____
- -----------------------------------------------------------------------------------------
</TABLE>
-25-
<PAGE>
Small Cap Equity Index Portfolio
Investment Objective
The 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 S&P SmallCap 600 Index.
The Portfolio's investment objective can be changed by the Fund's Board of
Directors without shareholder approval. Shareholders will be given at least 30
days' written notice before any such change occurs.
Principal Investment Strategies
The Portfolio uses an "indexing" strategy through the use of computer models to
approximate the investment performance of the S&P SmallCap 600 Index. The
Portfolio will invest at least 80% of its total assets in securities listed in
the S&P SmallCap 600 Index and typically will hold all 600 stocks represented in
the Index. Under certain circumstances, however, the Portfolio may not hold all
600 stocks in the Index because of shareholder activity or changes in the Index.
In general, each stock's percentage weighting in the Portfolio is based on its
weighting in the S&P SmallCap 600 Index. When stocks are removed from or added
to the Index, those changes are reflected in the Portfolio. The Portfolio
periodically "rebalances" its holdings as dictated by changes in shareholder
purchase and redemption activity and in the composition of the S&P SmallCap 600
Index.
Principal Risk Considerations
The Portfolio invests in stocks and other equity securities, which may decline
in value over short or extended periods of time. Equity markets tend to be
cyclical; there are times when stock prices generally increase, and other times
when they generally decrease. This could cause the value of your investment in
the Portfolio to fluctuate.
In addition, the Portfolio is subject to the additional risk that the small-
capitalization stocks that it holds may not perform as well as other types of
stocks. Compared to larger-capitalization stocks, small-capitalization stocks
tend to carry greater risk and exhibit greater price volatility because their
businesses may not be well-established. In addition, some smaller companies may
have specialized or limited product lines, markets or financial resources and
may be dependent on one-person management. All of these factors increase risk
and may result in more significant losses than the other Mercantile Stock
Portfolios. By typically investing in all 600 stocks in the Index, the Portfolio
remains broadly diversified, which may reduce some of this risk.
There is the additional risk that the Portfolio's investment results may fail to
match those of the S&P Small Cap 600 Index.
(sidebar)
Indexing is a strategy whereby a Portfolio attempts to weight its securities to
match those of a broadly-based securities index in an attempt to approximate the
index's performance.
-26-
<PAGE>
(sidebar)
The S&P SmallCap 600 Index is an unmanaged index that tracks the performance of
600 domestic companies traded on the New York Stock Exchange, the American Stock
Exchange and NASDAQ. The S&P SmallCap 600 Index is heavily weighted with the
stocks of small companies.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows the performance of the Portfolio's
Investor A Shares during the last calendar year. The table shows how the
Portfolio's average annual returns for one year and since inception compare to
those of the S&P SmallCap 600 Index. Both the bar chart and table assume
reinvestment of all dividends and distributions. The Portfolio's past
performance does not necessarily indicate how it will perform in the
future.
Investor A Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
---------------------
1999
---------------------
____%
---------------------
The bar chart does not reflect any sales charges on purchases of the Portfolio's
Investor A Shares. If these sales charges were included, the return would be
lower than that shown.
Best quarter: _____% for the quarter ending ______________
Worst quarter: _____% for the quarter ending ______________
<TABLE>
<CAPTION>
Average Annual Total Returns for the periods ended December 31, 1999
- ----------------------------------------------------------------
Since
1 Year inception*
- ----------------------------------------------------------------
<S> <C> <C>
Investor A Shares _______% _____%
- ----------------------------------------------------------------
SmallCap 600 Index _______% _____%
- ----------------------------------------------------------------
</TABLE>
* December 30, 1998 for Investor A Shares; December 31, 1998 for the S&P
SmallCap 600 Index.
-27-
<PAGE>
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Investor A Shares of the Small Cap Equity Index Portfolio.
<TABLE>
<CAPTION>
Shareholder Fees (fees you pay directly)
- --------------------------------------------------------------------------------------------
Maximum deferred sales charge
Maximum sales charge (load) to (load) shown as a % of the
buy shares, shown as a % of offering price or sale price,
the offering price whichever is less
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Investor A Shares 5.50%/1/ None
- --------------------------------------------------------------------------------------------
</TABLE>
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Total Annual
Distribution Portfolio
Management (12b-1) and Operating
Fees Service Fees Other Expenses Expenses
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investor A
Shares .40% .30% _____%2 _____%2
- ---------------------------------------------------------------------------------------------------
</TABLE>
/1/ Reduced sales charges may be available. See "Distribution
Arrangements/Sales Charges" below.
/2/ Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Investor A Shares for the current fiscal year are expected to be
less than the amounts shown above because certain of the Portfolio's service
providers are voluntarily waiving a portion of their fees and/or reimbursing the
Portfolio for certain other expenses. These fee waivers and/or reimbursements
are being made in order to keep the annual fees and expenses for the Portfolio's
Investor A Shares at a certain level. Other Expenses and Total Annual Portfolio
Operating Expenses, after taking these fee waivers and expense reimbursements
into account, are expected to be _____% and _____%, respectively, for Investor A
Shares. These fee waivers and expense reimbursements may be revised or cancelled
at any time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year and the Portfolio's operating expenses remain the same. Although your
actual costs may be higher or lower, based on these assumptions your costs would
be:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investor A
Shares $____ $____ $_____ $_____
- ----------------------------------------------------------------------------------------
</TABLE>
-28-
<PAGE>
International Equity Portfolio
Investment Objective
The Portfolio's investment objective is to provide capital growth consistent
with reasonable investment risk.
Principal Investment Strategies
The Portfolio invests primarily in foreign common stocks, most of which will be
denominated in foreign currencies. During normal market conditions, the
Portfolio will invest substantially all (at least 80%) of its total assets in
the securities of companies that derive more than 50% of their gross revenues
outside the United States or have more than 50% of their assets outside the
United States. Under normal market conditions, the Portfolio invests in equity
securities from at least three foreign countries. Generally, at least 50% of the
Portfolio's total assets will be invested in securities of companies located
either in the developed countries of Western Europe or in Japan. The Portfolio
also may invest in other developed countries and in countries with emerging
markets or economies.
By investing in various foreign stocks, the Portfolio attempts to achieve broad
diversification and to take advantage of differences between economic trends and
the performance of securities markets in different countries, regions and
geographic areas. In selecting stocks, the Sub-Adviser uses a screening tool to
determine which companies represent the best values relative to their long-term
growth prospects and local markets. The Sub-Adviser also uses fundamental
analysis by evaluating balance sheets, market share and strength of management.
Principal Risk Considerations
Investing in foreign companies involves different risks than investing in U.S.
companies due to such factors as currency exchange rate volatility, government
restrictions, different accounting standards and political instability. The
multinational character of the Portfolio's investments should reduce the effect
that events in any one country or geographic area will have on overall
performance. However, negative results from one foreign market may offset gains
from another market or may negatively affect other foreign markets. The risks
associated with foreign investments are heightened when investing in emerging
markets. The governments and economies of emerging market countries feature
greater instability than those of more developed countries. Such investments
tend to fluctuate in price more widely and to be less liquid than other foreign
investments. As with U.S. equity markets, foreign equity markets tend to be
cyclical. There are times when stock prices generally increase, and other times
when they generally decrease.
The Adviser evaluates the rewards and risks presented by all securities
purchased by the Portfolio and how they may advance the Portfolio's investment
objective. It is possible, however, that these evaluations will prove to be
inaccurate.
-29-
<PAGE>
(sidebar)
Sub-Adviser/Portfolio Manager
- -----------------------------
FIRMCO has appointed Clay Finlay Inc. ("Clay Finlay" or the "Sub-Adviser") as
sub-adviser to assist in the day-to-day management of the Portfolio. Frances
Dakers, a principal and senior portfolio manager of Clay Finlay, is responsible
for the management of the Portfolio. Ms. Dakers has been with Clay Finlay since
January 1982 and has managed the Portfolio since it began operations in
1994.
Return History
The bar chart and table on this page show the Portfolio's annual returns and
long-term performance, thereby giving some indication of the risk of investing
in the Portfolio. The bar chart shows how the performance of the Portfolio's
Investor A Shares has varied from year to year. The table shows how the
Portfolio's average annual returns for one year, five years and since inception
compare to those of a broad-based market index. Both the bar chart and table
assume reinvestment of all dividends and distributions. The Portfolio's past
performance does not necessarily indicate how it will perform in the
future.
Investor A Shares Year-by-Year Total Returns
(as of December 31 each year)
(insert bar chart)
<TABLE>
<CAPTION>
- -----------------------------------------------------------
1995 1996 1997 1998 1999
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
9.41% 9.98% 4.68% 17.36% ____%
- -----------------------------------------------------------
</TABLE>
The returns for Investor B Shares differed from the returns shown in the bar
chart, because the two classes bear different expenses. The bar chart does not
reflect any sales charges on purchases of the Portfolio's Investor A shares. If
these sales charges were included, returns would be lower than those shown.
Best quarter: _____% for the quarter ending _________________
Worst quarter: ______% for the quarter ending __________________
<TABLE>
<CAPTION>
Average Annual Total Returns for the Periods ended December 31, 1999
- -----------------------------------------------------------------------------------------
Since
1 Year 5 Years inception*
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investor A Shares (with 5.50% sales charge) _____% _____% ____%
- -----------------------------------------------------------------------------------------
Investor B Shares**(with applicable _____% N/A ____%
contingent deferred sales change)
- -----------------------------------------------------------------------------------------
EAFE Index _____% _____% ____%
- -----------------------------------------------------------------------------------------
</TABLE>
* May 2, 1994 for Investor A Shares; April 30, 1994 for the EAFE Index.
-30-
<PAGE>
** Investor B Shares of the Portfolio commenced operations on March 1, 1995.
(sidebar)
Know your index
The Morgan Stanley Capital International Europe, Australasia and Far East Index,
or EAFE Index, is an unmanaged index consisting of companies in Australia, New
Zealand, Europe and the Far East.
Fees and Expenses
The table on the right shows the fees and expenses that you pay if you buy and
hold Investor A Shares or Investor B Shares of the International Equity
Portfolio.
<TABLE>
<CAPTION>
Shareholder Fees (fees you pay directly)
- -------------------------------------------------------------------------------------------------------
Maximum sales charge (load) to Maximum deferred sales charge
buy shares, shown as a % of (load) shown as a % of the
the offering price offering price or sale price,
whichever is less
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Investor A Shares 5.50%/1/ None
- ------------------------------------------------------------------------------------------------
Investor B Shares None 5.00%/2/
- ------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Annual Portfolio Operating Expenses (expenses that are deducted from the Portfolio's assets)
- -------------------------------------------------------------------------------------------------
Total Annual
Distribution Portfolio
Management (12b-1) and Operating
Fees Service Fees Other Expenses Expenses
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investor A
Shares 1.00% .30% ____%/3/ ____%/3/
- --------------------------------------------------------------------------------------------------------
Investor B
Shares 1.00% 1.00% ____%/3/ ____%/3/
- --------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Reduced sales charges may be available. See "Distribution
Arrangements/Sales Charges" below.
/2/ This amount applies if you sell your shares in the first year after
purchase and gradually declines until it is eliminated after six years. After
eight years, your Investor B Shares will automatically convert to Investor A
Shares. See "Distribution Arrangements/Sales Charges" below.
/3/ Other Expenses and Total Annual Portfolio Operating Expenses for the
Portfolio's Investor A Shares and Investor B Shares for the current fiscal year
are expected to be less than the amounts shown above because certain of the
Portfolio's service providers are voluntarily waiving a portion of their fees
and/or reimbursing the Portfolio for certain other expenses. These fee waivers
and/or reimbursements are being made in order to keep the annual fees and
expenses for the Portfolio's Investor A Shares and Investor B
-31-
<PAGE>
Shares at certain levels. Other Expenses and Total Annual Portfolio Operating
Expenses, after taking these fee waivers and expense reimbursements into
account, are expected to be ____% and ____%, respectively, for Investor A Shares
and ___% and ____%, respectively, for Investor B Shares. These fee waivers and
expense reimbursements may be revised of cancelled at any time.
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you invest
$10,000 for the time periods shown and then sell all of your shares at the end
of those periods. The example also assumes that your investment has a 5% return
each year, the Portfolio's operating expenses remain the same and your Investor
B Shares automatically convert to Investor A Shares after eight years. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
1 year 3 years 5 years 10 years
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investor A
Shares $_____ $_____ $_____ $_____
- -----------------------------------------------------------------------------------------------
Investor B
Shares $_____ $_____ $_____ $_____
- -----------------------------------------------------------------------------------------------
If you hold Investor B Shares, you would pay the following expenses if you did not sell your
shares:
- -----------------------------------------------------------------------------------------------
$_____ $_____ $_____ $_____
- -----------------------------------------------------------------------------------------------
</TABLE>
-32-
<PAGE>
Additional Information on Risk
The principal risks of investing in each Portfolio are described on the previous
pages. The following supplements that discussion.
Securities Lending
To obtain interest income, the Portfolios may lend their 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. There is the risk that, when
lending portfolio securities, the securities may not be available to the
Portfolio on a timely basis. Therefore, the Portfolio may lose the opportunity
to sell the securities at a desirable price. Additionally, in the event that a
borrower of securities would file for bankruptcy or become insolvent,
disposition of the securities may be delayed pending court action.
Temporary Defensive Positions
Each Portfolio may temporarily hold investments that are not part of its main
investment strategy to try to avoid losses during unfavorable market conditions.
These investments may include cash (which will not earn any income), money
market instruments, short-term debt securities issued or guaranteed by the U.S.
Government or its agencies and, in the case of the International Equity
Portfolio, debt obligations of U.S. companies having their principal business
activities in the U.S. This strategy could prevent a Portfolio from achieving
its investment objective and could reduce the Portfolio's return and affect its
performance during a market upswing.
Other Types of Investments
This prospectus describes each Portfolio's principal investment strategies and
the particular types of securities in which each Portfolio principally invests.
Each Portfolio may, from time to time, make other types of investments and
pursue other investment strategies in support of its overall investment goal.
These supplemental investment strategies--and the risks involved--are described
in detail in the Statement of Additional Information ("SAI"), which is referred
to on the back cover of this prospectus.
Year 2000 Risks
Over the past several years, the Adviser and the Portfolios' other major service
providers expended considerable time and money in addressing the computer and
technology problems associated with the transition to the Year 2000. As a result
of those efforts, the Portfolios did not experience any material disruptions in
their operations as a result of the transition to the 21/st/ century. The
Adviser and the Portfolios' other major service providers are continuing to
monitor the Year 2000 or Y2K problem, however, and there can be no assurances
that there will be no adverse impact to the Portfolios as a result of future
computer-related Y2K difficulties.
-33-
<PAGE>
Your Account
Distribution Arrangements/Sales Charges
Share Classes
Each Portfolio offers Investor A Shares and each Portfolio except the Equity
Index Portfolio and Small Cap Equity Index Portfolio offers Investor B Shares.
The primary difference between the share classes is the sales charge structure
and distribution/service fee arrangement.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Types of Charges Investor A Shares Investor B Shares
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales Charge (Load) A front-end sales charge is A contingent deferred sales
assessed at the time of your charge (CDSC) is assessed on
purchase. shares redeemed within six
years of purchase. Investor B
Shares automatically convert
to Investor A Shares eight
years after purchase.
- ------------------------------------------------------------------------------------------------
Distribution (12b-1) and Subject to annual distribution Subject to annual distribution
Service Fees and shareholder servicing fees and shareholder servicing fees
of up to 0.30% of a of up to 1.00% of a
Portfolio's average daily net Portfolio's average daily net
assets attributable to its assets attributable to its
Investor A Shares. Investor B Shares.
- ------------------------------------------------------------------------------------------------
</TABLE>
-34-
<PAGE>
Calculation of Sales Charges
Investor A Shares
<TABLE>
<CAPTION>
Stock Portfolios
- --------------------------------------------------------------------------------------------
Amount of Sales Charge as a % Sales Charge as a % Dealers'
Transaction of the Offering Price of Net Asset Value Reallowance as a %
Per Share Per Share of Offering Price
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 5.50% 5.82% 5.00%
- --------------------------------------------------------------------------------------------
$50,000 but less
than $100,000 4.50% 4.71% 4.00%
- --------------------------------------------------------------------------------------------
$100,000 but less
than $250,000 3.50% 3.63% 3.00%
- --------------------------------------------------------------------------------------------
$250,000 but less
than $500,000 2.50% 2.56% 2.00%
- --------------------------------------------------------------------------------------------
$500,000 but less
than $1 million 2.00% 2.04% 1.50%
- --------------------------------------------------------------------------------------------
$1 million or more 0.50% 0.50% 0.40%
- -----------------------------------------------------------------------------------------------
</TABLE>
The Fund's distributor reserves the right to pay the entire sales charge on
purchases of Investor A Shares to dealers. In addition, the Fund's distributor
may from time to time implement programs under which a broker-dealer's sales
force may be eligible to win nominal awards for certain sales efforts. If any
such program is made available to any broker-dealer, it will be made available
to all broker-dealers on the same terms. Payments made under such programs are
made by the Fund's distributor out of its own assets and not out of the assets
of the Portfolios. These programs will not change the price of Investor A Shares
or the amount that the Portfolios will receive from such sales.
Calculation of Sales Charges
Investor B Shares
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Number of Years Since Purchase CDSC as a % of Dollar Amount Subject to the Charge
- -----------------------------------------------------------------------------------------
<S> <C>
0-1 5.0%
- -----------------------------------------------------------------------------------------
1-2 4.0%
- -----------------------------------------------------------------------------------------
2-3 3.0%
- -----------------------------------------------------------------------------------------
3-4 3.0%
- -----------------------------------------------------------------------------------------
4-5 2.0%
- -----------------------------------------------------------------------------------------
5-6 1.0%
- -----------------------------------------------------------------------------------------
More than 6 None
- -----------------------------------------------------------------------------------------
</TABLE>
For purposes of calculating the CDSC, all purchases made during a calendar month
are considered to be made on the first day of that month. The CDSC is based on
the value of the Investor B Shares on the date that they are sold or the
original cost of the shares, whichever is lower. To keep your CDSC as low as
possible each time
-35-
<PAGE>
you sell shares, the Fund will first sell any shares in your account that are
not subject to a CDSC. If there are not enough of these, the Fund will sell the
shares that have the lowest CDSC.
Sales Charge Reductions
Investor A Shares
Additional purchases of Investor A Shares by existing Investor A shareholder
accounts at March 31, 1999 are eligible for reduced sales charges. See the SAI
or call the Fund's distributor at 1-800-452-2724 for further information.
You may also reduce the sales charge on Investor A Shares through:
. Rights of Accumulation. You can add the value of the Investor A Shares that
you already own in any Portfolio of the Fund that charges a sales load, as
well as the value of any existing Class A shares of any other fund in the
Firstar Family of Funds, to your next investment in Investor A Shares for
purposes of calculating the sales charge.
. Quantity Discounts. As the dollar amount of your purchase increases, your
sales charge may decrease (see the table on page ____). In addition, the
Fund will combine purchases made on the same day by you and your immediate
family members when calculating applicable sales charges.
. Letter of Intent. You can purchase Investor A Shares of any Portfolio of
the Fund that charges a sales load over a 13-month period and pay the same
sales charge you would have paid if all shares were purchased at once. The
Fund's transfer agent will hold in escrow 5% of your total investment (for
payment of a higher sales load in case you do not purchase the full amount
indicated on the application) until the full amount is received. To
participate, complete the "Letter of Intent" section on your account
application.
. Reinvestment Privilege. You can reinvest some or all of the money that you
receive when you sell Investor A Shares of a Portfolio, or shares of any
other Fund in the Firstar Family of Funds, in Investor A Shares of any
Portfolio of the Fund within 60 days without paying a sales charge. You
must notify the Fund's transfer agent at the time of your reinvestment that
you qualify for this privilege.
Sales Charge Waivers
Investor A Shares
In addition, there's no sales charge when you buy Investor A Shares if:
. You buy shares by reinvesting your dividends and capital gains
distributions.
. You're an officer or director of the Fund (or an immediate family member of
any such individual).
. You're a director, a current or retired employee or a participant in an
employee benefit or retirement plan of Firstar Corporation or the Fund's
distributor or any of their affiliates (or an immediate family member of any
such individual).
. You're a broker, dealer or agent who has a sales agreement with the Fund's
distributor (or an employee or immediate family member of any such
individual).
. You buy shares pursuant to a wrap-free program offered by a broker-dealer or
other financial institution.
. You buy shares with the proceeds of Trust Shares or Institutional Shares of
a Portfolio redeemed in connection with a rollover of benefits paid by a
qualified retirement or employee benefit plan or a distribution on behalf of
any other qualified account administered by Firstar Bank or its affiliates
or correspondents within 60 days of receipt of such payment.
-36-
<PAGE>
. You buy shares through a payroll deduction program.
. You're an employee of any sub-adviser to the Fund.
. You were a holder of a Southwestern Bell VISA card formerly issued by
Mercantile Bank of Southern Illinois, N.A. and you participated in the Fund's
Automatic Investment Program.
. You're exchanging Trust Shares of a Portfolio received from the distribution
of assets held in a qualified trust, agency or custodian account with Firstar
Bank or any of its affiliates or correspondents.
. You're another investment company distributed by the Fund's distributor or
its affiliates.
If you think you qualify for any of these waivers, please call the Fund at
1-800-452-2724 before buying any shares.
(sidebar)
Purchase of Investor A Shares at Net Asset Value
From time to time, the Fund's distributor may offer investors the option to
purchase Investor A Shares at net asset value without payment of a front-end
sales charge. To qualify, you must pay for the shares with the redemption
proceeds from a non-affiliated mutual fund. In addition, you must have paid a
front-end sales charge on the shares you redeem. The purchase of Investor A
Shares must occur within 30 days of the prior redemption, and you must show
evidence of the redemption transaction. At the time of purchase, your broker-
dealer or other financial institution must notify the Fund that your transaction
qualifies for a purchase at net asset value.
Sales Charge Waivers
Investor B Shares
No CDSC is assessed on redemptions of Investor B Shares if:
. The shares were purchased with reinvested dividends or capital gains
distributions.
. The shares were purchased through an exchange of Investor B Shares of another
Portfolio.
. The redemption represents a distribution from a qualified retirement plan
under Section 403(b)(7) of the Internal Revenue Code, due to death,
disability or the attainment of a specified age.
. The redemption is in connection with the death or disability of the
shareholder.
. You participate in the Automatic Withdrawal Plan and your annual withdrawals
do not exceed 12% of your account's value.
. Your account falls below the Portfolio's minimum account size, and the Fund
liquidates your account (see page ____).
. The redemption results from a tax-free return of an excess contribution,
pursuant to Section 408(d)(4) or (5) of the Internal Revenue Code.
Distribution and Service Fees
Investor A Shares of the Portfolios pay distribution (12b-1) and shareholder
service fees at an annual rate of up to 0.30% of each Portfolio's Investor A
Share assets. Investor B Shares of the Portfolios pay distribution (12b-1) and
shareholder service fees at an annual rate of up to 1.00% of each Portfolio's
Investor B Share assets. The Fund has adopted separate distribution and service
plans under Rule 12b-1 that allow each Portfolio to pay fees
-37-
<PAGE>
from its Investor A Share or Investor B Share assets for selling and
distributing Investor A Shares or Investor B Shares, as the case may be, and for
services provided to shareholders. Because 12b-1 fees are paid on an ongoing
basis, over time they increase the cost of your investment and may cost more
than other sales charges.
Converting Investor B Shares to Investor A Shares
Eight years after you buy Investor B Shares of a Portfolio, they will
automatically convert to Investor A Shares of the Portfolio. This allows you to
benefit from the lower annual expenses of Investor A Shares.
Choosing Between Investor A Shares and Investor B Shares
In deciding whether to buy Investor A Shares or Investor B Shares, you should
consider how long you plan to hold the shares. Over time, the higher fees on
Investor B Shares may equal or exceed the initial sales charge and fees for
Investor A Shares. Investor A Shares may be a better choice if you qualify to
have the sales charges reduced or eliminated, or if you plan to sell your shares
within one or two years. Consult your financial adviser for help in choosing the
appropriate share class.
Explanation of Sales Price
Shares of each class in a Portfolio are sold at their net asset value (NAV)
plus, in the case of Investor A Shares, a front-end sales charge, if applicable.
This is commonly referred to as the "public offering price."
(sidebar)
Business days defined
A business day is any day that both the New York Stock Exchange and the Federal
Reserve Bank of St. Louis are open for business. Currently, the Fund observes
the following holidays: 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 and Christmas.
The NAV for each class of shares of a Portfolio is determined as of the close of
regular trading on the New York Stock Exchange (currently 4:00 p.m., Eastern
time) on every business day. The NAV for a class of shares is determined by
adding the value of the Portfolio's investments, cash and other assets
attributable to a particular share 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.
. Each Portfolio's investments are valued according to market value. When a
market quote is not readily available, the security's value is based on "fair
value" as determined by FIRMCO (or Clay Finlay, with respect to the
International Equity Portfolio) under the supervision of the Fund's Board of
Directors. Foreign securities acquired by the International Equity Fund may
be valued in foreign markets on days when the Portfolio's NAV is not
calculated. In such cases, the NAV of the Portfolio's shares may be
significantly affected on days when investors cannot buy and sell Portfolio
shares.
-38-
<PAGE>
. If you properly place a purchase order (see "How to Buy Shares" on page ____)
that is delivered to the Fund before 4:00 p.m. (Eastern time) on any business
day, the order receives the share price determined for your share class as of
4:00 p.m. that day. If the order is received after 4:00 p.m., it will receive
the price determined on the next business day. You must pay for your shares
no later than 4:00 p.m. three business days after placing the order, or the
order will be canceled.
How to Buy Shares
Investing in the Mercantile Stock Portfolios is quick and convenient. You can
purchase Investor A Shares or Investor B Shares in any of the following ways:
. Through a broker-dealer organization. You can purchase shares through any
broker-dealer organization that has a sales agreement with the Fund's
distributor. The broker-dealer organization is responsible for sending your
purchase order to the Fund.
. Through a financial organization. You can purchase shares through any
financial organization that has entered into a servicing agreement with the
Fund. The financial organization is responsible for sending your purchase
order to the Fund.
. Directly from the Fund by mail. Just complete an account application and send
it, along with a check for at least the minimum purchase amount, to:
Mercantile Mutual Funds, Inc. 615 East Michigan Street, P.O. Box 3011,
Milwaukee, Wisconsin 53201-3011. Remember to specify whether you're buying
Investor A Shares or Investor B Shares. To make additional investments once
you've opened your account, send your check to the address above together
with the detachable form that's included with your Fund statement or
confirmation of a prior transaction or a letter stating the amount of your
investment, the name of the Portfolio you want to invest in and your account
number.
In addition, you may call the Fund at 1-800-452-2724 for more information on how
to buy shares.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Minimum investments To Open Your Account To Add to Your Account
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Regular accounts $1,000 $50
- -------------------------------------------------------------------------------------------
Sweep program through your None None
financial institution
- -------------------------------------------------------------------------------------------
Wrap fee program through your
financial institution None None
- -------------------------------------------------------------------------------------------
Payroll Deduction Program* None $ 25
- -------------------------------------------------------------------------------------------
Automatic Exchange Program* $5,000 $1,000 minimum account
balance
- -------------------------------------------------------------------------------------------
Automatic Investment Program* $ 50 $ 50
- -------------------------------------------------------------------------------------------
</TABLE>
* See Investor Programs below.
-39-
<PAGE>
How to Sell Shares
You can arrange to get money out of your account by selling some or all of your
shares. This is known as "redeeming" your shares. You can redeem your shares in
the following ways:
Through a broker-dealer or other financial organization
If you purchased your shares through a broker-dealer or other financial
organization, your redemption order should be placed through the same
organization. The organization is responsible for sending your redemption
order to the Fund on a timely basis.
By mail
Send your written redemption request to: Mercantile Mutual Funds, Inc., 615
East Michigan Street, P.O. Box 3011, Milwaukee, Wisconsin 53201-3011. Your
request must include the name of the Portfolio, the number of shares or the
dollar amount you want to sell, your account number, your social security or
tax identification number and the signature of each registered owner of the
account. Your request also must be accompanied by any share certificates that
are properly endorsed for transfer. Additional documents may be required for
certain types of shareholders, such as corporations, partnerships, executors,
trustees, administrators or guardians.
The Fund's transfer agent may require a signature guarantee unless the
redemption proceeds are payable to the shareholder of record and the
redemption is either mailed to the shareholder's address of record or
electronically transferred to the account designated on the original account
application. A signature guarantee helps prevent fraud, and you may obtain one
from most banks and broker-dealers. Contact your broker-dealer or other
financial organization or the Fund for more information on signature
guarantees.
By telephone
You may redeem your shares by telephone if you have selected that option on
your account application and if there has been no change of address by
telephone within the preceding 15 days. Call the Fund at 1-800-452-2724 with
your request. You may have your proceeds mailed to your address or transferred
electronically to the bank account designated on your account application. If
you have not previously selected the telephone privilege, you may add this
feature by providing written instructions to the Fund's transfer agent. If you
have difficulty getting through to the Fund because of unusual market
conditions, consider selling your shares by mail.
You may sell your Portfolio shares at any time. Your shares will be sold at the
NAV next determined after the Fund accepts your order (see above). The proceeds
of the sale of Investor B Shares will be reduced by the applicable CDSC. Your
proceeds ordinarily are sent electronically or mailed by check within three
business days. If your account holds both Investor A Shares and Investor B
Shares, be sure to specify which shares you are selling. Otherwise, Investor A
Shares will be sold first.
(sidebar)
Selling recently purchased shares
- ---------------------------------
If you attempt to sell shares you recently purchased with a personal check, the
Fund may delay processing your request until it collects payment for those
shares. This process may take up to 15 days, so if you plan to sell
-40-
<PAGE>
shares shortly after purchasing them, you may want to consider purchasing shares
with a certified or bank check or via electronic transfer to avoid delays.
Investor Programs
It's also easy to buy or sell shares of the Portfolios by using one of the
programs described below.
Automatic Investment Program
You may open an account or make additional investments to an existing account
for as little as $50 a month with the Fund's Automatic Investment Program (AIP).
Under the AIP, you specify the dollar amount to be automatically withdrawn each
month from your bank checking account and invested in your Portfolio account.
Purchases of Investor A Shares or Investor B Shares will occur on the day of the
month designated by you or the next business day after the designated day of
each month at the net asset value plus any front-end sales charge, if
applicable, next determined on the day the order is effected. To take advantage
of the AIP, complete the AIP authorization form included with your account
application or contact your broker-dealer or other financial organization.
AIP lets you take advantage of "dollar cost averaging", a long-term investment
technique designed to help investors reduce their average cost per share over
time. Instead of trying to time the market, you can invest a fixed dollar amount
each month. So, you buy fewer Portfolio shares when prices are high and more
when prices are low. Because dollar cost averaging involves regular investing
over time, regardless of share price, it may not be appropriate for all
investors.
In addition, dollar cost averaging does not guarantee a profit or protect
against loss in a steadily declining market. To be effective, dollar cost
averaging usually should be followed on a sustained, consistent basis. Even
then, however, there can be no guarantee of the success of this technique, and
it will not prevent a loss if an investor ultimately redeems his or her shares
at a price that is lower than the original purchase price.
Exchanges
The exchange privilege enables you to exchange Investor A Shares of one
Portfolio for Investor A Shares (or in certain limited circumstances described
in the SAI, Trust or Institutional Shares) of another Portfolio and to exchange
Investor B Shares of one Portfolio for Investor B Shares of another Portfolio.
Just sign up for the exchange privilege on your account application and contact
your broker-dealer or other financial organization when you want to exchange
shares. You also may exchange shares by telephoning the Fund directly (call 1-
800-452-2724) if you have elected this privilege on your account application.
The exchange privilege may be exercised only in those states where the class of
shares of the Portfolio being acquired may be legally sold.
When exchanging Investor A Shares of a Portfolio that has no sales charge or a
lower sales charge for Investor A Shares of a Portfolio with a higher sales
charge, you will pay the difference.
You may exchange Investor B Shares without paying a CDSC on the exchange. The
holding period of the shares originally held and redeemed will be added to the
holding period of the new shares acquired through the exchange.
-41-
<PAGE>
Automatic Exchange Program
This program lets you automatically exchange shares of one Portfolio for shares
of another Portfolio on a regular basis, as long as the shares are of the same
class. Because you're making regular purchases, the Automatic Exchange Program
enables you to take advantage of dollar cost averaging. (See "Automatic
Investment Program" above.)
To participate, you must make a minimum initial purchase of $5,000 and maintain
a minimum account balance of $1,000. In addition, you must complete the
authorization form included with your account application or available from your
broker-dealer or other financial organization. In order to change instructions
with respect to the Automatic Exchange Program or to discontinue the program,
you must send written instructions to your broker-dealer or other financial
organization or to the Fund.
Automatic Withdrawal Plan
If the net asset value of your account equals $10,000 or more, you may take
advantage of the Fund's Automatic Withdrawal Plan (AWP). With the AWP, you can
have monthly, quarterly, semi-annual or annual redemptions of at least $50 from
your Portfolio account sent to you via check or to your bank account
electronically on the day designated by you (or the next business day after the
designated day) of the applicable month of withdrawal. No CDSC will be
charged on withdrawals of Investor B Shares made through the AWP that don't
annually exceed 12% of your account's value.
To participate in the AWP, complete the AWP application included with your
account application or contact your broker-dealer or other financial
organization. A signature guarantee will be required. You may terminate your
participation in the AWP upon 30 days' notice to your broker-dealer or other
financial organization or to the Fund.
Payroll Deduction Program
You can make regular investments from your paycheck. The minimum investment is
$25 per pay period. Call the Fund at 1-800-452-2724 for an application and
further information. The Fund may terminate the program at any time.
Internet Transactions
You generally can request purchases, exchanges and redemptions of Investor A
Shares and Investor B Shares of the Portfolios on line via the Internet after an
account is opened. Redemption requests of up to $25,000 will be accepted through
the Internet. Payment for Shares purchased online must be made by electronic
funds transfer from your banking institution. To authorize this service, call
the Fund's transfer agent at 1-800-452-2724.
The Fund and its agents will not be responsible for any losses resulting from
unauthorized on-line transactions when procedures are followed which are
designed to confirm that the on-line transaction request is genuine. Statements
of accounts shall be conclusive if not objected to in writing within 10 days
after transmitted by mail. During periods of significant economic or market
change, it may be difficult to reach the Portfolios on line. If this happens,
you may initiate transactions in your share accounts by mail or otherwise as
described above.
-42-
<PAGE>
General Transaction Policies
The Fund reserves the right to:
. Vary or waive any minimum investment requirement.
. Refuse any order to buy shares.
. Reject any exchange request.
. Change or cancel the procedures for selling or exchanging shares by telephone
at any time.
. Redeem all shares in your account if your balance falls below $500. If,
within 60 days of the Fund's written request, you have not increased your
account balance, you may be required to redeem your shares. The Fund will not
require you to redeem shares if the value of your account drops below $500
due to fluctuations in net asset value.
. Send redemption proceeds within seven days after receiving a request, if an
earlier payment could adversely affect a Portfolio.
. Modify or terminate the Automatic Exchange, Automatic Investment and
Automatic Withdrawal programs at any time.
. Modify or terminate the exchange privilege after 60 days' written notice to
shareholders.
. Make a "redemption in kind." Under abnormal conditions that may make payment
in cash unwise, the Fund may offer partial or complete payment in portfolio
securities rather than cash at such securities' then-market-value equal to
the redemption price. In such cases, you may incur brokerage costs in
converting these securities to cash.
If you elect telephone privileges on the account application or in a letter to
the Fund, you may be responsible for any fraudulent telephone orders as long as
the Fund has taken reasonable precautions to verify your identity.
Also, your broker/dealer or other financial organization may establish policies
that differ from those of the Fund. For example, the organization may charge
transaction fees, set higher minimum investments, or impose certain limitations
on purchasing or redeeming shares in addition to those identified in this
prospectus. Contact your broker/dealer or other financial organization for
details.
-43-
<PAGE>
Distributions and Taxes
Dividends and Distributions
The Portfolios pay their shareholders dividends from the Portfolios' respective
net investment income and distribute any net capital gains the Portfolios have
realized.
Dividends for the Balanced, Equity Income, Equity Index, Growth & Income Equity
and Growth Equity Portfolios are declared and paid monthly. Dividends for the
Small Cap Equity, Small Cap Equity Index and International Equity Portfolios are
declared and paid quarterly. Capital gains, if any, for all of the Portfolios
are distributed at least once a year. It's expected that each Portfolio's
annual distributions will normally - but not always - consist primarily of
capital gains and not ordinary income.
Dividends on each share class of the Portfolios are determined in the same
manner and are paid in the same amount. However, each share class bears all
expenses associated with that particular class. So, because Investor B Shares
have higher distribution and service fees than Investor A Shares, the dividends
paid to Investor B shareholders will be lower than those paid to Investor A
shareholders.
All of your dividends and capital gains distributions with respect to a
particular Portfolio will be reinvested in additional shares of the same class
unless you instruct otherwise on your account application or have redeemed all
shares you held in the Portfolio. In such cases, dividends and distributions
will be paid in cash.
Taxation
As with any investment, you should consider the tax implications of an
investment in the Portfolios. The following is only a brief summary of some of
the important tax considerations , generally affecting the Portfolios and their
shareholders under current law, which may be subject to change in the future.
Consult your tax adviser with specific reference to your own tax situation.
. Each Portfolio contemplates declaring as dividends each year all or
substantially all of its taxable income, including its net capital gains (the
excess of long-term capital gain over short-term capital loss).
Distributions attributable to the net capital gain of a Portfolio will be
taxable to you as long-term capital gain, regardless of how long you will
have held your shares. Other Portfolio distributions will generally be
taxable as ordinary income. You will be subject to income tax on
distributions regardless whether they are paid in cash or reinvested in
additional shares.
. If you purchase shares just prior to a distribution, the purchase price will
reflect the amount of the upcoming distribution, but you will be taxed on the
entire amount of the distribution received even though, as an economic
matter, the distribution simply constitutes a return of capital. This is
known as "buying into a dividend."
. You will recognize a taxable gain or loss on a sale, exchange or redemption
of your shares, including an exchange for shares of another Portfolio, based
on the difference between your tax basis in the shares and the amount you
receive for them. Generally, this gain or loss will be long-term or short-
term depending on whether your holding period for the shares exceeds 12
months, except that any loss realized on shares held for six months or less
will be treated as a long-term capital loss to the extent that any long-term
capital gain distributions were received with respect to the shares.
. Distributions on, and sales, exchanges and redemptions of, shares held in an
IRA or other tax-qualified plan will not be currently taxable.
. The International Equity Portfolio is expected to be subject to foreign
withholding taxes with respect to dividends or interest received from sources
in foreign countries. The Portfolio may make an election to treat
-44-
<PAGE>
a proportionate amount of these taxes as a distribution to each shareholder.
This will allow each shareholder to either (1) credit such proportionate
amount of taxes against U.S. federal income tax liability, or (2) take such
amount as an itemized deduction.
A Portfolio's dividends that are paid to its corporate shareholders and are
attributable to qualifying dividends the Portfolio receives from U.S. domestic
corporations may be eligible, in the hands of the corporate shareholders, for
the corporate dividends-received deduction, subject to certain holding period
requirements and debt financing limitations.
Shareholders may also be subject to state and local taxes on distributions and
redemptions. State income taxes may not apply however, to the portions of each
Portfolio's distributions, if any, that are attributable to interest on federal
securities or interest on securities of the particular state or localities
within the state.
The foregoing is only a summary of certain tax considerations under current law,
which may be subject to change in the future. Shareholders who are nonresident
aliens, foreign trusts or estates, or foreign corporations or partnerships, may
be subject to different United States federal income tax treatment. For more
information regarding the taxation of the Portfolios, consult the SAI under the
heading "Additional Information Concerning Taxes." You should also consult your
tax adviser for further information regarding federal, state, local, and/or
foreign tax consequences relevant to your specific situation.
(sidebar)
You will be advised at least annually regarding the federal income tax treatment
of dividends and distributions made to you. You should save your account
statements because they contain information you will need to calculate your
capital gains or losses, if any, upon your ultimate sale or exchange of shares
in the Portfolios.
-45-
<PAGE>
Management of the Fund
The Adviser
FIRMCO, subject to the general supervision of the Fund's Board of Directors, is
responsible for the day-to-day management of the Portfolios in accordance with
each Portfolio's respective investment objective and policies. This includes
making investment decisions, buying and selling securities and overseeing the
administration and recordkeeping for each Portfolio.
In exchange for these services, FIRMCO receives an investment advisory fee,
which is calculated daily and paid monthly, according to the average daily net
assets of each Portfolio. On March 1, 2000, MVA, the Portfolios' former adviser,
merged into FIRMCO. For the fiscal year ended November 30, 1999, the Portfolios
paid MVA advisory fees as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------
Portfolio Investment advisory fees
as a % of net assets
- --------------------------------------------------------------
<S> <C>
Balanced Portfolio ___%
- --------------------------------------------------------------
Growth Equity Portfolio ___%
- --------------------------------------------------------------
Growth & Income Equity Portfolio
___%
- --------------------------------------------------------------
Equity Income Portfolio ___%
- --------------------------------------------------------------
Equity Index Portfolio ___%
- --------------------------------------------------------------
Small Cap Equity Portfolio ___%
- --------------------------------------------------------------
Small Cap Equity Index Portfolio ___%
- --------------------------------------------------------------
International Equity Portfolio ___%
- --------------------------------------------------------------
</TABLE>
The Sub-Adviser
Clay Finlay Inc., an experienced international investment manager, serves as
sub-adviser to the International Equity Portfolio and is responsible for the
management of the Portfolio's assets. Clay Finlay manages the Portfolio under
the guidance and direction of FIRMCO and according to its sub-advisory agreement
with FIRMCO. For its services, Clay Finlay receives from FIRMCO a monthly fee
based on a percentage of the Portfolio's average daily net assets.
Founded in 1982, Clay Finlay is a registered investment adviser and a 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, NY 10166.
-46-
<PAGE>
Financial Highlights
Introduction
The financial highlights tables presented below are intended to help you
understand the financial performance of each Portfolio's Investor A Shares
and/or Investor B Shares for the past five years (or, if shorter, the period
since the Portfolio began operations or the particular shares were first
offered). Certain information reflects financial results for a single Investor A
Share or Investor B Share in each Portfolio. The total returns in the tables
represent the rate that an investor would have earned (or lost) on an investment
in either Investor A Shares or Investor B Shares, assuming reinvestment of all
dividends and distributions. This information has been audited by
_________________, independent auditors, whose report, along with the
Portfolios' financial statements, are included in the Fund's Annual Report to
Shareholders, and is incorporated by reference into the SAI.
-47-
<PAGE>
Balanced Portfolio
Investor A Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.............................. 13.26 $12.58 $11.65 $ 9.61
Investment Activities ----- ----- ----- -----
Net investment income............................ 0.28 0.32 0.32 0.32
Net realized and unrealized
gains (losses) from investments................. 0.84 1.47 1.34 2.02
----- ----- ----- -----
Total from Investment
Activities....................................... 1.12 1.79 1.66 2.34
----- ----- ----- -----
Distributions
Net investment income............................ (0.28) (0.40) (0.31) (0.30)
Net realized gains............................... (1.47) (0.71) (0.42) --
In excess of net investment income............... -- -- -- --
Total Distributions............................. (1.75) (1.11) (0.73) (0.30)
----- ----- ----- -----
Net Asset Value, End of Period..................... $ 12.63 $13.26 $12.58 $11.65
===== ===== ===== =====
Total Return (excludes
sales charges)................................... 9.43% 15.38% 15.10% 24.85%
Ratios/Supplementary Data:
Net Assets at end of period (000) $10,659 $9,923 $9,328 $8,348
Ratio of expenses to average net
assets........................................... 1.26% 1.27% 1.27% 1.27%
Ratio of net investment income to
average net assets............................... 2.23% 2.57% 2.79% 2.98%
Ratio of expenses to average net
assets*.......................................... 1.36% 1.37% 1.37% 1.37%
Portfolio turnover**............................... 47.79% 43.60% 85.16% 58.16%
</TABLE>
_______________________
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio 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.
-48-
<PAGE>
Balanced Portfolio
Investor B
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
March 1, 1995
to
Year Ended November 30, November 30,
-------------------------------------------------------
1999 1998 1997 1996 1995(a)
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period..................................... $13.15 $12.49 $11.59 $10.13
------ ------ ------ ------
Investment Activities
Net investment income................................... 0.21 0.25 0.25 0.22
Net realized and unrealized
gains (losses) from investments........................ 0.81 1.43 1.33 1.44
------ ------ ------ ------
Total from Investment
Activities............................................. 1.02 1.68 1.58 1.66
------ ------ ------ ------
Distributions
Net investment income................................... (0.20) (0.26) (0.26) (0.20)
Net realized gains...................................... (1.47) (0.71) (0.42) --
------ ------ ------ ------
In excess of net investment income...................... -- (0.05) -- --
Total Distributions.................................... (1.67) (1.02) (0.68) (0.20)
------ ------ ------ ------
Net Asset Value, End of Period............................ $12.50 $13.15 $12.49 $11.59
====== ====== ====== ======
Total Return (excludes
sales charges).......................................... 8.63% 14.57% 14.35% 23.92%(b)
Ratios/Supplementary Data:
Net Assets at end of period (000) $1,285 $ 522 $ 321 $ 36
Ratio of expenses to average net
assets.................................................. 1.96% 1.96% 1.96% 1.93%(c)
Ratio of net investment income to
average net assets...................................... 1.57% 1.85% 2.09% 2.28%(c)
Ratio of expenses to average net
assets*................................................. 2.06% 2.06% 2.06% 2.03%(c)
Portfolio turnover**...................................... 47.79% 43.60% 85.16% 58.16%
</TABLE>
_________________
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio 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) 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.
(c) Annualized.
-49-
<PAGE>
Equity Income Portfolio
Investor A Shares
(For a Share outstanding throughout the period)
<TABLE>
<CAPTION>
February 27, 1997
to
Year Ended November 30, November 30,
1999 1998 1997(a)
---- ---- -------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period................... $11.56 $10.00
------ ------
Investment Activities
Net investment income................ 0.17 0.16
Net realized and unrealized gains
from investments.................... 0.98 1.57
------ ------
Total from Investment Activities..... 1.15 1.73
------ ------
Distributions
Net investment income................ (0.18) (0.16)
In excess of net investment income... -- (0.01)
------ ------
Net realized gains................... (2.29) --
------ ------
Total Distributions.................. (2.47) (0.17)
------ ------
Net Asset Value, End of Period........ $10.24 $11.56
====== ======
Total Return (excludes sales charges) 11.69% 17.42%(b)
Ratios/Supplementary Data:
Net Assets of end of period (000) $1,709 $ 173
Ratio of expenses to average net
assets............................... 1.15% 0.45%(c)
Ratio of net investment income to
average net assets................... 1.51% 2.29%(c)
Ratio of expenses to average net
assets (before waivers)*............. 1.38% 1.38%(c)
Portfolio turnover**.................. 98.32% 48.33%
</TABLE>
_______________________
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio 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.
-50-
<PAGE>
Equity Income Portfolio
Investor B Shares
(For a Share outstanding throughout the period)
<TABLE>
<CAPTION>
February 27, 1997
Year Ended to
November 30, November 30,
1999 1998 1997(a)
---- ---- -------
<S> <C> <C> <C>
Net Asset Value,
Beginning of Period.................. $11.55 $10.00
------ ------
Investment Activities
Net investment income................ 0.11(d) 0.10
Net realized and unrealized gains
from investments.................... 0.97 1.57
------ ------
Total from Investment Activities..... 1.08 1.67
------ ------
Distributions
Net investment income................ (0.11) (0.10)
------ ------
In excess of net investment income... -- (0.02)
------ ------
Net realized gains................... (2.29) --
------ ------
Total Distributions.................. (2.40) (0.12)
------ ------
Net Asset Value, End of Period........ $10.23 $11.55
====== ======
Total Return (excludes sales charges) 10.98% 16.75%(b)
Ratios/Supplementary Data:
Net Assets of end of period (000) $ 520 $ 131
Ratio of expenses to average net
assets............................... 1.84% 1.14%(c)
Ratio of net investment income to
average net assets................... 0.83% 1.53%(c)
Ratio of expenses to average net
assets (before waivers)*............. 2.08% 2.07%(c)
Portfolio turnover**.................. 98.32 48.33%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio 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.
-51-
<PAGE>
Equity Index Portfolio
Investor A Shares
(For a Share outstanding throughout the period)
<TABLE>
<CAPTION>
Year Ended November 30,
--------------------------------------------------------------------
May 1, 1997
to
1999 1998 November 30, 1997/(a)/
---- ---- ----------------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $11.93 $10.00
------ ------
Investment Activities
Net investment income............................. 0.09 0.07
Net realized and unrealized gains
from investments.................................. 2.64 1.94
------ ------
Total from Investment Activities............... 2.73 2.01
------ ------
Distributions
Net investment income......................... (0.10) (0.07)
In excess of net investment income.................. -- (0.01)
------ ------
Net realized gains.................................. (0.02) --
------ ------
Total Distributions................................. (0.12) (0.08)
------ ------
Net Asset Value, End of Period $14.54 $11.93
====== ======
Total Return (excludes sales charges)............... 23.01% 20.14%(b)
Ratios/Supplementary Data:
Net assets at the end of period (000)............... $ 914 $ 206
Ratio of expenses to average net
assets............................................
0.86% 0.78%(c)
Ratio of net investment income to
average net assets................................ 0.70% 1.02%(c)
Ratio of expenses to average
net assets*....................................... 1.03% 1.21%(c)
Portfolio turnover**................................ 14.83% 1.66%
</TABLE>
- ------------------------------
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio 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.
-52-
<PAGE>
Growth & Income Equity Portfolio
Investor A Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
-------------------------------------------
1999 1998 1997 1996 1995
---- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.................... $ 21.12 $ 18.67 $ 16.30 $ 12.70
------- ------- ------- -------
Investment Activities
Net investment income.................. 0.12 0.11 0.20 0.23
Net realized and unrealized gains
(losses) from investments............ 1.58 3.96 3.32 3.74
------- ------- ------- -------
Total from Investment Activities..... 1.70 4.07 3.52 3.97
------- ------- ------- -------
Distributions
Net investment income.................. (0.11) (0.13) (0.20) (0.23)
In excess of net investment income... (0.01) (0.03) (0.01) --
Net realized gains................... (3.57) (1.46) (0.94) (0.14)
In excess of net realized gains...... -- -- -- --
------- ------- ------- -------
Total Distributions.................. (3.69) (1.62) (1.15) (0.37)
------- ------- ------- -------
Net Asset Value, End of Period........... $ 19.13 $ 21.12 $ 18.67 $ 16.30
======= ======= ======= =======
Total Return (excludes sales charges) 9.35% 23.90% 22.99% 31.95%
Ratios/Supplementary Data:
Net Assets of end of period (000)........ $48,868 $46,372 $38,229 $25,082
Ratio of expenses to average net assets. 1.04% 1.04% 1.05% 1.05%
Ratio of net investment income to
average net assets...................... 0.59% 0.60% 1.20% 1.59%
Ratio of expenses to average net
assets*................................. 1.14% 1.14% 1.15% 1.15%
Portfolio turnover**.................... 91.23% 57.11% 63.90% 58.50%
</TABLE>
_____________________________
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratio 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.
-53-
<PAGE>
Growth & Income Equity Portfolio
Investor B Shares
(For a Share outstanding throughout the period)
<TABLE>
<CAPTION>
Year Ended November 30
-------------------------------------
March 1, 1995
to
1999 1998 1997 1996 Nov. 30, 1995(a)
-------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $20.94 $ 18.58 $16.23 $13.43
------ ------- ------ ------
Investment Activities
Net investment income (loss)............
Net realized and unrealized gains (0.02)(d) (0.02) 0.11 0.14
from investments........................
1.57 3.93 3.30 2.81
Total from Investment Activities..... ------ ------- ------ ------
1.55 3.91 3.41 2.95
Distributions ------ ------- ------ ------
Net investment income.....................
In excess of net investment income........
Net realized gains........................ -- -- (0.11) (0.15)
(0.03) (0.09) (0.01) --
(3.57) (1.46) (0.94) --
Total Distributions....................... ------ ------- ------ ------
(3.60) (1.55) (1.06) (0.15)
Net Asset Value, End of Period............ ------ ------- ------ ------
$18.89 $ 20.94 $18.58 $16.23
Total Return (excludes sales charges)..... ====== ======= ====== ======
8.59% 23.04% 22.29% 31.20%(b)
Ratios/Supplementary Data:
Net assets at the end of period (000)..... $ 9,040 $ 6,349 $3,537 $ 781
Ratio of expenses to average net
Assets 1.74% 1.73% 1.75% 1.75%(c)
Ratio of net investment income (loss) to
average net assets...................... (0.10)% (0.11)% 0.49% 0.87%(c)
Ratio of expenses to average net
assets*................................. 1.84% 1.83% 1.85% 1.85%(c)
Portfolio turnover**...................... 91.23% 57.11% 63.90% 58.50%
</TABLE>
____________________________________
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio 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) Represents the total return for Investor A Shares from December 1, 1994 to
February 28, 1995 plus the total return for Investor B Shares from March 1,
1995 to November 30, 1995.
(c) Annualized.
(d) Per share net investment income has been calculated using the daily average
share method.
-54-
<PAGE>
Growth Equity Portfolio
Investor A Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
October 1, 1997
through
Year Ended November 30, November 30,(a) Year Ended September 30,
------------------------ ---------------- ------------------------------
1999 1998 1997 1997 1996 1995
---------- -------- ---------------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
$ 16.26 $18.75 $ 15.06 $ 13.80 $ 9.74
Period................................ ------- ------ ------- ------- -------
Investment Activities
Net investment income (loss).......... (0.04) (0.01) 0.08 0.12 0.10
Net realized and unrealized
gains (losses) on investments....... 3.70 (0.24) 4.75 1.32 4.05
------- ------ ------- ------- -------
Total from investment
activities........................... 3.66 (0.25) 4.83 1.44 4.15
------- ------ ------- ------- -------
Distributions
Net investment income................. -- -- (0.09) (0.11) (0.09)
Net realized gains.................... -- (2.24) (1.05) (0.07) --
------- ------ ------- -------
Total Distributions................... -- (2.24) (1.14) (0.18) (0.09)
------- ------ ------- ------- -------
Net Asset Value, End of Period.......... $ 19.92 $16.26 $ 18.75 $ 15.06 $ 13.80
======= ====== ======= ======= =======
Total Return (excludes sales charges)... 22.53% (1.25)%(b) 33.85% 10.48% 42.90%
Ratios/Supplementary Data
Net assets at the end of period (000). $ 4,832 $3,467 $68,965 $55,573 $43,708
Ratio of expenses to
1.35% 1.17%(c) 1.14% 1.17% 1.28%
average net assets...................
Ratio of net investment
income (loss) to average net assets.. (0.26)% (0.27)%(c) 0.44% 0.86% 0.90%
Ratio of expenses to average
net assets*.......................... 1.45% 1.42%(c) 1.39% 1.45% 1.58%
Portfolio turnover**.................. 54.33% 24.45% 42.00% 45.00% 45.00%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio 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. Upon its reorganization as a new portfolio of the Fund on
November 21, 1997, the Portfolio changed its fiscal year-end from September
30 to November 30.
(b) Not annualized.
(c) Annualized.
-55-
<PAGE>
Growth Equity Portfolio
Investor A Shares
(For a share outstanding throughout each period)
<TABLE>
<CAPTION>
Feb. 23, 1998
Year Ended November through
30, 1999 November 30, 1998(a)
------------------- --------------------
<S> <C> <C>
Net Asset Value, Beginning of
Period................................ $16.27
------
Investment Activities
Net investment income (loss).......... (0.07)
Net realized and unrealized
Gains (losses) on investments....... 3.61
------
Total from investment
activities........................... 3.54
------
Distributions
Net investment income................. --
Net realized gains.................... --
Total distributions................... --
Net asset value, end of period.......... $19.81
======
Total return (excludes sales charges)... 9.87%(b)
Ratios/Supplemental Data
Net assets, end of period (000)....... $ 252
Ratio of expenses to
average net assets................... 2.11%(c)
Ratio of net investment
income (loss) to average net assets.. (1.08)%(c)
Ratio of expenses to average
net assets*.......................... 2.22%(c)
Portfolio turnover**.................. 54.33%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio 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.
-56-
<PAGE>
Small Cap Equity Portfolio
Investor A Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30
----------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period................................. $ 15.03 $ 13.40 $ 13.44 $ 11.99
-------- ------- -------- --------
Investment Activities
Net investment income (loss)........................ (0.06) (0.05) (0.01) --
Net realized and unrealized gains
(losses) from investments......................... (1.89) 2.50 1.03 2.36
-------- ------- -------- --------
Total from Investment Activities.................. (1.95) 2.45 1.02 2.36
-------- ------- -------- --------
Distributions
In excess of net investment income................. -- -- (0.01) --
Net realized gains................................. (1.19) (0.82) (1.05) (0.91)
In excess of net realized gains................... (0.03) -- -- --
-------- ------- -------- --------
Total Distributions............................... (1.22) (0.82) (1.06) (0.91)
-------- ------- -------- --------
Net Asset Value, End of Period........................ $ 11.86 $ 15.03 $ 13.40 $ 13.44
======== ======= ======== ========
Total Return (excludes sales charges)............... (14.19)% 19.45% 8.36% 21.47%
Ratios/Supplementary Data:
Net Assets, End of Period (000)....................... $ 11,601 $14,213 $ 13,889 $ 15,056
Ratio of expenses to average net
assets.............................................. 1.25% 1.25% 1.26% 1.26%
Ratio of net investment income loss
to average net assets............................... (0.45)% (0.29)% (0.13)% (0.12)%
Ratio of expenses to average net
assets*............................................. 1.35% 1.35% 1.36% 1.36%
Portfolio turnover**................................ 69.72% 80.23% 65.85% 83.13%
</TABLE>
_____________________________
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio 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.
-57-
<PAGE>
Small Cap Equity Portfolio
Investor B Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30 March 1, 1995
to
November 30,
----------------------------------------------------
1999 1998 1997 1996 1995(a)
------ -------- ------- ------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period................... $ 14.74 $ 13.24 $ 13.37 $11.83
-------- ------- ------- ------
Investment Activities
Net investment loss..................... (0.14) (0.13) (0.07) (0.03)
Net realized and unrealized gains
(losses) from investments............. (1.85) 2.45 0.99 1.57
-------- ------- ------- ------
Total from Investment Activities........ (1.99) 2.32 0.92 1.54
-------- ------- ------- ------
Distributions
Net realized gains...................... (1.18) (0.82) (1.05) --
In excess of net realized gains......... (0.04) -- -- --
-------- ------- ------- ------
Total Distributions..................... (1.22) (0.82) (1.05) --
-------- ------- ------- ------
Net Asset Value, End of Period............ $ 11.53 $ 14.74 $ 13.24 $13.37
======== ======= ======= ======
Total Return (excludes sales charges) (14.79)% 18.62% 7.63% 20.83%(b)
Ratios/Supplementary Data:
Net Assets, end of period (000) $ 1,286 $ 1,503 $ 1,272 $ 603
Ratio of expenses to average net 1.95% 1.95% 1.96% 1.96%(c)
assets..................................
Ratio of net investment loss to (1.15)% (0.99)% (0.83)% (0.78)%(c)
average net assets......................
Ratio of expenses to average net 2.05% 2.05% 2.06% 2.06%(c)
assets*.................................
Portfolio turnover** 69.72% 80.23% 65.85% 83.13%
</TABLE>
_____________________________
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio 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) Represents the total return for Investor A Shares from December 1, 1994 to
February 28, 1995 plus the total return for Investor B Shares from March 1,
1995 through November 30, 1995.
(c) Annualized.
-58-
<PAGE>
Small Cap Equity Index Portfolio
Investor A Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
December 30, 1998
to
November 30,
1999(a)
------------------
<S> <C>
Net Asset Value,
Beginning of Period..............
Investment Activities
Net investment gain (loss).......
Net realized and unrealized
gains (losses) from investments.
Total from Investment
Activities......................
Distributions
Net realized gains...............
In excess of net
realized gains..................
Total Distributions.............
Net Asset Value, End of Period.....
Total Return (excludes
Sales charges)...................
Ratios/Supplementary Data:
Net Assets at end of period
(000).............................
Ratio of expenses to average net
assets...........................
Ratio of net investment loss to
average net assets...............
Ratio of expenses to average net
assets*..........................
Portfolio turnover**...............
</TABLE>
________________
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio 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.
-59-
<PAGE>
International Equity Portfolio
Investor A
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.............................. $11.99 $12.05 $10.76 $ 9.90
------ ------ ------ ------
Investment Activities
Net investment income (loss)..................... 0.01 (0.02) 0.02 0.02
Net realized and unrealized
gains (losses) from investments and
foreign currency................................ 1.77 0.32 1.27 0.86
------ ------ ------ ------
Total from Investment
Activities...................................... 1.78 0.30 1.29 0.88
------ ------ ------ ------
Distributions
In excess of net investment income............... (0.07) (0.05) -- --
Net realized gains............................... (0.43) (0.31) -- (0.01)
Tax return of capital............................ -- -- -- (0.01)
------ ------ ------ ------
Total Distributions............................. (0.50) (0.36) -- (0.02)
------ ------ ------ ------
Net Asset Value, End of Period..................... $13.27 $11.99 $12.05 $10.76
====== ====== ====== ======
Total Return (excludes
Sales charges)................................... 15.33% 2.58% 11.99% 8.89%
Ratios/Supplementary Data:
Net Assets at end of period (000) $3,154 $2,854 $2,573 $1,568
Ratio of expenses to average net
assets........................................... 1.58% 1.59% 1.44% 1.45%
Ratio of net investment income
(loss) to average net assets..................... 0.02% (0.20%) 0.19% 0.07%
Ratio of expenses to average net
assets*.......................................... 1.75% 1.75% 1.75% 1.76%
Portfolio turnover**............................... 88.95% 75.18% 77.63% 62.78%
</TABLE>
_________________
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio 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.
-60-
<PAGE>
International Equity Portfolio
Investor B Shares
(For a Share outstanding throughout each period)
<TABLE>
<CAPTION>
Year Ended November 30,
March 1, 1995 to
November 30,
1999 1998 1997 1996 1995/(a)/
---- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period................................. $ 11.77 $ 11.90 $ 10.71 $ 9.26
------- ------- ------- ------
Investment Activities
Net investment income (loss)........................ (0.09) (0.09) (0.04) (0.03)
Net realized and unrealized
gains (losses) from investments and
foreign currency................................... 1.74 0.30 1.23 1.48
------- ------- ------- ------
Total from Investment
Activities......................................... 1.65 0.21 1.19 1.45
------- ------- ------- ------
Distributions
In excess of net investment income.................. (0.02) (0.03) -- --
Net realized gains.................................. (0.43) (0.31) -- --
------- ------- ------- ------
Total Distributions................................ (0.45) (0.34) -- --
------- ------- ------- ------
Net Asset Value, End of Period........................ $ 12.97 $ 11.77 $ 11.90 $10.71
======= ======= ======= ======
Total Return (excludes
sales charges)...................................... 14.48% 1.82% 11.11% 8.38%/(b)/
Ratios/Supplementary Data:
Net Assets at end of period (000) $ 624 $ 562 $ 437 $ 102
Ratio of expenses to average net
assets.............................................. 2.28% 2.29% 2.14% 2.02%/(c)/
Ratio of net investment income
(loss) to average net assets........................ (0.70)% (0.91)% (0.50)% (0.96)%/(c)/
Ratio of expenses to average net
assets*............................................. 2.45% 2.45% 2.46% 2.44%/(c)/
Portfolio turnover**.................................. 88.95% 75.18% 77.63% 62.78%
</TABLE>
_____________________
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratio 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) 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.
(c) Annualized.
-61-
<PAGE>
[Back Cover Page]
Where to find more information:
You'll find more information about the Portfolios in the following documents:
Annual and semi-annual reports
The Fund's annual and semi-annual reports contain information about each
Portfolio and a discussion about the market conditions and investment strategies
that had a significant effect on each Portfolio's performance during the last
fiscal year.
Statement of Additional Information (SAI)
The SAI contains detailed information about the Portfolios and their policies.
By law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Portfolios and make shareholder inquiries by calling the Fund at 1-800-452-2724
or by writing to:
Mercantile Mutual Funds, Inc.
615 East Michigan Street
P.O. Box 3011
Milwaukee, Wisconsin 53201-3011
If you buy your shares through a broker-dealer or other financial institution,
you may contact your institution for more information.
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Portfolios, including the
SAI. They'll charge you a fee for this service. You can also visit the SEC
Public Reference Room and copy the documents while you're there. For information
about the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC
Washington, DC 20549-0102
1-202-942-8090
Reports and other information about the Portfolios are also available on the
EDGAR Database on the SEC's website at http://www.sec.gov. Copies of this
information may also be obtained, after paying a duplicating fee, by electronic
request to the SEC's e-mail address at [email protected].
The Fund's Investment Company Act File No. is 811-3567
<PAGE>
Conning Money Market Portfolio
Prospectus
_________________, 2000
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved the shares of the Portfolio or determined if this
prospectus is truthful or complete. Anyone who tells you otherwise is
committing a criminal offense.
<PAGE>
Contents
Risk/Return Summary
1 Risk/Return Summary
4 Additional Information on Risk
Your Account
5 Explanation of Sales Price
5 How to Buy Shares
6 How to Sell Shares
6 Shareholder Services Fees
6 General Transaction Policies
Distributions and Taxes
8 Dividends and Distributions
8 Taxation
Management of the Fund
9 The Adviser
9 The Sub-Adviser
Financial Highlights
10 Introduction
<PAGE>
Risk/Return Summary
Investment Objective
The investment objective of the Conning Money Market Portfolio (the "Portfolio")
is to seek current income with liquidity and stability of principal.
The investment objective of the Portfolio, which is an investment portfolio of
Mercantile Mutual Funds, Inc. (the "Fund"), can be changed by the Fund's Board
of Directors without shareholder approval. Shareholders will be given at least
30 days' written notice before any such change occurs.
Principal Investment Strategies
The Portfolio invests in a broad range of U.S. dollar-denominated money market
instruments, including commercial paper, notes and bonds issued by U.S. and
foreign corporations, obligations issued by the U.S. Government and its agencies
and instrumentalities, and obligations issued by U.S. and foreign banks, such as
certificates of deposit, letters of credit, bankers' acceptances and time
deposits.
The Portfolio usually invests a substantial portion of its assets in "Section
4(2) paper," which is unregistered commercial paper issued by corporations in
reliance on the so-called private placement exemption in Section 4(2) of the
Securities Act of 1933. Section 4(2) paper is considered to be restricted under
the federal securities laws in that any resale must similarly be made in an
exempt transaction. Section 4(2) paper is normally resold to other institutional
investors through or with the assistance of investment dealers who make a market
in the paper. The Portfolio's sub-adviser will determine that a liquid trading
market exists for any Section 4(2) paper purchased by the Portfolio and will
continue to monitor the paper's liquidity as long as it is held by the
Fund.
The Portfolio will only buy a money market instrument if it has the highest
short-term rating from at least two nationally recognized statistical rating
organizations, such as Standard & Poor's Ratings Group or Moody's Investors
Service, Inc., or only one such rating if only one organization has rated the
instrument. If the money market instrument is not rated, the Portfolio's sub-
adviser must determine that it is of comparable quality to eligible rated
instruments.
(sidebar)
Money Market Instruments are short-term obligations issued by banks,
corporations, the U.S. Government and state and local governments. Money market
instruments purchased by the Portfolio must meet strict requirements as to
investment quality, maturity and diversification. The Portfolio generally does
not invest in securities with maturities of more than 397 days and the average
maturity of all securities held by the Portfolio must be 90 days or less. Prior
to purchasing a money market instrument for the Portfolio, the Portfolio's sub-
adviser must determine that the instrument carries very little credit risk.
Principal Risk Considerations
The yield paid by the Portfolio will vary with short-term interest rates.
Although credit risk is very low because the Portfolio only invests in high
quality obligations, if an issuer fails to pay interest or repay principal, the
value of your investment could decline.
Investment by the Portfolio in Section 4(2) paper could adversely affect the
liquidity of the Portfolio during any period in which institutional investors
were no longer interested in purchasing these securities.
The Portfolio's sub-adviser evaluates the rewards and risks presented by all
securities purchased by the Portfolio and how they may advance the Portfolio's
investment objective. It is possible, however, that these evaluations will
prove to be inaccurate.
<PAGE>
There's no guarantee the Portfolio will be able to preserve the value of your
investment at $1.00 per share.
An investment in the Portfolio is not a Firstar Bank deposit and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Portfolio seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
Portfolio.
Return History
The Portfolio does not have a long-term performance record because it has been
in operation for less than one calendar year.
Fees and Expenses
The table below shows the fees and expenses that you pay if you buy and hold
shares of the Portfolio.
Annual Portfolio Operating Expenses (expenses that are deducted from the
Portfolio's assets)
Total Annual
Portfolio
Management Distribution Operating
Fees (12b-1) Fees Other Expenses Expenses
- --------------------------------------------------------------------------------
.40%/(1)/ None
_____%/(1)/ _____%/(1)/
- --------------------------------------------------------------------------------
/(1)/ Management Fees, Other Expenses and Total Annual Portfolio Operating
Expenses for the current fiscal year are expected to be less than the amounts
shown above because certain of the Portfolio's service providers are voluntarily
waiving a portion of their fees and/or reimbursing the Portfolio for certain
other expenses. These fee waivers and/or reimbursements are being made in order
to keep the annual fees and expenses for the Portfolio at a certain level.
Management Fees, Other Expenses and Total Annual Portfolio Operating Expenses,
after taking these fee waivers and expense reimbursements into account, are
expected to be ___%, ___% and ___%, respectively. These fee waivers and
expense reimbursements may be revised or cancelled at any time.
-2-
<PAGE>
Example
This example will help you compare the cost of investing in the Portfolio with
the cost of investing in other mutual funds. The example assumes that you
invest $10,000 for the time periods shown and then sell all of your shares at
the end of those periods. The example also assumes that your investment has a
5% return each year and the Portfolio's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
- -----------------------------------------------------------------
1 year 3 years 5 years 10 years
- -----------------------------------------------------------------
$_____ $_____ $_____ $_____
- -----------------------------------------------------------------
-3-
<PAGE>
Additional Information on Risk
The principal risks of investing in the Conning Money Market Portfolio are
described above. The following supplements that discussion.
Securities Lending
To obtain interest income, the Portfolio may lend its 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. There is the risk that when
lending portfolio securities, the securities may not be available to the
Portfolio on a timely basis. Therefore, the Portfolio may lose the opportunity
to sell the securities at a desirable price. Additionally, in the event that a
borrower of securities would file for bankruptcy or become insolvent,
disposition of the securities may be delayed pending court action.
Temporary Defensive Positions
During unfavorable market conditions, the Portfolio may temporarily hold up to
100% of its total assets in cash (which will not earn any income) and short-term
obligations issued or guaranteed by the U.S. Government and its agencies and
instrumentalities. This strategy, which is not part of the Portfolio's main
investment strategy, could prevent the Portfolio from achieving its investment
objective.
Other Types of Investments
This prospectus describes the Portfolio's principal investment strategies and
the particular types of securities in which the Portfolio principally invests.
The Portfolio may, from time to time, make other types of investments and pursue
other investment strategies in support of its overall investment goal. These
supplemental investment strategies and the risks involved are described in
detail in the Statement of Additional Information ("SAI"), which is referred to
on the back cover of this prospectus.
Year 2000 Risks
Over the past several years, the Adviser and the Portfolios' other major service
providers expended considerable time and money in addressing the computer and
technology problems associated with the transition to the Year 2000. As a result
of those efforts, the Portfolios did not experience any material disruptions in
their operations as a result of the transition to the 21/st/ century. The
Adviser and the Portfolios' other major service providers are continuing to
monitor the Year 2000 or Y2K problem, however, and there can be no assurances
that there will be no adverse impact to the Portfolios as a result of future
computer-related Y2K difficulties.
-4-
<PAGE>
Your Account
Explanation of Sales Price
Shares of the Portfolio are sold at their net asset value (NAV). The NAV for
shares of the Portfolio is determined as of 12:00 noon (Eastern time) and as of
the close of regular trading on the New York Stock Exchange (currently 4:00 p.m.
Eastern time) on every business day. The NAV is determined by adding the value
of the Portfolio's investments, cash and other assets, subtracting the
Portfolio's liabilities and then dividing the result by the total number of
shares of the Portfolio that are outstanding.
(sidebar)
Business days defined
A business day is any day that both the New York Stock Exchange (NYSE) and the
Federal Reserve Bank of St. Louis are open for business. Currently, the Fund
observes the following holidays: 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 and Christmas.
. The Portfolio's investments are valued at amortized cost, which is
approximately equal to market value.
. A properly placed purchase order (see "How to Buy Shares" below) that is
delivered to the Fund by 2:00 p.m. (Eastern time) on any business day
receives the share price next determined if the Fund receives payment in
federal funds or other immediately available funds by 4:00 p.m. (Eastern
time) that day. If payment is not received by that time, the order will be
cancelled. A properly placed purchase order that is delivered to the Fund
after 2:00 p.m. will be placed the following business day.
How to Buy Shares
Shares of the Portfolio are sold without any sales charge through broker-dealers
or other financial advisers acting on behalf of their customers. It is the
responsibility of your broker-dealer or financial adviser to transmit your
purchase order to the Fund on a timely basis.
The Fund does not have any minimum investment requirements for shares of the
Portfolio but your broker-dealer or financial adviser may. They may also charge
transaction fees and require you to maintain a minimum account balance.
-5-
<PAGE>
How to Sell Shares
Orders to sell or "redeem" shares of the Portfolio should be placed with the
same broker-dealer or financial adviser that placed the original purchase order
in accordance with the procedures established by that broker-dealer or financial
adviser. Your broker-dealer or financial adviser is responsible for sending
your redemption order to the Fund on a timely basis and for crediting your
account with the redemption proceeds. The Fund does not currently charge for
wiring redemption proceeds, but your broker-dealer or financial adviser may.
The Fund's transfer agent may require a signature guarantee unless the
redemption proceeds are payable to the shareholder of record and the proceeds
are either mailed to the shareholder's address of record or electronically
transferred to the account designated on the original account application. A
signature guarantee helps prevent fraud, and you may obtain one from most banks
and broker/dealers. Contact your broker-dealer or financial adviser for more
information on signature guarantees.
Shares of the Portfolio will be sold at the NAV next determined after the Fund
accepts an order (see above). If the order to sell is received and accepted by
the Fund before 2:00 p.m. (Eastern time) on a business day the proceeds are sent
electronically the same day to the broker-dealer or financial adviser that
placed the order. If the order to sell is received and accepted by the Fund
after 2:00 p.m. (Eastern time) on a business day or on a non-business day, the
proceeds normally are sent electronically to the broker-dealer or financial
adviser on the next business day.
(sidebar)
Selling recently purchased shares
If you attempt to sell shares you recently purchased with a personal check, the
Fund may delay processing your request until it collects payment for those
shares. This process may take up to 15 days, so if you plan to sell shares
shortly after purchasing them, you may want to consider purchasing them with a
certified or bank check or via electronic transfer to avoid delay.
Shareholder Services Fees
The Portfolio can pay for shareholder liaison and/or administrative support
services at the annual rates of up to .25% and .50%, respectively, of the
Portfolio's average daily net assets. These fees are paid to broker-dealers and
financial advisers that provide such services to their customers who own shares
of the Portfolio. The Portfolio does not intend to pay more than _____% of
average daily net assets in the aggregate for shareholder liaison and/or
administrative support services during the current fiscal year.
General Transaction Policies
The Fund reserves the right to:
. Refuse any order to buy shares.
-6-
<PAGE>
. Send redemption proceeds within seven days after receiving a request, if an
earlier payment could adversely affect a Portfolio.
. Make a "redemption in kind." Under abnormal conditions that may make
payment in cash unwise, the Fund may offer partial or complete payment in
portfolio securities rather than cash at such securities' then-market-value
equal to the redemption price. In such cases, a shareholder may incur
brokerage costs in converting these securities to cash.
-7-
<PAGE>
Distributions and Taxes
Dividends and Distributions
The Portfolio declares dividends from net investment income daily and pays them
monthly. Shares of the Portfolio begin earning dividends on the day the
purchase order is received by the Fund's transfer agent through the day before
the redemption order for such shares is received. Although the Portfolio does
not expect to realize net long-term capital gains, any capital gains realized
would be distributed at least annually.
All of your dividends and capital gains distributions will be reinvested in
additional shares of the Portfolio unless you instruct otherwise on your account
application or have redeemed all shares you held in the Portfolio. In such
cases, dividends and distributions will be paid in cash.
Taxation
As with any investment, you should consider the tax implications of an
investment in the Portfolio. The following is only a brief summary of some of
the important tax considerations generally affecting the Portfolio and its
shareholders under current law, which may be subject to change in the future.
Consult your tax adviser with specific reference to your own tax situation.
. Federal Taxes
Distributions from the Portfolio will generally be taxable to shareholders.
It is expected that all, or substantially all, of these distributions will
consist of ordinary income. You will be subject to income tax on these
distributions regardless whether they are paid in cash or reinvested in
additional shares. The one major exception to these tax principles is that
distributions on shares held in an IRA (or other tax-qualified plan) will
not be currently taxable.
. State and Local Taxes
Shareholders may also be subject to state and local taxes on
distributions and redemptions. State income taxes may not apply however,
to the portions of the Portfolio's distributions, if any, that are
attributable to interest on federal securities or interest on securities of
the particular state or localities within the state.
The foregoing is only a summary of certain tax considerations under current
law, which may be subject to change in the future. Shareholders who are
nonresident aliens, foreign trusts or estates, or foreign corporations or
partnerships, may be subject to different United States federal income tax
treatment. For more information regarding the taxation of the Portfolio,
consult the SAI under the heading "Additional Information Concerning
Taxes." You should also consult your tax adviser for further information
regarding federal, state, local, and/or foreign tax consequences relevant
to your specific situation.
(sidebar)
You will be advised at least annually regarding the federal income tax treatment
of dividends and distributions made to you. You should save your account
statements because they contain information you will need to calculate your
capital gains or losses, if any, upon your ultimate sale of shares in the
Portfolio.
-8-
<PAGE>
Management of the Fund
The Adviser
Firstar Investment Research and Management Company, LLC ("FIRMCO" or the
"Adviser") serves as the investment adviser to the Portfolio as a result of the
merger of the Portfolio's former adviser, Mississippi Valley Advisors Inc.
("MVA") into FIRMCO on March 1, 2000. FIRMCO is a subsidiary of Firstar
Corporation, a banking and financial services organization, and has its main
office at Firstar Center, 777 East Wisconsin Avenue, 8/th/ Floor, Milwaukee,
Wisconsin. FIRMCO has been providing advisory services since 1986 and as of
December 31, 1999, FIRMCO had approximately $35.3 billion in assets under
management.
FIRMCO, subject to the general supervision of the Fund's Board of Directors, is
responsible for the day-to-day management of the Portfolio in accordance with
the Portfolio's investment objective and policies. This includes making
investment decisions, buying and selling securities and overseeing the
administration and recordkeeping for the Portfolio.
In exchange for these services, FIRMCO is entitled to receive investment
advisory fees, which are calculated daily and paid monthly, at the annual rate
of .40% of the first $1.5 billion of the 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. FIRMCO currently receives advisory fees (after waivers) at the
annual rate of _____% of the Portfolio's average daily net assets.
The Sub-Adviser
Conning Asset Management Company ("Conning") serves as sub-adviser to the
Portfolio and is responsible for the management of the Portfolio's assets.
Conning manages the Portfolio under the direction and guidance of FIRMCO and
according to its sub-advisory agreement with FIRMCO. For its services, Conning
receives a monthly fee from FIRMCO based on a percentage of the Portfolio's
average daily net assets.
Conning, with principal offices located at 700 Market Street, St. Louis,
Missouri 63101, is an indirect subsidiary of GenAmerica Corporation, a financial
services holding company, which in turn is a wholly-owned subsidiary of
Metropolitan Life Insurance Company. Founded in 1912, Conning has extensive
investment management experience and as of December 31, 1999 had approximately
$_____ billion in assets under management.
-9-
<PAGE>
Financial Highlights
Introduction
The financial highlights table presented below is intended to help you
understand the financial performance of the Portfolio for the period from its
commencement of operations on February 16, 1999 through November 30, 1999.
Certain information reflects the financial results for a single share in the
Portfolio. The total return in the table represents the rate that an investor
would have earned (or lost) on an investment in the Portfolio assuming
reinvestment of all dividends and distributions. This information has been
audited by ________________, independent auditors, whose report, along with the
Portfolio's financial statements are included in the Fund's Annual Report to
Shareholders, and are incorporated by reference into the SAI.
-10-
<PAGE>
Conning Money Market Portfolio
(For a share outstanding throughout the period)
<TABLE>
<CAPTION>
February 16, 1999
to
November 30, 1999(a)
-------------------------------------
<S> <C>
Net Asset Value, Beginning of Period.................
Investment Activities
Net investment income................................
Net realized loss from investment transactions.......
Total from Investment Activities.....................
Distributions
Net investment income................................
Total Distributions..................................
Net Asset Value, End of Period.......................
Total Return.........................................
Ratios/Supplementary Data:
Net Assets at end of period (000)....................
Ratio of expenses to average net assets..............
Ratio of net investment income to average net
assets...............................................
Ratio of expenses to average net assets*.............
</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) Net realized loss per share was less than $0.005.
(c) Not annualized.
(d) Annualized.
-11-
<PAGE>
[Back Cover Page]
Where to find more information
You'll find more information about the Conning Money Market Portfolio in the
following documents:
Annual and semi-annual reports
The Portfolio's annual and semi-annual reports contain more information about
the Portfolio and its performance.
Statement of Additional Information (SAI)
The SAI contains detailed information about the Portfolio and its policies. By
law, it's incorporated by reference into (considered to be part of) this
prospectus.
You can get a free copy of these documents, request other information about the
Portfolio and make shareholder inquiries by calling the Fund at 1-800-232-9091
or by writing to:
Conning Money Market Portfolio
615 East Michigan Street
P.O. Box 3011
Milwaukee, Wisconsin 53201-3011
If you buy your shares through a broker-dealer or financial adviser, you may
contact your broker-dealer or financial adviser for more information.
You can write to the Securities and Exchange Commission (SEC) Public Reference
Section and ask them to mail you information about the Portfolios, including the
SAI. They'll charge you a fee for this service. You can also visit the SEC
Public Reference Room and copy the documents while you're there. For
information about the operation of the Public Reference Room, call the SEC.
Public Reference Section of the SEC
Washington, DC 20549-0102
1-202-942-8090
Reports and other information about the Conning Money Market Portfolio are also
available on the EDGAR Database on the SEC's website at http://www.sec.gov.
Copies of this information may also be obtained, after paying a duplicating fee,
by electronic request to the SEC's e-mail address at [email protected].
The Fund's Investment Company File No. is 811-3567
<PAGE>
MERCANTILE MUTUAL FUNDS, INC.
Statement of Additional Information
for
Treasury Money Market Portfolio
Money Market Portfolio
Tax-Exempt Money Market Portfolio
U.S. Government Securities Portfolio
Intermediate Corporate Bond Portfolio
Bond Index Portfolio
Government & Corporate Bond Portfolio
Short-Intermediate Municipal Portfolio
Missouri Tax-Exempt Bond Portfolio
National Municipal Bond Portfolio
Balanced 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
______________, 2000
Trust Shares, Trust II Shares, Institutional Shares
Investor A Shares and Investor B Shares
This Statement of Additional Information, which provides supplemental
information applicable to the above-listed Portfolios of Mercantile Mutual
Funds, Inc. (the "Fund"), is not a prospectus. No investment in shares of any
Portfolio should be made without reading the applicable prospectus. The
prospectuses for the Portfolios listed below, as they may be supplemented or
revised from time to time (the "Prospectuses"), as well as the Annual Report to
Shareholders dated November 30, 1999 with respect to the Portfolios (the "Annual
Report"), may be obtained, without charge, by writing:
Mercantile Mutual Funds, Inc.
P. O. Box 3011
Milwaukee, Wisconsin 53201-3011
or by calling 1-800-452-2724.
<PAGE>
Current Prospectuses
- --------------------
. Prospectus for Trust Shares and Trust II Shares of the Portfolios dated
________, 2000
. Prospectus for Trust Shares of the Money Market Portfolios dated _________,
2000
. Prospectus for Institutional Shares of the Portfolios dated ________, 2000
. Prospectus for Investor A Shares and Investor B Shares of the Money Market
Portfolios dated __________, 2000
. Prospectus for Investor A Shares and Investor B Shares of the Taxable Bond
Portfolios dated __________, 2000
. Prospectus for Investor A Shares and Investor B Shares of the Tax-Exempt
Bond Portfolios dated _________, 2000
. Prospectus for Investor A Shares and Investor B Shares of the Stock
Portfolios dated __________, 2000
The financial statements included in the Annual Report and the report
thereon of ________, the Fund's independent auditors, are ____________ into this
Statement of Additional Information.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
GENERAL INFORMATION............................................................
DESCRIPTION OF MERCANTILE MUTUAL FUNDS, INC....................................
DESCRIPTION OF SHARES..........................................................
INVESTMENT STRATEGIES, POLICIES AND RISKS......................................
PRICING OF SHARES..............................................................
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.................................
YIELD AND TOTAL RETURN INFORMATION.............................................
ADDITIONAL INFORMATION CONCERNING TAXES........................................
MANAGEMENT OF THE FUND.........................................................
INDEPENDENT AUDITORS...........................................................
COUNSEL........................................................................
MISCELLANEOUS..................................................................
APPENDIX A.....................................................................
APPENDIX B.....................................................................
</TABLE>
<PAGE>
GENERAL INFORMATION
This Statement of Additional Information should be read in conjunction
with a current Prospectus. This Statement of Additional Information relates to
the Prospectuses for Trust Shares, Trust II Shares, Institutional Shares,
Investor A Shares and Investor B Shares of the eighteen separate investment
portfolios ("Portfolios") listed on the cover page. Each Portfolio, except the
Tax-Exempt Money Market Portfolio and Missouri Tax-Exempt Bond Portfolio, is a
diversified portfolio under the Investment Company Act of 1940, as amended (the
"1940 Act"). This Statement of Additional Information is incorporated by
reference in its entirety into the Prospectuses. No investment in Shares of the
Portfolios should be made without reading a Prospectus.
Portfolio Shares are not deposits or obligations of, or guaranteed or
endorsed by Firstar Corporation or any of its affiliates. Firstar Mutual Fund
Services, LLC, or any of their respective affiliates. Portfolio Shares also are
not federally insured by, guaranteed by, obligations of or otherwise supported
by the U.S. Government, the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency. Investment return and principal
value will vary as a result of market conditions or other factors so that
Portfolio Shares, when redeemed, may be worth more or less than their original
cost. An investment in the Portfolios involves investment risks, including
possible loss of the principal amount invested. There is no assurance that the
Treasury Money Market, Money Market and Tax-Exempt Money Market Portfolio will
be able to maintain a stable net asset value of $1.00 per Share.
DESCRIPTION OF MERCANTILE MUTUAL FUNDS, INC.
Mercantile Mutual Funds, Inc. (the "Fund"), known as The ARCH Fund,
Inc. until March 31, 1999, is an open-end investment company currently offering
sixty-five classes of shares in nineteen investment portfolios.
The Fund was organized on September 9, 1982 as a Maryland corporation.
This Statement of Additional Information relates to the Treasury Money Market
Portfolio, Money Market Portfolio, Tax-Exempt Money Market Portfolio (the "Money
Market Portfolios"), U.S. Government Securities Portfolio, Intermediate
Corporate Bond Portfolio, Bond Index Portfolio, Government & Corporate Bond
Portfolio, Short-Intermediate Municipal Portfolio, Missouri Tax-Exempt Bond
Portfolio, National Municipal Bond Portfolio (the "Bond Portfolios"), Balanced
Portfolio, Equity Income Portfolio, Equity Index Portfolio, Growth & Income
Equity Portfolio, Growth Equity Portfolio, Small Cap Equity Portfolio, Small Cap
Equity Index Portfolio and International Equity Portfolio (the "Equity
Portfolios"). The Tax-Exempt Money Market Portfolio and the 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 the "Predecessor Missouri Tax-Exempt Bond
Portfolio", respectively), of The ARCH Tax-Exempt Trust, which was
<PAGE>
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 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.
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 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-five classes of shares representing interests
in one of nineteen investment Portfolios, including 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, Balanced, Equity
Income, Equity Index, Growth & Income Equity, Growth Equity, Small Cap Equity,
Small Cap Equity Index and International Equity Portfolios. Trust Shares, Trust
II Shares, Institutional 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 National Municipal Bond Portfolios, which do not offer
Institutional Shares and the Equity and Bond Portfolios, which do not offer
Trust II Shares) are offered through separate prospectuses to different
categories of investors. The Fund also offers shares without class designation
in the Conning Money Market Portfolio through a separate prospectus. 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.
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. 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, Trust II Shares, Institutional Shares,
Investor A Shares and Investor B Shares of a Portfolio can be expected, at any
given time, to be different.
-2-
<PAGE>
Pursuant to its 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, 2 billion Trust II Shares, 300 million
Institutional Shares and 100 million Investor A Shares, representing interests
in the Treasury Money Market Portfolio; 1.8 billion Trust Shares, 2 billion
Trust II Shares, 300 million Institutional Shares, 550 million Investor A Shares
and 50 million Investor B Shares, representing interests in the Money Market
Portfolio; 300 million Trust Shares, 2 billion Trust II Shares and 50 million
Investor A Shares, representing interests in the Tax-Exempt Money Market
Portfolio; 15 million Trust Shares, 20 million Institutional Shares, 5 million
Investor A Shares and 50 million Investor B Shares, representing interests in
the U.S. Government Securities Portfolio; 50 million Trust Shares, 25 million
Institutional Shares and 25 million Investor A Shares, representing interests in
the Intermediate Corporate Bond Portfolio; 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; 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; 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; and 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.
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. Trust Shares also
are offered to financial institutions for accounts for which they provide cash
management services. Trust II Shares are offered to financial institutions
acting on their own behalf or on behalf of certain qualified accounts.
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. Investor A Shares and Investor B
Shares are sold through selected broker/dealers and other financial
-3-
<PAGE>
intermediaries to individual or institutional customers. Trust Shares, Trust II
Shares and Institutional Shares are sold without a sales charge. Investor A
Shares of the Money Market Portfolios are sold without a sales charge, Investor
A Shares of the Equity Portfolios are sold with a maximum 5.5% front-end sales
charge, Investor A Shares of the Bond Portfolios (other than the U.S. Government
Securities and Short-Intermediate Municipal Portfolios) are sold with a maximum
4.75% front-end sales charge, and Investor A Shares of the U.S. Government
Securities and Short-Intermediate Municipal Portfolios are sold with a maximum
2.5% front-end sales charge. Investor B Shares are sold with a maximum 5.0%
contingent deferred sales charge. Trust Shares, Trust II Shares, Institutional
Shares, Investor A Shares and Investor B Shares bear their pro rata portion of
all operating expenses paid by a Portfolio, except that Trust Shares and
Institutional Shares bear all payments under the Portfolio's respective
Administrative Services Plans adopted for such Shares and Investor A Shares and
Investor B Shares bear all payments under the Portfolio's respective
Distribution and Services Plans adopted for such Shares. In addition,
Institutional Shares of a Portfolio bear the expense of certain sub-transfer
agency fees.
Payments under the Administrative Services Plans for Trust Shares and
Institutional Shares are made to Service Organizations (defined below) for
administrative services provided to the Service Organizations' clients or
account holders who are the beneficial owners of Trust Shares or Institutional
Shares, respectively. Payments under the Administrative Services Plans may not
exceed .25% (on an annual basis) of the average daily net asset value of the
outstanding Trust Shares or Institutional Shares, as the case may be, of the
Money Market Portfolios or .30% (on an annual basis) of the average daily net
asset value of the outstanding Trust Shares or Institutional Shares, as the case
may be, of the Equity and Bond Portfolios.
Payments under the Distribution and Services Plans for Investor A
Shares and Investor B Shares are made to (i) the Fund's distributor or another
person for providing distribution assistance and assuming certain related
expenses, and (ii) Service Organizations for administrative services provided to
the Service Organizations' clients or account holders who are the beneficial
owners of Investor A Shares or Investor B Shares. Payments under the
Distribution and Services Plan for Investor A Shares may not exceed .25% (on an
annual basis) of the average daily net asset value of outstanding Investor A
Shares of the Money Market Portfolios or .30% (on an annual basis) of the
average daily net asset value of Investor A Shares of the Equity and Bond
Portfolios. Payments under the Distribution and Services Plan for Investor B
Shares may not exceed 1.00% (on an annual basis) of the average daily net asset
value of outstanding Investor B Shares of a Portfolio. Distribution payments
made under the Distribution and Services Plans are subject to the requirements
of Rule 12b-1 under the 1940 Act.
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, Trust II Shares or Institutional
Shares, including an automatic investment program and an automatic withdrawal
plan. Each class of shares also offers different exchange privileges. Investor B
Shares convert automatically into Investor A Shares eight years after the
beginning of the calendar month in which the Shares were purchased.
-4-
<PAGE>
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 Trust
Shares, Institutional Shares of a particular Portfolio will be solely
responsible for that Portfolio's payments pursuant to the Administrative
Services Plan for Institutional 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 Investor A 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 Investor B Shares.
In addition, Institutional Shares will be solely responsible for the payment of
certain sub-transfer agency fees attributable to those shares.
Shareholders are entitled to one vote for each full Share held and
proportionate fractional votes for fractional Shares held. Holders of all
outstanding Shares of a particular Portfolio will vote together in the aggregate
and not by class, unless otherwise required by law or permitted by the Board of
Directors. However, 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 Investor A Shares of a Portfolio will be entitled to
vote on matters submitted to a vote of shareholders pertaining to such
Portfolio's Distribution and Services Plan for Investor A Shares and only
Investor B Shares of a Portfolio will be entitled to vote on matters submitted
to a vote of shareholders pertaining to such Portfolio's Distribution and
Services Plan for Investor B Shares. Further, shareholders of all of the
Portfolios, irrespective of class, will vote in the aggregate and not separately
on a Portfolio-by-Portfolio basis, except as otherwise required by law or when
the Board of Directors determines that 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 (or sub-
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.
-5-
<PAGE>
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 the
Prospectuses and this Statement of Additional Information, Shares will be fully
paid and nonassessable.
Shares in the Fund's Portfolios will be issued without certificates.
Miscellaneous
As used in this Statement of Additional Information, a "vote of a
majority of the outstanding Shares" of a Portfolio or a particular class of
Shares means, with respect to the approval of an investment advisory or sub-
advisory agreement, the approval of a Rule 12b-1 distribution plan or a change
in an investment objective, if fundamental, or a fundamental investment policy,
the affirmative vote of the lesser of (a) more than 50% of the outstanding
Shares of such Portfolio or class of Shares or (b) 67% or more of the Shares of
such Portfolio or class of Shares present at a meeting if more than 50% of the
outstanding Shares of such Portfolio or class of Shares are represented at the
meeting in person or by proxy.
INVESTMENT STRATEGIES, POLICIES AND RISKS
The following discussion supplements the description of the investment
objectives and policies of the Portfolios described in the Prospectuses.
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 these latter Portfolios will be
given at least 30 days' written notice before any such change occurs.
Treasury Money Market Portfolio
Firstar Investment and Research Management Company, LLC ("FIRMCO" or
the "Adviser") makes investment decisions with respect to the Treasury Money
Market Portfolio in accordance with the rules and regulations of the Securities
and Exchange Commission ("SEC") for money market funds.
As stated in the Prospectuses, the Treasury Money Market Portfolio
invests primarily in selected money market obligations issued by the U.S.
Government or its agencies or
-6-
<PAGE>
instrumentalities that are guaranteed as to principal and interest by the U.S.
Government, the income from 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. 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. 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 Portfolio may temporarily
hold cash or invest in repurchase agreements collateralized by U.S. Government
securities, the securities of other U.S. Government agencies or
instrumentalities, securities of other investment companies that invest in
securities in which the Portfolio is permitted to invest, or cash equivalents.
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. 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 "Special Risk Considerations -- 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.
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.
-7-
<PAGE>
Obligations of foreign banks and foreign branches of U.S. banks may
include Eurodollar Certificates of Deposit ("ECDs"), which are U.S. dollar-
denominated certificates of deposit issued by offices of foreign and domestic
banks located outside the United States; Eurodollar Time Deposits ("ETDs"),
which are U.S. dollar-denominated deposits in a foreign branch of a U.S. bank or
a foreign bank; Canadian Time Deposits ("CTDs"), which are essentially the same
as ETDs except they are issued by Canadian offices of major Canadian banks;
Schedule Bs, which are obligations issued by Canadian branches of foreign or
domestic banks; Yankee Certificates of Deposit ("Yankee CDs"), which are U.S.
dollar-denominated certificates of deposit issued by a U.S. branch of a foreign
bank and held in the United States; and Yankee Bankers' Acceptances ("Yankee
BAs"), which are U.S. dollar-denominated bankers' acceptances issued by a U.S.
branch of a foreign bank and held in the United States.
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
of Rule 2a-7 under the 1940 Act. Commercial paper represents short-term
unsecured promissory notes issued in bearer form by banks or bank holding
companies, corporations and finance companies. 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 as (defined in Rule 2a-7). 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.
Commercial paper may include securities issued by corporations without
registration under the Securities Act of 1933, as amended (the "1933 Act"), in
reliance on the so-called "private placement" exemption in Section 4(2)
("Section 4(2) Paper"). Section 4(2) Paper is restricted as to disposition under
the federal securities laws in that any resale must similarly be made in an
exempt transaction. Section 4(2) Paper is normally resold to other institutional
investors through or with the assistance of investment dealers who make a market
in Section 4(2) Paper, thus providing liquidity. For purposes of the Money
Market Portfolio's limitation on purchases of illiquid instruments described
below, Section 4(2) Paper will not be considered illiquid if the Portfolio's
Adviser has determined
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that a liquid trading market exists.
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.
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.
As a matter of fundamental policy, under normal market conditions or
when the Adviser deems suitable tax-exempt municipal securities to be available,
at least 80% of the Portfolio's total assets will be invested in municipal
securities. In addition to the types of municipal securities specified in the
Prospectuses, the Portfolio may also hold tax-exempt derivative securities such
as tender option bonds, participations, beneficial interests in trusts and
partnership interests.
In addition, during temporary defensive periods or if, in the opinion
of the Adviser, suitable municipal securities are unavailable and subject to the
quality standards described above, the Portfolio may invest up to 20% of its
total 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.
U.S. Government Securities Portfolio
In addition to the types of mortgage-backed securities specified in
the Prospectuses, the U.S. Government Securities Portfolio may also hold
collateralized mortgage obligations ("CMOs"). For further information regarding
mortgage-backed securities, including CMOs, see "Other Investment Policies and
Risk Considerations -- Asset-Backed Securities" below.
The 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
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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
In addition to those instruments specified in the Prospectuses, the
Intermediate Corporate Bond Portfolio may also invest in asset-backed
securities, including CMOs and other mortgage-related securities. For further
information regarding these instruments, see "Other Investment Policies and Risk
Considerations -- Asset-Backed Securities" below.
The Portfolio may only purchase investment grade debt securities,
which are those rated in one of the four highest rating categories assigned by
one or more rating agencies. 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. Occasionally, the rating of a
security held by the Portfolio may be downgraded below investment grade. If
that happens, the Portfolio does not have to sell the security unless the
Adviser determines that under the circumstances the security is no longer an
appropriate investment for the Portfolio. The applicable ratings issued by
rating agencies are described in Appendix A to this 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 "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 "Special Risk
Considerations -- 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.
An increase in interest rates will generally reduce the value of the
investments in the Portfolio, and a decline in interest rates will generally
increase the value of those investments. Depending upon the prevailing market
conditions, the Adviser may purchase debt
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<PAGE>
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
The Bond Index Portfolio will only purchase a security that is
included in the Lehman Brothers Aggregate Bond Index (the "Lehman Aggregate") at
the time of such purchase. The Portfolio may, however, temporarily continue to
hold a security that has been deleted from the Lehman Aggregate pending the
rebalancing of the Portfolio's holdings. For further information, see "Other
Investment Policies and Risk Considerations - The Indexing Approach" below. In
addition to holding securities represented by the Lehman Aggregate, the
Portfolio has the ability to hold temporary cash balances which may be invested
in U.S. Government obligations and money market instruments. See "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, 1999, over ______ issues were included in the
Lehman Aggregate, representing approximately $_____ in market value. U.S.
Treasury and agency securities represented approximately __% of the total market
value, asset-backed and mortgage-backed securities represented approximately __%
of the total market value, with corporate debt securities representing the
balance of approximately __%. The average maturity of the Lehman Aggregate was
approximately __ years. The Adviser believes that the Lehman Aggregate is an
appropriate benchmark for the Portfolio because it is diversified, it is
familiar to investors, and it is widely accepted as a reference for bonds and
other fixed income investments.
Because of the large number of issues included in the Lehman
Aggregate, the Portfolio cannot invest in all such issues. Instead, the
Portfolio will hold a representative sample of approximately 100 of the
securities in the Lehman Aggregate, selecting one or two issues to represent an
entire "class" or type of securities in the Lehman Aggregate. At a minimum, the
Portfolio seeks to hold securities which reflect the major asset classes in the
Lehman Aggregate - U.S. Treasury and agency issues, mortgage-backed securities,
asset-backed securities and non-convertible corporate debt securities. As the
Portfolio's assets increase, these classes will be further delineated along the
lines of sector, term-to-maturity, coupon and credit ratings. This
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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 applicable ratings issued by rating agencies are described
in Appendix A to this Statement of Additional Information.
The value of the fixed income investments in the Portfolio is
generally sensitive to changes in interest rates. (See "Intermediate Corporate
Bond Portfolio" above for a discussion of the effects of interest rate
changes).
Government & Corporate Bond Portfolio
In addition to the types of debt obligations specified in the
Prospectuses, the Government & Corporate Bond Portfolio may also invest in 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 Investment Policies and Risk Considerations --
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
"Special Risk Considerations -- Risks Associated with Foreign Securities and
Currencies" and "Other Applicable Policies and Risk Considerations -- ADRs and
EDRs" below.
The Portfolio may only purchase investment grade debt securities,
which are those rated in one of the four highest rating categories assigned by
one or more rating agencies. Securities 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 a weakened capacity to make principal
and interest payments than is the case with higher rated securities. The
Portfolio's dollar-weighted average portfolio quality is expected to be at least
"A" or higher. The applicable ratings issued by rating agencies are described
in Appendix A to this 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 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.
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<PAGE>
The value of the fixed income investments in the Portfolio is
generally sensitive to changes in interest rates. (See "Intermediate Corporate
Bond Portfolio" above for a discussion of the effects of interest rate changes).
Short-Intermediate Municipal Portfolio
As a matter of fundamental policy, under normal market conditions, the
Short-Intermediate Municipal Portfolio invests at least 80% of its total assets
in municipal securities primarily bonds (at least 65% under normal market
conditions). The Portfolio may only purchase investment grade municipal
securities, which are those rated in one of the four highest rating categories
assigned by me or more rating agencies. Municipal securities rated in the
lowest of the four highest rating categories are considered to have speculative
characteristics, even though they are of investment grade quality. Such
securities will be purchased only if the Adviser believes they have an adequate
capacity to pay interest and repay principal. Municipal 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 30-60 days. The applicable ratings issued by rating
agencies are described in Appendix A to this Statement of Additional
Information.
The value of the municipal securities held by the Portfolio is
generally sensitive to changes in interest rates. (See "Intermediate Corporate
Bond Portfolio" above for a discussion of the effects of interest rate changes.)
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.
Missouri Tax-Exempt Bond Portfolio
As a matter of fundamental policy, under normal market conditions or
when the Adviser deems suitable tax-exempt municipal securities to be available,
at least 80% of the Missouri Tax-Exempt Bond Portfolio's total assets will be
invested in municipal securities. In addition, as a matter of fundamental
policy, under normal market conditions, at least 65% of the Portfolio's total
assets will be invested in Missouri municipal securities, which are
tax-exempt
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<PAGE>
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.
The Portfolio may only invest in investment grade municipal
securities, which are those rated in one or the four highest rating categories
assigned by one or more rating agencies. Municipal securities rated in the
lowest of the four highest rating categories are considered to have speculative
characteristics, even though they are of investment grade quality. Such
securities will be purchased only if the Adviser believes the issuers have an
adequate capacity to pay interest and repay principal. The applicable ratings
issued by ratings agencies are described in Appendix A to this Statement of
Additional Information.
The Portfolio may hold uninvested cash reserves pending investment
during temporary defensive periods or if, in the opinion of the Adviser,
suitable municipal securities 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 securities are unavailable and
subject to the quality standards described above, the Portfolio may invest up to
20% of its assets in money market instruments, the income from which is subject
to federal income tax. See "Tax-Exempt Money Market Portfolio" above for a
description of the types of taxable money market instruments in which the
Portfolio may invest.
The Portfolio's average weighted maturity will vary in light of market
and economic conditions, the comparative yields on instruments with different
maturities, and other factors. The value of the municipal securities held by the
Portfolio is generally sensitive to changes in interest rates. (See
"Intermediate Corporate Bond Portfolio" above for a discussion of the effects of
interest rate changes.)
National Municipal Bond Portfolio
As a matter of fundamental policy, under normal market and economic
conditions, at least 80% of the National Municipal Bond Portfolio's total assets
will be invested in municipal securities, primarily bonds (at least 65% 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.
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.
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<PAGE>
The Portfolio may only invest in investment grade municipal
securities, which are those rated in one of the four highest rating categories
assigned by one or more rating agencies. Municipal securities 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. Municipal 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 Appendix A to this Statement of
Additional Information.
The value of the Portfolio's securities is generally sensitive to
changes in interest rates. (See "Intermediate Corporate Bond Portfolio" above
for a discussion of the effects of interest rate changes.)
Balanced Portfolio
In addition to common stock, the equity securities in which the
Balanced Portfolio may invest include preferred stock, rights, warrants and
securities convertible into common stock. The fixed-income securities in which
the Portfolio may invest include U.S. Government securities and other fixed-
income and debt securities that are rated investment grade. The Portfolio also
may purchase asset-backed 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 Portfolio is
generally sensitive to changes in interest rates. (See "Intermediate Corporate
Bond Portfolio" above for a discussion of the effects of interest rate changes.)
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. (See "Government & Corporate Bond Portfolio" above for a
description of the types of short-term obligations in which the Portfolio may
invest.)
Equity Income Portfolio
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 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.
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<PAGE>
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 "Special Risk
Considerations -- Risks Associated with Foreign Securities and Currencies" and
"Other Investment Policies and Risk Considerations -- ADRs and EDRs" below.
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
"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.)
Equity Index Portfolio
The Adviser generally selects securities for the Equity Index
Portfolio on the basis of their weightings in the Standard & Poor's 500
Composite Stock Price Index (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 and Risk Considerations
- -- The Indexing Approach" below.
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 "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. Standard &
Poor's chooses the stocks for the S&P 500 on statistical basis. As of December
31, 1999, the stocks in the S&P 500 have a market capitalization of $______ and
account for approximately ___% of the total market value of all U.S. common
stocks. Normally, the 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 periodically rebalance its holdings as dictated by changes in shareholder
purchase and redemption activity and the composition of the S&P 500. The
Adviser believes that the S&P 500 is an appropriate benchmark for the Portfolio
because it is diversified, it is familiar to many investors and it is widely
accepted as a reference for common stock investments.
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Growth & Income Equity Portfolio
In addition to common stock, the Growth & Income Equity Portfolio may
invest in preferred stock, rights, warrants and securities convertible into
common stock. 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 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 "Special Risk
Considerations -- Risks Associated with Foreign Securities and Currencies" and
"Other Investment Policies and Risk Considerations -- ADRs and EDRs" below. The
Portfolio may also invest in Canadian securities listed on a national securities
exchange.
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. (See "Government & Corporate Bond Portfolio" above for a
description of the types of short-term obligations in which the Portfolio may
invest.)
Growth Equity Portfolio
In addition to common stock, the Growth Equity Portfolio invests in
preferred stock, convertible securities, corporate bonds, debentures, notes,
warrants, and put and call options on stock. Under normal conditions, the
Portfolio 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 "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
this Statement of Additional Information.
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, 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
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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
"Special Risk Considerations -- Risks Associated with Foreign Securities and
Currencies" and "Other Investment Policies and Risk Considerations -- ADRs and
EDRs" below.
In such proportions as, in the judgment of the Adviser, prevailing
market conditions warrant, the 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 "Intermediate
Corporate Bond Portfolio" above for further information on the types of short-
term obligations in which the Portfolio may invest.)
Small Cap Equity Portfolio
In addition to those securities described in the Prospectuses, the
Small Cap Equity Portfolio may invest in preferred stock, rights, warrants, and
securities convertible into common stock. The Portfolio will not invest more
than 5% of its net assets, taken at market value, in warrants. 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. 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. 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 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 "Other
Investment Policies and Risk Considerations -- ADRs and EDRs" below. 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 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 "Government & Corporate Bond Portfolio" above for a
description of the types of short-term obligations in which the Portfolio may
invest.)
Small Cap Equity Index Portfolio
The Small Cap Equity Index Portfolio will invest substantially all but
no less than 80% of its total assets in securities listed in the Standard &
Poor's SmallCap 600 Stock Price Index (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
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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 and
Risk Considerations --The Indexing Approach" below.
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
"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.) 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 part of the
S&P SmallCap 600 based upon their market size, liquidity and industry group
representation. As of December 31, 1999, stocks in the S&P SmallCap 600 had a
market capitalization of $_______. 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 as dictated by changes in shareholder
purchase and redemption activity and the composition of the S&P SmallCap 600.
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 Index, which lists 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.
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International Equity Portfolio
In addition to common stock, the International Equity Portfolio may
invest in preferred stock and securities convertible into common stock. A
convertible security may be purchased for the Portfolio when, in the opinion of
the Adviser or Clay Finlay Inc. ("Clay Finlay" or the "Sub-Adviser"), the price
and yield of the convertible security is favorable compared to the price and
yield of the common stock. 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.
During temporary defensive periods, when deemed necessary by the
Adviser or Sub-Adviser, the Portfolio may invest up to 100% of its assets in
U.S. Government obligations, debt obligations of companies incorporated and
having their principal business activities in the United States, or cash and
short-term obligations (having remaining maturities of 13 months or less). (See
"Government & Corporate Bond Portfolio" above for a description of the types of
short-term obligations in which the Portfolio may invest.) The Portfolio does
not intend to invest in such securities for the purpose of meeting its
investment objective.
The Portfolio may also invest, without limitation, in foreign
securities through the purchase of ADRs and EDRs. For further information, see
"Special Risk Consideration -- Risks Associated with Foreign Securities and
Currencies" and "Other Investment Policies and Risk Considerations -- ADRs and
EDRs" below.
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.
Although investing in any mutual fund has certain inherent risks, an
investment in the 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 "Special Risk
Considerations -- Risks Associated with Foreign Securities and Currencies"
below.
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Special Risk Considerations
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 risk. That is, the possibility exists that common stocks will decline
over short or even extended periods of time and both the U.S. and certain
foreign equity markets tend to be cyclical, experiencing both periods when stock
prices generally increase and periods when stock prices generally decrease.
Interest Rate Risk. Generally, the market value of fixed income
securities, including municipal 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 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.
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<PAGE>
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."
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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 Securities. 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 securities 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 securities. 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
payments 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 tax to be used to make the
required payments on such bonds. See "Other Investment Policies and Risk
Considerations - Special Considerations Regarding Investment in Missouri
Municipal Securities" below.
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 securities whose issuers are in the same state, (ii) municipal
securities 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 securities, 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 securities 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.
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<PAGE>
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
securities 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 securities with the yields and
tax-equivalent yields of more diversified portfolios with securities of
comparable quality, including non-Missouri municipal securities, before making
an investment decision.
Municipal securities 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 security 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 securities and to the
exemption of interest thereon from federal income tax (and, with respect to
Missouri municipal securities, 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 securities, the
creation of any tax-exempt derivative security, or the bases for such opinions.
European Currency Unification. Many European countries have adopted a
single European currency, the euro. On January 1, 1999, the euro became legal
tender for all countries participating in the Economic and Monetary Union
("EMU"). A new European Central Bank has been created to manage the monetary
policy of the new unified region. On the same date, the exchange rates were
irrevocably fixed between the EMU member countries. National currencies will
continue to circulate until they are replaced by euro coins and bank notes by
the middle of 2002.
This change is likely to significantly impact the European capital
markets in which the International Equity Portfolio invests and may result in
the Portfolio facing additional
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<PAGE>
risks in pursuing its investment objective. These risks, which include, but are
not limited to, uncertainty as to the proper tax treatment of the currency
conversion, volatility of currency exchange rates as a result of the conversion,
uncertainty as to capital market reaction, conversion costs that may affect
issuer profitability and creditworthiness, and lack of participation by some
European countries, may increase the volatility of the Portfolio's net asset
value per share.
Other Investment Policies and Risk Considerations
The investment policies described in the Prospectuses and this
Statement of Additional Information 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.
Municipal Securities. As described in their Prospectuses and subject
--------------------
to their respective investment limitations, the Tax-Exempt Portfolios may invest
in municipal securities. Municipal securities 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.
The two principal classifications of municipal securities consist of
"general obligation" and "revenue" issues. 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 securities 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.
There are, of course, variations in the quality of municipal
securities both within a particular classification and between classifications,
and the yields on municipal securities 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 and S&P, represent their opinions as
to the quality of municipal securities. It should be emphasized, however, that
ratings are general and are not absolute standards of quality, and municipal
securities with the same maturity, interest rate and rating may have different
yields while municipal securities of the same maturity and interest rate with
different ratings may have the same yield.
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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. 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. Also included within the general category of
municipal securities 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.
Certificates of participation represent undivided interests in lease
payments by a governmental or nonprofit entity. A lease may provide that the
certificate trustee cannot accelerate lease obligations upon default. The
trustee would only be able to enforce lease payments as they become due. In the
event of a default or failure of appropriation, it is unlikely that the trustee
would be able to obtain an acceptable substitute source of payment. In addition,
certificates of participation are less liquid than other bonds because there is
a limited secondary trading market for such obligations. To alleviate potential
liquidity problems with respect to these investments, a Portfolio may enter into
remarketing agreements which may provide that the seller or a third party will
repurchase the obligation within seven days after demand by the Portfolio and
upon certain conditions such as the Portfolio's payment of a fee.
The payment of principal and interest on most securities purchased by
a Tax-Exempt Portfolio will depend upon the ability of the issuers to meet their
obligations. An issuer's obligations under its municipal securities 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 securities 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 the Prospectuses and
this Statement of Additional Information. The non-governmental user of
facilities financed by private activity bonds is also considered to be an
"issuer."
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<PAGE>
Private activity bonds issued by or on behalf of public authorities to
finance various privately operated facilities are considered to be municipal
securities. 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 securities of certain projects may be secured by mortgages or deeds of
trust. In the event of a default, enforcement of the mortgages or deeds of trust
will be subject to statutory enforcement procedures and limitations, including
rights of redemption and limitations on obtaining deficiency judgments. In the
event of a foreclosure, collection of the proceeds of the foreclosure may be
delayed, and the amount of proceeds from the foreclosure may not be sufficient
to pay the principal of and accrued interest on the defaulted municipal
securities. Interest on private activity bonds, although free from regular
federal income taxation, may be an item of tax preference for purposes of the
federal alternative minimum tax.
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 securities. 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 securities 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 securities 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 "Additional Information Concerning Taxes" below.) Moreover,
with respect to Missouri municipal securities, 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 securities
generally, or Missouri municipal securities 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.
Subject to its investment policies, the Money Market Portfolio may
also invest in municipal securities. Dividends paid by the Money Market
Portfolio that are derived from
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interest on municipal securities would be taxable to its shareholders for
federal income tax purposes.
Variable and Floating Rate Instruments. Subject to their respective
--------------------------------------
investment limitations, each Portfolio may purchase variable and floating rate
obligations. 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.
Municipal securities 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.
The variable and floating rate demand instruments that the Tax-Exempt
Portfolios may purchase include participations in municipal securities 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
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the interest paid on the obligation for servicing the obligation, providing the
letter of credit and issuing the repurchase commitment.
Restricted and Illiquid Securities. A Portfolio will not invest more
----------------------------------
than 15% (10% with respect to a Money Market Portfolio) 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,
Section 4(2) Paper and securities that are not registered under 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). The SEC has adopted Rule 144A which allows for a broader
institutional trading market for securities otherwise subject to restrictions on
resale to the general public. Rule 144A establishes a "safe harbor" from the
registration requirements of the 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. 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. 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
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<PAGE>
other comparable securities and to the benefits of sinking funds or other
protective conditions; diversification of the Portfolio as to issuers; and
whether the securities are rated by Ratings Agencies and, if so, the ratings
assigned. 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. The Equity Portfolios may participate in rights
-------------------
offerings and purchase warrants, which are privileges issued by corporations
enabling the owners to subscribe to and purchase a specified number of shares of
the corporation at a specified price during a specified period of time.
Subscription rights normally have a short life span to expiration. The purchase
of rights or warrants involves the risk that the Portfolios could lose the
purchase value of a right or warrant if the right to subscribe to additional
shares is not exercised prior to the rights' or warrants' expiration. Also, the
purchase of rights or warrants involves the risk that the effective price paid
for the right or warrant added to the subscription price of the related security
may exceed the value of the subscribed security's market price such as when
there is no movement in the level of the underlying security. The Portfolios
will not invest more than 5% of their respective net assets, taken at market
value, in warrants, or more than 2% of their respective net assets, taken at
market value, in warrants not listed on the New York, American or Canadian Stock
Exchanges. Warrants acquired by the Portfolios in units or attached to other
securities are not subject to this restriction.
Stand-by Commitments. Each of the Tax-Exempt Portfolios may acquire
--------------------
"stand-by commitments" with respect to municipal securities held by it. Under a
stand-by commitment, a dealer or bank agrees to purchase from a Portfolio, at
the Portfolio's option, specified municipal securities at their amortized cost
value to the Portfolio plus accrued interest, if any. Standby commitments
acquired by a Portfolio must 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
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<PAGE>
municipal securities 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 securities that are subject to the commitment. In evaluating the
creditworthiness of the issuer of a stand-by commitment, the Adviser will review
periodically the issuer's assets, liabilities, contingent claims and other
relevant financial information.
Each Tax-Exempt Portfolio will acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend to exercise its rights
thereunder for trading purposes. Stand-by commitments acquired by a Portfolio
would be valued at zero in determining net asset value. The acquisition of a
"stand-by commitment" by the Tax-Exempt Money Market Portfolio would thus not
affect the valuation or assumed maturity of the underlying municipal securities,
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 securities 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. 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. The Adviser expects that less than
5% of each Tax-Exempt Portfolio's assets will be invested in such securities
during the current year. A number of different structures have been used. For
example, interests in long-term fixed-rate municipal securities, 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
securities to a third party at periodic intervals and to receive the principal
amount thereof. In some cases, municipal securities 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,
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<PAGE>
the holder of the custodial receipt has the option to tender the underlying
municipal security 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 securities which
give the holder the right to receive payment of principal subject to the
conditions described above. The Internal Revenue Service has not ruled on
whether the interest received on tax-exempt derivatives in the form of
participation interests or custodial receipts is tax-exempt, and accordingly,
purchases of any such interests or receipts are based on the opinion of counsel
to the sponsors of such derivative securities. Neither the Fund nor the Adviser
will review the proceedings related to the creation of any tax-exempt
derivatives or the basis for such opinions.
U.S. Government Obligations. Examples of the types of U.S. Government
---------------------------
obligations that may be held by the Portfolios, subject to their respective
investment policies, include, in addition to U.S. Treasury 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"), General Services Administration, Central
Bank for Cooperatives, Federal Home Loan Mortgage Corporation ("FHLMC"), 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 GNMA, 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 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 FHLMC, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored instrumentalities if it is not obligated to do so
by law.
Securities 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 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.
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
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obligations, 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 the "Separate Trading of Registered Interest and Principal Securities"
("STRIPS") program or (2) through the 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. Having separated the interest coupons from the
underlying principal of the U.S. Government obligations, the holder will resell
the stripped securities in custodial receipt programs with a number of different
names including "Treasury Income Growth Receipts" ("TIGRs") and "Certificates of
Accrual on Treasury Securities" ("CATS"). Such securities may not be as liquid
as STRIPS and CUBES and are not viewed by the staff of the SEC as U.S.
Government securities for purposes of the 1940 Act.
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.
The stripped coupons are sold separately from the underlying
principal, which is sold at a deep discount because the buyer receives only the
right to receive a future fixed payment on the security and does not receive any
rights to periodic interest (cash) payments. Purchasers of stripped principal-
only securities acquire, in effect, discount obligations that are economically
identical to the zero coupon securities that the Treasury Department sells
itself. In the case of bearer securities (i.e., unregistered securities which
are owned ostensibly by the bearer or holder), the underlying U.S. Treasury
bonds and notes themselves are held in trust on behalf of the owners. Counsel to
the underwriters of these certificates or other evidences of ownership of the
U.S. Treasury securities have stated that, in their opinion, purchasers of the
stripped securities, such as the Portfolios, most likely will be deemed the
beneficial holders of the underlying U.S. Government obligations for federal tax
and security purposes.
The U.S. Government does not issue stripped Treasury securities
directly. The STRIPS program, which is ongoing, is designed to facilitate the
secondary market in the stripping of selected U.S. Treasury notes and bonds into
separate interest and principal components. Under the program, the U.S. Treasury
continues to sell its notes and bonds through its customary auction process. A
purchaser of those specified notes and bonds who has access to a book-entry
account at a Federal Reserve bank, however, may separate the Treasury notes and
bonds into interest and principal components. The selected Treasury securities
thereafter may be maintained in the book-entry system operated by the Federal
Reserve in a manner that permits the separate trading and ownership of the
interest and principal payments.
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<PAGE>
For custodial receipts, the underlying debt obligations are held
separate from the general assets of the custodian and nominal holder of such
securities, and are not subject to any right, charge, security interest, lien or
claim of any kind in favor of or against the custodian or any person claiming
through the custodian. The custodian is also responsible for applying all
payments received on those underlying debt obligations to the related receipts
or certificates without making any deductions other than applicable tax
withholding. The custodian is required to maintain insurance for the protection
of holders of receipts or certificates in customary amounts against losses
resulting from the custody arrangement due to dishonest or fraudulent action by
the custodian's employees. The holders of receipts or certificates, as the real
parties in interest, are entitled to the rights and privileges of the underlying
debt obligations, including the right, in the event of default in payment of
principal or interest, to proceed individually against the issuer without acting
in concert with other holders of those receipts or certificates or the
custodian.
Securities Lending. To increase return or offset expenses, 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 pursuant to agreements requiring that the loans be
continuously secured by collateral equal at all times in value, marked to market
daily, 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.
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 of Other Investment Companies. Under certain circumstances
----------------------------------------
and subject to their respective investment policies and limitations, each
Portfolio may invest in securities issued by other investment companies,
limited, except as described below, 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 currently intends to limit its investments so that, as determined
immediately after a securities
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<PAGE>
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.
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. The income on securities of other
investment companies may be taxable to investors at the state or local level.
See "Additional Information Concerning Taxes" below.
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 (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.
Asset-backed securities represent interests in "pools" of assets in which
payments of both interest and principal on the securities are made monthly, thus
in effect "passing through" monthly payments made by the individual borrowers on
the assets that underlie the securities, net of any fees paid to the issuer or
guarantor of the securities. The average life of asset-backed securities varies
with the maturities of the underlying instruments, and for this and other
reasons, an asset-backed security's stated maturity may be shortened, and the
security's total return may be difficult to predict precisely.
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 collateralized
mortgage obligations ("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
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<PAGE>
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.
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. The collateral supporting non-
mortgage asset-backed securities generally is of shorter maturity than mortgage
loans and is less likely to experience substantial prepayments. Primarily, these
securities do not have the benefit of the same security interest in the
underlying collateral (i.e., credit card and automobile loan receivables as
opposed to real estate mortgages). Credit card receivables are generally
unsecured, and the debtors are entitled to the protection of a number of state
and federal consumer credit laws, many of which have given debtors the right to
set off certain amounts owed on the credit cards, thereby reducing the balance
due. The repossession of automobiles and other personal property upon the
default of the debtor may be difficult or unpracticable in some cases. 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
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<PAGE>
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 Settlement Transactions and Forward
------------------------------------------------------------------
Commitments. 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.
When a Portfolio agrees to purchase or sell securities on a when-
issued, delayed settlement 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 its 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. No Portfolio intends to engage in
such transactions for speculative purposes. 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.
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
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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.
Each Portfolio expects that its when-issued, forward commitments and
delayed settlement transactions will not exceed 25% of the value of its total
assets (at the time of purchase) under normal market conditions. 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, forward commitment or delayed settlement 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. 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 involves an obligation by the
Portfolio to purchase or sell a specified 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 Portfolio may
enter into forward foreign currency exchange contracts when deemed advisable by
the Sub-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. For instance, the
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
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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.
When the Sub-Adviser anticipates that a particular foreign currency
may decline substantially relative to the U.S. dollar or other leading
currencies, in order to reduce risk, the International Equity Portfolio may
enter into a forward contract to sell, for a fixed amount, the amount of foreign
currency approximating the value of some or all of the Portfolio's securities
denominated in such foreign currency. The Portfolio does not intend to enter
into forward contracts under this second circumstance on a regular or continuing
basis. The Portfolio will not enter into such forward contracts or maintain a
net exposure to such contracts where the consummation of the contracts would
obligate the Portfolio to deliver an amount of foreign currency in excess of the
value of its portfolio securities or other assets denominated in that currency.
While forward contracts may offer protection from losses resulting from declines
in the value of a particular foreign currency, they also limit potential gains
which might result from increases in the value of such currency. Furthermore,
forward foreign currency exchange contracts do not eliminate fluctuations in the
underlying prices of securities. In addition, the Portfolio will incur costs in
connection with forward foreign currency exchange contracts and conversions of
foreign currencies and U.S. dollars.
The Fund's Custodian will place in a separate account cash or liquid
securities in an amount equal to the value of the International Equity
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
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expense of such purchase) if the market value of the security is less than the
amount of foreign currency the Portfolio is obligated to deliver and if a
decision is made to sell the security and make delivery of the foreign currency.
Conversely, it may be necessary to sell on the spot market some of the foreign
currency received upon the sale of the portfolio security if its market value
exceeds the amount of foreign currency the Portfolio is obligated to deliver.
If the International Equity Portfolio retains the portfolio security
and engages in an offsetting transaction, it will incur a gain or a loss (as
described below) to the extent that there has been movement in forward contract
prices. If the Portfolio engages in an offsetting transaction, it may
subsequently enter into a new forward contract to sell the foreign currency.
Should forward prices decline between the date the Fund enters into a forward
contract for the sale of a foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, it will realize a
gain to the extent the price of the currency it has agreed to sell exceeds the
price of the currency it has agreed to purchase. Should forward prices increase,
the Portfolio will suffer a loss to the extent the price of the currency it has
agreed to purchase exceeds the price of the currency it has agreed to sell. For
a discussion of the Federal tax treatment of forward contracts, see "Additional
Information Concerning Taxes -- Taxation of Certain Financial Instruments."
Options Trading. 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 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,
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times a specified multiple. 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. When a Portfolio writes a covered call option, an
amount equal to the net premium (the premium less the commission) received by
the Portfolio is included in the liability section of the Portfolio's statement
of assets and liabilities as a deferred credit. The amount of the deferred
credit is subsequently marked-to-market to reflect the current value of the
option written. The current value of the traded option is the last sale price
or, in the absence of a sale, the average of the closing bid and asked prices.
If an option expires on the stipulated expiration date or if the Portfolio
enters into a closing purchase transaction, it will realize a gain (or loss if
the cost of a closing purchase transaction exceeds the net premium received when
the option is sold) and the deferred credit related to such option will be
eliminated. Any gain on a covered call option may be offset by a decline in the
market price of the underlying security during the option period. If a covered
call option is exercised, the Portfolio may deliver the underlying security held
by it or purchase the underlying security in the open market. In either event,
the proceeds of the sale will be increased by the net premium originally
received, and the Portfolio will realize a gain or loss. Premiums from expired
options written by a Portfolio and net gains from closing purchase transactions
are treated as short-term capital gains for federal income tax purposes, and
losses on closing purchase transactions are short-term capital losses.
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
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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.
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.
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.
While each of the Portfolios authorized to engage in options transactions may
invest in options relating to various securities indexes as well as to
individual securities, the Growth Equity Portfolio may not engage in options
transactions relating to indexes.
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.
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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.
A decision as to whether, when and how to use options involves the
exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events.
Foreign Currency Put and Call Options. The International Equity
-------------------------------------
Portfolio may purchase foreign currency put options on U.S. exchanges or U.S.
over-the-counter markets. (See "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.
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.
Futures Contracts and Related Options. The Equity Portfolios and the
-------------------------------------
U.S. Government Securities, Intermediate Corporate Bond, Bond Index and
Government & Corporate Bond Portfolios may invest in 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 (such as stock or bond index futures contracts or interest rate
futures or options) which
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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 Equity Index and Small Cap Equity Index Portfolios, can be used to
simulate full investment in the 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.
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 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 timeframe.
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
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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 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.
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 Appendix B to this Statement of
Additional Information.
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
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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. 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 "Money Market Portfolio" above for a discussion of cash equivalents
and "Variable and Floating Rate Instruments" above for a discussion of variable
and floating rate instruments.)
The International Equity Portfolio may invest a portion of its assets
in the obligations of foreign banks and foreign branches of domestic banks. Such
obligations may include ECDs; ETDs; CTDs; Schedule Bs, which are obligations
issued by Canadian branches of foreign or domestic banks; Yankee CDs; and Yankee
BAs. (See "Money Market Portfolio" above for a description of certain of these
obligations.)
Repurchase Agreements. Subject to their respective investment
---------------------
policies, each Portfolio (except the National Municipal Bond Portfolio) may
agree to purchase U.S. Government securities from financial institutions such as
banks and broker-dealers, subject to the seller's agreement to repurchase them
at a mutually agreed-upon date and price ("repurchase agreements"). 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 or Sub-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. 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
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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
"Additional Information Concerning 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. 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.
Standard and Poor's Depository Receipts, Standard & Poor's MidCap 400
---------------------------------------------------------------------
Depository Receipts and The Dow Industrials DIAMONDS. The Equity Portfolios may
- ----------------------------------------------------
invest in Standard & Poor's Depository Receipts ("SPDRs"), Standard & Poor's
MidCap 400 Depository Receipts ("MidCap SPDRs") and The Dow Industrials DIAMONDS
("DIAMONDS"). SPDRs represent ownership in the SPDR Trust, a long-term unit
investment trust which holds a portfolio of common stocks that is intended to
track the performance and dividend yield of the S&P 500. MidCap SPDRs represent
ownership in the MidCap SPDR Trust, a long-term unit investment trust which
holds a portfolio of common stocks that is intended to tract the performance and
dividend yield of the Standard & Poor's MidCap 400 Index. DIAMONDS represent
ownership in the DIAMONDS Trust, a long-term unit investment trust which holds a
portfolio of common stocks that is intended to track the performance and yield
of the Dow Jones Industrial Average. Because investments in SPDRs, MidCap SPDRs
and DIAMONDS represent investments in unit investment trusts, such investments
are subject to the 1940 Act's limitations on investments in other investment
companies.
The Bond Index, Equity Index and Small Cap Equity Index Portfolios may
invest in any index-based depository receipts in lieu of investment in the
actual securities that are listed in their 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
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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.
Portfolio Turnover and Transactions
Subject to the general control of the Fund's Board of Directors, the
Adviser (and with respect to the International Equity Portfolio, the Sub-
Adviser) is responsible for, makes decisions with respect to, and places orders
for all purchases and sales of portfolio securities for the Portfolios.
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
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in the realization of substantial net capital gains; distributions derived from
such gains may be treated as ordinary income for federal income tax purposes.
Portfolio turnover will not be a limiting factor in making investment decisions.
See "Additional Information Concerning Taxes" below.
The Fund did not acquire any securities of its "regular brokers or
dealers" or their parents during its most recent fiscal year [TO BE CONFIRMED BY
BISYS].
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, 1999, 1998 and 1997, the Growth &
Income Equity Portfolio paid $_______, $1,278,698, and $858,757, respectively,
in brokerage commissions. During the fiscal years ended November 30, 1999, 1998
and 1997, the Small Cap Equity Portfolio paid $_______, $550,114, and $428,191,
respectively, in brokerage commissions. During the fiscal years ended November
30, 1999, 1998 and 1997, the International Equity Portfolio paid $_______,
$293,093, and $248,564, respectively, in brokerage commissions. During the
fiscal years ended November 30, 1999, 1998 and 1997, the Balanced Portfolio paid
$________, $123,935, and $120,705, respectively, in brokerage commissions.
During the fiscal years ended November 30, 1999 and 1998, the period October 1,
1997 through November 30, 1997 and for the fiscal year ended September 30, 1997,
the Growth Equity Portfolio paid brokerage commissions of $_______, $122,348,
and $95,470, respectively. During the fiscal years ended November 30, 1999 and
1998 and the period February 27, 1997 (commencement of operations) through
November 30, 1997, the Equity Income Portfolio paid $_______, $361,966 and
$151,046, respectively, in brokerage commissions. During the fiscal years ended
November 30, 1999 and 1998 and the period May 1, 1997 (commencement of
operations) through November 30, 1997, the Equity Index Portfolio paid
$________, $15,775 and $10,259 in brokerage commissions. During the period
December 30, 1998 (commencement of operations) through November 30, 1999, the
Small Cap Equity Index Portfolio paid $______ in brokerage commissions. No
commissions were paid by the Fund to any "affiliated" persons (as defined in the
1940 Act) of the Fund.
Securities purchased and sold by the Portfolios which are traded in
the over-the-counter market generally are done so on a net basis (i.e., without
commission) through dealers, or otherwise involve transactions directly with the
issuer of an instrument. There is generally no stated commission in the case of
securities traded in the over-the-counter markets, but the price of those
securities includes an undisclosed commission or mark-up. The cost of securities
purchased from underwriters includes an underwriter's commission or concession,
and the prices at which securities are purchased from and sold to dealers
include a dealer's mark-up or mark-down.
The Portfolios may participate, if and when practicable, in bidding
for the purchase of portfolio securities directly from an issuer in order to
take advantage of the lower 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.
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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 Fund's
distributor, the Fund's co-administrators or any "affiliated person" (as such
term is defined under the 1940 Act) or any of them acting as principal, except
to the extent permitted by the SEC. In addition, the Portfolios will not give
preference to the Adviser's correspondents with respect to such transactions,
securities, savings deposits, repurchase agreements and reverse repurchase
agreements.
Investment decisions for the Portfolios are made independently from
those for other investment companies and accounts advised or managed by the
Adviser (or Sub-Adviser). Such other investment companies and accounts may also
invest in the same securities as the Portfolios. When a purchase or sale of the
same security is made at substantially the same time on behalf of a Portfolio
and another investment company or account, the transaction will be averaged as
to price, and available investments allocated as to amount, in a manner which
the Adviser (or Sub-Adviser) believes to be equitable to the Portfolio and such
other investment company or account. In some instances, this investment
procedure may adversely affect the price paid or received by the Portfolio or
the size of the position obtained by the Portfolio. To the extent permitted by
law, the Adviser (or 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.
To the extent permitted by the 1940 Act and guidelines adopted by the
Fund's Board of Directors, a Portfolio may utilize the Fund's 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.
Special Considerations Regarding Investment in Missouri Municipal Securities
The following highlights some of the more important economic and
financial trends and considerations and is based on information from official
statements, prospectuses and
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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 1998, which
represents a 6.3% increase from the 1990 decennial census of the U.S. Census
Bureau. Based on 1998 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 18th and 24th 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. In 1999, per capita income in Missouri is estimated to
have increased about 5%, consistent with the increase in material per capita
income during the same period. [Source: U.S. Department of Commerce, Bureau of
the Census.]
The major sectors of the State's economy include services, manufacturing, trade,
and state and local government. Although farming traditionally has played a
dominant role in the State's economy, with increasing urbanization, significant
income-generating activity has shifted from agriculture to the services,
manufacturing, trade and government 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. Manufacturing represented
the single most important economic activity, followed by wholesale and retail
trade. Manufacturing is concentrated in defense, transportation and other
durable goods. The State's top five largest manufacturers are Boeing Co.,
Anheuser-Busch Co., Hallmark Cards, Ford Motor Co. and Chrysler Corp. [Source:
Missouri Department of Economic Development.]
Defense-related business plays an important role in Missouri's economy. Over the
past decade, aircraft production and defense-related businesses have received
sizable annual defense contract awards. Declining defense appropriation and
federal downsizing may continue to have an impact on the State. Wal-Mart is the
State's largest employer, with approximately 27,500 to 32,500 employees during
January 2000. The next two largest employers in Missouri are the University of
Missouri and Boeing Co. with approximately 17,500 to 22,500 employees each
during January 2000. Missouri's unemployment rate was 4.1% in December 1998,
compared to the 4.4% national unemployment rate during this period. The
unemployment rate for 1999 is expected to remain stable at approximately 4.0% to
4.5%. [Source: Missouri Dept. of Economic Development.]
Revenue collections for the fiscal year ended June 30, 1999 ("Fiscal Year 1999")
are estimated to be $6.4 billion, an increase of 5.5% over fiscal year 1998.
Expenditures for Fiscal Year 1999 are estimated at $6.9, billion including $173
million and $99 million, respectively for the St. Louis and Kansas City
desegregation cases. For the fiscal year ending June 30, 2000 ("Fiscal Year
2000"), revenues are projected to be $7.2 billion. Expenditures are projected at
$7.1 billion and do not include expenditures for the St. Louis and Kansas City
school desegregation cases which ended during Fiscal Year 1999.
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INVESTMENT LIMITATIONS
Except as otherwise noted in the Prospectuses or this Statement of
Additional Information, each Portfolio's investment policies 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, which are set forth below, which may be changed only by
a vote of a majority of the outstanding Shares of a Portfolio.
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 or issue senior securities, except from banks for
temporary purposes and then in an amount not exceeding 10% of the value of the
Portfolio's total assets at the time of such borrowing, 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. The
Portfolio will not purchase securities while its borrowings are outstanding.
(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
instruments in accordance with its investment objective and policies, lend
portfolio securities and enter into repurchase agreements for U.S. Treasury
securities (together with any cash collateral) 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.
7. 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.
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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 the Portfolio's
total assets may be invested without regard to such 5% limitation.
3. Buy common stocks or voting securities, or state, municipal or
industrial revenue bonds.
4. Purchase or sell real estate (the Portfolio may purchase
commercial paper issued by companies which invest in real estate or interests
therein).
5. Purchase securities on margin, make short sales of securities or
maintain a short position.
6. Underwrite the securities of other issuers.
7. Purchase or sell commodity contracts, or invest in oil, gas or
mineral exploration or development programs.
8. Write or purchase put or call options.
9. Make loans except that the Portfolio may purchase or hold debt
instruments in accordance with its investment objective and policies, lend
portfolio securities and enter into repurchase agreements for U.S. Treasury
securities (together with any cash collateral) that equal at all times at least
100% of the value of the repurchase price.
10. Borrow money or issue senior securities, except that the
Portfolio may borrow from banks and 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. The Portfolio will not purchase securities
while its borrowings (including reverse repurchase agreements) are outstanding.
11. 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
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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 Rule 2a-7 of the 1940 Act and current
regulations of the SEC, the Money Market Portfolio intends to invest no more
than five percent of its total assets in the securities of any one issuer (other
than securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities); provided, however, that the Portfolio may invest up to 25%
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
1933 Act, except insofar as the Portfolio might be deemed to be an underwriter
upon purchase of certain portfolio securities acquired subject to the investment
limitation pertaining to purchases of restricted securities.
5. Purchase or sell real estate, except that the Portfolio may
invest in Municipal Obligations which are secured by real estate or interests
therein.
6. Purchase or sell commodities or commodity contracts or invest in
oil, gas, or other mineral exploration or development programs.
7. Invest in or sell put options (except as described above under
"Other Investment Policies and Risk Considerations -- 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.
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<PAGE>
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.
11. 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.
12. 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 herein are not subject to this limitation.
With respect to investment limitation No. 11, 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 for diversification purposes
as the Fund does not consider the latter instruments to be securities.
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.
In accordance with Rule 2a-7 of the 1940 Act and current regulations
of the SEC, the Tax-Exempt Money Market Portfolio intends to invest no more than
five percent of its total
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assets in the securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities); provided,
however, that the Portfolio may invest up to 25% 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 U.S. Government Securities, Intermediate Corporate Bond, Bond
Index, Government & Corporate Bond, National Municipal Bond, Equity Income,
Equity Index, Growth & Income Equity, Small Cap Equity, Small Cap Equity Index
and Balanced Portfolios may not:
1. Make investments for the purpose of exercising control or
management.
2. Purchase or sell real estate, provided that each Portfolio may
invest in securities secured by real estate or interests therein or issued by
companies or investment trusts 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.
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In addition, each such Portfolio, together with the Short-Intermediate
Municipal and International Equity Portfolios, may not:
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.
6. 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.
7. 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.
8. 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.
9. Make loans, except that (a) each Portfolio may purchase or hold
debt instruments, lend portfolio securities and make other investments in
accordance with its
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investment objective and policies, and (b) each Portfolio except the National
Municipal Bond Portfolio may enter into repurchase agreements.
The Growth Equity 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. (For purposes of this Investment Limitation,
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.)
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.
4. 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.
5. 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.
6. 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.
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7. 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:
8. The Portfolio will not mortgage, pledge, or hypothecate any
assets, except to secure permitted borrowings. In these cases, the Portfolio may
pledge assets having a market value not exceeding the lesser of the dollar
amounts borrowed or 15% of the value of its total assets at the time of the
pledge. The purchase of securities on a when-issued basis will not be deemed to
be a pledge of the Portfolio's assets. For purposes of this limitation the
following will not be deemed to be pledges of the Portfolio's assets: (a) the
deposit of assets in escrow in connection with the writing of covered put or
call options and, (b) collateral arrangements with respect to (i) the purchase
and sale of stock options (and options on stock indexes) and (ii) initial or
variation margin for futures contracts.
9. 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.
10. 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.
11. 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.
12. 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.
13. The Portfolio will not purchase securities of a company for the
purpose of exercising control or management.
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<PAGE>
14. The Portfolio will not invest more than 5% of its net assets in
warrants. No more than 2% of the Portfolio's net assets, to be included within
the overall 5% limit on investments in warrants, may be warrants which are not
listed on the New York Stock Exchange or the American Stock Exchange. For
purposes of this investment restriction, warrants will be valued at the lower of
cost or market, except that warrants acquired by the Portfolio in units with or
attached to securities may be deemed to be without value.
15. Make loans, except that (a) the Portfolio may purchase or hold
debt instruments, lend portfolio securities and make other investments in
accordance with its investment objective and policies, and (b) the Portfolio may
enter into repurchase agreements.
The International Equity Portfolio may not:
1. Make investments for the purpose of exercising control or
management.
2. Purchase or sell real estate, provided that the Portfolio may
invest in securities secured by real estate or interests therein or issued by
companies or investment trusts which invest in real estate or interests therein.
3. Act as an underwriter of securities within the meaning of the
Securities Act of 1933 except insofar as the Portfolio might be deemed to be an
underwriter upon disposition of portfolio securities acquired within the
limitation on purchases of restricted securities and except to the extent that
the purchase of obligations directly from the issuer thereof in accordance with
the Portfolio's investment objective, policies and limitations may be deemed to
be underwriting.
4. Purchase or sell commodity contracts, or invest in oil, gas or
mineral exploration or development programs, except that: (a) it may, to the
extent appropriate to its investment objective, invest in securities issued by
companies which purchase or sell commodities or commodity contracts or which
invest in such programs; and (b) it may purchase and sell futures contracts and
options on futures contracts.
The Short-Intermediate Municipal Portfolio may not:
1. Make investments for the purpose of exercising control or
management.
2. Purchase or sell real estate, except that the Portfolio may
invest in Municipal Obligations which are secured by real estate or interests
therein.
3. Act as an underwriter of securities within the meaning of the
Securities Act of 1933 except insofar as the Portfolio might be deemed to be an
underwriter upon disposition of portfolio securities acquired within the
limitation on purchases of restricted securities and except to the extent that
the purchase of obligations directly from the issuer thereof in accordance with
the Portfolio's investment objective, policies and limitations may be deemed to
be underwriting.
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<PAGE>
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.
8. Purchase any securities, except securities issued (as defined in
Investment Limitation No. 11 above with respect to the Tax-Exempt Money Market
Portfolio) 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.
9. 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.
10. 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
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<PAGE>
invested in the securities of any one issuer and (b) this 5% limitation does not
apply to securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. For purposes of this limitation, a security is considered to
be issued by the governmental entity (or entities) whose assets and revenues
back the security, or, with respect to a private activity bond that is backed
only by the assets and revenues of a non-governmental user, a security is
considered to be issued by such non-governmental user. In certain circumstances,
the guarantor of a guaranteed security may also be considered to be an issuer in
connection with such guarantee, except that a guarantee of a security shall not
be deemed to be a security issued by the guarantor when the value of all
securities issued and guaranteed by the guarantor, and owned by the Portfolio,
does not exceed 10% of the Portfolio's total assets.
11. Borrow money or issue senior securities, except that the
Portfolio may borrow from banks and enter into reverse repurchase agreements for
temporary defensive purposes in amounts not in excess of 10% of its total assets
at the time of such borrowing; or mortgage, pledge, or hypothecate any assets
except in connection with any such borrowing and in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of its total assets at the time of
such borrowing (including any reverse repurchase agreements); or purchase
securities while borrowings exceed 5% of the Portfolio's total assets.
Securities held in escrow or separate accounts in connection with the
Portfolio's investment practices described in the Prospectus or this Statement
of Additional Information are not subject to this limitation.
The following additional investment policies with respect to the Tax-
Exempt Money Market and Missouri Tax-Exempt Bond Portfolios 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.
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.
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<PAGE>
PRICING OF SHARES
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 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. 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.
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<PAGE>
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
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 Fund's Board of Directors and in
accordance with guidelines approved by 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. In computing net asset value, the current value
of a Portfolio's open futures contracts and related options will be "marked-to-
market." Short-term securities are valued at amortized cost, which approximates
fair market value.
Among the factors that ordinarily will be considered in valuing
portfolio securities are the existence of restrictions upon the sale of the
security by the Portfolio, the existence and extent of a market for the
security, the extent of any discount in acquiring the security, the estimated
time during which the security will not be freely marketable, the expenses of
registering or otherwise qualifying the security for public sale, underwriting
commissions if underwriting would be required to effect a sale, the current
yields on comparable securities for debt obligations traded independently of any
equity equivalent, changes in the financial condition and prospects of the
issuer, and any other factors affecting fair value. In making valuations,
opinions of counsel to the issuer may be relied upon as to whether or not
securities are restricted securities and as to the legal requirements for public
sale.
The Fund's 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 Fund's
distributor. As described in the applicable Prospectuses, Trust Shares, Trust
II Shares and Institutional Shares of each Portfolio (Money Market Portfolios
only, with respect to Trust II Shares) are sold to certain qualified customers
at their net asset value without a sales charge. Investor A Shares of each
Portfolio (other than Investor A Shares of the Money Market Portfolios which are
sold at their net asset value without a sales charge) are sold to retail
customers at the public offering price based on a Portfolio's net asset value
plus a front-end load or sales charge as described in
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<PAGE>
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.
Purchases of Investor A Shares and Investor B 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 (the "CDSC Portfolios"). 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.
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).
Reduced Sales Charges - Investor A Shares of the Equity and Bond Portfolios
To qualify for a reduced sales load, an investor must so notify his or
her investment representative, who in turn will notify the Fund's distributor at
the time of purchase.
Existing Shareholder Accounts. Additional purchases of Investor A
Shares by existing Investor A shareholder accounts at March 31, 1999 in the
Intermediate Corporate Bond, Government & Corporate Bond, Missouri Tax-Exempt
Bond, National Municipal Bond, Balanced, Equity Income, Growth & Income Equity,
Growth Equity, Small Cap Equity and International Equity Portfolios are subject
to the following sales charges:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Amount of transaction Sales charges as a % of Sales charge as a % of Dealers' reallowance as
the offering price per net asset value per a % of offering
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 2.50% 2.56% 2.00%
- ---------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
<TABLE>
- --------------------------------------------------------------------------
<S> <C> <C> <C>
$250,000
- --------------------------------------------------------------------------
$250,000 but less
than $500,000 1.50% 1.52% 1.00%
- --------------------------------------------------------------------------
$500,000 but less
than $1 million 1.00% 1.01% 0.50%
- --------------------------------------------------------------------------
$1 million or more 0.50% 0.50% 0.40%
- --------------------------------------------------------------------------
</TABLE>
Additional purchases of Investor A Shares by existing Investor A
shareholder accounts at March 31, 1999 in the Bond Index, Equity Index and Small
Cap Equity Index Portfolios are subject to the following sales charges:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Amount of transaction Sales charges as a % of Sales charge as a % of Dealers' reallowance as
the offering price per net asset value per a % of offering price
share share
- ---------------------------------------------------------------------------------------------------
<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 million 1.00% 1.01% 0.85%
- ---------------------------------------------------------------------------------------------------
$1 million or more 0.50% 0.50% 0.40%
- ---------------------------------------------------------------------------------------------------
</TABLE>
Rights of Accumulation. 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 Portfolio with a maximum 5.50% sales load
having an aggregate current value of $240,000 and subsequently purchases
additional Investor A Shares of a Portfolio with a maximum 5.50% sales load
having a current value of $10,000, the sales charge applicable to the subsequent
purchase would be reduced to 2.50% of the offering price.
Quantity Discounts. As described in the applicable Prospectuses,
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. 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 Fund's 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
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<PAGE>
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. 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. 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
broker-dealer or other financial organization or the Fund's distributor.
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, 1999 and the maximum front-end sales charge of 5.5% with respect
to the Equity Portfolios, 4.75% with respect to the Bond Portfolios (other than
the U.S. Government Securities Portfolio and the Short-Intermediate Municipal
Portfolio), and 2.5% with respect to the U.S. Government Securities and Short-
Intermediate Municipal Portfolios, currently applicable, is as follows:
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<PAGE>
<TABLE>
<CAPTION>
Equity Growth & Small Cap International Equity
Balanced Income Income Equity Growth Equity Equity Equity Index
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Assets __________ __________ __________ __________ __________ __________ ________
Outstanding Shares __________ __________ __________ __________ __________ __________ ________
Net Asset Value
Per Share __________ __________ __________ __________ __________ __________ ________
Sales Charge, 5.50% __________ __________ __________ __________ __________ __________ ________
of offering price
(5.82% of net asset
value per share)
Offering Price to
Public __________ __________ __________ __________ __________ __________ ________
</TABLE>
<TABLE>
<CAPTION>
Intermediate Corporate Government & Missouri Tax-Exempt National Municipal Bond Index
Bond Corporate Bond Bond Bond Portfolio
---------
Portfolio Portfolio Portfolio Portfolio
----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Assets __________ __________ __________ __________ _________
Outstanding Shares __________ __________ __________ __________ _________
Net Asset Value __________ __________ __________ __________ _________
Per Share
Sales Charge, 4.75% __________ __________ __________ __________ _________
Of offering price
(4.99% of net
asset value per
share)
Offering Price to
Public __________ __________ __________ __________ _________
</TABLE>
<TABLE>
<CAPTION>
U.S. Government Short-Intermediate
Securities Municipal
Portfolio Portfolio
--------- ---------
<S> <C> <C>
Net Assets __________ __________
Outstanding Shares __________ __________
Net Asset Value __________ __________
Per Share
Sales Charge, 2.50% __________ __________
of offering price
(2.56% of net
asset value per
share)
Offering Price to __________ __________
Public
</TABLE>
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<PAGE>
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 applicable Prospectuses 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, as described in
the relevant Prospectuses. 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.
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.
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<PAGE>
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 as described
in the applicable Prospectuses. 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. Investor A Shares
are subject to ongoing distribution and service fees at an annual rate of up to
0.30% (0.25% with respect to the Money Market Portfolios) of a Portfolio's
average daily net assets attributable to its Investor A Shares.
Investor B Shares are sold at net asset value without an initial sales
charge. Normally, however, a deferred sales charge is paid if the Shares are
redeemed within six years of investment. 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.
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<PAGE>
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 reserves the
right to 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 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.
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
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<PAGE>
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 Trust 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, and vice versa, without payment of
any exchange or sales charge.
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. An
investor may telephone an exchange request by calling his or her broker-dealer
or financial institution, which is responsible for transmitting such exchange
request to the Fund.
Automatic Exchange Program. The Automatic Exchange Program enables
shareholders to make regular, automatic withdrawals from an Investor A Share or
Investor B Share account in a Portfolio and use those proceeds to benefit from
Dollar Cost Averaging by automatically making purchases of the same class of
Shares in another Portfolio. With shareholder authorization, the Fund's
Transfer Agent will withdraw the amount specified (subject to the applicable
minimums) from the shareholder's account and will automatically invest that
amount in Shares of the Portfolio designated by the shareholder on the date of
such deduction.
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<PAGE>
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 broker-dealer
or financial institution 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 broker-dealer or financial institution or to the
Fund. The Automatic Exchange Program may be amended or terminated without notice
at any time by the Fund.
Checkwriting -- Money Market Portfolios
To establish the checkwriting service after opening an account in a
Money Market Portfolio, the shareholder must contact his or her broker-dealer or
financial institution 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. 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. Portfolio
Shares will be redeemed as necessary to meet withdrawal payments. Withdrawals
may reduce principal and eventually deplete the shareholder's account. 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. No contingent deferred sales charge will be assessed
on redemptions of Investor B Shares of a Portfolio made through an AWP that do
not exceed 12% of an account's net asset value on an annualized basis. For
example, monthly, quarterly, semi-annual and annual AWP redemptions of Investor
B Shares will not be subject to the contingent deferred sales charge if they do
not exceed 1%, 3%, 6% and 12%, respectively, of an account's net asset value on
the redemption date. AWP redemptions of Investor B Shares in excess of this
limit are still subject to the applicable contingent deferred sales charge.
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<PAGE>
Purchase of Investor A Shares at Net Asset Value
From time to time the Fund's 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.
Purchase of Trust, Trust II and Institutional 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.
Exchanges - Trust, Trust II and Institutional Shares
The exchange privilege enables shareholders to exchange Trust Shares
of a Portfolio for Trust Shares of another Portfolio offered by the Fund, Trust
II Shares for Trust II Shares of another such Portfolio and Institutional Shares
for Institutional Shares of another such Portfolio. Exchanges for Trust Shares,
Trust II Shares or Institutional 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 Trust Company National
Association or any of its affiliated or correspondent banks. Such exchanges will
also be effected without payment of any exchange or sales charges.
Other Purchase, Exchange and Redemption Information - All Classes
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.
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<PAGE>
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.
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.
The Portfolios may redeem shares involuntarily to reimburse them 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.
YIELD AND TOTAL RETURN INFORMATION
Yield and total return quotations are computed separately for Trust
Shares, Trust II Shares, Institutional 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.
The Money Market Portfolios
From time to time, performance information such as "yield," and
"effective yield" for the Money Market Portfolios' Trust Shares, Trust II
Shares, Institutional Shares, and 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
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<PAGE>
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.
A Money Market Portfolio's "yield" and "effective yield" are
calculated separately for Trust Shares, Trust II Shares, Institutional Shares,
Investor A Shares and Investor B Shares of the Portfolios according to formulas
prescribed by the SEC. Standardized 7 day "yield" is computed by determining the
net change, exclusive of capital changes, in the value of a hypothetical pre-
existing account in a Portfolio having a balance of one share at the beginning
of the period, subtracting a hypothetical charge reflecting deductions from
shareholder accounts, dividing the difference by the value of the account at the
beginning of the base period to obtain the base period return, and then
multiplying the base period return by (365/7). The net change in the value of an
account includes the value of additional shares purchased with dividends from
the original share, and dividends declared on both the original share and any
such additional shares, net of all fees, other than nonrecurring account or
sales charges, that are charged by the Portfolio to all shareholder accounts in
proportion to the length of the base period and the Portfolio's mean (or median)
account size. The capital changes to be excluded from the calculation of the net
change in account value are realized gains and losses from the sale of
securities and unrealized appreciation and depreciation. "Effective yield" is
computed by compounding the unannualized base period return (calculated as
above) by adding one to the base period return, raising the sum to a power equal
to 365 divided by seven, and subtracting one from the result. Based upon the
same calculations, each Portfolio's 30 day yields and 30 day effective yields
may also be quoted. The Tax-Exempt Money Market Portfolio's "tax-equivalent
yield" is computed by dividing the tax-exempt portion of the yield (calculated
as above) by one minus a stated federal income tax rate and adding the product
to that portion, if any, of the yield that is not tax-exempt. In addition, a
"Missouri" tax-equivalent yield may be calculated by dividing the portion of the
Tax-Exempt Money Market Portfolio's yield (calculated as above) that is exempt
from federal tax and the portion that is exempt from Missouri personal income
tax by one minus a stated tax rate and adding such figure to that portion, if
any, of the Portfolio's yield that is not exempt from federal
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or state income tax. Based on the foregoing calculations, for the year ended
November 30, 1999, the 7-day yields, 7-day effective yields and the 30-day
yields were as follows:
<TABLE>
<CAPTION>
7-Day Effective
Portfolio* 7-Day Yield Yield 30-Day Yield
--------- ----------- ----------- ------------
<S> <C> <C> <C>
Treasury Money Market
Trust Shares __________ __________ __________
Trust Shares II __________ __________ __________
Institutional Shares __________ __________ __________
Investor A Shares __________ __________ __________
Money Market
Trust Shares __________ __________ __________
Trust II Shares __________ __________ __________
Institutional Shares __________ __________ __________
Investor A Shares __________ __________ __________
Investor B Shares __________ __________ __________
Tax-Exempt Money Market
Trust Shares __________ __________ __________
Trust II Shares __________ __________ __________
Investor A Shares __________ __________ __________
</TABLE>
____________________
* Trust II Shares of the Money Market Portfolios were initially offered on
November 2, 1998.
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-
7-Day Tax- Equivalent 30-Day Tax-Equivalent
----------
Portfolio* Equivalent Yield Effective Yield Yield
--------- ---------------- --------------- -----
<S> <C> <C> <C>
Tax-Exempt Money Market
Trust Shares __________ __________ __________
Trust II Shares __________ __________ __________
Investor A Shares __________ __________ __________
</TABLE>
____________________
* Trust II Shares of the Tax-Exempt Money Market Portfolio were initially
offered on November 2, 1998.
In addition, 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.
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<PAGE>
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, Institutional
Shares, 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.
An Equity and Bond Portfolio's 30 day "yield" 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
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<PAGE>
during the period minus expenses accrued for the period, net of reimbursements.
This calculation can be expressed as follows:
a-b
Yield = 2 [(-------)/6/ - 1]
cd + 1
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding that were
entitled to receive dividends.
d = maximum offering price per share on the last day of the
period.
For the purpose of determining interest earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
Portfolio is recognized by accruing 1/360 of the stated dividend rate of the
security each day that the security is in that Portfolio. A Portfolio calculates
interest earned on any debt obligation held in its portfolio by computing the
yield to maturity of each obligation held by it based on the market value of the
obligation (including actual accrued interest) at the close of business on the
last business day of each 30 day period, or, with respect to obligations
purchased during the 30 day period, the purchase price (plus actual accrued
interest) and dividing the result by 360 and multiplying the quotient by the
market value of the obligation (including actual accrued interest) in order to
determine the interest income on the obligation for each day of the subsequent
30 day period that the obligation is in the portfolio. The 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 securities 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 securities 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 securities
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,
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<PAGE>
Institutional Shares and Trust Shares each bear separate fees applicable to the
particular class of shares. Undeclared earned income will not be subtracted from
the maximum offering price per share (variable "d" in the formula). Undeclared
earned income is net investment income which, at the end of the base period, has
not been declared and paid as a dividend, but is reasonably expected to be and
is declared and paid as a dividend shortly thereafter.
The Short-Intermediate Municipal, Missouri Tax-Exempt Bond and
National Municipal Bond Portfolios' "tax-equivalent" yield for each class of
shares is computed by dividing the portion of a Portfolio's yield (calculated as
above) that is exempt from federal income tax by one minus a stated federal
income tax rate and adding that figure to that portion, if any, of the
Portfolio's yield that is not exempt from federal income tax. Similarly, the
Missouri Tax-Exempt Bond Portfolio's "Missouri tax-equivalent" yields for each
class of shares is calculated by dividing the portion of a Portfolio's yield
(calculated as above) that is exempt from federal tax and the portion that is
exempt from Missouri personal income tax by one minus a stated tax rate and
adding such figure to that portion, 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,
1999, the yields on the Bond Portfolios were as follows:
<TABLE>
<CAPTION>
Portfolio 30-Day Yield
--------- ------------
<S> <C>
U.S. Government Securities
Trust Shares __________
Institutional Shares __________
Investor A Shares __________
Investor B Shares __________
Intermediate Corporate Bond
Trust Shares __________
Institutional Shares __________
Investor A Shares __________
Bond Index
Trust Shares __________
Institutional Shares __________
Investor A Shares __________
Government & Corporate Bond
Trust Shares __________
Institutional Shares __________
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Investor A Shares __________
Investor B Shares __________
Short-Intermediate Municipal
Trust Shares __________
Investor A Shares __________
Missouri Tax Exempt Bond
Trust Shares __________
Investor A Shares __________
Investor B Shares __________
National Municipal Bond
Trust Shares __________
Investor A Shares __________
Investor B Shares __________
Balanced
Trust Shares __________
Institutional Shares __________
Investor A Shares __________
Investor B Shares __________
</TABLE>
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<PAGE>
For the same 30-day period, the Short-Intermediate Municipal, Missouri
Tax-Exempt Bond and National Municipal Bond Portfolios' tax-equivalent yields
(assuming payment of federal income taxes at a rate of 39.60%) and the Missouri
Tax-Exempt Bond Portfolio's Missouri tax-equivalent yield (assuming Missouri
state income taxes at a rate of 43.20%) were as follows:
<TABLE>
<CAPTION>
30-Day Tax- 30-Day Missouri
Portfolio Equivalent Yield Tax-Equivalent Yield
--------- ---------------- --------------------
<S> <C> <C>
Short-Intermediate Municipal
Trust Shares __________ __________
Investor A Shares __________ __________
Missouri Tax-Exempt Bond
Trust Shares __________ __________
Investor A Shares __________ __________
Investor B Shares __________ __________
National Municipal Bond
Trust Shares __________ __________
Investor A Shares __________ __________
Investor B Shares __________ __________
</TABLE>
A Portfolio computes its "average annual total return" for each series
of that Portfolio by determining the average annual compounded rate of return
during specified periods that would equate the initial amount invested in a
particular series to the ending redeemable value of such investment in the
series by dividing the ending redeemable value of a hypothetical $1,000 payment
by $1,000 (representing a hypothetical initial payment) and raising the quotient
to a power equal to one divided by the number of years (or fractional portion
thereof) covered by the computation and subtracting one from the result. This
calculation can be expressed as follows:
ERV 1/n
T = [(-------) - 1]
P
Where: T = average annual total return
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
-82-
<PAGE>
n = period covered by the computation, expressed in terms of
years
A Portfolio computes its aggregate total returns separately for each
series by determining the aggregate compounded rates of return during specified
periods that likewise equate the initial amount invested in a particular series
to the ending redeemable value of such investment in the series. The formula for
calculating aggregate total return is as follows:
ERV
Aggregate Total Return = [(------)- 1]
P
The calculations of average annual total return and aggregate total
return assume reinvestment of all income dividends and capital gain
distributions on the reinvestment dates during the period and include all
recurring fees charged to all shareholder accounts, assuming an account size
equal to a Portfolio's mean or median account size for any fees that vary with
the size of the account. The ending redeemable value (variable "ERV" in each
quotation) is determined by assuming complete redemption of the hypothetical
investment and the deduction of all non-recurring charges at the end of the
period covered by the computation. In addition, a non-money market Portfolio's
average annual total return and aggregate total return quotations reflect the
deduction of the maximum front-end sales charge in connection with the purchase
of Investor A Shares and the deduction of any applicable contingent deferred
sales charge with respect to Investor B Shares.
-83-
<PAGE>
Based on the foregoing calculations, the average annual total returns
for the year/period ended November 30, 1999, the average annual total returns
for the 5-year and 10-year periods ended November 30, 1999 (where applicable)
and the average annual total returns for the periods from commencement of
operations were as follows:
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------
For the 5 For the 10 Since
For the Year Years Ended Years Ended Commencement
Portfolio Ended 11/30/99 11/30/99 11/30/99 of Operations
--------- -------------- -------- --------- -------------
<S> <C> <C> <C> <C>
U.S. Government Securities
Trust Shares/(1)/ __________ __________ __________ __________
Institutional Shares/(4)/ __________ __________ __________ __________
Investor A Shares/(1)/ __________ __________ __________ __________
Investor B Shares/(2)/ __________ __________ __________ __________
Intermediate Corporate Bond/(15)/
Trust Shares __________ __________ __________ __________
Institutional Shares __________ __________ __________ __________
Investor A Shares __________ __________ __________ __________
Bond Index/(15)/
Trust Shares __________ __________ __________ __________
Institutional Shares __________ __________ __________ __________
Investor A Shares __________ __________ __________ __________
Government & Corporate Bond
Trust Shares/(3)/ __________ __________ __________ __________
Institutional Shares __________ __________ __________ __________
Investor A Shares/(3)/ __________ __________ __________ __________
Investor B Shares/(2)/ __________ __________ __________ __________
Short-Intermediate Municipal
Trust Shares/(10)/ __________ __________ __________ __________
Investor A Shares/(10)/ __________ __________ __________ __________
Missouri Tax-Exempt Bond/(11)/
Trust Shares/(12)/ __________ __________ __________ __________
Investor A Shares/(13)/ __________ __________ __________ __________
Investor B Shares/(2)/ __________ __________ __________ __________
National Municipal Bond/(14)/
Trust Shares __________ __________ __________ __________
Investor A Shares __________ __________ __________ __________
Investor B Shares __________ __________ __________ __________
Balanced
Trust Shares/(7/) __________ __________ __________ __________
Institutional Shares/(7)/ __________ __________ __________ __________
Investor A Shares/(7)/ __________ __________ __________ __________
Investor B Shares/(2)/ __________ __________ __________ __________
Equity Income/(16)/
Trust Shares __________ __________ __________ __________
Institutional Shares __________ __________ __________ __________
Investor A Shares __________ __________ __________ __________
Investor B Shares __________ __________ __________ __________
Equity Index/(17)/
Trust Shares __________ __________ __________
</TABLE>
-84-
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------
For the 5 For the 10 Since
For the Year Years Ended Years Ended Commencement
Portfolio Ended 11/30/99 11/30/99 11/30/99 of Operations
--------- -------------- -------- --------- -------------
<S> <C> <C> <C> <C>
Institutional Shares __________ __________ __________ __________
Investor A Shares __________ __________ __________ __________
Growth & Income Equity __________ __________ __________ __________
Trust Shares/(1)/ __________ __________ __________ __________
Institutional Shares __________ __________ __________ __________
Investor A Shares/(1)/ __________ __________ __________ __________
Investor B Shares/(2)/
Growth Equity
Trust Shares/(18)/ __________ __________ __________ __________
Institutional Shares/(20)/ __________ __________ __________ __________
Investor A Shares/(19)/ __________ __________ __________ __________
Investor B Shares/(18)/ __________ __________ __________ __________
Small Cap Equity
Trust Shares/(5)/ __________ __________ __________ __________
Institutional Shares __________ __________ __________ __________
Investor A Shares/(6)/ __________ __________ __________ __________
Investor B Shares/(2)/ __________ __________ __________ __________
Small Cap Equity Index/(21)/
Trust Shares __________ __________ __________ __________
Institutional Shares __________ __________ __________ __________
Investor A Shares __________ __________ __________ __________
International Equity
Trust Shares/(8)/ __________ __________ __________ __________
Institutional Shares/(8)/ __________ __________ __________ __________
Investor A Shares/(9)/ __________ __________ __________ __________
Investor B Shares/(2)/ __________
</TABLE>
______________
/(1)/ Commenced operations on June 2, 1988.
/(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)/ Commenced operations on June 15, 1988.
/(4)/ Commenced operations on June 7, 1994.
/(5)/ Commenced operations on May 1, 1992.
/(6)/ Initial public offering commenced on May 6, 1992.
/(7)/ Commenced operations on April 1, 1993.
/(8)/ Commenced operations on April 4, 1994.
/(9)/ Initial Public Offering commenced on April 4, 1993
/(10)/ Commenced operations on July 10, 1995.
/(11)/ 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.
/(12)/ Commenced operations on July 15, 1988.
/(13)/ Initial public offering commenced on September 28, 1990.
/(14)/ Commenced operations on November 18, 1996.
/(15)/ Commenced operations on February 10, 1997.
/(16)/ Commenced operations on February 27, 1997.
/(17)/ Commenced operations on May 1, 1997.
/(18)/ Commenced operations on November 24, 1997.
/(19)/ Performance information includes that of Predecessor Growth
Equity Portfolio, which commenced operations on January 4, 1993.
-85-
<PAGE>
/(20)/ Commenced operations on December 2, 1997. Total returns for the
period November 21, 1997 to December 2, 1997 reflect the
performance of the Portfolio's Investor A Shares without taking
into account the sales charge payable in connection with
purchases of Investor A Shares.
/(21)/ Commenced operations on December 30, 1998.
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, 1999 were as follows:
<TABLE>
<CAPTION>
Aggregate Total Return
Portfolio Since Commencement
- ---------
of Operations
-------------
<S> <C>
U.S. Government Securities
Trust Shares __________
Institutional Shares/(1)/ __________
Investor A Shares __________
Investor B Shares/(2)/ __________
Intermediate Corporate Bond
Trust Shares __________
Institutional Shares __________
Investor A Shares __________
Bond Index
Trust Shares __________
Institutional Shares __________
Investor A Shares __________
Government & Corporate Bond
Trust Shares __________
Institutional Shares/(1)/ __________
Investor A Shares __________
Investor B Shares/(2)/ __________
Short-Intermediate Municipal
Trust Shares __________
Investor A Shares __________
Missouri Tax-Exempt Bond
Trust Shares __________
Investor A Shares __________
Investor B Shares/(2)/ __________
National Municipal Bond
Trust Shares __________
Investor A Shares __________
Investor B Shares __________
</TABLE>
-86-
<PAGE>
<TABLE>
<CAPTION>
Aggregate Total Return
Portfolio Since Commencement
- ---------
of Operations
-----------------------
<S> <C>
Equity Income
Trust Shares __________
Institutional Shares __________
Investor A Shares __________
Investor B Shares __________
Balanced
Trust Shares __________
Institutional Shares/(1)/ __________
Investor A Shares __________
Investor B Shares/(2)/ __________
Equity Index
Trust Shares __________
Institutional Shares __________
Investor A Shares __________
Growth & Income Equity
Trust Shares __________
Institutional Shares/(1)/ __________
Investor A Shares __________
Investor B Shares/(2)/ __________
Growth Equity
Trust Shares __________
Institutional Shares __________
Investor A Shares/(3)/ __________
Investor B Shares __________
Small Cap Equity
Trust Shares __________
Institutional Shares/(1)/ __________
Investor A Shares __________
Investor B Shares/(2)/ __________
</TABLE>
-87-
<PAGE>
<TABLE>
Aggregate Total Return
Since Commencement
Portfolio of Operations
--------- ----------------------
<S> <C>
Small Cap Equity Index
Trust Shares __________
Institutional Shares __________
Investor A Shares __________
International Equity
Trust Shares __________
Institutional Shares/(1)/ __________
Investor A Shares __________
Investor B Shares/(2)/ __________
</TABLE>
_______________
(1) Reflects combined performance of Institutional Shares which were initially
offered to the public on January 4, 1994 and Investor A Shares for the
period prior to January 4, 1994.
(2) Investor B Shares were initially offered on March 1, 1995. The performance
figures for Investor B Shares for periods prior to such date represent the
performance for Investor A Shares of the Portfolio which has been restated
to reflect the contingent deferred sales charges payable by holders of
Investor B Shares that redeem within six years of the date of purchase.
Investor B Shares are also subject to distribution and services fees at a
maximum annual rate of 1.00%. Had those distribution and services fees
been reflected, performance would have been reduced.
(3) Total return information includes that of Predecessor Growth Equity
Portfolio, which commenced operations on January 4, 1993.
Investor A Shares and Investor B Shares of 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 and data such as those prepared by Dow Jones & Co.,
Inc., Russell, Salomon Brothers, Inc., Lehman Brothers or Standard & Poor's
Ratings Group or any of their affiliates, the Consumer Price Index, the EAFE
Index, the NASDAQ Composite, or to rankings prepared by independent services or
other financial or industry publications that monitor the performance of mutual
funds. Such comparisons may also be made by referring to data prepared by Lipper
Analytical Services, Inc., (a widely recognized independent service which
monitors the performance of mutual funds) Indata, Frank Russell, CDA, and the
Bank Rate Monitor (which reports average yields for money market accounts
offered by the 50 leading banks and thrift institutions in the top five standard
metropolitan statistical areas). Other similar yield data, including comparisons
to the performance of Firstar Bank 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's Money Fund Report(R), MorningStar,
CDA/Wiesenberger, Money Magazine, Forbes, Barron's, The Wall Street Journal, The
New York Times, Business Week, American Banker, Fortune, Pension's and
Investments, 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.
-88-
<PAGE>
From time to time, the Fund may include the following types of
information in advertisements, supplemental sales literature and reports to
Shareholders: (1) discussions of general economic or financial principles (such
as the effects of inflation, the power of compounding and the benefits of
dollar-cost averaging); (2) discussions of general economic trends; (3)
presentations of statistical data to supplement such discussions; (4)
descriptions of past or anticipated portfolio holdings for one or more of the
Portfolios within the Fund; (5) descriptions of investment strategies for one or
more of such Portfolios; (6) descriptions or comparisons of various investment
products, which may or may not include the Portfolios; (7) comparisons of
investment products (including the Portfolios) with relevant market or industry
indices or other appropriate benchmarks; and (8) discussions of rankings or
ratings by recognized rating organizations.
In addition, with respect to the Short-Intermediate Municipal,
Missouri Tax-Exempt Bond and National Municipal Bond Portfolios the benefits of
tax-free investments may be communicated in advertisements or communications to
shareholders. For example, the tables below present the approximate yield that a
taxable investment must earn at various income brackets to produce after-tax
yields equivalent to those of tax-exempt investments yielding from 4.50% to
7.00%. The yields below are for illustration purposes only and are not intended
to represent current or future yields for the Portfolios, which may be higher or
lower than those shown. The tax brackets shown below will be indexed for
inflation for years after 2000. Investors should consult their tax advisor with
specific reference to their own tax situation.
-89-
<PAGE>
APPROXIMATE YIELD TABLE: SHORT-INTERMEDIATE MUNICIPAL AND NATIONAL MUNICIPAL
BOND PORTFOLIOS
<TABLE>
<CAPTION>
_______________________________________________________________________________
SINGLE RETURN Federal --------Tax-Exempt Yields---------
Sample Taxable Marginal
Income Tax Rate
(2000)
4.50% 5.00% 5.50% 6.50% 7.00%
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM
$0 TO 15.00% 5.29% 5.88% 6.47% 7.65% 8.24%
$ 6,250
FROM
$26,251 TO 28.00% 6.25% 6.94% 7.64% 9.03% 9.72%
$63,550
FROM
$63,551 TO 31.00% 6.52% 7.25% 7.97% 9.42% 10.14%
$132,600
FROM
$132,601 TO 36.00% 7.03% 7.81% 8.59% 10.16% 10.94%
$288,350
OVER
$288,350 39.60% 7.45% 8.28% 9.11% 10.76% 11.59%
- -------------------------------------------------------------------------------
</TABLE>
APPROXIMATE YIELD TABLE: SHORT-INTERMEDIATE MUNICIPAL AND NATIONAL MUNICIPAL
BOND PORTFOLIOS
<TABLE>
<CAPTION>
_______________________________________________________________________________
MARRIED FILING JOINTLY Federal
Sample Taxable Marginal
Income Tax Rate ----------Tax-Exempt Yields----------
(2000)
4.50% 5.00% 5.50% 6.50% 7.00%
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM
$0 TO 15.00% 5.29% 5.88% 6.47% 7.65% 8.24%
$ 43,850
FROM 28.00% 6.25% 6.94% 7.64% 9.03% 9.72%
$43,851 TO
$105,950
FROM 31.00% 6.52% 7.25% 7.97% 9.42% 10.14%
$105,951 TO
$161,450
FROM 36.00% 7.03% 7.81% 8.59% 10.16% 10.94%
$161,451 TO
$288,350
OVER 39.60% 7.45% 8.28% 9.11% 10.76% 11.59%
$288,350
- -------------------------------------------------------------------------------
</TABLE>
-90-
<PAGE>
APPROXIMATE YIELD TABLE: MISSOURI TAX-EXEMPT BOND PORTFOLIO
<TABLE>
<CAPTION>
SINGLE RETURN Federal Missouri Combined
Sample Taxable Marginal Marginal Federal and
Income Tax Rate Tax Rate Missouri
(2000) Marginal Tax ---------------Tax-Exempt Yields--------------
Rate
4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM 15.00% 6.00% 20.10% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$0 TO
$25,750
FROM 28.00% 6.00% 32.32% 6.65% 7.39% 8.13% 8.87% 9.60% 10.34%
$25,751 TO
$62,450
FROM 31.00% 6.00% 35.14% 6.94% 7.71% 8.48% 9.25% 10.02% 10.79%
$62,451 TO
$130,250
FROM 36.00% 6.00% 39.84% 7.48% 8.31% 9.14% 9.97% 10.80% 11.64%
$130,251 TO
$283,150
OVER 39.60% 6.00% 43.22% 7.93% 8.81% 9.69% 10.57% 11.45% 12.33%
$283,150
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
APPROXIMATE YIELD TABLE: MISSOURI TAX-EXEMPT BOND PORTFOLIO
<TABLE>
<CAPTION>
MARRIED FILING JOINTLY Federal Missouri Combined
Sample Taxable Marginal Marginal Federal and
Income Tax Rate Tax Rate Missouri
(1999) Marginal Tax ---------------Tax-Exempt Yields--------------
Rate
4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM 15.00% 6.00% 20.10% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$0 TO
$43,850
FROM 28.00% 6.00% 32.32% 6.65% 7.39% 8.13% 8.87% 9.60% 10.34%
$43,851 TO
$105,950
FROM 31.00% 6.00% 35.14% 6.94% 7.71% 8.48% 9.25% 10.02% 10.79%
$105,951 TO
$161,450
FROM 36.00% 6.00% 39.84% 7.48% 8.31% 9.14% 9.97% 10.80% 11.64%
$161,451 TO
$288,350
OVER 39.60% 6.00% 43.22% 7.93% 8.81% 9.69% 10.57% 11.45% 12.33%
$288,350
- -----------------------------------------------------------------------------------------------------------------------------
</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.
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 calculation of the Portfolios yield and total returns.
Since performance will fluctuate, performance data for the Portfolios cannot
necessarily be used to compare an investment in the Portfolios' shares with
-91-
<PAGE>
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 1-800-452-2724 or Trust, Trust II or Institutional Shares - 1-800-452-
4015.
ADDITIONAL INFORMATION CONCERNING TAXES
In General
The following summarizes certain additional tax considerations
generally affecting the Portfolios and their shareholders that are not described
in the Prospectuses. No attempt is made to present a detailed explanation of the
tax treatment of the Portfolios or their shareholders, and the discussion here
and in the Prospectuses are not intended as a substitute for careful tax
planning. Potential investors should consult their tax advisors with specific
reference to their own tax situations.
Each Portfolio intends to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code, and to distribute out its
income to shareholders each year, so that each Portfolio itself generally will
be relieved of federal income and excise taxes. If a Portfolio were to fail to
so qualify: (1) the Portfolio would be taxed at regular corporate rates without
any deduction for distributions to shareholders; and (2) shareholders would be
taxed as if they received ordinary dividends, although corporate shareholders
could be eligible for the dividends received deduction.
-92-
<PAGE>
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 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.
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
-93-
<PAGE>
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
distributions 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.
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
security 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. An investment in
a Tax-Exempt Portfolio is not intended to constitute a balanced investment
program. Shares of a Tax-Exempt Portfolio would not be suitable for retirement
plans qualified under Section 401 of the Code, H.R. 10 plans and individual
retirement accounts because such plans and accounts are generally tax-exempt
and, therefore, not only would the shareholder not gain any additional benefit
from the Tax-Exempt Portfolios' dividends being tax-exempt, but such dividends
would be ultimately taxable to the beneficiaries when distributed.
Shareholders who might be treated as a "substantial user" or a
"related person" to such user with respect to facilities financed through any of
the tax-exempt obligations held by a Tax-Exempt Portfolio, are advised to
consult their tax advisors with respect to whether exempt-interest dividends
retain the exclusion under Section 103(a). A "substantial user" is defined under
U.S. Treasury Regulations to include a non-exempt person (i) who regularly uses
a part of such facilities in his trade or business and (ii)(A) whose gross
revenues derived with respect to the facilities financed by the issuance of
bonds are more than 5% of the total revenues derived by all users of such
facilities, (B) who occupies more than 5% of the usable area of such facilities
or (C) for whom such facilities or a part thereof were specifically constructed,
reconstructed or
-94-
<PAGE>
acquired. "Related persons" include certain related natural persons, affiliated
corporations, partnerships and its partners, and S corporations and their
shareholders.
Taxation of Certain Financial Instruments & Investments in Passive Foreign
Investment Companies
The tax principles applicable to transactions in financial instruments
and futures contacts and options that may be engaged in by a Portfolio, and
investments in passive foreign investment companies ("PFICs"), are complex and,
in some cases, uncertain. Such transactions and investments may cause a
Portfolio to recognize taxable income prior to the receipt of cash, thereby
requiring the Portfolio to liquidate other positions, or to borrow money, so as
to make sufficient distributions to shareholders to avoid corporate-level tax.
Moreover, some or all of the taxable income recognized may be ordinary income or
short-term capital gain, so that the distributions may be taxable to
shareholders as ordinary income.
In addition, in the case of any shares of a PFIC in which a Portfolio
invests, the Portfolio may be liable for corporate-level tax on any ultimate
gain or distributions on the shares if the Portfolio fails to make an election
to recognize income annually during the period of its ownership of the PFIC
shares.
-95-
<PAGE>
MANAGEMENT OF THE FUND
Directors and Officers
The business and affairs of the Portfolios are managed under the
direction of Fund's Board of Directors in accordance with the laws of Maryland
and the Fund's Articles of Incorporation. 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: 55
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: 53
Joseph J. Hunt Director General Vice-President
Iron Workers International Union International Association of
1750 New York Avenue, N.W. Bridge, Structural and
Suite 4006 Ornamental Iron Workers
Washington, D.C. 2000 (International Labor Union),
Age: 56 January 1994 to present.
James C. Jacobsen Director Director, Kellwood Company,
Kellwood Company (manufacturer of wearing
600 Kellwood Parkway apparel and camping
Chesterfield, MO 63017 softgoods) since 1975; Vice
Age: 63 Chairman, Kellwood Company
since May 1989.
</TABLE>
________________________
* Mr. Woodham is an "interested person" of the Fund as defined in the 1940
Act.
-96-
<PAGE>
<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 and Corporate
Union Electric Company Services, Union Electric Company (electric
P.O. Box 66149 utility company); Director, Huntco, Inc.
St. Louis, MO 63166 (intermediate steel processors).
Age: 44
Ronald D. Winney* Director and Treasurer Private Investor; Treasurer, Ralston Purina
1111 N. Oxfordshire Drive Company, 1985-1999.
Edwardsville, IL 62025
Age: 56
W. Bruce McConnel, III* Secretary Partner of the law firm of Drinker Biddle &
One Logan Square Reath LLP, Philadelphia, Pennsylvania since 1977.
18/th/ & Cherry Streets
Philadelphia, PA 19103-6996
Age: 55
Joseph C. Neuberger Assistant Treasurer Employee of Firstar Mutual Fund Services, LLC
615 E. Michigan Street
2/nd/ Floor
Milwaukee, WI 53202
Age: 37
Michael T. Karbouski Assistant Treasurer Employee of Firstar Mutual Fund Services, LLC
615 E. Michigan Street
2/nd/ Floor
Milwaukee, WI 53202
Age: 35
Katherine Harwood Assistant Secretary Employee of Firstar Mutual Fund Services, LLC
615 E. Michigan Street
2/nd/ Floor
Milwaukee, WI 53202
Age: 25
</TABLE>
________________________
* Messrs. Winney, McConnel, Neuberger, Karbouski and Ms. Harwood 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, 1999, the Fund paid or
accrued for the account of its directors as a group, for services in all
capacities, a total of $_______. Drinker Biddle & Reath LLP, of which Mr.
McConnel is a partner, receives legal fees as counsel to the Fund. As of the
date of this Statement of Additional Information, the directors and officers of
the Fund, as a group, owned less than 1% of the outstanding shares of the
Fund.
The following chart provides certain information about the fees
received by the Fund's directors for their services as members of the Board of
Directors and committees thereof for the fiscal year ended November 30,
1999:
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<PAGE>
<TABLE>
<CAPTION>
Pension or
Retirement Total
Aggregate Benefits Accrued Compensation
Compensation as Part of Fund from the Fund and
Name of Director from the Fund Expense Fund Complex*
---------------- ------------- ---------------- -----------------
<S> <C> <C> <C>
Jerry V. Woodham ________ N/A ________
Donald E. Brandt ________ N/A ________
Robert M. Cox, Jr. ________ N/A ________
Joseph J. Hunt ________ N/A ________
James C. Jacobsen ________ N/A ________
Patrick J. Moore** ________ N/A ________
Ronald D. Winney ________ N/A ________
</TABLE>
* The "Fund Complex" consists solely of the Fund.
** Mr. Moore resigned as a director of the Fund on January 4, 2000.
Investment Advisory and Sub-Advisory Agreements
Firstar Investment and Research Management Company, LLC ("FIRMCO")
serves as investment adviser to each Portfolio as a result of the merger by the
Portfolios' former adviser, Mississippi Valley Advisors Inc. ("MVA"), into
FIRMCO on March 1, 2000. FIRMCO is a subsidiary of Firstar Corporation, a
banking and financial services organization. Prior to September 17, 1999, MVA
was an indirect wholly-owned subsidiary of Mercantile Bancorporation Inc. On
September 17, 1999, Mercantile Bancorporation Inc. merged into Firstar
Corporation.
For the services provided and expenses assumed pursuant to its
investment advisory agreement with the Fund, FIRMCO 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, 1999,
MVA received advisory fees (net of waivers) at the effective annual rates of
___%, ___%, ___%, ___%, ___%, ___%, ___%, ___%, ___%, ___%, ___%, ___%, ___%,
___%, ____%, ___%, ___% and ___% of the respective average daily net assets of
the Treasury Money Market, Money Market, Tax-Exempt Money Market, U.S.
Government Securities, Intermediate Corporate Bond, Bond Index, Government &
Corporate Bond, Short-Intermediate Municipal, Missouri Tax-Exempt Bond, National
Municipal Bond, Equity Income, Equity Index,
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<PAGE>
Growth & Income Equity, Growth Equity, Small Cap Equity, Small Cap Equity Index,
International Equity and Balanced Portfolios.
FIRMCO 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.
In addition, Clay Finlay serves as sub-adviser to the International
Equity Portfolio. For the services provided and expenses assumed pursuant to
its sub-advisory agreement with FIRMCO, Clay Finlay receives from FIRMCO 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, 1999, Clay Finlay received sub-advisory fees at the effective annual rate of
___% of the International Equity Portfolio's average daily net assets. Clay
Finlay bears all expenses incurred by it in connection with its services under
the sub-advisory agreement.
Pursuant to the advisory and sub-advisory agreements, FIRMCO and Clay
Finlay have agreed to provide investment advisory and sub-investment advisory
services, respectively, as described in the Portfolios' Prospectuses. FIRMCO 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 FIRMCO and Clay Finlay,
respectively, shall not be liable for any error of judgment or mistake of law or
for any loss suffered in connection with the performance of their respective
agreements, except a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence in the performance of their duties or
from reckless disregard by them of their duties and obligations thereunder.
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<PAGE>
For the fiscal year or period ended November 30, 1999, MVA was paid
advisory fees, after waivers, as follows:
<TABLE>
<CAPTION>
Fees Paid
Portfolios (After Waivers) Waivers
- ---------- --------------- -------
<S> <C> <C>
Treasury Money Market Portfolio __________ __________
Money Market Portfolio __________ __________
Tax-Exempt Money Market Portfolio __________ __________
U.S. Government Securities Portfolio __________ __________
Intermediate Corporate Bond Portfolio __________ __________
Bond Index Portfolio __________ __________
Government & Corporate Bond Portfolio __________ __________
Short-Intermediate Municipal Portfolio __________ __________
Missouri Tax-Exempt Bond Portfolio __________ __________
National Municipal Bond Portfolio __________ __________
Balanced Portfolio __________ __________
Equity Income Portfolio __________ __________
Equity Index Portfolio __________ __________
Growth & Income Equity Portfolio __________ __________
Growth Equity Portfolio __________ __________
Small Cap Equity Portfolio __________ __________
Small Cap Equity Index Portfolio/(1)/ __________ __________
International Equity Portfolio __________ __________
</TABLE>
1. For the period from commencement of operations (December 30, 1998) through
November 30, 1999.
-100-
<PAGE>
For the fiscal year or period ended November 30, 1998, MVA was paid
advisory fees, after waivers, as follows:
<TABLE>
<CAPTION>
Fees Paid
Portfolios (After Waivers) Waivers
---------- --------------- -------
<S> <C> <C>
Treasury Money Market Portfolio $ 983,103 $140,506
Money Market Portfolio $4,836,247 $690,964
Tax-Exempt Money Market Portfolio $ 595,181 $ 85,029
U.S. Government Securities Portfolio $ 459,829 $ 0
Intermediate Corporate Bond Portfolio $ 203,401 $ 91,356
Bond Index Portfolio $ 329,684 $142,709
Government & Corporate Bond Portfolio $ 913,545 $ 0
Short-Intermediate Municipal Portfolio $ 153,355 $ 62,423
Missouri Tax-Exempt Bond Portfolio $ 484,088 $ 0
National Municipal Bond Portfolio $1,389,193 $663,264
Balanced Portfolio $ 944,820 $ 0
Equity Income Portfolio $ 577,324 $280,161
Equity Index Portfolio $ 104,594 $ 35,308
Growth & Income Equity Portfolio $2,595,524 $ 0
Growth Equity Portfolio $ 702,079 $ 0
Small Cap Equity Portfolio $1,776,373 $ 0
International Equity Portfolio $ 731,113 $ 0
</TABLE>
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<PAGE>
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:
Fees Paid
Portfolios (After Waivers) Waivers
---------- --------------- -------
Treasury Money Market Portfolio $ 544,658 $ 132,471
Money Market Portfolio $3,205,706 $ 734,416
Tax-Exempt Money Market Portfolio $ 518,456 $ 74,067
U.S. Government Securities Portfolio $ 357,824 $ 0
Intermediate Corporate Bond Portfolio/(1)/ $ 0 $ 175,432
Bond Index Portfolio/(1)/ $ 0 $ 312,722
Government & Corporate Bond Portfolio $ 743,332 $ 0
Short-Intermediate Municipal Portfolio $ 0 $ 160,035
Missouri Tax-Exempt Bond Portfolio $ 414,195 $ 0
National Municipal Bond Portfolio $ 0 $1,812,782
Balanced Portfolio $ 885,481 $ 0
Equity Income Portfolio/(2)/ $ 0 $ 681,294
Equity Index Portfolio/(3)/ $ 0 $ 51,115
Growth & Income Equity Portfolio $2,392,991 $ 0
Growth Equity Portfolio/(4)/ $ 86,057 $ 0
Small Cap Equity Portfolio $1,783,322 $ 0
International Equity Portfolio $ 590,822 $ 50,950
______________________
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 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.
-102-
<PAGE>
Administrator
Effective January 1, 2000, BISYS Fund Services Ohio, Inc. ("BISYS"),
located at 3435 Stelzer Road, Columbus, Ohio 43219, and Firstar Mutual Fund
Services, LLC ("Firstar"), located at 615 E. Michigan Street, Milwaukee, WI
53202, serve as the Portfolios' co-administrators (the
"Co-Administrators").
For the period from January 1, 2000 through March 31, 2000, the
following are some of the services jointly provided by the Co-Administrators to
the Portfolios: providing personnel and supervision of an office facility to
receive purchase, exchange and redemption orders via the Fund's toll-free
telephone lines; providing information and distributing written communications
concerning the Portfolios to their shareholders of record, and assisting in
handling shareholder problems and calls; monitoring the Fund's arrangements with
respect to services provided by certain institutional shareholders ("Service
Organizations") under its Administrative Services Plans for Trust Shares and
Institutional Shares, respectively, and its Distribution and Services Plans for
Investor A Shares and Investor B Shares, respectively, 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 Fund and such Service Organizations; furnishing statistical and
research data, clerical and certain bookkeeping services and stationery and
office supplies; and assisting in monitoring of regulatory and legislative
developments which may affect the Fund. For the same period, the following are
some services provided by Firstar to the Portfolios: completing blue sky
compliance starting January 10, 2000; monitoring compliance with Subchapter M of
Internal Revenue Code; monitoring fidelity bond coverage; monitoring directors'
and officers' liability coverage; and monitoring expense ratios/budget expenses.
For the same period, the following are some services provided by BISYS to the
Portfolios: preparing annual reports to the SEC on Form N-SAR; compiling data
for, and assisting in preparation for execution and filing by the Fund, all of
the Fund'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;
assisting in preparation and filing of Rule 24f-2 Notices; and mailing all
communications by the Fund to its shareholders to their authorized
representatives.
For the period beginning April 1, 2000, Firstar 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.
Firstar 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
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<PAGE>
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. For the same period, BISYS has agreed to assist in
responding to examination letters received from the SEC; review prospectuses and
supplements to prospectuses as prepared by counsel to the Fund; and review Board
agendas and participate in Board meetings.
Effective January 1, 2000, the Fund will pay the Co-Administrators
jointly a fee, computed daily and payable monthly, with respect to each
Portfolio other than the Tax-Exempt Money Market Portfolio, at the annual rate
of .20% of the average daily net assets of each Portfolio, and (ii) with respect
to the Tax-Exempt Money Market Portfolio, at the annual rate of .10% of the
average daily net assets of the Portfolio. The Co-Administrators have agreed to
bear all expenses in connection with the performance of their services, except
that a Portfolio bears any expenses incurred in connection with any use of a
pricing service to value portfolio securities.
Prior to January 1, 2000, BISYS served as the sole administrator to
the Fund. BISYS generally assisted in all aspects of each Portfolio's
administration and operation and also monitored and performed other services
pertaining to the Fund's arrangements under the Administrative Services Plan
described below. For its services, BISYS was 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, 1999, BISYS received administration
fees (net of waivers) at the effective annual rates of ___%, ___% and ___% of
the average daily net assets of the Intermediate Corporate Bond, National
Municipal Bond and Equity Income Portfolios, respectively, and ___% of the
average daily net assets of each of the other Portfolios. From time to time,
BISYS 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.
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<PAGE>
For the fiscal year or period ended November 30, 1999, BISYS was paid
administration fees, after waivers, as follows:
<TABLE>
<CAPTION>
Fees Paid
Portfolios (After Waivers) Waivers
---------- --------------- -------
<S> <C> <C>
Treasury Money Market Portfolio __________ __________
Money Market Portfolio __________ __________
Tax-Exempt Money Market Portfolio __________ __________
U.S. Government Securities Portfolio __________ __________
Intermediate Corporate Bond Portfolio __________ __________
Bond Index Portfolio __________ __________
Government & Corporate Bond Portfolio __________ __________
Short-Intermediate Municipal Portfolio __________ __________
Missouri Tax-Exempt Bond Portfolio __________ __________
National Municipal Bond Portfolio __________ __________
Balanced Portfolio __________ __________
Equity Income Portfolio __________ __________
Equity Index Portfolio __________ __________
Growth & Income Equity Portfolio __________ __________
Growth Equity Portfolio __________ __________
Small Cap Equity Portfolio __________ __________
Small Cap Equity Index Portfolio/(1)/ __________ __________
International Equity Portfolio __________ __________
</TABLE>
1. For the period from commencement of operations ( December 30, 1998) through
November 30, 1999.
-105-
<PAGE>
For the fiscal year or period ended November 30, 1998, BISYS was paid
administration fees, after waivers, as follows:
<TABLE>
<CAPTION>
Fees Paid
Portfolios (After Waivers) Waivers
---------- --------------- -------
<S> <C> <C>
Treasury Money Market Portfolio $ 280,895 $ 280,909
Money Market Portfolio $1,381,828 $1,381,778
Tax-Exempt Money Market Portfolio $ 170,051 $ 0
U.S. Government Securities Portfolio $ 102,187 $ 102,181
Intermediate Corporate Bond Portfolio $ 46,054 $ 61,001
Bond Index Portfolio $ 157,468 $ 157,460
Government & Corporate Bond Portfolio $ 203,015 $ 203,004
Short-Intermediate Municipal Portfolio $ 39,233 $ 39,231
Missouri Tax-Exempt Bond Portfolio $ 107,578 $ 107,574
National Municipal Bond Portfolio $ 318,915 $ 427,432
Balanced Portfolio $ 125,979 $ 125,973
Equity Income Portfolio $ 97,524 $ 131,138
Equity Index Portfolio $ 46,635 $ 46,633
Growth & Income Equity Portfolio $ 471,926 $ 471,900
Growth Equity Portfolio $ 93,613 $ 93,608
Small Cap Equity Portfolio $ 236,856 $ 236,844
International Equity Portfolio $ 73,113 $ 73,109
</TABLE>
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<PAGE>
For the fiscal year or period ended November 30, 1997, BISYS (and with
respect to the Growth Equity Portfolio, the predecessor administrator) was paid
administration fees, after waivers, as follows:
Fees Paid
Portfolios (After Waivers) Waivers
---------- --------------- -------
Treasury Money Market Portfolio $ 217,115 $121,453
Money Market Portfolio $1,226,946 $743,132
Tax-Exempt Money Market Portfolio $ 148,129 $ 0
U.S. Government Securities Portfolio $ 79,519 $ 79,515
Intermediate Corporate Bond Portfolio/(1)/ $ 17,544 $ 46,250
Bond Index Portfolio/(1)/ $ 104,243 $104,239
Government & Corporate Bond Portfolio $ 165,196 $165,189
Short-Intermediate Municipal Portfolio $ 29,098 $ 29,097
Missouri Tax-Exempt Bond Portfolio $ 92,046 $ 92,042
National Municipal Bond Portfolio/1/ $ 181,277 $478,060
Balanced Portfolio $ 118,068 $118,063
Equity Income Portfolio/(2)/ $ 49,963 $131,717
Equity Index Portfolio/(3)/ $ 17,039 $ 17,038
Growth & Income Equity Portfolio $ 435,186 $435,169
Growth Equity Portfolio/(4)/ $ 16,610 $ 1,287
Small Cap Equity Portfolio $ 237,783 $237,775
International Equity Portfolio $ 75,322 $ 54,941
______________________
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 ended September 30, 1997, Federated Administrative
Services, the former administrator of the Predecessor Growth Equity Portfolio,
earned administrative fees of $90,965 and $71,420, respectively.
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<PAGE>
Custodian, Sub-Custodian and Transfer Agent
Mercantile Trust Company National Association ("Mercantile Trust") an
indirect wholly-owned subsidiary of Firstar Corporation with principal offices
located at One Mercantile Center, 8th and Locust Streets, St. Louis, Missouri
63101, serves as Custodian of each Portfolio's assets pursuant to a Custodian
Agreement. In addition, Deutsche Bank AG, New York Branch, with principal
offices at 16 Wall Street, New York, New York 10005, serves as the Sub-Custodian
for the International Equity Portfolio. Effective March 20, 2000, Firstar Mutual
Fund Services, LLC, ("Firstar"), with principal offices at 615 E. Michigan
Street, Milwaukee, WI 53202, serves as the Fund's transfer agent and dividend
disbursing agent. Prior to March 20, 2000, BISYS Fund Services Ohio, Inc.,
("BISYS")located at 3435 Stelzer Road, Columbus, Ohio 43219, served as the
Fund's transfer agent and dividend disbursing agent.
Under a Custodian Agreement between the Fund and Mercantile Trust,
Mercantile Trust has agreed to (i) maintain a separate account or accounts in
the name of each Portfolio; (ii) receive and disburse money on behalf of each
Portfolio; (iii) collect and receive all income and other payments and
distributions on account of each Portfolio's portfolio securities; (iv) respond
to correspondence relating to its duties; and (v) make periodic reports to the
Fund's Board of Directors concerning the operations of each Portfolio.
Mercantile Trust 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 Trust shall remain liable for the performance of all of
its custodial duties under the Custodian Agreement, notwithstanding any
delegation. Mercantile Trust is authorized to select one or more banks or trust
companies to serve as sub-custodian on behalf of the Portfolios, provided that
Mercantile Trust 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.
Pursuant to the terms of the Assignment and Delegation Agreement, Mercantile
Trust National Association remains liable for the acts and omissions of
Mercantile Trust under the Custodian Agreement.
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 Trust an annual fee. For each Money Market Portfolio this fee is paid
monthly and calculated daily at the rate of $.20 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 $.50. 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
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<PAGE>
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 Trust. In addition,
each Portfolio pays Mercantile Trust's incremental costs in providing foreign
custody services for any foreign-denominated and foreign-held securities and
reimburses Mercantile Trust for out-of-pocket expenses related to such services.
Pursuant to an agreement with the Fund's transfer agent and in
connection with the Shares offered to its customers, a financial institution
(which may include Mercantile or its affiliated or correspondent banks) may
serve as sub-transfer agent with respect to the underlying beneficial owners of
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 Shares (irrespective of the number of Portfolios in which such
Shares are held).
Effective March 20, 2000, Firstar replaced BISYS as the Fund's
transfer agent and dividend disbursing agent (in those capacities, the "Transfer
Agent"). Under the Transfer Agent Servicing Agreement with Firstar, 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. Prior to March
20, 2000, such services were provided by BISYS to the Portfolios.
Distributor
BISYS Fund Services Limited Partnership (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. 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
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<PAGE>
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.
With respect to each Portfolio's Trust Shares, Trust II 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, 1999, 1998 and 1997, the Distributor received front-end sales
charges in connection with Investor A share purchases as follows: U.S.
Government Securities Portfolio -- $________, $1,218 and $2,052, respectively;
Government & Corporate Bond Portfolio -- $________, $8,853 and $9,635,
respectively; Missouri Tax-Exempt Bond Portfolio -- $_______, $75,697 and
$46,690, respectively; Growth & Income Equity Portfolio --$________, $171,703,
and $167,110, respectively; Small Cap Equity Portfolio -- $_________, $26,651
and $33,777, respectively; Balanced Portfolio -- $_______, $37,468 and $20,227,
respectively; International Equity Portfolio -- $_______, $9,765 and $18,258,
respectively; Short-Intermediate Municipal Portfolio -- $________, $0, and $0,
respectively; and National Municipal Bond Portfolio -- $_______, $9,641, and
$4,340, respectively. For the fiscal years ended November 30, 1999 and 1998 and
the period from 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 Bond Index Portfolio of $_______, $1,026 and $13,
respectively. For the fiscal years ended November 30, 1999 and 1998 and the
period from 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 of $_____, $1,662
and $1,114, respectively. For the fiscal years ended November 30, 1999 and 1998
and the period from 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 $______, $25,690 and $829.
For the fiscal years ended November 30, 1999, 1998 and the period from 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 $_______, $11,259 and $3,003. For the fiscal years
ended November 30, 1999 and 1998 and the period from 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
$_______, $14,772 and $0. For the period from December 30, 1998 (commencement of
operations) to November 30, 1999, the Distributor received front-end sales
charges in connection with Investor A Shares of the Small Cap Equity
-110-
<PAGE>
Index Portfolio of $_______. Of these amounts, the Distributor retained
$________, $21,393, and $0, respectively, and MVA and affiliates retained
$________, $1,206, and $310, respectively, with respect to the U.S. Government
Securities Portfolio; the Distributor retained $_________, $88 and $0, and MVA
and affiliates retained $_______, $0 and $0 with respect to the Intermediate
Corporate Bond Portfolio; the Distributor retained $________, $216 and $0, and
MVA and affiliates retained $________, $0 and $0 with respect to the Bond Index
Portfolio; the Distributor retained $________, $1,210 and $0, respectively, and
MVA and affiliates retained $________, $2,025 and $6,721, respectively, with
respect to the Government & Corporate Bond Portfolio; the Distributor retained
$_________, $9,050, and $23, respectively, and MVA and affiliates retained
$________, $2,814 and $4,700, respectively, with respect to the Missouri Tax-
Exempt Bond Portfolio; the Distributor retained $_________, $3,014 and $45, and
MVA and affiliates retained $________, $3,395 and $466 with respect to the
Equity Income Portfolio; the Distributor retained $________, $1,574 and $0, and
MVA and affiliates retained $________, $2,956 and $25 with respect to the Equity
Index Portfolio; the Distributor retained $_________, $21,393 and $2,387,
respectively, and MVA and affiliates retained $________, $46,623 and $56,664,
respectively, with respect to the Growth & Income Equity Portfolio; the
Distributor retained $________, $1,280 and $0, and MVA and affiliates retained
$________, $3,738 and $0 with respect to the Growth Equity Portfolio; the
Distributor retained $________, $3,284 and $184 respectively, and MVA and
affiliates retained $________, $8,880 and $9,915, respectively, with respect to
the Small Cap Equity Portfolio; the Distributor retained $________, $6,170, and
$67, respectively, and MVA and affiliates retained $________, $5,029, and
$9,419, respectively, with respect to the Balanced Portfolio; the Distributor
retained $_________, $1,014, and $0, respectively, and MVA and affiliates
retained $________, $2,722,and $7,433, respectively, with respect to the
International Equity Portfolio; the Distributor retained $________, $0,and $0,
respectively, and MVA and affiliates retained $________, $0 and $0,
respectively, with respect to the Short-Intermediate Municipal Portfolio; the
Distributor retained $________, $940,and $0 and MVA and affiliates retained
$________, $0, and $0 with respect to the National Municipal Bond Portfolio; and
the Distributor retained $________, and MVA and affiliates retained $________
with respect to the Small Cap Equity Index 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, 1999, 1998 and 1997, the Distributor
received contingent deferred sales charges in connection with Investor B share
redemptions as follows: Money Market Portfolio -- $_____, $0, and $0; U.S.
Government Securities Portfolio -- $_______, $0 and $8,968; Government and
Corporate Bond Portfolio -- $________, $30, and $4,075; Missouri Tax-Exempt Bond
Portfolio -- $_______, $0 and $61,906; Growth and Income Equity Portfolio --
$_______, $817 and $121,999, Small Cap Equity Portfolio -- $________,$0 and
$12,870; International Equity Portfolio -- $________, $0, $8,191; Balanced
Portfolio -- $________, $1,053 and $9,311; and National Municipal Bond
Portfolio --$_________, $0 and $34,256. For the fiscal years ended November 30,
1999, 1998 and for the period March 7, 1997 (commencement of operations) through
November 30, 1997, the Distributor received $________, $0 and $10,382 in
contingent deferred sales charges in connection with Investor B Share
redemptions of the Equity Income Portfolio. For the fiscal years ended November
30, 1999, 1998 and for the period November 21, 1997 (date Predecessor Growth
Equity Portfolio
-111-
<PAGE>
reorganized into the Growth Equity Portfolio) through November 30, 1997, the
Distributor received $_______, $0 and $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, 1999:
<TABLE>
<CAPTION>
Brokerage
Commissions in
Net Underwriting Compensation on Connection with
Discounts and Redemption and Portfolio Other
Portfolio Commissions/(1)/ Repurchase/(2)/ Transactions Compensation/(3)/
--------- ---------------- --------------- ------------ -----------------
<S> <C> <C> <C> <C>
Treasury Money Market _________ _________ _________ _________
Money Market _________ _________ _________ _________
Tax-Exempt Money _________ _________ _________ _________
Market
U.S. Government _________ _________ _________ _________
Securities
Intermediate Corporate _________ _________ _________ _________
Bond
Bond Index _________ _________ _________ _________
Government & _________ _________ _________ _________
Corporate Bond
Short-Intermediate _________ _________ _________ _________
Municipal
Missouri Tax- _________ _________ _________ _________
Exempt Bond
National Municipal Bond _________ _________ _________ _________
Balanced _________ _________ _________ _________
Equity Income _________ _________ _________ _________
Equity Index _________ _________ _________ _________
Growth & Income Equity _________ _________ _________ _________
Growth Equity _________ _________ _________ _________
Small Cap Equity _________ _________ _________ _________
Small Cap Equity Index/(4)/ _________ _________ _________ _________
International Equity _________ _________ _________ _________
</TABLE>
-112-
<PAGE>
- -------------------------
(1) Represents amounts received from front-end sales charges on Investor A
Shares and commissions received in connection with sales of Investor B
Shares.
(2) Represents amounts received from contingent deferred sales charges on
Investor B Shares. The basis on which such sales charges are paid is
described in the Prospectus relating to Investor B Shares. All such
amounts were assigned to MVA pursuant to the financing arrangements between
the Distributor and MVA described below.
(3) Represents payments made under the Administrative Services Plans and
Distribution and Services Plans that have been adopted by the Fund (see
discussion below).
(4) Commenced Operations on December 30, 1998.
The Plans
Distribution and Services Plans. The Fund has adopted separate
-------------------------------
Distribution and Services Plans with respect to Investor A Shares and Investor B
Shares of the Portfolios pursuant to the 1940 Act and Rule 12b-1 thereunder. Any
material amendment to any of these Plans or arrangements with the Distributor or
Service Organizations (which may include affiliates of the Fund's Adviser) must
be approved by a majority of the Board of Directors, including a majority of the
directors who are not "interested persons" of the Fund as defined in the 1940
Act and have no direct or indirect financial interest in such arrangements (the
"Disinterested Directors") and by a majority of the Investor A Shares or
Investor B Shares, respectively, of the Portfolio. Pursuant to the Plans, the
Fund may enter into Servicing Agreements with broker-dealers and other
organizations ("Servicing Agreements") that purchase Investor A 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 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 Investor A Shares or Investor B Shares and
monitoring services for their customers who have invested in Investor A Shares
or Investor B Shares, including the operation of telephone lines for daily
quotations of return information.
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.
-113-
<PAGE>
Service Organizations and other broker/dealers receive commissions
from the Distributor for selling Investor B Shares, which are paid at the time
of the sale. These commissions approximate the commissions payable with respect
to sales of Investor A Shares. The distribution fees payable under the
Distribution and Services Plan for Investor B Shares (at an annual rate of .75%)
are intended to cover the expense to the Distributor of paying such up-front
commissions, and the contingent deferred sales charge is calculated to charge
the investor with any shortfall that would occur if Investor B Shares are
redeemed prior to the expiration of the eight year period, after which Investor
B Shares automatically convert to Investor A Shares. To provide funds for the
payment of up-front sales commissions, the Distributor has entered into an
agreement with FIRMCO pursuant to which FIRMCO 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 FIRMCO 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.
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% (annualized) of the average daily net asset value of a Portfolio's
outstanding Investor A Shares.
Under the Distribution and Services Plan for Investor B Shares,
payments by the Fund for distribution expenses may not exceed .75% (annualized)
of the average daily net asset value of a Portfolio's outstanding Investor B
Shares and payments for shareholder administrative servicing expenses may not
exceed .25% (annualized) of the average daily net asset value of a Portfolio's
outstanding Investor B Shares.
Actual distribution expenses paid by the Distributor with respect to
Investor B Shares for any given year may exceed the distribution fees and
contingent deferred sales charges received with respect to those Shares. These
excess expenses may be reimbursed by Investor B shareholders out of contingent
deferred sales charges and distribution payments in future years as long as the
Distribution and Services Plan for Investor B Shares is in effect.
Administrative Services Plans. Separate Administrative Services Plans
-----------------------------
have been adopted with respect to Trust Shares and Institutional Shares of the
Portfolios. Pursuant to the Administrative Services Plan, Trust and
Institutional Shares are sold to banks and other financial institutions (which
may include Mercantile Trust 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
and Institutional 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 of the average daily net assets of a Portfolio's Trust and
Institutional Shares owned beneficially by a Service Organization's customers.
-114-
<PAGE>
Service Organizations
Pursuant to each Administrative Services Plan and each Distribution
and Services Plan described above, the Fund may enter into Servicing Agreements
with banks, trust departments, and other financial institutions ("Trust
Servicing Agreements") and with broker-dealers and other organizations
("Servicing Agreements") that purchase Trust Shares, Institutional Shares,
Investor A Shares or Investor B Shares of a Portfolio, respectively. The
Servicing Agreements provide that the Service Organizations receiving such
compensation, which may include Mercantile Trust and its affiliates, to perform
certain shareholder administrative support services to their customers who are
the record or beneficial owners of Trust Shares, Institutional Shares, Investor
A Shares or Investor B Shares, respectively. Services provided pursuant to the
Servicing Agreements may include some or all of the following services: (i)
processing dividend and distribution payments from the Portfolios on behalf of
customers; (ii) providing information periodically to customers showing their
positions in Trust, Institutional, Investor A Shares or Investor B Shares; (iii)
arranging for bank wires; (iv) responding to routine customer inquiries relating
to services performed by the particular Service Organization; (v) providing sub-
accounting with respect to shares owned of record or beneficially by customers
or the information necessary for sub-accounting; (vi) as required by law,
forwarding shareholder communications (such as proxies, shareholder reports,
annual and semi-annual financial statements and dividend, distribution and tax
notices) to customers; (vii) forwarding to customers proxy statements and
proxies containing any proposals regarding Servicing Agreements or the related
Plan; (viii) aggregating and processing purchase, redemption, and exchange
requests from customers and placing net purchase and redemption orders with the
Fund's Distributor; (ix) providing customers with a service that invests the
assets of their accounts in shares pursuant to specific or pre-authorized
instructions; (x) maintaining records relating to each customer's share
transactions; or (xi) other similar services if requested by the Fund and
permitted by law. In addition, Service Organizations may also provide dedicated
facilities and equipment in various local locations to serve the needs of
investors, including walk-in facilities, 800 numbers, and communication systems
to handle shareholder inquiries, and in connection with such facilities, provide
on-site management personnel and monitoring services for their customers who
have invested in Investor A or Investor B Shares, including the operation of
telephone lines for daily quotations of return information.
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
-115-
<PAGE>
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 Statement of Additional
Information in light of the terms governing their accounts with their Service
Organization.
For the fiscal year or period ended November 30, 1999, pursuant to the
Distribution and Services Plan for Investor A Shares, the Portfolios were
charged the following amounts:
Distribution and Services Plan - Investor A Shares
--------------------------------------------------
<TABLE>
<CAPTION>
Amount Paid Amount Paid
to the Amount Paid to Affiliates
Portfolios Total Charged Distributor to MVA of MVA
- ---------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Treasury Money Market _________ _________ _________ _________
Money Market _________ _________ _________ _________
Tax-Exempt Money Market _________ _________ _________ _________
U.S. Government Securities _________ _________ _________ _________
Intermediate Corporate Bond _________ _________ _________ _________
Bond Index _________ _________ _________ _________
Government & Corporate Bond _________ _________ _________ _________
Short-Intermediate Municipal Bond _________ _________ _________ _________
Missouri Tax-Exempt Bond _________ _________ _________ _________
National Municipal Bond _________ _________ _________ _________
Balanced _________ _________ _________ _________
Equity Income _________ _________ _________ _________
Equity Index _________ _________ _________ _________
Growth & Income Equity _________ _________ _________ _________
Growth Equity _________ _________ _________ _________
Small Cap Equity _________ _________ _________ _________
Small Cap Equity Index _________ _________ _________ _________
International Equity _________ _________ _________ _________
</TABLE>
All amounts paid under the Distribution and Services Plan for Investor
A Shares for the fiscal year ended November 30, 1999 were attributable to
payments to broker-dealers. For the fiscal year ended November 30, 1999, no
brokers of record waived fees.
-116-
<PAGE>
For the fiscal year or period ended November 30, 1999, pursuant to the
Distribution and Services Plan for Investor B Shares of the CDSC Portfolios, the
CDSC Portfolios were charged the following amounts:
Distribution and Services Plan - Investor B Shares
--------------------------------------------------
<TABLE>
<CAPTION>
Amount Paid Amount Paid
to the Amount Paid to Affiliates
Portfolios Total Charged Distributor to MVA of MVA
- ---------- ------------- ----------- ------ ------
<S> <C> <C> <C> <C>
Money Market _________ _________ _________ _________
U.S. Government Securities _________ _________ _________ _________
Government & Corporate Bond _________ _________ _________ _________
Missouri Tax-Exempt Bond _________ _________ _________ _________
National Municipal Bond _________ _________ _________ _________
Balanced _________ _________ _________ _________
Equity Income _________ _________ _________ _________
Growth & Income Equity _________ _________ _________ _________
Growth Equity _________ _________ _________ _________
Small Cap Equity _________ _________ _________ _________
International Equity _________ _________ _________ _________
</TABLE>
-117-
<PAGE>
For the fiscal year or period ended November 30, 1999, pursuant to the
Administrative Services Plan for Trust Shares, the Portfolios were charged the
following amounts:
Administrative Services Plan - Trust Shares
-------------------------------------------
<TABLE>
<CAPTION>
Amount Paid Amount Paid
to the Amount Paid to Affiliates
Portfolios Total Charged Administrator to MVA of MVA
- ---------- ------------- ------------ ------ ------
<S> <C> <C> <C> <C>
Treasury Money Market _________ _________ _________ _________
Money Market _________ _________ _________ _________
Tax-Exempt Money Market _________ _________ _________ _________
U.S. Government Securities _________ _________ _________ _________
Intermediate Corporate Bond _________ _________ _________ _________
Bond Index _________ _________ _________ _________
Government & Corporate Bond _________ _________ _________ _________
Short-Intermediate Municipal _________ _________ _________ _________
Missouri Tax-Exempt Bond _________ _________ _________ _________
National Municipal Bond _________ _________ _________ _________
Balanced _________ _________ _________ _________
Equity Income _________ _________ _________ _________
Equity Index _________ _________ _________ _________
Growth and Income Equity _________ _________ _________ _________
Growth Equity _________ _________ _________ _________
Small Cap Equity _________ _________ _________ _________
Small Cap Equity Index _________ _________ _________ _________
International Equity _________ _________ _________ _________
</TABLE>
-118-
<PAGE>
For the fiscal year ended November 30, 1999, pursuant to the
Administrative Services Plan for Institutional shares, the Portfolios paid the
following amounts:
Administrative Services Plan - Institutional Shares
---------------------------------------------------
<TABLE>
<CAPTION>
Amount Paid Amount Paid
to the Amount Paid to Affiliates
Portfolios Total Charged Administrator to MVA of MVA
- ---------- ------------- ------------- ------ ------
<S> <C> <C> <C> <C>
Treasury Money Market _________ _________ _________ _________
Money Market _________ _________ _________ _________
U.S. Government Securities _________ _________ _________ _________
Intermediate Corporate Bond _________ _________ _________ _________
Bond Index _________ _________ _________ _________
Government & Corporate Bond _________ _________ _________ _________
Balanced _________ _________ _________ _________
Equity Income _________ _________ _________ _________
Equity Index _________ _________ _________ _________
Growth and Income Equity _________ _________ _________ _________
Growth Equity _________ _________ _________ _________
Small Cap Equity _________ _________ _________ _________
Small Cap Equity Index _________ _________ _________ _________
International Equity _________ _________ _________ _________
Short Intermediate _________ _________ _________ _________
</TABLE>
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
-119-
<PAGE>
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. 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, 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 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.
INDEPENDENT AUDITORS
For the fiscal year or period ended November 30, 1999, ___________,
certified public accountants, with offices at ______________, served as
independent auditors for the Fund. ___________ performs an annual audit of the
Fund's financial statements. Reports of its activities are provided to the
Fund's Board of Directors. The financial statements dated November 30, 1999,
which are ___________ into this Statement of Additional Information, have been
audited by ___________, whose report thereon ______________.
-120-
<PAGE>
COUNSEL
Drinker Biddle & Reath LLP (of which W. Bruce McConnel, III, Secretary
of the Fund, is a partner), One Logan Square, 18/th/ and Cherry Streets,
Philadelphia, Pennsylvania 19103-6996, is counsel to the Fund and will pass upon
certain legal matters on its behalf.
MISCELLANEOUS
As of January 13, 2000, Mercantile held of record 37.17%, 84.32%,
99.79% and 80.70% of the outstanding Investor A, Institutional, Trust and Trust
II Shares, respectively, in the Money Market Portfolio; 70.93% and 78.88% of the
outstanding Trust and Trust II Shares, respectively, in the Treasury Money
Market Portfolio; and 100% and 98.37%, respectively, of the outstanding in the
Trust Shares and Trust II Shares of the Tax-Exempt Money Market Portfolio.
As of January 13, 2000, Mercantile Bank National Association 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 National Association may be
deemed to be a controlling person of the Fund within the meaning of the 1940
Act.
As of the same date, the following institutions also owned of record
5% or more of each listed Portfolio's outstanding shares as fiduciary or agent
on behalf of their customers:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FUND / SHARE TYPE SHAREHOLDER NAME AND PERCENTAGE
ADDRESS OF FUND HELD
- --------------------------------------------------------------------------------
<S> <C> <C>
Money Market Investor A Mercantile Investment Services Inc. 37.17%
Shares P.O. Box 790121
St. Louis, MO 63179-0121
- -------------------------------------------------------------------------------
Public Safety Equipment Inc. 18.05%
10986 N. Warson Rd.
St. Louis, MO 63114
- -------------------------------------------------------------------------------
National Financial Services Corp. 11.00%
The Benefit of Our Customers
200 Liberty St. 5th Floor
New York, NY 10281
- -------------------------------------------------------------------------------
Clayton Corp. 8.16%
866 Horan Dr.
Fenton, MO 63026-0000
- -------------------------------------------------------------------------------
Treasury Money Market National Financial Services Corp. 90.72%
Investor A Shares The Benefit of Our Customers
200 Liberty St. 5th Floor
New York, NY 10281
- -------------------------------------------------------------------------------
Dorothy B. Borgmeyer 7.28%
41 Berry Oaks Ln.
St. Louis, MO 63122
- -------------------------------------------------------------------------------
Tax-Exempt Money Market Jill Kathleen Stratemeier 45.60%
Investor A Shares Estate of John L. Matthews
P.O. Box 893
Parsons, KS 67357
- --------------------------------------------------------------------------------
</TABLE>
-121-
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FUND / SHARE TYPE SHAREHOLDER NAME AND PERCENTAGE
ADDRESS OF FUND HELD
- --------------------------------------------------------------------------------
<S> <C> <C>
Benjamin S. Sandler 36.99%
Louise G. Sandler
14440 White Birch Valley Ln.
Chesterfield, MO 63107-2416
- --------------------------------------------------------------------------------
National Financial Services Corp. 8.37%
The Benefit of Our Customers
200 Liberty St. 5th Floor
New York, NY 10281
- --------------------------------------------------------------------------------
Sisters of the Good Shepherd 7.42%
7654 Natural Bridge Rd.
St. Louis, MO 63121
- --------------------------------------------------------------------------------
Balanced Investor A Shares Robert W. Davis 6.00%
818 Broadway
Elsberry, MO 63343-1109
- --------------------------------------------------------------------------------
Government & Corporate Eugene F. Tucker 7.36%
Bond Investor A Shares 1517 Rue Renee
St. Louis, MO 63122
- --------------------------------------------------------------------------------
</TABLE>
-122-
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
FUND / SHARE TYPE SHAREHOLDER NAME AND PERCENTAGE
ADDRESS OF FUND HELD
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Shirley R. Schuepbach 5.37%
Janet Gillespie
Shirley R. Schuepbach Revoc. Liv. Trst.
13738 Michael Rd.
Highland, IL 62249
- -----------------------------------------------------------------------------------------
International Equity Frances Dakers 14.54%
Investor A Shares 200 E. 89/th/ St. 28D
New York, NY 10128
- -----------------------------------------------------------------------------------------
Short-Intermediate George F. Richardson 55.61%
Municipal Bond Investor A Amelia T. Richardson
Shares Geo. & Amelia Richardson Rev. Liv. Trst.
2120 Ingalls Cir.
O'Fallon, MO 63366
- -----------------------------------------------------------------------------------------
George Hill Goddard 44.37%
Christine Ann Goddard
14807 Avenida Anita
Chino Hills, CA 91709
- -----------------------------------------------------------------------------------------
National Municipal Bond NFSC FEBO M22-861910 11.14%
Investor A Shares Anna Maria Bihler
3418 Oakwood
Alton, IL 62002
- -----------------------------------------------------------------------------------------
NFSC FEBO M22-104191 6.74%
Grace Bommarito TTEE
1546 Doris Drive
St. Louis, MO 63138
- -----------------------------------------------------------------------------------------
Gail P. Ruga 6.40%
207 Aintree Rd.
Rolla, MO 65401-3760
- -----------------------------------------------------------------------------------------
Kim P. Wheeler 6.40%
1003 S. 19/th/
Rogers, AR 72758
- -----------------------------------------------------------------------------------------
Janet Stoffel Ward 6.39%
3502 Arbor Terrace Ct.
Spring, TX 77388
- -----------------------------------------------------------------------------------------
NFSC FEBO M22-406252 6.27%
Thomas G. Smith
10214 Hobkirk Dr.
St. Louis, MO 63137
- -----------------------------------------------------------------------------------------
Intermediate Corporate David L. Otten 18.36%
Bond Investor A Shares 300 Derhake Rd.
Florissant, MO 63031
-----------------------------------------------------------------------------------------
</TABLE>
-123-
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FUND / SHARE TYPE SHAREHOLDER NAME AND PERCENTAGE
ADDRESS OF FUND HELD
- --------------------------------------------------------------------------------
<S> <C> <C>
James A. Lynch 15.79%
915 Highmont Dr.
Ferguson, MO 63135
- --------------------------------------------------------------------------------
Robert J. Barclay 11.88%
1612 Tamarack Dr.
St. Charles, MO 63301
- --------------------------------------------------------------------------------
Lynn C. Prescott 10.28%
Lynn C. Prescott Trust
4180 Rincon Cir.
Palo Alto, CA 94306-3138
- --------------------------------------------------------------------------------
NFSC FEBO M26-026069 6.66%
NFSC FMTC IRA
1314 Fairmont Dr.
Joplin, MO 64801
- --------------------------------------------------------------------------------
NFSC FEBO M26-026077 6.32%
NFSC FMTC IRA
1314 Fairmont Dr.
Joplin, MO 64801
- --------------------------------------------------------------------------------
Alice Ann Jones 6.15%
213 S. Clay # 2-S
Kirkwood, MO 63122
- --------------------------------------------------------------------------------
NFSC FEBO M24-007498 5.48%
Dena M. Ver Steeg
713 Jefferson St.
Pella, IA 50219
- --------------------------------------------------------------------------------
Equity Income Investor A NFSC FEBO M22-898880 10.03%
Shares William Oliver Shillington II
2917 N. Kristopher Bend
St. Charles, MO 63303
- --------------------------------------------------------------------------------
NFSC FEBO M22-406252 7.20%
Thomas G. Smith
10214 Hobkirk Dr.
St. Louis, MO 63137
- --------------------------------------------------------------------------------
NFSC FEBO M27-901393 5.41%
Judith T. Betz
6539 Pernod
St. Louis, MO 63139
- --------------------------------------------------------------------------------
Bond Index Investor A David L. Otten 15.15%
Shares 300 Derhake Rd.
Florissant, MO 63031
- --------------------------------------------------------------------------------
James A. Lynch 12.41%
915 Highmont Dr.
Ferguson, MO 63135
- --------------------------------------------------------------------------------
</TABLE>
-124-
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FUND / SHARE TYPE SHAREHOLDER NAME AND PERCENTAGE OF
ADDRESS FUND HELD
- --------------------------------------------------------------------------------
<S> <C> <C>
NFSC FEBO M27-901393 6.81%
Judith T. Betz
6539 Pernod
St. Louis, MO 63139
- --------------------------------------------------------------------------------
Wilbur R. Eaton 6.39%
804 Parkway Dr.
Benton, KY 42025
- --------------------------------------------------------------------------------
Equity Index Investor A Wilbur R. Eaton 8.68%
Shares 804 Parkway Dr.
Benton, KY 42025
- --------------------------------------------------------------------------------
NFSC FEBO M22-879770 5.45%
Sisters of St. Francis of the M.
2120 Central Ave.
Alton, IL 62002
- --------------------------------------------------------------------------------
Small Cap Equity Index NFSC FEBO M22-901857 61.80%
Investor A Shares NFSC FMTC IRA
14052 Agusta Dr.
Chesterfield, MO 63017
- --------------------------------------------------------------------------------
NFSC FEBO M25-869970 7.36%
NFSC FMTC IRA Rollover
805 E. German Lane
Conway, AR 72032
- --------------------------------------------------------------------------------
NFSC FEBO M26-072648 6.39%
NFSC FMTC IRA
2709 Princeton Blvd.
Lawrence, KS 66049
- --------------------------------------------------------------------------------
Growth Equity Investor A NFSC FEBO M22-540196 6.35%
Shares Tiger Limited Partnership
9109 Watson Road
St. Louis, MO 63126
- --------------------------------------------------------------------------------
Money Market Trust Shares Bisys Fund Services 99.79%
Mercantile EOD Sweep
3435 Stelzer Road
Columbus, OH 43219
- --------------------------------------------------------------------------------
Treasury Money Market Bisys Fund Services 60.24%
Trust Shares Mercantile EOD Sweep
3435 Stelzer Road
Columbus, OH 43219
- --------------------------------------------------------------------------------
Hare & Co. 29.07%
One Wall Street 2/nd/ Floor
New York, NY 10286
- --------------------------------------------------------------------------------
</TABLE>
-125-
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FUND / SHARE TYPE SHAREHOLDER NAME AND PERCENTAGE OF
ADDRESS FUND HELD
- --------------------------------------------------------------------------------
<S> <C> <C>
Mercantile Bank of Arkansas 5.36%
Treasurers Office State of AR
220 State Capitol
Little Rock, AR 72201
- --------------------------------------------------------------------------------
Mercantile Bank of Arkansas 5.33%
Treasurers Office State of AR
220 State Capitol
Little Rock, AR 72201-1059
- --------------------------------------------------------------------------------
Tax-Exempt Money Market Bisys Fund Services 100.00%
Trust Shares Mercantile EOD Sweep
3435 Stelzer Road
Columbus, OH 43219
- --------------------------------------------------------------------------------
Growth and Income Equity Conref & Co. 56.36%
Trust Shares P. O. Box 387
St Louis, MO 63166-0387
- --------------------------------------------------------------------------------
Roland & Company 30.32%
P. O. Box 387
St. Louis, MO 63166-0387
- --------------------------------------------------------------------------------
Washington & Company 11.59%
P. O. Box 387
St. Louis, MO 63166-0387
- --------------------------------------------------------------------------------
Small Cap Equity Trust Conref & Co. 63.40%
Shares P. O. Box 387
St Louis, MO 63166-0387
- --------------------------------------------------------------------------------
Roland & Company 16.41%
P. O. Box 387
St. Louis, MO 63166-0387
- --------------------------------------------------------------------------------
Bankers Trust Co. 8.50%
Sheet Metal Local 36
648 Grassmere Park Rd.
Nashville, TN 37211
- --------------------------------------------------------------------------------
U. S. Government Roland & Company 85.31%
Securities Trust Shares P. O. Box 387
St. Louis, MO 63166-0387
- --------------------------------------------------------------------------------
Conref & Co. 10.83%
P. O. Box 387
St Louis, MO 63166-0387
- --------------------------------------------------------------------------------
Balanced Trust Shares Conref & Co. 95.82%
P. O. Box 387
St Louis, MO 63166-0387
- --------------------------------------------------------------------------------
</TABLE>
-126-
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FUND / SHARE TYPE SHAREHOLDER NAME AND PERCENTAGE OF
ADDRESS FUND HELD
- --------------------------------------------------------------------------------
<S> <C> <C>
Government & Corporate Roland & Company 72.80%
Bond Trust Shares P. O. Box 387
St. Louis, MO 63166-0387
- --------------------------------------------------------------------------------
Conref & Co. 25.00%
P. O. Box 387
St Louis, MO 63166-0387
- --------------------------------------------------------------------------------
Missouri Tax-Exempt Bond Roland & Company 86.90%
Trust Shares P. O. Box 387
St. Louis, MO 63166-0387
- --------------------------------------------------------------------------------
Conref & Co. 11.65%
P. O. Box 387
St Louis, MO 63166-0387
- --------------------------------------------------------------------------------
International Equity Trust Conref & Co. 55.28%
Shares P. O. Box 387
St Louis, MO 63166-0387
- --------------------------------------------------------------------------------
Roland & Company 37.06%
P. O. Box 387
St. Louis, MO 63166-0387
- --------------------------------------------------------------------------------
Short Intermediate Roland & Company 97.93%
Municipal Bond Trust P. O. Box 387
Shares St. Louis, MO 63166-0387
- --------------------------------------------------------------------------------
National Municipal Bond Roland & Company 99.40%
Trust Shares P. O. Box 387
St. Louis, MO 63166-0387
- --------------------------------------------------------------------------------
Intermediate Corporate Roland & Company 93.78%
Bond Trust Shares P. O. Box 387
St. Louis, MO 63166-0387
- --------------------------------------------------------------------------------
Equity Income Trust Shares Roland & Company 41.71%
P. O. Box 387
St. Louis, MO 63166-0387
- --------------------------------------------------------------------------------
Washington & Company 30.88%
P. O. Box 387
St. Louis, MO 63166-0387
- --------------------------------------------------------------------------------
Conref & Co. 27.22%
P. O. Box 387
St Louis, MO 63166-0387
- --------------------------------------------------------------------------------
Bond Index Trust Shares Roland & Company 95.43
P. O. Box 387
St. Louis, MO 63166-0387
- --------------------------------------------------------------------------------
Equity Index Trust Shares Conref & Co. 76.26%
P. O. Box 387
St Louis, MO 63166-0387
- --------------------------------------------------------------------------------
</TABLE>
-127-
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FUND / SHARE TYPE SHAREHOLDER NAME AND PERCENTAGE OF
ADDRESS FUND HELD
- --------------------------------------------------------------------------------
<S> <C> <C>
Roland & Company 20.96%
P. O. Box 387
St. Louis, MO 63166-0387
- --------------------------------------------------------------------------------
Small Cap Equity Index Conref & Co. 87.49%
Trust Shares P. O. Box 387
St Louis, MO 63166-0387
- --------------------------------------------------------------------------------
Capinco 7.50%
P. O. Box 1787
Milwaukee, WI 53201-1787
- --------------------------------------------------------------------------------
Growth Equity Trust Shares Roland & Company 59.40%
P. O. Box 387
St. Louis, MO 63166-0387
- --------------------------------------------------------------------------------
Conref & Co. 26.27%
P. O. Box 387
St Louis, MO 63166-0387
- --------------------------------------------------------------------------------
Washington & Company 11.59%
P. O. Box 387
St. Louis, MO 63166-0387
- --------------------------------------------------------------------------------
Money Market Institutional Mercantile Bank St. Louis NA 84.32%
Shares P. O. Box 387
St. Louis, MO 63166-0000
- --------------------------------------------------------------------------------
Bisys Brokerage Services Inc. 15.68%
P. O. Box 4054
Concord, CA 94524
- --------------------------------------------------------------------------------
Treasury Money Market Bisys Fund Services OH Inc. 97.55%
Institutional Shares 3435 Stelzer Rd.
Columbus, OH 43219
- --------------------------------------------------------------------------------
Growth & Income Equity Conref & Co. 89.86%
Institutional Shares P. O. Box 387
St Louis, MO 63166-0387
- --------------------------------------------------------------------------------
Bisys Brokerage Services Inc. 7.64%
P. O. Box 4054
Concord, CA 94524
- --------------------------------------------------------------------------------
Small Cap Equity Conref & Co. 46.13%
Institutional Shares P. O. Box 387
St Louis, MO 63166-0387
- --------------------------------------------------------------------------------
Capinco 23.72%
P. O. Box 1787
Milwaukee, WI 53201-1787
- --------------------------------------------------------------------------------
Bisys Brokerage Services Inc. 18.27%
P. O. Box 4054
Concord, CA 94524
- --------------------------------------------------------------------------------
</TABLE>
-128-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
FUND / SHARE TYPE SHAREHOLDER NAME AND PERCENTAGE
ADDRESS OF FUND HELD
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Muggs & Co. 11.63%
P. O. Box 1787
Milwaukee, WI 53201-1787
- ------------------------------------------------------------------------------------------------
U. S. Government Conref & Co. 54.53%
Securities Institutional P. O. Box 387
Shares St Louis, MO 63166-0387
- ------------------------------------------------------------------------------------------------
Rextex & Co. 43.33%
P. O. Box 387
St Louis, MO 63166-0387
- ------------------------------------------------------------------------------------------------
Balanced Institutional Conref & Co. 78.75%
Shares P. O. Box 387
St Louis, MO 63166-0387
- ------------------------------------------------------------------------------------------------
Bisys Brokerage Services Inc. 12.06%
P. O. Box 4054
Concord, CA 94524
- ------------------------------------------------------------------------------------------------
Capinco 7.76%
P. O. Box 1787
Milwaukee, WI 53201-1787
- ------------------------------------------------------------------------------------------------
Government & Corporate Conref & Co. 52.98%
Bond Institutional Shares P. O. Box 387
St Louis, MO 63166-0387
- ------------------------------------------------------------------------------------------------
Bisys Brokerage Services Inc. 30.79%
P. O. Box 4054
Concord, CA 94524
- ------------------------------------------------------------------------------------------------
Rextex & Co. 16.23%
P. O. Box 387
St Louis, MO 63166-0387
- ------------------------------------------------------------------------------------------------
International Equity Conref & Co. 94.07%
Institutional Shares P. O. Box 387
St Louis, MO 63166-0387
- ------------------------------------------------------------------------------------------------
Intermediate Corporate Conref & Co. 99.88%
Bond Institutional Shares P. O. Box 387
St Louis, MO 63166-0387
- ------------------------------------------------------------------------------------------------
Equity Income Bisys Brokerage Services Inc. 81.34%
Institutional Shares P. O. Box 4054
Concord, CA 94524
- ------------------------------------------------------------------------------------------------
Capinco 15.70%
P. O. Box 1787
Milwaukee, WI 53201-1787
- ------------------------------------------------------------------------------------------------
Bond Index Institutional Conref & Co. 99.62%
Shares P. O. Box 387
St Louis, MO 63166-0387
- ------------------------------------------------------------------------------------------------
</TABLE>
-129-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
FUND / SHARE TYPE SHAREHOLDER NAME AND PERCENTAGE
ADDRESS OF FUND HELD
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Equity Index Institutional Conref & Co. 99.20%
Shares P. O. Box 387
St Louis, MO 63166-0387
- ------------------------------------------------------------------------------------------------
Small Cap Equity Index Conref & Co. 99.92%
Institutional Shares P. O. Box 387
St Louis, MO 63166-0387
- ------------------------------------------------------------------------------------------------
Growth Equity Conref & Co. 99.99%
Institutional Shares P. O. Box 387
St Louis, MO 63166-0387
- ------------------------------------------------------------------------------------------------
Money Market CDSC Shares NFSC FEBO M22-062731 56.24%
John T. Johnson
106 South Main St.
Caseyville, IL 62232
- ------------------------------------------------------------------------------------------------
NFSC FEBO M26-015938 8.73%
NFSC FMTC IRA
185 Legion Hall Rd.
Marthasville, MO 63357
- ------------------------------------------------------------------------------------------------
Lori L. Mercer 5.02%
11393 Lakeside Drive
Burlington, IA 52601
- ------------------------------------------------------------------------------------------------
U. S. Government NFSC FEBO M22-075639 23.81%
Securities Inv. B, CDSC Oliver Dippold
Shares 712 Country Stone Ct.
Ballwin, MO 63021
- ------------------------------------------------------------------------------------------------
NFSC FEBO M26-945293 15.70%
NFSC FMTC IRA Rollover
17825 Hwy. 21
St. Joseph, MO 64505
- ------------------------------------------------------------------------------------------------
NFSC FEBO M22-805556 10.63%
Mary L. Allen
5514 Newport
St. Louis, MO 63116
- ------------------------------------------------------------------------------------------------
NFSC FEBO M26-044865 5.83%
June M. Swift
2823 Seneca
St. Joseph, MO 64507
- ------------------------------------------------------------------------------------------------
Richard Dell Woods 5.65%
3114 Pickett Rd.
St. Joseph, MO 64503
- ------------------------------------------------------------------------------------------------
NFSC FEBO M22-075612 5.52%
Oliver Dippold
712 Country Stone Ct.
Ballwin, MO 63021
- ------------------------------------------------------------------------------------------------
</TABLE>
-130-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
FUND / SHARE TYPE SHAREHOLDER NAME AND PERCENTAGE OF FUND
ADDRESS HELD
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
NFSC FEBO M23-025410 5.40%
Ruby D. Elsea
2229 SW. Walden Pl.
Lees Summit, MO 64081
- ------------------------------------------------------------------------------------------------
Balanced Inv. B, CDSC NFSC FEBO M26-044423 7.11%
Shares NFSC FMTC IRA
17825 Highway 71
St. Joseph, MO 64505
- ------------------------------------------------------------------------------------------------
Government & Corporate NFSC FEBO M24-095958 6.87%
Bond Inv. B, CDSC Shares George T. Leonard
1490 223rd Pl.
Boone, IA 50036
- ------------------------------------------------------------------------------------------------
Homer R. Turner 6.42%
Edna M. Turner
Edna M. Turner Trust
33409 E. Pink Hill Rd.
Grain Valley, MO 64029
- ------------------------------------------------------------------------------------------------
NFSC FEBO M22-875902 5.45%
Eugene C. Keth Sr.
1829 Spring Beauty Dr.
Florissant, MO 63031
- ------------------------------------------------------------------------------------------------
NFSC FEBO M22-050563 5.23%
Carl S. Jackson
6418 South Kingshighway
St. Louis, MO 63109
- ------------------------------------------------------------------------------------------------
National Municipal Bond NFSC FEBO M22-967220 15.68%
Inv. B, CDSC Shares Casatta Rev. Liv. Trust
5658 Tholozan
St. Louis, MO 65109
- ------------------------------------------------------------------------------------------------
NFSC FEBO M24-095958 13.34%
George T. Leonard
1490 223rd Pl.
Boone, IA 50036
- ------------------------------------------------------------------------------------------------
NFSC FEBO M22-961817 12.15%
Gladine Coleman
5945 Loughborough
St. Louis, MO 63109
- ------------------------------------------------------------------------------------------------
NFSC FEBO M22-848700 10.10%
Jessica Schumacher
3204 Edwards St.
Alton, IL 62002
- ------------------------------------------------------------------------------------------------
</TABLE>
-131-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
FUND / SHARE TYPE SHAREHOLDER NAME AND PERCENTAGE
ADDRESS OF FUND HELD
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
NFSC FEBO M22-479039 10.02%
Constance M. Mc Manus
4271 Wyoming
St. Louis, MO 63116
- ------------------------------------------------------------------------------------------------
NFSC FEBO M22-841897 5.37%
Beatrice J. Teter
5201 Asbury Ave. Apt. 232
Godfrey, IL 62035
- ------------------------------------------------------------------------------------------------
NFSC FEBO M22-841900 5.37%
Leona B. Teter
5201 Asbury Ave. Apt. 232
Godfrey, IL 62035
- ------------------------------------------------------------------------------------------------
Equity Income Inv. B, CDSC NFSC FEBO M22-821691 12.35%
Shares Arlene T. Kleimeier Rev. Liv. Tr.
A13
Hollywood, FL 33020
- ------------------------------------------------------------------------------------------------
NFSC FEBO M22-095990 6.74%
The Brown Trust Indenture
4917 Neosho
St. Louis, MO 63109
- ------------------------------------------------------------------------------------------------
NFSC FEBO M26-820369 5.99%
Kenneth D. Johnston
2504 S. McCann Ave.
Springfield, MO 65804
- ------------------------------------------------------------------------------------------------
NFSC FEBO M24-914932 5.16%
NFSC FMTC IRA Rollover
515 2nd St.
Evensdale, IN 50707
- ------------------------------------------------------------------------------------------------
Money Market Trust Shares Mercantile Bank NA Trust 80.70%
II P. O. Box 387 Main Post Office
St. Louis, MO 63166-0000
- ------------------------------------------------------------------------------------------------
Pacific Century Trust 11.29%
P. O. Box 3170
Honolulu, HI 96802-3170
- ------------------------------------------------------------------------------------------------
Pacific Century Trust 7.43%
P. O. Box 3170
Honolulu, HI 96802-3170
- ------------------------------------------------------------------------------------------------
Treasury Money Market Mercantile Bank NA Trust 78.88%
Trust Shares II P. O. Box 387 Main Post Office
St. Louis, MO 63166-0000
- ------------------------------------------------------------------------------------------------
Pacific Century Trust 16.06%
P. O. Box 3170
Honolulu, HI 96802-3170
- ------------------------------------------------------------------------------------------------
</TABLE>
-132-
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
FUND / SHARE TYPE SHAREHOLDER NAME AND PERCENTAGE
ADDRESS OF FUND HELD
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Pacific Century Trust 5.07%
P. O. Box 3170
Honolulu, HI 96802-3170
- ------------------------------------------------------------------------------------------------
Tax-Exempt Money Market Mercantile Bank NA Trust 98.37%
Trust Shares II P. O. Box 387 Main Post Office
St. Louis, MO 63166-0000
------------------------------------------------------------------------------------------------
</TABLE>
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, 1999 has been filed with the Securities and Exchange
Commission. The financial statements in such Annual Report (the "Financial
Statements") are ____________ into this Statement of Additional Information. The
Financial Statements included in such Annual Report have been audited by the
Fund's independent auditors, ___________, whose report thereon also appears in
such Annual Report and is ____________. The Financial Statements in such Annual
Report have been ___________ in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
-133-
<PAGE>
APPENDIX A
----------
Commercial Paper Ratings
- ------------------------
A Standard & Poor's commercial paper rating is a current opinion of
the creditworthiness of an obligor with respect to financial obligations 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 on the obligation 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 in
higher rating categories. 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 upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the 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 Standard & Poor's believes that
such payments will be made during such grace period. The "D" rating will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
A-1
<PAGE>
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.
A-2
<PAGE>
"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 to 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 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 best 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 the higher ratings.
"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.
A-3
<PAGE>
"B" - Securities possess speculative credit quality. This designation
indicates minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic conditions.
"C" - Securities possess high default risk. This designation indicates
that default is a real possibility and 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 Financial 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 Financial BankWatch:
"TBW-1" - This designation represents Thomson Financial 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 Financial 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 Financial 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 Financial 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:
A-4
<PAGE>
"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.
"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.
Obligations rated "BB," "B," "CCC," "CC" and "C" are 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" - An obligation rated "BB" is less vulnerable to nonpayment 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" - An obligation rated "B" is more vulnerable to nonpayment 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" - An obligation rated "CCC" is currently vulnerable to
nonpayment, 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.
A-5
<PAGE>
"CC" - An obligation rated "CC" is currently highly vulnerable to
nonpayment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action taken, but payments on this
obligation are being continued.
"D" - An obligation rated "D" is 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 Standard & Poor's
believes that such payments will be made during such grace period. The "D"
rating also will be used upon the filing of a bankruptcy petition or the taking
of a 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.
"c" - The 'c' subscript is used to provide additional information to
investors that the bank may terminate its obligation to purchase tendered bonds
if the long-term credit rating of the issuer is below an investment-grade level
and/or the issuer's bonds are deemed taxable.
"p" - The letter 'p' indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project financed by
the debt being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful, timely completion of the
project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of or the risk of
default upon failure of such completion. The investor should exercise his own
judgment with respect to such likelihood and risk.
* Continuance of the ratings is contingent upon Standard & Poor's
receipt of an executed copy of the escrow agreement or closing documentation
confirming investments and cash flows.
"r" - The 'r' highlights derivative, hybrid, and certain other
obligations that Standard & Poor's believes may experience high volatility or
high variability in expected returns as a result of noncredit risks. Examples of
such obligations are securities with principal or interest return 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.
A-6
<PAGE>
N.R. Not rated. Debt obligations of issuers outside the United
States and its territories are rated on the same basis as domestic corporate and
municipal issues. The ratings measure the creditworthiness of the obligor but do
not take into account currency exchange and related uncertainties.
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 risk appear somewhat larger than the "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations, (i.e., they
are neither highly protected nor poorly 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" indicates 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 operating
A-7
<PAGE>
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: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from "Aa" through "Caa". The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of its generic rating category.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free
U.S. Treasury debt.
"AA" - Debt is considered to be 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 in periods of greater 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. This is the
lowest investment grade category.
"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:
A-8
<PAGE>
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. These ratings denote the lowest expectation of credit risk and
are assigned only in case of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly 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 credit 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 credit risk and indicate
strong capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or in economic
conditions than is the case for 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
credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity. This is the lowest
investment grade 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 change over time; however, business or financial alternatives
may be available to allow financial commitments to be met. Securities rated in
this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings indicate
that significant credit risk is present, but a 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" and "C" - Bonds have high default risk. Default is a real
possibility, and capacity for meeting financial commitments is solely 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. The ratings of obligations
in this category are based on their prospects for achieving partial or full
recovery in a reorganization or liquidation of the obligor. While expected
recovery values are highly speculative and cannot be estimated with any
precision, the following serve as general
A-9
<PAGE>
guidelines. "DDD" obligations have the highest potential for recovery, around
90%-100% of outstanding amounts and accrued interest. "DD" indicates potential
recoveries in the range of 50%-90%, and "D" the lowest recovery potential, i.e.,
below 50%.
Entities rated in this category have defaulted on some or all of their
obligations. Entities rated "DDD" have the highest prospect for resumption of
performance or continued operation with or without a formal reorganization
process. Entities rated "DD" and "D" are generally undergoing a formal
reorganization or liquidation process; those rated "DD" are likely to satisfy a
higher portion of their outstanding obligations, while entities rated "D" have a
poor prospect for repaying all obligations.
To provide more detailed indications of credit quality, the Fitch IBCA
ratings from and including "AA" to "CCC" may be modified by the addition of a
plus (+) or minus (-) sign to denote relative standing within these major rating
categories.
`NR' indicates the Fitch IBCA does not rate the issuer or issue in
question.
`Withdrawn': A rating is withdrawn when Fitch IBCA deems the amount of
information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.
RatingAlert: Ratings are placed on RatingAlert to notify investors
that there is a reasonable probability of a rating change and the likely
direction of such change. These are designated as "Positive", indicating a
potential upgrade, "Negative", for a potential downgrade, or "Evolving", if
ratings may be raised, lowered or maintained. RatingAlert is typically resolved
over a relatively short period.
Thomson Financial 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 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-10
<PAGE>
"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 the lowest investment-grade
category and indicates an acceptable capacity to repay principal and interest.
Issues rated "BBB" are more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC," - These designations are assigned by
Thomson Financial BankWatch to non-investment grade long-term debt. Such issues
are regarded as having speculative characteristics regarding the likelihood of
timely repayment 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 note rating reflects the liquidity factors and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's 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 a
very strong capacity to pay debt service 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.
A-11
<PAGE>
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. There is
present strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality. Margins of
protection are 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.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt instruments
in this category lack margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
A-12
<PAGE>
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
described in this Statement of Additional Information. 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, 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.
B-1
<PAGE>
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.
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.
B-2
<PAGE>
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 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.
B-3
<PAGE>
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 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.
B-4
<PAGE>
Statement of Additional Information
for
Conning Money Market Portfolio
of
Mercantile Mutual Funds, Inc.
_____________, 2000
This Statement of Additional Information, which provides supplemental
information applicable to the Conning Money Market Portfolio (the "Portfolio")
of Mercantile Mutual Funds, Inc. (the "Fund"), is not a prospectus. No
investment in the Portfolio should be made without reading the applicable
prospectus. The prospectus for the Portfolio dated ___________, 2000, as it may
be supplemented or revised from time to time (the "Prospectus"), as well as the
Portfolio's Annual Report to Shareholders dated November 30, 1999 (the "Annual
Report"), may be obtained, without charge, by writing:
Conning Money Market Portfolio
Attn: Transfer Agency
P.O Box 3011
Milwaukee, Wisconsin 53201-3011
or by calling 1-800-232-9091. Copies of the Prospectus and Annual Report may
also be obtained by contacting your broker-dealer or financial adviser.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
GENERAL INFORMATION........................................................ 1
DESCRIPTION OF MERCANTILE MUTUAL FUNDS, INC................................ 1
DESCRIPTION OF SHARES...................................................... 1
INVESTMENT STRATEGIES, POLICIES AND RISKS.................................. 3
PRICING OF SHARES.......................................................... 16
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION............................. 17
YIELD INFORMATION.......................................................... 18
ADDITIONAL INFORMATION CONCERNING TAXES.................................... 20
MANAGEMENT OF THE FUND..................................................... 22
INDEPENDENT AUDITORS....................................................... 30
COUNSEL.................................................................... 30
MISCELLANEOUS.............................................................. 30
FINANCIAL STATEMENTS....................................................... 31
APPENDIX A................................................................. A-1
</TABLE>
<PAGE>
GENERAL INFORMATION
This Statement of Additional Information relates to the Prospectus dated
________, 2000 (the "Prospectus") for the Conning Money Market Portfolio (the
"Portfolio"), a diversified portfolio under the Investment Company Act of 1940,
as amended (the "1940 Act"), and should be read in conjunction with the
Prospectus. This Statement of Additional Information is incorporated by
reference in its entirety into the Prospectus. No investment in the Portfolio
should be made without reading the Prospectus.
Shares of the Portfolio are not deposits or obligations of, or
guaranteed or endorsed by Firstar Corporation or any of its affiliates.
Portfolio Shares also are not federally insured by, guaranteed by, obligations
of or otherwise supported by the U.S. Government, the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other government agency. An
investment in the Portfolio involves investment risks, including possible loss
of the principal amount invested. There is no assurance that the Portfolio will
be able to maintain a stable net asset value of $1.00 per Share.
DESCRIPTION OF MERCANTILE MUTUAL FUNDS, INC.
Mercantile Mutual Funds, Inc. (the "Fund"), known as The ARCH Fund,
Inc. until March 31, 1999, is an open-end management investment company. The
Fund was organized on September 9, 1982 as a Maryland corporation. The Fund also
offers shares representing interests in other investment portfolios, which are
described in separate Prospectuses and a separate Statement of Additional
Information.
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-five classes of shares representing interests
in one of twenty investment portfolios: the Treasury Money Market, Money Market,
Tax-Exempt Money Market, Conning 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,
National Municipal Bond, Equity Income, Equity Index, Growth & Income Equity,
Growth Equity, Small Cap Equity, Small Cap Equity Index, International Equity
and Balanced Portfolios. This Statement of Additional Information relates only
to the shares of the Conning Money Market Portfolio. Trust Shares, Institutional
Shares, Trust II Shares, Investor A Shares
<PAGE>
and/or Investor B Shares in each of the Fund's other portfolios are offered
through separate prospectuses to different categories of investors.
In the event of a liquidation or dissolution of the Fund, shares of
the Portfolio are entitled to receive the assets available for distribution
belonging to the Portfolio, and a proportionate distribution, based upon the
relative asset values of the respective portfolios of the Fund, of any general
assets not belonging to any particular portfolio which are available for
distribution. Shareholders of the Portfolio are entitled to participate equally
in the net distributable assets of the Portfolio on liquidation.
Shareholders are entitled to one vote for each full share held and
proportionate fractional votes for fractional shares held. Holders of all
outstanding shares of the Portfolio will vote together in the aggregate.
Further, shareholders of all of the Fund's portfolios, irrespective of class,
will vote in the aggregate and not separately on a portfolio-by-portfolio basis,
except as otherwise required by law or when the Board of Directors determines
that the matter to be voted upon affects only the interests of the shareholders
of a particular portfolio or class of shares. Rule 18f-2 under the Investment
Company Act of 1940, as amended (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 (or sub-advisory) agreement, the approval of a Rule 12b-1
distribution plan 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.
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 Fund's 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 the
Prospectus and this Statement of Additional Information, shares of the Portfolio
will be fully paid and nonassessable. Shares of the Portfolio will be issued
without certificates.
Miscellaneous
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As used in this Statement of Additional Information, a "vote of a
majority of the outstanding shares" of the Portfolio means, with respect to the
approval of the Portfolio's investment advisory or sub-advisory agreement or a
change in a fundamental investment policy of the Portfolio, the affirmative vote
of the lesser of (a) more than 50% of the outstanding shares of the Portfolio or
(b) 67% or more of the shares of the Portfolio present at a meeting if more than
50% of the outstanding shares of the Portfolio are represented at the meeting in
person or by proxy.
INVESTMENT STRATEGIES, POLICIES AND RISKS
The following discussion supplements the description of the investment
objective and policies of the Portfolio described in the Prospectus. Although
management will use its best efforts to achieve the investment objective of the
Portfolio, there can be no assurance that it will be able to do so.
Conning Asset Management Company, the Portfolio's sub-adviser (the
"Sub-Adviser") is an indirect subsidiary of GenAmerica Corporation, which is a
wholly-owned subsidiary of Metropolitan Life Insurance Company. The Sub-Adviser
makes investment decisions with respect to the Portfolio in accordance with the
rules and regulations of the Securities and Exchange Commission ("SEC") for
money market funds. The following descriptions illustrate the types of
instruments in which the Portfolio invests.
Banking Obligations. The 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
Sub-Adviser deems the instrument to present minimal credit risks. (See "Special
Risk Considerations -- 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.
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.
Obligations of foreign banks and foreign branches of U.S. banks may
include Eurodollar Certificates of Deposit ("ECDs"), which are U.S. dollar-
denominated certificates of
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<PAGE>
deposit issued by offices of foreign and domestic banks located outside the
United States; Eurodollar Time Deposits ("ETDs"), which are U.S. dollar-
denominated deposits in a foreign branch of a U.S. bank or a foreign bank;
Canadian Time Deposits ("CTDs"), which are essentially the same as ETDs except
they are issued by Canadian offices of major Canadian banks; Schedule Bs, which
are obligations issued by Canadian branches of foreign or domestic banks; Yankee
Certificates of Deposit ("Yankee CDs"), which are U.S. dollar-denominated
certificates of deposit issued by a U.S. branch of a foreign bank and held in
the United States; and Yankee Bankers' Acceptances ("Yankee BAs"), which are
U.S. dollar-denominated bankers' acceptances issued by a U.S. branch of a
foreign bank and held in the United States.
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. Commercial paper represents short-term unsecured promissory
notes issued in bearer form by banks or bank holding companies, corporations and
finance companies.
Instruments purchased by the Portfolio must meet the quality and
maturity requirements of Rule 2a-7 under the 1940 Act as described in the
Prospectus. 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 Sub-Adviser (under the supervision of the Board of Directors) to be of
comparable quality at the time of purchase to First Tier Eligible Securities as
(defined in Rule 2a-7). 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.
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<PAGE>
Funding Agreements. The Portfolio may invest in short-term funding
agreements. A funding agreement is a contract between an issuer and a purchaser
that obligates the issuer to pay a guaranteed rate of interest on a principal
sum deposited by the purchaser. Funding agreements will also guarantee the
return of principal and may guarantee a stream of payments over time. A funding
agreement has a fixed maturity and may have either a fixed rate or a variable or
floating interest rate that is based on an index and guaranteed for a set time
period. Because there is no secondary market for these investments, any funding
agreement purchased by the Portfolio will be regarded as illiquid. Funding
agreements, together with other illiquid securities, will not constitute more
than 10% of the Portfolio's net assets.
Government Obligations. The 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 Sub-Adviser, invest
in short-term obligations issued by state and local governmental issuers
("municipal obligations") that meet the quality requirements described in the
Prospectus 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.
Special Risk Considerations
Interest Rate Risk. Generally, the market value of fixed income
securities, including municipal obligations, held by the Portfolio can be
expected to vary inversely to changes in prevailing interest rates. During
periods of declining interest rates, the market value of investment portfolios
comprised primarily of fixed income securities will tend to increase, and during
periods of rising interest rates, the market value will tend to decrease. Fixed
income securities with longer maturities, which tend to produce higher yields,
are subject to potentially greater capital appreciation and depreciation than
obligations with shorter maturities. Changes in the financial strength of an
issuer or changes in the ratings of any particular security may also offset the
value of these investments. Fluctuations in the market value of fixed income
securities subsequent to their acquisition will not offset cash income from such
securities but will be reflected in the Portfolio's net asset value.
Risks Associated with Foreign Securities. The 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 Sub-Adviser deems the investments to
present minimal credit risks. Investments in securities of foreign issuers carry
certain risks not ordinarily associated with investments in securities of
domestic issuers. Such risks include future political and economic developments,
and the possible imposition of exchange controls or other foreign governmental
laws or restrictions. In addition, with respect to certain countries, there is
the possibility of expropriation of assets, confiscatory taxation, political or
social instability or diplomatic developments which could adversely affect
investments in those countries.
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<PAGE>
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.
Other Investment Policies and Risk Considerations
The investment policies described in the Prospectus and this Statement
of Additional Information are among those which the Portfolio has the ability to
utilize. Some of these policies may be employed on a regular basis; others may
not be used at all. Accordingly, reference to any particular policy, method or
technique carries no implication that it will be utilized or, if it is, that it
will be successful.
Municipal Obligations. Subject to its investment policies and
limitations, the Portfolio may invest in municipal obligations. Municipal
obligations include debt obligations issued by governmental entities which
obtain funds for various public purposes, including the construction of a wide
range of public facilities, the refunding of outstanding obligations, the
payment of general operating expenses and the extension of loans to public
institutions and facilities.
The two principal classifications of municipal obligations 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.
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.
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
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<PAGE>
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 payment of principal and interest on most municipal securities
purchased by the Portfolio will depend upon the ability of the issuers to meet
their obligations. An issuer's obligations under its municipal obligations are
subject to the provisions of bankruptcy, insolvency and other laws affecting the
rights and remedies of creditors, such as the federal bankruptcy code, and laws,
if any, which may be enacted by federal or state legislatures extending the time
for payment of principal or interest, or both, or imposing other constraints
upon enforcement of such obligations or upon the ability of municipalities to
levy taxes. The power or ability of an issuer to meet its obligations for the
payment of interest on and principal of its municipal 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. The non-governmental user of facilities financed by
private activity bonds is also considered to be an "issuer."
The Portfolio may also purchase general obligation notes, tax
anticipation notes, bond anticipation notes, revenue anticipation notes, tax-
exempt commercial paper, construction loan notes and other tax-exempt loans.
Such instruments are issued in anticipation of the receipt of tax funds, the
proceeds of bond placements, or other revenues.
Certain types of municipal obligations (private activity bonds) have
been or are issued to obtain funds to provide, among other things, privately
operated housing facilities, pollution control facilities, convention or trade
show facilities, mass transit, airport, port or parking facilities and certain
local facilities for water supply, gas, electricity or sewage or solid waste
disposal. Private activity bonds are also issued to privately held or publicly
owned corporations in the financing of commercial or industrial facilities.
State and local governments are authorized in most states to issue private
activity bonds for such purposes in order to encourage corporations to locate
within their communities. The principal and interest on these obligations are
not payable from the unrestricted revenues of the issuer but rather from the
general revenues of the users of such facilities. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved. Furthermore, payment of
principal and interest on municipal obligations of certain projects may be
secured by mortgages or deeds of trust. In the event of a default, enforcement
of the mortgages or deeds of trust will be subject to statutory enforcement
procedures and limitations, including rights of redemption and limitations on
obtaining deficiency judgments. In the event of a foreclosure, collection of the
proceeds of the foreclosure may be delayed, and the amount of proceeds from the
foreclosure may not be sufficient to pay the principal of and accrued interest
on the defaulted municipal obligations. Interest on private activity bonds,
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although free of regular federal income tax, may be an item of tax preference
for purposes of the federal alternative minimum tax.
Dividends paid by the Portfolio that are derived from interest on
municipal obligations would be taxable to shareholders for federal income tax
purposes.
Variable and Floating Rate Instruments. As previously stated, the
Portfolio may purchase variable and floating rate obligations. The Sub-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 Portfolio will invest in such instruments only when the Sub-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 Portfolio 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.
Illiquid and Restricted Securities. The 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, Section 4(2) paper (as discussed in the
Prospectus), 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 Rule 144A are subject to the 10% limit (unless the Sub-
Adviser, pursuant to guidelines established by the Board of Directors,
determines that a liquid market exists). The SEC has adopted Rule 144A which
allows for a broader institutional trading market for securities otherwise
subject to restrictions on resale to the general public. Rule 144A establishes a
"safe harbor" from the registration requirements of the 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 Portfolio to the extent that qualified
institutional buyers become, for a time, uninterested in purchasing these
restricted securities.
The Sub-Adviser monitors the liquidity of restricted securities in the
Portfolio under the supervision of the Board of Directors. In reaching liquidity
decisions, the Sub-Adviser
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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).
U.S. Government Obligations. Securities issued or guaranteed by the
U.S. Government, its agencies and instrumentalities have historically involved
little risk of loss of principal if held to maturity. However, due to
fluctuations in interest rates, the market value of such securities may vary
during the period a shareholder owns shares of the Portfolio. Certain U.S.
Government securities held by the Portfolio 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 Portfolio include, in addition to U.S. Treasury bills, notes and bonds
(including zero coupon bonds), 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 Federal Home Loan Mortgage Corporation, 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. The Portfolio 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"), (2) through a program entitled "Coupon Under Book-Entry
Safekeeping" ("CUBES") or (3) other stripped securities issued directly by
agencies or instrumentalities of 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 Portfolio may
also purchase U.S. Treasury and agency securities that are stripped by brokerage
firms and custodian banks and resold in custodial receipt programs with a number
of different names, including "Treasury Income Growth Receipts" ("TIGRS") and
"Certificates of Accrual on Treasury Securities" ("CATS").
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Such securities may not be as liquid as STRIPS and CUBES and are not viewed by
the staff of the SEC as U.S. Government securities for purposes of the 1940 Act.
The stripped coupons are sold separately from the underlying
principal, which is sold at a deep discount because the buyer receives only the
right to receive a future fixed payment on the security and does not receive any
rights to periodic interest (cash) payments. Purchasers of stripped principal-
only securities acquire, in effect, discount obligations that are economically
identical to the zero coupon securities that the Treasury Department sells
itself. In the case of bearer securities (i.e., unregistered securities which
are owned ostensibly by the bearer or holder), the underlying U.S. Treasury
bonds and notes themselves are held in trust on behalf of the owners. Counsel to
the underwriters of these certificates or other evidences of ownership of the
U.S. Treasury securities have stated that, in their opinion, purchasers of the
stripped securities, such as the Portfolio, most likely will be deemed the
beneficial holders of the underlying U.S. Government obligations for federal tax
and securities law 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
principal or interest, to proceed individually against the issuer without acting
in concert with other holders of those receipts or certificates or the
custodian.
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 principal and interest is returned to investors. The Sub-
Adviser will consider the liquidity needs of the Portfolio when any investments
in zero coupon obligations or other principal-only obligations are made.
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Securities Lending. To increase return or offset expenses, the
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
Portfolio. By lending its securities, the 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, the Portfolio is
currently limiting its securities lending to 331/3% 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 the Portfolio or a borrower at any
time.
While the Portfolio would not have the right to vote securities on
loan, the Portfolio intends to terminate the loan and regain the right to vote
should this be considered important with respect to the investment. When the
Portfolio lends its securities, it continues 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.
Securities of Other Investment Companies. The 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. The
Portfolio may invest in securities issued by other investment companies within
the limits prescribed by the 1940 Act so that, as determined immediately after a
securities purchase is made: (a) not more than 5% of the value of its total
assets will be invested in the securities of any one investment company; (b) not
more than 10% of the value of its total assets will be invested in the aggregate
in securities of investment companies as a group; (c) not more than 3% of the
outstanding voting stock of any one investment company will be owned by the
Portfolio; and (d) not more than 10% of the outstanding voting stock of any one
investment company will be owned in the aggregate by the Portfolio and other
investment companies advised by the Adviser or Sub-Adviser. Investments in other
investment companies will cause the Portfolio (and, indirectly, the Portfolio's
shareholders) to bear proportionately the cost incurred in connection with the
operations of such other investment companies. In addition, investment companies
in which the Portfolio may invest may impose a sales or distribution change in
connection with the purchase or redemption of their shares as well as other
types of commissions or charges. Such charges will be payable by the Portfolio
and, therefore, will be borne indirectly by its shareholders.
When-Issued Purchases and Forward Commitments. The Portfolio may
purchase securities on a "when-issued" basis and may purchase or sell securities
on a "forward commitment" basis. These transactions involve a commitment by the
Portfolio to purchase or sell securities at a stated price and yield with
settlement beyond the normal settlement date.
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Such transactions permit the Portfolio to lock-in a price or yield on a
security, regardless of future changes in interest rates. When-issued purchases
and forward 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.
When-issued and forward commitment transactions are made to secure
what is considered to be an advantageous price or yield for the Portfolio. When
the Portfolio agrees to purchase or sell securities on a when-issued or forward
commitment basis, the Custodian (or sub-custodian) will maintain in a segregated
account cash or liquid portfolio securities having a value (determined daily) at
least equal to the amount of the Portfolio's commitments. In the case of a
forward commitment to sell portfolio securities, the Custodian (or sub-
custodian) will hold the portfolio securities themselves in a segregated account
while the commitment is outstanding. These procedures are designed to ensure
that the Portfolio will maintain sufficient assets at all times to cover its
obligations under when-issued purchases and forward commitment transactions.
The Portfolio does not intend to engage in such transactions for
speculative purposes but only the purpose of acquiring portfolio securities. The
Portfolio will make commitments to purchase securities on a when-issued basis or
to purchase or sell securities on a forward commitment basis only with the
intention of completing the transaction and actually purchasing or selling the
securities. If deemed advisable as a matter of investment strategy, however, the
Portfolio may dispose of or renegotiate a commitment after it is entered into
and may sell securities it has committed to purchase before those securities are
delivered to the Portfolio on the settlement date. In these cases, the Portfolio
may realize a capital gain or loss.
When the Portfolio engages in when-issued and forward commitment
transactions, it relies on the other party to consummate the trade. Failure of
such party to do so may result in the Portfolio's incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
The value of the securities underlying such commitments to purchase or
sell securities, and any subsequent fluctuations in their value, is taken into
account when determining the Portfolio's net asset value starting on the day the
Portfolio agrees to purchase the securities. The Portfolio does not earn
interest on the securities it has committed to purchase until they are paid for
and delivered on the settlement date. When the Portfolio makes a forward
commitment to sell securities it owns, the proceeds to be received upon
settlement are included in the Portfolio's assets, and fluctuations in the value
of the underlying securities are not reflected in the Portfolio's net asset
value as long as the commitment remains in effect.
The Portfolio expects that when-issued and forward commitment
transactions will not exceed 25% of the value of its total assets (at the time
of purchase) under normal market conditions. Because the Portfolio will set
aside cash or liquid assets to satisfy its purchase commitments in the manner
described above, the Portfolio's liquidity and ability to manage its portfolio
might be affected in the event its commitments to purchase securities on a when-
issued or forward commitment basis ever exceeded 25% of the value of its total
assets.
-12-
<PAGE>
Repurchase Agreements. The Portfolio may agree to purchase U.S.
Government securities from financial institutions such as banks and broker-
dealers, subject to the seller's agreement to repurchase them at a mutually
agreed-upon date and price ("repurchase agreements"). The Portfolio will enter
into repurchase agreements only with financial institutions such as banks and
broker-dealers that the Sub-Adviser believes to be creditworthy. During the
term of any repurchase agreement, the 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
the Portfolio to possible loss because adverse market action or possible delay
in disposing of the underlying obligations. Because of the seller's repurchase
obligations, the securities subject to repurchase agreements do not have
maturity limitations. Although the Portfolio does not presently intend to enter
into repurchase agreements providing for settlement in more than seven days, the
Portfolio does have the authority to do so subject to its limitation on the
purchase of illiquid securities described above. Repurchase agreements are
considered to be loans under the 1940 Act.
Reverse Repurchase Agreements. The Portfolio may borrow funds for
temporary purposes by entering into reverse repurchase agreements in accordance
with the investment limitations described 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. Whenever the Portfolio enters into a
reverse repurchase agreement, it will place in a segregated custodial account
cash or other liquid assets in an amount equal to the repurchase price (plus
accrued interest). Reverse repurchase agreements are considered to be
borrowings by the Portfolio under the 1940 Act.
Portfolio Transactions
Subject to the general control of the Fund's Board of Directors and
under the supervision of the Adviser, the Sub-Adviser is responsible for making
decisions with respect to, and placing orders for, all purchases and sales of
portfolio securities for the Portfolio. Securities purchased and sold by the
Portfolio which are traded in the over-the-counter market are generally done so
on a net basis (i.e., without commission) through dealers, or otherwise involve
transactions directly with the issuer of an instrument. There is generally no
stated commission in the case of securities traded in the over-the-counter
markets, but the price of those securities includes an undisclosed commission or
mark-up. The cost of securities purchased from underwriters includes an
underwriter's commission or concession, and the prices at which securities are
purchased from and sold to dealers include a dealer's mark-up or mark-down.
The Portfolio may participate, if and when practicable, in bidding for
the purchase of portfolio securities directly from an issuer in order to take
advantage of the lower purchase price available to members of a bidding group.
The Portfolio will engage in this practice, however, only when the Sub-Adviser,
in its sole discretion, believes such practice to be otherwise in the
Portfolio's interests.
-13-
<PAGE>
Investment decisions for the Portfolio are made independently from
those for other investment companies and accounts advised or managed by the Sub-
Adviser. Such other investment companies and accounts may also invest in the
same securities as the Portfolio. When a purchase or sale of the same security
is made at substantially the same time on behalf of the Portfolio and another
investment company or account, the transaction will be averaged as to price, and
available investments allocated as to amount, in a manner which the 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, Sub-Adviser may aggregate the
securities to be sold or purchased for the Portfolio with those to be sold or
purchased for other investment companies or accounts in order to obtain best
execution.
Portfolio Turnover
The Portfolio's annual portfolio turnover rate is calculated by
dividing the lesser of purchases or sales of portfolio securities for the year
by the monthly average value of the Portfolio's securities. The calculation
excludes all securities the maturities of which at the time of acquisition were
thirteen months or less. Consequently, because the Portfolio is a money market
fund, there is not expected to be any portfolio turnover for the Portfolio for
regulatory reporting purposes.
Investment Limitations
Except as otherwise noted in the Prospectus or this Statement of
Additional Information, the Portfolio's investment policies are not fundamental
and may be changed by the Fund's Board of Directors without shareholder
approval. However, the Portfolio also has in place certain fundamental
investment limitations, which are set forth below, which may be changed only by
a vote of a majority of the outstanding shares of the Portfolio.
The Portfolio may not:
1. Make loans, except that the 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 purchase price.
2. Borrow money or issue senior securities, except that the
Portfolio may borrow from banks and the 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 the Portfolio's total assets at the time of such
-14-
<PAGE>
borrowing. The Portfolio will not purchase securities while its
borrowings (including reverse repurchase agreements) are
outstanding.
3. Invest 25% or more of its total assets in one or more issuers
conducting their principal business activities in the same
industry, except that the Portfolio may invest more than 25% of
its total assets in either government securities, as defined in
the 1940 Act, or instruments of domestic banks.
4. 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 the Portfolio's total assets may
be invested without regard to such 5% limitation.
5. 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.
6. Purchase or sell real estate (the Portfolio may purchase
commercial paper issued by companies which invest in real estate
or interests therein).
7. Purchase securities on margin, make short sales of securities or
maintain a short position.
8. Underwrite the securities of other issuers.
9. Purchase or sell commodity contracts, or invest in oil, gas or
mineral exploration or development programs.
10. Write or purchase put or call options.
In accordance with current regulations of the SEC, the Portfolio
intends to invest no more than 5% of its total assets at the time of purchase in
the securities of any one issuer (other than securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities); provided, however, that
the Portfolio may invest up to 25% of its total assets in the First Tier
Eligible Securities (as defined in Rule 2a-7) 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.
PRICING OF SHARES
The public offering price for shares of the Portfolio is based upon the
net asset value per share. As stated in the Prospectus, the net asset value per
share of the Portfolio is calculated by adding the value of all of the
securities and other assets belonging to the Portfolio,
-15-
<PAGE>
subtracting the liabilities of the Fund that are attributable to the Portfolio,
and dividing the result by the number of outstanding shares of the Portfolio.
The determinations by the Board of Directors as to the allocable portion of
general assets and liabilities with respect to the Portfolio are conclusive.
The assets in the Portfolio 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 the Portfolio would receive if it sold the instrument. The value
of securities in the Portfolio can be expected to vary inversely with changes in
prevailing interest rates.
The Portfolio invests only in instruments that present minimal credit
risks and meet the ratings criteria described in the Prospectus. In addition,
the Portfolio maintains a dollar-weighted average portfolio maturity appropriate
to its objective of maintaining a stable net asset value per share, provided
--------
that the Portfolio will not 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
Portfolio's 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 the Portfolio calculated by using available market quotations
deviates from $1.00 per share. In the event such deviation exceeds one-half of
one percent, the Board will promptly consider what action, if any, should be
initiated. If the Board believes that the extent of any deviation from the
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. Although the 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.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares in the Portfolio are sold on a continuous basis by the Fund's
distributor.
Purchase of Shares
Shares of the Portfolio are sold without any sales charge through
broker-dealers or other financial advisers acting on behalf of their customers.
Generally, investors purchase shares through a broker-dealer organization which
has a sales agreement with the Fund's distributor or
-16-
<PAGE>
through a financial organization which has entered into a servicing agreement
with the Fund with respect to the Portfolio.
Purchases may be effected on business days (as defined in the
Prospectus). The Fund reserves the right to reject any purchase order,
including purchases made with foreign and third party drafts or checks. 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.
All shareholders of record will receive confirmations of share
purchases and redemptions in the mail. If shares are held in the name of
broker-dealers or other financial organizations, such organization is
responsible for transmitting purchase and redemption orders to the Fund on a
timely basis, recording all purchase and redemption transactions, and providing
regular account statements which confirm such transactions to beneficial owners.
Redemption of Shares
As stated in the Prospectus, the Fund's transfer agent may require a
signature guarantee by an eligible guarantor institution on written redemption
requests. 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 broker-dealer or financial adviser.
Additional documentation may be required if the redemption is requested by a
corporation, partnership, trust, fiduciary, executor, or administrator.
During periods of substantial economic or market change or activity,
telephone redemptions may be difficult to complete. In such event, shares may
be redeemed by mailing the request directly to the organization through which
the original shares were purchased.
Under the 1940 Act, the Portfolio may suspend the right of redemption
or postpone the date of payment for shares during any period when (a) trading on
the New York Stock Exchange (the "Exchange") is restricted by applicable rules
and regulations of the SEC; (b) the Exchange is closed for other than customary
weekend and holiday closing; (c) the SEC has by order permitted such suspension;
or (d) an emergency exists as determined by the SEC. The Portfolio may also
suspend or postpone the recordation of the transfer of its shares upon the
occurrence of any of the foregoing conditions.
-17-
<PAGE>
The Portfolio may redeem shares involuntarily to reimburse the
Portfolio for any loss sustained by reason of the failure of a shareholder to
make full payment for shares purchased by the shareholder or to collect any
charge relating to a transaction effected for the benefit of a shareholder which
is applicable to Portfolio shares.
YIELD INFORMATION
Yield figures will fluctuate, are based on historical earnings, and
are not intended to indicate future performance. The methods used to compute
the Portfolio's yields are described below.
From time to time, performance information such as "yield" and
"effective yield" for the Portfolio may be quoted in advertisements or in
communications to shareholders. The "yield" quoted in advertisements refers to
the income generated by an investment in the 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 the 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.
The Portfolio's "yield" and "effective yield" are calculated 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 the 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, the Portfolio's 30-day yields and 30-day
effective yields may also be quoted.
Based on the foregoing calculations, (i) for the 7-day period ended
November 30, 1999, the Portfolio's 7-day yield and 7-day effective yield were
____% and ____%, respectively, and (ii) for the 30-day period ended November 30,
1999, the Portfolio's 30-day yield was ____%.
-18-
<PAGE>
The Portfolio's quoted yields are not indicative of future yields and
depend upon factors such as portfolio maturity, the Portfolio's expenses, and
the types of instruments held by the Portfolio. Any account fees imposed by
broker-dealers or other financial organizations would reduce the Portfolio's
effective yield.
Investors may judge the performance of the Portfolio by comparing it
to the performance of other mutual funds or mutual fund portfolios with
comparable investment objectives and policies. Such comparisons may be made by
referring to rankings prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. Such
comparisons may also be made by referring to data prepared by Lipper Analytical
Services, Inc. (a widely recognized independent service which monitors the
performance of mutual funds), Indata, Frank Russell, CDA, and the Bank Rate
Monitor (which reports average yields for money market accounts offered by the
50 leading banks and thrift institutions in the top five standard metropolitan
statistical areas). Other similar yield data, including comparisons to the
performance of Firstar Bank 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:
Mutual Fund Forecaster, IBC's Money Fund Report(R), MorningStar,
CDA/Wiesenberger, Money Magazine, Forbes, Fortune, Barron's, The Wall Street
Journal, The New York Times, Business Week, American Banker, Fortune,
Institutional Investor, U.S.A. Today and publications of Ibbotson Associates,
Inc. and other publications of a local or regional nature. In addition to
performance information, general information about the Portfolio 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 and the power of compounding); (2) discussions of
general economic trends; (3) presentations of statistical data to supplement
such discussions; (4) descriptions of past or anticipated portfolio holdings for
the Portfolio; (5) descriptions of investment strategies for the Portfolio; (6)
descriptions or comparisons of various investment products, which may or may not
include the Portfolio; (7) comparisons of investment products (including the
Portfolio) with relevant market or industry indices or other appropriate
benchmarks; and (8) discussions of rankings or ratings by recognized rating
organizations. Such data are for illustrative purposes only and are not
intended to indicate past or future performance results of the Portfolio.
Actual performance of the Portfolio may be more or less than that noted in the
hypothetical illustrations.
Since performance will fluctuate, performance data for the Portfolio
cannot necessarily be used to compare an investment in the Portfolio 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 the Portfolio, portfolio maturity,
operating expenses, and market conditions. The current yield and performance of
the Portfolio may be obtained by calling your broker-dealer or financial
adviser.
-19-
<PAGE>
ADDITIONAL INFORMATION CONCERNING TAXES
The following summarizes certain additional tax considerations
generally affecting the Portfolio and its shareholders that are not described in
the Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Portfolio or its shareholders, and the discussion here and in
the Prospectus are not intended as a substitute for careful tax planning.
Potential investors should consult their tax advisors with specific reference to
their own tax situations.
The Portfolio intends to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code, and to distribute out its
income to shareholders each year, so that the Portfolio itself generally will be
relieved of federal income and excise taxes. If the Portfolio were to fail to so
qualify: (1) the Portfolio would be taxed at regular corporate rates without any
deduction for distributions to shareholders; and (2) shareholders would be taxed
as if they received ordinary dividends, although corporate shareholders could be
eligible for the dividends received deduction.
Dividends declared by the Portfolio in October, November, or December
of any year payable to shareholders of record on a specified date in such months
will be deemed to have been received by shareholders and paid by the Fund on
December 31 of such year, if such dividends are actually paid during January of
the following year.
-20-
<PAGE>
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 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 4% nondeductible excise tax is imposed on regulated investment
companies that fail to currently distribute specified percentages of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses). The Portfolio intends to make sufficient distributions or
deemed distributions of its ordinary taxable income and any capital gain net
income each year to avoid liability for this excise tax.
MANAGEMENT OF THE FUND
Directors and Officers
The business and affairs of the Portfolio are managed under the
direction of Fund's Board of Directors in accordance with the laws of Maryland
and the Fund's Articles of Incorporation. The directors and executive officers
of the Fund, their addresses, ages, principal occupations during the past five
years, and other affiliations are as follows:
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<PAGE>
<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 the Treasurer, St. Louis University, August 1996
St. Louis University Board, President to present; Treasurer, Washington
3500 Lindell Blvd. and Director University, 1981 to 1995.
Fitzgerald Hall
St. Louis, MO 63131
Age: 55
Robert M. Cox, Jr. Director Senior Vice President and Advisory Director,
Emerson Electric Co. Emerson Electric Co. since November, 1990.
8000 W. Florissant Ave.
P.O. Box 4100
St. Louis, MO 63136-8506
Age: 53
Joseph J. Hunt Director General Vice-President, International
Iron Workers International Union Association of Bridge, Structural and
1750 New York Avenue, N.W. Ornamental Iron Workers (International Labor
Suite 400 Union), January 1994 to present.
Washington, DC 20006
Age: 56
James C. Jacobsen Director Director, Kellwood Company, (manufacturer of
Kellwood Company wearing apparel and camping softgoods) since
600 Kellwood Parkway 1975; Vice Chairman, Kellwood Company since
Chesterfield, MO 63017 May, 1989.
Age: 63
Donald E. Brandt Director Senior Vice President, Finance and Corporate
Union Electric Company Services, Union Electric Company (electric
P.O. Box 66149 utility company); Director, Huntco, Inc.
St. Louis, MO 63166 (intermediate steel processors).
Age: 44
</TABLE>
_________________________
* Mr. Woodham is an "interested person" of the Fund as defined in the 1940
Act.
-22-
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Position with During Past 5 years
Name and Address the Fund and other affiliations
- ---------------- -------------- ----------------------
<S> <C> <C>
Ronald D. Winney * Director and Private Investor; Treasurer, Ralston Purina
1111 N. Oxfordshere Drive Treasurer Company, 1985-1999.
Edwardsville, Illinois 62025
Age: 56
W. Bruce McConnel, III* Secretary Partner of the law firm of Drinker Biddle &
One Logan Square Reath LLP, Philadelphia, Pennsylvania since
18/th/ and Cherry Streets 1977.
Philadelphia, PA 19103-6996
Age: 55
Joseph C. Neuberger Assistant Treasurer Employee of Firstar Mutual Fund Services, LLC.
615 E. Michigan Street
2/nd/ Floor
Milwaukee, WI 53202
Age: 37
Michael T. Karbouski Assistant Treasurer Employee of Firstar Mutual Fund Services, LLC.
615 E. Michigan Street
2/nd/ floor
Milwaukee, WI 53202
Age: 35
Katherine Harwood Assistant Secretary Employee of Firstar Mutual Fund Services, LLC.
615 E. Michigan Street
2/nd/ Floor
Milwaukee WI 53202
Age: 25
</TABLE>
* Messrs. Winney, McConnel, Neuberger, Karbouski and Ms. Harwood 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, 1999, the Fund paid or
accrued for the account of its directors as a group, for services in all
capacities, a total of $_______. Drinker Biddle & Reath LLP, of which Mr.
McConnel is a partner, receives legal fees as counsel to the Fund. As of the
date of this Statement of Additional Information, the directors and officers of
the Fund, as a group, owned less than 1% of the outstanding shares of the
Fund.
The following chart provides certain information about the fees
received by the Fund's directors for their services as members of the Board of
Directors and committees thereof for the fiscal year ended November 30,
1999:
-23-
<PAGE>
<TABLE>
<CAPTION>
Pension or
Retirement Total
Aggregate Benefits Accrued Compensation
Compensation as Part of Fund from the Fund and
Name of Director from the Fund Expense Fund Complex*
- ---------------- ------------- ----------------- -----------------
<S> <C> <C> <C>
Jerry V. Woodham $_______ N/A $_______
Donald E. Brandt $_______ N/A $_______
Robert M. Cox, Jr. $_______ N/A $_______
Joseph J. Hunt $_______ N/A $_______
James C. Jacobsen $_______ N/A $_______
Patrick J. Moore** $_______ N/A $_______
Ronald D. Winney $_______ N/A $_______
</TABLE>
* The "Fund Complex" consists solely of the Fund.
** Mr. Moore resigned as a director of the Fund on January 4, 2000.
- ---------------------
Investment Adviser and Sub-Adviser
Firstar Investment and Research Management Company, LLC ("FIRMCO")
serves as investment adviser to the Portfolio as a result of the merger by the
Portfolios' former adviser, Mississippi Valley Advisors Inc. ("MVA"), into
FIRMCO on March 1, 2000. FIRMCO is a subsidiary of Firstar Corporation, a
banking and financial services organization. Prior to September 17, 1999, MVA
was an indirect wholly-owned subsidiary of Mercantile Bank Corporation Inc. On
September 17, 1999, Mercantile Bancorporation Inc. merged into Firstar
Corporation. For the services provided and expenses assumed pursuant to the
investment advisory agreement, the Adviser is entitled to receive fees, computed
daily and payable monthly, at the annual rate of .40% of the first $1.5 billion
of the 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. For the period from
February 16, 1999 (commencement of operations) through November 30, 1999, MVA
was paid $____________ in advisory fees (after waivers). For the same period,
MVA waived $____________ in advisory fees.
In addition, Conning Asset Management Company (the "Sub-Adviser")
serves as sub-adviser to the Portfolio. The Sub-Adviser is an indirect
subsidiary of GenAmerica Corporation, a financial services holding company,
which in turn is a wholly-owned subsidiary of Metropolitan Life Insurance
Company. For the services provided and expenses assumed pursuant to its sub-
advisory agreement with the Adviser, the Sub-Adviser receives from the Adviser a
fee, computed daily and payable monthly, at the annual rate of .30% of the first
$1.5 billion of the Portfolio's average daily net assets, .25% of the next $1.0
billion of net assets and .15% of net assets in excess of $2.5 billion. For the
period from February 16, 1999 (commencement of operations) through November 30,
1999, the Sub-Adviser received
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<PAGE>
$______ in sub-advisory fees (after waivers). For the same period, the Sub-
Adviser waived $___________ in sub-advisory fees.
The Adviser and Sub-Adviser may from time to time voluntarily reduce
all or a portion of their respective advisory and sub-advisory fees to increase
the net income of the Portfolio available for distribution as dividends. These
voluntary fee reductions will cause the return of the Portfolio to be higher
than it would otherwise be in the absence of such reductions.
Pursuant to the advisory and sub-advisory agreements, the Adviser and
the Sub-Adviser have agreed to provide investment advisory and sub-investment
advisory services, respectively, as described in the Portfolio's Prospectus.
The Adviser and Sub-Adviser 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 Portfolio.
The investment advisory and sub-advisory agreements provide that the
Adviser and Sub-Adviser, respectively, shall not be liable for any error of
judgment or mistake of law or for any loss suffered in connection with the
performance of their respective agreements, except a loss resulting from a
breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or gross
negligence in the performance of their duties or from reckless disregard by them
of their duties and obligations thereunder.
Administrator
Effective January 1, 2000, BISYS Fund Services Ohio, Inc. ("BISYS"),
located at 3435 Stelzer Road, Columbus, Ohio 43219, and Firstar Mutual Fund
Services, LLC ("Firstar"), located at 615 E. Michigan Street, Milwaukee, WI
53202, serve as the Portfolios' co-administrators (the
"Co-Administrators").
For the period from January 1, 2000 through March 31, 2000, the
following are some of the services jointly provided by the Co-Administrators to
the Portfolio: providing personnel and supervision of an office facility to
receive purchase, exchange and redemption orders via the Fund's toll-free
telephone lines; providing information and distributing written communications
concerning the Portfolio to its shareholders of record, and assisting in
handling shareholder problems and calls; monitoring the Fund's arrangements with
respect to services provided by certain institutional shareholders ("Service
Organizations") under its Shareholder Services Plan for the Portfolio, 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 Fund and such Service Organizations; furnishing
statistical and research data, clerical and certain bookkeeping services and
stationery and office supplies; and assisting in monitoring of regulatory and
legislative developments which may affect the Fund. For
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<PAGE>
the same period, the following are some services provided by Firstar to the
Portfolio: completing blue sky compliance starting January 10, 2000; monitoring
compliance with Subchapter M of Internal Revenue Code; monitoring fidelity bond
coverage; monitoring directors' and officers' liability coverage; and monitoring
expense ratios/budget expenses. For the same period, the following are some
services provided by BISYS to the Portfolio: preparing annual reports to the SEC
on Form N-SAR; compiling data for, and assisting in preparation for execution
and filing by the Fund, all of the Fund'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; assisting in preparation and filing of Rule 24f-2
Notices; and mailing all communications by the Fund to its shareholders to their
authorized representatives.
For the period beginning April 1, 2000, Firstar has agreed to maintain
office facilities for the Portfolio, furnish the Portfolio with statistical and
research data, clerical, accounting, and certain bookkeeping services,
stationery and office supplies, and certain other services required by the
Portfolio, and to compute the net asset value and net income of the Portfolio.
Firstar 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 Portfolio's financial accounts and records including
calculation of daily expense accruals, monitors compliance procedures for the
Portfolio with its investment objective, policies and limitations, tax matters,
and applicable laws and regulations, and generally assists in all aspects of the
Portfolio's operations. For the same period, BISYS has agreed to assist in
responding to examination letters received from the SEC; review prospectus and
supplements to prospectus as prepared by counsel to the Fund; and reviewing
Board agendas and participate in Board meetings.
Effective January 1, 2000, the Fund will pay the Co-Administrators
jointly a fee, computed daily and payable monthly, with respect to the Portfolio
at the annual rate of .20% of the average daily net assets of the Portfolio. The
Co-Administrators have agreed to bear all expenses in connection with the
performance of their services, except that the Portfolio bears any expenses
incurred in connection with any use of a pricing service to value portfolio
securities.
Prior to January 1, 2000, BISYS served as the sole administrator to
the Fund. BISYS generally assisted in all aspects of the Portfolio's
administration and operation and also monitored and performed other services
pertaining to the Fund's arrangements under the Administrative Services Plan
described below. For its services,
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<PAGE>
the BISYS was entitled to receive a fee, computed daily and payable monthly, at
the annual rate of .20% the Portfolio's average daily net assets. The aggregate
administration fee (net of waived paid) with respect to the Portfolio for the
period February 16, 1999 (date of commencement of operations) through November
30, 1999 was $________. For the same period, the corresponding effective rate of
administration fees was ____% of the Portfolio's average daily net assets.
Distributor
Shares in the Portfolio are sold continuously by BISYS Fund Services
Limited Partnership (the "Distributor"), an affiliate of the Administrator. The
Distributor is a registered broker-dealer with principal offices at 3435 Stelzer
Road, Columbus, Ohio 43219.
Shareholder Services Plan
The Fund has adopted a Shareholder Services Plan (the "Plan") with
respect to the Portfolio. Under the Plan, the Portfolio may pay (a) broker-
dealers, financial advisers and other institutions ("Service Organizations") for
shareholder liaison services, which means personal services for shareholders
and/or the maintenance of shareholder accounts, such as responding to customer
inquiries and providing information on accounts, and (b) Service Organizations
for administrative support services, which include but are not limited to (i)
transfer agent and sub-transfer agent services for beneficial owners of shares
of the Portfolio; (ii) aggregating and processing purchase and redemption
orders; (iii) providing beneficial owners with statements showing their position
in shares of the Portfolio; (iv) processing dividend payments; (v) providing
sub-accounting services for shares of the Portfolio held beneficially; (vi)
forwarding shareholder communications, such as proxies, shareholder reports,
dividend and tax notices, and updating prospectuses to beneficial owners; and
(vii) receiving, translating and transmitting proxies executed by beneficial
owners.
Under the Plan, payments by the Fund to a Service Organization for
shareholder liaison services and/or administrative support services may not
exceed the annual rates of .25% and .50%, respectively, of the average daily net
assets attributable to the Portfolio's outstanding shares which are owned of
record or beneficially by that Service Organization's customers for whom the
Service Organization is the dealer of record or shareholder of record or with
whom it has a servicing relationship. As of the date of this Statement of
Additional Information, the Fund intends to limit the Portfolio's payments for
shareholder liaison and administrative support services under the Plan to an
aggregate fee of not more than ____% (on an annualized basis) of the average
daily net asset value of shares owned of record or beneficially by customers of
Service Organizations. For the period February 16, 1999 (commencement of
operations) through November 30, 1999, the Portfolio paid $_______ in
shareholder servicing fees under the Plan, all of which was paid to affiliates
of Conning.
The servicing agreements adopted under the Shareholder Services Plan
(the "Servicing Agreements") require the Service Organizations receiving such
compensation (which may include affiliates of the Adviser and Sub-Adviser) to
perform certain services, including
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<PAGE>
providing shareholder liaison services and/or administrative support services
with respect to the beneficial owners of shares of the Portfolio, such as those
described above.
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
services may also charge fees to their customers beneficially owing shares of
the Portfolio. 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 the
Portfolio and any other compensation payable by its customers in connection with
their investment in shares of the Portfolio. Customers of such a Service
Organization receiving servicing fees should read the Portfolio's Prospectus and
this Statement of Additional Information in light of the terms governing their
accounts with their Service Organization.
The Board of Directors has approved the Plan and its respective
arrangements with Service Organizations based on information provided by the
Fund's service contractors that there is a reasonable likelihood that the Plan
and arrangements will benefit the Portfolio and its shareholders. Pursuant to
the Plan, the Board of Directors reviews, at least quarterly, a written report
of the amounts of servicing fees expended pursuant to the Plan and the purposes
for which the expenditures were made. Any material amendment to the Plan or
arrangements with Service Organizations must be approved by a majority of the
Board of Directors.
Custodian and Transfer Agent
Mercantile Trust Company National Association, an indirect wholly-
owned subsidiary of Firstar Corporation, with principal offices located at One
Mercantile Center, 8/th/ and Locust Streets, St. Louis, Missouri 63101, serves
as custodian of the Portfolio's assets. Effective March 20, 2000, Firstar Mutual
Fund Services LLC ("Firstar"), with principal offices at 615 E. Michigan Street,
Milwaukee, WI 53202, serves as the Portfolio's transfer agent and dividend
disbursing agent. Prior to March 20, 2000, BISYS Fund Services Ohio, Inc.
("BISYS") located at 3435 Stelzer Road, Columbus, Ohio 43219, served as the
Fund's transfer agent and dividend disbursing agent.
Effective March 20, 2000, Firstar will replace BISYS as the Fund's
transfer agent and dividend disbursing agent (in those capacities, the "Transfer
Agent"). Under the Transfer Agent Servicing 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)
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<PAGE>
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. Prior to March 20, 2000, such services were provided to the Portfolio
by BISYS Fund Services Ohio, Inc.
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 Portfolio. 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 Trust Company National Association, the Adviser,
Service Organizations that are banks or bank affiliates, and broker-dealers that
are bank affiliates are subject to such laws and regulations, but believe they
may perform the services for the Portfolio contemplated by their respective
agreements, the Prospectus and this 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 Portfolio and the shareholders, the Fund might be
required to alter materially or discontinue its arrangements with such companies
and change its method of operation. It is not expected that investors would
suffer any adverse financial consequences as a result of any of these
occurrences.
If current restrictions preventing a bank from legally sponsoring,
organizing, controlling, or distributing shares of an investment company were
relaxed, Mercantile Trust Company National Association, or an affiliate of
Mercantile Trust Company National Association, would consider the possibility of
offering to perform additional services for the Portfolio. It is not possible,
of course, to predict whether or in what form such legislation might be enacted
or the terms upon which Mercantile Trust Company National Association, or such
an affiliate, might offer to provide such services.
Conflict of interest restrictions may apply to the receipt of
compensation paid pursuant to a Servicing Agreement by the Portfolio to a
financial intermediary in connection with the investment of fiduciary funds in
the Portfolio. Institutions, including banks regulated by the Comptroller of
the Currency and investment advisers and other money managers subject to the
jurisdiction of the SEC, the Department of Labor or state securities
commissions, should consult legal counsel before entering into Servicing
Agreements.
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<PAGE>
Expenses
Except as noted above, the Fund's service contractors bear all
expenses in connection with the performance of their services. Expenses are
deducted from the total income of the Portfolio before dividends and
distributions are paid. These expenses include, but are not limited to, fees
paid to the Adviser and Administrator, transfer agency fees, fees and expenses
of officers and directors who are not affiliated with the Adviser or the
Distributor, taxes, interest, legal fees, custodian fees, auditing fees,
shareholder servicing fees, certain fees and expenses in registering and
qualifying the Portfolio and its shares for distribution under federal and state
securities laws, costs of preparing and printing prospectuses and statements of
additional information for regulatory purposes and for distribution to existing
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, Sub-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.
INDEPENDENT AUDITORS
____________, certified public accountants, with offices at Two
Nationwide Plaza, Columbus, Ohio 43215, serves as independent auditors for the
Fund. ___________ has been engaged to perform an annual audit of the Fund's
financial statements. Reports of its activities are provided to the Fund's Board
of Directors.
COUNSEL
Drinker Biddle & Reath LLP (of which W. Bruce McConnel, III, Secretary
of the Fund, is a partner), One Logan Square, 18/th/ and Cherry Streets,
Philadelphia, Pennsylvania 19103-6996, is counsel to the Fund and will pass upon
certain legal matters on its behalf.
MISCELLANEOUS
As of January 13, 2000, Pershing, as Agent-Omnibus Account, One
Pershing Plaza, Jersey City, NJ 07399-0002, held of record 97.785% of the
Portfolio's outstanding shares as fiduciary or agent on behalf of its customers.
On the basis of information received from these institutions, the Fund
believes that substantially all of the shares owned of record were also
beneficially owned by these
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<PAGE>
institutions because they possessed or shared voting or investment power with
respect to such shares on behalf of their underlying accounts.
FINANCIAL STATEMENTS
The Portfolio's Annual Report to Shareholders dated November 30, 1999
has been filed with the Securities and Exchange Commission. The financial
statements in such Annual Report are ____________ into this Statement of
Additional Information. The financial statements included in the Annual Report
have been audited by the Fund's independent auditors, _____________, whose
report thereon also appears in the Annual Report and is _____________. The
Financial Statements in the Annual Report have been ____________ in reliance
upon the report given upon the authority of such firm as experts in accounting
and auditing.
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<PAGE>
APPENDIX A
Commercial Paper Ratings
- ------------------------
A Standard & Poor's commercial paper rating is a current opinion of
the creditworthiness of an obligor with respect to financial obligations 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 on the obligation 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 in
higher rating categories. 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 upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the 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 Standard & Poor's believes that
such payments will be made during such grace period. The "D" rating will be used
upon the filing of a bankruptcy petition or the taking of a similar action if
payments on an obligation are jeopardized.
A-1
<PAGE>
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.
A-2
<PAGE>
"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 to 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 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 best 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 the higher
ratings.
"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.
A-3
<PAGE>
"B" - Securities possess speculative credit quality. This designation
indicates minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic
conditions.
"C" - Securities possess high default risk. This designation indicates
that default is a real possibility and 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 Financial 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 Financial BankWatch:
"TBW-1" - This designation represents Thomson Financial 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 Financial 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 Financial 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 Financial 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:
A-4
<PAGE>
"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.
"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.
Obligations rated "BB," "B," "CCC," "CC" and "C" are 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" - An obligation rated "BB" is less vulnerable to nonpayment 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" - An obligation rated "B" is more vulnerable to nonpayment 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" - An obligation rated "CCC" is currently vulnerable to
nonpayment, 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.
A-5
<PAGE>
"CC" - An obligation rated "CC" is currently highly vulnerable to
nonpayment.
"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action taken, but payments on this
obligation are being continued.
"D" - An obligation rated "D" is 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 Standard & Poor's
believes that such payments will be made during such grace period. The "D"
rating also will be used upon the filing of a bankruptcy petition or the taking
of a 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.
"c" - The 'c' subscript is used to provide additional information to
investors that the bank may terminate its obligation to purchase tendered bonds
if the long-term credit rating of the issuer is below an investment-grade level
and/or the issuer's bonds are deemed taxable.
"p" - The letter 'p' indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project financed by
the debt being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful, timely completion of the
project. This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of or the risk of
default upon failure of such completion. The investor should exercise his own
judgment with respect to such likelihood and risk.
* Continuance of the ratings is contingent upon Standard & Poor's
receipt of an executed copy of the escrow agreement or closing documentation
confirming investments and cash flows.
"r" - The 'r' highlights derivative, hybrid, and certain other
obligations that Standard & Poor's believes may experience high volatility or
high variability in expected returns as a result of noncredit risks. Examples of
such obligations are securities with principal or interest return 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.
A-6
<PAGE>
N.R. Not rated. Debt obligations of issuers outside the United States
and its territories are rated on the same basis as domestic corporate and
municipal issues. The ratings measure the creditworthiness of the obligor but do
not take into account currency exchange and related uncertainties.
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 risk appear somewhat larger than the "Aaa"
securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds are considered as medium-grade obligations, (i.e., they
are neither highly protected nor poorly 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" indicates 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 operating
A-7
<PAGE>
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: Moody's applies numerical modifiers 1, 2, and 3 in each generic
rating classification from "Aa" through "Caa". The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the
lower end of its generic rating category.
The following summarizes the long-term debt ratings used by Duff &
Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The
risk factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
"AA" - Debt is considered to be 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 in periods of greater 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. This is the
lowest investment grade category.
"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:
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<PAGE>
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. These ratings denote the lowest expectation of credit risk and
are assigned only in case of exceptionally strong capacity for timely payment of
financial commitments. This capacity is highly 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 credit 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 credit risk and indicate
strong capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to changes in circumstances or in economic
conditions than is the case for 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
credit risk. The capacity for timely payment of financial commitments is
considered adequate, but adverse changes in circumstances and in economic
conditions are more likely to impair this capacity. This is the lowest
investment grade 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 change over time; however, business or financial alternatives
may be available to allow financial commitments to be met. Securities rated in
this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings indicate
that significant credit risk is present, but a 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" and "C" - Bonds have high default risk. Default is a real
possibility, and capacity for meeting financial commitments is solely 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. The ratings of obligations
in this category are based on their prospects for achieving partial or full
recovery in a reorganization or liquidation of the obligor. While expected
recovery values are highly speculative and cannot be estimated with any
precision, the following serve as general
A-9
<PAGE>
guidelines. "DDD" obligations have the highest potential for recovery, around
90%-100% of outstanding amounts and accrued interest. "DD" indicates potential
recoveries in the range of 50%-90%, and "D" the lowest recovery potential, i.e.,
below 50%.
Entities rated in this category have defaulted on some or all of their
obligations. Entities rated "DDD" have the highest prospect for resumption of
performance or continued operation with or without a formal reorganization
process. Entities rated "DD" and "D" are generally undergoing a formal
reorganization or liquidation process; those rated "DD" are likely to satisfy a
higher portion of their outstanding obligations, while entities rated "D" have a
poor prospect for repaying all obligations.
To provide more detailed indications of credit quality, the Fitch IBCA
ratings from and including "AA" to "CCC" may be modified by the addition of a
plus (+) or minus (-) sign to denote relative standing within these major rating
categories.
`NR' indicates the Fitch IBCA does not rate the issuer or issue in
question.
`Withdrawn': A rating is withdrawn when Fitch IBCA deems the amount of
information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.
RatingAlert: Ratings are placed on RatingAlert to notify investors
that there is a reasonable probability of a rating change and the likely
direction of such change. These are designated as "Positive", indicating a
potential upgrade, "Negative", for a potential downgrade, or "Evolving", if
ratings may be raised, lowered or maintained. RatingAlert is typically resolved
over a relatively short period.
Thomson Financial 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 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.
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<PAGE>
"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 the lowest investment-grade
category and indicates an acceptable capacity to repay principal and interest.
Issues rated "BBB" are more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings.
"BB," "B," "CCC" and "CC," - These designations are assigned by
Thomson Financial BankWatch to non-investment grade long-term debt. Such issues
are regarded as having speculative characteristics regarding the likelihood of
timely repayment 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 note rating reflects the liquidity factors and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's 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 a
very strong capacity to pay debt service 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.
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<PAGE>
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. There is
present strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
"MIG-2"/"VMIG-2" - This designation denotes high quality. Margins of
protection are 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.
Protection commonly regarded as required of an investment security is present
and although not distinctly or predominantly speculative, there is specific
risk.
"SG" - This designation denotes speculative quality. Debt instruments
in this category lack margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
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<PAGE>
FORM N-1A
PART C. OTHER INFORMATION
--------------------------
Item 23. Exhibits
--------
(a) (1) Articles of Incorporation dated September 9, 1982./2/
(2) Articles Supplementary to Registrant's Articles of Incorporation
dated October 28, 1982./2/
(3) Articles Supplementary to Registrant's Articles of Incorporation
dated December 22, 1987./2/
(4) Articles Supplementary to Registrant's Articles of Incorporation
dated as of October 30, 1990./2/
(5) Articles Supplementary to Registrant's Articles of Incorporation
dated as of November 9, 1990./2/
(6) Articles Supplementary to Registrant's Articles of Incorporation
dated as of March 19, 1991./2/
(7) Certificate of Correction dated April 30, 1991 to Articles
Supplementary dated as of March 19, 1991./2/
(8) Articles Supplementary to Registrant's Articles of Incorporation
dated as of June 25, 1991./2/
(9) Articles Supplementary to Registrant's Articles of Incorporation
dated as of November 15, 1991./2/
(10) Articles Supplementary to Registrant's Articles of Incorporation
dated as of January 26, 1993./2/
(11) Articles Supplementary to Registrant's Articles of Incorporation
dated as of March 23, 1993./2/
(12) Articles Supplementary to Registrant's Articles of Incorporation
dated as of March 7, 1994./2/
(13) Certificate of Correction dated October 17, 1994 to Articles
Supplementary dated as of March 8, 1994 to Registrant's Articles
of Incorporation./2/
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<PAGE>
(14) Articles Supplementary to Registrant's Articles of Incorporation
dated as of February 22, 1995./2/
(15) Articles Supplementary to Registrant's Articles of Incorporation
dated as of April 17, 1995./2/
(16) Articles Supplementary to Registrant's Articles of Incorporation
dated June 27, 1995./2/
(17) Articles Supplementary to Registrant's Articles of Incorporation
dated September 18, 1995./2/
(18) Articles Supplementary to Registrant's Articles of Incorporation
dated August 30, 1996./4/
(19) Articles Supplementary to Registrant's Articles of Incorporation
dated February 3, 1997./6/
(20) Articles Supplementary to Registrant's Articles of Incorporation
dated June 17, 1997./9/
(21) Articles Supplementary to Registrant's Articles of Incorporation
dated October 29, 1997./11/
(22) Articles Supplementary to Registrant's Articles of Incorporation
dated March 23, 1998./14/
(23) Articles Supplementary to Registrant's Articles of Incorporation
dated September 17, 1998./14/
(b) Restated and Amended By-Laws as approved and adopted by Registrant's
Board of Directors./5/
(c) See Article VI of Registrant's Articles of Incorporation, incorporated
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 and Articles I and IV of Registrant's Restated and Amended By-
Laws, incorporated 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.
(d) (1) Amended and Restated Advisory Agreement between Registrant and
Mississippi Valley Advisors Inc. dated April 1, 1991./2/
(2) 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/
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<PAGE>
(3) 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/
(4) 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/
(5) Addendum No. 4 to Amended and Restated Advisory Agreement between
Registrant and Mississippi Valley Advisors Inc. dated March 15,
1994./2/
(6) 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/
(7) 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/
(8) Addendum No. 7 to Amended and Restated Advisory Agreement between
Registrant and Mississippi Valley Advisors Inc. with respect to the
Equity Income, National Municipal Bond and Intermediate Corporate Bond
(formerly Short-Intermediate Corporate Bond) Portfolios dated November
15, 1996./5/
(9) 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/
(10) 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/
(11) 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 dated December 29, 1998./15/
(12) Addendum No. 11 to Amended and Restated Advisory Agreement between the
Registrant and Mississippi Valley Advisors Inc. with respect to the
Conning Money Market Portfolio dated February 12, 1999./16/
(13) Sub-Advisory Agreement between Mississippi Valley Advisors Inc. and
Clay Finlay Inc. dated August 29, 1996./4/
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<PAGE>
(14) Sub-Advisory Agreement between Mississippi Valley Advisors Inc.
and Conning Asset Management Co. with respect to the Conning
Money Market Portfolio dated February 12, 1999./16/
(15) Sub-Advisory Agreement between Mississippi Valley Advisors, Inc.
and Conning Asset Management Company dated January 6,
2000./18/
(e) (1) Distribution Agreement between Registrant and The Winsbury
Company Limited Partnership dated October 1, 1993./13/
(2) 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./13/
(3) 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./13/
(4) 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./13/
(5) 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/
(6) 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/
(7) 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/
(8) 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/
(9) Addendum No. 8 to Distribution Agreement between Registrant and
BISYS Fund Services with respect to Trust II Shares of the Money
Market Portfolios./15/
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<PAGE>
(10) Addendum No. 9 to Distribution Agreement between the Registrant
and BISYS Fund Services with respect to the Conning Money Market
Portfolio dated February 12, 1999./16/
(11) Amendment No. 1 to Distribution Agreement between Registrant and
The Winsbury Company Limited Partnership dated as of September
29, 1995./1/
(f) None.
(g) (1) Custodian Agreement between Registrant and Mercantile Bank of St.
Louis National Association dated as of April 1, 1992./13/
(2) Custody Fee Agreement between Registrant and Mercantile Bank of
St. Louis National Association dated April 1, 1995./13/
(3) Custody Fee Agreement between Registrant and Mercantile Bank of
St. Louis National Association dated July 10, 1995./13/
(4) Custody Fee Agreement between Registrant and Mercantile Bank of
St. Louis National Association dated September 29, 1995./2/
(5) Custody Fee Agreement between Registrant and Mercantile Bank
National Association dated November 15, 1996./5/
(6) Custody Fee Agreement between Registrant and Mercantile Bank
National Association dated February 14, 1997./6/
(7) Custody Fee Agreement between Registrant and Mercantile Bank of
St. Louis National Association dated November 21, 1997./11/
(8) Custody Fee Agreement between Registrant and Mercantile Bank
National Association dated February 12, 1999./16/
(9) Securities Lending Amendment dated August 4, 1994 to Custodian
Agreement dated April 1, 1992 between Registrant and Mercantile
Bank of St. Louis National Association./13/
(10) Assignment and Delegation of Custodian Agreement between
Mercantile Bank National Association and Mercantile Trust Company
National Association dated December 1, 1998./15/
(11) 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./13/
(12) Foreign Custody Delegation Agreement between the Registrant and
Bankers Trust Company of New York dated December 4, 1998./15/
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<PAGE>
(h) (1) Co-Administration Agreement between Registrant, Firstar Mutual
Fund Services, LLC ("Firstar") and BISYS Fund Services Ohio, Inc.
("BISYS") dated January 1, 2000./18/
(2) Transfer Agency Agreement between Registrant and The Winsbury
Service Corporation dated October 1, 1993./13/
(3) 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./13/
(4) 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./13/
(5) 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 dated July 10, 1995./13/
(6) 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/
(7) 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/
(8) 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/
(9) 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/
(10) Addendum No. 8 to Transfer Agency Agreement between Registrant
and BISYS Fund Services Ohio, Inc. with respect to Trust II
Shares of the Money Market Portfolios./15/
(11) Addendum No. 9 to Transfer Agency Agreement between Registrant
and BISYS Fund Services Ohio, Inc. with respect to the Conning
Money Market Portfolio dated February 12, 1999./16/
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<PAGE>
(12) Amendment No. 1 to Transfer Agency Agreement between Registrant
and BISYS Fund Services Ohio, Inc. dated as of September 29,
1995./1/
(13) Amendment No. 2 to Transfer Agency Agreement between Registrant
and BISYS Fund Services Ohio, Inc. dated October 1, 1995./2/
(14) Form of Transfer Agent Servicing Agreement./18/
(15) Administrative Services Plan (Trust Shares) and Form of
Agreement./8/
(16) Administrative Services Plan (Institutional Shares) and Form of
Agreement./8/
(17) Form of Shareholder Services Plan and Form of Servicing Agreement
with respect to the Conning Money Market Porfolio./14/
(18) Agreement and Plan of Reorganization between Registrant and Arrow
Funds./9/
(19) Form of Credit Agreement between Registrant, Firstar Funds, Inc.
and The Chase Manhattan Bank dated December 29, 1999./18/
(i) (1) Opinion and consent of counsel./13/
(2) Opinion and consent of counsel./14/
(j) Consent of Drinker Biddle & Reath LLP./18/
(k) None.
(l) (1) Purchase Agreement between Registrant and Shearson/American
Express Inc. dated November 23, 1982./13/
(2) Purchase Agreement between Registrant and The Winsbury Service
Corporation dated April 1, 1994./13/
(3) Purchase Agreements between Registrant and BISYS Fund Services
Ohio, Inc. dated as of February 28, 1995./13/
(4) Purchase Agreements between Registrant and BISYS Fund Services
Ohio, Inc. dated as of July 7, 1995./13/
(5) Purchase Agreements between Registrant and BISYS Fund Services
Ohio, Inc. dated September 29, 1995./2/
(6) Purchase Agreement between Registrant and BISYS Fund Services
Ohio, Inc. dated November 14, 1996./5/
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<PAGE>
(7) Purchase Agreements between Registrant and BISYS Fund Services
Ohio, Inc. dated February 6, 1997./6/
(8) Purchase Agreement between Registrant and BISYS Fund Services
Ohio, Inc. dated February 27, 1997./6/
(9) Purchase Agreement between Registrant and BISYS Fund Services
Ohio, Inc. dated April 30, 1997./7/
(10) Purchase Agreements between Registrant and BISYS Fund Services
Ohio, Inc. dated November 21, 1997./11/
(11) Purchase Agreements between Registrant and BISYS Fund Services
Ohio, Inc. dated December 29, 1998./15/
(12) Purchase Agreement between Registrant and BISYS Fund Services
Ohio, Inc. dated February 12, 1999./16/
(m) (1) Distribution and Services Plan (Investor A Shares) under Rule
12b-1 and Form of Agreement./8/
(2) Distribution and Services Plan (Investor B Shares) under Rule
12b-1 and Form of Agreement./8/
(n) Amended and Restated Plan Pursuant to Rule 18f-3 for Operation of a
Multi-Class System./16/
(p) To be filed by amendment.
___________________
1. Filed electronically as an Exhibit and incorporated herein by reference to
Post-Effective Amendment No. 33 to Registrant's Registration Statement on
Form N-1A (File No. 2-79285) on January 2, 1996.
2. 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.
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<PAGE>
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.
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. Filed electronically as an Exhibit and incorporated herein by reference to
Post-Effective Amendment No. 44 to Registrant's Registration Statement on
Form N-1A (File No. 2-79285) on March 31, 1998.
14. Filed electronically as an Exhibit and incorporated herein by reference to
Post-Effective Amendment No. 45 to Registrant's Registration Statement on
Form N-1A (File No. 2-79285) on November 5, 1998.
15. Filed electronically as an Exhibit and incorporated herein by reference to
Post-Effective Amendment No. 46 to Registrant's Registration Statement on
Form N-1A (File No. 2-79285) on January 28, 1999.
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<PAGE>
16. Filed electronically as an Exhibit and incorporated herein by reference to
Post-Effective Amendment No. 47 to Registrant's Registration Statement on
Form N-1A (File No. 2-79285) on March 30, 1999.
17. Filed electronically as an Exhibit and incorporated herein by reference to
Post-Effective Amendment No. 49 to Registrant's Registration Statement on
Form N-1A (File No. 2-79285) on September 7, 1999.
18. A copy of such Exhibit is filed electronically herein.
Item 24. Persons Controlled By or Under Common Control with Registrant
-------------------------------------------------------------
Not applicable
Item 25. 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
(e)(1), in Section 24 of the Custodian Agreement, incorporated herein by
reference as Exhibit (g)(1) and in Section 18 of the Transfer Agency Agreement
incorporated herein by reference as Exhibit (h)(12). 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.
-10-
<PAGE>
Item 26. Business and Other Connections of Investment Adviser
----------------------------------------------------
A. Mississippi Valley Advisors Inc. is registered as an investment adviser
with the Securities and Exchange Commission and is responsible for
providing advisory services to each of Registrant's investment portfolios.
B. The information required by this Item 26 with respect to each Director and
Officer of Mississippi Valley Advisors Inc. is incorporated by reference to
Form ADV and Schedules A and D filed by Mississippi Valley Advisors Inc.
with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934 (File No. 801-28897).
C. Clay Finlay Inc. is registered as an investment adviser with the Securities
and Exchange Commission and provides sub-advisory services to the
Registrant's International Equity Portfolio.
D. The information required by this Item 26 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).
E. Conning Asset Management Co. is registered as an investment adviser with
the Securities and Exchange Commission and provides sub-advisory services
to the Registrant's Conning Money Market Portfolio.
F. The information required by this Item 26 with respect to each Director and
Officer of Conning Asset Management Co. is included in Form ADV and
Schedules A and D filed by Conning Asset Management Co. with the Securities
and Exchange Commission pursuant to the Securities Exchange Act of 1934
(File No. 801-8641).
Item 27. 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 and
transfer agent for the Registrant. BISYS Fund Services also distributes the
securities of Alpine Equity Trust, American Performance Funds, AmSouth
Mutual Funds, The BB&T Mutual Funds Group, The Coventry Group, ESC
Strategic Funds, Inc., The Eureka Funds, Governor Funds, Fifth Third Funds,
Hirtle Callaghan Trust, HSBC Funds Trust, HSBC Mutual Funds Trust, INTRUST
Funds Trust, The Infinity Mutual Funds, Inc., Magna Funds, Matemarkets.com,
Meyers Investment Trust, MMA Poraxis Mutual Funds, M.S.D.&T. Funds, Pacific
Capital Funds, Republic Advisor Funds Trust, Republic Funds Trust, Sefton
Funds Trust, SsgA International Liquidity Fund, Summit Investment Trust,
USAllianz Funds, USAllianz Funds Variable Insurance Products Trust,
Valenzuela
-11-
<PAGE>
Capital Trust, Variable Insurance Funds, The Victory Portfolios, The
Victory Variable Insurance Funds and Vintage Mutual Funds, Inc.
B. To the best of Registrant's knowledge, the partners of BISYS Fund Services
are as follows:
===============================================================================
Positions and Offices
Name and Principal with BISYS Positions and Offices
Business Address Fund Services with Registrant
---------------- ------------- ---------------
- -------------------------------------------------------------------------------
BISYS Fund Services, Inc. Sole General Partner None
3435 Stelzer Road
Columbus, Ohio 43219-3035
- -------------------------------------------------------------------------------
WC Subsidiary Corporation Sole Limited Partner
150 Clove Road None
Little Falls, NJ 07424
===============================================================================
C. None.
Item 28. Location of Accounts and Records
--------------------------------
(1) Mercantile Trust Company 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 co-administrator).
(5) Firstar Mutual Fund Services, LLC, 615 E. Michigan Street, 2/nd/ Floor,
Milwaukee, WI 53202 (records relating to its function as
co-administrator).
(6) BISYS Fund Services Ohio, Inc., 3435 Stelzer Road, Columbus, Ohio 43219
(records relating to its function as transfer agent and dividend disbursing
agent).
-12-
<PAGE>
(7) Drinker Biddle and Reath LLP, One Logan Square, 18th & Cherry Streets,
Philadelphia, PA 19103-6996 (Registrant's Articles of Incorporation, By-
Laws and Minute Books).
(8) 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).
(9) Bankers Trust Company, 16 Wall Street, New York, New York 10005 (records
relating to its function as sub-custodian for the International Equity
Portfolio).
(10) Conning Asset Management Co., 700 Market Street, St. Louis, Missouri 63101
(records relating to its function as sub-adviser to the Conning Money
Market Portfolio).
Item 29. Management Services
-------------------
Not applicable.
Item 30. Undertakings
------------
Not applicable.
-13-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Post-
Effective Amendment No. 50 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 31 day of January, 2000.
Mercantile Mutual Funds, 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. 50 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, January 31, 2000
- -------------------------
Jerry V. Woodham Director and President
/s/* James C. Jacobsen Director January 31, 2000
- -------------------------
James C. Jacobsen
/s/* Joseph J. Hunt Director January 31, 2000
- -------------------------
Joseph J. Hunt
/s/* Robert M. Cox, Jr. Director January 31, 2000
- -------------------------
Robert M. Cox, Jr.
/s/* Ronald D. Winney Director & Treasurer January 31, 2000
- -------------------------
Ronald D. Winney
/s/* Donald E. Brandt Director January 31, 2000
- -------------------------
Donald E. Brandt
</TABLE>
*By: /s/ Jerry V. Woodham
---------------------
Jerry V. Woodham
Attorney-in-fact
<PAGE>
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: March 15, 1999
<PAGE>
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: March 15, 1999
<PAGE>
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: March 15, 1999
<PAGE>
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: March 15, 1999
<PAGE>
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: March 15, 1999
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
(d)(15) Sub-Advisory Agreement between Mississippi Valley Advisors, Inc.
and Conning Asset Management Company dated January 6, 2000.
(h) (1) Co-Administration Agreement among Registrant, Firstar Mutual Fund
Services, LLC and BISYS Fund Services Ohio, Inc. dated January 1,
2000.
(h) (14) Form of Transfer Agent Servicing Agreement between Registrant and
Firstar Mutual Fund Services, LLC.
(h) (19) Form of Credit Agreement among Registrant, Firstar Funds, Inc.
and The Chase Manhattan Bank.
(j) Consent of Drinker Biddle & Reath LLP.
<PAGE>
Exhibit (d)(15)
SUB-ADVISORY AGREEMENT
(Conning Money Market Portfolio)
AGREEMENT made as of January 6, 2000 between Mississippi Valley Advisors
Inc., a Missouri corporation (the "Adviser"), and Conning Asset Management
Company, a Missouri corporation ("Sub-Adviser").
WHEREAS, Mercantile Mutual Funds, Inc. (the "Fund") is registered as an
open-end, management investment company under the Investment Company Act of
1940, as amended (the "1940 Act");
WHEREAS, the Adviser has been appointed investment adviser to the Fund's
Conning Money Market Portfolio (the "Portfolio");
WHEREAS, the Adviser previously has retained Sub-Adviser to assist it in
the provision of a continuous investment program for the Portfolio and Sub-
Adviser currently is providing such assistance pursuant to a Sub-Advisory
Agreement dated as of February 12, 1999;
WHEREAS, Metropolitan Life Insurance Company is this day acquiring
GenAmerica Corporation, which owns a controlling interest in Sub-Adviser (the
"Transaction");
WHEREAS, the Adviser desires to retain the Sub-Adviser to assist in the
provision of a continuous investment program for the Portfolio following the
Transaction and Sub-Adviser is willing to do so; and
WHEREAS, the Board of Directors of the Fund has approved this Agreement,
subject to approval by the shareholders of the Portfolio, and Sub-Adviser is
willing to furnish such services upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Adviser hereby appoints Sub-Adviser to act as sub-
-----------
adviser to the Portfolio as permitted by the Adviser's Advisory Agreement with
the Fund pertaining to the Portfolio. Intending to be legally bound, Sub-Adviser
accepts such appointment and agrees to render the services herein set forth for
the compensation herein provided.
2. Sub-Advisory Services. Subject to the supervision of the Fund's Board
---------------------
of Directors, Sub-Adviser will assist the Adviser in providing a continuous
investment program for the Portfolio, including investment research and
management with respect to all securities and investments and cash equivalents
in the Portfolio. Sub-Adviser will provide services under this Agreement in
accordance with the Portfolio's investment objective, policies and restrictions
as
<PAGE>
stated in the Portfolio's prospectus and resolutions of the Fund's Board of
Directors applicable to the Portfolio.
Without limiting the generality of the foregoing, Sub-Adviser further
agrees that it:
(a) will determine from time to time in consultation with the
Adviser what securities and other investments will be purchased,
retained or sold for the Portfolio;
(b) will place orders pursuant to its investment determinations
for the Portfolio either directly with the issuer or with any broker
or dealer;
(c) will manage the Portfolio's overall cash position;
(d) will attend regular business and investment-related meetings
with the Fund's Board of Directors and the Adviser if requested to do
so by the Fund and/or the Adviser; and
(e) will maintain books and records with respect to the
securities transactions for the Portfolio, furnish to the Adviser and
the Fund's Board of Directors such periodic and special reports as
they may request with respect to the Portfolio, and provide in advance
to the Adviser all reports to the Board of Directors for examination
and review within a reasonable time prior to the Fund's Board
meetings.
3. Covenants by Sub-Adviser. Sub-Adviser agrees with respect to the
------------------------
services provided to the Portfolio that it:
(a) will conform with all Rules and Regulations of the
Securities and Exchange Commission;
(b) will telecopy trade information to the Adviser on the first
business day following the day of the trade and cause broker
confirmations to be sent directly to the Adviser; and
(c) will treat confidentially and as proprietary information of
the Fund all records and other information relative to the Fund and
prior, present or potential shareholders, and will not 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 be
unreasonably withheld and may not be withheld and will be deemed
granted where Sub-Adviser 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 Fund).
-2-
<PAGE>
4. Services Not Exclusive. The services furnished by Sub-Adviser
----------------------
hereunder are deemed not to be exclusive, and nothing in this Agreement shall
(i) prevent Sub-Adviser or any affiliated person (as defined in the 1940 Act) of
Sub-Adviser from acting as investment adviser or manager for any other person or
persons, including other management investment companies with investment
objectives and policies the same as or similar to those of the Portfolio or (ii)
limit or restrict Sub-Adviser or any such affiliated person from buying, selling
or trading any securities or other investments (including any securities or
other investments which the Portfolio is eligible to buy) for its or their own
accounts or for the accounts of others for whom it or they may be acting;
provided, however, that Sub-Adviser agrees that it will not undertake any
- -------- -------
activities which, in its reasonable judgment, will adversely affect the
performance of its obligations to the Portfolio under this Agreement.
5. Portfolio Transactions. Investment decisions for the Portfolio
----------------------
shall be made by Sub-Adviser independently from those for any other investment
companies and accounts advised or managed by Sub-Adviser. The Portfolio and such
investment companies and accounts may, however, invest in the same securities.
When a purchase or sale of the same security is made at substantially the same
time on behalf of the Portfolio and/or another investment company or account,
the transaction will be averaged as to price, and available investments
allocated as to amount, in a manner which 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 or sold by the
Portfolio. To the extent permitted by law, Sub-Adviser may aggregate the
securities to be sold or purchased for the Portfolio with those to be sold or
purchased for other investment companies or accounts in order to obtain best
execution.
Sub-Adviser shall place orders for the purchase and sale of portfolio
securities and will solicit broker-dealers to execute transactions in accordance
with the Portfolio's policies and restrictions regarding brokerage allocations.
Sub-Adviser shall place orders pursuant to its investment determinations for the
Portfolio either directly with the issuer or with any broker or dealer selected
by Sub-Adviser. In executing portfolio transactions and selecting brokers or
dealers, Sub-Adviser shall use its reasonable best efforts to seek the most
favorable execution of orders, after taking into account all factors Sub-Adviser
deems relevant, including the breadth of the market in the security, the price
of the security, the financial condition and execution capability of the broker
or dealer, and the reasonableness of the commission, if any, both for the
specific transaction and on a continuing basis. Consistent with this obligation,
Sub-Adviser may, to the extent permitted by law, purchase and sell portfolio
securities to and from brokers and dealers who provide brokerage and research
services (within the meaning of Section 28(e) of the Securities Exchange Act of
1934) to or for the benefit of the Portfolio and/or other accounts over which
Sub-Adviser or any of its affiliates exercises investment discretion. Sub-
Adviser is authorized to pay to a broker or dealer who provides such brokerage
and research services a commission for executing a portfolio transaction for the
Portfolio which is in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction if Sub-Adviser
determines in good faith that such commission was reasonable in relation to the
value of the brokerage and research services provided by such broker or dealer,
viewed in terms of either that particular transaction or Sub-Adviser's overall
responsibilities to the Portfolio and to the Fund. In no instance will portfolio
securities be purchased from or sold to the Adviser,
-3-
<PAGE>
Sub-Adviser, or the Portfolio's principal underwriter, or any affiliated person
thereof except as permitted by the Securities and Exchange Commission.
6. Books and Records. In compliance with the requirements of Rule
-----------------
31a-3 under the 1940 Act, Sub-Adviser hereby agrees that all records which it
maintains for the Fund are the property of the Fund and further agrees to
surrender promptly to the Fund any of such records upon the Fund's request. Sub-
Adviser 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 the
1940 Act.
7. Expenses. During the term of this Agreement, Sub-Adviser will pay
--------
all expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities, commodities and other investments
(including brokerage commissions and other transaction charges, if any)
purchased for the Portfolio.
8. Compensation.
------------
(a) For the services provided and the expenses assumed with
respect to the Portfolio pursuant to this Agreement, Sub-Adviser will be
entitled to a fee, computed daily and payable monthly, from the Adviser,
calculated at the annual rate of .30% of the first $1.5 billion of the
Portfolio's average daily net assets, plus .25% of the next $1 billion of
average daily net assets, plus .15% of average daily net assets in excess of
$2.5 billion.
(b) If the Adviser reimburses the Fund, pursuant to Section 8(b)
of the Advisory Agreement, with respect to the Portfolio, the Sub-Adviser will
bear its share of the amount of such reimbursement by waiving fees otherwise
payable to it hereunder on a proportionate basis to be determined by comparing
the aggregate fees otherwise payable to it hereunder with respect to the
Portfolio to the aggregate fees otherwise payable by the Fund to the Adviser
under the Advisory Agreement with respect to the Portfolio.
9. Standard of Care; Limitation of Liability. Sub-Adviser shall
-----------------------------------------
exercise due care and diligence and use the same skill and care in providing its
services hereunder as it uses in providing services to other investment
companies, but shall not be liable for any action taken or omitted by Sub-
Adviser in the absence of bad faith, willful misconduct, gross negligence or
reckless disregard of its duties.
10. Reference to Sub-Adviser. Neither the Adviser nor any affiliate
------------------------
or agent of it shall make reference to or use the name of Sub-Adviser or any of
its affiliates, or any of their clients, except references concerning the
identity of and services provided by Sub-Adviser to the Portfolio, which
references shall not differ in substance from those included in the current
registration statement pertaining to the Portfolio, this Agreement and the
Advisory Agreement between the Adviser and the Fund with respect to the
Portfolio, in any advertising or promotional materials without the prior
approval of Sub-Adviser, which approval shall not be unreasonably withheld or
delayed. The Adviser hereby agrees to make all reasonable efforts to cause the
Fund and any affiliate thereof to satisfy the foregoing obligation.
-4-
<PAGE>
11. Duration and Termination. This Agreement shall become effective
------------------------
on the date of the consummation of the Transaction. Unless sooner terminated as
provided herein, this Agreement shall continue until January 31, 2001, and
thereafter shall continue automatically for successive annual periods, provided
such continuance is specifically approved at least annually by the Fund's Board
of Directors or vote of the lesser of (a) 67% of the shares of the Portfolio
represented at a meeting if holders of more than 50% of the outstanding shares
of the Portfolio are present in person or by proxy or (b) more than 50% of the
outstanding shares of the Portfolio, provided that in either event its
continuance also is approved by a majority of the Fund's Directors who are not
"interested persons" (as defined in the 1940 Act) of any party to this
Agreement, by vote cast in person at a meeting called for the purpose of voting
on such approval. This Agreement is terminable at any time without penalty, on
60 days' notice, by Adviser, Sub-Adviser or by the Fund's Board of Directors or
by vote of the lesser of (a) 67% of the shares of the Portfolio represented at a
meeting if holders of more than 50% of the outstanding shares of the Portfolio
are present in person or by proxy or (b) more than 50% of the outstanding shares
of the Portfolio. This Agreement will terminate automatically in the event of
its assignment (as defined in the 1940 Act).
12. 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 enforcement of the change, waiver,
discharge or termination is sought. No amendment of this Agreement shall be
effective with respect to the Portfolio until approved in accordance with the
1940 Act.
13. Notice. Any notice, advice or report to be given pursuant to this
------
Agreement shall be delivered or mailed:
To the Sub-Adviser at:
---------------------
700 Market Street
St. Louis, MO 63101
To the Adviser at:
-----------------
One Mercantile Center
7th and Washington Streets
Suite 2100
St. Louis, MO 63101
To the Fund at:
--------------
c/o W. Bruce McConnel, III, Esq.
Drinker Biddle & Reath LLP
One Logan Square
-5-
<PAGE>
18/th/ & Cherry Streets
Philadelphia, PA 19103-6996
14. 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 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 and shall be governed by
Missouri law.
15. 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.
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.
MISSISSIPPI VALLEY ADVISORS INC.
By: /s/ John H. Blixen
-------------------------
CONNING ASSET MANAGEMENT COMPANY
By: /s/ Signature Illegible
-------------------------
-6-
<PAGE>
EXHIBIT (h)(1)
MERCANTILE MUTUAL FUNDS, INC.
CO-ADMINISTRATION AGREEMENT
---------------------------
AGREEMENT dated as of January 1, 2000 among MERCANTILE MUTUAL FUNDS, INC.,
a Maryland corporation (the "Company"), FIRSTAR MUTUAL FUND SERVICES, LLC, a
Wisconsin corporation ("Firstar"), and BISYS FUND SERVICES OHIO, INC., an Ohio
corporation ("BISYS") (Firstar and BISYS each a "Co-Administrator" and
collectively, the "Co-Administrators").
WHEREAS, the Company is registered as an open-end, management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Company desires to retain the Co-Administrators 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" and collectively, the "Portfolios") as listed on
Appendix A (as such Appendix A may, from time to time, be supplemented or
amended) and the Co-Administrators are 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 among the
parties hereto as follows:
1. Appointment of Co-Administrators. The Company hereby appoints the Co-
--------------------------------
Administrators 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. Each Co-Administrator accepts such appointment and
agrees to perform the services and duties set forth in Appendix B 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 Co-Administrators
to provide certain administration and certain accounting services hereunder, the
Company shall notify the Co-Administrators, 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 Co-Administrators at the time).
2. Delivery of Documents. The Company has furnished the Co-Administrators
---------------------
with copies, properly certified or authenticated, of each of the following
documents and will deliver to them all future amendments and supplements, if
any:
<PAGE>
a. The Company's Articles of Incorporation, filed with the State
Department of Assessments and Taxation 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 amendments to its Registration
Statement under the Securities Act of 1933, as amended, and under the 1940 Act
on Form N-lA as filed with the Securities and Exchange Commission (the
"Commission") on March 30, 1999 and September 7, 1999 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 Administrative Services Plans for Trust shares and
Institutional shares, respectively, and Shareholder Services Plan for the
Conning Money Market Portfolio (non 12b-1 Plans) and related forms of Servicing
Agreements and the Company's Distribution and Services Plans for Investor A
shares and Investor B shares, respectively, (Rule 12b-1 Plans) and related forms
of Servicing Agreements;
g. The following agreements of the Company: the Amended and Restated
Advisory Agreement with Mississippi Valley Advisors Inc. dated as of April 1,
1991 and related addenda (the "Advisory Agreement"); the Sub-Advisory Agreement
with Clay Finlay Inc. with respect to the International Equity Portfolio dated
as of August 29, 1996 and the Sub-Advisory Agreement with Conning Asset
Management Company with respect to the Conning Money Market Portfolio dated as
of February 13, 1999; the Transfer Agency Agreement with The Winsbury Service
Corporation (presently known as BISYS Fund Services Ohio, Inc.) dated October 1,
1993 and related amendments and addenda (the "Transfer Agency Agreement"); the
Distribution Agreement with The Winsbury Company Limited Partnership (presently
known as BISYS Fund Services) dated October 1, 1993 and related amendments and
addenda (the "Distribution Agreement"); and the Custodian Agreement with
Mercantile Bank of St. Louis National Association dated as of April 1, 1992 with
related amendments, as assigned to Mercantile Trust Company National
Association, and the current fee letters related to such Agreement (the
"Custodian Agreement");
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 September 16, 1998 as to the number of
shares authorized in each Portfolio and any class thereof, and (ii) a
certificate as to the number of issued and outstanding shares of each such
Portfolio and class thereto, such certificate to be certified by the Company's
transfer agent as of the close of business on December 31, 1999; and
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<PAGE>
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 as Co-Administrators.
-----------------------------
a. Subject to the direction and control of the Board of Directors of
the Company, the Co-Administrators 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 Company's custodian
pursuant to the Custodian Agreement, the Company's distributor pursuant to the
Distribution Agreement and the Company's transfer agent pursuant to the Transfer
Agency Agreement. In this regard, the Co-Administrators will provide the
administration and accounting services listed on Appendix B.
b. In compliance with the requirements of Rule 3la-3 under the 1940
Act, the Co-Administrators agree that all records which they maintain for the
Company are the property of the Company and further agree to surrender promptly
to the Company any of such records upon the Company's request. The Co-
Administrators further agree to preserve for the periods prescribed by Rule 3la-
2 under the 1940 Act the records required to be maintained by Rule 3la-1 under
said Act.
c. In performing all of their services and duties as Co-
Administrators, the Co-Administrators 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 1940 Act and
other applicable federal or state law.
d. In the event of equipment failures beyond the Co-Administrators'
control, the Co-Administrators 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 Co-Administrators 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.
e. The Co-Administrators may, at their expense, subcontract with any
entity or person concerning the provision of the services contemplated
hereunder; provided, however, that the Co-Administrators shall not be relieved
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of any of their obligations under this Agreement by the appointment of such
subcontractor; and provided further, that the Co-Administrators shall be
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responsible to the extent provided in Section 7 below for the acts of such
subcontractor as if such acts were their own.
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<PAGE>
4. Expenses Assumed as Co-Administrators; Expense Reimbursements.
-------------------------------------------------------------
a. The Co-Administrators will bear all expenses in connection with
the performance of their respective services under this Agreement except as
otherwise 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 Co-Administrators or the investment adviser or
distributor for the Portfolios, Securities and Exchange 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 shareholder reports and meetings and
any extraordinary expenses, will be borne by the Company, provided, however,
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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 Plans.
b. 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 Co-Administrators agree 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 Co-Administrators
bears to the total amount of the investment advisory and administration fees
otherwise payable by the Portfolio. The expense reimbursement obligation of the
Co-Administrators is limited to the amount of their fees hereunder for such
fiscal year, provided, however, that notwithstanding the foregoing, the Co-
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Administrators 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 Co-Administrators bears to the total amount of investment advisory and
administration fees otherwise payable by the Portfolio regardless of the amount
of fees paid to the Co-Administrators 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.
5. Compensation.
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a. In consideration of the services rendered and expenses assumed
pursuant to this Agreement, the Company will pay the Co-Administrators jointly a
fee, computed daily and payable monthly, (i) with respect to each Portfolio
other than the Tax-Exempt Money Market Portfolio, at the annual rate of .20% of
the average daily net assets of each Portfolio, and (ii) with respect to the
Tax-Exempt Money Market Portfolio, at the annual rate of .10% of the average
daily net assets of the Portfolio. Net asset value shall be computed in
accordance with the Portfolios' Prospectuses and resolutions of the Company's
Board of Directors. The fee for the period from the day of the month this
Agreement is entered into until the end of that month shall be pro-rated
according to the proportion which such period bears to the full monthly
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<PAGE>
period. Upon any termination of this Agreement before the end of any month, the
fee for such part of a month shall be pro-rated according to the proportion
which such period bears to the full monthly period and shall be payable upon the
date of termination of this Agreement. Such fee as is attributable to each
Portfolio shall be a separate charge to such Portfolio and shall be the several
(and not joint or joint and several) obligation of each such Portfolio. The fees
shall be allocated and paid separately to the Co-Administrators as set forth on
Appendix C.
b. The Co-Administrators will from time to time employ or associate
with themselves such person or persons as the Co-Administrators may believe to
be particularly fitted to assist them in the performance of this Agreement. Such
person or persons may be officers and employees who are employed by either of
the Co-Administrators and the Company. The compensation of such person or
persons shall be paid by such Co-Administrator employing such persons and no
obligation shall be incurred on behalf of the Portfolios in such respect.
6. Proprietary and Confidential Information. Each Co-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
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 Co-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.
7. Limitation of Liability. Neither Co-Administrator shall 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 for 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 either Co-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 such Co-Administrator's
duties as a co-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 such Co-Administrator even though paid
by it.
8. Duration, Termination and Assignment.
------------------------------------
a. This Agreement shall become effective upon its execution as of
the date first written above and, unless sooner terminated as provided herein,
shall continue in effect with respect to each Portfolio until March 31, 2001.
b. If a party hereto is guilty of a material failure to perform
its duties and obligations hereunder (a "Defaulting Party"), such other parties
(the "Non-Defaulting Parties") may give written notice thereof to the Defaulting
Party, and if such material breach shall not have been remedied within thirty
(30) days, or within such other reasonable period as shall have been consented
to by the Non-Defaulting Parties, after such written notice is given, then the
Non-Defaulting Parties may terminate this Agreement by giving thirty (30) days'
written notice of such termination to the Defaulting Party. If Firstar or BISYS
is a Non-Defaulting Party, its
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<PAGE>
termination of this Agreement shall not constitute a waiver of any other rights
or remedies of Firstar or BISYS with respect to services performed prior to such
termination. In all cases, termination by a Non-Defaulting Party shall not
constitute a waiver by such Non-Defaulting Party of any other rights it might
have under this Agreement or otherwise against the Defaulting Party.
c. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns. This
Agreement may not be assigned or otherwise transferred by any party hereto
without the prior written consent of the other parties hereto, which consent
shall not be unreasonably withheld.
9. 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.
10. Notices. Notices of any kind to be given to the Company hereunder by
-------
the Co-Administrators shall be in writing and shall be duly given if mailed or
delivered to the Company c/o Jerry V. Woodham, Treasurer, Saint Louis
University, 3500 Lindell Boulevard, St. Louis, Missouri 63103, with a copy to W.
Bruce McConnel, III, Esq., Drinker Biddle & Reath LLP, One Logan Square, 18/th/
and Cherry Streets, Philadelphia Pennsylvania 19103-6996, or at such other
address or to such individual as shall be so specified by the Company to the Co-
Administrators. Notices of any kind to be given to the Co-Administrators
hereunder by the Company shall be in writing and shall be duly given if mailed
or delivered (i) to Firstar at 615 E. Michigan Street, Milwaukee, Wisconsin
53202, Attention: Joseph Redwine, and (ii) to BISYS at 3435 Stelzer Road,
Columbus, Ohio 43219, Attention: Walter B. Grimm, or at such other address or to
such other individual as shall be so specified by the Co-Administrators 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 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.
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<PAGE>
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.
MERCANTILE MUTUAL FUNDS, INC.
BY: /s/ Jerry V. Woodham
-------------------------------
Jerry V. Woodham, President
FIRSTAR MUTUAL FUND SERVICES, LLC
By: /s/ Joseph D. Redwine
-------------------------------
BISYS FUND SERVICES OHIO, INC.
By: /s/ signature illegible
-------------------------------
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<PAGE>
APPENDIX A
to the
ADMINISTRATION AGREEMENT
among
Mercantile Mutual Funds, Inc.,
Firstar Mutual Fund Services, LLC
and
BISYS Fund Services Ohio, Inc.
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Treasury Money Market Portfolio (Investor A shares, Trust shares, Trust II
shares and Institutional shares)
Money Market Portfolio (Investor A shares, Investor B shares, Trust shares,
Trust II shares and Institutional shares)
Tax-Exempt Money Market Portfolio (Investor A shares, Trust shares and Trust II
shares)
U.S. Government Securities Portfolio (Investor A shares, Investor B shares,
Trust shares and Institutional shares)
Intermediate Corporate Bond Portfolio (Investor A shares, Trust shares and
Institutional shares)
Bond Index Portfolio (Investor A shares, Trust shares and Institutional shares)
Government & Corporate Bond Portfolio (Investor A shares, Investor B shares,
Trust shares and Institutional shares)
Short-Intermediate Municipal Portfolio (Investor A shares and Trust shares)
Missouri Tax-Exempt Bond Portfolio (Investor A shares, Investor B shares and
Trust shares)
National Municipal Bond Portfolio (Investor A shares, Investor B shares and
Trust shares)
Balanced Portfolio (Investor A shares, Investor B shares, Trust shares and
Institutional shares)
Equity Income Portfolio (Investor A shares, Investor B shares, Trust shares and
Institutional shares)
Equity Index Portfolio (Investor A shares, Trust shares and Institutional
shares)
Growth & Income Equity Portfolio (Investor A shares, Investor B shares, Trust
shares and Institutional shares)
Growth Equity Portfolio (Investor A shares, Investor B shares, Trust shares and
Institutional shares)
Small Cap Equity Portfolio (Investor A shares, Investor B shares, Trust shares
and Institutional shares)
Small Cap Equity Index Portfolio (Investor A shares, Trust shares and
Institutional shares)
A-1
<PAGE>
International Equity Portfolio (Investor A shares, Investor B shares, Trust
shares and Institutional shares)
Conning Money Market Portfolio (shares)
A-2
<PAGE>
APPENDIX B
to the
ADMINISTRATION AGREEMENT
among
Mercantile Mutual Funds, Inc.,
Firstar Mutual Fund Services, LLC
and
BISYS Fund Services Ohio, Inc.
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A. For the Period January 1, 2000 through March 31, 2000:
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1. Services to be Provided Jointly by Firstar and BISYS:
. Provide personnel and supervise an office facility (which may be
in the offices of either Co-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 Co-
Administrators' procedures which the Co-Administrators represent
are designed to present reasonable assurance that instructions by
telephone are genuine and to prevent losses due to unauthorized
or fraudulent telephone transactions) and transmit such requests
to the Company's transfer agent as promptly as is practicable.
. Provide information and distribute written communications
concerning the Portfolios to their shareholders of record, and
assist in handling shareholder problems and calls.
. Supervise the services of individuals ("Shareholder
Representatives") provided by the Co-Administrators whose
principal responsibility and function shall be to preserve and
strengthen the Company's relationships with its shareholders.
. Monitor the Company's arrangements with respect to services
provided by certain institutional shareholders ("Service
Organizations") under its Administrative Services Plans for Trust
shares and Institutional shares, respectively, its Shareholder
Services Plan for the Conning Money Market Portfolio and its
Distribution and Services Plans for Investor A shares and
Investor B shares, respectively, 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"); monitor the distributor's
operations under the Distribution
B-1
<PAGE>
and Services Plans and related distribution services agreements
between the distributor and broker-dealers which provide services
primarily intended to result in the sale of Investor A shares and
Investor B shares pursuant to the Distribution and Services Plans
(the "Distribution Services Agreements"); review 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;
assist in the execution and delivery of Servicing Agreements and
Distribution Services Agreements; report 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 Servicing Agreements or Distribution
Services Agreements; and maintain appropriate records in
connection with such duties.
. Furnish statistical and research data, clerical and certain
bookkeeping services and stationery and office supplies.
. Assist in monitoring of regulatory and legislative developments
which may affect the Company; assist in counseling the Company
with respect to regulatory examinations of the Company; and work
with the Company's counsel in connection with regulatory matters
or litigation.
2. Services to be Provided by Firstar:
. Calculate fund performance starting with the March 31, 2000
period.
. Communicate fund performance to reporting agencies beginning with
the March 31, 2000 period.
. Complete blue sky compliance starting January 10, 2000.
. Monitor daily compliance with 1940 Act and prospectus/SAI using
internet access to fund accounting reports from BISYS.
. Monitor compliance with Subchapter M of Internal Revenue Code.
. Monitor fidelity bond coverage.
. Monitor directors' and officers' liability coverage.
. Monitor compliance by "access persons" with the Company's Code of
Ethics (other than those "access persons" subject to the
securities transaction pre-clearance and reporting requirements
of the Codes of Ethics of the Company's investment adviser or
principal underwriter).
. Calculate required regular and excise tax distributions after
January 1, 2000.
B-2
<PAGE>
. Coordinate payment of fund expenses.
. Monitor expense ratios/budget expenses.
. Prepare and distribute Board materials for April 2000 meeting.
. Lead and coordinate process of N-1A update to the extent
requested by the Company and its counsel.
3. Services to be Provided by BISYS:
. Manage fund audits and prepare audit schedules.
. Prepare, file with the Securities and Exchange Commission and
distribute to shareholders the Company's Annual Reports to
Shareholders for the fiscal year ended November 30, 1999.
. 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;
(d) Calculate the yield;
(e) Reconcile cash movements with the Company's custodian;
(f) Verify and reconcile with the Company's custodian all daily
trade activity;
(g) Calculate fees due under the Administrative Services Plans,
Shareholder Services Plan and Distribution and Services
Plans for shareholder support services.
(h) 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);
B-3
<PAGE>
(i) Such other similar services with respect to a
Portfolio as may be reasonably requested by the
Company.
. 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 BISYS) for money market portfolios, actual
dealer quotations, prices from a pricing service, or
matrix prices on all portfolios 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.
. Make available Fund accounting reports via internet to
assist Firstar in daily monitoring of prospectus compliance.
. Prepare and file Form N-SAR.
. Assist in preparation and filing of Rule 24f-2 Notices.
. Calculate total return performance through and including
February 28, 2000.
. Calculate SEC yield performance through and including March
31, 2000.
. Communicate fund performance to reporting agencies for
regular weekly money market portfolios through March 31,
2000.
. Complete blue sky compliance through January 10, 2000
including all filings complete through February 29, 2000.
. Prepare and distribute Board materials for January 2000
meeting.
. File form 1099-MISC for directors and service providers.
. Calculate U.S. Government interest for state exclusion.
. Maintain records in accordance with Rule 31a-3 and provide
photocopies of those records as requested.
. Provide financial data and general assistance to Firstar and
counsel to the Company as needed to complete N-1A update.
. Mail 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 materials for its
B-4
<PAGE>
meetings of shareholders; receive and tabulate proxy cards for
all meetings of shareholders.
. Compile data for, and assist in preparation 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.
B. For the Period April 1, 2000 through March 31, 2001:
---------------------------------------------------
1. Services to be Provided by Firstar:
. Provide personnel and supervise an office facility to receive
purchase, exchange and redemption orders via the Company's toll-
free telephone lines (pursuant to Firstar's procedures which
Firstar represents are designed to present reasonable assurance
that instructions by telephone are genuine and to prevent losses
due to unauthorized or fraudulent telephone transactions) and
transmit such requests to the Company's transfer agent as
promptly as is practicable.
. Provide information and distribute written communications
concerning the Portfolios to their shareholders of record, and
assist in handling shareholder problems and calls.
. Supervise the services of individuals ("Shareholder
Representatives") provided by Firstar whose principal
responsibility and function shall be to preserve and strengthen
the Company's relationships with its shareholders.
. Monitor the Company's arrangements with respect to services
provided by certain institutional shareholders ("Service
Organizations") under its Administrative Services Plans for Trust
shares and Institutional shares, respectively, its Shareholder
Services Plan for the Conning Money Market Portfolio and its
Distribution and Services Plans for Investor A shares and
Investor B shares, respectively, 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"); monitor the distributor's
operations under the Distribution and Services Plans and related
distribution services agreements between the distributor and
broker-dealers which provide services primarily intended to
result in the sale of Investor A shares and Investor B shares
pursuant to the Distribution and Services Plans (the
"Distribution Services Agreements"); review the qualifications of
Service Organizations or broker-dealer organizations wishing to
enter into Servicing Agreements with the Company or Distribution
Services Agreements with the
B-5
<PAGE>
distributor; assist in the execution and delivery of Servicing
Agreements and Distribution Services Agreements; report 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 Servicing Agreements or
Distribution Services Agreements; and maintain appropriate
records in connection with such duties.
. Furnish statistical and research data, clerical and certain
bookkeeping services and stationery and office supplies.
. Assist in monitoring of regulatory and legislative developments
which may affect the Company; assist in counseling the Company
with respect to regulatory examinations of the Company; and work
with the Company's counsel in connection with regulatory matters
or litigation.
. Calculate fund performance.
. Communicate fund performance to reporting agencies.
. Complete blue sky compliance.
. Monitor daily compliance with 1940 Act and prospectus/SAI.
. Monitor compliance with Subchapter M of Internal Revenue Code.
. Monitor fidelity bond coverage.
. Monitor directors' and officers' liability coverage.
. Monitor compliance by "access persons" with the Company's Code of
Ethics (other than those "access persons" subject to the
securities transaction pre-clearance and reporting requirements
of the Codes of Ethics of the Company's investment adviser or
principal underwriter).
. Calculate required regular and excise tax distributions.
. Coordinate payment of fund expenses.
. Monitor expense ratios/budget expenses.
. Prepare and distribute Board materials.
. Lead and coordinate process of N-1A update to the extent
requested by the Company and its counsel.
. Manage fund audits and prepare audit schedules.
. Prepare, file with the Securities and Exchange Commission and
distribute to shareholders the Company's Annual and Semi-Annual
Reports to Shareholders.
B-6
<PAGE>
. 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;
(d) Calculate the yield;
(e) Reconcile cash movements with the Company's custodian;
(f) Verify and reconcile with the Company's custodian all daily
trade activity;
(g) Calculate fees due under the Administrative Services Plans,
Shareholder Services Plan and Distribution and Services
Plans for shareholder support services.
(h) 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);
(i) Such other similar services with respect to a Portfolio as
may be reasonably requested by the Company.
. 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 Firstar) for money market portfolios, actual
dealer quotations, prices from a pricing service, or matrix
prices on all portfolios 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.
. Prepare and file Form N-SAR.
. Assist in preparation and filing of Rule 24f-2 Notices.
B-7
<PAGE>
. File form 1099-MISC for directors and service providers.
. Calculate U.S. Government interest for state exclusion.
. Maintain records in accordance with Rule 31a-3 and provide
photocopies of those records as requested.
. Mail 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 materials for its meetings of shareholders; receive and
tabulate proxy cards for all meetings of shareholders.
. Compile data for, and assist in the preparation for execution and
filing by the Company, all of the Company's federal and state tax
returns and required tax filings other those required to be made
by the Company's custodian or transfer agent.
2. Services to be Provided by BISYS:
. Assist in response to examination letters received from the
Securities and Exchange Commission.
. Assist in response to audit requests from the Company's
independent accountants.
. Review prospectuses as prepared by counsel to the Company.
. Review periodic supplements to prospectuses, as prepared by
counsel to the Company, as requested.
. Advise on product development issues.
. Assist Firstar in preparation of Board meeting materials.
. Review board agendas and administrative sections of Board
materials, as requested.
. Participate at Board meetings, as requested.
. Review all Board minutes, as requested.
. Provide a designated project manager for routine ongoing
projects.
. Review and comment on all advertising and sales literature.
B-8
<PAGE>
. Review blue sky compliance from time to time at the request of
Firstar.
. Provide such other services as the parties hereto may agree to in
writing.
B-9
<PAGE>
APPENDIX C
to the
ADMINISTRATION AGREEMENT
among
Mercantile Mutual Funds, Inc.,
Firstar Mutual Fund Services, LLC
and
BISYS Fund Services Ohio, Inc.
- --------------------------------------------------------------------------------
The fees payable pursuant to Section 5.a. of the Administration Agreement
shall be allocated and paid to the Co-Administrators as set forth below.
1. For the period January 1, 2000 through March 31, 2000:
-----------------------------------------------------
Firstar .03% of the average daily net assets of
each Portfolio
BISYS .17% of the average daily net assets of
each Portfolio other than the Tax-
Exempt Money Market Portfolio and .07%
of the average daily net assets of the
Tax-Exempt Money Market Portfolio
2. For the period April 1, 2000 through March 31, 2001:
---------------------------------------------------
Firstar .19% of the average daily net assets of
each Portfolio other than the Tax-
Exempt Money Market Portfolio and .09%
of the average daily net assets of the
Tax-Exempt Money Market Portfolio
BISYS .01% of the average daily net assets of
each Portfolio, subject to a minimum
annual aggregate fee for the Portfolios
of $300,000
C-1
<PAGE>
EXHIBIT (h)(14)
TRANSFER AGENT SERVICING AGREEMENT
THIS AGREEMENT is made and entered into as of this 1st day of April, 2000,
by and between Mercantile Mutual Funds, Inc., a corporation organized under the
laws of the State of Maryland (hereinafter referred to as the "Company"), and
Firstar Mutual Fund Services, LLC, a limited liability company organized under
the laws of the State of Wisconsin (hereinafter referred to as "FMFS").
WHEREAS, the Company is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Company is authorized to issue shares of common stock
("shares") in separate series representing interests in separate portfolios of
securities and other assets;
WHEREAS, FMFS is, among other things, in the business of providing transfer
agency and dividend disbursing agency services for the benefit of its customers;
and
WHEREAS, the Company desires to retain FMFS to provide transfer agency and
dividend disbursing agency services to each of the Company's portfolios listed
on Exhibit A attached hereto (hereinafter referred to individually, as a "Fund"
and collectively, as the "Funds"), as such Exhibit A may be amended from time to
time, and FMFS is willing to provide such transfer agency and dividend
disbursing agency services;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein made and intending to be legally bound hereby, the Company and FMFS agree
as follows:
1. Appointment of Transfer Agent
The Company hereby appoints FMFS as transfer agent and dividend disbursing
agent for each class of shares in each of the Company's Funds on the terms and
conditions and for the period set forth in this Agreement. FMFS hereby accepts
such appointment and agrees to perform the services and duties set forth herein
in accordance with this Agreement and each Fund's Prospectus and Statement of
Additional Information in return for the compensation provided in Section 5 of
this Agreement. In the event that the Company establishes additional classes
of shares or portfolios other than those listed on Exhibit A with respect to
which it desires to retain FMFS to serve as transfer agent and dividend
disbursing agent hereunder, the Company shall so notify FMFS, whereupon Exhibit
A shall be amended and, in the case of additional portfolios, such additional
portfolios shall become Funds hereunder and shall be subject to the provisions
of this Agreement to the same extent as the Funds (except to the extent that
said provisions, including the compensation payable on behalf of such additional
Funds, may be modified in writing by the Company and FMFS at the time).
<PAGE>
2. Delivery of Documents
The Company has furnished FMFS 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 State
Department of Assessments and Taxation 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 amendments to its Registration Statement
under the Securities Act of 1933, as amended (the "1933 Act"), and under the
1940 Act on Form N-1A as filed with the Securities and Exchange Commission (the
"Commission") on March 30, 1999 and September 7, 1999 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 Administrative Services Plans for Trust shares and
Institutional shares, respectively, and Shareholder Services Plan for the
Conning Money Market Portfolio (non 12b-1 Plans) and related forms of Servicing
Agreements and the Company's Distribution and Services Plans for Investor A
shares and Investor B shares, respectively, (Rule 12b-1 Plans) and related forms
of Servicing Agreements;
g. The following agreements of the Company: the Amended and Restated
Advisory Agreement with Mississippi Valley Advisors Inc. dated as of April 1,
1991 and related addenda (the "Advisory Agreement"); the Sub-Advisory Agreement
with Clay Finlay Inc. with respect to the International Equity Portfolio dated
as of August 29, 1996 and the Sub-Advisory Agreement with Conning Asset
Management Company with respect to the Conning Money Market Portfolio dated as
of January 6, 2000; the Co-Administration Agreement with FMFS and BISYS Fund
Services Ohio, Inc. dated as of January 1, 2000 (the "Co-Administration
Agreement"); the Distribution Agreement with The Winsbury Company Limited
Partnership (presently known as BISYS Fund Services) dated October 1, 1993 and
related amendments and addenda (the "Distribution Agreement"); and the Custodian
Agreement with Mercantile Bank of St. Louis National Association dated as of
April 1, 1992 with related amendments, as assigned to Mercantile Trust Company
National Association, and the current fee letters related to such Agreement (the
"Custodian Agreement");
-2-
<PAGE>
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 September 16, 1998 as to the number of
shares authorized in each Portfolio and any class thereof, and (ii) a
certificate as to the number of issued and outstanding shares of each such
Portfolio and class thereto, such certificate to be certified by the Company's
former transfer agent as of the close of business on March 31, 2000;
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 and other persons
who are authorized to instruct FMFS in all matters on behalf of the Company; 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 were issued on or after June 1, 1993.
3. Authorized Shares
a. The Company is currently authorized to issue twenty billion
(20,000,000,000) shares, par value $.001 per share. FMFS shall record the
issuance of all shares and shall notify the Company in case any proposed
issuance of shares by the Company shall result in an over-issuance. In case any
issuance of shares would result in such an over-issuance, FMFS shall refuse to
issue said shares.
b. In connection with redemptions by a shareholder identified as holding
a share certificate (as indicated in the list of shareholders referred to in
Section 2.k. above), FMFS agrees to follow the procedures specified in the
Company's Prospectuses to obtain possession of such share certificate prior to
effecting such redemption.
4. Duties and Responsibilities of FMFS
a. FMFS shall perform all of the customary services of a transfer agent
and dividend disbursing agent, and as relevant, agent in connection with
accumulation, open account or similar plans (including without limitation any
periodic investment plan or periodic withdrawal program), including but not
limited to the services set forth on Exhibit B attached hereto.
-3-
<PAGE>
b. FMFS shall reimburse the Funds at the end of each month for all
material losses resulting from "as of" processing errors for which FMFS is
responsible in accordance with the "as of" processing policy of FMFS set forth
in Exhibit B attached hereto.
5. Compensation
a. The Company agrees to pay FMFS for the services to be provided by FMFS
under this Agreement in accordance with and in the manner set forth in Exhibit C
attached hereto.
b. The Company also agrees to reimburse FMFS for its out-of-pocket
expenses in providing the services hereunder, including without limitation those
out-of-pocket expenses set forth in Exhibit C attached hereto.
c. The Company agrees to pay FMFS all fees and reimbursable expenses
within ten (10) business days following the receipt of a billing notice in
proper form.
6. Representations of FMFS
FMFS represents and warrants to the Company that:
a. It is a limited liability corporation duly organized, existing and in
good standing under the laws of the State of Wisconsin;
b. It is a registered transfer agent under the Securities Exchange Act of
1934, as amended (the "1934 Act");
c. It is duly qualified to carry on its business in the State of
Wisconsin;
d. It is empowered under applicable laws and by its charter and bylaws to
enter into and perform this Agreement;
e. All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement;
f. It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement; and
g. It will comply with all applicable requirements of the 1933 Act, the
1934 Act, the 1940 Act, and any laws, rules, and regulations of governmental
authorities having jurisdiction.
7. Representations of the Company
The Company represents and warrants to FMFS that:
a. It is registered as an open-end management investment company under
the 1940 Act;
-4-
<PAGE>
b. It is a corporation duly organized, existing and in good standing
under the laws of the State of Maryland;
c. It is empowered under applicable laws and by its Charter and By-Laws
to enter into and perform this Agreement;
d. All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement;
e. It will comply with all applicable requirements of the 1933 Act, the
1934 Act, the 1940 Act, and any laws, rules and regulations of governmental
authorities having jurisdiction; and
f. Its Registration Statement is currently effective and will remain
effective, and appropriate state securities law filings have been made and will
continue to be made, with respect to all of its shares being offered for sale.
8. Performance of Service; Limitation of Liability
a. FMFS shall exercise reasonable care in the performance of its duties
under this Agreement. FMFS shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Company in connection with
matters to which this Agreement relates, including losses resulting from
mechanical breakdowns or the failure of communication or power supplies beyond
FMFS' control, except a loss arising out of or relating to FMFS' refusal or
failure to comply with the terms of this Agreement or from bad faith,
negligence, or willful misconduct on its part in the performance of its duties
under this Agreement. Notwithstanding any other provision of this Agreement, if
FMFS has exercised reasonable care in the performance of its duties under this
Agreement, the Company shall indemnify and hold harmless FMFS from and against
any and all claims, demands, losses, expenses and liabilities (whether with or
without basis in fact or law) of any and every nature (including reasonable
attorneys' fees) which FMFS may sustain or incur or which may be asserted
against FMFS by any person arising out of any action taken or omitted to be
taken by it in performing the services hereunder, except for any and all claims,
demands, losses, expenses and liabilities arising out of or relating to FMFS'
refusal or failure to comply with the terms of this Agreement or from bad faith,
negligence or willful misconduct on its part in performance of its duties under
this Agreement.
b. FMFS shall indemnify and hold the Company harmless from and against
any and all claims, demands, losses, expenses, and liabilities (whether with or
without basis in fact or law) of any and every nature (including reasonable
attorneys' fees) which the Company may sustain or incur or which may be asserted
against the Company by any person arising out of any action taken or omitted to
be taken by FMFS as a result of FMFS's refusal or failure to comply with the
terms of this Agreement, its bad faith, negligence, or willful misconduct.
c. In the event of a mechanical breakdown or failure of communication or
power supplies beyond its control, FMFS shall take, at no additional expense to
the Company, all
-5-
<PAGE>
reasonable steps to minimize service interruptions for any period that such
interruption continues beyond FMFS' control. FMFS will make every reasonable
effort to restore any lost or damaged data and correct any errors resulting from
such a breakdown at the expense of FMFS. FMFS agrees that it shall, at all
times, have reasonable contingency plans with appropriate parties, making
reasonable provision for emergency use of electronic data processing equipment
to the extent appropriate equipment is available. Representatives of the Company
shall be entitled to inspect FMFS' premises and operating capabilities at any
time during FMFS' regular business hours, upon reasonable notice to FMFS.
9. Proprietary and Confidential Information
FMFS agrees on behalf of itself and its directors, officers, and employees
to treat confidentially and as proprietary information of the Company all
records and other information relative to the Company and the Company's prior,
present, or potential shareholders (and clients of said shareholders) and not to
use such records and information for any purpose other than the 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 FMFS may be exposed to civil or criminal
contempt proceedings for failure to comply after being requested to divulge such
information by duly constituted authorities, or when so requested by the
Company.
10. Term of Agreement; Duties in Event of Termination
a. This Agreement shall become effective as of the date first written
above and, unless sooner terminated as provided herein, shall continue until
March 31, 2001. Thereafter, if not terminated, this Agreement shall continue
automatically for successive terms of one year, provided, however, that this
-------- -------
Agreement may be terminated at, any time, without the payment of any penalty, by
the Company or FMFS upon ninety (90) days' written notice to the other party.
Notwithstanding the foregoing, should FMFS fail to be registered as a transfer
agent pursuant to Section 17A of the 1934 Act at any time during this Agreement,
the Company may, on written notice to FMFS, immediately terminate this
Agreement.
b. In the event that, in connection with the termination of this
Agreement, a successor to FMFS is designated by the Company by written notice to
FMFS, FMFS will promptly, upon such termination and at the expense of the
Company, transfer to such successor all relevant books, records, correspondence,
and other data established or maintained by FMFS under this Agreement in a form
reasonably acceptable to the Company (if such form differs from the form in
which FMFS has maintained the same, the Company shall pay any expenses
associated with transferring the data to such form), and will cooperate in the
transfer of such duties and responsibilities, including provision for assistance
from FMFS' personnel in the establishment of books, records, and other data by
such successor.
11. Records
a. FMFS shall keep and maintain on behalf of the Company all books and
records which the Company or FMFS is, or may be, required to keep and maintain
pursuant to any
-6-
<PAGE>
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. FMFS further
agrees that all such books and records shall be the property of the Company or
its authorized representatives and to make such books and records available for
inspection by the Company or its authorized representatives 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
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. FMFS agrees to surrender promptly upon the Company's demand all books,
records and files maintained pursuant to this Agreement (or copies thereof of
any such books, records and files needed by FMFS 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 FMFS to the
Company or the Company's authorized representative at the Company's expense.
12. Reports
FMFS 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 Exhibit D attached hereto, or as subsequently agreed upon by the
parties pursuant to an amendment to Exhibit D.
13. Cooperation with Auditors
FMFS 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.
14. 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.
15. Non-Assignability
FMFS shall not assign or delegate its duties under this Agreement to any
other person without the prior written consent of the Company.
-7-
<PAGE>
16. Further Actions
Each party agrees to perform such further acts and execute such further
documents as are necessary to effectuate the purposes hereof.
17. 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.
18. Miscellaneous
a. 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.
b. 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.
c. This Agreement shall be governed by Wisconsin 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.
d. This Agreement shall be binding and should inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
19. Notices
Notices of any kind to be given by either party to the other party shall be
in writing and shall be duly given if mailed or delivered as follows:
Notice to FMFS shall be sent to:
Firstar Mutual Fund Services, LLC
615 East Michigan Street
Milwaukee, WI 53202
-8-
<PAGE>
Notice to the Company shall be sent to:
Jerry V. Woodham, President
c/o Saint Louis University
3500 Lindell Boulevard
St. Louis, MO 63103
with a copy to:
W. Bruce McConnel, III, Esq.
Drinker Biddle & Reath LLP
One Logan Square
18/th/ & Cherry Streets
Philadelphia, PA 19103-6996
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by a duly authorized officer or one or more counterparts as of the day
and year first written above.
MERCANTILE MUTUAL FUNDS, INC.
By:
--------------------------------
Jerry V. Woodham, President
FIRSTAR MUTUAL FUND SERVICES, LLC
By:
--------------------------------
-9-
<PAGE>
Exhibit A
to the Transfer Agent Servicing Agreement
between
Mercantile Mutual Funds, Inc.
and
Firstar Mutual Fund Services, LLC
- -------------------------------------------------------------------------
Money Market Portfolio (Trust shares, Investor A shares, Institutional shares,
Investor B shares and S shares)
Treasury Money Market Portfolio (Trust shares, Investor A shares, Institutional
shares and S shares)
Growth & Income Equity Portfolio (Trust shares, Investor A shares, Institutional
shares and Investor B shares)
Small Cap Equity Portfolio (Trust shares, Investor A shares, Institutional
shares and Investor B shares)
Government & Corporate Bond Portfolio (Trust shares, Investor A shares,
Institutional shares and Investor B shares)
U.S. Government Securities Portfolio (Trust shares, Investor A shares,
Institutional shares and Investor B shares)
Balanced Portfolio (Trust shares, Investor A shares, Institutional shares and
Investor B shares)
International Equity Portfolio (Trust shares, Investor A shares, Institutional
shares and Investor B shares)
Short-Intermediate Municipal Portfolio (Trust Shares and Investor A shares)
Tax-Exempt Money Market Portfolio (Trust shares, Investor A shares and S shares)
Missouri Tax-Exempt Bond Portfolio (Trust shares, Investor A shares and Investor
B shares)
Kansas Tax-Exempt Bond Portfolio (Trust shares, Investor A shares and Investor B
shares)
Equity Income Portfolio (Trust shares, Investor A shares, Institutional shares
and Investor B shares)
National Municipal Bond Portfolio (Trust shares, Investor A shares and Investor
B shares)
Intermediate Corporate Bond Portfolio (Trust shares, Investor A shares and
Institutional shares)
A-1
<PAGE>
Equity Index Portfolio (Trust shares, Investor A shares and Institutional
shares)
Bond Index Portfolio (Trust shares, Investor A shares and Institutional shares)
Small Cap Equity Index Portfolio (Trust shares, Investor A shares and
Institutional shares)
Growth Equity Portfolio (Trust shares, Investor A shares, Institutional shares
and Investor B shares)
Conning Money Market Portfolio (shares)
A-2
<PAGE>
Exhibit B
to the Transfer Agent Servicing Agreement
between
Mercantile Mutual Funds, Inc. and
Firstar Mutual Fund Services, LLC
TRANSFER AGENCY SERVICES
------------------------
1. Shareholder Transactions
------------------------
a. Process shareholder purchase and redemption orders.
b. Set up account information, including address, dividend option,
taxpayer identification numbers and wire instructions.
c. Issue confirmations in compliance with Rule 10b-10 under the
Securities Exchange Act of 1934, 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
Funds are registered.
b. Prepare and distribute appropriate Internal Revenue Service forms for
corresponding Fund and shareholder income and capital gains.
c. Issue tax withholding reports to the Internal Revenue Service.
B-1
<PAGE>
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 in connection with purchases and redemptions of Fund
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 Fund.
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.
6. FMFS As Of Processing Policy
----------------------------
FMFS will reimburse each Fund for any net material loss that may exist on
the Fund's books and for which FMFS is responsible, at the end of each calendar
month. "Net Material Loss" shall be defined as any remaining loss, after
netting losses against any gains, which impacts the Fund's net asset value per
share by more than 1/2 cent. Gains and losses will be accumulated on a daily
basis, will be reflected on the Fund's daily share sheet, and will be settled on
a monthly basis. FMFS will notify the Fund's investment adviser on the daily
share sheet of any losses for which the Fund's investment adviser may be held
accountable.
B-2
<PAGE>
Exhibit C
to the Transfer Agent Servicing Agreement
between
Mercantile Mutual Funds, Inc. and
Firstar Mutual Fund Services, LLC
FEE SCHEDULE
A. Annual Base Fee
---------------
1. Funds which have Investor A Shares shall pay an Annual Base Fee
of $10,000 plus $19 per shareholder per Fund.
2. Funds which have Investor B Shares shall pay an Annual Base Fee
of $10,000 plus $19 per shareholder per Fund.
3. Funds which have Trust Shares shall pay an Annual Base Fee of
$8,000 plus $15 per shareholder per Fund.
4. Funds which have Institutional Shares shall pay an Annual Base
Fee of $8,000 plus $15 per shareholder per Fund.
5. Funds which have Shares shall pay an Annual Base Fee of $10,000
plus $19 per shareholder per Fund.
B. Annual Additional Fees (these fees are in addition to the Annual Base
---------------------------------------------------------------------
Fees).
-----
1. Funds participating in the Mercantile Asset Advisor (asset
allocation) program shall pay an annual fee of $3,000 per Fund.
C. Out of Pocket Expenses
----------------------
1. All freight and other delivery and bonding charges incurred by
FMFS in delivering materials to and from the Company and in
delivering all materials to shareholders;
2. All direct telephone, telephone transmission and telecopy or
other electronic transmission expenses incurred by FMFS in
communication with the Company's dealers, shareholders or others
as required for FMFS to perform the services to be provided
hereunder;
3. 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 FMFS for the performance of the servicing to be provided
hereunder;
C-1
<PAGE>
4. The cost of microfilm or microfiche of records or other materials; and
5. Any expenses FMFS shall incur at the written direction of the
President, Treasurer or Secretary of the Company.
C-2
<PAGE>
Exhibit D
to the Transfer Agent Servicing Agreement
between
Mercantile Mutual Funds, Inc. and
First Mutual Fund Services, LLC
REPORTS
-------
1. Daily Shareholder Activity Journal
2. Daily Fund Activity Summary Report
a. Beginning Balance
b. Dealer Transactions
c. Shareholder Transactions
d. Reinvested Dividends
e. Exchanges
f. Adjustments
g. Ending Balance
3. Daily Wire and Check Registers
4. Monthly Dealer Processing Reports
5. Monthly Dividend Reports
6. Sales Data Reports for Blue Sky Registration
7. Annual report by independent auditors concerning FMFS' 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.
<PAGE>
EXHIBIT (h)(19)
EXECUTION VERSION
----------------------------------------------------------------
----------------------------------------------------------------
MERCANTILE MUTUAL FUNDS, INC.
AND
FIRSTAR FUNDS INC.
_______
THE LENDERS NAMED HEREIN,
and
THE CHASE MANHATTAN BANK,
as Administrative Agent
$140,000,000
CREDIT AGREEMENT
__________
Dated as of December ______, 1999
----------------------------------------------------------------
----------------------------------------------------------------
CHASE SECURITIES INC.
as Advisor, Lead Arranger
and Book Manager
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. DEFINITIONS........................................................................... 1
1.1 Defined Terms........................................................................... 1
1.2 Other Definitional Provisions........................................................... 9
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS....................................................... 9
2.1 Commitments............................................................................. 9
2.2 Procedure for Borrowing................................................................. 10
2.3 Fees.................................................................................... 10
2.4 Termination and Reduction of Commitment................................................. 11
2.5 Repayment of Loans; Evidence of Debt.................................................... 11
2.6 Optional and Mandatory Prepayments...................................................... 12
2.7 Interest Rates and Payment Dates........................................................ 13
2.8 Computation of Interest and Fees........................................................ 13
2.9 Pro Rata Treatment and Payments......................................................... 14
2.10 Requirements of Law..................................................................... 14
2.11 Taxes................................................................................... 15
2.12 Change of Lending Office; Replacement of Lender......................................... 17
2.13 Swing Line Commitment................................................................... 17
2.14 Procedure for Swing Line Borrowing...................................................... 17
2.15 Refunding of Swing Line Loans........................................................... 18
2.16 Designation of Additional Borrowers; Amendments to Schedule I........................... 19
SECTION 3. REPRESENTATIONS AND WARRANTIES........................................................ 20
3.1 Financial Condition..................................................................... 20
3.2 No Change............................................................................... 20
3.3 Existence; Compliance with Law.......................................................... 20
3.4 Power; Authorization; Enforceable Obligations........................................... 21
3.5 No Legal Bar............................................................................ 21
3.6 No Material Litigation.................................................................. 21
3.7 No Default.............................................................................. 21
3.8 Ownership of Property; Liens............................................................ 22
3.9 No Burdensome Restrictions.............................................................. 22
3.10 Taxes................................................................................... 22
3.11 Federal Regulations..................................................................... 22
3.12 ERISA................................................................................... 22
3.13 Certain Regulations..................................................................... 22
3.14 Subsidiaries............................................................................ 22
3.15 Registration of the Funds............................................................... 23
3.16 Offering in Compliance with Securities Laws............................................. 23
3.17 Investment Policies..................................................................... 23
3.18 Permission to Borrow.................................................................... 23
3.19 Accuracy of Information; Electronic information......................................... 23
3.20 Affiliated Persons...................................................................... 23
3.21 Year 2000............................................................................... 24
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 4. CONDITIONS PRECEDENT.................................................................. 24
4.1 Conditions to Initial Loans............................................................. 24
4.2 Conditions to Each Loan................................................................. 26
SECTION 5. AFFIRMATIVE COVENANTS................................................................. 27
5.1 Financial Statements.................................................................... 27
5.2 Certificates; Other Information........................................................ 28
5.3 Payment of Obligations.................................................................. 28
5.4 Conduct of Business and Maintenance of Existence........................................ 28
5.5 Maintenance of Property; Insurance...................................................... 29
5.6 Inspection of Property; Books and Records; Discussions.................................. 29
5.7 Notices................................................................................. 29
5.8 Purpose of Loans........................................................................ 30
SECTION 6. NEGATIVE COVENANTS.................................................................... 30
6.1 Financial Condition Covenant............................................................ 30
6.2 Limitation on Indebtedness; Derivatives................................................. 31
6.3 Limitation on Liens..................................................................... 31
6.4 Limitation on Guarantee Obligations..................................................... 31
6.5 Limitation on Fundamental Changes....................................................... 31
6.6 Limitation on Distributions............................................................. 32
6.7 Limitation on Investments, Loans and Advances........................................... 32
6.8 Limitation on Transactions with Affiliates.............................................. 32
6.9 Limitation on Negative Pledge Clauses................................................... 32
6.10 Limitation on Changes to Investment Policies............................................ 32
6.11 Permitted Activities.................................................................... 33
6.12 Sale of Assets, Consolidation, Merger, Etc.............................................. 33
SECTION 7. EVENTS OF DEFAULT..................................................................... 33
SECTION 8. THE ADMINISTRATIVE AGENT.............................................................. 36
8.1 Appointment............................................................................. 36
8.2 Delegation of Duties.................................................................... 37
8.3 Exculpatory Provisions.................................................................. 37
8.4 Reliance by Administrative Agent........................................................ 37
8.5 Notice of Default....................................................................... 37
8.6 Non-Reliance on Administrative Agent and Other Lenders.................................. 38
8.7 Indemnification......................................................................... 38
8.8 Administrative Agent in Its Individual Capacity......................................... 39
8.9 Successor Administrative Agent.......................................................... 39
SECTION 9. MISCELLANEOUS......................................................................... 39
9.1 Amendments and Waivers.................................................................. 39
9.2 Notices................................................................................. 40
9.3 No Waiver; Cumulative Remedies.......................................................... 41
9.4 Survival of Representations and Warranties.............................................. 41
9.5 Payment of Expenses and Taxes........................................................... 41
9.6 Successors and Assigns; Participations and Assignments.................................. 42
9.7 Adjustments; Set-off.................................................................... 44
9.8 Counterparts............................................................................ 45
</TABLE>
<PAGE>
<TABLE>
<S> <C>
9.9 Severability............................................................................ 45
9.10 Integration............................................................................. 45
9.11 GOVERNING LAW........................................................................... 46
9.12 Submission To Jurisdiction; Waivers..................................................... 46
9.13 Acknowledgements........................................................................ 47
9.14 WAIVERS OF JURY TRIAL................................................................... 47
9.16 Recourse................................................................................ 48
9.17 Integration............................................................................. 48
</TABLE>
SCHEDULES:
- ---------
Schedule I Borrowers & Pro Rata Allocations
Schedule II Commitments, Addresses, Etc.
Schedule III Investment Management Agreements
Schedule IV Custody Agreements
EXHIBITS:
- --------
Exhibit 2.5(e) Form of Note
Exhibit 2.16(a) Form for Designation of New Borrowers
Exhibit 4.1(g) Form of Opinion
Exhibit 9.6(c) Form of Assignment and Acceptance
<PAGE>
CREDIT AGREEMENT dated as of December ______, 1999 (this "Agreement")
---------
among (i) the undersigned registered open-end management investment companies
(each, a "Fund", and collectively, the "Funds"), each of which is executing this
---- -----
Agreement on behalf of itself, and, if applicable, certain of its respective
investment portfolios set forth beneath such Fund's name on the signature pages
hereto (each of which Funds or investment portfolios, as the case may be, is,
individually, a "Borrower" and, collectively, the "Borrowers"), (ii) the several
-------- ---------
banks and other financial institutions from time to time parties to this
Agreement (the "Lenders") and (iii) THE CHASE MANHATTAN BANK, a New York banking
-------
corporation, as a Lender and as administrative agent for the Lenders hereunder
(in such capacity, the "Administrative Agent");
--------------------
W I T N E S S E T H :
---------------------
WHEREAS, each Fund is an open-end registered investment company under
the Investment Company Act of 1940 for which MVA or FIRMCO (as such terms are
defined below) acts as an investment manager;
WHEREAS, each Borrower has requested the Lenders to make Loans (as
defined below) severally and not jointly or jointly and severally to each
Borrower and to make available to it a credit facility for the purposes and on
the terms and conditions set forth herein; and
WHEREAS, each Lender acknowledges that each Borrower shall be liable
hereunder only for the Loans made to such Borrower hereunder and interest
thereon and for the fees and expenses associated therewith and as otherwise set
forth herein, and that, notwithstanding anything to the contrary herein, each
Borrower's obligations hereunder are several and not joint or joint or several;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties to this Agreement agree as follows:
SECTION 1. DEFINITIONS
(1) Defined Terms. As used in this Agreement, the following terms shall
-------------
have the following meanings:
"Administrative Agent": The Chase Manhattan Bank, together with its
--------------------
permitted successors, as the administrative agent for the Lenders under this
Agreement and the other Loan Documents.
"Affiliate": as to any Person, any other Person (other than a
---------
Subsidiary) which, directly or indirectly, is in control of, is controlled by,
or is under common control with, such Person. For purposes of this definition,
"control" of a Person means the power, directly or indirectly, either to (a)
vote 10% or more of the securities having ordinary voting power for the election
of directors of such Person or (b) direct or cause the direction of the
management and policies of such Person, whether by contract or otherwise.
1
<PAGE>
"Aggregate Commitment": the total of all Commitments of all Lenders,
--------------------
as may be reduced from time to time in the accordance with the terms of this
Agreement. On the Closing Date at the time of closing, the Aggregate Commitment
shall be equal to $140,000,000.
"Agreement": this Credit Agreement, as amended, restated, supplemented
---------
or otherwise modified from time to time.
"Applicable Margin": 0.50% per annum.
-----------------
"Asset Coverage Ratio": with respect to any Borrower, the ratio which
--------------------
the value of the Total Assets of such Borrower less all liabilities and
Indebtedness not represented by Senior Securities, bears to the aggregate amount
of all Senior Securities representing Indebtedness of such Borrower. For the
purposes of calculating the Asset Coverage Ratio, the amount of any liability or
Indebtedness deducted from Total Assets shall be equal to the greater of (x) the
outstanding amount of such liability or Indebtedness and (y) the fair market
value of all assets securing such liability or Indebtedness.
"Assignee": as defined in Section 9.6(c).
--------
"Available Commitment": as to any Lender at any time, an amount equal
--------------------
to (a) the amount of such Lender's Commitment less (b) the aggregate principal
amount of all Loans to all Borrowers made by such Lender then outstanding;
collectively, as to all the Lenders, the "Available Commitments."
---------------------
"Benefited Lender": as defined in Section 9.7(a).
----------------
"Borrower" and "Borrowers": as defined in the Preamble hereto.
-------- ---------
"Borrowing Date": any Business Day specified in a notice pursuant to
--------------
Section 2.2 or 2.14 as a date on which a Fund, on its own behalf or, if
applicable, on behalf of an investment portfolio thereof that is a Borrower,
requests the Lenders to make Loans hereunder.
"Business Day": a day other than a Saturday, Sunday or other day on
------------
which commercial banks in New York City, St. Louis, Missouri., or Milwaukee,
Wisconsin are authorized or required by law to close.
"Chase": The Chase Manhattan Bank, a New York banking corporation.
-----
"Closing Date": the date on which the conditions precedent set forth
------------
in Section 4.1 shall be satisfied and the Loan Documents are signed by the
parties hereto and delivered to the offices of Pryor Cashman Sherman & Flynn
LLP, at 410 Park Avenue, New York, New York 10022.
"Code": the Internal Revenue Code of 1986, as amended from time to
----
time.
2
<PAGE>
"Commitment": as to any Lender, the obligation of such Lender to make
----------
Loans to the Borrowers hereunder in an aggregate principal amount at any one
time outstanding not to exceed the amount set forth opposite such Lender's name
on Schedule II hereto.
-----------
"Commitment Fee": as defined in Section 2.3.
--------------
"Commitment Percentage": as to any Lender at any time, the percentage
---------------------
which such Lender's Commitment then constitutes of the aggregate Commitments of
all Lenders (or, at any time after the Commitments of all the Lenders shall have
expired or terminated, the percentage which the aggregate principal amount of
such Lender's Loans then outstanding constitutes of the aggregate principal
amount of the Loans of all the Lenders then outstanding).
"Commitment Period": the period from and including the Closing Date,
-----------------
but not including, the Termination Date.
"Commonly Controlled Entity": an entity, whether or not incorporated,
--------------------------
which is under common control with any Borrower within the meaning of Section
4001 of ERISA or is part of a group which includes any Borrower and which is
treated as a single employer under Section 414 of the Code.
"Contractual Obligation": as to any Person, any provision of any
----------------------
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Custody Agreement": as to each Fund, on its own behalf or if
-----------------
applicable on behalf of each investment portfolio thereof that is a Borrower,
the Custody Agreement(s) set forth in Schedule IV hereto.
-----------
"Default": any of the events specified in Section 7, whether or not
-------
any requirement for the giving of notice, the lapse of time, or both, or any
other condition, has been satisfied.
"Dollars" and "$": dollars in lawful currency of the United States of
------- -
America.
"Eligible Lender": an entity that is a "Bank" (as defined in the 1940
---------------
Act) and is not otherwise prohibited by Section 17 of the 1940 Act from lending
to any of the Borrowers.
"ERISA": the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time.
"Event of Default": any of the events specified in Section 7, provided
---------------- --------
that any requirement for the giving of notice, the lapse of time, or both, or
any other condition, has been satisfied.
3
<PAGE>
"Federal Funds Rate": for any day, the "offered rate", as determined
------------------
by Chase, for overnight federal funds, which rate is determined day to day and
will be reasonably representative of the market conditions at the times set.
"Financing Lease": any lease of property, real or personal, the
---------------
obligations of the lessee in respect of which are required in accordance with
GAAP to be capitalized on a balance sheet of the lessee.
"FIRMCO": Firstar Investment Research & Management Company, LLC, a
------
Wisconsin limited liability company and its Affiliates, acting as investment
manager to certain of the Borrowers as indicated on Schedule I hereto.
"Fund": as defined in the Preamble hereto.
----
"Fundamental Investment Policies": those policies, including
-------------------------------
investment objectives, from which an investment portfolio of a Fund may not
deviate without obtaining shareholder consent in accordance with the 1940 Act.
"GAAP": generally accepted accounting principles in the United States
----
of America in effect from time to time.
"Governmental Authority": any nation or government, any state or other
----------------------
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Guarantee Obligation": as to any Person (the "guaranteeing person"),
-------------------- -------------------
any obligation of (a) the guaranteeing person or (b) another Person (including,
without limitation, any bank under any letter of credit) to induce the creation
of which the guaranteeing person has issued a reimbursement, counterindemnity or
similar obligation, in either case guaranteeing or in effect guaranteeing any
Indebtedness, leases, dividends or other obligations (the "primary obligations")
-------------------
of any other third Person (the "primary obligor") in any manner, whether
---------------
directly or indirectly, including, without limitation, any obligation of the
guaranteeing person, whether or not contingent, (i) to purchase any such primary
obligation or any property constituting direct or indirect security therefor,
(ii) to advance or supply funds (A) for the purchase or payment of any such
primary obligation or (B) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase property, securities or services primarily
for the purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation or
(iv) otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof; provided, however, that the term
-------- -------
Guarantee Obligation shall not include endorsements of instruments for deposit
or collection in the ordinary course of business. The amount of any Guarantee
Obligation of any guaranteeing person shall be deemed to be the lower of (a) an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Guarantee Obligation is made and (b) the maximum amount
for which such guaranteeing person may be liable pursuant to the terms of the
instrument embodying such Guarantee Obligation, unless such primary obligation
and the maximum amount for which such
4
<PAGE>
guaranteeing person may be liable are not stated or determinable, in which case
the amount of such Guarantee Obligation shall be such guaranteeing person's
maximum reasonably anticipated liability in respect thereof as determined by
such guaranteeing person in good faith.
"Indebtedness": of any Person at any date, (a) all indebtedness of
------------
such Person for borrowed money or for the deferred purchase price of property or
services (other than current trade liabilities incurred in the ordinary course
of business and payable in accordance with customary practices), (b) any other
indebtedness of such Person which is evidenced by a note, bond, debenture or
similar debt instrument, (c) all obligations of such Person under Financing
Leases or Interest Rate Agreements, calculated daily on a marked-to-market basis
in accordance with GAAP, (d) all obligations of such Person in respect of
acceptances (as defined in Section 3-410 of the UCC) issued or created for the
account of such Person, (e) all reimbursement obligations of such person arising
out of any letters of credit, and (f) all liabilities secured by any Lien on any
property owned by such Person even though such Person has not assumed or
otherwise become liable for the payment thereof all of which without
duplication.
"Interest Payment Date": as to any Revolving Credit Loan, the Maturity
---------------------
Date for such Loan.
"Interest Rate Agreements": any interest rate protection agreement,
------------------------
interest rate future, interest rate option, interest rate swap, interest rate
cap or other interest rate hedge or arrangement under which a Fund, on its own
behalf or if applicable on behalf of an investment portfolio thereof that is a
Borrower, is a party or a beneficiary.
"Investment Management Agreements": as to the Funds and each Borrower,
--------------------------------
the Investment Advisory Agreements set forth on Schedule III hereto.
------------
"Investment Policies": as to each Borrower, the policies and
-------------------
objectives for, and limits and restrictions on, investing by such Borrower set
forth in the Prospectus relating to such Borrower.
"Lenders": as defined in the Preamble hereto.
-------
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
----
arrangement, encumbrance, lien (statutory or other), charge or other security
interest or any preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement and any Financing Lease
having substantially the same economic effect as any of the foregoing).
"Loan Documents": this Agreement and the Notes.
--------------
"Loans": all loans made pursuant to this Agreement; individually, a
-----
"Loan."
----
"Material Adverse Effect": (with respect to a Borrower, the respective
-----------------------
Borrower and with respect to a Fund, the respective Fund) a material adverse
effect on (a) the business, financial condition (other than changes in net
assets of a Borrower in the ordinary course of its
5
<PAGE>
activities) or ability to timely perform any of its material obligations under
the Loan Documents of a Fund or a Borrower or (b) the legality, validity,
binding nature or enforceability of the Loan Documents or the rights or remedies
of the Administrative Agent or the Lenders hereunder or thereunder.
"Maturity Date": as to each Loan, the date which is the earliest of
-------------
(a) 30 days after the Borrowing Date for such Loan, (b) the Termination Date and
(c) the payment in full of such Loan.
"Moody's": Moody's Investor Service, Inc.
-------
"MVA": Mississippi Valley Advisors Inc. a Missouri corporation, and
---
its Affiliates, acting as investment manager for certain of the Borrowers as
indicated on Schedule I hereto.
"1940 Act": the Investment Company Act of 1940, as amended, together
--------
with all rules and regulations promulgated from time to time thereunder.
"Non-Excluded Taxes": as defined in Section 2.11.
------------------
"Non-Recourse Person": as defined in Section 9.15.
-------------------
"Notes": the collective reference to the Revolving Credit Notes;
-----
individually, a "Note."
----
"Participant": as defined in Section 9.6(b).
-----------
"Person": an individual, partnership, corporation, limited liability
------
company, business trust, joint stock company, trust, unincorporated association,
joint venture, Governmental Authority or other entity of whatever nature.
"Plan": at a particular time, any employee benefit plan covered by
----
ERISA which any applicable Person maintains.
"Pro Rata Allocation": as to each Borrower, the percentage amount
-------------------
stated in Schedule I to this Agreement; provided that, if no Event of Default
---------- --------
shall have occurred and be continuing, the Funds, on behalf of the Borrowers,
without the consent of the Lenders, by written notice to the Administrative
Agent, may change the Pro Rata Allocations from time to time in the Funds' sole
discretion; provided further, that while an Event of Default has occurred and is
-------- -------
continuing with respect to a Borrower, the Pro Rata Allocations may be changed
in such manner as long as the Pro Rata Allocation of any such defaulting
Borrower is not increased; and provided further, that, after any such change in
-------- -------
Pro Rata Allocations, the aggregate amount of all Pro Rata Allocations shall
equal 100%. The delivery of such written notice shall constitute a
representation and warranty by the Borrowers as of the date thereof that no
Event of Default shall have occurred and be continuing with respect to each
Borrower whose Pro Rata Allocation has been increased.
6
<PAGE>
"Prospectus": at a particular time, shall mean (i) as to a Fund that
----------
is itself a Borrower, the currently effective prospectuses and statements of
additional information of such Fund, and (ii) as to each other Borrower, the
applicable portions of the currently effective prospectus(es) and statement(s)
of additional information of the Fund of which such Borrower is an investment
portfolio.
"Register": as defined in Section 9.6(d).
--------
"Registration Statement": (i) as to each Fund that is itself a
----------------------
Borrower, that registration statement as filed with the Securities and Exchange
Commission under the Securities Act and the 1940 Act, and (ii) as to each other
Borrower, that portion applicable to such Borrower of the registration statement
of the Fund of which such Borrower is an investment portfolio as filed with the
Securities and Exchange Commission under the Securities Act and the 1940 Act, in
each case as amended from time to time.
"Regulation T": Regulation T of the Board of Governors of the Federal
------------
Reserve System as in effect from time to time.
"Regulation U": Regulation U of the Board of Governors of the Federal
------------
Reserve System as in effect from time to time.
"Regulation X": Regulation X of the Board of Governors of the Federal
------------
Reserve System as in effect from time to time.
"Required Lenders": at any time, Lenders the Commitment Percentages of
----------------
which aggregate more than 50%.
"Requirement of Law": as to any Person, the certificate of
------------------
incorporation, by-laws, partnership agreement, or other organizational or
governing documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"Responsible Officer": the chairman, vice chairman, president, vice
-------------------
president, treasurer, secretary, assistant treasurer or assistant secretary of a
Fund, or, with respect to financial matters, the treasurer of such Fund.
"Revolving Credit Loan": as defined in Section 2.1.
---------------------
"Revolving Credit Note": as defined in Section 2.5(e).
---------------------
"S&P": Standard & Poor's Ratings Services, a division of The McGraw-
---
Hill Companies.
7
<PAGE>
"Securities Act": the Securities Act of 1933, as amended, together
--------------
with all rules and regulations promulgated from time to time thereunder.
"Senior Securities Representing Indebtedness": any Senior Security
-------------------------------------------
other than stock.
"Senior Security": any bond, debenture, note or similar obligation or
---------------
instrument constituting a security and evidencing indebtedness (including
without limitation all Loans under this Agreement for purposes of the 1940 Act
and this Agreement), and any share of beneficial interest or common stock, as
the case may be, of a Fund, on its own behalf or if applicable on behalf of each
investment portfolio thereof that is a Borrower, of a class (other than a class
established in accordance with Rule 18f-3 of the 1940 Act) having priority over
any other class of shares of such Fund as to distribution of assets or payment
of dividends.
"Subsidiary": as to any Person, a corporation, partnership or other
----------
entity of which shares of stock or other ownership interests having ordinary
voting power (other than stock or such other ownership interests having such
power only by reason of the happening of a contingency) to elect a majority of
the board of directors or other managers of such corporation, partnership or
other entity are at the time owned, or the management of which is otherwise
controlled, directly or indirectly through one or more intermediaries, or both,
by such Person.
"Swap Obligation": as to any Person, any obligation of such Person
---------------
arising out of (i) any "swap agreement" (as defined in Section 101(53B) of the
Bankruptcy Code), (ii) any equity swap, floor, collar, cap or option
transaction, (iii) any option to enter into any of the foregoing or (iv) any
combination of the foregoing.
"Swing Line Commitment": the obligation of the Swing Line Lender to
---------------------
make Swing Line Loans pursuant to Section 2.13 hereof in an aggregate principal
amount at any one time outstanding not to exceed the amount set forth opposite
the Swing Line Lender's name on Schedule II hereto.
-----------
"Swing Line Lender": Chase.
-----------------
"Swing Line Loans": as defined in Section 2.13 hereof.
----------------
"Swing Line Participation Amount": as defined in Section 2.15(c)
-------------------------------
hereof.
"Termination Date": the date which is 364 days following the Closing
----------------
Date or such earlier date on which the Commitments shall terminate as provided
herein.
"Total Assets": at any time, all assets of a Borrower which in
------------
accordance with GAAP would be classified as assets on a balance sheet of such
Borrower prepared as of such time; provided, however, that the term Total Assets
--------
shall not include (a) equipment, (b) securities owned by a Borrower which are in
default except to the extent of the fair value assigned such defaulted
securities by the board of directors or trustees of the Fund in accordance with
its standard practice and (c) deferred organizational and offering expenses.
8
<PAGE>
"Transferee": as defined in Section 9.6(f).
----------
"UCC": the Uniform Commercial Code as from time to time in effect in
---
the State of New York.
1.2 Other Definitional Provisions. (a) Unless otherwise specified therein,
-----------------------------
all terms defined in this Agreement shall have such defined meanings when used
in any Notes or any certificate or other document made or delivered pursuant
hereto.
(b) As used herein and in any Notes, and any certificate or other
document made or delivered pursuant hereto, accounting terms
relating to any Fund or Borrower not defined in Section 1.1 and
accounting terms partly defined in Section 1.1, to the extent not
defined, shall have the respective meanings given to them under
GAAP (as consistently applied).
(c) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement
as a whole and not to any particular provision of this Agreement,
and Section, subsection, Schedule and Exhibit references are to
this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
1.3 Assumptions Regarding Structure. For the sake of clarity and
-------------------------------
construction, the parties hereto hereby set forth their acknowledgement and
agreement that each Borrower is an investment portfolio of a Fund and is not a
separately existing legal entity entitled to enter into contractual agreements
or to execute instruments and, for these reasons, any such Fund is executing
this Agreement and each respective Note on behalf of its investment portfolios,
as Borrowers, and that such investment portfolios, as Borrowers, and that such
investment portfolios will utilize the Loans thus made on their behalf.
Notwithstanding anything to the contrary in this Agreement, each Borrower shall
be liable hereunder only for the Loans made to such Borrower hereunder and
interest thereon and for the fees and expenses associated therewith and as
otherwise set forth herein, and in no event shall any Borrower or its assets be
held liable for the Loans made to any other Borrower hereunder or interest
thereon or for the fees and expenses associated therewith.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Commitments. Subject to the terms and conditions hereof, each Lender
-----------
severally agrees to make revolving credit loans ("Revolving Credit Loans") to
----------------------
each Borrower, from time to time during the Commitment Period, in an aggregate
principal amount at any one time outstanding not to exceed the amount of such
Lender's Commitment. During the Commitment Period, each Borrower may use
Commitments by borrowing, prepaying Loans in whole or in part, and reborrowing,
all in accordance with the terms and conditions hereof and with such
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<PAGE>
procedures as may be agreed to among the Borrowers from time to time; provided
--------
that at no time may the aggregate principal amount outstanding of Revolving
Credit Loans to all Borrowers exceed the Aggregate Commitment.
2.2 Procedure for Borrowing. (a) A Borrower may borrow under the
-----------------------
Commitments during the Commitment Period on any Business Day, provided that the
--------
Borrower (or a Fund on its behalf) shall give the Administrative Agent
irrevocable notice (which notice must be received by the Administrative Agent
prior to 1:00 P.M. New York City time on the requested Borrowing Date in
accordance with Section 9.2 hereof), specifying (i) the amount to be borrowed,
(ii) the requested Borrowing Date, and (iii) instructions to apply a specific
amount of the proceeds of such borrowing to repay the Swing Line Lender in an
amount equal to the Swing Line Loans to such Borrower then outstanding (as
contemplated by Section 2.2(b) below). Subject to Section 2.15 hereof, the
aggregate amount of all borrowings by the Borrowers then borrowing on any
Borrowing Date shall be in an amount equal to $3,000,000 or a whole multiple of
$1,000,000 in excess thereof (or, if the then Available Commitments are less
than $3,000,000, such lesser amount). Upon receipt of any such notice from a
Borrower (or a Fund on its behalf), the Administrative Agent shall promptly
notify each Lender thereof. Each Lender will make the amount of its pro rata
share of each borrowing available to the Administrative Agent for the account of
such Borrower at the office of the Administrative Agent specified in Section 9.2
prior to 3:00 P.M., New York City time, on the Borrowing Date requested by such
Borrower in funds immediately available to the Administrative Agent. Such
borrowing will then be made available to such Borrower on such Borrowing Date by
the Administrative Agent transferring by wire to the custodian of and for the
account of such Borrower the aggregate of the amounts made available to the
Administrative Agent by the Lenders and in like funds as received by the
Administrative Agent.
(b) If, on the Borrowing Date of any Revolving Credit Loans of a Borrower,
any Swing Line Loans to such Borrower shall be outstanding, the proceeds of such
Revolving Credit Loans to such Borrower shall first be applied to pay in full
such Swing Line Loans, with any remaining proceeds to be made available to such
Borrower as provided above.
2.3 Fees. (a) Each Borrower severally, and neither jointly nor jointly and
----
severally, agrees to pay to the Administrative Agent for the account of each
Lender such Borrower's Pro Rata Allocation (as adjusted from time to time in
accordance with the terms hereof) of a commitment fee ("Commitment Fee") during
--------------
the period which shall begin on the first day of the Commitment Period and shall
extend to the Termination Date, which Commitment Fee shall be a quarterly fee,
computed at the rate of 0.10% per annum on the average daily amount of the
Available Commitments during each calendar quarter. Such Commitment Fee shall be
payable quarterly in arrears on the last Business Day of each March, June,
September and December and on the Termination Date, commencing on the first of
such dates to occur after the date hereof. Solely for the purpose of calculating
the Commitment Fee, Swing Line Loans will not be deemed a utilization of the
Aggregate Commitments of any Lender.
(b) Each Borrower severally agrees to pay the Administrative Agent for the
account of the Administrative Agent the fees to which it has separately agreed.
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2.4 Termination and Reduction of Commitments. (a) Each Borrower shall have
----------------------------------------
the right, upon not less than three Business Days' notice to the Administrative
Agent, to terminate all Commitments with respect to such Borrower. Any
termination of all Commitments to a Borrower shall be accompanied by prepayment
in full of the Loans to such Borrower then outstanding, and payment of such
Borrower's Pro Rata Allocation of (i) any accrued Commitment Fees payable by
such Borrower hereunder and (ii) any other accrued fees, expenses or indemnified
liabilities payable by such Borrower hereunder. The amount of the Aggregate
Commitment shall not be affected by any Borrower's termination. Prior to such
termination, the Funds shall notify the Administrative Agent in writing as to
the Pro Rata Allocations of the remaining Borrowers, effective as of the
termination, which notice shall constitute a representation and warranty by each
of the remaining Borrowers that no Event of Default has occurred and is
continuing with respect to each Borrower whose Pro Rata Allocation has been
increased.
(b) Interest accrued on the amount of any prepayment relating to such
termination and any unpaid Commitment Fee accrued hereunder shall be paid on the
date of such termination.
(c) Upon the effective date of such termination, the terminating
Borrower shall no longer be obligated to pay Commitment Fees hereunder or any
share of any other fees, expenses, or indemnified liabilities that may accrue
thereafter.
(d) The Borrowers shall have the right, upon not less than five
Business Days' notice to the Administrative Agent, to reduce the Aggregate
Commitment. Any such reduction shall be accompanied by prepayment in full of the
Loans to the Borrowers then outstanding that are in excess of the Aggregate
Commitment as reduced. Prior to such reduction, MVA and FIRMCO, on behalf of the
Borrowers jointly, shall notify the Administrative Agent in writing as to the
Pro Rata Allocation of the reduced Aggregate Commitment among the Borrowers,
effective as of the reduction.
(e) The Administrative Agent shall provide each Lender with prompt
notice of any Commitment changes pursuant to this Section 2.4.
2.5 Repayment of Loans; Evidence of Debt. (a) Each Borrower hereby
------------------------------------
severally and unconditionally, but not jointly or jointly and severally,
promises to pay to the Administrative Agent for the account of each Lender the
then unpaid principal amount of each Loan of such Lender to such Borrower on the
Maturity Date for such Loan (or such earlier date on which the Loans become due
and payable pursuant to Section 2.6(b) or Section 7). Each Borrower hereby
further severally, but not jointly or jointly and severally, agrees to pay to
the Administrative Agent for the account of each Lender interest on the unpaid
principal amount of the Loans to such Borrower from time to time outstanding
from the date hereof until payment in full thereof at the rates per annum, and
on the dates, set forth in Section 2.7.
(b) Each Lender shall maintain in accordance with its usual practice
an account or accounts evidencing indebtedness of each Borrower to such Lender
resulting from each Loan of
11
<PAGE>
such Lender from time to time, including the amounts of principal and interest
payable and paid to such Lender from time to time under this Agreement.
(c) The Administrative Agent shall maintain the Register pursuant to
Section 9.6(d), and a subaccount therein for each Lender, in which shall be
recorded (i) the amount of each Loan made hereunder, (ii) the amount of any
principal or interest due and payable or to become due and payable from each
Borrower to each Lender hereunder and (iii) the amount of any principal or
interest and any other payments received by the Administrative Agent hereunder
from each Borrower and each Lender's share thereof. The Administrative Agent
shall provide a copy of the Register to each Borrower upon request.
(d) The entries made in the Register and the accounts of each Lender
maintained pursuant to Section 2.5(b) shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
----- -----
obligations of the Borrowers therein recorded, provided, however, that the
-------- -------
failure of any Lender or the Administrative Agent to maintain the Register or
any such account, or any error therein, shall not in any manner affect the
obligation of any Borrower to repay (with applicable interest) the Loans made to
such Borrower by such Lender in accordance with the terms of this Agreement.
(e) Each Fund, on its own behalf or, if applicable, on behalf of each
investment portfolio thereof that is a Borrower, agrees that, upon the request
of any Lender through the Administrative Agent, such Fund will execute and
deliver to such Lender a promissory note evidencing the Loans of such Lender to
such Fund, or if applicable such Borrower, substantially in the form of Exhibit
-------
2.5(e) with appropriate insertions as to date and principal amount (a
- ------
"Revolving Credit Note").
---------------------
(f) The obligations of each Borrower under its Notes and this Agreement
shall be several and neither joint nor joint and several. Notwithstanding
anything to the contrary contained in this Agreement, the parties hereto
acknowledge and agree that the sole source of payment of the obligations of each
Borrower hereunder, including, without limitation, the principal of and interest
on each Loan made hereunder to any Borrower, the Commitment Fee payable pursuant
to Section 2.3 and any other amounts attributable to the Loans made hereunder to
any Borrower shall be the revenues and assets of such Borrower, and not the
revenues and assets of any other Borrower (except as provided in Section 9.5(b))
or the revenues and assets of a Fund acting on behalf of a Borrower (except to
the extent of the revenues and assets of such Borrower).
2.6 Optional and Mandatory Prepayments. (a) Each Borrower may prepay the
----------------------------------
Loans made to it, in whole or in part, without premium or penalty, upon at least
-------
one Business Day's irrevocable notice to the Administrative Agent, specifying
the date and amount of prepayment. Upon receipt of any such notice the
Administrative Agent shall promptly notify each Lender thereof. If any such
notice is given, the amount specified in such notice shall be due and payable on
the date specified therein. The aggregate amount of all partial prepayments by
the Borrowers then repaying shall be in a principal amount of $500,000 or an
integral multiple of $500,000 in excess thereof.
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<PAGE>
(b) If, at any time and from time to time, for each Borrower, the
Asset Coverage Ratio for all borrowings of such Borrower shall be less than 300%
for such Borrower, or (ii) the aggregate amount of all borrowings of a Borrower
(including without limitation the Loans made to a Borrower) then outstanding
exceeds the borrowing limits provided in such Borrower's Prospectus; then in
----
each case within three Business Days thereafter such Borrower shall repay Loans
made to such Borrower to the extent necessary to ensure that (x) the Asset
Coverage Ratio of all borrowings of such Borrower after such payments is in
compliance with applicable covenants concerning minimum Asset Coverage Ratios
set forth in this Agreement and (y) the aggregate amount of all borrowings made
to such Borrower then outstanding does not after such payments exceed such
limits, as the case may be.
2.7 Interest Rates and Payment Dates. (a) Each Loan shall bear interest at
--------------------------------
a rate per annum equal to the Federal Funds Rate plus the Applicable Margin.
(b) Upon (i) the occurrence and continuance of any Event of Default
specified in Section 7(e) with respect to a Borrower or (ii) notice given by the
Administrative Agent or the Required Lenders to the Borrower of any other Event
of Default, all Loans outstanding to such Borrower shall bear interest at a rate
per annum which is the rate that would otherwise be applicable thereto pursuant
to the provisions of section 2.7(a), plus 2% per annum. If all or a portion of
(i) the principal amount of any Loan, (ii) any interest payable thereon or (iii)
any Commitment Fee or other amount payable hereunder shall not be paid when due
(whether at the stated maturity, by acceleration or otherwise), such overdue
amount shall bear interest at a rate per annum equal to the Federal Funds Rate
plus the Applicable Margin plus 2% per annum from the date of such non-payment
until such amount is paid in full. For the avoidance of doubt, the parties
hereby agree that the maximum amount of interest payable on the principal amount
of any Loan pursuant to this Section 2.7 shall not exceed the sum of the Federal
Funds Rate plus the Applicable Margin plus 2% per annum.
(c) Interest shall be payable in arrears on each Interest Payment
Date, provided that interest accruing pursuant to the second sentence of
--------
paragraph (b) of this section 2.7 shall be payable from time to time on demand.
2.8 Computation of Interest and Fees. (a) Commitment Fees and interest
--------------------------------
shall be calculated on the basis of a 360-day year for the actual days elapsed.
Any change in the interest rate on a Loan resulting from a change in the Federal
Funds Rate shall become effective as of the opening of business on the day on
which such change becomes effective. The Administrative Agent shall as soon as
practicable notify the Borrowers and the Lenders of the effective date and the
amount of each such change in interest rate.
(b) Each determination of an interest rate by the Administrative Agent
pursuant to any provision of this Agreement shall be conclusive and binding on
each Borrower and the Lenders in the absence of manifest error. The
Administrative Agent shall, at the request of a Borrower, deliver to such
Borrower a statement showing the quotations used by the Administrative Agent in
determining any interest rate pursuant to Section 2.7(a).
13
<PAGE>
2.9 Pro Rata Treatment and Payments. (a) Other than provided in Sections
-------------------------------
2.13, 2.14 and 2.15, each borrowing by a Borrower from the Lenders hereunder,
each payment by a Borrower on account of any Commitment Fee hereunder and any
reduction of the Commitments of the Lenders shall be made pro rata according to
the respective Commitment Percentages of the Lenders. Each payment (including
each prepayment) by a Borrower on account of principal of and interest on the
Loans shall be made pro rata according to the respective outstanding principal
amounts of the Loans of such Borrower then held by the Lenders. All payments
(including prepayments) to be made by a Borrower hereunder, whether on account
of principal, interest, fees or otherwise, shall be made without set off or
counterclaim and shall be made no later than 1:00 P.M. New York City time, on
the due date thereof to the Administrative Agent, for the account of the
Lenders, at the Administrative Agent's office specified in Section 9.2 hereof,
in Dollars and in immediately available funds. The Administrative Agent shall
distribute such payments to the Lenders promptly upon receipt in like funds as
received. If any payment hereunder becomes due and payable on a day other than a
Business Day, such payment shall be extended to the next succeeding Business
Day, and, with respect to payments of principal, interest thereon shall be
payable at the then applicable rate during such extension.
(b) Unless the Administrative Agent shall have been notified in
writing by any Lender prior to a borrowing that such Lender will not make the
amount that would constitute its Commitment Percentage of such borrowing
available to the Administrative Agent, the Administrative Agent may assume that
such Lender is making such amount available to the Administrative Agent, and the
Administrative Agent may, in reliance upon such assumption, make available to a
Fund, on its own behalf or, if applicable, on behalf of an investment portfolio
thereof that is a Borrower, a corresponding amount. If such amount is not made
available by a Lender to the Administrative Agent by the required time on the
Borrowing Date therefor, such Lender shall pay to the Administrative Agent, on
demand, such amount with interest thereon at a rate equal to the daily average
Federal Funds Rate for the period commencing with such Borrowing Date until such
Lender makes such amount immediately available to the Administrative Agent (it
being understood that none of the Borrowers shall be obligated to repay any such
interest paid by the non-funding Lender). A certificate of the Administrative
Agent submitted to any Lender with respect to any amounts owing under this
Section 2.9(b) shall be conclusive in the absence of manifest error. If such
Lender's Commitment Percentage of such borrowing is not made available to the
Administrative Agent by such Lender within three Business Days of such Borrowing
Date, the Administrative Agent shall also be entitled to recover such amount
with interest thereon from the date of borrowing at the rate per annum
applicable to Loans hereunder, on or before three Business Days following demand
therefor, from the relevant Borrower (and such Borrower may borrow under the
Commitments or under the Swing Line Commitment to satisfy such demand; provided
--------
that, for purposes of Lender shall be excluded). The Administrative Agent shall
request of each Lender other than the non-funding Lender that it fund the non-
funding Lender's defaulted Commitment (each such other Lender having no
commitment or obligation so to fund such Commitment), and if such funding does
not occur the Administrative Agent shall use its reasonable efforts to obtain
funding of such defaulted Commitment from third-party lenders.
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<PAGE>
2.10 Requirements of Law. (a) If any Lender shall have determined that the
-------------------
adoption of or any change in any Requirement of Law (in each case after the date
hereof) of any Governmental Authority regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof shall have the effect of reducing
the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder to a level below that which such Lender
or such corporation could have achieved but for such adoption, change or
compliance (taking into consideration such Lender's or such corporation's
policies with respect to capital adequacy) by an amount determined by such
Lender, in its reasonable discretion, to be material, then from time to time,
each Borrower shall promptly pay to such Lender such additional amount or
amounts as will compensate such Lender for such reduction.
(b) If any Lender becomes entitled to claim any additional amounts
pursuant to this Section, it shall promptly notify the Borrowers (with a copy to
the Administrative Agent) of the event by reason of which it has become so
entitled by providing a certificate setting forth in reasonable detail the basis
for the claim for additional amounts and the amounts required to be
paid by the Borrowers to such Lender; provided that such Lender shall not be
--------
required to disclose any confidential information. Such certificate as to any
additional amounts payable pursuant to this Section submitted by such Lender to
the Borrowers (with a copy to the Administrative Agent) shall be conclusive in
the absence of manifest error. The agreements in this Section shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder. No Borrower shall be responsible to compensate such Lender
for additional amounts attributable to another Borrower's Loans.
(c) Failure or delay on the part of any Lender to demand compensation
pursuant to this Section shall not constitute a waiver of such Lender's right to
demand such compensation; provided that the Borrowers shall not be required to
--------
compensate a Lender pursuant to this Section for any increased costs or
reductions of the rate of return incurred more than 180 days prior to the date
that such Lender notifies the Borrowers of the change in the Requirement of Law
giving rise to such increased costs or reductions of the rate of return and of
such Lender's intention to claim compensation therefor; provided further that,
-------- -------
if the change in the Requirement of Law giving rise to such increased costs or
reductions of the rate of return is retroactive, then the 180-day period
referred to above shall be extended to include the period of retroactive effect
thereof.
2.11 Taxes. (a) All payments made by any Borrower under this Agreement and
-----
any Notes shall be made free and clear of, and without deduction or withholding
for or on account of, any present or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any Governmental
Authority, excluding all present and future income taxes and franchise taxes
(imposed in lieu of net income taxes) imposed on the Administrative Agent or any
Lender as a result of a present or former connection between the Administrative
Agent or such Lender and the jurisdiction of the Governmental Authority imposing
such tax or any political subdivision or taxing authority thereof or therein
(other than any such connection arising solely from the
15
<PAGE>
Administrative Agent or such Lender having executed, delivered or performed its
obligations or received a payment under, or enforced, this Agreement or any
Note). If any such non-excluded taxes, levies, imposts, duties, charges, fees
deductions or withholdings ("Non-Excluded Taxes") are required to be withheld
------------------
from any amounts payable to the Administrative Agent or any Lender hereunder or
under any Note, the amounts so payable to the Administrative Agent or such
Lender shall be increased to the extent necessary to yield to the Administrative
Agent or such Lender (after payment of all Non-Excluded Taxes) interest or any
such other amounts payable hereunder at the rates or in the amounts specified in
this Agreement, provided, however, that a Borrower shall not be required to
-------- -------
increase any such amounts payable to any Lender that is organized under the laws
of a jurisdiction outside the United States of America if such Lender fails to
comply with the requirements of paragraph (b) of this Section. Whenever any Non-
Excluded Taxes are payable by a Borrower, as promptly as possible thereafter
such Borrower shall send to the Administrative Agent for its own account or for
the account of such Lender, as the case may be, a certified copy of an original
official receipt received by such Borrower showing payment thereof. If a
Borrower fails to pay any Non-Excluded Taxes when due to the appropriate taxing
authority or fails to remit to the Administrative Agent the required receipts or
other required documentary evidence, such Borrower shall indemnify the
Administrative Agent and the Lenders for any incremental taxes, interest or
penalties that may become payable by the Administrative Agent or any Lender as a
result of any such failure. The agreements in this Section shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
(b) Each Lender that is organized under the laws of a jurisdiction
outside the United States of America shall:
(i) deliver to MVA and FIRMCO, on behalf of the appropriate Fund and
any Borrower which is an investment portfolio of such Fund, and the
Administrative Agent prior to any payments being made under this Agreement
or the Notes (A) two properly completed copies of United States Internal
Revenue Service Form 1001 or 4224, or successor applicable form, as the
case may be, and (B) a properly completed Internal Revenue Service Form W-8
or W-9, or successor applicable form, as the case may be;
(ii) deliver to MVA and FIRMCO, on behalf of the appropriate Fund and
any Borrower which is an investment portfolio of such Fund, and the
Administrative Agent two further properly completed copies of any such form
or certification on or before the date that any such form or certification
expires or becomes obsolete and after the occurrence of any event requiring
a change in the most recent form previously delivered by it to MVA and
FIRMCO on behalf of the appropriate Fund and any Borrower which is an
investment portfolio of such Fund; and
(iii) obtain such extensions of time for filing and complete such
forms or certifications as may reasonably be requested by MVA and FIRMCO on
behalf of the appropriate Fund and any Borrower which is an investment
portfolio of such Fund, or the Administrative Agent;
16
<PAGE>
unless in any such case an event (including, without limitation, any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from lawfully completing and delivering any
such form with respect to it and such Lender so advises MVA and FIRMCO, on
behalf of the appropriate Fund and any Borrower which is an investment portfolio
of such Fund, and the Administrative Agent. Such Lender shall certify (A) in
the case of a Form 1001 or 4224, that it is entitled to receive payments under
this Agreement without deduction or withholding of any United States federal
income taxes and (B) in the case of a Form W-8 or W-9, that it is entitled to an
exemption from United States backup withholding tax. Each Person that shall
become a Lender or a Participant pursuant to Section 9.6 shall, upon the
effectiveness of the related transfer, be required to provide all of the forms
and statements required pursuant to this Section, provided that in the case of a
Participant such Participant shall furnish all such required forms and
statements to the Lender from which the related participation shall have been
purchased.
2.12 Change of Lending Office; Replacement of Lender. (a) Each Lender
-----------------------------------------------
agrees that if it makes any demand for payment under Section 2.10, or any
additional amounts are payable under Section 2.11, it will use reasonable
efforts (consistent with its internal policy and legal and regulatory
restrictions and so long as such efforts would not be disadvantageous to it, as
determined in its sole discretion) to designate a different lending office if
the making of such a designation would reduce or obviate the need for a Borrower
to make payments under Section 2.10 or payment of additional amounts under
Section 2.11.
(b) If any Lender shall have required compensation pursuant to
Section 2.10, or payment of additional amounts under Section 2.11, the Borrowers
shall have the right, with the consent of the Administrative Agent (which shall
not be unreasonably withheld), to substitute such Lender with an Eligible Lender
(a "Replacement Lender") satisfactory to the Borrowers (which may be one or
------------------
more of the other then existing Lenders if they, in their sole discretion, elect
to become such Replacement Lender) to assume the Commitment of such Lender and
to purchase the Notes held by such Lender, if any, for an amount equal to the
principal of, and accrued and unpaid interest on, such Notes, together with the
fee specified in Section 9.6(e) and any other costs reasonably incurred by such
Lender in connection with its sale of such Notes and the assignment of such
Commitment (without recourse to or warranty by such Lender and subject to all
amounts due and owing to such Lender under this Agreement having been paid in
full). Upon the exercise of such right by the Borrowers and the satisfaction of
such conditions thereto, such Lender shall convey its interest to the
Replacement Lender in accordance with the procedures set forth in Section
9.6(c).
2.13 Swing Line Commitment: Subject to the terms and conditions hereof,
---------------------
the Swing Line Lender agrees to make available to each Borrower a portion of the
credit otherwise available under the Commitments from time to time during the
Commitment Period by making swing line loans ("Swing Line Loans") to such
----------------
Borrower in an aggregate principal amount not to exceed at any one time
outstanding the Swing Line Commitment (provided, however, notwithstanding the
-------- -------
foregoing the Swing Line Loans made by the Swing Line Lender outstanding at any
time, when aggregated with the Swing Line Lender's other outstanding Revolving
Credit Loans hereunder, may not exceed the Swing Line Lender's Commitment then
17
<PAGE>
in effect); provided, further, however, that on the date of the making of any
-------- ------- -------
Swing Line Loan, the sum of the aggregate principal amount of all outstanding
Revolving Credit Loans and Swing Line Loans shall not exceed the total
Commitments (less the Commitment of any non-funding Lender referred to in
Section 2.9(b)). During the Commitment Period applicable to each Borrower, such
Borrower may use the Swing Line Commitment by borrowing, repaying and
reborrowing, all in accordance with the terms and conditions hereof. Each Swing
Line Loan shall bear interest at a rate per annum equal to the Federal Funds
Rate plus the Applicable Margin.
2.14 Procedure for Swing Line Borrowing. Whenever a Borrower desires that
----------------------------------
the Swing Line Lender make Swing Line Loans under Section 2.13, the Borrower (or
the Fund of which it is an investment portfolio) shall give the Swing Line
Lender irrevocable telephonic notice confirmed promptly in writing (which
telephonic notice must be received by the Swing Line Lender not later than 3:00
p.m., New York City time, on the proposed Borrowing Date, and must specify the
amount of each requested Swing Line Loan. Each borrowing under the Swing Line
Commitment shall be in an amount equal to $50,000 or provided, however, that on
-------- -------
the date of the making of any Swing Line Loan (1) the aggregate principal amount
of all Swing Line Loans outstanding shall not exceed the Swing Line Commitment
and (2) the sum of the aggregate principal amount of all outstanding Revolving
Credit Loans and Swing Line Loans by the Swing Line Lender shall not exceed the
total Commitment of the Swing Line Lender. The proceeds of such Swing Line Loan
will then be made available to such Borrower on such Borrowing Date by the Swing
Line Lender transferring by wire to the custodian of and for the account of such
Borrower the aggregate of the amounts made available to the Swing Line Lender in
immediately available funds.
2.15 Refunding of Swing Line Loans. (a) The Swing Line Lender, at any
-----------------------------
time in its sole and absolute discretion may, and on the seventh day (or if such
day is not a Business Day, the next Business Day following the seventh day)
after the Borrowing Date with respect to any Swing Line Loans to a Borrower
shall, on behalf of such Borrower and each Borrower hereby irrevocably directs
the Administrative Agent no later than 10:00 A.M., New York City time, on the
relevant refunding date, to request each Lender to make, and each Lender hereby
agrees to make, a Revolving Credit Loan to such Borrower, at the rate applicable
to the Swing Line Loans of such Borrower, in an amount equal to such Lender's
Commitment Percentage of the amount of such Swing Line Loans of such Borrower
(the "Refunded Swing Line Loans") outstanding on the date of such notice, to
-------------------------
repay the Swing Line Lender. Each Lender shall make the amount of such
Revolving Credit Loan available to the Administrative Agent at its office set
forth in Section 9.2 in immediately available funds, no later than 1:00 P.M.,
New York City time, on the date of such notice. The proceeds of such Revolving
Credit Loans shall be distributed by the Administrative Agent to the Swing Line
Lender and immediately applied by the Swing Line Lender to repay the Refunded
Swing Line Loans. Effective on the day such Revolving Credit Loans are made,
the portion of the Swing Line Loans so paid shall no longer be outstanding as
Swing Line Loans.
(b) The making of any Swing Line Loan hereunder at the request of a
Borrower shall be subject to the satisfaction of the applicable conditions
precedent thereto set forth in Section 4 (unless otherwise waived in accordance
with Section 9.1).
18
<PAGE>
(c) If prior to the making of a Revolving Credit Loan to a Borrower
pursuant to Section 2.15(a) one of the events described in paragraph (e) of
Section 7 shall have occurred with respect to such Borrower, each Lender
severally, unconditionally and irrevocably agrees that it shall purchase a
participating interest in the applicable Swing Line Loans ("Unrefunded
----------
Swing Line Loans") in an amount equal to the amount of Revolving Credit Loans
- ----------------
which would otherwise have been made by such Lender pursuant to Section 2.15(a).
Each Lender will immediately transfer to the Administrative Agent, in
immediately available funds, the amount of its participation (the "Swing Line
----------
Participation Amount"), and the proceeds of such participation shall be
- --------------------
distributed by the Administrative Agent to the Swing Line Lender in such amount
as will reduce the amount of the respective participating interest retained by
the Swing Line Lender in its Swing Line Loans to the amount of the Revolving
Credit Loans which were to have been made by it pursuant to Section 2.15(a).
(d) Whenever, at any time after the Swing Line Lender has received
from any Lender such Lender's Swing Line Participation Amount, such Swing Line
Lender receives any payment on account of the Swing Line Loans, such Swing Line
Lender will distribute to such Lender its Swing Line Participation Amount
(appropriately adjusted, in the case of interest payments, to reflect the period
of time during which such Lender's participating interest was outstanding and
funded and, in the case of principal and interest payments, to reflect such
Lender's pro rata portion of such payment if such payment is not sufficient to
--- ----
pay the principal of and interest on all Swing Line Loans then due); provided,
--------
however, that in the event that such payment received by such Swing Line Lender
- -------
is required to be returned, such Lender will return to such Swing Line Lender
any portion thereof previously distributed to it by such Swing Line Lender.
(e) Each Lender's obligation to make the Loans referred to in Section
2.15(a) and to purchase participating interests pursuant to Section 2.15(c)
shall be absolute and unconditional and shall not be affected by any
circumstance, including, without limitation, (i) any setoff, counterclaim,
recoupment, defense or other right which such Lender may have against the Swing
Line Lender or any other Person for any reason whatsoever; (ii) the occurrence
or continuance of a Default or an Event of Default or the failure to satisfy any
of the other conditions specified in Section 4; (iii) any adverse change in the
condition (financial or otherwise) of any Borrower; (iv) any breach of this
Agreement or any other Loan Document by any Borrower or any Lender; or (v) any
other circumstance, happening or event whatsoever, whether or not similar to any
of the foregoing.
2.16 Designation of Additional Borrowers; Amendments to Schedule I.
-------------------------------------------------------------
(a) Other portfolios of the Funds and other investment companies registered
under the 1940 Act, in either case (a) which have at least $2,000,000 in Total
Assets, (b) are (I) equity funds, (II) fixed income funds or (III) any
combination thereof, in each case whether investing in domestic or foreign
securities or any combination thereof and (c) for which MVA, FIRMCO or an
Affiliate thereof, as appropriate, acts as the investment manager, may, with the
prior written consent of the Administrative Agent, each Lender and each Fund,
which consent shall not be unreasonably withheld, become parties to this
Agreement in addition to those Borrowers listed on Schedule I, and be deemed
----------
Borrowers for all purposes of this Agreement by executing an instrument
19
<PAGE>
substantially in the form of Exhibit 2.16(a) hereto (with such changes therein
---------------
as may be approved by the Administrative Agent and the Lenders), which
instrument shall (x) have attached to it a copy of this Agreement (as the same
may have been amended) with a revised Schedule I reflecting the participation of
----------
such additional portfolio or investment company and any prior revisions to
Schedule I effected in accordance with the terms hereof and (y) be accompanied
- ----------
by the documents and instruments required to be delivered by the Borrowers
pursuant to Section 4.1, including, without limitation, an opinion of counsel
for the Borrower substantially in the form of Exhibit 4.1(g) hereto.
(b) No Person shall be admitted as a party to this Agreement as a
Borrower unless at the time of such admission and after giving effect thereto:
(i) the representations and warranties set forth in Section 3 shall be true and
correct with respect to such Borrower; (ii) such Borrower shall be in compliance
in all material respects with all of the terms and provisions set forth herein
on its part to be observed or performed at the time of the admission and after
giving effect thereto; and (iii) no Default or Event of Default with respect to
such Borrower shall have occurred and be continuing.
SECTION 3. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into this
Agreement and to make the Loans, each Fund, on behalf of itself and, if
applicable, on behalf of each investment portfolio thereof that is a Borrower,
hereby represents and warrants to the Administrative Agent and each Lender that
(it being agreed that each Fund represents and warrants only to matters with
respect to itself and, if applicable, each Borrower that is an investment
portfolio thereof):
3.1 Financial Condition. For each Borrower, the statement of assets
-------------------
and liabilities as of such Borrower's most recently ended fiscal year for which
annual reports have been prepared and the related statements of operations and
of changes in net assets for the fiscal year ended on such date, copies of which
financial statements, certified by the independent public accountants for the
Fund, have heretofore been delivered to each Lender, fairly present, in all
material respects, the financial position of such Borrower as of such date and
the results of its operations for such period, in conformity with GAAP (as
consistently applied).
3.2 No Change. For each Borrower, since the date of the statement of
---------
assets and liabilities for the most recently ended fiscal year for which annual
reports have been prepared for such Borrower, there has been no development or
event which has had or could reasonably be expected to have a Material Adverse
Effect with respect to such Borrower.
3.3 Existence; Compliance with Law. Each Fund (a) is duly organized
------------------------------
and validly existing under the laws of the jurisdiction of its organization, (b)
has the corporate power and authority as to those Funds that are organized as
corporations, and the trust power and authority as to those Funds that are
organized as trusts; and in each case the legal right to own its property and to
conduct the business in which it is currently engaged, (c) is duly qualified as
a foreign corporation or business trust and, if a corporation, is in good
standing under the laws of each jurisdiction where its ownership of property or
the conduct of its business requires such
20
<PAGE>
qualification and (d) is in compliance with all Requirements of Law, except to
the extent that the failure to comply therewith, and with clause (c) of this
Section 3.3, could not, in the aggregate, reasonably be expected to have a
Material Adverse Effect. The shares of each Fund have been validly authorized.
3.4 Power; Authorization; Enforceable Obligations. Each Fund, acting
---------------------------------------------
on its own behalf and if applicable on behalf of each investment portfolio
thereof that is a Borrower, has the corporate power and authority as to those
Funds that are organized as corporations and the trust power and authority as to
the Funds that are organized as trusts, and in each case the legal right, to
execute, deliver and perform the Loan Documents to which it is a party and to
borrow hereunder and thereunder on its own behalf or if applicable on behalf of
each investment portfolio thereof that is a Borrower, and has taken all
necessary action to authorize the borrowings on the terms and conditions of this
Agreement and any Notes and to authorize the execution, delivery and performance
of the Loan Documents to which it is a party including, but not limited to,
receiving the approval of the majority of non-interested members of the board of
trustees or board of directors of each Fund as to entering into the transactions
contemplated hereby. No consent or authorization of, filing with, notice to or
other act by or in respect of, any Governmental Authority or any other Person is
required in connection with the borrowings hereunder or with the execution,
delivery, performance, validity or enforceability of the Loan Documents to which
such Fund, on its own behalf or if applicable on behalf of the investment
portfolios thereof which are Borrowers, is a party. This Agreement has been,
and each other Loan Document to which a Fund is a party will be, duly executed
and delivered by such Fund, on its own behalf or if applicable on behalf of the
investment portfolios thereof that are Borrowers. This Agreement constitutes,
and each other Loan Document to which a Fund is a party when executed and
delivered will constitute, a legal, valid and binding obligation of such Fund
(individually and on behalf of each Borrower severally and not jointly or
jointly and severally as applicable) enforceable against such Fund (individually
and on behalf of each Borrower severally and not jointly or jointly and
severally as applicable) in accordance with its terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles (whether enforcement is sought by proceedings in
equity or at law).
3.5 No Legal Bar. The execution, delivery and performance of the Loan
------------
Documents to which each Fund, on its own behalf or, if applicable, on behalf of
an investment portfolio thereof that is a Borrower, is a party, the borrowings
hereunder and the use of the proceeds thereof (i) will not violate any material
Requirement of Law (including, without limitation, the 1940 Act) or Contractual
Obligation of any Fund or any Borrower (assuming no Lender is "an affiliated
person or an affiliate of an affiliated person" in accordance with the 1940 Act)
and (ii) will not result in, or require, the creation or imposition of any
material Lien on any of their respective material properties or revenues
pursuant to any such Requirement of Law or Contractual Obligation.
3.6 No Material Litigation. No litigation, investigation or proceeding
----------------------
of or before any arbitrator or Governmental Authority is pending or, to the
knowledge of each Fund, on its own behalf or if applicable on behalf of the
investment portfolios thereof which are Borrowers, threatened by or against such
Fund or such Borrowers or against any of their respective
21
<PAGE>
properties or revenues (a) with respect to any of the Loan Documents or any of
the transactions contemplated hereby or thereby, or (b) which could reasonably
be expected to have a Material Adverse Effect.
3.7 No Default. No Fund nor any Borrower is in default under or with
----------
respect to any of its Contractual Obligations in any respect which could
reasonably be expected to have a Material Adverse Effect. No Default or Event
of Default has occurred and is continuing.
3.8 Ownership of Property; Liens. Each Fund, on its own behalf or, if
----------------------------
applicable, on behalf of the investment portfolios thereof which are Borrowers,
has good title to all its property, and none of such property is subject to any
Lien except as permitted by Section 6.3.
3.9 No Burdensome Restrictions. No Requirement of Law or Contractual
--------------------------
Obligation of any Fund or any Borrower could reasonably be expected to have a
Material Adverse Effect.
3.10 Taxes. Each Fund, on its own behalf or, if applicable, on behalf
-----
of the investment portfolios thereof which are Borrowers, has filed all material
tax returns which, to the knowledge of such Fund and such Borrowers, are
required to be filed and has paid all taxes shown to be due and payable on said
returns or on any assessments made against it or any of its property and all
other taxes, fees or other charges imposed on it or any of its property by any
Governmental Authority (other than any the amount or validity of which are
currently being contested in good faith by appropriate proceedings and with
respect to which reserves in conformity with GAAP have been provided on the
books of such Fund or such Borrowers); no tax Lien has been filed, and, to the
knowledge of such Fund and such Borrowers, no claim is being asserted, with
respect to any such tax, fee or other charge.
3.11 Federal Regulations If requested by any Lender or the Administrative
-------------------
Agent from time to time, each Fund, on its own behalf or, if applicable, on
behalf of the investment portfolios thereof which are Borrowers, will furnish to
the Administrative Agent and each Lender a statement and current list of the
assets of each Borrower in conformity with the requirements of FR Form U-1
referred to in said Regulation U. Other than the furnishing of such statement
and such list, no filing or other action is required under the provisions of
Regulations T, U or X in connection with the execution and delivery of the
Agreement and the making of the Loans hereunder. No part of the proceeds of any
Revolving Credit Loans made hereunder will be used in a manner that violates
Regulation U.
3.12 ERISA. Neither any Fund nor any Borrower has currently or has had
-----
at any time any liability or obligation under ERISA or the Code with respect to
any Plan maintained by any of them that could reasonably be expected to have a
Material Adverse Effect.
3.13 Certain Regulations. Neither any Fund nor any Borrower is subject
-------------------
to regulation under any Federal or State statute or regulation (other than
Regulations U and X of the Board of Governors of the Federal Reserve System and
the 1940 Act) which limits its ability to incur Indebtedness, and with respect
to such Regulations and the 1940 Act, neither any Fund nor any Borrower has
failed to be in compliance with such statutes and regulations.
22
<PAGE>
3.14 Subsidiaries. No Fund has any Subsidiaries and no equity investment
------------
or interest in any other Person (other than portfolio securities which have been
acquired in the ordinary course of business).
3.15 Registration of the Fund. Each Fund is a registered open-end
------------------------
management investment company under the 1940 Act.
3.16 Offering in Compliance with Securities Laws. Each Fund that is an
-------------------------------------------
open-end investment company, on its own behalf or, if applicable, on behalf of
the investment portfolios thereof which are Borrowers, has issued all of its
securities pursuant to an effective Registration Statement on Form N-1A, or as
may otherwise be required by Federal and State securities laws applicable
thereto in all material respects.
3.17 Investment Policies. Each Borrower is in compliance in all material
-------------------
respects with all of its Fundamental Investment Policies.
3.18 Permission to Borrow. Each Borrower is permitted to borrow hereunder
--------------------
pursuant to the limits and restrictions set forth in its Prospectus.
3.19 Accuracy of Information; Electronic Information. (a) All factual
-----------------------------------------------
information heretofore or contemporaneously furnished by or on behalf of each
Fund, on its own behalf or, if applicable, on behalf of the investment
portfolios thereof which are Borrowers, in writing to the Administrative Agent
or any Lender for purposes of or in connection with this Agreement or any
transaction contemplated hereby (in each case, as amended, superseded,
supplemented or otherwise modified with the knowledge of the Administrative
Agent or such Lender) is, and all other such factual information hereafter
furnished by or on behalf of such Fund and such Borrowers to the Administrative
Agent or any Lender (in each case, as amended, superseded, supplemented or
otherwise modified with the knowledge of the Administrative Agent or such
Lender) will be, true and accurate in every material respect on the date as of
which such information is dated or certified, and to the extent such information
was furnished to the Administrative Agent or such Lender heretofore or
contemporaneously, as of the date of execution and delivery of this Agreement by
the Administrative Agent or such Lender, and such information is not, or shall
not be, as the case may be, incomplete by omitting to state any material fact
necessary to make such information not misleading.
(b) Neither the Administrative Agent nor any Lender shall be liable to any
Fund or Borrower for any damages arising from the Administrative Agent and any
Lender's respective use of information or other materials obtained through
transmission by e-mail, Intralinks or another similarly secured website, which
damages are waived and forgiven.
3.20 Affiliated Persons. To the best knowledge of each Fund, such Fund,
------------------
and if applicable each portfolio thereof that is a Borrower, is not an
"affiliated person" (as defined in the 1940 Act) of the Administrative Agent or
any Lender; provided, however, that for purposes of this Section 3.20, (i) the
-------- -------
record ownership, without the power to vote, of five percent or more of the
outstanding voting securities of any Person shall be deemed not to constitute
the direct or indirect ownership of, control of, or holding with the power to
vote of, such securities, and
23
<PAGE>
(ii) securities of such Fund or such Borrower, as the case may be, held of
record by the Administrative Agent or any Lender shall be deemed conclusively,
absent written notice to the contrary, to be held without the power to vote such
securities.
3.21 Year 2000. Each Fund has used commercially reasonable efforts to
---------
obtain assurances deemed reasonable by such Fund from its investment adviser,
administrator, transfer agent, distributor and custodian (together, the "Service
-------
Providers") that the services provided to such Fund will not be materially
- ---------
disrupted due to the inability of the Service Providers' computer systems to
process properly dates on and after January 1, 2000 and distinguish between the
year 2000 and the year 1900 ("Year 2000 Problem"). Each Fund has been advised
-----------------
by the Service Providers that they anticipate that the transition to the 21st
century will not result in a Material Adverse Effect. The disclosures contained
herein regarding Year 2000 readiness are designated as Year 2000 readiness
disclosures related to the Year 2000 Information & Readiness Disclosure Act.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions to Initial Loans. The agreement of each Lender to make the
---------------------------
initial Loan requested to be made by it hereunder is subject to the
satisfaction, prior to or concurrently with the making of such Loan, of the
following conditions precedent (it being agreed that each Fund need only satisfy
the following conditions precedent with respect to itself and, if applicable,
each Borrower that is an investment portfolio thereof):
(a) Executed Agreement. The Administrative Agent shall have received
------------------
this Agreement, executed and delivered by a duly authorized officer of each
Fund, on its own behalf or, if applicable, on behalf of the investment
portfolios thereof which are Borrowers, with a counterpart for each Lender.
(b) Notes. The Administrative Agent shall have received Notes for
-----
each Lender which has requested Notes pursuant to Section 2.5(e), executed
and delivered by a duly authorized officer of each Fund, on its own behalf
or, if applicable, on behalf of the investment portfolios thereof which are
Borrowers.
(c) Related Agreements. The Administrative Agent shall have received,
------------------
with a copy for each Lender, true and correct copies, certified as to
authenticity by a Responsible Officer of each Fund, of the most recent
Prospectus for each Borrower, the Custody Agreement of each Fund, with
respect to each Borrower if applicable, the Investment Management Agreement
of each Fund, with respect to each Borrower if applicable, the current
Statement of Additional Information and, if requested by the Lenders, the
current Registration Statement for each Borrower, the most recent annual
and semi-annual financial reports for each Borrower and such other
documents or instruments as may be reasonably requested by the
Administrative Agent, including, without limitation, a copy of any debt
instrument, security agreement or other material contract to which any
Borrower may be a party.
24
<PAGE>
(d) Proceedings of the Fund and the Borrowers. The Administrative
-----------------------------------------
Agent shall have received, with a counterpart for each Lender, a copy of
the resolutions, in form and substance satisfactory to the Administrative
Agent, of the board of trustees or directors, as the case may be, of each
Fund, on its own behalf or, if applicable, on behalf of the investment
portfolios thereof which are Borrowers, authorizing (i) the execution,
delivery and performance of this Agreement and the other Loan Documents to
which each Fund, on its own behalf or, if applicable, on behalf of the
investment portfolios thereof which are Borrowers, is a party and (ii) the
borrowings contemplated hereunder, certified by a Responsible Officer of
such Fund as of the Closing Date, which certificate shall be in form and
substance satisfactory to the Administrative Agent and shall state that the
resolutions thereby certified have not been amended, modified, revoked or
rescinded and are in full force and effect.
(e) Incumbency Certificate. The Administrative Agent shall have
----------------------
received, with a counterpart for each Lender, a Certificate of each Fund,
on its own behalf or, if applicable, on behalf of the investment portfolios
thereof which are Borrowers, dated the Closing Date, as to the incumbency
and signature of the officers of such Fund executing any Loan Document
executed by a Responsible Officer of the Fund, satisfactory in form and
substance to the Administrative Agent.
(f) Organizational Documents. The Administrative Agent shall have
------------------------
received, with a counterpart for each Lender, true and complete copies of
the charter or certificate, as the case may be, and by-laws of each Fund,
certified as of the Closing Date as complete and correct copies thereof by
a Responsible Officer of such Fund, including without limitation those
organizational documents establishing the investment portfolios which are
Borrowers thereof.
(g) Legal Opinions. The Administrative Agent shall have received,
--------------
with a counterpart for each Lender, the executed legal opinion of counsel
to each Fund and each Borrower, in the form of Exhibit 4.1(g) hereto. Such
--------------
legal opinion shall cover such other matters incident to the transactions
contemplated by this Agreement as the Administrative Agent or any Lender
may reasonably require.
(h) Financial Information. The Administrative Agent shall have
---------------------
received, with a copy for each Lender, the most recent publicly available
financial information (which includes a list of portfolio securities) for
each Borrower.
(i) Termination of other Credit Facilities. All other credit
--------------------------------------
facilities to which any Borrower is a party shall have been terminated.
4.2 Conditions to Each Loan. The agreement of each Lender to make any
-----------------------
Loan requested by a particular Fund, on its own behalf or, if applicable, on
behalf of an investment portfolio thereof that is a Borrower, to be made by it
on any date (including, without limitation, its initial Loan) is subject to the
satisfaction of the following conditions precedent:
25
<PAGE>
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties (other than Section 3.2) made by a Fund, on its own behalf and,
if applicable, on behalf of each investment portfolio thereof which is a
Borrower, in or pursuant to the Loan Documents shall be true and correct in
all material respects on and as of such date as if made on and as of such
date (it being understood that any representation and warranty which by its
terms is made as of a specific date shall be required to be true and
correct in all material respects only as of such specified date).
(b) No Default. No Default or Event of Default shall have occurred
----------
with respect to the requesting Fund, on its own behalf or, if applicable,
on behalf of the investment portfolio thereof which is a Borrower, and be
continuing on such date or after giving effect to the Loans requested to be
made on such date.
(c) Maximum Borrowing Limits. After giving effect to the proposed
------------------------
Loans to be made, (i) the Asset Coverage Ratio for all borrowings of such
Borrower shall not be less than 300% or exceeds the borrowing limits set
forth in its Prospectus and/or Registration Statement or the 1940 Act
("Maximum Borrowing Limits") and (ii) the requesting Borrower shall not
have violated any Requirements of Law (except such violations as could
reasonably be expected not to be material).
(d) Regulation U; Form U-1. The Lenders shall be satisfied that the
----------------------
Loans and the use of proceeds thereof comply in all respects with
Regulation U. To the extent required by Regulation U, the Administrative
Agent shall have received a copy of either (i) FR Form U-1, duly executed
and delivered by each Fund, on its own behalf or if applicable on behalf of
the investment portfolios thereof which are Borrowers and completed for
delivery to each Lender, in form acceptable to the Administrative Agent, or
(ii) a current list of the assets of each Borrower (including all "margin
stock" (as defined in Regulation U) from each Borrower), in form acceptable
to the Administrative Agent and in compliance with Section 221.3(c)(2) of
Regulation U.
(e) Additional Matters. All corporate and other proceedings, and all
------------------
documents, instruments and other legal matters in connection with the
transactions contemplated by this Agreement and the other Loan Documents
shall be reasonably satisfactory in form and substance to the
Administrative Agent, and the Administrative Agent shall have received such
other documents and legal opinions in respect of any aspect or consequence
of the transactions contemplated hereby or thereby as it shall reasonably
request.
Each borrowing by a Borrower hereunder shall constitute a representation and
warranty by the Fund of which such Borrower is a portfolio, on its own behalf
and on behalf of such Borrower, as of the date thereof that the conditions
contained in this Section have been satisfied with respect to such Borrower, and
the Fund of which it is an investment portfolio if applicable.
SECTION 5. AFFIRMATIVE COVENANTS
26
<PAGE>
Each Fund, on its own behalf or if applicable on behalf of the investment
portfolios thereof which are Borrowers, hereby agrees that, so long as (i) the
Commitments remain in effect with respect to it or any Borrower or (ii) any
amount is owing by it or any Borrower to any Lender or the Administrative Agent
hereunder or under any other Loan Document, it and any Borrower that is a part
of the Fund shall (it being agreed that the Fund covenants only to matters with
respect to itself and if applicable each Borrower several and not jointly or
jointly and severally that is an investment portfolio thereof):
5.1 Financial Statements. Furnish to the Administrative Agent (with
--------------------
copies for each Lender):
(a) as soon as available and in any event within 75 days after the
end of each fiscal year of such Borrower, a statement of assets and
liabilities of such Borrower as at the end of such fiscal year, a statement
of operations for such fiscal year, a statement of changes in net assets
for such fiscal year and the preceding fiscal year, a portfolio of
investments as at the end of such fiscal year and the per share and other
data for such fiscal year prepared in accordance with GAAP (as consistently
applied) and all regulatory requirements, and all presented in a manner
acceptable to the Securities and Exchange Commission or any successor or
analogous Governmental Authority and certified by either with respect to
Borrowers (i) which are investment portfolios of Firstar Funds, Inc.,
Pricewaterhouse Coopers LLP and (ii) which are portfolios of Mercantile
Mutual Funds, Inc., KPMG LLP, or any other independent certified public
accountants of recognized standing;
(b) as soon as available and in any event within 60 days after the
close of the first six-month period of each fiscal year of such Borrower, a
statement of assets and liabilities as at the end of such six-month period,
a statement of operations for such six-month period, a statement of changes
in net assets for such six-month period and a portfolio of investments as
at the end of such six-month period, all prepared in accordance with
regulatory requirements and all certified (subject to normal year end
adjustments) as to fairness of presentation, GAAP (as consistently applied)
and consistency by a Responsible Officer; and
(c) as soon as available, but in any event not later than 10 days
after the end of each month of each fiscal year of each Borrower, the net
asset value sheet of such Borrower as at the end of such month, in the form
and detail similar to those customarily prepared by the Fund's management
for internal use and reasonably satisfactory to the Administrative Agent,
certified by a Responsible Officer, as being fairly stated in all material
respects; provided, however, that if any Borrower has Loans outstanding,
-------- -------
such Borrower shall provide each Lender with (i) such net asset value sheet
described above in this Section and (ii) a certificate of a Responsible
Officer showing in reasonable detail the calculations supporting such
Borrower's compliance with Section 6.1, within two Business Days after the
end of each calendar week so long as any Loans to such Borrower remain
outstanding;
27
<PAGE>
all such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein).
5.2 Certificates; Other Information. Furnish to the Administrative Agent
-------------------------------
(with copies for each Lender):
(a) concurrently with the delivery of the financial statements
referred to in Sections 5.1(a), (b) and (c) and the quarterly report in
Section 5.2(c), a certificate of a Responsible Officer stating that (i) to
the best of such Officer's knowledge, such Borrower during such period has
observed or performed all of its covenants and other agreements, and
satisfied every condition, contained in this Agreement and the other Loan
Documents to be observed, performed or satisfied by it, and (ii) no Default
or Event of Default has occurred and is continuing except as specified in
such certificate;
(b) within five days after they are sent, copies of all financial
statements and reports which each Borrower sends to its investors, and
within five Business Days after they are filed, copies of all financial
statements and reports which each Borrower may make to, or file with, the
Securities and Exchange Commission or any successor or analogous
Governmental Authority;
(c) as soon as available, but in any event not later than 10 days
after the end of each quarter, a certificate of a Responsible Officer (i)
stating that the list of each Borrower's portfolio securities attached to
such certificate is true and correct and (ii) showing in reasonable detail
the calculations supporting such Borrower's compliance with Section 6.1;
and
(d) promptly, such additional financial and other information as any
Lender may from time to time reasonably request, including, but not limited
to, copies of all changes to each Borrower's Prospectus and Registration
Statement.
5.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or
----------------------
before maturity or before they become delinquent, as the case may be, all such
Borrower's obligations of whatever nature, except where (i) the amount or
validity thereof is currently being contested in good faith by appropriate
proceedings and reserves in conformity with GAAP with respect thereto have been
provided on the books of such Borrower, as the case may be, or (ii) the failure
to timely make payment thereof could not reasonably be expected to have a
Material Adverse Effect.
5.4 Conduct of Business and Maintenance of Existence. Except as otherwise
------------------------------------------------
permitted herein, continue to engage in (i) such Borrower's investment business
in accordance with its Investment Policies, Prospectus and Registration
Statement and preserve, renew and keep in full force and effect its existence
and (ii) take all reasonable action to maintain all rights, privileges and
franchises necessary or desirable in the normal conduct of its business except
to the extent that failure to take such actions could not, in the aggregate, be
reasonably expected to have a Material Adverse Effect; comply with all
Contractual Obligations and Requirements of Law except to the extent that
failure to comply therewith could not, in the aggregate, be reasonably expected
to
28
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have a Material Adverse Effect; maintain at all times its status as an
investment company or a series of an investment company registered under the
1940 Act; maintain at all times its current primary custodians responsible for
the safekeeping of portfolio securities, or replacement custodians (1) which are
a bank or trust company organized under the laws of the United States or a
political subdivision thereof having assets of at least $10,000,000,000 and a
long-term debt or deposit rating of at least A from S&P or A2 from Moody's or
(2) with the prior written consent of the Required Lenders, which consent shall
not be unreasonably withheld, any other bank or trust company organized under
the laws of the United States or political subdivision thereof.
5.5 Maintenance of Property; Insurance. Keep all property useful and
----------------------------------
necessary in such Borrower's business, if any, in good working order and
condition; maintain with financially sound and reputable insurance companies
insurance on all its property in at least such amounts and against at least such
risks as are usually insured against in the same general area by entities
engaged in the same or similar business or as may otherwise be required by the
Securities and Exchange Commission or any successor or analogous Governmental
Authority (including, without limitation, (a) fidelity bond coverage as shall be
required by Rule 17g-1 promulgated under the 1940 Act or any successor provision
and (b) errors and omissions insurance); and furnish to each Lender, upon
written request, full information as to the insurance carried.
5.6 Inspection of Property; Books and Records; Discussions. Keep proper
------------------------------------------------------
books of records and account in which full, true and correct, in all material
respects, entries in conformity with GAAP and all material Requirements of Law
shall be made of all dealings and transactions in relation to its business and
activities; and permit representatives of (i) the Administrative Agent, upon its
own discretion or at the reasonable request of any Lender, and (ii) upon the
occurrence and during the continuance of an Event of Default, any Lender, to
visit and inspect any of such Borrower's properties and examine and make
abstracts from any of its books and records during normal business hours and to
discuss the business, operations, properties and financial and other condition
of such Borrower with officers and employees of such Borrower and with its
independent certified public accountants; provided that, unless a Default or
--------
an Event of Default shall have occurred and be continuing, the Administrative
Agent shall provide the Borrowers with five Business Days' prior notice of such
visit and shall conduct such visit not more than once a year.
5.7 Notices. Promptly give notice to the Administrative Agent and each
-------
Lender of:
(a) the occurrence of any Default or Event of Default with respect to
such Borrower;
(b) any (i) default or event of default under any Contractual
Obligation of such Borrower or such Fund or (ii) litigation, investigation
or proceeding which may exist at any time between such Fund, on its own
behalf or if applicable on behalf of the investment portfolios thereof
which are Borrowers and any Governmental Authority, which in either
29
<PAGE>
case, if not cured or if adversely determined, as the case may be, could
reasonably be expected to have a Material Adverse Effect;
(c) any litigation or proceeding affecting such Borrower, or the Fund
of which it is an investment portfolio if applicable, in which the amount
reasonably determined to be at risk is more than 5% of such Borrower's net
assets and not covered by insurance or in which injunctive or similar
relief is sought;
(d) any change in such Borrower's Prospectus or Registration
Statement involving Investment Policies which could materially increase the
risks to the shareholders of the Borrower or which would increase the
borrowing limits provided for in such Borrower's Prospectus; and
(e) any development or event in the business activities of a Borrower
which could reasonably be expected to have a Material Adverse Effect on any
such Borrower.
Each notice pursuant to this Section shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and if appropriate stating what action such Fund or such Borrower proposes to
take with respect thereto.
5.8 Purpose of Loans. Use the proceeds of the Loans for temporary or
----------------
emergency purposes, including, without limitation, funding of shareholder
redemptions or the payment of dividends (i) which are required by law or in
connection with the maintenance of the Borrower's tax status or (ii) for the
purpose of avoiding imposition of federal excise tax. Without limiting the
foregoing, no Borrower will, directly or indirectly, use any part of such
proceeds for any purpose which would violate any provision of its Registration
Statement or any applicable statute, regulation, order or restriction, including
but not limited to Regulation U; provided, however, that neither the
-------- -------
Administrative Agent nor any Bank shall have any responsibility as to the use of
any of such proceeds.
SECTION 6. NEGATIVE COVENANTS
Each Fund, on its own behalf or if applicable on behalf of the
investment portfolios thereof which are Borrowers, hereby agrees that, so long
as (i) the Commitments remain in effect with respect to it or any such Borrower
or (ii) any amount is owing by it or any such Borrower to any Lender or the
Administrative Agent hereunder or under any other Loan Document, it and any such
Borrower shall not, without the prior written consent of the Lenders, directly
or indirectly (it being agreed that each Fund agrees only to matters with
respect to itself and if applicable each Borrower, severally and not jointly and
severally, that is an investment portfolio thereof):
6.1 Financial Condition Covenant. Permit the Asset Coverage Ratio of
----------------------------
such Borrower to be less than 300% for such Borrower; or allow borrowings and/or
Indebtedness of such Borrower to exceed the limits set forth in such Borrower's
Prospectus or allow borrowings and/or Indebtedness to exceed the requirements of
the 1940 Act.
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6.2 Limitation on Indebtedness; Derivatives. (a) Create, incur, assume or
---------------------------------------
suffer to exist any Indebtedness of such Borrower, except Indebtedness of such
Borrower or Subsidiary incurred (i) under this Agreement and the Notes, (ii) in
the ordinary course of business of such Borrower (including liens arising from
securities lending, margin accounts, reverse repos and similar investment
activities) or (iii) in the form of reverse repurchase transactions, dollar
rolls or other transactions entered into primarily for investment purposes which
have the effect of borrowing and, in each case, which is not otherwise
prohibited by law, is in the ordinary course of business, is not in
contravention of such Borrower's Prospectus, or in such Fund's certificate of
incorporation or by-laws, with respect to such Funds, and is reflected properly
in the calculation of the Asset Coverage Ratio.
(b) Invest in, or incur Indebtedness or other liability to any Person with
respect to, any Swap Obligation or derivative instrument (including without
limitation any swap, collar, cap, puts, calls, equity derivative or mortgage-
backed or debt-backed derivative) unless each of the following is true: (i) such
Swap Obligation or derivative instrument, if marked-to-market on a net daily
basis (or marked to value in a manner reasonably acceptable to the
Administrative Agent), is appropriately reflected in the calculation of Asset
Coverage Ratio, and (ii) the purpose of the investment in such Swap Obligation
or derivative instrument is to augment the capital appreciation or current
income of or by such Borrower, or to hedge or manage the risk of various current
or future exposures of the Borrower.
6.3 Limitation on Liens. Create, incur, assume or suffer to exist any
-------------------
Lien upon any of the property, assets or revenues, whether now owned or
hereafter acquired of such Borrower, except for (i) Liens for taxes not yet due
or which are being contested in good faith by appropriate proceedings, provided
--------
that adequate reserves with respect thereto are maintained on the books of such
Borrower in conformity with GAAP, (ii) Liens arising in connection with claims
for advances made by or payments due to any custodian under the Custody
Agreements set forth in Schedule IV hereto, (iii) Liens created, incurred,
-----------
assumed or suffered to exist in compliance with the Prospectus and statement of
additional information of such or organizational documents of such Subsidiary
and (iv) any other Liens created, incurred, assumed or suffered to exist in the
ordinary course of such Borrower's business, and which, in each case, are not
otherwise prohibited by any Requirement of Law.
6.4 Limitation on Guarantee Obligations. Create, incur, assume or suffer
-----------------------------------
to exist any material Guarantee Obligation of such Borrower, except as may occur
in the ordinary course of such Borrower's business and which is not otherwise
prohibited by any Requirement of Law.
6.5 Limitation on Fundamental Changes. Enter into, or permit any of its
---------------------------------
Subsidiaries to enter into, any merger, consolidation or amalgamation, or
liquidate, wind up or dissolve itself or such Borrower (or suffer any
liquidation or dissolution), or convey, sell, lease, assign, transfer or
otherwise dispose of all of the property, business or assets of itself, such
Borrower, or such Subsidiary in a single transaction or in related transactions,
or make any material change in its present method of conducting business; except
------
that, so long as no Default or Event of Default shall have occurred and be
continuing, a Borrower will be permitted to (i) enter into any merger,
consolidation or amalgamation with one or more Borrowers or, with the consent of
the Required
31
<PAGE>
Lenders (such consent which shall not be unreasonably withheld), one or more
Affiliates of such Borrower if, in each case, MVA or FIRMCO or one of its
respective Affiliates, as appropriate, is the investment manager to the entity
surviving such merger, consolidation or amalgamation and such entity assumes the
obligations of such Borrower under the Loan Documents and complies with the
provisions hereof or (ii) liquidate, wind up or convey, sell lease, assign,
transfer or otherwise dispose of all of the property, business or assets of such
Borrower if it repays all Loans made to it prior to liquidation. Any Borrower
undertaking any action described in clause (ii) above shall comply with the
termination provisions described in Section 2.4 hereof.
6.6 Limitation on Distributions. At any time, make any distribution to the
---------------------------
shareholders of such Borrower, whether now or hereafter existing, either
directly or indirectly, whether in cash or property or in obligations of the
Borrower if such distribution results in a Default or Event of Default. During
the occurrence and continuation of an Event of Default specified in paragraphs
(a) or (e) of Section 7 or an Event of Default arising in connection with a
Borrower's having failed to comply with Section 6.1, make any distribution to
the shareholders of such Borrower, whether now or hereafter existing, either
directly or indirectly, whether in cash or property or in obligations of the
Borrower. Notwithstanding the foregoing, nothing herein shall prevent a Borrower
from making (i) distributions that are required to enable such Borrower to
qualify as a "regulated investment company" under Sections 851-855 of the Code
or otherwise to minimize or eliminate federal or state income or excise taxes
payable by such Borrower, or (ii) distributions that are required by any other
Requirement of Law.
6.7 Limitation on Investments, Loans and Advances. Make any advance, loan,
---------------------------------------------
extension of credit or capital contribution to, or purchase any stock, bonds,
notes, debentures or other securities of or any assets constituting a business
unit of or make any other investment in, any Person, except those not
inconsistent with such Borrower's Investment Policies.
6.8 Limitation on Transactions with Affiliates. Enter into any
------------------------------------------
transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate unless
such transaction is (a) not otherwise prohibited under this Agreement and not in
violation of the 1940 Act, (b) in the ordinary course of such Borrower's
business, and (c) upon terms which are fair and reasonable in light of
comparable quality services it would obtain in a comparable arm's length
transaction with a Person which is not an Affiliate.
6.9 Limitation on Negative Pledge Clauses. Enter into with any Person any
-------------------------------------
agreement, other than this Agreement or the other Loan Documents, which
prohibits or limits the ability of such Borrower to create, incur, assume or
suffer to exist any Lien upon any of its property, assets or revenues, whether
now owned or hereafter acquired, except such agreements entered into in the
ordinary course of such Borrower's business and which are not otherwise
prohibited by any Requirement of Law.
6.10 Limitation on Changes to Investment Policies. Except as may be
--------------------------------------------
required by law; make any amendment to a Borrower's Prospectus or the
registration statement of the relevant Fund (i) relating to any changes in the
Fundamental Investment Policies of such Borrower or (ii) increasing the Maximum
Borrowing Limits without the consent of the Required Lenders (which consent
shall not be unreasonably withheld).
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<PAGE>
SECTION 7. EVENTS OF DEFAULT
Subject to the final paragraph of this Section 7, if any of the following
events shall occur and be continuing with respect to any Fund, on its own behalf
or if applicable on behalf of the investment portfolios thereof which are
Borrowers, as the case may be (each an "Event of Default") or with respect to
----------------
any Fund in the case of a Fund Event or Default (as defined below):
(a) A Borrower shall fail to pay any principal of any Loan when due
in accordance with the terms thereof or hereof, including without
limitation any failure to make a mandatory prepayment due pursuant to the
provisions of Sections 2.6(b) or 6.1; or a Borrower shall fail to pay any
interest on any Loan, or any other amount payable hereunder, within five
days after any such interest or other amount becomes due in accordance with
the terms thereof or hereof; or
(b) Any representation or warranty made or deemed made by any Fund,
on its own behalf or if applicable on behalf of the investment portfolios
thereof which are Borrowers, or made or deemed made at such Fund's or
Borrower's request, herein or in any other Loan Document or which is
contained in any certificate, document or financial or other statement
furnished by it at any time under or in connection with this Agreement or
any such other Loan Document shall prove to have been incorrect in any
material respect on or as of the date made or deemed made; or
(c) A Fund, on its own behalf or if applicable on behalf of the
investment portfolios thereof which are Borrowers, shall default in the
observance or performance of any other agreement contained in this
Agreement or any other Loan Document (other than as provided in paragraphs
(a) and (b) of this Section), and such default shall continue unremedied
for a period of 30 days or, solely in the case of such default arising
under Sections 5.4, 5.7 or 6.5 hereof, five Business Days; or
(d) A Fund, on its own behalf or if applicable on behalf of the
investment portfolios thereof which are Borrowers, shall (i) default in any
payment of principal of or interest on any Indebtedness (other than the
Loans), Interest Rate Agreement, Swap Obligation or in the payment of any
Guarantee Obligation, beyond the grace period (not to exceed 30 days), if
any, provided in the instrument or agreement under which such Indebtedness,
Interest Rate Agreement, Swap Obligation or Guarantee Obligation was
created, if the aggregate amount of the Indebtedness, Interest Rate
Agreement, Swap Obligations and/or Guarantee Obligations in respect of
which such default or defaults shall have occurred is equal to the lesser
of (A) $10,000,000 or (B) an amount equal to 5% of such Fund's or such
Borrower's net assets; or (ii) default in the observance or performance of
any other agreement or condition relating to any such Indebtedness,
Interest Rate Agreement, Swap Obligation or Guarantee Obligation or
contained in any instrument or agreement evidencing, securing or relating
thereto, or any other event shall occur or condition exist, the effect of
which default or other event or condition is to cause, or to permit the
holder or holders of such Indebtedness or beneficiary or beneficiaries of
such
33
<PAGE>
Guarantee Obligation, Interest Rate Agreement, or Swap Obligation (or a
trustee or agent on behalf of such holder or holders or beneficiary or
beneficiaries) to cause, with the giving of notice if required, such
Indebtedness, Interest Rate Agreement or Swap Obligation to become due
prior to its stated maturity or such Guarantee Obligation to become payable
if the aggregate amount of the Indebtedness, Interest Rate Agreement, Swap
Obligations and/or Guarantee Obligations subject to becoming so due or so
payable is equal to the lesser of (A) $10,000,000 or (B) 5% of such
Borrower's or Fund's net assets; or
(e) (i) A Fund, on its own behalf or if applicable on behalf of the
investment portfolios thereof which are Borrowers, shall commence any case,
proceeding or other action with respect to itself or any such Borrower (A)
under any then applicable law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or relief of debtors,
seeking to have an order for relief entered with respect to it, or seeking
to adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition
or other relief with respect to it or its debts, or (B) seeking appointment
of a receiver, trustee, custodian, conservator or other similar official
for it or for all or any substantial part of its assets, or a Fund, on its
own behalf or if applicable on behalf of any investment portfolio thereof
which is a Borrower, shall make a general assignment for the benefit of its
creditors; or (ii) there shall be commenced against such a Fund or
Borrower, any case, proceeding or other action of a nature referred to in
clause (i) above which (A) results in the entry of an order for relief or
any such adjudication or appointment and (B) remains undismissed,
undischarged, unstayed, unvacated or unbonded pending appeal within 30 days
from the entry thereof; or (iii) there shall be commenced against a Fund,
on its own behalf or if applicable on behalf of the investment portfolios
thereof which are Borrowers, any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or similar
process against all or any substantial part of its assets which results in
the entry of an order for any such relief which shall not have been
vacated, discharged, or stayed or bonded pending appeal within 30 days from
the entry thereof; or (iv) such a Fund or Borrower shall take any action in
material furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clause (i), (ii), or (iii)
above; or (v) a Fund, on its own behalf or if applicable on behalf of the
investment portfolios thereof which are Borrowers, shall not, or shall be
unable to, pay its debts as they become due for ten (10) days after written
notice thereof to such Fund or actual knowledge thereof by such Fund, or
shall admit in writing its inability to pay its debts as they become due;
or
(f) Either a Borrower or any Commonly Controlled Entity of such
Borrower incurs any liability to any Plan maintained by any of them which
could reasonably be expected to have a Material Adverse Effect; or
(g) One or more judgments or decrees shall be entered against a Fund,
on its own behalf or if applicable on behalf of the investment portfolios
thereof which are Borrowers, involving in the aggregate a liability (not
fully covered by insurance or otherwise paid or discharged) equal to the
lesser of (A) $2,500,000 or (B) 5% or more of such Fund's or such
Borrower's net assets, and all such judgments or decrees shall not
34
<PAGE>
have been vacated, discharged, stayed or bonded pending appeal within 30
days from the entry thereof; or
(h) Unless consented to by the Lenders, MVA or FIRMCO, as the case
may be, or a Person directly controlling, controlled by, or under common
control with MVA or FIRMCO, as the case may be, shall no longer act as
investment manager for the Borrowers; or
(i) A Fund's or a Borrower's registration under the 1940 Act shall
lapse or be suspended (or proceedings for such purpose shall have been
instituted); or
(j) A Borrower shall fail to materially comply with its Fundamental
Investment Policies;
then, and in any such event, (A) if such event is an Event of Default specified
in paragraph (e) of this Section with respect to such Borrower (or the Fund
acting on behalf of one or more Borrowers), automatically the Commitments
available to such Borrower (or all of such Borrowers if the Fund is acting on
behalf of one or more Borrowers) shall immediately terminate and the Loans
hereunder made to any such Borrower (with accrued interest thereon) and all
other amounts owing under this Agreement by such Borrower shall immediately
become due and payable, and (B) if such event is any other Event of Default with
respect to such Borrower, any or all of the following actions may be taken: (i)
with the consent of the Required Lenders, the Administrative Agent may, or upon
the request of the Required Lenders, the Administrative Agent shall, by notice
to such Borrower declare the Commitments available to such Borrower (or all of
the Borrowers which are investment portfolios of such Fund if such Event of
Default is the Fund Event of Default (as defined below)) to be terminated
forthwith, whereupon such Commitments shall immediately terminate; and (ii) with
the consent of the Required Lenders, the Administrative Agent may, or upon the
request of the Required Lenders, the Administrative Agent shall, by notice to
such Borrower, declare the Loans to such Borrower (with accrued interest
thereon) and all other amounts owing under this Agreement by such Borrower (or
all of the Borrowers which are investment portfolios of such Fund if such Event
of Default is a Fund Event of Default) to be due and payable forthwith,
whereupon the same shall immediately become due and payable. Except as
expressly provided above in this Section, presentment, demand, protest and all
other notices of any kind are hereby expressly waived.
Notwithstanding any other provision herein to the contrary, Defaults and
Events of Default shall have the following results:
(i) a Default or Event of Default with respect to one Borrower shall
not constitute a Default or Event of Default with respect to any
other Borrower;
(ii) except as set forth in clause (iii) below, a Default or Event of
Default with respect to a Fund acting on behalf of one or more
Borrowers that is an investment portfolio of such Fund shall
constitute a Default or Event of Default, as the case may be,
only with respect to the Borrower(s) implicated in, or affected
by, the act or omission causing such Default or Event of
Default;
35
<PAGE>
(iii) a Fund Default or a Fund Event of Default (each as defined
below) with respect to a Fund acting on behalf of one or more
Borrowers that is an investment portfolio thereof shall
constitute a Default or Event of Default, as the case may be,
with respect to all such Borrowers that are an investment
portfolio of such Fund; and
(iv) an Event of Default of the type described in paragraph (h) of
this Section 7 shall constitute an Event of Default with respect
to all Borrowers for which MVA or FIRMCO, as the case may be, no
longer acts as investment manager.
"Fund Event of Default" shall mean an Event of Default with respect to a
---------------------
Fund as a whole and not with respect to any Borrower or a Fund acting on behalf
of a Borrower (A) of any of the types described in paragraphs (d), (e), (g), or
(i) of this Section 7, or (B) arising from such Fund's failure to comply with
the covenants set forth in Sections 5.3, 5.4, 5.5 or 6.5. "Fund Default" shall
------------
mean any of the events giving rise to Fund Events of Default, whether or not any
requirement for the giving of notice, the lapse of time, or both, or any other
condition, has been satisfied. Notwithstanding anything herein to the contrary,
a Default or Event of Default with respect to one Borrower shall not constitute
a Default or Event of Default with respect to any other Borrower.
SECTION 8. THE ADMINISTRATIVE AGENT
8.1 Appointment. Each Lender hereby irrevocably designates and appoints
-----------
the Administrative Agent as the agent of such Lender under this Agreement and
the other Loan Documents, and each such Lender irrevocably authorizes the
Administrative Agent, in such capacity, to take such action on such Lender's
behalf under the provisions of this Agreement and the other Loan Documents and
to exercise such powers and perform such duties as are expressly delegated to
the Administrative Agent by the terms of this Agreement and the other Loan
Documents, together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere in this Agreement, the
Administrative Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with any Lender, and
no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Administrative Agent.
8.2 Delegation of Duties. The Administrative Agent may execute any of its
--------------------
duties under this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Administrative Agent shall not be
responsible for the negligence, willful misfeasance, bad faith or misconduct of
any agents or attorneys in-fact selected by it with reasonable care.
8.3 Exculpatory Provisions. Neither the Administrative Agent nor any of
----------------------
its officers, directors, employees, agents, attorneys-in-fact or Affiliates
shall be (a) liable for any action lawfully taken or omitted to be taken by it
or such Person under or in connection with this Agreement or any other Loan
Document (except for its or such Person's own gross negligence or
36
<PAGE>
willful misconduct) or (b) responsible in any manner to any of the Lenders for
any recitals, statements, representations or warranties made by any Fund or any
Borrower or any officer thereof contained in this Agreement or any other Loan
Document or in any certificate, report, statement or other document referred to
or provided for in, or received by the Administrative Agent under or in
connection with, this Agreement or any other Loan Document or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Loan Document or for any failure of any Borrower or any
Fund to perform its obligations hereunder or thereunder. The Administrative
Agent shall not be under any obligation to any Lender to ascertain or to inquire
as to the observance or performance of any of the agreements contained in, or
conditions of, this Agreement or any other Loan Document, or to inspect the
properties, books or records of any Fund or any Borrower.
8.4 Reliance by Administrative Agent. The Administrative Agent shall be
--------------------------------
entitled to rely, and shall be fully protected in relying, upon any Note,
writing, resolution, notice, consent, certificate, affidavit, letter, telecopy,
telex or teletype message, statement, order or other document or conversation
reasonably believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons and upon advice and statements of
legal counsel (including, without limitation, counsel to a Fund or a Borrowers),
independent accountants and other experts selected by the Administrative Agent.
The Administrative Agent may deem and treat the payee of any Note as the owner
thereof for all purposes unless a written notice of assignment, negotiation or
transfer thereof shall have been filed with the Administrative Agent. The
Administrative Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Required Lenders as it deems
appropriate or it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Administrative Agent shall
in all cases be fully protected in acting, or in refraining from acting, under
this Agreement and the other Loan Documents in accordance with a request of the
Required Lenders or all of the Lenders, as applicable, and such request and any
action taken or failure to act pursuant thereto shall be binding upon all the
Lenders and all future holders of the Loans.
8.5 Notice of Default. The Administrative Agent shall not be deemed to
-----------------
have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Administrative Agent has received notice from a Lender or a
Borrower referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default". In the event that
the Administrative Agent receives such a notice, the Administrative Agent shall
give notice thereof to the Lenders and each Borrower. The Administrative Agent
shall take such action with respect to such Default or Event of Default as shall
be reasonably directed by the Required Lenders or all of the Lenders, as
applicable; provided that unless and until the Administrative Agent shall have
--------
received such directions, the Administrative Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable in the best
interests of the Lenders.
8.6 Non-Reliance on Administrative Agent and Other Lenders. Each Lender
------------------------------------------------------
expressly acknowledges that neither the Administrative Agent nor any of its
officers, directors, employees,
37
<PAGE>
agents, attorneys-in-fact or Affiliates has made any representations or
warranties to it and that no act by the Administrative Agent hereinafter taken,
including any review of the affairs of a Fund or Borrower, shall be deemed to
constitute any representation or warranty by the Administrative Agent to any
Lender. Each Lender represents to the Administrative Agent that it has,
independently and without reliance upon the Administrative Agent or any other
Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, financial and other condition and creditworthiness of the
Borrowers and made its own decision to make its Loans hereunder and enter into
this Agreement. Each Lender also represents that it will, independently and
without reliance upon the Administrative Agent or any other Lender, and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Agreement and the other Loan Documents, and to make
such investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of the
Borrowers. Except for notices, reports and other documents expressly required to
be furnished to the Lenders by the Administrative Agent hereunder, the
Administrative Agent shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the business, operations,
property, condition (financial or otherwise), prospects or creditworthiness of
any Fund or any Borrower which may come into the possession of the
Administrative Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates.
8.7 Indemnification. The Lenders agree to indemnify the Administrative
---------------
Agent in its capacity as such (to the extent not reimbursed by the Borrowers and
without limiting the obligation of the Borrowers to do so), ratably according to
their respective Commitment Percentages in effect on the date on which
indemnification is sought (or, if indemnification is sought after the date upon
which the Commitments shall have terminated and the Loans shall have been paid
in full, ratably in accordance with their Commitment Percentages immediately
prior to such date), from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind whatsoever which may at any time (including, without
limitation, at any time following the payment of the Loans) be imposed on,
incurred by or asserted against the Administrative Agent in any way relating to
or arising out of the Commitments, this Agreement, any of the other Loan
Documents or any documents contemplated by or referred to herein or therein or
the transactions contemplated hereby or thereby or any action taken or omitted
by the Administrative Agent under or in connection with any of the foregoing;
provided that no Lender shall be liable for the payment of any portion of such
- --------
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting solely from the Administrative
Agent's gross negligence or willful misconduct. The agreements in this Section
shall survive the payment of the Loans and all other amounts payable hereunder.
8.8 Administrative Agent in Its Individual Capacity. The Administrative
-----------------------------------------------
Agent and its Affiliates may make loans to, accept deposits from and generally
engage in any kind of business with any Fund or any Borrower as though the
Administrative Agent were not the Administrative Agent hereunder and under the
other Loan Documents. With respect to the Loans made by it, the Administrative
Agent shall have the same rights and powers under this Agreement and the other
Loan Documents as any Lender and may exercise the same as though it were not the
38
<PAGE>
Administrative Agent, and the terms "Lender" and "Lenders" shall include the
Administrative Agent in its individual capacity.
8.9 Successor Administrative Agent. The Administrative Agent may resign as
------------------------------
Administrative Agent upon 30 Business Days' notice to the Lenders and the
Borrowers and shall refund to the Borrowers a portion of the administrative
agency fee (referenced in the Fee Letter signed by the Administrative Agent and
the Funds) calculated on a pro rata basis for the period beginning but not
including the thirtieth day following notice of resignation from the
Administrative Agent to and including the Termination Date. The Lenders shall
use reasonable best efforts to appoint a successor Administrative Agent within
the thirty-day period. If the Administrative Agent shall resign as
Administrative Agent under this Agreement and the other Loan Documents, then the
Required Lenders shall appoint from among the Lenders a successor agent for the
Lenders whereupon such successor agent shall succeed to the rights, powers and
duties of the Administrative Agent, and the term "Administrative Agent" shall
mean such successor agent effective upon such appointment and approval, and the
former Administrative Agent's rights, powers and duties as Administrative Agent
shall be terminated, without any other or further act or deed on the part of
such former Administrative Agent or any of the parties to this Agreement or any
holders of the Loans. After any retiring Administrative Agent's resignation as
Administrative Agent, the provisions of this Section 8 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under this Agreement and the other Loan Documents.
SECTION 9. MISCELLANEOUS
9.1 Amendments and Waivers. Neither this Agreement nor any other Loan
----------------------
Document, nor any terms hereof or thereof, may be amended, supplemented or
modified except in accordance with the provisions of this Section. The Required
Lenders may, or, with the written consent of the Required Lenders, the
Administrative Agent may, from time to time, (a) enter into with each Fund, on
its own behalf or if applicable on behalf of the investment portfolios thereof
which are Borrowers, written amendments, supplements or modifications hereto and
to the other Loan Documents for the purpose of adding any provisions to this
Agreement or the other Loan Documents or changing in any manner the rights of
the Lenders or of such Borrowers hereunder or thereunder or (b) waive, on such
terms and conditions as the Required Lenders or the Administrative Agent, as the
case may be, may specify in such instrument, any of the requirements of this
Agreement or the other Loan Documents or any Default or Event of Default and its
consequences; provided, however, that no such waiver and no such amendment,
--------
supplement or modification shall (i) reduce the amount or extend the scheduled
date of maturity of any Loan or of any installment thereof, or reduce the stated
rate of any interest or fee payable hereunder or extend the scheduled date of
any payment thereof or increase the amount or extend the expiration date of any
Lender's Commitment, in each case without the consent of each Lender affected
thereby, or (ii) amend, modify or waive any provision of this subsection or
reduce the percentage specified in the definition of Required Lenders, or
consent to the assignment or transfer by any Borrower of any of its rights and
obligations under this Agreement and the other Loan Documents, in each case
without the written consent of all the Lenders except as specifically provided
herein, or (iii) amend, waive or modify the first two sentences of Section
39
<PAGE>
2.9(a), in each case without the written consent of all the Lenders, or (iv)
amend, waive or modify the requirement contained in the first sentence of
Section 2.16(a) that consent of all the Lenders is required to approve the
addition of Borrowers to this Agreement, in each case without the written
consent of all the Lenders, or (v) amend, waive or modify Section 2.6(b) without
the written consent of all the Lenders, or (vi) amend, waive or modify Section
6.1 without the written consent of all the Lenders, or (vii) amend, modify or
waive any provision of Section 8 without the written consent of the then
Administrative Agent. Any such waiver and any such amendment, supplement or
modification shall be effective (A) only for such Borrower(s) on whose behalf a
Fund executed such document(s) and (B) in the specific instance and for the
specific purpose for which given.
9.2 Notices. All notices, requests and demands to or upon the respective
-------
parties hereto to be effective shall be in writing (which writing may be in the
form of a facsimile transmission), and, unless otherwise expressly provided
herein, shall be deemed to have been duly given or made when delivered, or five
days after being deposited in the mail, postage prepaid, or, in the case of
facsimile notice, when received, addressed as follows in the case of any Fund,
any Borrower and the Administrative Agent, and as set forth in Schedule II in
-----------
the case of the other parties hereto, or to such other address as may be
hereafter notified by the respective parties hereto:
Mercantile Mutual Funds, Inc.
and all Borrowers that are
Investment portfolios thereof:
Mercantile Mutual Funds, Inc.
c/o Mississippi Valley Advisors, Inc.
One Mercantile Center
7/th/ & Washington Streets
St. Louis, MO 63101
Attn: Timothy S. Engelbrecht
Telephone: 314-418-2692
Facsimile: 314-418-1827
Firstar Funds, Inc.
and all Borrowers
that are investment
portfolios therof:
Firstar Funds, Inc.
c/o Firstar Investment Research &
Management Company, LLC
777 E. Wisconsin Avenue
Suite 800
Milwaukee, WI 53222
Attn: Laura Rauman
Telephone: 414-765-6090
Facsimile: 414-276-9986
40
<PAGE>
The Administrative
Agent:
The Chase Manhattan Bank
Loan and Agency Services Group
One Chase Manhattan Plaza
8th Floor
New York, New York 10081
Attention: Ms. Laura Rebecca
Facsimile: (212) 552-7490
and
The Chase Manhattan Bank
270 Park Avenue
15th Floor
New York, New York 10017
Attention: Mr. Roger A. Parke
Facsimile: (212) 270-1789
provided that any notice, request or demand to or upon the Administrative Agent
- --------
or the Lenders pursuant to Section 2.2, 2.4, 2.6, or 2.8 shall not be effective
until received.
9.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay
------------------------------
in exercising, on the part of any party hereto, any right, remedy, power or
privilege hereunder or under the other Loan Documents shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges herein provided are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.
9.4 Survival of Representations and Warranties. All representations
------------------------------------------
and warranties made hereunder, in the other Loan Documents and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement and the making of the
Loans hereunder.
9.5 Payment of Expenses and Taxes; Indemnification. (a) Each Fund, on
----------------------------------------------
its own behalf or if applicable on behalf of the investment portfolios thereof
which are Borrowers, agrees severally (subject to Section 9.5(b) below) (i) to
reimburse the Administrative Agent for its reasonable out-of-pocket costs and
expenses incurred in connection with the development, preparation and execution
of, and any amendment, supplement or modification to, this Agreement and the
other Loan Documents and any other documents prepared in connection herewith or
therewith, and the consummation and administration of the transactions
contemplated hereby and thereby, including, without limitation, the reasonable
fees and disbursements of counsel to the Administrative Agent, (ii) to reimburse
each Lender and the Administrative Agent for all its costs and expenses incurred
in connection with the enforcement or preservation of any rights under this
Agreement with respect to such Borrower, the other Loan
41
<PAGE>
Documents and any such other documents, including, without limitation, the
reasonable fees and disbursements of counsel to each Lender and of counsel to
the Administrative Agent, (iii) to indemnify and hold each Lender and the
Administrative Agent harmless from any and all recording and filing fees and any
and all liabilities with respect to, or resulting from any delay in paying,
stamp, excise and other taxes, if any, which may be payable or determined to be
payable in connection with the execution and delivery of, or consummation or
administration of any of the transactions contemplated by, or any amendment,
supplement or modification of, or any waiver or consent under or in respect of,
this Agreement, the other Loan Documents and any such other documents with
respect to such Borrower, and (iv) to indemnify and hold each Lender and the
Administrative Agent (and their respective affiliates, directors, officers,
agents and employees (collectively with the Administrative Agent and the
Lenders, the "Indemnified Parties")) harmless from and against any and all other
-------------------
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
reasonable costs, reasonable out-of-pocket expenses or disbursements of any kind
or nature whatsoever arising from or in connection with the execution, delivery,
enforcement, performance and administration of this Agreement, the actual or
proposed use of proceeds, the other Loan Documents and any such other documents
(all the foregoing in this clause (iv), collectively, the "indemnified
-----------
liabilities"), provided, that such Fund, on its own behalf or if applicable on
- ----------- --------
behalf of the investment portfolios thereof which are Borrowers shall have no
obligation hereunder to any Indemnified Party with respect to indemnified
liabilities arising from (A) with respect to any Indemnified Party, the gross
negligence or willful misconduct of such Indemnified Party, (B) disputes arising
between or among the Lenders or (C) with respect to any such Indemnified Party,
the failure of such Indemnified Party (and its Affiliates) to comply with any
Requirement of Law. The agreements in this Section shall survive repayment of
the Loans and all other amounts payable hereunder.
(b) Notwithstanding any other provision in this Agreement to the
contrary, to the extent any obligation to reimburse or indemnify any Indemnified
Party that arises pursuant to Section 9.5(a) is not attributable to any
particular Borrower, then such reimbursement or indemnification shall be made by
each Borrower (ratably, in accordance with its Pro Rata Allocation). To the
extent any such obligation to reimburse or indemnify any Indemnified Party is
attributable to one or more Borrowers, then such reimbursement or
indemnification shall be made by each such Borrower to the extent of its
liability therefor.
9.6 Successors and Assigns; Participations and Assignments. (a) This
------------------------------------------------------
Agreement shall be binding upon and inure to the benefit of the Funds, the
Borrowers, the Lenders, the Administrative Agent and their respective successors
and assigns, except that, neither any Fund nor any Borrower may assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of each Lender, except as may otherwise be provided herein.
(b) Any Lender may, in the ordinary course of its commercial banking
business and in accordance with applicable laws, at any time sell to one or more
Eligible Lenders ("Participants") participating interests in any Loan owing to
------------
such Lender, any Commitment of such Lender or any other interest of such Lender
hereunder and under the other Loan Documents. In the event of any such sale by
a Lender of a participating interest to a Participant, such Lender's obligations
under this Agreement to the other parties to this Agreement shall remain
unchanged, such Lender shall remain solely responsible for the performance
thereof, such Lender
42
<PAGE>
shall remain the holder of any such Loan for all purposes under this Agreement
and the other Loan Documents, and the Borrowers and the Administrative Agent
shall continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under this Agreement and the other Loan
Documents. Any agreement pursuant to which any Lender may grant such a
participating interest shall provide that such Lender shall retain the sole
right and responsibility to enforce the obligations of the Borrowers hereunder,
including the right to approve any amendment, modification or waiver of any
provision of this Agreement; provided that such participation agreement may
--------
provide that (i) such Lender will not agree to any modification, amendment or
waiver of this Agreement described in clause (i) of the proviso in Section 9.1
without the consent of the Participant and (ii) the Participant may obtain
voting rights limited to changes in respect of the principal amount, interest
rates, fees and term of the Loans. Each Borrower agrees that if amounts
outstanding under this Agreement are due or unpaid, or shall have been declared
or shall have become due and payable upon the occurrence of an Event of Default,
each Participant shall, to the maximum extent permitted by applicable laws, be
deemed to have the right of setoff in respect of its participating interest in
amounts owing under this Agreement to the same extent as if the amount of its
participating interest were owing directly to it as a Lender under this
Agreement, provided that, in purchasing such participating interest, such
--------
Participant shall be deemed to have agreed to share with the Lenders the
proceeds thereof as provided in Section 9.7(a) as fully as if it were a Lender
hereunder. Each Borrower also agrees that each Participant shall be entitled to
the benefits of Sections 2.10 and 2.11 with respect to its participation in the
Commitments and the Loans outstanding from time to time as if it was a Lender;
provided that, in the case of Section 2.11, such Participant shall have complied
- --------
with the requirements of said Section and provided, further, that no Participant
--------
shall be entitled to receive any greater amount pursuant to any such Section
than the transferor Lender would have been entitled to receive in respect of the
amount of the participation transferred by such transferor Lender to such
Participant had no such transfer occurred.
(c) Any Lender may, in the ordinary course of its commercial banking
business and in accordance with applicable law, at any time and from time to
time assign to (1) any Lender or any affiliate thereof that is an Eligible
Lender or (2) so long as no Default or Event of Default has occurred and is
continuing, with the consent of the Borrowers, which consent is not to be
unreasonably delayed or withheld, and, in any event, with the reasonable consent
of the Administrative Agent, to an additional Eligible Lender (an "Assignee")
--------
all or any part of its rights and obligations under this Agreement and the other
Loan Documents pursuant to an Assignment and Acceptance, substantially in the
form of Exhibit 9.6(c), executed by such Assignee, such assigning Lender and the
--------------
Administrative Agent (and, provided (i) no Default or Event of Default shall
have occurred and be continuing and (ii) the Assignee is not an Affiliate of the
assigning Lender, the Funds, on behalf of the Borrowers) and delivered to the
Administrative Agent for its acceptance and recording in the Register; provided,
--------
however, that assignments to entities other than Lenders or Affiliates thereof
- -------
must be in amounts of at least $5,000,000. Upon such execution, delivery,
acceptance and recording, from and after the effective date determined pursuant
to such Assignment and Acceptance, (x) the Assignee thereunder shall be a party
hereto and, to the extent provided in such Assignment and Acceptance, have the
rights and obligations of a Lender hereunder with a Commitment as set forth
therein, and (y) the assigning Lender thereunder shall, to the extent provided
in such Assignment and Acceptance, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering all
43
<PAGE>
or the remaining portion of an assigning Lender's rights and obligations under
this Agreement, such assigning Lender shall cease to be a party hereto and the
Commitment of the Assignee shall be in an amount equal to that of such assigning
Lender prior to the execution of such Assignment and Acceptance).
(d) The Administrative Agent, on behalf of the Borrowers, shall
maintain at the address of the Administrative Agent referred to in Section 9.2 a
copy of each Assignment and Acceptance delivered to it and a register (the
"Register") for the recordation of the names and addresses of the Lenders and
--------
the Commitment of, and principal amount of the Loans owing to, each Lender from
time to time. The entries in the Register shall be conclusive, in the absence
of manifest error, and each Fund, on its own behalf or if applicable on behalf
of the investment portfolios thereof which are Borrowers, the Administrative
Agent and the Lenders may (and, in the case of any Loan or other obligation
hereunder not evidenced by a Note, shall) treat each Person whose name is
recorded in the Register as the owner of a Loan or other obligation hereunder as
the owner thereof for all purposes of this Agreement and the other Loan
Documents, notwithstanding any notice to the contrary. Any assignment of any
Loan or other obligation hereunder not evidenced by a Note shall be effective
only upon appropriate entries with respect thereto being made in the Register.
The Register shall be available for inspection by the Borrowers or any Lender at
any reasonable time and from time to time upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Assignee (and the Administrative Agent and consented to
in writing by the Borrowers if the assignment is not to an Affiliate of a Lender
and no Default or Event of Default has occurred) together with payment by the
assigning Lender or Assignee to the Administrative Agent of a registration and
processing fee of $3,000 (for which no Borrower shall have an obligation to
reimburse), the Administrative Agent shall (i) promptly accept such Assignment
and Acceptance and (ii) on the effective date determined pursuant thereto record
the information contained therein in the Register and give notice of such
acceptance and recordation to the Lenders and to each Fund, on its own behalf or
if applicable on behalf of the investment portfolios thereof which are
Borrowers.
(f) Each Fund, on its own behalf or if applicable on behalf of the
investment portfolios thereof which are Borrowers, authorizes each Lender to
disclose to any Participant or Assignee (each, a "Transferee") and any
----------
prospective Transferee any and all financial information in such Lender's
possession concerning such Fund or such Borrower and their Affiliates which has
been delivered to such Lender by or on behalf of such Fund or such Borrowers
pursuant to this Agreement or which has been delivered to such Lender by or on
behalf of such Fund or such Borrowers in connection with such Lender's credit
evaluation of such Funds, Borrowers and their Affiliates prior to becoming a
party to this Agreement.
(g) For avoidance of doubt, the parties to this Agreement acknowledge
that the provisions of this Section concerning assignments of Loans and Notes
relate only to absolute assignments and that such provisions do not prohibit
assignments creating security interests, including, without limitation, any
pledge or assignment by a Lender of any Loan or Note to any Federal Reserve Bank
in accordance with applicable law.
44
<PAGE>
9.7 Adjustments; Set-off. (a) If any Lender (a "Benefited Lender")
-------------------- ----------------
shall at any time receive any payment of all or part of its Loans, or interest
thereon, or receive any collateral in respect thereof (whether voluntarily or
involuntarily, by set-off, pursuant to events or proceedings of the nature
referred to in Section 7(e), or otherwise), in a greater proportion than any
such payment to or collateral received by any other Lender, if any, in respect
of such other Lender's Loans, or interest thereon, such Benefited Lender shall
purchase for cash from the other Lenders a participating interest in such
portion of each such other Lender's Loan, or shall provide such other Lenders
with the benefits of any such collateral, or the proceeds thereof, as shall be
necessary to cause such Benefited Lender to share the excess payment or benefits
of such collateral or proceeds ratably with each of the Lenders; provided,
--------
however, that if all or any portion of such excess payment or benefits is
- -------
thereafter recovered from such Benefited Lender, such purchase shall be
rescinded, and the purchase price and benefits returned, to the extent of such
recovery, but without interest.
(b) In addition to any rights and remedies of the Lenders provided by
law, each Lender shall have the right, with prompt notice subsequent to the
exercise of such rights but without prior notice to such Borrower, any such
notice being expressly waived by each Fund, on its own behalf or if applicable,
on behalf of such Borrower, to the extent permitted by applicable law, upon any
amount becoming due and payable by a Borrower hereunder (whether at the stated
maturity, by acceleration or otherwise) to set-off and appropriate and apply
against such amount any and all deposits (general or special, time or demand,
provisional or final), in any currency, and any other credits, indebtedness or
claims, in any currency, in each case whether direct or indirect, absolute or
contingent, matured or unmatured, at any time held or owing by such Lender or
any branch or agency thereof to or for the credit or the account of such
Borrower. Each Lender agrees promptly to notify such Borrower and the
Administrative Agent after any such set-off and application made by such Lender,
provided that the failure to give such notice shall not affect the validity of
- --------
such set-off and application.
9.8 Counterparts. This Agreement may be executed by one or more of the
------------
parties to this Agreement on any number of separate counterparts (including by
facsimile transmission), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument. A set of the copies of this
Agreement signed by all the parties shall be lodged with the Funds and the
Administrative Agent.
9.9 Severability. Any provision of this Agreement which is prohibited
------------
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
9.10 Waiver of Conflicts; Confidentiality. (a) Each Fund, on its own
------------------------------------
behalf or on behalf of the investment portfolios thereof which are Borrowers,
acknowledges that each of the Administrative Agent and each Lender and their
respective affiliates (collectively, the "Bank Parties") may be providing debt
------------
financing, equity capital or other services (including financial advisory
services) to other companies in respect of which such Funds and Borrowers may
have
45
<PAGE>
conflicting interests regarding the transactions described herein and otherwise.
The Bank Parties will not use Confidential Information obtained from such Funds
and/or Borrowers by virtue of the transactions contemplated by this Agreement or
their other relationships with such Funds and/or Borrowers in connection with
the performance by each of the Bank Parties of services for other companies, and
each of the Bank Parties will not furnish any such Confidential Information to
other companies. Such Funds and Borrowers also acknowledge that no Bank Party
has any obligation to use in connection with the transactions contemplated by
this Agreement, or to furnish to any Fund or Borrower, confidential information
obtained from other companies. The obligations of the Lenders hereunder shall
survive the repayment of the Loans and termination of this Agreement.
(b) For purposes of this Section, "Confidential Information" shall mean
------------------------
all information received from any of the Funds, the Borrowers or MVA or FIRMCO
relating to any of them or their business, other than any such information that
is available to the Administrative Agent or any Lender on a nonconfidential
basis other than as a result of a breach of this Agreement. Each of the
Administrative Agent and each Lender agrees to maintain the confidentiality of,
and not to use the Confidential Information, except that Confidential
Information may be disclosed (i) to its and its Affiliates' directors, officers,
employees and agents, including without limitation accountants, legal counsel
and other advisors for purposes relating to the transactions contemplated by
this Agreement or for conducting legitimate audits (it being understood that the
Persons to whom such disclosure is made will be informed of the confidential
nature of such Confidential Information and will have agreed to keep such
Confidential Information confidential), (ii) to the extent requested by any
legal or regulatory authority having or claiming jurisdiction over such Person,
(iii) to the extent required by applicable laws or regulations or by any
subpoena or similar legal process provided, however, that the Administrative
-------- -------
Agent or such Lender, as the case may be, shall have given such Borrower, such
Fund, MVA or FIRMCO, as appropriate, notice thereof and an opportunity to seek
protection from disclosure of such information form a court of competent
jurisdiction, (iv) to any other party to this Agreement for purposes relating to
the transactions contemplated hereby, (v) in connection with the exercise of any
remedies hereunder or any suit, action or proceeding relating to this Agreement
or the enforcement of rights hereunder, (vi) subject to an agreement containing
provisions substantially the same as those of this subsection, to any Assignee
or Participant or any prospective Assignee or Participant which executes such
agreement, or (vii) with the written consent of the Borrowers. Any Person
required to maintain the confidentiality of Confidential Information as provided
in this Section shall be considered to have complied with its obligation to do
so if such Person has exercised its best reasonable efforts to maintain the
confidentiality of such Information as such Person would accord to its own
confidential information.
9.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
-------------
OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
FOR ITS CHOICE OF LAW RULES.
46
<PAGE>
9.12 Submission To Jurisdiction; Waivers. Each Fund, on its own behalf
-----------------------------------
or if applicable on behalf of the investment portfolios thereof which are
Borrowers, the Administrative Agent and the Lenders hereby irrevocably and
unconditionally:
(a) submit for themselves and their respective property in any legal
action or proceeding relating to this Agreement and the other Loan Documents
to which they are a party, or for recognition and enforcement of any
judgment in respect thereof, to the non-exclusive general jurisdiction of
the Courts of the State of New York, the courts of the United States of
America for the Southern District of New York, and appellate courts from any
thereof;
(b) consents that any such action or proceeding may be brought in such
courts and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that such action
or proceeding was brought in an inconvenient court and agrees not to plead
or claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to such Fund
or such Borrower at its address set forth in Section 9.2 or at such other
address of which the Administrative Agent shall have been notified pursuant
thereto;
(d) agrees that nothing herein shall affect the right of any party
hereto to effect service of process in any other manner permitted by law or
shall limit the right of any party hereto to sue in any other jurisdiction;
and
(e) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to
in this Section any special, exemplary, indirect, punitive or consequential
damages.
9.13 Acknowledgments. Each Fund, on its own behalf or if applicable
---------------
on behalf of the investment portfolios thereof which are Borrowers, hereby
acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents;
(b) neither the Administrative Agent nor any Lender has any fiduciary
relationship with or duty to such Fund or any such Borrower arising out of
or in connection with this Agreement or any of the other Loan Documents, and
the relationship between the Administrative Agent and the Lenders, on the
one hand, and such Fund and each Borrower, on the other hand, in connection
herewith or therewith is solely that of creditor and debtor; and
(c) no joint venture is created hereby or by the other Loan Documents
or otherwise exists by virtue of the transactions contemplated hereby among
the Lenders or among such Fund, such Borrowers and the Lenders.
47
<PAGE>
9.14 WAIVERS OF JURY TRIAL. EACH FUND, ON ITS OWN BEHALF AND IF APPLICABLE
---------------------
ON BEHALF OF THE INVESTMENT PORTFOLIOS THEREOF WHICH ARE BORROWERS, THE
ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
9.15 Non-Recourse. The Administrative Agent and the Lenders hereby
------------
agree for the benefit of each and every shareholder, trustee, director and
officer of the Funds and the Borrowers and any successor, assignee, heir,
estate, executor, administrator or personal representative of any such
shareholder, trustee, director and officer (a "Non-Recourse Person") that: (a)
-------------------
no Non-Recourse Person shall have any personal liability for any obligation of
any Fund or Borrower under this Agreement or any Loan Document or any other
instrument or document delivered pursuant hereto or thereto; (b) no claim
against any Non-Recourse Person may be made for any obligation of any Fund or
any Borrower under this Agreement or any Loan Document or other instrument or
document delivered pursuant hereto or thereto, whether for payment of principal
of, or interest on, the Loans or for any fees, expense, or other amounts payable
by any Fund or any Borrower hereunder or thereunder, or otherwise; and (c) the
obligations of each Borrower under this Agreement or any Loan Document or other
instrument or document delivered pursuant hereto or thereto are enforceable
solely against such Borrower and its properties and assets.
9.16 Integration. This Agreement and the other Loan Documents represent
-----------
the agreement of each Fund, on its own behalf or if applicable on behalf of the
investment portfolios thereof which are Borrowers, the Administrative Agent and
the Lenders with respect to the subject matter hereof, and there are no
promises, undertakings, representations or warranties by the Administrative
Agent or any Lender relative to the subject matter hereof not expressly set
forth or referred to herein or in the other Loan Documents.
48
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first written above.
THE CHASE MANHATTAN BANK,
as Administrative Agent and as a Lender
By:_______________________________
Name:
Title:
MERCANTILE MUTUAL FUNDS, INC.
on behalf of:
Treasury Money Market Portfolio
Money Market Portfolio
Tax-Exempt Money Market Portfolio
U.S. Government Securities Portfolio
Intermediate Corporate Bond Portfolio
Bond Index Portfolio
Government & Corporate Bond Portfolio
Short-Intermediate Municipal Portfolio
Missouri Tax-Exempt Bond Portfolio
National Municipal Bond Portfolio
Balanced Portfolio
Equity Income Portfolio
Equity Index Portfolio
Growth & Income Equity
Growth Equity Portfolio
Small Cap Equity Portfolio
Small Cap Equity Index Portfolio
International Equity Portfolio
Conning Money Market Portfolio
By:_______________________________
Name:
Title:
<PAGE>
FIRSTAR FUNDS, INC.
on behalf of
Money Market Fund
Tax-Exempt Money Market Fund
U.S. Government Money Market Fund
U.S. Treasury Money Market Fund
Institutional Money Market Fund
Short-Term Bond Market Fund,
Intermediate Bond Market Fund
Tax-Exempt Intermediate Bond Fund
Bond IMMDEX(TM) Fund
Balanced Income Fund
Balanced Growth Fund
Growth and Income Fund
Growth Fund
Equity Index Fund
Special Growth Fund
MicroCap Fund
Emerging Growth Fund
International Equity Fund
Core International Equity Fund
MidCap Index Fund
By:_________________________________
Name:
Title:
<PAGE>
SIGNATURE PAGE TO MERCANTILE FUNDS
AND FIRSTAR FUNDS CREDIT AGREEMENT
BANQUE NATIONALE DE PARIS, NEW YORK
BRANCH
By:____________________________
Name:
Title:
By:____________________________
Name:
Title:
<PAGE>
SIGNATURE PAGE TO MERCANTILE FUNDS
AND FIRSTAR FUNDS CREDIT AGREEMENT
MELLON BANK, N.A.
By:____________________________
Name:
Title:
<PAGE>
SIGNATURE PAGE TO MERCANTILE FUNDS
AND FIRSTAR FUNDS CREDIT AGREEMENT
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By:____________________________
Name:
Title:
<PAGE>
SCHEDULE A
----------
BORROWERS & ALLOCATIONS
-----------------------
BORROWERS ALLOCATION (%) ISSUING FUND
--------- -------------- ------------
Money Market 32.14% Mercantile Mutual Funds, Inc.
Treasury Money Market 6.4% Mercantile Mutual Funds, Inc.
Tax-Exempt Money Market 3.6% Mercantile Mutual Funds, Inc.
Government & Corporate 2.9% Mercantile Mutual Funds, Inc.
US Government Securities 1.8% Mercantile Mutual Funds, Inc.
Missouri Tax-Exempt Bond 2.9% Mercantile Mutual Funds, Inc.
Growth & Income Equity 12.14% Mercantile Mutual Funds, Inc.
Small Cap Equity 3.2% Mercantile Mutual Funds, Inc.
Balanced 2.9% Mercantile Mutual Funds, Inc.
International Equity 3.6% Mercantile Mutual Funds, Inc.
Short-Intermediate Muni .7% Mercantile Mutual Funds, Inc.
National Muni Bond 6.8% Mercantile Mutual Funds, Inc.
Bond Index 3.6% Mercantile Mutual Funds, Inc.
Intermediate Corporate 1.1% Mercantile Mutual Funds, Inc.
Equity Income 2.1% Mercantile Mutual Funds, Inc.
Equity Index 2.1% Mercantile Mutual Funds, Inc.
Growth Equity 2.9% Mercantile Mutual Funds, Inc.
Small Cap Equity Index 1.4% Mercantile Mutual Funds, Inc.
Conning Money Market .7% Mercantile Mutual Funds, Inc.
SUB-TOTAL 92.98%
--------- =====
<PAGE>
BORROWERS ALLOCATION (%) ISSUING FUND
--------- -------------- ------------
Money Market 0 Firstar Funds, Inc.
Tax-Exempt Money Market 0 Firstar Funds, Inc.
U.S. Government Money Market 0 Firstar Funds, Inc.
U.S. Treasury Money Market 0 Firstar Funds, Inc.
Institutional Money Market 0 Firstar Funds, Inc.
Short Term Bond .07% Firstar Funds, Inc.
Intermediate Money Market .07% Firstar Funds, Inc.
Tax-Exempt Intermediate Bond .07% Firstar Funds, Inc.
Bond IMMDEX .07% Firstar Funds, Inc.
Balanced Income .14% Firstar Funds, Inc.
Balanced Growth .14% Firstar Funds, Inc.
Growth & Income .21% Firstar Funds, Inc.
Equity Index .21% Firstar Funds, Inc.
Growth .21% Firstar Funds, Inc.
Special Growth .36% Firstar Funds, Inc.
MidCap Index .21% Firstar Funds, Inc.
Emerging Growth .36% Firstar Funds, Inc.
MicroCap 2.1% Firstar Funds, Inc.
International Equity 1.4% Firstar Funds, Inc.
Core International Equity 1.4% Firstar Funds, Inc.
TOTAL 100%
===== ===
<PAGE>
SCHEDULE II
COMMITMENTS, ADDRESSES, ETC.
<TABLE>
<CAPTION>
Amount of Amount of
Name and Address of Lender Commitment Swing Line
- -------------------------- ---------- ----------
<S> <C> <C>
THE CHASE MANHATTAN BANK $40,000,000 $10,000,000
270 Park Avenue
New York, New York 10017
Attention: Roger A. Parker
Telephone: (212) 270-3751
Facsimile: (212) 270-1789
MELLON BANK, N.A $40,000,000
One Mellon Bank Center
Room 4425
Pittsburgh, PA 15258
Attention: John Cooper
Tel: (412) 234-3187
Fax: (412) 234-8087
BANQUE NATIONALE DE PARIS $30,000,000
499 Park Avenue
New York, New York 10022
Attention: Laurent Vanderzyppe
Facsimile: (212) 415-9707
Telephone: (212) 415-9406
NORWEST BANK MINNESOTA $30,000,000
6th Street and Marquette Ave.
MAC N9305-071
Minneapolis, MN 55479
Attention: Vicki M. McIntyre
Phone: 612-667-8056
Fax: 612-667-3510
</TABLE>
<PAGE>
SCHEDULE III
INVESTMENT MANAGEMENT AGREEMENTS
--------------------------------
I. Firstar Funds, Inc.
-------------------
1. Investment Advisory Agreement dated as of August 29, 1991 between
Firstar Funds, Inc. (formerly "Portico Funds") and First Wisconsin
Trust Company with respect to the Money Market Fund, Institutional
Money Market Fund, U.S. Treasury Money Market Fund (formerly U.S.
Federal Money Market Fund), U.S. Government Money Market Fund, Tax-
Exempt Money Market Fund, Growth and Income Fund (formerly Income and
Growth Fund), Short-Term Bond Market Fund (formerly Short-Intermediate
Fixed Income), Special Growth Fund, Bond IMMDEX(TM) Fund and Equity
Index portfolios.
2. Assumption and Guarantee dated as of February 3, 1992 pursuant to
which Firstar Investment Research and Management Company ("FIRMCO")
became the investment adviser to the Money Market Fund, Institutional
Money Market Fund, U.S. Treasury Money Market Fund (formerly U.S.
Federal Money Market Fund), U.S. Government Money Market Fund, Tax-
Exempt Money Market Fund, Growth and Income Fund (formerly Income and
Growth Fund), Short-Term Bond Market Fund (formerly Short-Intermediate
Fixed Income), Special Growth Fund, Bond IMMDEX(TM) Fund and Equity
Index portfolios.
3. Investment Advisory Agreement dated March 27, 1992 between FIRMCO and
Firstar Funds, Inc. with respect to the Balanced Growth Fund.
4. Addendum No. 1 dated December 27, 1992 between FIRMCO and Firstar
Funds, Inc. with respect to the Growth (formerly MidCore Growth) and
Intermediate Bond Market Funds.
5. Addendum No. 2 dated as of February 5, 1993 between FIRMCO and Firstar
Funds, Inc. with respect to the Tax-Exempt Intermediate Bond Fund.
6. Assumption and Guarantee dated June 17, 1993 pursuant to which FIRMCO
became investment adviser with respect to the Growth and Income Fund.
7. Addendum No. 3 dated as of April 26, 1994 between FIRMCO and Firstar
Funds, Inc. as amended and restated on September 2, 1997 with respect
to the International Equity Fund.
8. Addendum No. 4 dated as of August 1, 1995 between FIRMCO and Firstar
Funds, Inc. with respect to the MicroCap Fund.
<PAGE>
9. Addendum No. 5 dated as of August 15, 1997 between FIRMCO and Firstar
Funds, Inc. with respect to the Emerging Growth Fund.
10. Addendum No. 6 dated as of December 1, 1997 between FIRMCO and Firstar
Funds, Inc. with respect to the Balanced Income Fund.
11. Addendum No. 7 dated as of November 1, 1999 between FIRMCO and Firstar
Funds, Inc. with respect to the Core International Equity Fund.
12. Addendum No. 8 dated as of November 1, 1999 between FIRMCO and Firstar
Funds, Inc. with respect to MidCap Index Fund.
13. Sub-Advisory Agreement among Firstar Funds, Inc., FIRMCO and
Hansberger Global Investors, Inc. dated June 13, 1997 with respect to
International Equity Fund.
14. Sub-Advisory Agreement among Firstar Funds, Inc., FIRMCO and The
Glenmede Trust Company dated November 1, 1999 with respect to Core
International Equity Fund.
II. Mercantile Mutual Funds, Inc.
-----------------------------
1. Amended and Restated Advisory Agreement dated as of April 1, 1991
between Mercantile Mutual Funds, Inc. (formerly known as The ARCH
Fund, Inc.) and Mississippi Valley Advisors Inc. ("MVA") with respect
to the Money Market, Growth & Income Equity (formerly Capital
Appreciation), Government & Corporate Bond (formerly Diversified Fixed
Income) and U.S. Government Securities Portfolios.
2. Addendum No. 1 dated as of September 27, 1991 to the Amended and
Restated Advisory Agreement between Mercantile Mutual Funds, Inc. and
MVA adding the Treasury Money Market Portfolio.
3. Addendum No. 2 dated as of April 1, 1992 to the Amended and Restated
Advisory Agreement between Mercantile Mutual Funds, Inc. and MVA
adding the Small Cap Equity (formerly Emerging Growth) Portfolio.
4. Addendum No. 3 dated as of April 1, 1993 to the Amended and Restated
Advisory Agreement between Mercantile Mutual Funds, Inc. and MVA
adding the Balanced Portfolio.
5. Addendum No. 4 dated as of March 15, 1994 to the Amended and Restated
Advisory Agreement between Mercantile Mutual Funds, Inc. and MVA
adding the International Equity Portfolio.
<PAGE>
6. Addendum No. 5 dated as of July 10, 1995 to the Amended and Restated
Advisory Agreement between Mercantile Mutual Funds, Inc. and MVA
adding the Short-Intermediate Municipal Portfolio.
7. Addendum No. 6 dated as of September 29, 1995 to the Amended and
Restated Advisory Agreement between Mercantile Mutual Funds, Inc. and
MVA adding the Tax-Exempt Money Market, Missouri Tax-Exempt Bond and
Kansas Tax-Exempt Bond Portfolios.
8. Addendum No. 7 dated as of November 15, 1996 to the Amended and
Restated Advisory Agreement between Mercantile Mutual Funds, Inc. and
MVA adding the Equity Income, National Municipal Bond and Intermediate
Corporate Bond (formerly Short-Intermediate Corporate Bond)
Portfolios.
9. Addendum No. 8 dated as of February 14, 1997 to the Amended and
Restated Advisory Agreement between Mercantile Mutual Funds, Inc. and
MVA adding the Equity Index and Bond Index Portfolios.
10. Addendum No. 9 dated as of November 21, 1997 to the Amended and
Restated Advisory Agreement between Mercantile Mutual Funds, Inc. and
MVA adding the Growth Equity Portfolio.
11. Addendum No. 10 dated as of December 29, 1998 to the Amended and
Restated Advisory Agreement between Mercantile Mutual Funds, Inc. and
MVA adding the Small Cap Equity Index Portfolio.
12. Addendum No. 11 dated as of February 12, 1999 to the Amended and
Restated Advisory Agreement between Mercantile Mutual Funds, Inc. and
MVA adding the Conning Money Market Portfolio.
13. Sub-Advisory Agreement between MVA and Clay Finlay Inc. dated as of
August 29, 1996 with respect to the International Equity Portfolio.
14. Sub-Advisory Agreement between MVA and Conning Asset Management
Company dated as of February 12, 1999 with respect to the Conning
Money Market Portfolio.
<PAGE>
SCHEDULE IV
CUSTODY AGREEMENTS
------------------
I. Firstar Funds, Inc.
------------------
1. Custodian Agreement dated July 29, 1988 between Firstar Funds, Inc.
(formerly Elan Funds, Inc. and Portico Funds Inc.) and Firstar Trust
Company (formerly First Wisconsin Trust Company) with respect to the
Money Market Fund, U.S. Government Money Market Fund, Tax-Exempt Money
Market Fund, Income Equity Fund, Short-Intermediate Bond Fund, Bond
Index Fund and Growth Equity Fund.
2. Letter Agreement dated December 28, 1989 to the Custodian Agreement
between Firstar Funds, Inc. and Firstar Trust Company with respect to
the Equity Index Fund.
3. Amendment to Custodian Agreement dated May 1, 1990 between Firstar
Funds, Inc. and Firstar Trust Company.
4. Letter Agreement dated April 19, 1991 to the Custodian Agreement
between Firstar Funds, Inc. and Firstar Trust Company with respect to
the Institutional Money Market Fund and the U.S. Treasury Money Market
Fund (formerly U.S. Federal Money Market Fund).
5. Letter Agreement dated March 27, 1992 to the Custodian Agreement
between Firstar Funds, Inc. and Firstar Trust Company with respect to
the Balanced Fund.
6. Letter Agreement dated December 27, 1992 to the Custodian Agreement
between Firstar Funds, Inc. and Firstar Trust Company with respect to
the Growth Fund (formerly MidCore Growth) and Intermediate Bond Market
Fund.
7. Letter Agreement dated February 5, 1993 to the Custodian Agreement
between Firstar Funds, Inc. and Firstar Trust Company with respect to
the Tax-Exempt Intermediate Bond Fund.
8. Letter Agreement dated August 1, 1995 to the Custodian Agreement
between Firstar Funds, Inc. and Firstar Trust Company with respect to
the MicroCap Fund.
9. Custodian Agreement Revised Fee Schedule March 1, 1997 between Firstar
Funds, Inc. and Firstar Trust Company with respect to the Money Market
Fund, Tax-Exempt Money Market Fund, U.S. Government Money Market Fund,
U.S. Treasury Money Market Fund, Institutional Money Market Fund,
Short-Term Bond Market Fund, Intermediate Bond Market Fund, Tax-Exempt
Intermediate Bond Fund, Bond IMMDEX Fund, Balanced Fund, Growth and
Income Fund, Equity Index Fund,
<PAGE>
MidCore Growth Fund, Special Growth Fund, MicroCap Fund, and
International Equity Fund.
10. Letter Agreement dated August 15, 1997 to the Custodian Agreement
between Firstar Funds, Inc. and Firstar Trust Company with respect to
the Emerging Growth Fund.
11. Letter Agreement dated August 19, 1997 to the Custodian Agreement
between Firstar Funds, Inc. and Firstar Trust Company with respect to
the International Equity Fund.
12. Letter Agreement dated December 1, 1997 to the Custodian Agreement
between Firstar Funds, Inc. and Firstar Trust Company with respect to
the Balanced Income Fund.
13. Assignment of Contract dated as of October 1, 1998 pursuant to which
Firstar Bank Milwaukee, N.A. became custodian of the Fund's
portfolios.
14. Global Custody Agreement dated November 1, 1999 among Firstar Bank,
N.A. and Firstar Funds, Inc. and The Chase Manhattan Bank with respect
to International Equity Fund and Core International Equity Fund.
15. Letter Agreement dated November 1, 1999 to the Custodian Agreement
between Firstar Funds, Inc. and Firstar Bank Milwaukee, N.A. with
respect to the Core International Equity Fund.
16. Letter Agreement dated November 1, 1999 to the Custodian Agreement
between Firstar Funds, Inc. and Firstar Bank Milwaukee, N.A. with
respect to the MidCap Index Fund.
II. Mercantile Mutual Funds, Inc.
-----------------------------
1. Custodian Agreement dated as of April 1, 1992 between Mercantile
Mutual Funds, Inc. (formerly known as The ARCH Fund, Inc.) and
Mercantile Bank of St. Louis National Association.
2. Global Sub-Custodian Agreement dated April 1, 1994 among Mercantile
Mutual Funds, Inc., Bankers Trust Company and Mercantile Bank of St.
Louis National Association with respect to the International Equity
Portfolio.
3. Securities Lending Amendment to Custody Agreement dated as of August
4, 1994.
4. Amendment dated December 4, 1998 to Custody Agreement regarding the
Delegation of Responsibilities as a Foreign Custody Manager.
<PAGE>
5. Assignment and Delegation Agreement dated December 1, 1998 between
Mercantile Bank National Association and Mercantile Trust Company
National Association ("Mercantile Trust").
6. Custody Fee Letter dated February 1, 1999 between Mercantile Mutual
Funds, Inc. (formerly known as The ARCH Fund, Inc.) and Mercantile
Trust with respect to 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, Balanced, Equity Income, Equity Index, Growth & Income Equity,
Growth Equity, Small Cap Equity, Small Cap Equity Index and
International Equity Portfolios .
7. Custody Fee Letter dated February 12, 1999 between Mercantile Mutual
Funds, Inc. and Mercantile Trust with respect to the Conning Money
Market Portfolio.
<PAGE>
EXHIBIT 2.5(e)
--------------
FORM OF NOTE
$___________ New York, New York
_______ __, 199_
FOR VALUE RECEIVED, [the Borrower] (the "Borrower"), hereby
--------
unconditionally promises to pay to the order of __________________________, at
the office of The Chase Manhattan Bank, as administrative agent for the Lenders
(the "Lenders") under the Credit Agreement, as hereinafter defined (in such
-------
capacity, the "Administrative Agent"), located at 270 Park Avenue, New York, New
--------------------
York 10017, in lawful money of the United States of America and in immediately
available funds, on the Maturity Date the principal amount of (a) _________
DOLLARS ($______________________), or, if less (b) the aggregate unpaid
principal amount of all Loans made by the Lenders to the Borrower pursuant to
subsection 2.1 of the Credit Agreement, as hereinafter defined.
The undersigned further agrees to pay interest in like money at such office
on the unpaid principal amount hereof from time to time from the Closing Date at
the applicable rates per annum set forth in subsection 2.7 of the Credit
Agreement referred to below until any such amount shall become due and payable
(whether at the stated maturity, by acceleration or otherwise), and thereafter
on such overdue amount at the rate per annum set forth in subsection 2.7(b) of
the Credit Agreement until paid in full (both before and after judgment).
Interest shall be payable in arrears on each applicable Interest Payment Date,
commencing on the first such date to occur after the date hereof and terminating
upon payment (including prepayment) in full of the unpaid principal amount
hereof; provided that interest accruing on any overdue amount shall be payable
--------
on demand.
The holder of this Note is authorized to endorse on the schedule annexed
hereto and made a part hereof the date and amount of each Loan made to the
Borrower pursuant to the Credit Agreement and the date and amount of each
payment or prepayment of principal thereof. Each such endorsement shall
constitute prima facie evidence of the accuracy of the information endorsed. The
----- -----
failure to make any such endorsement shall not affect the obligations of the
Borrower in respect of such Loan.
This Note (a) is one of the Notes referred to in the Credit Agreement,
dated as of December __, 1999 (as amended, supplemented or otherwise modified
from time to time, the "Credit Agreement"), among the Borrower, those other
----------------
Borrowers named therein, the Lenders and the Administrative Agent, (b) is
subject to the provisions of the Credit Agreement and (c) is subject to optional
and mandatory prepayment in whole or in part as provided in the Credit
Agreement.
<PAGE>
Upon the occurrence of one or more Events of Default, all amounts
then remaining unpaid on this Note shall become, or may be declared to be,
immediately due and payable, all as provided in the Credit Agreement.
All parties now and hereafter liable with respect to this Note,
whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest and all other notices of any kind.
Unless otherwise defined herein, terms defined in the Credit Agreement
and used herein shall have the meanings given to them in the Credit Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK.
[NAME OF FUND] on behalf
of [NAME OF BORROWER]
By:_____________________
Name:
Title:
<PAGE>
Schedule A to Note
------------------
LOANS AND REPAYMENTS OF LOANS
================================================================================
AMOUNT OF UNPAID
PRINCIPAL PRINCIPAL
AMOUNT OF OF LOANS BALANCE OF NOTATION
DATE LOANS REPAID LOANS MADE BY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
<PAGE>
EXHIBIT 2.16(a)
---------------
FORM FOR DESIGNATION OF NEW BORROWERS
_________ __, ____
The Chase Manhattan Bank, as Administrative Agent
[List Lenders]
Ladies and Gentlemen:
Reference is made to that certain Amended and Restated Credit Agreement
dated as of ________ (as amended supplemented or otherwise modified from me to
time, the "Credit Agreement") by and among each registered open-end management
----------------
investment company party thereto (each a "Fund") on behalf of itself and the
----
accounts, series or portfolios of the Fund, which accounts, series and
portfolios are listed on Schedule I thereto (each such account, series or
----------
portfolio, a "Borrower" and, collectively, the "Borrowers"), (ii) the several
-------- ---------
banks and other financial institutions from time to time parties thereto (the
"Lenders") and (iii) THE CHASE MANHATTAN BANK, a New York banking corporation,
-------
as administrative agent for the Lenders thereunder (in such capacity, the
"Administrative Agent"). Capitalized terms used but not defined herein shall
--------------------
have the meanings ascribed to them in the Credit Agreement.
The undersigned new borrower (the "New Borrower") hereby requests, pursuant
------------
to Section 2.16 of the Credit Agreement, that such New Borrower be admitted as
an additional Borrower under the Credit Agreement. Furthermore, the New Borrower
requests that Schedule I to the Credit Agreement be replaced with the form of
----------
Schedule I attached hereto.
- ----------
The New Borrower hereby represents and warrants to the Administrative Agent
and each Lender (it being agreed that the New Borrower represents and warrants
only with respect to itself) that as of the date hereof and after giving effect
to the admission of the New Borrower as an additional Borrower under the Credit
Agreement: (i) the representations and warranties set forth in Section 3 of the
Credit Agreement are true and correct with respect to the New Borrower; (ii) the
New Borrower is in compliance in all material respects with all the terms and
provisions set forth in the Credit Agreement on its part to be observed or
performed as of the date hereof and after giving effect to the admission; (iii)
no Default or Event of Default with respect to the New Borrower has occurred and
is continuing.
The New Borrower agrees to be bound by the terms and conditions of the
Credit Agreement in all respects as a Borrower thereunder and hereby assumes all
of the obligations of a Borrower thereunder.
<PAGE>
Please indicate your assent to the admission of the New Borrower as an
additional Borrower under the Credit Agreement and the replacement of Schedule I
----------
to the Credit Agreement by signing below where indicated.
[FUND, on behalf of New Borrower]
By: ________________________________
Name:
Title:
AGREED AND ACCEPTED:
THE CHASE MANHATTAN BANK
as Administrative Agent and as a Lender
By: _________________________
Name:
Title:
[LENDERS]
<PAGE>
EXHIBIT 9.6(c)
--------------
FORM OF ASSIGNMENT AND ACCEPTANCE
Reference is made to the Amended and Restated Credit Agreement dated as of
_______ (as amended supplemented or otherwise modified from time to time, the
"Credit Agreement") by and among each registered open-end management investment
----------------
company parties thereto (the "Funds") on behalf of itself and the accounts,
-----
series or portfolios of each such Fund, which accounts, series and portfolios
are listed on Schedule I thereto (each such account, series or portfolio, a
----------
"Borrower" and, collectively, the "Borrowers"), (ii) the several banks and other
-------- ---------
financial institutions from time to time parties thereto (the "Lenders") and
-------
(iii) THE CHASE MANHATTAN BANK, a New York banking corporation, as
administrative agent for the Lenders thereunder (in such capacity, the
"Administrative Agent"). Unless otherwise defined herein, terms defined in the
--------------------
Credit Agreement and used herein shall have the meanings given to them in the
Credit Agreement.
_________________________ (the "Assignee") and
--------
_____________________________ (the "Assignor") agrees and follows:
--------
1. The Assignor hereby irrevocably sells and assigns to the Assignee
without recourse to the Assignor and the Assignee hereby irrevocably purchases
and assumes from the Assignor without recourse to the Assignor, as of the
Effective Date (as defined below) the interest described in Schedule 1 hereto
----------
(the "Assigned Interest") in and to the Assignor's rights and obligations under
-----------------
the Credit Agreement.
2. The Assignor (a) makes no representation or warranty and assumes no
responsibility with respect to the Credit Agreement or with respect to the
execution, legality, validity, enforceability, genuineness, sufficiency or value
of the Credit Agreement, any other Loan Document or any other instrument or
document furnished pursuant thereto, other than that the Assignor has not
created any adverse claim upon the interest being assigned by it hereunder and
that such interest is free and clear of any such adverse claim; (b) makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of any Borrower, or any other obligor or the performance or
observance by any Borrower, or any other obligor of any of their respective
obligations under the Credit Agreement or any other Loan Document or any other
instrument or document furnished pursuant hereto or thereto; and (c) attaches
any Notes held by it evidencing the Assigned Interest and (i) requests that the
Administrative Agent, upon request by the Assignee, exchange the attached Notes
for a new Note or Notes payable to the Assignee and (ii) if the Assignor has
retained any interest in the Assigned Interest, requests that the Administrative
Agent exchange the attached Notes for a new Note or Notes payable to the
Assignor, in each case in amounts which reflect the assignment being made hereby
(and after giving effect to any other assignments which have become effective on
the Effective Date).
3. The Assignee (a) represents and warrants that it is an Eligible Lender;
(b) confirms that it has received a copy of the Credit Agreement, together with
copies of such other documents and information as it has deemed appropriate to
make its own credit analysis and
<PAGE>
decision to enter into this Assignment and Acceptance; (c) agrees that it will,
independently and without reliance on the Assignor, the Administrative Agent or
any other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Credit Agreement, the other Loan Documents or any
other instrument or document furnished pursuant hereto or thereto; (d) appoints
and authorizes the Administrative Agent to take such action as on its behalf and
to exercise such powers and discretion under the Credit Agreement, the other
Loan Documents or any other instrument or document furnished pursuant hereto or
thereto as are delegated to the Administrative Agent by the terms thereof,
together with such powers as are incidental thereto; and (e) agrees that it will
perform in accordance with its terms all the obligations which by the terms of
the Credit Agreement are required to be performed by it as a Lender including,
if it is organized under the laws of a jurisdiction outside the United States,
its obligation pursuant to subsection 2.11(b) of the Credit Agreement.
4. The effective date of this Assignment and Acceptance shall be _________
(the "Effective Date"). Following the execution of this Assignment and
--------------
Acceptance, it will be delivered to the Administrative Agent for acceptance
by it and recording by the Administrative Agent pursuant to the Credit
Agreement, effective as of the Effective Date (which shall not, unless otherwise
agreed to by the Administrative Agent, be earlier than five Business Days after
the date of such acceptance and recording by the Administrative Agent).
5. Upon such acceptance and recording, from and after the Effective Date,
the Administrative Agent shall make all payments in respect of the Assigned
Interest (including payments of principal, interest, fees and other amounts) to
the Assignee whether such amounts have accrued prior to the Effective Date or
accrue subsequent to the Effective Date. The Assignor and the Assignee shall
make all appropriate adjustments in payments by the Administrative Agent for
periods prior to the Effective Date or with respect to the making of this
assignment directly between themselves.
6. From and after the Effective Date, (a) the Assignee shall be a party to
the Credit Agreement and, to the extent provided in this Assignment and
Acceptance, have the rights and obligations of a Lender thereunder and under the
other Loan Documents and shall be bound by the provisions thereof and (b) the
Assignor shall, to the extent provided in this Assignment and Acceptance,
relinquish its rights and be released from its obligations under the Credit
Agreement.
7. This Assignment and Acceptance shall be governed by and construed in
accordance with the substantive laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed as of the date first above written by their respective
duly authorized officers on Schedule 1 hereto.
----------
<PAGE>
SCHEDULE 1 TO ASSIGNMENT AND ACCEPTANCE RELATING TO THE CREDIT AGREEMENT DATED
AS OF DECEMBER__, 1999
================================================================================
Name of Assignor:
Name of Assignee:
Effective Date of Assignment:
Principal Commitment Percentage
Amount Assigned Assigned
--------------- --------
$_____________ ______________________
[NAME OF ASSIGNEE] [NAME OF ASSIGNOR]
By:________________________ By:__________________________
Name: Name:
Title: Title:
Accepted and Consented To:
THE CHASE MANHATTAN BANK,
as Administrative Agent
By:________________________
Name:
Title:
_____________________
Calculate the Commitment Percentage that is assigned to at least 15 decimal
places and show as a percentage of the aggregate commitments of all
Lenders.
<PAGE>
Exhibit (j)
CONSENT OF COUNSEL
------------------
We hereby consent (i) 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. 50 to the Registration Statement
(No. 2-79285) on Form N-1A under the Securities Act of 1933, as amended, of
Mercantile Mutual Funds, Inc.; (ii) to the incorporation by reference therein of
our Firm's Opinions of Counsel filed as exhibits to Post-Effective Amendments
Nos. 44 and 45; and (iii) to the use of our Firm's Opinions of Counsel as
exhibits to Post-Effective Amendments Nos. 44 and 45. 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 and the incorporation by reference of our Firm's opinions we have not
certified any part of the Registration Statement and do not otherwise come
within the categories of persons whose consent is required under Section 7 or
the rules and regulations of the Securities and Exchange Commission thereunder.
/s/ Drinker Biddle & Reath LLP
------------------------------
Drinker Biddle & Reath LLP
Philadelphia, Pennsylvania
January 31, 2000
