<PAGE> 1
As filed with the Securities and Exchange Commission on October 1, 1998
Registration No. 33-________________
811-________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/X/
Pre-Effective Amendment No. __ / /
Post-Effective Amendment No. __ / /
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
/X/
Amendment No. __ / /
GOVERNOR FUNDS
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road
Columbus, Ohio 43219
(Address of Principal Executive Offices)
Registrant's Telephone Number, including area code: (614)470-8000
Lana V. Burkhardt
Governor Funds
23 North Front Street
Harrisburg, Pennsylvania 17105
(Name and Address of Agent for Service)
copies to:
Michael P. Malloy, Esq.
Drinker Biddle & Reath LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
Approximate date of proposed offering: As soon as practicable after the
effective date of the Registration Statement
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
Title of Securities Being Registered: Shares of Beneficial Interest
<PAGE> 2
CROSS REFERENCE SHEET
PRIME MONEY MARKET FUND
U.S. TREASURY OBLIGATIONS MONEY MARKET FUND
Two Funds
of
Governor Funds
Form N-1A Part A Item Prospectus Caption
1. Cover page .................. Cover Page
2. Synopsis .................... Fee Table
3. Condensed Financial
Information ............... Financial Highlights; Performance
Information
4. General Description of
Registrant ................ Investment Objectives and Policies;
Investment Restrictions; General
Information - Description of the Trust
and Its Shares; Cover Page
5. Management of the Fund ...... Management of the Trust; General
Information - Custodian; General
Information - Transfer Agency and Fund
Accounting Services
5A. Management Discussion
of Fund Performance ....... Inapplicable
6. Capital Stock and Other
Securities ................ How to Purchase and Redeem Shares;
Dividends and Taxes; General Information
- Description of the Trust and Its
Shares; General Information -
Miscellaneous
7. Purchase of Securities
Being Offered ............. Valuation of Shares; How to Purchase and
Redeem Shares; Management of the Trust
8. Redemption or Repurchase .... How to Purchase and Redeem Shares
9. Pending Legal Proceedings ... Inapplicable
<PAGE> 3
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 1, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PRIME MONEY MARKET FUND
U.S. TREASURY OBLIGATIONS MONEY MARKET FUND
[LOGO]
3435 Stelzer Road For current yield, purchase, and
Columbus, Ohio 43219 redemption information, call
(800) 766-3960.
Governor Funds (the "Trust") is an open-end management investment company.
The Trust includes the Prime Money Market Fund (the "Prime Money Market Fund")
and the U.S. Treasury Obligations Money Market Fund (the "Treasury Money Market
Fund"), each of which is a diversified portfolio of the Trust. (The Prime Money
Market Fund and the Treasury Money Market Fund are hereinafter jointly referred
to as the "Funds" and individually as a "Fund.") The Trustees of the Trust have
divided each Fund's beneficial ownership into an unlimited number of
transferable units called shares (the "Shares"). This Prospectus describes the
Investor Shares of the Prime Money Market Fund and U.S. Treasury Obligations
Fund and the S Shares of the Prime Money Market Fund. S Shares are offered to
customers who purchase such shares through cash management services, such as a
sweep account ("Sweep Account") offered by Keystone Financial, Inc. ("Keystone")
or any of its banking affiliates, and certain other financial services
organizations, such banks or broker-dealers ("Service Organizations"). A Sweep
Account combines a deposit account (the "Transaction Account") with a daily
sweep of balances to or from the Prime Money Market Fund's S Shares. Keystone,
its banking affiliates or Service Organizations, as applicable, are responsible
for providing persons investing in S Shares through a Sweep Account with Sweep
Account materials (the "Sweep Materials") describing the various
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features and operations of the Sweep Account. The Sweep Materials should be
reviewed in conjunction with this Prospectus.
Governors Group Advisors, Inc., 23 Front Street, Harrisburg, PA 17101 (the
"Advisor"), which is a wholly owned subsidiary of Keystone, acts as the
investment advisor to each of the Funds. Martindale Andres & Company, Inc., West
Conshohocken, Pennsylvania (the "Sub-Advisor" and collectively with the Advisor,
the "Advisors"), which is a wholly owned subsidiary of Keystone, acts as the
investment sub-advisor to each of the Funds.
Additional information about the Funds and the Trust, contained in a
Statement of Additional Information, has been filed with the Securities and
Exchange Commission and is available upon request without charge by writing to
the Trust at its address or by calling the Trust at the telephone number shown
above. The Statement of Additional Information bears the same date as this
Prospectus and is incorporated by reference in its entirety into this
Prospectus.
This Prospectus sets forth concisely the information about each of the
Funds and the Trust that a prospective investor ought to know before investing.
Investors should read this Prospectus and retain it for future reference.
BISYS Fund Services Ohio, Inc. ("BISYS Ohio"), Columbus, Ohio, and the
Advisor act as the Funds' administrators. BISYS Fund Services Limited
Partnership d/b/a BISYS Fund Services ("BISYS") acts as the Funds' distributor.
BISYS Fund Services, Inc., Columbus, Ohio, the general partner of BISYS, acts as
the Funds' transfer agent (the "Transfer Agent") and performs certain fund
accounting services for each of the Funds.
THE SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, THE ADVISORS, KEYSTONE OR ANY OF THEIR AFFILIATES. SUCH SHARES ARE
NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENTAL
AGENCY, AND AN INVESTMENT IN EITHER FUND INVOLVES CERTAIN INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. EACH FUND SEEKS TO MAINTAIN A CONSTANT
NET ASSET VALUE OF $1.00 PER SHARE, BUT THERE CAN BE NO ASSURANCE THAT NET ASSET
VALUE WILL NOT VARY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is ______________, 1998.
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PROSPECTUS SUMMARY
SHARES OFFERED: Investor Shares of beneficial interest of the Prime Money
Market Fund and the Treasury Money Market Fund, and S Shares of the Prime Money
Market Fund, two separate investment funds of Governor Funds, a Delaware
business trust (the "Trust").
OFFERING PRICE: The public offering price of each Fund is equal to the
net asset value per share which the Funds will seek to maintain at $1.00 per
Share. (See "HOW TO PURCHASE AND REDEEM SHARES.")
MINIMUM PURCHASE: $1,000 minimum initial investment with $25 minimum
subsequent investments. Such minimum initial investment is reduced for
investors using the Auto Invest Plan described herein and for employees of
the Advisors and their affiliates.
TYPE OF COMPANY: Each Fund is a diversified series of an open-end,
management investment company.
INVESTMENT OBJECTIVES: For each Fund, current income with liquidity
and stability of principal.
INVESTMENT POLICIES: The PRIME MONEY MARKET FUND invests in
high-quality money market instruments and other instruments of high
quality.
Under normal market conditions, the TREASURY MONEY MARKET FUND will invest
at least 65% of its total assets in securities issued by the U.S. Treasury and
in repurchase agreements secured by such Treasury securities.
All securities or instruments in which each Fund invests have or are
deemed to have remaining maturities of 397 days (13 months) or less, although
instruments subject to repurchase agreements may bear longer maturities.
RISK FACTORS AND SPECIAL CONSIDERATIONS: An investment in each of the
Funds is subject to certain risks, including interest rate risk, as set forth in
detail under "INVESTMENT OBJECTIVES AND POLICIES -- Risk Factors and Investment
Techniques." As with other mutual funds, there can be no assurance that either
Fund will achieve its investment objectives. Each Fund, to the extent set forth
under "INVESTMENT OBJECTIVES AND POLICIES," may engage in the following
practices: the use of repurchase agreements and reverse repurchase agreements,
the purchase of securities on a when-issued or delayed-delivery basis and the
lending of portfolio securities.
INVESTMENT ADVISOR: Governors Group Advisors, Inc. (the "Advisor").
INVESTMENT SUB-ADVISOR: Martindale Andres & Company, Inc. (the
"Sub-Advisor").
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DIVIDENDS: Dividends from net income are declared daily and generally
paid monthly. Net realized capital gains, if any, are distributed at least
annually for each of the Funds.
DISTRIBUTOR: BISYS Fund Services Limited Partnership d/b/a BISYS Fund
Services ("BISYS").
CERTAIN FINANCIAL INFORMATION
Shares of the Prime Money Market Fund have been classified into two
classes of Shares -- Investor Shares and S Shares. Shares of the Treasury Money
Market Fund have been classified into one class of Shares --Investor Shares.
Shares of each class in a Fund represent equal, pro rata interests in the
investments held by that Fund and are identical in all respects, except that
Shares of each class bear separate shareholder administrative servicing fees,
and enjoy certain exclusive voting rights on matters relating to these fees. As
a result of payments for shareholder administrative servicing fees that may be
made in differing amounts, the net investment income of Investor Shares and S
Shares in the Prime Money Market Fund can be expected, at any given time to be
different.
The Prime Money Market Fund and the Treasury Money Market Fund
commenced operations on October 7, 1996 and July 1, 1997, respectively, as
separate investment portfolios of The Sessions Group, which was organized as an
Ohio business trust. On or about February 2, 1999, those Funds are expected to
be reorganized as portfolios of the Trust. Prior to the reorganization, the
Prime Money Market Fund and the Treasury Money Market Fund offered and sold
shares of beneficial interest that were similar to the Trust's Investor Shares.
S Shares had not been offered to the public prior to the date of this
prospectus.
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FEE TABLE
<TABLE>
<CAPTION>
PRIME MONEY TREASURY MONEY
MARKET FUND MONEY MARKET
INVESTOR SHARES S SHARES INVESTOR SHARES
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES
Maximum Sales Load Imposed
on Purchases (as a percentage of
offering price) None None None
ESTIMATED ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average net assets)
Management Fees After Voluntary
Fee Waivers 0.20%(1) 0.20%(1) 0.20%(2)
12b-1 Fees None None None
Other Expenses(1)(2) 0.28 0.52 (3) 0.53 (3)
Estimated Total Fund Operating Expenses ------- ------- -------
After Voluntary Fee Waivers 0.48 (1) 0.72%(1) 0.73%(2)
======= ======= =======
</TABLE>
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 Year 3 Years
------ -------
<S> <C> <C>
Prime Money Market Fund
Investor Shares $ 5 $15
S Shares $ 7 $23
Treasury Money Market Fund
Investor Shares $ 7 $23
</TABLE>
The purpose of the above table is to assist a potential purchaser of
Shares of the Funds in understanding the various costs and expenses that an
investor in that Fund will bear directly or indirectly. Such expenses do not
include any fees charged by the Advisor or any of its affiliates to its customer
accounts which may have invested in Shares of the Funds. The table sets forth
estimated management fees and other expenses of Investor Shares of the Funds
and estimated management fees and other expenses of S Shares of the Prime Money
Market Fund. The Total Fund Operating Expenses were 0.48% and 0.71% for the
Investor Shares of the Prime Money Market Fund and Treasury Money Market Fund,
respectively, for the
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fiscal year ended June 30, 1998. S Shares of the Prime Money Market Fund had not
been offered to the public prior to the date of this prospectus. See "MANAGEMENT
OF THE TRUST" and "GENERAL INFORMATION" for a more complete discussion of the
annual operating expenses of the Funds. THE FOREGOING EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN.
(1) The Advisor has agreed with the Trust to reduce its investment advisory
fee to 0.20% for the Prime Money Market Fund until further written notice
to Shareholders. Absent such voluntary fee waiver, Management Fees for
Investor Shares and S Shares of the Prime Money Market Fund would be .40%
and Estimated Total Fund Operating Expenses for Investor Shares and S
Shares of the Prime Money Market Fund would be 0.68% and 0.92%,
respectively.
(2) The Advisor has agreed to reduce such fee to 0.20% until further written
notice to Shareholders. Absent any such waiver or reductions, Management
Fees and Estimated Total Fund Operating Expenses for the Treasury Money
Market Fund would be 0.40% and 0.93%, respectively.
(3) "Other Expenses" are estimated for the current fiscal year.
FINANCIAL HIGHLIGHTS
The Funds are two separate funds of the Trust. Prior to __, 1998, the
Funds were diversified series of The Sessions Group (the "Predecessor Funds"),
also an open-end management investment company. The table below sets forth
certain information concerning the investment results of the Funds since their
inception. Further financial information is included in the Statement of
Additional Information. The Financial Highlights contained in the following
table has been audited by _____________________, independent certified public
accountants for the Funds, whose report on the fiscal year ended June 30, 199_,
is included in the Statement of Additional Information which may be obtained by
Shareholders. As of __, 1998, S Shares of the Prime Money Market Fund had not
been offered for sale to the public.
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<TABLE>
<CAPTION>
PRIME MONEY TREASURY MONEY
MARKET FUND MARKET FUND
------------------------------------------ -----------------
Fiscal Year Period from October 7,
ended June 1996 Fiscal Year Ended
30, 1998 through June 30, 1998(a) June 30, 1998(a)
----------- ------------------------ -----------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $ 1.00 $1.00
Investment Activities:
Net investment income 0.05 0.04 0.05
Net realized and unrealized gain
(loss) on investments -- -- --
----- ------- -----
Total from Investment Activities 0.05 0.04 0.05
Distributions from:
Net investment income (0.05) (0.04) (0.05)
Net realized gains -- -- --
Total Distributions (0.05) (0.04) (0.05)
----- ------- -----
Net change in net asset value
per share: -- -- --
----- ------- -----
NET ASSET VALUE, END OF PERIOD $1.00 $ 1.00 $1.00
===== ======= =====
TOTAL RETURN 5.19% 3.73%(b) 4.78%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, at end of period (000) $217,861 $95,850 $23,520
Ratio of expenses to average net assets 0.48% 0.36%(c) 0.71%
Ratio of net investment income to
average net assets 5.14% 5.02%(c) 4.64%
Ratio of expenses to average
net assets* 0.76% 0.70%(c) 1.07%
Ratio of net investment income to
average net assets* 4.86% 4.68%(c) 4.28%
</TABLE>
- -----------------------
* During the period certain fees were voluntarily reduced and/or reimbursed.
If such voluntary fee reductions and/or reimbursements had not occurred,
the rates would have been as indicated.
(a) The Prime Money Market and Treasury Money Market Funds commenced
operations on October 7, 1996 and July 1, 1997, respectively.
(b) Not annualized.
(c) Annualized.
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PERFORMANCE INFORMATION
From time to time performance information for the Funds showing their
average annual total return, seven-day yield, seven-day effective yield and/or
30-day yield may be presented in advertisements, sales literature and
shareholder reports. Yield quotations are computed separately for Investor
Shares and S Shares. SUCH PERFORMANCE FIGURES ARE BASED ON HISTORICAL
PERFORMANCE AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. Average annual
total return will be calculated for the period since commencement of operations
for the applicable Fund and will include the performance of its predecessor
fund. S Shares had not commenced operations as of the date of this prospectus.
Accordingly, the performance results attributed to S Shares prior to when they
commenced operations are those of Investor Shares for that period. Average
annual total return is measured by comparing the value of an investment in a
particular Share of the Fund at the beginning of the relevant period to the
redeemable value of the investment at the end of the period (assuming immediate
reinvestment of any dividends or capital gains distributions), which figure is
then annualized.
The seven-day yield of a particular Share of the Fund refers to the income
generated by an investment therein over a seven-day period (which period will be
stated in the advertisement). This income is then "annualized." That is, the
amount of income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The seven-day effective yield is calculated similarly but, when
annualized, the income earned by an investment in particular Shares of a Fund is
assumed to be reinvested. The seven-day effective yield is slightly higher than
the seven-day yield because of the compounding effect of this assumed
reinvestment. The Funds may also present a 30-day yield which is calculated
similarly to the seven-day yield but instead refers to a 30-day period rather
than a seven-day period.
Investors may also judge the performance of the Funds by comparing or
referencing it to the performance of other mutual funds with comparable
investment objectives and policies through various mutual fund or market indices
and to data prepared by various services, which indices or data may be published
by such services or by other services or publications. In addition to
performance information, general information about the Funds that appears in
such publications may be included in advertisements, sales literature and
reports to Shareholders.
Yield and total return are generally functions of market conditions,
interest rates, types of investments held, and operating expenses. Consequently,
current yields and total return will fluctuate and are not necessarily
representative of future results. Any fees charged by Keystone or by any of its
affiliates, including the Advisors, to its customer accounts which may have
invested in Shares of the Funds will not be included in performance
calculations; such fees, if charged, will reduce the actual performance from
that quoted. In addition, if the Advisor, BISYS Ohio or BISYS voluntarily
reduces all or part of its fees for a Fund, as discussed below, the yield and
total return for that Fund will be higher than they would otherwise be in the
absence of such voluntary fee reductions.
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Further information about the performance of the Funds is contained in
that Fund's Annual Report to Shareholders which may be obtained without charge
by contacting the Trust at [(800) 766-3960].
INVESTMENT OBJECTIVES AND POLICIES
IN GENERAL
The investment objective of each of the Funds is to seek current income
with liquidity and stability of principal. The investment objectives of each
Fund are non-fundamental policies and as such may be changed by the Trust's
Trustees without the vote of the Shareholders of that Fund. There can be no
assurance that the investment objectives of either Fund will be achieved.
As money market funds, each Fund invests exclusively in United States
dollar-denominated instruments which the Advisor or Sub-Advisor determines
present minimal credit risks. In addition, such investments, at the time of
acquisition, subject to certain exceptions, must be rated by at least two
nationally recognized statistical rating organizations ("NRSROs") (e.g.,
Standard & Poor's Corporation and Moody's Investors Service, Inc.) (or by the
only NRSRO providing a rating) in one of the two highest rating categories for
short-term debt obligations or, if unrated, are determined by the Advisor or
Sub-Advisor to be of comparable quality. Each Fund is also required to diversify
its investments so that, except for United States Government securities and
certain other exceptions, not more than five percent of its total assets is
invested in the securities of any one issuer, not more than five percent of its
total assets is invested in securities of issuers rated by the NRSROs at the
time of investment in the second highest rating category for short-term debt
obligations or, if unrated, deemed by the Advisor or Sub-Advisor to be of
comparable quality ("Second Tier Securities") and not more than the greater of
one percent of total assets or one million dollars is invested in the securities
of one issuer that are Second Tier Securities. All securities or instruments in
which the Funds invest have or are deemed to have remaining maturities of 397
calendar days or less. The dollar-weighted average maturity of the securities in
each Fund will not exceed 90 days.
THE PRIME MONEY MARKET FUND
Subject to the foregoing general limitations, the Prime Money Market Fund
invests in the following types of securities.
The Prime Money Market Fund may invest in a variety of U.S. Treasury
obligations, differing in their interest rates, maturities, and times of
issuance, and other obligations issued or guaranteed by the U.S. Government or
its agencies or instrumentalities (collectively, "Government Obligations").
Obligations of certain agencies and instrumentalities of the U.S. Government,
such as the Government National Mortgage Association and the Export-Import Bank
of the United States, are supported by the full faith and credit of the U.S.
Treasury; others, such as those of the Federal National Mortgage Association,
are supported by the right of the issuer to borrow from the Treasury; others,
such as those of the Student Loan Marketing Association, are supported by the
discretionary authority of the U.S. Government to purchase the
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agency's obligations; still others, such as those of the Federal Farm Credit
Banks or 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 agencies
or instrumentalities if it is not obligated to do so by law. The Prime Money
Market Fund will invest in the obligations of such agencies or instrumentalities
only when the Advisor believes that the credit risk with respect thereto is
minimal.
The Prime Money Market Fund may invest in bankers' acceptances guaranteed
by domestic and foreign banks if at the time of investment the guarantor bank
has capital, surplus, and undivided profits in excess of $100,000,000 (as of the
date of its most recently published financial statements). The Prime Money
Market Fund may also invest in certificates of deposit and time deposits of
domestic and foreign banks and savings and loan associations if (a) at the time
of investment the depositor institution has capital, surplus, and undivided
profits in excess of $100,000,000 (as of the date of their most recently
published financial statements) or (b) the principal amount of the instrument is
insured in full by the Federal Deposit Insurance Corporation.
The Prime Money Market Fund may also invest in 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; and Yankee Certificates of Deposit
("Yankee CDs") which are certificates of deposit issued by U.S. branches of a
foreign bank denominated in U.S. dollars and held in the United States. Under
normal market conditions, the Prime Money Market Fund will not invest more than
20% of its total assets in such foreign securities (including Canadian
Commercial Paper and Europaper as defined below).
The Prime Money Market Fund will not invest in time deposits with
maturities in excess of seven days which are subject to penalties upon early
withdrawal if, in the aggregate with other illiquid securities held by the Prime
Money Market Fund, such deposits exceed 10% of such Fund's net assets. Such time
deposits include ETDs and CTDs but do not include certificates of deposit.
The Prime Money Market Fund may invest in short-term promissory notes
issued by corporations (including variable amount master demand notes) and in
municipal obligations rated at the time of purchase by one or more appropriate
NRSROs in one of the two highest rating categories for short-term debt
obligations or, if not rated, determined by the Advisor or Sub-Advisor to be of
comparable quality to instruments that are so rated. Instruments may be
purchased in reliance upon a rating only when the rating organization is not
affiliated with the issuer or guarantor of the instrument. For a description of
the rating symbols of the NRSROs, see the Appendix to the Statement of
Additional Information. The Prime Money Market Fund may also invest in Canadian
Commercial Paper ("CCP"), which is U.S. dollar denominated commercial paper
issued by a Canadian corporation or a Canadian subsidiary of a U.S. corporation,
and in Europaper, which is U.S. dollar denominated commercial paper of a foreign
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issuer which, in each case, is rated at the time of purchase by one or more
appropriate NRSROs in one of the two highest rating categories for short-term
debt obligations or, if not rated, determined by the Advisor or Sub-Advisor to
be of comparable quality to instruments that are so rated.
The Prime Money Market Fund may also invest in corporate debt securities
with remaining maturities of 397 days or less although at the time of issuance
such securities had maturities exceeding 397 days. The Prime Money Market Fund
may invest in such securities so long as comparable securities of such issuer
have been rated in the highest rating category for short-term debt obligations
by the appropriate NRSROs or are otherwise deemed to be eligible for purchase by
the Prime Money Market Fund in accordance with the guidelines adopted by the
Trust's Board of Trustees.
Variable amount master demand notes in which the Prime Money Market Fund
may invest are unsecured demand notes that permit the indebtedness thereunder to
vary and that provide for periodic adjustments in the interest rate according to
the terms of the instrument. Because master demand notes are direct lending
arrangements between the Prime Money Market Fund and the issuer, they are not
normally traded. Although there is no secondary market in the notes, the Prime
Money Market Fund may demand payment of principal and accrued interest at any
time. While the notes are not typically rated by NRSROs, issuers of variable
amount master demand notes (which are normally manufacturing, retail, financial,
and other business concerns) must satisfy the same criteria as set forth above
for commercial paper. The Advisor or Sub-Advisor will consider the earning
power, cash flow, and other liquidity ratios of the issuers of such notes and
will continuously monitor their financial status and ability to meet payment on
demand. In determining dollar-weighted average portfolio maturity, a variable
amount master demand note will be deemed to have a maturity equal to the period
of time remaining until the principal amount can be recovered from the issuer
through demand. The Prime Money Market Fund may purchase variable amount master
demand notes with face maturities in excess of 397 days only so long as the
Prime Money Market Fund may demand payment at any time on no more than 30 days'
notice or at specified intervals not exceeding 397 days and upon no more than 30
days' notice.
The Prime Money Market Fund may purchase asset-backed securities, which
are securities issued by special purpose entities whose primary assets consist
of a pool of mortgages, loans, receivables or other assets, primarily automobile
and credit card receivables and home equity loans. Payment of principal and
interest may depend largely on cash flows generated by the assets backing the
securities and, in certain cases, supported by letters of credit, surety bonds
or other forms of credit or liquidity enhancements. The value of asset-backed
securities also may be affected by the creditworthiness of the servicing agent
for the pool of assets, the originator of the loans or receivables or the
financial institution providing the credit support.
The Prime Money Market Fund may also acquire variable and floating rate
notes issued by both governmental and non-governmental issuers, subject to the
Prime Money Market Fund's investment objective, policies and restrictions.
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THE TREASURY MONEY MARKET FUND
Subject to the above limitations, under normal market conditions, the
Treasury Money Market Fund will invest at least 65% of its total assets in the
following types of securities: direct obligations issued by the U.S. Treasury
including bills, notes and bonds which differ from each other only in interest
rates, maturities and times of issuance; U.S. Treasury securities that have been
stripped of their unmatured interest coupons (which typically provide for
interest payments semi-annually); interest coupons that have been stripped from
such U.S. Treasury securities; receipts and certificates for such stripped debt
obligations and stripped coupons (collectively, "Stripped Treasury Securities");
and in repurchase agreements backed by such securities. Stripped Treasury
Securities will include (1) coupons that have been stripped from U.S. Treasury
bonds, which may be held through the Federal Reserve Bank's book-entry system
called "Separate Trading of Registered Interest and Principal of Securities"
("STRIPS") or through a program entitled "Coupon Under Book-Entry Safekeeping"
("CUBES").
Treasury bills have maturities of one year or less; Treasury notes have
maturities of one to ten years; and Treasury bonds generally have maturities of
greater than ten years. Stripped Treasury Securities are sold at a deep discount
because the buyer of those securities receives only the right to receive a
future fixed payment (representing principal or interest) on the security and
does not receive any rights to periodic interest payments on the security. The
Treasury Money Market Fund may engage in other investment techniques described
below.
The Treasury Money Market Fund may also invest up to 35% of its total
assets in Government Obligations which are backed by the full faith and credit
of the U.S. Treasury and in repurchase agreements backed by such securities.
Such securities include those of the Government National Mortgage Association
and the Export-Import Bank of the United States.
RISK FACTORS AND INVESTMENT TECHNIQUES
Like any investment program, an investment in either Fund entails certain
risks. Since each Fund invests in debt securities, investors are exposed to
interest rate risk, i.e., fluctuations in the market value of debt securities.
Debt securities' prices are influenced primarily by changes in the level of
interest rates. When interest rates rise, the prices of debt securities
generally fall; conversely, when interest rates fall, debt securities' prices
generally rise. There have been in the recent past extended periods of cyclical
increases in interest rates that have caused significant declines in the prices
of certain debt securities.
The Trust will attempt to maintain the net asset value per share of each
of the Funds at $1.00, but there can be no assurance that either Fund will be
able to do so.
Each Fund may invest in certain variable or floating rate securities as
described above. Such instruments may be considered to be "derivatives." A
derivative is generally defined as an instrument whose value is based upon, or
derived from, some underlying index, reference rate (e.g., interest rates),
security, commodity or other asset. There is no limit as to the portion of a
Fund's portfolio that may be invested in any such derivatives at any one time.
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Variable and Floating Rate Securities. Securities purchased by the Funds
may include variable and floating rate obligations. A variable rate obligation
is one whose terms provide for the adjustment of its interest rate on set dates
and which, upon such adjustment, can reasonably be expected to have a market
value that approximates its amortized cost. A floating rate obligation is one
whose terms provide for the adjustment of its interest rate whenever a specified
interest rate changes and which, at any time, can reasonably be expected to have
a market value that approximates its amortized cost.
In the event the interest rate of a variable or floating rate obligation
is established by reference to an index or an interest rate that may from time
to time lag behind other market interest rates, there is the risk that the
market value of such obligation, on readjustment of its interest rate, will not
approximate its amortized cost which could adversely affect such Fund's ability
to maintain a stable net asset value. In such an instance, the Advisor or
Sub-Advisor will seek to sell such security to the extent it can do so in an
orderly fashion given current market conditions.
Such securities which are not Government Obligations are frequently not
rated by NRSROs; however, unrated variable and floating rate notes purchased by
a Fund will be determined by the Advisor or Sub-Advisor to be of comparable
quality at the time of purchase to rated instruments eligible for purchase under
such Fund's investment policies. In making such determinations, the Advisor or
Sub-Advisor will consider the earning power, cash flow and other liquidity
ratios of the issuers of such notes (such issuers include financial,
merchandising, bank holding and other companies) and will continuously monitor
their financial condition. Although there may be no active secondary market with
respect to a particular variable or floating rate security purchased by a Fund,
such Fund may resell the security at any time to a third party. The absence of
an active secondary market, however, could make it difficult for a Fund to
dispose of a variable or floating rate security in the event the issuer of the
note defaulted on its payment obligations and the Fund could, as a result or for
other reasons, suffer a loss to the extent of the default. Variable or floating
rate securities may be secured by bank letters of credit.
To the extent that a Fund holds a security for which it is not entitled to
receive the principal amount within seven days of demand and for which no
readily available market exists, such a security will be treated as an illiquid
security for purposes of calculation of the 10% limitation on such securities as
set forth below.
Repurchase Agreements. Securities held by each Fund may be subject to
repurchase agreements. Under the terms of a repurchase agreement, a Fund would
acquire securities, in exchange for cash, from banks and/or registered
broker-dealers which the Advisor or Sub-Advisor deems creditworthy under
guidelines approved by the Trust's Board of Trustees. The seller agrees to
repurchase such securities at a mutually agreed date and price. The repurchase
price generally equals the price paid by the Fund 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. Securities subject to repurchase
agreements must be of the same type and quality as those in which such Fund may
invest directly. Repurchase agreements are considered to be loans by a Fund
under the Investment Company Act of 1940, as amended (the "1940 Act"). For
further
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information about repurchase agreements and the related risks, see "INVESTMENT
OBJECTIVES AND POLICIES Additional Information on Portfolio Instruments -
Repurchase Agreements" in the Statement of Additional Information.
Reverse Repurchase Agreements. Each Fund may borrow funds by entering into
reverse repurchase agreements in accordance with the investment restrictions
described below. Pursuant to such agreements, a Fund would sell portfolio
securities to financial institutions such as banks and broker-dealers, and agree
to repurchase them at a mutually agreed-upon date and price. At the time a Fund
enters into a reverse repurchase agreement, it will place in a segregated
custodial account assets such as Government Obligations consistent with such
Fund's investment restrictions having a value equal to the repurchase price
(including accrued interest), and will continually monitor the account to ensure
that such equivalent value is maintained at all times. Reverse repurchase
agreements involve the risk that the market value of the securities sold by a
Fund may decline below the price at which such Fund is obligated to repurchase
the securities. Reverse repurchase agreements are considered to be borrowings by
a Fund under the 1940 Act and therefore a form of leverage. A Fund may
experience a negative impact on its net asset value if interest rates rise
during the term of a reverse repurchase agreement. The Funds generally will
invest the proceeds of such borrowings only when such borrowings will enhance
the Fund's liquidity or when the Fund reasonably expects that the interest
income to be earned from the investment of the proceeds is greater than the
interest expense of the transaction. For further information about reverse
repurchase agreements, see "INVESTMENT OBJECTIVE AND POLICIES - Additional
Information on Portfolio Instruments - Reverse Repurchase Agreements" in the
Statement of Additional Information.
Except as permitted by the 1940 Act, the Trust will not execute portfolio
transactions through, acquire portfolio securities issued by, make savings
deposits in, or enter into repurchase or reverse repurchase agreements with the
Advisor, Sub-Advisor, BISYS, or their affiliates.
Foreign Investments. Investments in foreign securities (including ECDs,
ETDs, CTDs, Yankee CDs, CCP and Europaper) may subject the Prime Money Market
Fund to investment risks that differ in some respects from those related to
investments in securities of U.S. domestic issuers. Such risks include future
adverse political and economic developments, the possible imposition of
withholding taxes on interest or other investment income, possible seizure,
nationalization, or expropriation of foreign deposits or investments, the
possible establishment of exchange controls or taxation at the source, less
stringent disclosure requirements, less liquid or developed securities markets
or the adoption of other foreign governmental restrictions which might adversely
affect the payment of principal or interest on such securities or the purchase
or sale thereof. In addition, foreign branches of U.S. banks and foreign banks
may be 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.
Restricted Securities. Securities in which the Prime Money Market Fund may
invest include securities issued by corporations without registration under the
Securities Act of 1933, as amended (the "1933 Act"), such as securities issued
in reliance on the so-called "private placement" exemption from registration
which is afforded by Section 4(2) of the 1933 Act
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("Section 4(2) securities"). Section 4(2) securities are restricted as to
disposition under the Federal securities laws, and generally are sold to
institutional investors such as the Prime Money Market Fund who agree that they
are purchasing the securities for investment and not with a view to public
distribution. Any resale must also generally be made in an exempt transaction.
Section 4(2) securities are normally resold, if at all, to other institutional
investors through or with the assistance of the issuer or investment dealers who
facilitate the resale of such Section 4(2) securities, thus providing some
liquidity.
Pursuant to procedures adopted by the Board of Trustees of the Trust, the
Advisor or Sub-Advisor may determine Section 4(2) securities to be liquid if
such securities are eligible for resale under Rule 144A under the 1933 Act and
are readily saleable. Rule 144A permits the Prime Money Market Fund to purchase
securities which have been privately placed and resell such securities to
certain qualified institutional buyers without restriction. For purposes of
determining whether a Rule 144A security is readily saleable, and therefore
liquid, the Advisor or Sub-Advisor must consider, among other things, the
frequency of trades and quotes for the security, the number of dealers willing
to purchase or sell the security, the number of potential purchasers and dealer
undertakings to make a market in the security, and the nature of the security
and marketplace trades of such security. However, investing in Rule 144A
securities, even if such securities are initially determined to be liquid, could
have the effect of increasing the level of the Prime Money Market Fund's
illiquidity to the extent that qualified institutional buyers become, for a
time, uninterested in purchasing these securities.
Securities Lending. In order to generate additional income, each Fund may,
from time to time, lend its portfolio securities to broker-dealers, banks, or
institutional borrowers of securities. A Fund must receive 100% collateral in
the form of cash or U.S. Government securities. This collateral will be valued
daily by the Advisor or Sub-Advisor. Should the market value of the loaned
securities increase, the borrower must furnish additional collateral to the
Fund. During the time portfolio securities are on loan, the borrower pays the
Fund any dividends or interest received on such securities. Loans are subject to
termination by a Fund or the borrower at any time. While a Fund does not have
the right to vote securities on loan, each Fund intends to terminate the loan
and regain the right to vote if that is considered important with respect to the
investment. In the event the borrower would default in its obligations, a Fund
bears the risk of delay in recovery of the portfolio securities and the loss of
rights in the collateral. A Fund will enter into loan agreements only with
broker-dealers, banks, or other institutions that the Advisor or Sub-Advisor has
determined are creditworthy under guidelines established by the Trust's Board of
Trustees. Neither Fund will lend more than 33% of the total value of its
portfolio securities at any one time.
When-Issued or Delayed-Delivery Securities. Each Fund may purchase
securities on a when-issued or delayed-delivery basis. These transactions are
arrangements in which a Fund purchases securities with payment and delivery
scheduled for a future time. Each Fund will engage in when-issued and
delayed-delivery transactions only for the purpose of acquiring portfolio
securities consistent with and in furtherance of its investment objective and
policies, not for investment leverage, although such transactions represent a
form of leveraging. When-issued or delayed-delivery securities are securities
purchased for delivery beyond the normal settlement
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date at a stated price and yield and thereby involve a risk that the yield
obtained in the transaction will be less than those available in the market when
delivery takes place. A Fund will generally not pay for such securities or start
earning interest or dividends on them until they are received on the settlement
date. When a Fund agrees to purchase such securities, however, its custodian
will set aside cash or liquid securities equal to the amount of the commitment
in a separate account. Securities purchased on a when-issued or delayed-delivery
basis are recorded as an asset and are subject to changes in the value based
upon changes in the general level of interest rates. In when-issued and
delayed-delivery transactions, a Fund relies on the seller to complete the
transaction; the seller's failure to do so may cause that Fund to miss a price
or yield considered to be advantageous.
Investment Company Securities. Each Fund may also invest in the securities
of other investment companies in accordance with the limitations of the 1940 Act
and any exemptions therefrom. Each Fund intends to invest, for purposes of
short-term cash management, in money market mutual funds which invest in the
same securities in which such Fund may invest. A Fund will incur additional
expenses due to the duplication of fees and expenses as a result of investing in
mutual funds. Additional restrictions on the Funds' investments in the
securities of other mutual funds are contained in the Statement of Additional
Information.
Year 2000. Like other investment companies, financial and business
organizations and individuals around the world, the Funds could be affected
adversely if the computer systems used by the Advisor, Sub-Advisor, the Funds'
other service providers, and others do not properly process and calculate
date-related information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." The Advisor, Sub-Advisor, and the
Funds' other service providers have informed the Trust that they are taking
steps to address the Year 2000 Problem with respect to the computer systems that
they use. At this time, however, there can be no assurance that these steps will
be sufficient to avoid any adverse impact on the Funds as a result of the Year
2000 Problem.
INVESTMENT RESTRICTIONS
Each Fund is subject to a number of investment restrictions that may be
changed only by a vote of a majority of the outstanding Shares of that Fund
(as defined under "GENERAL INFORMATION -- Miscellaneous" herein). Each Fund
will not:
1. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of the Fund's total assets would
be invested in such issuer or the Fund would hold more than 10% of the
outstanding voting securities of the issuer, except that 25% or less of the
Fund's total assets may be invested without regard to such limitations. There is
no limit to the percentage of assets that may be invested in U.S. Treasury
bills, notes, or other obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities.
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2. Purchase any securities which would cause more than 25% of the Fund's
total assets at the time of purchase to be invested in 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, and
repurchase agreements secured by obligations of the U.S. Government, its
agencies or instrumentalities; (b) with respect to the Prime Money Market Fund
there is no limitation with respect to domestic bank certificates of deposit or
bankers' acceptances, and repurchase agreements secured by bank instruments; (c)
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 (d) utilities will be divided according to
their services. For example, gas, gas transmission, electric and gas, electric,
and telephone will each be considered a separate industry.
3. Borrow money or issue senior securities except that each Fund may enter
into reverse repurchase agreements and may otherwise borrow money or issue
senior securities as and to the extent permitted by the 1940 Act or any rule,
order or interpretation thereunder. So long as the Fund's borrowings, including
reverse repurchase agreements and dollar roll agreements, exceed 5% of such
Fund's total assets, the Fund will not acquire any portfolio securities.
4. Make loans, except that the Fund may purchase or hold debt instruments
and lend portfolio securities in accordance with its investment objective and
policies, make time deposits with financial institutions and enter into
repurchase agreements.
The following additional investment restriction may be changed without the
vote of a majority of the outstanding Shares of the applicable Fund. Each Fund
may not purchase or otherwise acquire any security if, as a result, more than
10% of its net assets would be invested in securities that are illiquid. For
purposes of this investment restriction, illiquid securities include securities
which are not readily marketable and repurchase agreements with maturities in
excess of seven days.
VALUATION OF SHARES
The net asset value of each Fund is determined and its Shares are priced
as of 12:00 noon (Eastern time) and the close of regular trading on the New York
Stock Exchange (the "Exchange") (generally 4:00 p.m. Eastern time) on each
Business Day of that Fund. The times at which the Shares of a Fund are priced
are hereinafter referred to as the "Valuation Times." A "Business Day" of a Fund
is a day on which the Exchange is open for trading and any other day (other than
a day on which no Shares of that Fund are tendered for redemption and no order
to purchase any Shares of that Fund is received) during which there is
sufficient trading in portfolio instruments such that the Fund's net asset value
per share might be materially affected. The Exchange will not be open in
observance of the following holidays: New Year's Day, Martin Luther King, Jr.
Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas. Net asset value per share for purposes of pricing
purchases and redemptions is calculated by dividing the value of all securities
and other assets belonging to a Fund, less the liabilities charged to that Fund,
by the number of that Fund's outstanding Shares.
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The assets in each of the Funds are valued based upon the amortized cost
method which the Trustees of the Trust believe fairly reflects the market-based
net asset value per share. Pursuant to the rules and regulations of the
Commission regarding the use of the amortized cost method, each Fund maintains a
dollar-weighted average portfolio maturity of 90 days or less. Although the
Trust seeks to maintain each Fund's net asset value per share at $1.00, there
can be no assurance that net asset value will not vary.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares of the Funds are sold on a continuous basis by the Trust's
distributor, BISYS (the "Distributor"). The principal office of the Distributor
is 3435 Stelzer Road, Columbus, Ohio 43219. If you wish to purchase Shares,
telephone the Trust at (800) [766-3960].
EMPLOYEE BENEFIT PLANS
Purchases, exchanges and redemptions of Shares through an employee benefit
plan may be subject to different requirements and limitations imposed by
employers than those discussed below. Investors should consult their employer
for more information on how to purchase, exchange and redeem Shares of the Funds
through their employer's plan.
PURCHASES OF SHARES
Investor Shares may be purchased through procedures established by the
Distributor in connection with the requirements of qualified accounts maintained
by or on behalf of certain persons ("Customers") by the Advisor, Sub-Advisor,
their affiliates or their correspondent entities (collectively, "Entities").
Investor Shares of the Funds sold to the Entities acting in a fiduciary,
advisory, custodial, agency, or other similar capacity on behalf of Customers
will normally be held of record by the Entities. With respect to Investor Shares
of the Funds so sold, it is the responsibility of the particular Entity to
transmit purchase or redemption orders to the Distributor and to deliver federal
funds for purchase on a timely basis. Beneficial ownership of Investor Shares
will be recorded by the Entities and reflected in the account statements
provided by the Entities to Customers.
Investors may also purchase Investor Shares of either Fund by completing
and signing an Account Registration Form and mailing it, together with a check
(or other negotiable bank draft or money order) in at least the minimum initial
purchase amount, payable to the appropriate Fund, to Governor Funds, [P.O. Box
182707, Columbus, Ohio 43218-2707]. Subsequent purchases of Investor Shares of
that Fund may be made at any time by mailing a check (or other negotiable bank
draft or money order) payable to the Trust, to the above address.
If an Account Registration Form has been previously received by the Trust,
investors may also purchase Investor Shares by wiring funds to the Funds'
custodian. Prior to wiring any such
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funds and in order to ensure that wire orders are invested promptly, investors
must call the Trust at (800) 766-3960 to obtain instructions regarding the bank
account number into which the funds should be wired and other pertinent
information.
An order to purchase Shares of a Fund will be deemed to have been received
by the Distributor only when federal funds with respect thereto are available to
the Fund's custodian for investment. Federal funds are monies credited to a
bank's account with a Federal Reserve Bank. Payment for an order to purchase
Shares of a Fund which is transmitted by federal funds wire will be available
the same day for investment by that Fund's custodian, if received prior to the
last Valuation Time (see "VALUATION OF SHARES"). Payments transmitted by other
means (such as by check drawn on a member of the Federal Reserve System) will
normally be converted into federal funds within two banking days after receipt.
The Trust strongly recommends that investors of substantial amounts use federal
funds to purchase Shares. Shares of the Funds purchased before 12:00 noon,
Eastern Time, begin earning dividends on the same Business Day. Shares of the
Funds purchased after 12:00 noon, Eastern Time, begin earning dividends on the
next Business Day. All Shares of the Funds continue to earn dividends through
the day before their redemption.
PURCHASE OF S SHARES
S Shares of the Prime Money Market Fund are offered to customers of
Keystone, any of its banking affiliates or Service Organizations that establish
cash management services, such as a Sweep Account with Keystone, any of its
affiliates or a Service Organization. Each Sweep Account combines a Transaction
Account with a periodic sweep of balance to or from the Prime Money Market Fund.
Investors may open a Sweep Account by completing and signing the appropriate
Sweep Materials. The Sweep Materials contain important information about the
various features and operations of the Sweep Account and should be reviewed in
conjunction with this Prospectus.
S Shares may be purchased on any Business Day by making a deposit
into your Transaction Account. On each Business Day that Keystone, any of its
banking affiliates or a Service Organization is open for business, Keystone, any
of its banking affiliates or a Service Organization computes the net amount of
all deposits, withdrawals, charges and credits made to and from a Transaction
Account in accordance with their Sweep Account procedures (the "Net Sweep
Amount"). If deposits and credits exceed withdrawals and charges, you authorize
Keystone, any of its banking affiliates or a Service Organization, on your
behalf, to transmit a purchase order to the Prime Money Market Fund in your
Sweep Account in the amount of that day's Net Sweep Amount in accordance with
the Sweep Account procedures of Keystone, any of its banking affiliates or a
Service Organization. Your purchase order will be made effective and full and
fractional S Shares will be purchased at the net asset value per Share next
determined after receipt by the Trust. It is the responsibility of Keystone, any
of its
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banking affiliates or a Service Organization to transmit orders for the
purchases of S Shares by its customers to the Transfer Agent and deliver
required funds on a timely basis, in accordance with the procedures stated
above. Share purchases and redemptions executed through Keystone, any of its
banking affiliates or a Service Organization are executed only on Business Days
that Keystone, any of its banking affiliates or a Service Organization,
respectively, is open for business. Contact Keystone, any of its banking
affiliates or your Service Organization for additional information about
Keystone's, any of its banking affiliates', or the Service Organizations' Sweep
Account procedures.
MINIMUM INVESTMENT
Except as otherwise discussed below under "Auto Invest Plan," the minimum
investment is $1,000 for the initial purchase of Shares of either Fund by an
investor and $25 for subsequent purchases of Shares of that Fund.
The initial minimum investment amount is reduced to $250 for employees of
the Advisor, Sub-Advisor, Keystone or any of their affiliates.
Depending upon the terms of a particular Customer's account, the Entities
or their affiliates may charge a Customer account fees for automatic investment
and other cash management services provided in connection with an investment in
the Funds. Information concerning these services and any charges will be
provided by the Entities. This Prospectus should be read in conjunction with any
such information received from the Entities or their affiliates.
The Trust reserves the right to reject any order for the purchase of
Shares in whole or in part, including purchases made with foreign checks and
third party checks not originally made payable to the order of the investor.
Every Shareholder will receive a confirmation of each new transaction in
his or her account, which will also show the total number of Shares owned by the
Shareholder and the number of Shares being held in safekeeping by the Transfer
Agent for the account of the Shareholder. Reports of purchases and redemptions
of Shares by Entities on behalf of their Customers will be sent by the Entities
to their Customers. Shareholders may rely on these statements in lieu of
certificates. Certificates representing Shares will not be issued.
AUTO INVEST PLAN
The Governor Funds Auto Invest Plan enables Shareholders to make regular
monthly or quarterly purchases of Investor Shares of the Funds through automatic
deduction from their bank accounts, provided that the Shareholder's bank is a
member of the Federal Reserve and the Automated Clearing House (ACH) system.
With Shareholder authorization the Transfer Agent will deduct the amount
specified (subject to the applicable minimums) from the Shareholder's bank
account which will automatically be invested in Investor Shares of the
designated Fund at the public offering price next determined after receipt of
payment by the Transfer Agent. The required minimum initial investment when
opening an account using the Auto Invest Plan is $250; the minimum amount for
subsequent investments is $25. To participate in the Auto Invest Plan,
Shareholders should complete the appropriate section of the Account Registration
Form or a supplemental sign-up form which can be acquired by calling the Trust
at (800) [766-3960]. For
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a Shareholder to change the Auto Invest instructions, the request must be made
in writing to the Trust at: 3435 Stelzer Road, Columbus, Ohio 43219.
The Trust may eliminate or change the Auto Invest Plan at any time or from
time to time without notice thereof.
GOVERNOR FUNDS INDIVIDUAL RETIREMENT ACCOUNT ("IRA")
A Governor Funds IRA enables individuals, even if they participate in an
employer-sponsored retirement plan, to establish their own retirement program.
Governor Funds IRA contributions may be tax-deductible and earnings are tax
deferred. Under the Tax Reform Act of 1986, the tax deductibility of IRA
contributions is restricted or eliminated for individuals who participate in
certain employer pension plans and whose annual income exceeds certain limits.
Existing IRAs and future contributions up to the IRA maximums, whether
deductible or not, still earn income on a tax-deferred basis.
All Governor Funds IRA distribution requests must be made in writing to
the Distributor. Any deposits to a Governor Funds IRA must distinguish the type
and year of the contributions.
For more information on the Governor Funds IRAs call the Trust at (800)
[766-3960]. Investment in Shares of the Governor Funds Pennsylvania Municipal
Bond Fund or any other tax-exempt fund would not be appropriate for a Governor
Funds IRA. Shareholders are advised to consult a tax advisor on Governor Funds
IRA contribution and withdrawal requirements and restrictions.
IN-KIND PURCHASES
Payment for Shares of either Fund may, in the discretion of the Advisor or
Sub-Advisor, be made in the form of securities that are permissible investments
for that Fund as described in this Prospectus. For further information about
this form of payment, contact the Advisor or Sub-Advisor. In connection with an
in-kind securities payment, the applicable Fund will require, among other
things, that the securities be valued on the date of purchase in accordance with
the pricing methods used by that Fund and that the Fund receive satisfactory
assurances that it will have good and marketable title to the securities
received by it; that the securities be in proper form of transfer to the Fund;
and that adequate information be provided concerning the basis and other tax
matters relating to the securities.
GENERAL
Shares of each Fund are purchased at the net asset value per share (see
"VALUATION OF SHARES") next determined after receipt by the Distributor, its
agents or broker-dealers with whom it has an agreement of an order in good form
to purchase Shares. Purchases of Shares of a Fund will be effected only on a
Business Day (as defined in "VALUATION OF SHARES") of that Fund.
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There is no sales charge imposed by either Fund in connection with the
purchase of its Shares.
The Distributor, at its expense, will also provide additional compensation
to dealers in connection with sales of Shares of the Funds. Such compensation
will include financial assistance to dealers in connection with conferences,
sales or training programs for their employees, seminars for the public,
advertising campaigns regarding the Funds, and/or other dealer-sponsored special
events. In some instances, this compensation will be made available only to
certain dealers whose representatives have sold a significant amount of such
Shares. Compensation will include payment for travel expenses, including
lodging, incurred in connection with trips taken by invited registered
representatives and members of their families to locations within or outside of
the United States for meetings or seminars of a business nature. Compensation
will also include the following types of non-cash compensation offered through
sales contests: (1) vacation trips, including the provision of travel
arrangements and lodging at luxury resorts at an exotic location, (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 Fund'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 Funds or their Shareholders.
EXCHANGE PRIVILEGE
Shares of the Funds may be exchanged for Shares of any other Fund of the
Trust if the amount to be exchanged meets the applicable minimum investment
requirements and the exchange is made in states where it is legally authorized.
Each exchange will be made at respective net asset values except that a sales
charge, equal to the difference, if any, between the sales charge payable upon
the purchase of shares of the Fund of the Trust to be acquired in the exchange
and the sales charge previously paid on the Shares to be exchanged, will be
assessed. In determining the sales charge previously paid on the Shares to be
exchanged, such Shares may include Shares which were acquired through a previous
exchange for shares on which a sales charge was paid. Under such circumstances,
the Shareholder must notify the Trust that a sales charge was originally paid
and provide the Trust with sufficient information to permit confirmation of the
Shareholder's right not to pay a sales charge.
An exchange is considered a sale of Shares for federal income tax
purposes.
The Trust may at any time modify or terminate the foregoing exchange
privileges. The Trust, however, will give Shareholders 60 days' advance written
notice of any such modification.
A Shareholder wishing to exchange his or her Shares may do so by
contacting the Trust at (800) [766-3960] or by providing written instructions to
the Trust. Any Shareholder who wishes to make an exchange should obtain and
review the current prospectus of the fund in which he or she wishes to invest
before making the exchange. For a discussion of risks associated with
unauthorized telephone exchanges, see "Redemption by Telephone" below.
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REDEMPTION OF INVESTOR SHARES
Investor Shares may ordinarily be redeemed by mail or by telephone.
However, all or part of a Customer's Investor Shares may be redeemed in
accordance with instructions and limitations pertaining to his or her account at
an Entity. For example, if a Customer has agreed with an Entity to maintain a
minimum balance in his or her account with the Entity, and the balance in that
account falls below that minimum, the Customer may be obliged to redeem, or the
Entity may redeem on behalf of the Customer, all or part of the Customer's
Investor Shares of a Fund to the extent necessary to maintain the required
minimum balance. Also, Investor Shares may be redeemed using the check writing
feature described below.
Redemption by Mail
A written request for redemption must be received by the Trust, at the
address shown on the front page of this Prospectus, in order to honor the
request. The Transfer Agent will require a signature guarantee by an eligible
guarantor institution. The signature guarantee requirement will be waived if 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 mailed or wired to a commercial bank
account previously designated on the Account Registration Form. There is no
charge for having redemption proceeds mailed to a designated bank account. To
change the address to which a redemption check is to be mailed, a written
request therefor must be received by the Transfer Agent. In connection with such
request, the Transfer Agent will require a signature guarantee by an eligible
guarantor institution. For purposes of this policy, the term "eligible guarantor
institution" shall include banks, brokers, dealers, credit unions, securities
exchanges and associations, clearing agencies and savings associations as those
terms are defined in 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.
Redemption by Telephone
If a Shareholder has so designated on the Account Registration Form, a
Shareholder may request a redemption of his or her Investor Shares by
telephoning the Trust and having the payment of redemption proceeds sent
electronically directly to a domestic commercial bank account previously
designated by the Shareholder on the Account Registration Form. A shareholder
may also have such payment mailed directly to the Shareholder at the
Shareholder's address as recorded by the Transfer Agent. However, this option
may be suspended for a period of 30 days following a telephonic address change.
Under most circumstances, such payments will be transmitted on the next Business
Day following receipt of a valid request for redemption. The Trust may reduce
the amount of a wire redemption payment by the then-current wire redemption
charge of the Funds' custodian. There is currently no charge for having payment
of redemption requests mailed or sent electronically to a designated bank
account. For telephone redemptions, call the Trust at (800) [766-3960].
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Neither the Trust, the Funds nor their service providers will be liable
for any loss, damages, expense or cost arising out of any telephone redemption
effected in accordance with the Trust's telephone redemption procedures, acting
upon instructions reasonably believed to be genuine. The Trust will employ
procedures designed to provide reasonable assurance that instructions by
telephone are genuine; if these procedures are not followed, the Trust, the
Funds or their service providers may be liable for any losses due to
unauthorized or fraudulent instructions. These procedures include recording all
phone conversations, sending confirmations to Shareholders within 72 hours of
the telephone transaction, verification of account name and account number or
tax identification number, and sending redemption proceeds only to the address
of record or to a previously authorized bank account. If, due to temporary
adverse conditions, Shareholders are unable to effect telephone transactions,
Shareholders may also mail the redemption request to the Trust at the address
shown on the front page of this Prospectus.
Auto Withdrawal Plan
The Auto Withdrawal Plan enables Shareholders of a Fund, with an account
balance in such Fund of $5,000 or more, to make regular monthly or quarterly
redemptions of Investor Shares. With Shareholder authorization, the Transfer
Agent will automatically redeem Shares at the net asset value on the dates of
the withdrawal and have a check in the amount specified mailed to the
Shareholder. The required minimum withdrawal is $50 monthly. To participate in
the Auto Withdrawal Plan, Shareholders should call (800) [766-3960] for more
information. For a Shareholder to change the Auto Withdrawal instructions, the
request must be made in writing to the Trust.
Check-Writing Redemption Procedure
The Transfer Agent will provide any Shareholder of a Fund who so requests
with a supply of checks, imprinted with the Shareholder's name, which may be
drawn against that Fund's account maintained by The Bank of New York (the
"Bank"), for redemption of Investor Shares. These checks may be made payable to
the order of any person in any amount not less than $500. To participate in this
procedure, an investor must complete the Check-Writing Redemption Form available
from the Transfer Agent. When a check is presented to the Bank for payment, the
Transfer Agent (as the Shareholder's agent) will cause the applicable Fund to
redeem sufficient Investor Shares in the Shareholder's account to cover the
amount of the check. Shares continue earning daily dividends until the day on
which the check is presented to the Bank for payment. Cancelled checks will be
returned to the Shareholder. Due to the delay caused by the requirement that
redemptions be priced at the next computed net asset value, the Bank will only
accept for payment checks presented through normal bank clearing channels.
Shareholders should not attempt to withdraw the full amount of an account or to
close out an account by using this procedure.
No charge will be made to a Shareholder for participation in the
check-writing redemption procedure or for the clearance of any checks. However,
a Shareholder's account may be subject to charges for copies, returned checks
and/or returned items of deposit.
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In order to stop payment on a check, the Shareholder must notify the Trust
in writing before the check has been presented to the Bank for payment. A charge
may be deducted from the Shareholder's account for each stop payment order.
REDEMPTION OF S SHARES
If, on any Business Day that Keystone, any of its banking affiliates and
the particular Service Organization are open for business, withdrawals and
charges to your Sweep Account, including without limitation check transactions,
exceed deposits and credits, Keystone, any of its banking affiliates or the
particular Service Organization, as applicable, will transmit a redemption order
on your behalf to the Prime Money Market Fund in the dollar amount of that day's
Net Sweep Amount. If your Sweep Account with Keystone, any of its banking
affiliates or the particular Service Organization, as applicable, is closed as
described in the Sweep Materials, Keystone, any of its banking affiliates or the
particular Service Organization, as applicable, will normally transmit a
redemption request on your behalf to the Prime Money Market Fund for the balance
of the S Shares of the Prime Money Market Fund held through your Sweep Account.
Redemptions are effected by the Trust on a Business Day at the net asset value
per share next determined after receipt of the redemption order by the Trust. It
is the responsibility of Keystone, any of its banking affiliates or the
particular Service Organization to transmit the redemption order and credit its
customer's Transaction Account with the redemption proceeds on a timely basis.
Keystone, any of its banking affiliates or the Service Organization may withhold
redemption proceeds pending check collection or processing or other reasons all
as set forth more fully in the Sweep Materials.
DIVIDENDS AND TAXES
Payments to Shareholders
Redemption orders are effected at the net asset value per share next
determined after the Shares are properly tendered for redemption, as described
above. Payment to Shareholders for Shares redeemed will be made within seven
days after receipt by the Distributor of the request for redemption. However, to
the greatest extent possible, each Fund will attempt to honor requests from
Shareholders for same day payments upon redemption of Shares if the request for
redemption is received by the Distributor before 12:00 noon, Eastern Time, on a
Business Day or, if the request for redemption is received after 12:00 noon,
Eastern Time, to honor requests for payment on the next Business Day. The Funds
will attempt to so honor redemption requests unless it would be disadvantageous
to that Fund or its Shareholders to sell or liquidate portfolio securities in an
amount sufficient to satisfy requests for payments in that manner.
At various times, the Trust may be requested to redeem Shares for which it
has not yet received good payment. In such circumstances, the Trust may delay
the forwarding of proceeds for up to 15 days or more until payment has been
collected for the purchase of such Shares. During the period of any such delay,
Shares to be redeemed would continue to receive daily dividends as declared
until execution of the redemption. The Trust intends to pay cash for all Shares
redeemed, but under abnormal conditions which make payment in cash unwise, the
Trust
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<PAGE> 28
may make payment wholly or partly in portfolio securities at their then market
value equal to the redemption price. In such cases, an investor may incur
brokerage costs in converting such securities to cash.
Due to the relatively high cost of handling small investments, the Trust
reserves the right to redeem, at net asset value, the Shares of a Fund of any
Shareholder if, because of redemptions of Shares by or on behalf of the
Shareholder (but not as a result of the establishment of an account with less
than $1,000 using the Auto Invest Plan), the account of such Shareholder has a
value of less than $1,000 ($250 if the Shareholder is an employee of the
Advisor, Sub-Advisor or one of its affiliates). Accordingly, an investor
purchasing Shares of a Fund in only the minimum investment amount may be subject
to such involuntary redemption if he or she thereafter redeems some of his or
her Shares. Before the Trust exercises its right to redeem such Shares and to
send the proceeds to the Shareholder, the Shareholder will be given notice that
the value of the Shares in his or her account is less than the minimum amount
and will be allowed at least 60 days to make an additional investment in an
amount which will increase the value of the account to at least $1,000 ($250 if
the Shareholder is an employee of the Advisor, Sub-Advisor or one of its
affiliates).
See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION" in the Statement of
Additional Information for examples of when the Trust may suspend the right of
redemption or redeem shares involuntarily in light of the Trust's
responsibilities under the 1940 Act.
DIVIDENDS
The net income of the Shares of each Fund is declared daily and such
dividends are generally paid monthly. Shareholders of both Funds will
automatically receive all income dividends and capital gains distributions in
additional full and fractional Shares of the appropriate Fund at the net asset
value as of the date of payment, unless the Shareholder elects to receive
dividends or distributions in cash. Such election, or any revocation thereof,
must be made in writing to the Transfer Agent at 3435 Stelzer Road, Columbus,
Ohio 43219, and will become effective with respect to dividends and
distributions having record dates after its receipt by the Transfer Agent.
Distributable net realized capital gains, if any, for the Funds are
distributed at least annually. Dividends are paid in cash not later than seven
Business Days after a Shareholder's complete redemption of his or her Shares in
a Fund.
Dividends on each Share of a Fund are determined in the same manner and
are paid in the same amounts irrespective of class, except that the Investor
Shares and the S Shares of the Prime Money Market Fund bear all expenses of its
Administrative Services Plan.
If a Shareholder elects to receive distributions in cash, and checks (1)
are returned and marked as "undeliverable" or (2) remain uncashed for six
months, the Shareholder's cash election will be changed automatically and future
dividend and capital gains distributions will be
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<PAGE> 29
reinvested in the applicable Fund at the per share net asset value determined as
of the date of payment of the distribution. In addition, any undeliverable
checks or checks that remain uncashed for six months will be canceled and will
be reinvested in that Fund at the per share net asset value determined as of the
date of cancellation.
FEDERAL TAXES
Each Fund's distributions will generally be taxable to shareholders. Each
Fund expects that all, or substantially all, of its 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.
You should consult your tax adviser for further information regarding
federal, state and local tax consequences with respect to your specific
situation.
You will be advised at least annually as to the federal income tax
consequences of distributions made to you during the year.
MANAGEMENT OF THE TRUST
TRUSTEES OF THE TRUST
Overall responsibility for management of the Trust rests with its Board of
Trustees. Unless so required by the Trust's Declaration of Trust or By-Laws or
by Delaware law, at any given time all of the Trustees may not have been elected
by the shareholders of the Trust. The Trust will be managed by the Trustees in
accordance with the laws of Delaware governing business trusts. The Trustees, in
turn, elect the officers of the Trust to supervise its day-to-day operations.
The Trustees of the Trust receive fees and are reimbursed for their
expenses in connection with each meeting of the Board of Trustees they attend.
However, no officer or employee of Keystone, BISYS Fund Services, Inc., the sole
general partner of BISYS, BISYS, BISYS Ohio or their affiliates receives any
compensation from the Trust for acting as a Trustee of the Trust. The officers
of the Trust receive no compensation directly from the Trust for performing the
duties of their offices. The Advisor and BISYS Ohio receive fees from each Fund
for providing certain services as Co-Administrators.
ADVISORS
Governors Group Advisors, Inc. is the investment adviser of each Fund.
The Advisor is a wholly owned subsidiary of Keystone Financial, Inc., 1
Keystone Plaza, Harrisburg, Pennsylvania 17101 ("Keystone"). The Advisor was
organized in 1998 and has not previously served as the investment adviser to
a registered open-end management investment company.
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<PAGE> 30
Subject to the general supervision of the Board of Trustees of the Trust
and in accordance with the investment objective and restrictions of each Fund,
the Advisor has agreed to manage each Fund, make decisions with respect to and
places orders for all purchases and sales of its portfolio securities, and
maintain each Fund's records relating to such purchases and sales.
The Advisor has entered into a Sub-Advisory Agreement with Martindale
Andres & Company, Inc. (the "Sub-Advisor"), Four Falls Corporate Center, Suite
200, West Conshohocken, Pennsylvania 19428. The Sub-Advisor is also a
wholly-owned subsidiary of Keystone. The Sub-Advisor was organized in 1989 and
was acquired by Keystone in December 1995. Subject to the supervision of the
Advisor and the Board of Trustees of the Trust and in accordance with the
investment objective and restrictions of each Fund, the Sub-Advisor manages each
Fund, makes decisions with respect to and places orders for all purchases and
sales of its portfolio securities, and maintains each Fund's records relating to
such purchases and sales.
For the services provided and expenses assumed pursuant to their
respective Agreements: the Advisor is entitled to receive an advisory fee from
each Fund, computed daily and paid monthly, at the annual rate of .40% of such
Fund's average daily net assets; and the Sub-Advisor is entitled to receive from
the Advisor a sub-advisory fee, computed daily and paid monthly, at an annual
rate of up to .40% of each Fund's average daily net assets. The exact amount of
the sub-advisory fee will be an amount agreed to by the Advisor, the
Sub-Advisor and the Trust from time to time, and shall initially be at the
annual rate of .10% and .20%, respectively, of the Prime Money Market Fund's
and Treasury Money Market Fund's respective average daily net assets. The
sub-advisory fees paid by Advisor to Sub-Advisor have no effect on the
investment advisory fees payable by the Funds to the Advisor. For the fiscal
year or period ended June 30, 1998, the Prime Money Market Fund and Treasury
Money Market Fund paid their then adviser, Martindale Andres & Company, Inc.,
an advisory fee at an annual rate of 0.20% and 0.10% of such Funds' respective
average daily net assets.
The Advisor and Sub-Advisor may periodically voluntarily reduce all or a
portion of its advisory and sub-advisory fee with respect to one or more of the
Funds to increase the net income of that Fund available for distribution as
dividends. The Advisor and Sub-Advisor may not seek reimbursement of such
voluntarily reduced fees after the end of the fiscal year in which the fees were
reduced. The reduction of such fee will cause the yield and total return of that
Fund to be higher than they would otherwise be in the absence of such a
reduction.
ADMINISTRATORS AND DISTRIBUTOR
BISYS Ohio and the Advisor (collectively, the "Administrators") serve as
each Fund's administrators. BISYS acts as the Trust's principal underwriter and
distributor (the "Distributor"). BISYS, BISYS Ohio and their affiliated
companies, including BISYS Fund Services, Inc., are wholly owned by The BISYS
Group, Inc., a publicly-held company which is a provider of information
processing, loan servicing and 401(k) administration and recordkeeping services
to and through banking and other financial organizations.
The Administrators generally assist in all aspects of each Fund's
administration and operation. For expenses assumed and services provided as
administrator pursuant to its
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<PAGE> 31
management and administration agreement with the Trust, the Administrators are
entitled jointly to annual fees, computed daily and paid periodically,
calculated at an annual rate of .15% of that Fund's average daily net assets.
The Administrators may periodically voluntarily reduce all or a portion of their
administration fee with respect to one or more of the Funds to increase the net
income of that Fund available for distribution as dividends. The Administrators
may not seek reimbursement of such reduced fees after the end of the fiscal year
in which the fees were reduced. The voluntary reduction of such fee will cause
the yield and total return of that Fund to be higher than they would otherwise
be in the absence of such a fee reduction. For the fiscal year or period ended
June 30, 1998, the Prime Money Market Fund and Treasury Money Market Fund paid
their then administrator, BISYS, an administration fee at the annual rate of
0.115% each of the respective average daily net assets of each Fund.
The Distributor acts as agent for the Funds in the distribution of their
Shares and, in such capacity, solicits orders for the sale of Shares,
advertises, and pays the costs of advertising, office space and its personnel
involved in such activities. The Distributor receives no compensation under its
Distribution Agreement with the Trust.
EXPENSES
The Advisors and the Administrators bear all expenses in connection with
the performance of their services as investment advisers and administrators,
respectively, other than the cost of securities (including brokerage
commissions, if any) purchased for the Funds. Each Fund will bear the following
expenses relating to its operations: organizational expenses, taxes, interest,
any brokerage fees and commissions, fees and expenses of the Trustees of the
Trust, Commission fees, state securities qualification fees, costs of preparing
and printing prospectuses for regulatory purposes and for distribution to the
Fund's current shareholders, outside auditing and legal expenses, advisory fees,
fees and out-of-pocket expenses of the custodian, fund accountant and Transfer
Agent, costs for independent pricing services, certain insurance premiums, costs
of maintenance of the Trust's existence, costs of shareholders' reports and
meetings, expenses incurred under the Administrative Services Plan described
below and any extraordinary expenses incurred in the Fund's operation.
ADMINISTRATIVE SERVICES PLAN
The Trust has adopted an Administrative Services Plan (the "Services
Plan") pursuant to which each Fund is authorized to pay compensation to banks
and other financial institutions (each a "Service Organization"), which may
include the Advisors, Keystone and its banking affiliates, Entities, and BISYS,
which agree to provide certain ministerial, record keeping and/or administrative
support services for their customers or account holders (collectively,
"customers") who are the beneficial or record owner of Investor Shares or S
Shares of that Fund. In consideration for such services, a Service Organization
receives a fee from each Fund, computed daily and paid monthly, at an annual
rate of up to .25% of the average daily net asset value of Shares of that Fund
owned beneficially or of record by such Service Organization's customers for
whom the Service Organization provides such services.
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The servicing agreements adopted under the Services Plan (the "Servicing
Agreements") require the Service Organizations receiving such compensation to
perform certain ministerial, record keeping and/or administrative support
services with respect to the beneficial or record owners of Shares of the Funds,
such as processing dividend and distribution payments from the Funds on behalf
of customers, providing periodic statements to customers showing their positions
in the Shares of the Funds, providing sub-accounting with respect to Shares
beneficially owned by such customers, providing customers with a service that
invests the assets of their accounts in Shares of the Funds pursuant to specific
or pre-authorized instructions and developing, maintaining and supporting
systems to support cash management services such as Sweep Accounts for S Shares.
Each class of Shares bears its own expenses under the Services Plan.
SERVICE ORGANIZATIONS
The Trust understands that Service Organizations providing such
administrative services may also charge fees to their customers beneficially
owning Shares. These fees would be in addition to any amount which may be
received by such a Service Organization under its Servicing Agreement with the
Trust. Customers of such a Service Organization receiving servicing fees should
read this Prospectus and the terms governing their accounts with their Service
Organization.
BANKING LAWS
The Advisors believe that they possess the legal authority to perform the
investment advisory and administration services for each Fund contemplated by
its investment advisory and administration agreements with the Trust, as
described in this Prospectus, without violation of applicable banking laws and
regulations. Future changes in Federal or state statutes and regulations
relating to permissible activities of banks or bank holding companies and their
subsidiaries and affiliates as well as further judicial or administrative
decisions or interpretations of present and future statutes and regulations
could change the manner in which the Advisors could continue to perform such
services for the Funds. See "MANAGEMENT AND SERVICE PROVIDERS OF THE TRUST -
Glass-Steagall Act" in the Statement of Additional Information for further
discussion of applicable law and regulations.
GENERAL INFORMATION
DESCRIPTION OF THE TRUST AND ITS SHARES
The Trust was organized as a Delaware business trust on September 3, 1998.
The Trust consists of twelve funds, each having its own class(es) of shares.
Each share represents an equal proportionate interest in a fund with other
shares of the same class of shares the fund, and is entitled to such dividends
and distributions out of the income earned on the assets belonging to the same
class of shares of the fund as are declared at the discretion of the Trustees
(see "Miscellaneous" below). The other funds of the Trust are the Established
Growth, Aggressive
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<PAGE> 33
Growth, Emerging Growth, International Equity, Intermediate Term Income, Limited
Duration Government Securities, Pennsylvania Municipal Bond, Lifestyle
Conservative Growth, Lifestyle Moderate Growth and Lifestyle Growth Funds.
Shareholders are entitled to one vote for each dollar of value invested
and a proportionate fractional vote for any fraction of a dollar invested, and
will vote in the aggregate and not by fund except as otherwise expressly
required by law. For example, Shareholders of the Prime Money Market Fund will
vote in the aggregate with other shareholders of the Trust with respect to the
election of Trustees. However, Shareholders of that Fund will vote as a fund,
and not in the aggregate with other shareholders of the Trust, for purposes of
approval or amendment of the Prime Money Market Fund's investment advisory
agreement. Similarly, only holders of Shares of a particular class of the Prime
Money Market Fund will vote on matters pertaining to that class under the
Services Plan.
Overall responsibility for the management of each Fund is vested in the
Board of Trustees of the Trust. See "MANAGEMENT OF THE TRUST - Trustees of the
Trust." Individual Trustees are elected by the shareholders of the Trust,
although Trustees may, under certain circumstances, fill vacancies, including
vacancies created by expanding the size of the Board. Trustees may be removed by
the Board of Trustees or shareholders in accordance with the provisions of the
Declaration of Trust and By-Laws of the Trust and Delaware law. See "ADDITIONAL
INFORMATION - Miscellaneous" in the Statement of Additional Information for
further information.
An annual or special meeting of shareholders to conduct necessary business
is not required by the Declaration of Trust, the 1940 Act or other authority
except, under certain circumstances, to elect Trustees, amend the Declaration of
Trust, the investment advisory agreement or a Fund's fundamental policies and to
satisfy certain other requirements. To the extent that such a meeting is not
required, the Trust does not intend to have an annual or special meeting of
shareholders.
As of September 17, 1998, Keystone possessed, on behalf of its or its
affiliates' underlying accounts, voting or investment power with respect to more
than 25% of the outstanding Shares of each of the Funds.
CUSTODIAN
The Bank of New York serves as the custodian for each Fund.
TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio 43219, serves
as the Funds' transfer agent pursuant to a Transfer Agency Agreement with the
Trust and receives a fee for such services. BISYS Fund Services, Inc. also
provides certain accounting services for the Funds pursuant to a Fund
Accounting Agreement and receives a fee from the Trust for such services
for all the Trust's funds computed at an annual rate of 0.03% (0.04% for the
International Equity Fund) of the
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<PAGE> 34
Trust's average daily net assets up to $2 billion and 0.02% (0.03% for the
International Equity Fund) of the Trust's average daily net assets of $2
billion or more, subject to a minimum annual fee of $30,000 ($40,000 for the
International Equity Fund and $35,000 for the Pennsylvania Municipal Bond
Fund). See "MANAGEMENT AND SERVICE PROVIDERS OF THE TRUST - Transfer Agency and
Fund Accounting Services" in the Statement of Additional Information for
further information. For the fiscal year ended June 30, 1998, the Prime Money
Market and Treasury Money Market Funds paid BISYS Fund Services, Inc. an
accounting services fee of ___% and ___% of each Fund's respective average
daily net assets.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and annual reports
audited by independent public accountants.
As used in this Prospectus and in the Statement of Additional Information,
"assets belonging to the fund" means the consideration received by a fund upon
the issuance or sale of shares in the fund, together with all income, earnings,
profits, and proceeds derived from the investment thereof, including any
proceeds from the sale, exchange, or liquidation of such investments, and any
funds or amounts derived from any reinvestment of such proceeds, and any general
assets of the Trust not readily identified as belonging to a particular fund
that are allocated to such fund by the Trust's Board of Trustees. The Board of
Trustees may allocate such general assets in any manner it deems fair and
equitable. Determinations by the Board of Trustees of the Trust as to the timing
of the allocation of general liabilities and expenses and as to the timing and
allocable portion of any general assets with respect to the Funds are
conclusive.
As used in this Prospectus and in the Statement of Additional Information,
a "vote of a majority of the outstanding Shares" of a Fund or a class of Shares
of a Fund means the affirmative vote, at a meeting of Shareholders duly called,
of the lesser of (a) 67% or more of the votes of Shareholders of that Fund or
that class of Shares of that Fund present at a meeting at which the holders of
more than 50% of the votes attributable to Shareholders of record of such Fund
or such class of shares of such Fund or such class of Shares of such Fund are
represented in person or by proxy, or (b) the holders of more than 50% of the
outstanding votes of Shareholders of that Fund or that class of Shares of that
Fund.
Inquiries regarding the Funds may be directed in writing to the Trust at
3435 Stelzer Road, Columbus, Ohio 43219, or by calling toll free (800)
[766-3960].
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<PAGE> 35
INVESTMENT ADVISOR
Governors Group Advisors, Inc.
23 Front Street
Harrisburg, Pennsylvania 17101
INVESTMENT SUB-ADVISOR
Martindale Andres & Company, Inc.
Four Falls Corporate Center, Suite 200
West Conshohocken, Pennsylvania 19428
CO-ADMINISTRATORS
Governors Group Advisors, Inc.
23 Front Street
Harrisburg, Pennsylvania 17101
BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
DISTRIBUTOR
BISYS Fund Services Limited Partnership
3435 Stelzer Road
Columbus, Ohio 43219
LEGAL COUNSEL
Drinker Biddle & Reath LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107
AUDITORS
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TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY ..................................................... 3
FEE TABLE .............................................................. 5
FINANCIAL HIGHLIGHTS ................................................... 6
PERFORMANCE INFORMATION ................................................ 8
INVESTMENT OBJECTIVES AND POLICIES ..................................... 9
INVESTMENT RESTRICTIONS ................................................ 16
VALUATION OF SHARES .................................................... 17
HOW TO PURCHASE AND REDEEM SHARES ...................................... 18
DIVIDENDS AND TAXES .................................................... 25
MANAGEMENT OF THE TRUST ................................................ 27
GENERAL INFORMATION .................................................... 30
<PAGE> 37
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS
OR THEIR DISTRIBUTOR, BISYS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
THE FUNDS OR BY BISYS IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
-2-
<PAGE> 38
Governor Funds
[LOGO]
Prime
Money
Market Fund
Investor and S Shares
U.S. Treasury
Obligations Money
Market Fund
Investor Shares
Governors Group Advisors,
Inc.
Investment Advisor
Martindale Andres &
Company, Inc.
Investment Sub-Advisor
Prospectus dated ____ __,
1998
-3-
<PAGE> 39
CROSS REFERENCE SHEET
ESTABLISHED GROWTH FUND
AGGRESSIVE GROWTH FUND
EMERGING GROWTH FUND
INTERNATIONAL EQUITY FUND
INTERMEDIATE TERM INCOME FUND
LIMITED DURATION GOVERNMENT SECURITIES FUND
PENNSYLVANIA MUNICIPAL BOND FUND
LIFESTYLE CONSERVATIVE GROWTH FUND
LIFESTYLE MODERATE GROWTH FUND
LIFESTYLE GROWTH FUND
Ten Funds
of
The Governor Funds
<TABLE>
<CAPTION>
Form N-1A Part A Item Prospectus Caption
- --------------------- ------------------
<S> <C>
1. Cover page.................. Cover Page
2. Synopsis.................... Fee Table
3. Condensed Financial
Information............... Financial Highlights; Performance Information
4. General Description of
Registrant................ Investment Objectives and Policies; Investment Restrictions;
General Information - Description of the Trust and Its Shares;
Cover Page
5. Management of the Fund...... Management of the Trust; General Information - Custodian; General
Information - Transfer Agency and Fund Accounting Services
5A. Management Discussion
of Fund Performance....... Inapplicable
6. Capital Stock and Other
Securities................ How to Purchase and Redeem Shares; Dividends and Taxes; General
Information - Description of the Trust and Its Shares; General
Information - Miscellaneous
7. Purchase of Securities
Being Offered............. Valuation of Shares; How to Purchase and Redeem Shares; Management
of the Trust
8. Redemption or Repurchase.... How to Purchase and Redeem Shares
</TABLE>
Page 1
<PAGE> 40
<TABLE>
<S> <C>
9. Pending Legal Proceedings... Inapplicable
</TABLE>
Page 2
<PAGE> 41
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED ____________, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
ESTABLISHED GROWTH FUND
AGGRESSIVE GROWTH FUND
EMERGING GROWTH FUND
INTERNATIONAL EQUITY FUND
INTERMEDIATE TERM INCOME FUND
LIMITED DURATION GOVERNMENT SECURITIES FUND
PENNSYLVANIA MUNICIPAL BOND FUND
LIFESTYLE CONSERVATIVE GROWTH FUND
LIFESTYLE MODERATE GROWTH FUND
LIFESTYLE GROWTH FUND
[LOGO]
3435 Stelzer Road For current yield, purchase, and
Columbus, Ohio 43219 redemption information, call
(800) 766-3960.
The Governor Funds (the "Trust") is an open-end management investment
company consisting of twelve portfolios, ten of which are described herein. This
Prospectus relates only to the following ten portfolios: Established Growth
Fund, Aggressive Growth Fund, International Equity Fund, Emerging Growth Fund,
Intermediate Term Income Fund (the "Income Fund"), Limited Duration Government
Securities Fund (the "Government Securities Fund"), Pennsylvania Municipal Bond
Fund (the "Pennsylvania Bond Fund"), Lifestyle Conservative Growth Fund,
Lifestyle Moderate Growth Fund and Lifestyle Growth Fund (collectively with the
Lifestyle Conservative Growth and Lifestyle Moderate Growth Funds, the
"Lifestyle Funds"). With the exception of Pennsylvania Bond Fund (which is a
non-diversified portfolio), each portfolio is a diversified portfolio of the
Trust (hereinafter collectively referred to by name, or as the "Funds," or
individually as a "Fund"). The Trustees of the Trust have divided each Fund's
beneficial ownership into an unlimited number of transferable units called
shares (the "Shares").
Page 1
<PAGE> 42
Governors Group Advisors, Inc., 23 Front Street, Harrisburg,
Pennsylvania (the "Advisor"), and Martindale Andres & Company, Inc., West
Conshohocken, Pennsylvania, (the "Sub-Advisor," or "Martindale Andres"), are
wholly owned subsidiaries of Keystone Financial, Inc. ("Keystone"), and act as
the respective advisor and sub-advisor to each of the Funds other than the
International Equity Fund. The Advisor and Brinson Partners, Inc., Chicago,
Illinois, (the "International Equity Fund Sub-Advisor" or, collectively with the
Sub-Advisor, the "Sub-Advisors"), a wholly owned subsidiary of UBS AG, act as
the respective advisor and sub-advisor for the International Equity Fund.
Additional information about the Funds and the Trust, contained in a
Statement of Additional Information, has been filed with the Securities and
Exchange Commission and is available upon request without charge by writing to
the Trust at its address or by calling the Trust at the telephone number shown
above. The Statement of Additional Information bears the same date as this
Prospectus and is incorporated by reference in its entirety into this
Prospectus.
This Prospectus sets forth concisely the information about the Funds
and the Trust that a prospective investor ought to know before investing.
Investors should read this Prospectus and retain it for future reference.
Each Fund's net asset value per share will fluctuate as the value of
its holdings changes in response to changing market prices and/or other factors.
BISYS Fund Services Ohio, Inc. ("BISYS Ohio"), Columbus, Ohio, and the
Advisor act as the Funds' administrators. BISYS Fund Services Limited
Partnership d/b/a BISYS Fund Services ("BISYS") acts as the Funds' distributor.
BISYS Fund Services, Inc., Columbus, Ohio, the general partner of BISYS, acts as
the Funds' transfer agent (the "Transfer Agent") and performs certain fund
accounting services for each of the Funds.
THE SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, THE ADVISOR, SUB-ADVISORS, KEYSTONE OR ANY OF THEIR
AFFILIATES. SUCH SHARES ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER GOVERNMENTAL AGENCY, AND AN INVESTMENT IN A FUND INVOLVES CERTAIN
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is ________, 1998.
Page 2
<PAGE> 43
PROSPECTUS SUMMARY
SHARES OFFERED: Shares of the Established Growth Fund, Aggressive
Growth Fund, Emerging Growth Fund, International Equity Fund, Income Fund,
Government Securities Fund, Pennsylvania Bond Fund, Lifestyle Conservative
Growth Fund, Lifestyle Moderate Growth Fund and Lifestyle Growth Fund, ten
separate investment Funds of the Governor Funds, a Delaware business trust (the
"Trust").
OFFERING PRICE: The Government Securities Fund has a public offering
price equal to the net asset value per share plus a sales charge of 3.00% of the
public offering price, reduced on investments of $100,000 or more. The public
offering price of each of the other Funds is equal to the net asset value per
share plus a sales charge of 4.50% of the public offering price, reduced on
investments of $100,000 or more (See "HOW TO PURCHASE AND REDEEM SHARES -- Sales
Charges"). Under certain circumstances, the sales charge may be eliminated (See
"HOW TO PURCHASE AND REDEEM SHARES -- Sales Charge Waivers").
MINIMUM PURCHASE: $1,000 minimum initial investment with $25 minimum
subsequent investments. Such minimum initial investment is reduced for investors
using the Auto Invest Plan described herein and for employees of the Advisor,
Sub-Advisors and their affiliates.
TYPE OF COMPANY: Each Fund, with the exception of Pennsylvania Bond
Fund (which is a non-diversified series), is a diversified series of an
open-end, management investment company.
INVESTMENT OBJECTIVES: For the ESTABLISHED GROWTH FUND, growth of
capital with some current income as a secondary objective.
For the AGGRESSIVE GROWTH FUND, growth of capital.
For the EMERGING GROWTH FUND, long-term growth of capital.
For the INTERNATIONAL EQUITY FUND, capital appreciation.
For the INTERMEDIATE TERM INCOME FUND (the "Income Fund"), current
income with long-term growth of capital as a secondary objective.
For the LIMITED DURATION GOVERNMENT SECURITIES FUND (the "Government
Securities Fund"), current income with preservation of capital as a secondary
objective.
For the PENNSYLVANIA MUNICIPAL BOND FUND (the "Pennsylvania Bond
Fund"), (1) income which is exempt from federal income tax and Pennsylvania
state income tax, although such income may be subject to the federal alternative
minimum tax when received by certain Shareholders, and (2) preservation of
capital.
For the LIFESTYLE CONSERVATIVE GROWTH FUND, capital appreciation and
income.
Page 3
<PAGE> 44
For the LIFESTYLE MODERATE GROWTH FUND, capital appreciation and,
secondly, income.
For the LIFESTYLE GROWTH FUND, capital appreciation.
INVESTMENT POLICIES: Under normal market conditions, the ESTABLISHED
GROWTH FUND will invest substantially all, but under such conditions in no event
less than 65%, of its total assets in common stocks and securities convertible
into common stocks of companies with market capitalizations of at least $1
billion.
Under normal market conditions, the AGGRESSIVE GROWTH FUND will invest
substantially all, but under such conditions in no event less than 65%, of its
total assets in common stocks and securities convertible into common stocks of
companies with market capitalizations ranging between $100 million and $5
billion.
Under normal market conditions, the EMERGING GROWTH FUND will invest
substantially all, but under such conditions in no event less than 65%, of its
total assets in common stocks and securities convertible into common stocks of
growth-oriented micro-cap companies. For purposes of this policy, the Emerging
Growth Fund considers companies with equity market capitalizations, at the time
of purchase, of between $30 million and $350 million to be micro-cap companies.
Under normal market conditions, the INTERNATIONAL EQUITY FUND will
invest substantially all, but under such conditions in no event less than 65%,
of its total assets in equity securities of companies domiciled outside the
United States.
Under normal market conditions, the INCOME FUND will invest
substantially all, but under such conditions in no event less than 65%, of its
total assets in fixed income securities of all types, including high and medium
grade corporate bonds, U.S. Government bonds and mortgage-backed securities. The
Income Fund intends that, under normal market conditions, its portfolio will
maintain a dollar weighted average maturity of three to ten years.
Under normal market conditions, the GOVERNMENT SECURITIES FUND will
invest substantially all, but under such conditions in no event less than 65%,
of its total assets in securities issued or guaranteed by the U.S. Government or
its agencies and instrumentalities. Under such market conditions, the Government
Securities Fund expects to maintain an average portfolio duration of
approximately one to three years.
Under normal market conditions, the PENNSYLVANIA BOND FUND will invest
at least 80% of its net assets in municipal securities issued by or on behalf of
the Commonwealth of Pennsylvania or any county, political subdivision or
municipality thereof, including any agency, board, authority or commission of
any of the foregoing, and debt obligations issued by the Government of Puerto
Rico and other governmental entities, which generate interest income which is
exempt from federal and Pennsylvania state income taxes (but may be subject to
the federal alternative minimum tax when received by certain Shareholders).
Each of the Lifestyle Funds will invest in other funds ("Underlying
Funds") of the Trust.
Page 4
<PAGE> 45
RISK FACTORS AND SPECIAL CONSIDERATIONS: An investment in any of the
Funds is subject to certain risks, including without limitation interest rate
and market risk, as set forth in detail under "INVESTMENT OBJECTIVES AND
POLICIES -- Risk Factors and Investment Techniques." As with other mutual funds,
there can be no assurance that any of the Funds or Underlying Funds will achieve
its investment objectives. The Funds and Underlying Funds, to the extent set
forth under "INVESTMENT OBJECTIVES AND POLICIES," may engage in the following
practices: the use of repurchase agreements and reverse repurchase agreements,
entering into options and futures transactions, the short selling of securities,
the purchase of securities from primarily one state, the purchase of securities
on a when-issued or delayed-delivery basis, the lending of portfolio securities
and the purchase of foreign securities, both directly and through American
Depository Receipts, and derivatives.
INVESTMENT ADVISOR: Governors Group Advisors, Inc.
INVESTMENT SUB-ADVISORS: Martindale Andres & Company, Inc. and Brinson
Partners, Inc.
DIVIDENDS: For the Established Growth Fund and Aggressive Growth Fund,
dividends from net income are declared and generally paid quarterly. For the
Emerging Growth Fund, dividends from net income are declared and generally paid
semi-annually. For the International Equity Fund, dividends from net income are
declared and generally paid annually. For the Income Fund, Government Securities
Fund and Pennsylvania Bond Fund, dividends from net income are declared and
generally paid monthly. For the Lifestyle Funds, dividends from net income are
declared and generally paid quarterly. For all the Funds, net realized capital
gains, if any, are distributed at least annually.
DISTRIBUTOR: BISYS Fund Services Limited Partnership d/b/a BISYS Fund
Services ("BISYS").
BACKGROUND INFORMATION
The Established Growth, Aggressive Growth, Emerging Growth, Income,
Government Securities and Pennsylvania Bond Funds commenced operations on
December 2, 1996, February 3, 1997, July 1, 1998, December 2, 1996, July 1,
1997, and October 1, 1996, respectively, as separate investment portfolios
("predecessor funds") of The Sessions Group, which was organized as an Ohio
Business Trust. On or about February 2, 1999 those Funds are expected to be
reorganized as portfolios of the Trust. This prospectus reflects that
reorganization.
Page 5
<PAGE> 46
FEE TABLE
<TABLE>
<CAPTION>
ESTABLISHED AGGRESSIVE EMERGING INTERNATIONAL
GROWTH GROWTH GROWTH EQUITY
FUND FUND FUND FUND
---- ---- ---- ----
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of Offering price) 4.50% 4.50% 4.50% 4.50%
ESTIMATED ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees After Fee Waiver(1) 0.50% 0.70% 0.60% 0.40%
12b-1 Fees None None None None
Other Expenses 0.37% 0.39% 1.09% 1.03%
---- ---- ---- ----
Estimated Total Fund Operating Expenses(1)
After Fee Waiver 0.87% 1.09% 1.69% 1.43%
==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT PENNSYLVANIA
INCOME SECURITIES BOND
FUND FUND FUND
---- ---- ----
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of Offering price) 4.50% 3.00% 4.50%
ESTIMATED ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees After Fee Waiver(1) 0.30% 0.30% 0.30%
12b-1 Fees None None None
Other Expenses 0.27% 0.35% 0.28%
---- ---- ----
Estimated Total Fund Operating Expenses(1)
After Fee Waiver 0.57% 0.65% 0.58%
==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
LIFESTYLE LIFESTYLE
CONSERVATIVE MODERATE LIFESTYLE
GROWTH FUND GROWTH FUND GROWTH FUND
----------- ----------- -----------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of Offering price) 4.50% 4.50% 4.50%
ESTIMATED ANNUAL FUND OPERATING EXPENSES(2)
(as a percentage of average net assets)
Management Fees 0.15% 0.15% 0.15%
12b-1 Fees 0.50% 0.50% 0.50%
Other Expenses 1.10%(2) 1.10%(2) 1.10%(2)
---- ---- ----
Estimated Total Fund Operating Expenses(1)
After Fee Waiver 1.75% 1.75% 1.75%
==== ==== ====
</TABLE>
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<PAGE> 47
(1) The Advisor has agreed voluntarily to reduce its investment advisory
fees with respect to the Established Growth Fund, the Aggressive Growth
Fund, the Emerging Growth Fund, the International Equity Fund, the
Income Fund, the Government Securities Fund, the Pennsylvania Bond
Fund, the Lifestyle Conservative Growth Fund, the Lifestyle Moderate
Growth Fund, and the Lifestyle Growth Fund to 0.50%, 0.70%, 0.60%,
0.40%, 0.30%, 0.30%, 0.30%, 0.15%, 0.15% and 0.15%, respectively, until
further written notice to Shareholders. Absent such voluntary fee
waivers, Management Fees and Estimated Total Fund Operating Expenses
for the Established Growth Fund would be 0.75% and 1.12%, respectively;
for the Aggressive Growth Fund, would be 1.00% and 1.35%, respectively;
for the Emerging Growth Fund, would be 1.25% and 2.34%, respectively;
for the International Equity Fund, would be 0.75% and 1.78%,
respectively; for the Income Fund would be 0.60% and 0.87%,
respectively; for the Government Securities Fund, would be 0.60% and
0.95%, respectively; for the Pennsylvania Bond Fund, would be 0.60% and
0.88%, respectively; for the Lifestyle Conservative Growth Fund, would
be 0.25% and __%, respectively; for the Lifestyle Moderate Growth Fund,
would be 0.25% and __%, respectively; and for the Lifestyle Growth
Fund, would be 0.25% and __%, respectively.
(2) Includes expenses of the Underlying Funds, which are estimated based
upon the initial allocation of each Lifestyle Fund's investment in the
Underlying Funds and upon the total operating expenses of the
Underlying Funds for their fiscal year ended June 30, 1998 or their
estimated expenses for the current year. Actual Underlying Fund
expenses incurred by each Lifestyle Fund may vary with changes in the
allocation of each Lifestyle Fund's assets among the Underlying Funds
and with other events that directly affect the expenses of the
Underlying Funds.
Page 7
<PAGE> 48
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
The Established
Growth Fund $ 53 $ 72 $ 91 $147
The Aggressive
Growth Fund $ 55 $ 75 $ 97 $161
The Emerging
Growth Fund $ 60 $ 93 N/A N/A
The International
Equity Fund $ 59 $ 90 N/A N/A
The Income Fund $ 51 $ 62 $ 75 $113
The Government
Securities Fund $ 36 $ 50 $ 65 $109
The Pennsylvania
Bond Fund $ 51 $ 63 $ 76 $114
Lifestyle Conservative
Growth Fund $ 62 $ 98 N/A N/A
Lifestyle Moderate
Growth Fund $ 62 $ 98 N/A N/A
Lifestyle Growth Fund $ 62 $ 98 N/A N/A
</TABLE>
The purpose of the above fee table is to assist a potential purchaser
of Shares of a Fund in understanding the various costs and expenses that an
investor in such Fund will bear directly or indirectly. Such expenses do not
include any fees charged by the Advisor or any of its affiliates to its customer
accounts which may have invested in Shares of the Funds. The table sets forth
management fees and other expenses with respect to Shares of the Funds other
than the Emerging Growth, International Equity and the Lifestyle Growth Funds
for the fiscal year or period ended June 30, 1998, as restated to reflect
current fees that would have been applicable had they been in effect during such
year or period, and the estimated management fees and other expenses of Shares
of the Emerging Growth, International Equity and Lifestyle Funds for the current
fiscal year. Long-term shareholders of the Lifestyle Funds may pay more than the
maximum front-end sales charges permitted by the National Association of
Securities Dealers Regulation, Inc. See "MANAGEMENT OF THE TRUST" and "GENERAL
INFORMATION" for a more complete discussion of the annual operating expenses of
the Funds. THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
Page 8
<PAGE> 49
FINANCIAL HIGHLIGHTS
The Funds are ten separate funds of the Trust. The table below sets
forth certain information concerning the investment results of each Fund other
than the International Equity and the Lifestyle Funds. The International Equity
and the Lifestyle Funds had not commenced operations prior to the date of this
prospectus. Further financial information is included in the Statement of
Additional Information. The Financial Highlights contained in the following
table have been audited by _____________________, independent certified public
accountants for the Funds, whose report on the period ended June 30, 1998 , is
included in the Statement of Additional Information, which may be obtained by
Shareholders.
Page 9
<PAGE> 50
ESTABLISHED GROWTH FUND
<TABLE>
<CAPTION>
Period from Commencement
Fiscal Year Ended of Operations through
June 30, 1998 June 30, 1997 (a)
------------- -----------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.13 $ 10.00
Investment Activities:
Net investment income 0.10 0.08
Net realized and unrealized
gain (loss) on investments 2.99 1.13
----------- -----------
Total from Investment Activities 3.09 1.21
----------- -----------
Distributions from:
Net investment income (0.10) (0.08)
Net realized gains -- --
----------- -----------
Total Distributions (0.10) (0.08)
-----------
NET CHANGE IN NET ASSET VALUE PER SHARE 2.93 1.13
----------- -----------
NET ASSET VALUE, END OF PERIOD $ 14.06 $ 11.13
=========== ===========
RATIOS/SUPPLEMENTAL DATA:
Total Return (excludes sales charge) 27.92% 12.20%(b)
Net Assets, at end of period (000) $ 258,812 $ 190,914
Ratio of expenses to average net assets 0.71% 0.44%(c)
Ratio of net investment income to average net assets 0.77% 1.39%(c)
Ratio of expenses to average net assets* 1.06% 1.01%(c)
Ratio of net investment income to average net assets* 0.42% 0.82%(c)
Portfolio turnover 6% 1%
</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) Commencement of operations of the Established Growth Fund was December
2, 1996.
(b) Not annualized.
(c) Annualized.
Page 10
<PAGE> 51
AGGRESSIVE GROWTH FUND
<TABLE>
<CAPTION>
Period from Commencement
Fiscal Year Ended of Operations through
June 30, 1998 June 30, 1997 (a)
------------- -----------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.24 $ 10.00
Investment Activities:
Net investment income (loss) (0.01) 0.01
Net realized and unrealized
gains (loss) on investments 1.30 0.24
----------- -----------
Total from Investment Activities 1.29 0.25
----------- -----------
Distributions from:
Net investment income -- (0.01)
Net realized gains (0.12) --
----------- -----------
Total Distributions (0.12) (0.01)
----------- -----------
NET CHANGE IN NET ASSET VALUE PER SHARE 1.17 0.24
=========== ===========
NET ASSET VALUE, END OF PERIOD $ 11.41 $ 10.24
=========== ===========
RATIOS/SUPPLEMENTAL DATA:
Total Return (excludes sales charge) 12.72% 2.52%(b)
Net Assets, at end of period (000) $ 135,612 $ 105,258
Ratio of expenses to average net assets 0.83% 0.66%(c)
Ratio of net investment income (loss) to average net assets (0.09%) 0.28%(c)
Ratio of expenses to average net assets* 1.35% 1.35%(c)
Ratio of net investment income (loss) to average net assets* (0.59%) (0.41%)(c)
Portfolio turnover 8% 2%
</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) Commencement of operations of the Aggressive Growth Fund was February
3, 1997.
(b) Not annualized.
(c) Annualized.
Page 11
<PAGE> 52
INCOME FUND
<TABLE>
<CAPTION>
Period from Commencement
Fiscal Year Ended of Operations through
June 30, 1998 June 30, 1997 (a)
------------- -----------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.77 $ 10.00
Investment Activities:
Net investment income 0.62 0.36
Net realized and unrealized
gain (loss) on investments 0.33 (0.23)
----------- -----------
Total from Investment Activities 0.95 0.13
----------- -----------
Distributions from:
Net investment income (0.62) (0.36)
Net realized gains -- --
----------- -----------
Total Distributions (0.62) (0.36)
----------- -----------
NET CHANGE IN NET ASSET VALUE PER SHARE 0.33 (0.23)
----------- -----------
NET ASSET VALUE, END OF PERIOD $ 10.10 $ 9.77
=========== ===========
RATIOS/SUPPLEMENTAL DATA:
Total Return (excludes sales charge) 9.95% 1.40%(b)
Net Assets, at end of period (000) $ 275,565 $ 207,859
Ratio of expenses to average net assets 0.57% 0.37%(c)
Ratio of net investment income to average net assets 6.27% 6.45%(c)
Ratio of expenses to average net assets* 0.92% 0.84%(c)
Ratio of net investment income to average net assets* 5.92% 5.98%(c)
Portfolio turnover 218% 329%
</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) Commencement of operations of the Income Fund was December 2, 1996.
(b) Not annualized.
(c) Annualized.
Page 12
<PAGE> 53
GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
Fiscal Year Ended
June 30, 1998 (a)
-----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
Investment Activities:
Net investment income 0.56
Net realized and unrealized
gain (loss) on investments (0.04)
----------
Total from Investment Activities 0.52
----------
Distributions from:
Net investment income (0.56)
----------
Net realized gains --
----------
Total Distributions (0.56)
----------
NET CHANGE IN NET ASSET VALUE PER SHARE 0.04
==========
NET ASSET VALUE, END OF PERIOD $ 9.96
==========
RATIOS/SUPPLEMENTAL DATA:
Total Return (excludes sales charge) 5.39%
Net Assets, at end of period (000) $ 29,360
Ratio of expenses to average net assets 0.65%
Ratio of net investment income to average net assets 5.58%
Ratio of expenses to average net assets* 1.18%
Ratio of net investment income to average net assets* 5.05%
Portfolio turnover 482%
</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) Commencement of operations of the Government Securities Fund was July
1, 1997.
Page 13
<PAGE> 54
PENNSYLVANIA BOND FUND
<TABLE>
<CAPTION>
Period from Commencement
Fiscal Year Ended of Operations through
June 30, 1998 June 30, 1997 (a)
------------- -----------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.29 $ 10.21
Investment Activities:
Net investment income 0.49 0.34
Net realized and unrealized
gain (loss) on investments 0.11 0.06
----------- -----------
Total from Investment Activities 0.60 0.40
----------- -----------
Distributions from:
Net investment income (0.50) (0.32)
Net realized gains -- --
----------- -----------
Total Distributions (0.50) (0.32)
----------- -----------
NET CHANGE IN NET ASSET VALUE PER SHARE 0.10 0.08
----------- -----------
NET ASSET VALUE, END OF PERIOD $ 10.39 $ 10.29
=========== ===========
RATIOS/SUPPLEMENTAL DATA:
Total Return (excludes sales charge) 5.89% 3.98%(b)
Net Assets, at end of period (000) $ 118,685 $ 123,194
Ratio of expenses to average net assets 0.58% 0.37%(c)
Ratio of net investment income to average net assets 4.65% 4.46%(c)
Ratio of expenses to average net assets* 0.92% 0.86%(c)
Ratio of net investment income to average net assets* 4.31% 3.97%(c)
Portfolio turnover 62% 98%
</TABLE>
- ----------
* During the period certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been
as indicated.
(a) Commencement of operations of the Pennsylvania Bond Fund was
October 1, 1996.
(b) Not annualized.
(c) Annualized.
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PERFORMANCE INFORMATION
From time to time performance information for the Funds showing the
Funds' aggregate total return, average annual total return and yield may be
presented in advertisements, sales literature and shareholder reports. SUCH
PERFORMANCE FIGURES ARE BASED ON HISTORICAL PERFORMANCE AND ARE NOT INTENDED TO
INDICATE FUTURE PERFORMANCE. Average annual total return will be calculated for
the period since commencement of operations for a Fund (or the respective
collective investment fund of its predecessor fund) and will include the
performance of its predecessor fund. Average annual total return will reflect
the imposition of the maximum sales charge, if any. Average annual total return
is measured by comparing the value of an investment in a Fund at the beginning
of the relevant period to the redeemable value of the investment at the end of
the period (assuming immediate reinvestment of any dividends or capital gains
distributions), which figure is then annualized. Aggregate total return is
calculated similarly to average annual total return except that the return
figure is aggregated over the relevant period instead of annualized. Yield will
be computed by dividing a Fund's net investment income per share earned during a
recent one-month period by that Fund's per share maximum offering price (reduced
by any undeclared earned income expected to be paid shortly as a dividend) on
the last day of the period and annualizing the result. Tax equivalent yield of
the Pennsylvania Bond Fund demonstrates the taxable yield necessary to produce
an after-tax yield equivalent to the yield of that Fund. Each of the Funds may
also present its aggregate total return, average annual total return and yield,
as the case may be, excluding the effect of a sales charge.
The Established Growth Fund, Aggressive Growth Fund, Income Fund and
Government Securities Fund each had been initially funded by the transfer of all
of the assets of a corresponding collective investment fund and common trust
fund managed by the Advisor (collectively, the "CIFs"). Because the management
of each Fund is substantially the same as its corresponding CIFs, the quoted
performance of that Fund will include the performance of its CIFs for the
periods prior to the effectiveness of the Trust's registration statement as it
relates to such Fund. Such performance will be restated to reflect the estimated
current fees of that Fund. Such CIFs were not registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), and therefore were not subject
to certain investment restrictions that are imposed by the 1940 Act. If the CIFs
had been so registered, their performance might have been adversely affected.
In addition, from time to time the Income Fund, the Government
Securities Fund and the Pennsylvania Bond Fund may also present their
distribution rates in supplemental sales literature and in shareholder reports.
Distribution rates will be computed by dividing the distribution per share made
by a Fund over a twelve-month period by the maximum offering price per share at
the end of that period. The calculation of income in the distribution rate
includes both income and capital gain dividends and does not reflect unrealized
gains or losses, although a Fund may also present a distribution rate excluding
the effect of capital gains and/or a sales charge. The distribution rate differs
from the yield because it includes capital gain dividends which are often
non-recurring in nature, whereas yield does not include such items.
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Investors may also judge the performance of a Fund by comparing or
referencing it to the performance of other mutual funds with comparable
investment objectives and policies through various mutual fund or market indices
and to data prepared by various services, which indices or data may be published
by such services or by other services or publications. In addition to
performance information, general information about the Funds that appears in
such publications may be included in advertisements, sales literature and
reports to Shareholders.
Yield and total return are generally functions of market conditions,
interest rates, types of investments held, and operating expenses. Consequently,
current yields and total return will fluctuate and are not necessarily
representative of future results. Any fees charged by Keystone or by any of its
affiliates, including the Advisor and Sub-Advisor, to its customer accounts
which may have invested in Shares of a Fund will not be included in performance
calculations; such fees, if charged, will reduce the actual performance from
that quoted. In addition, if the Advisor, BISYS Ohio or BISYS voluntarily
reduces all or part of its fees for a Fund, as discussed below, the yield and
total return for that Fund will be higher than they would otherwise be in the
absence of such voluntary fee reductions.
Further information about the performance of the Funds is contained in
the Funds' Annual Report to Shareholders which may be obtained without charge by
contacting the Trust at (800) 766-3960.
INVESTMENT OBJECTIVES AND POLICIES
IN GENERAL
The investment objectives of each Fund are non-fundamental policies and
as such may be changed by the Trust's Trustees without the vote of the
Shareholders of that Fund. There can be no assurance that the investment
objectives of any Fund will be achieved.
THE ESTABLISHED GROWTH FUND
The investment objectives of the Established Growth Fund are growth of
capital with some current income as a secondary objective. Under normal market
conditions, the Established Growth Fund will invest substantially all, but under
such conditions in no event less than 65%, of its total assets in common stocks
and securities convertible into common stocks of companies with market
capitalizations of at least $1 billion. For purposes of the foregoing,
securities convertible into common stocks include convertible bonds, convertible
preferred stock, options and rights. The securities purchased by the Established
Growth Fund are generally traded on established U.S. markets and exchanges.
Under normal market conditions, the Established Growth Fund intends to
operate with a fully invested philosophy, i.e., the Established Growth Fund will
generally invest 90% or more of its assets in common stocks. The Established
Growth Fund's equity investments will be based on two principles: (1) a solid
long-term fundamental business outlook and (2) an attractively valued stock
price. The Established Growth Fund's investment decisions are based upon a
company's expected
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performance through a business and market cycle which normally translates into a
three to five year investment horizon. In an effort to mitigate some volatility,
the Established Growth Fund does seek to maintain representation in all major
economic sectors. Subject to those guidelines, the Established Growth Fund
intends to invest in the securities of companies its Sub-Advisor believes to be
of high quality and which satisfy one or more of the following criteria: (1)
have a well recognized domestic and/or global franchise; (2) have a long-term
revenue and earnings growth track record which its Sub-Advisor believes to be
superior; (3) have a solid balance sheet, which includes a low debt-to-equity
ratio, and the ability to generate sufficient free cash flow; (4) have a
long-term sustainable competitive advantage; and (5) have demonstrated a history
of increasing shareholder value.
Under normal market conditions, the Established Growth Fund may also
invest up to 35% of its total assets in warrants, foreign securities through
sponsored American Depositary Receipts ("ADRs"), securities of other investment
companies and REITs (real estate investment trusts), cash and Short-Term
Obligations and may engage in other investment techniques described below.
"Short-Term Obligations" consist of obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities (including U.S. Treasury
securities stripped of the unmatured interest coupons and such stripped interest
coupons), with maturities of 12 months or less, certificates of deposit,
bankers' acceptances and demand and time deposits of selected banks, securities
of money market mutual funds, and commercial paper rated in one of the two
highest rating categories by appropriate nationally recognized statistical
rating organizations ("NRSROs," e.g., Standard & Poor's Corporation and Moody's
Investors Service) and repurchase agreements collateralized by such obligations.
These obligations are described further in the Statement of Additional
Information. The Established Growth Fund may also invest up to 100% of its total
assets in Short-Term Obligations and cash when deemed appropriate for temporary
defensive purposes as determined by its Sub-Advisor to be warranted due to
current or anticipated market conditions. However, to the extent that the
Established Growth Fund is so invested, it may not achieve its investment
objectives.
THE AGGRESSIVE GROWTH FUND
The investment objective of the Aggressive Growth Fund is growth of
capital. Any income earned by the Aggressive Growth Fund will be incidental to
its overall objective of growth of capital. Under normal market conditions, the
Aggressive Growth Fund will invest substantially all, but under such conditions
in no event less than 65%, of its total assets in common stocks and securities
convertible into common stocks of companies with market capitalizations ranging
between $100 million and $5 billion. Under normal market conditions, the
Aggressive Growth Fund intends to operate with a fully invested philosophy,
e.g., the Aggressive Growth Fund will generally invest 90% or more of its assets
in common stocks and securities convertible into common stocks.
The Aggressive Growth Fund attempts to invest in high quality small to
mid capitalization companies that its Sub-Advisor believes have demonstrated one
or more of the following characteristics: (1) strong management team with an
ownership stake in the business; (2) solid revenue and earnings history; (3)
unique position in the company's targeted market; (4) innovative products and
solid new product distribution channels; and (5) solid balance sheet. In
addition, the
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Sub-Advisor attempts to invest in companies that are selling at earnings
multiples which the Sub-Advisor believes to be less than their expected
long-term growth rate.
The Fund's Sub-Advisor employs a "bottom-up" approach in its security
selection process. A "bottom-up" approach emphasizes company specific factors
rather than industry factors when making its buy/sell decisions. As a result of
this approach, the Fund's Sub-Advisor does not utilize a sector neutral
strategy. The Sub-Advisor does not seek to have the Aggressive Growth Fund have
representation in all economic sectors; therefore, the Aggressive Growth Fund's
sector weightings may be overweighted and/or underweighted relative to its
appropriate peers and/or benchmarks.
For purposes of the foregoing, securities convertible into common
stocks include convertible bonds, convertible preferred stock, options and
rights. The securities purchased by the Aggressive Growth Fund are generally
traded on established U.S. markets and exchanges, although as discussed below,
the Aggressive Growth Fund may invest in restricted or privately placed
securities. Under normal market conditions, the Aggressive Growth Fund may also
invest up to 35% of its total assets in warrants, foreign securities through
sponsored ADRs, securities of other investment companies and REITs, cash and
Short-Term Obligations and may engage in other investment techniques described
below.
THE EMERGING GROWTH FUND
The investment objective of the Emerging Growth Fund is long-term
growth of capital. Under normal market conditions, the Emerging Growth Fund will
invest substantially all, but under such conditions in no event less than 65%,
of its total assets in common stocks and securities convertible into common
stocks of growth-oriented micro-cap companies. For purposes of this policy, the
Emerging Growth Fund considers companies with equity market capitalizations, at
the time of purchase, of between $30 million and $350 million to be micro-cap
companies, and securities convertible into common stocks include convertible
bonds, convertible preferred stock, options and rights. Under normal market
conditions, up to 35% of the Emerging Growth Fund's total assets may be invested
in common stocks and securities convertible into common stock of companies not
meeting the foregoing micro-cap company equity market parameters.
The Sub-Advisor's investment style with respect to the Emerging Growth
Fund may be characterized as "buy-and-hold." When making individual security
selections, the Sub-Advisor's investment horizon is expected to be a three to
five year period. The Sub-Advisor will purchase and maintain positions in
securities of companies that the Sub-Advisor believes have demonstrated one or
more of the following characteristics: (1) strong entrepreneurial management
team with a substantial ownership interest in the business; (2) solid long-term
revenue and earnings outlook; (3) unique position in the company's targeted
market; (4) sustainable competitive advantage in the company's targeted market;
and (5) solid balance sheet. In addition, the Sub-Advisor attempts to invest in
companies that are selling at earnings multiples which the Sub-Advisor believes
to be less than their projected three to five year earnings growth rate. This
growth at a discount management style relies on a combination of quantitative
and fundamental analysis of historical and projected data to determine a stock's
expected return.
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Under normal market conditions, the Emerging Growth Fund may also
invest up to 25% of its total assets in warrants, foreign securities, directly
or through sponsored ADRs, securities of other investment companies and REITs,
cash and Short-Term Obligations and may purchase the other investments and
engage in other investment techniques described below. The Emerging Growth Fund
may also invest up to 100% of its total assets in Short-Term Obligations and
cash when deemed appropriate for temporary defensive purposes as determined by
the Fund's Sub-Advisor to be warranted due to current or anticipated market
conditions. However, to the extent that the Emerging Growth Fund is so invested,
it may not achieve its investment objective.
THE INTERNATIONAL EQUITY FUND
The investment objective of the International Equity Fund is capital
appreciation, primarily through a diversified portfolio of non-U.S. equity
securities. Under normal market conditions, the International Equity Fund will
invest substantially all, but under such conditions in no event less than 65%,
of its total assets in equity securities of companies domiciled outside the
United States. That portion of the Fund not invested in equity securities is, in
normal circumstances, invested in U.S. and foreign government securities,
high-grade commercial paper, certificates of deposit, foreign currency, bankers
acceptances, cash and cash equivalents, time deposits, repurchase agreements and
similar money market instruments, both foreign and domestic. The Fund may invest
in convertible debt securities of foreign issuers which are convertible into
equity securities at such time as a market for equity securities is established
in the country involved.
The Sub-Advisor's investment perspective for the Fund is to invest in
the equity securities of non-U.S. markets and companies which are believed to be
undervalued based upon internal research and proprietary valuation systems. This
international equity strategy reflects the Fund's Sub-Advisor's decisions
concerning the relative attractiveness of asset classes, the individual
international equity markets, industries across and within those markets, other
common risk factors within those markets and individual international companies.
The Fund's Sub-Advisor initially identifies those securities which it believes
to be undervalued in relation to the issuer's assets, cash flow, earnings and
revenues. The relative performance of foreign currencies is an important factor
in the Fund's performance. The Fund's Sub-Advisor may manage the Fund's exposure
to various currencies to take advantage of different yield, risk and return
characteristics. The Fund's Sub-Advisor's proprietary valuation model determines
which securities are potential candidates for inclusion in the Fund.
The benchmark for the Fund is the European, Australian, Far East
("EAFE") Index (the "Benchmark"). The Benchmark is a market driven, broad based
index which includes non-U.S. equity markets in terms of capitalization and
performance. The Benchmark is designed to provide a representative total return
for all major stock exchanges located outside the U.S. From time to time, the
Fund's Sub-Advisor may substitute securities in an equivalent index when it
believes that such securities in the index more accurately reflect the relevant
international market.
As a general matter, the Fund's Sub-Advisor will purchase for the Fund
only securities contained in the underlying index relevant to the Benchmark. The
Fund's Sub-Advisor will attempt to enhance the long-term risk and return
performance of the Fund relative to the Benchmark by deviating from the normal
Benchmark mix of country allocation and currencies in reaction to
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discrepancies between current market prices and fundamental values. The active
management process is intended to produce a superior performance relative to the
Benchmark index.
The Fund's Sub-Advisor will purchase securities of companies domiciled
in a minimum of eight countries outside the United States.
THE INTERMEDIATE TERM INCOME FUND
The investment objectives of the Income Fund are current
income with long-term growth of capital as a secondary objective. Under normal
market conditions, the Income Fund will invest substantially all, but under such
conditions in no event less than 65%, of its total assets in fixed income
securities of all types, including variable and floating rate securities and
variable amount master demand notes. A portion of the Income Fund (but under
normal market conditions no more than 35% of its total assets) may be invested
in securities of other investment companies, preferred stocks and, for cash
management purposes, Short-Term Obligations (as described above), and the Income
Fund may engage in other investment techniques described below. Fixed income
securities include bonds, debentures, notes, mortgage-backed and asset-backed
securities, state, municipal or industrial revenue bonds, obligations issued or
supported as to principal and interest by the U.S. Government or its agencies or
instrumentalities ("Government Obligations") and debt securities convertible
into, or exchangeable for, common stocks. In addition, a portion of the Income
Fund may from time to time be invested in participation certificates in pools of
mortgages issued or guaranteed by the U.S. Government or its agencies or
instrumentalities. The Income Fund may invest up to 100% of its total assets in
Short-Term Obligations and cash when deemed appropriate for temporary defensive
purposes as determined by its Sub-Advisor to be warranted due to current or
anticipated market conditions. However, to the extent that the Income Fund is so
invested, it may not achieve its investment objectives.
Under normal market conditions, the Income Fund expects to invest
primarily in Government Obligations, mortgage-backed securities and in debt
obligations of United States corporations. The Income Fund also intends that,
under normal market conditions, its portfolio will maintain a dollar-weighted
average maturity of three to ten years.
The Income Fund expects to invest in a variety of U.S. Treasury
obligations, differing in their interest rates, maturities, and times of
issuance, and other Government Obligations. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association ("GNMA") and the Export-Import Bank of the United States,
are supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal National Mortgage Association ("FNMA"), are supported by
the right of the issuer to borrow from the Treasury; others 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 Farm Credit Banks or the
Federal Home Loan Mortgage Corporation ("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 agencies
or instrumentalities if it is not obligated to do so by law. The Income Fund
will invest in the obligations of such agencies or instrumentalities only when
its Sub-Advisor believes that the credit risk with respect thereto is minimal.
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The Income Fund also expects to invest in bonds, notes and debentures
of a wide range of U.S. corporate issuers. Such obligations may be secured or
unsecured promises to pay and will in most cases differ in their interest rates,
maturities and times of issuance.
Except as noted in the next paragraph, the Income Fund invests only in
debt securities which are rated at the time of purchase within the four highest
rating Trusts assigned by one or more appropriate NRSROs or, if unrated, which
the Fund's Sub-Advisor deems to be of comparable quality to securities so rated.
For a description of the rating symbols of the NRSROs, see the Appendix to the
Statement of Additional Information. For a discussion of debt securities rated
within the fourth highest rating Trust assigned by an NRSRO, see "Risk Factors
and Investment Techniques - Medium Grade Securities" below.
The Income Fund may also invest up to 20% of the value of its net
assets in debt securities which, in the case of bonds, are rated lower than the
fourth highest rating Trust by an appropriate NRSRO and as low as "B" by an
appropriate NRSRO. Investments rated Ba or lower by Moody's Investors Services,
Inc. ("Moody's") and BB or lower by Standard & Poor's Corporation ("S&P")
ordinarily provide higher yields but involve greater risk because of their
speculative characteristics. Debt rated B by S&P is regarded, on balance, as
predominately speculative with respect to the capacity to pay interest and repay
principal in accordance with the terms of the obligation.
The Income Fund may also invest in U.S. dollar denominated
international bonds for which the primary trading market is in the United States
("Yankee Bonds"), or for which the primary trading market is abroad ("Eurodollar
Bonds"), and in Canadian Bonds and bonds issued by institutions organized for a
specific purpose, such as the World Bank and the European Economic Community, by
two or more sovereign governments ("Supranational Agency Bonds").
Mortgage-Backed Securities. The Income Fund also invests in
mortgage-backed securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities or by nongovernmental entities which are rated, at
the time of purchase, within the four highest bond rating categories assigned by
one or more appropriate NRSROs, or, if unrated, which its Sub-Advisor deems to
be of comparable quality to securities so rated. There are currently three basic
types of mortgage-backed securities: (1) those issued or guaranteed by the U.S.
Government or one of its agencies or instrumentalities, such as GNMA, FNMA and
FHLMC; (2) those issued by private issuers that represent an interest in or are
collateralized by mortgage-backed securities issued or guaranteed by the U.S.
Government or one of its agencies or instrumentalities; and (3) those issued by
private issuers that represent an interest in or are collateralized by whole
mortgage loans or mortgage-backed securities without a government guarantee but
usually having some form of private credit enhancement.
Such mortgage-backed securities may have mortgage obligations directly
backing such securities, including among others, conventional thirty year fixed
rate mortgage obligations, graduated payment mortgage obligations, fifteen year
mortgage obligations and adjustable rate mortgage obligations. All of these
mortgage obligations can be used to create pass-through securities. A
pass-through security is created when mortgage obligations are pooled together
and undivided interests in the pool or pools are sold. The cash flow from the
mortgage obligations is passed through to the holders of the securities in the
form of periodic payments of interest, principal
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and prepayments (net of a service fee). Prepayments occur when the holder of an
individual mortgage obligation prepays the remaining principal before the
mortgage obligation's scheduled maturity date.
As a result of the pass-through of prepayments of principal on the
underlying securities, mortgage-backed securities are often subject to more
rapid prepayment of principal than their stated maturity would indicate. Because
the prepayment characteristics of the underlying mortgage obligations vary, it
is not possible to predict accurately the realized yield or average life of a
particular issue of pass-through certificates. Prepayment rates are important
because of their effect on the yield and price of the securities. In addition,
prepayment rates will be used to determine a security's estimated average life
and the Income Fund's dollar-weighted average portfolio maturity. Accelerated
prepayments have an adverse impact on yields for pass-through securities
purchased at a premium (i.e., a price in excess of principal amount) and may
involve additional risk of loss of principal because the premium may not have
been fully amortized at the time the obligations are repaid. The opposite is
true for pass-through securities purchased at a discount. The Income Fund may
purchase mortgage-related securities at a premium or a discount. Reinvestment of
principal payments may occur at higher or lower rates than the original yield on
such securities. Due to the prepayment feature and the need to reinvest payments
and prepayments of principal at current rates, mortgage-related securities can
be less effective than typical bonds of similar maturities at maintaining yields
during periods of declining interest rates.
Collateralized Mortgage Obligations. The Income Fund may also acquire
collateralized mortgage obligations or "CMOs" and stripped mortgage-backed
securities. CMOs are debt obligations collateralized by mortgage loans or
mortgage pass-through securities. Typically, CMOs are collateralized by GNMA,
FNMA or FHLMC certificates, but also may be collateralized by whole loans or
private mortgage pass-through securities (such collateral collectively referred
to as "Mortgage Assets"). Payments of principal or interest on the Mortgage
Assets, and any reinvestment income thereon, provide the funds to pay debt
service on the CMOs. CMOs may be issued by agencies or instrumentalities of the
U.S. Government or by private originators of, or investors in, mortgage loans.
IOs and POs. Stripped mortgage-backed securities are securities
representing interests in a pool of mortgages the cash flow from which has been
separated into interest and principal components. "IOs" (interest only
securities) receive the interest portion of the cash flow while "POs" (principal
only securities) receive the principal portion. Stripped mortgage-backed
securities may be issued by U.S. Government agencies or by private issuers, such
as mortgage banks, commercial banks, investment banks, savings and loan
associations and special purpose subsidiaries of the foregoing. As interest
rates rise and fall, the value of IOs tends to move in the same direction as
interest rates. The value of other mortgage-backed securities described herein,
like other debt instruments, will tend to move in the opposite direction
compared to interest rates. POs perform best when prepayments on the underlying
mortgages rise since this increases the rate at which the investment is returned
and the yield to maturity on the PO. When payments on mortgages underlying a PO
are slow, the life of the PO is lengthened and the yield to maturity is reduced.
The Income Fund may purchase stripped mortgage-backed securities for
hedging purposes to protect the Income Fund against interest rate fluctuations.
For example, since an IO will tend to
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increase in value as interest rates rise, it may be utilized to hedge against a
decrease in value of other fixed-income securities in a rising interest rate
environment. If the Income Fund purchases a mortgage-related security at a
premium, all or part of the premium may be lost if there is a decline in the
market value of the security, whether resulting from changes in interest rates
or prepayments in the underlying mortgage collateral. Moreover, with respect to
stripped mortgage-backed securities, if the underlying mortgage securities
experience greater than anticipated prepayments of principal, the Income Fund
may fail to recoup fully its initial investment in these securities even if the
securities are rated in the highest rating category by an NRSRO. Stripped
mortgage-backed securities may exhibit greater price volatility than ordinary
debt securities because of the manner in which their principal and interest are
returned to investors. The market value of the class consisting entirely of
principal payments can be extremely volatile in response to changes in interest
rates. The yields on stripped mortgage-backed securities that receive all or
most of the interest are generally higher than prevailing market yields on other
mortgage-backed obligations because their cash flow patterns are also volatile
and there is a greater risk that the initial investment will not be fully
recouped. No more than 10% of the Income Fund's total assets will be invested in
IOs and in POs.
Asset-Backed Securities. Asset-backed securities are similar to
mortgage-backed securities except that instead of using mortgages to
collateralize the obligations, a broad range of other assets may be used as
collateral, primarily automobile and credit card receivables and home equity
loans. Such receivables and loans are securitized in pass-through structures
similar to the mortgage pass-through or pay-through structures described above.
Certain debt securities such as, but not limited to, mortgage-backed
securities, CMOs and asset-backed securities, as well as other securities
subject to prepayment of principal prior to the stated maturity date, are
expected to be repaid prior to their stated maturity dates. As a result, the
effective maturity of these securities is expected to be shorter than the stated
maturity. For purposes of compliance with stated maturity policies and
calculation of the Income Fund's dollar-weighted average maturity, the effective
maturity of such securities will be used.
Variable Amount Master Demand Notes. Variable amount master demand
notes in which the Income Fund may invest are unsecured demand notes that permit
the indebtedness thereunder to vary and that provide for periodic adjustments in
the interest rate according to the terms of the instrument. Because master
demand notes are direct lending arrangements between the Income Fund and the
issuer, they are not normally traded. Although there is no secondary market in
the notes, the Income Fund may demand payment of principal and accrued interest
at any time. While the notes are not typically rated by NRSROs, the Fund's
Sub-Advisor must determine them to be of comparable credit quality to commercial
paper in which the Income Fund could invest. The Fund's Sub-Advisor will
consider the earning power, cash flow, and other liquidity ratios of the issuers
of such notes and will continuously monitor their financial status and ability
to meet payment on demand. In determining dollar-weighted average portfolio
maturity, a variable amount master demand note will be deemed to have a maturity
equal to the period of time remaining until the principal amount can be
recovered from the issuer through demand.
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THE LIMITED DURATION GOVERNMENT SECURITIES FUND
The investment objectives of the Government Securities Fund are current
income with preservation of capital as a secondary objective. Under normal
market conditions, the Government Securities Fund will invest substantially all,
but under such conditions in no event less than 65%, of its total assets in
Government Obligations and in repurchase agreements backed by such securities.
Government Obligations which the Government Securities Fund may purchase also
include mortgage-backed securities, variable and floating rate securities and
zero coupon securities, as described more fully above under "The Intermediate
Term Income Fund." Under current market conditions, the Government Securities
Fund expects to maintain an average portfolio duration of one to three years.
A portion of the Government Securities Fund (but under normal market
conditions no more than 10% of its total assets) may be invested in securities
of other investment companies.
Duration. The Government Securities Fund will attempt to limit its
exposure to interest rate risk by maintaining a duration which, on a weighted
average basis and under normal market conditions, will generally be less than
three years. Duration is a measure of the average life of a fixed-income
security that was developed as a more precise alternative to the concepts of
"term to maturity" or "average dollar weighted maturity" as measures of
"volatility" or "risk" associated with changes in interest rates. Duration
incorporates a security's yield, coupon interest payments, final maturity and
call features into one measure.
Most debt obligations provide interest ("coupon") payments in addition
to a final ("par") payment at maturity. Some obligations also have call
provisions. Depending on the relative magnitude of these payments and the nature
of the call provisions, the market values of debt obligations may respond
differently to changes in interest rates.
Traditionally, a debt security's "term-to-maturity" has been used as a
measure of the sensitivity of the security's price to changes in interest rates
(which is the "interest rate risk" or "volatility" of the security). However,
"term-to-maturity" measures only the time until a debt security provides its
final payment, taking no account of the pattern of the security's payments prior
to maturity. Average dollar weighted maturity is calculated by averaging the
terms to maturity of each debt security held with each maturity "weighted"
according to the percentage of assets that its represents. Duration is a measure
of the expected life of a debt security on a present value basis and reflects
both principal and interest payments. Duration takes the length of the time
intervals between the present time and the time that the interest and principal
payments are scheduled or, in the case of a callable security, expected to be
received, and weights them by the present values of the cash to be received at
each future point in time. For any debt security with interest payments
occurring prior to the payment of principal, duration is ordinarily less than
maturity. In general, all other factors being the same, the lower the stated or
coupon rate of interest of a debt security, the longer the duration of the
security; conversely, the higher the stated or coupon rate of interest of a debt
security, the shorter the duration of the security.
There are some situations where the standard duration calculation does
not properly reflect the interest rate exposure of a security. For example,
floating and variable rate securities often have final
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maturities of ten or more years; however, their interest rate exposure
corresponds to the frequency of the coupon reset. Another example where the
interest rate exposure is not properly captured by duration is the case of
mortgage pass-through securities. The stated final maturity of such securities
is generally 30 years, but current prepayment rates are more critical in
determining the securities' interest rate exposure. In these and other similar
situations, the Fund's Sub-Advisor will use more sophisticated analytical
techniques to project the economic life of a security and estimate its interest
rate exposure. Since the computation of duration is based on predictions of
future events rather than known factors, there can be no assurance that the
Government Securities Fund will at all times achieve its targeted portfolio
duration.
The change in market value of U.S. Government fixed-income securities
is largely a function of changes in the prevailing level of interest rates. When
interest rates are falling, a portfolio with a shorter duration generally will
not generate as high a level of total return as a portfolio with a longer
duration. When interest rates are flat, shorter duration portfolios generally
will not generate as high a level of total return as longer duration portfolios
(assuming that long-term interest rates are higher than short-term rates, which
is commonly the case). When interest rates are rising, a portfolio with a
shorter duration will generally outperform longer duration portfolios. With
respect to the composition of a fixed-income portfolio, the longer the duration
of the portfolio, generally the greater the anticipated potential for total
return, with, however, greater attendant interest rate risk and price volatility
than for a portfolio with a shorter duration.
While the Government Securities Fund intends to maintain an average
portfolio duration of one to three years under normal market conditions, there
is no limit as to the maturity of any one security which the Government
Securities Fund may purchase.
THE PENNSYLVANIA MUNICIPAL BOND FUND
The investment objectives of the Pennsylvania Bond Fund are income
which is exempt from federal income tax and Pennsylvania state income tax,
although such income may be subject to the federal alternative minimum tax when
received by shareholders, and preservation of capital. Under normal market
conditions, at least 80% of the net assets of the Pennsylvania Bond Fund are
invested in a portfolio of debt obligations consisting of bonds, notes,
commercial paper and certificates of indebtedness, issued by or on behalf of the
Commonwealth of Pennsylvania, or any county, political subdivision or
municipality thereof (including any agency, board, authority or commission of
any of the foregoing), the interest on which, in the opinion of bond counsel to
the issuer, is exempt from federal and Pennsylvania income taxes (but may be
treated as a preference item for individuals for purposes of the federal
alternative minimum tax) ("Pennsylvania Exempt Securities") and in debt
obligations issued by the Government of Puerto Rico and such other governmental
entities whose debt obligations, either by law or treaty, generate interest
income which is exempt from federal and Pennsylvania state income taxes (but may
be treated as a preference item for individuals for purposes of the federal
alternative minimum tax) (together, with Pennsylvania Exempt Securities, called
"Exempt Securities"). In addition, under normal market conditions, at least 65%
of the Fund's net assets are invested in Pennsylvania Exempt Securities. As a
matter of fundamental policy, under normal market conditions, at least 80% of
the net assets of the Fund are invested in securities, the interest on which is
exempt from federal income tax but may be subject to the federal alternative
minimum tax when received by certain Shareholders. To the extent such securities
are not
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Pennsylvania Exempt Securities, the income therefrom may be subject to
Pennsylvania income taxes. With respect to the Fund's objective of preserving
capital, its Sub-Advisor will attempt to protect principal value in a rising
interest rate environment and enhance principal value in a declining interest
rate environment.
The two principal classifications of Exempt Securities which may be
held by the Pennsylvania Bond Fund 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 proceeds of
a special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by the Fund are in most
cases revenue securities and 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.
The Fund may also invest in "moral obligation" securities, which are
normally issued by special purpose public authorities. If the issuer of moral
obligation securities 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.
The Fund invests in Exempt Securities which are rated at the time of
purchase within the four highest rating groups assigned by one or more NRSROs
for bonds and within the two highest rating groups for notes, tax-exempt
commercial paper, or variable rate demand obligations, as the case may be. The
Fund may also purchase Exempt Securities which are unrated at the time of
purchase but are determined to be of comparable quality by its Sub-Advisor. The
applicable Exempt Securities ratings are described in the Appendix to the
Statement of Additional Information. For a discussion of debt securities rated
within the fourth highest rating group assigned by an NRSRO, see "Risk Factors
and Investment Techniques - Medium Grade Securities" below.
The Fund may invest up to 20% of the value of its net assets in Exempt
Securities which, in the case of bonds, are rated lower than the fourth highest
rating group by an appropriate NRSRO and as low as "B" by an appropriate NRSRO.
Investments rated Ba or lower by Moody's and BB or lower by S&P ordinarily
provide higher yields but involve greater risk because of their speculative
characteristics. Debt rated B by S&P is regarded, on balance, as predominately
speculative with respect to the capacity to pay interest and repay principal in
accordance with the terms of the obligation.
The Fund expects to maintain a dollar-weighted average portfolio
maturity of three to ten years. Within this range, the Fund's Sub-Advisor may
vary the average maturity substantially in anticipation of a change in the
interest rate environment. There is no limit as to the maturity of any
individual security.
The Fund may hold uninvested cash reserves pending investment during
temporary defensive periods or if, in the opinion of its Sub-Advisor, suitable
Exempt Securities are unavailable. There is
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no percentage limitation on the amount of assets which may be held uninvested.
Uninvested cash reserves will not earn income.
Other Investments. Under normal market conditions, at least 80% of the
net assets of the Fund will be invested in Exempt Securities. However, up to 20%
of the net assets of the Fund may be invested in municipal obligations of other
states, and any political subdivision, county or municipality thereof, which are
not Exempt Securities and in taxable obligations if, for example, suitable
Exempt Securities are unavailable or for cash management purposes. In addition,
the Fund may invest up to 100% of its assets in such securities when deemed
appropriate for temporary defensive purposes as determined by the Fund's
Sub-Advisor to be warranted due to market conditions. Such taxable obligations
consist of Government Obligations and Short-Term Obligations (as described
above). Under such circumstances and during the period of such investment, the
Fund may not achieve its stated investment objectives.
The Fund has no limit to the extent that it may invest its net assets
in Exempt Securities, the interest income from which may be treated as a
preference item for purposes of the federal alternative minimum tax. To the
extent the Fund invests in these securities, individual Shareholders, depending
on their own tax status, may be subject to alternative minimum tax on that part
of the Fund's distributions derived from these bonds. For further information
relating to the types of Exempt Securities which will be included in income
subject to alternative minimum tax, see "ADDITIONAL INFORMATION -- Additional
Tax Information With Respect to the Pennsylvania Bond Fund" in the Statement of
Additional Information.
Opinions relating to the validity of Exempt Securities and to the
exemption of interest thereon from federal and Pennsylvania state income taxes
are normally rendered by bond counsel to the respective issuers at the time of
issuance. Neither the Fund nor the Advisor nor the Sub-Advisor will review the
proceedings relating to the issuance of Exempt Securities or the basis for such
opinions.
Floating and Variable Rate Securities and Zero Coupon Securities.
Exempt Securities purchased by the Fund may include rated and unrated variable
and floating rate obligations the interest on which is tax-exempt. The Fund may
also invest in zero coupon securities. Such securities are more fully described
below under "Risk Factors and Investment Techniques."
The Fund may also purchase floating and variable rate demand notes and
bonds, which are tax exempt obligations ordinarily having stated maturities in
excess of one year, but which permit the holder to demand payment of principal
at any time, or at specified intervals. Variable rate demand notes include
master demand notes which are obligations that permit the Fund to invest
fluctuating amounts, at varying rates of interest, pursuant to direct
arrangements between the Fund, as lender, and the borrower. These obligations
permit daily changes in the amount borrowed. Frequently, such obligations are
secured by letters of credit or other credit support arrangements provided by
banks. Use of letters of credit or other credit support arrangements will not
adversely affect the tax-exempt status of these obligations. Because these
obligations are direct lending arrangements between the lender and borrower, it
is not contemplated that such instruments generally will be traded, and there
generally is no established secondary market for these obligations, although
they are redeemable at face value, plus accrued interest. Accordingly, where
these obligations are not secured by letters of credit or other credit support
arrangements, the Fund's right to redeem is dependent on the ability of
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the borrower to pay principal and interest on demand. Each obligation purchased
by the Fund will meet the quality criteria established for the purchase of
Exempt Securities. The Fund's Sub-Advisor will consider on an ongoing basis the
creditworthiness of the issuers of the floating and variable rate demand
obligations in the Fund's portfolio.
Participation Interests. The Fund may purchase from financial
institutions participation interests in Exempt Securities (such as industrial
development bonds and municipal lease/purchase agreements). A participation
interest gives the Fund an undivided interest in the Exempt Security in the
proportion that the Fund's participation interest bears to the total principal
amount of the Exempt Security. These instruments may have fixed, floating or
variable rates of interest. If the participation interest is unrated, it will be
backed by an irrevocable letter of credit or guarantee of a bank that the Board
of Trustees has determined meets the prescribed quality standards for banks in
whose securities the Fund may invest, or the payment obligation otherwise will
be collateralized by Government Obligations. For certain participation
interests, the Fund will have the right to demand payment, on not more than
seven days' notice, for all or any part of the Fund's participation interest in
the Exempt Security, plus accrued interest. As to these instruments, the Fund
intends to exercise its right to demand payment only upon a default under the
terms of the Exempt Security, as needed to provide liquidity to meet
redemptions, or to maintain or improve the quality of its investment portfolio.
Custodial Receipts. The Fund may purchase custodial receipts
representing the right to receive certain future principal and interest payments
on Exempt Securities which underlie the custodial receipts. A number of
different arrangements are possible. In a typical custodial receipt arrangement,
an issuer or a third party owner of Exempt Securities deposits such obligations
with a custodian in exchange for two classes of custodial receipts. The two
classes have different characteristics, but, in each case, payments on the two
classes are based on payments received on the underlying Exempt Securities. One
class has the characteristics of a typical auction rate security, where at
specified intervals its interest rate is adjusted, and ownership changes, based
on an auction mechanism. This class' interest rate generally is expected to be
below the coupon rate of the underlying Exempt Securities and generally is at a
level comparable to that of an Exempt Security of similar quality and having a
maturity equal to the period between interest rate adjustments. The second class
bears interest at a rate that exceeds the interest rate typically borne by a
security of comparable quality and maturity; this rate also is adjusted, but in
this case inversely to changes in the rate of interest of the first class. If
the interest rate on the first class exceeds the coupon rate of the underlying
Exempt Securities, its interest rate will exceed the rate paid on the second
class. In no event will the aggregate interest paid with respect to the two
classes exceed the interest paid by the underlying Exempt Securities. The value
of the second class and similar securities should be expected to fluctuate more
than the value of an Exempt Security of comparable quality and maturity and
their purchase by the Fund should increase the volatility of its net asset value
and, thus, its price per share. These custodial receipts are sold in private
placements. The Fund also may purchase directly from issuers, and not in a
private placement, Exempt Securities having characteristics similar to custodial
receipts. These securities may be issued as part of a multi-class offering and
the interest rate on certain classes may be subject to a cap or a floor.
The Fund may use one or more of the investment techniques described
below. Use of such techniques may cause the Fund to earn income which would be
taxable to its Shareholders.
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THE LIFESTYLE FUNDS
The investment objective of the Lifestyle Conservative Growth Fund is
capital appreciation and income. The investment objective of the Lifestyle
Moderate Growth Fund is capital appreciation and, secondarily, income. The
investment objective of the Lifestyle Growth Fund is capital appreciation. Each
Lifestyle Fund seeks to achieve its objective by investing in Underlying Funds.
The table below illustrates the initial underlying Fund allocation and ranges
for each Lifestyle Fund:
RANGES (PERCENTAGE OF EACH FUND'S NET ASSETS)
<TABLE>
<CAPTION>
NAME OF FUND RANGE
------------ -----
<S> <C>
Lifestyle Conservative Growth Fund
Governor Funds Prime Money Market Fund 0 - 30%
Governor Funds U.S. Treasury Obligations
Money Market Fund
Limited Duration 30 - 60%
Government Securities Fund
Intermediate Term Income Fund
Established Growth Fund
Aggressive Growth Fund
International Equity Fund 10 - 40%
Lifestyle Moderate Growth Fund
Governor Funds Prime Money Market Fund
Governor Funds U.S Treasury Obligations
Money Market Fund 0 - 20%
Limited Duration
Government Securities Fund 20 - 50%
Intermediate Term Income Fund
Established Growth Fund
Aggressive Growth Fund
International Equity Fund 30 - 60%
Lifestyle Growth Fund
Governor Funds Prime Money Market Fund
</TABLE>
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<TABLE>
<CAPTION>
NAME OF FUND RANGE
------------ -----
<S> <C>
Governor Funds U.S. Treasury Obligations 0 - 10%
Money Market Fund
Limited Duration
Government Securities Fund 10 - 40%
Intermediate Term Income Fund
Established Growth Fund
Aggressive Growth Fund
Emerging Growth Fund
International Equity Fund 50 - 80%
</TABLE>
The allocation of each Lifestyle Fund's assets among the Underlying
Funds will initially be made by the Fund's Sub-Advisor within the percentage
ranges set forth in the table above. However, the particular Underlying Fund in
which each Lifestyle Fund may invest, the allocation ranges, and the investments
in each Underlying Fund may be changed from time to time without shareholder
approval. The Sub-Advisor will make allocation decisions according to its
outlook for the economy, financial markets, and relative market valuation of the
Underlying Funds.
Each Lifestyle Fund's net asset value will fluctuate with changes in
the value of the Underlying Funds in which they invest. Each Lifestyle Fund's
investment return is diversified by its investment in the Underlying Funds.
To the extent a Lifestyle Fund or the Underlying Funds are engaged in a
temporary defensive position, they will not be pursuing their investment
objective.
The investments of the Lifestyle Funds are concentrated in the
Underlying Funds, so each Lifestyle Fund's performance is directly related to
the performance of the Underlying Funds.
Each Lifestyle Fund may invest in the Trust's Prime Money Market and
U.S. Treasury Obligations Money Market Funds. Both the Prime Money Market and
U.S. Treasury Obligations Money Market Funds each seek current income with
liquidity and stability of principal. The Prime Money Market Fund and the U.S.
Treasury Obligations Money Market Fund seek to maintain a constant net asset
value of $1.00 per share for purchases and redemptions, but there can be no
assurance that either will be able to do so.
The Prime Money Market Fund may invest in the following high quality
money market instruments: (1) U.S. Government Obligations (as described above);
(2) certificates of deposit, bankers' acceptances and time deposits of U.S.
banks or other U.S. financial institutions (including foreign branches of such
banks and institutions) having total assets in excess of $1 billion and which
are members of the Federal Reserve System or the Federal Deposit Insurance
Corporation; (3) certificates of deposit, bankers' acceptances and time deposits
of foreign banks and U.S. branches of foreign banks having assets in excess of
the equivalent of $1 billion; (4) Eurodollar certificates of
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deposit, Eurodollar time deposits, Europaper, Canadian commercial paper and
Canadian time deposits (limited to 20% of the Fund's net assets); (5) Yankee
certificates of deposit; (6) municipal obligations which are rated at the time
of purchase by one or more nationally recognized statistical rating
organizations in one of the two highest rating categories for short-term debt
obligations, or, if not rated, determined by the Fund's sub-advisor to be of
comparable quality; (7) asset backed securities; (8) commercial paper, other
short-term obligations and variable and floating rate master demand notes,
bonds, debentures and notes; (9) repurchase agreements relating to the above
instruments; (10) reverse repurchase agreements; (11) securities of other
investment companies; (12) securities lending; and (13) illiquid securities
(limited to 10% of the Fund's net assets).
The U.S. Treasury Obligations Money Market Fund may invest in the
following high quality money market instruments: (1) U.S. Government Obligations
(as described above); (2) direct obligations issued by the U.S. Treasury; (3)
U.S. Treasury securities that have been stripped of their unmatured interest
coupons; (4) interest coupons that have been stripped from such U.S. Treasury
securities; (5) receipts and certificates for such stripped debt obligations and
stripped coupons; (6) repurchase agreements relating to the above instruments;
(7) variable and floating rate securities; (8) reverse repurchase agreements;
(9) securities lending; (10) securities of other investment companies; and (11)
securities received on a when-issued or delayed delivery basis.
The Prime Money Market and U.S. Treasury Obligations Money Market Funds
are subject to Rule 2a-7 of the 1940 Act, which sets forth requirements of,
among other things, diversification, average maturity (including a requirement
that dollar-weighted average portfolio maturity may not exceed 90 days) and
credit quality. The Statement of Additional Information also has more
information on the Prime Money Market and U.S. Treasury Obligations Money Market
Funds. This is only a short summary of the investments in which the Prime Money
Market and U.S. Treasury Obligations Money Market Funds may invest. The
prospectus for the Prime Money Market and U.S. Treasury Obligations Money Market
Funds has more detailed descriptions. You may request a prospectus for those
Funds by calling (800) 766-3960.
RISK FACTORS AND INVESTMENT TECHNIQUES
Equities. Equity securities such as those in which the Established
Growth Fund, Aggressive Growth Fund, Emerging Growth Fund and International
Equity Fund may invest are more volatile and carry more risks than some other
forms of investment, including investments in high grade fixed income
securities. Therefore, each Fund is subject to stock market risk, e.g., the
possibility that stock prices in general will decline over short or even
extended periods of time.
Equity securities of micro-cap companies, such as those in which the
Emerging Growth Fund may invest, may offer a greater capital appreciation
potential but are more volatile and carry more risk than some other forms of
investment, including investments in equity securities of larger, more
established companies or high grade fixed income securities. Investments in
micro-cap companies represent some of the smaller and least liquid equity
securities in the U.S. markets.
Growth-Oriented Companies. The Aggressive Growth Fund and the Emerging
Growth Fund are both intended for investors who have a long-term investment time
horizon and who can accept the higher risks involved in seeking potentially
higher capital appreciation through investments in growth oriented companies. A
growth oriented company typically invests most of its net income in its
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enterprise and does not pay out much, if any, in dividends. Accordingly, the
Aggressive Growth and Emerging Growth Funds do not anticipate any significant
distributions to Shareholders from net investment income, and potential
investors should be in a financial position to forego current income from their
investment in the Aggressive Growth and Emerging Growth Funds. In addition,
smaller capitalized companies generally have limited product lines, markets and
financial resources and are dependent upon a limited management group. The
securities of less seasoned companies and/or smaller capitalized companies may
have limited marketability, which may affect or limit their liquidity and
therefore the ability of the Aggressive Growth and Emerging Growth Funds to sell
such securities at the time and price they deem advisable. In addition, such
securities may be subject to more abrupt or erratic market movements over time
than securities of more seasoned and/or larger capitalized companies or the
market as a whole.
Micro Capitalization Companies. The Emerging Growth Fund is subject to
the risks associated with investments in micro capitalization companies. Risks
of investing in micro capitalization companies include the probability that some
companies may never realize the value discount potential that appeared to be
inherent in them at the time of investment or may even fail as a business for
several reasons. For example, a new product or innovation may not take hold, an
anticipated takeover or turnaround may not occur, a trademark may lose its value
to other generic products. Also, micro capitalization companies may lack the
resources, financial or otherwise, to take advantage of a valuable product or
favorable market position or may be unable to withstand the competitive
pressures of larger, more established rivals. The Emerging Growth Fund's
Sub-Advisor will seek to minimize the risks described above by broad
diversification of the Emerging Growth Fund's portfolio. However, there can be
no assurance that such diversification will prevent loss in value of certain
portfolio securities or in the Emerging Growth Fund's net asset value.
Bonds. Since the Income Fund, Government Securities Fund and
Pennsylvania Bond Fund each invests in bonds, investors in such a Fund are
exposed to bond market risk, i.e., fluctuations in the market value of bonds.
Bond prices are influenced primarily by changes in the level of interest rates.
When interest rates rise, the prices of bonds generally fall; conversely, when
interest rates fall, bond prices generally rise although certain types of bonds
are subject to the risks of prepayment as described above when interest rates
fall. The values of debt securities also may be affected by change in the credit
rating or financial condition of the issuing entities. While bonds normally
fluctuate less in price than stocks, there have been in the recent past extended
periods of cyclical increases in interest rates that have caused significant
declines in bond prices and have caused the effective maturity of securities
with prepayment features to be extended, thus effectively converting short or
intermediate term securities (which generally have less market risk and less
fluctuation in market value) into longer term securities (the prices of which
generally are more volatile).
Depending upon the prevailing market conditions, the Funds'
Sub-Advisors may purchase debt securities at a discount from face value, which
produces a yield greater than the coupon rate. Conversely, if debt securities
are purchased at a premium over face value, the yield will be lower than the
coupon rate. In making investment decisions, the Funds' Sub-Advisors will
consider many factors other than current yield, including the preservation of
capital, maturity, and yield to maturity.
Net Asset Value. Each Fund's net asset value generally will not be
stable and should fluctuate based upon changes in the value of such Fund's
portfolio securities. Depending upon the
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performance of each Funds' investments, the net asset value per share of a Fund
may decrease instead of increase.
The Sub-Advisors manage the Funds generally without regard to
restrictions on portfolio turnover, except those imposed by provisions of the
federal tax laws regarding short-term trading. Especially with respect to the
Income Fund and the Government Securities Fund, the Advisor intends to manage
actively those Funds' portfolios, which may result in high portfolio turnover
rates. For more information regarding the effects of high portfolio turnover see
"Portfolio Turnover" below.
Derivatives. The Income Fund, Government Securities Fund and
Pennsylvania Bond Fund may invest in any one or more of the following
securities: certain variable or floating rate securities, and, as described
below, the Income Fund and the Government Securities Fund may invest in
mortgage-backed securities, and the Established Growth Fund, Aggressive Growth
Fund, Emerging Growth Fund, International Equity Fund, the Income Fund and the
Pennsylvania Bond Fund may invest in put and call options and futures. Such
instruments are considered to be "derivatives." A derivative is generally
defined as an instrument whose value is based upon, or derived from, some
underlying index, reference rate (e.g., interest rates), security, commodity or
other asset. Certain derivatives that may be purchased by a Fund, such as those
with interest rates that fluctuate directly or indirectly based on multiples of
a stated index, are designed to be highly sensitive to changes in interest rates
and can subject the holders thereof to extreme reductions of yield and possibly
loss of principal. The Established Growth Fund, Aggressive Growth Fund, Emerging
Growth Fund, International Equity Fund, Income Fund and the Government
Securities Fund each will not invest more than 20% of its total assets in any
such derivatives at any one time, except that there is no limitation on the
amount of a Fund's total assets which may be invested in variable or floating
rate obligations. There is no limit on the amount of the Pennsylvania Bond
Fund's assets that may be invested in derivatives.
Repurchase Agreements. Securities held by each of the Funds may be
subject to repurchase agreements. Under the terms of a repurchase agreement, a
Fund would acquire securities, in exchange for cash, from banks and/or
registered broker-dealers which the Fund's Sub-Advisor deems creditworthy under
guidelines approved by the Trust's Board of Trustees. The seller agrees to
repurchase such securities at a mutually agreed date and price. The repurchase
price generally equals the price paid by the Fund 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. Securities subject to repurchase
agreements must be of the same type and quality as those in which the Fund may
invest directly. Repurchase agreements are considered to be loans by a Fund
under the 1940 Act. For further information about repurchase agreements and the
related risks, see "INVESTMENT OBJECTIVES AND POLICIES - Additional Information
on Portfolio Instruments - Repurchase Agreements" in the Statement of Additional
Information.
Reverse Repurchase Agreements. Each Fund may borrow funds by entering
into reverse repurchase agreements in accordance with the investment
restrictions described below. Pursuant to such agreements, a Fund would sell
portfolio securities to financial institutions such as banks and broker-dealers,
and agree to repurchase them at a mutually agreed-upon date and price. At the
time a Fund enters into a reverse repurchase agreement, it will place in a
segregated custodial account assets such as U.S. Government securities or other
liquid securities consistent with the Fund's investment
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restrictions having a value equal to the repurchase price (including accrued
interest), and will continually monitor the account to ensure that such
equivalent value is maintained at all times. Reverse repurchase agreements
involve the risk that the market value of the securities sold by a Fund may
decline below the price at which such Fund is obligated to repurchase the
securities. Reverse repurchase agreements are considered to be borrowings by a
Fund under the 1940 Act and therefore a form of leverage. A Fund may experience
a negative impact on its net asset value if interest rates rise during the term
of a reverse repurchase agreement. A Fund generally will invest the proceeds of
such borrowings only when such borrowings will enhance the Fund's liquidity or
when the Fund reasonably expects that the interest income to be earned from the
investment of the proceeds is greater than the interest expense of the
transaction. For further information about reverse repurchase agreements, see
"INVESTMENT OBJECTIVE AND POLICIES - Additional Information on Portfolio
Instruments - Reverse Repurchase Agreements" in the Statement of Additional
Information.
Except as permitted by the 1940 Act, the Trust will not execute
portfolio transactions through, acquire portfolio securities issued by, make
savings deposits in, or enter into repurchase or reverse repurchase agreements
with the Advisor, Sub-Advisors, BISYS, or their affiliates.
Securities Lending. In order to generate additional income, each Fund
may, from time to time, lend its portfolio securities to broker-dealers, banks,
or institutional borrowers of securities. A Fund must receive 100% collateral in
the form of cash or U.S. Government securities. This collateral will be valued
daily by the Fund's Sub-Advisor. Should the market value of the loaned
securities increase, the borrower must furnish additional collateral to the
Fund. During the time portfolio securities are on loan, the borrower pays the
Fund any dividends or interest received on such securities. Loans are subject to
termination by the Fund or the borrower at any time. While a Fund does not have
the right to vote securities on loan, each Fund intends to terminate the loan
and right to vote if that is considered important with respect to the
investment. In the event the borrower would default in its obligations, a Fund
bears the risk of delay in recovery of the portfolio securities and the loss of
rights in the collateral. A Fund will enter into loan agreements only with
broker-dealers, banks, or other institutions that the Fund's Sub-Advisor has
determined are creditworthy under guidelines established by the Trust's Board of
Trustees. No Fund will lend more than 33% of the total value of its portfolio
securities at any one time.
When-Issued or Delayed-Delivery Securities. Each Fund may purchase
securities on a when-issued or delayed-delivery basis. These transactions are
arrangements in which a Fund purchases securities with payment and delivery
scheduled for a future time. Each Fund will engage in when-issued and
delayed-delivery transactions only for the purpose of acquiring portfolio
securities consistent with and in furtherance of its investment objectives and
policies, not for investment leverage, although such transactions represent a
form of leveraging. When-issued or delayed-delivery securities are securities
purchased for delivery beyond the normal settlement date at a stated price and
yield and thereby involve a risk that the price obtained in the transaction will
be greater than those available in the market when delivery takes place. A Fund
will generally not pay for such securities or start earning dividends on them
until they are received on the settlement date. When a Fund agrees to purchase
such securities, however, its custodian will set aside cash or liquid securities
equal to the amount of the commitment in a separate account. Securities
purchased on a when-issued or delayed-delivery basis are recorded as an asset
and are subject to changes in the value based upon market factors and changes in
the general level of interest rates. In when-issued and delayed-delivery
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transactions, a Fund relies on the seller to complete the transaction; the
seller's failure to do so may cause that Fund to miss a price considered to be
advantageous.
Investment Company Securities. Each Fund may also invest in the
securities of other investment companies, including shares of a money market
fund advised by the Sub-Advisor ("Governor money market funds") and the
Underlying Funds in accordance with the limitations of the 1940 Act and any
exemptions therefrom. Each Fund intends to invest in other investment companies
which, in the opinion of the Fund's Sub-Advisor will assist such Fund in
achieving its investment objective(s) and in money market mutual funds for
purposes of short-term cash management. A Fund will incur additional expenses
due to the duplication of fees and expenses as a result of investing in mutual
funds. In order to avoid the imposition of additional fees as a result of
investing in shares of a Governor money market fund, the Advisor, Sub-Advisor,
BISYS, and Governors Group Advisors, Inc. and BISYS Ohio, as the Funds'
administrators, and their affiliates will reduce their fees charged to a Fund
other than the Lifestyle Funds by an amount equal to the fees charged by such
service providers based on a percentage of that Fund's assets attributable to
such Fund's investment in the Governor money market fund. Additional
restrictions on the Funds' investments in the securities of other mutual funds
are contained in the Statement of Additional Information.
Year 2000. Like other investment companies, financial and business
organizations and individuals around the world, the Funds could be affected
adversely if the computer systems used by the Advisor, Sub-Advisors, the Funds'
other service providers, and others do not properly process and calculate
date-related information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." The Advisor, Sub-Advisors, and the
Funds' other service providers have informed the Trust that they are taking
steps to address the Year 2000 Problem with respect to the computer systems that
they use. At this time, however, there can be no assurance that these steps will
be sufficient to avoid any adverse impact on the Funds as a result of the Year
2000 Problem.
Convertible Securities. The Established Growth Fund, Aggressive Growth
Fund, Emerging Growth Fund, International Equity Fund and Income Fund each may
invest in convertible securities. A convertible security is a bond, debenture,
note, preferred stock or other security that may be converted into or exchanged
for a prescribed amount of common stock of the same or a different issuer within
a particular period of time at a specified price or formula. Convertible
securities rank senior to common stocks in a corporation's capital structure
and, therefore, entail less risk than the corporation's common stock. The value
of a convertible security is a function of its "investment value" (its value as
if it did not have a conversion privilege) and its "conversion value" (the
security's worth if it were to be exchanged for the underlying security, at
market value, pursuant to its conversion privilege).
Restricted Securities. Securities in which the Aggressive Growth Fund,
the Emerging Growth Fund, the International Equity Fund and the Income Fund may
invest include securities issued by corporations without registration under the
Securities Act of 1933, as amended (the "1933 Act"), such as securities issued
in reliance on the so-called "private placement" exemption from registration
which is afforded by Section 4(2) of the 1933 Act ("Section 4(2) securities").
Section 4(2) securities are restricted as to disposition under the Federal
securities laws, and generally are sold to institutional investors such as the
Aggressive Growth Fund, the Emerging Growth Fund, the International Equity
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Fund and the Income Fund who agree that they are purchasing the securities for
investment and not with a view to public distribution. Any resale must also
generally be made in an exempt transaction. Section 4(2) securities are normally
resold, if at all, to other institutional investors through or with the
assistance of the issuer or investment dealers who facilitate the resale of such
Section 4(2) securities, thus providing some liquidity.
Pursuant to procedures adopted by the Board of Trustees of the Trust, a
Sub-Advisor may determine Section 4(2) securities to be liquid if such
securities are eligible for resale under Rule 144A under the 1933 Act and are
readily saleable. Rule 144A permits the Aggressive Growth Fund, the Emerging
Growth Fund, the International Equity Fund and the Income Fund to purchase
securities which have been privately placed and resell such securities to
certain qualified institutional buyers without restriction. For purposes of
determining whether a Rule 144A security is readily saleable, and therefore
liquid, a Sub-Advisor must consider, among other things, the frequency of trades
and quotes for the security, the number of dealers willing to purchase or sell
the security and the number of potential purchasers, dealer undertakings to make
a market in the security, and the nature of the security and marketplace trades
of such security. However, investing in Rule 144A securities, even if such
securities are initially determined to be liquid, could have the effect of
increasing the level of the Aggressive Growth Fund's, the Emerging Growth
Fund's, the International Equity Fund's and the Income Fund's illiquidity to the
extent that qualified institutional buyers become, for a time, uninterested in
purchasing these securities.
Writing Covered Call and Put Options. The Established Growth Fund,
Aggressive Growth Fund, Emerging Growth Fund, International Equity Fund, Income
Fund and Pennsylvania Bond Fund may write covered call and put options on
securities, or futures contracts regarding securities, in which such Fund may
invest, in an effort to realize additional income. A put option gives the
purchaser the right to sell, and a writer has the obligation to purchase, 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. A
call option gives the purchaser of the option the right to buy, and a writer has
the obligation to sell, 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 consideration for undertaking
the obligations under the option contract. Such options will be listed on
national securities or futures exchanges. Each Fund may write covered call
options as a means of seeking to enhance its income through the receipt of
premiums in instances in which the Fund's Sub-Advisor determines that the
underlying securities or futures contracts are not likely to increase in value
above the exercise price. Each Fund also may seek to earn additional income
through the receipt of premiums by writing put options. By writing a call
option, a Fund limits its opportunity to profit from any increase in the market
value of the underlying security above the exercise price of the option; by
writing a put option, a Fund assumes the risk that it may be required to
purchase the underlying security at a price in excess of its then current market
value.
Each of the Established Growth Fund, Aggressive Growth Fund, Emerging
Growth Fund, International Equity Fund, Income Fund and Pennsylvania Bond Fund,
as part of its option transactions, also may write index put and call options.
Through the writing of index options a Fund can achieve many of the same
objectives as through the use of options on individual securities. Options on
securities indices are similar to options on a security except that, rather than
the right to take or make delivery of a security at a specified price, an option
on a securities index gives the
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holder the right to receive, upon exercise of the option, an amount of cash if
the closing level of the securities index upon which the option is based is
greater than, in the case of a call, or less than, in the case of a put, the
exercise price of the option.
When a Fund writes an option, an amount equal to the net premium (the
premium less the commission) received by that Fund is included in the liability
section of the Fund's statement of assets and liabilities as a deferred credit.
The amount of the deferred credit will be 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 mean between bid
and asked price. If an option expires on the stipulated expiration date or if
the Fund enters into a closing purchase transaction, it will realize a gain (or
a 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. If a call option is exercised, the Fund may deliver 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 Fund will
realize a gain or loss. The Established Growth Fund, Aggressive Growth Fund,
Emerging Growth Fund, International Equity Fund, Income Fund and Pennsylvania
Bond Fund will each limit its writing of options such that at no time will more
than 25% of its total assets be subject to such options transactions.
Purchasing Options. The Established Growth Fund, Aggressive Growth
Fund, Emerging Growth Fund, International Equity Fund, Income Fund and
Pennsylvania Bond Fund may each purchase put and call options written by third
parties covering indices and those types of financial instruments or securities
in which the Fund may invest to attempt to provide protection against adverse
price effects from anticipated changes in prevailing prices for such
instruments. The purchase of a put option is intended to protect the value of a
Fund's holdings in a falling market while the purchase of a call option is
intended to protect the value of a Fund's positions in a rising market. Put and
call options purchased by a Fund will be valued at the last sale price, or in
the absence of such a price, at the mean between bid and asked price. Such
options will be listed on national securities or futures exchanges.
In purchasing a call option, a Fund would be in a position to realize a
gain if, during the option period, the price of the underlying security, index
or futures contract increased by an amount in excess of the premium paid for the
call option. It would realize a loss if the price of the underlying security,
index or futures contract declined or remained the same or did not increase
during the period by more than the amount of the premium. By purchasing a put
option, the Fund would be in a position to realize a gain if, during the option
period, the price of the security, index or futures contract declined by an
amount in excess of the premium paid. It would realize a loss if the price of
the security, index or futures contract increased or remained the same or did
not decrease during that period by more than the amount of the premium. If a put
or call option purchased by the Fund were permitted to expire without being sold
or exercised, its premium would represent a realized loss to the Fund.
Puts. The Pennsylvania Bond Fund also may require "puts" with respect
to Exempt Securities held in its portfolio. The Pennsylvania Bond Fund may sell,
transfer, or assign a put in conjunction with the sale, transfer, or assignment
of the underlying security or securities.
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The amount payable to the Pennsylvania Bond Fund upon its exercise of a
"put" is normally (i) the Fund's acquisition cost of the Exempt Securities
(excluding any accrued interest which the Fund paid on the acquisition), less
any amortized market premium or plus any amortized market or original issue
discount during the period the Fund owned the securities, plus (ii) all interest
accrued on the securities since the last interest payment date during that
period.
Puts may be acquired by the Pennsylvania Bond Fund to facilitate the
liquidity of its portfolio assets. Puts may also be used to facilitate the
reinvestment of the Fund's assets at a rate of return more favorable than that
of the underlying security. Puts may, under certain circumstances, also be used
to shorten the maturity of underlying variable rate or floating rate securities
for purposes of calculating the remaining maturity of those securities.
The Pennsylvania Bond Fund expects that it will generally acquire this
type of put only where the put is available without the payment of any direct or
indirect consideration. However, if necessary or advisable, the Fund may pay for
such puts either separately in cash or by paying a higher price for portfolio
securities which are acquired subject to the puts (thus reducing the yield to
maturity otherwise available for the same securities).
The Pennsylvania Bond Fund intends to enter into such puts only with
dealers, banks, and broker-dealers which, in its Sub-Advisor's opinion, present
minimal credit risks.
Futures Contracts. The Established Growth Fund, Aggressive Growth Fund,
Emerging Growth Fund, International Equity Fund, Income Fund and Pennsylvania
Bond Fund may each purchase or sell contracts for the future delivery of the
specific financial instruments or securities in which that Fund may invest, and
indices based upon the types of securities in which that Fund may invest
(collectively, "Futures Contracts"). Each such Fund may use this investment
technique as a substitute for a comparable market position in the underlying
securities or to hedge against anticipated future changes in market prices,
which otherwise might adversely affect either the value of such Fund's
securities or the prices of securities which such Fund intends to purchase at a
later date. In addition, the Income Fund and the Pennsylvania Bond Fund may
purchase or sell futures contracts to hedge against changes in market interest
rates which may result in the premature call at par value of certain securities
which that Fund has purchased at a premium.
To the extent a Fund is engaging in a futures transaction as a hedging
device, because of the risk of an imperfect correlation between securities in
the Fund's portfolio that are the subject of a hedging transaction and the
futures contract used as a hedging device, it is possible that the hedge will
not be fully effective if, for example, losses on the portfolio securities
exceed gains on the futures contract or losses on the futures contract exceed
gains on the portfolio securities. For futures contracts based on indices, the
risk of imperfect correlation increases as the composition of a Fund's portfolio
varies from the composition of the index. In an effort to compensate for the
imperfect correlation of movements in the price of the securities being hedged
and movements in the price of futures contracts, a Fund may buy or sell futures
contracts in a greater or lesser dollar amount than the dollar amount of the
securities being hedged if the historical volatility of the future contract has
been less or greater than that of the securities. Such "over hedging" or "under
hedging" may adversely affect a Fund's net investment results if the market does
not move as anticipated when the hedge is established.
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Successful use of futures by a Fund also is subject to the Fund's
Sub-Advisor's ability to predict correctly movements in the direction of the
market. For example, if a Fund has hedged against the possibility of a decline
in the market adversely affecting the value of securities held in its portfolio
and prices increase instead, the Fund will lose part or all of the benefit of
the increased value of securities which it has hedged because it will have
offsetting losses in its futures positions. Furthermore, if in such
circumstances the Fund has insufficient cash, it may have to sell securities to
meet daily variation margin requirements. The Fund may have to sell such
securities at a time when it may be disadvantageous to do so.
An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is a put) at
a specified exercise price at any time during the option exercise period. The
writer of the option is required upon exercise to assume an offsetting futures
position (a short position if the option is a call and a long position if the
option is a put). Upon exercise of the option, the assumption of offsetting
futures positions by the writer and holder of the option will be accompanied by
delivery of the accumulated cash balance in the writer's futures margin account
which represents the amount by which the market price of the futures contract,
at exercise, exceeds, in the case of a call, or is less than, in the case of a
put, the exercise price of the option on the futures contract.
Call options sold by a Fund with respect to futures contracts will be
covered by, among other things, entering into a long position in the same
contract at a price no higher than the strike price of the call option, or by
ownership of the instruments underlying, or instruments the prices of which are
expected to move relatively consistently with the instruments underlying, the
futures contract. Put options sold by a Fund with respect to futures contracts
will be covered when, among other things, cash or liquid securities are placed
in a segregated account to fulfill the obligation undertaken.
The Established Growth Fund, Aggressive Growth Fund, Emerging Growth
Fund, International Equity Fund, Income Fund and Pennsylvania Bond Fund may each
utilize various index futures to protect against changes in the market value of
the securities in its portfolio or which it intends to acquire. Securities index
futures contracts are based on an index of various types of securities, e.g.,
stocks or long-term corporate bonds. The index assigns relative values to the
securities included in an index, and fluctuates with changes in the market value
of such securities. The contract is an agreement pursuant to which two parties
agree to take or make delivery of an amount of cash based upon the difference
between the value of the index at the close of the last trading day of the
contract and the price at which the index contract was originally written. The
acquisition or sale of an index futures contract enables a Fund to protect its
assets from fluctuations in prices of certain securities without actually buying
or selling such securities.
In general, the value of futures contracts sold by a Fund to offset
declines in its portfolio securities will not exceed the total market value of
the portfolio securities to be hedged, and futures contracts purchased by a Fund
will be covered by a segregated account consisting of cash or liquid securities
in an amount equal to the total market value of such futures contracts, less the
initial margin deposited therefor.
When buying futures contracts and when writing put options, a Fund will
be required to segregate in a separate account cash and/or liquid securities in
an amount sufficient to meet its
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obligations. When writing call options, a Fund will be required to own the
financial instrument or futures contract underlying the option or segregate cash
and/or liquid securities in an amount sufficient to meet its obligations under
written calls.
Interest Rate Swaps. The International Equity Fund may engage in
interest rate swaps. In order to attempt to protect the International Equity
Fund investments from interest rate fluctuations, the International Equity Fund
may engage in interest rate swaps. The International Equity Fund intends to use
interest rate swaps as a hedge and not as a speculative investment. Interest
rate swaps involve the exchange of the International Equity Fund with another
party of their respective rights to receive interest (e.g., an exchange of fixed
rate payments for floating rate payments). For example, if the International
Equity Fund holds an interest paying security whose interest rate is reset once
a year, it may swap the right to receive at a rate that is reset daily. Such a
swap position would offset changes in the value of the underlying security
because of subsequent changes in interest rates. This would protect the
International Equity Fund from a decline in the value of the underlying security
due to rising rates, but would also limit its ability to benefit from falling
interest rates.
The International Equity Fund will enter into interest rate swaps only
on a net basis (i.e., the two payments streams will be netted out, with the
International Equity Fund receiving or paying as the case may be, only the net
amount of the two payments). The net amount of the excess, if any, of the
International Equity Fund's obligations over its entitlements with respect to
each interest rate swap will be accrued on a daily basis, and an amount of cash
or liquid high grade debt securities having an aggregate net asset value at
least equal to the accrued excess, will be maintained in a segregated account by
the International Equity Fund's custodian bank.
The use of interest rate swaps involves investment techniques and risks
different from those associated with ordinary portfolio security transactions.
If the International Equity Fund Sub-Advisor is incorrect in its forecasts of
market values, interest rates and other applicable factors, the investment
performance of the International Equity Fund will be less favorable than it
would have been if this investment technique were never used. Interest rate
swaps do not involve the delivery of securities or other underlying assets or
principal. Thus, if the other party to an interest rate swap defaults, the
International Equity Fund's risk of loss consists of the net amount of interest
payments that the International Equity Fund is contractually entitled to
receive.
Variable and Floating Rate Obligations. Securities purchased by the
Income Fund, Government Securities Fund and Pennsylvania Bond Fund may include
rated and unrated variable and floating rate obligations. A variable rate
obligation is one whose terms provide for the adjustment of its interest rate on
set dates and which, upon such adjustments, can reasonably be expected to have a
market value that approximates its par value.
A floating rate obligation is one whose terms provide for the
adjustment of its interest rate whenever a specified interest rate changes. Such
obligations are frequently not rated by credit rating agencies; however, unrated
variable and floating rate obligations purchased by a Fund will be determined by
a Fund's Sub-Advisor to be of comparable quality at the time of purchase to
rated instruments eligible for purchase under such Fund's investment policies.
In making such determinations, the Sub-Advisor will consider the earning power,
cash flow and other liquidity ratios of the issuers of such obligations and will
continuously monitor their financial condition.
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Although there may be no active secondary market with respect to a
particular variable or floating rate obligation purchased by a Fund, the Fund
may attempt to resell the obligation at any time to a third party. The absence
of an active secondary market, however, could make it difficult for a Fund to
dispose of a variable or floating rate obligation in the event the issuer of the
obligation defaulted on its payment obligations and the Fund could, as a result
or for other reasons, suffer a loss to the extent of the default. Variable or
floating rate obligations may be secured by bank letters of credit.
In the event the interest rate of a variable or floating rate
obligation is established by reference to an index or an interest rate that may
from time to time lag behind other market interest rates, there is the risk that
the market value of such obligation, on readjustment of its interest rate, will
not approximate its par value.
Variable and floating rate obligations for which no readily available
market exists and which are not subject to a demand feature that will permit the
Fund to receive payment of the principal within seven days after demand by that
Fund, will be considered illiquid and therefore, together with other illiquid
securities held by such Fund, will not exceed 15% of such Fund's net assets.
Zero Coupon Securities. The Income Fund, Government Securities Fund and
Pennsylvania Bond Fund may each invest in zero coupon securities which are debt
securities issued or sold at a discount from their face value which do not
entitle the holder to any periodic payment of interest prior to maturity or a
specified redemption date (or cash payment date). The amount of the discount
varies depending on the time remaining until maturity or cash payment date,
prevailing interest rates, liquidity of the security and perceived credit
quality of the issuer. Zero coupon securities also may take the form of debt
securities that have been stripped of their unmatured interest coupons, the
coupons themselves and receipts or certificates representing interests in such
stripped debt obligations and coupons. The market prices of zero coupon
securities generally are more volatile than the market prices of
interest-bearing securities and are likely to respond to a greater degree to
changes in interest rates than interest-bearing securities having similar
maturities and credit qualities. Federal income tax law requires the holder of a
zero coupon security or of certain pay-in-kind bonds to accrue income with
respect to these securities prior to the receipt of cash payments. To maintain
its qualification as a regulated investment company and avoid liability for
federal income taxes, a Fund may be required to distribute such income accrued
with respect to these securities and may have to dispose of portfolio securities
under disadvantageous circumstances in order to generate cash to satisfy these
distribution requirements. For further information regarding zero coupon
securities, see "Additional General Tax Information" in the Statement of
Additional Information.
Short Sales. The Income Fund, Government Securities Fund and
Pennsylvania Bond Fund may from time to time sell securities short. Short sales
are effected when the Fund's Sub-Advisor believes that the price of a particular
security will decline, and involve the sale of a security which a Fund does not
own in the hope of purchasing the same security at a later date at a lower
price. When a Fund sells a security short, it will borrow the same security from
a broker or other institution to complete the sale. A Fund may make a profit or
incur a loss depending upon whether the market price of the security sold short
decreases or increases between the date of the short sale and the date on which
the Fund must replace the borrowed security. An increase in the value of a
security sold short by a Fund over the price at which it was sold short will
result in a loss to that Fund, and there
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can be no assurance that a Fund will be able to close out the position at any
particular time or at an acceptable price.
All short sales must be fully collateralized, and the Income Fund,
Government Securities Fund and Pennsylvania Bond Fund will not sell securities
short if, immediately after and as a result of the sale, the value of all
securities sold short by that Fund exceeds 25% of its total assets.
Medium-Grade Securities. As described above, the Income Fund and the
Pennsylvania Bond Fund may each invest in debt securities within any of the six
highest rating groups assigned by an NRSRO, including debt securities within the
fourth highest rating group (e.g., BBB or Baa by S&P and Moody's, respectively)
and comparable unrated securities. Securities within the fourth highest rating
group are considered by Moody's to have some speculative characteristics, and
while interest payments and principal security appears adequate for the present,
such securities lack certain protective elements or may be characteristically
unreliable over any great period of time.
Should subsequent events cause the rating of a debt security purchased
by a Fund to fall below BBB or Baa, as the case may be, the Fund's Sub-Advisor
will consider such an event in determining whether that Fund should continue to
hold that security. In no event, however, would a Fund be required to liquidate
any such portfolio security where the Fund would suffer a loss on the sale of
such security.
Foreign Investments. Investments in foreign securities (including
Yankee Bonds, Eurodollar Bonds and Supranational Bonds) may subject the
Established Growth Fund, Aggressive Growth Fund, Emerging Growth Fund,
International Equity Fund and Income Fund to investment risks that differ in
some respects from those related to investments in securities of U.S. domestic
issuers. Such risks include future adverse political and economic developments,
the possible imposition of withholding taxes on interest or other investment
income, possible seizure, nationalization, or expropriation of foreign deposits
or investments, the possible establishment of exchange controls or taxation at
the source, less stringent disclosure requirements, less liquid or developed
securities markets or the adoption of other foreign governmental restrictions
which might adversely affect the payment of principal, interest or dividends on
such securities or the purchase or sale thereof. In addition, foreign branches
of U.S. banks and foreign banks may be 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. The Income
Fund will acquire securities issued by foreign branches of U.S. banks, foreign
banks, or other foreign issuers only when the Fund's Sub-Advisor believes that
the risks associated with such instruments are minimal.
Investments in foreign securities will usually involve currencies of
foreign countries, and the value of the assets of a Fund that may invest in
foreign securities as measured in United States dollars may be affected
favorably or unfavorably by changes in foreign currency exchange rates and
exchange control regulations, and the Fund may incur costs in connection with
conversions between various currencies. The expected introduction of a single
currency, the euro, on January 1, 1999 for participating nations in the European
Economic and Monetary Union presents unique uncertainties, including whether the
payment and operational systems of banks and other financial institutions will
be ready by the scheduled launch date; the legal treatment of certain
outstanding financial contracts after January 1, 1999 that refer to existing
currencies rather than the euro; the establishment of
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exchange rates for existing currencies and the euro; and the creation of
suitable clearing and settlement payment systems for the new currency. These or
other factors, including political and economic risks, could cause market
disruptions before or after the introduction of the euro, and could adversely
affect the value of securities held by the Funds.
The normal currency allocation of the International Equity Fund is
identical to the currency mix of the Benchmark. The International Equity Fund
expects to maintain this normal currency exposure when global currency markets
are fairly priced relative to each other and relative to associated risks. The
International Equity Fund may actively deviate from such normal currency
allocations to take advantage of or to protect the International Equity Fund
from risk and return characteristics of the currencies and short-term interest
rates when those prices deviate significantly from fundamental value. Deviations
from the Benchmark are determined by the International Equity Fund Sub-Advisor
based upon its research.
To manage exposure to currency fluctuations, the International Equity
Fund may alter equity or money market exposures (in its normal asset allocation
mix as previously identified), enter into forward currency exchange contracts,
buy or sell options, futures or options on futures relating to foreign
currencies and may purchase securities indexed to currency baskets. The
International Equity Fund will also use these currency exchange techniques in
the normal course of business to hedge against adverse changes in exchange rates
in connection with purchases and sales of securities. Some of these strategies
may require the International Equity Fund to set aside liquid assets in a
segregated custodial account to cover its obligations. These techniques are
further described below.
The International Equity Fund may conduct its foreign currency exchange
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market or through entering into contracts to purchase
or sell foreign currencies at a future date (i.e., "forward foreign currency"
contract or "forward" contract). A forward contact involves an obligation to
purchase or sell a specific currency amount at a future date, which may be any
fixed number of days from the date of the contract, agreed upon by the parties,
at a price set at the time of the contract. The International Equity Fund will
convert currency on a spot basis from time to time and investors should be aware
of the potential costs of currency conversion.
When the Fund's Sub-Advisor believes that the currency of a particular
country may suffer a significant decline against the U.S. dollar or against
another currency, the Fund may enter into a currency contract to sell, for a
fixed amount of U.S. dollars or other appropriate currency, the amount of
foreign currency approximating the value of some or all of the International
Equity Fund's securities denominated in such foreign currency.
At the maturity of a forward contract, the International Equity Fund
may either sell a 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 repurchasing an "offsetting" contract with the
same currency trader obligating it to purchase, on the same maturity date, the
same amount of the foreign currency. The International Equity Fund may realize a
gain or loss from currency transactions.
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The International Equity Fund also may purchase and write put and call
options on foreign currencies (traded on U.S. and foreign exchanges or
over-the-counter markets) to manage the Fund's exposure to changes in currency
exchange rates. Call options on foreign currency written by the International
Equity Fund will be "covered", which means that the Fund will own an equal
amount of the underlying foreign currency. With respect to put options on
foreign currency written by the International Equity Fund, the Fund will
establish a segregated account with its custodian bank consisting of cash, U.S.
government securities or other high-grade liquid debt securities in an amount
equal to the amount the Fund would be required to pay upon exercise of the put.
Interest Rate Futures Contracts and Options on Interest Rate Futures
Contracts. The Income Fund and the Pennsylvania Bond Fund may purchase and sell
interest rate futures contracts and options on interest rate futures contracts
as a substitute for a comparable market position or to hedge against adverse
movements in interest rates.
To the extent such Fund has invested in interest rate futures contracts
or options on interest rate futures contracts as a substitute for a comparable
market position, the Fund will be subject to the investment risks of having
purchased the securities underlying the contract.
The Income Fund and the Pennsylvania Bond Fund may each also purchase
call options on interest rate futures contracts to hedge against a decline in
interest rates and may purchase put options on interest rate futures contracts
to hedge its portfolio securities against the risk of rising interest rates.
If a Fund has hedged against the possibility of an increase in interest
rates adversely affecting the value of securities held in that Fund's portfolio
and rates decrease instead, such Fund will lose part or all of the benefit of
the increased value of the securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations, if
the Fund has insufficient cash, it may have to sell securities to meet daily
variation margin requirements at a time when it may be disadvantageous to do so.
These sales of securities may, but will not necessarily, be at increased prices
which reflect the decline in interest rates.
The Income Fund and the Pennsylvania Bond Fund may sell call options on
interest rate futures contracts to partially hedge against declining prices of
its portfolio securities. If the futures price at expiration of the option is
below the exercise price, the Fund will retain the full amount of the option
premium which provides a partial hedge against any decline that may have
occurred in that Fund's portfolio holdings. A Fund may sell put options on
interest rate futures contracts to hedge against increasing prices of the
securities which are deliverable upon exercise of the futures contracts. If the
futures price at expiration of the option is higher than the exercise price, the
Fund will retain the full amount of the option premium which provides a partial
hedge against any increase in the price of securities which the Fund intends to
purchase. If a put or call option sold by a Fund is exercised, the Fund will
incur a loss which will be reduced by the amount of the premium it receives.
Depending on the degree of correlation between changes in the value of its
portfolio securities and changes in the value of its futures positions, a Fund's
losses from existing options on futures may to some extent be reduced or
increased by changes in the value of its portfolio securities.
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The Income Fund and the Pennsylvania Bond Fund also may each sell
options on interest rate futures contracts as part of closing purchase
transactions to terminate its options positions. No assurance can be given that
such closing transactions can be effected or that there will be a correlation
between price movements in the options on interest rate futures and price
movements in that Fund's portfolio securities which are the subject of the
hedge. In addition, a Fund's purchase of such options will be based upon
predictions as to anticipated interest rate trends, which could prove to be
inaccurate.
In general, the value of futures contracts sold by a Fund to offset
declines in its portfolio securities will not exceed the total market value of
the portfolio securities to be hedged, and futures contracts purchased by a Fund
will be covered by a segregated account consisting of cash or liquid securities
in an amount equal to the total market value of such futures contracts, less the
initial margin deposited therefor.
When buying futures contracts and when writing put options, a Fund will
be required to segregate in a separate account cash and/or liquid securities in
an amount sufficient to meet its obligations. When writing call options, a Fund
will be required to own the financial instrument or futures contract underlying
the option or segregate cash and/or liquid securities in an amount sufficient to
meet its obligations under written calls.
The following risks and techniques apply exclusively to the
Pennsylvania Bond Fund.
Risks of Non-Diversification. Potential Shareholders should consider
the fact that the Pennsylvania Bond Fund's portfolio consists primarily of
securities issued by the Commonwealth of Pennsylvania (the "Commonwealth"), its
municipalities and authorities and should realize that the Pennsylvania Bond
Fund's performance is closely tied to general economic conditions within the
Commonwealth as a whole and to economic conditions within particular industries
and geographic areas located within the Commonwealth.
Although the General Fund of the Commonwealth (the principal operating
fund of the Commonwealth) experienced deficits in fiscal 1990 and 1991, tax
increases and spending decreases have resulted in surpluses the last four years;
as of June 30, 1996, the General Fund had a surplus of $635.2 million. The
deficit in the Commonwealth's unreserved/undesignated funds also has been
eliminated.
Pennsylvania's economy historically has been dependent upon heavy
industry, but has diversified recently into various services, particularly into
medical and health services, education and financial services. Agricultural
industries continue to be an important part of the economy, including not only
the production of diversified food and livestock products, but substantial
economic activity in agribusiness and food-related industries. Service
industries currently employ the greatest share of nonagricultural workers,
followed by the categories of trade and manufacturing. Future economic
difficulties in any of these industries could have an adverse impact on the
finances of the Commonwealth or its municipalities, and could adversely affect
the market value of the Pennsylvania Exempt Securities in the Pennsylvania Bond
Fund or the ability of the respective obligors to make payments of interest and
principal due on such Securities.
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Certain litigation is pending against the Commonwealth that could
adversely affect the ability of the Commonwealth to pay debt service on its
obligations including suits relating to the following matters: (i) the ACLU has
filed suit in federal court demanding additional funding for child welfare
services; the Commonwealth settled a similar suit in the Commonwealth Court of
Pennsylvania and is seeking the dismissal of the federal suit, inter alia
because of that settlement. After its earlier denial of class certification was
reversed by the Third Circuit Court of Appeals, the district court granted class
certification to the ACLU and the parties are proceeding with discovery. (No
available estimate of potential liability); (ii) in 1987, the Supreme Court of
Pennsylvania held the statutory scheme for county funding of the judicial system
to be in conflict with the constitution of the Commonwealth, but stayed judgment
pending enactment by the legislature of funding consistent with the opinion, and
the legislature has yet to consider legislation implementing the judgment. In
1997, the Court established a tripartite committee to develop an implementation
plan; (iii) litigation has been filed in both state and federal court by an
association of rural and small schools and several individual school districts
and parents challenging the constitutionality of the Commonwealth's system for
funding local school districts -- the federal case has been stayed pending the
resolution of the state case, and the trial, briefing and argument have been
completed as of September, 1997, and the presiding judge has taken the case
under advisement (no available estimates of potential liability); (iv)
Envirotest/Synterra Partners ("Envirotest") has filed suit against the
Commonwealth asserting that it sustained damages in excess of $350 million, as a
result of investments it made in reliance on a contract to conduct emissions
testing before the emission testing program was suspended. Envirotest has
entered into a Standstill Agreement with the Commonwealth pursuant to which
Envirotest will receive $145 million over four years through 1998; (v) the
Commonwealth of Pennsylvania, its governor, the City of Philadelphia and its
mayor were joined in an enforcement action commenced in 1973 against the School
District of Philadelphia pursuant to the Pennsylvania Human Relations Act. The
enforcement action was pursued to remedy unintentional segregation in the public
schools in Philadelphia. The Supreme Court of Pennsylvania has outlined a
briefing schedule to resolve this matter (no available estimates of potential
liability); and (vi) in 1997, a Trust including residents, non-profit Trusts,
the City of Philadelphia and the School District of Philadelphia brought an
action seeking a declaratory judgment against the Commonwealth for failing to
fulfill its obligation to provide an adequate educational system for the City of
Philadelphia (no available estimates of potential liability).
Although there can be no assurance that such conditions will continue,
the Commonwealth's general obligation bonds are currently rated AA- by S&P and
A1 by Moody's, and Philadelphia's and Pittsburgh's general obligation bonds are
currently rated BBB-and BBB+ respectively by S&P and Baa and Baa1 respectively
by Moody's.
The City of Philadelphia (the "City") experienced a series of General
Fund deficits for Fiscal Years 1988 through 1992 and, while its general
financial situation has improved, the City is still seeking a long-term solution
for its economic difficulties. The audited balance of the City's General Fund as
of June 30, 1996 was a surplus of $118.5 million up from a surplus of
approximately $80.5 million as of June 30, 1995.
In recent years an authority of the Commonwealth, the Pennsylvania
Intergovernmental Cooperation Authority ("PICA"), has issued approximately $1.76
billion of Special Revenue Bonds on behalf of the City to cover budget
shortfalls, to eliminate projected deficits and to fund capital
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spending. PICA provides assistance regarding the City's finances. The City is
currently operating under a five year plan approved by PICA in 1996. PICA's
power to issue further bonds to finance capital projects expired on December 31,
1994. PICA's authority to issue bonds to finance cash flow deficits expired
December 31, 1996, and its authority to refund existing debt will not expire.
The Pennsylvania Bond Fund's classification as "non-diversified" means
that the proportion of the Pennsylvania Bond Fund's assets that may be invested
in the securities of a single issuer is not limited by the 1940 Act. However,
the Pennsylvania Bond Fund intends to conduct its operations so as to qualify as
a "regulated investment company" for purposes of the Internal Revenue Code of
1986, as amended (the "Code"), which requires the Pennsylvania Bond Fund
generally to invest as of the end of each fiscal quarter, with respect to 50% of
its total assets, not more than 5% of such assets in the obligations of a single
issuer; as to the remaining 50% of its total assets, the Pennsylvania Bond Fund
is not so restricted. In no event, however, may the Pennsylvania Bond Fund
invest more than 25% of its total assets in the obligations of any one issuer as
of the end of each fiscal quarter. Since a relatively high percentage of the
Pennsylvania Bond Fund's assets may be invested in the obligations of a limited
number of issuers, some of which may be within the same economic sector, the
Pennsylvania Bond Fund's portfolio securities may be more susceptible to any
single economic, political or regulatory occurrence than the portfolio
securities of a diversified investment company.
Municipal Lease Obligations. Certain municipal lease/purchase
obligations in which the Pennsylvania Bond Fund may invest may contain
"non-appropriation" clauses which provide that the municipality has no
obligation to make lease payments in future years unless money is appropriated
for such purpose on a yearly basis. Although "non-appropriation" lease/purchase
obligations are secured by the leased property, disposition of the leased
property in the event of foreclosure might prove difficult. In evaluating the
credit quality of a municipal lease/purchase obligation that is unrated, the
Sub-Advisor will consider, on an ongoing basis, a number of factors including
the likelihood that the issuing municipality will discontinue appropriating
funding for the leased property.
PORTFOLIO TURNOVER
The portfolio turnover rate for each Fund is calculated by dividing the
lesser of a Fund's purchases or sales of portfolio securities for the year by
the monthly average value of the portfolio securities. The Commission requires
that the calculation exclude all securities whose remaining maturities at the
time of acquisition are one year or less. The portfolio turnover rate for the
International Equity Fund, Lifestyle Conservative Growth Fund, Lifestyle
Moderate Growth Fund and Lifestyle Growth Fund for each Fund's first fiscal
period ending June 30, 1998, is estimated to be .40%, ___%, ___% and ___%,
respectively. The portfolio turnover rate for each of the Funds may vary greatly
from year to year, as well as within a particular year, and may also be affected
by cash requirements for redemptions of Shares. High portfolio turnover rates
will generally result in higher transaction costs, including brokerage
commissions, to a Fund and may result in additional tax consequences to a Fund's
Shareholders. Portfolio turnover will not be a limiting factor in making
investment decisions. Portfolio turnover information is set forth above under
"FINANCIAL HIGHLIGHTS."
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INVESTMENT RESTRICTIONS
Each Fund is subject to a number of investment restrictions that may be
changed only by a vote of a majority of the outstanding Shares of that Fund (as
defined under "GENERAL INFORMATION -- Miscellaneous" herein).
The Established Growth Fund, the Aggressive Growth Fund, the Emerging
Growth Fund, the International Equity Fund, the Income Fund, the Government
Securities Fund and the Lifestyle Funds will not:
1. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. Government (and "regulated investment companies" as
defined in the Code for each Lifestyle Fund and the International Equity Fund),
its agencies or instrumentalities, if, immediately after such purchase, more
than 5% of the Fund's total assets would be invested in such issuer or the Fund
would hold more than 10% of the outstanding voting securities of the issuer,
except that 25% or less of the Fund's total assets may be invested without
regard to such limitations. There is no limit to the percentage of assets that
may be invested in U.S. Treasury bills, notes, or other obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
2. Purchase any securities which would cause more than 25% of the
Fund's total assets at the time of purchase to be invested in 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,
and repurchase agreements secured by obligations of the U.S. Government, its
agencies or instrumentalities (and "regulated investment companies" as defined
in the Code for each Lifestyle Fund and the International Equity Fund); (b)
wholly owned finance companies will be considered to be in the industries of
their parents if their activities are primarily related to financing the
activities of their parents; (c) with respect to the Established Growth Fund,
the Emerging Growth Fund, the International Equity Fund, the Income Fund and the
Government Securities Fund, 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 (d) with respect to
the Aggressive Growth Fund and Emerging Growth Fund, technology companies will
be divided according to their services (for example, medical devices,
biotechnology, semi-conductor, software and communications will each be
considered a separate industry).
The Pennsylvania Bond Fund will not purchase securities of any one
issuer, other than obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, if at the end of each fiscal quarter, (a) more
than 5% of the Fund's total assets (taken at current value) would be invested in
such issuer (except that up to 50% of the Fund's total assets may be invested
without regard to such 5% limitation), and (b) more than 25% of its total assets
(taken at current value) would be invested in securities of a single issuer.
There is no limit to the percentage of assets that may be invested in U.S.
Treasury bills, notes, or other obligations 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, such non-governmental user.
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In addition, each Fund will not:
1. Borrow money or issue senior securities except that each Fund may
enter into reverse repurchase agreements and may otherwise borrow money or issue
senior securities as and to the extent permitted by the 1940 Act or any rule,
order or interpretation thereunder.
2. Make loans, except that the Fund may purchase or hold debt
instruments and lend portfolio securities in accordance with its investment
objective and policies, make time deposits with financial institutions and enter
into repurchase agreements.
The following additional investment restriction may be changed without
the vote of a majority of the outstanding Shares of a Fund: each Fund may not
purchase or otherwise acquire any security if, as a result, more than 15% of its
net assets would be invested in securities that are illiquid.
VALUATION OF SHARES
The net asset value of each Fund is determined and its Shares are
priced as of the close of regular trading on the New York Stock Exchange (the
"Exchange") (generally 4:00 p.m. Eastern time) on each Business Day of that
Fund. The time at which the Shares of the Funds are priced is hereinafter
referred to as the "Valuation Time." A "Business Day" of a Fund is a day on
which the Exchange is open for trading and any other day (other than a day on
which no Shares of the Fund are tendered for redemption and no order to purchase
any Shares of the Fund is received) during which there is sufficient trading in
portfolio instruments such that the Fund's net asset value per share might be
materially affected. The Exchange will not be open in observance of the
following holidays: New Year's Day, Martin Luther King, Jr. Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas. Net asset value per share for purposes of pricing purchases and
redemptions is calculated by dividing the value of all securities and other
assets belonging to a Fund, less the liabilities charged to that Fund, by the
number of that Fund's outstanding Shares.
The net asset value per share for each Fund will fluctuate as the value
of its investments changes.
The Lifestyle Funds value investments in mutual fund securities at
their redemption price, which is net asset value. The portfolio securities of
the Established Growth, Aggressive Growth, Emerging Growth, International
Equity, Income, Government Securities and Pennsylvania Bond Funds for which
market quotations are readily available are valued based upon their current
available prices in the principal market in which such securities normally are
traded; unlisted securities for which market quotations are readily available
are valued at such market values; and other securities, including restricted
securities and other securities for which market quotations are not readily
available, and other assets are valued at fair value by the Fund's Sub-Advisor
under procedures established by, and under the supervision of the Trust's Board
of Trustees. Securities may be valued by an independent pricing service approved
by the Trust's Board of Trustees. Debt Securities of the Established Growth,
Aggressive Growth, Emerging Growth, International Equity, Income,
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Government Securities and Pennsylvania Bond Funds with remaining maturities of
60 days or less may be valued based upon the amortized cost method.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Funds are sold on a continuous basis by the Trust's
distributor, BISYS (the "Distributor"). The principal office of the Distributor
is 3435 Stelzer Road, Columbus, Ohio 43219. If you wish to purchase Shares,
telephone the Trust at (800) 766-3960.
SPECIAL RESTRICTIONS - THE EMERGING GROWTH FUND
Prospective investors should be aware that management may consider
closing the Emerging Growth Fund to new Shareholders at the end of the 90th
calendar day after the Emerging Growth Fund reaches $300 million in total
assets. No investments by new Shareholders will be accepted after such closure.
Depending upon market conditions and the availability of suitable investments
for the Emerging Growth Fund, investments from new Shareholders may be accepted.
The time period for any such investments by new Shareholders will be determined
by the Fund's Sub-Advisor based primarily on the ability to effectively invest
the Emerging Growth Fund's available cash. There is no limitation on purchases
of the Emerging Growth Fund's Shares through the reinvestment of dividends and
capital gains distributions paid by the Emerging Growth Fund.
The Emerging Growth Fund reserves the right to modify or eliminate
restrictions on the sale of its Shares if such action is in the interest of the
Emerging Growth Fund's Shareholders.
EMPLOYEE BENEFIT PLANS
Purchases, exchanges and redemptions of Shares through an employee
benefit plan may be subject to different requirements and limitations imposed by
employers than those discussed below. Investors should consult their employer
for more information on how to purchase, exchange and redeem Shares of the Funds
through their employer's plan.
PURCHASES OF SHARES
Shares may be purchased through procedures established by the
Distributor in connection with the requirements of qualified accounts maintained
by or on behalf of certain persons ("Customers") by the Advisor, its affiliates
or their correspondent entities (collectively, "Entities").
Shares of the Funds sold to the Entities acting in a fiduciary,
advisory, custodial, agency, or other similar capacity on behalf of Customers
will normally be held of record by the Entities. With respect to Shares of a
Fund so sold, it is the responsibility of the particular Entity to transmit
purchase or redemption orders to the Distributor and to deliver federal funds
for purchase on a timely basis. Beneficial ownership of Shares will be recorded
by the Entities and reflected in the account statements provided by the Entities
to Customers.
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Investors may also purchase Shares of the Funds by completing and
signing an Account Registration Form and mailing it, together with a check (or
other negotiable bank draft or money order) in at least the minimum initial
purchase amount, payable to the applicable Fund, to The Governor Funds, P.O. Box
182707, Columbus, Ohio 43218-2707. Subsequent purchases of Shares of a Fund may
be made at any time by mailing a check (or other negotiable bank draft or money
order) payable to the Trust, to the above address.
If an Account Registration Form has been previously received by the
Trust, investors may also purchase Shares by wiring funds to the Funds'
custodian. Prior to wiring any such funds and in order to ensure that wire
orders are invested promptly, investors must call the Trust at (800) 766-3960 to
obtain instructions regarding the bank account number into which the funds
should be wired and other pertinent information.
Shares of the Funds are purchased at the net asset value per share (see
"VALUATION OF SHARES") next determined after receipt by the Distributor, its
agents or broker-dealers with whom it has an agreement of an order in good form
to purchase Shares plus any applicable sales charge as described below.
Purchases of Shares of a Fund will be effected only on a Business Day (as
defined in "VALUATION OF SHARES") of that Fund.
For an order for the purchase of Shares of a Fund that is placed
through a broker-dealer, the applicable public offering price will be the net
asset value as so determined (plus any applicable sales charge), but only if the
broker-dealer receives the order and transmits it to the Distributor prior to
the Valuation Time for that day. The broker-dealer is responsible for
transmitting such orders by the Valuation Time. If the broker-dealer fails to do
so, the investor's right to that day's closing price must be settled between the
investor and the broker-dealer. If the broker-dealer receives the order after
the Valuation Time for that day, the price will be based on the net asset value
determined as of the Valuation Time for the next Business Day.
MINIMUM INVESTMENT
Except as otherwise discussed below under "Auto Invest Plan," the
minimum investment is $1,000 for the initial purchase of Shares of a Fund by an
investor and $25 for subsequent purchases of Shares of that Fund. The initial
minimum investment amount is reduced to $250 for employees of the Advisor,
Sub-Advisors, Keystone or any of their affiliates.
Depending upon the terms of a particular Customer's account, the
Entities or their affiliates may charge a Customer account fees for automatic
investment and other cash management services provided in connection with an
investment in a Fund. Information concerning these services and any charges will
be provided by the Entities. This Prospectus should be read in conjunction with
any such information received from the Entities or their affiliates.
The Trust reserves the right to reject any order for the purchase of
its Shares in whole or in part, including purchases made with foreign checks and
third party checks not originally made payable to the order of the investor.
Every Shareholder will receive a confirmation of each new transaction
in his or her account, which will also show the total number of Shares owned by
the Shareholder and the number of Shares
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being held in safekeeping by the Transfer Agent for the account of the
Shareholder. Reports of purchases and redemptions of Shares by Entities on
behalf of their Customers will be sent by the Entities to their Customers.
Shareholders may rely on these statements in lieu of certificates. Certificates
representing Shares will not be issued.
AUTO INVEST PLAN
The Governor Funds Auto Invest Plan enables Shareholders to make
regular monthly or quarterly purchases of Shares of the Funds through automatic
deduction from their bank accounts, provided that the Shareholder's bank is a
member of the Federal Reserve and the Automated Clearing House (ACH) system.
With Shareholder authorization the Transfer Agent will deduct the amount
specified (subject to the applicable minimums) from the Shareholder's bank
account which will automatically be invested in Shares of the designated Fund at
the public offering price next determined after receipt of payment by the
Transfer Agent. The required minimum initial investment when opening an account
using the Auto Invest Plan is $250; the minimum amount for subsequent
investments is $25. To participate in the Auto Invest Plan, Shareholders should
complete the appropriate section of the Account Registration Form or a
supplemental sign-up form which can be acquired by calling the Trust at (800)
766-3960. For a Shareholder to change the Auto Invest instructions, the request
must be made in writing to the Trust at: 3435 Stelzer Road, Columbus, Ohio
43219.
The Trust may eliminate or change the Auto Invest Plan at any time or
from time to time without notice thereof.
GOVERNOR FUNDS INDIVIDUAL RETIREMENT ACCOUNT ("IRA")
A Governor Funds IRA enables individuals, even if they participate in
an employer-sponsored retirement plan, to establish their own retirement
program. Governor Funds IRA contributions may be tax-deductible and earnings are
tax deferred. Under the Tax Reform Act of 1986, the tax deductibility of IRA
contributions is restricted or eliminated for individuals who participate in
certain employer pension plans and whose annual income exceeds certain limits.
Existing IRAs and future contributions up to the IRA maximums, whether
deductible or not, still earn income on a tax-deferred basis.
All Governor Funds IRA distribution requests must be made in writing to
the Distributor. Any deposits to a Governor Funds IRA must distinguish the type
and year of the contributions.
For more information on the Governor Funds IRAs call the Trust at (800)
766-3960. Investment in Shares of the Governor Funds Pennsylvania Municipal Bond
Fund or any other tax-exempt fund would not be appropriate for a Governor Funds
IRA. Shareholders are advised to consult a tax advisor on Governor Funds IRA
contribution and withdrawal requirements and restrictions.
IN-KIND PURCHASES
Payment of Shares of a Fund may, in the discretion of the Advisor, be
made in the form of securities that are permissible investments for that Fund as
described in this Prospectus. For further
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information about this form of payment, contact the Advisor. In connection with
an in-kind securities payment, a Fund will require, among other things, that the
securities be valued on the date of purchase in accordance with the pricing
methods used by the Fund and that the Fund receive satisfactory assurances that
it will have good and marketable title to the securities received by it; that
the securities be in proper form of transfer to the Fund; and that adequate
information be provided concerning the basis and other tax matters relating to
the securities.
SALES CHARGES
The public offering price of Shares of each Fund equals net asset value
plus a sales charge in accordance with the tables below. BISYS receives this
sales charge as Distributor and reallows a portion of it as dealer discounts and
brokerage commissions. However, the Distributor, in its sole discretion may pay
certain dealers all or part of the portion of the sales charge it receives. The
broker or dealer who receives a reallowance in excess of 90% of the sales charge
may be deemed to be an "underwriter" for purposes of the Securities Act of 1933.
THE ESTABLISHED GROWTH FUND, AGGRESSIVE GROWTH FUND, EMERGING GROWTH
FUND, INTERNATIONAL EQUITY FUND, INCOME FUND, PENNSYLVANIA BOND FUND AND
LIFESTYLE FUNDS.
<TABLE>
<CAPTION>
Dealer Discounts
Amount of Transaction Sales Charge as % of and Brokerage
at Public Offering Net Amount Sales Charge as % of Commissions as % of
Price Invested Public Offering Price Public Offering Price
- ----- -------- --------------------- ---------------------
<S> <C> <C> <C>
Less than $100,000 4.71% 4.50% 4.05%
$100,000 but less than $250,000 3.63 3.50 3.15
$250,000 but less than $500,000 2.56 2.25 2.25
$500,000 but less than 1.52 1.50 1.35
$1,000,000
$1,000,000 or more 0 0 0
</TABLE>
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THE GOVERNMENT SECURITIES FUND.
<TABLE>
<CAPTION>
Dealer Discounts
Amount of Transaction Sales Charge as % of and Brokerage
at Public Offering Net Amount Sales Charge as % of Commissions as % of
Price Invested Public Offering Price Public Offering Price
- ----- -------- --------------------- ---------------------
<S> <C> <C> <C>
Less than $100,000 3.09% 3.00% 2.70%
$100,000 but less than $250,000 2.56 2.50 2.25
$250,000 but less than $500,000 2.04 2.00 1.80
$500,000 but less than 1.52 1.50 1.35
$1,000,000
$1,000,000 or more 0 0 0
</TABLE>
From time to time dealers who receive dealer discounts and brokerage
commissions from the Distributor may reallow all or a portion of such dealer
discounts and brokerage commissions to other dealers or brokers. The
Distributor, at its expense, will also provide additional compensation to
dealers in connection with sales of Shares of the Funds. Such compensation will
include financial assistance to dealers in connection with conferences, sales or
training programs for their employees, seminars for the public, advertising
campaigns regarding the Funds, and/or other dealer-sponsored special events. In
some instances, this compensation will be made available only to certain dealers
whose representatives have sold a significant amount of such Shares.
Compensation will include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to locations within or outside of the United
States for meetings or seminars of a business nature. Compensation will also
include the following types of non-cash compensation offered through sales
contests: (1) vacation trips, including the provision of travel arrangements and
lodging at luxury resorts at an exotic location, (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 the Funds'
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 any Fund or its Shareholders.
SALES CHARGE WAIVERS
The Distributor will waive sales charges for the purchase of Shares of
a Fund by or on behalf of (1) purchasers for whom Keystone, the Advisor, one of
their affiliates or another financial institution acts in a fiduciary, advisory,
agency, custodial (other than individual retirement accounts), or similar
capacity, (2) officers, trustees, directors, advisory board members, employees
and retired employees (including spouses, children and parents of the foregoing)
of Keystone, the Advisor, the Trust, BISYS and any affiliated company thereof,
(3) investors who purchase Shares with the
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proceeds from a distribution from the Advisor, Keystone or an affiliate trust or
agency account, (4) brokers, dealers and agents who have a sales agreement with
the Distributor, and their employees (and their spouses and children under 21),
and (5) investment advisors or financial planners regulated by a federal or
state governmental authority who are purchasing Shares for their own account or
for an account for which they are authorized to make investment decisions (i.e.,
a discretionary account) and who charge a management, consulting or other fee
for their services, and clients of such investment advisors or financial
planners who place trades for their own accounts if the accounts are linked to
the master account of such investment advisor or financial planner on the books
and records of a broker or agent. The Distributor may change or eliminate the
foregoing waivers at any time or from time to time without notice thereof. The
Distributor may also periodically waive all or a portion of the sales charge for
all investors with respect to a Fund.
In addition, the Distributor may waive sales charges for the purchase
of a Fund's Shares with the proceeds from the recent redemption of shares of a
non-money market fund that imposes a sales charge. The purchase must be made
within 60 days of the redemption, and the Distributor must be notified in
writing by the investor, or by his financial institution, at the time the
purchase is made. A copy of the investor's account statement showing such
redemption must accompany such notice.
CONCURRENT PURCHASES
For purposes of qualifying for a lower sales charge, investors have the
privilege of combining concurrent purchases of a Fund and one or more of the
other funds of the Trust sold with a sales charge and advised by the Advisor or
Martindale Andres ("Governor Load Funds"). For example, if a Shareholder
concurrently purchases Shares in the Established Growth Fund at the total public
offering price of $50,000 and Shares in another Governor Load Fund at the total
public offering price of $50,000, the sales charge for such shares of the
Established Growth Fund would be that applicable to a $100,000 purchase as shown
in the table above. This privilege, however, may be modified or eliminated at
any time or from time to time by the Trust without notice thereof.
LETTER OF INTENT
An investor may obtain a reduced sales charge by means of a written
Letter of Intent which expresses the intention of such investor to purchase
Shares of a Fund at a designated total public offering price within a designated
13-month period. Each purchase of Shares under a Letter of Intent will be made
at the net asset value plus the sales charge applicable at the time of such
purchase to a single transaction of the total dollar amount indicated in the
Letter of Intent. A Letter of Intent may include purchases of Shares made not
more than 90 days prior to the date such investor signs a Letter of Intent;
however, the 13-month period during which the Letter of Intent is in effect will
begin on the date of the earliest purchase to be included. This program may be
modified or eliminated at any time or from time to time by the Trust without
notice. For further information about letters of intent, interested investors
should contact the Trust at (800) 766-3960.
A Letter of Intent is not a binding obligation upon the investor to
purchase the full amount indicated. The minimum initial investment under a
Letter of Intent is 5% of such amount. Shares purchased with the first 5% of
such amount will be held in escrow (while remaining registered in the name of
the investor) to secure payment of the higher sales charge applicable to the
Shares actually
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purchased if the full amount indicated is not purchased, and such escrowed
Shares will be involuntarily redeemed to pay the additional sales charge, if
necessary. Dividends on escrowed Shares, whether paid in cash or reinvested in
additional Shares, are not subject to escrow. The escrowed Shares will not be
available for disposal by the investor until all purchases pursuant to the
Letter of Intent have been made or the higher sales charge has been paid. When
the full amount indicated has been purchased, the escrow will be released. An
adjustment will be made to reflect any reduced sales charge applicable to Shares
purchased during the 90-day period prior to the date the Letter of Intent was
entered into 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. Additionally, if the total purchases within the 13-month period
exceed the amount specified, a similar adjustment will be made to reflect
further reduced sales charges applicable to such purchases, if any.
RIGHT OF ACCUMULATION
Pursuant to the right of accumulation, investors are permitted to
purchase Shares of a Fund at the public offering price applicable to the total
of (a) the total public offering price of the Shares of the Fund then being
purchased plus (b) an amount equal to the then current net asset value of the
purchaser's combined holdings of the Shares of all Governor Load Funds. The
"purchaser's combined holdings" described in the preceding sentence shall
include the combined holdings of the purchaser, the purchaser's spouse and
children under the age of 21 and the purchaser's retirement plan accounts. To
receive the applicable public offering price pursuant to the right of
accumulation, Shareholders must, at the time of purchase, give the Transfer
Agent sufficient information to permit confirmation of qualification. This right
of accumulation, however, may be modified or eliminated at any time or from time
to time by the Trust without notice.
EXCHANGE PRIVILEGE
Shares of a Fund may be exchanged for Shares of a money market fund of
the Trust or any other Governor Load Fund if the amount to be exchanged meets
the applicable minimum investment requirements and the exchange is made in
states where it is legally authorized. Each exchange will be made at respective
net asset values except that a sales charge, equal to the difference, if any,
between the sales charge payable upon the purchase of shares of the Fund of the
Trust to be acquired in the exchange and the sales charge previously paid on the
Shares to be exchanged, will be assessed. In determining the sales charge
previously paid on the Shares to be exchanged, such Shares may include Shares
which were acquired through a previous exchange for shares on which a sales
charge was paid. Under such circumstances, the Shareholder must notify the Trust
that a sales charge was originally paid and provide the Trust with sufficient
information to permit confirmation of the Shareholder's right not to pay a sales
charge.
An exchange is considered a sale of Shares for federal income tax
purposes. However, a Shareholder may not include any sales charge on Shares of a
Fund as a part of the cost of those Shares for purposes of calculating the gain
or loss realized on an exchange of those Shares within 90 days of their
purchase.
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The Trust may at any time modify or terminate the foregoing exchange
privileges. The Trust, however, will give Shareholders 60 days' advance written
notice of any such modification.
A Shareholder wishing to exchange his or her Shares may do so by
contacting the Trust at (800) 766-3960 or by providing written instructions to
the Trust. Any Shareholder who wishes to make an exchange should obtain and
review the current prospectus of the fund in which he or she wishes to invest
before making the exchange. For a discussion of risks associated with
unauthorized telephone exchanges, see "Redemption by Telephone" below.
REDEMPTION OF SHARES
Shares may ordinarily be redeemed by mail or by telephone. However, all
or part of a Customer's Shares may be redeemed in accordance with instructions
and limitations pertaining to his or her account at an Entity. For example, if a
Customer has agreed with an Entity to maintain a minimum balance in his or her
account with the Entity, and the balance in that account falls below that
minimum, the Customer may be obliged to redeem, or the Entity may redeem on
behalf of the Customer, all or part of the Customer's Shares of a Fund to the
extent necessary to maintain the required minimum balance.
Redemption by Mail
A written request for redemption must be received by the Trust, at the
address shown on the front page of this Prospectus, in order to honor the
request. The Transfer Agent will require a signature guarantee by an eligible
guarantor institution. The signature guarantee requirement will be waived if 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 mailed or wired to a commercial bank
account previously designated on the Account Registration Form. There is no
charge for having redemption proceeds mailed to a designated bank account. To
change the address to which a redemption check is to be mailed, a written
request therefor must be received by the Transfer Agent. In connection with such
request, the Transfer Agent will require a signature guarantee by an eligible
guarantor institution. For purposes of this policy, the term "eligible guarantor
institution" shall include banks, brokers, dealers, credit unions, securities
exchanges and associations, clearing agencies and savings associations as those
terms are defined in 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.
Redemption by Telephone
If a Shareholder has so designated on the Account Registration Form, a
Shareholder may request a redemption of his or her Shares by telephoning the
Transfer Agent and having the payment of redemption requests sent electronically
directly to a domestic commercial bank account previously designated by the
Shareholder on the Account Registration Form. A shareholder may also have such
payment mailed directly to the Shareholder at the Shareholder's address as
recorded by the Transfer Agent. However, this option may be suspended for a
period of 30 days following a telephonic
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address change. Under most circumstances, such payments will be transmitted on
the next Business Day following receipt of a valid request for redemption. Such
wire redemption requests may be made by the Shareholder by telephone to the
Trust. The Trust may reduce the amount of a wire redemption payment by the
then-current wire redemption charge of the Funds' custodian. There is currently
no charge for having payment of redemption requests mailed or sent
electronically to a designated bank account. For telephone redemptions, call the
Trust at (800) 766-3960.
Neither the Trust, the Funds nor their service providers will be liable
for any loss, damages, expense or cost arising out of any telephone redemption
effected in accordance with the Trust's telephone redemption procedures, acting
upon instructions reasonably believed to be genuine. The Trust will employ
procedures designed to provide reasonable assurance that instructions by
telephone are genuine; if these procedures are not followed, the Trust, the
Funds or their service providers may be liable for any losses due to
unauthorized or fraudulent instructions. These procedures include recording all
phone conversations, sending confirmations to Shareholders within 72 hours of
the telephone transaction, verification of account name and account number or
tax identification number, and sending redemption proceeds only to the address
of record or to a previously authorized bank account. If, due to temporary
adverse conditions, Shareholders are unable to effect telephone transactions,
Shareholders may also mail the redemption request to the Trust at the address
shown on the front page of this Prospectus.
AUTO WITHDRAWAL PLAN
The Auto Withdrawal Plan enables Shareholders of a Fund, with an
account balance in such Fund of $5,000 or more, to make regular monthly or
quarterly redemptions of Shares. With Shareholder authorization, the Transfer
Agent will automatically redeem Shares at the net asset value on the dates of
the withdrawal and have a check in the amount specified mailed to the
Shareholder. The required minimum withdrawal is $50 monthly. To participate in
the Auto Withdrawal Plan, Shareholders should call (800) 766-3960 for more
information. Purchases of additional Shares, including use of the Auto Invest
Plan described above, concurrent with withdrawals may be disadvantageous to
certain Shareholders because of tax liabilities and sales charges. For a
Shareholder to change the Auto Withdrawal instructions, the request must be made
in writing to the Trust.
PAYMENTS TO SHAREHOLDERS
Redemption orders are effected at the net asset value per share next
determined after the Shares are properly tendered for redemption, as described
above. Payment to Shareholders for Shares redeemed will be made within seven
days after receipt by the Distributor of the request for redemption. However, to
the greatest extent possible, each Fund will attempt to honor requests from
Shareholders for next day payments upon redemption of Shares if the request for
redemption is received by the Distributor before the Valuation Time on a
Business Day or, if the request for redemption is received after the Valuation
Time, to honor requests for payment on the second Business Day. Each Fund will
attempt to so honor redemption requests unless it would be disadvantageous to a
Fund or the Shareholders of that Fund to sell or liquidate portfolio securities
in an amount sufficient to satisfy requests for payments in that manner.
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At various times, the Trust may be requested to redeem Shares for which
it has not yet received good payment. In such circumstances, the Trust may delay
the forwarding of proceeds for up to 10 days or more until payment has been
collected for the purchase of such Shares. The Trust intends to pay cash for all
Shares redeemed, but under abnormal conditions which make payment in cash
unwise, the Trust may make payment wholly or partly in readily marketable
portfolio securities at their then market value equal to the redemption price.
In such cases, an investor may incur brokerage costs in converting such
securities to cash.
Due to the relatively high cost of handling small investments, the
Trust reserves the right to redeem, at net asset value, the Shares of a Fund of
any Shareholder if, because of redemptions of Shares by or on behalf of the
Shareholder (but not as a result of a decrease in the market price of such
Shares, the deduction of any sales charge or the establishment of an account
with less than $1,000 using the Auto Invest Plan), the account of such
Shareholder has a value of less than $1,000 ($250 if the Shareholder is an
employee of the Advisor or one of its affiliates). Accordingly, an investor
purchasing Shares of a Fund in only the minimum investment amount may be subject
to such involuntary redemption if he or she thereafter redeems some of his or
her Shares. Before the Trust exercises its right to redeem such Shares and to
send the proceeds to the Shareholder, the Shareholder will be given notice that
the value of the Shares in his or her account is less than the minimum amount
and will be allowed at least 60 days to make an additional investment in an
amount which will increase the value of the account to at least $1,000 ($250 if
the Shareholder is an employee of the Advisor or one of its affiliates).
See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION" in the Statement
of Additional Information for examples of when the Trust may suspend the right
of redemption.
DIVIDENDS AND TAXES
DIVIDENDS
A dividend for each Fund is declared quarterly at the close of business
on the day of declaration consisting of an amount of accumulated undistributed
net income of that Fund as determined necessary or appropriate by the
appropriate officers of the Trust. Such dividend is generally paid quarterly.
Shareholders will automatically receive all income dividends and capital gains
distributions in additional full and fractional Shares of that Fund at the net
asset value as of the date of payment, unless the Shareholder elects to receive
dividends or distributions in cash. Such election, or any revocation thereof,
must be made in writing to the Transfer Agent at 3435 Stelzer Road, Columbus,
Ohio 43219, and will become effective with respect to dividends and
distributions having record dates after its receipt by the Transfer Agent.
Distributable net realized capital gains, if any, for a Fund are
distributed at least annually. Dividends are paid in cash not later than seven
Business Days after a Shareholder's complete redemption of his or her Shares in
that Fund.
If a Shareholder elects to receive distributions in cash, and checks
(1) are returned and marked as "undeliverable" or (2) remain uncashed for six
months, the Shareholder's cash election will be changed automatically and future
dividend and capital gains distributions will be reinvested in that
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Fund at the per share net asset value determined as of the date of payment of
the distribution. In addition, any undeliverable checks or checks that remain
uncashed for six months will be canceled and will be reinvested in that Fund at
the per share net asset value determined as of the date of cancellation.
FEDERAL TAXES
Each Fund 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). You will be
subject to income tax on these distributions regardless whether they are paid in
cash or reinvested in additional Shares. Distributions attributable to the net
capital gain of a Fund will be taxable to you as long-term capital gain,
regardless of how long you have held your Shares. Other Fund distributions will
generally be taxable as ordinary income. You will be notified annually of the
tax status of distributions to you.
You should note that if you purchase Shares just prior to a
distribution, the purchase price will reflect the amount of the upcoming
distribution, but you will be taxable 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 Fund,
based on the difference between your tax basis in the Shares and the amount you
receive for them. (To aid in computing your tax basis, you generally should
retain your account statements for the periods during which you held Shares.)
Any loss realized on Shares held for six months or less will be treated as a
long-term capital loss to the extent of any capital gain dividends that were
received on the Shares.
The one major exception to these tax principles is that 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 Fund. It is expected that the International
Equity Fund will be subject to foreign withholding taxes with respect to
dividends or interest received from sources in foreign countries. The
International Equity Fund may make an election to treat a proportionate amount
of such taxes as constituting a distribution to each Shareholder, which would
allow each Shareholder either (1) to credit such proportionate amount of taxes
against U.S. federal income tax liability or (2) to take such amount as an
itemized deduction.
The Pennsylvania Bond Fund. It is expected that the Pennsylvania Bond
Fund 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 the Pennsylvania Bond Fund will generally be
taxable to you as capital gains. Dividends, if any, derived from taxable
interest income will be taxable to you as ordinary income.
Interest on indebtedness incurred by a Shareholder to purchase or carry
shares of the Pennsylvania Bond Fund generally will not be deductible for
federal income tax purposes.
You should note that a portion of the exempt-interest dividends paid by
the Pennsylvania Bond Fund 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
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gross income in determining whether any Social Security or railroad retirement
payments received by you are subject to federal income taxes.
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.
Shareholders will not be subject to Pennsylvania Personal Income Tax on
distributions from the Pennsylvania Bond Fund attributable to interest income
from Pennsylvania Exempt Securities or from obligations of the United States,
its territories and certain of its agencies and instrumentalities ("Federal
Exempt Securities"). However, Pennsylvania Personal Income Tax will apply to
distributions to Pennsylvania Shareholders from the Pennsylvania Bond Fund
attributable to gain realized on the disposition of any investment, including
Exempt Securities, or to interest income from investments other than Exempt
Securities. Pennsylvania Shareholders also will be subject to the Pennsylvania
Personal Income tax on any gain they realize on the disposition of Shares in the
Pennsylvania Bond Fund.
Distributions attributable to interest from Exempt Securities is not
subject to the Philadelphia School District Net Income Tax. However, for
Philadelphia residents, distributions attributable to gain from the disposition
of Exempt Securities are subject to the Philadelphia School District Net Income
Tax, except that distributions attributable to gain on any investment held for
more than six months are exempt. A Shareholder's gain on the disposition of
Shares in the Pennsylvania Bond Fund that he or she has held for more than six
months will not be subject to the Philadelphia School District Net Income Tax.
The foregoing is only a summary of certain tax considerations under
current law, which may be subject to change in the future. You should consult
your tax adviser for further information regarding federal, state, local and/or
foreign tax consequences relevant to your specific situation.
MANAGEMENT OF THE TRUST
TRUSTEES OF THE TRUST
Overall responsibility for management of the Trust rests with its Board
of Trustees. Unless so required by the Trust's Declaration of Trust or By-Laws
or by Delaware law, at any given time all of the Trustees may not have been
elected by the shareholders of the Trust. The Trust will be managed by the
Trustees in accordance with the laws of Delaware governing business trusts. The
Trustees, in turn, elect the officers of the Trust to supervise its day-to-day
operations.
The Trustees of the Trust receive fees and are reimbursed for their
expenses in connection with each meeting of the Board of Trustees they attend.
However, no officer or employee of Keystone, BISYS Fund Services, Inc., the sole
general partner of BISYS, BISYS, BISYS Ohio or their affiliates receives any
compensation from the Trust for acting as a Trustee of the Trust. The officers
of the Trust receive no compensation directly from the Trust for performing the
duties of their offices. The Advisor, BISYS Ohio and their affiliates receive
fees from each Fund for providing certain services as Co-Administrators.
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ADVISORS
Governors Group Advisors, Inc. is the investment adviser of each Fund.
The Advisor is a wholly owned subsidiary of Keystone Financial, Inc., 1 Keystone
Plaza, Harrisburg, Pennsylvania 17101. The Advisor was organized in 1998 and has
not previously served as the investment advisor to a registered open-end
management investment company.
Subject to the general supervision of the Board of Trustees of the
Trust and in accordance with the investment objective and restrictions of each
Fund, the Advisor has agreed to manage each Fund, make decisions with respect to
and places orders for all purchases and sales of its portfolio securities, and
maintain each Fund's records relating to such purchases and sales.
The Advisor has entered into a Sub-Advisory Agreement with Martindale
Andres & Company, Inc. (the "Sub-Advisor"), Four Falls Corporate Center, Suite
200, West Conshohocken, Pennsylvania 19428. The Sub-Advisor is also a
wholly owned subsidiary of Keystone. The Sub-Advisor was organized in 1989 and
was acquired by Keystone in December 1995. Subject to the supervision of the
Advisor and the Board of Trustees of the Trust and in accordance with the
investment objective and restrictions of each Fund, the Sub-Advisor manages each
Fund other than the International Equity Fund, makes decisions with respect to
and places orders for all purchases and sales of its portfolio securities, and
maintains each such Fund's records relating to such purchases and sales.
William C. Martindale, Jr. is responsible for the day-to-day management
of the Established Growth Fund's portfolio and the Aggressive Growth Fund's
portfolio and has over 25 years of equity investment experience. Mr. Martindale
also managed the corresponding CIF of the Aggressive Growth Fund since July 1,
1994. Mr. Martindale co-founded the Sub-Advisor in 1989 and serves as its Chief
Investment Officer. Prior to 1989, Mr. Martindale served in various
investment-related capacities with Dean Witter Reynolds.
Robert M. Mitchell will be responsible for the day-to-day management of
the Emerging Growth Fund's portfolio. Mr. Mitchell reports to and is supervised
by William C. Martindale, Jr. Mr. Mitchell is a portfolio manager/research
analyst specializing in small and emerging growth companies. Mr. Mitchell joined
the Sub-Advisor in July, 1995 after attaining his MBA degree from Indiana
University's Kelley School of Business. Prior to graduate school, Mr. Mitchell
worked at the U.S. Department of Justice, Antitrust Division, where he analyzed
the economic and financial characteristics of various industries and businesses.
Colleen M. Marsh is primarily responsible for the day-to-day management
of the Income Fund's portfolio. Ms. Marsh is a senior portfolio manager in the
fixed income division of the Sub-Advisor. She has over 12 years of experience
managing fixed income portfolios and funds for clients. She spent the first 10
years of her investment management career with Keystone, and has managed the
Intermediate Term Income Fund (a predecessor CIF to the Income Fund) for
Keystone over this time period.
Mr. James H. Somers is primarily responsible for the day-to-day
management of the Government Securities Fund's portfolio. Mr. Somers joined the
Sub-Advisor as a portfolio manager
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in September, 1995. From 1991 to September, 1995, Mr. Somers was president and
owner of his own money management firm. Prior thereto and for five years he was
a Vice President of Kidder Peabody & Company in New York.
Mr. Robert Andres is primarily responsible for the day-to-day
management of the Pennsylvania Bond Fund's portfolio. Mr. Andres co-founded the
Sub-Advisor in 1989 and serves as its President and Chief Operating Officer.
Prior thereto, he served as President of Merrill Lynch Mortgage Capital
Corporation and manager of Merrill Lynch's secondary corporate bond trading
division. He has had more than 30 years of broad based experience with respect
to fixed-income securities, including more than 20 years in trading, sales and
investment management of municipal securities.
Mr. Mark Stevenson, CFA, is primarily responsible for the day-to-day
management of the Lifestyle Funds' portfolios. Mr. Stevenson has been with the
Sub-Advisor since 1990, and for the past five years has managed retirement plan
and personal trust assets for the Sub-Advisor's clients.
The Advisor also has entered into a Sub-Advisory Agreement with Brinson
Partners, Inc., 209 South LaSalle Street, Chicago, Illinois 60604 (the
"International Equity Fund Sub-Advisor" or collectively with the Sub-Advisor,
the "Sub-Advisors") on behalf of the International Equity Fund. The
International Equity Fund Sub-Advisor is a wholly owned subsidiary of UBS AG.
The International Equity Fund Sub-Advisor was organized in 1989 and was acquired
by Swiss Bank Corporation, a predecessor company of UBS AG. Subject to the
supervision of the Advisor and the Board of Trustees of the Trust and in
accordance with the investment objective and restrictions of the International
Equity Fund, the International Equity Fund Sub-Advisor manages the International
Equity Fund, makes decisions with respect to and places orders for all purchases
and sales of its portfolio securities, and maintains the records relating to
such purchases and sales.
The International Equity Fund Sub-Advisor's Global Equity Committee is
responsible for the day-to-day management of the International Equity Fund's
portfolio. The Global Equity Committee is co-chaired by Richard Carr, Managing
Director, who has more than 33 years experience in the investment industry, and
Jeff Diermeier, Managing Director, who has more than 23 years experience in the
investment industry.
For the services provided and expenses assumed pursuant to its
respective agreements the Advisor is entitled to receive an advisory fee from
the Established Growth, Aggressive Growth, Emerging Growth, International
Equity, Income, Government Securities, Pennsylvania Bond, Lifestyle
Conservative Growth, Lifestyle Moderate Growth and Lifestyle Growth Funds,
computed daily and paid monthly, at the annual rate of .75%, 1.00%, 1.25%,
.75%, .60%, .60%, .60%, .25%, .25% and .25% of such Funds' respective average
daily net assets. The exact amount of the sub-advisory fee will be an amount
agreed to by the Advisor, the particular Sub-Advisor and the Trust from time to
time, and may be in an amount up to the amount of the advisor's fee. Initially,
the Sub-Advisor will be paid at the annual rates of .40%, .50%, .50%, .30%,
.30%, .30%, .05%, .05%, and .05% of the average daily net assets of the
Established Growth, Aggressive Growth, Emerging Growth, Income, Government
Securities, Pennsylvania Bond, Lifestyle Conservative Growth, Lifestyle
Moderate Growth and Lifestyle Growth Funds, respectively. Initially, the
International Equity Fund Sub-Advisor will be paid at an annual rate of .40% of
the International Equity Fund's average daily net assets up to $50 million,
.35% of such Fund's average daily net assets up to $200 million and .30% of
such Fund's average daily net assets of $200 million or more. The sub-advisory
fees paid by Advisor to the Sub-Advisors have no effect on the
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investment advisory fees payable by the Funds to the Advisor. For the fiscal
year or period ended June 30, 1998, the Established Growth, Aggressive Growth,
Income, Government Securities and Pennsylvania Bond Funds paid their then
adviser, Martindale Andres, an advisory fee at an annual rate of .93%, .53%,
.30%, .14% and .30%, respectively, of such Funds' respective average daily net
assets.
The Advisor and Sub-Advisors may periodically voluntarily reduce all or
a portion of its advisory and sub-advisory fee with respect to one or more of
the Funds to increase the net income of that Fund available for distribution as
dividends. The Advisor and Sub-Advisors may not seek reimbursement of such
voluntarily reduced fees after the end of the fiscal year in which the fees were
reduced. The reduction of such fee will cause the yield and total return of that
Fund to be higher than they would otherwise be in the absence of such a
reduction.
ADMINISTRATORS AND DISTRIBUTOR
BISYS Ohio and the Advisor (collectively, the "Administrators") serve
as each Fund's administrators. BISYS acts as the Trust's principal underwriter
and distributor (the "Distributor"). BISYS, BISYS Ohio and its affiliated
companies, including BISYS Fund Services, Inc., are wholly owned by The BISYS
Group, Inc., a publicly-held company which is a provider of information
processing, loan servicing and 401(k) administration and recordkeeping services
to and through banking and other financial organizations.
The Administrators generally assist in all aspects of each Fund's
administration and operation. For expenses assumed and services provided as
administrator pursuant to its management and administration agreement with the
Trust, the Administrators are entitled jointly to annual fees, computed daily
and paid periodically, calculated at an annual rate of .15% of each Fund's
(other than the Lifestyle Funds) average daily net assets. The Administrators
may periodically voluntarily reduce all or a portion of their administration fee
with respect to one or more of the Funds to increase the net income of that Fund
available for distribution as dividends. The Administrators may not seek
reimbursement of such reduced fees after the end of the fiscal year in which the
fees were reduced. The voluntary reduction of such fee will cause the yield and
total return of that Fund to be higher than they would otherwise be in the
absence of such a fee reduction. For the fiscal year or period ended June 30,
1998, the Established Growth, Aggressive Growth, Income, Government Securities
and Pennsylvania Bond Funds paid their then administrator, BISYS, an
administration fee at the annual rate of 0.115% of each Fund's respective
average daily net assets.
The Distributor acts as agent for the Funds in the distribution of
their Shares and, in such capacity, solicits orders for the sale of Shares,
advertises, and pays the costs of advertising, office space and its personnel
involved in such activities. The Distributor receives no compensation under its
Distribution Agreement with the Trust, but is reimbursed for certain expenses by
the Lifestyle Funds under the Distribution Plan. See "Administrative Services
and Distribution Plans."
EXPENSES
The Advisor, Sub-Advisors and the Administrators each bear all expenses
in connection with the performance of their services as investment advisors and
administrators, respectively, other than
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the cost of securities (including brokerage commissions, if any) purchased for
the Funds. Each Fund will bear the following expenses relating to its
operations: organizational expenses, taxes, interest, any brokerage fees and
commissions, fees and expenses of the Trustees of the Trust, Commission fees,
state securities qualification fees, costs of preparing and printing
prospectuses for regulatory purposes and for distribution to the Fund's current
shareholders, outside auditing and legal expenses, advisory fees, fees and
out-of-pocket expenses of the custodian, fund accountant and Transfer Agent,
costs for independent pricing services, certain insurance premiums, costs of
maintenance of the Trust's existence, costs of shareholders' reports and
meetings, expenses incurred under the Administrative Services Plan described
below and any extraordinary expenses incurred in the Fund's operation.
ADMINISTRATIVE SERVICES AND DISTRIBUTION PLANS
The Trust has adopted an Administrative Services Plan (the "Services
Plan") pursuant to which each Fund is authorized to pay compensation to banks
and other financial institutions (each a "Service Organization"), which may
include the Advisor, Sub-Advisors, Keystone and its banking affiliates,
Entities, and BISYS, which agree to provide certain ministerial, record keeping
and/or administrative support services for their customers or account holders
(collectively, "customers") who are the beneficial or record owner of Shares of
that Fund. In consideration for such services, a Service Organization receives a
fee from each Fund, computed daily and paid monthly, at an annual rate of up to
.25% of the average daily net asset value of Shares of that Fund owned
beneficially or of record by such Service Organization's customers for whom the
Service Organization provides such services.
The servicing agreements adopted under the Services Plan (the
"Servicing Agreements") require the Service Organizations receiving such
compensation to perform certain ministerial, record keeping and/or
administrative support services with respect to the beneficial or record owners
of Shares of the Funds, such as processing dividend and distribution payments
from the Funds on behalf of customers, providing periodic statements to
customers showing their positions in the Shares of the Funds, providing
sub-accounting with respect to Shares beneficially owned by such customers,
providing customers with a service that invests the assets of their accounts in
Shares of a Fund pursuant to specific or pre-authorized instructions. As of the
date hereof, no such servicing agreements have been entered into by the Trust on
behalf of either Fund.
The Trust has adopted a Distribution Plan under Rule 12b-1 under the
1940 Act (the "12b-1 Plan") pursuant to which each Lifestyle Fund is authorized
to reimburse the Distributor. Amounts paid to the Distributor under the Trust's
12b-1 Plan may be used by the Distributor to cover expenses that are related to
(i) the distribution of Shares of the Lifestyle Funds, (ii) ongoing servicing
and/or maintenance of the accounts of shareholders of the Lifestyle Funds, (iii)
payments to institutions for selling Shares of the Lifestyle Funds, and (iv)
sub-transfer agency services, subaccounting services or administrative services
related to the sale of the Shares of the Lifestyle Funds, all as set forth in
the Trust's 12b-1 Plan. Under the 12b-1 Plan, each Lifestyle Fund may reimburse
the Distributor at an annual rate of up to .50% of the average daily net asset
value of each Lifestyle Fund's Shares. The Distributor may delegate some or all
of these functions to another organization. See "How to Purchase Shares --
Purchases Through Intermediaries."
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<PAGE> 106
BANKING LAWS
The Advisor and Sub-Advisors believe that they possess the legal
authority to perform the investment advisory and administration services for
each Fund contemplated by its investment advisory and administration agreement
with the Trust, as described in this Prospectus, without violation of applicable
banking laws and regulations. Future changes in Federal or state statutes and
regulations relating to permissible activities of banks or bank holding
companies and their subsidiaries and affiliates as well as further judicial or
administrative decisions or interpretations of present and future statutes and
regulations could change the manner in which the Advisor and Sub-Advisors could
continue to perform such services for the Funds. See "MANAGEMENT AND SERVICE
PROVIDERS OF THE TRUST - Glass-Steagall Act" in the Statement of Additional
Information for further discussion of applicable law and regulations.
GENERAL INFORMATION
DESCRIPTION OF THE TRUST AND ITS SHARES
The Trust was organized as a Delaware business trust on September 3,
1998. The Trust consists of twelve funds, each having its own class of shares.
Each share represents an equal proportionate interest in a fund with other
shares of the same fund, and is entitled to such dividends and distributions
out of the income earned on the assets belonging to the fund as are declared at
the discretion of the Trustees (see "Miscellaneous" below). The other funds of
the Trust are the Governor Prime Money Market Fund and the Governor U.S.
Treasury Obligations Money Market Fund.
Shareholders are entitled to one vote for each dollar of value invested
and a proportionate fractional vote for any fraction of a dollar invested, and
will vote in the aggregate and not by fund except as otherwise expressly
required by law. For example, Shareholders of a Fund will vote in the aggregate
with other shareholders of the Trust with respect to the election of Trustees.
However, Shareholders of that Fund will vote as a fund, and not in the aggregate
with other shareholders of the Trust, for purposes of approval or amendment of
the Fund's investment advisory agreement.
Overall responsibility for the management of each Fund is vested in the
Board of Trustees of the Trust. See "MANAGEMENT OF THE TRUST - Trustees of the
Trust" in the Statement of Additional Information. Individual Trustees are
elected by the shareholders of the Trust, although Trustees may, under certain
circumstances, fill vacancies, including vacancies created by expanding the size
of the Board. Trustees may be removed by the Board of Trustees or shareholders
in accordance with the provisions of the Declaration of Trust and By-Laws of the
Trust and Delaware law. See "ADDITIONAL INFORMATION - Miscellaneous" in the
Statement of Additional Information for further information.
An annual or special meeting of shareholders to conduct necessary
business is not required by the Declaration of Trust, the 1940 Act or other
authority except, under certain circumstances, to elect Trustees, amend the
Declaration of Trust, the investment advisory agreement or a Fund's
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<PAGE> 107
fundamental policies and to satisfy certain other requirements. To the extent
that such a meeting is not required, the Trust does not intend to have an annual
or special meeting of shareholders.
As of September 17, 1998, Keystone possessed, on behalf of its or its
affiliates' underlying accounts, voting or investment power with respect to more
than 25% of the outstanding Shares of each Fund other than the International
Equity and Lifestyle Funds and the Distributor owned 100% of the outstanding
Shares of the International Equity and Lifestyle Funds.
CUSTODIAN
The Bank of New York serves as the custodian for each Fund.
TRANSFER AGENCY AND FUND ACCOUNTING SERVICES
BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio 43219,
serves as the Funds' transfer agent pursuant to a Transfer Agency Agreement
with the Trust and receives a fee for such services. BISYS Fund Services,
Inc. also provides certain accounting services for the Funds pursuant to a Fund
Accounting Agreement and receives a fee from the Trust for such services for
all the Trust's funds computed at an annual rate of 0.03% (0.04% for the
International Equity Fund) of the Trust's average daily net assets up to $2
billion and 0.02% (0.03% for the International Equity Fund) of the Trust's
average daily net assets of $2 billion or more subject to a minimum annual fee
of $30,000 ($40,000 for the International Equity Fund and $35,000 for the
Pennsylvania Bond Fund). See "MANAGEMENT AND SERVICE PROVIDERS OF THE TRUST -
Transfer Agency and Fund Accounting Services" in the Statement of Additional
Information for further information. For the fiscal year or period ended June
30, 1998, the Established Growth, Aggressive Growth, Income, Government
Securities and Pennsylvania Bond Funds paid BISYS Fund Services, Inc. an
accounting service fee of __% of each Fund's respective average daily net
assets.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and annual
reports audited by independent public accountants.
As used in this Prospectus and in the Statement of Additional
Information, "assets belonging to the fund" means the consideration received by
a fund upon the issuance or sale of shares in the fund, together with all
income, earnings, profits, and proceeds derived from the investment thereof,
including any proceeds from the sale, exchange, or liquidation of such
investments, and any funds or amounts derived from any reinvestment of such
proceeds, and any general assets of the Trust not readily identified as
belonging to a particular fund that are allocated to such fund by the Trust's
Board of Trustees. The Board of Trustees may allocate such general assets in any
manner it deems fair and equitable. Determinations by the Board of Trustees of
the Trust as to the timing of the allocation of general liabilities and expenses
and as to the timing and allocable portion of any general assets with respect to
the Funds are conclusive.
As used in this Prospectus and in the Statement of Additional
Information, a "vote of a majority of the outstanding Shares" of a Fund means
the affirmative vote, at a meeting of Shareholders duly called, of the lesser of
(a) 67% or more of the votes of Shareholders of that Fund present at a meeting
at which the holders of more than 50% of the votes attributable to Shareholders
of record of such Fund are represented in person or by proxy, or (b) the holders
of more than 50% of the outstanding votes of Shareholders of that Fund.
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<PAGE> 108
Inquiries regarding the Funds may be directed in writing to the Trust
at 3435 Stelzer Road, Columbus, Ohio 43219, or by calling toll free (800)
766-3960.
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<PAGE> 109
INVESTMENT ADVISOR
Governors Group Advisors, Inc.
23 Front Street
Harrisburg, Pennsylvania 17101
SUB-ADVISORS
Martindale Andres & Company, Inc.
Four Falls Corporate Center, Suite 200
West Conshohocken, Pennsylvania 19428
Brinson Partners, Inc.
209 South LaSalle Street
Chicago, Illinois 60604
CO-ADMINISTRATORS
BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
Governors Group Advisors, Inc.
23 Front Street
Harrisburg, Pennsylvania 17101
DISTRIBUTOR
BISYS Fund Services Limited Partnership
3435 Stelzer Road
Columbus, Ohio 43219
LEGAL COUNSEL
Drinker Biddle & Reath LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, Pennsylvania 19107
AUDITORS
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<PAGE> 110
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PROSPECTUS SUMMARY..................................................... 3
BACKGROUND INFORMATION................................................. 5
FEE TABLE.............................................................. 6
FINANCIAL HIGHLIGHTS................................................... 9
PERFORMANCE INFORMATION................................................ 15
INVESTMENT OBJECTIVES AND POLICIES..................................... 16
INVESTMENT RESTRICTIONS................................................ 48
VALUATION OF SHARES.................................................... 49
HOW TO PURCHASE AND REDEEM SHARES...................................... 50
DIVIDENDS AND TAXES.................................................... 59
MANAGEMENT OF THE TRUST................................................ 61
GENERAL INFORMATION.................................................... 66
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS
OR THEIR DISTRIBUTOR, BISYS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY
THE FUNDS OR BY BISYS IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
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<PAGE> 111
Governor Funds
[LOGO]
The
Established
Growth Fund
The
Aggressive
Growth Fund
The
Emerging
Growth Fund
The
International
Equity Fund
The
Intermediate Term
Income Fund
The
Limited Duration
Government Securities
Fund
The
Pennsylvania
Municipal
Bond Fund
The
Lifestyle Conservative
Growth Fund
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<PAGE> 112
The
Lifestyle Moderate
Growth Fund
The
Lifestyle Growth
Fund
Governors Group Advisors, Inc.
Investment Advisor
Martindale Andres & Company, Inc.
Investment Sub-Advisor
Brinson Partners, Inc.
Investment Sub-Advisor
Prospectus dated __________, 1998
Page 3
<PAGE> 113
CROSS REFERENCE SHEET
PRIME MONEY MARKET FUND
U.S. TREASURY OBLIGATIONS MONEY MARKET FUND
ESTABLISHED GROWTH FUND
AGGRESSIVE GROWTH FUND
EMERGING GROWTH FUND
INTERNATIONAL EQUITY FUND
INTERMEDIATE TERM INCOME FUND
LIMITED DURATION GOVERNMENT SECURITIES FUND
PENNSYLVANIA MUNICIPAL BOND FUND
LIFESTYLE CONSERVATIVE GROWTH FUND
LIFESTYLE MODERATE GROWTH FUND
LIFESTYLE GROWTH FUND
<TABLE>
<CAPTION>
Form N-1A Part A Item Statement of Additional Information
- --------------------- -----------------------------------
<S> <C>
1. Cover Page ...................................... Cover Page
2. Table of Contents................................ Table of Contents
3. General Information and
History......................................... Statement of Additional Information
4. Investment Objectives and Policies............... Risk Factors, Investment Objectives and Policies
5. Management of the Trust.......................... Management of the Trust
6. Control Persons and Principal
Holders of Securities............................ Description of Shares
7. Investment Advisory and Other Services........... Advisory, Administration, Distribution Custodial
Services and Transfer Agency Services
8. Brokerage Allocation and Other Practices......... Risk Factors, Investment Objectives and Policies
9. Capital Stock and Other Securities............... Additional Purchase and Redemption Information
10. Purchase, Redemption and Pricing
of Securities Being Offered..................... Additional Purchase and Redemption Information
11. Tax Status...................................... Additional Information Concerning Taxes
12. Underwriters.................................... Not Applicable
13. Calculation of Performance Data................. Yield and Performance
Information
14. Financial Statements............................ Financial Statements
</TABLE>
<PAGE> 114
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION DATED OCTOBER 1, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE A
PROSPECTUS.
PRIME MONEY MARKET FUND
U.S. TREASURY OBLIGATIONS MONEY MARKET FUND
ESTABLISHED GROWTH FUND
AGGRESSIVE GROWTH FUND
EMERGING GROWTH FUND
INTERNATIONAL EQUITY FUND
INTERMEDIATE TERM INCOME FUND
LIMITED DURATION GOVERNMENT SECURITIES FUND
PENNSYLVANIA MUNICIPAL BOND FUND
LIFESTYLE CONSERVATIVE GROWTH FUND
LIFESTYLE MODERATE GROWTH FUND
LIFESTYLE GROWTH FUND
Twelve Investment Portfolios of
GOVERNOR FUNDS
Statement of Additional Information
____________, 1998
This Statement of Additional Information is not a prospectus, but should
be read in conjunction with the prospectuses (the "Prospectuses") of the Prime
Money Market Fund, U.S. Treasury Obligations Money Market Fund (the "Treasury
Money Market Fund"), Established Growth Fund, Aggressive Growth Fund,
International Equity Fund, Emerging Growth Fund, Intermediate Term Income Fund
(the "Income Fund"), Limited Duration Government Securities Fund (the
"Government Securities Fund"), Pennsylvania Municipal Bond Fund (the
"Pennsylvania Bond Fund"), Lifestyle Conservative Growth Fund, Lifestyle
Moderate Growth Fund and Lifestyle Growth Fund, each dated as of the date
hereof. The Prime Money Market Fund, Treasury Money Market Fund, Established
Growth Fund, Aggressive
<PAGE> 115
Growth Fund, International Equity Fund, Emerging Growth Fund, Income Fund,
Government Securities Fund, Pennsylvania Bond Fund, and the Lifestyle Funds are
hereafter collectively referred to as the "Funds" and individually as a "Fund."
The Funds are all of the funds of Governor Funds, a Delaware business trust (the
"Trust"). This Statement of Additional Information is incorporated in its
entirety into each Fund's Prospectus. Copies of the Funds' Prospectuses may be
obtained by writing the Trust at 3435 Stelzer Road, Columbus, Ohio 43219, or by
telephoning toll free (800) 766-3960.
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<PAGE> 116
TABLE OF CONTENTS
Page
GOVERNOR FUNDS ...........................................................
INVESTMENT OBJECTIVES AND POLICIES .......................................
Additional Information on Portfolio Instruments ..........................
Investment Restrictions ..................................................
Portfolio Turnover .......................................................
NET ASSET VALUE ..........................................................
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION ...........................
MANAGEMENT AND SERVICE PROVIDERS OF THE TRUST ............................
Trustees and Officers ....................................................
Investment Advisor and Investment Subadvisors ............................
Portfolio Transactions ...................................................
Administrators ...........................................................
Glass-Steagall Act .......................................................
Distributor ..............................................................
Administrative Services and Distribution Plans ...........................
Custodian ................................................................
Auditors .................................................................
Legal Counsel ............................................................
ADDITIONAL INFORMATION ...................................................
Description of Shares ....................................................
Vote of a Majority of the Outstanding Shares .............................
Additional General Tax Information .......................................
Additional Tax Information With Respect to the Pennsylvania Bond Fund ....
Seven-Day and 30-Day Yields of the Prime Money Market Fund and the
Treasury Money Market Fund .........................................
30-Day Yield of the Funds ................................................
Calculation of Total Return ..............................................
Distribution Rates .......................................................
Performance Comparisons ..................................................
Miscellaneous ............................................................
FINANCIAL STATEMENTS .....................................................
APPENDIX A ...............................................................
APPENDIX B ...............................................................
i
<PAGE> 117
STATEMENT OF ADDITIONAL INFORMATION
GOVERNOR FUNDS
Governor Funds (the "Trust") is an open-end management investment company
which currently offers twelve separate investment portfolios. This Statement of
Additional Information covers each of those portfolios, the Prime Money Market
Fund, Treasury Money Market Fund, Established Growth Fund, Aggressive Growth
Fund, Emerging Growth Fund, International Equity Fund, Income Fund, Government
Securities Fund, and Lifestyle Conservative Growth Fund, Lifestyle Moderate
Growth Fund, and Lifestyle Growth Fund, each of which is considered to be a
diversified portfolio, and the Pennsylvania Bond Fund, which is considered to
be a non-diversified portfolio. The Prime Money Market, Treasury Money Market,
Established Growth, Aggressive Growth, Emerging Growth, Income, Government
Securities and Pennsylvania Bond Funds commenced operations on December 2,
1996, February 3, 1997, July 1, 1998, December 2, 1996, July 1, 1997, and
October 1, 1996, respectively, as separate investment portfolios ("Predecessor
Funds") of the Sessions Group, which was organized as an Ohio Business Trust.
On or about February 2, 1999 those Funds are expected to be reorganized as
portfolios of the Trust. This Statement of Additional Information reflects that
reorganization.
Much of the information contained in this Statement of Additional
Information expands upon subjects discussed in the Prospectuses. Capitalized
terms not defined herein are defined in the relevant Prospectus. No investment
in Shares of any Fund should be made without first reading such Fund's
Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
Additional Information on Portfolio Instruments
The following policies supplement the investment objectives and policies
of the Funds as set forth in their respective Prospectuses.
Bank Obligations. Each Fund, other than the Treasury Money Market Fund and
the Government Securities Fund, may invest in bank obligations such as bankers'
acceptances, certificates of deposit, and demand and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange typically
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. Bankers' acceptances
invested in by the Funds will be those guaranteed by domestic and foreign banks
having, at the time of investment, capital, surplus, and undivided profits in
excess of $100,000,000 (as of the date of their most recently published
financial statements).
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank or a savings and loan association for a definite
period of time and earning a specified return. Certificates of deposit and
demand and time deposits will be those of domestic and foreign banks and savings
and loan associations, if (a) at the time of investment the depository
institution has capital, surplus, and undivided profits in excess of
$100,000,000 (as of the date of its most recently published financial
statements), or (b) the principal amount of the instrument is insured in full by
the Federal Deposit Insurance Corporation.
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<PAGE> 118
The Prime Money Market Fund, Established Growth Fund, Aggressive Growth
Fund, Emerging Growth Fund, International Equity Fund, and the Income Fund may
also invest in Eurodollar Certificates of Deposit, which are U.S. dollar
denominated certificates of deposit issued by offices of foreign and domestic
banks located outside the United States; Yankee Certificates of Deposit, which
are certificates of deposit issued by a U.S. branch of a foreign bank
denominated in U.S. dollars and held in 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; and Canadian Time Deposits, which are
basically the same as ETDs except they are issued by Canadian offices of major
Canadian banks.
Commercial Paper. Commercial paper consists of unsecured promissory notes
issued by corporations. Except as noted below with respect to variable amount
master demand notes, issues of commercial paper normally have maturities of less
than nine months and fixed rates of return.
The Funds, other than the Treasury Money Market Fund and the Government
Securities Fund, will purchase commercial paper consisting of issues rated at
the time of purchase by one or more nationally recognized statistical rating
organizations ("NRSRO") (e.g., Standard & Poor's Corporation ("S&P") and Moody's
Investors Service, Inc. ("Moody's")) in one of the two highest rating categories
for short-term debt obligations. Each such Fund may also invest in commercial
paper that is not rated but that is determined by the Sub-Advisor to be of
comparable quality to instruments that are so rated by an NRSRO. For a
description of the rating symbols of the NRSROs, see the Appendix. The Prime
Money Market Fund may also invest, subject to the foregoing quality criteria, in
Canadian Commercial Paper, which is commercial paper issued by a Canadian
corporation or a Canadian counterpart of a U.S. corporation ("CCP"), and in
Europaper, which is U.S. dollar denominated commercial paper of a foreign
issuer.
Variable Amount Master Demand Notes. Variable amount master demand notes
in which the Prime Money Market Fund, the Income Fund, the Government Securities
Fund and the Pennsylvania Bond Fund may invest are unsecured demand notes that
permit the indebtedness thereunder to vary and provide for periodic adjustments
in the interest rate according to the terms of the instrument. Because master
demand notes are direct lending arrangements between a Fund and the issuer, they
are not normally traded. Although there is no secondary market in the notes, the
Fund may demand payment of principal and accrued interest at any time within 30
days. While such notes are not typically rated by credit rating agencies,
issuers of variable amount master demand notes (which are normally
manufacturing, retail, financial and other business concerns), must satisfy, for
purchase by a Fund, the same criteria as set forth above for commercial paper.
The Sub-Advisor will consider the earning power, cash flow, and other liquidity
ratios of the issuers of such notes and will continuously monitor their
financial status and ability to meet payment on demand. In determining average
weighted portfolio maturity, a long-term variable amount master demand note will
be deemed to have a maturity equal to the longer of the period of time remaining
until the next interest rate adjustment or the period of time remaining until
the principal amount can be recovered from the issuer through demand.
Foreign Investment. Investments in securities issued by foreign branches
of U.S. banks, foreign banks, or other foreign issuers, including ADRs, may
subject the Prime Money Market Fund, Established Growth Fund, Aggressive Growth
Fund, Emerging Growth Fund, International Equity Fund and the Income Fund to
investment risks that differ in some respects from those related to investment
in obligations of U.S. domestic issuers or in U.S. securities markets. Such
risks include future adverse
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<PAGE> 119
political and economic developments, possible seizure, nationalization, or
expropriation of foreign investments, less stringent disclosure requirements,
the possible establishment of exchange controls or taxation at the source, or
the adoption of other foreign governmental restrictions.
U.S. Government Obligations. Each Fund may invest in obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, although
the Treasury Money Market Fund currently expects to invest only in those
obligations which are backed by the full faith and credit of the U.S.
Government. Obligations of certain agencies and instrumentalities of the U.S.
Government are supported by the full faith and credit of the U.S. Treasury;
others are supported by the right of the issuer to borrow from the Treasury;
others are supported by the discretionary authority of the U.S. Government to
purchase the agency's obligations; and still others 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 agencies
or instrumentalities if it is not obligated to do so by law.
Each Fund may also invest in the following types of U.S. Treasury
securities: direct obligations issued by the U.S. Treasury including bills,
notes and bonds which differ from each other only in interest rates, maturities
and times of issuance; U.S. Treasury securities that have been stripped of their
unmatured interest coupons (which typically provide for interest payments
semi-annually); interest coupons that have been stripped from such U.S. Treasury
securities; receipts and certificates for such stripped debt obligations and
stripped coupons (collectively, "Stripped Treasury Securities"); and in
repurchase agreements collateralized by such securities. Stripped Treasury
Securities will include (1) coupons that have been stripped from U.S. Treasury
bonds, which may be held through the Federal Reserve Bank's book-entry system
called "Separate Trading of Registered Interest and Principal of Securities"
("STRIPS") or through a program entitled "Coupon Under Book-Entry Safekeeping"
("CUBES").
Treasury bills have maturities of one year or less; Treasury notes have
maturities of one to ten years and Treasury bonds generally have maturities of
greater than ten years. Stripped Treasury Securities are sold at a deep discount
because the buyer of those securities receives only the right to receive a
future fixed payment (representing principal or interest) on the security and
does not receive any rights to periodic interest payments on the security.
Exempt Securities. As stated in its Prospectus, the assets of the
Pennsylvania Bond Fund will be primarily invested in Exempt Securities. Exempt
Securities include debt obligations issued by governmental entities to obtain
funds for various public purposes, such as 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 other public
institutions and facilities. Private activity bonds that are issued by or on
behalf of public authorities to finance various privately-operated facilities
are included within the term Exempt Securities, only if the interest paid
thereon is exempt from both Pennsylvania income taxes and federal taxes,
although such interest may be treated as a preference item for purposes of the
federal alternative minimum tax.
Among other types of Exempt Securities, the Pennsylvania Bond Fund may
purchase short-term General Obligation Notes, Tax Anticipation Notes, Bond
Anticipation Notes, Revenue Anticipation Notes, Project Notes, Tax-Exempt
Commercial Paper, Construction Loan Notes and other forms of short-term
tax-exempt loans. Such instruments are issued with a short-term maturity in
anticipation of
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<PAGE> 120
the receipt of tax funds, the proceeds of bond placements or other revenues. In
addition, the Pennsylvania Bond Fund may invest in other types of tax-exempt
instruments, such as municipal bonds, private activity bonds, and pollution
control bonds.
Project Notes are issued by a state or local housing agency and are sold
by the Department of Housing and Urban Development. While the issuing agency has
the primary obligation with respect to its Project Notes, they are also secured
by the full faith and credit of the United States through agreements with the
issuing authority which provide that, if required, the federal government will
lend the issuer an amount equal to the principal of and interest on the Project
Notes.
As described in the Prospectus of the Pennsylvania Bond Fund, the two
principal classifications of Exempt Securities consist of "general obligation"
and "revenue" issues. The Pennsylvania Bond Fund may also acquire "moral
obligation" issues, which are normally issued by special purpose authorities.
There are, of course, variations in the quality of Exempt Securities, both
within a particular classification and between classifications, and the yields
on Exempt Securities depend upon a variety of factors, including the financial
condition of the issuer, general conditions of the municipal bond market, the
size of a particular offering, the maturity of the obligation and the rating of
the issue. Ratings represent the opinions of an NRSRO as to the quality of
Exempt Securities. It should be emphasized, however, that ratings are general
and are not absolute standards of quality, and Exempt Securities with the same
maturity, interest rate and rating may have different yields, while Exempt
Securities of the same maturity and interest rate with different ratings may
have the same yield. Subsequent to purchase, an issue of Exempt Securities may
cease to be rated or its rating may be reduced below the minimum rating required
for purchase. The Sub-Advisor will consider such an event in determining whether
the Pennsylvania Bond Fund should continue to hold the obligation.
An issuer's obligations under its Exempt 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 Congress or state legislatures extending the time for
payment of principal or interest, or both, or imposing other constraints upon
the 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 Exempt Securities may be materially
adversely affected by litigation or other conditions.
The Pennsylvania Bond Fund may also invest in municipal lease obligations
or installment purchase contract obligations. Municipal lease obligations or
installment purchase contract obligations (collectively, "lease obligations")
have special risks not ordinarily associated with Exempt Securities. Although
lease obligations do not constitute general obligations of the municipality for
which the municipality's taxing power is pledged, a lease obligation ordinarily
is based by the municipality's covenant to budget for, appropriate and make the
payments due under the lease obligation. However, certain lease obligations
contain "non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future years unless
money is appropriated for such purpose 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.
The staff of the Commission currently considers certain lease obligations to be
illiquid. Determination as to the liquidity of such securities is made by the
Sub-Advisor. The Pennsylvania Bond Fund will not invest
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more than 15% of the value of its net assets in lease obligations that are
illiquid and in other illiquid securities.
Variable and Floating Rate Securities. The Prime Money Market Fund, U.S.
Treasury Fund, Income Fund, Government Securities Fund and Pennsylvania Bond
Fund may acquire variable and floating rate securities, subject to such Fund's
investment objectives, policies and restrictions. A variable rate security is
one whose terms provide for the adjustment of its interest rate on set dates and
which, upon such adjustment, can reasonably be expected to have a market value
that approximates its par value or amortized cost, as the case may be. A
floating rate security is one whose terms provide for the adjustment of its
interest rate whenever a specified interest rate changes and which, at any time,
can reasonably be expected to have a market value that approximates its par
value or amortized cost, as the case may be. Such securities, that are not
obligations of the U.S. Government or its agencies or instrumentalities, are
frequently not rated by credit rating agencies; however, unrated variable and
floating rate securities purchased by a Fund will be determined by the
Sub-Advisor to be of comparable quality at the time of purchase to rated
instruments eligible for purchase under that Fund's investment policies. In
making such determinations, the Sub-Advisor will consider the earning power,
cash flow and other liquidity ratios of the issuers of such securities (such
issuers include financial, merchandising, bank holding and other companies) and
will continuously monitor their financial condition. Although there may be no
active secondary market with respect to a particular variable or floating rate
security purchased by a Fund, the Fund may resell the security at any time to a
third party. The absence of an active secondary market, however, could make it
difficult for the Fund to dispose of a variable or floating rate security in the
event the issuer of the security defaulted on its payment obligations and the
Fund could, as a result or for other reasons, suffer a loss to the extent of the
default. To the extent that there exists no readily available market for such
security and the Fund is not entitled to receive the principal amount of a
security within seven days, such a security will be treated as an illiquid
security for purposes of calculation of that Fund's limitation on investments in
illiquid securities, as set forth in its investment restrictions. Variable or
floating rate securities may be secured by bank letters of credit.
Variable or floating rate securities invested in by the Prime Money Market
Fund and the Treasury Money Market Fund may have maturities of more than 397
days, to the extent permitted under SEC regulations.
Restricted Securities. Securities in which the Prime Money Market Fund,
the Treasury Fund, Aggressive Growth Fund, the Emerging Growth Fund, the
International Equity Fund and the Income Fund may invest include securities
issued by corporations without registration under the Securities Act of 1933, as
amended (the "1933 Act"), such as securities issued in reliance on the so-called
"private placement" exemption from registration which is afforded by Section
4(2) of the 1933 Act ("Section 4(2) securities"). Section 4(2) securities are
restricted as to disposition under the Federal securities laws, and generally
are sold to institutional investors such as a Fund who agree that they are
purchasing the securities for investment and not with a view to public
distribution. Any resale must also generally be made in an exempt transaction.
Section 4(2) securities are normally resold to other institutional investors
through or with the assistance of the issuer or investment dealers who make a
market in such Section 4(2) securities, thus providing liquidity. Any such
restricted securities will be considered to be illiquid for purposes of a
Fund's limitations on investments in illiquid securities unless the
Sub-Advisor has determined such securities to be liquid.
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Mortgage-Backed and Asset-Backed Securities. The Income Fund and the
Government Securities Fund may, consistent with its investment objective and
policies, invest in mortgage-related securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities. In addition, the Income Fund
may also invest in mortgage-related securities issued by non-governmental
entities.
Mortgage-backed securities, for purposes of the Income Fund's and the
Government Securities Fund's Prospectus and this Statement of Additional
Information, represent pools of mortgage loans assembled for sale to investors
by various governmental agencies such as the Government National Mortgage
Association and government-related organizations such as the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation, as well as
by non-governmental issuers such as commercial banks, savings and loan
institutions, mortgage bankers and private mortgage insurance companies in the
case of the Income Fund. Although certain mortgage-related securities are
guaranteed by a third party or otherwise similarly secured, the market value of
the security, which may fluctuate, is not so secured. If a Fund purchases a
mortgage-related security at a premium, that portion may be lost if there is a
decline in the market value of the security whether resulting from changes in
interest rates or prepayments in the underlying mortgage collateral. As with
other interest-bearing securities, the prices of such securities are inversely
affected by changes in interest rates. However, though the value of a
mortgage-related security may decline when interest rates rise, the converse is
not necessarily true, since in periods of declining interest rates the mortgages
underlying the securities are prone to prepayment, thereby shortening the
average life of the security and shortening the period of time over which income
at the higher rate is received. Conversely, when interest rates are rising, the
rate of prepayment tends to decrease, thereby lengthening the average life of
the security and lengthening the period of time over which income at the lower
rate is received. For these and other reasons, a mortgage-related security's
average maturity may be shortened or lengthened as a result of interest rate
fluctuations and, therefore, it is not possible to predict accurately the
security's return to a Fund. In addition, regular payments received in respect
of mortgage-related securities include both interest and principal. No assurance
can be given as to the return a Fund will receive when these amounts are
reinvested.
The Income Fund may invest in mortgage-backed securities which are
collateralized mortgage obligations ("CMOs") structured on pools of mortgage
pass-through certificates or mortgage loans. Mortgage-backed securities will be
purchased only if rated in the four highest bond rating categories assigned by
one or more appropriate NRSROs, or, if unrated, which the Sub-Advisor deems to
be of comparable quality to securities so rated.
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-related securities issued by
the Government National Mortgage Association ("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 within 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-related securities issued by the Federal National Mortgage Association
("FNMA") include
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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. The 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 Federal Home Loan Mortgage Corporation
("FHLMC") include FHLMC Mortgage Participation Certificates (also known as
"Freddie Macs" or "PCs"). The 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 Banks and do not constitute a debt or obligation of the
United States or of any Federal Home Loan Bank. Freddie Macs entitle the holder
to timely payment of interest, which is guaranteed by the FHLMC. The FHLMC
guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. When the 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.
Mortgage-backed and asset-based securities have certain characteristics
which are different from traditional debt securities. Among the major
differences are that interest and principal payments are made more frequently,
usually monthly, and that principal may be prepaid at any time because the
underlying mortgage loans or other assets generally may be prepaid at any time.
As a result, if a Fund purchases such a security at a premium, a prepayment rate
that is faster than expected will reduce yield to maturity, while a prepayment
rate that is slower than expected will have the opposite effect of increasing
yield to maturity. Alternatively, if a Fund purchases these securities at a
discount, faster than expected prepayments will increase, while slower than
expected prepayments will reduce, yield to maturity. The Income Fund may invest
a portion of its assets in derivative mortgage-backed securities such as
stripped mortgage-backed securities which are highly sensitive to changes in
prepayment and interest rates.
Mortgage-backed securities and asset-backed securities, like all fixed
income securities, generally decrease in value as a result of increases in
interest rates. In addition, although generally the value of fixed-income
securities increases during periods of falling interest rates and, as stated
above, decreases during periods of rising interest rates, as a result of
prepayments and other factors, this is not always the case with respect to
mortgage-backed securities and asset-backed securities.
Although the extent of prepayments of a pool of mortgage loans depends on
various economic and other factors, as a general rule prepayments on fixed rate
mortgage loans will increase during a period of declining interest rates.
Accordingly, amounts available for reinvestment by a Fund are likely to be
greater during a period of declining interest rates and, as a result, likely to
be reinvested at lower interest rates than during a period of rising interest
rates. Asset-backed securities, although less likely to experience the same
prepayment rates as mortgage-backed securities, may respond to certain of the
same factors influencing prepayments, while at other times different factors,
such as changes in credit use and payment patterns resulting from social, legal
and economic factors, will predominate. Mortgage-backed securities and
asset-backed securities generally decrease in value as a result of increases in
interest rates and may benefit less than other fixed income securities from
declining interest rates because of the risk of prepayment.
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There are certain risks associated specifically with CMOs. CMOs issued by
private entities are not U.S. government securities and are not guaranteed by
any government agency, although the securities underlying a CMO may be subject
to a guarantee. Therefore, if the collateral securing the CMO, as well as any
third party credit support or guarantees, is insufficient to make payment, the
holder could sustain a loss. However, as stated above, the Income Fund will
invest only in CMOs which are rated in one of the four highest rating categories
by an NRSRO or, if unrated, are determined by the Sub-Advisor to be of
comparable quality. Also, a number of different factors, including the extent of
prepayment of principal of the underlying obligations, affect the availability
of cash for principal payments by the CMO issuer on any payment date and,
accordingly, affect the timing of principal payments on each CMO class.
Asset-backed securities involve certain risks that are not posed by
mortgage-backed securities, resulting mainly from the fact that asset-backed
securities do not usually contain the complete benefit of a security interest in
the related collateral. For example, credit card receivables generally are
unsecured, and the debtors are entitled to the protection of a number of state
and federal consumer credit laws, some of which may reduce the ability to obtain
full payment. In case of automobile receivables, due to various legal and
economic factors, proceeds from repossessed collateral may not always be
sufficient to support payments on these securities.
The cash flows and yields on IOs and POs are extremely sensitive to the
rate of principal payments (including prepayments) on the related underlying
obligations. For example, a rapid or slow rate of principal payments may have a
material adverse effect on the yield of IOs or POs, respectively. If the
underlying obligations experience greater than anticipated prepayments of
principal, an investor may fail to recoup fully its initial investment in an IO.
Furthermore, if the underlying obligations experience slower than anticipated
prepayments of principal, the yield of a PO will be affected more severely than
would be the case with a traditional mortgage-backed security. IOs and POs have
exhibited large price changes in response to changes in interest rates and are
considered to be volatile in nature.
When-Issued Securities. As discussed in the Prospectuses, each Fund may
purchase securities on a "when-issued" basis (i.e., for delivery beyond the
normal settlement date at a stated price and yield). When a Fund agrees to
purchase securities on a "when-issued" basis, the Fund's custodian will set
aside cash or liquid portfolio securities equal to the amount of the commitment
in a separate account. Normally, a Fund's custodian will set aside portfolio
securities to satisfy the purchase commitment, and in such a case, the Fund may
be required subsequently to place additional assets in the separate account in
order to assure that the value of the account remains equal to the amount of
that Fund's commitment. It may be expected that a Fund's net assets will
fluctuate to a greater degree when it sets aside portfolio securities to cover
such purchase commitments than when it sets aside cash. In addition, because a
Fund will set aside cash or liquid portfolio securities to satisfy its purchase
commitments in the manner described above, such Fund's liquidity and the ability
of the Sub-Advisor to manage it might be affected in the event its commitments
to purchase "when-issued" securities ever exceeded 25% of its total assets.
Under normal market conditions, however, each Fund's commitment to purchase
"when-issued" or "delayed-delivery" securities will not exceed 25% of its total
assets.
When a Fund engages in "when-issued" transactions, it relies on the seller
to consummate the trade. Failure of the seller to do so may result in that
Fund's incurring a loss or missing the opportunity to obtain a price considered
to be advantageous. Each Fund will engage in "when-issued" delivery transactions
only for the purpose of acquiring portfolio securities consistent with such
Fund's investment
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objectives and policies and not for investment leverage. If the Pennsylvania
Bond Fund sells a "when-issued" or "delayed-delivery" security before delivery,
any gain would not be tax-exempt.
Real Estate Investment Trusts. The Established Growth Fund, the Aggressive
Growth Fund and the Emerging Growth Fund may invest in equity REITs. REITs pool
investors' funds for investment primarily in commercial real estate properties.
Investment in REITs may subject the Funds to certain risks. REITs may be
affected by changes in the value of the underlying property owned by the trust.
REITs are dependent upon specialized management skill, may not be diversified
and are subject to the risks of financing projects. REITs are also subject to
heavy cash flow dependency, defaults by borrowers, self liquidation and the
possibility of failing to qualify for the beneficial tax treatment available to
REITs under the Internal Revenue Code and to maintain its exemption from the
1940 Act. As a shareholder in a REIT, each Fund would bear, along with other
shareholders, its pro rata portion of the REIT's operating expenses. These
expenses would be in addition to the advisory and other expenses each Fund bears
directly in connection with its own operations.
Repurchase Agreements. Securities held by each Fund may be subject to
repurchase agreements. Under the terms of a repurchase agreement, a Fund would
acquire securities from banks and registered broker-dealers which the
Sub-Advisor deems creditworthy under guidelines approved by the Trust's Board of
Trustees, subject to the seller's agreement to repurchase such securities at a
mutually agreed-upon date and price. The repurchase price would generally equal
the price paid by the Fund 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. The seller under a repurchase agreement will be required
to maintain continually the value of collateral held pursuant to the agreement
at not less than the repurchase price (including accrued interest). This
requirement will be continually monitored by the Sub-Advisor. If the seller were
to default on its repurchase obligation or become insolvent, the Fund would
suffer a loss to the extent that the proceeds from a sale of the underlying
portfolio securities were less than the repurchase price under the agreement, or
to the extent that the disposition of such securities by such Fund were delayed
pending court action. Additionally, there is no controlling legal precedent
confirming that a Fund would be entitled, as against a claim by such seller or
its receiver or trustee in bankruptcy, to retain the underlying securities.
Securities subject to repurchase agreements will be held by the Fund's custodian
or another qualified custodian or in the Federal Reserve/Treasury book-entry
system.
Reverse Repurchase Agreements. As discussed in the Prospectuses, each Fund
may borrow funds by entering into reverse repurchase agreements in accordance
with its investment restrictions. Pursuant to such agreements, a Fund would sell
portfolio securities to financial institutions such as banks and broker-dealers,
and agree to repurchase the securities at a mutually agreed-upon date and price.
At the time a Fund enters into a reverse repurchase agreement, it will place in
a segregated custodial account assets such as U.S. Government securities or
other liquid securities consistent with that Fund's investment restrictions
having a value equal to the repurchase price (including accrued interest), and
will subsequently continually monitor the account to ensure that such equivalent
value is maintained at all times. Reverse repurchase agreements involve the risk
that the market value of the securities sold by a Fund may decline below the
price at which that Fund is obligated to repurchase the securities. Reverse
repurchase agreements are considered to be borrowings by a Fund under the 1940
Act and therefore a form of leveraging.
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Lower Rated Bonds. The Income Fund and the Pennsylvania Bond Fund are each
permitted to invest in securities rated Ba and B by Moody's or BB and B by
another appropriate NRSRO. Such bonds, though higher yielding, are characterized
by risk. See the Appendix hereto for a general description of NRSRO ratings of
debt obligations. Although ratings may be useful in evaluating the safety of
interest and principal payments, they do not evaluate the market value risk of
these bonds. A Fund will rely on the Sub-Advisor's judgment, analysis and
experience in evaluating the creditworthiness of an issuer.
Investors should be aware that the market values of many of these bonds
tend to be more sensitive to economic conditions than are higher rated
securities. These bonds generally are considered by S&P and Moody's to be, on
balance, predominantly speculative with respect to capacity to pay interest and
repay principal in accordance with the terms of the obligation and generally
will involve more credit risk than securities in the higher rating categories.
Because there is no established retail secondary market for many of these
securities, such Funds anticipate that such securities could be sold only to a
limited number of dealers or institutional investors. To the extent a secondary
trading market for these bonds does exist, it generally is not as liquid as the
secondary market for higher rated securities. The lack of a liquid secondary
market may have an adverse impact on market price and yield and that Fund's
ability to dispose of particular issues when necessary to meet its liquidity
needs or in response to a specific economic event such as a deterioration in the
creditworthiness of the issuer. The lack of a liquid secondary market for
certain securities also may make it more difficult for such a Fund to obtain
accurate market quotations for purposes of valuing that Fund's portfolio and
calculating its net asset value. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, may decrease the values and
liquidity of these securities. In such cases, judgment may play a greater role
in valuation because less reliable objective data may be available.
These bonds may be particularly susceptible to economic downturns. It is
likely that any economic recession could severely disrupt the market for such
securities and may have an adverse impact on the value of such securities. In
addition, it is likely that any such economic downturn could adversely affect
the ability of the issuers of such securities to repay principal and pay
interest thereon and increase the incidence of default of such securities.
The Income and the Pennsylvania Bond Funds may acquire these bonds during
an initial offering. Such securities may involve special risks because they are
new issues. Such Funds have no arrangement with any persons concerning the
acquisition of such securities.
The credit risk factors pertaining to lower rated securities also apply to
lower rated zero coupon securities in which the Income, Government Securities
and Pennsylvania Bond Funds may invest. Zero coupon bonds carry an additional
risk in that, unlike bonds which pay interest through the period to maturity, a
Fund will realize no cash until the cash payment date unless a portion of such
securities are sold and, if the issuer defaults, the Fund may obtain no return
at all on its investment.
Short Sales. Each of the Income Fund, the Government Securities Fund and
the Pennsylvania Bond Fund may from time to time sell securities short. Short
sales are effected when it is believed that the price of a particular security
will decline, and involves the sale of a security which the Fund does not
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own in the hope of purchasing the same security at a later date at a lower
price. To make delivery to the buyer, the Fund must borrow the security, and the
Fund is obligated to return the security to the lender, which is accomplished by
a later purchase of the security by that Fund. The frequency of short sales will
vary substantially in different periods, and it is not intended that any
specified portion of a Fund's assets will as a matter of practice be invested in
short sales.
At any time that a Fund has an open short sale position, such Fund is
required to segregate with its custodian (and to maintain such amount until the
Fund replaces the borrowed security) an amount of cash or U.S. Government
securities or other liquid securities equal to the difference between (i) the
current market value of the securities sold short and (ii) any cash or
securities required to be deposited with the broker in connection with the short
sale (not including the proceeds from the short sale). As a result of these
requirements, a Fund will not gain any leverage merely by selling short, except
to the extent that it earns interest on the immobilized cash or securities while
also being subject to the possibility of gain or loss from the securities sold
short. A Fund's possible losses may exceed the total amount of cash or liquid
securities deposited with the broker (not including the proceeds of the short
sale) and segregated by the Fund.
A Fund will incur a loss as a result of the short sale if the price of the
security increases between the date of the short sale and the date on which the
Fund purchases the security to replace the borrowed security. A Fund will
realize a gain if the security declines in price between those dates. The amount
of any gain will be decreased and the amount of any loss increased by any
premium or interest the Fund may be required to pay in connection with a short
sale. It should be noted that possible losses from short sales differ from those
that could arise from a cash investment in a security in that the former may be
limitless while the latter can only equal the total amount of the Fund's
investment in the security. For example, if a Fund purchases a $10 security
short, the most that can be lost is $10. However, if a Fund sells a $10 security
short, it may have to purchase the security for return to the lender when the
market value is $50, thereby incurring a loss of $40.
Hedging Transactions. Hedging transactions, including the use of options
and futures, in which certain of the Funds are authorized to engage as described
in their respective Prospectuses, have risks associated with them including
possible default by the other party to the transaction, illiquidity and, to the
extent the Sub-Advisor's view as to certain market movements is incorrect, the
risk that the use of such hedging transactions could result in losses greater
than if they had not been used.
Use of put and call options may result in losses to a Fund, force the sale
or purchase of portfolio securities at inopportune times or for prices higher
than (in the case of put options) or lower than (in the case of call options)
current market values, limit the amount of appreciation a Fund can realize on
its investments or cause a Fund to hold a security it might otherwise sell. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of a
Fund create the possibility that losses on the hedging instrument may be greater
than gains in the value of such Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Funds might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result
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from an increase in value of such position. Finally, the daily variation margin
requirements for futures contracts would create a greater ongoing potential
financial risk than would purchases of options, where the exposure is limited to
the cost of the initial premium. Losses resulting from the use of hedging
transactions would reduce net asset value, and possible income, and such losses
can be greater than if the hedging transactions had not been utilized.
General Characteristics of Options. Put options and call options typically
have similar structural characteristics and operational mechanics regardless of
the underlying instrument on which they are purchased or sold. Thus, the
following general discussion relates to each of the particular types of options
discussed in greater detail in the applicable Prospectus and below. In addition,
many hedging transactions involving options require segregation of a Fund's
assets in special accounts, as described further below.
With certain exceptions, exchange-listed options generally settle by
physical delivery of the underlying security or currency, although in the future
cash settlement may become available. Index options are cash settled for the net
amount, if any, by which the option is "in-the-money" (i.e., where the value of
the underlying instrument exceeds, in the case of a call option, or is less
than, in the case of a put option, the exercise price of the option) at the time
the option is exercised. Frequently, rather than taking or making delivery of
the underlying instrument through the process of exercising the option, listed
options are closed by entering into offsetting purchase or sale transactions
that do not result in ownership of the new option. A Fund's ability to close out
its position as a purchaser or seller of a put or call option is dependent in
part, upon the liquidity of the option market. In addition, the hours of trading
for listed options may not coincide with the hours during which the underlying
financial instruments are traded. To the extent that the options markets close
before the markets for the underlying financial instruments, significant price
and rate movements can take place in the underlying markets that cannot be
reflected in the option markets.
Exchange-listed options generally have standardized terms and performance
mechanics unlike over-the-counter traded options. The Funds currently expect to
purchase and sell only exchange-traded options. Exchange-traded options
generally are guaranteed by the clearing agency which is the issuer or
counterparty to such options. This guarantee usually is supported by a daily
payment system (i.e., variation margin requirements) operated by the clearing
agency in order to reduce overall credit risk. As a result, unless the clearing
agency defaults, there is generally relatively little counterparty credit risk
associated with options purchased on an exchange.
All options written by a Fund must be "covered" (i.e., a Fund must own the
securities or futures contract subject to a call option or must meet the asset
segregation requirements) as long as the call is outstanding. Even though a Fund
will receive the option premium to help protect it against loss, a call option
written by a Fund exposes such Fund during the term of the option to possible
loss of opportunity to realize appreciation in the market price of the
underlying security or instrument and may require such Fund to hold a security
or instrument which it might otherwise have sold. With respect to put options
written by a Fund, such Fund will place liquid securities in a segregated
account to cover its obligations under such put option and will monitor the
value of the assets in such account and its obligations under the put option
daily.
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Futures Contracts. As discussed in the Prospectuses, the Established
Growth, Aggressive Growth, Emerging Growth, International Equity, Income, and
Pennsylvania Bond Funds may each enter into futures contracts. This investment
technique is designed primarily to act as a substitute for a position in the
underlying security and to hedge against anticipated future changes in market
conditions or interest rates which otherwise might adversely affect the value of
securities which such Fund holds or intends to purchase. For example, when
interest rates are expected to rise or market values of portfolio securities are
expected to fall, a Fund can seek through the sale of futures contracts to
offset a decline in the value of its portfolio securities. When interest rates
are expected to fall or market values are expected to rise, a Fund, through the
purchase of such contracts, can attempt to secure better rates or prices for
such Fund than might later be available in the market when it effects
anticipated purchases.
The acquisition of put and call options on futures contracts will,
respectively, give a Fund the right (but not the obligation), for a specified
price, to sell or to purchase the underlying futures contract, upon exercise of
the option, at any time during the option period.
Futures transactions involve brokerage costs and require a Fund to
segregate liquid assets, such as cash, U.S. Government securities or other
liquid obligations, to cover its performance under such contracts. A Fund may
lose the expected benefit of futures transactions if interest rates, securities
prices or foreign exchange rates move in an unanticipated manner. Such
unanticipated changes may also result in poorer overall performance than if such
Fund had not entered into any futures transactions. In addition, the value of a
Fund's futures positions may not prove to be perfectly or even highly correlated
with the value of its portfolio securities, limiting the Fund's ability to hedge
effectively against interest rate and/or market risk and giving rise to
additional risks. There is no assurance of liquidity in the secondary market for
purposes of closing out futures positions.
Regulatory Restrictions. To the extent required to comply with Securities
and Exchange Commission Release No. IC-10666, when purchasing a futures contract
or writing a put option, each Fund will maintain in a segregated account cash or
liquid securities equal to the value of such contracts.
To the extent required to comply with Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid being classified as a "commodity pool
operator," a Fund will not enter into a futures contract or purchase an option
thereon if immediately thereafter the initial margin deposits for futures
contracts held by such Fund plus premiums paid by it for open options on futures
would exceed 5% of the liquidation value of such Fund's total assets after
taking into account unrealized profits and unrealized losses on any contracts
entered into. The Funds will not engage in transactions in futures contracts or
options thereon for speculation, but only to attempt to hedge against changes in
market conditions affecting the values of securities which such Fund holds or
intends to purchase.
Securities of Other Investment Companies. Each Fund may invest in
securities issued by other investment companies. In addition, each Fund, other
than the Prime Money Market Fund and the Treasury Money Market Fund, may invest
in money market funds advised by the Advisors. Each Fund other than the
Lifestyle Funds currently intends to limit its investments so that, as
determined immediately after a securities purchase is made: (a) not more than 5%
of the value of its total assets will be invested in the securities of any one
investment company; (b) not more than 10% of the value of its total assets will
be invested in the aggregate in securities of investment companies as a group;
and (c) not more than 3% of the outstanding voting stock of any one investment
company will be owned by such
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Fund. As a shareholder of another investment company, a Fund would bear, along
with other shareholders, its pro rata portion of that company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that such Fund bears directly in connection with its own
operations. Investment companies in which the Funds may invest may also impose a
sales or distribution charge in connection with the purchase or redemption of
their shares and other types of commissions or charges. Such charges will be
payable by such Fund and, therefore, will be borne directly by shareholders of
such Fund.
Investment Restrictions
The Funds' investment objectives are non-fundamental policies and may be
changed without a vote of the shareholders of the applicable Fund. In addition
to the fundamental investment policies listed in the Prospectuses, the following
investment restrictions may be changed only by a vote of the majority of the
outstanding Shares of a Fund (as defined under "ADDITIONAL INFORMATION - Vote of
a Majority of the Outstanding Shares").
In addition to the investment restrictions set forth in its respective
Prospectus, each Fund may not:
1. Purchase securities on margin, except for use of short-term credit
necessary for clearance of purchases of portfolio securities, except as may be
necessary to make margin payments in connection with derivative securities
transactions, and except to the extent disclosed in the current prospectus of
such Fund;
2. Underwrite the securities issued by other persons, except to the
extent that the Fund may be deemed to be an underwriter under certain securities
laws in the disposition of "restricted securities;"
3. Purchase or sell real estate (although investments in marketable
securities of companies engaged in such activities and securities secured by
real estate or interests therein are not prohibited by this restriction); and
4. Purchase or sell commodities or commodities contracts, except to the
extent disclosed in the current prospectus of such Fund.
The following additional investment restrictions may be changed without
the vote of a majority of the outstanding Shares of the Funds. Each Fund may
not:
1. Purchase securities of other investment companies, except (a) in
connection with a merger, consolidation, acquisition or reorganization, and (b)
to the extent permitted by the 1940 Act, or pursuant to any exemptions
therefrom;
2. Mortgage or hypothecate the Fund's assets in excess of one-third of
such Fund's total assets.
3. None of the Prime Money Market Fund, Treasury Money Market Fund,
Established Growth Fund, Aggressive Growth Fund, Emerging Growth Fund, or
International Equity Fund may
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<PAGE> 131
engage in any short sales. However, each of the Income Fund, Government
Securities Fund and Pennsylvania Bond Fund may not engage in short sales of any
securities at any time if, immediately after and as a result of the short sale,
the market value of securities sold short by such Fund would exceed 25% of the
value of that Fund's total assets.
If any percentage restriction or requirement described above is satisfied
at the time of investment, a later increase or decrease in such percentage
resulting from a change in asset value will not constitute a violation of such
restriction or requirement. However, should a change in net asset value or other
external events cause a Fund's investments in illiquid securities to exceed the
limit set forth in that Fund's Prospectus for its investment in illiquid
securities, such Fund will act to cause the aggregate amount of such securities
to come within such limit as soon as reasonably practicable. In such an event,
however, no Fund would be required to liquidate any portfolio securities where
such Fund would suffer a loss on the sale of such securities.
Portfolio Turnover
The portfolio turnover rate for each Fund is calculated by dividing the
lesser of a Fund's purchases or sales of portfolio securities for the year by
the monthly average value of the portfolio securities. The Commission requires
that the calculation exclude all securities whose remaining maturities at the
time of acquisition were one year or less.
The portfolio turnover rates for the Established Growth, Aggressive
Growth, Income, Government Securities and Pennsylvania Bond Funds for the fiscal
year or period ended June 30, 1998, are as follows:
<TABLE>
<CAPTION>
Fiscal Year or
Period Ended
June 30, 1998
<S> <C>
Established Growth Fund 6%
Aggressive Growth Fund 8%
Income Fund 218%
Government Securities Fund 482%
Pennsylvania Bond Fund 62%
</TABLE>
The portfolio turnover rates for the Emerging Growth, International
Equity, Lifestyle Conservative Growth, Lifestyle Moderate Growth and Lifestyle
Growth Funds for such Fund's first fiscal period ending June 30, 1999, are
estimated to be less than 30%, 40%, ___%,___% and ___%, respectively. The
portfolio turnover rate for a Fund may vary greatly from year to year as well as
within a particular year, and may also be affected by cash requirements for
redemptions of Shares. High portfolio turnover rates will generally result in
higher transaction costs, including brokerage commissions, to a Fund and may
result in additional tax consequences to a Fund's Shareholders. Portfolio
turnover will not be a limiting factor in making investment decisions.
-15-
<PAGE> 132
NET ASSET VALUE
The Prime Money Market Fund and the Treasury Money Market Fund
(collectively, the "Money Market Funds" and individually, a "Money Market Fund")
have each elected to use the amortized cost method of valuation pursuant to Rule
2a-7 under the 1940 Act. This involves valuing an instrument at its cost
initially and thereafter assuming a constant amortization to maturity of any
discount or premium, 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 price
the Money Market Fund would receive if it sold the instrument.
Pursuant to Rule 2a-7, each Money Market Fund will maintain a
dollar-weighted average portfolio maturity appropriate to the Money Market
Fund's objective of maintaining a stable net asset value per share, provided
that neither Money Market Fund will purchase any security with a remaining
maturity of more than 397 days (thirteen months) (securities subject to
repurchase agreements may bear longer maturities) nor maintain a dollar-weighted
average portfolio maturity which exceeds 90 days. The Trust's Board of Trustees
has also undertaken to establish procedures reasonably designed, taking into
account current market conditions and the investment objective of the Money
Market Funds, to stabilize the net asset value per share of each Money Market
Fund for purposes of sales and redemptions at $1.00. These procedures include
review by the Trustees, at such intervals as they deem appropriate and
reasonable, to determine the extent, if any, to which the net asset value per
share of each Money Market Fund calculated by using available market quotations
deviates from $1.00 per Share. In the event such deviation exceeds one-half of
one percent, Rule 2a-7 requires that the Board of Trustees to promptly consider
what action, if any, should be initiated. If the Trustees believe that the
extent of any deviation from a Money Market Fund's $1.00 amortized cost price
per Share may result in material dilution or other unfair results to new or
existing investors, they shall cause the Fund to take such steps as they
consider appropriate to eliminate or reduce, to the extent reasonably
practicable, any such dilution or unfair results. These steps may include
selling portfolio instruments prior to maturity, shortening the average
portfolio maturity, withholding or reducing dividends, reducing the number of a
Money Market Fund's outstanding Shares without monetary consideration, or
utilizing a net asset value per share determined by using available market
quotations.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds are sold on a continuous basis by BISYS, and BISYS has
agreed to use appropriate efforts to solicit all purchase orders. In addition to
purchasing Shares directly from BISYS, Shares may be purchased through
procedures established by BISYS in connection with the requirements of accounts
at the Advisor or the Advisor's affiliated entities or correspondents
(collectively, "Entities"). Customers purchasing Shares of the Funds may include
officers, directors, or employees of the Advisor or the Entities.
The Trust 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 Commission, (b) the
Exchange is closed for other than customary weekend and holiday closings, (c)
the Commission has by order permitted such suspension, or (d) an emergency
exists as a result of which (i) disposal by the Trust of securities owned by it
is not reasonably practical, or (ii) it is not reasonably practical for the
Trust to determine the fair value of its net assets.
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<PAGE> 133
MANAGEMENT AND SERVICE PROVIDERS OF THE TRUST
Trustees and Officers
Overall responsibility for management of the Trust rests with its Board of
Trustees. The Trustees elect the officers of the Trust to supervise actively its
day-to-day operations.
The names of the Trustees and officers of the Trust, their addresses, and
principal occupations during the past five years are as follows:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME, ADDRESS AND AGE POSITION(S) HELD WITH THE DURING PAST 5 YEARS
TRUST
<S> <C> <C>
[To be added by
Amendment.]
</TABLE>
__________________
*_______________ are each considered to be an "interested person" of the
Trust as defined in the 1940 Act.
Messrs. _____ and _____ are members of the Audit Committee of the Board
of Trustees. The Audit Committee, among other things, reviews results of the
annual audit and recommends to the Trust the firm to be selected as independent
auditors.
Messrs. ___ and ___ are members of the Valuation Committee of the Board
of Trustees. The Valuation Committee reviews the pricing of securities and
ensures that they are priced in accordance with the Trust's Valuation
Procedures.
Messrs. ____ and ____ are members of the Nominating Committee of the
Board of Trustees. The Nominating Committee recommends to the Board all persons
to be nominated as trustees of the Trust.
As of the date of this Statement of Additional Information, the Trust's
officers and trustees, as a group, own less than 1% of any Fund's Shares.
The Trust pays each Trustee, other than officers or employees of the
Advisor, BISYS or BISYS Fund Services, Inc. or any of their affiliates, an
annual fee of $8,000, $2,000 for each regular Board meeting attended, and
out-of-pocket expenses incurred in attending Board meetings. The officers of
the Trust receive no compensation directly from the Trust for performing the
duties of their offices. The Advisors receive fees for acting as advisor and
sub-advisor. BISYS and the Advisor receive fees from each Fund for acting as
administrators, and may receive fees pursuant to the Administrative Services
Plan described below. BISYS may retain all or a portion of any sales load
imposed upon purchases of Shares. BISYS Fund Services, Inc. receives fees
from the Funds for acting as transfer agent and for providing certain fund
accounting services. _____ and _____ are employees of the Advisors and
Messrs. _____________ and Ms. ____________ are employees of BISYS. Drinker
Biddle & Reath LLP, of which _____ is a partner, receives legal fees as counsel
to the Trust.
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<PAGE> 134
Investment Advisor and Investment Subadvisors
The Advisor may from time to time voluntarily reduce all or a portion of
its advisory fee with respect to a Fund to increase the net income of that Fund
available for distribution as dividends.
For the fiscal year or period ended June 30, 1998, the former advisor,
Martindale, Andres & Company, Inc., earned and voluntarily waived the amounts
indicated below with respect to its investment advisory services to the
Predecessor Funds pursuant to the prior Investment Advisory Agreement:
<TABLE>
<CAPTION>
Fiscal Year or Period Ended
June 30, 1998 (1)
--------------------------------------
Fees Earned Fees Waived
----------- -----------
<S> <C> <C>
Prime Money Market Fund $ 623,575 $311,790
Treasury Money Market Fund $ 98,397 $ 74,397
Established Growth Fund $1,680,122 $720,420
Aggressive Growth Fund $1,254,636 $593,310
Income Fund $1,431,762 $715,881
Government Securities Fund $ 198,771 $153,207
Pennsylvania Bond Fund $ 715,423 $357,712
</TABLE>
For the year or period ended June 30, 1997, the former adviser earned and
voluntarily waived the amounts indicated below with respect to its investment
advisory services to the indicated Funds pursuant to the Investment Advisory
Agreement:
<TABLE>
<CAPTION>
Fiscal Period Ended
June 30, 1997
----------------------------------
Fees Earned Fees Waived
----------- -----------
<S> <C> <C>
Prime Money Market Fund $282,882 $236,280
Established Growth Fund 735,635 558,942
Aggressive Growth Fund 385,280 263,486
Income Fund 680,552 529,626
Pennsylvania Bond Fund 506,296 420,686
</TABLE>
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<PAGE> 135
(1) Such Funds commenced operations October 7, 1996, December 2, 1996,
February 3, 1997, December 2, 1996, and October 1, 1996, respectively.
For the fiscal year or period ended June 30, 1998, the Advisor had not
received any compensation under the Investment Advisory Agreement with respect
to the Emerging Growth Fund, International Equity Fund or the Lifestyle Funds
since those Funds had not commenced operations.
Unless sooner terminated, each of the Investment Advisory and Investment
Sub-Advisory Agreements will continue in effect with respect to a Fund until
June 30, 2000, and from year to year thereafter, for successive annual periods
ending on June 30, if, as to that Fund, such continuance is approved at least
annually by the Trust's Board of Trustees or by vote of a majority of the
outstanding Shares of that Fund (as defined under "GENERAL INFORMATION -
Miscellaneous" in such Fund's Prospectus), and a majority of the Trustees who
are not parties to the Investment Advisory Agreement or the particular
Investment Sub-Advisory Agreement or interested persons (as defined in the 1940
Act) of any party to the Investment Advisory Agreement or the particular
Investment Sub-Advisory Agreement by votes cast in person at a meeting called
for such purpose. The Investment Advisory Agreement and the Investment
Sub-Advisory Agreements each are terminable as to a Fund at any time on at least
60 days' written notice without penalty by the Trustees, by vote of a majority
of the outstanding Shares of that Fund, or by the Advisor or the Sub-Advisor.
The Investment Advisory Agreement and the Investment Sub-Advisory Agreements
also each terminate automatically in the event of its assignment, as defined
in the 1940 Act.
The Investment Advisory Agreement and the Investment Sub-Advisory
Agreements provide that the Advisor and the Sub-Advisors shall not be liable for
any error of judgment or mistake of law or for any loss suffered by a Fund in
connection with the performance of the Investment Advisory Agreement and the
Investment Sub-Advisory 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 on the
part of the Advisor or the particular Sub-Advisor in the performance of its
duties, or from reckless disregard by the Advisor of its duties and obligations
thereunder.
Portfolio Transactions
Pursuant to the Investment Advisory and Investment Sub-Advisory
Agreements, the Advisor and Sub -- Advisors determine, subject to the general
supervision of the Board of Trustees of the Trust and in accordance with the
Funds' investment objectives and restrictions, which securities are to be
purchased and sold by each Fund, and which brokers and dealers are to be
eligible to execute the Funds' portfolio transactions. Purchases and sales of
portfolio securities with respect to the Prime Money Market, Treasury Money
Market, Income, Government Securities and Pennsylvania Bond Funds, usually are
principal transactions in which portfolio securities are normally purchased
directly from the issuer or from an underwriter or market maker for the
securities. Purchases from underwriters of portfolio securities generally
include a commission or concession paid by the issuer to the underwriter, and
purchases from dealers serving as market makers may include the spread between
the bid and asked price. Purchases and sales of portfolio securities with
respect to the Established Growth, Aggressive Growth, Emerging Growth and
International Equity Funds usually are effected on a national securities
exchange or in the over-the-counter market. Transactions on stock exchanges
involve the payment of
-19-
<PAGE> 136
negotiated brokerage commissions. Transactions in the over-the-counter market
are generally principal transactions with dealers.
Allocation of transactions, including their frequency, to various brokers
and dealers is determined by the Sub-Advisors in their 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, brokers and dealers who provide supplemental
investment research to the Advisor and/or Sub-Advisors may receive orders for
transactions on behalf of the Funds. The Advisor and/or Sub-Advisors are
authorized to pay a broker-dealer who provides such brokerage and research
services a commission for executing each such Fund's brokerage transactions
which is in excess of the amount of commission another broker would have charged
for effecting that transaction if, but only if, the Advisor or Sub-Advisors
determines in good faith that such commission was reasonable in relation to the
value of the brokerage and research services provided by such broker viewed in
terms of that particular transaction or in terms of all of the accounts over
which it exercises investment discretion. Any such research and other
statistical and factual information provided by brokers to a Fund or to the
Advisor or Sub-Advisors is considered to be in addition to and not in lieu of
services required to be performed by the Advisor or Sub-Advisors under its
agreement regarding management of the Fund. The cost, value and specific
application of such information are indeterminable and hence are not practicably
allocable among the Funds and other clients of the Advisor or Sub-Advisors who
may indirectly benefit from the availability of such information. Similarly, the
Funds may indirectly benefit from information made available as a result of
transactions effected for such other clients. Under the Investment Advisory and
Investment Sub-Advisory Agreements, the Advisor and/or Sub-Advisors are
permitted to pay higher brokerage commissions for brokerage and research
services in accordance with Section 28(e) of the Securities Exchange Act of
1934. In the event the Advisor and/or Sub-Advisors do follow such a practice, it
will do so on a basis which it believes is fair and equitable to the Trust and
the Funds.
The Advisor may direct brokerage transactions on behalf of the Established
Growth Fund, the Aggressive Growth Fund, the Emerging Growth Fund and the
International Equity Fund to Boston Institutional in return for research
services relating to equity securities including market information from
Bloomberg Financial Markets and equity analysis from Zacks Software. For the
fiscal period ended June 30, 1998, the amount of such transactions and related
commissions on behalf of the Funds were $________ and $_____, respectively.
While the Advisor and/or Sub-Advisors generally seek competitive
commissions, the Trust may not necessarily pay the lowest commission available
on each brokerage transaction, for reasons discussed above. Information so
received is in addition to and not in lieu of services required to be performed
by the Advisor and/or Sub-Advisors and does not reduce the advisory fees payable
to the Advisor and/or Sub-Advisors by a Fund. Such information may be useful to
the Advisor and/or Sub-Advisors in serving both the Fund and other clients and,
conversely, supplemental information obtained by the placement of business of
other clients may be useful to the Advisor and/or Sub-Advisors in carrying out
their obligations to a Fund.
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<PAGE> 137
For the fiscal period ended June 30, 1998, the Trust paid the following
brokerage commissions on behalf of the Established Growth Fund and the
Aggressive Growth Fund:
<TABLE>
<CAPTION>
Fiscal Year Ended June 30, 1998
<S> <C>
Established Growth Fund $37,783
Aggressive Growth Fund $27,365
</TABLE>
During the past fiscal period, no brokerage commissions were paid by the
Trust on behalf of the Prime Money Market Fund, the U.S. Treasury Money Market
Fund, the Pennsylvania Bond Fund or the Income Fund.
Except as permitted by applicable laws, rules and regulations, the Trust
will not, on behalf of a Fund, execute portfolio transactions through, acquire
portfolio securities issued by, make savings deposits in, or enter into
repurchase or reverse repurchase agreements with the Advisor, the Sub-Advisors,
Keystone, BISYS, or their affiliates, and will not give preference to the
Advisor's, the Sub-Advisors', or Keystone's correspondents with respect to such
transactions, securities, savings deposits, repurchase agreements, and reverse
repurchase agreements.
Investment decisions for each Fund are made independently from those for
other funds of the Trust or any other investment company or account managed by
the Advisor or Sub-Advisors. Any such other fund, investment company or account
may also invest in the same securities as the Trust on behalf of a Fund. When a
purchase or sale of the same security is made at substantially the same time on
behalf of a Fund and another fund of the Trust, investment company or account,
the transaction will be averaged as to price and available investments will be
allocated as to amount in a manner which the Advisor or Sub-Advisors believe to
be equitable to the Fund and such other fund, investment company or account. In
some instances, this investment procedure may adversely affect the price paid or
received by a Fund or the size of the position obtained by a Fund. To the extent
permitted by law, the Advisor or Sub-Advisors may aggregate the securities to be
sold or purchased for a Fund with those to be sold or purchased for other funds
of the Trust, investment companies or accounts in order to obtain best
execution. As provided by the Investment Advisory and Investment Sub-Advisory
Agreements, in making investment recommendations for the Funds, the Advisor or
Sub-Advisors will not inquire or take into consideration whether an issuer of
securities proposed for purchase or sale by the Trust is a customer of the
Advisor or Sub-Advisors, its parent or its subsidiaries or affiliates and, in
dealing with its customers, the Advisor or Sub-Advisors, its parent,
subsidiaries, and affiliates will not inquire or take into consideration whether
securities of such customers are held by the Funds or any other fund of the
Trust.
For the fiscal year ended June 30, 1998, the Established Growth and Income
Funds held securities of their regular brokers or dealers, as defined in Rule
10b-1 under the 1940 Act, or their parent companies. As of June 30, 1998, the
Established Growth Fund held $11,879,000 of equity securities of Morgan Stanley
Dean Witter Discover & Co. and the Income Fund held $8,070,000 of debt
securities of Lehman Brothers Holding.
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<PAGE> 138
Administrators
BISYS Fund Services Ohio, Inc. and the Advisor serve as administrators
(the "Administrators") to the Funds pursuant to a Management and Administration
Agreement dated _________, 1998 (the "Administration Agreement"). The
Administrators assist in supervising all operations of the Funds (other than
those performed by the Advisor under the Investment Advisory Agreements, by the
Sub-Advisors under the Investment Sub-Advisory Agreements, by The Bank of New
York under the Custody Agreement, by BISYS Fund Services, Inc. under the
Transfer Agency Agreement and Fund Accounting Agreement and by BISYS under the
Distribution Agreement).
Under the Administration Agreement, the Administrators have agreed to
maintain office facilities; furnish statistical and research data, clerical,
certain bookkeeping services and stationery and office supplies; prepare the
periodic reports to the Commission on Form N-SAR or any replacement forms
therefor; compile data for, prepare for execution by the Funds and file all of
the Funds' federal and state tax returns and required tax filings other than
those required to be made by the Funds' custodian and Transfer Agent; prepare
compliance filings pursuant to state securities laws with the advice of the
Trust's counsel; assist to the extent requested by the Trust with the Trust's
preparation of its Annual and Semi-Annual Reports to Shareholders and its
Registration Statement (on Form N-1A or any replacement therefor); compile data
for, prepare and file timely Notices to the Commission required pursuant to Rule
24f-2 under the 1940 Act; keep and maintain the financial accounts and records
of the Funds, including calculation of daily expense accruals; determine the
actual variance from $1.00 of the Prime Money Market Fund's and the Treasury
Money Market Fund's net asset value per share; and generally assist in all
aspects of the Funds' operations other than those performed by the Advisor under
the Investment Advisory Agreement, by the Sub-Advisors under the Investment
Sub-Advisory Agreements, by The Bank of New York under the Custody Agreement, by
BISYS Fund Services, Inc. under the Transfer Agency Agreement and Fund
Accounting Agreement, and by BISYS under the Distribution Agreement. Under the
Administration Agreement, the Administrators may delegate all or any part of
their responsibilities thereunder.
For the fiscal year or period ended June 30, 1998, BISYS, the Trust's
former administrator, earned the following amounts with respect to its
administration services to the Funds indicated below pursuant to the prior
Administration Agreement:
<TABLE>
<CAPTION>
Fiscal Period Ended
June 30, 1998(1)
-------------------
<S> <C>
Prime Money Market Fund $179,279
Treasury Money Market Fund $ 28,247
Established Growth Fund $257,620
Aggressive Growth Fund $144,284
Income Fund $274,422
</TABLE>
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<PAGE> 139
<TABLE>
<CAPTION>
Fiscal Period Ended
June 30, 1998(1)
-------------------
<S> <C>
Government Securities Fund $ 38,098
Pennsylvania Bond Fund $137,123
</TABLE>
- -------------------------
(1) Such Funds commenced operations October 7, 1996, July 1, 1997, December 2,
1996, February 3, 1997, December 2, 1996, July 1, 1997 and October 1,
1996, respectively.
For the fiscal period ended June 30, 1997, the former administrator earned
the following amounts with respect to its administrative services to the
Predecessor Funds indicated below pursuant to the prior Administration
Agreement:
<TABLE>
<CAPTION>
Fiscal Period Ended
June 30, 1997
-------------------
<S> <C>
Prime Money Market Fund $ 81,328
Established Growth Fund 112,311
Aggressive Growth Fund 44,692
Income Fund 129,863
Pennsylvania Bond Fund 97,040
</TABLE>
Unless sooner terminated as provided therein, the Administration Agreement
has an initial term expiring on June 30, 2001, and thereafter shall be
renewed automatically for successive one-year terms, unless written notice not
to renew is given by the non-renewing party to the other party at least 60 days
prior to the expiration of the then-current term. The Administration Agreement
is terminable with respect to a Fund upon mutual agreement of the parties to the
Administration Agreement; through a failure to renew at the end of a one-year
term; upon 180 days' written notice by the Trust after the initial term but only
in connection with the reorganization of the Funds into another registered
management investment company; and for cause (as defined in the Administration
Agreement) by the party alleging cause, on not less than 60 days' notice by the
Trust's Board of Trustees or by the Administrators.
The Administration Agreement provides that neither Administrator shall be
liable for any error of judgment or mistake of law or any loss suffered by a
Fund in connection with the matters to which the Administration Agreement
relates, except for a loss resulting from willful misfeasance, bad faith, or
negligence on its part in the performance of its duties, or from the reckless
disregard by it of its obligations and duties thereunder.
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<PAGE> 140
Glass-Steagall Act
The Advisor and Martindale, Andres & Company, Inc. each believes that it
possesses the legal authority to perform the services for the Funds contemplated
by the relevant Prospectuses, this Statement of Additional Information and the
Investment Advisory and Sub-Advisory Agreements and the Administration Agreement
without violation of applicable statutes and regulations. Future changes in
either Federal or state statutes and regulations relating to the permissible
activities of banks or bank holding companies and the subsidiaries or affiliates
of those entities, as well as further judicial or administrative decisions or
interpretations of present and future statutes and regulations, could prevent or
restrict the Advisor from continuing to perform such services for the Trust. In
addition, current state securities laws on the issue of the registration of
banks as brokers or dealers may differ from the interpretation of federal law,
and banks and financial institutions may be required to register as dealers
pursuant to the laws of a specific state. Depending upon the nature of any
changes in the services which could be provided by the Advisors, the Board of
Trustees of the Trust would review the Trust's relationship with the Advisors
and consider taking all action necessary in the circumstances.
Should future legislative, judicial, or administrative action prohibit or
restrict the proposed activities of the Advisors and/or their affiliated and
correspondent banks in connection with Customer purchases of Shares of a Fund,
those banks might be required to alter materially or discontinue the services
offered by them to Customers. It is not anticipated, however, that any change in
the Trust's method of operations would affect its net asset value per share or
result in financial losses to any Customer.
Distributor
BISYS serves as agent for each Fund in the distribution of its Shares
pursuant to a Distribution Agreement dated as of , 1998 (the
"Distribution Agreement"). Unless otherwise terminated, the Distribution
Agreement has an initial term expiring on June 30, 2000, and thereafter shall
be renewed automatically for successive annual periods ending June 30, if
approved at least annually (i) by the Trust's Board of Trustees or by the vote
of a majority of the outstanding Shares of the Funds, and (ii) by the vote of a
majority of the Trustees of the Trust who are not parties to the Distribution
Agreement or interested persons (as defined in the 1940 Act) of any party to
the Distribution Agreement, cast in person at a meeting called for the purpose
of voting on such approval. The Distribution Agreement also terminates
automatically in the event of any assignment, as defined in the 1940 Act.
Administrative Services and Distribution Plans
As described in the Prospectuses, the Trust has also adopted an
Administrative Services Plan (the "Services Plan") under which each Fund is
authorized to pay certain financial institutions, including the Advisor, its
affiliates and their affiliated and correspondent banks, and BISYS (a "Service
Organization"), to provide certain ministerial, record keeping, and
administrative support services to their customers who own of record or
beneficially Shares in the Funds. Payments to such Service Organizations are
made pursuant to Servicing Agreements between the Trust and the Service
Organization. The Services Plan authorizes each Fund to make payments to Service
Organizations in an
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<PAGE> 141
amount, on an annual basis, of up to 0.25% of the average daily net asset value
of that Fund. The Services Plan has been approved by the Board of Trustees of
the Trust, including a majority of the Trustees who are not interested persons
of the Trust (as defined in the 1940 Act) and who have no direct or indirect
financial interest in the operation of the Services Plan or in any Servicing
Agreements thereunder (the "Disinterested Trustees"). The Services Plan may be
terminated as to a Fund by a vote of a majority of the Disinterested Trustees.
The Trustees review quarterly a written report of the amounts expended pursuant
to the Services Plan and the purposes for which such expenditures were made. The
Services Plan may be amended by a vote of the Trustees, provided that any
material amendments also require the vote of a majority of the Disinterested
Trustees. For so long as the Services Plan is in effect, selection and
nomination of those Disinterested Trustees shall be committed to the discretion
of the Group's Disinterested Trustees. All Servicing Agreements may be
terminated at any time without the payment of any penalty by a vote of a
majority of the Disinterested Trustees. The Services Plan will continue in
effect for successive one-year periods, provided that each such continuance is
specifically approved by a majority of the Board of Trustees, including a
majority of the Disinterested Trustees.
Custodian
The Bank of New York, 48 Wall Street, New York, New York, 10286, serves as
custodian (the "Custodian") to the Funds pursuant to the Custody Agreement dated
as of , 1998. The Custodian's responsibilities include safeguarding
and controlling each Fund's cash and securities, handling the receipt and
delivery of securities, and collecting interest and dividends on each Fund's
investments.
Transfer Agency and Fund Accounting Services
BISYS Fund Services, Inc. serves as transfer agent and dividend disbursing
agent (the "Transfer Agent") for the Funds pursuant to the Transfer Agency
Agreement dated , 1998. Pursuant to such Agreement, the Transfer
Agent, among other things, performs the following services in connection with
the Funds' Shareholders of record: maintenance of shareholder records for each
of the Funds' Shareholders of record; processing Shareholder purchase and
redemption orders; processing transfers and exchanges of Shares of the Funds on
the Shareholder files and records; processing dividend payments and
reinvestments; and assistance in the mailing of Shareholder reports and proxy
solicitation materials. For such services the Transfer Agent receives a fee
based on the number of shareholders of record.
In addition, BISYS Fund Services, Inc. provides certain fund accounting
services to each of the Funds pursuant to a Fund Accounting Agreement dated
, 1998. BISYS Fund Services, Inc. receives a fee from the Trust
for such services for all the Trust's funds computed at an annual rate
of three one-hundredths of one percent (.03%) (.04% for the International Equity
Fund) of the Trust's average daily net assets up to $2 billion and .02% (.03%
for the International Equity Fund) of the Trust's average daily net assets of
$2 billion or more, subject to a minimum annual fee of $30,000 ($40,000 for the
International Equity Fund and $35,000 for the Pennsylvania Bond Fund). Under
such Agreement, BISYS Fund Services, Inc. maintains the accounting books and
records for the Funds, including journals containing an itemized daily record
of all purchases and sales of portfolio securities, all receipts and
disbursements of cash and all other debits and credits, general and auxiliary
ledgers reflecting all asset, liability, reserve, capital, income and expense
accounts, including interest accrued and interest received,
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<PAGE> 142
and other required separate ledger accounts; maintains a monthly trial balance
of all ledger accounts; performs certain accounting services for the Funds,
including calculation of the net asset value per share, calculation of the
dividend and capital gain distributions, if any, and of yield, reconciliation of
cash movements with the Funds' custodian, and verification and reconciliation
with the Funds' custodian of all daily trade activity; provides certain reports;
obtains dealer quotations, prices from a pricing service or matrix prices on all
portfolio securities in order to mark the portfolio to the market; and prepares
an interim balance sheet, statement of income and expense, and statement of
changes in net assets for the Funds.
Unless sooner terminated as provided therein, the Fund Accounting
Agreement has an initial term expiring on June 30, 2001, and thereafter shall
be renewed automatically for successive one-year terms, unless written notice
not to renew is given by the non-renewing party to the other party at least 60
days prior to the expiration of the then-current term. The Fund Accounting
Agreement is terminable with respect to a Fund upon mutual agreement of the
parties to the Fund Accounting Agreement; upon 180 days' written notice by the
Trust after the initial term but only in connection with the reorganization of
the Funds into another registered management investment company; and for cause
(as defined in the Fund Accounting Agreement) by the party alleging cause, on
not less than 60 days' notice by the Trust's Board of Trustees or by BISYS Fund
Services, Inc.
The Fund Accounting Agreement provides that BISYS Fund Services, Inc.
shall not be liable for any error of judgment or mistake of law or any loss
suffered by a Fund in connection with the matters to which the Fund Accounting
Agreement relates, except a loss resulting from willful misfeasance, bad faith,
or negligence in the performance of its duties, or from the reckless disregard
by BISYS Fund Services, Inc. of its obligations and duties thereunder.
For the fiscal year or period ended June 30, 1998, BISYS Fund Services,
Inc. earned the amounts indicated below with respect to its fund accounting
services to the indicated Funds.
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<PAGE> 143
<TABLE>
<CAPTION>
Fiscal Year or Period
Ended
June 30, 1998(1)
---------------------
<S> <C>
Prime Money Market Fund $47,847
Treasury Money Market Fund $30,875
Established Growth Fund $70,172
Aggressive Growth Fund $41,513
Income Fund $75,419
Government Securities Fund $32,239
Pennsylvania Bond Fund $43,737
</TABLE>
- -------------------------
(1) Such Funds commenced operations October 7, 1996, July 1, 1997, December 2,
1996, February 3, 1997, December 2, 1996, July 1, 1997 and October 1, 1996
respectively.
For the fiscal period ended June 30, 1997, BISYS Fund Services, Inc.
earned the amounts indicated below with respect to its fund accounting services
to the indicated Funds.
<TABLE>
<CAPTION>
Fiscal Period Ended
June 30, 1997
-------------------
<S> <C>
Prime Money Market Fund $ 21,776
Established Growth Fund 31,176
Aggressive Growth Fund 13,033
Income Fund 35,604
Pennsylvania Bond Fund 30,096
</TABLE>
- -------------------------
Auditors
The financial statements for the Predecessor Prime Money Market,
Pennsylvania Bond, Established Growth, Income, Aggressive Growth, Emerging
Growth, Treasury Money Market Government Securities Funds as of June 30, 1998,
and for the periods indicated therein, appearing in the Statement of Additional
Information have been audited by , as set forth in their report
appearing with the aforementioned financial statements included herein, and are
incorporated by reference herein in reliance upon such report and on the
authority of such firm as experts in auditing and accounting.
Legal Counsel
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<PAGE> 144
Drinker Biddle & Reath LLP, 1345 Chestnut Street, Suite 1100,
Philadelphia, Pennsylvania 19107 is counsel to the Trust and will pass upon the
legality of the Shares offered hereby.
ADDITIONAL INFORMATION
Description of Shares
The Trust is a Delaware business trust. The Trust was organized
on September 3, 1998.
Under the Declaration of Trust, the beneficial interest in the Trust may
be divided into an unlimited number of full and fractional transferable shares.
The Trust Instrument authorizes the Board of Trustees to classify or reclassify
any unissued shares of the Trust into one or more additional classes by setting
or changing in any one or more respects, their respective designations,
preferences, conversion or other rights, voting powers, restrictions,
limitations, qualifications and terms and conditions of redemption. Pursuant to
such authority, the Board of Trustees has authorized the issuance of two classes
of shares: Institutional Shares, representing interests in each Fund; and S
Shares representing interests in the Prime Money Market Fund. The Trustees may
classify or reclassify any particular class of shares into one or more series.
Each share of the Trust has a par value of $0.0001, represents an equal
proportionate interest in the Funds, and is entitled to such dividends and
distributions of the income earned on the particular Fund's assets as are
declared at the discretion of the Trustees. Shares of the Funds have no
preemptive rights and only such conversion or exchange rights as the Board of
Trustees may grant in its discretion. When issued for payment as described in
the Prospectuses, each Fund's Shares will be fully paid and non-assessable by
the Trust. In the event of the termination of the Trust or the Funds,
shareholders of the Funds would be entitled to receive the assets available for
distribution belonging to the particular Class of Shares of the particular Fund,
and a proportionate distribution of any general assets not belonging to any
particular portfolio which are available for distribution. Shareholders of the
Funds are entitled to participate in the net distributable assets of the Funds
on liquidation, based on the number of shares of the particular class of Shares
of the particular Fund that are held by each of them.
There will normally be no meetings of shareholders for the purpose of
electing Trustees unless and until such time as less than a majority of the
Trustees holding office have been elected by shareholders, at which time the
Trustees then in office will call a shareholders meeting for the election of
Trustees. Shares of the Trust have noncumulative voting rights and, accordingly,
the holders of more than 50% of the Trust's outstanding shares (irrespective of
class) may elect all of the Trustees. Except as set forth above and in the
Prospectuses, the Trustees will continue to hold office and may appoint
successor Trustees.
The Declaration of Trust authorizes the Board of Trustees, without
shareholder approval, to issue shares to a party or parties and for such amount
and type of consideration and on such terms, subject to
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<PAGE> 145
applicable law, as the Trustees may deem appropriate. The Board of Trustees may
issue fractional shares and shares held in the treasury. The Board of Trustees
has full power and authority, in their sole discretion, and without obtaining
shareholder approval, to divide or combine the shares or any class or series
thereof into a greater or lesser number, to classify or reclassify any issued
shares or any class or series thereof into one or more classes or series of
shares, and to take such other action with respect to the Trust's shares as the
Board of Trustees may deem desirable.
The Declaration of Trust provides that the Trustees and officers,
when acting in their capacity as such, will not be personally liable to any
person other than the Trust or a beneficial owner for any act, omission or
obligation of the Trust, or any Trustee or any officer of the Trust. Neither a
Trustee nor an officer of the Trust shall be liable for any act or omission in
his capacity as Trustee or as an officer of the Trust, or for any act or
omission of any officer (or other officer) or employee of the Trust or of any
other person or party, provided that the Declaration of Trust does not protect
any Trustee or officer against any liability to the Trust or to shareholders of
record to which he would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of the office of Trustee or the duties of such officer.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an investment
company such as the Trust shall not be deemed to have been effectively acted
upon unless approved by the holders of a majority of the outstanding shares of
each fund or class affected by the matter. For purposes of determining whether
the approval of a majority of the outstanding shares of a fund or class will be
required in connection with a matter, a fund or class will be deemed to be
affected by a matter unless it is clear that the interests of each fund or class
in the matter are identical, or that the matter does not affect any interest of
the fund. Under Rule 18f-2, the approval of an investment advisory agreement or
any change in a fundamental investment policy would be effectively acted upon
with respect to a fund only if approved by a majority of the outstanding shares
of such fund. However, Rule 18f-2 also provides that the election of Trustees
may be effectively acted upon by shareholders of the Trust voting without regard
to series.
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<PAGE> 146
As of September 17, 1998, the name, address and percentage of the
outstanding shares held by other investors who may have owned of record 5% or
more of the outstanding shares of a particular class of a Fund of the Trust were
as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C> <C>
PRIME MONEY MARKET KEYSTONE FINANCIAL INC. 64.33%
CASH
1315 ELEVENTH AVE., P.O. BOX 2450
ALTOONA, PA 16601
- --------------------------------------------------------------------------------
PRIME MONEY MARKET BISYS FUND SERVICES 22.85%
FBO KEYSTONE FINANCIAL SWEEP
CUSTOMERS
3435 STELZER ROAD
COLUMBUS, OH 43219
- --------------------------------------------------------------------------------
PRIME MONEY MARKET NATIONAL FINANCIAL SERVICES CORP. 8.76%
ONE WORLD FINANCIAL CENTER
200 LIBERTY ST.
NEW YORK, NY 10281
- --------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS KEYSTONE FINANCIAL INC. 74.63%
MONEY MARKET CASH
1315 ELEVENTH AVE., P.O. BOX 2450
ALTOONA, PA 16601
- --------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS NATIONAL FINANCIAL SERVICES CORP. 18.57%
MONEY MARKET ONE WORLD FINANCIAL CENTER
200 LIBERTY ST.
NEW YORK, NY 10281
- --------------------------------------------------------------------------------
PENNSYLVANIA MUNICIPAL BOND KEYSTONE FINANCIAL INC. 97.25%
CASH
1315 ELEVENTH AVE., P.O. BOX 2450
ALTOONA, PA 16601
- --------------------------------------------------------------------------------
INCOME KEYSTONE FINANCIAL INC. 97.13%
CASH
1315 ELEVENTH AVE., P.O. BOX 2450
ALTOONA, PA 16601
- --------------------------------------------------------------------------------
ESTABLISHED GROWTH KEYSTONE FINANCIAL INC. 95.60%
CASH
1315 ELEVENTH AVE., P.O. BOX 2450
ALTOONA, PA 16601
- --------------------------------------------------------------------------------
AGGRESSIVE GROWTH KEYSTONE FINANCIAL INC. 93.88%
CASH
1315 ELEVENTH AVE., P.O. BOX 2450
ALTOONA, PA 16601
- --------------------------------------------------------------------------------
GOVERNMENT SECURITIES KEYSTONE FINANCIAL INC. 98.77%
CASH
1315 ELEVENTH AVE., P.O. BOX 2450
ALTOONA, PA 16601
- --------------------------------------------------------------------------------
EMERGING GROWTH KEYSTONE FINANCIAL INC. 81.66%
CASH
1315 ELEVENTH AVE., P.O. BOX 2450
ALTOONA, PA 16601
- --------------------------------------------------------------------------------
EMERGING GROWTH KEYSTONE FINANCIAL INC. 6.56%
REINVEST
1315 ELEVENTH AVE., P.O. BOX 2450
ALTOONA, PA 16601
- --------------------------------------------------------------------------------
</TABLE>
Vote of a Majority of the Outstanding Shares
As used in the Prospectuses and this Statement of Additional Information,
a "vote of a majority of the outstanding Shares" of the Trust, a Fund or a class
means the affirmative vote, at a meeting of Shareholders duly called, of the
lesser of (a) 67% or more of the votes of Shareholders of the Trust that Fund or
that class present at a meeting at which the holders of more than 50% of the
votes attributable to Shareholders of record of such Trust, Fund, or class are
represented in person or by proxy, or (b) the holders of more than 50% of the
outstanding votes of Shareholders of that Trust Fund or class.
Additional General Tax Information
Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, and to invest all, or substantially
all, of its assets in debt obligations the interest on which is exempt for
federal income tax purposes, so that a fund itself generally will be relieved of
federal income and excise taxes. If a Fund were to fail to so qualify: (1) the
fund would be taxed on its taxable income 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.
In order for the Pennsylvania Bond Fund to pay tax-exempt dividends for
any taxable year, at least 50% of the aggregate value of the Fund's assets at
the close of each quarter of the Fund's taxable year must consist of
exempt-interest obligations.
Seven-Day and 30-Day Yields of the Prime Money Market Fund and the Treasury
Money Market Fund
The standardized seven-day yield for the Prime Money Market Fund and the
Treasury Money Market Fund is computed by determining the net change, exclusive
of capital changes, in the value of a hypothetical preexisting account in that
Fund having a balance of one Share at the beginning of the period, subtracting a
hypothetical charge reflecting deductions from Shareholder accounts, and
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 account value of the Fund includes the
value of additional Shares purchased with dividends from the original Share,
dividends declared on both the original Share and any such additional Shares,
and all fees, other than nonrecurring account or sales charges, that are charged
to all Shareholder accounts in proportion to the length of the base period and
assuming such Fund's average 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
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<PAGE> 147
sale of securities and unrealized appreciation and depreciation. The 30-day
yield is calculated as described above except that the base period is 30 days
rather than seven days.
The effective yield for Shares of the Prime Money Market Fund and the
Treasury Money Market Fund is computed by compounding the base period return, as
calculated above, by adding 1 to the base period return raising the sum to a
power equal to 365 divided by seven and subtracting 1 from the result.
For the seven-day period ended June 30, 1998, the seven-day yield and
seven-day effective yield for Investor Shares of the Prime Money Market Fund
was 5.09% and 5.22%, respectively. For the 30-day period ended June 30, 1998,
the yield and effective yield for Investor Shares of the Prime Money Market
Fund was 5.06% and 5.18%, respectively.
For the seven-day period ended June 30, 1998, the Treasury Money Market
Fund's seven-day yield and seven-day effective yield were 4.78% and 4.90%,
respectively. For the 30-day period ended June 30, 1998, the yield and effective
yield for the Treasury Money Market Fund were 4.73% and 4.84%, respectively.
30-Day Yield of the Funds
As summarized in the Prospectuses under the heading "PERFORMANCE
INFORMATION," the yield of the Funds will be computed by annualizing net
investment income per share for a recent 30-day period and dividing that amount
by the Fund Share's maximum offering price (reduced by any undeclared earned
income expected to be paid shortly as a dividend) on the last trading day of
that period. Net investment income will reflect amortization of any market value
premium or discount of fixed income securities (except for obligations backed by
mortgages or other assets) and may include recognition of a pro rata portion of
the stated dividend rate of dividend paying portfolio securities. The yield of a
Fund will vary from time to time depending upon market conditions, the
composition of the Fund's portfolio and operating expenses of the Trust
allocated to such Fund. These factors and possible differences in the methods
used in calculating yield should be considered when comparing a Fund's yield to
yields published for other investment companies and other investment vehicles.
Yield should also be considered relative to changes in the value of a Fund's
Shares and to the relative risks associated with the investment objectives and
policies of that Fund.
In addition, tax equivalent yields are computed by dividing that portion
of the Pennsylvania Bond Fund's yield (as computed above) which is tax-exempt by
one minus a stated income tax rate and adding that result to that portion, if
any, of the yield of the Pennsylvania Bond Fund which is not tax-exempt.
For the 30-day period ended June 30, 1998, the yields for the Income Fund
and the Pennsylvania Bond Fund were 5.38% and 4.04%, respectively, assuming the
imposition of the maximum sales charge, and 5.64% and 4.23%, respectively,
excluding the effect of a sales charge. For the same period, the tax equivalent
yields for the Pennsylvania Bond Fund, assuming a 39.6% federal tax rate, were
6.69%, assuming the imposition of the maximum sales charge, and 7.00%,
excluding the effect of a sales charge.
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<PAGE> 148
For the 30-day period ended June 30, 1998, the yields for the Government
Securities Fund were ____% assuming the imposition of the maximum sales charge,
and ____% excluding the effect of a sales charge.
Calculation of Total Return
As summarized in the Prospectuses under the heading "PERFORMANCE
INFORMATION," average annual total return is a measure of the change in value of
an investment in a Fund over the period covered, which assumes any dividends or
capital gains distributions are reinvested in that Fund immediately rather than
paid to the investor in cash. Average annual total return will be calculated by:
(1) adding to the total number of Shares purchased by a hypothetical $1,000
investment in a Fund (less the maximum sales charge, if any), all additional
Shares which would have been purchased if all dividends and distributions paid
or distributed during the period had been immediately reinvested; (2)
calculating the value of the hypothetical initial investment of $1,000 as of the
end of the period by multiplying the total number of Shares owned at the end of
the period by the net asset value per share on the last trading day of the
period; (3) assuming redemption at the end of the period; and (4) dividing this
account value for the hypothetical investor by the initial $1,000 investment and
annualizing the result for periods of less than one year. A Fund, however, may
also advertise aggregate total return in addition to or in lieu of average
annual total return. Aggregate total return is a measure of the change in value
of an investment in a Fund over the relevant period and is calculated similarly
to average annual total return except that the result is not annualized.
For the one year period ended June 30, 1998, and the period from
commencement of operations to June 30, 1998, the average annual total returns
for the Funds (other than the Emerging Growth, International Equity and
Lifestyle Funds), including the performance of any Fund's Predecessor Fund and
predecessor CIF (which CIF performance has been restated to reflect the
estimated fees for such Fund for the current fiscal for 1998 and 1997 year), are
as follows:
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<PAGE> 149
<TABLE>
<CAPTION>
Average Annual Total Return
-------------------------------------------------
With Maximum Sales Load(1) Without Sales Load
-------------------------- --------------------
Since Since
Fund 1 Year Inception(2) 1 Year Inception(2)
- --------------------- ------- --------------- ------ ------------
<S> <C> <C> <C> <C>
Prime Money Market* N/A N/A 5.19% 5.17%
Treasury Money Market* N/A N/A 4.78% 4.78%
Established Growth 22.21% 28.49% 27.92% 30.20%
Aggressive Growth 7.68% 17.24% 12.72% 18.62%
Income 5.01% 4.07% 9.95% 7.14%
Government Securities 2.22% 3.89% 5.39% 5.10%
Pennsylvania Bond 1.17% 2.93% 5.89% 5.67%
</TABLE>
- ---------------------
* The Prime Money Market and Treasury Money Market Funds do not have sales
loads.
(1) The maximum sales load for the Established Growth Fund, Emerging Growth
Fund, Aggressive Growth Fund, Income Fund and Pennsylvania Bond Fund, is
4.50%. The maximum sales load for the Government Securities Fund is 3.00%.
(2) Commenced operations October 7, 1996, July 1, 1997, January 1, 1995 (the
Established Growth Fund's predecessor CIF), July 1, 1994 (the Aggressive
Growth Fund's predecessor CIF), December 2, 1996, July 1, 1997, and
October 1, 1996, respectively. The Prime Money Market Fund has no sales
load.
Past performance is no guarantee as to future performance.
Distribution Rates
The Funds may from time to time advertise current distribution rates which
are calculated in accordance with the method disclosed in the Prospectus.
Performance Comparisons
Investors may judge the performance of the Funds by comparing them to the
performance of other mutual funds or mutual fund portfolios with comparable
investment objectives and policies through various mutual fund or market indices
such as those prepared by Dow Jones & Co., Inc. and S&P and to data prepared by
Lipper Analytical Services, Inc., a widely recognized independent service which
monitors the performance of mutual funds. Comparisons may also be made to
indices or data published in Money Magazine, Forbes, Barron's, The Wall Street
Journal, Morningstar, Inc., Ibbotson Associates,
-33-
<PAGE> 150
CDA/Wiesenberger, The New York Times, Business Week, U.S.A. Today and local
periodicals. In addition to performance information, general information about
the Funds that appears in a publication such as those mentioned above may be
included in advertisements, sales literature and reports to shareholders. The
Funds may also include in advertisements and reports to shareholders information
discussing the performance of the Advisor or SubAdvisors in comparison to other
investment Advisors and to other institutions.
From time to time, the Trust 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 the Funds; (5) descriptions of investment
strategies for the Funds; (6) descriptions or comparisons of various investment
products, which may or may not include the Funds; (7) comparisons of investment
products (including the Funds) with relevant market or industry indices or other
appropriate benchmarks; (8) discussions of fund rankings or ratings by
recognized rating organizations; and (9) testimonials describing the experience
of persons that have invested in a Fund. The Trust may also include
calculations, such as hypothetical compounding examples, which describe
hypothetical investment results in such communications. Such performance
examples will be based on an express set of assumptions and are not indicative
of the performance of a Fund.
Current yields or total return will fluctuate from time to time and are
not necessarily representative of future results. Accordingly, a Fund's yield or
total return may not provide for comparison with bank deposits or other
investments that pay a fixed return for a stated period of time. Yield and total
return are functions of a Fund's quality, composition and maturity, as well as
expenses allocated to that Fund. Fees imposed upon Customer accounts by the
Advisor, Sub-Advisors, their affiliates or their affiliated or correspondent
banks for cash management services or other services will reduce a Fund's
effective yield and total return to Customers. The current yield and performance
of the Funds may be obtained by calling the Trust at: Investor Shares -
1-800-______; or S Shares of the Prime Money Market Fund - 1-800-_____.
Miscellaneous
Individual Trustees are generally elected by the shareholders and, subject
to removal by the vote of two-thirds of the Board of Trustees, serve for a term
lasting until the next meeting of shareholders at which Trustees are elected.
Such meetings are not required to be held at any specific intervals. Generally,
shareholders owning not less than 20% of the outstanding shares of the Trust
entitled to vote may cause the Trustees to call a special meeting. However, the
Trust has represented to the Commission that the Trustees will call a special
meeting for the purpose of considering the removal of one or more Trustees upon
written request therefor from shareholders owning not less than 10% of the
outstanding votes of the Trust entitled to vote. At such a meeting, a quorum of
shareholders (constituting a majority of votes attributable to all outstanding
shares of the Trust), by majority vote, has the power to remove one or more
Trustees.
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<PAGE> 151
The Trust is registered with the Commission as a management investment
company. Such registration does not involve supervision by the Commission of the
management or policies of the Trust.
The Prospectuses and this Statement of Additional Information omit certain
of the information contained in the Registration Statement filed with the
Commission. Copies of such information may be obtained from the Commission upon
payment of the prescribed fee.
The Prospectuses and this Statement of Additional Information are not an
offering of the securities herein described in any state in which such offering
may not lawfully be made. No salesman, dealer, or other person is authorized to
give any information or make any representation other than those contained in
the Prospectuses and this Statement of Additional Information.
-35-
<PAGE> 152
FINANCIAL STATEMENTS
The Financial Statements for the Predecessor Funds for the Prime Money
Market, Treasury Money Market, Established Growth, Aggressive Growth, Income,
Government Securities and Pennsylvania Bond Funds for the fiscal period or year
ended June 30, 1998 and the financial highlights for each of the respective
periods presented, appearing in the 199__ Annual Report to Shareholders of The
Sessions Group, and the report thereon of _________________, the ___________
independent accountants, also appearing therein, are incorporated by reference
in this Statement of Additional Information. No other parts of the 199___ Annual
Report to Shareholders of The Sessions Group are incorporated herein.
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<PAGE> 153
APPENDIX A
COMMERCIAL PAPER RATINGS
A Standard & Poor's ("S&P") commercial paper rating is a current
assessment of the likelihood of timely payment of debt having an original
maturity of no more than 365 days. The following summarizes the rating
categories used by Standard and Poor's for commercial paper:
"A-1" - Obligations are rated in the highest category indicating
that the obligor's capacity to meet its financial commitment 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 the obligation 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" - The "D" rating, unlike other ratings, is not prospective;
rather, it is used only where a default has actually occurred--and not where a
default is only expected. S&P changes ratings to "D" either:
- On the day an interest and/or principal payment is due and is
not paid. An exception is made if there is a grace period and
S&P believes that a payment will be made, in which case the
rating can be maintained; or
- Upon voluntary bankruptcy filing or similar action. An
exception is made if S&P expects that debt service payments
will continue to be made on a specific issue. In the absence
of a payment default or bankruptcy filing, a technical default
(i.e., covenant violation) is not sufficient for assigning a
"D" rating.
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:
A-1
<PAGE> 154
"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.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity
factors are strong and supported by good fundamental protection factors. Risk
factors are very small.
"D-2" - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
"D-3" - Debt possesses satisfactory liquidity and other protection
factors qualify issues as investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
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"D-5" - Issuer has failed to meet scheduled principal and/or
interest payments.
Fitch IBCA short-term ratings apply to debt obligations that have
time horizons of less than 12 months for most obligations, or up to three years
for U.S. public finance securities. The following summarizes the rating
categories used by Fitch IBCA for short-term obligations:
"F1" - Securities possess the highest credit quality. This
designation indicates the strongest capacity for timely payment of financial
commitments and may have an added "+" to denote any exceptionally strong credit
feature.
"F2" - Securities possess good credit quality. This designation
indicates a satisfactory capacity for timely payment of financial commitments,
but the margin of safety is not as great as in the case of 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.
"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 the capacity for meeting financial commitments is solely reliant
upon a sustained, favorable business and economic environment.
"D" - Securities are in actual or imminent payment default.
Thomson BankWatch short-term ratings assess the likelihood of an
untimely payment of principal and interest of debt instruments with original
maturities of one year or less. The following summarizes the ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest
category and indicates a very high likelihood that principal and interest will
be paid on a timely basis.
"TBW-2" - This designation represents Thomson BankWatch's
second-highest category and indicates that while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents Thomson BankWatch's lowest
investment-grade category and indicates that while the obligation is more
susceptible to adverse developments (both internal and external) than those with
higher ratings, the capacity to service principal and interest in a timely
fashion is considered adequate.
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"TBW-4" - This designation represents Thomson BankWatch's lowest
rating category and indicates that the obligation is regarded as non-investment
grade and therefore speculative.
CORPORATE AND MUNICIPAL LONG-TERM DEBT RATINGS
The following summarizes the ratings used by Standard & Poor's for
corporate and municipal debt:
"AAA" - An obligation rated "AAA" has the highest rating assigned by
Standard & Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
"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.
"CC" - An obligation rated "CC" is currently highly vulnerable to
non-payment.
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"C" - The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been taken, but
payments on this obligation are being continued.
"D" - The "D" rating, unlike other ratings, is not prospective;
rather, it is used only where a default has actually occurred--and not where a
default is only expected. S&P changes ratings to "D" either:
- On the day an interest and/or principal payment is due and is
not paid. An exception is made if there is a grace period and
S&P believes that a payment will be made, in which case the
rating can be maintained; or
- Upon voluntary bankruptcy filing or similar action. An
exception is made if S&P expects that debt service payments
will continue to be made on a specific issue. In the absence
of a payment default or bankruptcy filing, a technical default
(i.e., covenant violation) is not sufficient for assigning a
"D" rating.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be
modified by the addition of a plus or minus sign to show relative standing
within the major rating categories.
"r" - This symbol is attached to the ratings of instruments with
significant noncredit risks. It highlights risks to principal or volatility of
expected returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk--such as interest-only or
principal-only mortgage securities and obligations with unusually risky interest
terms, such as inverse floaters.
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
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length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these
ratings provide questionable protection of interest and principal ("Ba"
indicates speculative elements; "B" indicates a general lack of characteristics
of desirable investment; "Caa" are of poor standing; "Ca" represents obligations
which are speculative in a high degree; and "C" represents the lowest rated
class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operating 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 and greater in periods of
economic stress.
"BBB" - Debt possesses below-average protection factors but such
protection factors are still considered sufficient for prudent investment.
Considerable variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these
ratings is considered to be below investment grade. 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.
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The following summarizes the ratings used by Fitch IBCA for
corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the highest
credit quality. These ratings denote the lowest expectation of investment risk
and are assigned only in case of exceptionally strong capacity for timely
payment of financial commitments. This capacity is very unlikely to be adversely
affected by foreseeable events.
"AA" - Bonds considered to be investment grade and of very high
credit quality. These ratings denote a very low expectation of investment risk
and indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.
"A" - Bonds considered to be investment grade and of high credit
quality. These ratings denote a low expectation of investment risk and indicate
strong capacity for timely payment of financial commitments. This capacity may,
nevertheless, be more vulnerable to adverse changes in circumstances or in
economic conditions than 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
investment risk. The capacity for timely payment of financial commitments is
adequate, but adverse changes in circumstances and in economic conditions are
more likely to impair this capacity.
"BB" - Bonds considered to be speculative. These ratings indicate
that there is a possibility of credit risk developing, particularly as the
result of adverse economic changes over time; however, business or financial
alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
"B" - Bonds are considered highly speculative. These ratings
indicate that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable business and
economic environment.
"CCC", "CC", "C" - Bonds have high default risk. Capacity for
meeting financial commitments is reliant upon sustained, favorable business or
economic developments. "CC" ratings indicate that default of some kind appears
probable, and "C" ratings signal imminent default.
"DDD," "DD" and "D" - Bonds are in default. Securities are not
meeting obligations and are extremely speculative. "DDD" designates the
highest potential for recovery on these securities, and "D" represents the
lowest potential for recovery.
To provide more detailed indications of credit quality, the Fitch
IBCA ratings from and including "AA" to "B" may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within these major rating
categories.
Thomson BankWatch assesses the likelihood of an untimely repayment
of principal or interest over the term to maturity of long term debt and
preferred stock which are issued by United States commercial banks, thrifts and
non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the rating categories used by Thomson BankWatch for long-term debt
ratings:
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"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" - 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 BankWatch to non-investment grade long-term debt. Such issues are
regarded as having speculative characteristics regarding the likelihood of
timely payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
"D" - This designation indicates that the long-term debt is in
default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may
include a plus or minus sign designation which indicates where within the
respective category the issue is placed.
MUNICIPAL NOTE RATINGS
A Standard and Poor's rating reflects the liquidity concerns and
market access risks unique to notes due in three years or less. The following
summarizes the ratings used by Standard & Poor's Ratings Group for municipal
notes:
"SP-1" - The issuers of these municipal notes exhibit a strong
capacity to pay principal and interest. Those issues determined to possess very
strong characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory
capacity to pay principal and interest, with some vulnerability to adverse
financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit speculative
capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other short-term
loans are designated Moody's Investment Grade ("MIG") and variable rate demand
obligations are designated Variable Moody's Investment Grade ("VMIG"). Such
ratings recognize the differences between short-term credit
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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, with
margins of protection ample although not so large as in the preceding group.
"MIG-3"/"VMIG-3" - This designation denotes favorable quality, with
all security elements accounted for but lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
"MIG-4"/"VMIG-4" - This designation denotes adequate quality.
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 of margins of protection.
Fitch IBCA and Duff & Phelps use the short-term ratings described
under Commercial Paper Ratings for municipal notes.
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APPENDIX B
As stated in the Prospectus, the Equity and Bond Funds, other than
the Colorado Tax-Exempt Fund may enter into futures contracts and options for
hedging purposes. Such transactions are described 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, the Funds 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.
The Funds 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 Funds, through using futures contracts.
Description of Interest Rate Futures Contracts. An interest rate
futures contract sale would create an obligation by a Fund, 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 a Fund, as purchaser, to take delivery of the specific
type of financial instrument at a specific future time at a specific price. The
specific securities delivered or taken, respectively, at settlement date, would
not be determined until at or near that date. The determination would be in
accordance with the rules of the exchange on which the futures contract sale or
purchase was made.
Although interest rate futures contracts by their terms call for
actual delivery or acceptance of securities, in most cases the contracts are
closed out before the settlement date without the making or taking of delivery
of securities. Closing out a futures contract sale is effected by a Fund
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
of the sale exceeds the price of the offsetting purchase, a Fund is immediately
paid the difference and thus realizes a gain. If the offsetting purchase price
exceeds the sale price, a Fund pays the difference and realizes a loss.
Similarly, the closing out of a futures contract purchase is effected by the
Fund entering into a futures contract sale. If the offsetting sale price exceeds
the purchase price, a Fund realizes a gain, and if the purchase price exceeds
the offsetting sale price, a Fund 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 and
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the New York Futures Exchange. The Fund would deal only in standardized
contract's 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 Treasury Bonds and Notes; Government
National Mortgage Association (GNMA) modified pass-through mortgage-backed
securities; three-month Treasury Bills; and ninety-day commercial paper. A Fund
may trade in any futures contract for which there exists a public market,
including, without limitation, the foregoing instruments.
II. Stock Index Futures Contracts.
General. 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 Fund will sell index futures contracts in order to offset a
decrease in market value of its securities that might otherwise result from a
market decline. A Fund 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, a Fund will purchase
index futures contracts in anticipation of purchases of securities. In a
substantial majority of these transactions, a Fund will purchase such securities
upon termination of the long futures position, but a long futures position may
be terminated without a corresponding purchase of securities.
In addition, a Fund may utilize stock index futures contracts in
anticipation of changes in the composition of its holdings. For example, in the
event that a Fund 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. A Fund 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 its 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 Fund to hedge against
exposure to fluctuations in exchange rates between the U.S. dollar and other
currencies arising from multinational transactions.
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IV. Margin Payments.
Unlike when a Fund purchases or sells a security, no price is paid
or received by a Fund upon the purchase or sale of a futures contract.
Initially, a Fund will be required to deposit with the broker or in a segregated
account with a 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 a Fund 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 instrument 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 Fund 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 a Fund will be
entitled to receive from the broker a variation margin payment equal to that
increase in value. Conversely, where a Fund has purchased a futures contract and
the price of the futures contract has declined in response to a decrease in the
underlying instruments, the position would be less valuable and a Fund would be
required to make a variation margin payment to the broker. At any time prior to
expiration of the futures contract, the Advisor or Sub-Advisors may elect to
close the position by taking an opposite position, subject to the availability
of a secondary market, which will operate to terminate a Fund'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 a Fund, and a Fund
realizes a loss or gain.
V. Risks of Transactions in Futures Contracts.
There are several risks in connection with the use of futures by a
Fund as a hedging device. One risk arises because of the imperfect correlation
between movements in the price of the future and movements in the price of the
securities which are the subject of the hedge. The price of the future may move
more than or less than the price of the securities being hedged. If the price of
the future moves less than the price of the securities which are the subject of
the hedge, the hedge will not be fully effective but, if the price of the
securities being hedged has moved in an unfavorable direction, a Fund would be
in a better position than if it had not hedged at all. If the price of the
securities being hedged has moved in a favorable direction, this advantage will
be partially offset by the loss on the future. If the price of the future moves
more than the price of the hedged securities, a Fund involved will experience
either a loss or gain on the future which will not be completely offset by
movements in the price of the securities which are the subject of the hedge. To
compensate for the imperfect correlation of movements in the price of securities
being hedged and movements in the price of futures contracts, a Fund may buy or
sell futures contracts in a greater dollar amount than the dollar amount of
securities being hedged if the volatility over a particular time period of the
prices of such securities has been greater than the volatility over such time
period of the future, or if otherwise deemed to be appropriate by the Advisor or
SubAdvisors. Conversely, a Fund may buy or sell fewer futures contracts if the
volatility over a particular time period of the prices of the securities being
hedged is less than the volatility over such time period of the futures contract
being used, or if otherwise deemed to be appropriate by Advisor or Subadvisors.
It is also possible that, where a Fund has sold futures to hedge its portfolio
against a decline in the market, the market may advance and the value of
securities held by a Fund may decline. If this occurred, a Fund would lose money
on the future and also experience a decline in value in its portfolio
securities.
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Where futures are purchased to hedge against a possible increase in
the price of securities or a currency before a Fund is able to invest its cash
(or cash equivalents) in securities (or options) in an orderly fashion, it is
possible that the market may decline instead; if a Fund then concludes not to
invest in securities or options at that time because of concern as to possible
further market decline or for other reasons, a Fund will realize a loss on the
futures contract that is not offset by a reduction in the price of securities
purchased.
In addition to the possibility that there may be an imperfect
correlation, or no correlation at all, between movements in the futures and the
securities being hedged, the price of futures may not correlate perfectly with
movement in the cash market due to certain market distortions. Rather than
meeting additional margin deposit requirements, investors may close futures
contracts through off-setting transactions which could distort the normal
relationship between the cash and futures markets. Second, with respect to
financial futures contracts, the liquidity of the futures market depends on
participants entering into off-setting transactions rather than making or taking
delivery. To the extent participants decide to make or take delivery, liquidity
in the futures market could be reduced thus producing distortions. Third, from
the point of view of speculators, the deposit requirements in the futures market
are less onerous than margin requirements in the securities market. Therefore,
increased participation by speculators in the futures market may also cause
temporary price 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 Advisor or Subadvisors
may still not result in a successful hedging transaction over a short time
frame.
Positions in futures may be closed out only on an exchange or board
of trade which provides a secondary market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appear to be active secondary markets, there is no assurance that a liquid
secondary market on any exchange or board of trade will exist for any particular
contract or at any particular time. In such event, it may not be possible to
close a futures investment position, and in the event of adverse price
movements, the Funds would continue to be required to make daily cash payments
of variation margin. However, in the event futures contracts have been used to
hedge portfolio securities, such securities will not be sold until the futures
contract can be terminated. In such circumstances, an increase in the price of
the securities, if any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee that the price of
the securities will in fact correlate with the price movements in the futures
contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market
in a futures contract may be adversely affected by "daily price fluctuation
limits" established by commodity exchanges which limit the amount of fluctuation
in a futures contract price during a single trading day. Once the daily limit
has been reached in the contract, no trades may be entered into at a price
beyond the limit, thus preventing the liquidation of open futures positions. 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.
B-4
<PAGE> 166
Successful use of futures by the Funds is also subject to the
Advisor's or Subadvisors' ability to predict correctly movements in the
direction of the market. For example, if a Fund has hedged against the
possibility of a decline in the market adversely affecting securities held in
its portfolio and securities prices increase instead, a Fund will lose part or
all of the benefit to the increased value of its securities which it has hedged
because it will have offsetting losses in its futures positions. In addition, in
such situations, if a Fund has insufficient cash, it may have to sell securities
to meet daily variation margin requirements. Such sales of securities may be,
but will not necessarily be, at increased prices which reflect the rising
market. A Fund may have to sell securities at a time when it may be
disadvantageous to do so.
VI. Options on Futures Contracts.
The Funds may purchase options on the futures contracts described
above. A futures option gives the holder, in return for the premium paid, the
right to buy (call) from or sell (put) to the writer of the option a futures
contract at a specified price at any time during the period of the option. Upon
exercise, the writer of the option is obligated to pay the difference between
the cash value of the futures contract and the exercise price. Like the buyer or
seller of a futures contract, the holder, or writer, of an option has the right
to terminate its position prior to the scheduled expiration of the option by
selling, or purchasing, an option of the same series, at which time the person
entering into the closing transaction will realize a gain or loss.
Investments in futures options involve some of the same
considerations that are involved in connection with investments in futures
contracts (for example, the existence of a liquid secondary market). In
addition, the purchase or sale of an option also entails the risk that changes
in the value of the underlying futures contract will not be fully reflected in
the value of the option purchased. Depending on the pricing of the option
compared to either the futures contract upon which it is based, or upon the
price of the securities being hedged, an option may or may not be less risky
than ownership of the futures contract or such securities. In general, the
market prices of options can be expected to be more volatile than the market
prices on the underlying futures contract. Compared to the purchase or sale of
futures contracts, however, the purchase of call or put options on futures
contracts may frequently involve less potential risk to the Funds because the
maximum amount at risk is the premium paid for the options (plus transaction
costs). The writing of an option on a futures contract involves risks similar to
those risks relating to the sale of futures contracts. Although permitted by
their fundamental investment policies, the Funds do not currently intend to
write futures options during the current fiscal year, and will not do so in the
future absent any necessary regulatory approvals.
VII. Accounting and Tax Treatment.
Accounting for futures contracts and options will be in accordance
with generally accepted accounting principles.
Generally, futures contracts held by the Funds at the close of the
Funds' taxable year will be treated for federal income tax purposes as sold for
their fair market value on the last business day of such year, a process known
as "mark-to-market." Forty percent of any gain or loss resulting from such
constructive sale will be treated as short-term capital gain or loss and sixty
percent of such gain or loss will be treated as long-term capital gain or loss
without regard to the length of time a Fund holds the futures contract ("the
40-60 rule"). The amount of any capital gain or loss actually realized by a Fund
in a subsequent sale or other disposition of those futures contracts will be
adjusted to reflect any capital
B-5
<PAGE> 167
gain or loss taken into account by a Fund in a prior year as a result of the
constructive sale of the contracts. With respect to futures contracts to sell,
which will be regarded as parts of a "mixed straddle" because their values
fluctuate inversely to the values of specific securities held by a Fund, losses
as to such contracts to sell will be subject to certain loss deferral rules
which limit the amount of loss currently deductible on either part of the
straddle to the amount thereof which exceeds the unrecognized gain (if any) with
respect to the other part of the straddle, and to certain wash sales
regulations. Under short sales rules, which will also be applicable, the holding
period of the securities forming part of the straddle will (if they have not
been held for the long-term holding period) be deemed not to begin prior to
termination of the straddle. With respect to certain futures contracts,
deductions for interest and carrying charges will not be allowed.
Notwithstanding the rules described above, with respect to futures contracts to
sell which are properly identified as such, a Fund may make an election which
will exempt (in whole or in part) those identified futures contracts from being
treated for federal income tax purposes as sold on the last business day of a
Fund's taxable year, but gains and losses will be subject to such short sales,
wash sales, loss deferral rules and the requirement to capitalize interest and
carrying charges. Under temporary regulations, a Fund would be allowed (in lieu
of the foregoing) to elect either (1) to offset gains or losses from portions
which are part of a mixed straddle by separately identifying each mixed straddle
to which such treatment applies, or (2) to establish a mixed straddle account
for which gains and losses would be recognized and offset on a periodic basis
during the taxable year. Under either election, the 40-60 rule will apply to the
net gain or loss attributable to the futures contracts, but in the case of a
mixed straddle account election, no more than 50% of any net gain may be treated
as long-term and no more than 40% of any net loss may be treated as short-term.
Options on futures contracts generally receive federal tax treatment similar to
that described above.
Certain foreign currency contracts entered into by the Funds may be
subject to the "mark-to-market" process. If the Fund makes a Capital Asset
Election with respect to such contracts, the contracts will be subject to the
40-60 rule, described above. Otherwise, such gain or loss will be treated as
100% ordinary gain or loss. To receive such federal income tax treatment, a
foreign currency contract must meet the following conditions: (1) the contract
must require delivery of a foreign currency of a type in which regulated futures
contracts are traded or upon which the settlement value of the contract depends;
(2) the contract must be entered into at arm's length at a price determined by
reference to the price in the interbank market; and (3) the contract must be
traded in the interbank market. The Treasury Department has broad authority to
issue regulations under the provisions respecting foreign currency contracts. As
of the date of this Statement of Additional Information, the Treasury has not
issued any such regulations. Foreign currency contracts entered into by a Fund
may result in the creation of one or more straddles for federal income tax
purposes, in which case certain loss deferral, short sales, and wash sales rules
and the requirement to capitalize interest and carrying charges may apply.
Some investments may be subject to special rules which govern the
federal income tax treatment of certain transactions denominated in terms of a
currency other than the U.S. dollar or determined by reference to the value of
one or more currencies other than the U.S. dollar. The types of transactions
covered by the special rules include the following: (i) the acquisition of, or
becoming the obligor under, a bond or other debt instrument (including, to the
extent provided in Treasury regulations, preferred stock); (ii) the accruing of
certain trade receivables and payables; and (iii) the entering into or
acquisition of any forward contract, futures contract, option and similar
financial instrument. However, regulated futures contracts and non-equity
options are generally not subject to the special currency rules if they are or
would be treated as sold for their fair market value at year-end under the
"mark-to-market" rules, unless an election is made to have such currency rules
apply. The disposition of a currency other than the U.S. dollar by a U.S.
taxpayer is also treated as a transaction subject to the special currency
B-6
<PAGE> 168
rules. With respect to transactions covered by the special rules, foreign
currency gain or loss is calculated separately from any gain or loss on the
underlying transaction and is normally taxable as ordinary gain or loss. A
taxpayer may elect to treat as capital gain or loss foreign currency gain or
loss arising from certain identified forward contracts, futures contracts and
options that are capital assets in the hands of the taxpayer and which are not
part of a straddle. In accordance with Treasury regulations, certain
transactions subject to the special currency rules that are part of a "section
988 hedging transaction" (as defined in the Code and the Treasury regulations)
will be integrated and treated as a single transaction or otherwise treated
consistently for purposes of the Code. "Section 988 hedging transactions" are
not subject to the mark-to-market or loss deferral rules under the Code. It is
anticipated that some of the non-U.S. dollar denominated investments and foreign
currency contracts that a Fund may make or may enter into will be subject to the
special currency rules described above. Gain or loss attributable to the foreign
currency component of transactions engaged in by the Funds which are not subject
to special currency rules (such as foreign equity investments other than certain
preferred stocks) will be treated as capital gain or loss and will not be
segregated from the gain or loss on the underlying transaction.
Under the federal income tax provisions applicable to regulated
investment companies, less than 30% of a company's gross income must be derived
from gains realized on the sale or other disposition of securities held for less
than three months. With respect to futures contracts and other financial
instruments subject to the "mark-to-market" rules, the Internal Revenue Service
has ruled in private letter rulings that a gain realized from such a futures
contract or financial instrument will be treated as being derived from a
security held for three months or more (regardless of the actual period for
which the contract or instrument is held) if the gain arises as a result of a
constructive sale under the "mark-to-market" rules, and will be treated as being
derived from a security held for less than three months only if the contract or
instrument is terminated (or transferred) during the taxable year (other than by
reason of the mark-to-market rules) and less than three months have elapsed
between the date the contract or instrument is acquired and the termination
date. In determining whether the 30% test is met for a taxable year, increases
and decreases in the value of the Funds' futures contracts and other investments
that qualify as part of a "designated hedge," as defined in the Code, may be
netted.
B-7
<PAGE> 169
Registration Statement
of
GOVERNOR FUNDS
on
Form N-1A
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits.
(a) Financial Statements: [to be added by amendment.]
Included in Part B: [to be added by amendment.]
(b) Exhibits:
(1) (a) Agreement and Declaration of Trust, dated as of September 3,
1998.
(2) By-Laws.
(3) None.
(4) None.
(5) (a) Form of Investment Advisory Agreement dated _____, 1998,
between Governor Funds and Governors Group Advisors, Inc.
(b) Form of Investment Sub-Advisory Agreement dated _____, 1998,
between Governors Group Advisors, Inc., and Martindale Andres
& Company, Inc.
(c) Form of Investment Sub-Advisory Agreement dated _____, 1998,
between Governors Group Advisors, Inc., and Brinson Partners,
Inc.
(6) (a) Form of Distribution Agreement dated _____, 1998, between
Governor Funds and BISYS Fund Services Limited Partnership
d/b/a BISYS Fund Services.
(7) None.
(8) (a) Form of Custody Agreement dated______, 1998, between Governor
Funds and The Bank of New York.
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<PAGE> 170
(b) Form of Cash Management and Related Services Agreement dated
_____, 1998, between Governor Funds and The Bank of New York.
(9) (a) Form of Management and Administration Agreement dated _______,
1998, among Governor Funds, BISYS Fund Services Ohio, Inc. and
Governors Group Advisors, Inc.
(b) Form of Transfer Agency Agreement dated _________, 1998,
between Governor Funds and BISYS Fund Services, Inc.
(c) Form of Fund Accounting Agreement dated _______, 1998, between
Governor Funds and BISYS Fund Services, Inc.
(10) Opinion of Counsel.
(11) (a) None.
(b) Consent of Drinker Biddle & Reath LLP
(12) None.
(13) Form of Purchase Agreement
(14) None.
(15) (a) Rule 12b-1 Plan
(b) Administrative Services Plan
(16) Performance Quotations
(17) None
(18) 18f-3 Plan
Item 25. Persons Controlled By or Under Common Control with Registrant.
None.
Item 26. Number of Holders of Securities.
As of ________, 1998, there were no record holders.
Item 27. Indemnification.
Article VI, Section 6.4 of the Registrant's Agreement and Declaration
of Trust, filed as Exhibit 1 hereto, provides for the indemnification
of Registrant's Trustees
Page 2
<PAGE> 171
and officers. Indemnification of the Group's principal underwriter,
custodians, investment advisers, manager and administrator, transfer
agent and fund accountant is provided for, respectively, in Section
1.11 of the Distribution Agreement filed as Exhibit 6(a) hereto,
Article XVII, Section 14 of the Custody Agreement filed as Exhibit 8(a)
hereto, Section 9 of the Investment Advisory Agreement filed as Exhibit
5(a) hereto, Section 4 of the Management and Administration Agreement
filed as Exhibits 9(a) hereto, Section 9 of the Transfer Agency
Agreement filed as Exhibits 9(b) hereto, Section 7 of the Fund
Accounting Agreement filed as Exhibit 9(c) hereto. As of the effective
date of this Registration Statement, the Group will have obtained from
a major insurance carrier a trustees' and officers' liability policy
covering certain types of errors and omissions.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to trustees, 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
trustee, officer, or controlling person of Registrant in the successful
defense of any action, suit, or proceeding) is asserted by such
trustee, 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 of whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication
of such issue.
Item 28. Business and Other Connections of Investment Adviser.
(a) Governors Group Advisors, Inc., ("Governors Group Advisors"), 23 Front
Street, Harrisburg, Pennsylvania, is the investment advisor for the
Governor Funds. Governors Group Advisors is a wholly-owned subsidiary of
Keystone Financial, Inc. ("Keystone"). As of October 1, 1998, Governors
Group Advisors had no assets under management.
To the knowledge of Registrant, none of the directors or officers of
Governors Group Advisors is or has been at any time during the past two
fiscal years engaged in any other business, profession, vocation or
employment of a substantial nature, except as described below.
Keystone Financial, Inc.
23 North Front Street
Harrisburg, Pennsylvania 17105
Robert E. Leech, Chairman & CEO of Governors Group Advisors, has been
President and CEO of Keystone's Asset Management Group for the past seven
years; Lana V. Burkhardt, President and Director of Governors Group
Advisors, has been a Vice President of Keystone's Asset Management Group
for the past six years; George R. Barr, Jr., Secretary and Director of
Governors Group Advisors, has been a Senior Vice President of Keystone for
the past ten years; and James F. Patterson, Treasurer of Governors Group
Advisors, has been a Vice President of Mutual Funds Administration at
Keystone since July 1998 (prior to that he was an employee of Federated
Investors, Inc., Federated Tower, 1001 Liberty Avenue, Pittsburgh,
Pennsylvania 15222 since November 1996, and prior to that he was an
employee of BISYS Fund Services, 3435 Stelzer Road, Columbus, Ohio 43219
since January 1996).
Martindale Andres & Company, Inc.
Four Falls Corporate Center
West Conshohocken, Pennsylvania 19428
William C. Martindale, Jr., and Robert P. Andres, each a Vice President of
Governors Group Advisors, have been officers of Martindale Andres &
Company, Inc. since June 1989.
(b) Martindale Andres & Company, Inc., West Conshohocken, Pennsylvania
("Martindale Andres"), is the sub-investment adviser for Prime Money Market
Fund, Pennsylvania Municipal Bond Fund, Established Growth Fund,
Intermediate Term Income Fund, Aggressive Growth Fund, U.S. Treasury
Obligations Money Market Fund, Limited Duration Government Securities Fund,
Emerging Growth Fund, Lifestyle Conservative Growth Fund, Lifestyle
Moderate Growth Fund and Lifestyle Growth Fund. Martindale Andres is a
wholly-owned subsidiary of Keystone Financial, Inc. In addition to serving
as investment adviser of such Funds, Martindale Andres has managed since
its founding the investment portfolios of high net worth individuals,
endowments and pension and common trust funds.
Page 3
<PAGE> 172
To the knowledge of Registrant, none of the directors or officers of
Martindale Andres is or has been at any time during the past two fiscal
years engaged in any other business, profession, vocation or employment
of a substantial nature, except that certain officers and directors of
Martindale Andres also hold positions with Martindale Andres' parent,
Keystone Financial, Inc.
The information required by this Item 28 with respect to each director,
officer or partner of Martindale Andres is incorporated by reference to
Form ADV filed by Martindale Andres with the Securities and Exchange
Commission pursuant to the Investment Advisors Act of 1940 (SEC File
No. 801-51203).
(c) Brinson Partners, Inc., Chicago, Illinois, ("Brinson"), is the
sub-investment advisor for the International Equity Fund.
To the knowledge of Registrant, none of the directors or officers of
Brinson is or has been at any time during the past two fiscal years
engaged in any other business, profession, vocation or employment of a
substantial nature.
The information required by this Item 28 with respect to each director,
officer or partner of Brinson is incorporated by reference to Form ADV
filed by Brinson with the Securities and Exchange Commission pursuant
to the Investment Advisors Act of 1940 (SEC File No. 801-34910).
Item 29. Principal Underwriter
(a) BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services
("BISYS") acts as distributor for Registrant. BISYS also distributes the
securities of The Victory Portfolios, the Parkstone Group of Funds, the
AmSouth Mutual Funds, the American Performance Funds, The Coventry Group,
The BB&T Mutual Funds Group, the ARCH Fund, Inc., the M.S.D.&T. Funds, the
Pacific Capital Funds, the MMA Praxis Mutual Funds, The Riverfront Funds,
Inc., the Summit Investment Trust, Empire Builder Tax Free Bond Fund,
Fountain Square Funds, Hirtle Callaghan Trust, HSBC Family of Funds, The
Infinity Mutual Funds, Inc., Intrust Funds, The Kent Funds, Magna Funds,
Meyers Sheppard Investment Trust, The Parkstone Advantage Funds, Pegasus
Funds, The Republic Funds Trust, The Republic Advisors Funds Trust, SBSF
Funds, Inc. dba Key Mutual Funds, Sefton Funds, Alpine Equity Trust, ESC
Strategic Funds, Inc., The Eureka Funds, Puget Sound Asset Management, The
Sessions Group, The Victory Variable Funds, Vintage Funds, Inc., and
Variable Insurance Funds, each of which is a management investment company.
(b) The information required by this Item 29 with respect to each director,
officer or partner of BISYS is incorporated by reference to Form BD filed
by BISYS with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934 (SEC File No. 8-32480).
(c) None.
Item 30. Location of Accounts and Records
Page 4
<PAGE> 173
(1) Governors Group Advisors, Inc., 23 Front Street, Harrisburg,
Pennsylvania 17101 (records relating to its functions as investment
adviser and co-administrator).
(2) Martindale Andres & Company, Inc., 200 Four Falls Corporate Center,
West Conshohocken, Pennsylvania 19728 (records relating to its
functions as sub-adviser).
(3) Brinson Partners, Inc., 209 South LaSalle Street, Chicago, Illinois
60604 (records relating to its functions as sub-adviser).
(4) BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services,
3435 Stelzer Road, Columbus, Ohio 43219 (records relating to its
function as distributor).
(5) BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio 43219
(records relating to its functions as transfer agent and fund
accountant).
(6) BISYS Fund Services Ohio, Inc., 3435 Stelzer Road, Columbus, Ohio
43219 (records relating to its functions as co-administrator)
(7) Drinker Biddle & Reath LLP, 1345 Chestnut Street, Philadelphia,
Pennsylvania 19107 (Agreement and Declaration of Trust, By-Laws and
Minute Books).
Item 31. Management Services.
None.
Item 32. Undertakings.
Registrant hereby undertakes to furnish its Annual Report to
Shareholders upon request and without charge to any person to whom a
prospectus is delivered.
Page 5
<PAGE> 174
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Harrisburg, and State of Pennsylvania, on the 1st day
of October, 1998.
GOVERNOR FUNDS
Registrant
/s/ Lana V. Burkhardt
------------------------------
Lana V. Burkhardt
President and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert E. Leech Sole Trustee October 1, 1998
- -------------------------
Robert E. Leech
</TABLE>
<PAGE> 175
EXHIBIT INDEX
DESCRIPTION
EXHIBIT NO.
(1)(a) Agreement and Declaration of Trust, dated as of September 3,
1998.
(2) By-laws.
(5)(a) Form of Investment Advisory Agreement between Governor Funds
and Governors Group Advisors, Inc.
(5)(b) Form of Investment Sub-Advisory Agreement between Governors
Group Advisors, Inc., and Martindale Andres & Company, Inc.
(5)(c) Form of Investment Sub-Advisory Agreement between Governors
Group Advisors, Inc., and Brinson Partners, Inc.
(6)(a) Form of Distribution Agreement between Governor Funds and
BISYS Fund Services Limited Partnership d/b/a BISYS Fund
Services.
(8)(a) Form of Custody Agreement between Governor Funds and The Bank
of New York.
(8)(b) Form of Cash Management and Related Services Agreement between
Governor Funds and The Bank of New York.
(9)(a) Form of Management and Administration Agreement among Governor
Funds, BISYS Fund Services Ohio, Inc. and Governors Group
Advisors, Inc.
(9)(b) Form of Transfer Agency Agreement between Governor Funds and
BISYS Fund Services, Inc.
(9)(c) Form of Fund Accounting Agreement between Governor Funds and
BISYS Fund Services, Inc.
(10) Opinion of Counsel.
(11)(a) Consent of Drinker Biddle & Reath LLP.
(13) Form of Purchase Agreement.
<PAGE> 176
(15)(a) Rule 12b-1 Plan.
(b) Administrative Services Plan.
(16) Performance Quotations.
(17) None.
(18) 18f-3 Plan.
-2-
<PAGE> 1
EXHIBIT (1)(a)
GOVERNOR FUNDS AGREEMENT AND
DECLARATION OF TRUST
Dated: September 3, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I NAME AND DEFINITIONS ................................................ 1
Section 1.1 Name ................................................................ 1
Section 1.2 Definitions ......................................................... 1
ARTICLE II BENEFICIAL INTEREST ................................................. 2
Section 2.1 Shares of Beneficial Interest........................................ 2
Section 2.2 Issuance of Shares................................................... 3
Section 2.3 Register of Shares and Share Certificates............................ 3
Section 2.4 Transfer of Shares................................................... 3
Section 2.5 Treasury Shares...................................................... 4
Section 2.6 Establishment of Series and Classes.................................. 4
Section 2.7 Investment in the Trust.............................................. 4
Section 2.8 Assets and Liabilities Belonging to Series........................... 5
Section 2.9 No Preemptive Rights................................................. 6
Section 2.10 Conversion Rights.................................................... 6
Section 2.11 Legal Proceedings.................................................... 6
Section 2.12 Status of Shares..................................................... 6
ARTICLE III THE TRUSTEES ........................................................ 7
Section 3.1 Management of the Trust.............................................. 7
Section 3.2 Term of Office of Trustees........................................... 7
Section 3.3 Vacancies and Appointment of Trustees................................ 7
Section 3.4 Temporary Absence of Trustee......................................... 8
Section 3.5 Number of Trustees................................................... 8
Section 3.6 Effect of Death, Resignation, Etc. of a Trustee...................... 8
Section 3.7 Ownership of Assets of the Trust..................................... 8
Section 3.8 Series of Trustees................................................... 9
Section 3.9 No Accounting ....................................................... 9
ARTICLE IV POWERS OF THE TRUSTEES .............................................. 9
Section 4.1 Powers .............................................................. 9
Section 4.2 Issuance and Repurchase of Shares.................................... 13
Section 4.3 Trustees and Officers as Shareholders................................ 13
Section 4.4 Action by the Trustees and Committees................................ 13
Section 4.5 Chairman of the Trustees............................................. 14
Section 4.6 Principal Transactions............................................... 14
ARTICLE V INVESTMENT ADVISOR, INVESTMENT SUB-ADVISOR,
PRINCIPAL UNDERWRITER, ADMINISTRATOR,
TRANSFER AGENT, CUSTODIAN AND OTHER
CONTRACTORS.......................................................... 14
Section 5.1 Certain Contracts.................................................... 14
ARTICLE VI SHAREHOLDER VOTING POWERS AND MEETINGS............................... 16
Section 6.1 Voting .............................................................. 16
Section 6.2 Meetings ............................................................ 17
Section 6.3 Quorum and Required Vote............................................. 17
</TABLE>
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<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 6.4 Action by Written Consent............................................ 17
ARTICLE VII DISTRIBUTIONS AND REDEMPTIONS........................................ 18
Section 7.1 Distributions ....................................................... 18
Section 7.2 Redemption by Shareholder............................................ 18
Section 7.3 Redemption by Trust.................................................. 19
Section 7.4 Net Asset Value...................................................... 19
ARTICLE VIII LIMITATION OF LIABILITY AND INDEMNIFICATION.......................... 20
Section 8.1 Limitation of Liability.............................................. 20
Section 8.2 Indemnification...................................................... 20
Section 8.3 Indemnification Determinations....................................... 21
Section 8.4 Indemnification Not Exclusive........................................ 21
Section 8.5 Shareholders ........................................................ 21
ARTICLE IX MISCELLANEOUS ....................................................... 22
Section 9.1 Trust Not a Partnership.............................................. 22
Section 9.2 Trustees' Good Faith Action, Expert Advice, No Bond or Surety........ 22
Section 9.3 Establishment of Record Dates........................................ 22
Section 9.4 Termination of Trust or Series....................................... 23
Section 9.5 Merger, Consolidation, Incorporation................................. 24
Section 9.6 Filing of Copies, References, Headings............................... 24
Section 9.7 Applicable Law ...................................................... 24
Section 9.8 Amendments .......................................................... 25
Section 9.9 Fiscal Year ......................................................... 25
Section 9.10 Provisions in Conflict with Law...................................... 25
Section 9.11 Allocation of Certain Expenses....................................... 26
</TABLE>
-ii-
<PAGE> 4
GOVERNOR FUNDS AGREEMENT AND DECLARATION OF TRUST
AGREEMENT AND DECLARATION OF TRUST of Governor Funds, a Delaware
statutory business trust, made as of September 3, 1998, by the undersigned
Trustee.
WHEREAS, the undersigned Trustee desires to establish a trust for
the investment and reinvestment of funds contributed thereto;
WHEREAS, the Trustee desires that the beneficial interest in the
trust assets be divided into transferable shares of beneficial interest, as
hereinafter provided;
WHEREAS, the Trustee declares that all money and property
contributed to the trust established hereunder shall be held and managed in
trust for the benefit of the holders of the shares of beneficial interest issued
hereunder and subject to the provisions hereof;
NOW, THEREFORE, in consideration of the foregoing, the
undersigned Trustee hereby declares that all money and property contributed to
the trust hereunder shall be held and managed in trust under this Declaration of
Trust ("Trust Instrument") as herein set forth below.
ARTICLE I
NAME AND DEFINITIONS
Section 1.1 Name. The name of the trust continued hereby is the
"Governor Funds."
Section 1.2 Definitions. Wherever used herein, unless otherwise
required by the context or specifically provided:
(a) "Act" means the Delaware Business Trust Act, 12 Del. C.
Sections 3801 et seq., as from time to time amended;
(b) "By-laws" means the By-laws referred to in Section
4.1(e) hereof, as from time to time amended;
(c) The terms "Affiliated Person," "Assignment,"
"Commission," "Interested Person" and "Principal Underwriter" shall have the
meanings given them in the 1940 Act. "Majority Shareholder Vote" shall have the
same meaning as the term "vote of a majority of the outstanding voting
securities" is given in the 1940 Act;
(d) "Class" means any division of Shares within a Series,
which Class is or has been established in accordance with the provisions of
Article II.
<PAGE> 5
(e) "Net Asset Value" means the net asset value of each
Series of the Trust determined in the manner provided in Section 7.4 hereof;
(f) "Outstanding Shares" means those Shares recorded from
time to time in the books of the Trust or its transfer agent as then issued and
outstanding, but shall not include Shares which have been redeemed or
repurchased by the Trust and which are at the time held in the treasury of the
Trust;
(g) "Series" means a series of Shares of the Trust
established in accordance with the provisions of Section 2.6 hereof;
(h) "Shareholder" means a record owner of Outstanding Shares
of the Trust;
(i) "Shares" means the equal proportionate transferable
units of beneficial interest into which the beneficial interest of each Series
of the Trust or Class thereof shall be divided and may include fractions of
Shares as well as whole Shares;
(j) "Trust" refers to Governor Funds and reference to the
Trust, when applicable to one or more Series of the Trust, shall refer to any
such Series;
(k) "Trustee" or "Trustees" means the person or persons who
has or have signed this Trust Instrument, so long as such person or persons
shall continue in office in accordance with the terms hereof, and all other
persons who may from time to time be duly qualified and serving as Trustees in
accordance with the provisions of Article III hereof and reference herein to a
Trustee or to the Trustees shall refer to the individual Trustees in their
capacity as Trustees hereunder;
(l) "Trust Property" means any and all property, real or
personal, tangible or intangible, which is owned or held by or for the account
of one or more of the Trust or any Series, or the Trustees on behalf of the
Trust or any Series.
(m) The "1940 Act" refers to the Investment Company Act of
1940 and the Rules and Regulations thereunder, all as may be amended from time
to time.
ARTICLE II
BENEFICIAL INTEREST
Section 2.1 Shares of Beneficial Interest. The beneficial
interest in the Trust shall be divided into such transferable Shares of one or
more separate and distinct Series or Classes as the Trustees shall from time to
time create and establish. The number of Shares of each Series and Class
authorized hereunder is unlimited. Each Share shall have a par value of $.0001
per Share, unless otherwise determined by the Trustees in connection with the
creation and establishment of a Series or Class. All Shares issued hereunder,
including without limitation
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or Class Shares issued in connection with a dividend in Shares or a split or
reverse split of Shares, shall be fully paid and nonassessable.
Section 2.2 Issuance of Shares. The Trustees in their discretion
may, from time to time, without vote of the Shareholders, issue Shares of each
Series and Class to such party or parties and for such amount and type of
consideration (or for no consideration if pursuant to a Share dividend or
split-up), subject to applicable law, including cash or securities (including
Shares of a different Series or Class), at such time or times and on such terms
as the Trustees may deem appropriate, and may in such manner acquire other
assets (including the acquisitions of assets subject to, and in connection with,
the assumption of liabilities) and businesses. In connection with any issuance
of Shares, the Trustees may issue fractional Shares and Shares held in the
treasury. The Trustees may from time to time divide or combine the Shares into a
greater or lesser number without thereby changing the proportionate beneficial
interests in the Trust. The Trustees may classify or reclassify any unissued
Shares or any Shares previously issued and reacquired of any Series or Class
into one or more Series or Classes that may be established and designated from
time to time.
Any Trustee, officer or other agent of the Trust, and any
organization in which any such person is interested, may acquire, own, hold and
dispose of Shares of any Series or Class of the Trust to the same extent as if
such person were not a Trustee, officer or other agent of the Trust; and the
Trust may issue and sell or cause to be issued and sold and may purchase Shares
of any Series or Class from any such person or any such organization subject
only to the general limitations, restrictions or other provisions applicable to
the sale or purchase of Shares of such Series or Class generally.
Section 2.3 Register of Shares and Share Certificates. A register
shall be kept at the principal office of the Trust or an office of the Trust's
transfer agent which shall contain the names and addresses of the Shareholders
of each Series and Class, the number of Shares of that Series and Class thereof
held by them respectively and a record of all transfers thereof. As to Shares
for which no certificate has been issued, such register shall be conclusive as
to who are the holders of the Shares and who shall be entitled to receive
dividends or other distributions or otherwise to exercise or enjoy the rights of
Shareholders. No Shareholder shall be entitled to receive payment of any
dividend or other distribution, nor to have notice given to him as herein or in
the By-laws provided, until he has given his address to the transfer agent or
such other officer or agent of the Trust as shall keep the said register for
entry thereon. The Trustees, in their discretion, may authorize the issuance of
share certificates and promulgate appropriate rules and regulations as to their
use. In the event that one or more certificates are issued, whether in the name
of a Shareholder or a nominee, such certificate or certificates shall constitute
evidence of ownership of Shares for all purposes, including transfer, assignment
or sale of such Shares, subject to such limitations as the Trustees may, in
their discretion, prescribe.
Section 2.4 Transfer of Shares. Except as otherwise provided by
the Trustees, Shares shall be transferable on the records of the Trust only by
the record holder thereof or by his agent thereunto duly authorized in writing,
upon delivery to the Trustees or the Trust's
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transfer agent of a duly executed instrument of transfer, together with a Share
certificate, if one is outstanding, and such evidence of the genuineness of each
such execution and authorization and of such other matters as may be required by
the Trustees. Upon such delivery the transfer shall be recorded on the register
of the Trust. Until such record is made, the Shareholder of record shall be
deemed to be the holder of such Shares for all purposes hereunder and neither
the Trustees nor the Trust, nor any transfer agent or registrar nor any officer,
employee or agent of the Trust shall be affected by any notice of the proposed
transfer.
Section 2.5 Treasury Shares. Shares held in the treasury shall,
until reissued pursuant to Section 2.2 hereof, not confer any voting rights on
the Trustees, nor shall such Shares be entitled to any dividends or other
distributions declared with respect to the Shares.
Section 2.6 Establishment of Series and Classes. The Trust
continued hereby shall consist of one or more Series and Classes and separate
and distinct records shall be maintained by the Trust for each Series and Class.
The Trustees shall have full power and authority, in their sole discretion, and
without obtaining any prior authorization or vote of the Shareholders of any
Series or Class of the Trust, to establish and designate and to change in any
manner any initial or additional Series or Classes and to fix such preferences,
voting powers, rights and privileges of such Series or Classes as the Trustees
may from time to time determine, to divide or combine the Shares or any Series
or Classes into a greater or lesser number, to classify or reclassify any issued
Shares or any Series or Classes into one or more Series or Classes of Shares,
and to take such other action with respect to the Shares as the Trustees may
deem desirable. Unless another time is specified by the Trustees, the
establishment and designation of any Series or Class shall be effective upon the
adoption of a resolution by the Trustees setting forth such establishment and
designation and the preferences, powers, rights and privileges of the Shares of
such Series or Class. The Trust may issue any number of Shares of each Series or
Class and need not issue Shares.
All references to Shares in this Trust Instrument shall be deemed
to be Shares of any or all Series or Classes as the context may require. All
provisions herein relating to the Trust shall apply equally to each Series and
Class of the Trust except as the context otherwise requires.
All Shares of each Class of a particular Series shall represent
an equal proportionate interest in the assets belonging to that Series (subject
to the liabilities belonging to that Class), and each Share of any Class of a
particular Series shall be equal to each other Share of that Class; but the
provisions of this sentence shall not restrict any distinctions permissible
under this Section 2.6.
Section 2.7 Investment in the Trust. The Trustees shall accept
investments in any Series of the Trust from such persons and on such terms as
they may from time to time authorize. At the Trustees' discretion, such
investments, subject to applicable law, may be in the form of cash or securities
in which the affected Series is authorized to invest, valued as provided in
Section 7.4 hereof. Unless the Trustees otherwise determine, investments in a
Series shall be credited to each Shareholder's account in the form of full
Shares at the Net
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Asset Value per Share next determined after the investment is received. Without
limiting the generality of the foregoing, the Trustees may, in their sole
discretion, (a) fix the Net Asset Value per Share of the initial capital
contribution, (b) impose sales or other charges upon investments in the Trust or
(c) issue fractional Shares.
Section 2.8 Assets and Liabilities Belonging to Series. All
consideration received by the Trust for the issue or sale of Shares of a
particular Series, together with all assets in which such consideration is
invested or reinvested, all income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall be held and accounted for separately
from the other assets of the Trust and of every other Series and may be referred
to herein as "assets belonging to" that Series. The assets belonging to a
particular Series shall belong to that Series for all purposes, and to no other
Series, subject only to the rights of creditors of that Series. In addition, any
assets, income, earnings, profits or funds, or payments and proceeds with
respect thereto, which are not readily identifiable as belonging to any
particular Series shall be allocated by the Trustees between and among one or
more of the Series in such manner as the Trustees, in their sole discretion,
deem fair and equitable. Each such allocation shall be conclusive and binding
upon the Shareholders of all Series for all purposes, and such assets, income,
earnings, profits or funds, or payments and proceeds with respect thereto shall
be assets belonging to that Series. The assets belonging to a particular Series
shall be so recorded upon the books of the Trust, and shall be held by the
Trustees in trust for the benefit of the holders of Shares of that Series.
The assets belonging to each particular Series shall be
charged with the liabilities of that Series and all expenses, costs, charges and
reserves attributable to that Series. Any general liabilities, expenses, costs,
charges or reserves of the Trust which are not readily identifiable as belonging
to any particular Series shall be allocated and charged by the Trustees between
or among any one or more of the Series in such manner as the Trustees in their
sole discretion deem fair and equitable. Each such allocation shall be
conclusive and binding upon the Shareholders of all Series for all purposes. The
liabilities, expenses, costs, charges and reserves allocated and so charged to a
Series are herein referred to as "liabilities belonging to" that Series. Except
as provided in the next sentence or otherwise required or permitted by
applicable law or any rule or order of the Commission, each Class of a Series
shall bear a pro rata portion of the "liabilities belonging to" such Series. To
the extent permitted by rule or order of the Commission the Trustees may
allocate all or a portion of any liabilities, expenses, costs, charges and
reserves belonging to a Series to a particular Class or Classes (collectively,
"Class Expenses") as the Trustees may from time to time determine is
appropriate.
Without limitation of the foregoing provisions of this Section
2.8, but subject to the right of the Trustees in their discretion to allocate
general liabilities, expenses, costs, charges or reserves as herein provided,
the debts, liabilities, obligations and expenses incurred, contracted for or
otherwise existing with respect to a particular Series shall be enforceable
against the assets belonging to such Series only, and not against the assets of
the Trust generally. Notice of this contractual limitation on inter-Series
liabilities shall be set forth in the certificate of trust of the Trust (whether
originally or by amendment) as filed or to be filed
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in the Office of the Secretary of State of the State of Delaware pursuant to the
Act, and upon the giving of such notice in the certificate of trust, the
statutory provisions of Section 3804 of the Act relating to limitations on
inter-Series liabilities (and the statutory effect under Section 3804 of setting
forth such notice in the certificate of trust) shall become applicable to the
Trust and each Series. Any person extending credit to, contracting with or
having any claim against any Series may satisfy or enforce any debt, liability,
obligation or expense incurred, contracted for or otherwise existing with
respect to that Series from the assets of that Series only. No Shareholder or
former Shareholder of any Series shall have a claim on or any right to any
assets allocated or belonging to any other Series.
Section 2.9 No Preemptive Rights. Shareholders shall have no
preemptive or other right to subscribe to any additional Shares or other
securities issued by the Trust or the Trustees, whether of the same or another
Series or Class.
Section 2.10 Conversion Rights. The Trustees shall have the
authority to provide from time to time that the holders of Shares of any Series
or Class shall have the right to convert or exchange said Shares for or into
Shares of one or more other Series or Classes in accordance with such
requirements and procedures as may be established from time to time by the
Trustees.
Section 2.11 Legal Proceedings. No person, other than a Trustee,
who is not a Shareholder of a particular Series or Class shall be entitled to
bring any derivative action, suit or other proceeding on behalf of or with
respect to such Series or Class. No Shareholder of a Series or a Class may
maintain a derivative action with respect to such Series or Class unless holders
of a least ten percent (10%) of the outstanding Shares of such Series or Class
join in the bringing of such action. Except as otherwise provided in Section
3816 of the Act and the foregoing provisions of this Section 2.11, all matters
relating to the bringing of derivative actions in the right of the Trust shall
be governed by the General Corporation Law of the State of Delaware relating to
derivative actions, and judicial interpretations thereunder, as if the Trust
were a Delaware Corporation and the Shareholders were shareholders of a Delaware
corporation.
Section 2.12 Status of Shares. Shares shall be deemed to be
personal property giving only the rights provided in this instrument. Every
Shareholder by virtue of having become a Shareholder shall be held to have
expressly assented and agreed to the terms hereof. The death of a Shareholder
during the continuance of the Trust shall not operate to terminate the Trust nor
entitle the representative of any deceased Shareholder to an accounting or to
take any action in court or elsewhere against the Trust or the Trustees, but
only to the rights of said decedent under this Trust. Ownership of Shares shall
not entitle the Shareholder to any title in or to the whole or any part of the
Trust property or right to call for a partition or division of the same or for
an accounting, nor shall the ownership of Shares constitute the Shareholders
partners.
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ARTICLE III
THE TRUSTEES
Section 3.1 Management of the Trust. The Trustees shall have
exclusive and absolute control over the Trust Property and over the business of
the Trust to the same extent as if the Trustees were the sole owners of the
Trust Property and business in their own right, but with such powers of
delegation as may be permitted by this Trust Instrument. The Trustees shall have
power to conduct the business of the Trust and carry on its operations in any
and all of its branches and maintain offices both within and without the State
of Delaware, in any and all states of the United States of America, in the
District of Columbia, in any and all commonwealths, territories, dependencies,
colonies, or possessions of the United States of America, and in any foreign
jurisdiction and to do all such other things and execute all such instruments as
they deem necessary, proper or desirable in order to promote the interests of
the Trust although such things are not herein specifically mentioned. Any
determination as to what is in the interests of the Trust made by the Trustees
in good faith shall be conclusive. In construing the provisions of this Trust
Instrument, the presumption shall be in favor of a grant of power to the
Trustees.
The enumeration of any specific power in this Trust Instrument
shall not be construed as limiting the aforesaid power. The powers of the
Trustees may be exercised without order of or resort to any court.
Except for the Trustees named herein or Trustees appointed to
fill vacancies pursuant to Section 3.3 hereof, the Trustees shall be elected by
the Shareholders owning of record a plurality of the Shares voting at a meeting
of Shareholders.
Section 3.2 Term of Office of Trustees. Each Trustee shall hold
office during the existence of this Trust, and until its termination as herein
provided; except: (a) that any Trustee may resign his trust by written
instrument signed by him and delivered to the Chairman, President, Secretary, or
other Trustee of the Trust, which shall take effect upon such delivery or upon
such later date as is specified therein; (b) that any Trustee may be removed at
any time by written instrument, signed by at least two-thirds of the number of
Trustees prior to such removal, specifying the date when such removal shall
become effective; (c) that any Trustee who requests in writing to be retired or
who has died, become physically or mentally incapacitated by reason of disease
or otherwise, or is otherwise unable to serve, may be retired by written
instrument signed by a majority of the other Trustees, specifying the date of
his retirement; and (d) that a Trustee may be removed at any meeting of the
Shareholders of the Trust by a vote of Shareholders owning at least two-thirds
of the outstanding Shares of all Series.
Section 3.3 Vacancies and Appointment of Trustees. In case of the
declination to serve, death, resignation, retirement, removal, physical or
mental incapacity by reason of disease or otherwise of a Trustee, or a Trustee
is otherwise unable to serve, or an increase in the number of Trustees, a
vacancy shall occur. Whenever a vacancy in the Board of Trustees
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shall occur, until such vacancy is filled, the other Trustees shall have all the
powers hereunder and the certificate of the other Trustees of such vacancy shall
be conclusive. In the case of an existing vacancy, the remaining Trustee or
Trustees shall fill such vacancy by appointing such other person as such Trustee
or Trustees in their discretion shall see fit consistent with the limitations
under the 1940 Act, unless such Trustee or Trustees determine, in accordance
with Section 3.5, to decrease the size of the Board to the number of remaining
Trustees.
An appointment of a Trustee may be made by the Trustees then in
office in anticipation of a vacancy to occur by reason of retirement,
resignation or increase in number of Trustees effective at a later date,
provided that said appointment shall become effective only at or after the
effective date of said retirement, resignation or increase in number of
Trustees.
An appointment of a Trustee shall be effective upon the
acceptance of the person so appointed to serve as trustee, except that any such
appointment in anticipation of a vacancy shall become effective at or after the
date such vacancy occurs.
Section 3.4 Temporary Absence of Trustee. Any Trustee may, by
power of attorney, delegate his power for a period not exceeding six months at
any one time to any other Trustee or Trustees, provided that in no case shall
less than two Trustees personally exercise the other powers hereunder except as
herein otherwise expressly provided or unless there is only one or two Trustees.
Section 3.5 Number of Trustees. The number of Trustees shall be
one, or such other number as shall be fixed from time to time by the Trustees.
Section 3.6 Effect of Death, Resignation, Etc. of a Trustee. The
declination to serve, death, resignation, retirement, removal, incapacity, or
inability of the Trustees, or any one of them, shall not operate to terminate
the Trust or to revoke any existing agency created pursuant to the terms of this
Trust Instrument.
Section 3.7 Ownership of Assets of the Trust. Legal title in and
beneficial ownership of all of the assets of the Trust shall at all times be
considered as vested in the Trust, except that the Trustees may cause legal
title in and beneficial ownership of any Trust Property to be held by, or in the
name of one or more of the Trustees acting for and on behalf of the Trust, or in
the name of any person as nominee acting for and on behalf of the Trust. No
Shareholder shall be deemed to have a severable ownership interest in any
individual asset of the Trust or of any Series or Class, or any right of
partition or possession thereof, but each Shareholder shall have, except as
otherwise provided for herein, a proportionate undivided beneficial interest in
each Series the Shares of which are owned by such Shareholders. The Shares shall
be personal property giving only the rights specifically set forth in this Trust
Instrument. The Trust, or at the determination of the Trustees, one or more of
the Trustees or a nominee acting for and on behalf of the Trust, shall be deemed
to hold legal title and beneficial ownership of any income earned on securities
of the Trust issued by any business entities formed, organized, or existing
under the laws of any jurisdiction, including the laws of any foreign country.
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Section 3.8 Series of Trustees. In connection with the
establishment of one or more Series or Classes, the Trustees establishing such
Series or Class may appoint, to the extent permitted by the 1940 Act, separate
Trustees with respect to such Series or Classes (the "Series Trustees"). Series
Trustees may, but are not required to, serve as Trustees of the Trust of any
other Series or Class of the Trust. To the extent provided by the Trustees in
the appointment of Series Trustees, the Series Trustees may have, to the
exclusion of any other Trustee of the Trust, all the powers and authorities of
Trustees hereunder with respect to such Series or Class, but may have no power
or authority with respect to any other Series or Class. Any provision of this
Trust Instrument relating to election of Trustees by Shareholders only shall
entitle the Shareholders of a Series or Class for which Series Trustees have
been appointed to vote with respect to the election of such Series Trustees and
the Shareholders of any other Series or Class shall not be entitled to
participate in such vote. In the event that Series Trustees are appointed, the
Trustees initially appointing such Series Trustees shall, without the approval
of any Outstanding Shares, amend either this Trust Instrument or the By-laws to
provide for the respective responsibilities of the Trustees and the Series
Trustees in circumstances where an action of the Trustees or Series Trustees
affects all Series of the Trust or two or more Series represented by different
Trustees.
Section 3.9 No Accounting. Except to the extent required by the
1940 Act or, if determined to be necessary or appropriate by the other Trustees
under circumstances which would justify his or her removal for cause, no person
ceasing to be a Trustee for reasons including, but not limited to, death,
resignation, retirement, removal or incapacity (nor the estate of any such
person) shall be required to make an accounting to the Shareholders or remaining
Trustees upon such cessation.
ARTICLE IV
POWERS OF THE TRUSTEES
Section 4.1 Powers. The Trustees in all instances shall act as
principals, and are and shall be free from the control of the Shareholders. The
Trustees shall have full power and authority to do any and all acts and to make
and execute any and all contracts and instruments that they may consider
necessary or appropriate in connection with the management of the Trust. The
Trustees shall have full authority and power to make any and all investments
which they, in their sole discretion, shall deem proper to accomplish the
purpose of this Trust. Subject to any applicable limitation in this Trust
Instrument, the Trustees shall have power and authority:
(a) To invest and reinvest cash and other property, and to
hold cash or other property uninvested, and to sell, exchange, lend, pledge,
mortgage, hypothecate, write options on and lease any or all of the assets of
the Trust;
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(b) To operate as and carry on the business of an investment
company, and exercise all the powers necessary and appropriate to the conduct of
such operators, including the power to invest all or any part of its assets in
the securities of another investment company;
(c) To borrow money and in this connection issue notes or
other evidence of indebtedness; to secure borrowings by mortgaging, pledging or
otherwise subjecting as security the Trust Property; to endorse, guarantee, or
undertake the performance of an obligation, liability or engagement of any
person and to lend Trust Property;
(d) To provide for the distribution of interests of the
Trust either through a Principal Underwriter in the manner hereinafter provided
for or by the Trust itself, or both, or otherwise pursuant to a plan of
distribution of any kind;
(e) To adopt By-laws not inconsistent with this Trust
Instrument providing for the conduct of the business of the Trust and to amend
and repeal them to the extent that they do not reserve that right to the
Shareholders, which By-laws shall be deemed a part of this Trust Instrument and
are incorporated herein by reference;
(f) To elect and remove such officers and appoint and
terminate such agents and contractors as they consider appropriate, any of whom
may be a Trustee, and may provide for the compensation of all of the foregoing;
(g) To employ one or more banks, trust companies or
companies that are members of a national securities exchange or such other
entities as custodians of any assets of the Trust, subject to the 1940 Act and
to any conditions set forth in this Trust Instrument;
(h) To retain one or more transfer agents and shareholder
servicing agents, or both;
(i) To set record dates in the manner provided herein or in
the By-laws;
(j) To delegate such authority (which delegation may include
the power to subdelegate) as they consider desirable to any officers of the
Trust and to any investment adviser, manager, administrator, custodian,
underwriter or other agent or independent contractor;
(k) To join with other holders of any securities or debt
instruments in acting through a committee, depository, voting trustee or
otherwise, and in that connection to deposit any security or debt instrument
with, or transfer any security or debt instrument to, any such committee,
depository or trustee, and to delegate to them such power and authority with
relation to any security or debt instrument (whether or not so deposited or
transferred) as the Trustees shall deem proper and to agree to pay, and to pay,
such portion of the expenses and compensation of such committee, depository or
trustee as the Trustees shall deem proper;
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(l) To enter into joint ventures, general or limited
partnerships and any other combinations or associations;
(m) To pay pensions for faithful service, as deemed
appropriate by the Trustees, and to adopt, establish and carry out pension,
profit-sharing, share bonus, share purchase, savings, thrift and other
retirement, incentive and benefit plans, trusts and provisions, including the
purchasing of life insurance and annuity contracts as a means of providing such
retirement and other benefits, for any or all of the Trustees, officers,
employees and agents of the Trust.
(n) To the extent permitted by law, indemnify any person
with whom the Trust or any Series or Class has dealings.
(o) To engage in and to prosecute, defend, compromise,
abandon, or adjust by arbitration, or otherwise, any actions, suits,
proceedings, disputes, claims and demands relating to the Trust, and out of the
assets of the Trust or any Series or Class thereof to pay or to satisfy any
debts, claims or expenses incurred in connection therewith, including those of
litigation, and such power shall include without limitation the power of the
Trustees or any appropriate committee thereof, in the exercise of their or its
good faith business judgment, to dismiss any action, suit, proceeding, dispute,
claim or demand, derivative or otherwise, brought by any person, including a
Shareholder in its own name or the name of the Trust, whether or not the Trust
or any of the Trustees may be named individually therein or the subject matter
arises by reason of business for or on behalf of the Trust.
(p) To purchase and pay for entirely out of Trust Property
such insurance as they may deem necessary or appropriate for the conduct of the
business of the Trust, including, without limitation, insurance policies
insuring the Trust Property and payment of distributions and principal on its
investments, and insurance policies insuring the Shareholders, Trustees,
officers, representatives, employees, agents, investment advisers, managers,
administrators, custodians, underwriters, or independent contractors of the
Trust individually against all claims and liabilities of every nature arising by
reason of holding, being or having held any such office or position, or by
reason of any action alleged to have been taken or omitted by any such person in
such capacity, including any action taken or omitted that may be determined to
constitute negligence, whether or not the Trust would have the power to
indemnify such person against such liability.
(q) To sell, exchange, lend, pledge, mortgage, hypothecate,
write options on and lease any or all of the assets of the Trust, subject to the
provisions of Section 9.4(b) hereof;
(r) To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities, debt instruments or
property; and to execute and deliver powers of attorney to such person or
persons as the Trustees shall deem proper, granting to such person or persons
such power and discretion with relation to securities, debt instruments or
property as the Trustees shall deem proper;
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(s) To exercise powers and rights of subscription or
otherwise which in any manner arise out of ownership of securities or debt
instruments;
(t) To hold any security or property in a form not
indicating any trust, whether in bearer, book entry, unregistered or other
negotiable form; or either in the name of the Trustees or of the Trust or in the
name of a custodian, subcustodian or other depository or a nominee or nominees
or otherwise;
(u) To establish separate and distinct Series with
separately defined investment objectives and policies and distinct investment
purposes in accordance with the provisions of Article II hereof and to establish
Classes thereof having relative rights, powers and duties as they may provide
consistent with applicable law;
(v) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation, issuer or concern,
any security or debt instrument of which is held in the Trust; to consent to any
contract, lease, mortgage, purchase or sale of property by such corporation,
issuer or concern, and to pay calls or subscriptions with respect to any
security or debt instrument held in the Trust;
(w) To compromise, arbitrate, or otherwise adjust claims in
favor of or against the Trust or any matter in controversy including, but not
limited to, claims for taxes;
(x) To make distributions of income and of capital gains to
Shareholders in the manner herein provided;
(y) To establish, from time to time, a minimum investment
for Shareholders in the Trust or in one or more Series or Classes, and to
require the redemption of the Shares of any Shareholders whose investment is
less than such minimum upon giving notice to such Shareholder;
(z) To cause each Shareholder, or each Shareholder of any
particular Series of Class, to pay directly, in advance or arrears, for charges
of the Trust's custodian or transfer, shareholder servicing or similar agent, an
amount fixed from time to time by the Trustees, by setting off such charges due
from such Shareholder from declared but unpaid dividends owed such Shareholder
and/or by reducing the number of Shares in the account of such Shareholder by
that number of full and/or fractional Shares which represents the outstanding
amount of such charges due from such Shareholder;
(aa) To establish one or more committees comprised of one or
more of the Trustees, and to delegate any of the powers of the Trustees to said
committees;
(bb) To interpret the investment policies, practices or
limitations of any Series or Class;
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(cc) To establish a registered office and have a registered
agent in the State of Delaware;
(dd) To compensate or provide for the compensation of the
Trustees, officers, advisers, administrators, custodians, other agents,
consultants, contractors and employees of the Trust or the Trustees on such
terms as they deem appropriate; and
(ee) In general, to carry on any other business in
connection with or incidental to any of the foregoing powers, to do everything
necessary, suitable or proper for the accomplishment of any purpose or the
attainment of any object or the furtherance of any power herein set forth,
either alone or in association with others, and to do every other act or thing
incidental or appurtenant to or growing out of or connected with the aforesaid
business or purposes, objects or powers.
The foregoing clauses shall be construed both as objects and
powers, and the foregoing enumeration of specific powers shall not be held to
limit or restrict in any manner the general powers of the Trustees. Any action
by one or more of the Trustees in their capacity as such hereunder shall be
deemed an action on behalf of the Trust or the applicable Series or Class, and
not an action in an individual capacity.
No one dealing with the Trustees shall be under any obligation to
make any inquiry concerning the authority of the Trustees, or to see to the
application of any payments made or property transferred to the Trustees or upon
their order.
Section 4.2 Issuance and Repurchase of Shares. The Trustees shall
have the power to issue, sell, repurchase, redeem, retire, cancel, acquire,
hold, resell, reissue, dispose of, exchange, and otherwise deal in Shares and,
subject to the provisions set forth in Article II and Article VII, to apply to
any such repurchase, redemption, retirement, cancellation or acquisition of
Shares any funds or property of the Trust, or the particular Series or Class of
the Trust, with respect to which such Shares are issued.
Section 4.3 Trustees and Officers as Shareholders. Any Trustee,
officer or other agent of the Trust may acquire, own and dispose of Shares to
the same extent as if such person were not a Trustee, officer or agent; and the
Trustees may issue and sell or cause to be issued and sold Shares to and buy
such Shares from any such person or any firm or company in which such person
invested, subject to the general limitations herein contained as to the sale and
purchase of such Shares.
Section 4.4 Action by the Trustees and Committees. The Trustees
(and any committee thereof) may act at a meeting held in person or in whole or
in part by conference telecommunications equipment. One-third, but not less than
two, of the Trustees shall constitute a quorum at any meeting unless there is
only one Trustee. Except as the Trustees may otherwise determine, one-third of
the members of any committee shall constitute a quorum at any meeting. The vote
of a majority of the Trustees (or committee members) present at a meeting at
which a quorum is present shall be the act of the Trustees (or any
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committee thereof). The Trustees (and any committee thereof) may also act by
written consent signed by a majority of the Trustees (or committee members).
Regular meetings of the Trustees may be held at such places and at such times as
the Trustees may from time to time determine. Special meetings of the Trustees
(and meetings of any committee thereof) may be called orally or in writing by
the Chairman of the Board of Trustees (or the chairman of any committee thereof)
or by any two other Trustees. Notice of the time, date and place of all meetings
of the Trustees (or any committee thereof) shall be given by the party calling
the meeting to each Trustee (or committee member) by telephone, telefax, or
telegram sent to the person's home or business address at least twenty-four
hours in advance of the meeting or by written notice mailed to the person's home
or business address at least seventy-two hours in advance of the meeting. Notice
of all proposed written consents of Trustees (or committees thereof) shall be
given to each Trustee (or committee member) by telephone, telefax, telegram, or
first class mail sent to the person's home or business address. Notice need not
be given to any person who attends a meeting without objecting to the lack of
notice or who executes a written consent or a written waiver of notice with
respect to a meeting. Written consents or waivers may be executed in one or more
counterparts. Execution of a written consent or waiver and delivery thereof may
be accomplished by telefax or other electronic means approved by the Trustees.
Section 4.5 Chairman of the Trustees. The Trustees may appoint
one of their number to be Chairman of the Board of Trustees. The Chairman shall
preside at all meetings of the Trustees at which he is present and may be (but
is not required to be) the chief executive officer of the Trust.
Section 4.6 Principal Transactions. Except to the extent
prohibited by applicable law, the Trustees may, on behalf of the Trust, buy any
securities from or sell any securities to, or lend any assets of the Trust to,
any Trustee or officer of the Trust or any firm of which any such Trustee or
officer is a member acting as principal, or have any such dealings with any
Affiliated Person of the Trust, investment adviser, investment sub-adviser,
distributor or transfer agent for the Trust or with any Interested Person of
such Affiliated Person or other person; and the Trust may employ any such
Affiliated Person or other person, or firm or company in which such Affiliated
Person or other person is an Interested Person, as broker, legal counsel,
registrar, investment advisor, investment sub-advisor, distributor, transfer
agent, dividend disbursing agent, custodian or in any other capacity upon
customary terms.
ARTICLE V
INVESTMENT ADVISOR, INVESTMENT SUB-ADVISOR,
PRINCIPAL UNDERWRITER, ADMINISTRATOR, TRANSFER AGENT,
CUSTODIAN AND OTHER CONTRACTORS
Section 5.1 Certain Contracts. Subject to compliance with the
provisions of the 1940 Act, but notwithstanding any limitations of present and
future law or custom in regard to delegation of powers by trustees generally,
the Trustees may, at any time and from time to time and without limiting the
generality of their powers and authority otherwise set forth
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herein, enter into one or more contracts with any one or more corporations,
trusts, associations, partnerships, limited partnerships, other type of
organizations, or individuals to provide for the performance and assumption of
some or all of the following services, duties and responsibilities to, for or of
the Trust and/or the Trustees, and to provide for the performance and assumption
of such other services, duties and responsibilities in addition to those set
forth below as the Trustees may determine to be appropriate:
(a) Investment Adviser and Investment Sub-Adviser. The
Trustees may in their discretion, from time to time, enter into an investment
advisory or management contract or contracts with respect to the Trust or any
Series whereby the other party or parties to such contract or contracts shall
undertake to furnish the Trust with such management, investment advisory,
statistical and research facilities and services and such other facilities and
services, if any, and all upon such terms and conditions, as the Trustees may in
their discretion determine. Notwithstanding any other provision of this Trust
Instrument, the Trustees may authorize any investment adviser (subject to such
general or specific instructions as the Trustees may from time to time adopt) to
effect purchases, sales or exchanges of portfolio securities, other investment
instruments of the Trust, or other Trust Property on behalf of the Trustees, or
may authorize any officer, agent, or Trustee to effect such purchases, sales or
exchanges pursuant to recommendations of the investment adviser (and all without
further action by the Trustees). Any such purchases, sales and exchanges shall
be deemed to have been authorized by the Trustees.
The Trustees may authorize, subject to applicable requirements of
the 1940 Act, the investment adviser to employ, from time to time, one or more
sub-advisers to perform such of the acts and services of the investment adviser,
and upon such terms and conditions, as may be agreed upon between the investment
adviser and sub-adviser. Any reference in this Trust Instrument to the
investment adviser shall be deemed to include such sub-advisers, unless the
context otherwise requires.
(b) Principal Underwriter. The Trustees may in their
discretion from time to time enter into an exclusive or non-exclusive
underwriting contract or contracts providing for the sale of Shares, whereby the
Trust may either agree to sell Shares to the other party to the contract or
appoint such other party its sales agent for such Shares. In either case, the
contract may also provide for the repurchase or sale of Shares by such other
party as principal or as agent of the Trust.
(c) Administrator. The Trustees may in their discretion from
time to time enter into one or more contracts whereby the other party or parties
shall undertake to furnish the Trust with administrative services. The contract
or contracts shall be on such terms and conditions as the Trustees may in their
discretion determine.
(d) Transfer Agent. The Trustees may in their discretion
from time to time enter into one or more transfer agency and Shareholder service
contracts whereby the other party or parties shall undertake to furnish the
Trustees with transfer agency and Shareholder
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services. The contract or contracts shall be on such terms and conditions as the
Trustees may in their discretion determine.
(e) Administrative Service and Distribution Plans. The
Trustees may, on such terms and conditions as they may in their discretion
determine, adopt one or more plans pursuant to which compensation may be paid
directly or indirectly by the Trust for Shareholder servicing, administration
and/or distribution services with respect to one or more Series or Classes
including without limitation, plans subject to Rule 12b-1 under the 1940 Act,
and the Trustees may enter into agreements pursuant to such plans.
(f) Fund Accounting. The Trustees may in their discretion
from time to time enter into one or more contracts whereby the other party or
parties undertakes to handle all or any part of the Trust's accounting
responsibilities, whether with respect to the Trust's properties, Shareholders
or otherwise.
(g) Custodian and Depository. The Trustees may in their
discretion from time to time enter into one or more contracts whereby the other
party or parties undertakes to act as depository for and to maintain custody of
the property of the Trust or any Series or Class and accounting records in
connection therewith.
(h) Parties to Contract. Any contract described in this
Article V hereof may be entered into with any corporation, firm, partnership,
trust or association, although one or more of the Trustees or officers of the
Trust may be an officer, director, trustee, shareholder, or member of such other
party to the contract, and no such contract shall be invalidated or rendered
void or voidable by reason of the existence of any relationship, nor shall any
person holding such relationship be disqualified from voting on or executing the
same in his capacity as Shareholder and/or Trustee, nor shall any person holding
such relationship be liable merely by reason of such relationship for any loss
or expense to the Trust under or by reason of said contract or accountable for
any profit realized directly or indirectly therefrom, provided that the contract
when entered into was not inconsistent with the provisions of this Article V.
The same person (including a firm, corporation, partnership, trust, or
association) may be the other party to contracts entered into pursuant to this
Article V, and any individual may be financially interested or otherwise
affiliated with persons who are parties to any or all of the contracts mentioned
in this Section 5.1.
ARTICLE VI
SHAREHOLDER VOTING POWERS AND MEETINGS
Section 6.1 Voting. The Shareholders shall have power to
vote only: (a) for the election of one or more Trustees in order to comply with
the provisions of the 1940 Act (including Section 16(a) thereof); (b) with
respect to any contract entered into pursuant to Article V to the extent
required by the 1940 Act; (c) with respect to termination of the Trust or a
Series or Class thereof to the extent required by applicable law; (d) with
respect to any plan adopted pursuant to Rule 12b-1 (or any successor rule) under
the 1940 Act, and related
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matters, to the extent required under the 1940 Act; and (e) with respect to such
additional matters relating to the Trust as may be required by this Trust
Instrument, the By-laws or any registration of the Trust or Series as an
investment company under the 1940 Act with the Commission (or any successor
agency) or as the Trustees may consider necessary or desirable.
On each matter submitted to a vote of Shareholders, unless the
Trustees determine otherwise, all Shares of all Series and Classes shall vote as
a single class; provided, however, that: (a) as to any matter with respect to
which a separate vote of any Series or Class is required by the 1940 Act or
other applicable law or is required by attributes applicable to any Series or
Class, such requirements as to a separate vote by that Series or Class shall
apply; (b) unless the Trustees determine that this clause (b) shall not apply in
a particular case, to the extent that a matter referred to in clause (a) above
affects more than one Series or Class and the interests of each such Series or
Class in the matter are identical, then the Shares of all such affected Series
or Classes shall vote as a single class; and (c) as to any matter which does not
affect the interests of a particular Series or Class, only the holders of Shares
of the one or more affected Series or Classes shall be entitled to vote. Each
whole Share shall be entitled to one vote as to any matter on which it is
entitled to vote, and each fractional Share shall be entitled to a proportionate
fractional vote. There shall be no cumulative voting in the election of
Trustees. Shares may be voted in person or by proxy or in any manner provided
for in the By-laws. A proxy may be given in writing, by telefax, or in any other
manner provided for in the By-laws. Anything in this Trust Instrument to the
contrary notwithstanding, in the event a proposal by anyone other than the
officers or Trustees of the Trust is submitted to a vote of the Shareholders of
the Trust or one or more Series or Classes thereof, or in the event of any proxy
contest or proxy solicitation or proposal in opposition to any proposal by the
officers or Trustees of the Trust, Shares may be voted only in person or by
written proxy. Until Shares are issued, the Trustees may exercise all rights of
Shareholders and may take any action required or permitted by law, this Trust
Instrument or any of the By-laws of the Trust to be taken by Shareholders.
Section 6.2 Meetings. Meetings of Shareholders (including
meetings involving only the holders of Shares of one or more but less than all
Series or Classes) may be called by the Trustees from time to time to be held at
such place within or without the State of Delaware, and on such date as may be
designated in the call thereof for the purpose of taking action upon any matter
as to which the vote or authority of the Shareholders is required or permitted
as provided in Section 6.1. Special meetings of the Shareholders of any Series
may be called by the Trustees and shall be called by the Trustees upon the
written request of Shareholders owning at least a majority of the Outstanding
Shares entitled to vote, except to the extent that a lesser percentage is
prescribed by the 1940 Act. Notice shall be sent, postage prepaid, by mail or
such other means determined by the Trustees, at least 7 days prior to any such
meeting.
Section 6.3 Quorum and Required Vote. Unless a larger percentage
is required by law, by any provision of this Trust Instrument or by the
Trustees, one-third of the Shares entitled to vote in person or by proxy on a
particular matter shall be a quorum for the transaction of business at a
Shareholders' meeting with respect to that matter. Any lesser number shall be
sufficient for adjournments. Any adjourned session or sessions may be held
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without the necessity of further notice. Except when a larger vote is required
by law, by any provision of this Trust Instrument or by the Trustees, a majority
of the Shares voted in person or by proxy on a particular matter at a meeting at
which a quorum is present shall decide any questions with respect to that matter
and a plurality shall elect a Trustee.
Section 6.4 Action by Written Consent. Subject to the provisions
of the 1940 Act and other applicable law, any action taken by Shareholders may
be taken without a meeting if a majority of the Shares entitled to vote on the
matter (or such larger proportion thereof as shall be required by law, by any
provision of this Trust Instrument or by the Trustees) consent to the action in
writing. Such consent shall be treated for all purposes as a vote taken at a
meeting of Shareholders.
ARTICLE VII
DISTRIBUTIONS AND REDEMPTIONS
Section 7.1 Distributions.
(a) The Trustees may from time to time declare and pay
dividends or other distributions with respect to any Series or Class. The amount
of such dividends or distributions and the payment of them and whether they are
in cash or any other Trust Property shall be wholly in the discretion of the
Trustees.
(b) Dividends and other distributions may be paid or made to
the Shareholders of record at the time of declaring a dividend or other
distribution or among the Shareholders of record at such other date or time or
dates or times as the Trustees shall determine, which dividends or
distributions, at the election of the Trustees, may be paid pursuant to a
standing resolution or resolutions adopted only once or with such frequency as
the Trustees may determine. All dividends and other distributions on Shares of a
particular Class shall be distributed pro rata to the Shareholders of that Class
in proportion to the number of Shares of that Class they held on the record date
established for such payment, except that in connection with any dividend or
distribution program or procedure the Trustees may determine that no dividend or
distribution shall be payable on Shares as to which the Shareholder's purchase
order and/or payment in the prescribed form has not been received by the time or
times established by the Trustees under such program or procedure. The Trustees
may adopt and offer to Shareholders such dividend reinvestment plans, cash
dividend payout plans or related plans as the Trustees shall deem appropriate.
(c) Anything in this Trust Instrument to the contrary
notwithstanding, the Trustees may at any time declare and distribute a stock
dividend pro rata among the Shareholders of a particular Series, or Class
thereof, as of the record date of that Series or Class fixed as provided in
Section (b) hereof. The Trustees shall have full discretion, to the extent not
inconsistent with the 1940 Act, to determine which items shall be treated as
income
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and which items as capital; and each such determination and allocation shall be
conclusive and binding upon the Shareholders.
Section 7.2 Redemption by Shareholder
(a) Unless the Trustees otherwise determine with respect to
a particular Series or Class at the time of establishing and designating the
same, each holder of Shares of a particular Series or Class thereof shall have
the right at such times as may be permitted by the Trust, but no less frequently
than once each week, to require the Trust to redeem (out of the assets belonging
to the applicable Series) all or any part of his Shares at a redemption price
equal to the Net Asset Value per Share of that Series or Class next determined
in accordance with Section 7.4 after the Shares are properly tendered for
redemption, less such redemption fee or other charge, if any, as may be fixed by
the Trustees. Except as otherwise provided in this Trust Instrument, payment of
the redemption price shall be in cash; provided, however, that to the extent
permitted by applicable law, the Trustees may authorize the Trust to make
payment wholly or partly in securities or other assets belonging to the
applicable Series at the value of such securities or assets used in such
determination of Net Asset Value.
(b) Notwithstanding the foregoing, the Trust may postpone
payment of the redemption price and may suspend the right of the holders of
Shares of any Series or Class to require the Trust to redeem Shares of that
Series or Class during any period or at any time when and to the extent
permissible under the 1940 Act.
(c) In the event that a Shareholder shall submit a request
for the redemption of a greater number of Shares than are then allocated to such
Shareholder, such request shall not be honored.
Section 7.3 Redemption by Trust. Unless the Trustees otherwise
determine with respect to a particular Series or Class at the time of
establishing and designating the same, each Share of each Series or Class
thereof that has been established and designated is subject to redemption (out
of the assets belonging to the applicable Series) by the Trust at the redemption
price which would be applicable if such Share was then being redeemed by the
Shareholder pursuant to Section 7.2 at any time if the Trustees determine in
their sole discretion that failure to so redeem may have materially adverse
consequences to the holders of the Shares, or any Series or Class of the Trust,
and upon such redemption the holders of the Shares so redeemed shall have no
further right with respect thereto other than to receive payment of such
redemption price. In addition, the Trustees, in their sole discretion, may cause
the Trust to redeem (out of the assets belonging to the applicable Series) all
of the Shares of one or more Series or Classes held by (a) any Shareholder if
the value of such Shares held by such Shareholder is less than the minimum
amount established from time to time by the Trustees, (b) all Shareholders of
one or more Series or Classes if the value of such Shares held by all
Shareholders is less than the minimum amount established from time to time by
the Trustees or (c) any Shareholder to reimburse the Trust for any loss or
expense it has sustained or incurred by reason of the failure of such
Shareholder to make full payment for Shares purchased by such Shareholder, or by
reason of any defective redemption request, or by reason of
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indebtedness incurred because of such Shareholder as described in Section 9.11
or to collect any charge relating to a transaction effected for the benefit of
such Shareholder or as provided in the prospectus relating to such Shares.
Section 7.4 Net Asset Value. The Net Asset Value per Share of any
Series or Class thereof shall be the quotient obtained by dividing the value of
the net assets of that Series or Class (being the value of the assets belonging
to that Series or Class less the liabilities belonging to that Series or Class)
by the total number of Shares of that Series or Class outstanding, all
determined in accordance with the methods and procedures, including without
limitation those with respect to rounding, established by the Trustees from time
to time.
The Trustees may determine to maintain the Net Asset Value
per Share of any Series at a designated constant dollar amount and in connection
therewith may adopt procedures not inconsistent with the 1940 Act for the
continuing declarations of income attributable to that Series or Class thereof
as dividends payable in additional Shares of that Series or Class thereof at the
designated constant dollar amount and for the handling of any losses
attributable to that Series or Class thereof. Such procedures may, among other
things, provide that in the event of any loss each Shareholder of a Series or
Class thereof shall be deemed to have contributed to the capital of the Trust
attributable to that Series or Class thereof his pro rata portion of the total
number of Shares required to be cancelled in order to permit the Net Asset Value
per Share of that Series or Class thereof to be maintained, after reflecting
such loss, at the designated constant dollar amount. Each Shareholder of the
Trust shall be deemed to have agreed, by his investment in the Trust, to make
the contribution referred to in the preceding sentence in the event of any such
loss.
ARTICLE VIII
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 8.1 Limitation of Liability. Neither a Trustee nor an
officer of the Trust, when acting in such capacity, shall be personally liable
to any person other than the Trust or a beneficial owner for any act, omission
or obligation of the Trust, any Trustee or any officer of the Trust. Neither a
Trustee nor an officer of the Trust shall be liable for any act or omission in
his capacity as Trustee or as an officer of the Trust, or for any act or
omission of any officer (or other officer) or employee of the Trust or of any
other person or party, provided that nothing contained herein or in the Act
shall protect any Trustee or officer against any liability to the Trust or to
Shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee or the duties of such officer
hereunder.
Section 8.2 Indemnification. The Trust shall indemnify each of
its Trustees and officers and persons who serve at the Trust's request as
directors, officers or trustees of another organization in which the Trust has
any interest as a shareholder, creditor, or otherwise and may indemnify any
trustee, director or officer of a predecessor organization
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("Covered Person") against all liabilities and expenses (including amounts paid
in satisfaction of judgments, in compromise, as fines and penalties, and
expenses including reasonable accountants' and counsel fees) reasonably incurred
in connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
legislative body, in which he may be involved or with which he may be
threatened, while as a Covered Person or thereafter, by reason of being or
having been such a Covered Person, except that no Covered Person shall be
indemnified against any liability to the Trust or its Shareholders to which such
Covered Person would otherwise be subject by reason of bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties involved in
the conduct of such Covered Person's office (such willful misfeasance, bad
faith, gross negligence or reckless disregard being referred to herein as
"Disabling Conduct"). Expenses, including accountants' and counsel fees so
incurred by any such Covered Person (but excluding amounts paid in satisfaction
of judgments, in compromise or as fines or penalties), may be paid from time to
time by the Trust in advance of the final disposition of any such action, suit
or proceeding upon receipt of (a) an undertaking by or on behalf of such Covered
Person to repay amounts so paid to the Trust if it is ultimately determined that
indemnification of such expenses is not authorized under this Article VIII and
either (b) such Covered Person provides security for such undertaking,(c) the
Trust is insured against losses arising by reason of such payment, or (d) a
majority of a quorum of disinterested, non-party Trustees, or independent legal
counsel in a written opinion, determines, based on a review of readily available
facts, that there is reason to believe that such Covered Person ultimately will
be found entitled to indemnification.
Section 8.3 Indemnification Determinations. Indemnification of a
Covered Person pursuant to Section 8.2 shall be made if (a) the court or body
before whom the proceeding is brought determines, in a final decision on the
merits, that such Covered Person was not liable by reason of Disabling Conduct
or (b) in the absence of such a determination, a majority of a quorum of
disinterested, non-party Trustees or independent legal counsel in a written
opinion make a reasonable determination, based upon a review of the facts, that
such Covered Person was not liable by reason of Disabling Conduct.
Section 8.4 Indemnification Not Exclusive. The right of
indemnification provided by this Article VIII shall not be exclusive of or
affect any other rights to which any such Covered Person may be entitled. As
used in this Article VIII, "Covered Person" shall include such person's heirs,
executors and administrators, and a "disinterested, non-party Trustee" is a
Trustee who is neither an Interested Person of the Trust nor a party to the
proceeding in question.
Section 8.5 Shareholders. Each Shareholder of the Trust and of
each Series shall not be personally liable for the debts, liabilities,
obligations and expenses incurred by, contracted for, or otherwise existing with
respect to, the Trust or by or on behalf of any Series. The Trustees shall have
no power to bind any Shareholder personally or to call upon any Shareholder for
the payment of any sum of money or assessment whatsoever other than such as the
Shareholder may at any time personally agree to pay by way of subscription for
any Shares or otherwise.
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In case any Shareholder or former Shareholder of any Series shall
be held to be personally liable solely by reason of his being or having been a
Shareholder of such Series and not because of his acts or omissions or for some
other reason, the Shareholder or former Shareholder (or his heirs, executors,
administrators or other legal representatives, or, in the case of a corporation
or other entity, its corporate or other general successor) shall be entitled out
of the assets belonging to the applicable Series to be held harmless from and
indemnified against all loss and expense arising from such liability. The Trust,
on behalf of the affected Series, shall, upon request by the Shareholder, assume
the defense of any claim made against the Shareholder for any act or obligation
of the Series and satisfy any judgment thereon from the assets of the Series.
The indemnification and reimbursement required by the preceding sentence shall
be made only out of assets of the one or more Series whose Shares were held by
said Shareholder at the time the act or event occurred which gave rise to the
claim against or liability of said Shareholder. The rights accruing to a
Shareholder under this Section shall not impair any other right to which such
Shareholder may be lawfully entitled, nor shall anything herein contained
restrict the right of the Trust or any Series thereof to indemnify or reimburse
a Shareholder in any appropriate situation even though not specifically provided
herein.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Trust Not a Partnership. It is hereby expressly
declared that a trust and not a partnership is created hereby. All persons
extending credit to, contracting with or having any claim against any Series of
the Trust shall look only to the assets of such Series for payment under such
credit, contract or claim; and neither the Shareholders nor the Trustees, nor
any of the Trust's officers, employees or agents, whether past, present or
future, shall be personally liable therefor. Every note, bond, contract or other
undertaking issued by or on behalf of the Trust or the Trustees relating to the
Trust or to a Series shall include a recitation limiting the obligations
represented thereby to the Trust or to one or more Series and its or their
assets (but the omission of such a recitation shall not operate to bind any
Shareholder, Trustee, officer, employee or agent of the Trust).
Section 9.2 Trustees' Good Faith Action, Expert Advice, No Bond
or Surety. The exercise by the Trustees of their powers and discretions
hereunder shall be binding upon everyone interested. Subject to the provisions
of Article VIII: (i) the Trustees shall not be responsible or liable in any
event for any neglect or wrongdoing of any officer, agent, employee, consultant,
adviser, administrator, distributor or principal underwriter, custodian or
transfer, dividend disbursing, Shareholder servicing or accounting agent of the
Trust, nor shall any Trustee be responsible for the act or omission of any other
Trustee; (ii) the Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Trust Instrument and their duties
as Trustees, and shall be under no liability for any act or omission in
accordance with such advice or for failing to follow such advice; and (iii) in
discharging their duties, the Trustees, when acting in good faith, shall be
entitled to rely upon the books of
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account of the Trust and upon written reports made to the Trustees by any
officer appointed by them, any independent public accountant, and (with respect
to the subject matter of the contract involved) any officer, partner or
responsible employee of a contracting party appointed by the Trustees. The
Trustees as such shall not be required to give any bond or surety or any other
security for the performance of their duties.
Section 9.3 Establishment of Record Dates. The Trustees may close
the Share transfer books of the Trust for a period not exceeding one hundred
twenty (120) days preceding the date of any meeting of Shareholders, or the date
for the payment of any dividends or other distributions, or the date for the
allotment of rights, or the date when any change or conversion or exchange of
Shares shall go into effect; or in lieu of closing the stock transfer books as
aforesaid, the Trustees may fix in advance a date, not exceeding one hundred
twenty (120) days preceding the date of any meeting of Shareholders, or the date
for payment of any dividend or other distribution, or the date for the allotment
of rights, or the date when any change or conversion or exchange of Shares shall
go into effect, as a record date for the determination of the Shareholders
entitled to notice of, and to vote at, any such meeting, or entitled to receive
payment of any such dividend or other distribution, or to any such allotment of
rights, or to exercise the rights in respect of any such change, conversion or
exchange of Shares, and in such case such Shareholders and only such
Shareholders as shall be Shareholders of record on the date so fixed shall be
entitled to such notice of, and to vote at, such meeting, or to receive payment
of such dividend or other distribution, or to receive such allotment or rights,
or to exercise such rights, as the case may be, notwithstanding any transfer of
any Shares on the books of the Trust after any such record date fixed as
aforesaid.
Section 9.4 Termination of Trust or Series.
(a) This Trust shall continue without limitation of time but
subject to the provisions of sub-sections (b) and (c) of this Section 9.4.
(b) Notwithstanding anything in Section 9.5 to the contrary,
the Trustees may without Shareholder approval (unless such approval is required
by the 1940 Act)
(i) sell and convey all or substantially all of the
assets of the Trust or any Series or Class to
another trust, partnership, limited liability
company, association or corporation, or to a
separate Series or Class of shares thereof,
organized under the laws of any state or
jurisdiction, for adequate consideration which may
include the assumption of all outstanding
obligations, taxes and other liabilities, accrued
or contingent, of the Trust or any Series or
Class, and which may include shares of beneficial
interest, stock or other ownership interests of
such trust, partnership, limited liability
company, association or corporation or of a series
thereof; or
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(ii) at any time sell and convert into money all of the
assets of the Trust or any Series or Class.
Upon reasonable provision, in the determination of the Trustees,
for the payment of all such liabilities in either (i) or (ii), by such
assumption or otherwise, the Shareholders of each Class of a Series involved in
such sale or conversion shall be entitled to receive, as a Class, when and as
declared by the Trustees, the excess of the assets belonging to that Series that
are allocated to such Class over the liabilities belonging to that Series that
are allocated to such Class. The assets so distributable to the Shareholders of
any particular Class of a Series shall be distributed among such Shareholders in
proportion to the number of Shares of that Class held by them and recorded on
the books of the Trust. In the event a series is not divided into Classes, the
foregoing provisions shall be applied on a Series by Series basis.
(c) Upon completion of the distribution of the remaining
proceeds or the remaining assets as provided in sub-section (b), the Trust (in
the case of a sale or conversion with respect to the Trust as a whole or the
last remaining Series) or any affected Series or Class shall terminate and the
Trustees and the Trust shall be discharged of any and all further liabilities
and duties hereunder and the right, title and interest of all parties with
respect to the Trust or such affected Series or Class shall be cancelled and
discharged.
Upon termination of the Trust, following completion of winding up
of its business, the Trustees shall cause a certificate of cancellation of the
Trust's certificate of trust to be filed in accordance with the Act, which
certificate of cancellation may be signed by any one Trustee.
Section 9.5 Merger, Consolidation, Incorporation. Anything in
this Trust Instrument to the contrary notwithstanding, the Trustees, in order to
change the form of organization and/or domicile of the Trust, may, without prior
Shareholder approval, (i) cause the Trust to merge or consolidate with or into
one or more trusts, partnerships, limited liability companies, associations or
corporations which is formed, organized or existing under the laws of a state,
commonwealth possession or colony of the United States, or (ii) cause the Trust
to incorporate under the laws of Delaware. Any agreement of merger or
consolidation or certificate of merger may be signed by a majority of the
Trustees. Pursuant to and in accordance with the provisions of Section 3815(f)
of the Act, and notwithstanding anything to the contrary contained in this Trust
Instrument, an agreement of any merger or consolidation approved in accordance
with this Section 9.5 may effect any amendment to the Trust Instrument or effect
the adoption of a new trust instrument of the Trust if it is the surviving or
resulting trust in the merger or consolidation. Any merger or consolidation of
the Trust other than as described in the foregoing provisions of this Section
9.5 shall, in addition to the approval of the Trustees, require a Majority
Shareholder Vote. Nothing in this Section 9.5 shall require, however,
Shareholder approval of any transaction whereby the Trust or any Series thereof
acquires or assumes all or any part of the assets and liabilities of any other
entity.
Section 9.6 Filing of Copies, References, Headings. The original
or a copy of this Trust Instrument and of each amendment hereof or Trust
Instrument supplemental hereto shall
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be kept at the office of the Trust where it may be inspected by any Shareholder.
Anyone dealing with the Trust may rely on a certificate by an officer or Trustee
of the Trust as to whether or not any such amendments or supplements have been
made and as to any matters in connection with the Trust hereunder, and with the
same effect as if it were the original, may rely on a copy certified by an
officer or Trustee of the Trust to be a copy of this Trust Instrument or of any
such amendment or supplemental Trust Instrument. In this Trust Instrument or in
any such amendment or supplemental Trust Instrument, references to this Trust
Instrument, and all expressions like "herein," "hereof" and "hereunder," shall
be deemed to refer to this Trust Instrument as amended or affected by any such
supplemental Trust Instrument. All expressions like "his", "he" and "him", shall
be deemed to include the feminine and neuter, as well as masculine, genders.
Headings are placed herein for convenience of reference only and in case of any
conflict, the text of this Trust Instrument rather than the headings, shall
control. This Trust Instrument may be executed in any number of counterparts
each of which shall be deemed an original.
Section 9.7 Applicable Law. The trust set forth in this
instrument is made in the State of Delaware, and the Trust and this Trust
Instrument, and the rights and obligations of the Trustees and Shareholders
hereunder, are to be governed by and construed and administered according to the
Act and the laws of said State; provided, however, that there shall not be
applicable to the Trust, the Trustees or this Trust Instrument (a) the
provisions of Section 3540 of Title 12 of the Delaware Code or (b) any
provisions of the laws (statutory or common) of the State of Delaware (other
than the Act) pertaining to trusts which relate to or regulate: (i) the filing
with any court or governmental body or agency of trustee accounts or schedules
of trustee fees and charges, (ii) affirmative requirements to post bonds for
trustees, officers, agents or employees of a trust, (iii) the necessity for
obtaining court or other governmental approval concerning the acquisition,
holding or disposition of real or personal property, (iv) fees or other sums
payable to trustees, officers, agents or employees of a trust, (v) the
allocation of receipts and expenditures to income or principal, (vi)
restrictions or limitations on the permissible nature, amount or concentration
of trust investments or requirements relating to the titling, storage or other
manner of holding of trust assets, or (vii) the establishment of fiduciary or
other standards or responsibilities or limitations on the acts or powers of
trustees, which are inconsistent with the limitations or liabilities or
authorities and powers of the Trustees set forth or referenced in this Trust
Instrument. The Trust shall be of the type commonly called a "business trust",
and without limiting the provisions hereof, the Trust may exercise all powers
which are ordinarily exercised by such a trust under Delaware law. The Trust
specifically reserves the right to exercise any of the powers or privileges
afforded to trusts or actions that may be engaged in by trusts under the Act,
and the absence of a specific reference herein to any such power, privilege or
action shall not imply that the Trust may not exercise such power or privilege
or take such actions.
Section 9.8 Amendments. Except as specifically provided herein,
the Trustees may, without Shareholder vote, amend or otherwise supplement this
Trust Instrument by making an amendment, a Trust Instrument supplemental hereto
or an amended and restated trust instrument. Shareholders shall have the right
to vote: (i) on any amendment which would affect their right to vote granted in
Section 6.1, (ii) on any amendment to this Section 9.8, (iii)
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on any amendment for which such vote is required by law and (iv) on any
amendment submitted to them by the Trustees. Any amendment required or permitted
to be submitted to Shareholders which, as the Trustees determine, shall affect
the Shareholders of one or more Series or Classes shall be authorized by vote of
the Shareholders of each Series or Class affected and no vote of shareholders of
a Series or Class not affected shall be required. Anything in this Trust
Instrument to the contrary notwithstanding, any amendment to Article VIII hereof
shall not limit the rights to indemnification or insurance provided therein with
respect to action or omission of any persons protected thereby prior to such
amendment.
Section 9.9 Fiscal Year. The fiscal year of the Trust shall end
on a specified date as determined from time to time by the Trustees.
Section 9.10 Provisions in Conflict with Law. The provisions of
this Trust Instrument are severable, and if the Trustees shall determine, with
the advice of counsel, that any of such provisions is in conflict with the 1940
Act, the regulated investment company provisions of the Internal Revenue Code or
with other applicable laws and regulations, the conflicting provision shall be
deemed never to have constituted a part of this Trust Instrument; provided,
however, that such determination shall not affect any of the remaining
provisions of this Trust Instrument or render invalid or improper any action
taken or omitted prior to such determination. If any provision of this Trust
Instrument shall be held invalid or unenforceable in any jurisdiction, such
invalidity or unenforceability shall attach only to such provision in such
jurisdiction and shall not in any manner affect such provisions in any other
jurisdiction or any other provision of this Trust Instrument in any
jurisdiction.
Section 9.11 Allocation of Certain Expenses. Each Shareholder
will, at the discretion of the Trustees, indemnify the Trust against all
expenses and losses resulting from indebtedness incurred in connection with
facilitating (i) requests pending receipt of the collected funds from
investments sold on the date of such Shareholder's redemption request; (ii)
redemption requests from such Shareholder who has also notified the Trust of its
intention to deposit funds in its accounts on the date of said redemption
request; or (iii) the purchase of investments pending receipt of collected funds
from such Shareholder who has notified the Trust of its intention to deposit
funds in its accounts on the date of the purchase of the investments.
IN WITNESS WHEREOF, the undersigned, being the Trustee of the
Trust, has executed this Declaration of Trust as of the 3rd day of September,
1998.
/s/ ROBERT E. LEECH
------------------------------
Robert E. Leech
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EXHIBIT (2)
Governor Funds
BY-LAWS
These By-laws (the "By-laws") of Governor Funds (the "Trust"),
a Delaware business trust, are subject to the Governor Funds Declaration of
Trust dated September 3, 1998, as from time to time amended, supplemented
or restated (the "Trust Instrument"). Capitalized terms used herein which are
defined in the Trust Instrument are used as therein defined.
ARTICLE I
PRINCIPAL OFFICE
The principal office of the Trust shall be located in such
location as the Trustees may from time to time determine. The Trust may
establish and maintain such other offices and places of business as the Trustees
may from time to time determine.
ARTICLE II
OFFICERS AND THEIR ELECTION
Section 2.1 Officers. The officers of the Trust shall be a
President, a Treasurer, a Secretary, and such other officers as the Trustees may
from time to time elect. It shall not be necessary for any Trustee or other
officer to be a holder of Shares in the Trust.
Section 2.2 Election of Officers. Two or more offices may be
held by a single person. Subject to the provisions of Section 2.3 hereof, the
officers shall hold office until their successors are chosen and qualified and
serve at the pleasure of the Trustees.
Section 2.3 Resignations. Any officer of the Trust may resign
by filing a written resignation with the President, the Secretary or the
Trustees, which resignation shall take effect on being so filed or at such later
time as may be therein specified.
ARTICLE III
POWERS AND DUTIES OF OFFICERS AND TRUSTEES
Section 3.1 Chief Executive Officer. Unless the Trustees have
designated the Chairman as the chief executive officer of the Trust, the
President shall be the chief executive officer of the Trust and shall preside at
all meetings of the Shareholders.
<PAGE> 2
Section 3.2 Treasurer. The Treasurer shall be the principal
financial and accounting officer of the Trust. He shall deliver all funds and
securities of the Trust which may come into his hands to such company as the
Trustees shall employ as Custodian in accordance with the Trust Instrument and
applicable provisions of law. He shall make annual reports regarding the
business and condition of the Trust, which reports shall be preserved in Trust
records, and he shall furnish such other reports regarding the business and
condition of the Trust as the Trustees may from time to time require. The
Treasurer shall perform such additional duties as the Trustees or the chief
executive officer may from time to time designate.
Section 3.3 Secretary. The Secretary shall record in books
kept for the purpose all votes and proceedings of the Trustees and the
Shareholders at their respective meetings. He shall have the custody of the seal
of the Trust. The Secretary shall perform such additional duties as the Trustees
or the chief executive officer may from time to time designate.
Section 3.4 Vice President. Any Vice President of the Trust
shall perform such duties as the Trustees or the chief executive officer may
from time to time designate. At the request or in the absence or disability of
the President, the most senior Vice President present and able to act may
perform all the duties of the President and, when so acting, shall have all the
powers of and be subject to all the restrictions upon the President.
Section 3.5 Assistant Treasurer. Any Assistant Treasurer of
the Trust shall perform such duties as the Trustees or the Treasurer may from
time to time designate, and, in the absence of the Treasurer, the most senior
Assistant Treasurer present and able to act may perform all the duties of the
Treasurer.
Section 3.6 Assistant Secretary. Any Assistant Secretary of
the Trust shall perform such duties as the Trustees or the Secretary may from
time to time designate, and, in the absence of the Secretary, the most senior
Assistant Secretary present and able to act may perform all the duties of the
Secretary.
Section 3.7 Additional Officers. The Trustees from time to
time may appoint such other officers or agents as they may deem advisable, each
of whom shall have such title, hold office for such period, have such authority
and perform such duties as the Trustees may determine.
Section 3.8 Surety Bonds. The Trustees may require any officer
or agent of the Trust to execute a bond (including, without limitation, any bond
required by the Investment Company Act of 1940 (the "1940 Act")) in such sum and
with such surety or sureties as the Trustees may determine, conditioned upon the
faithful performance of his duties to the Trust including responsibility for
negligence and for the accounting of any of the Trust's property, funds or
securities that may come into his hands.
Section 3.9 Removal. Any officer may be removed from office at
any time by the Trustees.
Section 3.10 Remuneration. The salaries or other compensation,
if any, of the officers of the Trust shall be fixed from time to time by
resolution of the Trustees.
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<PAGE> 3
Section 3.11 Qualifications of Directors. No person over the
age of 70 shall be eligible to serve as a trustee of the Trust. Trustees of the
Trust shall retire as trustees when they attain the age of 70.
ARTICLE IV
SHAREHOLDERS' MEETINGS
Section 4.1 Notices. Notices of any meeting of the
Shareholders shall be given by the Secretary by delivering or mailing, postage
prepaid, to each Shareholder entitled to vote at said meeting, written or
printed notification of such meeting at least seven days before the meeting, to
such address as may be registered with the Trust by the Shareholder. Notice of
any Shareholder meeting need not be given to any Shareholder if a written waiver
of notice, executed before or after such meeting, is filed with the record of
such meeting, or to any Shareholder who shall attend such meeting in person or
by proxy. Notice of adjournment of a Shareholders' meeting to another time or
place need not be given, if such time and place are announced at the meeting or
reasonable notice is given to persons present at the meeting.
Section 4.2 Voting-Proxies. Subject to the provisions of the
Trust Instrument, Shareholders entitled to vote may vote either in person or by
proxy, provided that either (i) an instrument authorizing such proxy to act is
executed by the Shareholder in writing and dated not more than eleven months
before the meeting, unless the instrument specifically provides for a longer
period or (ii) the Trustees adopt by resolution an electronic, telephonic,
computerized or other alternative to execution of a written instrument
authorizing the proxy to act, which authorization is received not more than
eleven months before the meeting. Proxies shall be delivered to the Secretary of
the Trust or other person responsible for recording the proceedings before being
voted. A proxy with respect to Shares held in the name of two or more persons
shall be valid if executed by one of them unless at or prior to exercise of such
proxy the Trust receives a specific written notice to the contrary from any one
of them. Unless otherwise specifically limited by their terms, proxies shall
entitle the holder thereof to vote at any adjournment of a meeting. A proxy
purporting to be exercised by or on behalf of a Shareholder shall be deemed
valid unless challenged at or prior to its exercise and the burden of proving
invalidity shall rest on the challenger. At all meetings of the Shareholders,
unless the voting is conducted by inspectors, all questions relating to the
qualifications of voters, the validity of proxies, and the acceptance or
rejection of votes shall be decided by the Chairman of the meeting. Except as
otherwise provided herein or in the Trust Instrument, all matters relating to
the giving, voting or validity of proxies shall be governed by the General
Corporation Law of the State of Delaware relating to proxies, and judicial
interpretations thereunder, as if the Trust were a Delaware corporation and the
Shareholders were shareholders of a Delaware corporation.
Section 4.3 Place of Meeting. All meetings of the Shareholders
shall be held at such places as the Trustees may designate.
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<PAGE> 4
ARTICLE V
SHARES OF BENEFICIAL INTEREST
Section 5.1 Share Certificate. No certificates certifying the
ownership of Shares shall be issued except as the Trustees may otherwise
authorize. The Trustees may issue certificates to a Shareholder of any Series or
Class thereof for any purpose and the issuance of a certificate to one or more
Shareholders shall not require the issuance of certificates generally. In the
event that the Trustees authorize the issuance of Share certificates, such
certificate shall be in the form prescribed from time to time by the Trustees
and shall be signed by the President or a Vice President and by the Treasurer,
Assistant Treasurer, Secretary or Assistant Secretary. Such signatures may be
facsimiles if the certificate is signed by a transfer or shareholder services
agent or by a registrar, other than a Trustee, officer or employee of the Trust.
In case any officer who has signed or whose facsimile signature has been placed
on such certificate shall have ceased to be such officer before such certificate
is issued, it may be issued by the Trust with the same effect as if he or she
were such officer at the time of its issue.
Section 5.2 Loss of Certificate. In case of the alleged loss
or destruction or the mutilation of a Share certificate, a duplicate certificate
may be issued in place thereof, upon such terms as the Trustees may prescribe.
Section 5.3 Discontinuance of Issuance of Certificates. The
Trustees may at any time discontinue the issuance of Share certificates and may,
by written notice to each Shareholder, require the surrender of Share
certificates to the Trust for cancellation. Such surrender and cancellation
shall not affect the ownership of Shares in the Trust.
ARTICLE VI
INSPECTION OF BOOKS
The Trustees shall from time to time determine whether and to
what extent, and at what times and places, and under what conditions and
regulations the accounts and books of the Trust or any of them shall be open to
the inspection of the Shareholders; and no Shareholder shall have any right to
inspect any account or book or document of the Trust except as conferred by law
or otherwise by the Trustees.
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ARTICLE VII
SEAL
The seal of the Trust shall be circular in form bearing the
inscription:
"Governor Funds -- 1998
THE STATE OF DELAWARE"
The form of the seal shall be subject to alteration by the
Trustees and the seal may be used by causing it or a facsimile to be impressed
or affixed or printed or otherwise reproduced.
Any officer or Trustee of the Trust shall have authority to
affix the seal of the Trust to any document, instrument or other paper executed
and delivered by or on behalf of the Trust; however, unless otherwise required
by the Trustees, the seal shall not be necessary to be placed on and its absence
shall not impair the validity of any document, instrument, or other paper
executed by or on behalf of the Trust.
ARTICLE VIII
AMENDMENTS
These By-laws may be amended from time to time by the
Trustees.
ARTICLE IX
HEADINGS
Headings are placed in these By-laws for convenience of
reference only and, in case of any conflict, the text of these By-laws rather
than the headings shall control.
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EXHIBIT (5)(a)
INVESTMENT ADVISORY AGREEMENT
This Agreement is made as of ___________, 1998, by and between
GOVERNOR FUNDS, a Delaware business trust (the "Trust"), and GOVERNORS GROUP
ADVISORS, INC., a Delaware corporation (the "Advisor").
WHEREAS, the Trust is registered as an open-end management
investment company under the Investment Company Act of 1940, as amended ("1940
Act"); and
WHEREAS, the Trust desires to retain the Advisor to provide,
or to arrange for the provision of, investment advisory services to twelve newly
created investment portfolios of the Trust and may retain the Advisor to serve
in such capacity to certain additional investment portfolios of the Trust, all
as now or hereafter may be identified in Schedule A hereto (such new investment
portfolios and any such additional investment portfolios together called the
"Funds") and the Advisor represents that it is willing and possesses legal
authority to so furnish such services without violation of applicable laws
(including the Glass- Steagall Act) and regulations;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, it is agreed between the parties hereto as follows:
SECTION 1. APPOINTMENT. The Trust hereby appoints the Advisor
to act as Advisor to the Funds for the period and on the terms set forth in this
Agreement. The Advisor accepts such appointment and agrees to furnish the
services herein set forth for the compensation herein provided. Additional
investment portfolios may from time to time be added to those covered by this
Agreement by the parties executing a new Schedule A which shall become effective
upon its execution and shall supersede any Schedule A having an earlier date.
SECTION 2. DELIVERY OF DOCUMENTS. The Trust has furnished the
Advisor with copies properly certified or authenticated of each of the
following:
(a) the Trust's Declaration of Trust (such
Declaration of Trust, as presently in effect and as it shall
from time to time be amended and restated, is herein called
the "Declaration of Trust");
(b) the Trust's By-Laws and any amendments thereto;
(c) resolutions of the Trust's Board of Trustees
authorizing the appointment of the Advisor and approving this
Agreement;
(d) the Trust's Notification of Registration on Form
N-8A under the 1940 Act as filed with the Securities and
Exchange Commission on ________, 1998 and all amendments
thereto;
<PAGE> 2
(e) all of the Trust's procedures and guidelines and
all resolutions of the Trust's Board relevant to the services
to be provided by the Advisor hereunder;
(f) the Trust's Registration Statement on Form N-lA
under the Securities Act of 1933, as amended ("1933 Act"),
(File No. ________), and under the 1940 Act as filed with the
Securities and Exchange Commission and the most recent
amendment thereto; and
(g) the most recent Prospectus and Statement of
Additional Information of each of the Funds (such Prospectus
and Statement of Additional Information, as presently in
effect, and all amendments and supplements thereto, are herein
collectively called the "Prospectus").
The Trust will furnish the Advisor from time to time
with copies of all amendments of or supplements to the foregoing.
SECTION 3. MANAGEMENT. Subject to the supervision of the
Trust's Board of Trustees, the Advisor will provide a continuous investment
program for each of the Funds, including investment research and management with
respect to all securities and investments and cash equivalents in the Funds. The
Advisor will determine from time to time what securities and other investments
will be purchased, retained or sold by the Trust with respect to the Funds and
will implement such determinations through the placement, in the name of the
Funds, of orders for the execution of portfolio transactions with or through
such brokers or dealers as it may select. The Advisor will provide the services
under this Agreement in accordance with each of the Fund's investment
objectives, policies, and restrictions as stated in the Prospectus, as the same
may be amended, supplemented or restated from time to time, and resolutions of
the Trust's Board of Trustees.
In fulfilling its responsibilities hereunder, the Advisor
further agrees that it will:
(a) use the same skill and care in providing such
services as it uses in providing services to fiduciary
accounts for which it has investment responsibilities;
(b) conform with all applicable Rules and Regulations
of the Securities and Exchange Commission and in addition will
conduct its activities under this Agreement in accordance with
any applicable regulations of any governmental authority
pertaining to the investment advisory activities of the
Advisor;
(c) not make loans to any person to purchase or carry
shares of beneficial interest in the Trust or make loans to
the Trust;
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<PAGE> 3
(d) place orders pursuant to its investment
determinations for the Funds either directly with the issuer
or with any broker or dealer. In placing orders with brokers
and dealers, the Advisor will attempt to obtain prompt
execution of orders in an effective manner at the most
favorable price. In assessing the best execution available for
any transaction, the Advisor shall consider all factors it
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-dealer and the
reasonableness of the commission, if any (for the specific
transaction and on a continuing basis). Consistent with this
obligation, the Advisor may, in its discretion and 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 Funds and/or other accounts over which the
Advisor exercises investment discretion. Subject to the review
of the Trust's Board of Trustees from time to time with
respect to the extent and continuation of the policy, the
Advisor is authorized to pay a broker or dealer who provides
such brokerage and research services a commission for
effecting a securities transaction for any of the Funds which
is in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction if,
but only if, the Advisor 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 the overall responsibilities of the Advisor with respect to
the accounts as to which it exercises investment discretion.
In placing orders with brokers and dealers, consistent with
applicable laws, rules and regulations, the Advisor may
consider the sale of shares of the Trust. Except as otherwise
permitted by applicable laws, rules and regulations, in no
instance will portfolio securities be purchased from or sold
to BISYS Fund Services Ohio Inc., the Advisor or any
affiliated person of the Trust, BISYS Fund Services Ohio Inc.
or the Advisor. In executing portfolio transactions for any
Fund, the Advisor may, but shall not be obligated to, to the
extent permitted by applicable laws and regulations, aggregate
the securities to be sold or purchased with those of other
Funds and its other clients where such aggregation is not
inconsistent with the policies set forth in the Trust's
registration statement. In such event, the Advisor will
allocate the securities so purchased or sold, and the expenses
incurred in the transaction, pursuant to any applicable law or
regulation and in the manner it considers to be the most
equitable and consistent with its fiduciary obligations to the
Funds and such other clients.
(e) will maintain all books and records with respect
to the securities transactions of the Funds and will furnish
the Trust's Board of Trustees such periodic and special
reports as the Board may request;
(f) will treat confidentially and as proprietary
information of the Trust all records and other information
relative to the Trust and the Funds and
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<PAGE> 4
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 Trust, which approval shall not be withheld where the
Advisor 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 Trust; and
(g) will maintain its policy and practice of
conducting its fiduciary functions independently. In making
investment recommendations for the Funds, the Advisor's
personnel will not inquire or take into consideration whether
the issuers of securities proposed for purchase or sale for
the Trust's account are customers of the Advisor or of its
parents, subsidiaries or affiliates. In dealing with such
customers, the Advisor and its parents, subsidiaries, and
affiliates will not inquire or take into consideration whether
securities of those customers are held by the Trust.
SECTION 4. SUB-ADVISOR. It is understood that the Advisor may
from time to time employ or associate with itself such person or persons as the
Advisor believes to be fitted to assist it in the performance of this Agreement
(each a "Sub-Advisor"); provided, however, that the compensation of such person
or persons shall be paid by the Advisor and that the Advisor shall be as fully
responsible to the Trust for the acts and omissions of any such person as it is
for its own acts and omissions; and provided further, that the retention of any
Sub-Advisor shall be approved as may be required by the 1940 Act. In the event
that any Sub-Advisor appointed hereunder is terminated, the Advisor may provide
investment advisory services pursuant to this Agreement to the Funds without
further shareholder approval.
SECTION 5. SERVICES NOT EXCLUSIVE. The Advisor will for all
purposes herein be deemed to be an independent contractor and will, unless
otherwise expressly provided herein or authorized by the Board from time to
time, have no authority to act for or represent the Trust in any way or
otherwise be deemed its agent. The investment management services furnished by
the Advisor hereunder are not to be deemed exclusive, and the Advisor shall be
free to furnish similar services to others so long as its services under this
Agreement are not impaired thereby.
SECTION 6. BOOKS AND RECORDS. In compliance with the
requirements of Rule 3la-3 under the 1940 Act, the Advisor hereby agrees that
all records which it maintains for the Funds are the property of the Trust and
further agrees to surrender promptly to the Trust any of such records upon the
Trust's request. The Advisor further agrees 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 the 1940 Act.
SECTION 7. EXPENSES. During the term of this Agreement, the
Advisor will pay all expenses incurred by it in connection with its activities
under this Agreement other than the cost of securities (including brokerage
commissions, if any) purchased for the Funds.
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<PAGE> 5
SECTION 8. COMPENSATION. For the services provided and the
expenses assumed pursuant to this Agreement, each of the Funds will pay the
Advisor and the Advisor will accept as full compensation therefor a fee as set
forth on Schedule A hereto. The obligations of the Funds to pay the
above-described fee to the Advisor will begin as of the respective dates of the
initial public sale of shares in the Funds; provided, however, that the Advisor
may from time to time waive some or all of such fees until such time as it
notifies the Trust that it has terminated such waiver. Upon any termination of
this Agreement before the end of any month, the fee for such part of a month
shall be prorated according to the proportion which such period bears to the
full monthly period and shall be payable upon the date of termination of this
Agreement.
For the purpose of determining fees payable to the Advisor,
the value of the net assets of a particular Fund shall be computed in the manner
described in the Trust's Declaration of Trust or in the Prospectus or Statement
of Additional Information respecting that Fund as from time to time is in effect
for the computation of the value of such net assets in connection with the
determination of the liquidating value of the shares of such Fund.
SECTION 9. LIMITATION OF LIABILITY. Notwithstanding anything
herein to the contrary, the Advisor shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Funds in connection
with the performance of this Agreement, 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 on the
part of the Advisor in the performance of its duties or from reckless disregard
by it of its obligations and duties under this Agreement.
SECTION 10. DURATION AND TERMINATION. This Agreement will
become effective as of the date first written above (or, if a particular Fund is
not in existence on that date, on the date a registration statement or
post-effective amendment to a registration statement relating to that Fund
becomes effective with the Securities and Exchange Commission and Schedule A
hereto is amended to add such Fund), provided that it shall have been approved
by vote of a majority of the outstanding voting securities of such Fund, in
accordance with the requirements under the 1940 Act, and, unless sooner
terminated as provided herein, shall continue in effect until _______, 2000.
Thereafter, if not terminated, this Agreement shall continue
in effect as to a particular Fund for successive periods of twelve months each
ending on ______ of each year, provided such continuance is specifically
approved at least annually (a) by the vote of a majority of those members of the
Trust's Board of Trustees who are not parties to this Agreement or interested
persons of any party to this Agreement, cast in person at a meeting called for
the purpose of voting on such approval, and (b) by the vote of a majority of the
Trust's Board of Trustees or by the vote of a majority of all votes attributable
to the outstanding Shares of such Fund. Notwithstanding the foregoing, this
Agreement may be terminated as to a particular Fund at any time on sixty days'
written notice to the other party, without the payment of any penalty, by the
Trust (by vote of the Trust's Board of Trustees or by vote of a majority of the
outstanding voting securities of such Fund) or by the Advisor. This Agreement
will immediately terminate in
-5-
<PAGE> 6
the event of its assignment. (As used in this Agreement, the terms "majority of
the outstanding voting securities," "interested persons" and "assignment" shall
have the same meanings as ascribed to such terms in the 1940 Act.)
SECTION 11. ADVISOR'S REPRESENTATIONS. The Advisor hereby
represents that it is willing and possesses all requisite legal authority to
provide the services contemplated by this Agreement without violation of
applicable laws and regulations, including but not limited to the Glass-Steagall
Act and the regulations promulgated thereunder.
SECTION 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.
SECTION 13. NAME. The Trust hereby acknowledges that the name
"Governor(s)" is a property right of the Advisor. The Advisor agrees that the
Trust and the Funds may, so long as this Agreement remains in effect, use
"Governor(s)" as part of its name. The Advisor may permit other persons, firms
or corporations, including other investment companies, to use such name and may,
upon termination of this Agreement, require the Trust and the Funds to refrain
from using the name "Governor(s)" in any form or combination in its name or in
its business or in the name of any of its Funds, and the Trust shall, as soon as
practicable following its receipt of any such request from the Advisor, so
refrain from using such name.
SECTION 14. YEAR 2000 COMPLIANT. The Advisor represents and
warrants that all services rendered and all computer systems used in the
performance of the Advisor's obligations under this Agreement shall be Year 2000
Compliant. "Year 2000 Compliant" means that the services and systems are
designed to and shall:
(a) operate in the year 2000 and later with four digit year
date capability;
(b) operate fault-free in the processing of date and
date-dependent data before, during and after January 1, 2000, including
but not limited to accepting date input, providing date output, and
performing date calculations, comparison and sequencing;
(c) function accurately and without interruption before,
during, and after January 1, 2000, without any adverse effect on
operations and associated with the advent of the new century;
(d) store and provide output of date information in ways that
are unambiguous as to century.
The representations and warranties contained herein may not be disclaimed or
limited by operation of law.
-6-
<PAGE> 7
SECTION 15. LIMITATION OF LIABILITY OF THE TRUSTEES AND
SHAREHOLDERS. Governor Funds is a business trust organized under Delaware law
and under a Declaration of Trust, to which reference is hereby made and a copy
of which is on file at the Office of the Secretary of State of Delaware as
required by law, and to any and all amendments thereto so filed or hereafter
filed. The obligations of "Governor Funds" entered into in the name or on behalf
thereof by any of the Trustees, officers, employees or agents are made not
individually, but in such capacities, and are not binding upon any of the
Trustees, officers, employees, agents or shareholders of the Trust personally,
but bind only the assets of the Trust, and all persons dealing with any of the
Funds of the Trust must look solely to the assets of the Trust belonging to such
Fund for the enforcement of any claims against the Trust.
SECTION 16. 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 the law of the State of Delaware; provided that nothing herein shall
be construed in a manner inconsistent with the 1940 Act, the Advisers Act of
1940, as amended, or any rule or regulation of the Securities and Exchange
Commission thereunder. This Agreement may be executed in two or more
counterparts which together shall constitute a single Agreement.
-7-
<PAGE> 8
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.
GOVERNOR FUNDS
By _____________________________________
Name ___________________________________
Title __________________________________
GOVERNORS GROUP ADVISORS, INC.
By _____________________________________
Name ___________________________________
Title __________________________________
Dated: _____ , 1998
-8-
<PAGE> 9
Schedule A
to the
Investment Advisory Agreement
between Governor Funds and
Governors Group Advisors, Inc.
dated as of _______, 1998
<TABLE>
<CAPTION>
NAME OF FUND COMPENSATION* DATE
- ------------ ------------- ----
<S> <C> <C>
Prime Money Market Fund Annual Rate of .40% of such Fund's ________, 1998
average net assets
Pennsylvania Annual Rate of .60% of such Fund's ________, 1998
Municipal Bond average daily net assets
Fund
Established Growth Annual Rate of .75% of such Fund's ________, 1998
Fund average daily net assets
Intermediate Term Income Annual Rate of .60% of such Fund's ________, 1998
Fund average daily net assets
Aggressive Growth Annual Rate of 1.00% of such Fund's ________, 1998
Fund average daily net assets
U.S. Treasury Annual Rate of .40% of such Fund's ________, 1998
Obligations Money average daily net assets
Market Fund
Limited Duration Annual Rate of .60% of such Fund's ________, 1998
Government average daily net assets
Securities Fund
Emerging Growth Annual Rate of 1.25% of such Fund's ________, 1998
Fund average daily net assets
International Growth Fund Annual Rate of 1.25% of such Fund's ________, 1998
average daily net assets
Lifestyle Conservative Annual Rate of .25% of such Fund's ________, 1998
Growth Fund average daily net assets
Lifestyle Moderate Annual Rate of .25% of such Fund's ________, 1998
Growth Fund average daily net assets
</TABLE>
<PAGE> 10
<TABLE>
<CAPTION>
NAME OF FUND COMPENSATION* DATE
- ------------ ------------- ----
<S> <C> <C>
Lifestyle Growth Fund Annual Rate of .25% of such Fund's ________, 1998
average daily net assets
</TABLE>
*All Fees are computed daily and paid monthly.
GOVERNORS GROUP ADVISORS, INC. GOVERNOR FUNDS
By ___________________________ By ___________________________
Name _________________________ Name _________________________
Title ________________________ Title ________________________
-2-
<PAGE> 1
EXHIBIT (5)(b)
INVESTMENT SUB-ADVISORY AGREEMENT
This Agreement is made as of ___________, 1998, by and between
GOVERNORS GROUP ADVISORS, INC., a Delaware corporation (the "Advisor"), and
MARTINDALE ANDRES & COMPANY, INC., a Pennsylvania corporation (the
"Sub-Advisor").
WHEREAS, Governor Funds, a Delaware business trust (the
"Trust"), is registered as an open-end management investment company under the
Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, pursuant to an Investment Advisory Agreement dated as
of ___________, 1998, by and between the Trust and the Advisor (the "Advisory
Agreement"), the Advisor has agreed to furnish investment advisory services to
the Trust with respect to each of its investment portfolios; and
WHEREAS, the Advisory Agreement expressly authorizes the
Advisor to employ or associate itself with one or more investment sub-advisers
provided that the retention of any such sub-adviser shall be approved in
accordance with the provisions of the 1940 Act; and
WHEREAS, the Advisor desires to appoint the Sub-Advisor as
investment sub-adviser to each investment portfolio of the Trust set forth on
Schedule A hereto (each, a "Fund," collectively, the "Funds"), and the
Sub-Advisor wishes to accept such appointment; and
WHEREAS, the Board of Trustees of the Trust and the
shareholders of each Fund have approved this Agreement and the appointment of
the Sub-Advisor as investment sub-adviser to such Fund.
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, it is agreed between the parties hereto as follows:
SECTION 1. APPOINTMENT. The Advisor hereby appoints the
Sub-Advisor to act as investment sub-adviser to the Funds for the period and on
the terms set forth in this Agreement. The Sub-Advisor accepts such appointment
and agrees to furnish the services herein set forth for the compensation herein
provided. Additional investment portfolios may from time to time be added to
those covered by this Agreement by the parties executing a new Schedule A which
shall become effective upon its execution and shall supersede any Schedule A
having an earlier date.
SECTION 2. DELIVERY OF DOCUMENTS. The Trust or Advisor has
furnished the Sub-Advisor with copies properly certified or authenticated of
each of the following:
<PAGE> 2
(a) the Trust's Certificate of Trust, as filed with
the Secretary of State of Delaware on ________, 1998, as
amended or restated to the date hereof;
(b) the Trust's Declaration of Trust, as amended or
restated to the date hereof (such Declaration, as presently in
effect and as it shall from time to time be amended and
restated, is herein called the "Declaration of Trust");
(c) the Trust's By-Laws and any amendments thereto;
(d) resolutions of the Trust's Board of Trustees
authorizing the appointment of the Sub-Advisor and approving
this Agreement;
(e) the Trust's Notification of Registration on Form
N-8A under the 1940 Act as filed with the Securities and
Exchange Commission on ______________ and all amendments
thereto;
(f) all of the Trust's procedures and guidelines and
all resolutions of the Trust's Board relevant to the services
to be provided by the Sub-Advisor hereunder;
(g) the Trust's Registration Statement on Form N-lA
under the Securities Act of 1933, as amended ("1933 Act"),
(File No. ________), and under the 1940 Act as filed with the
Securities and Exchange Commission and the most recent
amendment thereto; and
(h) the most recent Prospectus and Statement of
Additional Information of each of the Funds (such Prospectus
and Statement of Additional Information, as presently in
effect, and all amendments and supplements thereto, are herein
collectively called the "Prospectus").
The Trust will furnish the Sub-Advisor from time to
time with copies of all amendments of or supplements to the foregoing.
SECTION 3. MANAGEMENT. Subject to the supervision of the
Advisor and the Trust's Board of Trustees, the Sub-Advisor will provide a
continuous investment program for each of the Funds, including investment
research and management with respect to all securities and investments and cash
equivalents in the Funds. The Sub-Advisor will determine from time to time what
securities and other investments will be purchased, retained or sold by the
Trust with respect to the Funds and will implement such determinations through
the placement, in the name of the Funds, of orders for the execution of
portfolio transactions with or through such brokers or dealers as it may select.
The Sub-Advisor will provide the services under this Agreement in accordance
with each of the Fund's investment objectives, policies, and restrictions as
stated in the Prospectus, as the same may be amended, supplemented or restated
from time to time, and resolutions of the Trust's Board of Trustees.
-2-
<PAGE> 3
In fulfilling its responsibilities hereunder, the Sub-Advisor
further agrees that it will:
(a) use the same skill and care in providing such
services as it uses in providing services to fiduciary
accounts for which it has investment responsibilities;
(b) conform with all applicable Rules and Regulations
of the Securities and Exchange Commission and in addition will
conduct its activities under this Agreement in accordance with
any applicable regulations of any governmental authority
pertaining to the investment advisory activities of the
Sub-Advisor;
(c) not make loans to any person to purchase or carry
shares of beneficial interest in the Trust or make loans to
the Trust;
(d) place orders pursuant to its investment
determinations for the Funds either directly with the issuer
or with any broker or dealer. In placing orders with brokers
and dealers, the Sub-Advisor will attempt to obtain prompt
execution of orders in an effective manner at the most
favorable price. In assessing the best execution available for
any transaction, the Sub-Advisor shall consider all factors it
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-dealer and the
reasonableness of the commission, if any (for the specific
transaction and on a continuing basis). Consistent with this
obligation, the Sub-Advisor may, in its discretion and 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 Funds and/or other accounts over which the
Sub-Advisor exercises investment discretion. Subject to the
review of the Advisor and the Trust's Board of Trustees from
time to time with respect to the extent and continuation of
the policy, the Sub-Advisor is authorized to pay a broker or
dealer who provides such brokerage and research services a
commission for effecting a securities transaction for any of
the Funds which is in excess of the amount of commission
another broker or dealer would have charged for effecting that
transaction if, but only if, the Sub-Advisor 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 the overall responsibilities of the
Sub-Advisor with respect to the accounts as to which it
exercises investment discretion. In placing orders with
brokers and dealers, consistent with applicable laws, rules
and regulations, the Sub-Advisor may consider the sale of
shares of the Trust. Except as otherwise permitted by
applicable laws, rules and regulations, in no instance will
portfolio securities be purchased from or sold to BISYS Fund
Services Ohio Inc., the Advisor, the Sub-Advisor or any
affiliated person of the Trust, BISYS Fund Services Ohio Inc.,
the Advisor or the Sub-Advisor. In
-3-
<PAGE> 4
executing portfolio transactions for any Fund, the Sub-Advisor
may, but shall not be obligated to, to the extent permitted by
applicable laws and regulations, aggregate the securities to
be sold or purchased with those of other Funds and its other
clients where such aggregation is not inconsistent with the
policies set forth in the Trust's registration statement. In
such event, the Sub-Advisor will allocate the securities so
purchased or sold, and the expenses incurred in the
transaction, pursuant to any applicable law or regulation and
in the manner it considers to be the most equitable and
consistent with its fiduciary obligations to the Funds and
such other clients.
(e) will maintain all books and records with respect
to the securities transactions of the Funds and will furnish
the Advisor and the Trust's Board of Trustees such periodic
and special reports as the Advisor or the Board may request;
(f) will treat confidentially and as proprietary
information of the Trust all records and other information
relative to the Trust and the Funds 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 Trust, which
approval shall not be withheld where the Sub-Advisor 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 Trust;
and
(g) will maintain its policy and practice of
conducting its fiduciary functions independently. In making
investment recommendations for the Funds, the Sub-Advisor's
personnel will not inquire or take into consideration whether
the issuers of securities proposed for purchase or sale for
the Trust's account are customers of the Sub-Advisor or of its
parents, subsidiaries or affiliates. In dealing with such
customers, the Sub-Advisor and its parents, subsidiaries, and
affiliates will not inquire or take into consideration whether
securities of those customers are held by the Trust.
SECTION 4. SERVICES NOT EXCLUSIVE. The Sub-Advisor will for
all purposes herein be deemed to be an independent contractor and will, unless
otherwise expressly provided herein or authorized by the Board from time to
time, have no authority to act for or represent the Trust in any way or
otherwise be deemed its agent. The investment management services furnished by
the Sub-Advisor hereunder are not to be deemed exclusive, and the Sub-Advisor
shall be free to furnish similar services to others so long as its services
under this Agreement are not impaired thereby.
SECTION 5. BOOKS AND RECORDS. In compliance with the
requirements of Rule 3la-3 under the 1940 Act, the Sub-Advisor hereby agrees
that all records which it maintains for the Funds are the property of the Trust
and further agrees to surrender promptly to the Trust any of such records upon
the Trust's request. The Sub-Advisor further agrees to
-4-
<PAGE> 5
preserve for the periods prescribed by Rule 3la-2 under the 1940 Act the records
required to be maintained by Rule 3la-1 under the 1940 Act.
SECTION 6. EXPENSES. During the term of this Agreement, the
Sub-Advisor will pay all expenses incurred by it in connection with its
activities under this Agreement other than the cost of securities (including
brokerage commissions, if any) purchased for the Funds.
SECTION 7. COMPENSATION. For the services provided and the
expenses assumed pursuant to this Agreement, the Advisor will pay the
Sub-Advisor and the Sub-Advisor will accept as full compensation therefor a fee
as set forth on Schedule A hereto. The obligations of the Advisor to pay the
above-described fee to the Sub-Advisor will begin as of the respective dates of
the initial public sale of shares in the Funds; provided, however, that the
Sub-Advisor may from time to time voluntarily waive any or all such fees. Upon
any termination of this Agreement before the end of any month, the fee for such
part of a month shall be prorated according to the proportion which such period
bears to the full monthly period and shall be payable upon the date of
termination of this Agreement.
For the purpose of determining fees payable to the
Sub-Advisor, the value of the net assets of a particular Fund shall be computed
in the manner described in the Trust's Declaration of Trust or in the Prospectus
or Statement of Additional Information respecting that Fund as from time to time
is in effect for the computation of the value of such net assets in connection
with the determination of the liquidating value of the shares of such Fund.
SECTION 8. LIMITATION OF LIABILITY. Notwithstanding anything
herein to the contrary, the Sub-Advisor shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Funds or the Advisor
in connection with the performance of this Agreement, 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 on the part of the Sub-Advisor in the performance of its duties or
from reckless disregard by it of its obligations and duties under this
Agreement.
SECTION 9. DURATION AND TERMINATION. This Agreement will
become effective as of the date first written above (or, if a particular Fund is
not in existence on that date, on the date a registration statement or
post-effective amendment to a registration statement relating to that Fund
becomes effective with the Securities and Exchange Commission and Schedule A
hereto is amended to add such Fund), provided that it shall have been approved
by vote of a majority of the outstanding voting securities of such Fund, in
accordance with the requirements under the 1940 Act, and, unless sooner
terminated as provided herein, shall continue in effect until June 30, 2000.
Thereafter, if not terminated, this Agreement shall
continue in effect as to a particular Fund for successive periods of twelve
months each ending on June 30 of each year, provided such continuance is
specifically approved at least annually (a) by the vote of a majority of those
members of the Trust's Board of Trustees who are not parties to this Agreement
or interested persons of any party to this Agreement, cast in person at a
meeting called for the purpose of voting on such approval, and (b) by the vote
of a majority of the Trust's Board of
-5-
<PAGE> 6
Trustees or by the vote of a majority of all votes attributable to the
outstanding Shares of such Fund. Notwithstanding the foregoing, this Agreement
may be terminated as to a particular Fund at any time on sixty days' written
notice to the other parties, without the payment of any penalty, by the Advisor
or by the Trust (by vote of the Trust's Board of Trustees or by vote of a
majority of the outstanding voting securities of such Fund) or by the
Sub-Advisor. This Agreement will immediately terminate in the event of its
assignment and in the event of the termination of the Advisory Agreement. (As
used in this Agreement, the terms "majority of the outstanding voting
securities," "interested persons" and "assignment" shall have the same meanings
as ascribed to such terms in the 1940 Act.)
SECTION 10. SUB-ADVISOR'S REPRESENTATIONS. The Sub-Advisor
hereby represents that it is willing and possesses all requisite legal authority
to provide the services contemplated by this Agreement without violation of
applicable laws and regulations, including but not limited to the Glass-Steagall
Act and the regulations promulgated thereunder.
SECTION 11. 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.
SECTION 12. YEAR 2000 COMPLIANT. The Sub-Advisor represents
and warrants that all services rendered and all computer systems used in the
performance of the Sub-Advisor's obligations under this Agreement shall be Year
2000 Compliant. "Year 2000 Compliant" means that the services and systems are
designed to and shall:
(a) operate in the year 2000 and later with four digit year
date capability;
(b) operate fault-free in the processing of date and
date-dependent data before, during and after January 1, 2000, including but not
limited to accepting date input, providing date output, and performing date
calculations, comparison and sequencing;
(c) function accurately and without interruption before,
during, and after January 1, 2000, without any adverse effect on operations and
associated with the advent of the new century;
(d) store and provide output of date information in ways that
are unambiguous as to century.
The representations and warranties contained herein may not be disclaimed or
limited by operation of law.
SECTION 13. LIMITATION OF LIABILITY OF THE TRUSTEES AND
SHAREHOLDERS. Governor Funds is a business trust organized under Delaware law
and under a Declaration of Trust, to which reference is hereby made and a copy
of which is on file at the Office of the Secretary of State of Delaware as
required by law, and to any and all amendments thereto so filed or hereafter
filed. The obligations of "Governor Funds" entered into
-6-
<PAGE> 7
in the name or on behalf thereof by any of the Trustees, officers, employees or
agents are made not individually, but in such capacities, and are not binding
upon any of the Trustees, officers, employees, agents or shareholders of the
Trust personally, but bind only the assets of the Trust, and all persons dealing
with any of the Funds of the Trust must look solely to the assets of the Trust
belonging to such Fund for the enforcement of any claims against the Trust.
SECTION 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 the law of the State of Delaware; provided that nothing herein shall
be construed in a manner inconsistent with the 1940 Act, the Investment Advisers
Act of 1940, as amended, or any rule or regulation of the Securities and
Exchange Commission thereunder. This Agreement may be executed in two or more
counterparts which together shall constitute a single Agreement.
-7-
<PAGE> 8
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.
GOVERNORS GROUP ADVISORS, INC.
By ___________________________________
Name ___________________________________
Title___________________________________
MARTINDALE ANDRES & COMPANY, INC.
By ___________________________________
Name ___________________________________
Title___________________________________
Dated: _____ , 1998
-8-
<PAGE> 9
Schedule A
to the
Investment Advisory Agreement
between
Governors Group Advisors, Inc.
and
Martindale Andres & Company, Inc.
dated as of __________, 1998
<TABLE>
<CAPTION>
NAME OF FUND COMPENSATION* DATE
- ------------ ------------- ----
<S> <C> <C>
Prime Money Market Fund Annual Rate of .10% of such Fund's ________, 1998
average net assets
Pennsylvania Annual Rate of .30% of such Fund's ________, 1998
Municipal Bond average daily net assets
Fund
Established Growth Annual Rate of .40% of such Fund's ________, 1998
Fund average daily net assets
Intermediate Term Income Annual Rate of .30% of such Fund's ________, 1998
Fund average daily net assets
Aggressive Growth Annual Rate of .50% of such Fund's ________, 1998
Fund average daily net assets
U.S. Treasury Annual Rate of .20% of such Fund's ________, 1998
Obligations Money average daily net assets
Market Fund
Limited Duration Annual Rate of .30% of such Fund's ________, 1998
Government average daily net assets
Securities Fund
Emerging Growth Annual Rate of .50% of such Fund's ________, 1998
Fund average daily net assets
Lifestyle Conservative Annual Rate of .05% of such Fund's ________, 1998
Growth Fund average daily net assets
Lifestyle Moderate Annual Rate of .05% of such Fund's ________, 1998
Growth Fund average daily net assets
</TABLE>
<PAGE> 10
<TABLE>
<CAPTION>
NAME OF FUND COMPENSATION* DATE
- ------------ ------------- ----
<S> <C> <C>
Lifestyle Growth Fund Annual Rate of .05% of such Fund's ________, 1998
average daily net assets
</TABLE>
*All Fees are computed daily and paid monthly.
GOVERNORS GROUP ADVISORS, INC. MARTINDALE ANDRES & COMPANY, INC.
By ____________________________ By ____________________________
Name ____________________________ Name ____________________________
Title____________________________ Title____________________________
-2-
<PAGE> 1
EXHIBIT (5)(c)
INVESTMENT SUB-ADVISORY AGREEMENT
This Agreement is made as of ___________, 1998, by and between
GOVERNORS GROUP ADVISORS, INC., a Delaware corporation (the "Advisor"), and
BRINSON PARTNERS, INC., a Delaware corporation (the "Sub-Advisor").
WHEREAS, Governor Funds, a Delaware business trust (the
"Trust"), is registered as an open-end management investment company under the
Investment Company Act of 1940, as amended ("1940 Act"); and
WHEREAS, pursuant to an Investment Advisory Agreement dated as
of ___________, 1998, by and between the Trust and the Advisor (the "Advisory
Agreement"), the Advisor has agreed to furnish investment advisory services to
the Trust with respect to each of its investment portfolios; and
WHEREAS, the Advisory Agreement expressly authorizes the
Advisor to employ or associate itself with one or more investment sub-advisers
provided that the retention of any such sub-adviser shall be approved in
accordance with the provisions of the 1940 Act; and
WHEREAS, the Advisor desires to appoint the Sub-Advisor as
investment sub-adviser to the International Equity Fund, an investment portfolio
of the Trust, and to each additional investment portfolio of the Trust as may
from time to time be identified on Schedule A hereto (each, a "Fund,"
collectively, the "Funds"), and the Sub-Advisor wishes to accept such
appointment; and
WHEREAS, the Board of Trustees of the Trust and the
shareholders of each Fund have approved this Agreement and the appointment of
the Sub-Advisor as investment sub-adviser to such Fund.
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, it is agreed between the parties hereto as follows:
SECTION 1. APPOINTMENT. The Advisor hereby appoints the
Sub-Advisor to act as investment sub-adviser to the Funds for the period and on
the terms set forth in this Agreement. The Sub-Advisor accepts such appointment
and agrees to furnish the services herein set forth for the compensation herein
provided. Additional investment portfolios may from time to time be added to
those covered by this Agreement by the parties executing a new Schedule A which
shall become effective upon its execution and shall supersede any Schedule A
having an earlier date.
SECTION 2. DELIVERY OF DOCUMENTS. The Trust or Advisor has
furnished the Sub-Advisor with copies properly certified or authenticated of
each of the following:
<PAGE> 2
(a) the Trust's Certificate of Trust, as filed with
the Secretary of State of Delaware on ________, 1998, as
amended or restated to the date hereof;
(b) the Trust's Declaration of Trust, as amended or
restated to the date hereof (such Declaration, as presently in
effect and as it shall from time to time be amended and
restated, is herein called the "Declaration of Trust");
(c) the Trust's By-Laws and any amendments thereto;
(d) resolutions of the Trust's Board of Trustees
authorizing the appointment of the Sub-Advisor and approving
this Agreement;
(e) the Trust's Notification of Registration on Form
N-8A under the 1940 Act as filed with the Securities and
Exchange Commission on ______________ and all amendments
thereto;
(f) all of the Trust's procedures and guidelines and
all resolutions of the Trust's Board relevant to the services
to be provided by the Sub-Advisor hereunder;
(g) the Trust's Registration Statement on Form N-lA
under the Securities Act of 1933, as amended ("1933 Act"),
(File No. ________), and under the 1940 Act as filed with the
Securities and Exchange Commission and the most recent
amendment thereto; and
(h) the most recent Prospectus and Statement of
Additional Information of each of the Funds (such Prospectus
and Statement of Additional Information, as presently in
effect, and all amendments and supplements thereto, are herein
collectively called the "Prospectus").
The Trust will furnish the Sub-Advisor from time to
time with copies of all amendments of or supplements to the foregoing.
SECTION 3. MANAGEMENT. Subject to the supervision of the
Advisor and the Trust's Board of Trustees, the Sub-Advisor will provide a
continuous investment program for each of the Funds, including investment
research and management with respect to all securities and investments and cash
equivalents in the Funds. The Sub-Advisor will determine from time to time what
securities and other investments will be purchased, retained or sold by the
Trust with respect to the Funds and will implement such determinations through
the placement, in the name of the Funds, of orders for the execution of
portfolio transactions with or through such brokers or dealers as it may select.
The Sub-Advisor will provide the services under this Agreement in accordance
with each of the Fund's investment objectives, policies, and restrictions as
stated in the Prospectus, as the same may be amended, supplemented or restated
from time to time, and resolutions of the Trust's Board of Trustees.
-2-
<PAGE> 3
In fulfilling its responsibilities hereunder, the Sub-Advisor
further agrees that it will:
(a) use the same skill and care in providing such
services as it uses in providing services to fiduciary
accounts for which it has investment responsibilities;
(b) conform with all applicable Rules and Regulations
of the Securities and Exchange Commission and in addition will
conduct its activities under this Agreement in accordance with
any applicable regulations of any governmental authority
pertaining to the investment advisory activities of the
Sub-Advisor;
(c) not make loans to any person to purchase or carry
shares of beneficial interest in the Trust or make loans to
the Trust;
(d) place orders pursuant to its investment
determinations for the Funds either directly with the issuer
or with any broker or dealer. In placing orders with brokers
and dealers, the Sub-Advisor will attempt to obtain prompt
execution of orders in an effective manner at the most
favorable price. In assessing the best execution available for
any transaction, the Sub-Advisor shall consider all factors it
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-dealer and the
reasonableness of the commission, if any (for the specific
transaction and on a continuing basis). Consistent with this
obligation, the Sub-Advisor may, in its discretion and 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 Funds and/or other accounts over which the
Sub-Advisor exercises investment discretion. Subject to the
review of the Advisor and the Trust's Board of Trustees from
time to time with respect to the extent and continuation of
the policy, the Sub-Advisor is authorized to pay a broker or
dealer who provides such brokerage and research services a
commission for effecting a securities transaction for any of
the Funds which is in excess of the amount of commission
another broker or dealer would have charged for effecting that
transaction if, but only if, the Sub-Advisor 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 the overall responsibilities of the
Sub-Advisor with respect to the accounts as to which it
exercises investment discretion. In placing orders with
brokers and dealers, consistent with applicable laws, rules
and regulations, the Sub-Advisor may consider the sale of
shares of the Trust. Except as otherwise permitted by
applicable laws, rules and regulations, in no instance will
portfolio securities be purchased from or sold to BISYS Fund
-3-
<PAGE> 4
Services Ohio Inc., the Advisor, the Sub-Advisor or any
affiliated person of the Trust, BISYS Fund Services Ohio Inc.,
the Advisor or the Sub-Advisor. In executing portfolio
transactions for any Fund, the Sub-Advisor may, but shall not
be obligated to, to the extent permitted by applicable laws
and regulations, aggregate the securities to be sold or
purchased with those of other Funds and its other clients
where such aggregation is not inconsistent with the policies
set forth in the Trust's registration statement. In such
event, the Sub-Advisor will allocate the securities so
purchased or sold, and the expenses incurred in the
transaction, pursuant to any applicable law or regulation and
in the manner it considers to be the most equitable and
consistent with its fiduciary obligations to the Funds and
such other clients.
(e) will maintain all books and records with respect
to the securities transactions of the Funds and will furnish
the Advisor and the Trust's Board of Trustees such periodic
and special reports as the Advisor or the Board may request;
(f) will treat confidentially and as proprietary
information of the Trust all records and other information
relative to the Trust and the Funds 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 Trust, which
approval shall not be withheld where the Sub-Advisor 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 Trust;
and
(g) will maintain its policy and practice of
conducting its fiduciary functions independently. In making
investment recommendations for the Funds, the Sub-Advisor's
personnel will not inquire or take into consideration whether
the issuers of securities proposed for purchase or sale for
the Trust's account are customers of the Sub-Advisor or of its
parents, subsidiaries or affiliates. In dealing with such
customers, the Sub-Advisor and its parents, subsidiaries, and
affiliates will not inquire or take into consideration whether
securities of those customers are held by the Trust.
SECTION 4. SERVICES NOT EXCLUSIVE. The Sub-Advisor will for
all purposes herein be deemed to be an independent contractor and will, unless
otherwise expressly provided herein or authorized by the Board from time to
time, have no authority to act for or represent the Trust in any way or
otherwise be deemed its agent. The investment management services furnished by
the Sub-Advisor hereunder are not to be deemed exclusive, and the Sub-Advisor
shall be free to furnish similar services to others so long as its services
under this Agreement are not impaired thereby.
-4-
<PAGE> 5
SECTION 5. BOOKS AND RECORDS. In compliance with the
requirements of Rule 3la-3 under the 1940 Act, the Sub-Advisor hereby agrees
that all records which it maintains for the Funds are the property of the Trust
and further agrees to surrender promptly to the Trust any of such records upon
the Trust's request. The Sub-Advisor further agrees 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 the 1940 Act.
SECTION 6. EXPENSES. During the term of this Agreement, the
Sub-Advisor will pay all expenses incurred by it in connection with its
activities under this Agreement other than the cost of securities (including
brokerage commissions, if any) purchased for the Funds.
SECTION 7. COMPENSATION. For the services provided and the
expenses assumed pursuant to this Agreement, the Advisor will pay the
Sub-Advisor and the Sub-Advisor will accept as full compensation therefor a fee
as set forth on Schedule A hereto. The obligations of the Advisor to pay the
above-described fee to the Sub-Advisor will begin as of the respective dates of
the initial public sale of shares in the Funds; provided, however, that the
Sub-Advisor may from time to time voluntarily waive any or all such fees. Upon
any termination of this Agreement before the end of any month, the fee for such
part of a month shall be prorated according to the proportion which such period
bears to the full monthly period and shall be payable upon the date of
termination of this Agreement.
For the purpose of determining fees payable to the
Sub-Advisor, the value of the net assets of a particular Fund shall be computed
in the manner described in the Trust's Declaration of Trust or in the Prospectus
or Statement of Additional Information respecting that Fund as from time to time
is in effect for the computation of the value of such net assets in connection
with the determination of the liquidating value of the shares of such Fund.
SECTION 8. LIMITATION OF LIABILITY. Notwithstanding anything
herein to the contrary, the Sub-Advisor shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Funds or the Advisor
in connection with the performance of this Agreement, 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 on the part of the Sub-Advisor in the performance of its duties or
from reckless disregard by it of its obligations and duties under this
Agreement.
SECTION 9. DURATION AND TERMINATION. This Agreement will
become effective as of the date first written above (or, if a particular Fund is
not in existence on that date, on the date a registration statement or
post-effective amendment to a registration statement relating to that Fund
becomes effective with the Securities and Exchange Commission and Schedule A
hereto is amended to add such Fund), provided that it shall have been approved
by vote of a majority of the outstanding voting securities of such Fund, in
accordance with the requirements under the 1940 Act, and, unless sooner
terminated as provided herein, shall continue in effect until June 30, 2000.
-5-
<PAGE> 6
Thereafter, if not terminated, this Agreement shall
continue in effect as to a particular Fund for successive periods of twelve
months each ending on June 30 of each year, provided such continuance is
specifically approved at least annually (a) by the vote of a majority of those
members of the Trust's Board of Trustees who are not parties to this Agreement
or interested persons of any party to this Agreement, cast in person at a
meeting called for the purpose of voting on such approval, and (b) by the vote
of a majority of the Trust's Board of Trustees or by the vote of a majority of
all votes attributable to the outstanding Shares of such Fund. Notwithstanding
the foregoing, this Agreement may be terminated as to a particular Fund at any
time on sixty days' written notice to the other parties, without the payment of
any penalty, by the Advisor or by the Trust (by vote of the Trust's Board of
Trustees or by vote of a majority of the outstanding voting securities of such
Fund) or by the Sub-Advisor. This Agreement will immediately terminate in the
event of its assignment and in the event of the termination of the Advisory
Agreement. (As used in this Agreement, the terms "majority of the outstanding
voting securities," "interested persons" and "assignment" shall have the same
meanings as ascribed to such terms in the 1940 Act.)
SECTION 10. SUB-ADVISOR'S REPRESENTATIONS. The Sub-Advisor
hereby represents that it is willing and possesses all requisite legal authority
to provide the services contemplated by this Agreement without violation of
applicable laws and regulations, including but not limited to the Glass-Steagall
Act and the regulations promulgated thereunder.
SECTION 11. 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.
SECTION 12. YEAR 2000 COMPLIANT. The Sub-Advisor represents
and warrants that all services rendered and all computer systems used in the
performance of the Sub-Advisor's obligations under this Agreement shall be Year
2000 Compliant. "Year 2000 Compliant" means that the services and systems are
designed to and shall:
(a) operate in the year 2000 and later with four digit year
date capability;
(b) operate fault-free in the processing of date and
date-dependent data before, during and after January 1, 2000, including but not
limited to accepting date input, providing date output, and performing date
calculations, comparison and sequencing;
(c) function accurately and without interruption before,
during, and after January 1, 2000, without any adverse effect on operations and
associated with the advent of the new century;
(d) store and provide output of date information in ways that
are unambiguous as to century.
-6-
<PAGE> 7
The representations and warranties contained herein may not be disclaimed or
limited by operation of law.
SECTION 13. LIMITATION OF LIABILITY OF THE TRUSTEES AND
SHAREHOLDERS. Governor Funds is a business trust organized under Delaware law
and under a Declaration of Trust, to which reference is hereby made and a copy
of which is on file at the Office of the Secretary of State of Delaware as
required by law, and to any and all amendments thereto so filed or hereafter
filed. The obligations of "Governor Funds" entered into in the name or on behalf
thereof by any of the Trustees, officers, employees or agents are made not
individually, but in such capacities, and are not binding upon any of the
Trustees, officers, employees, agents or shareholders of the Trust personally,
but bind only the assets of the Trust, and all persons dealing with any of the
Funds of the Trust must look solely to the assets of the Trust belonging to such
Fund for the enforcement of any claims against the Trust.
SECTION 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 the law of the State of Delaware; provided that nothing herein shall
be construed in a manner inconsistent with the 1940 Act, the Investment Advisers
Act of 1940, as amended, or any rule or regulation of the Securities and
Exchange Commission thereunder. This Agreement may be executed in two or more
counterparts which together shall constitute a single Agreement.
-7-
<PAGE> 8
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.
GOVERNORS GROUP ADVISORS, INC.
By ___________________________________
Name ___________________________________
Title___________________________________
BRINSON PARTNERS, INC.
By ___________________________________
Name ___________________________________
Title___________________________________
Dated: _____ , 1998
-8-
<PAGE> 9
Schedule A
to the
Investment Advisory Agreement
between
Governors Group Advisors, Inc.
and
Brinson Partners, Inc.
dated as of __________, 1998
<TABLE>
<CAPTION>
NAME OF FUND COMPENSATION* DATE
- ------------ ------------- ----
<S> <C> <C>
International Equity Growth Fund Annual Rate of .40% of the first $50 ____________, 1998
million of such Fund's average daily
net assets, .35% of the next $150
million of such Fund's average daily
net assets, and .30% of such Fund's
average daily net assets in excess
of $200 million
</TABLE>
*All Fees are computed daily and paid monthly.
GOVERNORS GROUP ADVISORS, INC. BRINSON PARTNERS, INC.
By _________________________ By _________________________
Name _________________________ Name _________________________
Title_________________________ Title_________________________
<PAGE> 1
EXHIBIT 6(A)
DISTRIBUTION AGREEMENT
This Agreement is made this ___th day of _______, 1998, between
Governor Funds, a Delaware business trust (the "Trust"), 3435 Stelzer Road,
Columbus, Ohio, 43219, and BISYS Fund Services Limited Partnership d/b/a BISYS
Fund Services, an Ohio limited partnership ("Distributor"), 3435 Stelzer Road,
Columbus, Ohio 43219.
WHEREAS, the Trust is an open-end management investment company,
organized as a Delaware business trust and registered with the Securities and
Exchange Commission (the "Commission") under the Investment Company Act of 1940,
as amended (the "1940 Act"); and
WHEREAS, it is intended that Distributor act as the distributor of the
units of beneficial interest ("Shares") of each of the investment portfolios of
the Trust identified on Schedule A hereto as such Schedule may be amended from
time to time (such portfolios being referred to individually as a "Fund" and
collectively as the "Funds").
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. Services as Distributor.
1.1 Distributor will act as agent for the distribution of the Shares
covered by the registration statement and prospectus of the Trust then in effect
under the Securities Act of 1933, as amended ("1933 Act"). As used in this
Agreement, the term "registration statement" shall mean Parts A (the
prospectus), B (the Statement of Additional Information) and C of each
registration statement that is filed on Form N-1A, or any successor thereto,
with the Commission, together with any amendments thereto. The term "prospectus"
shall mean each form of prospectus and Statement of Additional Information used
by the Funds for delivery to shareholders and prospective shareholders after the
effective dates of the above referenced registration statements, together with
any amendments and supplements thereto.
1.2 Distributor agrees to use appropriate efforts to solicit orders for
the sale of the Shares and will undertake such advertising and promotion as it
believes reasonable in connection with such solicitation. The Trust understands
that Distributor is now and, in the future, may be the distributor of the shares
of several investment companies or series (together, "Companies") including
Companies having investment objectives similar to those of the Trust. The Trust
further understands that investors and potential investors in the Trust may
invest in shares of such other Companies. The Trust agrees that Distributor's
duties to such Companies shall not be deemed in conflict with its duties to the
Trust under this paragraph 1.2.
Page 1
<PAGE> 2
Distributor shall, at its own expense except as otherwise provided by
any plan adopted by the Trust under Rule 12b-1 under the 1940 Act, finance
appropriate activities which it deems reasonable which are primarily intended to
result in the sale of the Shares, including, but not limited to, advertising,
compensation of underwriters, dealers and sales personnel, the printing and
mailing of prospectuses to other than current Shareholders, and the printing and
mailing of sales literature.
1.3 In its capacity as distributor of the Shares, all activities of
Distributor and its partners, agents, and employees shall comply with all
applicable laws, rules and regulations, including, without limitation, the 1940
Act, all rules and regulations promulgated by the Commission thereunder and all
rules and regulations adopted by any securities association registered under the
Securities Exchange Act of 1934.
1.4 Distributor will provide one or more persons, during normal
business hours, to respond to telephone questions with respect to the Trust.
1.5 Distributor will transmit any orders received by it for purchase or
redemption of the Shares to the transfer agent and custodian for the Funds.
1.6 Whenever in their judgment such action is warranted by unusual
market, economic or political conditions, or by abnormal circumstances of any
kind, the Trust's officers may decline to accept any orders for, or make any
sales of, the Shares until such time as those officers deem it advisable to
accept such orders and to make such sales.
1.7 Distributor will act only on its own behalf as principal if it
chooses to enter into selling agreements with selected dealers or others.
1.8 The Trust agrees at its own expense to execute any and all
documents and to furnish any and all information and otherwise to take all
actions that may be reasonably necessary in connection with the qualification of
the Shares for sale in such states as Distributor may designate.
1.9 The Trust shall furnish from time to time, for use in connection
with the sale of the Shares, such information with respect to the Funds and the
Shares as Distributor may reasonably request; and the Trust warrants that the
statements contained in any such information shall fairly show or represent what
they purport to show or represent. The Trust shall also furnish Distributor upon
request with: (a) unaudited semi-annual statements of the Funds' books and
accounts prepared by the Trust, (b) a monthly itemized list of the securities in
the Funds, (c) monthly balance sheets as soon as practicable after the end of
each month, and (d) from time to time such additional information regarding the
financial condition of the Funds as Distributor may reasonably request.
Page 2
<PAGE> 3
1.10 The Trust represents to Distributor that, with respect to the
Shares, all registration statements and prospectuses filed by the Trust with the
Commission under the 1933 Act have been carefully prepared in conformity with
the requirements of said Act and rules and regulations of the Commission
thereunder and all statements of fact contained in any such registration
statement and prospectus will be true and correct when such registration
statement becomes effective. Furthermore, neither any registration statement nor
any prospectus when such registration statement becomes effective includes an
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
to a purchaser of the Shares. The Trust may, but shall not be obligated to,
propose from time to time such amendment or amendments to any registration
statement and such supplement or supplements to any prospectus as, in the light
of future developments, may, in the opinion of the Trust's counsel, be necessary
or advisable. If the Trust shall not propose such amendment or amendments and/or
supplement or supplements within fifteen days after receipt by the Trust of a
written request from Distributor to do so, Distributor may, at its option,
terminate this Agreement. The Trust shall not file any amendment to any
registration statement or supplement to any prospectus without giving
Distributor reasonable notice thereof in advance; provided, however, that
nothing contained in this Agreement shall in any way limit the Trust's right to
file at any time such amendments to any registration statement and/or
supplements to any prospectus, of whatever character, as the Trust may deem
advisable, such right being in all respects absolute and unconditional.
1.11 The Trust authorizes Distributor and dealers to use any prospectus
in the form furnished from time to time in connection with the sale of the
Shares. The Trust agrees to indemnify, defend and hold Distributor, its several
partners and employees, and any person who controls Distributor within the
meaning of Section 15 of the 1933 Act free and harmless from and against any and
all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which Distributor, its partners and
employees, or any such controlling person, may incur under the 1933 Act or under
common law or otherwise, arising out of or based upon any untrue statement, or
alleged untrue statement, of a material fact contained in any registration
statement or any prospectus or arising out of or based upon any omission, or
alleged omission, to state a material fact required to be stated in either any
registration statement or any prospectus or necessary to make the statements in
either thereof not misleading; provided, however, that the Trust's agreement to
indemnify Distributor, its partners or employees, and any such controlling
person shall not be deemed to cover any claims, demands, liabilities or expenses
arising out of any statements or representations as are contained in any
prospectus and in such financial and other statements as are furnished in
writing to the Trust by Distributor and used in the answers to the registration
statement or in the corresponding statements made in the prospectus, or arising
out of or based upon any omission or alleged omission to state a material fact
in connection with the giving of such information required to be stated in such
answers or necessary to make the answers not misleading; and further provided
that the Trust's agreement to indemnify Distributor and the Trust's
representations and warranties hereinbefore set forth in
Page 3
<PAGE> 4
paragraph 1.10 shall not be deemed to cover any liability to the Trust or its
Shareholders to which Distributor would otherwise be subject by reason of
willful misfeasance, bad faith or negligence in the performance of its duties,
or by reason of Distributor's reckless disregard of its obligations and duties
under this Agreement. The Trust's agreement to indemnify Distributor, its
partners and employees, and any such controlling person, as aforesaid, is
expressly conditioned upon the Trust's being notified of any action brought
against Distributor, its partners or employees, or any such controlling person,
such notification to be given by letter or by telegram addressed to the Trust at
its principal office in Columbus, Ohio and sent to the Trust by the person
against whom such action is brought, within 10 days after the summons or other
first legal process shall have been served. The failure to so notify the Trust
of any such action shall not relieve the Trust from any liability which the
Trust may have to the person against whom such action is brought by reason of
any such untrue, or allegedly untrue, statement or omission, or alleged
omission, otherwise than on account of the Trust's indemnity agreement contained
in this paragraph 1.11. The Trust will be entitled to assume the defense of any
suit brought to enforce any such claim, demand or liability, but, in such case,
such defense shall be conducted by counsel of good standing chosen by the Trust
and approved by Distributor, which approval shall not be unreasonably withheld.
In the event the Trust elects to assume the defense of any such suit and retain
counsel of good standing approved by Distributor, the defendant or defendants in
such suit shall bear the fees and expenses of any additional counsel retained by
any of them; but in case the Trust does not elect to assume the defense of any
such suit, or in case Distributor reasonably does not approve of counsel chosen
by the Trust, the Trust will reimburse Distributor, its partners and employees,
or the controlling person or persons named as defendant or defendants in such
suit, for the fees and expenses of any counsel retained by Distributor or them.
The Trust's indemnification agreement contained in this paragraph 1.11 and the
Trust's representations and warranties in this Agreement shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of Distributor, its partners and employees, or any controlling person,
and shall survive the delivery of any Shares.
This agreement of indemnity will inure exclusively to Distributor's
benefit, to the benefit of its several partners and employees, and their
respective estates, and to the benefit of the controlling persons and their
successors. The Trust agrees promptly to notify Distributor of the commencement
of any litigation or proceedings against the Trust or any of its officers or
Trustees in connection with the issue and sale of any Shares.
1.12 Distributor agrees to indemnify, defend and hold the Trust, its
several officers and Trustees and any person who controls the Trust within the
meaning of Section 15 of the 1933 Act free and harmless from and against any and
all claims, demands, liabilities and expenses (including the costs of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which the Trust, its officers or Trustees
or any such controlling person, may incur under the 1933 Act or under common law
or otherwise, but only to the extent that such liability or expense incurred by
the Trust, its officers or Trustees or such controlling person resulting from
such claims or demands, shall arise out of or be based
Page 4
<PAGE> 5
upon any untrue, or alleged untrue, statement of a material fact contained in
information furnished in writing by Distributor to the Trust and used in the
answers to any of the items of the registration statement or in the
corresponding statements made in the prospectus, or shall arise out of or be
based upon any omission, or alleged omission, to state a material fact in
connection with such information furnished in writing by Distributor to the
Trust required to be stated in such answers or necessary to make such
information not misleading. Distributor's agreement to indemnify the Trust, its
officers and Trustees, and any such controlling person, as aforesaid, is
expressly conditioned upon Distributor's being notified of any action brought
against the Trust, its officers or Trustees, or any such controlling person,
such notification to be given by letter or telegram addressed to Distributor at
its principal office in Columbus, Ohio, and sent to Distributor by the person
against whom such action is brought, within 10 days after the summons or other
first legal process shall have been served. Distributor shall have the right of
first control of the defense of such action, with counsel of its own choosing,
satisfactory to the Trust, if such action is based solely upon such alleged
misstatement or omission on Distributor's part, and in any other event the
Trust, its officers or Trustees or such controlling person shall each have the
right to participate in the defense or preparation of the defense of any such
action. The failure to so notify Distributor of any such action shall not
relieve Distributor from any liability which Distributor may have to the Trust,
its officers or Trustees, or to such controlling person by reason of any such
untrue or alleged untrue statement, or omission or alleged omission, otherwise
than on account of Distributor's indemnity agreement contained in this paragraph
1.12.
1.13 No Shares shall be offered by either Distributor or the Trust
under any of the provisions of this Agreement and no orders for the purchase or
sale of Shares hereunder shall be accepted by the Trust if and so long as the
effectiveness of the registration statement then in effect or any necessary
amendments thereto shall be suspended under any of the provisions of the 1933
Act or if and so long as a current prospectus as required by Section 10(a) of
said Act is not on file with the Commission; provided, however, that nothing
contained in this paragraph 1.13 shall in any way restrict or have an
application to or bearing upon the Trust's obligation to repurchase Shares from
any Shareholder in accordance with the provisions of the Trust's prospectus,
Declaration of Trust, or By-Laws.
1.14 The Trust agrees to advise Distributor as soon as reasonably
practical by a notice in writing delivered to Distributor or its counsel:
(a) of any request by the Commission for amendments to the
registration statement or prospectus then in effect or for
additional information;
(b) in the event of the issuance by the Commission of any stop
order suspending the effectiveness of the registration
statement or prospectus then in effect or the initiation by
service of process on the Trust of any proceeding for that
purpose;
Page 5
<PAGE> 6
(c) of the happening of any event that makes untrue any
statement of a material fact made in the registration
statement or prospectus then in effect or which requires the
making of a change in such registration statement or
prospectus in order to make the statements therein not
misleading; and
(d) of all action of the Commission with respect to any
amendment to any registration statement or prospectus which
may from time to time be filed with the Commission.
For purposes of this section, informal requests by or acts of the Staff
of the Commission shall not be deemed actions of or requests by the Commission.
1.15 Distributor agrees on behalf of itself and its partners and
employees to treat confidentially and as proprietary information of the Trust
all records and other information relative to the Trust and its 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 Trust, which
approval shall not be withheld where Distributor may be exposed to civil or
criminal contempt proceedings for failure to comply, when requested to divulge
such information by duly constituted authorities, or when so requested by the
Trust.
1.16 This Agreement shall be governed by the laws of the State of
Delaware.
1.17 The Distributor represents and warrants that all services rendered
and all computer systems used in the performance of the Distributor's
obligations under the Distribution Agreement shall be Year 2000 Compliant. "Year
2000 Compliant" means that the services and systems are designed to and shall:
(a) operate in the year 2000 and later with four digit year
date capability;
(b) operate fault-free in the processing of date and
date-dependant data before, during and after January 1, 2000,
including but not limited to accepting date input, providing
date output, and performing date calculations, comparison and
sequencing;
(c) function accurately and without interruption before,
during, and after January 1, 2000, without any adverse effect
on operations and associated with the advent of the new
century;
(d) store and provide output of date information in ways that
are unambiguous as to century.
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The representations and warranties contained herein may not be disclaimed or
limited by operation of law.
1.18 Notwithstanding anything to the contrary, amounts owed by the
Trust to the Distributor shall only be paid out of the assets and property of
the particular Fund involved.
2. Sale and Payment.
Under this Agreement, the following provisions shall apply with respect
to the sale of and payment of Shares of a Fund sold at an offering price which
includes a sales load (collectively, the "Load Shares;" individually, a "Load
Share") as described in the prospectuses of any Funds identified on Schedule B
hereto (collectively, the "Load Funds"; individually, a "Load Fund"):
(a) Distributor shall have the right, as principal, to
purchase Load Shares at their net asset value and to sell such
Load Shares to the public against orders therefor at the
applicable public offering price, as defined in Section 3
hereof. Distributor shall also have the right, as principal,
to sell Load Shares to dealers against orders therefor at the
public offering price less a concession determined by
Distributor, which concession shall not exceed the amount of
the sales charge or underwriting discount, if any, referred to
in Section 3 below.
(b) Prior to the time of delivery of any Load Shares by a Load
Fund to, or on the order of, Distributor, Distributor shall
pay or cause to be paid to the Load Fund or to its order an
amount in Boston or New York clearing house funds equal to the
applicable net asset value of such Shares. Distributor may
retain so much of any sales charge or underwriting discount as
is not allowed by Distributor as a concession to dealers.
3. Public Offering Price.
The public offering price of a Load Share shall be the net asset value
of such Load Shares, plus any applicable sales charge, all as set forth in the
current prospectus of the Load Fund. The net asset value of Shares shall be
determined in accordance with the provisions of the Declaration of Trust and
By-Laws of the Trust and the then current prospectus of the Load Fund.
4. Issuance of Shares.
The Trust reserves the right to issue, transfer or sell Load Shares at
net asset value (a) in connection with the merger or consolidation of the Trust
or the Load Fund(s) with any other investment company or the acquisition by the
Trust or the Load Fund(s) of all or substantially all of the assets or of the
outstanding Shares of any other investment company; (b) in connection with a pro
rata distribution directly to the holders of Shares in the nature of a stock
dividend or
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split; (c) upon the exercise of subscription rights granted to the holders of
Shares on a pro rata basis; (d) in connection with the issuance of Load Shares
pursuant to any exchange and reinvestment privileges described in any then
current prospectus of the Load Fund; and (e) otherwise in accordance with any
then current prospectus of the Load Fund.
5. Term, Duration and Matters Relating to the Trust as a Delaware
Business Trust.
This Agreement shall become effective with respect to each Fund listed
on Schedule A hereof as of the date first set forth above (or, if a particular
Fund is not in existence on such date, on the date an amendment to Schedule A to
this Agreement relating to that Fund is executed), and, unless sooner terminated
as provided herein, shall continue in effect until June 30, 2000. Thereafter, if
not terminated as provided herein, this Agreement shall continue with respect to
a particular Fund in effect automatically for successive one-year periods ending
on June 30 of each year with respect to each of the Funds, provided such
continuance is specifically approved at least annually by (a) the Trust's Board
of Trustees or (b) by "vote of a majority of the outstanding voting securities"
(as defined below) of the Trust, provided, however, that in either event the
continuance is also approved by a majority of the Trust's Trustees who are not
parties to the Agreement or interested persons (as defined in the 1940 Act) of
any such party, by vote cast in person at a meeting called for the purpose of
voting on such approval. This Agreement is terminable without penalty, on not
less than sixty days' prior written notice, by the Trust's Board of Trustees, by
vote of a majority of the outstanding voting securities (as defined in the 1940
Act) of the Trust or by Distributor. This Agreement will also terminate
automatically in the event of its assignment (as defined in the 1940 Act).
The Governor Funds is a business trust organized under Delaware law and
under a Declaration of Trust, to which reference is hereby made, and to any and
all amendments thereto so filed or hereafter filed. The obligations of "Governor
Funds" entered into in the name or on behalf thereof by any of the Trustees,
officers, employees or agents are made not individually, but in such capacities,
and are not binding upon any of the Trustees, officers, employees, agents or
shareholders of the Trust personally, but bind only the assets of the Trust and
all persons dealing with any of the Funds of the Trust must look solely to the
assets of the Trust belonging to such Fund for the enforcement of any claims
against the Trust.
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BISYS FUND SERVICES LIMITED GOVERNOR FUNDS
PARTNERSHIP
By BISYS Fund Services, Inc., By_____________________________
General Partner
Name __________________________
By____________________________
Name _________________________ Title__________________________
Title__________________________
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Dated: _____________, 199__
Schedule A
to the
Distribution Agreement
between The Governor Funds and
BISYS Fund Services Limited Partnership
___________, 199__
Name of Fund
The Prime Money Market Fund
The U.S. Treasury Obligations
Money Market Fund
The Aggressive Growth Fund
The Emerging Growth Fund
The Established Growth Fund
The International Equity Fund
The Intermediate Term Income Fund
The Limited Duration Government Securities Fund
The Pennsylvania Municipal Bond Fund
The Lifestyle Conservative Growth Fund
The Lifestyle Moderate Growth Fund
The Lifestyle Growth Fund
BISYS FUND SERVICES LIMITED THE GOVERNOR FUNDS
PARTNERSHIP
By BISYS Fund Services, Inc.,
General Partner
By ________________________ By__________________________
Name_______________________ Name________________________
Title______________________ Title_______________________
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Dated: ________, 199__
Schedule B
to the
Distribution Agreement
between The Governor Funds and
BISYS Fund Services Limited Partnership
____________, 199___
Name of Load Fund
The Aggressive Growth Fund
The Emerging Growth Fund
The Established Growth Fund
The International Equity Fund
The Intermediate Term Income Fund
The Limited Duration Government
Securities Fund
The Pennsylvania Municipal
Bond Fund
The Lifestyle Conservative Growth Fund
The Lifestyle Moderate Growth Fund
The Lifestyle Growth Fund
BISYS FUND SERVICES LIMITED THE GOVERNOR FUNDS
PARTNERSHIP
By BISYS Fund Services, Inc.,
General Partner
By _________________________ By__________________________
Name________________________ Name________________________
Title_______________________ Title_______________________
Page 1
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EXHIBIT (8)(a)
CUSTODY AGREEMENT
Agreement made as of this ___ day of ____, 1998, between Governor
Funds, a Delaware business trust organized and existing under the laws of the
State of Delaware, having its principal office and place of business at 3435
Stelzer Road, Columbus, Ohio 43219, (hereinafter called the "Fund"), and THE
BANK OF NEW YORK, a New York corporation authorized to do a banking business,
having its principal office and place of business at 48 Wall Street, New York,
New York 10286 (hereinafter called the "Custodian").
W I T N E S S E T H :
that for and in consideration of the mutual promises hereinafter set forth, the
Fund and the Custodian agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
1. "Book-Entry System" shall mean the Federal Reserve/Treasury
book-entry system for United States and federal agency securities, its successor
or successors and its nominee or nominees.
2. "Call Option" shall mean an exchange traded option with respect to
Securities other than Stock Index Options, Futures Contracts, and Futures
Contract Options entitling the holder, upon timely exercise and payment of the
exercise price, as specified therein, to purchase from the writer thereof the
specified underlying Securities.
3. "Certificate" shall mean any notice, instruction, or other
instrument in writing, authorized or required by this Agreement to be given to
the Custodian which is actually received by the Custodian and signed on behalf
of the Fund by any two Officers, and the term Certificate shall also include
instructions by the Fund to the Custodian communicated by a Terminal Link.
4. "Clearing Member" shall mean a registered broker-dealer which is a
clearing member under the rules of O.C.C. and a member of a national securities
exchange qualified to act as a custodian for an investment company, or any
broker-dealer reasonably believed by the Custodian to be such a clearing member.
5. "Collateral Account" shall mean a segregated account so denominated
which is specifically allocated to a Series and pledged to the Custodian as
security for, and in consideration of, the Custodian's issuance of (a) any Put
Option guarantee letter or similar document described in paragraph 8 of Article
V herein, or (b) any receipt described in Article V or VIII herein.
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6. "Covered Call Option" shall mean an exchange traded option entitling
the holder, upon timely exercise and payment of the exercise price, as specified
therein, to purchase from the writer thereof the specified underlying Securities
(excluding Futures Contracts) which are owned by the writer thereof and subject
to appropriate restrictions.
7. "Depository" shall mean The Depository Trust Company ("DTC"), a
clearing agency registered with the Securities and Exchange Commission, its
successor or successors and its nominee or nominees. The term "Depository" shall
further mean and include any other person authorized to act as a depository
under the Investment Company Act of 1940, its successor or successors and its
nominee or nominees, specifically identified in a certified copy of a resolution
of the Fund's Board of Trustees specifically approving deposits therein by the
Custodian.
8. "Financial Futures Contract" shall mean the firm commitment to buy
or sell fixed income securities including, without limitation, U.S. Treasury
Bills, U.S. Treasury Notes, U.S. Treasury Bonds, domestic bank certificates of
deposit, and Eurodollar certificates of deposit, during a specified month at an
agreed upon price.
9. "Futures Contract" shall mean a Financial Futures Contract and/or
Stock Index Futures Contracts.
10. "Futures Contract Option" shall mean an option with respect to a
Futures Contract.
11. "Margin Account" shall mean a segregated account in the name of a
broker, dealer, futures commission merchant, or a Clearing Member, or in the
name of the Fund for the benefit of a broker, dealer, futures commission
merchant, or Clearing Member, or otherwise, in accordance with an agreement
between the Fund, the Custodian and a broker, dealer, futures commission
merchant or a Clearing Member (a "Margin Account Agreement"), separate and
distinct from the custody account, in which certain Securities and/or money of
the Fund shall be deposited and withdrawn from time to time in connection with
such transactions as the Fund may from time to time determine. Securities held
in the Book-Entry System or the Depository shall be deemed to have been
deposited in, or withdrawn from, a Margin Account upon the Custodian's effecting
an appropriate entry in its books and records.
12. "Money Market Security" shall be deemed to include, without
limitation, certain Reverse Repurchase Agreements, debt obligations issued or
guaranteed as to interest and principal by the government of the United States
or agencies or instrumentalities thereof, any tax, bond or revenue anticipation
note issued by any state or municipal government or public authority, commercial
paper, certificates of deposit and bankers' acceptances, repurchase agreements
with respect to the same and bank time deposits, where the purchase and sale of
such securities normally requires settlement in federal funds on the same day as
such purchase or sale.
13. "O.C.C." shall mean the Options Clearing Corporation, a clearing
agency registered under Section 17A of the Securities Exchange Act of 1934, its
successor or successors, and its nominee or nominees.
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<PAGE> 3
14. "Officers" shall be deemed to include the President, any Vice
President, the Secretary, the Treasurer, any Assistant Secretary, any Assistant
Treasurer, and any other person or persons, whether or not any such other person
is an officer of the Fund, duly authorized by the Board of Trustees of the Fund
to execute any Certificate, instruction, notice or other instrument on behalf of
the Fund and listed in the Certificate annexed hereto as Appendix A or such
other Certificate as may be received by the Custodian from time to time.
15. "Option" shall mean a Call Option, Covered Call Option, Stock Index
Option and/or a Put Option.
16. "Oral Instructions" shall mean verbal instructions actually
received by the Custodian from an Officer or from a person reasonably believed
by the Custodian to be an Officer.
17. "Put Option" shall mean an exchange traded option with respect to
Securities other than Stock Index Options, Futures Contracts, and Futures
Contract Options entitling the holder, upon timely exercise and tender of the
specified underlying Securities, to sell such Securities to the writer thereof
for the exercise price.
18. "Reverse Repurchase Agreement" shall mean an agreement pursuant to
which the Fund sells Securities and agrees to repurchase such Securities at a
described or specified date and price.
19. "Security" shall be deemed to include, without limitation, Money
Market Securities, Call Options, Put Options, Stock Index Options, Stock Index
Futures Contracts, Stock Index Futures Contract Options, Financial Futures
Contracts, Financial Futures Contract Options, Reverse Repurchase Agreements,
common stocks and other securities having characteristics similar to common
stocks, preferred stocks, debt obligations issued by state or municipal
governments and by public authorities, (including, without limitation, general
obligation bonds, revenue bonds, industrial bonds and industrial development
bonds), bonds, debentures, notes, mortgages or other obligations, and any
certificates, receipts, warrants or other instruments representing rights to
receive, purchase, sell or subscribe for the same, or evidencing or representing
any other rights or interest therein, or any property or assets.
20. "Senior Security Account" shall mean an account maintained and
specifically allocated to a Series under the terms of this Agreement as a
segregated account, by recordation or otherwise, within the custody account in
which certain Securities and/or other assets of the Fund specifically allocated
to such Series shall be deposited and withdrawn from time to time in accordance
with Certificates received by the Custodian in connection with such transactions
as the Fund may from time to time determine.
21. "Series" shall mean the various portfolios, if any, of the Fund as
described from time to time in the current and effective prospectus for the Fund
and listed on Appendix B hereto as amended from time to time.
22. "Shares" shall mean the shares of beneficial interest of the Fund,
each of which is, in the case of a Fund having Series, allocated to a particular
Series.
23. "Stock Index Futures Contract" shall mean a bilateral agreement
pursuant to which the parties agree to take or make delivery of an amount of
cash equal to a specified dollar amount times the
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difference between the value of a particular stock index at the close of the
last business day of the contract and the price at which the futures contract is
originally struck.
24. "Stock Index Option" shall mean an exchange traded option entitling
the holder, upon timely exercise, to receive an amount of cash determined by
reference to the difference between the exercise price and the value of the
index on the date of exercise.
25. "Terminal Link" shall mean an electronic data transmission link
between the Fund, an Intermediary (as hereinafter defined), and the Custodian
requiring in connection with each use of the Terminal Link by or on behalf of
the Fund use of an authorization code provided by the Custodian and at least two
access codes established by the Fund. As used herein the term "Intermediary"
shall mean a third party that maintains a transmission line to the Custodian and
has been selected by the Fund to receive electronic data transmissions from the
Custodian or the Fund and forward the same to the Fund or the Custodian,
respectively.
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ARTICLE II
APPOINTMENT OF CUSTODIAN
1. The Fund hereby constitutes and appoints the Custodian as custodian
of the Securities and moneys at any time owned by a Series during the period of
this Agreement.
2. The Custodian hereby accepts appointment as such custodian and
agrees to perform the duties thereof as hereinafter set forth.
ARTICLE III
CUSTODY OF CASH AND SECURITIES
1. Except as otherwise provided in paragraph 7 of this Article and in
Article VIII, the Fund will deliver or cause to be delivered to the Custodian
all Securities and all moneys owned by a Series, at any time during the period
of this Agreement, and shall specify with respect to such Securities and money
the Series to which the same are specifically allocated. The Custodian shall
segregate, keep and maintain the assets of the Series separate and apart. The
Custodian will not be responsible for any Securities and moneys not actually
received by it. The Custodian will be entitled to reverse any credits made on
the Fund's behalf where such credits have been previously made and moneys are
not finally collected. The Fund shall deliver to the Custodian a certified
resolution of the Board of Trustees of the Fund, substantially in the form of
Exhibit A hereto, approving, authorizing and instructing the Custodian on a
continuous and ongoing basis to deposit in the Book-Entry System all Securities
eligible for deposit therein, regardless of the Series to which the same are
specifically allocated and to utilize the Book-Entry System to the extent
possible in connection with its performance hereunder, including, without
limitation, in connection with settlements of purchases and sales of Securities,
loans of Securities and deliveries and returns of Securities collateral. Prior
to a deposit of Securities specifically allocated to a Series in the Depository,
the Fund shall deliver to the Custodian a certified resolution of the Board of
Trustees of the Fund, substantially in the form of Exhibit B hereto, approving,
authorizing and instructing the Custodian on a continuous and ongoing basis
until instructed to the contrary by a Certificate actually received by the
Custodian to deposit in the Depository all Securities specifically allocated to
such Series eligible for deposit therein, and to utilize the Depository to the
extent possible with respect to such Securities in connection with its
performance hereunder, including, without limitation, in connection with
settlements of purchases and sales of Securities, loans of Securities, and
deliveries and returns of Securities collateral. Securities and moneys deposited
in either the Book-Entry System or the Depository will be represented in
accounts which include only assets held by the Custodian for customers,
including, but not limited to, accounts in which the Custodian acts in a
fiduciary or representative capacity and will be specifically allocated on the
Custodian's books to the separate account for the applicable Series. Prior to
the Custodian's accepting, utilizing and acting with respect to Clearing Member
confirmations for Options and transactions in Options for a Series as provided
in this Agreement, the Custodian shall have received a certified resolution of
the Fund's Board of Trustees, substantially in the form of Exhibit C hereto,
approving, authorizing and instructing the Custodian on a continuous and ongoing
basis, until instructed to the contrary by a Certificate actually received by
the Custodian, to accept, utilize and act in accordance with such confirmations
as provided in this Agreement with respect to such Series.
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2. The Custodian shall establish and maintain separate accounts, in the
name of each Series, and shall credit to the separate account for each Series
all moneys received by it for the account of the Fund with respect to such
Series. Money credited to a separate account for a Series shall be disbursed by
the Custodian only:
(a) As hereinafter provided;
(b) Pursuant to Certificates setting forth the name and
address of the person to whom the payment is to be made, the Series account from
which payment is to be made and the purpose for which payment is to be made; or
(c) In payment of the fees and in reimbursement of the
expenses and liabilities of the Custodian attributable to such Series.
3. Promptly after the close of business on each day, the Custodian
shall furnish the Fund with confirmations and a summary, on a per Series basis,
of all transfers to or from the account of the Fund for a Series, either
hereunder or with any co-custodian or sub-custodian appointed in accordance with
this Agreement during said day. Where Securities are transferred to the account
of the Fund for a Series, the Custodian shall also by book-entry or otherwise
identify as belonging to such Series a quantity of Securities in a fungible bulk
of Securities registered in the name of the Custodian (or its nominee) or shown
on the Custodian's account on the books of the Book-Entry System or the
Depository. At least monthly and from time to time, the Custodian shall furnish
the Fund with a detailed statement, on a per Series basis, of the Securities and
moneys held by the Custodian for the Fund.
4. Except as otherwise provided in paragraph 7 of this Article and in
Article VIII, all Securities held by the Custodian hereunder, which are issued
or issuable only in bearer form, except such Securities as are held in the
Book-Entry System, shall be held by the Custodian in that form; all other
Securities held hereunder may be registered in the name of the Fund, in the name
of any duly appointed registered nominee of the Custodian as the Custodian may
from time to time determine, or in the name of the Book-Entry System or the
Depository or their successor or successors, or their nominee or nominees. The
Fund agrees to furnish to the Custodian appropriate instruments to enable the
Custodian to hold or deliver in proper form for transfer, or to register in the
name of its registered nominee or in the name of the Book-Entry System or the
Depository any Securities which it may hold hereunder and which may from time to
time be registered in the name of the Fund. The Custodian shall hold all such
Securities specifically allocated to a Series which are not held in the
Book-Entry System or in the Depository in a separate account in the name of such
Series physically segregated at all times from those of any other person or
persons.
5. Except as otherwise provided in this Agreement and unless otherwise
instructed to the contrary by a Certificate, the Custodian by itself, or through
the use of the Book-Entry System or the Depository with respect to Securities
held hereunder and therein deposited, shall promptly and diligently with respect
to all Securities held for the Fund hereunder in accordance with preceding
paragraph
(a) Collect all income due or payable;
(b) Present for payment and collect the amount payable upon
such Securities which are called, but only if either (i) the Custodian receives
a written notice of such call, or (ii) notice of such call
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appears in one or more of the publications listed in Appendix C annexed hereto,
which may be amended at any time by the Custodian without the prior notification
or consent of the Fund;
(c) Present for payment and collect the amount payable upon
all Securities which mature;
(d) Surrender Securities in temporary form for definitive
Securities;
(e) Execute, as custodian, any necessary declarations or
certificates of ownership under the Federal Income Tax Laws or the laws or
regulations of any other taxing authority now or hereafter in effect; and
(f) Hold directly, or through the Book-Entry System or the
Depository with respect to Securities therein deposited, for the account of a
Series, all rights and similar securities issued with respect to any Securities
held by the Custodian for such Series hereunder.
6. Upon receipt of a Certificate and not otherwise, the Custodian,
directly or through the use of the Book-Entry System or the Depository, shall:
(a) Execute and deliver to such persons as may be designated
in such Certificate proxies, consents, authorizations, and any other instruments
whereby the authority of the Fund as owner of any Securities held by the
Custodian hereunder for the Series specified in such Certificate may be
exercised;
(b) Deliver any Securities held by the Custodian hereunder for
the Series specified in such Certificate in exchange for other Securities or
cash issued or paid in connection with the liquidation, reorganization,
refinancing, merger, consolidation or recapitalization of any corporation, or
the exercise of any conversion privilege and receive and hold hereunder
specifically allocated to such Series any cash or other Securities received in
exchange;
(c) Deliver any Securities held by the Custodian hereunder for
the Series specified in such Certificate to any protective committee,
reorganization committee or other person in connection with the reorganization,
refinancing, merger, consolidation, recapitalization or sale of assets of any
corporation, and receive and hold hereunder specifically allocated to such
Series such certificates of deposit, interim receipts or other instruments or
documents as may be issued to it to evidence such delivery;
(d) Make such transfers or exchanges of the assets of the
Series specified in such Certificate, and take such other steps as shall be
stated in such Certificate to be for the purpose of effectuating any duly
authorized plan of liquidation, reorganization, merger, consolidation or
recapitalization of the Fund; and
(e) Present for payment and collect the amount payable upon
Securities not described in preceding paragraph 5(b) of this Article which may
be called as specified in the Certificate.
7. Notwithstanding any provision elsewhere contained herein, the
Custodian shall not be required to obtain possession of any instrument or
certificate representing any Futures Contract, any Option, or any Futures
Contract Option until after it shall have determined, or shall have received a
Certificate from the Fund stating, that any such instruments or certificates are
available. The Fund shall deliver to the Custodian such a Certificate no later
than the business day preceding the availability of any such instrument or
certificate. Prior to such availability, the Custodian shall comply with Section
17(f) of
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the Investment Company Act of 1940, as amended, in connection with the purchase,
sale, settlement, closing out or writing of Futures Contracts, Options, or
Futures Contract Options by making payments or deliveries specified in
Certificates received by the Custodian in connection with any such purchase,
sale, writing, settlement or closing out upon its receipt from a broker, dealer,
or futures commission merchant of a statement or confirmation reasonably
believed by the Custodian to be in the form customarily used by brokers,
dealers, or future commission merchants with respect to such Futures Contracts,
Options, or Futures Contract Options, as the case may be, confirming that such
Security is held by such broker, dealer or futures commission merchant, in
book-entry form or otherwise, in the name of the Custodian (or any nominee of
the Custodian) as custodian for the Fund, provided, however, that
notwithstanding the foregoing, payments to or deliveries from the Margin Account
and payments with respect to Securities to which a Margin Account relates, shall
be made in accordance with the terms and conditions of the Margin Account
Agreement. Whenever any such instruments or certificates are available, the
Custodian shall, notwithstanding any provision in this Agreement to the
contrary, make payment for any Futures Contract, Option, or Futures Contract
Option for which such instruments or such certificates are available only
against the delivery to the Custodian of such instrument or such certificate,
and deliver any Futures Contract, Option or Futures Contract Option for which
such instruments or such certificates are available only against receipt by the
Custodian of payment therefor. Any such instrument or certificate delivered to
the Custodian shall be held by the Custodian hereunder in accordance with, and
subject to, the provisions of this Agreement.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
OTHER THAN OPTIONS, FUTURES CONTRACTS AND
FUTURES CONTRACT OPTIONS
1. Promptly after each purchase of Securities by the Fund, other than a
purchase of an Option, a Futures Contract, or a Futures Contract Option, the
Fund shall deliver to the Custodian (i) with respect to each purchase of
Securities which are not Money Market Securities, a Certificate, and (ii) with
respect to each purchase of Money Market Securities, a Certificate or Oral
Instructions, specifying with respect to each such purchase: (a) the Series to
which such Securities are to be specifically allocated; (b) the name of the
issuer and the title of the Securities; (c) the number of shares or the
principal amount purchased and accrued interest, if any; (d) the date of
purchase and settlement; (e) the purchase price per unit; (f) the total amount
payable upon such purchase; (g) the name of the person from whom or the broker
through whom the purchase was made, and the name of the clearing broker, if any;
and (h) the name of the broker to whom payment is to be made. The Custodian
shall, upon receipt of Securities purchased by or for the Fund, pay to the
broker specified in the Certificate out of the moneys held for the account of
such Series the total amount payable upon such purchase, provided that the same
conforms to the total amount payable as set forth in such Certificate or Oral
Instructions.
2. Promptly after each sale of Securities by the Fund, other than a
sale of any Option, Futures Contract, Futures Contract Option, or any Reverse
Repurchase Agreement, the Fund shall deliver to the Custodian (i) with respect
to each sale of Securities which are not Money Market Securities, a Certificate,
and (ii) with respect to each sale of Money Market Securities, a Certificate or
Oral Instructions, specifying with respect to each such sale: (a) the Series to
which such Securities were specifically allocated; (b) the name of the issuer
and the title of the Security; (c) the number of shares or principal
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amount sold, and accrued interest, if any; (d) the date of sale; (e) the sale
price per unit; (f) the total amount payable to the Fund upon such sale; (g) the
name of the broker through whom or the person to whom the sale was made, and the
name of the clearing broker, if any; and (h) the name of the broker to whom the
Securities are to be delivered. The Custodian shall deliver the Securities
specifically allocated to such Series to the broker specified in the Certificate
against payment upon receipt of the total amount payable to the Fund upon such
sale, provided that the same conforms to the total amount payable as set forth
in such Certificate or Oral Instructions.
ARTICLE V
OPTIONS
1. Promptly after the purchase of any Option by the Fund, the Fund
shall deliver to the Custodian a Certificate specifying with respect to each
Option purchased: (a) the Series to which such Option is specifically allocated;
(b) the type of Option (put or call); (c) the name of the issuer and the title
and number of shares subject to such Option or, in the case of a Stock Index
Option, the stock index to which such Option relates and the number of Stock
Index Options purchased; (d) the expiration date; (e) the exercise price; (f)
the dates of purchase and settlement; (g) the total amount payable by the Fund
in connection with such purchase; (h) the name of the Clearing Member through
whom such Option was purchased; and (i) the name of the broker to whom payment
is to be made. The Custodian shall pay, upon receipt of a Clearing Member's
statement confirming the purchase of such Option held by such Clearing Member
for the account of the Custodian (or any duly appointed and registered nominee
of the Custodian) as custodian for the Fund, out of moneys held for the account
of the Series to which such Option is to be specifically allocated, the total
amount payable upon such purchase to the Clearing Member through whom the
purchase was made, provided that the same conforms to the total amount payable
as set forth in such Certificate.
2. Promptly after the sale of any Option purchased by the Fund pursuant
to paragraph 1 hereof, the Fund shall deliver to the Custodian a Certificate
specifying with respect to each such sale: (a) the Series to which such Option
was specifically allocated; (b) the type of Option (put or call); (c) the name
of the issuer and the title and number of shares subject to such Option or, in
the case of a Stock Index Option, the stock index to which such Option relates
and the number of Stock Index Options sold; (d) the date of sale; (e) the sale
price; (f) the date of settlement; (g) the total amount payable to the Fund upon
such sale; and (h) the name of the Clearing Member through whom the sale was
made. The Custodian shall consent to the delivery of the Option sold by the
Clearing Member which previously supplied the confirmation described in
preceding paragraph 1 of this Article with respect to such Option against
payment to the Custodian of the total amount payable to the Fund, provided that
the same conforms to the total amount payable as set forth in such Certificate.
3. Promptly after the exercise by the Fund of any Call Option purchased
by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the
Custodian a Certificate specifying with respect to such Call Option: (a) the
Series to which such Call Option was specifically allocated; (b) the name of the
issuer and the title and number of shares subject to the Call Option; (c) the
expiration date; (d) the date of exercise and settlement; (e) the exercise price
per share; (f) the total amount to be paid by the Fund upon such exercise; and
(g) the name of the Clearing Member through whom such Call Option was exercised.
The Custodian shall, upon receipt of the Securities underlying the Call Option
which was exercised, pay
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out of the moneys held for the account of the Series to which such Call Option
was specifically allocated the total amount payable to the Clearing Member
through whom the Call Option was exercised, provided that the same conforms to
the total amount payable as set forth in such Certificate.
4. Promptly after the exercise by the Fund of any Put Option purchased
by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to the
Custodian a Certificate specifying with respect to such Put Option: (a) the
Series to which such Put Option was specifically allocated; (b) the name of the
issuer and the title and number of shares subject to the Put Option; (c) the
expiration date; (d) the date of exercise and settlement; (e) the exercise price
per share; (f) the total amount to be paid to the Fund upon such exercise; and
(g) the name of the Clearing Member through whom such Put Option was exercised.
The Custodian shall, upon receipt of the amount payable upon the exercise of the
Put Option, deliver or direct the Depository to deliver the Securities
specifically allocated to such Series, provided the same conforms to the amount
payable to the Fund as set forth in such Certificate.
5. Promptly after the exercise by the Fund of any Stock Index Option
purchased by the Fund pursuant to paragraph 1 hereof, the Fund shall deliver to
the Custodian a Certificate specifying with respect to such Stock Index Option:
(a) the Series to which such Stock Index Option was specifically allocated; (b)
the type of Stock Index Option (put or call); (c) the number of Options being
exercised; (d) the stock index to which such Option relates; (e) the expiration
date; (f) the exercise price; (g) the total amount to be received by the Fund in
connection with such exercise; and (h) the Clearing Member from whom such
payment is to be received.
6. Whenever the Fund writes a Covered Call Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Covered Call Option: (a) the Series for which such Covered Call Option was
written; (b) the name of the issuer and the title and number of shares for which
the Covered Call Option was written and which underlie the same; (c) the
expiration date; (d) the exercise price; (e) the premium to be received by the
Fund; (f) the date such Covered Call Option was written; and (g) the name of the
Clearing Member through whom the premium is to be received. The Custodian shall
deliver or cause to be delivered, in exchange for receipt of the premium
specified in the Certificate with respect to such Covered Call Option, such
receipts as are required in accordance with the customs prevailing among
Clearing Members dealing in Covered Call Options and shall impose, or direct the
Depository to impose, upon the underlying Securities specified in the
Certificate specifically allocated to such Series such restrictions as may be
required by such receipts. Notwithstanding the foregoing, the Custodian has the
right, upon prior written notification to the Fund, at any time to refuse to
issue any receipts for Securities in the possession of the Custodian and not
deposited with the Depository underlying a Covered Call Option.
7. Whenever a Covered Call Option written by the Fund and described in
the preceding paragraph of this Article is exercised, the Fund shall promptly
deliver to the Custodian a Certificate instructing the Custodian to deliver, or
to direct the Depository to deliver, the Securities subject to such Covered Call
Option and specifying: (a) the Series for which such Covered Call Option was
written; (b) the name of the issuer and the title and number of shares subject
to the Covered Call Option; (c) the Clearing Member to whom the underlying
Securities are to be delivered; and (d) the total amount payable to the Fund
upon such delivery. Upon the return and/or cancellation of any receipts
delivered pursuant to paragraph 6 of this Article, the Custodian shall deliver,
or direct the Depository to deliver, the underlying Securities as specified in
the Certificate against payment of the amount to be received as set forth in
such Certificate.
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8. Whenever the Fund writes a Put Option, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Put
Option: (a) the Series for which such Put Option was written; (b) the name of
the issuer and the title and number of shares for which the Put Option is
written and which underlie the same; (c) the expiration date; (d) the exercise
price; (e) the premium to be received by the Fund; (f) the date such Put Option
is written; (g) the name of the Clearing Member through whom the premium is to
be received and to whom a Put Option guarantee letter is to be delivered; (h)
the amount of cash, and/or the amount and kind of Securities, if any,
specifically allocated to such Series to be deposited in the Senior Security
Account for such Series; and (i) the amount of cash and/or the amount and kind
of Securities specifically allocated to such Series to be deposited into the
Collateral Account for such Series. The Custodian shall, after making the
deposits into the Collateral Account specified in the Certificate, issue a Put
Option guarantee letter substantially in the form utilized by the Custodian on
the date hereof, and deliver the same to the Clearing Member specified in the
Certificate against receipt of the premium specified in said Certificate.
Notwithstanding the foregoing, the Custodian shall be under no obligation to
issue any Put Option guarantee letter or similar document if it is unable to
make any of the representations contained therein.
9. Whenever a Put Option written by the Fund and described in the
preceding paragraph is exercised, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Put Option was
written; (b) the name of the issuer and title and number of shares subject to
the Put Option; (c) the Clearing Member from whom the underlying Securities are
to be received; (d) the total amount payable by the Fund upon such delivery; (e)
the amount of cash and/or the amount and kind of Securities specifically
allocated to such Series to be withdrawn from the Collateral Account for such
Series and (f) the amount of cash and/or the amount and kind of Securities,
specifically allocated to such Series, if any, to be withdrawn from the Senior
Security Account. Upon the return and/or cancellation of any Put Option
guarantee letter or similar document issued by the Custodian in connection with
such Put Option, the Custodian shall pay out of the moneys held for the account
of the Series to which such Put Option was specifically allocated the total
amount payable to the Clearing Member specified in the Certificate as set forth
in such Certificate against delivery of such Securities, and shall make the
withdrawals specified in such Certificate.
10. Whenever the Fund writes a Stock Index Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Stock Index Option: (a) the Series for which such Stock Index Option was
written; (b) whether such Stock Index Option is a put or a call; (c) the number
of options written; (d) the stock index to which such Option relates; (e) the
expiration date; (f) the exercise price; (g) the Clearing Member through whom
such Option was written; (h) the premium to be received by the Fund; (i) the
amount of cash and/or the amount and kind of Securities, if any, specifically
allocated to such Series to be deposited in the Senior Security Account for such
Series; (j) the amount of cash and/or the amount and kind of Securities, if any,
specifically allocated to such Series to be deposited in the Collateral Account
for such Series; and (k) the amount of cash and/or the amount and kind of
Securities, if any, specifically allocated to such Series to be deposited in a
Margin Account, and the name in which such account is to be or has been
established. The Custodian shall, upon receipt of the premium specified in the
Certificate, make the deposits, if any, into the Senior Security Account
specified in the Certificate, and either (1) deliver such receipts, if any,
which the Custodian has specifically agreed to issue, which are in accordance
with the customs prevailing among Clearing Members in Stock Index Options and
make the deposits into the Collateral Account specified in the Certificate, or
(2) make the deposits into the Margin Account specified in the Certificate.
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11. Whenever a Stock Index Option written by the Fund and described in
the preceding paragraph of this Article is exercised, the Fund shall promptly
deliver to the Custodian a Certificate specifying with respect to such Stock
Index Option: (a) the Series for which such Stock Index Option was written; (b)
such information as may be necessary to identify the Stock Index Option being
exercised; (c) the Clearing Member through whom such Stock Index Option is being
exercised; (d) the total amount payable upon such exercise, and whether such
amount is to be paid by or to the Fund; (e) the amount of cash and/or amount and
kind of Securities, if any, to be withdrawn from the Margin Account; and (f) the
amount of cash and/or amount and kind of Securities, if any, to be withdrawn
from the Senior Security Account for such Series; and the amount of cash and/or
the amount and kind of Securities, if any, to be withdrawn from the Collateral
Account for such Series. Upon the return and/or cancellation of the receipt, if
any, delivered pursuant to the preceding paragraph of this Article, the
Custodian shall pay out of the moneys held for the account of the Series to
which such Stock Index Option was specifically allocated to the Clearing Member
specified in the Certificate the total amount payable, if any, as specified
therein.
12. Whenever the Fund purchases any Option identical to a previously
written Option described in paragraphs 6, 8 or 10 of this Article in a
transaction expressly designated as a "Closing Purchase Transaction" in order to
liquidate its position as a writer of an Option, the Fund shall promptly deliver
to the Custodian a Certificate specifying with respect to the Option being
purchased: (a) that the transaction is a Closing Purchase Transaction; (b) the
Series for which the Option was written; (c) the name of the issuer and the
title and number of shares subject to the Option, or, in the case of a Stock
Index Option, the stock index to which such Option relates and the number of
Options held; (d) the exercise price; (e) the premium to be paid by the Fund;
(f) the expiration date; (g) the type of Option (put or call); (h) the date of
such purchase; (i) the name of the Clearing Member to whom the premium is to be
paid; and (j) the amount of cash and/or the amount and kind of Securities, if
any, to be withdrawn from the Collateral Account, a specified Margin Account, or
the Senior Security Account for such Series. Upon the Custodian's payment of the
premium and the return and/or cancellation of any receipt issued pursuant to
paragraphs 6, 8 or 10 of this Article with respect to the Option being
liquidated through the Closing Purchase Transaction, the Custodian shall remove,
or direct the Depository to remove, the previously imposed restrictions on the
Securities underlying the Call Option.
13. Upon the expiration, exercise or consummation of a Closing Purchase
Transaction with respect to any Option purchased or written by the Fund and
described in this Article, the Custodian shall delete such Option from the
statements delivered to the Fund pursuant to paragraph 3 of Article III herein,
and upon the return and/or cancellation of any receipts issued by the Custodian,
shall make such withdrawals from the Collateral Account, and the Margin Account
and/or the Senior Security Account as may be specified in a Certificate received
in connection with such expiration, exercise, or consummation.
ARTICLE VI
FUTURES CONTRACTS
1. Whenever the Fund shall enter into a Futures Contract, the Fund
shall deliver to the Custodian a Certificate specifying with respect to such
Futures Contract, (or with respect to any number
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of identical Futures Contract(s)): (a) the Series for which the Futures Contract
is being entered; (b) the category of Futures Contract (the name of the
underlying stock index or financial instrument); (c) the number of identical
Futures Contracts entered into; (d) the delivery or settlement date of the
Futures Contract(s); (e) the date the Futures Contract(s) was (were) entered
into and the maturity date; (f) whether the Fund is buying (going long) or
selling (going short) on such Futures Contract(s); (g) the amount of cash and/or
the amount and kind of Securities, if any, to be deposited in the Senior
Security Account for such Series; (h) the name of the broker, dealer, or futures
commission merchant through whom the Futures Contract was entered into; and (i)
the amount of fee or commission, if any, to be paid and the name of the broker,
dealer, or futures commission merchant to whom such amount is to be paid. The
Custodian shall make the deposits, if any, to the Margin Account in accordance
with the terms and conditions of the Margin Account Agreement. The Custodian
shall make payment out of the moneys specifically allocated to such Series of
the fee or commission, if any, specified in the Certificate and deposit in the
Senior Security Account for such Series the amount of cash and/or the amount and
kind of Securities specified in said Certificate.
2. (a) Any variation margin payment or similar payment required to be
made by the Fund to a broker, dealer, or futures commission merchant with
respect to an outstanding Futures Contract, shall be made by the Custodian in
accordance with the terms and conditions of the Margin Account Agreement.
(b) Any variation margin payment or similar payment from a
broker, dealer, or futures commission merchant to the Fund with respect to an
outstanding Futures Contract, shall be received and dealt with by the Custodian
in accordance with the terms and conditions of the Margin Account Agreement.
3. Whenever a Futures Contract held by the Custodian hereunder is
retained by the Fund until delivery or settlement is made on such Futures
Contract, the Fund shall deliver to the Custodian a Certificate specifying: (a)
the Futures Contract and the Series to which the same relates; (b) with respect
to a Stock Index Futures Contract, the total cash settlement amount to be paid
or received, and with respect to a Financial Futures Contract, the Securities
and/or amount of cash to be delivered or received; (c) the broker, dealer, or
futures commission merchant to or from whom payment or delivery is to be made or
received; and (d) the amount of cash and/or Securities to be withdrawn from the
Senior Security Account for such Series. The custodian shall make the payment or
delivery specified in the Certificate, and delete such Futures Contract from the
statements delivered to the Fund pursuant to paragraph 3 of Article III herein.
4. Whenever the Fund shall enter into a Futures Contract to offset a
Futures Contract held by the Custodian hereunder, the Fund shall deliver to the
Custodian a Certificate specifying: (a) the items of information required in a
Certificate described in paragraph 1 of this Article, and (b) the Futures
Contract being offset. The Custodian shall make payment out of the money
specifically allocated to such Series of the fee or commission, if any,
specified in the Certificate and delete the Futures Contract being offset from
the statements delivered to the Fund pursuant to paragraph 3 of Article III
herein, and make such withdrawals from the Senior Security Account for such
Series as may be specified in such Certificate. The withdrawals, if any, to be
made from the Margin Account shall be made by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
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ARTICLE VII
FUTURES CONTRACT OPTIONS
1. Promptly after the purchase of any Futures Contract Option by the
Fund, the Fund shall promptly deliver to the Custodian a Certificate specifying
with respect to such Futures Contract Option: (a) the Series to which such
Option is specifically allocated; (b) the type of Futures Contract Option (put
or call); (c) the type of Futures Contract and such other information as may be
necessary to identify the Futures Contract underlying the Futures Contract
Option purchased; (d) the expiration date; (e) the exercise price; (f) the dates
of purchase and settlement; (g) the amount of premium to be paid by the Fund
upon such purchase; (h) the name of the broker or futures commission merchant
through whom such option was purchased; and (i) the name of the broker, or
futures commission merchant, to whom payment is to be made. The Custodian shall
pay out of the moneys specifically allocated to such Series, the total amount to
be paid upon such purchase to the broker or futures commissions merchant through
whom the purchase was made, provided that the same conforms to the amount set
forth in such Certificate.
2. Promptly after the sale of any Futures Contract Option purchased by
the Fund pursuant to paragraph 1 hereof, the Fund shall promptly deliver to the
Custodian a Certificate specifying with respect to each such sale: (a) Series to
which such Futures Contract Option was specifically allocated; (b) the type of
Futures Contract Option (put or call); (c) the type of Futures Contract and such
other information as may be necessary to identify the Futures Contract
underlying the Futures Contract Option; (d) the date of sale; (e) the sale
price; (f) the date of settlement; (g) the total amount payable to the Fund upon
such sale; and (h) the name of the broker or futures commission merchant through
whom the sale was made. The Custodian shall consent to the cancellation of the
Futures Contract Option being closed against payment to the Custodian of the
total amount payable to the Fund, provided the same conforms to the total amount
payable as set forth in such Certificate.
3. Whenever a Futures Contract Option purchased by the Fund pursuant to
paragraph 1 is exercised by the Fund, the Fund shall promptly deliver to the
Custodian a Certificate specifying: (a) the Series to which such Futures
Contract Option was specifically allocated; (b) the particular Futures Contract
Option (put or call) being exercised; (c) the type of Futures Contract
underlying the Futures Contract Option; (d) the date of exercise; (e) the name
of the broker or futures commission merchant through whom the Futures Contract
Option is exercised; (f) the net total amount, if any, payable by the Fund; (g)
the amount, if any, to be received by the Fund; and (h) the amount of cash
and/or the amount and kind of Securities to be deposited in the Senior Security
Account for such Series. The Custodian shall make, out of the moneys and
Securities specifically allocated to such Series, the payments, if any, and the
deposits, if any, into the Senior Security Account as specified in the
Certificate. The deposits, if any, to be made to the Margin Account shall be
made by the Custodian in accordance with the terms and conditions of the Margin
Account Agreement.
4. Whenever the Fund writes a Futures Contract Option, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to such
Futures Contract Option: (a) the Series for which such Futures Contract Option
was written; (b) the type of Futures Contract Option (put or call); (c) the type
of Futures Contract and such other information as may be necessary to identify
the Futures Contract underlying the Futures Contract Option; (d) the expiration
date; (e) the exercise price; (f) the premium to be received by the Fund; (g)
the name of the broker or futures commission merchant through whom the premium
is to be received; and (h) the amount of cash and/or the amount and kind of
Securities, if any, to
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be deposited in the Senior Security Account for such Series. The Custodian
shall, upon receipt of the premium specified in the Certificate, make out of the
moneys and Securities specifically allocated to such Series the deposits into
the Senior Security Account, if any, as specified in the Certificate. The
deposits, if any, to be made to the Margin Account shall be made by the
Custodian in accordance with the terms and conditions of the Margin Account
Agreement.
5. Whenever a Futures Contract Option written by the Fund which is a
call is exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series to which such Futures Contract Option was
specifically allocated; (b) the particular Futures Contract Option exercised;
(c) the type of Futures Contract underlying the Futures Contract Option; (d) the
name of the broker or futures commission merchant through whom such Futures
Contract Option was exercised; (e) the net total amount, if any, payable to the
Fund upon such exercise; (f) the amount, if any, to be received by the Fund; and
(g) the amount of cash and/or the amount and kind of Securities to be deposited
in the Senior Security Account for such Series. The Custodian shall, upon its
receipt of the net total amount payable to the Fund, if any, specified in such
Certificate make the payments, if any, and the deposits, if any, into the Senior
Security Account as specified in the Certificate. The deposits, if any, to be
made to the Margin Account shall be made by the Custodian in accordance with the
terms and conditions of the Margin Account Agreement.
6. Whenever a Futures Contract Option which is written by the Fund and
which is a put is exercised, the Fund shall promptly deliver to the Custodian a
Certificate specifying: (a) the Series to which such Option was specifically
allocated; (b) the particular Futures Contract Option exercised; (c) the type of
Futures Contract underlying such Futures Contract Option; (d) the name of the
broker or futures commission merchant through whom such Futures Contract Option
is exercised; (e) the net total amount, if any, payable to the Fund upon such
exercise; (f) the amount, if any, to be received by the Fund; and (g) the amount
and kind of Securities and/or cash to be withdrawn from or deposited in, the
Senior Security Account for such Series, if any. The Custodian shall, upon its
receipt of the net total amount payable to the Fund, if any, specified in the
Certificate, make out of the moneys and Securities specifically allocated to
such Series, the payments, if any, and the deposits, if any, into the Senior
Security Account as specified in the Certificate. The deposits to and/or
withdrawals from the Margin Account, if any, shall be made by the Custodian in
accordance with the terms and conditions of the Margin Account Agreement.
7. Whenever the Fund purchases any Futures Contract Option identical to
a previously written Futures Contract Option described in this Article in order
to liquidate its position as a writer of such Futures Contract Option, the Fund
shall promptly deliver to the Custodian a Certificate specifying with respect to
the Futures Contract Option being purchased: (a) the Series to which such Option
is specifically allocated; (b) that the transaction is a closing transaction;
(c) the type of Futures Contract and such other information as may be necessary
to identify the Futures Contract underlying the Futures Option Contract; (d) the
exercise price; (e) the premium to be paid by the Fund; (f) the expiration date;
(g) the name of the broker or futures commission merchant to whom the premium is
to be paid; and (h) the amount of cash and/or the amount and kind of Securities,
if any, to be withdrawn from the Senior Security Account for such Series. The
Custodian shall effect the withdrawals from the Senior Security Account
specified in the Certificate. The withdrawals, if any, to be made from the
Margin Account shall be made by the Custodian in accordance with the terms and
conditions of the Margin Account Agreement.
8. Upon the expiration, exercise, or consummation of a closing
transaction with respect to, any Futures Contract Option written or purchased by
the Fund and described in this Article, the Custodian
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shall (a) delete such Futures Contract Option from the statements delivered to
the Fund pursuant to paragraph 3 of Article III herein and, (b) make such
withdrawals from and/or in the case of an exercise such deposits into the Senior
Security Account as may be specified in a Certificate. The deposits to and/or
withdrawals from the Margin Account, if any, shall be made by the Custodian in
accordance with the terms and conditions of the Margin Account Agreement.
9. Futures Contracts acquired by the Fund through the exercise of a
Futures Contract Option described in this Article shall be subject to Article VI
hereof.
ARTICLE VIII
SHORT SALES
1. Promptly after any short sales by any Series of the Fund, the Fund
shall promptly deliver to the Custodian a Certificate specifying: (a) the Series
for which such short sale was made; (b) the name of the issuer and the title of
the Security; (c) the number of shares or principal amount sold, and accrued
interest or dividends, if any; (d) the dates of the sale and settlement; (e) the
sale price per unit; (f) the total amount credited to the Fund upon such sale,
if any, (g) the amount of cash and/or the amount and kind of Securities, if any,
which are to be deposited in a Margin Account and the name in which such Margin
Account has been or is to be established; (h) the amount of cash and/or the
amount and kind of Securities, if any, to be deposited in a Senior Security
Account, and (i) the name of the broker through whom such short sale was made.
The Custodian shall upon its receipt of a statement from such broker confirming
such sale and that the total amount credited to the Fund upon such sale, if any,
as specified in the Certificate is held by such broker for the account of the
Custodian (or any nominee of the Custodian) as custodian of the Fund, issue a
receipt or make the deposits into the Margin Account and the Senior Security
Account specified in the Certificate.
2. In connection with the closing-out of any short sale, the Fund shall
promptly deliver to the Custodian a Certificate specifying with respect to each
such closing out: (a) the Series for which such transaction is being made; (b)
the name of the issuer and the title of the Security; (c) the number of shares
or the principal amount, and accrued interest or dividends, if any, required to
effect such closing-out to be delivered to the broker; (d) the dates of
closing-out and settlement; (e) the purchase price per unit; (f) the net total
amount payable to the Fund upon such closing-out; (g) the net total amount
payable to the broker upon such closing-out; (h) the amount of cash and the
amount and kind of Securities to be withdrawn, if any, from the Margin Account;
(i) the amount of cash and/or the amount and kind of Securities, if any, to be
withdrawn from the Senior Security Account; and (j) the name of the broker
through whom the Fund is effecting such closing-out. The Custodian shall, upon
receipt of the net total amount payable to the Fund upon such closing-out, and
the return and/or cancellation of the receipts, if any, issued by the Custodian
with respect to the short sale being closed-out, pay out of the moneys held for
the account of the Fund to the broker the net total amount payable to the
broker, and make the withdrawals from the Margin Account and the Senior Security
Account, as the same are specified in the Certificate.
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ARTICLE IX
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters a Reverse Repurchase Agreement with
respect to Securities and money held by the Custodian hereunder, the Fund shall
deliver to the Custodian a Certificate, or in the event such Reverse Repurchase
Agreement is a Money Market Security, a Certificate or Oral Instructions
specifying: (a) the Series for which the Reverse Repurchase Agreement is
entered; (b) the total amount payable to the Fund in connection with such
Reverse Repurchase Agreement and specifically allocated to such Series; (c) the
broker or dealer through or with whom the Reverse Repurchase Agreement is
entered; (d) the amount and kind of Securities to be delivered by the Fund to
such broker or dealer; (e) the date of such Reverse Repurchase Agreement; and
(f) the amount of cash and/or the amount and kind of Securities, if any,
specifically allocated to such Series to be deposited in a Senior Security
Account for such Series in connection with such Reverse Repurchase Agreement.
The Custodian shall, upon receipt of the total amount payable to the Fund
specified in the Certificate or Oral Instructions make the delivery to the
broker or dealer, and the deposits, if any, to the Senior Security Account,
specified in such Certificate or Oral Instructions.
2. Upon the termination of a Reverse Repurchase Agreement described in
preceding paragraph 1 of this Article, the Fund shall promptly deliver a
Certificate or, in the event such Reverse Repurchase Agreement is a Money Market
Security, a Certificate or Oral Instructions to the Custodian specifying: (a)
the Reverse Repurchase Agreement being terminated and the Series for which same
was entered; (b) the total amount payable by the Fund in connection with such
termination; (c) the amount and kind of Securities to be received by the Fund
and specifically allocated to such Series in connection with such termination;
(d) the date of termination; (e) the name of the broker or dealer with or
through whom the Reverse Repurchase Agreement is to be terminated; and (f) the
amount of cash and/or the amount and kind of Securities to be withdrawn from the
Senior Securities Account for such Series. The Custodian shall, upon receipt of
the amount and kind of Securities to be received by the Fund specified in the
Certificate or Oral Instructions, make the payment to the broker or dealer, and
the withdrawals, if any, from the Senior Security Account, specified in such
Certificate or Oral Instructions.
ARTICLE X
LOAN OF PORTFOLIO SECURITIES OF THE FUND
1. Promptly after each loan of portfolio Securities specifically
allocated to a Series held by the Custodian hereunder, the Fund shall deliver or
cause to be delivered to the Custodian a Certificate specifying with respect to
each such loan: (a) the Series to which the loaned Securities are specifically
allocated; (b) the name of the issuer and the title of the Securities, (c) the
number of shares or the principal amount loaned, (d) the date of loan and
delivery, (e) the total amount to be delivered to the Custodian against the loan
of the Securities, including the amount of cash collateral and the premium, if
any, separately identified, and (f) the name of the broker, dealer, or financial
institution to which the loan was made. The Custodian shall deliver the
Securities thus designated to the broker, dealer or financial institution to
which the loan was made upon receipt of the total amount designated as to be
delivered against the loan of Securities. The Custodian may accept payment in
connection with a delivery otherwise than through the Book-Entry System or
Depository only in the form of a certified or bank
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cashier's check payable to the order of the Fund or the Custodian drawn on New
York Clearing House funds and may deliver Securities in accordance with the
customs prevailing among dealers in securities.
2. Promptly after each termination of the loan of Securities by the
Fund, the Fund shall deliver or cause to be delivered to the Custodian a
Certificate specifying with respect to each such loan termination and return of
Securities: (a) the Series to which the loaned Securities are specifically
allocated; (b) the name of the issuer and the title of the Securities to be
returned, (c) the number of shares or the principal amount to be returned, (d)
the date of termination, (e) the total amount to be delivered by the Custodian
(including the cash collateral for such Securities minus any offsetting credits
as described in said Certificate), and (f) the name of the broker, dealer, or
financial institution from which the Securities will be returned. The Custodian
shall receive all Securities returned from the broker, dealer, or financial
institution to which such Securities were loaned and upon receipt thereof shall
pay, out of the moneys held for the account of the Fund, the total amount
payable upon such return of Securities as set forth in the Certificate.
ARTICLE XI
CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY
ACCOUNTS, AND COLLATERAL ACCOUNTS
1. The Custodian shall, from time to time, make such deposits to, or
withdrawals from, a Senior Security Account as specified in a Certificate
received by the Custodian. Such Certificate shall specify the Series for which
such deposit or withdrawal is to be made and the amount of cash and/or the
amount and kind of Securities specifically allocated to such Series to be
deposited in, or withdrawn from, such Senior Security Account for such Series.
In the event that the Fund fails to specify in a Certificate the Series, the
name of the issuer, the title and the number of shares or the principal amount
of any particular Securities to be deposited by the Custodian into, or withdrawn
from, a Senior Securities Account, the Custodian shall be under no obligation to
make any such deposit or withdrawal and shall so notify the Fund.
2. The Custodian shall make deliveries or payments from a Margin
Account to the broker, dealer, futures commission merchant or Clearing Member in
whose name, or for whose benefit, the account was established as specified in
the Margin Account Agreement.
3. Amounts received by the Custodian as payments or distributions with
respect to Securities deposited in any Margin Account shall be dealt with in
accordance with the terms and conditions of the Margin Account Agreement.
4. The Custodian shall have a continuing lien and security interest in
and to any property at any time held by the Custodian in any Collateral Account
described herein. In accordance with applicable law the Custodian may enforce
its lien and realize on any such property whenever the Custodian has made
payment or delivery pursuant to any Put Option guarantee letter or similar
document or any receipt issued hereunder by the Custodian. In the event the
Custodian should realize on any such property net proceeds which are less than
the Custodian's obligations under any Put Option guarantee letter or similar
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document or any receipt, such deficiency shall be a debt owed the Custodian by
the Fund within the scope of Article XIV herein.
5. On each business day the Custodian shall furnish the Fund with a
statement with respect to each Margin Account in which money or Securities are
held specifying as of the close of business on the previous business day: (a)
the name of the Margin Account; (b) the amount and kind of Securities held
therein; and (c) the amount of money held therein. The Custodian shall make
available upon request to any broker, dealer, or futures commission merchant
specified in the name of a Margin Account a copy of the statement furnished the
Fund with respect to such Margin Account.
6. Promptly after the close of business on each business day in which
cash and/or Securities are maintained in a Collateral Account for any Series,
the Custodian shall furnish the Fund with a statement with respect to such
Collateral Account specifying the amount of cash and/or the amount and kind of
Securities held therein. No later than the close of business next succeeding the
delivery to the Fund of such statement, the Fund shall furnish to the Custodian
a Certificate specifying the then market value of the Securities described in
such statement. In the event such then market value is indicated to be less than
the Custodian's obligation with respect to any outstanding Put Option guarantee
letter or similar document, the Fund shall promptly specify in a Certificate the
additional cash and/or Securities to be deposited in such Collateral Account to
eliminate such deficiency.
ARTICLE XII
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Fund shall furnish to the Custodian a copy of the resolution of
the Board of Trustees of the Fund, certified by the Secretary, the Clerk, any
Assistant Secretary or any Assistant Clerk, either (i) setting forth with
respect to the Series specified therein the date of the declaration of a
dividend or distribution, the date of payment thereof, the record date as of
which shareholders entitled to payment shall be determined, the amount payable
per Share of such Series to the shareholders of record as of that date and the
total amount payable to the Dividend Agent and any sub-dividend agent or
co-dividend agent of the Fund on the payment date, or (ii) authorizing with
respect to the Series specified therein the declaration of dividends and
distributions on a daily basis and authorizing the Custodian to rely on Oral
Instructions or a Certificate setting forth the date of the declaration of such
dividend or distribution, the date of payment thereof, the record date as of
which shareholders entitled to payment shall be determined, the amount payable
per Share of such Series to the shareholders of record as of that date and the
total amount payable to the Dividend Agent on the payment date.
2. Upon the payment date specified in such resolution, Oral
Instructions or Certificate, as the case may be, the Custodian shall pay out-of
the moneys held for the account of each Series the total amount payable to the
Dividend Agent and any sub-dividend agent or co-dividend agent of the Fund with
respect to such Series.
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ARTICLE XIII
SALE AND REDEMPTION OF SHARES
1. Whenever the Fund shall sell any Shares, it shall deliver to the
Custodian a Certificate duly specifying:
(a) The Series, the number of Shares sold, trade date, and
price; and
(b) The amount of money to be received by the Custodian for
the sale of such Shares and specifically allocated to the separate account in
the name of such Series.
2. Upon receipt of such money from the Transfer Agent, the Custodian
shall credit such money to the separate account in the name of the Series for
which such money was received.
3. Upon issuance of any Shares of any Series described in the foregoing
provisions of this Article, the Custodian shall pay, out of the money held for
the account of such Series, all original issue or other taxes required to be
paid by the Fund in connection with such issuance upon the receipt of a
Certificate specifying the amount to be paid.
4. Except as provided hereinafter, whenever the Fund desires the
Custodian to make payment out of the money held by the Custodian hereunder in
connection with a redemption of any Shares, it shall furnish to the Custodian a
Certificate specifying:
(a) The number and Series of Shares redeemed; and
(b) The amount to be paid for such Shares.
5. Upon receipt from the Transfer Agent of an advice setting forth the
Series and number of Shares received by the Transfer Agent for redemption and
that such Shares are in good form for redemption, the Custodian shall make
payment to the Transfer Agent out of the moneys held in the separate account in
the name of the Series the total amount specified in the Certificate issued
pursuant to the foregoing paragraph 4 of this Article.
6. Notwithstanding the above provisions regarding the redemption of any
Shares, whenever any Shares are redeemed pursuant to any check redemption
privilege which may from time to time be offered by the Fund, the Custodian,
unless otherwise instructed by a Certificate, shall, upon receipt of an advice
from the Fund or its agent setting forth that the redemption is in good form for
redemption in accordance with the check redemption procedure, honor the check
presented as part of such check redemption privilege out of the moneys held in
the separate account of the Series of the Shares being redeemed.
ARTICLE XIV
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian, should in its sole discretion advance funds on
behalf of any Series which results in an overdraft because the moneys held by
the Custodian in the separate account for such Series
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shall be insufficient to pay the total amount payable upon a purchase of
Securities specifically allocated to such Series, as set forth in a Certificate
or Oral Instructions, or which results in an overdraft in the separate account
of such Series for some other reason, or if the Fund is indebted to The Bank of
New York under the Fund's Cash Management and Related Services Agreement (except
a borrowing for investment or for temporary or emergency purposes using
Securities as collateral pursuant to a separate agreement and subject to the
provisions of paragraph 2 of this Article), such overdraft or indebtedness shall
be deemed to be a loan made by the Custodian to the Fund for such Series payable
on demand and shall bear interest from the date incurred at a rate per annum
(based on a 360-day year for the actual number of days involved) equal to 1/2%
over Custodian's prime commercial lending rate in effect from time to time, such
rate to be adjusted on the effective date of any change in such prime commercial
lending rate but in no event to be less than 6% per annum. In addition, the Fund
hereby agrees that the Custodian shall have a continuing and enforceable lien
and security interest in and to any property specifically allocated to such
Series at any time held by it for the benefit of such Series or in which the
Series may have an interest which is then in the Custodian's possession or
control or in possession or control of any third party acting in the Custodian's
behalf, having at the time such overdraft or indebtedness is incurred a fair
market value equal to 150% of such overdraft or indebtedness. The Fund
authorizes the Custodian, in its sole discretion, at any time to charge any such
overdraft or indebtedness together with interest due thereon against any balance
of account standing to such Series' credit on the Custodian's books. In
addition, the Fund hereby covenants that on each Business Day on which either it
intends to enter a Reverse Repurchase Agreement and/or otherwise borrow from a
third party, or which next succeeds a Business Day on which at the close of
business the Fund had outstanding a Reverse Repurchase Agreement or such a
borrowing, it shall prior to 9 a.m., New York City time, advise the Custodian,
in writing, of each such borrowing, shall specify the Series to which the same
relates, and shall not incur any indebtedness not so specified other than from
the Custodian.
2. The Fund will cause to be delivered to the Custodian by any bank
(including, if the borrowing is pursuant to a separate agreement, the Custodian)
from which it borrows money for investment or for temporary or emergency
purposes using Securities held by the Custodian hereunder as collateral for such
borrowings, a notice or undertaking in the form currently employed by any such
bank setting forth the amount which such bank will loan to the Fund against
delivery of a stated amount of collateral. The Fund shall promptly deliver to
the Custodian a Certificate specifying with respect to each such borrowing: (a)
the Series to which such borrowing relates; (b) the name of the bank, (c) the
amount and terms of the borrowing, which may be set forth by incorporating by
reference an attached promissory note, duly endorsed by the Fund, or other loan
agreement, (d) the time and date, if known, on which the loan is to be entered
into, (e) the date on which the loan becomes due and payable, (f) the total
amount payable to the Fund on the borrowing date, (g) the market value of
Securities to be delivered as collateral for such loan, including the name of
the issuer, the title and the number of shares or the principal amount of any
particular Securities, and (h) a statement specifying whether such loan is for
investment purposes or for temporary or emergency purposes and that such loan is
in conformance with the Investment Company Act of 1940 and the Fund's
prospectus. The Custodian shall deliver on the borrowing date specified in a
Certificate the specified collateral and the executed promissory note, if any,
against delivery by the lending bank of the total amount of the loan payable,
provided that the same conforms to the total amount payable as set forth in the
Certificate. The Custodian may, at the option of the lending bank, keep such
collateral in its possession, but such collateral shall be subject to all rights
therein given the lending bank by virtue of any promissory note or loan
agreement. The Custodian shall deliver such Securities as additional collateral
as may be specified in a Certificate to collateralize further any transaction
described in this paragraph. The Fund shall cause all Securities released from
collateral status to be returned
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directly to the Custodian, and the Custodian shall receive from time to time
such return of collateral as may be tendered to it. In the event that the Fund
fails to specify in a Certificate the Series, the name of the issuer, the title
and number of shares or the principal amount of any particular Securities to be
delivered as collateral by the Custodian, the Custodian shall not be under any
obligation to deliver any Securities.
ARTICLE XV
TERMINAL LINK
1. At no time and under no circumstances shall the Fund be obligated to
have or utilize the Terminal Link, and the provisions of this Article shall
apply if, but only if, the Fund in its sole and absolute discretion elects to
utilize the Terminal Link to transmit Certificates to the Custodian.
2. The Terminal Link shall be utilized by the Fund only for the purpose
of the Fund providing Certificates to the Custodian with respect to transactions
involving Securities or for the transfer of money to be applied to the payment
of dividends, distributions or redemptions of Fund Shares, and shall be utilized
by the Custodian only for the purpose of providing notices to the Fund. Such use
shall commence only after the Fund shall have delivered to the Custodian a
Certificate substantially in the form of Exhibit D and shall have established
access codes and safekeeping procedures to safeguard and protect the
confidentiality and availability of such access codes and shall have reviewed
the safekeeping procedures established by the Intermediary to assure that
transmissions inputted by the Fund, and only such transmissions, are forwarded
by the Intermediary to the Custodian without any alteration or omission. Each
use of the Terminal Link by the Fund shall constitute a representation and
warranty that the Terminal Link is being used only for the purposes permitted
hereby, that at least two Officers have each utilized an access code, that such
safekeeping procedures have been established by the Fund, that the Intermediary
has safekeeping procedures reviewed by the Fund to assure that all transmissions
inputted by the Fund, and only such transmissions, are forwarded by the
Intermediary to the Custodian without any alteration or omission by the
Intermediary, and that such use does not contravene the Investment Company Act
of 1940, as amended, or the rules or regulations thereunder.
3. The Fund shall obtain and maintain at its own cost and expense all
equipment and services, including, but not limited to communications services,
necessary for it to utilize the Terminal Link, and the Custodian shall not be
responsible for the reliability or availability of any such equipment or
services.
4. The Fund acknowledges that any data bases made available as part of,
or through the Terminal Link and any proprietary data, software, processes,
information and documentation of the Custodian (other than any such which are or
become part of the public domain or are legally required to be made available to
the public) (collectively, the "Information"), are the exclusive and
confidential property of the Custodian. The Fund shall, and shall cause others
to which it discloses the Information, including, without limitation the
Intermediary, to keep the Information confidential by using the same care and
discretion it uses with respect to its own confidential property and trade
secrets, and shall neither make nor permit any disclosure without the express
prior written consent of the Custodian.
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5. Upon termination of this Agreement for any reason, the Fund shall
return to the Custodian any and all copies of the Information which are in the
Fund's possession or under its control, or which the Fund distributed to third
parties, including, without limitation, the Intermediary. The provisions of this
Article shall not affect the copyright status of any of the Information which
may be copyrighted and shall apply to all Information whether or not
copyrighted.
6. The Custodian reserves the right to modify the Terminal Link from
time to time without notice to the Fund or the Intermediary except that the
Custodian shall give the Fund notice not less than 75 days in advance of any
modification which would materially adversely affect the Fund's operation, and
the Fund agrees that neither the Fund nor the Intermediary shall modify or
attempt to modify the Terminal Link without the Custodian's prior written
consent. The Fund acknowledges that any software or procedures provided the Fund
or the Intermediary as part of the Terminal Link are the property of the
Custodian and, accordingly, the Fund agrees that any modifications to the
Terminal Link, whether by the Fund, the Intermediary or by the Custodian and
whether with or without the Custodian's consent, shall become the property of
the Custodian.
7. Neither the Custodian nor any manufacturers and suppliers it
utilizes or the Fund or the Intermediary utilized in connection with the
Terminal Link makes any warranties or representations, express or implied, in
fact or in law, including but not limited to warranties of merchantability and
fitness for a particular purpose.
8. The Fund will cause its Officers and employees to treat the
authorization codes and the access codes applicable to Terminal Link with
extreme care, and irrevocably authorizes the Custodian to act in accordance with
and rely on Certificates received by it through the Terminal Link. The Fund
acknowledges that it is its responsibility to assure that only its Officers and
authorized persons of the Intermediary use the Terminal Link on its behalf, and
that a Custodian shall not be responsible nor liable for use of the Terminal
Link on the Fund's behalf by persons other than such persons or Officers, or by
only a single Officer, nor for any alteration, omission, or failure to promptly
forward by the Intermediary.
9. Without limiting the generality of the foregoing, in no event shall
the Custodian or any manufacturer or supplier of its computer equipment,
software or services relating to the Terminal Link be responsible for any
special, indirect, incidental or consequential damages which the Fund or the
Intermediary may incur or experience by reason of its use of the Terminal Link
even if the Custodian or any manufacturer or supplier has been advised of the
possibility of such damages, nor with respect to the use of the Terminal Link
shall the Custodian or any such manufacturer or supplier be liable for acts of
God, or with respect to the following to the extent beyond such person's
reasonable control: machine or computer breakdown or malfunction, interruption
or malfunction of communication facilities, labor difficulties or any other
similar or dissimilar cause.
10. The Fund shall notify the Custodian of any errors, omissions or
interruptions in, or delay or unavailability of, the Terminal Link as promptly
as practicable, and in any event within 24 hours after the earliest of (i)
discovery thereof, (ii) the Business Day on which discovery should have occurred
through the exercise of reasonable care and (iii) in the case of any error, the
date of actual receipt of the earliest notice which reflects such error, it
being agreed that discovery and receipt of notice may only occur on a business
day. The Custodian shall promptly advise the Fund or the Intermediary whenever
the Custodian learns of any errors, omissions or interruption in, or delay or
unavailability of, the Terminal Link.
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11. The Custodian shall acknowledge to the Fund or to the Intermediary,
by use of the Terminal Link, receipt of each Certificate the Custodian receives
through the Terminal Link, and in the absence of such acknowledgment, the
Custodian shall not be liable for any failure to act in accordance with such
Certificate and the Fund may not claim that such Certificate was received by the
Custodian. Such verification, which may occur after the Custodian has acted upon
such Certificate, shall be accomplished on the same day on which such
Certificate is received.
ARTICLE XVI
DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY
OF ANY SERIES HELD OUTSIDE OF THE UNITED STATES
1. Whenever used in this Article, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
(a) Capitalized terms used in this Agreement and not otherwise
defined in this Agreement shall have the meanings given such terms in the Rule.
(b) "Board" shall mean the board of directors or board of
trustees, as the case may be, of the Fund.
(c) "Eligible Foreign Custodian" shall have the meaning
provided in the Rule.
(d) "Monitoring System" shall mean a system established by the
Custodian to fulfill the Responsibilities specified in clauses (d) and (e) of
subsection 3 of this Article.
(e) "Qualified Foreign Bank" shall have the meaning provided
in the Rule.
(f) "Responsibilities" shall mean the responsibilities
delegated to the Custodian as a Foreign Custody Manager with respect to each
Specified Country and each Eligible Foreign Custodian selected by the Custodian
as such responsibilities are more fully described in subsection 3 of this
Article.
(g) "Rule" shall mean Rule 17f-5 under the Investment Company
Act of 1940, as amended, as such rule became effective on June 16, 1997.
(h) "Securities Depository" shall mean any securities
depository or clearing agency within the meaning of Section (a)(1)(ii) or
(a)(1)(iii) of the Rule.
(i) "Specified Country" shall mean each country listed on
Schedule I attached hereto and each country, other than the United States,
constituting the primary market for a security with respect to which the Fund
has given settlement instructions to the Custodian under its Custody Agreement
with the Fund.
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2. THE CUSTODIAN AS A FOREIGN CUSTODY MANAGER
(a) The Fund on behalf of its Board hereby delegates to the
Custodian with respect to each Specified Country the Responsibilities.
(b) The Custodian accepts the Board's delegation of
Responsibilities with respect to each Specified Country and agrees in performing
the Responsibilities as a Foreign Custody Manager to exercise reasonable care,
prudence and diligence such as a person having responsibility for the
safekeeping of the Fund's assets would exercise.
(c) The Custodian shall provide to the Board at least annually
and at such times as the Board or the Custodian deems reasonable and appropriate
based on the circumstances of the Fund's foreign custody arrangements written
reports notifying the Board of the placement of assets of the Fund with a
particular Eligible Foreign Custodian within a Specified Country and quarterly
of any material change in the arrangements (including, in the case of Qualified
Foreign Banks, any material change in any contract governing such arrangements
and in the case of Securities Depositories, any material change in the
established practices or procedures of such Securities Depositories) with
respect to assets of the Fund with any such Eligible Foreign Custodian.
3. RESPONSIBILITIES
(a) Subject to the provisions of this Agreement, the Custodian
shall with respect to each Specified Country select an Eligible Foreign
Custodian. In connection therewith, the Custodian shall: (a) determine that
assets of the Fund held by such Eligible Foreign Custodian will be subject to
reasonable care, based on the standards applicable to custodians in the relevant
market in which such Eligible Foreign Custodian operates, after considering all
factors relevant to the safekeeping of such assets, including, without
limitation, those contained in Section (c)(1) of the Rule; (b) determine that
the Fund's foreign custody arrangements with each Qualified Foreign Bank are
governed by a written contract with the Custodian (or, in the case of a
Securities Depository, by such a contract, by the rules or established practices
or procedures of the Securities Depository, or by any combination of the
foregoing) will provide reasonable care for the Fund's assets based on the
standards specified in paragraph (c)(1) of the Rule; (c) determine that each
contract with a Qualified Foreign Bank shall include the provisions specified in
paragraph (c)(2)(i)(A) through (F) of the Rule or alternatively, in lieu of any
or all of such (c)(2)(i)(A) through (F) provisions, such other provisions as the
Custodian determines it will provide, in their entirety, the same or a greater
level of care and protection for the assets of the Fund as such specified
provisions; (d) monitor pursuant to the Monitoring System the appropriateness of
maintaining the assets of the Fund with a particular Eligible Foreign Custodian
pursuant to paragraph (c)(1) of the Rule and in the case of a Qualified Foreign
Bank, any material change in the contract governing such arrangement and in the
case of a Securities Depository, any material change in the established
practices or procedures of such Securities Depository; and (e) advise the Fund
whenever an arrangement (including, in the case of a Qualified Foreign Bank, any
material change in the contract governing such arrangement and in the case of a
Securities Depository, any material change in the established practices or
procedures of such Securities Depository) described in preceding clause (d) no
longer meets the requirements of the Rule. Anything in this Agreement to the
contrary notwithstanding, the Custodian shall in no event be deemed to have
selected any Securities Depository the use of which is mandatory by law or
regulation or because securities cannot be withdrawn from such Securities
Depository, or because maintaining securities outside the Securities Depository
is not consistent with prevailing custodial practices in the relevant market
(each,
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a "Compulsory Depository"); it being understood however, that for each
Compulsory Depository utilized or intended to be utilized by the Fund, the
Custodian shall provide the Fund from time to time with information addressing
the factors set forth in Section (c) (1) of the Rule and the Custodian's
opinions with respect thereto so that the Fund may determine the appropriateness
of placing Fund assets therein.
For purposes of Clauses (a) and (b) of this subsection 3, with respect
to Securities Depositories, it is understood that such determination shall be
made on the basis of, and limited by, publicly available information with
respect to each such Securities Depository.
For purposes of clause (d) of this subsection 3, the Custodian's
determination of appropriateness shall not include, nor be deemed to include,
any evaluation of Country Risks associated with investment in a particular
country. For purposes hereof, "Country Risks" shall mean systemic risks of
holding assets in a particular country including, but not limited to, (a) the
use of Compulsory Depositories, (b) such country's financial infrastructure, (c)
nationalization, expropriation or other governmental actions, (d) regulation of
the banking or securities industry, (e) currency controls, restrictions,
devaluations or fluctuations, and (f) market conditions which affect the orderly
execution of securities transactions or affect the value of securities.
ARTICLE XVII
CONCERNING THE CUSTODIAN
1. Except as hereinafter provided, or as provided in Article XVI
neither the Custodian nor its nominee shall be liable for any loss or damage,
including counsel fees, resulting from its action or omission to act or
otherwise, either hereunder or under any Margin Account Agreement, except for
any such loss or damage arising out of its own negligence or willful misconduct.
In no event shall the Custodian be liable to the Fund or any third party for
special, indirect or consequential damages or lost profits or loss of business,
arising under or in connection with this Agreement, even if previously informed
of the possibility of such damages and regardless of the form of action. The
Custodian may, with respect to questions of law arising hereunder or under any
Margin Account Agreement, apply for and obtain the advice and opinion of counsel
to the Fund or of its own counsel, at its own expense, and shall be fully
protected with respect to anything done or omitted by it in good faith in
conformity with such advice or opinion. The Custodian shall be liable to the
Fund for any loss or damage resulting from the use of the Book-Entry System or
any Depository arising by reason of any negligence or willful misconduct on the
part of the Custodian or any of its employees or agents.
2. Without limiting the generality of the foregoing, the Custodian
shall be under no obligation to inquire into, and shall not be liable for:
(a) The validity of the issue of any Securities purchased,
sold, or written by or for the Fund, the legality of the purchase, sale or
writing thereof, or the propriety of the amount paid or received therefor;
(b) The legality of the sale or redemption of any Shares, or
the propriety of the amount to be received or paid therefor;
(c) The legality of the declaration or payment of any dividend
by the Fund;
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(d) The legality of any borrowing by the Fund using Securities
as collateral;
(e) The legality of any loan of portfolio Securities, nor
shall the Custodian be under any duty or obligation to see to it that any cash
collateral delivered to it by a broker, dealer, or financial institution or held
by it at any time as a result of such loan of portfolio Securities of the Fund
is adequate collateral for the Fund against any loss it might sustain as a
result of such loan. The Custodian specifically, but not by way of limitation,
shall not be under any duty or obligation periodically to check or notify the
Fund that the amount of such cash collateral held by it for the Fund is
sufficient collateral for the Fund, but such duty or obligation shall be the
sole responsibility of the Fund. In addition, the Custodian shall be under no
duty or obligation to see that any broker, dealer or financial institution to
which portfolio Securities of the Fund are lent pursuant to Article X of this
Agreement makes payment to it of any dividends or interest which are payable to
or for the account of the Fund during the period of such loan or at the
termination of such loan, provided, however, that the Custodian shall promptly
notify the Fund in the event that such dividends or interest are not paid and
received when due; or
(f) The sufficiency or value of any amounts of money and/or
Securities held in any Margin Account, Senior Security Account or Collateral
Account in connection with transactions by the Fund. In addition, the Custodian
shall be under no duty or obligation to see that any broker, dealer, futures
commission merchant or Clearing Member makes payment to the Fund of any
variation margin payment or similar payment which the Fund may be entitled to
receive from such broker, dealer, futures commission merchant or Clearing
Member, to see that any payment received by the Custodian from any broker,
dealer, futures commission merchant or Clearing Member is the amount the Fund is
entitled to receive, or to notify the Fund of the Custodian's receipt or
non-receipt of any such payment.
3. The Custodian shall not be liable for, or considered to be the
Custodian of, any money, whether or not represented by any check, draft, or
other instrument for the payment of money, received by it on behalf of the Fund
until the Custodian actually receives and collects such money directly or by the
final crediting of the account representing the Fund's interest at the
Book-Entry System or the Depository.
4. The Custodian shall have no responsibility and shall not be liable
for ascertaining or acting upon any calls, conversions, exchange offers,
tenders, interest rate changes or similar matters relating to Securities held in
the Depository, unless the Custodian shall have actually received timely notice
from the Depository. In no event shall the Custodian have any responsibility or
liability for the failure of the Depository to collect, or for the late
collection or late crediting by the Depository of any amount payable upon
Securities deposited in the Depository which may mature or be redeemed, retired,
called or otherwise become payable. However, upon receipt of a Certificate from
the Fund of an overdue amount on Securities held in the Depository the Custodian
shall make a claim against the Depository on behalf of the Fund, except that the
Custodian shall not be under any obligation to appear in, prosecute or defend
any action, suit or proceeding in respect to any Securities held by the
Depository which in its opinion may involve it in expense or liability, unless
indemnity satisfactory to it against all expense and liability be furnished as
often as may be required.
5. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount due to the Fund from the Transfer
Agent of the Fund nor to take any action to effect payment or distribution by
the Transfer Agent of the Fund of any amount paid by the Custodian to the
Transfer Agent of the Fund in accordance with this Agreement.
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6. The Custodian shall not be under any duty or obligation to take
action to effect collection of any amount if the Securities upon which such
amount is payable are in default, or if payment is refused after due demand or
presentation, unless and until (i) it shall be directed to take such action by a
Certificate and (ii) it shall be assured to its satisfaction of reimbursement of
its costs and expenses in connection with any such action.
7. The Custodian may in addition to the employment of Foreign
Sub-Custodians pursuant to Article XVI appoint one or more banking institutions
as Depository or Depositories, as Sub-Custodian or Sub-Custodians, or as
Co-Custodian or Co-Custodians including, but not limited to, banking
institutions located in foreign countries, of Securities and moneys at any time
owned by a Series, upon such terms and conditions as may be approved in a
Certificate or contained in an agreement executed by the Custodian, the Fund and
the appointed institution.
8. The Custodian shall not be under any duty or obligation (a) to
ascertain whether any Securities at any time delivered to, or held by it or by
any Foreign Sub-Custodian, for the account of the Fund and specifically
allocated to a Series are such as properly may be held by the Fund or such
Series under the provisions of its then current prospectus, or (b) to ascertain
whether any transactions by the Fund, whether or not involving the Custodian,
are such transactions as may properly be engaged in by the Fund.
9. The Custodian shall be entitled to receive and the Fund agrees to
pay to the Custodian all out-of-pocket expenses and such compensation as may be
agreed upon from time to time between the Custodian and the Fund. The Custodian
may charge such compensation and any expenses with respect to a Series incurred
by the Custodian in the performance of its duties pursuant to such agreement
against any money specifically allocated to such Series. Unless and until the
Fund instructs the Custodian by a Certificate to apportion any loss, damage,
liability or expense among the Series in a specified manner, the Custodian shall
also be entitled to charge against any money held by it for the account of a
Series such Series' pro rata share (based on such Series net asset value at the
time of the charge to the aggregate net asset value of all Series at that time)
of the amount of any loss, damage, liability or expense, including counsel fees,
for which it shall be entitled to reimbursement under the provisions of this
Agreement. The expenses for which the Custodian shall be entitled to
reimbursement hereunder shall include, but are not limited to, the expenses of
sub-custodians and foreign branches of the Custodian incurred in settling
outside of New York City transactions involving the purchase and sale of
Securities of the Fund.
10. The Custodian shall be entitled to rely upon any Certificate,
notice or other instrument in writing received by the Custodian and reasonably
believed by the Custodian to be a Certificate. The Custodian shall be entitled
to rely upon any Oral Instructions actually received by the Custodian
hereinabove provided for. The Fund agrees to forward to the Custodian a
Certificate or facsimile thereof confirming such Oral Instructions in such
manner so that such Certificate or facsimile thereof is received by the
Custodian, whether by hand delivery, telecopier or other similar device, or
otherwise, by the close of business of the same day that such Oral Instructions
are given to the Custodian. The Fund agrees that the fact that such confirming
instructions are not received, or that contrary instructions are received, by
the Custodian shall in no way affect the validity of the transactions or
enforceability of the transactions hereby authorized by the Fund. Subject to
meeting the standard of care in Section 1 of this Article XVII, the Fund agrees
that the Custodian shall incur no liability to the Fund in acting upon Oral
Instructions
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<PAGE> 29
given to the Custodian hereunder concerning such transactions provided such
instructions reasonably appear to have been received from an Officer.
11. The Custodian shall be entitled to rely upon any instrument,
instruction or notice received by the Custodian and reasonably believed by the
Custodian to be given in accordance with the terms and conditions of any Margin
Account Agreement. Without limiting the generality of the foregoing, the
Custodian shall be under no duty to inquire into, and shall not be liable for,
the accuracy of any statements or representations contained in any such
instrument or other notice including, without limitation, any specification of
any amount to be paid to a broker, dealer, futures commission merchant or
Clearing Member.
12. The books and records pertaining to the Fund which are in the
possession of the Custodian shall be the property of the Fund. Such books and
records shall be prepared and maintained as required by the Investment Company
Act of 1940, as amended, and other applicable securities laws and rules and
regulations. The Fund, or the Fund's authorized representatives, shall have
access to such books and records during the Custodian's normal business hours.
Upon the reasonable request of the Fund, copies of any such books and records
shall be provided by the Custodian to the Fund or the Fund's authorized
representative, and the Fund shall reimburse the Custodian its expenses of
providing such copies. Upon reasonable request of the Fund, the Custodian shall
provide in hard copy or on micro-film, whichever the Custodian elects, any
records included in any such delivery which are maintained by the Custodian on a
computer disc, or are similarly maintained, and the Fund shall reimburse the
Custodian for its expenses of providing such hard copy or micro-film.
13. The Custodian shall provide the Fund with any report obtained by
the Custodian on the system of internal accounting control of the Book-Entry
System, the Depository or O.C.C., and with such reports on its own systems of
internal accounting control as the Fund may reasonably request from time to
time.
14. The Fund agrees to indemnify the Custodian against and save the
Custodian harmless from all liability, claims, losses and demands whatsoever,
including attorney's fees, howsoever arising or incurred because of or in
connection with this Agreement, including the Custodian's payment or non-payment
of checks pursuant to paragraph 6 of Article XIII as part of any check
redemption privilege program of the Fund, except for any such liability, claim,
loss and demand arising out of the Custodian's own negligence or willful
misconduct.
15. Subject to the foregoing provisions of this Agreement, including,
without limitation, those contained in Article XVI the Custodian may deliver and
receive Securities, and receipts with respect to such Securities, and arrange
for payments to be made and received by the Custodian in accordance with the
customs prevailing from time to time among brokers or dealers in such
Securities. When the Custodian is instructed to deliver Securities against
payment, delivery of such Securities and receipt of payment therefor may not be
completed simultaneously. The Fund assumes all responsibility and liability for
all credit risks involved in connection with the Custodian's delivery of
Securities pursuant to instructions of the Fund, which responsibility and
liability shall continue until final payment in full has been received by the
Custodian.
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<PAGE> 30
16. The Custodian shall have no duties or responsibilities whatsoever
except such duties and responsibilities as are specifically set forth in this
Agreement, and no covenant or obligation shall be implied in this Agreement
against the Custodian.
17. The Custodian represents and warrants that all services rendered
and all computer systems used in the performance of the Custodian's obligations
under the Custody Agreement shall be Year 2000 Compliant. "Year 2000 Compliant"
means that the services are designed to and shall:
(a) operate in the year 2000 and later with four digit year
date capability;
(b) operate fault-free in the processing of date and
date-dependant data before, during and after January 1, 2000, including but not
limited to accepting date input, providing date output, and performing date
calculations, comparison and sequencing;
(c) function accurately and without interruption before,
during, and after January 1, 2000, without any adverse effect on operations and
associated with the advent of the new century;
(d) store and provide output of date information in ways that
are unambiguous as to century.
The representations and warranties contained herein may not be
disclaimed or limited by operation of law.
ARTICLE XVIII
TERMINATION
1. Either of the parties hereto may terminate this Agreement by giving
to the other party a notice in writing specifying the date of such termination,
which shall be not less than ninety (90) days after the date of giving of such
notice. In the event such notice is given by the Fund, it shall be accompanied
by a copy of a resolution of the Board of Trustees of the Fund, certified by the
Secretary, the Clerk, any Assistant Secretary or any Assistant Clerk, electing
to terminate this Agreement and designating a successor custodian or custodians,
each of which shall be a bank or trust company having not less than $2,000,000
aggregate capital, surplus and undivided profits. In the event such notice is
given by the Custodian, the Fund shall, on or before the termination date,
deliver to the Custodian a copy of a resolution of the Board of Trustees of the
Fund, certified by the Secretary, the Clerk, any Assistant Secretary or any
Assistant Clerk, designating a successor custodian or custodians. In the absence
of such designation by the Fund, the Custodian may designate a successor
custodian which shall be a bank or trust company having not less than $2,000,000
aggregate capital, surplus and undivided profits. Upon the date set forth in
such notice this Agreement shall terminate, and the Custodian shall upon receipt
of a notice of acceptance by the successor custodian on that date deliver
directly to the successor custodian all Securities and moneys then owned by the
Series and held by it as Custodian, after deducting all fees, expenses and other
amounts for the payment or reimbursement of which it shall then be entitled.
2. If a successor custodian is not designated by the Fund or the
Custodian in accordance with the preceding paragraph, the Fund shall upon the
date specified in the notice of termination of this Agreement and upon the
delivery by the Custodian of all Securities (other than Securities held in the
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<PAGE> 31
Book-Entry System which cannot be delivered to the Fund) and moneys then owned
by the Series be deemed to be its own custodian and the Custodian shall thereby
be relieved of all duties and responsibilities pursuant to this Agreement, other
than the duty with respect to Securities held in the Book Entry System which
cannot be delivered to the Fund to hold such Securities hereunder in accordance
with this Agreement.
ARTICLE XIX
MISCELLANEOUS
1. Annexed hereto as Appendix A is a Certificate signed by two of the
present Officers of the Fund under its corporate seal, setting forth the names
and the signatures of the present Officers of the Fund. The Fund agrees to
furnish to the Custodian a new Certificate in similar form in the event that any
such present Officer ceases to be an Officer of the Fund, or in the event that
other or additional Officers are elected or appointed. Until such new
Certificate shall be received, the Custodian shall be fully protected in acting
under the provisions of this Agreement upon Oral Instructions or signatures of
the present Officers as set forth in the last delivered Certificate.
2. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Custodian, shall be sufficiently given if
addressed to the Custodian and mailed or delivered to it at its offices at 90
Washington Street, New York, New York 10286, or at such other place as the
Custodian may from time to time designate in writing.
3. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Fund shall be sufficiently given if addressed
to the Fund and mailed or delivered to it at its office at the address for the
Fund first above written, or at such other place as the Fund may from time to
time designate in writing and with a copy to Michael P. Malloy, Drinker Biddle &
Reath LLP, Philadelphia National Bank Building, 1345 Chestnut Street,
Philadelphia, PA 19107-3496 for notices to the Trust.
4. This Agreement may not be amended or modified in any manner except
by a written agreement executed by both parties with the same formality as this
Agreement and approved by a resolution of the Board of Trustees of the Fund.
5. This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns; provided, however, that
this Agreement shall not be assignable by the Fund without the written consent
of the Custodian, or by the Custodian without the written consent of the Fund,
authorized or approved by a resolution of the Fund's Board of Trustees.
6. This Agreement shall be construed in accordance with the laws of the
State of New York without giving effect to conflict of laws principles thereof.
Each party hereby consents to the jurisdiction of a state or federal court
situated in New York City, New York in connection with any dispute arising
hereunder and hereby waives its right to trial by jury.
7. This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
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<PAGE> 32
8. Notwithstanding anything to the contrary, amounts owed by the Trust
to the Custodian shall only be paid out of the assets and property of the
particular Fund involved.
Governor Funds is a business trust organized under Delaware law and
under a Declaration of Trust, to which reference is hereby made and a copy of
which is on file at the office of the Secretary of State of Delaware as required
by law, and to any and all amendments thereto so filed or hereafter filed. The
obligations of "The Governor Funds" entered into in the name or on behalf
thereof by any of the Trustees, officers, employees or agents are made not
individually, but in such capacities, and are not binding upon any of the
Trustees, officers, employees, agents or shareholders of the Fund personally,
but bind only the assets of the Fund and all persons dealing with any of the
Series of the Fund must look solely to the assets of the Fund belonging to such
Series for the enforcement of any claims against the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective Officers, thereunto duly authorized and their
respective seals to be hereunto affixed, as of the day and year first above
written.
GOVERNOR FUNDS
By:______________________
[SEAL]
Attest:
______________________
THE BANK OF NEW YORK
By:______________________
Name: Stephen E. Grunston
Title: Vice President
[SEAL]
Attest:
______________________
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<PAGE> 33
APPENDIX A
I, Lana V. Burkhardt, President, and I, Michael P. Malloy, Secretary,
of Governor Funds, a Delaware business trust (the "Fund"), do hereby certify
that:
The following individuals serve in the following positions with the
Fund and each has been duly elected or appointed by the Board of Trustees of the
Fund to each such position and qualified therefor in conformity with the Fund's
Declaration of Trust and By-Laws, and the signatures set forth opposite their
respective names are their true and correct signatures:
<TABLE>
<CAPTION>
Name Position Signature
<S> <C> <C>
Lana V. Burkhardt President -------------------
Michael P. Malloy Secretary -------------------
Michael Grunewald Treasurer -------------------
George Barr Assistant Secretary -------------------
</TABLE>
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<PAGE> 34
_______, 199_
APPENDIX B
To Custody Agreement dated ___________, 199_
Between Governor Funds and
The Bank of New York
SERIES
Name of Fund
The Prime Money Market Fund
The U.S. Treasury Obligations Money Market Fund
The Established Growth Fund
The Aggressive Growth Fund
The Emerging Growth Fund
The International Equity Fund
The Intermediate Term Income Fund
The Limited Duration Government Securities Fund
The Pennsylvania Municipal Bond Fund
The Lifestyle Conservative Growth Fund
The Lifestyle Moderate Growth Fund
The Lifestyle Growth Fund
GOVERNOR FUNDS
By___________________
President
THE BANK OF NEW YORK
By___________________
Stephen E. Grunston
Vice President
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<PAGE> 35
APPENDIX C
I, Ira Rosner, a Vice President with THE BANK OF NEW YORK do
hereby designate the following publications:
The Bond Buyer
Depository Trust Company Notices
Financial Daily Card Service
JJ Kenney Municipal Bond Service
London Financial Times
New York Times
Standard & Poor's Called Bond Record
Wall Street Journal
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<PAGE> 36
EXHIBIT A
CERTIFICATION
The undersigned, Lana V. Burkhardt, hereby certifies that he or she is
the duly elected and acting President of Governor Funds, a Delaware business
trust (the "Fund"), and further certifies that the following resolution was
adopted by the Board of Trustees of the Fund at a meeting duly held on October
5, 1998 at which a quorum was at all times present and that such resolution has
not been modified or rescinded and is in full force and effect as of the date
hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to
a Custody Agreement between The Bank of New York and the Fund
dated as of ___________, 199_, (the "Custody Agreement") is
authorized and instructed on a continuous and ongoing basis to
deposit in the Book-Entry System, as defined in the Custody
Agreement, all securities eligible for deposit therein,
regardless of the Series to which the same are specifically
allocated, and to utilize the Book-Entry System to the extent
possible in connection with its performance thereunder,
including, without limitation, in connection with settlements
of purchases and sales of securities, loans of securities, and
deliveries and returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of
Governor Funds, as of the _th day of ____________, 199_.
_________________________
Lana V. Burkhardt
President, Governor Funds
[SEAL]
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<PAGE> 37
EXHIBIT B
CERTIFICATION
The undersigned, Lana V. Burkhardt, hereby certifies that he or she is
the duly elected and acting President of Governor Funds, a Delaware business
trust (the "Fund"), and further certifies that the following resolution was
adopted by the Board of Trustees of the Fund at a meeting duly held on October
5, 1998 at which a quorum was at all times present and that such resolution has
not been modified or rescinded and is in full force and effect as of the date
hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to
a Custody Agreement between The Bank of New York and the Fund
dated as of _____________, 199_ (the "Custody Agreement") is
authorized and instructed on a continuous and ongoing basis
until such time as it receives a Certificate, as defined in
the Custody Agreement, to the contrary to deposit in the
Depository, as defined in the Custody Agreement, all
securities eligible for deposit therein, regardless of the
Series to which the same are specifically allocated, and to
utilize the Depository to the extent possible in connection
with its performance thereunder, including, without
limitation, in connection with settlements of purchases and
sales of securities, loans of securities, and deliveries and
returns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of
Governor Funds, as of the _th day of ______________, 199_.
_________________________
Lana V. Burkhardt
President, Governor Funds
[SEAL]
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<PAGE> 38
EXHIBIT B-1
CERTIFICATION
The undersigned, Lana V. Burkhardt, hereby certifies that he or she is
the duly elected and acting President of Governor Funds, a Delaware business
trust (the "Fund"), and further certifies that the following resolution was
adopted by the Board of Trustees of the Fund at a meeting duly held on October
5, 1998 at which a quorum was at all times present and that such resolution has
not been modified or rescinded and is in full force and effect as of the date
hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to
a Custody Agreement between The Bank of New York and the Fund
dated as of __________, 199_ (the "Custody Agreement") is
authorized and instructed on a continuous and ongoing basis
until such time as it receives a Certificate, as defined in
the Custody Agreement, to the contrary to deposit in the
Participants Trust Company as Depository, as defined in the
Custody Agreement, all securities eligible for deposit
therein, regardless of the Series to which the same are
specifically allocated, and to utilize the Participants Trust
Company to the extent possible in connection with its
performance thereunder, including, without limitation, in
connection with settlements of purchases and sales of
securities, loans of securities, and deliveries and returns of
securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of
Governor Funds, as of the _th day of ____________, 199_.
_________________________
Lana V. Burkhardt
President, Governor Funds
[SEAL]
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<PAGE> 39
EXHIBIT C
CERTIFICATION
The undersigned, Lana V. Burkhardt, hereby certifies that he or she is
the duly elected and acting President of Governor Funds, a Delaware business
trust (the "Fund"), and further certifies that the following resolution was
adopted by the Board of Trustees of the Fund at a meeting duly held on October
5, 1998 at which a quorum was at all times present and that such resolution has
not been modified or rescinded and is in full force and effect as of the date
hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to
a Custody Agreement between The Bank of New York and the Fund
dated as of _____________, 199_, (the "Custody Agreement") is
authorized and instructed on a continuous and ongoing basis
until such time as it receives a Certificate, as defined in
the Custody Agreement, to the contrary, to accept, utilize and
act with respect to Clearing Member confirmations for Options
and transaction in options, regardless of the Series to which
the same are specifically allocated, as such terms are defined
in the Custody Agreement, as provided in the Custody
Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of
Governor Funds, as of the _th day of ____________, 199_.
_________________________
Lana V. Burkhardt
President, Governor Funds
[SEAL]
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<PAGE> 40
EXHIBIT D
The undersigned, Lana V. Burkhardt, hereby certifies that he or she is
the duly elected and acting President of Governor Funds, a Delaware business
trust (the "Fund"), further certifies that the following resolutions were
adopted by the Board of Trustees of the Fund at a meeting duly held on October
5, 1998 at which a quorum was at all times present and that such resolutions
have not been modified or rescinded and are in full force and effect as of the
date hereof.
RESOLVED, that The Bank of New York, as Custodian pursuant to
the Custody Agreement between The Bank of New York and the
Fund dated as of ___________, 199_ (the "Custody Agreement")
is authorized and instructed on a continuous and ongoing basis
to act in accordance with, and to rely on Certificates (as
defined in the Custody Agreement) given by the Fund to the
Custodian by a Terminal Link (as defined in the Custody
Agreement).
RESOLVED, that the Fund shall establish access codes and grant
use of such access codes only to Officers of the Fund as
defined in the Custody Agreement, shall establish internal
safekeeping procedures to safeguard and protect the
confidentiality and availability of such access codes, shall
limit its use of the Terminal Link to those purposes permitted
by the Custody Agreement, shall require at least two such
officers to utilize their respective access codes in
connection with each such Certificate, shall review the
safekeeping procedures of the Intermediary to assure that all
transmissions inputted by the Fund, and only such
transmissions, are forwarded by the omission by the
Intermediary, and shall use the Terminal Link only in a manner
that does not contravene the Investment Company Act of 1940,
as amended, or the rules and regulations thereunder.
RESOLVED, that Officers of the Fund shall, following the
establishment of such access codes and such internal
safekeeping procedures, advise the Custodian that the same
have been established by delivering a Certificate, as defined
in the Custody Agreement, and the Custodian shall be entitled
to rely upon such advice.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of
Governor Funds, as of the _th day of ___________, 199_.
_________________________
Lana V. Burkhardt
President, Governor Funds
[SEAL]
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<PAGE> 41
EXHIBIT E
TO THE CUSTODY AGREEMENT BETWEEN
GOVERNOR FUNDS AND THE BANK OF NEW YORK
___________, 1998
AUTHORIZED PERSONS
To be completed
Page 41
<PAGE> 1
EXHIBIT (8)(b)
CASH MANAGEMENT AND RELATED SERVICES AGREEMENT, dated as ____________,
1998 between Governor Funds, a Delaware business trust (the "Trust"), on behalf
of each portfolio series of the Trust listed on Schedule A hereto (each a
"Fund," collectively the "Funds"), and The Bank of New York (the "Bank").
WITNESSETH:
That in consideration of the mutual agreements and covenants herein
contained, the Bank and each Fund hereby agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, unless the context otherwise requires,
the following words shall have the meanings set forth below:
1. "ACCOUNT" shall mean an account registered in the name of a Fund or
such Fund's transfer agent for receiving and disbursing money as provided in
this Agreement.
2. "ACCOUNT AVAILABLE BALANCE" shall mean with respect to an Account
for any given day during a calendar month a positive or negative dollar amount
equal to (A) if such day is a Business Day, the Account Available Balance as of
the close of the last preceding Business Day plus a positive or negative dollar
amount equal to the difference, if any, between the Chargeable Credits with
respect to such day and such Account and the Chargeable Debits with respect to
such day and such Account, and (B) if such day is not a Business Day, the
Account Available Balance as of close of the last preceding Business Day, except
that both (A) and (B) shall be reduced by the United States Federal Reserve
reserve requirements then applicable to the Bank with respect to such Account.
The Account Available Balance of an Account shall be zero on the date
immediately preceding the first date on which an entry, consisting of either a
Chargeable Credit or Chargeable Debit, is first made to such Account hereunder.
3. "ACCESS" shall mean any on-line communication system provided by the
Bank hereunder whereby either the receiver of such communication is able to
verify by codes or otherwise with a reasonable degree of certainty the identity
of the sender of such communication, or the sender is required to provide a
password or other identification code.
4. "AUTHORIZED PERSON" shall mean either (A) any person duly authorized
by corporate resolutions of the board of directors or board of trustees of the
Trust (the "Board") to give Oral and/or Written Instructions on behalf of the
Funds, such persons to be designated in a certificate, substantially in the form
of Exhibit A, which contains a specimen signature of such person, or (B) any
person sending or transmitting any instruction or direction through ACCESS.
5. "BUSINESS DAY" shall mean any day on which the Federal Reserve Bank
of New York is open for business, except for any such day on which the Bank is
required by law or regulation to be closed, or elects to be closed.
<PAGE> 2
6. "CALENDAR MONTH EARNINGS CREDIT" shall mean with respect to an
Account for any calendar month the dollar amount, whether positive or negative,
equal to the sum of the Gross Calendar Month Earnings Credit with respect to
such Account for such calendar month and the Monthly Overdraft Charges with
respect to such Account for such calendar month.
7. "CHARGEABLE CREDITS" shall mean with respect to an Account for any
given day during a calendar month a positive amount of dollars equal to the sum,
if any, of (A) the aggregate dollar amount of Federal Funds credited to such
Account by the Bank in accordance with the then applicable availability schedule
of the Federal Reserve Bank of New York, and (B) the aggregate dollar amount of
Bank internal transfers of Federal Funds to such Account.
8. "CHARGEABLE DEBITS" shall mean with respect to an Account for any
given day during a calendar mouth a negative dollar amount equal to the sum, if
any, of (A) the aggregate dollar amount of Federal Funds relating to such
Account charged against the Bank by the Federal Reserve Bank of New York on or
as of such day, and (B) the aggregate dollar amount of drafts drawn on such
Account which are deposited in the Bank by customers of the Bank on such day, or
Bank internal transfers from, or charges to, such Account.
9. "DAILY EARNINGS" shall mean with respect to an Account for any day
during a calendar month a positive dollar amount equal to the product of (A) the
positive Account Available Balance, if any, of such Account for such day,
multiplied by (B) the Daily Earnings Rate for such day. The Daily Earnings with
respect to an Account for any day during a calendar month on which the Account
Available Balance of such Account is negative shall be zero.
10. "DAILY EARNINGS RATE" shall mean for any day during a calendar
month one three hundred and sixty-fifth of the 91 day U.S. Treasury Bill
discount rate of the Monday auction first preceding such day (whether or not
such day is a Monday, and whether or not such Monday auction was in the
immediately prior month), as such Monday auction 91 day U.S. Treasury Bill
discount rate is reported in The Wall Street Journal.
11. "DAILY OVERDRAFT CHARGES" shall mean with respect to an Account for
any day during any calendar month a negative dollar amount equal to the product,
if any, of (A) the negative Account Available Balances, if any, with respect to
such Account for such day during such calendar month, multiplied by (B) the
Overdraft Rate.
12. "FEDERAL FUNDS" shall mean immediately available same day funds.
13. "GROSS CALENDAR MONTH EARNINGS CREDIT" shall mean with respect to
an Account for any calendar month a positive dollar amount equal to the
aggregate sum of the Daily Earnings of such Account for such calendar month.
14. "MONTHLY OVERDRAFT CHARGES" shall mean with respect to an Account
for any calendar month a negative dollar amount equal to the aggregate sum of
the Daily Overdraft Charges with respect to such Account for such calendar month
which have not been previously paid to the Bank by the Fund to which such
Account relates.
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15. "OMNIBUS ACCOUNT" shall mean an account at the Bank for the benefit
of the Funds into which money (A) to be deposited into an Account is initially
credited pending its transfer to such Account, or (B) transferred from an
Account is deposited pending its disbursement.
16. "ORAL INSTRUCTIONS" shall mean verbal instructions actually
received by the Bank from an Authorized Person or from a person reasonably
believed by the Bank to be an Authorized Person.
17. "OVERDRAFT RATE" shall mean with respect to an Account for any
calendar day during any calendar month a rate equal to one three hundred and
sixtieth of the sum of (A) one-half percent, and (B) the greater of (i) the
prime commercial lending rate of The Bank of New York, as publicly announced to
be in effect from time to time, in effect on such calendar day, and (ii) 6%.
18. "SHAREHOLDER" shall mean any record holder of any Shares, as
identified to the Bank from time to time pursuant to this Agreement.
19. "SHARES" shall mean all or any part of each class of the shares of
capital stock, beneficial interest, or limited partnership interest of a Fund,
as the case may be, which are authorized and/or issued from time to time.
20. "WRITTEN INSTRUCTIONS" shall mean written instructions actually
received by the Bank from an Authorized Person or from a person reasonably
believed by the Bank to be an Authorized Person by letter, memorandum, telegram,
cable, telex, telecopy facsimile or through ACCESS.
ARTICLE II
APPOINTMENT OF BANK; REPRESENTATIONS AND WARRANTIES
1. Appointment; Establishment of Accounts. The Trust hereby appoints
the Bank as its agent for the term of this Agreement to per-form on behalf of
each Fund the cash management services set forth herein and in Schedules I and
II attached hereto and made a part hereof (as such Schedules may be amended or
supplemented from time to time by mutual agreement) which are selected by the
Trust from time to time. The Bank hereby accepts appointment as such agent and
agrees to establish and maintain one or more Accounts and/or Omnibus Accounts as
the parties shall determine are necessary to receive and disburse money as
provided in this Agreement.
2. Representations and Warranties. The Trust, for itself and each Fund,
hereby represents and warrants to the Bank, which representations and warranties
shall be deemed to be continuing and to be reaffirmed upon delivery to the Bank
of any Oral or Written Instructions, that:
(a) It is duly organized and existing under the laws of the
jurisdiction of its organization, with full power to carry on its business as
now conducted, to enter into this Agreement and to perform its obligations
hereunder;
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(b) This Agreement has been duly authorized, executed and
delivered by the Trust in accordance with all requisite corporate action and
constitutes a valid and legally binding obligation of the Trust and each Fund
enforceable in accordance with its terms, except to the extent such enforcement
may be limited by general equity principles or bankruptcy principles; and
(c) It is conducting its business in compliance with all
applicable laws and regulations, both state and federal, and has obtained all
regulatory licenses, approvals and consents necessary to carry on its business
as now conducted; there is no statute, regulation, rule, order or judgment
binding on it and no provision of its charter or by-laws, nor of any mortgage,
indenture, credit agreement or other contract binding on it or affecting its
property which would prohibit its execution or performance of this Agreement.
3. Board Resolutions. The Trust shall provide the Bank with a certified
copy of a resolution of its Board appointing the Bank as its agent to act
hereunder and providing for the creation of each Fund's Account(s), the
utilization by the Funds of one or more Omnibus Accounts and the execution by
the Trust of this Agreement, it being understood that receipt of the same by the
Bank shall be a condition precedent to the Bank's establishing an Account for
each Fund and such Fund's utilization of an Omnibus Account.
ARTICLE III
CASH MANAGEMENT SERVICES
1. Receipt of Money. The Bank shall receive money for credit to an
Account only:
(i) by personal presentment of drafts by a Fund, but not
by a Shareholder of such Fund, at the branch or
branches in Manhattan identified from time to time by
the Bank to such Fund, provided such presentment is
in accordance with the time frames specified by the
Bank to such Fund;
(ii) by mailing of drafts to a post office box designated
by the Bank for such purpose, provided such drafts
are accompanied by a properly completed investment
stub;
(iii) by wire transfer to an account maintained at the
Federal Reserve Bank of New York as identified in
writing by the Bank to a Fund;
(iv) by transfer to an account identified in writing by
the Bank to a Fund through the New York Automated
Clearing House;
(v) by transfer from another Account maintained by such
Fund with the Bank under this Agreement;
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(vi) by transfer from another account maintained by such
Fund with the Bank, including such Fund's custodian
account under its Custody Agreement with the Bank as
Custodian; or
(vii) by transfer from any other account maintained with
the Bank.
All money received by the Bank shall be credited upon receipt, but subject to
final payment and receipt by the Bank of immediately available funds, and
receipt by the Bank of such forms, documents and information as are required by
the Bank from time to time and received in the appropriate time frames. If an
Omnibus Account has been established for the Funds, such money shall be
initially credited to the Omnibus Account pending its allocation to, and deposit
in, an Account. The Bank shall be entitled to reverse any credits previously
made to a Fund's Account or an Omnibus Account where money is not finally
collected or where a credit to such account was in error.
2. Disbursement of Money. The Bank shall disburse money credited to an
Account or an Omnibus Account only:
(i) pursuant to Written Instructions of such Fund
transmitted through ACCESS (except as otherwise
provided in Article V, Section 7 hereof), to transfer
funds as directed by such Fund (including transfers
through the Federal Reserve Bank of New York transfer
wire and the New York Automated Clearing House);
(ii) in payment of drafts drawn by an Authorized Person or
Shareholder (as appropriate for the particular
Account), subject to the terms hereof; or
(iii) in payment of charges to such Account representing
amounts payable to the Bank, and chargeable against
such Account, as provided in this Agreement.
The Bank shall be required to disburse money in accordance with the foregoing
only insofar as such money is immediately available and on deposit with the
Bank. If an Omnibus Account has been established for the Funds, such money shall
be credited to the Omnibus Account pending such disbursement. All instructions
directing the disbursement of money credited to an Account or Omnibus Account
under this Agreement (whether through ACCESS or by Oral Instructions pursuant to
Article V hereof) must identify an account to which such money shall be
transferred, and include all other information reasonably required by the Bank
from time to time. It is understood and agreed that with respect to any such
instructions, when instructed to credit or pay a party by both name and a unique
numeric or alphanumeric identifier (e.g., ABA number or account number), the
Bank and any other financial institution participating in the funds transfer may
rely solely on the unique identifier, even if it identifies a party different
than the party named. Such reliance on a unique identifier shall apply to
beneficiaries named in such instructions as well as any financial institution
which is designated in such instruction to act as an intermediary in a funds
transfer.
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3. Redemption Drafts; Shareholder Information. (a) Where a Fund offers
its Shareholders draft redemption privileges, each such Fund shall be entitled
to supply its Shareholders with redemption drafts, but only in a form and
substance agreed to by the Bank. The Bank agrees to give each Fund sixty (60)
days prior notice of any changes to the form or substance of redemption drafts
required by the Bank, provided that if such change is required by applicable
rules or procedures of the Federal Reserve or any clearinghouse through which
such drafts may be presented, the Bank may give less than sixty (60) days prior
notice of such change.
(b) Each Fund which offers its Shareholders draft redemption
privileges will promptly furnish to the Bank (i) the name, mailing address and
telephone number of each Shareholder of such Fund, and (ii) specimen signatures
for all individuals authorized to draw redemption drafts (whether on their own
behalf or on behalf of third parties). Each Fund will promptly advise the Bank
of individuals no longer authorized to draw redemption drafts, and those
individuals newly authorized. Such information shall be provided to the Bank in
a mutually agreed upon format.
4. Redemption Draft Returns. The Trust, on behalf of a Fund, may give
the Bank Oral or Written Instructions from time to time to return unpaid
redemption drafts of the Fund to the presenting financial institution for any
reason, and the Bank shall use reasonable efforts to comply with such Oral or
Written Instructions provided that such compliance would not prejudice or impair
any rights or privileges of the Bank under prevailing draft return procedures
and would not be contrary to prevailing industry rules, procedures, customs or
practices. Notwithstanding the foregoing, or any other provision in this
Agreement or the Schedules hereto, the Bank (i) may return redemption drafts
with unauthorized or missing signatures to the presenting financial institution
in accordance with prevailing banking industry draft return procedures, and (ii)
shall have no obligation to request Oral or Written Instructions with respect to
any redemption drafts.
ARTICLE IV
ADVANCES, OVERDRAFTS OR INDEBTEDNESS
1. If the Bank in its sole discretion advances funds, or if there shall
arise for whatever reason an overdraft or other indebtedness (except fee
indebtedness, the payment of which shall be governed solely by Article VI,
paragraph 10(b) hereof) in connection with any Account or Omnibus Account, such
advance, overdraft or indebtedness shall be deemed a loan made by the Bank to
the Trust on behalf of the Fund to which the Account relates, or in the case of
an Omnibus Account, to which such advance, overdraft or indebtedness relates,
payable on demand and bearing interest from the date incurred at the Overdraft
Rate, such Overdraft Rate to be adjusted on the effective date of any change in
the prime commercial lending rate constituting a part thereof. In the event of
any advance, overdraft or other indebtedness in connection with an Omnibus
Account, the Bank shall be furnished promptly (and in any event by 12:00 p.m. on
the next Business Day after such advance, overdraft or indebtedness) with
Written Instructions identifying each Fund to which such advance, overdraft or
indebtedness relates, and the amount allocable to such Fund(s).
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<PAGE> 7
2. The Trust, on behalf of each Fund, hereby agrees with respect to
such Fund's Account(s), any Omnibus Account(s) and any advances, overdrafts or
other indebtedness that the Bank shall have a continuing lien and security
interest in and to any property at any time held by it for the benefit of such
Fund either hereunder or under the Trust's Custody Agreement with the Bank with
respect to such Fund, or in which the Fund may have an interest which is then in
the Bank's possession or control or in possession or control of any third party
acting in the Bank's behalf, including in its behalf as Custodian under the
Trust's Custody Agreement with the Bank, having at the time such overdraft or
indebtedness is incurred a fair market value equal to 150% of such overdraft or
indebtedness. Subject to the provisions of Article VI, paragraph 10(b) hereof,
the Trust, on behalf of each Fund, authorizes the Bank, in its sole discretion,
at any time to charge any advance, overdraft or indebtedness together with
interest due thereon at the Overdraft Rate against any balance of accounts
standing to the Fund's credit on the books of the Bank, including those books
maintained by the Bank in its capacity as Custodian for the Fund under its
Custody Agreement with the Trust. Nothing contained herein shall be construed as
a waiver by any Fund of any right to contest in appropriate proceedings any
charge by the Bank pursuant hereto.
3. The Trust, on behalf of each Fund, agrees that upon allocation of
all advances, overdrafts or indebtedness to its account pursuant to paragraph I
above, its total borrowings from all sources (including the Bank) shall be in
conformity with the requirements and limitations set forth in the Investment
Company Act of 1940, as amended, and the Fund's Prospectus and Statement of
Additional Information. The Trust, on behalf of each Fund, shall promptly (and
in any event within one Business Day) notify the Bank in writing whenever it
fails to comply with any of the foregoing requirements.
ARTICLE V
ACCESS; CALL-BACK SECURITY PROCEDURE
1. Services Generally. The Trust, on behalf of each Fund, shall be
permitted to utilize ACCESS to obtain direct on-line access to its Accounts and
Omnibus Accounts. ACCESS shall permit the Trust at the times mutually agreed
upon by the Bank and the Trust to receive reports, make inquiries, instruct the
Bank to disburse money in accordance with Article III, and perform such other
functions as are more fully set forth in Schedule I hereto.
2. Permitted Use; Proprietary Information. (a) The Trust, on behalf of
each Fund, shall use ACCESS and the services available thereby only for its own
internal and proper business purposes and shall not sell, lease or otherwise
provide, directly or indirectly, ACCESS or any of such services or any portion
thereof to any other person or entity. The Trust shall obtain and maintain at
its own cost and expense all equipment and services, including but not limited
to communications services, necessary for it to utilize ACCESS and receive the
services thereby, and the Bank shall not be responsible for the reliability or
availability of any such equipment or any services used in connection with
ACCESS.
(b) The Trust, on behalf of each Fund, acknowledges that all
data bases made available as part of, or through ACCESS, and any proprietary
data, processes, information and documentation (other than any such which are or
become part of the public domain or are legally
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<PAGE> 8
required to be made available to the public) (collectively, the "Information"),
are the exclusive and confidential property of the Bank. The Trust, on behalf of
each Fund, shall keep the Information confidential by using the same care and
discretion that it uses with respect to its own confidential property and trade
secrets, and shall neither make nor permit any disclosure without the express
prior written consent of the Bank.
(c) Upon termination of this Agreement for any reason, the
Trust, on behalf of each Fund, shall return to the Bank any and all copies of
the Information which are in the Trust's possession or under its control, or
distributed to third parties. The provisions of this Article shall not affect
the copyright status of any of the Information which may be copyrighted and
shall apply to all Information whether or not copyrighted.
3. Modifications. The Bank reserves the right to modify ACCESS from
time to time without notice to any Fund. The Trust, on behalf of each Fund,
agrees not to modify or attempt to modify ACCESS without the Bank's prior
written consent. The Trust acknowledges that ACCESS is the property of the Bank
and, accordingly, agrees that any modifications to ACCESS, whether by the Trust
or the Bank and whether with or without the Bank's consent, shall become the
property of the Bank.
4. No Representations or Warranties. Neither the Bank nor any
manufacturers or suppliers it utilizes or the Trust utilizes in obtaining ACCESS
makes any warranties or representations, express or implied, in fact or in law,
including but not limited to warranties of merchantability and fitness for a
particular purpose.
5. Security; Reliance; Unauthorized Use. The Trust, on behalf of each
Fund, will, and will cause all persons utilizing ACCESS to, treat the user and
authorization codes, passwords and authentication keys applicable to ACCESS with
extreme care. The Bank is hereby irrevocably authorized to act in accordance
with and rely on Written Instructions received by it through ACCESS. The Trust
acknowledges that it is its sole responsibility to assure that only authorized
persons use ACCESS and that the Bank shall not be responsible nor liable for any
unauthorized use thereof.
6. Limitations of Liability. (a) Except as otherwise specifically
provided in Section 6(b) below, the Bank shall have no liability for any losses,
damages, injuries, claims, costs or expenses of a Fund arising out of or in
connection with any failure, malfunction or other problem relating to the
Trust's use of ACCESS, except for money damages suffered as the direct result of
the negligence of the Bank in an amount not exceeding, in the aggregate for all
such losses, damages, injuries, claims, costs and expenses of a Fund arising
during any month, the total charges paid by the Trust on behalf of such Fund to
the Bank for ACCESS and services hereunder which caused such loss, damage,
injury, claim, cost or expense during the 12 months preceding the month in
question, or such lesser number of months as the Trust has used ACCESS if the
Trust, on behalf of such Fund, has not received 12 months use of ACCESS;
provided however, that the Bank shall have no liability under their Section 6(a)
if the Trust fails to comply with the provisions of Section 6(c).
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<PAGE> 9
(b) Without limiting the generality of the foregoing, it is
hereby agreed that in no event shall the Bank or any manufacturer or supplier of
its computer equipment, software or services be responsible for any special,
indirect, incidental or consequential damages which the Trust or a Fund may
incur arising out of or in connection with ACCESS or the services provided
thereby, even if the Bank or such manufacturer or supplier has been advised of
the possibility of such damages and regardless of the form of action.
(c) The Trust, on behalf of each Fund, shall notify the Bank
of any errors, omissions or interruptions in, or delay or unavailability of,
ACCESS as promptly as practicable, and in any event within one Business Day
after the earliest of (i) discovery thereof, (ii) the date discovery should have
occurred through the exercise of reasonable care, and (iii) in the case of any
error, the date of the earliest notice to such Fund which reflects such error.
(d) The Bank shall acknowledge through ACCESS its receipt of
each Written Instruction communicated through ACCESS, and in the absence of such
acknowledgement the Bank shall not be liable for any failure to act in
accordance with such Written Instruction and the Trust may not claim that such
Written Instruction was received by the Bank.
(e) In no event shall the Bank have any liability for failing
to execute Written Instructions for the transfer of funds which are received by
it through ACCESS other than through the applicable transfer module for the
particular instructions.
7. Funds Transfer Back-Up Procedure. (a) In the event ACCESS is
inoperable and the Trust is unable to utilize ACCESS for the transmission of
Written Instructions to the Bank to transfer funds, the Trust may give Oral
Instructions regarding funds transfers, it being expressly understood and agreed
that the Bank's acting pursuant to such Oral Instructions shall be contingent
upon the Bank's verification of the authenticity thereof pursuant to the
Call-Back Security Procedure set forth on Schedule III hereto (the "Procedure").
In this regard, the Trust, on behalf of each Fund shall deliver to the Bank a
Funds Transfer Telephone Instruction Authorization in the form of Schedule III-A
hereto, identifying the individuals authorized to deliver and/or confirm all
such Oral Instructions. The Trust understands and agrees that the Procedure is
intended to determine whether Oral Instructions received pursuant to this
Section are authorized but is not intended to detect any errors contained in
such instructions. The Trust, on behalf of each Fund, hereby accepts the
Procedure and confirms its belief that the Procedure is commercially reasonable.
(b) The Bank shall have no liability whatsoever for any funds
transfer executed in accordance with Oral Instructions delivered and confirmed
pursuant to this Section 7 and Schedule III hereto. The Bank's liability for its
negligence in executing or failing to execute any such Oral Instructions shall
be determined by reference to Section 6(b) of this Article.
(c) The Bank reserves the right to suspend acceptance of Oral
Instructions pursuant to this Section 7 if conditions exist which the Bank, in
its sole discretion, believes have created an unacceptable security risk.
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ARTICLE VI
CONCERNING THE BANK
1. Standard of Care, Presentment of Claims. Except as otherwise
provided herein, the Bank shall not be liable for any costs, expenses, damages,
liabilities or claims (including attorney's fees) incurred by the Trust or a
Fund, except those costs, expenses, damages, liabilities or claims arising out
of the Bank's own negligence, bad faith or willful misconduct. Notwithstanding
the foregoing or anything contained in the Schedules hereto, the Bank shall not
be liable for any loss or damage, including attorney's fees, resulting from the
Bank paying any redemption draft containing a forged drawer signature, unless
such loss or damage arises out of the Bank's gross negligence, bad faith or
willful misconduct. All claims against the Bank hereunder shall be made by the
Trust on behalf of the affected Fund as promptly as practicable, and in any
event within 6 months from the date of the action or inaction on which such
claim is based, and shall include reasonable documentation evidencing such claim
and loss.
2. No Liability. The Bank shall have no obligation hereunder for costs,
expenses, damages, liabilities or claims, including attorney's fees, which are
sustained or incurred by reason of any action or inaction by the Federal Reserve
wire transfer system or the New York Automated Clearing House. Notwithstanding
any other provision elsewhere contained in this Agreement, in no event shall the
Bank be liable to the Trust or any Fund or any third party for special, indirect
or consequential damages, or lost profits or loss of business, arising under or
in connection with this Agreement, even if previously informed of the
possibility of such damages and regardless of the form of action.
3. Indemnification. The Trust, on behalf of each Fund, shall indemnify
and exonerate, save and hold harmless the Bank from and against any and all
costs, expenses, damages, liabilities or claims, including reasonable attorney's
fees and expenses, which the Bank may sustain or incur or which may be asserted
against the Bank by reason of or as a result of any action taken or omitted by
the Bank in connection with its performance under this Agreement, except those
costs, expenses, damages, liabilities or claims arising out of the Bank's own
negligence, bad faith or willful misconduct. This indemnity shall be a
continuing obligation of the Trust on behalf of each Fund notwithstanding the
termination of this Agreement, any Account or Omnibus Account with respect to a
Fund.
4. No Obligation to Inquire. Without limiting the generality of the
foregoing, the Bank shall in no event be under any obligation to inquire into,
and shall not be liable for:
(a) the due authority of any Authorized Person acting on
behalf of the Trust or a Fund in connection with this Agreement;
(b) the genuineness of any drawer signature on any draft
deposited in any Account or Omnibus Account, or whether such signature is a
forgery, other than the signature of the drawer of any draft drawn on the Bank;
(c) the existence or genuineness of any endorsement or any
marking purporting to be an endorsement on any draft deposited in any Account or
Omnibus Account, or
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<PAGE> 11
whether such endorsement or marking is a forgery, it being expressly understood
that all risks associated with the acceptance by the Bank of any draft payable
to a payee other than a Fund for deposit in any Account or Omnibus Account
pursuant to Oral or Written Instructions by the Trust shall be borne by the
Trust on behalf of such Fund;
(d) any discrepancy between the pre-printed investment stub
(other than a substitute stub created by the Bank) and the payee either named on
a draft or written on the face thereof, provided the Bank has acted in
accordance with the investment stub;
(e) any discrepancy between the written amount for which any
draft is drawn and the Magnetic Incription Character Recognition ("MICR") code
described thereon by any bank other than the Bank on any draft presented,
provided the Bank has acted in accordance with the MICR code;
(f) any disbursement directed by the Trust on behalf of a
Fund, regardless of the purpose therefor;
(g) any determination of the Share balance of any Shareholder
whose name is signed on any redemption draft;
(h) any determination of length of time any Shares have been
owned by any Shareholder or the method of payment utilized to purchase such
Shares by such Shareholder;
(i) any claims, liens, attachments, stays or stop payment
orders with respect to any Shares, proceeds, or money, other than a stop payment
order placed by the Trust on a draft drawn by it on behalf of a Fund on its
Account or an Omnibus Account;
(j) the propriety and/or legality of any transaction in any
Account or Omnibus Account;
(k) the lack of authority of any person signing as a drawer of
a draft, provided such person and his specimen signature is specified in the
certificate of authorized signatures last received by the Bank; or
(l) whether any redemption draft equals or exceeds any minimum
amount.
5. Reliance Upon Instructions. The Bank shall be entitled to rely upon
any Written or Oral Instructions received by the Bank. The Trust agrees to
forward to the Bank Written Instructions confirming Oral Instructions in such
manner so that such Written Instructions are received by the Bank by the close
of business of the same day that such Oral Instructions are given to the Bank.
The Trust, on behalf of each Fund, agrees that the fact that such confirming
Written Instructions are not timely received or that contrary Written
Instructions are received by the Bank shall in no way affect the validity or
enforceability of transactions previously authorized.
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6. Force Majeure. The Bank shall not be responsible or liable for any
failure or delay in the performance of its obligations under this Agreement
arising out of or caused, directly or indirectly, by circumstances beyond its
control, including acts of God; earthquakes; fires; floods; wars; civil or
military disturbances; sabotage; epidemics; riots; interruptions, loss or
malfunctions of utilities, computers (hardware or software), transportation, or
communications service; mechanical breakdowns; interruption or loss of ACCESS
(except as otherwise provided in Section 7 of Article V); accidents; acts of
civil or military authority; governmental actions; labor disputes; or inability
to obtain labor, material, equipment or transportation.
7. No Implied Duties; Performance According To Applicable Law. The Bank
shall have no duties or responsibilities except such duties and responsibilities
as are specifically set forth in this Agreement and Schedules I and II hereto,
and no covenant or obligation shall be implied against the Bank. The Bank's
duties and responsibilities hereunder shall be performed in accordance with
applicable laws, regulations and rules, including but not limited to Federal
Reserve Regulation CC and the Operating Rules of the New York Automated Clearing
House, and the Bank shall have no obligation to take actions which in the
reasonable opinion of the Bank are either inconsistent with, or prejudice or
impair the Bank's rights under, any such laws, regulations and rules.
8. Requests for Instructions. At any time the Bank may apply to an
officer of the Trust for Oral or Written Instructions with respect to any matter
arising in connection with the Bank's duties and obligations hereunder, and the
Bank shall not be liable for any action taken or permitted by it in good faith
in accordance with such Oral or Written Instructions. Such application for Oral
or Written Instructions may, at the option of the Bank, set forth in writing any
action proposed to be taken or omitted by the Bank with respect to its duties or
obligations hereunder and the date on or after which such action shall be taken,
and the Bank shall not be liable for any action taken or omitted in accordance
with a proposal included in any such application on or after the date specified
therein (which shall be at least 5 days after the date of the Trust's receipt of
such application) unless, prior to taking or omitting any such action, the Bank
has received Oral or Written Instructions in response to such application
specifying the action to be taken or omitted. The Bank may apply for and obtain
the advice and opinion of counsel to the Trust or of its own counsel, at the
expense of the Trust, and shall be fully protected with respect to anything done
or omitted by it in good faith in conformity with such advice or opinion.
9. Delegation of Duties. The Bank may delegate any of its duties and
obligations hereunder to any delegee and may employ agents or attorneys-in-fact;
provided however, that no such delegation or employment by the Bank shall
discharge the Bank from its obligations hereunder. The Bank shall have no
liability or responsibility whatsoever if any delegee, agent or attorney-in-fact
shall have been selected or approved by the Trust. Notwithstanding the
foregoing, nothing contained in this paragraph shall obligate the Bank to effect
any delegation or to employ any agent or attorney-in-fact.
10. Fees, Invoices. (a) For its services hereunder, the Trust, on
behalf of each Fund, agrees to pay the Bank (i) its out-of-pocket expenses, (ii)
the monthly fees and compensation set forth on Schedules I and 11 attached
hereto, and (iii) any negative Calendar Month Earnings
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<PAGE> 13
Credits, and such other amounts as may be mutually agreed upon from time to
time. The Bank shall provide the Trust with a monthly activity analysis for each
Fund detailing service volumes, and including average Account Available Balances
and average ledger balances, and all fees owing for such month.
(b) The Bank shall submit periodic invoices specifying the
amount of all out-of-pocket expenses, fees, compensation and negative Calendar
Month Earnings Credits then due hereunder. The Bank may, and is hereby
authorized by the Trust on behalf of each Fund, to charge such amounts to an
Omnibus Account or the appropriate Fund's Account(s), but only if such amounts
remain unpaid for ninety (90) days after the date an invoice for such amounts is
sent to the Trust and the Trust has not contested such amounts in good faith by
delivery of written notice thereof to the Bank within such 90 days.
11. Application of Calendar Month Earnings Credits. (a) Any positive
Calendar Month Earnings Credit for a calendar month shall be applied only as
follows and only in the specified order:
(i) First, applied against such compensation, fees, but
not out-of-pocket expenses, payable by the Trust on
behalf of such Fund to the Bank under this Agreement
for such month; and
(ii) Second, applied against such compensation, fees, and
negative Calendar Month Earnings Credits, but not
out-of-pocket expenses, payable by the Trust on
behalf of such Fund to the Bank under this Agreement.
(b) Except as provided above, in no event may any Calendar
Month Earnings Credit be applied to any month other than the month in which it
was earned. Calendar Month Earnings Credits may not be transferred to, or
utilized by, any other Fund, person or entity. The portion, if any, of any
Calendar Month Earnings Credit not used by a Fund may be carried, but only
forward; provided, however, that in no event may any Calendar Month Earnings
Credit, including those earned during the fourth calendar quarter, be carried
beyond the end of the calendar year in which earned.
12. Allocation of Calendar Month Earnings Credits. The Trust agrees
that the Bank may pay Calendar Month Earnings Credits with respect to any
Omnibus Account as mutually agreed, and that it is the Trust's responsibility to
allocate such Calendar Month Earnings Credits among and between the Funds.
ARTICLE VII
TERMINATION
1. Notice. This Agreement may be terminated by either the Bank giving
to the Trust, or the Trust giving to the Bank, a notice in writing specifying
the date of such termination and the affected Fund(s), which date shall be not
less than 90 days after the date of the giving of such notice. Notwithstanding
the foregoing, the Bank reserves the right to terminate this Agreement (a) at
any time upon 30 days prior written notice if the condition precedent set forth
-13-
<PAGE> 14
in Article II, paragraph 3 is unfulfilled, and (b) upon notice if the Trust, on
behalf of a Fund, either (i) fails to comply with Article IV, Section 3, or (ii)
borrows funds from the Bank in an amount exceeding the Bank's legal lending
limit.
2. Obligations Upon Termination. Upon termination, the Bank's sole
obligations, which shall arise only after, and not before, each Fund which is
the subject of such termination has paid to the Bank all out-of-pocket expenses,
fees, compensation, negative Calendar Month Earnings Credits and other amounts
owed by the Trust on behalf of such Fund to the Bank, shall be (i) to deliver to
the Trust such records, if any, as may be owned by the Trust on behalf of such
Fund(s), in the form and manner kept by the Bank on such date of termination,
and (ii) to pay to the Trust any monies held for the account of the affected
Fund(s) hereunder.
ARTICLE VIII
MISCELLANEOUS
1. Certificates of Authorized Persons. The Trust agrees to furnish to
the Bank a new certificate of Authorized Persons in the event that any present
Authorized Person ceases to be an Authorized Person or in the event that any
other Authorized Persons are appointed and authorized. Until such new
certificate is received, the Bank shall be fully protected in acting under the
provisions of this Agreement upon Oral or Written Instructions or signatures of
the present Authorized Persons as set forth in the last delivered certificate.
2. Notices. (a) Any notice or other instrument in writing, authorized
or required by this Agreement to be given to the Bank, shall be sufficiently
given if addressed to the Bank and received by it at its offices at 90
Washington Street, 22nd Floor, New York, New York 10286, Attention: Division
Manager - Mutual Funds, or at such other place as the Bank may from time to time
designate in writing.
(b) Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Trust shall be sufficiently given
if addressed to the Trust and received by it at 3435 Stelzer Road, Columbus,
Ohio, or at such other place as the Trust may from time to time designate in
writing.
3. Cumulative Rights and No Waiver. Each and every right granted to the
Bank hereunder or under any other document delivered hereunder or in connection
herewith, or allowed it by law or equity, shall be cumulative and may be
exercised from time to time. No failure on the part of the Bank to exercise, and
no delay in exercising, any right will operate as a waiver thereof, nor will any
single or partial exercise by the Bank of any right preclude any other or future
exercise thereof or the exercise of any other right.
4. Severability. In case any provision in or obligation under this
Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or obligations
shall not in any way be affected or impaired thereby, and if any provision is
inapplicable to any person or circumstances, it shall nevertheless remain
applicable to all other persons and circumstances.
-14-
<PAGE> 15
5. Amendments. This Agreement may not be amended or modified in any
manner except by a written agreement executed by the Bank and the Trust on
behalf of each Fund to be bound thereby, and, except in the case of an amendment
to Schedules I and II hereto, authorized or approved by a resolution of the
Trust's Board.
6. Headings. The headings in this Agreement are inserted for
convenience and identification only and are in no way intended to describe,
interpret, define or limit the scope, extent or intent of this Agreement or any
provisions hereof.
7. Applicable Law; Consent to Jurisdiction; Jury Trial Waiver. This
Agreement shall be construed in accordance with the laws of the State of New
York without giving effect to conflict of laws principles thereof. Each party
hereby consents to the jurisdiction of a state or federal court situated in New
York City, New York in connection with any dispute arising hereunder and hereby
waives its right to trial by jury.
8. No Third Party Beneficiaries. The provisions of this Agreement are
intended to benefit only the Bank and the Trust, on behalf of each Fund, and
their respective permitted successors and assigns, and no right shall be granted
to any other person by virtue of this Agreement.
9. Successors and Assigns. This Agreement shall extend to and shall be
binding upon the parties hereto, and their respective successors and assigns;
provided, however, that this Agreement shall not be assignable by the Trust
without the written consent of the Bank and authorized or approved by a
resolution of the Trust's Board.
10. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
11. Several Obligations. The parties acknowledge that the obligations
of the Trust, on behalf of each Fund, are several and not joint, that no Fund
shall be liable for any amount owing by another Fund and that the Trust has
executed one instrument on behalf of the Funds for convenience only.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective corporate officers, thereunto duly authorized, as
of the day and year first above written.
GOVERNOR FUNDS
By:_____________________________________
Title:
-15-
<PAGE> 16
THE BANK OF NEW YORK
By:_____________________________________
Title:
-16-
<PAGE> 17
SCHEDULE A
NAME OF FUND
Prime Money Market Fund
U.S. Treasury Obligations Money Market Fund
Established Growth Fund
Aggressive Growth Fund
Emerging Growth Fund
International Equity Fund
Intermediate Term Income Fund
Limited Term Duration Government Securities Fund
Pennsylvania Municipal Bond Fund
Lifestyle Conservative Growth Fund
Lifestyle Moderate Growth Fund
Lifestyle Growth Fund
<PAGE> 18
SCHEDULE A
To Cash Management and Related Services Agreement
dated ____________, 1998
Between Governor Funds and
The Bank of New York
SERIES
<TABLE>
<CAPTION>
Name of Fund Date
------------ ----
<S> <C>
Prime Money Market Fund, ________________, 1998
Established Growth Fund,
Aggressive Growth Fund,
Emerging Growth Fund,
International Equity Fund,
Intermediate Term Income Fund,
Limited Term Duration Government Securities Fund,
Pennsylvania Municipal Bond Fund,
Lifestyle Conservative Growth Fund,
Lifestyle Moderate Growth Fund,
and Lifestyle Growth Fund
</TABLE>
GOVERNOR FUNDS
By_________________________________
THE BANK OF NEW YORK
By_________________________________
(name) (title)
<PAGE> 1
EXHIBIT (9)(a)
MANAGEMENT AND ADMINISTRATION AGREEMENT
This Agreement is made this ___ day of ___________, 1998, by and among
Governor Funds, a Delaware business trust, (the "Trust"), 3435 Stelzer Road,
Columbus, Ohio 43219, BISYS Fund Services Ohio, Inc., an Ohio corporation
("BISYS"), 3435 Stelzer Road, Columbus, Ohio 43219, and Governors Group
Advisors, Inc., ("Governors") a wholly-owned subsidiary of Keystone Financial,
Inc. (Governors and BISYS are collectively referred to as the "Administrators").
WHEREAS, the Trust is an open-end management investment company,
organized as a Delaware business trust and registered with the Securities and
Exchange Commission (the "Commission") under the Investment Company Act of 1940,
as amended (the "1940 Act"); and
WHEREAS, the Trust desires to retain the Administrators to provide, as
co-administrators, certain management and administration services to certain
investment portfolios of the Trust (individually, a "Fund," and collectively,
the "Funds"), and may retain the Administrators to serve in such capacity with
respect to additional investment portfolios of the Trust, all as now or
hereafter may be identified in Schedule A hereto as such Schedule may be amended
from time to time; and
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
1. Services as Managers and Administrators
Subject to the direction and control of the Board of Trustees of the
Trust, and as delineated on Schedule 1 to the Agreement, the Administrators
agree to assist in supervising various aspects of each Fund's operations except
those performed by the investment adviser for the Funds under its Investment
Advisory Agreement, the custodian for the Funds under its Custody Agreement, the
transfer agent for the Funds under its Transfer Agency Agreement and the fund
accountant for the Funds under its Fund Accounting Agreement.
The Administrators will maintain office facilities (which may be in the
offices of the Administrators or an affiliate but shall be in such location as
the Trust shall reasonably determine); furnish statistical and research data,
clerical, certain bookkeeping services and stationery and office supplies;
prepare the periodic reports to the Commission on Form N-SAR or any replacement
forms therefor; compile data for, assist the Trust or its designee in the
preparation of, and file, all the Funds' federal and state tax returns and
required tax filings other than those required to be made by the Funds'
custodian and transfer agent; prepare compliance filings pursuant to state
securities laws with the advice of the Trust's counsel; assist to the extent
requested by the Trust with the Trust's preparation of its Annual and
Semi-Annual Reports to Shareholders and its Registration Statements (on Form
N-1A or any replacement therefor); compile data for, prepare and file timely
Notices to the Commission required pursuant to Rule 24f-2 under the 1940 Act;
keep and maintain the financial accounts and records of the Funds, including
calculation of daily expense accruals; in the case of money market funds,
periodic
<PAGE> 2
review of the amount of the deviation, if any, of the current net asset value
per share (calculated using available market quotations or an appropriate
substitute that reflects current market conditions) from each money market
fund's amortized cost price per share; and generally assist in all aspects of
the operations of the Funds. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Administrators hereby agree that all records which each
maintains for the Trust are the property of the Trust and further agree to
surrender promptly to the Trust any of such records upon the Trust's request.
The Administrators further agree 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. The Administrators may delegate some or all of their
responsibilities under this Agreement.
The Administrators may, at their expense, subcontract with any entity
or person concerning the provision of the services contemplated hereunder;
provided, however, that the Administrators shall not be relieved of any of their
obligations under this Agreement by the appointment of such subcontractor and
provided further, that the Administrators shall be responsible, to the extent
provided in Section 4 hereof for all acts of such subcontractor as if such acts
were their own.
2. Fees; Expenses; Expense Reimbursement
In consideration of services rendered and expenses assumed pursuant to
this Agreement, the Administrators shall be entitled jointly to a fee based on
the average net assets of the Trust, paid by each of the Funds on the first
business day of each month, or at such time(s) as the Administrators shall
request and the parties hereto shall agree, a fee computed daily and paid as
specified below calculated at the applicable annual rate set forth on Schedule A
hereto. The fee for the period from the day of the month this Agreement is
entered into until the end of that month shall be prorated according to the
proportion which such period bears to the full monthly period. Upon any
termination of this Agreement before the end of any month, the fee for such part
of a month shall be prorated according to the proportion which such period bears
to the full monthly period and shall be payable upon the date of termination of
this Agreement.
For the purpose of determining fees payable to the Administrators, the
value of the net assets of a particular Fund shall be computed in the manner
described in the Trust's Declaration of Trust or in the Prospectus or Statement
of Additional Information respecting that Fund as from time to time is in effect
for the computation of the value of such net assets in connection with the
determination of the liquidating value of the shares of such Fund.
Notwithstanding anything to the contrary, amounts owed by the Trust to the
Administrators shall only be paid out of the assets and property of the
particular Fund involved.
The Administrators will from time to time employ or associate with
themselves such person or persons as the Administrators may believe to be
particularly fitted to assist them in the performance of this Agreement. Such
person or persons may be partners, officers, or employees who are employed by
the Administrators and the Trust. The compensation of such person or persons
shall be paid by the Administrators and no obligation may be incurred on behalf
of the Funds in such respect. Other expenses to be incurred in the operation of
the Funds including taxes, interest, brokerage fees and commissions, if any,
fees of Trustees who are not partners,
-2-
<PAGE> 3
officers, directors, shareholders or employees of the Administrators or the
investment adviser or distributor for the Funds, Commission fees and state Blue
Sky qualification and renewal fees and expenses, advisory fees, pricing service
fees, custodian fees, transfer and dividend disbursing agents' fees, fund
accounting fees, certain insurance premiums, outside and, to the extent
authorized by the Trust, inside auditing and legal fees and expenses, costs of
maintenance of the Trust's existence, typesetting and printing prospectuses for
regulatory purposes and for distribution to current shareholders of the Funds,
costs of shareholders' and Trustees' reports and meetings, fees incurred under
the Trust's Distribution and Shareholder Service Plan and Administrative
Services Plan and any extraordinary expenses will be borne by the Funds.
3. Proprietary and Confidential Information
Each Administrator agrees on behalf of itself and its partners and
employees to treat confidentially and as proprietary information of the Trust
all records and other information relative to the Trust 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 Trust, which
approval shall not be unreasonably withheld and may not be withheld where the
Administrator may be exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Trust.
4. Limitation of Liability
Each Administrator shall not be liable for any loss suffered by the
Funds in connection with the matters to which this Agreement relates, except for
a loss resulting from willful misfeasance, bad faith or 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 a
partner, employee, or agent of the Administrators, who may be or become an
officer, Trustee, employee, or agent of the Trust or the Funds shall be deemed,
when rendering services to the Trust or the Funds, or acting on any business of
that party, to be rendering such services to or acting solely for that party and
not as a partner, employee, or agent or one under the control or direction of
the Administrators even though paid by it. The parties hereto agree that this
Agreement shall not create any joint and/or several liability between the
Administrators with respect to services provided by any particular Administrator
as set forth herein and the Schedules hereto.
5. Term
This Agreement shall become effective as of the date first written
above (or, if a particular Fund is not in existence on that date, on the date an
amendment to Schedule A to this Agreement relating to that Fund is executed)
and, unless sooner terminated as provided herein, shall continue until June 30,
2001, and thereafter shall be renewed automatically for successive one year
terms, unless written notice not to renew is given by the non-renewing party to
the other parties at least 60 days prior to the expiration of the then-current
term. This Agreement is terminable with respect to a particular Fund through a
failure to renew at the end of a one-year term; upon mutual agreement of the
parties hereto; upon 180 days' written notice by the Trust
-3-
<PAGE> 4
after the initial term hereof but only in connection with the reorganization of
the Funds into another registered management investment company; or for "cause"
(as defined below) by the party alleging "cause," on not less than 60 days
notice by the Trust's Board of Trustees or by the Administrators. Written notice
not to renew may be given for any reason, with or without "cause."
For purposes of this Agreement, "cause" shall mean (a) willful
misfeasance, bad faith, gross negligence, multiple negligent acts by an
Administrator which in the aggregate are determined by the Trust's Board of
Trustees to constitute a serious failure to perform satisfactorily such
Administrator's obligations hereunder or reckless disregard on the part of the
party to be terminated with respect to its obligations and duties set forth
herein; (b) a final, unappealable judicial, regulatory or administrative ruling
or order in which the party to be terminated has been found guilty of criminal
or unethical behavior in the conduct of its business; (c) the dissolution or
liquidation of either party or other cessation of business other than a
reorganization or recapitalization of such party as an ongoing business; (d)
financial difficulties on the part of the party to be terminated which are
evidenced by the authorization or commencement of, or involvement by way of
pleading, answer, consent, or acquiescence in, a voluntary or involuntary case
under Title 11 of the United States Code, as from time to time in effect, or any
applicable law, other than said Title 11, of any jurisdiction relating to the
liquidation or reorganization of debtors or to the modification or alteration of
the rights of creditors; or (e) any circumstance which substantially impairs the
performance of the obligations and duties of the party to be terminated, or the
ability to perform those obligations and duties as contemplated herein.
Notwithstanding the foregoing, the absence of an annual review of this Agreement
by the Board of Trustees shall not, in and of itself, constitute "cause" as used
herein.
6. Governing Law and Matters Relating to the Trust as a Delaware
Business Trust
This Agreement shall be governed by the law of the State of Delaware.
Governor Funds is a business trust organized under the laws of Delaware and
under a Declaration of Trust, to which reference is hereby made and a copy of
which is on file at the office of the Secretary of State of Delaware as required
by law, and to any and all amendments thereto so filed or hereafter filed. The
obligations of "Governor Funds" entered into in the name or on behalf thereof by
any of the Trustees, officers, employees or agents are made not individually,
but in such capacities, and are not binding upon any of the Trustees, officers,
employees, agents or shareholders of the Trust personally but bind only the
assets of the Trust, and all persons dealing with any of the Funds of the Trust
must look solely to the assets of the Trust belonging to such Fund for the
enforcement of any claims against the Trust.
7. Year 2000 Compliant
The Administrators represent and warrant that all services rendered and
all computer systems used in the performance of the obligations under the
Management and Co-Administration Agreement shall be Year 2000 Compliant. "Year
2000 Compliant" means that the services and systems are designed to and shall:
(a) operate in the year 2000 and later with four digit year date
capability;
-4-
<PAGE> 5
(b) operate fault-free in the processing of date and date-dependant
data before, during and after January 1, 2000, including but not
limited to accepting date input, providing date output, and performing
date calculations, comparison and sequencing;
(c) function accurately and without interruption before, during, and
after January 1, 2000, without any adverse effect on operations and
associated with the advent of the new century;
(d) store and provide output of date information in ways that are
unambiguous as to century.
The representations and warranties contained herein may not be disclaimed or
limited by operation of law.
BISYS FUND SERVICES OHIO, INC. GOVERNOR FUNDS
By BISYS Fund Services, Inc.
By_________________________________
By_________________________________
-5-
<PAGE> 6
SCHEDULE 1
ADMINISTRATIVE SERVICES
Under the Agreement, Governors shall provide the following services and maintain
the records relating thereto:
1. Review and comment on the Trust's Registration Statement, Prospectus,
Statement of Additional Information, Annual and Semi-Annual Reports to
Shareholders, Annual and Semi-Annual Form N-SAR, notices pursuant to
Rule 24f-2 and proxy materials.
2. Review and comment on certain materials to be distributed to the
Trust's Board for the Board's meetings.
3. Consulting with BISYS regarding fidelity bond and E&O/D&O insurance
coverage. BISYS shall obtain such insurance.
4. Attend shareholder and Board meetings as requested from time to time.
5. Maintain expense files and coordinate the payment of invoices.
BISYS shall provide all the other services required to be performed by the
Administrators under the Agreement.
<PAGE> 7
Dated: ________, 1998
Schedule A to the
Management and Co-Administration Agreement
among Governor Funds,
BISYS Fund Services Ohio, Inc.
and Governors Group Advisors, Inc.
dated ___________, 1998
<TABLE>
<CAPTION>
Name of Fund Compensation* Date
------------ ------------- ----
<S> <C> <C>
Prime Money Market, Pennsylvania Annual rate of .15% of each Fund's ___________, 1998
Municipal Bond, Established Growth, average daily net assets
Intermediate Term Income, Aggressive
Growth, U.S. Treasury Obligations
Money Market, Limited Duration
Government Securities, Emerging
Growth and International Equity Funds
Lifestyle Conservative Growth,
Lifestyle Moderate Growth, and
Lifestyle Growth Funds. None.
</TABLE>
*All fees are computed daily and paid periodically.
BISYS FUND SERVICES OHIO, INC. GOVERNOR FUNDS
By BISYS Fund Services, Inc. By_______________________
By:____________________________
<PAGE> 1
EXHIBIT (9)(b)
TRANSFER AGENCY AGREEMENT
This Agreement is made as of _______________, 1998, between Governor
Funds (the "Trust"), a Delaware business trust having its principal place of
business at 3435 Stelzer Road, Columbus, Ohio 43219 and BISYS Fund Services,
Inc. ("BISYS"), a Delaware corporation having its principal place of business at
3435 Stelzer Road, Columbus, Ohio 43219.
WHEREAS, the Trust desires that BISYS perform certain services for
those series of the Trust set forth in the Schedule A attached hereto, as such
Schedule may be amended from time to time (individually referred to herein as a
"Fund" and collectively as the "Funds"); and
WHEREAS, BISYS is willing to perform such services on the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
Section 1. SERVICES. BISYS shall perform for the Trust the transfer
agent services set forth in Schedule B hereto.
BISYS also agrees to perform for the Trust such special
services incidental to the performance of the services enumerated herein as
agreed to by the parties from time to time. BISYS shall perform such additional
services as are provided on an amendment to Schedule B hereof, in consideration
of such fees as the parties hereto may agree.
BISYS may, in its discretion, appoint in writing other parties
qualified to perform transfer agency services reasonably acceptable to the Trust
(individually, a "Subtransfer Agent") to carry out some or all of its
responsibilities under this Agreement with respect to a Fund; provided, however,
that the Sub-transfer Agent shall be the agent of BISYS and not the agent of the
Trust or such Fund, and that BISYS shall be fully responsible for the acts of
such Sub-transfer Agent and shall not be relieved of any of its responsibilities
hereunder by the appointment of such Sub-transfer Agent.
Section 2. FEES. The Trust shall pay BISYS for the services to be
provided by BISYS under this Agreement in accordance with, and in the manner set
forth in, Schedule C hereto. Fees for any additional services to be provided by
BISYS pursuant to an amendment to Schedule B hereto shall be subject to mutual
agreement at the time such amendment to Schedule C is proposed. Notwithstanding
anything to the contrary, amounts owed by the Trust to BISYS shall only be paid
out of the assets and property of the particular Fund involved.
Section 3. REIMBURSEMENT OF EXPENSES. In addition to paying BISYS the
fees described in Section 2 hereof, the Trust agrees to reimburse BISYS for
BISYS' out-of-pocket expenses in providing services hereunder, including without
limitation the following:
A. All freight and other delivery and bonding charges incurred by BISYS
in delivering materials to and from the Trust and in delivering all
materials to shareholders;
<PAGE> 2
B. All direct telephone, telephone transmission and telecopy or other
electronic transmission expenses incurred by BISYS in communication
with the Trust, the Trust's investment adviser or custodian, dealers,
shareholders or others as required for BISYS to perform the services to
be provided hereunder;
C. Costs of postage, couriers, stock computer paper, statements,
labels, envelopes, checks, reports, letters, tax forms, proxies,
notices or other form of printed material which shall be required by
BISYS for the performance of the services to be provided hereunder;
D. The cost of microfilm or microfiche of records or other materials;
and
E. Any expenses BISYS shall incur at the written direction of an
officer of the Trust thereunto duly authorized by the Trust's Board of
Trustees.
Section 4. EFFECTIVE DATE. This Agreement shall become effective as of
the date first written above (the "Effective Date").
Section 5. TERM. This Agreement shall continue in effect, unless
earlier terminated by either party hereto as provided hereunder, until June 30,
2001. Thereafter, this Agreement shall be renewed automatically for successive
one-year terms unless written notice not to renew is given by the non-renewing
party to the other party at least 60 days prior to the expiration of the
then-current term; provided, however, that after such termination, for so long
as BISYS, with the written consent of the Trust, in fact continues to perform
any one or more of the services contemplated by this Agreement or any Schedule
or exhibit hereto, the provisions of this Agreement, including without
limitation the provisions dealing with indemnification, shall continue in full
force and effect. Compensation due BISYS and unpaid by the Trust upon such
termination shall be immediately due and payable upon and notwithstanding such
termination. BISYS shall be entitled to collect from the Trust, in addition to
the fees and disbursements provided by Sections 2 and 3 hereof, the amount of
all of BISYS' reasonable cash disbursements for services in connection with
BISYS' activities in effecting such termination, including without limitation,
the delivery to the Trust and/or its distributor or investment advisers and/or
other parties, of the Trust's property, records, instruments and documents, or
any copies thereof. To the extent that BISYS may retain in its possession copies
of any Trust documents or records subsequent to such termination which copies
had not been requested by or on behalf of the Trust in connection with the
termination process described above, BISYS, for its reasonable out-of-pocket
expenses, will provide the Trust with reasonable access to such copies. This
Agreement is terminable with respect to a particular Fund only upon mutual
agreement of the parties hereto; upon 180 days' written notice by the Trust
after the initial term hereof but only in connection with the reorganization of
the Funds into another registered management investment company; or for "cause"
(as defined below) by the party alleging "cause," on not less than 60 days'
notice by the Trust's Board of Trustees or by BISYS.
For purposes of this Agreement, "cause" shall mean (a) willful
misfeasance, bad faith, gross negligence, multiple negligent acts by BISYS which
in the aggregate are determined by the Trust's Board of Trustees to constitute a
serious failure to perform satisfactorily BISYS's obligations hereunder, or
reckless disregard on the part of the party to be terminated with respect to its
obligations and duties set forth herein; (b) a final, unappealable judicial,
regulatory or administrative ruling or order in which the party to be terminated
has been found guilty of criminal or unethical behavior in the conduct of its
business; (c) financial difficulties on the part of the party to be terminated
which are evidenced by the authorization or commencement of, or involvement by
way of pleading, answer, consent, or acquiescence in, a voluntary or involuntary
case under Title 11 of the United States Code, as from time to time is in
effect, or any applicable law, other than said Title 11, of any jurisdiction
relating to the liquidation or reorganization of debtors or to the modification
or alteration of the rights of creditors; or (d) any
-2-
<PAGE> 3
circumstance which substantially impairs the performance of the obligations and
duties as contemplated herein of the party to be terminated.
Section 6. UNCONTROLLABLE EVENTS. BISYS assumes no responsibility
hereunder, and shall not be liable, for any damage, loss of data, delay or any
other loss whatsoever caused by events beyond its reasonable control.
Section 7. LEGAL ADVICE. BISYS shall notify the Trust at any time BISYS
believes that it is in need of the advice of counsel (other than counsel in the
regular employ of BISYS or any affiliated companies) with regard to BISYS'
responsibilities and duties pursuant to this Agreement; and after so notifying
the Trust, BISYS, at its discretion, shall be entitled to seek, receive and act
upon advice of legal counsel of its choosing, such advice to be at the expense
of the Trust or Funds unless relating to a matter involving BISYS' willful
misfeasance, bad faith, negligence or reckless disregard with respect to BISYS'
responsibilities and duties hereunder and except as provided in section 9
hereof, BISYS shall in no event be liable to the Trust or any Fund or any
shareholder or beneficial owner of the Trust for any action reasonably taken
pursuant to such advice.
Section 8. INSTRUCTIONS. Whenever BISYS is requested or authorized to
take action hereunder pursuant to instructions from a shareholder or a properly
authorized agent of a shareholder ("shareholder's agent"), concerning an account
in a Fund, BISYS shall be entitled to rely upon any certificate, letter or other
instrument or communication, whether in writing, by electronic or telephone
transmission, believed by BISYS to be genuine and to have been properly made,
signed or authorized by an officer or other authorized agent of the Trust or by
the shareholder or shareholder's agent, as the case may be, and shall be
entitled to receive as conclusive proof of any fact or matter required to be
ascertained by it hereunder a certificate signed by an officer of the Trust or
any other person authorized by the Trust's Board of Trustees or by the
shareholder or shareholder's agent, as the case may be.
As to the services to be provided hereunder, BISYS may rely
conclusively upon the terms of the Prospectuses and Statements of Additional
Information of the Trust relating to the Funds to the extent that such services
are described therein unless BISYS receives written instructions to the contrary
in a timely manner from the Trust.
Section 9. STANDARD OF CARE; RELIANCE ON RECORDS AND INSTRUCTIONS;
INDEMNIFICATION. BISYS shall use its best efforts to ensure the accuracy of all
services performed under this Agreement, but shall not be liable to the Trust
for any action taken or omitted by BISYS in the absence of bad faith, willful
misfeasance, negligence or from reckless disregard by it of its obligations and
duties. The Trust agrees to indemnify and hold harmless BISYS, its employees,
agents, directors, officers and nominees from and against any and all claims,
demands, actions and suits, whether groundless or otherwise, and from and
against any and all judgments, liabilities, losses, damages, costs, charges,
counsel fees and other expenses of every nature and character arising out of or
in any way relating to BISYS' actions taken or nonactions with respect to the
performance of services under this Agreement or based, if applicable, upon
reasonable reliance on information, records, instructions or requests given or
made to BISYS by the Trust, the investment adviser and on any records provided
by any fund accountant or custodian thereof; provided that this indemnification
shall not apply to actions or omissions of BISYS in cases of its own bad faith,
willful misfeasance, negligence or from reckless disregard by it of its
obligations and duties; and further provided that prior to confessing any claim
against it which may be the subject of this indemnification, BISYS shall give
the Trust written notice of and reasonable opportunity to defend against said
claim in its own name or in the name of BISYS.
Section 10. RECORD RETENTION AND CONFIDENTIALITY. BISYS shall keep and
maintain on behalf of the Trust all books and records which the Trust or BISYS
is, or may be, required to keep and
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<PAGE> 4
maintain pursuant to any applicable statutes, rules and regulations, including
without limitation Rules 31a-1 and 31a-2 under the Investment Company Act of
1940, as amended (the "1940 Act"), relating to the maintenance of books and
records in connection with the services to be provided hereunder. BISYS further
agrees that all such books and records shall be the property of the Trust and to
make such books and records available for inspection by the Trust or by the
Securities and Exchange Commission (the "Commission") at reasonable times and
otherwise to keep confidential all books and records and other information
relative to the Trust 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 Trust, the shareholder, or shareholder's
agent, or the dealer of record as to such account.
Section 11. REPORTS. BISYS will furnish to the Trust and to its
properly authorized auditors, investment advisers, examiners, distributors,
dealers, underwriters, salesmen, insurance companies and others designated by
the Trust in writing, such reports at such times as are prescribed in Schedule D
attached hereto, or as subsequently agreed upon by the parties pursuant to an
amendment to Schedule D. The Trust agrees to examine each such report or copy
promptly and will report or cause to be reported any errors or discrepancies
therein no later than three business days from the receipt thereof. In the event
that errors or discrepancies, except such errors and discrepancies as may not
reasonably be expected to be discovered by the recipient within ten days after
conducting a diligent examination, are not so reported within the aforesaid
period of time, a report will for all purposes be accepted by and binding upon
the Trust and any other recipient, and, except as provided in Section 9 hereof,
BISYS shall have no liability for errors or discrepancies therein and shall have
no further responsibility with respect to such report except to perform
reasonable corrections of such errors and discrepancies within a reasonable time
after requested to do so by the Trust.
Section 12. RIGHTS OF OWNERSHIP. All computer programs and procedures
developed to perform services required to be provided by BISYS under this
Agreement are the property of BISYS. All records and other data except such
computer programs and procedures are the exclusive property of the Trust and all
such other records and data will be furnished to the Trust in appropriate form
as soon as practicable after termination of this Agreement for any reason.
Section 13. RETURN OF RECORDS. BISYS may at its option at any time, and
shall promptly upon the Trust's demand, turn over to the Trust and cease to
retain BISYS' files, records and documents created and maintained by BISYS
pursuant to this Agreement; provided, however, that to the extent needed by
BISYS in the performance of its services or for its legal protection, BISYS may
retain copies of such files, records and documents at BISYS' own expense. If not
so turned over to the Trust, such documents and records will be retained by
BISYS for six years from the year of creation. At the end of such six-year
period, such records and documents will be turned over to the Trust unless the
Trust authorizes in writing the destruction of such records and documents.
Section 14. BANK ACCOUNTS. The Trust and the Funds shall establish and
maintain such bank accounts with such bank or banks as are selected by the
Trust, as are necessary in order that BISYS may perform the services required to
be performed hereunder. To the extent that the performance of such services
shall require BISYS directly to disburse amounts for payment of dividends,
redemption proceeds or other purposes, the Trust and Funds shall provide such
bank or banks with all instructions and authorizations necessary for BISYS to
effect such disbursements.
Section 15. REPRESENTATIONS OF THE TRUST. The Trust certifies to BISYS
that: (a) as of the close of business on the Effective Date, each Fund which is
in existence as of the Effective Date has authorized unlimited shares, and (b)
by virtue of its Declaration of Trust, shares of each Fund which are
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<PAGE> 5
redeemed by the Trust may be sold by the Trust from its treasury, and (c) this
Agreement has been duly authorized by the Trust and, when executed and delivered
by the Trust, will constitute a legal, valid and binding obligation of the
Trust, enforceable against the Trust in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting the rights and remedies of creditors and secured parties.
Section 16. REPRESENTATIONS OF BISYS. BISYS represents and warrants
that: (a) BISYS has been in, and shall continue to be in, compliance with all
provisions of law, including Section 17A(c) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), required in connection with the
performance of its duties under this Agreement; and (b) the various procedures
and systems which BISYS has implemented with regard to safekeeping from loss or
damage attributable to fire, theft, or any other cause of the blank checks,
records, and other data of the Trust and BISYS' records, data, equipment,
facilities and other property used in the performance of its obligations
hereunder are adequate and that it will make such changes therein from time to
time as are required for the secure performance of its obligations hereunder.
Section 17. INSURANCE. BISYS shall notify the Trust should its
insurance coverage with respect to professional liability or errors and
omissions coverage be cancelled or reduced. Such notification shall include the
date of change and the reasons therefor. BISYS shall notify the Trust of any
material claims against it with respect to services performed under this
Agreement, whether or not they may be covered by insurance, and shall notify the
Trust from time to time as may be appropriate of the total outstanding claims
made by BISYS under its insurance coverage.
Section 18. INFORMATION TO BE FURNISHED BY THE TRUST AND FUNDS. The
Trust has furnished to BISYS the following:
(a) Copies of the Declaration of Trust of the Trust and of any
amendments thereto, certified by the proper official of the state in
which such Declaration has been filed.
(b) Copies of the following documents:
1. The Trust's By-Laws and any amendments thereto;
2. Certified copies of resolutions of the Board of Trustees
covering the following matters:
a. Approval of this
Agreement and authorization of a specified
officer of the Trust to execute and deliver
this Agreement and authorization of
specified officers of the Trust to instruct
BISYS hereunder; and
b. Authorization of BISYS
to act as Transfer Agent for the Trust on
behalf of the Funds.
(c) A list of all officers of the Trust, together with specimen
signatures of those officers, who are authorized to instruct BISYS in
all matters.
(d) Two copies of the following (if such documents are employed by the
Trust):
1. Prospectuses and Statements of Additional Information;
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<PAGE> 6
2. Distribution Agreement; and
3. All other forms commonly used by the Trust or its
Distributor with regard to their relationships and
transactions with shareholders of the Funds.
(e) A certificate as to shares of beneficial interest of the Trust
authorized, issued, and outstanding as of the Effective Date of BISYS'
appointment as Transfer Agent (or as of the date on which BISYS'
services are commenced, whichever is the later date) and as to receipt
of full consideration by the Trust for all shares outstanding, such
statement to be certified by the Treasurer of the Trust.
Section 19. INFORMATION FURNISHED BY BISYS. BISYS has furnished to the
Trust the following:
(a) BISYS' Articles of Incorporation.
(b) BISYS' Bylaws and any amendments thereto.
(c) Certified copies of actions of BISYS covering the following
matters:
1. Approval of this Agreement, and authorization of a
specified officer of BISYS to execute and deliver this
Agreement;
2. Authorization of BISYS to act as Transfer Agent for the
Trust.
(d) A copy of the most recent independent accountants' report relating
to internal accounting control systems as filed with the Commission
pursuant to Rule 17Ad-13 of the Exchange Act.
Section 20. AMENDMENTS TO DOCUMENTS. The Trust shall furnish BISYS
written copies of any amendments to, or changes in, any of the items referred to
in Section 18 hereof forthwith upon such amendments or changes becoming
effective. In addition, the Trust agrees that no amendments will be made to the
Prospectuses or Statement of Additional Information of the Trust which might
have the effect of changing the procedures employed by BISYS in providing the
services agreed to hereunder or which amendment might affect the duties of BISYS
hereunder unless the Trust first obtains BISYS' approval of such amendments or
changes.
Section 21. RELIANCE ON AMENDMENTS. BISYS may rely on any amendments to
or changes in any of the documents and other items to be provided by the Trust
pursuant to Sections 18 and 20 of this Agreement and subject to Section 9, the
Trust hereby indemnifies and holds harmless BISYS from and against any and all
claims, demands, actions, suits, judgments, liabilities, losses, damages, costs,
charges, counsel fees and other expenses of every nature and character which may
result from actions or omissions on the part of BISYS in reasonable reliance
upon such amendments and/or changes. Although BISYS is authorized to rely on the
above-mentioned amendments to and changes in the documents and other items to be
provided pursuant to Sections 18 and 20 hereof, BISYS shall be under no duty to
comply with or take any action as a result of any of such amendments or changes
unless the Trust first obtains BISYS' written consent to and approval of such
amendments or changes.
Section 22. COMPLIANCE WITH LAW. Except for the obligations of BISYS
set forth in Section 10 hereof, the Trust assumes full responsibility for the
preparation, contents and distribution of each prospectus of the Trust as to
compliance with all applicable requirements of the Securities Act of 1933, as
amended (the "1933 Act"), the 1940 Act and any other laws, rules and regulations
of governmental
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<PAGE> 7
authorities having jurisdiction. BISYS shall have no obligation to take
cognizance of any laws relating to the sale of the Trust's shares. The Trust
represents and warrants that no shares of the Trust will be offered to the
public until the Trust's registration statement under the 1933 Act and the 1940
Act has been declared or becomes effective.
Section 23. NOTICES. Any notice provided hereunder shall be
sufficiently given when sent by registered or certified mail to the party
required to be served with such notice, at the following address: 3435 Stelzer
Road, Columbus, Ohio 43219, with a copy to Michael P. Malloy, Drinker Biddle &
Reath LLP, Philadelphia National Bank Building 1345 Chestnut Street,
Philadelphia, PA 19107-3496 for notices to the Trust, or at such other address
as such party may from time to time specify in writing to the other party
pursuant to this Section.
Section 24. HEADINGS. Paragraph headings in this Agreement are included
for convenience only and are not to be used to construe or interpret this
Agreement.
Section 25. ASSIGNMENT. This Agreement and the rights and duties
hereunder shall not be assignable by either of the parties hereto except by the
specific written consent of the other party. This Section 25 shall not limit or
in any way affect BISYS' right to appoint a Sub-transfer Agent pursuant to
Section 1 hereof.
Section 26. GOVERNING LAW. This Agreement shall be governed by and
provisions shall be construed in accordance with the laws of the State of
Delaware.
Section 27. LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS.
The Governor Funds is a business trust organized under Delaware law and under a
Declaration of Trust, to which reference is hereby made and a copy of which is
on file at the Office of the Secretary of State of Delaware as required by law,
and to any and all amendments thereto so filed or hereafter filed. The
obligations of "Governor Funds" entered into in the name or on behalf thereof by
any of the Trustees, officers, employees or agents are made not individually,
but in such capacities, and are not binding upon any of the Trustees, officers,
employees, agents or shareholders of the Trust personally, but bind only the
assets of the Trust and all persons dealing with any of the Funds of the Trust
must look solely to the assets of the Trust belonging to such Fund for the
enforcement of any claims against the Trust.
Section 28. YEAR 2000 COMPLIANT. BISYS represents and warrants that all
services rendered and all computer systems used in the performance of BISYS's
obligations under this Agreement shall be Year 2000 Compliant. "Year 2000
Compliant" means that the services and systems are designed to and shall:
(a) operate in the year 2000 and later with four digit year date
capability;
(b) operate fault-free in the processing of date and date-dependant
data before, during and after January 1, 2000, including but not limited to
accepting date input, providing date output, and performing date calculations,
comparison and sequencing;
(c) function accurately and without interruption before, during, and
after January 1, 2000, without any adverse effect on operations and associated
with the advent of the new century;
(d) store and provide output of date information in ways that are
unambiguous as to century.
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<PAGE> 8
The representations and warranties contained herein may not be
disclaimed or limited by operation of law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
BISYS FUND SERVICES, INC. THE GOVERNOR FUNDS
By By:
-------------------------------- -------------------------------
(Name) (Name)
(Title) (Title)
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<PAGE> 9
Dated: ___________, 199_
SCHEDULE A
TO THE
TRANSFER AGENCY AGREEMENT
BETWEEN
THE GOVERNOR FUNDS
AND
BISYS FUND SERVICES, INC.
______________, 199_
Name of Fund
The Aggressive Growth Fund
The Emerging Growth Fund
The Established Growth Fund
The International Equity Fund
The Intermediate Term Income Fund
The Limited Duration Government Securities Fund
The Prime Money Market Fund
The Pennsylvania Municipal Bond Fund
The U.S. Treasury Obligations Money Market Fund
The Lifestyle Conservative Growth Fund
The Lifestyle Moderate Growth
The Lifestyle Growth
THE GOVERNOR FUNDS
By _____________________________________
BISYS FUND SERVICES, INC.
By _____________________________________
J. David Huber, President
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<PAGE> 10
SCHEDULE B
TRANSFER AGENCY SERVICES
1. Shareholder Transactions
a. Process shareholder purchase and redemption orders.
b. Set up account information, including address, dividend option,
taxpayer identifications numbers and wire instructions.
c. Issue confirmations in compliance with Rule 10b-10 under the
Exchange Act.
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 Regulation, Inc. and the
States in which the Fund is 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.
4. Dealer/Load Processing (if applicable)
a. Provide reports for tracking rights of accumulation and purchases
made under a Letter of Intent.
b. Account for separation of shareholder investments from transaction
sale charges for purchases of Fund shares.
c. Calculate fees due under 12b-1 plans for distribution and marketing
expenses.
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<PAGE> 11
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 Trust.
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.
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SCHEDULE C
Fees
Transfer Agent:
Annual fees per fund:
<TABLE>
<S> <C>
Daily dividend fund base fee $ 25 per shareholder
Variable NAV fund fee $ 23 per shareholder
Annual Minimums per fund: $20,000
</TABLE>
Multiple classes of shares:
Classes of shares which have different net asset values or pay different daily
dividends will be treated as separate classes, and the fee schedule above,
including the appropriate minimums, will be charged for each separate class.
Additional services:
Additional services such as IRA processing are subject to additional fees which
will be quoted upon request. Programming costs or data base management fees for
special reports or specialized processing will be quoted upon request.
Out of pocket charges:
Out-of-pocket costs, including postage, Tymnet charges, statement/confirm paper
and forms, and microfiche, will be added to the transfer agent fees.
THE GOVERNOR FUNDS
By _____________________________________
BISYS FUND SERVICES, INC.
By _____________________________________
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SCHEDULE D
REPORTS
I. Daily Shareholder Activity Journal
II. Daily Fund Activity Summary Report
A. Beginning Balance
B. Dealer Transactions
C. Shareholder Transactions
D. Reinvested Dividends
E. Exchanges
F. Adjustments
G. Ending Balance
III. Daily Wire and Check Registers
IV. Monthly Dealer Processing Reports
V. Monthly Dividend Reports
VI. Sales Data Reports for Blue Sky Registration
VII. Annual report by independent public accountants concerning BISYS'
shareholder system and internal accounting control systems to be filed
with the Securities and Exchange Commission pursuant to Rule 17Ad-13 of
the Exchange Act.
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<PAGE> 1
EXHIBIT (9)(c)
FUND ACCOUNTING AGREEMENT
This Agreement is made as of ____, 1998 between Governor Funds (the
"Trust"), a Delaware business trust having its principal place of business at
3435 Stelzer Road, Columbus, Ohio 43219, and BISYS Fund Services, Inc.
("BISYS"), a Delaware corporation having its principal place of business at 3435
Stelzer Road, Columbus, Ohio 43219.
WHEREAS, the Trust desires that BISYS perform certain fund accounting
services for each of the investment portfolios of the Trust identified on
Schedule A hereto, as such Schedule may be amended from time to time
(individually referred to herein as a "Fund" and collectively as the "Funds");
and
WHEREAS, BISYS is willing to perform such services on the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual premises and covenants
herein set forth, the parties agree as follows:
Section 1. Services as Fund Accountant.
(a) Maintenance of Books and Records. BISYS will keep and
maintain the following books and records of each Fund pursuant
to Rule 31a-1 under the Investment Company Act of 1940 (the
"Rule"):
(i) Journals containing an itemized daily record in
detail of all purchases and sales of securities, all receipts
and disbursements of cash and all other debits and credits, as
required by subsection (b)(1) of the Rule;
(ii) General and auxiliary ledgers reflecting all
asset, liability, reserve, capital, income and expense
accounts, including interest accrued and interest received, as
required by subsection (b)(2)(i) of the Rule;
(iii) Separate ledger accounts required by subsection
(b)(2)(ii) and (iii) of the Rule; and
(iv) A monthly trial balance of all ledger accounts
(except shareholder accounts) as required by subsection (b)(8)
of the Rule.
(b) Performance of Daily Accounting Services. In addition to
the maintenance of the books and records specified above,
BISYS shall perform the following accounting services daily
for each Fund:
(i) Calculate the net asset value per share utilizing
prices obtained from the sources described in subsection
1(b)(ii) below;
(ii) Obtain security prices from independent pricing
services, or if such quotes are unavailable, then obtain such
prices from each Fund's investment adviser or its designee, as
approved by the Trust's Board of Trustees;
(iii) Verify and reconcile with the Funds' custodian
all daily trade activity;
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<PAGE> 2
(iv) Compute, as appropriate, each Fund's net income
and capital gains, dividend payables, dividend factors, 7-day
yields, 7-day effective yields, 30-day yields, and weighted
average portfolio maturity;
(v) Review daily the net asset value calculation and
dividend factor (if any) for each Fund prior to release to
shareholders, check and confirm the net asset values and
dividend factors for reasonableness and deviations, and
distribute net asset values and yields to NASDAQ;
(vi) Report to the Trust the daily market pricing of
securities in any money market Funds, with the comparison to
the amortized cost basis;
(vii) Determine unrealized appreciation and
depreciation on securities held in variable net asset value
Funds;
(viii) Amortize premiums and accrete discounts on
securities purchased at a price other than face value, if
requested by the Trust;
(ix) Update fund accounting system to reflect rate
changes, as received from a Fund's investment adviser, on
variable interest rate instruments;
(x) Post Fund transactions to appropriate categories;
(xi) Accrue expenses of each Fund according to
instructions received from the Trust's Administrator;
(xii) Determine the outstanding receivables and
payables for all (1) security trades, (2) Fund share
transactions and (3) income and expense accounts;
(xiii) Provide accounting reports in connection with
the Trust's regular annual audit and other audits and
examinations by regulatory agencies; and
(xiv) Provide such periodic reports as the parties
shall agree upon, as set forth in a separate schedule.
(c) Special Reports and Services
(i) BISYS may provide additional special reports upon
the request of the Trust or a Fund's investment adviser, which
may result in an additional charge, the amount of which shall
be agreed upon between the parties.
(ii) BISYS may provide such other similar services
with respect to a Fund as may be reasonably requested by the
Trust, which may result in an additional charge, the amount of
which shall be agreed upon between the parties.
(d) Additional Accounting Services. BISYS shall also perform
the following additional accounting services for each Fund:
(i) Provide monthly a download (and hard copy
thereof) of the financial statements described below, upon
request of the Trust. The download will include the following
items:
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<PAGE> 3
Statement of Assets and Liabilities,
Statement of Operations,
Statement of Changes in Net Assets, and
Condensed Financial Information;
(ii) Provide accounting information for the
following:
(A) federal and state income tax
returns and federal excise tax returns;
(B) the Trust's semi-annual reports
with the Securities and Exchange Commission ("SEC")
on Form N-SAR;
(C) the Trust's annual, semi-annual
and quarterly (if any) shareholder reports;
(D) registration statements on
Form-N1A and other filings relating to the
registration of shares;
(E) the Administrator's monitoring
of the Trust's status as a regulated investment
company under Subchapter M of the Internal Revenue
Code, as amended;
(F) annual audit by the Trust's
auditors; and
(G) examinations performed by the
SEC.
Section 2. Subcontracting.
BISYS may, at its expense, subcontract with any entity or person
acceptable to the Trust concerning the provision of the services contemplated
hereunder; provided, however, that BISYS shall not be relieved of any of its
obligations under this Agreement by the appointment of such subcontractor and
provided further, that BISYS shall be responsible, to the extent provided in
Section 7 hereof, for all acts of such subcontractor as if such acts were its
own.
Section 3. Compensation.
The Trust shall pay BISYS for the services to be provided by BISYS
under this Agreement in accordance with, and in the manner set forth in,
Schedule A hereto, as such Schedule may be amended from time to time.
Notwithstanding anything to the contrary, amounts owed by the Trust to BISYS
shall only be paid out of the assets and property of the particular Fund
involved.
Section 4. Reimbursement of Expenses.
In addition to paying BISYS the fees described in Section 3 hereof, the
Trust agrees to reimburse BISYS for BISYS's out-of-pocket expenses in providing
services hereunder, including without limitation the following:
(1) All freight and other delivery and bonding charges incurred by
BISYS in delivering materials to and from the Trust;
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<PAGE> 4
(2) All direct telephone, telephone transmission and telecopy or other
electronic transmission expenses incurred by BISYS in communication
with the Trust, the Trust's investment adviser or custodian, dealers or
others as required for BISYS to perform the services to be provided
hereunder;
(3) The cost of obtaining security market quotes pursuant to Section
1(b)(ii) above;
(4) The cost of microfilm or microfiche of records or other materials;
(5) Any expenses BISYS shall incur at the written direction of an
officer of the Trust thereunto duly authorized by the Trust's Board of
Trustees; and
(6) Any additional out-of-pocket expenses reasonably incurred by BISYS
in the performance of its duties and obligations under this Agreement.
Section 5. Effective Date. This Agreement shall become effective with
respect to a Fund as of the date first written above (or, if a particular Fund
is not in existence on that date, on the date an amendment to Schedule A to this
Agreement relating to that Fund is executed) (the "Effective Date").
Section 6. Term. This Agreement shall continue in effect with respect
to a Fund, unless earlier terminated by either party hereto as provided
hereunder, until June 30, 2001, and thereafter shall be renewed automatically
for successive one-year terms unless written notice not to renew is given by the
non-renewing party to the other party at least 60 days prior to the expiration
of the then-current term; provided, however, that after such termination, for so
long as BISYS, with the written consent of the Trust, in fact continues to
perform any one or more of the services contemplated by this Agreement or any
schedule or exhibit hereto, the provisions of this Agreement, including without
limitation the provisions dealing with indemnification, shall continue in full
force and effect. Compensation due BISYS and unpaid by the Trust upon such
termination shall be immediately due and payable upon and notwithstanding such
termination. BISYS shall be entitled to collect from the Trust, in addition to
the compensation described under Section 3 hereof, the amount of all of BISYS'
reasonable cash disbursements for services in connection with BISYS' activities
in effecting such termination, including without limitation, the delivery to the
Trust and/or its designees of the Trust's property, records, instruments and
documents, or any copies thereof. To the extent that BISYS may retain in its
possession copies of any Trust documents or records subsequent to such
termination, which copies had not been requested by or on behalf of the Trust in
connection with the termination process described above, for its reasonable
out-of-pocket expenses, BISYS will provide the Trust with reasonable access to
such copies. This Agreement is terminable with respect to a particular Fund only
upon mutual agreement of the parties hereto; upon 180 days' written notice by
the Trust after the initial term hereof but only in connection with the
reorganization of the Funds into another registered management investment
company; or for "cause" (as defined below) by the party alleging "cause," on not
less than 60 days' notice by the Trust's Board of Trustees or by BISYS.
For purposes of this Agreement, "cause" shall mean (a) willful
misfeasance, bad faith, gross negligence, multiple negligent acts by BISYS which
in the aggregate are determined by the Trust's Board of Trustees to constitute a
serious failure to perform satisfactorily BISYS' obligations hereunder, or
reckless disregard on the part of either party with respect to its obligations
and duties set forth herein; (b) a final, unappealable judicial, regulatory or
administrative ruling or order in which either party has been found guilty of
criminal or unethical behavior in the conduct of its business; (c) the
dissolution or liquidation of either party or other cessation of business other
than a reorganization or recapitalization of such party as an ongoing business;
(d) financial difficulties on the part of either party which is evidenced by the
authorization or commencement of, or involvement by way of pleading, answer,
consent, or
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<PAGE> 5
acquiescence in, a voluntary or involuntary case under Title 11 of the United
States Code, as from time to time is in effect, or any applicable law, other
than said Title 11, of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or alteration of the rights of
creditors; or (e) any circumstance which substantially impairs the performance
of either party's obligations and duties as contemplated herein.
Section 7. Standard of Care; Reliance on Records and Instructions;
Indemnification. BISYS shall use its best efforts to ensure the accuracy of all
services performed under this Agreement, but shall not be liable to the Trust
for any action taken or omitted by BISYS in the absence of bad faith, willful
misfeasance, negligence or from reckless disregard by it of its obligations and
duties. A Fund agrees to indemnify and hold harmless BISYS, its employees,
agents, directors, officers and nominees from and against any and all claims,
demands, actions and suits, whether groundless or otherwise, and from and
against any and all judgments, liabilities, losses, damages, costs, charges,
counsel fees and other expenses of every nature and character arising out of or
in any way relating to BISYS' actions taken or nonactions with respect to the
performance of services under this Agreement with respect to such Fund or based,
if applicable, upon reasonable reliance on information, records, instructions or
requests with respect to such Fund given or made to BISYS by a duly authorized
representative of the Trust; provided that this indemnification shall not apply
to actions or omissions of BISYS in cases of its own bad faith, willful
misfeasance, negligence or from reckless disregard by it of its obligations and
duties, and further provided that prior to confessing any claim against it which
may be the subject of this indemnification, BISYS shall give the Trust written
notice of and reasonable opportunity to defend against said claim in its own
name or in the name of BISYS.
Section 8. Record Retention and Confidentiality. BISYS shall keep and
maintain on behalf of the Trust all books and records which the Trust or BISYS
is, or may be, required to keep and maintain pursuant to any applicable
statutes, rules and regulations, including without limitation Rules 31a-1 and
31a-2 under the Investment Company Act of 1940, as amended (the "1940 Act"),
relating to the maintenance of books and records in connection with the services
to be provided hereunder. BISYS further agrees that all such books and records
shall be the property of the Trust and to make such books and records available
for inspection by the Trust or by the Securities and Exchange Commission at
reasonable times and otherwise to keep confidential all books and records and
other information relative to the Trust and its shareholders; except when
requested to divulge such information by duly-constituted authorities or court
process.
Section 9. Uncontrollable Events. BISYS assumes no responsibility
hereunder, and shall not be liable, for any damage, loss of data, delay or any
other loss whatsoever caused by events beyond its reasonable control.
Section 10. Reports. BISYS will furnish to the Trust and to its
properly authorized auditors, investment advisers, examiners, distributors,
dealers, underwriters, salesmen, insurance companies and others designated by
the Trust in writing, such reports and at such times as are prescribed pursuant
to the terms and the conditions of this Agreement to be provided or completed by
BISYS, or as subsequently agreed upon by the parties pursuant to an amendment
hereto. The Trust agrees to examine each such report or copy promptly and will
report or cause to be reported any errors or discrepancies therein no later than
three business days from the receipt thereof. In the event that errors or
discrepancies, except such errors and discrepancies as may not reasonably be
expected to be discovered by the recipient within ten days after conducting a
diligent examination, are not so reported within the aforesaid period of time, a
report will for all purposes be accepted by and binding upon the Trust and any
other recipient, and except as provided in Section 7 hereof, BISYS shall have no
liability for errors or discrepancies therein and shall have no further
responsibility with respect to such report except to perform reasonable
corrections of such errors and discrepancies within a reasonable time after
requested to do so by the Trust.
Page 5
<PAGE> 6
Section 11. Rights of Ownership. All computer programs and procedures
developed to perform services required to be provided by BISYS under this
Agreement are the property of BISYS. All records and other data except such
computer programs and procedures are the exclusive property of the Trust and all
such other records and data will be furnished to the Trust in appropriate form
as soon as practicable after termination of this Agreement for any reason.
Section 12. Return of Records. BISYS may at its option at any time, and
shall promptly upon the Trust's demand, turn over to the Trust and cease to
retain BISYS' files, records and documents created and maintained by BISYS
pursuant to this Agreement; provided, however, that to the extent needed by
BISYS in the performance of its services or for its legal protection, BISYS may
retain copies of such files, records and documents at BISYS' own expense. If not
so turned over to the Trust, such documents and records will be retained by
BISYS for six years from the year of creation. At the end of such six-year
period, such records and documents will be turned over to the Trust unless the
Trust authorizes in writing the destruction of such records and documents.
Section 13. Representations of the Trust. The Trust certifies to BISYS
that: (1) as of the close of business on the Effective Date, each Fund which is
in existence as of the Effective Date has authorized unlimited shares, and (2)
this Agreement has been duly authorized by the Trust and, when executed and
delivered by the Trust, will constitute a legal, valid and binding obligation of
the Trust, enforceable against the Trust in accordance with its terms, subject
to bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting the rights and remedies of creditors and secured parties.
Section 14. Representations of BISYS. BISYS represents and warrants
that: (1) the various procedures and systems which BISYS has implemented with
regard to safeguarding from loss or damage attributable to fire, theft, or any
other cause of the blank checks, records, and other data of the Trust and BISYS'
records, data, equipment facilities and other property used in the performance
of its obligations hereunder are adequate and that it will make such changes
therein from time to time as are required for the secure performance of its
obligations hereunder, and (2) this Agreement has been duly authorized by BISYS
and, when executed and delivered by BISYS, will constitute a legal, valid and
binding obligation of BISYS, enforceable against BISYS in accordance with its
terms, subject to bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting the rights and remedies of creditors and
secured parties.
Section 15. Insurance. BISYS shall notify the Trust should any of its
insurance coverage be cancelled or reduced. Such notification shall include the
date of change and the reasons therefor. BISYS shall notify the Trust of any
material claims against it with respect to services performed under this
Agreement, whether or not they may be covered by insurance, and shall notify the
Trust from time to time as may be appropriate of the total outstanding claims
made by BISYS under its insurance coverage.
Section 16. Information to be Furnished by the Trust and Funds. The
Trust has furnished to BISYS the following:
(a) Copies of the Declaration of Trust of the Trust and of any
amendments thereto, certified by the proper official of the state in
which such Declaration has been filed.
(b) Copies of the following documents:
(i) The Trust's By-Laws and any amendments thereto; and
Page 6
<PAGE> 7
(ii) Certified copies of resolutions of the Board of Trustees
covering the approval of this Agreement, authorization of a
specified officer of the Trust to execute and deliver this
Agreement and authorization for specified officers of the
Trust to instruct BISYS thereunder.
(c) A list of all the officers of the Trust, together with specimen
signatures of those officers who are authorized to instruct BISYS in
all matters.
(d) Two copies of the Prospectus and Statement of Additional
Information for each Fund.
Section 17. Information Furnished by BISYS.
(a) BISYS has furnished to the Trust the following:
(i) BISYS's Articles of Incorporation; and
(ii) BISYS's Bylaws and any amendments thereto.
(b) BISYS shall, upon request, furnish certified copies of actions of
BISYS covering the following matters:
(i) Approval of this Agreement, and authorization of a
specified officer of BISYS to execute and deliver this
Agreement; and
(ii) Authorization of BISYS to act as fund accountant for the
Trust and to provide accounting services for the Trust.
Section 18. Amendments to Documents. The Trust shall furnish BISYS
written copies of any amendments to, or changes in, any of the items referred to
in Section 16 hereof forthwith upon such amendments or changes becoming
effective.
Section 19. Compliance with Law. Except for the obligations of BISYS
set forth in Section 8 hereof, the Trust assumes full responsibility for the
preparation, contents and distribution of each prospectus of the Trust as to
compliance with all applicable requirements of the Securities Act of 1933, as
amended, the 1940 Act and any other laws, rules and regulations of governmental
authorities having jurisdiction. BISYS shall have no obligations hereunder to
take cognizance of any laws relating to the sale of the Trust's shares. The
Trust represents and warrants that no shares of the Trust will be offered to the
public until the Trust's registration statement under the Securities Act of 1933
and the 1940 Act has been declared or becomes effective.
Section 20. Notices. Any notice provided hereunder shall be
sufficiently given when sent by registered or certified mail to the party
required to be served with such notice, at the following address: 3435 Stelzer
Road, Columbus, Ohio 43219, with a copy to Michael P. Malloy, Drinker Biddle &
Reath LLP, Philadelphia National Bank Building, 1345 Chestnut Street,
Philadelphia, PA 19107-3496 for notices to the Trust, or at such other address
as such party may from time to time specify in writing to the other party
pursuant to this Section.
Section 21. Headings. Paragraph headings in this Agreement are included
for convenience only and are not to be used to construe or interpret this
Agreement.
Page 7
<PAGE> 8
Section 22. Assignment. This Agreement and the rights and duties
hereunder shall not be assignable with respect to a Fund by either of the
parties hereto except by the specific written consent of the other party.
Section 23. Governing Law. This Agreement shall be governed by and
provisions shall be construed in accordance with the laws of the State of
Delaware.
Section 24. Limitation of Liability of the Trustees and Shareholders.
The Governor Funds is a business trust organized under Delaware law and under a
Declaration of Trust, to which reference is hereby made and a copy of which is
on file at the office of the Secretary of State of Delaware as required by law,
and to any and all amendments thereto so filed or hereafter filed. The
obligations of "Governor Funds" entered into in the name or on behalf thereof by
any of the Trustees, officers, employees or agents are made not individually,
but in such capacities, and are not binding upon any of the Trustees, officers,
employees, agents or shareholders of the Trust personally, but bind only the
assets of the Trust and all persons dealing with any of the Funds of the Trust
must look solely to the assets of the Trust belonging to such Fund for the
enforcement of any claims against the Trust.
Section 25. Year 2000 Compliant. BISYS represents and warrants that all
services rendered and all computer systems used in the performance of BISYS's
obligations under the Fund Accounting Agreement shall be Year 2000 Compliant.
"Year 2000 Compliant" means that the services and systems are designed to and
shall:
(a) operate in the year 2000 and later with four digit year date
capability;
(b) operate fault-free in the processing of date and date-dependant
data before, during and after January 1, 2000, including but not limited to
accepting date input, providing date output, and performing date calculations,
comparison and sequencing;
(c) function accurately and without interruption before, during, and
after January 1, 2000, without any adverse effect on operations and associated
with the advent of the new century;
(d) store and provide output of date information in ways that are
unambiguous as to century.
The representations and warranties contained herein may not be
disclaimed or limited by operations of law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
GOVERNOR FUNDS
By /
----------------------
BISYS FUND SERVICES, INC.
By /
----------------------
(name) (title)
Page 8
<PAGE> 9
Dated: _____________, 1998
SCHEDULE A
TO THE
FUND ACCOUNTING AGREEMENT
BETWEEN
GOVERNOR FUNDS
AND
BISYS FUND SERVICES, INC.
______, 1998
<TABLE>
<CAPTION>
Name of Fund Compensation* Date
- ------------ ------------- ----
<S> <C> <C>
Prime Money Market, The greater of (i) the annual rate of __________________, 1998
Pennsylvania Municipal .03% (.04% for international funds) of
Bond, the Funds' combined net assets up to $2
Established Growth, billion and .02% (.03% for
Intermediate Term Income, international funds) of the Funds'
Aggressive Growth, combined net assets of $2 billion or
U.S. Treasury Obligations more or (ii) the applicable annual
Money Market, Limited minimum fee of $30,000 per fund
Duration Government ($35,000 municipal or tax-exempt fund,
Securities, $40,000 international fund).
Emerging Growth,
International Equity,
Lifestyle Conservative
Growth, Lifestyle
Moderate Growth and
Lifestyle Growth Funds
</TABLE>
BISYS FUND SERVICES, INC. GOVERNOR FUNDS
By _________________________ By _________________________
* All fees are computed daily and paid periodically.
Page 9
<PAGE> 1
Exhibit 10
DRINKER BIDDLE & REATH LLP
1345 CHESTNUT STREET
PHILADELPHIA, PA 19107
September 30, 1998
Governor Funds
3435 Stelzer Road
Columbus, OH 43219
RE: REGISTRATION STATEMENT ON FORM N-1A
-----------------------------------
Ladies and Gentlemen:
We have acted as counsel to Governor Funds, a Delaware business trust
(the "Trust"), in connection with the preparation and filing with the Securities
and Exchange Commission of the Trust's Registration Statement on Form N-1A under
the Securities Act of 1933, as amended, and the Investment Company Act of 1940,
as amended.
The Trust is authorized to issue an unlimited number of shares of
beneficial interest (the "Shares"), with a par value of $0.0001 per share. The
Board of Trustees of the Trust has the power to create and establish one or more
classes of Shares and to classify or reclassify any unissued Shares with respect
to such classes.
We have reviewed the Trust's Agreement and Declaration of Trust,
By-Laws, consent of its initial trustee and such other legal and factual matters
as we have deemed appropriate. We have assumed that the Shares have been or will
be issued against payment therefor as described in the Trust's Prospectus.
This opinion is based exclusively on the Delaware Business Trust Act
and the federal law of the United States of America.
Based upon the foregoing, it is our opinion that once the Trust's Board
of Trustees has created and established the Prime Money Market, U.S. Treasury
Obligations Money Market, Established Growth, Aggressive Growth, Emerging
Growth, International Equity, Intermediate Term Income, Limited Duration
Government Securities, Pennsylvania Municipal Bond, Lifestyle Conservative
Growth, Lifestyle Moderate Growth and Lifestyle Growth Funds (the "Funds") and
the classes of Shares representing interests therein, and any necessary filings
are made with the State of Delaware, the Shares of the Funds, when issued as
described in the prospectuses for those Funds, will be validly issued, fully
paid and non-assessable by the Trust, and that the holders of the
<PAGE> 2
Governor Funds
September 30, 1998
Page 2
Shares of the Funds will be entitled to the same limitation of personal
liability extended to stockholders of private corporations for profit organized
under the general corporation law of the State of Delaware (except that we
express no opinion as to such holders who are also trustees of the Trust).
We hereby consent to the filing of this opinion as an exhibit to the
Trust's initial Registration Statement.
Very truly yours,
/s/ Drinker Biddle & Reath LLP
DRINKER BIDDLE & REATH LLP
<PAGE> 1
EXHIBIT (11)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the references
to our Firm under the caption "Counsel" in the Statements of Additional
Information that are included in this Registration Statement on Form N-1A under
the Securities Act of 1933, as amended, of Governor Funds. This consent does not
constitute a consent under Section 7 of the Securities Act of 1933, and in
consenting to the use of our name and the references to our Firm under such
caption we have not certified any part of the Registration Statement and do not
otherwise come within the categories of persons whose consent is required under
Section 7 or the rules and regulations of the Securities and Exchange Commission
thereunder.
/s/Drinker Biddle & Reath LLP
-----------------------------
Philadelphia, Pennsylvania Drinker Biddle & Reath LLP
October 1, 1998
<PAGE> 1
EXHIBIT (13)
SHARE PURCHASE AGREEMENT
Governor Funds, a Delaware business trust (the "Trust"), and
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services, an Ohio
limited partnership ("Buyer"), hereby agree as follows:
1. The Trust hereby offers Buyer and Buyer hereby purchases,
in consideration for the payment of $100.00, one share of beneficial interest of
the Established Growth Fund, one share of the Aggressive Growth Fund, one share
of the Emerging Growth Fund, one share of the International Equity Fund, one
share of the Intermediate Term Income Fund, one share of the Limited Duration
Government Securities Fund, one share of the Pennsylvania Municipal Bond Fund,
one share of the Lifestyle Conservative Growth Fund, one share of the Lifestyle
Moderate Growth Fund, and one share of the Lifestyle Growth Fund, all for a
purchase price of $10.00 per share, and, in consideration for the payment of
$2.00, one share of the Prime Money Market Fund and one share of the U.S.
Treasury Obligations Money Market Fund, all for a purchase price of $1.00 per
share.
2. Buyer acknowledges that the shares purchased hereunder have
not been registered under the federal securities laws and that the Trust is
relying on certain exemptions from such registration requirements. Buyer
represents and warrants that it is acquiring such shares solely for investment
purposes and that Buyer has no present intention to redeem, sell or otherwise
dispose of the shares.
3. This Agreement shall be governed by the law of the State of
Delaware. Governor Funds is a business trust organized under the laws of
Delaware and under a Declaration of Trust, to which reference is hereby made and
a copy of which is on file at the office of the Secretary of State of Delaware
as required by law, and to any and all amendments thereto so filed or hereafter
filed. The obligations of "Governor Funds" entered into in the name or on behalf
thereof by any of the Trustees, officers, employees or agents are made not
individually, but in such capacities, and are not binding upon any of the
Trustees, officers, employees, agents or shareholders of the Trust personally
but bind only the assets of the Trust, and all persons dealing with any of the
Funds of the Trust must look solely to the assets of the Trust belonging to such
Fund for the enforcement of any claims against the Trust.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the ______ day of ____________, 1998.
(SEAL)
GOVERNOR FUNDS
By: ___________________________________
Lana Burkhardt, President
BISYS FUND SERVICES LIMITED PARTNERSHIP
By: BISYS Fund Services Inc.,
General Partner
By: ___________________________________
Name:
Title:
-2-
<PAGE> 1
EXHIBIT (15)(a)
GOVERNOR FUNDS
DISTRIBUTION PLAN
This Distribution Plan (the "Plan") has been adopted by the
Board of Trustees of Governor Funds (the "Trust") in connection with the shares
in each of the following investment portfolios of the Trust: Lifestyle
Conservative Fund, Lifestyle Moderate Growth Fund, and Lifestyle Growth
Fund(collectively, the "Funds"). The Plan has been adopted pursuant to Rule
12b-1 under the Investment Company Act of 1940, as amended (the "1940 Act").
Section 1. Distribution Payments. (a) The Trust may pay the
distributor of the Trust (the "Distributor") (or any other person) an amount (a
"Distribution Payment") of up to 0.50% annually of the average daily net assets
attributable to the outstanding shares of each Fund. The Distribution Payment
shall be calculated and accrued daily, paid monthly and shall be in
consideration for distribution and other services and the assumption of related
expenses (including the payment of commissions and transaction fees) in
conjunction with the shares of the Funds. In determining the amounts payable on
behalf of a Fund under the Plan, the net asset value of the shares shall be
computed in the manner specified in such Fund's then current Prospectus and
Statement of Additional Information describing the Fund's shares.
(b) Payments to the Distributor under subsection (a) above
shall be used to cover expenses that are related to (a) the distribution of
shares of the Funds, (b) ongoing servicing and/or maintenance of the accounts of
shareholders of the Funds, (c) payments to institutions for selling shares of
the Funds, and (d) sub-transfer agency, sub-accounting, administrative or
similar services related to shares of the Funds.
Section 2. Expenses Allocated; Compliance. Amounts paid by a
Fund under the Plan must be for distribution services rendered for or on behalf
of the holders of such Fund's shares. However, joint distribution financing or
other services rendered with respect to such shares (which may involve other
investment funds or companies that are affiliated persons of the Trust or
affiliated persons of the Distributor) is authorized to the extent permitted by
law.
Section 3. Reports to Trust. So long as this Plan is in
effect, the Distributor shall provide the Trust's Board of Trustees, and the
Trustees shall review, at least quarterly, a written report of the amounts
expended pursuant to the Plan and the purposes for which such expenditures were
made.
Section 4. Approval of Plan. This Plan will become effective
with respect to a particular Fund's shares on the date the public offering of
the Fund's shares commences provided this Plan has been approved by a majority
of the Board of Trustees, including a majority of those trustees who are not
"interested persons" (as defined in the 1940 Act) of the Trust and who have no
direct or indirect financial interest in the operation of the Plan or in any
agreements entered into in connection with the Plan (the "Disinterested
Trustees"), pursuant to a vote cast in person
<PAGE> 2
at a meeting called for the purpose of voting on the approval of the Plan.
Section 5. Continuance of Plan. Unless sooner terminated in
accordance with the terms hereof, this Plan shall continue until June 30, 1999
and thereafter for so long as its continuance is specifically approved at least
annually by the Trust's Board of Trustees in the manner described in Section 4
hereof.
Section 6. Amendments. This Plan may be amended at any time by
the Board of Trustees provided that (a) any amendment to increase materially the
costs which the shares of a Fund may bear pursuant to the Plan shall be
effective only upon approval by a vote of a majority of the outstanding shares
affected by such matter, and (b) any material amendments of the terms of the
Plan shall become effective only upon approval in the manner described in
Section 4 hereof.
Section 7. Termination. This Plan, as to any Fund, is
terminable without penalty at any time by (a) a vote of a majority of the
Disinterested Trustees, or (b) a vote of a majority of the outstanding shares of
such Fund.
Section 8. Selection/Nomination of Trustees. While this Plan
is in effect, the selection and nomination of Disinterested Trustees shall be
committed to the discretion of the Disinterested Trustees.
Section 9. Miscellaneous. The captions in this Plan 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.
Adopted: October 5, 1998
-2-
<PAGE> 3
GOVERNOR FUNDS
(the "Trust")
3435 Stelzer Road
Columbus, Ohio 43219
AGREEMENT
to
DISTRIBUTION PLAN
Ladies and Gentlemen:
We wish to enter into this Agreement with you concerning the provision
of certain services relating to the Trust's investment portfolios (individually,
a "Fund" and collectively, the "Funds"), which are listed on Appendix A.
The terms and conditions of this Agreement are as follows:
Section 1. You agree to provide* (a) reasonable assistance in
connection with the distribution of shares; (b) the following administrative
support services to your customers who may from time to time own of record or
beneficially a Fund's shares ("Shares")*: (i) processing dividend and
distribution payments from a Fund on behalf of customers; (ii) providing
periodic statements to your customers showing their positions in the Shares;
(iii) arranging for bank wires; (iv) responding to routine customer inquiries
relating to services performed by you; (v) providing sub-accounting with respect
to the Shares beneficially owned by your customers or the information necessary
for sub-accounting; (vi) if required by law, forwarding shareholder
communications from a Fund (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax notices) to
your customers; (vii) forwarding to customers proxy statements and proxies
containing any proposals regarding this Agreement or the Administrative Services
Plan related hereto; (viii) aggregating and processing purchase, exchange, and
redemption requests from customers and placing net purchase, exchange, and
redemption orders for your customers; (ix) providing customers with a service
that invests the assets of their accounts in the Shares pursuant to specific or
pre-authorized instructions; (x) establishing and maintaining accounts and
records relating to transactions in the Shares; (xi) assisting customers in
changing dividend or distribution options, account designations and addresses;
or (xii) other similar services if requested by the Trust; or (c) sub-transfer
agency, sub-accounting, administrative or similar services related to shares of
the Funds.
Section 2. You will provide such office space and equipment, telephone
facilities and personnel (which may be any part of the space, equipment and
facilities currently used in your business, or any personnel employed by you) as
may be reasonably necessary or beneficial in order to provide the aforementioned
services.
- ----------
* Services may be added or deleted in a particular Agreement.
-3-
<PAGE> 4
Section 3. Neither you nor any of your officers, employees or agents
are authorized to make any representations concerning the Trust, a Fund or its
Shares except those contained in our then current prospectus for such shares,
copies of which will be supplied by BISYS Fund Services Limited Partnership
d/b/a BISYS Fund Services ("BISYS"), the Trust's distributor, to you, or in such
supplemental literature or advertising as may be authorized by the Trust in
writing.
Section 4. For all purposes of this Agreement you will be deemed to be
an independent contractor, and will have no authority to act as agent for the
Trust in any matter or in any respect. You will not engage in activities
pursuant to this Agreement which constitute acting as a broker or dealer under
applicable law unless you have obtained any licenses required by law. By your
written acceptance of this Agreement, you agree to and do release, indemnify and
hold us harmless from and against any and all direct or indirect liabilities or
losses resulting from requests, directions, actions or inactions of or by you or
your officers, employees or agents regarding your responsibilities hereunder or
the purchase, redemption, transfer or registration of the Shares by or on behalf
of customers. You and your employees will, upon request, be available during
normal business hours to consult with the Trust or its designees concerning the
performance of your responsibilities under this Agreement.
Section 5. In consideration for the services and facilities provided by
you hereunder, the Trust will pay to you, and you will accept as full payment
therefore, a fee at the annual rate specified on Appendix A and based upon the
average daily net assets of a Fund's shares owned of record or beneficially by
your customers from time to time for which you provide services hereunder, which
fee will be computed daily and payable monthly. The fee rate may be
prospectively increased or decreased by the Trust, in its sole discretion, at
any time upon notice to you. Further, the Trust may, in its discretion and
without notice, suspend or withdraw the sale of such Shares, including the sale
of such Shares to you for the account of any customer(s).
Section 6. Any person authorized to direct the disposition of monies
paid or payable by the Trust pursuant to this Agreement will provide to the
Trust's Board of Trustees, and the Trustees will review, at least quarterly, a
written report of the amounts so expended and the entities to whom such
expenditures were made. In addition, you will furnish the Trust or its designees
with such information as the Trust or its designees may reasonably request
(including, without limitation, periodic certifications confirming the provision
to customers of some or all of the services described herein), and will
otherwise cooperate with the Trust and its designees (including, without
limitation, any auditors designated by the Trust), in connection with the
preparation of reports to the Trust's Board of Trustees concerning this
Agreement and the monies paid or payable by the Trust pursuant hereto, as well
as any other reports or filings that may be required by law.
Section 7. We may enter into other similar Agreements with any other
person or persons without your consent.
Section 8. By your written acceptance of this Agreement, you represent,
warrant and agree that: (i) the compensation payable to you hereunder, together
with any other compensation you receive from customers for services contemplated
by this Agreement, will be fully disclosed to your customers, will be authorized
by your customers and will not be excessive or
-4-
<PAGE> 5
unreasonable under the laws and instruments governing your relationships with
your customers; (ii) if you are subject to the provisions of the Glass-Steagall
Act and other laws governing, among other things, the conduct of activities by
federally chartered and supervised banks and other affiliated banking
organizations, you will perform only those activities which are consistent with
your statutory and regulatory obligations and will act solely as agent for, upon
the order of, and for the account of, your customers; and (iii) (a) you are a
member of the National Association of Securities Dealers, Inc. ("NASD"), that
such membership has not been suspended, and that you agree to maintain
membership in the NASD, or (b) you will not engage in activity which would
require you to be licensed as a broker/dealer under applicable laws or (c) you
are a foreign broker/dealer not eligible for membership in the NASD, and are
fully licensed and legally empowered to act as a securities broker-dealer under
the laws of each jurisdiction in which you conduct such business. You further
agree to abide by all applicable laws, including without limitation, all
applicable provisions of the Investment Company Act of 1940, as amended (the
"1940 Act"), the Securities Act of 1933, as amended, and the Securities Exchange
Act of 1934, as amended, and all applicable rules and regulations thereunder.
Section 9. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by the Trust or its designee. This
Agreement may be terminated at any time, without the payment of any penalty with
respect to a Fund by the Trust (which termination may be by vote of a majority
of the members of the Board of Trustees of the Trust and who have no direct or
indirect financial interest in the operation of the Distribution Plan or in any
related agreements to the Distribution Plan ("Disinterested Trustees") or by a
majority of the outstanding voting securities of that Fund) on notice to you.
This Agreement will terminate in the event of its assignment (as defined in the
1940 Act).
Section 10. All notices and other communications to either you or the
Trust will be duly given if mailed, telegraphed, telexed or transmitted by
similar telecommunications device to the appropriate address shown in this
Agreement.
Section 11. This Agreement will be construed in accordance with the
laws of the State of Delaware and is non-assignable by the parties hereto.
Section 12. This Agreement, or form thereof, has been approved by vote
of a majority of (i) the Trust's Board of Trustees and (ii) the Disinterested
Trustees, cast in person at a meeting called for the purpose of voting on such
approval.
Section 13. Governor Funds is a business trust organized under Delaware
law and under an Agreement and Declaration of Trust, to which reference is
hereby made and a copy of which is on file at the office of the Secretary of
State of Delaware as required by law, and to any and all amendments thereto so
filed or hereafter filed. The obligations of "Governor Funds" entered into in
the name or on behalf thereof by any of the Trustees, officers, employees or
agents are made not individually, but in such capacities, and are not binding
upon any of the Trustees, officers, employees, agents or shareholders of the
Trust personally, but bind only the assets of the Trust and all persons dealing
with any of the Funds of the Trust must look solely to the assets of the Trust
belonging to such Fund for the enforcement of any claims against the Trust.
-5-
<PAGE> 6
Section 14. You represent and warrant that all services rendered and
all computer systems used in the performance of your obligations under this
Agreement shall be Year 2000 Compliant. "Year 2000 Compliant" means that the
services and systems are designed to and shall:
(a) operate in the year 2000 and later with four digit year date
capability;
(b) operate fault-free in the processing of date and date-dependant
data before, during and after January 1, 2000, including but not
limited to accepting date input, providing date output, and performing
date calculations, comparison and sequencing;
(c) function accurately and without interruption before, during, and
after January 1, 2000, without any adverse effect on operations and
associated with the advent of the new century;
(d) store and provide output of date information in ways that are
unambiguous as to century.
The representations and warranties contained herein may not be disclaimed or
limited by operation of law.
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to the Trust's designee, BISYS Fund Services Limited Partnership, c/o
_______________ at 3435 Stelzer Road, Columbus, Ohio 43219.
Very truly yours,
GOVERNOR FUNDS
By:_______________________________
(name) (title)
Date:
Accepted and Agreed to:
__________________________________
By:_______________________________
Authorized Officer, Title
Date:
__________________________________
Taxpayer Identification Number
-6-
<PAGE> 7
APPENDIX A
<TABLE>
<CAPTION>
NAME OF FUND FEE
- ------------ ---
<S> <C>
Lifestyle Conservative Growth Fund %
Lifestyle Moderate Growth Fund %
Lifestyle Growth Fund %
</TABLE>
<PAGE> 1
EXHIBIT (15)(b)
GOVERNOR FUNDS
ADMINISTRATIVE SERVICES PLAN
Section 1. Upon the recommendation of the administrator of Governor
Funds (the "Trust"), any officer of the Trust is authorized to execute and
deliver, in the name and on behalf of the Trust, written agreements in
substantially the form attached hereto as Appendix A or in any other form duly
approved by the Board of Trustees ("Servicing Agreements") with financial
institutions which are shareholders of record or which have a servicing
relationship ("Service Organizations") with the beneficial owners of a class of
the Trust's shares of beneficial interest ("Shares") of one or more of the
Trust's investment portfolios (such portfolios hereinafter individually called a
"Fund" and collectively the "Funds"). Such Servicing Agreements shall require
the Service Organizations to provide administrative support services as set
forth therein and as described in the Trust's applicable Prospectuses to their
customers who own of record or beneficially Shares in consideration for a fee,
computed daily and paid monthly in the manner set forth in the Servicing
Agreements, at the annual rate of up to .25% of the average daily net asset
value of Shares owned of record or beneficially by such customers. Any bank,
trust company, thrift institution, broker-dealer (including without limitation,
the Trust's adviser, BISYS Fund Services Limited Partnership, d/b/a BISYS Fund
Services, and their affiliates) or other financial institution is eligible to
become a Service Organization and to receive fees under this Plan. All expenses
incurred by the Trust with respect to Shares of a particular class in connection
with the Servicing Agreements and the implementation of this Plan shall be borne
entirely by the holders of Shares of that class.
Section 2. So long as this Plan is in effect, the administrator shall
provide to the Trust's Board of Trustees, and the Trustees shall review, at
least quarterly, a written report of the amounts expended pursuant to this Plan
and the purposes for which such expenditures were made.
Section 3. The Plan shall not take effect with respect to the Shares of
a Fund until it has been approved, together with the form of the Servicing
Agreements, by a vote of a majority of the Trustees who are not "interested
persons" of the Trust (as defined in the Investment Company Act of 1940) and who
have no direct or indirect financial interest in the operation of this Plan or
in any agreements related to this Plan (the "Disinterested Trustees"), cast in
person at a meeting called for the purpose of voting on the Plan or such
Servicing Agreement, provided, however, that the Plan shall not be implemented
for a particular Fund prior to the effective date of the amendment to the
Trust's registration statement describing the Plan and its implementation with
respect to that Fund.
Section 4. Unless sooner terminated, this Plan shall continue until
June 30, 1999, and thereafter, shall continue automatically for successive
annual periods provided such continuance is approved at least annually by a
majority of the Board of Trustees, including a majority of the Disinterested
Trustees.
<PAGE> 2
Section 5. This Plan may be amended at any time with respect to any
Fund by the Board of Trustees, provided that any material amendments of the
terms of this Plan shall become effective only upon the approvals set forth in
Section 4.
Section 6. This Plan is terminable at any time with respect to any Fund
by vote of a majority of the Disinterested Trustees.
Section 7. While this Plan is in effect, the selection and nomination
of those Disinterested Trustees shall be committed to the discretion of the
Trust's Disinterested Trustees.
Section 8. This Plan has been adopted as of October 5, 1998.
Section 9. Governor Funds is a business trust organized under Delaware
law and under an Agreement and Declaration of Trust, to which reference is
hereby made and a copy of which is on file at the office of the Secretary of
State of Delaware as required by law, and to any and all amendments thereto so
filed or hereafter filed. The obligations of "Governor Funds" entered into in
the name or on behalf thereof by any of the Trustees, officers, employees or
agents are made not individually, but in such capacities, and are not binding
upon any of the Trustees, officers, employees, agents or shareholders of the
Trust personally, but bind only the assets of the Trust, and all persons dealing
with any of the Funds of the Trust must look solely to the assets of the Trust
belonging to such Fund for the enforcement of any claims against the Trust.
-2-
<PAGE> 3
GOVERNOR FUNDS
(the "Trust")
3435 Stelzer Road
Columbus, Ohio 43219
SERVICING AGREEMENT
to
ADMINISTRATIVE SERVICES PLAN
Ladies and Gentlemen:
We wish to enter into this Servicing Agreement with you concerning the
provision of administrative support services to your customers who may from time
to time be the record or beneficial owners of shares (such shares referred to
herein as the "Shares") of one or more of the Trust's investment portfolios
(individually, a "Fund" and collectively, the "Funds") , which are listed on
Appendix A.
The terms and conditions of this Servicing Agreement are as follows:
Section 1. You agree to provide the following administrative support
services to your customers who may from time to time own of record or
beneficially a Fund's Shares:* (i) processing dividend and distribution payments
from a Fund on behalf of customers; (ii) providing periodic statements to your
customers showing their positions in the Shares; (iii) arranging for bank wires;
(iv) responding to routine customer inquiries relating to services performed by
you; (v) providing sub-accounting with respect to the Shares beneficially owned
by your customers or the information necessary for sub-accounting; (vi) if
required by law, forwarding shareholder communications from a Fund (such as
proxies, shareholder reports, annual and semi-annual financial statements and
dividend, distribution and tax notices) to your customers; (vii) forwarding to
customers proxy statements and proxies containing any proposals regarding this
Agreement or the Administrative Services Plan related hereto; (viii) aggregating
and processing purchase, exchange, and redemption requests from customers and
placing net purchase, exchange, and redemption orders for your customers; (ix)
providing customers with a service that invests the assets of their accounts in
the Shares pursuant to specific or pre-authorized instructions; (x) establishing
and maintaining accounts and records relating to transactions in the Shares;
(xi) assisting customers in changing dividend or distribution options, account
designations and addresses; (xii) developing, maintaining and operating systems
necessary to support sweep accounts; or (xiii) other similar services if
requested by the Trust.
Section 2. You will provide such office space and equipment, telephone
facilities and personnel (which may be any part of the space, equipment and
facilities currently used in your
- ----------
* Services may be added or deleted in a particular Agreement.
<PAGE> 4
business, or any personnel employed by you) as may be reasonably necessary or
beneficial in order to provide the aforementioned services to customers.
Section 3. Neither you nor any of your officers, employees or agents
are authorized to make any representations concerning the Trust, a Fund or its
Shares except those contained in our then current prospectus for such shares,
copies of which will be supplied by BISYS Fund Services Limited Partnership,
d/b/a BISYS Fund Services ("BISYS"), the Trust's distributor, to you, or in such
supplemental literature or advertising as may be authorized by the Trust in
writing.
Section 4. For all purposes of this Agreement you will be deemed to be
an independent contractor, and will have no authority to act as agent for the
Trust in any matter or in any respect. By your written acceptance of this
Agreement, you agree to and do release, indemnify and hold us harmless from and
against any and all direct or indirect liabilities or losses resulting from
requests, directions, actions or inactions of or by you or your officers,
employees or agents regarding your responsibilities hereunder or the purchase,
redemption, transfer or registration of the Shares by or on behalf of customers.
You and your employees will, upon request, be available during normal business
hours to consult with the Trust or its designees concerning the performance of
your responsibilities under this Agreement.
Section 5. In consideration for the services and facilities provided by
you hereunder, the Trust will pay to you, and you will accept as full payment
therefore, a fee at the annual rate specified on Appendix A and based upon the
average daily net assets of a Fund's Shares owned of record or beneficially by
your customers from time to time for which you provide services hereunder, which
fee will be computed daily and payable monthly. The fee rate may be
prospectively increased or decreased by the Trust, in its sole discretion, at
any time upon notice to you. Further, the Trust may, in its discretion and
without notice, suspend or withdraw the sale of such Shares, including the sale
of such Shares to you for the account of any customer(s).
Section 6. Any person authorized to direct the disposition of monies
paid or payable by the Trust pursuant to this Agreement will provide to the
Trust's Board of Trustees, and the Trustees will review, at least quarterly, a
written report of the amounts so expended and the entities to whom such
expenditures were made. In addition, you will furnish the Trust or its designees
with such information as the Trust or its designees may reasonably request
(including, without limitation, periodic certifications confirming the provision
to customers of some or all of the services described herein), and will
otherwise cooperate with the Trust and its designees (including, without
limitation, any auditors designated by the Trust), in connection with the
preparation of reports to the Trust's Board of Trustees concerning this
Agreement and the monies paid or payable by the Trust pursuant hereto, as well
as any other reports or filings that may be required by law.
Section 7. We may enter into other similar Servicing Agreements with
any other person or persons without your consent.
Section 8. By your written acceptance of this Agreement, you represent,
warrant and agree that: (i) in no event will any of the services provided by you
hereunder be primarily
-2-
<PAGE> 5
intended to result in the sale of any shares issued by the Trust; (ii) the
compensation payable to you hereunder, together with any other compensation you
receive from customers for services contemplated by this Agreement, will be
fully disclosed to your customers, will be authorized by your customers and will
not be excessive or unreasonable under the laws and instruments governing your
relationships with your customers; and (iii) if you are subject to the
provisions of the Glass-Steagall Act and other laws governing, among other
things, the conduct of activities by federally chartered and supervised banks
and other affiliated banking organizations, you will perform only those
activities which are consistent with your statutory and regulatory obligations
and will act solely as agent for, upon the order of, and for the account of,
your customers.
Section 9. This Agreement will become effective on the date a fully
executed copy of this Agreement is received by the Trust or its designee. This
Agreement may be terminated at any time, without the payment of any penalty with
respect to a Fund by the Trust (which termination may be by vote of a majority
of the members of the Board of Trustees of the Trust and who have no direct or
indirect financial interest in the operation of the Administrative Servicing
Plan or in any related agreements to the Administrative Servicing Plan
("Disinterested Trustees") or by a majority of the outstanding voting securities
of that Fund) on notice to you.
Section 10. All notices and other communications to either you or the
Trust will be duly given if mailed, telegraphed, telexed or transmitted by
similar telecommunications device to the appropriate address shown in this
Agreement.
Section 11. This Agreement will be construed in accordance with the
laws of the State of Delaware and is non-assignable by the parties hereto.
Section 12. This Agreement, or form thereof, has been approved by vote
of a majority of (i) the Trust's Board of Trustees and (ii) the Disinterested
Trustees, cast in person at a meeting called for the purpose of voting on such
approval.
Section 13. Governor Funds is a business trust organized under Delaware
law and under an Agreement and Declaration of Trust, to which reference is
hereby made and a copy of which is on file at the office of the Secretary of
State of Delaware as required by law, and to any and all amendments thereto so
filed or hereafter filed. The obligations of "Governor Funds" entered into in
the name or on behalf thereof by any of the Trustees, officers, employees or
agents are made not individually, but in such capacities, and are not binding
upon any of the Trustees, officers, employees, agents or shareholders of the
Trust personally, but bind only the assets of the Trust and all persons dealing
with any of the Funds of the Trust must look solely to the assets of the Trust
belonging to such Fund for the enforcement of any claims against the Trust.
Section 14. You represent and warrant that all services rendered and
all computer systems used in the performance of your obligations under this
Agreement shall be Year 2000 Compliant. "Year 2000 Compliant" means that the
services and systems are designed to and shall:
(a) operate in the year 2000 and later with four digit year date
capability;
-3-
<PAGE> 6
(b) operate fault-free in the processing of date and date-dependant
data before, during and after January 1, 2000, including but not
limited to accepting date input, providing date output, and performing
date calculations, comparison and sequencing;
(c) function accurately and without interruption before, during, and
after January 1, 2000, without any adverse effect on operations and
associated with the advent of the new century; and
(d) store and provide output of date information in ways that are
unambiguous as to century.
The representations and warranties contained herein may not be disclaimed or
limited by operation of law.
If you agree to be legally bound by the provisions of this Agreement,
please sign a copy of this letter where indicated below and promptly return it
to the Trust's designee, BISYS Fund Services Limited Partnership, d/b/a BISYS
Fund Services, c/o _______________ at 3435 Stelzer Road, Columbus, Ohio 43219.
Very truly yours,
GOVERNOR FUNDS
By:_______________________________
(name) (title)
Date:
Accepted and Agreed to:
__________________________________
By:_______________________________
Authorized Officer, Title
Date:
__________________________________
Taxpayer Identification Number
-4-
<PAGE> 7
APPENDIX A
<TABLE>
<CAPTION>
NAME OF FUND FEE
- ------------ ---
<S> <C>
Prime Money Market Fund %
U.S. Treasury Obligations Money Market Fund %
Established Growth Fund %
Aggressive Growth Fund %
Emerging Growth Fund %
International Equity Fund %
Intermediate Term Income Fund %
Limited Term Duration Government Securities Fund %
Pennsylvania Municipal Bond Fund %
Lifestyle Conservative Growth Fund %
Lifestyle Moderate Growth Fund %
Lifestyle Growth Fund %
</TABLE>
<PAGE> 1
GOVERNOR FUNDS
EXHIBIT 16
TOTAL RETURN
U.S. TREASURY OBLIGATIONS MONEY MARKET
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
---------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 07/01/97 TO 09/30/97 ):
1,011.96 /1,000) - 1 = 1.20%
QUARTERLY: ( 07/01/97 TO 09/30/97 ):
1,012.00 /1,000) - 1 = 1.20%
MONTHLY: ( 09/01/97 TO 09/30/97 ):
1,004.20 /1,000) - 1 = 0.42%
SINCE INCEPTION: ( 07/01/97 TO 09/30/97 ):
1,011.96 /1,000) - 1 = 1.20%
<PAGE> 2
GOVERNOR FUNDS
EXHIBIT 16
TOTAL RETURN
***LIMITED DURATION GOVERNMENT SECURITIES FUND***
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
---------------------------
T = (ERV/P)<1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 10/31/95 TO 09/30/97 ):
( 1,097.70 /1,000<(1/( 701 /365))-1) = 4.97%
ONE YEAR: ( 10/01/96 TO 09/30/97 ):
( 1,051.70 /1,000) - 1 = 5.17%
----------------------------------------------------------------------
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 09/30/97 ):
1,038.50 /1,000) - 1 = 3.85%
QUARTERLY: ( 07/01/97 TO 09/30/97 ):
1,013.60 /1,000) - 1 = 1.36%
MONTHLY: ( 09/01/97 TO 09/30/97 ):
1,005.70 /1,000) - 1 = 0.57%
SIX MONTH: ( 04/01/97 TO 09/30/97 ):
1,029.80 /1,000) - 1 = 2.98%
SINCE INCEPTION: ( 10/31/95 TO 09/30/97 ):
1,098.00 /1,000) - 1 = 9.80%
***Based on trust fund data***
<PAGE> 3
GOVERNOR FUNDS
EXHIBIT 16
TOTAL RETURN
***LIMITED DURATION GOVERNMENT SECURITIES FUND***
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 3.00%
---------------------------
T = (ERV/P)<1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 10/31/95 TO 09/30/97 ):
( 1,064.89 /1,000<(1/( 702 /365))-1) = 3.31%
ONE YEAR: ( 10/01/96 TO 09/30/97 ):
( 1,019.70 /1,000) - 1 = 1.97%
----------------------------------------------------------------------
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 3.00%
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 09/30/97 ):
1,003.50 /1,000) - 1 = 0.35%
QUARTERLY: ( 07/01/97 TO 09/30/97 ):
983.10 /1,000) - 1 = -1.69%
MONTHLY: ( 09/01/97 TO 09/30/97 ):
975.40 /1,000) - 1 = -2.46%
SIX MONTH: ( 04/01/97 TO 09/30/97 ):
999.60 /1,000) - 1 = -0.04%
SINCE INCEPTION: ( 10/31/95 TO 09/30/97 ):
1,064.69 /1,000) - 1 = 6.47%
***Based on trust fund data***
<PAGE> 4
GOVERNOR FUNDS
EXHIBIT 16
TOTAL RETURN
AGGRESSIVE GROWTH FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 4.50%
- ----------------------------
T = (ERV/P)<1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
<TABLE>
<S> <C>
SINCE INCEPTION: ( 07/01/94 TO 06/30/97 ):
( 1,678.03 /1,000 <(1/( 1096 /365))-1) = 18.81%
ONE YEAR: ( 07/01/96 TO 06/30/97 ):
( 1,103.60 /1,000) - 1 = 10.36%
TWO YEAR: ( 07/01/95 TO 06/30/97 ):
( 1,389.00 /1,000 <(1/( 730 /365))-1) = 17.86%
</TABLE>
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 4.50%
- ----------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 06/30/97 ):
1,039.80 /1,000) - 1 = 3.98%
QUARTERLY: ( 04/01/97 TO 06/30/97 ):
1,090.80 /1,000) - 1 = 9.08%
MONTHLY: ( 06/01/97 TO 06/30/97 ):
978.30 /1,000) - 1 = -2.17%
SIX MONTH: ( 01/01/97 TO 06/30/97 ):
1,039.80 /1,000) - 1 = 3.98%
SINCE INCEPTION: ( 07/01/94 TO 06/30/97 ):
1,678.03 /1,000) - 1 = 67.80%
<PAGE> 5
GOVERNOR FUNDS
EXHIBIT 16
TOTAL RETURN
PA MUNICIPAL BOND FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 4.50%
- -----------------------------
T = (ERV/P) <1/N = 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 10/01/96 TO 06/30/97 ):
( 993.13/1,000)-1 -0.69%
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 4.50%
- -----------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 06/30/97 ):
970.10/1,000) - 1 = -2.99%
QUARTERLY: ( 04/01/97 TO 06/30/97 ):
973.30/1,000) - 1 = -2.67%
MONTHLY: ( 06/01/97 TO 06/30/97 ):
961.30/1,000) - 1 = -3.87%
SIX MONTH: ( 01/01/97 TO 06/30/97 ):
970.10/1,000) - 1 = -2.99%
SINCE INCEPTION: ( 10/01/96 TO 06/30/97 ):
993.13/1,000) - 1 = -0.69%
<PAGE> 6
GOVERNOR FUNDS
EXHIBIT 16
TOTAL RETURN
ESTABLISHED GROWTH FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 4.50%
- ------------------------------
T = (ERV/P) <1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 01/01/95 TO 06/30/97 ):
( 1,875.00/1,000 <(1/( 911 /365))-1) = 28.64%
ONE YEAR: ( 07/01/96 TO 06/30/97 ):
( 1,219.60/1,000) - 1 = 21.96%
TWO YEAR: ( 07/01/95 TO 06/30/97 ):
( 1,543.25/1,000 <(1/( 730 /365))-1) = 24.23%
- -------------------------
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 4.50%
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 06/30/97 ):
1,090.70/1,000) - 1 = 9.07%
QUARTERLY: ( 04/01/97 TO 06/30/97 ):
1,087.50/1,000) - 1 = 8.75%
MONTHLY: ( 06/01/97 TO 06/30/97 ):
986.60/1,000) - 1 = -1.34%
SIX MONTH: ( 01/01/97 TO 06/30/97 ):
1,090.70/1,000) - 1 = 9.07%
SINCE INCEPTION: ( 01/01/95 TO 06/30/97 ):
1875 /1,000) - 1 = 87.50%
<PAGE> 7
GOVERNOR FUNDS
EXHIBIT 16
TOTAL RETURN
INTERMEDIATE TERM INCOME FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 4.50%
- ------------------------------
T = (ERV/P) <1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 11/30/96 TO 06/30/97 ):
( 968.44/1,000)-1 -3.16%
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 4.50%
- ----------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 06/30/97 ):
975.20/1,000) - 1 = -2.48%
QUARTERLY: ( 04/01/97 TO 06/30/97 ):
981.30/1,000) - 1 = -1.87%
MONTHLY: ( 06/01/97 TO 06/30/97 ):
963.90/1,000) - 1 = -3.61%
SINCE INCEPTION: ( 11/30/96 TO 06/30/97 ):
968.44/1,000) - 1 = -3.16%
<PAGE> 8
GOVERNOR FUNDS
EXHIBIT 16
TOTAL RETURN
PRIME MONEY MARKET FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
- ------------------------------------
T = (ERV/P)<1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 10/07/96 TO 06/30/97):
( 1,037.29/1,000)-1 3.73%
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
- -----------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 06/30/97):
1,025.30/1,000) - 1 = 2.53%
QUARTERLY: ( 04/01/97 TO 06/30/97):
1,012.70/1,000) - 1 = 1.27%
MONTHLY: ( 06/01/97 TO 06/30/97):
1,004.20/1,000) - 1 = 0.42%
SIX MONTH: ( 01/01/97 TO 06/30/97):
1,025.30/1,000) - 1 = 2.53%
SINCE INCEPTION: ( 10/07/96 TO 06/30/97):
1,037.29/1,000) - 1 = 3.73%
<PAGE> 9
GOVERNOR FUNDS
EXHIBIT 16
TOTAL RETURN
PA MUNI
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
- -----------------------------------
T = (ERV/P) <1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
SINCE INCEPTION: ( 10/01/96 TO 06/30/97 ):
( 1,039./1,000)-1 3.98%
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
- ---------------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 06/30/97 ):
1,016.10/1,000) - 1 = 1.61%
QUARTERLY: ( 04/01/97 TO 06/30/97 ):
1,019.10/1,000) - 1 = 1.91%
MONTHLY: ( 06/01/97 TO 06/30/97 ):
1,006.20/1,000) - 1 = 0.62%
SIX MONTH: ( 01/01/97 TO 06/30/97 ):
1,016.10/1,000) - 1 = 1.61%
SINCE INCEPTION: ( 10/01/96 TO 06/30/97 ):
1,039.83/1,000) - 1 = 3.98%
<PAGE> 10
GOVERNOR FUNDS
EXHIBIT 16
TOTAL RETURN
ESTABLISHED GROWTH FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
- -------------------------------
T = (ERV/P) RAISED <1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
<TABLE>
<CAPTION>
EXAMPLE:
<S> <C>
SINCE INCEPTION: ( 01/01/95 TO 06/30/97):
( 1,965.14 /1,000 <(1/(912 /365))-1)= 31.05%
ONE YEAR: ( 07/01/96 TO 06/30/97):
( 1,276.00 /1,000) - 1 = 27.60%
TWO YEAR: ( 07/01/95 TO 06/30/97):
( 1,617.00 /1,000 <(1/(730 /365))-1)= 27.16%
</TABLE>
- --------------------------------
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 06/30/97 ):
1,141.80 /1,000) - 1 = 14.18%
QUARTERLY: ( 04/01/97 TO 06/30/97 ):
1,138.60 /1,000) - 1 = 13.86%
MONTHLY: ( 06/01/97 TO 06/30/97 ):
1,033.10 /1,000) - 1 = 3.31%
SIX MONTH: ( 01/01/97 TO 06/30/97 ):
1,141.80 /1,000) - 1 = 14.18%
SINCE INCEPTION: ( 01/01/95 TO 06/30/97 ):
1965.14 /1,000) - 1 = 96.51%
<PAGE> 11
GOVERNOR FUNDS
EXHIBIT 16
TOTAL RETURN
INTERMEDIATE TERM INCOME FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
- --------------------------------
T = (ERV/P) <1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
EXAMPLE:
[S] [C]
SINCE INCEPTION: ( 11/30/96 TO 06/30/97 ):
( 1,013.95 /1,000)-1 1.40%
- --------------------------------
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 06/30/97 ):
1,021.60 /1,000) - 1 = 2.16%
QUARTERLY: ( 04/01/97 TO 06/30/97 ):
1,027.90 /1,000) - 1 = 2.79%
MONTHLY: ( 06/01/97 TO 06/30/97 ):
1,009.50 /1,000) - 1 = 0.95%
SIX MONTH: ( 01/01/97 TO 06/30/97 ):
1,021.60 /1,000) - 1 = 2.16%
SINCE INCEPTION: ( 11/30/96 TO 06/30/97 ):
1,013.95 /1,000) - 1 = 1.40%
<PAGE> 12
GOVERNOR FUNDS
EXHIBIT 16
TOTAL RETURN
AGGRESSIVE GROWTH FUND
AVERAGE ANNUAL TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
- --------------------------------
T = (ERV/P) <1/N - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
N = NUMBER OF DAYS
<TABLE>
<CAPTION>
EXAMPLE:
<S> <C>
SINCE INCEPTION: ( 07/01/94 TO 06/30/97 ):
( 1,756.23 /1,000 <(1/( 1096 /365))-1) = 20.63%
ONE YEAR: ( 07/01/96 TO 06/30/97 ):
( 1,155.20 /1,000) - 1 = 15.52%
TWO YEAR: ( 07/01/95 TO 06/30/97 ):
( 1,453.75 /1,000 < (1/( 730 /365))-1) = 20.57%
</TABLE>
AGGREGATE TOTAL RETURN
WITH SALES CHARGE OF: 0.00%
- -------------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = ENDING REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL PAYMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 01/01/97 TO 06/30/97 ):
1,088.90 /1,000) - 1 = 8.89%
QUARTERLY: ( 04/01/97 TO 06/30/97 ):
1,141.90 /1,000) - 1 = 14.19%
MONTHLY: ( 06/01/97 TO 06/30/97 ):
1,024.30 /1,000) - 1 = 2.43%
SIX MONTH: ( 01/01/97 TO 06/30/97 ):
1,088.90 /1,000) - 1 = 8.89%
SINCE INCEPTION: ( 07/01/94 TO 06/30/97 ):
1,756.23 /1,000) - 1 = 75.62%
<PAGE> 1
EXHIBIT (18)
Note: This Plan permits more than one class in the Prime Money Market Fund.
The Plan is substantially the same as that used by another mutual fund
client of Fund counsel.
Governor Funds
Plan in Accordance with Rule 18f-3
(the "Plan")
October 5, 1998
This Plan is applicable to the Prime Money Market Fund (the "Fund") of
Governor Funds (the "Trust").
Each class of shares of the Fund will have the same relative rights and
privileges and be subject to the same fees and expenses except as set forth
below. In addition, extraordinary expenses attributable to one or more classes
shall be borne by such classes. The Board of Trustees may determine in the
future that other allocations of expenses or other services to be provided to a
class of shares are appropriate and amend this Plan accordingly without the
approval of shareholders of any class. Except as set forth in the Fund's
prospectus, shares may be exchanged for shares of another fund of the Trust.
INVESTOR SHARES
Investor Shares are sold at net asset value without a sales charge and
are subject to the minimum purchase requirements set forth in the Fund's
prospectus. Investor Shares may be purchased through procedures established by
the Trust's distributor in connection with the requirements of qualified
accounts maintained by or on behalf of certain persons by the Trust's advisor or
sub-advisor or their affiliates or their correspondent entities. Investor Shares
are subject to a fee under an Administrative Services Plan. Holders of Investor
Shares have exclusive voting rights, if any, with respect to the Administrative
Services Plan as it relates to Investor Shares. Certain holders of Investor
Shares shall be entitled to the shareholder services under the Administrative
Services Plan set forth from time to time in the Fund's prospectus.
S SHARES
S Shares are sold at net asset value without a sales charge and are
subject to the minimum purchase requirements set forth in the Fund's prospectus.
S Shares of the Fund are offered to customers of Keystone Financial, Inc., any
of its banking affiliates or service organizations that establish cash
management services, such as a sweep account with any of them. S Shares are
subject to a fee under an Administrative Services Plan. Holders of S Shares have
exclusive voting rights, if any, with respect to the Administrative Services
Plan as it relates to S Shares. Certain holders of S Shares shall be entitled to
the shareholder services under the Administrative Service S Plan set forth from
time to time in the Fund's prospectus.
