ARROW MUNICIPAL INCOME PORTFOLIO
(A Portfolio of Arrow Funds)
SUPPLEMENT TO PROSPECTUS DATED NOVEMBER 30, 1996
Please delete the section entitled "Summary of Fund Expenses" in its
entirety on page 2 of the Prospectus and replace it with the
following:
"SUMMARY OF FUND EXPENSES
MUNICIPAL
INCOME
SHAREHOLDER TRANSACTION EXPENSES FUND
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) (1).................. 3.50%
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)....................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)........ None
Redemption Fee (as a percentage of amount
redeemed, if applicable)..................................... None
Exchange Fee..............................................................None
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver if applicable) (2).........................0.11%
12b-1 Fees (after waiver) (3)...........................................0.00%
Total Other Expenses....................................................1.39%
Total Fund Operating Expenses (4)...............1.50%
(1) Shareholders purchasing pursuant to the wrap fee program offered
by Mercantile Investment Services, Inc. are not subject to the
sales charge. However, an annual fee of 2.00% will be charged to
these accounts.
(2) The management fee is reduced to reflect the voluntary waiver by
the investment adviser. The maximum management fee is 0.70%.
(3) Each Fund can pay up to 0.25% of its average daily net assets as
a 12b-1 fee. For the foreseeable future, the distributor plans to
waive all 12b-1 fees. Long-term shareholders may pay more than
the economic equivalent of the maximum front-end sales charges
permitted under the rules of the National Association of
Securities Dealers, Inc.
(4) The Total Fund Operating Expenses in the table above are based on
expenses expected from October 1, 1997 through November 16, 1997,
and are expected to be 2.34% absent the voluntary waivers
described in notes (2) and (3). The Total Fund Operating Expenses
were 1.40% for the fiscal year ended September 30, 1997, and were
2.34% absent the voluntary waivers detailed in notes (2) and (3).
The purpose of this table is to assist an investor in
understanding the various costs and expenses that a shareholder of the
Fund will bear, either directly or indirectly. For more complete
descriptions of the various costs and expenses, see "Arrow Funds
Information" and "Investing in the Fund."
EXAMPLE
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return; (2) redemption at the end of each time period; and (3) payment
of the maximum sales charge. The Funds charge no contingent deferred sales
charge.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Municipal Income Fund................$50 $81 $114 $208
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN."
October 24, 1997
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Cusip 042749309
G00924-03 (10/97)
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